
Online Cash Bitcoin could Challenge Governments, Banks - kiba
http://techland.time.com/2011/04/16/online-cash-bitcoin-could-challenge-governments/
======
sage_joch
I think the main takeaway is that governments are making a strong case for an
alternative, decentralized currency:

    
    
      * preventing transactions they don't agree with
      * inflating savings away
      * freezing bank accounts of adversaries
      * seizing cash at security checkpoints

~~~
joe_the_user
The problem is that since an alternative currency is still pretty purely
hypothetical, we don't know with any certainty that it wouldn't be subject to
similar abuses.

Moreover, aside from inflation, the other abuses you list are essentially
abuses of power and if governments maintain power - their official monopoly of
force and violence, they will continue to be able to engage in these other
actions.

EI, I don't think there is any imaginable electronic currency that couldn't be
"taken" from you if a group of armed men burst in, seized your computer and
demanded your passwords. And if bitcoins became ubiquitous, the state
certainly would believe that you owed taxes on your bitcoin transactions and
it would send it's armed-men to collect.

Edit: grammar

~~~
indrax
With a Truecrypt partition you could show them your insignificant bitcoin
wallet, and only go back to your regular bitcoin wallet after they leave.

True this would currently require a lot more security consciousness than most
people have, but conceivably all the necessary features could be built into a
bitcoin client.

~~~
joe_the_user
Actually, Bitcoin transactions are public - it's inherent in the scheme that
verifies the transactions. Thus determining a person's net worth should be
extremely easy.

This fact might make bit coin less appealing than cash for many things where
anonymity is important.

(Also, Whether having public transactions would be enough to make the
transaction "work" would be a different question - what happens when you don't
delivery the promised goods - but that's a different question).

~~~
narcissus
I think a lot of that problem disappears when you start using separate receive
addresses with each transaction. Yes, that can become a bit of a pain, but
it's more than doable.

From what I remember, the default of the GUI, at least, is to generate you a
new receive address as soon as you receive something on your current address.
That should remove a lot of the problems of tracking net worth.

~~~
joe_the_user
No, you don't understand... a look at the article will show that publicness is
_inherent_ in the protocol...

Without a public "audit trail", the problem of re-using bitcoins (which are
just numbers) you hypothetically "spent" would clearly unsolvable (though I'm
doubtful if you could truly free of this problem even with the public audit
trail).

~~~
erikpukinskis
_"No, you don't understand..."_

I wouldn't be so quick to judge. What if you are the one who doesn't
understand? It's just a conversation, leave the door open that you might learn
something too.

You are correct that there is an audit trail, but it's somewhat anonymous.
Every time I get paid, I can generate a new BTC address, and I have a new
chunk of money that's potentially anonymous. Unless the person who paid me
spills the beans, no one knows that I have that money, and even if you could
figure out what that money was spent on, you still wouldn't be able to connect
it back to me, without the help of the person who paid me.

You could also use some sort of network/behavior analysis to guess who was
using the money, but that's far from "trivial". And it requires that you
already know who is behind quite a large percentage of transactions, so
there's a bit of a bootstrapping problem.

~~~
joe_the_user
OK...

I would be more credulous if you could show a path from me, say, working for
someone to me, say buying something at a store and show that I couldn't say,
buying two of that something by doing two different anonymous transactions.

\- My argument is that the factor prevents me from using my information twice
is the factor that identifies me (how does X know that "coin" Y belongs to Z?
- The audit trail - if the audit trail can't show this, the whole app break.
If the audit trail does show this, the state can figure things out).

Once I'm identified by other bitcoin participants, I'm identified by everyone
and so the state will say "hey, you're transacting, you owe taxes"...

~~~
sadfsa
Nobody knows that YOU have the Bitcoins. What they know is that "coin" Y is at
Bitcoin address 19FD9iREicdxheyt654FD6fsgdsfh. There is only one way to
connect Bitcoin address 19FD9iREicdxheyt654FD6fsgdsfh with Person B: By Person
A opening his/her big fat mouth.

Otherwise, the only thing you know about the owner of
19FD9iREicdxheyt654FD6fsgdsfh is approximately what planet they live on.

------
tarkin2
I don't think Bitcoin solves the main problem of new currencies: confidence of
their acceptance.

John Law introduced paper money into France by getting the government to
accept it for paying taxes. Every Frenchman and woman was confident the state,
no matter who took over, would still collect taxes. And the state, knowing the
currency was valuable to everyone--even foreigners, could also use it.

Where's my confidence that people will desire a bitcoin in future? Even if,
say, every Starbucks in every country started accepting them, it'd only be as
valuable as the trend for coffee and the stability of Starbucks. Could I, when
planning a mortgage, bet on Starbucks' popularity over 25 years?

