Ask Amir Taaki About Bitcoin

"Bitcoin," says the project's website, "is a peer-to-peer currency. Peer-to-peer means that no central authority issues new money or tracks transactions." Wikipedia offers a readable explanation of the underlying technology. In (very) short, Bitcoin uses a distributed database and public key encryption to allow users to reassign ownership of units of Bitcoin currency (BTC), and does so in a way that can keep the user's identity private. Bitcoin isn't yet accepted the way credit cards are, but it's more than theoretical. You can buy (some) things with Bitcoin, and trade the currency itself. Now, you can ask question about Bitcoin of Amir Taaki, a developer of client interfaces and stock trading software for Bitcoin, and owner and operator of trading exchange Britcoin.co.uk. Amir requests that questions focus not "so much on the mining (too many people get focused on that when it's a minor aspect of Bitcoin) nor simple technical questions (people can go find that info themselves on Wikipedia/the forums/sourcecode)," but rather on the harder-to-answer questions. Reading some of the related stories listed below may give you ideas on what those are. Standard Slashdot Interview rules apply: ask as many questions as you want, but please keep them to one per comment. Amir will get back with his answers.

Comments

Bitcoin

[cgeys]

There's one interesting thing about Bitcoin that I think most geeks haven't either understood or havent thinked about. Both stock and forex markets are secured against all kinds of foul play. Doing a pump and dump scheme or various other schemes isn't easy. With Forex the sheer amount of transactions and money changing hands makes it impossible and the law protects against such schemes with stocks. If stock markets flunctuate much they also close down automatically. Bitcoin doesn't offer any protection against this. Anyone with the know-how and cash can come in to play with the market. This makes Bitcoin seriously vulnerable to losing huge amounts of money. Last friday we saw probably the first such scheme taking place. Someone slowly build up the value of Bitcoin and on an instant cashed out lots of money. That lowered the overall value of Bitcoin significantly, which made others join it and sell it. Whoever was playing Bitcoin market probably was thinking he had now got Bitcoin to the most high value possible and decided to cash out. Many people lost significant amount of money.

This all works wonderfully for the people who have the financial understanding of markets and such schemes. Geeks generally do not. All they see is this program that they can use to make money with their hardware. They forget that all the traditional pump and dump schemes and others still apply. Actually not only do they apply, they're safe to pull of with Bitcoin because it's legal, the market is really vulnerable to it and most people using it do not understand what is happening. Those who trade stocks or forex generally have even some understanding of how the market works. Bitcoin users generally do not, as they're just normal users.

Re:Bitcoin

[petermgreen]

mmm, anyone who puts money they can't afford to lose into bitcoin is an idiot. Bitcoins do not have intrinsic value, they do not have tax value and they do not have any gauranteed exchange rate to anything else. If everyone decides to cash out then the value of bitcoins could drop through the floor very quickly.

That doesn't mean bitcoin doesn't have it's uses. They provide a way to make transactions without government interference and they previously provided a way of making small transactions without the high fees of things like paypal and international bank transfers (unfortunaly the current high value of bitcoins means that under current transaction fee rules this is getting less true).

Re:Bitcoin

[cgeys]

Most people I talked about this after the drop just said they're not really interested about it and said they don't care because they haven't "bought" bitcoin with real money and that they could always just sell their GPU's later. In my opinion that just shows people don't understand what's going on. The money you lose is very real. If you mainly use US dollars, but had some cash in lets say chinese yuan and it would lose 30% of its value, that's a real loss. If your Bitcoins lose 30% of their value, that's a very real loss too. It's money you had, but do not have anymore, just because someone was gaming the system.

Re:Bitcoin

[slim]

What do you really mean by "backed by a government"?

I think the fundamental thing is that the government pledges to accept tax payments in that currency, and from that, inherent value results.

Re:Bitcoin

[Serious Callers Only]

Isn't that true for most currencies? You know, being off the gold standard and all that. I'm not saying it's a good thing - I just note it.

The value of gold on the free market is also far above the intrinsic value - if fewer people saw gold *purely as a medium of wealth storage* then the value would plummet. Gold is in fact very like a fiat currency, right down to the production and distribution being controlled and manipulated by just a few big players, so its not as if the supply of it is constant or finite. It's not quite as vulnerable as a fiat currency to devaluation, but it is still only as valuable as people think it is.

