6 ms·

BitCoins - a real, alternative currency with a market?

31 points by CoffeeDregs 16y ago

CoffeeDregs 16y ago
Not sure how I missed BitCoins, but I'm trying to get a read on whether this is a real currency or not. As in: something to watch or something to ignore. I also don't understand why the # of coins is limited to 21M. Given that there are going to be 10B people on the planet that means that, on average, a person will have about 0.002 coins. Maybe I'm just too used to having thousands of units of currency, but it seems odd to consider that prices will be in milli- or nano-BitCoins...
- mrsteveman1 16y ago
  There is a finite amount of gold on the planet as well, and in all of human history we've only mined something like $7-8 trillion dollars worth. That's only half the GDP of the entire U.S. for 2009, and we don't even control most of it (something like 12-15% in various reserves). Look at the price of gold now, it's over $1,000 an ounce. Either the USD has inflated dramatically since 1970 when an ounce of gold was only worth $40, or gold has skyrocketed because of scarcity (or both). Point being, bitcoins could very well end up being worth $10 or even $100 each as the years go by, or higher. At a factor of 100 that's $2.1 billion USD worth of bitcoins. Are they worth that much? Maybe, gold and USD aren't worth anything at all until someone is willing to accept them in trade, and people are definitely accepting bitcoins in trade right now.
  - CoffeeDregs 16y ago
    Fair points. I guess I would be paying 0.001 ounce of gold for a candy bar, so why be concerned about paying 0.001 bitcoin. w.r.t. worth: gold is backed by being shiny, pretty, desirable; USD is backed by the US Government (cue cries of "fiat money! fiat money!") which provides huge implicit inertia; Bitcoins would be backed only by inertia. I guess the answer to my question is: Bitcoins will be interesting if they get transaction inertia. Of course, as an entrepreneurial minded fellow, the next question would be: would it make sense to help build that inertia?
    - seabee 16y ago
      From the Bitcoin FAQ: How divisible are Bitcoins? Technically, a Bitcoin can be divided down to 8 decimals, so 0.00000001 BTC is the smallest possible amount. For convenience, the program currently accepts only 2 decimal places.
- nhaehnle 16y ago
  BitCoin is certainly a real currency in the sense that it is traded by people, even in exchange for real goods and services. As for whether it is something to watch depends on where you're coming from. The problem of BitCoin is that of adoption. The US$ is a viable currency because the US government is able to force a US$-denominated debt onto people via taxation. This creates demand for US$, which causes people to offer goods and services in exchange for US$. Of course, once a currency is established, the circular/recursive reasoning of "you work for US$ because you can use them to buy groceries at your favourite supermarket, because the supermarket must pay its suppliers in US$, because the suppliers pay their employees, i.e. you, in US$" largely takes over. Take the base case of enforced debt away and the currency keeps working a while longer in Wile E. Coyote fashion, but at the first sign of serious doubt as to the currency's value it will inflate into worthless paper, even when the "total amount" of paper remains unchanged. There is nobody who can force BitCoin-denominated debt onto anybody, and so it's unclear how BitCoin could ever take off. It certainly has appeal to a fringe group of libertarians, but I see no mechanism by which it could possibly spread beyond that. It is true that BitCoin has some appealing feature through its distributed nature. Making small transactions between peers easier is definitely appealing - it's what makes services like M-PESA sell like sliced bread. However, BitCoin has the enormous disadvantage of not being convertible to US$ in the sense that when you want to use BitCoin, you are dealing with exchange rate risks. I would bet that this makes it too inconvenient