I can see how game currencies can come about. But the market for these games
is limited and ephemeral in the long run. If you want to compete with banks,
you need to think about long term confidence. I've yet to hear how Bitcoin, or
any other startup currency, solves this problem.

~~~
joelthelion
Confidence comes gradually. When bitcoins started, confidence was extremely
low. Thus the whole bitcoin economy was worth maybe $1000.

Now confidence has grown significantly, and the whole bitcoin economy is worth
approximately 5 million dollars.

I wouldn't bet my life savings on it yet, but I find that already pretty good
for something that has less than five years, and isn't backed by anything.

~~~
joe_the_user
Confidence may come gradually but it can vanish very suddenly.

If a number of investors have enough invested in the system that their
investment become worth more to them than maintaining the bitcoin system _and_
some event decreases the confidence in the system, then those investors will
attempt to "liquidate" their holdings. Whether they succeed or fail, the
impact on the system will likely be terminal since there wouldn't be any
entity ready to step in and buy unwanted bitcoins.

------
ZitchDog
Bitcoin is a fantastic idea, with one crucial mistake: the finite nature of
bitcoins. The fact that coins will one day "run out" will almost certainly
lead to increased speculation, which will in turn lead to a deflationary
spiral, followed by a "bubble burst" when speculators sell all their bitcoins
and average coin holders are left holding the bag.

Infinite coins would tie the value to the opportunity cost of computation,
which is actually a really cool idea. Inflation based on the log of moore's
law would ensure a steady inflationary rate based on computing power. This
would deter speculators and incentivize innovation in computing power in order
to more efficiently mine currency.

My hunch is that an uncapped bitcoin competitor would have a more difficult
time getting off the ground, since the finite nature of bitcoins favors the
first mover.

~~~
tcoppi
There is a finite amount of bitcoins because it is designed to mimic a natural
resource - easy to "mine" at first, much more difficult to mine as time goes
on, and eventually there are none left. If there were an infinite amount of
bitcoins that could be generated, there would always be inflation in place
roughly proportional to the amount of computational power being used to mine,
and soon your bitcoins would be worthless.

As well, bitcoins are divisible to 8 decimal places, so I don't think there's
any problem of "running out" in practice, bitcoins will just become more and
more valuable. And why shouldn't they? Miners and investors now are expending
time and money investing in them, which is a risk because bitcoin may never
become popular. The greater the risk, the greater the reward, same in any type
of business.

~~~
seanalltogether
You know I've thought about this for awhile and I'm starting to come to the
conclusion that inflation is a good thing. Having a currency that doesn't
inflate is bad for 2 reasons. 1. The population keeps growing, 2. Humans are
hoarders. Having currency inflate encourages society to use their money
instead of squirreling it all away. Everything in life devalues over time and
I don't think currency should be any different.

However I don't believe currency should be unpredicatble and inflate at the
whims of the government.

~~~
OstiaAntica
No one squirrels away money-- savings in a bank is still reinvested into the
economy, by the bank through lending. Unless you are literally sticking money
under a mattress, it gets circulated.

~~~
kronusaturn
But we're talking about bitcoins, which are extremely easy to just leave
sitting on your hard drive rather than invest.

~~~
danenania
Sounds like a market opportunity for making them easier to invest.

------
mshron
As far as I can tell, the only way to actually stay anonymous and have a
foothold in the bitcoin economy would be to exchange bitcoins for cash in
person with someone.

Even then, once you tried to combine that account with any other you owned
that was traceable to you (record in an exchange, email sent to a client
containing your bitcoin address) it would be easy to link them together, since
the entire ledger is public.

I guess what I'm saying is that your level of sophistication to stay anonymous
would have to rise along with the sophistication of an attacker, which is not
immediately obvious from these glowing articles on Bitcoin.

~~~
bonzoesc
It's possible to run a Bitcoin laundromat; you control addresses A and D,
laundromat controls B and C. Send money from A to B, receive from C to D. As
long as the laundromat doesn't recycle addresses and moves a lot of cheddar,
it'll be difficult to establish a linkage.

~~~
reitzensteinm
Actually, it sounds pretty easy to programatically establish that linkage if B
& C are only used once. Just discount nodes that only forwarded money in their
life.

You could make lots of noise by having hundreds or thousands or tens of
thousands of nodes trading with each other - but automated analysis could
still figure out what they're doing.

To effectively launder money you'd have to actually put it through active
accounts that were actively transacting with the real world, and even then,
only through each one once.

That sounds like a harder problem than laundering real money. There would
likely need to be a real money step in there somewhere.

~~~
reitzensteinm
Oops, I misunderstood the parent comment, and the edit period has passed.

------
cookiecaper
Bitcoin is awesome because it stands to make electronic payments extremely
easy without any hassle from banks or outsiders. No more e-commerce hassles
like a merchant account or payment gateway.

