Online-Only Currency BitCoin Reaches Dollar Parity

IamTheRealMike writes "The BitCoin peer to peer currency briefly reached exchange parity with the US dollar today after a spike in demand for the coins pushed prices slightly above 1 USD:1 BTC. BitCoin was launched in early 2009, so in only two years this open source currency has gone from having no value at all to one with not only an open market of competing exchanges, but the ability to buy real goods and services like web hosting, gadgets, organic beauty products and even alpaca socks."

Comments

First

[Anonymous Coward]

1 First Post : 0 BTC

In other words

[Monkeedude1212]

The US Dollar will soon be worthless?

*ducks*

Re:In other words

[grnrckt94]

Isn't the dollar already worthless?

Re:In other words

[countertrolling]

If anything depends on pure faith more than anything else, it would be currency. Lots of people still have faith in the dollar, so no, it is not worthless yet.

Re:In other words

[Anonymous Coward]

From the site,

The total eventual circulation will be 21 million bitcoins. There will never be more coins than that. The coins are entering circulation gradually, at a steady pace over many years, to nodes supporting the network in proportion to the CPU time they contribute. With the current total CPU power on the network, most CPUs will usually take months between successfully generating 50 BTC.

So basically, this is like "collector items", not currency. A very scare "resource", if you can call it that. You get 50 BTC after few months, meaning that basically you've just spent $50 in electricity to get your "free" money.

Anyway, this virtual "currency" is bad for so many reasons, it's not even funny. Fist, the purpose of currency is not to hoard it - it is to spend it for goods/services. Currency is IOU notes that devalue over time. It is not a hard asset, like coal or copper or shares of MegaAssInc. FIAT currency tends to be *backed* by something, like an economy, like USA or European Union or even China. What is this backed by?

Anyway, another fad "currency". Might as well collect "ISK in eveonline" or "gold nuggets in WoW" - same thing.

Re:In other words

[icebraining]

You get 50 BTC after few months, meaning that basically you've just spent $50 in electricity to get your "free" money.

No, you get 50 BTC by selling something or some service, just like any other currency.
The money "generations" isn't a way to earn it, it's just to produce them initially.

Re:In other words

[ErikZ]

The "Hard liners" in congress have proposed 100Bn in spending cuts, on a 1400Bn deficit.

That is the biggest fix the US politicians could come up with, and half of them are whining about how it's too much.

It's not worthless yet. But the US is going to hit a financial wall very soon, very hard.

Re:In other words

[kellyb9]

Isn't the dollar already worthless?

Maybe... Maybe not. I can still go into any store in the US and buy something with good old-fashioned cash. If I went in their with my digital wallet of BitCoins, they'd probably laugh at me.

On a side note, if they were real geeks, they would've called them credits.

Re:In other words

[maxume]

Maybe. It is a little problematic to forecast the solvency of a country when the only test of the solvency of a country is whether it can borrow sufficient money to finance the debt it already has (with maybe some hand waving there about "at reasonable rates").

Of course, massive deficits and debts don't really seem to do anything good for the economy of a country (especially when much of it seems to be on spending $2 today on programs that cost $4 tomorrow and return $1 of value).

Re:In other words

[Anonymous Coward]

I can give "100x Frank IOU Note" or some service. Then you can use that to get another service from someone else, or from me. Eventually though, that IOU note *must* be used to purchase something from the originator. Only I, the originator, can take Frank IOU notes out from circulation.

That's how ALL world currencies work. USD is ultimately only "meaningful" in the US. The Euro, in the European Union. The Canadian Dollar is only worth anything in Canada. These are the IOU notes that people tend to accept.

Money supply is regulated by central banks, so money amount in the economy matches the economic value. Taxes are used to remove currency. Government spending is used to inject the said currency back into circulation. That's the crux of how the currency works.

Who decides how BTC works? Who regulates the amount in circulation - oh wait, it was already capped at 21 million. That means if the currency becomes useful for anything, it will suffer from MASSIVE deflation as its value spikes to $10+k to 1 BTC and the original users will get very rich, if they dump it on the way up. If entire world only used BTC, the value would have to be millions of dollars per 1 BTC. ha!!

Sorry, but that is not how currency is suppose to work. Whoever was selling stuff for BTC basically is banking on this deflation which is already massive. Giant pyramid scheme.

Re:In other words

[loufoque]

So basically, this is like "collector items", not currency. A very scare "resource", if you can call it that.

Any finite resource can be a currency. Scarce yet widely spread resources work best (gold, for example).

What is this backed by?

Computing power, which is derived from energy.

Re:In other words

[cheezedawg]

It will never be worthless. The US Treasury Dept only accepts US dollars for tax payments, so we need to have dollars to pay our taxes, or we go to jail.

Re:In other words

[h4rm0ny]

On a side note, if they were real geeks, they would've called them credits.

Bitcoin is not a credit-based money system. That's kind of the point.

Re:In other words

[Xunker]

"FIAT currency tends to be.."

I believe you mean 'fiat', not "FIAT". Fiat currency is legal tender that has value backed by decree of a policymaker; The FIAT Currency is the new hatchback from the Italian automaker.

Re:In other words

[Neoncow]

I think the idea of Bitcoin is to create an alternative to how the current world currencies work. The idea is to have something that has no intrinsic value in itself, but is still scarce. I don't think the intent is to eliminate traditional currencies, but create an alternative currency that cannot be manipulated or controlled by centralized authorities.

Basically, I think they want it to be like gold except without the fluctuations due to industrial, geological, or political events. I don't know whether this is good from an economics point of view, but I don't think they're trying to kill currencies.

People have the same incentive to create bitcoins as gold mining companies have for digging up gold. There's a cost of mining each and there's a perceived value. If you feel that bitcoin will ever succeed, then it may be worth spending electricity to generate them while it's easy to do so. If not, then don't. If they fail, nothing lost, if it succeeds, you'll buy them at market value later.

Re:In other words

[Abrisene]

Though i'd tend to agree with you, there's an argument I've been debating by myself about ISK and Gold not being fiat currencies. I'd like to apologize ahead of time for my half-assed deconstruction.

The currency is created by fiat, but within the economy it's backed up by the amount of time that the players have spent playing the game in order to acquire the currency (or in some cases, the amount of money they've spent on it). ISK and Gold are ingame currencies, but really 'time' is the real value.

I work as a product manager on social games, and what social / viral games largely base their monetization on are time-based currencies. Players can grind through the game without paying for it, but it will take much longer than people who are willing to spend. Any amount of money spent in these games will work to advance the user through the game more quickly (unless the user is buying a vanity item).

Assuming you're employed, when you go into work, you're being paid for a specific set of skills, and the application of those skills over a set of time. You undoubtedly acquired those skills through the application of other skills over a period of time, and I would bet real money that your salary is in some way correlated with the amount of time you spent acquiring those skills in the first place (i.e. education / experience).

From my limited understanding of real-world economics, the value of a currency is based off of the country's deficit because the deficit is reflective of a country's "credit" relative to the rest of the world. This is most likely a vast oversimplification, but what it really comes down to is that a time-based currency doesn't look too absurd when you compare it to the way the real economies work. Especially when you throw things like derivatives into the mix - at least time based currencies trace back to something of value in one or two steps.

Re:In other words

[Martin Blank]

Personally I think it time to replace the dollar and take control of monetary policy away from the FED returning it to Congress as the constitution dictates.

The Constitution also states that only Congress has the power to coin money, but that doesn't mean that members of Congress were expected to spend time at the mint themselves. That's where the Necessary and Proper Clause comes into play. The Supreme Court ruled in McCulloch v. Maryland that the Congress can create a central bank to help handle fiduciary policy.

Re:In other words

[nhaehnle]

Currency is IOU notes that devalue over time.

Absolutely. This is the one thing that "goldies" never seem to get right. Money is all about you owing me and vice versa. Moreover, all money in existence is ultimately a debt of the government, which is why the current political obsession with austerity is so ridiculous. Government debt is simply the mirror image of private wealth.

FIAT currency tends to be *backed* by something, like an economy, like USA or European Union or even China.

More concretely, modern fiat money is backed by the power of taxation. A large part of the value of money comes from ultimately circular reasoning, i.e. you can pay your groceries at the shop using money, because the shop needs to pay its employees with that money, because those employees can use that money to pay for groceries. However, underlying this circularity is the fact that the state has a monopoly power to force a debt on you: the tax debt. A random stranger on the street cannot force you into debt, but the state can. By doing so, it creates scarcity and demand for the state-issued money, and this is where the value of modern money ultimately comes from.

This is one of the key insights of Modern Monetary Theory, which was greatly influenced by the Functional Finance of Abba Lerner, and is developed by people like Randall Wray and Bill Mitchell.

Re:In other words

[noidentity]

The total eventual circulation will be 21 million bitcoins. There will never be more coins than that.

So basically, this is like "collector items", not currency. A very scare "resource", if you can call it that.

Are you implying that the limited quantity is a bad thing? That's a good thing, because it means its value won't drop over time due to diluation, as happens with fiat currencies with no limit on how much is issued.

Anyway, this virtual "currency" is bad for so many reasons, it's not even funny. Fist, the purpose of currency is not to hoard it - it is to spend it for goods/services. Currency is IOU notes that devalue over time.

The purpose of money is to store value. Good money does not lose its value over time. It's fiat currencies not backed by anything that constantly drop in value, because more and more is issued, diluting the value of all that is in circulation, thus discouraging saving money.

It is not a hard asset, like coal or copper or shares of MegaAssInc. FIAT currency tends to be *backed* by something, like an economy, like USA or European Union or even China. What is this backed by?

What is the US dollar backed by? Not gold, because they got rid of that many decades ago. The US and other countries don't back their currency, which is why its value constantly decreases. If they were backed by something, their value would be stable. Really, the main purpose of being backed by something is to prevent governments from printing more money (commonly called counterfeiting when someone other than the government does it).

As for what they are backed by, what is gold backed by? Its value has been stable for centuries. What it's "backed" by is the relatively stable amount of gold in existence. This is exactly why they are limiting the number of bit coins, to avoid devaluing them. Ultimately, what gives money value is that other people will trade things for it, because they expect to be able to trade that money for things as well.

Anyway, another fad "currency". Might as well collect "ISK in eveonline" or "gold nuggets in WoW" - same thing.

I don't disagree about it being a probably passing fad currency, but how can you compare it to these other virtual currencies with no limit on how much can be issued?

Re:In other words

[rogueippacket]

On a side note, if they were real geeks, they would've called them credits.

Bitcoin is not a credit-based money system. That's kind of the point.

I think the parent was referring to Credits in the sense of old-school arcade machines - you know, where you insert hard coins to get Credits in the game. Not in the sense of bank credit, the money you don't actually have.

Re:In other words

[Anonymous Coward]

because all major currencies are fiat currencies, money essentially *is* credit. its all pretend.

Re:In other words

[SuricouRaven]

In theory, any country with a fiat currency could erase it's debts overnight. In practice, they take one look at Zimbabwae and the wheelbarrows full of cash and decide that maybe that isn't such a good idea after all.

Re:In other words

[Anonymous Coward]

You bring up an interesting point, but it's not exactly true. If the currency has a direct exchange rate to real currency and is capable of being exchanged for goods and services, how different is it from the USD then? It's effectively "backed" by the value of the goods and services you can buy with it or the currency you can exchange it to.

This is an interesting experiment. I've studied currency a long time (some professionaly, mostly through personal interest), and this one is a weird one, and I'm not yet sold that it's a valid currency or just some bogus thing.

Re:In other words

[SuricouRaven]

Credit is also the name of the currency in every science fiction novel ever.

Re:In other words

[Anonymous Coward]

fiat money is not a hard asset, it isn't backed by anything tangible. Hence the name. Usually it is backed by a law, which makes it the only legal tender, or at least the only one accepted by government.

Re:In other words

[Anonymous Coward]

Fist, the purpose of currency is not to hoard it - it is to spend it for goods/services.

Even if you don't feel like spending it? What if I just wanna save my money and make my descendents very wealthy playboys?

Your statement that 'currency is an IOU that devalues over time' that isn't remotely funny, let alone accurate. Do you think in the real world every person has the ability to invest their money wisely in the stock market? This is the gambling-with-your-money mindset that was one of the causes of the crash of 2008.

People who aren't investment-savvy need a way to have a safe store of value to provide for their old age, if nothing else will persuade you. If such an option existed in the US in the last couple of decades maybe we wouldn't have so many people getting shafted and getting their homes foreclosed.

Re:In other words

[smelch]

Gold has real value and real uses beyond just exchanging it for something else, as does the USD. Gold has value in industry (gold plated connectors come to mind, but there are tons of other uses for it too) as well as it being a material that is fashioned in to luxury products. Although a gold ring doesn't really do anything for the pragmatic, intelligent person it does have real value to traditionalists. Just like toilet paper there is no real need for it, but we use it for tradition.

The USD is required to pay taxes in the US, which keeps you out of prison and is therefore a required resource to do business in the United States. Now what exactly can 1 BTC be used for?

Re:In other words

[Rob the Bold]

I can give "100x Frank IOU Note" or some service. Then you can use that to get another service from someone else, or from me. Eventually though, that IOU note *must* be used to purchase something from the originator. Only I, the originator, can take Frank IOU notes out from circulation.

That's not necessarily true. If you have enough people believing in the value of the currency, then it has value. Which is not really any different from anything that's traded. It never needs to get back to you. You could even declare it to be valueless, and someone might still trade for it. Consider works of art. Someone might even consider your IOU as such. But today, artists (at least self-described artists) exchange Artist Trading Cards in a renaissance of the old tradition of trading works of art -- especially portable ones -- for other commodities. These modern ATCs are supposedly not to be sold, but I'm sure some must be. And their price would depend on how much you valued it.

That's how ALL world currencies work. USD is ultimately only "meaningful" in the US. The Euro, in the European Union. The Canadian Dollar is only worth anything in Canada. These are the IOU notes that people tend to accept.

Money supply is regulated by central banks, so money amount in the economy matches the economic value. Taxes are used to remove currency. Government spending is used to inject the said currency back into circulation. That's the crux of how the currency works.

That's only one way a government can affect the money supply. For just one example, a government could "print" more money and spend that. And forces other than the government can affect it, too. I think you're under the assumption that currency only has value because a government issues it and somehow backs it up. And also that only a government can issue currency. There are plenty of examples of non-government-issued currencies that were/are traded for goods and services. And plenty of examples of currencies issued by governments being used outside the jurisdiction of the issuing government. Maybe you meant some different by "only worth anything [where issued]", so sorry if I misunderstood you.

Who decides how BTC works? Who regulates the amount in circulation - oh wait, it was already capped at 21 million. That means if the currency becomes useful for anything, it will suffer from MASSIVE deflation as its value spikes to $10+k to 1 BTC and the original users will get very rich, if they dump it on the way up. If entire world only used BTC, the value would have to be millions of dollars per 1 BTC. ha!!

Sorry, but that is not how currency is suppose to work. Whoever was selling stuff for BTC basically is banking on this deflation which is already massive. Giant pyramid scheme.

OK, the idea of a currency with only a fixed amount of possible money circulating does sound a little crazy. And it could lead to deflation -- this does happen when money supplies contract. I'd agree with that. But the Bitcoin -- again, like anything traded -- is also only as valuable as its demand vs supply. If no one wants it, it's value will decrease.

Re:In other words

[sortius_nod]

That's probably the most short sighted view of currency "internally it will never be worthless".

Who cares about your internal use, the real value of a currency only happens when you see exchange rates. The US$ has the capacity to crash. I've been most happy with the performance of both the US$ and the AU$ (weak US, strong AU) giving me above parity. To think it was around US$0.60 to AU$1 a little over 2 years ago, and now it's sitting around US$1.01.

It's not just because of a strong aussie dollar, it's a weak US$ too.

Re:In other words

[eugene2k]

A better answer to "what is this backed by" is "the goods and services that merchants sell for bitcoins". Just like the U.S. Dollar.

Re:In other words

[Anonymous Coward]

The differences between the US and Zimbabwe are that the US is the world's #1 economy, the US is a center of innovation, the US preserves inalienable rights. Because of the faith and credit of the US, we can basically print as much money as we like.

Re:In other words

[countertrolling]

The US$ is now the Citi$, kinda like a north american euro

Re:In other words

[sturle]

From the site,

The total eventual circulation will be 21 million bitcoins. There will never be more coins than that. The coins are entering circulation gradually, at a steady pace over many years, to nodes supporting the network in proportion to the CPU time they contribute. With the current total CPU power on the network, most CPUs will usually take months between successfully generating 50 BTC.

So basically, this is like "collector items", not currency.

In the current protocol you can transfer 0.00000001 coin. This can easily be expanded by more decimals in the future, so scarcity is not a problem. How many nanobitcoins are enough? How many yoctobitcoins? Many people need some time to grasp this concept, but don't worry about the limit of 21 million bitcoins. Only one coin is enough to make everyone in the world a multimillionaire in attobitcoins!

Re:In other words

[Catskul]

it will suffer from MASSIVE deflation as its value spikes to $10+k to 1 BTC

The deflation of BTC as it appreciates does seem to be a significant problem. It will really encourage people to hang on to the currency instead of spend it. Why would I buy a pound of coffee this week for 3BTC if I could buy one next week for 2BTC. I've not seen anyone address this.

If entire world only used BTC, the value would have to be millions of dollars per 1 BTC. ha!!

Yes, but that is actually built into the idea of the system. For that reason bitcoins are divisible up to 8 decimal places. As the value goes up, you end up working with smaller divisions of the currency's base unit, just as with inflation you end up using higer multiples of the base currency. It cost 200USD in todays currency to buy what you might for 10USD in 1900. Effectively if the entire planet was using BTC we'd all be paying for things in nano BTC, no problem.

Re:In other words

[pjt33]

Dollarpounds?

Re:In other words

[Catskul]

So basically, this is like "collector items", not currency. A very scare "resource", if you can call it that.

How is that different from gold?

Re:In other words

[Neoncow]

Now what exactly can 1 BTC be used for?

Just because you don't want it, doesn't mean someone else doesn't value it. Even if you wouldn't pay for a cast iron monument of the Jersey Shore cast, if someone else will then it has value.

Gold and US dollars are tied to industrial demand and the US economy respectively. Those are both pros and cons. An alternative currency has different pros can cons. People who value those differences will value alternative currencies.

Just like existing currencies/commodities have value for traditionalists, strange new crypto-currencies hold value for futurists. And apparently they're willing to exchange traditional currencies for it.

Re:In other words

[SETIGuy]

Scarce yet widely spread resources work best (gold, for example).

Supply is too scarce and industrial demand for gold are too variable for it to be a good currency any more. Even in the 1700s and 1800s inflation and deflation often hit 20% or more, which killed a lot of economic growth. Yes, that's inflation and deflation of a currency consisting primarily of gold coins. And the government wasn't capable of stopping it. You won't hear that from anyone claiming all of our economic woes are because we went off the gold standard. Inflation has generally been lower and more stable than it was on the gold standard, and deflation has been rare. That doesn't mean it's not a good store of value (i.e. the price of gold won't drop to zero. It could drop 80%, though) or a hedge against high inflation. It just means that it isn't a good currency.

Re:In other words

[lgw]

Actually, there are really only two requirements for a national currency:

- The government accepts is in payment of taxes.
- The military accepts it as wages

Everything else is fluff. The exchance rates matter only to the extent that you have contracted to receive or make future payments in that currency (or have savings in raw currency, which is a very silly thing), and even that is trivial to hedge with a derivitive these days. How often you have to add a 0 on the end of prices and paychecks only matters if it starts making day-to-day commerce inconvenience. If the two conditions above hold, the currency is not worthless.

Re:In other words

[EllisDees]

> Currency is IOU notes that devalue over time.

No, currency is whatever we decide it is. You are speaking only of one small subset of currency known as fiat currency. There is nothing intrinsic about currency that says it has to devalue over time.

Re:In other words

[Anonymous Coward]

> Might as well collect "ISK in eveonline" or "gold nuggets in WoW" - same thing.

Not at all! There are many successful businesses that trade either of those for real money.

Try doing that with BitCoins.

Re:In other words

[Anonymous Coward]

"FIAT currency tends to be *backed* by something, like an economy, like USA or European Union or even China."

If you have enough FIAT currency, you can buy an Italian car.

Re:In other words

[GNT]

categorically false. a silver or gold dollar from 1789 to 1917 essentially had a constant value except in gold rush or silver rush towns. since 1917 the unitary dollar has lost 98% of its value. or in words the poster can understand, inflation of the dollar over the last ninety years was 50 fold.

Re:In other words

[PhattyMatty]

this is like "collector items", not currency. A very scare "resource", if you can call it that.

Having a finite amount of currency is important, because it means that money will not be able to be printed! Therefore, nobody can mess around with how much things are worth, and where money exists (like a government). Just as there is a finite amount of gold in the world, there will be a finite amount of bitcoins. You can divide them ever-smaller though, which will give us a nice steady inflation. The current software divides them into cents, but we can go as far as we need in the future.

the purpose of currency is not to hoard it - it is to spend it for goods/services.

This currency is not being made to be hoarded (and not being hoarded when it is being made), which is proven by the fact that people are selling goods and services (and others buying them) for bitcoins.

FIAT currency tends to be *backed* by something, like an economy, like USA or European Union or even China. What is this backed by?

Bitcoins are being backed by the price of the electricity that it takes to generate bitcoins. Soon, (maybe even right now, I'm not too sure) the price of generating a bitcoin in electricity will the same as the value of a coin. So unless computers get a very sudden leap in efficiency, the system will work just fine.

Anyway, another fad "currency". Might as well collect "ISK in eveonline" or "gold nuggets in WoW" - same thing.

Parity with USD is not a fad, it shows that popularity is growing. This parity is a result of market demand, not from someone randomly saying that it is worth that much. I encourage everyone to do their own research about the nature of bitcoins, and of currency in general.

Re:In other words

[tengwar]

No, the difference is that the economy of the US depends on continual borrowing, both for funding, and to control some aspects of the economy by setting the interest rate. If the US printed too much currency, existing bonds (loans) would become devalued, which would make it much more expensive to take out new loans, which is done several times per year. Hence no US govt would want to print its way out of trouble.

Re:In other words

[Lehk228]

the value of gold certainly has not been stable for centuries, as uses and demand change so does the price.

basing currency on a random metal from the ground is completely asinine. rather than monetary policy set by experts, or politicians, or even corrupt businesses, it's set by whoever happens to find deposits of gold or own the land those deposits are on. since gold production and demand do not scale to population sizes the end result of a global gold based currency would be prices in miniscule portions of gold, and the locking up of a very useful industrial material in vaults to hoard money.

Re:In other words

[arose]

Hanging on to money (as opposed to saving for future use) shouldn't be a way to get right, it leads to hoarding instead of investing into actual wealth creation.

Re:In other words

[arose]

In 1917 you couldn't buy a computer for any price, how does that figure in your calculations? Absolute numbers do not matter, unless you see the purpose of currency to be something that you get rewarded for taking out of circulation for a hundred years.

Re:In other words

[novalis112]

FIAT currency tends to be *backed* by something, like an economy, like USA or European Union or even China. What is this backed by?

Anyway, another fad "currency". Might as well collect "ISK in eveonline" or "gold nuggets in WoW" - same thing.

You've got it completely backwards. Fiat currency is called fiat currency specifically because it *is not* backed by anything. It has value for no reason other then because someone (in this case a government) says so. But you are right about BitCoin, it is not backed by anything. BitCoin therefore, like the USD, is also a fiat currency, as it does not represent any actual value beyond that determined by the issuing agency or the merchants accepting it.

Re:In other words

[Teancum]

While Zimbabwe is an interesting example of run-away hyper inflation, the economy of that country was and is so small that it is lost in the noise of international foreign exchange.

The country that does show world-wide consequences is the Weimar Republic and its 1000%+ annual inflation that arguably led to World War II. When a major world power sees its currency collapse, particularly when it is intimately tied to international trade, serious stuff can and does happen. The collapse of the Dollar or Euro would most certainly have some major consequences world-wide no matter where you live.

Re:In other words

[Teancum]

In theory, it is possible to print out a Bitcoin "note" on your home computer printer... or at least come up with a system where a physical piece of paper can be given some value of Bitcoins and used in a fashion similar to "old fashioned cash". The "official forums" of the Bitcoin website have several proposals, some of which have had some considerable thought put into them in terms of how that would be accomplished.

The most promising proposal I've seen along those lines is to print out "Bitcoin notes" with the "scratch off" ink/paint used for lottery games, where a serial number/wallet identifier would allow you to transfer the value of the note back to the digital realm again once you scratch off the paint. As long as the paint is still there, the note would generally have value for petty commerce (like buying a candy bar or a loaf of bread at the local bakery). Other "security" features could be in place so you would trust the issuer as well.

See also Canadian Tire money for something similar in terms of private scrip that maintains value in spite of it not being issued by a government entity. Such private scrip certainly could be created by a local grocery store or chamber of commerce and "backed" by Bitcoins. The "scratch off" system wouldn't even necessarily be required, but that gets into fractional reserve banking if you aren't careful.

Re:In other words

[TheCarp]

The biggest problem bitcoin seems to have is that people get way too caught up in those details. I did too.... but that's just about how its minted. Yes, you get 50 btc if you process a block (an amount which cuts in half roughly every 4 years until it goes below the 8 decimal minimum and becomes 0)

However, nobody is going to make a lot of btc doing that,.... the network is already too big (a phenom II 6 core will process a block around every 125 days last I checked). The MAIN way to get btc is to trade for them. The fact of how it is produced is just technical details of how its done in such a way as to not have ANY central bank.

btc is subdivisable to 8 decimal places, and this scheme means only 21 million will ever be made (21 million units divisable to 8 decimal places... you do the math :) )

This is already the case, I got my btc by... trading them for cash (got them in december...so I am pretty happy right now). That,s how most people get them now, either buy them for cash, or exchange services/goods for them. You can already rent servers, get stuff from amazon (through an agent), escrow them for deals that need an extra level of trust, get voip services, get VPN services....

Like you say the US dollar is backed by an economy, so is bitcoin. Its just a start-up economy. If people use it, it will succeed. Otherwise, it will fail.

Re:In other words

[EdIII]

With the current total CPU power on the network, most CPUs will usually take months between successfully generating 50 BTC

You get 50 BTC after few months, meaning that basically you've just spent $50 in electricity to get your "free" money........Might as well collect "ISK in eveonline" or "gold nuggets in WoW" - same thing.

It's not the same thing at all.

Gold farming in WoW you have to deal with a lot of bullshit. Stuff like, "Meester, my hands have blisters... Meester, can I have another bowl of rice today..... Meester, I can't see the screen anymore". Not to mention those little guys pass out like after 50 hours or something and don't come back online for at least another 8 hours after that.

Just the cost in rice alone will set you back more than $50 dollars over the course of a few months. Sounds like less drama to me.

Re:In other words

[noidentity]

So what is better than gold? Anything that allows substantial increase in the money supply is fundamentally broken.

Re:In other words

[Anonymous Coward]

After all, bank notes are just another fad "currency." Might as well collect "silver rounds" or "rare gems" - same thing.

In my day, we used to trade livestock for goods. And when the nukes start flying, I can guarantee you your dollars won't be worth anything. My hoard of goats is going to make me a rich man.

Re:In other words

[SETIGuy]

categorically false. a silver or gold dollar from 1789 to 1917 essentially had a constant value

You can call it "categorically false," but that just makes you someone who hasn't looked into it or a liar. I'll assume the former for now.

That the value was essentially the same in 1789 and 1917 doesn't mean that there were no cycles of inflation and deflation in between. Have a look at page 6 of this presentation. In it I see annual inflation of up to 20% and annual deflation of up to 19% in that time period. Then compare it to the relatively lower (absolute value) inflation after 1917.

Sorry if it doesn't match your preconceived notions of the superiority of gold as a currency.

Re:In other words

[Teancum]

The 8 "decimal places" subdivisions of Bitcoins are merely a protocol limitation, of which can be "upgraded" and changed in some fashion without really breaking the system. Even if only 1 Bitcoin existed for all world trade, it could still be subdivided into as many smaller pieces as needed. There is no "quantum" Bitcoin.

In terms of people hoarding the money, eventually there reaches a point people have to eat, pay rent, and do things where they have to "spend" the money in some fashion. Once it gets spent, it is used in the economy and thus somebody else gets the money. It really isn't a big deal and only represents a temporary situation that time eventually solves.

If you want the coffee, you'll buy the coffee this week and not next week.... because you want the coffee. What deflationary currency does is makes you want to save for the future, stay out of debt, and do the kind of spending that your grandfather or great-grandfather who lived through the Great Depression of the 1930's would tell you to do. IMHO it would also discourage wasteful consumption of natural resources as you would only be buying and using what you need now and not be seduced into purchases that you can't afford due to easy credit. Business expenses would happen only if you could get an ROI that exceeds deflation.

On the whole, I think deflationary currencies tend to be very beneficial to ordinary people, and it is big businesses that extend easy credit who get hurt in such a system. Extending a line of credit in Bitcoins would be seen as a business investment rather than a way to "park" excess money and certainly would be treated differently.

Re:In other words

[Teancum]

There are groups like Silver Shire (and many others I might add too.... these are but one example) who produce gold and silver in units small enough to be used as a common currency for everyday transactions. In this case they have cards with as little as one gram of silver or gold that can be exchanged for products or services. Being "too scarce" is a false notion that doesn't really work.

What caused inflation and deflation for gold and silver was inefficient transportation & communications networks (which you must admit were pretty lousy in the 18th Century) which resulted in local concentrations of the metal and other localized scarcity from time to time. Fractional reserve banking of gold coins also caused problems, not to mention that the physical moving of gold and silver is still difficult when you need to conduct a major cash transaction. Buying a factory or making monthly payroll for 1000+ employees is the kind of thing that really made gold and silver unworkable. Keep in mind that many of the infamous bank robbers of the 19th Century (Jessie James, Butch Cassidy, and others) often hit a bank or train when payroll was being delivered.

