AMA: Long-time DU lurker and democratic supporter, know everything there is to know about bitcoin

[Rassah]

Hi. Bitcoin has been even more in the news lately. I am an early bitcoin adopter, and have been heavily involved in it for years. I am also a very long time supporter of the progressive movement and the democratic party (I'm also gay, and a supporter of gay rights, women's rights, etc). Since joining DU in 2002, I have also completed degrees (BS and Masters) in business finance, and global business and economics, and have spent an enormous amount of time involved with politics and studying philosophy.

If you have any question about what bitcoin is, how it works (a non-techy explanation), how to get it, or how it might help or affect democracy and what it might mean for the economy in general, and if you want bitcoin answers from someone with a left-leaning perspective, instead of far right republican or libertarian perspective, feel free to ask.

[PoliticAverse]

1. Have you made a profit holding bitcoins, and if so have you paid taxes on the profits? n/t

[dipsydoodle]

3. If anything that would be capital gains tax.

How does that work in the USA?

[Rassah]

15. Capital gains would mean

I would have to pay 15% or so of the amount I convert back to USD. Sine I travel a lot, and many places around the world now accept bicoins, I can spend them directly, making the tax thing rather... complicated.

[Rassah]

14. I have made a gain...

but not exactly a profit. Until converted to USD, it is a capital gain in foreign currency. I would need to pay taxes on it when converted back to USD. (I have a regulat fll time job, and pay taxes through that, too)

[StrictlyRockers]

2. Explain to me like I'm five, exactly how bitcoins are generated/created.

Thanks.

[Whisp]

4. *Holds up hand*. I want to be 5 too.

bitcoins for dummies, please.

[StrictlyRockers]

6. Psht, no way, man! I already called five.

You have to be, like, six, or something.

[Whisp]

7. okay, 5 and Three Quarters then!

[enlightenment]

9. I'll take four -

I think the explanation for five year olds would be too complicated for me.

[OneGrassRoot]

8. +1 :) n/t

[Rassah]

17. This is a bit long...

but I think it's best to start wit how it actually works. So here's an explanation:

You and I both have a large sheet of paper (account ledger). Both of our papers have two lines, reading:

Account 1: 5 bitcoins
Account 2: 3 bitcoins

You are account 2, I am account 1. Both of us also have a secret signature that each of us can verify to be authentic, but can't actually see what it is (this is public/private key cryptography, and is beyond 5 year olds) Let's say I want to send you 2 bitcoins. To do that, I take out a scrap of paper, and write

Transfer 2 Bitcoin from Account 1 to Account 2
--- Signed, Account 1's Secret Signature.

Then I write the following on my own big sheet of paper

Account 1: -2 Bitcoin
Account 2: +2 Bitcoin

And pass that scrap of paper to you, and everyone else using bitcoins. When you get that scrap of paper, you look at your own sheet to see if I have the 2 bitcoins to transfer from Account 1 to Account 2, check that the signature that was used to sign that note is really valid (matches Account 1) and if yes, add the same +2/-2 information to your paper as well. Owning that secret signature is what enables you to spend bitcoins, so me owning the secret signature for Account 1, and you owning the secret signature for Account 2, allows us to spend money from our accounts. In the end, the balance of each account is the beginning balance, plus all the changes we have added on later (so, 5-2=3 for Account 1, and 3+2=5 for Account 2).

Now, let's say I write a message asking to transfer 9 bitcoins from Account 1 to Account 2, and pass that message on to you. When you get it, you will check your sheet, and see that Account 1 doesn't have 9 bitcoins. Likewise, let's say that I send you a message saying I want to transfer 2 bitcoins from Account 5 to Account 2. Even if the secret signature for Account 5 is valid, when you look at your sheet, you'll see that Account 5 doesn't even exist. This is basically how Bitcoin works, with everyone owning a copy of such a list of account and balances and passing any changes around, and is how it prevents someone from creating counterfeit bitcoins, or just creating them out of thin air.

Now, regarding mining or "generating/creating" bitcoins, basically, instead of you doing the work of writing those changes to the big sheet, you are delegating someone else to do it. You still keep a copy of the sheet and look at it to verify that accounts have the money they say they do, and you still verify that the signatures are correct, but what Bitcoin miners do is they actually thoroughly verify the transfer messages, write that information down on the sheet, and then generate an EXTREMELY complicated and nearly impossible to forge signature to sign off on all changes to the paper. It's as if they take each completed sheet full of these transactions, and stick it into a glass safe, where everyone can look at the paper, but no one can alter or mess with it (like posting accounting entrees to the ledger, in a way that can never be changed again). This keeps others from going back and deleting old transfers, or fudging with the numbers in any way, so, that, for instance, I can't send you 2 bitcoins, and then go back, delete that transaction, and try to send you those 2 bitcoins again (double-spending). For the work of verifying and securing the papers, miners get to write a new account on the piece of paper with 25 new bitcoins in it, which from then on belongs to them. That's the only way a system allows for new bitcoins to be added to the sheets, and how Bitcoin gets distributed in the community.

Hope that helps.

[Sissyk]

55. THAT

was incredibly helpful and understandable!

Thanks!

[kestrel91316]

5. I'm baffled by bitcoin mining - what sort of math problems are done to create bitcoins, and WHY?

Sounds like if you just do a bunch of calculations then somebody says "here's another bitcoin". Seriously??

[sendero]

10. One wonders..

.. how "Moore's law" was accounted for?

I've look at bitcoin from a cursory perspective, my only issue with it is simply that it is just another currency and everything and I mean everything that is abstract like currency can be gamed. the bitcoin fanatics seem to think otherwise but for the life of me I don't know why.

[Rassah]

20. Moore's law is kept in check...

by bitcoin's self-adjusting difficulty, whereby the protocol (all computers participating in the network) check how long it took to mine the previous 2016 blocks (which should take 10 minutes per block). The difficult is basically how many 0's is needed at the beginning of a seemingly random output of a SHA256 algorithm result that's used to sign off on the block (a block is a signed bundle of bitcoin transactions). So, everyone out there is tossing random numbers at the SHA256, once in a while (hopefully every 10 minutes) someone finds a number with, say, five 0's at the start of the signature. Once 2016 blocks are created, everyone's bitcoin software looks back to see how long those 2016 blocks took, and if it took shorter than 2 weeks, the number of 0's required is increased from 5 to 6. If it took longer, it's reduced from 5 to 4. Since you have about 256 digits to work with (maximum of 256 0's at the beginning, which is practically impossible), and each 0 makes the difficulty go up exponentially, there is pretty much no way for bitcoin to run into a computer system fast enough to break it.

As an example, when bitcoin started, people were using plain computers and laptops to throw random numbers at it, at a rate of about 5,000 to 20,000 per second. Then they switched to using CPUs on video cards, since those are much faster at it (your CPU may have 2, 4, or 6 processors, while your video card has something like 1,000 to 2,000 processors). At that point, the total amount of rando number throwing at Bicoin went up to about 10,000,000,000 to 80,000,000,000 attempts *per second* (as time went on, more and more people added their hardware to the network, making the combined number rise). Now people are using very specialized hardware, and LOTS of people bought hundreds of millions of dollars worth of this hardware, and now there are a total of 4,062,322,000,000,000 of these random throws being done every second around the world. Yet, despite this, the bitcoin protocol just reqires more and more 0's at the beginning of every signature, and the world still only finds one valid signature every 10 minutes.

So, from the hardware or hacking perspective, there's pretty much no way to game this system. However, from the screwing with the exchange market, insider trading, and other such typical stock/currency market shenanigans, yes, it can be gamed.

