I really like the idea, but I have a question about how transaction growth can be sustained once all 21MM bitcoins have been generated. In order to support borrowing/lending IMO you need an increasing supply of currency. Otherwise where will the interest on debt come from?
The only other type of non-inflating "currency system" I can think of is the market for collectibles (baseball cards, limited edition artwork, etc.). But collectibles have intrinsic value while bitcoins only have value inasmuch as they are useful for transactions.
So, TLDR I am concerned about the long-term viability of bitcoins
To ensure that all debt can be paid back with interest the money supply must continually grow - FALLACY! See this simple google spreadsheet - http://bit.ly/f2yE4D
This is largely true. Bitcoin is a brilliant idea combining a several innovations that in and of themselves would be laudable. Still, it is most likely true that expecting Mr. Satoshi Nakamato to have a perfectly formed working model of a new financial system at one go is unrealistic, even with his obvious brilliance and dedication.
As a corollary to your point, other world currencies are going to be considerably more inflationary than Bitcoins the longer this experiment last. Then converting bitcoins to a national currency with a more profitable interest rate is an inevitability. bitcoins will be sucked into financial services rather than building out a viable economic platform for the currency.
That strikes at the heart of it, IMHO. The current currency distribution model is good at least in the sense that the newly "printed" currency is allocated for the most part by banks with (ostensibly) some degree of investment saavy. Here, we are asking "network operators" doing the proof-of-work algorithms to essentially act like banks and distribute bitcoins into larger circulation. That seems likely to cause problems.
You are entirely correct. This will eventually develop all the problems associated with a strictly limited currency. If a nation's economy was purely based on bitcoins, one would expect that economy to quickly grind to a halt as people start hoarding their bitcoins instead of investing them in businesses, etc. (BTW something like this is currently happening to the world with gold).
However, I doubt any economy will be purely based on bitcoins. If successful, the bitcoin will merely be a useful way to do painless and anonymous internet transactions, and not the only money out there. And if bitcoins get too rare for internet transactions (because people are hoarding them) it would be very easy for someone else to start another bitcoin-like currency.
To try to answer my own question, I believe the asymptotically decreasing inflation in bitcoins is compensated by its increase in value against traditional inflationary currencies.
For example, on the surface it looks like a bad deal to lend someone bitcoins when almost all bitcoins have been generated. You will most likely receive a very low interest rate. Why wouldn't you just convert to some other currency (say USD), lend money out in that currency, and capture a higher interest rate? The answer is that because since bitcoin inflation will be nonexistent by that time, its exchange value against USD would increase by precisely the amount of US inflation.
A gentleman's agreement between a certain faction of econ-crypto-tinfoil-hat-botnet nerds to assign trade value to the wastage of increasingly large amounts of electricity.
Security Now on TWIT tv covered Bitcoin today. Steve Gibson does a pretty decent job describing it. http://twit.tv/sn287 Bitcoin coverage is from 0:41:25 to the end of the podcast.
online currency which is not controlled by one issuing center but is being "generated" by all members of p2p network. this currency has limit on number of coins in circulation.
I read the wiki on BitCoin and I still don't understand how the BitCoin forex market is made. Usually currencies are based on national GDP and that sort of thing, but I haven't the faintest as to what controls the strength of this currency. Can someone enlighten me?
Floated currencies are NOT based on national GDP and that sort of thing. They are based on the price that someone is willing to pay and someone is willing to sell. I.e. if someone will spend 1 AUD to buy 1 USD, and someone is willing to sell 1 USD for 1 AUD then the price of 1 USD is 1 AUD. This is completely unrelated to GDP (although GDP might be used as a marker of confidence that indicates security of currency investment).
Most of the comments here are "why bitcoin?" I'll ask again, but in a form that I hope is slightly more detailed:
Gold was valuable before it started being used as money. It started being used as money because it has several valuable properties: it's rare, it's portable, it's fungible.
Why would someone start using bitcoin? Who will accept a bitcoin in trade, and why is that bitcoin more valuable to them than $1?
It has almost all of the same characteristics of gold, though in some ways more convenient. Bitcoins are rare, portable, fungible, divisible, durable, etc. The system is fairly anonymous, completely decentralized, completely free market. And for many, it's more accessible than gold/silver. Bitcoins have increased in value and are expected to continue increasing in value for some time, unlike government fiat currencies.
If you look at some of the charts from the trading websites, you can see they weren't all that valuable right away. But as more people learned of bitcoin and the way the system is designed with it's anonymity and security, as well as it's hard money qualities, it started to catch on.
