Ship of Fools: Do you have it? Use it? Bitcoin

Thread: Do you have it? Use it? Bitcoin Board: Oblivion / Ship of Fools.

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Posted by Pearl B4 Swine (# 11451) on :

I listened to an hour long radio show (NPR) last night, about "bitcoin". Now, I am not the brightest bulb, but neither am I in the shoe-size = IQ category. I am completely baffled by bitcoin, what it actually is. In fact it seems to be nothing but virtual "money".

Are any of you acquainted with bitcoin, use it? -or is it such a secret that you must not admit having/using it?

Is it really associated with illegal drugs, porno, crime in general? Or can you somehow pay for your grocery order with it? Is it going to be a lasting thing? Am I the only one out of the loop?

Posted by Hawk (# 14289) on :

AIUI its a bit like virtual shares. You buy a bitcoin which is worth so much money, then if it goes up in value you can swop it for sterling at a profit.

Some people bought or 'mined' a bitcoin years ago and now its worth over $600 each I think.

To mine a bitcoin you use a computer processor, or network of them to do a ridiculous number of calculations. This creates a bunch of complicated computer code which is called a bitcoin. Its value is derived from its rarity, which is tied to the amount of computer processing time you've invested in mining it.

Nowadays it's slightly easier to mine bitcoins since computer processors are faster. So the supply has gone up. But the number of people trading in them has increased as well so demand has gone up even more. That's why they're worth so much at the moment.

Some people trade in bitcoins directly, and since its a virtual currency that the government doesnt yet understand, and because clever people invented it, its pretty secure so hackers and anti-government types like it. Smart criminal types also like it for the same reason. Therefore it may attract people who are involved in various criminal activities. But that's their choice and nothing to do with bitcoins themselves.

Does that help?

Posted by Arethosemyfeet (# 17047) on :

Additionally, the calculations required to generate bitcoins are getting progressively harder as more are mined - so actually it's much harder to efficiently mine bitcoins than it was in the early days.

Posted by Pearl B4 Swine (# 11451) on :

Well- thanks for the details, but it
s very hard for me to see the point of it. It's like printing your own money, or using Monopoly money, except that bitcoins are not anything you can put your fingers on.

But then, electronic transfer of funds is sort of like that. My employer EFT's its bank, and that bank EFT's the "money" into my account and I do an online payment to the electric company.

Except that if I want to I can go to the bank and get dollars in exchange for all that invisible money-shuffling.

Can you cash in bitcoin for currency? And where do you get any? Do you have to know someone who knows someone?

Posted by IngoB (# 8700) on :

Actually, a bitcoin is a lot more real than say a UK pound these days. Once upon a time a "pound sterling" simply meant a pound weight of actual silver. Nowadays it is an essentially fictitious entity that carries a certain value simply because we believe that it does. Whereas a bitcoin simply replaces the physical standard (a lump of silver) by a computational standard (a lump of calculations). These are less dissimilar than you might think, because in the end the value of each has to do with how much work it is to get them. You need to mine for silver, spending resources and labour, and likewise you need to "mine" for bitcoin, spending resources and labour.

The interesting thing about bitcoin is that it relies on a distributed "mint" which is not governed by any authority but simply by relies on individual investments. It is financially "anarchic".

If you want to own bitcoin and are willing to invest conventional currency, you can find exchanges here. Or start mining yourself.

For the record: I do not own any bitcoin myself. The above is not intended as financial advice in any sense or form. I do not recommend any investment strategy, and I provide the links above purely as entertaining information - information that anybody can find easily using google.

Posted by Jammy Dodger (# 17872) on :

Yes I think bitcoins are like a currency so there is an exchange rate with other real currencies so you can exchange them for hard cash in some fashion. Though it looks to me more like buying and selling shares. I'm no expert though...

Posted by Jammy Dodger (# 17872) on :

Cross-posted with IngoB who has the more informative post! [Hot and Hormonal]

Posted by Zach82 (# 3208) on :

I'm putting all my money in tulip bulbs.

