

What Bitcoin Is, and Why It Matters - TuxPirate
http://www.technologyreview.com/computing/37619/?mod=chfeatured&a=f
Recent weeks have been exciting for a relatively new kind of currency speculator. In just three weeks, the total value of a unique new digital currency called Bitcoin has jumped four times, to over $40 million.
======
Brashman
There's some interesting discussion about Bitcoin on this Quora question:
[http://www.quora.com/Is-the-cryptocurrency-Bitcoin-a-good-
id...](http://www.quora.com/Is-the-cryptocurrency-Bitcoin-a-good-idea)

~~~
joe_the_user
Excellent discussion - in the sense that he rightly tears the idea to shreds.

I was tempted to go through a full economic analysis but he's save me the
trouble. Good show..

~~~
nandemo
I find the top answer to be very biased and poor.

For starters, he clearly misunderstands what it means for the Fed to print
money. When you increase the money supply, somebody _is_ getting "free money",
even if it's indirectly. The more dollars there are, the less each individual
dollar is worth. If everybody got their share of the newly minted money there
would be no difference, but in practice just a few institutions will be the
direct recipients of the new money. For instance, when the Fed prints money
then uses it to buy California-issued bonds, the California government is
indirectly getting free money.

> _Or at least have constant in rate of growth? Yes, of course you would,
> because that's the only way to actually accommodate more people using it._

This is an elementary mistake. Bitcoins can be subdivided almost indefinitely.
If they go up 1000 times in value, we'd just start using milibitcoins.

> _As a quick thought experiment, let's say demand for Bitcoin grew as more
> people found out about them. Well, you'd expect the price of Bitcoin in
> dollars to grow rapidly. Now assume I own one Bitcoin. I also have a dollar
> bill. I would like to purchase a Pepsi. Which one of those will I spend?
> Obviously the devaluing dollar gets spent before the skyrocketing Bitcoin._

This is nonsense. A transaction takes 2 willing participants. If bitcoin's
value is expected to go up, then naturally the merchant will prefer getting
paid in bitcoins rather than the dollars.

The main problem of Bitcoin is that currencies are like social networks:
they're only useful if other people are using it, and often they never achieve
the critical mass necessary to be successful. This, and the large risk of
being outlawed by governments.

~~~
spinchange
Issuing bonds is not getting free money. It's taking out a loan that you are
promising to back with interest over a stated duration of time.

Central Banks don't seed capital. They lend it.

~~~
nandemo
I didn't say that _issuing_ bonds is getting free money. The point is when the
Central Bank prints money and then spends it on X, the institution selling X
is indirectly getting free money or, equivalently, everyone else holding
dollars becomes a bit poorer.

~~~
spinchange
When a Central Bank engages in something like quantitative easing, no one is
getting "free money." Other governments or banking institutions are borrowing
and re-lending it to others who do the same until it finally gets to real
people who exchange their physical time, labor, and output for it.

That is how capital is diffused in the current system. Yes, it is absolutely
inflationary, imperfect, and this is big oversimplification, but the bottom
line is that money has no inherent value. The issuing bodies -or more closely-
the groups of people they represent, do. I hold that true for Bitcoin too - a
hash string has no inherent value, nor does the "proof of work" that was
required to generate it - it's all about artificial scarcity seeded randomly
to an entirely non-random segment of the population.

------
qntm
Does everybody in the world who uses Bitcoins also keep a copy of the global
transaction record? Isn't that going to become colossal very quickly?

~~~
A554551N4710N
yes, which is a major problem... hopefully one which they can release an
update to rectify

~~~
joe_the_user
But first you'd have to figure-out how to solve the problem.

"Everyone" keeps a record to keep everyone else honest. If only some people
kept records, they'd become the authorities and this would stand in the way of
the system being decentralized.

