Bitcoin Price Crashes

Beardydog writes "Bitcoin trading site MtGox.com has suspended operations for the rest of the day after illicit access to at least one account resulted in a steep drop in the price of Bitcoins on the site. Commenters to the support page for the event are reporting that a list of usernames and associated email addresses and password hashes have been posted online. MtGox are currently planning to roll back all of the day's trading, email notices to all affected users, and require replacement passwords for affected accounts."

Comments

Bitcoin to revolutionise economy

[David Gerard]

Bitcoin is a decentralised computer currency designed by self-righteous Ayn Rand-reading nerds who despise looters and parasites like, er, you. It is used to purchase Internet services, illegal drugs and pictures of naked women holding video cards.

Bitcoin works by an emergent synergy of cryptography, peer-to-peer, anonymity, anarchism, libertarianism, wasting stupendous quantities of electricity, the marketing department at NVidia, the enduring exchange value of tulip bulbs and doing all of this instead of Folding@Home.

Bitcoin successfully harnesses a hitherto-unexploited Internet resource: the vast reserves of unexamined privilege amongst computer programmers. Coins are "mined" by stealing them from people who are able to comprehend this level of computer science but still keep their Bitcoin wallet in plain text on a Windows machine.

The Bitcoin system is robustly designed to continue past the collapse of the US dollar and the world economy, as the Internet, fast computers and reliable electricity are all expected to be readily available when barbarian hordes are wandering the burnt-out post-apocalyptic remnants of civilisation.

It is completely incorrect to describe Bitcoin as a "pyramid scheme." Technically, it's a "pump-and-dump."

Many common products are still inexplicably not purchasable with Bitcoins. "It's as if they don't understand the revolutionary wonder of Bitcoin," says Debian developer Hiram Nerdboy, 17. "I can't get chicks with Bitcoins either. Even with my slickest Pick-Up Artist techniques! It's as if my knowledge of economics and game theory didn't apply to real life. But that's impossible, of course. They're probably just theists. Hold on, I just gotta post to Slashdot about this."

Bitcoin was invented by Internet libertarians, in the spirit of freely-chosen individual interpersonal interactions that will bring about the utter collapse of the oppressive taint of the dead hand of government, in order to make money at your expense.

Re:Bitcoin to revolutionise economy

[cowboy76Spain]

The Bitcoin system is robustly designed to continue past the collapse of the US dollar and the world economy, as the Internet, fast computers and reliable electricity are all expected to be readily available when barbarian hordes are wandering the burnt-out post-apocalyptic remnants of civilisation.

I think that you have missed the Fallout series of historic documentals.

Re:Bitcoin to revolutionise economy

[Anonymous Coward]

I absolutely agree. These worthless, abstract encrypted computer bits are WORTHLESS.

Anybody who knows anything understands that REAL value is in small, green pieces of paper with pictures of dead people on them.

Re:Bitcoin to revolutionise economy

[David Gerard]

The pieces of paper are backed by a country of 300 million people who will do work in exchange for them.

(One good thing about Bitcoin threads on Slashdot: plenty of opportunity to beat Econ 101 into the heads of libertoonians who think they've got the perfect zinger for every situation.)

Re:Bitcoin to revolutionise economy

[Colin Smith]

The pieces of paper are backed by a country of 300 million people who will do work in exchange for them.

You realise that most dollars are not paper? They make up only about 6% of money. The rest is debt based.

There is only about ~900 billion paper and coin dollars.
There is about ~14 trillion dollars worth of credit supplied by banks.
There is about ~55 trillion dollars in total debt, again, supplied by banks.

What backs the dollar is the faith that the 14 trillion dollars will some day pay the 55 trillion dollars off.

Re:Bitcoin to revolutionise economy

[Fnord666]

Documental: (n) - A form of elemental that has all of the necessary paperwork.

Re:Bitcoin to revolutionise economy

[themusicgod1]

The thing about the world is that most people on it aren't americans. Right now they have to use the USD because it's the de facto standard -- but if something could replace it in a way that kept everyone honest(see, for example, bitcoin) -- there would be some incentives to switch to it to larger and larger degrees.

Bitcoin isn't perfect -- hell, it's probably going to fail. But something like it could very well be 'the thing' that the 6 billion other people would be willing to work for. It's mostly a social and technical problem at this point.

Re:Bitcoin to revolutionise economy

[Binestar]

Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor.

Re:Bitcoin to revolutionise economy

[Golddess]

Ammunition. ;)

Re:Bitcoin to revolutionise economy

[canajin56]

OK, lets say there is only a single gold coin in town. That's the only currency in existence. OK so far? So, I have that one coin, and I pay somebody that coin for a new window. The glassier takes that coin, and he goes to the pub and he buys a beer for that one coin. Now the bar pays the bartender with that one coin. Now he takes that coin and he buys a sandwich with that coin. Oops, so far our town as a GDP of 4 coins, but there's only one in existence. DO YOU UNDERSTAND YET THAT AN ECONOMY IS NOT A ZERO SUM GAME? I know, you should use the broken window fallacy next! Point out that if you hadn't broken my window in that above example that the GDP of my fictional town would have been 0 instead of 4! ;)

Re:Bitcoin to revolutionise economy

[Anonymous Coward]

They are Lawful Insane and the summoning ritual takes 3d20 years.

Re:Bitcoin to revolutionise economy

[cowboy76Spain]

Now I absolutely would take your point as it applies to the ~5% physical cash, because it's physical and a credit entry is created when it is deposited in the bank meaning that credit entry is destroyed when the debt is paid... But the 95% of money which is made up of credit itself is purely a book keeping entry not physical cash and that absolutely does vanish when debts are paid

Since a % of these credits must be backed by real assets, there is an effective limit to the money in circulation (even if that limit is way higher than paper currency).

Repaying the debt allows the credit to loan that money again.

Where did you think all the crashes and busts came from?

The crashes and busts come from the creditors believing that the risk in loaning does not offset possible benefits, so the do not give credit. This is one of the reasons why deflation is bad (the creditor gets richer just by holding his money).

Re:Bitcoin to revolutionise economy

[HappyEngineer]

You had me until you talked about the broken window fallacy as if it is somehow wrong. In your example you are 1 coin poorer and all you got was the status quo before the window was broken. The glassier is now one beer richer, but the time they spent on that window could have been spent making a new window for a new house. If you had simply paid for a beer the economy would be 3 coins plus whatever the glassier got for making someone else's window. The final result is better than your original example because you got to have a beer and everyone else got the same thing.

The broken window fallacy shows that the system is not really improved even if some numbers are higher than they otherwise would have been.

