I don't get bitcoins

[Sparky]

I didn't want to derail the other bitcoin thread, so I'm starting this one for skeptics and defenders.

But I don't get it. I understand the part about it being free of banking control. And I understand that the availability is limited, and that it requires resources to mine product.

But what is the intrinsic value? Now that their are competitors (e.g. Litecoin), doesn't each subsequent new digital currency dilute all the previous currencies? Who gets to establish a new one and make the rules for it (e.g. availability and yield rate)? How do you use it if you have no electronic device, or electricity? Aren't you totally at the mercy of the transaction exchange market, and "wallets", etc. Isn't the whole thing increasingly dependent upon the faith of the other participants, as with all fiat currency? Isn't it a Ponzi scheme in that eventually there will be a saturation of new products, and too few new participants to prop them all up?

[Ponce]

Sparky? did you read what I posted elsewhere?.......you can stamp more bitcoins but never make more gold or silver, who do you think will be around the longest?...... like someone else wrote "This is like tulip mania"...... however, if they don't print more bitcoins it will become more of a real currency than the dollar.

V

[Hillbilly]

I didn't want to derail the other bitcoin thread, so I'm starting this one for skeptics and defenders.

But I don't get it. I understand the part about it being free of banking control. And I understand that the availability is limited, and that it requires resources to mine product.

But what is the intrinsic value? Now that their are competitors (e.g. Litecoin), doesn't each subsequent new digital currency dilute all the previous currencies? Who gets to establish a new one and make the rules for it (e.g. availability and yield rate)? How do you use it if you have no electronic device, or electricity? Aren't you totally at the mercy of the transaction exchange market, and "wallets", etc. Isn't the whole thing increasingly dependent upon the faith of the other participants, as with all fiat currency? Isn't it a Ponzi scheme in that eventually there will be a saturation of new products, and too few new participants to prop them all up?

I hear ya. 1) it has no physical Value 2) It's a little like a pyramid scam as in the people who buy in early make more money 3) It depends on electronic means for transfer, no back alley deals or "garage sale" type deals. 4) It's already showing signs of a "Tulip Bulb" style buble.

I think a few people are going to make a killing most wont and a few will get ass raped.

[Hitch]

I think a few people are going to make a killing most wont and a few will get ass raped.

This is why it's called bitcoin. A few will make a killing, the rest of us will get bit in the ass.

We will see bumper stickers "I got bit in the ass by bitcoin."

[Jewboo]

How do you use it if you have no electronic device, or electricity? Aren't you totally at the mercy of the transaction exchange market, and "wallets", etc. Isn't the whole thing increasingly dependent upon the faith of the other participants, as with all fiat currency? Isn't it a Ponzi scheme in that eventually there will be a saturation of new products, and too few new participants to prop them all up?



http://images.nymag.com/news/crimelaw/madoff100614_1_560.jpg


https://zoominfoblogger.files.wordpress.com/2010/01/delete-key1.jpg

Madoff's wet dream while now in prison is Bitcoin. All he would need is an internet connection.

More than amusing that some GSUSers are, of all people, seriously promoting Bitcoin.

:D

[Hitch]

http://images.nymag.com/news/crimelaw/madoff100614_1_560.jpg


https://zoominfoblogger.files.wordpress.com/2010/01/delete-key1.jpg

Madoff's wet dream while now in prison is Bitcoin. All he would need is an internet connection.

More than amusing that some GSUSers are, of all people, seriously promoting Bitcoin.

:D

Also, they have teasers along the way. Buy our expensive computing gadget, and you can mine bitcoins. We will reward your purchase, with a bitcoin here and there, to keep you pulling at our slot machine joke of a currency.

That's the same thing as buying a printing press and printing FRN's.

Folks, just get out of bitcoin before TPTB hit the delete button.

[Mouse]

Since we are running out of real physical things to work for, we are now being introduced to the next economic boom - virtual industries. Entire industries built upon technology, problem hashing and token rewards for a planet with too many people that are not really necessary requiring more work pay than their replacements.

[vacuum]

Here are some interesting things about bitcoin:

- Mining them requires resources to be burned on super fast computing capabilities. This means that it's driving technology forward by proxy, much more beneficial than digging in the ground.

- They require the internet to function. A reliable, ubiquitous, free, and open internet. Once enough of a fraction of the world uses them, there will be a very very powerful lobby that will ensure that none of the net neutrality/isp blocks/kill switches or any of that bs is allowed to become common practice because if the internet is restricted then trade will stop. Who cares about piracy in those circumstances? It's like a drop in the ocean comparatively. So bitcoin helps keep the internet free.

- The potentially automatically scales with the need. If bitcoin become monopolized and it's restricting trade, another crypto currency will simply be created and everyone will move to that one. If that one fills up and gets too expensive, another one will simply be created. Once there are enough of them out there, nobody will want to buy into yet another one.

- It is a payment system above all else, where any amount of money can be transferred to anyone, anywhere, anytime, for no fees. That's what you need for business to flourish.

- Bitcoin and crypto currencies are currencies, not money. Currencies have no intrinsic value. Their price is determined by the amount of currency needed for trade vs the amount that is available.

- Crypto currencies + gold and silver seem very similar to the two-money system ancient egypt used to have. They had the imperial money, which was gold and silver, which you'd use to buy things like land or other big things. On the other hand, they had a different currency which anyone could create and it thereby grew as needed. That was wheat. You'd take your wheat to the local storehouse and get a receipt for it. Then you'd spend that receipt to buy food, clothing, tools, whatever was needed in local commerce. So it acted as a currency for trade, and gold acted as a store of wealth. The wheat reciepts would depreciate in value over time and die out because the wheat would go bad after a while, and the monks would eat the wheat as well (in exchange for storing it). Crypto currencies will likely die out individually over time as the mining operation becomes less profitable, people don't want to store these big logs, etc. So just as the wheat receipt was good for only one harvest season, each crypto currency will rise and fall naturally.

