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Old 08-30-2012, 05:11 PM
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Are bitcoins ever going to be a viable currency?


I just discovered and have started learning more about bitcoins. It seems like a fascinating idea to me. However, I wonder just how viable of a currency it may become?

I really don't know much about their history or anything really, other than just a few things I've read on wikipedia and the bitcoin wiki. It seems a lot of bitcoins are used for illicit and illegal activities. But is there an actual legitimate future for them?

Last edited by drewtwo99; 08-30-2012 at 05:11 PM.
  #2  
Old 08-30-2012, 05:50 PM
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No.

I've been following Bitcoins for a while. The idea of a peer to peer digital commodity that doesn't rely upon a central authority is definitely interesting, but Bitcoins have several huge flaws that keep them from ever being a viable currency:

1. Inherently deflationary -- if you're not a Libertarian goldbug, you probably know that moderate inflation is not a bad thing. It gives people an incentive to spend or invest money instead of just hoarding it, and helps account for the fact that new people are entering the economy. Dictating a fixed supply means that it makes more sense to hide them under your mattress than to spend or lend them.

2. The implementation is not scalable -- as currently implemented, every Bitcoin client has a complete record of all transactions everywhere. This works for a proof of concept case that hardly anyone uses, but would be a disaster on a global scale.

3. No advantage to consumers -- people often make the analogy to digital cash, which is pretty apt. If you drop a hundred dollar bill on the ground and someone else picks it up, kiss it goodbye. Now imagine you want to buy something online -- paying with cash doesn't seem like a great idea, does it? That's the biggest problem with bitcoins, IMO. Using my Visa is free (for me), and gives me a 800 lb gorilla I can sic on shady online retailers should they decide not to mail me the goods I bought. Buying the same thing with bitcoins is like mailing someone cash and hoping they don't rip you off.

What's funny about Bitcoins is that they've attracted enough attention that they have a significant real money value, despite being backed by nothing other than Internet Libertarian fervor. This has now created a ripe target for hackers and scammers, who rip these guys off on a regular basis. Hundreds of thousands of dollars stored on horribly coded sites on insecure web servers, confidence scams, Ponzi schemes, you name it, these guys have fallen for it. It would be sad if they weren't so willfully stupid.
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Old 08-30-2012, 07:16 PM
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At this point there's also something of a stigma attached to bitcoins because a lot of the people who are enthusiastic about them are more than a little loony. That's not helping, and difficult to overcome.
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Old 08-30-2012, 09:41 PM
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Well the recent bitcoin Ponzi scheme won't help.
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Old 08-30-2012, 10:24 PM
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Bitcoin miner here. I make $1-$2 a day at it...not much, but its fun to play with. Enough income that my biz partner doesent bitch when I buy another video card to slap in an old box for another mining rig. I load up old crappy machines and start them mining. (I own a computer shop so cheap old junk machines are a dime a dozen)

I think there is alot of good potential here...but its going to take a much broader grass roots effort to accept BC on a large scale.

Alot of the folks who play in this realm right now are the "gubmint bad, wanna hide my money where the feds cant find it types." Bitcoins are fabulous for that. Go to an exchange, buy $1K in bitcoins, its off the radar just like a pile of cash. Nobody to serve a warrant to for its seizure, etc, etc. A techie swiss bank account of sorts. Granted most of the places that accept BC on any meaningful level are dealing in shady if not outright illegal goods. Because the transaction logs are public, I'm sure there is a way for merchants to show a history (as yet unimplemented) of repeat transactions to validate their consistently providing product.
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Old 08-31-2012, 12:03 AM
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Well the recent bitcoin Ponzi scheme won't help.
I've been following that saga via the Something Awful bitcoin thread. Those people (bitcoiners, not goons) are so goddamn dumb it's unbelievable. Anonymous guy is offering a "high yield investment plan", where you give him your bitcoins and he pays you 7% interest, compounded weekly. How is he going to make a sustained 3200% annual return on his investment? How are you going to get your money back if he just steals it, since the currency is irreversible by design and you don't know who he is? Who cares! Free money! Look, he paid those guys last week, didn't he? People ended up giving him $5 million worth of bitcoins.

Shockingly, one week he just stopped paying out interest and kept everyone's coins. Investors were stunned. Bystanders were amused. The sound of palms smacking foreheads rang across the Internet.

I mean, seriously, how stupid can you be?
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Old 08-31-2012, 12:29 AM
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Buying the same thing with bitcoins is like mailing someone cash and hoping they don't rip you off.
That's precisely the situation online sellers are in, when dealing with credit cards and PayPal. It hasn't stopped them; instead they factor it into their costs and risk assessments.

It's possible Bitcoin (or something like it) will find a market where that doesn't matter much. Low-cost ebook or song downloads for example. At some price point, $0.99 or $0.25 or $0.05 presumably the consequences of being ripped off are low enough that buyers are willing to take a chance.

