Direct use value of Bitcoin
blog.oleganza.com
blog.oleganza.com
Unit of account: Works fine but has issues due to the relative volatility of its value. Also, the complexity of accounting that can result from blockchain rollbacks and other Bitcoin-specific issues (new "invoices/receipts" scheme, etc...)
Store of value: Far too volatile at present to be much good; though it has been heading upwards, an individual party could easily destabilize the entire economy.
Medium of exchange: Excellent speed and reach, theoretically an improvement on existing systems due to a lack of chargebacks (finality). Realistically, increasingly complex to implement, particularly securely, and especially for real time goods and services. Unfortunately the market is relatively small and spotty right now, so any benefits here are largely negated for general commerce.
I can't help but feel the blockchain-tricks referenced by the author (in addition to the upcoming "invoices/receipts" mechanism) are nought but scope creep, best left out as violators of "do one thing and do it well", and in general a bad sign for Bitcoin's future.
That said, I am all for Bitcoin, I think it's great. It's just important to be realistic about its objective properties vs. other systems.
The bitcoin core developers have strict policy - they don't accept these additional features such as distributed DNS to the main chain. However alternative chains can be developed for these features.
I think that there can be a tremendous value for other kind of public, distributed, databases as well, not just currency.
> RE: Mr. Stanish's suggestion to punt all of this and wait for a Grand Unified Solution:
> No, we have problems that need a solution right now. And, having written one (I was the lead author of the ISO/IEC 14772-1 international standard) I'm very pessimistic about your chances for anything like IFEX to actually be adopted.
First, let us unravel the underlying assumption, which is false. When sharing a standards proposal, one isn't necessarily hoping everyone blindly adopts it as gospel but rather it provides some basis for reasonable research and/or provisional implementation within a given area that (hopefully) benefits from previous research and provides a basis for the community building upon the knowledge gained through implementation of systems in that area. The idea is that, given some common ground, people can move forward (ie. towards interoperability) while benefiting from each others' experience, and hopefully the better connected, more heterogeneous and stronger community that results.
In the particular case of IFEX, we have thus far been dealing with extremely basic areas that remain ignored by Bitcoin, ie. market identification, asset identification, and a viable decentralized internet-based financial endpoint identification scheme that provides familiar syntax, checksum protection against transposition errors, ease of integration with legacy financial systems, typo-squat-protection, and other key features. Also in the works but far more complex and slower moving are more holistic approaches to the transaction metadata/invoicing problem area than Bitcoin is apparently prepared to tackle.
The other thing that is notable in Gavin's response was the apparent notion that engineering decisions affecting the entire Bitcoin community's future are being made on a rapid basis because of perceived short-term needs. I am not sure this is necessarily a trend, but as an implementer it doesn't give me the greatest peace of mind.
Just my 2c.
Summary gist: https://gist.github.com/4165865
I'd also add that I'm not sure bitcoin ever needs to be anything more than a medium of exchange. In digital commerce there is no reason not to denote in one currency, exchange in another while marking to a third.
Chargebacks, speed, etc all get translated to transaction costs. Lower transaction costs by an order of magnitude or two and all sorts of things become possible.
This is exactly what is happening to Namecoin: initially, it was just another blockchain, but very soon people realized that nobody is willing to spend any CPU/GPU time on Namecoin if Bitcoin is worth more (no matter how much more). So Namecoin guys proposed "merged mining", which is just a fancy way to reuse proof-of-work done on Bitcoin block chain without asking people to devote any resources specifically to Namecoin.
Both are almost identical to Bitcoin, with very little modification.
My sentiments exactly. The other stuff will sort itself out. (Historical example: GUI client in codebase!) IMHO what integrators really need is a fixed target, and what they have now is spiralling complexity and ill-defined scope... ie. very suboptimal.
- Smart Property is just a theoretical proposal for a system and the linked page says: Smart property was first proposed by Nick Szabo in his 1997 paper, "The idea of smart contracts". There are currently no implementations of this idea.
- decentralized DNS is realized in a different system that uses the code from bitcoin software but is not connected in any way to the bitcoin system itself: http://dot-bit.org/Main_Page
I guess you can use bitcoin to do secure time-stamping of messages that can fit into the format of a bitcoin transaction (there is some place for comments or something) - so you can piggyback a message on a bitcoin transaction.
Finally https://en.bitcoin.it/wiki/Contracts seem to be connected to the existing bitcoin system, but it is not clear how much of it is already implemented in the clients.
