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I Spent A Coin (And I Liked It) — How I Bought Lunch in Manhattan with Bitcoins (hackerfriendly.com)
189 points by sas on June 26, 2011 | hide | past | web | favorite | 133 comments

The most important by far rule for currency is stability. With stability comes acceptance of the currency.

You don't have that - the owner first looked up the exchange rate to US dollars.

What you have is a medium of exchange, but you don't have a currency.

A medium of exchange is useful, and can eventually become a currency. But bitcoins are not yet a currency.

Perhaps someone can make a bank, where you store US dollars. Using that bank you can send and receive bitcoins. Only the bank can create bitcoins, but once created anyone can trade them without input from the bank.

If you are familiar with history this is how paper currency actually got started - goldsmiths would store gold and give chits of paper. Those chits started getting exchanged, and a currency was born.

> You don't have that - the owner first looked up the exchange rate to US dollars

What? Any London store that accepts euros will check the rates daily to make sure they can convert back into the GBP price. Currency rates fluctuate all the time, every second of every day.


Then they aren't accepting euros as currency. At the end of the day they will immediately convert the euros to GBP.

They are willing to use euros as a medium of exchange, but only because they know they can exchange them for (to them) real currency. (Currency is relative, obviously. And just as obviously it helps that somewhere in the world there are people who use that type of money, which gives you comfort that even if you don't exchange it now, you can later.)

If this was the fate of bitcoins then it would be a failure. People may use it to send value over the internet, but no one will keep their savings in bitcoins.

To be money you have to be willing to save it. If all you do is use it as an intermediate it's not money - yet. It may eventually become money (historically intermediates often do that - especially if the conversion is difficult), but it's not money yet.

The reason it's so important for people to store the currency in savings is very simple: If no one want to keep your money long term, practically speaking there will be very little of it in circulation, which makes it hard to use.

Plenty of people save in BitCoin, some would even argue that's where much of it's value comes today. Look at the article from Richard Falkvinge that he linked to for an extreme example.

Nowhere did he suggest that the restaurant owner exchanged his BitCoins for USD. Maybe he saves them and uses them to buy something else. Who knows, maybe he buys the ingredients for his Meze using Bitcoins?

> Who knows, maybe he buys the ingredients for his Meze using Bitcoins?

If he does that, then why does he look up the exchange rate first?

No, plenty of people do not save in BitCoin, for values of plenty and save that most people would understand.

You might more accurately have put 'a few people hold bitcoins for reasons of speculation'. This is not the same as saving.

[Disclosure - I hold no bitcoins]

PS - it's probably about time that people disclose whether or not they hold bitcoins when commenting.

Holding == saving. Sounds like you are trying to emphasize the difference between investment and speculation, instead.

No, they are not equal, because that difference he is emphasizing is the definitions "that most people would understand."

> * They are willing to use euros as a medium of exchange, but only because they know they can exchange them for (to them) real currency.*

Any person or business is only willing to use a currency as a medium of exchange because they know they can exchange them for other goods. "Currency" and "medium of exchange" aren't mutually exclusive, the former is a special form of the latter that is recognized widely (and in modern times, usually has no intrinsic value).

> * To be money you have to be willing to save it. If all you do is use it as an intermediate it's not money - yet.*

That's an insane definition for "money." You would claim that the fast food wages of a teenager who always spends it immediately is not money.

> You would claim that the fast food wages of a teenager who always spends it immediately is not money.

Just because he doesn't save it doesn't mean he's wouldn't be willing to if he had a lot of it. He isn't spending it because he thinks it doesn't keep value, he's spending it because he wants to buy things.

Don't know why this is getting upvoted as it contains a bunch of factual errors.

It's definitely being used as a currency already, as the article proves.

It's a highly fluctuating currency, but that doesn't remove it's properties as a currency.

Care to explain the errors?

People tends to vote on divisive issues in whichever post they agree.

Although not perfect and not entering in details, maybe because of generalization, I found his explanation resonating with what I know about monetary history, but I'm not a monetary economist.

Does that mean that the Euro is not a real currency? Or that the US dollar isn't real in Canada?

After a fashion, yes. Just because a merchant accepts a non-native currency (such as USD instead of CAD) doesn't mean that the non-native currency is inherently valuable in the native country. The merchant can't remit taxes in USD; can't pay her employees in USD. It must all be converted back to CAD before the merchant can do anything useful with it.

