Major Bitcoin Exchange Ceases Operation

First time accepted submitter Sabbetus writes "On Monday the CEO of prominent Bitcoin exchange Tradehill announced that they are shutting down. Ars Technica ran a story on this stating that 'After Monday's news, the currency's value fell from $5.50 to $4.40, a decline of 20 percent.' Tradehill is returning all funds and meanwhile their competitors are fighting over who gets Tradehill's customers."

Comments

Bizarre and Confusing Summary

[eldavojohn]

... meanwhile their competitors are fighting over who gets Tradehill's customers.

Not sure where that came from, didn't find it in the Ars article. At the end they mention Mt. Gox being the only other exchange ... so there's one competitor. They didn't mention anything about fighting over customers.

Furthermore the third sentence in the Ars article was suspiciously absent from the summary:

He has pledged to open a new site once these issues have been resolved.

As well as the explanation of why all this happened (lack of proper money transmission licensing). I've asked this many times before but how do you track illegal purchases on BitCoin when, by definition, it claims to be an anonymous payment solution?

Quite simply put, no BitCoin exchange -- neither Tradehill nor Mt. Gox -- is going to be able to comply with the Bank Secrecy Act.

Re:Bizarre and Confusing Summary

[alphatel]

A trading firm that never actually trades, with non-existent competitors, trading a currency that doesn't exist, has gone out of business due to massive losses!

Re:Bizarre and Confusing Summary

[Ogi_UnixNut]

Sounds just like some of the financial trickery you hear about happening in the finance industry, doesn't it?

Re:Bizarre and Confusing Summary

[Ogi_UnixNut]

The Act only applies to the US though. Many places you can host an exchange. Never heard of tradehill though, so can't tell where they were based.

One of the nice things about bitcoin is that there are no real borders for it. You can trade on any exchange in the world, and use the currencty anywhere without restrictions (so a bit like cash, but without limits on how much you can take out the country, or currency conversion fees, etc...).

Re:Bizarre and Confusing Summary

[Anonymous Coward]

I've asked this many times before but how do you track illegal purchases on BitCoin when, by definition, it claims to be an anonymous payment solution?

The entire selling point of the "currency" is that you can't, of course. When it was just "paranoid cryptography enthusiasts" and "currency wonks who don't like fiat money but realize that gold is retarded" screwing around with Bitcoin, it was trading at something like $0.25 USD. After Silk Road started picking up steam the currency jumped to its bubble peak of $30+ USD. I'm sure I wasn't the only one who noticed the timeline there.

Re:Bizarre and Confusing Summary

[Anonymous Coward]

Assuming they operate "properly" in the US.

Go host somewhere else on a .cc or something, they have (less) of a reason to touch you then..

Re:Bizarre and Confusing Summary

[iluvcapra]

Quite simply put, no BitCoin exchange -- neither Tradehill nor Mt. Gox -- is going to be able to comply with the Bank Secrecy Act.

I disagree. As long as an exchange keeps identity records for all of its business and for all of the address endpoints it creates, it'd probably be able to comply with US Treasury Department regulations. Bitcoin isn't anonymous. Things only start to get murky once you are moving bitcoins around off an exchange, but that's not the exchange's problem.

Re:Bizarre and Confusing Summary

[houstonbofh]

Quite simply put, no BitCoin exchange -- neither Tradehill nor Mt. Gox -- is going to be able to comply with the Bank Secrecy Act.

Totally not true. They have to record cash transactions for negotiable instruments. They have to report cash transactions over $10,000. Most of them did not deal in cash at all, but in credit or debit cards and paypal, all of which is easily recorded. The act makes no mention of tracking the negotiable instruments (bitcoin) after they are sold.

Re:Bizarre and Confusing Summary

[subreality]

Mt. Gox being the only other exchange

MtGox is the only exchange bigger than TradeHill, but there are lots of smaller exchanges: https://en.bitcoin.it/wiki/Category:Exchanges

Quite simply put, no BitCoin exchange -- neither Tradehill nor Mt. Gox -- is going to be able to comply with the Bank Secrecy Act.

First, Bitcoin is pseudonymous, not anonymous. Second, the important part: while it's very difficult to positively identify who sent you some Bitcoins, the exchanges know exactly who receives them, trades them back and forth to fiat currencies, and then sends them back out. They have names and bank account numbers, or they're using fiat payment services that have bank account numbers. Know Your Customer is not a problem for most exchanges.

Re:Bizarre and Confusing Summary

[zill]

You seem to forgot that the US government controls the DNS system and can confiscate domain names at will.

Also we're not talking about a Bitcoins to seashells exchange here; we're talking about a Bitcoins to USD exchange. Any such exchange must perform transactions with other banks that operate with USD. Guess where a majority of those USD-handling banks are located?

Re:Bizarre and Confusing Summary

[Wonko the Sane]

The Act only applies to the US though.

Technically true but in practice any institution that touches dollars ends up being bound to obey US law if it wants access to the international financial system.

Re:Bizarre and Confusing Summary

[lightknight]

Hmm. I thought Trade Hill was going down, and the company behind it was putting up a new, compliant website by the end of the month...

Re:Bizarre and Confusing Summary

[interkin3tic]

Hey landlord that owns my offices, here's my rent! What's that? No, see, it's in bitcoins which is even BETTER than...(http://www.youtube.com/watch?v=qvJeATp31dw)

Re:Bizarre and Confusing Summary

[sexconker]

Bitcoin is perfectly anonymous.
Bitcoin exchanges like Tradehill and MtGox are not anyonymous.

Re:Bizarre and Confusing Summary

[Anonymous Coward]

Um no. Please go back to school or read a book.

Re:Bizarre and Confusing Summary

[Ultra64]

Bitcoin never claimed to be an anonymous payment solution. In fact every single payment (along with sender and recipient address) ever made is visible in the very public block chain.

People who don't understand bitcoin claimed it was an anonymous payment solution.

Re:Bizarre and Confusing Summary

[iluvcapra]

Bitcoin is as anonymous as an advertiser clickstream. It's quite possible to correlate individuals from their transactions, and the transactions are out in the open for all to see.

Re:Bizarre and Confusing Summary

[Sabbetus]

I could have written a much longer description but I think that the Ars Technica article covers it well. The claim that Mt. Gox is the only other exchange is silly though. There are many exchanges and Tradehill was only slightly bigger than Intersango and Cryptoxchange. Both of these exchanges have started to push their marketing especially at Bitcointalk forums, after this incident: https://bitcointalk.org/index.php?topic=63941.0 & https://bitcointalk.org/index.php?topic=63877.0

So that everyone clearly understands, Mt. Gox is by far the biggest exchange. Even though Tradehill was the 2nd biggest exchange, it was tiny compared to Mt. Gox. Both Intersango and Cryptoxchange were almost as big as Tradehill at the time of its demise. This information is available at http://bitcoincharts.com/markets/

I didn't pull anything out of my hat but I could have perhaps added a few more links and a slightly longer description.

Re:Bizarre and Confusing Summary

[Wesley Felter]

After Silk Road started picking up steam the currency jumped to its bubble peak of $30+ USD. I'm sure I wasn't the only one who noticed the timeline there.

I think the $30 spike was more likely caused by an influx of noobs who found out that their GPU could print money.

Re:Bizarre and Confusing Summary

[NatasRevol]

Like this one?

http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393072231

Re:Bizarre and Confusing Summary

[Anonymous Coward]

I think the $30 spike was more likely caused by an influx of noobs who found out that their GPU could print money.

How would that work? People printing money and holding onto it shouldn't affectthe price. People printing money and selling it or otherwise circulating it should depress the price. For the price to go up someone had to be buying.

Re:Bizarre and Confusing Summary

[Anonymous Coward]

And by "print money" you mean "waste electricity while participating in a pyramid scheme that was destined to fail."

Right?

Re:Bizarre and Confusing Summary

[gox]

Bitcoin is as anonymous as you need it to be. It's neither perfectly anonymous nor perfectly traceable. You can, for instance, create transaction records offline, and then submit it to the network through a mediator, so it can be as anonymous as any method of communication (I2P, postal service, carrier pigeon, etc.). In most practical use cases (where anonymity is required), it would be mostly like an F2F situation. It also provides considerable plausible deniability.

Re:Bizarre and Confusing Summary

[fred911]

No. In todays industry, those "to big to fail", don't. Their losses are replaced by printing more money so they can pay their bonuses, and have another shot at craps.

Re:Bizarre and Confusing Summary

[Anonymous Coward]

AHA! Proof that you actually read the article AND Jered's original post to the bitcointalk forum announcing the change. Tradehill is closing so that a new platform can be built from the developer team.

You actually read the article and its source material. You are an embarrassment to the Slashdot community. :-)

Re:Bizarre and Confusing Summary

[CurryCamel]

You mean the summaries on /. are not supposed to be Bizarre, Confusing, Misleading and (dare I say) a bit Trollish?

Yeh, I'm new here.

Re:Bizarre and Confusing Summary

[tompaulco]

And by "print money" you mean "waste electricity while participating in a pyramid scheme that was destined to fail." Right?
Nope. Because Bitcoin is not a scheme whereby people use newcomers money to pay people who have been in the scheme longer. In fact, Bitcoin does not ask people for money at all.

Re:Bizarre and Confusing Summary

[maxwell demon]

I think the $30 spike was more likely caused by an influx of noobs who found out that their GPU could print money.

How would that work? People printing money and holding onto it shouldn't affectthe price. People printing money and selling it or otherwise circulating it should depress the price. For the price to go up someone had to be buying.

As far as I understand, the bitcoin generation rate is adapted to the available computing power. Therefore if many new people generate bitcoins without selling them, the bitcoin value of computing power goes down, that is you get less bitcoins per computation. Since the computing power of those selling is not increased by additional non-selling miners, this means that those selling sell less bitcoins (because they get less), and therefore the price goes up. Note that the price giong up is a self-amplifying process (because if the price goes up, people are more likely to keep their bitcoins so they can gain more value, thus further reducing the supply and increasing the price), therefore the initial effect may have been quite modest.

I don't know if this is what actually happened, but unless my understanding is wrong, it's a mechanism by which additional mining can indeed increase the price.

Re:Bizarre and Confusing Summary

[Kjella]

As I understand it all you needed was a swapping service, you put a coin in and get a different coin back. It's a little more complicated to avoid correlation and timing attacks and such, but that's the basic idea.

Re:Bizarre and Confusing Summary

[Algae_94]

Just cut the word "pyramid" from his comment. It's an abused term any more. Every system where a small group makes over sized profits and a larger group lose money is labeled a pyramid scheme, regardless of whether the people that lost money made terrible decisions along the way or not. In this case the new people to Bitcoins lost money by spending more on electricity and video cards than they earned while the people that had been in for a while could have sold out at the high.

Re:Bizarre and Confusing Summary

[Algae_94]

You know what else is as anonymous as I need it to be. Dollar bills. If you're really paranoid and don't want to be traced by the serial number of the bills, use dollar coins.

Re:Bizarre and Confusing Summary

[Anonymous Coward]

Quite simply put, no BitCoin exchange -- neither Tradehill nor Mt. Gox -- is going to be able to comply with the Bank Secrecy Act.

Totally not true. They have to record cash transactions for negotiable instruments. They have to report cash transactions over $10,000. Most of them did not deal in cash at all, but in credit or debit cards and paypal, all of which is easily recorded. The act makes no mention of tracking the negotiable instruments (bitcoin) after they are sold.

No, there are more requirements than just the well-known reporting requirement for physical cash movements over $10,000. They also have to file Suspicious Activity Reports which also cover non-physical money movements - in any currency or form. More importantly, they have to show that they have appropriate systems in place to identify transactions that might be suspicious. It's not acceptable to use your failure to track what's going through your institution as a reason why you never file SAR, nor can you accept instructions from or outsource processes to a non-compliant counterparty and then claim any flaws are nothing to do with you. Via the Financial Action Task Force Special Recommendations, similar requirements are in place worldwide (including most offshore tax havens), except in a few pariah states such as North Korea. Transfers involving such pariah states are either illegal due to sanctions or are at least regarded as inherently suspicious.

Bitcoin is clearly representing itself as a currency and as a mechanism for money transfer. It might be hard for a BSA-covered institution to explain to a court how it is confident that money was not transferred into the the Bitcoin money-transfer system for the purpose of evading the anti-money-laundering reporting requirements in the regular money-transfer systems. Banks have been hauled over the coals for lack of oversight when accepting corrupt African banks as counterparties which (it later turned out) were probably using their new access to the US financial system to steal the countries' assets and launder criminal money (see the reports from the Senate Permanent Subcommittee on Investigations). I can therefore see why a bank chief compliance officer would want nothing to do with Bitcoin.

Re:Bizarre and Confusing Summary

[gorzek]

Except to use cash, you have to go out in public. You know, where there are often cameras. And most stores don't take kindly to people walking in wearing ski masks and gloves to conceal their faces and fingerprints.

Re:Bizarre and Confusing Summary

[Anonymous Coward]

You don't, really - understand, that is.

Bitcoin generation rate is a constant: 300 (six 'blocks') per hour. 'Available computing power' adapts to *that*. Your construct of how and why the buying and selling of bitcoin happens is obviously incorrect, as it begins with your failure to grasp first causes.

