As usual on HN, any submission about Bitcoin is met with concerned comments about its high volatility, present impracticality as a currency, disadvantages versus precious metals, current concentration of transactions in a single exchange (MtGox), potential for market manipulation by governments and/or speculators, etc.
This is analogous to being present at the creation of the World Wide Web, but instead of getting excited about its obvious potential, one decides to stay on the sidelines because it's still unproven technology, almost no content has been made available online, commercial opportunities are virtually non-existent, etc.
As hockey superstar Wayne Gretzky said, "a good hockey player plays where the puck is. A great hockey player plays where the puck is going to be." Judging Bitcoin based on where it is today, instead of where one thinks it will be in the future, is shortsighted.
Edit: In hindsight, I see how my quoting Gretzky could come across as arrogant, which was not at all my intention. The only point I was trying to make is that new technologies like Bitcoin should not be judged based on what they look like today, but rather on how one thinks they will look in the future.
As hockey superstar Wayne Gretzky said, "Please stop trotting out that quote Steve Jobs once said because we've all heard it and there are very few hockey players who are actually great enough to really know where the puck's going, anyway. Don't automatically assume you're one of them."
There are some real concerns with Bitcoin. For example, I was going to write an app that accepts Bitcoins as payment. However, the problem is that the amount of time it takes for a transaction to become "verified," i.e. be part of the official block chain, can take up to 10 minutes.
What am I supposed to present to the user during this time? Am I supposed to tell them that their payment may or may not have been accepted, please check back in ten minutes or wait for an email? How would you handle this if it were a real person in a real store, at a register checking out?
How do you think credit card work? They approve blindly but might later reverse the transaction. You might want to setup a holding period for big transactions, and otherwise setup a system that incurs an expected loss/scam: Visa takes 2-5% of transactions and expects irrecoverable loss in that buffer - a Bitcoin seller still could undercut that with expected petty theft. e.g. under $100 transaction: no waiting. $100-$500: 10 min wait. $500+ 20 to 30 min wait.
That's not how the credit card system works. The merchant first makes an "Authorization" which is a promise by the credit card company to pay the merchant that amount of money within the next 90 days. When they make that promise, they check the customer's account to verify that there are enough funds and then deduct that amount from the available funds.
Assuming everything else goes as expected, the merchant then issues a "Capture" which finalizes the transaction, and they receive the funds once settled (within 24 hours).
If the CC # details were stolen or the customers otherwise feels that it was a fraudulent transaction, they can call up the bank who will do what's called a "chargeback" and take the money back from the merchant plus a $25 "fuck you" fee.
Fraud rates are expected to be less than 1%, if they get higher than that you get in trouble as a merchant.
But the thing that's absolutely not happening is blind shipping of goods or delivery of electronic goods with a guess that the customer will probably pay, even below any amount.
I think you're seriously missing the point. This whole discussion has been about the fact that bitcoin funds transfer isn't instant, it takes 10 minutes. With credit cards, regardless of when the funds transfer happens, you're given a guarantee instantly. That's what really matters so you can deliver goods.
And while a shorter "fraud vulnerability" window is good for the merchant, it's terrible for the consumer. People have come to expect that they can get their money back if they get scammed or get their CC details stolen, it's a huge part of what's attractive about credit cards vs. cash.
Would you carry $50,000 in cash on your person? No. But you wouldn't mind carrying a credit card with a $50k balance on you, because you know you're protected.
The funds transfer/settlement for credit cards can be as short as a few hours as some banks offer same day settlement. And you are being a bit disingenuous with the fraud vulnerability window as chargebacks allow for dispute resolution e.g. where is the item I paid for whilst Bitcoins don't.
> However, the problem is that the amount of time it takes for a transaction to become "verified," i.e. be part of the official block chain, can take up to 10 minutes.
It actually can take a lot more than 10 minutes. For all you know, it could take forever. 10 minutes is the average.
> What am I supposed to present to the user during this time? Am I supposed to tell them that their payment may or may not have been accepted, please check back in ten minutes or wait for an email?
That person is paying you with Bitcoins. They already have an idea of what a network confirmation is. Tell them you're waiting for N network confirmations. Send them an email when the transaction is verified by your node, and a second email when the transaction has enough network confirmations.
> How would you handle this if it were a real person in a real store, at a register checking out?
It depends on what you're doing. If it were a Starbucks, for example, I would serve the coffee right away, without waiting for blockchain verification. It's unlikely that someone who has more than 50% of the Bitcoin network is using that massive power to double-spend on a Chai Tea Latte.
If I needed more confirmation, I could send the transaction to some trusted miner nodes, and see if there's consensus. If those nodes say they will include the transaction in their next mined block, then I can close the deal without waiting for the blockchain to verify it. Of course, this can be done automatically.
The way I see things shaping up is that Bitcoin will be used as a virtual store of value, used to transfer money to one or more other virtual currencies that place a higher premium on transaction speed. Ripple.com could fill this role, or it may be another virtual currency that has yet to be invented. It is incredibly easy to transfer money from Bitcoin to Ripple (and vice versa) once you know how, and any other virtual currency would doubtless share this characteristic. As the Bitcoin "market cap" grows, it will become much less volatile, but will likely continue to increase in value.
Actual Bitcoin transactions on the block chain would only be used to refill the other currency for day-to-day transactions, or for large transactions that don't have to be instant, like buying a car or a house.
