Low transaction fees are nice but why not use something like Dwolla which is dollar denominated?
The "mining" concept also confuses me. Is the currency backed by CPU cycles? If so, what are the CPU cycles being used for?
Bitcoin is not backed by anything. CPU cycles are used to ensure the security of the system.
Low transaction fees are nice but why not use something like Dwolla which is dollar denominated?
That's like comparing eggs to chickens. Bitcoin is more than just a transaction clearing house, but also a currency that is completely separated from the control of governments and traditional banking institution.
The advantage of bitcoin is that anybody on the planet can use it. I can send you bitcoin just as easily across the street or halfway around the world. Bitcoins cannot be frozen as easily as your bank accounts can be frozen. There's also the fact that bitcoin cannot fail due to one single company.
Not quite sure what the appeal is here?
It appeals a lot to technogeeks who happens to also be libertarians, people who worries about economic policies of governments, and so on.
But bitcoin in my opinion can facilitate greater efficiency in the world economy by making it easier to transfer capitals across border. That alone is valuable.
I fit that description and agree that private currencies such as Bitcoin would be awesome, but aren't there laws in place to secure the government's monopoly on money? ( http://www.lewrockwell.com/paul/paul619.html )
Does Bitcoin circumvent these laws by being completely virtual?
Simply put, money is whatever market participants agree on.
Money is whatever the market participants agree on, and laws are whatever the government agrees on.
Of course, BitCoins are easily trackable, thus doomed. It was possible, though, to design them without this property, ensuring that costs of tracking offset the potential tax gains.
EDIT: It would be fun to consider the arbitrage opportunities rendered possible by such sales tax.
The more cryptographic hashing calculations that your hardware can perform, the more likely you'll earn the currency "generation" reward. The reward is issued roughly once every ten minutes. All the miners are competing to become the recipient of that next reward.
Because there is no central authority, the currency is protected by the network. The more mining activity, the less likely an adversary could mess with the payment network's transactions. Now that Bitcoin is among the largest distributed computing networks that exist, corralling the necessary computing power to act as an adversary is becoming something that is more and more difficult.
Also, when you receive Dwolla as payment and want to spend that money using your bank ATM/debit card, after you withdraw funds it then takes a couple days for those funds to reach your bank (via ACH).
For now, Dwolla is available for U.S. accounts only as well. Bitcoin has no such limitations -- it is just software and a network protocol.
One of the big advantage of bitcoin as I see it is that it is not pinned to a single country, it is a truly international currency. Pegging it to the dollar would reduce its attractiveness for many people.
If so, what are the CPU cycles being used for? Essentially nothing. Just doing time consuimg calculations. Makes it hard to fake.