A single U.S. penny used to be able to buy lots of bitcoins. At this moment, not even $1 USD can buy a whole bitcoin. It's generally expected that it will take many USDs to buy a single bitcoin before too long.
Wow, I just learned about bitcoins and I have to say they are very clever. Their brilliance is in that they play to the urge to collect in humans.
You run the software and makes bitcoins for you. Almost like earning money in your sleep. And of course once you have "earned" these bitcoins by installing the software you have a psychological inclination to assign actual value to them.
Of course like most things academic it falls flat on its face on execution. My software did not work. I had to spend half an hour diving through forums and wikis to find some obscure command line argument that may make it work, although I am still not sure it is working properly. Of course 99% of ordinary people would have just given up.
So the folks at bitcoin have ensured that only persistent nerds like me use their service.
All I did was download the client and run it. It "just worked" for me without doing any special on either Linux or Windows (XP). This was with the current version 0.3.19.
All I wonder is, what happens if you delete a portion of the wallets in existence. Given that the supply of bitcoins is limited, does that mean you've essentially permanently destroyed part of the bitcoin economy?
"No central authority" ? Well, I think the guys who decide there will only be 21 million bitcoins can be considered a central authority.
Currency, in any form, is deemed to have a central authority -- national currencies, for example, have real-life value because states limit the available quantity. In this case, the Bitcoins people are acting as the central bank. Especially when I see that the total produced bitcoins will be halved each year by decision.
Someone proposed 21 million coins, and others, by voluntarily choosing to run the software, agreed to the 21 million coin limit. That's not a central authority...just an agreement between individuals.
In all of your statements you're conflating a protocol, and voluntary social agreement, with a central authority.
Anyone is free to fork the software and change the rules to create their own protocol for people to use! If they like the rules, they join...if they don't like the rules, they don't join. Freedom.
Wow. The value has roughly 4x-ed since I was looking at bitcoin for the first time a couple months ago.
Maybe it is worth it to implement my idea of writing something that tries to get free cycles out of EC2 Spot instances by predicting when the price will rise and spinning up instances before it does. (They don't charge you for fractional hours if they kill you due to a price increase.)
EDIT: I think it's actually gotten a little less favorable to generate bitcoins. My cheap VPS peaks at 1M hashes/sec, which according to http://www.alloscomp.com/bitcoin/calculator.php used to mean it would take around 250 days to generate a block, as I recall. Now, the value of a block has 4xed, but the average time to generate a block at 1M hps is now 1300 days, which is more than 5x as long.
[+] [-] svrocks|15 years ago|reply
The only other type of non-inflating "currency system" I can think of is the market for collectibles (baseball cards, limited edition artwork, etc.). But collectibles have intrinsic value while bitcoins only have value inasmuch as they are useful for transactions.
So, TLDR I am concerned about the long-term viability of bitcoins
[+] [-] 0x6763|15 years ago|reply
Intrinsic value - FALLACY! Behold, the Subjective Theory of Value - http://en.wikipedia.org/wiki/Subjective_theory_of_value
Concerned about long-term viability of bitcoins? Maybe your concern should be with learning logic and economics first.
[+] [-] rdixit|15 years ago|reply
As a corollary to your point, other world currencies are going to be considerably more inflationary than Bitcoins the longer this experiment last. Then converting bitcoins to a national currency with a more profitable interest rate is an inevitability. bitcoins will be sucked into financial services rather than building out a viable economic platform for the currency.
That strikes at the heart of it, IMHO. The current currency distribution model is good at least in the sense that the newly "printed" currency is allocated for the most part by banks with (ostensibly) some degree of investment saavy. Here, we are asking "network operators" doing the proof-of-work algorithms to essentially act like banks and distribute bitcoins into larger circulation. That seems likely to cause problems.
[+] [-] hristov|15 years ago|reply
However, I doubt any economy will be purely based on bitcoins. If successful, the bitcoin will merely be a useful way to do painless and anonymous internet transactions, and not the only money out there. And if bitcoins get too rare for internet transactions (because people are hoarding them) it would be very easy for someone else to start another bitcoin-like currency.
[+] [-] svrocks|15 years ago|reply
For example, on the surface it looks like a bad deal to lend someone bitcoins when almost all bitcoins have been generated. You will most likely receive a very low interest rate. Why wouldn't you just convert to some other currency (say USD), lend money out in that currency, and capture a higher interest rate? The answer is that because since bitcoin inflation will be nonexistent by that time, its exchange value against USD would increase by precisely the amount of US inflation.
[+] [-] solipsist|15 years ago|reply
(Sorry for my ignorance. I tried looking it up, can't seem to understand what it really is.)