Re:In other words

[SETIGuy]

The US and other countries don't back their currency, which is why its value constantly decreases.

Not really on either count. Long term and to first order, the value of all currency in circulation is the value of the goods and services backing the loans that the money was created for. The value of the dollar constantly decreases because it is advantageous for the value to drop to encourage spending and/or productive investing. Therefore monetary policy is chosen such that a low level of constant inflation is targeted. Monetary policy could be changed to encourage deflation, but that would bring the economy to a screeching halt. Or we could encourage more inflation, but that encourages too much risky investing and hurts the creditors who are in charge of choosing our government.

The housing crisis was an example of what deflation is like. Housing values collapsed, making many mortgages worthless, which destroyed a vast amount of money. Banks became unwilling to lend money because it was much more valuable to them invested in securities than it was as a loan. I haven't quite understood explanations of why consumer prices weren't affected. Probably because most people already spend most of their money on necessities.

Re:In other words

[JesseMcDonald]

Fiat currency is called fiat currency specifically because it *is not* backed by anything.

To be more precise, fiat currency is called such because its scarcity (and thus value) is "by fiat" rather than natural. A commodity-gold currency is not "backed" by anything, but is not a fiat currency either, because the gold itself is naturally scarce. A representational (e.g. paper, electronic) currency which is "backed by" gold—that is, which is accompanied by a promise from the issuer of some fixed amount of gold in exchange—is scarce for the same reason; gold is scarce, so the (honest) promise of gold is also scarce.

An unbacked paper currency like the U.S. dollar, on the other hand, is scarce only because anti-counterfeiting laws prohibit anyone but the Treasury from making more, artificially limiting the supply; there is nothing naturally scarce about the currency itself.

The scarcity of bitcoins is a mathematical property of the network. New bitcoins are difficult to find, requiring a significant investment of energy and time. No law prohibits the creation of new bitcoins; anyone can run the client and search for more. Ergo, they are not scarce "by fiat", and thus are not a fiat currency. Bitcoins are in the same class as commodity currencies, such as gold and silver, which retain a stable value due to their inherent natural scarcity, not anti-counterfeiting laws. The price of a bitcoin is driven by the cost of "mining" bitcoins, just as the price of a gold coin is driven by the cost of mining gold.

Re:In other words

[Anonymous Coward]

Good more coins for me :)

Why is virtual currency worse than paper currency? Just because a government forces you to accept it as legal tender? People are routing around their governments because the gig is up, but you just don't realize it yet.

Re:In other words

[lgw]

There's a world of difference between "saving" and "saving raw currency". A system that encourages saving by investing in the production of new goods and services (ie., wealth) is much better than a system that encourages hoarding raw currency. Japan's "lost decade" is a great example of the problems even a little deflation can cause.

Re:In other words

[lgw]

You also overlook the fact that government always debase their currencies, eventually. Inflationary currencies handle that far better than silver coins with so little actual silver in them that they begin to rust (as has happened).

That gradual loss of buying power of $1 hurts no one (as long as it remains gradual). It's not a problem to be solved.

Re:In other words

[lgw]

ISK is certainly a fiat currency. However, it arguably has a smart economist controlling its supply than the US dollar. Both are just a way of representing an amount of work done times the perceived value of the skill employed.

Re:In other words

[lgw]

which is why the current political obsession with austerity is so ridiculous

How do you figure? Over time, there's a limit on the amount of money that a government can raise though taxes (thanks to the Laffer curve having a maximum), and a limit to the amount of money a government with rolling debt can print (because it has to continue to borrow against the perceived risk of future inflation). This means the total amount of money a government can spend (without a currency collapse) is limited, not infinite. If a government has made future spending promises that exceed that limit, those promises cannot be met.

Now, using the term "austerity" for "spending less than all the money you can possibly tax or print" is certainly ridiculous, but I don't think that was your point.

Re:In other words

[AnonGCB]

But someone who sells things sees the same thing, and encourages them to sell at lower prices if they think the price of bitcoins will go up.

Re:In other words

[noz]

FIAT currency tends to be *backed* by something, like an economy, like USA or European Union or even China. What is this backed by?

Wrong. An economy is not a backing. It does encourage confidence that the notes of debt may be exhanged of goods or services in the future, but a backing is a guarantee (e.g. hard assets) and an economy is not a guarantee.

FIAT currency tends to be *backed* by something

WRONG! Fiat currencies may or may not be backed by something: fiat means mandated by law. Coincidentally, fiat currencies are almost never backed by anything. (Why would this be the case I wonder?)

Currency is IOU notes that devalue over time. It is not a hard asset, like coal or copper

Money, and not currency, should be:

• Easily divisible
• Fungible
• Easily verified
• A store of value

Your currency might be IOU notes that devalue over time, but this does not have to be the case. Gresham's law is often paraphrased as, "Bad money drives out good." Good money is out there, and smart people are storing their wealth in something other than government mandated and systemically devalued currency. You can keep collecting something that the government can counterfeit apparently without consequence to itself, but definitely with consequence to its citizens.

Back to Bitcoin: it may provide all of the qualities of money listed above (the only item in question is a store of value). If you look back to the early colonies of what is now the United States of America you will see that fiat currencies worked -- because their supply was limited and they held their value. In this way, because Bitcoin is guaranteed to have a limited supply, they could be the only modern example of an unbacked currency (fiat or non-fiat) to be a safe store of value.

So basically, this is like "collector items", not currency. A very scare "resource", if you can call it that. You get 50 BTC after few months, meaning that basically you've just spent $50 in electricity to get your "free" money.

It is often said that a Bitcoin is a store of work which is incorrect. It may take work to "mine" one (your mention of electricity consumption) but the value of a Bitcoin is not a function of the input: it is a function of its rarity and its usefulness (supply and demand). The cost of "mining" Bitcoins is not irrelevant, but is simply an expense in an individuals decision to enter the market for Bitcoins.

Anyway, another fad "currency". Might as well collect "ISK in eveonline" or "gold nuggets in WoW" - same thing.

These do not have guarantees on their supply. Also, they have little usefulness outside the virtual world. Bitcoins may not have a well demonstrated usefulness, but it does meet the requirements for general commerce in the real world. There is already a functioning economy trading in Bitcoin (albeit small) and the fact that its value is 1 USD today means that it will be much higher in the future as the economy supporting Bitcoin grows (and as the US declines *ducks*).

Lesson: your "money" is really currency; Bitcoin may indeed be money. Also, this is all before exploring the additional benefits of Bitcoin: anonymity of transactions (if chosen) and the inability of any individual (or government) to control or exploit the supply.

Re:In other words

[shutdown -p now]

FIAT currency tends to be *backed* by something, like an economy, like USA or European Union or even China

Fiat currency is not backed by anything other than the willingness of other people to exchange goods for it. This, of course, is what essentially makes up "the economy", so in broad sense you're correct. But if someone is willing to offer me a valuable service in exchange for BitCoins, it's definitely money.

(Yes, WoW gold is also money by the same reasoning. Generally speaking, things don't have to have government backing to be money. They only need government to be legal tender, which is a separate concept - euro is money, but isn't legal tender in US)

Re:In other words

[HiThere]

The differences between the US and Zimbabwe are that the US is the world's #1 economy,
Are you sure about that? Whose figures are you using, and what do they measure?

the US is a center of innovation,
In patent and copyright lawsuits, perhaps. Otherwise ... I think we lost that edge over 5 years ago, and more probably over a decade ago. And we're still declining.

the US preserves inalienable rights
Have you looked at recent governmental proposals? Recent laws? Recent court decisions? It's true there's an occasional decision that supports individual rights, but they are few and far between. Ones that compromise or deny those rights, however, are much more frequent.

Because of the faith and credit of the US
Because we can threaten to invade anyone who opposes our "vital interests"

we can basically print as much money as we like.

Re:In other words

[ThosLives]

There is nothing intrinsic about currency that says it has to devalue over time.

It is not possible to have any type of currency that has a fixed value over time, because preferences are not constant over time.

Even the concept of a BitCoin representing some amount of energy is kind of odd in that sense, because the amount of goods and services someone is willing to pay for, say, 10MJ energy today is not the same amount of goods and services they will be willing to exchange for 10MJ energy in the future.

Value always changes over time. Simple example: how much will you be willing to trade for one serving of your favorite meal after eating only one piece of bread a day for three years? Now, how much would you be willing to trade for a second serving?

The psychological concepts of marginal utility and discount rates ensure that any form of currency will change over time.

Re:In other words

[lgw]

Gold-based currencies have prevented needed increases in the money supply, causing economic growt to founder, but have a poor track record of preventing a government from abusing the currency.

For example, with gold-backed notes the government can just print far more notes than it has gold to back, and then make it illegal to redeem the notes for gold (how else do you think FDR paid for his social programs?). Or if you prefer gold coins, they have a habit of becoming gold-ish coins when the government needs money, followed by the army siezing all private stores of gold to pay the army's salary.

You can't fix government overspending by changing the backing of the currency, I'm afraid.

Re:In other words

[Vekseid]

> No, currency is whatever we decide it is. You are speaking only of one small subset of currency known as fiat currency. There is nothing intrinsic about currency that says it has to devalue over time.

Appreciating resources are not actually used as currency. They're investments.

I have several hundred bitcoins. I have absolutely zero intention of spending them until the libertarians driving it realize that they're duping themselves. Which I expect to take a very long time.

Re:In other words

[linhares]

The differences between the US and Zimbabwe are that the US is the world's #1 economy, the US is a center of innovation, the US preserves inalienable rights. Because of the faith and credit of the US, we can basically print as much money as we like.

BRAVO! Julius Caesar wouldn't put it another way.

Re:In other words

[nedlohs]

But there's nothing intrinsic about devalueing. A currency could also increase in value with time - if economic production increases faster than the currency supply for example.

And there is no concept of a BitCoin representing some amount of energy - you can't get the energy back. It's simply a mechanism to restrict the supply without requiring a centralized issuer.

Re:In other words

[nedlohs]

So my cash magically changes from currency to an investment just because we enter see deflation for a period of time?

Re:In other words

[fractoid]

It will never be worthless. The US Treasury Dept only accepts US dollars for tax payments, so we need to have dollars to pay our taxes, or we go to jail.

What if your income in US dollars is zero?

Re:In other words

[turbidostato]

"Good money does not lose its value over time."

Wrong. Money gives you liquidity with zero rentability. As long as the world becomes more productive (by means of specialization and technical advancement) a given set of currency *must* dilute, or else you would be gaining wealth by just sitting on a pile of money.

"thus discouraging saving money."

That's a good thing. Saving money does absolutly nothing for anybody. Investing money does. Of course, your savings in a bank is not "real savings" (as in hidding the money in your mattrese) but a means for the banks to invest on your behalf and creating more financial money. If you were talking about the ratios between fiduciary and financial money you might have a point.

"The US and other countries don't back their currency, which is why its value constantly decreases."

That's wrong. US and other countries back their currency with their reputation, that is, their percieved ability to produce wealth in the future which is as good as a backing as you can get. And even under a gold currency money value constantly dicreeses too, in a way that it is a ratio of world's GDP (WDP?) and the currency production.

And again, that's only good: you don't want people being richer by just sitting on top of a pile of money.

"As for what they are backed by, what is gold backed by? Its value has been stable for centuries."

Adam Smith has a bunch of chapters on that being false already in his day and it's from the XVIII century.

Re:In other words

[bobdevine]

The US Dollar will soon be worthless?

Ahhh... the importance of whitespace. The dollar will be worth less.

Re:In other words

[turbidostato]

"Having a finite amount of currency is important, because it means that money will not be able to be printed!"

But the point is that money *should* be printed. Do you think the overall world wealth is now the same it was by 1800? Since currency is (among other things) a representation of wealth, more wealth requires more currency. In the same vein, a country producing wealth at a higher rate than average can and should safely print money, no problem with that.

Now, on the other hand, think of this: let's say you own 1% of all world wealth by 1700 and then you go to hibernate with all your wealth transferred into money with you. Fast forward and you awake today. On a fixed wealth-to-currency scenario, you still would own a 1% of today's world's gross product despite the fact that you neither directly nor indirectly did anything to increase it: it's just common sense that your wealth should dilute if you limit yourself to sit atop of a pile of money.

"So unless computers get a very sudden leap in efficiency, the system will work just fine."

This question was already analized and answered by Adam Smith, no less. Just the obvious: what would happen if you wake up tomorrow to learn safe and easy nuclear fusion out of sea water is a reality?

Re:In other words

[Teancum]

The problem with the Japanese economy is multifold and I don't think you can simplify the issue down to just deflation. The problem is that the economy of Japan was structured for an inflationary currency, and it takes time to shift to another economic reality. They are still acting as if it is still an inflationary currency, but when deflation hits, you have to use a different playbook so to say as the rules are different. Some people can't adapt when that happens.

Also, like I said, large companies and government agencies benefit from an inflationary currency... but not necessarily ordinary people. You have things now like income taxes held in escrow where the government has access to the money now, but you don't get the "excess" money until the end of the year as a "refund". The "float" in this case (while the government has the money and you don't) effectively earns interest (or keeps the government from having to pay interest on that money) while the actual value drops due to inflation.

In a deflationary economy, such overpayment of taxes would be in effect interest being paid to you as a taxpayer when the refund comes. Ditto if the bank takes its sweet time in processing "checks" and other similar situations that involve a currency "float". On the other hand, check "kiting" would earn money for a bank and they might even encourage such practice.

It really throws the rules upside down, which is why bankers and government officials usually are against the concept. Ordinary people and small businesses, on the other hand, tend to do rather well and in fact come out ahead when deflation takes hold, as storing money in the equivalent of a penny jar or under your mattress (or the digital equivalent with Bitcoins) is essentially the same as making an investment. Real investing is done for things that beat the deflationary value.... which makes all investments in such a situation to be very conservative or for "sure things" (however you define that).

I hope you do realize that the current inflationary currencies do encourage foolish spending and are at least one of the major contributors to environmental damage around the world. It encourages people to buy larger houses or vehicles than they need, as spending tomorrow's income today is strongly encouraged. It is one of the reasons why debt is so common.... to the point that it is argued that all current fiat currency is just debt alone being sent around from one person to another. I don't think that is necessarily a good thing.

Re:In other words

[devman]

Yes. That is actually one of the reasons why deflation is a bad thing.

Re:In other words

[Anonymous Coward]

it hurts everyone who has dollars, as they can't buy as much with their hard earned money.

Re:In other words

[Anonymous Coward]

From the site:

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

So, it's not really a collectors item, because they're so divisible.

Also, when was the american dollar last backed by anything?

Re:In other words

[John Meacham]

Are you implying that the limited quantity is a bad thing? That's a good thing, because it means its value won't drop over time due to diluation, as happens with fiat currencies with no limit on how much is issued.

A limited quantity is a very bad thing for a currency. The value is _supposed_ to drop over time. That is the entire reason it works as currency. The only point of currency is to encourage and enable trade. So you can trade your extra sheep for ducks without having to hunt down someone who needs sheep and has extra ducks and can make the exchange right now. In order to do that, currency needs to actually be used and traded. Currency that is under someones bed rather than in circulation is not doing its job. If currency increased in value over time, people would hoard it rather than use it.. Note that I am talking about actually hoarding the paper bills or treasury notes (or electronic tokens) not holding wealth in investments or a bank account. money stored in a bank account is being used, as are investments.

Think about it this way, if there were a finite amount of currency, and the world population doubled then everyone would have half as much money in general. Now, things would also end up costing half as much because it still takes the same amount of human effort to create the same goods, but there just isn't enough money to go around to keep everyones pay at the same numerical level it was before. However, this introduces a perverse incentive to hold onto money rather than using it since the buying power of money will double every time the population does, it will outperform many investments, so rather than starting a company, or lending the money to someone that can use it, people will hoard it. It will no longer fufill its function as a currency.

And, while your currency devalues over time, that doesn't mean your worth does. If they redefined the gallon to be smaller you wouldn't suddenly have more milk in your fridge. A dollar is a unit to measure wealth, not wealth in and of itself.

Re:In other words

[Teancum]

Fiddling with the monetary supply (aka "printing" money or forcing inflation) is just another way to tax the citizens of a country.

I've heard it argued that in theory it would be possible to completely eliminate all taxes on the theory that the government merely could "issue" currency.... with the inflation being a more direct form of taxation and having a similar impact on the economic stability of the country. The problem with doing that is most government officials wouldn't know when to stop inflating the money, and there are other problems with a high rate of inflation in terms of impact up citizens. It would also be impossible to set up a "progressive" tax schedule.... but then again that may not be a terrible thing either. Most importantly, the government couldn't set up a complicated tax schedule to encourage/discourage certain kinds of enterprises as everybody.... rich and poor... would be equally impacted with inflation.

I don't know of any government who has tried the concept, but it is an interesting thing to consider.

I also don't know of anybody who has ascribed a skewing impact mathematically upon the Laffer Curve via inflation, as in high inflation impacts the amount of money that can be raised via taxes too by skewing the maximum tax rate. Perhaps somebody has tried, as I'm not into the academic side of economic that way.

Re:In other words

[benthurston27]

Yeah, as I understand it the fact that they are made with computer resources just ensures that they're hard to counterfeit, right? There is no way for there to suddenly be released millions of bitcoins without money being spent on the electricity and the computers to manufacture them.

Re:In other words

[lennier]

trivial to hedge with a derivitive these days.

Good joke, sir!

By the way, would you like to buy some quadruply-hedged derivatives? I'm told by the best authorities that they contain only wafer thin slices of subprime mortgage, you'd barely notice it.

Re:In other words

[rtb61]

Ahh, yes but they owe the money to someone. So debt solution can be readily solved by simply nationalising the assets of say the top 100 richest Americans and then throwing them into a fiery pit so that they don't complain.

It seems rather fair, as those self same richest Americans, paid lobbyists to ensure politicians were elected who would run up that debt by buying pointless crap from the rich and borrowing money from the rich to pay for it.

It is pretty obvious the one thing American can least afford right now is excessively rich corrupt Americans, who can afford to buy politicians to strip mine the treasury in their favour.

Re:In other words

[benthurston27]

And someone would shine shoes back then for a nickel whereas now they might charge 2.50. So what people are making has gone up 50 fold as well, negating the 50 fold devaluation of currency.

Re:In other words

[uninformedLuddite]

less than what?

Re:In other words

[Anonymous Coward]

Generating 50 BTC costs way more than $50 in electricity. Most people making bitcoins today are doing it to support the system.

From your comments, it's quite easy to tell that you haven't really understood bitcoins.

>Fist, the purpose of currency is not to hoard it - it is to spend it for goods/services.

Yes. This is entirely correct.

The idea behind bitcoins is to generate a set amount of arbitrary mathematical constructs that cannot be forged or replicated by any party. Once such a thing exists, it can be turned into a currency by backing it with "real goods and services like web hosting, gadgets, organic beauty products and even alpaca socks". Right now, bitcoins are a currency -- you can purchase things with them, and you can use any of several exchanges to turn dollars into them, and turn them into dollars. A normal user who buys things with bitcoins would not ever generate them.

Re:In other words

[fractoid]

Man, talk about selective quoting, why'd you miss out the massive bit at the end where he said "BTW I'M A TROLLOLOLOL no seriously I was making a funny."

Re:In other words

[Eivind]

"eventually" yes, but it's still the case that one of the many reasons that a slight inflation is preferable, is that it makes it less tempting to hoard money.

With inflation even if you don't spend the money, you do atleast let someone borrow it (perhaps you put it in the bank) to get interest to cover inflation.

Another advantage is that it makes wage-adjustments easier. It's hell of a big problem to set someones salary DOWN, all hell typically breaks loose. A lot easier if *everyones* salaries fall by 2-3% a year. For psychological reasons, people find it a lot easier to accept: "I did NOT get a raise this time" rather than: "this year, my salary was *cut*"

Re:In other words

[Anonymous Coward]

True, but it should. Inflation is a tax on wealth, as it should be. Inflation ensures the wealthy have to at produce something of economic value to maintain their status. But, now we're talking social justice, so I should concede you're right, nothing innately defines currency as something which depreciates.

Re:In other words

[nedlohs]

How does that make it a bad thing?

How did the tech industry survive with falling prices all these years?

Re:In other words

[jwdb]

It hurts people who hoard dollars. Anyone who spends them quickly gets almost full value, and having a short turnaround time for cash helps the economy.

I think you could view it as a progressive tax on capital...

Re:In other words

[Teancum]

The housing crisis was an example of what deflation is like. Housing values collapsed, making many mortgages worthless, which destroyed a vast amount of money. Banks became unwilling to lend money because it was much more valuable to them invested in securities than it was as a loan. I haven't quite understood explanations of why consumer prices weren't affected. Probably because most people already spend most of their money on necessities.

The reason why consumer prices (aka food, petroleum, etc.) weren't impacted with the "deflation" is because their prices were not impacted by the over inflation of the housing market except indirectly. Besides, the "remedies" used to fix the housing price collapse was to essentially inflate the dollar on a massive scale, and yes I'm talking about TARP as well as other "interventions".

Demand for consumer goods, especially food, has remained the same but the amount of money floating around has gone up. Simple economics suggest that would cause prices to rise, not fall. On the other hand, it is now much, much harder to get a home loan for a house than it was in the past and the people who might have qualified under the new rules are now unemployed and can't afford these homes or certainly have a reduced income. On top of rising food prices and rising prices for other consumer goods, they have even less money available for housing, thus the market for housing keeps dropping.

On top of all of this is the value of the dollar relative to other currencies. Keep in mind that one of the things which drove up housing prices in at least some parts of America was speculators and folks who had dollars from trade imbalances (more money going to other countries than coming to America), so those dollars had to go somewhere. Real estate has been a common investment area for people to spend money, as it is legal for non-nationals to own American real estate. This includes houses... even if it is just luxury houses. With the dollar so viciously devalued, this additional pressure on housing prices is no longer there, and then the real estate price collapse is feeding on itself as many of these "investors" are getting out of the American real estate market. Those that sold at the beginning of the collapse are probably glad they did now as well.

For those that claim that the past two years were deflationary, it was including housing prices and not ordinary consumer goods. It really isn't complicated, but efforts to prop up housing prices now are only making things worse. Rather than one big ouch and letting the prices for housing get to a realistic level, it is taking much longer to reach an equilibrium point... and hurting more people in the process.

Re:In other words

[Teancum]

I still fail to see what harm comes from hoarding money. That keeps getting repeated over and over again as if it is something evil but doesn't make sense to me at all.

Liquidity of the medium of exchange was a problem in the 18th and 19th Centuries simply because a silver dollar represented so much wealth (about a whole day's wage working about 12-14 hours) that it became very difficult to sub-divide its value. Motion Pictures cost a nickle (hence the Nickelodeon) and in some cases the scarcity of the currency in some remote areas was so extreme that trade essentially stalled out completely. Due to this lack of liquidity, some people postulated that the root cause of the liquidity issue was people hoarding the money.

I don't think that was the case. The problem really was that the metal involved was too valuable even as money, as "mere mortals" couldn't make change. It would be like trying to buy a Big Mac with a $5,000 bill, where the cashier receiving the money would just stare at you with a blank look or try to get help from the manager in terms of giving you change.... and wiping out all of the money in the till in the process. Can you imagine if that $5k note was the smallest bill in the drawer, but the burger still cost only $2-$3?

All hoarding does is suck money out of circulation, which drives up the value of the remaining money in circulation. As long as there isn't somebody counterfeiting the money or double spending the money (paying two people with the same coin... essentially a variation of counterfeiting), eventually the hoarder is going to spend the money or it will stay permanently out of circulation. Either way, it doesn't impact the value of the money, and only a fool will deliberately drive down prices if they have a large cache of money. Even then, doing so mostly hurts the person driving the value of the money down instead of the rest of the users of that money.

As for the psychological issues, I think that is mainly from people who are so stuck on living in an economic system that encourages inflation that alternatives aren't ever considered. While it has been the exception rather than the rule in America for sustained inflation to be happening, it has been over the past 70-80 years when that has been the case. There are very few people alive today that remember an era when inflation and deflation were usually fairly well balanced. That certainly was the case for most of the 19th Century, where the value of a dollar compared to the price of most things stayed roughly the same for nearly the entire century. That wasn't central planning, but rather the lack of it after a fashion.

Re:In other words

[Mal-2]

BitCoins accumulate a LOT faster if you use the GPU rather than the CPU. However, your point about them breaking even with the electricity is accurate enough, as this was the intent. For those who leave the machine on all the time anyhow, it's a way to offset the cost of power.

Re:In other words

[metacell]

The US$ has historically been strong, but if the Federal debts keep growing, there may come a point when the US government is no longer deemed credit worthy by the banks, and that could make the US$ plummet.

Re:In other words

[metacell]

Hm? The exchange rates matter very much if you want to buy something manufactured abroad. With crappy exchange rates, the cheap stuff you buy from China will become much more expensive, which will spell trouble for the poor segment of the population.

With very high inflation, people rush to buy things before their money becomes worthless, making it hard to keep a monetary buffer for daily and extraordinary expenses. Money invested in stocks and bonds are not good as a buffer, because it takes time to convert into currency, and may force the owner to sell when the market is low. For very rich people this may not be a problem, since the amount of money they need to keep for daily expenses is negligible compared to their total income, but for the family which uses most of their income on food, clothes and living, not being able to keep a buffer may be fatal.

People who near their retirement also need to convert some of their savings into currency well ahead of time, so they're not forced to sell their stocks and bonds when the market is low. (Japan, for example, didn't have a pension system last time I checked, which forced people to have large savings in ordinary bank accounts.)

Re:In other words

[metacell]

Don't feed the troll.

The differences between the US and Zimbabwe are that the US is the world's #1 economy, the US is a center of innovation, the US preserves inalienable rights. Because of the faith and credit of the US, we can basically print as much money as we like.

Re:In other words

[metacell]

"... ever since Asimov's Foundation trilogy."

Re:In other words

[metacell]

How would that work? The payer in a BitCoin transaction needs to add the seller's public key and sign with their own private key. How would it work when the person who prints the note doesn't know who will convert it back into electronic form?

Re:In other words

[metacell]

What gave you the idea BitCoin was for hoarding? It derives it value from the economy of the people who are willing to exchange goods for it, just like the currencies of China, USA or the European Union.

Re:In other words

[h4rm0ny]

because all major currencies are fiat currencies, money essentially *is* credit. its all pretend.

You don't understand your terms. US Dollar, UK pound, Euro, et al. These systems are essentially credit. The central bank in each case creates money (by fiat) and loans it out to other banks, who then loan it out to businesses, people like you, etc, and thus it enters the economy. At no point is the money ever anything other than a loan (i.e. you are living on "credit", though I would normally use more precise terms). BitCoin has no central lending authority. Essentially you generate your own money and thus it is not a "credit" based monetary system.

In fact, you are also incorrect to call BitCoin a "fiat" monetary system. BitCoins are linked to hashes which are essentially "discovered". Once found and registered, that hash is unusable by others. This makes BitCoin far closer to a commodity currency (i.e. one based on gold which is finite and has to be mined) than currencies like the US dollar. No one in the BitCoin system can wave their hand and say "let it be so" (fiat) and suddenly there are more BitCoins around than before.

Re:In other words

[metacell]

I can give "100x Frank IOU Note" or some service. Then you can use that to get another service from someone else, or from me. Eventually though, that IOU note *must* be used to purchase something from the originator. Only I, the originator, can take Frank IOU notes out from circulation.

That's how ALL world currencies work. USD is ultimately only "meaningful" in the US. The Euro, in the European Union. The Canadian Dollar is only worth anything in Canada. These are the IOU notes that people tend to accept.

Agree.

Money supply is regulated by central banks, so money amount in the economy matches the economic value. Taxes are used to remove currency. Government spending is used to inject the said currency back into circulation. That's the crux of how the currency works.

No, the amount of currency in circulation has no direct relation to the value of a country's economy. The value of a country's economy is defined by how much goods and services are produced, and measured by adding up the total value of all goods and services sold during a period of time. You can have a small amount of currency which changes hands multiple times in a year (signifying many sales and a large economy), and you can have huge monetary reserves which people just sit on, because there's nothing useful to buy (signifying few sales and a small economy).

Money is produced (mainly) by issuing loans. The same currency (bills and coins) can circulate through the banks multiple times to generate loans much larger than the total value of the currency.

If the state ordered every person and organisation in the country to destroy half of their bills and coins, it wouldn't mean all prices would be halved. People's salaries would still be the same, their loans would stay the same size, and so on, so there would be very little incentive to start selling goods for half the price. Currency (bills and coins) are only a method of circulation, not a measure of the amount of money in society.

Re:In other words

[PseudonymousBraveguy]

The inflation in the Weimar Republic was stopped November 1923 with the introduction of the Rentenmark and followed by a period called "Golden Twenties", with a pretty stable currency and economy. I sincerely doubt that the mentioned inflation was a major cause for WWII. It may have played a role, but there were much more important factors.

Re:In other words

[h4rm0ny]

I still fail to see what harm comes from hoarding money. That keeps getting repeated over and over again as if it is something evil but doesn't make sense to me at all.

I'll play Devil's Advocate on this one. It has to do with the relationship between money and wealth. The connection between the two must be there or money becomes meaningless. Now a society that hordes money is not directing its resources into building wealth. It is not improving houses, funding new technology through purchases, investing in better education or whatever else is felt like a worthwhile use of money. Spending money translates to how you direct the resources of society. Spend it all on movies and computer games, you get a society focused on creating movies and computer games. Spend it all on going to fine restaurants, society produces lots of fine restaurants. Spend it all in McDonalds, you get lots of McDonalds. In all these cases, real wealth and real human labour, is going into producing these things. Money is a means by which we direct our efforts as a society. Now if money is being hoarded, then it is akin to not doing much but resting up on the sofa instead. Now profligate spending is often perceived negatively because it is associated with both wasting money (got to have a bigger TV) and spending more than you actually have (put it on the credit card). But these aren't intrinsically tied to spending money, they're just associated in some people's minds. Now consider the case of a society hoarding money. This is associated in people's minds with prudence, and that can be so. It's good to have a little money put aside for when you need it or to save toward something rather than buy it with a loan. But that doesn't mean that there aren't negative consequences too. If no money is being spent, no wealth is being directed to the improvement of society. Essentially, we're reaping benefits but not re-investing that money.

