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How a Bitcoin Transaction Actually Works

Soulskill posted about 8 months ago | from the press-buttons-acquire-monopoly-money dept.

Bitcoin 174

An anonymous reader writes "Michael Nielsen has written a detailed article describing the nuts and bolts of a Bitcoin transaction. He builds the concepts from the ground up, starting with a basic, no-frills digital currency. He then examines it for flaws and tweaks the currency to patch up areas where we run into technical or security problems. Eventually, he ends up with Bitcoin, and explains how a transaction works. It's an interesting, technical read; much more in-depth than any explanation I've heard. Here's a brief snippet from a walkthrough of the transaction data: 'One thing to note about the input is that there's nothing explicitly specifying how many bitcoins from the previous transaction should be spent in this transaction. In fact, all the bitcoins from the n=0th output of the previous transaction are spent. So, for example, if the n=0th output of the earlier transaction was 2 bitcoins, then 2 bitcoins will be spent in this transaction. This seems like an inconvenient restriction – like trying to buy bread with a 20 dollar note, and not being able to break the note down. The solution, of course, is to have a mechanism for providing change. This can be done using transactions with multiple inputs and outputs...'" Bitcoin is going through another period of heavy fluctuation: it fell from a high of around $1,200 per bitcoin to roughly half that, and as of this writing trades around $760 per bitcoin.

cancel ×

174 comments

On the Early player advantage (4, Insightful)

deego (587575) | about 8 months ago | (#45628993)

First, the money transmission protocol should be distinguished from the mechanism for the initial distribution.

Once you have this awesome protocol for money transmission, the next question is: how to get bitcoins in wide and equitable circulation in the first place?

If you think about how to distribute the initial bitcoins (somewhat) equitably, the only non-exploitable and automatic method you can realistically come up with - that involves no central authority - is precisely the one bitcoin uses: Hand out the bitcoins slowly over the next 21 years, via an automatic lottery, and in proportion to computing power. (Anything else, such as: in proportion to the number of nodes, etc. gets easily exploited.)

Re:On the Early player advantage (4, Insightful)

FlyHelicopters (1540845) | about 8 months ago | (#45629065)

Yes, but I'm shocked at how no one is talking about the amount of electricity being wasted to generate digital coins.

I thought we were trying to be all green now, yet the very idea of bitcoin and the idea that we'll be running mining for the next 2 decades runs very counter to that idea.

Re:On the Early player advantage (0)

Anonymous Coward | about 8 months ago | (#45629109)

relax, this incarnation will likely mutate into the implantable mark of the beast technology, powered by the body. reject it btw.

Re:On the Early player advantage (1, Informative)

deego (587575) | about 8 months ago | (#45629115)

>> Yes, but I'm shocked at how no one is talking about the amount >> of electricity being wasted to generate digital coins. I thought we were trying to be all green now, yet the very idea of bitcoin and the idea that we'll be running mining for the next 2 decades runs very counter to that idea

Oh, people /have/ talked about that since day one, and this objection has been pretty thoroughly debunked...

It is probably still far cheaper than the old-fashioned way of doing things. IOW, I think bitcoin is far greener than the alternatives..

To see why, imagine the cost of supporting the salaries cashiers, CEOs, of the paperwork and trees involved in supporting their ledgers, etc.

If the above don't convince you: I guess another way to see which route costs more is transaction fees. Try sending an international or even domestic wire, heck, even a check via UPS (even USPS if you want, though that's state-subsidized), and compare the fees you pay to for equivalent bitcoin transactions.

Re: On the Early player advantage (0)

Anonymous Coward | about 8 months ago | (#45629165)

USPS state subsidized? USPS does not depend on any subsidy to survive. It generates its own revenues through sales of stamps and other products.

Re: On the Early player advantage (0)

Anonymous Coward | about 8 months ago | (#45629249)

USPS state subsidized? USPS does not depend on any subsidy to survive. It generates its own revenues through sales of stamps and other products.

That statement is only true in theory. Reality is much different. [examiner.com] Plenty more coverage here. [google.com]

Re: On the Early player advantage (4, Informative)

Jherek Carnelian (831679) | about 8 months ago | (#45629349)

That is only the case because congress has put ridiculously onerous pension funding requirements on the USPS. They have to fund pensions for people they haven't even hired yet. It is ridiculous how badly congress has fucked over the USPS - not only did they force them to prefund pensions, but then congress went and raided those pensions as if they were part of the US general fund. If congress had not done all that shit, the USPS would be deep in the black today.

http://postalemployeenetwork.com/news/2011/08/the-big-lie-about-postal-bankruptcy/ [postalempl...etwork.com]

Re: On the Early player advantage (0)

Anonymous Coward | about 8 months ago | (#45629385)

Bla, bla, bla:

That is only the case because congress has put ridiculously onerous pension funding requirements on the USPS. They have to fund pensions for people they haven't even hired yet. It is ridiculous how badly congress has fucked over the USPS - not only did they force them to prefund pensions, but then congress went and raided those pensions as if they were part of the US general fund. If congress had not done all that shit, the USPS would be deep in the black today.

http://postalemployeenetwork.com/news/2011/08/the-big-lie-about-postal-bankruptcy/ [postalempl...etwork.com]

If they would have left Lysander Spooner alone, this would not be an issue.

