Since this topic came up, I was curious about bitcoin mining. If you don't know what I'm talking about, you can set up a machine (essentially a souped up graphics card hooked up to a heave power supply) to hit the bitcoin network and in turn you get paid in bitcoin.
If you want to do it the right way where you actually make money you take a 220v power supply (which means hooking it up to where your electric stove or electric dryer are) and running this machine 24/7. You can buy a good machine for about $2,400-2,800 and turning it on will earn you about $360 in bitcoin a month.
For you guys in bigger citites they actually have bitcoin ATMs where you can actually withdraw cash. My only questions are how loud is the machine (trust me it's loud) and how much would your electricity bill go up?
Everybody (especially Juice) is into get rich quick schemes by not sure about this one. With my luck I'd set this machine up save my bitcoins only to get robbed (happens all the time online, someone steals your bitcoins out of your account).
The days of mining bitcoin at home are largely gone. By design, mining bitcoin gets exponentially more difficult over time. In the early days of bitcoin this was a good idea. Not now. You will literally spend more on electricity to power the PC with a very small probability on mining a new bitcoin. Now, using bitcoin for annonomous cash transactions online is its value to most of us today. I can't comment on bitcion ATM.
I have tried to figure out how bitcoin works and I am baffled to say the least. I mean how can something with no intrinsic value be monetized ?
I understand how faith and trust work in giving money it's value but what is there about bitcoin that trust in its currency can be trusted ?
Trust in mathematics. I haven't read about it. What assumption does the security rely on? Hardness of factoring? Discrete log? Or is there is some information theoretical security? Would quantum computing topple it?
Bitcoin works on the principal that that something has value because people decide it has value. Ideally that item should have a finite quantity. Historically gold had no real value other than it was pretty and rare. gold had value only because people decided it had value.
In the early days of Bitcoin it was easy to find a bitcoin. Crunch a few number and get the solution to a problem. As with gold the easy to find stuff was claimed quickly.
The faith and trust in bitcoin is exactly the same as with money. You have faith that the next guy will accept it.
@K
It can't be the same as U.S. money because our currency is backed by the full faith and credit of the United States of America, gold is something that has intrinsic value, but our money is no longer tied to it, as far as I can see Bitcoin is not really fungible but maybe that is because I don't understand it. People can decide something has value like a piece of property but that value is negotiable not fixed, a dollar has a measurable value it is tied to the approx. 3 trillion in tax liability that are created each year and can only be paid in dollars, so a dollar is, essentially, a tax credit. Economists call this the tax-driven view of money, and it is at least as old as Adam Smith.
Most Bitcoin enthusiasts will tell you that Bitcoin technology does have intrinsic value, which is this: the blockchain. Aopatently, every Bitcoin user who runs a node (a computer on the internet that runs the Bitcoin core software) on the Bitcoin network has a complete copy of every single bitcoin transaction in history (people's identities are not included, only their wallet addresses). Therefore, every single user has access to the entire ledger... something that would normally be managed by a financial institution, e.g. A bank. Therefore, bitcoin is the first gold-like currency that does not explicitly require a centralized controller or recorder if the ledger. This is why the proponents of Bitcoin use the word "decentralized" when discussing Bitcoin.
@Futuretrackstar so how would I resolve the value of bitcoin as measured like this, I can buy a gallon of milk for $3.50 in dollars what would that be in bitcoin ? Or can I buy a gallon of milk using bitcoin ?
Bitcoins do not have fixed value. Currently people are paying over $1100 for one bitcoin. If a vendor accepts bitcoin, they would likely price it in the local currency and convert that into Bitcoins. That $3.50 gallon of milk would be about .003 bitcoins. or 3 milliBitcoins.
How does gold have intrinsic value? Intrinsic value is the actual value of a company based on the true value of its assets.
In modern times gold has value for industrial purposes. 4000 years ago it was given perceived value because it was rare and pretty. It had no industrial purposes I am aware of. People said "I want that, I am willing to work for it, I am willing to trade for it." Its scarcity, its lack of other uses and its resistance to decay did lend itself to being a stand in for other things with value. Bitcoin is a digital equivalent. They do not decay. There is a finite number of bitcoins and there are people willing to accept them for goods and services.
There are many problems with Bitcoin. The lack of regulation and competition with government issued money are chief IMO. The lack of regulation prevents it from being used in regulated markets such as ETF's. Governments can make the use of bitcoin illegal or peg it to the official currency thereby destroying its value. Taxing authorities will likely treat it as either a good or as an investment vehicle and not as a currency. People are required to accept the official currency. They are not required to accept Bitcoin. The large and sometimes sudden swings in value make doing business in bitcoins risky.
Everything @K just wrote is correct, in my understanding... except for one thing. He wrote that the lack of regulation, as well as the competition with government money, are problems for Bitcoin. That is not how I see it. The way I see things is this: currency is intrinsically linked to government, and due to the fact that Bitcoin is not the official currency of any nation, it is not in competition with fiat money. Bitcoin is in its own category that I, for lack of a better term, would describe as de facto currency. It is being used, and it was not created by the will of an authoritative organization. Additionally, it's lack of regulation is a direct consequence of its decentralized nature, so it is not a problem, but rather it is its nature.
Bitcoin, in my opinion, is an extremely unique phenomenon. It is not exactly like fiat money because fiat money is by government, Bitcoin is by people of all nations. It is not exactly like traditional currency because Bitcoin can also be used as a store of value, or as a medium of exchange of currencies, whereas currencies lose value due to inflation and cannot be used as a medium of exchange of currencies. It is not exactly like other traditional commodity monies because it has no physical utility value like gold silver or other commodities. Rather..... Bitcoin is like this unique commodity money that exists ONLY in the digital, virtual space.
The real problems for Bitcoin are explained more on reddit /r/Bitcoin, and include things like increasing transaction fees caused by increased cost to miners.
I see Bitcoin as a big risk, but I don't think it's going to stay where it's at for much longer. It's either going to prove itself as a dud, useless, and lose popularity and thus also it's value... or it's going to explode and someday be worth $10,000+ USD per coin.
The intrinsic value of something is measured by the fact that you can use it as legal tender paper money for example has a face value. Gold on the other hand cane be used in a coin form and is valued by weight so it is less fungible than cash because of its weight an ounce of gold has a published value problem being who can carry enough gold for a large transaction. With that in mind I have never seen a bitcoin, how is it fungible ?