for the majority of the population to ever take off. We can spin this further and ask what would happen if, despite all difficulties, BitCoin would ever find widespread adoption. If all prices are denominated in BitCoin, then the exchange rate risk is no longer a problem for average people. But then the economy would face the same problems that plagued gold-based economies, in particular frequent recessions. The historical cycle of monetary development would be likely to repeat itself: People would start introducing paper moneys that leverage BitCoins, frequent bank run would happen until the establishment of a new, BitCoin-based central bank. Eventually, convertibility of the new de facto currencies to BitCoin would be dropped, reverting to pure fiat money. From a public policy perspective, it is desirable to skip that cycle and just stick with fiat money. Most likely though, the question won't even come up, because BitCoin cannot really gain traction without government intervention in the first place. From a hacker perspective, the more interesting question is: What problem do people actually face in their daily lives? I am sure there are payment-related problems that can be fixed, but my feeling is the solution is more along the lines of M-PESA, working within the currencies that people are already used to. From a monetary economics perspective, it is an interesting experiment that may one day be used as empirical evidence for one or the other theory on money.
wewyor 16y ago
Where do I start selling pickaxes?
- CoffeeDregs 16y ago
  By which you mean: this bitcoin thingy is analogous to the gold rush in which the miners make no money. Is this an educated assessment or a quick bit of sarcasm? Happy either way, just trying to understand whether Bitcoins are worth paying attention to...
  - cheez 16y ago
    Bitcoins definitely have a huge draw for the underground. Of course, if governments persist in creating undergrounds...
  - Pavitra 16y ago
    Gold's a pretty good analogy. We're not quite to the point where it's impossible to make money mining, but you have to plan carefully to break even. The real usefulness, though, of bitcoins/gold isn't to make money mining, but rather as a secure medium of exchange. Bitcoins are a bullion currency that you can spend online.
- wmf 16y ago
  Sorry, ATI/AMD has that market sewn up.
  - wewyor 16y ago
    Has anyone run through the power/hardware costs versus the mined amount in bitcoin and real currency yet?
    - JeremyBanks 16y ago
      Yes. I can't find the link, but I read an analysis a few weeks ago. IIRC: Six months ago you could easily build a machine to mine enough to pay for itself relatively quickly. Today it is probably still possibly but more difficult (you need to use GPUs or you can't compete) and the margins are quickly narrowing.
thinkcomp 16y ago
So...what can I buy with BitCoins? Also, from the link, "Donations are accepted at 1Nqr3MqVyUp6k3o3QPePAdn4Yg4tzgB9kw." Somehow I think that's going to present an obstacle for most people. Is this something that is really targeted at the general public, or at programmers who are bored of dollars?
- jackolas 16y ago
  I'd assume one could use a DNS like resolver for named addresses considering bitcoin allows IP addresses...
  - soult 16y ago
    You could use DNS to map from a domain to a bitcoin address. In the Bitcoin forums people are actually working on a way to map email addresses to a bitcoin address. However, using IP addresses for Bitcoin transfers is insecure because you are vulnerable to MITM attacks (you wouldn't do online banking over a non-SSL connection, would you?) and because the IP addresses of the sender and the receiver will be known by each other.
- socksy 16y ago
  Anonymity allows for online markets that were previously a lot harder to achieve: https://ianxz6zefk72ulzz.tor2web.org/ https://ianxz6zefk72ulzz.tor2web.org/
  - CoffeeDregs 16y ago
    ohmiword... That is very interesting...
- derefr 16y ago