Posted by lilBuddha (# 14333) on :

quote:
Originally posted by IngoB:

The interesting thing about bitcoin is that it relies on a distributed "mint" which is not governed by any authority but simply by relies on individual investments. It is financially "anarchic".

And herein lies a weakness. Bitcoin exchanges have kicked off and taken their users money with them. For which there is no recourse. ~45% of all exchanges have died. Those that survive are prime targets for hacking.

Posted by IngoB (# 8700) on :

Here's some fun with crazy numbers: there's about US$ 58.9 trillion in circulation. But the way bitcoin mining works, there will ever only be 21 million bitcoin. So if all money in circulation were to be replaced by bitcoin, every bitcoin would be worth about US$2.8 million. Currently a single bitcoin is worth about US$700. So if I invest a dollar now to buy 0.0014 bitcoin, and all the world switches over to bitcoin, then I will get US$4,000 worth back on my investment. The chances of that happening are of course essentially zero. Still, it's fun in a lottery type of way...

Posted by Pearl B4 Swine (# 11451) on :

Which confirms what I think: it is a computer game- nothing less, nothing more.(for gamers with too much time on their hands)

Posted by IngoB (# 8700) on :

quote:
Originally posted by lilBuddha:
And herein lies a weakness. Bitcoin exchanges have kicked off and taken their users money with them. For which there is no recourse. ~45% of all exchanges have died. Those that survive are prime targets for hacking.

Yeah. Still, I really like the concept of a distributed currency. Bitcoin is perhaps only the alpha version of better attempts...

Posted by Honest Ron Bacardi (# 38) on :

Maybe I should introduce you to the Tinkerbell Effect.

Most currencies - possibly all - are now fiat currencies. From the Latin "fiat" - "let it be". Once upon a time, as IngoB says, a pound was what you paid for a pound avoirdupois of silver of a purity of at least 92.5% ("sterling" silver). But now there is no linkage and governments can issue or withdraw currencies as they see fit.

It's tempting to think that a return to the gold standard would remove this problem (where gold replaces silver as above). However there are a number of problems. Gold has a real use in the world, mostly in jewellery and in electronics. A small amount is also used in industrial chemicals. But this is far and away dwarfed by people who buy it as "an alternative investment", speculators, people who are attracted to its tangible nature etc. So a large amount of the net worth is again a form of fiat valuation, but this time involving the "wisdom of crowds", rather than the wisdom of governments. But its tangibility does add a sort of ballast. Take your pick.

Bitcoins - in this view - take the example of gold and do away with gold itself. They are worth what you want them to be. They have no tangibility, and if confidence in them fails, they can (potentially) lose 100% of their value. The "fiat" is entirely that of crowds.

What I would worry about is the fact that "the wisdom of crowds" is more frequently replaced by mass delusions and panics.

There's a whole raft of other stuff about it's virtuality and untraceability, but there are several ways of looking at this sort of thing.

Posted by Zach82 (# 3208) on :

Doesn't it make a big difference that fiat currencies are backed by governments, while bitcoins are backed by nothing at all?

Posted by IngoB (# 8700) on :

quote:
Originally posted by Pearl B4 Swine:
Which confirms what I think: it is a computer game- nothing less, nothing more.(for gamers with too much time on their hands)

Well no, that's plain false. If you had bitcoin now, you could buy real goods and services with it. That's no game. It is also the cheapest method of transferring money internationally.

Posted by lilBuddha (# 14333) on :

quote:
Originally posted by IngoB:
Still, I really like the concept of a distributed currency. Bitcoin is perhaps only the alpha version of better attempts...

I also like the concept. Waiting for the Gold Master, though.

quote:
Originally posted by Honest Ron Bacardi:

What I would worry about is the fact that "the wisdom of crowds" is more frequently replaced by mass delusions and panics.

Pshaw! Look at the stability of the stock markets.

