12 ms·

What is Bitcoin? (Video)

113 points by hippich 16y ago

kiba 16y ago
BTW, this video was motivated by the first and largest bitcoin bounty which were supported entirely by user donation, in the form of bitcoin. See the thread at: http://www.bitcoin.org/smf/index.php?topic=697.0 http://www.bitcoin.org/smf/index.php?topic=697.0 I am an escrow agent for this animation bounty that is currently worth 8472.05 BTC(from memory) and now that's worth like six thousand USD. Originally, it was worth around two thousand dollars.
- Devilboy 16y ago
  What's the quickest and easiest way to buy a couple hundred BTC?
  - kiba 16y ago
    For small amount of bitcoin, you can use CoinPal at http://coinpal.ndrix.com/ http://coinpal.ndrix.com/ Even though I did not personally used it, many people recommend the service.
  - sgornick 16y ago
    There's also #Bitcoin-OTC where trading is done over IRC. Here's the Order Book, viewing USD offers: http://bitcoin-otc.com/vieworderbook.php?sortby=price&sortorder=ASC&eitherthing=USD http://bitcoin-otc.com/vieworderbook.php?sortby=price&so...
  - mrb 16y ago
    1. Open an account on any Bitcoin exchange (mtgox.com, bitcoinusa.com, etc) 2. Fund your account by wire or ACH transfer (supported by most exchanges) 3. Place a 'buy' order in 2 mouse clicks to buy BTC at the current market rate. Done. Or if you know someone in the real world who has coins, just make him a cash offer to send you directly the BTC (using the Bitcoin software, without going through a third party such as an exchange).
clvv 16y ago
Interesting, but until some real use case or adoption, these Bitcoins sound like Internet stocks to me. edit: I didn't really look into it, but I'm going to now.
- kiba 16y ago
  There's lot of real adoption. The bitcoin forum alone get 500 posts a day and a whole lot of traffic. Maybe you should check us out at http://bitcoin.org http://bitcoin.org I myself run a little magazine about bitcoin that is hosted on a VPS that I pay in bitcoin. I even own a domain name that I paid in bitcoin. The economy is still small though, but with adoption, it could become real big.
  - fleitz 16y ago
    No it can't the total money supply is limited to 21 million bitcoins, this will create drastic problems unless they are infinitely divisible.
    - kiba 16y ago
      They are divisible to the 8th place. That's 21 quadrillion unit of bitcoins.
      - joelthelion 16y ago
        And that could be increased indefinitely if the need arises.
        rmc 16y ago
        So the economy could become dependent on everyone keeping their software up to date..... As a web developer this scares me.
  - brown9-2 16y ago
    I myself run a little magazine about bitcoin that is hosted on a VPS that I pay in bitcoin. I even own a domain name that I paid in bitcoin. What kind of exchange rate on bitcoin to USD did you get on these purchases?
aditya 16y ago
So, wait. You can print your own money subject to a cap? ie. creating bitcoin only involves spending CPU cycles (or electricity)?
- kiba 16y ago
  Money supply is limited to 21 million bitcoin ever. Plus, as more people bring more mining computers online, it become harder over time to mine.
  - nkurz 16y ago
    While I understand that this is the current plan, what is the guarantee that this plan will not be changed? Is this a technical limit, or a social one?
    - sgornick 16y ago
      The "plan" is implemented through the bitcoin protocol and software. Any change would need 50% + 1 of the bitcoin network to follow the new rules. An effort to change the software to "mint" a greater amount will be countered by those who already hold bitcoins, and can add mining capacity to resist the change. Another implementation could be launched with a different limit, but that would be a completely separate, new currency.
- rmc 16y ago
  Yes, but it's very very hard to do it now. Also it's limited and the more you print the less you will be able to print.
sgornick 16y ago
For those who are new to Bitcoin and would like to learn more: The new What Is Bitcoin? video - http://www.youtube.com/watch?v=Um63OQz3bjo http://www.youtube.com/watch?v=Um63OQz3bjo Bitcoin FAQ - https://en.bitcoin.it/wiki/FAQ https://en.bitcoin.it/wiki/FAQ Bitcoin Wiki - https://en.bitcoin.it/wiki/Main_Page https://en.bitcoin.it/wiki/Main_Page How Bitcoin Works - https://en.bitcoin.it/wiki/How_bitcoin_works https://en.bitcoin.it/wiki/How_bitcoin_works Installing Bitcoin - https://en.bitcoin.it/wiki/Getting_started https://en.bitcoin.it/wiki/Getting_started HowTo Mining Bitcoin: Fedora 14: http://bit.ly/fb54ye http://bit.ly/fb54ye and Ubuntu: http://bit.ly/ewVzhu http://bit.ly/ewVzhu The Bitcoin Faucet (free bitcoins) - https://freebitcoins.appspot.com https://freebitcoins.appspot.com Buying bitcoins - https://en.bitcoin.it/wiki/Buying_bitcoins https://en.bitcoin.it/wiki/Buying_bitcoins Bitcoin 6-Month Price Chart - http://bit.ly/hzVKpq http://bit.ly/hzVKpq Bitcoin Community Portal - https://en.bitcoin.it/wiki/Bitcoin:Community_portal https://en.bitcoin.it/wiki/Bitcoin:Community_portal Recent Posts here on the forum - http://www.bitcoin.org/smf/index.php?action=recent http://www.bitcoin.org/smf/index.php?action=recent ------------- Comments from February when BTC/USD first hit $1: http://news.ycombinator.com/item?id=2200705 http://news.ycombinator.com/item?id=2200705
- markszcz 16y ago
  Also would like to add Google releasing an open source Bitcoin client: Article: http://www.cio.com.au/article/380396/google_releases_open_source_bitcoin_client/ http://www.cio.com.au/article/380396/google_releases_open_so... Google code:http://code.google.com/p/bitcoinj/ http://code.google.com/p/bitcoinj/ Bitcoin technical lead Gavin Andresen: http://www.cio.com.au/article/380394/open_source_identity_bitcoin_technical_lead_gavin_andresen/ http://www.cio.com.au/article/380394/open_source_identity_bi...
pero 16y ago
While the video does look great, I'm afraid I still do not know how real-world value is attached to BTCs--it seems as if a 'step' is messing in the 'how it works' explanation. I'm assuming that was the major desired end-result of this video; if it wasn't, it was the question I was hoping most to get answered.
- kiba 16y ago
  Supply and demand. On the supply side, it's limited to 21 million bitcoin forever. Demand is supported by people who accepts bitcoin. Currently, the price is around 0.80 USD per bitcoin. It used to be only 5 cents per bitcoin.
  - kiboshas 16y ago
    That price is fake, because the market has no meaningful depth. A single $50,000 transaction would drop the price back to near zero.
  - pero 16y ago
