Online Cash Bitcoin could Challenge Governments, Banks
techland.time.com
techland.time.com
* preventing transactions they don't agree with
* inflating savings away
* freezing bank accounts of adversaries
* seizing cash at security checkpointsMoreover, aside from inflation, the other abuses you list are essentially abuses of power and if governments maintain power - their official monopoly of force and violence, they will continue to be able to engage in these other actions.
EI, I don't think there is any imaginable electronic currency that couldn't be "taken" from you if a group of armed men burst in, seized your computer and demanded your passwords. And if bitcoins became ubiquitous, the state certainly would believe that you owed taxes on your bitcoin transactions and it would send it's armed-men to collect.
Edit: grammar
While I don't necessarily advocate a society using gold-money, it's an example of a situation where the state couldn't directly control the currency. A state in such a society could still tax and arbitrarily confiscate money but it couldn't create inflation (well, under normal circumstances...).
True this would currently require a lot more security consciousness than most people have, but conceivably all the necessary features could be built into a bitcoin client.
This fact might make bit coin less appealing than cash for many things where anonymity is important.
(Also, Whether having public transactions would be enough to make the transaction "work" would be a different question - what happens when you don't delivery the promised goods - but that's a different question).
From what I remember, the default of the GUI, at least, is to generate you a new receive address as soon as you receive something on your current address. That should remove a lot of the problems of tracking net worth.
Without a public "audit trail", the problem of re-using bitcoins (which are just numbers) you hypothetically "spent" would clearly unsolvable (though I'm doubtful if you could truly free of this problem even with the public audit trail).
I wouldn't be so quick to judge. What if you are the one who doesn't understand? It's just a conversation, leave the door open that you might learn something too.
You are correct that there is an audit trail, but it's somewhat anonymous. Every time I get paid, I can generate a new BTC address, and I have a new chunk of money that's potentially anonymous. Unless the person who paid me spills the beans, no one knows that I have that money, and even if you could figure out what that money was spent on, you still wouldn't be able to connect it back to me, without the help of the person who paid me.
You could also use some sort of network/behavior analysis to guess who was using the money, but that's far from "trivial". And it requires that you already know who is behind quite a large percentage of transactions, so there's a bit of a bootstrapping problem.
Yeah, that was kind of my point, too. I mean obviously it's audit-able, but how much does that help when each and every transaction that I partake in is in its own little 'world', unlinked with any other transaction? And in fact, as I commented earlier, the GUI at least will generate you a new address automatically after each transaction, just to make that whole process easier.
I would be more credulous if you could show a path from me, say, working for someone to me, say buying something at a store and show that I couldn't say, buying two of that something by doing two different anonymous transactions.
- My argument is that the factor prevents me from using my information twice is the factor that identifies me (how does X know that "coin" Y belongs to Z? - The audit trail - if the audit trail can't show this, the whole app break. If the audit trail does show this, the state can figure things out).
Once I'm identified by other bitcoin participants, I'm identified by everyone and so the state will say "hey, you're transacting, you owe taxes"...
Otherwise, the only thing you know about the owner of 19FD9iREicdxheyt654FD6fsgdsfh is approximately what planet they live on.
John Law introduced paper money into France by getting the government to accept it for paying taxes. Every Frenchman and woman was confident the state, no matter who took over, would still collect taxes. And the state, knowing the currency was valuable to everyone--even foreigners, could also use it.
Where's my confidence that people will desire a bitcoin in future? Even if, say, every Starbucks in every country started accepting them, it'd only be as valuable as the trend for coffee and the stability of Starbucks. Could I, when planning a mortgage, bet on Starbucks' popularity over 25 years?
I can see how game currencies can come about. But the market for these games is limited and ephemeral in the long run. If you want to compete with banks, you need to think about long term confidence. I've yet to hear how Bitcoin, or any other startup currency, solves this problem.
Now confidence has grown significantly, and the whole bitcoin economy is worth approximately 5 million dollars.
I wouldn't bet my life savings on it yet, but I find that already pretty good for something that has less than five years, and isn't backed by anything.
If a number of investors have enough invested in the system that their investment become worth more to them than maintaining the bitcoin system and some event decreases the confidence in the system, then those investors will attempt to "liquidate" their holdings. Whether they succeed or fail, the impact on the system will likely be terminal since there wouldn't be any entity ready to step in and buy unwanted bitcoins.
This is important if you want to hold lots of Bitcoins. if you just want to use them as a medium of exchange, without holding large amounts, it's less important.
Infinite coins would tie the value to the opportunity cost of computation, which is actually a really cool idea. Inflation based on the log of moore's law would ensure a steady inflationary rate based on computing power. This would deter speculators and incentivize innovation in computing power in order to more efficiently mine currency.
My hunch is that an uncapped bitcoin competitor would have a more difficult time getting off the ground, since the finite nature of bitcoins favors the first mover.
Without speculation it's a product/service no one wants (because it has no value or potential), by definition.
Before today Bitcoin was "just" interesting to me, after reading this I now see the potential it has.
