
Imagine your computer as a wallet full of Bitcoins - hippich
http://www.istockanalyst.com/article/viewiStockNews/articleid/4697943
======
jaysonelliot
Every day, another event occurs that reminds me of Daniel Suarez's books
Daemon and Freedom(tm).

This is one of them.

Every currency is based on the credibility of the underlying guarantor,
whether it's the value of precious metals, the full faith and credit of a
government, or the long-term viability of an organization.

The underlying guarantor here is the belief that an open, distributed system
like bitcoins will grow and thrive. Given the nature of distributed systems,
the main risks to its survival are lack of interest by participants, a
security flaw in the bitcoin system, or the complete collapse of the internet
as we currently know it.

The latter isn't likely to happen - even if the US became like China in trying
to regulate activity (not likely), it will just open up elsewhere. Short of
the kind of global social catastrophe that would invalidate every other
currency as well, it's not a realistic risk.

Lack of interest and security flaws are the only real risks. They're
significant enough that I wouldn't invest money I couldn't afford, or base a
business model around bitcoins - but acceptable enough that I will definitely
spend some disposable income on bitcoins.

~~~
hugh3
_the main risks to its survival are lack of interest by participants,_

Much like prior "alternative currencies" like Pogs and Beanie Babies and tulip
bulbs and Second Life real estate?

Stepping away from the idealism of "ooh wouldn't it be nice to have a
distributed currency", what we have is a bunch of people trying to create a
bubble. Unlike many bubbles there's not even an attempt to claim that the
asset has some intrinsic value; instead it's just a bunch of people
collectively deciding to fool themselves into thinking that a random scarce
commodity has value in the hopes that they'll be able to fool more people into
it later.

Of course, for new bubbles it's all about creating buzz. And how is buzz
created? Well, upon getting fooled into paying money for a bunch of bitcoins
the rational next move is to start talking up bitcoins to everybody as loudly
as possible, to pull more people into the bubble and inflate the value of your
own assets. Thus, I predict we'll be hearing more and more about bitcoins over
the next year or so as the process accelerates.

The bubble almost certainly ends at some point; basically when it runs out of
new suckers. I don't hold out much hope for this bubble lasting long enough to
bring in significant numbers of mainstream suckers, though, since you pretty
much need a degree in mathematics to even understand what the hell a "bitcoin"
actually is.

In summary, if I'm going to be part of a pyramid scheme I think I'll start it
myself instead of getting in at the fifth floor.

~~~
extension
It's money. Its value will come from people willing to exchange it for other
valuable things. People agree to do this because it makes doing business a lot
more convenient. It works fine if everyone cooperates and the system is well
designed. Bitcoin seems to be much better designed than any established
monetary system.

------
jplewicke
If you're interested in Bitcoin, you may want to check out several other
attempts at creating decentralized digital monetary systems.

The Ripple project is creating a system where each node can issue their own
unique money, and where transactions occur over paths of mutual trust:
<http://ripple-project.org/>

I just released Rivulet, an alternative Ripple server that should be useful
for website owners who want to let their users engage in user-to-user
transactions without having to centrally distribute currency to them:
<https://github.com/jplewicke/rivulet>

Pelle Braendgaard has proposed OpenTransact, a standard for RESTful digital
transactions, so that we can escape from this mess of incompatible APIs and
help people transact in their choice of currency:
<http://www.opentransact.org/>

~~~
dublinclontarf
There is also a cost in creating bitcoins, prior to them running out of
bitcoin numbers there will be an ever increasing use of electricity.

Another point is there is a limited supply, unlike other currencies where the
possible supply is unlimited.

------
gst
Unfortunately there seem to be scalability issues with Bitcoin. Currently each
node needs to know about every transaction that ever happened. The size of my
.bitcoin directory is currently around 100 MB. So with more users the high
amount of transactions might become an actual problem.

There's also some discussion on the bitcoin forum about this issue:
<http://www.bitcoin.org/smf/index.php?topic=286.0>

~~~
hippich
Once I got to this idea, I heard about longest chain. So we can randomly cut
existing chain keeping it at safe length. It could be done even per client
(server will store the whole chain, while smartphones will keep only
"safe"-length chain)

Anyway, all of this is just implementation problem which, I believe, could be
solved.

------
jodrellblank
That looks a bit ropey... it needs incoming connections through a firewall? It
does peer discovery by connecting to an IRC channel? It's rate limited by
adjusting the complexity of the calculation? (Who does that and why can't
anyone else manipulate it?) I need to backup a bitcoin wallet after every
transaction so the money isn't "lost" (where does it go? is it just leaked and
lost forever?).

