Bitcoin Releases Version 0.3

Teppy writes "How's this for a disruptive technology? Bitcoin is a peer-to-peer, network-based digital currency with no central bank, and no transaction fees. Using a proof-of-work concept, nodes burn CPU cycles searching for bundles of coins, broadcasting their findings to the network. Analysis of energy usage indicates that the market value of Bitcoins is already above the value of the energy needed to generate them, indicating healthy demand. The community is hopeful the currency will remain outside the reach of any government." Here are the FAQ, a paper describing Bitcoin in more technical detail (PDF), and the Wikipedia article. Note: a commercial service called BitCoin Ltd., in pre-alpha at bitcoin.com, bears no relation to the open source digital currency.

Comments

How secure

[Tisha_AH]

I would like to see what sort of guarantees are in place for virtual currency

Re:How secure

[sjames]

Given that the gold standard is gone, I'd like to see those guarantees too. Your paper money is virtual as well.

Re:How secure

[hitmark]

i would say that any currency is backed by the goods and services one can buy with it.

the one way to make sure a currency is usable in daily trade is for it to be accepted as tax payment by local government.

Re:How secure

[Anonymous Coward]

Don't forget, you can always use your paper money as toilet paper. That's why I keep a few American dollars in my wallet. You just never know when a washroom might run out of toilet paper.

Re:How secure

[longhairedgnome]

That's...actually a good idea...

Re:How secure

[Anonymous Coward]

I would like to see what sort of guarantees are in place for the value of gold. Sure, it's reasonably rare (for now; just wait until it'll be economically feasible to extract the gold from sea water!), and it's got attractive chemical properties, but beyond that, gold is every bit (no pun intended) as much a fiat currency as paper money: it works because everyone shares the belief it's valuable.

Re:How secure

[FooAtWFU]

Money is money because people believe it is money. Gold-backed currency needs to have people believing that the government is actually going to turn the currency into gold (and not, say, end the gold standard). And if you trust your government enough to do that, today's system isn't much more of a stretch: trusting the government to keep the value of your currency "relatively stable" without any particular commodity attached to it.

And commodity prices are subject to wild swings too, you know.

Re:How secure

[sjames]

Agreed, but it's got thousands of years track record.

Re:How secure

[Anonymous Coward]

how do these big fat women always find the exact center of a doorway or an aisle so that no one can get around them

Practice. If they get too close to any wall their gravity might collapse it towards them.

Re:How secure

[Anonymous Coward]

All money is virtual. Direct barter is the only thing that isn't, and even then only after the transaction has been completed. Precious metals are no different. The price of gold has gone up to 4x what it was a decade ago and it can drop again just as quickly. Clearly it isn't a reasonable, stable store of value. Also, traditionally the value of gold and other precious metals has generally been explicitly set by nations laws. For example the one sixteenth rule for the value of silver to the value of gold. So, although precious metals may have intrinsic value (the corrosion resistance of gold, its malleability and decent conductivity make it useful in many applications in small amounts, and silver is the most conductive metal and is vital in a number of chemical processes such as traditional photography) that has little relation to their traditional value, which has always been artificial. Sure, it's rare, but there are plenty of rare things in the world and some of them are considered valuable and others no-one cares about.

Re:How secure

[nomadic]

Gold-backed currency needs to have people believing that the government is actually going to turn the currency into gold (and not, say, end the gold standard).

It also requires people to hold a vastly inflated view of the value of gold because it is shiny.

Re:How secure

[sjames]

The thing is, you're comparing the value of gold against another currency. That currency is subject to a lot of inflation, so the value of gold going up indicates it's superiority as a container of value.

Re:How secure

[smash]

i would say that any currency is backed by the goods and services one can buy with it.

this is find and dandy if it is a fixed quantity of goods and the currency is bound to that by law. eg, the gold standard.

in the current situation with the us dollar (world's "reserve currency", lol) being backed in this manner by thin air, there is nothing to stop the government simply creating more to get themselves out of debt (inflation) thus reducing the value of goods your single dollar can buy (what you SEE as inflation).

Re:How secure

[aliquis]

Agreed, but it's got thousands of years track record.

So why not base/fix the currency on sex?

Re:How secure

[smash]

It doesn't matter what you can use it for, so long as it is a FINITE resource and isn't easily replicated. Gold costs labour and resources to extract. The government can't just whip up a million ounces out of thin air to inflate their currency with. That gold is a result of human labour and resources spent. Fiat (paper, electronic, non backed) money can easily be replicated for far less than the labour quantity required than the goods/services it can purchase. It is thus liable to abuse by a government via rampant inflation.

Back near the end of WW2 the german paper money was worth less than the firewood it could buy, so people were burning it to keep warm. The US is in real danger of that situation occurring over there in the next few years due to rampant government spending without the actual taxes to pay for it.

Re:How secure

[MikeFM]

Money needs to be hard to replicate. I find it hard to believe in any digital currency that isn't managed by a centralized authority. The PayPal / Credit Card model seems the most realistic to me. It's shameful that our government doesn't provide a digital currency. The current system is akin to the days when any old bank would print their own currency. The government wants to tax Internet transactions.. well most of us pay 3+% to credit cards or PayPal.. if they'd provide their own implementation they could collect those fees without causing prices to rise.

Re:How secure

[smash]

The price of gold has only gone up when measured in fiat dollars. What has really happened is that the value of your dollars (and the rest of the worlds fiat money) has gone down. The resources/labour expended (real cost) to extract an ounce of gold hasn't changed that dramatically in the past decade.

Re:How secure

[Teancum]

i would say that any currency is backed by the goods and services one can buy with it.

the one way to make sure a currency is usable in daily trade is for it to be accepted as tax payment by local government.

More correctly, any fiat currency (to clarify things... as opposed to a commodity-based currency such as a gold, silver, or grain backed currency) is based upon the faith of those who participate in and use that currency to buy goods and services with it in the future.

That is a huge deal and is much different than simply the mere ability to buy goods and services. A government could collapse, the currency could be devalued, or that faith in general could be broken through a variety of other means.

Perhaps the most significant example of a faith-based currency (faith in the currency, not based upon religion) was the Iraqi Dinar. After the fall of Saddam Hussein, there were many people who thought that it was going to collapse just as other currencies issued by governments that no longer exist have also collapsed. The Nazi German Mark and the Confederate Dollar are both examples of currencies that inflated in value to infinity (aka became worthless). In the case of the Iraqi Dinar, the Iraqi people were both not exactly pleased with the American occupation, and there really wasn't anything to replace the currency. Surprisingly, due to scarcity (no more money was being printed as the government bureaus making the money were destroyed) and a desire by the Iraqi people to continue on economically, the Dinar actually increased in value. In other words, the Iraqi people continued to have faith in that currency to buy future goods and services.

While certainly governments getting involved with deliberately inflating currency can destabilize that currency, it is also true that at least for awhile a currency can remain stable due to the faith of the people possessing that currency to buy something with it in the future.

It should also be noted that this is true not just for fiat currencies "in the real world" but it also applies to virtual economies in video games and MMORPGs. Surprisingly even a single-player video game can still have this impact, where a player may hoard or spend with abandon any virtual money found based upon the principle that either the money is plentiful (or without stuff to buy) or of significant value based upon the supply of that money and the potential to obtain things with it. In the case of multi-player games, it becomes a huge issue if virtual markets open up for exchange of goods and "services".

Re:How secure

[nomadic]

It doesn't matter what you can use it for, so long as it is a FINITE resource and isn't easily replicated. . .That gold is a result of human labour and resources spent

A lot of worthless minerals are hard to extract I'm sure. What you're saying sounds even worse than just arbitrarily saying gold is valuable, you're saying all this work went into essentially creating something that is not really that valuable, and that work somehow added to the value?

Re:How secure

[Anonymous Coward]

At least 1oz of gold is worth 1oz of gold. In the case of dollars, a $100 bill is worth about the same as a $1 bill in tangible terms. You see, the same really neat paper (actually fabric) used to make the dollar plus the ink is the tangible worth. Sew a bunch together, and you can have a nice cape. Maybe you can affix some price to the pretty picture ... I don't know.

As long as the US gov't is around to say that the dollar is worth something (and they don't triple the number of dollars in circulation in a short amount of time), the dollar is worth more than it's raw materials.

This principle roughly holds for other fiat (look it up) currencies. At least gold is worth gold.

Re:How secure

[Anonymous Coward]

For something to be used as money it has to be liquid (easy to store/trade) and scarce. Either because people can't yet reproduce/mine it below its cost (gold/silver) or because some enforcement agency (the state) stops people from reproducing it faster than the people who control the currency. The rate at which the people in control create extra money causes inflation. When people are in control of the production of money, it is important for the public to have faith that those people will limit the rate of production (e..g banknotes, or bits in computers approved indirectly as money by a central bank)

Actually very little stuff is useful as money without a state, just because it is either bulky (e.g. oil) or easy to reproduce/forge.

Re:How secure

[OeLeWaPpErKe]

I wonder why that matters. Gold has a fixed value, since there is finite supply. The supply of gold cannot be reasonably extended by even trace amounts until our sun goes nova (again).

Of course, that goes for any element. Makes sense to pick a relatively rare one.

OTOH, presumably materials that are inherently useful would be better. Say uranium-235, or plutonium. I doubt the government would agree, but it would not be a fiat currency (if the government would allow it you can extract massive amounts of energy out of uranium in your kitchen. Nuclear power plants, in real life, don't have to cost more than 50$, the rest is government safety regulations at work. Furthermore, approaches like using your kitchen were how it was always done from 1910 to 1946 or-so).

Re:How secure

[Anonymous Coward]

Gold itself isn't worthless. Aside from its more luxurious uses in jewelery and as bullion, it is a valuable metal used in many industrial processes. Printed circuit boards, for instance, often use an alloy involving gold for connecting components.

Re:How secure

[sjames]

That would add new worlds of meaning to getting screwed by the used car dealer.

Re:How secure

[Anonymous Coward]

Its shininess is not why people value gold... This is supposed to be a place where people discuss things logically. At least put a little effort in.

Re:How secure

[Teancum]

The track record for gold is that it is generally a scarce metal, has incredible value due to its many varied applications and attributes (a highly malleable metal that doesn't oxidize very easily and melts at "modest" temperatures, has a high electrical conductivity, hardly any toxic side effects when in contact with organisms, and can be pounded into incredibly thin strips for decorative purposes.... plus one of the few metals that doesn't have a "silver" metallic color) and has been historically difficult to extract from raw materials.

In other words you have both high demand and low supply. Even if the supply of gold were to increase 100x in the world, there would actually be sufficient applications that demand would rise considerably with a modest drop in price. In other words, on a supply/demand chart, increases in supply generally don't offset with a corresponding drop in value overall. In fact, the "market cap" of the overall gold market (the total value of gold to some alternate non-gold based currency) would actually increase with increased supply. To put it yet another way, if somebody does figure out how to extract gold from seawater or comes up with some sort of alchemy process to make gold via "cold fusion" or some other crazy method that hasn't been discovered so far, increasing the supply of gold, it would still be considered a valuable metal. The only difference is that you would likely be buying it at grocery stores for wrapping up sandwiches or something else in a fashion much more pedestrian than simply hoarding it as bars of metal or coins. It may even be used as coins still, but for things like cent coins.

It would take a significant change in technology or even a new kind of physics to come up with a way to make gold as common as iron. I just don't ever see that happening.

Re:How secure

[Anonymous Coward]

Agreed, but it's got thousands of years track record.

So why not base/fix the currency on sex?

because then it would be just like copyright, a model of artificial scarcity that does not reflect the economic reality. that is women are about 52% of the population so there is no shortage of pussy. they selectively and deliberately withhold it to artificially inflate its value sort of like any other cartel. unless you think the RIAA is a great organization that benefits all of mankind then you can see what is wrong with this.

incidentally that is why average women are so offended at "slutty" women - not because they are so moral but because women who do not subscribe to the artificial scarcity model threaten to devalue pussy for all women, just like new competition in a monopolistic marketplace, and this cannot be easily tolerated by the members of this cartel. thus the stigma of being called a "slut" is a barrier to entry for would-be competitors who are not members of the unwritten cartel. that cartel is not a conspiracy but is arranged by the female instinct to raise the cost of sex. a little evolutionary psychology will explain most of this except that the religion of political correctness has watered it down a bit, no one wants to admit how ruthlessly manipulative women tend to be in any close relationship or how oblivious they are to this fact.

anyway you do not want to base a currency on this model of whimsical and artificial manipulation. a currency should reflect the economic reality as closely as possible and the female domination of sex makes this impossible to use sex as a basis. besides, the thing about currency is that one dollar spends just as well as any single other dollar. sex does not work this way. sex with a beautiful woman would not be as "current" (spendable) as sex with an old fat sow.

in summary, this is just a really bad idea.

Re:How secure

[PopeRatzo]

the one way to make sure a currency is usable in daily trade is for it to be accepted as tax payment by local government

That's interesting, but as someone who participates in some of the larger barter organizations, I'd say that "paying for taxes" only goes so far for establishing the validity of a mode of payment.

Re:How secure

[tthomas48]

Exactly. If you're really into gold it's probably a good sign you've never visited a part of the world with a thriving black market. Money is money because people accept it. It doesn't matter how much you believe gold will save you in an apocalypse, if in the apocalypse everyone decides to keep using USD because it's easier to transport and people accept it.

Re:How secure

[nomadic]

I think it is well-established that the currency of choice for post-apocalyptic civilizations is bottle caps.

Re:How secure

[OldeTimeGeek]

It would definitely give a different meaning to "What would you do for a Klondike Bar"!

Re:How secure

[minsk]

Money needs to be hard to replicate.

Well, close. Money needs to be hard to replicate _without getting caught_.

Part of the design of digital currencies is making it so that double-spending is likely to be detectable. Bitcoin seems to broadcast all transactions to the network, but I admit I just glanced at their technical paper.

Re:How secure

[hitmark]

and what about saving/hoarding? would that not lead to deflation?

no the real problem is the concept of interest, that one can earn money on money alone.

this on top of there being no clear concept of what money is. Is it a object, is it an idea?

what if its a nationally accepted IOU? the only way one can cover taxes? End result everyone wants it (unless one want to fight the government over the taxation, but then thats a different issue). Then is the question of how those IOU come into being. How about having the government spend it into existence on public projects like roads and schools? Any kind of inflation can then be counteracted by a increase in taxes to remove excess currency from circulation.

but this way of dealing with money undermines the idea of a loan having interest. But then who benefits from that idea except those providing the loans? Especially when they are allowed to loan above their capacity (fractional lending)? End result, they are actually printing money on each loan, and expecting to be covered for it with interest. Meaning they get 100+interest for each 100 they loan out with a actual reserve of 10.

going back to gold wont fix the banking system.

Re:How secure

[hitmark]

while not having any numbers of models to back it, i would claim that the value increased thanks to there continual circulation at the same time as some where holding onto it rather then spending it. This then deflated the overall supply, making each "token" move valuable.

i will claim that a currency can be held stable by there being no interest lending, and there being a central authority that define the total amount that should be in circulation at any one time. The tokens however must be of a material thats plentiful so that any loss by destruction can be replaced.

heck, i think there are various smaller communities that operate their own local fiat currency in europe. And one of more of the original US states operated a local fiat currency on a similar principle with success.

Re:How secure

[hitmark]

i guess any concept or system breaks at one scale or other. But for the daily trade between peers in the local market, i will claim that it holds.

Re:How secure

[CuriHP]

The value of gold has not remained fixed either. It is subject to supply and demand like any other commodity. The cost to extract it is only the supply side of that equation. The demand side can fluctuate wildly. The price of gold has gone both up and down when measured in fiat currencies.

Re:How secure

[aliquis]

so there is no shortage of pussy

As long as you live by religions forcing marriages with only one partner or arranged marriages maybe.

Out in the real world there that isn't the case however some men get more sex than others. And hence a scarcity for pussy arrived among the less successful males.

Though I mostly thought about a fixed price. As in, as it worth to shag this guy for a piece of bread? Maybe not. Would I do it for a month in my apartment? Definitely. And so on ;d

but because women who do not subscribe to the artificial scarcity model threaten to devalue pussy for all women

I can see how this affect them, since then only having a pussy won't take you that far. Maybe you need to provide other benefits aswell.

But personally that's not my biggest problem, my biggest problem is that I as a man don't like slutty women. Why? Is it because of the competition? Deceases? The risk of having to provide for someone else children? Losing her for someone else?

In a world there I could have sex with no obligation I assume much of that would had been solved, maybe I just need to live that way ..

I'm the better man so I don't fuck sluts?

the thing about currency is that one dollar spends just as well as any single other dollar. sex does not work this way. sex with a beautiful woman would not be as "current" (spendable) as sex with an old fat sow.

Got me thinking about Greece, the euro and dollars and so on.. Devaluation wouldn't work in the comparison so this is mostly for fun but I don't want to look racist. So don't take it too serious:

Well, nature has solved this for us aswell. Sex with a woman from Greece for instance would had added hair into the equation. (I don't carry this too far though since there's probably a lot of fat chicks in the US ..)

Oh, the allmighty yen! ;D

Re:How secure

[Ironchew]

Exactly what I was thinking. If you're going to back a currency with anything, why not do it with something inherently valuable to living things, like distilled water?

Re:How secure

[jthill]

Tying fiscal policy to the amount of shiny stuff we can dig out of the ground is far sillier.

If the amount is fixed, then as the economy expands the available value per coin increases and prices drop: instant, guaranteed deflation, getting worse as the rate of value growth increases. If you want to sell something new into a stable economy, everyone else has to drop their prices to make room for you.

Fiat currency may require us to appoint agents to keep the money supply and the value supply roughly in sync, but at least it provides the mechanism to do it. With the ooooh-pritty-shiny-stuff system, so appealing to people who can't think when there's pritty shiny stuff in sight, money and value are absolutely guaranteed to get out of sync, badly. very fast, with no remedy at all. Unless of course the economy is totally stagnant, with no new wealth being created. Yeah, that's what we want.

Re:How secure

[jo42]

the value of gold going up indicates it's superiority as a container of value

No. It is an indicator of human stupidity and greed. Nothing else.

If people valued polished turds and considered gold to be worthless, then polished turds would be the monetary standard.

Re:How secure

[aliquis]

Or maybe he's the one who got screwed?

Re:How secure

[duane_robertson]

Money is money because people believe it is money.

Absolutely correct. Any mention of gold after that is only relevant because there's an antique bias toward the metal inflating its worth beyond its actual value.

Money is money because you can spend it.

Re:How secure

[jesset77]

In Snowcrash, after hyperinflation the federal govermnet had to post threatening signs in the restrooms about how defacing currency is illegal, specifically because the toilet paper cost more per square foot than the bills. :S

Re:How secure

[nomadic]

in the current situation with the us dollar (world's "reserve currency", lol) being backed in this manner by thin air, there is nothing to stop the government simply creating more to get themselves out of debt (inflation) thus reducing the value of goods your single dollar can buy (what you SEE as inflation).

Great, as having more debt than assets (all student loans), I benefit from inflation. Bring it on.

Re:How secure

[abigor]

I'm not sure why you're laughing at the US dollar's status as the world's reserve currency, but anyway, historically inflating one's currency is a good way to reduce debt.

The US has another advantage: Treasury Bills are the world's most liquid asset. These two reasons are why Europe, for example, is quite screwed regarding matters of debt, while the US is nowhere near any sort of crisis.

The gold standard wouldn't solve anything - limiting the money supply comes with a whole raft of problems.

Re:How secure

[ObsessiveMathsFreak]

Gold-backed currency needs to have people believing that the government is actually going to turn the currency into gold

More fundamentally, it needs people to believe that Gold is actually worth something. At the end of the day, Gold is just another metal, and not even an especially rare one. While it has several advantages, most of Gold's monetary values derives from cultural factors, not the inherent rarity or utility of the metal. The spike we're seeing right now in the price of Gold has nothing to do with the supply or industrial demand for it, but rather is solely down to it being perceived as a safe harbour in uncertain times. And it is seen as such only because it is seen as such--circular logic being all too common in finance.

The day someone discovers vast gold deposits somewhere, a cheaper method of mining, or a more desirable material, gold too will go the way of so called "fiat currencies".

Re:How secure

[Pentium100]

However, it is software, and software has bugs. At least it is easier to authenticate a physical item, also it is easier to make it difficult to copy. If this software works as intended, great, but what if, say, people start using it and then someone finds a way to copy the coins? What if he posts it on the internet, like all DRM cracks are posted?

At least with paper money, in addition to the knowledge of how it is made, you need special materials and hardware, all of which is tracked by the government (especially if it is useful only in printing money - the special inks and printing plates for example).

Re:How secure

[westlake]

Given that the gold standard is gone, I'd like to see those guarantees too. Your paper money is virtual as well.

So is your bank account. Your life insurance. Your retirement fund. Your line of credit. Nothing but entries in a ledger.

Re:How secure

[MikeFM]

But who is going to enforce such a currency? Why not counterfeit and if caught create a new identity and go at it again?

Re:How secure

[osgeek]

And if history shows again and again that the people in charge of keeping money supply and value supply roughly in sync can't be trusted with that much power, then is the shiny stuff silly?

Re:How secure

[shitzu]

Paper money is real - you can touch it. The guarantee is virtual.

Re:How secure

[twostix]

Yes you describe the history of the world perfectly, those silly people of the last century with their struggling economies and debt ridden governments. Compared to the last thirty years of the fiat system with our booming economies and lean mean fiscally sound governments and amazing growth, our masterful wizards of the economy and "fiscal policy" analysts whos "advanced theories" still boil down to "print more money". Well the people of the last century were just complete Neanderthals who knew *nothing* of creating wealth in comparison to us and our advanced scientific economics! .

Because as we all know the gold standard surely prevented the American economy from growing until it did away with it in 1970, then it was amazing! The economic growth of last 30 years have been just spectacular compared to the last century.

Same with the UK when it left the gold standard, lucky they got off it just in time so that they could become a super power. Hold on...that doesn't sound right. A two bit country mired in debt, stagnation and unemployment with 1 in 4 people employed by the government with infinite government spending and relentless inflation. That's better.

And China who hold vast gold reserves, the fools they'll never grow while they constrain themselves in any way to that boring old system! It's like they've read a history book and seen that every powerful nation ever has risen to power by constraining its government spending to the physical representation of the nations wealth - rather than the fictional representation that reserve banks present.

What ever you are describing in your post is one of pure fiction in your mind, and absolutely nothing to do with reality and history. Countries rise to power on the gold standard, once in power they fall prey to hubris and unshackle themselves and (more importantly) their governments, move to fiat systems then end up with governments chewing up 20%, 60% - 150%! of their economic output, writing blank cheques to themselves and printing infinite amounts of money http://www.chartingstocks.net/2009/03/chart-of-the-us-money-supply-1917-2009/.

All the while the plebs sit around being *glad* that a handful of bankers and political economists are bankrupting the country because we sure wouldn't want to go back to how it was in the 1920s, 1950s or 1960s when a lowly unskilled worker could actually afford to buy a decent house and take care of his family on his own wage.

Also you do realise that most countries tried fiat systems before the last era of the gold standard don't you? In the 18th and 19th century they were such disasters that they all moved back to the gold standard post-haste. There is a great deal of talk recently of a new international currency based on...the gold standard.

Re:How secure

[MyFirstNameIsPaul]

What is the problem with deflation? In the U.S. we had deflation for over a century and it worked out quite well. (Spiral deflation is only theoretical - it has never happened.) Hard currency has been used for thousands of years and there are no indications that any economy has resorted to mass saving or hoarding. People generally enjoy spending money and growing their wealth; it's human nature.

Inflation, on the other hand, is the root of much evil. It has utterly crushed economies and created conditions ripe for mass-murdering, genocidal tyrants to come to power. Deflation has never done such a thing.

Money makes trade between two parties much easier because without some form of currency we would have to rely on a Coincidence of Wants. It also acts as a method of informing producers what consumers are desiring, generally in a way that is much more efficient than centralized control.

There is nothing wrong with interest, per se. It allows those with capital an opportunity to increase wealth and those without capital an opportunity to create wealth. Both parties win.

Increasing taxes generally has the effect of reducing economic activity (Laffer Curve). Using taxes to control the money supply would have the effect of destroying production.

The concern of the solvency of the lender should only be for the interested parties. However, in your example of fractional-reserve lending this can really only be practiced with paper currency. In order to make a loan, the currency must be provided. If a bank has $10 of deposits and wishes to make $15 in loans, it must find the extra $5 from some place. In the case of a hard currency, it must find another party to provide the $5, but in the case of a paper currency, it simply gets the money from the central bank at some interest rate that is probably at a rate below what the market would demand for that money.

Inflation, even a 'small' amount, has the effect of encouraging malinvestment. When people know that come time to retire, that $10,000 they added to their savings this year is only going to be worth $5000 when they retire, they know that they must put this money some place to protect it from inflation. But people are generally poor at choosing places to invest their money, and they are downright awful when they feel pressured to do so. They invest in stocks that don't give dividend yields; they invest in real estate and have no idea why. In short, they invest in things that are beyond their understanding because they feel pressured to do so. OTOH, if there were instead a small amount of deflation, convincing people to part with their money would be considerably more difficult. Since the average person could be confident in knowing that a penny saved is truly a penny earned, not some fraction thereof, they would stick with what they know, and the economy would grow more efficiently.

It is the paper currency that is the root of evil. Many try to speak of it as if is some new concept; the next evolutionary step after gold, but fiat currency systems have been around for thousands of years, and every society that ever engaged this policy has gone bankrupt, including Ancient Rome.

Re:How secure

[Myopic]

For fifty years, the only valid currency has been crude oil. All national currencies trade against the cost of a barrel of oil. What makes you like gold? It's just soft yellow metal. You can't fill your gas tank with gold. Military might (which is the backing for most national currencies) is certainly more useful than your silly gold.

Re:How secure

[minsk]

Approaches vary but that is far from an obscure threat. Some, like I believe Bitcoin does, do a global check of the current owner of the coin (and yes, handle the obvious race conditions). Others make it relatively expensive to establish a new identity, provide probabilistic discovery of double spending...

Re:How secure

[Myopic]

Yes, still silly. But maybe not so silly as the alternative -- it would depend on the severity of the relative silliness.

Luckily, it's a moot point because so far, even though imperfect, history has shown again and again that the people in charge do successfully seem to keep things more or less upright.

Re:How secure

[iserlohn]

Europe is not screwed but the Eurozone is in a way. It's not nothing to do with T-Bill or Gilts (UK) or any other government bonds (at least not directly).

The Eurozone is screwed because very simply put, it is very hard to have a single currency when you don't have a single government. The federal government dishes out billions of dollars to states which require subsides (such as Alaska and Alabama) at the expense of states which have positive net federal tax receipts (such as New Jersey and New York). When the European Union has to do this to help out poorer states, the procedure is complicated and ultimately the power is held by the national governments of the member-states. Witness the German bailout of Greece for example. This makes the currency fragile and amplifies uncertainty in markets.