I think I'm going to run an experiment and also accept payment for my product in Bitcoins: http://www.devside.net/server/webdeveloper
It would be better to have small, fixed, predictable inflation, and pay the infrastructure with that (that is, with the newly generated money).
It worked in ancient Egypt. There was a currency that was more or less a receipt on stored grain. That "money" lost value over time due to storage costs and loss to decay and rodents. That inflation stimulated trade.
Currencies with so-called demurrage worked wonders in middle-century central Europe until they were banned.
http://en.wikipedia.org/wiki/Demurrage_%28currency%29
(I'm basically parroting Bernard Lietaer [which google for] here.)
The second fallacy is that 'hoarding' (long term saving, in other words) is a problem for an economy. It simply demonstrates a longer term time preference, which is actually necessary for larger and more complex uses of capital which can often take 10-20 years of investment and planning to pay off. It is axiomatic that the only purpose for hoarding cash is to eventually spend it. Trying to eliminate this 'problem' by confiscating wealth through inflation is both short-sighted and immoral.
By the way the term I think you mean is "quantity demanded" with respect to price, "demand" is invariant to price.
Under deflation average income decreases. It's not like everyone is suddenly richer. Your employer gets less money, and so has to pay you less, or lay off a portion of their workforce. The price of labor is a price like any other.
Assuming a fixed money supply, hoarding currency will cause deflation. Hoarding currency takes money out of the money supply. Saving by making investments is different; the money is still participating in the economy. Deflation discourages investment in useful activity. If you can earn a 5% rate of return just for already having money, why bother with a investment could return 5% or less?
Deflation is only a sign of distress historically when preceded by government-induced monetary expansion. A boom causes a bust.
Wages are sticky so moderate deflation strongly benefits workers. Both wages and savings will gradually increase in purchasing power. Inflation punishes the lower classes disproportionately for the same reasons. It is the primary driver of income inequality in the world.
That anyone has been convinced a massive counterfeiting scheme in their currency is doing them a favor is a monumental feat of propaganda.
"The Great Deflation or the Great Sag refers to the period from 1870 until 1890 in which world prices of goods, materials and labor decreased.This had a negative effect on established industrial economies such as Great Britain while simultaneously allowing incredible growth in the United States which was just beginning to industrialize. Deflation has historically been more associated with recession, than growth, but this is one of the few sustained periods of deflationary growth in the history of the United States."
http://en.wikipedia.org/wiki/The_Great_Deflation
This clearly refutes your statement:
"Deflation is almost invariably a sign of economic distress."
Perhaps deflation isn't traditionally associated with growth, but it clearly can be and has been in history. Note 'one of the few'. Deflationary growth isn't that rare of a phenomenon in history, though its rarity will be inversely proportional to the prevalence of central banking, monetary expansion, and economic authoritarianism. The market's had an uphill battle.
In general, deflations associated with recessions will also be associated with reckless monetary expansion. Including this form of deflation in statistics can be misleading. Its cause is entirely different from the cause of gradual, moderate deflation as the natural result of an expanding economy with limited currency.
If that was true, then economies that use gold and silver as currency, and where there isn't a large supply of new money, there wouldn't be much income inequality. But there was plenty of income inequality in ancient Rome, and in most ancient despotisms. So I suspect your hypothesis is wrong.
"The problem of debasement in the Roman economy appears to be pervasive, although the severity of the debasement often paralleled the strength or weakness of the Empire."
http://en.wikipedia.org/wiki/Roman_currency
Political authoritarianism, corruption, direct taxation, seizure, and military plunder are also effective ways for a ruling class to steal from the rest, so you can certainly have terrible inequality in societies with sound currency, but inflation is the most efficient and covert method, and has been the most popular way for governments and their corporate allies to gain at the expense of the world's poor and middle class in the last 100 years.
There is a psychology that iPads, and to an even greater extent iPhones, are a short life time product. So their price in a couple of years does not matter. Buying one now will not prevent you from buying one at the cheaper price in a couple of years as well.
Exactly. No one actually hoards cash. Why would they? There is an enormous incentive to make idle money useful. But the greater point is: even if they do, so what? The money will be utilized at some point. That's what it's for. Why is it better used now than in the future? What is the 'correct' ratio of savings to immediate consumption? Given that you're unlikely to provide a convincing answer to this, wouldn't it be reasonable to let the owners of the money determine its allocation?
"There is a psychology that iPads, and to an even greater extent iPhones, are a short life time product. So their price in a couple of years does not matter. Buying one now will not prevent you from buying one at the cheaper price in a couple of years as well."
This is because the iPad's price falls and its quality increases. If each new iPad were twice the cost for the same performance, I don't think the lines at the Apple Store would get quite as long.
No, because they gain utility from the use of their iPad for the next couple years which they deem to be greater than the dollar value the iPad has lost due to depreciation. Furthermore, if their cash was earning interest they would have less incentive to buy iPads because the utility of 2 years' iPad use would have to outweigh both the depreciated value of the iPad as well as the appreciated value of their currency, which would lead to fewer iPads sold.