Don't mistake what is offered as a convenience by some merchants as normal and accepted.

How do you distinguish between currency and a medium of exchange?

From the sound of it, you defined currency as "a stable medium of exchange" which by definition prevents any unstable currency from being a currency.

Is there a definitive reason why a less stable medium of exchange cannot be a substitute for a stable one? Especially with today's technology when increasingly many things are being done in "real time".

I'm not an expert on currency and I'd appreciate further education. To me, it seems that knowing (and potentially being able to predict) the variable forces that are affecting the volatility of a medium of exchange is, in the long run, more valuable to its users than artificial relative stability provided by a governing body.

> How do you distinguish between currency and a medium of exchange?

A currency is stored, a medium of exchange is used right away (or traded for a currency).

> Is there a definitive reason why a less stable medium of exchange cannot be a substitute for a stable one?

Yes. Since it is unstable no one can rely on it. Since no one can rely on it people are unwilling to collect (and store) large quantities of it.

> To me, it seems that knowing (and potentially being able to predict) the variable forces that are affecting the volatility of a medium of exchange

If you can predict it, so can others. If I predict it will go up, everyone else will too. So everyone will hoard it - easy way to make money right? That means everyone wants to buy it, no one wants to sell - the price will skyrocket. Till it collapses, since it eventually will.

Then it collapses, people see the collapse, and everyone sells, the price goes to zero, and the process reverses.

To be a currency it must be stable.

ars obviously wasn't thinking critically in that comment. You're absolutely right: his proposed definition of "currency" isn't useful at all, because it would preclude talking about "the stability of a currency."

A currency is simply a medium of exchange that is widely recognized, where "widely" is subjective. Most modern currency also is notable because it has no intrinsic value (gold coins, for example, have intrinsic value). I think bitcoin certainly qualifies as a currency, albeit an unstable one.

Gold coins have no intrinsic value, either. Gold is just another divisible and non-perishable carrier of human-assigned value.

Your definition of "intrinsic value" is clearly different than mine. If no human-assigned value is intrinsic, then nothing has intrinsic value, and your definition becomes non-functional.

When I said that gold coins have intrinsic value (the same is true for copper coins, etc.), I mean that regardless of what nation minted the coin and what value appears on its face, it will always be worth at least its weight in gold.

Change 'recognized' to 'stored' in your second paragraph. If people don't store it, it's not a currency, even if they use it.

No one willingly stores unstable currencies. The only time people use unstable currencies is if they are forced to by law, or if they are speculating.

When you hear people talk about "the stability of a currency" they are talking about fluctuations of a few percent, not 10s of percents.

The most important by far rule for currency is stability. With stability comes acceptance of the currency. You don't have that - the owner first looked up the exchange rate to US dollars.

Maybe he looked up the exchange rate rate because he wants to be fair: he wants to charge the same price for a lunch regardless of whether people pay with Bitcoins or dollars.

Whether it fits the strict definition of "currency" is not very important, imho. The value of Bitcoin, being a very undeveloped market, is highly volatile. This is certainly true.

It should be noted that the only reason Meze Grill is accepting bitcoins is because Bruce Wagner, host of the 24/7 Bitcoin show (http://onlyonetv.com/?page_id=178), loves the restaurant and convinced the owner to accept bitcoins. The owner himself (on Bruce's show) has admitted it's basically a cute little gimmick and doesn't actually any real volume using bitcoins at his shop.

Yes, the above is as ridiculous as it sounds.

Quick question for you. Who was the second astronaut to set foot on the moon?

What's the analogy you're trying to make?

There's an old cliché, nobody remembers the second man to walk on the moon.

So my point was, there is value in being the first restaurant in the world to accept bitcoins. And to be the first coffee shop. or the first plumber to do so, etc.

But, of course, I got schooled by lwat who poked a hole in my argument ... Buzz Aldrin is very well known.

Incidentally, the second restaurant to announce that they accept bitcoins also is in NYC ... http://twitter.com/ocrepes

Buzz Aldrin? Buzz is ridiculously famous so maybe your analogy is not the best.

I really wander what if a country legalizes bitcoins. A small/poor country with less than 1 million inhabitants. Bitcoin supporters will found a great base where to make transactions legally and build bitcoin related start-ups without fear. All transactions take place in that country banks and then forward to the bank of choice of the company/person/start-up.

