I understand the limiting factors of bitcoin mining (value of future bitcoins go down eventually making mining unprofitable), but why isn't the computational power used for anything, like SETI@home or something?

I wondered that as well. I think to make it unexploitable it needs to be a proven mathematical task that has no shortcuts or no controlling authoritative body.

If it was used for seti, seti could create accounts and award them billions of computation points without the accounts having done anything.

The CPUs are irrelevant. They are generally as low-powered as possible to run the system. The important part is the GPU

Currently the king is hte ATI Radeon HD 5970, a card which is about $600 new (and increasingly hard to find). Someone on the forum commented that he was purchasing as many of these new and used as he could find in the UK (at acceptable prices) and was unable to get enough for his farm.

Based on what someone else said, I'd say currently calculation rates are around this value, which I believe is in mega/giga hash/sec.

Financial and Technical data for the bitcoins markets : http://bitcoincharts.com/markets/


More technical analysis: http://blog.bitcoinwatch.com/

There are also 1-2 sportsbooks and some casino games/poker sites using bitcoins only. In the DeepWeb thread in OOT there are mentions of a couple illicit marketplace sites on Tor network, where bitcoin is the currency used.

https://ianxz6zefk72ulzz.tor2web.org/

Bitcoin is going to have trouble when it becomes known as a way to fund illicit activities.

I'd figure the link they come down on is the places that trade dollars for bitcoins, similar to how Neteller got the hammer.

Neteller got the hammer because there were a contained group of people responsible, and a core physical service that could theoretically be seized, but the whole bitcoin system is p2p, you can't really shut it down if it gains enough momentum.

My main concern with it is security, if someone trojans my PC they can empty my bitcoin account and there's literally nothing I can do about it.

I'm talking more about shutting down the cash to bitcoin conversion process (or the reverse). Banks could then be the next line of defense, where any bank that deals with a bitcoin converter gets fined. If bitcoin could get enough steam to use for mainstream tasks and no one ever needed to sell bitcoins for dollars, then they are in fine shape since it is decentralized. But there still are choke points, mainly in the conversion process.

A deflationary model actually benefits this since people would have an incentive to hoard bitcoins rather than trade them in for cash.

Security is a valid concern as well.

Who is funding bitcoin? You can not make money out of thin air. What does Paypal do with the bitcoins people exchange for cash?

I'm a financial peasant but I think that if banks shut down large bitcoin to dollar conversion sites, the demand for conversions would increase dramatically and encourage other conversion sites to spring up, much like how torrent sites work at the moment.

Also I don't really know the law, currently is a bitcoin just a virtual good, like a sword in a virtual game? To apply pressure on a bitcoin conversion site would you need to recognise it as a valid currency and not a virtual good? If so, by that point it's probably too late to go back once you have legitimised it in law as to pass that law it would probably have already reached the critical mass required for it to succeed and penetrate the wider market.

You don't have to recognize it as anything other than saying it's used to fund illegal activities, and banks have an obligation to not pay into that. That's what they did to dry up funding poker sites. Sure, other things pop up, but they get shadier and shadier, and it gets harder to fund legitimately. Eventually people give up.

AFAIK PayPal does not ever hold the bitcoins, someone else does, and gives them to you when you send them on paypal. Similar to how PayPal does not get involved when I buy anything else with that form of currency.

No one is "funding" bitcoin. They are not creating money, they are creating virtual objects that others see value in.

Those that see value in them are willing to give paypal real money for these virtual coins.

Others are wiling to offer services in exchange for these virtual coins.

The federal reserve prints money out of thin air all the time.

You could password encrypt your "wallet" and make a backup copy.

Hopefully the legitimate uses of bitcoin will rise quickly enough so it isn't seen as an illegal currency.

I think bitcoin has an advantage in micropayments over dollars. The transaction fees for dollars are so high for small amounts. Also the irreversible transactions are a nice feature. That could be useful for many web services. Many of the legitimate early adopters are in fact web service providers.

money is just a medium of exchange. bitcoins are sufficiently rare and easy to trade that people have begun using them as money.

