Bitcoin Releases Version 0.3 491
Teppy writes "How's this for a disruptive technology? Bitcoin is a peer-to-peer, network-based digital currency with no central bank, and no transaction fees. Using a proof-of-work concept, nodes burn CPU cycles searching for bundles of coins, broadcasting their findings to the network. Analysis of energy usage indicates that the market value of Bitcoins is already above the value of the energy needed to generate them, indicating healthy demand. The community is hopeful the currency will remain outside the reach of any government." Here are the FAQ, a paper describing Bitcoin in more technical detail (PDF), and the Wikipedia article. Note: a commercial service called BitCoin Ltd., in pre-alpha at bitcoin.com, bears no relation to the open source digital currency.
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Related: Crypto Tools
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Related: Crypto Tools
Wow, that looks entirely legit! (Score:5, Informative)
The Wikipedia article (beyond the fact that the article is on the most unreliable data source outside of a Soviet propaganda factory) is sourced entirely to bitcoin.org. This /. article is sourced entirely to Wikipedia and to....bitcoin.org.
So it's slashvertising AND garbage. Three cheers for kdawson.
/.ed already, FAQ at sourceforge (Score:3, Informative)
Re:Inflation at the speed of Moore's Law (Score:5, Informative)
Paging Whoopi Goldberg (Score:3, Informative)
More information (Score:5, Informative)
Nodes connect to each other in a P2P network.
The nodes perform hashing problems, attempting to find a number that hashes to a value with a certain number of 0's at the start (binary zero's, aka, the number has to be below a certain value)
The network assigns bitcoins to those nodes who have found solutions to the hashes.
After a certain amount of time the difficulty of finding the hashes increases(an extra 0 is added to the hash solution required)
This increase in difficulty continues until eventually there will be 21million bitcoins and no more can exist.
We are currently in the inflationary stage, so the supply of bitcoins is increasing. once all 21 million have been assigned, then it will become deflationary, as no new coins can ever be created and coins that are lost are lost forever.
bitcoins can be divided into 100 million pieces, so the limit of 21 million coins is not a major stumbling block.
Essentially it's a way to create a decentralised currency with a hard limit on how much is available, ensuring that it cannot be inflated by a central government simply printing more cash or adding some numbers to a computer system.
Re:How secure (Score:5, Informative)
Money is money because people believe it is money. Gold-backed currency needs to have people believing that the government is actually going to turn the currency into gold (and not, say, end the gold standard). And if you trust your government enough to do that, today's system isn't much more of a stretch: trusting the government to keep the value of your currency "relatively stable" without any particular commodity attached to it.
And commodity prices are subject to wild swings too, you know.
Re:uhhh.... exactly (Score:4, Informative)
No, the Federal Reserve is part of the government. Its chairperson and its governors are appointed by the President and confirmed by the Senate. It was created by law but was granted substantial independence from political influence. By and large this is seen by economists as a good thing; independent central banks can fight inflation with more credibility if the major branches of government don't have the power to print money. What money the Fed does make -- profits, that is, after paying its own expenses -- the Fed pays back to the Treasury.
Your analogy to Federal Express is just wrong. You might make an argument for the USPS (at least in a historical context, if not how it exists now), but that is still tenuous. The Fed isn't private in any of the usual aspects: no other shareholders, profits returned to the Treasury, and its management is appointed by the typical President/Senate combo.
Re:uhhh.... exactly (Score:4, Informative)
You can say that all you want, but to quote the Fed itself [federalreserve.gov]:
It is part of the government, but independent of the three branches.
Re:How secure (Score:4, Informative)
i would say that any currency is backed by the goods and services one can buy with it.
the one way to make sure a currency is usable in daily trade is for it to be accepted as tax payment by local government.
More correctly, any fiat currency (to clarify things... as opposed to a commodity-based currency such as a gold, silver, or grain backed currency) is based upon the faith of those who participate in and use that currency to buy goods and services with it in the future.
That is a huge deal and is much different than simply the mere ability to buy goods and services. A government could collapse, the currency could be devalued, or that faith in general could be broken through a variety of other means.
Perhaps the most significant example of a faith-based currency (faith in the currency, not based upon religion) was the Iraqi Dinar. After the fall of Saddam Hussein, there were many people who thought that it was going to collapse just as other currencies issued by governments that no longer exist have also collapsed. The Nazi German Mark and the Confederate Dollar are both examples of currencies that inflated in value to infinity (aka became worthless). In the case of the Iraqi Dinar, the Iraqi people were both not exactly pleased with the American occupation, and there really wasn't anything to replace the currency. Surprisingly, due to scarcity (no more money was being printed as the government bureaus making the money were destroyed) and a desire by the Iraqi people to continue on economically, the Dinar actually increased in value. In other words, the Iraqi people continued to have faith in that currency to buy future goods and services.