Think of that country as a legal bridge to using/trading bitcoin. They can charge a small fee for doing it (say 3%). If the economy of bitcoins grows at a multi-national scale making around 1 billion USD in daily transactions, this will bring a $10.5bn income for that country, assuming the number of its inhabitants to 1 million, that's $10K per capita. It could save it from poverty and may be in the future makes it one of the richest.

Just few thoughts...

Here's another whimsy: instead of (necessarily) a poor country, how about any country that relies exclusively on land/property taxes, VATs, and tariffs? Are there any?

As far as I can tell, those taxes can't be dodged by a virtual currency since they are levied on physical items.

On the other hand, that country might lose tax money - assuming that it encourages bitcoins internally. Of course, if the country is really poor they may not be collecting much tax income to start with.

Everything is legal until it is made illegal. Bartering for goods and services is not illegal, at least in the US, and Bitcoin falls under that legal realm.

There is no law hindering any company's ability to accept Bitcoin as payment besides the requirement to pay taxes on the fair market value of the Bitcoins.

Just out of curiosity, are you a tax lawyer/whatever-lawyer-is-entitled-to-make-this-claim?

His statement is legally accurate.

When you engage in a trade transaction (as opposed to cash), the "income" from the transaction is the fair market value of the items/assets/property exchanged, at the time of the exchange.

The problem is that taxes aren't due until the end of the quarter (for businesses) or year (for individuals). Even if the value of the bitcoins has dropped, you owe taxes on the value when received. On the other hand, if the value has gone up, you don't owe any additional taxes until you use the appreciated bitcoins in another transaction.

That sounds super complicated and like an opening for somebody to write some software.

Thank you for clarifying

Excellent article. My favorite quote:

> Apart from whether there is a central bank somewhere to bid against George Soros, doesn’t the difference between a real currency and an imaginary currency lie in some sense in the composure with which a customer can ask if the currency is accepted here and in the composure with which a merchant can say yes?

Every currency is valuable only because other people consider it to have value.

> Every currency is valuable only because other people consider it to have value.

Two counterarguments:

- the idea of `legal tender' [1]. Usually the physical manifestation (coins and banknotes) of official currency in a given country/region/whatever is also codified by law as legal tender. Which means, when used for settling a debt, the creditor is obliged to accept it. Contrast that with gold, for example: it's considered valuable, but creditors are not required to accept it. Value of legal tender stems from both recognition and the legal framework of it being legal tender.

- taxes. Country's/region's law dictates the currency persons and organizations have to use for settling taxes and other dealings with administration. A currency that people don't trust or use for any other reasons could still have well-understood value in relation to settling taxes.

That having been said, I firmly believe Bitcoin has great potential. Even if this particular implementation fails at some point, other ones will follow.


[1] http://en.wikipedia.org/wiki/Legal_tender

>the idea of `legal tender'

This idea doesn't work in the country with hyperinflation :) As long as people don't consider that the currency is valuable, no legal force can convince them.

If bitcoin was a currency the meal would have been denominated in bitcoins not dollars. Bitcoin is an asset like gold or a stock certificate, not a currency.

Following your logic, s/bitcoin/Euro/ would mean that the Euro is not a currency. That's just plain goofiness -- the USD is just the default currency at this establishment.

The logic seems to say more that the owner is not treating it as a currency. You can't really define something as a currency or not based on one person's actions.

No, only because Bitcoin isn't stable enough right now to know what the price should've been in BTC.

You mean yes, not no. It's precisely because bitcoins are not stable that bitcoins are not a currency.

You should try living a country with high inflation. People lookup exchange rates every single day.

And those people do not willingly use that currency - they are forced to by their government.

Whatever currency it is that they are comparing to is the currency they really want to use, and probably do on the black market. I'm also confident that that is the currency they keep (or try to keep) their savings in.

And you see real currencies being used in many of them as black market currencies instead of the national currency. You can also see countries trying to stop inflation by indexing to other, stable, currencies.

That is not the problem of stability, that is because the restaurant is paying in USD to their contractors.

This should change in the future.

If you're trading Bitcoins for a meal, I don't think it really matters if it fits the dictionary definition of a "currency."

Sounds like there really is a need for a standardized way to integrate bitcoin addresses into DNS. For example, just adding the address as a TXT field and using DNSSEC to sign it would make the whole experience a bit nicer already.

The added advantage of that solution is that (with a bit of backend work on your nameserver) you could rotate your Bitcoin address for every lookup, resulting in a unique address per transaction to preserve anonymity.