Faith and Credit! Those are the {argued} core supports for the US dollar. It was actually true when regionally authorized banks printed "banknotes" backed by gold. The pre - 1930s system required you to believe that the note (currency) you received was, 1.- real not counterfeit, 2. - the bank was approved by the US Treasury to print the note, 3. - The Treasury really had gold in a vault somewhere that it was able to exchange for that piece of paper, and 4. - Other people would accept the same beliefs.
Then FDR dumped the system in the middle of a global depression and supported, more by his personality than, by faith in the government, the US government essentially created a third party paper note system. The $20 in your wallet is an expensive IOU that you cannot collect. The Federal Reserve Bank does not actually own anything of long term tangible value. Instead, the FRB buys and sells promissory notes (like that $20) and prints more IOUs (again, like that $20) whenever the bank board members feel like it. In reality, the currency, the Treasury certificates, and the national debt (also funneled thru the FRB) are all in the control of a few people, like Janet Yellen, who think they know better than the citizens of the United States. Maybe they do, maybe they don't.
All of that prefaces my real comment on Bitcoin. Bitcoin was founded as an experiment in alternate financial transaction methods. It caught on, originally, as a novelty. It gained notoriety as a means to finance illegal transactions (buying dope over the internet was just one example. Bitcoin is still finding its' honest niche in the financial world, but appears to have reached a somewhat permanent (if still relatively small) presence in world markets.
But, like FDR's Fed, Bitcoin must still depend upon "faith and credit." And that will limit who - and how much - goes into Bitcoin markets for a very long time. Simply put, the USA has some faith and credit out there - big country, owns a lot of stuff, has gold and other valuable stuff, has a big bad military (and nukes) - and still pay off, in exchanges for other paper printed by the fed. when asked to honor one of the IOUs. Bitcoin can only claim distributed transaction, confidential banking and a short history of transactions honored.
Bitcoin may be a big player in future financial markets, but it gets only a few, small transactions from me (curiosity only). Until they figure out how to protect big transfers and offer something as trusted as "full faith and credit," Bitcoin will not be a major player - and it will remain on many national "destroy this" lists.
Twentyfive.
So you have never seen a bitcoin. Therefore it does not exist and no one will accept it as a holder of value? My computer sees bitcoins. People accepted my bitcoins back when I mined them.
You point out what the bitcoin advocates think of as its strengths. The various governments of the world see these as threats and I have confidence governments will take steps to prevent the widespread use of Bitcoin. Think bearer bonds. Think Ron Paul coins.
K I am not doubting your veracity I am simply trying to understand and having a hard time understanding. For example when someone says they mined bit coin or chain block are they the same thing, maybe I'm overthinking this, but I don't get how to monetize something that I can't see or touch.
@K governments may try, but remember they can only do so much. The prohibition didn't prevent people from making and distributing their own moonshine! Bitcoin is even easier cuz its invisible.
@ twentyfive I think you may be for a word other than "fungible." From wiki:
Fungibility is the property of a good or a commodity whose individual units are capable of mutual substitution (i.e. interchangeability). That is, it is the property of essences or goods which are "capable of being substituted in place of one another."
In that respect, gold coins, currency, and Bitcoin are all fungible.
I think what you are really asking is how Bitcoin can have value when it is not a physical item, and instead a virtual one. I have argued this same point with staunch Bitcoin supporters, and I've come to realize that it basically has value in the same way that software has value; it is a tool. If one considers the current hyperinflation that is happening in Venezuela, one will see how Bitcoin can be used as a convenient technology for storing their wealth in order to prevent its rapid decline in value due to inflation. Indeed, some citizens and companies in Venezuala are doing this exact thing. Regarding your question if "what is blockchain?" See my two previous posts.
What really matters is whether or not Bitcoin is sustainable. If it is going to be around in a relatively significant way as it is now, then it most certainly has value. Right? That's the only reason we think US dollars are valuable; cuz we trust there won't be huge hyperinflation and our dollars won't be completely useless. Same thing with Bitcoin.
Solving the block chain is mining a bitcoin. Mining is a term used to equate the process with gold mining.
To over simplify a little, There are mathematical problems with a multiple solutions. Those solutions often become harder to compute. Consider even numbers. There are an infinite number of solutions but it is easy to calculate. Consider prime numbers, the first few are easy. 2, 3, 5, 7, 11, 13, 17, 23.... They become scarcer and take longer to calculate. The problem with prime numbers is they are not finite. So while they are harder to compute, they are worthless.
Bitcoin uses a mathematical problem with more than one but a finite number of answers. Those answers become harder to find. When you find one of these answers you are rewarded with ownership of that answer. Other people are willing to give you goods, services and even money in exchange for that ownership. This is considered to be analogous to gold. The easy to find gold was found and put into circulation centuries ago.
Che
I was replying to another comment but I believe my comment posted just after yours answers your question about the finite number of bitcoins.
"Or will there be no increase but Bitcoins will be like Berkshire Hathaway shares where the value of one single Bitcoin (relative to the dollar) simply grows and grows and transactions will be calculated in smaller and smaller fractional cyber amounts?" - Yes
Currently the bitcoin system permits eight decimals. Three gets us to milli-bitcoins. A milli-bitcoin is about $1.00 US. So five decimals gets us to the penny. Eight gets us to one thousandth of a penny. When a bitcoin is worth one million US the eighth decimal would be a penny. At that time adding additional decimals would solve the problem.
K: "The problem with prime numbers is they are not finite. So while they are harder to compute, they are worthless. "
I don't think that's the problem. Since Bitcoin is SHA-256 based the range is finite: 256 bits. So that means there should be a (countably) infinite number of pre-images for every SHA-256 value. Same cardinality as for primes.
So primes should have some value as well. I haven't read the protocol but I would guess SHA-256 was choose for a few reason: Harder for someone to devise a clever algorithm to give them an edge. More resistant to attacks from quantum computers (and yes companies are starting to consider this). More straightforward to implement hashing than large integer arithmetic. Also algorithms to prove something is probably a prime are quite simple and fast. Proving something definitely is a prime more complex and takes longer.
