
Bitcoin hits US$ 4, after being mentioned on CNN yesterday - TheCoreh
http://mtgox.com/
======
Construct
Four days ago, Bitcoin was under $2 USD. Now it's over $4 USD (depending on
when you refresh the page). There are 6 million bitcoins in existence, and
trade volume is only about 54,000 according to the biggest exchange. There
aren't enough bids/asks to soak up more than about $100 USD without throwing
the exchange rate one direction or the other.

For example, right now (as I write this) exchanging $1000 USD for some
Bitcoins is all it takes to push the exchange rate up $0.10 from $3.77 to
$3.87.

What a lot of Bitcoin newcomers don't realize is that Bitcoin depends on
'mining' to generate new bitcoins. Computers run cryptographic hashes to find
the 'winning' has which is less than the current difficulty target number. The
computer that finds this hash is awarded 50 BTC. The difficulty target is
automatically adjusted upward to keep new bitcoin generation at a constant
pace.

Some quick research shows a handful of big players in the mining market who
have invested heavily in high-end GPUs for dedicated bitcoin mining, some with
over 50 GPUs running 24/7 for months now. These guys are bound to have huge
quantities of bitcoin they are eager to unload when the price is right.
Meanwhile, news coverage is driving exploding popularity, which appears to be
pulling the exchange rate sky high. On paper, many of these guys have become
overnight millionaires just by running a bunch of computers 24/7.

Of course, as these players cash out the exchange rate will fall. These guys
are too smart to sell all at once and flood the market, but with volatility
like this I'm willing to bet a lot are eager to pull their bitcoin out of the
game before the bubble pops.

Meanwhile, hardware enthusiasts all over the internet are rushing to buy GPUs
to dedicate to mining. They don't seem to realize that the bitcoin system
automatically adjusts to keep the bitcoin generation rate constant at 50 BTC
per 10 minutes. As the mining market becomes flooded with new 'miners' the
difficulty will climb rapidly, until it becomes unprofitable to run a GPU if
you have to pay for electricity.

Finally, bitcoin is highly illiquid. My research was brief, but I couldn't
find an easy way to exchange small amounts of BTC for USD that didn't look
terribly sketchy or involve a lot of fees. Stores aren't eager to accept
bitcoin because the exchange rate at the moment can easily swing 10% between
when the user presses 'check out' and the transaction is processed.

The bitcoin system is a very interesting concept, and it was clearly
implemented by some very intelligent people. But as it currently stands it's
just a playground for speculators and market manipulators. Expect some carnage
in the coming months.

~~~
kiba
As a bitcoin veteran, I expect carnage, always. I learn that the hard way
several months ago.

Moreover, I tend to be fatalistic about the price of bitcoin. Whether or not
the market is manipulated, as long goods and services are popping up in the
bitcoin economy, we'll be alright in the long run.

~~~
xnerdr
As a bitcoin veteren, what, if any, do you expect will be the US reaction once
it becomes big enough to cause problems?

~~~
27182818284
So far the US reaction has been positive. The CIA is paying BitCoin members to
give talks about it. As someone pointed out in a Bitcoin forum, unlike Liberty
Dollars or E-Gold, Bitcoin could prove to be a useful way of securely and
anonymously paying people off

~~~
JeremyBanks
> The CIA is paying BitCoin members to give talks about it.

 _A_ BitCoin developer to give _a_ talk about it _to them_.

~~~
borism
I wouldn't make much out of CIA doing something. They have done crazier shit
before.

------
TheCoreh
Here's the article on which it was mentioned:

[http://globalpublicsquare.blogs.cnn.com/2011/04/29/4-trends-...](http://globalpublicsquare.blogs.cnn.com/2011/04/29/4-trends-
shaping-the-emerging-superfluid-economy/)

It was also mentioned on Forbes recently:

[http://www.forbes.com/forbes/2011/0509/technology-
psilocybin...](http://www.forbes.com/forbes/2011/0509/technology-psilocybin-
bitcoins-gavin-andresen-crypto-currency.html)

------
kiba
This is either a bubble or probably the most awesome J-curve of the decade.

Either way, I am waiting to see what happens. I have more than enough bitcoin
for a black swan hedge. I am also going to be with bitcoin to the bitter end
or the ultimate victory over state-controlled monetary system.

