Bitcoin

Reactions
477 134 6
#1
Anyone played with bitcoin at all? Now that it's in the news I figured I ought to at least know how it works. It's pretty nifty, but I think that it'll eventually collapse because there is no central management - one of the things it touts as a strength.

Still, it's an extraordinary experiment, and I'm very interested to see where it goes from here. The rapid fluctuation of the value is oddly fascinating.
 
Reactions
1,014 202 4
#3
Supposedly untraceable currency?

I see no reason this would be abused or used in shady ways.
 
Reactions
498 247 0
#5
I've been curious about it, too. I remember reading something about it maybe 5 years ago. Recently I've been seeing a lot about it and don't quite understand how it works.
 
Reactions
732 42 1
#6
It basically is as untraceable as they say. It's just you need a lot of it to do anything practical. If you wanted to buy an unregistered assault rifle from Eastern Europe, then have it shipped to you in parts (disguised in other packages over time), it's going to cost you several thousand bitcoins. It would far simpler just to buy an AR-15 and change the one part in the receiver that keeps it from firing full auto.

Fun fact: New bitcoins are generated by a server farm full of computers doing complex puzzles. Every time they solve a puzzle, a bitcoin is generated. However, the puzzles get harder each time. This is how they enforce "scarcity" and control inflation.

Ultimately though, a bitcoin is only worth as much as someone is willing to pay for it. If you want a more reliable form of digital currency (and I'm not kidding), I'd invest in hats/keys/refined metal in Team Fortress 2.
 
Reactions
477 134 6
#7
Each bit coin is currently trading at about $120.

I thought it would be interesting to see what my computer could do, and modern CPUs just are too slow to be productive. My reasonably fast video card can only manage to earn me about one cent every 3 hours, meanwhile it's consuming more than that in electricity, so "mining" bitcoins has moved from the realm of typical computers and on to specialized hardware.

There are sites which accept bitcoins for legitimate uses, Wordpress, for instance now accepts them. Bitcoins can be divided into smaller parts, so you can pay in increments smaller than a US penny, even at today's high rates.

It's been in the news a lot due to the rapid rise in speculation, and thus value. Bitcoins that used to be worth pennies are now worth over a hundred dollars.

Mining them is actually not creating new bitcoins. Mining uses computers to do the arduous to of verifying and finalizing a bitcoins transaction. If I send you a single bitcoin, it goes through a significant process to make sure that the transaction is cryptographically secure so you can't take the coin back, or duplicate it in the process.

I order to make sure people have an incentive to perform this work, for every chunk of these transactions you process for the community you are automatically awarded a certain number of bitcoins. This happens according to the code, there's no central authority doing this. These are new, never used bitcoins. Keep in mind that a bitcoin is merely a cryptographic key or signature, so it resides as a chunk of data you now have to store. You typically run a program called a wallet to store these coins/datachunks and release them as you trade with others for goods or services.

But it's a first to the finish line puzzle. Many people might be working on the same chunk, and the first to finish it gets the award, then you have to start all over again with no reward.

Over time, each data chunk gives you fewer and fewer coins. Right now you get 25 coins per chunk, about $3,000. As time goes on, the price will probably go up, but you'll also get fewer coins in return for the same amount of work. Eventually the amount you get for each chunk will be 0, and no more coins will be released. There will never be more than 21 million bitcoins ever produced.

Once they are done, in about 125 years, people will be doing this work based on transaction fees, but by that time I suspect the currency will have collapsed.

Further, by that time computer technology may have advanced enough that we can solve these computationally difficult problems quickly enough that the currency simply won't be secure, even if there's still some interest in it.

Still, a number of other people are starting up a number of other currencies based on the same idea. It requires a peer to peer network of people, but once you reach a critical mass it manages itself.
 
Reactions
1,014 333 5
#11
The bitcoin market the last few days has been in insane flux, some markets fluctuating from 50-250 dollars per bitcoin.
 
Reactions
477 134 6
#12
The thing is, it is very much traceable, all of the transactions using bitcoin are publicly accessible.
Yes, but users can change their wallet hash for every transaction, and if they use a proxy you can tell where each coin has been, but you can't connect a person to a wallet hash without them releasing that information.
 
