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That seems to be a good explanation of why the the originator of Bitcoin currently is anonymous: I assume they've done just that.

Here's the first bitcoin block. As you can see, it haven't been transferred anywhere yet.

Click on Next block and you'll see that one haven't been transferred either.

Continue clicking on "Next block" until you get to block 170. That's the first bitcoin block that has been involved in a transfer and after that the block haven't been touched again.

The reward for mining bitcoin blocks was 50 bitcoins back then, so we have at least 170 blocks * 50 bitcoins/block = 8500 bitcoins that haven't been transferred or "cashed out" yet.

A more likely reason for the inventor still being anonymous: He lost the key to unlock all of his initial bitcoins and don't want to be ridiculed.

That seems to be a good explanation of why the the originator of Bitcoin currently is anonymous: I assume they've done just that.

Here's the first bitcoin block. As you can see, it haven't been transferred anywhere yet.

Click on Next block and you'll see that one haven't been transferred either.

Continue clicking on "Next block" until you get to block 170. That's the first bitcoin block that has been involved in a transfer and after that the block haven't been touched again.

The reward for mining bitcoin blocks was 50 bitcoins back then, so we have at least 170 blocks * 50 bitcoins/block = 8500 bitcoins that haven't been transferred or "cashed out" yet.

A more likely reason for the inventor still being anonymous: He lost the key to unlock all of his initial bitcoins and don't want to be ridiculed.

That seems to be a good explanation of why the the originator of Bitcoin currently is anonymous: I assume they've done just that.

Here's the first bitcoin block. As you can see, it haven't been transferred anywhere yet.

Click on Next block and you'll see that one haven't been transferred either.

Continue clicking on "Next block" until you get to block 170. That's the first bitcoin block that has been involved in a transfer and after that the block haven't been touched again.

The reward for mining bitcoin blocks was 50 bitcoins back then, so we have at least 170 blocks * 50 bitcoins/block = 8500 bitcoins that haven't been transferred or "cashed out" yet.

A more likely reason for the inventor still being anonymous: He lost the key to unlock all of his initial bitcoins and don't want to be ridiculed.

There's only there's only 12 million of them in existence. Even at US$1000 per bitcoin, that's not enough value to be mainstream.

Now imagine that this Ulbright ends up in jail, or dies, the keys to this encrypted wallet are lost, and with it these 600,000 bitcoin are lost. I think this is a pretty realistic scenario.

No, he has the bitcoin equivalent of 600,000; Not 600,000 actual coins. The coins themselves are divisible.. so he has a crapton of fractions of coins, adding up to a total of 600,000.

Now what consequence would this be for the bitcoin as a currency, when a significant chunk of its coins are taken our of the equation? It's about 5% of the current total number of almost 12 million bitcoin in existence (and 3% of the theoretical maximum of 21 mln)

Umm, bad news: As of this submission, there were 11,800,375 coins created so far. The "theoretical maximum" is 21 million coins, yes, but you forgot each coin is divisible by https://en.bitcoin.it/wiki/Myths#21_million_coins_isn.27t_enough.3B_doesn.27t_scale

">100,000,000. So in actuality, there are 2,099,999,997,690,000 units of currency that can be traded without modification to the current protocol. What most people don't understand about bitcoin is that even if a few coins here and there fall out of circulation, or even more than a few, so long as there are a sufficient number of atomic currency units available for trade, the system will function perfectly. Trading in bitcoins is more like trading in company stock than in actual currency -- they can be divided, aggregated, etc., etc. A bitcoin is, at the protocol level, just a token for a massive transactional log called the 'block chain'. It doesn't matter how many bitcoins are generated, or how many fall out of circulation, as long as enough remain in circulation to cover the transactions since the last block in the chain was created.

Another thing of note, is that apparently a single bitcoin user managed to amass 5% of the total number of that currency in existence. Those numbers potentially give that person massive market power: dumping them all on the market in one go would cause the value of bitcoin to crash. Smaller quantities have that potential already.

That person is now no longer a person, but a government. Just a minor footnote. Now, all that said, here's the thing about bitcoins... should we ever run out of them for whatever reason, we can always 'reset the clock' as it were -- start a new seed, a new block zero, and start building a new block chain from there. This isn't like IPv4 address space exhaustion; We just plug in a new seed and viola, Bitcoin Mark II.

Eeeh... all that said, I don't trade in bitcoins and I think the entire business is silly but if we're going to talk turkey, we should at least be accurate in our assessments.

Honor system, but if you do anything to get on their shitlist they'll eventually find it out when you try and get it converted into salable assets.

And bitcoin's design matchess the 'well, we don't really have any way of knowing; but you are in serious trouble if we find out' enforcement model pretty well. Watching the block chain is already a thing in suitably interested hobbyist circles, and doing so doesn't require any blackhat wizard-fu, it's a protocol feature. For the moment, the transaction history is also relatively small.