What are you charging for? For many stuff, it's perfectly fine to assume the payment is valid and then just lock the user out if it actually failed. If they're buying something that you can't away, there are other alternatives, like buying "credits" that one can then use to pay for stuff.
The problem is that all the advantages of Bitcoin is now lost, and you have transferred control of Bitcoin to the Bitcoin bank.
For example: you can gather Flexcoins, which allow instantaneous transfers and so forth. But by doing so, you no longer have Bitcoins. You only have Flexcoins, and if the Flexcoin bank goes under... you lose all of your bitcoins.
IE: Using Flexcoins (or any other form of Bitcoin bank) completely defeats the purpose of Bitcoin.
> The problem is that all the advantages of Bitcoin is now lost, and you have transferred control of Bitcoin to the Bitcoin bank.
That isn't a loss of the advantages of bitcoin, because you got to choose which organization to trust, if any. With government currencies, you don't get to choose.
> I can choose whichever Government / Central bank fits me the best.
Bitcoin actually provides a new choice: government or no-government. People that want government/cb currency are free to choose it. People that want no-government money can choose Bitcoin.
Gold is not really practical for modern commerce without first converting it into an alternate currency (passthroughs in dollars, for instance) or trusting a third-party. Bitcoin can be traded really easily, no conversion or trusted intermediary (unless you count the btc swarm) necessary.
Unless you want instantaneous transfers. Which requires you to use either a Bitcoin Bank (ie: Flexcoins), or an intermediate trusted 3rd party (Green address).
Which is the entire point of this thread of discussion. People are not liking the restrictions on Bitcoin (ie: wait X number of hashes before the transaction is complete), and are recreating "alternative currencies" for Bitcoin. Which to me... seems against the point of the medium.
"you have transferred control of Bitcoin to the Bitcoin bank."
This exists now with charge cards. You load up a card, and you bear risk that the company could go under.
"IE: Using Flexcoins (or any other form of Bitcoin bank) completely defeats the purpose of Bitcoin."
I'm not talking about an alternative coin. I'm talking about something akin to what happens now with CHIPS and FedWire, where the dollars are shuffled at a later date but the transactions are approved before it happens.
> However, the problem is that the amount of time it takes for a transaction to become "verified," i.e. be part of the official block chain, can take up to 10 minutes.
coinbase is pretty cool but fails completely at solving the posted problem. The soonest I've seen payments settle is in about an hour.
Original issue: "However, the problem is that the amount of time it takes for a transaction to become "verified," i.e. be part of the official block chain, can take up to 10 minutes."
Credit card companies do confirmation in seconds - the fact that the actual money isn't moved for a month isn't as important as the fact that it will show up, with high certainty.
I think there's some confusion here over what 'confirmation' means in this context.
What Coinbase (and other bitcoin payment processors) offer is instant confirmation that the customer has the funds available and that the payment is allocated to you. This is all a credit card is 'confirming' for you in seconds as well. It's the same thing. "Payment is available and is coming your way".
What's different is that Coinbase is saying that within an hour, the funds are 'confirmed' as yours. They are available to you in your wallet. You can do with them as you will. You literally have money in the bank.
Now, converting those funds to USD and having them show up in your bank account takes a few days, but that's the legacy banking system that's at fault there.
If you want to spend the Bitcoins at Bitcoins, however, you have only to wait an hour.
The difference between waiting a month for your money and waiting an hour is absolutely tremendous. The fact that our business ecosystem has evolved to work with the delay doesn't mean that removing the delay is not desirable.
Removing that economic friction is revolutionary. It can facilitate new business models and accelerate the pace of commerce. That's the real importance of Bitcoin, or of whatever cryptocurrencies follow on after it.
They reduce friction and increase economic velocity.
But, 1) Bitcoin isn't cash, and 2) you're not paying in-app with cash.
Any time you need to rely on external systems (which is always the case, with electronic payment), as much of that reliance as feasible should be made asynchronous.
As soon as your bitcoin node receives the signed transaction (should be seconds), approve the transaction, but listen for other spends of those same coins. After a few seconds, the cost of double spending those coins would be basically the same as the reward for mining a block, so it's unlikely that someone would defraud you for something worth less than ~$2,000.
There's almost nothing you could be selling online that couldn't be reversed within an hour or so of the sale in the relatively rare cases of fraud, with the possibly exception of wire transfers of cash.
This is just wrong - see the Hal Finney attack. Basically, an attacker can pre-mine a block with the double-spent coin in it but not announce it. Once an attacker spends the coin and gets something of value, they can immediately announce their block, pay the coin to themselves instead, and keep the goods.
It's true that it would be hard to get a lot of value this way, but it's still the case that the person accepting the payment must be wary of the possibility and, as you say, be able to reverse the transaction if the coin ends up double-spent.
> However, the problem is that the amount of time it takes for a transaction to become "verified," i.e. be part of the official block chain, can take up to 10 minutes.
You actually can accept transactions instantly just fine; the term "confirmation" is slightly misleading here. Try actually paying for some web service or product with Bitcoin - they all confirm the payment instantly. Sure, there is now a very slight possibility of fraud instead of a negligible one, but given that nearly all businesses still do this it's clearly not a problem.
The higher txn fee ups the chances of your txn being in the next block (it's up to the miner that wins the block which txns are included - some set a minimum fee). Once your txn is placed in a block, it is included in the future blocks too. A confirmation is generated by each block your txn is in, and a block is generated every ten minutes, so for 6 confirmations, you still need an hour.
Running a dedicated miner wouldn't help since you'd have to be the one to win the next block to be able to process your txns.