The anonymity is less strong than many initially presume since ALL PAYMENTS
ARE PUBLICLY REGISTERED, including the payment chain. This is why it's
important to generate a new btc receiving address whenever you perform a new
transaction. The entire exchange history of that bitcoin is public knowledge,
from the day it was generated until the very last transaction. Hence, if you
use a bitcoin that was sent to a publicly disclosed address to pay for
something, that transaction is linked to you forever. So people need to be
careful about how they use which bitcoins, and the client doesn't really make
that easy.

There really is a lot of potential in btc, I've been excited about it since I
first learned of it, though as soon as the government catches on they will
outlaw it (if they can't find a current law to justify prosecution and/or
destruction of the btc network, which is doubtful) and do everything possible
to destroy it. They won't like it at all, and neither will the banks that even
btc users rely on to store their country's regularly denominated currency. I
am scared and interested to see what happens to btc as demand rises.

------
gte910h
To me this press effort always seems like just people who already have
bitcoins trying to get buyers to raise the price of the currency.

~~~
lawnchair_larry
I really doubt the true goal is to raise the value of bitcoins already held. I
don't think "forex" speculators take a serious interest in bitcoin yet, but
rather, those using it would like to see wider adoption so that they can
actually buy things with it.

A current problem is that it is highly volatile and fairly illiquid. Most
adopters have a genuine interest in the success of an alternative currency
rather than trying to profit from the situation.

I downloaded the client and checked out the forums. Although I don't have any
BTC myself, I would like to see something like this succeed.

However, I have low hopes that it will not get tagged with propaganda about
drug dealers, terrists, and child pornography (I can't believe the article
implied that already!), and probably made illegal like online poker.
Visa/Mastercard will refuse to process payments for exchangers, who will later
be indicted as money launderers.

~~~
vessenes
There are many, many bitcoin speculators. I know because I was one, sort of.
Large bitcoin holders currently have in excess of $250k in BTC value, much of
it purchased at $.02/BTC -$.05/BTC originally.

There are a few people making their daily living trading, generating and
exchanging BitCoins. Just the top of the iceberg, I imagine.

The payment problems are exactly as you describe. Interestingly, it would
definitely be possible to run an above-board US-based exchange for BTC; it's
called a money transfer business, and they're regulated in a specific way.
Getting fully registered and compliant is likely around $1mm USD.

When the BitCoin economy gets big enough, expect someone to try this. I have
no idea if it will succeed, though.

~~~
jsavimbi
You don't need a US-based exchange for BTC, per se, as other currencies are
traded on the open market and the brokers simply relay quotes to their
customers via feeds they receive rom the banks. If the banks saw the potential
to make money off of trading BTC, they'd make it happen.

~~~
quanticle
You don't _need_ a US based exchange, but changing bitcoin into a foreign
currency and then turning that foreign currency into dollars would probably
incur enough in transaction fees to be unprofitable, especially if you're
changing large amounts of currency on a regular basis.

~~~
jsavimbi
If you read into what Forex is you'd discover that what you're speculating
about actually happens, for pure profit, many many times over on a daily
basis.

------
gaius
This is what happens when you challenge governments and banks:
<http://news.ycombinator.com/item?id=2451302>

~~~
weavejester
There are lots of examples of governments or large organisations taking down
networks with single points of failure, but far fewer examples of taking down
highly distributed networks like Bitcoin.

I don't think this fight is a foregone conclusion. I think it would be
difficult to write a law that would make Bitcoin illegal, without making
things like MMO currencies or SSL certificates illegal.

~~~
zacharypinter
One guess is they might write a law that requires U.S.-based online businesses
to collect certain information about the transactions they accept that would
make accepting bitcoins illegal.

~~~
weavejester
That wouldn't necessarily make accepting bitcoins illegal, it would just make
accepting bitcoins from anonymous sources illegal. I think they'd also have a
hard time justifying why I can buy a product anonymously in cash (or with a
pre-paid VISA), but I can't buy a product anonymously using bitcoins.
Particularly since bitcoins have less anonymity than cash, because a history
of all transactions is maintained.

------
ender7
Bitcoin is both a really great idea, and a really stupid idea.

sage_joch has already pointed out the reasons why it's a really cool idea.

It's also flawed in a number of ways. First, the limited supply means that
you've essentially just created an electronic version of gold. It's more
easily tradeable, but its behavior as a commodity will be similar.

If you like investing in gold, that's great. I guess.

Second, bitcoins do not necessarily remove the issue of paying a fee for
transactions. Instead of paying a fee per transaction, you will instead pay a
fee in order to transform normal currency into bitcoins (this is not as
readily apparent now, but if the system ever becomes large enough to actually
have stable value, then you will need to pay someone to convert real currency
to bitcoins). Will this be cheaper than credit-card fees? Probably? Keep in
mind that credit card companies are offering just that: _credit_ , which is a
service. Someone has to pay for it (either you, the merchant, or the marketers
who they sell your buying profile to).