A society must be active and constructive to be healthy. A society that predominantly hoards money is not active or healthy. Now if you're talking about investing money, that's something different, though related.

Re:In other words

[h4rm0ny]

Bad analogy. It's not about counterfeiting them. A BitCoin is an actual hash value. The computing power goes into discovering them. In that sense, it's more like mining gold.

Re:In other words

[h4rm0ny]

So what is better than gold? Anything that allows substantial increase in the money supply is fundamentally broken.

Using multiple commodities to back the currency. Sure, someone might discover a new use for gold and send the prices up, but what if it's backed by an index of gold, platinum, copper and helium? The maths is simple. Instead of a "gold" standard, have a composite standard. That ameliorates one of the biggest criticisms of the gold standard.

Re:In other words

[OeLeWaPpErKe]

While (some) hedge funds massively profited from the crash, they were not the cause of it.

Technically hedge funds raise the chance of failure of a system by a factor. That means 2 things :
(1) a hedge fund, or any number of them, will NEVER be the cause of a crash. They can only accelerate the crashing of systems that were going to crash anyway (so they're a good thing, if you're interested in stability and honesty)
(2) there were (and probably are) fundamental issues with our current financial system. It is not stable. Lots of things have been blamed, but there is general agreement that the transfer of financial risk to the government is the root of the problem. So the real solution is to forbid the government underscribing loans in any way, direct or (especially) indirect. Of course that means no more "loan guarantees for the poor" like the CRA. It's not just the big corporations that would get hit by this. Either give the poor money directly, or open a fixed fund, or whatever. But no underscribing loans on guessed delinquency rates by the lender of last resort.

This of course means that the government's intervention on behalf of the poor (or the rich) would become fundamentally limited to a percentage of current taxes, instead of future taxes as it is now, which would translate to a very sharp decline from current levels.

Of course the alternative is that the system will crash again "soon".

Looking at government finances, I would even say that stabilizing the system would mean eliminating some social services (even dropping military spending, even if it is quite large, will not provide more than a short delay). Not small "optimizations" (gotta love Obama-talk, right ?), but huge across-the-board drops in services. Of course, that drop in services *IS* coming, nothing can stop it. What we're doing now is putting ever more money on the table, in trade for an ever smaller delay to the next crash.

So which do you prefer ? Clearly you prefer just blaming some unrelated "rich" guys (not all of whom, of course, are actually rich), hurting them a little bit and diving headfirst into the next crash. Given our current politicians, you're probably going to get your wish.

Re:In other words

[Vekseid]

Because there is no incentive for normal people to spend it.

And the tech industry thrived because the value appreciation of what could be done with technology grew faster than the rate at which the cost of said pieces of technology lost value. That has little to do with the discussion, however - that is simply a reflection of the mass of technology investment.

Re:In other words

[metacell]

OK, the idea of a currency with only a fixed amount of possible money circulating does sound a little crazy. And it could lead to deflation -- this does happen when money supplies contract. I'd agree with that. But the Bitcoin -- again, like anything traded -- is also only as valuable as its demand vs supply. If no one wants it, it's value will decrease.

The money supply is not limited just because the currency supply is. If, hypothetically, BitCoins would get hugely popular, there would be banks with BitCoin savings accounts which loaned out BitCoin money. Every time someone took a BitCoin loan, they would use it to purchase goods and services, and the seller would deposit their BitCoins back into a bank account, so they could earn interest and the bank could loan them out a second time. If the banks were allowed to loan out all of the BitCoins people deposited with them, the money supply would theoretically be infinite (but in practice limited by the speed of BitCoin transactions).

That being said, the main advantage I see with BitCoins is how they ease electronic transactions - they're not necessarily fit to replace regular government-backed currencies. Much like checks - they make certain payments easier, but they're not intended to replace regular money.

Re:In other words

[metacell]

It not only prevents people from *consuming*, it also prevents people from *investing*. Investing is building houses for your children to live in. Investing is digging wells so you can get water. Investing is laying down cables so remote areas can get Internet. Surely your great-grandfather from the Great Depression can agree that we need to invest?

Re:In other words

[metacell]

Hoarding money is bad for a different reason. The economy needs capital - for example, if someone wants to start a restaurant, they not only need a good idea and their own two hands, they also need money to pay the rent, build the kitchen, buy furniture, etc. For that, the banks need money to lend out, and for that, people need to have deposited money into the bank.

If people just hoard bills in their mattresses, the banks will have less money to lend out, and businesses will have less capital to work with.

Of course, if people choose to hoard money, they probably have a good reason for it - for example, that they don't trust the banks. If so, it's the banks which need to improve their trustwrothiness, not common people who need to stop hoarding.

Re:In other words

[metacell]

The point is also that they should be hard to manufacture legitimately, so no single person ends up with an excessive amount of BitCoins.

Re:In other words

[horza]

How does that make it a bad thing?

I presume he means deflation is a bad thing in terms of currency as if it becomes an investment then people will hoard money rather than spend it, taking it out of circulation and causing a liquidity crisis.

How did the tech industry survive with falling prices all these years?

This is not related to deflation. The answer is (a) large amounts invested in R&D to create both new products to obsolete older models, and to lower costs of production, and (b) growing the market for tech products either through creating new markets or the cost of production making products accessible to a larger segment of the market.

Phillip.

Re:In other words

[metacell]

Even in the 1700s and 1800s inflation and deflation often hit 20% or more, which killed a lot of economic growth. Yes, that's inflation and deflation of a currency consisting primarily of gold coins. And the government wasn't capable of stopping it. You won't hear that from anyone claiming all of our economic woes are because we went off the gold standard. Inflation has generally been lower and more stable than it was on the gold standard, and deflation has been rare.

That's very interesting. Do you have a reference?

Not that I don't believe you, I'd just like to be able to show my friends.

Re:In other words

[petermgreen]

Your statement is not entirely true, it should be corrected to

In theory, any country with it's own fiat currency and debts largely denominated in it's own currency could erase it's debts overnight.

The euro is a fiat currency but it's at the fiat of the EU not the fiat of the individual countries so individual countries can't print their way out of debt.

Iceland had it's own country but it's failing banks owed huge amounts of foreign currency to investors. IIRC in the end Iceland decided that refusing to honour it's banking gaurantees was better than a full scale default but it still did huge damage to the country economically.

Still afaict the US has so far been smart enough to retain the ability to print itself out of debt. IF the US starts to take out loans denominated in other currencies that is when you should REALLY worry.

Re:In other words

[Anonymous Coward]

Of course it doesn't have to, but currency that does not devalue over time is very bad. If you're actually in a deflation (and let's face it, a perfect equilibrium is impossible to achieve in practice: it's going to be either deflation or inflation) and a dollar will be worth MORE tomorrow than it is today, then there is no reason to spend that dollar. Quite the opposite; just sitting on your money doing nothing with it will make you richer.

Unfortunately, when people start doing that, it'll also decrease the amount of dollars in circulation. So dollars' relative scarcity compared to goods and services will increase... and dollars will get even more valuable as a result. Voilà, runaway deflation, and if you're unlucky, you'll end up with a situation where everyone just hoards money and pretty much nothing is getting done anymore because nobody can pay for it.

You don't want that, just like you don't want runaway inflation.

Re:In other words

[Skal Tura]

This is backed up by the limited amount available, and people using it.
The BTC is splittable into as many smaller pieces as you want, so the decimal point can be transferred millions of times to the right.

The only thing which it means if BTC becomes really popular: Owning even a single BTC right now, might make it valued at 200$ one day, or 0.00000001$

Infact, in many ways BTC is what a currency should be: Valuable only because people use it, and no more can be introduced, thus inflation does not really exist.

I acquired 330BTC like 6months back, in exchange for 10€. Now it's valued at 330$? Wow.

Re:In other words

[metacell]

Absolutely. This is the one thing that "goldies" never seem to get right. Money is all about you owing me and vice versa. Moreover, all money in existence is ultimately a debt of the government, which is why the current political obsession with austerity is so ridiculous. Government debt is simply the mirror image of private wealth.

It's true that paper money can be seen as a form of government debt, but the amount of money in an economy is much, much higher than the amount of currency. The amount of money is determined by the banks' ability and willingness to lend out money - the same coins and bills can be shovelled back and forth between the bank and the loaners/savers multiple times, creating debts and savings far larger than the nominal values of the coins/bills. Wealth, in turn, is not directly related to the amount of money - wealth is determined by the amount of physical goods and services produced in an economy. Money is merely a means to circulate these goods and services.

Re:In other words

[Skal Tura]

Indeed. Things have changed.

People often use as a comparison food, ie. how much a liter of milk cost back when, or a regular day's food.

Re:In other words

[metacell]

I've heard it argued that in theory it would be possible to completely eliminate all taxes on the theory that the government merely could "issue" currency.... with the inflation being a more direct form of taxation and having a similar impact on the economic stability of the country.

There're are two other reasons that's a very bad idea.

First, it would tax wealth, not income. Anyone who saved money would be taxed multiple times, while those who spent their money quickly would hardly be taxed at all.

Second, it would only tax currency - bills, coins and money in the bank - not real assets. Most wealth is in the form of real estate, stocks, inventories, and so on. Bill Gates doesn't have a savings account that says $600 billion - he has most of his wealth tied up in Microsoft stock. In fact, it's the poor people, who don't own their own homes, who tend to have the largest percentage of their wealth in money (because they need the money for their monthly expenses), and who would be hit the hardest.

Re:In other words

[petermgreen]

Afaict an issuer could generate a new public/private key pair for each card and print the private key under a scratch-off panel on the card. Then they would add the cards public key to the coin and sign with their private key. To convert back to electronic form you would scratch off the card, add your own public key to the coin and sign with the private key on the card.

Of course those accepting the cards would have to trust both that 1: the issuer was trustworthy and 2: there was no way to read the key off the card without leaving evidence they had done so.

Another possibility would be to have smartcards which had a private key inside that could not be read out by the user. Anyone with access to the card could transfer bitcoin on and off it and the card could keep track of what bitcoin it owned so it's value could be assessed in a non-networked scenario. Again it would be nessacery to trust that the card vendor wasn't going to keep the keys and run off with the money and that the cards were actually secure against extraction of the private key or manipulating the list of bitcoins they belive they own..

Re:In other words

[benjamindees]

Well, ideally, currency represents energy. It is a way of storing energy for future use in order to convert into future goods and services. This has taken several forms throughout history, from food and other commodities to slaves, pharmaceuticals, precious metals, fossil fuels, scarce objects and, now, prime factors. Each of these functions as currency because it has some relation to future energy, some more direct than others. Ideally, again, energy should become cheaper over time, given technological advances, resource conservation, and rising efficiency and productivity. So currency should naturally devalue over time.

The problem of course is that unless your currency supply is relatively limited, it will not be used, there will be no incentive for technological advancement, resources will not be conserved, productivity and efficiency will not rise and thus the currency will not naturally devalue. The US, and the Federal Reserve, attempt to circumvent this little problem by basically just ignoring it, instead engaging in artificial inflation (money printing), warfare, taxation, confiscation and a bunch of hand-waving political claptrap. This tends to distort and destroy the real economy in the process.

Re:In other words

[metacell]

The purpose of money is to store value. Good money does not lose its value over time. It's fiat currencies not backed by anything that constantly drop in value, because more and more is issued, diluting the value of all that is in circulation, thus discouraging saving money.

No, the purpose of money is to act as a means of circulation - i.e, a means to trade goods and services in an economy. Short-term stability (lack of fluctuations) is a more important feature in a currency than long-time resistance to inflation.

Saving money, as in piling it under your mattress, doesn't make sense, since money doesn't have value in itself. If you want to hoard, hoard cars or works of art or real estate or whatever has value to you. Or even better, lend out your money to someone so they can use it to produce new goods and services. Saving money in the bank is just an indirect way to lend them out to people who need the capital better, in exchange for interest.

Re:In other words

[benjamindees]

The deflation of BTC as it appreciates does seem to be a significant problem. It will really encourage people to hang on to the currency instead of spend it. Why would I buy a pound of coffee this week for 3BTC if I could buy one next week for 2BTC. I've not seen anyone address this.

I fail to see why this is a problem. It will encourage people to save and to defer gratification instead of to mindlessly consume? It will lessen the amount of work done by coffee bean pickers? I mean, it's not a legally-mandated standard currency, or the only currency in the world. If people irrationally horde bitcoins instead of buying goods and services, their value will go down.

Re:In other words

[metacell]

Even if you don't feel like spending it? What if I just wanna save my money and make my descendents very wealthy playboys?

Your statement that 'currency is an IOU that devalues over time' that isn't remotely funny, let alone accurate. Do you think in the real world every person has the ability to invest their money wisely in the stock market?

Saving money (as in stacking bills or gold coins in your safe) still wouldn't make sense, since your descendants would be much better off if you invested the money for them, if only by putting them into a savings account.

While everyone doesn't have the option to make investments on the stock market, everyone can open a savings account and at least get a small increase in value from it, so it still beats hoarding the currency.

Re:In other words

[AP31R0N]

Question marks mark questions.

This is a question:
"Will the US Dollar soon be worthless?"

Re:In other words

[metacell]

Appreciating resources are not actually used as currency. They're investments.

Why not both?

Gold has been used as a currency, and during historical periods when it increased in value, it was still used as a currency - although it was much less useful for the economy as a whole, since people tended to hoard it.

Re:In other words

[Semyazza]

Personally I think it time to replace the dollar and take control of monetary policy away from the FED returning it to Congress as the constitution dictates.

The Constitution also states that only Congress has the power to coin money, but that doesn't mean that members of Congress were expected to spend time at the mint themselves. That's where the Necessary and Proper Clause comes into play. The Supreme Court ruled in McCulloch v. Maryland that the Congress can create a central bank to help handle fiduciary policy.

The problem is that this "FED" that you talk about. The one that was created as the central bank, is not run by the American government or the people. The Federal Reserve is a private bank that loans money to the U.S. government and other banks.

Re:In other words

[metacell]

Problem is, the wealthy don't have big bags of money in their homes or bank accounts with dozens of zeroes in them. Their wealth is tied up in stocks, real estate, inventories, and other real assets, and won't be much affected by inflation, at least not directly.

The people most hurt by inflation will be those who work hard and save money to buy something, like a house. Their savings will be devalued as they accumulate.

Re:In other words

[nedlohs]

If I wait 6 months the laptop I bought today will be cheaper, yet people buy them.

If I knew food was going to be cheaper next month, I still have to eat this month.

Sure high amounts of deflation just like high amounts of inflation are bad since they cause people to work at exploiting/avoiding that instead of something actually productive.

But low amounts? If I prices are declining by 2% a year I doubt I'm waiting to buy most things - I either need them now or I derive enjoyment for them now. Businesses see their input costs fall so they are still making a profit by buying inputs now and selling stuff now rather than waiting until next year. Investors are seeing gains by hoarding and not actually investing - but they should see higher gains investing - and if hoarding really does becomes a great way to invest then economic production will start to fall and hence prices start to rise again. A pretty standard business cycle of growth followed by decline followed by growth and on and on.

If that incentive to not hoard is the only thing then that's easily substituted by a wealth tax that taxes hoarded currency at a higher rate than it taxes non-currency wealth.

I do agree that such a fixed currency supply is not going to be as good as one that grows with the economy - which in theory is what backed currencies do, since more economic production also means more digging up of gold or collection of sea shells or whatever the currency is. At some point economic growth will see transactions becoming impossible because the lowest unit is too big after all. Whether it would work better than a currency with no supply restrictions I'm not sure about.

Re:In other words

[metacell]

Only true in a sense. BitCoins are currently scarce due to limitations in computing power, but there's another scarcity built into the system - once 21 million BitCoins have been generated, no more can ever be made. That scarcity is due to the definition chosen for what BitCoins are, and I'd say that's more or less to scarcity by decree, i.e fiat.

Re:In other words

[metacell]

That should be "... more or less equivalent to scarcity by decree, i.e fiat."

Re:In other words

[OeLeWaPpErKe]

It also means that the US will be thoroughly fucked, not at the point it defaults on it's loans, but at the point intrest rates raise slightly. Not that I know any country that does better, not the Europeans, not the far-East, nor the middle-east "allah told us not to ask or pay intrest", and especially not Africa.

What happens is simple :
The US borrows $100, with no intention of ever paying it back. So the US continually reborrows money to cover the capital. Do this for a while, and eventually you've borrowed so much that the tax income just barely covers the intrest on the capital. Say the intrest rate is 2%. Then the US borrows so much that the taxes just barely cover the 2% yearly intrest payments.

Then intrest rate goes to 2.5%. Result : taxes must raise 25%.
Suppose intrest rate doubles : Result 100% raise in taxes.

You see the problem ? Of course, fixing the root problem would mean dropping all social services, military, ... for more than a year (as US government debt is way larger than the tax income of 7 years (and that's ignoring that 10% of that income is necessary just for income payments, prolonging the payback time to 10 years). Even if Ebenezer Scrooge would become president, and fire every last government worker or program, it would take over 10 years of having ZERO government programs to pay back the debt, just to break even.

And the very sad news : given the behavior of the US, you might think this is atypically bad for states. No such luck. Even the people with cash mountains (e.g. Saudi Arabia) are worse offenders (and additionally many third-world countries blatantly lie about their obligations. Please don't quote official figures "disputing" this). There are very few states with healthy financial situations.

So the smart money is on states defaulting on loans, and big money is going to be made in which states will default first, and which won't. Suppose you think the US will default on it's loans, and China won't default. Then it's a very, very good investment to loan US dollars to buy Chinese Yuan.

Re:In other words

[slim]

And there is no concept of a BitCoin representing some amount of energy - you can't get the energy back. It's simply a mechanism to restrict the supply without requiring a centralized issuer.

Yes. It seems like that aspect has two purposes:
1. To spread initial ownership of the wealth: anyone with a computer can start generating bitcoins
2. To introduce the coins over time, rather than have them all appear in a big bang. It seems that the maths is designed so that the production of Bitcoins slows exponentially over time.

However the FAQ does say that we would expect various economic factors to conspire such that the cost of generating Bitcoins approaches the value of the Bitcoins produced -- so that trading becomes a more profitable exercise than generating Bitcoins. Does that mean that the whole system plays into the hands of the energy companies?

Re:In other words

[lgw]

Those mortgage instuments weren't hedges. You may be thinking of credit default swaps, and those worked only thanks to massive government bailouts - but those weren't exchange traded and regulated. Normal exchange-traded derivitives are heavily regulated to protect you from "counterparty risk" - if you;re using them for speculation rather than hedging, you basically can't risk more than your broker can sieze from you to make good on your promises.

Re:In other words

[lgw]

With crappy exchange rates, the cheap stuff you buy from China will become much more expensive, which will spell trouble for the poor segment of the population.

Except that it then become practical to manufacture locally, bringing local jobs. That does screw China's poor, though.

With very high inflation, people rush to buy things before their money becomes worthless

Yes, I believe I said that. "only matters if it starts making day-to-day commerce inconvenient".

People who near their retirement also need to convert some of their savings into currency well ahead of time, so they're not forced to sell their stocks and bonds when the market is low

Today we have inflation-protected bonds, which pay very low (or sometimes even slightly negative) interest but are ideal for just such a problem. Until recently, short-term muni bonds have worked just fine as well, but with the pending collapse of several states those have become high risk investments for the first time in modern history (sad, really).

Re:In other words

[smelch]

Clearly this is the correct answer. You've done the impossible by using the Jersey Shore for the advancement of knowledge.

Re:In other words

[lgw]

Small businesses need the ability to borrow money more than large corporations (as large corporations can sell stock). Without an infationary economy, there's a lot less incentive to loan money to businesses, which means the death of job creation. We just went through a very mild period of that, resulting in the highest unemployment in quite some time. Your notion of a small business hoarding cash is completely at odds with reality - almost every small business is teetering on the edge of not being able to make payroll every month, and the typical cusion is borrowed money.

Also, no investment in a small business is ever conservative. No investment in a new technology is ever conservative. No investment in a company that sees a better way of doing things is ever conservative. The old proven firms doing things the old proven ways are the conservative investments. All progress comes from risk taking, because 90% of great ideas are wrong.

Re:In other words

[OeLeWaPpErKe]

1. Loan money from A
2. Kill A, destroy the loan
3. profit ...

Historically, many, many states have done this. None have survived it. Read up a bit on history and see what happens.

Re:In other words

[JimFive]

create an alternative currency that cannot be manipulated or controlled by centralized authorities.

Until someone decides to corner the market to run up the price and then dump them for a huge profit.
--
JimFive

Re:In other words

[Neoncow]

Well, while the person is cornering the market people could notice and join in to profit. I guess if the whole currency can be bought up like that then the currency must have already failed. If people value the currency higher, then it could be very expensive to corner the market.

Someone could probably afford to buy up the whole market right now, but since only a fraction of the total bitcoins have been discovered/generated, they won't have the market for long as people make more of them and the cost goes up.

Re:In other words

[metacell]

With very high inflation, people rush to buy things before their money becomes worthless

Yes, I believe I said that. "only matters if it starts making day-to-day commerce inconvenient".

It's not just a matter of convenience, it can also lead to investments not being made because they require saving up money (for example, if someone needs to buy a car for their business, or buy their apartment so they can live cheaper in the long run).

Re:In other words

[JesseMcDonald]

That is just another property of the system, no different from the requirement that the hash of a bitcoin meet certain conditions to be considered valid. It is no more "by fiat" than the fact that a commodity-gold currency must be made of actual gold, not brass or wood.

It would be "scarcity by decree" if you could make more bitcoins which would be perfectly acceptable to others, indistinguishable from any other bitcoins, but someone used force (or threats thereof) to enforce an artificial limit on the supply. The BTC limit doesn't work that way, however—the definition is such that there can only be 21 million valid bitcoins. You cannot exceed that limit and still call the result a "bitcoin"; it would be no different than trying to pass off a "bitcoin" with an invalid hash, or any other invalid property.

Re:In other words

[lgw]

If your currency isn't actually collapsing, then there are plenty of near-cash investments (e.g. CDs or money market funds) that will keep up with inflation. But most people borrow money for cars and houses, and debt makes inflation your friend. Now, admittedly, we've gone far overboard with consumer borrowing recently, and need less of that, but borrowing is fundamental to small businesses.

Re:In other words

[metacell]

Yes, but nobody has decreed the properties for a gold bar, or that only certain types of bars can be used for payment - people just spontaneously find bars made of gold more valuable than bars made of, for example, lead. But someone has decreed that a valid BitCoin needs to have certain properties and that only those should be accepted as payment.

I guess it depends on how you see it, though.

Re:In other words

[Monkeedude1212]

Yes, but given how language has adapted beyond that syntax, posing the question as I did gives it a more "I'm leading you on" feel to it. There is no real question in my format, I seem so certain that the US Dollar will soon be worthless that I state it as such, but the question mark is there to imply that this query is expecting a response, even though I leave no room for an anwer. There is no Yes or No, it's not a yes or no question, however, one might still disagree with the statement, and the question mark is an open invitation for them to post their response.

Welcome to trolling 101. Hence, the *ducks*.

Re:In other words

[Martin Blank]

The Federal Reserve is a quasi-governmental organization -- much like the post office -- that functions as a central bank. Its directors are nominated by the president and confirmed by the Senate, is subject to government oversight, and operates at the pleasure of the Congress, giving it a public aspect. Its decisions are not directly subject to approval by the three branches, giving it a private aspect. A central bank's primary role is controlling the money supply and handling interest rates, and the Fed does this. Central banks do loan money to other banks to help them maintain liquidity, as preserving the stability of the banking system is another of a central bank's core roles. Whether other central banks may loan money to their own governments, I'm not sure, but that doesn't seem to me to be too far a reach when a government allows its own public agencies to borrow from others.

You may disagree, but there have been numerous cases filed about the Fed over the decades since it was created, and the Supreme Court has never found it to violate the Constitution. Perhaps you have a different argument than those that came before that you would like to explain.

Re:In other words

[Anonymous Coward]

I thought what backed fiat currency was the willingness of others to accept it as a store of value.

The fact that I can presently buy web hosting (or USD!) for btc throws all this "it doesn't work" hooey to the wind, thank you very much.

Re:In other words

[JesseMcDonald]

...nobody has decreed the properties for a gold bar, or that only certain types of bars can be used for payment...

Aside, of course, from the essential property that the bar be made of real gold, and not other materials that lack some or all of the properties of gold.

... people just spontaneously find bars made of gold more valuable than bars made of, for example, lead.

Just as people spontaneously find valid bitcoins more valuable than pseudo-bitcoins which lack some or all of the properties of actual bitcoins.

But someone has decreed that a valid BitCoin needs to have certain properties and that only those should be accepted as payment.

It is a stretch to call that a "decree"; it's not like the BitCoin developers have any dictatorial powers. The client program is open source, and the protocol decentralized, so you can modify it to accept or reject "bitcoins" with different properties if you wish. The only constraint is that you need others to accept your altered "bitcoins" if they are to be useful, and there is currently no real value in changing the rules.

Re:In other words

[wkcole]

Actually, there are really only two requirements for a national currency:

- The government accepts is in payment of taxes. - The military accepts it as wages

Everything else is fluff.

More important then whether the military accepts it as wages are that:

• Farmers accept it as payment for food
• Police accept it as wages
• Lenders accept it as payment for debts

Ultimately, if it buys food then everything else should follow. Lose the acceptance of money for food, and you lose the ability to have anything like a city or a technological culture.

Re:In other words

[randyleepublic]

More lies to justify the ongoing rape of the populace.  Read C. H. Douglas if you want to know how a fiat currency monetary system is *really* supposed to work.

Re:In other words

[arose]

Even that wouldn't tell us anything. I'm pretty sure we spend less percentage wise on food than the average person did in 1917, opportunity cost might actually be able to tell us something, finding out that we pay "more" in absolute dollars could only tell us that saving absolute dollars from 1917 to 2011 would have been a bad idea.

Re:In other words

[Anonymous Coward]

Ok I see. The hard to find aspect is less like a really hard to counterfeit bill than a hard to find resource. Also they know how much is eventually going to be found, unlike gold where they could potentially find a bunch of it on an asteroid or something. Really I'm thrilled, on Slashdot it's usually like speaking into the void, I don't get any responses.

Re:In other words

[Anonymous Coward]

Yeah, but you can buy bitcoins for dollars, some billionaire could corner the market in bitcoins. I don't know how many alpaca socks the average billionaire wants, though.

Re:In other words

[rtb61]

Satire is missed on you isn't it.

More accurately
1. Pay off politicians to borrow unnecessary money to buy unnecessary stuff
2. Eventual change of government
3. Investigation and prosecution
4. Go to jail
5. Proceeds of crime confiscated.
6. Debt disappears.

All it requires is the inevitable, eventual change of government as the system collapses through greed.Of course proceeds of crime confiscated is often disrupted by other countries hiding the wealth of corruption and refusing to return it, oh yeah, that's normally the US and UK, so in this case no problem.

Re:In other words

[h4rm0ny]

Ok I see. The hard to find aspect is less like a really hard to counterfeit bill than a hard to find resource. Also they know how much is eventually going to be found, unlike gold where they could potentially find a bunch of it on an asteroid or something. Really I'm thrilled, on Slashdot it's usually like speaking into the void, I don't get any responses.

Isn't it, just. ;)

In a sense, it's not really possible to counterfeit a BitCoin - a hash value is a hash value and if it's valid, then it's a real BitCoin, unlike a bank note where you can print illegitimate ones (even if you made them identical down to the paper and inks, it's still not a "real" one because it wasn't created by a legitimate authority). However, you can in theory sort of fake ownership of that BitCoin. To do that, you'd have to somehow fool other servers into thinking that the hash value was yours so that another party would accept it when you tried to pay them with it. It's a big reversal of something like bank notes where someone says "here is a note, it's in my hand so I can give it to you". With BitCoin, you're saying: "this hash value we both know, I am entitled to say that it is yours now". I think there are privacy implications in that as the process of payment is now a matter of announcing to the world that X number of your BitCoins now belong to party Y. Also, I haven't really looked into the matter of how hard it would be to fake ownership. I believe it has parallels to the TOR network in that regard, where if you controlled / hacked enough nodes, you could subvert it.

It would be fascinating to watch the economic play out of BitCoin if it became established, but government meddling in the financial system is the elephant in the room.

Re:In other words

[metacell]

If a billionaire did that, people wouldn't be able to trade in BitCoins, the stores which accept BitCoins as payment would stop doing that, and the currency would become worthless.

Re:In other words

[nhaehnle]

Absolutely. This is the one thing that "goldies" never seem to get right. Money is all about you owing me and vice versa. Moreover, all money in existence is ultimately a debt of the government, which is why the current political obsession with austerity is so ridiculous. Government debt is simply the mirror image of private wealth.

It's true that paper money can be seen as a form of government debt, but the amount of money in an economy is much, much higher than the amount of currency. The amount of money is determined by the banks' ability and willingness to lend out money - the same coins and bills can be shovelled back and forth between the bank and the loaners/savers multiple times, creating debts and savings far larger than the nominal values of the coins/bills.

True. I should have said that all net money/financial assets in existence is a debt of the government. There is a difference between horizontal transactions, which do not affect the net sum of financial assets in the private sector, and vertical transaction, i.e. the government creating financial assets by spending, and destroying them by taxation. Note that government "borrowing" does not change the net sum of financial assets either, it just changes their composition (towards bonds).

Wealth, in turn, is not directly related to the amount of money - wealth is determined by the amount of physical goods and services produced in an economy. Money is merely a means to circulate these goods and services.