Posted by Honest Ron Bacardi (# 38) on :

quote:
Originally posted by Zach82:
Doesn't it make a big difference that fiat currencies are backed by governments, while bitcoins are backed by nothing at all?

You could probably say they are backed by communal interest (with the pluses and minuses that implies) - but yes, it's bound to make a difference.

Posted by Honest Ron Bacardi (# 38) on :

quote:
Pshaw! Look at the stability of the stock markets.

Posted by IngoB (# 8700) on :

quote:
Originally posted by Zach82:
Doesn't it make a big difference that fiat currencies are backed by governments, while bitcoins are backed by nothing at all?

Isn't that just a statement about "size of the user base"? A government is after all simply representing its people. It does not have any magic economic powers that go beyond the economic backing by the people it represents. If the UK economy folds tomorrow, then pound stirling will be worth peanuts. Once the user base of bitcoin is say a hundred million people, I see no particular reason why it would be "less stable" than the pound sterling. (But I'm decidedly not an economist, and generally quite naive about money...)

Posted by Zach82 (# 3208) on :

Perhaps I'm being naive too, but it seems to me the difference between a government and a mere group of people is law. If the economy of Canada collapsed, there would be in place a legitimate authority to do something about it. If the bitcoin exchanges collapse, what could be done?

Posted by Rex Monday (# 2569) on :

Ah,now, bitcoins. You can't drop 'em in the collection plate (well, you can if you make the right collection plate. A Gadget for God?)

Bitcoin is actually three things, and I think the bitcoin itself is the least interesting (and most prone to going wonky). It's the mining, the unit of the bitcoin, and the clever stuff that manages it all - the block chain, which is a big database that lives in lots of copies on lots of computers and keeps itself going over the Internet.

You mine bitcoins by doing complex mathematical operations on a random number until you hit a certain end result. That's checked by the network that runs the block chain and if it's correct and you're the first person to have got there, you have a bitcoin. Everyone else working on that random number has to start again.

This event is recorded in the block chain, but you keep the bitcoin in your local wallet, which is a bit of secure software on your PC or smartphone. When you spend a bitcoin, you transfer it to another wallet over the Internet - and again, this is checked, verified and recorded in the block chain.

As there is a limited supply of the things and they can't be duplicated or forged (which they can't, the mathematics is, as far as anyone can tell, impeccable), as long as everyone agrees they have a value, then they have that value. And because they can be traded anonymously and safely over the Internet with no intermediate organisation, they're very cheap to transfer and remarkably secure - as things, though. The value depends on humans, so good luck there.

But the best bit is the block chain. It is a mechanism which acts as a global, secure, entirely independent ledger of assets. In theory - and in practice, although this is only just getting going - you can take any digital thing and guarantee its uniqueness and origin through the block chain. Say you make a digital painting or record some music, and link it to the block chain - then that original work is unforgeable. It can be copied, of course, but only one will ever be the original. And originality has value: suddenly, we've got a digital system with all the goodness of the Internet for making things available at zero cost to anyone who wants them, with a way of protecting the value of originals. I think that's got a lot of potential. (You can also do something like create a hundred shares in a company and put them into the block chain, saying that you'll pay out the quarterly dividend to whoever owns a share at the time of payment. Voila - a stock exchange that's secure and completely free of any organisation.)

I think that's much more fun than the bitcoins themselves.

Posted by Zach82 (# 3208) on :

quote:
Ah,now, bitcoins. You can't drop 'em in the collection plate (well, you can if you make the right collection plate. A Gadget for God?)

I just cut the church a check for my annual pledge and send it to the parish office. I only put money in the collection plate on Easter and Christmas.

Posted by the giant cheeseburger (# 10942) on :

quote:
Originally posted by Pearl B4 Swine:
Can you cash in bitcoin for currency? And where do you get any? Do you have to know someone who knows someone?

