

After a spectacular crash, Bitcoin makes a surprising comeback - nextstep
http://www.economist.com/node/21563752?fsrc=scn/tw/te/pe/monetaristsanonymous

======
mrb
This article is surprisingly good. I like the mention of Bitcoin being the
"world's first" decentralized digital currency. This is a clear way to convey
to the reader that Bitcoin very is different from everything else. I use the
same term in my Bitcoin introduction: <http://blog.zorinaq.com/?e=66>

The Economist author only made one error: Bitcoin is not the only
decentralized digital currency. Some forks exist (eg. Litecoin), although they
have very little traction currently; see the Alternate Cryptocurrency board:
<https://bitcointalk.org/index.php?board=67.0>

~~~
kloncks
Correct me if I'm wrong, but aren't the others just merely clones of the
original Bitcoin, using the same source code? I would still call Bitcoin the
only currency, as it's the base they all share.

~~~
ahi
In this case, multiple currencies can share the same code base, in the same
way The pound and the dollar share most of th same rules Of fiat currency.

------
nicpottier
Are there any digital wallets out there that are: 1) trustworthy 2) allow easy
funding (credit/debit card/paypal)

Until that's the case I just don't see this taking off. I'm fairly motivated
to buy a few just for kicks, but if I can't be bothered I can't see the
general population doing so either.

I see MtGox takes wire transfers, which is almost good enough, but not quite.
Didn't they also suffer a breach not so long ago?

~~~
lewispollard
I used MtGox a month ago to see what all the bitcoin fuss was about and their
UK bank was inexplicably closed during that time. They've been contacting me
with updates via email but the money I wired to them still hasn't been
credited to my MtGox account which is really frustrating.

~~~
diggan
Have you bothered to contact them yourself?

~~~
lewispollard
Yes, I've contacted all three parties, just waiting for some kind of
resolution which they claim will be in roughly 2 weeks.

------
tokenadult
This statement from the last paragraph of the very interesting Economist
magazine article submitted here is thought-provoking: "Bitcoins tend not to be
very secure, says Richard Booth, a consultant at RSA, a cyber-security firm.
As some users have found to their cost, hackers can sometimes steal Bitcoins
from users’ online vaults. In the latest raid, on September 5th, hackers stole
$250,000 in Bitcoins from Bitfloor, a large American exchange, causing it to
shut down its operation." What does that say about the overall reliability of
Bitcoins as a new form of currency?

A while ago I wrote that perhaps the greatest contribution the Bitcoin
experiment will make to humankind is to teach you and me and our neighbors
more about the realities of economics. And later I added that the Bitcoin
experiment will also contribute to greater understanding of attack surfaces
and online crime. Many of the ideas about how to mine Bitcoins, store
Bitcoins, and trade with Bitcoins as a medium of exchange illustrate both the
strengths and weaknesses of any other medium of exchange in a world full of
human beings. Seeing the discussion of Bitcoins here on Hacker News reminds me
of early online discussions in the 1990s of online payment systems such as
PayPal, and the arguments beforehand that PayPal wouldn't have to invest a lot
of time and effort (as it eventually did) building defenses against theft and
fraud. If a weakness in a system is attached to a lot of money, the way to bet
is to bet that someone will go looking for that weakness, even if you haven't
thought of it.

AFTER EDIT: Here is a question for all the security-knowledgeable persons who
participate here on Hacker News, a question once asked of the inventor of
Pretty Good Privacy (PGP). How expensive do you think it would be for the
United States National Security Agency (or a comparable organization from
another national government) to crack a Bitcoin store, given that we know that
some Bitcoin caches have already been cracked?

~~~
scott_s
I'm a bitcoin skeptic, but I think that the problems you mentioned in the
first paragraph have more to do with the poor security of those individual
vaults, not bitcoin itself.

