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A Bitcoin for Your Thoughts
The best performing currency year-to-date has no home country, no central banker and no physical scrip; it is the online-only ‘Bitcoin’ and as we noted recently, it is becoming more mainstream. BTC, as the currency is known, up 130% year to date in dollar terms, thanks to rising demand from a wide variety of adherents, which ConvergEx's Nick Colas notes, includes libertarian activists, small businesses, online drug dealers and gambling sites. That makes the Bitcoin a controversial subject, to be sure, but Nick notes we can also learn from this unique case study a lesson in global economics. Bitcoin ‘Money supply’ growth is capped at a slow rate – far below its current levels of demand. That makes it prone to boom-bust cycles. It also has no sovereign sponsorship, which means it works outside any nation’s security apparatus. Lose your bitcoins to hackers? Tough luck – there is no FDIC in these parts. Still, Colas concludes, in the creation and growth of the Bitcoin it is not hard to see the online future of currency, especially as real-world alternatives continue to struggle with sluggish economies.
Via ConvergEx's Nick Colas,
Every journalist knows that the epithet “Secretive billionaire” catches most readers’ attention like the landing hook on an F-16 making a carrier landing. If someone is rich and not in the public eye, what are they hiding? Are they crooks? Or just so happy with their lives that they don’t want to inspire any more jealousy than necessary? Inquiring minds (always) want to know...
Let me introduce you to Satoshi Nakamoto, secretive central banker. OK, truth is that he (it is probably a man) only uses that nom du guerre when writing research papers; no one knows his real name. And he isn’t so much a central banker as a technologist and architect of something called Bitcoin. Yeah, I hadn’t really heard of it either until I read an article on zerohedge about a “Bitcoin ATM” yesterday. I spent most of the day reading about Mr. Nakamoto and his virtual monetary construct, and there is much to learn from this first online success story in the world of stateless currencies.
Here’s a primer on the “Who-what-wheres” of Bitcoin:
- The elusive Satoshi Nakamoto published a research paper back in November 2008 outlining the structure for an Internet-only currency he dubbed bitcoin. Confidence in global currencies and financial system were at low points around the world. Why not try something new?
- Rather than have one central database of user balances and transaction history, Nakamoto’s design distributed the database to a network of third parties. Each one keeps the “Ledger” of owners and also runs hugely complex programs to solve cryptographic puzzles. Crack the puzzle, and you get fresh bitcoin currency for your trouble. The puzzles have grown so complex that people interested in working on them now band together online to share their computing power and hopefully earn a few bitcoins for their trouble.
- The overall supply of bitcoin in the system therefore grows at a slow and pre-ordained rate. There are currently 10.8 million bitcoins in the system, and this will cap out at 21 million coins in just over 125 years (2140, to be precise).
- To use bitcoin, you need a “Wallet” which allows you convert your local currency into BTC and back again. There are many available options online, as well as BTC “Exchanges” to execute the conversions. The distributed database which manages the system is anonymous, so there’s no central record of what you own or where you spent your money.
So what we have is a stateless currency, with essentially no government oversight, run by a bunch of nerds cracking puzzles, with an anonymous architect who (by the by) hasn’t been heard from in over a year. Yes, in other words a recipe for massive success. Some recent statistics:
- Those 10.8 million bitcoins in circulation are worth $345.6 million as of today. (See this and other stats here: http://bitcoinwatch.com/). The velocity of this money is astounding: 1.6 million bitcoins have changed hands in the last 24 hours, or over 10% of the existing money stock.
- The U.S. dollar value of a Bitcoin is up from just shy of $5.00 a year ago ($4.87, to be precise) to $31.09 today. It has appreciated by over 100% from the end of 2012 alone, when the quoted price was $13.48. And back during most of 2010, you could buy all the BTC you wanted for less than a dime.
- Over the last 24 hours, there have been +61,000 transactions using BTC. This is almost double the 30,000 transactions in January 2013, and more than 6x that of March 2012.
- That distributed ledger of BTC owners has one pitfall: it takes about 8 minutes to clear a Bitcoin transaction. The good news is that this is down from the +10 minutes of just a few months ago.
So at this point your BS-meters should be quivering – what’s going on here? Huge swings in value combined with growing adoption for a system which (aside from anonymity) seems more a step back than a great leap for mankind. The answers are part pulp fiction, part elegant case study on the real utility of “Money.” A few points here:
- While Bitcoin may not get much mainstream finance love, the FBI and various U.S. legislators are paying close attention. Turns out that some bitcoin-accepting online vendors (look up “Silk Road market”) with good anonymity software allow customers to buy illegal drugs using the similarly no-names-please Bitcoin.
