Bitcoin Mining Startup Gets $500k In Venture Capital

Sabbetus writes "Seattle based Bitcoin startup CoinLab secured a $500,000 investment from various investors such as Silicon Valley firm Draper Associates and angel investor Geoff Entress. CoinLab is an emerging umbrella group for cultivating and launching innovative Bitcoin projects. CEO Vessenes said 'if there is a currency that can trade around the world, it's semi-anonymous, it's instant, it's not controlled by government or bank, what's the total value of that currency? The answer to that is, if it works, it's gotta be in the billions. It just has to be for all the reasons you might want to send money around the world.' This type of talk is common from Bitcoin enthusiasts but apparently seasoned investors are starting to agree. Forbes explains the details of their business plan but in short it has to do with tapping the GPU mining potential of gamers, more specifically gamers of free-to-play games. This would add a new revenue stream for online game companies that are trying to provide free games profitably."

Comments

Sucker born every minute.

[Anonymous Coward]

Shouldn't that be BitCoin mining scam bilks idiots of $500,000?

Re:Sucker born every minute.

[Anonymous Coward]

Absolutely.

Re:Sucker born every minute.

[Bill, Shooter of Bul]

Yeah, I'm sort of amazed that its on forbes. You'd expect them to do a little research and at least address the built in deflation in a story.

Re:Sucker born every minute.

[h4rr4r]

Why does this amaze you?
What are the odds either the writer was paid, Forbes was paid or one of the two have people involved in both?

Re:Sucker born every minute.

[Anonymous Coward]

Forbes has gone downhill past year or two. These days it's little better than blog-spam.

Re:Sucker born every minute.

[DragonTHC]

think for a second.

High processing cycles needed to "generate" a bitcoin?

Something only has value if someone wants it.

What exactly are bitcoins and why are they so mathematically complex.

Re:Sucker born every minute.

[benjamindees]

Bitcoin doesn't have "built in deflation." It has built-in monetary inflation, which is currently around 35%, and which decreases over time.

Re:Sucker born every minute.

[19thNervousBreakdown]

Forbes is the best videogame journalist in the industry.

Re:Sucker born every minute.

[Anonymous Coward]

think for a second.

High processing cycles needed to "generate" a bitcoin?

Something only has value if someone wants it.

What exactly are bitcoins and why are they so mathematically complex.

The transfer of funds from one person to another usually relies on a trusted third-party like Paypal, Visa, or the various banks, which prevent double-spending. Bitcoin is an attempt to remove third-parties from transactions altogether. To prevent double-spends, the transactions are instead verified by a peer-to-peer "mining" network. The incentive for miners to verify transactions is that there is a 50 BTC reward every time a block of transactions solved. The math behind it is complex because the entire system requires zero trust by all parties and there is a clever use of economic incentives to keep everything going.

Re:Sucker born every minute.

[DriedClexler]

Yeah, good point, every story about Bitcoin should re-hash every major and minor criticism anyone has made about it, regardless of how many times they've been made public, or the relevance to the story.

I mean, while we're at it, be sure to mention how bitcoin uses SHA256 cryptographic hashes for proof of work, as well as the relevant journal articles on SHA-2's potential weaknesses, on double-spend attacks and their countermeasures, etc etc etc.

That way it'll be sure to be a nice, to-the-point, concise article, pandering to every possible concern. They might even be able to squeeze in a few words about some mining startup and the VC they raised!

Re:Sucker born every minute.

[gorzek]

It also has a maximum total amount of currency, at which point it becomes deflationary by definition.

Re:Sucker born every minute.

[gorzek]

You really think the average Forbes reader knows even a fraction as much about what Bitcoin is and how it works as the typical Slashdotter? Sure, we don't need the background--we know it--but the Forbes reader does.

Re:Sucker born every minute.

[DriedClexler]

Fair enough, if you mean that an article about Bitcoin should give some background on how it works, which will probably involve something about its money supply growth.

But the OP wasn't merely suggesting that: he said it should basically give weight to one particular criticism, viz. that the bound on money supply growth will be a "deflation problem". My point (drenched in sarcasm) was that if it did that, they'd have to cover so many criticisms they'd never get around to discussing the "new" in "news".

Re:Sucker born every minute.

[gorzek]

Given that its (eventual) deflation is a key feature of the protocol, I would think it merits mentioning up front. I mean, hell, they wouldn't have to say much about it, since you can assume a Forbes reader knows what currency deflation is. Something simple like:

The supply of Bitcoins is not infinite. After a set number of transactions (estimated to be reached around the year 2140), no more Bitcoins will be generated, making the currency permanently deflationary from that point forward.

There you go, summed up in 36 words. Could probably even be trimmed a bit for space, if necessary.

Re:Sucker born every minute.

[DriedClexler]

Bitcoin is an attempt to remove third-parties from transactions altogether.

Pardon if this is pedantic, but that overstates it, as you next sentence suggests. Bitcoin doesn't remove third-parties, as the network *is* the third party. Rather, what it removes is the need for a specific third party (the "network in general" serves this function), or a 3rd party that needs to know specific details about you.

Re:Sucker born every minute.

[DriedClexler]

The definition of deflation is *decreasing* money supply, not stagnant money supply.

It's just that our current world is so hopped up on pro-inflation propaganda that even a failure to sufficiently pump up the money supply in perpetuity is, to some, "the same thing as deflation".

Re:Sucker born every minute.

[Anonymous Coward]

Well, bitcoins is not actually a real scam... it might have been in the beginning... But as soon as people are paying to get bitcoins and you can sell your bitcoins you can start making money....

Just as an example... Store X sells a product for Y bitcoins and can then sell those bitcoins for Z amount of your local currency it becomes a quite valuable way to do transactions...
No cost for making a payment.. compare that to Mastercars/Visa etc where they take a 2% cost.. maybe even a fixed cost per transaction... This is actually a very nice way for micro-transactions...

So i would say the idea, and actual implementation here is quite good, and you also have to remember that the mining will just work for a limited timespan and then no more mining is possible since all the currency has been generated..

Re:Sucker born every minute.

[Anonymous Coward]

And no new currency, with the potential (and thus, over time, the certainty) of some dropping from circulation due to HDD crashes, malware, or whatever, is *decreasing* money supply, ergo deflation.

Re:Sucker born every minute.

[Anonymous Coward]

> due to HDD crashes, malware, or whatever,

The system is more complex than that. There is an extensive audit trail allowing the currency's owner/location to be clearly defined. In the case the actual representation is somehow lost through intentional sabotage, the currency can be "refound" through the same means it was originally found, in a fraction of the time. You really don't know enough about bitcoins, to be commenting.

Re:Sucker born every minute.

[nedlohs]

Most people care about prices not the money supply.

Most people expect population and economic production to increase over time.

Thus most people see a stagnant money supply as price deflation.

Re:Sucker born every minute.

[Anonymous Coward]

So instead of accepting real money minus a transaction cost, I could take fake money for free. Why have businesses not thought of this sooner!?

Re:Sucker born every minute.

[Anonymous Coward]

And where were you during the asteroid mining story??

Re:Sucker born every minute.

[iluvcapra]

The definition of deflation is *decreasing* money supply, not stagnant money supply.

Deflation is the declining real value of money, reflected in a decline in prices. Money supply is only one variable in the equation, a fixed money supply will still be deflationary if the velocity of money decreases or the quantity of goods on the market increases.

Re:Sucker born every minute.

[Anonymous Coward]

Honestly it's not worth mentioning at all, now that its 15 minutes of fame are over and nobody cares about bitcons anymore.

The story really is just that someone still managed to raise money to do something related to bitcoins.

Re:Sucker born every minute.

[iluvcapra]

Make that first "declining" into an "increasing."

Re:Sucker born every minute.

[DragonTHC]

right, but what exactly is being solved?

and, how is using the system able to generate value?

and to what end?

Re:Sucker born every minute.

[Pathwalker]

The problems which are solved are used to generate checkpoints in a distributed proof-of-time system which is then used to impose a partial ordering over a list of transactions.

Re:Sucker born every minute.

[tqk]

So instead of accepting real money minus a transaction cost, I could take fake money for free.

Are you calling those slips of paper with pretty printing on them "real money?" I think you've been hoodwinked.

Re:Sucker born every minute.

[Anonymous Coward]

I'm going to guess that you don't own a business or have a job. You can come work for me and I'll pay you in Monopoly money.

Re:Sucker born every minute.

[Anonymous Coward]

Do you really think investors like Tim Draper are that stupid? As someone who has raised multiple rounds from top tier angels in the Pacific Northwest, let me assure you that these guys are not idiots. They're very experienced, and only invest in a tiny fraction of the opportunities they see each month.

Bitcoin has gone through a process known as "the hype cycle," which probably peaked last June when the Bitcoin price hit $30 (http://en.wikipedia.org/wiki/Hype_cycle) Social networks went through this too -- in 2003. You could argue the Internet went through a hype cycle in the late 1990s, which produced lots of crazy investment profits for a very short time. But the real money gets made later, after the hype cycle is finished.

If you look at the Bitcoin computation graph (http://blockchain.info/charts/hash-rate), this shows clearly the Hype Cycle, followed by a trough, and then a resumption of slower growth. Bitcoin mining is tightly controlled by the profitability of mining and the interest that miners have in obtaining the currency. Therefore, I think it provides the most direct measure of the global interest in Bitcoin as an investment or currency.

I think we're in between the hype cycle and are entering the early stages of the "slope of enlightenment". This investment in CoinLab by Draper and others indicates that - the hype cycle being behind us - it's now time to take Bitcoin seriously as a venture investment.

Does venture mean it's for sure? No. Of course not. But if you don't invest before something is really successful, you'll never get the kind of return that investors in the Internet, for example, enjoyed (at least, those who hung on through the depression after 2000).

Re:Sucker born every minute.

[Anonymous Coward]

The same applies to military spending where an amount shaved off the annual increase is proclaimed to be a reduction in spending.

Re:Sucker born every minute.

[Anonymous Coward]

The definition of deflation is *decreasing* money supply, not stagnant money supply.

Incorrect. Inflation is a measure of change in relative value of goods over time when using a common unit of account. Deflation is negative inflation. The money supply is neither necessary nor sufficient to determine inflation. However, inflation can be influenced my the money supply.

Re:Sucker born every minute.

[arth1]

The incentive for miners to verify transactions is that there is a 50 BTC reward every time a block of transactions solved.

Won't that incentive go away when all bitcoins have been mined? Are miners then going to verify transactions out of the goodness of their heart, or what's the exact plan for long-term viability?

Re:Sucker born every minute.

[tqk]

You can come work for me and I'll pay you in Monopoly money.

Oh gee, thanks! It's called "fiat money" for a reason:

dict fiat
          {Fiat money}, irredeemable paper currency, not resting on a
                specie basis, but deriving its purchasing power from the
                declaratory fiat of the government issuing it.

You have been hoodwinked. Hook, line, and sinker.

Re:Sucker born every minute.

[sapgau]

Mod Parent up.
People don't understand where a monetary coin gets its value.
The enforcement and reprisals from the US government is what keeps the dollar afloat.
When Asian countries where considering trading oil in euros put the US in considerable panic.

Re:Sucker born every minute.

[Anonymous Coward]

What if the math behing it was actually too complex?
As in, waste of electricity: http://www.reddit.com/r/Bitcoin/comments/jgpcz/the_real_cost_of_bitcoin/

Re:Sucker born every minute.

[Chuckstar]

No. The definition of deflation is that prices decline. In a growing economy with a fixed money supply, prices must decline.

Re:Sucker born every minute.

[Anonymous Coward]

You really don't know enough about bitcoins, to be commenting.

You really don't know enough about commas, to be punctuating.

Re:Sucker born every minute.

[Desler]

Yes, it is 'real' money. I can pay any debts with it, pretty much every business in the US accepts it, it is also accepted in places internationally, people price oil in terms of it, etc. Buttcoins have none of that and are useful for buying drugs, laundering money and other shady dealings.

Re:Sucker born every minute.

[Anonymous Coward]

I take it you get paid in jewelry and food instead of a paycheck then? No? Ok, shut up already.

Re:Sucker born every minute.

[dgp]

Miners can request/impose a fee for including transactions into the next block. It was part of the system from the beginning and is meant to eventually replace the incentive of the 50 (soon to be 25)BTC bounty.

Re:Sucker born every minute.

[brokenin2]

Forbes has actually done a number of articles on Bitcoin covering this and many other aspects of it.

Re:Sucker born every minute.

[DriedClexler]

Er, not quite. When you lose the private key to a bitcoin public key that has received (net) bitcoins, those bitcoins are gone. You would have to somehow infer the private key from the public key, which is by design impossible to do in feasible time.

There is no mechanism for getting the network to "re-credit" you your lost coins. No amount of whining about how this or that HD crashed or computer was hacked will allow you to regain access to the credits. At the very least, it would require a full fork and migration of the entire blockchain (i.e. global ledger), with full cooperation, to cover up your little oopsie ... which isn't going to happen.

As always, of course, if you have the private key(s) backed up somewhere, you can go right on re-spending like nothing happened.

Re:Sucker born every minute.

[brokenin2]

What exactly is being solved by the lights being on at Wells Fargo?

The difficulty ensures, in a round about way, that money can't be spent twice.

If you can tell me where the value comes from for the US Dollar I'd be impressed.

The value of Bitcoin comes from the ability to conduct transactions openly and inexpensively on the internet.

Think of the value as coming from missing banking fees. If you pay fees to a bank for something, you obviously saw some value in whatever they were providing. How is this any different?

Re:Sucker born every minute.

[AlienIntelligence]

Yes, it is 'real' money. I can pay any debts with it, pretty much every business in the US accepts it, it is also accepted in places internationally, people price oil in terms of it, etc. Buttcoins have none of that and are useful for buying drugs, laundering money and other shady dealings.

You'd be amazed how much booze and hookers our (US) country's original paper money bought.

Well, not (you) per se, I'm sure you already knew that.

-AI

Re:Sucker born every minute.

[tqk]

Buttcoins ...

Ha ha, funneeeee.

... have none of that and are useful for buying drugs, laundering money and other shady dealings.

People buy those things with that "real money" you're talking about too. So?

Look, I'm not defending the bitcoin market here. I just don't want to let ignorant fools get away with calling fiat money "real money." It's not. It's pretty printed paper and ink. If you were out buying a loaf of bread in 1920s Germany with your wheelbarrow full of "real money", you'd understand this.

Do you remember how Archimedes made a name for himself? This game's been going on for one hell of a long time.

Re:Sucker born every minute.

[tqk]

Yes, it is 'real' money. I can pay any debts with it, pretty much every business in the US accepts it, it is also accepted in places internationally, people price oil in terms of it, etc.

So far.

My Mom used to send me to the store to buy her cigarettes. $0.35 a pack. She could supply herself with a month's worth of smokes for what I pay for one pack today.

Now why is that? Is it because "fiat money" is mallable, pliable, and easily interfered with? Who's manipulating your money supply today? Any fsckin' politician who wants to? Or maybe it's just Wall St. and business as usual?

That's your "real money." I can't believe you people are still falling for this joke.

Re:Sucker born every minute.

[tqk]

I take it you get paid in jewelry and food instead of a paycheck then?

Nah, I'm on strike. Look me up in Galt's Gulch if you survive.

Re:Sucker born every minute.

[Anonymous Coward]

I am quite happy to see almost everyone on /. *still* slamming bitcoin at every opportunity and every mention of it.

This gives me hope.

I should still be able to acquire many more, before they seriously take off as in-game currency, and in international money transfer.

They'll be coming to a Wal-Mart near you, y'know. And soon.

Ya know something? My father spent his whole adult life moaning about not taking his mother's advice to buy stock in Kotex, when it first went public.

Suckers...

Re:Sucker born every minute.

[Anonymous Coward]

You'd have to leave your basement first. And presumably have some kind of job that pays money with which you can buy goods. But since money isn't worth anything I guess you can't do that.

Re:Sucker born every minute.

[kestasjk]

Oh thank you tqk for pointing out that we use fiat currencies, we have truly been hoodwinked. What a revelation!

What form of currency do you use, to avoid being hoodwinked? Or do you just sit alone hoodwinking all day?

Re:Sucker born every minute.

[jonbryce]

The definition of deflation is an increase in the value of money relative to the things you might buy with it. If the economy grows, and the money supply doesn't grow with it, then you get deflation.

Re:Sucker born every minute.

[tqk]

Nah, I'm on strike. Look me up in Galt's Gulch if you survive.

You'd have to leave your basement first.

It's my Mom's basement, you insensitive clod! :-| Who taught you how to play this game? Go play with your government approved imaginary value markers. Did you hear Iran and North Korea appear to have become pretty proficient at manufacturing them too? Oooh, now that's kind of a fly in the ointment, yes?

Don't give that wheelbarrow away just yet. You may need it.

Re:Sucker born every minute.

[tibman]

I would say that's up there with it costs 5 cents to make a 1 cent coin. EXCEPT you have to remember the coin is used like a thousand times. In BCs case, it would be much longer.

Re:Sucker born every minute.

[tqk]

Oh thank you tqk for pointing out that we use fiat currencies, we have truly been hoodwinked.

Yes, you have, and you're most welcome. However, you don't appear to have learned anything in the transaction. Kings and governments have been debasing the money supply since long before Archimedes' time and they're still doing it, yet yokels like you don't even know the game's in play. Read up on your Federal Reserve sometime. "Money for nothing, and the chicks are free."

My currency is my skill and knowledge. People just throw food and loose women at me for parting with it, honest! They even consider it a bargain at the price. Go figure.

Re:Sucker born every minute.

[tqk]

Mod Parent up. People don't understand where a monetary coin gets its value.

Thanks for the vote, but the lobbying's not necessary. I'm comfortable relying on the court of public opinion around here.

You are right about average people not understanding fiat money. It's one hell of a scam that's been pulled over everyone's eyes, and it's working really well, like a seriously well crafted Ponzie scheme. It'll be interesting to watch the next few decades when the Chinese start to wonder what to do with all of those Treasury Bonds they've been buying up. Interesting times, indeed.

[btw, to everyone else reading this, if I've offended anyone in this thread so far (possible), please accept my apologies. I'm feeling playful today. Liberties may have been taken, no offence intended. I just hate watching marks getting fleeced. Tooduls!]

Re:Sucker born every minute.

[Taco Cowboy]

Just as an example... Store X sells a product for Y bitcoins and can then sell those bitcoins for Z amount of your local currency it becomes a quite valuable way to do transactions...