But, it does bring up an interesting point: as far as how I know bitcoin
works, once you steal the bitcoins, they're stolen. This is different from
fiat currency, at least online. If someone breaks into Bank of America's
servers and figures out how to transfer a bunch of money from other people's
accounts to their own, Bank of American can undo it. As long as the person
does not get a cash or cash-equivalent, then it should be reversible. I invite
the people who are more familiar with bitcoin to correct me, but as I
understand the protocol behind it, once a bitcoin transfer from one owner to
another owner is made, it's not (forcibly) reversible.

~~~
TazeTSchnitzel
Exactly. Bitcoin transfers are irreversible. Which means, effectively, they
are closer to physical money than electronic balances in this respect.

------
relix
Estimated around the end of this year, the amount of Bitcoins mined per day
will be halved according to the schedule. If I understand correctly, this
means that the cost to mine one BTC will double, roughly, if the mining
capacity stays the same.

On top of that, some companies are, or should be coming out with ASIC-based
miners, which are orders of magnitude faster in mining bitcoins than GPU's, at
lower energy usage, increasing the total mining capacity.

Does the cost of mining one BTC influence the price of one BTC? Will these
events have an influence on the price (if they were not already 'priced in')?

~~~
jamesaguilar
I can answer the last question easily. If the supply of bitcoins rises faster
than the real value of the debt they represent, their nominal value against
the dollar will fall.

~~~
maaku
Except that this generation rate halving in price is a predictable, known
event, and therefore already factored into the price of BTC.

~~~
jamesaguilar
If you assume efficient markets, yes. Nothing I've seen about the bitcoin
market so far would suggest that it's efficient. Low volume, ideological
motivations, unstable technologies, few really safe places to store value,
etc.

~~~
maaku
Oh, safely storing value isn't a problem: bitaddress.org.

Safely storing value while keeping it liquid, there's a problem.

------
wamatt
While I'm rather ambivalent on Bitcoin, I feel the article should show
_transaction volume_ as well, in order for us to make an informed assessment
on its future prospects.

Displaying a prominent graph of only BTC/USD as proof of recovery, without an
indication of liquidity and total market size, seems insufficient.

~~~
mrb
You can see the volume (and exchange rate) on the largest USD/BTC exchange
(MtGox) here combined on one graph:
[http://bitcoincharts.com/charts/mtgoxUSD#czsg2011-01-01zeg20...](http://bitcoincharts.com/charts/mtgoxUSD#czsg2011-01-01zeg2012-10-04ztgSzm1g10zm2g25zv)

But a better indicator that Bitcoin activity is increasing is the number of
Bitcoin transactions on the network itself. Bunch of interesting charts here:
<http://blockchain.info/charts> Especially:
[http://blockchain.info/charts/n-transactions-excluding-
popul...](http://blockchain.info/charts/n-transactions-excluding-popular)
showing the # of transactions has tripled in the last 4 months.

~~~
michaelt

      But a better indicator that Bitcoin activity is 
      increasing is the number of Bitcoin transactions on 
      the network itself.
    

Is it better? If I shifted some bitcoins around between several of my own
wallets, that would create transactions - but would that be a meaningful
indication of anything?

~~~
narcissus
I wonder how we determine similar 'activity' as far as normal currencies are
concerned? Either it's related to money moving between accounts, or it's
related to volumes on an exchange, or something else entirely, but surely
_those_ values are just as easily 'manipulated' as any of BTC.

Admittedly the volumes themselves dictate that me moving money from one bank
account to another will have less of an impact on the final number, but then
again, I'm always moving money between my different bank accounts, but never
between my Bitcoin addresses. I obviously can't say for certain, but I don't
think there's a meaningful number of users moving BTC between their wallets
for no reason.

------
mfringel
All this tells me is that it hasn't hit governmental radar in any meaningful
way, yet.

If Bitcoin was annoying enough to be a real problem to the powers that be, the
computing resources necessary to hijack the main chain would be online in a
very short period of time.

~~~
nirvana
Would you mind describing that attack in a bit more detail?

~~~
lambda
Bitcoin uses a proof of work system to determine the valid chain of
transactions, as well as who gets the initial currency payout. Basically,
anyone who controls more than 50% of the CPU power in the Bitcoin network can
control the currency.