Re:How secure

[minsk]

At least it is easier to authenticate a physical item, also it is easier to make it difficult to copy.

Digital information is *very* easy to authenticate and *very* hard to forge -- think SSL -- in comparison something like physical bills.

Digital information being easy to copy means that you *detect* the copy, rather than trying to *prevent* it. DRM tries to prevent the copy. All Bitcoin determines is whether you got the oldest copy (and the how is in their tech report).

Re:How secure

[Teancum]

A currency is stable when the means to duplicating that currency are far and away higher than the "coining" authority can efficiently produce that currency. In particular for paper currency, a simple rule of thumb also needs to be observed:

A 10x increase in the volume of a print job only costs about 2x the price. Or to put it more plainly, Coining and printing money is something that has huge economies of scale and the benefit goes to those who produce this stuff on the largest possible scale. Large regional governments (aka China, USA, EU, etc.) would have the largest advantages for doing this when they have dedicated printing facilities to create this money.

It should be noted that generally national governments don't screw each other over, although there was an effort by Nazi Germany to counterfeit the English Pound which proved to be such a good copy that Winston Churchill was quite concerned about the destabilizing effects of the wartime British economy.

This also applies to coinage as the act of coining metal is to imply a guarantee of metal purity (or composition), weight, and intrinsic value where the value of the coin exceeds that of the raw bullion (in most normal circumstances for coins used as currency). Setting up your own private mint is by design to be difficult to perform... especially if the government tries to keep the profit margin for coining the metal at a very modest rate where a counterfeiting operation would tend to lose money in the attempt.

Interest lending has nothing to do with monetary policy and is a separate issue entirely... as long as you aren't talking fractional reserves from a central bank that is artificially creating money out of thin air. That is a separate issue entirely.

My point with the Iraqi Dinar is that the people of Iraq believed in it, and believed that in the future they would be able to purchase stuff with it. Iraqis even were confident enough in the currency to exchange it for other global currencies (Euros & Dollars) and trade those currencies back into Iraqi Dinars too. That made it a stable currency, not some sort of central bank or planning authority.

The only real function that such a central bank really provides is the distribution of the initially coined (or printed) currency, and perhaps as a central record repository for electronic transactions using normal accounting practices.

One of the reasons that many U.S. states got into the game of printing their own currency was because the U.S. Federal Government wasn't printing it fast enough to meed the ordinary needs of citizens. Basically it is the same problem that this Bitcoin proposal is trying to address, where micro transactions aren't being dealt with due to the fact that the minimum transaction size is insufficiently small to handle ordinary needs. Back when somebody worked a whole 10-12 hour day for a single dollar of earned income (for skilled labor!), the money simply wasn't around to pay for much of anything. There is more to the issue too, but it was a shortage of money where people couldn't even find the currency to spend for the things they needed, and couldn't make change even. That isn't really a problem at the moment with paper currency.

Re:How secure

[slimjim8094]

Are you too lazy to read his paragraphs, or just too stupid to understand? He just explained *why* it's silly.

Here, let me try. Gold standard can't work, fiat currency can. That's why it's silly to use the gold standard, because it's literally impossible to keep it viable. With a fiat currency, it's at least a theoretical possibility - we can argue about whether it's happened.

In short, I'll go with the thing that hasn't conclusively been shown to be impossible

Re:How secure

[westlake]

Money is money because people believe it is money. Gold-backed currency needs to have people believing that the government is actually going to turn the currency into gold (and not, say, end the gold standard).

Fort Know holds about 368,000 standard 400 troy ounce (12.4 kg) gold bars worth around $173 billion. United States Bullion Depository

In good times and bad, Microsoft alone rakes in around $60 billion a year. Revenues which are re-invested - not translated into treasure coins and stuffed under a mattress.

Re:How secure

[Teancum]

Most people don't understand economics other than having the largest pile of money compared to their neighbors (or complaining that their neighbor has a bigger pile than they do). Wealth creation isn't generating the money itself, but rather what you can do with that money in order to get others to do things for you. If you don't understand that distinction, then it is a hopeless cause at trying to understand economics at its most basic form.

Wealth is ultimately the blood, sweat, and tears of somebody working their behind off to make something, and all of the rest of money flows from that effort. There may be physical materials involved along the way, but you are paying either directly or indirectly for somebody to extract those materials, to shape it and mold it or do something with it. The currency then becomes a more or less averaged value of whatever it is that you are doing compared to what everybody else is doing. Yes, governments can get in the way via taxes and subsidies to screw the system up and give incentives and disincentives for certain kinds of activities... and to suck up some of that wealth by the "rulers" of that society in exchange for hopefully some civil tranquility, but it all ends up being an exchange of goods (made with labor) or services (simply paying for somebody's time more directly).

It really makes no difference in the long run between a fiat currency and a commodity currency anyway. Both require acts of faith, and the medium is relatively neutral in terms of whatever it is that you are trying to obtain above and beyond the pile of money in the first place. Even gold requires faith that somebody will accept it in the future, and it has the additional problems of extreme weight and being useful only for major transactions (due to its high intrinsic value). Any concentration of gold also requires couriers and potentially body guards and other sorts of security that end up simply costing more money than it is worth. It is also placing faith that the gold won't be devalued at some point in the future.

If, for example, somebody discovers a gold nugget on an asteroid that is the size of a house and can relatively cheaply bring it to the Earth, it would cause the gold markets to crash real hard. Gold would still have some value afterward, but it wouldn't be pretty for those who have invested large amounts of their labor into gold.

Re:How secure

[Anonymous Coward]

I think you'll find that *all* debts will be sure to accrue interest faster than inflation. As if the big boys would let the little people gain from arbitrage opportunities like that.

Re:How secure

[MrNaz]

I wrote about the problems in the Eurozone that arise from having conflicting monetary and fiscal policies in a blog entry linked to below. Basically put, the Eurozone forces member states to have materially identical monetary policies due to the unified currency and centralized state banking. Under such circumstances, nations are unable to compensate for national situations using fiscal policy alone, and their attempt to do so is a large part of what has landed Europe in the fiscal mess they're currently in.

http://www.mrnaz.com/?s=publish-blog&entryid=208

Re:How secure

[nomadic]

I think you'll find that *all* debts will be sure to accrue interest faster than inflation. As if the big boys would let the little people gain from arbitrage opportunities like that.

Not if you have fixed interest rates.

Re:How secure

[Z34107]

Deflation did not "work out quite well." It absolutely sucked for farmers (which, when we had deflation, was basically everyone.) You had to take out a bank loan to purchase seed up front; you would pay your loan back with interest after harvest.

Deflation makes those loans a raw deal - you might pay $1200 on a $1000 loan, but each of those dollars is worth more after a growing season's worth of deflation. Because of deflation, you pay the bank much more in constant dollars.

I'm also not sure why massive deflation is a solution to people not knowing how to save or invest money.

Re:How secure

[Pentium100]

SSL does not help you if the server, not the man-in-the-middle, wants to rip you off, for example, if the server was hacked.

But SSL was not designed for that etc etc.

Anyway, all is great if the software and the protocol work as intended (i.e. there are no bugs). If there are bugs in the software (or worse, in the protocol) then it could all fall apart. Some time ago somebody managed to create new SSL certificates that appeared to be signed by the CA (IIRC it was done by kinda-cracking md5 using a cluster of PS3s). Until everybody dropped all certificates that used md5, hackers could create genuine looking certificates. Imagine if somebody managed to break Bitcoin, but instead of publishing it or reporting the bug he just used it to get the money.

I'll read the tech report, it does not look like having a lot of math, so I just might understand it.

Re:How secure

[arb phd slp]

For fifty years, the only valid currency has been crude oil. All national currencies trade against the cost of a barrel of oil.

My kingdom for a mod point.

(and by "kingdom" I mean my meager assets worth less than my debt)

Re:How secure

[An Onerous Coward]

Ladies and gentlemen, the fallacy of "there-is-but-one-factor history" in a nutshell. Well done!

Yes, the U.S. went off the gold standard in the early '70s, and yes, the decades after showed slower economic growth than the first post-war decades. But that wasn't the only thing that changed. We also had energy shocks, the rise of Asian/decline of American manufacturing, the rightwingification of public policy*, ever more free trade, Internet-enabled offshoring, the first warning signs that exponential growth might not be the ideal recipe for a finite planet... You really want to crown your single pet factor as the cause of all our woes?

Need I remind you, the reason we left the gold standard in the first place was because we were already in financial trouble. You can argue that we would have been better off sticking to it, tightening our belts and paying our debts then. But clearly the gold standard didn't inoculate us from financial mismanagement.

Lastly, the pre-Federal Reserve history of U.S. banking doesn't give us much confidence in the gold standard. I don't think a decade went by without some major financial catastrophe.

* Between 1968 and 2008, Republicans were in office for 28 years, Democrats for 12.

Re:How secure

[Deffiz]

Shiny stuff is always silly. Unless you have some very peculiar needs, gold is fairly useless. It looks pretty and doesn't really go away, so there is a limited use for it in jewellery, but the only way you can fill your stomach with it is by trading (and the same for a roof over your head, keeping warm etc), and let's be honest - are there really that many jewellers / people how need jewellery around?

Re:How secure

[eflores99tx]

the one way to make sure a currency is usable in daily trade is for it to be accepted as tax payment by local government.

huhhuh you said 'tax payment' - sorry, no cigar because no government will be in the transaction chain even in a monitoring capacity, much less an enforcement capacity.

Re:How secure

[Anonymous Coward]

The "deflation is bad" myth is a dangerous propaganda put on by non other than the people in charge of the printing press, that is the people that create inflation, namely the federal reserve. They justify this fallacy on Keynesian nonsense.

This argument ignores the reality that the US had deflation through the 19 century and it was the actual most productive time in our history. In fact, deflation, given a stable currency is how progress manifests itself.

Also, when the central bank prints money, it does not distribute it evenly among the population, it gives it to banks (that literally own the central bank), and they often use it to buy government treasure. So the inflation favors the banks and government, and the last ones to get the money, the rest of us, loose. This is a hidden tax pure and simple.

You could read on Mises to see how deflation and inflation work. Here is an article exposing some of the confusion. You could find many others by googling deflation and austrian economics.

Also, every single fiat currency in history, starting from the romans 2000 years ago, has gone to 0, and has always destroyed the economy they were supposed to help. They have typically been replaced by either gold or silver, because they have properties that make them ideal money. This last attempt started in 1971 when Nixon closed the gold window. If history is any indication, this will end badly.

Even our founding fathers knew this, since the constitution makes gold and silver the only legal tender (yes, the current green fake paper we use is unconstitutional).

Re:How secure

[smacinn]

What people also don't realize, is that the gold standard doesn't limit money supply. Gold just becomes the measuring stick against which all other resources (typically natural) become valued against. 1 kilo gold = 10 kilo silver for equal value. The money supply is only limited by the amount of resources a government with holds to back the value of the currency and the redemption rate of the currency. This holds inflation and deflation in check, protecting the masses from having their savings eroded in value if held in currency. In the end all currency is just a method for aquiring resources, whether it is gold, a couch, or an ipod. The total money supply is just a representation of all resources natural, and manufactured produced to be consumed. A fiat currency's value always comes down to the number of bills in circulation compared to the country of origins wealth in resources anyways. All the people printing the money are buying STUFF with it before its value goes down some more. They print it to buy goods and services. Only stupid people want money for the sake of money. Smart rich people make their money work, they don't save money. Their savings are in lucrative assets and commodities. The problem with fiat currencies is that they make the lower classes feel richer, because 100,000 dollars is always going to sound better then 10,000. But when you could buy a house for 10,000 90 years ago, and now the same house costs 300,000 we have not gotten wealthier. Only our standard of living indicates a true measure of economic growth and personal wealth. I personally earn more money now than ever, but I am starting to see my standard of living decline.

Re:How secure

[rolfwind]

i would say that any currency is backed by the goods and services one can buy with it.

That's like saying your stock portfolio is worth exactly what you can get out of it right this minute. It's true, but it's also the trivial answer to a question people people don't really mean to ask. Savings is practically the real world exemplification of delayed gratification. All you want to know after that is, "what will time do to my savings?" so "what will this commodity be worth when I want to convert it into a form usable to me? Of course, there are no 100% answers or the market would be steady state.

What you can look for is factors that matter in the future. Gold, for instance, cannot be made out of thin air (with current technology) but is also likely high right now compared to historical value (oil vs gold is said to correlate well over time).

The US dollar may have problems and the US isn't too much different than from a house. While outstanding debt is $13 Trillion right now (US debt clock), we also face $60 Trillion in promised unfunded entitlements looking forward because of the baby boomers and not saving up the Social Security and Medicare Fund (this number according to former Comptroller General David Walker). Promised unfunded entitlements = Promised Entitlements - Expected Federal Revenue @ current tax rates. By 2030, according to him, we can do little more than pay some interest on debt, some entitlements, and hardly anything else. (This comptroller general invited all the Democratic Primary contenders to speak with him early in the race - only two chose too, and I have a feeling it was none of the big names, probably Kucinich and that Alaska former Senator. Republicans were likely no better).

This scenario is only to get worse after 2030, not better. If it goes on with bailouts or stimulus, there are several scenarios just like a household:
-Cut spending. However, all the waste and even Pentagon Budget is not enough (Walker again, and he said that if we cut it today, not then). Entitlements need to be cut. It's more than if Johnny doesn't get his car for graduation. Imagine the Bonus Army x 1000

http://en.wikipedia.org/wiki/Bonus_Army

-Raise taxes (household - get a better job, send the spouse and kids to work). Problem is, what will be the top tax rate where revenue starts going down, and will that even be enough?

-third, declare bankruptcy (household) or print enough cash to pay all debts. Seems attractive, but our credit rating goes to nil. All people's savings goes to zeros. Thing 1920s Germany. A million bucks buys a loaf of bread. You get paid with lots of zeros at the end of money and yet it buys nothing. Nobody with half a brain will lend to you. China will stop sending products. Etc. (BTW, the US Treasury is close to losing it's AAA credit rating. This means the Government will have to give more interest to attract investors).

So, a 20 or 30 something in America asking the question: "What will this commodity be worth when I want to convert it into a form usable to me?" might not get the expected answer back.

Re:How secure

[Anonymous Coward]

I always have to laugh at these ridiculous, inflammatory statements.

How about this, I'll trade you a much larger area (3x's the square inches) of a more comfortable paper to wipe your ass with. Let's really see if you think your American currency is worthless. I will do this as many times as you have American dollars.

Or were you just trolling?

Re:How secure

[MyFirstNameIsPaul]

In general, agrarian economies suffer greatly from many factors, not the least of which are polices such as the Homestead Act, which encouraged people to put farms on land that is not suitable for farming. Other issues such as a few years of inclement weather can send the entire economy into shambles.

Anyone taking a loan at a 20% rate is bound to have problems paying the loan back, regardless of any market condition outside massive inflation. Lenders typically charge such rates when the loan is very risky, so the farmer facing such conditions probably needed to find a new occupation anyhow. Additionally, the amount of deflation over the period of 100 years was practically negligible, unlike our experience on fiat currency which has render the dollar to 1/48 its original value.

I never stated anything about 'massive deflation'. I did state that in the history of hard currencies there has never been 'spiral deflation'.

Re:How secure

[smash]

True.

However a lot of the increase in the value of gold is due to people's lack of confidence in fiat dollars - they're using it as a hedge against inflation.

Expect all commodities to trend upwards in the next few years as the world attempts to inflate itself out of debt...

Re:How secure

[KDR_11k]

Isn't gold only valuable because humans have agreed that it's pretty? There's not much an average person can do with gold except sell it to somebody else.

Re:How secure

[davester666]

...until you realize it's already been used for that purpose...twice!

Re:How secure

[KDR_11k]

If that authority is so untrustworthy would you trust them that the money supply will always match the gold supply?

Re:How secure

[KDR_11k]

They have enforcement capacities. You may be trading with virtual currency but you're still sitting in a very real place with a very real police station nearby.

Re:How secure

[sjames]

I don't necessarily care that much what the standard is, I just observe that it WAS gold at one time in the U.S. and that gold has a long history of retaining value in spite of multiple revolutionary changes in technology and the rise and fall of governments.

It also helps to not be actively burning the standard of value.

Re:How secure

[sjames]

Minus the value, it is a mere historical curiosity.

Re:How secure

[1336]

They can be washed...

http://www.chron.com/disp/story.mpl/bizarre/7095561.html

"Low-denomination U.S bank notes change hands until they fall apart here in Africa, and the bills are routinely carried in underwear and shoes through crime-ridden slums. Some have become almost too smelly to handle, so Zimbabweans have taken to putting their $1 bills through the spin cycle and hanging them up to dry with clothes pins alongside their sheets and clothes."

Re:How secure

[KDR_11k]

Or ammunition, depending on whether you subscribe to the American or Russian view.

Re:How secure

[sjames]

Unlike polished turds, gold is a useful substance. Even a thin coating of it will greatly improve corrosion resistance and conductivity.

Re:How secure

[jthill]

Oh, I see. It's the Gooooooold standard that did it.

Ike's observations on the plainly foreseeable consequences of militarization wouldn't have anything to do with it, would they? No, of course not. All that labor and talent and material spent producing jack shit, worse than nothing, in the final sense theft from and murder of humanity, had nothing at all to do with leaving less actual wealth for the people of this nation. No.

And the avaricetocrats' bankrupting the government didn't have anything to do with it either. Nor the abandonment of just about every major government regulation enacted in the face of unbridled corruption over the past hundred fifty years, with the near-immediate consequent explosion of arrant theft.

Nope. The Goooooold standard would have stopped all that.

If only we had less money, our stupidity in handling it wouldn't hurt nearly so much.

Look. The Brits had a real aristocracy for centuries, a cultured ruling class with a centuries of experience and an ironbound sense of obligation to their nation. Nothing said they had to mint every pound of sterling, and they didn't. A well-managed economy hums along very nicely, and so long as there's enough numismatic metal available to cover the value supply the treasury can work: it just coins enough money to cover the expanding economy.

Which works great so long as there's enough gold and silver and whathaveyou to do it with.

And which also works great when you get a retard who wants to finance wars with handwaving and rhetoric, because he can't.

But it specifically does not work great when the economy is producing value and there isn't enough coin to cover it. It specifically sucks ass when there isn't enough coin to cover the expanding economy.

That isn't what happened to the Brits, though. What happened to the Brits was us. The sun literally never set on the British Empire, but these absolutely insane colonists who turned their own ideals against them and said the King had no right to govern anyone who could govern themselves better and wanted to just would not shut up and then they went and saved the world in honor of those ideals%1. You can't be an honest colonialist, see that, and continue as before without feeling a bit ... small.

Fact is, the Greek-British-American ideal is true. The Gettysburg Address remains one of the greatest achievements of the human race, capable of bringing goose pimples and tears to anyone with enough brainpower to follow the rhetoric, and "that all men are created equal" is still self-evident, no matter what the blinkered, small-souled literalists whose reach wouldn't exceed a gnat's grasp try to make of it.

That's what happened to the British. They reached the rightful end of their national endeavor, faced the question "what do we do now?", and found no answer. That riddle has been waiting for every empire since the dawn of time, and none of them has found an answer yet%2.

But I'll tell you what the answer isn't. The answer is not to find some simple rule, harp endlessly on its good consequences in some circumstances while mulishly ignoring the worse ones that show up when the world has outgrown it, and demand that everyone on the planet shut their brains off and retreat a hundred or two years.

===

%1 : yes, I know: LeMay firebombed Dresden. Truman bombed Hiroshima and Nagasaki with the same effect but a lot less equipment. Turing cracked Enigma and British determination in the face of assault was second only to the Russians ... and what the Russians did at Stalingrad simply beggars description. Still: what other nation has ever been attacked from the west and immediately declared war in both directions? Successfully?

%2 : You could make an argument that the Brits had it but didn't recognize it. That answer would be "and now for something completely different".

Re:How secure

[Toonol]

Hm. I'd think that anything you designate as a currency basis will go UP in demand, making it HARDER to obtain. The current price of gold is not where it is purely because of the demands of industry and the jewelers. Its status as a pseudo-currency is inflating the price.

Maybe an ideal currency would be finite, but have no great value other than its value as such? That way, we aren't impeding lives by making a value item more difficult to obtain.

Scraps of paper with a certain logo on them would suffice, I suppose, if we could ENSURE the supply would remain finite.

Re:How secure

[jthill]

any concept or system breaks at one scale or other

I spent a whole lot of words trying to say that.

Re:How secure

[smash]

Yes, if you are in debt, inflation helps you. Somewhat.

However, it is effectively a tax on every dollar you earn. With 5% inflation, every dollar you put away for retirement (or saving, etc) is worth 5% less per year.

At higher inflation rates (e.g., 40% pa which is being touted as where the US may end up in the near future by some analysts), you're looking at almost half your savings disappearing annually.

Inflation punishes good financial management and steals your purchasing power.

Re:How secure

[smash]

I'm not sure why you're laughing at the US dollar's status as the world's reserve currency,

Because when it was on the gold standard, this was a reasonable idea.

When nixon axed the gold standard, and the rest of the world DIDN'T revoke the reserve currency status, we affectively gave the US/US Government a blank cheque with regards to how much money they can print.

However, recent events have brought this to light, and you can bet your arse that china, et al won't continue buying T-bills for much longer.

And when they stop, the US economy is fucked.

Re:How secure

[xaxa]

Perhaps Euro would have been a better idea -- €0.5, €1 and €2 are coins, and I think the paper notes are less absorbent than the US's cotteny paper.

Re:How secure

[complete loony]

And of course our current financial system isn't really based on fiat currency. The lions share of the "money" in circulation has been created through the issuing of credit from banking institutions.

Re:How secure

[tehcyder]

Gold has no real intrinsic value, it's only because people agree it's valuable that it has value.

Re:How secure

[Jedi Alec]

The government wants to tax Internet transactions.. well most of us pay 3+% to credit cards or PayPal.. if they'd provide their own implementation they could collect those fees without causing prices to rise.

You know, I was just thinking about that.

Up till recently I paid for my MMO subscription using time cards I ordered from a US website. Not because it was the cheapest method, but because it was the quickest and the most convenient. However, in doing so I'm effectively evading the VAT I need to pay on a product in my own country, and unless I jump through a whole bunch of hoops that noone bothers with I'm breaking the law.

Fast forward to the right now where said MMO supports payments by iDEAL, which for me is *even more* convenient. Couple of clicks, punch in a number and done. And...I pay my VAT at the same time.

Stuff like iDEAL doesn't come about unless one or more governments actually stick their nose in the banking industry and take action to ensure proper standards get developed. Heck, look at the US where you can't even use another bank's ATM without being charged.

Oh, and the charges for iDEAL? Zip. Nada. The banks save themselves a ton of work and manpower because they don't have to do *anything* except process the payment(real-time) automagically.

Re:How secure

[Hognoxious]

The supply of gold cannot be reasonably extended by even trace amounts until our sun goes nova (again).

If you could find a way to increase the supply it'd be just like having your own goldmine!

Re:How secure

[thegarbz]

What makes you like anything? The whole point of backing a currency is to embed it's perception of rarity. Currency in itself works on the same principle, people only value it if it's rare. Gold was rare in that you can't make more of it, but you could just as easily back your currency against coal, or indeed just keep the currency floating. This really ultimately only breaks down when the currency inflates and some genius decides the solution is to print more of it.

What was the economic policy to fight the hyperinflation in Zimbabwe? Print more zeroes on the notes. Thus making the rest of the notes less rare and thus even less valuable, and not entirely worthless. Gold doesn't do this because if basic society itself suffers complete and total collapse, gold can always be traded for food so that farmer's wife can have something shiny.

Re:How secure

[ribuck]

They can be washed...

That would be money laundering.

Re:How secure

[tehcyder]

Same with the UK when it left the gold standard, lucky they got off it just in time so that they could become a super power. Hold on...that doesn't sound right. A two bit country mired in debt, stagnation and unemployment with 1 in 4 people employed by the government with infinite government spending and relentless inflation. That's better.

You're putting the cart before the horse. The growth of public sector employment and increasing government expenditure was a political decision back in the days when Labour governments at least were still broadly socialist, not some accidental unforeseen consequence of abandoning the gold standard.

Oh, and fuck you.

Re:How secure

[tehcyder]

At least gold is worth gold.

Yes, but there is no logical reason why gold shouldn't tomorrow just be worth the same as paper.

Re:How secure

[tehcyder]

The selling price of gold (or anything else) is not the same as the cost of production.

Re:How secure

[jimicus]

In the current situation with the us dollar (world's "reserve currency", lol) being backed in this manner by thin air, there is nothing to stop the government simply creating more to get themselves out of debt (inflation) thus reducing the value of goods your single dollar can buy (what you SEE as inflation).

This has actually happened - a number of currencies have pegged themselves to the US dollar in exactly this manner in the past and found themselves up the creek without a paddle when the US dollar has been devalued. In the UK, our reaction was to very quickly decouple the £ sterling from the US$ and today the £ sterling is effectively another fiat currency standing on its own.

Re:How secure

[jimicus]

You what?

Deflation led to the Great Depression and hence (indirectly) to the Second World War and the loss of 60 million lives.

Other than that it worked out just great.

Re:How secure

[gd2shoe]

http://en.wikipedia.org/wiki/Deflation#Deflationary_spiral

Personally, I don't believe deflation should be a big deal. It is seen as a big deal, and that exacerbates the problems when it does happen.

You are onto part of the scam. Inflation in the US is intentional, and is an invisible form of taxation. It also happens to make investing more appealing, so the financial sector (read:economists) have a vested interest in continuing the practice.

Gold as currency isn't as sound as you want to believe. Because it is a speculative material, its value fluctuates, generally up but with occasional bubbles and crashes. If more currency worldwide was backed by gold, then it would merely move to the forex market. Besides, the gold standard encourages other fiscally irresponsible (and unreasonable) behavior (when the US outlawed private ownership of gold, for example).

(fair warning, posting while tired. mistakes imminent)

Re:How secure

[Anonymous Coward]

Best comment ever!

Re:How secure

[ultranova]

In Snowcrash, after hyperinflation the federal govermnet had to post threatening signs in the restrooms about how defacing currency is illegal, specifically because the toilet paper cost more per square foot than the bills.

That doesn't make sense. Not only would it help fight inflation by removing currency from circulation, but the paper bills are made of is far higher quality than toilet paper; even if you couldn't remove the color from it, you could simply dye it to a uniform color and reuse.

But then again, I suppose cyberpunk is more about a "dirty and gritty" than believable future.