No cost for making a payment.. compare that to Mastercars/Visa etc where they take a 2% cost..

I urge you to re-consider the bolded part of the quote above

How do you "sell" the bitcoins that you have?

When you say there's "no transaction cost", it's not true.

Someone does need to pay for the servers which keep tract of the bitcoins all around the world - and those cost, no matter how minimal, will need to be accounted for

Re:Sucker born every minute.

[wrook]

My biggest problem with the system is that if the system becomes popular, the incentive to cheat becomes greater (as the currency becomes more liquid, the value you can extract is higher). So you need to have enough economic incentive to keep the algorithmic complexity high enough to prevent cheating. I did some back of the envelope calculations to try to estimate what vlaue they are going to need, and it seemed to me that it will be a substantial percentage of the transaction (IIRC a few percent). I suspect that this will end up being higher than people want ot pay.

Re:Sucker born every minute.

[tqk]

The definition of deflation is *decreasing* money supply, not stagnant money supply.

Incorrect. Inflation is a measure of change in relative value of goods over time when using a common unit of account. Deflation is negative inflation. The money supply is neither necessary nor sufficient to determine inflation. However, inflation can be influenced [by] the money supply.

There's a job waiting for you on Madison Ave. What mumbo-jumbo you speak, grasshopper.

Inflation is dilution of the money supply, pure and simple. More pieces of paper printed, all of which represent the (supposedly) stored "value", means each individual piece of paper can buy less stuff.

Deflation is decreasing the number of printed pieces of paper, leading to each of them gaining in value, or individually capable of buying more stuff (in theory).

I still say they're just pretty-printed pieces of worthless paper once the crunch comes. Hail the Fed! What a scam they've managed to get away with so far. Oldest game in existence (next to prostitution), yet people still fall for it.

Re:Sucker born every minute.

[Trogre]

Until I can no longer use it to pay taxes and other debts it's as much a 'real' currency as anything else.

What is it about fiat currencies that makes them not real, just because the materials they are made of hold no significant value? What, do you think gold and other "precious" metals will stay valuable forever? Have a think about exactly why the price of gold is so high at the moment (hint: it involves China).

Re:Sucker born every minute.

[wrook]

VCs usually look for a potential ROI of 20:1. Investing $500K means that they see a potential of extracting $10 million over a period of possibly 5 years. Blocks are generated at a rate of 52560 a year. Each block will pay 50 BTC at the moment. Assuming they could sell BTC at $5 each, they need to sell 400000 per year to get $2 million in revenue. That's 8000 blocks or a little less than one in 6 blocks. I don't think they will be able to do that simply by harvesting cycles from gamers playing free to play games. They won't get enough GPU to do it.

I haven't RTFA, but they must either have some other ideas, or they are counting on the value of bitcoins to rise. IMHO, I think it is a risky strategy. By selling 1/6th of all new bitcoins they will also put pressure on liquidity. I'm not sure there is that much demand, so I would expect the value to drop. VC is inherently risky, but my bet is that they haven't really done their homework on this one.

Re:Sucker born every minute.

[tqk]

No. The definition of deflation is that prices decline.

A decline in prices is only a symptom. "Deflation" means your money can buy more stuff. Avoid listening to the talking heads, and you'll find this stuff is a lot simpler than it's made out to be. They're trying to confuse you with bafflegab. Don't fall for it. :-|

Re:Sucker born every minute.

[tqk]

... since you can assume a Forbes reader knows what currency deflation is.

I would not make that assumption that easily. I think you may overestimate the quality of the audience. I'm not trying to insult Forbes' readers (I don't actually know them, of course), but come on. Homo sapiens in the 21st century don't generally inspire much confidence from where I'm looking. I'm not impressed by what I've seen of humanity lately, generally speaking (but maybe that's just me).

Fine! Okay! I'm a misanthrope! Guilty as charged. Sigh. I'm okay.

Re:Sucker born every minute.

[Nursie]

Some of us think that a limited and inherently deflationary currency, much of which is in the hands of a small number of early adopters, is a far worse idea than an inflationary monetary system that can be adapted to circumstance by central banks.

I know, crazy talk to you, but you sound far crazier to most people.

Re:Sucker born every minute.

[Nursie]

Remember kid - they laughed at Einstein and the Wright Brothers, but they also laughed at Bozo the Clown.

Re:Sucker born every minute.

[tqk]

Some of us think that a limited and inherently deflationary currency ... is a far worse idea than an inflationary monetary system that can be adapted to circumstance by central banks.

Jeebus. Yuck! Ick!!! Can you read the !@#$ you write? "... an inflationary monetary system that can be adapted to circumstance by central banks." As in, "manipulated at will?" No, I don't believe that money should be treated that way.

I'm not trying to defend bitcoin, honest. I have no irons/sticks in that fire. I do despise the fiat money BS. When was the last time you got a look at what's sitting in Fort Knox? Some people believe it's empty.

An ounce of gold is something. It's worth something. You can build things with it, do stuff with it. A pretty printed piece of paper is a pretty printed piece if paper.

That's all I'm saying.

Re:Sucker born every minute.

[tqk]

You are an idiot. That is all.

Re:Sucker born every minute.

[terrox]

You pay for the "service costs" yourself when you use bitcoins, using your own computer. You don't need to convert bitcoins into "real money" if you can pay your bills in bitcoins (if that ever happens) - that is the goal, every large investment is one step closer.

If you lived in a country which is in decline and you wanted to invest in a reliable currency, bitcoin might become a viable choice once it becomes unbreakably stable (which it will due to design, unless some country assassinates all the major bitcoin users and dumps all their bitcoins into a blackhole to inflate values).

Re:Sucker born every minute.

[Nursie]

No, I don't believe that money should be treated that way.

Yes, I know, that much is obvious. I was simply saying that many people (myself included) have given this some thought and think that the status quo is far from desirable, but far better than what is proposed by goldbugs.

I don't care what's in Fort Knox, it doesn't affect me, I do care that money supply can grow when needed, and be adjusted as the economy demands, and encourage moderate spending rather than hoarding based on expectation of future growth. I know these things are anathema to you and people that think like you, I just want you to appreciate that some of us have heard your arguments and disagree.

Re:Sucker born every minute.

[JoelKatz]

No, this is not correct. There is a limit on the total number of Bitcoins that can be mined in the block chain, but this won't cause deflation of other things act as the equivalent of Bitcoins and increase the total effective number of Bitcoins. For example, the total number of effective dollars is much greater than the total face value of all bills and coins in circulation because other things (such as bank balances) act just like printed dollars. If Bitcoin deflation ever became an actual economic problem, it would be trivially solved by allowing other things to act as Bitcoins, increasing the effective supply. (These other things could include other crypto-currencies, IOU, web-based wallets using fractional reserves, and so on.)

Re:Sucker born every minute.

[JoelKatz]

Bitcoins mined is just one source of new currency. There are others. For example, new dollars are created by dollars being printed and coins being minted, but they're also created by fractional reserve banking, mortgages, and many other mechanisms. Bitcoin just has one fewer mechanism -- coincidentally the one missing is the one that makes the government richer and everyone else poorer.

Re:Sucker born every minute.

[Chuckstar]

Re-read what you just wrote and explain how it possibly makes sense. The only way your money buys more stuff is if the prices are lower. It's a tautology, not a symptom.

Re:Sucker born every minute.

[LingNoi]

Actually you're wrong because to access that lost money you need the private key, you should learn something about the technology you're pushing before calling out others.

Re:Sucker born every minute.

[TheTurtlesMoves]

Two words: Pump and Dump. Not the first time either.

1. Buy bitcoins
2. Get a positive spin story about bitcoins on Forbes. Easy if you the one that gets to write it.
3. ....
4. Sell bitcoins.
5. Profit.

Re:Sucker born every minute.

[Alex Belits]

But then a large percentage of this currency will end up in the hands of a single organization, thus making it unusable as a currency. The only reason why currency has value when hoarded (or, in other terms, has liquidity) is that the same kind of currency is constantly circulated, so potential influx of currency that is currently out of circulation does not noticeably decrease the value of a unit of this currency.

This is also why central banks can issue more of their currency -- the rate at which they issue it is predictable, so new units do not appear on the market significantly faster than new products (inflation is slow and predictable). If there is an expectation that central bank will issue currency faster, market react by dropping the value associated with the unit of the currency (increasing the rate of inflation) because people expect more currency to be present with the same amount of products being traded with it.

However this is not significantly different from a situation when large fraction of available currency is hoarded by an organization that plans to use this currency. There is no way to predict how fast this "locked up" currency is going to be spent, so everyone else who uses the same currency is in danger of facing a sudden influx of new units of currency into the market, diluting the value per unit. That undermines the safety of currency used for transactions, and creates an incentive for market participants to switch to another currency, and once enough participants do so, currency loses its value completely.

But what if those new bitcoin overlords will foresee this and start spending new currency right away, thus creating a somewhat predictable influx?

Not really much of a difference. Since it's new currency units created out of nothing, it will create a constant influx of products into the hand of one entity that effectively taxes the market that way. When there is an expectation that all participants, by "mining", create new units of currency while participating in the market, this influx evens out for each participant, however when "mining" is skewed toward one participant, market becomes unfair to the rest, so they switch to another currency, just like in the above described case of hoarding.

To think of it, if someone had a goal to destroy bitcoin, that would be a great strategy to accomplish this (and this is also why bitcoin is just as vulnerable to manipulation as other forms of currency).

Re:Sucker born every minute.

[Khashishi]

The money supply needs to increase if the number of people using the money is increasing for prices to say about the same.

Re:Sucker born every minute.

[tqk]

Until I can no longer use it to pay taxes and other debts it's as much a 'real' currency as anything else.

Yes, so far. As long as enough of you continue to fall for the joke, the scheme can continue and nobody's the wiser. That's all I'm really saying here. Have you heard of Bernie Madoff? It's not really all that different a situation, once you come to think of it.

Is there any gold still in Fort Knox? Brad Meltzor's (Metzlers? sp?) "Decoded" isn't sure, and nobody's being let in to check, so wtf is going on, really? "Shhh ..."

Let's start over. On the one hand, you've got gold. On the other, paper money. People can do stuff with gold. It's inherently valuable. You can actually make things with it. Valuable things. Paper money is ... whatever people believe it is.

So, back in the '70s, I bought a Krugerrand for about C$460.00. That ounce of gold is selling for about (?) two grand today. What changed? Did the Krugerrand appreciate, or did the paper money depreciate?

Hint: yes! It's an equation. :-)

Take your time. Sorry if I come across as insulting. I can sure be a jerk at times.

Re:Sucker born every minute.

[tqk]

No, I don't believe that money should be treated that way.

I was simply saying that many people (myself included) have given this some thought and think that the status quo is far from desirable, but far better than what is proposed by goldbugs.

No problemo. :-)

I just want you to appreciate that some of us have heard your arguments and disagree.

Honest, I really have no sticks in this fire. I'm just trying to inform. And I'll be dead soon, so what does it matter? Have a lovely afternoon. :-)

Still, if you were in 1920s Germany out to buy a loaf of bread with your wheelbarrow full of paper script, I think you might pause to wonder wtf was going on.

Re:Sucker born every minute.

[tqk]

The only way your money buys more stuff is if the prices are lower.

Wrong. Symptom! You can buy more stuff if your money's worth more.

This isn't even math. It's just arithmetic.

Re:Sucker born every minute.

[Anonymous Coward]

This is exactly NOT what inflation/deflation are. Price changes depend on many things, and so talking about them as a function of currency is meaningless. If electronics drop in price due to better production advances, that is not deflation at work. That is rise in productivity, and decline in valuation of a given unit produced in comparison to money, and the stable or decreasing desire to hold fiduciary media in hand by savers. To speak of deflation in such terms makes the word useless. It would be like adding to the definition of 'truth' not just those ideas which correctly describe reality, but those ideas which we believe describe reality. It would make the term useless for discussing anything. So do away with the notion of prices as an indication of inflation/deflation. They do not necessarily decline with a fixed supply of money anyhow because, as I mentioned before, many other factors determine prices.

Re:Sucker born every minute.

[wrook]

Actually, it's a little different. Current fiat currencies create money through debt. They don't create money at a constant, predictable rate. If someone wants to borrow money and the bank approves it: bam; new money is poofed into existence.

But you are completely right. This is the major problem with Bitcoin *as a standard currency*. One of the most imporant things in a funcitonal currency is that it is easy to get it into the hands of people who don't have it. This facilitates production. If people are blocked because they need to buy a boat, or buy fertilizer, or whatever, then they can't produce. If they can't produce, there is a scarcity and other people can't produce. It ripples right through society. Society works best when everyone has enough to do what they want. This maximizes production and hence true wealth.

Bitcoin limits the speed that bitcoins can be brought into existence. It also limits the total number of bitcoins in existence. This is antithetical to the issue above. Bitcoin proponents argue that because there are no fixed units for bitcoin (you can divide them up almost infinitely), this limit to the total number is a non issue. If everyone only has 1 bitcoin, they can trade in 1/1000 of a bitcoin. The other advantage of Bitcoin is that it is arguably more fair than our current banking system, which has "special" players (banks) who are allowed to poof money into existence and hence become very rich by doing precisely nothing.

IMHO, there is still a major problem, though. The first is that it doesn't matter how much you can divide bitcoins up, if you have 0, there is nothing you can do. You need to get *some*. The second problem is the way new bitcoins are distributed. It's better now with mining pools, but at first people were receiving bitcoins in 50 BTC increments. So either you had lots of bitcoins or no bitcoins. The number of people with fractional bitcoins was small. Trading was/is done in large increments even though bitcoins are scarce.

Finally, while it is downplayed, deflation is a major problem for Bitcoin as a standard currency. If you increase the value of bitcoins by dividing them up into smaller and smaller increments (so that more people can participate), you can't have loans. Nobody will be stupid enough to borrow 10 bitcoins when the value increases over time. If I can make 2 BTC the first year, 0.2 BTC the second year, and 0.02 BTC the third year (ie the value of BTC rising 10x per year), I will never make enough money to pay back the 10 BTC loan. Of course 10x deflation is exagerrated, but you get the point. Inflation is a feature of standard currencies, not a bug.

But, Bitcoin does not have to be a standard currency. It works well as an exchange mechanism on the internet. Not that many people accept it right now, but looking at the trading graphs, volume seems to be relatively strong trading against the US dollar. As long as it is liquid, it is a viable exchange mechanism.

Sorry for typing a book. Hope you found it interesting.

P.S. I don't think a company getting most of the new BTC will be a major problem because they will be selling them for USD as fast as they can. If they horded them, then it would lead to deflation. But as long as it is possible to buy and sell with USD it will still work fine as an exchange mechanism.

Re:Sucker born every minute.

[Nursie]

Still, if you were in 1920s Germany out to buy a loaf of bread with your wheelbarrow full of paper script, I think you might pause to wonder wtf was going on.

A screwed economy is a screwed economy, whether you use shiny rocks, bits or paper to transact. If you think the inter-war basket case that was germany is entirely down to its choice of currency... well, that seems a bit much to me.

Re:Sucker born every minute.

[Alex Belits]

Actually, it's a little different. Current fiat currencies create money through debt. They don't create money at a constant, predictable rate. If someone wants to borrow money and the bank approves it: bam; new money is poofed into existence.

As a legal fiction, yes, but in practice, debt more of an excuse for setting a rate that can't accidentally float away from the rate of growth of the market. As long as the amount of products being traded on the market increases, new money would have to be created to maintain it. Debt merely keeps track of where those money went, however for the central bank the total amount of outstanding debt is based not on the ability of market participants to pay back the loans (what would determine risk for a regular bank) but on the size of the market. The risk for the central bank is not that loans will not be paid back to support operation of the bank but that the economy will be damaged by wrong incentives or mismatch between expected and actual results of supposedly safe behavior of the market's participants -- central bank is the only institution that can loan money, can receive payment for those loans, but can't actually pay anyone using money it "owns".

Regular, commercial, banks can't "create" or "destroy" money without central bank doing it, therefore their idea of what "loan" is merely shares a name and formal procedures with the currency emission done by the central bank.

The other advantage of Bitcoin is that it is arguably more fair than our current banking system, which has "special" players (banks) who are allowed to poof money into existence and hence become very rich by doing precisely nothing.

From the point of view of "special" status being assigned arbitrarily -- yes. But uneven initial distribution of bitcoins is a problem of exactly the same type, it is just masked by the "merit" of mining. The problem is, the cost of mining in the initial stages is so much lower than the value of bitcoins (or the whole thing collapses later), the difference between being arbitrarily named a bank and being involved in mining (or initial stages of mining) is superficial. The implied assumption was that since mining is accessible to everyone, the initial distribution will not be skewed to form one or few self-proclaimed central banks. This condition is not stable -- once someone with any significant amount of resources recognizes the value of bitcoins (assuming there is much of it), he can easily take over a large percentage of bitcoins (and use bitcoins to perpetuate the advantage by buying more computing power, depleting the remaining bitcoins faster).

When more than one such player will appear, they will have to compete with each other, what guarantees either runaway concentration of new currency in the hands of two people, or collusion between them that produces an entity with total control over bitcoins. The fact that those same actions would cause destruction of bitcoins value is not a sufficient disincentive because dropping bitcoins value is less of a threat than reduced number of bitcoins in the hands of such "miner".

IMHO, there is still a major problem, though. The first is that it doesn't matter how much you can divide bitcoins up, if you have 0, there is nothing you can do. You need to get *some*. The second problem is the way new bitcoins are distributed. It's better now with mining pools, but at first people were receiving bitcoins in 50 BTC increments. So either you had lots of bitcoins or no bitcoins. The number of people with fractional bitcoins was small. Trading was/is done in large increments even though bitcoins are scarce.

Right, same problem, but I think, a potential for abuse makes it much worse.

But, Bitcoin does not have to be a standard currency. It works well as an exchange mechanism on the internet. Not that many people accept it right now, but looking at the trading graphs, volume seems to be relat

Re:Sucker born every minute.

[Anonymous Coward]

When bitcoins are lost, it's still not a problem with the overall system (except to the person that lost their bitcoins), as the remaining coins can be split up further as necessary. If the smallest unit, one 10-billionth of a bitcoin, becomes too big to be useful, new rules can be added to the blockchain to split them further provided that the majority of the network supports the change.

Not again...

[Anonymous Coward]

It's been a while since the last BitCoin article on Slashdot

Bitcoin why?