[sendero]

34. Well...

..... "So, from the hardware or hacking perspective, there's pretty much no way to game this system. However, from the screwing with the exchange market, insider trading, and other such typical stock/currency market shenanigans, yes, it can be gamed."

I appreciate your honesty as that is my basic assessment also. Of course it would be fair to say that virtually no medium of exchange traded electronically is immune to these forces.

I'm somewhat amused at the folks who say it is "backed by nothing", as if the dollar was. All currencies are basically confidence games with the possible exception of those backed by metals or the like.

I'm sure in the minds of most people the dollar could never become seriously devalued. If it ever loses "reserve currency" status they will surely find out they are wrong.

[IDemo]

44. Moore's law

refers only to the prediction that transistors per square inch of integrated circuits would double every two years; later adjusted to every 18 months. It is held in check only by the physical constraints found in chip manufacturing and the ingenuity of engineers in squeezing materials closer together on silicon.

[PoliticAverse]

30. The more fundamental problem seems to be the question of why a bitcoin should have any value at all?

They only have a value if other people accept them and other people will accept them only if
they have value.

[Rassah]

35. Yep

Last edited Thu Oct 31, 2013, 09:07 PM - Edit history (1)

A catch-22 that has taken Bitcoin 2 years to overcome. For the first 2 years, Bitcoin had no value, and was basically a worthless hobby. But now that so many people and companies value it at such a high amount, and so many people are using it as a tool for trade, exchange, contracts, escrow, etc, it will very likely continue maintaining value until a radically new tool replaces it.

[Rassah]

19. Mining is actually a method of securing accounting entrees...

using extremely resource intensive cryptography.

There is a function called SHA256, which when you pass some data to, converts that data into a really long line of gibberish. The gibberish looks completely random, but is not. And the function is designed in such a way that it's trivially easy to calculate the result from the inputs, but (almost) completely impossible to calculate inputs from the result. Basically, if I gave you a copy of that gibberish and my inputs, you can almost instantly check that the inputs do indeed spit out that gibberish, but if I just gave you the gibberish, there is no way for you to figure out what inputs I used.

What mining does is basically takes all the transactions that have happened since the last successful "mine" (each successful mining session is called a "block&quot , combine them with the gibberish ("signature&quot from the prior block, add some random number which is the only changeable variable, and send it through the SHA256 function to get a gibberish result. In order for this result to be considered valid, it must fulfill a "difficulty" requirement. In bitcoin, this means that the gibberish must have some agreed-upon number of 0's at the beginning. Since SHA256 doesn't allow you to start from a solution (one that has a bunch of 0's already) and just find the inputs, the only way t find a valid solution is to just keep changing that random number. Basically, imagine tossing a bunch of dice, and needing to have, say, 6 of the first ones you toss being 1's. The only way to do this is to keep doing it over and over until you get lucky. That's what mining does too, just toss dice (picks random number, attaches it to the transactions yet to be signed, along with the signature of the previous block) billions of times a second).

Obviously all his this requires an enormous amount of completely wasteful computational work. The purpose for this is what's called a "proof-of-work." The ONLY way for someone to come up with a valid signature (SHA256 result) that has a bunch of 0's at the beginning of the gibberish, and is composed of the new group of transactions, is to keep working at it over and over until you get lucky. Statistically, that "luck" is maintained to take about 10 minutes.

The purpose of this is to make it ridiculously expensive to change any transactions that have been signed in the past. So, for example, without this system, I can broadcast to the network that I have sent you a bitcoin, then go back into the bitcoin database, delete my transaction, and no one would know if I have spent that coin or not. I could likely spend it again. With this system, if I go into the database ad delete my transaction, everyone else checking the database will test the inputs (all the transactions except for mine), stick it into the SHA256 function, and get gibberish that doesn't have the required number of 0's at the beginning. Everyone will instantly know that the copy of the database I am trying to say is the real one is fake. And the only way for me to actually delete my prior transaction and pass it off as real is to do the job of "mining" a new signature for that block of transactions, one which would exclude my transaction. Problem is, everyone else in the world is trying to mine these signatures, too, and someone finds a new one every 10 minutes. So for me to be successful, I would have to be able to "throw more dice" (have more computing power) than everyone else in the world, combined. Practically impossible. This is how bitcoin keeps its transactions secure, and makes its database completely tamper-proof. And for doing this enormous job of signing and securing the chain of transaction, bitcoin users (the protocol itself, really), allows miners to give themselves 25 bitcoins, if they are lucky enough to find the gibberish with all the 0's.

Hope that wasn't too confusing... :/

[kestrel91316]

25. So all the calculations are a part of a massive program for making bitcoins theft-proof or

fraud-proof. I kinda get it. Thanks!

[Capt. Obvious]

11. I'm too buys Larping

[Rassah]

48. I do

Dagorhir. Does that count?

[pnwmom]

12. You mean, other than it's a ponzi scheme backed by nothing? n/t

[Rassah]

21. Bitcoin is not a Ponzi

Last edited Fri Nov 1, 2013, 09:26 AM - Edit history (2)

Ponzi: Set up and run by an individual or group that control it in secret
Bitcoin: Set up and run by everyone participating in the Bitcoin network, and everything is completely open and verifiable (open source software, transactions all public)

Ponzi: Promises returns on investment, sometime using some explanation of where money will come from
Bitcoin: No promises of profit from anyone (no one in control to make such promises), and no money making system involved (other than basically accountant salary to miners)

Ponzi: Uses new investor money to pay the old investors
Bitcoin: Old investor balances don't change, and new investor value doesn't decrease. If you are new, and you buy $100 worth of Bitcoin, you still own that $100 worth. None went to anyone else

Ponzi: Balances exist only on paper, and are fake. Your $1,000 balance may consist of $100 actual dollars, and $900 fake IOUs
Bitcoin: balances are exactly what they say they are. If you have 100 bitcoins, you have 100 bitcoins. There are no IOUs waiting to be filled by new investors

Ponzi: If there is a run on the bank, where everyone tries to pull out their money, very quickly all the real money runs out, and the only thing that's left is worthless IUOs, so the ponzi collapses
Bitcoin: If there is a run on the bank, someone selling their bitcoins means someone else is buying their bitcoins, so instead of a collapse with most of the value disappearing, you just end up with different people holding bitcoins. Since those people were willing to buy those bitcoins from the runners, those bitcoins still technically have value. The price might crash, as it did a few times, but it won't collapse.

Bitcoin is marginally similar to a pyramid scheme, where old investors become richer by getting new investors in, but it is actually closer to company stock shares, where the company is the Bitcoin economy as a whole. When bad news comes out, price tumbles. When new Bitcoin services come out, making the ecosystem more useful and valuable, price goes up.

[REP]

24. Wait - while obtaining your Finance degrees, Charles Ponzi never came up in any of your classes??

A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the high returns requires an ever-increasing flow of money from new investors to sustain the scheme.

The scheme is named after Charles Ponzi, who became notorious for using the technique in 1920. Ponzi did not invent the scheme (for example, Charles Dickens' 1844 novel Martin Chuzzlewit and 1857 novel Little Dorrit each described such a scheme), but his operation took in so much money that it was the first to become known throughout the United States. Ponzi's original scheme was based on the arbitrage of international reply coupons for postage stamps; however, he soon diverted investors' money to make payments to earlier investors and himself.

[Rassah]

42. Of course he has

We even had a huge section on Bernie Madoff. So I'm glad you know what ponzi scheme is. Now all you have to do is explain why that applies to Bitcoin, which doesn't return more bitcoins on deposit, isn't distributed by any single person, and has a reserve of 100%, meaning if everyone wanted to get their bitcoins, everyone would be able to get their bitcoins (as opposed to a Ponzi scheme, where people's account balances only exist on paper, and collapse if people actually request to withdraw them).