- Ultimately, value is determined by the ability for everyone to remember. Everyone on the planet knows what gold is, so having it gives you the advantage of that perception and transfers it to you, the holder. Bitcoins will be remember by everyone for a long time, and there will be no funny stuff. The ability for there to be collective memory is intrinsically valuable. It's all you need to make a transaction over a relatively short period of time.

[joboo]

It takes a certain amount of technology, and energy to mine them. Same as gold/silver.

New gold/silver coins are made all the time with different logo's, designs, dates, weights, etc...

First person to find a good producing mine, and stake the claim, makes the most from it.

I'm not seeing a lot of differences. Those in the know will always make more than those that don't, and find out after the fact.

Is there anything in life from an investment perspective that doesn't follow these principles?

[Hitch]

Vacuum,

The fact that they require the internet to function, will be the death of them. TPTB are about control, and greed. No way they let these crypto currencies survive. I bet, they have a bunch of geeks underground working on a virus, or someway to destroy crypto currencies.

What I like about them...is the philosophy. Free trade. Uncontrolled transactions, people having faith in each other, not needing .gov control, etc.

That's great.

Don't get fooled by that though. Anything digital is a gamble. If you are smart and savy enough, get in, get out with a profit, and turn that profit into tangibles.

I'll never understand crypto currencies. I just turn my hard work into tangibles, and sleep easy at night. I'm not a gambler. God bless and good luck to you folks who do make a killing at this. I have full faith, that you will know when to exit the stage ahead.

[joboo]

The internet is never going away short of worldwide nuclear armageddon, and at that point it won't matter anyways.

If they try to clamp down that hard on the net, it will backfire massively.

They can't even stop people from sharing crappy hollywood movies.

[Large Sarge]

I think its a scam....

I find it hard to believe that .gov cannot get into their scheme,

.gov has had limited success getting onto the TOR network and getting hold of "anonymous"

[osoab]

I am guessing it is a bubble. The "shoe shine boys" are talking about bitcoin. They don't have a clue how it even works.


Nice little piece this morning on ZH.

Gold, Redeemability, Bitcoin, and Backwardation
(http://www.zerohedge.com/contributed/2013-04-03/gold-redeemability-bitcoin-and-backwardation)

I recently released a video (http://monetary-metals.com/is-bitcoin-money/) about the Internet-based currency, Bitcoin. I asked the question: is Bitcoin money? In brief, I said no it’s an irredeemable currency. This generated some controversy in the Bitcoin community. I took it for granted that everyone would agree that money had to be a tangible good, but it turns out that requirement is not obvious. This prompted me to write further about these concepts.


...


rest at link


(http://www.zerohedge.com/contributed/2013-04-03/gold-redeemability-bitcoin-and-backwardation)

[Ares]

Bitcoin is a free market solution to an over taxed over regulated centrally issued currency. It is created, traded, bought and sold in the last bastion of freedom the human race currently has.. The internet. It's not perfect, but as it gains popularity it takes power away from fiat currencies as it will gain trust. To even consider looking into Bitcoins for investment or wealth generation is to show the lack of faith in government issued paper.

As has been apparent since I woke up in 2007, TPTB control the price of gold and silver. While they control that price they will NEVER allow the price to threaten their fiat empire. We all remember what happened when gold was about to reach 2000 dollars an ounce. It was smacked down, and it's been in the 1500 - 1600 range for like the last 2 years. We all know gold and silver is a store of value, and I have no intention of ever selling my precious metals. But at the same time I cannot deny the existence of Bitcoins because it's not physical. Hell 90% of the fiat money supply is not even physical. When you sign a mortgage you're not given the money, it's a ledger entry. No money ever changed hands, just 1's and 0's from one fed institution to another with the sole purpose of robbing you because they have produced NOTHING.

At least with Bitcoin a complex computation equation needs to be solved before bitcoins can be exchanged, traded or even created. Some work is being done, but not in the physical world. I guess that's the most difficult part for people to get their heads around. It was for me when I started reading about them and dismissed them as a fad. Well at 141 a coin at current posting I'm kicking myself when I was offered 1000 BTC 2 years ago and I said no and wanted cash.

[madfranks]

The world's economies are currently run on fiat money, controlled and issued by central banks around the world. Gold and silver are alternate mediums of exchange, they are also the historical bedrock monies and that will never change. Outside of these little circles of gold and silver bugs like us who buy bullion for their wealth storing abilities, how many people understand the mechanism that gives gold and silver it's value? I.e., who understands money, the history of it and the evolution of it? Very few people. Show them a gold or silver coin and all they see is a collectable. Show a man on the street a silver quarter and he sees 25 cents, not 5.625 grams of silver. People put sterling silver forks and spoons in the junk box at the garage sale because to them it's a fork, not 2 ounces of silver. People just don't understand gold and silver. But bitcoins are very easy to understand. What are they other than money (or currency if you prefer that word)? They are not collectables, they are not jewelery, they are not silverware, they are nothing but a medium of exchange. This makes it much simpler for people to understand. Try to explain that gold is money and they won't get it. Tell them that bitcoins are money and they get it. When they see their national currencies disintegrating before their eyes, they understand bitcoin and move into it. This ease of understanding what is a worldwide and borderless system of money is very attractive to people.

[madfranks]

I hear ya. 1) it has no physical Value

Hmm, what is "physical value"? Value is not an objective thing, value is purely subjective. If you value a bitcoin at 1 FRN, you won't pay more than that for one. If someone else values a bitcoin at 150 FRN, anything less than that price they will buy one for.


