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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.
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.
http://bitcoin.sourceforge.net/wiki/index.php?page=FAQ
Bitcom... Backed by the Greek treasury.
Tisha Hayes
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.
Luke, help me take this mask off
Could we just get a random reddit submitter instead? Please?
Often wrong but never in doubt.
I am Jack9.
Everyone knows me.
Given that the gold standard is gone, I'd like to see those guarantees too. Your paper money is virtual as well.
from wiki
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.
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.
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.
comment first, facts later. http://chem.tufts.edu/AnswersInScience/RelativityofWrong.htm
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.
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.
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?
You are not a brain: http://books.google.com/books?id=2oV61CeDx-YC
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.
Blarney Quality Restaurant, Plants
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.
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.
The real Sig captains the Northwestern. This one captains
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?
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.
The World Wide Web is dying. Soon, we shall have only the Internet.
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.
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.
"The universe seems neither benign nor hostile, merely indifferent." --Carl Sagan
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.
You can say that all you want, but to quote the Fed itself:
It is part of the government, but independent of the three branches.
"The universe seems neither benign nor hostile, merely indifferent." --Carl Sagan
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".
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.
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?
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.
As always, all IMO. Insert "I think" everywhere grammatically possible.
Good luck with that...
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).
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.
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?
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.
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.
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.
I once took an excursion to Reddit, and later HN. Unlimited up/down voting sucks when dealing with a hive-mind.
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.
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.
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
I hate printers.
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.