None of that helps them connect a person to one or more wallet addresses; but if they do, by other means (probably if you try to cash out, possibly by surveillance of improperly anonymized use), they get a full transaction history automatically.

You can bet the NSA has a database with every bitcoin transaction made starting at some recent point, and in the future will be able to unwind the entire history of any bitcoins in your wallet.

Leave NSA alone. Every BTC user has an entire copy of the blockchain, and there are Web tools to explore the blockchain, searching for transactions, addresses, and stuff.

Your only protection is in the fact that nobody can easily associate an address with your real world identity. If you only trade in BTC this will stay true. However as soon as you start buying or selling non-BTC assets (currencies, goods, etc.) your expense address becomes known and can be matched to you.

a block is essentially a transaction in a ledger (the blockchain) which updates which accounts (addresses) hold what balances. [...] You can't say "this bitcoin came from those found in block X".

Sorry, but with the exception of your point about parallel branches, you have that factually incorrect in every meaningful way.

"Accounts" do nothing more than sign blocks. They don't exist in any meaningful way in the system except as keys to sign blocks.

And yes, you most certainly can trace any Bitcoin (or fraction thereof) back to its origin block. You can even trace their ancestry all the way back to THE origin block, though once you pass the one it came from, not much point in going futher.

If you sincerely consider yourself correct and don't just post this as yet another Bitcoin hater, I recommend you take a look at BlockExplorer. Take the time to trace through just a few transaction, and you'll quickly understand exactly what really happens when you "spend" a Bitcoin.

2. Bit coins? Really? here is a guy who is publicly saying he committed a crime. FBI goes to the Bit Coin Servers with a warrant sends the million and tracks every Bit to see who finally receives it. Oh it goes to a PO Box... That is OK, you get an FBI agent waiting right next to that PO Box to arrest anyone who opens it.

Offtopic, but that's not how bitcoins work. The truth about bitcoins is that there are no bitcoins, just the global transaction log, which is replicated between all bitcoin clients. No warrant is required to read the log, just use http://blockexplorer.com/. If Romney pays the log will contain an entry stating that the hash number the blackmailer provided owns bitcoins worth 1 milllion dollars.

the creators ... have long since turned their fake bitcoins into real spendable dollars

The public blockchain shows that the majority of coins generated in Bitcoin's first year have not moved.

True but bitcoins are completely untraceable

Ok, so here's how Bitcoin works:

• Step 1. Distribute the entire transaction history to everyone in the P2P network, much like how a git repository works.
• Step 2. Have a bunch of people do lots of expensive hashing so that anyone in the P2P network can tell which "branch" of the repository is the official one. ("The branch that was the most difficult to compute" is the one that wins.)
• Step 3. To see how much money you have, look at the transaction history for the accounts that you control.

Bitcoins aren't really a thing you can have. Even the physical "bitcoins" you can buy aren't really coins. They're just private keys that are allowed to sign transactions on behalf of accounts that have a non-zero balance.

The only reason why people talk about Bitcoin as being untraceable is that anyone can create accounts, and there aren't necessarily names attached to accounts, but it would be too hard for authorities with warrants to catch you if they suspected you. The entire transaction history is still there, forever, for everyone to see!

http://blockexplorer.com/

Well at least some of the money (0.31337BTC) went to the LulzSec: http://blockexplorer.com/tx/2a09f8ca584dd60beff72e3b09337c4886653eecdc915e9e7d4588ecca127504#i1155235 There's a connection, but I agree it's pretty tenuous. There's never been much in the LulzSec address either. They wouldn't be dumb enough to dump anything substantial there. If that was my account I'd immediately send out any donations to that address to traceable bitcoin addresses (a la "please donate to my blog") to frustrate the authorities looking for them.

Where's George?

How is that different from cash? If I give you a $20, no one will know it happened except for us.

Until that $20 or $25,000 is spent on something that draws a lot of unwanted attention - like the BMW parked out front - or until someone (perhaps your wife) becomes aware that assets are disappearing from your accounts.

But how does BitCoin vs. cash change all of this?

If an unexpected BMW appears in front of my house, what difference would it make if I paid cash for it, or BitCoin?

If money is leaving our accounts in a way that my wife did not expect, what difference would it make if it's my wallet, or my BitCoin wallet?

If anything, BitCoin is actually easier to trace than cash. The full history, forward and backward, of each BitCoin is always publicly available. For a supposedly anonymous currency, it sure isn't very anonymous if someone can associate a coin or an address with you.