  They could make that one step less confusing by just attaching a protocol scheme (coin://1Nqr...), so that users could click on a labelled link instead. They could make it two steps simpler by making it work like OpenID, where a URL can defer its bit coin "alternate" using a <link> tag—so you could just enter someone's web address in your bit coin client, and be able to push coins to them that way.
deleted 16y ago
[deleted]
markkat 16y ago
BitCoins for cash seems a bit suspect. :) Cash? No checks? No registered mail?
- Pavitra 16y ago
  You can ask around in the #bitcoin-otc channel on Freenode to get an idea of who's considered reputable. I understand Bitcoin4Cash is generally well-regarded.
il 16y ago
Note that it is illegal in the US to use an alternate currency. The second this becomes popular, the feds will raid it and shut it down. See Liberty Dollar, e-gold, etc. Casino chips are specifically exempted from this rule, but only inside a casino.
- mrsteveman1 16y ago
  Raid what? There is no central authority with bitcoins that can be shut down. They could go after exchanges I suppose, but exchanges aren't really necessary for there to be a functional economy built around bitcoins.
  - il 16y ago
    There's always something to raid. Someone is hosting bitcoin.org, developing the client, etc. The government hates competition.
    - getsat 16y ago
      This has come up many times on the bitcoin forums/IRC. There's a few hardcoded nodes that the client will initially connect to, but you can also grab a third party list. The client is open source. The USA fortunately does not have jurisdiction everywhere, though they would like to think they do. By the time it pops up on their radar, it will be too late anyways.
    - mrb 16y ago
      Shutting down the bitcoin.org domain/website would be as effective as the attempts to block distribution of the DeCSS software and keys to combat DVD piracy in the late 1990s. It would be unlikely to hamper development of the Bitcoin network.
- cabalamat 16y ago
  I was about to post the same thing. However, the USA is not the only jurisdiction in the world -- are there others that would allow something like this?
- 16y ago
exit 16y ago
from http://en.wikipedia.org/wiki/Bitcoin#Generating_bitcoins http://en.wikipedia.org/wiki/Bitcoin#Generating_bitcoins "All generating nodes of the network are competing to be the first to find a solution to a cryptographic problem about their candidate-block, a problem that requires repetitious trial and error." i wonder whether this "cryptographic problem" is vulnerable to quantum computing, in the same way asymmetric schemes like rsa are.
- rfugger 16y ago
  The cryptographic problem is finding a nonce that, when concatenated with current transactions, gives a SHA256 hash below a certain value. Not sure about quantum vulnerabilities.
fourstar 16y ago
If you have no idea what in the hell BitCoin is, check out http://www.youtube.com/watch?v=XQPSwA2Itbs http://www.youtube.com/watch?v=XQPSwA2Itbs (skip to around 42 minutes). Really explains it well.
- revicon 16y ago
  Using the #t hash anchor works well for this kind of thing... http://www.youtube.com/watch?v=XQPSwA2Itbs#t=2516s http://www.youtube.com/watch?v=XQPSwA2Itbs#t=2516s
clistctrl 16y ago
I had the idea of suggesting to Reddit a while ago that they should start their own currency (i would name it the Karmarian) Reddit is a very large closely nit community, that is world wide. If the internet has a chance of forming its own open form digital currency, its going to need the backing of a large community such as Reddit or 4chan. Personally I'd really wish something would take off. It pisses me off that the only way to do business online is via another private business. It would be awesome if our government created digital cash for online transactions, and it would be even better if a non government entity created a world currency to handle digital transactions.
mshron 16y ago
Friendly (non-technical) introduction to bitcoins: http://www.youtube.com/watch?v=Um63OQz3bjo&feature=player_embedded http://www.youtube.com/watch?v=Um63OQz3bjo&feature=playe...