2) It's a little like a pyramid scam as in the people who buy in early make more money

Well, yes, but aren't we all buying gold and silver for the same reason? Ponce bought in early, got his silver at $5, and now makes more profit than us who are buying now.


3) It depends on electronic means for transfer, no back alley deals or "garage sale" type deals.

This is true, but I'd like to point out this is not a defect, this is one of bitcoin's attractive qualities. 100% digital, 100% anonymous.


4) It's already showing signs of a "Tulip Bulb" style buble.

I agree with you here, I tend to think that this quick rise in bitcoin price is going to be followed by an equally spectacular crash. Which is why I don't recommend buying in right now.

[Sparky]

Here are some interesting things about bitcoin:

I appreciate your thoughtful response, vacuum, but I just don't think it's a strong case. I offer these respectful counter-arguments:



- Mining them requires resources to be burned on super fast computing capabilities. This means that it's driving technology forward by proxy, much more beneficial than digging in the ground.


The proliferation of fiat currency has driven printing, holographic, and materials technology forward. That doesn't really add to its true legitimacy.



- They require the internet to function. A reliable, ubiquitous, free, and open internet. Once enough of a fraction of the world uses them, there will be a very very powerful lobby that will ensure that none of the net neutrality/isp blocks/kill switches or any of that bs is allowed to become common practice because if the internet is restricted then trade will stop. Who cares about piracy in those circumstances? It's like a drop in the ocean comparatively. So bitcoin helps keep the internet free.

The fact that it requires the internet to function is a negative aspect. The entire world uses paper fiat, yet people are unable to act as powerful lobby that is able to ensure its legitimacy. I'm happy that it helps keep the internet free, but that does not speak to its legitimacy.



- The potentially automatically scales with the need. If bitcoin become monopolized and it's restricting trade, another crypto currency will simply be created and everyone will move to that one. If that one fills up and gets too expensive, another one will simply be created. Once there are enough of them out there, nobody will want to buy into yet another one.

No, they will continue to be created as long as there is a creator who can profit more by creating new digital currency compared to doing something else, and there is a near infinite supply of such creators. It's disturbing that the first one in on each new crypto currency stands to benefit the most.



- It is a payment system above all else, where any amount of money can be transferred to anyone, anywhere, anytime, for no fees. That's what you need for business to flourish.

No, it's not. I need an electronically abled and equipped participant on the other end of my transaction. I need an intermediary electronic infrastructure to support and deliver the transaction.



- Bitcoin and crypto currencies are currencies, not money. Currencies have no intrinsic value. Their price is determined by the amount of currency needed for trade vs the amount that is available.

Agreed. It is just like fiat currency.



- Crypto currencies + gold and silver seem very similar to the two-money system ancient egypt used to have. They had the imperial money, which was gold and silver, which you'd use to buy things like land or other big things. On the other hand, they had a different currency which anyone could create and it thereby grew as needed. That was wheat. You'd take your wheat to the local storehouse and get a receipt for it. Then you'd spend that receipt to buy food, clothing, tools, whatever was needed in local commerce. So it acted as a currency for trade, and gold acted as a store of wealth. The wheat reciepts would depreciate in value over time and die out because the wheat would go bad after a while, and the monks would eat the wheat as well (in exchange for storing it). Crypto currencies will likely die out individually over time as the mining operation becomes less profitable, people don't want to store these big logs, etc. So just as the wheat receipt was good for only one harvest season, each crypto currency will rise and fall naturally.

Wheat has intrinsic value. So there was a useful tangible product behind the receipts, the same way that gold used to back paper receipts. You're agreeing that these digital crypto currencies are ultimately doomed to failure. You've described a Ponzi scheme.



- Ultimately, value is determined by the ability for everyone to remember. Everyone on the planet knows what gold is, so having it gives you the advantage of that perception and transfers it to you, the holder. Bitcoins will be remember by everyone for a long time, and there will be no funny stuff. The ability for there to be collective memory is intrinsically valuable. It's all you need to make a transaction over a relatively short period of time.

People still remember the shekel, dating back to ancient times. But they will no longer accept it as payment.

I just don't see it. These crypto currencies remind me more of Beanie Babies, or baseball cards. They caught on as desirable, and the availability did not keep up with the growth in demand, so their exchange rate soared and the first wave of participants profited handsomely. But ultimately there was no limit to the supply of newly introduced parallel products, and a later wave of participants was left holding the bag.

[chad]

i don't want any part of a "money system" that requires electricity and the internet to "work."

[Ares]

i don't want any part of a "money system" that requires electricity and the internet to "work."

Then better get out of fiat currencies, and quick.

http://lampoonthesystem.com/includes/functions/image.php?img=515659561a9e6.jpg&w=589&h=444&type=1

[iOWNme]

Here is my take:

Bitcoin is nothing more than a tool to help facilitate the transfer of ALL MONEY into going digital. This is the next stage in the 'Mark of the Beast' plan.

It doesnt matter if it is decentralized or non trackable. ALL THAT MATTERS is that you accept the idea of a digital currecy.

CASE CLOSED.

[Hitch]

It doesnt matter if it is decentralized or non trackable. [B][COLOR=#ff0000][SIZE=4]ALL THAT MATTERS is that you accept the idea of a digital currecy.

If all that matters is me accepting the idea, I'd accept it. The problem is that at some point I'll need to convert my digital currency into tangible things I may need. What matters then, is someone else accepting them too.

My bitcoins would only have value based upon everyone else accepting them. I'm not sold on the idea.

Also, a computer of some sort to make the transaction is needed. Computers are fragile, they also require electricity. It would really suck if you needed food but there was widespread power outages and you can't access your bitcoins.

[Ares]

Also, a computer of some sort to make the transaction is needed. Computers are fragile, they also require electricity. It would really suck if you needed food but there was widespread power outages and you can't access your bitcoins.