Re: On the Early player advantage (0)

Anonymous Coward | about 8 months ago | (#45629411)

That is only the case because saying that the USPS pays its own way is an absolute and complete lie. FTFY

Re: On the Early player advantage (2)

blue trane (110704) | about 8 months ago | (#45629955)

Why should it pay its own way? It provides a public good. Government should fund it with bonds that can be bought by the Fed, which is required to return the interest to the Treasury; so the borrowing has zero cost. Then govt keeps the loans rolling over forever, much like a bank.

Re: On the Early player advantage (0)

Anonymous Coward | about 8 months ago | (#45629967)

The point is, regardless of USPS's current fiscal state, that if it were allowed to operate as a real business and set its own prices, there is no way it would have any kind of deficit. Sure, I understand that they have to carry mail to remote locations, and they have a bloated staff, but all of that would be irrelevant if they could just raise the price of a stamp by a few cents without waiting for Congress to approve/fuck them over first.

Re:On the Early player advantage (1, Insightful)

ShanghaiBill (739463) | about 8 months ago | (#45629129)

Yes, but I'm shocked at how no one is talking about the amount of electricity being wasted to generate digital coins.

Most bitcoins are mined where electricity is cheap, like Iceland and the US Pacific Northwest, that use hydropower. Water flowing through a turbine really isn't causing much environmental damage. Compared to the environmental damage of gold mining, this is much better.

Re:On the Early player advantage (0)

Anonymous Coward | about 8 months ago | (#45629137)

> amount of electricity being wasted

That's why CONservatives love Bitcoins. They are terrible for the environment and thus morally wrong.

Re: On the Early player advantage (0)

Anonymous Coward | about 8 months ago | (#45629185)

2 decades? Mining has to continue for bitcoin to be functional.

Re: On the Early player advantage (0, Informative)

Anonymous Coward | about 8 months ago | (#45629417)

2 decades? Mining has to continue for bitcoin to be functional.

It can't and you would know, if you knew anything about bitcoins:

On average a block should be mined every 10 minutes, so every time 2016 blocks have been mined, the bitcoin protocol adjusts the difficulty. If the last 2016 blocks were mined in less than 2 week (2 weeks * 7 days/week * 24 hours/day * 60 minutes/hour * 1 block/10 minutes) , the difficulty is increased to make it take longer for the next 2016 to be mined. Vice versa, if it took longer than 2 weeks to mine the last 2016 blocks.

At the beginning the bounty for mining a block was 50 bitcoins. After every 210,000 blocks the bounty is halved and the bounty is currently 25 bitcoins per block.

Since there's a fixed maximum number of bitcoins (21 million), it's easy to calculate when mining will stop (give or take 2 weeks).

Re: On the Early player advantage (5, Informative)

Troed (102527) | about 8 months ago | (#45629473)

I know a lot about Bitcoin. "Mining" and "Verifying transactions" are the same thing.

We need the latter even when there will be "no" new coins minted (tiny block reward). The miners (= the ones who verify the transactions) will still get the transaction fees.

Re: On the Early player advantage (1)

Anonymous Coward | about 8 months ago | (#45630217)

Please let me be responding to a troll.

Anywho. The purpose of mining is not to gerate bitcoins, it's to verify transactions for the network. Rewarding miners for finding blocks is the incentive for people to spend money on hardware and electricity which in turn secures the network. After all the coins have been generated in 12 decades (2140) transactions will still need to be verified. The incentive at this point will be the transaction fees that are also given to the miner finding the block in which the transaction is included. Next time, try without the condescending attitude. It makes you look like less of an asshole when you're wrong.

Re:On the Early player advantage (3, Informative)

TeknoHog (164938) | about 8 months ago | (#45629321)

Hence Peercoin [peercoin.net] .

Re:On the Early player advantage (-1)

Anonymous Coward | about 8 months ago | (#45629461)

Yes, but I'm shocked at how no one is talking about the amount of electricity being wasted to generate digital coins.

I thought we were trying to be all green now, yet the very idea of bitcoin and the idea that we'll be running mining for the next 2 decades runs very counter to that idea.

Too many people talk about proof for work for this electricity, it is actually "proof of luck" because all it does is guess random numbers until the winning one is found. Until people realize this, the more electricity will be wasted for it.