31 points by CoffeeDregs 16y ago

Not sure how I missed BitCoins, but I'm trying to get a read on whether this is a real currency or not. As in: something to watch or something to ignore. I also don't understand why the # of coins is limited to 21M. Given that there are going to be 10B people on the planet that means that, on average, a person will have about 0.002 coins. Maybe I'm just too used to having thousands of units of currency, but it seems odd to consider that prices will be in milli- or nano-BitCoins...

mrsteveman1 16y ago
There is a finite amount of gold on the planet as well, and in all of human history we've only mined something like $7-8 trillion dollars worth. That's only half the GDP of the entire U.S. for 2009, and we don't even control most of it (something like 12-15% in various reserves). Look at the price of gold now, it's over $1,000 an ounce. Either the USD has inflated dramatically since 1970 when an ounce of gold was only worth $40, or gold has skyrocketed because of scarcity (or both). Point being, bitcoins could very well end up being worth $10 or even $100 each as the years go by, or higher. At a factor of 100 that's $2.1 billion USD worth of bitcoins. Are they worth that much? Maybe, gold and USD aren't worth anything at all until someone is willing to accept them in trade, and people are definitely accepting bitcoins in trade right now.
- CoffeeDregs 16y ago
  Fair points. I guess I would be paying 0.001 ounce of gold for a candy bar, so why be concerned about paying 0.001 bitcoin. w.r.t. worth: gold is backed by being shiny, pretty, desirable; USD is backed by the US Government (cue cries of "fiat money! fiat money!") which provides huge implicit inertia; Bitcoins would be backed only by inertia. I guess the answer to my question is: Bitcoins will be interesting if they get transaction inertia. Of course, as an entrepreneurial minded fellow, the next question would be: would it make sense to help build that inertia?
  - seabee 16y ago
    From the Bitcoin FAQ: How divisible are Bitcoins? Technically, a Bitcoin can be divided down to 8 decimals, so 0.00000001 BTC is the smallest possible amount. For convenience, the program currently accepts only 2 decimal places.
nhaehnle 16y ago
BitCoin is certainly a real currency in the sense that it is traded by people, even in exchange for real goods and services. As for whether it is something to watch depends on where you're coming from. The problem of BitCoin is that of adoption. The US$ is a viable currency because the US government is able to force a US$-denominated debt onto people via taxation. This creates demand for US$, which causes people to offer goods and services in exchange for US$. Of course, once a currency is established, the circular/recursive reasoning of "you work for US$ because you can use them to buy groceries at your favourite supermarket, because the supermarket must pay its suppliers in US$, because the suppliers pay their employees, i.e. you, in US$" largely takes over. Take the base case of enforced debt away and the currency keeps working a while longer in Wile E. Coyote fashion, but at the first sign of serious doubt as to the currency's value it will inflate into worthless paper, even when the "total amount" of paper remains unchanged. There is nobody who can force BitCoin-denominated debt onto anybody, and so it's unclear how BitCoin could ever take off. It certainly has appeal to a fringe group of libertarians, but I see no mechanism by which it could possibly spread beyond that. It is true that BitCoin has some appealing feature through its distributed nature. Making small transactions between peers easier is definitely appealing - it's what makes services like M-PESA sell like sliced bread. However, BitCoin has the enormous disadvantage of not being convertible to US$ in the sense that when you want to use BitCoin, you are dealing with exchange rate risks. I would bet that this makes it too inconvenient for the majority of the population to ever take off. We can spin this further and ask what would happen if, despite all difficulties, BitCoin would ever find widespread adoption. If all prices are denominated in BitCoin, then the exchange rate risk is no longer a problem for average people. But then the economy would face the same problems that plagued gold-based economies, in particular frequent recessions. The historical cycle of monetary development would be likely to repeat itself: People would start introducing paper moneys that leverage BitCoins, frequent bank run would happen until the establishment of a new, BitCoin-based central bank. Eventually, convertibility of the new de facto currencies to BitCoin would be dropped, reverting to pure fiat money. From a public policy perspective, it is desirable to skip that cycle and just stick with fiat money. Most likely though, the question won't even come up, because BitCoin cannot really gain traction without government intervention in the first place. From a hacker perspective, the more interesting question is: What problem do people actually face in their daily lives? I am sure there are payment-related problems that can be fixed, but my feeling is the solution is more along the lines of M-PESA, working within the currencies that people are already used to. From a monetary economics perspective, it is an interesting experiment that may one day be used as empirical evidence for one or the other theory on money.

wewyor 16y ago

Where do I start selling pickaxes?

CoffeeDregs 16y ago
By which you mean: this bitcoin thingy is analogous to the gold rush in which the miners make no money. Is this an educated assessment or a quick bit of sarcasm? Happy either way, just trying to understand whether Bitcoins are worth paying attention to...
- cheez 16y ago
  Bitcoins definitely have a huge draw for the underground. Of course, if governments persist in creating undergrounds...
- Pavitra 16y ago
  Gold's a pretty good analogy. We're not quite to the point where it's impossible to make money mining, but you have to plan carefully to break even. The real usefulness, though, of bitcoins/gold isn't to make money mining, but rather as a secure medium of exchange. Bitcoins are a bullion currency that you can spend online.
wmf 16y ago
Sorry, ATI/AMD has that market sewn up.
- wewyor 16y ago
  Has anyone run through the power/hardware costs versus the mined amount in bitcoin and real currency yet?
  - JeremyBanks 16y ago
    Yes. I can't find the link, but I read an analysis a few weeks ago. IIRC: Six months ago you could easily build a machine to mine enough to pay for itself relatively quickly. Today it is probably still possibly but more difficult (you need to use GPUs or you can't compete) and the margins are quickly narrowing.

thinkcomp 16y ago

So...what can I buy with BitCoins? Also, from the link, "Donations are accepted at 1Nqr3MqVyUp6k3o3QPePAdn4Yg4tzgB9kw." Somehow I think that's going to present an obstacle for most people. Is this something that is really targeted at the general public, or at programmers who are bored of dollars?