A block is generated on average every 10 minutes. Higher txn fee makes sure your transaction gets into the block, but there is still wait time.
Running dedicated miner is not practical, as you would need huge mining power to mine a block faster than in 10 minutes.
The phrase that really resonated with me was https://www.youtube.com/watch?v=7fvSYT7vhQY#t=404s : "When a few get something for nothing, at some point in a zero-sum game most will get nothing for something". That point may not happen anytime soon, but I think that's a very legitimate concern.
But lets say we accept its argument anyway, is it really applicable here?
Would you really argue that the creation of a new cryptocurrency is a zero-sum event?
Couldn't it instead be the case that enormous new wealth is created due to the existence of a new payment infrastructure, and that the people who get something are capturing some of this new wealth?
I'm not saying Bitcoin is a sure thing by any means; just that its flawed to evaluate the wealth apparently coming from it as a zero-sum process.
The situation is analogous to a mint for a traditional currency: it costs money to print money, and so some people are getting paid just to maintain the currency. That's fine, though, because they're creating economic value for the users of that currency.
It's similar for the people who "get something for nothing" by mining bitcoins: they're getting paid for making the proof-of-work chain function correctly, and for distributing the initial bitcoin supply in a way that's not based on some central authority handing out bitcoins.
Calling it a zero-sum game makes it sound like some people are exploiting others. You can make the same argument with gold by saying that, if everybody stopped caring about gold on the same day, then everybody owning gold would be big losers in the zero-sum game of gold.
Moreover, the argument that the cited video makes about criminals using the currency (i.e. "honor among thieves" doesn't exist) is fundamentally at odds with the concept of the infinitely iterated prisoner's dilemma. That's why the whole concept of "reputation" envolved (in Nature and online). Someone with 98.7% positive feedback might screw you to save $50, but doing so would not be beneficial in the long run.
This is analogous to being present at the creation of the World Wide Web, but instead of getting excited about its obvious potential, one decides to stay on the sidelines because it's still unproven technology, almost no content has been made available online, commercial opportunities are virtually non-existent, etc.
As someone schooled in economics, I have to point out the fundamental difference between technologies and economic "innovations". The key thing is that any currency or investment scheme or similar phenomena is going to always contain risks as well as rewards (the US dollar contains risk right now, it's main virtue is being perceived as having less risk, not that it's "solved" the risk problem).
If the Internet as it exists today, was able to "crash" tomorrow in a way that left everyone with less than they had before, it would be ambiguous, even twenty years into the project, whether it was a good thing.
That's the distinction between an upsurge in a technology and an upsurge in an economic phenomena. Housing prices and Internet usage increased substantial in the period 2002-2007. Internet usage brought information and utility that pretty much couldn't go away and leave you worse off. Housing prices could and did.
Your comment amounts to a rather naive "we should get excited about Bitcoin, it has great potential and critics are shortsighted". And it is precisely this excitement (with calls for more excitement) that generates Bitcoin's current value. But where will the decline stop once the first run inevitably occurs? All other currencies have a bottom floor that they can't fall below, be it either intrinsic value (jewelry, plate, industrial uses for precious metals) or the fact that they are legal tender in some country (and must be acquired to pay debts or taxes there). Unless and until Bitcoin becomes legal tender in some jurisdiction, it is very vulnerable to a sudden death spiral in its value. Interestingly enough, MMO worlds are probably prime candidates to become such "jurisdictions".
"All other currencies have a bottom floor that they can't fall below"
I suspect holders of the Zimbabwean Dollar would disagree, as would the holders of many other hyperflationary currencies going back many centuries. Such currencies were all legal tender, but it didn't make any difference.
I'm not talking about the value of a single unit of currency, but about the aggregate value of the currency itself. A single Zimbabwean Dollar might have fallen very low indeed, but as long as it was legal tender - and the Zimbabwean government accepted payment in it - the value of all Zimbabwean dollars still had to be sufficient for paying taxes and debts in that country.
That's assuming the Zimbabwean government actually survives. At some point people will lose all trust in the currency and start to use a more solid one, this can mean currencies from neighbouring countries, or stable ones from far away like the dollar, euro or yuan.
If it that point the Zimbabwean government would still print money it can't back it would go bankrupt, and not be able to pay its staff and cease to be.
What is the potential impact of Bitcoin forking, given that it's trivial[1]?
Q1. We can differentiate between fiat currencies by looking at the qualities of the issuing authority, and thus determine that it's better to have savings in Swiss Francs rather than Zimbabwean Dollars. With Bitcoin, Litecoin and other forks, how do we differentiate apart from popularity of the network?
Q2. I've heard the argument that Bitcoin is valuable because there is scarcity in the system, a limit to the number of coins, thus it is similar to gold. However, if tomorrow somebody discovered vast amounts of pink gold, with exactly the same chemical and physical properties as gold, except for the colour, it's likely the price of gold would fall. As Bitcoin is facing this exact scenario via forking, what are the potential consequences, and does it even matter?
[1] http://litecoin.org (changed the hashing algorithm from SHA256 to Scrypt)
> how do we differentiate apart from popularity of the network?
Currencies are all differentiated based on their ability to be spent. Qualities of the "issuing authority" is one measure of that, when there is such an authority. But even for dollars there are other properties: difficulty of counterfit, number of merchants who accept the currency, etc. Merchants in Argentina don't accept dollars because they can pay their taxes in dollars, or because the U.S. government is insuring their accounts. They accept dollars because they can be readily, stably traded for value in their country.