If you want more details, I'd recommend reading the Bitcoin paper:
<http://bitcoin.org/bitcoin.pdf>

Some of the various forks have tried to work around this by having trusted
nodes and the like, but then you lose the decentralized nature and are
vulnerable to the trusted nodes going rogue.

~~~
jamoes
Having greater than 50% of the computing power of the bitcoin network does not
give you complete power of the currency. You would be able to prevent
transactions from occurring, and double-spend recent transactions. Since the
bitcoin network is effectively the most powerful supercomputer in the world,
this would be a very expensive attack to sustain, without that large of a
payoff.

I definitely wouldn't recommend starting with the official bitcoin paper to
learn about this. That would be like telling a math student to just read
Newton if they want to learn Calculus :). Check out the bitcoin wiki instead:
[https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_...](https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_computing_power)

~~~
fooandbarify
FWIW, when I was figuring out Bitcoin I avoided the paper at first (due to
logic similar to yours) but eventually read it because there was a lot of
noise in the wiki, etc (may have changed). I found it surprisingly accessible;
more so than the vast majority of academic papers I've come across (I have
most of an EE degree but little to no formal CS training).

------
scotty79
I've seen some time ago comparison of popularity of passing fads and useful
inventions.

Useful invention graph looked like this
[http://3.bp.blogspot.com/_2IAWpIwOiOc/SuvD_xiOfTI/AAAAAAAAAD...](http://3.bp.blogspot.com/_2IAWpIwOiOc/SuvD_xiOfTI/AAAAAAAAADQ/9xFahAt33wE/s400/marketing+fad+graph.gif)
(example was IT) and graph for the passing fad dropped down to almost zero
after initial peak (example was Macarena dance, if you remember that you are
old ;-) ).

So far bitcoin seems like useful invention.

~~~
quorn3000
I'm old enough to have thought at the time of the Macarena that it was a fad.

~~~
sammyo
No one here has attended a wedding or bar mitzvah? That silly dance is far
from dead, which is not all that important depending on your social set but
does give some doubt on the analysis.

------
frozenport
It took me about 5 days to sync a new Bitcoin wallet. Until they fix this
problem Bitcoin can never be a serious player.

~~~
kalleboo
It always seemed odd to me that the protocol expects everyone to always have
the full blockchain (currently over 2 GB of data). The response is always
"when it becomes a problem we'll fix it", but isn't it already a problem for
mobile use etc? The other problem I never see mentioned is the slow speed in
getting transactions confirmed (for me it takes maybe 30 minutes)

~~~
wcoenen
The original bitcoin paper described a "Simplified Payment Verification" which
doesn't require the full blockchain. This is used by Bitcoin Wallet for
android.

Another alternative is to work with a trusted server. This is used by Bitcoin
Spinner for Android.

------
jt2190
I'm curious if this last sentence from the article is true:

    
    
      > It turns out that a currency can thrive even when 
      > no one is making laws for it.
    

Were the laws were so weak or hard to enforce at one time that, effectively,
there were no laws? Can we look at currencies from that period of time to give
us a sense of how bitcoin will work?

(Another poster pointed out that the spec is making the rules, and not a
government, so it may be wrong to compare bitcoin with an un/poorly regulated
currency.)

~~~
hbar
Gold? (even today)

~~~
praptak
But gold is shiny and solid and bitcoiny teeth implants haven't quite the
appeal.

------
curt
Someone in the comment section of the article linked to a fascinating chart:
[http://24.media.tumblr.com/tumblr_mb77t0ygoF1qfrvjzo1_1280.p...](http://24.media.tumblr.com/tumblr_mb77t0ygoF1qfrvjzo1_1280.png)

It shows bit-coin value to USD, gold, silver, and crude. It's fairly stable
against the commodities but drastically spikes in value against the dollar.
Our Fed at work...

~~~
lmm
So bitcoins are a commodity like unto gold, silver and crude, and behave the
same way. Cool, but for practical use as a currency it would be better if they
were correlated with USD/EUR/JPY, food, labour and other things that normal
people want to buy.

------
ericb
Better tag line: Bitcoin is the world's most ingenious botnet monetization
scheme.

------
worldsayshi
Ahem:
[http://en.wikipedia.org/wiki/File:Gartner_Hype_Cycle_for_Eme...](http://en.wikipedia.org/wiki/File:Gartner_Hype_Cycle_for_Emerging_Technologies.gif)

~~~
Synaesthesia
Bitcoin has already gone through two massive crashes like that. Still kicking.

------
carsongross
Surprising? What's surprising about it? That there's no _governmental_ issuing
authority? (It is not true that there is "no issuing authority whatsoever",
the issuing authority is the spec.)