Re:Bitcoin to revolutionise economy

[Sir_Lewk]

Pop Quiz: What was the Zimbabwean dollar backed by?

Re:Bitcoin to revolutionise economy

[proverbialcow]

*eats moldy sandwich* Oh, I'm ruined! *wahahahah* Why why why?

Re:Bitcoin to revolutionise economy

[twidarkling]

Is also a poor investment, since it can spoil if stored improperly, and become dangerous to use. Granted, proper storage will protect the gunpowder, but still, stocking up for an unknown period of time in the future can cause problems. Ten years is about the limit of recommended time I could find.

Re:Bitcoin to revolutionise economy

[icebraining]

You only have "x" amount of supplies, be it gold, potatoes, petroleum, or Tampax.

And here I thought every day more gold was mined, more potatoes were planted, more petroleum was extracted and more Tampax were created.

Take the stock market.

You can't take that example and extrapolate for the whole economy. The stock market works in a very particular way.

Re:Bitcoin to revolutionise economy

[atriusofbricia]

Is also a poor investment, since it can spoil if stored improperly, and become dangerous to use. Granted, proper storage will protect the gunpowder, but still, stocking up for an unknown period of time in the future can cause problems. Ten years is about the limit of recommended time I could find.

Modern ammo never "spoils". People have safely fired extremely old ammo and there has been a market for milsurp ammo far older than ten years for a long time. Keep it dry and it'll be fine.

Re:Bitcoin to revolutionise economy

[Jeremi]

Pop Quiz: What was the Zimbabwean dollar backed by?

Ooh! Ooh! I know!

It was backed by the full faith and credit of the Zimbabwean government!

(which, unfortunately, didn't have a very good grasp of economics)

Re:Bitcoin to revolutionise economy

[blue trane]

Think hard about what causes inflation. During the Civil War, there was a lot of destruction and killing going on, so what happened then is not necessarily predictive of what happens now when the govt prints debt-free money.

Inflation is caused largely by perception, by psychology. The Weimar Republic's inflation ended in a day. Bolivia's inflation during the 1980s ended in a similarly short period. Same with Brazil's hyperinflation...because inflation is mostly a psychological phenomenon.

Some inflation is tolerable, and the benefits of increasing the money supply (without attaching debt to the created money, which benefits the bankers at the expense of creating an artificial scarcity of money) outweigh the cost of inflation. For example, in 1920 I may have been able to buy a suit for $20, but could I buy a cellphone for any amount? Innovation seems to accelerate with the money supply.

For example, the Song Dynasty experienced an innovation boom when they became the first to use paper money. From wikipedia:

Notable advances in civil engineering, nautics, and metallurgy were made in Song China, as well as the introduction of the windmill to China during the thirteenth century. These advances, along with the introduction of paper-printed money, helped revolutionize and sustain the economy of the Song Dynasty.

Re:Bitcoin to revolutionise economy

[Colin Smith]

There is only 1 unit of credit, and it is destroyed when the debt is paid.

If you look further up the thread, you'll see that there is 55 (or 52 depending on who you ask) trillion dollars worth of debt in the USA and only 14 trillion dollars of credit. The debt cannot be paid. As you pay it off, the credit is destroyed. It would cause massive deflation to even attempt to pay.

This is one of the reasons the criticism of gold or bitcoins as deflationary is laughable. Our existing monetary system would be mind bendingly deflationary without constant injections of monetary inflation (bailouts, interest rate cuts, Fed POMOs etc.).

Put another way; crash is the default mode of operation.

Re:Bitcoin to revolutionise economy

[hedwards]

Except that's not actually true. That would be like saying that, I have two trucks because I lent it to a friend for his move. There aren't really two trucks, and if we both tried to use it at the same time, there'd be trouble.

Likewise, there aren't really that many dollars in existence, if there were we'd see massive inflation, those are obligations, some of which will end up in a state of default and most of which will be paid off. However, they won't be paid off simultaneously, doing so would result in a most epic crash of the system.

Re:Bitcoin to revolutionise economy

[sco08y]

Gold is pretty, but in a combat situation, those gold bars are not going to be keeping the zombie hordes or marauders at bay.

It's awfully handy in case the Cybermen invade.

Re:Bitcoin to revolutionise economy

[FutureDomain]

It follows that when an economy becomes so degraded (or in the case of Zimbabwe when the government so degrades the economy) that there is no longer anything to tax, the currency the government issues will become worthless.

Or enough people start using the black market and a black market currency to do almost all of their trading instead. In most countries, it is more expensive to use the black market and risk the punishments for tax evasion than to simply pay the tax, but there is a level where it become more economically smart to use the black market and risk getting caught than to pay the onerous taxes.

Re:Bitcoin to revolutionise economy

[themusicgod1]

or something of a true value.

You lost me there. There is no 'true value' - shells, dust particles, crypto hash results...all of this only has value insofar as it is accepted on the market as such, and insofar as it provides a medium of exchange

Re:Bitcoin to revolutionise economy

[emt377]

OK, lets say there is only a single gold coin in town. That's the only currency in existence. OK so far? So, I have that one coin, and I pay somebody that coin for a new window. The glassier takes that coin, and he goes to the pub and he buys a beer for that one coin. Now the bar pays the bartender with that one coin. Now he takes that coin and he buys a sandwich with that coin. Oops, so far our town as a GDP of 4 coins, but there's only one in existence. DO YOU UNDERSTAND YET THAT AN ECONOMY IS NOT A ZERO SUM GAME? I know, you should use the broken window fallacy next! Point out that if you hadn't broken my window in that above example that the GDP of my fictional town would have been 0 instead of 4! ;)

To take this further, assume my company sells your company a piece of paper for $1M. You then sell me a piece of paper for $1M. All that has happened is that two pieces of paper changed hands, but economically we've produced $2M of GDP (= total value of goods and services produced, not total amount). No gold coin needed at all. If there's a 1000 of us buying and selling each others' pieces of paper we will have produced $ billions. No currency involved. It's also why an economy can grow without increasing production - there's simply an increase in demand for what it produces. More specifically, an economy that's more effective at meeting needs instead blanketing producing every conceivable product and service can have the same or bigger GDP while producing significantly less.

Re:Bitcoin to revolutionise economy

[Ihmhi]

2. Documental: (adj.) - The severely compromised state of mind attained after signing your name for the 422nd time on a mortgage application.

Re:Bitcoin to revolutionise economy

[7-Vodka]

LOL, even a child can figure this exploit out.