Cryptocurrencies can be spent in places where no other currency can (international transactions, politically sensitive transactions, etc). Transactions can never be reversed. You can store them in your brain. You can keep your bitcoins in your brain while you are imprisoned in Iran, and spend them whenever you are released. These are all aspects of a currency's spending power.
You may think that government deposit insurance, or promise to accept tax payments in a currency, or promises to stabilize prices by issuing debt are the Be All End All of spendability measures, but that's you. There are lots of other concerns people other have.
Money itself is not a good asset. I don't understand the point of excessive cash savings - cash is a vehicle for trade and transfer assets, not an asset in and of itself. Ie, if I have leftover money, I will put it in investment funds that purchase ownership stakes in companies (stocks), loans it to borrowers (bonds), or pay off my mortgage (real estate). Even gold or other precious metals. I try to keep a conservative amount to cover cash flow requirements, but honestly I don't understand hoarding Bitcoins any more than hoarding US Dollars. Neither makes any sense or represents anything of value.
Money is just an abbreviation, an emblem of value. People commonly agree to use this thing that is worthless by itself because it's much easier to trade little pieces of paper and metal (or, in today's economy, move bits around) than it is to trade solid, final goods. People horde both dollars and bitcoins on the presumption that persons will continue to prefer trades facilitated by these value emblems instead of the much clunkier trade-by-solid-goods only.
"This is analogous to being present at the creation of the World Wide Web, but instead of getting excited about its obvious potential, one decides to stay on the sidelines because it's still unproven technology, almost no content has been made available online, commercial opportunities are virtually non-existent, etc."
There's nothing wrong with that. For every WWW, there are a thousand technologies that looked similar when they were young, and were a flop.
My problem with it right now is that it gives too much advantage to early adopters (I have some from some years ago), it always tries to make the situation sounds fair (in the FAQs) but for me it's just a seignoriage with other name.
I hate the fact that it can be used by child pornographers or terrorists but hey, so can gold, a Ben Franklin or a €500 bill. A feature of technology is that it's neutral, it can be used for good as well.
I have no problem with the idea, I think cryptocurrency and electronic money is the future but in my view bitcoin will just be one among many.
Doubts about volatility are a correct response to claims about monetary valuations. If, on the other hand, the response was given to "Bitcoin surpasses Dinner's club card in transaction volume," then it might well be off base.
"As usual on HN, any submission about Bitcoin is met with concerned comments about its high volatility, present impracticality as a currency, disadvantages versus precious metals, current concentration of transactions in a single exchange (MtGox), potential for market manipulation by governments and/or speculators, etc."
So you're okay with a currency that has shifted a huge portion of its value in a day and insecure exchange after insecure exchange getting hacked (and thousands of dollars worth of Bitcoin getting stolen)?
Right now, Bitcoin is like the stock market before it had any regulations. I feel like the people that tell me not to worry about these issues are the ones that invested lots of money in it (and don't want to lose it).
I want to be able to get behind Bitcoin I really do. I just don't understand the purpose it serves.
As an asset class it's far too volatile even for someone who plays naked options. Imagine putting $10,000 into an asset class that swings 20-30% daily on a regular basis. Trading curbs eat your heart out.
As a currency it's too impractical and there are serious hurdles involved with turning central bank currency into Bitcoin and vice versa.
We think Wall Street plays a rigged game. Manipulating the Bitcoin market would not only be possible for someone with a small amount of capital, but the regulatory boards(SEC/FSA) don't seem to be interested in coming within 50 parsecs of the stuff.
Bitcoin is an interesting idea with the potential to change the world, sadly the world just isn't ready. More importantly the people running the world aren't ready.
The moment Bitcoin starts to worry a Government or a big bank they'll simply manipulate the market. Oh, and you wouldn't even know.
You're totally right. The world is not ready, just like it wasn't ready for e-commerce in 1996. I mean, who's going to put their credit card online? Who wants to buy stuff without feeling it?
BitCoin may always be more volatile than other currencies. That doesn't actually matter much as long as it's liquid with other commodities and currencies. Its primary purpose is transfer, not store value. It will however stabilize the more broadly it is held and the more real commerce it is involved in.
I think eCommerce was a different situation than what you describe. People were already used to calling up and ordering things over the phone from a catalog using their credit card. Doing the same thing over the internet wasn't that much of a stretch.
Uhhh... if you were around in the 90s everyone said "nobody will buy stuff online". Everyone. News articles, talking heads, books, etc. People scoffed at sites like eBay even years after it's launch.
It was very comparable to bitcoin. Everybody has been complaining about bitcoin while the entire time it's been growing and growing and growing. It's still growing and people are still acting as if it's nothing.
I was in high school and college in the ninties, that wasn't my experience at all. Pretty much everyone accepted e-commerce from the get-go. So my roommate and I are guessing how old you are currently, one of us says forty-five, one says sixty -- who won?
I agree. BTC is a great forerunner to a system that addresses some of its more serious issues, but I don't think it's practical for widespread proliferation.
Volatile, sure. Depends if you want to invest long term with it, and you understand the risk.
> As a currency it's too impractical and there are serious hurdles involved with turning central bank currency into Bitcoin and vice versa.
I found it pretty easy. Coinbase was lovely; getting verified on Mt Gox was a bit of a pain.
> We think Wall Street plays a rigged game.