- Online casinos who wish to cater to U.S. customers accept Bitcoins, again for the anonymity of the currency. The folks that run BTC “ledgers” do release aggregate financial information – where the money is going. And it is going to online gaming, with an unknown number of U.S. customers in the mix.
- At the same time, scores of legitimate businesses are also beginning to take BTC, in addition to dollars and euros. You can buy everything from socks to sneakers to precious metals to baklava online, all with Bitcoins. See here for a more complete list: https://www.spendbitcoins.com/places.
- When incremental adoption meets relatively fixed supply, it should be no surprise that prices go up. And that’s exactly what is happening to BTC prices. What’s interesting to note is why BTC prices plummet, which they did in the back half of 2011. The cause was a very short-lived hack attack on one Bitcoin “Wallet” company out of Japan, which caused the price to drop from $27 down to $2 in a few months. Confidence in money as a store of value is the ultimate driver of its value, both in the cyber and real worlds.
I have no idea which way Bitcoins will trade in the next 2 days or 2 years, but the whole process of starting a new Internet currency is a great case study in how real people use real currency. Limiting supply has clearly been a huge plus for the BTC. Becoming known as a currency for illegal drugs and gambling is more problematic, of course. But let’s not forget that the U.S. Treasury printed 3 billion $100 bills in the 2012 Fiscal Year. Most of those (the Federal Reserve estimates 80%) go overseas and many of them simply facilitate the global drug and arms trade, not to mention tax evasion and human trafficking. So the BTC’s growing role in the same types of business might qualify it for “Reserve currency” status sooner than anyone thinks.
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Bitcoin is only as good as the internet central bankers can be trusted. how big is the network of 3rd parties? How do we know that the founder doesn't have some back door built in to manipulate the ledger?
"Rather than have one central database of user balances and transaction history, Nakamoto’s design distributed the database to a network of third parties. Each one keeps the “Ledger” of owners and also runs hugely complex programs to solve cryptographic"
@Common_Cents22
Your concerns about a "back door" are alleviated due to the nature of the project. It is open source. All of the code can be examined for any security flaws, and it has, by many developers and cryptography experts. If you'd like to get outside verification, you could have your own developer do it - or yourself, if you know how to read code.
The "network of third parties" you mention are everyone running the bitcoin client on their machines, and the miners as well. There isn't a central control machine or someone who could change code and "hack" the blockchain ledger.
Many of your questions can be answered here, in graphical form. http://blockchain.info/charts
To answer more specifically; 1GH/s (giga hash per second, hash being an sha-256 encryption function) would be roughly equal to 1,300,000,000,000 operations per second (flops) One of the top super computers is the Jaguar supercomputer which uses fairly standard opteron cores. So the jaguar would be capable of hashing at about 522 GH/s.
The current network hashrate is over 31,000 GH/s so the network of individual bitcoiners each doing their part to secure the transaction blocks is roughly equivalent to 60 jaguar super computers.
There is only one jaguar super computer in existence today. But we are legion.
Your bitcoins are secure as long as you dont give out your private encryption key, only your public key. Also dont store your money with an online wallet, they are subject to hacking although like any good service they try to protect their clients as best as possible. Finally some malicious people have written programs that will seek out your wallet file on your windows machine, so encrypt your wallet, hide your wallet file somewhere besides the standard install folder. Some people have printed their address on paper, and taken their wallet comp offline all together. Best practice imo is to put a bitcoin wallet on a thumb drive and only plug it in when you need to either generate a receive address or send bitcoin.
Most here are familiar with Phil Zimmerman's pgp. To me, Public/private keys and the nature of transferring encrypted values peer to peer is not the issue. It is the fact that the transaction must be broadcast publicly to update the block chain and to update a public register of transactions at the exchange nodes - viewable tp anyone. Then again, if two individuals decide to keep their transaction secret, the block chain - the history of bitcoin - cannot be up to date.
What issue do you have with the transaction being broadcast publicly?
The "public" information is the amount of bitcoin and an encrypted address. You yourself have something like 215,000,000,000,000,000,000,000,000,000 unique addresses.
So why do you not like letting your anonymous address and amount be broadcast if it allows you to enjoy the benefit of a strong sound currency that can not be inflated by a central authority. Seems like a small price to pay for monetary freedom.and an honest store of value.
