Bitcoin

[afx114]

Bitcoin’s going crazy this week after some media hype, a mention for Bernanke, and a big Senate hearing today. I figured Piggies would be all over this shit, so I was surprised to not see any posts about it on here. China’s play to dethrone the USD? The future of finance? The alternative-to-fiat currency that the Paulites have wet dreams over? Or another bubble doomed to bust? What say you, Piggies?

• Bitcoin surges to all-time high of $900, then drops below $650 in 30 minutes
• Ben Bernanke’s letter to Congress: Bitcoin and other virtual currencies “may hold long-term promise”
• Senate Committee Listens to Bitcoin Experts, Expresses Open-Mindedness

As a techie, it’s fascinating to me. De-centralized P2P, SHA-256, mining, trees, blocks, headers, all this shit turns me on. But as an amateur no-nothing finance guy, I’m not so sure.

[scaredyclassic]

sounds nuts. but no nuttier than the us dollar.

[an]

I call bubble. When it’ll pop, who knows, but it’s definitely not sustainable. At this rate, it’s definitely profitable to just start farming your own bitcoin.

[CA renter]

Looks like a bubble to me, but I tend to be wrong where tech and fads are concerned. People are crazy.

[jeff303]

[quote=AN]I call bubble. When it’ll pop, who knows, but it’s definitely not sustainable. At this rate, it’s definitely profitable to just start farming your own bitcoin.[/quote]

It’s extremely difficult to make money farming, unless you are willing to invest tons of time and money into specialized, low power equipment. It’s probably far easier to make money by building and selling specialized “bitcoin farming” computers, given the current hype.

[The-Shoveler]

I don’t know, kind of a dangerous Idea this bit coin is.
Kind of like opening pandora’s box.

I don’t know if people can take the knowledge that the whole economy is basically just a concept.

But then again it has no standing army.

[joec]

I can’t say I know at all how this bit coin works…Can someone summarize how one farms or get bit coins? I watch bloomberg a lot and they were saying how since there is a finite amount, some people may just end up buying it to hold instead of using it for commerce. The lack of stability in this thing makes it extremely limited in use if you have to worry about currency fluctuations…

[(former)FormerSanDiegan]

Bitcoin acts a lot more like a commodity than a currency… a virtual commodity.

[livinincali]

[quote=joec]I can’t say I know at all how this bit coin works…Can someone summarize how one farms or get bit coins? I watch bloomberg a lot and they were saying how since there is a finite amount, some people may just end up buying it to hold instead of using it for commerce. The lack of stability in this thing makes it extremely limited in use if you have to worry about currency fluctuations…[/quote]

Bitcoins are a crypto currency. Basically mining bitcoins is producing solutions to increasing complexity hashing algorithms. In the early days one might be able to mine multiple bitcoins on a personal PC in a day now it might take a super computer a week to produce one. At this point each bitcoin that is mined might be worth less than the electricity and depreciation associated with producing it.

It’s works much like a ponzi scheme in that those that started at the top/beginning win and those that get in late lose. Somebody that spent $1 to buy bit coins 3 years ago might get $100K today because of the increased demand and limited supply but that increased demand works only for as long as you have an exponential pool of suckers to sell to.

[afx114]

It’s a bit complicated to call it just a currency or just a commodity. Mining is only one part of it (the commodity part). The other part is as a currency.

http://bitcoin.org/en/

On the commodity side, they are created at a predictable and limited rate. The more that are created, the harder it is to create more. The system is calibrated so that they will all be mined by some specific date, I think I saw 2050 or something. There is a max that will ever be created, but they can be divided into as small of pieces as you want.

In general, Bitcoin is trying to do for money what the Internet did for communications. Borrowing from http://bitcoin.stackexchange.com/questions/336/what-is-a-good-way-to-concisely-explain-bitcoin: “Email let us send letters for free, anywhere in the world. Skype lets us make phone and video calls for free, anywhere in the world. Bitcoin lets us send money to anyone online, anywhere in the world.”

From the same thread: “Bitcoin does everything you’d like a currency to do, and it doesn’t have any of the drawbacks associated with any of the other currencies available.”

I’ve seen it described as “a startup currency.”

I’ve seen it described as “a truly single global currency backed by the full faith of the world” rather than the full faith of an individual, country, or company.

I’ve also seen it described as “a real-life version of Sci-Fi’s ‘Credits’.”

As a techie futurist sci-fi geek it turns me on, but as an amateur no-nothing economist I’m not so sure what it all means.

[(former)FormerSanDiegan]

[quote=afx114]It’s a bit complicated to call it just a currency or just a commodity. Mining is only one part of it (the commodity part). The other part is as a currency.
[/quote]

A currency is commonly used as a medium for exchange of goods or services. A commodity is something that is bought and sold with currency.

I believe bitcoin is currently a commodity because people hardly ever use bitcoins to pay for something. They buy bitcoins as a means to someday sell them at a higher value (in some currency such as $) in the future. They then then sell them and use a common currency (like euros or dollars) to buy stuff.

[afx114]

Small samples of Bitcoin as a currency:

• Bitcoin Now Accepted at World’s Largest Game & Gift Card Retailer.
• You can now buy WordPress.com (world’s largest blogging platform) upgrades with bitcoins
• Meet the Subway franchise owner who accepts bitcoins
• Shut up and take my bitcoins! A map of Bitcoin-friendly businesses

Obviously the recent volatility is an issue, because your Subway sandwich may cost 0.005 Bitcoins when you order it and then cost 0.009 Bitcoins when you go to pay 2 minutes later.

What happens when Starbucks starts accepting Bitcoins?

[no_such_reality]

[quote=afx114]

What happens when Starbucks starts accepting Bitcoins?[/quote]

Theft of Tide will fall dramatically.

[all]

An army of bots is mining. It might be more profitable to use bots for mining than for spamming.

[afx114]

[quote=all]An army of bots is mining. It might be more profitable to use bots for mining than for spamming.[/quote]

That’s what the difficulty metric is for:

The difficulty is the measure of how difficult it is to find a new block compared to the easiest it can ever be. It is recalculated every 2016 blocks to a value such that the previous 2016 blocks would have been generated in exactly two weeks had everyone been mining at this difficulty. This will yield, on average, one block every ten minutes. As more miners join, the rate of block creation will go up. As the rate of block generation goes up, the difficulty rises to compensate which will push the rate of block creation back down. Any blocks released by malicious miners that do not meet the required difficulty target will simply be rejected by everyone on the network and thus will be worthless.

Keep throwing bots at it, the harder it becomes to mine successfully.

[Author]

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