
What is Bitcoin? (Video) - hippich
http://www.weusecoins.com/
======
sgornick
For those who are new to Bitcoin and would like to learn more:

The new What Is Bitcoin? video - <http://www.youtube.com/watch?v=Um63OQz3bjo>

Bitcoin FAQ - <https://en.bitcoin.it/wiki/FAQ>

Bitcoin Wiki - <https://en.bitcoin.it/wiki/Main_Page>

How Bitcoin Works - <https://en.bitcoin.it/wiki/How_bitcoin_works>

Installing Bitcoin - <https://en.bitcoin.it/wiki/Getting_started>

HowTo Mining Bitcoin: Fedora 14: <http://bit.ly/fb54ye> and Ubuntu:
<http://bit.ly/ewVzhu>

The Bitcoin Faucet (free bitcoins) - <https://freebitcoins.appspot.com>

Buying bitcoins - <https://en.bitcoin.it/wiki/Buying_bitcoins>

Bitcoin 6-Month Price Chart - <http://bit.ly/hzVKpq>

Bitcoin Community Portal -
<https://en.bitcoin.it/wiki/Bitcoin:Community_portal>

Recent Posts here on the forum -
<http://www.bitcoin.org/smf/index.php?action=recent>

\-------------

Comments from February when BTC/USD first hit $1:
<http://news.ycombinator.com/item?id=2200705>

~~~
markszcz
Also would like to add Google releasing an open source Bitcoin client:

Article:
[http://www.cio.com.au/article/380396/google_releases_open_so...](http://www.cio.com.au/article/380396/google_releases_open_source_bitcoin_client/)

Google code:<http://code.google.com/p/bitcoinj/>

Bitcoin technical lead Gavin Andresen:
[http://www.cio.com.au/article/380394/open_source_identity_bi...](http://www.cio.com.au/article/380394/open_source_identity_bitcoin_technical_lead_gavin_andresen/)

------
wynand
I read some criticisms of Bitcoin (including those from a previous HN post
about Bitcoin) and one of the biggest criticisms from an economics perspective
(if I understand correctly) is that the Bitcoin network is at the mercy of
positive or negative feedback loops (hyper inflation or deflation).

All current currencies are controlled by central bodies that can dampen the
effects of these feedback loops.

Does anyone with an economics background have an idea of how the Bitcoin
network could be adapted to counteract these feedback loops? For example,
perhaps the network should make the transfer of small amounts very liquid
whilst the transfer of larger amounts becomes progressively more "viscous".

~~~
eof
How is it at risk of a feedback loop in a way that other currencies aren't?