You as a bank lend me $100. I deposit it in my account with you. You now have $100 in deposits and can lend me $1000. I deposit it back into my account and you now have $1000 in deposits and can lend me $10,000. Repeat ad nauseum. In actuality, between us we only have $10 and not $10,000.
Now I suppose we could reverse the situation If I just paid all my loans back. But that's not possible because you don't want the principal back. You want principal + interest.
Where does the money come to pay the interest? It doesn't, because it doesn't exist.

In fact, the same ponzy scheme is played out at the currency level.
For every $ the FED creates and disperses into the money supply, they charge interest on. Which means, they want that $+interest back. But if they only gave out a $ but they want $+interest back, where does the money come from to pay the interest? It doesn't exist. It can never be paid back.
The only solution is to create more money. And that's why we're in the shite we're in today and why the $ is worth only 4 cents of what it used to be worth.

Re:Bitcoin to revolutionise economy

[AmiMoJo]

You are only looking at cash. The 55 trillion debt is secured against property too. If you don't have the cash to pay your debt then the person you owe it too has a right to the property you secured it against. Not just physical property either, intellectual property.

The good news is that all the stuff in the US is enough to cover your debts. The bad news is that other countries effectively own yours and you have to slowly buy it back by paying off debts. There is a further complication in that when someone defaults on a loan they often get to keep some of the stuff they secured it against, because the creditor either can't or isn't allowed to take it.

Re:Bitcoin to revolutionise economy

[jonbryce]

No, this is not how it works. Fractional reserve banking is greatly misunderstood.

You deposit $10 in a bank. The bank keeps 1$ in reserve and lends out 9$. The borrower spends this $9 and it is deposited back in the banking system. The bank keeps 90c in reserve and lends out $8.10. It keeps going round in circles like this until there is $100 on deposit, $10 kept in reserve and $90 lent out.

That assumes a 10% reserve ratio. In practice the reserve ratio is more like 6%, but it depends on the type of deposit and the type of lending undertaken.

Re:Bitcoin to revolutionise economy

[zzsmirkzz]

You deposit $10 in a bank. The bank keeps 1$ in reserve and lends out 9$.

This is the classical description of a Fractional Reserve Banking System. However, this is not the system the US Banking/Federal Reserve Banking System uses. This is how it works (Assuming 10% reserve ratio for easy numbers but the Fed sets the ratio and it can be 0%), why it is abused and why your savings will always be worth less tomorrow than it is today (if its stored in dollars).

1. You deposit $100 into bank. The bank now has $100 in assets.
2. The bank borrows $1000 from the Fed to loan out, using your $100 as the collateral asset.
3. This $1000 loan is entered in the ledger as both a loan and as an asset. The note is worth $1000 and is considered an asset.
4. The bank now has $1100 in assets and $1000 in loans from the Fed. The bank can now borrow an additional $10,000 from the Fed and loan it - using the note from the first loan as the collateral.
5. Repeat.

From this it is very easy to see why a couple entities defaulting on their loans can topple the entire pyramid and make not only one but many banks insolvent in the process. I didn't even include the part about the Fed only being able to print and lend money based on the amount of Federal Government debt used as assets. This is what people mean when they say paying back the debt erases the money supply. If the Federal Government ever paid back the National Debt owed to the Federal Reserve, the Federal Reserve would no longer have the assets necessary to back all of the loans it have made to other banks and would have to call in all of its loans and rescind every dollar printed + interest (which could not be payed).

Re:Bitcoin to revolutionise economy

[marcosdumay]

"Where does the money come to pay the interest? It doesn't, because it doesn't exist. "

That part is wrong. The money to pay the interest could quite well be "summoned" by you lending some money to the banker and getting paid by some real good you sell him (or the equivalent of you giving some money to the banker and he giving you that money back). The fact that the banker expects some interest means only that he wants some real thing back for lending you the money.

That works quite well if the lending is contrained so that interest is a very small share of the GDP.

Enough already

[Anonymous Coward]

Enough with this Bitcoin spam already.
Bitcoin is stupid, unneccessary and irrelevant, we don't care for your fucking scam.

Re:Enough already

[hipp5]

Enough with this Bitcoin spam already. Bitcoin is stupid, unneccessary and irrelevant, we don't care for your fucking scam.

To be fair, it's nice to hear news that predictions about bitcoins being crappy are indeed true. This story is somewhat of an anti-spam.

Re:Enough already

[DaveV1.0]

You cared so much, you wouldn't risk your precious slashdot karma. Therefore, bitcoins are worth less than slashdot karma.

Re:Enough already

[D'Sphitz]

Fortunately for the rest of us, this site isn't all about your own personal interests. And if you dislike Bitcoin, one would think this is the kind of story that you would like.

Re:Enough already

[_Sprocket_]

Bah. Bitcoins represent a number of interesting concepts. Currency alone is a rather fascinating thing that touches on psychology, economy, history, and one of the earliest forms of information technology. Toss in some cryptography, peer-to-peer / decentralisation, etc. and there's no end to the facets of this subject.

That doesn't mean you have to buy in to Bitcoins. Keep in mind that these Bitcoin stories are more than simple "yay Bitcoin - buy buy buy" that you would expect from advertisements / spam. There are negative sides being covered by these stories. But if you have no interest in anything remotely related to Bitcoins, then by all means... don't click on the damn article that says it is, in fact, about Bitcoins.

Re:Enough already

[blincoln]

"Enough with this Bitcoin spam already. Bitcoin is stupid, unneccessary and irrelevant, we don't care for your fucking scam."

Seriously. Slashdot editors: give me an option to block your idiotic Bitcoin spam, or at least post less of it. I'm so tired of every third story being a shill for this ridiculous scam that I'm going to find another technology news source if one of those two things doesn't happen.

You are either participating in an attempt to swindle a bunch of people out of their money, or you are so deluded by this moronic idea that you're going to be among the swindled yourselves.

Either way, it doesn't speak well for the general quality of material on the site if multiple editors here can be persuaded to post "stories" about it approximately every five minutes.

Re:Enough already

[Spad]

Time to setup KarmEx and make a fortune!

Re:Enough already

[jd]

Currency is basically a form of barter that avoids having to move physical goods around of a value equal to that of the currency. The earliest currencies - often things like the iron rings used by Celts in the early Iron Age - converted to a fixed amount of some physical goods. This evolved over time into the gold standard (instead of having different coinage equate to different physical goods, all currency equated to a single physical good - gold, in this case). After a while, currency was switched to a floating standard - essentially a stock market where the currency is worth what people are willing to pay for it. The result has been mixed, with considerable abuse by currency speculators syphoning off value but equally greater reliance on direct value since things like gold were also only worth what people were willing to pay for it. The fact that it was indirect didn't change the fundamental barter nature.