As well, bitcoins are divisible to 8 decimal places, so I don't think there's any problem of "running out" in practice, bitcoins will just become more and more valuable. And why shouldn't they? Miners and investors now are expending time and money investing in them, which is a risk because bitcoin may never become popular. The greater the risk, the greater the reward, same in any type of business.
However I don't believe currency should be unpredicatble and inflate at the whims of the government.
Everything in life devalues over time
http://en.wikipedia.org/wiki/John_Maynard_Keynes
Of course, that viewpoint has been the subject of some debate in the last eighty years.
I know that's the core argument against deflationary currency, but I don't see how it's valid. I find it much more likely that it's a belief pushed on our society by money lenders, as they thrive on people buying things now that they can't afford at the moment. Not implying a conspiracy - that implies organization, which isn't necessary for such an emphasis. It's in the lenders' best interest, so they'll do so.
[1]http://www.npr.org/templates/archives/archive.php?thingId=13...
[2]http://www.npr.org/blogs/money/2011/02/15/133781593/the-tues...
[3]http://www.npr.org/blogs/money/2011/02/18/133874462/the-frid...
*How anonymous it is obviously depends on how sophisticated you are at using it.
As it stands the only reason to use Bitcoin currently is for shady deals, novelty, and speculation. I find it laughable that Bitcoin advocates laud the increase in the currency's value as a good thing. It is most certainly not a good sign for a currency when it's value increases dramatically over time such as the Bitcoin has.
Which you would get by... selling some amount of bitcoins to an exchanger. And the person you give $1 to would turn around and buy the same amount from another exchanger, less overall fees both ways.
It amounts to the same thing, unless you view bitcoins as a dead-end worthless location to put money in, because you never use them. Which is irrational - it's pure loss for you if you never use them.
But if you never withdraw them, they have no value at all. Therefore some are withdrawn, and at least some of that $1 came from bitcoins. If you even withdraw one penny worth, you have added one penny to your net bank account, which has influence on your account forever.
The simpler hypothesis is that they intended to show the uselessness of a deflationary currency by infinitely hoarding. But that's completely irrational, so an alternate, simple hypothesis is that they are using bitcoin, so any money they have is influenced by bitcoins they exchange.
The tl;dr reply to the arguments in podcast 3 (banks fail if forced to redeem paper for gold) is that fractional reserve banking is incompatible with the gold standard. The gold standard treats paper money as mere warehouse receipts for gold. But bankers tend to issue more receipts than they have in gold, i.e., they commit fraud. When the public cash in their paper, the banks run out of gold, something that shouldn't happen if the bank only issued paper for gold in the first place. Rather than blame the bankers and put them in prison, governments have taken away people's right to use gold as money and even to own gold. Far from an argument against the gold standard, the history related in your reference 3 (about the collapse of the English and American banking industries) is a lesson of government tyranny, bank fraud, and an argument for real money as a check on government power.
In addition, the decrease in the money supply greatly increased the value of debts. You were getting paid less, but the your mortgage payment remained the same. This ended up being a crushing burden even for those who managed to keep their jobs.
Do you know about a deflationary spiral when gold was the money? (Almost all the history before 20th century).
Sorry, but are you serious? For starters:
"By keeping industrial wages too high, Hoover sharply depressed employment beyond where it otherwise would have been, and that act drove down the overall gross national product," Ohanian said. "His policy was the single most important event in precipitating the Great Depression."
http://newsroom.ucla.edu/portal/ucla/pandering-to-labor-caus...
see http://en.wikipedia.org/wiki/File:US_Historical_Inflation_An...
Can I rant a bit? Thanks again. It'll be about deflationary blips and deflationary spirals.
Have you ever noticed that the definition of a deflationary spiral self-contradictory? You know how it goes, people hoard money in order to spend them later, but when that later comes they do not spend them but continue to hoard even more in order to spend them later-later. Then later-later-later. Then... Well, the endgame is that everybody dies and zombies take over the earth. (Zombies are immune to hoarding, it seems)
Do people really act like this? Because if at any step of such an iteration the people will start spending (and the low prices and increases money balances will provide for an excellent temptation) then the vicious circle is broken, the spiral is no more, and we are contemplating here a deflationary blip. Or event if blip doesn't sound reputable enough.
Looks to me like a totally legit process. Exactly what the Walras Auctioneer will do in his search for a price equilibrium.
In addition, deflation increases the value of debts - any spare cash I have is going to be soaked up by the increasing value of my debts, and will not be available for further consumption.
And why should you buy the good X for $(.85)Y tomorrow, if it will cost $(.7225)Y the day after tomorrow? Right?
I see that's why people never spend money on new phones and computers!!!1!!
Now seriously, the assumption that people will forever postpone consumption is absurd and wrong. But the whole deflationary spiral theory falls apart without that assumption.
Money supply (M2) was expanding with great rate till the 1928.
No, it wasn't.
> Bank failures...
Are a big topic, actually, but this one had nothing to do with a deflationary spiral. Hint: A one time deflationary event is not the same as deflationary spiral. Previous deflationary event of similar magnitude happened 1920-1921. The "Forgotten Depression", so to speak.