It seems bitcoins defend specifically against hyper inflation by limiting the
number of coins that will ever be produced.

~~~
jerf
Real-world currencies have backing. The ability of dollars to hyperinflate or
hyperdeflate is bounded by the fact they can be used to pay debts to the
United States Government that are denominated in dollars. Their value
recursively emanates out from there, but that's the base case. That's also why
the fall of the US government would be pretty much immediately followed by the
fall of dollars, as has happened to other government-backed currencies.
Stripped of its backing, currencies completely collapse in practice. The
recursive base case is gone and if the currency briefly holds on it's a Wile E
Coyote off the cliff moment, and in the modern connected world I can't imagine
it would be more than a few _minutes_.

At some point, BitCoin faces some dip in currency confidence. Not because it's
"BitCoin", but because all currency face periodic confidence crises. All the
major world currencies have faced them in the past three years. But they
didn't simply collapse because they have backing. I don't know what stops the
first BitCoin currency crisis from completely collapsing the currency, because
when BitCoin holders ask themselves, "Hey, what is this _really_ good for?",
_I don't have an answer_. I know what a dollar is good for: Not being put in
jail by the United States Government due to unpaid debt. Ultimately, without
trying to be too philosophical, dollars are backed with men with guns (and the
privilege of them not being pointed at you).

Contrary to apparently popular belief, currencies aren't merely arbitrarily-
agreed-upon numbers that we all trade with. Every currency I know has some
actual backing. Even the fancy electronic ones we've seen spontaneously
develop online, they all have some form of local economy-appropriate backing.
It isn't always "gold" (literal or electronic), but so far the "men with guns"
approach has proved successful in the real world. BitCoin is an apparently-
good design for the arbitrary number approach, but until it solves the backing
problem I won't be putting one dime into it. As much as I don't particularly
enjoy having the US government as my currency backing I do not see how going
to a backing-free currency is the solution.

The currency can still hyperinflate even if it is physically impossible to
produce more by virtue of people raising all BitCoin prices as their
confidence in the currency collapses. But instead of hyperinflation producing
lots more BitCoins, then collapsing the economy, hyperinflation will simply
directly collapse the economy as it takes ever increasing amounts of the
BitCoins in the world to buy a service, until eventually even every BitCoin in
the world isn't adequate. Hyperinflation is a _symptom_ of lack of confidence
in a currency, not a _cause_. (Of course observing hyperinflation can further
decrease confidence, but the hyperinflation started in the first place because
of lack of confidence.)

BitCoin advocates tend to get very angry when I point this out. I think it's
because they have no answer to this. The site _used_ to have a FAQ that
addressed this, but it just sort of mumbled words and now it's gone because it
was actually better just to ignore the problem. My challenge would be to
anyone who claims that currencies are somehow backing-free is show me the
successful currency of any kind that really is just an arbitrary number with
no backing that has reached any sort of significant size, shall we say, a
million dollars or so worth of an economy? (All the electronic currencies like
Microsoft Points are well above that size, for instance.) And I'll show the
backing. It isn't always a physical item, especially in the electronic world,
but it's always something that serves as a locally-appropriate backing.

("So why's it worth so much now?" It's in a bubble generated by all this
publicity. What happens the first time this bubble even threatens to pop?
That's when you'll really find out who is right, me or them. Oh, and I'd
predict an even larger burst of publicity and public braggadocio if it looks
like that's going to happen; that will be the only way to forestall the
inevitable another few days.)

~~~
jospehcanto
Can you point out the diff between that and the stock market? Isn't a stock in
the stock market not really backed by anything other than people's
speculation?

~~~
RickHull
Stock in a company is equity. You own a slice of the company. If the company
pays dividends, you are entitled to a portion of its future earnings.

------
barmstrong
When I read about BitCoin a while back I thought it might be a cool startup
idea to build an "online banking" interface around it, along with mobile apps,
etc. To sort of, bring it to the masses (non-technical folks). One analogy
might be Github which took another burgeoning open source project and made it
more accessible through an excellent web interface.

However, I got discouraged after reading some things about the failed e-gold
project: <http://en.wikipedia.org/wiki/E-gold#2008_court_trial>

Namely that it looks like you'd need to be licensed as a money transmitter to
avoid serious legal trouble if the thing took off. And I assume being licensed
as a money transmitter means reporting identifying info on who is
sending/receiving money. Anonymity seems to be big amongst the bit coin
community but may not be as important to the masses. Not sure.

There may be some way to avoid it, sort of like how torrent sites don't keep
any copyrighted info on their servers, or actually going through the process
of getting licensed, but I assume there would still be tons of legal scrutiny
just like the torrent sites receive. The idea of running a startup where you
are being sued by everybody is not especially appealing.

Has anyone else pondered this?

~~~
teyc
Yes, I wanted to do it, just to demonstrate that BitCoin is just as
susceptible to problems of money supply as any other currency.

The basic idea is to allow people to deposit BitCoins, but then issue a
BitCoin derivative subject to fractional banking rules and charge interest.
This should in theory give rise to the same problems current banks have, where
the debt is never fully repayable (unless you create more money to pay the
interest), and requires a banking system to continually generate debt.

~~~
jsn
Interesting. Must be a scheme based on infinite supply of the said derivatives
and, thus, the ability to create a lender of last resort with a printing
press, right?

Won't work, as far as I can see (one of the reasons being the absence of legal
tender law for your derivatives). If your derivatives are redeemable in
bitcoins, bank run is still possible (and easy). If it's not, then you can't
really affect the money supply of bitcoins.

Or is it some other kind of scheme?