~~~
Alex3917
"This is either a bubble or probably the most awesome J-curve of the decade."

The average American isn't smart enough to understand what bitcoin is, how it
works, how to buy them, how to spend them, etc. In five years bitcoin is going
to be just another failed standard like i-names or GPG, something that doesn't
ever get used except for in very niche enterprise usecases or when nerds are
trying to impress other nerds.

~~~
TheCoreh
The average person isn't smart enough to understand what a stock market is,
how it works and how to buy/sell stocks, either. That doesn't mean they're not
used.

~~~
Alex3917
The reason they are used is that there is an entire abstraction layer around
it, all you have to do is give your money to the guy whose face is on the
billboard. As a crypto currency, bitcoin is fundamentally incompatible with
this model.

~~~
paulgb
There's nothing to prevent that level of abstraction being built around
bitcoin. The average credit card user doesn't understand what's going on in
the background, just that money from their bill is transferred to the
merchant.

------
JCB_K
So say I'd have a blog with a huge reach. I hear about bitcoins. I buy a
million for $4 each. I blog about it. Next day it's at $8. I'd sell the
bitcoins, maybe 10000 a day to not let the market crash, and in 3.5 months
I've got $4 million more than I used to.

~~~
zbanks
To be fair, the same happens in the stock market:

[http://en.wikipedia.org/wiki/Penny_stock#Artificial_Inflatio...](http://en.wikipedia.org/wiki/Penny_stock#Artificial_Inflation_of_Penny_Stocks)

~~~
JCB_K
ha! that reminds me of my Economy class in high school. We used to do a weekly
game, where in the beginning of the year we'd have a certain amount of money,
and we'd have to buy stock. The teacher would every week update us with the
latest stock information, and based on that we'd have to make decisions. The
person with the biggest amount of money at the end of the year won.

So I picked stock of a company which was basically bankrupt already, but was
still on the stock market (why I don't know, I'm not an expert.) I think the
stock was £0.02. So I waited a few weeks, and it happened to be at £0.05. I
sold everything, didn't do anything for the rest of the year, and won. Didn't
make the game very exciting, but at 15 years old I mainly cared for winning :)

~~~
zbanks
When we did a stock market game in high school, we weren't allowed to use
penny stocks.

I was so excited to find stocks that were doubling or tripling daily, only to
realize how worthless it'd be in real life.

If anyone out there is a trader that works with penny stocks, I'd love to hear
your insight. Is it possible to "game the system" by working with just a few
(10-100) shares, instead of large holdings?

~~~
infinite8s
The main issue with small odd lots of penny stocks is that you'd be killed by
the commission costs. Most high school "stock market" simulations ignore
transaction costs to keep things simple.

------
nwmcsween
And I thought bitcoin wasn't going to go anywhere, I made about 3000BTC back
in 2009 and just over time forgot about it and lost my 'wallet' id (a hash),
kicking myself in the ass now.

------
DavidSJ
If anyone's in SF and wants to stop by Noisebridge, we're having a BitCoin
party today until 5 pm.

~~~
FlemishBeeCycle
What exactly goes on in a BitCoin party?

~~~
DavidSJ
I'm not totally sure. I hear there will be BitCoin-shaped cookies and some
games.

~~~
gwern
Maybe also run it as a key-signing party?
<http://en.wikipedia.org/wiki/Key_signing_party>

------
waterlesscloud
On a volume of 53,896 btc since midnight. For some perspective.

~~~
erikig
Here's a quick realtime view of the markets Mt. Gox included.

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

There's pretty decent volume and the bid/ask spread is gradually tightening.
Just for some perspctive, the US Dollar index futures trade about 15,000
contracts a day, (granted they are much easier to convert).

I'll keep an eye on this...

