

Things You Need To Know About Bitcoins - jakerocheleau
http://www.hongkiat.com/blog/bitcoin-questions/

======
betterunix
My own thoughts about Bitcoin aside, this article is utterly misinformed:

"Satoshi Nakamoto was so talented that he even solved the problem of double
spending of digital currency in his system."

That was solved by David Chaum over a decade before Bitcoin.

"You will be anonymous in the system"

That was shown to be untrue long ago. Bitcoin does not exist in a vacuum and
Bitcoin users can be tracked and associated with other information.

"Security experts and digital freedom enthusiasts praise Bitcoin"

I am working on a PhD with a focus on cryptography and secure multiparty
computation, and I have nothing but bad things to say about Bitcoin. It has
numerous technical shortcomings that other digital cash systems do not have.

~~~
neya
>It has numerous technical shortcomings that other digital cash systems do not
have.

Care to tell us what it is, or it doesn't exist.

Also, you don't sound someone who is doing his PhD, you sound more like
someone from some government agency upset about a parallel currency system
that has the potential to stop its users from being unknowingly abused of
their personal information.

In my opinion, If Bitcoins are implemented on a massive scale, then there is a
heavy chance that the rich will no longer become richer and the poor will no
longer become poorer. If and only if implemented properly, on a massive scale.
Right now, we can only hope.

~~~
JumpCrisscross
A fixed supply currency in a growing economy, i.e. one where the quantity of
"stuff" is increasing, is inherently deflationary - the ratio of "stuff", or
capital, to money goes up since the denominator is fixed. This accrues capital
to those who hold money without them having to do anything.

William Jennings Bryant's "Cross of Gold" speech pilloried the gold standard
precisely because it preserves the wealth structure through time. Fiat money,
on the other hand, promotes the churn of money and thus tends to de-stabilise
the hierarchy of wealth over time.

Switching to a fixed supply currency, e.g. gold or Bitcoin, means those who
hold wealth would become wealthier by virtue of holding wealth.

------
pmelendez
What I don't get about Bitcoin is, since it is a distributed p2p currency
system, Who is "generating" the digital bill?

In normal currency, a central bank would generate notes that are backed by an
equivalent valuable good (ex. Gold, Jewels, etc). I am aware that's not true
in modern systems because a central bank can emit more inorganic notes, but
that has a direct impact in the inner value of the currency.

In this system, I can't see who is in charge of emitting the digital "note".
So, how is exchange rate calculated then? Bitcoin mining is another blur
concept.

Does anybody know how this actually works?

Edit: Fixing some typos

~~~
lucb1e
A bill is only worth as much as you decide it's worth. We both have to agree
on a method of payment in order to fairly exchange goods. Bitcoin is a method
of payment.

When someone sends you Bitcoins, your bitcoin software will decide whether
they are fake or not. Since the entire transaction history is public, it can
find all transactions to and from the person who is sending you coins, and see
if they indeed have enough to pay you.

The problem is that, at first, nobody had coins. To get them into circulation
a system was built: For finding a "proof of work" (just assume for now that
it's something that takes a computer a certain amount of work to find), the
program agrees that you earned an X amount of coins. It used to be 50 coins
per proof of work, right now it's 25. It will get down to zero eventually and
there will be 21 million coins in circulation. Never more.

A proof of work is easy to validate. It's like a big number is given, and you
have to find its prime factors. It takes forever to search all possibilities,
but once they're found, you can easily multiply them to check the validity.

So when you are sent coins, your Bitcoin program (called the bitcoin client)
will check the transaction history for who found proof of works, how much they
gained from it, and who sent coins to who. After this you know how much money
someone has, and whether he can pay you.

It's up to your bitcoin client to use the same rules as everyone. You can
decide that proof of works are worth much more or much less than everyone else
agrees upon, but it will only prevent you from using the network. Most, ifnot
all, other clients will reject your version of the truth.

I hope this cleared things up. It probably rose other questions, but most are
asked before. Just google for it ;)

I also wrote a blogpost about Bitcoin, if you are interested:
[http://lucb1e.com/?p=post&id=99](http://lucb1e.com/?p=post&id=99)

~~~
pmelendez
Thanks for your response. But my doubts are still there. From your response I
understand that running a process on a computer would let you to 'emit' a
limited amount of currency with a general cap of 21MM. I am not doubting of
your words, just trying to make sense in my mind, but if that's true that
means that earlier adopters can generate coins for free and hence easy money.
If I have a big enough cluster of computers, I can then generate enough proof
of work in a cheap manner. Is that true?

~~~
Nursie
More or less free, yes, and some of the early adopters are likely still
sitting on masses of them.

You can't generate a 'enough proof of work in a cheap manner' because the rate
at which currency is handed out is fixed. You can only fight other people for
the currency being generated by having more computers than them.

IMHO this puts BTC in the 'massive waste of electricity' camp.