On to other points about why I think bitcoin has a major uphill battle and may never be accepted at large.
The IRS already treats it as a commodity. If I buy a bitcoin for 1000 and then use it for a transaction when a bitcoin is worth 2000 I owe taxes on that 1000 profit. When Uncle Sam gets interested in this, quite a few people will find a surprise tax bill. You can hide your identity but most people won't and it will be a simple matter of matching IP's and email addresses to computers and people.
The recent ruling that bitcoins cannot be used in regulated instruments caused it to lose 15% of its value. What happens when it cannot be used in regulated transitions or be held by regulated entities. Much like a bearer bond is no longer permitted. Much of the value of a bitcoin is that people believe it will someday be useful in such transactions. That value disappears when the government removes any hope of that happening.
Currently you cannot pay bills with bitcoin expect with a small handful of vendors. The hops that someday all bills will be payable with bitcoin gives it much value. The government will likely hand down regulations or laws that prevent it being used for any official obligation. Once I have no hope of paying my property taxes or college tuition or income tax with bitcoin, the bitcoin will lose even more value.
Does this mean the end of digital currency? I don't think so. Our dollars are unique because of a serial number. that serial number does not need to be written on a piece of paper. Once the governments decides to do it and reasonable safeguards are in place, most money will be printed virtually.
Again, I only read a brief description of the protocol, but there are definitely a infinite number of bitcoins. The algorithm for printing/accepting one apparently is auto-adjusted for how fast new ones have been computed lately. This is to take hardware advances into account. The number in circulation at once is also supposed to grow exponentially. Like when Milton Friedman said to replace the fed by a computer which auto increased the money supply by 2% a year.
So the solution space changes over time. Fewer solutions out of the infinite number become acceptable due to new constraints. But increases in computing power partially compensate for this. Sounds like Shailynn allowed to some FPGAs or GPU designed specifically for bitcoin mining?
Keep in mind the dollar is tied to the taxable obligations owed, only if the USA ceased to exist would the dollar collapse but I still see nothing that guarantees bitcoin in fact it seems that other currencies have an interest in causing bitcoin to collapse I think I am reading this right but I appreciate the explanations.
Che
Bitcoin is intended to be a currency. The rising value of bitcoin in relation to goods and services is not inflation but deflation. It is indeed inflation as everyone treats it as a commodity and not as currency.
Hard to say about the relation to commodity inflation. Probably the bigger factor right now is demand half of supply and demand of bitcoin. Supply seems engineering to be quite predictable, but things like ETF and government acceptance (including competitors) seem to be having a big affect on demand. I've also heard that the exchange have thin liquidity and not as many advanced algorithms as stock exchanges so can still be pushed around by short term speculators quite easily. :-)
twentyfive
Where did bitcoin start? Some guy had a neat idea and others decided to implement it. The system was built and the first few guys agreed to accept bitcoins from each other for goods and services. I don't know what the first transactions were. perhaps a bet. if I solve more block chains than you I get your bitcoins. Or perhaps I'll give you my bitcoins in exchange for your magic potions in some online game.
As for what guarantees a bitcoin. The unique solution to a math problem proves the bitcoin is a bitcoin, the transaction history proves ownership and other people are willing to accept them. That's all. If any of those fail, bitcoin fails
@Che: K was mistaken. There are not a finite number of bitcoins. There must be infinite. The number of them grows with time at a controlled rate. Whether their value grows or not would be determined by the bitcoin rate of growth versus the rate of inflation or deflation. That's after general acceptance. Until that time, there would be lots of forces like speculation on its future determining the price of bitcoin.
@K I guess that is why the second mouse gets the cheese I am not an innovator and rarely speculate I tend to invest in proven commodities I don't see bitcoin as a currency I see it as a speculative investment. You may very well be right but at this point in time it is not really a viable alternative to the dollar I'll sit tight and see how it goes but thank you I do understand much more than I did prior to this thread.
Ah, okay, they add something into the protocol called a block reward, which decreases the value of solutions. So it is engineered for there to be a finite number of bitcoins after all. Yeah, it is inherently deflationary. Not sure why they designed it that way. Seems pretty odd to me and open to competitors.
Sorry for my ignorance, but what is a "block reward?" The way I understand it, a "miner" gets a reward for creating bitcoins, but the reward decreases over time. Eventually the supply of bitcoin is engineered to reach some stable value because the reward keeps decreasing.
How many bitcoins you get for finding a block solution. Decreases very rapidly: on their wiki they say targeting halving of the reward every 4 years. Seems far too fast to me. So apparently it's deliberately engineered to be finite and deflationary, although if they tweaked that reward value, I don't see why it would have to be.
"^^^ I see your point but the value of the dollar is directly tied to tax obligations, is there a link between Bitcoin and any real tangible thing ?"
- @twentyfive: No. But, again, that does not mean that Bitcoins are not valuable. As any Austrian economist will agree, valuation is a subjective process for each person. In my opinion, Bitcoin may be very valuable to individuals who do not trust their own government. Those individuals who do not trust their own government are very similar to the Austrian economists who believe (and rightly so) that ALL FIAT CURRENCIES are inferior to sound money, which, in their opinion, is gold/silver. Of course, the gold bugs e.g. Peter Schiff use the same argument that you present (not linked to anything tangible), which I mostly agree with. But not completely.
"Perhaps I am too much of a luddite but I worry about all my 1s and 0s simply disappearing."
- @Che This is, in essence, the same worries that people have about hyperinflation, e.g. in Venezuela right now. The fear that what they value as "money" will lose its value quickly and before there is time to move to a safer store of value. I imagine this is why mainstream austrian economists (gold bugs) are so against Bitcoin, because it is a threat to a longstanding tradition of using Gold as a store of wealth
"@K said “There is a finite number of bitcoins”. I don’t really understand how this can be. I completely understand that all money is “made up” and only as valuable as people think but just like governments print more money, what prevents more Bitcoins from magically appearing?"
- @Che In one sense, nothing. Technically speaking, the number of Bitcoins is limited to 21 million. What you are referring to is the fact that the number of units of CRYPTOCURRENCY is unlimited. Bitcoin is one of several currencies that fall into the category known as cryptocurrencies, which has unlimited space.
Again, the Bitcoin system is designed to be limited to 21 million coins.