Of course the FR (fractional reserve) banks are inherently instable and that's a feature of the system. If you want the ability to inflate the money supply at bankers' will and whim, don't act surprised when it (the money supply) collapses to more a sustainable level.
> .. caused people to hoard currency.
Source? Genuinely curious.
> This hoarding led to decreased investment and economic activity.
There was decreased investment and economic activity. But because of hoarding? It's too self-serving argument as such. There were at least 3 other major causes as well, and I can name them.
> the decrease in the money supply greatly increased the value of debts
Sure. So it means that the creditors are wealthier and can afford themselves to spend and invest more. Not what I'd call an economic horror.
Anyway, the most vivid evocation of horrors of a deflationary event is not a example of a deflationary spiral, and that's exactly what I was asking for.
Sure, if for whatever reasons the amount of money in an economy decreases then the prices had to adjust and it can be painful but.. what are options? But what this has to do with a deflationary spiral?
Even then, once you tried to combine that account with any other you owned that was traceable to you (record in an exchange, email sent to a client containing your bitcoin address) it would be easy to link them together, since the entire ledger is public.
I guess what I'm saying is that your level of sophistication to stay anonymous would have to rise along with the sophistication of an attacker, which is not immediately obvious from these glowing articles on Bitcoin.
If I throw a disk containing my 2048-bit private key into a fire, I can be confident that nobody is ever going to decrypt my files. Getting the same level of confidence for Bitcoin anonymity is a lot tougher.
You could make lots of noise by having hundreds or thousands or tens of thousands of nodes trading with each other - but automated analysis could still figure out what they're doing.
To effectively launder money you'd have to actually put it through active accounts that were actively transacting with the real world, and even then, only through each one once.
That sounds like a harder problem than laundering real money. There would likely need to be a real money step in there somewhere.
Of course, if you do this to cover up illegal activity and get caught at it (someone searches your computer and finds the private keys for both sides of the transaction) then you could probably be prosecuted for money laundering as well, so I don't necessarily recommend it. But achieving anonymity is not all that hard as long as you pass the money through a large third-party pool somehow.
The anonymity is less strong than many initially presume since ALL PAYMENTS ARE PUBLICLY REGISTERED, including the payment chain. This is why it's important to generate a new btc receiving address whenever you perform a new transaction. The entire exchange history of that bitcoin is public knowledge, from the day it was generated until the very last transaction. Hence, if you use a bitcoin that was sent to a publicly disclosed address to pay for something, that transaction is linked to you forever. So people need to be careful about how they use which bitcoins, and the client doesn't really make that easy.
There really is a lot of potential in btc, I've been excited about it since I first learned of it, though as soon as the government catches on they will outlaw it (if they can't find a current law to justify prosecution and/or destruction of the btc network, which is doubtful) and do everything possible to destroy it. They won't like it at all, and neither will the banks that even btc users rely on to store their country's regularly denominated currency. I am scared and interested to see what happens to btc as demand rises.
A current problem is that it is highly volatile and fairly illiquid. Most adopters have a genuine interest in the success of an alternative currency rather than trying to profit from the situation.
I downloaded the client and checked out the forums. Although I don't have any BTC myself, I would like to see something like this succeed.
However, I have low hopes that it will not get tagged with propaganda about drug dealers, terrists, and child pornography (I can't believe the article implied that already!), and probably made illegal like online poker. Visa/Mastercard will refuse to process payments for exchangers, who will later be indicted as money launderers.
There are a few people making their daily living trading, generating and exchanging BitCoins. Just the top of the iceberg, I imagine.
The payment problems are exactly as you describe. Interestingly, it would definitely be possible to run an above-board US-based exchange for BTC; it's called a money transfer business, and they're regulated in a specific way. Getting fully registered and compliant is likely around $1mm USD.
When the BitCoin economy gets big enough, expect someone to try this. I have no idea if it will succeed, though.
I don't think this fight is a foregone conclusion. I think it would be difficult to write a law that would make Bitcoin illegal, without making things like MMO currencies or SSL certificates illegal.
Accepting BitCoins won't be illegal if you have a know your customer plan. Of course, it won't be pseudonymous at that point, either.
If you are a real, legal business, do you want your entire personal and business future contingent on the ability to exchange bitcoin with dollars?
That's the idea anyway. I'm not sure how practical it is!
That said, I don't think this is the most interesting part of bitcoins.
Who wouldn't care? At 3 days, you might as well just mail around cash.
The US government would also run into opposition from groups like the EFF, and I think it would be difficult to word the law to ban bitcoins specifically, and not other similar mathematical activities (like issuing SSL certificates).
I thought legislation had been passed stating that purveyors of pre-paid debit cards and cell phones had to ask for ID and keep records so that, if the cards or phones were used in a crime, the purchaser could be traced. I do know that legislation to that effect was introduced. I'm not sure if it was ratified, but even if anonymous cards and phones are legal now, I have no confidence that they will continue to be legal for the foreseeable future.
