But, it seems like all of the exchanges have closed or are temporarily closed to new registrations. This seems problematic, and means the only realistic way in or out is dealing directly with other people and businesses who believe in this particular currency. I spent some time reading the list of people and companies accepting Bitcoin payments, and was extremely underwhelmed. Lots of pyramid schemes, random low-rent affiliate crap like phone cards, etc. No actually useful goods or services. And, a lot of the websites that are talking about this stuff have a definite "get rich quick" vibe about them.
Basically, it's all extremely flaky seeming stuff. This brings me to the thing that makes me worry more: Who developed the code for Bitcoins? How do I know it is secure? The people that seem to be most involved in Bitcoin discussions seem to be...well, kinda dumb. I don't trust dumb people to build strong encryption (I don't even trust smart people to build strong encryption, unless they're talking it over with lots of other smart people). Reading the FAQ at Bitcoin.org doesn't do much to alleviate my concerns. There's another FAQ in the wiki that mentions SHA and a few other reassuring things, but I'm not having much luck finding the real meat of the thing, and names of people responsible for the security of the system.
In short, if this is a serious virtual currency implementation by people who understand the security implications of such, I'm unable to find strong evidence of that fact. And, so, I worry about dealing with it.
Bitcoin is open source. You can inspect the source code if you want.
While being Open Source is definitely on the "must have" list of items I'd want to see in a virtual currency system...I know that I'm not capable of determining the security of such a system. My understanding of cryptography is much too weak for me to have any understanding of the finer points of what's happening in this system. And, it only takes one flaw to bring the whole system crashing down.
If people I knew to be competent security and cryptography professionals (such as our friends tptacek and cpercival here at HN) were involved and willing to put their name and reputation on the code and the project, I might be more inclined to trust it. But, I couldn't find even a single real name in my search of the wiki and bitcoin.org. The bitcoin draft "specification" has no names on it, which makes it among the oddest specifications I've ever met.
The web of trust that would make a virtual currency work requires trusted parties, at least providing some assurance of the security of the system itself, if not providing any evidence of value in the currency. I don't trust completely anonymous people on the Internet with my labor, my computation, or my dollars. Maybe I'm a crazy paranoid old-timer, but I'm not putting money into a system that is surrounded by credulous morons, get-rich quick schemers, and driven by seemingly wholly anonymous developers. Maybe bitcoin has great and well-known people involved and the tech is well-tested by competent people, but I couldn't find evidence of that.
In short, being Open Source is no assurance of it being correct, strong, or secure.
Fair point. However, we have not yet receive much attention from cryptographic or security experts yet.
Perhaps, words will finally reach someone who actually know something.
That said, after more digging, I note that a name I know and trust and have worked with in the past (Jeff Garzik), seems to actually be heavily involved in bitcoin, which lends it quite a bit more credibility in my mind. I don't know him as a security or cryptography guy, but I do know him as a really smart and competent developer. The project really shouldn't make it so hard to figure out who is writing the code and the standards (I still don't actually know what Jeff has to do with bitcoin, I just see his name a lot in the forums).
(And I suspect even if you could magic wand it into existence it would still be very vulnerable. Take any fiat currency today of your choice. Remove the government backing. How long does it last? Probably not zero, but it probably crumbles at the next crisis at the latest. It would only take one metaphorical bank run to demolish the entire currency in a heartbeat. And it would only take a small nucleus of savvy people to prompt such a bank run, too, and such savvy people definitely exist.)
And in startup parlance, this is just about the worst possible "boil the ocean" plan possible. Virtual currencies will eventually happen and I'd even bet within a century you could live entirely off non-government-backed currencies, but it'll happen organically, not by fiat. And, no joke, it'll probably be some form of MMORPG cash, because those are by far the best seed I can think of for this sort of system to crystallize around, though probably some future MMORPG that makes today's look like tinkertoys.