Third, bitcoins ignore the fact that national currencies are an incredibly
valuable tool for modern governments. They can of course be misused (see:
Argentina, post-WWI Germany), but adjusting the value of your currency is one
of few ways of improving your country's competitiveness globally (see: the
trouble Ireland, Greece, and other European nations have had recently because
they do not have control over the Euro). So, don't expect national currencies
to go away, or become obsolete.

Perhaps the Bitcoin community has an answer for these concerns...

~~~
lhnn
1) That's the point. It wants to be similar to gold. We traded based on a
third party commodity (gold/silver) until 1974 and did alright.

2) So? I don't see your point. The goal of BTC is not to eliminate fees, but
to make digital currency that you can use P2P.

3) I don't think government currencies are going away any time soon, but BTC
provide an alternative.

~~~
ender7
1). Ah, if that's the goal then...great I guess. I personally don't think
moving back to a commodity currency is a good idea, but that is perhaps
another discussion.

2). I've heard a number of Bitcoin enthusiasts state this as an advantage/goal
(even in this discussion), who perhaps have started developing their own ideas
about what bc should be used for.

3). But an alternative to what purpose? Say that I believe strongly enough in
the ideals of BC that I want to use it (privacy, accountability, etc). Do I
convert part of my monthly paycheck into BCs? Do I convert all of it? This
isn't terribly practical if my national currency is still popular. Perhaps I
want to even-up with friends or acquaintances? Is transferring BCs easier than
writing a check?

Now imagine that I _don't_ believe strongly in the idealistic angles of BC
(which, sadly, will be the vast majority of your potential users). I want
immediate pay-offs for my efforts (this may sound petty, but isn't. Most
peoples' time is extremely valuable to them - if you have a product, even a
free one, you must compete for their time). What benefit to I gain from
converting my money to BCs?

~~~
getsat
1) You won't have to worry about the quantitative easing when you're not using
a fiat currency. <http://www.youtube.com/watch?v=PTUY16CkS-k>

2) Read "A Lodging of Wayfaring Men". Fiction, but an example of the kind of
change a system like BTC could usher in.
<http://agorism.info/_media/a-lodging-of-wayfaring-men.pdf>

3) You'd only convert as much as you need.

> Is transferring BCs easier than writing a check?

Yes. Enter address, enter amount, click send, wait a few minutes for the
network to confirm the transaction.

------
originalgeek
> Because Bitcoin is an open-source project, and because the database exists
> only in the distributed peer-to-peer network created by its users, there is
> no Bitcoin company to raid, subpoena or shut down.

Which will leave only Bitcoin users to raid, subpoena and shut down.

~~~
pyre
And that worked so well for copyright piracy! I'm glad we live in a world
without pirated music and movies!

~~~
tnt128
If the government can confiscate gold, what would prevent them from passing
the law saying bitcoin ownership is illegal?

~~~
dublinclontarf
Yeah goodluck with that, proving someone has a particular private key. Of
course this is all possible but would require the banning of cryptography, and
that would take a disciplined dictatorship to pull that off.

The cryptography cat is out of the bag, you can't just ban it(sure you can
try, but like I said, good luck enforcing it).

------
patja
Good recent Bitcoin podcast interview on Econtalk:
[http://www.econtalk.org/archives/2011/04/andresen_on_bit.htm...](http://www.econtalk.org/archives/2011/04/andresen_on_bit.html)

------
euroclydon
I have a hard time getting excited about a currency when the main reasons
given for it's existence are for online gambling and Wikileak donations. I
would be excited about a dollar alternative that allowed the common person to
protect themselves from the inflationary rot that the US Congress is hell-bent
on subjecting us to.

~~~
bonzoesc
Those are the first uses because online gamblers and muckraking NGOs are the
ones most desperate for an alternative to a government-issued currency. If the
average person was unable to function with inflationary currencies, they'd
find an alternative.

~~~
phillmv
Inflationary currencies? I'm pretty sure every form of currency is subject to
inflation.

~~~
quanticle
Currencies linked to physical goods of limited quantities wouldn't inflate.
For example, I could make a currency that represented shares of Picasso
paintings. Since there are only a limited number of Picasso paintings, my
currency wouldn't inflate.

Commodity-linked currencies (e.g. those that are gold/silver based) don't
inflate much in a practical sense, since the amount of gold/silver being mined
each year is usually much less than the amount of gold and silver already
being used for exchange. That said, the US did experience a pretty huge bout
of inflation after the California gold rush, as all that new currency
increased the money supply.

~~~
phillmv
Hrm. My understanding is that inflation can affect anything we attach value to
(and that broadly speaking "value" is also an abstract concept).

Suppose the price of oil (or any other primary resource) jumps 50%, increasing
the nominal cost of everything that has been made from it. Your gold backed
dollar now can be exchanged for less things than before, irrespective of the
total supply of gold in the world.

Does that make sense? I'm woefully under read in economics.

~~~
StavrosK
That's not inflation, though, that's just a price change...

