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The wealth accumulation is the most worrying part, for instance there's a transaction for 140k already, and add 8 zeros to that if the adoption trend goes viral. Then there are the mining pools, which effectively act as banks, only that you put your trust in some guy sitting on some couch. All kinds of strange things are happening in the pools, from roundings, opaque pool operation (You simply have to trust that the pool allocates you the right amount for your work, the pool operators even say this mockingly, ex. "But I'm goofing around for few week and I'm amazed with bitcoin idea, so I don't plan to steal anybody right now :-)." http://www.bitcoin.org/smf/index.php?topic=1976.0), etc.. A currency system based on trust? Meh, I don't see it happening (But then there are really bad actors on youtube that get really famous, sometimes even because that they're so bad, so you never know).

Let's not forget the large botnets, they can easily be focused on directly stealing the bitcoins, with no sort of security system your bank might have.

They also speak a-lot about the limit on inflation, since only 21 million can be generated (It's unlikely they all will get generated as the difficulty increases exponentially, good luck hitting a hash smaller than 0x000000000 ... 0000100000000, or whatever the difficulty), but this means that those with let's say 5 million each, they will effectively be able to control the bitcoins' value.

And ofcourse the points you mention, such as what if some professional people decide to put in serious effort and money into finding a more equal system, and it ends up replacing bitcoins where many people have invested so much.

You say that Bitcoin is elegant, but solves the wrong problem. I disagree. Read some of the introductory material that explains the flaws of the existing currency models that Bitcoin is trying to address:

• https://en.bitcoin.it/wiki/Introduction
• http://www.bitcoin.org/sites/default/files/bitcoin.pdf (just read the Introduction)

Thought I'd write up a quick 'getting started' guide for anyone that wants to give bitcoin mining a go:

#1 - Download the bitcoin application from bitcoin.org, install and fire it up. It will connect and sync with the p2p network, downloading approximately 114700 blocks.

#2 - Download and install the OpenCL driver for your graphics card / OS.
You might also need the full SDK, my drivers were supposed to include OpenCL support, but the GPU miner still didn't work. For AMD/ATI cards, this link should work:
http://developer.amd.com/gpu/AMDAPPSDK/downloads/Pages/default.aspx

#3 - Download and unpack "PyOpenCL bitcoin miner" somewhere. You'll find windows binaries here (7zip-compressed):
https://github.com/m0mchil/poclbm/downloads

#4 - Using the bitcoin client, create a new 'receiving address' which you call 'mining income' to track payments.

#5 - Sign up for a mining pool. You'd rather have a few cents an hour than wait months for a random shot at 50 BTC. I'd go with:
http://www.bitcoinpool.com/newuser.php
as they're free, while the others charge a fee of 2-3%. Wallet ID is the thing you created in step 4.

You'll find the other pools here:
http://www.bitcoin.org/smf/index.php?board=14.0

#6 - Stuff the following into a .bat file and run it. Might want to try from the console first, to make sure all is ok.

start /DD:\bin\bitcoin\poclbm poclbm.exe -f 60 --host=bitcoinpool.com --port=8334 --user=username --pass=password -d0 -v -w 128

This of course assumes you're on windows, and installed to a directory named d:\bin\bitcoin\poclbm..

Setting the f options to a higher value will cause less stress on your system. 30 is the default, shoot for 120 if your screen is lagging too much.

The d option is the device id of your graphics card. Mine's device 0, it could also be 1, 2 or whatever.

If the above worked, you should see a console window containing output like this:

23/03/2011 17:18:55, long poll: new block
23/03/2011 17:19:27, b15bbc4d, accepted
23/03/2011 17:19:47, 97f98213, accepted
23/03/2011 17:20:04, 2a8d658f, accepted
23/03/2011 17:20:15, 96fd6e6e, accepted
160772 khash/s

A method of doing this effectively is discussed here, where the success of the system is not dependent on a particular value for bitcoins, but only that they have some value at all.

80,000 WOW gold = 65 BTC as of March 16

Have you seen Bitcoin? Economy is already ~$5mil.

I offer you to check it out on Wikipedia as an alternative to using banks and fiat money. It's free software cryptocurrency being used by many. Current trading volume on the largest exchanger (mtgox) is $50k and 200k BTC (around $200k) was sent by various people in the last 24h.

http://www.bitcoin.org/ and a recent episode of Security Now went into a bunch of detail about the theory of how it works.

(tl;dr hard crypto-guesswork puzzles are used to restrict the creation of their new digital currency. It is apparently anonymous and untraceable, and some sites already exist that will trade it for RL US$)

I can't understand the privatization of payments online. Governments used to be the primary supplier of moneys which everybody had the right to use and everyone had to accept. But online only the private sector (credit cards, paypal, etc) is providing the means of payment. Anyway, all these folks should use Bitcoin: http://www.bitcoin.org/ It is peer-to-peer and anonymous. The tricky part involves converting it to traditional currencies but it currently has parity with the dollar, as reported earlier on Slashdot.