[Anonymous Coward]

I just don't understand Bitcoin and "mining" whatsoever.

Re:Bitcoin why?

[dadioflex]

I just don't understand Bitcoin and "mining" whatsoever.

Oh, you didn't recently invest half a million dollars in a start-up, did you?

Re:Bitcoin why?

[Statecraftsman]

Take a little time to read about it :https://en.bitcoin.it/wiki/

If you like technology, there are many fascinating areas that Bitcoin brings together: p2p networks, cryptography, economics to name a few.

Regardless of the image problem Bitcoin has and people's propensity to denounce it based on what they've heard, it really is a revolutionary development. If the current Bitcoin network doesn't make it into your life, you can bet that one or many of its predecessors will.

One of the things it enables is fast global transactions. I created a site to sell digital downloads for Bitcoin called CoinDL: https://www.coindl.com/ and the processing time is averaging under 10 seconds which is pretty impressive considering there's no company, government or other centralized organization involved in the transfer.

Re:Bitcoin why?

[Lunix Nutcase]

It's not revolutionary. It's a scam so a couple of people get rich whilst idiots waste countless amount of money on electricity and GPUs in vain hope of getting rich. It's a rather run-of-the-mill scam at that.

Re:Bitcoin why?

[h4rr4r]

Its predecessors? I think you mean its descendants.

Re:Bitcoin why?

[Yvan256]

... the processing time is averaging under 10 seconds which is pretty impressive considering there's no company, government or other centralized organization involved in the transfer.

I think you just explained the reason for the speed.

Re:Bitcoin why?

[cvtan]

Clearly years of study and employment in the engineering/scientific world have not prepared me to understand anything of real value, like BitCoin.

Re:Bitcoin why?

[Wonko the Sane]

It's not revolutionary. It's a scam so a couple of people get rich whilst idiots waste countless amount of money on electricity and GPUs in vain hope of getting rich. It's a rather run-of-the-mill scam at that.

This must be the source of most of the Bitcoin hate. You're looking at how new currency units are created to the exclusion of all other aspects of the system.

To people who do not have any appreciable skills to sell on the open market would naturally see only this because the concept of being a producer of value that other people want to trade for just doesn't exist in their mental vocabulary.

If you have the ability to produce value that other people want to buy then decentralized currencies potentially can allow you engage in transactions that would otherwise be impossible or unprofitable. That is the real value of Bitcoin.

Re:Bitcoin why?

[Anonymous Coward]

Creating numbers and telling people they have value is not being a producer of value.

The work that went into the crypto behind bitcoin was useful skilled work, that created value for society. Running a bitcoin mining operation is not.

Re:Bitcoin why?

[Sir_Sri]

One of the things it enables is fast global transactions. I created a site to sell digital downloads for Bitcoin called CoinDL: https://www.coindl.com/ and the processing time is averaging under 10 seconds which is pretty impressive considering there's no company, government or other centralized organization involved in the transfer.

Um... other way around. You'd expect anything going through a company or government to take time as they have legal requirements for verification and recording which they really really really can't fuck up.

When governments decide bitcoin is a giant scheme to dodge tax (note: I'm not saying it is, but governments will come to that conclusion eventually) it's going to get the beat down from all sorts of organizations. The whole premise 'idea of using cryptography to control the creation and transfer of money, rather than relying on central authorities' (as per your linked wiki) directly contravenes the charters of those 'central authorities' - as the sole provider of national currencies and sole arbiters of the creation of money.

It's an amusing theoretical project, but eventually bitcoins are either going to need to be adopted as someones currency or they're going to get run into the ground, or both. And any followup project will not survive nearly as long once the precedent is set with bitcoins. That doesn't mean some of the underlying technology won't transfer into real money trading, but when the government decides your bitcoin business is a scheme to dodge tax, and decides to tax you in british pounds or USD or Euro and you can't produce a trail of transactions which can be converted into one of those currencies you're going to find yourself in a world of trouble without any easy way out.

Also, a decentralized currency without a central authority controlling the money supply is a stupid idea. Bitcoin supply is regulated by a rate at which mathematical problems can be solved, and then a fixed exchange between problem solved and bitcoin gained. Which has absolutely no relationship to a useful supply rate for money. One can (as economists do) argue over which of the various competing theories for money supply a given central bank or currency authority should be using at any given time, but none of those sane options are remotely similar to what bitcoin is.

Re:Bitcoin why?

[Jawnn]

Regardless of the image problem Bitcoin has and people's propensity to denounce it based on what they've heard, it really is a revolutionary development. If the current Bitcoin network doesn't make it into your life, you can bet that one or many of its predecessors will.

I will take that bet. I will even offer you generous odds, but only if we wager in dollars and cents. You know, real currency. Oh, wait...

Re:Bitcoin why?

[Wonko the Sane]

I never said that bitcoin mining creates value. Again, you're missing the point.

Value is created by the voluntary exchange of products and services. The people who are using Bitcoins to facilitate commerce are the ones creating the value, not the miners.

At the moment this means most of the value comes from Silk Road, but that's not the only industry that can benefit from this technology in the future.

Re:Bitcoin why?

[s73v3r]

This must be the source of most of the Bitcoin hate.

Not necessarily, but it is the source of why most people realize it is a scam.

To people who do not have any appreciable skills to sell on the open market would naturally see only this because the concept of being a producer of value that other people want to trade for just doesn't exist in their mental vocabulary

What? Being the creator of a scam now is something to be valued?

If the creators of Bitcoin truly wanted to create some kind of new currency, they should have set it up in such a way that they didn't get the lions share of the bitcoins right away, signalling to everyone else that it's a fucking scam.

Re:Bitcoin why?

[s73v3r]

I never said that bitcoin mining creates value.

Except, to everyone who uses bitcoin, it does.

Re:Bitcoin why?

[Anonymous Coward]

"Creating numbers and telling people they have value is not being a producer of value"

Shhhh! We don't want 95% of the US economy to hear you.

Re:Bitcoin why?

[Anonymous Coward]

used it before, will use it again...

Re:Bitcoin why?

[DriedClexler]

Creating numbers and telling people they have value is not being a producer of value.

Actually, it is if those numbers allow people to make mutually beneficial changes they would otherwise not be able to make, which is what all moneys do in the first place. They don't have terminal value, but they facilitate exchange.

If Bitcoin can so facilitate exchange between people who like the protections it offers (and don't mind those it doesn't offer), then it has created value.

The work that went into the crypto behind bitcoin was useful skilled work, that created value for society. Running a bitcoin mining operation is not.

Only in the sense that performing any computational proof-of-work "didn't create value for society". If you can accept that e.g. a hypothetical system where an emailer has to perform a proof of work (in order to not be labeled as spam) has value, then you should accept the same of Bitcoin, in which the miners are performing a similar function.

Re:Bitcoin why?

[benjamindees]

The creator of Bitcoin specifically included a newspaper headline in the genesis block in order to advertise the fact that he did not start mining Bitcoins before the code was publicly released. Everyone had the opportunity to start mining at the exact same time.

He mined the first 1.5 million or so Bitcoins, and as anyone can easily verify, has not spent the vast majority of them.

Re:Bitcoin why?

[benjamindees]

the charters of those 'central authorities' - as the sole provider of national currencies and sole arbiters of the creation of money

In the US, at least, no such charter exists.

Re:Bitcoin why?

[Anonymous Coward]

That's literally what every other currency already does

Re:Bitcoin why?

[Anonymous Coward]

Put your money where your mouth is, then. You can now trade in bitcoin futures.

Re:Bitcoin why?

[pla]

What? Being the creator of a scam now is something to be valued?

C'mon, seriously, how hard did you need to try to miss that point?

The GP pointed out nothing more controversial than saying that the mint doesn't give your money its value, the fact that you can use it to buy bread and gasoline, and pay your rent and taxes, does. If you want to disagree with that, I can't stop you, but it just sounds deliberately obtuse at this point.

You guys need to go back to calling it a Ponzi scheme, at least then we can consider you legitimately ignorant about what that means.


If the creators of Bitcoin truly wanted to create some kind of new currency, they should have set it up in such a way that they didn't get the lions share of the bitcoins right away, signalling to everyone else that it's a fucking scam.

You mean, exactly like they did?

The Bitcoin block chain has exactly one "pre-mined" block, which remains unredeemed; and even if Satoshi himself someday shows up to claim it, at this point a mere 50BTC would have no effect whatsoever on the stability of the Bitcoin economy (currently with 8.8 million BTC in circulation).

You personally had just as much chance (adjusted for hardware) at mining every... single... block generated since that origin block, as all those who did so instead of whining about fairness; and your ongoing failure to do anything about it except sow FUD about the entire concept doesn't inspire sympathy.

Re:Bitcoin why?

[icebraining]

Congratulations: if you have now determined that any investment where the founders get the majority of the shares - Google, Microsoft, etc - are now scams! Do you wish to revise that definition?

In a scam, there's a promise of profits. The bitcoin creators have never made such promise, nor anything close.

Is it a stupid investment? Sure, and for that reason I don't hold any bitcoins. But it's not a scam.

Re:Bitcoin why?

[Anonymous Coward]

Except that "mining" is what powers the distributed consensus system that allows bitcoin to operate without a central authority in the first place.

Re:Bitcoin why?

[Anonymous Coward]

Except those use third party money shufflers to make sure there is no double spending, bitcoin does not have that. It has a technical solution involving cryptography and an open clearing house so that no central authority is needed. What is so hard to get about this?

Re:Bitcoin why?

[Attila Dimedici]

Yes it does. If one does a little bit of research, one discovers that the Constitution gives Congress the power to "coin money". Congress delegated this power to the Federal Reserve through duly passed Acts of Congress. In the context of the comment you were replying to, "charter" does not refer to a single specific document, but instead refers to the various acts of law and tradition that constructed the 'central authorities' that are currently the arbiters of national currencies in various countries. It is clear currently that the U.S. government will act to protect the Federal Reserve's monopoly over the currency that is used in the U.S. when it feels that it is threatened (see the case against "Liberty Dollars").

Re:Bitcoin why?

[Anonymous Coward]

The US government has shut down plenty of operations it sees as ways of dodging taxes, trade sanctions, etc . . . But all of those had something to shut down (eGold, Liberty Dollar). Now there is nothing centrally located to shut down. A government might be able to crack down on users of it, or even some of the exchanges, but this will be a much harder genie to put back in the bottle.

Re:Bitcoin why?

[Anonymous Coward]

Actually, you're just highlighting a major risk for Bitcoin values. If the large mining groups get sick of "working for the man" and fork off their own ButtCoin 2.0 network, there will be a huge rush as everyone tries to generate the new cheap coins on the ground floor. And without the mining power behind Bitcoin 1.0, the old coins will be worthless.

Rince and repeat until everyone gets tired of this nonsense.

Re:Bitcoin why?

[benjamindees]

the Constitution gives Congress the power to "coin money"

This is not a monopoly power. The Constitution itself spells out at least two exceptions, of which there are countless others.

It is clear currently that the U.S. government will act to protect the Federal Reserve's monopoly over the currency that is used in the U.S. when it feels that it is threatened (see the case against "Liberty Dollars").

Yes but it is also clear that the US government will torture and spy upon and murder innocent people. None of those are in its "charter" either. So this argument is irrelevant.

And "charter" means "contract." It doesn't mean "tradition." "Traditionally," central banks have enjoyed monetary monopolies as long as they refrain from debasing the currency. That tradition has been thrown out the window.

Re:Bitcoin why?

[Attila Dimedici]

Article 1, section 8 of the Constitution gives Congress the power to coin money and regulate the value thereof and of foreign coin. I am confident that the Supreme Court would include Bitcoins under "foreign coin".

Re:Bitcoin why?

[Sir_Sri]

Why? It's a p2p network. Poison the network, or get a node on the network and go after anyone they fin.

Treat all undisclosed bitcoin income as terrorist funding. It has value because people can accept it, if no sane business will touch the stuff it's worth nothing so no one will bother with it.

Re:Bitcoin why?

[Bam_Thwok]

It's not hard to understand what it works, it's hard to understand how it's an improvement. For physical currency, taxes to the government prevent counterfeiting. For electronic transactions, fees paid to the bank or credit card company prevent double spending. For bitcions, money is spent on GPU cycles to prevents both. If you can prove that it's actually cheaper, and just just a cost shift, be my guest.

Re:Bitcoin why?

[Anonymous Coward]

LOL, what? it most certainly IS in the US... Only the US mint under the direction of the FEDERAL government can issue currency...

Re:Bitcoin why?

[Anonymous Coward]

Also, a decentralized currency without a central authority controlling the money supply is a stupid idea. Bitcoin supply is regulated by a rate at which mathematical problems can be solved, and then a fixed exchange between problem solved and bitcoin gained. Which has absolutely no relationship to a useful supply rate for money. One can (as economists do) argue over which of the various competing theories for money supply a given central bank or currency authority should be using at any given time, but none of those sane options are remotely similar to what bitcoin is.

Okay, but that doesn't indict "a decentralized currency without a central authority controlling the money supply" -- it just means bitcoin's algorithm is not suitable of a whole economy -- but then, bitcoin's total final money supply is far too small for a whole economy; it's not meant for that, it's a POC.

The obvious question (to which you've perhaps unwittingly presumed a negative answer) is which, if any, of those sane options are capable of being encoded in the difficulty and/or payout formulas such that nobody can cheat -- it's not obvious that it is possible, let alone how to do so, but it's also not obvious that it's impossible.

And then there's the whole issue of multiple parallel subeconomies -- how does that work, when anyone can start their own block chain, using whatever difficulty and payout rules they like? The idealist in me likes to think different groups of economists could all start their own block chains with their own rules implementing their favored monetary model, and we could let the free market decide which makes the best economy -- naturally, everyone winds up using it! The realist says it's more likely the "wrong" models will, through arbitrage, drag the good one(s) down, and the whole thing will suffer -- and think how bad it'll be if someone could add their own currency with rules that aren't just bad, like Bitcoin's POC scale, but downright pathological! Probably the truth is between, but we need some solid analysis of this stuff before we can even conclusively assert that Bitcoin's weird money supply is a problem.

Re:Bitcoin why?

[Zaphod The 42nd]

Bitcoin mining isn't just wasting GPU time so that occasionally you can get a small amount of money for fun.
Mining is using your computer as part of the distributed bitcoin bank software system. You're providing value in that you're taking part in the internet service which allows instantaneous, safe transfer of bitcoins. Without machines running the mining program, there wouldn't be cryptography on the purchases. So they absolutely DO provide value.

Look at it this way, what if a company offered to pay anybody $5 / hr if you run their distributed program on your computer for awhile for them? Are you providing value? You're just sitting there with your computer running something, and you're getting paid for it. But you ARE providing value, you're sharing the power and the value of the machine that you have and aren't currently using with people who need to rent out that computing power on the cheap.

Re:Bitcoin why?

[Anonymous Coward]

It's a scam so a couple of people get rich whilst idiots waste countless amount of money on electricity and GPUs in vain hope of getting rich. It's a rather run-of-the-mill scam at that.

I hear this so often. That it's a scam, it's a pyramid scheme. How is it a scam? The original developers do not get rich off the bitcoins people create. I mine bitcoins, I have bought lots of things with them. The value of the items I purchased exceeds what it cost me to mine them. Will I get rich? No. I don't expect to. But it makes a nice side income.

Re:Bitcoin why?

[Zaphod The 42nd]

Governments are free to print extra money all they want, and devalue the currency far beyond what is necessary just to prevent counterfeiting. At least with bitcoins, you know how much its being inflated at a given rate, and no one party is able to say, spend billions bailing out a particular company they're fond of.

Re:Bitcoin why?

[Zaphod The 42nd]

Thats true, except that think about it, not at all a problem. Somebody creates the fork, ButtCoin 2.0. Which nobody is using. So they say, hey, you can generate coins even faster and easier than BitCoin! Well, you get a few script kiddies who rush to get the coins, but it doesn't matter. The real investors and businessess stay on BitCoin because its better business sense in the long run, those ButtCoins are going to devalue pretty fast. So what do you do? You'd have to somehow improve on BitCoins in order to have a fork actually take over and make people move currencies. There's no inherent incentive. And, most importantly, there's no inherent value to the coins. BitCoins are only valuable if people use them, ButtCoins would be the same. With nobody using ButtCoins, nobody would care about generating ButtCoins. BitCoins are worth switching to because they offer value over the Dollar, they can't be inflated by a government, and they can be anonymously traded electronically easily. Unless you can come up with a major feature over BitCoins, your ButtCoins are pointless. (Aptly named). You could make the mining slower, but then good luck convincing people to mine so that your network can perform transactions. Maybe you get some people to switch for the long haul, but not enough to create value, so same problem.

Re:Bitcoin why?

[pla]

there will be a huge rush as everyone tries to generate the new cheap coins on the ground floor. And without the mining power behind Bitcoin 1.0, the old coins will be worthless.

Actually, this has happened, with at least half a dozen semi-successful alternatives (most notably, NameCoin, SolidCoin, and LiteCoin). And despite them drawing significant hashing power out of the Bitcoin network (well, NameCoin actually shares mining power with Bitcoin, rather than forcing a one-or-the-other choice on miners), they remain well under a Bitpenny each and haven't notably impacted the exchange rate of BTC itself.

Re:Bitcoin why?

[brokenin2]

I've used the site.. I like it.. I hope you get more content soon, so you'll have to expand with a lot of search and categorization.. maybe Amazon like suggestions too.. That's down the road a bit.. In the short term, you should probably just pretty it up a little too :).. Get some artistic person in there to help you out a bit..

I was impressed by how well it worked too. My payment was received in about two seconds.. maybe less.

Re:Bitcoin why?

[brokenin2]

Very true.. It's not really theoretical either. This scenario has played out a number of times already.. I own some of the other failed or soon to fail currencies. Maybe someday they'll get enough use to be worth something, but it's been quite a while now, and it still hasn't happened.

A lot of people seem to think that there is room for more than one Bitcoin like currency, and they may be right, but there clearly isn't room yet.

Re:Bitcoin why?

[brokenin2]

Huh.. FinCen just processed the registration for BitInstant. Sounds like a nod from the US Treasury department to me.

If no other currencies are allowed in the US, MS is going to be getting into a lot of trouble with all those XBox points or XBox live points that they let you buy stuff with... Not to mention all those frequent flier miles scams, and credit card points scams others have going.. You know where you can buy a stupid pocket knife for your points..