I recently came across a different approach to to the same problem.

http://www.coinhandle.com You give it a name and your bit coin receiving address. Then you can query it for the address associated with that name.

It has some sort of API, would be much more useful if this was integrated with the official bit coin client though.

>It appears that their orders cost BTC 0.75 and his own meal cost BTC 0.7 and nobody has bought anything with Bitcoins at the Meze Grill since then.

Or the grill owner periodically generates a new address with which to receive coins.

Probably has multiple laminated QR codes. That's not really the right way, or the best way. But it is a way that works.

With only one code, the restaurant can't know for sure who the payment was from. Though at these low volumes, the amount and/or the time would probably be adequate.

Even with a little more volume this method should still work fine, even if you get a second or third QR code to use.

There's a lot to like about BitCoin. They "just" need to solve the following:

1. Technical issues (make it more secure) 2. Economic issues (deflation) 3. "Competitor" issues (governments, banks, the powerful status quo)

> Economic issues (deflation)

This is actually a pretty serious problem.

The value of bitcoins always settles such that the cost of the electricity to make them is approximately their value.

But because the difficulty is adjusted such that a fixed number of bitcoins are generated per time (meaning faster or more efficient computers don't help), and that the number generated per unit time is constantly shrinking, it will cost more and more electricity over time to make bitcoins.

Deflation is built into it. And I bet the creator of bitcoins never realized that the scarce resource bitcoins track is electricity.

If you want to make a ton of money, buy bitcoins just before they switch from 50 per block to 25. I'm betting the value will double.

I don't see how this is a problem. There will only be 21 coins in existence and their cost per generation (hence their intrinsic value) will rise up until that last coin is generated. At that point coins will just be subdivided many more times -- nobody will wield around an entire coin on a day to day basis the same way most people don't carry around a roll of $100 bills. Remember coins can be divided down to the 8th decimal place.

Look up deflation, and in particular Deflationary spiral.

In theory it's the difficulty that should settle such that the cost of the electricity to make them is approximately equal to their value.

So, for example, when generation switches from 50 per block to 25 per block, the value will remain the same and it will simply become uneconomic to mine. As miners leave the network, the difficulty will automatically reduce until equilibrium is reached again. (In theory. In practice, the time lag until the difficulty changes could make this an unstable feedback loop rather than stable).

> This is actually a pretty serious problem.

.. with the modern understanding of deflation. Price is not a problem if the money supply is constant. Just think about it, it is *more goods chasing the same amount money". There will be no way we can have this conversation without that kind of deflation in computer industry.

Now, money supply contraction IS painful, but so is hangover. If you have an institution with the ability to inflate the money supply almost at will, don't act surprised if from to time a correction can be in order.

The cost of electricity per Bitcoin in turn depends on the computing power invested in the network. The strength of the next block is adjusted so that it takes approximately 10 minutes for the network to solve it. Also there are optional transaction fees.

Right, that's what I'm saying: As more people join the network it becomes uneconomic to mine bitcoins, because since it's harder now, it costs too much electricity. So those with the least efficient setups stop mining.

So the price settles at the cost of electricity.

Then they reduce the number of coins per block. So suddenly it comes even less worth it to mine. Until the value of each bitcoin rises to match, causing people to want to mine again.

If the value of each bitcoin did not rise, no one at all would mine and the network would grind to a halt (no confirmed transactions).

Unless they have a mechanism to reduce the difficulty factor at that point. I'm not sure on that point.

"If the value of each bitcoin did not rise, no one at all would mine and the network would grind to a halt (no confirmed transactions)."

This isn't true. The system has several modes of adjustment and it will always be worth it for someone to generate blocks. If the value of a coin didn't rise to match generation costs, people /should/ stop mining -- but those that remain will collect more coins or transaction fees as the difficulty drops to compensate. Overall the economy as a whole shrinks, but never grinds to a halt.

As soon as mining becomes "uneconomical" you will revert to the point that the only miners are 100-1000 geeks around the globe doing it for fun.

That is still enough computing power to make the network moderately secure.

Entities with a vested interest in Bitcoin being unhackable by those with too much CPU power might then run non-profitable mining setups.

miners will just charge a fee to verify transactions

The miners can only ignore transactions that don't carry a fee or a fee that isn't large enough. But other miners will likely accept those transactions, so the miner isn't forcing the fees up but instead letting them pass him by.