~~~
teyc
Bitcoins still need to be securedly stored, and this is beyond the capability
of 95% of the world. In the end you'll have a consortium of "guards" who will
offer storage services. If humans in the future are like humans of the past,
then fractional banking is assured. If there is an economic boom, then I can
assure you that these new "banks" will offer letters of credit, which is
essentially a derivative.

~~~
jsn
That's not enough for FRB to work. However big your consortium, bank run is
still a very real possibility (the history of Bank of England has some
insightful examples, Nixon closing the gold window is another recent one [and
it wasn't even redeemable dollar! it was a restricted bullion standard.]).

FRB can exist long-term only if bank runs are impossible. The only way to make
bank run impossible is to have lenders of last resort which are able to redeem
all the notes in circulation.

With gold-backed notes, you can't issue more notes than you have gold (all the
attempts to do so historically ended with bank runs pretty quickly). With
purely fiat currencies, it's not a problem (you can print as much as you need
to cover whatever derivatives are afloat).

Bitcoin (or vanilla gold-backed money) does not prevent FRB per se. It just
makes sure that FRB will be very limited and will usually go down with a bang
fairly soon.

~~~
teyc
> Bitcoin (or vanilla gold-backed money) does not > prevent FRB per se. It
> just makes sure that FRB > will be very limited and will usually go down
> with > a bang fairly soon.

What you say makes sense. Since Bitcoin has the same properties/faults as gold
insofar as FRB is concerned, why is bitcoin interesting?

~~~
jsn
Gold is susceptible to global adversary (government) attacks. You can't have
instant payments over internet with physical gold -- you need some kind of
virtual banknotes to change hands instead, and to be redeemable in physical
gold sometime later. That would be perfectly fine in a world with small,
reasonable governments, but in the real world we live in, it's not. Two
problems arise:

1\. Sending physical gold for payment clearance, especially though state
borders, is problematic (just plain illegal in some countries, may be taxable,
etc). Doing it often and in small portions is also economically unfeasible
[you need economy of scale to lower security costs, logistics, etc]. The usual
market solution for that is creating big clearinghouses, with branches
everywhere, etc. But:

2\. Running a big clearinghouse for gold makes you effectively a bank. Running
an unregistered unregulated bank is a crime in most countries. So you have to
register, get all the licenses, keep all government requirements fulfilled,
you can be subjected to all kinds of inspections, etc. On top of that, in some
countries gold payments violate legal tender laws or something else, and since
you are already on gov radar, it's a non-starter. After E-gold crackdown, we
know these are not purely theoretical concerns.

Bitcoin is free from these limitations. Instantly redeemable, no vulnerable
physical storage, distributed, no need for high profile points of failure,
etc. Bitcoin still lacks one of the standard requirements for commodity money,
though ("must have some non-monetary use/value"). How critical is it? We'll
see :)

~~~
teyc
OK, I take it that from government attacks you are referring to gold seizure
in E-Gold and during the Roosevelt era.

I don't know if this can be avoided. Governments could coerce the release of
private keys so that the BitCoins could be reassigned to another party. (by
the way, what happens if the private key is lost?)

During the Roosevelt era, it is simply outlawed, and gold has to be exchanged
for fiat currency. I'm not sure if BitCoin can circumvent that.

~~~
jsn
To seize noticeable amount of bitcoins, you have to work through individual
bitcoins holders. Bear in mind that bitcoin transactions are _not_ channeled
through any central points under gov control, nor are they automatically
personalized -- so the gov must first somehow find out where to look. The
whole process will take months, and the borders are effectively transparent
for coins all the time. If you know the seizures are underway, you may as well
arrange for your coins to stay out of your access and U.S. jurisdiction for a
while.

To seize noticeable amount of gold in gold-backed paper money system, you have
to issue one order to all registered banks. It takes a day or two.

But that's besides the point. Nothing will circumvent the confiscation scheme
in which the attacker has power to do anything they want to you, and you can't
do anything to protect yourself. It's simply not the problem to be solved by
monetary system.

------
kiba
BTW, this video was motivated by the first and largest bitcoin bounty which
were supported entirely by user donation, in the form of bitcoin. See the
thread at: <http://www.bitcoin.org/smf/index.php?topic=697.0>

I am an escrow agent for this animation bounty that is currently worth 8472.05
BTC(from memory) and now that's worth like six thousand USD. Originally, it
was worth around two thousand dollars.