I don't know the answers, but it's an interesting experiment.
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Old 08-31-2012, 03:35 AM
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It's possible Bitcoin (or something like it) will find a market where that doesn't matter much. Low-cost ebook or song downloads for example. At some price point, $0.99 or $0.25 or $0.05 presumably the consequences of being ripped off are low enough that buyers are willing to take a chance.
I have seen places offering various porn items for .5 BC or less. Couple burned DVD's in a DVD mailer, maybe a buck in cost. I could see where disks full of pirated music or ebooks could go the same way.
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Old 08-31-2012, 04:27 AM
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I have seen places offering various porn items for .5 BC or less. Couple burned DVD's in a DVD mailer, maybe a buck in cost. I could see where disks full of pirated music or ebooks could go the same way.
Why does it have to be porn or pirated stuff? I expect the credit card transaction costs on a $0.99 itunes store purchase are significant.
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Old 08-31-2012, 04:51 AM
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How many dollars/pounds does it cost in electricity to mine one bitcoin? Seems to me that it was set up to make the early adopters very "rich" and to ensure that those who bought in later had to purchase their bitcoins from the early adopters, hence the ridiculous increase in exchange rate as more people joined up, followed by a massive crash in value as the early adopters cashed out and with each subsequent loss of confidence (scam, hack or theft), not to mention that the price seems to dip at remarkably regular intervals which seem to tally with the end of school/college vacations and around Christmas time, suggesting the majority of people are simply involved because they see it as a way to make money by doing no work and once they can no longer get the "free" (its not free though, electricity and hardware cost money, but the costs are not readily apparent) money, which will happen as the rate of discovery slows down with the generation of each new bitcoin.

It is almost as if someone sat down and worked out exactly how to scam Ron Paulites, and then did it, and now those that bought it have to keep going because otherwise they have to admit that they got taken for a massive ride.
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Old 08-31-2012, 06:45 AM
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How many dollars/pounds does it cost in electricity to mine one bitcoin?
From what I understand, unless you have a really good bitcoin mining rig, or are "off the grid," you'll never even break even on the electricity costs. Regular CPUs, even quad-core ones, just aren't efficient at the type of hashing that needs to be done on them. And it takes a LOT of CPU power...you can't really just have it go in the background of your regular PC and expect to do much else with it.

Certain GPUs are a lot better than CPUs, and in theory you can come out ahead with those rigs, but if you don't already have that GPU you'll have to buy it, and yes, the prices of them have gone up since bitcoins started. So you buy that GPU for $150 (total guess on the price, might be more), how many days before that pays for itself? Factor in the electricity costs, and I wouldn't be surprised if you go a whole year before you make a single dollar of profit, going by drachillix's estimate of $1-$2 worth per day.
  #12  
Old 08-31-2012, 07:13 AM
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Ah, so it's a conspiracy between the power companies and the GPU makers?

Makes me wonder how many bit coins are being mined at employers' expense?
  #13  
Old 08-31-2012, 09:01 AM
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going by drachillix's estimate of $1-$2 worth per day.
The lease for my shop includes electricity
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Old 08-31-2012, 09:39 AM
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Why does it have to be porn or pirated stuff? I expect the credit card transaction costs on a $0.99 itunes store purchase are significant.
FWIW, Apple doesn't send every 99-cent charge to its merchant service and then gets a fee on it. It aggregates the sales every day or so for fewer per-transaction fees. (Quick cite, 5th paragraph)
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Old 08-31-2012, 10:36 AM
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Alot of the folks who play in this realm right now are the "gubmint bad, wanna hide my money where the feds cant find it types." Bitcoins are fabulous for that. Go to an exchange, buy $1K in bitcoins, its off the radar just like a pile of cash. Nobody to serve a warrant to for its seizure, etc, etc. A techie swiss bank account of sorts. Granted most of the places that accept BC on any meaningful level are dealing in shady if not outright illegal goods. Because the transaction logs are public, I'm sure there is a way for merchants to show a history (as yet unimplemented) of repeat transactions to validate their consistently providing product.
Just watched a network analysis and economic analysis lecture on bitcoins (here, one hour long) and basically bitcoin fails for anonymity, it is subject to massive deflation and will in fact collapse eventually through bitcoins being lost from the system (HDD crashes, users abandoning system, user deaths, forgotten passwords..etc).

The network analysis was quite interesting, and the lecturer managed to identify wikileaks address from the transactional data, and then find all the addresses that donated to wikileaks and the transactions that wikileaks made.

Some of the solutions they suggested basically amounted to setting up a central bank for bitcoin with the power to inflate the currency to keep it alive....which is ironic.

The big problem is that no corporation will use bitcoin because of the potential for industrial espionage through network analysis, they would be giving out all the transactions and this is commercially sensitive information.
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Old 08-31-2012, 10:38 AM
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It's possible Bitcoin (or something like it) will find a market where that doesn't matter much. Low-cost ebook or song downloads for example. At some price point, $0.99 or $0.25 or $0.05 presumably the consequences of being ripped off are low enough that buyers are willing to take a chance.
If the value was sufficiently stable, I think something like bitcoin would make sense for online micro-transactions. Kids for example could use it to purchase in-game upgrades or digital media without having to have access to their parents' credit card.