Similarly the gold in world of warcraft became valuable in the real world too.

Even real gold has few industrial uses. People want it because it is rare.

Bitcoins are based on nothing. It takes cpu or gpu time but you are are still creating money out of nothing.  The dollar could have been based off if you jog 1 mile around a track, but in the end the dollar would still be based off nothing. The dollar is valuable only because it is fiat, demanded to be used by the U.S. government. 21 million of these bitcoins are going to be created out of nothing.

You can use public key private key encryption to create a digital coin similar to bitcoins. But, who cares you all you have is wasted hard disk space.

Money will only work if vendors of goods are willing to accept it. Now some of the vendors are selling junk, socks, or trading computer time you have some vendors. But the reality is the bitcoin is still based on nothing. It is not backed by anything nor demanded to be used by government. Thus, if the vendors tire of it, it will crash. I predict the bitcoin will fail and be worth $0.01 in 10 years. Now, if a critical mass of vendors exist creating a market such that 1/2 could drop out and new vendors come online to replace them it could work.

If the 21,000,000 bitcoin was based off say 100 pennies minted before 1981, you could say there will always be a vendor of last resort, you could convert your bitcoin for pennies. That is my suggestion to the bitcoin folks.

If I was running bitcoin I would set-up a 1% tax on transactions. Where would this money go? It would be use to add more metals to back up the currency. Thus over time each of the 21,000,000 bitcoin might be backed by 100 pennies, 1 ounce of silver. Where did the 1 ounce of silver come from, the 1% transaction tax over years.

I was very skeptical of BitCoins at first, but after thinking about it, it has much more similarities to gold than you might think.

There is a fixed amount that is ever produced and can ever be produced. Jogging could always have a way create more.

How is gold any different? There is a fixed amount in the earth, although that number is unknown. Why is gold valuable? Because it's scarce and people want it. The only difference between that and a bitcoin is that people want gold more. Gold has some industrial application, and bitcoin has none. But besides that, it's a fancy rock.

The fact that it takes CPU to create it is looked at too closely. The idea is to make it so that it gets distributed somewhat fairly initially (without distributing, it's useless), and that distributing it is not terribly profitable. Similar to gold. Gold mining is a basically the same idea. You spend a ton of energy and effort to dig a piece of a rock out of the ground, only to bury it in a safe.



With gold, you are wasting physical space and have to guard it, lock it, or hide it. Hard drive space is incredibly cheap. Advantage for bitcoins over gold.

This is correct. It's highly dependent on vendors wanting it. Without vendors, it's useless.

You could do this. Someone still needs to store those pennies, needs to audit that they have the pennies, transport the pennies on redemption, etc...

A competing currency my by goldbitcoins, where you lock away gold somewhere, and issue goldbitcoins based on how many ounces (or grams or micrograms) of gold you have. You could redeem them for gold if you really wanted it, or just spend it. But what advantage do you have? Gold is only valuable if someone else wants it, same as bitcoins.

If gold can be money, then surely bitcoins can be. It's just tricky to get people to switch to this.

TomCollins is pretty close to right about how it works.

As far as I've been able to tell, all 21mm coins were created at the start, and the CPU power to generate blocks just allocates them to the people creating those blocks. The only use of generating blocks is to record every transaction so that the coins cannot be spent more than once and to increase the security of the network.

Yes, it has all the properties of gold that make it useful as a currency plus a few benefits such as lower transaction costs, more anonymity, and worldwide instantaneous transfers. That's one reason I could see either bitcoins, or a service like them, providing at least a niche service as time goes on.

It doesn't have any use outside of its use as a currency which is where a lot of people have a hangup because they've always heard currency is valuable because it's 'backed up by something' whereas it's really just because people accept it for goods and services.