Re:Bizarre and Confusing Summary

[gox]

Yeah. Bitcoin is just like cash, but works long distance. And you can even store it in your mind. It's what I've always dreamed of.

Re:Bizarre and Confusing Summary

[snookums]

There are any number of valuable things that your landlord would be unlikely to accept as payment. Carbon nanotubes, for instance. So, Bitcoin is not (yet? ever?) a viable currency, but that doesn't mean it doesn't have value.

Re:Bizarre and Confusing Summary

[sexconker]

I can send Bitcoins to people from a random address and all they will only know how much, when, and from what address.

You'd have to trace transactions backward to the originating address to find out where the money truly came from, and the ultimate originating source is always the miners.

For you to track anyone on Bitcoin you'd have to know their address. But anyone can generate a new address whenever they want.
I myself had dozens back when I was mining Bitcoins.

You can trace all transactions to addresses (this is good, and is by design), but you absolutely cannot trace addresses to people without information from outside the network.

Re:Bizarre and Confusing Summary

[LordLucless]

I'm surprised they didn't get a federal bailout.

Re:Bizarre and Confusing Summary

[houstonbofh]

The exact same thing can be said about cash. So use the exact same reporting methods. I think it is over $10000 per month, but I am not sure.

Re:Bizarre and Confusing Summary

[maxwell demon]

You don't, really - understand, that is.

Bitcoin generation rate is a constant: 300 (six 'blocks') per hour. 'Available computing power' adapts to *that*. Your construct of how and why the buying and selling of bitcoin happens is obviously incorrect, as it begins with your failure to grasp first causes.

So the power of the computer adapts to the bitcoin generation rate? And if one day they decide to make 5090 bitcoins per day, all computers get faster?

No, the available computing power is exclusively determined by how much computing power people throw at bitcoin generation. A sinple example: Let's for simplicity assume that all computers are equally powerful, and that all computers used for mining are running 24/7 only for that purpose.

Now assume that currently 300 computers are running. Since the bitcoin generation is 300 bitcoins/hour, each of the computers generates one bitcoin per hour. Now assume that anotrher 300 computers start mining. Since now the total number of computers mining bitcoins is 600, but there are still only 300 bitcoins generated per hour, each computer only generates half a bitcoin per hour, in other words, the same computing power is only half as many bitcoins worth. And if the owners of the new 300 computers all hoard their bitcoins, then the number of bitcoins goint to the market is only half of that one before, because the old miners' computers give them only half as many bitcoins in the same time.

That's exactly the mechanism I described above. So thank you for confirming my understanding.

Oh, and yes, keeping the bitcoin generation rate constant when the computing power increases is adapting the bitcoin generation rate. That's because bitcoin generation is a computation, and therefore the natural unit for bitcoin generation is CPU time, not wall time.

Re:Bizarre and Confusing Summary

[BitZtream]

No, it doesn't have value because anyone with a clue realizes how silly the whole thing is.

Its only idiots who value bitcoin, and idiots tend to lose their money rapidly so you don't get much value out of taking advantage of them ... meaning, once again, it has little to no value outside of idiots.

Re:Bizarre and Confusing Summary

[BitZtream]

Really? The government controls *.co.uk? No, I didn't think they did.

All they 'control' are the silly generic domains that are too overpopulated to be useful anymore anyway. The rest of the world could rather quickly tell the US to go fuck themselves are far as DNS is concerned.

Other countries run root servers too.

Re:Bizarre and Confusing Summary

[pla]

Bitcoin isn't anonymous.

I mine one block of 50 BitCoins. I use that that block to get 50 $5 Sears gift certificates (redeemable in-store) through BTCBuy. I redeem them (CA, ME, MA, and MO all require stores to cash out gift certificates with $5 or less on them) in-store for cash.

More realistically (and less likely to arouse suspicion from a salesdrone), I would just take a $250 gift cert and actually buy something I needed at Sears; but the protest-of-last-resort from the naysayers always runs along the lines of "but you didn't get cash for them!".

This leaves anyone interested in my transactions with:
1) An "address" to a BitCoin wallet;
2) A single throwaway email address; and if you really want to push it,
3) Some grainy in-store security camera footage of someone (not necessarily "me") cashing them out.

How do you not consider that "anonymous"? Congratulations, you've tracked "me" to the parking lot of a Starbucks within 50 miles of my house.


Now, also more realistic (and what I've actually done), you can shift your BTC to Gox, sell them on the exchange for USD, transfer them to Dwolla, and from there, you can spend it on just about anything you want.

Re:Bizarre and Confusing Summary

[arth1]

While many of the root servers are operated outside the US, it is ARIN that assigns them the space in the root server namespace, and delegates the root server cache. And ARIN is as American as apfelstrudel.
Nothing except it (a) being incredibly stupid to do so, and (b) the politicians being unaware prevents the US from retracting root servers they don't like from the rest of the world.

There were a couple of attempts at creating a parallel DNS world not touchable (remember alternic, anyone?), but they never succeeded. Because like it or not, you rely on the DNS servers that people actually use, and those rely on ARIN and other US entities.

Re:Bizarre and Confusing Summary

[tompaulco]

Every system where a small group makes over sized profits and a larger group lose money is labeled a pyramid scheme, regardless of whether the people that lost money made terrible decisions along the way or not.
Then every successful corporation is a pyramid scheme.

Re:Bizarre and Confusing Summary

[makomk]

In this case the new people to Bitcoins lost money by spending more on electricity and video cards than they earned while the people that had been in for a while could have sold out at the high.

In order for the people who'd been in Bitcoin for a long time to make money by selling Bitcoins at the market high, there had to be other people new to Bitcoin that were willing to buy Bitcoins for that amount, presumably because they were convinced the price was going to keep going up and had seen the huge profits made by the early adopters. That's why it's often (incorrectly) called a pyramid scheme.

Re:Bizarre and Confusing Summary

[Teancum]

The algorithm has an adjustment factor based upon how long it took to generate the previous number of blocks (I'd have to dig into the algorithm to find the exact number). If one day a huge amount of CPU power is suddenly dumped into Bitcoin in an attempt to hoard the coins, the adjustment factor increases by a factor that compensates for the increase in computing power.

Sure, over a short period of time you will generate a whole bunch of new blocks as the system adapts to take in the new amount of computing power, but eventually the algorithm adapts to the sudden influx of new blocks solved and makes it harder to create the next block. So with your example of 300 new computers jumping into the system, those computers will at first have the ability to create blocks with the old difficulty level... until they start churning out new blocks and grabbing the available coins.

The opposite happens too, where a whole bunch of computers leave the network (people give up trying to find bitcoins) and then it simply takes longer between blocks. When that happens, the algorithms reduces difficulty after a few blocks are "discovered" and then it eventually becomes easier to find the next block.

There is a lag in how quickly the algorithm takes to adjust, and note that random events will also make some blocks naturally appear sooner simply because of random chance.

The best way to describe the search algorithm is more like playing something like the multi-state lotto, where your computer attempts to find the "winning" numbers, and when you find the correct numbers you have "won" the lotto for that 10 minute time period (for a whopping 50 Bitcoins). The difficulty adjustment factor is more like having to pick seven numbers instead of six, or perhaps it goes up to eight or nine numbers, and when it becomes too hard because nobody is winning the string of numbers you need to pick goes down. This isn't a perfect analogy, but if you are familiar with lotteries it might make a little more sense.

Re:Bizarre and Confusing Summary

[iluvcapra]

So Bitcoin is anonymous, as long as you can pass the value through a non-Bitcoin conduit?

Re:Bizarre and Confusing Summary

[Teancum]

On the other hand, every single transaction for the entire history of Bitcoin from the day the original root block was created is clearly available for anybody in the world to look at. You can identify not just the amounts but to whom it was paid, "processing fees" associated with those transactions, and a detailed "chain of custody" for every Bitcoin.

There are ways to anonymously transfer Bitcoins, but in and of itself Bitcoin is not nearly so anonymous as some people make the claim it is. The tough part is linking a particular Bitcoin address with an IP address.... which is a much harder proposition to make. Even that isn't impossible, but it can be much harder. It is much, much easier to perform that step if you happen to operate one of the major Bitcoin exchanges, as you can link the BTC information with user registration information and connection data to the exchange website.

The other saving grace is that most Bitcoin transactions are of such petty values that it would never trigger a reporting event in the first place even if it was a normal monetary transaction.

Re:Bizarre and Confusing Summary

[maxwell demon]

Did you actually read what I wrote? It is because of that adaption that the single computer will produce less bitcoins for the same computing effort if more computers join.

Re:Bizarre and Confusing Summary

[Teancum]

You can use coins until RFID tags get put into them. Seriously, even cash transactions can be traced.

BTW, in terms of serial number trackers for U.S. currency, this website does a pretty good job:

http://www.wheresgeorge.com/

This isn't even paranoia, and you might be surprised at how much of the cash in your wallet is being tracked.

Re:Bizarre and Confusing Summary

[Teancum]

You can trace mined coins to specific IP addresses if you are careful with how you listen to the packets and try to find out which computer gave you the packet first. If you had several computers tracking this information, it would be possible to identify down to a small number of users who actually mined some Bitcoins, and from that if any Bitcoins were co-mingled with those mined coins to be able to further identify what other addresses might be used by that person who also is mining coins.

Still, attempting to do that is a real technical challenge and you would need the resources of something like the U.S. federal government to pull that off, plus a whole bunch of data mining and active participation in the Bitcoin network... and it still gives wiggle room for plausible deniability on the surface. If there was a particular set of transactions that such data mining was looking for, you can still be tracked.

On the other hand, if you were very paranoid about such things you could set up manual connections for routing Bitcoin data to only trusted nodes (by your own definition... not some random list in other words), and hopefully even they are being just as paranoid about random connections "to the outside world".

Re:Bizarre and Confusing Summary

[pla]

So Bitcoin is anonymous, as long as you can pass the value through a non-Bitcoin conduit?

Well... Yes, but generally the "anonymous" argument only relates to using BTC to obtain real-world goods or services (or cash) .

If you stay entirely in the domain of BTC, you have absolute, unwavering privacy. In a pure-BTC transaction between two private parties, no one but those two parties have any knowledge of what transpired or between whom, or even if the "two" parties differ or refer to the same physical person. I can send myself Bitcoins all day long, generating transaction chains thousands of entries long, and no one but me has any means whatsoever by which to differentiate between that vs those same Bitcoins passing between a thousand different people.

You could argue that you can trace every Bitcoin back to its original block, which holds true - But likewise, you can "trace" any US dollar via its serial number. And like a US dollar, you have absolutely no knowledge about the two-step-back owner.

Re:Bizarre and Confusing Summary

[icebraining]

Are you saying there's a short supply of idiots? Because my experience says otherwise.

Re:Bizarre and Confusing Summary

[Anonymous Coward]

Tor? So far I haven't heard of the government taking an onnion name. It is by all means possible to do. It may even be easier to do if you don't have ultra strict security measures in place.

Re:Bizarre and Confusing Summary

[wrook]

If you're very careful, you can make it difficult to trace you, but there are a lot of clues in the way that the algorithm works that can point to which bitcoin addresses are owned by the same people. The biggest one is that transactions are always composed of a group of other transactions with the difference refunded to a new bitcoin address owned by the original owner. So If I want to send 100 bitcoins to someone and I have 3 transactions totalling 25, 80 and 15 bitcoins coming into various addresses, I will send all three transactions in a single outgoing transaction and receive a refund for 20 bitcoins in a new incoming transaction to a new address. But this transaction gives a very high probability that all these addresses are owned by the same person.

Because all of the transactions in bitcoin are made public to everyone, it is possible to analyse the transactions to find addresses that are likely linked. The only way you could avoid this is to make sure that you manually split up your transactions to match the amounts you have in each address and request a different receiving address from the person you are sending bitcoins to for each. But even then, you would have to spread those transactions out over a period of time (ideally over several blocks) because if the receivers addresses are determined to belong to a single person, you can assume that bitcoins suddenly appearing in those addresses in a short period of time are probably from the same person.

There are actually some papers discussing tracing techniques and several are actually linked to the Bitcoin website. The website itself warns that Bitcoin is *not* anonymous. It is demonstratably much less anonymous than paper cash.

Re:Bizarre and Confusing Summary

[raynet]

Also in the beginning Bitcoin gave out larger "wins" than just 50 bitcoins, so those few that joined first managed to mine more bitcoins for less effort.

Re:Bizarre and Confusing Summary

[justforgetme]

TOR is an http packet router The Onion Router) and therefore is unrelated to DNS. You could argue that DNS is irrelevant bu then you would be forced to remember 50.17.218.130 instead of example.co.bs and imagine how fun that would be.

Also an only IP solution would still be scrutinized by the IANA (and regional entities) since IP isn't decentralized.

One more thing: if DNS would go down hosting costs for your blog would go up (as in sky high) because you would need a dedicated IP for it instead of a shared one because there simply isn't an implemented way to send a host request together with an ip request from a browser's location bar. and even if it were implemented visitors would have to enter the ip as well as the hostname of your blog, now what fun that would be ( exmplebl.og@100.2.3.4:80/~Id1ot )

</rant>

Re:Bizarre and Confusing Summary

[Rogerborg]

Just so we're clear, that "salesdrone" is making more per hour than you are with your bitcoin master plan.

