
How to Get Started with Bitcoins - pzxc
http://pzxc.com/how-to-get-started-with-bitcoins
======
SwellJoe
What nerd doesn't love the idea of virtual currency?

But, it seems like all of the exchanges have closed or are temporarily closed
to new registrations. This seems problematic, and means the only realistic way
in or out is dealing directly with other people and businesses who believe in
this particular currency. I spent some time reading the list of people and
companies accepting Bitcoin payments, and was extremely underwhelmed. Lots of
pyramid schemes, random low-rent affiliate crap like phone cards, etc. No
actually useful goods or services. And, a lot of the websites that are talking
about this stuff have a definite "get rich quick" vibe about them.

Basically, it's all extremely flaky seeming stuff. This brings me to the thing
that makes me worry more: Who developed the code for Bitcoins? How do I know
it is secure? The people that seem to be most involved in Bitcoin discussions
seem to be...well, kinda dumb. I don't trust dumb people to build strong
encryption (I don't even trust smart people to build strong encryption, unless
they're talking it over with lots of other smart people). Reading the FAQ at
Bitcoin.org doesn't do much to alleviate my concerns. There's another FAQ in
the wiki that mentions SHA and a few other reassuring things, but I'm not
having much luck finding the real meat of the thing, and names of people
responsible for the security of the system.

In short, if this is a serious virtual currency implementation by people who
understand the security implications of such, I'm unable to find strong
evidence of that fact. And, so, I worry about dealing with it.

~~~
jerf
My basic problem with them is question three in the FAQ
(<http://www.bitcoin.org/faq>). In a nutshell, "What backs BitCoins? Nothing."
It is true that a currency that is accepted by people is by definition
valuable at the point in time where they accept it, but that does not mean you
can create a backless-currency and have it all just magically work, nor that
it will necessarily work across time. A dollar is accepted because you can use
it to pay your debts to the US Government. Inductively, another economic
entity will accept them for another good or service because they also have
that value for a dollar, and further inductively because they know they can
then use it for some other good or service, until the inductive net spans the
globe. But they're trying to skip the base case. That doesn't work.

(And I suspect even if you could magic wand it into existence it would still
be very vulnerable. Take any fiat currency today of your choice. Remove the
government backing. How long does it last? Probably not zero, but it probably
crumbles at the next crisis at the latest. It would only take one metaphorical
bank run to demolish the entire currency in a heartbeat. And it would only
take a small nucleus of savvy people to prompt such a bank run, too, and such
savvy people definitely exist.)

And in startup parlance, this is just about the worst possible "boil the
ocean" plan possible. Virtual currencies will eventually happen and I'd even
bet within a century you could live entirely off non-government-backed
currencies, but it'll happen organically, not by fiat. And, no joke, it'll
probably be some form of MMORPG cash, because those are by far the best seed I
can think of for this sort of system to crystallize around, though probably
some future MMORPG that makes today's look like tinkertoys.

~~~
kiba
We could imbues bitcoin with intrinsic value if we use bitcoin as a
notarization database.

The problem with that is the use of bitcoin as a notarization service will
erode bitcoin as a form of money. You would need to pay higher fee to
prioritize bitcoin over big documents such as DNS record and contracts. That
become inconvenient real fast for those who transact in bitcoin.

------
hugh3
I'm getting sick of hearing about bitcoins already, and I'm pretty sure I'm
going to get more sick of hearing about them over the next year or so. (Then,
one day, I'll mysteriously never hear about them again.)

Why? Because everyone who owns some of this intrinsically worthless asset
immediately has an incentive to start working on talking them up. Social news
sites are the front line of this battle... write a story about how they're
going to be the next big thing and submit it, and you can be guaranteed a
bunch of upvotes from everyone _else_ who owns some bitcoins. This story alone
probably caused at least a 10% increase in the value of 'em.

Personally I'll buy some bitcoins the moment they become exchangeable for
pogs.

~~~
mar
I will send you 2 pogs for every bitcoin sent to this address:

    
    
        1AiU5WBxdPxQkbrHKRrK3555cbL2ujzmqm
    

Please include shipping address in the transaction. Limit 100 pogs per
address. Offer expires May 1, 2011.

