
Bitcoin Hits $1 Billion - sangfroid
http://spectrum.ieee.org/tech-talk/computing/networks/bitcoin-hits-1-billion
======
cs702
As usual on HN, any submission about Bitcoin is met with concerned comments
about its high volatility, present impracticality as a currency, disadvantages
versus precious metals, current concentration of transactions in a single
exchange (MtGox), potential for market manipulation by governments and/or
speculators, etc.

This is analogous to being present at the creation of the World Wide Web, but
instead of getting excited about its obvious potential, one decides to stay on
the sidelines because it's still unproven technology, almost no content has
been made available online, commercial opportunities are virtually non-
existent, etc.

As hockey superstar Wayne Gretzky said, "a good hockey player plays where the
puck is. A great hockey player plays where the puck is going to be." Judging
Bitcoin based on where it is today, instead of where one thinks it will be in
the future, is shortsighted.

\--

PS. My full thoughts on Bitcoin's potential:
[http://cs702.wordpress.com/2011/05/29/on-the-potential-
adopt...](http://cs702.wordpress.com/2011/05/29/on-the-potential-adoption-and-
price-appreciation-of-bitcoin-in-the-long-run/) \-- I wrote this almost two
years ago, but my views haven't changed since then.

\--

Edit: In hindsight, I see how my quoting Gretzky could come across as
arrogant, which was not at all my intention. The only point I was trying to
make is that _new_ technologies like Bitcoin should not be judged based on
what they look like today, but rather on how one thinks they will look in the
future.

~~~
waffle_ss
There are some real concerns with Bitcoin. For example, I was going to write
an app that accepts Bitcoins as payment. However, the problem is that the
amount of time it takes for a transaction to become "verified," i.e. be part
of the official block chain, can take up to 10 minutes.

What am I supposed to present to the user during this time? Am I supposed to
tell them that their payment may or may not have been accepted, please check
back in ten minutes or wait for an email? How would you handle this if it were
a real person in a real store, at a register checking out?

~~~
niggler
Sounds like an opportunity for a "bitcoin credit card" or "bitcoin charge
card" where a trusted third party maintains complete control.

~~~
dragontamer
These already exist.

The problem is that all the advantages of Bitcoin is now lost, and you have
transferred control of Bitcoin to the Bitcoin bank.

For example: you can gather Flexcoins, which allow instantaneous transfers and
so forth. But by doing so, you no longer have Bitcoins. You only have
Flexcoins, and if the Flexcoin bank goes under... you lose all of your
bitcoins.

IE: Using Flexcoins (or any other form of Bitcoin bank) completely defeats the
purpose of Bitcoin.

~~~
baddox
> The problem is that all the advantages of Bitcoin is now lost, and you have
> transferred control of Bitcoin to the Bitcoin bank.

That isn't a loss of the advantages of bitcoin, because you got to _choose_
which organization to trust, if any. With government currencies, you don't get
to choose.

~~~
dragontamer
What is preventing me from converting my USD into Euros or Yen? I can choose
whichever Government / Central bank fits me the best.

~~~
rishimoko
> I can choose whichever Government / Central bank fits me the best.

Bitcoin actually provides a new choice: government or no-government. People
that want government/cb currency are free to choose it. People that want no-
government money can choose Bitcoin.

~~~
dragontamer
Or... you know... Gold. That other currency that has transcended governments?

~~~
cookiecaper
Gold is not really practical for modern commerce without first converting it
into an alternate currency (passthroughs in dollars, for instance) or trusting
a third-party. Bitcoin can be traded really easily, no conversion or trusted
intermediary (unless you count the btc swarm) necessary.

~~~
niggler
For those who have forgotten, US dollars used to be certificates backed by
silver:

[https://upload.wikimedia.org/wikipedia/commons/7/70/US-%245-...](https://upload.wikimedia.org/wikipedia/commons/7/70/US-%245-SC-1953-Fr.1655.jpg)

------
mrkmcknz
I want to be able to get behind Bitcoin I really do. I just don't understand
the purpose it serves.

As an asset class it's far too volatile even for someone who plays naked
options. Imagine putting $10,000 into an asset class that swings 20-30% daily
on a regular basis. Trading curbs eat your heart out.

As a currency it's too impractical and there are serious hurdles involved with
turning central bank currency into Bitcoin and vice versa.

We think Wall Street plays a rigged game. Manipulating the Bitcoin market
would not only be possible for someone with a small amount of capital, but the
regulatory boards(SEC/FSA) don't seem to be interested in coming within 50
parsecs of the stuff.

Bitcoin is an interesting idea with the potential to change the world, sadly
the world just isn't ready. More importantly the people running the world
aren't ready.

The moment Bitcoin starts to worry a Government or a big bank they'll simply
manipulate the market. Oh, and you wouldn't even know.