While certainly governments getting involved with deliberately inflating currency can destabilize that currency, it is also true that at least for awhile a currency can remain stable due to the faith of the people possessing that currency to buy something with it in the future.
It should also be noted that this is true not just for fiat currencies "in the real world" but it also applies to virtual economies in video games and MMORPGs. Surprisingly even a single-player video game can still have this impact, where a player may hoard or spend with abandon any virtual money found based upon the principle that either the money is plentiful (or without stuff to buy) or of significant value based upon the supply of that money and the potential to obtain things with it. In the case of multi-player games, it becomes a huge issue if virtual markets open up for exchange of goods and "services".
Re:How secure (Score:3, Informative)
A lot of worthless minerals are hard to extract I'm sure. What you're saying sounds even worse than just arbitrarily saying gold is valuable, you're saying all this work went into essentially creating something that is not really that valuable, and that work somehow added to the value?
Re:More information (Score:2, Informative)
see The marketplace [bitcoin.org] on the forum for places where you could spend your bitcoins.
Re:Still creating artificial scarcity? (Score:5, Informative)
But, then what does the "employer" pay with? If the only medium of exchange is barter of CPU cycles, then the employer would have to work on some problem the employee needs computed while the employee works on some problem the employer needs computed. The two sides could just work on their own problem to exactly the same accomplishment. By generating some arbitrary medium of exchange, you can increase the liquidity of a market, which is basically zero in a barter system with only a single good. Without some liquid capital to get things moving at the start, you don't have anything interesting happening.
Also the way you really add value (Score:5, Informative)
Is by taking it out of circulation. Most of the gold we've mined isn't used for anything, it is simply inspected and then put back underground, only this time in a hole humans dug that we guard. It is artificial scarcity. The gold is there, it could be used, but it isn't because it is "backing" something. So it sits in a vault doing nobody any good.
Also, who says finite is good? What happens when the economy grows to the point that you need more gold, but none is to be had. Well then you start experiencing deflation and that is a very bad thing. Deflation is a wonderful way to get people to stop spending, stop lending, and as such to freeze the economy. Remember: Money is only good if you can spend it. Moreover, money is only good if you DO spend it. If everyone hordes money and doesn't spend it, well then what really is happening is people are refusing to trade. That means the economy stalls.
As you say, gold is only worth what it is because western cultures have an obsession with the shiny stuff and it is used as a hedge. It's real value, in terms of industrial use, is far lower. All those idiots who get gold in preparation for the collapse of society would be sorely disappointed if such a thing ever happened. Gold would be near worthless as it has few uses in a non-industrial society (basically only as decoration) and thus would be worth fuck-all as a currency in a survivalist world. More likely, Metro 2033 has the right answer and bullets would be the closest thing to currency out there (it would mostly just be direct barter).
Re:How secure (Score:3, Informative)
In Snowcrash, after hyperinflation the federal govermnet had to post threatening signs in the restrooms about how defacing currency is illegal, specifically because the toilet paper cost more per square foot than the bills. :S
Re:Wow, that looks entirely legit! (Score:1, Informative)
His name is Matt Lesko, and it's question marks, not dollar signs.
Fun fact: his car is covered in question marks too. I've seen him a few times at events in DC.
Re:Ummmmmmm (Score:1, Informative)
Please be patient. I haven't finished scanning your hard disk's contents yet.
Re:How secure (Score:2, Informative)
Yes you describe the history of the world perfectly, those silly people of the last century with their struggling economies and debt ridden governments. Compared to the last thirty years of the fiat system with our booming economies and lean mean fiscally sound governments and amazing growth, our masterful wizards of the economy and "fiscal policy" analysts whos "advanced theories" still boil down to "print more money". Well the people of the last century were just complete Neanderthals who knew *nothing* of creating wealth in comparison to us and our advanced scientific economics! .
Because as we all know the gold standard surely prevented the American economy from growing until it did away with it in 1970, then it was amazing! The economic growth of last 30 years have been just spectacular compared to the last century.
Same with the UK when it left the gold standard, lucky they got off it just in time so that they could become a super power. Hold on...that doesn't sound right. A two bit country mired in debt, stagnation and unemployment with 1 in 4 people employed by the government with infinite government spending and relentless inflation. That's better.
And China who hold vast gold reserves, the fools they'll never grow while they constrain themselves in any way to that boring old system! It's like they've read a history book and seen that every powerful nation ever has risen to power by constraining its government spending to the physical representation of the nations wealth - rather than the fictional representation that reserve banks present.
What ever you are describing in your post is one of pure fiction in your mind, and absolutely nothing to do with reality and history. Countries rise to power on the gold standard, once in power they fall prey to hubris and unshackle themselves and (more importantly) their governments, move to fiat systems then end up with governments chewing up 20%, 60% - 150%! of their economic output, writing blank cheques to themselves and printing infinite amounts of money http://www.chartingstocks.net/2009/03/chart-of-the-us-money-supply-1917-2009/ [chartingstocks.net].