[REP]

49. Perhaps Finance degrees should require more writing classes

Your response to another poster - not me - left the distinct impression that you were unfamiliar with Ponzi schemes but had heard of pyramid scams. Now that I've explained to you what a Ponzi scheme is, perhaps you can explain to the other poster the difference between that and bitcoin (I already know the difference).

[REP]

65. I'm not the one who asked

Me: REP

Person who asked: pnwmom

[Rex]

13. Bitcoin and computer viruses seem to go hand in hand.

Jus sayin.

[Rassah]

22. Very true

Bitcoin gives virus creators an actual monetary incentive. There are now even viruses that encrypt your data with a password, and demand you pay them with bitcoin in order to get the password to get your data back. Stealing bitcoins with viruses has become much more difficult thanks to new software encrpting bitcoin wallets (a virus that steals bitcoin won't be able to do anything with it), and new hardware that runs it's own mini-computers that's impervious to viruses.

I think in the near-to-long run, we won't have to worry about viruses stealing bitcoins any more, and have to worry WAY more about viruses that extort people, or even about things called "autonomous entities," which are viruses that are designed to survive on their own, by earning or stealing money, buying their own hosting space to attack from, and even pay software developers to write upgrades to them. If sch a virus ends up being designed to run some sort of an illegal business (such as hosting and sharing copyrighted material), there won't actually be a real person to arrest and prosecute for the illegal activity done by this program.

[Kurska]

23. Wow that last bit was absolutely fascinating.

Do you know where I can read more about it?

[Rassah]

36. Too early in development...

But there are some discussions on various Bitcoin and tech forums about developing an autonomous replacement for Mega Upload, and some people are considering using Bitcoin's decentralized management and distribution system to set up an autonomous corporation. If you think of a bitcoin as a stock share, it sorta fits http://bitcoinmagazine.com/7050/bootstrapping-a-decentralized-autonomous-corporation-part-i/

Maybe some day we'll be able to literally program "Do no evil" into the core of a corporation

[JEdwards8th]

50. 'program "Do no evil" into the core of a corporation'

THIS! ^^^

I've often thought it made more sense to replace management with robots rather than labor. These days machine learning and AI is advanced enough that they could make most better decisions than these 1%-er CEOs do.

Makes more sense than having computers operate robots, which break down and need constant upkeep. Just replace the CEO with a machine. Doesn't even need a desk.

[KY5]

16. Aren't you worried that an unofficial currency such as this promotes market anarchism?

How does that jive with your progressive philosophy?

[Rassah]

28. I have had to rethink about what is important to focus on...

Last edited Thu Oct 31, 2013, 09:15 PM - Edit history (1)

Some examples of severe disruption:

Copyright laws ban making illegal copies of protected material, but leave room for fan-art. Trademark laws forbid the sale of recognizable products and materials. A year or so ago, created a robot from the BattleTech board game in 3D design software. That was technically fan-art, and was perfectly legal to create and share. Someone else downloaded that 3D design, stuck it into their 3D printer, and printed out a physical version of it. It is perfectly legal to 3D print stuff, so that by itself is not illegal either. But suddenly, two perfectly legal things created a trademark infringement. There is no legal precedent on how to deal with something like that. What's worse, this type of infringement is pretty much impossible to catch, and thus impossible to regulate. Passing a law making it illegal would be as effective as passing a law making anal sex illegal. Unless you check everyone's house 24/7, it's a waste of time. We have to rethink what copyright and trademark means, because the old ways of thinking about this just don't apply any more.

Gun ownership is heavily restricted around the country, including the kinds of guns and magazine sizes you can buy. But, as I'm sure you've heard, some guy in Texas designed and 3D printed his own gun from scratch, and tons of other people are now designing custom magazines and gun accessories that anyone can just 3D print at home. All of a sudden, restrictions on gun sales, regardless of how effective they are, will not help to change how many, and what types, of guns are out there. Anyone can just create whatever they want at home. Again, we have to rethink our (soon to be) obsolete laws. The genie is out of the bottle, and there's nothing we can do specifically about that. My guess is that maybe we can focus more on tracking mental health issues, or maybe even fight fire with fire, so to speak, and set up some sort of warning and incapacitating defense systems around schools and governments, like something that sets off a loud siren if it hears a gunshot, and uses some nonlethal means to incapacitate any source of the noise (sticky foam, focused sound blast, something else...). Honestly, I don't know what, but we really have to start thinking way beyond just political arguing and trying to pass laws to restrict what may not be possible to restrict any more.

With bitcoin, it's much of the same, really. For example, money laundering, whereby you obscure the source of your money by passing it through some business or some money laundering service, is illegal. However, with bitcoin, every transaction is public (you can see each coin bouncing from address to address on a public database, like on http://blockchain.info), so if you end up getting paid in bitcoin, your boss will know which address he paid them to, and will then know where you have spent it, since he would see which address you sent it to in turn. This level of breach of privacy is actually highly illegal in most of Europe, and the only way to avoid it is to obfuscate the coins by sending them through a bitcoin mixer, which is, in effect, a money laundering service. So, basically, you are forced to do one illegal thing to avoid doing another illegal thing, both of which don't actually make sense to be illegal in this specific case in the first place. This, plus the requirement of there being some governed authority to manage cross-border transactions, which is impossible with bitcoin, since transactions "just happen", makes bitcoin fall into this "some laws are obsolete and unenforceable" situation as well. So, from the aspect of "market anarchism," like with issues above, bitcoin will force us to rethink our approach, and figure out how to deal with the problem from some other angle.

On the other hand, there are a ton of democratic benefits that bitcoin provides, such as being a major threat to too-big-to-fail banks, allowing poor people from countries without banking infrastructure to secure money and spend it online, and, like twitter, allowing people in dictatorial regimes to organize, get funding, and resist their oppressors. Overall, bitcoin makes the concept of big banking (securing money, facilitating transactions, and even raising money for start-ups, charities, and investments) completely obsolete, since all of that can be done by individuals on their home computers, or even phones. And since I'm not a fan of corporate cronies, too-big-to-fail banks, and rich assholes buying our government politicians, I see this as a huge plus.

Oh, some real-world examples, I work with a charity fundraiser that helps charities receive donations through bitcoin (the coins are converted to their local currency when they are received, so the only use bitcoin for its money transmitting mechanism). There are a ton of countries in the world where VISA, MasterCard, PayPal, and eve big banks, ban any money transfers to. You'd think only places like Cuba and Ira, but these places actually include Russia, India, much of South East Asia, and parts of South America. With our help these charities, which are in places like Peru, Argentina, and Phillipines, have been able to receive tons of donations that they simply weren't able to before, simply because big banking corps decided their areas are too risky, or too poor to bother with.

[Ms. Toad]

82. Your IP classes did not serve you well.

Fan art is a derivative work of an original work which is protected by copyright, and it is is most certainly infringing to create and distribute. So is creating a 3D version of a 2D work. The fact that fan art exists and is distributed relatively freely is only because the owners of the copyrights have decided it is not in their best interests to try to quash it, or pursue infringement claims.

Trademark doesn't "forbid the sale of recognizable products and materials." It forbids using a source identifier (which is what a trademark is) in a manner which would confuse a consumer about the source of a particular product. A trademark is an adjective which serves as a source identifier for a particular version of a product. For example, there are lots of manufacturers of ibuprofen. In the phrase Motrin® ibuprofen, the "Motrin" identifies McNEIL-PPC, Inc. as the source for that particular version of ibuprofen. It would be infringing (essentially unfair competition) to use the mark Motrin with ibuprofen from any other manufacturer, because that would confuse the consumer as to the source of the ibuprofen. In the instance of trade dress, what is prohibited is using a look and feel which identifies a generic product as having come from a particular source - for example, the bottle shape which identifies a cola beverage as having come from Coca Cola, or the three spokes in a circle emblem which identifies a car as having come from Mercedes Benz.