Reactions
33 0 0
#13
So what happens when someone hacks your computer and steals your wallet? Sure the actual generation and movement of bitcoins may be fairly secure but people have to store their wallets somewhere and those computers will always be vulnerable to attack. Several Bitcoin "banks" have been hacked and had funds stolen in the past.

Honestly... I think people are completely crazy to invest in a currency that has no backing (whether that backing be a government or commodity).
 
Reactions
732 42 1
#14
The black market has decided that bitcoins have value. That is really all it takes for them to have it.
 
Reactions
477 134 6
#16
You can encrypt your wallet, and store it offline. Bitcoins you earn while your wallet is offline appear when you reconnect. Further, you can have as many wallets as you like.
 
Reactions
732 42 1
#17
That doesn't really inspire confidence though, not the way government or commodity backing would.
So using drugs, conflict diamonds, or ivory makes more sense than a digital currency, despite the measures used in the production/procurement of these materials?

Bitcoins make sense. The only difference between a bitcoin and a dollar is that bitcoins have value because everyone using them has agreed that they do instead of a government. It's really no different than WoW Gold.
 
Reactions
669 200 0
#18
So using drugs, conflict diamonds, or ivory makes more sense than a digital currency, despite the measures used in the production/procurement of these materials?
Well, yes. Unfortunately.

Drugs, conflict diamonds, and poached ivory are all morally and ethically abhorrent. But they remain in demand, that's the unfortunate reality. And so they can form a solid backing for currency.

Bitcoins, on the other hand, have value "because the internet says so". It can work, but I'm naturally less confident in this system.
 
Reactions
732 42 1
#19
Bitcoins are clearly in demand, otherwise people wouldn't be buying them, trying to acquire them, or using them in transactions. Seriously... there already exists a way to buy weapons using them and there is a similair service for drugs. This is already happening. There is not speculation. If you want drugs or guns, you can buy them with bitcoins.

The problem with cash, drugs, diamonds, and ivory is that you ether need to have a bank account/warehouse to hold it and/or a way to physically move it when you want to make a buy. Bitcoins have none of those problems. Organized crime has picked up on them for this very reason, because it essentially means to can make a buy from anywhere that was an internet connection. You never have to meet your seller... you never have to reveal your identity. You just send your bitcoins and get your product.

I really don't understand how you can make any defense at this point.
 
Reactions
669 200 0
#20
You're looking at it from a top-down perspective, while I'm looking at the fundamentals.

Basically, while I do not deny that bitcoins are already used to buy and sell things, I look at the system and I ask, "What's the basis for the value of the bitcoins?" And the only answer I see is "because people say it has value." Which is fine, it works for lots of other things, like gold. Gold had little inherent value for most of history, but it worked as a form of money because people liked it and it was relatively rare. Fine, bitcoins can work like that.

But I'm not going to invest in bitcoins until I see something more substantial.
 
Reactions
669 200 0
#22
bhamv3 your arguing against money itself, which only has value because everyone agrees that it does.
Yes indeed that's true. However, there are degrees of confidence in a currency. There are varying levels of confidence in whether a money can hold its value.

For example, which one generally enjoys more confidence, the US dollar or the Zimbabwean dollar?
 
Reactions
477 134 6
#23
We're basically discussing the issue of backing.

The US dollar is backed by the US government.

The Zimbabwe dollar is backed by the government of Zimbabwe.

In each case, they are worth as much as we trust the individual governments, at least in part. In reality they are worth as much as we perceive we will be able to use them later. Generally we know that more people will accept US dollars in exchange for goods and services than many other forms of currency.

The opportunities to exchange bitcoin for goods and services is actually very small, relative to, for instance, the US dollar. At the moment it's largely being used for speculation and day trading. It's very risky, but its current volatility provides a large opportunity for those willing to gamble. It's doubtless being used for illicit activities as well, but then so is the US dollar.

The propaganda the bitcoin community is using to explain its value is that it's democratically backed. The backing authority derives from the number of people that use it. The reality is that every currency is backed merely by the number of people that use it and accept it.
 
Reactions
33 0 0
#25
Let's not forget that if someone hacks your computer, transfers all of your bitcoins out of your wallet... you are well and truly fucked with no recourse for getting them back. There are no safeguards or guarantees in place with this system.