However alternative chains could be used to develop many of these systems. I think there can be a tremendous value with public database, not controlled by anyone. Lately I have been thinking about alt-chain which could be used as a distributed stock/asset/IPO ledger. Similar to http://www.bitcoinx.org/ , but done in a separate chain to server the needs better.
How do you do that?
Then, before disclosing the document, you transfer some amount to that address and back to your private address. After that, reveal the document: now everyone can repeat the procedure and verify that you have created that document (because you can always prove that you own that "coin" which travelled through the synthetic address).
You can play with keys and addresses here: http://brainwallet.org
the transaction with comment is legal according to protocol, but non-standard and as such the official client refuses to propagate it through the p2p network. and because there is a client monoculture, you are out of luck with non-standard transactions if you are not owning a mining pool yourself.
IF the non-standard transaction gets into blockchain, THEN the comment stays there forever. but it really never propagates.
While true, I don't see the relevance of this point. Bitcoin is a commodity with non-money uses. Yes, some of those over lap with other cryptography technology. But that doesn't really change anything.
Bitcoin: limited, durable, easy to transfer between any two connected users
Whether you can make jewlery or timestamp things doesn't really matter for the main usage.
This is very different from gold. In a truly apocalyptic scenario, gold also becomes nearly worthless. However, when society bounces back, the value of gold can be re-inflated based on the intrinsic value of gold.
In the case of Bitcoin, such a bounce-back is not as likely to happen, because it would be so tempting for people to just start an entirely new blockchain.
Resetting accounts to zero might be favorable scenario over getting killed over few pounds of gold in my basement and my suspected withholding of the information where is more.
It really can't. Bitcoin is used in over 100 countries. Economic turmoil in one, or even a few, country will not be sufficient to drop the price to 0.
The system becomes more robust every day. It's essentially a basket currency made of currencies proportional to all the proportion of people which use it in various countries.
After some more maturity there could not be a more robust currency scheme imaginable.
In such a situation, people could be categorised into two: those who previously held Bitcoin, and those who previously didn't. The ones who did would favour continuing with the old block chain, since they'd have more value there. Surely this alone would be enough?
The idea is that anyone can participate in the peer-to-peer network that maintains this database, and that this database is signed on a block-by-block basis by the participants to maintain consensus. Hence the term 'block chain'.
Now, since the data in the block chain is a set of time-stamped transactions that are difficult to forge (unless someone controls >50% of the network), one can use it to store other time stamped information such as contracts.
(disclaimer: the above is just a semi-laymans attempt to explain the block chain to OP, feel free to correct me where I am wrong:)
I learned quite a bit with your article but there is a statement that is not quite accurate: "dollar bills do not have any value in themselves"
Legal tenders like dollar bills are the value themselves, it might even come to a situation where the material used to build it costs more than the actual value of the medium (1 cent coins).
I wrote an article some time ago and I would be very happy if you could read it and give your thoughts: http://eduardo.intermeta.com.br/posts/2013/1/18/bitcoins-and...
A couple of words about "value". Value is a concept. It does not exist in reality like matter or energy. This concept applies to voluntary actions. It does not apply to involuntary actions. If a judge and a policeman force you to accept USD as a method of paying you, it says nothing about how USD is valuable for you. We can only observe that you value your life more than non-complience.
So "legal tender" laws do not create any kind of value at all. I would argue that, probably, the opposite is true: when something must be enforced, it is because of its negative utility.
In the peaceful situation, however, we may discuss different kinds of values.
Certain things can be valuable for your own immediate needs, without much participation from other people. E.g. your pen is useful without need for cooperation with others. You may say the pen has "direct" use value.
Dollar bills are almost only valuable when you can trade them for something with others. Of course, you can do paper planes or use them for cocaine sniffing, but that happens comparatively rarely.
Bitcoin block chain allows not only money exchange (which requires somebody to exchange with you), but also some bookkeeping for yourself, or your friends, or future generations.
A dollar bill is a promise of value, conceptually no different to a cheque from the US government. If you believe that money has any value in itself, then I have some Zimbabwean dollars to sell you.
There's nothing inherently magical about something being legal tender. The only difference between a $1 cheque and a $1 note is risk. The probability of a cheque bouncing is more likely than the USA economy collapsing into hyperinflation.
Money does not depend on any kind of backing at all, for instance: the US gov has been flooding the market with dollars backed by the promise it will buy them back someday. Some countries don't even bother buying dollars anymore, they rely 100% on swap agreements.