"The recent ruling that bitcoins cannot be used in regulated instruments caused it to lose 15% of its value. What happens when it cannot be used in regulated [transactions] or be held by regulated entities? ... Much of the value of a bitcoin is that people believe it will someday be useful in such transactions. That value disappears when the government removes any hope of that happening."
- @K That may be true. But, like I said earlier, I think the lack of regulation is an intrinsic property of Bitcoin, and may be the reason for its value. Again, remember what the Bitcoin technology is: A DECENTRALIZED ledger system. Can a currency system be decentralized and regulated? I'm not sure. Perhaps it is SELF REGULATED? Again, Bitcoins are limited to a quantity of 21 million total Bitcoins in circulation, and the ledger is recorded on every user's computer. The internal system ensures that each user's ledger is identical.
"I just don't get where bitcoin comes from if I could understand its origin I think I might get the point."
- @twentyfive: Bitcoin was invented by Satoshi Nakamoto, who posted a paper on the internet called "bitcoin: A Peer-to-Peer Electronic Cash System." from wiki: "This paper detailed methods of using a peer-to-peer network to generate what was described as "a system for electronic transactions without relying on trust"" Satoshi Nakamota is an unidentified individual; he/she left the Bitcoin project, and his cohorts never met him in person. Nobody knows who he is.
"Again, I only read a brief description of the protocol, but there are definitely a infinite number of bitcoins. The algorithm for printing/accepting one apparently is auto-adjusted for how fast new ones have been computed lately."
- @Dougster, no, I think you are mistaken. I have read in my places that the Bitcoin system is designed to stop at 21 million bitcoins. We are currently at something like 16 million. 21 million will be reached in a few decades.
"Keep in mind the dollar is tied to the taxable obligations owed, only if the USA ceased to exist would the dollar collapse"
- @twentyfive, I disagree, and history disagrees with you as well. The collapse of the dollar would not be an effect of the termination of the USA, but rather, vice versa; the termination of the USA as a nation would be caused by a collapse of the US dollar. Earlier in this post I mentioned the historical fact that ALL fiat currencies have failed. Those who have studied Austrian economics, such as myself, understand the difference between sound money and fiat money. Fiat money, in every instance, eventually fails.
"Sorry for my ignorance, but what is a "block reward?" The way I understand it, a "miner" gets a reward for creating bitcoins, but the reward decreases over time. Eventually the supply of bitcoin is engineered to reach some stable value because the reward keeps decreasing."
- @RandomMember. You hit the nail on the head. Exactly how it works.
@Futuretrackstar I don't know that history disagrees with me, Last time our system went into worldwide collapse, it was the entry of the United States into WW2 that eventually pulled the world out of the depression, using that as context, the dollar is really the only thing that stands between us and our adversaries, and of all those other currencies accepted by some, the dollar is the only one accepted by all.
@twentyfive, I'm not that knowledgeable when it comes to world history, but I think I have to agree with you about the chicken/egg concept.
All I know is, Bitcoin is very interesting as it's quite a unique way of performing transactions. One only need to watch this semi-technical (but very informative) video of how Bitcoin and Blockchain function to see how special this really is: https://www.youtube.com/watch?v=l9jOJk30…
In my opinion, the real question is, what should I own? US notes? Bonds? Stocks? Bitcoin? Gold? Furniture? Patents? Legal Entities?
All of the above. Been watching Shark Tank a lot, and now I want to start my own business. Somehow.
It looks the computation themselves are over 96 bytes, so that by itself, would mean there would have to be a finite number of bitcoins. Also when you try to produce a bitcoin your valid domain of inputs you control is very limited. Around 32-40 bits . That probably mitigates against some possible attack on SHA-256. (For reading the non-technical description I thought you just had to come up with any non previously discovered byte string which hashed to certain output range. Which would have infinite solutions.)
There is a difficulty factor that is adjusted based on how fast blocks have been computed recently. The goal is for bitcoins to be created at a controlled rate: about one every ten minutes.
The block reward is the part which is a bit perplexing to me especially given that there is already a difficulty factor. That where the reward for finding a block gets cut in half every 210,000 blocks.
I think it all might be better if they dropped the block reward halving and just had the difficultly rate target a bit coin production which grew 2% a year.
Gonna look at the original paper to see if block reward halving was there or if that came along later.
track: well of what you listed I would say it's between bitcoin and stocks, but I'll have to think about bitcoin more. (Also whether or not I should buy some, now that I'm getting a better idea of how it works.)
Great thread and a good example of what you get with a diverse group of people on an unmoderated board.
Thinking about these things during my bike ride, and it seems like a nutty idea. More or less an electronic gold standard that would appeal to hard-core Libertarians who think we don't need no stinkin' Fed. But who knows, I've missed all the major trends in the past -- like the ubiquity of cell phones or the rise of E-commerce companies like Amazon. Better pay attention this time.
One thing for sure, I'll let my employer pay me in gold old American dollars for the time being.
@RandomMember I don't think you are too far behind always remember it the second mouse that gets the cheese , the first mouse gets his head chopped off. That doesn't mean follow the crowd it does mean be an opportunist and remain flexible.
@Dougster, it sounds like you have a background in computer programming or mathematics. I don't know what SHA-256 is, and I don't know about the mathematical formulas behind the technology, nor do I know the details of the algorithm. My understanding is limited to the principles of how it works. Although it would probably be to my benefit to get a better understanding.
I don't understand why you favor a perpetual growth of 2% per year, rather than an exponential decay type of reward system which limits the potential total number of Bitcoins. I notice that 2% is also the target rate of inflation of the Fed, and I'm guessing that that's not a coincidence. Not sure if money should rain from the sky forever, or if it should rain for a short period and eventually stop raining.
Seems to me as if the adjustment in the difficulty factor controls the rate at which transactions are verified and/or added to the blockchain, and therefore the goal is to regulate the transaction rate (and thus the velocity of Bitcoin money?). I don't think the adjustment in the difficulty factor is to maintain the rate at which Bitcoins are created. My understanding from discussions with supporters is that the intention of the creators was for Bitcoin to be more like Gold, rather than like government-created currency. After all, the goal was a "peer-to-peer electronic cash system."
@random: It's actually a bit tempting to buy and run one or two of the miners mostly for fun: has anyone been in the presence of one? Do they make alot of noise? Come with a dB rating?