I don't know which specific case you are referring to, but the way you've described the law isn't accurate. From the cases I can find related to Battletech (none of which mentioned 3D printing), there were licenses involved, questions of waivers, and affirmation in at least one of the cases that both trade dress and copyrights existed.

[Rassah]

89. Thank you for the info

I didn't actually have any IP classes. Most of the IP laws regarding fan art I learned from my years of being in a fandom based on a certain video game and cartoon character, mostly from others who claimed to have done some research. The rest I learned from news reports, blogs, etc.

The article in question regarding the 3D printed toy that spooked the toy company came out about 1.5 years ago. I believe it was covered in Wired. I can't find the original i read, but here is the UK version, in case you are interested

http://www.wired.co.uk/news/archive/2012-05/31/3d-printing-copyright

Personally, I'm still not sure what to think about all this.

[Ms. Toad]

93. Not surprised you're not sure what to think about it -

I hate it when journalists try to explain legal concepts... (although I'm surprised at Wired - they are usually pretty good)

Infringing a patent has much more severe consequences than infringing copyright (although they are correct that a patent term is shorter), and when I draft claims, one of things I try specifically to cover are replaceable components - the very thing the article says patents don't protect.

From a personal perspective - I think the copyright term is too long, but that way too many people who wouldn't dream of stealing something tangible which was created by physical work think it is just fine to steal things someone created using their mind (intellectual property).

(ETA: Most people I know with business degrees took a business IP course along the way - that is why I assumed your analysis came from a course.)

[Rassah]

102. My business degrees were mostly focused on finance, accounting, and econ-

so the only law classes I had were business laws that related to liability and contracts. Yeah, it's a bit strange that intellectual property wasn't really covered. Actually, on the contrary, the one class that did end up going over patents and IP was mostly discussing how IP is ignored and flaunted in developing nations like (especially) China, and how to protect your business so you don't have to rely on IP laws, with the assumption that they will become weaker or impossible to defend in the future.

[Ms. Toad]

108. With patents, at least,

the big boys and patent trolls will rule the world. Everyone else will live with the threat of having infringement claims brought against them. So more that they will be impossible to defend (because of the cost) than that they will become weaker - more slanted toward big business.

[Rassah]

109. I meant impossible to defend,

in the same way that P2P file sharing has made copyright impossible to defend. Right now that applies to digital media, with 3D printers that will apply to physical as well. And every time someone tries to squeeze that sharing technology out of existence, it morphs and slips through their fingers, just because people want to share. Napster was killed and was replaced by many central servers like eMule. That was attacked, and got replaced by BitTorrent. Torrent link sharing sites were attacked, so BitTorrent switched to a distributed database system (DHT). Should pressure be put on ISPs to track and ban BitTorrent users, people will switch to anonymous I2P BitTorrent sharing, and maybe even to bypassing ISPs with mesh networks. It's basically a perpetually losing game of whack-a-mole, and at some point it simply becomes cheaper to either closely guard your software and technology, or switch focus to providing service instead. iTunes is primarily successful for holding people's music for them, organizing it, and providing listening suggestions, instead of simply selling it, and Microsoft is viewed as a hero in China, because it reduced their Windows OS prices to $1 or less there, does not harass people for copying their software, and earns money through higher sales and through providing support.

So, in short, thankfully, the patent troll's days are numbered.

[Ms. Toad]

110. Actually, the patent trolls are thriving

and increasing. Because patent infringement cases are so tough to defend, most targets settle with the trolls for a few thousand or hundreds of thousands of dollars (much cheaper than spending multi-million dollars defending a patent suit), and the patent trolls turn around and use to sue more bona fide manufacturers.

As for copyright - all of the things you mention are means to infringe. So - as a practical matter, you are correct - copyright owners are finding alternate business models. In the long run, for many things, that will be more costly. MS, for example, is moving to annual fee based service for its office suite, rather than a license fee. The fee may seem small if you look at them on an annual basis, but they would add up to more than the license would cost. It turns the purchase of a copy with a perpetual license into a rent-to-never-own model. If you think of the rent-to-own furniture, it is the essentially the same model - and they are moving to it (in part) because people insisted on stealing copies, rather than purchasing a copy with a perpetual license. (In part, they are moving to the model because they aren't stupid - once the technology was perfected to protect their IP using a SAAS model, they saw an ongoing revenue stream rather than a one time sale.

[Arkana]

18. Bitcoin's a scam dreamed up by Ron Paul disciples.

Hope that helps.

[pnwmom]

26. It's a Libertarian dream -- freedom from the Federal reserve.

And it depends on gullible people buying in.

[Rassah]

47. Let me know if this is libertarian or not

Big banks are deciding more and more that low-income families and neighborhoods are too risky, and not worth doing business with. Due to this, families are routinely denied from opening even basic bank accounts, and some towns even have banks closing branches and abandoning people completely. My in-laws live in a town in western Maryland, and their bank branch closed down a couple of years ago, so getting a checking account means driving far, with your fingers closed. Since our economy is being based more and more online, with credit and debit cards, this means that these people are basically blocked from being able to participate. Here in west Baltimore, the only option for these people is to buy prepaid VISA debit cards at the local WalMart at ridiculous fees. Not only are the poor restricted from participating with the rest of us, but the poor get poorer just for trying. And that's just in US. Many countries in the world are just plain blocked by VISA, MasterCard, PayPal, etc, so the people here have no access to that system, and often no access to banks at all. Bitcoin is simple enough to run on a cell phone (even over SMS), to open an account all you need to do is download the app or sign up with a free online service, and you instantly get access to a secure private bank account, with a possibility to buy and sell anything online from anywhere in the world. And the transaction fees are typically fractions of a penny. It will very likely be an enormous equalizer for poor families in US, and 3rd world countries around the world.

I am gay, but my husband and I are lucky enough to live in a state that recognizes our marriage, so if anything happens to one of us, there won't be any issues with inheritance. Many other same-sex families around the country are not so lucky. So if one of their partners dies, their join ownership of their money and stuff isn't recognized by anyone. There have been plenty of horror stories about in-laws clearing out the survivor's bank accounts, because they claim that the survivor was just a friend, and thus have no legal right to anything that belonged to their dead partner. Bitcoin allows two or more people to establish joint accounts that are only spendable by those parties. In other words, the law doesn't matter at that point; if the gay couple decides to own a Bitcoin account jointly, only they have access to the funds in the account. Not because of a legal recognition, but because of the way the software is encoded. Maths. No amount of enraged in-laws yelling at it can change a math function. So in this way, Bitcoin allows same-sex couples, or any partners, really, to establish joint ownership of wealth that doesn't require any security but themselves, and can not be challenged by any outsiders who may disapprove of the relationship.