You can have a bitcoin wallet on your cell phone to perform the transfer of funds. :) Like a credit card but without the transaction fees.

[Hitch]

You can have a bitcoin wallet on your cell phone to perform the transfer of funds. :) Like a credit card but without the transaction fees.

Ares, I accidentally put my cell phone through a clothes washer awhile back, hot cycle, and poof...it was gone. The good news was that at least it was clean when I took it in for a replacement.

Technology and me do not mix. I just have a way of breaking these tech gadgets. There's no way I'd trust bitcoin personally. I don't trust my credit card either, or that my digits are safe in a bank.

I agree 100% on the philosophy behind bitcoin, a true medium of exchange for the people that can't be controlled. I'm on board with that. Personally, I'd get screwed somehow. There's got to be a medium of exchange for us folks that just like things that are tangible. If I need rice, and the store won't accept 90% silver, maybe they will accept 22lr. :)

I apologize if my posts are not adding to this discussion. For the smart folks here who have made a great investment in bitcoin, congrats and I'm truly rooting for you.

[Ares]

Hitcher -

You might be on an idea there. Currently people manager their own bitcoin / litecoin wallets. If you're accident prone yeah you kind of SoL as with the way that currency works. If you didn't back up your wallet before it was destroyed, the currency itself was destroyed. With the way the system works those coin/coins are gone forever.

Wonder if there would be a way to setup a bitcoin / litecoin Bank / credit union. Again that goes back to trust in an institution that can seize it whenever it seems fit. (IRS / Gov etc.) Might have to be something I think more about and see if a solution like that could be viable.

[sirgonzo420]

You can have a bitcoin wallet on your cell phone to perform the transfer of funds. :) Like a credit card but without the transaction fees.

Bitcoin sometimes takes up a physical incarnation, from paper, to brass, to silver and gold:

http://s1.ibtimes.com/sites/www.ibtimes.com/files/styles/v2_article_large/public/2013/03/22/bitcoin.jpg



according to the universal ledger of bitcoin transactions (viewable here: https://blockchain.info/address/135Kc4GbBTqhzWCwVLmgrA9gcZY4dzgvJE ), the above coin has had the label removed, and the bitcoin redeemed. Someone added 0.0001 bitcoins to it before sending the balance of 1.0001 btc to another address.

Bitcoins are also available in silver and gold. That is to say, ounces of gold and silver with private keys to bitcoins hidden under a tamper-evident seal.

http://silvervigilante.com/wp-content/uploads/2012/07/10_casascius_bitcoin_silver_gold_logo-300x156.jpg

[joboo]

i don't want any part of a "money system" that requires electricity and the internet to "work."

If either of those two things disappear for more than a few months, your last concern is going to be how much money you have.

Food, water, and how many more weeks you can hold out before dying will seem a lot more pressing.

[Shami-Amourae]

http://www.youtube.com/watch?v=xOu10PI0w3w

[mamboni]

4665

[Silver Rocket Bitches!]

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

[Ares]

Ares, I accidentally put my cell phone through a clothes washer awhile back, hot cycle, and poof...it was gone. The good news was that at least it was clean when I took it in for a replacement.

Technology and me do not mix. I just have a way of breaking these tech gadgets. There's no way I'd trust bitcoin personally. I don't trust my credit card either, or that my digits are safe in a bank.

I agree 100% on the philosophy behind bitcoin, a true medium of exchange for the people that can't be controlled. I'm on board with that. Personally, I'd get screwed somehow. There's got to be a medium of exchange for us folks that just like things that are tangible. If I need rice, and the store won't accept 90% silver, maybe they will accept 22lr. :)

I apologize if my posts are not adding to this discussion. For the smart folks here who have made a great investment in bitcoin, congrats and I'm truly rooting for you.

Appears there is a solution for that issue already. www.strongcoin.com It's a server based wallet storage system.

[joboo]

4665

Yes, create a decentralized currency that the people themselves can create in order to oppose the central banking system.

Sounds like a jew conspiracy for sure...

[Silver Rocket Bitches!]

All I know is I got some really good mushrooms using bitcoins last summer. Those bitcoins today are worth of $500.

Totally worth it.

[vacuum]

No, they will continue to be created as long as there is a creator who can profit more by creating new digital currency compared to doing something else, and there is a near infinite supply of such creators. It's disturbing that the first one in on each new crypto currency stands to benefit the most.

Wheat has intrinsic value. So there was a useful tangible product behind the receipts, the same way that gold used to back paper receipts. You're agreeing that these digital crypto currencies are ultimately doomed to failure. You've described a Ponzi scheme.

I just don't see it. These crypto currencies remind me more of Beanie Babies, or baseball cards. They caught on as desirable, and the availability did not keep up with the growth in demand, so their exchange rate soared and the first wave of participants profited handsomely. But ultimately there was no limit to the supply of newly introduced parallel products, and a later wave of participants was left holding the bag.

I've been thinking about this a little bit. The intrinsic value is, I believe, comes from a negative rather than positive assertion. And that is, how much manipulation is done to other markets? How many fees, regulations, taxes, and duties are there? So the intrinsic value comes not from a quality the currency has, but rather qualities it doesn't have.

I think a few people may have profited handsomely, but I don't think the vast majority have. Maybe 5% have made serious money from it. I believe most people have sold as soon as they got 5x - 10x what they originally put into it, which is usually going to be in the hundreds or thousands of dollars range. So if someone put in $100 at $1 each, they probably sold when it reached $10 each, and so made $900. Perhaps someone bought $1000 worth at $10 and sold at $100, making $9000. Yeah, those are some great profits being made, but it's not like people are buying houses or retiring with that kind of money. In fact, I challenge anyone to find another currency introduced in society which has had fewer people get rich from it than bitcoin. The banksters and insiders always make those huge profits we talk about, and comparatively bitcoin is much more fair so far. They aren't cheap to make or issue, so the miners are making a couple bucks, but no one is getting rich, that's for sure.