There is a tendency to be pessimistic about the place of anonymity in the future, but I prefer to look on the bright side. The US government doesn't win every fight it enters, and there is a long-term trend toward more freedom and openness, rather than the opposite way around.
If you are a real, legal business, do you want your entire personal and business future contingent on the ability to exchange dollars with goods and services?
everyone else coming up with more or less sophisticated machine to print money, or exchange money, or any form of transaction that Federal Government is unable to track/monitor/accept or deny WILL get hurt very badly. It is just a matter how popular your machine is and how much traction it is getting. But rest assured, once you turn it on, you have your own chart in the FBI system.
There are plenty of examples of the reverse, however. Bittorrent continues to thrive.
sage_joch has already pointed out the reasons why it's a really cool idea.
It's also flawed in a number of ways. First, the limited supply means that you've essentially just created an electronic version of gold. It's more easily tradeable, but its behavior as a commodity will be similar.
If you like investing in gold, that's great. I guess.
Second, bitcoins do not necessarily remove the issue of paying a fee for transactions. Instead of paying a fee per transaction, you will instead pay a fee in order to transform normal currency into bitcoins (this is not as readily apparent now, but if the system ever becomes large enough to actually have stable value, then you will need to pay someone to convert real currency to bitcoins). Will this be cheaper than credit-card fees? Probably? Keep in mind that credit card companies are offering just that: credit, which is a service. Someone has to pay for it (either you, the merchant, or the marketers who they sell your buying profile to).
Third, bitcoins ignore the fact that national currencies are an incredibly valuable tool for modern governments. They can of course be misused (see: Argentina, post-WWI Germany), but adjusting the value of your currency is one of few ways of improving your country's competitiveness globally (see: the trouble Ireland, Greece, and other European nations have had recently because they do not have control over the Euro). So, don't expect national currencies to go away, or become obsolete.
Perhaps the Bitcoin community has an answer for these concerns...
2) So? I don't see your point. The goal of BTC is not to eliminate fees, but to make digital currency that you can use P2P.
3) I don't think government currencies are going away any time soon, but BTC provide an alternative.
2). I've heard a number of Bitcoin enthusiasts state this as an advantage/goal (even in this discussion), who perhaps have started developing their own ideas about what bc should be used for.
3). But an alternative to what purpose? Say that I believe strongly enough in the ideals of BC that I want to use it (privacy, accountability, etc). Do I convert part of my monthly paycheck into BCs? Do I convert all of it? This isn't terribly practical if my national currency is still popular. Perhaps I want to even-up with friends or acquaintances? Is transferring BCs easier than writing a check?
Now imagine that I don't believe strongly in the idealistic angles of BC (which, sadly, will be the vast majority of your potential users). I want immediate pay-offs for my efforts (this may sound petty, but isn't. Most peoples' time is extremely valuable to them - if you have a product, even a free one, you must compete for their time). What benefit to I gain from converting my money to BCs?
2) Read "A Lodging of Wayfaring Men". Fiction, but an example of the kind of change a system like BTC could usher in. http://agorism.info/_media/a-lodging-of-wayfaring-men.pdf
3) You'd only convert as much as you need.
> Is transferring BCs easier than writing a check?
Yes. Enter address, enter amount, click send, wait a few minutes for the network to confirm the transaction.
These transactions require computational resources to get them into the block chain, so probably would cost money, but with low barriers of entry, they would tend towards the computational cost of getting a block into the chain.
However, unlike with a credit card, there is no requirement that amounts get converted back into a government-backed currency after every transaction.
Which will leave only Bitcoin users to raid, subpoena and shut down.
The cryptography cat is out of the bag, you can't just ban it(sure you can try, but like I said, good luck enforcing it).
Actually, they would probably only need to raid a substantial amount (maybe half?) in order to control the block chain.
Those gateways represent choke points that can and will be shut down, if our experience with other online currencies is any guide.
Commodity-linked currencies (e.g. those that are gold/silver based) don't inflate much in a practical sense, since the amount of gold/silver being mined each year is usually much less than the amount of gold and silver already being used for exchange. That said, the US did experience a pretty huge bout of inflation after the California gold rush, as all that new currency increased the money supply.
Suppose the price of oil (or any other primary resource) jumps 50%, increasing the nominal cost of everything that has been made from it. Your gold backed dollar now can be exchanged for less things than before, irrespective of the total supply of gold in the world.
Does that make sense? I'm woefully under read in economics.
My dollar is worth less (can be exchanged for less goods) than it was before - I'm pretty sure that's inflation.
If I make a block that gives me a 100 BTC bounty instead of the current 50 BTC, no other nodes will make blocks dependent on mine, meaning that it didn't happen.
I just wish I knew what to sell to get some. My dabbling with mining bitcoins has convinced me it requires a on-all-the-time setup to mine with any prayer of success.
Last time I looked, there didn't seem to be a real economy, just people trading bitcoins. ~.~
I make about 1 BTC per day just with spare GPU cycles on my desktop; it's not a substantial amount by any means, just a test pool for experiments and playing with software.
If you mine on your own, then your targets are effectively random.