If you are an illegal immigrant (whether you snuck in to work on a field, or were snuck in by your parents without you knowing it), opening a bank account is pretty much impossible. So your only option is to get paid in cash, deal with cash, carry cash, and attempt to safely store cash (like low income families above). And if you want to send some money home to support your family, even if you are here legally, you have to use an international money transfer/remittance service, which costs 10% to 25%. Seriously, imagine having to give up a quarter of your earned income to some big bank, just so your family doesn't starve back home. Using Bitcoin, immigrants can receive payments on accounts on their phone (or even on paper, since to receive coins you just need an address, which is just a long string of characters). There are no issues with secure storage, since you can easily password protect your money. And as for sending money back home, you can send bitcoins themselves to your family anywhere in the world (for something like ¢1), and they can exchange it for their local currency for about 1% (there are exchanges in Mexico, Argentina, Brazil, China, Africa, and many more places). So, stand in line, give up cash, pay 10% to 25% fee, and hope the teller doesn't rip you off (not like you can sue them if you are illegal), or pick an address from an address book, enter amount, hit send, and have them withdraw it into their bank account, or pick it up as cash, for about 1%.

Or how about raising money for charity. Have you heard stories about PayPal and KickStarter shutting down charity fundraisers and seizing all the donated money, because the spur of the moment "Oh sh** this family needs help!" requests didn't file proper paperwork? Charities that use Bitcoin for donations can get funds from anywhere in the world, and no one can seize them (though please make sure you're not donating to a scam. P.S. If you are donating anything but blood to Red Cross, you are donating to a scam)

Plus there are things like donating to pro-democracy groups that have been banned from accepting donations by either dictator governments or corporations that don't want to look bad, being able to use it to give a big F U to crony corporations that paid off republicans to pass pro.monopoly regulations (large corporations push for more regulations, because these corporations are the only ones able to comply, thus keeping small competitors out, and tricking the government into giving them monopoly power), etc etc etc.

Bitcoin is just a tool. A tool is only what it's users make it to be. Libertarians are using it for their purposes. Progressives can use it for their own. In the end, whether Bitcoin is Libertarian or Progressive only depends on who uses it more.

[pnwmom]

51. Bitboin is just smoke and mirrors. n/t

[JEdwards8th]

56. Might be worth pointing out the storied history of bitcoin, as well.

"Satoshi Nakamoto integrated many existing ideas from the cypherpunk community when creating Bitcoin."

That's putting it mildly. It was a long time coming. Way before Paulite squirrelheads starting seeing potential in it. Like any currency, it's rife for abuse or useful as a tool.

If money is the root of all evil, then (BTC) is no different than (USD) in that regard.

As you eloquently point out, as it gains steam (which it will, whether Wall St et al like it or not) it will require a novel approach to regulation. They're going to have to look at how the coin itself works to figure out how to track and eventually ... well, the IRS wants its share. And if some fanciful day, one bitcoin trades for one dollar, then the IRS should get its share.

[Skidmore]

27. Sounds like a scam to me.

If you can't explain it clearly in a couple of sentences, it isn't worth people's time.

[Rassah]

29. I can try

It's basically the e-mail of money, with an accounting ledger backed by the most trustworthy, indestructible database on the planet.

Does that work?

[madinmaryland]

31. Who maintains this trustworthy, indestructible database. And who created it, and how do we know

that it is trustworthy or indestructible??

[Rassah]

38. Everyone

Everyone has a copy of the database, and all parts of the database are cryptographically signed (like a big CRC check), so everyone checks it for consistency and legitimacy. So, if someone losses a copy of the database, there are thousands of other copies out there shared over P2P (like over BitTorrent). If anyone tries to change something in the database without following the rules, everyone else will be able to check the changed copy against their own, and see that it was tampered with. Basically, it's set up so that no one trusts anyone else, and everything is verified. The entire database and software for it is also open source, meaning everyone can see everything that it does, and as such, it doesn't matter who created it. It has been modified, patched, and improved many times since then, too.

[Skidmore]

32. Nope. Still sounds like funny money to me.

[Rassah]

39. Better try...

Thought of this while driving home

Bitcoin is essentially a tool that enables two people to directly exchange information in a publicly verifiable, permanent, and unforgeable way. At it's core that's all it really is.

Mostly people use the system to exchange information about who has what balance in their account, but it is also used to cryptographically timestamp digital documents, as a notary service to prove ownership of a document, to set up publicly verifiable contracts, to issue private stocks and securities, etc. Basically if you need to establish ownership for something, be able to publicly prove that you own it, and be able to transfer it without relying on a third party, Bitcoin does it.

[oldhippie]

46. Thank you for that explanation and this thread ......

That was one of the best explanations of the concept that I have seen.

This whole thread has been informative. I have had a mild interest in bitcoin, mostly from a curiosity standpoint. I have a couple of MBAs, including one in Finance, but I never really delved into it and "grokked" the concept. Thanks to your explanations of the ledger and the mining concepts I am finally starting to get it.

Thanks again for jumping in here with this. It's a refreshing change from the usual topics.

[Rassah]

53. You're welcome!

I'm glad it was helpful to someone! I think it's an extremely important invention, and I wouldn't want to just leave it in the hands of libertarian basement dweller script kiddies

[JEdwards8th]

58. Oh, I like you. EOF

[MADem]

59. No computer, no money. And how do I use bitcoin to fill my gas tank or buy a donut?

I just don't see the utility.

It's like that box full of lire and Irish punts that I forgot to turn in when we switched to the Euro. I've got about a hundred bucks in lire, maybe twenty in punts, a couple of bucks in French francs....oh, and going back even further, I've got about forty bucks in "Shah-picture" Persian rials.

They're worthless, except as curiosities. I could probably get a few bucks for 'em if I put 'em in an artsy-fartsy frame and sold 'em to some money geek at a flea market, or something...

[Rassah]

63. You are right, it does depend on support

so in that sense Bitcoin is like a foreign currency. If no one near you accepts it, it isn't of much use. Luckily, more and more online services and brick&mortar stores around the world are starting to use it. Here in US I can't buy gas with it yet, but I can already use it to buy doughnuts, groceries, and even refill my phone (Gyft app helps a lot with that). Plus when I travel (and I do a lot), I can often either just spend my coins directly (9Flats let's you pay for lodging, and some travel agencies let you pay for plane tickets with bitcoins), or find someone local to swap my coins for local cash for me for pretty decent fees, compared to what exchange charge. And there are no worries with carrying $100 bills to exchange, either. Just a phone with a password, and a backup file at home.

BTW, I LOVE Italy. I remember using lire to buy gelato on a beach when I was a kid. And Kinder Surprise eggs. *sigh* Good times

EDIT: Oh yeah, and besides computers, you can store and use bitcoins on cell phones, and there are small keyfob sized and credit card sized devices being developed that will let you carry and use them anywhere. Also, since a bitcoin is basically a string of characters, they can also be made into coins (with the characters protected by a hologram sticker), or even just printed on paper. Though you still need an internet connection, or someone with an internet connection (even someone you are talking to on the phone) to verify it's authenticity...

[MADem]

64. I lived in Italy for seven or so years. Great place.

My lire is still no good anymore, though!

I might even have a few spanish pesetas in that old box, too.

One good thing about the Euro--it makes it easier to travel around Europe...

I don't have a feeling of great confidence about bitcoin, though. I don't see it lasting for too long--I think it will be a fad, like way back when, when tulip bulbs achieved absurd value and were selling for a fortune, http://en.wikipedia.org/wiki/Tulip_mania only to crash and burn (now you can buy 'em for cheap at any big box store).

[Rassah]

66. If bitcoins were just an alternative currency

I would agree with you. But people are doing such weird and crazy things with them, that even if the coins are useless, the database and tools it uses will still be incredibly useful

[MADem]

67. Like tulip mania....the tulips didn't hold their value, but they're still a cool flower... nt

[Major Nikon]

84. It also depends on continued appreciation which seems pretty risky at this point

The problem with accumulating bitcoins is they have no value beyond what goods and services people are willing to exchange for them. If bitcoins start to depreciate signficantly there will be no incentive for anyone to hold on to them and with no central bank to guarantee their value the bubble could pop overnight leaving the holders with little or no value and zero legal recourse. The stock market seems far less risky by comparison.