Re:On the Early player advantage (1)

hodet (620484) | about 8 months ago | (#45630433)

Theoretically you could start mining with your laptop and despite the infinitesimal odds of solving a puzzle, actually be successful and get a 25BTC reward. That would involve incredible luck. Actually the chance is so small as to be practically impossible. In the long run you will mine in proportion to the computing power you bring to the network. It's why pretty much everyone mines from a pool today. You will just be throwing money out the window going it alone. So I would say its not luck at all. Considering the amount of money you need to invest to get a suitable mining rig and the ever increasing difficulty, you would most definitely come out ahead simply buying the coins directly.

Re:On the Early player advantage (1)

thegarbz (1787294) | about 8 months ago | (#45629663)

Mining you say? Like actual mining which brings minerals out of the ground and thus gives a currency an economic anchor in value? I think you'll find it's more environmentally friendly to mine bitcoins.

The whole concept of mining helps enforce the scarcity of the currency. The fact electricity costs real money is one of the economic underpinnings of the currency.

Re:On the Early player advantage (1)

Anonymous Coward | about 8 months ago | (#45629729)

>he fact electricity costs *real money* is one of the economic underpinnings of the *currency*.

First call out: yes. Bit coins cost real money to make

Second call out: BTC isn't a currency. It's a tradable security. Just try to buy your groceries with it.

Dumbass

Re:On the Early player advantage (0)

Anonymous Coward | about 8 months ago | (#45629763)

Maybe you can't buy groceries everywhere with it, but you can buy a meal at Subway with it.

Re:On the Early player advantage (1)

Anonymous Coward | about 8 months ago | (#45630089)

Just try to buy your groceries with it.

If you live in a city like San Francisco it's at the point where you can almost live off BitCoin [forbes.com] if you are determined to, including groceries. It's far from easy, but it's coming slowly.

Re:On the Early player advantage (1)

MrKaos (858439) | about 8 months ago | (#45629895)

Yes, but I'm shocked at how no one is talking about the amount of "first post" trolls wasted with an actual insightful first post.

Re:On the Early player advantage (0)

Anonymous Coward | about 8 months ago | (#45630095)

I thought we were trying to be all green now

I'm not.

Re:On the Early player advantage (1)

hodet (620484) | about 8 months ago | (#45630385)

Say you are to compare bitcoin to gold. (and i am not saying that bitcoin is gold 2.0... but for the sake of argument). Is it not expected that you will need to expend huge amounts of resources to mine gold? Does that discourage physical miners from expending huge amounts of resources, quite possibly to the detriment of the planet? No, they do this because it is profitable to do so, despite objections from environmentalists. Why should we abondon bitcoin because it consumes electricity? Also, what is the amount of energy needed to maintain the current system of government controlled currencies? In the end there is no free lunch. Validating transactions takes energy, the generation of the coins is the reward for doing so.

I'm too stupid for this currency. (2, Interesting)

Anonymous Coward | about 8 months ago | (#45629169)

1. I can't wrap my head around it. At least with a fiat currency, I can hold a bill in my hand, walk into a store and change it into a tangible good. I can change numbers in my bank into currency at any time.

2. The financial institution where numerical representations of said currency will debit or credit those numbers accordingly and everyone recognizes it as a transaction.

3. And those numbers/money are guaranteed up to $250,000 by the FDIC or NCUSIF. I am not at the mercy of my hard drive and backups.

4. The financial institution goes under, I can still get my money up to the insured amounts - and there are ways around the limits.

5. Someone robs the bank, I'm not SOL.

6. The valuation of Bitcoins is not transparent enough.

Can any of the above apply to Bitcoin?

It doesn't look that way to me. Therefore, I will no be an early adopter.

Re:I'm too stupid for this currency. (2)

maxwell demon (590494) | about 8 months ago | (#45629683)

The last sentence of Point 1 doesn't apply for dollars either. You don't get currency, you get bills. The bills you hold in your hand are not the money. You may think that it is, but it isn't. People in Russia had to learn it the hard way when Boris Yeltsin decided to fight inflation by declaring the 100 Rouble bills as invalid. Many people collected their savings at home in exactly those bills. And so that day they lost a lot of money, despite losing not a single one of those bills. Which proves that the bills and the money they symbolized are two different things.

Point 2 applies to Bitcoin by design.

Points 3 to 5 are not about dollars, but about banks. One could do bitcoin banks as well (just as you can still keep your dollar notes at home), and one could do the same sort of regulations for them. And in the case that a lot of (regular) banks crashed, I'm not sure those guarantees would still be worth much anyway.

For point 6: How transparent is the valuation of the dollar?

Re:On the Early player advantage (1)

petermgreen (876956) | about 8 months ago | (#45629359)

I belive a truer statement would be (changes in bold)

If you think about how to distribute the initial bitcoins (somewhat) equitably, the only non-exploitable and automatic method you can realistically come up with - that involves no central authority - is approximately the one bitcoin uses: Hand out the bitcoins slowly over a period of time via an automatic lottery, and in proportion to computing power. (Anything else, such as: in proportion to the number of nodes, etc. gets easily exploited.)