Bitcoin is an interesting idea, in that it tries to provide a finite supply of coins (once the initial period of production is over) which will mean it cannot be devalued by issuing more - that would make it an ideal currency for a government and/or a public which valued fiscal responsibility. Unfortunately no-one does.

Re:Bitcoin

[Dalambertian]

The default transaction fee was lowered with the most recent update. Also, money isn't supposed to have intrinsic value. That's one reason bills are made out of paper.

Re:Bitcoin

[Znork]

The ability to pay taxes in a certain jurisdiction merely confers a usefulness to the currency as a whole, it places no bounds on the value of any specific unit of that currency. It implies neither more or less fixed value than any medium of exchange that anyone at all accepts.

Re:Bitcoin

[naz404]

My Question:

It seems like the system is gamed towards early adopters who've practically just printed money, and all this hype is mostly for their benefit and not newcomers. -> Isn't Bitcoin just a scam being hyped by early adopters who've amassed amounts that current newcomers cannot hope to match given the ever-lowering drop rate of Bitcoins so they can cash in? It was very easy to print Bitcoins in the beginning by these early miners. There's no way in hell newcomers to the game can match them.

It's like trying to get into the Top 100 brag list of Progress Quest, a parody game infinitely more fun and productive than Bitcoin mining which works by having it run automatically in the background where your character will auto-attack, loot, level-up and go on fetch quests.

Re:Bitcoin

[Bengie]

You can't just "print" off money with BitCoin.

Cash has no inherent value, just ask someone who lived through the great depression.

Gold has no inherent value either. Gold only has value because it is hard to come by which makes it a great object to use for currency as it's hard to "duplicate".

BitCoin is the same. A currency is only as useful as it's ability to not be duplicated. It's much harder to create a bit coin than it is for the government to print off more money and deflate the USD.

The problem that occurred is someone artificially increased the exchange rate of bitcoin by creating artificial demand. A newly create currency is going to be volatile for a while before it stabilizes.

As bitcoin gains more monetary value, a single person's influence will drop. After a while, a single person won't be able to make a noticeable difference.

It's a great idea, but the question is if it will take off. It's been doing quite well so far.

Re:Bitcoin

[mcmonkey]

Gold has value because you can make shiny and pretty things with it that other people want. You can't do that with dollars or bitcoins, but dollars have the advantage of being valuable to the government. Bitcoins do not.

There is an important quality of gold missing these posts. As several have pointed out, gold is shiny and be made in to objects for use and trade.

But gold is also stable. If I put my effort in to acquiring gold (either through mining or trade), I can retain the results of my effort essentially forever (or until someone attacks my bank account with aqua regia.) And as a vehicle of trade, stability is more important than the shiny. I can polish up iron, but no one wants to see their life savings lost to rust.

So gold is 1) anti-inflationary (any amount added to the system is offset by the resources required to dig it up, purify, etc.), 2) universal in appeal (has there been any culture in human history that did not value the shiney?), and it is 3) stable.

Bitcoin has 1. Supporters are trying to build 2. 3 will never apply. And IMHO, 1 is on shaky ground. Bitcoin folks should be thinking about how they will handle the first big counterfeiting scandal, and particularly how you convince people it will be a 1 time occurrence, and not the result of a systematic flaw.

(Anything that is worth something gets counterfeited by a copy in something worth less.)

It seems Bitcoin has none of the long-term factors that make gold attractive and not the one factor supporting the US dollar (can be used to pay taxes).

How is this different than gold mining in WoW or any other in-game currency? Isn't this just game currency without the game?

Is the gold rush over?

[curunir]

With BitCoin limited to a pre-determined amount and the difficulty of mining new BitCoins, it seems that this gives a huge advantage to people who got into BitCoin early and have already amassed a considerable amount of BitCoins. Is this true and, if so, do you think this disincentive will undermine BitCoin's ability to become more popular since the majority of the population will have to work so much harder to obtain the currency?

Re:Is the gold rush over?

[alen]

at this point it's not even worth mining for it. i looked at the exchange rates to real money and by the time you invest in a dual GPU system and pay the electric bills you don't make any profit

Re:Is the gold rush over?

[curunir]

That was the point...BitCoin is great for people who got in early and mined a lot. But for everyone else, adopting it means essentially giving those early adopters stuff for free.

Re:Is the gold rush over?