[+] [-] trotsky|15 years ago|reply
[+] [-] sgornick|15 years ago|reply
[+] [-] hippich|15 years ago|reply
[+] [-] mkramlich|15 years ago|reply
http://www.bitcoin.org/
[+] [-] iheartmemcache|15 years ago|reply
[+] [-] nopassrecover|15 years ago|reply
[+] [-] hyp3rVigi1ant|15 years ago|reply
[+] [-] antimatter15|15 years ago|reply
[+] [-] hippich|15 years ago|reply
[+] [-] sgornick|15 years ago|reply
[+] [-] arohner|15 years ago|reply
Gold was valuable before it started being used as money. It started being used as money because it has several valuable properties: it's rare, it's portable, it's fungible.
Why would someone start using bitcoin? Who will accept a bitcoin in trade, and why is that bitcoin more valuable to them than $1?
[+] [-] 0x6763|15 years ago|reply
If you look at some of the charts from the trading websites, you can see they weren't all that valuable right away. But as more people learned of bitcoin and the way the system is designed with it's anonymity and security, as well as it's hard money qualities, it started to catch on.
A single U.S. penny used to be able to buy lots of bitcoins. At this moment, not even $1 USD can buy a whole bitcoin. It's generally expected that it will take many USDs to buy a single bitcoin before too long.
[+] [-] hippich|15 years ago|reply
[+] [-] hristov|15 years ago|reply
You run the software and makes bitcoins for you. Almost like earning money in your sleep. And of course once you have "earned" these bitcoins by installing the software you have a psychological inclination to assign actual value to them.
Of course like most things academic it falls flat on its face on execution. My software did not work. I had to spend half an hour diving through forums and wikis to find some obscure command line argument that may make it work, although I am still not sure it is working properly. Of course 99% of ordinary people would have just given up.
So the folks at bitcoin have ensured that only persistent nerds like me use their service.
[+] [-] 0x6763|15 years ago|reply
[+] [-] kiba|15 years ago|reply
[+] [-] pzxc|15 years ago|reply
[+] [-] sgornick|15 years ago|reply
Bitcoin FAQ - https://en.bitcoin.it/wiki/FAQ
Bitcoin Wiki - https://en.bitcoin.it/wiki/Main_Page
How Bitcoin Works - https://en.bitcoin.it/wiki/How_bitcoin_works
Installing Bitcoin - https://en.bitcoin.it/wiki/Getting_started
HowTo Mining Bitcoin: Fedora 14: http://bit.ly/fb54ye and Ubuntu: http://bit.ly/ewVzhu
The Bitcoin Faucet (free bitcoins) - https://freebitcoins.appspot.com
Buying bitcoins - https://en.bitcoin.it/wiki/Buying_bitcoins
Bitcoin 6-Month Price Chart - http://bit.ly/hzVKpq
Bitcoin Community Portal - https://en.bitcoin.it/wiki/Bitcoin:Community_portal
Recent Posts here on the forum - http://www.bitcoin.org/smf/index.php?action=recent
[+] [-] sabj|15 years ago|reply
[+] [-] s0urceror|15 years ago|reply
[+] [-] mynameishere|15 years ago|reply
[+] [-] Charuru|15 years ago|reply
[+] [-] vinyl|15 years ago|reply
[+] [-] 0x6763|15 years ago|reply
In all of your statements you're conflating a protocol, and voluntary social agreement, with a central authority.
Anyone is free to fork the software and change the rules to create their own protocol for people to use! If they like the rules, they join...if they don't like the rules, they don't join. Freedom.
[+] [-] jackowayed|15 years ago|reply
Maybe it is worth it to implement my idea of writing something that tries to get free cycles out of EC2 Spot instances by predicting when the price will rise and spinning up instances before it does. (They don't charge you for fractional hours if they kill you due to a price increase.)
EDIT: I think it's actually gotten a little less favorable to generate bitcoins. My cheap VPS peaks at 1M hashes/sec, which according to http://www.alloscomp.com/bitcoin/calculator.php used to mean it would take around 250 days to generate a block, as I recall. Now, the value of a block has 4xed, but the average time to generate a block at 1M hps is now 1300 days, which is more than 5x as long.
[+] [-] unknown|15 years ago|reply
[deleted]
[+] [-] bdonlan|15 years ago|reply
[+] [-] sgornick|15 years ago|reply
[deleted]
[+] [-] rgrieselhuber|15 years ago|reply
[+] [-] 0x6763|15 years ago|reply
[+] [-] kevinburke|15 years ago|reply
[+] [-] daeken|15 years ago|reply
[+] [-] hippich|15 years ago|reply