Or maybe you just prefer that pretty green paper.
Wow I had no idea Bitcoin was such a divisive topic. Why the heat? Just curious.
@`Z
I have often asked myself the same thing, many times. I believe it boils down to a few factors:
1) Money is a touchy subject, and when you start to question things or even suggest alternatives, people don't react well. I'm sure many people in precious metals can relate to this.
2) Some people have an agenda, or they can't wrap their heads around some of the concepts that bitcoin presents.
3) A small fraction is genuine fear that bitcoin could sweep the world like peer-to-peer technology, thus disrupting many established power networks and those that depend on them.
you should try shorting the S&P 500 in bitcoin once. God does that give a dirty ashamed feeling! The good kind of dirty if you know what I mean.
Some died-in-the-wool free marketers have just had their golden calf, the gold standard, slaughtered on the altar of free market monetarism ... go bitcoin! (and namecoin and litecoin and devcoin).
... the blood is splattering the walls all over ZeroHedge. It is beautiful to watch the hyper-critical descend into rage filled hypocrisy.
An offer to all ZHers skeptical of or unfamiliar with Bitcoin:
To the first five ZHers that post a bitcoin address, I'll send you .1 bitcoins. To get an address, go here and get a wallet:
https://blockchain.info/wallet/
In the wallet, copy and paste the address as a reply to this post.
I'll give preference to those ZHers that have a history of talking trash about the protocol.
.1 btc is good for 100 chips (several rounds at the poor boy tables) at:
https://sealswithclubs.eu/
I ask that people already partial to or familiar with Bitcoin refrain from posting an address.
You can read this while you're waiting for your free $3 and something cents:
https://blockchain.info/wallet/bitcoin-faq
1Cg7nVC5BnhwJv5SZq4m1RqSysUDG7C9LU
"I'll give preference to those ZHers that have a history of talking trash about the protocol."
Fuck that bitcoin shit.
The only currency here on space station ZH is gold.
The rebreathing units from our j00tanks run on gold and we need the silver to consume as colloidal solutions to keep down the herp.
(There's space herp everywhere)
1D28JSkCkF8TXu9kKjL7oy8t9NSVCfnRJE
If Bennie says bitcoin is money does that make it fiat?
Bennie doesn't even think gold is money.
You have no history of saying anything about Bitcoin on ZH. As a matter of fact, your only post is this one.
No bitcoin for you. Please re-read the conditions.
I dont need your stoopid buttcoins anyway. They'll be useless next time we have a worldwide emp explosion.
Can't even wipe your ass with them. Lol
Here is mine... I think there were no 5 addresses so far ;)
15BjwfCS34zCfgwe18nugPRjkGGHxL42yP
Still open for business?
1F2vaLqrgCjxjhK4bYBdFnzAmuaSigsemp
Same instawallet address I made on the last Bitcoin related article - http://www.zerohedge.com/news/2013-02-26/alternative-currency-goes-mains...
Sorry but I had to junk ya. In order to protect your own anonymity it is good practice to use a new address for every transaction. You have 215,000,000,000,000,000,000,000,000,000 unique adresses for your wallet alone. Use them!
https://en.bitcoin.it/wiki/Anonymity
That's not my only address, here's a fresh one :)
1BmmZnN78DKKTBXxsiiodLA2oX8bFxK2Km
The day an F-16 makes a carrier landing would quite frightening....because F16's are used by the Air Force and don't have landing hooks.
Actually, F-16s DO have tailhooks, but not for carrier landings. They're used for emergency landings on land-based runways. Check out the following link--there's actually a photo of an F-16 tailhook about to grab an emergency runway barrier cable...
http://www.aerospaceweb.org/question/planes/q0295.shtml
a few questions for bitcoin experts that I cannot fully get my head around.
*Is it at all possible even if it is very very unlikely that the 21 million could be changed?
*Is there any remaining control that original designers have over the system?
*I did read that the speculate at some point the encryption could be broken and if so the new encryption would be deployed. What would the negative outcomes of this be?
forgive me for any misunderstanding of the system but these are things that would for sure be of concern for me. The idea itself is genius and I appreciate it very much.
@riphowardkatz
There's a good summary of many concerns here:
https://en.bitcoin.it/wiki/Myths
But, to help out I'll answer here.
1) There is no way that there is any "back door" or control mechanism in the system. I state this because the entire project is open source, and you or someone you trust that can read source code can verify that this is true.