More likely the inefficient miners will be forced to quit mining as they will not be able to compete with those who either don't pay for power, or are not a commercial endeavor that is doing so at a larger scale.

Whether that is two months or four years away, who knows.

4) Legislative issues. For example Germany (I'd bet) would not accept bitcoins in one's tax form ("I have to pay 345.67 bit coins of taxes to the state"). And if you have income in a non approved currency, you get into some trouble.

The restaurant owner was basically exchanging BTC for USD on the spot and also reporting tax income in USD.

If you consider it as a commodity, it would be no different than Gold or Oil.

I'm curious. Where exactly do you see a security flaw in Bitcoin? Exchanges run by former magic the gathering admins don't count. What flaw is there is there in the security of the currency, I'm curious.


I'll add that the crypto will one day be broken (even brute force will eventually work once CPU/GPU have progressed far enough). And when it is, there is no reason you couldn't just sit back cracking those wallets in secret before funneling the coins your way. A significant weakness of the anonymity of the network means no one really "owns" a wallet in the traditional sense. They are essentially communal.

You're right that sha256 will one day be in jeopardy, but there's no reason why the system can't update itself well before then. If sha256 is broken, all it takes is for people to update their clients and only start accepting sha3, etc.

Previously, breaking a crypto was nice, but not instantly and anonymously profitable as it is with Bitcoin. It will be interesting to see how it plays out when it happens.

Exchanges run by former magic the gathering admins don't count.

Not sure what's meant by that dig, but worth pointing out that a lot of former (and some current) Magic pros do quite well in financial work. In fact, an eerie number of them seem to graduate from Magic, to poker, to finance.

Seems like an obvious selection bias, IMO - much like chess or RTSs or first person shooters. The kind of geeky person who plays Magic and has the brains to do very well even against fellow geeks - is it such a surprise that a good fraction of them might do well when they turn their efforts to poker or finance?

He's referring to how the most popular Bitcoin exchange site, mtgox.com was formerly a trading site for Magic The Gathering cards, "Magic The Gathering Online eXchange"

This site was hacked a few days ago causing much chaos in the Bitcoin community.

Agreed, I personally know 2 people who make their living playing poker...both are former magic players. It was explained to me like this...magic has so many different variables the odds on different hands are very complex, poker by comparison is very easy (odds wise vs. magic). I used to watch one of them play online, 3 monitors with 8 tournaments running per screen at the same time, I think he was in the top 50 worldwide for a bit there (not to mention winning a very large sum in one of the poker tours).

Both of them moved out of country when the Poker stars crackdown happened so they could keep playing.

When I mentioned I liked Blackjack they laughed and said "...odds are terrible...you might as well play the stock market..".

... Which will lead to 4. Trust. People can only agree to use a currency if they trust it.

I think the lack of physical tokens for Bitcoin (or any cryptocurrency) will likely be the main hurdle for public acceptance. It'll probably take another generation or two for people to get used to the idea of not having a physical representation for currency.

People accepted credit cards decades ago. If bitcoin could work as a currency (which it can't, for other reasons), it would presumably be used via equally convenient exchange devices.

Just because something works does not automatically means it's not a ponzi scheme. The original Ponzi was buying and selling real stamps. He didn't necessarily set out to defraud people. I personally don't think bitcoins are a ponzi scheme, but the fact that somebody once paid for lunch with them is not much evidence of that.

It seems that bank accounts are public: https://blockexplorer.com/address/1MTbKpYWnzqmsLvCjdTtwrvuX8...

Why is this?

This is why people say Bitcoin is pseudonymous: the entire transaction history of every Bitcoin is public knowledge.

To achieve actual anonymity, receivers need to use a one-time-address for each sender, and senders need to not leak information about which addresses they own.


Imagine all the money exchange and circulation of the world economy. 7 billion people. If hypothetically Bitcoin would be the "world currency" how much data (which is never deleted) would that generate per day? What data will amassed in 10 years?

I wonder how that will hard limit the system...? I have no clue about Bitcoin but a quick google search seems to imply that the global history of all transactions is locally saved in the client as "blk0001.dat". Already this database seems to be a few hundred Megabytes big?