~~~
jerguismi
> IMHO this puts BTC in the 'massive waste of electricity' camp.

You don't see any value in a currency that can't be counterfeited, manipulated
by a central bank and also enables great privacy & low-fee transactions?

~~~
Nursie
I don't see much value in the proof-of-work concept attached to BTC, no. I
know that the PoW is somehow bound up with the security and counterfeit-
protection side of the whole system, is PoW mathematically necessary to this?
If so then how much of it? Because if not then it's really doing work for the
sake of it, to fight (ever harder) for a slice of the pie. The work done is
lost to heat, not somehow forever bound to the bitcoin.

And really I rather like the idea of a central bank that is able to help
stabilise currency by taking various actions, but then I'm not someone that
gets upset at inflation 'stealing' value from my savings. Governments and
central banks can help keep money and food prices relatively stable.

The privacy, yeah, good I guess. Low-fee... don't really care. The lack of any
sort of chargeback facility makes the entire system very unattractive for
someone who is not an online seller.

~~~
zargon
Yes, the computing resources are required to secure the block chain. How much?
The network needs to have at least twice the computing power of an attacker to
prevent that attacker from taking over the block chain.

Although there are some ideas about how to reduce the amount of computing the
network needs to prevent an attacker from forking the block chain:
[http://gavintech.blogspot.com.ar/2012/05/neutralizing-51-att...](http://gavintech.blogspot.com.ar/2012/05/neutralizing-51-attack.html)

Another social advantage of bitcoin is that you can make transactions without
being at the mercy of a payment processor. Wikileaks vs. visa and mastercard,
for example.

~~~
Nursie
Yes that's not a bad thing, side-stepping the likes of visa. There are
certainly some advantages to BTC as a payment method, and there are some
advantages to it as a digital investment.

However I don't think it covers all the cases for a payment method, and as I
say, I quite like some of the features of centrally controlled currency.

------
TazeTSchnitzel
> SAmsung TOSHIba NAKAmichi MOTOrola

Samsung isn't Japanese. And what the hell is Nakamichi?

But _Satoshi_ is a common Japanese given name.

~~~
sp332
I agree with you, but for the curious:
[https://en.wikipedia.org/wiki/Nakamichi#Notable_Nakamichi_pr...](https://en.wikipedia.org/wiki/Nakamichi#Notable_Nakamichi_products_and_advances)

------
dyoung89
Bitcoin truly fascinates me, I love its potential, if it is widely adopted how
long before you can spend bitcoins via a 'bank card' or probably more
impressive if a bank adopts it.

~~~
gesman
Bitcoin is very rebellious currency. Neither governments, nor traditional
banks will ever support it as bitcoin means no centralized control.

Although there are many "new breed" entities, like bitcoin exchanges and
bitcoin ecommerce solutions that quickly adopting bitcoin.

~~~
cjg
I can image PayPal or some other payment services provider deciding to
integrate it as a payment method.

~~~
gesman
Paypal hates bitcoin and routinely suspends user accounts that are suspected
in trading bitcoins.

Remember: bitcoin adoption means death to entities that likes to tightly
control monetary instruments and transactions. There is lots of resistance for
bitcoin

------
gesman
Here's another helpful bit: Bitcoin forum: <https://bitcointalk.org/>

~~~
Nursie
Yes! Go read bitcoin forum and be truly terrified at the people who have
thrown their weight behind the various bitcoin businesses out there!

------
Kiro
How does the public listing to prevent double spending work? Doesn't that
require a central server or something?

~~~
nwh
Every node in the network has the full blockchain (public listing), if a
double spend is attempted then it won't be accepted by the majority of the
nodes, and consequently won't be included in the next block in the chain.

Double spending is only an issue if you don't wait for the transaction to be
"confirmed" by its inclusion in a block. Some services don't do this, and
that's where you begin to have problems. You may end up with someone having a
service they didn't actually pay for, for example.

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stcredzero
What would a dollar cost averaging strategy have yielded from bitcoin
investment over the past year?

~~~
cjg
It would depend on how frequently you invested and the offset. For example,
monthly on the 23rd of the month would give you one return, whereas weekly on
a Tuesday would give you another.

But given that 1 BTC is ~ 20 USD at the moment and that over much of the last
year it has been varied between roughly 6 USD and 14 USD, you would have
roughly doubled your money.

The question is really what the future holds. Will adoption grow dramatically
(in which case BTC will give an amazing return) or is it a white elephant.

Extremely high risk investment: potential high returns, high risk of total
loss. Mind you, some high risks investments are needed in a well balanced
portfolio.

------
markkat
One thing that gives me confidence in the future of BTC is the constant
controversy surrounding it.

------
lucb1e
Additionally to point #10, how do you spend a Bitcoin:

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