~~~
Devilboy
What's the quickest and easiest way to buy a couple hundred BTC?

~~~
mrb
1\. Open an account on any Bitcoin exchange (mtgox.com, bitcoinusa.com, etc)

2\. Fund your account by wire or ACH transfer (supported by most exchanges)

3\. Place a 'buy' order in 2 mouse clicks to buy BTC at the current market
rate. Done.

Or if you know someone in the real world who has coins, just make him a cash
offer to send you directly the BTC (using the Bitcoin software, without going
through a third party such as an exchange).

------
jarin
I like the idea of Bitcoin, but I've been running the client for about two
weeks on my quad-core machine and still have not generated any Bitcoin. It's a
little disappointing!

Yes, I know I could buy some, but until there are enough venues that accept
Bitcoin, I'm only motivated enough to get free Bitcoin. The only one I've seen
that I'm interested in so far is a site that lets you bet Bitcoin on pro
Starcraft 2 matches, although the idea of buying Call of Duty: Black Ops for
Bitcoin is pretty good too.

~~~
getsat
A two year old video card can crunch numbers faster while using less power
than a 2.8ghz Core i7 Quad.

Two things to check out that you can find on the bitcoin forums: pooled mining
and GPU miners

With both of those, you can earn 1-2 BTC/day on an older video card.

~~~
jarin
Ah, ok this makes a lot more sense. Getting started with DiabloMiner and
<http://mining.bitcoin.cz> now.

~~~
getsat
I don't use Bitcoin anymore (now that it's popular, I'm a cryptocurrency
hipster), so I can send you the few BTC I have remaining if you want to play
around with them. Just leave me an address. :)

~~~
jarin
Hey, much appreciated! Here's my special HN receiving address:

1HzJQSHcRTbMmuT3Hb2myDEybDwnD4LgGp

~~~
getsat
You have 5 BTC incoming once I catch up on crunching the block chain (I'm a
few thousand blocks out of date) and there's a few confirmations. Have fun!

------
pkulak
I don't understand why mining is so computationaly intensive. Well, I
understand that it's used as a way to limit the rate that new coins are
introduced, but are all these mining computers doing anything useful, or are
they just wasting electricity?

~~~
mrb
Bitcoin _needs_ a problem (any problem) that is computationally difficult to
solve in order to be able to offer certain security guarantees. This arbitrary
problem was chosen by its designer:

    
    
      For a given target T, find X such as SHA256(SHA256(X))  < T
    

It is correct that in and of itself this computation is useless. But exactly
like <http://en.wikipedia.org/wiki/Hashcash> it is vital for it to be
difficult to solve. In fact the whole network adjusts T dynamically to keep up
with the fantastic exponential hash rate growth of the network these last 13
months: <http://blog.zorinaq.com/?e=49>

~~~
tocomment
Could you use rainbow tables to speed this up?

~~~
mrb
No because parts of X are effectively variable, change all the time, and
depend on things not controlled by any single entity (transactions, block
chain, etc).

Technically X is a block header
[https://en.bitcoin.it/wiki/Protocol_specification#Block_Head...](https://en.bitcoin.it/wiki/Protocol_specification#Block_Headers)
Miners change the 'nonce' part of X to attempt to satisfy the above equation.

------
pieter
I tried to get some free coins through the bitcoin faucet to a newly generated
address (18YTP3wEbaiNX2QaQ4k1Gi89JgXntxAiff), but so far haven't received
anything. Might be a problem on my end, or the transactions might just be
slow, or they didn't send anything to me at all, but so far bitcoin
transactions don't give the same instant gratification paypal or credit card
payments give me, where you press the 'buy' button and get access to a service
immediately. Perhaps this will get faster when the network becomes bigger, or
if I use one of those digital wallet sites instead of running the client
myself?