~~~
reaclmbs
OK, let's play a game. Say you had $5mm. How would you manipulate the Bitcoin
market and earn a guaranteed return?

~~~
zalzane
A government entity looking to destroy the market wouldn't necessarily care
about getting a return.

Even if they were, take a look at what happened yesterday when someone dumped
5k bitcoins onto mtgox.

<http://i.imgur.com/K8T4F0Y.png>

~~~
waterlesscloud
The mini-crash yesterday was interesting. The 5k dump itself only moved the
price down a couple of dollars, but there was a mass movement of smaller
transactions that followed it and caused the price to really drop.

My personal (amateur) theory is that people were hovering over their "sell"
buttons, looking to cash out as we approach the landmark $100 point. Once they
thought someone with a lot of coins was bailing, they took that as a sign to
head for the exit.

I also think that MtGox's horrible lag factors into the dips. Their trading
engine was running as much as 8 minutes behind during this event, which causes
people to not be able to modify or place orders. Along with not being able to
see actual "current" trading info, this causes a certain segment of the
trading population to go into full panic mode.

Placing market sell orders in an engine that's showing you ancient data during
a crash seems suicidal, but for some reason people do it.

I'd _love_ to see Gox upgrade its engine. I honestly think it would make a
notable difference in price stability.

Even better, I'd like to see the market grow strong enough to support 3 or 4
primary trading sites. There are a number of others now, but the rest have
such low volume that you should only use them to pursue specific opportunities
(arbitrage).

------
kyledrake
So, in a sentence: Bitcoin is being used by people as a highly liquid,
defensive store of value from within Cyprus, where capital controls are
preventing people from moving their money out through traditional means.

This is what gold used to be used for. But gold is not liquid, and Bitcoin is.
It appears that hackers have made something better than gold, the longest
standing store of value in human history. What an incredible achievement! For
the first time in history, I can somewhat safely make the argument that we now
live in a post-gold economy. Gold is still there, but we now have something
even better for storing value.

This is getting deep into the economics of mediums of exchange, which are
important for understanding what is going on here.

I did a talk on Bitcoin a while ago where I went into describing Bitcoin from
a medium of exchange perspective rather than a technology one. It may help you
to understand what is going on here, and why I think that this will continue
into the future: [http://www.slideshare.net/KyleDrake/bitcoin-the-cyberpunk-
cr...](http://www.slideshare.net/KyleDrake/bitcoin-the-cyberpunk-
cryptocurrency)

~~~
benbataille
We have been in a post gold economy since the end of the Breton-Wood
agreement. Hording gold is far from a wise investment. It certainly isn't a
safe way to store value. First, history aside where it's value comes from is
difficult to understand. There is literally tones of it lying around without
any real use (far more than what is produced). Basically it's a safe haven
because people decide to use it this way but the market could crash any day
and has multiple times before and thus despite central banks holding so much
of it they dwarf anything someone could decide to inject.

From my point of view, bitcoin is an even more stupid investment. As little as
5000BT makes the rate plummets. Nothing could stop a young Soros from pulling
out a mini-black Wednesday. Add the fact that the market is completely
unregulated and you have a pretty risky situation. I see Bit coin has a step
backward. It's like current currency without any of the warranty provided by
governments (security of trade is one of the main reason we instituted
government after all). To the people who will argue that Cyprus is currently
stealing its citizen, please think about what would have happen to them if
there was no way to get a bailout and the banks actually collapsed.

------
psycr
I particularly enjoyed this line:

"For a bit of perspective, that's how much Facebook spent on its acquisition
of Instagram last April."

Some might argue that the comparison employed distinctly encourages a _lack_
of perspective.

