Chalice Yao

What is Bitcoin? - We Use Coins

A small vid that explains just how the coins work, in simple terms.

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mina

Bitcoins can fail if there is an international crackdown on the software/bitcoin exchange network, or if in the near future it became impractical to mine with gpu alone(due to the increasing difficulty).
True this whole thing is so volatile,but it seem for now it can only go up.

Argent Stonecutter

Bitcoins can also fail if people just lose interest. Or if the wrong people (eg, organized crime) take an interest.

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The previous is a cybernetic datum published - in direct contravention of DoD Regulation #229RR3X3 - as being conducive to the physical, psychological and/or social well-being of the population.

Chalice Yao

I have a feeling there is no legal foodhold to do that with, tho. 'People are using spacebux to buy stuff off each other, this must not be' is not a valid reason, as effectively it's just like any other trade.

Eata

This just looks like something that is popular because everyone is speculating.

Eboni Khan

How do you know they aren't mining you?

Thex

You read the source code.

Thex

As an experiment, I will now accept Bitcoins to pay tier fees at my estate, using the Virwox bid rate for conversion to L$. My addres to send your coins to is 13GMC1oLSN5JNhTbF9i1Gy65XtaGzpFGuZ. IM me inworld after you send and I'll deposit the credit in your tier box.

This experiment may end without prior notice.

Anya Ristow

The more people "do it" the less each is rewarded. Eventually the value of participating will be determined by people who don't need the money, or need very little, same as virtual goods creation. As it becomes better known it'll run as a competition, or for bragging rights, or for something to do with too much idle hardware, or to entertain geeks who like to build computers. Like SETI. Even if successful, the potential for financial gain is short-lived. You won't be able to "do it" for money once people are "doing it" for fun.

Unless demand grows faster than participation. It's possible the coins could increase in value faster then the number you can create decreases with competition. I don't see that happening, though. Far more likely the value of participating will be a race to the bottom.

DanielRavenNest

In the case of US currency, the Treasury holds a lot of gold:

Current Report: Gold Report: Publications & Guidance: Financial Management Service

That gold is valued at a statutory rate of $42.22 an ounce, leading to a book value of $US 11 billion. Along with Treasury, agency, and mortgage-backed debt, that makes up the collateral backing Federal Reserve Notes ie US paper money (table 10 reproduced here, from FRB: H.4.1 Release-- Factors Affecting Reserve Balances -- June 2, 2011 ). If the gold were valued at the market price of $1,541 an ounce rather than the fictional book value of $42, it would be worth $403 billion, sufficient to back 41% of the $984 billion of paper money in circulation. The balance is mostly backed by the Treasury's ability to tax US citizens to repay the government debt.

Even though the paper money is no longer convertible to gold, the gold is still there in the vaults. And the economy has not collapsed such that tax collections have stopped. Therefore people are comfortable with the paper money as a medium of exchange, and as a derivative, all the paperless versions like checking accounts, debit and credit cards, etc.

BitCoins don't seem to have any backing. They rely on scarcity value, like original paintings or land. It's difficult to make new ones, so there will not be an infinite supply. The value of them against other goods will then depend on supply and demand. If demand falls below supply, you can expect their value to plummet. In that sense they are similar to the Lindex Exchange conversion value of L$. The latter is buffered by the ongoing need of residents to buy L$ for various purposes, and merchants/landowners to sell ie the market exists for more than speculation.

I don't yet see a steady *need* to use BitCoins for any given purpose that would buffer their value, so for now they are a speculative medium of exchange. Expect their value to fluctuate dramatically. They are not pretty to look at like art, nor useful like land. Their only intrinsic value seems to be untraceability, and we know what kind of people are attracted to untraceable transactions.

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Thex

Paper money is about a tenth of M2, which counts money that 'exists' in forms other than paper money, like bank accounts and money market accounts. Dollars are as much a fiction as Bitcoins, but for now at least, more people believe in dollars. I, for one, don't expect that to last forever.
Federal reserve notes are backed by federal reserve notes. There is no statuatory linking with the gold reserve. It's a myth our government chooses to let us believe that Fort Knox backs the dollar in your pocket.

...or gold. The mining analogy they use is apropos. Given persistence we could mine a lot more gold. The US$ required to get the gold/bitcoins determines the conversion rate. It costs US$ to buy shovels and leases on land to mine in. Costs US$ to get GPU cycles to generate Bitcoins.

You've accurately summed it up there. But I'm not sure about the 'kind of people' remark. I'm attracted to untracability, but not because I'm doing anything illegal. I just don't trust people who wanna trace me.