Re:Bizarre and Confusing Summary

[Anonymous Coward]

Also in the beginning Bitcoin gave out larger "wins" than just 50 bitcoins

No.

http://blog.covestor.com/content/2011/05/main-qimg-6b59f500a3731b8abe24522f6b28a0c4.png

Re:Bizarre and Confusing Summary

[Anonymous Coward]

This is very, very far from being true.

Re:Bizarre and Confusing Summary

[pla]

Just so we're clear, that "salesdrone" is making more per hour than you are with your bitcoin master plan

Absolutely true! Since I started mining BTC, I've made a mere 7.5 cents per hour (after factoring in electricity costs).

Except, of course, that I've made that rate 24/7/365.24 and don't actually need to do anything while it chugs away hour after hour, day after day, year after year, generating those BTC. My total time invested comes out to around a half hour (not counting my recreational programming time spent in writing my own mining client, block explorer, and desktop Gox ticker widget, to better understand how the whole system works).

Re:Bizarre and Confusing Summary

[tehcyder]

People like your landlord only have to accept legal tender. So they also probably wouldn't accept silver or gold instead of rent. However, it is trivial to find someone who will exchange silver or gold for real money. Unlike Bitcoins.

Re:Bizarre and Confusing Summary

[tehcyder]

One of the nice things about bitcoin is that there are no real borders for it. You can trade on any exchange in the world, and use the currencty anywhere without restrictions (so a bit like cash, but without limits on how much you can take out the country, or currency conversion fees, etc...).

Bitcoins are just like cash, except for the fact that you can't go into a shop and use them to buy food, drink, clothes and so on.

So, on second thoughts, nothing like cash at all, although I'm sure they're useful for buying botnets, child porn, etc.

Re:Bizarre and Confusing Summary

[sexconker]

You can trace mined coins to specific IP addresses if you are careful with how you listen to the packets and try to find out which computer gave you the packet first. If you had several computers tracking this information, it would be possible to identify down to a small number of users who actually mined some Bitcoins, and from that if any Bitcoins were co-mingled with those mined coins to be able to further identify what other addresses might be used by that person who also is mining coins.

Still, attempting to do that is a real technical challenge and you would need the resources of something like the U.S. federal government to pull that off, plus a whole bunch of data mining and active participation in the Bitcoin network... and it still gives wiggle room for plausible deniability on the surface. If there was a particular set of transactions that such data mining was looking for, you can still be tracked.

On the other hand, if you were very paranoid about such things you could set up manual connections for routing Bitcoin data to only trusted nodes (by your own definition... not some random list in other words), and hopefully even they are being just as paranoid about random connections "to the outside world".

IF you control all nodes, AND you KNOW you control all the nodes, then you can track the transaction to the IP ADDRESS of the MINER or TRANSACTION INITIATOR.
You cannot track the transaction to an individual person. An IP address is not a person. A Bitcoin address is not a person.

Furthermore, it's laughable to think that anyone can control all of the nodes to make this possible.
And if that scenario ever did occur, you could just avoid routing directly to those nodes (as you mentioned).

If the government wanted to track a Bitcoin user down, they'd just shakedown ISPs as usual.
The only "weakpoint" in Bitcoin's anonymity is the "bad guys control ALL the nodes" scenario.
Beyond that, it's as anonymous as users want it to be. Most people mine in a shared pool, and thus associate their IP, a User ID, and 1 or more receiving addresses, and tell it to a 3rd party. People participating in currency exchanges do the same thing and worse, as shit then ends up tied to a bank account or similar.

If you want to send x bitcoins to a person, you can exchange addresses however you wish, and then the network handles the rest. You could do both transactions from the same IP address so to anyone snooping it looks like someone was just moving money between their own wallets.

Re:Bizarre and Confusing Summary

[raynet]

Even your graph says it did gave out more than 50 bitcoins in the beginning, otherwise the graph would be linear.

Re:Bizarre and Confusing Summary

[Grygus]

Bailouts are not free; you must invest in lobbyists to see a return.

Re:Bizarre and Confusing Summary

[tolkienfan]

By your definition, idiots can successfully use bitcoin as a currency, but only because they don't realize how "silly" it is.
When you think about it, that's a *really* odd thing to state.
If you mean that bitcoins have no intrinsic value, then you'd be right. But that's true of currencies in general these days. No one uses gold coins as currency any more.
If you actually have a specific criticism if bitcoin other than "silly", I'd be interested to hear it.

Re:Bizarre and Confusing Summary

[madhi19]

I know at least one town build on the fact that your assertion is false. I believe it in Nevada!

Re:Bizarre and Confusing Summary

[badkarmadayaccount]

there are alternate dns roots. find them yourself.

Oh! The huge manatee!

[Anonymous Coward]

On Monday the CEO of prominent Bitcoin exchange Tradehill announced that they are shutting down.

And not a single fuck was given that day.

Re:Oh! The huge manatee!

[houstonbofh]

On Monday the CEO of prominent Bitcoin exchange Tradehill announced that they are shutting down.

And not a single fuck was given that day.

If everyone actually stopped fucking for a day, that would be huge news. (To everyone other than you)

MtGox it is then

[Anonymous Coward]

Glad I went with them from the get-go. Is there anyone else really to go with?

Not money!

[Anonymous Coward]

Until i can go buy a new pc, a case of beer, a bag of weed, and a pack of smokes with bitcoins... THEY ARE NOT REAL MONEY!

Who the hell keeps approving all these bitcoin storys around here.

Re:Not money!

[houstonbofh]

Actually, you can do all but the beer. Several whitebox outfits take bitcoin. And there are vice e-bay clones for the drugs and smokes...

Re:Not money!

[gox]

Weed? Give me a break, the biggest political attack on Bitcoin so far is because you *can* buy weed with it.

Buying most of these online might not work for you, but for what it's worth, one of my friends buys beer online with the coins he mines. Belgian Flavours shop accepts Bitcoin AFAIK. You can buy PCs and all kinds of electronics for sure. Not sure how competitive the prices are though, at the worst case you can buy vouchers for more popular sites. Smokes, yes, there are a multitude of shops for tobacco products, including e-cigarettes. Prices for these sort of products are really competitive.

Re:Not money!

[Anonymous Coward]

Weed? Give me a break, the biggest political attack on Bitcoin so far is because you *can* buy weed with it.

I thought the biggest political attack on Bitcoin so far was that you had to be *on* weed to think it's a good idea.

Oh, wait, sorry, that's the biggest attack on it from *reality*.

Re:Not money!

[Bert64]

Bitcoin is a perfectly good idea.. I use it regularly to exchange currencies, someone in one country buys bitcoins with his local currency and sends them to me, i then convert them to local currency. Doing this with bank transfers or paypal has massively higher fees for me.

Re:Not money!

[brokenin2]

I don't know who approves all the stories (you could look at who posted them all since it's displayed on every one of them).

I can't really tell if you're being sarcastic, since *EVERYTHING* you listed is available for purchase using bitcoins. Bitcoin sites do tend to call the "new pc" a "mining rig" instead, but some places can even be seen selling them as pc's.

Re:Not money!

[tehcyder]

Who the hell keeps approving all these bitcoin storys around here.

Someone near the head of the pyramid scheme who works for slashdot and got in early, I would imagine.

20% Drop... where's CNBC's coverage?

[LostCluster]

If Bitcoins were a national currency its population would be protesting... a 20% overnight drop would be business news if this currency had enough people caring it existed. These money-like substances always seem to fail resulting in no payout to those holding the bag. Nothing left to see here, move along.

Re:20% Drop... where's CNBC's coverage?

[Anonymous Coward]

Until its recent island of stability (which can be put down to lack of anyone left wanting to trade), a 20% shift in one day was not unusual for Bitcoin.

Re:20% Drop... where's CNBC's coverage?

[themusicgod1]

It takes about 1-3 days to take money from the legacy currency system and put it into one of these exchanges...so even if the price suddenly drops those who know it's a good deal have a bit of a delay, hence a lot of the 20% bounces.

Re:20% Drop... where's CNBC's coverage?

[subreality]

If Bitcoins were a national currency its population would be protesting... a 20% overnight drop would be business news if this currency had enough people caring it existed. These money-like substances always seem to fail resulting in no payout to those holding the bag. Nothing left to see here, move along.

Sure. But Bitcoin isn't a major reserve currency. It's current size is like a tiny stock, and volatility is expected at that scale.

Unlike the corporate micro-currencies (Beenz, Flooz, whatever), Bitcoin doesn't suddenly go under and not pay out. Bitcoin is volatile, but it's still liquid - if you want to trade back to dollars, you can do so at market rate on any of several dozen markets.

Bitcoin's not for you if you don't want to deal with volatility, but it has very different properties than any other currency which does make it appealing to some people for legitimate reasons.

Re:20% Drop... where's CNBC's coverage?

[MysteriousPreacher]

Zimbabwe should switch to Bitcoin. A 20% overnight drop in their national currency would be a cause for astonished celebration.

Re:20% Drop... where's CNBC's coverage?

[makomk]

I think Zimbabwe switched to US dollars instead, which is much more stable.

Re:20% Drop... where's CNBC's coverage?

[Anonymous Coward]

There shouldn't be such a thing as national currency.

Let's see, one small group of people arbitrarily decides that we'll setup a new currency, and we'll back it up by having you pay taxes, and if you don't pay taxes, we'll lock you up in a metal cage.

yeah...

And national currencies do drop 20-50 percent.

Bitcoin's still around?

[SleazyRidr]

I thought that Bitcoin must have ceased operating when there stopped being a slashdot story about them every day.

Re:Bitcoin's still around?

[Bieeanda]

Dude, there are nerds who are still convinced that the Amiga could make a comeback. Irrational fixations transcend population boundaries.

Re:Bitcoin's still around?

[Anonymous Coward]

Do you blame them?

Just look at how wonderfully usable current PCs and tablets are.

Re:Bitcoin's still around?

[pz]

We stopped getting bitcoin articles when Taco left.

Yeah, yeah, correlation is not causation ... but it sure is sufficient cause to suspect causation.

Re:Bitcoin's still around?

[Anonymous Coward]

I had thought they got the picture when they had that questionaire and poll. I guarantee a large portion of people wrote they were tired of bitcoin stories.

Re:Bitcoin's still around?

[Anonymous Coward]

That's because Raspberry Pi started advertis... I mean, it's progress got more interesting. Imagine what Slashdot would be like if you could purchase Raspberry Pi with Bitcoin.

Re:Bitcoin's still around?

[maxwell demon]

You think that Taco left because of a lack of bitcoin articles?

Re:Bitcoin's still around?

[maxwell demon]

Well, you could mine bitcoins with the Raspberry Pi. :-)

Not naming names

[Bobberly]

I noticed the name Dwolla was missing where they said "payment processor." If I recall, the chargeback happened back in August of 2011. I wonder if the lawsuit finally progressed to a point that they realized they weren't going to win?

Wow

[poofmeisterp]

Who didn't see that coming?
/snark

wtf?

[Anonymous Coward]

What is bitcoin? Monopoly money?

Re:wtf?

[MachineShedFred]

You're not that far off the mark.

Re:wtf?

[Anonymous Coward]

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 inevitable 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 like 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, game theory and Bayesian epistemology didn’t substitute for understanding anything about people. 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.

from http://newstechnica.com/2011/06/18/bitcoin-to-revolutionise-the-economy/

Re:wtf?

[Issarlk]

> the marketing department at NVidia

At AMD, not NVidia. Unless someone wrote a miner that works on NVidia GPU recently ?

Re:wtf?

[Anonymous Coward]

You, sir, are the best of men.

Oh well.

[Beelzebud]

And nothing of value was lost.

Move on.

[slasho81]

Why do we keep seeing stories about BitCoin? Money is fiction. It's only as valuable as people believe it is. Nobody believes in BitCoin. It's not working. We get it. Move on.

Re:Move on.

[DanielRavenNest]

What you are really saying is "I don't believe in bitcoin". Other people do, however, to the tune of $40 million USD.

If you treat BitCoin as an experiment in electronic currency without a central bank, I would say it is worth it just to learn what works and does not work. Money has been getting ever more electronic over time, and we should have some idea how the fuck it works. Second Life is another experiment in electronic currency. It has a total money supply worth $27 million, convertibility back and forth to dollars, and a large market of goods people buy and sell. It may be a toy sized economy compared to the rest of the world, but it's better to experiment and make mistakes on one of those, than, say, Greece.

Re:Move on.

[ScentCone]

but it's better to experiment and make mistakes on one of those, than, say, Greece.

True that working small is a good way to test. But the Greece analogy isn't very good. That wasn't about the form/format of money or the exchange thereof. That was about spending than you can afford and don't have the will to produce ... which is just as bad when you're on a barter system as when you're on a currency system. Entitlement mentality killed the Greek economy, not the ebb and flow around currency mechanisms.

Re:Move on.

[Anonymous Coward]

May as well use Greece for something while it still has electricity and running water.

Re:Move on.

[ultranova]

Entitlement mentality killed the Greek economy, not the ebb and flow around currency mechanisms.

"Entitlement", as in "investors are entitled to have their gambling losses covered by taxpayer money"? Because that entitlement absolutely dwarfs any and all entitlements the common people in Greece received. And it's the same problem everywhere, including the US.