Re:Bitcoin why?

[Zaphod The 42nd]

Even worse, I'd say there isn't even room for one. Even bitcoins are still fairly experimental.

Re:Bitcoin why?

[Lord Ender]

Creating numbers and telling people they have value is not being a producer of value.

Mining metal and telling people it has value is no different. And in both cases, "telling" people has nothing to do with it. It's an open market with prices set voluntarily by the participants.

Re:Bitcoin why?

[jonbryce]

Metal has value because you can use it to make useful things, not because someone says it has value. Dollar bills have value because the government will accept them for payment of taxes.

Re:Bitcoin why?

[wrook]

How this got modded up to 5, Insightful, I just can't understand. It demonstrates a complete lack of understanding of Bitcoin.

The crypto behind bitcoin is trivial. If you don't believe me, go ahead and read the code. There is really nothing to it. It hashes numbers. That's it.

The insight in Bitcoin is that you can get people to calculate difficult problems and put the answers in a chain. A chain of correct answers is "valid". You use a one way hash so that it is easy to determine if the chain is valid, but hard to calculate answers to create a chain. You publish the chains and the longest one (the one that was the most costly to produce) is the "real", "valid" one. To make your own chain the "real" and "valid" chain (i.e. cheat), you have to create a longer chain faster than everyone else in the system working together. This is a really insightful idea, but I wouldn't call it "crypto".

The *really* smart idea, though, is that you measure the speed at which the chain is growning. If the chain is growning quickly (there is more horsepower out there), you add restrictions to the problem (only certain hashes are valid) to make it more difficult to make the chain. The more people calculating the chain, the more hardware you need to create your own chain (i.e. cheat).

And then the *really, really* smart idea is to provide incentive for people to work together to calculate the chain. By devaluing the currency slightly and awarding a prize, they make it financially better to cooperate than to cheat.

So in summary, to the extent that you value Bitcoins (and some people do), the value comes from the cooperation in calculating the block chain (i.e. mining). The more people who do this, the more secure the system is. This literally supports the value. The insightful way that incetive was provided to make this work is obviously valuable as well. The crypto (calling a hash function over and over again until you get an answer lower than a certain target) is practically non-existent.

Re:Bitcoin why?

[Nursie]

Awesome, so this guy has grabbed about 7% of all the currency there ever will be, and is sitting on it.

This gives me all sorts of confidence and reason to love bitcoins, oh yes.

Re:Bitcoin why?

[Sir_Sri]

actually there are a lot of problems with those. Notice that you can't ever convert xbox points back to cash? Same with frequent flier miles? If you could, they would be considered taxable income. As it is you're buying microsoft 'points' which *legalese translated* have no real value, and MS is free to hand out a million of them at their discretion, take them away from you at their discretion etc. Frequent flier miles is the same deal, they can be taken away, disappear over time etc. If it was convertible *back* into currency then you'd be into trouble.

In ontario canada where I live we've gone so far as to change gift cards because they are effectively a form of currency that could 'expire' so they've had to add in layers of regulation around them. I'm not 100% sure what the rules are, and i'm too lazy to look it up, because it probably doesn't in detail matter.

Acknowledging something exists isn't the same as liking it. Taking it as a nod from the treasury that they're happy about is absurdly naive. Even getting them into FinCen registration could nailing its own coffin because now that means the government is going to ask just what is moving where, and that puts them in the unenviable position of filing paperwork the government may not want to read. The government has agreed the entity exists and is going to try and file the appropriate paperwork and follow the appropriate rules. The moment you start having to do that there becomes a lot less value to doing business in bitcoins. What good does it do you to run a business in bitcoins that you then have to convert into US dollars for tax purposes every year? That by the way, is a very real very messy accounting problem for foreigners who have to file US taxes, because currency fluctuation means your assets are now worth relatively different things all the damn time. As per the disclaimer on the MSB site "The inclusion of a business on the MSB Registration Web site is not a recommendation,
certification of legitimacy, or endorsement of the business by any government agency.". http://www.fincen.gov/financial_institutions/msb/msbstateselector.html

Re:Bitcoin why?

[JoelKatz]

The miners are engaged in the voluntary exchange of products and services. The service they provide is securing the block chain and preventing double spending and 51% attacks in the Bitcoin system. In exchange, they get the block mining reward and transaction fees.

Re:Bitcoin why?

[Jawnn]

From my mom's basement, I created a site to sell digital downloads for Bitcoin called CoinDL:

TFTY. Mark my words. The time you spent fucking with bitcoin is lost. Grab your bag of dice and get out into the real world and play some D&D.

Re:Bitcoin why?

[tqk]

"buttcoins" again. That's not really as funny as you think it is.

If a viable market can be built around bitcoins, there is one hell of a lot riding on this. Every government that relies on fiat money and taxation to fund its operations has one !@#$ of a lot riding on this. If bitcoins can take the place of the gold standard, Keynsian financed government will implode ("poof"). There's a lot riding on this. There's likely a lot of government flacks doing everything they can possibly imagine to undercut its potential. If bitcoin gets anywhere, fiat money's soon going to be worth less than used toilet paper.

Re:Bitcoin why?

[tqk]

I never said that bitcoin mining creates value.

Except, to everyone who uses bitcoin, it does.

What's a dollar? If you're on /., you may understand computer programming code. A dollar is analogous to a variable. The variable's not worth anything, but it can contain a value. Really, what's a silver (or paper) dollar worth? Whatever it can buy, right? What else can you do with a dollar? Nothing, right? Well, okay, you could use it to wipe your butt, but other than that? Even lit on fire, it won't keep you warm for long.

[No, I'm not into bitcoin mining, but I do consider its implications intriguing.]

Re:Bitcoin why?

[tqk]

It's not hard to understand [how] it works, it's hard to understand how it's an improvement.

Fiat money, or its value, can be manipulated. End of story. It's been going on for all of recorded history.

For physical currency, taxes to the government prevent counterfeiting.

What?!?

For [bitcoins], money is spent on GPU cycles to [prevent] both. If you can prove that it's actually cheaper, and just just a cost shift, be my guest.

"Just a cost shift"?!? I really don't understand what you're saying. "Money" is just markers. Paper dollars, silver dollars, Japanese Yen, bitcoins, whatever. They're all just markers.

Can politicians or Wall St. manipulate the value of any or all of them? That's the question. The bitcoin people believe all the others can be manipulated but that bitcoins can't. Is that true? That's what I want to know.

Re:Bitcoin why?

[tqk]

Governments are free to print extra money all they want, and devalue the currency ...

Finally, someone who gets it! I was beginning to think I was alone.

... and no one party is able to say, spend billions bailing out a particular company they're fond of.

Then, you just !@#$ing had to remind me of Goldman Sachs, you !@#$%^&. :-) # <-- Note the smiley.

Re:Bitcoin why?

[tqk]

OT, sorry. Can you please point me at something that's a bit more understandable than Wikipedia, because that's really making my head hurt. Or, I suppose I could just bang my head on a table for the same effect. Thanks in advance.

I suppose I could $google it myself. Will do, but insights are welcome.

Just sayin'. It ought to be against the law for .sigs to get that deep.

Re:Bitcoin why?

[DriedClexler]

Sure, I'll try to give you the intuition behind it.

Let's say I have a belief ("theory") that tries to describe/predict how the world really is ("reality"). My theory is sometimes going to be right, and sometimes going to be wrong. Sometimes it will predict an event to happen more often than it really does; sometimes less.

The KL divergence is a measure of how far my theory differs from reality.

The specific way that it quantifies it is basically by asking, "If I go around expecting the reality to be just like in my theory, then how often, and how badly will I be surprised?"

"Surprise" is itself quantified in such a way that if you assign a *low* probability to an event that *does* happen (or vice versa), that counts as "high" surprise. Likewise, if you predict a high probability for something that does happen, you get a low surprise-value. (The math involves taking the log of the inverse expected probability of the event.)

So the KL divergence goes through the world's "probability distribution", and at each point (i.e. experience all events at least once, but with differing frequencies depending on how probable the event is) it compares to my theory's probability distribution, finds how surprised I am, and sums over the whole thing.

The result is a measure of how bad my theory is (i.e., theories that are often wrong get a high KL divergence from the world).

Make any more sense now?

As for the joke: It's saying that information theory is the theory, and any deviation of the world from it is the KL divergence.

Re:Bitcoin why?

[lee1026]

It would be trivial to shut down bitcoin if you have as much resources as the US government. For one thing, double spending attack on bitcoins becomes trivial as long as the attacker have more processing power than the defenders.

Even bitcoin's own FAQ notes that double spending is possible as long as an entity controls a majority of the hashing power of the network. It is very unlikely for a person to get that kind of power, but a government (or worse yet, a coalition of governments) can easily amass enough GPUs to take down the network via double spending.

Prioritization?

[Crasoose]

When it comes down to it, am I going to be losing performance in their game because they would rather be making money? I hope they state plainly their intentions from the get-go, but we all know that won't happen.

Re:Prioritization?

[Githaron]

They will state their intentions. After you have bought the games and opened the package, It will be in tiny letters in the most vague wording possible somewhere in the multi-page EULA that almost no one reads.

Re:Prioritization?

[h4rr4r]

Forget losing performance, think about your GPU running 100% when it only needs to be at 10% and what that will due to your powerbill. My GTX460 eats 150watts and newer cards will be even more.

Re:Prioritization?

[jank1887]

150W = 0.15kW x 24hrs/day = 3.6kWh/day x $0.10/kWh = $0.36 / day x 30 days/month = $10.80 / month.

Rescale according to your local electricity cost and actual number of hours per day.

Re:Prioritization?

[Sir_Sri]

A 560 and 660 will probably both eat around 150 watts, though the 680's use less power than the 580's. The x80 series use roughly the same form factor and power draw from the 8800 up to the 580 and then a bit less (but not a lot) for the 680.

Much of GPU design is what you can cram into a given power envelope (between 6 and 8 pin connectors on the side and what you can draw from the mobo). CPU design has been the same way for quite a while with power points of 45 75, 95, 140 W TDP for intel parts. There are lower power parts too, and the new ivy bridges like the GTX 680 seem to be lower power than the previous generation.

But yes, you're going to hit diminishing returns on being able to mine bitcoins with a GPU as they run out of problems to solve, so you get less and less bitcoins per watt, even on a faster GPU.

Re:Prioritization?

[h4rr4r]

I think you mean two 6 pin connectors, which is what my card has.

Re:Prioritization?

[Dogtanian]

Forget losing performance, think about your GPU running 100% when it only needs to be at 10% and what that will due to your powerbill. My GTX460 eats 150watts and newer cards will be even more.

Yes, IIRC my understanding was that as generating new Bitcoins has been getting harder and harder (hitting the law of diminishing returns), we'd already reached a point some time ago where the potential returns no longer even covered the cost of the additional electricity required to run a card.

That doesn't mean this latest business model is flawed, however. If they can convince a bunch of gullible gamers to run their own cards at full-electricity-guzzling-whack in exchange for something that (logically) would have to be worth even less than the value of the generated Bitcoins, it's sensible enough (albeit in a totally amoral and probably exploitative way).

That makes it a very stupid deal for the gamer- or whoever pays for their electricity (e.g. Mummy and Daddy?)... but if they're willing to accept it, that's not the gaming company's problem.

More bitcoins than sense

[hmmm]

I officially declare Internet Bubble 2 as confirmed!

Re:More bitcoins than sense

[jank1887]

bubble v1 had Flooz with Whoopi Goldberg. who will get the first big Bitcoin sponsorship?

Re:More bitcoins than sense

[Anonymous Coward]

[W]ho will get the first big Bitcoin sponsorship?

Kim Kardashian and Bernard Madoff, but they will insist on being paid in hair removal cream and cigarettes, respectively.

Re:More bitcoins than sense

[Anonymous Coward]

I dunno, Whoopi's due to make another comeback somewhere.

Re:More bitcoins than sense

[Anonymous Coward]

Oprah.

amazing use of resources

[Trepidity]

In the 21st century, humans have invented fake mines to work in, and fake mining companies that mine in them.

Not fake mines likes the ones in Minecraft that might actually be interesting, of course. And not a side-effect of something else, like WoW's "gold farmers". Fake mines that exist solely and purposely to be tediously mined by fake mining companies! Now that's creating value. Value that's "gotta be in the billions".

Re:amazing use of resources

[TheRaven64]

It's probably quite interesting to watch from the inside too, if you're one of the people who got in early on the pyramid scam.

Re:amazing use of resources

[fotoguzzi]

Is it mining or manufacturing? I wonder if there might have been a time when households were involved in making tablecloth doilies. It would have taken a lot of time, the usefulness of the doilies would be negligible, and the value might change over time. This would not be considered mining, but it might be a bit on the fake side. Just a thought. Maybe mining is the correct term for what coiners are doing.

Re:amazing use of resources

[SaroDarksbane]

Now that's creating value.

I realize this is snark, but having a currency that is semi-anonymous, convenient, and resistant to meddling by central banks would be quite valuable to some.

The value you place on such a thing is probably not very high, but value is entirely subjective, and can only be shown on an individual basis by what that person is willing to trade to acquire the object (or information) in question.

Re:amazing use of resources

[Anonymous Coward]

paper money is 'fake' too.

Re:amazing use of resources

[Dan East]

The next time you're playing a free solitaire game online, and your CPU fan is going wide open, your gpu fan is wide open, the room feels hot and stuffy all of a sudden, and the lights dim, just seek solace in the fact that you're making someone else fake money.

Re:amazing use of resources

[Anonymous Coward]

On the bright side, it's a dumping ground for arbitrary amounts of energy. Imagine if we invented the perfect fusion reactor: in today's legacy economy, the price of electricity would eventually plummet. In a bitcoin based economy, all cheap surplus power would instead be spent generating bitcoins.

Re:amazing use of resources

[Anonymous Coward]

Zimbabwe dollars are legal tender too.

Re:amazing use of resources

[Lunix Nutcase]

Sure but you left of the last part 'and are widely accepted by businesses' and in the case of dollars this is also true on a global scale. So, yes, if you ignore my last part your statement is somewhat true but is misleading. Your buttcoins on the other hand have less acceptance than junky Zimbabwe dollars which s een more pathetic for the buttcoin cause.

Re:amazing use of resources

[Statecraftsman]

There is nothing about Bitcoin that is fake. It's harder to counterfeit than a gold bar yet instantly assayable by anyone who downloads the software or checks with one of a few blockexplorer.com type servers out there.

Mind you, people will need to realize that their computers and their electricity may be being used by someone else to make money but if they're getting paid for it in some other way, that can be part of the deal. This announcement is about a way to get vitual in-game items for mining in an open, potentially full-disclosure way.

Other non-Bitcoin related uses of your computer that may be happening right now to make someone else money are to send spam, launch DDOS attacks, or host phishing websites.

Re:amazing use of resources

[kiwix]

A kind of anonymous money could be useful, but I'd rather use one that doesn't double as a pyramid scam.

It's easy to make a bitcoin-clone without this property, you just need to adjust the mining rate so that the early adopters don't get half of the total wealth to ever be available.

Re:amazing use of resources

[Megane]

Except that unlike said gold bar, the bits have no industrial uses, nor do they look attractive when worn on the body.

Re:amazing use of resources

[Megane]

In one way it is just like Minecraft: it will make your fans run like crazy.

Re:amazing use of resources

[s73v3r]

Not only that, but the creators of these fake mines have found a way to extract the potential value from the mine without actually paying the miners.

Re:amazing use of resources

[s73v3r]

No, it's not. I can actually hold it in my hands, and I can exchange it to someone else for goods and services.

Re:amazing use of resources

[Statecraftsman]

The industrial use of Bitcoin is primarily as a medium of exchange. You give me your widget and I can sign over some Bitcoin to you. You can then sign it over to someone else for the thing or currency you want.

It also funcations as a signed message notary service protected by the strength of all the hardware and electricity that is securing the blockchain.

Bitcoin isn't great for jewelry though...you got me there.

Re:amazing use of resources

[Sir_Sri]

It's because they are intellectually living in the fantasy land of austrian economics. They are 'mining' all the 'gold/bitcoins' possible (apparently 21 million bitcoins) and that will be the whole currency supply.

Mining as a term does kinda make sense. If money was still on a gold standard then all the money in the world is both the extracted gold in circulation and the gold under the ground waiting to be dug up. In the case of bitcoins there is a limit on the number of mathematical problems that they can solve which caps supply at 21 million. Whether you mine gold, or 'mine' bitcoins the effect on their respective dependent currency supply is the same.

Though I suppose they can always add new problems to solve to expand the supply, they are stuck on the theory that a fixed currency supply with fractional reserve banking will somehow not be an unmitigated disaster. With gold you run into the problem of previously uncounted supplies of going being added in.

Re:amazing use of resources

[Anonymous Coward]

how else to equitably distribute a new currency?

Re:amazing use of resources

[jdavidb]

Not fake mines likes the ones in Minecraft that might actually be interesting, of course

Okay, this is entirely subjective. I find bitcoin fascinating even though it has never been of economic value to me. And I've never played Minecraft. I find it somewhat interesting, but many people I know do not. And I find bitcoin much more interesting than Minecraft.

Re:amazing use of resources

[Statecraftsman]

Please do make one with this non-pyramid scam feature and maybe we'll all be talking about kikixcoin in a few months or years. Part of the Bitcoin technology has been an incentive for people not just do adopt it but to want to build services on top of it to increase the value of their investment. It's not unlike learning a new language and then making a great toolkit or framework for it. You want to increase the value of what you havew.

Perhaps in Bitcoin's case it was too heavily weighted toward early-adopters but at a market cap of $50m you'd have to say that anyone getting involved now is still what I would call an early adopter.

Re:amazing use of resources

[benjamindees]

Half the total Bitcoins haven't even been mined yet. What are you talking about?

Re:amazing use of resources

[Anonymous Coward]

A kind of anonymous money could be useful, but I'd rather use one that doesn't double as a pyramid scam.

It's easy to make a bitcoin-clone without this property, you just need to adjust the mining rate so that the early adopters don't get half of the total wealth to ever be available.

By all means, do it and see what happens. You'll find the incentives built in to bitcoin are crucial for keeping the system running. Or do you expect people to verify your transactions out of good will?

Re:amazing use of resources

[Anonymous Coward]

Every time a new source of power is discovered, we use it up. Fusion will be no exception. I'd rather have a currency backed by the Joule, which is what bitcoin boils down to.