~~~
phillmv
Yesterday, I could get 1kg of sugar for $1. Today, I can only get 0.75kg of
sugar for $1.

My dollar is worth less (can be exchanged for less goods) than it was before -
I'm pretty sure that's inflation.

~~~
nradov
The word "inflation" has several different meanings. You're talking about
consumer price inflation. There is also monetary inflation, which is the
supply of money plus debt (marked to market). Those are really completely
different things with only a very loose relationship.

------
cookiecaper
Every time btc gets press mtgox jumps. We were looking at averages between 70
and 80c / btc, now it's up to $1.11. I would encourage people to let the furor
die down a bit before investing in bitcoins, until they're back in the 80-90c
range at least.

------
pnathan
Bitcoin is really cool.

I just wish I knew what to sell to get some. My dabbling with mining bitcoins
has convinced me it requires a on-all-the-time setup to mine with any prayer
of success.

Last time I looked, there didn't seem to be a real economy, just people
trading bitcoins. ~.~

~~~
bonzoesc
Don't bother trying to get lucky on the 50BTC block bounty; join a pool that
splits the winnings. Pools provide well over half the calculation capacity of
the Bitcoin system, most are free to join and ones worth joining don't have
any real requirements.

I make about 1 BTC per day just with spare GPU cycles on my desktop; it's not
a substantial amount by any means, just a test pool for experiments and
playing with software.

~~~
joeyh
AFAICS, the benefit to being in a mining pool is you can make some bitcoins
immediately, rather than waiting for a big, rare payout. There's no increased
probability of winning due to pooling resources is there?

~~~
JeremyBanks
Your expected gain is the same, but it has a smaller margin of error.

------
rick888
What's to stop someone from taking apart the software/building rogue software
and generating their own bitcoins without going through any of the complicated
math calculations?

If they can't, then there must be some central authority preventing
this..which means it's no different than the government

It also doesn't really help with privacy. In fact, it does the exact opposite:

Taken from: <http://www.bitcoin.org/smf/index.php?topic=5907.0>

"Every bitcoin transaction ever made is public, and the life of every bitcoin
is fully recorded in public for all to see,"

~~~
prodigal_erik
Forging a solved bitcoin block is like making counterfeit currency in crayon.
No central authority is needed because every peer running correct tools will
reject blatantly invalid blocks.

The history of each bitcoin is public, but the ownership of the sending and
receiving addresses is not, and generating fresh anonymous addresses
(keypairs) is nearly free. I don't know how resistant they are to traffic
analysis attacks, though.

~~~
rick888
I'm still not convinced. Currency has gone through many corrections because of
counterfeiting and I feel pretty confident that most people won't be able to
counterfeit money (especially with the new designs). Bitcoins also do not have
the backing of the government (and it never will, unless the government is
issuing them, which would defeat the purpose). A security flaw in any of the
peers could potentially mean lots of stolen money/devaluing.

------
iterationx
>>Intermediaries as Choke Points

Interesting to see an article using network theory.
<http://en.wikipedia.org/wiki/Choke_point>

------
kragen
Oh shit. I guess that's the end of the road for Bitcoin, eh? No way
governments and banks are going to let it live now that Time says it "could
challenge" them.

------
known
Sounds like computerized <http://en.wikipedia.org/wiki/Hawala>

------
known
<http://www.weusecoins.com/> for the beginners

------
barmstrong
Just realized, BitCoin could become a force to recon with overnight if just
one step happened: Paypal started supporting BitCoin.

Peter Thiel is a libertarian and seems like he would be very sympathetic to
the idea - who knows, crazier things have happened.

~~~
smanek
Even if Thiel was in favor, he is no longer with Paypal.

~~~
barmstrong
Who knows, the roots of the company go back there and he could still have
influence.

------
nabilt
Great article that explains the basic technology and it's potential impact.
Great link to send to some of your non-tech friends.

------
thedaveoflife
Money is fiction. The value of money is derived from trust in the central
authority that creates it. Therefore I think an entity like Bitcoin (though
not necessarily Bitcoin itself) could conceivably come to replace federal
currency because its source is not human beings, but an unflappable algorithm.

~~~
bonzoesc
The source of the currency is software written by humans and run on computers
built and controlled my humans. The algorithm may be temporarily unflappable
(as long as the cryptographic algorithms it depends on remain solid), but the
implementations of it depend on humans in every step.

------
DiabloD3
For those that think Bitcoin has no purpose, what about all the small time
FOSS authors out there who are, frankly, scared shitless of Paypal coming in
and closing their account?

Bitcoin is perfect for stuff like this.

And if you think Bitcoin is a waste, feel free to send your coins to
1DbeWKCxnVCt3sRaSAmZLoboqr8pVyFzP1

------
clistctrl
Bitcoin is pretty sweet, but its extremely confusing. I barely understand it,
and i'm an extremely technical user. I think people need to work harder on
bringing down the complexity.