The problem with that is the use of bitcoin as a notarization service will erode bitcoin as a form of money. You would need to pay higher fee to prioritize bitcoin over big documents such as DNS record and contracts. That become inconvenient real fast for those who transact in bitcoin.
Why? Because everyone who owns some of this intrinsically worthless asset immediately has an incentive to start working on talking them up. Social news sites are the front line of this battle... write a story about how they're going to be the next big thing and submit it, and you can be guaranteed a bunch of upvotes from everyone else who owns some bitcoins. This story alone probably caused at least a 10% increase in the value of 'em.
Personally I'll buy some bitcoins the moment they become exchangeable for pogs.
I've looked at bitcoins, and then figured that I don't really have much use for the things I can buy with them, including phone cards or online poker chips. On one bitcoin thread, I mentioned that using bitcoins for an online game currency wouldn't work for me as a game developer because I actually need to buy food and housing.
Perhaps, though, just perhaps, bitcoins are going through the 3 phases described by Arthur Schopenhauer: 1) ridiclued, 2) violently opposed, 3) accepted as fact.
But personally I have to admit I'd feel more comfortable with 9mm ammunition or bags of rice as a reliable currency.
The basic data structure is a hash-chained list of blocks of transactions, with each block including one transaction of XX bitcoins from /dev/null to whoever generated that block. A node trying to calculate a next block include all (valid) transactions it knows. If the list branches, nodes ignore the shorter branch (this makes transactions more secure as they get older, assuming the swarm has more computing power than any troublemakers; so the time for a transaction to "clear" is whenever you trust that there are enough later blocks). In order to know if a transaction is valid, the node needs to have the prior transaction(s) that the involved bitcoins came through last (and any other subsequent transactions of that prior one). That prior transaction could be arbitrarily far back.
2. There had been talk of a lightweight client that download the block header or something.
The problem with these virtual currencies so far is that they're very unstable and they suffer from quick and dramatic deflation and inflation (usually the latter) that makes them absolutely terrible as primary currencies if you don't want to starve to death.
This isn't to say that gov't backed currencies don't have this problem; far from it: http://en.wikipedia.org/wiki/Hyperinflation#Examples_of_hype...
Keeping currencies stable is very difficult, which means that I'm really nervous about any system that isn't well-established already. It's not a guarantee, but it's better than nothing.
What is different about Bitcoin is that the amount of it will be fixed, therefore no monetary inflation is really possible.
That said, its value in dollars can depreciate if M3 in dollars + outstanding credit in dollars contracts. And this might happen in the following years since outstanding credit in dollars, with the exception of Government debt, is contracting.
I think Bitcoin is a good idea but it solves a problem (hyperinflation) that we don't have right now. If we had hyperinflation Bitcoin would become the Napster of central banking.
However there's another problem, deflation. The people who get in there first and generate loads of BitCoins will gradually get richer and richer if they just sit on their money and don't trade it. It seems unfair that someone who got in first gets to be rich in this new bitcoin world.
Until the day that everybody decides the bubble is over, at which point the value of the bitcoin drops to zero. But hey, you might make some real money in the meantime!
Same thing can happen with any fiat currency, like the dollar or the euro. Actually, the same thing can happen with any currency, period. Even with a gold-backed one. If science finds a way to make gold without mining it, gold would drop in value.
An economy based on bitcoins couldn't work like this - because deflation doesn't shrink the money supply, and doesn't necessarily have anything to do with less money being lent.
We have, in fact, been discussing a co-founder partnership deal, so I have lots of right-now thoughts... Here's my summary on BitCoins, and what I think the system needs:
There are currently four categories of people interested in BitCoins:
1) Deflationary Currency wonks / Gold-standard tinfoil hat types
2) Crypto and Currency Nerds
Here is what BitCoin is good for:
Semi-anonymous-to-the-rest-of-the-world transactions of bitcoins, accomplished relatively quickly with no regard for global borders.