~~~
hfinney
It's hardly fair to compare Bitcoin to credit cards in terms of "instant
gratification", unless you turn back the clock to when you said, Oh, there are
such things as credit cards? Cool, how do I get one? I'm confident that the
difficulty of acquiring your first bitcoin will compare favorably to the
difficulty of acquiring your first credit card.

------
fleitz
What is the point if only 21 million can be generated? Are they infinitely
divisible or something? Thats less than one bitcoin per person in California
alone.

~~~
getsat
Would gold and silver be valuable if there was an infinite supply of them? You
can't print/generate money indefinitely (unless you think quantitative easing
is a legitimate economic stimulus strategy and you happen to be the Federal
Reserve).

If the desire for BTC goes up, so will its value. There's no problem here.

~~~
maurycy
Money is a mean of exchange that happens to be a store of value. A thing that
punishes the exchange is not an effective money.

In an economy with a finite amount of money, even potentially, the exchange is
not rational given that the money's value grows over time.

That's why the focus is on generating BitCoins.

~~~
getsat
After all the BTC are generated, only market conditions and demand will affect
its value. It's not guaranteed to deflate perpetually.

------
clvv
Interesting, but until some real use case or adoption, these Bitcoins sound
like Internet stocks to me.

edit: I didn't really look into it, but I'm going to now.

~~~
kiba
There's lot of real adoption. The bitcoin forum alone get 500 posts a day and
a whole lot of traffic. Maybe you should check us out at <http://bitcoin.org>

I myself run a little magazine about bitcoin that is hosted on a VPS that I
pay in bitcoin. I even own a domain name that I paid in bitcoin.

The economy is still small though, but with adoption, it could become real
big.

~~~
brown9-2
_I myself run a little magazine about bitcoin that is hosted on a VPS that I
pay in bitcoin. I even own a domain name that I paid in bitcoin._

What kind of exchange rate on bitcoin to USD did you get on these purchases?

~~~
kiba
Last time it was 0.90 USD something. The exchange rate changes with the
market.

------
aditya
So, wait. You can _print your own money_ subject to a cap? ie. creating
bitcoin only involves spending CPU cycles (or electricity)?

~~~
kiba
Money supply is limited to 21 million bitcoin ever. Plus, as more people bring
more mining computers online, it become harder over time to mine.

~~~
nkurz
While I understand that this is the current plan, what is the guarantee that
this plan will not be changed? Is this a technical limit, or a social one?

~~~
sgornick
The "plan" is implemented through the bitcoin protocol and software.

Any change would need 50% + 1 of the bitcoin network to follow the new rules.

An effort to change the software to "mint" a greater amount will be countered
by those who already hold bitcoins, and can add mining capacity to resist the
change.

Another implementation could be launched with a different limit, but that
would be a completely separate, new currency.

------
sausman
Not quite sure what the appeal is here?

Low transaction fees are nice but why not use something like Dwolla which is
dollar denominated?

The "mining" concept also confuses me. Is the currency backed by CPU cycles?
If so, what are the CPU cycles being used for?

~~~
kiba
_The "mining" concept also confuses me. Is the currency backed by CPU cycles?
If so, what are the CPU cycles being used for?_

Bitcoin is not backed by anything. CPU cycles are used to ensure the security
of the system.

 _Low transaction fees are nice but why not use something like Dwolla which is
dollar denominated?_

That's like comparing eggs to chickens. Bitcoin is more than just a
transaction clearing house, but also a currency that is completely separated
from the control of governments and traditional banking institution.

The advantage of bitcoin is that anybody on the planet can use it. I can send
you bitcoin just as easily across the street or halfway around the world.
Bitcoins cannot be frozen as easily as your bank accounts can be frozen.
There's also the fact that bitcoin cannot fail due to one single company.