~~~
StavrosK
What complexity? The client pretty much only has one button, "send BitCoins".

~~~
clistctrl
How do I transfer my coins from one computer to another? I found digging
through my application data to find the wallet.dat file is unintuitive.. along
those same lines, how many less technical users have lost extremely important
data because they never made a backup? Additionally what if I want one wallet
so I can go to a physical store, and use my phone to pay? The shuffle seems
very inefficient to me. Perhaps people could setup servers to host their own
wallet... however that creates another barrier of entry to less technical
users.

Look at this crazy shit: <http://www.stronggames.com/bitcoin> if I want to buy
a game I have to somehow obtain 40 bitcoins (the markets are great for
speculators, but its not 2 buttons simple for people who just want some coin)
after I somehow obtain the bitcoins I need to tell them about it...

In the form that it is in today, this is a currency for geeks. Awesome? (hell
yeah!) but sometimes you need to do business with non geeks, and its just not
ready yet for them.

~~~
sgornick
Baby steps.

Try starting out using an eWallet, such as MyBitcoin:
<http://www.mybitcoin.com>

Then buy your Bitcoins with PayPal here: <http://coinpal.ndrix.com> use the
bitcoin address generated at MyBitcoin. You'll get your bitcoins in less than
an hour at MyBitcoin.

Then those bitcoins can be spent using your example, at StrongGames.

~~~
lutorm
So if I put my bitcons on MyBitcoin.com, I'm under the impression that they
have complete control over my wallet. Just like if I gave my wallet to someone
and asked them to please accept payments on my behalf. Correct? That's an
awful lot of trust to put in a random website. If they decide to run the
website until they are sitting on enough coins and then just transfer them to
themselves, is any court going to believe me when I claim they stole my
money??

The fundamental problem I have with Bitcoin web transactions is that it
requires trusting the other party, since I can't exchange the goods at the
same time. How do I make that determination and what recourse do I have if I'm
defrauded? This would seem to be the fundamental obstacle to adoption to me.

~~~
SkyMarshal
My understanding is that every bitcoin contains the entire block chain which
contains a record of every transaction made in the network.

A transaction is basically three pieces of data: private key signature of the
sender/payer, public key of the receiver/payee, amount of bitcoins.

The blockchain is very difficult to counterfeit, so theoretically a site like
MyBitcoin.com can't actually 'control' your wallet or transfer all the
bitcoins to themselves, at least without all the private keys of their
depositors.

------
AndrewMoffat
Why is Bitcoin a good currency again? If I understand how it is distributed
correctly, those with higher/more computational power receive more of the
finite bitcoins. How does that not favor the already rich?

~~~
ataggart
>Why is Bitcoin a good currency again?

It isn't, but almost anything can work if the community of users is small
enough. As for why it isn't, we need to step back a bit.

In a barter economy an exchange occurs when two individuals each produce
something which takes time/labor/capital and which the other person values
more than what they're giving up. For example, if I grow an apple, and you
grow an orange, and we trade, it is clear[1] that I value the orange more than
the apple, and you value the apple more than the orange (otherwise we wouldn't
have made the exchange). The value of those items is individually
subjective[2], and the supply of those items is constrained by market forces
(e.g., alternate uses of time, labor, and capital).

A money economy emerges from a barter economy when individuals accept in
exchange something they do not want for itself, but with the anticipation that
they can use it for some future exchange. It is critical that the commodity in
question be desirable _eventually_. If no one ever wants it, then it wouldn't
emerge _as money_. (Important Aside: once a commodity begins to function as
money, part of the demand for the commodity will be as money, thus there is
positive feedback loop, but some non-money demand needs to exist to get the
process running. This is why all functioning fiat currencies have their roots
in a commodity money.)

It's important to notice that commodity money has some _inherent_ constraint
on its creation (i.e., its supply curve is bounded by market forces), and that
it satisfies the wants of others (i.e., there exists some demand curve). For
example, the gold supply is constrained by the cost of mining/processing new
gold, and the demand affected by its consumption into produced goods and
demand to hold "cash balances" of gold.

So far as I can tell, bitcoin is a scheme whose total supply is constrained
only by an exogenous, artificial limit of 21M coins, and not by the demand for
alternative uses of its factors of production[3]. There can be, _at most_ , a
marginal value[4] equal to the marginal cost of producing a coin, which
appears to be nothing but otherwise-idle computer time and some electricity.

But far more importantly, this is a scheme whereby artificial scarcity is
created (e.g., it takes n hours to produce a coin) but no thing of value is
produced. This would be akin to inventing a system of money involving sticks
whittled into perfect cylinders. Sure it might take a long time to create one,
and it might consume resources, but if the end result doesn't have any value
to anyone, it isn't money, it's just waste.

"The curious task of economics is to demonstrate to men how little they really
know about what they imagine they can design."

[1] <http://en.wikipedia.org/wiki/Revealed_preference>

[2] <http://en.wikipedia.org/wiki/Subjective_theory_of_value>

[3] <http://en.wikipedia.org/wiki/Factors_of_production>

[4] <http://en.wikipedia.org/wiki/Marginalism>

~~~
lambda
Is a $20 bill something of value? No, it's merely somewhat hard to forge, and
accepted as currency by lots of people.