~~~
DavidSJ
A US dollar futures contract represents 1,000 dollars. So that's $15 million
per day.

~~~
Gaussian
I think it's the value of the index X $1,000. So the notional value traded per
day is more like $1.1 billion because the index is now around 73.

------
joeyh
Check this out: 200,000 bitcoins transferred in one transaction today.

[http://blockexplorer.com/address/1MqsETo2t6W61QUCL9KRdw2P1PW...](http://blockexplorer.com/address/1MqsETo2t6W61QUCL9KRdw2P1PWTXQFnYm)

That's roughly 4% of all bitcoins ever minted, if my math is right.

------
geuis
Just as a quick reminder, since most people commenting don't understand how
bitcoin generation works.

It is not possible to "corner the market" by having more gpu power than other
people. The btc algorithm was designed to only produce bitcoins at a constant
rate. Adding a million more systems trying to calculate the answer to the next
hash block only makes it a million times slower.

If the bubble were to pop tomorrow and it went back to being a network with
only a few hundred low power systems, the btc network will auto correct to
produce new bitcoins in relation.

It is not possible to game the system this way.

~~~
forensic
It's very easy to game the system. You need roughly 30% of the network's total
computing power and you can "steal" bitcoins from others.

The creator of bitcoin outlines a strategy for stealing bitcoins in the FAQ.
In it, he claims that 50% of the computing power is necessary to do this.
Later improvements to the technique (and simulations by various people) have
shown that you can do it in much less, possibly as low as 15% of the computing
power.

Bitcoin is highly vulnerable to a nation state or intelligence agency that
wants to own it. It is also highly vulnerable to rich entrepreneurs who want
to make a profit by cornering the market.

The NSA could destroy bitcoin in the blink of an eye with only a tiny fraction
of their supercomputer power. Likewise for botnet operators and other
professional extortionists who no doubt have their eye on bitcoin. The fact
that bitcoin hasn't been destroyed yet is just a demonstration that the
currency is not really worth anything right now.

~~~
jimrandomh
My (non-expert) understanding of the issue is that a having majority of the
mining computation gives you the power to roll back transactions, but not to
forge transactions that transfer money to you; and that the risk of having a
transaction be rolled back on you can be reduced just by waiting for the block
chain to get longer.

~~~
forensic
rolling back a transaction and claiming it yourself is a kind of stealing

more advanced ways of stealing bitcoins have been developed and successfully
simulated, for instance the dominant cartel can actually go several blocks
ahead of everyone else but not advertise them, and then only roll back other
people's finds when those people advertise them.

For instance the cartel using superior cpu power actually solves 2 blocks
ahead of everyone else but does not tell the other nodes that it has solved
it. It waits until someone else advertises that they have solved the block and
then releases their own and rolls back the other person's.

There are many optimizations that can be made to improve this exploit. The
exploit completely ruins any hope for bitcoins being an unmanipulated
currency.

Even in the base case scenario where multiple cartels compete to dominate the
bitcoins, the average person will be squeezed out and all the advantage will
go to the cartels. It will end up WORSE than other currencies based on the
credibility of the various governments.

The bitcoin concept is inherently flawed because cpu power is not democratic.
Especially when it comes to the implementation details of bitcoins, which are
actually very inefficiently computed on a regular person's computer. Purpose-
built bitcoin computers are orders of magnitude more effective than normal
computers, compounding the other issues with bitcoins.

The fact that most people's CPU cycles are migrating toward mobile battery
powered devices does not help either. How many people do you know who still
have bulky desktop computers plugged into the network 24/7 rather than mobile
battery powered devices that spend more time offline than online?

------
mmaunder
There's this received wisdom among sociologists that three prerequisites for a
stable country are laws, someone to enforce them and a judiciary. I mention
this since Bitcoin is creating it's own economy which is analogous to a
virtual country. The major benefit of Bitcoin, it's lack of jurisdiction, may
also be a disadvantage. As the first disputes arise, hopefully a body of
precedent will be developed that strengthens the currency rather than destroys
it.

~~~
cgerard
An economy is based more on the trust between the actors within it than on its
medium of exchange or the goods and services being exchanged. Bitcoin doesn't
address this aspect. Because fraud and collusion are still possible in a
Bitcoin economy there exists the possibility of both currency instability and
the creation and enforcement of monetary policy.

An irrational public can be just as damaging to a currency's value as an
unwise central bank or government.

Regardless, I find Bitcoin to be a very interesting system and I'll keep tabs
on its development.

------
Osiris
It looks like had I know the article was going to air, I could have doubled my
money almost overnight. I would expect the price to stop dropping any time
now.