    And the ones who own the initial supply are the ones cranking out the solutions to the problems?
    - kiba 16y ago
      Yes. Those who solved a problem get to send 50 BTC + transaction fees to himself.
    - joelthelion 16y ago
      Yes. Note that solving the problems is useful to the whole network: it records transactions and secures the network.
      - pero 16y ago
        What's being solved are not just abstract mathematical problems, but equations that have implications on the whole system?
fleitz 16y ago
What is the point if only 21 million can be generated? Are they infinitely divisible or something? Thats less than one bitcoin per person in California alone.
- kiba 16y ago
  They are divisible to the 8th place. Even then, that still could be fixed.
  - fleitz 16y ago
    Interesting, I should open a bitcoin bank.
- getsat 16y ago
  Would gold and silver be valuable if there was an infinite supply of them? You can't print/generate money indefinitely (unless you think quantitative easing is a legitimate economic stimulus strategy and you happen to be the Federal Reserve). If the desire for BTC goes up, so will its value. There's no problem here.
  - maurycy 16y ago
    Money is a mean of exchange that happens to be a store of value. A thing that punishes the exchange is not an effective money. In an economy with a finite amount of money, even potentially, the exchange is not rational given that the money's value grows over time. That's why the focus is on generating BitCoins.
    - getsat 16y ago
      After all the BTC are generated, only market conditions and demand will affect its value. It's not guaranteed to deflate perpetually.
  - rmc 16y ago
    You can't print/generate money indefinitely Why not? Our current currencies (which are a lot more useful than BTC) are not backed by any finite commondity like gold.
sausman 16y ago
Not quite sure what the appeal is here? Low transaction fees are nice but why not use something like Dwolla which is dollar denominated? The "mining" concept also confuses me. Is the currency backed by CPU cycles? If so, what are the CPU cycles being used for?
- sgornick 16y ago
  Dwolla is great, ... but for smaller amounts their $0.25 per-transaction fee is a limiting factor. Especially if what you want to buy is only $0.99, for instance. Also, when you receive Dwolla as payment and want to spend that money using your bank ATM/debit card, after you withdraw funds it then takes a couple days for those funds to reach your bank (via ACH). For now, Dwolla is available for U.S. accounts only as well. Bitcoin has no such limitations -- it is just software and a network protocol.
- kiba 16y ago
  The "mining" concept also confuses me. Is the currency backed by CPU cycles? If so, what are the CPU cycles being used for? Bitcoin is not backed by anything. CPU cycles are used to ensure the security of the system. Low transaction fees are nice but why not use something like Dwolla which is dollar denominated? That's like comparing eggs to chickens. Bitcoin is more than just a transaction clearing house, but also a currency that is completely separated from the control of governments and traditional banking institution. The advantage of bitcoin is that anybody on the planet can use it. I can send you bitcoin just as easily across the street or halfway around the world. Bitcoins cannot be frozen as easily as your bank accounts can be frozen. There's also the fact that bitcoin cannot fail due to one single company. Not quite sure what the appeal is here? It appeals a lot to technogeeks who happens to also be libertarians, people who worries about economic policies of governments, and so on. But bitcoin in my opinion can facilitate greater efficiency in the world economy by making it easier to transfer capitals across border. That alone is valuable.
  - sausman 16y ago
    _It appeals a lot to technogeeks who happens to also be libertarians, people who worries about economic policies of governments, and so on._ I fit that description and agree that private currencies such as Bitcoin would be awesome, but aren't there laws in place to secure the government's monopoly on money? ( http://www.lewrockwell.com/paul/paul619.html http://www.lewrockwell.com/paul/paul619.html ) Does Bitcoin circumvent these laws by being completely virtual?
jarin 16y ago
I like the idea of Bitcoin, but I've been running the client for about two weeks on my quad-core machine and still have not generated any Bitcoin. It's a little disappointing! Yes, I know I could buy some, but until there are enough venues that accept Bitcoin, I'm only motivated enough to get free Bitcoin. The only one I've seen that I'm interested in so far is a site that lets you bet Bitcoin on pro Starcraft 2 matches, although the idea of buying Call of Duty: Black Ops for Bitcoin is pretty good too.
- kiba 16y ago
  There's no such thing as a free lunch. When you're using quad-core machien to generate bitcoin, you're probably wasting electricity. That doesn't stop people from pooling their resources together and mine, though.
- jerguismi 16y ago
  Lol, CPU mining is not sensible, use GPU. And why do you think that it would be easy to get free money? Bitcoin value is pretty high, so there are people running GPU farms & mining it. Competition is high. I think currently mining is profitable, you can pay your hardware investments back maybe in 2-6 months.
  - dhume 16y ago
    you can pay your hardware investments back maybe in 2-6 months Can you clarify the logistics of this? Do I borrow BTC, find a hardware vendor that accepts it as payment, then repay with what I've mined? Or do I find a lender that will give me USD and accept BTC in return? Or do I spend USD on hardware and put the resulting BTC towards my regular costs of living? I doubt my landlord/utility providers would accept rent/bill payments in BTC. I've seen the "trade" page on the wiki, and it only lists a few dozen merchants, generally dealing in web site services and luxury goods.
    - mike_esspe 16y ago
      You can sell BTC for USD. https://mtgox.com/ https://mtgox.com/ - liberty reserve http://coincard.ndrix.com/ http://coincard.ndrix.com/ - paypal
pkulak 16y ago
I don't understand why mining is so computationaly intensive. Well, I understand that it's used as a way to limit the rate that new coins are introduced, but are all these mining computers doing anything useful, or are they just wasting electricity?
- sgornick 16y ago