[Rassah]

91. Actually...

...that sounds exactly like the stock market If Bitcoin falls, you will still have companies and hardware, worth hundreds of millions of dollars, that will at least have some value to someone. Though probably not to those who hold bitcoin.
Also, don't forget, there are people out there who own from $30,000,000 to $70,000,000 worth in bitcoins. They have enormous incentive to keep it going, and enormous funds to help it happen.

[MattBaggins]

94. Interesting that you express that value in dollars

when bitcoin collapses those folks will be SoL.

[Rassah]

103. I am sorry, I have made an assumption...

I assumed you were American, and thus would be able to relate the price easiest in dollars. I could have just as easily given the price in Euro, Yuan, or Rubles. It's all relative, and I know for a fact some of those people don't live in US and don't use dollars, either.

As for those folks being SoL, I doubt it. Them knowing business, markets, and investments is a big part of why they have so much money. So they would be able to see problems coming way down the road, and either use that money to prop up and secure their wealth, or diversify move the money elsewhere, such as into stocks or property.

[Major Nikon]

101. Except there's no equity in a bitcoin

Which is a significant difference. You also don't have several governmental entities and numerous trade laws working for you with bitcoin, which is a significant difference.

[Rassah]

104. Bitcoin has value, an exchange rate, and will likely be treated as foreign currency

so all government regulations and trade laws still apply to it, just as they apply to any other foreign currency. The only thing lacking is a government responsible for issuing it, though I don't know how important that it. If 3rdWorldistan has a currency, you as an individual or as a business hold or transact in that currency, and then 3rdWorldistan had a government collapse or hyperinflation currency collapse, you can't really sue them to get your money back either... So, of course there is risk, but I think it's exactly the same amount of risk as in any other small country currency.

[TampaAnimusVortex]

33. It's not that one cant explain it clearly...

It's that most people couldn’t understand the concept of a decentralized cryptographic peer-to-peer currency in general. The population at large doesn’t understand asymmetric key encryption algorithms, yet uses them extensively every time they open a link that starts with "HTTPS" in the header. Understanding of how a motor works isn’t required to learn how to drive a car.

Barking that everything that one doesn’t understand "is a scam" rings back to those days when people thought the internet would never take off because it was too complex for the average person to grasp, or that computers were too complex for normal people to use.

Grandma and grandpa can learn to use a computer, the ipad, and yes, even bitcoin.

[grasswire]

37. this may be a stupid question

Is this the coin of Second Life?

[Rassah]

41. Similar

SecondLife also uses digital virtual currency. The difference is that SecondLife coins are issued and controlled by a single company based in California, and are subject to the whims of that company and regulatory requests of California's government, while Bitcoin is not owned or controlled by anyone (rather, it's controlled by consensus of the network; think democracy that takes 100% vote to change anything), and is not established in any geographical jurisdiction. It's just there on the internet, and that's it.

[grantcart]

40. Is it true that there is a preset limit to the number of bitcoins that can be created?

Who controls policy issues like the number of bitcoins that can be made?

[Rassah]

43. Yes, it's true

There can only be 21 million bitcoins, or, since bitcoins are divisible to 8 decimal places, there can only be 2,100,000,000,000,000 Bitcoin units.

Bitcoin is a consensus system. Everyone who has a Bitcoin wallet or participates in a Bitcoin system, verifies everything Bitcoin related. This includes whether or not the transactions it hears on the network are legitimate, whether transactions posted to the amounting database have a legitimate signature, etc. This way, if anyone tries to send bitcoins they don't own, or tries to create counterfeit bitcoins, will just be ignored by the network. In order to make any changes to the system, close to 100% of users have to agree to the change and use software with the included changes. So the process is
1) Someone submits an idea to the developers, forums, Reddit, or anywhere in general
2) Idea is discussed and debated extensively
3) If some people like the idea, they write new code to implement it, which is then checked and tested thoroughly on test networks
4) If enough people like the idea and the code, they add it to their applications, or download updated wallet apps that already include it
5) Once a high enough threshold of users is reached (close to 100%), the new code, which is dormant at this point, is automatically switched on, and starts to work.

So, unless almost everyone decides to change something, or unless a change is so beneficial that it's basically a no-brainer, changing anything is almost impossible.

[MattBaggins]

95. What a great way to stifle growth

[Rassah]

105. You don't really want growth in money...

If the rules and regulations underlying the dollar or euro changed constantly, people would be wary of using them, since they wouldn't be able to predict what they can do with them later. Like, if this dollar is tied to a galon of oil today, and a pound of silver next month, or if only dollars with even serial numbers can be traded this month, but only serial numbers divisible by 3 are tradeable next month, people wouldn't be able to plan for anything. So you want a system that's nearly impossible to change.

[Drew Richards]

45. Your explanation is overly complicated and lacking the broad overview...here I fixed it for you

http://www.democraticunderground.com/?com=view_post&forum=1002&pid=3850046

[Ruby the Liberal]

52. Saved me the trouble in finding the link.

Drew

Glad I scanned down before looking for it...

[Rassah]

60. there are a lot of different explanations...

But since Bitcoin was written by computer techies, and is mostly being developed by computer techies, all explanations I've seen so far are very computer techie. Talking about mining, cryptography, peer-to-peer, etc. Most people have no idea what that is. So I'm trying to explain in layman's "I just have a checking account and don't know anything about money" terms. Maybe I'm failing a bit *shrug*

[JEdwards8th]

61. An interesting point.

Alluded to earlier that it will get increasingly difficult to mine. Eventually if the problem is an existential threat, a version 2.0 algorithm could be substituted.

[Ruby the Liberal]

54. This isn't about Haystack-style back door access and/or decryption?

I was once heavily involved with Haystack back in 2009, but am not down with folding @home (sorry, fans) or anything that lends to processing being opened up for whatever nefarious means...

[Rassah]

62. Nah, the calculations are

Totally mundane, stupid, and useless. The resulting numbers aren't even prime numbers. Just random gibberish. For example, here is a recently found block

http://blockchain.info/block-index/436973/0000000000000006ed2fcd576bfbcfb7f295750d85ced86c680b3881964453f0

You can see all the information included in it, but the actual solution that was calculated was the number with all the 0's in the Hash section on the right. It doesn't mean anything other than being a valid signature for that financial information.

[2banon]

68. Thank you for this fascinating topic, and for your efforts in helping folks like me understand this

more.. I've been curious about it since I first heard about it, but essentially assumed it must be "unreal" in a practical sense..

But alas, I fear I'm still bit dense on the subject, because I still don't get if "miners" are actual humans, (monitoring/mining) or, is it a software application?

And how do I get started? Do I have to pay $ into the system to acquire/obtain bit coins, or am I generating bit coins by essentially leaving my computer on, connected to some sort of bit coin generator/mining site?

Or do I work at mining for bit coin?

Sorry to be so dense, but I'd love these concepts to be a bit more clear..

Thanks!

[Rassah]

72. Glad to explain

> I still don't get if "miners" are actual humans, (monitoring/mining) or, is it a software application?

Mining is done by hardware, being controlled by an application. To mine, you need a computer or specialized hardware to generate billions of random numbers a second, to find the "correct" random number. So the hardware is instructed by the software to pick random numbers, and then the software checks if the number is "correct." The software is a specialized application, and is not part of the common-use Bitcoin "wallet." People buy the specialized hardware (it can costs thousands of dollars), set up the applications, and run the mining from home (it can cost hundreds of dollars in electricity bills). At this point, mining is basically done by professionals as a small business, and everyone is competing against everyone else to be more efficient at finding these random numbers.