Re:Move on.

[ScentCone]

Are you referring to things like the GM bailout? Investors lost pretty much everything, the government got a big chunk of the company, and the labor unions were given the rest as a huge political reward for supporting the administration doing the giving. Yeah, that's quite corrupt. But the reason GM needed bailing out in the first place wasn't the investors, it was the unions.

Re:Move on.

[tehcyder]

But the reason GM needed bailing out in the first place wasn't the investors, it was the unions.

Yes, because the unions both owned and managed GM, so obviously they called all the shots there.

You appear to live in some fantasy world where there was a socialist revolution in the US and the workers seized control of the means of production.

Re:Move on.

[ScentCone]

because the unions both owned and managed GM

You do understand, right, that you're completely incorrect on the facts? Private investors that used to own GM (some of which may have been employees or even union pension funds) LOST their investments in the bankruptcy. The unions were then given, by executive order, the gift of a large share of the company. The people who had money invested got no such consideration (mostly because they didn't organize to give the executive issuing such orders large amounts of political support during the campaign season).

Major?

[sexconker]

Tradehill was never a major Bitcoin exchange.
MtGox is the only one anyone ever used. Tradehill was started by some guy who got mad that MtGox was raking in the cash. He started throwing out accusations about security holes, the owner (of MtGox) not actually having all of the BitCoins backing his market, etc. Then he threw up Tradehill and it was shit.

All Bitcoin exchanges are shit. They're for speculators. Bitcoin as a currency is fine, and it will be fine if every exchange dies off.

Re:Major?

[Ultra64]

"and it will be fine if every exchange dies off."

Except for the fact that there will be no way to acquire bitcoins?

Re:Major?

[betterunixthanunix]

Sure there will -- you can grow some marijuana and trade that for Bitcoins. Except that the only reason anyone does such a thing right now is because they want to trade the Bitcoins for their nation's currency.

Re:Major?

[subreality]

"and it will be fine if every exchange dies off."

Except for the fact that there will be no way to acquire bitcoins?

By that logic there would be no way of acquiring US dollars either.

Without exchanges, you acquire Bitcoins in exchange for goods and services. It's money. Earn it.

Re:Major?

[subreality]

NYSE was never a major stock exchange.
NYSE is the only one anyone ever used. NASDAQ was started by some guy who got mad that NYSE was raking in the cash. ... Then he threw up NASDAQ and it was shit.

All stock exchanges are shit. They're for speculators.

FTFY. :)

Re:Major?

[Anonymous Coward]

You may still earn bitcoins the old fashioned way. You can mine your own coins.

Re:Major?

[Anonymous Coward]

I believe bitcoins survival is based on its ability to make it to the main stream. Until people can buy and sell goods and services for bitcoins the adoption rate will be limited. I've looked at the code. That is a bigger challenge then a person might think. First you have to understand how the software works. Then you have to be able to modify it so that you can build the infrastructure for it. I don't think the current code base will make that possible. I think bitcoin needs a rewrite. First create a library that builds the infrastructure and we can use it in other programs. Then build the client on top of the library. I think this is the fatal flaw of bitcoin.

But the protocols are still intact

[adjustable_pliers]

The loss of Tradehill and the security breaches of other exchanges disrupted the confidence in using Bitcoin, but the protocols remained intact. I see this as a testament to the design of the system, even though a fundamental quality for any currency is the confidence of its users.

As a Bitcoin lurker (I've never owned anything more than 2 BTC), I've been intensely fascinated in the potential of this "currency." Without belaboring the great qualities of a decentralized currency, it has attracted a speculative class of users that have rushed into centralized exchanges using nervous money transmission providers. The irony is not lost on me.

Tradehill's departure and what I believe will be an eventual international agreement hobbling Bitcoin's biggest exchange Mt. Gox in Japan (a la UBS in Switzerland), due to tax evasion, ought to serve as a cautionary note to Bitcoin users. Money transmission is a confiscatorially regulated practice. Bitcoin's best hope ought to be transactions as decentralized as the protocol it uses.

Lurkers such as I can only hope of an ecosystem or application so widespread, so diversified, secure enough, and easy to use before Bitcoin can be considered useful to most internet users. I dream of a decentralized Facebook knock-off (e.g. diaspora*, etc.) with a Bitcoin client built in, making currency transmission as simple as tossing a dollar to a friend to buy a cup of coffee. Perhaps even at a coffee shop with patrons casually swapping US$ and BTC as they play chess or read.

smart

[Anonymous Coward]

Make your money and then get out before the feds show up.

Bitcoin was never going to work

[Spy Handler]

A pump-and-dump scheme is kind of like a snake oil venture. It requires a good salesman that can work up a crowd. With an engaging, outgoing personality (not an introverted nerd).

Can you imagine a BitOil scheme, created by computer nerds, writing mail to people and explaining how it's superior to regular snake oil due to its technical features such as (blah blah). It ain't gonna work. You need to get a hot chick, a magic act, a shill, a strongman, and put an act together.

Watch here for an example

Re:Bitcoin was never going to work

[Sycraft-fu]

Even if it wasn't a pump and dump scheme it was doomed to failure as a currency for one simple reason: Built in deflation.

The total number of bitcoins that can ever exist is finite, and as time goes on they get harder and harder to "mine". So as such, deflation is just built in to the currency, if it were ever adopted on a wide scale.

While this is something that plenty of Internet 'tards who have no understanding of economics think is great "The money I have will be worth more!" anyone who knows economics knows that deflation is an economic killer. Money has to be spent to be useful and deflation encourages hoarding. It creates a vicious cycle.

Hence the reason why all it will ever be used for is pump n' dump or the like because it cannot be used as a useful currency.

Re:Bitcoin was never going to work

[TheCarp]

Actually, I used to really like bitcoin and never thought most of the arguments against it held much water, since they mostly ignore that all the fiction in bitcoin is the same fiction in other currency. All currency is fake, because its all an abstraction. Nothing wrong with that.

However, the more I learned about it and dove into it...the more convinced I came of this simple fact... a currency wants deflation because currency isn't intended to be a savings instrument. People hoard gold. People hoarded bitcoins. Hell, I gave in to that temptation, even as I started to see the reall folly in it.

Inflation serves a purpose though...I am very much with the bitcoiners still in not trusting governments to be the arbiters. Worst though, allowing a few private hands to do it. I don't trust the fed as far as I can afford to pay someone to throw them

I still ove bitcoin for trying. It was a good attempt, just like some of the good attempts before it...I hope there will be more...and the community will keep trying until something wins out.

Re:Bitcoin was never going to work

[TheCarp]

Sorry.... inflation.... not deflation. Inflation is good (up to a point).

Re:Bitcoin was never going to work

[Anonymous Coward]

Patent bitcoins rectify the humours and cure feminine hysteria.

Re:Bitcoin was never going to work

[Troed]

Consumer Electronics keep getting cheaper and cheaper. According to your deflation argument, no one would ever buy CE products.

The world economy currently relies on inflation. How's that working out, really?

Re:Bitcoin was never going to work

[Anonymous Coward]

There is nothing good about inflation. You are confiscating wealth from savers, hence removing capital that could be invested into new projects. It encourages big projects that have no economic sense. It encourages wars.

People arguing against deflation while typing their arguments out are insane in my opinion. The argument that if there's deflation then industries cannot develop just doesn't hold any water. Price of all computer items has been steadily dropping while becoming more and more powerful. CPU, RAM and storage system makers seem to be making more and more sales, yet prices are cheaper per unit that does more.

Why money has value

[betterunixthanunix]

Money is not fiction, it is a mechanism that governments and banks can use. Dollars not valuable simply because people believe they are valuable, they are valuable because the US government requires a large group of people to use dollars (i.e. to pay taxes and other debts). People believe dollars are valuable because all the tax-paying and otherwise indebted citizens around them demand dollars as payment, because they need those dollars if they do not want the government to take their property or freedom. As long as people agree to be governed by the US government, currency issued by the government will have value.

Nobody is required to use Bitcoin, which is why it is so volatile (its value is based entirely on speculation) and will ultimately fail (as people demand dollars and other currencies more than they demand Bitcoin).

Re:Why money has value

[gox]

Nobody is required to use Bitcoin, which is why it is so volatile (its value is based entirely on speculation) and will ultimately fail (as people demand dollars and other currencies more than they demand Bitcoin).

Even with the above reasoning, Bitcoin can still survive if there are enough situations where no currency is de jure standard and Bitcoin has a considerable advantage. Black market for sure, and gray market might be a good candidate for it.

Yours is a bleak perspective though. I tend to believe that realism is not very realistic. Only time can tell...

Re:Why money has value

[betterunixthanunix]

Even with the above reasoning, Bitcoin can still survive if there are enough situations where no currency is de jure standard and Bitcoin has a considerable advantage. Black market for sure, and gray market might be a good candidate for it.

In which case it would only take a digital currency system that does not suffer from Bitcoin's inherent scalability problem -- the fact that the computational resources needed for Bitcoin grow with the number of Bitcoin transactions, a fact that is inherent in all digital cash systems and that is typically resolved by means of a central issuing authority that can "renew" tokens -- to kill of Bitcoin. If the only advantage Bitcoin has is that it is a digital cash system, it is only a matter of time before it dies and all the people who bought into the system but did not have a chance to cash out have to eat the loss.

Yours is a bleak perspective though

Probably because Bitcoin is a badly designed system. Interesting as a mental exercise, but ultimately doomed. Worse still, Bitcoin has become synonymous with digital cash, which means that better systems have even worse chances of being adopted, especially once Bitcoin fails.

Re:Why money has value

[gox]

If you agree with the case, then there is a dilemma in your response. A design that is resilient to regulation is needed in order to have the advantage in the first place, so at least some sort of decentralization is practically a requirement. Maybe it's not a dilemma, but you are suggesting that a better system is possible, I couldn't figure out from your response.

Scalability is a hot topic since the beginning of Bitcoin. I think it will ultimately depend on people's perspective of the currency and the willingness of the society to evolve with the idea. If Bitcoin is valuable enough as a currency, and scalability issues become a problem, the network itself would inevitably become the transaction backbone of a most wider structure, comprising many interlinked central issuing authorities. The bare network would still be open to everyone, but with higher transaction fees. If it's not that valuable, then there wouldn't be a scalibility problem to begin with. This covers enough bases. There are some concerns that the resulting system would be similar to the banking structure we have now, therefore this sort of switch is pointless, but the resemblance is superficial in my opinion.

Third scenario is where we find an ultimate solution to the scalability problem. There are many methods that would make do for the foreseeable future, but there is none that does away with it once and for all. Though, if it all boils down to the renewal of tokens as you mentioned, I think it can still be done with a distributed system. The system itself would need to combine transactions, or else incentivize economization of tokens. Whether that kind of solution can be embedded in existing Bitcoin system is an open question. Granted, what Bitcoin currently does is actually the opposite.

Re:Why money has value

[betterunixthanunix]

A design that is resilient to regulation is needed in order to have the advantage in the first place,

Actually, the biggest advantage of digital cash is that it prevents an untrustworthy merchant from raiding customer accounts (e.g. if a merchant is compromised, credit card data could be used to make unauthorized payments). Anonymity is a secondary goal, and even anonymous payments do not free the parties in the system from regulation -- there is plenty of regulation on cash transactions, which offer a similar level of anonymity.

at least some sort of decentralization is practically a requirement

Yes, that is true -- the payments should be decentralized in a digital cash system. It is not necessary or advantageous for currency units to be created in a decentralized way (like Bitcoin), and it actually presents disadvantages, both technical and economic. Other digital cash systems are more like paper money: issued by a central authority, spent in a decentralized manner, and periodically renewed (old paper currency is destroyed, new paper currency is issued, and likewise old digital cash tokens are replaced with fresh tokens of equal value in many digital cash systems).

If Bitcoin is valuable enough as a currency, and scalability issues become a problem, the network itself would inevitably become the transaction backbone of a most wider structure, comprising many interlinked central issuing authorities

Except that Bitcoin does not allow for central issuing authorities, and there is no advantage in having such authorities use Bitcoin -- they are inherently trusted, and it is reasonable to assume that they will trust each other (or at least that they trust each other enough to perform more standard transactions -- the real point of digital cash is for day-to-day transactions, not transactions between large institutions).

Third scenario is where we find an ultimate solution to the scalability problem. There are many methods that would make do for the foreseeable future, but there is none that does away with it once and for all. Though, if it all boils down to the renewal of tokens as you mentioned, I think it can still be done with a distributed system.

Not without a trusted party that issues the tokens. This has been discussed by researchers:

http://www.springerlink.com/content/ew2cm5yd0kg797yf/

Sorry if you don't have SprinerLink access; a non-Springer version might be available somewhere, the paper title is Transferred Cash Grows in Size, author is David Chaum.

The solutions to this involve doing things like storing receipts on hard drives (which only distributes the load, similar to Bitcoin's approach) and token renewal by an issuing authority. Token renewal is not hard in a world where Internet access is widely available and should probably be our preferred approach.

Re:Why money has value

[gox]

the biggest advantage of digital cash is that it prevents an untrustworthy merchant from raiding customer accounts (e.g. if a merchant is compromised, credit card data could be used to make unauthorized payments). Anonymity is a secondary goal

Are we still talking about black/gray markets here?