Spend any time on the forum and it's very clear what people are doing.

This poll suggests that a lot of a community is hoarding.
http://www.bitcoin.org/smf/index.php?topic=3324.20

How many bitcoins do you have in your wallets? (Rounded up)
0 13 (8.8%)
1-10 19 (12.8%)
11-50 9 (6.1%)
51-100 13 (8.8%)
101-500 21 (14.2%)
501-2000 23 (15.5%)
2001-9999 18 (12.2%)
10000+ 13 (8.8%)

You can trade fractional Bitcoins. The "value" field lets you put in a decimal(ex. 50.33) up to two spaces, so smaller denominations are certainly possible.

From the FAQ:

How divisible are Bitcoins?

Technically, a Bitcoin can be divided down to 8 decimals, so 0.00000001 BTC is the smallest possible amount. For convenience, the program currently accepts only 2 decimal places.

See bitcoin which is experiencing massive growth (see bottom graph) with an economy of $4.7 million.

Slashdot article. Wikipedia article.

Judge Wassell asked if the case was any different from stealing notes from the Royal Mint. Mr Evans said in theory it was not because the mint could produce more but the thief would have something tangible he could use elsewhere.

This is interesting how artificially created scarcity is being compared with actual scarcity. I am not an online game player who spends money on them, but seeing how easily poker chips are being sold in the black market by the chap, it seems to me that the poker chips one has is nothing more than a number written in a database field somewhere in the Zynga servers (unlike BitCoins) and there is no more record of them than the database transaction logs. So, as I see it, people pay Zynga to increase the value of a counter for them.

However, real currency differ from virtual currency here. Currency notes from real mints have an ID on them, they are real tangible things which cannot be as easily fooled around with. Hence, I do not think the analogy holds.

Don't forget Bitcoin, it allows for anonymous untraceable donations which cannot be "frozen" under governmental pressure.

For what it's worth, the only reason I can see for downmodding the above was that it did not provide a direct link to Bitcoin. That way, it was marginally less useful than it could have been. Bitcoin is an interesting project, and relevant to the problem of the single point of control/failure that we have with transactions going through Visa et al.

Yeah, this got me really appreciating Bitcoin. I think if we all start doing business withe people using BitCoins then it'll really fix the whole problem.

You should check out Bitcoins. http://www.bitcoin.org/ The mathematics behind it are genius. I wander how long it will take before governments try to shut it down.

Its a frozen economy because no one can successfully compete with the cluster guys to make any spendable BC. Eventually everyone will abandon bitcoins because no one will have any but the handful of cluster ops whom will have generated and hoarded all of them, so they can be rich. I have no interest in making some cluster op rich, so I simply will not do so. I made about 200 BC back when the generation difficulty level was like two digits. Last time I checked it practically needed scientific notation to display the difficulty level. Oh, 14484.16236123, thats all.

BC is an excellent example of how "the cluster operators shall inherit the earth" is not going to work in the real world.

Its very much like trying to set up a beanie babies economy. Cornering the market and hoarding all the rhinoceros beanie babies in the entire world makes them quite useless as a currency, thus they become more or less worthless instead of uncountably valuable.

You should check out Bitcoins. http://www.bitcoin.org/ The mathematics behind it are genius. I wander how long it will take before governments try to shut it down.

Credit unions are a great idea, and BitCoin sounds bizarre and interesting.

Yes, this is total crap. Just more evidence that the banking system is more corrupt than anyone ever imagined. I mean Visa and MasterCard were content to deal with the Canadian Pharmacy operation for a DECADE and now suddenly the financial institutions are ganging up on WikiLeaks of all things?

Remember guys. If you want to do something about this, your best bet is to support BitCoin, a peer to peer currency with a small but rapidly growing economy. A BitCoin is worth roughly 25 cents on the exchanges. The production BitCoin network needs your CPU or GPU time to grow stronger, so mosey on over and grab the distribution. It's MIT/X11 licensed.

which exists with its own life, totally independent. imagine that, this cloud is created by millions, maybe hundreds of millions of people running p2p based clients on their devices. imagine that this cloud uses the collective computing power of these hundreds of millions of people, and with top encryption.

it cant be controlled. it cant be killed. it cant be censored. it cant be outdone. its everywhere.

that is the kind of cloud i would be willing to move into, without hesitation.

something after the format that bitcoin project uses http://www.bitcoin.org/ ( i know this is the second time i linked this, but im enthusiastic )

imagine, all your sensitive data, all your history, your everything in the custody of a corporation. and a single government - if one recalls what happened to amazon.

its beyond logic.

the only way i would agree to moving wholly to a cloud, would be the time one independent, totally self-reliand p2p cloud is created. much like after the format of bitcoin idea :

http://www.bitcoin.org/

Micropayments could solve that problem too - anonymous microcash

http://www.bitcoin.org/

Seriously, read the Bitcoin technical paper. It's short and easy to read.

