
Bitcoin - sathishmanohar
http://www.avc.com/a_vc/2011/11/bitcoin.html
======
mustpax
Like any cryptosystem, Bitcoin has a fixed shelf life. As algorithms and
attacks evolve, the cryptographic hash function that forms its core will
eventually become obsolete will need to be replaced. We know this.

The question is, can we build the ability to switch cryptographic building
blocks into Bitcoin? I have no idea, but resiliency and adaptability are
fundamental to the survival of any peer to peer system.

~~~
rudiger
This is already built into Bitcoin. Bitcoin's security can be upgraded if this
were considered an imminent threat.

~~~
madhavsuresh
how is that update policy enforced in a p2p network? Are bitcoin users allowed
to use arbitrary clients?

~~~
wmf
You can run whatever software you want, but if enough other peers think your
protocol sounds funny or your transactions are improperly formatted then
you'll be marginalized. I don't know if this has ever been tested, though.

~~~
nazgulnarsil
It has been AFAIK on the test block chain. The test block chain has been
intentionally forked many times to test this sort of behavior (orphan blocks).

------
chris123
Bitcoin isn't going anywhere anytime soon, IMHO. Works great for intended
purpose. Just like a bike works great as a bike (not as a motorcycle or a
rocket ship).

Want to conduct an anonymous consumer-sized transaction and/or send money
internationally and/or minimize transaction fees? Bitcoin:

1) Make your deal terms, priced in Bitcoins. Include whatever time limits are
required, such as payment must be received by x deadline or else commitment
expires and/or is subject to repricing.

2) Login to Bitcoin exchange. Purchase Bitcoins at whatever market price is.
Send Bitcoins.

3) Done.

Sure, you have other risks that you have hedged, minimized and/or accepted (or
failed to recognize or address, and therefore accepted without knowing it).
See here <https://en.bitcoin.it/wiki/Contracts> for some of the interesting
contracts possible with Bitcoin.

Plenty of opportunity for Bitcoin-related designers, developers, investors,
etc. to create the services and interfaces required for end-Bitcoin users to
feel confortable and be able to EASILY and SECURELY conduct transactions and
bank their Bitcoins SECURELY (easy, disaster recover, not stolen or hacked,
etc.). Landrush is on. Early dayz are now... still.

Besides Bitcoin-related work, there is the whole, larger, universe of
ancillary services. The analogy is Facebook to Facebook Apps or iPhone to
iPhone Apps. Micropayments, automated bidding, pricing, incentivizing, etc.
Lots of neat possibilities.

~~~
adrianwaj
If you were Google, Apple or MS, would it be better to create one's own
blockchain and promote that instead? Gcash, iMoney or Credits respectively.

~~~
wcoenen
If you want "your own" then there is no point in using a distributed
blockchain. You'd just set up a centralized ledger under your control.

~~~
adrianwaj
No, they can guarantee their computers supply minimum level of computing power
to make the network trustworthy, they can also cover transaction costs
perhaps, and the block chain is still open for all. They can also offer an
exchange and make money that way. Ideally, they can protect the network from
corporate and government attack or interference -- keep it somewhat
unregulated, promoted, trustworthy and developing.

~~~
wcoenen
They can do all those things with bitcoin without starting their own chain. I
still don't see an incentive for a company to do this.

~~~
adrianwaj
They can issue to themselves all the initial coins. I suppose they can do it
transparently and fairly, or in a more exploitative way to their financial
advantage. (another way to make money off it!)

Not sure, but in terms of government, wasn't bringing the power to issue money
away from central banks and into the government's treasury what Lincoln did
with his greenback and what had him murdered? A government run blockchain
would be what Lincoln would do today if he were a hacker!

------
chimeracoder
> I think it is, but there are significant ramifications that will result from
> the decoupling of currencies from governments.

The decoupling of currencies from governments sounds like a radical shift, but
it's actually only fairly recent in history that we use fiat money. That, of
course, allows us to do a lot of things that we've gotten used to in the last
century particularly, such as taking advantage of monetary policy to address
short-term economic concerns.

If alternative currencies catch on, that's something that governments will
have less power to do - or at least, less power to do directly and
predictably. Certainly, governments are going to push back on that, and
probably try to discredit or disable alternative currencies.

At the end of the day, though, while money can be determined by fiat, value is
determined subjectively, so if alternative currencies catch on (which I think
they well), it will necessitate a shift in the way that people think about
money. (Not unlike the way that the Internet has shifted the way people think
about tradable goods and IP law - just take a look at SOPA.)