> And how do I get started? Do I have to pay $ into the system to acquire/obtain bit coins, or am I generating bit coins by essentially leaving my computer on, connected to some sort of bit coin generator/mining site?

Since mining is so expensive and specialized to start with (and since profitability on that business is almost zero), it's not advisable to start mining them. If you were to use your computer, you will burn way more electricity than you will earn in Bitcoin value. So, basically think of Bitcoin as a foreign currency, with the foreign country being "the internet." The easiest way to get them is just to exchange your local currency for bitcoins at one of many online exchanges (if you are in US, the easiest one is Coinbase). You can also offer to sell something for Bitcoin (such as on bitmit.net, which is like e-bay, or through your own business), or work and get paid in Bitcoin. Some new businesses are now set up entirely online, with no country as a base, employing people from all over the world, and paying them all with Bitcoin, so as to avoid any issues with currency exchanges and accounting issues.

To get started, all it takes us to open a Bitcoin account, which is as easy as downloading a Bitcoin wallet to your computer or phone, or opening an online wallet at blockchain.info, and you can receive and send bitcoins. No forms to fill out or personal info to give out. You can even create paper wallets at bitaddress.org. Then you can either buy some coins to add to your wallet on Coinbase, or ask someone for a bit to play around with.

[2banon]

73. thanks so much for clarifying... but one more question..:)

Say I purchase $10 worth of bitcoin.. I don't spend it, I "save" it.

Does the $10 accumulate interest or is there some sort of other "growth" device which would increase the $10 value over a period of time?

[Rassah]

74. It itself would grow in value

Since bitcoins are limited in supply (there can never be more than 21 million of them), as the demand and use of them goes up, there is fewer of them to go around, so each coin goes up in value. Or, to look at it from a company stock perspective, since the amount of stock issued is set, as the Bitcoin "company (Bitcoin economy as a whole) expands and develops more services, each Bitcoin share goes up in value to reflect that. A year ago, one bitcoin was worth $10. Now it is worth $200. There has been tremendous growth and adoption, especially in Europe and China.

[2banon]

75. omg.. should have gotten in when i first heard of bitcoin a few years ago

so, like so many shares of a certain stocks, there's no way I can get in without forking over a couple of hundred bucks for one bitcoin. darn!

and now with all of the press bitcoin is getting, it's probably going to soaring even more. oh well, another lost opportunity! shoot!

[Rassah]

76. If you really want to invest...

You don't need to by a whole Bitcoin. Since they are divisible down to fractions of a penny, ou can even just buy a 1¢ worth. And although it's worth $200 per coin now, it's expected to be up to $1,000 within two years (keep in mind that it's still in beta, there aren't any big companies using it, and most people still haven't heard or understand it yet). However, it's still crazy risky, and obviously no one should put in more than they are willing to lose. Focus on IRA and 401K first.

[2banon]

77. that's good to know..

so where does one go to do this?

[Rassah]

78. Easiest place I use is

Coinbase.com. There you can just link your bank account and transfer money in/out of Bicoin like you transfer money in/out of PayPal. But their fee is 1%. There's also CampBX.com, which works like a regular exchange, and you can send money orders to. They charge 0.5% fee

[2banon]

79. Bitcoin Primer for Dummies..

Ever consider publishing one? After all the time and energy you just put into explaining the fundamentals to us here!

By the way, is there anything I should have asked but neglected to before i wander down the Bitcoin path? If anything comes to mind, I'd be very grateful!

What was that Secretary of Defense Dumsfeld once said? 'There are the things that we don't even know, we don't know.....' .........something to that effect.

Thanks again!

[Rassah]

80. i don't know what kind of questions people might have

Since I know what I know, but I don't know what you don't know, I find it easier to have you tell me what you don't know, and fill in the blanks

If you do decide to go down the Bitcoin path, just remember to make backups before putting any money into anything, use strong passwords, and don't use PayPal for anything bitcoin-related. It's against their TOS, and they will lock your account.

[2banon]

85. That's important to know..

You probably already mentioned this.. if so, forgive me for asking you to repeat yourself.. since transactions take place on line, then it would straight from by banking account.. is that a legal problem or against Banks TOS as a rule?

[Rassah]

87. It's just a TOS thing, not a legal one

Paypal doesn't want people trading any virtual currencies, be they bitcoins, WoW gold, or SecondLife lindens, because there is no physical proof of delivery, it's difficult to figure out whether the exchange actually took place, and those currencies can't be reversed, while USD can be. So you could have a situation where someone buys bitcoins for PayPal, gets those coins, then just reverses their PayPal payment or claims that their account was hacked. Big headache for PayPal. Banks are a bit more lenient on this, as long as they know they are working with a currency exchange.

[2banon]

92. thanks!

You've been very generous with your time, I appreciate all this information and answers to questions..

[MattBaggins]

96. Your best choice is to open a bitcoin wallet, create an anonymous account on websites

and get people excited about bitcoin.

You can do the same thing with penny stocks or gold coins.

I am sure the OP is sending PMs to people to join his "pool".

[2banon]

98. I haven't received a PM from anyone yet..

Sounds like if I want to invest in penny stocks or gold coins or bidcoin, I'd need to go out and hype the product if I want to see gains.. Do I read that correctly?

[MattBaggins]

99. No you would not have to

but it is the best method. There is a fixed number out there that are getting harder and harder to find. You need a team of suckers to help mine them and get people interested in them to keep their value going up.


I would suggest looking at some pro and some anti bitcoin resources before choosing to get into it.

Bitcoin is another get in early and sell off first system.

[2banon]

100. I'll consider your perspective and suggestion.

[Rassah]

106. FYI...

I'm not sending PMs to anyone, and don't want people to get excited about bitcoin. It's too new, and I don't want it to grow too fast. It's still not easy to safely store them, especially if you are on a Windows machine and use the same 8 character password for everything.

I also STRONGLY advise against mining, as at this point mining them isn't for "suckers," but for extremely well capitalized professional businesses that know what they are doing. You likely need to dump $50,000+ into mining equipment just to have any chance.

As for the get in early and sell off first system, if one person has bitcoins, and he sells them off, that sale would mean that those bitcoins simply went to another person. The bitcoins don't disappear, they just change owners. So selling them off won't really have any effect on their value.

My only goal is to help people to understand what it is and what it can do. A lot of people seem to have a misconception that it's just a virtual currency that's not controlled, isn't actually worth anything, and can't be used for anything other than paying for drugs or illegal stuff online. In reality, it's a programmable store of value that can be made to store anything, from money, to contracts, to property deeds, and in any way, from single person ownership, to distributed ownership, to even conditional ownership, where it is owned by X until time Y, or until its value grows to Z. You can do things like escrow, or kickstarter fundraising campaigns, right within the bitcoin programmable protocol, meaning if it takes off, it can make a lot of those types of companies obsolete. It's basically TCP/IP for money. And it's controlled by a mathematical algorithm way more strictly than any organization of people. You can bribe people, or hold a gun to their head, but you can't do that with a math function. That's a fact, which people who understand it are dumping millions of dollars into to develop. It's up to whoever knows this whether they want to get excited, or consider it as too risky and avoid it until it becomes as ubiquitous as credit cards.

[LWolf]

69. I have never heard of bitcoin before.

Scanning through this thread, it seems to be some kind of virtual credit system?