... at no point has anyone in the community said they don't want to be associated with Wikileaks.

Satoshi Nakamoto, the originator of Bitcoin, made the following appeal on 5 December:

The project needs to grow gradually so the software can be strengthened along the way. I make this appeal to WikiLeaks not to try to use Bitcoin. Bitcoin is a small beta community in its infancy. You would not stand to get more than pocket change, and the heat you would bring would likely destroy us at this stage.

BitCoin is conceptually simple to use, not much different to what we do today. The headache inducing part is the implementation :-)

But if you want to spend some BitCoins it's actually not that hard. You just fire up the software, select who you want to send coins to (eg from the programs built in address book), how much you want to send and hit go. If the receivers P2P node is online at the time you can also include a message. If it's not, you can still send the money but without a message.

And that's it. That's all it takes. Receiving coins is likewise easy - you just fire up the software, let it synchronize with the network and now you have the coins that were sent to you.

There is one (big) catch. By the very definition of what BitCoin is, all transactions are public. It seems the latest versions attempt to obfuscate the size of the transactions, and there is a discussion in the linked page of how to go further - but nonetheless, the fact that an address you control transacted with somebody is a matter of public record. This is very different to today, where financial transactions are assumed to be secret unless otherwise published.

Ripple is much harder to understand and that's why I doubt it'll ever go anywhere. It's an excellent intellectual exercise but in a series of debates with Ryan I had back in 2008 (?) he admitted that a lot of the justifications for Ripple were post-hoc, and the fractional reserve did not have many of the flaws often cited.

Please, for the love of the written text: read the damn FAQ http://www.bitcoin.org/faq *before* you engage in a discussion about the topic!

The generation of BitCoins is just part of the bootstrapping process, and it's not economically viable to do that to get wealthy (you'd set up an Amazon cluster to make them, you'd pay more than you'd earn). Generation also slows and will cap out at around 21 million BitCoins.

The primary value of BitCoins is defined by how much people are ready to exchange it for, and what you can buy/sell with it, not unlike real currency.

The primary differences are that there is no central bank that can print more money on a whim, and that the transactions are anonymous (kind of, the numbers are broadcasted, but they are not attached to names, only cryptographic keys anyone can make).

In that sense, it is an interesting and promising thing. Could use some broader adoption though, but that's not an over night thing. The current structures are stable enough to use it for practical things already and maybe we'll see it in broader adoption in the future.

Use Bitcoin (at least until they outlaw it)

The model underlying Bitcoin may provide a solution. Basically do the same thing, but with domains instead of virtual coins. The peers self-regulate the work required to solve the next block such that a fixed number of blocks (domains) are allocated per unit time; the allocation would be "first come first served", but there would be no possibility of mass registration. Once a name is allocated it can be updated at-will by the one holding its private key, or transferred to another user. Updates and transfers would take the place of Bitcoin's transactions, and be included as part of the next block.

http://www.bitcoin.org/

Other more elegant/anonymous schemes are possible as well.

It absolutely would be. This is exactly what the system is designed for in both senses. So, Wonko, how do we go about doing this? Any threads on the forums at http://www.bitcoin.org/smf/

Here is a list of alternative open source Peer-to-peer social networking softwares

Note that The Appleseed Project has existed since 2004 and is the first.

Bitcoin is free too!

Transferring funds electronically is easy with Bitcoin

I demand Bitcoin

"checkout Bitcoin" ^_^

Two syllables: Bitcoin

Consider Bitcoin

Use Bitcoin ^_^

You can exchange Money Bookers USD, Pecunix GAU, Liberty Reserve USD and PayPal USD for Bitcoins at Bitcoin Market.

Not directly similar, but check out Bitcoin

Or you can use Bitcoin

...and to consider Bitcoin

Have you heard of Bitcoin? It could potentially replace PayPal.

Aren't we supposed to be tech savvy? Just send CmdrTaco some bitcoins.

Their forum discussions on difficulty increases: http://www.bitcoin.org/smf/index.php?topic=43.0

This was discussed on their forums: http://www.bitcoin.org/smf/index.php?topic=75.0

From the bitcoin wiki: Please, do not be alarmed if Bitcoin connects to irc.lfnet.org, it's part of the bootstrapping protocol and doesn't display any sensitive data. This is all part of the bootstrapping process, so no worries that you're participating a botnet!

Right...

Other people have since posted links that back me up - including a link from the authors:

The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes

This only works in some alternate universe where botnets don't existg.