You can trade it with some other person/business for other fiat currencies at the current rate that other person/business is willing to pay, just as you would if you go to another nation and obtain some of the local fiat currency at the exchange rate that trader is willing to pay. My guess is that it's probably easier to buy or sell Bitcoin than it is to buy or sell North Korean Won, a 'real' currency backed by a legitimate government.

On that basis, Bitcoin is a fiat currency no less 'real' than any other.

quote:
Originally posted by IngoB:
If the UK economy folds tomorrow, then pound stirling will be worth peanuts.

As seen in Zimbabwe over recent years, peanuts might actually be worth more than useless pounds.

quote:
Originally posted by Zach82:

quote:
Ah,now, bitcoins. You can't drop 'em in the collection plate (well, you can if you make the right collection plate. A Gadget for God?)
I just cut the church a check for my annual pledge and send it to the parish office. I only put money in the collection plate on Easter and Christmas.

You should move out of the 1980's and get your church's bank details for using electronic transfers instead of cheques, they are far more efficient for both the donor and the beneficiary in terms of processing fees and administrative time required.

Posted by IngoB (# 8700) on :

quote:
Originally posted by Zach82:
Perhaps I'm being naive too, but it seems to me the difference between a government and a mere group of people is law. If the economy of Canada collapsed, there would be in place a legitimate authority to do something about it. If the bitcoin exchanges collapse, what could be done?

Whether said authority would even survive such a collapse is one question. What they could possibly do at that point in time another. In whose interest they would be arranging matters a third. State finances have collapsed before, and I don't recall hearing that those events were pretty for investors.

One interesting point about bitcoin is that if they reached a hundred million users, then quite likely nothing but the collapse of the world economy would still endanger that currency. Because these users would be internationally distributed, they would not be largely located in one country.

Posted by Arpeggi (# 17487) on :

I don't see it's use as a store of value. The price fluctuates too wildly. However it is an excellent medium of exchange. Particularly if you fancy having drugs discretely delivered via mail.

Posted by Golden Key (# 1468) on :

Pearl--

Hi. Good to see you! [Smile]

I've never used it, myself. When I first heard about it, years ago, I both thought it was curious and was mildly curious about it--especially because, at that time, you could earn bitcoin by finding various things hidden online.

AIUI.it's basically digital cash--in the sense that it's anonymous, like real cash. So your privacy is protected. I've heard explanations of that, but I don't quite get it. (Maybe, as with some real-world "local currencies", you buy your initial currency with real cash??)

There are some brick and mortar places that take bitcoin. I remember hearing about a cafe. (Maybe in Seattle?)

Besides basic privacy, I don't have any pressing need for it. And, since it's known to be used by criminals, I'd be worried about being tarred by association. Same with Tor, an intricate anonymizer program. From what I heard, it has both very good and very bad uses. The bad ones, much like bitcoin--though possibly much worse. The good ones include completely anonymous online gatherings of abuse survivors.

If bitcoin and Tor become more accepted and respected, I might consider them.

Posted by lilBuddha (# 14333) on :

quote:
Originally posted by Golden Key:
And, since it's known to be used by criminals,

So is cash, in other than small quantities.

Posted by Golden Key (# 1468) on :

Pearl--

Hi. Good to see you! [Smile]

Posted by k-mann (# 8490) on :

The ones who invented bitcoin claims that it is a new (international and joint) ‘currency.’ (Maybe they see it as the Mega-Euro, which wouldn’t exactly calm me.) But it is not ‘currency.’ As Hawk points out, it is nothing but virtual shares. It is a stock. If it was ‘currency,’ it should be classified as one of the most unstable on the market. (Which means that it could drop as easily as it has risen. Of course that might change if it attracts enough people, but I doubt it.) And yes, bitcoin is associated with illegal drugs, porno, crime in general. But so is dollars, pounds, euro, crowns, yen, etc.

Posted by Leorning Cniht (# 17564) on :

quote:
Originally posted by Pearl B4 Swine:

Except that if I want to I can go to the bank and get dollars in exchange for all that invisible money-shuffling.