Another application, again if the value were stable, is global money transfer. Rather than pay Western Union, individuals who trusted each (e.g. family) could instantly send money for free anywhere in the world. Of course, this does require a pretty robust series of currency exchanges, which is where all the problems are going to come in, but the bitcoins themselves could be easily moved around. (Probably too easily, from governments' point of view.)
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Old 08-31-2012, 04:23 PM
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Thanks for all the info guys! I didn't know that bitcoins were such a libertarian slanted idea. It makes sense of course.

Also funny about people getting scammed out of their bitcoins. Why would anyone give anyone else their bitcoins? The whole point of the thing to me is that you don't have to deal with banks anymore.
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Old 08-31-2012, 06:00 PM
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I first heard about bitcoins in October 2011, and got hooked on the idea. I am not a loony libertarian, but I AM a nerd, and what intrigued me were the cryptographic ideas behind bitcoin. Skip the sermons on the evils of fiat money and talk to me about the SHA-256 algorithm and blockchain integrity, baby!

I have spent the last year setting up ever more powerful bitcoin mining rigs in my spare room. It has now become clear to me that I spent far too much on capital costs, and that I won't break even. But the daily revenue does exceed the electricity costs by quite a bit - I'm currently getting about 8 a day - so at least I'll keep mining until it's no longer profitable, to minimise my losses. Also I'll be able to get some money back from reselling the hardware. So it won't have been TOO painful an experience.

I'd like to clear up a few points from other posters:

1) Deflation - well, not exactly. It is true that there is a cap on the total number of bitcoins that will ever exist - about 21 million - but as long as they are actually being generated faster than they are being lost (due to people losing the private keys for the addresses at which they're stored), the supply is still expanding. Also, bitcoins getting lost is not really a problem for the system as a whole. Bitcoins are divisible to 8 decimal places, and I'm told the code can easily be changed to increase that divisibility. So the BTC economy could still function even if there were only a dozen bitcoins.

2) Blockchain bloat - the official bitcoin client does require you to store the entire transaction history on your hard drive. I believe it's already around 2GB at the moment and that's only going to get worse. But several alternative 'thin' clients exist - I'm using one called 'Electrum' now. These work by storing the blockchain on several dedicated servers and you just need to access those. Of course it means you're no longer quite as autonomous as you might have hoped, but it isn't a single central authority holding the blockchain either, so I think it's a reasonable compromise.

3) Profitability of mining: it has been pointless to mine with CPUs for a long time now. GPUs are where it's at, especially high end AMD ones like the 5970. They DO use a helluva lot of electricity, so you'd have to do some calcs before you invest in the hardware. Several people developed custom FPGAs for bitcoin mining over the last year or so. These lower the power requirements by about a factor of ten.

But the latest development on the horizon is ASICs developed by an outfit called Butterfly Labs. They've raised probably a half million bucks or so from people eager to purchase their ASICs when they're ready. They claim they'll start shipping in October. If they're on the level, it's pretty much game over for GPU miners like me, unless I sell my rigs and join THAT bandwagon. I'm being cautious for now. BFL have made FPGAs before this, so I don't think they're a scam, but they may be making unrealistic claims for their developing ASICs.

4) Pirateat40s Ponzi scheme: I have nothing to say to the people who put money into it, other than this:
Hahahahahahahahahahahahahahahahahaha!

5) What's the hell's it FOR anyway? As Giraffe alluded to, it seems that the benefits are all for the merchants rather than their customers. But I think one possibility is subscription based web-applications. At least, when I finally get MY app together, and it's worth asking money for, I'll be offering a hefty discount for people to pay me in BTC.

Sorry, rambled a bit.
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Old 09-01-2012, 05:23 AM
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Why Bitcoin is the shit. All you need to know


Lets set the dope straight.

To understand Bitcoin you need to understand how FIAT money is created from private owned banks out of air based on an old scam that they are still getting away with running.
Its like when they print glass pearls and gave to the indians.

This is acctually very interesting.

Watch Money as debt, here is a small part 1 of 5.

http://www.youtube.com/watch?v=KyDU4X8GSmE&feature=fvst

Than you need to understand how the Federal reserve are a private owned bank created by private banks and how this happened.

http://www.youtube.com/watch?v=lu_VqX6J93k

Than the results of such system.
http://demonocracy.info/infographics...t/us_debt.html

The same is true for most countries. As the bankers have corrupted governments.

This is what happened in Canada:
http://www.youtube.com/watch?v=q7HMt...eature=related

And its happening all over where these banks appear.


Financial Armaggedon? Fed May Be Printing Money "Under the Table"

A spokesman for the Denver/Kansas City Branch of the Federal Reserve Bank has refused to comment about former St. Louis Fed Chief, William Pooles, comments stating that the Fed is "printing money," with no backing. The news is particularly bad for China and Saudi Arabia, holders of huge amounts of US debt, who may now fear that the US intends to inflate its way out of debt.

http://voices.yahoo.com/financial-ar...r-6569252.html


A year later. It turned out to be true!
They create money under the table. More money out of air to those who created them.

http://www.youtube.com/watch?v=IGuU8LZZWHU

When you know that the FED was created by those banks, it all makes sense that they save their own skin. Bailing out themselves on the expense of everyone else.