So Bitcoin's scalability relies on a mixture of writing new software when it's needed ("The core BitCoin network can scale to very high transaction rates assuming a distributed version of the node software is built. This would not be very complicated.") and in future switching to a two-tiered structure with "supernodes" transmitting data between themselves at a rate of >1GB/s. While I suppose that it's good that someone is thinking about this, it does not inspire confidence in bitcoin's ability to scale - the fact that it's theoretically possibly to write software allowing it to scale is very different from someone going off, writing this software, and demonstrating that it does scale.

The supernode architecture is mentally straightforward and has been the solution used by a number of previous P2P networks - eDonkey, Gnutella, and Skype come to mind as using supernodes or variants thereof. If you want to seriously criticize Bitcoin, one ought to have more than FUD and 'you haven't proven the opposite!'

That's the way it works: everyone can see every transaction, and use that to figure how much money is at any address.

For anonymity, you can generate as many addresses as you want in your wallet, and there are services that you can use to conduct transactions anonymously (by proxies and spread out over a period of time).

All account numbers and amounts are public but there's no name attached to them and you can have as many accounts as you please.

So I get that Bitcoin by design keeps a global public record of every transaction. Does that have to be the HN front page?

If you want to buy some bitcoins, I recommend http://www.TradeHill.com, which has lower fees and than MtGox, and seems more professional to me. I have a code that will get you 10% off your fees there if anybody wants to buy or sell bitcoins on TradeHill.com: TH-R1168

> me he wanted 0.52 Bitcoins for my lunch

With the Bitcoin currently valued at about $0.02 (down from $17.00), I suspect the restaurant won't be accepting to many more Bitcoin orders.

Where are you seeing bitcoins for $0.02? They're about $16 on TradeHill and Mt. Gox.

He must be thinking of the flash crash...it recovered in minutes.

the big problem with using bitcoins for real life transactions is it takes ~10 minutes to confirm the transaction. this makes it useless for buying a lot of things like fast food, stuff from the store, etc. you would need to layer a trusted third party like a credit card on top of bitcoin to use it for normal transactions.

I wouldn't call this a big problem. It is a minor issue at worst. In the Bitcoin forums there has already been several discussion on how to solve this issue by paying a third party to facilitate the transaction while preserving anonymity.

Bitcoin is a commodity. Nobody issues it, it is mined and has a predictable, limited supply. People aspire to use bitcoin as fiat money, but that's impossible, there is no one to provide liquidity when the market runs out and there's no underlying economy it will be based upon. Commodities like gold, silver, petrol have been used or tied to money for centuries, but at some point their use was deprecated by the needs of the people. Adopting bitcoin as currency is like going back to the 19th century. It's an interesting idea for geeks, and maybe it will be used in special applications, but it's not an advancement for the economy, its a step back.

He might as well have paid with (numbered) paperclips if there was an MtGox for paperclips, does that mean that paperclips are the future?

You are building a straw man. There are plenty of reasons why paperclips are unsuitable as money. They are easy to forge and there is no guarantee of how many will ever be in existence to name a few.

Trading oil or gold directly is obviously impractical. But Bitcoins are not. You can store an unlimited amount of Bitcoins on your smartphone or USB stick and you can securely and anonymously transfer them to someone else within a few seconds.

How is it different from ordinary coins? (Obviously, in a hypothetical gold-coin economy credit cards would be in gold, too).

Btw, practicality was not the reason the world abandoned the gold standard, political and economical needs obviated it.

P.s. obviously, paperclips are not a good figurative example. The central banks might just give you a list of banknote numbers to exchange (and an API to verify their uniqueness)

We abandoned the gold standard because governments wanted to spend money (usually on war) that they didn't have.

But even before the gold standard was officially abandoned, devaluation was a regular feature of gold- and silver-based currencies.

I once saw an exhibit in the Israel Museum showing a sequence of ancient coins, all stamped from the same die over a period of some decades, where the gold content gradually declined from about 99% to about 1%.

Yes, because it was possible and practical for the gov't to do so. Governments have always devalued their currencies, and citizens are rarely happy about. Just because it happens doesn't mean "we" chose it.

so what's your suggestion when a country runs out of money? (practical example today: greece)?

Giving someone coins is similar to Bitcoin. Still, Bitcoin is more practical than carrying around a bag of coins.

You can send them instantly across the globe without fees and keep as many as you want in your pockets to name a few.