Well, sure, but your dollars are just bits of paper with green ink on them. They don't have inherent value - they only have value because we agree that they do. The fact that you have a bit of paper with a dollar amount written on it rather than a notation in a bank's ledger just means that you don't have to take your bank with you to buy stuff.

In these electronic days, your bank is available in most places.

Posted by IngoB (# 8700) on :

Currently, there is a £60 million bitcoin robbery going on, and the weird magic of keeping all transactions public means that you can follow it live (in some sense). Read more for example here.

Posted by W Hyatt (# 14250) on :

A real-life, online, highspeed chase!

Posted by Molopata The Rebel (# 9933) on :

But as I (dimly) understand it, the whole block chain thing is maintained by the mining process. The mining process becomes more and more computationally demanding. Eventually, either the $21 m will be reached or the computational limits will have been reached, by which point no one will have any incentive to maintain the block chain. The would mean that either the whole thing would collapse, or some collective effort would kick in to maintain the investment.

Posted by Molopata The Rebel (# 9933) on :

quote:
Originally posted by IngoB:
Currently, there is a £60 million bitcoin robbery going on, and the weird magic of keeping all transactions public means that you can follow it live (in some sense). Read more for example here.

I haven't a clue what they're on about. Tumbling digital money is weird enough, but: "Each time I caught up, I "666"ed him - sent 0.00666 bitcoins to mess up his lovely round numbers like 4,000. Then,all of a sudden, decimal places started appearing, and fractions of bitcoins were jumping from wallet to wallet like grasshoppers on a hotplate without stopping for confirmations.". This sounds a bit like a scene from The Matrix.

Posted by IngoB (# 8700) on :

quote:
Originally posted by Molopata The Rebel:
But as I (dimly) understand it, the whole block chain thing is maintained by the mining process. The mining process becomes more and more computationally demanding. Eventually, either the $21 m will be reached or the computational limits will have been reached, by which point no one will have any incentive to maintain the block chain. The would mean that either the whole thing would collapse, or some collective effort would kick in to maintain the investment.

The block chain is quite literally a record of all bitcoin transactions ever made. It is a complete ledger. It will be maintained even if "mining" stops, simply because it tells everybody who owns what. If you (A) pay someone else (B) some number of bitcoin, there will be a new entry saying "A B X" to the block chain. Going through the entire backlog of previous transactions is precisely what allows computer to figure out how much bitcoin you actually have. They simply sum up transactions involving you across all entries. It is called a block chain rather than just a chain (of transactions), because what the mining does is to seal off a block of transactions on the chain as completed, and start a new block. The first entry of that new block is then a payout "from nowhere" to the successful miner. Thus the miners are mining (a hard math problem) for the right to start a new block, because that means "free money" released to them. From then on all proceeds as normal, i.e., the ledger is simply continued in the new block, with some additional currency added. The math problems get harder and harder, and so eventually nobody will be able to create a new block giving them "free money" any longer. But by that time lots of people should own bitcoin, and it is in their interest to maintain the block chain. Simply because that just is what their bitcoin money consists of, the ledger database. And they will maintain it essentially automatically, simply by virtue of their computers negotiating transactions with each other.

Or that at least is my current understanding.

Posted by IngoB (# 8700) on :

OK, my comment above makes it sound as if making new blocks would come to an end. I was wrong about that, and Molopata was right in saying that the miners carry out the computational grunt work. Actually what is supposed to happen is that the miners start living off transaction fees rather than the block payouts.

I'm now rather confused about why the payments per new block end, if the miners still can generate new blocks. Sigh.

Posted by Eutychus (# 3081) on :

I'm not by any means an expert, but last week's Economist says

quote:
as part of Bitcoin’s design, the reward for mining a block halves every 210,000 blocks, or roughly every four years. Sometime in 2017, at the current rate, it will drop to 12.5 Bitcoins. If the returns from mining decline, who will verify the integrity of the block chain?