I think we can agree that wealth can be defined in different ways and is a rather vague concept anyway. And yes, money is ultimately "just" the way by which we distribute goods and services in our societies, but money is not neutral. In particular, money is used to distribute goods and services across time (something that wouldn't be possible in e.g. a pure barter or gift economy), as people use money as a storage of wealth. In other words, money is far from neutral, and you have to consider its effects on the economy if you want to understand the formation of wealth.

Re:In other words

[nhaehnle]

which is why the current political obsession with austerity is so ridiculous

How do you figure? Over time, there's a limit on the amount of money that a government can raise though taxes (thanks to the Laffer curve having a maximum), and a limit to the amount of money a government with rolling debt can print (because it has to continue to borrow against the perceived risk of future inflation). This means the total amount of money a government can spend (without a currency collapse) is limited, not infinite.

I hate to write it this plainly, but from a technical point of view, this is simply false. The government (as a whole, i.e. assuming both executive and legislative bodies get behind it) can always spend as much as it likes. As long as there are goods and services for sale denominated in US$, the US government can buy them. Think about it:

You offer something for sale at a certain US$ value. The government writes you a check to that amount. You go to a bank to cash that check. If the check bounces, then the government is unable to pay you. If the check doesn't bounce, then the government is able to pay you.

Since it's ultimately the government (via the Fed) that runs the US$ monetary system, government checks never bounce. This means that on a functional level, the US government can spend as much as it likes.

Is spending as much as it likes always a good idea? Obviously not. But once you accept the fact that government spending has no technical limitations - unlike the spending of you and I - you are free to ask other questions about how the economy should be run. If the government has no spending limit, why are there taxes? There is a good reason for them. Why does it borrow? There are fewer good reasons for that. And how much should it tax? More than it spends? Less than it spends? Exactly the same amount? Figuring out an answer to this question without any ideological baggage is precisely what Modern Monetary Theory is about, see e.g. here.

The most important lesson is perhaps this: Mindless budget rules are stupid. The appropriate size of the budget and its balance can only be determined in the context of how the real economy is doing, the amount of unemployment, and political choices.

Re:In other words

[Anonymous Coward]

Earlier in 2009 I was generating around 100-150 bitcoins a day using a q6600. I stopped crunching for a while, but 15k worth was worth it ;D.

Re:In other words

[LingNoi]

Just because you don't want it, doesn't mean someone else doesn't value it.

Unfortunately that's not how currencies work. Both parties and everyone else they trade with must value the currency for it to be worth exchanging for other labor or goods.

Problem with Bit Coin is the community that has hoarded a huge amount of bit coins. They've essentially made the thing into a pyramid scheme because everyone is trying to raise the price and cash out. The community is trying it's hardest to make it popular and you can even read where they've tried to game slashdot to get their stories posted. Even the main author of the software is anonymous and uses a fake name in the community.

All those things combined hint at a giant scam.

Re:In other words

[metacell]

That sounds interesting, but do you have any evidence of hoarding?

Re:In other words

[metacell]

Problem is, if people hoard their BitCoins, businesses will see few purchases made in BitCoins, and not think it's worth the trouble to accept it as payment, and the new currency will fail.

Re:In other words

[LingNoi]

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

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

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

Re:In other words

[metacell]

If I wait 6 months the laptop I bought today will be cheaper, yet people buy them.

If I knew food was going to be cheaper next month, I still have to eat this month.

True, deflation wouldn't discourage consumption, at least not of essential goods.

But it would discourage investments. Why risk my money on an investment which may give x% interest, if I can gain the same increase by just holding on to my currency?

Re:In other words

[metacell]

Aside, of course, from the essential property that the bar be made of real gold, and not other materials that lack some or all of the properties of gold.

And are those properties determined by decree?

Just as people spontaneously find valid bitcoins more valuable than pseudo-bitcoins which lack some or all of the properties of actual bitcoins.

It didn't happen spontaneously - someone had to declare what a valid BitCoin is, and people had to listen to him. For BitCoins to retain their value, people have to keep agreeing on arbitrary definitions and the protocols used to exchange the coins.

Perhaps it's not a decree in the proper sense, but it's substantially different from the way gold gains its value.

Re:In other words

[SETIGuy]

In case you missed it above... http://oregonstate.edu/cla/polisci/faculty-research/sahr/sumprice.pdf

Re:In other words

[SETIGuy]

Demand for consumer goods, especially food, has remained the same but the amount of money floating around has gone up.

That's just not true. The number of dollars that the Fed has pumped into the economy is tiny compared with the number of dollars that were destroyed when the bubble burst. Just look at an M3 chart, especially a long term one. The drop is astounding and unprecedented in recent history. It's the only drop in the money supply since 1970. Anyone who shows you a money supply chart that rises in that period is probably trying to sell you gold, and so they will hide the money that was destroyed by showing you something besides M3. Other than the gold sellers, the cries against "inflationary policies" are mainly coming from right wing politicians, many of whom were responsible in part for the policies that caused the bubble in first place. Their main goal is to use the current crisis to get the uneducated to blame the wrong party. They would love, and are working towards, worsening the crisis for next year's elections.

Re:In other words

[JesseMcDonald]

Aside, of course, from the essential property that the bar be made of real gold, and not other materials that lack some or all of the properties of gold.

And are those properties determined by decree?

They are determined by collective voluntary agreement between the users of gold-based commodity currencies, just as the properties of bitcoins are determined by voluntary agreement between those who use them.

It didn't happen spontaneously - someone had to declare what a valid BitCoin is, and people had to listen to him.

And what about that makes it any less spontaneous? No one is compelled to trade in bitcoins, or to follow the developer's recommended protocols. They choose to do so, spontaneously, because they see value in it.

For BitCoins to retain their value, people have to keep agreeing on arbitrary definitions and the protocols used to exchange the coins. Perhaps it's not a decree in the proper sense, but it's substantially different from the way gold gains its value.

It is exactly the same as the way a gold-based currency gains its value. In the beginning someone has to start accepting gold in trade for other goods. They specify, "by decree" if you wish, what forms will be acceptable: minimum purity, assayers marks, bars or coins, denominations, etc. If others wish to trade in this budding currency they must follow to these "arbitrary" definitions and protocols. As the currency spreads the definitions become a matter of agreement within the community, not just those who were active from the beginning. (The bitcoin currency has the potential to undergo the same evolution via third-party modifications to the client software.)

Re:In other words

[Teancum]

The Fed has pumped several trillion dollars into the economy as direct purchases of the securities involved. I'm not sure where you are coming from in terms of the money charts, but this is from the direct intervention by the Fed into the markets.

As to if that is going to have any long term impacts.... I'm not really sure. Money has certainly been sucked out of the economy as debt is being paid off in various ways. I'll admit that the velocity of the U.S. Dollar has dropped significantly... which is in turn reducing technically the amount of money available.

I'll admit it gets sort arcane in terms of how much money is floating around, but the Fed certainly has been instituting a very loose money supply right now with incredibly low interest rates. The only real difference, particularly for housing prices, is that obtaining a home loan is now considerably harder to obtain than it was in the past with a much larger down payment and far better credit history than was previously required for a house loan. That is certainly drying up the housing market as bad if not worse than had interest rates gone up.

There are many reasons for why the housing prices have gone down but food and consumer prices have gone up, where much of it is related to supply/demand issues. The supply of money for food and other consumer goods has not gone down, but the supply of money for buying homes certainly has.

Re:In other words

[SETIGuy]

The Fed has pumped several trillion dollars into the economy as direct purchases of the securities involved. I'm not sure where you are coming from in terms of the money charts, but this is from the direct intervention by the Fed into the markets.

Yes, I agree that the Fed pumped trillions of dollars into the economy. The reason they did that was to replace some of the trillions of dollars that had been destroyed. Those dollars were destroyed as surely as if they had been burned. And if the fed hadn't made new dollars to replace them, the collapse would have been far worse. But even with those trillions, there is less money in circulation now than there was in 2007. Until that changes there won't be broad spectrum inflationary pressures.

It is arcane because it requires an understanding of what money is. Money is created when banks lend it. It's destroyed when the value of the securing property bringing drops, the loan value with it. Since the bubble burst, banks have essentially stopped lending, so the only increase in the money supply is due to the Fed. And they've stopped lending because the repeal of Glass Stegall gave them more profitable and more dangerous things to do with our money. Why lend at 5% with a 3% chance of a loss, when you can earn 25% with a 15% chance of a loss? If they don't wise up, they're going to force us into having a Federal Bank that lends directly. Or they're going to bankrupt us again. In neither case would I want to be a banker.

Re:In other words

[metacell]

Perhaps we are talking past each other. I agree that both gold and BitCoins derive most of their value from their usefulness as mediums of exchange. And I was probably wrong in calling the BitCoin definition a "fiat". But I still think there is one significant difference between BitCoins and gold, as per below.

It is exactly the same as the way a gold-based currency gains its value. In the beginning someone has to start accepting gold in trade for other goods. They specify, "by decree" if you wish, what forms will be acceptable: minimum purity, assayers marks, bars or coins, denominations, etc. If others wish to trade in this budding currency they must follow to these "arbitrary" definitions and protocols.

But there is an actual difference there. 100 grams of gold has value with or without the official stamp, with or without the minimum purity, with or without the agreed-upon shape, etc. People are only prepared to pay a little, little bit more for 100 grams of gold which follows the conventions, because most of its value hinges on the fact that it is 100 grams of gold.

Historically, people never needed to form an agreement to start trading in gold, because gold was valued in itself for its beauty. True enough, once people started trading in it, it acquired an additional value as a medium of exchange, but people never needed to meet and agree on conventions for that to happen.

BitCoins, on the other hand, is entirely dependent on conventions for its usefulness as a medium of exchange, and has no value if the conventions are broken.

Re:In other words

[metacell]

Thanks!

Re:In other words

[JesseMcDonald]

It seems that we at least agree that bitcoins are not a fiat currency, which is the main point I was attempting to make. I also agree that the manner in which bitcoins acquired their initial value differs from gold and most other non-fiat currencies in that they were not valued on their own merits prior to becoming a currency; however, so long as they have value now it shouldn't make very much difference how that initial value came about.

100 grams of gold has value with or without ... the minimum purity

Here I would have to disagree. I would not give nearly as much for 100 grams of "gold" which is actually mostly lead. I may not demand .9999 purity, but for any given price there is a minimum standard which must be met.

BitCoins, on the other hand, is entirely dependent on conventions for its usefulness as a medium of exchange, and has no value if the conventions are broken.

In some ways that is kind of like saying that gold has no value apart from the convention of accepting only gold, and not, say, an equal weight of lead. As you pointed out, some of the traditional properties of a gold currency are optional, like assayer's marks; they increase the value somewhat, but you can do without them. Other conventions, however—such as demanding that units of the currency possess the physical and chemical properties of gold—are more essential.

Some of the bitcoin conventions are essential to its value, like the minimum required proof-of-work. Others, like the 21-million-bitcoin limit, are more flexible; even it that limit went away it would still require effort to find new bitcoins, so they would remain scarce. (Personally I don't think the limit is really necessary, but I don't see it causing problems either.)

Re:In other words

[metacell]

100 grams of gold has value with or without ... the minimum purity

Here I would have to disagree. I would not give nearly as much for 100 grams of "gold" which is actually mostly lead. I may not demand .9999 purity, but for any given price there is a minimum standard which must be met.

Of course the piece needs to cointain 100 grams of gold, but it doesn't make much difference for the value if that gold is diluted with 1 gram of lead or 100 grams of lead. The value hinges on the amount of gold, not the adherence to conventions.

As you pointed out, some of the traditional properties of a gold currency are optional, like assayer's marks; they increase the value somewhat, but you can do without them. Other conventions, however—such as demanding that units of the currency possess the physical and chemical properties of gold—are more essential.

I don't consider those to be conventions. They're social phenomena, but they're not agreed-upon.

Imagine, for a moment, that every single person in the world agreed to reduce their price on gold by a factor of ten for a whole month. That would be a convention in the true sense. When the month ended, the gold price would automatically go back to close what it was before the agreed-upon price change, since the price is determined by supply and demand. If the value of gold was determined by a convention, there would be no reason for it to return to that particular price level.

Now imagine that every single person in the world agreed to stop using gold as an exchange medium for a whole month and instead use clam shells. When the month ended, the clam shells would quickly lose their value and people would start trading in gold again, because the usefulness of gold as an exchange medium hinges mostly on its physical properties, not conventions.

Also consider the Ruble in the Soviet Union. The Soviet government decided on a fixed exchange rate between Rubles and US$, and this was a convention in the true sense. If the values of currencies were directly determined by convention, people would have been perfectly happy to keep trading Rubles and US$ at the government's exchange rate. But people considered the US$ to be much more valuable, since they could be used to purchase foreign goods on the black market, and they were sold for far more Rubles than the official exchange rate.

The value of BitCoins are not directly determined by conventions either. The only difference is that the properties of BitCoins which make them useful as an exchange medium are determined by convention, while the properties of gold which makes it useful as an exchange medium are given beforehand.

Re:In other words

[metacell]

Good point.

Re:In other words

[JesseMcDonald]

Of course the piece needs to cointain 100 grams of gold, but it doesn't make much difference for the value if that gold is diluted with 1 gram of lead or 100 grams of lead. The value hinges on the amount of gold, not the adherence to conventions.

Obviously if you know that a random 100-gram lump of metal is 10% gold and 90% lead, and the cost of separating them is insignificant, then you can simply price it about the same as a 10-gram lump of pure gold. However, it's not exactly practical to test the composition of every unit of currency every time it happens to be used in trade. What occurs in practice is that those accepting gold declare the minimum purity they are willing to accept, and those offering it certify (via assayers' marks or other means) that their gold meets or exceeds the required purity. A gold-based currency without a minimum purity standard would not be fungible, as every unit—the part you can actually handle and measure, not just the gold inside it—must be considered unique, and a non-fungible currency is something of a contradiction.

The only difference is that the properties of BitCoins which make them useful as an exchange medium are determined by convention, while the properties of gold which makes it useful as an exchange medium are given beforehand.

In other words, naturally-occuring gold just so happens to have the right properties to serve as a currency, while bitcoins were created artificially with those specific properties in mind. So? We know this already. It has no practical effect on the use of either as money. The properties are the same whether they came about by nature or by "convention".

SWEET!

[jpedlow]

I had bitcoin generating nightly on my Dual-Quads at work (in their own VM, scripted to start nightly), and have about 300!!

woohoo? :D

Re:SWEET!

[Anonymous Coward]

Buy some socks before the whole scheme crashes.

Seriously, alpaca socks are awesome, especially in northern winters. No sarcasm.

Re:SWEET!

[cos(0)]

Be careful when minting on your employer's resources. There has been at least one court case dealing with misuse of resources when an employee of a school district installed a distributed.net client (registered to himself) on school PCs.

Re:SWEET!

[jpedlow]

Thanks for the heads up!

I should have been more clear, I OK'd it with the owners since they were sitting there idle anyway. :)

meaningless

[Lord Ender]

To reach "parity with the dollar" means nothing. A Yen may be worth $0.01, but that doesn't mean ANYTHING about the strength of the Yen.

Re:meaningless

[Rob the Bold]

To reach "parity with the dollar" means nothing. A Yen may be worth $0.01, but that doesn't mean ANYTHING about the strength of the Yen.

True, but if you knew historical values of the Yen or Bitcoin vs. the Dollar (or any other currency) you might know something about it . . .

And then there's this point from TFS: "BitCoin was launched in early 2009, so in only two years this open source currency has gone from having no value at all to one with not only an open market of competing exchanges, but the ability to buy real goods and services . . ." Actually, that's about 1/2 TFS, so it is short enough to read in its entirety. As is TFA . . .

Re:meaningless

[eugene2k]

It's not meaningless. The point is not to say that bitcoin is as strong as a dollar - which it isn't (as the strength of a currency is defined by how many traders accept it), but to say that the adoption rate is growing and quite rapidly.

Re:meaningless

[harks]

True. Dollar-parity is just a psychological milestone. What is meaningful is that Bitcoin has increased from about $.05 in September to $1 now.

Re:meaningless

[grimJester]

It would mean something if the value of the bitcoins in circulation equaled the value of dollars in circulation. Managing a total value of $20M isn't peanuts though.

Re:meaningless

[Teancum]

The first transaction of note for Bitcoins was a Pizza sold in Florida. Some guy offered 1000 BTC for the next couple of people that called up a Pizza delivery service and had a pizza dropped off at his home. He gave the address in a post, and there were a couple of people who took him up on the offer. As long as the pizza was paid for by credit card, the delivery guys didn't care, and the person with the extra Bitcoins got some Pizza.

Assuming that the pizza cost about $10-$15, that would put the initial value of Bitcoins at between $0.001 and $0.002 per BTC.

Mt. Gox started trading with the price somewhere between 1 cent and about a 5 cents, which was the exchange rate when Bitcoin was first mentioned on Slashdot (about when I got involved). A little as just before Christmas it was still worth about 30 cents per Bitcoin. As a matter of fact, I had a bunch of Bitcoins and sold them for dollars.... then thought better of it and purchased Bitcoins again (losing a little bit in the process). I'm glad that I moved the money back to Bitcoin as the value tripled for my small pile.

Reaching parity is a big deal here, and it was something I wasn't expecting for at least another year. Yes, the relative value is no big deal (like how a Big Mac may cost 1000 Yen), but the issue here is the massive deflation of the currency and how surprisingly strong that it has become against the U. S. Dollar. BTW, Bitcoins are also trading at about 30-40 BTC per Ruble (near what the Ruble/Dollar conversion rate is) and other currency conversions show a similar parity to the Dollar. I'd suggest that the Ruble is perhaps the #2 most commonly traded currency with Bitcoins right now, as the trade with Euros is relatively new and nobody is trading with the British Pound at the moment. Give it some time, but there will be some people doing just that.... I would suppose.

The real threshold

[Drakkenmensch]

You'll know that this currency has achieved official status once you can start renting escort services with it.

Re:The real threshold

[PolygamousRanchKid]

Well, with Triskelion Quatloos, you can buy a chick in a tinfoil bikini armed with a giant can opener: http://en.wikipedia.org/wiki/Gamesters_of_Triskelion. Maybe you should consider using that currency?

Re:The real threshold

[INeededALogin]

If you look at the market... you can already buy a dildo... just a matter of time.

Re:The real threshold

[Anonymous Coward]

But, for whatever reason, no amount of Quatloos can buy William Shatner a shirt.

Re:The real threshold

[NetDanzr]

Nope - escort services are just a middle step. A currency will become viable when the Feds will try to shut it down.

Re:The real threshold

[Quiet_Desperation]

Yes, but do we want to?

Re:The real threshold

[Anonymous Coward]

I'll just leave this here... http://www.bitcoin.org/smf/index.php?topic=3166.0

Re:The real threshold

[benjamindees]

The Feds already have tried to shut it down, but not before copying the idea for themselves.

Re:The real threshold

[noidentity]

Or the point where you have to report it to the IRS.

Re:The real threshold

[Anonymous Coward]

Funny thing, we already had an offer for Romanian Girls on the Forum :D

Re:The real threshold

[TheCarp]

lol true, but it was totally a fake.

I love it when they were asked for proof and posted a totally photoshopped pic of a girl holding a sign. Note to scammers: do not post a modified picture to a forum full of geeks unless you are good enough to not edit over the fingrs holding the sign ;)

Things really are getting interesting with bitcoin.

Re:The real threshold

[slim]

You'll know that this currency has achieved official status once you can start renting escort services with it.

I'd be astonished if someone, somewhere isn't doing it already. I mean, why not? Since there are people offering to convert Bitcoin into dollars right now, all the enterprising sex worker has to do is accept Bitcoin at the going exchange rate, add on some commission to cover exchange fees and hassle, plus a bit, and convert it into dollars the moment the punter leaves the room. It seems like a no-brainer way to get paid a bit extra.

Why the punter wouldn't want to pay in dollars in the first place is another matter. Novelty? Principle? Bitcoins to burn and too lazy to do the conversion himself?

If the sex worker can buy stuff she wants from someone who accepts Bitcoin, she needn't even exchange into dollars of course.

Re:The real threshold

[metacell]

Hm? What does the case of Jim Bell have to do with BitCoins?

The first step

[Anonymous Coward]

to eliminating money altogether. Is it going to happen overnight? No. In 100 years? Probably not. Eventually? Let's hope so, and this could be the very beginning, as it will make it easier for people to realize that currency really has no value other than what they place on it. Huzzah.

Re:The first step

[jasmusic]

You will never eliminate money as long as you have human freedom and incentive. And to contemplate eliminating human freedom and incentive would be demonic.

Re:The first step

[Nadaka]

There are only 2 ways to eliminate money.

You can provide every human need and desire for free using magic, if you have magic.

You can collapse the world economy to the point where no one trusts representative value, then you will be bartering a cow and a dozen chickens for your next iPhone.

Re:The first step

[einstein4pres]

A cow and a dozen chickens would be a vast overpayment for an iPhone. Cows cost something closer far to $1000 than $500, though chickens are pretty cheap. Unless of course, we're talking about a younger cow.

Maybe if you got a few months of service on that iPhone...

Re:The first step

[unity100]

there is no relevance in between money and human freedom and incentive. dont be a moron. freedom and incentive were here long before money was ever thought of.

Re:The first step

[harks]

And when was money first thought of? It has been around since prehistoric times.

Re:The first step

[Kjella]

You can collapse the world economy to the point where no one trusts representative value, then you will be bartering a cow and a dozen chickens for your next iPhone.

Well, we don't have to go all the way back there. Even 2500 years ago they made coins based on precious metals like gold, silver and copper. The imprint was not for representative value, but for the authenticity of the amount of precious metals. You could simply take the current price of gold and price everything in the weight of gold and silver. So you'd sell your cow and chicken for some coins, then buy your iPhone with those coins. It has its problems but no doubt we'd use easily transportable and non-perishable resources as intermediaries rather than direct bartering.

Re:The first step

[Anonymous Coward]

Precious metals are still mostly representative value.

Re:The first step

[SETIGuy]

And to contemplate eliminating human freedom and incentive would be demonic.

You only need to eliminate one of the two. Another name for "incentive" would be "scarcity" and eliminating it wouldn't be demonic.

For example, lets imagine two inventions. 1) A generator that provides unlimited free energy by turning matter into antimatter and annihilating it with matter. 2) A matter replicator that can replicate any material object. Essentially we're in the Star Trek-TNG world. Let's ignore the theoretically unreplicatable latinum from DS9.

An economic model with money breaks down pretty quickly in such a world. The only thing worth trading for money would be services. But nobody would be providing services you'd pay for, since they don't need to work to get money, since their replicator provides them with anything they need. If someone enjoyed performing the services you want, they would do it without payment. You'd also have problems finding a physical carrier of money. Each unit would need to be unique and easily verified as being original, but would also need to have some value to its uniqueness.

Such a world would also have nearly unlimited human freedom, since it is scarcity that most often prevents us from doing what we want. Personally I think such a world would self destruct very quickly. Someone would replicate a few dozen kilograms of antimatter in his ex-girlfriend's bedroom.

Re:The first step

[arose]

It has its problems but no doubt

It has serious problems:

• Once you use something for currency the value gets disconnected from the value of the item itself, so the only real (if questionable) advantage is the enforced scarcity. Otherwise it is still subject to economic fluctuations and currency speculation.
• This decoupling puts undue burden on anyone using the item for practical purposes, suddenly you have to be a monetary broker with everything in the economy messing up the price of your commodities, instead of being just a plug manufacturer.
• The average person has few means to determine the authenticity of coins (this was true even back when the imprint was actually hard to recreate, much less now. At the very least you have to carry a well calibrated scale with you at all times, but that only ensures that any given coin has the right weight...
• If the supply of money doesn't grow with the economy people are rewarded for simply having money, if I have to explain why this is problematic feel free to disregard the whole post.

Re:The first step

[Teancum]

An economic system that works with systems of plenty has happened before. It is called a "gift culture", where your status in the community is based upon how much "giving" you have done. It did exist among some hunter/gather groups during times of abundance, and of particular note among the Polynesians in some islands where resources were abundant and population relatively low.

The most current example in a modern context is the open source/free software movements where people provide services as a way to "give back" to the community in some substantial fashion. What makes that culture work is that the resources are abundant (CPU time and network bandwidth) and the marginal transaction costs (aka "downloading" images, music, and software) are essentially free too.

If that starts to happen with things other than software, it would require 3D printers to become much more common. Yes, it is possible that you could print out a Colt .45 replica with such a device and do harm with it, but there are many other useful things with the technology too. When 3D printers can "print" a 3D printer with all of the microcontrollers and parts, that is when you will see such a thing really take off. Self-replication isn't happening yet. Until then, and perhaps even after that happens, there still will be a need for money as there still will be scarcity.... and printing "food" is going to be much harder than even printing out a door hinge.

Re:The first step

[lgw]

You can't eliminate scarcity, for there's a limited amount of nice beachfront property, and a limited amount of hot girls that men imagine will be impressed by status symbols.

Re:The first step

[metacell]

I don't think that would happen - If we had a practically infinite supply of energy, people would start competing for something else instead. Like information, or social status. It's in human nature to not only improve their lot, but to improve it in relation to their peers.

Re:The first step

[metacell]

There are only 2 ways to eliminate money.

You can provide every human need and desire for free using magic, if you have magic.

You can collapse the world economy to the point where no one trusts representative value, then you will be bartering a cow and a dozen chickens for your next iPhone.

There's a third way: central control of the economy could eliminate the need for money. This is what some socialists want to do.

Re:The first step

[metacell]

A cow and a dozen chickens would be a vast overpayment for an iPhone. Cows cost something closer far to $1000 than $500, though chickens are pretty cheap. Unless of course, we're talking about a younger cow.

Or a very good-looking one.

Re:The first step

[Nadaka]

Wrong. Socialists believe that government has a responsibility to take care of societies basic needs because it isn't profitable enough for private industry to do so. Central control of the economy is nowhere on the agenda of the vast majority of socialists, it is however on the agenda of authoritarians, fascists and communists.

Even banning legal tender will not get rid of "money", people would still find a default medium for representing value, even if it is a more traditional good such as coffee beans or salt.

Re:The first step

[metacell]

Wrong. Socialists believe that government has a responsibility to take care of societies basic needs because it isn't profitable enough for private industry to do so.

Maybe that's what the wimpy socialists where you live want. Here in Sweden, we call that "social democracy" and has had it for half a century: the government provides roads, health care insurance, health care suppliers, unemployment insurance, child care, parental leave, insurance for lost income during sickness, a pension system, etc, etc. The people we call "socialists" want to go further than that: they want society to be more politically controlled in various ways, and many of them see Cuba as an ideal.

If we go back to the first half of the 20th century, central control of the economy was at the heart of socialism. It was believed to be a more rational way to run a society. It was also how the Soviet Union was run, and how China was run up until the 1970's.

Also, a lot of socialists ARE authoritarians - they believe they can and should shuffle people around with force to realise their ideals.

Even banning legal tender will not get rid of "money", people would still find a default medium for representing value, even if it is a more traditional good such as coffee beans or salt.

You can do that if the world economy collapses too...

Re:The first step

[Nadaka]

I am sorry, I try to use the actual definitions of words instead of propaganda speak.

Over here "socialists" are considered to be pinko islamic communist jewish nazi's who want to take your job, molest baby Jesus and are for big government and banning social security.

Re:The first step

[metacell]

People believe socialists want to ban social security where you live?

Re:The first step

[Nadaka]

The tea party put it in their attack ads during the last US election. So yes, "some people" actually think that.

Re:The first step

[metacell]

Weird.

Re:The first step

[SETIGuy]

With a replicator, making beachfront property is easy. As is destroying beachfront property.

Here you see what two people can do!

[Gr33nJ3ll0]

So basically the two people using BitCoin decided to exchange a dollar for a BitCoin?

Re:Here you see what two people can do!

[Gleapsite]

The exchange volume on the mtgox exchange is currently 57239. So a bit more than 2 people.

See ref: http://www.mtgox.com/trade/history

Re:Here you see what two people can do!

[Tiger4]

14 bits more. but who's counting?

Re:Here you see what two people can do!

[Gr33nJ3ll0]

Okay, so two people and a TON of servers!

Re:Here you see what two people can do!

[MidoriKid]

Yes, and the "two people using Bitcoin" are performing those 94.33 transactions per hour.

Sorry

[MrEricSir]

...but I only accept payments in Beenz or Flooz

Re:Sorry

[Anonymous Coward]

But THIS time it's DIFFERENT! This time there's crypto-decentralized-cloud-p2p-trust-digitalness in it! It's more privatey! That makes it way better and more underground, so it's required that everyone on Slashdot will switch to it at once.

Re:Sorry

[Tharsman]

Darn, I wont be able to do business with you, I only carry Facebook Credits on me.

Re:Sorry

[oodaloop]

What about Linden Dollars? Those are still worth something, right? Right?

Re:Sorry

[Cro Magnon]

Facebook Credits? Facebook Credits are no good out here! I want something real.

Re:Sorry

[bluefoxlucid]

1/265 of 1 USD, depending on exchange used.

Re:Sorry

[Anonymous Coward]

Facebook Credits??

FCs? You carry FCs with you!?

Re:Sorry

[Minwee]

Facebook credits *wave* will do fine.

Re:Sorry

[Anonymous Coward]

Agreed most of it sounds like a cheap game of buzz word bingo, but we have quite a few organizations accepting it, including the EFF (https://www.eff.org/helpout#bitcoin)

Re:Sorry

[Lehk228]

i'm willing to accept an exchange rate of .10 USD per minecraft obsidian block or .066... per unprocessed lava source or .075 per lava source in bucket

Re:Sorry

[Mal-2]

INVedit your way to riches!

You may say it devalues the game, but not if you use it in specific ways. For example, I use INVedit in my roller coaster world because the roller coasters and other amusements are the point -- not mining. I don't use it in my actual survival worlds, except when the game glitches and decides I have died when I start the game (in which case I use it to restore the lost inventory only).

If you mean SMP, there's always the /give command. Without it, we wouldn't be playing SPLEEF! Both netherrack and foliage are appropriate building materials for a spleef field in a Beta game.

not another currency, please!