It is not necessary or advantageous for currency units to be created in a decentralized way (like Bitcoin), and it actually presents disadvantages, both technical and economic.

It /is/ a necessity. See: e-gold, Central issuer is a single point of failure. It allows regulators direct access to the economy. Not helpful in the gray market case.

there is no advantage in having such authorities use Bitcoin

There is no disadvantage either. Scalability problems appear gradually. Bitcoin needs to become popular before fees will get high enough to pose a problem. By then, there is incentive to create structure on top of Bitcoin, That is the chicken-and-egg problem I wanted to point at. If it won't become popular, then there won't be a scalability issue. If it does, then there is incentive. We have seen in at work until now, these kind of services popped up quite often, but the economy is too small to call it a conclusive proof.

Token renewal is not hard in a world where Internet access is widely available and should probably be our preferred approach.

I'm somewhat familiar with the paper, I hadn't thought it was directly applicable to the case of Bitcoin (isn't it mostly about Chaum's own scheme?), so I'll have to read it again. Though basically, in Bitcoin's case, keys can be and are merged, so there is the technical foundation to make shrinking possible (isn't token renewal in Chaum's terminology analogous to key merging?). There is some lack of incentive in the current Bitcoin specification though. Transaction pruning is possible, so assuming there can be more incentive to merge keys (I don't know how), you'll get what you want.

Re:Why money has value

[betterunixthanunix]

Are we still talking about black/gray markets here?

No, because black/grey markets are not the primary reason for deploying digital cash. Digital cash is advantageous because it adds security to electronic transactions, not because it enables people to skirt laws or regulations.

It /is/ a necessity. See: e-gold, Central issuer is a single point of failure. It allows regulators direct access to the economy. Not helpful in the gray market case.

Central payment processing is a point of failure; central issuance of money is common and I would argue necessary for a currency to be successful. Note that e-gold was like Paypal in that you needed to be online and logged in to process a payment, this is not a digital cash system (at least not in the cryptographic sense of the term). Digital cash systems should allow transactions to take place offline, which in this context means without having to connect to any central processing authority to complete the transaction.

Again, gray market transactions are not the goal of digital cash systems. The point of digital cash is to allow secure electronic payments, which means not only protecting against eavesdroppers, but also against unscrupulous merchants who might try to get more money than the customer agreed to and against unscrupulous spenders who might try to commit various forms of fraud. A secondary goal is anonymous transactions, which allow the spender's privacy to be preserved from other parties in the system. That digital cash can enable online black/gray markets is irrelevant, except in that it creates a new challenge for law enforcement.

Additionally, regulation is not a bad thing, except perhaps in the minds of ardent libertarians and anarchists. The goal in digital cash should not be to defeat regulation; we large corporations and especially banks to be regulated. The goal, once again, is to protect people from various forms of fraud and theft.

I'm somewhat familiar with the paper, I hadn't thought it was directly applicable to the case of Bitcoin (isn't it mostly about Chaum's own scheme?), so I'll have to read it again.

My understanding of Chaum's result is that it is generic and that it applies to any digital cash system that allows offline transactions and token reuse, and that the result basically says that if you have security and privacy then the size of a token must grow with the number of transactions. This issue has been avoided in some systems by distributing the storage of the token along each node in the transaction chain, the "receipts" system, although if I remember correctly the receipts must eventually be sent to the issuing authority.

Though basically, in Bitcoin's case, keys can be and are merged, so there is the technical foundation to make shrinking possible (isn't token renewal in Chaum's terminology analogous to key merging?).

I believe that "renewal" in Chaum's case referred to a transaction with the issuing authority itself, where the authority would receive a token that had been used in many transactions and the spender would receive a fresh token of equal value. Clearly this is not possible in Bitcoin's case, and the "merging" process should not be able to evade Chaum's general result on tokens becoming larger. Again, it has been a while since I read that paper, so I could be wrong in my understanding of it.

Re:Why money has value

[roman_mir]

As long as people agree to be governed by the US government, currency issued by the government will have value.

- I don't know what that means but I do know plenty of people who have almost no 'currency' of any kind though they have plenty of actual money (and no, Bitcoin was never money, it never had any intrinsic value).

Re:Why money has value

[gox]

Are we still talking about black/gray markets here?

No, because black/grey markets are not the primary reason for deploying digital cash.

Well in that case, I have nothing to argue, I was under the impression that your claim was that Bitcoin would not suffice even in that case. (Quote: "In which case it would only take a digital currency system that does not suffer from Bitcoin's inherent scalability problem").

From the rest of your comment, I get that you see Bitcoin as a digital cash in Chaum's terms. Technically it isn't. On the other hand, the problem is analogous. If you take the analogy further, transaction merging with pruning should have the same effect as token renewal. You can't compact the Bitcoin block chain the same way, because you don't want to. That's by design, but whether it's a bad design, I think, is outside the scope of technical discussion.

One thing Bitcoin is and Chaum's digital cash isn't is that it is a decentralized notary system. So, DigiCash needs regulations, whereas Bitcoin doesn't. No one has authority over your money other than you. You need an outside threat to prevent a centralized authority from running away with your digital cash, whereas you rely on the law of large numbers in the case of Bitcoin. That's the whole reason for the concepts of predefined money supply and proof-of-work.

Re:Why money has value

[wrook]

You really need to read the source code. It's a very well designed system. Some parts are even inspired.

Validation of the block chain is intentionally costly. The intent is to make the cost of forging higher than the cost of participating. It succeeds brilliantly at this point.

From an economics point of view, it stumbles. But the technical design aspect is quite well done.

Re:Why money has value

[betterunixthanunix]

Well in that case, I have nothing to argue, I was under the impression that your claim was that Bitcoin would not suffice even in that case. (Quote: "In which case it would only take a digital currency system that does not suffer from Bitcoin's inherent scalability problem").

I did not claim that the black market would not / could not make use of a digital cash system; it is that our focus should not be on black markets. Yes, black markets do benefit from digital cash, regardless of whether the cash is Bitcoin-like or issued by a central authority. If Bitcoin were relegated to black market use, it would still die when a better digital cash system was deployed. The point here is that if the only advantage Bitcoin has is that it is a digital cash system (which is the only reason black market transactions have even occurred with Bitcoin, and even then, only because Bitcoin can eventually be exchanged for some national currency), then a better system will come along at some point and Bitcoin will quickly be dropped in favor of that system.

you see Bitcoin as a digital cash in Chaum's terms. Technically it isn't.

Then explain the difference, because neither the original Bitcoin paper mentions Chaum's work (or any previous work on digital cash) nor does the Bitcoin Wiki's page on scalability. People keep saying that Chaum's result does not apply to Bitcoin, but nobody seems to be able to say why that is the case.

You need an outside threat to prevent a centralized authority from running away with your digital cash

Or we can have an insurance system like the FDIC, or even better, have the same government or bank that issues a nation's currency issue digital cash (in which case there is no "running away" to speak of).

That's the whole reason for the concepts of predefined money supply and proof-of-work.

Except that the predefined money supply is a terrible idea for economic reasons.

Re:Why money has value

[makomk]

My understanding of Chaum's result is that it is generic and that it applies to any digital cash system that allows offline transactions and token reuse, and that the result basically says that if you have security and privacy then the size of a token must grow with the number of transactions

Bitcoin isn't intended to support offline transactions, though. It doesn't require any kind of central authority but you need to be connected to the distributed network of Bitcoin nodes and miners in order to be able to process transactions safely.

Re:Why money has value

[gox]

Yes, black markets do benefit from digital cash, regardless of whether the cash is Bitcoin-like or issued by a central authority.

Sorry, I don't get this at all. How would a centralized currency survive if it's heavily utilized for ends that are against the dominant power's policy? Plus, assuming you can do away with it by hiding the issuer from legal powers, then how am I going to trust the issuer without an enforcer? You never replied to this dilemma, which is the reason why distributed trust is not only better, but a necessity. Even if you can't trust anyone, you can trust everyone.

I agree that the focus shall not be the black market. The discussion progressed that way because you claim that scalability issues will get in the way of Bitcoin's success even in the black market case. It could be right (I doubt it though), but that doesn't mean Bitcoin is a bad design, its design is by necessity: inverse commons against tragedy of the anticommons. You can still use regulated money if you think there is a risk of fraud and theft (I don't think it applies to the Bitcoin case, those regulations are for legal businesses, which can be regulated either way, and illegal ones cannot be regulated anyway). The regulations that apply to this context are regulations against entities that function against the dominant power, so it's a matter of political opinion than practical risk/fraud scenarios.

As much as I like the regular internet, I feel safer because there is Freenet. Cases are similar in this context.

you see Bitcoin as a digital cash in Chaum's terms. Technically it isn't.

Then explain the difference, because neither the original Bitcoin paper mentions Chaum's work (or any previous work on digital cash) nor does the Bitcoin Wiki's page on scalability. People keep saying that Chaum's result does not apply to Bitcoin, but nobody seems to be able to say why that is the case.

I already agreed with you that Bitcoin suffers from an analogous problem. On the other hand, Bitcoin only resembles Chaum's digital cash, it's not a derivative of it. It doesn't use blind signatures for starters, which is the foundation of DigiCash. Without blind signatures, DigiCash is just like any other electronic money. So the difference is immense.

Now, I don't want to sound like an expert, so please correct me if I make a mistake. The problem is analogous because both systems require a trail of all transactions. Also, in both cases there is a "change" problem, that practically multiplies the number of coins by two in every cycle. Bitcoin's solution to this is the ability to merge input transactions. So if you need to transfer 10 BTC, and you have 10 different inputs with 1 BTC each, you can combine those inputs to create a transaction with a single output, in effect reducing the number of tokens 10-fold, assuming there is some sort of block chain pruning in place (there is no such system for Bitcoin yet). In most cases you will still need a change address. Although the change address is always a new "token" (I suppose in Chaum's scheme it has to be), in Bitcoin it can be an already existing one, so you can economize there as well, but there is no incentive to do that currently.

Since you've been telling a better cash is possible with Chaum's scheme, I'd like to remind you that it is actually a 90's era thing, and there are already a multitude of such systems in place. I suggest you take a look at the OpenTransactions library, which implements almost everything that is possible in the digital cash tradition, and AFAIK allows inter-issuer-processor networks:

https://github.com/FellowTraveler/Open-Transactions/wiki

Except that the predefined money supply is a terrible idea for economic reasons.

That's a matter of opinion. It's a dominant opinion, but it's not a consensus among economists. Most economists I know don't object to either idea. Actually, since Bitcoin is not and will never be legal tender, the arguments against it on these grounds are actually similar to the ideas against Esperanto.

Re:Why money has value

[betterunixthanunix]

Sorry, I don't get this at all. How would a centralized currency survive if it's heavily utilized for ends that are against the dominant power's policy?

The same way it does right now, with government issued currency? All the black market activity with Bitcoin combined doesn't even come close to the number of dollars used in black market transactions each year, let alone pesos, yuan, etc. The reason digital cash can be used in black market transactions -- the reason that black market transactions benefit from it -- is that it can be spent and received anonymously.

The problem is analogous because both systems require a trail of all transactions

Actually, I have to retract this point, as someone else has already noted that Chaum's result does not necessarily apply to Bitcoin: Bitcoin does not allow for offline transactions. Chaum's result, as far as I know, applied to any digital cash system in which offline transactions are possible, so perhaps Bitcoin trades offline transactions for the ability to be scalable without a central authority.

Not that I think this really helps Bitcoin's case, since offline transactions are important for digital cash (at least in my opinion). I want to be able to spend my digital cash even when an Internet connection is unavailable, expensive, etc. Gas pumps, soda machines, charity boxes, public transit buses and so forth should not have to connect to some P2P network just to accept a small payment, and digital cash should be easy to deploy in less developed regions where Internet access may be scarce. Again, if a digital cash system that allowed offline transactions were to be deployed, it would quickly usurp Bitcoin.

Since you've been telling a better cash is possible with Chaum's scheme, I'd like to remind you that it is actually a 90's era thing, and there are already a multitude of such systems in place.

Keep in mind that I did not specifically say that Chaum's scheme should be deployed, I was only referring to the result on digital cash scalability. Also, what difference does it make if it was developed in the 90s -- RSA was developed in the 70s and it is still widely used.

I am aware that there have been efforts to deploy digital cash, but unfortunately these efforts have not been on a large enough scale. We need something like Berkshares, but with digital cash, if not something on an even grander scale:

https://en.wikipedia.org/wiki/Berkshares

I am not aware of any such effort with digital cash, but perhaps you are?

the arguments against it on these grounds are actually similar to the ideas against Esperanto.

Which is even more obscure than Bitcoin despite having been developed and promoted for over a century.

Re:Why money has value

[gox]

All the black market activity with Bitcoin combined doesn't even come close to the number of dollars used in black market transactions each year, let alone pesos, yuan, etc. The reason digital cash can be used in black market transactions -- the reason that black market transactions benefit from it -- is that it can be spent and received anonymously.

So, Bitcoin should be spontaneously accepted by the world economy or it is a bad idea? Please.

Also, you dismiss the fact that any centralized systems that provide true anonymity will be immediately shut down. AFAIK Chaum developed an alternative system where a third party could reveal the user's identity in the case of illegal use.