Though this increase is eaten by pool fees :)
There's a lot of trading of fiat currencies against bitcoins. I suspect that the most often bought and sold commodity is the US dollar.
If they can't, then there must be some central authority preventing this..which means it's no different than the government
It also doesn't really help with privacy. In fact, it does the exact opposite:
Taken from: http://www.bitcoin.org/smf/index.php?topic=5907.0
"Every bitcoin transaction ever made is public, and the life of every bitcoin is fully recorded in public for all to see,"
The history of each bitcoin is public, but the ownership of the sending and receiving addresses is not, and generating fresh anonymous addresses (keypairs) is nearly free. I don't know how resistant they are to traffic analysis attacks, though.
Interesting to see an article using network theory. http://en.wikipedia.org/wiki/Choke_point
Peter Thiel is a libertarian and seems like he would be very sympathetic to the idea - who knows, crazier things have happened.
Bitcoin is perfect for stuff like this.
And if you think Bitcoin is a waste, feel free to send your coins to 1DbeWKCxnVCt3sRaSAmZLoboqr8pVyFzP1
Look at this crazy shit: http://www.stronggames.com/bitcoin if I want to buy a game I have to somehow obtain 40 bitcoins (the markets are great for speculators, but its not 2 buttons simple for people who just want some coin) after I somehow obtain the bitcoins I need to tell them about it...
In the form that it is in today, this is a currency for geeks. Awesome? (hell yeah!) but sometimes you need to do business with non geeks, and its just not ready yet for them.
Try starting out using an eWallet, such as MyBitcoin: http://www.mybitcoin.com
Then buy your Bitcoins with PayPal here: http://coinpal.ndrix.com use the bitcoin address generated at MyBitcoin. You'll get your bitcoins in less than an hour at MyBitcoin.
Then those bitcoins can be spent using your example, at StrongGames.
The fundamental problem I have with Bitcoin web transactions is that it requires trusting the other party, since I can't exchange the goods at the same time. How do I make that determination and what recourse do I have if I'm defrauded? This would seem to be the fundamental obstacle to adoption to me.
A transaction is basically three pieces of data: private key signature of the sender/payer, public key of the receiver/payee, amount of bitcoins.
The blockchain is very difficult to counterfeit, so theoretically a site like MyBitcoin.com can't actually 'control' your wallet or transfer all the bitcoins to themselves, at least without all the private keys of their depositors.
"...If the block count in your client matches the one shown at bitcoinwatch.com, your client should already show the transaction. Otherwise, wait for the two block counts to match..."
My block count says 51,486 but the one at bitcoinwatch.com is over 100,000. Why aren't they the same? Will they be?
You just send the coins to your other computer.
> how many less technical users have lost extremely important data because they never made a backup?
How many people have lost their wallets?
> I want to buy a game I have to somehow...
That's just because that form is the equivalent of "PayPal us some money then tell us about it".
You can say that about any resource. It's still generally easier for someone who's wealthier to put up more of that resource.
The point is that Bitcoin really is different from other currencies in terms of how bitcoins are created. Dollars are largely created by banks. They get special permission from the government to create dollars and lend them out. Bitcoins, in contrast, can be created by anyone with some computing power, no permission needed.
The fact that one must expend resources to create bitcoins is what makes them valuable - a currency that anyone could create with no effort would be worthless.
That said, bitcoins do favour the already rich. If I have $1000 I can buy more bitcoins than someone with only $100. This is not exactly unusual.
The advantage of using bitcoins as a currency is that you can transfer them electronically without the need for a centralised banking system and all the bureaucracy that entails. As a programmer, this is what really excites me about the system.
Why would you have to do that in order to use BitCoin? I've used all kinds of currencies/monies (including trading, labor, whatever) in my life without giving up faith in the US Govt's ability to back the dollar.
Serious miners use GPU hardware, so there are effectively two tiers of miners: Those who have a GPU and can dedicate it to bitcoin, and those who don't.
It isn't, but almost anything can work if the community of users is small enough. As for why it isn't, we need to step back a bit.
In a barter economy an exchange occurs when two individuals each produce something which takes time/labor/capital and which the other person values more than what they're giving up. For example, if I grow an apple, and you grow an orange, and we trade, it is clear[1] that I value the orange more than the apple, and you value the apple more than the orange (otherwise we wouldn't have made the exchange). The value of those items is individually subjective[2], and the supply of those items is constrained by market forces (e.g., alternate uses of time, labor, and capital).
A money economy emerges from a barter economy when individuals accept in exchange something they do not want for itself, but with the anticipation that they can use it for some future exchange. It is critical that the commodity in question be desirable eventually. If no one ever wants it, then it wouldn't emerge as money. (Important Aside: once a commodity begins to function as money, part of the demand for the commodity will be as money, thus there is positive feedback loop, but some non-money demand needs to exist to get the process running. This is why all functioning fiat currencies have their roots in a commodity money.)
It's important to notice that commodity money has some inherent constraint on its creation (i.e., its supply curve is bounded by market forces), and that it satisfies the wants of others (i.e., there exists some demand curve). For example, the gold supply is constrained by the cost of mining/processing new gold, and the demand affected by its consumption into produced goods and demand to hold "cash balances" of gold.