All the while the plebs sit around being *glad* that a handful of bankers and political economists are bankrupting the country because we sure wouldn't want to go back to how it was in the 1920s, 1950s or 1960s when a lowly unskilled worker could actually afford to buy a decent house and take care of his family on his own wage.
Also you do realise that most countries tried fiat systems before the last era of the gold standard don't you? In the 18th and 19th century they were such disasters that they all moved back to the gold standard post-haste. There is a great deal of talk recently of a new international currency based on...the gold standard.
Re:uhhh.... exactly (Score:3, Informative)
For some interesting reading The Creature from Jekyll Island [amazon.com] gives a good background on the creation of the Fed. It is the type of thing that you don't need a tinfoil hat to think it looks like a conspiracy.
As Forbes magazine Described the founding of the fed [wikipedia.org] : Picture a party of the nation's greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily riding hundred of miles South, embarking on a mysterious launch, sneaking onto an island deserted by all but a few servants, living there a full week under such rigid secrecy that the names of not one of them was once mentioned, lest the servants learn the identity and disclose to the world this strangest, most secret expedition in the history of American finance. I am not romancing; I am giving to the world, for the first time, the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written...
When people representing about 1/4 of the world's wealth get together to form a central bank, you know we're going to get screwed.
Re:Well it is already a bad idea (Score:4, Informative)
Have you actually checked the rates available on savings accounts from reputable banks lately? Inflation outpaces those by a wide margin.
Time to dust off some old arguments (Score:3, Informative)
Under the Federal Reserve system, the value of money is controlled by a US organization that's insufficiently transparent. Under a gold standard the value of money is controlled by international traders and mining cartels. This is better... how?
Gold is "real money". Fine. What people forget is that when you have "real money" and it gets stolen, it's "really gone". That's right. No FDIC insurance for fractions of pennies on the dollar. Instead, theft insurance at rates so high it would effectively negate the inflation protection you seek, plus add administrative costs. Either that, or you roll the dice, but if you get ripped off then... well... see the first part of this paragraph.
Of course, to solve these problems we could centralize the storage of gold and only trade receipts.... followed by... a bunch of other steps tha got us here in the first place.
Another aspect of all this: we are several generations removed from the days when metalic standards prevailed. Today's generation buying into the notion of a metalic fix, has no direct experience with the negative aspects of that system. People in the late 19th and early 20th centuries *did* know what metallic systems were like, and they created what we have now to fix that! Now they're dead, and not around to tell you young whippersnappers what it was like.
It also helps solve a paradox (Score:4, Informative)
So we have two seemingly contradictory facts about money:
1) We need people to save money. They need to keep some money in reserve, to act as a negative feedback mechanism in the event of problems. When people have savings, they can better deal with problems such as job loss and emergencies. In turn this means they put less burden on public services. Also, when people have savings they feel more confident, even during bad times and continue to spend money. Basically, a healthy savings for all people can eliminate problems like the last downturn where there's a massive crisis of faith and people pull back from spending. It can smooth out the economic bumps. As such it is good not just on a personal level, but on a global level.
2) We need money to move. Money locked in a safe does no good. For money to be useful, it must move around from person to person, business to business. If it sits around, it does nobody any good. If everyone saves a lot and doesn't spend it, well then all they've really done is introduce deflation and hamstring the economy. We need the money moving around, we need it being spent to do any good.
Hmmm... So what to do about that? Well, what about if instead of locking your money in a safe, you instead give it to a bank, and they loan it out to others? Hey, then we have a system where money can be saved, and yet still used at the same time. Your savings go to increase the money supply elsewhere. It multiplies in a very real sense. Wonderful.
However, that doesn't work with deflation. The problem with deflation is, as you noted, loans become hard to afford over long periods of time. That means the only way to make them would be with negative nominal interest. Well that doesn't work, even if the real interest is positive. The reason is that you could do better, and get zero nominal interest, simply by not loaning the money. What's more all loans carry risk, so you wouldn't make a loan, even at zero percent nominal interest because there's a risk you would get repaid and thus no loan still has a higher risk.
Well with inflation, that's not the case. Here your money will lose some value in real terms if you just hang on to it and get zero percent nominal returns. So there is incentive to loan it out, despite taking on some risk. Even if the real return is nothing, you want that. You want your savings to retain their value, so you require a nominal return.
Deflation is just not good for an economy. Large amounts of inflation aren't either. Really a perfectly flat lien might be the best, no inflation or deflation, but that doesn't seem possible. Looking at historical data it doesn't seem like you can hold it steady state. That being the case, a small amount of controlled inflation is by far a better choice than swings back and forth.