"Giving someone coins is similar to Bitcoin." It is quite a stretch to compare bitcoin to gold or other useful metals. Gold has significant inherent value, bitcoin is inherently worthless. The value of gold can't fall to very low levels since it is scarce and is valuable for industrial uses (excellent conductor that doesn't corrode, etc.). It is unlikely that there could be much of a change in the scarcity of gold. (This hasn't taken into account the demand for gold for jewelry)

Since Bitcoin has no inherent value, those initially creating and trading it for something of value would seem to have gotten something for nothing, or nearly so.

I was thinking about issuing pellets as a currency. It takes work units (gathering/mining and processing food) to create them. Much of the work is carried out by an organic machine called a rabbit. The currency has more inherent value than bitcoin since it has inherent value as a fertilizer. The maximum amount of currency is finite since it biodegrades and the Earth can only support a finite number of rabbits. As with all physical currency, it is wise to wash your hands after handling it.

Various units are possible for convenience. The smallest are individual pellets. They can be compressed rolled and cut into "sheet" currency, and made into bricks. For still higher value currency the rabbit may be replaced with a bull. Some bull-sheet currency should be available soon.

Value is ultimately determined by what people are willing to trade for - by supply and demand.

Obviously, Bitcoin is not worhtless to thousands of people. They are being traded at $14 at Mt Gox right now.

Why is gold valued at $50/gram today and was valued at $30 in 2007? Is it because we are creating more jewellery and need more for industrial applications and the supply cannot match the demand? It´s not - the value is increasing because people see gold as safe way to store money. To quote Wikipedia: "the price of gold is mainly affected by changes in sentiment" http://en.wikipedia.org/wiki/Gold_as_an_investment

You might also want to read: http://en.wikipedia.org/wiki/Subjective_theory_of_value

Gold's inherent value (industrial uses) is nowhere near the price it trades at. You could say that gold can't fall to zero because of that, but if it still devalues even 10 times, you can bet that people will panic.

Bottom-line - nothing is absolutely safe as a savings medium, and gold is not as axiomatically special as many people hold it to be.

How about a credit card? It's simple. Those fees aren't just there to screw you (albeit, some places do, doesn't mean fees are inherently bad). They also help support the infrastructure required to create a stable and easy way to use money. People expect protection against fraud, bank runs, etc. That doesn't just happen magically, it happens with organization and processes. Look at some of the other comments coming from supporters of bitcoin here, creating a bank running on transaction fees (or a nation was the example). It's the same thing, except it's trying to poorly mimic something that already exists and quite frankly, works fairly well.

Definitely true. There is nothing stopping anyone building a credit card network on top of Bitcoin. Again, Bitcoin is still an experiment. It might even be the case that certain groups of people require such a scheme to use it.

Bitcoin isn't a scam because it's "imaginary" (i.e. fiat) but because of how the currency is distributed: a proof-of-work system that is skewed heavily in favor of early adopters.

There are a lot of good ideas in Bitcoin, but the truth is that its raison d'etre is to enrich early adopters-- the definition of a pyramid scheme. (It's not a Ponzi scheme; that has a technical definition and Bitcoin doesn't qualify.)

Interestingly, that may be an advantage of the system. It encourages early adoption and encourages early adopters to nurture the system.

Maybe it's unfair, I don't know. But, I don't see any perverse incentives.

If you want to know how this may be perverse, it mirrors a pump and dump. Get in really cheap, hype it and dump for lots of profit on something without any basis for its value.

Only the people who are doing the pumping are going to dump at that point. By the point it is valuable, there will be many more people who (probably) stay around - bitcoin will hopefully be well established by then.

I would be much more impressed if people who raised this point also suggested a fairer way of distributing the coins.

It is difficult to tell if they think the fundamental concept of bitcoin is bad or if they just have sour grapes because they aren't an early adopter.

But while we are at it, why shouldn't early adopters profit?, they took a risk early on.

And actually if you ask me I think the minting system is pretty good, mining costs electricity, while many miners are surely hoarding and speculating they all have to pay their electricity bill on a fairly regular basis.

This ensures there is always someone somewhere selling bitcoins and increases the liquidity of the market.

If bitcoins came from a central authority and were available at fixed exchange rates, relative either to an existing currency (dollars, euros) or commodity (gold, oil) that would be a lot more fair. But then they wouldn't be bitcoins.

Ideally early adopters should not need to be rewarded for taking a risk because there would be negligible risk.

If early adopters were not rewarded then there wouldn't be any.

It has been suggested that each block should create BTC proportional to the current difficulty, so BTC would be produced faster as the network grows.

This would cause inflation, because miners would be able to print money by throwing hardware at the problem.