@trackstar: guess it depends on the definition of "block" but based on the numbers, I think they only count the number used to create new bit coins, because they are targeting a new block every ten minutes. Seems far too low if they only wanted one transaction (like a purchase) every ten minutes.
@random: Maybe, me, you, and SJG (sorry to mention the one who shall not be mentioned) should join forces to right a bot to dominate the BTC exchanges?
Look what I found. I believe this was for the Muhammad Ali and George Foreman fight. I have seen segments of this where the girl does some titty flashing, but I don't know if that is in this youtube.
@track_star: that's an interesting fundamental question you bring up. I don't think it generally gets thought about too much. Why not have a fundamentally deflationary monetary base? I think deflation is generally thought to be unstable. If there is deflation people will save now since prices will drop in the future which is believed to slow economic activity. My belief is that the world may be fundamentally deflationary already due to advances in technology. Maybe an expanding monetary base can counter act this: e.g. pay people basic income as a form of money printing. But I don't know if many have thought much of what would happen if you just let it be. Japan is an example of a low term deflationary economy.
Anyone knows any work on this, would be interesting to read.
This is an interesting table which shows the comparison of Bitcoin to other forms of money in terms of how well they satisfy all the desirable traits of money. You will see that Bitcoin is just as good or better than the other two forms, except in one desirable trait of money, which is, sovereignty.
Dougster is excited because all of this could mean that soon he and his friends in Bayreuth will get to roll out their livestock cars, as workers will no longer be needed.
Sorry . At work now. Was otherwise occupied during the day. Sorry if this has been answered. I don't have time to review all posts
The question is asked about how is there a finite number of bitcoins. Using the simplified explanation I posted above - The mathematical formula used has a finite number of answers. At some point we will exhaust the answers and no more bitcoins can be mined. Any bitcoin that magically appears must be a solution to the mathematical problem. If not it will be rejected. If it is a valid solution then there will be a record of who discovered it and all transactions involving that bitcoin.
That's not the real answer. Although there are finite answers, there's a of alot of them. Much more than 21 million solutions. It's the diminishing block reward that makes them no longer worth finding after all the halvings.
In fact, if it weren't for the halvings it looks like the only thing to worry about would be a "challenge" colliding with an earlier one, but because of the way they lay things out, including the timestamp, and difficulty, and version number the number of solution would be very roughly greater than at least 2^(72*8) which is much more than the number of atoms in the universe:
So you only control 4 bytes in the nonce and maybe 8 or 9 bits in the timestamp, the version is probably pretty small, but there other than the halving there is no chance bitcoins would run out due to size of the solutions space.
Amusingly, they allow the value to be halved 64 times before they round down to zero. So, in theory, the last blocks would be producing about 100 quadrillion of a bitcoin as their block reward. (50/2^64 if someone wants to check my math). If bitcoin is still around in 120 years or so. :-)
"2.7 quintillioniths of a BTC."
----------------------------
Yes, checked your math -- but still greater incentive than what you get for writing a review on TUSCL.
Thing is, if the value of gold crashes, you can always take your gold and make some sort of shiny object and use it to impress strippers (Appendix 8.2 in The System). If the value of the U.S. dollar crashes, you can still pay your taxes. If the value of bitcoin crashes, you just have a bunch of useless bits and bytes on Juice's home PC.
Could be a Ponzi scheme designed to ensnare Libertarians and other right wing whack jobs. I don't like the design but I think it could be tweaked every so slightly into something different. And I looked at the original paper, they do mention keeping production a a constant rate, but I don't see anything about the block reward halving. If someone else reads the paper and catches that part, let me know where it is.
Maybe with the tweak and backing by a government it would become a "gold-light": Libertarians and other right wing whack jobs would like it, but still not as much as gold.
@Dougster I was thinking also that this has a lot of the hallmarks of a Ponzi ie: last in gets lower rate of return can be ridden down to zero but I'm not sure at this point that is why my statement about last mouse gets the cheese.
It has been 52 days since the last comment on march 13th. On that day, Bitcoin price was about $1240. It is currently above $1600. That's a 29% return over 52 days (498% annualized return).
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And the fact that CrazyJoe has tuned all his assets into bitcoin.
If you want to do it the right way where you actually make money you take a 220v power supply (which means hooking it up to where your electric stove or electric dryer are) and running this machine 24/7. You can buy a good machine for about $2,400-2,800 and turning it on will earn you about $360 in bitcoin a month.
For you guys in bigger citites they actually have bitcoin ATMs where you can actually withdraw cash. My only questions are how loud is the machine (trust me it's loud) and how much would your electricity bill go up?
Everybody (especially Juice) is into get rich quick schemes by not sure about this one. With my luck I'd set this machine up save my bitcoins only to get robbed (happens all the time online, someone steals your bitcoins out of your account).
Sounds like a monetary Ponzi scheme to me.
I understand how faith and trust work in giving money it's value but what is there about bitcoin that trust in its currency can be trusted ?
In the early days of Bitcoin it was easy to find a bitcoin. Crunch a few number and get the solution to a problem. As with gold the easy to find stuff was claimed quickly.
The faith and trust in bitcoin is exactly the same as with money. You have faith that the next guy will accept it.
It can't be the same as U.S. money because our currency is backed by the full faith and credit of the United States of America, gold is something that has intrinsic value, but our money is no longer tied to it, as far as I can see Bitcoin is not really fungible but maybe that is because I don't understand it. People can decide something has value like a piece of property but that value is negotiable not fixed, a dollar has a measurable value it is tied to the approx. 3 trillion in tax liability that are created each year and can only be paid in dollars, so a dollar is, essentially, a tax credit. Economists call this the tax-driven view of money, and it is at least as old as Adam Smith.
How does gold have intrinsic value? Intrinsic value is the actual value of a company based on the true value of its assets.
In modern times gold has value for industrial purposes. 4000 years ago it was given perceived value because it was rare and pretty. It had no industrial purposes I am aware of. People said "I want that, I am willing to work for it, I am willing to trade for it." Its scarcity, its lack of other uses and its resistance to decay did lend itself to being a stand in for other things with value. Bitcoin is a digital equivalent. They do not decay. There is a finite number of bitcoins and there are people willing to accept them for goods and services.