Chaum's result, as far as I know, applied to any digital cash system in which offline transactions are possible, so perhaps Bitcoin trades offline transactions for the ability to be scalable without a central authority.

Yes, blind signatures don't work without central authority. Bitcoin does not provide true anonymity. It provides resilience instead.

offline transactions are important for digital cash (at least in my opinion).

Yes, I agree. That's a disadvantage of Bitcoin.

Though, solutions to the double-spending problem with offline transactions are also cumbersome. Before Bitcoin, on-line transactions meant something else, so technically Bitcoin is a bit different than both cases. You can indeed create offline transactions, and how the networks deal with them are very similar in effect. However, since there is no enforcing agent, even though your payments will be cancelled, there will be no consequences for the double-spender. In Chaum's scheme, your identity will be revealed and you may be punished. So, if there will be off-line payment systems for Bitcoin, they will either be implemented as digital cash apart from the network itself, or will involve signed addresses tied to centralized accounts with consequences attached.

what difference does it make if it was developed in the 90s -- RSA was developed in the 70s and it is still widely used.

I didn't mean that it's bad or anything. It's a very conventional technology that is very reachable. You can use OpenTransactions to create a very advanced system within minutes, if you think it's better money than Bitcoin. However, if the measure is spontaneous adoption, then I guess any new money (by new I mean not depending on/backed by existing systems) is ultimately doomed.

the arguments against it on these grounds are actually similar to the ideas against Esperanto.

Which is even more obscure than Bitcoin despite having been developed and promoted for over a century.

What can I say, you're right. :-)

Tradehill were the good guys

[Animats]

Tradehill was probably the best-run Bitcoin exchange. They didn't steal customer funds, like some of the other defunct Bitcoin services. They didn't go down much. They didn't have a monthly crisis like Mt. Gox. (formerly Magic, the Gathering Online Exchange. Really.) If Tradehill does in fact return all customer funds, at least they shut down honestly.

A basic problem with Bitcoin is that the ability to irrevocably transfer funds to anonymous parties is the scammer's dream. Bitcoin is thus a scammer magnet. Just about every known financial scam was replicated in the tiny Bitcoin world, from fake banks to fake stock exchanges to Ponzi schemes.

Re:Tradehill were the good guys

[IamTheRealMike]

That seems a little unfair. It'd be equally valid to say that a scammers dream is an electronic payments system that allows purchases to be made with only a fixed password, which must be given to anyone who accepts payments, which isn't connectable to any kind of second factor and in which the costs of fraud get sunk by the merchants (who can't do anything about it) rather than banks or end users, thus ensuring the party continues endlessly. How many credit card details can be bought on the black market again?

The Bitcoin protocol has built in support for mediated transactions, 2-factor coins and other good things, the support for which will be fleshed out with time. But the TradeHill closure doesn't have anything to do with Bitcoins features per se. Some banks relied on by Paxum decided that they don't want to allow Bitcoin related trade, period. Whether this is really to do with "risk" or they simply don't like/understand it, we will likely never know.

Re:Tradehill were the good guys

[gox]

Just about every known financial scam was replicated in the tiny Bitcoin world ... ... fake stock exchanges to Ponzi schemes.

Although I agree that every kind of scam is replicated many times over in the Bitcoin world, your examples are a little misguided. A ponzi scheme calling itself a ponzi scheme is not actually a ponzi scheme, is it? It's just a basic gambling game with an eccentric name. Also, GLBSE is a weakly regulated stock exchange, which can be called a scammer magnet for sure, but nevertheless cannot be called a scam itself.

Re:Tradehill were the good guys

[jandrese]

Because they're calling themselves a Ponzi scheme, they can't be a Ponzi scheme? In what world does this logic make sense? If you are taking money from new people and giving it to people who are already in the system, then that's a Ponzi scheme. The whole point is to be an early adopter so you make your money back and more from all of the new suckers. Sure there is a gambling element to it "Did I join early enough?", but if you define gambling that vaguely then virtually all financial instruments are gambles (which is true).

Re:Tradehill were the good guys

[Anonymous Coward]

"Because they're calling themselves a Ponzi scheme, they can't be a Ponzi scheme? In what world does this logic make sense?"

Technically, pedantically, correct. It remains a Ponzi scheme.
However, it stops being a Ponzi fraud.
Typically, Ponzi frauds are sold as investments with amazing returns.
This is being marketed as "hey, you may make a few or lose it all".
  I doubt if anyone would toss their life savings into it, or, if they did, at least they won't try to cry about how they were scammed.

Re:Tradehill were the good guys

[gox]

Are we still talking about bitponzi.net and similar gambling sites? GP is talking about scams and gives that as an example, so that is the context here. Now, I put a box in front of me that says "thief box" and I tell you that if you put money in that box, it will be mine. Am I a thief now because I'm calling myself a thief?

Re:Tradehill were the good guys

[Anonymous Coward]

Please take some time to read the damned article. Tradhill will return all funds to customers. The business itself is going to be re-launched within a month with all California Licensing regulations approved. Tradehill is not going away, but it will be transformed into a better service. It was always good (better than Mt. Gox, in many ways), but it will be better when it returns.

Re:Tradehill were the good guys

[makomk]

I think at this point pretty much all the major GLBSE stocks have turned out to be scams, including ones advertised by the creator of GLBSE itself. It has a spectacularly scammy track record.

Re:Tradehill were the good guys

[jandrese]

Technically, pedantically, correct.

The best kind of correct.

Speculation is all the Bitcoin has

[betterunixthanunix]

All Bitcoin exchanges are shit. They're for speculators. Bitcoin as a currency is fine, and it will be fine if every exchange dies off.

Without speculation, Bitcoin is worthless. The only reason anyone has ever accepted Bitcoin as payment for anything is because they believe they can redeem Bitcoin for some other currency later on -- something which there is never any guarantee of (compare to private currencies that are backed by national currencies). This is in stark contrast to national currencies like dollars, which people must have if they intend to pay their taxes (which they must do if they intend to legally own property, hold a job, etc.). Nobody actually needs to use Bitcoin, no governments accept Bitcoin for tax purposes, no banks accept Bitcoin as a repayment on debt, and its technical advantages as a digital cash system are neither unique nor anything close to a justification for its value.

When Bitcoin exchanges die, Bitcoin will die too. If people cannot buy into the system or cash out, the system will come grinding to a halt.

Re:Speculation is all the Bitcoin has

[JazzHarper]

How can I short this currency?

Re:Speculation is all the Bitcoin has

[subreality]

The only reason anyone has ever accepted Bitcoin as payment for anything is because they believe they can redeem Bitcoin for some other currency later on

This is demonstrably false. There's a considerable demographic in the Bitcoin community who don't like that the speculators have eclipsed the commerce side, and who would very much prefer if they could trade it back and forth as an isolated currency rather than having everyone think of it as a proxy for dollars.

Re:Speculation is all the Bitcoin has

[betterunixthanunix]

There's a considerable demographic in the Bitcoin community...who would very much prefer if they could trade it back and forth as an isolated currency

Unless they live outside the jurisdiction of any effective government, they will have to find at least enough of some nation's currency to pay their taxes (which in some nations includes taxes on transactions made using Bitcoin, which cannot themselves be paid using Bitcoin). I sincerely doubt that these users live under such circumstances, and even if they did, they would also have to find a way to generate electricity and connect to the Internet without incurring any costs other than Bitcoin, which is also an unlikely event. Either these people are paying the fees associated with using Bitcoin (energy, bandwidth, property taxes, etc.) using some other currency that they have obtained by some other means (and which will still affect the value of Bitcoin because of its use in paying for Bitcoin infrastructure) or they are going to have to trade their Bitcoins for some other currency at some point.

Aside from some toy examples, Bitcoin is never going to be anything more than a proxy for some other currency. There is no way for Bitcoin to scale (even if we ignore the technical problems with Bitcoin scalability) to anything that even resembles a national economy without some government "backing" it (that is, enforcing the payment of debt using Bitcoin). That is not going to happen, for various reasons, the most prominent being that governments like to be able to control the amount of currency in circulation and Bitcoin makes that impossible.

Re:Speculation is all the Bitcoin has

[subreality]

they will have to find at least enough of some nation's currency to pay their taxes

Just because you're using Bitcoins doesn't mean you have to use ONLY Bitcoins. There's no reason it can't exist as a niche currency.

Re:Speculation is all the Bitcoin has

[Anonymous Coward]

Bubble already popped, dude. It was above thirty bucks last June, and sharply crashed in August.

Re:Speculation is all the Bitcoin has

[subreality]

How can I short this currency?

Right over here: https://bitcoinica.com/

Be careful. Volatility cuts both ways.

Re:Speculation is all the Bitcoin has

[betterunixthanunix]

There's no reason it can't exist as a niche currency

OK, I'll grant that -- Bitcoin might live on as an obscure, niche currency with extremely limited utility. Not even the black market users will stick with it in that case, and perhaps people will realize that there are more effective digital cash systems out there that could be deployed in a way that benefits society (not just the black market).

Re:Speculation is all the Bitcoin has

[subreality]

On the other hand I think it will be exchangeable to dollars for the foreseeable future, regardless of what the island-currency niche wants. As long as there's another group that DOES want it exchangeable, they'll find a way.

Re:Speculation is all the Bitcoin has

[betterunixthanunix]

Except that there will always been more demand for national currencies than there will be for Bitcoin, and so over the long term we should expect Bitcoin's value to decline. Trying to bet on it being exchangeable for dollars for any period of time is speculation, which gets back to my original point: Bitcoin's value is almost entirely due to speculation.

Re:Speculation is all the Bitcoin has

[subreality]

and so over the long term we should expect Bitcoin's value to decline.

That too is speculation. It's just speculating on the downside. :)

Bitcoin's value is almost entirely due to speculation.

I agree, but I want to contrast it with your earlier statement...

Without speculation, Bitcoin is worthless.

... which which I disagree.

Re:Speculation is all the Bitcoin has

[sexconker]

All Bitcoin exchanges are shit. They're for speculators. Bitcoin as a currency is fine, and it will be fine if every exchange dies off.

Without speculation, Bitcoin is worthless. The only reason anyone has ever accepted Bitcoin as payment for anything is because they believe they can redeem Bitcoin for some other currency later on

Wrong. People accept Bitcoin because they believe they can also use it for goods and services.
Just like every other currency in existence.

Re:Speculation is all the Bitcoin has

[betterunixthanunix]

Wrong, people demand government issued currencies because they need it in order to pay taxes and other debts; failure to make such payments can result in the loss of one's property or freedom. There is a legal structure surrounding government issued money, which is where demand for that money comes from: courts determine property values and damages in terms of he government's currency, tax collectors will only accept payments in government currency, banks will only accept debt payments in government currency, etc. The problem with the 10th-grade "people believe their money can be used for xyz" explanation is that it completely avoids any discussion of why people use their government's currency in the first place, when they could use some other currency like Bitcoin or just resort to barter (which people do resort to, and which they still wind up having to pay taxes on).

Why do the currencies of ineffective or defunct governments stop being valuable? Why do people stop believing that the money can be used to buy goods and services? Answer that question, and you will see why Bitcoin will not work in the long run.

Re:Speculation is all the Bitcoin has

[tompaulco]

How can I short this currency?
I believe MtGox was working on options trading for BitCoin and one would assume they might allowed short trading. If not, then just buy a Put option at the current price (that ought to be cheap right?) and then at some later date come in and cover your Put at the presumably lower price, or sell your Put, which is usually a better deal than exercising it.
However, I wouldn't recommend shorting it at this point. Once the dump story dujour moves on, it will probably move back to its stable price range which lately has been in the 5.50-7.00 range. It is usually much better to just buy it cheap when someone posts a dump story like this one. Then once the fickle public moves on and the price meanders back up, sell it.

Re:Speculation is all the Bitcoin has

[makomk]

Bear in mind that Bitcoinica is more like a bucket shop than a stock broker, which means that they have a financial incentive to deliberately cause short term market volatility that wipes out investors. Also, I think they stop users from closing their positions and actually locking in their profits after big market moves, which makes it rather difficult to make money from them.

Re:Speculation is all the Bitcoin has

[tehcyder]

believe MtGox was working on options trading for BitCoin

Best option: buy some real currency instead.

Re:Speculation is all the Bitcoin has

[sexconker]

LOL.
So what you're saying is: "People accept government issued currencies because they believe they can also use it for goods and services.".

Like I said - just like every other currency. The fact that there's a government behind the USD doesn't make it fundamentally any different from BTC. Plenty of people didn't trust the USD when it was first issued. Hell, many people today don't. In fact, the people holding onto fiat currency are the poor and the morons, and the people holding onto property - be it real estate, gold, stock, whatever - are the ones at the top laughing at people like you.

Why do currencies of shitty governments stop being valuable? Because the government in question has printed so much of it to make it worthless, or redistributed it forcefully to the point that people don't want to hold onto it for fear of it being taken away.

Both are impossible with Bitcoins, by the way.

Re:Speculation is all the Bitcoin has

[betterunixthanunix]

Way to not read what I wrote. What I said was that people accept government issued currencies because their governments will not accept tax payments made with anything else, and paying taxes is mandatory.

It's OK though, you can ignore what people say and continue to live in some fantasy world where demand has nothing to do with the value of money, and where people just magically start thinking that currencies are useful.