Yeah, because it does. On a personal level I find the finance industry as a whole too difficult to gain any insight in to. I wouldn't know if my bank was collapsing or not, or if the housing market was in a true bubble. I can fully understand bitcoin. Maybe it's a false sense of safety, but I don't think it is.
> worry a Government or a big bank they'll simply manipulate the market.
Possible. We'll see how it plays out.
Most importantly though,
>I just don't understand the purpose it serves.
Very low fee, near-instant, world-wide monetary transfers. It serves a purpose.
My first idea would be to see if it's possible to create massive sell-offs by crashing through many people's "stop on loss" barriers.
For example, let's say that the exchange rate is 100 USD per bitcoin at the moment and that you have tons of people who would absolutely sell their bitcoins if it went below 90. I'm not in the bitcoin game, but I think mtgox offers "stop on loss" features so that people could get out of bitcoins automatically.
If you're sure that you want to be in bitcoins, but you think that there are a lot of scared players who put their "stop on loss" too high, you might be able to provoke some kind of selling avalanche by selling sufficiently many bitcoins at once. The price drops below 90, which triggers a lot of automated selling. This makes the price drop even further, triggering other stop on loss barriers, driving the price to 80 and so on.
With your $5 millions you buy up all those bitcoins at a rate of 50 USD per bitcoin when the avalanche stops. Then people realize what just happened and the price of bitcoins crawls back to 100 because that was more or less the fair market price.
The point is, with $5 million dollars you might have the power to create digital panics, a "flash crash", and use that to your advantage.
I don't know if $5 million is enough for that, and it's not a guaranteed return.
Someone sold off 5k bitcoins (~USD $450k at the time).
That's exactly what happened. Big sell off from 95 to 80ish, and then it sprang back to ~$90 today.
There's low confidence in it right now, but that's because most players are actual players. They aren't using bitcoins for groceries, like a bank reserve (yet). They're playing them like stocks.
5k bitcoin sell crashed the market?! To the tune of 100MM in market value loss on those transactions.
That just shows most people are hording it / not really selling or trading, and a few people are buying it, probably the majority of which are doing so because they need to spend it on SilkRoad or a gambling site.
The moment that goes away, or a few big holders decides to cash out, watch out.
It totally stands within reason that until it has wide spread adoption and regular people stop caring about what the exact exchange rate is that we will see large runs like that. As I stated, we have several people (myself included) invested to make money and take care of an investment, not to use a daily currency.
Personally I would just fabricate a very intelligent-sounding report where I claim to have found a serious, exploitable flaw in Bitcoin's encryption. I don't think it would be too hard to convince people, because many people expect that something like this might happen. And if the fabrication is good enough then it'll take days or weeks for researchers to fully evaluate the claim. In the meantime the uninformed panic causes a price dip and I buy a bunch of cheap coins.
The mini-crash yesterday was interesting. The 5k dump itself only moved the price down a couple of dollars, but there was a mass movement of smaller transactions that followed it and caused the price to really drop.
My personal (amateur) theory is that people were hovering over their "sell" buttons, looking to cash out as we approach the landmark $100 point. Once they thought someone with a lot of coins was bailing, they took that as a sign to head for the exit.
I also think that MtGox's horrible lag factors into the dips. Their trading engine was running as much as 8 minutes behind during this event, which causes people to not be able to modify or place orders. Along with not being able to see actual "current" trading info, this causes a certain segment of the trading population to go into full panic mode.
Placing market sell orders in an engine that's showing you ancient data during a crash seems suicidal, but for some reason people do it.
I'd love to see Gox upgrade its engine. I honestly think it would make a notable difference in price stability.
Even better, I'd like to see the market grow strong enough to support 3 or 4 primary trading sites. There are a number of others now, but the rest have such low volume that you should only use them to pursue specific opportunities (arbitrage).
Source, on the whole, is http://bitcoincharts.com/ You can break down all the numbers yourself. You can also get a giant history table of all buy/sells with times from either bitcoinity or bitcoin charts, I forget which.
http://bitcoinity.org/markets is the place I watch. The table on the right is aggregated buys/sells, so if you see something like "200 for 90.00" it could be 20 people buying/selling 10 coins, not 1 doing 200.
You find out who Satoshi is (private investigator) , and you hack their computer. Since they invented bitcoin there's a good chance that they own a nontrivial percentage of all currently mined bitcoins.
Likewise you could hack the computers of early adopters who own a lot of bitcoins (back when mining was easy). For example, someone paid someone else 10,000 bitcoin for a pizza a few years ago.
You now own a significant portion all all the bitcoins.
Alternatively, hire security professionals and finds bugs in the bitcoin protocol or client software. You may be able to force another fork.
So, in a sentence: Bitcoin is being used by people as a highly liquid, defensive store of value from within Cyprus, where capital controls are preventing people from moving their money out through traditional means.
This is what gold used to be used for. But gold is not liquid, and Bitcoin is. It appears that hackers have made something better than gold, the longest standing store of value in human history. What an incredible achievement! For the first time in history, I can somewhat safely make the argument that we now live in a post-gold economy. Gold is still there, but we now have something even better for storing value.
This is getting deep into the economics of mediums of exchange, which are important for understanding what is going on here.
I did a talk on Bitcoin a while ago where I went into describing Bitcoin from a medium of exchange perspective rather than a technology one. It may help you to understand what is going on here, and why I think that this will continue into the future: http://www.slideshare.net/KyleDrake/bitcoin-the-cyberpunk-cr...