Bitcoins aren't really offering anything useful here as they stand. Barter only works if both sides agree on what is being exchanged and its value. What is exchanged doesn't matter. It's just a token. Any token would do. Sure, bitcoins are comparatively hard to forge relative to, say, an iron ring. (Play on words is unintentional, unless the etymology says it's where the term came from, in which case it's inspired.) However, if you're using an electronic system, you don't need individually-identifiable coins. Banks don't use identifiable coins, they store numbers and maybe an index number to identify what currency it is in. By having bitcoins work they way they do, fraud is inevitable since you still have a centralized guarantor and no central system is immune to being backdoored.

The Mondo cards operated by storing such a number in a highly encrypted form and using tamper-proof technology to ensure that the number could not be manipulated except via the authorized interface. You could then transfer currency digitally from any card to any card without the need of any central system. It wasn't perfect, sure, or you'd be using them and not debit cards. The hardware's pricier than a debit card but that's because you essentially become a bank.

Given modern memory chips are much larger, it would be theoretically possible to make a Mondo-type distributed system work using a bitcoin-like idea, where a system cracker couldn't place an arbitrary value onto the card but could, at worst, only create forgeries of coins they'd actually seen. As many of them as they wanted. This would limit the per-transaction fraud but not the total fraud.

The obvious answer would be to make each card an item on a stock exchange, essentially creating personal currencies. The value of what is on the card is then floating. Altering the value on the card would then be nothing more than printing more of your personal currency, which in turn would devalue your personal currency, so the net value on the card remains a constant. Obvious but flawed. It would introduce a new sort of centralized system - a central stock market rather than a central bank - but nonetheless a central component that all transactions would end up getting logged by. Which defeats the value of a distributed system. It would be arguably better than physical currency, as counterfeiting would become essentially impossible and inflation becomes highly localized and cannot spread like a contageon. However, it's the reverse of the direction you want for personal security, even if it has some value on a social level. It would also be a nightmare to use since you cannot know in advance the value of your personal currency with respect to someone else's. Your system would have to translate any price you saw from the vendor's personal cuurency into yours, making transactions much more complex. I actually quite like the theory of personal currency, but can't see any way to make it workable without forcing all online shopping to take place on a dedicated EAL-7 kiosk (goodbye universal computing devices) and turning bricks-and-morter shops into terrifying nightmares

Re:Enough already

[N0Man74]

"Enough with this Bitcoin spam already. Bitcoin is stupid, unneccessary and irrelevant, we don't care for your fucking scam."

Seriously. Slashdot editors: give me an option to block your idiotic Bitcoin spam, or at least post less of it. I'm so tired of every third story being a shill for this ridiculous scam that I'm going to find another technology news source if one of those two things doesn't happen.

You are either participating in an attempt to swindle a bunch of people out of their money, or you are so deluded by this moronic idea that you're going to be among the swindled yourselves.

Either way, it doesn't speak well for the general quality of material on the site if multiple editors here can be persuaded to post "stories" about it approximately every five minutes.

I'm not sure if you are aware of this, but typically "shills" don't generally post stories to slashdot that demonstrate weaknesses or blunders related to themselves. Do you think the Playstation Network outage stories were by Sony shills too?

And you want an option to block these stories? Have you considered trying to exercise enough willpower not to click on the freaking link?

Some people here might find it to be an interesting experiment (though possibly naive), even if they aren't buying into it.

Just because it has favored early adeopters doesn't necessarily make it a ponzi scheme. There are many things that favor early adopters without being schemes.

I don't think that's the real problem with Bitcoin. The problem is that for currency to work, it needs to be freely exchanged

From reading forum posts by Bitcoin users and advocates, it seems that many of the users have seen the trend for the value of Bitcoins to rise, so they continue to hang onto them to them. I saw comments from some of these early adopters who felt a little burned by the fact they spent many of their Bitcoins, only to have the value rise later. Therefor, it seems many Bitcoin miners want to hang on to the majority of their coins and only spend a small number.

This obviously is going to create a Bitcoin bubble that eventually will burst.

Once people start cashing coins out for real currency (instead of continuing to hold onto them or everyone spending them on various services) it seems inevitable that there will be a price crash, whether there are account compromises or not.

Link for master list of compromised accounts

[simoncpu was here]

Found this on the Internet: http://pastebin.com/hN7PxRhc

Re:Is it even possible to roll back a bitcoin trad

[Shadyman]

These are trades are done on a firm's website, with US$ and BTC balances stored on it. It's totally out of the hands of the bitcoin system except for deposits to (and withdrawls from) accounts on the site.

Re:Is it even possible to roll back a bitcoin trad

[superwiz]

The only thing I can think of is that they are rolling back transactions which haven't settled yet (settlement=delivery). Because once they bitcoins held in a MtGox account have been transferred out to your bitcoin wallet, they can't get it back. But while they are still held in MtGox account, the actual owner of the coins is MtGox (much like your brokerage is the actual owner of your monkey while you have money deposited with the brokerage).

Growing pangs

[traindirector]

I've been watching the Bitcoin system/experiment since the beginning of last autumn, and I can't help but feel it's receiving too much attention and increasing in value too quickly for its own good.

I really like the idea of the system and I want to see this system or one like it succeed, but with the extremely quick rise in value since last year and all the attention it's been getting, coupled with the games those with lots of bitcoins could play with the market and the somewhat unknown nature of who controls these fortunes (now in both bitcoin and USD), I felt a devastating crash is unavoidable at $.70 US / bitcoin, much less $17 / bitcoin.

At this sort of insane value, the system is an extremely interesting experiment, but I think it's a huge roadblock for serious adoption.

Re:Growing pangs

[traindirector]

Anyone with an iota of common sense could see that.

I wasn't trying to extol myself as a genius--I was making an observation for those who haven't had much of a look at the history of the market.

What we need is a digital cash system that is run by banks -- yes, I know, we all like to hate on banks, but the truth is that banking is an important part of the economy and the majority of digital cash protocols call for a bank to issue the digital currency.

I think bank-issued digital currency would be worse than government-issued currency, because the government has at least some semblance of advancing the good of its people, whereas a single bank issuing a currency could do whatever it pleases to the market, having only profit motive.

A system like bitcoin where a very large number of users of the currency all have a stake it in with no single user selling all their bitcoins would cause more than a .1% fluctuation in value would be a system that would be very good at holding value for its users (assuming there are no design exploits and no organization with enough computing power to start playing games with the block chain).