A country that limited supply to say 21,000,000 dollars is different than bitcoin, because the government demands that it be used. The more I think about it the gold standard was a really bad idea, because it allowed people to increase the supply of gold based on finding more gold. So you have all these people doing unproductive job of looking for gold, when the government could have just limited the supply creating massive deflation benefiting dollar holders instead of gold miners. (1) But, after the 21,000,000 dollars are created by jogging around a mile track the government would eliminate the exchange stopping new dollars from being created, similar to bitcoin, limiting dollars to 21,000,000. So you have 21 MM pieces of paper backed by nothing with the government iron fist that it be used. bitcoin you will 21,000,000 bitcoin backed by nothing with no demand that it be used.

(2)Yes, gold is just a fancy rock or element. But, there is something materialist or wealth there and it took a lot of work to make that wealth. If bitcoin users panic there is nothing there. If a bitcoin was backed by one ounce of gold, at least you could exchange the bitcoin for an ounce of gold. That would take the panic away. The exchange medium could be steel, copper, zinc.

Bitcoins don't have an advantage over gold because gold has had value for 5000 years. Bitcoins only 1 year. If a small country switched to bitcoins and mandated it, then there would be vendors for it and bitcoin would flourish. But there is no mandates.

So the question I have is, if bitcoin is not backed by exchangable wealth and not mandated by fiat (government regulation or law) has there ever been a currency on earth that has existed under these terms? if not is it possible?

I don't think there is really a difference between the coins being created already and not allocated and the coins being created as we go along. I don't know enough about the inner workings to know if they can be enumerated or what. But it doesn't really matter to the end user. But having people who contribute to the network by generating blocks (still trying to really figure out technically how it works), it encourages people to actually contribute.

A country that limited supply to say 21,000,000 dollars is different than bitcoin, because the government demands that it be used. The more I think about it the gold standard was a really bad idea, because it allowed people to increase the supply of gold based on finding more gold. So you have all these people doing unproductive job of looking for gold, when the government could have just limited the supply creating massive deflation benefiting dollar holders instead of gold miners. (1) But, after the 21,000,000 dollars are created by jogging around a mile track the government would eliminate the exchange stopping new dollars from being created, similar to bitcoin, limiting dollars to 21,000,000. So you have 21 MM pieces of paper backed by nothing with the government iron fist that it be used. bitcoin you will 21,000,000 bitcoin backed by nothing with no demand that it be used.

(2)Yes, gold is just a fancy rock or element. But, there is something materialist or wealth there and it took a lot of work to make that wealth. If bitcoin users panic there is nothing there. If a bitcoin was backed by one ounce of gold, at least you could exchange the bitcoin for an ounce of gold. That would take the panic away. The exchange medium could be steel, copper, zinc.

Bitcoins don't have an advantage over gold because gold has had value for 5000 years. Bitcoins only 1 year. If a small country switched to bitcoins and mandated it, then there would be vendors for it and bitcoin would flourish. But there is no mandates.

So the question I have is, if bitcoin is not backed by exchangable wealth and not mandated by fiat (government regulation or law) has there ever been a currency on earth that has existed under these terms? if not is it possible?

No, I agree it was a nitty point and one I don't fully understand as I'm just a little more than a casual observer to the whole project.

Mandates don't create value, they just (at best) shift it.

You're right that if no one accepts it, there is no value. That is the premise of any store of value. There is no such thing as intrinsic value.

It's an interesting experiment. If it gains some steam and fills a niche demand, great. If it doesn't, oh well. However, the fact that it isn't mandated by fiat and doesn't have a physical presence is a plus, not a minus.

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

Of course this was then turned into somewhat of a fiat currency and then de-monetized.

Gold is also an example of that. You just don't see that it's the same because everyone is told from the time they're born that gold has intrinsic value. If gold didn't have the properties of money, but it somehow still had its other properties that made it useful as a conductor and for jewelry, it would be worth much, much less.