With Bitcoin such shit would not be possible, everyone sees and knows how much money there is all the time.

Bitcoins can not be created out of air. They are created out of energy.
They are not created with a debt that must paid.

To lend out a Bitcoin you must have that Bitcoin.

They are not created by private companies (banks.)
Anyone can start to create a Bitcoin by contributing power to the network anywhere in the world noone is left outside.

Thus Bitcoin is the worlds first currency not owned by banks or a single country but by people all over the world.

And the world needs a neutral currency.

This means that it doesnt matter if that currency increase in value. No export industry of any country is affected.

Lets look at what printing money out of air allows:

This also allows banks to print money and bribe politicians and people such as Mark Zuckerberg.
http://www.businessinsider.com/mark-...or-free-2012-7

And these are the banks that we have let create and endless new amount of money.


Libor scandal: They still have a banking cartel.
"We should be outraged going nuts about this!"

http://www.youtube.com/watch?v=0oV2mI0IYp8

This is how the Libor scandal affects you.
http://www.youtube.com/watch?v=uLVzBNgcVFE

Now when it comes to credit cards...

You pay hidden fees on everything you buy. The fees are charged the merchant who put in in the price of the product you buy.

These fees goes straight into the pockets of to the worlds richest people.
Those who need the money the least of everyone in the world.

And they even rigg the fees!

July 14--Visa, MasterCard and 13 of the country's biggest banks have agreed to pay $7.25 billion to settle accusations by retailers that they engaged in price-fixing on credit card transaction fees.

The settlement, on behalf of about 7 million retailers, could be the largest antitrust class-action settlement in U.S. history


Those who own everything!
The four companies that control the 147 companies that own everything.
http://www.forbes.com/sites/brendanc...wn-everything/

And in their system you do not even own your own hard earned money!
Thats why they want to get rid of cash.

Some people you do not know and can not control, decides what people all over the world can do with their money. No country laws apply, because the money is in a private owned system.

http://www.forbes.com/sites/jonmaton...-with-bitcoin/

Bitcoin is the worlds first none private owned money system.

And they keep a recored of everything you, your politicians, your jurry and everyone in the world ever buy. Giving them information to bribe/control politicians and sell that information.

Your Credit Card Is Spying on You
http://www.newser.com/story/85372/yo...ng-on-you.html

Data Mining CEO Says He Pays For Burgers With Cash To Avoid Junk Food Purchases Being Tracked
http://www.forbes.com/sites/kashmirh...being-tracked/



Bitcoin is the only good electronic money we have. And the good thing is, those who have some balls and risc trying it could get rewarded handsomely t if it takes just 1% of the market, each Bitcoin will be worth $5000-$50 000. If it grows as big as Facebook, each coin will be worth $5000.

And this without it being a pyramid scheme. As there is no single private interest the fees are way lower than creditcards. When you compare a credit card fee with Bitcoin the fees are hundred thousand percent higher than with Bitcoin.


As for early adoptor advantage. Lets compare with those who created FB and have stocks in FB. They can earn money on those stocks forever.

Those who created Bitcoin, can only use their coins once.
Than they do not have them anymore.

If you get $100 worth of Bitcoins and buy something worth $100.
There is only one who loses out. The banks, who can no longer charge a transaction fee everytime you and people all over the world buy things.
And do you really want to give the banks an endless amount of money, when you could just use a system that is a close as free as possible...

Bitcoin, is also the only currency in the world that can be sent to someone with the help of Facebook, email, sms & twitter.

And will Bitcoin take off?

This is what AMERICAN BANKER says:

Lightning Fast, Dirt Cheap: Bitcoin Shows What Banking Could Be!

http://www.americanbanker.com/bankth...1052108-1.html

Because this is how a bank transaction works:

SWIFT or IBAN wire transfers are not completely free of vulnerabilities. Every intermediate bank that handles a wire transaction can take a fee directly out of the wire payload (the assets being transferred) without the account holder's knowledge or consent. In many places, there is no legislation or technical means to protect customers from this practice.

http://en.wikipedia.org/wiki/Wire_transfer



Bitcoin is the only digital currency that we can own.
There are enough Bitcoins to cover the need for the world for thousands of years.
There are really 2,099,999,997,690,000 (just over 2 quadrillion) maximum possible atomic units in the bitcoin design.

Thats 14 times more divisible than all the gold ever mined in the entire human history if you where to compare with gold divided in tiny tiny parts.


As long as there are atleast two people who have a copy of the blockchain, containing all transactions Bitcoin can be brought alive and these are spread all over the earth since its the worlds first decentralized currency system.