Posted by IngoB (# 8700) on :

This helped. So the basic deal is that the miner decides what transactions to put in the next block they mine. If your transaction is not getting in the block, it is not really done (it remains in the processing queue). The person making the transaction decides whether they want to add a transaction fee or not, and what size. The miner decides whether to accept the transaction into the block, given that provided fee, or not. Currently a lot of transactions are done "for free", since the miners get their expenses paid from getting "free block money". But as the returns from that diminish to zero, the miners will look more to people making transactions for picking up the bill. I guess it will become a kind of competitive market, where people wanting to make transactions will look for the "cheapest miner" who will enter their transaction into the next block, and the miners will have to balance between the costs for processing a new block and the fees people are willing to pay for having their transactions included into it.

[ 05. December 2013, 10:44: Message edited by: IngoB ]

Posted by Pooks (# 11425) on :

Here is a tangential but topic related Ouch!

Posted by Molopata The Rebel (# 9933) on :

Euchtys & IngoB: Many thanks for the enlightening information. And Pooks for the cautioning story.

= Sigh = Suddenly I'm beginning to understand how may elderly people feel about all this new-fangled computer techno stuff.

I am wondering how secure the currency is compared with holding money in a brick & mortar bank (quite apart from the fluctuations in value).

Posted by deano (# 12063) on :

Money is a way of making the barter system more convenient. If I brew my own mead and you have chickens then we may decide that I can have a dozen eggs for 1 bottle of my mead.

There is a guy down the road who has just slaughtered one of his pigs and I give hime 5 bottles of mead for a ham.

So far so simple, but you can se that it wont take long to get complex in a complex economy, so money provides an easy way of exchanging goods and services, so I will accept £2.00 for a bottle of my mead and I will give that £2.00 to the chicken man for some eggs.

The problem comes if you want a bottle of my mead but I don't want eggs straight away. In that case I have to trust that the £2.00 in my pocket will still have value when I do want eggs. So then it becomes a case of "do I trust your money"?

In most cases the money is backed by the government, who say in effect "yes, the money will still be around and accepted when you want your eggs". So I am happy to give you the bottle of mead and to hang on to the £2.00 until I want eggs.

Even the principle of foreign exchange is straightforward: my country is more stable and/or richer than yours and is likely to remain so, therefore I don't want to hang on to your currecny for too long as it may cause me problems, so I will offer you a less favourable exchange rate.

This is very basic but it highlights the problem with bitcoins. It may well be a convenient mechanism for exhanging goods and services, but do I trust it enough to want to hang on to it for any length of time? Is it likely to be around in the future when I do want to exchange it for something tangible?

As it stands, I don't trust the long term viability of bitcoins I'm afraid. It doesn't have anything substantial enough behind it to guarantee its survival.

Posted by IngoB (# 8700) on :

quote:
Originally posted by deano:
As it stands, I don't trust the long term viability of bitcoins I'm afraid. It doesn't have anything substantial enough behind it to guarantee its survival.

Geekdom?

Posted by Gwai (# 11076) on :

Geeks can be pretty fickle as something else becomes the newest best toy.

Posted by IngoB (# 8700) on :

quote:
Originally posted by Gwai:
Geeks can be pretty fickle as something else becomes the newest best toy.

True, but one thing this has going for it is the built-in deflation. Since there is an upper limit to the currency (21 million bitcoins max), and since bitcoin can get lost (further reducing supply), the remaining bitcoin should as trend become more and more valuable as time goes on. Geeks may go for new toys eventually, but they don't throw old toys away if they get more valuable all the time...

Posted by chris stiles (# 12641) on :

quote:
Originally posted by deano:
Money is a way of making the barter system more convenient. If I brew my own mead and you have chickens then we may decide that I can have a dozen eggs for 1 bottle of my mead.

It does make a barter system more convenient - but the idea that it is the origin of money is somewhat more problematic.

The reason fiat money has value is that the government will accept it in payment of debts.

There are plenty of valuable intermediary currencies that have values driven by scarcity though.