~~~
jpdoctor
> _but it's actually only fairly recent in history that we use fiat money._

What do you consider to be the starting year of fiat money?

~~~
mckoss
A good book covering the subject is The History of Money (Jack Weatherford).
Money was has had a tradition of being valuable in its own right (gold and
silver coin), and eventually banks created paper money that represented an
amount of gold held in reserve.

The Bank of England, was at first a private entity (established in 1688) and
was only nationalized in 1946[1]. The notes they issued were backed by
deposits of coin, gold, or silver. They broke with the gold standard in 1931,
and it's then we see money tied not to a specific asset, but rather as a debt
instrument; it's valuable only because someone promises to pay you back.

When the debtor is a nation-state, we have fiat money, and the money is backed
only by the faith and credit of the nation who issues it.

As Weatherford's book points out, fiat currency was not invented by the
British, as the Chinese were using a similar system in the 1st or 2nd century,
and continued to use a paper money system until 1399. Abuses destroyed the
value of the paper currency, and it did not reappear in China until the 20th
century.

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

~~~
nl
_As Weatherford's book points out, fiat currency was not invented by the
British, as the Chinese were using a similar system in the 1st or 2nd century,
and continued to use a paper money system until 1399. Abuses destroyed the
value of the paper currency, and it did not reappear in China until the 20th
century._

This is accurate, but incomplete. Wikipedia has a decent page on the subject
of fiat currency in the 18th & 19th century:
[http://en.wikipedia.org/wiki/Fiat_money#18th_and_19th_centur...](http://en.wikipedia.org/wiki/Fiat_money#18th_and_19th_century)

------
pace
Fred's post has an hidden agenda.

There's no clear message in the article -- except expressing a strong believe
for Bitcoin or related tech. So, I guess he's trying to get some heavy co-
investors on board by creating some hype on Bitcoin again. Any other ideas?

Besides: I love the Bitcoin idea and I'm sure it's not over yet (I still have
Bitcoins).

Edit: Don't get me wrong, I am not into bashing Fred -- I just want to get the
real message behind his post and to raise HN readers's awareness for influence
by media (media manipulation). Before happily discussing a new topic by a VC
celeb we should ask why is HE now posting about Bitcoin. Look: Fred and his
blog have a strong reach and influence, so it should be legitimate to question
his actions. More on this topic:
<http://en.wikipedia.org/wiki/Media_manipulation>

Edit2: just read another reply in this thread (which is downvoted as well)
about that he just want to give the Bitcoin price another bump.

~~~
mmahemoff
Is an agenda hidden when a VC says he's interested in a new technology? I'd
say it's in plain sight as much as any post you'll see on any other blog.

~~~
pace
Fred and his blog are very popular -- so he is not just "a" VC, rather a
strong opinion leader in the VC and startup world. I am just saying: Take
Fred's words with a pinch of salt

~~~
kiba
It's a good idea to take someone's opinion with a pinch of salt, but it's bad
idea to speculate and have no evidence to back up what you're saying.

------
thinkcomp
This is naive in the extreme.

We all live in nation-states and are required to abide by their laws as a
result. Though it's theoretically possible to separate currency from
governments, if that's not what the governments want, it will never be legally
permissible. As it is, Bitcoin operates in a legal gray area. That's not going
to improve.

Most of the VCs I talked to about FaceCash refused to invest because they were
afraid of the regulatory implications. But throw in some bad economics
(verified as such by Paul Krugman, see
[http://krugman.blogs.nytimes.com/2011/09/07/golden-
cyberfett...](http://krugman.blogs.nytimes.com/2011/09/07/golden-
cyberfetters/)), a catchy buzzword or two, and some political philosophy, and
you've got yourself an investor?

Venture capital is even more broken than I thought.