Or how about an entry in a ledger on some bank's computer?

The only reasons the $20 bill or the entry in the computer retain value are
because there's a central entity that limits the creation of too many of them,
and people accept it as currency in exchange for good, because they expect
that other people in the future will accept it in exchange for goods.

Well, Bitcoin just gets rid of that central entity. It makes it hard to
produce new units (and impossible after 21M have been produced). And it relies
on the fact that people are willing to trade it for goods, services, and other
currencies to give it value.

Look, if I have 100 bitcoins right now, I could get $100 for it, or I could
buy web hosting services, or I can buy specialty coffees, or a variety of
other things. That seems like real value to me. Now, the total size of the
bitcoin economy is pretty small at the moment, but it is growing.

I don't see why people feel like other fiat currencies somehow have value but
something like bitcoin cannot. They are both artificially scarce things that
can be easily transferred with no intrinsic value.

~~~
ataggart
>Is a $20 bill something of value? No, it's merely somewhat hard to forge, and
accepted as currency by lots of people.

I think perhaps you and I are using different definitions of "value". If
someone is willing to accept something in exchange for something else, that
act reveals that they value it, either for its use value or for its exchange
value (i.e., as money).

>The only reasons the $20 bill or the entry in the computer retain value are
because there's a central entity that limits the creation of too many of them

Why do you think that? It's certainly true that artificial scarcity raises
prices (for money, in terms of all other goods), but that scarcity is not what
is being subjectively valued.

A $20 bill today is valued (as money) based on what it could buy yesterday.
And yesterday's valuation (as money) was based on the day before that. Go back
far enough and the money valuation will have spawned from the commodity
valuation.

Bitcoin is flawed in largely the same ways that fiat currencies are flawed,
namely that the commodity has no use value demand, and the supply is not
subject to market forces.

The difference with fiat currencies is that they have quite a few things going
for them that keep them around: taxes are demanded in them, a raft of laws
eliminate competition, and a central bureaucracy actively manipulates the
market.

~~~
lambda
> I think perhaps you and I are using different definitions of "value". If
> someone is willing to accept something in exchange for something else, that
> act reveals that they value it, either for its use value or for its exchange
> value (i.e., as money).

I meant intrinsic value in that context. Of course I agree that it has value
based on what people are willing to exchange it for. That's precisely the
point I was trying to make; in your original post, you had claimed that
bitcoin was flawed because it wasn't based on a commodity originally, and I
was pointing out that that really has no bearing on its present value.

> Why do you think that? It's certainly true that artificial scarcity raises
> prices (for money, in terms of all other goods), but that scarcity is not
> what is being subjectively valued.

> A $20 bill today is valued (as money) based on what it could buy yesterday.
> And yesterday's valuation (as money) was based on the day before that.

You trimmed out my next sentence in your quote in which I said almost exactly
that. My only point about artificial scarcity is it limits the rate at which
value can be lost due to inflation; it helps it retain its value, because you
know that someone else won't be able to just go and get more for themselves,
but instead will be more likely to want to trade you something for the
currency you are trading.

> Go back far enough and the money valuation will have spawned from the
> commodity valuation.

It doesn't really matter how far back you look; just because a currency was
originally based on a commodity has no bearing on its value now, other than as
a historical artifact. What matters is what it will buy you when you spend it,
which is in the future, and while not entirely predictable, in the near future
tends to be close to what it would buy you in the recent past.

All I'm saying is that there is as much intrinsic value to a bitcoin as there
is to a dollar, or a euro, or what have you. The difference is mainly in how
they are transferred, and how the supply of them is constrained. I'm not
entirely convinced that a deflationary currency is a good idea, but I think
that bitcoin is a technically, economically, politically, and socially
interesting experiment.

I generated a few back in the day when I could do so on my laptop in a few
hours without dedicated GPUs running constantly, and I'm going to hold onto
them for a while to see how this whole thing pans out. Who knows, with only
21M in existence, if this thing takes off the few I have could wind up being
pretty valuable later on; and if not, well, I just lost a few hours of CPU
time, no big deal.