~~~
minikomi
Is it not possible to periodically start fresh, from an agreed upon point?

~~~
joe_the_user
I am not sure how you would do it. As I understand it, the bitcoin distributed
hash approach relies on transactions being "verifiable" to avoid the process
of actively and complete verifying everything. But any "restart" would have to
actually do this active verification. Still, perhaps someone who knows could
describe how this could work.

Further, even a restart would involve everyone in the world having a record of
how much money everyone else in the world had.

Anyway, the mind boggles thinking about how this could possibly work.

------
jasonkolb
Good explanation. It'll be interesting to see what happens if someone ever
attempts to run a major exchange within the US. My money says they'll be
labeled a terrorist.

~~~
cynusx
I'd be more interested to see what happens when said exchange files for
bankruptcy.

------
cbare
The question is, which will be the more stable currency 5 or 10 years from
now, BitCoin or the US Dollar?

See The Future of Money:
[http://pragmaticpoliticaleconomy.blogspot.com/2010/03/future...](http://pragmaticpoliticaleconomy.blogspot.com/2010/03/future-
of-money.html)

------
juiceandjuice
Bitcoin could be to quantum computing what Sputnik was to NASA.

~~~
bdhe
_Bitcoin could be to quantum computing what Sputnik was to NASA._

Could you elaborate? Does mining bitcoins become easier with quantum
computers? Is there some other connection I'm missing?

~~~
daliusd
The reason why private-public key mechanism works is that it is really hard to
get private key from public key. With quantum computers it is trivial task. In
theory you could steal other people's bitcoins.

In reality I wouldn't be so enthusiastic about quantum computing exploding
because of bitcoin. Private-public key encryption is used now everywhere and
having quantum computer would give you benefit in lot of situations.

~~~
Groxx
Prior to such an explosion, we'd have more interest in quantum-resistant
public-key crypto: <http://pqcrypto.org>

One will likely end up being usable, and things will shift to it / others.

------
ender7
To me, Bitcoin just seems like a form of electronic gold. Limited supply; no
significant intrinsic value; no backing government or other body. Conversion
to real currency is commonplace but not exactly convenient.

Is this way of looking at it a poor predictor for the way it will behave in
the market?

~~~
erikpukinskis
Bitcoin has properties A, B, and C. Currency Q also has properties A, B, and
C. Therefore Bitcoin will behave like Currency Q.

Except that Bitcoin has properties D, E, and F. Will D, E and F impact how it
behaves in the market?

Probably.

------
aheilbut
question: Is the Bitcoin approach to distributed, secure transactions useful
(and is it novel?) without the currency generation component? Are they
potentially separable?

~~~
caf
There's a project that repurposes Bitcoin's block chain distributed
notarisation to implement a decentralised replacement for DNS.

~~~
jasonkolb
Wow. Yet another reason why I think governments will attempt to squash it, DNS
is the only way to even marginally effectively shut down a site right now.

~~~
wmf
Has route blackholing been tried yet? It seems like it would be pretty
effective.

~~~
wladimir
Yes, it has been tried. But it is impractical, because of collateral damage:

\- Many sites are hosted on massively shared hosts. Blocking those IPs will
cause a lot of services to be unreachable, not just the one to be blocked.

\- People find you with your domain name, not your IP, so a service could
avoid filtering by switching subnets every day and just keep updating the DNS
entry. After a certain time, the govt will be blackholing a large part of the
internet.

------
tocomment
Where do ya all buy bitcoins?

~~~
TuxPirate
There are different ways to buy bitcoin. The first one worth mentioning is
through #bitcoin-otc or #bitcoin-pit on irc.freenode.net
(<http://wiki.bitcoin-otc.com/wiki/Using_bitcoin-otc>) other ways to buy them
is through markets such as mtgox (<http://mtgox.com>)

------
anonymous
Bored with bitcoin, please stop posting regarding this topic.

~~~
cheez
Better than "Facebook integrates with Spotify". I thought this was Hacker
News, not Slacker News!