[Anonymous Coward]

No more fiat (or in this case, fiat-esque because it lacks a govement) money. We need physical-backed money.

I don't care if it's gold or doughnuts, just no more fake currency.

Re:not another currency, please!

[Tr3vin]

Physical backing does very little for money. I often wonder if people like gold because of its properties or just because it is worth a decent amount of money. The main reason for physical backing is that your savings are less likely to be devalued. I would argue that the value of something like gold is just as fake as the value of a "fake" currency.

Re:not another currency, please!

[MozeeToby]

Why? Gold has very little inherent worth. If the shit really and truly hit the fan people would probably go back to it out of some belief otherwise, but in reality using gold (or any other near worthless commodity) is practically identical to using a fiat currency. The only reason you accept anything as payment is because you have faith that you'll be able to pay someone else with it tomorrow. The only difference between fiat and backed currency is that the amount of money in circulation is controlled by a governing body, as opposed to being 'controlled' by the global output of whatever your backing is. At least if the Federal Reserve prints a few billion extra dollars there is generally a reason for it, if someone were to find a major, previously unknown gold deposit tomorrow the value of a backed currency would fluctuate for no reason.

Re:not another currency, please!

[hypergreatthing]

No more fiat (or in this case, fiat-esque because it lacks a govement) money. We need physical-backed money.

I don't care if it's gold or doughnuts, just no more fake currency.

How about bottlecaps?

Re:not another currency, please!

[Nadaka]

Not entirely true.

Gold is high density, malleable and corrosion resistant so it makes great bullets.

Re:not another currency, please!

[h4rr4r]

Actually it is far too malleable. Copper makes much better bullets for my 300 winmag. Barnes is the company that makes them. Nice high velocity shooting without the bullet totally disintegrating on impact.

Re:not another currency, please!

[Nadaka]

That is usually only the case if you are shooting something with a thick skin. An unkevlared person will probably take a lot more damage from a hollow point gold bullet than a solid copper slug. Plus gold won't contaminate the meat like lead or copper can.

Re:not another currency, please!

[gox]

Why was parent modded Troll? Although I don't agree with it, it /is/ a common point of view.

Actually I guess I agree with it in the sense that I don't fully get what physical backing of a currency is supposed to mean. Bitcoins are unique entities which cannot be replicated, so the question suddenly becomes a metaphysical one in my mind. Is it about the secondary use of the material that is supposed to back our currency? But that itself depends on the day's technology and scarcity of the thing, doesn't it?

Re:not another currency, please!

[SQLGuru]

You missed the boat in Liberty Dollars.... http://en.wikipedia.org/wiki/Liberty_Dollar

Re:not another currency, please!

[h4rr4r]

No, at close range bullets at high velocity explode when they hit the bag of water that is your average mammal. I know this because I have tested it on deer. I have never shot at deer in Kevlar. These solid copper bullets are hollow pointed and undergo a very controlled expansion.

Re:not another currency, please!

[phoenix321]

"unkevlared person" --- "won't contaminate the meat"

Put off the crack. Please. We're not hunting unkevlared persons for meat just yet.

Re:not another currency, please!

[h4rr4r]

Also lead and copper do not contaminate meat in any meaningful way. You just dig out the pieces if any are left in the meat, this is especially common when hunting small game with shot.

Re:not another currency, please!

[Nadaka]

Am I going to have to submit <humor>tags</humor> to the W3C and WHATWG?

Why ... ?

[Anonymous Coward]

Why does my alpaca need socks again?

Re:Why ... ?

[boristdog]

Because they are members of the camel family. And you don't want their toes to get cold.

Third Sock!

[TaoPhoenix]

Two Socks with BitCoin, Get One Free!
Er...

How much is that in Flooz?

[elrous0]

Because I've got a shitload I need to get rid of.

does this online money have any bank backing?

[Joe The Dragon]

does this online money have any bank backing? or is some thing that they can say the eula says we don't have to pay out any thing.
what about tax?

Re:does this online money have any bank backing?

[dadioflex]

I think the point is that it isn't backed by anybody. I've read up on the website and I've read the Wikipedia entry and I understand how to mine bitcoins, but I haven't figured out what they get out of it. I thought maybe it was a cloud computing for hire service using the distributed clients but that doesn't seem to be it.

Interesting idea. I wish it well but I'll go back to not caring about it.

Re:does this online money have any bank backing?

[francium de neobie]

Why do you want yet another currency backed by banksters?

Re:does this online money have any bank backing?

[ribuck]

... or is some thing that they can say the eula says we don't have to pay out any thing ...

There is no EULA. It's completely peer-to-peer. You don't register, you just run the open source client.

Re:does this online money have any bank backing?

[Desler]

Because that's the only way it will be accepted beyond a couple of internet sites no one has ever heard of?

Re:does this online money have any bank backing?

[Neoncow]

If that's your concern, then you should just use the existing currencies. There's lots to choose from. Bitcoin is for people who don't want a currency backed by central institutions. If you don't value that, then Bitcoin has no value to you. Not a judgement call, just the facts.

Re:does this online money have any bank backing?

[durrr]

If starbucks or some fast food chain said they accepted bitcoin payments you'd have the current go mainstream overnight more or less.

Re:does this online money have any bank backing?

[Teancum]

Or if you don't trust the client software, you can "roll your own" software and provide an alternate implementation of the client with your own code. The "official" Bitcoin client itself is completely optional.

Re:does this online money have any bank backing?

[Requiem18th]

The Bitcoin system is basically twofold. Let's draw an analogy.

Let say you are small web hosting provider, I sell manure. I need a web store to promote and sell my product. But we live in China, and I don't want to deal with physical money, so we agree on using Eve Online's ISK as currency. So I arrage for a realtive to pay real money to Eve Online's company, CCP to get some ISK for me to pay you.

Later, a man who home grows vegetables uses your web page to buy manure from me. Since I'm lacking in ISK since our last transaction, I take my payment in ISK. Next week while browsing through the local market for vegetables you find this man who accepts ISK too, you pay him using the ISK I gave you, closing the loop.

So far, I hope this is uncontroversial. The system works as long as it remains closed. It breaks down as soon as someone absolutely needs to pay using something other than ISK, it can be any producer of real work or goods or simply the government asking for exTArXion money. But it can coexist with real money has long as at least some of us keep this as a side business. In this example, it is assumed we all get money from other sources too.

Ok, so, the system depends on the continued existence of CCP and it's transaction services. Once you pay them to get ISK, the only reason you can claim to own that ISK is because CCP acknowledges this. Besides someone had to pay CCP with something other than ISK for CCP to summon it into existence.

You can replace CCP and ISK with any central authority and its desired currency.

Enters Bitcoin. Bitcoin is a distributed platform. Nobody controls it, nobody runs it. The client is OSS so there can be multiple providers, but the mesh is one. The existence of the mesh is guaranteed to exist as long as the Internet exists and people run the client. Transactions are handled by peers. Authority comes from consensus. The only reason you can claim to own any BTC is because the mesh acknowledges this. Paying BTC to someone basically consists of telling everybody you give up ownership of a coin to someone else. You can't pay with the same coin a second time because everybody knows you don't own that coin anymore. The person you gave that coin can now use it because everybody knows that person is the current owner of that coin.

Everything is the same than with CCP and ISKs, except it is more secure robust and durable. But there's the question of how BTCs are summoned into existence. How do you pay "The Bitcoin Company" to get a coin? What currency does "The Bitcoin Company" accepts and who set's the exchange rate?

So who is "The Bitcoin Company" and what does it want? "The Bitcoin Company" is the mesh itself and it requires computational cycles. The coins are not simply summoned into existence, they already exist as crypto keys waiting to be found and claimed, but that costs money, in the shape of CPU cycles.

So you pay the mesh by finding the coins and the mesh acknowledges your possession of the coin as a reward.

Loans are possible in this system, but the bank can't give you more money that it has. Further more, there is a maximum number of coins awaiting to be found. For the same reason inflation and deflation due to banks or government printing money or destroying it can't happen.

I'm not sure there is a way for inflation and deflation to happen in a fixed currency system. That's way over my area of expertise.

Re:does this online money have any bank backing?

[CarlDenny]

I think avoiding taxes is one of the unstated goals.

Re:does this online money have any bank backing?

[slim]

I think avoiding taxes is one of the unstated goals.

... insofar as the project can be said to have goals at all, since (judging by its forums) it's been adopted by people with a wide range of opinions and value systems.

I think it might provide a way to exist in a parallel, tax-free economy for a while -- but that will end if the system gets any kind of mainstream uptake.

Re:does this online money have any bank backing?

[petermgreen]

I'm not sure there is a way for inflation and deflation to happen in a fixed currency system. That's way over my area of expertise.

A currency with a fixed money supply but an increasing number of users will tend to go up in value relative to other currencies and commodities (that is it will have deflation). Likewise if a large ammount of money gets hoarded. On the other hand there will be inflation if a large number of users decide to transfer out and/or hoarders decide to start spending their bitcoins.

Also afaict bitcoins are effectively destroyed if their associated private key is lost. So (once the new generations stop) the actual circulating bitcoins is likely to go down over time (which means a general deflationary trend if everything else stays equal).

Re:does this online money have any bank backing?

[metacell]

Loans are possible in this system, but the bank can't give you more money that it has.

Technically speaking, ordinary banks can't do that either. They just lend out the same money several times. Someone deposits their money, the bank lends them out, the loaner buys something for the money, the seller deposits the money in the bank, the bank can lend them out a second time, and so on. The same money goes round and round to generate debts and assets far greater than its denominational value.
"Fractional reserve banking" means that a bank's reserve is only a fraction of what it owes people. Fractional reserve banking is what allows banks to lend out the money people have deposited, which in turn allows the money to go round and round.

And a bank can do that just as well when dealing in BitCoins as when dealing in traditional currencies. The only limitation BitCoins have compared to traditional currencies, is that there is no central bank which can increase or throttle the money supply.

Re:does this online money have any bank backing?

[Requiem18th]

And without a central bank, what do these banks do when they can't pay out debts?

Re:does this online money have any bank backing?

[metacell]

You can reduce the risk of the banks going belly-up by requiring them to keep a larger percentage of people's savings as a reserve.

Re:does this online money have any bank backing?

[Requiem18th]

And by "You" you probably mean the government. But assuming this as a cryptoanarchist currency with no central authority what happens? More over, in this system a bank can't lend the same coin twice, at least not until it gets the coin back.

Re:does this online money have any bank backing?

[metacell]

The regulation of banks works without regulating the currency. If a conventional bank started dealing in BitCoins, it would still be required to keep a certain percentage of deposited money as a reserve. Not being able to control the currency itself would make no difference.

In fact, if a government wanted to, they could increase the money supply by issuing loans in BitCoins, and decrease it again by cashing in the loans. The cash supply (number of actual BitCoins) would stay the same, but the money supply (amount of money available for loaning) changes with the banks' or governments' willingness to lend them out, and is not limited by the number of actual BitCoins.

BitCoins don't prevent governments or banks from controlling it - it merely removes the need for governments or banks to control it.

Conventional banks dealing in conventional currencies can't lend out the same coin twice until they get it back either. It's all about fractional reserves.

Re:does this online money have any bank backing?

[Requiem18th]

Veeeery interesting opinion, I'm not complaining, just mean to learn when I say, what again?

Ok, the bank can be controlled even without control of the actual currency, but how do you say the government can alter the money supply by issuing loans in BTC? In BTC you can't give out (we are talking about lending, but lending isn't explicitly supported, just giving) a coin you don't own. Unlike most currencies, where two bills of the same value are perfectly interchangeable, two bitcoins are not the same, they are unique.

You say the government or banks willingness to lend out BTC is not limited by the actual number of BTC, but it has to be immediately dependent on the number of coins they own and ultimately dependent on the total number of coins.

The way I understand fractional reserve is this:
  Clients A, B and C deposits in bank M, $10,000 each.
  M has $30,000
  M lends to Clients X and Y $10,000 each
  M has $10,000, 1/3 of the money necessary to return to A, B, C shall they decide to dispose of their money.
  X and Y both make horrible investments that render them unable to pay out their debt. At this point the $20,000 belong to other people who provided services or products to X and Y.

What can the Government do? A, B and C have surely lost their investment haven't they? Incarcerating X and Y (and why not M) may help some but it's far from a solution. The government can take X's and Y's (and M's?) assets an distribute them to A, B, C, or it can sell or auction them for BTC or DLS (EUR, ETC...). What I just can't do is sign a paper and say, you own these BTCs now. I'll cash them later.

I mean, they could, but those wouldn't be BTCs, they would be BTC promises, a different currency, one that can't be traded through the regular BTC channel.

 

Re:does this online money have any bank backing?

[metacell]

Ok, the bank can be controlled even without control of the actual currency, but how do you say the government can alter the money supply by issuing loans in BTC? In BTC you can't give out (we are talking about lending, but lending isn't explicitly supported, just giving) a coin you don't own. Unlike most currencies, where two bills of the same value are perfectly interchangeable, two bitcoins are not the same, they are unique.

A simple example:

A deposits 10 000 BitCoins at the bank. The bank lends out 9 000 of them to B, and keeps 1 000 in their reserve. B buys good or services for 9 000 BitCoins from C. C deposits the BitCoins at the bank. The bank lends out 8100 BitCoins to D, and keeps 900 in their reserve. D buys goods and services for 8100 BitCoins from E, who deposits them in his bank account, and so on.

So if the bank is required to keep a reserve of 10%, the same 10 000 BitCoins can be used to generate loans for 9000 + 8100 + 7290 + ... = 90 000 BitCoins.

In your example, the people who provided services to X and Y now own 30 000 BitCoins. They might be willing to sell them to the bank for US$, or may already have deposited them in a savings accounts at the bank. If so, the bank has enough BitCoins when A, B and C want to withdraw their money. If not, the bank may get away with paying A, B and C the equivalent amount in US$. If the bank can't pay A, B and C at all, it may go bust, but more likely, it will receive monetary aid from the government.

Well, people buy massively overpriced "gold"...

[Anonymous Coward]

...and they trust that when it all comes crashing down, then their bank will give them the actual gold they supposedly own, so there's no reason to believe they wouldn't believe in the attributed value of other bits telling them somebody owes them something. IOW, people are stupid.

I was thinking of calling it a con

[makubesu]

until I realized starting up a system like this isn't really any different than what banks do with fractional reserve banking.

Re:I was thinking of calling it a con

[ect5150]

Mod parent up due to truth!

Re:I was thinking of calling it a con

[JesseMcDonald]

... this isn't really any different than what banks do with fractional reserve banking.

Aside, of course, from the complete lack of anything resembling deposits, loans, or reserves (fractional or otherwise). In other words, no real similarity at all. It's not a con or scam either, of course—merely a protocol for indirect exchange in which certain hard-to-find patterns of bits take the place of scarce physical commodities. As a virtual currency it has many of the attributes which make precious metals so eminently suitable as physical currencies: scarcity, durability, divisibility, and fungibility, to name a few. The protocol may not be perfect, but it is the best I've seen thus far. The limitations mainly relate to scalability and maintaining a consistent state between many decentralized peers—technical issues, not economic ones.

Re:I was thinking of calling it a con

[Neoncow]

Basically, regular currency is backed by organizations like the federal reserve, secret service, banks, and the government. The use of force (armies, secret service, threat of prison time) discourages unauthorized currency creation (counterfeiting).

Bitcoin is backed by mathematics, limitations of computing power, and limitations on energy. If you don't have a Phd in cryptography, you still need to trust that they're doing the math right. Just like you need to trust the government/banks not to create more currency than necessary. Having an alternative currency allows you to choose different parties to trust.

Re:I was thinking of calling it a con

[nedlohs]

Sure not really any difference, other than being completly unrelated too and sharing essentially nothing in common with.

Re:I was thinking of calling it a con

[AP31R0N]

Not insightful. Just plain wrong.

You should read more about something before talking about it. BTC is very different, almost nothing like debt money. Feel free to attack it for what it is, not for something you just made up.

Re:I was thinking of calling it a con

[slim]

Aside, of course, from the complete lack of anything resembling deposits, loans, or reserves (fractional or otherwise).

Of course there's nothing to stop you from lending people bitcoins, demanding some rate of interest.

There's nothing to stop you offering a service whereby you look after their Bitcoins, offering them, by way of a legal contract, some security over and above what they get by keeping it in their Bitcoin wallet. Your depositors would probably expect to get some interest on their savings with you.

Once a decent number of people were using your service to look after their Bitcoin savings, you'd probably realise that you had more Bitcoins lying around than you ever needed to honour withdrawals at any one time, so you'd probably be tempted to invest that spare money, so that you could offer your savers a higher rate of interest, since that's what your competitors are doing. ... and now you're a bank.

If Bitcoin becomes a success as a currency, this *will* happen. Keeping 10,000 Bitcoins in a "wallet" on your PC is akin to keeping $10,000 under your mattress.

I'll be fascinated to see the legal test case when someone breaks a contract involving a decent amount of Bitcoin. I imagine most people want some kind of legal recourse against their bank screwing them over. Either the courts won't recognise the currency, and all confidence in it will be lost -- or the courts will recognise it and the currency will gain a huge boost in consumer confidence.

Following that, the rest of the "system" will poke their nose into Bitcoin use -- money laundering investigators, the taxman, etc., which as far as I'm concerned is as it should be. We'll end up with more or less the same economics as we have now, except that direct "cash" payments over the Internet (or any other data transmission mechanism) become easy.

O-key

[93 Escort Wagon]

So the EFF will accept BitCoin-based donations. I'm sure their staff will be ecstatic to be paid in this "currency" rather than old-fashioned euros (or dollars or yen).

Seriously - this seems no more useful than money earned in Second Life or Monopoly money.

Re:O-key

[sturle]

I've sold a lot of bitcoins (in the past when the value was lower than 1/4 of it's current value) for normal money in the bank, and I have bought coffee, gadgets, a month of VPS and more for bitcoins. My main use of bitcoins now is to transfer money to a foreign account without paying outrageous fees to my bank. (The foreign account is for paying expenses in that country, not for tax evasion or anything illegal.) I buy bitcoins in my currency and sell in the other. Often with a profit as well. Can't do that with monopoly money.

Re:O-key

[SaroDarksbane]

Linden controls the money supply of Second Life, and Monopoly money can be printed by anyone. Bitcoins don't follow that model.

Given that, you might say that US dollars are closer to Second Life cash than Bitcoins are . . .

Re:O-key

[monk]

I actually have a friend that has paid all of her bills from her Second Life business for many years now, and more than a few who pay their RL rent that way. I'm not saying that will work forever, but it can work.

Re:O-key

[shutdown -p now]

So the EFF will accept BitCoin-based donations. I'm sure their staff will be ecstatic to be paid in this "currency" rather than old-fashioned euros (or dollars or yen).

TFS seems to imply that they can be readily exchanged for USD, so I don't see a problem.

Obvious question

[skine]

Do alpacas really wear socks?

Re:Obvious question

[gstoddart]

Do alpacas really wear socks?

Only if it really completes the outfit. ;-)

Re:Obvious question

[Anonymous Coward]

no....but my neighbor's craps in my yard :(

Re:Obvious question

[Anonymous Coward]

no they dont but they do have vicious fangs and a taste for fighting .

Re:Obvious question

[Anonymous Coward]

Most don't. The rare sock-wearing Alpaca is, well, rare because it feeds only on bitgrass.

Non-story

[DNS-and-BIND]

In other news, my new currency will trade at 100USD to 1. Therefore, it is much better and we can all ooh and ahh over how obsolete national currencies are. That's the whole story here, right?

"Working directly with the owners of this small family farm in Massachusetts, we are offering selected Alpaca products for Bitcoins."
Yeah, so I suppose this is someone's father or something. Real great customer there. The Eco-shop online linked from the article has 5 of 7 categories listing no products. You know I love buying from those sorts of stores! Either the owner never finished the site or it's been abandoned for some time, there's no way to know. The best part is giving my CC info to some shop with tumbleweeds and cockroaches wandering about.

Re:Non-story

[Anonymous Coward]

In other news, my new currency will trade at 100USD to 1. Therefore, it is much better and we can all ooh and ahh over how obsolete national currencies are. That's the whole story here, right?

It's not just parity. It's parity with a significant amount of coins in circulation. Try to start a new currency at 100USD to 1, and see how many buyers you get. There are now over 5 million bitcoins in circulation.

Re:Non-story

[Desler]

I like how you quoted only that part and yet ignored the more substantive part which is that this currency is only accepted by a half finished internet store and some alpaca farm. Get back to us when we can buy groceries, gas, clothes etc from REAL stores or places like Amazon, etc. Until then you can bleat all you want about your 5 million coins but they are just as worthless as flooz and beenz (Which in their heyday were at least accepted at more places).

Re:Non-story

[Anonymous Coward]

If you use bitcoin you never give the shop your CC info, just saying.

Re:Non-story

[Janek Kozicki]

what CC info? you just send cash to some address, or use bitcoin escrow service if you want be more secure.

Re:Non-story

[dc5464]

For what it's worth (since you don't know me from, well, an alpaca), Grass Hill Alpacas is for real, about 1/4 mile from my house. Nice folks and cute alpacas (also goats, ducks and guinea fowl, though I don't think you get socks from those). They do sell socks made from alpaca wool.

Re:Non-story

[hey!]

Well... what do you mean by "significant"? There are supposedly 5.37 million "bitcoins" in circulation. By comparsion there are 829 billion in US *currency* in circulation according to the New York Fed. That's more than 153 thousand times as much, which sounds impressive for bitcoin until you realize that the 829 billion is only the actual paper money and coinage out there, which is only a tiny fraction of the US dollars in circulation, most of which have no more physical existence than as a figure in a Fed spreadsheet somewhere.

This kind of apples and oranges comparison bedevils public thinking about money and policy. How can the US Budget (2.38 trillion for FY 2011) be almost three times the amount of actual currency in circulation? The actual money supply turns out to be hard to specify, because the vast majority of money out there is credit. The Fed's M2 statistic sets a lower bound on the total number of dollars out there at 8.8 trillion, which happens to be less than the US annual GDP of 14.1 trillion.

In any case, in an apples to apples comparision, there are 5.37 x 10^6 BitCoins acknowledged to be in existence, and 8.8 x 10^13. Still pretty impressive for BitCoins to be within a factor of 1.7 million of the dollars in circulation, but as we can see this doesn't necessarily tell us anything about the volume of *transactions* conducting in each currency. Weird, huh?

Re:Non-story

[Anonymous Coward]

You don't give your credit card number out to anyone, because Bitcoin is its own currency. All you need is the receiver's Bitcoin address (34 character alphanumeric string e.g. 1MU97wyf7msCVdaapneW2dW1uXP7oEQsFA). You send them Bitcoin, they verify receipt, and then send you the goods.

Since the merchant cannot tell for sure who sent the coins, they generate a unique address for each transaction. So, you want to buy some alpaca socks. You enter the shipping information, etc, then click "purchase". The merchant creates a unique address that is tied in their system to this order. Once the merchant sees that the correct amount has been sent to the address, they can go ahead and ship the product.

Re:Non-story

[EpsCylonB]

Except this isn't one person saying that 1 bitcoin == 1 dollar, this is lots of people trading with each other.

Re:Non-story

[gox]

It's not yet apparent how well bitcoin will penetrate the micropayment area but it's just not true that it is only accepted by a half finished internet store. Check your facts. You can't yet use it to buy just any random thing online, but you can buy a lot of services.

I see it as an alpha phase and it's just beginning to be really useful. I like how I can send very small amounts of money to anyone without restrictions and commissions and even if it turns out to be problematic for tangible goods, I think it will be accepted for online services, like hosting, online casinos and donations.

Re:Non-story

[eugene2k]

Unlike flooz, the bitcoin cannot become worthless in a day. If it does become worthless it will do so gradually. The difference is that bitcoin is not controlled nor backed by any one person or company and thus is unaffected (not affected beyond recovery to be more precise) by the bankrupcy of any one company.

Re:Non-story

[eugene2k]

The amount of bitcoins in circulation is actually irrelevant. The number of people trading in bitcoins is what really matters.

Re:Non-story

[Desler]

You can't yet use it to buy just any random thing online, but you can buy a lot of services.

Such as what beyond one internet service host, a half-finished beauty site, some random gadget store no one has ever heard of and some alpaca farm? If that's the sum total of where you can buy stuff that is not "a lot".

Re:Non-story

[Teancum]

One thing that might kill Bitcoins overnight is somebody discovering a way to make an arbitrary hash with the SHA-256 algorithm in a fixed amount of time. Essentially, break the algorithm.

Then again, if that algorithm is broken, a whole lot of people are going to be pissed and the value of Bitcoins is going to be the least of their concerns. A gradual degradation of the algorithm (aka like the MD5 hacks) would merely result in the Bitcoin developers switching to another algorithm. It still is a big deal, but it would be something that would also be public knowledge if it happened and would earn somebody either a Nobel Prize or some similar recognition in mathematics or computer science.

Re:Non-story

[Teancum]

Significant in this context is in comparison to other "private" currencies and scrip. There are local scrips that are used (such as Ithica Dollars or Canadian Tire Money) which are commonly used as alternative currencies, and Bitcoin seems to be doing at least as good as the best of these private currencies. Yes, that is a big fish in a small pond, but it does indicate that Bitcoin is "graduating" out of that circle of anti-government crusaders and moving into the hands of more normal people.

There are right now about 10 million Ithica Dollars in circulation at the moment (pulled from a quick Google search), so Bitcoins is in good company in terms of outreach and the depth of the market.

In terms of the volume of transactions in the currency, I'd have to look through the block explorer to see how much is actually changing hands. The interesting thing about that is how all of the transactions are published and in theory it is possible to trace at least where each "coin" has been spent (at least to what addresses it has gone to) traced back to the original generator. That is part of the protocol. Unfortunately, I'm at a loss right now to tell you how many are being exchanged or "traded" via transactions as I'm not sure the statistic is being monitored.... although it can be derived from the data.

The trade volume on Mt. Gox (the main currency exchange site) on the other hand is published and monitored.... with a daily volume at between 10k-50k bitcoins for conversions between dollars and bitcoins. While not huge, that is a fair bit of churn and certainly represents at least some people putting in what I would consider to be real money even if it is below the radar of most governments. With parity, I'd still put that in the realm of thousands of dollars being processed on a daily basis... something that a guy living in his mother's basement is unlikely to have. On average, about 70-100 offers are listed at any given time, and there are "dark offers" on that exchange (made but not listed to keep from skewing the market). Again, not huge, but compares to the cash flow of a small business and the exchange is starting to earn the exchange owner some real money off of the small fee he charges per transaction.

Re:Non-story

[skywire]

There is no concept of parity here, so "It's not just parity" is not a meaningful utterance. Which is why DNS-and-BIND used the title "Non-story" for his excellent parable that evidently, as is so often the case with parables, can be understood only by those with ears to hear. Go back and read it again, and think about it a little. Or maybe a lot. Perhaps this additional (longer) tale will help you understand: Suppose tomorrow we began to speak of quantities of US money in terms of cents (0.01 USD), and the US reserve bank were to begin printing $1 bills with "One Hundred Cents" on them instead of "One Dollar". And the NYSE began quoting stock prices in cents rather than dollars, etc. etc. Would Americans hang their heads and say Woe is us, our currency is worth so little? Hardly. It would have no significance, would it? If there were currently some other state-issued currency in the world, say, the Frambonian Kumquat, which happened to trade today for about 0.01 USD on the currency exchange markets, would their newspapers happily trumpet tomorrow that the Kumquat had reached "parity" with the US currency?

Re:Non-story

[Anonymous Coward]

But apparently this currency has increased in value 20-fold since september, something your new currency can not hope to do...

Re:Non-story

[LingNoi]

No that's irrelevant too because people trading to themselves is counted as a transaction and there is no way to know who owns what accounts.

Re:Non-story

[metacell]

https://en.bitcoin.it/wiki/Trade

Re:Non-story

[metacell]

Also the total value of their transactions.

All of today's currency is meaningless...

[Anonymous Coward]

...in the post-apocalyptic world. That's why I'm saving bottle caps.

404

[Anonymous Coward]

successfully slashdotted

Credits

[otis wildflower]

I won't take any new currency seriously unless it's denominated in credits. Or possibly quatloos.

Re:Credits

[MakinBacon]

I only accept bars of Gold-Press Latinum.

In other news...

[ratsouffle]

The Flainian Pobble Bead is still at parity with itself. 1 Flainian Pobble Bead = 1 Flainian Pobble Bead.

Not as long as you can use dollars to pay for oil.

[Anonymous Coward]

When countries stop taking dollars in exchange for oil, then the dollar will be worthless. Over night. War doesn't look quite so bad now, does it?

Oblig

[AcidPenguin9873]

BitCoin credits? BitCoin credits are no good out here. I need something more real.

I don't have anything else...but BitCoin credits will do fine.

M&Ms reach parity with the dollar

[Anonymous Coward]

I have an M&M. I'll give it to you for a dollar.

Re:M&Ms reach parity with the dollar

[Gleapsite]

Your exchange volume would be incredibly low.

Mtgox's current volume is 38492
http://www.mtgox.com/trade/history

Re:M&Ms reach parity with the dollar

[Tapewolf]

Dammit, dammit, dammit. I hoped that link was about the M&M exchange rate.

Re:M&Ms reach parity with the dollar

[Teancum]

Start an M&M exchange where you trade M&Ms for Bitcoins. You might get some traction there.

The problem is that since Mars, Incorporated insists upon being paid in dollars, it ends up being a variation of a dollar exchange with a variation depending on the price of sugar and cocoa beans in dollars.

BTW, http://www.biddingpond.com/ is a good place to consider if you want to start small and sell M&Ms for Bitcoins.

bucket shop

[YesIAmAScript]

I'd invest in penny stocks before I invested in this.

Re:bucket shop

[sturle]

I'd invest in penny stocks before I invested in this.