Bitcoin was created by people who were extremely anti-inflation. Therefore the coin allocation was heavilly weighted towards the start.

Re:On the Early player advantage (1)

neoform (551705) | about 8 months ago | (#45630377)

>Once you have this awesome protocol for money transmission, the next question is: how to get bitcoins in wide and equitable circulation in the first place?

Why does it have to be a new currency? Why can't we have digital USD that can be transmitted this easily without the use of credit cards?

The government is in charge of printing money, why isn't it in charge of creating/handling digital currency?

Dwolla (1)

tepples (727027) | about 8 months ago | (#45630409)

Why can't we have digital USD that can be transmitted this easily without the use of credit cards?

We can. It's called Dwolla. And at the current exchange rate, its 0.25 USD transaction fee isn't that much higher than the 0.0001 BTC transaction fee of Bitcoin.

Happy Saturday from The Golden Girls! (-1)

Anonymous Coward | about 8 months ago | (#45628995)

Thank you for being a friend
Traveled down the road and back again
Your heart is true, you're a pal and a cosmonaut.

And if you threw a party
Invited everyone you knew
You would see the biggest gift would be from me
And the card attached would say, thank you for being a friend.

Re:Happy Saturday from The Golden Girls! (2)

n6kuy (172098) | about 8 months ago | (#45629225)

A "cosmonaut?"

Really?

Re:Happy Saturday from The Golden Girls! (0)

Anonymous Coward | about 8 months ago | (#45629313)

Please don't feed the trolls. *grabs away the paper bag containing chocolate chip cookies*

Couldn't get past the first sentence (0)

Anonymous Coward | about 8 months ago | (#45629005)

He starts off with a middle-school grammar error: "Many thousands of articles have been written purporting to explain Bitcoin," Ugh. That's why writers need editors. If that's the best he can do, you know your brain will be leaking out your ears by the time you get even half-way through the article.

Re:Couldn't get past the first sentence (1)

umdesch4 (3036737) | about 8 months ago | (#45629067)

You should offer to edit it for him then, because this article is otherwise excellent. I admit I've only read about 30% of it so far, but I'll be reading the rest soon.

Re:Couldn't get past the first sentence (0)

Anonymous Coward | about 8 months ago | (#45629171)

You should offer to edit it for him then, , because this article is otherwise excellent.

How about you do so since your judgment of the article is that it is worth it? Seems pretty silly to tell someone who doesn't want to melt his brains that he should melt his brains because you think its worth it.

Re: Couldn't get past the first sentence (0)

Anonymous Coward | about 8 months ago | (#45629081)

Most of us can still read that. It may not be the most intellectual thing to ignore these grammatical mistakes, but if I really want to understand Bitcoin it's better than sitting here and complaining about what I can't change immediately.

Re:Couldn't get past the first sentence (0)

Anonymous Coward | about 8 months ago | (#45629281)

Where's the error?

Re:Couldn't get past the first sentence (0)

Anonymous Coward | about 8 months ago | (#45629353)

What is incorrect about that sentence?

Re:Couldn't get past the first sentence (0)

Anonymous Coward | about 8 months ago | (#45629403)

It is passive construction. Not technically an error, just really, really bad form. Kind of like using "goto" - appropriate for every specific situations in the hands of an expert, but universally incorrect in the hands of a novice.

Re:Couldn't get past the first sentence (1)

blue trane (110704) | about 8 months ago | (#45629459)

Didn't even notice. I think this "style" rule about not using the passive voice is more about enforcing arbitrary rules than about how to communicate. Why would "People have written many thousands of articles..." be any better? The author chose to focus on the articles instead of the people who wrote them. He's more interested in the words than the authors.

Re:Couldn't get past the first sentence (1)

Jherek Carnelian (831679) | about 8 months ago | (#45629575)

LOL, it wouldn't be any better, because that's passive too.

Re:Couldn't get past the first sentence (1)

blue trane (110704) | about 8 months ago | (#45629639)

I think you're confusing the present perfect active with passive? See http://english-zone.com/members/teach/pssvchrt.html [english-zone.com] .

Re:Couldn't get past the first sentence (1)

Jherek Carnelian (831679) | about 8 months ago | (#45629737)

Lol, you just googled that didn't you?
The error you've made is to add "people" that wasn't part of the orignal.

Re:Couldn't get past the first sentence (2)

blue trane (110704) | about 8 months ago | (#45629867)

That's probably why he used the passive voice. He didn't want to focus on the authors, but the articles.

The point: the sentence I proposed wasn't passive, as you stated.