Re:How secure

[Hognoxious]

this is find and dandy if it is a fixed quantity of goods

Why do you think gold does that? True, it gives you a fixed quantity of gold, but that's about it.

After a particularly abundant harvest the price of grain would go down, whatever units it's measured in. If a large amount of gold suddenly appeared on the scene the price of bread (and everything apart from gold) would go up. This has happened historically, by the way.

Re:How secure

[hitmark]

i was talking about pre-US colonies, not post-US central banking of any sort:
https://secure.wikimedia.org/wikipedia/en/wiki/Early_American_currency#Colonial_currency

this one may be the more interesting one:
https://secure.wikimedia.org/wikipedia/en/wiki/Pennsylvania_pound

Re:How secure

[Anonymous Coward]

Which is why the ancient civilizations valued it so much...

Re:How secure

[hitmark]

on you %1, that was successful largely thanks to having a nation the size of a continent to draw on, and no damage or destruction of the means of production during the war.

technically, both russia and USA won by number of troops during WW2. in the came of russia, it was basically an ability to replace fallen troops faster then germany could. With USA there was also the issue of being late to the fight, so one had fresh reserves while the enemy was nearly beaten senseless.

Re:How secure

[Myopic]

I can see that, but we also "actively burn" gold in the sense that we use it for industrial purposes.

When a bit of gold goes on top of a Duracell battery, then you throw it in the ground, it ain't coming back to become part of a dubloon.

Indeed, as a commodity, gold is not so bad a currency. We can trade commodities such as rice, gold, oil, beads, or other things of value. Those are all roughly equal.

Re:How secure

[Teancum]

State-based (and territory-backed) currencies existed in the United States well into the 19th Century and even partly into the 20th Century in the case of the Alaskan Gold Rush. It was something directly tied to a lack of liquidity and the fact that the economies of those regions needed an extra jump start to get something going.

Usually state-backed currencies in the 19th Century had a one to one relationship with the U.S. Dollar, so it wasn't as big of a deal. The Federal Reserve wasn't established until 1913, and has always been built around the concept of electronic funds transfers... starting with the telegraph.

There was "cheating" involved with private and state notes and it has caused other sorts of problems with them including bank runs and panics, particularly when the money couldn't be paid back to the commodity (usually gold) or federal currency that it represented.

America hasn't always had a central bank, and arguably it isn't needed either on the principle it may do more harm than good. That, however, is the subject of a whole other thread or better yet another story.

Re:How secure

[raju1kabir]

Inflation punishes good financial management and steals your purchasing power.

Inflation is great!

It encourages you to buy lots of stuff today, because tomorrow you won't be able to afford as much.

Then I, who produced that stuff, take the money you spent and convert it to more inflation-proof forms like property and foreign assets.

I get rich, and you get a plasma TV in every room of your house, until it's foreclosed. We all win.

Re:How secure

[Teancum]

Farmers did not have to take out loans to purchase seed.... most of them kept seed on hand for the next season's planting. This whole notion of borrowing money up front to pay for next year's harvest is something that is relatively new, but something also due to hybridized food stocks and the belief on the part of many farmers that farming is a capital intensive business.

It sort of is true in the sense that the land is capital intensive, but most farmers get way over their head with fancy gizmos and gadgets to "help" them with their farming, often buying equipment that does way more than they really need.

The real problem that deflation made was that it was difficult to make change, and the liquidity of the market was exceptionally low when you had entire regions that simply lacked cash as a medium of exchange. Think about it this way: If the smallest unit of exchange is enough to buy an automobile, how are you going to be able to pay for a loaf of bread? Also if nobody has money of any kind, what money is going to be used to make that purchase? Those are the problems with massive deflation, and something that can be solved in a manner similar to hyper inflation too.

Unfortunately, there is usually a politician or two that gets greedy and want to run a printing press to make currency so they can buy votes or public favor (even if it isn't a democracy) by spending money they simply don't have in the first place.... causing inflation.

BTW, I do agree with the other poster in regards to "spiral deflation" not really being a problem.

Re:How secure

[Anonymous Coward]

the constitution makes gold and silver the only legal tender

This isn't actually true, of course. States are not allowed to print fiat currency but the federal government can. Article I, sections IX and X.

Re:How secure

[sglines]

You must be a Republican. The only way out of our mess is to get rid of our collective debt. After all who do we owe it to? Ourselves of course. We can do one of two things to flush our debt, one is to universally default on all debt, the other is to inflate the money supply. This is what always happens at the end of an economic Kondratiev wave (see http://en.wikipedia.org/wiki/Kondratiev_wave ) like it or not. Sooner or later the Chinese are going to refuse to buy dollars denominated debt at which point the federal Reserve will have to step in and buy it. That's when the value of my underwater house will start appreciating again and I can repay the bank with devalued dollars.

For the Americans here, the inflation of the 1980's paid off the Vietnam war in less than 10 years.

Re:How secure

[Teancum]

That was not the cause of the Great Depression, and certainly was not the cause of World War II.

If anything, Germany faced a problem not of deflation but of hyper inflation, where the German government was forced (at gunpoint by France and the UK) to pay money they simply didn't have and printed it to make up the difference. The political and economic instability of Germany did give rise to Adolph Hitler, but it was not the deflation which was a major cause of the problems.

Much of the problem with the Great Depression in America was the policies of FDR and how he tried to tweak the economy from a central planning authority. By most measures, the "New Deal" policies prolonged the recession to a depression in America and put the American Republic in a dangerous position when idiots like Hitler finally did come to power. Of course Roosevelt also followed up on similar policies by Hoover that weren't all that smart either, so this isn't necessarily an indictment of a particular political party.... both Democrats and Republicans were screwed up in the 1930's.

The root causes of World War II can be found with the policies enacted by the governments involved with World War I, including policies of what happened in the Pacific basin too. Deflation and inflation, other than causing political instability, had little to do with the war that eventually happened.

Re:How secure

[silentcoder]

You joke -but right now it is actually CHEAPER to wipe your ass on zimbabwean dollars than it is to buy toilet paper (since you need about 8 billion dollar bills for a roll of paper).

Re:How secure

[LRayZor]

The main problem the Eurozone faces is that it didn't stick to it's guns in the first place when introducing new member states. All new countries were supposed to reach a certain financial position in relation to overall spending and income and maintain it. Some countries such as Greece basically said 'Sure Thing Boss', frigged the figures, and then continued to overspend. The Eurozone failed to do sufficient due-diligence when allowing these countries to join. Even some of the original countries such as Italy are flouting the rules.

Re:How secure

[smash]

China also is currently pegged to the dollar.

Why?

Who knows, but when they unpeg, expect all hell to break loose. Despite what those in the US may think, your paltry 300 million people is a mere 5% of the world's population.

Whilst you guys and your economy will be totally fucked, there are plenty of people and funds in india, china, saudi arabia and elsewhere to take up the slack when your dollar collapses.

Their economies are artificially suppressed by the US dollar's reserve status, and other countries' willingness to keep lending. It WILL NOT last forever, and the debt levels are getting real close to breaking point, where they're going to say "no more" and come repossess the assets secured by the loans...

All those electronic goods, cars, houses, etc purchased on easy credit will be repossessed by the foreign lenders when the interest rates go up beyond the means to repay.

Yes, if you have fixed interest you may be save. But its very rare that fixed interest is "forever" - pay your debts out while you still can...

Re:How secure

[smash]

save == safe. unfortunately, i didn't read the preview properly :-\

Re:How secure

[smash]

True, however GOLD is a lot less common than thin-air, which is what the dollar is currently backed by.

Re:How secure

[HeckRuler]

Yeah, I don't think so.
Adjusting the value of currency (monetary policy) is needed so we can grease the wheels of the economy or put the brakes on it. And it does need to be slowed down when fools start to play the stock market. Ok, more fools.

Inflation encourages investment, period. If you think that all investing is mal, and it's done by stupid people, then you should not be trusted to give economic advice. But hey, you're probably over fifty and lost your shirt in latest depression. That sucks, it really does. Your stance is understandable, but biased.

As a young man with debts, inflation is a good thing. When I'm as old as you, sitting on a stack of cash and fretting about what to do with it, I'll probably share your sentiment, but I'll try to remember back when I was young.

Re:How secure

[silentcoder]

It's not like the gold world was (or is) free from fraud and corruption anyway. In theory the amount of gold for trade is fairly finite and it's getting more and more so as it gets harder and harder mine the last bits out.

But here's a fun fact for you - the amount of gold ever mined is only about half as much as there are gold certificates in trade for. Which means if people actually cashed in their gold certificates, half of them could not be honored.

Re:How secure

[jduhls]

One word: "meritocracy". Join today!

Re:How secure

[Rysc]

Interest is credit. You can argue that credit is bad (mostly true) but it's hard to do without.

There is a clear concept of what money is, it's just not widely understood.

Re:How secure

[Odinlake]

how do these big fat women always find the exact center of a doorway or an aisle so that no one can get around them

Practice. If they get too close to any wall their gravity might collapse it towards them.

Alas, that is called evolution, not practice.

Re:How secure

[Anonymous Coward]

Japan.

Re:How secure

[Thelasko]

What is the problem with deflation?

The high levels of unemployment that come along with it.

When an economy undergoes deflation, it's because it's getting smaller. A smaller economy means fewer jobs, or the same number of jobs for less pay.

Re:How secure

[iserlohn]

No matter how much discipline is mandated, in a monetary union of 16 member states, there are bound to be disparities in financial positions between them.

The problem is that there is no real co-ordinated fiscal policy and at the same time monetary policy is rigid because of the single currency. The problem is co-ordination and by proxy the lack of centralization of power within in EU to make the single currency work, and that is the main difference from the US and it's single currency.

Re:How secure

[Anonymous Coward]

Everyone is saying that the dollar is a flat currency with no real backing. I disagree. The US military makes sure that the dollar will always buy oil. I am serious. The US dollar is oil backed.

Re:How secure

[guruevi]

With deflation you could then effectively set up no-interest loans. Because by the time it gets time to pay it back, your money would be worth more. The 'only' problem with deflation is that people would have to make more informed decisions about the loans they do make which with inflation is not really the case. If you know that your money is going to be worth more by then, your effective loan rate would be maybe 25% or 30%, not 20%. The longer you wait paying back your loans, the more expensive it would get. It would also be an incentive to pay back loans faster. Currently it is not. If I pay my loans back in 2 years instead of 1, banks are going to start losing money and they'll be forced to cut their losses (as they do right now - settle for a fraction of the cost of the loan) which causes a market crash if everybody starts doing it (settling or defaulting on bad debt).

Re:How secure

[hitmark]

no, credit is getting something based on a promise to pay some other day. Interest have exactly zero to do with credit.

interest allows someone to purely trade in currency (mostly by way of credit) rather then physical goods and services, and expect to profit from it.

credit on the other hand allows someone to undertake a grand task now, with the promise that it will be payed down over time. Credit is in many ways hoarding flipped over, so that one have the funds now rather then later (but in either case must set something aside over time).

and can you point me to this clear concept of money?

Re:How secure

[Anonymous Coward]

Actually, the price of gold was about the same in 1985 as in 2005, just over $300/ounce. In between it moved between $300 and $500, but didn't really make too many big moves. Gold will remain a crappy investment until they quit finding more of it, or until someone figures out something to do with it other than put it in a vault.

Re:How secure

[DragonWriter]

More correctly, any fiat currency (to clarify things... as opposed to a commodity-based currency such as a gold, silver, or grain backed currency) is based upon the faith of those who participate in and use that currency to buy goods and services with it in the future.

Even more correctly, any currency is based on that faith.

Fiat currencies obviously are.

Commodity-backed currencies (e.g., certificates backed by silver, gold, grain, or any other commodity of intrinsic utility) also are, because the currency itself is not of direct utility, even though it is backed by the promise of some party to redeem it for something which is presumed to have direct utility.

And even currency that takes the form of a commodity itself is backed by a similar faith. Pure commodity currencies are, after all, simply the same as investments in the commodity; to do any significant amount of trade usually means storing more than would ever be needed of that particular commodity for future use, and so amounts to speculation based on faith in the future value of the commodity -- that is, the willingness of others to give you things that you will want in exchange for it in the future.

This is, of course, the exact same faith that underlies commodity-backed currencies and fiat currencies.

Re:How secure

[Dirty Bill]

IMO: It seems that the issue ignored when discussing deflation is the persistent belief that a decrease in prices is a negative. Decreasing the price isn't decreasing the value, its just changing the indicator...the currency becomes more valuable so the effort required to earn it becomes more valuable, etc. Emotionally it feels like a bad thing, but ultimately you end up with a reset of the value scale, not a devaluation of the goods/services. The reset process is painful because of the dependencies and rate of correction on the production side.

Re:How secure

[Znork]

You had to take out a bank loan to purchase seed

First, perhaps one shouldn't take out bank loans to purchase seed. Second, inflation to help farmers pay those loans is basically just a form of subsidy; better to have an actual subsidy if that's really a problem (disregarding the fact that banks will most likely compensate themselves for inflation by increasing the spread anyway).

Because of deflation, you pay the bank much more in constant dollars.

No, you pay the same amount of dollars, but those dollars can buy more. We see deflation all around in industrial segments all the time; usually that simply means that things are getting cheaper. A natural effect, as things often do get cheaper to produce.

I'm also not sure why massive deflation is a solution to people not knowing how to save or invest money.

Because in an inflationary economy everyone is basically forced to malinvest (do it, or your money will get inflated away). It doesn't matter if you know how to invest, the game is rigged and the only trick is finding the correct bubble to ride until it implodes, because today the print-leverage-invest money cycle with artificially set interest rates leads to asset inflation rather than the measured, largely wage related, inflation. You end up with lots of people knowing it's a bubble and an idiotic investment with no ROI and little non-investment demand, but those vast amounts of fresh minted fractional reserve dollars have to go somewhere if you want to save the actual value of them.

Re:How secure

[Abstrackt]

That would add new worlds of meaning to getting screwed by the used car dealer.

The scenario you imply will haunt my dreams.

Re:How secure

[StikyPad]

you can always use your paper money as toilet paper.

Sure, and gold can be used as a lawn ornament.

If the reverse held true, you might be on to something.

Re:How secure

[StikyPad]

Increasing taxes generally has the effect of reducing economic activity (Laffer Curve).

The Laffer Curve (even if it were more than a thought experiment) implies no such thing; it only implies that there is an optimum taxation rate, much the way there is an optimum price point for any good or service, below or above which profit would decrease.

And for what it's worth -- nothing -- the Laffer Curve peaks at 50% taxation. Enjoy.

Re:How secure

[DwySteve]

The thing is, you're comparing the value of gold against another currency. That currency is subject to a lot of inflation, so the value of gold going up indicates it's superiority as a container of value.

And you're assuming that gold has a set 'value' that the dollar or any other currency rises and falls against. If we found a mountain of easily-accessible gold tomorrow the price of gold would go waaaaay down... and not because the value of a dollar went waaaaay up.

Re:How secure

[hierophanta]

you seem to know whats going on. can you help the rest of us out - is this a good thing or a bad thing?

Re:How secure

[Myopic]

Well, I certainly agree that I don't want fiscal policy like Zimbabwe's.

Anyway, I recognize many very legit arguments in favor of gold as a currency. And in fact gold IS a currency which many people accept. I see nothing wrong with that.

My point was to refute the suggestion that fiat currency is somehow invalid. It's not. We might prefer a commodity standard, or we might prefer a fiat standard, but both of those systems have significant benefits and drawbacks. This is a question of policy, and I reject ideology on this issue.

Re:How secure

[MyFirstNameIsPaul]

If a population is derelict in its duties to police its Government, then for sure lots of heinous laws will be passed, such as banning gold. This law clearly violated the Constitution, at the very least the 4th amendment.

I think I can invoke the Nirvana Fallacy here because whenever we are evaluating social policies, there is not going to be a perfect solution. This is definitely the case with monetary policy. Gold is certainly not perfect, but it is measurably better than fiat currencies.

I actually do not argue for gold, I argue that the market should be allowed to choose what will pass as currency (i.e., people should be allowed to offer goods and services in exchange for whatever they are willing to accept).

Re:How secure

[MyFirstNameIsPaul]

Yes, I am registered as a Republican, but I feel these party affiliations are mostly used to divide people. I'm not a 'team player'. In the recent primary election I wrote in "Donald Duck" for the majority of the offices because none of the candidates held any interest for me. I never voted for anyone named "George Bush", I have been opposed to every war, and I was also opposed to the $500 billion Medicare Part B package the Republicans passed in 2003.

The devaluation of the dollar also has the effect of destroying our nation's wealth. This is what truly causes capital to dry up. Savings is what expands an economy.

Since in the last 150 years we have only had a few years of modest debt repayment, we have never actually paid anything off; just rolled it forward. We are still paying interest on the debts incurred from the Vietnam War.

Re:How secure

[MyFirstNameIsPaul]

Centrally controlled economies have failed time and time again. Compare East Germany to West Germany. People were risking their lives to flee the terrible conditions of centrally controlled East Germany, where they had complete control of the economy and currency. There are mountains of data which support the conclusion that poor monetary policy has caused decades of problems for the U.S., including the problems we have right now.

I never stated that all investing is malinvestment.

I am in my mid-30s. I own a growing business. My net-worth is in the positive.

As a young man with debts, you will never repay them because our economy is not going to support your doing anything but going further into debt. If the dollar truly crashes, then you will have difficulty not only finding work, but finding food, and you will probably be burning that stack of cash to keep warm at night.

Re:How secure

[MyFirstNameIsPaul]

Deflation does not cause a loss of jobs nor a shrinking economy. In the 19th century the U.S. went from being a bankrupt 3rd-world nation to an international superpower, all while experiencing deflation

Re:How secure

[MyFirstNameIsPaul]

Art Laffer said 20%, although I can't find the quote written on the interwebs, I did hear him say it.

He supports his claim with quite a bit of data. Next year the U.S. will experience an historic increase in tax rates. I believe tax revenues will fall. We'll see.

Re:How secure

[sjames]

I'm just assuming that given 2 standards, A and B, they will not exactly track each other but will vary in value in terms of the other.

While there have been fluctuations the long term trend has been for gold to gain value against the dollar.

Re:How secure

[MyFirstNameIsPaul]

I believe deflation is preferable to inflation. Probably neither are 'good'. I prefer to look at it from the perspective of the average worker, whose labor may be his only form of investment. The average worker's 'investment' should not be devalued to grow someone else's investment (e.g. stocks, bonds, etc.). We should be able to save our money and have it be worth at least its original value. Inflation reduces the value of the labor in a most insidious and immoral way.

Re:How secure

[steelfood]

If, for example, somebody discovers a gold nugget on an asteroid that is the size of a house and can relatively cheaply bring it to the Earth, it would cause the gold markets to crash real hard.

This isn't true, because the value of gold is also partially faith-based. Gold by itself isn't particularly valuable. It's not terribly scarce, and it doesn't have too many uses. But because it's shiny, it historically had value (when people valued shiny things). And it's mostly due to that tradition that the value of gold remains where it is. Otherwise, in a purely rational market, gold wouldn't be worth crap, as you really can't use it to produce much.

So if a huge nugget of gold (the size of a house) suddenly fell to the ground, one person would suddenly be extremely rich, but the value of everybody else's gold wouldn't be affected.

Re:How secure

[steelfood]

Considering that there are trace amounts of cocaine on every bill, I can see why you like doing this.

Otherwise, I'm not sure I'm up for wiping my ass with something even dirtier.

Re:How secure

[StikyPad]

For the average person, 20% is probably correct, though it may be closer to 80% for wealthy individuals. People with the highest incomes keep a disproportionate amount of money tied up -- they don't spend it -- which reduces cash flow (GDP). That means they could reduce their income substantially before it affected their spending habits. Ethical or moral issues aside, you're not likely to find an economist who believes that it's detrimental to the economy for wealthy people to pay higher taxes; *much* higher. If the Congress follows up on its promise to shield the "middle class" -- let's say the lower 60% of taxpayers -- from the expiration of Bush tax cuts, then I suspect each income range will remain at or below the peak, meaning tax revenues will still grow substantially.

Re:How secure

[jesset77]

But then again, I suppose cyberpunk is more about a "dirty and gritty" than believable future.

.. Future, eh? You could make a tidy business today melting down nickels and pennies to increase their value, so why do hypothetical business models about defacing currency into bogroll interest you more than real life opportunities defacing currencies into shiny metals?

Re:How secure

[lennier]

Wealth is ultimately the blood, sweat, and tears of somebody working their behind off to make something, and all of the rest of money flows from that effort.

Quite so. With the proviso that it's not just 'somebody' but 'something' - all the plants and animals in the ecosystem are part of the equation as well, since all the human labour in the world can't magic cotton or corn or fish or fresh water or even oxygen out of thin atoms.

And right now we're busy trashing all those silent, unsung cellular workers which are contributing to our GDP without being recognised for it. Too much more trashing, and some of 'em are going to go on strike, permanently.

Which would be bad for us.

Re:How secure

[gd2shoe]

So your argument is: fiat currency bad; non-fiat currency better?

That's a harder position to attack, and a harder position to defend.

I don't believe I've committed the so-called Nirvana Fallacy here yet, though it is reasonable to bring it up preemptively.

Gold is certainly not perfect, but it is measurably better than fiat currencies.

I want to know how you've "measured". Fiat currency is tied to monetary policy. Are you merely assuming that incompetent politicians and bureaucrats will eventually be in charge? That's the only argument I can find in your favor.

Re:How secure

[MyFirstNameIsPaul]

Actually, I would state my position as fiat currency bad, non-fiat currency less bad.

When you stated that gold is not perfect, you seemed to suggest that because it is not perfect it is not a viable option.

Historically, fiat currencies always destroy the wealth of a nation's citizens. The only example of the gold standard doing such things is when Spain discovered huge amounts of gold in the new world. This seems measurable to me.

Gold is currently a speculative material because it is not used to back currencies. If it were used to back currencies, it would become more of a financial tool. We can actually see right now that gold is becoming a financial tool in a sense as people are purchasing it to be a store of wealth for the severe inflation they believe we will be experiencing.

Re:How secure

[FlyByPC]

Gold also happens to be an excellent conductor -- nearly as good as silver, but with the additional benefit that it is very corrosion and oxidation resistant. There's a very practical reason that many electronics connectors are gold-plated -- the gold-on-gold contact provides an extremely low-resistance connection, which is a good thing for many technical reasons.

(Plus, it is teh shiny!!!)

Re:How secure

[Hognoxious]

The productive capacity of the America economy might not be what it used to be, but it's a lot more than thin air.

Re:How secure

[Hognoxious]

Do they have any small denomination notes? More likely you'd have eight (billion dollar bills) rather than (eight billion) dollar bills.

Re:How secure

[silentcoder]

Not anymore. At the time this was first heard their largest note was a 1-billion dollar note. Their well into the hundred-billions by now, and each time they introduce a new one on top, they remove one on bottom from circulation.

In practice a hundred billion dollar note buys about the same as R5 coin in South Africa*... or rather it would if there was anything left in the stores to buy with it. What with having no exportable currency and having destroyed their once lucrative farming industry - the stores can't actually get any stock and the shelves are mostly empty.

*This figure is likely to be outdated by the time I hit submit but oh well...

Re:How secure

[ultranova]

You could make a tidy business today melting down nickels and pennies to increase their value, so why do hypothetical business models about defacing currency into bogroll interest you more than real life opportunities defacing currencies into shiny metals?

Oh, I'm sure that such a situation could arise, and in fact has arisen in the past. It's the "illegal" part that doesn't make any sense to me: like I said, every destroyed bill helps fight inflation. Heck, it's possible to interpret taxation as an inflationary control measure - in this model, the Government prints money when it needs it, and uses taxes to remove some from circulation afterwards to keep inflation from getting out of hand. This would make wiping your ass with a banknote a kind of voluntary tax (luxury tax ?-).

As for melting down coins to gain value, why aren't you doing just that? If the answer is "it's illegal", then I truly pity you for living under such an oppressive regime, you poor bastard.

Re:How secure

[HeckRuler]

I went into debt to get my degree. That was paid off before I went into debt again to get my house. We were going to double-up the payments to get it cleared off in 7 years, but then we found we could get a rate in a checking account that is better then rate of the loan. (but we do have to make like 15 transactions, and there's a cap on the good rate, so we've got three accounts. It's actually pretty annoying). I also have a positive net-worth. I have debt, but I got a house in exchange. And no, the house doesn't have to be constructed of gold-bars to have value.

So your ability as a financial soothsayer is about as shitty as mine. That's probably why neither of us are working in finances.
Relax Paul, it's not all doom and gloom. There WAS a financial apocalypse a couple years ago. We're past that. It still hurts, but the worst is over.

Re:How secure

[TheLink]

> Gold is certainly not perfect, but it is measurably better than fiat currencies.

I disagree. Using gold as a currency is a stupid idea, there isn't that much gold around so it will make gold too expensive to be used as a raw material. Go work out how much available gold there is per person. Work out how much your salary will have to be in grams of gold. Gold is too useful a raw material for lots of stuff to be wasted as a currency.

Widespread use of the US Dollar is advantageous to the USA, since if many countries in the world use the US dollar to buy and sell stuff (oil, grain, software, hardware etc), it means those countries will have to hold large net positive amounts of the US dollar.

Whenever the USA creates more US dollars, anyone (this includes countries) holding net positive amounts of the US dollar effectively gets taxed.

Now the "proper USA deal" should be the US Gov (Mugabe) creates more US dollars, and hands some over to its citizens (cronies) whether directly or indirectly. So the US Gov gets richer, the US citizens are OK, and the rest of the world (in "US Dollar Zimbabwe") gets poorer.

The problem for the US is if more and more switch from the US dollar to other stuff like gold or the Euro.

Re:How secure

[diamondmagic]

The dollar is not "backed" by "the productive capacity of the America economy," it's backed by nothing. By the pure virtue that the dollar is a money it can be exchanged on the economy (this is true of all monies, backed or fiat), but without being backed, i.e. exchangeable in terms of another good there is nothing to stop it from being inflated sky-high.

Re:How secure

[diamondmagic]

Who says a gold standard would mean "tying fiscal policy to the amount of shiny stuff we can dig out of the ground?" Get rid of the notion we should set a monetary policy (you mean monetary policy, right?). Monetary policy is something that just happens. It isn't invented, nor should we force it to. If people want to use a fiat currency because it is more productive, great. BitCoin is a fiat currency by all means. But don't pass legal tender laws and force people to use it. That's setting a particular monetary policy, something that of right is best left to individuals.

As for fiscal policy, what harm could it possibly cause? We have a government that spends money responsibly and doesn't take away from the supply that individuals demand? Oh, the horror!

uhhh....

[girlintraining]

and the moment it's cracked the world economy collapses? Nah. Pass.

Re:uhhh....

