I get the idea that people ought to back up regularly, but look at the reality of the situation. How many times have you heard a friend or relative bemoan the loss of important photos or files because they didn't back up their computer?
I assume that the eventual goal of bitcoin is to be accepted by the mainstream public. Unless I'm misunderstanding something (which is entirely possible), we'd be asking people to accept the idea that their money is only as safe as the data on their hard drive.
Do I have this all wrong?
That does not mean cash is unworkable, that only means people will learn to keep their money in a safe place. Might take some time, but they'll learn all the same.
It would be irresponsible to entrust tens or hundreds of thousands of dollars to the integrity of your hard drive and its backup(s).
Or is bitcoin not meant to become a currency that people would hold in values larger than a few hundred dollars?
Here's one way to do it:
Make a new wallet with a receiving address you note down somewhere, compress/encrypt the wallet file with the strongest password you'll remember, shred evidence of the unencrypted file, put the encrypted file on a few USB sticks, and hide them. You can put one in a safety deposit box, if you wish.
Now this is the beauty of Bitcoin:
You can continue sending money to the receiving address of your Savings Wallet without ever opening it and firing it up. Someday, perhaps after the financial apocalypse, you can decrypt your wallet file, open it, and your client will start downloading all the transaction history from your peers which will eventually accumulate all the savings you've sent to it. Then, you can start spending them.
For bitcoin to become a viable alternative currency, everyone's wallet needs to be distributed as widely as a torrent file, and secure enough that only the owner can ever open it.
Better yet, I would give halves of the key to all those people, with some redundancy.
Like a bank!
Or another 3rd party you trust.
I can't see myself trusting any unregulated, unsecured entity with any significant amount of my personal wealth.
You trust the SEC to secure your wealth?
If people want to trade in dark pools or OTC exchanges at rates different from the 'official' rate, that's fine. And in situations where there is an actual reason for the price to shoot up (like PokerStars announcing they will start accepting bitcoins), those side markets are where we would see the 'real' price. The official rate on Mt. Gox would lag behind because of the restrictions in place, but I think that would be a small price to pay for an end to the bot- and speculator-driven volatility in the exchange.
My theory of what could rapidly reduce volatility in Bitcoin: liquid markets in futures and vanilla options. It's an easy way of generating more volume. It provides price stability to businesses accepting Bitcoin as payment. Empirical evidence exists that the more options purchased by hedgers, the less volatility exists in the underlying: http://www.terry.uga.edu/finance/docs/pearson.pdf.
Another approach is to have "trusted sources" which are Bitcoin banks/ewallets. If your customer is using a Bitcoin bank like eWallet to send a payment, you can pretty much assume that the transaction is valid based on the source, without verification.
Either way, this is merely a short term problem. As more Bitcoin infrastructure springs up (more banks, more verification hubs, more incentive on transaction fees rather than mining, when mining gets too expensive) then these problems will be organically mitigated. If the Bitcoin infrastructure were to remain the way it is now forever, it won't scale for many other reasons (like requiring peers' wallets to store significant transaction history that could grow at the rate of gigabytes per hour with "real world" volume).
Isn't transaction verification tied to block generation, and isn't block generation limited to about 1 every 10 minutes?
From how I understand it, verification involves:
1. Confirming the privately-signed transaction against the public key of the source wallet (transactions not forged).
2. Confirming against the historical transaction chain that the coins actually belong to the source wallet (coins not forged).
3. Passing the verified transaction along to other peers.
Prior to being included in a block, it's entirely possible for the payer to issue the same money to multiple recipients. Once it's in, it's assured that only one is included, and others are therefore invalid. So it's in recipients' best interests to wait for a few blocks before totally accepting something as "paid".
When someone sends you a transaction, it registers more or less immediately. It is only the confirmations in the blockchain (that happen every ~10 minutes) that give you confidence that the coins were not double spent.
There is no reason there couldn't be a law that says "it is illegal to attempt to defraud merchants by trying to double spend bitcoin."
From a technical standpoint, if you send me a payment and I have no reason to mistrust you (similar to my accepting a check for payment), seeing the payment show up in my account immediately is pretty satisfactory.
Further if it becomes a problem, services similar to clearcoin could pop up; allowing users to 'store' coins in a trusted third party, like a generalized escrow-service that companies could trust.
So unlike clearcoin which has coins transfered per-transaction, they might offer a service where you can just store your coins there, and business will trust unconfirmed transactions from clearcoin; thus they wouldn't have to trust you.
Really though, I doubt it will become any more of a problem than bad checks are.
There's a big reason - government hostility to bitcoin.
If bitcoin transactions are only trustworthy in jurisdictions with laws governing such transactions (i.e., none), it is safer and more convenient to simply use the local currency. And of course, governments will not voluntarily protect transactions in competing currencies.
Bad checks are an enormous problem. One of the reasons that merchants favor credit cards, despite the high transaction fees, is that the incidence of non-payment fraud is both lower and less costly. If Bitcoin is susceptable to nonpayment fraud, it is a non-starter as far as widespread adoption is concerned.
But that doesn't matter, government is not the only entity that can resolve conflicts. Online reputation management, trusted third-party processors (escrow), the mob, and insurance companies can all reduce fraud to manageable size.
Intermediaries kind of defeat part of the purpose of a decentralized system, but very very importantly, they're optional with such a system.
(P.S, I hope I am not spammy)
> there are already competing exchanges being set up on 4
> more continents that will allow liquidity between bitcoin
> and other currencies
Additionally, glbse I believe will be open sourcing their server (the client is already open).
Are your Bitcoins gone forever, with no recourse? Do those Bitcoins effectively leave the limited Bitcoin money supply forever?
Also, it's impossible to distinguish between a hoarded bitcoin or a lost bitcoin. But if it is lost, it effectively leave the money supply forever.
or on the Bitcoin wiki:
Seems they're going to go with Python though. You know python?