Posted by Honest Ron Bacardi (# 38) on :

The really great thing about bitcoin is that when it goes belly-up, nobody has to bail it out.

Posted by orfeo (# 13878) on :

quote:
Originally posted by Zach82:
Doesn't it make a big difference that fiat currencies are backed by governments, while bitcoins are backed by nothing at all?

Very recently I heard a talk on bitcoin, and similar 'currencies', where questions like this were raised. Are they in fact 'currencies'? What are the essential features of a currency?

There are probably laws that regulate 'foreign currencies'. Once upon a time that obviously meant anything besides the currency of the country. It's becoming less obvious, though. I imagine that at some point courts will be required to wrestle with the status of Bitcoins and any other system that has a sufficient profile.

Posted by Dave W. (# 8765) on :

quote:
Originally posted by IngoB:

quote:
Originally posted by Gwai:
Geeks can be pretty fickle as something else becomes the newest best toy.
True, but one thing this has going for it is the built-in deflation. Since there is an upper limit to the currency (21 million bitcoins max), and since bitcoin can get lost (further reducing supply), the remaining bitcoin should as trend become more and more valuable as time goes on. Geeks may go for new toys eventually, but they don't throw old toys away if they get more valuable all the time...

That argument seems more favorable for a speculative investment than for a currency. Wouldn't deflation tend to suppress people's willingness to use bitcoins in ordinary transactions, just as it tends to suppress economic activity when it occurs in other currencies?

If in May of 2010 you paid 10,000 BTC for two pizzas (then worth $25, now ~$10 million) you might now wish you hadn't. But even if you had, you'd still be much better off than if you had borrowed $25 dollars worth of bitcoin to pay for that pizza...

Posted by Late Paul (# 37) on :

This is a nice overview of how Bitcoin works. It starts by inventing a digital currency, examining the problems and adding features until you arrive at Bitcoin.

It's fairly techie toward the end but even if you don't get all the details I think it's a fascinating read.

Posted by ken (# 2460) on :

quote:
Originally posted by Late Paul:

It's fairly techie toward the end but even if you don't get all the details I think it's a fascinating read.

I love the bit that says:

quote:

None of this is especially difficult. The basic ideas can be taught in freshman university mathematics or computer science classes.

That doesn't sound like not especially difficlt to me! Most people stop studying maths years before they get to university, even if they ever get to university, which most never do. I'd be surprised if more than about 5% of the population of this country even qualified to take a first-year university maths course, never mind actually take one.

Posted by lilBuddha (# 14333) on :

Bit of a hiccup in the Bitcoin world.

Posted by JonahMan (# 12126) on :

One thing I'm puzzled about. As I understand it, the unearthing of bitcoins through mining doesn't produce anything else useful at all. It is merely linked to computer time and effort put towards it.

Is there any reason why this computer power couldn't do something actually useful at the same time, such as unfolding proteins, or SETI, or one of the other distributed computing programmes? Bitcoin mining seems unnecessarily wasteful and pointless!

Posted by Late Paul (# 37) on :

quote:
Originally posted by JonahMan:
One thing I'm puzzled about. As I understand it, the unearthing of bitcoins through mining doesn't produce anything else useful at all. It is merely linked to computer time and effort put towards it.

Well that's not quite true. So, from what I gathered from the link I gave earlier -

The "mining" is actually performing calculations that validate bitcoin transactions. These validations are needed because there's no central 'bank' that issues bitcoins and keeps a ledger of who owns which coins - this is all done through the network as a whole. In order to prevent people cheating the system either through simple fraud, or through trying to set up enough sock puppets (effectively) to cheat the validating itself - the validation process needs to be both a) rewarded - so people will want to do it and b) costly - so it's hard for any individual or even group to exert enough computing power to rig the system in their favour.