  Right now the bitcoin network is calculating at about 500 GHash/second. Only 1 hash is needed to process an entire batch of transactions (a block). Well, technically it is 2 SHA hashes that are needed per block. So 499,999,999,998 of the hashes calculated in the next second will be wasted. It gets worse. That is 500 GHash per second. Over the approximately 10 minutes between blocks, only two of those 300,000,000,000,000 hashes that were calculated will actually be used even. Of course, there is a reason for this. Hashing to obtain a relatively unique result is called a "proof of work" and is the method that Bitcoin uses to ensure that the amount of currency issued occurs only at the levels specified in the source code. http://en.bitcoin.it/wiki/Proof_of_work http://en.bitcoin.it/wiki/Proof_of_work So far, that method has been the only one found so far that works as the transaction processing system for a decentralized payment network.
- kiba 16y ago
  They're doing something useful. 1. They secure the network from attackers and check for double spending attempt. 2. They process transactions.
- joelthelion 16y ago
  If you can implement a bitcoin clone without the computational load, it will be a revolution. But this is the best we've found so far: it secures the network, records the transactions and does the initial distribution of coins.
- mrb 16y ago
  Bitcoin needs a problem (any problem) that is computationally difficult to solve in order to be able to offer certain security guarantees. This arbitrary problem was chosen by its designer: For a given target T, find X such as SHA256(SHA256(X)) < T It is correct that in and of itself this computation is useless. But exactly like http://en.wikipedia.org/wiki/Hashcash http://en.wikipedia.org/wiki/Hashcash it is vital for it to be difficult to solve. In fact the whole network adjusts T dynamically to keep up with the fantastic exponential hash rate growth of the network these last 13 months: http://blog.zorinaq.com/?e=49 http://blog.zorinaq.com/?e=49
deleted 16y ago
[deleted]
quadhome 16y ago
Am I right in that Bitcoin isn't backed by computational complexity; but, instead the continued ability for machines on the network to communicate with one-another?
- sgornick 16y ago
  Bitcoin is backed by cryptography. The bitcoins in your wallet cannot be spent by anyone else. Now if there were no network access, then there's a problem. I might accept your transaction but without access to the network I couldn't know that you didn't already spend those bitcoins elsewhere.
  - etherealG 16y ago
    surely the answer to that is that I shouldn't accept someone's bitcoins without being connected to the network to be able to check if they were already spent. this kind of "offline" transaction isn't allowed with regards to a credit card, why would it be allowed in our system?
    - dublinclontarf 16y ago
      Yes, for bitcoin there are no offline transactions. A transaction is recorded by telling everyone on the network it happened. Then everyone knows which addres spent and recieved bitcoins.
  - quadhome 16y ago
    IANAeconomist, but a currency is back by trade. You and I accept a dollar or a gold coin because other people accept them at (usually) parity for value-- call it a network effect. But, a dollar or a gold coin has limited value if you can't trade it. The same for a bitcoin; except, it can only be traded via coordination with many other actors in the economy. (The longest block chain is the "truth.") While a dollar or a gold coin can be traded physically, a bitcoin is never traded until the economy as a whole agrees-- the record of the transaction appears in the chain. Therefore, the act of trading bitcoins, and by extension bitcoin itself, is backed by the presumption that Internet access will be pervasive and unfiltered.
barmstrong 16y ago
When I read about BitCoin a while back I thought it might be a cool startup idea to build an "online banking" interface around it, along with mobile apps, etc. To sort of, bring it to the masses (non-technical folks). One analogy might be Github which took another burgeoning open source project and made it more accessible through an excellent web interface. However, I got discouraged after reading some things about the failed e-gold project: http://en.wikipedia.org/wiki/E-gold#2008_court_trial http://en.wikipedia.org/wiki/E-gold#2008_court_trial Namely that it looks like you'd need to be licensed as a money transmitter to avoid serious legal trouble if the thing took off. And I assume being licensed as a money transmitter means reporting identifying info on who is sending/receiving money. Anonymity seems to be big amongst the bit coin community but may not be as important to the masses. Not sure. There may be some way to avoid it, sort of like how torrent sites don't keep any copyrighted info on their servers, or actually going through the process of getting licensed, but I assume there would still be tons of legal scrutiny just like the torrent sites receive. The idea of running a startup where you are being sued by everybody is not especially appealing. Has anyone else pondered this?
- teyc 16y ago
  Yes, I wanted to do it, just to demonstrate that BitCoin is just as susceptible to problems of money supply as any other currency. The basic idea is to allow people to deposit BitCoins, but then issue a BitCoin derivative subject to fractional banking rules and charge interest. This should in theory give rise to the same problems current banks have, where the debt is never fully repayable (unless you create more money to pay the interest), and requires a banking system to continually generate debt.
  - nazgulnarsil 16y ago
    watching a cartoon doesn't mean you understand banking. FUCK "money as debt". talking people down from their newfound expertise is tiresome.
    - teyc 16y ago
      Hardly. Bitcoin is somewhat of an improvement on gold, since you don't have to dig it out of the ground, only to bury it again and put guards around it. However, the monetary system is already hacked. I'm just hoping other hackers have some insight so that we can have a more effective, secure currency.
pieter 16y ago
I tried to get some free coins through the bitcoin faucet to a newly generated address (18YTP3wEbaiNX2QaQ4k1Gi89JgXntxAiff), but so far haven't received anything. Might be a problem on my end, or the transactions might just be slow, or they didn't send anything to me at all, but so far bitcoin transactions don't give the same instant gratification paypal or credit card payments give me, where you press the 'buy' button and get access to a service immediately. Perhaps this will get faster when the network becomes bigger, or if I use one of those digital wallet sites instead of running the client myself?
- yurifury 16y ago
  If a transaction fee is included (which the bitcoin faucet doesn't include), the process is sped up. http://en.wikipedia.org/wiki/Bitcoin#Transaction_fees http://en.wikipedia.org/wiki/Bitcoin#Transaction_fees