The problem with the current bitcoin system is that I imagine there are hundreds of people who could crash the value of the currency because it's likely too concentrated with a few individuals and the market is not deep enough for them to sell their stakes to those who are willing to invest in it more. At the value of $17 US / bitcoin, there are $112,141,350 US in the bitcoin market. There are probably dozens of bitcoin "millionaires" (in USD) who would end up with probably only somewhere in the thousands of dollars if they sold, with the result being putting the bitcoin value back at something like $.10 - $.20 / bitcoin. The system is extremely intriguing, but the current ownership distribution and market seems like a disaster, either waiting to happen or already starting.

Maybe if the system were started again, with the current level of interest, the results would be different. I'd get involved in that. The market with the current ownership distribution? No way.

Re:Growing pangs

[traindirector]

For all intensive purposes the dollar is already a digital currency.

Not grammar trolling, but FYI, it's "all intents and purposes".

Re:Growing pangs

[icebraining]

No, it's actually designed to deflate, i.e., gain value over time, since the total number of coins will level off.

Dollars/Euro/etc, those are actually designed to lose value over time, due to inflation.

Re:buh?

[petteyg359]

Presumably because the attackers were selling coins from other people's accounts, not buying them. The exchange site can contact their $$$ bank to cancel cash payments, and refund incoming bitcoins transactions from hacked accounts.

Is it just me?

[Anonymous Coward]

Is it just me, or does these comments, and everything surrounding this, AND THE FACT THAT THIS OCCURRED ON FATHER'S DAY, sound suspicious to anyone? I hate to sound like a conspiracy theories, but this sounds an aweful lot like a psy-op to me.

After all, Bitcoin" was not hacked, nor did "Bitcoin" crash (http://bitcoincharts.com/markets/ - they are STILL WORTH MORE than the U.S. dollar). It was a SINGLE WEB SITE that was hacked. If the pirate bay was hacked, would you say that "bittorrent" was hacked? Only if you're an idiot and don't understand how bittorrent works.

It's worse than that. Very flaky players

[Animats]

"Mt. Gox", the main Bitcoin exchange, was originally "Magic the Gathering Online Exchange". Nobody really knows who runs "Mt. Gox"; it appears to be one person in Tokyo who's only reachable via email and IRC. (He must be having a terrible night; this all happened around 3AM in Japan.) It's not like there's some real financial institution, or even a funded start-up, behind this. Most, if not all, of the Bitcoin "exchanges" and "exchangers" are somewhat flaky entities. Bitcoin's ecosystem is financially very weak.

Understand that Mt. Gox is not just an exchange. It's a depository institution, like a bank. Customers have balances, in Bitcoins and other currencies, with Mt. Gox. But Mt. Gox is not regulated or audited as a bank or a brokerage, even though it holds other people's money. Accounts are uninsured.

This matters when something goes wrong and somebody gets stuck with losses. Mt. Gox claims they're going to "roll back" transactions to before the theft. But some of the money is already gone, transferred out before Mt. Gox shut down. Mt. Gox is going to have to eat some of those losses if they do a rollback. Do they have the cash? Nobody knows. They're not audited by anybody.

As for the security breach, not only is the entire file of usernames, email addresses, and encrypted passwords now widely available, so are the unencrypted passwords cracked so far. (One wonders why whomever stole the password file published it, but it may have to do with their needing help from others to crack the passwords.) As a result, TradeHill, another Bitcoin exchange based in Chile, has shut down, to avoid attacks using passwords obtained from Mt. Gox. Right now, there's no way to turn Bitcoins into dollars. (Euros, yes; right now the going rate is EUR11.51/BTC. But that market is very thin.)

Whether or not BItcoins are a good idea, the market ecosystem behind them is far too flaky.

Re:It's worse than that. Very flaky players

[bill_mcgonigle]

Do they have the cash? Nobody knows. They're not audited by anybody.

And there's your problem - no transparency. Same problem as exists on Wall St.

One wonders why whomever stole the password file published it, but it may have to do with their needing help from others to crack the passwords.

Perhaps, but de-anonymizing BitCoin is sufficient for the purposes of BitCoin's biggest critics (and those who stand to lose the most from it succeeding).

Re:Is it even possible to roll back a bitcoin trad

[phoenixwade]

they can have my monkey - he was throwing shit everywhere.

Re:buh?

[Stellian]

Rolling the transactions back is a huger blow to that interesting experiment, and basically undermines the attempt to get bitcoins accepted as a form of currency.

Trades on the exchange do not impact the Bitcoin blockchain (transaction history) directly, in the exact same way as money is not directly transferred to/from your bank when you trade. Any market event is buffered into the virtual accounts that traders hold with Mt.gox, while the actual bitcoins are in Mt.gox's wallet and the actual dollars are in Mt.gox's bank account. You need to specifically request a transfer to get either money or bitcoins out of the system.
So the event is in no way relevant for Bitcoin. It's just a bad case of unsanitized inputs.

BitCoins are simply a hobby, not a currency

[sirwired]

Usefulness as a currency is inversely proportional to potential as an investment. BitCoin fans, when you boast that your "currency holdings" have shot up in value by several hundred percent in a year, this is NOT A GOOD THING for BitCoins as a currency. You, Joe Merchant, would have to be a complete blithering idiot to set yourself up to accept BitCoins as a form of payment if deflation of several orders of magnitude is REQUIRED in order for your "currency" to be anything but a niche toy. In addition, credit, the lifeblood of any economy is completely impossible under such conditions; it would be the height of insanity to take out a loan if you had the potential of owing the equivalent of several hundred percent interest after a year. (As in, if you took out a loan for a thousand BitCoins a year ago, you'd be praying for an event like this to happen right now...)

An ideal currency remains relatively stable in value in relation to something you actually want to buy. An illiquid currency that gyrates wildly in value is useless, as it makes proper pricing of goods, services, and credit impossible.

In the end, BitCoins are no more a "currency" than Beanie Babies were. And at least Beanie Babies are cute. (And tulips were/are pretty flowers.) BitCoins are an interesting experiment in cryptography, nothing more.

Re:BitCoins are simply a hobby, not a currency

[RobinEggs]

These are very good points.

It wasn't until bitcoin that I understood the point of constant inflation: it makes credit feasible. You can only borrow safely if you can be almost certain money won't increase in relative value in the future, and to make a borrower feel truly safe currency value should have a near certainty of decreasing somewhat. With significant deflation a possibility you can't even take out a car loan without simultaneously risking indentured servitude; it would be insane to take home or business loans, and I don't mean figuratively insane, either.

Inflation also encourages lending and investing. It's like the Red Queen hypothesis: with inflation eating the valuation of your cash you have to put it to work somehow in hopes of earning more than the rate of inflation.

It seems no one makes loans or investment in bitcoins, and the scam artists - excuse me, properly rewarded early adopters - who minted thousands or millions of coins back when they cost 1/1000th as much processing time to generate still seem to be hoarding and not using them.