Re:amazing use of resources

[idontgno]

At least the comparisons are between Minecraft and Bitcoins. If the comparisons were between Bitcoins and Dwarf Fortress, you'd have to worry that someone will tunnel through an adamantine tube and unleash the hordes of Hell somewhere around BC 20,999,998.

Re:amazing use of resources

[DerekLyons]

having a currency that is semi-anonymous, convenient, and resistant to meddling by central banks would be quite valuable to some.

Well, bitcoin kinda meets the first two criteria... but semi-sucess on the third is misleading, because it implies a stability that Bitcoin lacks.

Re:amazing use of resources

[johanatan]

The limitation is not a shortage of problems to solve. It is a design feature.
In fact, problems will continue to be solved (i.e., transactions verified by mining) long after the last coin is 'mined' but then the solvers will be rewarded by fees and not mined coins.

Re:amazing use of resources

[SaroDarksbane]

Stability is largely a function of size. As Bitcoin matures and becomes more widely used, prices should stabilize. Aside from the giant bubble and subsequent crash right around the time people started paying attention to it, it's actually been fairly quiet. If it can keep it up, that bodes well for its chances.

And don't forget that currencies exchanges are a two-way street. The dollar's increasing weakness should be expected to increase the price of Bitcoins just like it would also do to stocks or commodities (see: gold).

Re:amazing use of resources

[Anonymous Coward]

I've heard it makes you blind or makes hair grow on your palms, but I'd never realized it makes other people fake-rich too!

Re:amazing use of resources

[Anonymous Coward]

It's still early. Bitcoin is tiny.

Re:amazing use of resources

[Anonymous Coward]

Well, interesting from the inside, provided you get out before the inevitable crash.

Re:amazing use of resources

[lipanitech]

I have a friend that was really into this and he was building a bitcoin farm using high end graphics cards and such. I don't he every made any real money i think its a scam from hardware venders to get you to buy high end video cards.

Re:amazing use of resources

[selven]

> It's easy to make a bitcoin-clone without this property, you just need to adjust the mining rate so that the early adopters don't get half of the total wealth to ever be available.

No, it's not. The only reason why so many people are so willing to sink their lives into Bitcoin businesses is that they are also holding tens of thousands of dollars in bitcoins which could potentially become tens of millions, and it makes sense for them to create businesses to support the currency in their own interest. A more fair economic model, while superior in terms of fairness, may never have acquired so much enterpreneurial dedication and would never have gotten anywhere.

Re:amazing use of resources

[fotoguzzi]

Thanks for a concise explanation. Appreciate it!

Re:amazing use of resources

[Trepidity]

That's what we call "fiat money"; that's not an industrial use. Gold is at least a conductor that doesn't tarnish; that's an actual industrial use.

If I'm going to use fiat money, I'll just use American dollars, thanks.

Re:amazing use of resources

[Trepidity]

Equally distribute it to everyone on earth? I don't see a reason that distributing it proportionally to CPU resources is equitable.

Re:amazing use of resources

[Anonymous Coward]

After the bitcoin price collapse, it's still going. That might tell you something, as you do know that pyramids and ponzi schemes never bounce back. Don't you?

Re:amazing use of resources

[Nursie]

I do love this - bitcoin fanatics keep saying "No Fees!" to merchants and the like, but there are fees all over the place.

There are exchange fees, deposit service fees and fees inherent in the bitcoin model. This doesn't sound like "No Fees!" to me.

Re:amazing use of resources

[JoelKatz]

The early adopters didn't get anywhere near half the total wealth to ever be available. As of mid-November last year, the total value held by early adopters was around $12 million. The current value of all Bitcoins is already around $50 million. (Actually, this is measuring the value using the market cap method, which is not actually realistic. In truth, both values are much less, but the proportions are roughly the same.)

Re:amazing use of resources

[JoelKatz]

It's not distributed proportionally to CPU resources. It's distributed as a payment for a service it requires in order to operate. In order for the Bitcoin system to operate, transactions have to be secured with computing power. It's the nature of the way the system operates -- it takes computing power to secure the transactions. New currency is paid out proportionally to those who provide the computing power needed to make the system work. When the block rewards stop, computing power will still be needed. At that time, people who provide the computing power needed to make the system work will be paid out of fees for each transaction they securely add to the block chain.

Re:amazing use of resources

[TheRaven64]

That might tell you something, as you do know that pyramids and ponzi schemes never bounce back. Don't you?

No, I don't know that. I've only read about a few hundred such scams, but from what I recall a lot of them manage to have second or third waves.

Re:amazing use of resources

[Sir_Sri]

Working as designed doesn't make it good design. Please don't confuse the two.

Re:amazing use of resources

[johanatan]

The fees are quite low (on the order of a fraction of a percent [as opposed to 3-4% for VISA/MC or higher for Western Union). You can choose to submit transactions with no fees but depending on the load on the network and the amount of miners, difficulty of mining, etc, it can take quite a long time for them to clear. For instance, my zero-fee transaction from 2 weeks ago took a week to complete.

Re:amazing use of resources

[johanatan]

I didn't make any comment on the quality of the design. However, it is my personal belief that it is in fact a good design given the design goals.

Re:amazing use of resources

[johanatan]

And, of course, the design goals are appropriate for this particular instrument.

Re:amazing use of resources

[Anonymous Coward]

What made you so poor at reading comprehension? He said nothing of the quality of the design.

Re:amazing use of resources

[thoughtlover]

I realize this is snark, but having a currency that is semi-anonymous, convenient, and resistant to meddling by central banks would be quite valuable to some.

I laughed at the notion of 'semi-anonymous'. That's one of the best oxymorons I've heard in a long time.

electricity is free

[YesIAmAScript]

If a game is going to use my GPU to mine bitcoins for the other end, they should have to tell me. Because otherwise they're just taking money from me and having my electric utility do the billing for them.

Note that anyone who is on a pay-per-bandwidth internet plan is in the same boat with ad-supported software. You are paying the maker of the software, just your ISP is doing the billing for them.

Re:electricity is free

[Anonymous Coward]

If a game is going to use my GPU to mine bitcoins for the other end, they should have to tell me. Because otherwise they're just taking money from me and having my electric utility do the billing for them.

Note that anyone who is on a pay-per-bandwidth internet plan is in the same boat with ad-supported software. You are paying the maker of the software, just your ISP is doing the billing for them.

Yep, sounds like a backdoor way for bitcoins to extract real money from gamers. I wouldn't be surprised if power companies (knowingly) buy into the bitcoin (ponzi) scheme to create real demand for more electrical use. Even if the power companies lose real money on bitcoins, they win far more in real money from increased electric bills to consumers.

Re:electricity is free

[tlhIngan]

If a game is going to use my GPU to mine bitcoins for the other end, they should have to tell me. Because otherwise they're just taking money from me and having my electric utility do the billing for them.

Note that anyone who is on a pay-per-bandwidth internet plan is in the same boat with ad-supported software. You are paying the maker of the software, just your ISP is doing the billing for them.

I don't see that happening. I mean, if I write a game so inefficiently that it takes 100% CPU when I only really need 5%, if it's a good game, would you still play it? Ditto GPU, as well (and there are several games in the App Store that run *TERRIBLE* despite actually having very simple graphics).

How do you bill for that?

As for making money for the developer, they'll just claim "it makes you pay less for you game, so you win because we could've made it more expensive".

It's stupid, but really, how do you tell? Other than some blain-dead "bitcoin-miner.exe" process suddenly showing up in the task manager...

Re:electricity is free

[asdf7890]

Because otherwise they're just taking money from me and having my electric utility do the billing for them.

Exactly. That, and your GPU will be running at 100% potentially for long periods of time when it would otherwise be near idle - so you might need to replace it sooner. You'll certainly have extra noise from the fans if your card is not passively cooled.

Re:electricity is free

[Anonymous Coward]

This is exactly right, the only reason a company like this can make money is because they are getting other people to pay the expense of the mining operation.

It currently costs more than one bitcoin in electrical power to produce one bitcoin, but as long as you're duping someone else into paying the expense while you reap the rewards, who cares?

Web 2.0 Is About to Go TU

[Anonymous Coward]

This is the same kind of bullshit that was flying around in the late 1990's. Time to short the NASDAQ 100.

Re:Web 2.0 Is About to Go TU

[dadioflex]

This is the same kind of bullshit that was flying around in the late 1990's. Time to short the NASDAQ 100.

The difference is that there aren't anywhere near as many big idea/no income tech IPOs this time around. Groupon is the only major Web 2.0 (or whatever the buzz-phrase is these days) IPO. Facebook may be the next, and will almost certainly be over-valued and over-subscribed - but it'll wilt in isolation. The economy in general is in the toilet. Glencore (global resources - you know, mines and oils wells and such.) was the biggest, I think, IPO in history and they lost about 15-20% of their launch price when the economic slow-down hit resources. The world isn't awash in the kind of money for people to throw around at companies without a revenue stream.

Re:Web 2.0 Is About to Go TU

[Anonymous Coward]

Zynga is another major Web 2.0 IPO, and Facebook will IPO soon.

There has been a general decline in IPOs both due to the economy and due to Sarbanes-Oxley. You have to be bigger to IPO. That's one of the major differences between today and the late 90s. It's not about the IPO anymore for startups. It's about being bought out. See Instagram and OMGPop about how valuable being bought out can be.

Re:Web 2.0 Is About to Go TU

[Anonymous Coward]

I don't know about that; but the best investment in my portfolio is directly owned utility shares in a DRIP. Since the late 90s the shares have tripled in value via compounding dividends*

At the time, one of the "old farts" in the office said he figured power companies to be the safe bet since all the new tech used electricity. My late father bought these shares for me. I just held them and did nothing. Best. Investment. Ever.

OK, the free Travel Zoo shares were a better investment; but it was limited. I got six free shares and sold them for a pure $480 profit.

*yes, I'm ignoring tax. It's still a good deal.

LOL

[wervr]

I am going to laugh so hard the first time I see and hear someone playing farmtown while their video card is at 90 decibel turbo speed.

Re:LOL

[Anonymous Coward]

With the great inefficiencies of flash, this already happens to the CPU fan....

It has to be?

[Lunix Nutcase]

It's worth billions... because he says so? Sorry, buddy, but your word is not evidence especially when it's in your interest to overstate the value. The saddest part is that they found people dumb enough to give them money.

Re:It has to be?

[Archangel Michael]

You don't understand the nature of fiat currency. Money (most currencies anyways) has a value because people want it to have a value. Bitcoin is no different.

Re:It has to be?

[betterunixthanunix]

You don't understand the nature of fiat currency

...oh the irony...

Money (most currencies anyways) has a value because people want it to have a value

Government back currencies have value because the government creates demand for those currencies through taxes. The US dollar has value because millions of Americans have to pay their taxes, and they cannot use Bitcoins, gold bars, or Tulips to do so -- they have to use US dollars to do so. Governments also create demand by charging for various services, assigning damages in court, etc. -- people are compelled to pay in government issued currency.

Bitcoin, on the other hand, has nobody creating demand for it, just a lot of hype and promises of secure and anonymous payments.

Re:It has to be?

[TheRaven64]

No, he's right. A currency with those properties would be worth billions. However, for it to have those properties it would have to be backed by something. It doesn't really matter what it's backed by, it could be lumps of metal, the value of a company, the promise of a government, or even the promise of doing some computational work in the future, as long as all parties agree that it's something of value. The problem with bitcoin is that it is backed by the promise of doing some computational make-work, not even useful computation.

Re:It has to be?

[Anonymous Coward]

Money (most currencies anyways) has a value because people want it to have a value.

gold included

Re:It has to be?

[sourcerror]

Bitcoin: Change you can believe in

Re:It has to be?

[Anonymous Coward]

hmm so if it isn't worth anything do I have to pay the IRS when I start accepting bitcoins and only bitcoins for my products online? If not then I'd like somebody to open a bitcoins to check service where I can buy dollars to pay my bills using bitcoins. :)

Re:It has to be?

[Anonymous Coward]

Bitcoin, on the other hand, has nobody creating demand for it, just a lot of hype and promises of secure and anonymous payments.

If I were to threaten you unless you started using Bitcoins, would you consider that valuable?

Re:It has to be?

[betterunixthanunix]

To the best of my knowledge (IANAL), if you were to buy goods and services with Bitcoin, you would be obligated to assess the value of goods and services in terms of dollars and pay the appropriate taxes. This is not any different from barter, which is practiced here in America and which can be taxed (in dollars, of course).

Re:It has to be?

[Anonymous Coward]

What value are dollars backed by?

Re:It has to be?

[Lunix Nutcase]

The output of the US economy and through force of law. Your buttcoins are backed up by.... ? Not any precious metal. Not by the econmic output of any country, business, etc. It's not backed by anything but the promise of scammers.

Re:It has to be?

[jimbolauski]

Bitcoins are no different then Disney dollars, you can use them to buy certain goods but at the end of the day you still need real currency. The electric company will not take Disney Dollars, alternative currency will always have this problem.

Re:It has to be?

[s73v3r]

If you buy something from an overseas website in Euros, you are supposed to assess the value of that in dollars, and pay the appropriate use tax to your state (if it has one, like say, California). Bitcoins would be no different.

Re:It has to be?

[s73v3r]

Nobody's been threatened. You agreed to follow the laws of this country when you took up residence here. Those include paying your taxes, and paying them in US Dollars.

Unless of course you don't believe that a people has the right to govern themselves, which is a downright retarded idea to hold.

Re:It has to be?

[s73v3r]

No, no, gold is special! It's shiny! People always want gold, despite the fact that it has no actual uses, aside from that as a conductor. When society collapses, everyone is going to want gold. Not food, or bullets, or medicine. Gold.

Re:It has to be?

[s73v3r]

The value of the government. Despite what you want to believe, that is actually quite valuable.

Re:It has to be?

[Anonymous Coward]

Which is why there is a concept called "Currency Exchange".
You can exchange Bitcoins for US Dollars (at a variable rate) using one of the many online exchanges.
You can also exchange Disney Dollars for US Dollars at a constant dollar for dollar rate at certain Disney locations provided you have the receipt from your initial acquisition of Disney Dollars.

Re:It has to be?

[Anonymous Coward]

What law backs dollars by "the US economy?" Please cite...

Re:It has to be?

[Anonymous Coward]

Look it up, USD is backed by debt.

Yay, USD is worth NEGATIVE money!

From a sociological stand point, USD is backed by the promise of use to future services. All comes down to a trust issue. BitCoins have the same promise, but less backing and zero enforcement, which makes the promise worth much less(closer to not worth anything).

Re:It has to be?

[Anonymous Coward]

"No State shall ... make any Thing but gold and silver Coin a Tender in Payment of Debts." -US Constitution. I cannot recall ever paying taxes to my state in the form of gold or silver coin.

Re:It has to be?

[zzsmirkzz]

This is not any different from barter, which is practiced here in America and which can be taxed (in dollars, of course).

Are you sure barter can be taxed because I don't see how. In barter transactions two people exchange different goods of equal value. At the end of the transaction the net worth has not changed. No income, no sale, no tax.

Re:It has to be?

[Anonymous Coward]

Bitcoins are backed by the Joule, by way of computational power.

Re:It has to be?

[Lunix Nutcase]

Huh? By force of law I was referring to the legal requirement that dollars be accepted as tender for debts. The 'and' was there to combine two distinct reasons. It's value to holders of dollars is backed by the output of our eonomy and it has value as an exchange through force of law requiring it be accepted as legal tender of debt.

Re:It has to be?

[Lunix Nutcase]

Yes, it can.

Re:It has to be?

[Anonymous Coward]

"Government back currencies have value because the government creates demand for those currencies through taxes."
While this has a stabilizing effect, it does not 100% guarantee that the money will be valuable tomorrow.

Hypothetical. Government disappears over night, sudden food shortage and farmers start hording their food refusing to give/sell any of it. How much is the USD/Gold/Platinum worth?

The difference between USD and BC? None.

It is the mark of an educated mind to be able to entertain a thought without accepting it.
—Aristotle

Re:It has to be?

[Attila Dimedici]

What value are dollars backed by?

The ability of the U.S. government to put your ass in jail if you do not pay your debt to them in dollars. For everybody outside of the U.S., the value of the dollar is backed up by two things. First, the large market of those living in the U.S. who will accept dollars for goods or services in order to have dollars to pay their taxes. Second, the willingness of the U.S. to use its military to force people in other countries to trade with the U.S. (look up Admiral Perry and Japan). The willingness of the U.S. government to do so is less than it was at one time, but its ability to do so is greater than it was 50 years ago.

Re:It has to be?

[ArsonSmith]

Whoa boy are you miss informed. money has value because it has supposed scarcity. Government backed just means that the government or one of their agents controls that supply and does or doesn't screw it up. Bitcoins are limited by a mathematical theory/proof.

Re:It has to be?

[Lunix Nutcase]

That's because you're misinterpreting that statement. It's saying that the States cannot make a form of tender to pay back debts unless it is a gold or silver coin. It is not saying that you have to pay your debts to the state in gold or silver.

Re:It has to be?

[Anonymous Coward]

Bartering is taxed if you are forced to exchange money during the transaction.
If you do 100 dollars worth of services for me, and I do 100 dollars worth of services for you. We have essentially bartered because we have exchanged services at the same value. Despite this... the government wants to tax this transaction on the payments going both ways.

If you accomplish this transaction without the exchange of funds, you don't "have to" pay taxes on the exchange, but when you file taxes, the income you receive through bartered services is supposed to be reported. There's a form for it and everything. That's what the other guy was talking about.

Re:It has to be?

[KingAlanI]

nothing says states can't stick with federal legal tender, they just can't make up their own unless it's gold/silver

"coin money and regulate the value thereof" as one of Congress' powers means the Feds aren't so restricted. I guess paper currency would fall under debt

Re:It has to be?

[KingAlanI]

http://www.cracked.com/article_18570_6-companies-that-make-money-solving-problems-they-made-up.html
#5, Cracked is right on the mark (they're often great at humor that makes a point)

Re:It has to be?

[arth1]

The gold standard was abolished a couple of generations ago.
However, some of the dollar bills in circulation are still marked "Silver Certificate", and the theory was that you could take your notes to a federal bank and trade them in for bullion.

Re:It has to be?

[Anonymous Coward]

Do you see the flaw in your argument there?
It's pretty glaring.
It's the reason you can't pay for things with Disney Dollars and Bitcoins out in the real world.
Do you see it yet?

Re:It has to be?