~~~
jes5199
I guess it's not so much that bitcoin is worth a lot, but that real money
isn't worth much anymore.

------
tvladeck
Remember: "What we want from a monetary system isn’t to make people holding
money rich; we want it to facilitate transactions and make the economy as a
whole rich." - Paul Krugman

EDIT: To be clear - this quote is not intended (by me) to be a knock on BTC.
It's just an elegant statement of my own opinion that the value of 1 BTC is
not all that indicative of its value to the economy.

~~~
aneth4
That's great for us and the economy.

Personally, I'd prefer my money to increase in value.

I'm not going to avoid a currency for the benefit of the economy, nor would
that be consistent with expected economic behavior.

~~~
leot
Yes, it would be nice for us all to become rich without contributing anything.

If you're a Good Person, however, you should be interested in becoming rich by
creating real value. And you should be interested in promoting an economic
system that encourages people to create value rather than hoard assets.

You don't have to be a Good Person, of course. And no one has to like you,
either.

------
tocomment
One thing that hit me recently on bitcoin is I realized that for the first
time in history micropayments are 100% possible.

I'm thinking all kinds of startups should spring up from that, but I haven't
thought of any yet. What are your thoughts?

~~~
wmf
Bitcoin micropayments are possible _if_ you can solve the UX issues (copying
and pasting addresses, etc.) and _if_ you can avoid "recommended" transaction
fees that are currently near 5 US cents.

~~~
tocomment
I don't get the recommended transaction fee thing. What happens if someone
pays 1 cent? Will no one process it?

~~~
waterlesscloud
You can even send transactions with no fee at all, but they tend to be
prioritized rather low.

So far, every transaction get processed. Eventually.

I've seen some no-fee transactions take several hours recently.

But there's also currently some issues with the overall load of transactions,
due to a gambling site spamming tiny "dust" transactions as part of its
system. That's caused there to be a lot more transactions, which means
sometimes you'll have to wait a number of blocks for a no-fee transaction to
process.

A block is supposed to happen an average of every 10 minutes, but it's not
deterministic and there's a variance. It can take an hour or more for the next
block to come up, in rare cases.

~~~
wmf
People accepting micropayments tend not to wait for any confirmations, so the
lag may or may not matter. But if the network gets to a point where zero-fee
transactions never get confirmed then there may be a problem.

------
jstalin
That article is incorrect, it says there are 109,000 BTC in circulation. It's
more like 11 million.

<http://bitcoincharts.com/bitcoin/>

~~~
andrewljohnson
Correct, about half of all bitcoins have been mined, 11 million to go!

I wish someone would make a drop in widget for me to sell android apps for
bitcoins and PayPal on my website.

~~~
eof
There are a bunch of such widgets. mtgox has widgets, bitpay has widgets.. i
am sure others do as well. (for the bitcoin side not the paypal side, which
there are also countless widgets for)

------
0majors
While I can appreciate the need for the Bitcoin model I refuse to take part of
it due to level of fraud involved. How much Bitcoins have been acquired by
malicious bot-nets and held by small number of black hats? How much of the
value is directly linked to drug trade or worse?

Sure, similar arguments can be made about using cash but there are fundamental
moral issues with Bitcoin I can't agree with. I would like to believe a better
model is possible. Thoughts?

~~~
bwood
I can't give you any numbers to support or refute your suspicions. However, if
you genuinely believe that there is a need for something like Bitcoin, honest
individuals using Bitcoin will help legitimize the currency and hopefully
drive down the level of fraud and other unsavoury behaviour. If that is your
only objection to it, then presumably honest folk like yourself staying away
from Bitcoin are also preventing it from becoming more acceptable (not that
you have any duty or obligation to do otherwise).

Or, are you implying that there is something fundamentally immoral about
Bitcoin itself, which cannot be affected by having more honest users? I admit
that this could also be the case, for example, if Bitcoin turns out to be such
a massive success that it destroys the ability of nations to collect taxes,
affect monetary policy, etc.