It's technically true that they're not a ponzi scheme, but they're still basically a confidence game that at the current trajectories don't seem like any benefit to people who weren't already in the market by mid-2010. Anyone who adopted after that could use them as money laundering and anonymous payments (like Silk Road), but couldn't efficiently generate or purchase them without wasting more fiat currency than the coins are worth in service fees or electricity.

Re:BitCoins are simply a hobby, not a currency

[Anonymous Coward]

It wasn't until bitcoin that I understood the point of constant inflation: it makes credit feasible. You can only borrow safely if you can be almost certain money won't increase in relative value in the future, and to make a borrower feel truly safe currency value should have a near certainty of decreasing somewhat. With significant deflation a possibility you can't even take out a car loan without simultaneously risking indentured servitude; it would be insane to take home or business loans, and I don't mean figuratively insane, either.

Good points, I'd like to add that this isn't just a theoretical worry. In the 1800s, the dollar was hit with very high year to year deflation or inflation (despite basically no long term inflation). Farmers at the time would often take out loans to buy seeds and then pay them back once they sold their produce the following year. Many went bankrupt when deflation made their crops sell for 30+% less than expected but left the terms of the loan unchanged.

Say what you will about the Federal Reserve, they have kept the dollar remarkably stable in terms of inflation and deflation compared to what came before.

Re:BitCoins are simply a hobby, not a currency

[Mr2001]

Again, I would not (while in sane mind) loan money in currency that is losing value, it is a losing proposition.

Funny, because banks make money hand over fist by doing exactly that.

Re:Title misleading

[Beardydog]

The title I submitted under was "MtGox.com Bitcoin trading site compromised", which I felt was reasonably accurate, and I was careful to describe the drop in price as being "on the site", and not a universal drop, or a crash. The breach, release of data, and temporary crippling of the largest Bitcoin market were what I thought merited a submission.

Someone else submitted around the same time with "Bitcoin Price Crashes", and my submission seems to have eaten that poster's title during the Slashdot editing process. I squinted disapprovingly when I saw it.

Misleading title

[StealthSock]

If you check a competing exchange, you will find that the price of bitcoins has gone from $17 to $13. How does that constitute a crash when the price of a BTC had fluctuated down to around $13 within 48 hours before the breach? This is a security breach that only affected people using MtGox to trade their bitcoins for USD, so the trust in MtGox has been undermined, not the trust in the entire BTC economy. Most traders will likely move over to tradehill.com or some other competing exchange who have hopefully learned some lessons from MtGox's failures. The thing about currency is that if it is not properly secured, it can be stolen. When someone robs a bank or steals a wallet, do we stop trusting paper money or do we just work that much harder to keep it secure?

Re:Is it even possible to roll back a bitcoin trad

[mudshark]

We asked the monkey for his response to events of the day. "Shocked!" he said.

Disconnect

[SuperKendall]

I'm supposed to hate electronic voting, but support a wholly electronic currency?

Just sayin'!

[John Pfeiffer]

It's worth nothing that this 'price crash' was completely artificial, the result of a malicious act, and only really affects the Mt.Gox exchange site. I suppose it probably also affects any sites that set their exchange rate by Mt.Gox, but many don't do that on a real-time basis anyway. I use Bitcoin Market, another trading site, and their prices are unaffected.

The e-mail from Mt.Gox.

[Gendou]

I have an Mt.Gox account but have never actually used it for anything. I received the following e-mail earlier today.

Dear Mt.Gox user,

Our database has been compromised, including your email. We are working on a
quick resolution and to begin with, your password has been disabled as a
security measure (and you will need to reset it to login again on Mt.Gox).

If you were using the same password on Mt.Gox and other places (email, etc),
you should change this password as soon as possible.

For more details, please see this:

https://support.mtgox.com/entries/20208066-huge-bitcoin-sell-off-due-to-a-compromised-account-rollback

The informations there will be updated as our investigation progresses.

Please accept our apologies for the troubles caused, and be certain we will do
everything we can to keep the funds entrusted with us as secure as possible.

The leaked data includes the following:

- Account number
- Account login
- Email address
- Encrypted password

While the password is encrypted, it is possible to bruteforce most passwords
with time, and it is likely bad people are working on this right now.

Any unauthorized access done to any account you own (email, mtgox, etc) should
be reported to the appropriate authorities in your country.

Thanks,
The Mt.Gox team

Gmail also flagged suspicious failed login attempts on my e-mail account, so I had to go through a password reset process on it. Although I used a unique password at Mt.Gox, the attacker apparently is running automated login attempts using the stolen e-mail addresses and Mt.Gox passwords, so anyone using non-unique passwords is likely in trouble.

Re:The e-mail from Mt.Gox.

[Dr. Sp0ng]

Gmail also flagged suspicious failed login attempts on my e-mail account, so I had to go through a password reset process on it. Although I used a unique password at Mt.Gox, the attacker apparently is running automated login attempts using the stolen e-mail addresses and Mt.Gox passwords, so anyone using non-unique passwords is likely in trouble.

Yep. Same story for me too. Glad I enabled two-factor authentication on my Google account (and SSH to my home server while I was at it).

Re:The e-mail from Mt.Gox.

[Anonymous Coward]

Gmail also flagged suspicious failed login attempts on my e-mail account...

That's not an accident; Google is watching out for you.

See http://forum.bitcoin.org/index.php?topic=19641.msg245983#msg245983

Hi guys,

The reason your Google accounts have been required to change the password is that you appeared in a list of public MtGox accounts. We do understand that you may not have been sharing your passwords, unfortunately as they were leaked in hashed form it is hard to know which ones will be found to be sharing passwords and which won't - this will be found out by brute forcers over the next 24-48 hours.

Again, apologies for the inconvenience, we know that choosing new passwords is a pain. Requiring password rotations is not a decision we take lightly. However this is standard procedure for credentials leaks. It is to avoid accounts showing up in the black market for hacked passwords, as Gmail account access can be used to obtain access at other sites (PayPal, Facebook, etc).

thanks,

Mike
Google abuse/anti-hijack team

Re:buh?

[AvitarX]

If you can only pull out $1000 worth, and you expect it to rebound, devaluing is good, you get to pull more coins.

Re:This Is Where Slashdot Fails Me

[SomePgmr]

It's interesting to watch, though I have no financial interest in Bitcoin.

This particular situation though is really interesting. The big win features of Bitcoin are really supposed to be the removal of central authorities that can jack up a currency, and anonymity. The downsides are really the same.

And yet, here we have what is effectively a sort of central financial institution locking down a huge bulk of the Bitcoin economy, because they were able to meaningfully identify currency that was stolen and is being used.