[hedwards]

I'd recommend against using any major currency then, probably go back to either gold or bartering. The US Federal Reserve "prints" money primarily by adding a fictitious amount of money to their computer systems, which is then available to lend to other banks. At no point does the money actually exist, but it counts towards inflation anyways. And yes, having people screw with that has the potential for enormous trouble should they get it wrong.

Re:uhhh.... exactly

[Tisha_AH]

Or there will be a new form of organized crime that specializes in skimming off virtual money. The one real challenge will be in how you catch and prosecute such criminals since no nation has jurisdiction.

Wow, that looks entirely legit!

[Anonymous Coward]

The Wikipedia article (beyond the fact that the article is on the most unreliable data source outside of a Soviet propaganda factory) is sourced entirely to bitcoin.org. This /. article is sourced entirely to Wikipedia and to....bitcoin.org.

So it's slashvertising AND garbage. Three cheers for kdawson.

Re:Wow, that looks entirely legit!

[Tisha_AH]

Pshaw! The only true reliable source of information is the guy who appears on late night television with that goofy suit with $ signs all over it who talks about getting free money from the government.

It must work, look at how many politicians we have.

Compared to that guy, Wikipedia is still in diapers.

Re:Wow, that looks entirely legit!

[Sycraft-fu]

I'm convinced you could abuse Wikipedia to invent something and get most people to think it was legit. Wikipedia's checking seems to be entirely based around if something is sourced, not the quality of the source. So you set up a website, maybe two, and put up whatever bullshit you want. From those websites you link to a blog to two to give them some credibility. You have a few blogs that go around in self referential circles as blogs like to do, a couple referencing a Wikipedia article. You then write the article, citing the websites.

You now have "proven" information according to many net types. The Wikipedia article checks out, it is fully sourced. Doing some back tracing the sites have to be legit, after all the reference some blogs, and those blogs link to a wiki on it! If you can then get someone like /. or what not to report on it, it'll be "fact" to many people. for that matter the sites can then reference the story as additional credibility.

A clever person who followed the whole chain would realize it was circular, but nobody is likely to do that. Also since you get a lot of circular crap in the blog world, it is even less likely to be noticed. Anyone who comes across the information you are claiming will run to Wikipedia to check it out, and Wikipedia will keep the article there as it is good according to their standards.

Maybe one of these days I'll try doing it.

Re:Wow, that looks entirely legit!

[HungryHobo]

alternatively you just get a job as a journalist, pull some "facts" out of your arse every now and then and include them in what you write.
Don't give any source.
in theory the paper you're writing for is supposed to try to avoid bullshit for the sake of their reputation but unless it's going to get them sued they won't give a shit.

or read wikipedia, include whatever you read in your articles and as a bonus someone can now cite your article as a source.

Shitty journalism is a far far bigger problem than bullshit on wikipedia.

Re:Wow, that looks entirely legit!

[TangoMargarine]

Except for the fact that some people on Slashdot would notice because we have so many paranoiacs around who would actually do the research. Unfortunately nobody outside of Slashdot would care, and if it was pointed out, most of the Slashdot article about it would probably be spent arguing about poor grammar in the headline instead of the actual issue.

Profit!

Re:Wow, that looks entirely legit!

[Teancum]

Arguments about source quality can and do happen on Wikipedia, and self-published sources can be rooted out. Blogs in particular are highly suspect in terms of sources and generally don't hold up to review when examined. References to an "official site" can be useful as it does give factual information, but it is also treated as a primary source and sometimes can have biases that need to be accounted for as well.

There is no way that a page like this would ever get featured article status or even be considered a "good" article. In fact, since there is absolutely no discussion on the "talk page" it is even reasonable to presume that this page hasn't even really been reviewed at all by anybody trying to improve the page to any sort of standard at all. If you want to know the status of an article, at least check out the discussion page and try to find what biases may be in the article too.

There are efforts to improve Wikipedia quality, and it is unfortunate that an article of this nature is linked so prominently on Slashdot too. In fact, given the nature of the deletionists that I've been dealing with lately, I'm very much surprised that some sort of AfD discussion hasn't already taken place with this article. It passes the initial smell test, but the lack of sources could make it fail the Wikipedia Notability policy (WP:NOTE).

Re:Wow, that looks entirely legit!

[Anonymous Coward]

His name is Matt Lesko, and it's question marks, not dollar signs.

Fun fact: his car is covered in question marks too. I've seen him a few times at events in DC.

Re:Wow, that looks entirely legit!

[Anonymous Coward]

Didn't work for Kuniyo Yamashita, even though there are no circular links.

Re:Wow, that looks entirely legit!

[mrmeval]

You were Dan Rather's disrespected and disaffected flunky weren't you?

Re:uhhh.... exactly

[girlintraining]

Or reason to. In the 60s, people attempted to create non-government currency in this country. They were arrested and jailed.

To paraphrase Keef Richards...

[Anonymous Coward]

Be safe from the instability caused by fractional reserve banking and bad policies of central banks. The limited inflation of the Bitcoin system's money supply is distributed evenly (by CPU power) throughout the network, not monopolized by the banks.

Yeah, get back to me when I can pay my fucking rent with it!

/.ed already, FAQ at sourceforge

[Anonymous Coward]

http://bitcoin.sourceforge.net/wiki/index.php?page=FAQ

Ummmmmmm

[Immostlyharmless]

Does anyone understand this at all? It's slashdotted already so can someone explain what

nodes burn CPU cycles searching for bundles of coins, broadcasting their findings to the network.

means? This sounds like something I would do in an RPG? Where does it find these 'bundles of coins'? Am I just being obtuse about all of this? O_O

Re:Ummmmmmm

[Anonymous Coward]

New currency can be generated by solving difficult math functions (cryptographic functions)

Since these functions take a certain amount of energy (electricity) to complete, the value of the currency is driven towards the price of electricity.

It's similar to mineral mining: on average you have to spend a certain amount of time and effort to mine a certain amount of gold, and this tends to set bounds on the value of the gold.

Re:Ummmmmmm

[noidentity]

I love how the Wikipedia article just assumes you know what the hell this is or how it would serve as money. Unless this currency is like gold or silver where the quantity in existence is essentially fixed, I'm not interested, since it'll be subject to inflation, and thus price inflation. We already have tons of currencies to choose from if we want monetary inflation.

Re:Ummmmmmm

[xaxa]

I've installed the software (from Sourceforge) and I still don't really understand it.

I have an address to receive payments (1D3ojVLNgD7D5WEKdq37m291N3Cai5CHTU) but it seems I'll have to wait a while to generate a "coin" myself. When that's done I don't know what I'll do with it -- how could I spend it? Why would you accept it?

Re:Ummmmmmm

[Anonymous Coward]

so they are kind of like carbon debits then.

Re:Ummmmmmm

[14erCleaner]

It's basically a decentralized barter exchange, using electronic signatures to validate the currency. I see no reason this would be preferable to any number of already-available systems for valuing goods (like, say, US dollars), unless you're an anti-government paranoid.

Re:Ummmmmmm

[hedwards]

That's not entirely correct, close but not quite. You get inflation/deflation when the supply of money deviates from the amount of economic activity. Money is just a placeholder for the things that you can buy with it as it tends to be inconvenient to always be dealing in whole cows and hundreds of eggs to buy everything. So, you can indeed get a similar effect with gold or silver, it's just susceptible to other sources of manipulation such as the gold and silver taken out of circulation for technological products.

Re:Ummmmmmm

[hedwards]

Because it's more convenient for international transactions. You have people swapping them across borders and only have to convert the money once, when one wishes to cash out. Rather than each and every time there's a transaction across currency types.

Re:Ummmmmmm

[Anonymous Coward]

OK, what part of cryptographically fixed @ 21 million bitcoins don't you understand?

Re:Ummmmmmm

[HungryHobo]

In practice the quantity of gold/silver/etc available is not fixed.

Tomorrow someone builds better mining equipment and suddenly there's 5 times as much available.

A ship loaded with a significant quantity sinks over the mid atlantic trench?
well in practice it has gone beyond where humans can practically access it and so might as well no longer exist.

Alternatively someone might build some kind of Von Neumann machine which can extract your precious metal from seawater or mine asteroids and suddenly the value of your precious metal would drop close to zero.

Whenever someone invents a cheaper way to mine gold you're going to experience price inflation as the gold in your safe becomes less valuable.

gold is only special to people who delude themselves that it's somehow special.
Food, clean water, tools, feminine hygiene products, useful information.
If you're convinced fiat currencies are going to collapse these are what you should be filling your underground bunker with, not some shiny metal which will only be worth anything if people believe it has any intrinsic value.

Re:Ummmmmmm

[DaveV1.0]

But, the value of the currency is based on something no one actually cares about: solving cryptographic functions. Solving the functions creates nothing of value. It seems to me that one may as well base a currency on holes dug in sand or chiseled into rock by hand.

Re:Ummmmmmm

[Teancum]

It is the decentralized nature of this project that is so ground breaking here, and not necessarily the currency itself. When you are working with a physical commodity-based currency, you have something which can be separately bartered and has some intrinsic value for others to recover your "investment" into that currency.

Almost every other kind of virtual currency system requires some sort of central bookkeeping server to make sure that somebody isn't spending that virtual money twice. It is that central server which those involved with this project are trying desperately to avoid, and to come up with a scheme where mostly honest people will try to stay honest and will have dis-incentives to game the system in a distributed record keeping system.

A central transaction system does a lousy job of scaling to meet demand, and this system of record keeping can be used to keep costs down for keeping track of that kind of data.

It has some interesting applications for MMORPG development, where conceivably you could set up some sort of system of authentication of not just the "virtual currency" but also other things within the game such as monster drops, virtual commodities, and even keeping track of earned experience and character levels. If you could set up a completely de-centralized MMORPG game system that could set up trust metrics and cull out attackers, it might just be a real winner of a game.

As an attempt to solve a tough computational problem, this certainly deserves some merit and attention. Even beyond games, it also has applications in terms of authenticating non-monetary data in a distributed environment that requires certification of one-way transmittal of that data.

I've really got to think about the potential applications here, but I don't think its use as a currency alternative is necessarily the only or even best use of this concept.

Re:Ummmmmmm

[jesset77]

I have an address to receive payments (1D3ojVLNgD7D5WEKdq37m291N3Cai5CHTU) but it seems I'll have to wait a while to generate a "coin" myself. When that's done I don't know what I'll do with it -- how could I spend it? Why would you accept it?

Not to endorse the software, because we're all trying to confirm it does what's advertised, but people who don't want to wait around burning CPU cycles to create a coin might buy one from you in USD. It's value would rest upon it's alleged mathematical rareness as a proof of sacrifice .. really the same reason fiat currency has value. Then I could transfer that coin anonymously back and forth with other parties online in excahnge for shady goods or services without being traced, and they could sell it back to someone in their local currency to convert it back to classical value.

Re:Ummmmmmm

[Anonymous Coward]

Please be patient. I haven't finished scanning your hard disk's contents yet.

Re:Ummmmmmm

[theymos]

See:
http://www.bitcoin.org/wiki/doku.php?id=block

You do lots of SHA-256 hashes of a random number until the hash result is less than the network's current target number. This happens at a predictable rate, and when it does, you win a certain number of BitCoins.

Also the technical paper:
http://www.bitcoin.org/sites/default/files/bitcoin.pdf

Re:Ummmmmmm

[theymos]

You can accept payments now. You don't need to wait to generate a coin. You do need to wait to download the entire block chain, which could take a few days. You'll know it's done when the number in the lower right of the BitCoin window has stopped incrementing.

Here are some places where you can spend coins:
http://www.bitcoin.org/smf/index.php?topic=30.0

Re:Ummmmmmm

[Anonymous Coward]

CPU cycles consume electricity, not CO2.

Re:Ummmmmmm

[MrNaz]

Or small quantities of nickel and tin alloy hammered into small circles.

Re:Ummmmmmm

[Anonymous Coward]

In practice the quantity of gold/silver/etc available is not fixed.

Tomorrow someone builds better mining equipment and suddenly there's 5 times as much available.

A ship loaded with a significant quantity sinks over the mid atlantic trench?
well in practice it has gone beyond where humans can practically access it and so might as well no longer exist.

Alternatively someone might build some kind of Von Neumann machine which can extract your precious metal from seawater or mine asteroids and suddenly the value of your precious metal would drop close to zero.

Whenever someone invents a cheaper way to mine gold you're going to experience price deflation as the gold in your safe becomes less valuable (aka the price decreases).

gold is only special to people who delude themselves that it's somehow special.
Food, clean water, tools, feminine hygiene products, useful information.
If you're convinced fiat currencies are going to collapse these are what you should be filling your underground bunker with, not some shiny metal which will only be worth anything if people believe it has any intrinsic value.

ftfy

Re:Ummmmmmm

[Anonymous Coward]

I knew the LHC was sinister in some way. Then you enlgihtened me:

Alternatively someone might build some kind of Von Neumann machine

The LHC is actually about fusing smaller nuclei into gold nuclei.

Re:Ummmmmmm

[Anonymous Coward]

Where does it find these 'bundles of coins'?

It finds the bundles from the end of rainbows. There are also leprechauns, messing with your nodes and screaming "giv' me my gold!" through your speakers.

Re:Ummmmmmm

[thegarbz]

gold is only special to people who delude themselves that it's somehow special.

Yet in practice it has a more stable history than any fiat currency. You theory that gold is not fixed is correct, but that doesn't change the fact that it is far more reliable than a currency backed by the decisions people make. Gold takes energy and effort to get out of the ground. Creating bigger and better machines takes time and effort. Essentially this forces the market itself to be very slow. Compare that to a currency which has an intrinsic rarity based entirely on someone's decision to print money. Look how well that turned out for Zimbabwe, where the solution to inflation was to print a few extra zeroes on the end of the note.

Also in your post apocalyptic world Gold will always have an intrinsic value. Whoever has the food and clean water is also likely to have a wife who wants something shiny. Gold has been a desired element since 3000BC, it is still a desired element today not only for fashion (gold plated iPads), but also for its chemical properties such as resistance to acid (gold plated Hastelloy is used quite extensively in the chemical industry).

The only delusion here is not realising that gold is special because the people make it special, and that hasn't changed in 5000 years.

Re:Ummmmmmm

[HungryHobo]

Food, clean water, tools, feminine hygiene products, useful information.
These things will only get more valuable the worse things get.

gold will get less valuable the worse things get and as such the less people want shiny baubles rather than food.

Anyway, platinum is where it's at. :-D
More valuable, more resilient and far more useful to a chemist.

Re:Ummmmmmm

[Anonymous Coward]

OMG can you people stop talking about things you have no idea about... unbelieable the drivil you can come up with.

The reason for the work is because its the world against an attack to come up with a hash the quickest. The world almost always wins and thus verifies the transfer of the coin before the attacker tries to steal it. It has NOTHING to do with making it 'worth' anything.

Re:Ummmmmmm

[DaveV1.0]

Nickel and tin have an intrinsic value. The metal can be and is used for other things. Bitcoins have no intrinsic value and can be used for nothing else.

Re:Ummmmmmm

[Anonymous Coward]

Err... do you have any idea what the value of the metal in a coin is? It's a fraction of the face value. Coins are deliberately valued far higher than their intrinsic metal value to prevent people melting them down and selling them as scrap, which would totally undermine the monetary system.

Man, your ignorance is stunning.

Re:Ummmmmmm

[Anonymous Coward]

When you're talking about a currency as payment, if the value of that currency decreases, the things you buy with it require more currency to obtain. That's inflation.

If you're talking about gold as pretty jewelry, then if the cost of gold decreases, pretty jewelry gets cheaper.

Neither case is called "deflation".

Re:Ummmmmmm

[wvmarle]

The FAQ mentions something like money changers. This sounds to me as a way to buy/sell those bitcoins for real-life money, just like you buy tokens for on-line games or whatever. Except that these bitcoins you can not just spend, you can also receive.

Interesting idea but as many I still don't understand the prevention of reuse part. Oh well, when it actually gains some traction (if ever) there will be better explanations on that part.

Re:Ummmmmmm

[AVee]

Really, then why was it made illegal to export coins out of the USA?

Re:Ummmmmmm

[noidentity]

There's nothing wrong if a ship full of gold sinks. It increases the value of gold. The problem is massive inflation, as all fiat currencies have or will experience. Gold mining is a tiny fraction of the current amount of gold held by people, so it doesn't have any noticeable effect.

Re:Ummmmmmm

[noidentity]

And specialization is what allows the best use of the available resources, even if it's a grim situation. If you're dealing with humans, you need a currency to have specialization work in practice. Gold is the best currency for that purpose. You don't consume it in the end, but it's an essential part of the machine that produces what you do consume.

Re:Ummmmmmm

[noidentity]

What part of "Wikipedia article lacks a coherent summary of what it is and how it works" and "Bitcoin's site was Slashdotted at the time of posting" don't you understand? Indeed, now that I've been able to read their FAQ, I see they have addressed the inflation issue in an interesting way that has some inflation in the beginning, to encourage early adoption (since coins will increase in value), but a limit, so that once it's established, it becomes a stable store of value.

Re:Ummmmmmm

[Abstrackt]

CPU cycles consume electricity, not CO2.

Depending on the source of generation said electricity may create CO2.

Re:Ummmmmmm

[ceoyoyo]

So you make "money" by wasting electricity. Perfect.

Re:Ummmmmmm

[xaxa]

For anyone still interested, downloading and validating the block chain took about 3-4 hours (I don't remember). I've now left the PC on for a full 16 hours, and haven't generated my own coin yet. (PC is quad-core 2.8GHz or something.)

I have 5 credits though, there's a site that gives 5 credits for free.

I think this is the point where I lose interest ;-)

Re:Ummmmmmm

[steelfood]

Food, clean water, tools, feminine hygiene products, useful information.

One of these things is not like the other. One of these things doesn't belong...

Re:Ummmmmmm

[dmp1ce]

You can get some free bitcoins here. https://freebitcoins.appspot.com/

Re:Ummmmmmm

[Anonymous Coward]

Because recently there was an out of the ordinary case where the market value of copper in China rose above the face value of the penny.

This is not a normal situation, and the only reason it arose is due to inflation devaluing the currency so far since the penny came into existence.

50 years ago, a penny could buy you a meal from a corner store. Today, a penny is worth so little that it can be ignored. There are no good of such low value that a penny could be used in exchange for them.

This is a perverse situation, that has arisen due to inflation. In Australia in the early 90s, 1c and 2c coins were removed from circulation for this very reason, and now the lowest coin you can get there is the 5c coin. I would assume that the US will eventually do the same thing, and stop producing pennies, as they are totally worthless as a unit of currency.

That's why it was made illegal to export coins.

For the modern monetary system to work, face value of an item has to be far higher than its actual value, preferably the actual value of the item of currency should be at or close to zero. This is the case with notes, a $100 note is printed on paper than can be said to be more or less zero cost.

But don't take my word for it. There's a whole Internet full of knowledge out there that can help you with your ignorance problem.

Re:Ummmmmmm

[Alsee]

I still don't understand the prevention of reuse part.

To make things simple we will imagine the system only has a single coin.

The first step is that I generate an RSA key. For those who don't know how public key crypto works, imagine I make up a public "name" for myself, and I have a secret crypto key linked to that public name. This is anonymous because I can just make up new RSA public names for myself at will. The important part is that only I know the secret RSA key for any public RSA name that I make up.

When a BitCoin is born it has a number. Lets say it's coin number 1. The coin's number is put into the database along with my RSA public name. This makes me the owner of the coin.

Lets say you try to spend my coin. You send a public message saying you are giving coin number 1 to Bob. Bob, or anyone else, can look up coin 1 in the database and see the owner's RSA name. In order to give away a coin you need to prove you know the secret RSA key for that name. You don't know the key, so everyone can see that your message trying spending the coin is bogus. Everyone will simply ignore your message spending that coin.

Lets say I want to give you the coin. You make up an RSA public name and save your secret key. I write a massage naming coin 1 and naming your RSA name as the new owner. I also use my secret key to sign that message. Anyone with a copy of the database then looks up coin 1, checks the RSA public name listed for that coin, and checks that the secret key I used in that message matches. They then log that valid message in the database, and they store your RSA name as the current owner of the coin.

So the first important thing is that anyone can examine the public records and check the validity of each logged transaction. The only valid transaction is one from the owner of a coin sending a message to give away that coin. No one can attack a coin that he doesn't own because he doesn't know the secret key for the RSA name listed for that coin. The only attack we have to worry about is a valid coin owner sending two different messages giving that coin to two different people.

If you are a member of the P2P network and you hear two messages from a logged coin owner trying to give that coin away twice, it's pretty simple. Adam owns coin 1. Adam sends a message saying to give the coin to Bob, and Adam sends a message saying give the coin to Charlie. You see that the first message is valid and you log the transfer and you log Bob new owner. Now you receive the second message from Adam trying to give that coin to Charlie. This time when you look up coin 1 you'll find Bob's name listed. You simply reject the second invalid double-spend message from Adam.

Anyone can jump into the system at any time and they verify for themselves the validity of all information they are being given. However there are two additional requirements for this to work. First you need to be able to verify that you are being given a *complete* record of messages. If one of the transfer messages is left out of the log you get then you would have no way to invalidate a second transfer message for that same money. Secondly you need a way to verify the order of transfer messages.

A hash can be used to take a snapshot of the current database of coin owners and of the transfers that led up to that picture. New transfer messages can be added after that snapshot, but the snapshot itself proves an order of history. If you know a hash then you can prove you are being given a full snapshot, and you know that all messages in that snapshot did exists at that point in history, and than any additional transfer messages listed were added after the snapshot was taken.

A snapshot also includes the hash of the prior snapshot within it. So if you have a snapshot hash then you can verify for yourself the entire history of snapshots leading up to it. Older messages are buried under more layers of snapshots.

If I want to cheat I need to erase one of my old spend messages. I need take a fake snaps

Re:uhhh.... exactly

[Tisha_AH]

Bitcom... Backed by the Greek treasury.

With Scale Will Come Gov Intervention

[cmholm]

As someone pointed out, this article is light enough on source material that it may count as more of a slashvertizement. That said, if Bitcoin, or any micropayment and/or e-cash plan scales beyond a certain level, it's gonna attract both criminals and government interest and intervention, much as age-old Islamic halawa got a lot more notice when used by gangs like Al-Qaeda.

Re:With Scale Will Come Gov Intervention

[sbayless]

There are other possible problems, aside from the legal ones. Don't get me wrong, this is a neat idea; the laissez-faire anarchist in me is salivating. But its not immediately clear if the claims these guys are making are valid (or even possible). One warning flag though: I can't help but notice their prediction of expected deflation (from the wiki article). Before you go invest real money in this (however it is one would go about doing that...), you'd better be sure this isn't a very clever pyramid scheme.

Re:With Scale Will Come Gov Intervention

[Threni]

Exactly. In the UK, if you make money you have to pay Income or Capital Gains tax, depending on how it was `earned`. Something which part-time eBay sellers sometimes seem to forget.

Re:With Scale Will Come Gov Intervention

[hedwards]

In the US, you have to pay income or capital gains on all income. Well subject to a few provisos. Doesn't matter whether it's gold, USD, CAD, eggs or just exchanged work, it still counts as income.

Re:With Scale Will Come Gov Intervention

[smash]

If i buy something for $1000 new and sell on ebay for $900 used, i am not making money, and thus should not pay tax. I already paid tax when i received the original $1000 to buy the item with. You pay tax on PROFIT, not loss.

Re:With Scale Will Come Gov Intervention

[Attila Dimedici]

If i buy something for $1000 new and sell on ebay for $900 used, i am not making money, and thus should not pay tax. I already paid tax when i received the original $1000 to buy the item with. You pay tax on PROFIT, not loss.

What did you do with it in the meantime? Actually, the IRS says that you should declare the $900 as income and the $1000 as expense. Of course if you spent the $1000 in an earlier fiscal year than when you made the sale, it may not have been deductible in that year.

Re:With Scale Will Come Gov Intervention

[Anonymous Coward]

halawa is a sweet: http://en.wikipedia.org/wiki/Halva

hawala comes from the root word meaning "to transfer"

Re:With Scale Will Come Gov Intervention

[Anonymous Coward]

You linked correctly, just spelled it wrong. The practice is Hawala, a shady technique the mob uses to launder money.

Halawa on the other hand, is delicious - http://en.wikipedia.org/wiki/Halva

Re:With Scale Will Come Gov Intervention

[inKubus]

Yeah, but the only way they can control it is to cut people off from the network, i.e. a total police state. This is America, we've always done things more creatively. Bank drafts are nothing new. Do you think a check is any more official than this? The only difference is that banks generally deal in USD which makes them beholden to certain rules of the Federal Reserve. Likewise, the IRS expects it's money in USD. That doesn't mean you can't make fake money and trade it, you just need to convert it to the USD value at the end of the year according to the IRS rules and then pay taxes on it. Since this is basically converting raw electrical energy into a commodity, you aren't making income if you make bitcoins, so what do they care?

Now, if we were in some other country with a corrupt government who only wanted a monopoly on currency so they could counterfeit it then they might try to shut this down. As it is, it's actually a good idea. With IPv6 multicast and a worldwide mesh network, it could almost work. The only real risk in the model is the ability to crack the encryption (SHA 256) and the bandwidth to transmit every transaction to every person. Luckly, we have the same fundamental problem today with our current currency and it seems to work out. For instance, I don't need to know immediately if Joe Shmoe trades 1 bitcoin for a soda in New Jersey.

Read the paper and prepare to be fascinated. I think this is definitely closer to the world in Snow Crash where the problem of money is solved. It really could be solved with computers, and this is a decent approximation of the beginning of it. Yes, government might be less relevant, but a stable currency means everyone wins. And in America, we own the government, so I think we have a choice.

Re:With Scale Will Come Gov Intervention

[BForrester]

FYI, parent's link should say "hawala."

The link itself resolves correctly, but a search for "halawa" redirects to halvah; these are the pressed sesame seed and honey squares that many of us know and love. Searchers may be confused how Al-Qaeda has circumvented the standard worldwide banking network using these delicious treats.

Slashdotted...

[Anonymous Coward]

Too bad, I really wanted to know what this was about.

soory does not make sense

[mjwalshe]

>>Analysis of energy usage indicates that the market value of Bitcoins is already above the value of the energy needed to generate them, indicating healthy demand.

This does not mean anything - it strikes me this is the internet version of the guy we used to have in the UK who walked up and down oxford street with a placard warning against the dangers of lust and passion caused by fish, meat, bird, cheese, egg, peas, beans, nuts and sitting,

Presumably later on they start talking about the Gold Standard, Jews and the Illuminati.

Re:soory does not make sense

[tehcyder]

Presumably later on they start talking about the Gold Standard, Jews and the Illuminati.

