Slashdot Mirror
BitCoin, the Most Dangerous Project Ever?
Jamie found a followup to the bitcoin story we've been following awhile. The article talks about the untraceable, un-hackable nature of BitCoin. They can't be locked down like PayPal, and the article predicts that governments will start banning them in the next 18 months.
What a badly written sensationalist story. It's like something from the Daily Mail
"Bitcoin is a P2P currency that could topple governments, destabilize economies and create uncontrollable global bazaars for contraband."
I hate to tell you this, but this has already happened with regular-government issued legal tender.
Look at druglord Mexico, most 3rd-world countries, and the US with its billion-dollar Wall Street bailouts and ponzi schemes. Bitcoin would be a little late to the game.
He who knows best knows how little he knows. - Thomas Jefferson
I still have no clue what this 'bitcons' are. Can anyone give an explanation not stepped in sensationalism?
Simply put, it's a form of digital cash. Its main advantage is that it's a peer-to-peer thing, so there's no central authority (aka PayPal or Visa) to shut it down, or to block payments from anyone to anyone for political purposes. For instance, there's no way to prevent someone from donating to Wikileaks if they want to. Like cash, there are no chargebacks, which is either an advantage or disadvantage depending on your point of view. The cryptology makes it rather secure and prevents people from issuing a double-spend, or "writing a bad check" so to speak.
There are a few other aspects, such as low transaction fees and its status as a deflationary currency, and backing up the wallet file because suddenly you are your own bank and are in charge of your own security, but you don't need to know much about that unless you're interested in learning more.
At the moment, it's more of an experiment or proof-of-concept, though it's rapidly expanding beyond that. It's a currency in that it has value because people believe it to have value and are willing to exchange it for goods and services. The market is somewhat shallow at the moment, but it's growing all the time. An interesting project to watch, at the very least.
I believe they mean it is peer-to-peer, so there is no middleman, unlike something like PayPal where PayPal is the middleman, so it can't be traced unless you are there. In addition, if it doesn't save the "from" source after the transaction, there is no way to tell where the money came from.
Seems like it would make money laundering and tax evasion easy. Of course, there is an easy way to fix that as far as drugs go - make all drugs legal and tax them, then spend the money that went into enforcement on education (like Portugal did).
This is not to say that all Libertarians are ignorant, but that Bitcoin appeals to Libertarian ideals and requires ignorance of how money works to be sold. Bitcoin has no in-built velocity. Taxing authorities won't accept them and having a fixed amount of them means that they don't have a debt-based life-cycle as does the money most of us claim ownership to. Also, even if Bitcoin were to take off, as demand for it increased, it would create its own valuation bubble where it becomes more valuable to hold the money than it does to invest it. Nobody would be able to borrow in Bitcoins at a reasonable rate of interest, real demand drops, then speculators are left holding a bunch of worthless digital currency. If you think that Bitcoin is a good idea, you are likely in need of an education in economics and accounting and need to lay off of the conspiracy theories.
My explanation mostly focused on the problems of credit cards ;) Bitcoin can be explained. Lots of people understand it. I understand your reaction, but "this is complicated" does not imply "this is a scam".
Let me try and address your questions.
(1) Bitcoin is a P2P mesh network. All nodes know about all transactions because they are broadcast. This is similar to how routers on the internet know where to route packets: all participants maintain a shared data structure. So there are no transactions that "never intersect".
(2) This is a "double spend". The answer is that one of them will win. Because of how transactions are broadcast a delay between the transactions of only a second means the first is much more likely to win than the second. But if you were to try spending the same coin to two destinations simultaneously the network would become briefly confused and which one wins would be hard to determine. After a few minutes a block will be found and the confusion will be resolved: there will be a clear winner.
(3) You can see the "trail of hashes" (actually signatures) at the block explorer. Conceptually it grows forever. In reality it's possible to delete transactions that are old enough, though the software people use today does not implement this optimization. So storage requirements won't grow forever, they are proportional to the amount of outstanding coins waiting to be spent.
(4) Oddly enough there's actually no such thing as a bitcoin, in the system itself. Transactions combine and split value. For example a transaction may import 30 BTC and then have two outputs, one of 10 BTC and another of 20 BTC. Those outputs are now available for spending. You can see this in the block explorer which may make it clearer.
(5) Yes, like any currency the ability to forge perfectly dooms the system. Example: at one point South Africa had to recall and destroy all copies of a particular type of bank note because a Nigerian gang found a way to make perfect forgeries. Bitcoins can't really be "forged" as such because the way they are created is by a form of mutual agreement amongst all parties. The closest equivalent would be if elliptic curve cryptography was broken. ECC has been around since the 80s and is extensively peer reviewed. It's believed to be just as good as RSA. The production rate is regulated by the difficulty rules. Coins are distributed in type of lottery amongst the people who are securing the network with their hash power. This is where things get complicated and if you want to learn more about that I suggest you read Satoshis white paper.
(6) At current network speeds a botnet of around 500,000+ machines could delay payments from going through or re-order them, allowing reversal of transactions. It doesn't open the system to arbitrary changes like stealing other peoples coins or creating value out of thin air (exception: "lightweight mode" clients as I described before, but nobody uses them today). There are only a handful of botnets that large, mind you.
If you have further questions you could try Satoshis paper, IRC or the forums.
Bartering is still taxed the same as income in every state I know of, and still counts as income for federal income tax purposes. E.g., if you give me a sheep for fixing your PC, I just had a taxable event at the prevailing market rate for one sheep. This is true whether it's goods or services that are exchanged. It does allow for some wiggle room in your valuation perhaps, but everything's negotiable anyway, so there's not much advantage over bartering. OTOH, it may be a bit easier to get your money back than to get your sheep back when you find out that the grain I exchanged was spoiled. Additionally, being left with a pot full of BitCoins when the music stops is like having a jug full of babysitter tokens -- absolutely worthless if nobody else wants them. The same is true of any fiat currency of course, or even backed currency if the underlying asset becomes worthless. The difference is that the full faith and credit of the US government probably carries a bit more weight than the full faith and credit of an anonymous internet startup. For now, anyway.
https://www.eff.org/https-everywhere