[Aceticon]

BitCoin seems to have a lot of the properties of a pyramid scheme, mainly:

- First adopters have an inherent advantage since they could create large amounts of BitCoins.
- BitCoins have no inherent value. The only value they have is that which is attributed to them by those whose trade in them.
- The more people that can be convinced to trade in BitCoins, the higher the pool of real money available to exchange for BitCoins.
- Creation of BitCoins has now reached a level where the items being created for a given unit of time represent a small percentage of the total number of items in circulation: it is now essentially a trader's market.

Re:Is the gold rush over?

[erroneus]

See? You are thinking about this wrong. Think about using a botnet to distribute the processing load. Now you are using someone else's computing cycles and electric power. And you know what? I have said this before and so far, I haven't been wrong. I'm not that "original" of a thinker, it turns out. Without fail, every time I think of an idea, someone else has already thought of it and has likely already implemented it. So if I just thought about it, there is a reasonable amount of certainty that it is already out there being done.

And using someone else's resources is what spam and similar things have been about for the people most annoyed by the problem. But using someone else's resources are quite often the way things are done these days.

Re:Is the gold rush over?

[MoonBuggy]

Which is not really any different to the people who got the gold in California, the land in Manhattan, the best .com names, or the IPO stock in Google.

Re:Is the gold rush over?

[Abreu]

It's actually a classic Ponzi.

Re:Is the gold rush over?

[Score Whore]

It's also a great way to launder money.

Re:Is the gold rush over?

[DriedClexler]

It is a perfectly valid defense, in response to the argument that "X is bad because it meets characteristic set Y", to reply that "uncontroversially good thing Z also meets set Y".

Calling it a "to quoque non defence" does not change this.

Re:Is the gold rush over?

[TheRaven64]

Shiny rock is real value because it has real uses. Gold doesn't tarnish in air, and is a good electrical conductor. For this reason, it's used for connections on a lot of PCBs. It was used for plating on things that were exposed to the air long before then (via gold leaf before electoplating was invented), for the same reason: unlike copper or brass, it did not need regular cleaning to remove corrosion.

If you have gold, or any other commodity, then there are people willing to pay you for it. This is not the case with BitCoin. The cryptographic hashes have no value because there's nothing that you can do with them. It would be possible to create a currency backed by the promise of future computational work, where you could gain currency units by doing useful work (e.g. protein folding, running MapReduce operations for Google, and so on), but that's not what BitCoin does.

Even fiat currencies like the US dollar have more value. They are not backed by a commodity, but they are backed by the promise that the US government will accept them in payment for all debts, including taxes, which means that they can be traded for commodities easily. There is no such guarantee with BitCoin.

Re:Is the gold rush over?

[TheRaven64]

But is gold worth more than it would be otherwise, because of its historical use as a currency?

Gold is a commodity. Just like any other commodity, it is susceptible to fluctuations in the market that move it away from the price that would be optimal in a simple supply and demand economic model.

This is demonstrably false. There are people willing to pay real dollars for Bitcoins.

Sorry, to clarify I mean that there are only speculators in the market, there are no consumers. In a commodity market, you have three kinds of actors: producers, consumers, and speculators. Producers create the commodity. In the case of gold, they dig it out of the ground, or possibly recycle it (I used to know a scrap dealer who bought old computers to get gold out of the circuit boards, for example). These people insert the commodity into the market.

Consumers take the commodity out of the market. In the case of gold, they are people who have a use for the metal, such as jewellers or board makers. In the case of wheat, they are typically people who make flour (itself a commodity, for which these same people are a supplier).

Speculators are somewhere in the middle. They buy and sell without consuming. Their goal is to make money from the noise. They are allowed in the market because a small number of them can insulate producers and consumers from spikes in supply or demand.

Without speculators, someone growing wheat (which takes a significant fraction of a year to produce) would not know how much they could sell it for when it was grown. They'd be taking a significant risk: if the demand for wheat dropped significantly, then there would be problems. To insure against this, they offer wheat futures at a price that they consider fair. These are a promise to sell wheat at a fixed price in (for example) a year's time. Similarly, someone with a need of wheat in a year might buy a wheat future, insulating them against changes in the price in the opposite direction. Speculators are allowed in the market as buffers. Their presence means that there will always be someone willing to buy or sell wheat futures, and people looking at planting wheat now can look at the market price to decide whether it's worthwhile.