So far as I can tell, bitcoin is a scheme whose total supply is constrained only by an exogenous, artificial limit of 21M coins, and not by the demand for alternative uses of its factors of production[3]. There can be, at most, a marginal value[4] equal to the marginal cost of producing a coin, which appears to be nothing but otherwise-idle computer time and some electricity.
But far more importantly, this is a scheme whereby artificial scarcity is created (e.g., it takes n hours to produce a coin) but no thing of value is produced. This would be akin to inventing a system of money involving sticks whittled into perfect cylinders. Sure it might take a long time to create one, and it might consume resources, but if the end result doesn't have any value to anyone, it isn't money, it's just waste.
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
[1] http://en.wikipedia.org/wiki/Revealed_preference
[2] http://en.wikipedia.org/wiki/Subjective_theory_of_value
Or how about an entry in a ledger on some bank's computer?
The only reasons the $20 bill or the entry in the computer retain value are because there's a central entity that limits the creation of too many of them, and people accept it as currency in exchange for good, because they expect that other people in the future will accept it in exchange for goods.
Well, Bitcoin just gets rid of that central entity. It makes it hard to produce new units (and impossible after 21M have been produced). And it relies on the fact that people are willing to trade it for goods, services, and other currencies to give it value.
Look, if I have 100 bitcoins right now, I could get $100 for it, or I could buy web hosting services, or I can buy specialty coffees, or a variety of other things. That seems like real value to me. Now, the total size of the bitcoin economy is pretty small at the moment, but it is growing.
I don't see why people feel like other fiat currencies somehow have value but something like bitcoin cannot. They are both artificially scarce things that can be easily transferred with no intrinsic value.
I think perhaps you and I are using different definitions of "value". If someone is willing to accept something in exchange for something else, that act reveals that they value it, either for its use value or for its exchange value (i.e., as money).
>The only reasons the $20 bill or the entry in the computer retain value are because there's a central entity that limits the creation of too many of them
Why do you think that? It's certainly true that artificial scarcity raises prices (for money, in terms of all other goods), but that scarcity is not what is being subjectively valued.
A $20 bill today is valued (as money) based on what it could buy yesterday. And yesterday's valuation (as money) was based on the day before that. Go back far enough and the money valuation will have spawned from the commodity valuation.
Bitcoin is flawed in largely the same ways that fiat currencies are flawed, namely that the commodity has no use value demand, and the supply is not subject to market forces.
The difference with fiat currencies is that they have quite a few things going for them that keep them around: taxes are demanded in them, a raft of laws eliminate competition, and a central bureaucracy actively manipulates the market.
I meant intrinsic value in that context. Of course I agree that it has value based on what people are willing to exchange it for. That's precisely the point I was trying to make; in your original post, you had claimed that bitcoin was flawed because it wasn't based on a commodity originally, and I was pointing out that that really has no bearing on its present value.
> Why do you think that? It's certainly true that artificial scarcity raises prices (for money, in terms of all other goods), but that scarcity is not what is being subjectively valued.
> A $20 bill today is valued (as money) based on what it could buy yesterday. And yesterday's valuation (as money) was based on the day before that.
You trimmed out my next sentence in your quote in which I said almost exactly that. My only point about artificial scarcity is it limits the rate at which value can be lost due to inflation; it helps it retain its value, because you know that someone else won't be able to just go and get more for themselves, but instead will be more likely to want to trade you something for the currency you are trading.
> Go back far enough and the money valuation will have spawned from the commodity valuation.
It doesn't really matter how far back you look; just because a currency was originally based on a commodity has no bearing on its value now, other than as a historical artifact. What matters is what it will buy you when you spend it, which is in the future, and while not entirely predictable, in the near future tends to be close to what it would buy you in the recent past.
All I'm saying is that there is as much intrinsic value to a bitcoin as there is to a dollar, or a euro, or what have you. The difference is mainly in how they are transferred, and how the supply of them is constrained. I'm not entirely convinced that a deflationary currency is a good idea, but I think that bitcoin is a technically, economically, politically, and socially interesting experiment.
I generated a few back in the day when I could do so on my laptop in a few hours without dedicated GPUs running constantly, and I'm going to hold onto them for a while to see how this whole thing pans out. Who knows, with only 21M in existence, if this thing takes off the few I have could wind up being pretty valuable later on; and if not, well, I just lost a few hours of CPU time, no big deal.
If you don't think that bitcoins will hold their value, I'll gladly take any you have off your hands. Just send them to 1Lz9u29gLLUJ3yH6GrMeSuRUmbUounXinG ;)
The intrinsic value of a dollar is that the United States Government is obligated to accept a dollar as a payment of tax and other obligations you may have towards the government. A dollar is not an arbitrary thing, it fundamentally profoundly is a warrant to discharge a debt obligation against the United States Government. The rest of its value emanates out transitively from that.
