Bitcoin: What do you think?

   / Bitcoin: What do you think? #21  
MikeFarm said:
The number of bitcoins are limited (by the algorithm) and it gets harder and harder to calculate subsequent bitcoins (thats part of the neat algorithm too). Hence it inherently will maintain it's value due to scarcity - there are a limited number that can be found. Monetary theory would predict that it will in the *long term* appreciate in value.

Mike
Click to expand...

Here's an argument to the contrary:How and why Bitcoin will plummet in price

Steve
 
   / Bitcoin: What do you think? #24  
MikeFarm said:
Hi
Monetary theory would predict that it will in the *long term* appreciate in value.
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I'm not an economist, but isn't that what "deflationary" means? Inflation means your money is worth less; deflation means your money is worth more.
 
   / Bitcoin: What do you think? #25  
brin said:
Mike...Do you not think hackers will figure out how to hack into the program and create their own stash of bitcoins...? They may have already done so...since no one really knows how many bitcoins there are...what is the total amount of bitcoin in circulation and how do they know...can they prove it....Just my opinion, but too many....way too many ifs here....and just imagine a solar flare, EMP attack or other event that crashes cyber space for a very long time ....or a century or so....?????
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You're wrong about this. Every single transaction of every single bitcoin can be traced back to the bitcoin's creation. Here, you can see the number of bitcoins in circulation over time.

https://blockchain.info/charts/total-bitcoins

The point of bitcoin is not that it is untraceable, but that it is anonymous. I can know that a wallet with cryptographic key X transferred 1 bitcoin to a wallet with cryptographic key Y. Everyone in the world knows that. It's who owns those wallets that is un-known.
 
   / Bitcoin: What do you think? #26  
The answer to "how do they know" is that bitcoins are created by solving a cryptographic function. Once somebody has solved the function, they submit the solution to the network. If a sufficient number of other nodes on the network agree that the solution is correct, the person is awarded the bitcoin. Transactions occur the same way. The recipient says, "I have received bitcoin number 1234567, and here is the solution to the cryptographic function that proves it." The recipient can only have the correct solution if the current owner of that bitcoin has transferred it to them (or if they have stolen the wallet containing the bitcoin). Again, the network checks the solution and if it is correct, the network notes that the new wallet "owns" the bitcoin.

The record of every single transaction that has ever occurred is known as the "blockchain", and it is by verifying the blockchain that new bitcoins are "minted", and transactions are validated. So computers who are trying to "mine" new bitcoins are the same ones who are doing the work of verifying that existing transactions are valid. The blockchain is absolutely verifiable, for every single transaction, all the way back to when the bitcoin was first mined.

The main vulnerability in this consensus-based model is that if a hostile entity were to control more than 50% of the nodes on the network, they could lie about whether a given transaction was valid, and they would overrule the "honest" computers. In other words, they could say, "all the bitcoins in the world get transferred to me!" Everyone else in the world would say, "No. Not valid." But they would be out-voted. Currently, though, this would require resources on the scale of a nation-state, or a very large corporation, to accomplish. And the massive disagreement between the nodes would surely be noticed immediately.

Here is a good overview of "how bitcoin works".
http://www.michaelnielsen.org/ddi/how-the-bitcoin-protocol-actually-works/
 
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   / Bitcoin: What do you think? #27  
Hi Bob

brin said:
Mike...Do you not think hackers will figure out how to hack into the program and create their own stash of bitcoins...? They may have already done so...since no one really knows how many bitcoins there are...what is the total amount of bitcoin in circulation and how do they know...can they prove it....Just my opinion, but too many....way too many ifs here....and just imagine a solar flare, EMP attack or other event that crashes cyber space for a very long time ....or a century or so....?????
Click to expand...

It's not a program, its an algorithm and many people have written there own programs. The algorithm so it can't really be hacked like a program in that way. Also:
"since no one really knows how many bitcoins there are..." - that is known exactly.
"what is the total amount of bitcoin in circulation" - again known exactly and "how do they know...can they prove it...." yes, it's provable.

Bitcoins are really very neat and well thought out, there is no doubt that the creator is a genius for seeing how that algorithm can be used to create a monetary system and he/she went off and implemented it.

Mike
 
   / Bitcoin: What do you think? #28  
Thanks Josh, just looked it up and yes bitcoin is in that way deflationary but it gets harder to create each coin so you can't just print more and more very quickly like printing money in a real mint like many countries have done in the past. In fact you would not be able to use bitcoins quite as easily as normal currency to control intererest rates as in "monetary policy".

joshuabardwell said:
I'm not an economist, but isn't that what "deflationary" means? Inflation means your money is worth less; deflation means your money is worth more.
Click to expand...
 
   / Bitcoin: What do you think? #29  
MikeFarm said:
Thanks Josh, just looked it up and yes bitcoin is in that way deflationary but it gets harder to create each coin so you can't just print more and more very quickly like printing money in a real mint like many countries have done in the past. In fact you would not be able to use bitcoins quite as easily as normal currency to control intererest rates as in "monetary policy".
Click to expand...

The inability to manipulate Bitcoin per "monetary policy" is a feature, not a bug. As for Bitcoin's deflationary nature: each Bitcoin can actually be sub-divided into one million sub-units, called "Satoshi" (named after the founder of Bitcoin). So even if the currency becomes heavily deflated, it should have enough granularity to remain useful for day-to-day transactions. The nice thing is that nobody has to change out their bills or coins if the currency deflates to 1/100th or 1/1000th of its current value. Just shift the decimal point on the transaction and away you go.
 
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