This article covers a lot of interesting ground, and isn't the usual same, old same-old article about Bitcoin. I especially liked the reminders of earlier examples of online currencies.<p>The conclusion is tentative, and reasonable. Along the way, the author brings up many interesting facts about Bitcoin, about its supporters, and about its critics.<p>I think it is especially reasonable to assume that Bitcoin exists with the tacit consent of the United States National Security Agency, even if the NSA didn't invent Bitcoin.<p>AFTER EDIT: Addition of my FAQ-in-progress about Bitcoin for Hacker New. A while ago I wrote that perhaps the greatest contribution the Bitcoin experiment will make to humankind is to teach you and me and our neighbors more about the realities of economics. And later I added that the Bitcoin experiment will also contribute to greater understanding of attack surfaces and online crime. Many of the ideas about how to mine Bitcoins, store Bitcoins, and trade with Bitcoins as a medium of exchange illustrate both the strengths and weaknesses of any other medium of exchange in a world full of human beings. Seeing the discussion of Bitcoins here on Hacker News reminds me of early online discussions in the 1990s of online payment systems such as PayPal, and the arguments beforehand that PayPal wouldn't have to invest a lot of time and effort (as it eventually did) building defenses against theft and fraud. If a weakness in a system is attached to a lot of money, the way to bet is to bet that someone will go looking for that weakness, even if you haven't thought of it.<p>This prompts a question for all the security-knowledgeable persons who participate here on Hacker News, a question once asked of the inventor of Pretty Good Privacy (PGP). How expensive do you think it would be for the United States National Security Agency (or a comparable organization from another national government) to crack a Bitcoin store, given that we know that some Bitcoin caches have already been cracked? And if the organization storing Bitcoin data held personal bank account data too, how attractive a target might it be to thieves?
Bitcoins are not the future. But they're a great start.<p>Bitcoins have two major problems stopping mainstream adoption; excessive volatility that isn't managed and the fact that is a deflationary monetary system, with the latter being a much bigger issue.<p>Fundamentally a currency needs to move around fungible value. That's it. If it doesn't do that - it's useless.<p>Bitcoin incentivises hoarding - the opposite of value transmission - and that's the main reason it'll remain as nothing more than a mere speculative currency, like modern day tulips, and why it won't ever become an actual alternative to actual cash.<p>Now - this isn't a knock against crypto-currencies - which are awesome - it's merely a knock at the fact that monetary supply in the bitcoin system isn't adaptive. Bitcoin needs a central decentralized bank that will help to stabilise the system and inflate (punish hoarders) as the economy grows in fits and starts.<p>I'm sure that one day in the not too distant future, another crypto-currency will come about that takes all the advantages provided by bitcoin, and combines them with stability/incentives of a nation-backed currency such as the US dollar. When that happens, we can finally end the monopoly held by large financial institutions that so clearly have literally no idea what they are actually doing (see Deutsche bank just recently).<p>Bitcoins are just the beginning of a whole new financial world, free from restriction, fees and abuse (hopefully :).<p>But they most certainly are not the end.
Its a nice write up, but it gets many points wrong.<p>1) Bitcoin is not anonymous. Its pseudonymous since all transactions take place in public between pseudonyms (ECDSA keys). This is a big difference, one that hasn't been examined too well, and what has been written on it is not encouraging[0].<p>2) Bitcoin is not the first currency to prevent double spending without a third party. That minimally goes back to 2006 and a paper "Compact E-cash"[0] where double spending a coin reveled the user's identity and allowed for prosecution.<p>The problem Bitcoin actually does solve is you don't have to trust the bank to not devalue your currency.<p>3) Bitcoin does not solve the Byzantine generals problem. Bitcoin is assumed to be correct if 51% of the computation power is honest. If everyone is equal, this means that bitcoin only requires that the majority of the generals are honest. The Bzyantine generals problem has no solution if even 1/3 of the generals are malicious[2]: this is a rather famous result.<p>How is this possible? Bitcoin isn't dealing with a fixed n Bzyantine generals, its dealing with a peer to peer system where anyone can join and you need to prevent sock puppet accounts. It's a completely different problem.<p>[0]F. Reid and M. Harrigan, “An analysis of anonymity in the Bitcoin system,” in Privacy, security, risk and trust (PASSAT), 2011 IEEE Third Internatiojn Conference on Social Computing (SOCIALCOM). IEEE, 2011, pp. 1318–1326.<p>[1]<a href="http://cs.brown.edu/~anna/papers/chl05-full.pdf" rel="nofollow">http://cs.brown.edu/~anna/papers/chl05-full.pdf</a><p>[2]<a href="http://research.microsoft.com/enus/um/people/lamport/pubs/byz.pdf" rel="nofollow">http://research.microsoft.com/enus/um/people/lamport/pubs/by...</a>
I really like the idea of cryptographic currency, but bitcoin strikes me as a somewhat ill fated v1 of the idea.<p>Whatever replaces it will needs some sort of more sophisticated measure for keeping the value of a coin from fluctuating wildly; because with the way the currency is wildly deflating right now, I'd be super hesitant to "spend" a bitcoin for fear that it might be worth twice what it is now, while on the other hand, I'm also terribly afraid of buying a bitcoin, because what if they drop back down to earth? Currency only really seems spendable if its value is at least somewhat predictable.
