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Why is Bitcoin a good currency again? If I understand how it is distributed correctly, those with higher/more computational power receive more of the finite bi

Why is Bitcoin a good currency again? If I understand how it is distributed correctly, those with higher/more computational power receive more of the finite bitcoins. How does that not favor the already rich?

cwp 16y ago
I'm hardly an expert in bitcoins, but: simply having more computational power isn't enough, you have to use it. That computational power is valuable; if you're mining bitcoins you're not using it for whatever it is that you bought all that capacity for in the first place. I doubt that Google or Amazon or the NSA are going to abandon what they're doing now to mine bitcoins.
- kd0amg 16y ago
  simply having more computational power isn't enough, you have to use it You can say that about any resource. It's still generally easier for someone who's wealthier to put up more of that resource.
  - cwp 16y ago
    Yes, that's the nature of wealth. The point is that Bitcoin really is different from other currencies in terms of how bitcoins are created. Dollars are largely created by banks. They get special permission from the government to create dollars and lend them out. Bitcoins, in contrast, can be created by anyone with some computing power, no permission needed. The fact that one must expend resources to create bitcoins is what makes them valuable - a currency that anyone could create with no effort would be worthless.
jonknee 16y ago
The point of Bitcoin isn't to not favor the rich (all types of money favor those who have it), but to prevent central control. That control leads to things like hyper inflation, preventing payments to certain parties, seizing of assets, etc.
kaerast 16y ago
Because mining for bitcoins is a lot of work, and ultimately doesn't make huge amounts of money? Because it isn't the job of a currency to evenly distribute the wealth?
weavejester 16y ago
It's my understanding that it's probably easier to trade bitcoins for dollars than calculate them directly, unless you happen to have a lot of spare computing resources lying around. For instance, if I set my desktop machine calculating, I might make 50 BTC in a year. But I could buy that on an exchange for $50 right now if I wanted to. That said, bitcoins do favour the already rich. If I have $1000 I can buy more bitcoins than someone with only $100. This is not exactly unusual. The advantage of using bitcoins as a currency is that you can transfer them electronically without the need for a centralised banking system and all the bureaucracy that entails. As a programmer, this is what really excites me about the system.
tybris 16y ago
Traditional currency is still too reliable because it is tricky to get a critical mass to give up their faith in government and the economic system. For these boom and bust times we need something that can become completely worthless overnight when someone finds a new mathematical technique, flaw in the BitCoin implementation, or lucrative exchange scheme.
- CoffeeDregs 16y ago
  >it is tricky to get a critical mass to give up their faith in government and the economic system Why would you have to do that in order to use BitCoin? I've used all kinds of currencies/monies (including trading, labor, whatever) in my life without giving up faith in the US Govt's ability to back the dollar.
astrofinch 16y ago
You might as well say dollars suck because they're printed by the US Government and therefore favor the government.
joeyh 16y ago
The number of bitcoins produced in a given time interval is kept close to constant, based on the quantity of resources used to produce them in the recent past. So throwing vast resources at mining should be conterproductive. Serious miners use GPU hardware, so there are effectively two tiers of miners: Those who have a GPU and can dedicate it to bitcoin, and those who don't.
ataggart 16y ago
>Why is Bitcoin a good currency again? It isn't, but almost anything can work if the community of users is small enough. As for why it isn't, we need to step back a bit. In a barter economy an exchange occurs when two individuals each produce something which takes time/labor/capital and which the other person values more than what they're giving up. For example, if I grow an apple, and you grow an orange, and we trade, it is clear[1] that I value the orange more than the apple, and you value the apple more than the orange (otherwise we wouldn't have made the exchange). The value of those items is individually subjective[2], and the supply of those items is constrained by market forces (e.g., alternate uses of time, labor, and capital). A money economy emerges from a barter economy when individuals accept in exchange something they do not want for itself, but with the anticipation that they can use it for some future exchange. It is critical that the commodity in question be desirable eventually. If no one ever wants it, then it wouldn't emerge as money. (Important Aside: once a commodity begins to function as money, part of the demand for the commodity will be as money, thus there is positive feedback loop, but some non-money demand needs to exist to get the process running. This is why all functioning fiat currencies have their roots in a commodity money.) It's important to notice that commodity money has some inherent constraint on its creation (i.e., its supply curve is bounded by market forces), and that it satisfies the wants of others (i.e., there exists some demand curve). For example, the gold supply is constrained by the cost of mining/processing new gold, and the demand affected by its consumption into produced goods and demand to hold "cash balances" of gold. So far as I can tell, bitcoin is a scheme whose total supply is constrained only by an exogenous, artificial limit of 21M coins, and not by the demand for alternative uses of its factors of production[3]. There can be, at most, a marginal value[4] equal to the marginal cost of producing a coin, which appears to be nothing but otherwise-idle computer time and some electricity. But far more importantly, this is a scheme whereby artificial scarcity is created (e.g., it takes n hours to produce a coin) but no thing of value is produced. This would be akin to inventing a system of money involving sticks whittled into perfect cylinders. Sure it might take a long time to create one, and it might consume resources, but if the end result doesn't have any value to anyone, it isn't money, it's just waste. "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." [1] http://en.wikipedia.org/wiki/Revealed_preference http://en.wikipedia.org/wiki/Revealed_preference [2] http://en.wikipedia.org/wiki/Subjective_theory_of_value http://en.wikipedia.org/wiki/Subjective_theory_of_value [3] http://en.wikipedia.org/wiki/Factors_of_production http://en.wikipedia.org/wiki/Factors_of_production [4] http://en.wikipedia.org/wiki/Marginalism http://en.wikipedia.org/wiki/Marginalism
lambda 16y ago
Well, it favors people who invest a little time and effort into mining (it's still relatively cheap to do, if you assume that bitcoins will continue to be valuable), and especially favors those who get in early to help support the currency in its formative stage (which is good for the value of the whole bitcoin economy). You need to distribute the initial bitcoins somehow, and these people are putting value in by protecting the network from scammers (the reason for mining is that you're doing a lot of hard work to validate transactions, forming a long chain of valid transactions, such that it would be quite difficult to form an alternative chain in which an attacker spends money differently). So, miners are providing the security of the network, and helping roll out the currency slowly and smoothly, as well as speculating on the future value of bitcoins, so they do deserve to receive some compensation for their efforts. If you feel like bitcoins will be valuable in the future, and don't want to get into mining, then sell some goods or services for bitcoins. If you happened to have sold a loaf of bread for BTC 50 last October (about $2.50 back then), you could now trade that for $50; that's a pretty good return on your investment. Don't worry about the miners are getting money for nothing; they are help making the whole system work, and there are plenty of ways of earning bitcoins besides mining.
deleted 16y ago
[deleted]