So as it turns out, the currency seems to operate in shades of gray... just like every other currency?

This is not really a bitcoin story

[Cyberllama]

So much as it is a MTGox story.

About a week ago the first rumors of MtGox being compromised by a SQL injection exploit began to circulate.
Here's one of the original claims from someone calling themselves Buttsec from June 14th. Others which I'm too lazy to dig up were more specific and named MtGox explictly:
http://pastebin.com/4NPemHfz

On that very same day, MTGox implemented a $1000 dollar withdrawal limit. Suspicious, right? For the past 3 days, there have been offers to sell MTGox's database of usernames and password hashes. Here's an example:

http://pastebin.com/ui0nusuZ

Today, there is this:
http://pastebin.com/hN7PxRhc
http://pastebin.com/w06pa2mB (there are many of these, the first link gives you the urls if you want to see them all)

This confirms MTGox was indeed hacked. One of the hackers offering to sell this database that came out today had even specifically mentioned that the hole he had used was CLOSED by MTGox a couple of days ago. Today, FINALLY, MTGox admits they were hacked and has sent out emails to all their users. Here is a copy:
http://pastebin.com/9Cx94wzs

In light of all of the evidence (more of which I'm sure you can find on your own), I find it very hard to believe that MtGox was not aware they had been hacked, and yet they've been denying it and operating normally (aside from the newly added withdrawal limit, which they even boast about in the linked press release). In fact, I found one reddit page of many where MtGox users were complaining there accounts had been compromised (There have been many over the past week) and the employee flat out denies that they have ANY reason to suspect they've been compromised:

Here's one such complaint among many: http://www.reddit.com/r/Bitcoin/comments/i17jd/i_just_got_ripped_off_on_mtgox/
And here's one with an employee denial: http://www.reddit.com/r/Bitcoin/comments/i2dkn/mt_gox_has_some_serious_issues/
Here's all that (purported) employees posts: http://www.reddit.com/user/MtGox_Adam

Long story short: For the last week (5 days at least), I've been wondering if MtGox had been truly hacked or if someone was just trying to depress the price of bitcoins by spreading rumors. Today I don't have to wonder anymore. What I do have to wonder about is why has MtGox kept silent for the past week when ALL indications were that they KNEW. They fixed the hole, added the withdrawal limit, and yet kept on denying they had an issue when dozens of users complained of account compromises. Rather than admit the issue and try to have it fixed, they apparently tried to keep it a secret. How can we trust any company that handles security issues in this manner?

Re:This is not really a bitcoin story

[woolpert]

On that very same day, MTGox implemented a $1000 dollar withdrawal limit. Suspicious, right?

Not so. The $1000 withdrawal limit has been in place since at least early May 2011 (when I started cashing out my holdings).

Re:This is not really a bitcoin story

[Cyberllama]

I should add to this that MtGox is now saying that it wasn't one of their systems that was compromised, but that of one of their auditors and that's how they were unaware of the intrusion. Given that the withdrawal limit has been around, its hard to say exactly what MtGox should have done. They had to know at least as much as I did, which was that there were rumors, an upsurge in compromised accounts and people offering to sell the database, but perhaps that's all the information they had. In that case, It would be harder to condemn them.

Maybe they truly believed it was all just rumors in some attempt to manipulate the market, certainly I suspected it might only be that. If that's the case, I'm not sure what the proper way forward would have been.

There's no Bitcoin market right now.

[Animats]

other USD exchanges are still running fine.

From Bitcoin.org's market table:

• Bitcoin Market (also called MoneyBookers) Price 14.1, today's volume 49.9 bitcoins.
• Bitmarket.eu - despite the entry on bitcoin.org's chart, does not deal in USD.
• Btcex - site not responding, DNS server not responding.
• Bitcoin 7 - Price $15, today's volume 0.988027 bitcoin. (yes, < 1 bitcoin)
• Bitcoin Central - Price $16.9, today's volume 43.17 bitcoins.
• Bitcoin2Cash - Price $17.50, today's volume 82.75 bitcoins.
• Exchange Bitcoins - Price $14.85, today's volume 41.6 bitcoins.

Look at those tiny volumes. Total volume for all the little guys is under 0.1% of Mt. Gox, which was trading over 200,000 bitcoins per day. With Mt. Gox and TradeHill off-line, the market is dead. None of those little guys have any significant buyers available.

Re:Let's attempt some critical thinking.

[Capsaicin]

Imagine this headline: Forex.com hacked, concept of USD put into question. Doesn't that sound a bit ridiculous? This was a bad day for mtgox.com and bitcoin speculators, but it does not demonstrate inherent weaknesses in the system of bitcoin.

I agree, this does not "demonstrate inherent weaknesses" in the design or Bitcoin, per se, and I would add that an event such as this one could strangle Bitcoin in its cradle. Consider these points:

i) Unlike the USD, Bitcoin has still to establish legitimacy in the eyes of the serious investor.
ii) Sites such as Mt Gox, provide the primary (perhaps even exclusive) gateway to Bitcoin. FX dealing sites are very much down the list on how most people gain exposure to USD.
iii) The USD can be used by US citizens to settle their taxation debt. The USD can be used internationally to purchase oil. Within the US (and not only there), the USD can be used to purchase practically the entire range of goods and services.

If we apply critical thinking, it will be apparent that the analogy you propose with your headline, while appealing on the surface, cannot do justice to the differences between Bitcoin and the USD.

Bigoted much?

[SuperKendall]

Remember, most people are stupid

This is untrue, if you actually examine the world people, on average are VERY CLEVER. If "people" were stupid our species would have been wiped out long ago.

Now what people are, is selectively informed. They may not have chosen to be informed about topics you consider important, but it does not mean they are stupid...

I'm sure your average redneck ain't keeping his ammo dry, and your average gun nut (simply for lack of a better term) can't guarantee their storage spot is impervious to floods or broken water pipes

How "sure" are you? Because I'm damn sure you are wrong. Almost anyone I've ever seen keeps ammo in something like an ammo box, which is quite dry and mostly impervious to occasional water. The "redneck" that talks so funny probably knows quite a lot more than you about the care of ammo, and humorously would probably call you an idiot for not knowing the details on this better...

Grow up and realize that people who are different from you are not automatically stupid.

-1, buzzkill

[mevets]

What exactly do you want it to be based on? The number of Jesus' hairs in the shroud?

Drowning in debt is a wonderful horror story, but anybody who tries to collect on it will be facing a horde of nuke-equipped "non-hostile" drones.