If there are too many speculators, then the price stops being set by the price that speculators expect to be able to sell the commodity to consumers for, and starts being set by the price that they expect to be able to sell it to other speculators. This causes wildly unstable markets (see the wheat market since about 2007, when the US removed the constraints on the number of speculators allowed in the market, for example).

In the case of BitCoin, the market contains an increasingly small number of producers, no consumers, and a lot of speculators. My comment was meant to say that there were no consumers in the market, and I thought this would be understood without the need for Market Economics 101.

Re:Is the gold rush over?

[TheVision]

I'm afraid that doesn't tell me much. What was $35 worth in 1968, and what was $850 worth in 1980?

Using the Consumer Price Index, $850 in 1980 would be worth $359 in 1968.

Re:Is the gold rush over?

[Eponymous Bastard]

Which is why you're seeing all the bitcoin stories spamming news sites lately.

Err, I guess I should put that in the form of a question...

Amir, what do you know about all these stories appearing on news sites lately? Are they a result of early adopters trying to monetize on their investment and realizing that the only way they can is if they get enough buy-in from popular opinion? Would you consider starting a new bitcoin database now that the code is stable and letting new mining start from scratch now that it's relatively well known and the code is stable? Or would that hurt your bottom line too?

Ooops, I guess it's just one question per post. Sorry, I guess this one won't get picked...

Comment removed

[account_deleted]

Comment removed based on user account deletion

Quantum Computing?

[SanityInAnarchy]

Are there plans to deal with quantum computing, or with any of the algorithms used being compromised?

I understand that the hashes wouldn't be terribly devastating for Bitcoin -- worst case, I would think, you roll the entire network back to a snapshot of the transaction history before the first quantum computer started screwing stuff up, and start using a new hashing algorithm. It'd be very bad, but not catastrophic.

But for actual accounts, it looks like we rely on ECDSA -- and it looks like even if Bitcoin offers a quantum-ready algorithm, my wallet is still likely compromised unless I move everything to it before the first viable quantum computer. Still, there doesn't seem to be much noise about this other than a few forum posts, largely dismissed by saying things like "DWave is vaporware."

My question.

[Beelzebud]

How much real money are you paying the Slashdot editors for the constant stream of stories about this worthless new "money"?

Re:My question.

[datapharmer]

I wish I had mod point. Seriously, this bitcoin spam is getting really old.

Re:My question.

[Attila Dimedici]

Unfortunately all our money is essentially worthless. It is only the belief that gives it value. As such Bitcoin has as much value as any other currency. The current spike in bitcoin is cause by the fact that people have little faith in dollars etc. so want to put their money somewhere else that can't be devalued by someone printing more money.

This is not true. Bitcoins do NOT have as much value as many other currencies. I know of no government that accepts Bitcoins for the payment of taxes.

Re:My question.

[SoVeryTired]

They don't need to pay the editors a thing. The editors just need to have been early adopters. You can bet your bottom bitcoin that anyone raving about it has a stash of them saved up.

Re:My question.

[betterunixthanunix]

Well, money also has the unique ability to settle a debt with the government, which creates demand for it (couple this with supply, and you get some sense of the value of money). Bitcoin does not have this property, which raises some questions about its value. Bitcoin's recent spike is an indication of a speculative bubble, not that people have lost faith in dollars.

Re:My question.

[ColdWetDog]

I wish I had mod point. Seriously, this bitcoin spam is getting really old.

What? You want another Apple article?

Yet another advertisement

[Geoffrey.landis]

Good grief, yet another advertisement for bitcoin?

Enough, already!

Re:Yet another advertisement

[Nidi62]

Someone must be getting paid for all of these bitcoin ads that are showing up as "stories"

Re:Yet another advertisement

[Raenex]

Someone must be getting paid for all of these bitcoin ads that are showing up as "stories"

Considering that 4/5 of the related Bitcoint stories are posted by timothy, and this one as well, I'd say he has a vested interest in peddling this crap.

Re:Yet another advertisement

[TheRaven64]

Last I checked, the laws related to pump and dump scams are not limited to official markets, only to things that can be traded for real currency. If Timothy owns BitCoins, is writing articles that inflate its value, and then makes a profit as a result, then he could be facing jail time.

Re:Yet another advertisement

[ddt]

I find it hard to believe how much vitriol geeks are showing for a major step forward in currency technology.