jackolas 16y ago
I'd assume one could use a DNS like resolver for named addresses considering bitcoin allows IP addresses...
- soult 16y ago
  You could use DNS to map from a domain to a bitcoin address. In the Bitcoin forums people are actually working on a way to map email addresses to a bitcoin address. However, using IP addresses for Bitcoin transfers is insecure because you are vulnerable to MITM attacks (you wouldn't do online banking over a non-SSL connection, would you?) and because the IP addresses of the sender and the receiver will be known by each other.
socksy 16y ago
Anonymity allows for online markets that were previously a lot harder to achieve: https://ianxz6zefk72ulzz.tor2web.org/ https://ianxz6zefk72ulzz.tor2web.org/
- CoffeeDregs 16y ago
  ohmiword... That is very interesting...
derefr 16y ago
They could make that one step less confusing by just attaching a protocol scheme (coin://1Nqr...), so that users could click on a labelled link instead. They could make it two steps simpler by making it work like OpenID, where a URL can defer its bit coin "alternate" using a <link> tag—so you could just enter someone's web address in your bit coin client, and be able to push coins to them that way.

deleted 16y ago

[deleted]

markkat 16y ago

BitCoins for cash seems a bit suspect. :) Cash? No checks? No registered mail?

Pavitra 16y ago
You can ask around in the #bitcoin-otc channel on Freenode to get an idea of who's considered reputable. I understand Bitcoin4Cash is generally well-regarded.

il 16y ago

Note that it is illegal in the US to use an alternate currency. The second this becomes popular, the feds will raid it and shut it down. See Liberty Dollar, e-gold, etc. Casino chips are specifically exempted from this rule, but only inside a casino.

mrsteveman1 16y ago
Raid what? There is no central authority with bitcoins that can be shut down. They could go after exchanges I suppose, but exchanges aren't really necessary for there to be a functional economy built around bitcoins.
- il 16y ago
  There's always something to raid. Someone is hosting bitcoin.org, developing the client, etc. The government hates competition.
  - getsat 16y ago
    This has come up many times on the bitcoin forums/IRC. There's a few hardcoded nodes that the client will initially connect to, but you can also grab a third party list. The client is open source. The USA fortunately does not have jurisdiction everywhere, though they would like to think they do. By the time it pops up on their radar, it will be too late anyways.
  - mrb 16y ago
    Shutting down the bitcoin.org domain/website would be as effective as the attempts to block distribution of the DeCSS software and keys to combat DVD piracy in the late 1990s. It would be unlikely to hamper development of the Bitcoin network.
cabalamat 16y ago
I was about to post the same thing. However, the USA is not the only jurisdiction in the world -- are there others that would allow something like this?
16y ago

exit 16y ago

from http://en.wikipedia.org/wiki/Bitcoin#Generating_bitcoins http://en.wikipedia.org/wiki/Bitcoin#Generating_bitcoins "All generating nodes of the network are competing to be the first to find a solution to a cryptographic problem about their candidate-block, a problem that requires repetitious trial and error." i wonder whether this "cryptographic problem" is vulnerable to quantum computing, in the same way asymmetric schemes like rsa are.

rfugger 16y ago
The cryptographic problem is finding a nonce that, when concatenated with current transactions, gives a SHA256 hash below a certain value. Not sure about quantum vulnerabilities.

fourstar 16y ago

If you have no idea what in the hell BitCoin is, check out http://www.youtube.com/watch?v=XQPSwA2Itbs http://www.youtube.com/watch?v=XQPSwA2Itbs (skip to around 42 minutes). Really explains it well.

revicon 16y ago
Using the #t hash anchor works well for this kind of thing... http://www.youtube.com/watch?v=XQPSwA2Itbs#t=2516s http://www.youtube.com/watch?v=XQPSwA2Itbs#t=2516s

clistctrl 16y ago

I had the idea of suggesting to Reddit a while ago that they should start their own currency (i would name it the Karmarian) Reddit is a very large closely nit community, that is world wide. If the internet has a chance of forming its own open form digital currency, its going to need the backing of a large community such as Reddit or 4chan. Personally I'd really wish something would take off. It pisses me off that the only way to do business online is via another private business. It would be awesome if our government created digital cash for online transactions, and it would be even better if a non government entity created a world currency to handle digital transactions.

mshron 16y ago

Friendly (non-technical) introduction to bitcoins: http://www.youtube.com/watch?v=Um63OQz3bjo&feature=player_embedded http://www.youtube.com/watch?v=Um63OQz3bjo&feature=playe...