The system is reasonably anonymous, reasonably secure and makes some fundamental innovations in how value is transferred around: Consider if you can think of any other digitally transmitted, no-central-authority, semi-anonymous value systems. I am unable to think of any, and have been thinking for a number of months now.
To naysayers like SwellJoe, I have a degree in Theoretical Math and a background in Cryptography, and I have read, fairly thoroughly, the process and mechanisms used, and would say that the system does a reasonably good job delivering what it promises. Of course, it's open source, so go crazy and come back with an alternate viewpoint.
So, to my mind, there's clearly a place for BitCoins on the internet. I believe they will be useful in four possible scenarios:
1. For digital goods that one wishes to purchase privately.
2. For international value transfers
3. For activities like 'tipping' others on the Internet
4. In a credits-type system where the developer cannot or will not produce their own system, either because users do not trust the developer, or it's just easier to use an existing one.
I don't believe BitCoins will ever be useful in a currency-for-hard-goods situation, for a few reasons, one of which is that labor is unlikely to accept it (except possibly in Russia, or places where the government currency is seriously broken), the second -- extreme currency fluctuation against USD is likely to continue for some time.
There are roughly a thousand users of BitCoin right now, maybe 2k. The coins are released, 50 per 10 minutes, regardless of number of users. Consider -- what will happen when 10,000 or 100,000 new users enter the system? If the currency tips at all, or multiple times, it is highly likely that demand will push cost of BitCoins very high. So, this makes it an appealing thing to speculate in right now, of course. And, might make you wish to participate in an online exchange as a founder.
To counterbalance, the issue of running an exchange for BitCoins has a few major hurdles. A quick scan of my listed usage scenarios indicates that Bitcoins are best for money laundering russian mafia and porn sites. Combine that with the fact that an exchange is allowing people to trade a fungible currency derivative semi-anonymously, and you have a LARGE raft of legal items and compliance issues to take care of. I've had three separate estimates run in the roughly $1mm to do filing and compliance, US only. Ouch!
To counter-counter-balance, if I ideate properly, a well-run BitCoin exchange could conceivably be a sort of Paypal/Visa competitor -- providing merchant services and easy payment transfers to a wide range of people who really need it. That's appealing.
I hope this has been interesting, I enjoyed getting my thoughts down on HN paper.
Consider using up 0.2kW continuously for a year (a typical mid-end PC at full load), with the local price of 13 cents per kW-hour, it works out to about $228 worth of electricity for 50 coins (note the computer itself would depreciate in this time). That means $4 per bitcoin minimum costs, far above the 20 cents at which it is trading now.
What are your costs where you live?
cost_per_coin = 0.2 * 8765 (hours in a year) * your_kWH_price / 50 or
cost_per_coin = 30.56 * your_kWH_price
It's also a key part of the marketing spiel -- selling people on the idea that they can get bitcoin-rich for free is a key part of getting people hooked on bitcoins. If I tell you "I've invented a new currency, want to buy some?" you'll tell me to sod off, but if I tell you "I've invented a new currency, you can mine it yourself as a background process" then you might be persuaded to give it a go. Pretty soon you've got some bitcoins of your own, and every incentive to start talking them up to everyone you meet.
"Unless you have a GPU farm, go buy bitcoins instead" and variations thereof.
Even right now, I doubt you can just grab a high end GPU and get cranking for a profit, unless you manage to steal electricity or steal access into a computer you don't own.
Sounds like bitcoin community has a lot of the "inflation is bad, back to the gold standard" pseudoeconomists
But, given that there are very few means to cash out into other currencies, and the products one can buy with bitcoins are extremely limited and generally virtual goods, it's still wildly speculative that they have any longterm value.
Deflation of bitcoins can effectively be infinite, but should slow significantly if/when a significant amount of people get in on it and start using them.
If you can buy them for 221/USD somewhere, buy a lot. You will be happily selling them for USD within the day.
4.87 million BTC
or 1031762 USD
or 21339945 RUB
or 1047 ounces of gold