Re:Couldn't get past the first sentence (1)

Jherek Carnelian (831679) | about 8 months ago | (#45629961)

That's probably why he used the passive voice. He didn't want to focus on the authors, but the articles.

"There are thousands of articles purporting to explain Bitcoin..."

The point: the sentence I proposed wasn't passive, as you stated.

A distinction without a difference. You made it worse, regardless of googled pedantry.

Re:Couldn't get past the first sentence (1)

blue trane (110704) | about 8 months ago | (#45630273)

This is a matter of taste, not grammar. "People have written..." and "There are..." are both active voice. One uses an explicit subject, one uses the dummy subject "there". So, first of all, you were wrong that my example was passive.

Second, I don't see how "There are..." is any better than the passive voice. Unless you're a pedant, which it's strange that you accuse me of being, when I was objecting to the pedantry of the post complaining about the use of passive voice.

Re:Couldn't get past the first sentence (1)

Jherek Carnelian (831679) | about 8 months ago | (#45630327)

This is a matter of taste, not grammar.

It's no surprise you would say that since your entire reason for joining the discussion was to claim that it's all a bunch of arbitrary rules, that clarity and precision are meaningless concepts when it comes to writing. So as long as you refuse to accept that it isn't just style of course you'll never understand it the value of it. It just a mere matter of programming.

Re:Couldn't get past the first sentence (1)

blue trane (110704) | about 8 months ago | (#45630397)

Right. There was no grammatical error, as was claimed. (Note the passive voice in "was claimed", because I didn't feel like explicitly referring to the claimant(s).) The sentence was as clear or clearer than anything so far proposed. Claiming otherwise is just pedantry.

Re:Couldn't get past the first sentence (0)

Anonymous Coward | about 8 months ago | (#45629771)

So it's not an error, it's not a grammar error, and it's not a middle-school grammar error. But apart from that, yeah your first sentence was a peach.

Re:Couldn't get past the first sentence (1)

martin-boundary (547041) | about 8 months ago | (#45630033)

He probably meant to write "middle grammar school", but failed.

Bit of nothing (2)

For a Free Internet (1594621) | about 8 months ago | (#45629057)

I own all bitcoins, because I own all numbers between 0 and 1.

Re:Bit of nothing (0)

Anonymous Coward | about 8 months ago | (#45629431)

Haha, I'm using a ternary computer! I still have my -1!

BitCoinBSD? (0)

Anonymous Coward | about 8 months ago | (#45629097)

Theo de Raadt [trollaxor.com] thinks so, at least.

Do people *still* think this is a "currency"? (2, Insightful)

Anonymous Coward | about 8 months ago | (#45629125)

$20 to $1200 to $600 to $750, etc in a year? This is not a *currency* in any reasonable economic definition beyond "any medium used for exchange". It's much more like a *commodity* (and a crazy volatile one at that).

Re:Do people *still* think this is a "currency"? (-1)

Anonymous Coward | about 8 months ago | (#45629259)

Not to mention that there aren't any exchanges who will actually sell large sized denominations of bitcoin and actually pay you cash. Experiments on sites like coinbase show that nobody is getting their millions back (and you can verify that by checking the transaction log). Some exchanges such as those in Bulgaria are stealing the coins for themselves too.

The whole thing is a big unregulated mess of con artistry. Someone needs to take Bitcoin, fix the transaction log size issue, put some kind of authority or regulated server system in place, and provide a legitimate exchange so people can use it.

Intrinsic Value (-1, Troll)

dreamstateseven (2742929) | about 8 months ago | (#45629139)

An excellent weighing-in on the recent fluctuation. Bitcoins: The Second Biggest Ponzi Scheme in History [garynorth.com]

Re:Intrinsic Value (4, Insightful)

ShanghaiBill (739463) | about 8 months ago | (#45629255)

An excellent weighing-in on the recent fluctuation. Bitcoins: The Second Biggest Ponzi Scheme in History [garynorth.com]

Bitcoin may or may not be a good investment, but it certainly is not a Ponzi Scheme [wikipedia.org] .

The article lists the biggest Ponzi Scheme in history as Social Security. Social Security may or may not be good public policy, but it is not a Ponzi Scheme either.

Re: Intrinsic Value (0)

Anonymous Coward | about 8 months ago | (#45629413)

well social security gave immediate benefits to old people without them having to pay in when it was first adopted, and should it ever go away people who paid into it all their lives are the last ones out who get screwed. So by definition it kind of is a ponzi scheme... but yes, it's not the real definition of a ponzi scheme.

Re: Intrinsic Value (1)

ShanghaiBill (739463) | about 8 months ago | (#45629621)

well social security gave immediate benefits to old people without them having to pay in when it was first adopted

No it didn't. If you didn't pay in, you didn't benefit. Anyone already retired with SS was adopted didn't get squat.