You'd really prefer to stick with central bank currencies where the banks can instantiate money out of thin air whenever they please? You honesty think that's a better solution? Have you not noticed the trouble it has gotten us into?

I am a game producer, and one of the things you learn early on is that you need to reward early adopters, because there is a default stigma against all things new. In essence, you need the promise of an aristocracy class. Part of what motivates us as geeks to work for start-ups is stock and stock options. That makes us the aristocracy class if the company sees a liquidity event, because we got on early and took a chance, even if there are lots of other employees later who only get paid a fixed cash salary and end up doing a lot more work, because they didn't get in early and didn't take that chance. There's no difference, and it's hypocrisy to pretend that's a different situation than it is with a new currency.

And who do you think is going to become that aristocracy class of the bitcoin market? You think it will be bankers or geeks? Which is better?

Disclaimer: I bought a whopping $40 worth of bitcoins in January, because I believe in the concept, and I believe it's going to be an important, global currency that helps all kinds of people and corporations have a liquid hedge against vagaries of central bank currencies. I feel foolish for not having bought more, and I think with a limit of 21M bitcoins over the lifetime, it's going to easily break USD$100 per BTC.

My questions for Amir are:

"What markets do you think will be the first to most aggressively adopt bitcoins as their currency?"
"What insights can you offer as to why the US government is having a hostile reaction to bitcoins?"
"What kinds of competing P2P currencies are in development, and how will their deployment affect the valuation of bitcoins?'

it's more insidious than you think

[Anonymous Coward]

They are paying in bitcoins, so the slashdot editors HAVE to keep plugging the crap for their payment to be worth anything.

Terminology

[lga]

If we eventually use Bitcoin in everyday life, say, in the supermarket, how will we deal with prices in fractions of a Bitcoin? What terminology might we use for something priced at 0.00000005 Bitcoins?

Crypto background

[DriedClexler]

Not a question, but I thought I'd point to this explanation as a good introduction, not so much to Bitcoin, but to the cryptographic background you need to even make sense of how something like Bitcoin can work in the first place. (Wikipedia is a way too verbose and doesn't answer a lot of what's on people's minds.)

Remember, people are uneasy about using something without a decent level of understanding about it, and it's hard enough for the average person to understand public key cryptography -- so you first have to accomplish that herculean task as a substep in explaining the specifics of bitcoin.

Aspirations

[slim]

My question is, what are your aspirations for the currency. Do you hope for it to be near-ubiquitous -- used by corner shops and mainstream merchants like Amazon? Or are you happy to see a parallel economy grow, as a niche thing? Or something else?

Lost/forgotten bitcoins

[algorimancer]

One thing that concerns me is the fixed maximum number of bitcoins. Lets say people acquire bitcoins, but the amount isn't enough to worry about, so they never use them, or perhaps their computer crashes and they don't have a backup. My understanding is that these bitcoins are permanently lost from the economy of bitcoins. Over time, the total supply would begin to dwindle, presumably pushing up the value of those that remain, until people become frustrated at the small supply and are motivated to move to a new system, then bitcoin is abandoned. In the real world this happens with dollar bills, but the government can compensate for this by creating more. Is this issue addressed in some fashion.

Re:Lost/forgotten bitcoins

[vlm]

One thing that concerns me is the fixed maximum number of bitcoins. Lets say people acquire bitcoins, but the amount isn't enough to worry about, so they never use them, or perhaps their computer crashes and they don't have a backup. My understanding is that these bitcoins are permanently lost from the economy of bitcoins. Over time, the total supply would begin to dwindle, presumably pushing up the value of those that remain, until people become frustrated at the small supply and are motivated to move to a new system, then bitcoin is abandoned. In the real world this happens with dollar bills, but the government can compensate for this by creating more. Is this issue addressed in some fashion.

Floating point BTC, essentially. Technically its actually fixed point with lots -o- decimal places.

At an instantaneous level, the whole "economy", at least as a trade good, could function using a billion nano-BTC. or 10 ** 12 picoBTC.

At a long term level, its a bigger problem because all of our modern financial systems are organized around eternal debt-based growth and massive generational-scale central bank inflation. BTC inherently has an entirely different financial system, not just a way to toss virtual pennies around the net. THATs the problem you need to think about.

Convince me it's not a Ponzi scheme

[Animats]

Convince me it's not a Ponzi scheme.