Further:

To modify a past block, an attacker would have to redo the proof-of-work of the block and all blocks after it and then catch up with and surpass the work of the honest nodes. We will show later that the probability of a slower attacker catching up diminishes exponentially as subsequent blocks are added.

The reverse is also true: Honest nodes will have to redo the proof-of-work of the block and all blocks after it and then catch up with and surpass the work of the attacker nodes. Not possible if the attacker nodes have a lower latency (and a botnet can be configured that way).

Nodes always consider the longest chain to be the correct one and will keep working on extending it.

So as soon as an attacker pushes a longer chain, it will be assumed to be correct. Error from a bad base assumption made by naive programmers living in an ivory tower.

the verification is reliable as long as honest nodes control the network, but is more vulnerable if the network is overpowered by an attacker. While network nodes can verify transactions for themselves, the simplified method can be fooled by an attacker's fabricated transactions for as long as the attacker can continue to overpower the network.

Botnets FTW.

Summary: Bitcoin is worthless.

Have a look at the technical paper. Can anyone explain...

They say they combat Moore's law by increasing the difficulty of the hashing problem. How does the difficulty "increase"? Who increases it? How is the decision made in a decentralized way? If it's made system-wide in the middle of processing, do I have to discard a lot of work and restart from the decision point? If it's not, what's the risk any given bit of work will fail? How easy is it to confuse this heuristic?

They say, "New transactions are broadcast to all nodes." Sounds like Gnutella v1. This scales how?

They say a someone with enough CPU power to commit fraud would benefit more from "using it to generate new coins" - but this is hazy to me. And even if you believe this - is it still true when the # of coins is fixed? Or is this not a specious argument?

"A user only needs to keep a copy of the block headers of the longest proof-of-work chain, which he can get by querying network nodes until he's convinced he has the longest chain," And determining the longest chain is practical how? You either ask everyone (can't scale) or ask a subset (vulnerable a variety of ordinary attacks).

"Businesses that receive frequent payments will probably still want to run their own nodes for more independent security and quicker verification." Translation: the simplified payment verification process he mentions: it's useless and he shouldn't have mentioned it.

It seems that each node relies on many neighbors to verify every transaction competitively. I'm still trying to understand how chains formed and maintained. How are blocks really aggregated out of transactions? The specifics - a real implementation - seems not to be addressed in the paper. The devil's in the details. Must an attacker outsmart everyone, or only out-compete those other nodes interested in the same transaction? There just doesn't seem to be any there there.

“As an additional firewall, a new key pair should be used for each transaction to keep them from being linked to a common owner.” Isn’t it possible to play back transaction history and link one key pair to another?

“An attacker can only try to change one of his own transactions to take back money he recently spent.” So let's get to the fundamentals. Why? I have a string of bits I've never seen before. It might be real money, in the form of a non-arbitrarily-large digital “coin”... It might also just be a cryptographically sound invention. Maybe this is the part where I simply got lost. What really makes a peer understand a new string of bits represents “money?" Its cryptographic congruence? The agreement of other peers? Both, right? But then it feels like the answers in real life involve talking to substantially all of the peers in the world, and those peers remembering everything that happens everywhere.

I have to say, I admire the obvious cleverness of the author. But I think this paper needed to be a lot longer than 9 pages, and I have a sinking suspicion that all this amounts to the equivalent of a young cryptographer's first effortlessly breakable cypher.

Interestingly, since you mention Linden Dollars, there is an exchange rate between Linden Dollars and Bitcoins:

http://bitlex.co.cc/

There is also a whole page dedicated to those who are involved in converting Bitcoins to other currencies:

http://www.bitcoin.org/trade

This is a fiat currency just as any other fiat currency has been, and there are conventions within the accounting protocols to make sure that the currency can't easily be inflated. It is the inflation aspect of this currency that is the big issue.

There isn't much in terms of groups or individuals engaged in the exchange of bitcoins to anything else, but that is something relative. That is both because it is a new concept, and because of the nature of those who are running this.

This currency is depending upon scarcity and basic economics of supply and demand, where those who are investing into the concept are hoping that the demand will eventually drive up the value of these virtual coins. That isn't necessarily a bargain I would want to buy into, and the allocation of the wealth is sort of egalitarian instead of relying upon a single person hoarding all of the wealth at the beginning. If you strip away the crazy initial wealth distribution system, it is no different than other fiat currencies.

An interesting counter point here is the establishment of the Deutschemark in West Germany following WWII. In order to get the German economy going again, every German citizen was issued a certain amount of money (I think about 1000 marks but I'm not sure of the exact amount) and then told to spend or keep that money as they saw fit. The Mark has never had any sort of backing other than the faith of the German people to buy something with it in the future. It was eventually replaced with the Euro, but even the Euro still is based in a large part on this initial wealth give-away to jump start the German economy in the late 1940's. Other than buying products in Germany with a Mark, it never had any real value at all.