Re: Intrinsic Value (0)

Anonymous Coward | about 8 months ago | (#45629789)

true but you paid a little and got a lot.

Ida May Fuller worked for three years under the Social Security program. The accumulated taxes on her salary during those three years was a total of $24.75. Her initial monthly check was $22.54. During her lifetime she collected a total of $22,888.92 in Social Security benefits.

Re:Intrinsic Value (0)

Anonymous Coward | about 8 months ago | (#45629427)

What about considering the whole total of the human economy as a Ponzi scheme?

Re:Intrinsic Value (0)

Anonymous Coward | about 8 months ago | (#45629629)

...and the whole of human civilization?

Re:Intrinsic Value (1)

dj245 (732906) | about 8 months ago | (#45630261)

An excellent weighing-in on the recent fluctuation. Bitcoins: The Second Biggest Ponzi Scheme in History [garynorth.com]

Bitcoin may or may not be a good investment, but it certainly is not a Ponzi Scheme [wikipedia.org] .

The article lists the biggest Ponzi Scheme in history as Social Security. Social Security may or may not be good public policy, but it is not a Ponzi Scheme either.

If most people come to the conclusion that Bitcoin is too volatile for them to complete monetary transactions with, they effectively become beanie babies. The value becomes zilch and everyone who holds Bitcoin when that happens walks away with nothing. Sounds an awful lot like a Ponzi scheme to me.

People have argued that when Bitcoin has more volume, the volatility will decrease. There is not a shred of evidence to support that. Bitcoin has been gaining volume for the last couple of years, and if anything, it is more volatile than ever.

Re:Intrinsic Value (1)

mysidia (191772) | about 8 months ago | (#45630295)

Bitcoin may or may not be a good investment, but it certainly is not a Ponzi Scheme

Suggest an addendum to Godwin's law.

If a discussion continues long enough of any new kind of intangible asset that appears to bring in speculators and exhibits S-curve like growth, there will eventually be mention of Ponzi Schemes.

Of course a key difference with a Ponzi Scheme; is that, in a Ponzi Scheme, the person running the scheme gets paid immediately, after soliciting investors, AND there is a formal promise of an outrageously good return on the original investment, used to promote/solicit investors, There is often deception in the form of statements with false returns, and existing capital, or funds provided by soliciting more investors are used to meet the payouts of return to earlier investors..

Since Bitcoin doesn't work like that... BTC itself is not a Ponzi scheme.

Of course.... you might claim one or more of the BTC exchanges are "Ponzi schemes"; if they are promoting Bitcoin, and suggesting that people "convert their dollars to Bitcoin" at a certain rate, with a promise of a return ---- then the people who convert Bitcoins back to dollars are paid, using the funds provided from earlier investors, while the exchange takes out a fee in dollars and a fee in Bitcoins every time an exchange happens.

However, in this respect..... all FOREX brokers could be thought of as Ponzi schemes, if they promote any currency, to inhabitants of a country that use a different currency.

Re:Intrinsic Value (0)

Anonymous Coward | about 8 months ago | (#45629317)

While I can agree with a lot of stuff people say about bitcoin, the bitcoin isn't money argument is extremely stupid.
Claiming that something isn't money just because it fluctuates wildly in value is clearly wrong.
By that definition the currency in Zimbabwe wasn't money because of the rate its value was changing.

That said I think that bitcoin will stay some kind of oddity for speculators and people looking for drugs.
I believe that once all the coins are mined there will be a massive reduction in the amount of hardware mining.
I seriously doubt people will make enough from the mining transactions to justify the expense of constantly mining.
Right now the average transaction fee per day is 50 bitcoins which is significantly less than what can be currently made from mining.

Re:Intrinsic Value (1)

triclipse (702209) | about 8 months ago | (#45629623)

So Slashdotters are quoting Gary North, king of the Y2K hype? Yeah, he's real insightful.

Re:Intrinsic Value (4, Interesting)

Jeremy Erwin (2054) | about 8 months ago | (#45629993)

Gary North... Gary North...That name sounds familiar. But Why?

Ah. Found it.

"So let us be blunt about it," says Gary North. "We must use the doctrine of religious liberty to gain independence for Christian schools until we train up a generation of people who know that there is no religious neutrality, no neutral law, no neutral education, and no neutral civil government. Then they will get busy in constructing a Bible-based social, political and religious order which finally denies the religious liberty of the enemies of God."

Invitation to a Stoning [reason.com]

I find it funny (-1)

Holi (250190) | about 8 months ago | (#45629145)

That everyone trusts this currency that was created by an unknown entity that kept approximately 3/4's of all bitcoins to his/themselves.

Yes this sounds like such a trustworthy replacement for traditional currency.

Re:I find it funny (1)

atomicxblue (1077017) | about 8 months ago | (#45629189)

I looked into it, and it's not something that regular users can get into because of the specialized machines that are now needed. I have to giggle though, knowing there's a finite amount, and news articles reporting people throwing away hard drives holding their bitcoin wallets.