Actually, it is possible to analyze the transaction history to find wallets that got bitcoins for like $0.02 and still have them. We can find out how many bitcoins have been held statically vs how many have been steadily traded as the price has risen.

The benefit of people potentially initially making a lot of money might actually hurt the creation of other knockoff currencies. The reason is, the bitcoin holders, miners, and investors are becoming entrenched. Why would people want to change standards to another ponzi-ish currency unless they themselves started it? How will you get other people to support your own currency on websites and exchanges if there is already bitcoin and you've been personally mining thousands of them before anyone else? There will be a big threshold of credibility needed to approach bitcoin's status as it takes off. That said, if there's a "depression", and the people who have bitcoins just aren't spending them, then people will indeed start another currency because bitcoins just take too much labor to pry out of the hands of those who have them.

Finally, it should be noted that these types of currencies are not ponzi-ish as long as they are publicly supported and have a large community behind them. In that case, there is enough mining competition to make the hardware and electricity bill be significant, so they aren't that easy to get. Second, there is always risk involved, for example the price could drop and you are left with a big credit card and electricity bill and nothing to show for it. Ponzi schemes do not have this inherent risk and competition.

[Sparky]

I've been thinking about this a little bit. The intrinsic value is, I believe, comes from a negative rather than positive assertion. And that is, how much manipulation is done to other markets? How many fees, regulations, taxes, and duties are there? So the intrinsic value comes not from a quality the currency has, but rather qualities it doesn't have.
...


I used to have a friend in high school who said he was going to get a job not blowing up buildings. He said the government would pay him a subsidy for every building that he did not blow up. The value he was contributing was not doing something negative. That's what this reminds me of.

I totally agree that freedom from centralized banks and from fees is a positive attribute of bitcoins. But I keep getting back to this: If crypto currency really catches on and becomes accepted as money, where is the limit on the supply side? Rather than have a few dozen central banks allowed to expand the money supply at their will, you can have millions of entrepreneurial software programmers expanding it. I don't understand the part of your argument that says this will somehow become self-regulating.

[Ares]

Rather than have a few dozen central banks allowed to expand the money supply at their will, you can have millions of entrepreneurial software programmers expanding it. I don't understand the part of your argument that says this will somehow become self-regulating.

Bitcoins / litecoins are self limiting. The code will not allow anymore than 21 million coins to ever exist for bitcoins, and 84 million for litecoins. It's part of the anti-inflation mechanism for all crypto currencies. You can run your mining hardware until your hearts content but once all the coins have been paid out, there will be no new coins.

[madfranks]

Sparky, here's a great introductory article on bitcoins. I think you'll get a lot out of reading this.

http://www.fee.org/the_freeman/detail/bitcoin-for-beginners

[Sparky]

Bitcoins / litecoins are self limiting. The code will not allow anymore than 21 million coins to ever exist for bitcoins, and 84 million for litecoins. It's part of the anti-inflation mechanism for all crypto currencies. You can run your mining hardware until your hearts content but once all the coins have been paid out, there will be no new coins.

How many million will be allowed for NewCoins? And Digi-Coins? CryptoCoins? LibertyCoins? E-Coins? SoftCoins? MinerCoins? SolverCoins? JusticeCoins? FreedomCoins? PeopleCoins? HexCoins?

You get my point.

[sirgonzo420]

How many million will be allowed for NewCoins? And Digi-Coins? CryptoCoins? LibertyCoins? E-Coins? SoftCoins? MinerCoins? SolverCoins? JusticeCoins? FreedomCoins? PeopleCoins? HexCoins?

You get my point.

I won't presume to speak for Ares, but your point is well understood here.

There could be, will be, and are other crypto-currencies besides Bitcoin. Survival of the fittest. The free market decides the winners and the losers.

[Sparky]

Sparky, here's a great introductory article on bitcoins. I think you'll get a lot out of reading this.

http://www.fee.org/the_freeman/detail/bitcoin-for-beginners

Thanks madfranks. But that didn't allay my concerns at all. He kept referring to exchanges for cash, and links to bank accounts. I don't think the author has really thought this through at all.

But here's something I have yet to see explained in any of these articles: What is the ore for bitcoin mining, and where does it come from? Can anyone help me with that one?

[Sparky]

I won't presume to speak for Ares, but your point is well understood here.

There could be, will be, and are other crypto-currencies besides Bitcoin. Survival of the fittest. The free market decides the winners and the losers.

I'll go back to my baseball card analogy. In 1980, there was one manufacturer producing one set, and the hobby had gained such popularity that everybody wanted it. In 1983 there were 3 manufacturers producing 5 sets, and everybody wanted them. By 1995, there were 15 manufacturers producing 150 sets, and nobody wanted any of them.

[Ares]

I won't presume to speak for Ares, but your point is well understood here.

There could be, will be, and are other crypto-currencies besides Bitcoin. Survival of the fittest. The free market decides the winners and the losers.

Sparky, Sirgonzo is right. There are about 5 other crypto currencies that I am aware of. Bitcoin and Litecoin are the 2 current "front runners" if you will in terms of value and volume.

The "ore" you speak of is a mathematical equation that is extremely complex to solve. It would take a human probably close to a 1000 years to solve a single block of this equation, so it's extremely time consuming and mathematically complex to offer a sort of value for its existence.

GPU's / ASICs are the new pick and shovel in the modern era for this currency. Will it win? Will it completely change society? Your guess is as good as mine. I just see that it has the potential to do those things.

[sirgonzo420]

Thanks madfranks. But that didn't allay my concerns at all. He kept referring to exchanges for cash, and links to bank accounts. I don't think the author has really thought this through at all.