Be sure to check out this globe with google chrome browser.
It only shows those who use the standard client at a certain hour.

http://www.weusecoins.com/globe-bitcoin/

Today many use for example blockchain.info.


As for the "big" problem with transactions...Sorry but the problem will be solved.
Just as people said, we will never go to the moon, youtube is not possible. Wikipediea will not work. What is internet good for. There will only be a single computer.

FB is not possible etc etc.

Well you look it up yourself.

Here is how to counterfeit dollars.
If you ever go to russia. 50% of the dollars or more might be counterfeit.
http://english.pravda.ru/russia/econ...3/3029-fake-0/


Here is how to counterfeit Bitcoins

You cant, because every Bitcoin is public.
http://bitcoinmedia.com/how-to-counterfeit-bitcoins/


But dont put all your money in Bitcoin. Expect the value to go up and down.
But there is a quite big announcement comming up that should bring stability.

As money goes. Bitcoin is the most interesting thing that has ever happened to humans in thousands of years.
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Old 09-01-2012, 05:39 AM
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Fiat money is worth whatever you can get for it, or in other words if a delusion is universal who gives a shit? Right now I'd say the USD is a hell of a lot more reliable and universally accepted than bitcoin.
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Old 09-01-2012, 08:17 AM
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Lets set the dope straight.

To understand Bitcoin you need to understand how FIAT money is created from private owned banks out of air based on an old scam that they are still getting away with running...
[snip]
(Deeeeeeeeep sigh)

I'm so sorry, everybody.

(Don't get me wrong, I know perfectly well that banks are fuckers, and one nice thing about bitcoin is how it makes money transfers easy, quick and (almost) fee-free. But... another deeeeep sigh. )

Last edited by Nancarrow; 09-01-2012 at 08:18 AM.
  #22  
Old 09-01-2012, 11:24 AM
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Be sure to check out this globe with google chrome browser.
It only shows those who use the standard client at a certain hour.

http://www.weusecoins.com/globe-bitcoin/
OK to give credit where it's due, that's awfully pretty. I think I can see me there! :waves at self:

Quote:
But dont put all your money in Bitcoin. Expect the value to go up and down.
But there is a quite big announcement comming up that should bring stability.
There are only three things I'm aware of coming up in the next few months.

1) There's some Bitcoin Conference happening in London. I might go just to put some names to faces. It's being organised by three blokes who are currently in quite a bit of hot water with the Bitcoin community for their perceived ineptness in clearing the rubble from Bitcoinica's crash landing. They also operate the exchange I use to cash out my mining proceeds, and have had numerous run-ins with British banks. Whose fault this is, I do not know. But I'm skeptical any of them would have an announcement coming up that would bring stability!

2) Butterfly Labs starts shipping out their ASICs. This might bring stability for two reasons. Firstly, so many peeps, myself included, are skeptical they'll actually deliver the goods, so it would reduce some uncertainty there. Secondly, when everyone turns on their ASICs the network hash rate will probably go up by a factor of five in a couple of months. Higher n.h.r. means more security for the network, means more confidence in Bitcoin as a stable currency.

3) The block reward halves in December 2012. At least the Mayans were right concerning my mining rigs - it'll very probably be the end of the world for them. But I don't see this affecting stability in any way.

Quote:
As money goes. Bitcoin is the most interesting thing that has ever happened to humans in thousands of years.
Well, it's certainly the most interesting money-related thing to happen to the nerdosphere since mathematicians started muscling in on economics. Which turned out well.

Last edited by Nancarrow; 09-01-2012 at 11:26 AM.
  #23  
Old 09-01-2012, 11:38 AM
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Lets set the dope straight.

To understand Bitcoin you need to understand how FIAT money is created from private owned banks out of air based on an old scam that they are still getting away with running.
Yes, the reason Bitcoin will succeed is because FIAT MONEY is controlled by a MEAN BANKER who once pushed an orphan down and SPAT on him. Never mind the deflation issues, the fact that consumers have no incentive to use it over a safer mechanism (e.g. credit cards), the fact that it isn't backed by anything, the security issues, or the wildly fluctuating exchange rates. As long as FIAT money is bad, Bitcoin is good.

Fin.
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Old 09-01-2012, 11:52 AM
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Yes, the reason Bitcoin will succeed is because FIAT MONEY is controlled by a MEAN BANKER who once pushed an orphan down and SPAT on him. Never mind the deflation issues, the fact that consumers have no incentive to use it over a safer mechanism (e.g. credit cards), the fact that it isn't backed by anything, the security issues, or the wildly fluctuating exchange rates. As long as FIAT money is bad, Bitcoin is good.