If you had invested in Bitcoins a year or so ago when they were worth a penny, your investment would be worth 100 times more by now. Perhaps a currency which flows freely without borders, artificial restrictions or monitoring by governments and tax collectors isn't something people would want to use after all. In that case the value may drop and your investment get worthless. But a lot of people think this currency has useful qualities over other currencies, and invest in them. That's why the value of bitcoins increase so quickly.

Re:bucket shop

[nemesisrocks]

I'd invest in penny stocks before I invested in this.

Have you considered investing in penny socks instead?

Re:bucket shop

[FuckingNickName]

If you had invested in Bitcoins a year or so ago when they were worth a penny, your investment would be worth 100 times more by now.

Perhaps a currency which flows freely without borders,

Freely? So what the hell does this mean in the FAQ: "a public list of all the previous transactions is collectively maintained by the network of Bitcoin nodes, and before each transaction the coinâ(TM)s unusedness will be checked."

artificial restrictions

There is a plan for there to never be more than 21 million coins! How is that not the most fucking retarded artificial restriction for a currency? Why in the name of fuck would anyone propose a currency which would only just cover one coin each per resident of New York?

or monitoring by governments and tax collectors

Where are the computers and networks outside of the reach of monitoring by governments and tax collectors, please?

Re:bucket shop

[sturle]

If you had invested in Bitcoins a year or so ago when they were worth a penny, your investment would be worth 100 times more by now.

Perhaps a currency which flows freely without borders,

Freely? So what the hell does this mean in the FAQ: "a public list of all the previous transactions is collectively maintained by the network of Bitcoin nodes, and before each transaction the coinâ(TM)s unusedness will be checked."

It means that each transfer is recorded by the network with a sender and receiver address. You can make a new address for each transaction, and the address does not have to be known to anyone except the sender and receiver. When a transaction is spread each node will check if the coins which are beeing sent actually belong to the address sending the coins. Otherwise it would be possible to spend the same coins twice.

artificial restrictions

There is a plan for there to never be more than 21 million coins! How is that not the most fucking retarded artificial restriction for a currency? Why in the name of fuck would anyone propose a currency which would only just cover one coin each per resident of New York?

How many coins would be enough? How many microcoins? Nanocoins? Yattocoins? In the current version of the protocol you may send as little as 0.00000001 coin. This may be expanded when needed. His name is Satoshi, btw.

or monitoring by governments and tax collectors

Where are the computers and networks outside of the reach of monitoring by governments and tax collectors, please?

So what if they monitor the networks? They have no means of finding out who owns an address, unless the owner reveals it. There is no practical limit on the number of addresses you may own or use. Addresses are just cryptokeys.

Re:bucket shop

[Anonymous Coward]

Why are you so angry?

Freely? So what the hell does this mean in the FAQ: "a public list of all the previous transactions is collectively maintained by the network of Bitcoin nodes, and before each transaction the coinâ(TM)s unusedness will be checked."

What has this to do with free flow? You have no /registered/ identity, you don't have any restrictions on how and why and to whom you can send money, you don't even have to know any details about the person you are receiving money from, and only the receiving address of the person you are sending money to. Receiving addresses are generated randomly, nobody /has/ to use an address twice. If you require the utmost anonymity while sending, you can use different wallets for different identities, which are themselves just random numbers. You can discard the wallets that you don't want to use (though you will lose money if you don't empty them first). You can use online services to do all this if you don't want to maintain your own wallet. You can connect to them via i2p or tor. Et cetera...

There is a plan for there to never be more than 21 million coins! How is that not the most fucking retarded artificial restriction for a currency? Why in the name of fuck would anyone propose a currency which would only just cover one coin each per resident of New York?

That isn't a "plan". That is the specification. That is the nature of it. As opposed to being artificial.

Plus, bitcoins are almost infinitely divisible. So it doesn't make much difference how many of them are out there... Other than concerns about deflation.

Where are the computers and networks outside of the reach of monitoring by governments and tax collectors, please?

It can be monitored. But consider what actually is being monitored. If you are really paranoid, use i2p.

Re:bucket shop

[FuckingNickName]

It means that each transfer is recorded by the network with a sender and receiver address. You can make a new address for each transaction, and the address does not have to be known to anyone except the sender and receiver. When a transaction is spread each node will check if the coins which are beeing sent actually belong to the address sending the coins. Otherwise it would be possible to spend the same coins twice.

IOW, not "freely" at all. I have to announce my transaction to every single other person using the bitcoin system, and sufficient people using the bitcoin system have to be available with some sort of transaction history to make sure their earnings aren't being double-spent. For anonymity I have to rely on source, destination and machines close enough to my machine not being monitored. For security I have to rely on my networked machine not being compromised with a keylogger and uploader - more fucking likely than someone walking into my home and stealing my wallet, especially if something on my hard drive represents the value of, say, a shiny new house.

How many coins would be enough? How many microcoins? Nanocoins? Yattocoins? In the current version of the protocol you may send as little as 0.00000001 coin. This may be expanded when needed. His name is Satoshi, btw.

So what you're saying is that the protocol upgrade will mitigate slightly against the hoarding that always takes place with backed currencies.

So what if they monitor the networks? They have no means of finding out who owns an address, unless the owner reveals it. There is no practical limit on the number of addresses you may own or use. Addresses are just cryptokeys.

So where does the actual packet communicating the coin payment initially get sent from? Do I throw some pixie dust into the air and it simultaneously appears on all the computers involved in the BitCoin system, including the receiver? Does the doublespend check also simultaneously appear from pixie dust on all the computers involved in the BitCoin system?

Re:bucket shop

[FuckingNickName]

What has this to do with free flow? You have no /registered/ identity

The cash in my wallet is not registered to any particular identity, it's just covered with my fingerprints, skin samples, probably fragments of ink from my wallet, maybe cat hairs, and - for now - has the tell-tale property of actually being in my fucking wallet - so anyone monitoring my wallet's contents over time will have a pretty fucking good idea that I've just spent $10 somewhere if I have $10 less after going out somewhere.

you don't have any restrictions on how

Oh, I see, so I can just hand over a printed representation of a coin in my wallet to you? No, there is an extremely strict protocol for how I send the money. This isn't a bad thing - I can't give you real money by faxing a copy of a benjamin and destroying the original, either - but don't make shit up.

and why and to whom you can send money,

Well, I can't send $100,000 in used notes to the Taliban because the government says I can't, and if they have a good reason to suspect I'm doing so they will dump on me from a mile up. Similarly, the "why and to whom" for sending Bitcoins may be regulated - ultimately by somehow monitoring the path of packets between source and destination. The "impossible" will be regulated out of legality by requiring, in general terms, that currency transfers over a certain value are illegal if untraceable. Well, OK, these laws already exist in most countries, but because no-one takes Bitcoins seriously yet, the laws aren't implemented wrt/ Bitcoin exchange.

you don't even have to know any details about the person you are receiving money from,

Wow, it's almost as sophisticated as Western Union - somewhere there's an entity disguising the path between source and destination, and that's nothing new.

Receiving addresses are generated randomly, nobody /has/ to use an address twice.

More numbered accounts. This is not interesting.

You can discard the wallets that you don't want to use (though you will lose money if you don't empty them first).

So, I can discard something except that I have to announce to everyone what's happening to its contents first.

You can use online services to do all this if you don't want to maintain your own wallet.

Oh, oh, like a bank!

You can connect to them via i2p or tor.

So is it anonymous on its own, or not?

Re:bucket shop

[sturle]

It means that each transfer is recorded by the network with a sender and receiver address. You can make a new address for each transaction, and the address does not have to be known to anyone except the sender and receiver. When a transaction is spread each node will check if the coins which are beeing sent actually belong to the address sending the coins. Otherwise it would be possible to spend the same coins twice.

IOW, not "freely" at all. I have to announce my transaction to every single other person using the bitcoin system, and sufficient people using the bitcoin system have to be available with some sort of transaction history to make sure their earnings aren't being double-spent.

So, do you think it should be possible to spend the same coins twice? Even banks keep track of transactions on your account, you know, to make sure you don't spend the same money twice. Do you know a better mechanism? And you don't announce the transaction to every other node. You just have to announce your transaction to at least one other node (which must be connected to at leas one other node, etc). Each transaction is 260 or so bytes. Each block, which can contain many transactions, has a merkle hash which can be used to verify the entire block chain all the way to the genesis block. You don't need the entire chain if you record the state at a trusted point, and then continue from there. This will be implemented when there is a need for it.

For anonymity I have to rely on source, destination and machines close enough to my machine not being monitored.

No. Please go and read about Bitcoins and peer to peer systems in general. If you are worried about your own network being monitored, you may use Tor or I2P anonymous VPN services (Mullvad accept payment in Bitcoin, btw) and proxies and whatnot. You don't even have to send the transaction from your own computer. Valid transactions spread quickly among the peers, and it is not trivial to find out where a transaction first originated. The destination for the coins is not involved in the transaction, btw. Transactions are recorded in the block chain, and the destination client reads about it there.

For security I have to rely on my networked machine not being compromised with a keylogger and uploader - more fucking likely than someone walking into my home and stealing my wallet, especially if something on my hard drive represents the value of, say, a shiny new house.

There are web based wallets. Just as secure as other means of Internet banking. Also you can back up and encrypt your Bitcoin wallet. Try to back up and encrypt the wallet in your pocket.

How many coins would be enough? How many microcoins? Nanocoins? Yattocoins? In the current version of the protocol you may send as little as 0.00000001 coin. This may be expanded when needed. His name is Satoshi, btw.

So what you're saying is that the protocol upgrade will mitigate slightly against the hoarding that always takes place with backed currencies.

I don't think a protocol upgrade will be needed, but there are free bits which may be used to signify extra resolution if there ever is a need. And hoarders only make troubles for themselves. If you can't get enough bitcoins, you will stop using it, the value of Bitcoins will drop, and the hoarders lose in the end.

So what if they monitor the networks? They have no means of finding out who owns an address, unless the owner reveals it. There is no practical limit on the number of addresses you may own or use. Addresses are just cryptokeys.

So where does the actual packet communicating the coin payment initially get sent from? Do I throw some pixie dust into the air and it simultaneously appears on all the computers involved in the BitCoin system, including the receiver? Does the doublespend

Re:bucket shop

[Anonymous Coward]

Erm, given that you put that much effort into this...

1- I don't understand your point about skin fragments in your wallet. It doesn't project well to Bitcoin I'm afraid. Are you talking about private keys?

2- I also don't get what you mean by making shit up. I don't think it should surprise anyone that there is a protocol to prevent double-spending for an electronic currency.

3- How do you propose to regulate the transactions in bitcoin? Don't get me wrong, I'm also be against people doing bad things, but I'm not sure you have a firm grasp of the protocol in question. Maybe you do though... They could, I guess, try to disable the network as a whole. Or kill the Internet altogether. Or, they could probably trace individual bitcoins, match them with some keys and accumulate enough data to find which IP's those keys belong to. I'm just speculating here. But I think it's not the job of the bitcoin protocol to prevent this. You can take precautionary measures yourself. It's not at all about bitcoin, it's about online anonymity. It is one of life's facts that IP's can be matched to real identities.

4- No, it's not even comparable to Western Union, IMO.

5- Not numbers, the concept of randomness.

6- You are perfectly right, you caught me there... However you can send your coins to a pool and withdraw different coins from the said pool afterwards.

7- Yes, there are even bank-like services if you don't want to install the client.

8- If you want to hide your IP, you have to use a service to do that. I don't think it should be included in any p2p protocol. It's not even a good idea for bittorrent. Using a widely used service has infinitely more advantages. If someone goes out and implements premix routing for bitcoin, fine, but I don't see the point in requiring that.

For kids watching at home: Do not send money to Taliban!

Re:bucket shop

[gox]

For security I have to rely on my networked machine not being compromised with a keylogger and uploader - more fucking likely than someone walking into my home and stealing my wallet, especially if something on my hard drive represents the value of, say, a shiny new house.

LOL! What on earth does this have to do with BTC? Why the hell didn't you encrypt your savings wallet? What are you doing on Slashdot? ;-)

Re:bucket shop

[FuckingNickName]

The initial packet must come from one machine (doesn't have to be your own), and will be sent to machines it has connections to.

And that continues to be the problem, no matter how many times you try to handwave that this critical vulnerability can surely be solved by something else (Tor, whatever).

Rather than trying to make wallets anonymous, how about making transactions anonymous?

Re:bucket shop

[FuckingNickName]

If you have a file representing $500,000 on your hard drive, I guarantee that criminals more intelligent and sophisticated than you will expend the resources to penetrate whatever shitty home firewall security you have and install a keylogger on your machine, rendering the passphrase to your encrypted wallet as useful as your contribution to this thread.

Re:bucket shop

[metacell]

I suspect you're trolling, but for the benefit of anyone who's following this discussion:

Since one's transactions are propagated anonymously from node to node, it's very hard for an adversary to tell where it came from. Before the news of the transaction reaches the adversary, it may have passed through a dozen intermediaries. Unless the adversary is on the same network as you and sees you send the initial message, it takes a lot of resources to track the transaction back to the source.

I have no idea what you mean by making wallets anonymous. With BitCoin, transactions are pseudonymous if you use the same address for several transactions, i.e, someone can tell different transactions have the same source, but not who that source is. If you choose to create a new address for every transaction, they become completely anonymous.

The True Measure

[JackOfAllGeeks]

and even alpaca socks.

They have finally arrived.

Re:The True Measure

[avandesande]

It's good to know that your alpacas will have warm feet.

Strength of dollar != competition

[RingDev]

The dollar is weaker compared to other currencies than it has been in the past. It sounds like this is a bad thing, but really, it's not such a clear cut issue.

For instance, I have a bunch of Canadian and European friends who are coming to the US this year to vacation. The weaker US dollar means their Canadian dollars and Euros will go much farther. And Tourism is awesome because it brings money from outside of the economy in.

We are also seeing a slight uptick in exported goods as our prices are effectively lowered by the weak dollar. It creates a lower labor cost (relatively speaking) and allows us to create more jobs for exported goods manufacturing and services.

And it also means that our debts, while still significant, are effectively smaller.

There's a fair bit of not so go that goes a long with a weakening dollar as well, but it's not a wholly good/bad situation. There is some good, some bad, and some ehhh that accompanies any change in value of the US dollar.

-Rick

Re:Strength of dollar != competition

[adonoman]

Likewise, Canada is having a bit of a rough time at it, since we depend strongly on exports, and when our dollar is as high as it is right now (in comparison to the US) it hits our industry pretty hard. Yes, most consumers like it, for the cheaper goods, but it's not all rosy.

Re:Strength of dollar != competition

[TheRaven64]

Yup, take a look at Japan a couple of decades ago. Having a strong Yen caused them serious problems. They built up a large manufacturing base and, for a while, everything that you bought had 'Made in Japan' stamped on it. Japanese nationalism, however, meant that they were also heavily into the idea of buying local goods, so they weren't importing much. That meant that everyone was exchanging money for Japanese goods, and the Yen became very expensive. This drove up the price of Japanese-produced goods, and priced them out of the market entirely for a while.

This is something that people tend to overlook when they see the trade imbalance between the USA and China - a trade imbalance is a problem in either direction. The US Civil War was largely precipitated by the imbalance caused by slavery. When you have a slave class, you have people who are producing vastly more than they consume, which concentrates wealth too much and distorts the economy. The working class are priced out of the labour market by the slaves, then they can't afford to buy the things that the slaves produce, and you have serious problems - lots of production capacity, but a non-functioning economy.

Re:Strength of dollar != competition

[RichiH]

> For instance, I have a bunch of Canadian and European friends who are coming to the US this year to vacation. The weaker US dollar means their Canadian dollars and Euros will go much farther. And Tourism is awesome because it brings money from outside of the economy in.

You seem to be missing the part where less people visit the USA because of the security theater. I know several people who postponed their trips indefinitely.

Re:Strength of dollar != competition

[AmiMoJo]

The Yen is a good example of just how badly exchange rates can affect things.

I am going back over to Japan in a couple of weeks and the current rate for the Pound is 130 Yen. Back in 2007 it was 225 Yen, so today everything is 2x as expensive for me as it was then. I have gone from being a wealthy traveller to a poor one.

The Pound/Yen rate is an example of two extremes. The Yen is very strong and the Japanese government is trying is trying to weaken it. The Pound is worth shit and the government is making it worse. Dealers in Japanese cars are finding life very difficult at the moment.

Re:Bartering

[TaoPhoenix]

No, we'll be bartering iPhones for Cows and Chickens after the 4th world war.

So now

[Kludge]

So now you know you can call it a con.

Re:So now

[Anonymous Coward]

Points if i had 'em. We are all slaves of banks whose job it is to con us into borrowing the pretend money they invent as a way to indenture ourselves. Or at least it feels that way after this crisis.

Re:So now

[Briden]

we all work for the banks. you have never worked for anyone else in your life, and you never will.

I don't understand the appeal

[curril]

BitCoin enthusiasts seem to fall into the same category as gold standard promoters. You can't run a modern global economy with financial instruments based on a rare commodity. Only 21 million BitCoins will be generated, which will cause deflation once that limit is reached. The only way a government could use BitCoins is the same way they used to use gold, ie. buy up enough of it to have reserves that can be used to pump money into the economy when it needs it. BitCoins won't be more stable than modern fiat currencies because they will have all the problems associated with gold, such as hoarding and dumping. BitCoins are interesting as an attempt to create an electronic form of cash, but hoping to build a stable economic platform on them is foolish.

Re:I don't understand the appeal

[Anonymous Coward]

Only 21 million BitCoins will be generated, which will cause deflation once that limit is reached.

since this is not a debt based currency, can you explain how deflation is a negative effect? It seems to me deflation is only a concern when your wares drop in price but your debts do not.

Re:I don't understand the appeal

[marco.antonio.costa]

Once that limit is reached neither deflation nor inflation will occur. Any price fluctuations in a currency with stable supply will be the result of supply and demand fluctuations.

Which is the point of having a price system in the first place, conveying that information as accurately as possible.

Re:I don't understand the appeal

[benjamindees]

deflation

What's wrong with things getting cheaper?

Re:I don't understand the appeal

[Anonymous Coward]

Some of us don't think that our leaders are smart enough to "pump money into the economy when it needs it" -- that a fixed, predictable money supply will be better than one subject to the whims of federal reserve bankers and politicians.

Re:I don't understand the appeal

[nhaehnle]

Let's say BitCoin were to take off in a serious way and have, some years in the future, one million users. So there will be, on average, 21 BTC per user. Now assume it really does go global and there will be one billion users. Suddenly, you only have 0.021 BTC per user. Do you honestly not see how that would cause deflationary pressure?

Furthermore, even if the population itself were constant, the same effects would appear in a growing economy. You seem to assume that the total supply and/or demand in an economy is a constant in the long run. I hate to break it to you, but reality looks very different.

Re:I don't understand the appeal

[maxwell demon]

When the wares drop in price but the money you own remains the same, it is more rational for you to wait with buying something as long as you can. This effect is the larger, the stronger the deflation. Why should I buy a new TV today, if next week I can buy both a new TV and a new computer for the same money?

And now imagine what effect this has on a modern capitalistic economy.

Re:I don't understand the appeal

[curril]

Deflation is also a problem because it discourages spending since your BitCoin will buy more tomorrow than it does today. Moreover, if enough people used BitCoins then there will be people who loan and borrow BitCoins, thus the debt problems of deflation will arise as well.

Re:I don't understand the appeal

[curril]

It's all fine and dandy to not to trust the government to regulate the money supply, but I fail to see what BitCoins do to avoid the problem. If the government wanted to, it could buy up a lot of BitCoins, decreasing the supply available for market functions, and then the government could dump in BitCoins from its reserves to increase the supply. If the government is having a hard time getting enough BitCoins to build up its reserves, it could just tax people. Even if the government stayed completely out of the BitCoin market, there is nothing preventing a group of individuals getting together and doing the same thing for their own benefit.

Re:I don't understand the appeal

[Anonymous Coward]

BitCoin will be used to price goods and services, not people. Besides, we've figured out how to make floating point calculations a long while ago.

What you mean is that as goods and services go up or down in supply in relation to the static amount of BitCoins, their BC denominated value will be lower or higher. The first case is not deflation, it is a rise in the standard of living due to higher productivity.

I've never assumed what you said the last paragraph. I just don't think having to deal with smaller numbers is a very good excuse for confiscating the purchasing power of savers by creating and spending new money.

Nonetheless enterprises like BitCoin are a good thing. If enough people want a currency that loses its value in time, rest assured that that demand will be met, like BitCoinWorthLessEveryDay or something.

Re:I don't understand the appeal

[Anonymous Coward]

Things getting cheaper means less employment, because there is no demand. In a "perfect" world, people's wages would decrease along with prices, but unfortunately deflation generally just leads to unemployment for the unlucky.

Wages are sticky. If you have 100 people working at the same salary in a company, 10% deflation will more likely lead to the laying off of 10 people instead of everyone taking a 10% cut. It's much easier to reduce the value of people's salaries by inflation to get full employment than to use deflation to eventually decrease wages.

Re:I don't understand the appeal

[serviscope_minor]

I 1981 a usable computer such as the BBC B (i.e. a micro without a rubber keyboard) cost 350 pounds. External storage cost more for the tape drive and a LOT more for the floppy drive.

That's the price of a high-end netbook these days, with much cheaper ones available. Oh, and the netbooks come with a screen, unlike the beeb. You had to use a TV (awful) or a cub monitor which cost a lot, though I don't remember how much.

It's hardly a fair comparison since despite the relative stability in price, since a netbook is vastly more powerful. The price/mips has plummeted beyond belief. Perhaps for a fairer comparison, to get 128MFlops in 1976 with a fewhundred megs of memory would set you back a cool $8,000,000. Disks and IO terminals are extra. Today you can get 128MFlops and a fewhundred megs of RAM in a low-end smartphone for a few hundred dollars, plus these days you get a whole bunch of nifty extras, like a graphics terminal!

A 19" colour TV in 1981 cost about 250 pounds. These days, you can get a 19" tv for about 100 pounds. And cheap TFTs have much better picture quality that cheap CRTs. Plus, the TV is much thinner, uses less power, doesn't take minutes to warm up to full brightness, has more than 5 programmable channels, etc etc.

In other words, the examples you picked on have suffered MASSIVE deflation. The costs have plummeted to a quite amazing degree. In the electronic goods world, it has always been the case that waiting even a few months will get you more for less, but the industry has not suffered for it.

Anwayway, the point was I was wearing an onion on my belt as was the fashion at the time...

Re:I don't understand the appeal

[Rob the Bold]

deflation

What's wrong with things getting cheaper?

Nothing. It's the selling them tomorrow for even cheaper that gets you.

Re:I don't understand the appeal

[SETIGuy]

Deflation is bad because it reduces the amount of BTC in effective circulation (i.e reduces spending of a currency because it will be worth more tomorrow). People will tend to hold BTC rather than spend, which means the people who accept BTC are more likely to stop accepting them. At the same time the merchants are more likely to hold the BTC they do get rather than selling them on an exchange. Since there will be fewer BTC on the exchange, the price will be driven up further.

Back when the US was using fully gold backed currency annual inflation and deflation were often extreme, and they were just as damaging then as now. There were times when there was 15% inflation one year followed by 15% deflation one or two years later.

Re:I don't understand the appeal

[curril]

Uhm, if the average price of goods goes down relative to the currency, that is, by definition, deflation. While you can argue that it is justified by a higher standard of living, it is still deflation and it will still have all of the problems that deflation has, namely discouraging borrowing and spending.

The real issue here for you seems to be that you want to be assured that whatever currency you manage to accumulate will have the same purchasing power tomorrow as it does today. The only way to do that with currencies subject to inflation is to put the money in a savings account or other investment vehicle whose interest rate compensates for inflation. You think that using BitCoins as a currency would get around that problem, but it doesn't. Assuming that somehow, some way the value of your BitCoins is the same tomorrow as today, then they will be worth more in inflated dollars and you will be taxed on the difference so that you will still end up with less. In fact, in any well-regulated free market, you can expect that if the demand for a fixed, nonrenewable commodity, be it BitCoins or Picasso paintings, remains the same, then its value in an inflated currency will be about the same as it would be if you had started a savings account instead.

Re:I don't understand the appeal

[Anonymous Coward]

Once that limit is reached neither deflation nor inflation will occur. Any price fluctuations in a currency with stable supply will be the result of supply and demand fluctuations.

of course deflation will occur, the use of BTC is increasing and if it keeps on increasing when the 21M limit is hit, supply and demand will increase the value of a BTC

Re:I don't understand the appeal

[marco.antonio.costa]

of course deflation will occur, the use of BTC is increasing and if it keeps on increasing when the 21M limit is hit, supply and demand will increase the value of a BTC

If you mean that as more/less of a widget X is produced the price of widget X will decrease/increase in relation to a BTC, then that is just what happens in a market economy. If prices are going down it means the standards of living are rising due to greater productivity, and if prices are increasing it could be due to an increase in demand or a shortfall in supply.

That is not deflation. Deflation is a shrinking money supply, which causes price deflation, i.e. shrinking prices across the board.

Re:I don't understand the appeal

[nedlohs]

If you reach have a fixed money supply then obviously you will have either price deflation or price inflation. If you are seeing economic growth you will have deflation, if you are seeing economic decline you will have inflation.

Unless you are defining inflation/deflation in terms of the money supply not in terms of prices - but that would be retarded in a system with a fixed money supply.

Re:I don't understand the appeal

[marco.antonio.costa]

Unless you are defining inflation/deflation in terms of the money supply not in terms of prices - but that would be retarded in a system with a fixed money supply.

I am, that's what inflation/deflation is. Baloons and money supplies inflate/deflate, not prices, these go up and down for a plethora of reasons, including money supply inflation/deflation.

As for being retarded, well, I'm glad we aren't talking about a system with a fixed money supply, but a system with a lot of different moneys: dollars, euros, yen, yuan, BitCoin and who knows which other moneys people will come up with if this P2P currency fad takes on.

Re:I don't understand the appeal

[nedlohs]

I have no problem with the money supply definitions of inflation/deflation, it's just silly to not be clear you are using them since the usual (as in what most people think you mean) meaning is prices.

When you are discussing with someone using the price definitions it's just being obtuse. You agree that there will be a decrease in prices which is clearly what the post you were replying to meant when they said "deflation" - but you intentionally use words that will cause your statements to be misinterpreted. What is the point - save a couple of words of typing in order to make an argument where there isn't one?

And this had nothing to do with multiple currencies, the topic (of this particular thread) is whether the fixed size nature of the BitCoin money supply is a problem.

Re:I don't understand the appeal

[AP31R0N]

Keep reading. There are only 21 million possible coins which can be divided such that if the world's population was 14B each person could have 3,401,360 units.

i doubt bitcoin users want any gov't involved in bitcoins. Most of them are anarchists.

Re:I don't understand the appeal

[slim]

i doubt bitcoin users want any gov't involved in bitcoins. Most of them are anarchists.

It seems inevitable that for Bitcoin to become ubiquitous, that government gets involved. One day, somebody will rip someone else off, to the tune of a few thousand dollars' worth of Bitcoins. The wronged party will turn to the courts.

If the courts say "GTFO, it wasn't real money and it was your own stupid fault for not using real money", then Bitcoin is doomed as a mainstream option.
If the courts say "Yep, you had a contract, you were ripped off, we'll use the power of the State to compensate you and punish the wrongdoer", then the goverment is involved in Bitcoin. State regulation, to the extent the maths allows it, will follow.

Re:I don't understand the appeal

[AP31R0N]

The SEC monitors Linden Dollars. Maybe they will eventually take note of BitCoins. However, Lindens are centrally controlled, like WoW gold, and can therefore be annihilated when the servers turn off. BitCoin can't be controlled anymore than the MPAA can control the copying of a song. We can copy it faster than they can sue us. They'd have to make it illegal to use, but we've seen how that usually works when the people don't care about the law.

That would be the first real test then. In the US, i think the former is more likely than the latter. Our currency says "ya gotta accept this" and our gov't won't accept BitCoin for payment of taxes. If you earn BitCoins, you have to pay taxes on that because it's income.

i'm not sure BitCoin is meant to go mainstream. It might be an alternative currency.

Hrm.

Re:I don't understand the appeal

[slim]

since this is not a debt based currency, can you explain how deflation is a negative effect? It seems to me deflation is only a concern when your wares drop in price but your debts do not.

I daresay people are already lending and borrowing Bitcoins. How large does it need to scale before it becomes what you call a "debt based currency"?

Re:I don't understand the appeal

[LingNoi]

Yeah... but surely if you don't spend the money you're losing it right? So it makes sense not to keep large sums of longer periods of time otherwise its value decreases.

Re:I don't understand the appeal

[LingNoi]

I think the GP means government controlled market rather then the government forcing people to pay back scammed people.

Re:I don't understand the appeal

[Rob the Bold]

Yeah... but surely if you don't spend the money you're losing it right? So it makes sense not to keep large sums of longer periods of time otherwise its value decreases.

Actually, it's the other way around with deflation. If you don't spend the money, it becomes more valuable in terms of what it can buy. So you'd want to keep as few goods on hand as possible, and delay buying anything you could. And you certainly wouldn't want to take out a loan to buy anything . . .

Re:I don't understand the appeal

[LingNoi]

Yeah, I can see the problem with that unless the goods are constantly being revalued but then the price just keeps getting more and more expensive.

I wonder if Bit Coin can be turned on it's head to make more sense then. For example generated coins become less valuable the longer they exist and the generation doesn't stop at 21 Million coins.

Re:I don't understand the appeal

[metacell]

You're right about computers and electronics, but I think the main problem lies with investments, not consumer goods. When you can earn an effective interest by just sitting on a pile of cash, there's little incentive to invest your money, or to lend it out to businesses.

In the case of BitCoins, I think there's a risk deflation will cause some people to hoard their BitCoins instead of spending them, which would stunt the growth of businesses dealing in BitCoins.

