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

[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

[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

[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

[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

[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.

The real threshold

[Drakkenmensch]

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

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: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.

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: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: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: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:...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.