BitCoin: "The Most Dangerous Project We've Ever Seen"

I'm not going to lie, I've just discovered this project, and I don't understand exactly how it works. I do know, however, that I love this:

So, am I the first to hear about this government toppling technology? Is it really government toppling?

I suspect there may be technomages involved. And some trickery afoot.

As near as I can tell the biggest problem with this service is that it the money supply doesn't grow with the amount of people who join it. The growth chart of it is such that there will never be more than 21 million bitcoins.

As far as I understand there is absolutely no reason not to download the client and have it keep running.

I've got to get to work, but the excerpt from that article is only half right. I'll explain that later. Meanwhile, watch the This Week in Startups Episode on it.

Hmmmmmmmmmmmmm..........................

Interesting concept. The only thing I don't like right now is there aren't a whole lot of services and products I want or need from the businesses accepting bitcoin.

But that can change as soon as some people buy into it. It could be a great way to get rid of old video games and comic books and turn them into cash.

This black man really really wants to buy yo' bitcoins.

[YT="If you're Canadian!"]ry17VN5udFE&NR[/YT]
http://www.youtube.com/watch?v=ry17VN5udFE&NR

He's probably a drug dealer.

Interesting....it will deflate over time.

"Send me the bit coins, and I will send you the cash... the same day!"

Can't be Technomages, they went beyond the rim some time ago.....

All right, now that I've got a bit more time...

Probably, yes.

Basically, yes.

Very much so, IF it works.

The most potentially dangerous, yes.

It's smart sense. I'm not sure I agree it's a political statement.

Probably. But governments WILL ban them. That's certain.

True.

Not true. Bitcoins are in and of themselves, just about as anonymous as cash, but Bitcoin addresses (and thus the coins) are trackable if you link them to an identity in a database - say you pay for a T-Shirt with Bitcoins - the seller has to get your address to ship it to you, and that can then be linked with your wallet. The anonymity of Bitcoins is somewhere in between cash and credit.

Yep. This is what makes it so dangerous, and why it will be banned.

Indeed.

No, you're not, and yes, it is - probably.

There are three major potential weaknesses - first, the atomicity of transactions relies on the sender not having more computing power than the rest of the network combined. This may seem like a high bar to clear for an attacker, but it seems to me that someone like Google could pull it off. In fact, given the potentially game-changing nature of the tech, I'd be shocked if Google a) wasn't mining the shit out of the Bitcoin space, and b) wasn't planning for a transaction-reversal attack, which would allow them to double spend their Bitcoins.

The second major weakness is network partition. If the Bitcoin network is partitioned and one half remains out of touch with the other for 120 days or more, the half with less computing power will, on reconnect, have all of its blocks and transactions generated since the disconnect wiped out. There's some risk in that, especially in disaster zones.

The third major weakness is sideband attacks against users' Bitcoins. A virus could be spread, not using the BC network, but rather using more traditional means, with the aim of sending Bitcoins to someone else. The risk of this is not small, and defenses against it are limited to traditional comp-sec solutions. If Google isn't planning to corner the Bitcoin market, this is the biggest risk, IMO, and the more people think about it, the more likely it is to convince people not to use it.

There are other, minor weaknesses - the first is that it requires at least one free country. And frankly, every government would be stupid not to ban it. A REALLY smart government would be the last one to ban it, and which would instead sell VPN connections so that all transactions could take place in that country (money would be made on the sale of VPN connections rather than taxes on the Bitcoins themselves). But I don't know that there are any REALLY smart governments with physical infrastructure enough to support being the only place in the world to do Bitcoin transactions. The second is that, like all currencies, it requires people to actually use it. It may still run afoul of Gresham's corollary (when bad money is legal tender, it drives out good money), but then again, it may not, as it's not taxable. And people are starting to accept it. Third is that it is *possible* that it's just another bubble. Bitcoins were trading at $1.80/B a couple months ago. Now they're at $6.70/B. That MAY be indicative of acceptance, but it looks a heck of a lot like a bubble to me.

Things that are not issues:
1. Deflation. This is arguably the most political aspect. Bitcoin as a currency grows very slowly, and will stop growing ca. 2140. There will never be more than 21 million Bitcoins in the world, and Bitcoins can be destroyed. Unlike dollars and only sort of like gold, Bitcoins are... well, not infinitely so, but VERY divisible, allowing prices to fall almost without limit. Transactions can be in denominations of one one-hundred-millionth of a bitcoin (8 decimal places), and there is a failover mechanism such that if there are no Bitcoin transactions over 10 BC for a certain length of time, the decimal point will be shifted right by 3 or 4 places. This is not inflationary or helicopter money because everyone with Bitcoins benefits, and the exchange rate with other currencies similarly falls by 1000 or 10000. It's strictly an ease-of-use change; this is key - this isn't like the Zimbabwe dollar, where once they run out of decimals, anyone with the old currency is left up shit creek. It's of course up to debt contracts to specify what happens in case of a shift, but given that it's programmed in, it shouldn't be hard to counter.