~~~
doublec
It's not possible to include extra information like 'shipping address' in a
bitcoin transaction, unless that transaction is sent to an IP address (vs
sending to a bitcoin address).

------
tbrownaw
By my understanding, this system requires _every_ transaction to be published
to _everyone_ , and to be remembered _forever_. That sounds like it inherently
can't scale very far.

Details:

The basic data structure is a hash-chained list of blocks of transactions,
with each block including one transaction of XX bitcoins from /dev/null to
whoever generated that block. A node trying to calculate a next block include
all (valid) transactions it knows. If the list branches, nodes ignore the
shorter branch (this makes transactions more secure as they get older,
assuming the swarm has more computing power than any troublemakers; so the
time for a transaction to "clear" is whenever you trust that there are enough
later blocks). In order to know if a transaction is valid, the node needs to
have the prior transaction(s) that the involved bitcoins came through last
(and any other subsequent transactions of that prior one). That prior
transaction could be arbitrarily far back.

~~~
kiba
1\. There had been talk of pruning information that the blockchain don't need,
especially information that got confirmed a gazillion time.

2\. There had been talk of a lightweight client that download the block header
or something.

------
araneae
I might have considered this a good idea, before I played SecondLife with
Linden dollars, or used points on Listia, or got gold on Gaia Online.

The problem with these virtual currencies so far is that they're very unstable
and they suffer from quick and dramatic deflation and inflation (usually the
latter) that makes them absolutely terrible as primary currencies if you don't
want to starve to death.

This isn't to say that gov't backed currencies don't have this problem; far
from it:
[http://en.wikipedia.org/wiki/Hyperinflation#Examples_of_hype...](http://en.wikipedia.org/wiki/Hyperinflation#Examples_of_hyperinflation)

Keeping currencies stable is very difficult, which means that I'm really
nervous about any system that isn't well-established already. It's not a
guarantee, but it's better than nothing.

~~~
gasull
_The problem with these virtual currencies so far is that they're very
unstable and they suffer from quick and dramatic deflation and inflation
(usually the latter) that makes them absolutely terrible as primary
currencies_

What is different about Bitcoin is that the amount of it will be fixed,
therefore no monetary inflation is really possible.

That said, its value in dollars can depreciate if M3 in dollars + outstanding
credit in dollars contracts. And this might happen in the following years
since outstanding credit in dollars, with the exception of Government debt, is
contracting.

I think Bitcoin is a good idea but it solves a problem (hyperinflation) that
we don't have right now. If we had hyperinflation Bitcoin would become the
Napster of central banking.

~~~
hugh3
_What is different about Bitcoin is that the amount of it will be fixed,
therefore no monetary inflation is really possible_

Until the day that everybody decides the bubble is over, at which point the
value of the bitcoin drops to zero. But hey, you might make some real money in
the meantime!

~~~
gasull
_Until the day that everybody decides the bubble is over_

Same thing can happen with any fiat currency, like the dollar or the euro.
Actually, the same thing can happen with any currency, period. Even with a
gold-backed one. If science finds a way to make gold without mining it, gold
would drop in value.

~~~
hugh3
True. All that gold and dollars have that bitcoins don't is hundreds and/or
thousands of years of history _and_ billions of people who think they're worth
something.

------
grantbachman
The problem with deflation though is that it encourages people to save them
and not spend them. Why would you create a currency which is meant to deflate?
In most cases, deflation is worse than inflation.

~~~
grovulent
That's because in a debt based economy, deflation means a shrinking of the
money supply, and a shrinking of the money supply means less money is being
lent, and less money being lent means economic stagnation.

An economy based on bitcoins couldn't work like this - because deflation
doesn't shrink the money supply, and doesn't necessarily have anything to do
with less money being lent.

------
vessenes
I'm a reasonably long time HN'er, and also just got back from a business trip
with the owner of Mt. Gox, really the only working BitCoin exchange. In fact,
I'm in Liberia, Costa Rica right now, checking HN waiting to fly home from my
trip, and I saw him this morning.