~~~
badclient
_Most of the VCs I talked to about FaceCash refused to invest because they
were afraid of the regulatory implications._

Having followed your comments on this topic for a while, it seems just as
plausible that VCs did not invest in FaceCash because they believed that _you_
cannot take on the challenges(regulatory or otherwise).

VCs invest all the time in enterprises that are in the gray area because the
potential upside negates the obvious risks.

~~~
thinkcomp
I think you have more of a problem with me than any of the VCs I talked to.

Besides, I'm the only one suing the government over this issue, so the
hypothetical case you reference wouldn't even be correct.

~~~
badclient
Willingness to sue the gov doesn't say much about your ability to take on a
challenge. In fact, your inclination to litigate may well have scared VCs
who'd rather you get traction with your product even if it means operating in
a gray area and litigate when forced.

I'm sure if payPal tried to meet every rule and take on what they deemed as
unfair laws in their early days they'd never be able to focus much on their
product.

~~~
thinkcomp
I didn't even think about suing California until months after meetings with
VCs, so your implications are false.

PayPal had to scramble at the last minute to deal with licensing issues right
before its IPO, because it had ignored them up until then. This is well-
documented.

I have no idea who you are. I do know that you are critical of my abiding by
the law, and critical of my challenging it. You don't think that building an
incredibly complex technology from scratch and suing a government demonstrates
an "ability to take on a challenge." (Which leads me to ask, what does?)

I guess you can't please everyone.

~~~
badclient
_Which leads me to ask, what does?_

You answered your own question:

 _PayPal had to scramble at the last minute to deal with licensing issues
right before its IPO, because it had ignored them up until then. This is well-
documented._

~~~
thinkcomp
I see: in your opinion, unless I'm willing to risk incarceration--a risk
PayPal never faced because the USA PATRIOT Act had not yet been passed--I'm
not willing to take on "the challenge."

You have a strange view of the world, my anonymous friend.

~~~
badclient
So you weren't able to raise money because the VCs were scared you'd be
incarcerated?

~~~
thinkcomp
No, the VCs were scared that they wouldn't earn a high return on investment
with most of the money going to license fees, application fees, and surety
bond premiums; and that in the alternative, they might be at risk of going to
jail themselves. See 18 U.S.C 1960(a):

"(a) Whoever knowingly conducts, controls, manages, supervises, directs, or
owns all or part of an unlicensed money transmitting business, shall be fined
in accordance with this title or imprisoned not more than 5 years, or both."

~~~
badclient
So how are your competitors, who you claim are breaking the law, able to raise
money?

~~~
thinkcomp
You'd have to ask them.

~~~
badclient
_Most of the VCs I talked to about FaceCash refused to invest because they
were afraid of the regulatory implications._

Given you have competitors that have raised money, this leaves two
possibilities:

1\. You were talking to the wrong VCs

2\. You got rejected by the VCs for reasons other than the _mere existence_ of
the regulatory challenge(for example, they may have rejected you because they
believed the regulatory challenges were surmountable but that you did not
possess the skills etc. to deal with them in the manner that they'd like)