We have been in a post gold economy since the end of the Breton-Wood agreement. Hording gold is far from a wise investment. It certainly isn't a safe way to store value. First, history aside where it's value comes from is difficult to understand. There is literally tones of it lying around without any real use (far more than what is produced). Basically it's a safe haven because people decide to use it this way but the market could crash any day and has multiple times before and thus despite central banks holding so much of it they dwarf anything someone could decide to inject.
From my point of view, bitcoin is an even more stupid investment. As little as 5000BT makes the rate plummets. Nothing could stop a young Soros from pulling out a mini-black Wednesday. Add the fact that the market is completely unregulated and you have a pretty risky situation. I see Bit coin has a step backward. It's like current currency without any of the warranty provided by governments (security of trade is one of the main reason we instituted government after all). To the people who will argue that Cyprus is currently stealing its citizen, please think about what would have happen to them if there was no way to get a bailout and the banks actually collapsed.
I like your slides and I'll probably check out the talk later on.
I think that depending on what the future looks like (no zombie apocalypse, massive wars, etc.), there will be some kind of cryptocurrency that basically replaces gold. It's very exciting.
At the current time, though, given that bitcoin hasn't withstood the test of time, it's a bit hard to claim that gold is outdated. It's not hard to convince someone that gold or silver have value because of all the historical precedents. That counts for something when considering in which money to invest.
Remember: "What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich." - Paul Krugman
EDIT: To be clear - this quote is not intended (by me) to be a knock on BTC. It's just an elegant statement of my own opinion that the value of 1 BTC is not all that indicative of its value to the economy.
Yes, it would be nice for us all to become rich without contributing anything.
If you're a Good Person, however, you should be interested in becoming rich by creating real value. And you should be interested in promoting an economic system that encourages people to create value rather than hoard assets.
You don't have to be a Good Person, of course. And no one has to like you, either.
I wrote a bot for HN a few months ago, but canned the idea fairly early on. If people were willing to put up with a slightly spammy bot, it wouldn't take much to modify my backend to do something similar.
I'm genuinely not sure how it would be received in this community. It would certainly be something to put past the moderators first.
Bitcoin micropayments are possible if you can solve the UX issues (copying and pasting addresses, etc.) and if you can avoid "recommended" transaction fees that are currently near 5 US cents.
You can even send transactions with no fee at all, but they tend to be prioritized rather low.
So far, every transaction get processed. Eventually.
I've seen some no-fee transactions take several hours recently.
But there's also currently some issues with the overall load of transactions, due to a gambling site spamming tiny "dust" transactions as part of its system. That's caused there to be a lot more transactions, which means sometimes you'll have to wait a number of blocks for a no-fee transaction to process.
A block is supposed to happen an average of every 10 minutes, but it's not deterministic and there's a variance. It can take an hour or more for the next block to come up, in rare cases.
People accepting micropayments tend not to wait for any confirmations, so the lag may or may not matter. But if the network gets to a point where zero-fee transactions never get confirmed then there may be a problem.
Not much. I saw a graph recently of fee paid to confirmation time. There was no correlation.
Eventually it will matter when mining dries up. There will need to be "transaction exchanges". Personally, I am designing a coin that never mines out, because I believe it to be a superior design.
There are a bunch of such widgets. mtgox has widgets, bitpay has widgets.. i am sure others do as well. (for the bitcoin side not the paypal side, which there are also countless widgets for)
I know I have two previous computers that crashed with close to 15 BC each. (Which is a small number, clearly, but how many others like me have small sums of BC that will be gone forever?)
While I can appreciate the need for the Bitcoin model I refuse to take part of it due to level of fraud involved. How much Bitcoins have been acquired by malicious bot-nets and held by small number of black hats? How much of the value is directly linked to drug trade or worse?
Sure, similar arguments can be made about using cash but there are fundamental moral issues with Bitcoin I can't agree with. I would like to believe a better model is possible. Thoughts?
I can't give you any numbers to support or refute your suspicions. However, if you genuinely believe that there is a need for something like Bitcoin, honest individuals using Bitcoin will help legitimize the currency and hopefully drive down the level of fraud and other unsavoury behaviour. If that is your only objection to it, then presumably honest folk like yourself staying away from Bitcoin are also preventing it from becoming more acceptable (not that you have any duty or obligation to do otherwise).
Or, are you implying that there is something fundamentally immoral about Bitcoin itself, which cannot be affected by having more honest users? I admit that this could also be the case, for example, if Bitcoin turns out to be such a massive success that it destroys the ability of nations to collect taxes, affect monetary policy, etc.
I do understand that illegal activities being paid with Bitcoins is something that comes with the benefits of the system. You are correct, the ratio of legal/illegal activity will probably improve with time as more legitimate business will be conducted with Bitcoins. At the same time it's worth being concious of the fact that at the moment the biggest use of this tool is paying for criminal activities. If this is true, we can't pretend that bringing in more "real" money to the pool doesn't mostly aid criminals.
What I see as "fundamentally immoral" about Bitcoin is the fact how so much of it has been acquired by black hats through bot-net and hacking of exchanges. They OWN a fixed percentage of this economy thus their net worth increases every time fresh "real" money is brought in anywhere in the pool. There is no way around it that I can see.
To give an analogy, I would personally not eat in a restaurant if I knew it is co-owned by local drug dealers even if the food was delicious.
Obviously I can see the positive side of having the ability to process payments without going through the government. This discussion is not black and white for me at all.