The BitCoin ecosystem is composed of very flaky entities. The biggest "exchange", Mt. Gox, seems to be one person reachable only on IRC. They're a depository institution, and people have substantial balances with them. Not only are they not regulated, they don't even seem to have a business address.

The "exchanges" all seem to transfer funds in and out through even flakier services, like Liberty Reserve (somewhere in Costa Rica) and Dwolla (run out of a hackerspace in Des Moines). Neither is registered as a money transfer agency. What we're not seeing is some bank in Switzerland or Luxembourg, handling Bitcoins.

All these organizations are acting as depository institutions without a license to do so. None of them guarantees contractually that they will pay out funds within a set time. All are uninsured and unaudited. Most of them seem to be having some problems delivering cash lately now that there's been a crash in Bitcoins.

On top of this, the whole Bitcoin system is set up like a Ponzi scheme, where there's an advantage to getting in early.

It's probably already too late to get in, and it may be too late to get out.

Re:Convince me it's not a Ponzi scheme

[slim]

It's expected that the market value of Bitcoins will settle at just above the cost of mining, if you mine very efficiently. So if you're willing to innovate, and work at scale, it will be worth mining. Otherwise, you'll be better off trading. This makes perfect sense. Why would I give you $10 worth of product for n Bitcoins, when I could just make n Bitcoins myself for $10 worth of computation?

This is just like gold. It doesn't make economic sense to dig for gold, unless you intend to do it on a large scale.

People who got in early will gain. I don't see anything wrong with that. It's the same as if I'd bought shares in Amazon when they were still running out of a garage.

Or, the whole thing will come crashing down, and people who got in early will lose out, just as if I'd bought shares in a startup which went on to go bust.

Re:Convince me it's not a Ponzi scheme

[vlm]

Convince me it's not a Ponzi scheme.

Break out ye olde wikipedia and be enlightened. Basically a Ponzi scheme involves one individual taking in periodic money deposits from many people and spending that income on overhead or paying out as faked interest/income. See Bernie Madoff.

Since there is no one individual, no regular periodic deposits/investments, no statements with made up balances, no interest payouts... I guess it fails to meet all criteria of a Ponzi scheme.

It may in fact be a massive investment "bubble" much like .com stocks / homes / social media / higher education. But its not a Ponzi.

I will give you credit that in modern American English, Ponzi has become null. Kind of like prefixing a question with "but that begs the question", when it means nothing in context, or at least certainly not what actually begging the question means. Similar to illiterate youngsters saying the word "like" every other word as a placeholder or time-filler.

It's probably already too late to get in, and it may be too late to get out.

As an investment scheme, yeah. For mining-for-profit, yeah. However, I "get in" by mining about 200 BTC back when the "difficulty" parameter was about two digits. I think I can "get out", if I please, with no loss.

Basic rule of investing is you bake your return in when you select your "buy" price. Mine was installing and compiling some software and having an enjoyable time reading the code and math behind it. Its pretty interesting. No downside means I have an excellent rate of return regardless of whatever market manipulations are going on.

Will governments let it survive?

[merdaccia]

We live in a world where the supply and movement of money are controlled by governments, central banks, money laundering laws, and financial institutions. How can BitCoin survive in this world? Middle men like banks stand to lose a fortune in fees and exchange rates, governments stand to lose a fortune in taxes if they can't track money movement, and the black market stands to gain a silent way to move value. For BitCoin to gain adoption, some major retailers need to start supporting it, but given the above risks, what stops a government from telling companies in its jurisdiction that they can't accept it?

Re:Will governments let it survive?

[Mark Oates]

Tune in on Wednesday 2PM on onlyonetv.com. Gavin Anderson, a core developer on bitcoin, will give his first debriefing on his meeting with the CIA.

5-step formula

[Nidi62]

1. Create new "currency"

2. Make new "currency" progressively harder to acquire as time goes on

3. Get new people to buy into the "currency"

4. Sell off your easily gained currency holdings to new adopters

5. Profit!

Hey guys, I found Step 4!

Extreme instability of Bitcoin vs. USD

[Limerent Oil]

My question: Why would any merchant IN THEIR RIGHT MIND want to deal with Bitcoin? With the insane USD-to-Bitcoin exchange-rate gyrations happening lately, why would any serious retailer even bother, when the value of Bitcoin vs. USD could change by 50% or more in just a few hours?

Re:is there ever going to be a bitcoin bank?