We have, in fact, been discussing a co-founder partnership deal, so I have
lots of right-now thoughts... Here's my summary on BitCoins, and what I think
the system needs:

There are currently four categories of people interested in BitCoins:

1) Deflationary Currency wonks / Gold-standard tinfoil hat types

2) Crypto and Currency Nerds

3) Speculators

4) Russians

Here is what BitCoin is good for:

Semi-anonymous-to-the-rest-of-the-world transactions of bitcoins, accomplished
relatively quickly with no regard for global borders.

The system is reasonably anonymous, reasonably secure and makes some
fundamental innovations in how value is transferred around: Consider if you
can think of any other digitally transmitted, no-central-authority, semi-
anonymous value systems. I am unable to think of any, and have been thinking
for a number of months now.

To naysayers like SwellJoe, I have a degree in Theoretical Math and a
background in Cryptography, and I have read, fairly thoroughly, the process
and mechanisms used, and would say that the system does a reasonably good job
delivering what it promises. Of course, it's open source, so go crazy and come
back with an alternate viewpoint.

So, to my mind, there's clearly a place for BitCoins on the internet. I
believe they will be useful in four possible scenarios:

1\. For digital goods that one wishes to purchase privately.

2\. For international value transfers

3\. For activities like 'tipping' others on the Internet

4\. In a credits-type system where the developer cannot or will not produce
their own system, either because users do not trust the developer, or it's
just easier to use an existing one.

I don't believe BitCoins will ever be useful in a currency-for-hard-goods
situation, for a few reasons, one of which is that labor is unlikely to accept
it (except possibly in Russia, or places where the government currency is
seriously broken), the second -- extreme currency fluctuation against USD is
likely to continue for some time.

There are roughly a thousand users of BitCoin right now, maybe 2k. The coins
are released, 50 per 10 minutes, regardless of number of users. Consider --
what will happen when 10,000 or 100,000 new users enter the system? If the
currency tips at all, or multiple times, it is highly likely that demand will
push cost of BitCoins very high. So, this makes it an appealing thing to
speculate in right now, of course. And, might make you wish to participate in
an online exchange as a founder.

To counterbalance, the issue of running an exchange for BitCoins has a few
major hurdles. A quick scan of my listed usage scenarios indicates that
Bitcoins are best for money laundering russian mafia and porn sites. Combine
that with the fact that an exchange is allowing people to trade a fungible
currency derivative semi-anonymously, and you have a LARGE raft of legal items
and compliance issues to take care of. I've had three separate estimates run
in the roughly $1mm to do filing and compliance, US only. Ouch!

To counter-counter-balance, if I ideate properly, a well-run BitCoin exchange
could conceivably be a sort of Paypal/Visa competitor -- providing merchant
services and easy payment transfers to a wide range of people who really need
it. That's appealing.

I hope this has been interesting, I enjoyed getting my thoughts down on HN
paper.

------
iwwr
I wonder if it's possible to pool computing resources and share the resulting
bitcoins. Having to wait one year for a block (50 coins) is a real turn-off.

Consider using up 0.2kW continuously for a year (a typical mid-end PC at full
load), with the local price of 13 cents per kW-hour, it works out to about
$228 worth of electricity for 50 coins (note the computer itself would
depreciate in this time). That means $4 per bitcoin minimum costs, far above
the 20 cents at which it is trading now.

What are your costs where you live? Calculate:

    
    
      cost_per_coin = 0.2 * 8765 (hours in a year) * your_kWH_price / 50 or
      cost_per_coin = 30.56 * your_kWH_price

~~~
doublec
Yes you can. There are mining pools that work cooperatively and share the
resulting generated block. See <http://mining.bitcoin.cz/> and
<http://www.bitcoin.org/smf/index.php?topic=1458.0> for two different
approaches.

------
DougWebb
According to the FAQ it takes about a year to generate 50 bitcoins, and at the
current exchange rate they'll be worth about $12.50 USD. That's very little
value for a year's worth of computation, and they're still quite rare. As more
are created the exchange rate is going to drop unless they become very widely
accepted, but there probably won't be enough of them to support a large
economy.