In either case, your attributing your failure to fundraise to the regulatory
implications seems dishonest and/or misguided.

~~~
thinkcomp
A sample of e-mails from VCs explicitly stating that regulations were a
primary factor in their refusal is available as an appendix to the white paper
I wrote about the laws, here:

[http://www.thinkcomputer.com/corporate/whitepapers/heldhosta...](http://www.thinkcomputer.com/corporate/whitepapers/heldhostage.pdf)

In addition to those references, several more investors told me verbally that
the laws were the primary issue. Beyond that, I'm not sure what skills you
would be referring to that you are absolutely certain I (but not other
entrepreneurs) lack, in order to deal with regulations.

Furthermore, the two possibilities you listed are not the only two, and I'm
not clear as to why you are so insistent on refusing to acknowledge the
possibility that regulations might be a hindrance in my case. Specifically,
it's also possible that:

3\. I was talking to the right VCs, but I was more honest in my assessment of
the regulatory situation than the few other competitors I know of that
recently did raise money;

4\. I was talking to the right VCs, but both my competitors and their
investors were genuinely unaware as to the situation regarding a brand new
law.

If you'd like to continue the discussion you are welcome to e-mail me.

------
gerggerg
What happens if someone releases bitcoin2? right now bitcoin exists as a
unique entity, but with competition what happens to it's value? bitcoin to me
seems like how beenie babies were to moms in the 90s. Super fun and
interesting for a while, but a couple years later and everyones trading
pokemon cards.

Plus I don't think I'm ever going to be able to get over how lopsided bitcoin
favors early adopters.

~~~
SkyMarshal
There already is Bitcoin2, and 3, and 4, etc. Lots of forks, and even forks of
forks (Bitcoin -> Ixcoin -> I0coin). Solidcoin is probably the main one, and
has some interesting critiques of Bitcoin:

<http://solidcoin.info/faq.php>

Fundamentally, the value of anything is a function of its supply and demand,
even currencies. In Bitcoin's case, the demand derives from the new utility
provided by a unique and clever solution to the problem of distributed
consensus among untrusted parties. Eg, people want to transact and neither
trust each other to deal honestly nor trust a central monetary authority
(either not to devalue the medium of exchange, or not track them, etc).

Bitcoin created a system to make that possible, and hence has demand (and
limited supply) and value. As long as the underlying reasons for that demand
don't vanish, it should always have some value.

The question is, can forks of Bitcoin provide that utility in a significantly
better way, that gives them enough marginal demand over Bitcoin to incentivize
most people in the Bitcoin network to switch? Same as the general competing
currencies idea espoused by Ron Paul and others (for the record, I'm a
skeptic, but find the idea interesting), just applied to virtual P2P
currencies that are created by hackers rather than nation states (of course,
there's nothing stopping a nation state from creating one either except their
own laws, mindset, and momentum).

As for early adopters being favored, you can only make that observation with
the benefit of hindsight. Had bitcoin failed early or never taken off, early
adopters would have lost. The expected value back when early adopters decided
to commit and mine and accumulate bitcoin is decidedly different from the
realized value of bitcoin now.

Also, most currencies favor early adopters, even (especially) gold and silver.
I don't think that's really anything new.

~~~
gerggerg
we all know what supply and demand are, and i understand the basics of crypto
currency.

 _The question is, can forks of Bitcoin provide that utility in a
significantly better way_

Thats not really the question is it? It's not about better utility. It's about
where you can unload the currency and for what/how much. It's not about
usefulness it's ultimately about money. Real money. Bitcoins are only valuable
in a world where there use is necessary. I wish I could bold that on HN,
NECESSARY. Without the necessity any normal consumer would use a more
convenient, less volatile system.

Lets shift for a sec. Think about the silk road marketplace. What they should
really do is come out with a bitcoin clone of their own, get a bunch of early
adopters behind it and then switch the website over to only accept their
crypto currency. The'd rake in the cash and have a pile of it on hand from
getting in early. They'd be selling the currency and the products you buy with
it. The worlds best drug dealers. In fact theres no telling whether the
bitcoin early adopters are involved in this very practice at silk road. It's
not about beating bitcoin in usefullness, it's about real money.

 _Also, most currencies favor early adopters, even (especially) gold and
silver. I don't think that's really anything new_

Gold and silver don't compare. They're not currency, they're commodities that
have actual use and value outside the realm of wealth exchange, and they
didn't favor early adopters(thousands of years ago). That comparison holds
little to no value and frankly I'm growing rather tired of people pretending
like it does.