There are many problems with Bitcoin. The lack of regulation and competition with government issued money are chief IMO. The lack of regulation prevents it from being used in regulated markets such as ETF's. Governments can make the use of bitcoin illegal or peg it to the official currency thereby destroying its value. Taxing authorities will likely treat it as either a good or as an investment vehicle and not as a currency. People are required to accept the official currency. They are not required to accept Bitcoin. The large and sometimes sudden swings in value make doing business in bitcoins risky.
Bitcoin, in my opinion, is an extremely unique phenomenon. It is not exactly like fiat money because fiat money is by government, Bitcoin is by people of all nations. It is not exactly like traditional currency because Bitcoin can also be used as a store of value, or as a medium of exchange of currencies, whereas currencies lose value due to inflation and cannot be used as a medium of exchange of currencies. It is not exactly like other traditional commodity monies because it has no physical utility value like gold silver or other commodities. Rather..... Bitcoin is like this unique commodity money that exists ONLY in the digital, virtual space.
The real problems for Bitcoin are explained more on reddit /r/Bitcoin, and include things like increasing transaction fees caused by increased cost to miners.
I see Bitcoin as a big risk, but I don't think it's going to stay where it's at for much longer. It's either going to prove itself as a dud, useless, and lose popularity and thus also it's value... or it's going to explode and someday be worth $10,000+ USD per coin.
Then FDR dumped the system in the middle of a global depression and supported, more by his personality than, by faith in the government, the US government essentially created a third party paper note system. The $20 in your wallet is an expensive IOU that you cannot collect. The Federal Reserve Bank does not actually own anything of long term tangible value. Instead, the FRB buys and sells promissory notes (like that $20) and prints more IOUs (again, like that $20) whenever the bank board members feel like it. In reality, the currency, the Treasury certificates, and the national debt (also funneled thru the FRB) are all in the control of a few people, like Janet Yellen, who think they know better than the citizens of the United States. Maybe they do, maybe they don't.
All of that prefaces my real comment on Bitcoin. Bitcoin was founded as an experiment in alternate financial transaction methods. It caught on, originally, as a novelty. It gained notoriety as a means to finance illegal transactions (buying dope over the internet was just one example. Bitcoin is still finding its' honest niche in the financial world, but appears to have reached a somewhat permanent (if still relatively small) presence in world markets.
But, like FDR's Fed, Bitcoin must still depend upon "faith and credit." And that will limit who - and how much - goes into Bitcoin markets for a very long time. Simply put, the USA has some faith and credit out there - big country, owns a lot of stuff, has gold and other valuable stuff, has a big bad military (and nukes) - and still pay off, in exchanges for other paper printed by the fed. when asked to honor one of the IOUs. Bitcoin can only claim distributed transaction, confidential banking and a short history of transactions honored.
Bitcoin may be a big player in future financial markets, but it gets only a few, small transactions from me (curiosity only). Until they figure out how to protect big transfers and offer something as trusted as "full faith and credit," Bitcoin will not be a major player - and it will remain on many national "destroy this" lists.
So you have never seen a bitcoin. Therefore it does not exist and no one will accept it as a holder of value? My computer sees bitcoins. People accepted my bitcoins back when I mined them.
You point out what the bitcoin advocates think of as its strengths. The various governments of the world see these as threats and I have confidence governments will take steps to prevent the widespread use of Bitcoin. Think bearer bonds. Think Ron Paul coins.
@ twentyfive I think you may be for a word other than "fungible." From wiki:
Fungibility is the property of a good or a commodity whose individual units are capable of mutual substitution (i.e. interchangeability). That is, it is the property of essences or goods which are "capable of being substituted in place of one another."
In that respect, gold coins, currency, and Bitcoin are all fungible.
I think what you are really asking is how Bitcoin can have value when it is not a physical item, and instead a virtual one. I have argued this same point with staunch Bitcoin supporters, and I've come to realize that it basically has value in the same way that software has value; it is a tool. If one considers the current hyperinflation that is happening in Venezuela, one will see how Bitcoin can be used as a convenient technology for storing their wealth in order to prevent its rapid decline in value due to inflation. Indeed, some citizens and companies in Venezuala are doing this exact thing. Regarding your question if "what is blockchain?" See my two previous posts.
What really matters is whether or not Bitcoin is sustainable. If it is going to be around in a relatively significant way as it is now, then it most certainly has value. Right? That's the only reason we think US dollars are valuable; cuz we trust there won't be huge hyperinflation and our dollars won't be completely useless. Same thing with Bitcoin.
To over simplify a little, There are mathematical problems with a multiple solutions. Those solutions often become harder to compute. Consider even numbers. There are an infinite number of solutions but it is easy to calculate. Consider prime numbers, the first few are easy. 2, 3, 5, 7, 11, 13, 17, 23.... They become scarcer and take longer to calculate. The problem with prime numbers is they are not finite. So while they are harder to compute, they are worthless.
Bitcoin uses a mathematical problem with more than one but a finite number of answers. Those answers become harder to find. When you find one of these answers you are rewarded with ownership of that answer. Other people are willing to give you goods, services and even money in exchange for that ownership. This is considered to be analogous to gold. The easy to find gold was found and put into circulation centuries ago.
I was replying to another comment but I believe my comment posted just after yours answers your question about the finite number of bitcoins.
"Or will there be no increase but Bitcoins will be like Berkshire Hathaway shares where the value of one single Bitcoin (relative to the dollar) simply grows and grows and transactions will be calculated in smaller and smaller fractional cyber amounts?" - Yes
Currently the bitcoin system permits eight decimals. Three gets us to milli-bitcoins. A milli-bitcoin is about $1.00 US. So five decimals gets us to the penny. Eight gets us to one thousandth of a penny. When a bitcoin is worth one million US the eighth decimal would be a penny. At that time adding additional decimals would solve the problem.
I don't think that's the problem. Since Bitcoin is SHA-256 based the range is finite: 256 bits. So that means there should be a (countably) infinite number of pre-images for every SHA-256 value. Same cardinality as for primes.
So primes should have some value as well. I haven't read the protocol but I would guess SHA-256 was choose for a few reason: Harder for someone to devise a clever algorithm to give them an edge. More resistant to attacks from quantum computers (and yes companies are starting to consider this). More straightforward to implement hashing than large integer arithmetic. Also algorithms to prove something is probably a prime are quite simple and fast. Proving something definitely is a prime more complex and takes longer.