- slig 16y ago
  Your client has to do some stuff before being able to connect and receive the notification. Keep it open for a few hours and you'll see the faucet coins.
- eof 16y ago
  If the newly generated address is on your local machine, and it's a new client.. you will have to verify the block chain before you can conduct transactions. Probably you are blocking it up.. I got my .05 bitcoins right away.
- hfinney 16y ago
  It's hardly fair to compare Bitcoin to credit cards in terms of "instant gratification", unless you turn back the clock to when you said, Oh, there are such things as credit cards? Cool, how do I get one? I'm confident that the difficulty of acquiring your first bitcoin will compare favorably to the difficulty of acquiring your first credit card.
- danneu 16y ago
  You can't compare Bitcoin transactions to Paypal or credit card transactions. More analogous would be a Bitcoin transaction vs. dollars sent by mail. Paypal and credit cards are just transactional layers on top a currency, they only represent the underlying currency. The actual exchange of the currency can take an arbitrary length of time (if it even happens at all). Nothing precludes Bitcoin from having the same services built on top of it. When the time comes for Bitcoin to have truly instant transactions, the market will create this necessary layer.
wynand 16y ago
I read some criticisms of Bitcoin (including those from a previous HN post about Bitcoin) and one of the biggest criticisms from an economics perspective (if I understand correctly) is that the Bitcoin network is at the mercy of positive or negative feedback loops (hyper inflation or deflation). All current currencies are controlled by central bodies that can dampen the effects of these feedback loops. Does anyone with an economics background have an idea of how the Bitcoin network could be adapted to counteract these feedback loops? For example, perhaps the network should make the transfer of small amounts very liquid whilst the transfer of larger amounts becomes progressively more "viscous".
- eof 16y ago
  How is it at risk of a feedback loop in a way that other currencies aren't? It seems bitcoins defend specifically against hyper inflation by limiting the number of coins that will ever be produced.
  - maurycy 16y ago
    Decreasing supply of a good with a constant or increasing demand, ensures its increasing value. The govt is able to control the supply of money.
  - jerf 16y ago
    Real-world currencies have backing. The ability of dollars to hyperinflate or hyperdeflate is bounded by the fact they can be used to pay debts to the United States Government that are denominated in dollars. Their value recursively emanates out from there, but that's the base case. That's also why the fall of the US government would be pretty much immediately followed by the fall of dollars, as has happened to other government-backed currencies. Stripped of its backing, currencies completely collapse in practice. The recursive base case is gone and if the currency briefly holds on it's a Wile E Coyote off the cliff moment, and in the modern connected world I can't imagine it would be more than a few minutes. At some point, BitCoin faces some dip in currency confidence. Not because it's "BitCoin", but because all currency face periodic confidence crises. All the major world currencies have faced them in the past three years. But they didn't simply collapse because they have backing. I don't know what stops the first BitCoin currency crisis from completely collapsing the currency, because when BitCoin holders ask themselves, "Hey, what is this really good for?", I don't have an answer. I know what a dollar is good for: Not being put in jail by the United States Government due to unpaid debt. Ultimately, without trying to be too philosophical, dollars are backed with men with guns (and the privilege of them not being pointed at you). Contrary to apparently popular belief, currencies aren't merely arbitrarily-agreed-upon numbers that we all trade with. Every currency I know has some actual backing. Even the fancy electronic ones we've seen spontaneously develop online, they all have some form of local economy-appropriate backing. It isn't always "gold" (literal or electronic), but so far the "men with guns" approach has proved successful in the real world. BitCoin is an apparently-good design for the arbitrary number approach, but until it solves the backing problem I won't be putting one dime into it. As much as I don't particularly enjoy having the US government as my currency backing I do not see how going to a backing-free currency is the solution. The currency can still hyperinflate even if it is physically impossible to produce more by virtue of people raising all BitCoin prices as their confidence in the currency collapses. But instead of hyperinflation producing lots more BitCoins, then collapsing the economy, hyperinflation will simply directly collapse the economy as it takes ever increasing amounts of the BitCoins in the world to buy a service, until eventually even every BitCoin in the world isn't adequate. Hyperinflation is a symptom of lack of confidence in a currency, not a cause. (Of course observing hyperinflation can further decrease confidence, but the hyperinflation started in the first place because of lack of confidence.) BitCoin advocates tend to get very angry when I point this out. I think it's because they have no answer to this. The site used to have a FAQ that addressed this, but it just sort of mumbled words and now it's gone because it was actually better just to ignore the problem. My challenge would be to anyone who claims that currencies are somehow backing-free is show me the successful currency of any kind that really is just an arbitrary number with no backing that has reached any sort of significant size, shall we say, a million dollars or so worth of an economy? (All the electronic currencies like Microsoft Points are well above that size, for instance.) And I'll show the backing. It isn't always a physical item, especially in the electronic world, but it's always something that serves as a locally-appropriate backing. ("So why's it worth so much now?" It's in a bubble generated by all this publicity. What happens the first time this bubble even threatens to pop? That's when you'll really find out who is right, me or them. Oh, and I'd predict an even larger burst of publicity and public braggadocio if it looks like that's going to happen; that will be the only way to forestall the inevitable another few days.)