At least if someone steals money from a bank, your savings are insured.

Also, if these bitcoins really start making mainstream headway... you can be sure laws are going to start cropping up everywhere dealing with them.
 
Reactions
477 134 6
#26
Bank insurance is one way a government or central authority provides assurance and stability for their currency.

http://www.fdic.gov/about/history/index.html

It's a relatively recent innovation in banking, and now people come to expect it, and no longer choose their banks based on whether their money is safe, but on cost and services. Since the method of storage and mechanisms for transfer in bitcoin are completely new, we have a huge learning curve on how to protect them, similar to the Wild West where new banks often found that brick vaults were quite susceptible to attack. It's not that the currency was bad, but the methods and mechanisms for protecting it from criminals were inadequate.

We encounter this with every new technology. Storing dozens of gallons of a highly flammable liquid in a mobile container that flies along the freeway at 80mph? If you crash, you know it's not going to end in a fireball because we solved most of the problems of gasoline vehicles.

Laptops no longer "vent with flames" and while most of that can be attributed to manufacturer defects we still added additional safeguards so even in the case of a defect the user is still safe.

As a brand new experiment in currency systems, I hope criminals really attack it, and I'm glad it's jumped in value because that will encourage them to do so. It will only become better if it's consistently and constantly attacked.

While bitcoin itself might not stick around, I fully expect countries to consider switching to digital currency, and this paves the way to resolve a lot of questions about how it can be done.

We got rid of the gold standard, dare we get rid of the paper/coin standard?
 
Reactions
732 42 1
#27
Paper/coin isn't going anywhere as long as vast swaths of the world don't have reliable internet access or electricity. Infrastructure problems are the reason we still ship huge pallets of cash to Iraq and Afghanistan: you need to pay for shit from the locals sometimes and they don't take credit cards.

That said, yeah... bitcoin is going to need to deal with thefts before it can really catch on in more legitimate markets.
 
Reactions
477 134 6
#29
Actual reviews of shipping Butterfly Labs units are coming in. They deliver more than 6x the speed of GPU rendering but at 1/5 the power draw. That means an increase of >30x hashes/Watt over GPGPU mining, which no doubt spells the end of the GPGPU era of Bitcoin mining.

--Patrick
As this and other ASIC rigs ship over the next few months, the difficulty will go up and GPU mining will become even more unprofitable. Even before delivery, though, GPU mining was unprofitable if you considered the cost of electricity, but people were still doing it where they found electricity others were paying for. Effectively transferring money from the person paying the electric bill to their pocket, and at a loss.

This form of GPU mining will remain "profitable" (ie, stealing from others) for some time yet.

But ASICs are going to take the crown ultimately.
 
Reactions
732 42 1
#30
I'd say the unprofitably of it depends on how you look at it. If Bitcoins continue to rise in value, it's entirely possible it could become profitable to do it with your own power. But yeah, it's always going to be profitable to steal.
 
Reactions
1,942 565 15
#31
For those who are following this thread and think, "Man, that's one bandwagon I wish I'd gotten into when it was young," there is also an alternative called Litecoins which is very similar but which uses an algorithm specifically designed to be impractical to implement in ASIC.

--Patrick
 
Reactions
477 134 6
#32
I've got a $120 video card running on a litecoin pool and I've almost got 8 of them.

After a week.

And they're worth a buck or two each at the most.

But it's good clean fun anyway. I figure I'm breaking even on electrical costs, and essentially speculating that it will rise in value over time.

Assuming the pool I'm in doesn't bilk me.
 
Reactions
477 134 6
#34
The Silk Road is one of many online black markets, but it was well known and had a ton of bit coin exchanging hands through it.

Still, bit coin didn't drop a hug amount. $140 per coin to $120 per coin is significant, but it still has enough value for the people who use it.
 
Reactions
732 42 1
#35
The Silk Road is one of many online black markets, but it was well known and had a ton of bit coin exchanging hands through it.

Still, bit coin didn't drop a hug amount. $140 per coin to $120 per coin is significant, but it still has enough value for the people who use it.
True, but it dropped to $85 during the process. If your currency isn't stable then you don't have a very good currency.
 
Top