Fin.
By Jove, you've sold me on it... I'll have 10 of your finest bitcoins sir!
  #25  
Old 09-01-2012, 12:44 PM
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Does anybody know if bitcoins are considered to be "money" by governments? Are BC transactions taxable anywhere? Is gambling or playing poker for bitcoins on the internet subject to laws or regulations?
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Old 09-01-2012, 01:03 PM
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Can someone explain what bitcoin mining is?
  #27  
Old 09-01-2012, 01:29 PM
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I've been following that saga via the Something Awful bitcoin thread. Those people (bitcoiners, not goons) are so goddamn dumb it's unbelievable. Anonymous guy is offering a "high yield investment plan", where you give him your bitcoins and he pays you 7% interest, compounded weekly. How is he going to make a sustained 3200% annual return on his investment?
...
I mean, seriously, how stupid can you be?
They're not the ones who don't know what "compounded weekly" means. The stated annual return is actually ~7.25%, the difference being the interest earned throughout the year on interest already calculated.

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Can someone explain what bitcoin mining is?
It's the digital equivalent of counterfeiting, seemingly limited to brute-force tactics that cost as much as the coins you're creating. It's kind of like hiring a skilled jeweller to enscribe $2 coins by hand.
  #28  
Old 09-01-2012, 02:09 PM
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Can someone explain what bitcoin mining is?
Basically you use your computer's CPU or GPU to run math problems and discover valid bit coin hashes. You're not really mining anything of course, your computer does math problems until you discover a valid string.
  #29  
Old 09-01-2012, 03:55 PM
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It's the digital equivalent of counterfeiting, seemingly limited to brute-force tactics that cost as much as the coins you're creating. It's kind of like hiring a skilled jeweller to enscribe $2 coins by hand.
No no no.

'Mining' is not the process of counterfeiting Bitcoins... one of the useful nuggets in thinktank's screed is that Bitcoins cannot be counterfeited. Mining is the process of minting the bitcoins in the first place. It's what I was doing with my rigs in the long post I made above.

Basically, Bitcoins work by keeping a ever growing ledger of all the transactions that have taken place, so that everyone knows exactly who (or rather, which Bitcoin address) has coins, and how much they have. So for example if Joe Bloggs wants to spend 4 bitcoins from an address he has, the ledger verifies that he indeed has them, and produces a record of the transfer so everyone can see Jane Biggs now has them.
The ledger is split up into 'blocks' which are generated, on average, every ten minutes. The ledger is also called the 'blockchain'. 'Chain' is relevant because each block also contains the SHA256 hash of the previous block's header - that is, a string near the beginning showing that it's continuing from the previous block.

'Miners' are machines which generate new blocks. To do this they have to solve a complicated maths problem which ensures that blocks can only be generated at a certain rate (it has an adjustable difficulty so that if tons of people suddenly start mining, after a while the problem becomes more difficult). Basically in order for the Bitcoin system to function, these blocks have to keep being generated. The complicated cryptography bit ensures that people can't just make up any old shit and stick it in the blockchain, or all the other miners reject it.

From the system's point of view, the purpose of mining is not to make the miner money, it's to secure the blockchain. But since the computations require time and effort and electricity and hence money, the people who have mining rigs need to be compensated in some way, or nobody would mine. Hence the mining reward - each block includes a 'transaction' that generates 50 BTC and awards it to the miner that generated the block. This has a second useful effect... it distributes the money amongst many people, who can start trading with each other. If the first block had simply awarded 21 million bitcoins to the inventor, they'd then be stuck owning a 'fortune' in coins that, since nobody else would have them, would have no economy in which to be worth anything.
  #30  
Old 09-01-2012, 04:05 PM
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Does anybody know if bitcoins are considered to be "money" by governments? Are BC transactions taxable anywhere?
This might be the biggest grey area slowing the growth of the bitcoin economy, every merchant is thinking, 'what are my nation's tax authorities going to say about this and how much paperwork is it going to bring down on me?'

My not-very-educated guess on this is that so far the Bitcoin economy is so tiny that governments mostly don't know about it, and in so far as they do, they don't YET care. Of course they WILL start caring once it takes off. The sensible thing for them to do would be to treat bitcoins as taxable exactly like they do their own national currencies. Instead we'll probably get hysterical tales about Silk Road, gnashing of teeth from tabloids, and 'something will have to be done'. Because people are fucking idiots, and politicians are particularly stupid people.
  #31  
Old 09-01-2012, 04:06 PM
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But dont put all your money in Bitcoin. Expect the value to go up and down.
Phew. All my money is already tied up in Militia scrip, ammo, and Ron Paul posters.
  #32  
Old 09-01-2012, 04:34 PM
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I think thinktank60's post single handedly proves how looney bitcoins really are. Aw well.
  #33  
Old 09-01-2012, 08:18 PM
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They're not the ones who don't know what "compounded weekly" means. The stated annual return is actually ~7.25%, the difference being the interest earned throughout the year on interest already calculated.
The stated weekly return was 7%. A 7% annual return might have been somewhat plausible. And yes, if people just took their interest out of the system every week, it wouldn't be compound interest and he'd only have to come up with a 350% annual return. But I don't believe that's what happened: from what I read, most people continued to plug their interest payments (and even increased their investment) right back into the system to get more of that sweet, sweet free money.
  #34  
Old 09-01-2012, 08:46 PM
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Does anybody know if bitcoins are considered to be "money" by governments? Are BC transactions taxable anywhere? Is gambling or playing poker for bitcoins on the internet subject to laws or regulations?
In the United States, transactions do not have to involve money to be taxable. Barter is just as taxable as a sale for cash.