113 points by hippich 16y ago

kiba 16y ago

BTW, this video was motivated by the first and largest bitcoin bounty which were supported entirely by user donation, in the form of bitcoin. See the thread at: http://www.bitcoin.org/smf/index.php?topic=697.0 http://www.bitcoin.org/smf/index.php?topic=697.0 I am an escrow agent for this animation bounty that is currently worth 8472.05 BTC(from memory) and now that's worth like six thousand USD. Originally, it was worth around two thousand dollars.

Devilboy 16y ago
What's the quickest and easiest way to buy a couple hundred BTC?
- kiba 16y ago
  For small amount of bitcoin, you can use CoinPal at http://coinpal.ndrix.com/ http://coinpal.ndrix.com/ Even though I did not personally used it, many people recommend the service.
- sgornick 16y ago
  There's also #Bitcoin-OTC where trading is done over IRC. Here's the Order Book, viewing USD offers: http://bitcoin-otc.com/vieworderbook.php?sortby=price&sortorder=ASC&eitherthing=USD http://bitcoin-otc.com/vieworderbook.php?sortby=price&so...
- mrb 16y ago
  1. Open an account on any Bitcoin exchange (mtgox.com, bitcoinusa.com, etc) 2. Fund your account by wire or ACH transfer (supported by most exchanges) 3. Place a 'buy' order in 2 mouse clicks to buy BTC at the current market rate. Done. Or if you know someone in the real world who has coins, just make him a cash offer to send you directly the BTC (using the Bitcoin software, without going through a third party such as an exchange).

clvv 16y ago

Interesting, but until some real use case or adoption, these Bitcoins sound like Internet stocks to me. edit: I didn't really look into it, but I'm going to now.

kiba 16y ago
There's lot of real adoption. The bitcoin forum alone get 500 posts a day and a whole lot of traffic. Maybe you should check us out at http://bitcoin.org http://bitcoin.org I myself run a little magazine about bitcoin that is hosted on a VPS that I pay in bitcoin. I even own a domain name that I paid in bitcoin. The economy is still small though, but with adoption, it could become real big.
- fleitz 16y ago
  No it can't the total money supply is limited to 21 million bitcoins, this will create drastic problems unless they are infinitely divisible.
  - kiba 16y ago
    They are divisible to the 8th place. That's 21 quadrillion unit of bitcoins.
    - joelthelion 16y ago
      And that could be increased indefinitely if the need arises.
      - rmc 16y ago
        So the economy could become dependent on everyone keeping their software up to date..... As a web developer this scares me.
- brown9-2 16y ago
  I myself run a little magazine about bitcoin that is hosted on a VPS that I pay in bitcoin. I even own a domain name that I paid in bitcoin. What kind of exchange rate on bitcoin to USD did you get on these purchases?

aditya 16y ago

So, wait. You can print your own money subject to a cap? ie. creating bitcoin only involves spending CPU cycles (or electricity)?

kiba 16y ago
Money supply is limited to 21 million bitcoin ever. Plus, as more people bring more mining computers online, it become harder over time to mine.
- nkurz 16y ago
  While I understand that this is the current plan, what is the guarantee that this plan will not be changed? Is this a technical limit, or a social one?
  - sgornick 16y ago
    The "plan" is implemented through the bitcoin protocol and software. Any change would need 50% + 1 of the bitcoin network to follow the new rules. An effort to change the software to "mint" a greater amount will be countered by those who already hold bitcoins, and can add mining capacity to resist the change. Another implementation could be launched with a different limit, but that would be a completely separate, new currency.
rmc 16y ago
Yes, but it's very very hard to do it now. Also it's limited and the more you print the less you will be able to print.

sgornick 16y ago

For those who are new to Bitcoin and would like to learn more: The new What Is Bitcoin? video - http://www.youtube.com/watch?v=Um63OQz3bjo http://www.youtube.com/watch?v=Um63OQz3bjo Bitcoin FAQ - https://en.bitcoin.it/wiki/FAQ https://en.bitcoin.it/wiki/FAQ Bitcoin Wiki - https://en.bitcoin.it/wiki/Main_Page https://en.bitcoin.it/wiki/Main_Page How Bitcoin Works - https://en.bitcoin.it/wiki/How_bitcoin_works https://en.bitcoin.it/wiki/How_bitcoin_works Installing Bitcoin - https://en.bitcoin.it/wiki/Getting_started https://en.bitcoin.it/wiki/Getting_started HowTo Mining Bitcoin: Fedora 14: http://bit.ly/fb54ye http://bit.ly/fb54ye and Ubuntu: http://bit.ly/ewVzhu http://bit.ly/ewVzhu The Bitcoin Faucet (free bitcoins) - https://freebitcoins.appspot.com https://freebitcoins.appspot.com Buying bitcoins - https://en.bitcoin.it/wiki/Buying_bitcoins https://en.bitcoin.it/wiki/Buying_bitcoins Bitcoin 6-Month Price Chart - http://bit.ly/hzVKpq http://bit.ly/hzVKpq Bitcoin Community Portal - https://en.bitcoin.it/wiki/Bitcoin:Community_portal https://en.bitcoin.it/wiki/Bitcoin:Community_portal Recent Posts here on the forum - http://www.bitcoin.org/smf/index.php?action=recent http://www.bitcoin.org/smf/index.php?action=recent ------------- Comments from February when BTC/USD first hit $1: http://news.ycombinator.com/item?id=2200705 http://news.ycombinator.com/item?id=2200705

markszcz 16y ago
Also would like to add Google releasing an open source Bitcoin client: Article: http://www.cio.com.au/article/380396/google_releases_open_source_bitcoin_client/ http://www.cio.com.au/article/380396/google_releases_open_so... Google code:http://code.google.com/p/bitcoinj/ http://code.google.com/p/bitcoinj/ Bitcoin technical lead Gavin Andresen: http://www.cio.com.au/article/380394/open_source_identity_bitcoin_technical_lead_gavin_andresen/ http://www.cio.com.au/article/380394/open_source_identity_bi...