2) If encryption were broken, the bitcoin client would be changed to update to another method. However, I should mention that the developers are on top of any recent developments regarding crypto, so it is more likely that they'd have an upgrade in place for people to download and scrutinize before the existing one became obsolete.
So great ~ the Rothschilds go out & put a hit on "the developers"... oops ~ brainbug is dead
@francis_sawyer
I'll give you credit for the "Starship Troopers" reference, but it wouldn't stop anything.
Although I think the current developers are talented and intelligent, there are others who would gladly step into their shoes, and can. The project is as distributed as the bitcoin ledger is, which makes it a global enterprise.
Please do us a favor and don't pull out the old "what if the whole earth explodes" trope - it just shows a certain kind of desperation that is rather depressing.
What you need to know about bitcoin is:
http://hackaday.com/?s=bitcoin
It's as safe as FRN's.
@Papasmurf
You're incorrect.
Bitcoin is safer than federal reserve notes, because it doesn't have anyone printing $85 Billion of them a month, among other reasons.
However, bitcoin is a ponzi. Last one out loses. Identical to FRN in that regard.
the last one out of anything loses, what is your point? if everyone got out of gold or silver or dollars or homes they would lose.
just saying Ponzi doesn't make it so.
Here's a bitcoin address with about $3 million on it:
https://blockchain.info/address/1933phfhK3ZgFQNLGSDXvqCn32k2buXY8a
It's there for as long as a computer networks exist that are running Bitcoin. You can knock the internet out and the power off in half the word and Bitcoin will keep going as long as the power and a network are going somewhere.
You can't say that about any bank, ETF, etc.
Can I put my 401k into Bitcoins?
Just cash it out & give it to me... I'll take it with meon my next boating trip... The end result [for you] will be the same...
Since my last post on bitcoin 2days ago, I've had little more time to think about it.
First it is not a Ponzi. I can think of many ways it could be subverted to a Pyramid/Ponzi scheme that leave the last uptakers with nothing, particularly at compromised exchange nodes where it is vulnerable to internal/external manipulation, and by accepting FRNs for bitcoins they might as well hang a big sign around their mouths with the words, "Ben's tiny cock goes here". Because he can devalue their entire world in a split second simply by buying it all up then dumping them. $450m? Ben can jizz that out before breakfast each morning.
Second, as long as exchanges exist and you take reasonable precautions with your digital funds (ie backup), it is as safe as any other asset bearing in mind nothing is risk free. It is as secure as the network that counts your bitcoins' existence. The only part of the blurb I strongly disagree with is their confidence in anonymity. The whole system is inherently one of public broadcast and a fairly dumb analytics software can probably work out the origins of each transaction.
What bitcoin actually represents is an important lesson in the utility, popularity, and the totally arbitrary nature of assigning value to valueless concepts like MONEY and of course the control of its supply.
To me, bitcoin helps me to understand that the things human beings irrationally value are directly proportional to its popularity. The rest: faith, trust, utility, which we associate with a convenient medium of exchange come a distant second.
Basically, it is the bandwagon effect that drives the value of human desire. And desire that negates all rational thought. Once you assign high value on something or someone, people don't give a shit how it came to being, what use it is, who created it, or what it is made of. They just want a piece of it. Not unlike falling in love with a popular, hot woman who may or may not turn out to be a diseased moron.
Bitcoin the uncorrupted beauty faithful to the rules of its creator, shielded from the molestations of the Fed, and defender of its users' privacy is a worthy idea that I support. But when something seems too perfect one should be wary of the psychopath that may lurk beneath. Ultimately it is only as good as its human and machine networks that use it.
they took elections to electronic from paper and look what happened
If elections had the ledger trail and authentication that bitcoin has, TPTB would shit bricks and every gulfstream jet available in the US would be headed to non-extradition countries.
Could Bennie buy out all btc? If you vist the mtgox exchange you will notice there is a bid and ask. While the first btc may sell for $33 the last may cost $45,000,000,000. Market cap is not the price to buy all bitcoins in existence. Right? mtgox.com
While all transactions are public, the adresses identifying the buyer and sellers wallets are encrypted. Furthermore every wallet has 64! unique addresses. Thats somewhere in the billions if I remember correctly. https://en.bitcoin.it/wiki/Anonymity
Lastly I'm pretty sure it's legal tender laws that make FRNs so wildly popular. When currencies are allowed to compete I believe we do select the best currencies which are popular BECAUSE they are portable, divisible, durable, scarce, and a store of value. Gold has these traits, eggs dont. Gold is the preffered as a medium of exchange.