<i>"If we sum up the amounts accumulated at the 609,270 addresses which only receive and never send any BTC’s [bitcoins], we see that they contain 7,019,100 BTC’s, which are almost 78% of all existing BTC’s. This suggests that 78% of bitcoins are being hoarded, waiting for prices to rise."</i><p>While I'm sure many bitcoins are being hoarded, the proof presented means nothing since by default all change is sent to a fresh address. So if I had a 100 bitcoins and bought an iten worth one bitcoin I would now own a new address with 99 bitcoins and no outgoing transactions giving the impression that I had never spent any of my bitcoins.<p>See: <a href="https://en.bitcoin.it/wiki/Change" rel="nofollow">https://en.bitcoin.it/wiki/Change</a>
I would have titled this much differently. More along the lines of: "A Comprehensive Guide to Bitcoin".<p>I just found it humorous that they titled the article "Are Bitcoins the future?" and then failed the ask or answer that question anywhere in mini novel they wrote following that title.
No, Bitcoin is not the future. Most people need to deal with their nation's currency to pay taxes and settle debts, most businesses need a currency that is at least reasonably stable, and that is not getting into the extremely questionable security of the Bitcoin system itself.
<i>> Bitcoin is the first digital currency to solve the double-spending problem without needing a trusted third party.</i><p>Really? Just a quick search, and I find: (2007)<p><a href="http://ieeexplore.ieee.org/xpl/articleDetails.jsp?arnumber=4268195" rel="nofollow">http://ieeexplore.ieee.org/xpl/articleDetails.jsp?arnumber=4...</a><p>Is that the paper Bitcoin is based on? According to Wikipedia, Bitcoin was introduced in 2009.<p>Also, the price of a 51% attack is not that high:<p><a href="http://www.reddit.com/r/Bitcoin/comments/17gqw0/the_price_of_a_51_attack/" rel="nofollow">http://www.reddit.com/r/Bitcoin/comments/17gqw0/the_price_of...</a><p>I've seen a more recent estimate that it would be $20 million to mount such an attack. That's chump change for a power like the US, or even another major industrialized nation. It's about the price of one older fighter jet and a faction of the price of a current one.
If bit coins are used to avoid tax, as they could easily be, and that seriously threatens a government's tax take then the government would kill bitcoin. Even if it meant shutting down the internet. If it only mildy threatens the government you might find transactions being slowly split into two, one part in local currency for tax purposes and a second part which is anonymous and digital.<p>As far as I can tell bitcoin is a neo-conservative wet dream, if it gained mass traction anyway.
Every time I see an article about bitcoin I do a ctrl-f on the comments for the word "laundering" and come up empty. At some point, the men in black are going to make an example of someone.<p>As soon as bitcoin transactions tend to be over 10K, the FBI and Secret Service and IRS are going to be all over it. Do what you want with your banknotes. Just be warned: The dealer on the corner taking dollar bills is <i>much, much, much</i> safer to deal with than any digital currency.
Bitcoins are valuable only because people are hoarding it. It's a classic case of bubble. In the end, they're just bits, and that doesn't have much value.
>Bitcoin is the first digital currency to solve the double-spending problem without needing a trusted third party.<p>This is false. Karma was a p2p currency that did this in 2004, 5 years before Bitcoin:
<a href="http://www.cs.cornell.edu/People/egs/papers/karma.pdf" rel="nofollow">http://www.cs.cornell.edu/People/egs/papers/karma.pdf</a>
This article makes me ponder about the origins of Bitcoin.<p>This page claims that it could be a group of people who made it, which seems a bit more likely: <a href="https://en.bitcoin.it/wiki/Satoshi_Nakamoto" rel="nofollow">https://en.bitcoin.it/wiki/Satoshi_Nakamoto</a><p>Does anyone else have any interesting insights into the origin of Bitcoin?
"Bitcoin is unknown territory. It draws praise from Silicon Valley fixture Paul Graham and simultaneous dismissal from Nobel Prize winning economist Paul Krugman. "<p>No, No, nO!! There is no Nobel Price in economics, period.<p>There is a "Nobel MEMORIAL price" made by a central bank to propagate their propaganda as scientific, huge difference.