pero 16y ago

While the video does look great, I'm afraid I still do not know how real-world value is attached to BTCs--it seems as if a 'step' is messing in the 'how it works' explanation. I'm assuming that was the major desired end-result of this video; if it wasn't, it was the question I was hoping most to get answered.

kiba 16y ago
Supply and demand. On the supply side, it's limited to 21 million bitcoin forever. Demand is supported by people who accepts bitcoin. Currently, the price is around 0.80 USD per bitcoin. It used to be only 5 cents per bitcoin.
- kiboshas 16y ago
  That price is fake, because the market has no meaningful depth. A single $50,000 transaction would drop the price back to near zero.
- pero 16y ago
  And the ones who own the initial supply are the ones cranking out the solutions to the problems?
  - kiba 16y ago
    Yes. Those who solved a problem get to send 50 BTC + transaction fees to himself.
  - joelthelion 16y ago
    Yes. Note that solving the problems is useful to the whole network: it records transactions and secures the network.
    - pero 16y ago
      What's being solved are not just abstract mathematical problems, but equations that have implications on the whole system?

fleitz 16y ago

What is the point if only 21 million can be generated? Are they infinitely divisible or something? Thats less than one bitcoin per person in California alone.

kiba 16y ago
They are divisible to the 8th place. Even then, that still could be fixed.
- fleitz 16y ago
  Interesting, I should open a bitcoin bank.
getsat 16y ago
Would gold and silver be valuable if there was an infinite supply of them? You can't print/generate money indefinitely (unless you think quantitative easing is a legitimate economic stimulus strategy and you happen to be the Federal Reserve). If the desire for BTC goes up, so will its value. There's no problem here.
- maurycy 16y ago
  Money is a mean of exchange that happens to be a store of value. A thing that punishes the exchange is not an effective money. In an economy with a finite amount of money, even potentially, the exchange is not rational given that the money's value grows over time. That's why the focus is on generating BitCoins.
  - getsat 16y ago
    After all the BTC are generated, only market conditions and demand will affect its value. It's not guaranteed to deflate perpetually.
- rmc 16y ago
  You can't print/generate money indefinitely Why not? Our current currencies (which are a lot more useful than BTC) are not backed by any finite commondity like gold.

sausman 16y ago

Not quite sure what the appeal is here? Low transaction fees are nice but why not use something like Dwolla which is dollar denominated? The "mining" concept also confuses me. Is the currency backed by CPU cycles? If so, what are the CPU cycles being used for?

sgornick 16y ago
Dwolla is great, ... but for smaller amounts their $0.25 per-transaction fee is a limiting factor. Especially if what you want to buy is only $0.99, for instance. Also, when you receive Dwolla as payment and want to spend that money using your bank ATM/debit card, after you withdraw funds it then takes a couple days for those funds to reach your bank (via ACH). For now, Dwolla is available for U.S. accounts only as well. Bitcoin has no such limitations -- it is just software and a network protocol.
kiba 16y ago
The "mining" concept also confuses me. Is the currency backed by CPU cycles? If so, what are the CPU cycles being used for? Bitcoin is not backed by anything. CPU cycles are used to ensure the security of the system. Low transaction fees are nice but why not use something like Dwolla which is dollar denominated? That's like comparing eggs to chickens. Bitcoin is more than just a transaction clearing house, but also a currency that is completely separated from the control of governments and traditional banking institution. The advantage of bitcoin is that anybody on the planet can use it. I can send you bitcoin just as easily across the street or halfway around the world. Bitcoins cannot be frozen as easily as your bank accounts can be frozen. There's also the fact that bitcoin cannot fail due to one single company. Not quite sure what the appeal is here? It appeals a lot to technogeeks who happens to also be libertarians, people who worries about economic policies of governments, and so on. But bitcoin in my opinion can facilitate greater efficiency in the world economy by making it easier to transfer capitals across border. That alone is valuable.
- sausman 16y ago
  _It appeals a lot to technogeeks who happens to also be libertarians, people who worries about economic policies of governments, and so on._ I fit that description and agree that private currencies such as Bitcoin would be awesome, but aren't there laws in place to secure the government's monopoly on money? ( http://www.lewrockwell.com/paul/paul619.html http://www.lewrockwell.com/paul/paul619.html ) Does Bitcoin circumvent these laws by being completely virtual?

jarin 16y ago

I like the idea of Bitcoin, but I've been running the client for about two weeks on my quad-core machine and still have not generated any Bitcoin. It's a little disappointing! Yes, I know I could buy some, but until there are enough venues that accept Bitcoin, I'm only motivated enough to get free Bitcoin. The only one I've seen that I'm interested in so far is a site that lets you bet Bitcoin on pro Starcraft 2 matches, although the idea of buying Call of Duty: Black Ops for Bitcoin is pretty good too.

kiba 16y ago
There's no such thing as a free lunch. When you're using quad-core machien to generate bitcoin, you're probably wasting electricity. That doesn't stop people from pooling their resources together and mine, though.
jerguismi 16y ago
Lol, CPU mining is not sensible, use GPU. And why do you think that it would be easy to get free money? Bitcoin value is pretty high, so there are people running GPU farms & mining it. Competition is high. I think currently mining is profitable, you can pay your hardware investments back maybe in 2-6 months.
- dhume 16y ago
  you can pay your hardware investments back maybe in 2-6 months Can you clarify the logistics of this? Do I borrow BTC, find a hardware vendor that accepts it as payment, then repay with what I've mined? Or do I find a lender that will give me USD and accept BTC in return? Or do I spend USD on hardware and put the resulting BTC towards my regular costs of living? I doubt my landlord/utility providers would accept rent/bill payments in BTC. I've seen the "trade" page on the wiki, and it only lists a few dozen merchants, generally dealing in web site services and luxury goods.
  - mike_esspe 16y ago
    You can sell BTC for USD. https://mtgox.com/ https://mtgox.com/ - liberty reserve http://coincard.ndrix.com/ http://coincard.ndrix.com/ - paypal

pkulak 16y ago

I don't understand why mining is so computationaly intensive. Well, I understand that it's used as a way to limit the rate that new coins are introduced, but are all these mining computers doing anything useful, or are they just wasting electricity?