If you don't think that bitcoins will hold their value, I'll gladly take any
you have off your hands. Just send them to 1Lz9u29gLLUJ3yH6GrMeSuRUmbUounXinG
;)

~~~
jerf
"All I'm saying is that there is as much intrinsic value to a bitcoin as there
is to a dollar, or a euro..."

The intrinsic value of a dollar is that the United States Government is
obligated to accept a dollar as a payment of tax and other obligations you may
have towards the government. A dollar is not an arbitrary thing, it
fundamentally profoundly _is_ a warrant to discharge a debt obligation against
the United States Government. The rest of its value emanates out transitively
from that.

A BitCoin is fundamentally more arbitrary than a dollar. (At least at the
moment. Hypothetically this could change.) Perhaps it will make it anyhow,
despite my skepticism, but it is absolutely, empirically true that a dollar is
not an arbitrary value store. It has a base case for its value chain. BitCoins
do not have this.

------
AndrewMoffat
There's some great discussions going on in the Economics section of their
forums: <http://www.bitcoin.org/smf/index.php?board=7.0>

------
waynerad
Someone tell my why the US government can't just demand ISP's block the
protocol that Bitcoin uses?

~~~
tlrobinson
Encryption, port randomization, etc

~~~
waynerad
So, every x days, every user of the currency in the country has to upgrade
their software, because the government has blocked the protocol, so they need
new software that in essence uses a different protocol???

If using this currency is that inconvenient, people will just go back to using
credit cards and Paypal.

~~~
getsat
I don't have to download a new copy of uTorrent if I decide to use different
ports.

The client could probably just check periodically for a signed message from a
central server (or a broadcast on the network itself) with instructions to
currently operate on the network.

This isn't really a big deal or usability issue that I can see.

~~~
waynerad
I see I've been modded down. Why? What do you people know that I don't?

It seems to me like I'm asking a simple, obvious question: what is stopping
governments from simply shutting down Bitcoin within their physical borders?
You think they will not be smart enough to handle a simple port number change?

Regarding the comparison with Bittorrent, my ISP (Comcast) did in fact block
and throttle Bittorrent, successfully, until someone sued them. It seem to me
Bittorrent is an example of how ISP's _can_ block an application, not an
example of them being unable to do so.

"The client could probably just check periodically for a signed message from a
central server (or a broadcast on the network itself) with instructions to
currently operate on the network." -- why could the ISP not block this, also?

Especially if the software is open source, as Bitcoin is, all the knowledge of
the inner workings of the protocol is public knowledge, which makes it
impossible to stick in something like "just check periodically for a signed
message from a central server (or a broadcast on the network itself) "
secretly without governments wanting to block the system knowing about it.

~~~
getsat
(I am not modding you down.)

It's fortunate (for Bitcoin) that governments and ISPs generally move at a
sloth's pace. If it comes down to an arms race, they can't win more than
extremely temporary victories. If they could, they'd have completely stopped
filesharing over Bittorrent, IRC, AIM, MSN, Skype, HTTP, email, Usenet,
various P2P services like Kazaa and Limewire, ... and so on.

If they start blocking/interfering with the protocol (like Comcast injecting
RSTs into suspected torrent connections), you can just encrypt the entire
transport layer and randomise the ports. People were configuring their
firewalls to drop the falsified RSTs from Comcast.

If they blacklist hostnames, there's a near limitless number of them that can
be generated. The client can precalculate a domain and ping it at a given time
for instructions the same way botnet clients work. The government can't
register/block every possible domain name that will be generated. Another
alternative: <http://en.wikipedia.org/wiki/Fast_flux> There's nothing illegal
about having a hostname resolving to an IP.

> Especially if the software is open source, as Bitcoin is, all the knowledge
> of the inner workings of the protocol is public knowledge

This is also true for GPG, ciphers like AES/Twofish/Serpent, etc. Openness
does not necessarily imply weakness.

~~~
waynerad
Weakness from the standpoint of the ability of a network operator to block the
protocol? GPG could be blocked quite easily. Email encrypted with GPG declares
itself so

I feel upset about being modded down -- I feel I asked a fair question.
Governments gain their power from being able to tax and dilute currency.
Bitcoin, if it gains traction, will be a direct threat to both. It does not
seem realistic to think governments will not fight back, and hard. If I'm
right, it means simple tricks like changing ports and changing IP's won't
work. You say "The government can't register/block every possible domain name
that will be generated." -- maybe they can if they know the algorithm that is
being used to generate the domain names? Or maybe they can examine the
contents of the packets, so there is no need to block every domain name (or IP
in the case of Fast flux). For every change to the protocol to thward getting
blocked, the blockers and respond to the change because the protocol is open.

I suppose the "worst case scenario" is that Bitcoin has to be used over a
generic VPN protocol, similar to what people do now to get around the Great
Firewall Of China. As I understand it, the Chinese government has not blocked
the VPN protocols, mostly because few enough of the Chinese people use them --
but if a large percentage of Chinese people started using VPN's, wouldn't the
Chinese government start blocking VPN protocols?

Perhaps the Great Firewall Of China is the best example of the capability a
government has to control its internet within its physical territory?

Blocking every VPN is something that should eventually fail because large
enterprises (Fortune 500 Co) won't stand for it. So I can understand the
argument that governments _ultimately_ can't stop Bitcoin or something like
it. But it seems to me like they won't give up without a fight.