But here's something I have yet to see explained in any of these articles: What is the ore for bitcoin mining, and where does it come from? Can anyone help me with that one?

The "ore" is the processing of bitcoin transactions, involving cryptographic hashing.

It's pretty damned complex, especially for those without an understanding of cryptography and fancy-computer-stuff.

Here is the simple, less technical, wikipedia version:


The steps to run the network and generate or "mine" bitcoins are as follows:[2] (https://en.wikipedia.org/wiki/Bitcoin#cite_note-UCPaper-2)



New transactions are broadcast to all nodes.
Each node collects new transactions into a block.
Each node works on finding a difficult proof-of-work for its block.
When a node finds a proof-of-work, it broadcasts the block to all nodes.
Bitcoins are successfully collected or "mined" by the receiving node which found the proof-of-work.
Nodes accept the block only if all transactions in it are valid and not already spent.
Nodes express their acceptance of the block by working on creating the next block in the chain, using the hash of the accepted block as the previous hash.
Repeat.

Nodes always consider the longest chain to be the correct one and will keep working on extending it. If two nodes broadcast different versions of the next block simultaneously, some nodes may receive one or the other first. In that case, they work on the first one they received, but save the other branch in case it becomes longer. The tie will be broken when the next proof-of-work is found and one branch becomes longer; the nodes that were working on the other branch will then switch to the longer one.
New transaction broadcasts do not necessarily need to reach all nodes. As long as they reach many nodes, they will get into a block before long. Block broadcasts are also tolerant of dropped messages. If a node does not receive a block, it will request it when it receives the next block and realizes it missed one.

[sirgonzo420]

I'll go back to my baseball card analogy. In 1980, there was one manufacturer producing one set, and the hobby had gained such popularity that everybody wanted it. In 1983 there were 3 manufacturers producing 5 sets, and everybody wanted them. By 1995, there were 15 manufacturers producing 150 sets, and nobody wanted any of them.

But they still want the old, original baseball cards, now right?

Comparing bitcoin to baseball cards is kinda like comparing the internet to baseball cards. It's a trick analogy to make... they aren't quite analogous.

[Ares]

I'll go back to my baseball card analogy. In 1980, there was one manufacturer producing one set, and the hobby had gained such popularity that everybody wanted it. In 1983 there were 3 manufacturers producing 5 sets, and everybody wanted them. By 1995, there were 15 manufacturers producing 150 sets, and nobody wanted any of them.

Bad analogy, I see where you're coming from but its apples and oranges. Each of the baseball card manufactures were producing a card for the same player (Jose Conseco for example) most likely in a different pose on the card. Why should Topps version of Jose be more valuable than a Bowman card? It's the same player is it not? It's just manufacture cosmetics. A litecoin is not the same as a Bitcoin. Completely separate algorithm was processed to create it, and both have different finite limits and years of final payout.

It's a medium of exchange, it has yet to truly test itself as a store of value. Will it ever? It's hard to say. But my money for store of value is still metals.

[Sparky]

Who chooses the equation?

[Sparky]

You'd think that the people who appreciate that attributes of bitcoins are the same people who appreciate precious metals, and that precious metals are preferred.

[Sparky]

I'll admit that baseball cards are a mediocre analogy. But the analogous part is an unlimited number of manufacturers stepping in and ultimately frustrating their consumer base. Picture someone's grandmother trying to weigh her options between BitCoins and LiteCoins.

[Ares]

You'd think that the people who appreciate that attributes of bitcoins are the same people who appreciate precious metals, and that precious metals are preferred.

I've spoken to a LOT of bitcoin enthusiast and by far and large they do value gold and silver. However there is also a large realization that it's manipulated and artificially suppressed.

How can you ever hope to change a system of corruption, control and enslavement by using the tools that they themselves gave you? You can't the tools are broken and given to you for a reason..
This is a new tool, outside of their system.

[Ares]

I'll admit that baseball cards are a mediocre analogy. But the analogous part is an unlimited number of manufacturers stepping in and ultimately frustrating their consumer base. Picture someone's grandmother trying to weigh her options between BitCoins and LiteCoins.

We're also in the infancy stage of crypto currencies. Who decided gold and silver had more value than salt and sea shells?

The free market decides who wins, and who loses. Always has, and always will. It may take time, but if anyone put a stake in the heart of a Rothschild bank I'll drink and dine in celebration.

[Ares]

Who chooses the equation?

The equation is chosen by the crypto currencies creator. There is then a genesis block that starts the block chain (the first bitcoins are used as a reward for the first miners to start hashing for that crypto currencies network) If the creator of the crypto currency had kept any of the coins, any future blocks created would fail because there wasn't enough for the initial payout to the miners who were promised X-number of coins for performing the work. -- That is my understanding of the genesis block, if I'm wrong someone please correct me.

Now with that same line of questioning, who chooses the dollar / credit card / Euro / Yen / Yuan etc?
All have 2 things in common. All are a medium of exchange, and the vast majority anymore are electronic in nature. The only difference is that Bitcoins are 100% digital, and the free market determines its value. Not so with the above fiat currencies as those are valued by decree.

[sirgonzo420]

I'll admit that baseball cards are a mediocre analogy. But the analogous part is an unlimited number of manufacturers stepping in and ultimately frustrating their consumer base. Picture someone's grandmother trying to weigh her options between BitCoins and LiteCoins.

There are Dollars and Euros and Swiss Francs and Yen and Yuan and Pesos and Dinar, but the Dollar rules them all.

[gunDriller]

Since we are running out of real physical things to work for, we are now being introduced to the next economic boom - virtual industries. Entire industries built upon technology, problem hashing and token rewards for a planet with too many people that are not really necessary requiring more work pay than their replacements.

like Farmville Bullshit and online video game "asset purchases".