 _Not quite sure what the appeal is here?_

It appeals a lot to technogeeks who happens to also be libertarians, people
who worries about economic policies of governments, and so on.

But bitcoin in my opinion can facilitate greater efficiency in the world
economy by making it easier to transfer capitals across border. That alone is
valuable.

~~~
sausman
_It appeals a lot to technogeeks who happens to also be libertarians, people
who worries about economic policies of governments, and so on._

I fit that description and agree that private currencies such as Bitcoin would
be awesome, but aren't there laws in place to secure the government's monopoly
on money? ( <http://www.lewrockwell.com/paul/paul619.html> )

Does Bitcoin circumvent these laws by being completely virtual?

~~~
maurycy
It is impossible to have monopoly on money.

Simply put, money is whatever market participants agree on.

~~~
michael_dorfman
Sure. But the government can still insist that all transactions paid in
BitCoin are subject to a sales tax, which is payable only in legal tender (not
BitCoin).

Money is whatever the market participants agree on, and laws are whatever the
government agrees on.

~~~
maurycy
It requires cheap trackability to tax.

Of course, BitCoins are easily trackable, thus doomed. It was possible,
though, to design them without this property, ensuring that costs of tracking
offset the potential tax gains.

EDIT: It would be _fun_ to consider the arbitrage opportunities rendered
possible by such sales tax.

~~~
canadaduane
My understanding is that it's easy to track the transfer of bitcoins to
accounts, but very difficult (impossible) to figure out who is behind an
account unless they choose to reveal their identity. Since accounts can be
generated on a whim, and with no identification, the upshot is that taxation
would be unenforceable.

~~~
maurycy
They do not think so[1]. It is easier to fail than with the old-fashioned
money, given that all the transactions are publicly logged.

<http://www.bitcoin.org/wiki/doku.php?id=anonymity>

------
pero
While the video does look great, I'm afraid I still do not know how real-world
value is attached to BTCs--it seems as if a 'step' is messing in the 'how it
works' explanation.

I'm assuming that was the major desired end-result of this video; if it
wasn't, it was the question I was hoping most to get answered.

~~~
kiba
Supply and demand. On the supply side, it's limited to 21 million bitcoin
forever.

Demand is supported by people who accepts bitcoin. Currently, the price is
around 0.80 USD per bitcoin. It used to be only 5 cents per bitcoin.

~~~
pero
And the ones who own the initial supply are the ones cranking out the
solutions to the problems?

~~~
joelthelion
Yes. Note that solving the problems is useful to the whole network: it records
transactions and secures the network.

~~~
pero
What's being solved are not just abstract mathematical problems, but equations
that have implications on the whole system?

~~~
sgornick
The "equation" is a simple cryptographic hash performed on a block of data, as
described earlier in this thread:
<http://news.ycombinator.com/item?id=2358396>

The equation itself is trivial -- it can be calculated hundreds of thousands
of times a second by even a really slow CPU.

An artificially set difficulty is implemented and the result is that only one
of those attempts across the entire network will succeed in about ten minutes,
which is the targeted time for processing a batch of transactions (a block).

------
quadhome
Am I right in that Bitcoin isn't backed by computational complexity; but,
instead the continued ability for machines on the network to communicate with
one-another?

~~~
sgornick
Bitcoin is backed by cryptography. The bitcoins in your wallet cannot be spent
by anyone else.

Now if there were no network access, then there's a problem. I might accept
your transaction but without access to the network I couldn't know that you
didn't already spend those bitcoins elsewhere.

~~~
etherealG
surely the answer to that is that I shouldn't accept someone's bitcoins
without being connected to the network to be able to check if they were
already spent. this kind of "offline" transaction isn't allowed with regards
to a credit card, why would it be allowed in our system?

~~~
dublinclontarf
Yes, for bitcoin there are no offline transactions. A transaction is recorded
by telling everyone on the network it happened. Then everyone knows which
addres spent and recieved bitcoins.