2. Liquidity. Bitcoins are really, really liquid. More so than gold. Soon to be more so than the dollar if the second minor weakness doesn't become a problem.

3. Inflation - even if miners get specialized hardware rigs (and there are those that do), the network prevents the creation of more than 1 block every 10 minutes, and the reward for generating a block halves every 210,000 blocks (currently 50 BC, at 120,000 blocks generated).

Bitcoin insurance?

I could see someone setting up such a side business.

Why? what was the reason for such a low number? Why not 21 billion?

The currency divides down instead of multiplying.

Is 21 million an arbitrary number, or does it hold some mathematical significance?

I'm SO confused.

Thoughts about deflation...

Doesn't this benefit early adopters inordinately? If I get my hands on a few dollars worth now, and their value increases as the currency becomes popular, I end up a millionaire.

As an extension of this, hoarding is rewarded. If the purchasing power goes up anyway, investment would be very foolish, unless returns are very high.

It's sort of arbitrary, inasmuch as the 50 BC starting reward is arbitrary, and the point where the reward cuts in half was set (every 210,000 blocks) is arbitrary, but 21,000,000 is determined by those and the number of possible blocks.

Typical leftist. Can't figure a way to tax it so it must be a plot on the part of those uber evil rich people to avoid taxation.

Of course. After what right do they have to what they earn and own.

Idiot.

Yes, I suppose it does. But the miners ARE selling them, rather than keeping them (AFAWK - the Google question notwithstanding). If they're selling them because they think that Bitcoin will go nowhere and the buyers are rubes, and they're right, then the people you're worried about benefiting inordinately will be as destitute as a Dutch tulip broker. If they're wrong, then they were still paid for the Bitcoins.

To start, maybe, but not as it becomes harder and harder to mine Bitcoins (and it already is. In July, I got a block with a week of generating on a Core 2 Duo. Now on this machine I should expect it to take 5-10 years to generate another - it's now only feasible to generate on a GPU). Once all the Bitcoins are mined the only deflation is through destruction, which isn't too much different from burning a box of cash. The economy absorbs that easily, thought the poor sap who doesn't back up his Bitcoins is thoroughly hosed, as he should be.

Any other "deflation" is an increase in the quantity of goods and services available in the economy. This slow, gentle deflation is a good thing (or at least not a bad one), especially since the Bitcoin is practically infinitely divisible.

Yes, it changes the structure of capital production from debt-based financing to savings-based financing, but that's a good thing for economic stability. You never have the grasping for resources that aren't there.

If you had any brains at all, you'd see the inflationary regimes are just as bad if not worse - they enable the very rich to create money for themselves out of thin air, and they hide the fact that they do it.

Thinking more about it, Gresham's corollary may be the biggest problem Bitcoin has going for it, and the untaxable nature of it may not be enough to save it. Legal tender status is a very, very potent weapon for the dollar.

"Ehw moy Gwod! They're thtopping uth from thtealing from them, THTOP THEMMMMMMMM!!!"

I don't get the whole "untaxable" thing. You're still gonna have to do your taxes, and if the government thinks you are scamming them via Bitcoin, they will come and seize all your computers and see what you've been up to on teh internets. If these bitcoins are stored on your home computer, that's a pretty lame ass way to avoid the IRS. It would be better to buy gold and stash it in your mattress. Or start a business and claim year after year losses.

Unless you're trading bitcoins and stashing them for your move to Switzerland. This is a very beneficial system for folks in countries that make capital flight difficult (South Korea, for example).

However, this will most likely fail. It's just too small; without major backers, it won't go anywhere. I read this morning that the entire currency is only worth $49 million. And for all the US's problems, the dollar is backed by the largest supply of precious metal in the world.

Oh, really?

We came off the gold standard back in the 70's dude. The dollar is backed by nothing more than the full faith and credit of the United States Government.

The US Government doesn't back the currency with Gold, but make no mistake: the government backs the currency, and the government holds the largest supply of precious metal in the world.

We have inflation because our currency isn't tied to a gold standard - I get that. Seriously. We're on the same team.

But a lot of the legitimacy of the government comes from resources in its possession.

Where does the "bit coin" get its value?

Supply and demand, same as any other money.

NM