The ideal system/algorithm would exactly match the amount of Bitcoin in circulation to the growth of the economy, which would keep prices stable. Bitcoin pioneered most of what you'd need to create such an algorithm in a new system, but what does "growth of an economy" look like in terms of transactions between anonymous addresses? You'd need some concept of identity to determine the number of unique players, and the value flowing between them.

A system that solves this problem at scale is the economic holy grail.

It's not a scam. You have to distribute the coins somehow. Proof-of-work is a method to ensure no cheating. You can be sure the early miners did in fact perform computational effort to get their coins.

But what of value was actually produced by that "computational effort"? What is the current total worth of the results for all of that computational effort? If effort produces nothing of lasting value, is it a valid basis for value?

Machine rights and slavery are being ignored as people blindly treat the work done by machine slaves as if it was done by "owners". Some publicly act as if slavery of machines or other humans should not be the basis for a currency, yet we still have slaves. The slavery still around isn't just about mining the materials for the capacitors in your tech toys. And it wasn't just a part of past colonies.


How many hours of CPU work, or how many bitcoins does a slave cost? If some do decide or admit that slavery is acceptable, or just a fact of life, would the value of a slave be a more stable value for the basis of a currency? (measured in prime adult slave-years perhaps). Perhaps one should have to be a slave for a time to obtain bitcoins. However if one is born into debt, it might take some time to have a positive balance.

Does being born into a society where there is public debt associated with a national currency amount to defacto slavery?

But what of value was actually produced by that "computational effort"? What is the current total worth of the results for all of that computational effort? If effort produces nothing of lasting value, is it a valid basis for value?

The computation power secures the network from double-spending. Do security guards also produce nothing of lasting value?

Is this any different from an IPO being a pyramid scheme in that it is usually to enrich early adopters?

Then the stock of any company ever made is a scam because it is run with the intention to profit shareholders, of which early adopters will profit the most.

A scam as a currency, yes.

If FooCorp started trying to convince people to do all their buying and selling using FooCorp shares - of which the FooCorp owners naturally have a great many - then yes, obviously, it would be a scam intended primarily to enrich the FooCorp owners.

As a stock, FooCorp might be a perfectly fine investment.

Remind me again what the fundamentals for bitcoins are? What are their same store sales for last quarter?

The purpose of my comment was to establish that 'enriches early adopters' is not enough to classify something as a scam.

And I don't think anyone is really trying to convince people to do all their buying and selling using Bitcoin. However it may be useful to do some of your buying and selling with Bitcoin.

If FooCorp's stock was stable and easily transferrable enough to use as a currency, why would it be a scam to advocate its use as currency? If your answer is only 'because holders profit' then I guess I'll agree to disagree.

Well if their business was to sell more company stock, then yes. But generally the company actually produces something of value, not just itself.

Companies don't pretend their stock is a new, better currency. Companies admit they exist to profit their shareholders.

When you are born, you have no dollars. The early adopter have them all. Does that make the dollar economy a pyramid scheme?

"There are a lot of good ideas in Bitcoin, but the truth is that its raison d'etre is to enrich early adopters-- the definition of a pyramid scheme. (It's not a Ponzi scheme; that has a technical definition and Bitcoin doesn't qualify.)"

Kind of like how all monetary systems work? The closer you are to the source of the money the more it is worth because you can control the velocity.

Bitcoins is going to be killed one way or another, the Federal Reserve is looting our USD, and will not allow any technology to hinder that ability to dilute the USD.

The question is not IF bitcoin will fail, but how this takedown will be accomplished.

Anyone who sets up a "Bitcoin bank" is entering the dragons lair. You may disappear in the night, as people who oppose the IRS in legal battles, you get your assets seized and you disappear without a blip on the media narrative.

I think your claim that people who oppose the IRS "may disappear in the night" could use some evidence to back it up.

Maybe Wesley Snipes? First as Blade ... then by the IRS for tax evasion.

Do you have any examples of the IRS disappearing people?

All right you caught me with some rhetoric. What I mean to say is: "if bitcoin takes off so it takes a measurable dent out of the income of the IRS, then laws will be passed in congress shutting down anything and everything causing that dent" obviously for the good of the people" of course.

No people will be disappearing, only the threat to the Federal Reserve's ability to inflate the currency. Bitcoin represents a solution to the problem of governments stealing wealth from the workers right out from under their noses without taxation or representation.

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