~~~
wmf
_It's not about better utility. It's about where you can unload the currency
and for what/how much._

This sounds like the Bitcoin-as-investment thinking that produced the bubble.
Imagine a fork of Bitcoin that clears transactions faster, has less
volatility, and has a better GUI; would you still judge it only on its
exchange rate?

~~~
fish2000
_would you still judge it only on its exchange rate?_

the idea is that the market will judge it on the features you enumerated
(GUI/settling speed/volatility) and the exchange rate will reflect that, n'est
ce pas?

------
SonicSoul
I think a large factor in adoption of BitCoin is the uncertainty of it's
security. You have to be close to a hacker to truly understand how BitCoin
works. General public has little to no chances at being able to gage how safe
bit coins are to hold, and with no government to back up the investment, they
will understandably be very hesitant to participate. Especially since it
already got hacked.

~~~
SkyMarshal
Also, simply losing your wallet to bitrot, accidental overwrite, or whatever
is a big problem for general public users.

~~~
biaxident
The image from the Wired article shows this pretty clearly:
<http://www.avc.com/.a/6a00d83451b2c969e2015393a8b4c3970b-pi>

One of the biggest drops is after "Mt.Gox, the largest bitcoin exchange,
admits its database was compromised and user information leaked."

If you bank "lost" your money there would be outcry. Until people understand
and trust these establishments it'll never take off.

------
xefer
If nothing else, this story ought to trigger a small bump in te price of a bit
coin. The price seems to be directly collated to the amount of press it gets.

~~~
wcoenen
Indeed, the google trends graph for "bitcoin" looks remarkably similar to the
bitcoin price history:

[http://www.google.com/trends?q=bitcoin&ctab=0&geo=al...](http://www.google.com/trends?q=bitcoin&ctab=0&geo=all&date=ytd&sort=0)
[http://bitcoincharts.com/charts/mtgoxUSD#rg360zvztgSzm1g10zm...](http://bitcoincharts.com/charts/mtgoxUSD#rg360zvztgSzm1g10zm2g25)

~~~
DiabloD3
I'm sure that peak being the $30 mark and everyone Googling for Bitcoin to
cash in on it had nothing to do with it.

See also, cause and effect.

------
yaix
"...decoupling of currencies from governments..."

Yeah, because it worked so well when we let the banks just do whatever they
wanted during the past 15 years.

------
jpdoctor
Fred: Redo that plot substituting gold, a currency going back to biblical
times, for dollars. Do you think there is still a chance bitcoin will follow
the Gartner hype cycle?

------
adrianwaj
I think it is a lot easier for the people to remove a ruling party, than for
that ruling party to remove a software application that the people want.

What made email catch on? Did it put the post office out of business? Maybe
the future is an online currency with <$5000 transactions used by smartphone
users and somehow baked into the web like email, a server app. Apple, Google
(or really the banks) should be onto this.

------
SkyMarshal
This is a good article, linked in the comments:

[http://themonetaryfuture.blogspot.com/2011/11/air-guitars-
an...](http://themonetaryfuture.blogspot.com/2011/11/air-guitars-and-bitcoin-
regulation.html)

Apparently there is a contingent among Bitcoiners and academics that wants it
regulated for various reasons, and is working to achieve that.

------
nextparadigms
Some restaurants are already using bitcoin as a payment method, but it's still
very hard to use it in real world situations. I still think that when we'll
have a lot of NFC phones around, that's when Bitcoin payments will really
start to become a common thing in the real world.

------
mhartl
_the emergence of currencies that are not controlled by nation states in my
lifetime_

What we expect is the emergence, not of currencies, but of _a_ currency. Money
is a natural monopoly, and a single currency is the free-market equilibrium.
It's the current system of multiple separate floating currencies—each with its
own name, exchange rate, and central bank/counterfeiter—that is the anomaly.

------
nazgulnarsil
this entire debate would greatly benefit from tabooing the word "money" and
talking more concretely about wealth.