Until reading this thread on slashdot, I'd never fully realised the direct correlation between belief in the gold standard, and insanity.

Re:soory does not make sense

[mjwalshe]

ah you are young padwan when you have seen as many summers as I you will grok the hidenn messages the Loonies ((c) Max Mosley) think they are trying to slip under the radar.

Inflation at the speed of Moore's Law

[Siker]

The FAQ seems slashdotted, but if the currency is based on CPU time, inflation would not only be high (how many years between doubling of CPU capacity?) but also rather erratic. Every time Sony released a new 'super computer caliber' gaming station inflation would shoot up as the price of CPU time just went down.

Re:Inflation at the speed of Moore's Law

[BlueSTARS]

I've been involved with the Bitcoin project for a while, and there are steps in place to prevent this. Essentially, the network tries to maintain block generation at a rate of six blocks per hour (one every 10 minutes) by checking every 2856 blocks (nominally 2 weeks) if the rate was too high or too low. At that point, all nodes adjust their hash target such that it gets more or less difficult to generate blocks. The net result is that more nodes or faster nodes can only really influence the market for 2856 blocks. There is discussion about reducing this number to lower that time, as well. If you'd like to discuss this with some Bitcoin participants, drop by the IRC channel: #bitcoin-dev on Freenode. I'm Lachesis on IRC.

Re:Inflation at the speed of Moore's Law

[HungryHobo]

I'm curious- from the sound of this it would be a great way for botnet herders to turn their victims electricity bills into cash(assuming I can swap my bitcoins for regular pay-my-taxes cash somehow). What measures are in place to prevent this?

Re:Inflation at the speed of Moore's Law

[daeglo]

Forgive me if this comes across as sarcastic

If faster computers cause the system to become more complex, thus slowing generation, then wouldn't the older computers become less desirable despite not physically having changed? Mathematically, how would this work out if I created the next "Big Blue", then after joining the network, suddenly I am the only one capable of generating a coin as the bar is raised higher than the peers are capable of reaching??

Re:Inflation at the speed of Moore's Law

[Concern]

This is going to seem like a fraud unless you can explain how any string of bits, regardless of how they were generated, can be considered to be owned, or transferred, in a world where they can be copied instantly for free, and in a world where I can bring 100,000 new peers into your network with their own versions of history and clever ideas on how to abuse your protocol...

Re:Inflation at the speed of Moore's Law

[tepples]

Every time Sony released a new 'super computer caliber' gaming station inflation would shoot up as the price of CPU time just went down.

That depends on whether Sony repeats the "Other OS" experiment. Otherwise, it'll be Activision and EA generating coins on your PS4.

Re:Inflation at the speed of Moore's Law

[Teancum]

I'm trying to get this picture straight: The whole purpose of the blocks and CPU time metric is to get involved with the distribution of the initial set of money, not necessarily that the currency itself necessarily requires massive quantities of computing power.

BTW, it seems like this coin generation issue is something that can be used as an attack vector, and is a different issue than the problems associated with double spending the money. What kinds of safety protocols or protection protocols are in place to keep somebody from simply "minting" money at will?

"He ought to find it more profitable to play by the rules, such rules that favour him with more new coins than
everyone else combined, than to undermine the system and the validity of his own wealth."

I don't buy this argument, as found in the PDF file about Bitcoin. Mind you, I'm just skeptical here and not trying to say it is impossible to resolve, but I don't see the protocols or transactional security which is dealing with this issue.

"Although it would be possible to handle coins individually, it would be unwieldy to make a
separate transaction for every cent in a transfer. To allow value to be split and combined,
transactions contain multiple inputs and outputs. Normally there will be either a single input
from a larger previous transaction or multiple inputs combining smaller amounts, and at most two
outputs: one for the payment, and one returning the change, if any, back to the sender.

"It should be noted that fan-out, where a transaction depends on several transactions, and those
transactions depend on many more, is not a problem here. There is never the need to extract a
complete standalone copy of a transaction's history."

I'm really curious about this particular issue and how a complete copy of the transaction's history doesn't need to be maintained. Again, it gets to the coining of the money issue, where it would seem as if the transaction trace would have to go back to when the money was coined in the first place. Some sort of planned decay of the history certainly could be used in terms of suggesting that after a certain amount of time it can be presumed that a certain bit of transaction history if valid (using a variety of metrics to make that happen that could even go beyond a pure timestamp measurement). Still, the option to view the full transaction history for what fan outs and inputs were associated with that transaction seems like a critical feature.

Re:Inflation at the speed of Moore's Law

[inKubus]

Believe in it and it will serve you. Each CPU can create coins in relation to the total CPU of the currency. Thus the more people involved who are not stealing means more safety.

Re:Inflation at the speed of Moore's Law

[Abstrackt]

Believe in it and it will serve you. Each CPU can create coins in relation to the total CPU of the currency. Thus the more people involved who are not stealing means more safety.

I hate to say it but that's actually less reassuring. Maybe this will take off like Facebook and everyone will do it, but if it that doesn't happen it will be the enthusiasts versus the botnets.

Re:Inflation at the speed of Moore's Law

[Mashiara]

AFAIUnderstood none and it's not the currency networks problem anyway (as long as the botherders are running peers that act within the rules of the network).

OTOH the bot-herders are already turning their victims electricity and broadband bills to cash and usually in ways that generate damage to third parties as well, I for one would be very pleased if they suddenly decided it would be more profitable just to generate bitcoins instead.

Value Estimation is Wonky

[Cylix]

A base value for bitcoins is assumed to be the energy used to create it. The system itself appears to be far more profitable when operating at am exchange entity or trader. ie, the ability to control the effective value of the coin in question. Which lends the whole process to feeling more like a pyramid scheme than anything else. Now, if you wanted a lossy system that was anonymous and had morally bankrupt exchange locations it would be useful anywhere an anonymous transaction is a must.

On the flip side, because wealth is always being generated for free, a purpose built rig which excels at generating coins more efficiently would essentially be a living cash machine. This would in effect mean that the coin itself has no actual value. It's worthless because it cannot be returned to the previous state. This is somewhat important to me when a system is based on the trade of goods.

In terms of actual exchange it introduces to much latency to ensure the transaction is actually valid. In terms of instant gratification the whole thing begins to break down.

The good news is that anybody is certainly free to use it. Unfortunately, because anyone can print money (even small amounts) I'm not going to be giving up any of my items today.

Re:Value Estimation is Wonky

[selven]

Unfortunately, because anyone can print money

Anyone can mine gold. It's supposed to eventually get hard enough to be impractical for most people and still a thin profit margin for everyone else.

Re:Value Estimation is Wonky

[DontLickJesus]

Their page states that there will never be more than 21,000,000 coins, and generating them seems slow & somewhat random. These things proving true creating such a cash-cow machine seems fruitless and unlikely. Coins can be purchased, which helps establish the exchange rates, but I think it's valid to pay those supporting the network. Paypal makes money on exchanges, this just distributes that wealth among those supporting the system. Someone's always gotta pay for these services in the end, but at least you can attempt to recoup those costs by participating.

Re:Value Estimation is Wonky

[Requiem18th]

Isn't it just like a goldmine?

Under a gold standard, a goldmine is essentially making money, one could say the coins are useless because the mine can make as much as they want *under realistic constrains*.

The coins are still useful because:
a) They are shiny.
b) They can be exchanged for goods and services.
c) It costs more to dig your own gold than working for an already minted coin.

And while the goldmine owner get really well off, they had to work and invest resources into getting the gold, so you can't say they didn't expend any effort.

Bit coins are similar. They aren't shiny but they are hard to create (value c) so the "Bitcoin printer" is still performing a service for the community by generating the certificates. Every bitcoin represents a given amount of money invested in generating it (this is what they mean with "energy"). Since each bitcoin has a very real value in dollars that means that the "initial distribution" of bitcoins will somehow match the precedent distribution of dollars. Rich people and smart investors will have more bitcoins, just as expected.

But the real value of the coin is that once created, it can be exchanged around for services (value b). And while it isn't shiny it has an advantage over the gold standard in that it won't deflate indeterminably. There is a hardcoded limit to the mount of bitcoins that can be created (21 billions).

Well that's the theory, the problem here isn't translating dollars into bitcoins, the problem is translating bitcoins back to dollars. Of course if everyone was into the system you wouldn't even have to worry about converting them back but initially, lots of real world products and services won't want to deal with them. Specifically, you can't offer them to people unless there's someone accepting them in exchange of a service, and the most likely kind of service provider that could accept bitcoins, IT companies, are the ones better suited to mint their own bitcoins.

At least until the hard limit is reached.

Re:Value Estimation is Wonky

[Cylix]

Except gold has value.

I can exchange gold for currency and vice versa.

Gold itself actually has a real value. It's worth is determined by more then magic. It can be used in elements other then currency exchange. (Jewelry, crafting, electronics and generally anything that needs to avoid corrosion) It is a trade good in and of itself at the end of the day.

I would not say the same thing regarding ecoins.

Re:Value Estimation is Wonky

[Cylix]

See earlier post regarding gold actually having real value and being a trade good in and of itself. ie, real world purpose.

so bitcoins have value because someone says they do. I'm going to make ecoins which is very similar to bitcoins, but quite completely different. There are a limited number of ecoins in existance too and that is why they have value.

My neighbor ted has digicoins for sale if you want to get in on his system. It's fairly similar to both bitcoins and ecoins, but it has an entirely different name. I think my cousin is going to make the euro-digibitcoin soon which aims to replace all the current market ecoins.

With all of these standards it's a bit tough to choose, but since they all have real honest to goodness value it's fairly safe to put your money into it. Hell, in your spare time you can generate some of the 12 billion coins that will be available on the market.

This is not the gold rush and it's silly to generate currency in your spare time. A real standard would have to be gold backed to keep any honest to goodness credit.

The value of the system is the possible anonymous nature of the trade. However, being as how there is nothing that stops me from using cash or making transactions anyway I'm not worried. This system appeals to those who need to make untraceable transactions.

Re:Value Estimation is Wonky

[inKubus]

No coins have value. They have tender, that is they can carry value across distances.

Money in any form is just energy--a signal of value being transferred. There needs to be as many divisible information packets (currency units) in the system as there are transactions at any given instant. The bitcoin system only allows 21M bitcoins. The rate at which the bitcoins can be created is halved every four years. At the point that 21M are created, goods prices will start to fall because people will need to divide their bitcoins to have enough to do all the transactions they want.

Most of what we do nowadays is digital. Every time you swipe a card you're just connection to a hierarchy of banks controlled by only a few people instead of asking hundreds or thousands or millions of other people if the bitcoin in question is already spent.

So, your instant gratification is basically you putting your trust that it's someone else's problem. Guess what, banks are spending your dollars while they are in transit. It's called "float". If you're happy with other getting goods for doing essentially nothing (in fact, printing up vouchers for goods as they wish), then you don't have to support it. But when I'm cashing in one bitcoin to pay $1000000USD in income tax, you'll wish you'd got on sooner. Read the article first next time. This IS slashdot though.

Re:Value Estimation is Wonky

[Anonymous Coward]

> I can exchange gold for currency and vice versa.

You can exchange Bitcoins for currency.

https://www.bitcoinexchange.com/
https://www.bitcoinmarket.com/

Re:Value Estimation is Wonky

[Requiem18th]

Yes you can create your own virtual currency, what's the point? Are you trying to troll me?

Your ecoins, Ted's digicoins and your cousin's euro-digibitcoin are all valid choices in theory so there's no problem.

With all of these standards it's a bit tough to choose, but since they all have real honest to goodness value it's fairly safe to put your money into it.

No, the choice is easy, bitcoin transactions are backed by a decentralized, P2P web of trust. Your coins don't.

But you are right that if you implement a system trust-able enough to attract traders your coins will be good enough for trade, tautologically so.

I don't think bitcoins depend on being the only virtual currency ever.

Although I have to agree as to what purpose could it have to mint the coins in the first place other than to arrange an initial distribution.

kdawson strikes again!

[Jack9]

Could we just get a random reddit submitter instead? Please?

Re:kdawson strikes again!

[Rick Richardson]

Uncheck any author name to exclude their stories from your Slashdot homepage.

x CmdrTaco        kdawson       x samzenpus
x Soulskill     x StoneLion     x timothy

Re:kdawson strikes again!

[exley]

I've thought about doing that many a time, but Slashdot just wouldn't feel like Slashdot to me anymore without one dedicated troll editor. I know you can make that case for (m)any other editors, but kdawson is by far the king of schlock on here.

Re:kdawson strikes again!

[amirulbahr]

Any idea how to do this for the Slashdot RSS feed?

Re:kdawson strikes again!

[TangoMargarine]

What?

Re:kdawson strikes again!

[L4t3r4lu5]

+1, I've already commented.

I've tried using FeedRinse to filter his name out, but because the /. RSS feed doesn't support the Author tag, it's ineffective. I've tried filtering by post, title, body, author, and tag. None are effective. PITA.

Re:kdawson strikes again!

[bWareiWare.co.uk]

Via Yahoo's Pipes would probably be the easiest way:

http://pipes.yahoo.com/pipes/pipe.run?Exclude=kdawson&_id=925e9a8c43cad8992f1d949b228f01d9&_render=rss

Re:kdawson strikes again!

[TangoMargarine]

No, I'm serious: What the heck is "This." supposed to mean?

Re:uhhh.... exactly

[sjames]

Banks?

Obvious flaw:

[tomhudson]

from wiki

Whenever a Bitcoin user makes a transaction, their node broadcasts the transaction to the network of nodes. When transaction data is received through a node, the node begins a proof-of-work calculation in an attempt to create a block containing the transaction. All nodes essentially race to create a block, as the first one to create a block gets Bitcoins as a reward. Once a node successfully creates a block, it broadcasts the block to the network. Other nodes receive the block, perform a proof-of-work check, and add it to their chain if it is valid. As more transactions occur, blocks are created and added ad infinitum. The longest proof-of-work block chain is acknowledged to be the oldest and most reliable account of the online transactions.

This mechanism is claimed to be virtually tamper-proof. For an attacker to manipulate the record, he must outpace all of the other nodes on the network to produce the longest proof-of-work.

The assumption that the longest one is the oldest and most reliable is invalid, Since anyone can peer, there's no reason that a peer can't fake itself as 20, 30, 100 peers, and, working on a very fast machine, produce a longer chain quickly than an older peer.

Re:Obvious flaw:

[antifoidulus]

Shhhh...you'll disrupt their feelings of self-righteousness!

Re:Obvious flaw:

[Anonymous Coward]

Not only that but, what's stopping someone or a group to do transactions with another "real/trusted/VIP/fake/scam" node to artificially increase its "value" and "reliability".

And what is the meaning of: "blocks are created and added ad infinitum" and in what context does that relate and fit in?

Even ignoring all those issues, what and who creates "Bitcoins". My guess is a group of scammers.

Re:Obvious flaw:

[Anonymous Coward]

Simple - it means that they are wasting processor power instead of allowing the machines to either go into sleep mode or do some useful grid computing type work. Basically they spin the processor very hard trying to generate a "coin". Unfortunately since all the nodes do this but only one gets it, it basically comes down to "let's waste a lot of power". Stupid idea.

Re:Obvious flaw:

[Anonymous Coward]

So botnets are the most trusted entities in Bitcoin. Epic fail.

Re:Obvious flaw:

[Anonymous Coward]

Did you just ignore your own quote? The part that said:

For an attacker to manipulate the record, he must outpace all of the other nodes on the network to produce the longest proof-of-work.

The "very fast machine" would have to be faster than all the combined peers in the entire network, since they are all working together to counter his fast machine.

Re:Obvious flaw:

[tomhudson]

All he has to do is take the current longest - which the network provides, then have his own local botnet add 3 or 4 more from local peers, then broadcast have the 4 peers broadcase all 4 - including the desired one, which will be longer. Duh!

Re:Obvious flaw:

[Osurak]

The assumption that the longest one is the oldest and most reliable is invalid, Since anyone can peer, there's no reason that a peer can't fake itself as 20, 30, 100 peers, and, working on a very fast machine, produce a longer chain quickly than an older peer.

Yeah, just wait until the bot herders get a hold of this. I'm sure they would have no problem either generating huge chains, or just flat out generating coins faster than anyone else.

Re:Obvious flaw:

[Anonymous Coward]

"The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers.[...]The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes."

Genius! It's on the first page: http://www.bitcoin.org/sites/default/files/bitcoin.pdf

Re:Obvious flaw:

[osgeek]

Yeah, any reasonable botnet could destroy trust in this currency.

Neat idea, but if that's a weakness... Next!

Re:Obvious flaw:

[jmbeck15]

I think you better read the paper.

"We consider the scenario of an attacker trying to generate an alternate chain faster than the honest chain. Even if this is accomplished, it does not throw the system open to arbitrary changes, such as creating value out of thin air or taking money that never belonged to the attacker. Nodes are not going to accept an invalid transaction as payment, and honest nodes will never accept a block containing them. An attacker can only try to change one of his own transactions to take back money he recently spent."

bitcoin.pdf

It goes on...

Re:Obvious flaw:

[tomhudson]

Genius! It's on the first page: http://www.bitcoin.org/sites/default/files/bitcoin.pdf

... except I didn't have to even read that to figure out the system was insecure. The description from Wikipedia was sufficient. In other words, if someone who is not familiar with the system can spot the main flaw in 2 minutes or less, then it's garbage.

Re:Obvious flaw:

[jibjibjib]

I think if somebody not familiar with the system believes they can spot a trivial flaw in less than 2 minutes, despite other intelligent people having put a lot of time and effort into writing papers and implementations, there's a good chance that says more about the somebody than about the system. http://xkcd.com/675/

Re:Obvious flaw:

[TheCyberShadow]

The entire system works on the assumption that a single entity will never have enough computational power to recompute a chain longer than the currently-existing, ever-growing chain. It basically means having to re-do all work already done by all Bitcoin nodes.

Re:Obvious flaw:

[tomhudson]

An attacker can only try to change one of his own transactions to take back money he recently spent.

And how is this a "good thing"? It's everyone's dream - a bottomless cyber-wallet. Sort of like the fed.

Re:Obvious flaw:

[tomhudson]

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.

Re:Obvious flaw:

[tomhudson]

All an attacker has to do is get in early in the chain. Since the "coins" are broadcast to everyone, that won't be hard with a widely-distributed botnet. This is a sucker's bet. With enough coins going around, a botnet is sure to be able to get in on the ground floor on some of them. Even ruining 0.01% of them will be enough to render the system useless - when it comes to money, people want 100% assurance.

They even admit in their paper that the system is vulnerable to attack, as I explain in this post - they just discount the possibility because attackers won't have as much computing power. Dream on! If there's money involved, you can rent a botnet for between 10 and 25 cents a day per machine - less if you're willing to buy in bulk.

And these are only the flaws that they (grudgingly) acknowledge.

Re:Obvious flaw:

[tomhudson]

I'm really hating this new mouse - half the time, it randomly copies and pastes text, deleting other text. Other times, it randomly goes backwards or forwards in the browser history. Or it won't register a click, 2, 3, 4x in a row. Time to see about cleaning the sensor on the old one and making it "just work" again. Here's the link.

Re:Obvious flaw:

[Anonymous Coward]

But...the oldest peer is already created. Hard to hack the prime.
Sounds more like the whole thing boils down to:
"All your coin now belong to us".

Re:Obvious flaw:

[KahabutDieDrake]

That doesn't even make sense. You are insinuating that a very fast machine can out process not only every current machine on the network, but every transaction they have processed in the past (assuming 100% uptime for any given node).

This is only a reasonable assumption when you talk about using top 500 hardware configurations that cost millions of dollars. Frankly, i'd be mighty impressed if you could come up with the hardware, and any significant amount of run time out of it.

Lastly, doing so gets you NOTHING. If your chain is valid, all you've done is use a million dollars worth of hardware to create 2euros worth of BCs. If it's invalid, and fraudulent, it won't be accepted by the rest of the network and won't ever achieve reliable status to begin with. Presumably you could, once you had the longest chain begin altering the chain, but the chances are they thought of that and solved it cryptographically. If you'd like to attack their cryptography, then feel free, but I'm guessing it's not bad. Further, I'm going to assume you don't have the resources to break it, and if you did, there are (currently) better targets.

If we assume this takes off, and BCs end up with a meaningful exchange rate, or get accepted as general money, then your point begins to have some merit. Because it just might be worth while to re-purpose an MPP cluster for a week. However it still doesn't break anything in the system, nor allow you to alter the record chain, so you still haven't done anything except become the oldest record holder (longest).

Re:Obvious flaw:

[tomhudson]

If you get in early enough in the chain, you only have ONE coin to "crack". Do that 1 time in 10,000 and you've destroyed trust in the system - and with a decent-sized botnet, there's no reason not to believe you could get that "first second coin" enough times to ruin the system.

Re:Obvious flaw:

[Anachragnome]

"So botnets are the most trusted entities in Bitcoin."

Wouldn't it make Bots sort of obvious, what with the processors running flat-out all the time?

Re:Obvious flaw:

[Anonymous Coward]

The assumption that the longest one is the oldest and most reliable is invalid, Since anyone can peer, there's no reason that a peer can't fake itself as 20, 30, 100 peers, and, working on a very fast machine, produce a longer chain quickly than an older peer.

Nope. For that to work, that very fast machine would have to be faster than all other peers combined, since all peers are racing to add new hashes to the chain. Your branch would have to grow faster than the currently accepted chain, and unless you control more computing power than all other parties combined, accomplishing that is unlikely.

Re:Obvious flaw:

[Anonymous Coward]

All he has to do is take the current longest - which the network provides, then have his own local botnet add 3 or 4 more from local peers, then broadcast have the 4 peers broadcase all 4 - including the desired one, which will be longer. Duh!

The peers must still sequentially add to the chain. The length of the chain is therefore extended at the rate of calculation for the total peer network . Broadcasting "longer" chains would mean those chains either were A) invalid, wouldn't pass work-check inspection or B) calculated faster than the entire peer network.

Re:Obvious flaw:

[tomhudson]

No - it only has the be the first to add a new token. From that point on, everyone assumes it is the oldest and the legit one. Then it just has to keep one step ahead for a while, as other "legit" compute resources take up the "bad" chain as legit and work it. That's why it's so bad - it's vulnerable to takeover.

Re:Obvious flaw:

[Anonymous Coward]

The assumption that the longest one is the oldest and most reliable is invalid, Since anyone can peer, there's no reason that a peer can't fake itself as 20, 30, 100 peers, and, working on a very fast machine, produce a longer chain quickly than an older peer.

The way I read this is that you have to have more peers than the total size of the network for this to work...

Re:Obvious flaw:

[tomhudson]

No - you just have to have lower latency. If you have 10 peers with low latency, (especially among each other, so they can quickly demonstrate 2, 3, 4 new coins), the other peers abandon their results. If your peers can serve up a poisoned 4-chain coin while the others are still working on a 3-chain coin, they drop their results and use yours, since yours, being longer, is authoritative.

Fuck-tarded design. But then again, so is the whole concept.

Re:Obvious flaw:

[Anonymous Coward]

Even ruining 0.01% of them will be enough to render the system useless - when it comes to money, people want 100% assurance.

Right, like their is 100% assurance from fiat currencies. lol

Re:Obvious flaw:

[tomhudson]

Some fiat currencies are more stable than others.

bitcoin will never go anywhere. It's a stupid idea. It's a flawed idea. It has no real-world analogue. It has no real-world utility. In the event of an attack, you have nobody to complain to, unlike if your bank accidentally screws up your account. It offers no advantages over current ways and means.

Executive summary: It's mental masturbation.

Re:Obvious flaw:

[Alsee]

You overlook some details.

First, the only gain an attacker can get by doing that is the ability to re-spend coins that they themselves had, and which they spent, during that particular timestamp period (timestamps are approximately once every ten minutes I believe). Next, in order to respend that BitCoin you would have to use that technique to "erase" the transaction from the first time you spend that money, and the person you spent it to would rapidly find out. Depending upon the nature of that first transaction they would obviously (if possible) terminate the service or delivery of whatever you bought, and of course do their best to expose you. The duplicate chains floating around would document what was going on. Conflicting chains would send up instant red flags across the network, and the actual real-world timestamps when those chains were seen across the network would expose the fraudulent ones.

However there is a fascinating reason why someone with that much computing power wouldn't want to commit that attack. The more computing power you feed into the P2P network the more VALID BitCoins you generate for yourself. If you had so much computing power that you made up more than half of the power of the P2P network it means you would in fact be generating more than 50% of the money in the economy. The valid money you would generate as an honest participant will likely outweigh the value of attacking it. In any case the profit of such a powerful honest participant is certainly easier and safer than any questionable marginal gains you might hope for as an attacker.

Why bother with schemes to commit fraud when you have the power to print legitimate money?

-

Re:uhhh.... exactly

[theaveng]

The dollars and euros are already on the verge of being virtual. Banks, corporations, and individuals rarely trade paper anymore; it's all done electronically as computer data. Even the ~1500 billion bailouts passed last year were done virtually - the Central Bank just appended a couple zeros to GMs, Bank of America's, and other private accounts. In effect they created money out of thin air.

BTW the Federal Reserve is not part of the government, just as Federal Express is not part of the government. The name is designed to deceive you but the Fed is still a private bank. It's a private corporate monopoly.

And finally, if you want to take money out of the hands of government to manipulate, inflate, or devalue, all you need to do is switch back to using precious metals - gold, silver, platinum. Governments and/or private central banks can not make metals out of thing air, thus they can not devalue your personal savings.

Anonymous virtual currencies all die off

[Anonymous Coward]

Seriously guys, it has been done to death hundreds of times.

They all died off. There's so many I don't even remember names.

Why did they die? Because whenever something like that reaches a meaningful size, something called "anti money laundering" kicks in.
This hits especially in payment processing. Companies are in practice prevented from processing anonymous payments. You cannot even go to a jewelry store with a suitcase with $20m in it and walk out of there with your pockets full of diamonds.

And if you have money to spend but nowhere that accepts it? Guess what, your money is worthless.

Bitcoin IRC

[BlueSTARS]

The webmaster is resizing the host at Rackspace now. The site should be back up soon. Until then, feel free to come talk with the Bitcoin community about this on IRC: #bitcoin-dev on Freenode.

Paging Whoopi Goldberg

[YrWrstNtmr]

Can we have another round of Flooz, please?

Still creating artificial scarcity?

[lennier]

So this system requires CPUs to burn scarce, real electricity in order to generate virtual electronic tokens whose only purpose is to simulate the scarcity of rare metals, so that we can continue to use the old 'exchange value' economic model in the realm of information where by definition, it does not apply.

This seems like basing an economy on burning one's food crops to prove wealth and using the ash to buy things. I'm sure it would 'work', for some definition of work, but it doesn't seem particularly... efficient. Or sensible. Granted, humans do indulge in self-destructive behaviour, but do we really have to port all our bad habits into the digital world?