~~~
0majors
I do understand that illegal activities being paid with Bitcoins is something
that comes with the benefits of the system. You are correct, the ratio of
legal/illegal activity will probably improve with time as more legitimate
business will be conducted with Bitcoins. At the same time it's worth being
concious of the fact that at the moment the biggest use of this tool is paying
for criminal activities. If this is true, we can't pretend that bringing in
more "real" money to the pool doesn't mostly aid criminals.

What I see as "fundamentally immoral" about Bitcoin is the fact how so much of
it has been acquired by black hats through bot-net and hacking of exchanges.
They OWN a fixed percentage of this economy thus their net worth increases
every time fresh "real" money is brought in anywhere in the pool. There is no
way around it that I can see.

To give an analogy, I would personally not eat in a restaurant if I knew it is
co-owned by local drug dealers even if the food was delicious.

Obviously I can see the positive side of having the ability to process
payments without going through the government. This discussion is not black
and white for me at all.

------
femto113
Seems like using Amazon's EC2 to mine Bitcoins could now be profitable, anyone
know if this is actually going on? Per this couple year old article
([http://glennfrancismurray.com/cost-defective-mining-with-
gpu...](http://glennfrancismurray.com/cost-defective-mining-with-gpu-clusters-
amazo)) looks like the break even point was around ~$30/BTC.

~~~
Guvante
The problem is you have to account for the difficulty, which has changed. It
looks like he was predicting a block per 78 hours, while it is now closer to
2/3 of a year.

Looks like 1.64 GH/s = $10.66 a day roughly, compared to a cost of $400 a day.

------
jpdoctor
Great! A $1B down, and now only $23B more until it becomes 1% of the total US
money that the Federal Reserve has printed!

<http://research.stlouisfed.org/fred2/series/M1/>

------
tocomment
I'm curious, why hasn't anyone implemented a mining client in javascript, so
you could in effect has visitors to your website mine coins for you. It might
be a create way to fund content instead of advertising.

~~~
jmharvey
We can do some back-of-the-envelope math to estimate how much you could make
doing this. Let's assume that the benefit from bitcoin mining is roughly equal
to the cost of the electricity used. Electricity in the US costs about 12
cents per kWh. Let's suppose you can get your web site visitors to put 100W of
extra power into mining bitcoins for you. And let's say your visitor spends 5
minutes (1/12 of an hour) on your page. Then each visitor is worth 12 (c/kWh)
* (1/12) h * 100 W = 0.1 cents. Which would be like $1 CPM advertising.

But these are all best-case assumptions. Your visitors might not average 5
minutes per page. Your JS mining tool almost certainly won't be as efficient
as the specialized GPU rigs that can mine bitcoin for less than the cost of
electricity (and drive up the cost per unit for everyone else who's mining
bitcoin). Or your users might not have an extra 100W of power to throw at your
mining operation. Taking these factors into consideration, I'm guessing you'd
be looking at CPM equivalents that you would never touch.

Also, I suspect it would be considered malware by many. Still, it's an
interesting idea.

~~~
jlogsdon
> Your JS mining tool almost certainly won't be as efficient as the
> specialized GPU rigs

GPU rigs have even been greatly surpassed in hashes/sec by the ASIC rigs (of
which only 1 real batch has gone out, all the other providers are probably
scams).

------
tocomment
Basic BTC 101 question. Are there a fixed number of txns in a block or is it
variable?

(And what do you recommend I read to learn this kind of stuff)

~~~
rmc
As far as I know there is no limit on the number of transactions, but there is
a limit on the total number of possible bitcoins (about 21 million IIRC)

~~~
tocomment
So when a node picks up a block to process it gathers up all of the pending
transactions at that time?

~~~
wmf
Yes. (More like the node _creates_ a block containing all pending
transactions, but that's a nit.)

------
alyx
Is nobody else here bothered by the following statement?

It's on the first page, last sentence of the original paper on Bitcoins...

"The system is secure as long as honest nodes collectively control more CPU
power than any cooperating group of attacker nodes." [1]

[1] <http://bitcoin.org/bitcoin.pdf>

~~~
nadaviv
No. If someone does manage to control 51% of the computing power of Bitcoin,
he's much better off using that to mine bitcoins rather than "cheating". If
he'll use it to cheat, he'll cause panic, make bitcoin drop their value and
undermine the source of his own potential wealth. It'll be much better for him
to play fair and just gain (a lot, with that much computing power) wealth by
mining.