If you trade your cow for a bag of magic beans, the federal income tax applies exactly the same way as if you sold your cow for cash equal to the fair market value of the beans. You can't avoid the income tax on your wages by having your employer pay you in merchandise instead of cash. You can't avoid the income tax on the sale of your investment property by having the buyer pay you in shares of Facebook or government bonds. (There are exceptions for exchanging investment properties for "like kind" properties (known as a "Section 1031 trade") with a ton of rules for what constitutes an exchange and what "like kind" means.)

So yeah, if you sell goods or services for bitcoins in the United States, you owe tax just as if you sold them for cash. That is not a grey area. There is no question about that. The difference is that it may be easier to cover up the transaction so that the tax collector doesn't find out about it.

Gambling is gambling. Where gambling is illegal, it's normally just as illegal to put up your Rolex watch, the deed to your estate, or your bitcoins as it is to put up cash.
  #35  
Old 09-04-2012, 10:49 PM
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This just got reported (bitcoin theft). I thought you guys would be interested as a followup:

http://gizmodo.com/5940507/bitcoin-e...k-hacker-heist

Also, if you are interested in bitcoins, Planet Money did a podcast on them. Link: http://www.npr.org/blogs/money/2011/...hat-is-bitcoin
  #36  
Old 09-05-2012, 05:35 PM
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Do I have this right?
I build a rig capable of churning out math calculations, and turn it loose on a problem created by someone.
If I manage to find an answer, I get rewarded with a bitcoin, which can be traded, with some "merchants" for items/downloads/whatever.

How is this any different than fiat money? It seems that bitcoins are being created out of nowhere, assigned a value, and traded for goods. But at the end of the day, a computer crash, a network breakdown, or people losing interest could wipe it all out, and the person left holding the bitcoins is the loser. I can do the same thing with $100 bills. I can mail them to anyone in the world, with no traceability. Sure, the US government created the $100 bill in the first place, but someone dreamed up bitcoins, and set up that system too.

I just see no advantage to me, average person, to using them.
  #37  
Old 09-05-2012, 06:17 PM
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Do I have this right?
I build a rig capable of churning out math calculations, and turn it loose on a problem created by someone.
If I manage to find an answer, I get rewarded with a bitcoin, which can be traded, with some "merchants" for items/downloads/whatever.
Not really. It is true that bitcoins can be obtained that way, but the easy ones have already been found and that's mostly irrelevant now.

You get bitcoins the same way you get Euro or Forint or Rupee: by exchanging some other currency for them, at the going rate.

The main feature that distinguishes them from fiat currency seems to be that there is a limited number of them - limited by mathematics, not regulation. So, while fiat money can theoretically be devalued at any time by simply creating more of it, that's simply not possible with bitcoin[1]. And it's decentralized, so while a crash or hacked computer might wipe out your coins, it won't have much effect on the currency as a whole.

That's the theory, anyway. Whether or not that turns out to be true in practice, and whether or not the advantages prove to outweigh the risks, is something we'll find out over the next few years I guess.

To the average person, the advantage is this: it has all the properties of cash, but you can send it directly over the internet.

1. New bitcoins are being generated, but at a slow and predictable rate. And there is a fixed upper limit.

Last edited by tellyworth; 09-05-2012 at 06:20 PM. Reason: footnote
  #38  
Old 09-05-2012, 07:15 PM
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nm

Last edited by Enkel; 09-05-2012 at 07:15 PM.
  #39  
Old 09-05-2012, 07:32 PM
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limited by mathematics, not regulation.
Actually it is an arbitrary limit which could be raised by the developers, although that would require 51% of those using the client program to agree to the limit being raised.

The greatest downside to bitcoin is that it is deflationary which means there will always be a bigger incentive to hoard it rather than spend it, which means that any economy based solely on it will fail spectacularly.

As it stands the bitcoin "economy" consists of silk road, and various ponzi and pyramid schemes and is propped up by captains of industry who spend all their time dreaming up new ways to scam each other or derive profit without resorting to labour.
  #40  
Old 09-05-2012, 07:50 PM
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The greatest downside to bitcoin is that it is deflationary which means there will always be a bigger incentive to hoard it rather than spend it, which means that any economy based solely on it will fail spectacularly.
You may be right, but this seems somewhat speculative - there are arguments that deflation may be self limiting or somewhat irrelevant. It could affect the economy without necessarily destroying it. That's why it's interesting to watch; we get to find out empirically.

The bigger issue seems to me to be the chicken-and-egg problem. As you say, there's not much you can buy with bitcoin that is not dubious or a scam. Unless and until you can use it to buy things that are ordinary, there's just no compelling reason for most people to give it a second look.
  #41  
Old 09-05-2012, 08:09 PM
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But dont put all your money in Bitcoin. Expect the value to go up and down.
But there is a quite big announcement comming up that should bring stability.
I sure as hell hope this wasn't the announcement thinktank was expecting.