So the costly part comes in the design of the system requiring lots of CPU power and the reward part comes in that the first people to validate a particular block of transactions is rewarded with a new bitcoin. However the design has a fixed number of bitcoins and AIUI when they are all issued miners will be rewarded through transaction fees which currently are often waived.

quote:
Is there any reason why this computer power couldn't do something actually useful at the same time, such as unfolding proteins, or SETI, or one of the other distributed computing programmes? Bitcoin mining seems unnecessarily wasteful and pointless!

Yes I think it could be tied to something else computational that's useful. However it's worth pointing out that the confidence in the system itself is valuable and therefore worth expending effort for. In the same way that it's worth paying for various mints, national banks and governing financial bodies it's worth expending the computing power on making sure the bitcoin system functions as well as possible with as little possibility for fraud as possible. Well, it's worth it assuming one believes that having such a system with its unique features is itself an advantage.

But you wouldn't be the first to criticise it for this. Some people are arguing that it's having an adverse environmental impact to encourage such computer use.

Posted by Dave W. (# 8765) on :

I was wondering the same thing, JonahMan, but as I understand it the particular computational task which miners are required to perform was chosen to have a number of special properties that make it suitable for the role it plays in the Bitcoin system.

In order for the whole scheme to work, it's vital that people not be allowed to spend the same money twice. With paper money and coins, this requirement is easy to satisfy - once you give someone an amount of cash, you obviously don't have that cash anymore, so you can't also give it to someone else. With digital money, the transfer of physical items is replaced by an up-to-date, public record of valid transactions; if everyone can see that you've spent all your Bitcoins, no-one will accept any new transfers from you (and so you won't get the computer hardware or drugs you were trying to buy.)

So validating transactions is key; it's important to make validation very hard to fake but also very easy to verify. The computational problem under discussion has just these properties; it takes a lot of effort to solve, but once the solution is known it's easy to show that it's correct. "Miners" are just people who've decided to help out with maintaining the public record of transactions by using their computing power to validate new ones; they get paid to do this in the form of Bitcoins when they're successful at solving the puzzle. (The way in which the record of valid transactions are accepted by Bitcoin miners makes it practically impossible for any one miner to validate double spending unless they control a substantial fraction of all the computer power being used for mining.)

I don't know a lot about these things, but generally speaking I don't think you'd expect the more socially useful distributed computing projects to have the necessary properties that would allow them to take the place of the current Bitcoin tasks.

{cross posted with Late Paul, obviously!}

[ 18. December 2013, 21:42: Message edited by: Dave W. ]

Posted by lilBuddha (# 14333) on :

(triple x-post)
Well, structure is an essential part bitcoin economy. Randomly assigning tasks would undermine the structure.
As far as the mining not producing anything of value, think about gold. What makes it valuable? It is pretty, malleable, incorruptible and rare. But, until recently, it did nothing of practical value. Yet entire economies were based upon this stuff. Diamonds, what gives them their value?
Economic units are essential agreed upon standards with an inherent trust in the system of trade. Whether the unit be shells, gold or electronic units, it is all the same.

[ 18. December 2013, 22:02: Message edited by: lilBuddha ]

Posted by ken (# 2460) on :

A very interesting and technically informed mildly ranty discussion of bitcoin on Charles Stross's blog

Posted by Eutychus (# 3081) on :

"round-up below the cut"??

And surely it demonstrates Gresham's law in action (it is argued), rather than violating it?

Posted by Honest Ron Bacardi (# 38) on :

Yes, I agree Eutychus, though it's quoting a linked paper which I think may have used the phrase rather in the way people say something "breaks Godwins Law".

Posted by Eutychus (# 3081) on :

More trouble on the horizon for bitcoin it seems.

Posted by Frank Mitchell (# 17946) on :

Bitcoin deos seem to be backed by at least one government. If you watch "Russia Today" (the Putin Channel) you'll see they're quite in favour of Bitcoin, also "Occupy Wall Street". "Russia Today" is more credible than the old "Radio Moscow", which told you the Berlin Wall was used by the West German government to stop people escaping to the East. But it hasn't shaken off its roots.

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