[Anonymous Coward]

You agreed to follow the laws of this country when you took up residence here.

Maybe I got a bad memory, but I don't recall Uncle Sam offering me a bus ticket to Canada when I turned 18, in case I didn't feel like taking up residence here. If you're born here, you're stuck here, bound by laws you may or may not agree to, until you can afford your own trip to someplace you agree more with -- and those laws may make it as hard or difficult to do that as they see fit. Tell me, how does that fit with your "consent of the governed" crap?

Nobody's been threatened.

BULL.
SHIT.
Even if you are an immigrant who did voluntarily enter and voluntarily agree to obey the law, that law clearly threatens you with the use of force if you are even suspected of failing to obey it. You have been threatened, and are being threatened on an ongoing basis. That's exactly what government is! Claiming that government is a system of justified threats doesn't let you deny the nature of it.

Re:It has to be?

[Anonymous Coward]

In barter transactions two people exchange different goods of equal value.

That's how monetary transactions work too.

Re:It has to be?

[Anonymous Coward]

It is different, because the Euro or any other official currency is also backed by governments.

Re:It has to be?

[Anonymous Coward]

The only thing that is not legal is failing to claim bartering on your taxes. Treat all trades as you would cash transactions. Any barter transaction is reported on Schedule C, Profit or Loss from Business Form 1040.

http://www.u-exchange.com/bartering-legalities

Re:It has to be?

[watanabe]

Bitcoin is fundamentally backed by public key cryptography and computational power. That proof-of-computation done is real and valuable, for instance, you can currently 'safely' transact thousands of dollars in a single bitcoin block without worrying about forks or cheating. Two years ago, you could only transact 10 or 20 dollars without worrying about forks or cheating. The difference is that it is FAR more expensive to cheat the bitcoin network now, coming on to non-feasible.

This is a real increase in value, and it's because of the computational resources thrown into the system.

Re:It has to be?

[Anonymous Coward]

The goods do not have equal value to each person - in fact if they did, they would have no reason to trade.

Re:It has to be?

[Anonymous Coward]

Funny you should mention barter, and self assessment of taxes. Funny thing is, according to the IRS, self assessed taxes are paid at about 1% of expected value. This includes sales taxes and other types that are not directly assessed at time of purchase.
 
See, the funny bit is that barter is an inherently "off the books" action. There are no cameras, computers, cash registers with complicated inventory tracking... there are two people, neither of which is overly interested in going out of their way to pay applicable taxes. However, Bitcoin and "barter" are not really compatible ideas. As bitcoin may be "semi-anonymous" it's not nearly anonymous enough. It leaves a big fat trail every time you move a bit coin around. Do you imagine that that trail can't be used by the IRS? You aren't that foolish right?
 
The IRS says that barter should be taxed like any other commerce. It says you are required to asses, keep records, and pay the taxes due on that bartering in the year that it happened. The IRS says that, but how many flee markets do you know that have record keeping?

Re:It has to be?

[Anonymous Coward]

see here please

Re:It has to be?

[Anonymous Coward]

Actually, they have differing utility, but equal value; otherwise they wouldn't exchange.

Re:It has to be?

[Anonymous Coward]

Right. That's why gold is worthless.

Re:It has to be?

[abborren]

Would you be interested in my farts? They are a much limited resource, and there is only one who can produce them at a very limited rate. No, scarcity does not imply value. Scarcity can surely increase the amount people are willing to pay, but not if they weren't interested to start with.

Re:It has to be?

[JoelKatz]

Except that's not how the net worth is calculated for tax purposes. Otherwise, nothing would be taxable. Even ordinary employees labor for dollars of equal value.

When you trade A for B (whether A is labor, or B is labor, or A is dollars, or B is Bitcoins, or B is beer, or whatever) your change in net worth is calculated by what you got minus what you gave. But the value of what you gave is not the fair market value. It's the *lower* of the fair market value or what it cost you to get it. (Called your "basis".)

This means if you buy some stock, or Bitcoins, or wine for $50 and its value goes up to $500, that's not taxable. But if you sell it for $500, your profit is $500 minus the lower of $500 or $50, hence $500 - $50, and thus $450.

So if you barter, say, a paint job for a trailer, your profit for tax purposes is the fair market value of the trailer less what it cost you to provide the paint job. Sadly, if you bought a car for $35,000 and then traded it something after its value dropped to $8,000, $35,000 is not your basis. (Too bad, because that would be a great tax evasion strategy) $8,000 is, because that's lower.

Re:It has to be?

[TheRaven64]

By the promise of the US government to accept them in payment for taxes. With the federal income tax rate at over 10%, this guarantees that there is always at least one group that will be consuming a lot of US dollars every year, and another group (US taxpayers) that will need them for this purpose. It also derives a lot of its value from the fact that it is used as the currency for trading oil - if you want oil, you need US dollars.

Re:It has to be?

[Anonymous Coward]

> Bitcoin, on the other hand, has nobody creating demand for it, just a lot of hype and promises of secure and anonymous payments.

What about the illegal trade of guns and drugs on the tor network? I'm betting that demand is exploding in the coming years. You know, drugs and guns are the second and third biggest international businesses. So even if bitcoin captures even a miniscule slice of that cake, the value will skyrocket.

Re:It has to be?

[TheRaven64]

That's not what being backed by something means. It just means that computational work is done to create bitcoins. A gold-backed currency is not backed by the miners' effort in digging gold out of the ground, it is backed by the fact that you are guaranteed to be able to exchange it for gold. The US dollar is not backed by the effort involved in printing bits of green paper, it is backed by the promise of the US government to accept it in payment for taxes (and the legal requirement that US citizens must accept them for settling debts).

Bitcoins take real effort to create, but this is not effort that creates something, and that's the problem. It's like using ash as a currency and saying 'well, you get energy when you burn whatever you needed to create the ash, so it's backed by that energy'. You can't take the ash and turn it into that energy, and you can't take a bitcoin and change it into useful computational work. That proof-of-computation is not useful, because it is not proof of useful computation. It is just proof that you've run an algorithm that generates a magic number. The only value comes if you can persuade people to all share the illusion that that magic number is valuable. Historically, there have only been two ways of doing that:

1. Force of arms: accept this currency or we will have you thrown in prison / shot. This must be backed by a reasonable expectation that you can actually enforce it.
2. Trust: accept this currency and we promise to accept it in exchange for things of a similar value in the future. This only works if you are a large and trusted organisation, such as a bank or the government of a relatively successful economy.

Bitcoin has neither.

Re:It has to be?

[betterunixthanunix]

Scarcity does not create value. Example: how much would you be willing to pay me for a gram of Ununquadium, an extremely rare element that can only be produced in a lab, and which has a half life of less than one minute? Value is created by supply and demand -- money is no different.

Re:It has to be?

[Anonymous Coward]

I have no idea how to mode someone up, but parent is damm right. As long as goverment get taxes un USD, we all need to use USD. That's the only value.

You're kidding me??!?!

[OzPeter]

'if there is a currency that can trade around the world, it's semi-anonymous, it's instant, it's not controlled by government or bank, what's the total value of that currency? The answer to that is, if it works, it's gotta be in the billions. It just has to be for all the reasons you might want to send money around the world.'

It's also going to be top of the list of every law enforcement agency across the globe. Governments tend not to like their citizens taking part in transactions that don't have a paper trail.

Re:You're kidding me??!?!

[Wonko the Sane]

Governments tend not to like their citizens taking part in transactions that don't have a paper trail.

That is true, however politicians and bureaucrats really like having a way to receive bribes that don't leave a paper trail. Which impulse will win out in the end?

Re:You're kidding me??!?!

[girlintraining]

Governments tend not to like their citizens taking part in transactions that don't have a paper trail.

Yes, but what a government likes or not is immaterial; There are plenty of legitimate things and reasons for anonymous purchases, not the least of which is economic stability; If money cannot be exchanged anonymously, then that means that all transactions can (and will) be taxed. That means that the barter system will come back into play for any number of purchases, as well as complex tax shelters and evasion methods where goods trade hands instead of cash, or instruments are created that are "like" cash, but legally different enough to avoid taxation. Every organic system, currency being no exception, needs some slippage for the system to work; It's the same reason you have a clutch in a car... While most of the system is trackable and the majority of the money supply isn't physical money (ie, non-anonymous), that percentage that is keeps the rest of the system healthy and simple. Take that away, and all manner of complexities and incompatibilities develop as people scramble to create a custom solution to the problem.

Besides, governments have little to worry about; The movement and storage of cash is a cumbersome process, which is why large drug cartels don't keep their assets in cash-form; They convert it to something more durable -- goods, materials, services. It's why money laundering is such an important aspect of organized crime... it is a logistical nightmare to base your operation on cash. Cash is really only used for the point of sale, and once it has moved a few levels up the chain, it is converted into other things before being deposited in a bank or translated to a financial instrument (bonds, checks, stocks, etc.).

Re:You're kidding me??!?!

[Anonymous Coward]

Governments tend not to like their citizens taking part in transactions that don't have a paper trail.

You mean cash?

Re:You're kidding me??!?!

[Jeremi]

Governments tend not to like their citizens taking part in transactions that don't have a paper trail.

On the other hand, every Bitcoin transaction does have a very public "paper trail" that is quickly available to everyone, including law enforcement. The only challenge is matching account IDs to actual people. I wouldn't be surprised if law enforcement is able to find ways to do that, in which case they might prefer that criminals use Bitcoins rather than cash.

Re:You're kidding me??!?!

[ThosLives]

Even if you couldn't track wallet IDs to specific people, doesn't Bitcoin suffer from the equivalent of an "analog hole"? When Bitcoins are converted into real goods or services, someone is going to notice, and eventually that "notice" is going to get back to the revenue collection agency of whatever government controls the area.

Re:You're kidding me??!?!

[jdavidb]

Governments tend not to like their citizens taking part in transactions that don't have a paper trail.

This is true. Of course, since governments exist to provide a service to the governed, not the other way around, these governments should be restrained or abolished. The government should be afraid of its people, and not the people afraid of their government.

The government's "likes" and "dislikes" should be immaterial to my life. That's called being a busybody, and grown civilized people learn to mind their own business instead of sticking their nose into everyone else's and, worse, using force to make other people submit to their personal preferences and visions for how the world ought to be. Governments of course are just composed of people, people with the same moral rights and limitations as everyone else.

Re:You're kidding me??!?!

[Anonymous Coward]

Cash leaves no paper trail either. I can use USD in most countries even though there is no force of law requiring it. People will use it if it is useful. For example, worker remittances make up a large fraction of GDP for developing countries, even though it's very difficult to move USD home from abroad. Moving BTC is far easier, and western union can't take any off the top. https://filipspagnoli.wordpress.com/stats-on-human-rights/statistics-on-poverty/statistics-on-remittances/

Re:You're kidding me??!?!

[DarkOx]

All very good points. The other issues is most governments (certainly ours) need untraceable currency to conduct their business. The FBI and CIA deal in cash all the time.

Its not hard to image why some (legal and otherwise beneficial) operations require payments made in a way nobody can say where they came from. Mostly our political leaders consist of they inept and the foolish but there are still a few grown ups in the room who get these things.

Re:You're kidding me??!?!

[Insightfill]

That is true, however politicians and bureaucrats really like having a way to receive bribes that don't leave a paper trail. Which impulse will win out in the end?

I think the "yes, paper trail" will win. The fact is, the laws don't apply to them anyway, and this will be another one. If the former minority leader (current majority leader) of US Congress can hand out checks from tobacco companies to members right there on the floor before a vote, then a little thing like a "bribe trail" won't matter.

But: up against the wall for you if you decide to barter a little computer repair work to get your lawn mowed.

Re:You're kidding me??!?!

[Anonymous Coward]

*ring-ring*
Dude, the nineteen-haties just called; they want their derogatory puns back!

Re:You're kidding me??!?!

[this great guy]

Governments tend not to like their citizens taking part in transactions that don't have a paper trail.

You mean like... cash?

500k

[Anonymous Coward]

... in bitcoins?

after instagram, it's official:

[circletimessquare]

there's a new dot-com bubble

congratulations on the investors here on seeding the hype to attract the rubes

just remember to step off the merry go round before things tank

i'd give it a few years

any VC want to fund my innovative paradigm shifter? i call it flooz. whoopi goldberg is going to help me spread the good word

Re:after instagram, it's official:

[perpenso]

there's a new dot-com bubble

Maybe, maybe not. Its not like instagram raised a billon from the market. The Wall Street Journal reported that the decision was largely made by one person.

Re:after instagram, it's official:

[nauvillain]

If it means that I can transfer money overseas without paying a ridiculously high fee, it has value to me. Of course, people have to view it as currency first, so that I can use bitcoins directly - otherwise I'd get fees going from one currency to bitcoins, and from bitcoins to the other. In any case, not being a big fan of banks, I am tempted to give this kind of project a try.

Re:after instagram, it's official:

[circletimessquare]

i'm not a big fan of how banks are regulated, but at least i understand banks are a necessary part of civilization

good luck with your libertarian fanboy ponzi scheme

Re:after instagram, it's official:

[brokenin2]

I've had plenty of luck with it so far.. Thanx.

Re:after instagram, it's official:

[circletimessquare]

of course. ponzi schemes are great, for awhile

So you CAN make money with bitcoin!

[Tanman]

BitCoin is now worth five Hundred THOUUUUSAND Dollars! Muahahahahahahahahaahaaaaaaaaa!

Oh, wait, no, it is still worthless but these people are now worth 500k. Congrats to them for finding an angle to profit off bitcoin other than stealing someone else's bitcoin and then not being able to use them anyway.*

*I don't know if you can actually use bitcoin for anything other than claiming how much they are worth in news stories

Re:So you CAN make money with bitcoin!

[Lunix Nutcase]

Of course you can make money with buttcoins. You bilk idiotic libertards out of their hard earned money by selling them worthless bits.

Re:So you CAN make money with bitcoin!

[Reverand Dave]

You bilk libertards out of their hard earned money by selling them worthless bits

FTFY. You don't need to say idiotic, it's redundant. They are all idiots or they wouldn't be libertarian in the first place.

Re:So you CAN make money with bitcoin!

[Anonymous Coward]

oh boy..

Re:So you CAN make money with bitcoin!

[Anonymous Coward]

They are all idiots or they wouldn't be libertarian in the first place........Alcohol is my anti-drug"

Need I saw more, Fucking troll

not sure f2p gamers are a good idea.

[Anonymous Coward]

Most of them tend to be on budget machines with entry-level graphics.

It would take a lot of them to achieve results.

Re:not sure f2p gamers are a good idea.

[leonardluen]

why do they care? they aren't paying the electric bill.

Trojan

[girlintraining]

Forbes explains the details of their business plan but in short it has to do with tapping the GPU mining potential of gamers,

So 'in short', they're going to trojan a video game and turn a bunch of PCs into a botnet to generate bitcoins. But because it's a business doing this, and not some teenager in his mom's basement, they're going to make billions instead of go to jail? That sound about right?

If any other kind of software you ran was doing something in the background other than what you wanted to do, it would be called malware.

Re:Trojan

[Dan East]

The difference is in the EULA.

Re:Trojan

[h4rr4r]

They will disclose it in the EULA, that no one reads.

Re:Trojan

[girlintraining]

They will disclose it in the EULA, that no one reads.

Of course! It's totally legal as long as you write it down. Forgot about that loophole in our industry. "You consented to have our developers have forcible sex with you right there in paragraph 136, subsection (c). You can't complain now when some 'strangers' showed up and held you down on the bed and had their way with you." Judge: "That seems reasonable. Case dismissed."

Re:Trojan

[Anonymous Coward]

Microsoft Windows does this... while I might agree such a program is malware I'm not sure I'd say there was anything illegal about it. Then again I don't think malware should be illegal. People are stupid and use non-free software. I don't.

Re:Trojan

[Surt]

That would be unconscionable and illegal, voiding the EULA on both counts. What about using your GPU to generate data would be either unconscionable or illegal?

Re:Trojan

[zethreal]

"They intend to accomplish this by offering a configurable app that players download from the gaming site which would allow bitcoin mining jobs to run on these beefy GPU-outfitted client computers. Like DropBox, the CoinLab app will reside in the background so that the players are not even aware of the mining that occurs during the gaming session. To the gamer, certain virtual items or level upgrades would be obtained. " How is this putting a trojan on the computer? It seems that their business plan is to offer a separate download that will mine bitcoins automatically while they are playing. In return, the player will get bonus items for every X number of blocks processed/bitcoins mined.

Re:Trojan

[KingAlanI]

I am not a lawyer, but:

contracts requiring illegal acts can't be enforced*. yeah, that would probably fall under unconscionable in general

* sex in contracts can be a no-go because of similarities to prostitution.

Re:Trojan

[Anonymous Coward]

I don't know what planet you live on, but software has been "doing something in the background" for a LONG LONG TIME. I'm not talking about TSR and other useful functions. I'm talking about significant portions of the entire system being used to do things I didn't ask for. Start windows... wait while windows asks MS if there are updates. Wait while windows notifys me and finds out I don't care, yet again this week. Now wait while Adobe Flash, PDF, and whatever other adobe you have on your system all try and update too. No updates, oh good, but that doesn't stop Adobe updater from running 24/7 does it?
 
I just bought a brand new laptop, very nearly top of the line. It came with a LOT of junk software that does a lot of stuff I don't want it doing. Roxio does all kinds of obnoxious bullshit, and it STILL WONT FUCKING COPY A DVD. Which makes it not only annoying, but utterly worthless. Windows can burn a CD, what the hell do I want Roxio for? Oh, so it can send usage stats to Dell and Roxio? I didn't accept that agreement, uninstall. Don't even get me started on the system tools dell installs... they are worthless, and they run 24/7. Uninstall.
 
On my brand new gaming laptop, I put a number of games, including a few Free2Play ones. Why do I have Pando media booster? What does that do? (I know, do you?) Got WoW? Well congrats, you are serving patches to everyone else on their bt network. Did you agree to that? How much are you getting paid for your serving? Nothing!!! Wait, you PAY THEM? !!!!
 
The examples are endless, and they don't just cover windows. My Android came with a game on it, it can't be uninstalled, and to use it, you have to download 500mb of game files... so wait... what does this thing do then? Well, I'll tell you, it sends data bursts, consisting of I'm not sure what, to it's master server... every day. Well, it used to, now there is a kill program running that instantly kills that service along with a few others because they don't belong on there, and it's not easy to get rid of them. (not rooted, yet)

Re:Trojan

[girlintraining]

* sex in contracts can be a no-go because of similarities to prostitution.