Bitcoins: the currency preferred by extortionists around the world!
  #42  
Old 11-15-2012, 05:04 PM
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Unless and until you can use it to buy things that are ordinary, there's just no compelling reason for most people to give it a second look.
Just bumping this thread to note that WordPress.com now accepts Bitcoin payments.

Also Reddit is considering accepting Bitcoin.

(disclosure: I worked on the WordPress.com Bitcoin project)
  #43  
Old 03-31-2013, 10:59 AM
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I know its a psuedozombie but...bitcoin prices just skyrocketed over the last few days currently holding around $90.00US each.

http://techcrunch.com/2013/03/28/bit...dollar-market/

Last edited by drachillix; 03-31-2013 at 10:59 AM.
  #44  
Old 03-31-2013, 07:40 PM
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I still don't understand how you can have a partial bitcoin without some central bank. Them being worth more only makes this more important. If you have a central bank, you have regulation.

In fact, I know you have regulation, as people are discounting bitcoins mined by botnets. Imagine any other bank saying that this particular dollar (or whatever) isn't worth anything. Not that it must be returned to its proper owners: there are no proper owners with these bitcoins. They are just invalid. That's fiat money: the supply is being artificially lowered.
  #45  
Old 03-31-2013, 09:55 PM
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It seems a lot of bitcoins are used for illicit and illegal activities. But is there an actual legitimate future for them?
What I'd like to see happen is for bitcoins or some other method to convince online services like Paypal that there's profit in not talking like puritan douchebags. You can hardly turn around on the internet without running into a ToS that treats Michelangelo's David the same as child pornography.

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Originally Posted by BigT View Post
In fact, I know you have regulation, as people are discounting bitcoins mined by botnets. Imagine any other bank saying that this particular dollar (or whatever) isn't worth anything. Not that it must be returned to its proper owners: there are no proper owners with these bitcoins. They are just invalid. That's fiat money: the supply is being artificially lowered.
We already knew bitcoins were fiat money - not because counterfeited bitcoins are not considered valid but because right from the start, they were designed that way.

Last edited by Grumman; 03-31-2013 at 09:56 PM.
  #46  
Old 04-01-2013, 01:46 AM
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In fact, I know you have regulation, as people are discounting bitcoins mined by botnets. Imagine any other bank saying that this particular dollar (or whatever) isn't worth anything. Not that it must be returned to its proper owners: there are no proper owners with these bitcoins. They are just invalid. That's fiat money: the supply is being artificially lowered.
This is nonsense. Nobody is discounting bitcoins mined by botnets. Nobody CAN. Nothing in the protocol distinguishes how the coins were mined or priviledges any group of coins over any other.
  #47  
Old 04-01-2013, 01:47 AM
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We already knew bitcoins were fiat money - not because counterfeited bitcoins are not considered valid but because right from the start, they were designed that way.
Bitcoins cannot be counterfeited. Bitcoins mined by botnets are just as 'genuine' as bitcoins mined by my mining rigs.
  #48  
Old 04-01-2013, 02:46 AM
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Bah, triplepost: recent coverage of Bitcoin in the UK:

http://www.bbc.co.uk/iplayer/episode...ht_26_03_2013/

The link will only be valid a couple more days. First 1:10 is the usual intro of what topics are coming up. Bitcoin runs from 35:22 to 44:44

This is a highly regarded programme on the beeb, and Jeremy Paxman does wonders for Bitcoin merely by being the interviewer. He could shitcan it for ten minutes and do more for its public presence than 'the bitcoin community' has done over the last year. It helps that it's preceded by a report on the Cyprus crisis!
Both panellists make good points about the pros and cons of Bitcoins. There IS at the moment an elephant in the room - Satoshi Nakamoto, the pseudonymous inventor of Bitcoins. Current estimates are that maybe 30% of all bitcoins that exist are owned by the very early adopters - Nakamoto and maybe a handful of others. If they were to suddenly dump all their BTC for USD that would cause a flash crash. Mitigating this is the idea that people who have amassed a lot of money are usually not going to do stupid things to devalue it. If Nakamoto wants to get rich in USD he's going to sell the BTC in little drips over time. Of course, he *may* prefer to be Dr. Evil. But then a second point comes into play. You can cause a crash by selling a vast amount - once. You can't sell it any more once you don't have it. So, less 'crash' and more 'flash'.
  #49  
Old 04-03-2013, 10:55 AM
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It's like watching the Tulip bubble, but with real-time quotes!
  #50  
Old 04-03-2013, 02:53 PM
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I'm having a hard time seeing much of a future for Bitcoin. It seems like it's still primarily a currency for drug dealers and child pornographers, and I really don't see much chance of that changing. For any legitimate activity, it's trying to fill a need that doesn't exist. Dealing in foreign currency really isn't that big a problem any more. If I want to buy something from, say, a Canadian company, I'll pay with my credit card, and Visa or Mastercard handles the currency exchange for me. What would I need a bitcoin for, again?
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