Its not like it is a cancer that increasing destroys everything in its path, its just a paltry concern to be taken care of when we can afford it. Clinton nearly destroyed the US by actually reducing it; and thus transferring power back to the people. Thankfully the clear thinking people of Florida put an end to that loser strategy.

You prove my point

[SuperKendall]

No, on average, people are around average intelligence.

Did I ever say anything about intelligence? No, I said Clever. As in, people can figure out the things that are most important to them pretty well.

It's just that may people have different priorities than your own. But by all means feel superior to them even though in different circumstances they would be laughing at you too.

I myself will maintain the awareness that all people are generally clever and avoid the impedance mismatch of thinking they are not and having actions taken I do not expect.

If you happen to be bless/cursed with an intelligence that puts you on the far right of the curve, life is extremely frustrating because almost everyone is a moron.

Well thank god you escaped that trap!

You do seem to have been given a double-helping of arrogance though.

Re:This Is Where Slashdot Fails Me

[qubezz]

You are completely misinformed. I will reply to your anonymous troll instead of modding it as such, just to alert readers to it's crapitude.

The amount of money that can be transferred out of mtgox at once is $1000 (or $1000 value in BTC). That is not the limit on trades. It's like having a Charles Schwab account with $10,000 in it - you can buy and sell thousands in stocks, futures, and currencies, but your Schwab debit card has security preventing you from withdrawing more than $400 a day at an ATM.

The 'account number' (wallet ID) and the record of transactions that account has made is not anonymous, but the owner of the account is. You can create thousands of wallets and send each of them 0.01 BTC if you really want to . A determined eavesdropper might be able to log IP addresses of other users who are running the bitcoin daemon that provides the P2Pnetwork backbone, but you can't tell if they are even transferring any money. The best a government can do to break anonymity is examine meat space by coercing cooperation or tapping the net, to determine who is transferring real dollars in and out of exchanges and who is buying and selling goods at online stores.

The account that was used for trading had a lot of bitcoins in it. Recent market depth on mtgox was around 7,000 buy orders to buy bitcoins (from memory, since the site down). Those are bids to buy at different prices, one order might be to by 100 BTC at $15 each, another might be to buy 20 at $14 each, from different people. All of the people wanting to buy bitcoins totaled 7000 BTC wanted. That means if the hacked account had 100,000 BTC in their mtgox account (which would have cost you about $500 less than a year ago, now you can get your $500 back and still have 99,950 BTC), a hacker could instantly crash the value on that exchange (and others would follow pretty quickly as I've got a feeling there are some automated traders out there). By putting in an order to sell all of them at $0.001 each, all the buy orders would be filled, and with nobody left to sell to, the value would basically be $0.001 per bitcoin, and it would stay there until more buyers logged on and put in orders to buy all the cheap bitcoins.

That is the biggest failing with bitcoin, early adopters and speculators have major wealth due to two years of unpublicised mining and low early exchange price. If we create a bitcoin v2 currency, maybe there would be more of a land rush that would get it to a stable price quickly, so it can be a currency instead of a speculative investment and prevent the ponzi scheme impressions.

It looks like the hacker did some goofy stuff like dump all the bitcoins, then put in a big order to buy bitcoins back (maybe needed lulz after hitting the withdraw limit). If the hacker employed a strategy for maximum win, he could have crashed the current price, been able to buy the hacked account's remaining bitcoins really cheap with his own account (if he was able to get dollars into mtgox anonymously) and quickly transfer a whole lot of them out of mtgox to his personal wallet, since at that instant they would be valued at much less than the $15 they've been going for. Rolling back mtgox's trade database wouldn't get the bitcoins back, nor is there any mechanism in bitcoin for undoing the transfer and account ownership, even if everybody knows which account number has the stolen money in it. The only way feasible would be to roll out a new bitcoind with a blacklist of bad wallets and get people to agree it is a good idea, but by the time 51% are running the new client, the BTC has already been transferred or spent.

What people really need to undersand

[Sycraft-fu]

Is that all an economy is at the fundamental level is trade. I do something, you do something, we trade, that is the economy. Currency just acts like a lubricant, making the trade flow more freely, that is all. It doesn't matter what the currency is, so long as it does its job.

The whole reason we have currency is to deal with the complexities that arise if you try and do anything more than direct barter. In a barter system you very quickly run in to two problems that hamstring an economy:

1) Person A may want something from person B, but person B wants nothing from person A. In that situation you can't have trade. Of course maybe person B wants something from person C and person C wants something from person A and you can then set up a more complex trade but that quickly gets unworkable (imagine if there are 50 people involved in a chain).

2) Person A wants something from person B now, but person B does not need what person A has at the moment. They will in the future though, just not right now. Again, you can solve this with IOUs and the like but it gets complicated, particularly if you have a larger chain of people.

Well currency solves all that. Everyone uses a medium they all agree has value for trade, and it takes care of all that indirection to any level. The levels of trade through number of people and time and be so complex as to be untraceable, and it all works fine because currency acts as a universal store of value.

Of course what this means is that it is just a theoretical construct. It doesn't have to be backed by gold, or computing power, or anything. It just has to meet a few requirements:

1) It has to be something everyone agrees on. Doesn't matter what it is, so long as everyone agrees they'll accept it for trade.

2) It has to be something people can easily exchange. Doesn't do any good if it is something that can't be exchanged easily, even if everyone agrees they'll accept it.

3) It has to actually be exchanged. Currency is useless if people horde it, it only works when they exchange it because when they exchange it, it means they are trading. Doesn't matter how easy it is to exchange or how many people agree to take it, if it isn't actually exchanged it isn't helpful.

That's all. That's why the US dollar works well. Lots of people agree to accept it, it is extremely easy to exchange since there are all sorts of electronic methods, never mind paper, and it is exchanged in vast quantities. That makes it a useful, functional, currency. It facilitates trade and that is why we have currency.

Re:Let's attempt some critical thinking.

[SerpentMage]

I am sorry I think it does... Bitcoin was supposed to be a secure/stable/next generation way of doing transactions with money. But instead we have amateur hour in the Arctic! I mean come on WTF was the bitcoin guy thinking? Did he think nobody would hack? Or try to fake? Or try to steal? You only need to look at Windows to see how versatile hackers are.

No bitcoin is toast!

Bitcoin market live again, but thin.

[Animats]

With TradeHill back up and running for a few hours, there's now a functioning Bitcoin market. For a few hours, there was a huge spread between bid and ask prices, and thus few trades. Now the spread has tightened up, and price seems to have settled down around $11.90/BTC. The market remains thin; selling a few hundred bitcoins would crash the market.

It's a dinky market by any standard. The total volume at TradeHill, under $20,000 today, is comparable to a big gas station or a supermarket.