It's not necessarily a huge problem, though - BitCoins don't have to replace the US$ or anything like that to be useful. I think it's useful as an addition to traditional currencies, not a replacement for them. For example, it provides an easy, safe and anonymous way to make micropayments over the Internet without relying on a central authority. (Sure, transactions can be traced with the current protocol if a government agency devotes enough time and money to it, but it's anonymous enough for most people's purposes.)

Re:I don't understand the appeal

[metacell]

I don't think the debt problem will be so bad, though, since people can chose to take out loans in their own country's currency instead.

Re:I don't understand the appeal

[metacell]

Deflation is by definition a general price decrease, whatever the reason for it is. The reason can be a decreased money supply, increased productivity, more people buying into the currency, or something else. But whatever the reason, a general price decrease may lead to money hoarding, which causes problems with not enough money being available for investments.

Re:I don't understand the appeal

[metacell]

It seems inevitable that for Bitcoin to become ubiquitous, that government gets involved. One day, somebody will rip someone else off, to the tune of a few thousand dollars' worth of Bitcoins. The wronged party will turn to the courts.

If the courts say "GTFO, it wasn't real money and it was your own stupid fault for not using real money", then Bitcoin is doomed as a mainstream option.
If the courts say "Yep, you had a contract, you were ripped off, we'll use the power of the State to compensate you and punish the wrongdoer", then the goverment is involved in Bitcoin. State regulation, to the extent the maths allows it, will follow.

True, but I think BitCoins may work quite well even if they don't become mainstream.

In the Soviet Union, people were only allowed to trade using the Ruble. But the ruble was practically worthless outside of the Eastern Bloc, and there was a large illegal economy which used bartering and US$. Obviously, someone who was ripped off on the black market couldn't turn to the courts, since he/she would incriminate themselves. And yet, the black market system thrived in the shadow of the official, planned economy.

I think the BitCoin economy (the goods and services traded for BitCoins) will work the same way if it doesn't get officially accepted.

Re:I don't understand the appeal

[slim]

You disregarded my last sentence.

There are several problems here

[Omnifarious]

First, a fixed number of bitcoins will not actually work. The smallest unit of value people will want to exchange is not one 21 millionth of all the units of value in the world. It will be significantly smaller than that. As the total size of the economy expands, the total value people will want to exchange as a fraction of the size of the economy will become smaller and smaller.

Secondly, the way the system works affords no transaction anonymity. And for a currency to be 'real' this is a big deal.

I have long felt that in order for any currency to work, it must be able to be 'stolen'. In other words, you must be able to use it to engage in transactions that are not legally sanctioned.

Of course, the identity behind any given public key in the bitcoin network is something of a mystery. But it's not that hard to trace, especially since it's possible to compile a complete and unbroken history of all transactions any bitcoin has been involved in.

This is an interesting experiment, but I don't think it's a replacement for currency.

Re:There are several problems here

[MozeeToby]

The smallest transferable unit is not a single BitCoin. It is in fact .00000001 BitCoin, making for plenty of transferable units.

Re:There are several problems here

[harks]

Bitcoins can be divided up into units as small as .00000001 The software currently only supports 2 decimal points, but this can be increased in later versions.

Re:There are several problems here

[fastest fascist]

Point #1: The coins are divisible to 8 decimal places. 21 million coins is 21 bilion milliBitcoins, or whatever you want to 1/1000th of a Bitcoin, and it divides much further. Point #2: masking the origin of a payment should be quite simple. You could, for example, send a sum to some currency exchange and send a different sum to a different Bitcoin address. Having a completely untraceable wallet should not be too difficult.

Re:There are several problems here

[JesseMcDonald]

The smallest unit of value people will want to exchange is not one 21 millionth of all the units of value in the world.

That shouldn't be a problem; the protocol allows each BitCoin to be divided by up to six decimal places, so the limit is one 21-trillionth of the world-wide value, not one 21-millionth. The official client only allows two decimal places for now, for practical reasons, but that would be trivial to change.

Secondly, the way the system works affords no transaction anonymity.

This is more of a problem. The system is designed to allow anonymous spenders and recipients, but some simple traffic analysis can show connections between various accounts (some of which may be linked to real-life identity; names, shipping addresses, e-mails, etc.) by following the transfers. However, no one has suggested an alternative with better privacy guarantees. It seems that the transaction history has to be public knowledge if one is to catch attempt at double-spending the same coins. BitCoin remains the most anonymous way of spending money online, as everyone else explicitly tracks your identity. At least with BitCoin some statistical analysis is required to uncover this information, with varying degrees of confidence.

Re:There are several problems here

[Anonymous Coward]

I disagree. Here's why:

"First, a fixed number of bitcoins will not actually work."

There is a relatively fixed amount of gold and silver in the world. However, it seems to work just fine as currency.

"Secondly, the way the system works affords no transaction anonymity."

Actually, the system allows for complete transaction anonymity, in that you don't know who you are transacting with. What it does not provide is transaction unlinkability. However, considering the transactions are anonymous, the ability to link transactions is almost entirely diminished by anyone who desires to obscure their trail by chaining multiple transactions. In other words, "laundering" bitcoins is trivial.

"I have long felt that in order for any currency to work, it must be able to be 'stolen'. In other words, you must be able to use it to engage in transactions that are not legally sanctioned."

How is bitcoin unsuitable for this? There is no record of what the bitcoins were used for, only that they changed ownership between different key holders.

"Of course, the identity behind any given public key in the bitcoin network is something of a mystery. But it's not that hard to trace, especially since it's possible to compile a complete and unbroken history of all transactions any bitcoin has been involved in."

That's like saying the identity of a person using cash is easy to trace because you know who the first person to possess the dollar bills in question was. While you can follow the transaction record, obscuring who actually possesses the bitcoins is not terribly difficult.

Re:There are several problems here

[Anonymous Coward]

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

From the FAQ:

How divisible are Bitcoins?

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

Re:There are several problems here

[compro01]

The smallest unit of value people will want to exchange is not one 21 millionth of all the units of value in the world. It will be significantly smaller than that. As the total size of the economy expands, the total value people will want to exchange as a fraction of the size of the economy will become smaller and smaller.

You aren't restricted to trading in an integer quantity of bitcoins. You can trade in increments down to 1/100000000 of a bitcoin.

Re:There are several problems here

[Americium]

So you mean to say, start printing bitcoin notes at a bitcoin treasury... and expand the money supply to avoid deflation.

Re:There are several problems here

[Omnifarious]

I read that after I posted. *sheepish grin* That still doesn't really invalidate my point. But the economy will have to get to be about 10 times larger than it currently is for it to start being a problem. Given my conservative estimate about about 20 trillion dollars of capital in the world, there are about about 100 times that many bitcoins. I think people would be willing to tolerate a transaction unit of about 10 cents, so the amount of capital could grow to 200 trillion dollars before that started being an issue.

Re:There are several problems here

[Anonymous Coward]

First, a fixed number of bitcoins will not actually work.

That is by design. There is no authority to start printing more money. The money is virtual and divisible to like the eighth decimal place if I remember correctly. With a currency that has no authority, there has to be a fixed number of coins available.

Secondly, the way the system works affords no transaction anonymity.

I would guess its as anonymous as using cash. There are no middle-men or banks in the process, its completely peer-to-peer.

I have long felt that in order for any currency to work, it must be able to be 'stolen'. In other words, you must be able to use it to engage in transactions that are not legally sanctioned.

These are orthogonal issues, and not valide for bitcoins. Bitcoins can be stolen. Just like cash can be stolen. Its on their FAQ. I don't think that any use of this currency is legally sanctioned. You can use bitcoins for anything so long as the receiver accepts them as payment. Thats it.

Re:There are several problems here

[Anonymous Coward]

Bitcoins have a granularity down to 8 decimal places so there will actually be up to 2.1 quadrillion pieces of bitcoins available for trade. And there is transaction anonymity because you can create a new key pair for every single transaction if you wanted to.

Re:There are several problems here

[Anonymous Coward]

> As the total size of the economy expands, the total value people will want to exchange as a fraction of the size of the economy will become smaller and smaller.

The change of the unit is the smallest problem. This is deflation with all its consequences.
If you buy something now, you get a sock for it, if you don't spend it, maybe you two for it.
If it were the only currency, it would bring economic growth to a halt, as people are better
of not spending money, which in turn leads to falling prises.

Now, imagine the dollar would be backed by gold.

Re:There are several problems here

[mdielmann]

>

Secondly, the way the system works affords no transaction anonymity. And for a currency to be 'real' this is a big deal.

I have long felt that in order for any currency to work, it must be able to be 'stolen'. In other words, you must be able to use it to engage in transactions that are not legally sanctioned.

While I don't agree that currency is valid if it can be stolen, anonymous transactions are important. (Of course, anonymous transactions imply the possibility of coerced transactions, which is close to the same.) From what I've seen, you can change your bitcoin address arbitrarily, so it can be different between any two transactions. Of course, if the change is logged, it becomes rather pointless.

Personally, I'm curious about this. I think I'll have to look into it more.

Re:There are several problems here

[FuckingNickName]

Organised criminals have proven that "laundering" real money remains trivial - well, easy enough to get away with, anyway.

So governments implement anti-fraud legislation to require various people involved in large transactions to report them. This reduces national laundering but cross-border laundering continues.

Oh, what's that, you're completely safe if you just keep your money under your mattress^W^W^Won your HDD? Plus ca change.

Re:There are several problems here

[Anonymous Coward]

You are wrong on both points:
1) The smallest ammount is 0.000 000 01 BitCoin. Beside that, there is always a possibility of "micropayment sites" which would use bitcoin as the root system.

2) You can create and use new address for every transaction, this is actually encouraged.

Re:There are several problems here

[noidentity]

How could anyone in this thread have known this? Their criticism is understandable. Er, wait, there's a while website explaining BitCoins, never mind...

I've just had this kind of scary revelation. This and another thread have people criticizing something up and down, even though they haven't read about the thing and their critiques aren't even of the thing, but their flawed idea of the thing. It makes me wonder whether virtually all the threads here are like that, just that it's not always as obvious. Ugh.

Re:There are several problems here

[Anonymous Coward]

i think there are several other/bigger problems with bitcoin:

1) it requires a distributed record of ALL PREVIOUS transactions for verification of a coin's history/ownership. this get's huge fast, even if the data is distributed, whereas cash doesn't have this burden.

2) the bitcoin system paid out more coins to miners/generators in the first years than it will this year or will in future years. this means the first few people to mine will have the vast majority of the money. i'm not saying that it can't represent trade-able value, but those first miners will be quite rich... for no particular reason. in that sense, it's just multilevel marketing, with the older miners being near the top of the pyramid. a nice place to be, but not a good investment for those downstream. i'm not sure i want to make those first 3 bitcoin miners billionaires.

i is kind of a novel social hack, but i hope noone takes it seriously enough to put time in because i definitely expect a second-life-like banking collapse at some point. i'm still amazed that second life banks got so big.
furthermore, i think regular cash proves you DON'T need elaborate cryptography to do "money". considering the trends in cpu research (quantum and probabilistic cpus, etc), i see the crypto in the current bitcoin system being it's major weakness. i'm pretty sure rsa is a solved problem for quantum computers, meaning any big company/government could exploit bitcoin.

it's novel, and it solves ONE of the problems most people have with money (a central issuer), but i think it creates new concerns as well.

Re:There are several problems here

[benthurston27]

If people ever begin trading for things with a billionth of a bitcoin, like say some alpaca socks, wouldn't that mean that a bitcoin I buy today will be in the future worth a billion alpaca socks? Isn't that the definition of deflation that I don't want to spend bitcoins but hoard them?

Re:There are several problems here

[Anonymous Coward]

Why don't you read the bitcoin FAQ before spouting out about? Yes, there is privacy because you can make as many user accounts as you wish and they are not traceable to you. And you can trade fractional bitcoins so the limit is much greater than 21M. Geez.

Re:There are several problems here

[AP31R0N]

There are 47,619,047,619,047,619 units in the total pool (when the system has run its course). Seems like quite a few. Enough for 14 B people to have 3,401,360 each.

For a currency to work people need only to accept it as a medium of value exchange.

i think it is not meant as a replacement for national currencies, but as a supplement.

Re:There are several problems here

[themusicgod1]

What, and credit cards/cash/cheques are?

If you still live in a country where cash is anonymous consider yourself lucky.

Re:There are several problems here

[metacell]

First, a fixed number of bitcoins will not actually work. The smallest unit of value people will want to exchange is not one 21 millionth of all the units of value in the world. It will be significantly smaller than that. As the total size of the economy expands, the total value people will want to exchange as a fraction of the size of the economy will become smaller and smaller.

The question is, why would we want BitCoins to be the world's single currency? The world has hundreds of currencies today, and they seem to coexist quite well. In fact, if BitCoins became the world's single currency I would be gravely worried, since any flaw in the BitCoin system (deflation, the hashing algorithm is cracked, BitCoin clients hacked on a massive scale, etc) could have cataclysmic consequences. Using several currencies not only evens out the risks, it allows people to continue trading in alternative currencies when their main one fails. For example, in the world of today, people often resort to trading in US$ when their own country's currency fails.

If BitCoins work out, they will provide a safe and easy way to do transactions over the Internet and in real life, which will continue to work even if conventional banks or credit card companies fail. On a darker note, they will also provide a way to avoid taxes, launder money, transfer funds illegally between countries, and arrange payments for criminal goods and services.

Secondly, the way the system works affords no transaction anonymity. And for a currency to be 'real' this is a big deal.

I have long felt that in order for any currency to work, it must be able to be 'stolen'. In other words, you must be able to use it to engage in transactions that are not legally sanctioned.

Of course, the identity behind any given public key in the bitcoin network is something of a mystery. But it's not that hard to trace, especially since it's possible to compile a complete and unbroken history of all transactions any bitcoin has been involved in.

It's possible to trace a BitCoin transaction if you devote a lot of resources to it - but that's possible with ordinary cash too. Cash has fingerprints left by previous owners, trace amounts of chemicals, serial numbers which can tell the authorities where it was obtained, and so on. Tracing a BitCoin transaction is hard today - it probably requires deploying a large number of "listening peers" on the BitCoin P2P network and using statistical analysis, so you can zero in on the computer where a transaction originates. But more importantly, BitCoins can be made harder and harder to trace by improving the communication protocol between peers. The communications protocols are not set in stone; only the format for the BitCoins are.

Re:There are several problems here

[metacell]

True. Hopefully, BitCoins won't become so popular so fast that this will be a huge problem.

Fiat for Fiat???!

[Anonymous Coward]

Why would you want to trade one Fiat Currency for another Fiat Currency?

http://dailyreckoning.com/fiat-currency/

Re:Fiat for Fiat???!

[maxwell demon]

Because unlike normal fiat money, Bitcoins have tracking built-in? :-)

From the FAQ:

How does Bitcoin work?

Bitcoin utilizes public/private key digital signatures (ECDSA). A coin has its owner's public key on it. When a coin is transferred from user A to user B, A adds B’s public key to the coin and signs it with his own private key. Now B owns the coin and can transfer it further. To prevent A from transferring the already used coin to another user C, a public list of all the previous transactions is collectively maintained by the network of Bitcoin nodes, and before each transaction the coin’s unusedness will be checked.

In other words, whenever you do a transaction, the network will learn about it. In other words, everyone will be able to know everything about your financial transactions, as long as you do them with Bitcoins.

Re:Fiat for Fiat???!

[ribuck]

... whenever you do a transaction, the network will learn about it. In other words, everyone will be able to know everything about your financial transactions, as long as you do them with Bitcoins.

The amount and timing of each transaction is public. You can watch the transactions happening in realtime at the Bitcoin Monitor. But the transactions are listed against pseudonomys crypto keys. The system doesn't know your email address or nickname or anything like that.

Re:Fiat for Fiat???!

[compro01]

They know a quantity of bitcoins were transferred from one address to another address, addresses which are not inherently linked to anyone in the real world as you can generate new addresses on a whim. It's like shuffling money between numbered Swiss bank accounts, only more so.

Re:Fiat for Fiat???!

[maxwell demon]

Anyone who ever received money from you or has given money to you will have received your public key, and can easily connect it with your name.

Re:Fiat for Fiat???!

[ribuck]

No. You can have as many public keys as you want. Anyone who cares about privacy would use a new public key for each transaction, and the user interface makes this easy to do.

Re:Fiat for Fiat???!

[metacell]

Why would you want to trade one Fiat Currency for another Fiat Currency?

http://dailyreckoning.com/fiat-currency/

Simple: because when one currency fails, you want to fall back on the other. Also because BitCoins provide anonymous transactions, and is so cheap and easy it can be used for micro-transactions.

Or do you mean why the government would want to trade one fiat currency for another? They wouldn't. BitCoins will be used by people at the grassroots level, and will likely be excessively hard for governments to tax or regulate.

Re:Fiat for Fiat???!

[metacell]

The network only learns which BitCoin addresses are involved in a transaction, and has no idea who the addresses belong to. You can also switch BitCoin addresses as often as you like.

Re:Bartering

[Quiet_Desperation]

Did I miss the 3rd world war? Was that MySpace versus Facebook? Netscape versus IE?

bullshit.

[unity100]

you are not using your brain. money, is currently just a tool to allow for production and distribution of goods and services. you can do this in a million different ways, one of which being the below :

http://www.youtube.com/watch?v=4Z9WVZddH9w

Dragon's Tale

[Anonymous Coward]

FWIW, my company has released (public Alpha) a game that revolves entirely around Bitcoins. It's a cross between a casino and an MMORPG - the first of it's kind, from what I can tell. Dragon's Tale is filled with novel games of luck and skill. Some skill-based games have a >100% EV for the smartest players.

It's built on the same platform as A Tale in the Desert, so native Linux, OSX, and Windows clients are available.

Re:Dragon's Tale

[Teppy]

Posted as AC by mistake.

noone gets anything

[unity100]

it is a distributed cloud that lives on the internet. its sole purpose is to exist independently, without anyone's intervention, to make possible for exchange of units, for transactions.

cannot be controlled, manipulated by any party or even its creators. it has a life on its own.

it is based on computational power that network has. so, even if you attempt to join the network with a huge farm of servers to get rich in an instant, the computational power of the network immediately grows with your own server farm joining it, and you fall short of being able to break the system. not to mention getting huge cost of electricity shoved up in your ass, not justifying your effort.

its also based on electricity cost. for anyone to beat the system, electricity cost must be zero. but, the system assumes that, if a condition in which electricity cost practically becomes zero, the need for money and transactions will end. (rightfully)

Re:noone gets anything

[jack2000]

Solar cells. Atomik power plants make SOMUCH energy, i still don't get it why people have to pay such exorbitant fees for electricity.

Make Roads, roofs and everything else you can out of photovoltaics already.

Re:noone gets anything

[unity100]

you STILL need to pay for the materials to produce and maintain solar cells. and you still have to use that electricity to generate bitcoins, instead of using it elsewhere. since, the reward for generating bitcoins goes down and down with the size of the network, it is already way past the point at which you could be producing bitcoins with solar energy, and remain profitable.

Re:noone gets anything

[Teancum]

The computational power of the network is not the basis of Bitcoins. What matters is that generating the coins is difficult or even next to impossible (more the current situation as it will take an ordinary computer running nonstop about a year or more to generate coins now), so that introduces scarcity in the currency. It is this forced scarcity that allows some stuff to be generated but not a whole lot that gives the value to the Bitcoins. Any other similar mechanism that only allocates a few coins to somebody at a time would work, and it doesn't have to be CPU cycles.... although that is perhaps one of the easiest ways to make it work.

Flooz

[lupinstel]

Perhaps I will take my money out of the Flooz market and make some BitCoin investments. Also, does anyone know the current Beenz to BitCoin exchange rate?

Is it 1998 again?

[Anonymous Coward]

I thought DigiCash already failed. And that one was done right.

Re:Is it 1998 again?

[gox]

Looks like it was centralized and looks like that's why it failed. I'm not an expert but I guess we have many centralized semi-anonymous currencies right now. Don't know you but for me it's easier to trust a protocol than a group of people.

dont talk out of your ass

[unity100]

Secondly, the way the system works affords no transaction anonymity.

it has total anonymity. only you, and the person you are sending the money or receiving the money knows about your exchange. noone else.

I have long felt that in order for any currency to work, it must be able to be 'stolen'. In other words, you must be able to use it to engage in transactions that are not legally sanctioned.

the above shows the nonsense of your other comment. being able to be stolen does not mean that something works.

you can lose your wallet however, if you lose the contents of the drive you are keeping it on. if the person is able to decrypt the key, s/he can get your stuff.

Re:dont talk out of your ass

[Omnifarious]

it has total anonymity. only you, and the person you are sending the money or receiving the money knows about your exchange. noone else.

If that's the case, then the FAQ needs a better explanation of what's going on. From the website:

How does Bitcoin work?

Bitcoin utilizes public/private key digital signatures (ECDSA). A coin has its owner's public key on it. When a coin is transferred from user A to user B, A adds B’s public key to the coin and signs it with his own private key. Now B owns the coin and can transfer it further. To prevent A from transferring the already used coin to another user C, a public list of all the previous transactions is collectively maintained by the network of Bitcoin nodes, and before each transaction the coin’s unusedness will be checked.

It sounds like verifying that you really did get a unique bitcoin that wasn't used to pay for something else requires going through the transaction history of that bitcoin and making sure no other peers have an alternate transaction history. Is this really what's going on? If it is, how can you say that you can use bitcoins and have total anonymity?

Re:dont talk out of your ass

[jack2000]

• Make a new wallet
• Use real money from an exchange and then back into bitcoin between wallets
• ????
• Profit!

Re:dont talk out of your ass

[unity100]

delete the wallet you had, and noone can track you for any transaction. then just assume a new wallet.

Re:dont talk out of your ass

[Teancum]

Anonymity of Bitcoin users is a big deal, and there are some on the Bitcoin forums who have raised the issue already and suggested various ways to identify who has used a Bitcoin or not.

As an example, the publicly known address for the EFF has caused a rather clear and public record of how many Bitcoins have been donated to that address. Obviously the EFF could use other addresses if somebody wants an "anonymous" donation, but the record is pretty clear that total anonymity is a false statement being perpetuated by some of the fans in the Bitcoin community.

Another perhaps more sinister example was a scammer who bilked a bunch of early Bitcoin users for about 2-3k Bitcoins early on, and a serious attempt was made to try and trace or even follow the coin transactions of that scammer. The trail ran cold after awhile when the coins were mixed with other transactions and thrown onto one of the exchanges... where the exchange didn't want to reveal who put the money in. For that kind of transaction, it has the anonymity of a paper bank note with a serial number. See also http://www.wheresgeorge.com/ for an example of how cash can be monitored and tracked... where Bitcoins are about as safe as most government currency in terms of preserving anonymity.

Fortunately, new addresses are easy to generate, and most of the websites that allow you to transfer Bitcoins to their service will allow you to generate a "one time" address for that one transaction. I've heard it is good for bookkeeping too as it separates the customers to identify exactly who has made a payment or not. In such a situation, anonymity is pretty strong and hard to break. You know that the coin has been spent, but you don't really know who has it until after it is spent again... likely to another one-off address.

What happens in terms of keeping double spending of the currency from happening is that any attempt to put in a transaction that has already been "spent" has that transaction simply rejected from the transaction block chain. Each block is created by a "block miner", and in order to "win" the block they have to trace all of the other incorporated transactions and verify that no double spending has happened. So they "earn" some Bitcoins (how new coins are created) plus get "transaction fees" for processing the block as well.... only if no double spending has happened. Yes, a meticulous search is done on each block to make sure that the complete history of all transactions has been followed to the origin.

There is a proposal to simplify the protocol a little bit in terms of eliminating transaction histories where all of the "outputs" have been spent in subsequent transactions, but that currently isn't happening yet. If that happens, it will improve anonymity a bit more so far as once you have spent the money you have received, the record of your even having it may be eventually eliminated too unless somebody is preserving that extended and expanded transaction history.

Wikileaks

[Anonymous Coward]

That looks like an ideal payment option for Wikileaks.

It works this way :

[unity100]

you join the network with your computer. the network is a cloud that lives on its own, without noone being able to control it. so, it doesnt have any central point of failure. it also awards you some amount of bitcoins for running the client, because you are contributing to the running of the system. but this is inversely proportional to the amount of computational power the cloud has at that moment - back when bitcoin was small, much more coins were awarded for joining clients. now, the network is nearing seti etc in computational power. it is impossible to generate even a single bitcoin over months with an ordinary computer now. and so on.

system assumes two things :

cost of electricity

computational power.

it is based on the computational power of the network. if the computational power increases, the system arranges bitcoins accordingly. so, even if you join with a huge server farm, you just up the computational power of the network, and the amount of coins you can earn from your participation decreases. hence, you cannot beat the network.

also, the cost of electricity is a factor. if you do the above, you will get hit by a huge cost in electricity.

only way to beat the system, is to be able to have zero cost for the electricity you spend, and then join it with mega server farms.

but, the system says that, at a point where zero cost for electricity is a practical reality anywhere on the planet, there will be no need for money, since cost of producing anything will approximate zero. (and that's right).

..........

the system is also anonymous. noone but you and the person you exchange with, know who sent them what. but, this knowledge is only in the form of awareness of a complex encrypted key existing on the other side - nothing else. it may have been done from china over a netbook, or a mobile device flying somewhere on atlantic ocean.

that is both good, and also a drawback - if you lose the encrypted keys you store on your hard drive, you lose the 'wallet' that contains your cash.

but thats no different in the real world either.

Re:It works this way :

[Janek Kozicki]

You forgot GPU. CPU mines 50 BTC for 6 months. 1 GPU for a week. 10 GPUs do 50 BTC in one day.

Re:It works this way :

[Anonymous Coward]

thanks mr cummings. holy crap even. a third grader would think. that was impossible. to read.

Re:It works this way :

[knarf]

only way to beat the system, is to be able to have zero cost for the electricity you spend, and then join it with mega server farms.

And thus the next generation of botnets found its purpose...

Re:It works this way :

[Anonymous Coward]

Errr, no. You missed a third factor.
My electricity costs nothing. (I am completely off-grid, and self sufficient from an energy perspective).
I have spare CPU cycles, which I would potentially lease or speculate with given the right risk/reward scenarios.
But my bandwidth costs money. Big money.

Re:It works this way :

[Anonymous Coward]

A minor correction: it's not impossible to generate bitcoins with a regular computer. It's just that your probability of generating a block in the system is a function of your hash/s versus the system's total hash/s. I generated a block with my computer yesterday, so it's completely possible.

The point of bitcoin isn't free money (which everyone who hears about the generation process thinks it is). The point is a secure, decentralized, digital currency. It's quite the opposite of using PayPal, or using a centralized e-currency, if you think about it. A lot of people think "it must be a con" but how can it be? You join at no risk to yourself... you trade bitcoins that have real value, but you lose no money unless you decide to start giving someone your dollars for their bitcoins...

Re:It works this way :

[gox]

You need minimal bandwidth but if you are around Mars, the latency would prohibit the usage of a bitcoin miner. Otherwise, you might want to consider selling those juicy CPU cycles...

Re:It works this way :

[gpuk]

"but thats no different in the real world either."

Except it is a lot easier for someone to break in to a PC and steal wallet.dat than it is for someone to raid a real world bank account. In the latter case, the victim also usually has some form of legal recourse available depending on the circumstances of the theft.

eWallets might in time alleviate this problem but at the moment they offer nothing more than their word that your bitcoins are safe. They operate with no regulatory oversight, compliance checks, security audits or even an industry code of conduct. Basically, you are trusting some random dude with a server somewhere to look after your money and have absolutely no guarantee or protection if something goes wrong (e.g. they get hacked or the guy runs off with all the depositors coins).

Re:It works this way :

[Cronock]

As one of the other posters pointed out, unless your electricity is free you're losing money the entire way. Unless by some miracle their currency can pay an electric bill. At full load, my mac pro consumes about $30/month.

Re:It works this way :

[Thelasko]

only way to beat the system, is to be able to have zero cost for the electricity you spend, and then join it with mega server farms.

Or take everyone else off of the network.

Re:It works this way :

[Anonymous Coward]

There are cases where the electricity is virtually free. I use electric heat and as such any increase in electricity by my computer just reduces the amount of electricity needed by my heater. This same principal works against you during hot months however since then you are paying not only for the heat but also for the cooling.

Re:It works this way :

[Geminii]

only way to beat the system, is to be able to have zero cost for the electricity you spend, and then join it with mega server farms.

but, the system says that, at a point where zero cost for electricity is a practical reality anywhere on the planet, there will be no need for money

The interesting part is when some sections of the planet have zero-cost electricity and megaserver farms, and other sections do not.

Buy a megaserver farm. Buy a megaboatload of solar cells and some geothermal and tidal power sources. Hook everything together. Free processor cycles! This doesn't mean Ma and Pa Kettle have free processor cycles, though.

Re:It works this way :

[Anonymous Coward]

The important part about bitcoin has nothing to do with the way more cpu buys more coins, it to do with the way that the majority has to keep a list of transactions, and therefore the group with the majority of cpu power determines which fork of transactions is the 'real' one.

Remember that there is nothing stopping anyone creating a bitcoin, its just if you create one, no one believes its legitimate unless you have created it by the parameters built into the current bitcoin client.

You could beat bitcoin like this: Release an awesome client. Get the majority of users to use your client, then one day a sneaky update is done so that the client accepts bitcoin created by a different method (ie. coins you just create for yourself). The currency will now fork between the different clients, those on your client and those on other clients. As has always happened in bitcoins history the majority will win out.

Make no mistake, bitcoin is controlled by whoever has a majority of market share in the bitcoin client space. There is absolutely nothing stopping the official bitcoin client from changing the inflation rate whenever they wanted because almost everyone uses that client.

You just have to look at the posts on slashdot, where you expect technical people to be, to see that 99% of people would fall for this.

Re:It works this way :

[metacell]

Our of curiosity - what happens to the BitCoins when someone loses their wallet? Are the coins lost forever, and the total amount of coins in circulation decreases?