It's written in C++ with hardly any comments / comments like this:

    
    
        // Get cursor
        Dbc* pcursor = GetCursor();
    

It has hard coded IP addresses to connect to by HTTP, sending headers claiming
to be Mozilla 4, to find the external IP address?

------
aidenn0
So computing power generates bitcoins? Is it ethical for me to use the 3
8-core machines at work I have to generate bitcoins for my personal use? What
about my personal work machine?

~~~
seancron
According to their FAQ:

    
    
      No. There's a constant average rate of new Bitcoins created, and that amount
      is divided among the nodes by the CPU power they use. When Bitcoins start
      having real exchange value, the competition for coin creation will drive the
      price of electricity needed for generating a coin close to the value of the
      coin, so the profit margin won't be that huge. The easier way to gain a lot
      of wealth would be trading goods.
    
      At the moment, though, you can generate new coins quite profitably, if you
      expect them to have real value in the future. If you choose to, be aware that
      Bitcoin is still experimental software.
    

[http://www.bitcoin.org/faq#So_your_wealth_is_determined_by_t...](http://www.bitcoin.org/faq#So_your_wealth_is_determined_by_the_amount_of_CPU_power_you_have)

~~~
Groxx
That's not _quite_ accurate, as it changes over time (just above that in the
FAQ), and you cannot "discover" bitcoins which are already known. The
difficulty in finding a new one increases as each new one is found, if only
slightly.

------
hugh3
Can anyone explain the mathematics that the article glosses over? What
constitutes a valid bitcoin? Can I sit down and start generating 'em just in
case?

~~~
sweis
There is a paper available here:
<http://www.bitcoin.org/sites/default/files/bitcoin.pdf>

It's using digital signatures to transfer coins. The prior owner will sign a
coin and the new owner's public key. The new owner will verify the prior
signature before accepting the coin. This is a longstanding idea going back to
the 80's.

The rest of the details are to prevent double-spending without having a
centrally trusted authority. I haven't spent time looking at this and can't
say whether it works as advertised.

------
Jach
If anyone's interested in an explanation on how digital currency can work
securely, I remembered an old mailing list message that's pretty
straightforward with the math: [http://article.gmane.org/gmane.org.user-
groups.linux.provo.p...](http://article.gmane.org/gmane.org.user-
groups.linux.provo.plug/13350)

Edit: a teaser: _an anonymous coin is one which you can withdraw from the
bank, but which the bank can't link to you when you spend it._

~~~
hugh3
All of which is very nice, but it doesn't solve the actual problem of starting
a new currency, which is persuading people that it's worth something.

~~~
dublinclontarf
A currency becomes worth something when people begin accepting it for goods
and services. This is already the case to a very limited extent with bitcoin.

This also began to happen with QQ coins, in China people began accepting them
for goods and services until the government cracked down. And the funny thing
is that this was never meant to happen with QQ coins, they were meant simply
as a way for QQ to make more money. But once people accepted them they became
a form of currency.

------
VladRussian
it looks like a distributed search for sets of values having their sha256
starting with N zeroes, N+1, N+2 ... with target values having property
something like this Kth value = (K-1)th || <value to find at step K>

One can only wonder where the seed money came from (and whether the current
price of 50BTC x $0.25 = $12.5 per newly found value is self-sustainable in
the system or still seed-funded) and whether the NSA have a listening node in
the system (as all the transactions are broadcast to all nodes).

------
nodata
What's the architecture for this inside a network? Does each node have to have
its own Bitcoin wallet, or can you have a central node on a network store all
the bitcoins?

~~~
hippich
every node have it's own "wallet". each wallet consist of public/private keys,
where public key is address.

So there is no centralized place where all wallets or coins stored. In fact,
there is no coins - there is amounts assigned to each address (public key).
And the whole bitcoin network is huge transactions book.

------
DanielBMarkham
So as more people join the bitcoin community, and as computing power generally
increases, the value of each bitcoin approaches zero?

Doesn't sound like a huge benefit to taking time to generate a lot of bitcoins
now, as there isn't a stable commodity to index it to.

Very interesting idea, nonetheless.

~~~
StavrosK
No, generation rate remains constant as computing power increases. You can
only generate a few million total, then it stops.

------
jerguismi
Lol, I don't have the slightest idea if this will work in the long term, but
it sounds like a great way to do small-scale money laundering. Or is it?
Haven't researched it much.