It takes some pretty careful steps to maintain your anonymity on BitCoin, and I wouldn't trust most people to be able to get it right. Most anonymity-loving people would be well advised to stick with the familiarity and simplicity of cash.

They are traceable within the system, but not to an actual person.

That's flat wrong since it uses unique keys for signatures. If you can get a person's signature, which you can, you can show they had it. Repeat and you have the whole chain.

What do you mean "person's signature"? There is no one signature for a person. Keypairs and thus their addresses (a bitcoin address is a human-readable (base 58 encoding) representation of the hash of the public half of a keypair) are generated as needed like a UUID. Any given person could have any number of addresses and there is no way within the system to tell what physical person that address belongs to. I could easily generate dozens of addresses and shuffle bitcoins between them all day and it is not possible from looking at the blockchain to know out that I'm just sending coins to myself.

Keypairs are not associated with a particular person like the usual usage of public key encryption (pgp, executable signing, etc.), where you have your public key hosted on a well known keyserver and have your name and information attached (though one of the popular trading systems for bitcoins (bitcoin-otc) uses gpg signatures to identify/authenticate users and organize its rating and web-of-trust system), it's not required to use bitcoins).

For example, address 16kfodhAckE8FZQpNcDwzG3tDGxypGTdwm. Who is behind it? You can see the transactions there, but is it mine? Is one of the addresses that sent coins to it mine? Which one? None of that information can be found from the blockchain.

Being as that address has been publicly advertized (it's used for accepting donations) by its owner (ufasoft, who made one of the popular CPU-based mining programs), we know at least the online identity of the owner. But we have no idea what other addresses he owns. For all we know (actually, I know at least one of them is a real donation, as I sent it, but all the other ones are mysteries), all the transactions there are him "donating" to himself.

Why is it that every explanation of bit coin, including your attempt, is incoherent. Given it can't be explained I think it's a scam.

My explanation mostly focused on the problems of credit cards ;) Bitcoin can be explained. Lots of people understand it. I understand your reaction, but "this is complicated" does not imply "this is a scam".

Let me try and address your questions.

(1) Bitcoin is a P2P mesh network. All nodes know about all transactions because they are broadcast. This is similar to how routers on the internet know where to route packets: all participants maintain a shared data structure. So there are no transactions that "never intersect".

(2) This is a "double spend". The answer is that one of them will win. Because of how transactions are broadcast a delay between the transactions of only a second means the first is much more likely to win than the second. But if you were to try spending the same coin to two destinations simultaneously the network would become briefly confused and which one wins would be hard to determine. After a few minutes a block will be found and the confusion will be resolved: there will be a clear winner.

(3) You can see the "trail of hashes" (actually signatures) at the block explorer. Conceptually it grows forever. In reality it's possible to delete transactions that are old enough, though the software people use today does not implement this optimization. So storage requirements won't grow forever, they are proportional to the amount of outstanding coins waiting to be spent.

(4) Oddly enough there's actually no such thing as a bitcoin, in the system itself. Transactions combine and split value. For example a transaction may import 30 BTC and then have two outputs, one of 10 BTC and another of 20 BTC. Those outputs are now available for spending. You can see this in the block explorer which may make it clearer.

(5) Yes, like any currency the ability to forge perfectly dooms the system. Example: at one point South Africa had to recall and destroy all copies of a particular type of bank note because a Nigerian gang found a way to make perfect forgeries. Bitcoins can't really be "forged" as such because the way they are created is by a form of mutual agreement amongst all parties. The closest equivalent would be if elliptic curve cryptography was broken. ECC has been around since the 80s and is extensively peer reviewed. It's believed to be just as good as RSA. The production rate is regulated by the difficulty rules. Coins are distributed in type of lottery amongst the people who are securing the network with their hash power. This is where things get complicated and if you want to learn more about that I suggest you read Satoshis white paper.

(6) At current network speeds a botnet of around 500,000+ machines could delay payments from going through or re-order them, allowing reversal of transactions. It doesn't open the system to arbitrary changes like stealing other peoples coins or creating value out of thin air (exception: "lightweight mode" clients as I described before, but nobody uses them today). There are only a handful of botnets that large, mind you.

If you have further questions you could try Satoshis paper, IRC or the forums.

"Mining doesn't just generate coins, it processes transactions, which makes the whole thing work."

So the processing power is actually put to use in the underlying system, and not just wasted?

Correct. The subsidy (then later, the transaction fees) received for generating a block is a reward for providing the processing power to operate the system. As I said, the subsidy that everyone current mines for is just there to bootstrap the system by gradually introducing the full quantity of bitcoins.

Generating a valid block and adding it to the block chain basically adds all the transactions in that block to a permanent record of every transaction that has ever occurred, like a massive accounting ledger. You can peer at this conveniently via the block explorer site (http://www.blockexplorer.com).