Re:Speculation is all the Bitcoin has

[Anonymous Coward]

Actually all the exchanges closing would be good for bitcoin, people could still buy things with dollars and sell them for bitcoin, or vice-versa, but more importantly the volume of bitcoin to bitcoin trade would finally start to really expand. See it as a national economy protected by tarrifs etc. Mind you the volume of trade would probably become dominated by oppressed markets.

But there are exchanges

[Sycraft-fu]

Many of them. The US dollar is traded on all international currency markets and for a small scale, any bank will convert them. If it weren't, it wouldn't be very useful. If I pay someone in Europe in US dollars they are ok with that because they can convert them to Euros, which is what they need to do their business. If they couldn't, if US dollars were non-convertible, they'd be non-useful.

Also you have the problem that next to nobody accepts and deals in bitcoins directly. It isn't a functional currency. The US Dollar, the Euro, the Yen, these are all functional currencies because a lot of people will accept them as such. You can buy goods with them, pay taxes with them, etc. I cannot name a single thing I'd want to buy, a single place I shop at, that takes bitcoins. As such if they aren't convertible, they are worthless.

Re:But there are exchanges

[subreality]

Sure, it would only be used by a tiny niche of enthusiasts. So what? It has to start somewhere, and even if it didn't grow from there it could live on as a functional niche currency.

Re:But there are exchanges

[Anonymous Coward]

Except there are people other than you who do want to buy things with bitcoins and not with USD, Euros, or Yen, for the specific reason that buying those things with the aforementioned currencies is more likely to land you in jail. A good example is any of the various chemical compounds that are made illegal by totalitarians who claim ownership of your own mind and body.

Re:But there are exchanges

[Anonymous Coward]

I remember that back in the beginning, the Euro was also a "non-functional" currency. Years before any Euro note or coin was printed, it was traded on electronic exchanges sanctioned by the EU. So there is a precedent for so-called non-functional currencies to become functional.

Why Bitcoin is doomed

[betterunixthanunix]

We go through this discussion every single time a Bitcoin article appears on Slashdot. Bitcoin is guaranteed to fail in the long run:

1. It is a digital cash system in which the tokens cannot be refreshed; this is known in crypto research community to imply that the tokens must grow linearly in the number of transactions. Bitcoin attempts to hide this fact in its architecture, but if Bitcoin is secure then the computation resources needed to continue using Bitcoin will grow over time. Worse, as more people use Bitcoin, the growth rate will accelerate because of the increased number of transactions. If Bitcoin was used at anything close to the number of dollar transactions that happen every day, the technical limitations of Bitcoin would kill it off within a week's time.
   
   Useful digital cash systems involve a central issuing authority like a bank or government, that can accept old tokens and produce "fresh" tokens of equal value. Having such a central authority is not a bad thing:
2. The demand for Bitcoin will never exceed the demand for national currencies. Using the USA as an example, people who live in America must pay taxes -- taxes on income, taxes on property, sometimes taxes on purchases they make, and so forth. The government only accepts tax payments that are made in dollars, and yes, you have to pay taxes on transactions that do not involve dollars, such as barter or having a Bitcoin salary. Every year, hundreds of millions of Americans must pay their taxes, and if they were all using Bitcoin for everything, they would all simultaneously try to trade their Bitcoins for dollars to cover their tax debt. While this frequently happens with other currencies -- people paid in pounds sterling will try to make a similar trade -- all national currencies are demanded by some nation's citizens for a similar purpose, unlike Bitcoin, which nobody is legally obligated to use.
   
   It is a good thing that nobody is obligated to use BItcoin to pay their debts, because:
3. Bitcoin is a deflationary currency -- there is a fixed maximum number of Bitcoins that can exist. If you had a long-term debt to repay in Bitcoins, it would be harder to make payments as time went on, because Bitcoins would become harder to find (assuming that the Bitcoin economy continues to grow, which I already noted is an unlikely event). You would be a fool to ever incur a Bitcoin debt for this very reason. Unfortunately for Bitcoin, credit is a necessary component of any economy; this has been a fact of life for so long that it not only predates paper currency, but paper itself.

So there you have it.

Re:Why Bitcoin is doomed

[themusicgod1]

"If Bitcoin was used at anything close to the number of dollar transactions that happen every day, the technical limitations of Bitcoin would kill it off within a week's time."

This is not clear at all. First of all, there are already designs to deal with this situation for when (not if) this occurs - they have already begun by taking the mining out of the default client (they are moving to a thinner and thinner client, which will and has to some extent culumnated in credit-card like applications for mobile devices). There are proposals for securely pruning the existing block chain and for dealing with the higher load all the way up to the size of the world economy.

2) "...The demand for Bitcoin will never exceed the demand for national currencies..."

The black market already holds its own to the deman for national currency and the black market is growing with time - it is very likely that within the next decade or two it may outpace the regulated one. With half the world's population already employed in the black market it is not much of a stretch to think that you don't need a government to back a currency, if the incentives are right for the market to protect it itself.

3) "credit is a necessary component of any economy; "

And you could say by the same metric that trade in physical goods, whether coins or paper bills have been a 'necessary' component ...until the digital banking started to take over in the 80's or so. Just because something has always been part of the economy does not mean that it is necessary. That is a correlation vs. causation error in thinking.

Re:Why Bitcoin is doomed

[betterunixthanunix]

they have already begun by taking the mining out of the default client

This makes the scalability problem even worse, since it forces you to reuse older tokens, which have already grown because of their use in previous transactions. This is not a problem that you can just hack your way around, it is a fundamental limitation of digital cash systems. Note that on the very page you linked to, they attempt to sidestep this problem by claiming that hard drive sizes will grow to accommodate their needs, which I seriously doubt unless Bitcoin remains an obscure payment system.

The black market already holds its own to the deman for national currency and the black market is growing with time - it is very likely that within the next decade or two it may outpace the regulated one. With half the world's population already employed in the black market it is not much of a stretch to think that you don't need a government to back a currency, if the incentives are right for the market to protect it itself.

It is very much a stretch to think that money can exist without government backing. If the black market stopped using national currencies, they would be forced to switch to a currency backed by some other large, powerful organization to enforce payments, and that organization would be a de facto government. Money is only valuable within some enforcement structure, which is the role that a government plays; even when banks issue currency, they rely on governments to enforce debt payments.

And you could say by the same metric that trade in physical goods, whether coins or paper bills have been a 'necessary' component ...until the digital banking started to take over in the 80's or so. Just because something has always been part of the economy does not mean that it is necessary. That is a correlation vs. causation error in thinking.

Except that we still trade in physical goods (and even if all currency were digital cash, you would still trade in physical goods -- you need food, clothing, etc.), and we have had paper transactions managed by banks for centuries (which have simply moved computers, which are more efficient record keeping systems).

At a basic level, credit is necessary in any economy because people with the skills needed to complete a task do not always have the resources needed for that task. A farmer might not have enough money to buy the fertilizer he needs for a particular growing season, a cook might not have the resources needed to start a restaurant, etc. At an even more fundamental level, you might need to work before you are able to pay the soldiers that protect you from a hostile enemy, but those soldiers need to be paid while they are busy protecting you; taxes themselves are a form of debt, and governments cannot function without tax revenue.

The unfortunate thing about Bitcoin is that people have come to associate Bitcoin with digital cash. There are plenty of other digital cash systems that have all of Bitcoin's advantages without the serious disadvantages; those systems use a bank or other token issuing authority to renew tokens that have long transaction chains (thus avoiding the scalability problem) and are easy to back with a national currency, or perhaps to use as a national currency. Anarchists may not like the idea of a bank having power over currency, but that is just how currencies work: some central authority must back the currency. I am personally a big fan of digital cash, since it would solve a lot of the security problems that we see with debit and credit cards, but because of the various crypto battles and patents in the 90s digital cash never did take off.

Re:Why Bitcoin is doomed

[subreality]

which have already grown because of their use in previous transactions

This isn't actually true. Coins don't keep getting split into smaller and smaller portions forever. Every time you spend it takes several old coins and combines them into (usually) two new ones: 1, the payment you make, and 2, your "change" (which goes back in your wallet). The previous inputs are permanently combined and no longer needed going forward. The current software does not yet actually implement it, but obsolete coins CAN be "pruned" entirely, facilitated by the Merkle tree.

The blockchain will still undergo a lot of growth if more people begin using Bitcoin (since the currency base will be divided between more wallets, and there will be greater numbers of recent transactions that are not yet pruned), but it doesn't geometrically expand forever. When Bitcoin stabilizes at a certain level of market saturation the blockchain will also stabilize in size.

Whether that will be a reasonable and manageable size is still an open question.

all of Bitcoin's advantages without the serious disadvantages; those systems use a bank or other token issuing authority

I want to know that the central bank won't just start issuing more currency and devalue mine.

I want to send money to Wikileaks, but all the banks are forbidding it.

I want to pay someone over the internet without Mastercard or Paypal or whoever taking a 2% cut.

There is no other currency that currently has ALL of those advantages of Bitcoin. Some of the advantages are inherently incompatible with centralized, bank-operated currencies. It also has a long and substantial list of disadvantages too - no argument there. But on the whole it simply has a different set of tradeoffs than any other currency, and so it (or one of it's descendants; I don't expect Bitcoin is going to be the last word in decentralized e-currency) will be relevant for some time.

Re:Why Bitcoin is doomed

[complete loony]

Sure Bitcoin is deflationary, but the total stock of coins is irrelevant for measuring your ability to pay off a debt. The only thing that matters is your income flow. Provided the bitcoins you are using to pay your debt continue to circulate, you could keep receiving the same coins as income. It is absolutely possible to pay off large debts using a currency with a limited stock of tokens.

Re:Why Bitcoin is doomed

[complete loony]

The total log size grows, but the individual tokens shouldn't change in size. Is every client storing the entire transaction chain for all the coins you own? That's silly. This is why a transaction refers to the previous transactions it is consuming by the hash of the transactions, you can verify a signature without traversing the entire history. Sure a number of clients in the network will need to store the entire log file so new clients can re-validate it. But once everyone agrees that a token has been consumed you don't actually need to store it any more. A non-mining client that is tracking the global log only needs to keep transaction information for the current owner of each unspent token.

Re:Why Bitcoin is doomed

[betterunixthanunix]

This is a technique that has also been discussed in the literature, called "receipts." That is still not scalable, since the amount of disc space required to run the system at all will continue to grow over time; worse, if the Bitcoin economy is growing, the rate at which disc space is consumed will accelerate. The receipts approach is generally only useful if you can delete the log -- for example, if the token is renewed by an issuing authority, which is not applicable in Bitcoin's case.

Re:Why Bitcoin is doomed

[betterunixthanunix]

The blockchain will still undergo a lot of growth if more people begin using Bitcoin (since the currency base will be divided between more wallets, and there will be greater numbers of recent transactions that are not yet pruned), but it doesn't geometrically expand forever. When Bitcoin stabilizes at a certain level of market saturation the blockchain will also stabilize in size.

Which implies that Bitcoin is not secure. Somewhere, the storage or bandwidth require must grow with the number of transactions that any token is used in in any secure digital cash system, regardless of how the token is manipulated. If that is not the case, then either the system does not provide anonymity, or it does not provide security against doubt spending (I suspect the former in the case of Bitcoin).

I want to know that the central bank won't just start issuing more currency and devalue mine.

That's nice, but if your money supply cannot grow then your economy is going to have problems. Claiming that you can keep dividing money into smaller units does not solve this problem.

I want to send money to Wikileaks, but all the banks are forbidding it.

That is the point of digital cash. What, did you think that Bitcoin was the be-all and end-all of digital cash systems, or that you could not possibly have a distributed digital payment system with centralized currency authorities?

I want to pay someone over the internet without Mastercard or Paypal or whoever taking a 2% cut.

See above.

There is no other currency that currently has ALL of those advantages of Bitcoin

The only advantage that is not shared with other digital cash systems is the "banks cannot cause hyperinflation" point, and the Bitcoin approach to this is to force a deflationary currency, which is even worse. How would you like to try repaying a loan (and yes, sometimes people need to take out a loan) with a deflationary currency? How would you like a world where people hoard the currency because it is profitable to do so?

You should take the time to read some of the work that was done on digital cash systems over the past 25 years before making statements about how great Bitcoin is. Yes, Bitcoin fits in nicely with the anarchist dream of economies and money without government, but in the real world we need to pay our taxes and we need courts to decide how to settle monetary disputes. We should be working to deploy digital cash systems that allow us to continue to do such things, while having the advantages of digital cash: secure online payments, secure offline payments, anonymous payments, etc.

Re:Why Bitcoin is doomed

[complete loony]

Only some machines need to keep the entire log as it is only interesting if you need to rebuild the list of active tokens. Even mining machines don't need it to generate new valid log segments. A bitcoin transaction has this kind of structure; [[list [consumed tokens]], [list [new token owner and $]] [signature of old owner]. The list of consumed tokens is just a list of hashes. If you want to verify that this new transaction is valid, you only need to confirm that these consumed tokens are still in the list of active tokens. You don't need every node in the network to traverse the entire history of these tokens as multiple other nodes have already done so and can independently agree on the contents of the set of active tokens. You don't need a new token to be issued to reduce the volume of data that must be examined. In a logical sense the entire history of the transaction chain of a token will get longer, but you don't need every node to store it forever. Sure the amount of space you need to maintain the set of active tokens is still going to grow, but not as fast as the log.