A BitCoin is fundamentally more arbitrary than a dollar. (At least at the moment. Hypothetically this could change.) Perhaps it will make it anyhow, despite my skepticism, but it is absolutely, empirically true that a dollar is not an arbitrary value store. It has a base case for its value chain. BitCoins do not have this.
I'm heading out the door, but just wanted to note that nothing has intrinsic value. All value is subjective.
Granted, gold doesn't have any use value demand either. Its only advantage is that its rare and shiny. You can't eat gold, burn it as fuel, use it for tools, or build shelter with it. The only industrial application of gold is in specialized electronics processes, and even in those, gold has substitutes.
The only difference between gold and fiat currency is that gold has a finite supply, while fiat currency does not.
It can be used to pay taxes levied by a government that will employ force if I refuse to pay them. How do I do that with bitcoins?
You need to distribute the initial bitcoins somehow, and these people are putting value in by protecting the network from scammers (the reason for mining is that you're doing a lot of hard work to validate transactions, forming a long chain of valid transactions, such that it would be quite difficult to form an alternative chain in which an attacker spends money differently). So, miners are providing the security of the network, and helping roll out the currency slowly and smoothly, as well as speculating on the future value of bitcoins, so they do deserve to receive some compensation for their efforts.
If you feel like bitcoins will be valuable in the future, and don't want to get into mining, then sell some goods or services for bitcoins. If you happened to have sold a loaf of bread for BTC 50 last October (about $2.50 back then), you could now trade that for $50; that's a pretty good return on your investment. Don't worry about the miners are getting money for nothing; they are help making the whole system work, and there are plenty of ways of earning bitcoins besides mining.
If using this currency is that inconvenient, people will just go back to using credit cards and Paypal.
The client could probably just check periodically for a signed message from a central server (or a broadcast on the network itself) with instructions to currently operate on the network.
This isn't really a big deal or usability issue that I can see.
It seems to me like I'm asking a simple, obvious question: what is stopping governments from simply shutting down Bitcoin within their physical borders? You think they will not be smart enough to handle a simple port number change?
Regarding the comparison with Bittorrent, my ISP (Comcast) did in fact block and throttle Bittorrent, successfully, until someone sued them. It seem to me Bittorrent is an example of how ISP's can block an application, not an example of them being unable to do so.
"The client could probably just check periodically for a signed message from a central server (or a broadcast on the network itself) with instructions to currently operate on the network." -- why could the ISP not block this, also?
Especially if the software is open source, as Bitcoin is, all the knowledge of the inner workings of the protocol is public knowledge, which makes it impossible to stick in something like "just check periodically for a signed message from a central server (or a broadcast on the network itself) " secretly without governments wanting to block the system knowing about it.
It's fortunate (for Bitcoin) that governments and ISPs generally move at a sloth's pace. If it comes down to an arms race, they can't win more than extremely temporary victories. If they could, they'd have completely stopped filesharing over Bittorrent, IRC, AIM, MSN, Skype, HTTP, email, Usenet, various P2P services like Kazaa and Limewire, ... and so on.
If they start blocking/interfering with the protocol (like Comcast injecting RSTs into suspected torrent connections), you can just encrypt the entire transport layer and randomise the ports. People were configuring their firewalls to drop the falsified RSTs from Comcast.
If they blacklist hostnames, there's a near limitless number of them that can be generated. The client can precalculate a domain and ping it at a given time for instructions the same way botnet clients work. The government can't register/block every possible domain name that will be generated. Another alternative: http://en.wikipedia.org/wiki/Fast_flux There's nothing illegal about having a hostname resolving to an IP.
> Especially if the software is open source, as Bitcoin is, all the knowledge of the inner workings of the protocol is public knowledge
This is also true for GPG, ciphers like AES/Twofish/Serpent, etc. Openness does not necessarily imply weakness.
I feel upset about being modded down -- I feel I asked a fair question. Governments gain their power from being able to tax and dilute currency. Bitcoin, if it gains traction, will be a direct threat to both. It does not seem realistic to think governments will not fight back, and hard. If I'm right, it means simple tricks like changing ports and changing IP's won't work. You say "The government can't register/block every possible domain name that will be generated." -- maybe they can if they know the algorithm that is being used to generate the domain names? Or maybe they can examine the contents of the packets, so there is no need to block every domain name (or IP in the case of Fast flux). For every change to the protocol to thward getting blocked, the blockers and respond to the change because the protocol is open.
I suppose the "worst case scenario" is that Bitcoin has to be used over a generic VPN protocol, similar to what people do now to get around the Great Firewall Of China. As I understand it, the Chinese government has not blocked the VPN protocols, mostly because few enough of the Chinese people use them -- but if a large percentage of Chinese people started using VPN's, wouldn't the Chinese government start blocking VPN protocols?
Perhaps the Great Firewall Of China is the best example of the capability a government has to control its internet within its physical territory?
Blocking every VPN is something that should eventually fail because large enterprises (Fortune 500 Co) won't stand for it. So I can understand the argument that governments _ultimately_ can't stop Bitcoin or something like it. But it seems to me like they won't give up without a fight.