Online-Only Currency BitCoin Reaches Dollar Parity 517
IamTheRealMike writes "The BitCoin peer to peer currency briefly reached exchange parity with the US dollar today after a spike in demand for the coins pushed prices slightly above 1 USD:1 BTC. BitCoin was launched in early 2009, so in only two years this open source currency has gone from having no value at all to one with not only an open market of competing exchanges, but the ability to buy real goods and services like web hosting, gadgets, organic beauty products and even alpaca socks."
Re:There are several problems here (Score:5, Informative)
The smallest transferable unit is not a single BitCoin. It is in fact .00000001 BitCoin, making for plenty of transferable units.
It works this way : (Score:5, Informative)
system assumes two things :
cost of electricity
computational power.
it is based on the computational power of the network. if the computational power increases, the system arranges bitcoins accordingly. so, even if you join with a huge server farm, you just up the computational power of the network, and the amount of coins you can earn from your participation decreases. hence, you cannot beat the network.
also, the cost of electricity is a factor. if you do the above, you will get hit by a huge cost in electricity.
only way to beat the system, is to be able to have zero cost for the electricity you spend, and then join it with mega server farms.
but, the system says that, at a point where zero cost for electricity is a practical reality anywhere on the planet, there will be no need for money, since cost of producing anything will approximate zero. (and that's right).
the system is also anonymous. noone but you and the person you exchange with, know who sent them what. but, this knowledge is only in the form of awareness of a complex encrypted key existing on the other side - nothing else. it may have been done from china over a netbook, or a mobile device flying somewhere on atlantic ocean.
that is both good, and also a drawback - if you lose the encrypted keys you store on your hard drive, you lose the 'wallet' that contains your cash.
but thats no different in the real world either.
Re:In other words (Score:3, Informative)
Currency is IOU notes that devalue over time.
Absolutely. This is the one thing that "goldies" never seem to get right. Money is all about you owing me and vice versa. Moreover, all money in existence is ultimately a debt of the government, which is why the current political obsession with austerity is so ridiculous. Government debt is simply the mirror image of private wealth.
FIAT currency tends to be *backed* by something, like an economy, like USA or European Union or even China.
More concretely, modern fiat money is backed by the power of taxation. A large part of the value of money comes from ultimately circular reasoning, i.e. you can pay your groceries at the shop using money, because the shop needs to pay its employees with that money, because those employees can use that money to pay for groceries. However, underlying this circularity is the fact that the state has a monopoly power to force a debt on you: the tax debt. A random stranger on the street cannot force you into debt, but the state can. By doing so, it creates scarcity and demand for the state-issued money, and this is where the value of modern money ultimately comes from.
This is one of the key insights of Modern Monetary Theory, which was greatly influenced by the Functional Finance of Abba Lerner, and is developed by people like Randall Wray [amazon.com] and Bill Mitchell [economicoutlook.net].
Re:In other words (Score:5, Informative)
> Currency is IOU notes that devalue over time.
No, currency is whatever we decide it is. You are speaking only of one small subset of currency known as fiat currency. There is nothing intrinsic about currency that says it has to devalue over time.