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

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

[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

[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

[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

[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

[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

[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

[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

[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

[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

[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

[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

[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

[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

[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

[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

[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

[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*"

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

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

[benjamindees]

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

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

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.

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

[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.

Obvious question

[skine]

Do alpacas really wear socks?

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.

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

[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

[EpsCylonB]

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

All of today's currency is meaningless...

[Anonymous Coward]

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

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!

[Nadaka]

Not entirely true.

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

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: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.

The True Measure

[JackOfAllGeeks]

and even alpaca socks.

They have finally arrived.

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

[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: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.

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

[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

[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: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.

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

[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

[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:M&Ms reach parity with the dollar

[Tapewolf]

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

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.

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 :

[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: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.

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: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:...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.