~~~
sashagim
That's true only if you assume the motivation is purely financial.

~~~
nadaviv
I guess that's right. Someone with enough computing power could harm bitcoin
to the point it'll be unusable. But the people with those motives (government,
banks) are much less likely to be part of something like that than people with
financial motives.

------
eah13
The market cap isn't the stat to watch on BTC- the daily volume is. With
volume at something in the low millions of dollars it'd be very easy for the
currency to be manipulated by dollar-based traders. There's not much evidence
that there are large deep pocketed investors who will toe som imaginary line
in the wake of a retail investor sell-off. Until volumes pick up the daily
price ont he various exchanges represents the valuations of a distressingly
low number of traders.

That said, I think bitcoin is super exciting and want to see it succeed. But
it needs to be much more heavily traded, regardless of its dollar exchange
rate, for that to happen.

------
VMG
You can still see the fun that was had yesterday here:

[http://bitcoinity.org/markets?currency=USD&exchange=mtgo...](http://bitcoinity.org/markets?currency=USD&exchange=mtgox)

------
ChuckMcM
Pretty much seems to have hit the speculation threshold. Perhaps the Eurozone
crisis will do for Bitcoin what the first Gulf War did for CNN.

~~~
elmuchoprez
"Pretty much seems to have hit the speculation threshold."

Based on what? Are you seeing something that suggests it's capped out for now?
I'm asking because I'm at a complete loss to explain BTCs charts; all seems
like gambling to me at the moment. That said, I haven't seen any numbers that
really suggest the gambling is over.

~~~
ChuckMcM
_"Based on what?"_

From the article and from the valuation/volume charts that are available from
MtGox and elsewhere. Having watched a number of things become the object of
speculation (stuffed animals[1], old computers, internet stocks, real estate,
Etc) if you look at their value over time and their trading frequency the
traffic develops a quick jump and dump mode when folks are speculating. I
attribute it to people buying, capturing gains, then buying again to capture
more gains.

I don't think its "capped out" what I think is that a bunch of people are
jumping into the currency to make a quick buck. And the way speculation works
is very much like musical chairs, you jump in and sit down, jump in and sit
down, and hope that when the music stops you were sitting down and not
standing. If enough players have the stomach for it (it can be both
exhilarating and scary to gamble a lot of cash) then the run will continue,
once it crosses some threshold, it will come crashing down.

[1] Met a person at a garage sale that had over 1,000 "new in box" Beanie
Baby(tm) stuffed animals, including some of the "really rare" ones. They were
selling them for a dollar each, it was kind of sad.

------
niggler
Anyone have statistics on the total size of BTC transactions? Has BTC 1B in
trade occurred yet?

~~~
eric_bullington
If you're looking for a good metric for BTC transaction volume, I would
suggest Bitcoin days destroyed:

<https://en.bitcoin.it/wiki/Bitcoin_Days_Destroyed>

Here's a chart of BDD per week (log scale is best in this case):

[http://blockchain.info/charts/bitcoin-days-
destroyed?showDat...](http://blockchain.info/charts/bitcoin-days-
destroyed?showDataPoints=false&show_header=true&daysAverageString=1&timespan=&scale=1&address=)

Here's an attempt to track transaction volume, minus change transactions (the
Bitcoin client almost always performs a transaction to issue change back to
the sender whenever he/she sends money to someone):
[http://blockchain.info/charts/estimated-transaction-
volume-u...](http://blockchain.info/charts/estimated-transaction-volume-usd)

Both of these metrics point to a slow but steady growth in the number of
Bitcoin transactions conducted -- this in spite of a huge increase in their
exchange value against the USD and other fiat currencies. So people are
spending their Bitcoins. And this trend will likely continue as more companies
accept Bitcoins.

~~~
tocomment
I'm not getting an intuitive grasp on what the days destroyed tells you? Is it
how many people are holding bitcoins? What does a higher number mean, what
does a lower number mean?