[slim]

Yeeees. But if you kept your life savings in a suitcase of cash, and it got burnt, you'd lose your life savings. A bitcoin wallet is like a suitcase of cash.

A Bitcoin wallet is also like your folder of photos of your your kids -- you can take a backup of it, and should do so.

Or keep your Bitcoins in a Bitcoin bank. There probably is one now -- I've not looked. If there isn't one, there's no technical reason for there not to be one.

Or, use Bitcoins to buy and sell, trading them for "real" money in order to keep it in the bank. This is what I do with my Paypal "dollars" from trading on eBay.

How many early adopters?

[rasmusbr]

How many early adopters were there, or in other words: how many people were involved in mining the first one million Bitcoins?

What about the lack of inflation?

[Cyberax]

What about the lack of inflation?

It's long known that economic growth is severely stunted without some measure of inflation. Adopting bitcoins for the global economy would mean that policymakers lose control on money supply, and while there are advantages in this, disadvantages far outweigh them. Additionally, adopting a global currency standard will deny governments ability to influence currency rates robbing them of yet another way to control the economy.

Is there any plan to solve this? Maybe a system of independent bitcoin 'roots' operated by governments would help?

Question: Economic expertise:

[mcvos]

Here's my question:

Do you ever regret not having had access to some economic expertise when you set this up, in order to prevent deflation, and possibly even create a working Bitcoin economy? Or has your initial investment already paid off so much that you have no regrets whatsoever?

When will bitcoin be used for real transactions ?

[Permutation Citizen]

So far, in the bitcoin community, you see miners, speculators and marketplaces. The system is well designed to attract greedy people, but not to perform useful transaction.

In money history, metal coins are successful for trade when there metal value is weak. If they contains too much gold or silver, people tend to keep them. It's the same for bitcoin: the built-in deflation encourage actors to accumulate bitcoins, not trade them.

It's not a well thought-out timeline

[sirwired]

I don't know what the optimum curve for the increase in the BitCoin supply would have been, but an asymptotic curve isn't it. They were not thinking very well at all. The asymptotic curve limits the total size of the "BitCoin economy" because of guaranteed massive deflation if the economy increases in size at all. This renders it quite useless as a viable currency. (The current value of all currency in circulation is currently far too small to be viable, and the deflation required to get the BitCoin economy to a size where it would be a viable currency is far too high, leading to hoarding that would exacerbate the problem.) At the very least, it should have at least leveled out to a linear slope to account for increase in gross economic output.

So yes, this is a tulip craze, and I wish Slashdot would stop wasting their time on these things. (I also have serious doubts about scalability... once you start subdividing the BitC's down to make them usefully liquid, the amount of tracking required quickly becomes ridiculous and makes BitC's no more non-trackable than my Visa card due to issues with data and bandwidth portability.)

It's sort of an interesting idea, and the concept of a non-trackable currency is an interesting one which raises far-reaching economic and social questions, but this particular currency isn't going to answer them.

Yeah, but at least PayPal collects actual money

[sirwired]

WTF? BitCoins are like PayPal? At least PayPal (unreliably) collects the local currency, the value of which is internally consistent. PayPal does NOT collect "PayPal Bucks" which are then worth widely varying amounts of currency you can actually carry out non-niche transactions in.

If you don't understand what I just said, let me know, because I'd like to dig up some Flooz to sell you.

Re:is there ever going to be a bitcoin bank?

[vlm]

Perhaps you can store your BitCoins inside a safe deposit box of a real bank.

There is absolutely no theoretical reason your wallet file cannot be printed out using crude uuencode/uudecode or something more modern like par2 or SSSS and converted into QR codes or whatever and stashed in a safe deposit box.

My wallet file with 95 BTC in it is about 112K right now. Not megs, not gigs, just K. I'm thinking, 80 characters per line, 60 lines per page, results in ten or so double sided pages of data. Since you can't realistically print out more than alphanumerics in the text, you have to turn it into QR codes or uuencoded or something like that.

The summary is my wallet.dat file, printed out, would be "thinner than my house insurance policy, but thicker than my (birth/marriage/etc) certificate collection"

In summary, its quite possible to "backup" BTC in a file folder in a safe deposit box. Its several orders of magnitude easier than backing up .mp3s which are several orders of magnitude easier than backing up video files.