Re:Why Bitcoin is doomed

[themusicgod1]

"That's nice, but if your money supply cannot grow then your economy is going to have problems. Claiming that you can keep dividing money into smaller units does not solve this problem."

The *base* of the money supply cannot grow but the money supply can absolutely grow. I have ripple connections with several people denominated in BTC - - this means that we have by use of debt effectively increased the supply of BTC out there in the same way that banks make dollars they don't have. Sure they could collapse back into unity but there is plenty of means of 'printing' BTC in this manner. Think of it as a M0 - cash which cannot grow but M1, BTC+Ripple which can. It is not clear at all that the narrowest definition being fixed will not merely cause the flexibility of money to occur on a more abstract level.

Re:Why Bitcoin is doomed

[subreality]

Somewhere, the storage or bandwidth require must grow with the number of transactions that any token is used in in any secure digital cash system, regardless of how the token is manipulated

You either didn't read what I said or didn't understand it. I sort of explained it from the implementation side, so let me try again from the "result" side.

Bitcoin has a different approach. The tokens are never reused. Each transaction permanently destroys all inputs and creates brand new tokens of the required values on output. Once the inputs are destroyed the only need to keep a recorded history of them is to prove that the new coins were legitimately created. Through the clever arrangement of the merkle tree, the old transactions / tokens can be accounted for without needing to actually store them going forward.

The end result is you only need to store the present balances and some history that isn't ready to be pruned yet; you do not need to store the complete ledger of all transactions since the beginning.

The net result is: the bandwidth grows with the transaction rate (and it's so low that a considerable amount of scalability is possible before it will become a problem); the storage requirement is roughly linear with the number of distinct outputs ("coins", regardless of denomination) that are being held in all wallets, which in turn is roughly linear with the number of wallets.

So the whole thing scales roughly linearly (Roughly because it's a little more complex than I'm laying out). It's heavy enough that it will have significant, but not impossible, challenges to scale as far as it will ever need.

You should take the time to read some of the work that was done on digital cash systems over the past 25 years

I have.

before making statements about how great Bitcoin is.

I've never said Bitcoin is the greatest thing since sliced bread. I think it's mediocre on the whole. The economic model is just broken; there are a number of technical improvements that are never going to be incorporated for lack of consensus; there are many severe design tradeoffs that limit it to a small niche.

So don't take the fact that I'm saying some good things about it to mean I'm completely taken in by the cult. I'm not. It has it's flaws. But there are also a lot of imagined flaws where Bitcoin has actually done things right.

I'm trying to get people to recognize the things it did right to get people thinking about how to design the next cryptocurrency.

Re:Why Bitcoin is doomed

[betterunixthanunix]

You either didn't read what I said or didn't understand it. I sort of explained it from the implementation side, so let me try again from the "result" side.

You are not understanding what I am saying: it is a general result for digital cash systems that the amount of information that must be stored or transmitted will grow with the number of transactions. It does not matter how you manipulate the token, represent the token, or allow the token to be used in combination with other tokens; the information has to be stored somewhere. The fact that Bitcoin keeps pruning the tokens does not mean that it escapes this result; the number of bits left over after pruning will increase over time (or else Bitcoin violates some other assumption about privacy or protection from double spending, or there is actually a hidden money issuing authority in Bitcoin that can renew the money).

Unless you would like to explain why Chaum's result does not actually apply to Bitcoin; the original Bitcoin paper does not appear to mention Chaum's work at all (or any previous work on digital cash, which is pretty troubling).

Re:Why Bitcoin is doomed

[molecular]

It is very much a stretch to think that money can exist without government backing.

Money can very well exist without government backing. Maybe FIAT money can't, but various commodities (gold, sheep, salt, silver) are used as money today (commodity money) and have probably been used before any governments have even existed in the past.

If the black market stopped using national currencies, they would be forced to switch to a currency backed by some other large, powerful organization to enforce payments, and that organization would be a de facto government.

again, you are probably talking about fiat money, like the us dollar, the british pound or other such stuff. There are other types of money. The gold dinar that was planned by Gaddhafi together with other African countries, for example, would've worked quite well without any large, powerful organization enforcing it.

Money is only valuable within some enforcement structure, which is the role that a government plays; even when banks issue currency, they rely on governments to enforce debt payments.

If this is true, how is bitcoin valuable? (if you don't believe it is valuable, try buying some gardening supplies on silkroad)? How is gold valuable?

Scratch debt-based, government enforced fiat money, it has never worked sustainably and has regularly screwed up economies.

Allow currency competition by allowing contracts to be made in anything (not just USD). Remove legal tender laws... wait... see world prosper and real wealth emerge by the power of a truly free market economy.

Re:Why Bitcoin is doomed

[Anonymous Coward]

Scratch debt-based, government enforced fiat money, it has never worked sustainably and has regularly screwed up economies.

Allow currency competition by allowing contracts to be made in anything (not just USD). Remove legal tender laws... wait... see world prosper and real wealth emerge by the power of a truly free market economy.

You're delusional. In real history, not in your fantasy goldbug history, economies built on gold and silver suffered severe problems for it and were far from sustainable. The free world left the gold standard because it was holding everyone back. Getting rid of metal-backed currency has only been good for prosperity, not bad. Wailing about problems with the new system and claiming that the old one was perfect and always worked is ignorant and foolish.

What you goldbugs fail to understand is that money's worth to society is not how much precious metal you can get for it. The value of money is that anyone can exchange it for goods or services with anyone else, rather than being forced to barter. If you have to barter for everything, it's hard to convert the products of your excess labor into things other people make which you want. Basic economic theory says that the more people are able to trade the fruits of their excess productivity for the fruits of others' excess productivity, the more efficient and productive an economy is. Money is nothing more than a lubricant which solves this problem. When people can easily exchange money for any good or service, economies are healthy. When they can't, economies stagnate and suffer.

This is why gold is not a good currency. The supply of gold has always grown at rates far too low to support the expansion of economies. As an economy grows, so must the number of transactions, and therefore so must the amount of money in circulation. So, problem #1 is simply that if the supply can't increase, or can't keep pace with the increased demand, that's going to restrict growth.

The second (and historically even worse) problem is that as an economy bumps up against the limits of its hard money supply and tries to grow, the value of money will rise (aka deflation). It's simple supply and demand -- the economy demands more money to circulate as it tries to grow, but there isn't enough money, so people will begin to assign more value to money because it's scarce. The trouble with deflation is that history proves that it always provokes people to begin hoarding money as much as they can, rather than spending it. (Why spend money today when you know it'll buy more stuff tomorrow?). Which means that not only are those with the luxury of hoarding reducing the amount of trades they're making, the money they're hoarding isn't being circulated. This problem of limited money supply feeds on itself and quickly grinds an economy to a halt. Inevitably, the only way out is that once enough real wealth stops being generated (because people can no longer trade goods and services efficiently), the value of money crashes (i.e. there's a huge depression with all that implies) and money begins to circulate again.

This is not theoretical. It's what happened, over and over, before economies ditched the gold standard. The boom and bust cycles caused by gold were not good for anyone. Floating a currency and issuing just slightly more of it than is needed to support economic growth discourages hoarding and keeps money circulating. The more money circulates, the better off everyone is.

Money isn't real wealth, it's just lube which allows people to exchange real wealth.

Re:Why Bitcoin is doomed

[randyleepublic]

Credit is necessary, but fractional reserve credit is the purest poison, well, next to a rigorously implemented gold standard - nothing is worse than that!

Re:Why Bitcoin is doomed

[base698]

I want to know that the central bank won't just start issuing more currency and devalue mine. How do you allow for new entries into the population? If you aren't investing to maintain your wealth you're a net drain on society. No free riders :)

Re:Why Bitcoin is doomed

[subreality]

I'm actually strongly against Bitcoin's deflationary model for this reason. Ideally I'd like to see it fixed so it has a small, continuous inflation.

I do oppose the idea that central banks can create arbitrarily large amounts of inflation, but the advantage is mostly just a hypothetical to demonstrate how a completely decentralized currency has advantages (or tradeoffs) that can't be easily accomplished with centralized currencies.

That scam still exists?

[Anonymous Coward]

I figured it would have imploded months ago.

Whatever editor was in to them sold them

[Sycraft-fu]

That's my bet. One (or maybe more) of the Slashdot staff was in to bitcoins. They mined them, bought them, whatever. So they had an interest in getting people in to them so the value would go up and they could make money. Now they are out of it so they don't give a shit, no reason to pimp it anymore.

Plus it was a fad, and its time has come and gone. While it isn't dead, the days of "big money" are gone. It lost a shit ton of value, the miners aren't making much, etc, etc. The virtual gold rush is over, so it is a non story. It'll just slowly fade in to obscurity as time goes on.

Re:Whatever editor was in to them sold them

[Anonymous Coward]

It lost a shit ton of value

Compared to which time point? And how is that different from just about anything else?

There are a lot of sour grapes in these comments from people just now realizing that Bitcoin might actually become something big, and they've outed themselves as ignorant for too long to be able to save face.

(No, I don't hold bitcoins. I just think it's actually a really really good solution to a valid problem)

Re:Whatever editor was in to them sold them

[tompaulco]

That would be a good theory if it wasn't the fact that every single article about them was negative. Also usually inflammatory and misleading. Kind of like this one.

Re:Whatever editor was in to them sold them

[tehcyder]

That's my bet. One (or maybe more) of the Slashdot staff was in to bitcoins. They mined them, bought them, whatever. So they had an interest in getting people in to them so the value would go up and they could make money. Now they are out of it so they don't give a shit, no reason to pimp it anymore.

Seems most likely to me, too. The trick with a pyramid scheme for the ones at the top is to whip up a quick feeding frenzy then clear out while the going's good. The beauty of this one is that people don't even seem to care that the early few adopters made their money and left the latecomers earning pennies.

Re:Whatever editor was in to them sold them

[tehcyder]

You have obviously never heard of the phrase "there's no such thing as bad publicity". And anyway, there are always plenty of disinterested posters who have made fortunes from Bitcoin on hand to post corrections to any misconceptions raised by such articles or any subsequent comments.

Re:Whatever editor was in to them sold them

[Anonymous Coward]

So they were shorting or driving down their buy-in cost!?

Enough already. :(

[Anonymous Coward]

Willfully or not, bitcoin is just another variant of pump'n'dump.

When it hasn't gotten any media attention for a while, and it suddenly gets some attention, the price goes up for a small time, and then it drops like a stone again.

Just stop acknowledging bitcoin's existence. Stop giving that silly hate crime any attention.

Please. It really hurts to see so many people get scammed.

Re:Enough already. :(

[tompaulco]

When it hasn't gotten any media attention for a while, and it suddenly gets some attention, the price goes up for a small time, and then it drops like a stone again.
Recently, I would have to say that the exact opposite is the case. It remains fairly constant until some inflammatory and misleading article such as this one comes out.

Legal Issues

[Anonymous Coward]

Legal issues are primarily why I got out of Bitcoin months ago. The U.S. is going to crack down on this, it's just a matter of time.

Sounds interesting

[roguegramma]

Sounds interesting, but I don't find anything about it on the wikipedia pages related to Dwolla and Bitcoin that I googled for.

Bitcoin was designed for early adopters

[Anonymous Coward]

And especially the creators. They have long since turned their fake bitcoins into real spendable dollars. Those of you that enabled them are tools.

Re:Bitcoin was designed for early adopters

[ribuck]

the creators ... have long since turned their fake bitcoins into real spendable dollars

The public blockchain shows that the majority of coins generated in Bitcoin's first year have not moved.

Not a single post mentions Intersango

[dublinclontarf]

Which is funny, because it's the second largest exchange now after MtGox, the second longest after gox, and the only major exchange with no security compromises. Does no one know about them? Bitcoins biggest secret.

what an exchange actually means

[mbkennel]

A real exchange (e.g. like the CME) has the following important property: all participants have the exchange as an economic counterparty, not each other. That is you take on the credit risk of the exchange, which is presumably better than any individual participant.

This means that if X trades with Y on the CME, and X (as a broker) goes bankrupt before the money settles, the CME will pay Y, and then attempt to get money back from X. This actually matters sometime (cf MF Global). The exchange then has standards and capital requirements for its primary members.

This is the difference between an exchange and a price-matching OTC market, which facilitates individual point to point contracts.

Do the bitcoin exchanges have that property?

Re:what an exchange actually means

[subreality]

On most of the Bitcoin exchanges, X and Y deposit their respective funds (say, USD for X and BTC for Y) into their account on the exchange. During a trade the exchange immediately transfers X's USD to Y's account and Y's BTC to X's account, less fees on both sides. IE, trades are settled instantly and withdraws may be performed immediately (though the usual banking delays exist on the fiat side, and received BTC take about an hour to confirm).

Legally the exchange happens between X and Y, and the exchange is a price matcher and broker holding the funds for both sides but never owns either party's funds or acts as a counterparty to either side of the trade.

Gold!

[madhi19]

I still say Gold and maybe Pelt are the way to go! Off course when the shit really end up hitting the proverbial fan clean water. paper toilet, and fuel for your Mad Max death squad will be all you really need!