~~~
eric_bullington
You're absolutely right, Bitcoin Days Destroyed only indirectly tells us about
transaction volume. What it's trying to measure is the amount of "hoarding"
occurring in the Bitcoin economy. More BDD suggests less hoarding. So it looks
like people are spending their Bitcoins more and more.

~~~
maxerickson
Shouldn't hoarding be estimated by comparing BDD to total Bitcoin days? Or
does the block number roughly reflect Bitcoin days?

The increasing number of bitcoins means that there are more and more days to
destroy, so I'm having trouble relating it back to behavior.

------
adestefan
People keep comparing the "value" of bitcoin against the USD. If bitcoins were
a truly useful currency, then there would be no need to value them against
another base currency.

~~~
indrax
All currencies can be valued in terms of other currencies. Bitcoin can also be
valued directly against goods. (as can other currencies)

The price of most goods is currently tied to some other currency, because most
businesses have expenses in traditional currencies. But you get similar price
fluctuations in international trade.

~~~
eric-hu
It sounds like a metric that would satisfy the parent post more is some sort
of consumer price index in Bitcoins? Perhaps that would be useful to have
side-by-side with a Bitcoin-to-USD metric.

~~~
Helianthus
Sadly there isn't enough data for a consumer price index, because Bitcoin
isn't a currency (in the extent that its main use is exchange for commercial
goods), it's a financial sandbox.

~~~
adestefan
Which means that it's susceptible to the wild fluctuations of any other
financial security and is not the almighty digital currency that it's backers
try to make it out to be.

~~~
Helianthus
Yep. I'm running into the realization that I'm actively enjoying watching this
storm build.

------
boffo9
Hooray! I love bitcoin!

------
genwin
I wonder when governments will start cracking down on Bitcoin holders for
unpaid gains taxes.

~~~
jb-
You don't owe capital gains taxes until you sell the assets.

~~~
genwin
Ah yes, forgot about that.

------
zeitgeist88
wow!

------
ttrreeww
The key to prosperity is printing money to fund productive activities. Eg:
hire people and pay them.

Instead, we print money and give it to Wall Street and the super rich.

------
michaelochurch
I'm going to start calling it ShitCoin. Not because it's a scam and I hate it,
but in the sense of "Oh, _shit_ ".

(BitCoin is doing well right now because of the Cyprus crisis.)

I have no clue about its directional future, but I can see it being, for the
next 10 years, a way of betting against the world-- a distinction that gold
used to have.

~~~
andrewljohnson
Even better though, it's like gold you can get for cheap for now. Assuming
people don't stop using bitcoins, it's hard to imagine bitcoins not
appreciating over time.

Either a major calamity like government intervention will end BitCoin, or it
will be supplanted by different technology, or BitCoins will appreciate for
decades. They will either be worth zero, or a lot in my estimation.

Disclosure: I own 20 bitcoins.

~~~
michaelochurch
It's unstable. There's no barrier to entry. I could make a competing product
called ZitCoin with a different inflation/deflation profile. At some point, it
comes down to weird, fickle, and not especially meaningful brand effects. Then
it's just speculation.

If you buy BitCoin, you're betting on the prestige of its being the first. Do
people even know what the first fiat currency is? Or care?

People who sell at the top of BitCoin are going to make a lot of money, but
for the long-term value, I'm betting on zero.

~~~
andrewljohnson
I don't think the comparison to the life of fiat currency is reasonable - no
fiat currency outlives the nation-state backing it.

It is a fair point that there could be other competing, but not dominant
currencies, which could lead to a non-zero, but low price for bitcoins. So
perhaps, 0, a lot, or anywhere in between for the value of a bitcoin.

As long as the number of things you can buy with bitcoins rises over time, the
value of bitcoin will rise. I don't think it is unreasonable that the
momentum, including technology and community (not just brand around BitCoin)
will make it a favored son in digital currencies. So it's not just buying it
based on the prestige of being first, it's buying based on the value of being
first. I actually bought my coins when YC invested in CoinBase, because I
thought that was a strong signal.

It will be an interesting future where people buy currencies based on their
mathematically-dictated value profiles, as opposed to whichever currency is
sold by the local government, and _seems_ to be the most stable.