Even if the economy collapses, the dollar will still be accepted for paying your gov duties, which means it will collapse too, equalizing the system. (inflation and deflation can be too complex for me to have any useful discussion)
Fiat money is backed by the faith in a countries economy and government. A dollar is worth something to me because I can ultimately exchange it for goods or services produced in the United States. If this were not possible, for instance if the USA completely closed their borders to all foreign trade and travel, then the dollar would be worthless to anyone outside the country.
You mention that a cheque needs time for the money to be transferred. So you give me a cheque for $1, I would have to wait for the dollar to be transferred from your bank account to mine. But what if I didn't cash the cheque? What if I gave that cheque to someone else as a substitute for a dollar bill? If Alice gives a cheque to Bob, then Bob can pay Carol with that cheque if Carol trusts Alice is good for the debt.
Finally, regarding the dollar being accepted for paying my government duties, that's only true for countries that have the US dollar as their official currency. If the USA disappeared tomorrow, the dollars I own would be worthless; they only have worth because they're backed by the USA, much has a cheque only has worth while a particular bank account exists and has funds.
The main point of my article (I think my poor writing didn't help me convey the message) is that even when we move on to electronic money (like bitcoin) people will still not want to carry them (having their own wallets at home), they will prefer a bank or service to take care of this. I think this is great because we could start using bitcoins with systems that are already in place, I even built a small demo for Verifone PoS which integrated nicely with our current systems (I run a credit card company)
Sometimes I also think that electronic money, like credit cards, could not be as democratic as paper.
It's kind of like saying you could use the comment/memo area of wires/checks to send or timestamp messages.
Capital B Bitcoin (never plural) refers to the system as a whole. Lowercase b bitcoins refers to the units of currency.
And yes, this value is derived from Bitcoin, not bitcoins- which is what the article says.
>If the monetary value of Bitcoin dropped to zero for some reason you wouldn't be able to use your existing Bitcoin for these purposes.
Yes, you would. All of these uses would still apply if bitcoins were worthless.
Namecoins are essentially free, yet they can be used to do all of these as well. In fact, Namecoin is the third item on the list in the article.
No, because if bitcoins were worthless, there would be no incentive to mine, and if there is no incentive to mine, there is no security for the blockchain.
Doesn't it costs you anything to make a transaction with Bitcoin? That was more than I knew.
A person making a btc transaction can add "transaction fees" to the transaction, effectively making a second transaction to the miner of the block who accepts his transaction. This allows for a simple anti-spam/prioritization feature: The miner sorts outstanding transactions by transaction fees offered, and puts the top n txns into the block.
The total volume of transactions that are handled by the system is designed to be large enough to be practical for all and any uses. This means that at the moment if someone isn't embedding files in the block chain or something (BTCfs is a real thing!), transactions without fees will still typically be executed eventually.
In any case, the costs are miniscule compared to standard transaction fees that banks charge.
1) Currently there's a transaction size limit of 1 MB in the protocol, with typical "large" transaction sizes being about one third of this. Once average transaction sizes will hit the limit, miners will probably include transactions paying higher fees, thus auctioning the available space.
2) Even if Bitcoin users agree on a protocol change to increase this limit costs will rise, as every transaction needs to be forwarded to all other nodes (or at least to the miners). So increasing transaction sizes will create higher hardware requirements for miners, without necessarily increasing their income. And there's the further complication that a fork will only work if a majority of the network actually supports it.
2) No, costs for the majority of transactions will not go up- in fact, they may go down. Most miners already charge different fees based on any given transaction's size. The fees range from about a half-cent USD to about two cents USD. If someone wants to send a 2MB transaction, the miners will be able to charge whatever transaction fee they choose for expedient processing.
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http://howdoyoubuybitcoins.com/
Let me know if you have any feedback! We're always trying to improve!
Everyone must trust someone, there is no clear line in the usability-vs-trust balance. I'm perfectly okay to trust a web wallet on blockchain.info small amount of bitcoins because they do a very good job with their iPhone app and SMS notifications. I'm also okay to put some of my money into Electrum and some - in Bitcoin-QT. And keep some on bitcoin-central.net in case I need to sell BTC for fiat quickly.
Given all of that, it's not fair to say that "the true" client is this one, while all the others - are considerably different. For people who value their time, it's important to be able to sacrifice some trust for usability and vice versa. If we would always tell them that they must use the full client, we are just imposing our personal tradeoffs and do not respect theirs.