Seems like using Amazon's EC2 to mine Bitcoins could now be profitable, anyone know if this is actually going on? Per this couple year old article (http://glennfrancismurray.com/cost-defective-mining-with-gpu...) looks like the break even point was around ~$30/BTC.
The problem is you have to account for the difficulty, which has changed. It looks like he was predicting a block per 78 hours, while it is now closer to 2/3 of a year.
Looks like 1.64 GH/s = $10.66 a day roughly, compared to a cost of $400 a day.
The hash rates are order of magnitude faster than what's currently out there for the price, and most importantly they'll drive up the difficulty quite a bit.
I'm curious, why hasn't anyone implemented a mining client in javascript, so you could in effect has visitors to your website mine coins for you. It might be a create way to fund content instead of advertising.
We can do some back-of-the-envelope math to estimate how much you could make doing this. Let's assume that the benefit from bitcoin mining is roughly equal to the cost of the electricity used. Electricity in the US costs about 12 cents per kWh. Let's suppose you can get your web site visitors to put 100W of extra power into mining bitcoins for you. And let's say your visitor spends 5 minutes (1/12 of an hour) on your page. Then each visitor is worth 12 (c/kWh) * (1/12) h * 100 W = 0.1 cents. Which would be like $1 CPM advertising.
But these are all best-case assumptions. Your visitors might not average 5 minutes per page. Your JS mining tool almost certainly won't be as efficient as the specialized GPU rigs that can mine bitcoin for less than the cost of electricity (and drive up the cost per unit for everyone else who's mining bitcoin). Or your users might not have an extra 100W of power to throw at your mining operation. Taking these factors into consideration, I'm guessing you'd be looking at CPM equivalents that you would never touch.
Also, I suspect it would be considered malware by many. Still, it's an interesting idea.
> Your JS mining tool almost certainly won't be as efficient as the specialized GPU rigs
GPU rigs have even been greatly surpassed in hashes/sec by the ASIC rigs (of which only 1 real batch has gone out, all the other providers are probably scams).
Because it's really inefficient and a horrible waste of electricity. Doing Bitcoin mining in that way basically turns it into a payment processor charging you through your electricity bill, with a 90% transaction fee.
It's possible, but not practical. At this stage the amount of computation you need to do to mine one block is so high that you need special hardware (not even GPUs work well now). Java script is waaaay to slow now. You'd be waiting years.
it would have to be in a web worker. it would have to be a site with high traffic that users will stay on for long periods of time, and even then, cpu mining (ala JS or any language) is pretty much a waste of time now. very few do it even with dedicated boxes -- everything has moved to GPU and forthcoming ASICs. not sure if you could offload JS web worker to GPU using WebGL or something, tho.
As far as I know there is no limit on the number of transactions, but there is a limit on the total number of possible bitcoins (about 21 million IIRC)
No. If someone does manage to control 51% of the computing power of Bitcoin, he's much better off using that to mine bitcoins rather than "cheating". If he'll use it to cheat, he'll cause panic, make bitcoin drop their value and undermine the source of his own potential wealth. It'll be much better for him to play fair and just gain (a lot, with that much computing power) wealth by mining.
I guess that's right. Someone with enough computing power could harm bitcoin to the point it'll be unusable. But the people with those motives (government, banks) are much less likely to be part of something like that than people with financial motives.
The market cap isn't the stat to watch on BTC- the daily volume is. With volume at something in the low millions of dollars it'd be very easy for the currency to be manipulated by dollar-based traders. There's not much evidence that there are large deep pocketed investors who will toe som imaginary line in the wake of a retail investor sell-off. Until volumes pick up the daily price ont he various exchanges represents the valuations of a distressingly low number of traders.
That said, I think bitcoin is super exciting and want to see it succeed. But it needs to be much more heavily traded, regardless of its dollar exchange rate, for that to happen.
"Pretty much seems to have hit the speculation threshold."
Based on what? Are you seeing something that suggests it's capped out for now? I'm asking because I'm at a complete loss to explain BTCs charts; all seems like gambling to me at the moment. That said, I haven't seen any numbers that really suggest the gambling is over.
From the article and from the valuation/volume charts that are available from MtGox and elsewhere. Having watched a number of things become the object of speculation (stuffed animals[1], old computers, internet stocks, real estate, Etc) if you look at their value over time and their trading frequency the traffic develops a quick jump and dump mode when folks are speculating. I attribute it to people buying, capturing gains, then buying again to capture more gains.
I don't think its "capped out" what I think is that a bunch of people are jumping into the currency to make a quick buck. And the way speculation works is very much like musical chairs, you jump in and sit down, jump in and sit down, and hope that when the music stops you were sitting down and not standing. If enough players have the stomach for it (it can be both exhilarating and scary to gamble a lot of cash) then the run will continue, once it crosses some threshold, it will come crashing down.
[1] Met a person at a garage sale that had over 1,000 "new in box" Beanie Baby(tm) stuffed animals, including some of the "really rare" ones. They were selling them for a dollar each, it was kind of sad.
Here's an attempt to track transaction volume, minus change transactions (the Bitcoin client almost always performs a transaction to issue change back to the sender whenever he/she sends money to someone):
http://blockchain.info/charts/estimated-transaction-volume-u...
Both of these metrics point to a slow but steady growth in the number of Bitcoin transactions conducted -- this in spite of a huge increase in their exchange value against the USD and other fiat currencies. So people are spending their Bitcoins. And this trend will likely continue as more companies accept Bitcoins.