Is there some actual upside to this system which I'm not getting?

Re:Still creating artificial scarcity?

[BitterOak]

So this system requires CPUs to burn scarce, real electricity in order to generate virtual electronic tokens whose only purpose is to simulate the scarcity of rare metals, so that we can continue to use the old 'exchange value' economic model in the realm of information where by definition, it does not apply.

Not to mention that Moore's Law would cause runaway inflation. And wouldn't people with access to supercomputers (University profs and students) become disproportionately wealthy?

Re:Still creating artificial scarcity?

[MonChrMe]

If I were to base my entire understanding of the system on your post (read the Article? On Slashdot?) I'd imagine this is like Folding@Home, but you get paid for your machine time? Doesn't make sense on modern computers - when it finds its level it's unlikely that you'd receive as much as you spent on the additional power. But for those of us running older machines with poor power management, it makes more sense to run something like that in the background - we're using the electricity anyway, so may as well do something useful with it. I guess I should go read that article. :)

Re:Still creating artificial scarcity?

[smash]

At 100% every 18 months, it will soon be less inflationary than the US government's fiscal policy (if not already)?

Re:Still creating artificial scarcity?

[Anonymous Coward]

What they SHOULD be doing is generating currency by doing computational WORK for another node that will act as an employer. The currency can be in denominations of estimated processor cycles or whatever. Valuation is the big issue. There are still a lot of issues to work out, but at least it would make more sense than just burning cycles to create arbitrary crypto tokens.

Re:Still creating artificial scarcity?

[loufoque]

So this system requires CPUs to burn scarce, real electricity in order to generate virtual electronic tokens whose only purpose is to simulate the scarcity of rare metals

No, it requires computing power. It just happens that electricity-based CPUs are the most powerful method we have to compute at the moment.
But you could just use pen and paper, or even just your brain.

Re:Still creating artificial scarcity?

[forkazoo]

What they SHOULD be doing is generating currency by doing computational WORK for another node that will act as an employer. The currency can be in denominations of estimated processor cycles or whatever. Valuation is the big issue. There are still a lot of issues to work out, but at least it would make more sense than just burning cycles to create arbitrary crypto tokens.

But, then what does the "employer" pay with? If the only medium of exchange is barter of CPU cycles, then the employer would have to work on some problem the employee needs computed while the employee works on some problem the employer needs computed. The two sides could just work on their own problem to exactly the same accomplishment. By generating some arbitrary medium of exchange, you can increase the liquidity of a market, which is basically zero in a barter system with only a single good. Without some liquid capital to get things moving at the start, you don't have anything interesting happening.

Re:Still creating artificial scarcity?

[forkazoo]

Not to mention that Moore's Law would cause runaway inflation. And wouldn't people with access to supercomputers (University profs and students) become disproportionately wealthy?

Yes, in exactly the same way that people who buy heavy mining equipment and land in mineral rich areas are disproportionately wealthy. Supercomputers don't just magically appear, and nobody gets them on accident. They can invest in supercomputers and "mine" virtual currency and hope that the payoff is enough to justify buying the supercomputer.

Re:Still creating artificial scarcity?

[mdmkolbe]

You have a good point. For a barter system to work, you need differentiated goods and differentiated relative production (see the classic Farmer and Rancher barter example in Economics). So what we have to do is convince everyone to run different styles of processor that are better at different kinds of computation ... eh, never mind. It might work, but I'm not liking where this is going.

Re:Still creating artificial scarcity?

[Mr0bvious]

What if they were productive CPU cycles?

Re:Still creating artificial scarcity?

[PotatoFiend]

Or they can just use their botnet, which they paid nothing for.

Re:Still creating artificial scarcity?

[Anonymous Coward]

Time.

You can compute "their" load now, while you are idle - in return for an IOU to be redeemed later. The question basically becomes how to design a secure IOU then.

Re:Still creating artificial scarcity?

[Anonymous Coward]

The two sides could just work on their own problem to exactly the same accomplishment.

Only reason I can think of would be allocation of CPU power problem, a slow accumulation/sudden discharge scenario: If participants have need for occasional short surge in computing power, they could "earn" it by regularly participating in network as CPU cycles provider. The market is the cloud.

Re:Still creating artificial scarcity?

[inKubus]

Yeah, what I would ask is "Were you BORN with money in a little wallet?" No. At some point we meet someone who has some and then we trade them something for it. Or receive some as a gift. There are some gift sites out there giving away free bitcoins. Be more open minded. No one wants to believe that their dollars in their bank accounts aren't worth anything. But they aren't. It's all an idea we're confident in. In bitcoin's case, the idea to be confident in is A. How easy it is to generate a new bitcoin B. How many people you can ask if a bitcoin has been spent already. C. If a bitcoin is double-spent, how do you determine who was first.

I think that it would be pretty easy to make this thing a lot more robust with a solid multicast protocol (IPv6 should have plenty of multicast space) and solid, mesh networking that isn't controlled by anyone. After that it's a matter of bandwidth once all 21M coins are made. And of course, there's no reason someone else can't come along and make a better currency, just like you're free to use USD, Canadian $, Rupees, Pounds, gold dust, cocaine, etc. wherever you shop. It's just about whether they take them..

Re:Still creating artificial scarcity?

[Anonymous Coward]

It's all about cash flow.

Re:Still creating artificial scarcity?

[BitterOak]

Yes, in exactly the same way that people who buy heavy mining equipment and land in mineral rich areas are disproportionately wealthy. Supercomputers don't just magically appear, and nobody gets them on accident. They can invest in supercomputers and "mine" virtual currency and hope that the payoff is enough to justify buying the supercomputer.

But then supercomputers would be used primarily to generate currency rather than do research. This scheme would then artificially raise the cost of computations to the point where many scientists wouldn't be able to do their research.

Re:uhhh.... exactly

[blackest_k]

couldn't find anything on the 60's but this page from 2009 was interesting.

http://www.brianrwright.com/Coffee_Coaster/01_Columns/2009/090609_Liberty_Dollar_Game_On.htm

with the currency being made of precious metal and not being legal tender the worst that happens is you go for scrap value.

More information

[bencoder]

Since the site is down and the summary is light on information, let me try and summarise this a bit better, from what I've picked up, so I might be wrong on some of the details):

Nodes connect to each other in a P2P network.
The nodes perform hashing problems, attempting to find a number that hashes to a value with a certain number of 0's at the start (binary zero's, aka, the number has to be below a certain value)
The network assigns bitcoins to those nodes who have found solutions to the hashes.
After a certain amount of time the difficulty of finding the hashes increases(an extra 0 is added to the hash solution required)
This increase in difficulty continues until eventually there will be 21million bitcoins and no more can exist.

We are currently in the inflationary stage, so the supply of bitcoins is increasing. once all 21 million have been assigned, then it will become deflationary, as no new coins can ever be created and coins that are lost are lost forever.

bitcoins can be divided into 100 million pieces, so the limit of 21 million coins is not a major stumbling block.

Essentially it's a way to create a decentralised currency with a hard limit on how much is available, ensuring that it cannot be inflated by a central government simply printing more cash or adding some numbers to a computer system.

Re:More information

[fat_mike]

I bet most central governments can do a better job than the answer to this question:

What's the current total amount of Bitcoins in existence?

"The number of blocks times the coin value of a block. The coin value is 50 bc per block for the first 210,000 blocks, 25 bc for the next 210,000 blocks, then 12.5 bc, 7.25 bc and so on. As of October 30th 2009, there are about 26,000 blocks in the block chain, which means 26,000 * 50 bc = 1,300,000 bitcoins in existence. You can see the up-to-date number of blocks in the status bar of the Bitcoin main window."

That was nine months ago. It hasn't been updated and what they're saying is "you'll only know once you download and install our software thus adding more coins".

Sniff, Sniff....I smell a pyramid scam.

Re:More information

[Anonymous Coward]

So, what you're basically saying is that right now, there's a landrush where the available resources are being divided among the early adopters - and afterwards, they'll be the haves and everyone else will be the have-nots?

Why would I, as a prospective have-not, want to use this system? For that matter, what is it good for, anyway? Suppose I'm an artist (I actually draw occasionally in my spare time, so it's not that far-fetched an example) and I get commissioned by someone to do a picture. They want to pay me with this.

Should I accept? Why? What can I actually *do* with the money afterwards? If I take, say, Paypal, I actually end up with cash in my pocket (after paypal fees), and I can go to a store and buy something - food, gadgets, whatever. If I end up with bitcoins, what can I do? Pay other fools who were naive enough to accept this stuff?

Re:More information

[smash]

actually that is far more reasonable than the fed's cap on dollars, which is effectively nothing. these are at least tied to a unit of labour, and has attempted to take moores law into account...

Re:More information

[bencoder]

Well, there are Bitcoin exchanges so you can convert to and from USD if you prefer a centralised fiat currency. You're correct, currently there are not so many services available that will accept bitcoin. The hope is that since this is a new, inherently stable, unmanipulatable currency, that we will see more and more services offering bitcoin payment options.

see The marketplace on the forum for places where you could spend your bitcoins.

Re:More information

[jack2000]

Remove your paranoia spectacles. How are they gaining anything. This is not a pyramid scam.

Re:More information

[Manfre]

The more CPU time a person puts toward the network the more free currency they "earn". This means the early adopters are basically printing currency that later adopters must purchase.

Re:More information

[bencoder]

You could also say that the early adopters are risking the energy they are burning up to generate these bitcoins. By taking the risk in an unproven currency, they get a bigger share if it works out well. Basically the same as any other investment.

It's not really any different than prospecting for gold.

Re:More information

[YrWrstNtmr]

A nerd paraadise

Nodes connect to each other in a P2P network.
The nodes perform hashing problems, attempting to find a number that hashes to a value with a certain number of 0's at the start (binary zero's, aka, the number has to be below a certain value)
The network assigns bitcoins to those nodes who have found solutions to the hashes.
After a certain amount of time the difficulty of finding the hashes increases(an extra 0 is added to the hash solution required)
This increase in difficulty continues until eventually there will be 21million bitcoins and no more can exist.

Whoever has the biggest, fastest computer, wins.

Re:More information

[Anonymous Coward]

im not really convinced that if we had a "inherently stable" (not sure how bitcoin is stable, even gold backed currencies are not stable) currency then things would be "better" somehow...

Ultimately if you cannot grow your money supply to meet demand then you create recessions and depressions. Eg: 1930s.

Also austrian economics is fairly discredited in the mainstream economic circles. A non rigorous, non evidential based economic theory? No thanks.

Re:More information

[Anonymous Coward]

inherently stable, unmanipulatable currency,

Once you have traders with variable minting/printing power (big cpu, fast network, eg Google / Amazon / Rackspace / Cloud ), manipulation is inevitable because *economic value* cannot fixed by bitcoin or any new minting/printing system.
Disclaimer: AFAICT. YMMV.

If you can't byte it it isn't real.

[Anonymous Coward]

I'll stick to pigs as a unit of currency. Far more negotiable.

working link to Bitcoin Technical PDF:

[Anonymous Coward]

http://bitcoin.sourceforge.net/uploads/bitcoin.pdf

Awesome...

[thestudio_bob]

Cool, I can say it will cost you "2 Bits" and people won't stare at me like I'm some sort of old geezer.

Re:Awesome...

[Stumbles]

Wish I had mod points.

Re:Awesome...

[Anonymous Coward]

Dude, I discovered recently that only fogeys and geezers know what those respective terms mean. Young people don't even know what the hell you're talking about if you use those words.

Re:Awesome...

[Anonymous Coward]

Or a threpenny bit!

A step in a different direction

[OrangeTide]

At least they aren't mining rare metals that make up less than 1% of the earth's surface, or cutting down trees and using a great deal of energy to pulp and dry them.

What would you suggest for an economic basis for universal exchange, if not paper or precious metals?

Re:A step in a different direction

[smash]

getting rid of fractional reserve banking perhaps?

How's that for a disruptive technology?

[exley]

Oh that's right... It isn't. But hey, thanks for trying to post something all edgy or controversial or whatever the hell you think it is, kdawson.

Back under your bridge!

[SteveFoerster]

That's trollish. Many people favor a gold standard without being conspiracy theorists.

Re:Back under your bridge!

[maddog2o_2o]

Ahh, Gold-Bugs... our premier source of 'renewable crazy'. I can't decide, is it ironic that their non-scarcity makes them worthless? -K

Re:Back under your bridge!

[SteveFoerster]

You're just mad because you've been holding onto a DJIA index fund for the last twelve years, right?

Re:uhhh.... exactly

[proxima]

BTW the Federal Reserve is not part of the government, just as Federal Express is not part of the government. The name is designed to deceive you but the Fed is still a private bank. It's a private corporate monopoly.

No, the Federal Reserve is part of the government. Its chairperson and its governors are appointed by the President and confirmed by the Senate. It was created by law but was granted substantial independence from political influence. By and large this is seen by economists as a good thing; independent central banks can fight inflation with more credibility if the major branches of government don't have the power to print money. What money the Fed does make -- profits, that is, after paying its own expenses -- the Fed pays back to the Treasury.

Your analogy to Federal Express is just wrong. You might make an argument for the USPS (at least in a historical context, if not how it exists now), but that is still tenuous. The Fed isn't private in any of the usual aspects: no other shareholders, profits returned to the Treasury, and its management is appointed by the typical President/Senate combo.

How to become irrelevant

[drinkypoo]

Step 1. Create a new economic system only geeks will care about
Step 2. Support Windows only

Re:How to become irrelevant

[Anonymous Coward]

Step 1. Create a new economic system only geeks will care about
Step 2. Support Windows only

It's cross platform.

There are packages for Linux, Mac and Windows.

http://sourceforge.net/projects/bitcoin/files/

Re:How to become irrelevant

[Anonymous Coward]

Support Windows only

Clearly someone didn't read the site:

"Windows
Linux
Mac OS X"

Re:How to become irrelevant

[drinkypoo]

yeah somebody posted a mirror of the faq on sourceforge but I didn't notice it was for 0.1.5 which was apparently win only, or so the mirror made it appear.

Re:uhhh.... exactly

[hedwards]

The Federal Reserve is a private banking institution which is run by government appointees. It is not now nor has it ever been a part of the federal government. They just happen to be the ones that are authorized to represent the Federal Government in that respect.

Stone money

[leswt]

There is an interesting example of money that requires a lot of effort to create but is totally useless Google: yap island stone money Speaking of useless, prior to the 20th century, there was no practical use for gold

Re:Stone money

[Anonymous Coward]

Speaking of useless, prior to the 20th century, there was no practical use for gold.

It was shiny and alleviated people's vanity, as well as being a proof the rich could use to show they were rich (something that is now done by conspicuous consumption). Not very noble uses, but uses nonetheless.

Re:Stone money

[Hognoxious]

I think GP would not count "decorative" as a subset of "practical". Gold is pretty shitty for making swords, horseshoes or steam engines from.

Re:Stone money

[leswt]

I meant industrial use but you are correct, I was imprecise.

Re:uhhh.... exactly

[proxima]

The Federal Reserve is a private banking institution which is run by government appointees. It is not now nor has it ever been a part of the federal government. They just happen to be the ones that are authorized to represent the Federal Government in that respect.

You can say that all you want, but to quote the Fed itself:

The Federal Reserve must
work within the framework of the overall objectives of economic and
financial policy established by the government; therefore, the description
of the System as "independent within the government" is more accurate.

Congress designed the structure of the Federal Reserve System to give it
a broad perspective on the economy and on economic activity in all parts
of the nation. It is a federal system, composed of a central, governmental
agency--the Board of Governors--in Washington, D.C., and twelve re-
gional Federal Reserve Banks.

It is part of the government, but independent of the three branches.

Re:uhhh.... exactly

[Anonymous Coward]

and goldman sachs while goldman sachs by the fed.

Re:uhhh.... exactly

[smash]

On the verge of? You think the US is printing 1.6 trillion US dollars per year (thats just the projected budget deficit in 2011) in reality?

Re:uhhh.... exactly

[TheoMurpse]

the Federal Reserve is not part of the government

Well, that turns out to be wrong. But don't let my post stop you from repeating this nonsense!

I mean, founded by an act of Congress, run by Presidential appointees confirmed by the Senate...

Re:uhhh.... exactly

[proxima]

One correction: member banks technically own shares in the branches, but they are not traded.

Re:uhhh.... exactly

[DaveV1.0]

Dollars and other national currencies, including the Euro, are based on the faith and credit of the backing government. What are bitcoins backed by? Where does the value come from?

Where does the value come from?

[DaveV1.0]

Seriously, where does the value come from? The dollar is backed by the U.S. Government. The Euro is backed by the European Union.

What, exactly, provides bitcoins with value? Solving mathematical problems no one cares about?

Where does the value come from?

Re:Where does the value come from?

[jack2000]

Same thing that provides value to gold and other currency.
People's willingness to substitute it for goods. Once this thing gets established and you can trade for it in games,online,reallife it will have a real value. And when the 21 mil limit is reached no one can make more money.
Thus no inflation.

Re:Where does the value come from?

[benjamindees]

The value comes from acting as a tamper-resistant medium of exchange.

Re:Where does the value come from?

[DaveV1.0]

Gold is a rare metal. It has intrinsic value. Fiat money is based on the faith in and credit of the issuing country.

Bitcoins have no intrinsic value and has no value as a fiat currency.

Where does the value of bitcoins come from?

Re:Where does the value come from?

[DaveV1.0]

What backs the medium of exchange? Why should anyone trust a medium of exchange that has no intrinsic value and is not backed by the faith and credit of anyone or anything?

Why should I or anyone accept bitcoins when there is no guarantee bitcoins will be redeemable for anything of value?

Where does the value of bitcoins come from?

Re:Where does the value come from?

[jack2000]

Can not be regulated by a central power. Why don't you read The FAQ already.

Re:Where does the value come from?

[bencoder]

Like gold, bitcoins have an upper limit. There is a total absolute maximum of 21million bitcoins. This cannot be changed.

There is no way to print more bitcoins like with cash.

There is no way to create fake bitcoins like is possible with gold.

It is possible to transfer this currency instantly over the net, unlike gold. Although this is kind of possible with an e-gold like service, you have to trust someone actually is holding on to your gold. Bitcoins have no such problem.

In essence, it has all the advantages of using a limited resource, without the disadvantage that you have to carry or store this limited resource physically and without any chance of forgery.

Re:Where does the value come from?

[DaveV1.0]

n essence, it has all the advantages of using a limited resource, without the disadvantage that you have to carry or store this limited resource physically and without any chance of forgery. Where does the value of bitcoins come from?

The "limited resource" has no intrinsic value. Again, why should anyone accept them in exchange for something that has intrinsic value or in exchange for fiat money?

So, I will give you US$1.00 for all 21 million bitcoins.

Re:Where does the value come from?

[DaveV1.0]

If there is no central authority backing the currency and the "limited resource" that is bitcoins has no intrinsic value, why should anyone exchange something that has intrinsic value or fiat money for bitcoins?

Re:Where does the value come from?

[benjamindees]

What backs the medium of exchange?

Math.

Why should anyone trust a medium of exchange that has no intrinsic value and is not backed by the faith and credit of anyone or anything?

It has intrinsic value.. the same intrinsic value of fiat currencies. It is easier than barter.

Why should I or anyone accept bitcoins when there is no guarantee bitcoins will be redeemable for anything of value?

Unless you condone slavery or expropriation of wealth by force, there's no guarantee any other currency will be redeemable for anything of value either. And, in that case, why bother with currency anyways? Just pillage instead.

Where does the value of bitcoins come from?

The same place all value comes from: thermodynamics.

Re:Where does the value come from?

[DaveV1.0]

What backs the medium of exchange?

Math.

The solution to a mathematics problem has no intrinsic value, but rather only has a value in a specific situation. Math can not back the medium of exchange because it has no intrinsic value and provides no guarantee of payment.

Why should anyone trust a medium of exchange that has no intrinsic value and is not backed by the faith and credit of anyone or anything?

It has intrinsic value.. the same intrinsic value of fiat currencies. It is easier than barter.

Fiat currency has little intrinsic value. The value of fiat currency comes from the central backing authority. The U.S. dollar is a fiat currency. It has value because the government of United States says it has value and that it will recognize the dollar as the medium of exchange of the United States. Bitcoins has no central backing authority so has no value as fiat money. There is no one to declare it as money by fiat.

Why should I or anyone accept bitcoins when there is no guarantee bitcoins will be redeemable for anything of value?

Unless you condone slavery or expropriation of wealth by force, there's no guarantee any other currency will be redeemable for anything of value either. And, in that case, why bother with currency anyways? Just pillage instead.

That is a false dichotomy. Either the money has intrinsic value, such as gold coins or the money is fiat money and said money is backed by the government which guarantees the money is good. If someone refuses to accepts a government's fiat money in said governments jurisdiction, said someone can not turn to the government to be paid as said someone has refused payment in the legal tender of the government.

Where does the value of bitcoins come from?

The same place all value comes from: thermodynamics.

Bitcoins have no value because nothing backs them as fiat money and they have no intrinsic value as they do not have a physical existence.

Linden dollars have a value as fiat money because they can be spent in Second Life for virtual items and they can be bought or sold for other currency. However, without Second Life, Linden dollars have no value. As there is not bitcoins equivalent of Second Life, bitcoins have no value.

Please demonstrate that bitcoins have value by listing where and what one can currently purchase with bitcoins.

Re:Where does the value come from?

[DaveV1.0]

In fact, please list all places and sites where one can exchange bitcoins for U.S. dollars or Euros and what the current exchange rate is.

Re:Where does the value come from?

[mdenham]

So, I will give you US$1.00 for all 21 million bitcoins.

And then you're going to resell them for a profit, or sit on them so that you can claim "HA! I told you it would fail!"

In the former case, well, you've just managed to prove that it is in fact a functioning currency with a value higher than $0.0476/million.

In the latter case, you're an asshole and I recommend that people not sell any bitcoins to you.

Re:Where does the value come from?

[Teancum]

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.

Re:Where does the value come from?

[robbak]

Yes, getting it started is catch-22 - how do you get people to accept that it has value if they are not sure that other people will accept it too?
However, once people accept that it has extrinsic value, then the system is up and running.

As an example for you: For some time after the fall of the old Iraq government, the people of Iraq kept using the currency of that no-longer-extant government. Surprisingly, as the government was no longer around to print more, the supply was limited, and they experienced deflation as the orphan currency _increased_ in value.

Whatever people accept as currency is currency. It really is as simple as that. If enough people will accept bitcoins in exchange for something, then bitcouns have real value.

Re:Where does the value come from?

[DaveV1.0]

And, yet, there is no reason to accept for anyone bitcoins as currency. It is a unwanted solution in search of a problem.

Re:Where does the value come from?

[DaveV1.0]

If it is a fiat currency, then you should have no problem buying a pint with it at the local pub. Let me know how that works out for you.

And, who sets the exchange rate? I have offered US$1.00 for all 21 million bitcoins. That is the exchange rate: 1 bitcoin = 1/21,000,000 of a dollar.

Re:Where does the value come from?

[DaveV1.0]

Bitcoins have no value, therefore I have made a generous exchange rate for something that has no value. In doing so, I have set the exchange rate for them.

Re:Where does the value come from?

[bencoder]

Well regardless of if you think bitcoins or worthless or not, they are currently trading at about 200 bitcoins per dollar. This is because, believe it or not, there is demand for bitcoins.

Trinkets have no "intrinsic value". They are valuable because there is demand for them and there is a limited quantity of them.

Money does not have to be intrinsically valuable. It only has to be difficult to create more of, easily divisible and easily transferable. Bitcoins fulfil this perfectly.

So no, you will not be able to give someone $1 for all 21 million bitcoins. Currently about 3million have been "minted" and are being used in real trade for physical products and services, regardless of your nonsensical idea of a currency requiring "value".

Re:Where does the value come from?

[bencoder]

Your requirements are rather onerous. Why don't you list ALL places where you can exchange USDGBP and what the current exchange rate is. It's just nonsense.

I've made a list, I probably haven't got all of them:

https://www.bitcoinexchange.com/
http://www.buybitcoins.com/
http://www.sellbitcoins.com/
http://www.bitcoin4cash.com/ (appears to be down)
https://www.bitcoinmarket.com/ (appears to be down)

The exchange rate normally hangs around 200BTC per USD. but the price has gone up recently because of the /. publicity.

This site used to offer exchange but not at the moment: http://newlibertystandard.wetpaint.com/page/Exchange+Rate

Re:Where does the value come from?

[LingNoi]

So, I will give you US$1.00 for all 21 million bitcoins.

Ok, so you do that and they start over again with a different hash number to begin with $1 richer.

1) You've proved it works by exchanging money for it
2) Since you own all the currency your currency is now worthless as every moves to a different set of hashes.
3) You just lost $1

Re:Where does the value come from?

[Teancum]

Who sets the exchange rate? You do, together with everybody else around who either chooses to get involved with the exchange or ignore it.

If you set the exchange rate for yourself to purchase all 21 million bitcoins, then you have established an initial rate of exchange. Fortunately for others involved with that currency, there are others who are willing to offer more.

RTFA and read the links I provided. You were acting like a troll demanding that the links to exchange pages be provided, and then proved you were a troll by contradicting yourself saying that nobody provided these links time and again.

BTW, I'll pay USD $5 for all 21 million of them... so there! Let the auction begin, just like a real market!

Re:Where does the value come from?

[Anonymous Coward]

No, it IS a wanted solution. Anonymous, digital currency. It's the next step in taking our Internet back.

yep, sketch city- tried to connect to IRC

[SuperBanana]

The first thing the client did was try to connect to a webserver on port 80, probably a version check. The second thing it did was try to connect to a an IRC network. Can you say, botnet?

Re:yep, sketch city- tried to connect to IRC

[mdenham]

Actually, if you look on the site (under FAQs) it tells you that unless you're running it through Tor, it's going to hit up an IRC network for the current node list. (Running it through Tor, it uses a hard-coded node list to get the initial nodes, then queries those nodes for further nodes.)

Re:yep, sketch city- tried to connect to IRC

[LingNoi]

So you downloaded the program but completely ignored the part which said it connects to an IRC network to get a peer list?

Until someone rewrites the algorithms in OpenCL...

[Anonymous Coward]

... then all of a sudden my Asus ARES starts to pay for itself... literally.

I don't understand

[Anonymous Coward]

So it's a fake currency, to be used in barter? Not being a smart ass, I really don't understand it. However if that is the case, isn't this like trying to get goods or services with facebook poker chips?

Re:I don't understand

[Osso]

It's supposed to address the issue of trust. In your case we have to trust the facebook poker chips issuer.
However you don't need to trust anyone on bitcoin network.

Re:uhhh.... exactly

[Anonymous Coward]

It is part of the government, but independent of the three branches.