cwp 16y ago

I'm hardly an expert in bitcoins, but: simply having more computational power isn't enough, you have to use it. That computational power is valuable; if you're mining bitcoins you're not using it for whatever it is that you bought all that capacity for in the first place. I doubt that Google or Amazon or the NSA are going to abandon what they're doing now to mine bitcoins.

kd0amg 16y ago
simply having more computational power isn't enough, you have to use it You can say that about any resource. It's still generally easier for someone who's wealthier to put up more of that resource.
- cwp 16y ago
  Yes, that's the nature of wealth. The point is that Bitcoin really is different from other currencies in terms of how bitcoins are created. Dollars are largely created by banks. They get special permission from the government to create dollars and lend them out. Bitcoins, in contrast, can be created by anyone with some computing power, no permission needed. The fact that one must expend resources to create bitcoins is what makes them valuable - a currency that anyone could create with no effort would be worthless.

jonknee 16y ago

The point of Bitcoin isn't to not favor the rich (all types of money favor those who have it), but to prevent central control. That control leads to things like hyper inflation, preventing payments to certain parties, seizing of assets, etc.

kaerast 16y ago

Because mining for bitcoins is a lot of work, and ultimately doesn't make huge amounts of money? Because it isn't the job of a currency to evenly distribute the wealth?

weavejester 16y ago

It's my understanding that it's probably easier to trade bitcoins for dollars than calculate them directly, unless you happen to have a lot of spare computing resources lying around. For instance, if I set my desktop machine calculating, I might make 50 BTC in a year. But I could buy that on an exchange for $50 right now if I wanted to. That said, bitcoins do favour the already rich. If I have $1000 I can buy more bitcoins than someone with only $100. This is not exactly unusual. The advantage of using bitcoins as a currency is that you can transfer them electronically without the need for a centralised banking system and all the bureaucracy that entails. As a programmer, this is what really excites me about the system.

tybris 16y ago

Traditional currency is still too reliable because it is tricky to get a critical mass to give up their faith in government and the economic system. For these boom and bust times we need something that can become completely worthless overnight when someone finds a new mathematical technique, flaw in the BitCoin implementation, or lucrative exchange scheme.