Exception: Marriage.
Most states allow a marriage to be anulled if a marriage isn't 'consumated' within a period of time. Divorce is also allowed (bonus: can be a reason to deny alimony) if sex is withheld by either party.

MSHA?

[Anonymous Coward]

I wonder what MSHA has to say about this mining operation?

Bitcoin haters

[Anonymous Coward]

never seem to understand the advantages of it is a form of exchange and yet they will cry and moan every time the government takes another one of their freedoms, another step into their privacy, another step towards authoritarianism.

Bitcoin is an incredible idea: decentralized exchange, totally anonymous, no central body to print it out of existence, no government to track who your exchanging with and for what, a limited stable inflation on the money supply with no one to dictate that "the crisis would end if we just gave the banks more money".

Would I want to store all of my wealth in bitcoin? No. Do I like the idea of being able to convert my money into an exchange medium that is untraceable? Of course.

How many stories have we read of governments steering us towards a cashless society where all forms of exchange are withing their monitoring (not to moention all forms of communication.)

To me bitcoin is the currency equivalent of TOR and shouldn't be hated on.

Re:Bitcoin haters

[Lunix Nutcase]

Bitcoin is only untraceable if you only ever hold bitcoin and never cash out or you've never bought any bitcoins with money. As soon as you cash in/out you'll be traced.

Re:Bitcoin haters

[Eowaennor]

You can buy bitcoins with cash pretty anonymously.
1. Create anonymous identity on a site like bitcoin247 using tormail
2. Do a cash deposit transaction into that BTC account (the bank doesn't even ask for your name)
3. Trade your BTC thru a few instawallet sites using different quantities
4. ???
5. Profit!

Re:Bitcoin haters

[Yunzil]

Bitcoin is an incredible idea

Yes. Literally. As in, lacking credibility.

Re:Bitcoin haters

[betterunixthanunix]

Bitcoin is an incredible idea

Unless you want to make offline payments, in which case it is useless and will take a back seat to government issued currencies.

decentralized exchange

Which David Chaum published work on over a decade before the Bitcoin hype got off the ground. Chaum's system, of course, was based on the idea that currency is a tool of governments and banks, and not just something that materializes on its own, so it received less hype (hint: there was no get-rich-quick scheme with Chaum's systems).

totally anonymous

Except that there are anonymity-breaking attacks on Bitcoin.

no central body to print it out of existence

Thus no central body to give it value. Money without a strong source of demand is worthless; Bitcoin has a moderate source of demand arising from hype and promises of secure electronic payments, but government-issued currency has a much stronger source of demand: taxes and the legal structure that surrounds the money. When a court instructs on person to pay damages to another person using government issued money, that creates demand for that money. If courts were handing out judgements in Bitcoin, if governments were accepting Bitcoin tax payments, Bitcoin might have a chance in the real world, if it could overcome the offline payments problem (but there is every reason to think it cannot, since the amount of data that needs to be stored and transmitted will grow in the depth of the transaction chain, and there is no central authority to exchange used-up currency for fresh currency).

Would I want to store all of my wealth in bitcoin? No.

Thus creating another obstacle for Bitcoin: people are willing to store all their wealth in other currencies.

Do I like the idea of being able to convert my money into an exchange medium that is untraceable? Of course.

We already have one: paper money. What you really want is one that is electronic, so that you can spend your money securely on the Internet and not have to worry about being tracked or having your bank account raided (the latter being far more important in terms of economic security). That problem was solved a long time ago, with robust systems that go beyond what Bitcoin is capable of:

http://www.springerlink.com/content/ft361212m4256246/
http://blog.koehntopp.de/uploads/chaum_fiat_naor_ecash.pdf

To me bitcoin is the currency equivalent of TOR and shouldn't be hated on.

No, digital cash is the equivalent of Tor; Bitcoin is one attempt at digital cash, which has more shortcomings than benefits.

Re:Bitcoin haters

[Jawnn]

Only one word for someone who believes the digital equivalent of Monopoly Money is worth something... Dumbass. If I can't pay my taxes with it, it's never going to be worth what my "real" currency is worth. Especially in an arena where currency values (real and Monopoly Money) are in a race to the bottom. Not that I don't see value in the claimed anonymity enjoyed by bitcoin users, but that's just it; it is only "claimed". If digital Monopoly Money ever gains any serious traction, it's out the window because the banking cartel will have their toadies in Washington see to it.

bitcoin's biggest drawback

[sl4shd0rk]

Control the 'net and you control bitcoin. Do you think pippa/acta / cispa and variants are limited to the riaa and mpaa agenda only?

One Thing Is For Certain

[SaroDarksbane]

In 10 years, someone is going to look very stupid, and it will either be Bitcoin's shrill proponents, or its shrill detractors.

The suspense is killing me.

Re:One Thing Is For Certain

[Anonymous Coward]

You're exactly right. BTC is an asymmetric bet. You can lose 100% if it fails. But if it succeeds, the gains will be way over 100%, say, over 5-years.

Duplicate

[Compaqt]

Don't the editors read what they post?

We just had an article about billionaires funding a crazy mining scheme a few days ago.

Fan noise

[perpenso]

Forget losing performance, think about your GPU running 100% when it only needs to be at 10% and what that will due to your powerbill. My GTX460 eats 150watts and newer cards will be even more.

And fan noise as the various fans in your system desperate try to cool things down.

Security

[Deliveranc3]

Well a lot of people are concerned about the security of the BTC notion. I'd like to bring up something that a lot of Slashdoters are familiar with.

That is that as an individual trader you are at the low end of the reliability spectrum when it comes to trading and finances. If your bank goes bust you will probably not receive your money. If there is a sudden drop in markets, your trades won't be processed for hours or days. Probably not an issue unless there's a war or some other kind of major event, like the U.S. black swan.

Second there are currently 2 senate subcommittees trying to figure out what to do about BTC. While a lot of people think that the government will simply outlaw the currency it becomes an issue in that anything can conceivably be considered a currency. Outlawing barter in a country is probably a bad idea.

Third Bitcoin is a problem for government because it is essentially impossible to tax at this point, that's not saying it will always be that way. If you've been watching the pips carefully you can see that there's been pressure to keep the price stable (and low) many many Bitcoin traders are simply cashing in on this to increase their share. It's relatively cheap to push the price of a stock down, but it does cost a bit and that cost is being soaked up.

So: buy 1 BTC. If it becomes viable for microtransactions, you win. If there's a war, you win. If you trade it every day for a little piece of the money being spent to keep the price stable, you win! If you get to stop reading articles about BTC because you have one... you win!

Re:Security

[Anonymous Coward]

If your bank goes bust you will probably not receive your money

This is false. Banks go bust all the time. People at those banks with insured deposits do not lose their money, up to a certain limit. Perhaps you've heard of the FDIC?

http://en.wikipedia.org/wiki/List_of_acquired_or_bankrupt_banks_in_the_late_2000s_financial_crisis
http://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation

Unregulated market.... another bubble.

[Anonymous Coward]

Bitcoin was inflated because no one cashed out their bitcoins for real money. Until someone did the value plummetted and it went down further after reports came up of people's "wallets" getting stolen, etc.

It's the dot-com bubble all over again but in terms of virtual money all over again. Kinda like how Second-Life's monetary system went up in value and then dropped after the coke-high wore of.

Right now Bit-Coin is at a value worthy enough for investors.

Rich people idolized.

[Anonymous Coward]

Shouldn't that be BitCoin mining scam bilks idiots of $500,000?

Unless they become super rich -without breaking any laws currently on the books - it isn't a scam.

Then they'll be idolized and worshiped.

Examples: Vanderbilt, Rockefeller, Morgan, Kennedy, Zuckerberg, etc ...

Madoff got screwed. He used an existing business practice/scam. If he came up with his own ripp-off instead of a variation of a Ponzi scheme, he would have been OK, folks would have praised him for his "entrepreneurship" and he'd be free - like everyone at Goldman Sachs, Bank of America, etc ....

I think I'll take back Zuckerberg. He's just taking advantage of stupid people - which isn't quite a scam, yet. It's more along the lines of preachers like Joel Osteen who are just given things - they're not really ripping anyone off.

Re:Rich people idolized.

[Anonymous Coward]

It is a scam. The value proposition is an utter fabrication that preys on people who have a poor understanding of central banking and currency valuation.

What exactly was Vanderbilt's scam? Did he lie about building railroads? Did Rockefeller lie about being able to use oil to fuel ships and vehicles? You're right that Zuckerberg doesn't have a scam either. He built a popular website that people want to use, and makes money by selling their data and advertising instead of an access fee.

Maddoff didn't get caught because he used an old scam. He got caught because he used a scam. He took investor money under the pretense that he was investing it, lied about where he invested it, and lied about his performance. Can you tell me the names of the people at "Goldman Sachs, Bank of America, etc" who did this? What exactly was their crime?

Re:Rich people idolized.

[Anonymous Coward]

It is a scam. The value proposition is an utter fabrication that preys on people who have a poor understanding of central banking and currency valuation.

What exactly is the bitcoin scam? Is anyone promising that you'll get rich from it? I can tell you that I can probably get 1 BTC for 5 USD today and I can send that 1 BTC to you more easily than I could the 5 dollars. Beyond that, what else is there to debate?

Re:Rich people idolized.

[Bam_Thwok]

I've seen it promised as a money-making scheme almost everywhere. You don't often see a BitCoin discussion, article, or sales pitch that doesn't position it as a future-safe currency outside of the reach of central banking, like gold. This is the scam. You spend electricity on digital bits that you're told entitle you to a chunk of a market that will be worth billions (like in TFA) in the future, or pay a fee/spread to an exchange to get in on it while they still cost very little.

Cool

[Anonymous Coward]

Cool. Every other comment is whiney bullshit.

BC

[Anonymous Coward]

As much as I like the idea of BitCoin and think it can be successful if enough people actually use it, but "investing" into it sounds like a horrible idea. Let it organically grow.

Backup & inefficiency

[Anonymous Coward]

What's backing up the "value" of bitcoin?
Who needs a "currency" that's wastes energy (GPU mining)?

It all amounts to fraud.

Re:Backup & inefficiency

[Anonymous Coward]

Exact same is to be said about all monetary currencies in the world, ever.

Anything short of bartering is "fraud" by your definition.

Re:Backup & inefficiency

[benjamindees]

Banks waste several orders of magnitude more energy than Bitcoin mining.

And all fiat currencies are, like Bitcoin, backed by nothing.

Re:Backup & inefficiency

[Anonymous Coward]

Banks manage money. They don't create money by executing a stupid do-loop. And the Fed, I would imagine, is many orders of magnitude more energy efficient than Bitcoyn.

The U.S. dollar has an entire economy, government and military standing behind it, with world-wide reach. Who's going to stand behind Bitcoyn except some hucksters and gamers? LOL! Oh, somebody hacked your computer and stole your Bitcoyn? WHO CARES.

Re:Backup & inefficiency

[brokenin2]

I'm sure if they took your dollars, they'd be bringing in the military right away :)

I'm surprises it doesn't already happen

[asdf7890]

I'm surprises it doesn't already happen with web based adverts. OK so even with modern JS engines you'll not get much mining done per minute per user, but if your ads are spread widely enough you could potentially make a bit on it.

The other option I've not heard happen (which is considerably more practical) is for a miner to be included in malware. Given malware tends to disable task manager and related things that could report the extra CPU use, and many users would not think to look anyway, this could pull in some cash for the botnet runner. Unlike the browser based option this could run native code on the CPUs (and GPUs where appropriate). To avoid detection a little more by not slowing down other CPU intensive tasks, just check to see if your process has less than (plucking a number from thin air) 80% CPU time over a few seconds and assume that means something else is trying to be CPU-busy and pause for a while.

Of course it could be that the malware authors have considered this and decided it simply isn't worth the time. If so then that does not bode well for other projects (like the one that has just been invested in) because if the crooks can't make enough money out of it to make their time worth spending then it can't exactly be an easy win.

Re:I'm surprises it doesn't already happen

[Anonymous Coward]

It already happened. Months ago. Botnets make up about 20% of hashing power on the big mining pools.

Lovely they are going to "infect" their machines

[Timmy D Programmer]

Lovely, now everyone's machines will be infected with bitcoin mining viruses, I mean bundled software. It will be up there with all of those useful toolbars they got.

Why would anyone use your clone?

[Rix]

You have to give the initial adopters a reason to pay attention to you.

oblig. xkcd

[Anonymous Coward]

http://xkcd.com/501/

Can this sort of activity be blocked?

[KarrdeSW]

Say I'm writing drivers for these GPU's and I want to give my customers the ability to block this. In theory, the calculations required to mine a bitcoin follow a particular and repetitive pattern, which means I could probably identify the pattern of instructions being sent to my GPU. Could I code a driver to render the functions that draw the screen for the game normally but just return '0' every time I'm asked to mine a bitcoin?

I feel like I would invest in a graphics card that offered such a feature, as it should indicate to any gaming company trying to profit on my extra GPU power that I do not view this hijacking of my hardware as 'OK'.

It's a Bitcoin trojan

[Animats]

Bitcoin mining is barely profitable now. Bitcoin "difficulty" self-adjusts so that the number of new Bitcoins created per unit time remains constant. Currently, that number is about 6*50*24*30 = 216K bitcoins per month, worth about $900K/month. Every few years, the number of coins created per unit time drops, so that eventually there will be a fixed number of coins, 21 million. Around the end of 2012, half of all Bitcoins that will ever be created will have been created, and the production rate drops in half, according to a schedule built into all the programs that accept Bitcoins.

All Bitcoin "miners" are thus in competition for a fixed and declining amount of revenue. Many have already dropped out, as can be seen from the hash rate statistics. In areas with high electricity costs, even running existing hardware doesn't pay. Buying new hardware in bulk was popular in early 2011, but not any more.

Of course, if you can find some sucker to provide a GPU and pay for the power, the economics looks better. Hence the Bitcoin trojan. The concept of a VC-funded Bitcoin trojan is a bit much. Putting in $500K to suck money out of the system might pay off in the short term, but it's not something that can grow. If you put in $5M, you'd be competing with yourself for a finite revenue stream. Also, running a background GPU job on anything that isn't plugged in will produce some very angry users as their batteries die.

If you think mere rarity will make Bitcoins grow in value, go on eBay and see what collectable stuff from the Franklin Mint (once a big maker of "collectables") goes for.

Latin meaning of the word "credit'

[peter303]

Means that financial transactions must be believable. A bitcoin-like currency might achieve believability. But no the specific bitcoin currency which has been hacked and stolen from disks.

Wow look at all these trolls.

[repapetilto]

It is becoming more and more obvious who is on which side of the bitcoin "debate". This thread honestly isn't even worth reading, everyone who knows what they are talking about is spending all their time explaining the most basic info to idiots. Admittedly there are a few lazy, but intelligent sounding posters mixed in, but this is mostly just troll FUD. 95% of normal people either think it is interesting or just don't care.

Re:Wow look at all these trolls.

[splatter]

Yup mention the word bit coin and all the trolls & wing nuts come out from under the bridge! Should have known to just ignore this one.

bitcoin, defined.

[Anonymous Coward]

bitcoin (n); the make-believe currency of geeks that mooch (steal) electricity off their employer, school, or neighbor. see also: ponzi scheme, scam, sham, clueless, sucker

Not based on air like the old bitcoins

[Anonymous Coward]

The newly issued bitcoins will be fully backed by, and exchangeable for, the reserves of gold and platinum to be mined from the low-orbiting asteroids.

When the IRS has a Sim in SecondLife WORRY

[RobertLTux]

i would bet that a non zero number of employees have active accounts (and may be in world while ON THE CLOCK) i do not think that they are in world as part of their official duties.

What's with all the hositility

[mathimus1863]

Yes, there's a lot of people who are in Bitcoin because of become-a-billionaire-overnight fantasies. Yes, they are silly. But you remove all that and you're left with a really fascinating system that should appeal to everyone on Slashdot. It's a mix of cryptography, freedom of speech, computing, networking, finance, economics, and even politics -- most of us here dig that stuff.

Get over the hype and take Bitcoin for what it really is: a fascinating experiment that has, so far, withstood the amazing barrage of publicity, hacking attempted, legal uncertainties, and remains valuable for reasons completely contrary to everyone that says it's worthless. It may become worthless one day, but consider the possibility that Bitcoin is disproving all your wildly oversimplified assumptions about what makes something valuable. It is completely different, and there's plenty of reasons to believe that it could succeed as much as it could fail.

I like to think of Bitcoin like gold. Nothing is backing gold. It's a material for which there is a limited supply in the world, and which is universally regarded as value because of various properties it has: perhaps beauty, fungibility, density, etc. Bitcoin is really the same, with a limited global supply, except that it has different properties, mainly ease of transfer over the internet, fungibility, storage efficiency, near-anonymity and built-in escrow.

I don't think it's any more ludicrous for Bitcoin to have value than it is for gold to have value. And in the end, when I want to sell WoW weapons, buy webserver space, or play a few games of poker online, why would I use gold, cash or paypal, which all require me to remember log-in creditials, give away information and/or a bunch of third party fees. There's plenty of value in being able to pay people across the world, instantaneously, without sacrificing your privacy, and without paying any fees. Why is that not valuable? Seriously... quit focusing on the get-rich-quick kids, and start appreciating Bitcoin for it's unique properties and philosophy.

Re:What's with all the hositility

[mcmonkey]

I like to think of Bitcoin like gold. Nothing is backing gold. It's a material for which there is a limited supply in the world, and which is universally regarded as value because of various properties it has: perhaps beauty, fungibility, density, etc. Bitcoin is really the same, with a limited global supply, except that it has different properties, mainly ease of transfer over the internet, fungibility, storage efficiency, near-anonymity and built-in escrow.

You're missing the key property of gold: stability. You're not going to your fortune by amassing iron and risk having your empire rust away. While food is a valuable commodity--everyone needs to eat--it doesn't make a good basis for an economy. You can make investments of a sort--feeding workers, for example--but it isn't practical to save up for larger exchanges.

I find it interesting the number of comments in these BitCoin threads--from folks with all levels of skepticism in the BC system--who compare BC to gold yet seem to have no idea why gold is "gold". Mostly, it's treating as an accident of history.

Really? You can't eat it, in it's natural form it's not pretty, and until very recently you couldn't much with it--it's too soft for mechanical uses. It's main industrial uses are as a catalyst or conductor, which meant nothing 100 years ago.