It's even worse than a lack of inflation

[sirwired]

The BitCoin system has guaranteed deflation because lost hashes disppear from the monetary system forever. (Lost, destroyed or hoarded US currency can be replaced by the Federal reserve with a few keystrokes.) In addition, the current total value of the BitCoin currency (expessed in any normal monetary unit you'd care to name) is far too small to be a viable currency. It would have to deflate by several thousand percent to be any more than a niche currency. Since no one would volunteer to be the victims of such deflation, BitC's are doomed to irrelevancy.

What is the moat?

[naoursla]

The US shuts down people who attempt to print their own currency in competition with the US Dollar. This creates a moat to competition for currency in the US which keeps people using the US Dollar.

Does Bitcoin have a moat? What prevents someone from starting a Bitcoin clone currency and devaluing Bitcoin through creation of competing digital money?

Da PLA

[ThatsNotPudding]

What happens when China decides to dedicate swathes of supercomputers to generate BitCoins - and how could anyone possibly know until the market is destroyed?

Da Dutch

[ThatsNotPudding]

In Dutch, I believe BitCoin is pronounced Tulip Bulb

What is the advantage to users?

[bcrowell]

Why would any individual gain any advantage by participating in bitcoin, except that some early adopters may have been able to realize profits at the expense of later adopters? The closest the bitcoin FAQ seems to come to answering this is:

Is Bitcoin a Ponzi scheme? [...] Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters profit from the usefulness of a stable and widely accepted p2p currency.

The final sentence is what is supposed to make it not a Ponzi scheme. Let's break that down into pieces:

Stable: I live in the US, so this doesn't do much for me. The dollar has had a relatively low inflation rate for decades now, whereas bitcoin could become completely worthless at any time. Even if I was living in a country like Venezuela, which has crazy inflation, I would be foolish to hold any significant portion of my assets as bitcoins. I'd be much better off stuffing US currency in my mattress. If I was the type of libertarian who gets upset about "fiat currency," I could put my money in real estate or gold coins.

Widely accepted: It's not widely accepted, and I don't think it's plausible that it ever will be.

P2P: Why is this a good thing?

Amir's other services

[BarnabyRudge]

Amir has been active in a number of projects that are trying to add legitimacy to Bitcoin. However, he has also posted on the Bitcoin forums offering "erotic Skype chat" with "two 16 year old girls together" or "one 16 year old girl and one 18 year old boy", in exchange for Bitcoins (source). Is he not worried that activities like this undermine his attempts to look legitimate? The services offered are, as far as I'm aware, completely illegal in the UK.

I hope they didn't plan on deflation

[sirwired]

Planning on deflation to me says that they were building a pump-n-dump scheme, and knew it. I am hoping that instead it was a result of a hopeless understanding of economics, and absolutely no clue about what strict limits on monetary supply does to trade growth and the viability of a currency.

You can tell they made an attempt at "solving" the deflation issue by making it minutely subdividable, which effectively solves the liquidity problem. (Though it does all kinds of wonderful things to the system's scalability.) But since it doesn't solve problems with hoarding BitC's as an "investment", it ultimately fails as a currency.

The "victims" of deflation are those that spend any kind of resource into accepting these things, but fail to actually collect very many due to it's doom as a viable option.

Yes, I know PayPal is unreliable

[sirwired]

Yes, I realize PayPal is unreliable, and you should never keep your money there for any length of time. But what does that have to do BitCoin's usefulness; the analogy is simply is not valid. If I have $100 in my PayPal account, and sweep that money into my Checking, at the end of the day I have reasonable certainty I'll have $100 - fees. If I collect a pile of BitC's over the course of the day, I cannot predict with any certainty whatsoever how many dollars/Euros/genuine viable currency I can change that into without changing my BitC-denominated pricing on a continuous basis.

BitCoins are a currency. PayPal is a payment network. The inherent issues with one have nothing to do with the inherent issues with another.

You can chalk up occasional PayPal losses as a cost of doing business. I suppose you could hedge your BitC pricing against currency volatility and call THAT a cost of doing business, but that would be REALLY expensive.

Full Disclosure: how many bitcoins do you own?

[wired_parrot]

Full and open disclosure: how many bitcoins do you currently own?
Also, as this is a fiat currency, trust is fundamental. Therefore, what kind of ethical standards do you have in place to prevent conflicts of interest in having the developers / promoters of this currency being potentially some of the largest holders of the currency and potentially the most likely to profit in it?