CoffeeDregs 16y ago
>it is tricky to get a critical mass to give up their faith in government and the economic system Why would you have to do that in order to use BitCoin? I've used all kinds of currencies/monies (including trading, labor, whatever) in my life without giving up faith in the US Govt's ability to back the dollar.

astrofinch 16y ago

You might as well say dollars suck because they're printed by the US Government and therefore favor the government.

joeyh 16y ago

The number of bitcoins produced in a given time interval is kept close to constant, based on the quantity of resources used to produce them in the recent past. So throwing vast resources at mining should be conterproductive. Serious miners use GPU hardware, so there are effectively two tiers of miners: Those who have a GPU and can dedicate it to bitcoin, and those who don't.

ataggart 16y ago

>Why is Bitcoin a good currency again? It isn't, but almost anything can work if the community of users is small enough. As for why it isn't, we need to step back a bit. In a barter economy an exchange occurs when two individuals each produce something which takes time/labor/capital and which the other person values more than what they're giving up. For example, if I grow an apple, and you grow an orange, and we trade, it is clear[1] that I value the orange more than the apple, and you value the apple more than the orange (otherwise we wouldn't have made the exchange). The value of those items is individually subjective[2], and the supply of those items is constrained by market forces (e.g., alternate uses of time, labor, and capital). A money economy emerges from a barter economy when individuals accept in exchange something they do not want for itself, but with the anticipation that they can use it for some future exchange. It is critical that the commodity in question be desirable eventually. If no one ever wants it, then it wouldn't emerge as money. (Important Aside: once a commodity begins to function as money, part of the demand for the commodity will be as money, thus there is positive feedback loop, but some non-money demand needs to exist to get the process running. This is why all functioning fiat currencies have their roots in a commodity money.) It's important to notice that commodity money has some inherent constraint on its creation (i.e., its supply curve is bounded by market forces), and that it satisfies the wants of others (i.e., there exists some demand curve). For example, the gold supply is constrained by the cost of mining/processing new gold, and the demand affected by its consumption into produced goods and demand to hold "cash balances" of gold. So far as I can tell, bitcoin is a scheme whose total supply is constrained only by an exogenous, artificial limit of 21M coins, and not by the demand for alternative uses of its factors of production[3]. There can be, at most, a marginal value[4] equal to the marginal cost of producing a coin, which appears to be nothing but otherwise-idle computer time and some electricity. But far more importantly, this is a scheme whereby artificial scarcity is created (e.g., it takes n hours to produce a coin) but no thing of value is produced. This would be akin to inventing a system of money involving sticks whittled into perfect cylinders. Sure it might take a long time to create one, and it might consume resources, but if the end result doesn't have any value to anyone, it isn't money, it's just waste. "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." [1] http://en.wikipedia.org/wiki/Revealed_preference http://en.wikipedia.org/wiki/Revealed_preference [2] http://en.wikipedia.org/wiki/Subjective_theory_of_value http://en.wikipedia.org/wiki/Subjective_theory_of_value [3] http://en.wikipedia.org/wiki/Factors_of_production http://en.wikipedia.org/wiki/Factors_of_production [4] http://en.wikipedia.org/wiki/Marginalism http://en.wikipedia.org/wiki/Marginalism

lambda 16y ago

Well, it favors people who invest a little time and effort into mining (it's still relatively cheap to do, if you assume that bitcoins will continue to be valuable), and especially favors those who get in early to help support the currency in its formative stage (which is good for the value of the whole bitcoin economy). You need to distribute the initial bitcoins somehow, and these people are putting value in by protecting the network from scammers (the reason for mining is that you're doing a lot of hard work to validate transactions, forming a long chain of valid transactions, such that it would be quite difficult to form an alternative chain in which an attacker spends money differently). So, miners are providing the security of the network, and helping roll out the currency slowly and smoothly, as well as speculating on the future value of bitcoins, so they do deserve to receive some compensation for their efforts. If you feel like bitcoins will be valuable in the future, and don't want to get into mining, then sell some goods or services for bitcoins. If you happened to have sold a loaf of bread for BTC 50 last October (about $2.50 back then), you could now trade that for $50; that's a pretty good return on your investment. Don't worry about the miners are getting money for nothing; they are help making the whole system work, and there are plenty of ways of earning bitcoins besides mining.

deleted 16y ago

[deleted]