sgornick 16y ago
Right now the bitcoin network is calculating at about 500 GHash/second. Only 1 hash is needed to process an entire batch of transactions (a block). Well, technically it is 2 SHA hashes that are needed per block. So 499,999,999,998 of the hashes calculated in the next second will be wasted. It gets worse. That is 500 GHash per second. Over the approximately 10 minutes between blocks, only two of those 300,000,000,000,000 hashes that were calculated will actually be used even. Of course, there is a reason for this. Hashing to obtain a relatively unique result is called a "proof of work" and is the method that Bitcoin uses to ensure that the amount of currency issued occurs only at the levels specified in the source code. http://en.bitcoin.it/wiki/Proof_of_work http://en.bitcoin.it/wiki/Proof_of_work So far, that method has been the only one found so far that works as the transaction processing system for a decentralized payment network.
kiba 16y ago
They're doing something useful. 1. They secure the network from attackers and check for double spending attempt. 2. They process transactions.
joelthelion 16y ago
If you can implement a bitcoin clone without the computational load, it will be a revolution. But this is the best we've found so far: it secures the network, records the transactions and does the initial distribution of coins.
mrb 16y ago
Bitcoin needs a problem (any problem) that is computationally difficult to solve in order to be able to offer certain security guarantees. This arbitrary problem was chosen by its designer: For a given target T, find X such as SHA256(SHA256(X)) < T It is correct that in and of itself this computation is useless. But exactly like http://en.wikipedia.org/wiki/Hashcash http://en.wikipedia.org/wiki/Hashcash it is vital for it to be difficult to solve. In fact the whole network adjusts T dynamically to keep up with the fantastic exponential hash rate growth of the network these last 13 months: http://blog.zorinaq.com/?e=49 http://blog.zorinaq.com/?e=49

deleted 16y ago

[deleted]

quadhome 16y ago

Am I right in that Bitcoin isn't backed by computational complexity; but, instead the continued ability for machines on the network to communicate with one-another?

sgornick 16y ago
Bitcoin is backed by cryptography. The bitcoins in your wallet cannot be spent by anyone else. Now if there were no network access, then there's a problem. I might accept your transaction but without access to the network I couldn't know that you didn't already spend those bitcoins elsewhere.
- etherealG 16y ago
  surely the answer to that is that I shouldn't accept someone's bitcoins without being connected to the network to be able to check if they were already spent. this kind of "offline" transaction isn't allowed with regards to a credit card, why would it be allowed in our system?
  - dublinclontarf 16y ago
    Yes, for bitcoin there are no offline transactions. A transaction is recorded by telling everyone on the network it happened. Then everyone knows which addres spent and recieved bitcoins.
- quadhome 16y ago
  IANAeconomist, but a currency is back by trade. You and I accept a dollar or a gold coin because other people accept them at (usually) parity for value-- call it a network effect. But, a dollar or a gold coin has limited value if you can't trade it. The same for a bitcoin; except, it can only be traded via coordination with many other actors in the economy. (The longest block chain is the "truth.") While a dollar or a gold coin can be traded physically, a bitcoin is never traded until the economy as a whole agrees-- the record of the transaction appears in the chain. Therefore, the act of trading bitcoins, and by extension bitcoin itself, is backed by the presumption that Internet access will be pervasive and unfiltered.

barmstrong 16y ago

When I read about BitCoin a while back I thought it might be a cool startup idea to build an "online banking" interface around it, along with mobile apps, etc. To sort of, bring it to the masses (non-technical folks). One analogy might be Github which took another burgeoning open source project and made it more accessible through an excellent web interface. However, I got discouraged after reading some things about the failed e-gold project: http://en.wikipedia.org/wiki/E-gold#2008_court_trial http://en.wikipedia.org/wiki/E-gold#2008_court_trial Namely that it looks like you'd need to be licensed as a money transmitter to avoid serious legal trouble if the thing took off. And I assume being licensed as a money transmitter means reporting identifying info on who is sending/receiving money. Anonymity seems to be big amongst the bit coin community but may not be as important to the masses. Not sure. There may be some way to avoid it, sort of like how torrent sites don't keep any copyrighted info on their servers, or actually going through the process of getting licensed, but I assume there would still be tons of legal scrutiny just like the torrent sites receive. The idea of running a startup where you are being sued by everybody is not especially appealing. Has anyone else pondered this?

teyc 16y ago
Yes, I wanted to do it, just to demonstrate that BitCoin is just as susceptible to problems of money supply as any other currency. The basic idea is to allow people to deposit BitCoins, but then issue a BitCoin derivative subject to fractional banking rules and charge interest. This should in theory give rise to the same problems current banks have, where the debt is never fully repayable (unless you create more money to pay the interest), and requires a banking system to continually generate debt.
- nazgulnarsil 16y ago
  watching a cartoon doesn't mean you understand banking. FUCK "money as debt". talking people down from their newfound expertise is tiresome.
  - teyc 16y ago
    Hardly. Bitcoin is somewhat of an improvement on gold, since you don't have to dig it out of the ground, only to bury it again and put guards around it. However, the monetary system is already hacked. I'm just hoping other hackers have some insight so that we can have a more effective, secure currency.

