Why? Why would transactions need to be in whole numbers. Bitcoins can be transfers in transactions as small as 0.00000001 BTC.

Bit-torrent, the internet, email were originally all nerdy new "toys". There is significant use for a transaction system controlled by nobody in which transactions can't be faked, reversed, or tracked.

If I trade dollars to bitcoins the govt knows I have bitcoins but not what or where I spent them. If I trade bitcoins for dollars the govt now knows I have dollars but not where I got them from.

So govt will still have some control, they can see the "edge" of the network where current dollar based transaction systems (banking accounts, credit cards, dwolla, etc) connct to bitcoin network but they can't see inside the network. They can't know who has how many coins, where they spent them on, when, or how. That is useful. It bitcoin doesn't provide the solution eventually some other system will.

aside from money laundering, why is bit-coin necessary?

To ensure no cheating the network validates transactions. If I send 10 bitcoins to you the network will eventually verify that transaction making it impossible to "fake" a transaction or reverse it.

That validation requires massive amount of computing power. The network takes all the unverified transactions and attempts to create a hash that matches the solution. The network makes the solution harder based on how quickly the last solution was found so that on average a solution is found every 10 minutes. 10 minutes of the entire computing network trying to solve it. To encourage entities to partcipate (provide computing power, and electricity) a reward of 50 BTC is given to the computer that solves the problem. So the bitcoin monetary supply grows very slowly roughly 7200 BTC per day. The new coins are given to those who validate transactions.

There is no central authority. You don't need permission to attempt to validation transactions. Anyone in the world with computing power can attempt to validate transactions and if they validate a block first they get 50 BTC.

To be clear, are you arguing that all fiat currencies are Ponzi schemes? Or are you making a point about Bitcoin specifically?

this is pretty interesting.

But why is this better than xferring money online through bank accounts and such? The institutions already provide a very high level of security, service, and depending on your level with them, you can move money around fee-less it seems.

This has proven to be a problem for Americans wanting to play poker.

but those are the ones who stole from me

Most traditional transactions are not "cash like". You can sell me something, I pay by paypal and then tell paypal I never received it. This source of friendly fraud increases business cost and legit customers end up paying for it in higher prices. Bitcoin is irreversible. If you give me 20BTC then that transaction can never be reversed (similar to cash). Obviously that means it has all the risks AND dangers of cash.

While the banking network is robust it is also centrally controlled. Americans learned the govt via control of the banks made it very difficult to transfer money to poker sites. If poker sites accepted bitcoins those transactions couldn't be prevented. Hell if PS for example ONLY accepted bitcoins it is unlikely the govt case would be much more difficult (maybe impossible).

One use would be playing poker. It isn't illegal for US player to play poker it is simply defacto banned by making movement of money very difficult. I don't have complete trust that our govt will always do the right thing. This is different than "fearing" the govt. I am just a realist. The govt often does STUPID wasteful things and the war on poker is just one example. A decentralized transaction network makes it more difficult for the govt to interfere in the private decisions of where citizens want to spend their money.

Another use is to avoid transaction monopolies. VISA & MC and the banks make roughly $300M a year simply allowing people to use their own money. This is on top of their ability to borrow at next to nothing then purchase risk free treasuries and simply collect a spread on imaginary money (money created out of thin air by the Fed). You are worried about "miners (transaction verifiers) on bitcoin network making couple hundred bitcoins out of thin air. Our federal reserve does it and those profits flow to banks at the determent of everyone else (larger money supply = inflation = your dollars buy less but banks make an risk free spread on money that was never theirs).

Regarding VISA/MC, their duopoly makes fair market pricing of those transactions difficult. It isn't a coincident that VISA and MC have almost the exact same prices and keep those prices artificially high. That is impossible in a P2P transaction system. Given that anyone can validate bitcoin transactions and can charge anything they want you instantly have a free-market based system that becomes very difficult to control. Need a transaction validated very rapidly? You can pay a "high" (say 3%) transaction fee. Just need it validated eventually? You could pay a very low transaction fee (say 0.01%). Each entity validating transactions can choose how low of a fee they are willing to accept and likely will have to change their threshold based on demands of the market.

Look I am not saying to put any serious money in Bitcoin, it could certainly crash and burn. Developing a secure decentralized transaction system is very difficult and Bitcoin has some major problems (high volatility of exchange rates, low transaction volume, long term deflation risk, etc). I am just saying the reason for Bitcoin is valid and eventually some system (if not Bitcoin some future system) will capitalize on that need.

I think it will become a viable option for poker when we get several futures exchanges up, this way you can "lock in" the value of your bitcoins daily, or hell, hopefully the sites will absorb that type of confusion and do it for you.

It's pretty interesting what the implications for money laundering would be. I would strongly recommend that you NOT play poker for bitcoins in a state that has passed laws explicitly banning online poker, or B&M poker. Then for the rest of us in states where poker is legal, I still think it's a bit of a gamble of whether or not the DOJ/FBI whoever, would consider it laundering. While you might think you are protected under the law, it's the FBI's interpretation that matters, and we've all been witness to their overextension.

but can you buy hookers and blow with BC?

@RiverPlay:

Yes, yes you can. One of the biggest reasons the government is taking an interest in BC is because it's very easy to buy illicit items.

It's kinda sad, but it's really one of the strongest attributes of the system right now, as there are few vendors selling normal stuff. One element that has propped up the value is that people have been buying "mining equipment" like mad, and so vendors have been selling graphics cards, in bitcoin. That said, I bought my stuff in USD.

Actually, they are all in whole numbers, we just use a decimal point to make things easier to read.

You can add those layers on top. It doesn't exist now. PayPal is great for buyers. It's a disaster for sellers. You basically are SOL when you get scammed, they seize your funds, and you are screwed.

There was a service where you could escrow money, they take a small cut, and then release funds when items are received. If Bitcoin were to take off, you would see a lot of similar things to what we see now. Banks, e-wallets, etc... You'd see buyer protection services. Right now it's just a bunch of amateur-hour sites out there, but if it became significant, it would likely pop up. But the fees would likely be a lot smaller.

Irreversible transactions where you can't track who the person on other end is means you should be extremely careful with your coins and extremely careful with your wallet. Getting ripped off is easy. But you would be the same way with cash- if it's someone you trust or you can't get ripped off, use cash. If you want protection, you'd use a credit card or escrow.

If it takes off, it will be in black/grey markets initially. It's not easier to use than cash/PayPal for people who don't have any coins. So it needs some bootstrapping to get there. Where it will make sense is where people get huge benefits from using it. Right now that seems to be black/grey markets and also remittance or huge fee transfers of funds. This may be enough to give it stability and to increase the economy to add features that mainstream users might want to have (e-wallets, protection, escrow, etc...), and then it might make the leap. Or it might not.