~~~
Groxx
The idea behind it is that they're (nigh-) infinitely divisible. One bitcoin
in existence, forever, would be enough; 21 million just makes the numbers
nicer to look at. The ability to generate more offers the ability to make up
for lost coins, and slightly mitigate deflation, and not much else.

~~~
hugh3
_The ability to generate more offers the ability to make up for lost coins,
and slightly mitigate deflation, and not much else._

It's also a key part of the marketing spiel -- selling people on the idea that
they can get bitcoin-rich for free is a key part of getting people hooked on
bitcoins. If I tell you "I've invented a new currency, want to buy some?"
you'll tell me to sod off, but if I tell you "I've invented a new currency,
you can mine it yourself as a background process" then you might be persuaded
to give it a go. Pretty soon you've got some bitcoins of your own, and every
incentive to start talking them up to everyone you meet.

~~~
kiba
Bitcoiners already downing everyone that think they can generate bitcoin for
free.

"Unless you have a GPU farm, go buy bitcoins instead" and variations thereof.

~~~
hugh3
And as a computational physicist I think the thing that probably annoys me
most about all of this is the amount of CPU time which is going to be wasted
before this particular bubble ends. I could be using those millions of CPU
hours to actually _do_ stuff, y'know.

~~~
cypherpunks01
Agreed - it would be really great to be able to have a currency that gets
issued to the solver of protein folding problems or something, but
unfortunately I don't think those solutions have as nice mathematical
properties as spinning and computing SHA hashes all day.. : )

------
rmc
Bitcoins sound interesting, however I don't like the fixed 21 million limit,
which the bitcoin community seem to promote. A fixed limit means all the
people who got started early and have thousands of bitcoins will then be very
rich and wealthy in this new currency.

Sounds like bitcoin community has a lot of the "inflation is bad, back to the
gold standard" pseudoeconomists

------
dholowiski
Very interesting. I've always been interested in virtual currencies (and
virtual countries, anyone remembe freedonia?) but as the author mentions
they've mostly fallen prey to money launderers. I think it's an interesting
experiment to limit the money supply, it gives you an incentive to get
involved _right now_. I'll be trying it out, anyone else?

~~~
Estragon
I tried running it for a while on my laptop while at home. Let it run for a
week, didn't see a single coin. Calculated how long it would take to generate
one on average, concluded that it wouldn't be worth it. There is teraflop GPU
at work at the moment which is completely fallow, and I might be able to get
some bitcoins out of that, but that would be misappropriation of resources.
(It's not true, as the article claims, that generating bitcoins uses fallow
resources. Computing those hashes burns a lot of juice...)

~~~
caf
It would be interesting to calculate the current cost per bitcoin, in terms of
electricity used to generate them (and hey, perhaps the quantity of CO2
produced too!).

------
batterseapower
21 million bitcoins seems like a low limit to set. According to
<http://newlibertystandard.wetpaint.com/page/Exchange+Rate> the exchange rate
is currently 221 Bitcoins per USD, so the total value of all possible bitcoins
is only 95000USD.

~~~
SwellJoe
Deflation seems to be happening at a _tremendous_ pace (for a unit of
exchange). So, that 21 million bitcoins will, if things continue, be "worth"
dramatically more in the future. I suppose this is built-in to the system as a
means to encourage early adopters.

But, given that there are very few means to cash out into other currencies,
and the products one can buy with bitcoins are extremely limited and generally
virtual goods, it's still wildly speculative that they have _any_ longterm
value.

~~~
Groxx
Their low cash-value is probably almost wholly due the difficulty in _getting_
cash for them.

Deflation of bitcoins can effectively be infinite, but should slow
significantly if/when a significant amount of people get in on it and start
using them.

~~~
derefr
I think it would be enough to jumpstart the process if one service that
already reliably trades virtual currency for money (say, EVE) were to start
accepting bitcoins for the purchase of said virtual currency.

~~~
unoti
Absolutely true. Which won't happen until the developers of a game such as Eve
can use bitcoins for buying something more than phone cards and online poker
chips. Developers need to eat.