The IRS already treats it as a commodity. If I buy a bitcoin for 1000 and then use it for a transaction when a bitcoin is worth 2000 I owe taxes on that 1000 profit. When Uncle Sam gets interested in this, quite a few people will find a surprise tax bill. You can hide your identity but most people won't and it will be a simple matter of matching IP's and email addresses to computers and people.
The recent ruling that bitcoins cannot be used in regulated instruments caused it to lose 15% of its value. What happens when it cannot be used in regulated transitions or be held by regulated entities. Much like a bearer bond is no longer permitted. Much of the value of a bitcoin is that people believe it will someday be useful in such transactions. That value disappears when the government removes any hope of that happening.
Currently you cannot pay bills with bitcoin expect with a small handful of vendors. The hops that someday all bills will be payable with bitcoin gives it much value. The government will likely hand down regulations or laws that prevent it being used for any official obligation. Once I have no hope of paying my property taxes or college tuition or income tax with bitcoin, the bitcoin will lose even more value.
Does this mean the end of digital currency? I don't think so. Our dollars are unique because of a serial number. that serial number does not need to be written on a piece of paper. Once the governments decides to do it and reasonable safeguards are in place, most money will be printed virtually.
So the solution space changes over time. Fewer solutions out of the infinite number become acceptable due to new constraints. But increases in computing power partially compensate for this. Sounds like Shailynn allowed to some FPGAs or GPU designed specifically for bitcoin mining?
Bitcoin is intended to be a currency. The rising value of bitcoin in relation to goods and services is not inflation but deflation. It is indeed inflation as everyone treats it as a commodity and not as currency.
Where did bitcoin start? Some guy had a neat idea and others decided to implement it. The system was built and the first few guys agreed to accept bitcoins from each other for goods and services. I don't know what the first transactions were. perhaps a bet. if I solve more block chains than you I get your bitcoins. Or perhaps I'll give you my bitcoins in exchange for your magic potions in some online game.
As for what guarantees a bitcoin. The unique solution to a math problem proves the bitcoin is a bitcoin, the transaction history proves ownership and other people are willing to accept them. That's all. If any of those fail, bitcoin fails
https://en.bitcoin.it/wiki/Controlled_su…
- @twentyfive: No. But, again, that does not mean that Bitcoins are not valuable. As any Austrian economist will agree, valuation is a subjective process for each person. In my opinion, Bitcoin may be very valuable to individuals who do not trust their own government. Those individuals who do not trust their own government are very similar to the Austrian economists who believe (and rightly so) that ALL FIAT CURRENCIES are inferior to sound money, which, in their opinion, is gold/silver. Of course, the gold bugs e.g. Peter Schiff use the same argument that you present (not linked to anything tangible), which I mostly agree with. But not completely.
"Perhaps I am too much of a luddite but I worry about all my 1s and 0s simply disappearing."
- @Che This is, in essence, the same worries that people have about hyperinflation, e.g. in Venezuela right now. The fear that what they value as "money" will lose its value quickly and before there is time to move to a safer store of value. I imagine this is why mainstream austrian economists (gold bugs) are so against Bitcoin, because it is a threat to a longstanding tradition of using Gold as a store of wealth
"@K said “There is a finite number of bitcoins”. I don’t really understand how this can be. I completely understand that all money is “made up” and only as valuable as people think but just like governments print more money, what prevents more Bitcoins from magically appearing?"
- @Che In one sense, nothing. Technically speaking, the number of Bitcoins is limited to 21 million. What you are referring to is the fact that the number of units of CRYPTOCURRENCY is unlimited. Bitcoin is one of several currencies that fall into the category known as cryptocurrencies, which has unlimited space.
Again, the Bitcoin system is designed to be limited to 21 million coins.
"The recent ruling that bitcoins cannot be used in regulated instruments caused it to lose 15% of its value. What happens when it cannot be used in regulated [transactions] or be held by regulated entities? ... Much of the value of a bitcoin is that people believe it will someday be useful in such transactions. That value disappears when the government removes any hope of that happening."
- @K That may be true. But, like I said earlier, I think the lack of regulation is an intrinsic property of Bitcoin, and may be the reason for its value. Again, remember what the Bitcoin technology is: A DECENTRALIZED ledger system. Can a currency system be decentralized and regulated? I'm not sure. Perhaps it is SELF REGULATED? Again, Bitcoins are limited to a quantity of 21 million total Bitcoins in circulation, and the ledger is recorded on every user's computer. The internal system ensures that each user's ledger is identical.
"I just don't get where bitcoin comes from if I could understand its origin I think I might get the point."
- @twentyfive: Bitcoin was invented by Satoshi Nakamoto, who posted a paper on the internet called "bitcoin: A Peer-to-Peer Electronic Cash System." from wiki: "This paper detailed methods of using a peer-to-peer network to generate what was described as "a system for electronic transactions without relying on trust"" Satoshi Nakamota is an unidentified individual; he/she left the Bitcoin project, and his cohorts never met him in person. Nobody knows who he is.
"Again, I only read a brief description of the protocol, but there are definitely a infinite number of bitcoins. The algorithm for printing/accepting one apparently is auto-adjusted for how fast new ones have been computed lately."
- @Dougster, no, I think you are mistaken. I have read in my places that the Bitcoin system is designed to stop at 21 million bitcoins. We are currently at something like 16 million. 21 million will be reached in a few decades.
"Keep in mind the dollar is tied to the taxable obligations owed, only if the USA ceased to exist would the dollar collapse"
- @twentyfive, I disagree, and history disagrees with you as well. The collapse of the dollar would not be an effect of the termination of the USA, but rather, vice versa; the termination of the USA as a nation would be caused by a collapse of the US dollar. Earlier in this post I mentioned the historical fact that ALL fiat currencies have failed. Those who have studied Austrian economics, such as myself, understand the difference between sound money and fiat money. Fiat money, in every instance, eventually fails.
"Sorry for my ignorance, but what is a "block reward?" The way I understand it, a "miner" gets a reward for creating bitcoins, but the reward decreases over time. Eventually the supply of bitcoin is engineered to reach some stable value because the reward keeps decreasing."