Almost every human society that has known about gold has valued it, going back thousands of years. It's been a standard of trade been groups of people who had no other common values.

I don't think it's any more ludicrous for Bitcoin to have value than it is for gold to have value. And in the end, when I want to sell WoW weapons, buy webserver space, or play a few games of poker online, why would I use gold, cash or paypal, which all require me to remember log-in creditials, give away information and/or a bunch of third party fees.

BitCoin is similar to gold as a manifestation of work. One is digital, the other physical. Gold (as a tool of exchange, not ornamentation) represents the physical effort to mine, extract, purify, etc. BitCoin represents the computational effort to do whatever it is GPUs do.

To draw any other equivalency between gold and BitCoin is one of those lines of nerd thought that employs dispassionate logic at each step, and yet comes to a truly ridiculous conclusion.

Gold: has stood the test of time. Valued by humans in every corner of the world for thousands of years. Not a standard of currency, but openly traded in every major economy.

BitCoin: been around a few years(?). Valued by a very small group of people. Accepted by a small number of merchants.

How can there by any equivalency between these two as a vehicle of exchange? I'm not saying BitCoin is a scam or worthless. But to say it's anywhere near the level of gold is ridiculous.

Re:What's with all the hositility

[chrb]

You're missing the key property of gold: stability.

True, gold does not rust, or fade away, but, barring a complete collapse of modern society, neither should Bitcoin.

in it's natural form it's not pretty

But it has value because humans have considered gold to be beautiful and have used it to make pretty things for a long time.

How can there by any equivalency between these two as a vehicle of exchange?

How can there be any equivalency between US dollars and gold as a vehicle of exchange? And yet there is - US dollars are openly traded in every major economy.

Gold is an element. New elements can't be created. New currencies can. The number one problem with Bitcoin being used as a currency is that it is very easy for someone to create a similar competing currency that basically does the same thing. That devalues the currency in a way that gold can never be. Real currencies have value because they are issued by nation states, and used for trade within that state. It is difficult to create a new nation state, and therefore difficult to create a new national currency. But non-state currencies do have value if people agree to use them for trade, or if they represent some future return - corporate bonds have value, they can be bought and sold and exchanged for other goods, because they represent future value. In the same way, Bitcoin can represent future value, because you can sell it or trade it.

Bitcoin is obviously not as good as gold in many ways, but this does not mean it can't be as useful as a form of exchange. The major disadvantage in comparison to gold are that it isn't an element that is used to make pretty jewellery. Really, it should be compared to other currencies. There is an argument that currencies only have value because people are forced to use them, and therefore they represent the value of the people and all of the things that they have. This may not apply to Bitcoin, because nobody is forced to use it. But if people choose to use it, then what is the difference?

Re:What's with all the hositility

[brokenin2]

Huh.. the funny thing is, that GOLD HAS NOT BEEN STABLE YOU IDIOT.

What was the value of gold 1 year ago.... 2 years ago.. 3? And what will it be next year? It's so inflated right now, that it's Bitcoin bubble is likely to burst soon.. Especially if the economy recovers and people start seeing the value of the dollar again (fingers crossed).

Re:What's with all the hositility

[mcmonkey]

Gold is an element. New elements can't be created.

o_O

Re:What's with all the hositility

[chrb]

I meant elements as in the types of atoms, not as in the actual atoms. Model vs instances. There are a fixed number of types of elements, there can be many atoms of each element. Even when we "create a new element", it isn't actually new; new to Earth and to us perhaps, but new to the universe?

Re:What's with all the hositility

[mcmonkey]

At what point was gold so cheap people didn't bother to bend over to pick up a gold bar? By stable, I don't mean whether gold is $800/ounce or $1800. I mean, is gold worth more than it takes to dig it out of the ground?

The answer is, yes. And has been yes for thousands of years.

As for BitCoin and stability, as another responder to my comment said, BitCoin is a vehicle for exchange, not savings. You don't take all your savings and exchange for BitCoin (unless you're a speculator). You pick up enough BitCoin for whatever good or service you're purchasing today.

The long term success of BitCoin does not depend on the exchange rate BitCoin/$$ or $$/BitCoin. It depends on BitCoin having some value over 0.

So which do think will first hit the threshold of, worth less on the market than it costs to produce? Gold or BitCoin. I think BitCoin.

Re:What's with all the hositility

[Anonymous Coward]

Yes, feel free to not mention the horribly rocky nature of the Bitcoin economy and how it basically crashes every other week and is basically a gigantic pump-and-dump scheme for fools struck by gold fever.

Re:What's with all the hositility

[brokenin2]

You need to use the correct word if that's what you meant.. You're confusing the word "stable" with the word "valuable"..

Stability is what Bitcoin needs to make it useful for that exchange. It doesn't matter what it's price is, as long as it's relatively stable, but if you exchange USD or gold for bitcoin to buy something that is roughly $10 USD, but by the time you go to purchase it, the bitcoin price has changed enough that you can't afford it and need to try again, then it's not useful for exchange.. Satoshi Nakamoto has made it clear a number of times, that he believes that the stability is far more important.. Instability always has the potential to help you out as much as it hurts you, but you need to know what to expect when you're using something as a currency, which is was Bitcoin was always intended to be. No one ever thought you could use Bitcoin to coat electrical contacts with it to prevent corrosion, but that works great with gold. ..so if you're talking stability (and you're speaking English) then when you try to say that gold is stable, you'd be mostly correct in thousands of years of history (room for different opinions there), but it certainly wouldn't be correct when looking at the last couple of years.. For Bitcoin's lifetime, bitcoin has been just about as stable as gold (not quite, but if you could get rid of July 2011, you'd be pretty close).

As far as what they cost to produce as compared to their actual value: Bitcoin is designed to allow an equilibrium to be met that always keeps those right about the same, and that will always be the case. People (not even Bitcoin miners) don't leave money on the table for no reason, and they don't throw it away either.. It will always cost about 1 bitcoin to produce 1 bitcoin. Gold is exactly the same way.. Right now, the ratio is off a bit (in the miner's favor), but that will balance out soon enough when either the gold bubble pops, or more people enter the gold mining market. It just takes a little longer in the non-virtual world.

Re:What's with all the hositility

[brokenin2]

Oh... yeah.. you're probably picturing gold mining like you see it in the movies..

There is no gold just laying around on the ground.. People from 1904 picked that stuff up already..

Now days, people dig up a small city's worth of dirt with large equipment, and process it with extremely harsh chemicals and acids to dissolve and collect microscopic bits of gold out of the dirt. It's really quite destructive to any area they decide to mine gold in.. It ends up looking like a baron landscape like to moon, which, incidentally is where you might be able to just walk along and pick up some gold off the ground... at least the gold speculators haven't picked over most of the moon yet.

federal law is needed here

[RobertLTux]

There should be a set of laws written to cut down on the amount of BS bits in EULAs

1 standard definitions for certain words so that the first 3 "pages" are not taken up with defining US and YOU and other garbage
2 a code/flag block to summarize what all that legal stuff is saying (1 key = X licenses and such things)
3 disclosure of what is done with a Customers data (who do we sell that info to and on what terms)
4 forbidding any edits to the EULA that decrease what can be done with the software (so no redefining "unlimited" after the fact)
5 limits on font size and how buried a clause can be (so no "gotchas" in page 25 paragraph 3 that cuts out something "legal" in page 5 and no using 3 point type to contradict/limit whats in 48 point type)

Oh and any changes to the EULA (or linked docs) require you to physically Mail a notice that the contract can be dropped without penalty unless you have a Judge (who is paid by a consumer friendly org) sign off on the changes. (and you must post the same notice on your primary customer contact method for 30 days prior to the change going into effect)

It's a follow up

[Anonymous Coward]

They're telling us how they'll fund the asteroid operation

yo dawg, i herd u like to mine, so we gonna fund your asteroid mining with bitcoin mining, so you can mine while you mine!

Why isn't venture capital given in bitcoins?

[iamacat]

They should demonstrate they can use their own currency before others trust it.

Sure...

[denzacar]

And all fiat currencies are, like Bitcoin, backed by nothing.

If the issuing country means nothing to you... I.e. United States of America.
But if USA and its laws actually mean something to you - then it's backed up by Section 5103 of Title 31 of the United States Code.

Other countries have similar laws and acts by which they back the values of their currencies.

Re:Sure...

[brokenin2]

That's not backing it. That just says you can use it to pay debts legally in the US.

They don't tell you what the value of the currency will be. That's what people mean by backing the currency. Example: You can use your $1 bill to redeem 1 ounce of gold (I wish). That would be backing the currency.

The link you reference, simply says that you can use this to legally move numbers around: my $1 (of unknown value) pays off my $1 debt,.

The moving the numbers around part is the part that Bitcoin does very well, and is almost never brought into the debate.

No not so much

[Sycraft-fu]

An unchanging money supply in a growing economy and population = automatic deflation. A simple example:

Suppose you and 3 of your friend create your own little currency. You each get two "favour tokens". Any time you want someone to do a favour for you, you pay them a token, and you get paid a toekn if you do a favour for them. This works so well that someone else decides they want in. You all say fine, but they don't get any tokens, they have to work for their first token. Soon, you have 10 people in your little economy.

However it is being badly hamstrung by the lack of tokens. At most, 8 people can have a token, there will always be at least two people without a token. So you start having lots of situations where people want to do a favour, but the person who wants it has no token.

That right there is deflation. It gets more complicated on a larger economy, of course, but if you have a fixed amount of currency and the economy grows, deflation is inherent.

Re:No not so much

[Anonymous Coward]

You first sentence is 100% correct.

However, your example is pretty extreme:
Even if your currency was inflationnary, it would be unusable.
Let's pretend there are now 10 tokens and 8 people. Most people would have only 1 token. Which means, if they want to buy anything (a house, a car, a cheeseburger), they have to spend all of their money.

Re:No not so much

[tqk]

However it is being badly hamstrung by the lack of tokens.

Have you heard of those things called "coins?" You know, pennies, nickels, dimes, & etc? You don't always have to carry around silver dollars or dollar bills, and it would be pretty annoying to have to carry hundreds of them at a time when you could instead carry a few hundred dollar bills.

Deflation is a problem for economists and politicians, not regular folks. Less tokens in circulation means your tokens are worth more. Sweet!

Re:No not so much

[Anonymous Coward]

Deflation is a problem for economists and politicians, not regular folks. Less tokens in circulation means your tokens are worth more. Sweet!

And that's all well and good until your end-of-year review comes around, and your boss decides that since he doesn't have as many tokens as expected, he's going to give you fewer of them next year.

(Or, since wages are "sticky" in that giving someone an anti-raise doesn't work in practice, he'll fire you and hire someone who will work for less.)

Re:No not so much

[tqk]

Deflation is a problem for economists and politicians, not regular folks. Less tokens in circulation means your tokens are worth more. Sweet!

And that's all well and good until your end-of-year review comes around, and your boss decides that since he doesn't have as many tokens as expected, he's going to give you fewer of them next year.

If you want to choose the security and assurance of a regular paycheck over the freedom to choose your own work and your right to fail, that's the tradeoff wage slaves make. I prefer to think of myself as a Kulak; a self-employed peasant. I get to giggle my ass off in those interminable meetings you people hate so much. "My hourly rate, my hourly rate, ..." If I don't want to do what they want done, I leave. If they don't want done what I want to do, I leave. Everybody's happy. Well, everyone who means anything to me is happy. :-)

[This reminds me of a discussion I was just having with someone else regarding rape. Why the hell would anyone want to have sex with someone who didn't want to have sex with them? It makes no sense (not to mention all the loud screaming and possibly knives showing up out of nowhere).]

Crap, did I just say that out loud? Have fun, and try not to hurt anyone doing it.

Re:No not so much

[Anonymous Coward]

I just have to point out that the problem in your example is apparently the lack of divisibility of favor tokens. If the situation started with 10,000,000,000 favor tokens for each of the four original people, the economy would not be badly hamstrung by the lack of tokens.

Re:No not so much

[tibman]

I'm pretty sure that is not a problem with bitcoin. Each coin is divisible into subcoins. So it is possible to pay someone with 1/1000000th of a bitcoin.

Re:No not so much

[terrox]

Basically wrong, you could check the total maximum amount of coins on wikipedia - a total of 2.1 × 1015 or 2.1 quadrillion units. I think that is around 10 000 coins for every human on the planet at 2030, which is plenty due to the fact we survived up until now with far less units-per-person of money in our lives.

Re:No not so much

[bill_mcgonigle]

if you have a fixed amount of currency and the economy grows, deflation is inherent.

Perhaps you can explain why land in New York City continues to rise in value?

Re:No not so much

[Anonymous Coward]

Because the exact opposite thing is happening:
- decreasing amount of land
- increasing amount of currency

Re:No not so much

[Anonymous Coward]

So far, I have not seen anyone properly use the terms 'inflation' or 'deflation'. I tried writing out what was missing but my comment was eaten by my browser with a single errant backspace keystroke that wasn't focused on the text field. Sigh. So, instead I'll just paste the best and most rigorous definition I know. It is regrettable, but I'm too lazy to explain(again) why the following distinction is important in order to say anything meaningful about inflation or deflation:

“Inflation is an extension of the nominal quantity of any
medium of exchange beyond the quantity that would have
been produced on the free market. Since the expression “free
market” is shorthand for the somewhat long-winded “social
cooperation conditioned by the respect of private property
rights,” the meaning of inflation is that it extends the nominal
money supply through a violation of property rights. In this
sense, inflation can also be called a forcible way of increasing
the money supply, as distinct from the “natural” production of
money through mining and minting.”

Hülsmann, The Ethics of Money Production, p. 86.

Re:No not so much

[DriedClexler]

Right. Increasing population plus constant money supply equals decreasing money-to-population ratio. No shit. Didn't need an elaborate example to communicate that.

I was just expressing the standard definition of deflation, which doesn't make reference to population ratios.

You think that a declining money-to-population ratio is "as bad as" deflation? Fine, but it's orthogonal to the point.

I'll support bitcoin

[Anonymous Coward]

I'll support bitcoin the moment I can buy an ounce of 24K gold with bitcoin !!

Re:I'll support bitcoin

[Sabbetus]

You can buy gold with bitcoins @ http://coinabul.com/

Re:I'll support bitcoin

[brokenin2]

Don't forget that you can buy a bitcoin/gold hybrid at https://www.casascius.com/.

You can get a coin that is 1 troy ounce of gold, with a 1000 BTC electronic redeemable value.

Of course, it's kinda expensive at 1415, but it sure is pretty... and liquid (financially).

Determination.

[zAPPzAPP]

Spending 500k$ just to troll Slashdot hard.

Anonymity and money, they had to fall in love.

[Anonymous Coward]

"A currency that can be anonymously transacted." Say that and you're pretty sure to get the attention of the whole financial world since they could evade even more taxes and regulations with that. But let's see the bright side of life: the day is near where politicians won't be bribed anymore ; instead they will have to bribe the financial world to become their pets.

Don't think of it as wealth!

[bill_mcgonigle]

How can there by any equivalency between these two as a vehicle of exchange? I'm not saying BitCoin is a scam or worthless. But to say it's anywhere near the level of gold is ridiculous.

I used to think Bitcoin was stupid because it's another fiat currency, no real value, poor store of wealth, etc.

Then I realized - its real value is not as a safe full of gold but as a replacement for Western Union.

Never store your wealth in Bitcoins, but always conduct your transactions in it. This mindset sets an upper bound on the amount of Bitcoin needed, but with a growing and developing world population, I don't see this as a real problem for its success.

It also speaks to tremendous opportunities for currency exchangers in and out of Bitcoin. Its real threat then isn't economic or technical, but from gangs who want a piece of the action (mostly governments).

Coins' value may well increase to meet demand, but focusing on the coins as a store of value is sure-fire way to miss the boat on Bitcoin.

What is the hardware used for, anyway?

[WWWWolf]

tapping the GPU mining potential of gamers, more specifically gamers of free-to-play games

So people buy gaming hardware, and then play F2P games that... don't actually utilise the hardware to run games, but for other purposes?

Consider the alternative: firing up a Bitcoin miner on background and running some other game that doesn't require a sophisticated GPU. The gamer can keep the profit all to themselves. The only upside is that the mining company can give the gamers different games. But the fundamental problem is that people think they're buying gaming hardware, you're saying they have gaming hardware... while downplaying the fact that they're not actually using the gaming hardware for gaming at all.

Ye gods, it's like 1999 again, people get venture capital for only slightly retarded business plans

Goldman sachs et al

[Anonymous Coward]

Goldman sachs scam is well understood. They made fake assets, insured them, and that would have taken down AIG and Goldman both if the government hadn't have printed money to back up AIG and Goldman. It was a scam because their internal emails show they knew those assets were garbage.

Facebook have a popular website, but the price is being pumped by deception. Buying something in a fake purchase to create a false value is a criminal offense, yet Facebook buys Instagram for (pinky in mouth) $1 billion dollars, when actually its mostly shares of Facebook and not worth anything like that. Both parties pretend the transaction is really for (pinky in mouth) ONE BILLION DOLLARS and this is to create a fake value in Facebook for its IPO.

Maddoff would have gotten away with it, like Goldmans if the Fed had bought his 'assets' the way it bought similar worthless 'assets' from others. If you're buying failed betting slips for real money then that's a fake asset.

And before you claim the Fed will make a profit on them, let me put it in context for you.
Fed prints money, lends it to Bob at 0.01% interest for Bobs magic beans, Bob buys Apple stock, borrows money against the Apple stock and pays back his original loan with interest. Fed say "hey we made a profit on the magic bean loan".

Bob meanwhile turned magic beans into Apple stock with a nice dividend and profit. And of course Bob pays the Republican party to keep the laws in his favor.

Govt hegemony

[NewYork]

The easiest/efficient way to protest Govt hegemony is to print/circulate/use your own banknotes exclusively among your friends/family/community.
http://www.bbc.co.uk/news/world-asia-pacific-14774526

vast majority of people are not ready for bitcoin

[Khashishi]

Proponents of bitcoin are expecting regular users to be responsible for their own bitcoin security. Consider for a moment how many botnets are out there. Imagine people losing their their life savings in a "download to papa" moment. Or hell, a hard drive crash. Yes, you could conceivably print out your bitcoin keys. But you need to type them back into your computer to actually spend them. Who is going to enforce security against fraud? What if a merchant doesn't send the goods?