FRNs aren't such a good store of value any longer. Are they popular? Or just forced on us?
Mtgox is probably not a good example to support your case. That was the exchange which brought down the value of a bitcoin to $0.01 in 2011 after a large sell offer wasn't it?
I am always wary of people who are completely cock sure nothing can go wrong.
I didnt present a case. Merely questioning your assertion that Bennie can buy all btc. Can he also buy all gold. Is the gold market cap the price he would pay? Bennie can buy all the gold at $1600/oz each.
You're absolutely right mtgox had a security issue. They worked thru it and are setting daily transaction records, TODAY, in the hundreds of thousands of btc, and millions of dollars. Darn all those cock.sure.mt goxers.
You should be wary, your obviously confused and have no idea what you speak of.
perhaps they should rename Obama's Internet Kill Switch the Bitcoin Kill Switch?
I think people should stop assigning a dollar value to bitcoin. The tax man cometh.
Forget the scam bit. For all you Bitcoin cheerleaders, why did the bitcoin market crash?
Human greed and a shallow market. It will succeed because of human greed and a wide market.
http://blockchain.info/charts/market-cap
What crash? Make sure you click all time to see all historical data.
@LiquidityandLunacy
The market crashed in 2011 because there was an early cycle that popularized bitcoin as an easy way to get into certain black markets. We share the same legacy as the us dollar in that regard. What didn't help was the subsequent hacking of a large exchange. While the bitcoin protocol wasn't damaged, the site didn't employ security that was adequate.
This resulted in the hacker fabricating balances in their database. This is distinct from the blockchain - it was just a numeric entry in their server, and didn't use bitcoin's built-in security measures.
So, the thief tried to inflate their balance and transfer this outward. Some of that succeeded, but largely the effort was halted by the site admins.
So, the lesson here is securing a site that deals with valuables. Mt. Gox obviously failed in that aspect.
After that, price wandered and consolidated to the point where you see it now.
So why has bitcoin doubled in value in 60 days?
2 months ago the mining reward was reduced from 50 btc to 25 btc. At the same time the number of users and daily uses of bitcoin has been increasing steadily. www.blockchain.info/charts
Seems like fairly simple supply and demand to me.
Use an anonymous search engine like startpage and search terms such as "bitcoin mining reward". You will find plenty of in depth info.
who made that change and why? Sounds so central bankish..
It is one of the parameters written into the algorithm by Satoshi 4years ago. The block reward itself was arbitrary, the important thing is that the algorithm mimiced the mining of gold. Less and less coming out of the ground as it is mined. This means bitcoin is scarce and can not be inflated. No central authoirty can dictate that more bitcoin be mined than the algorithm was coded to allow for.
Now what part of that resembles central banking?
Only needed to read the first 3 posts to decide that I had to repeat myself.
IMO Bitcoin is to cyber purchases what Gold is to the coming economic apocalypse, nothing more and nothing less.
Pretty sceptical about another man-created currencies whatsoever they may be called: bitcoin, nu-usa dollar, imf sdr etc. In particular those digitally created medium of 0s and 1s are indeed big taboo for saving one's wealth in long term. Don't buy into it at all :)
What one thing is pretty sure, gold is limited and rare and precious :-) Gold is really rare for its duly reasons!
Why Gold Is So Rare
"UNLIKE diamonds or gem stones, which are produced under the Earth by extreme pressures and heat, gold is a NON-TERRESTRIAL metal, meaning that all the gold that exists today, above and below ground, is all there ever will be. Gold is not produced by the geology of the Earth; in fact, Gold doesn’t even originate from this solar system. All the gold that exists on Earth today arrived many billions of years ago during the early period of Earth’s formation. Gold is a heavy element with an atomic number of 79. As with other elements heavier than iron, gold was created in the far reaches of space in some of the most violent events in the universe – supernovas."
More at here: http://bit.ly/S6Ieb3
There are indeed some factual reasons why gold is famously nicked as the BARBAROUS RELIC :-)> LOL
“If you can’t hold it, you don’t own it” -- The Ten Commandment: "Possession is 10/10th of the Law."
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"All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident." -- Arthur Schopenhauer, 19th-century philosopher
@matrix2012
The physical versus digital argument has been made a few times in this thread. The answer is using both tools to complement each other.
The ultimate goal here is monetary freedom and insulating yourself from mismanaged sovereign currencies.