So what you're saying is, it is part of the government, but in NAME only? i.e.: a "part" of the government that is accountable to neither the other branches of the government nor the people.

Re:uhhh.... exactly

[proxima]

So what you're saying is, it is part of the government, but in NAME only? i.e.: a "part" of the government that is accountable to neither the other branches of the government nor the people.

No. The President and Congress appoint and confirm the governors. Congress retains the authority to pass new laws affecting the Federal Reserve. Historically, they themselves avoid doing this because the independence of the central bank is seen as a good thing; an independent central bank has greater credibility in fighting inflation, and credibility is important in monetary policy.

Re:uhhh.... exactly

[GofG]

Congress retains the authority to pass new laws affecting religion (via amending the constitution). Historically, they themselves avoid doing this because the independence of the church is seen as a good thing; an independent church has greater credibility to its people in not being a front for government mind-control, and credibility is important for the religious. So... what makes the federal reserve part of the government again?

Only 21 million coins... ever?

[adamkennedy]

"The total eventual circulation of Bitcoins will be 21,000,000 coins. There will never be more coins than that."

Riiiiight, because THAT's going to scale...

Re:Only 21 million coins... ever?

[Anonymous Coward]

Under the hood the coins are very divisible, so there's actually a lot more coins than that.

Re:Only 21 million coins... ever?

[malakai]

A single 'coin' can be divided to 8 decimal places. You probably only ever need a few thousand to survive to provide enough currency to the market. Read the FAQ, it's not an easy concept to grasp from the shitty kdawson summary.

Pardon Me

[Concern]

No offense to you for trying to summarize it, but this sounds like utter horseshit.

I am still hunting for an intelligible explanation of why I can't forge money, copy money, or invalidate money, let alone why this isn't a privacy non-starter. And I'm not sure the Bitcoin "technical paper" counts.

I can create hashes, too. And I have lots of peers that will say whatever I want. Will you give me a cup of coffee for it?

All the redundant pithy comments about the real money supply aren't funny, either.

Not that I can see

[Sycraft-fu]

Basically it is a silly attempt at compromise. There are two major camps when it comes to a currency:

One camp understands that currency is just a theoretical construct for facilitating trade. What has been used as currency has been different all over the world and throughout history. As such these days it makes sense for currency to be largely virtual. It is just numbers in databases. All that matters is that everyone agrees to use it and what it is worth. Currency doesn't do anything in and of itself, it just facilitates trade. It is like the grease in an engine. As such the only objective should be to have a currency that does that the best. Whatever works to make the economy work the smoothest is how it should be. These days, that means a heavily virtual currency, backed by nothing but trust.

Another camp believes currency has real value, it is actually worth something in and of itself. They look back to the days when coins were made of precious metals as a better time. They believe that to be useful a currency must have inherent value of some kind. They want a physical resource, usually gold because western culture has a historical obsession with the stuff, as a backing for it.

Well these end up being rather incompatible in many ways. The things that are pointed out as advantages to one, the opposite is usually pointed out as an advantage to another.

This seems like a half-assed attempt to try and find a hybrid. "The currency is 100% virtual and based on nothing, but still backed by something real."

Ultimately I can't see it being useful for anything but an underground economy, and probably not even that as there's no real trust here.

Remember people: Money has value because we think it has value. So long as people will spend it and accept it, it has value. If you can't make that happen, then it doesn't no matter what you want to claim.

Re:Not that I can see

[Saint Stephen]

Money has value because otherwise people sit on their lazy asses or burn stuff. In all communes of the hippie variety, from easy rider to lousia may allot, the former applied. In soviet Russia, the latter applied. Cash is king baby

Re:Not that I can see

[theymos]

BitCoin is entirely placed in the first camp. It was not designed to be backed by anything real. It only claims to be decentralized and have a level of inflation more predictable than anything else.

whoa, free money?

[Anonymous Coward]

Sounds too good to be true.

the trick is

[Anonymous Coward]

making the bitcoin platform valuable. If web sites or computing power is needed for a company research etc. the end user should be allowed to pool into a shared server coop whereby they get some "real" money i.e dollars euro etc. Actually for the home user to get sent silver or other resource coins would work better as they have real value.

People need to be able to join proper online communities that they can benefit from and benefit their local community, not facebook. It's a good idea. I hope it or something like it can take off some day.

I would like to see people only allowed to have money of this kind or any kind, provided that they can affordably and reasonably support their own carbon footprint and comfortably recycle all their waste.

Too much freedom creates the moneygrab / gold rush greedy society. Too little freedom is servitude/slavery where money is inconsequential. As usual, the smart, and therefore avoided solution, is a happy medium - allotment of a resource which has some value but whereby we have enough of it to resonably support about 2.5 X the max projected population before we stabilise population levels - 2.5 X 10 billion = 25 billion quantities (rations/allotments) of the resource...

ahh I can't type this. The real problem is people are not empowered to sustain ourselves, to offset our carbon footprint, or to be in control of our earths resources. That would be responsible global management. No, we have the mob to do that. And I'm not confident that they have the interests of human beings at heart. We're not in the endangered species list and we are seen as just a species, not unlike a horse or maybe a cow by these powerful people.

Relevant Links

[Anonymous Coward]

Here's the release announcement.
http://www.bitcoin.org/smf/index.php?topic=238.msg2004#msg2004

Here's where you can buy and sell bitcoins with USD PayPal, USD Liberty Reserve, USD Moneybookers and DGC Pecunix.
https://bitcoinmarket.com/

Here's where you can buy and sell bitcoins with bank transfers which are free of fees within the EU and where you can buy using SMS.
https://www.bitcoinexchange.com/

Here's an free online wallet to make it easier to exchange bitcoins when you're away from your home computer.
http://www.mybitcoin.com/

Here's a free online wallet and an anonymous web hosting service that accepts bitcoins.
https://vekja.net/

Here is a VoIP service which accepts bitcoins.
https://www.link2voip.com/ [link2voip.com]

Here's an anonymous proxy service that accepts bitcoins.
https://www.mullvad.net/

Here's a new service where you can buy and sell Second Life Linden Dollars.
http://bitlex.co.cc/

What we have now

[Sycraft-fu]

Bits, and faith in those bits. You don't need anything more than that. So long as we all agree to use the money and we all agree what it is worth, it works. It needn't be anything real, it is just a theoretical construct that allows complex trade to work. It is a way for us to measure and assign value. You don't need anything behind it.

From the PDF

[pem]

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

Good luck with that...

Also the way you really add value

[Sycraft-fu]

Is by taking it out of circulation. Most of the gold we've mined isn't used for anything, it is simply inspected and then put back underground, only this time in a hole humans dug that we guard. It is artificial scarcity. The gold is there, it could be used, but it isn't because it is "backing" something. So it sits in a vault doing nobody any good.

Also, who says finite is good? What happens when the economy grows to the point that you need more gold, but none is to be had. Well then you start experiencing deflation and that is a very bad thing. Deflation is a wonderful way to get people to stop spending, stop lending, and as such to freeze the economy. Remember: Money is only good if you can spend it. Moreover, money is only good if you DO spend it. If everyone hordes money and doesn't spend it, well then what really is happening is people are refusing to trade. That means the economy stalls.

As you say, gold is only worth what it is because western cultures have an obsession with the shiny stuff and it is used as a hedge. It's real value, in terms of industrial use, is far lower. All those idiots who get gold in preparation for the collapse of society would be sorely disappointed if such a thing ever happened. Gold would be near worthless as it has few uses in a non-industrial society (basically only as decoration) and thus would be worth fuck-all as a currency in a survivalist world. More likely, Metro 2033 has the right answer and bullets would be the closest thing to currency out there (it would mostly just be direct barter).

Re:Also the way you really add value

[Anonymous Coward]

Gold would be near worthless as it has few uses in a non-industrial society (basically only as decoration) and thus would be worth fuck-all as a currency in a survivalist world.

Fail. Gold was highly valued before the industrial revolution. Further, it wasn't just western cultures who found it valuable (unless you include ancient Egypt and the Ottoman empire as either post-industrial or western states).

Re:Also the way you really add value

[mdenham]

Also, who says finite is good? What happens when the economy grows to the point that you need more gold, but none is to be had. Well then you start experiencing deflation and that is a very bad thing. Deflation is a wonderful way to get people to stop spending, stop lending, and as such to freeze the economy.

Deflation isn't necessarily a bad thing, though.

What is bad is deflation combined with a shortage of ideas for trying to increase the money velocity. (That is, it's possible for the economy to expand even if prices are falling. It happened about 120 years ago, back when the US was on the gold standard.)

Re:Also the way you really add value

[arb phd slp]

Gold would be near worthless as it has few uses in a non-industrial society (basically only as decoration) and thus would be worth fuck-all as a currency in a survivalist world.

Fail. Gold was highly valued before the industrial revolution. Further, it wasn't just western cultures who found it valuable (unless you include ancient Egypt and the Ottoman empire as either post-industrial or western states).

But that was based on historical tradition. There have been several generations born in which the meme of "gold=money" has not been culturally transmitted and it has extinguished. The vast majority of the world population today think of gold as a material for jewelry and electronics. Some people are trying to use modern marketing to re-inject that meme into society, with (as can be seen from the comments here on Slashdot) mostly poor results.

Re:Also the way you really add value

[L4t3r4lu5]

You know damn well that in the future post nuclear-apocalyptic dystopia, gasoline is the currency of choice.

Or Nuka-Cola bottle caps.

Re:Also the way you really add value

[shutdown -p now]

I'd bet on ammo, actually.

Well it is already a bad idea

[Sycraft-fu]

If there is a hard limit to the total amount of currency that can exist, then what you have is a situation where the currency will not scale with the economy. That means deflation and there's no faster way to kill an economy than that.

To me it seems like the people who created it are the same kind of gold standard 'tards who cry on and on about inflation without understanding it. They see inflation as "eating up your savings" (which is doesn't so long as you put them in an interest bearing account) and thus think deflation would just be great. I mean you have more buying power for doing nothing! Wonderful!

Except it badly fucks over an economy. For one, it simply drives down spending. If you can get something for a dollar today, or two of that something for a dollar next week, it makes sense to wait as long as you can. Non-essential purchases are discouraged since the longer you wait, the more your money gets you. While that sounds like it encourages savings what it really does is screw over trade. Money only works if people spend it. People can have as much money as you want if nobody spends it it is worthless, regardless of the form it takes.

Then there's loans. The ability to make and receive loans goes to hell in a situation of continual deflation. Unless the loan is extremely short term, it won't work. Take a house loan. This is doable because even with minimal to no inflation, you know you can afford it. You know your cost will not go up in percentage terms. However with deflation? No such luck. In a situation of continual deflation, the amount of money you receive for work will go down with time. As such the payments on a loan will be a larger and larger part of income, growing until you can't afford them. To make it work, the loan would have to be offered with a negative interest. But nobody will do that, they'd simply not loan out their money instead as that is a higher rate of return and is guaranteed. Currently people will make loans because the risk of the loan is balanced against having a positive return.

I could go on, but deflation is an extremely bad thing in the long run, and with a fix currency supply you have guaranteed it. Sounds like your project needs less gold standard survivalist geeks and more economists. Tell you what, run your idea by Dr. Gerry Swanson, you get him to sign off on it, maybe I'll reexamine it. As it stands now it sounds like an extremely bad idea just from an economics standpoint, never mind any technical arguments.

Re:Well it is already a bad idea

[DerekLyons]

They see inflation as "eating up your savings" (which is doesn't so long as you put them in an interest bearing account)

Have you actually checked the rates available on savings accounts from reputable banks lately? Inflation outpaces those by a wide margin.

Re:Well it is already a bad idea

[inKubus]

It's actually a fallacy that the number of "coins" or whatever has ANYTHING to do with the viability of a currency. A currency is a medium of information exchange. The number of "coins" imparts a certain amount of "bandwidth" if you will on the ability of an economy to transfer value (goods and services) between parties in "transactions". The money is not what's important. It's the goods and services. The only thing money needs to have is A. a measurable difficulty to create more and B. a way to make sure it hasn't been spent in more than one place. With digital currency, B. is the more important thing. This protocol or currency solves it by using a P2P client to connect to as many other users of the currency as possible to ask them if they have possession of the coin that someone else claims to own and is sending to you. The safety comes from numbers--the more people you ask, the higher the probability that you're receiving real value. It's sort of like if you had to ask everyone if they had a dollar bill with a certain serial number. Then, you could easily tell if it was counterfeit or not. Unfortunately, beyond counterfeiting the problem is that most money ALREADY is digital but relies on much less secure and much more heirarchial methods to verify this stuff. SO basically, you could ask 1000 people on bitcoin about a coin or if you're using a USD you're basically trusting the federal reserve and a handful of big banks that there is some value on the other side of that dollar somewhere.

Re:Well it is already a bad idea

[ceoyoyo]

I can buy a 1 year GIC that offers interest that's considerably higher than the rate of inflation last year.

Re:Well it is already a bad idea

[DerekLyons]

Is it higher than the rate of inflation *this* year?

Re:Well it is already a bad idea

[ceoyoyo]

So far, yes. The two year GIC definitely is.

Re:Well it is already a bad idea

[complete loony]

It's not the deflation itself that kills the economy, it's having a huge debt burden before the deflation hits that kills the economy.

When the economy slows, people attempt to (or are forced to) reduce their existing debts. This slows down the velocity of money, so everyone's income shrinks. Conversely when the economy is booming, increasing debts cause everyone's income to grow.

If your debts are small, this is no big deal as your debt will fall faster than the drop in your income.

If the debt's in the economy are large compared to income's, attempting to reduce your debts can lead to those debts being higher in real terms than they were before. And that is what kills economies.

Re:Spain 1-0

[RyuuzakiTetsuya]

After reading quite a bit of lolbertarian nonsense, World Cup results seem way more relevant and reasonable.

This reminds me of assassination politics.

[elucido]

Jim Bell wrote about some sorta weird anonymous digital currency type system. The authorities have a legit reason to want to monitor something like this.
http://cryptome.org/ap.htm

Value comes from God.

[elucido]

"In God We Trust"

One problem...

[EmagGeek]

Currency is only valuable if people accept it as payment for things. Nobody seems to take this, so therefore it has no value.

This shameless slashvertisement and joke of a Wikipedia article about it aren't really going to change that.

Re:One problem...

[dmp1ce]

Bitcoins can be traded for USD here: https://www.bitcoinmarket.com/

The Abstract Says It All

[phantomcircuit]

As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers.

http://www.bitcoin.org/sites/default/files/bitcoin.pdf

Guarantee ?

[Taco Cowboy]

Can someone please tell me if any of our REAL CURRENCY is guaranteed ???

Re:Guarantee ?

[yotto]

Yes. The current US dollar is "guaranteed."

If it loses its value, you get your money back.

In US dollars.

Re:uhhh.... exactly

[Myopic]

Well, they were told to stop with their "timeshare" currency (if that's what you are talking about), because the Constitution gives the Federal government exclusive prerogative to mint coins, but that's not why they went to jail.

They went to jail for tax evasion. If you live in America, you have to pay American taxes, even if you make up some phony currency for your transactions. Those people didn't pay their taxes.

I pretty much agree with all of that. Screw those tax cheats.

I'm going old-school

[Anonymous Coward]

I'm paying for everything with Beenz and Flooz.

Re:uhhh.... exactly

[witherstaff]

For some interesting reading The Creature from Jekyll Island gives a good background on the creation of the Fed. It is the type of thing that you don't need a tinfoil hat to think it looks like a conspiracy.

As Forbes magazine Described the founding of the fed : Picture a party of the nation's greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily riding hundred of miles South, embarking on a mysterious launch, sneaking onto an island deserted by all but a few servants, living there a full week under such rigid secrecy that the names of not one of them was once mentioned, lest the servants learn the identity and disclose to the world this strangest, most secret expedition in the history of American finance. I am not romancing; I am giving to the world, for the first time, the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written...

When people representing about 1/4 of the world's wealth get together to form a central bank, you know we're going to get screwed.

Re:uhhh.... exactly

[Anonymous Coward]

The other three branches are intended to be independent of one another as well...

Read their "technical paper"?

[Concern]

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.

Re:Read their "technical paper"?

[Anonymous Coward]

The main technological problem is that 'they' set things through the client (such as the rate of inflation and payment for processing a block). So the currency can fork as people change between clients that are incompatible. At best this means that the majority will decide even when they are wrong.

This means that until the MAJORITY of all CPU power in the world is crunching blocks, it will always be possible for the system to break. It would not be hard for chinese government to crush it (or at the moment anyone with more than about 100 computers... that how little processing is going on).

There are fundamental economic problems with it to that I won't go into here. Its a nice idea, but doomed to failure.

Re:Read their "technical paper"?

[Anonymous Coward]

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

It's not that simple

[rsilvergun]

this is what I can't stand about conservative capitalism. They always look back on the 'good 'ole days' without considering reality. Here. Read that, and check the sources if you doubt the facts. Right now things seem better in America than they really are because we exported our slave class to China & Malaysia.

Re:uhhh.... exactly

[Teancum]

What, exactly, makes the Department of Defense a part of the Federal Government again?

Seriously, you are talking in circles here and not really understanding what is being said here. The Federal Reserve owes its existence to legislation passed by the United States Congress and has the board of governors all appointed by the President of the United States.

How is this different from the Joint Chiefs of Staff?

This isn't the same thing as religious expression, or can you tell me when the last Episcopal bishop was appointed by the U.S. Congress (or any religious authority other than a Chaplin)?

Metals

[zogger]

I think we can all agree that in the last 20 years, china has kicked the most ass on increasing its national wealth. One of the things they do is swap accumulated pieces of paper for vast holdings of metals, ingots, tons of them, fields of them, any metal you can imagine. they are stockpiling real useful stuff, because they ain't stupid and realise the world revolves around tangibles way more than fictitious financial contracts, real stuff takes work, fictitious contracts take..nothing, complicated server entires that can be inflated a thousand fold on a whim, or devalued just as easily. So, they accumulate metals, ag land all over, buy up mines, energy sources, or "wealth". They gladly swap fiat magic beans for the real mc coy cow, retards all over in the developing world and the de evolving already developed and failing rapidly world line up to take the swap daily.believing in fairy tales.

    Gold is part of what they are accumulating (and actually advertise to their citizens to do the same, stockpile bullion), but everything, you name it, they accumulate it, aluminum to zinc, because it's *real stuff*. then they manufacture with it, giving it value added worth.

Which is, barring global thermonuclear war that they might lose, why china will win this century, they grok producing wealth as opposed to what the western nations are doing now, producing BS fiat smoke and mirrors "financial products". Sure, they have some of those too, but it is way secondary to their major global grab for every useful tangible they can get their hands on. Again, they ain't stupid, and will gladly work with any nations economic traitors to transfer real wealth to them. The traitors make a small killing, nation X's people gets the shaft and is put into debt...forever China loves it, so do the traitors/grifters. The rest of the people are slowly waking up to just how much they have given away now. It's too late to fix it, but at least they are starting to understand the difference between produced wealth and some liar's paper promises.

There's real wealth, then *promises* of wealth, said promises being some elaborate IOU scheme concocted by high level grifters in black suits with impressive nonsense titles..two different things really. Most people still get them confused and think and believe they are the same thing. And that's because their leaders, the black suited grifter crowd, keep telling them this lie over and over and over again.

So ya, if you stick your surplus labor into accumulating real wealth, including metals or any other useful tangible, by and large in the long term you will do good. Stick it into liars paper..just as much a crapshoot as betting against the house in vegas. Some winners, mostly a lot of big losers, and the house always turns a profit as long as people walk in the door willing to swap the cow for the magic beans.

It's a great con, been used for thousands of years. I am amazed people still fall for it all over then act so surprised when they find out..they've been conned!

Re:Metals

[OeLeWaPpErKe]

It's a great con, been used for thousands of years. I am amazed people still fall for it all over then act so surprised when they find out..they've been conned!

The sad thing is you're right. But so is Churchill :

Many forms of Government have been tried and will be tried in this world of sin and woe. No one pretends that capitalist democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government except all those other forms that have been tried from time to time.

Our system sucks. Badly. It's also the only reason we have a world worth living in. There are many countries with different systems, but once you visit one or two, and take the trouble of actually understanding what goes wrong, you realize this.

From the idiotic "leftist" dictators, supported by our own leftists, like Chaves, with the constant state-sponsored plunders of anything worth anything.

Other countries make suicide the preferable option due to the seemingly inherent fatalism and destruction of "that" religion (we all know which ones), from the gold-plated intellectual black hole called "the kingdom of madness" (a certain oil producer) to the tasteless, cultureless islamic deserts in Africa and Asia.

And yet, even something so seemingly insignificant as our absurd desire to raise children well, even when it means having very few children, matters more than you'd think. At least you won't think it matters, you might even think it's bad, until you've seen the situation in countries like Rwanda (you can say whatever you want about the motivation for genocide, but unlike the muslims, Rwandans had one choice : genocide or starving. We all know what they chose, and we like to delude ourselves that there were other alternatives. If you like to believe that, believe that it was some evil, don't visit the country)

Really it's a con. It's not stable. And yet everybody who knows the alternatives will be ready to kill for it.

Unfortunately ...

with good reason

Time to dust off some old arguments

[istartedi]

Under the Federal Reserve system, the value of money is controlled by a US organization that's insufficiently transparent. Under a gold standard the value of money is controlled by international traders and mining cartels. This is better... how?

Gold is "real money". Fine. What people forget is that when you have "real money" and it gets stolen, it's "really gone". That's right. No FDIC insurance for fractions of pennies on the dollar. Instead, theft insurance at rates so high it would effectively negate the inflation protection you seek, plus add administrative costs. Either that, or you roll the dice, but if you get ripped off then... well... see the first part of this paragraph.

Of course, to solve these problems we could centralize the storage of gold and only trade receipts.... followed by... a bunch of other steps tha got us here in the first place.

Another aspect of all this: we are several generations removed from the days when metalic standards prevailed. Today's generation buying into the notion of a metalic fix, has no direct experience with the negative aspects of that system. People in the late 19th and early 20th centuries *did* know what metallic systems were like, and they created what we have now to fix that! Now they're dead, and not around to tell you young whippersnappers what it was like.

Re:Time to dust off some old arguments

[Anonymous Coward]

Hi. I'm from the future and I'm here to tell you what it was like during the "metallic system." I've also studied your current times and trends so that I will be able to divulge this information to you in such a way that you, or most of you, will be able to relate to it.

Times during the metallic system were rough, very rough. It was watching every Keanu Reeves movie in chronological order, endlessly.

Re:Time to dust off some old arguments

[osgeek]

Under the Federal Reserve system, the value of money is controlled by a US organization that's insufficiently transparent. Under a gold standard the value of money is controlled by international traders and mining cartels. This is better... how?

The gold standard was something that most people with a highschool education could understand. Oversight of such a system is straightforward through auditing to ensure that money supply estimates reasonably match provable gold reserves.

The Federal Reserve system is black magic that I'd bet that most of congress doesn't understand. It places extraordinary power and wealth in the hands of unelected bureaucrats and economists who are completely unaccountable to any kind of useful auditing.

That said, I don't at all advocate a return to the gold standard. My comment was really just to provoke thought along the lines of "Should you trust human nature's corruptibility in a complicated system with more benefits than a simple system with less room for shenanigans?"

All too often (especially with political discussions), I see arguments put forth for systems that rely on strongly ethical and motivated actors to be superior to the current one. Communism is a good example. On paper, it seems very Kumbaya with sharing and caring and progress. The reality is that without individual rewards for achievement, the bad apples take advantage of the good ones; destroying the system until authoritarian measures are put into place to force everyone to work. Nevertheless, die-hards will argue for the communist system despite the fact that human beings just aren't made for it.

Re:Time to dust off some old arguments

[rubypossum]

People in the late 19th and early 20th centuries *did* know what metallic systems were like, and they created what we have now to fix that! Now they're dead, and not around to tell you young whippersnappers what it was like.

Actually, I've always thought that if I was a corporate banker who was able to put together a shady private corporation that would allow me to print money legally then I would try to convince everyone this was the best course.. Wouldn't you? Print money! And then loan that money to whoever I wanted to for real interest. This is what the biggest banks do.

I'm saying, I don't think it due to problems with the previous system that the current system was designed. Except perhaps that the government never had very much money because it had to tax it to get it before. Did all those founding Federal Reserve bankers seem to be community minded altruists? No? /thread

I'll bet you...

[Anonymous Coward]

I'll bet you 1,000,000,000 bitcoins that you are wrong!

Assassination Politics

[gibbled]

Wow, this reminds me of the heyday of the Cypherpunks mailing list and Jim Bell's Assassination Politics...

totally not a botnet

[Anonymous Coward]

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...

Have you checked inflation in 2009?

[Sycraft-fu]

The economy was so bad we had months of deflation. Not much, thankfully, but still. Major economic downturns are ultimately deflationary pressure on the economy.

So despite the meager 1%ish rate, you probably still came out ahead. Also I'd note that savings accounts aren't the only interest bearing account out there. You can put your money in other things, if you are willing to accept a bit more (but still not much) risk. Or you can go longer term. 30 year treasury bonds pay 3%, and they offer other securities such as TIPS which are treasury notes that are adjusted with inflation.

Re:Have you checked inflation in 2009?

[DerekLyons]

Yes, I have checked inflation for 2009 - it varied between 3 and 5 percent. So no, I didn't come out ahead. Even with your (slightly more risky) other solutions, I still wouldn't have come out ahead.

No kidding

[Sycraft-fu]

I mean right now, sure it is safe because it is just a bunch of geeks goofing off pretending like it matters. It is secure because nobody gives a shit. However if it was really worth money? Well then it'd be worth spending money to attack it. It would be worth it for someone to hire on a shitload of CPU time to break down the system and steal money.

Wait.

[undecim]

Maybe I'm naive, but once quantum computing becomes viable, won't these cryptocoins be worthless?

It also helps solve a paradox

[Sycraft-fu]

So we have two seemingly contradictory facts about money:

1) We need people to save money. They need to keep some money in reserve, to act as a negative feedback mechanism in the event of problems. When people have savings, they can better deal with problems such as job loss and emergencies. In turn this means they put less burden on public services. Also, when people have savings they feel more confident, even during bad times and continue to spend money. Basically, a healthy savings for all people can eliminate problems like the last downturn where there's a massive crisis of faith and people pull back from spending. It can smooth out the economic bumps. As such it is good not just on a personal level, but on a global level.

2) We need money to move. Money locked in a safe does no good. For money to be useful, it must move around from person to person, business to business. If it sits around, it does nobody any good. If everyone saves a lot and doesn't spend it, well then all they've really done is introduce deflation and hamstring the economy. We need the money moving around, we need it being spent to do any good.