Quiplash

There's been a lot of argument over bitcoin and what it all means.

Here's a conversation thread from Quora, with a popular take on why this is NOT such a good idea:
Is the cryptocurrency Bitcoin a good idea? - Quora

Oh, and if bitcoin transactions are truly untraceable (and untaxable), then you can bet governments and law enforcement will be involved sooner rather than later.

Allison

It feels like a pyramid scheme to me. Granted I'm not an economist, but I would rather spend my time and resources building things and building a content oriented business making virtual products, and when accepting the Linden Dollar in exchange for my creations, I know that at the very least the Linden Dollar is based on assets that people create. Bitcoin though, where are the assets that it is based on?

Allison

Maybe, but the US government is already taking interest. Ycombinator reports that the Bitcoin founder is invited to talk to them this month.

Gavin will visit the CIA

Hacker News | Lead bitcoin developer invited into CIA headquarters

Bitcoin seems a bit too shady for my liking.

DanielRavenNest

I wasn't going to go into fractional reserve banking and how banks create money by making loans. I was just explaining what backs the paper money. If there is no link with gold reserves, how come the Federal Reserve lists the "Gold Certificate Account" as part of the collateral for the currency? That consists of the receipts for the gold stored by the Treasury, and if you check the amounts, is exactly equal to the statutory value of that gold ($11 billion).

As far as statutory linkage, I refer you to US code, Title 12, section 412 (application for notes, collateral required):

"Any Federal Reserve bank may make application to the local Federal Reserve agent for such amount of the Federal Reserve notes hereinbefore provided for as it may require. Such application shall be accompanied with a tender to the local Federal Reserve agent of collateral in amount equal to the sum of the Federal Reserve notes thus applied for and issued pursuant to such application. The collateral security thus offered shall be....(a long list)..., or gold certificates, .... (more items)."

A gold certificate was redeemable for a certain amount of gold held by the Treasury:



The Federal Reserve Banks offered these certificates as collateral, and got Federal Reserve Notes in return. But the collateral is still on their books to the tune of $11 billion.

Ann Otoole

After his visit he will probably talk funny. eyes never blinking. pauses between words. walking funny in a jerky way.

Chalice Yao

The bitcoin developers themselves say that the transactions, while anonymous in the way that they don't explicitely state the receiving and paying party, are not untracable via network analysis on the scale that law enforcement can do them. The transactions don't go through central servers, but if a party has network control over the recipient and sender, it's as tracable as anything else. As for untaxable, I simply point at SL creators and paypal.

I don't think Bitcoin is in any way shady..there is no party making a profit off it, aside of perhaps the dollar<->Bitcoin exchanges are making one in the same way third party $l exchanges do. Nobody else -can- make a profit. It's quite a brilliant setup without any central authority, yet a system that is tamperproof in the way it's done (basically the same way you would bruteforce your system to get free coins -is- the actual method of making them in the first place), but yeah..it's shakey. It needs traction and who knows how well it will hold up -if- alot and alot of people start using it due to already mentioned factors. Chances are it'll all break down. Then again I guess the same thing could've been said about the initial birth of our monetary system as well.

I'll personally stick to Paypal for the time being..mostly also due to nobody I'm buying stuff off accepting bitcoins

DanielRavenNest

Well, no. The original developers were able to mass produce bitcoins when the cost of making each coin was small. When the market bubble for them hits a peak, they can sell them for a substantial profit.

Da5id Weatherwax

And on that infamous overloader of websites /. this morning...

Bitcoin Used For the Narcotics Trade - Slashdot

Now admittedly the initial source of the story was aljazeera so there may be some reason to take it cum grano salis but it makes sense to me.

Argent Stonecutter

Another issue with Bitcoin:

Bitcoin is not decentralized : Inside T5

tl;dr: When (not if) SHA-256 is broken, Bitcoin will have to be abandoned and a new Bitcoin-like currency will have to be created. How to transition Bitcoin holdings to this new currency has been only vaguely handwaved.

Lucifer Baphomet

AlJazeera is actually one of the best News corporations about.

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Allison

Article from today at ARS Technica:

Bitcoin: inside the encrypted, peer-to-peer digital currency

infiniview Merit

Already closed the page I got this off of however the concept seems pretty clear.

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Cristiano

It seems Bitcoins have attracted government attention:

Senators target Bitcoin currency, citing drug sales | The Digital Home - CNET News

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Jura Shepherd

I think this is all pretty interesting really. I first heard about in this video with Jerry Brito and his post here.