This won't surprise anyone with a grasp of economic history that extends
beyond 1945.

~~~
icebraining
Is it not surprising that a (almost purely) speculative commodity traded by
very few people overall recovers that fast from a major crash?

~~~
mrb
No, it is not surprising. If you look at the Bitcoin forums to understand the
community, it is very clear that a large core of users are really here for the
long term. They truly believe in the concept of a decentralized digital
currency.

This core group of users (including me) were completely unswayed by the crash
of 2011 H2. We all knew that it was nothing more than a correction of the
insane valuation bubble of earlier that year.

~~~
bad_user
And I think this is the actual problem with Bitcoin, the community is small
and few people are owners of Bitcoins.

How many people sold all their Bitcoins in the wake of that crash? It is
indeed unsurprising to me too that Bitcoin recovered after a crash, because
the owners of Bitcoin believe in it and so the market kept being rational
post-crash.

The real test of Bitcoin has yet to happen, when Bitcoin will be popular
enough that regular folks will put their life savings into it.

~~~
belorn
That test is unlikely to happen. regular folks do not put their life savings
into currencies or commodities. They put their life savings into banks. A
saving account in a bank does not contain a heap of cash or gold nuggets.
Instead its an trust relationship between the bank and the bank customer, like
a contract.

I would guess that in "the future", the name of currencies will become less
likely to end up in the mindset of the general public. All they know is that a
specific thing (a computer, a car, and so on) will cost X amount of what they
have in the bank.

~~~
cmccabe
_Regular folks do not put their life savings into currencies or commodities.
They put their life savings into banks._

What planet are you from? On my planet, regular folks put their savings into
401k accounts, which invest in stocks, bonds, and sometimes commodities. If
you do choose to keep your savings in a bank, you're investing in a currency
(probably the US dollar.)

 _Instead its an trust relationship between the bank and the bank customer,
like a contract._

Nope. Actually it's a trust relationship between the federal government, which
insures your account up to 250,000 through FDIC, and you. You also have to
trust that the federal government isn't going to inflate away your savings
(spoiler alert: they are going to.)

~~~
belorn
I guess it depend on where on the planet one is (or maybe its on the not-the-
usa-planet). I am not sure banks where I live even have anything called 401k
plans. They do have stocks and bonds, but its not something commonly talked
about. pension savings are done mostly through tax but in rare occasions,
addition money is added by the place you work from. In very extreme rare
occasions, people sometimes add personal savings to it.

~~~
cmccabe
Even if the government manages your pension funds, they're still going to be
invested in stocks and bonds, ultimately.

Having a savings account is just about the dumbest thing you could do right
now, since the rates are essentially 0%:
[http://articles.boston.com/2012-10-01/business/34178552_1_in...](http://articles.boston.com/2012-10-01/business/34178552_1_interest-
rates-low-rates-average-interest)

Yet they still have the audacity to ask me if I want to open one every time I
visit the bank. It must be hard keeping a straight face.

------
bgaluszka
I'm wondering, what if government bans using of Bitcoin (or such a digital
currency in general)? Not that it will try to block it just that it will be
illegal to use it (i.e. for companies to receive Bitcoins). Will it still be
used and/or useful?

~~~
iwwr
You can make bitcoin a legitimate payment mechanism. Despite the advertised
anonymity it's fairly easy to track down a particular identity from the web of
transactions. If people moved on mass into bitcoin it would make their
financial history pretty impossible to hide.

~~~
bgaluszka
I hope that would be the case :)

------
tvladeck
One thing that I wonder about with respect to Bitcoin is the issue of
taxation. Governments can support the dominance of their currency within their
borders by compelling their citizens to pay taxes in the national currency.

And on the "supply-side", in the US at least, federal spending is a
significant portion of GDP, so you will always have a large amount of dollars
floating around being used as a means of credit, exchange, and value.

And finally, having control of interest rates is a powerful tool to support
economic growth - I would be fearful of a world where policymakers did not
have that ability.

------
gr3yh47
FTA: "On the website Silk Road, a sort of eBay for drugs hidden in a dark
corner of the web known as Tor[...]"

Tor isnt a dark corner of the web...