pieter 16y ago

I tried to get some free coins through the bitcoin faucet to a newly generated address (18YTP3wEbaiNX2QaQ4k1Gi89JgXntxAiff), but so far haven't received anything. Might be a problem on my end, or the transactions might just be slow, or they didn't send anything to me at all, but so far bitcoin transactions don't give the same instant gratification paypal or credit card payments give me, where you press the 'buy' button and get access to a service immediately. Perhaps this will get faster when the network becomes bigger, or if I use one of those digital wallet sites instead of running the client myself?

yurifury 16y ago
If a transaction fee is included (which the bitcoin faucet doesn't include), the process is sped up. http://en.wikipedia.org/wiki/Bitcoin#Transaction_fees http://en.wikipedia.org/wiki/Bitcoin#Transaction_fees
slig 16y ago
Your client has to do some stuff before being able to connect and receive the notification. Keep it open for a few hours and you'll see the faucet coins.
eof 16y ago
If the newly generated address is on your local machine, and it's a new client.. you will have to verify the block chain before you can conduct transactions. Probably you are blocking it up.. I got my .05 bitcoins right away.
hfinney 16y ago
It's hardly fair to compare Bitcoin to credit cards in terms of "instant gratification", unless you turn back the clock to when you said, Oh, there are such things as credit cards? Cool, how do I get one? I'm confident that the difficulty of acquiring your first bitcoin will compare favorably to the difficulty of acquiring your first credit card.
danneu 16y ago
You can't compare Bitcoin transactions to Paypal or credit card transactions. More analogous would be a Bitcoin transaction vs. dollars sent by mail. Paypal and credit cards are just transactional layers on top a currency, they only represent the underlying currency. The actual exchange of the currency can take an arbitrary length of time (if it even happens at all). Nothing precludes Bitcoin from having the same services built on top of it. When the time comes for Bitcoin to have truly instant transactions, the market will create this necessary layer.

wynand 16y ago

I read some criticisms of Bitcoin (including those from a previous HN post about Bitcoin) and one of the biggest criticisms from an economics perspective (if I understand correctly) is that the Bitcoin network is at the mercy of positive or negative feedback loops (hyper inflation or deflation). All current currencies are controlled by central bodies that can dampen the effects of these feedback loops. Does anyone with an economics background have an idea of how the Bitcoin network could be adapted to counteract these feedback loops? For example, perhaps the network should make the transfer of small amounts very liquid whilst the transfer of larger amounts becomes progressively more "viscous".

eof 16y ago
How is it at risk of a feedback loop in a way that other currencies aren't? It seems bitcoins defend specifically against hyper inflation by limiting the number of coins that will ever be produced.
- maurycy 16y ago
  Decreasing supply of a good with a constant or increasing demand, ensures its increasing value. The govt is able to control the supply of money.
- jerf 16y ago
  Real-world currencies have backing. The ability of dollars to hyperinflate or hyperdeflate is bounded by the fact they can be used to pay debts to the United States Government that are denominated in dollars. Their value recursively emanates out from there, but that's the base case. That's also why the fall of the US government would be pretty much immediately followed by the fall of dollars, as has happened to other government-backed currencies. Stripped of its backing, currencies completely collapse in practice. The recursive base case is gone and if the currency briefly holds on it's a Wile E Coyote off the cliff moment, and in the modern connected world I can't imagine it would be more than a few minutes. At some point, BitCoin faces some dip in currency confidence. Not because it's "BitCoin", but because all currency face periodic confidence crises. All the major world currencies have faced them in the past three years. But they didn't simply collapse because they have backing. I don't know what stops the first BitCoin currency crisis from completely collapsing the currency, because when BitCoin holders ask themselves, "Hey, what is this really good for?", I don't have an answer. I know what a dollar is good for: Not being put in jail by the United States Government due to unpaid debt. Ultimately, without trying to be too philosophical, dollars are backed with men with guns (and the privilege of them not being pointed at you). Contrary to apparently popular belief, currencies aren't merely arbitrarily-agreed-upon numbers that we all trade with. Every currency I know has some actual backing. Even the fancy electronic ones we've seen spontaneously develop online, they all have some form of local economy-appropriate backing. It isn't always "gold" (literal or electronic), but so far the "men with guns" approach has proved successful in the real world. BitCoin is an apparently-good design for the arbitrary number approach, but until it solves the backing problem I won't be putting one dime into it. As much as I don't particularly enjoy having the US government as my currency backing I do not see how going to a backing-free currency is the solution. The currency can still hyperinflate even if it is physically impossible to produce more by virtue of people raising all BitCoin prices as their confidence in the currency collapses. But instead of hyperinflation producing lots more BitCoins, then collapsing the economy, hyperinflation will simply directly collapse the economy as it takes ever increasing amounts of the BitCoins in the world to buy a service, until eventually even every BitCoin in the world isn't adequate. Hyperinflation is a symptom of lack of confidence in a currency, not a cause. (Of course observing hyperinflation can further decrease confidence, but the hyperinflation started in the first place because of lack of confidence.) BitCoin advocates tend to get very angry when I point this out. I think it's because they have no answer to this. The site used to have a FAQ that addressed this, but it just sort of mumbled words and now it's gone because it was actually better just to ignore the problem. My challenge would be to anyone who claims that currencies are somehow backing-free is show me the successful currency of any kind that really is just an arbitrary number with no backing that has reached any sort of significant size, shall we say, a million dollars or so worth of an economy? (All the electronic currencies like Microsoft Points are well above that size, for instance.) And I'll show the backing. It isn't always a physical item, especially in the electronic world, but it's always something that serves as a locally-appropriate backing. ("So why's it worth so much now?" It's in a bubble generated by all this publicity. What happens the first time this bubble even threatens to pop? That's when you'll really find out who is right, me or them. Oh, and I'd predict an even larger burst of publicity and public braggadocio if it looks like that's going to happen; that will be the only way to forestall the inevitable another few days.)