Hmmm... So what to do about that? Well, what about if instead of locking your money in a safe, you instead give it to a bank, and they loan it out to others? Hey, then we have a system where money can be saved, and yet still used at the same time. Your savings go to increase the money supply elsewhere. It multiplies in a very real sense. Wonderful.

However, that doesn't work with deflation. The problem with deflation is, as you noted, loans become hard to afford over long periods of time. That means the only way to make them would be with negative nominal interest. Well that doesn't work, even if the real interest is positive. The reason is that you could do better, and get zero nominal interest, simply by not loaning the money. What's more all loans carry risk, so you wouldn't make a loan, even at zero percent nominal interest because there's a risk you would get repaid and thus no loan still has a higher risk.

Well with inflation, that's not the case. Here your money will lose some value in real terms if you just hang on to it and get zero percent nominal returns. So there is incentive to loan it out, despite taking on some risk. Even if the real return is nothing, you want that. You want your savings to retain their value, so you require a nominal return.

Deflation is just not good for an economy. Large amounts of inflation aren't either. Really a perfectly flat lien might be the best, no inflation or deflation, but that doesn't seem possible. Looking at historical data it doesn't seem like you can hold it steady state. That being the case, a small amount of controlled inflation is by far a better choice than swings back and forth.

Re:It also helps solve a paradox

[Teancum]

Deflation is just not good for an economy. Large amounts of inflation aren't either. Really a perfectly flat lien might be the best, no inflation or deflation, but that doesn't seem possible. Looking at historical data it doesn't seem like you can hold it steady state. That being the case, a small amount of controlled inflation is by far a better choice than swings back and forth.

I believe that inflation as something good for the economy is a myth that has been perpetuated by those who take advantage of the situation and make a profit off of that inflation. Unfortunately, it has been so ingrained into modern industrial societies for so long that very few if any people really understand just what life without inflation could possibly be like, and too many people do long term financial planning on the presumption of future inflation that any other scenario is seen as foolish or not welcome.

Yes, deflation stinks if your are borrowing money from a lender that uses compound interest for repayment. With few exceptions, however, most ordinary consumers rarely if ever get any sort of loan at an interest rate which beats inflation, so to suggest that the only way a modern banking system can function is via modest inflation is sort of a red herring too.

I get the theory that inflation tends to encourage investment, while deflation tends to encourage people putting money into the bank of the master bedroom mattress. It isn't quite as simple as that either, and even with an inflationary monetary policy people still tuck money away in a cookie jar or some other place for temporary safe keeping.

Inflation tends to favor bankers and people dealing with "financial services" through a variety of means. Since they are also the ones in control of the money supply and the other fiscal management tools, it also implies why their point of view is followed. For more ordinary folks, all they are really interested in is a stable currency and even a little bit of fluctuation isn't necessarily a bad thing.

For most of the 19th Century, the U.S. Dollar stayed relatively stable compared to the labor needed to get things done. Generally speaking, a dollar paid for a full day's labor of a semi-skilled or unskilled laborer. While there certainly were periods of modest deflation, America was certainly able to grow into a mighty industrial power without the need of constant inflation of the kind that has been dominant in the 20th Century.

The only times in history when you have seen wild swings of hyper-inflation or huge deflation are usually when the government or some scam artist (often the same but not always) gets involved in the picture and tries to manipulate the currency as a way to make personal profit without having to work. The massive deflation happens usually with something like a Ponzi or pyramid scheme (and related scams) and the scam collapses. Sort of like is happening right now in the U.S. economy, other than the fact that the current U.S. President is also simultaneously spending money on a hyper-inflation model as well. I'm not convinced that those who are trying to perform this balancing act of moderating simultaneously massive deflation through hyper inflation are necessarily going to get the right balance.

Re:It also helps solve a paradox

[HeckRuler]

Dude, what?

Re:It also helps solve a paradox

[Znork]

If it sits around, it does nobody any good.

Money that sits around represents value saved and future security for the person storing that money. Apart from the actual currency, the abstract concepts can be stored in other media, but you need to separate the concepts. If you want to spend the actual value 'now' and promise to return it in the future, then you somehow need to guarantee that. Saying it won't be worth anything in the future (inflation) or saying someone else is gonna pay so you don't need to save (pensions) are alternatives, but people still want the abstract function and just sink their value into another asset (and you will likely get a bubble in that asset, as measured in the depreciating currency).

loans become hard to afford over long periods of time

Loans are always hard to afford over long periods of time, the only question is who will pay for them.

The taker of the loan? The holder of the currency or recipients of value denominated in that currency? The savers who thought their stored value was safe? The banks when the loans default? The taxpayers when the loans default?

To return a positive interest in actual value, the payment will be exacted in one of those places and it will be as painful wherever you decide to take the money. So who should be paying for the loan? The answer seems to be 'anyone who didn't profit from the deal gets to pay'.

simply by not loaning the money.

At market controlled interest rates, lent value can and will still accrue a positive interest to balance the risk and the unavailability of the capital over the time frame of the loan. You can still pool them into bond funds and a vast amount of other constructs, so there is little practical problem with managing them. You would have to have appropriate reserves to redeem deposits and such on non-fixed term pools, but most of the current system would be implementable even without fractional reserve driven inflation.

That being the case, a small amount of controlled inflation is by far a better choice than swings back and forth.

Really? The dotcom boom and wipeout didn't seem that good of a choice. Neither does the property crisis.

You're simply not getting a 'small amount of controlled inflation' either way, you get massive asset inflation in various bubbles to accommodate the influx of currency in the system (as large segments of the economy are not measured in inflation numbers), and then you get an implosion once the malinvestments are repriced to market against other assets, and most likely you get the accompanying massive annihilation of currency as the FRB money is delevered.

You still have the exact same thing happening that happened before, you're just confusing the measurements by changing the units. And while I'm sure some economist will suggest redefining gallons and grams every year to make inflation less obvious, that won't really change the fundamental results. Altho it will probably make some look better on paper.

Re:It also helps solve a paradox

[Teancum]

An apples to oranges comparion, using multiple sources of data that don't always agree. It is also easy to take a cheap pot shot if you don't explain yourself.

Re:It also helps solve a paradox

[Anonymous Coward]

Inflation/Deflation cycles are due solely to fractional reserve banking and deliberate market manipulation via monetary policy.
Our inflation rate (measured as the price of goods and services) from the time of the Pilgrims all the way to the very beginning of the 20th Century was nearly FLAT, with only a few bumps during times of war when the government decided to print it's own money. Before that it was all mostly copper and silver and a few gold coins. Paper money only came into force in the US during the Revolutionary war, with the printing of "Continentals". Not surprisingly, the government printed too many and the currency was absolutely worthless in a short time.

Anonymous global electro-cash, same old problems

[hughbar]

First, to declare interest, I'm a financial reform activist and proud 'owner' of an open source project supporting mutual social credit and local cash style systems: http://www.hughbarnard.org/content/alternative-currency-software. The good thing is near-zero transaction cost. However [for my view and vision] there are quite a few bads:

• anonymity, this is a problem in the current banking world
• governance and transparent are a much greater part of an exchange system than technical platform
• ubiquity, coupled with anonymity, means that we stay in the current 'banking' paradigm, a real 'success' for inequality and ecology destruction
• lack of mapping [for example to commodity basket, the gold standard is probably silly] means exponential growth in supply
• peer to peer probably affects governance too and may [it did in certain parts of digicash] lead to race conditions

My own 'vision' is local exchange systems, so that we have greened logistics [short supply chains] and we know a lot of the people we do business with. This is not new or original, it's part of LETS: http://en.wikipedia.org/wiki/Local_Exchange_Trading_Systems, the transition town vision: http://en.wikipedia.org/wiki/Transition_Towns and most of the projects that want to re-engineer finance to towards great equality and respect for the ecosphere.

botnet

[molecular]

finally my botnet will pay up to it's expectations

Edward Nigma, is that you?

[Anonymous Coward]

> The only true reliable source of information is the guy who appears on late night television with that goofy suit with $ signs all over it who talks about getting free money from the government.

For a while, I honestly wondered if it was some weird version of Batman, because he looked too much like the Riddler.

Re:uhhh.... exactly

[baffled]

What money the Fed does make -- profits, that is, after paying its own expenses -- the Fed pays back to the Treasury.

I've always assumed the Fed was a legit organization, but this statement intrigues me. It assumes the Fed makes a profit. What if the Fed didn't profit, but rather lost money? Wouldn't that mean they handed out a bunch of money without getting paid back? Sounds like someone still profited..

And how do they determine what is profit? Perhaps the Fed earns 5 billion in interest from legit loans to banks. They also drop 5 billion in loans to certain unnamed parties but the recipients go bankrupt and the money isn't repaid. Did the Fed break even? Somebody walked away with 5 billion..

Also, if the Fed is handing out loans at a lower interest rate than the market, wouldn't that put the recipients (banks) at a consistent advantage to every other borrower (individuals)?

Will sink without trace

[jimicus]

Let's see what this requires in order to be successful (In this case, I'll define success as: "is widely exchangeable for goods, services and other currencies"):

• Massive social change. People need to be prepared to buy and sell real goods using a transaction method that is in no way related to what they already know and trust, viz. the money in their own bank account. If this social change can't be brought about quickly, then it either needs the backing of a major, trusted institution which can see major long-term benefits to operate it until it is or it needs to be a worthwhile investment for a major, trusted institution almost from day 1. (Think credit cards)
• Unbreakable - or at least so expensive to break that it'll never be worth it. And I don't just mean that in the theoretical sense, I mean it in the sense of "despite repeated, regular attacks by well-funded organisations over a long period of time, has not been broken so badly as to render it worthless". Most existing financial mechanisms have some mechanism to update them without screwing over existing legitimate holders in the event of this happening - paper currencies are re-issued in a new design, online verification has dealt with the issue for credit/debit cards.
• Easy for the layman to use and understand. Cash is easy to use and understand because ATEOTD it's not conceptually different to the idea of the idea of trading that kids have been taught for centuries: "I have ten beans and can exchange some of them for some bread". Come on, "generated in fixed amounts according to number of CPU cycles required"?
• Clear benefits to all - not just the inventor. What's the problem with any generally accepted currency that A: this solves and B: cannot be solved for existing currencies? I guarantee you if there was any sign of there being significant benefit to a micropayment model, the world's payment clearing houses would develop suitable charging schemes almost overnight. Maybe a fixed fee per thousand transactions below a certain threshold or something like that.

sorry

[fyngyrz]

Deflation makes those loans a raw deal

All loans that include interest are a "raw deal" for the borrower, and a sweetheart deal for the lender.

The most important key to doing well financially is to avoid incurring debt completely. Money goes much further.

The hook our society embeds in the naive is the "gotta have it now" hook. Kids, home, car, new styles, fine meals, etc... "gotta have it now." You pull that hook out, and you'll begin to win. When the last vestige of debt goes away, you'll find yourself pulling ahead so fast you'll wonder what all the fuss was about... until you remember how much of your income was going into interest and fees.

If you have a secure opportunity to earn interest, then yes, by all means, take it. Never be a borrower. Remember this: Borrowing makes money worth less - a lot less. You'll have less of it overall, and you won't have any more "stuff", either. All you get is stuff moved in time, from the future to now - but you get a lot less of it. So don't do it.

Re:sorry

[Hognoxious]

All loans that include interest are a "raw deal" for the borrower, and a sweetheart deal for the lender.

Say I'm just out of plumbing school, and I want to be a plumber. But I need a van & tools and I haven't got any money. So I get a loan.

Assuming I can make enough to repay the interest and capital, cover my running costs and have enough left over to live on that's a win for everyone.

Never be a borrower.

So what do I do when that customer calls and there's water leaking all over her kitchen? I get her to pay me now, and tell her I'll fix it when I've saved up for a soldering lamp?

And for homes, you have to live somewhere. It could take a long time to save up to buy one, and during that time you'll be paying as much or maybe more in rent.

Interesting concept, but unpractical?

[binkzz]

You generate money by calculating answers to mathematical problems. There is a maximum amount of bitcoins that can be in existence at any one time (problem difficulty goes up as global coin count increases to halt inflation). Therefore, he with the most cpu cycles gains the most money (you could even say the rich can make a lot more money out of this than the poor).

However, if this becomes really popular, Google, Microsoft or anyone with a large enough botnet could claim the bulk of all the currency in just a few days, devaluing the coins everyone else has generated and making it impossible for them to generate more.

I really like the concept, but I can't see how this will survive growth.

Re:uhhh.... exactly

[Jon Abbott]

"Credibility in fighting inflation"? Ha! Since the Federal Reserve was created in 1913, the value of the U.S. dollar has lost 95% of its value due to inflation. Their other mandate of achieving maximum sustainable employment is also a failure with our country currently at 9.5% unemployment and 5.6% involuntary part-time employment. Sustainable, this is not.

Re:uhhh.... exactly

[Mashdar]

I am not certain, but I was under the strong impression that federal reserve employees were not employed by the federal government, but by the fed directly. The fed FAQ states this:

No. Employees of the Federal Reserve Banks are not government employees. They are paid as part of the expenses of their employing Reserve Bank.

No matter how you look at it, the fed is an exceptional case, but I believe GP provided an accurate description. Oh, and

Are the Federal Reserve Banks private companies?

The Federal Reserve Banks, created by an act of Congress in 1913, are operated in the public interest rather than for profit or to benefit any private group.
Commercial banks that are members of the Federal Reserve System hold stock in the Reserve Bank in their region, but they do not exercise control over the Reserve Bank or the Federal Reserve System. Holding stock in a regional Reserve Bank does not carry with it the kind of control and financial interest that holding publicly traded stock affords, and the stock may not be sold or traded. Member banks do, however, receive a fixed 6 percent dividend annually on their stock and elect six of the nine members of the Reserve Bank's board of directors.
Although they are set up like private corporations and member banks hold their stock, the Federal Reserve Banks owe their existence to an act of Congress and have a mandate to serve the public. Therefore, they are not really "private" companies, but rather are "owned" by the citizens of the United States.

This sounds "mostly private" to me, since the board is 2/3 privately elected, and pays shareholder interest fix at a pretty nice 6%, considering it is essentially guaranteed by the entire financial system's stability.

Crickets...

[Anonymous Coward]

You're going to be waiting a long time before you can proclaim that gold has failed to live up to its well-deserved reputation as a safe and stable place to store a portion of one's assets. Since you're so eagerly anticipating this event and have so much riding on it, why don't you call us when it happens!

Money is what you'll accept in trade

[dazedNconfuzed]

As observed in The Restaurant at the End of the Universe:
"If," he said tersely, "we could for a moment move on to the subject of fiscal policy ..."
"Fiscal policy!" whooped Ford Prefect, "Fiscal policy!"
The Management Consultant gave him a look that only a lungfish could have copied.
"Fiscal policy ..." he repeated, "that is what I said."
"How can you have money," demanded Ford, "if none of you actually produces anything? It doesn't grow on trees you know."
"If you would allow me to continue ..."
Ford nodded dejectedly.
"Thank you. Since we decided a few weeks ago to adopt the leaf as legal tender, we have, of course, all become immensely rich."
Ford stared in disbelief at the crowd who were murmuring appreciatively at this and greedily fingering the wads of leaves with which their track suits were stuffed.
"But we have also," continued the Management Consultant, "run into a small inflation problem on account of the high level of leaf availability, which means that, I gather, the current going rate has something like three deciduous forests buying one ship's peanut."
Murmurs of alarm came from the crowd. The Management Consultant waved them down.
"So in order to obviate this problem," he continued, "and effectively revaluate the leaf, we are about to embark on a massive defoliation campaign, and ... er, burn down all the forests. I think you'll all agree that's a sensible move under the circumstances."
The crowd seemed a little uncertain about this for a second or two until someone pointed out how much this would increase the value of the leaves in their pockets whereupon they let out whoops of delight and gave the Management Consultant a standing ovation. The accountants amongst them looked forward to a profitable Autumn.
"You're all mad," explained Ford Prefect.
"You're absolutely barmy," he suggested.
"You're a bunch of raving nutters," he opined.
The tide of opinion started to turn against him.

Cause of WWII?

[BenEnglishAtHome]

The root causes of World War II can be found with the policies enacted by the governments involved with World War I,...

I'm not going to say you're flat wrong. There were lots of factors.

Do not discount, however, the biggest one. IMO, the main reason Germany was willing to start up WWII is that they never lost WWI. The Treaty of Versailles wasn't all that bad but the Germans chafed mightily under it. They came to feel they were oppressed and needed to push back against the world. Why?

For the same reason that Afghanistan is the "graveyard of empires". The enemey, whoever they are, will keep coming back until you defeat them. You defeat the enemy by...errr...DEFEATING them. You lay waste to their homes. You destroy their way of life. And you do so in such a complete fashion that the enemy comes to believe that it's all their fault. The enemy must be convinced that they are not only defeated but that they brought it upon themselves. They have to learn, collectively and deeply, that *they* screwed up when they started hostilities. Once you do that, those people, those former enemies, will realize down deep in their hearts that starting another war is a bad thing.

Has anyone ever defeated Afghan forces? Hell, no. They just melt away into the mountains and live to fight another day. Because their infrastructure is never destroyed and their homeland never fully raped, they never feel they've lost. They never learn their lesson.

The same thing was true of Germany at the end of WWI. The French, British and Americans never chased the Germans all the way home, never broke up the place, never taught the Germans what it was to lose. In fact, at the end of hostilities no Allied soldiers had yet set foot in the German homeland.

That's not a defeat. That's a time-out. The German people felt humiliated. They felt like they'd been stabbed in the back. But they never felt they'd been defeated. They never felt they'd screwed up. They never had the will to fight beaten out of them.

After a couple of decades of timeout, the game started again. Only the true defeat that was finally imposed on Germany at the end of WWII made it a reasonable bet that hostilities won't be starting up again anytime soon.

Gold is a faith-based currency

[wytcld]

The power of gold as currency is as faith-based as the power of communion wafers as the Body of God. Yes, you can use gold in electronics - but the market for that does not justify its current valuation. Yes, you can use gold in jewelry - but being bright and shiny is an aesthetic thing, not a bedrock value.

Gold as currency is no different than paper or certain digits as currency: They are only currency if some government declares them to be. The prior advantage of gold a century ago was that nearly every government declared it of value, so it was safe from the prospect of any one government (say, the Confederacy) being delegitimated.

Gold-as-gold has no current currency value. Governments don't back it. It's a collectible, subject to speculation, and some people make good money on collectibles. But you can't go to the grocer with your gold, you can't pay taxes with your gold, you can't buy a car with your gold. It has the same intrinsic value for these things as vintage action figures.

In Zimbabwe, where the government has lost legitimacy and inflation is rabid, you might be able to trade gold, if you can carry it without it being robbed from you; but you surely can spend dollars, or euros, or South African currency - all of which are of far more survival value than gold. Unless you believe every single government on Earth will lose legitimacy, you should want to collect the currencies of those which you bet will stand. Gold is the currency of none. It's a speculative bubble in a shiny collectible.

Scarcity from computational difficulty:byproducts?

[radarsat1]

Just an idea.. if this introduces scarcity by means of computational difficulty (not to argue with caveats introduced by other comments here.. botnets, moore's law, etc), then might it not be possible to also leverage the situation and at least extract useful computational byproducts?

For example, instead of just computing primes, etc., why not use other, more useful "hard" problems, such as protein folding?

Imagine, every monetary transaction contributes to cancer and genetic research...

Check harder

[Sycraft-fu]

http://www.usinflationcalculator.com/inflation/current-inflation-rates/

-0.4%, as in half a percent of deflation.

But the money matters

[Sycraft-fu]

So, I'll give you an example of deflation:

Suppose you and I decide to do favors for each other. To keep track of this, we have IOU coins. Any time I do a favor for you, you give me an IOU coin. Nice, easy way to make sure it is fair. We start out with 10 each. What we have really done here is created a currency.

Well, our friend sees this and wants to get in on it. We say sure. He joins, has no coins to start, and has to do favors to earn them. This keeps going on, and suddenly we have 10 people. What has happened is our little economy has grown, it has grown a lot. However our currency hasn't. Now there's only two coins for each person. Our system is going to start to get squeezed by a liquidity crunch. You can only have two favors don't before having to do one yourself, on average. Plus if someone starts saving up, they can easily take coins out of the market to the point that there just isn't enough currency and some people have none.

So suppose what we start doing is as new people join we deflate the currency. We cut up our coins in to halves, then quarters, and so on. Solves the problem of not having enough liquidity... Except that it makes coins more valuable. I don't want to spend the coins I have now, because if I hold on to them, they'll be worth more soon. Whereas a coin might be cut in half now, I expect in a few weeks we'll be quartering them and a quarter will get a favor, so I could get twice as many. Lots of people start doing this, and spending dwindles. What has now happened, is our economy is shrinking. The labor is still there, but isn't being used, and as such isn't useful.

The real economy, the shit that matters, is trade. I do something, you do something else, etc. We all do what we do and our goods and services get traded around in a highly complex manner. That production is what makes our economy strong. Well, that only works if people spend money. If the money doesn't flow, that trade will stop. So we need to adjust the money supply as such to make that work well.

In practical terms, that means as the economy grows, we need more money out there. The bigger it gets, the more money we need in circulation if we don't want deflation to happen (and we really don't).

Re:But the money matters

[Anonymous Coward]

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

Lork Moar;was:Re:Also the way you really add value

[Anonymous Coward]

Gold not used for anything? Ignorant post is ignorant. There are many uses for gold, both for industrial and non-industrial societies: http://geology.com/minerals/gold/uses-of-gold.shtml

The world's entire gold reserve only increases by about 2% per year via mining, and much gold is lost due to actual loss (people dropping things) or throwing things out (all the electronics with gold components that don't get recycled).

And deflation is *not* such a bad thing. Inflation is much, much worse. Go read Peter Schiff. Educate yourself. Economies cannot expand forever, nor should they be expected to.

then what?

[OrangeTide]

And then what? Live happily ever after?

Gold Standard -> Oil Standard

[zooblethorpe]

Reading a while back, it really sound like what happened under Nixon with the move away from the gold standard was not an abandonment of *any* backing for the dollar, but rather a change -- we went from a gold-backed dollar, to an oil-backed dollar.

Part of the sweetheart deal the US worked out with the Saudis (and other OPEC members) was that OPEC countries would *only* accept USD in payment for oil, effectively backing the US dollar by petroleum. This would appear to partially explain both the Iraq invasion and the US government's dislike of Hugo Chavez (he was making serious noises about accepting euros in payment for Venezuelan oil).

Cheers,

The Crypt

[Anonymous Coward]

Randy Waterhouse approves of this story

Halawa, Hawala, a Dollar, a Dollop, let's call...

[cmholm]

My pardons for the typo. All else considered, I'd rather have a Halawa.

The US had a good economy for a long time

[Anonymous Coward]

despite mild deflation.

So far as I know, no hard money system has experienced more than mild deflation, and ditto inflation. (The Spaniards had serious inflation despite a gold standard only because they conquered the New World and stripped it. They fell into the standard problem of countries whose economy becomes based on oil, copper, ... and their industry disappeared.)

So, your objection doesn't apply. That objection is a standard one arguing for more gov intervention.

The least-discussed rule in economics is the inverse relationship between "total government burden" and economic growth. If you want an economy that grows at its maximum rate, you have to minimize the gov. If you want real growth, not one based on new ice cream chains, you must have zero inflation. No gov has managed zero inflation for very long based on fiat (paper) currencies.

Re:Gold Standard - Oil Standard

[sjames]

Alas, it didn't stop oil from going up as compared to the dollar.

Re:uhhh.... exactly

[dmp1ce]

I pretty much agree with all of that. Screw those tax cheats.

So childish. "If I'm getting robbed by the government then everyone else should get robbed too!"

re

[web-tasarim]

bp ruin the world, get out

More like botcoin

[Anonymous Coward]

Bitcoin... How to monetize your botnet.

Re:uhhh.... exactly

[Myopic]

People who equate taxation with robbery are mentally retarded, figuratively. Not only that, but the idea itself is stupid, too.

Baked. It's called HashCash.

[Myself]

And working implementations have been around since 2002. Bitcoin is nothing new.

Re:Gold Standard - Oil Standard

[zooblethorpe]

Funny, that. But then I suppose one of the key flaws is that OPEC and US interests don't always align -- positioning the key backing of one's own currency in the hands of another possibly opposing group might not have been the smartest option.

Cheers,

Re:uhhh.... exactly

[Anonymous Coward]

Oh, right. I was expecting it to say:

"We are a private institution that was constructed by giving our hench people (aka congressmen) our demands and then threatening to cut their funding. In addition we assassinated several Presidents who were less than forthcoming. We also still allow the President of the USA to choose a governor from one of the six members of the board. The governor is the public face of our institution. We get to control monetary policy in the USA independent of any whining from the democracry and we get to fuck over those poor bastards as regularly as we want. ha ha ha."

Gosh! Apparently that's not what they are like at all! Thank you so much for finding this incredible source of information!

In other news, "BP" stands for "Beyond Petroleum" and they are a green company. Look, to quote BP itself:

We help the world meet its growing need for heat, light and mobility. We strive to do that by producing energy that is affordable, secure and doesn’t damage the environment.

Growth-Maximizing Level of Government

[RareButSeriousSideEf]

Similarly, the "Rahn Curve" proposes that economic growth peaks with public budgets of 20% of GDP or lower (we don't know how low because we don't have data on sub-20% governments to draw inferences from).

I wish there was a text summary of this, but in 6:43... The Rahn Curve and the Growth-Maximizing Level of Government.

There's some related (probably polarizing) discussion at http://biggovernment.com/dmitchell/2010/06/29/the-rahn-curve-shows-government-is-far-too-big/.

So much for security

[Anonymous Coward]

All their crypto system is perfect yet they have trivial security holes elsewhere...

http://pastebin.me/2ffe1ba6dd73b5ee5735d98ed3ce19af

Most successful governments

[zogger]

I would guess that tribalism, the benevolent dictator old chief, plus a council of elders, and a loose blend of tribal socialism combined with individual ownership of smaller things, but not the surrounding land, is probably the most successful government organization ever. Trouble is, it does not scale beyond a small tribe.

Re:Most successful governments

[OeLeWaPpErKe]

In disney movies, yes. In practice those governments regularly massacred their neighbors (and if you think about what happens in such a government with population growth, you understand why that must happen).

Correction

[Alsee]

Minor correction: BitCoin is based on EC-DSA, not RSA as I described. That detail does not make any real difference in how things work.

-

That's why

[zogger]

That's why I said small and doesn't scale up very far..it doesn't. It still by use and numbers probably is the most used form of government by humans (which is what I meant by successful) if you go back to caveman days to today, the "tribe". As long as they don't try to scale up far, it seems to work better than most other forms. A single family unit is the smallest example of a similar arrangement.