I'm not getting an intuitive grasp on what the days destroyed tells you? Is it how many people are holding bitcoins? What does a higher number mean, what does a lower number mean?
You're absolutely right, Bitcoin Days Destroyed only indirectly tells us about transaction volume. What it's trying to measure is the amount of "hoarding" occurring in the Bitcoin economy. More BDD suggests less hoarding. So it looks like people are spending their Bitcoins more and more.
well there are more and more ways to spend them. in the usa soon you'll be able to pay for city services and you can already top up your phone worldwide as well as pay electricity in southafrica. You can buy stuff over amazon or with bitspend anywhere else.
A larger number means that people are holding onto BTC for long periods of time, a smaller number means that people are spending BTC soon after receiving it.
In a sense, its a more granular way of looking at money velocity.
Can you please explain what you mean by "a more granular way of looking at money velocity"? This is probably a good point, but I'm missing it. I understand "granular" and "money velocity", but am having trouble understanding what you mean here.
Money velocity is an aggregate phenomenon: if a single dollar is passed around a billion times, it is treated the same as a billion dollars passed around once.
Under BDD, if i understand it correctly, the single dollar case would result in a nearly 100% BDD while the billion dollar case is much more modest. It looks at each bitcoin independently. The dollar analogy would be if we kept track of every single dollar bill etc.
There are all kinds of charts under http://blockchain.info/. I guess it would be possible deduce a trade that occurred at a price that put the value over $1B but that depends on your exact definition.
Also the valuation might go over and under $1B multiple times in the future.
People keep comparing the "value" of bitcoin against the USD. If bitcoins were a truly useful currency, then there would be no need to value them against another base currency.
All currencies can be valued in terms of other currencies. Bitcoin can also be valued directly against goods. (as can other currencies)
The price of most goods is currently tied to some other currency, because most businesses have expenses in traditional currencies. But you get similar price fluctuations in international trade.
Yes, but for everyday purchases people do not care about that. Until bitcoin can get to that point, then it's not a useful currency. Especially since it seems like people bitch and moan now about things costing too much in bitcoin because it's currently strong against the USD.
It sounds like a metric that would satisfy the parent post more is some sort of consumer price index in Bitcoins? Perhaps that would be useful to have side-by-side with a Bitcoin-to-USD metric.
Sadly there isn't enough data for a consumer price index, because Bitcoin isn't a currency (in the extent that its main use is exchange for commercial goods), it's a financial sandbox.
Which means that it's susceptible to the wild fluctuations of any other financial security and is not the almighty digital currency that it's backers try to make it out to be.
I'm going to start calling it ShitCoin. Not because it's a scam and I hate it, but in the sense of "Oh, shit".
(BitCoin is doing well right now because of the Cyprus crisis.)
I have no clue about its directional future, but I can see it being, for the next 10 years, a way of betting against the world-- a distinction that gold used to have.
Even better though, it's like gold you can get for cheap for now. Assuming people don't stop using bitcoins, it's hard to imagine bitcoins not appreciating over time.
Either a major calamity like government intervention will end BitCoin, or it will be supplanted by different technology, or BitCoins will appreciate for decades. They will either be worth zero, or a lot in my estimation.
It's unstable. There's no barrier to entry. I could make a competing product called ZitCoin with a different inflation/deflation profile. At some point, it comes down to weird, fickle, and not especially meaningful brand effects. Then it's just speculation.
If you buy BitCoin, you're betting on the prestige of its being the first. Do people even know what the first fiat currency is? Or care?
People who sell at the top of BitCoin are going to make a lot of money, but for the long-term value, I'm betting on zero.
I don't think the comparison to the life of fiat currency is reasonable - no fiat currency outlives the nation-state backing it.
It is a fair point that there could be other competing, but not dominant currencies, which could lead to a non-zero, but low price for bitcoins. So perhaps, 0, a lot, or anywhere in between for the value of a bitcoin.
As long as the number of things you can buy with bitcoins rises over time, the value of bitcoin will rise. I don't think it is unreasonable that the momentum, including technology and community (not just brand around BitCoin) will make it a favored son in digital currencies. So it's not just buying it based on the prestige of being first, it's buying based on the value of being first. I actually bought my coins when YC invested in CoinBase, because I thought that was a strong signal.
It will be an interesting future where people buy currencies based on their mathematically-dictated value profiles, as opposed to whichever currency is sold by the local government, and _seems_ to be the most stable.
Trying to override market prices has been tried many times, and what always happens is liquidity disappears from the official market (e.g. nobody's willing to sell you a BTC for $1) and a black market with shadow prices emerges.
This is analogous to being present at the creation of the World Wide Web, but instead of getting excited about its obvious potential, one decides to stay on the sidelines because it's still unproven technology, almost no content has been made available online, commercial opportunities are virtually non-existent, etc.
As hockey superstar Wayne Gretzky said, "a good hockey player plays where the puck is. A great hockey player plays where the puck is going to be." Judging Bitcoin based on where it is today, instead of where one thinks it will be in the future, is shortsighted.
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PS. My full thoughts on Bitcoin's potential: http://cs702.wordpress.com/2011/05/29/on-the-potential-adopt... -- I wrote this almost two years ago, but my views haven't changed since then.
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Edit: In hindsight, I see how my quoting Gretzky could come across as arrogant, which was not at all my intention. The only point I was trying to make is that new technologies like Bitcoin should not be judged based on what they look like today, but rather on how one thinks they will look in the future.