BitCoins - a real, alternative currency with a market?

Anonymity allows for online markets that were previously a lot harder to achieve: https://ianxz6zefk72ulzz.tor2web.org/

They could make that one step less confusing by just attaching a protocol scheme (coin://1Nqr...), so that users could click on a labelled link instead. They could make it two steps simpler by making it work like OpenID, where a URL can defer its bit coin "alternate" using a <link> tag—so you could just enter someone's web address in your bit coin client, and be able to push coins to them that way.

A list of merchants that accept bitcoin:

https://en.bitcoin.it/wiki/Trade

I'd assume one could use a DNS like resolver for named addresses considering bitcoin allows IP addresses...

There is a finite amount of gold on the planet as well, and in all of human history we've only mined something like $7-8 trillion dollars worth.

That's only half the GDP of the entire U.S. for 2009, and we don't even control most of it (something like 12-15% in various reserves).

Look at the price of gold now, it's over $1,000 an ounce. Either the USD has inflated dramatically since 1970 when an ounce of gold was only worth $40, or gold has skyrocketed because of scarcity (or both).

Point being, bitcoins could very well end up being worth $10 or even $100 each as the years go by, or higher. At a factor of 100 that's $2.1 billion USD worth of bitcoins.

Are they worth that much? Maybe, gold and USD aren't worth anything at all until someone is willing to accept them in trade, and people are definitely accepting bitcoins in trade right now.

BitCoin is certainly a real currency in the sense that it is traded by people, even in exchange for real goods and services. As for whether it is something to watch depends on where you're coming from.

The problem of BitCoin is that of adoption. The US$ is a viable currency because the US government is able to force a US$-denominated debt onto people via taxation. This creates demand for US$, which causes people to offer goods and services in exchange for US$. Of course, once a currency is established, the circular/recursive reasoning of "you work for US$ because you can use them to buy groceries at your favourite supermarket, because the supermarket must pay its suppliers in US$, because the suppliers pay their employees, i.e. you, in US$" largely takes over. Take the base case of enforced debt away and the currency keeps working a while longer in Wile E. Coyote fashion, but at the first sign of serious doubt as to the currency's value it will inflate into worthless paper, even when the "total amount" of paper remains unchanged.

There is nobody who can force BitCoin-denominated debt onto anybody, and so it's unclear how BitCoin could ever take off. It certainly has appeal to a fringe group of libertarians, but I see no mechanism by which it could possibly spread beyond that.

It is true that BitCoin has some appealing feature through its distributed nature. Making small transactions between peers easier is definitely appealing - it's what makes services like M-PESA sell like sliced bread. However, BitCoin has the enormous disadvantage of not being convertible to US$ in the sense that when you want to use BitCoin, you are dealing with exchange rate risks. I would bet that this makes it too inconvenient for the majority of the population to ever take off.

We can spin this further and ask what would happen if, despite all difficulties, BitCoin would ever find widespread adoption. If all prices are denominated in BitCoin, then the exchange rate risk is no longer a problem for average people. But then the economy would face the same problems that plagued gold-based economies, in particular frequent recessions. The historical cycle of monetary development would be likely to repeat itself: People would start introducing paper moneys that leverage BitCoins, frequent bank run would happen until the establishment of a new, BitCoin-based central bank. Eventually, convertibility of the new de facto currencies to BitCoin would be dropped, reverting to pure fiat money.

From a public policy perspective, it is desirable to skip that cycle and just stick with fiat money. Most likely though, the question won't even come up, because BitCoin cannot really gain traction without government intervention in the first place.

From a hacker perspective, the more interesting question is: What problem do people actually face in their daily lives? I am sure there are payment-related problems that can be fixed, but my feeling is the solution is more along the lines of M-PESA, working within the currencies that people are already used to.

From a monetary economics perspective, it is an interesting experiment that may one day be used as empirical evidence for one or the other theory on money.

Sorry, ATI/AMD has that market sewn up.

By which you mean: this bitcoin thingy is analogous to the gold rush in which the miners make no money. Is this an educated assessment or a quick bit of sarcasm? Happy either way, just trying to understand whether Bitcoins are worth paying attention to...

If you were generating bitcoins, and wanted to make them worth more so as to increase the value of your own CPU-time investment, you could always back them with real money—i.e. establish yourself as a micro-exchange where a certain number of bitcoins will be accepted and a certain number of real USD/EUR/whatever else given back. This would increase the stability and trustworthiness of the bitcoin network as a whole, meaning bitcoin demand would increase—meaning their exchange rate would increase.

Thus, a good second-order solution would be to realize people will inevitably want to build such micro-exchanges—and sell them software that builds them! (Or give it to them for free, but make it charge them transaction fees, etc.) Remember to make it SaaS, though—otherwise, you're just asking for a 100% piracy rate on this sort of thing.

And if you think the government could shut your SaaS down for breaking some trade regulation—well, stop running the SaaS, and instead run a third-order company that allows other, likely non-US-based companies run SaaS exchange-providers. Then build an aggregator with trust-metrics.

Using the #t hash anchor works well for this kind of thing...

http://www.youtube.com/watch?v=XQPSwA2Itbs#t=2516s

Liberty Dollar was busted for counterfeiting, because their coins looked too much like legal tender.

e-gold was busted for violating Know Your Customer money laundering regulations.

Alternative currencies can be legal-- see, for example, Disney Bucks (paper currency issued by Disney) or Ithaca Hours (oldest local currency in the US, going since 1991).

  Note that it is illegal in the US to use an alternate currency.

Your position appears to be unsupported by legislation.

31 U.S.C. 5103: (from http://www.treasury.gov/resource-center/faqs/Currency/Pages/... )

  United States coins and currency (including Federal reserve notes and 
  circulating notes of Federal reserve banks and national banks) are legal 
  tender for all debts, public charges, taxes, and dues.

As I wrote three months ago, ( http://bbot.org/blog/archives/2010/12/11/encrypting_a_better... ) the Americans may make it hard on Bitcoin to operate for a variety of other reasons, (for one, it's inherently hard to track the movement of money in the Bitcoin network, making it great for laundering money) but Bitcoin does not appear to be prima facie illegal, on the basis of being an alternative currency.

You have to pay taxes in USD, but simply doing business in another currency is not illegal.

As for "raiding and shutting it down"; difficult, but not entirely impossible. There's only one primary developer, and the network is coordinated through a single irc channel. (#bitcoin @ irc.lfnet.org) You could order him to shut down bitcoin.org, and close the irc channel; but Bitcoin is open source, and a more censorship-resistant client could be hacked together.

Raid what? There is no central authority with bitcoins that can be shut down. They could go after exchanges I suppose, but exchanges aren't really necessary for there to be a functional economy built around bitcoins.

Really? There are plenty of southern towns that have their own currency in addition to the USD. I suspect the situation is more complex than you imply.

Bitcoin's existence is insuppressible. It is a peer-to-peer network with no central authority or server that can be shut down.

The worst a government can do is declare it illegal.

I was about to post the same thing. However, the USA is not the only jurisdiction in the world -- are there others that would allow something like this?

What if all software and hardware are offshore (i.e. in Switzerland or something)?

You can ask around in the #bitcoin-otc channel on Freenode to get an idea of who's considered reputable. I understand Bitcoin4Cash is generally well-regarded.

The cryptographic problem is finding a nonce that, when concatenated with current transactions, gives a SHA256 hash below a certain value. Not sure about quantum vulnerabilities.