~~~
zackattack
My friend used this strategy to make tremendous amounts of money during the
Dot Com bubble.

------
xbryanx
Oh goodie, another part of our economy that ignores the true cost of energy
creation. Has anyone looked at models of how this system might work if the
miners had to pay significantly more money for electricity?

~~~
jsilence
With the term "energy creation" you are ignoring the first law of
thermodynamics.

But apart from nitpicking I agree with your point. In the end the whole
economy thing boils down to "having the capacity to actually do stuff.", which
ultimately requires energy.

Giving a unit of currency to someone is like giving a promise that he can
actually DO something later. In the case of bitcoin, the energy is used
(dissipated to heat) during the creation of the currency itself. No
substantial backing of the curency beyond that. But then again this is true
for any other currency floating around right now.

-jsl

------
patrickod
I've been watching the price of BTC rise pretty steadily in the last few days
but I can't bring myself to believe that this price range is in any way
sustainable. $4 per bitcoin? Not even the EUR and GBP have ever reached that
in my recollection. I guess it if does stay like this mining is going to
become pretty lucrative and certainly financially worth it.

~~~
DavidSJ
_$4 per bitcoin? Not even the EUR and GBP have ever reached that in my
recollection._

Keep in mind that the exchange rate is a function of several inputs, one of
which is the rather arbitrary fact of how much total currency is in
circulation. There are _many_ fewer BTC than USD, EUR, GBP, etc. (about one
million times fewer, to be precise). And conversely, there are many _more_ JPY
in circulation, which is part of the reason the yen is much cheaper than the
US dollar.

That doesn't mean there's not a BTC bubble. There may very well be. But you
can't do the comparison you just did and expect it to be meaningful. If the
BTC protocol had specified the decimal point one place to the left, BTC would
be trading at 0.40 USD right now, not 4.00 USD. There'd just be 10 times as
many.

What you have to do is ask how much total wealth the world will want to store
in BTC, and then divide that by how many BTC there are. The answer to the
first question is a huge unknown. The answer to the latter is specified by the
protocol: 21 million.

~~~
csomar
You seem to be knowledgeable in this field. I have no idea about it and would
like to get a small insight. Can you recommend a tutorial (Preferably less
than 40 pages) that explains some of the main concepts?

~~~
olalonde
<http://en.wikipedia.org/wiki/Exchange_rate> would be a good starting point.

------
sabat
How can the SEC not be all over this? It's amazing to me that it has either
escaped its attention or -- possibly -- it has absolutely no idea what to do
about it.

~~~
sgornick
Does the SEC regulate baseball cards?

If bitcoin were an equity, then the U.S. Securities and Exchange Commission
might be looking at it.

But even if they did ... if you are in Brazil, Russia, India, China, or
wherever, ... how would what the SEC does be relevant? (yes, I'm being
purposely obtuse, but remember that bitcoin is data, and as such it knows no
borders.)

~~~
arohner
There are lots of kinds of data that are illegal to possess. Classified
documents, insider information, copyrighted music, etc.

And remember certain US agencies have huge power outside the US. The DEA and
the IRS come to mind.

I don't know which US agency will flip out when bitcoin becomes popular, but
I'm quite certain one of them will, once it becomes widespread to exchange for
illegal items, and used for money laundering.

~~~
sadfsa
It's already widespread enough to use for some forms of money laundering. If
you want to secretly move money from the US to Europe, just buy BTC in the US,
deposit them on Mt. Gox (whose domain is registered in Japan, so I assume the
servers are also in Japan), and from there sell the BTC and deposit the
resulting money in your Swiss bank account.

It's also widespread enough to use instead of a Swiss bank account to hide
money. Just move the money into a Bitcoin wallet, encrypt the wallet, and
store copies of it on as many computers, in as many countries as possible.