Re:It works this way :

[Anonymous Coward]

if you lose the encrypted keys you store on your hard drive, you lose the 'wallet' that contains your cash.

If only 21,000,000 of these things are going to be made, and they can be lost, surely they will slowly disappear?

Re:It works this way :

[metacell]

It's not as simple as that, since heat needs to be circulated properly to be effective. Heat sources, like radiators, should always be placed directly below a window, so the hot air will rise upwards and replace the cool air in front of the window. This creates an airflow which circulates the air up past the window, along the ceiling towards the interior of the house, down, and then back along the floor to the exterior walls.

If a heat source is placed far from any windows, chances are it will distribute the heat unevenly, creating an uncomfortable heat environment, and that it will mostly heat the surrounding walls and floor, which transfer the heat out of the house through conduction.

Re:It works this way :

[metacell]

The 1% who doesn't fall for it would very quickly alert the rest, and I believe most of the 99% would be outraged or worried about the attempt to manipulate the system.

...wow

[fyngyrz]

the ability to buy real goods and services like web hosting, gadgets, organic beauty products and even alpaca socks."

That's good, man, because my alpaca has cold feet. It's cruel, is what it is.

Re:...wow

[Shikaku]

Now, what could make this thing interesting is if they allowed CPU jobs to be sold for bitcoins: i.e, X sends Bitcoin Co. a job, pays Bitcoin, and people that complete job gets coins. There's a lot of details to be fixed about it though (malicious code, how to spread jobs so that there isn't a race condition and minimize race to win bitcoins, etc.)

Re:...wow

[Teancum]

Selling CPU time for money has been almost as old as computing itself, and most of the time you didn't worry about malicious code or anything silly of that nature. You certainly could build a CPU emulator (java/flash/mono) which will run executable code in a "sandbox"... and it is being done in various ways even now with virtual machines of various kinds. The Seti@Home project showed you could even queue jobs in various ways for a mass computation effort.

The only point of selling that for Bitcoins is that the Bitcoin becomes the currency instead of Dollars or Euros. There are some advantages of using Bitcoins (lower overhead for transactions and the ability to calculate micropayments in an easier fashion), but you aren't using CPU bandwidth as the currency. The whole point of the hashing algorithm which "mines" the coins is merely to introduce scarcity and to "spread the wealth" while the currency is being established.

Re:...wow

[mevets]

Possibly a few other kind of 'jobs' this could work out for as well.

Re:Bartering

[Martin Blank]

There are a few who have suggested that the Cold War be considered World War III. In the proxy wars fought around the world, millions died in a fight for ideological control (or at least influence) over large swaths of territory, often hiding it by calling it an intervention for the good of the citizenry. It's not the best argument, but it's understandable.

It's also possible that TaoPhoenix figures that we'll survive a third hot war with civilization intact, but not so much for the fourth.

dont bullshit.

[unity100]

it hasnt been around 'since prehistoric times'. it has been invented in lydia around 600 BC or so, it didnt take hold for a few centuries. even in later days the basis for exchange was still barter, since it was not easy to manufacture and distribute gold/silver/metal coins.

before 600 BC, there was egypt with its > 3000 years history (even at that point in time, leave aside ours. it makes approx 5600 years if you add 2000 years since 0 AD), there was india, china.

and in 'prehistoricity', there was none of that either. for it predates 6000 BC.

Re:dont bullshit.

[Teancum]

Barter existed quite a bit before that, and trade networks have been a part of most human cultures for anything that can resemble being "human".

Yes, "money" is perhaps an "invention" of historic times with the concept of a medium of exchange.... although things like cattle and measures of grain have been used as a medium of exchange too. Many of the terms associated with money like cash, bucks, salary, and others are derived from this attempt to find a medium of exchange which works. In other words, it is a very successful idea, even if the exchange medium has changed from time to time.

People don't get paid salaries in salt any more as a general rule, nor in gold sovereigns for that matter. But the concept of a medium of exchange is still there as an abstraction.

False: everyone has to know what money you spent

[dlenmn]

See http://en.wikipedia.org/wiki/Bitcoin#Transactions

When user A transfers some to user B, A relinquishes ownership on them by adding B’s public key (address) to those coins, signing them with his own private key, and broadcasting this transaction in an appropriate message on the peer-to-peer network. The rest of the network nodes validate the cryptographic signatures and amounts of the transaction before accepting it.

If it weren't that way there'd be no way for other people to know that you no longer had the money you sent to B; in other words, you'd be able to spend the same money multiple times.

Illiad, are you reading this?

[next_ghost]

Alpaca socks? This calls for a UserFriendly comic strip featuring BitCoin and Stef!

Actually 2.1 quadrillion units

[Anonymous Coward]

There are in fact (just under) 2.1 quadrillion or 7.76 song base bitcoin units to ever exist. The 21 million is merely a decimal human/GUI-side simplification given the current market values. There is also a tonal representation, which is designed with a more long-term outlook, where the maximum is considered to be 7.76 tam-bitcoin. Given the market value of $1 per BTC, this is equivalent to about $0.0007 USD per TBC. Decimal representation can be adjusted in the future, too.

Re:Actually 2.1 quadrillion units

[themusicgod1]

But who controls when more than 21 million get to be printed?

Security Now

[Anonymous Coward]

Interesting that this happened the day after it was featured on the TWiT podcast Security Now...

Re:Security Now

[Anonymous Coward]

Interesting that this happened the day after it was featured on the TWiT podcast Security Now...

I was just thinking exactly the same thing. All power to him.

http://twit.tv/sn287

Re:False: everyone has to know what money you spen

[unity100]

and at the point you delete your wallet from your hard drive, or assume a new key, all that information becomes becomes pointless and untrackable.

Re:False: everyone has to know what money you spen

[Omnifarious]

There is a way around this. If you had a currency exchange, you could make an agreement with them. "I will send you 100 coins that show an ownership transfer from Alice to you, and in return please send me 99 coins that show an ownership transfer from you to Bob.".

That way, Bob still gets coins in payment, but they don't appear to have come from you. Of course, you have to trust the currency exchange. But when you're sending money to any merchant, you have to trust them.

Free Money

[benjamindees]

If you use electricity to heat your house, you should be setting up a couple of dedicated boxes right now to generate Bitcoins in the process. :)

And connect a water-cooled rig to your aquarium while you're at it.

Re:Free Money

[sturle]

If you use electricity to heat your house, you should be setting up a couple of dedicated boxes right now to generate Bitcoins in the process. :)

And connect a water-cooled rig to your aquarium while you're at it.

I'm way ahead of you! I've rebuilt my bathroom and exchanged the old electrical floor heating with water pipes. The water pipe is connected to my water cooled computer and graphics card in the basement below. I actually earn money by heating my bathroom! 400W of bitcoin generation. I added a lot of sensors and stuff while I was at it, and connected everything to a microcontroller which reports temperature, humidity and controls a couple of switches. The microcontroller reports to my computer, where I adjust GPU frequency and CPU load for optimal bathroom temperature. I may add a second graphics card to get an extra temperature boost when it's cold, and some heating in the basement as well. The first card paid itself and the water block after about five weeks of Bitcoin generation.

Summary for newcomers

[thatwouldbeme]

To get you up to speed:

While completely un-user-friendly at present (just take a look at Bitcoin.org whenever it comes back up), BitCoin is a phenomenon of significant scale:

Value of BitCoins in current circulation: > 5 million USD
Quantities traded daily on exchanges: in the 10's of thousands of dollars' worth daily
Bitcoin transactions on the network itself: around 10,000 BTC per hour
Computational power of the BitCoin network: 186 Ghash/sec (about 42,000 quad core CPU's, or around 2 petaFLOPS)
Active nodes right now on the p2p network: >2,600

Security: vetted by leading cryptographers as many orders of magnitude better than online banking. Cheating on a single transaction with BitCoins you already own requires you to outpace those 2 petaFLOPS above. Usurping the entire network requires you to beat the *cumulative* cycles of the network over it's whole existence. "Stealing" someone else's coins without direct access to their keys: laughable to even try and compute.

Mining/where BitCoins come from: don't be confused by this, it is as irrelevant to using them as the paper money engraving and printing process is to using cash. Many people seem to get hung up on it as the primary source of getting bitcoins, which it isn't by a long shot.. TL;DR: an open, competitive process is used to "create" the coins, with increased competition resulting in increased security so that the more valuable bitcoins become the more secure they will get. In practice this means that the cost of creating coins stays reasonably close to the market value of them. In paper money this would be like if 5$ worth of security features actually went into each individual $5 bill as opposed to the few cents that goes into the most secure paper currency, and then $100 worth of security into each individual $100 bill. Now you begin to understand why BitCoin is so much more secure than traditional banking.

Privacy: individual transactions are public, but can be split over an arbitrary # of addresses, and nobody knows who owns any addresses so in practice all transactions are completely anonymous with regards to the receiver, and you would have to be watching all connections to a given node to catch a spend, identical to traffic analysis plus discovery powers on a traditional bank. Unlike a traditional bank, BitCoin happily works over Tor and other anonymisation protocols.

And finally, the eternal question of whether BitCoin is going to seriously succeed or end up on the fringe: This is silly to pontificate on. BitCoin, like anything else on the internet, will succeed if we cause it to succeed, and fail if we ignore it. It takes a lot of hard work to establish a digital currency, and whether people put that in or not all across the web will determine what happens to BitCoin. The underlying math is provably secure; thanks to the copyfight we know that the p2p network can't be taken down by authorities. Now we just have to see if an open transaction standard that allows anyone to participate can, like the web before it, gain enough traction to matter.

Sources: http://www.bitcoinwatch.com/ http://twitter.com/bitcoineconomy https://en.bitcoin.it/wiki/Main_Page

Re:Summary for newcomers

[FuckingNickName]

Installing a keylogger and backdoor on someone's computer, discovering their passphrase and downloading their wallet, with no chance for compensation: priceless.

Re:Summary for newcomers

[Anonymous Coward]

There is no passphrase required. The wallet is stored cleartext.

Relevant

[Catskul]

NPR's Planet Money: "How Fake Money Saved Brazil"

Re:False: everyone has to know what money you spen

[fastest fascist]

Funnily, I was going to reply to GP to point out they're not strictly right, but am instead replying to you with the same message. Yes, the network stores a list of all transactions. All that means is you know which keys a given coin has belonged to in the past. If you don't know who a given key belongs to, you can't link the transaction to a person.

Slight problem...

[Anachragnome]

Slight problem.

How am I supposed to have any confidence in BitCoin when the main exchange webpage can be Slashdotted into non-functionality? Or is that a DDOS I hear (same thing?)?

Seriously, if BitCoin wants respectability as a currency then they need to deal with such things. Sure, the page could be overloaded by users doing business, but how am I to determine that when I can't reach the exchange?

On another note, it occurred to me that the stability of Bitcoin is directly tied to the stability of the internet. No internet, no value. In a day when governments still maintain "kill switches" this is a valid concern. Until the internet has established neutrality (no, it does not exist yet...), the stability of Bitcoin will remain in question, at least as far as I am concerned. Unfortunately, that is enough to deter me from using it.

Re:Slight problem...

[benjamindees]

Those exchanges are just currency exchanges. The actual Bitcoin network is P2P. The website being down is just like a bank being closed, not a huge deal. Bitcoin is dependent upon the internet for money creation. But Bitcoins can be exchanged without it. From my understanding, the only difference is that there is then some risk of fraudulent double-spending, so it's good to have access to the network periodically in order to clear transactions. This could be accomplished with periodic connections through almost any low-bandwidth communications medium, including dial-up, cell phones, wi-fi, ham radio links, in-person exchanges or perhaps even via USB keys in various public locations.

Re:Slight problem...

[BitcoinBonus]

Bitcoin's reliability and trust comes from the fact that it is a peer to peer network, a cloud. If Bitcoin was a hierarchical, corporate entity, then yes, I too would be concerned about a website for exchanging it being Slashdotted into non-functionality. But because it is a distributed network of peers, I trust that there will always be other peers to work with and interested in exchanging. Yes, if the whole internet went away, Bitcoin would have a problem, but so would most payment systems we rely on these days, and we'd have bigger problems to worry about than just the stability of the bitcoin medium.

Re:Slight problem...

[Anonymous Coward]

People need to start buying mesh boxes.
software for iphone to create a mesh box was reported as vapor ware, but could become a real app, just need a better battery.

Re:Slight problem...

[metacell]

The Internet has proven exceptionally hard to shut down. Mubarak tried to shut down the Internet during the recent uprising, but had to turn it on again, because the country's economy took too great a hit. And he never managed to isolate the country; people could still upload their pictures to the outside world with the help of telephone lines and old-fashioned modems.

Personally, I believe the Internet will outlive any single nation on Earth. Even if one country (or an entire continent) collapses, the networks in other parts of the world can easily be reconfigured to continue to function. Barring some sort of massive nuclear holocaust, it's unlikely that it will ever be shut down over the whole world at the same time.

all right, I mad

[Anonymous Coward]

As a bitcoin user I'm irked by the (obviously expected) replies calling this a con, or a waste of time, or ridiculous.

1) It's not a get-rich-quick scheme or a con. It's a decentralized network that provides a digital currency in the form of unique cryptographic keys.
2) Currency only has the value you ascribe to it. Government-backing, gold standard, things like that are all assumptions based on people valuing something. What if I only valued bricks of tea, not bank notes? It's all a societal expectation. If people want to barter using bitcoins, then bitcoins have value to them. If a serious network forms of people trading with bitcoins, well, then bitcoins hold some traction in the market. At the moment you can buy a lot of goods with bitcoin: see http://bitcoin.org/trade
3) It's no more ridiculous than the whole idea of trading pieces of paper (basically, IOUs) and gold nuggets. Money itself is ridiculous, but convenient.

I mean, think about it. Bitcoin is a great idea, it just needs to grab traction. No more relying on banks. If a financial institution fails, who cares? No more relying on government fiat currency. If a country goes bankrupt, who cares?

Keep in mind Bitcoin isn't even two years old. When the US was two years old, I don't think it even had a central currency. I think we still traded donkeys for sacks of wheat. Give it some time and stop trying to sound smart by poo-pooing everything you hear about on /.

But of course!

[gwolf]

They were dying to buy them. Imagine, the provider had a shitload of alpaca socks, and the alpacas had cold toes... Until the alpacas got bitcoins. And now the world is a better place.

No, no, you got it all wrong!

[gwolf]

Unless, of course, your alpaca is named Penny.

Backed up

[Anonymous Coward]

So what backs up your dollar? Silver doesn't as per 1913. The only thing left is debt!

Also, Bitcoin is backed up by MY promise to give you p0rn for it. Think about it! It is better than gold! ;-)

I can see where...

[Anonymous Coward]

...a technology like Bitcoin would see some resistance and make a few people uneasy, especially if it where to achieve any level of success (acceptance). It could potentially be a real game changer even if it only succeeded in proving such a system could be successful, therefore encouraging greater attempts. A really successful system could even send banks the way of newspapers and magazines and save even more trees in the process. Imagine if retail outlets accepted this currency, you could carry your coins on a handheld device and transfer them to the stores account with greater ease than spending paper money. All it would really take is consensus, no one could stop it without force and violence. Not unlike democracy.

Taxes you say?

[Anonymous Coward]

Are you talking about States of the United, united States of America, or The United States? The right to Tax concerns the right to own property -- at all, regardless of public or private use. America, Turtle Island -- whatever, there are countries and nations of ancient origin that are existing in parallel, and few know that the United States (foreign nation) is not the United States of America (confed.). It takes a Freemason to sort it out, because it was an Illuminist Freemason named Adam Weishaupt that steered Mil. Dict. George Washington to embrace and extend all these venues for redundancy sake. Only problem is there are buy-outs and bribes that none know about, and now the Brittish Crown owns United States of Washington DC, while the Commonwealths of the east-coast still have their States of America, but the moorish nation The United States owns all the corporate-State expansions west of the Mississippi River.

Concerning taxation: The States all are on a standard of Gold or Silver coin pursuant to the first Coinage Act back in the late 1700's, and it wasn't until 1861 that United States was created as a corporate State of the United to incorporate the Washington DC area in a bifurcation not part of the 13/31/48/States of America. Few people remember that to operate as an employee to United States that you must be considered a moor in a counterfeit invasive nation known as The United States used by arabs. The United States is a moorish nation existing since 1754 for the arabs that weren't allowed into the 13/31/48/States of America, and the Freemasons captured it to relocate into Washington DC as a puppet/decoy used to fill the position of CEO of UNITED STATES (US Code Title 28 3002 15 "United States is a federal corporation.").

My point is taxes don't exist by paper money; they must be filed into a district court, not by notice, but as a seizure on land for unpaid wages. If a tax arised by contract, then it's not a tax because you are liable; a tax is not liability, but due to correct unlawful activity. That's the difference between a tax and a service "fee"; everyone today is agreeing to enfranchise theirself into taxation through unlawful services. Enjoy the mindfuck, but that's my point: none can force you to commit taxable (unlawful) activity.

Also, going back to the Coinage Act: "S"tate "D"ollars are a measure of gold or silver BY THE VERRY GRAINS, while United States "d"ollars are nothing more than regulatory fees. When a man incorporated to a 14th Amendment citizen of the United States, he became his own printing press to discharge debt in same measure as what concerns remedy and res in Admiralty jurisdiction. If the debt is fictitious, it's known as a bilateral debt discharge that has been seldom known as House Joint Resolution 192. So, for those of you that have some geo-political forensic capabilities, that means that when a Birth Certificate is created by a foreign entity like a corporation known as "United States" that lives in The United States of Washington DC, then they restrict your State citizenship to the Country (like the violen Reconstruction Acts) by being a middle-man through dual (duel?)-citizenship; duel citizenship isn't allowed in the Country, so this means that the Country is verry much dormant except to the most cunning of descendants and activists known locally as perhaps "denizens" resembling free-born land-patended Illegal Aliens if not from Mexico for-example.

Does that explain enough to you? Citizens are people that live in the Fortification to a town because they are at war, while denizens live in the Country. One is a benefit that has been enfranchised (citizen) while the other is a cough* lawful standing in undisputed equity and title. Funny how the Federal government has used corporations to deprive the living creatures from all this, so that We, The People is nothing more than a legal title posessed by Federal Employees to steal land from the people of the States.

Few realized that the franchise is the Birth Certificate legal name

Re:Taxes you say?

[notsoanonymouscoward]

Bravo! Bravo! That would be an awesome stage act... call it the tinfoil monologues and do another bit about aliens. You would be brilliant.

Re:Taxes you say?

[Wandering Idiot]

Yes, yes, we know capitalizing your name differently allows you to magically not pay any taxes, because... well, no one can work out what the hell you Freeman-on-the-land folks are basing your theories on, so let's just call it an insanity defense.

Bitcoin Abuse

[exentropy]

I think illegal activity will ultimately make BitCoin. Money laundering is easy with it. Also, botnets could begin using the service to convert CPU power into money; someone is gonna abuse this.

but if they have the key...

[dlenmn]

Is the flip side that if you do know who a given key belongs to, you can link a lot of stuff to that person?

I may not be understanding the system, but wouldn't you find that out if you do a transaction with a person? I can see geting around that by changing keys often, but wouldn't that make it hard to do business? (Since your private key allows you to prove you are who you say your are, if you're always changing it, that would make it hard to identify yourself).

Re:but if they have the key...

[Omnifarious]

You would use a completely different set of private keys for identification if need be. And really, since these transactions are basically cash transactions, there's usually very little need to know who anybody is.

Re:but if they have the key...

[metacell]

Actually, a business would *want* to create a new key (BitCoin address) for every purchase, to keep track of which customers have paid.

E.g, a business owner opens his mail and sees orders from Alice, Bob and Carl. He creates a BitCoin address for each one of them, and sends each of them a message saying, "Please send your payment to this Bitcoin address". When a payment arrives at one of the BitCoin addresses, the business owner knows which customer has paid, and can dispatch the goods.

Re:False: everyone has to know what money you spen

[Kompressor]

I believe you just described the mother of all money laundering services.

I'm not sure that such a transaction would be legal.

BitCon?

[Anonymous Coward]

BitCon???

fad

[shentino]

Since bitcoins can be destroyed through abandonment, I predict that bitcoins will become impossible to continue for a long term basis.

Re:fad

[billyswong]

Any currencies can be destroyed by abandonment, there are no differences to that. It's just that government-backed currency usually won't be abandoned by the issuing government.

Re:fad

[TheBlackMan]

Since bitcoins can be destroyed through abandonment, I predict that bitcoins will become impossible to continue for a long term basis.

Completely untrue. Since the protocol allows extreme divisability (even 100+ digits), whole network could run even or 1 BTC (1 unit of currency). So even if you destroy 99% bitcoins in existence, the market still will do fine.

Re:fad

[metacell]

Probably true, but that's not a huge problem. The only thing that will happen is that BitCoins will gradually suffer from worse and worse deflation, and we will have to come up with another virtual currency. If BitCoins are used up until then, they will have fulfilled their purpose of facilitating trade.

Because that is the purpose of any currency: to facilitate trade. If bad comes to worse, some people may lose money when a currency is abandoned, but the amount lost will be far, far oustripped by the amounts of money the currency has helped change hands through trade.

Paying Income Taxes

[Teancum]

What if your income in US dollars is zero?

Try it sometime.... if you care. If you "earned" income from any source in any form, it is all taxable and you are liable to report it.... at the current exchange rate when you file (or some other IRS-acceptable accounting system for income). It doesn't matter if you get paid in Euros, Pounds, cattle, or salt. If your total income is practically zero, you don't need to report the income or pay taxes.... but you have to keep the paperwork proving you don't owe taxes for 10 years. If you file you only have to keep the paperwork for 5 years.... they want you to file even if you don't owe or even are legally obligated to file.

The IRS has considered frequent flier miles as taxable income, but an exchange rate to dollars is usually hard to determine... hence why most people can get away with ignoring that as a source of reportable income.

Al Capone discovered the hard way what happens when you fail to report income earned.... even if his method of earning income was from "extra-legal" sources. That is by design. Go ahead and see if you have better lawyers than Al Capone was able to find, in an era now where grocery store receipts can be obtained years after the purchase from the store. I don't think having your income in Linden Dollars or Bitcoins is going to help you out.

Sounds like a winner!

[Cronock]

I don't intend to sound ignorant, though I really am:
So, somebody wants to use my electricity, my CPU, and my network connection in exchange for "currency" that I can't use to pay for any of those things when the bill arrives or I need new hardware?! That sounds fishy even to me. Excuse me while I go check to see if that nice Nigerian prince ever deposited that money he promised me.

Re:Sounds like a winner!

[horza]

Try reading the comments above, there are plenty of them. Yes you can pay for those nice things when the bill arrives, you can just trade them on the exchange for dollars or euros. You won't get much of a contribution though, as the coins are difficult to generate. However, the idea isn't to generate them and make free money, the fact that it costs more in hardware/electricity than it takes to generate a coin is part of how it works. It creates the scarcity which gives it value.

Don't get hung up on the 'mining', or generating using network and CPU, of the coins. The idea is to trade bitcoins that exist. You don't need anything at all to do that. Just an electronic wallet.

Phillip.

Re:Sounds like a winner!

[BitcoinBonus]

Creating a new currency is a chicken/egg problem, like many of the dilemmas that are a part of an emerging standard or technology. Many different things have been used as currencies throughout the years:
Shells, Stones, Grain, then Coins and Bills.
Good Currencies have these qualities:
--Scarcity
--Uniformity
--Durability
--Inability to Counterfeit
--Ability to easily verify as real
--Ability to easily (and inexpensively) transfer
--Multiple denominations / Easy divisibility

Bitcoin works 'cos it meets or exceeds these qualities, particularly for on-line transactions, as compared to cash. Bitcoins will take on value as people find them to be a valuable way of exchanging value. Adoption will go slowly, but exchangers are popping up all over the place.

Woohoo

[Anonymous Coward]

Down with the bankers!

And?

[Cant use a slash wtf]

So what? Even the Australian dollar is doing better than the U.S. dollar. It's not exactly hard these days.

Re: only way to beat the system

[Anonymous Coward]

only way to beat the system is.. ..don't participitate.

Shame about the alpaca socks, tho. Dudes offering 10% discount for /. 'ers now as well ;-)

Re:It works this way :I don't thing so.

[Anonymous Coward]

Maybe you can find the answer to this there http://www.kissherface.com

NOT INSIGHTFUL

[AP31R0N]

Mod parent FUD and ignorance.

While i'm no fan of BTC, your post is wildly inaccurate enough to warrant a response. Attack it for what it is, not what it is not.

It's currency if people use it as a medium of value exchange. A pile of whatever currency Rwanda uses of little value to me, but to a Rwandan guy with kids it could be worth having good in their bellies and shelter.

You get 50 BTC for running a program in the background of your computer. It seems to take about 28MB of ram and a few % of my CPU. It's like Folding from Home or the SETI screen saver. Your computer is on all the time anyway, might as well let it crank out some BTC.

People *are* using BTC for goods and services. Poke around the website.

Where did you get the idea that currency is IOU notes that devalue? Who said that? Are you trolling?

BTC is backed by the same thing as all other currencies, the willingness of people to use it as currency. i personally, have zero use for gold, i'd rather be paid in comic books. But i do understand that other people value it so i'd be willing to use it as a currency. That's all any currency has ever been (commodity backed or not).

US currency under the Federal Reserve system is backed by debt for the most part.

Google:
Money as Debt
The Money Masters

BTC is not like WoW gold. When Actiblizzard turns off the WoW servers all that gold, entries in a central database Actiblizzard owns, disappear in a blink. Players do not OWN WoW gold, they have use and control of it for as long as the servers run. No one can do that to BTC except by destroying every copy of the program in the world. Imagine the difficulty in quarantining open source software that's running on a few million machines. People could copy it faster than any authority could delete it.

Don't think of it as free money. The likelihood of you getting any for free (aside from the faucet) is pretty low. It's far easier to just buy them (if you want to, no one is making you do it).

It's a fad unless it takes off in a big way. i can't see that happening for a long time or unless some black swan event ruins debt money.

Re:NOT INSIGHTFUL

[metacell]

Well, in all fairness, until governments switched to fiat money, banknotes were essentially IOU notes: they enabled the holder to redeem, from the government, the gold they had once exchanged the note for (or gold to a value equal of whatever goods they had once exchanged the note for). The earliest banknotes were issued by private banks and were essentially vouchers which enabled the holder to reclaim gold they had deposited (potentially at another bank far away).

Bad Article to Reach Slashdot

[Semyazza]

Hello Everyone, This article does not do the Bitcoin system Justice. A good site to see the available services would be to go directly to the merchant listings. I am also a Bitcoin business owner ( http://www.biddingpond.com/ ) and have seen the value of things being traded from bitcoin change significantly. Some good URLs to see what is available on the market are: https://en.bitcoin.it/wiki/Trade (Bitcoin Wiki Trade Section) http://www.bitcoinshop.com/ (Database Kept by a bitcoin user) Not to mention my previously mentioned site (although we have a low volume 10-30 items listed at any given time). Yes, Bitcoin is still in its infancy but, we will see great things from this online currency.

Re:World War III

[TaoPhoenix]

Brilliant answer.

Yes, I was giving us a "freebie" incident, with some unknown tech not trashing the entire atmosphere after using a nuke. Then in the war after that, someone made a mistake...

Re:Bartering

[Quiet_Desperation]

OK, but it takes more than a few outliers to declare an official WW3 and use WW4 in casual discussion. Just sayin'

It's also possible that TaoPhoenix figures that we'll survive a third hot war with civilization intact, but not so much for the fourth.

That's actually what I thought it was- a reference to the Einstein (??) quote about WW4 being fought with sticks and rocks.

Second Life has bled out of its grid!

[Anonymous Coward]

LOL it was only a matter of time before some oddball Lindens type currency actually made it out into the internets. I, for one, welcome our new virtual overlords!

The Black Internet Economy

[metacell]

It's a fad unless it takes off in a big way. i can't see that happening for a long time or unless some black swan event ruins debt money.

I think another type of event could make BitCoins take off: if people start using it for a black Internet economy.

As long as you only trade services on the Internet, BitCoins make it very easy to avoid sales tax and income tax. For example, people could buy BitCoins for dollars and use them to pay for premium accounts on web forums. The web forum owner could then use the BitCoins to pay for web hosting. The web host owner could exchange some of the BitCoins for dollars, and use others to pay for sex services he frequents (image forums, webcam stripteases, etc). And so on. The pornographic industry alone should have the power to drive a thriving black Internet economy, and large parts of the porn industry is used to operating in a legal grey area.

Even for those criminals who earn and spend money in a conventional currency, BitCoins could make it a lot easier to transfer illegal money between countries. For example, a small-time drug dealer could sell his wares on the streets for US$, then buy BitCoins for the US$ and transfer them over the Internet to Central America, where he uses the BitCoins to pay his drug supplier. The supplier in turn sells the BitCoins for cash to other Central Americans, and the surplus of BitCoins owned by them would in turn drive other legal and illegal BitCoin businesses.

The current BitCoin client doesn't support anonymity, but it would be easy for two "shady" dealers to set up an encrypted communications link to exchange BitCoins. And even with the current client, the government would have to do a lot of work to track an individual's tax evasion. If each individual user only spends or earns a few dozen US$ in BitCoins per year, tracking them would hardly be worth the IRS' trouble, but it would still leave room for a huge black Internet economy.

bitcoin has limitation in design

[Anonymous Coward]

a good design of a currency should:
- have no limitation in terms of quantity, should not be limited to a single software, should be available instantly.
The programming is a very useful skill and I think a reputation system is even more useful to do these transactions.
Suppose, for example you take my ebay reputation system and instead of using money I buy from you using virtual units, therefore my account will show a minus balance by creating currency of nothing. Now the next person can pass on the currency received from me.

The single condition is that in any moment the sum of all the units in the system is zero (0) and that when accepting currency from someone, you should be base your decision on verified reputation of the buyer(also seller should have reputation).

a few places to get bitcoins

[Anonymous Coward]

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