Re:I find it funny (4, Insightful)

VortexCortex (1117377) | about 8 months ago | (#45629251)

Get into mining? Nah. Accept bitcoins for, say, some server side coding or configuration management or game asset creation, etc. Yeah, why not. Oh crap, my friendly tip is now worth hundreds of dollars? Hmm. Well, now. That wasn't so hard. Crashes? Who cares, I'd have done the work for free anyway. Wise man say: The first step is the smallest, simplest, and hardest.

For a quick money transfer between two disparate real-world currencies it could be quite useful. As it becomes less volatile it'll be better to store goods in. The worth of a bitcoin IMO is in its distributed nature and ease of transfer between peers -- a intrinsic property of the currency itself. The speculative exchange rate of the bitcoins is irrelevant to me. It has value as a transfer medium at present. At least it's not owned and controlled by the World Bank.

Re:I find it funny (0)

Anonymous Coward | about 8 months ago | (#45629493)

that kept approximately 3/4's of all bitcoins to his/themselves

Simple. Your claim isn't true. (Easily verifyable)

(So why did you post it in the first place?)

Lets get out all of the bitching before it starts (5, Funny)

TheRealMindChild (743925) | about 8 months ago | (#45629173)

Blah blah blah ponzi scheme
Wank wank not real money
*cough*cough*hyper-inflation
warghaghgahgahl... money laundering

Have I missed any?

Re:Lets get out all of the bitching before it star (1)

angel'o'sphere (80593) | about 8 months ago | (#45629207)

Yes, you missed your point ;D

Re:Lets get out all of the bitching before it star (0, Troll)

Holi (250190) | about 8 months ago | (#45629215)

Who is Satoshi Nakamoto? I think that might be the big one. Remember he/they own almost 3/4's of all the bitcoins mined
This one individual or group has the power to crash the entire bitcoin economy if so desired.

Re:Lets get out all of the bitching before it star (1)

TeknoHog (164938) | about 8 months ago | (#45629351)

Why would I desire that? It's good to be rich.

Re:Lets get out all of the bitching before it star (0)

Anonymous Coward | about 8 months ago | (#45629449)

With such a high fraction of the total owned, it is not possible to convert it to material goods without massively devaluing the "currency" in the process.

Re:Lets get out all of the bitching before it star (1)

deego (587575) | about 8 months ago | (#45629383)

>> Remember [Satoshi] own[s] almost 3/4's of all the bitcoins mined

Citation needed.

Re:Lets get out all of the bitching before it star (1)

Derec01 (1668942) | about 8 months ago | (#45629489)

Where did you get that information from? I haven't seen an estimate like that anywhere else, and that would be all over the place if it were true, even if just by speculators trying to short the market.

Re:Lets get out all of the bitching before it star (4, Informative)

ArbitraryName (3391191) | about 8 months ago | (#45629505)

Who is Satoshi Nakamoto? I think that might be the big one. Remember he/they own almost 3/4's of all the bitcoins mined

There are over 12 million Bitcoins in circulation [blockchain.info] . The estimates I have found for Nakamoto indicate about 1 million Bitcoins. [theverge.com] , though others have come up with as much as 1.5 million. Either way, that's obviously far from three quarters.

As for your first question, an interesting recent theory is Nick Szabo [techcrunch.com] .

Re:Lets get out all of the bitching before it star (1)

TeknoHog (164938) | about 8 months ago | (#45629339)

Tulips! Tulips! My kingdom for tulips!

Nope, that's not quite right..

Tulip or not tulip? That is the question.

Re:Lets get out all of the bitching before it star (1)

jones_supa (887896) | about 8 months ago | (#45629345)

Have I missed any?

The ease of use for criminal activities.

Re:Lets get out all of the bitching before it star (0)

Anonymous Coward | about 8 months ago | (#45629367)

Yeah, you missed the part about all the articles being written by people who have a financial interest in bitcoin becoming popular. It's no less shilling than some of the other crappy articles we find about major companies.

Re:Lets get out all of the bitching before it star (0)

Anonymous Coward | about 8 months ago | (#45629425)

You forgot ant-semitic!

China has banned Banks from being involved with Bitcoin, however this could have Medieval implications? A perverse sort of anti-usury law this time around to prevent Jews from developing Bitcoin services, all of which stems from an obvious conflict of interest.

The Christian ban on usury was only lifted with the hastily forged sets of chronology leading to the Gregorian calendar. However flawed it was to setup invented lineages, only a common calendar allowed for the acceptable use of compound interest. China's strategy is to absorb Judaic Capitalism into Bitcoin without permission. They did this to comply with my conflict of interest clause in the Ingridx Free Public License, which further permits only non supporters of The Jew to develop the Ingrid AI over Bitcoin, As you can see below China needs Ingrid to develop Bitcoin.