[Rassah]

71. Using correct terms,..

It's actually a virtual asset system. Credit implies you trade IUOs, like certificates issued by someone, which you can exchange back for stuff with that someone. For example, gold-backed USD was a credit system, in that each dollaw was an IUO (credit) for some amount of gold. Now each dollar is an IOU for some part of US debt.
Bitcoins are not issued by anyone, since they are "mined" for and created by the system as a whole, and they are not backed by anything, since no one owes you anything in exchange for them. So they are basically a digital asset, like digital gold or something. Like all things of value, bitcoin's value is derived simply from the fact that people are willing to trade for it, and it's benefits over existing assets are that it's entirely digital (was designed for the web from the ground up), borderless, and not associated with any group, government, or country. They are basically a totally neutral form of money designed for the global internet economy. One big benefit of it being an asset over a credit is that you can own it independently of anyone else. For example, if you own dollars, euros, stocks, bonds, or backed securities, you are entirely dependent on the issuer of that item. So currencies can fluctuate or be ceised (as they were in Cyprus), or issuers could default on the IUO, as happens with stocks, bonds, etc. On the other hand, if you were to own an asset, like real estate, precious metals, or Bitcoin, that asset depends entirely on you to secure and trade with. With Bitcoin being digital, it means you can take something that can be valued as much as a whole house, stick it on a USB stick, and carry it around with you.

At present not a lot of places take bitcoins, but more and more companies are starting to accept them alongside their local currencies, since they allow anyone in the world to sell stuff to anyone else in the world with very little friction or fees.

[LAGC]

81. Are you worried at all about the possible advent of quantum computing?

Breakthroughs in quantum computing technology could lay many of today's cryptosystems vulnerable overnight.

Isn't it dangerous having a public ledger that could theoretically someday be cracked and all transactions (many illicit) laid bare to full scrutiny of the state?

[Rassah]

88. It's not a big problem, apparently

Satoshi must have come from the future, or something, because when this issue was raised and examined, it turns out that he may have taken this into account, too. Basically, you have a private key (that lets you sign transactions), from that is derived the public key (which is the behind-the-scenes account number address), and from the public key is derived the bitcoin address that everyone sees. If all we used were public and public keys, then yes, using the public key a quantum computer can figure out the private key and steal the coins. But since only thing that's seen publicly is the bitcoin address, which is the hash of the public key (which is the hash of a private key), there is no way for a quantum computer to solve the private key. When you send money from a bitcoin address, then yes, your bitcoin address, public key, and private key signature are all publicly broadcast, and at that point a quantum computer can see the public key and get the private one, but as long as you don't send money, or if every time you send it, you send all remaining change to a completely new address, quantum computers won't be able to do anything.
Also, once we get close to quantum computers being a problem, the whole world will start switching to quantum-resistant algorithms.

[solarhydrocan]

83. Would it be correct to say that Bitcoin is the very definition of a Fiat Currency?

Last edited Mon Nov 4, 2013, 12:06 AM - Edit history (1)

Thanks for the thread- very informative and helpful.

Perhaps consider another to explain in just as easy to understand language the pros and cons of the Federal Reserve. I'm guessing more people would question the need for it if more knew about it.

[davidpdx]

86. Fiat money lacks intrinsic value

So yes, Bitcoin is a fiat currency.

[Rassah]

90. I would say so...

I would call it fiat, because it is unbacked, and just is.Others would argue that fiat, by definition, means that some group or entity declared "let it be so" in order to give something value. I guess it would depend on what definitions and colloquial uses you prefer.

Regarding the Fed Serverve, the pros is we get a stable currency, regardless of whether big banks gamble with people's money and lose it all, or governments go on warring adventures and forget to actually pay for it. The cons is we get big banks and war-crazy governments with a no-limit credit card and no consequences like the kind these people deserve (those people really belong in jail). Since we don't feel the hurt, people in general don't seem to care much. So, I guess the answer to that is, do you prefer to have people insulated from the damage caused by their representatives and servicers (good), and as a result have them be apathetic to the actions of those bad people (bad), or do you prefer people to feel the full brunt of the actions cause by those bad people (bad), and force them to take notice and punish those a-holes (good).

[MattBaggins]

97. When other groups start the whole mining over again

calling them shitcoins, nitcoins, witcoins, nitwitcoins, shitwitcoins...etc

will bitcoin users go running to governments to protect their currency?

[Rassah]

107. Other groups already have

Last edited Tue Nov 5, 2013, 05:17 PM - Edit history (1)

There are already Litecoins, Worldcoins, Feathercoins, PPcoins, Freicoins, Devcoins, Primecoins, and even BBQcoins and Cosbycoins. Mining has little, if anything, to do with any coin's value. It's about as relevant as the value of dollars being dependent on how fancy the printers are at the US Mint (why do you menlieve mining is important, or relevant, to bitcoins?) The only things that maintain value in these distributed systems is demand, which is supported by network effects. Network effect is basically everyone using something because everyone else is. Everyone prefers buying/selling on eBay, despite dozzens of competitors, because that's where everyone else is, so you'll get the best selection and the best prices. Everyone prefers to use Windows, because that's what most software is written for, and where most customers and users are. Everyone prefers to use Facebook, despite tons of alternatives, because that's where all their friends are. It's the same with bitcoins. Everyone will gravitate towards bitcoins because they have the most software and hardware support, and can be used in most stores, and all store owners and developers will gravitate towards bitcoins because that's where most users and customers are.

Also, governments can't ban or regulate this currency, but that also means they can't protect it. It's pretty much out of reach of everyone. So, no, no one will go running to governments, even if they want to. though many organizations, like the Bitcoin Foundation, is helping governments structure regulations around its use.

EDIT: You seem to be rather hostile to Bitcoin, or anyone who may mention or use bitcoin (as if they are all just scammers or something). Bitcoin is a tool. It has certain functions. I can take a jar of tasty, delicious Nutella, bash someone on the head with it, and steal all their money. That doesn't mean Nutella is an evil thing created by robbers to be used for separating people from their money. If you don't like the people that use bitcoin, don't get involved with them. That people, however, do not reflect what bitcoin is, any more than someone who bashes heads with Nutella is a reflection of Nutella. If you have concerns about bitcoin functionality itself (and I'm sure there are plenty, as there are plenty of misconceptions and misunderstanding), then point those out instead.

[icymist]

111. Let's kick this back up since Bitcoin is in the news...

Major Bitcoin theft from website, claims owner
Source: BBC News

A man who ran an online "wallet service" for storing Bitcoins has claimed hackers stole virtual currency from his site worth more than one million Australian dollars.

The Australian man said 4,100 Bitcoins (US$1.04m, £650,000) were taken in two separate attacks.

He said he would not report the theft to police as Bitcoin transactions are virtually impossible to trace.

This has led some users to speculate whether it was an "inside job".

http://www.democraticunderground.com/1014643081

http://www.bbc.co.uk/news/technology-24871444

[Rassah]

112. He made a really stupid mistake

one that anyone running an online bitcoin service should already be aware of and never be making. And that is, he was storing all the bitcoins in what's called a "hot" wallet, which is a wallet connected to the internet, along with the website, instead of holding 90% of the coins in a "cold wallet," which is a PC that is not connected to the web, and thus can't be hacked. Since bitcoins are basically a string of random digits, it's possible to copy that string to a disconnected computer, delete it from the online computer, and "lock" them away, only taking them out manually a bit at a time when people make withdrawals larger than 10% of the hot wallet. As far as I know, all such bitcoin services do this, but apparently this guy didn't. And yes, it could be an inside job, but just as the FBI wouldn't be able to track where those coins went or prove anything if they were stolen, there is no way for anyone to prove whether or not he himself stole them, either. Lesson is, never trust your coins with others. That's why local wallets, phone apps, and even blockchain.info (which doesn't keep copies of your private keys) are for.