[sirgonzo420]

Here is a little something about mining:

http://codinginmysleep.com/bitcoin-mining-in-plain-english/

[vacuum]

But I keep getting back to this: If crypto currency really catches on and becomes accepted as money, where is the limit on the supply side?
...
How many million will be allowed for NewCoins? And Digi-Coins? CryptoCoins? LibertyCoins? E-Coins? SoftCoins? MinerCoins? SolverCoins? JusticeCoins? FreedomCoins? PeopleCoins? HexCoins?
This seems to be the main question.

This is the question of money creation which is central to all (fiat) currencies. So lets look at them.

Precious metals/commodities
The big issue with gold is that if you don't have any gold, you don't have any money. Lets say money changers own 90% of all gold, and the remaining gold is then split up among society where it goes for a very high price since there is so little of it available. Well, the money changers can use their large amounts of gold and buy up many assets, then use the remaining gold to make loans and use fractional reserve banking to bring their gold back to them though booms and busts.

So with gold, even though it can't be created, there are issues with the fact that it is already held by others and you don't have any at the time of your birth.

Government issued fiat
Fiat currencies can potentially solve this problem by allowing a government to print it's own money and spend it into the economy though public works projects, then require payment of taxes in the money. This solves the problem of having money changers already holding the money. The government (people) create it's own money and spend it on public things. If each nation does this, then they are in full control over their own money and commerce, and can make them run smoothly and create a wealthy nation without gold.

So in this case, it pays to be able to come up with a currency ad hoc to meet the needs of commerce.

Bank issued fiat
We all know that with the federal reserve, central banks, and private banking system, they neither have the physically limited quantity of gold to worry about, and any money that is created is owed to them and they can call in the loan at any time (in a macro sense). This is the case of full private control of the money.



Based on these types of currencies described above, I'm going to make two postulates:
1) If a currency is initially created and distributed in a fair way, then it doesn't matter how many competing currencies there are or how much of the currency is created. It will serve the public good.

2) The currency will continue to serve the public good until such time as it is no longer distributed fairly, either through select groups getting the new money or through no new money being created and existing money getting monopolized.




Traditional currencies
Postulate (1) applies to gold, because it must be mined out of the ground. It's creation and distribution is fair, more or less (it could favor countries with better mines). However, postulate (2) says that since the speed at which gold is created vs how much is already in the hands of the rich, it is not beneficial for nations or social groups without any gold at all in their possession.

With government issued fiat, postulate (1) could potentially be similarly good as with gold. Postulate (2) could also potentially be true if enough of it is removed through taxes and/or the creation rate is high enough. In practice though we don't have government fiat, and if we did, there are plenty of ways these could go wrong.

We know with bank fiat it's not distributed fairly.

Crypto-currencies
A ponzi scheme doesn't satisfy postulate (1) because there would have to be an unfair distribution of the currency/money.

Crypto currencies are not ponzi schemes however. They are 100% free market in their creation, assuming the project is public. Anyone can mine a coin, and the difficulty in mining one is proportional to the number of people you are competing with for the limited coins available. Therefore, getting in a crypto currency early and making money is akin to investing in a stock early and making money. There is risk involved though. If you spend time and money mining coins that never take off, you've wasted that time and money. If a million people all jump on a new crypto currency at it's time of creation, there is very little risk involved, but there is also very little profit since the competition to mine coins will make them unprofitable. The only way to make money is by being the first to mine it and at a later date a bunch of other people begin mining and supporting it. But that is like any other stock investment, it requires foresight.

So crypto currencies do indeed satisfy postulate (1) because, by definition, they are distributed fairly because mining difficulty is proportional to competition. If few are mining, it's easy but also no one thinks it will go anywhere. If many are mining, it's hard but more people think it will be successful. There is no risk-free situation here.

The postulate (2) is satisfied for a while, but when the currency becomes scarce due to new coins running out, then it can indeed become monopolized and unfairly distributed. In that case, it will no longer be a currency for the public good. However, there is nothing stopping another crypto currency from arising in this situation where people need money and bitcoins only come at an unfairly high price because the rich already own all of them. This could be a problem, for example, in a place like Brazil. Lets say that Americans and Europeans get 90% of all bitcoins because we knew about it first and have the most computing power. Well, when Brazillians need money, they can either create their own crypto currency which they all agree to use, or they can try to produce resources for Americans and Europeans in exchange for existing bitcoins, so that they are then able to trade among themselves.

The only issue I see is if someone hoards computing power and can then dominate the mining operation of any new currency such that no third world country can create their own crypto currency because all they have are pentium 4's. In that case, postulate (1) would fail. Hopefully new cryto currencies can be developed to get around this problem.


What is stopping another crypto currency from simply being created? My answer would be that, so long as the current crypto currency is being fairly distributed, another will not be created because there will be no popular support for it, and no one would want to enrich somebody who was there first when bitcoin is already available. On the other hand, if someone develops and hoards a super powerful 48 core asic for bitcoin mining and starts dominating them, then people will move to another crypto currency.

Litecoin has already proven this is true. Bitcoin can only be mined by a select few: those with custom graphics cards and those with the new asics (though to be fair it's not really that unfair because anyone can invest in that hardware and start mining. It's not free or super cheap for anyone). Litecoin was developed such that it could be mined on a common CPU - that's why it caught on, because bitcoin became slightly unfair in it's distribution.

Since there is risk and a free market with the creation of any crypto currency, new ones won't be created unless the free market deems it's useful. In that case, only people who create new and useful protocols which become widely adopted will have early access to new currencies. However, they will deserve to make money in that case.