- @RandomMember. You hit the nail on the head. Exactly how it works.
All I know is, Bitcoin is very interesting as it's quite a unique way of performing transactions. One only need to watch this semi-technical (but very informative) video of how Bitcoin and Blockchain function to see how special this really is: https://www.youtube.com/watch?v=l9jOJk30…
In my opinion, the real question is, what should I own? US notes? Bonds? Stocks? Bitcoin? Gold? Furniture? Patents? Legal Entities?
All of the above. Been watching Shark Tank a lot, and now I want to start my own business. Somehow.
It looks the computation themselves are over 96 bytes, so that by itself, would mean there would have to be a finite number of bitcoins. Also when you try to produce a bitcoin your valid domain of inputs you control is very limited. Around 32-40 bits . That probably mitigates against some possible attack on SHA-256. (For reading the non-technical description I thought you just had to come up with any non previously discovered byte string which hashed to certain output range. Which would have infinite solutions.)
There is a difficulty factor that is adjusted based on how fast blocks have been computed recently. The goal is for bitcoins to be created at a controlled rate: about one every ten minutes.
The block reward is the part which is a bit perplexing to me especially given that there is already a difficulty factor. That where the reward for finding a block gets cut in half every 210,000 blocks.
I think it all might be better if they dropped the block reward halving and just had the difficultly rate target a bit coin production which grew 2% a year.
Gonna look at the original paper to see if block reward halving was there or if that came along later.
Thinking about these things during my bike ride, and it seems like a nutty idea. More or less an electronic gold standard that would appeal to hard-core Libertarians who think we don't need no stinkin' Fed. But who knows, I've missed all the major trends in the past -- like the ubiquity of cell phones or the rise of E-commerce companies like Amazon. Better pay attention this time.
One thing for sure, I'll let my employer pay me in gold old American dollars for the time being.
I don't understand why you favor a perpetual growth of 2% per year, rather than an exponential decay type of reward system which limits the potential total number of Bitcoins. I notice that 2% is also the target rate of inflation of the Fed, and I'm guessing that that's not a coincidence. Not sure if money should rain from the sky forever, or if it should rain for a short period and eventually stop raining.
Seems to me as if the adjustment in the difficulty factor controls the rate at which transactions are verified and/or added to the blockchain, and therefore the goal is to regulate the transaction rate (and thus the velocity of Bitcoin money?). I don't think the adjustment in the difficulty factor is to maintain the rate at which Bitcoins are created. My understanding from discussions with supporters is that the intention of the creators was for Bitcoin to be more like Gold, rather than like government-created currency. After all, the goal was a "peer-to-peer electronic cash system."
@trackstar: guess it depends on the definition of "block" but based on the numbers, I think they only count the number used to create new bit coins, because they are targeting a new block every ten minutes. Seems far too low if they only wanted one transaction (like a purchase) every ten minutes.
@random: Maybe, me, you, and SJG (sorry to mention the one who shall not be mentioned) should join forces to right a bot to dominate the BTC exchanges?
Don't subsidize the Dougster's of this world. Eventually the finance companies will reposes their Rolls Royces and huge diamond rings.
SJG
Happy Go Lucky Local
https://www.youtube.com/watch?v=jNnplwRb…
Wildness and Order
http://alanshapiromusic.net/music-educat…
https://en.wikipedia.org/wiki/Night_Trai…
Night Train, Jimmy Forrest, 1952
https://www.youtube.com/watch?v=l9inzaw1…
Louis Prima
https://www.youtube.com/watch?v=3kTcjXhG…
James Brown, Live at the Apollo
https://www.youtube.com/watch?v=ZF_rZrH4…
James Brown performs and dances to "Out of Sight" on the TAMI Show (Live)
https://www.youtube.com/watch?v=zieXmNwH…
Apogee
Run Lots of Plugins While Recording with Ultra-low Latency
https://www.youtube.com/watch?v=O_jgZNSr…
Apogee
http://www.apogeedigital.com/
Santa Monica, CA
https://en.wikipedia.org/wiki/Apogee_Ele…
Look what I found. I believe this was for the Muhammad Ali and George Foreman fight. I have seen segments of this where the girl does some titty flashing, but I don't know if that is in this youtube.
James Brown "Soul Power" live in Kinshasa Zaire, 1974.9
https://www.youtube.com/watch?v=4N-NrucQ…
Includes brief footage of Celia Cruz.
More Celia Cruz, Zaire, 1974
https://www.youtube.com/watch?v=E9iIBCO3…
Anyone knows any work on this, would be interesting to read.
http://www.dugcampbell.com/wp-content/up…
Dougster:
http://indianapublicmedia.org/amomentofs…
SJG
Guantanamera
https://www.youtube.com/watch?v=HOfST5xO…
Oye Como Va
https://www.youtube.com/watch?v=z9HwpFdC…
Bemba Colora
https://www.youtube.com/watch?v=fvuU8ARJ…
The question is asked about how is there a finite number of bitcoins. Using the simplified explanation I posted above - The mathematical formula used has a finite number of answers. At some point we will exhaust the answers and no more bitcoins can be mined. Any bitcoin that magically appears must be a solution to the mathematical problem. If not it will be rejected. If it is a valid solution then there will be a record of who discovered it and all transactions involving that bitcoin.
Here's the layout:
https://en.bitcoin.it/wiki/Block_hashing…
So you only control 4 bytes in the nonce and maybe 8 or 9 bits in the timestamp, the version is probably pretty small, but there other than the halving there is no chance bitcoins would run out due to size of the solutions space.
----------------------------
Yes, checked your math -- but still greater incentive than what you get for writing a review on TUSCL.
TrackStar's comparison to other forms of money:
www.dugcampbell.com/wp-content/uploads/2…
Thing is, if the value of gold crashes, you can always take your gold and make some sort of shiny object and use it to impress strippers (Appendix 8.2 in The System). If the value of the U.S. dollar crashes, you can still pay your taxes. If the value of bitcoin crashes, you just have a bunch of useless bits and bytes on Juice's home PC.
Maybe with the tweak and backing by a government it would become a "gold-light": Libertarians and other right wing whack jobs would like it, but still not as much as gold.
It's a bubble!!!! Whatever you do, don't buy it!