[Horn]

Since we are running out of real physical things to work for, we are now being introduced to the next economic boom - virtual industries. Entire industries built upon technology, problem hashing and token rewards for a planet with too many people that are not really necessary requiring more work pay than their replacements.

You sound like you know something, does APMEX accept Bitcoin?

[madfranks]

Good read, from a PhD in economics:

The Money-ness of Bitcoins (http://lewrockwell.com/orig14/gertchev1.1.1.html)

[willie pete]

smells of Ponzi to me ::)

[Sparky]

Good read, from a PhD in economics:

The Money-ness of Bitcoins (http://lewrockwell.com/orig14/gertchev1.1.1.html)

This is a good read. It doesn't seem to have a pro- or con- agenda, and does a good job of identifying strengths and weaknesses.

[madfranks]

This is a good read. It doesn't seem to have a pro- or con- agenda, and does a good job of identifying strengths and weaknesses.

To me, this is the best point the article makes:


we have come to a fundamental distinction between virtual and material media of exchange. The latter are technology-independent and matter-embodied; the former are technology-embodied and matter independent.

This puts into clear words what some of us have been trying to communicate in the other bitcoin thread. Bitcoins are not a replacement of physical money like gold and silver. Where mater-embodied money is preferred, hold gold and silver; where matter independent money is preferred, hold bitcoins. There are legitimate reasons why a free-minded individual would want both.

[Horn]

This is a good read. It doesn't seem to have a pro- or con- agenda, and does a good job of identifying strengths and weaknesses.

Is the article priced in dollars or yuan, yen assets?

[madfranks]

Here is another great article for folks to read who don't get bitcoin. It's long, but worth the read if you're interested:

Could Bitcoin be the Money of the Future? (http://www.financialsense.com/contributors/detlev-schlichter/could-bitcoin-be-the-money-of-the-future)

Some highlights:


As I have explained in Paper Money Collapse no society (not even a healthily growing one) needs a constantly expanding supply of money. Money is a unique economic good. Because it is the medium of exchange, money is the only good that is demanded exclusively for its exchange value, not for any use-value its substance (if it has a substance at all) may also have.

Nobody who has demand for money has demand for a certain quantity of paper notes, or a certain weight of gold, or a certain number of digits on a computer hard-drive. Money-users have demand for the exchange value that these items contain in exchange for other goods and service, i.e. qua being accepted by others as money. Demand for money is always demand for readily exercisable purchasing power.

Once a good is widely accepted as a medium of exchange (whether that good is gold, paper tickets, or sequences of digital ones and noughts), the public can, at any moment in time, hold precisely the amount of money – readily exercisable purchasing power – it wants to hold. If the demand for money goes up, the public will sell non-money goods for money or reduce money-outlays for non-money goods. As a result, the money-prices of non-money goods fall and the purchasing power of each monetary unit (whether gold, paper tickets, or digital code) will rise. This process satisfies – automatically, instantly and naturally – the higher demand for money. The public now holds more readily exercisable purchasing power in the form of money, not because a clever, über-prescient money producer has created new money units, but simply and much more straightforwardly, because the exchange-value of the existing money stock has increased.


There is, first of all, the idea that Bitcoin could have many imitators, which would undermine its uniqueness and reduce its attractiveness. If Bitcoin itself cannot be inflated, what about the concept of crypto-currencies, could it be inflated by too many different currencies on offer?

This argument strikes me as weak. By all accounts Bitcoin’s design and cryptographic robustness are an exceptional accomplishment. It is not as if any hacker of medium talent could pull off something similar tomorrow. But even if he could, the argument completely underestimates first-mover advantage in the area of goods and services with substantial network effects. How many people have launched a second Facebook or a second Twitter since these inventions kicked-off the social media craze, although technologically, these inventions are much simpler than crypto-currency? – Nobody. The network effects of these goods are immense. Once they have a certain acceptance it is hard, if not impossible, for late-comers to break in. These goods and services have value for their users predominantly because others use them too, and the more people use them, the more valuable they get. There is no good for which this is truer than money – the general medium of exchange. Customized money is an oxymoron. Consequently, once a form of money is accepted, it is very difficult to take business away from it.


Many ‘Austrians’ get thrown off by Menger’s theory of the origin of money and Mises’ so-called ‘regression theorem’, and somewhat rashly conclude that Bitcoin can never achieve money-status because it did not originate from a non-money commodity. Mises was correct when he stated that something could only become money if it had previously, that is, before it was used by somebody as a medium of exchange in its own right for the first time, established some value in trade. For if that had not been the case, how could the first person to employ the commodity as money have any point of reference by which to assess its value and determined its exchange value for the first monetary transaction? However, this theorem, which remains unrefuted in my view, does not apply to Bitcoin. Bitcoin can simply piggyback on established forms of money that already have exchange-value and derive its original value from them before it does, over time, establish its own value.

The same has, in fact, happened in the case of paper money. The paper notes that are used as money today did not start their ascent to widely used and generally accepted monetary assets from humble beginnings as commodities – that is, as mere paper – but started out as paper-claims on physical gold. Gold was money and the paper tickets simply a technology to transfer ownership of gold. When the first banknote was used it did not derive its exchange value from its paper content but from the fact that it could be exchanged for a fixed amount of gold. That was the necessary reference point – in accordance with Mises’ regression theorem. Paper money started as payment technology and as the public got used to paying with paper rather than with gold coins and gold bars, the underlying gold content could be reduced over time and ultimately the link to gold completely severed. What gives value to these paper tickets today? – The fact that the public still accepts these paper tickets in exchange for goods and services. That is all. And in fact, it is all that is needed. Any form of money –even gold, which still retains some functionality as industrial commodity or consumption good (jewellery), although that functionality is now irrelevant for its role as monetary asset – any form of money derives its money-value from the trading public and the public’s willingness to exchange the monetary asset for goods and services.