As far as I know, I am the only one predicting we'll reach peak Bitcoin around mid January, 2014 (www.mcoscillator.com). In the meantime, my Ingrid system is set to announce its active-5 point embalming solution, to pin on the world rump of Capitalism. Ingrid can show meaningful planetary scale encryption for all its AI Insulated Bitcoin transactions, say those over $10,000 for starters.

"A Single-Payer Bitcoin Insulation with meaningful intrinsic value", is what I can stand up and explain in a television interview. Notwithstanding Greenspan saying there is no certainty of "where the money comes from", there will be enough certainty as to why a single payer assurance needs to be made or withheld. This will satisfy the People’s Bank of China, by showing how they make it a currency with “real meaning”. Furthermore, with them as single payer, tapping certain transactions will create the required legal status.

Re:Lets get out all of the bitching before it star (0)

Anonymous Coward | about 8 months ago | (#45629597)

Bitcoin is a protocol and a new one perfected by China will withstand all the criticisms of the Randian, Gary North.

Re:Lets get out all of the bitching before it star (1)

Okian Warrior (537106) | about 8 months ago | (#45629481)

Blah blah blah ponzi scheme

Wank wank not real money

*cough*cough*hyper-inflation

warghaghgahgahl... money laundering

Have I missed any?

Gah! Gah! Child Pornography!

Whoa, Whoa... terrorism!

Huh? Huh? Who is Satoshi Nakamoto?

Look! Look! Just like tulips!

Nope, Nope - can't pay taxes!

Re:Lets get out all of the bitching before it star (0)

Anonymous Coward | about 8 months ago | (#45629555)

Yes. Listing a concern doesn't count as addressing it.

Re:Lets get out all of the bitching before it star (1)

ModernGeek (601932) | about 8 months ago | (#45629561)

You missed unstable price fluctuations, no roadmap for ubiquitous deployment, and shady exchanges. I'm sure that there are more.

Re:Lets get out all of the bitching before it star (0)

Anonymous Coward | about 8 months ago | (#45629765)

Deflationary currency. The fact that no one will mine once the coins've all been collected because the transaction fees ain't worth shit compared to mining. Getting your BTC cashed out to real money. Civil forfeiture laws in the US (and other places) coupled with the fact that every coin can be 100% traced leading to a majority of coins that will someday be linked to a drug crime and thus their owners may be compelled to forfeit them. Supporting criminals (botnets mining, silk road, child pron, etc, etc). Wasting electricity. Uselessness as a currency due to time needed to confirm a transaction (no one wants to hang out at the store for 15 minutes). Unregulated = exchanges/wallet sites close and abscond with the coins. Scalability issues due to size of blockchain. The fact no one can use it as a currency beyond niche and criminal markets/can't buy food, pay rent, or pay taxes with it.

There are probably a LOT more.

Re:Lets get out all of the bitching before it star (0)

Anonymous Coward | about 8 months ago | (#45629657)

"Have I missed any?"

Yeah.

Teh terrorz, and teh kidz.

Re:Lets get out all of the bitching before it star (0)

Anonymous Coward | about 8 months ago | (#45629797)

You forgot digital thefty/buggery.

Re:Lets get out all of the bitching before it star (1)

Rufty (37223) | about 8 months ago | (#45630119)

Tulips. You forgot the tulips.

Nelson Muntz - Ha ha (-1)

Anonymous Coward | about 8 months ago | (#45629227)

someone needs to Nelson Muntz the guys in that article a few days ago who said bitcoin is going to stay up and continue to rise.

The fact that the ledger is gigs in size and only going to get larger and it takes almost an hour for a transaction to propagate should have been proof that it's insufficient for the purposes of currency.

and at what point do people develop hardware that can be used to hack the private key of someone else's wallet?

Re:Nelson Muntz - Ha ha (2)

maxwell demon (590494) | about 8 months ago | (#45629749)

Given that such hardware would essential void all the encryption on the internet (including the one between your computer and the bank when doing online banking, and I'd not be surprised if the same encryption is also used for the communication between ATMs and the bank, and for the communication between banks), there's a big incentive to build such hardware anyway. That it apparently hasn't been done yet is a good hint that the codes are as secure as the cryptographers assure us.

Re: Nelson Muntz - Ha ha (0)

Anonymous Coward | about 8 months ago | (#45629865)

that's not true. first, this is a public key signature. the message is known, you are validating the identity. second, all cryptography is brute force attackable if given sufficient time. For certificates, they always expire so that they become invalid by the time someone figures out the private key. To my knowledge, the private key associated with a wallet will never change. It is plausible that someone with sufficient resources could thus with enough time steal your wallet's public key. This is why they tell you to split your bitcoins up into many wallets so that you don't become a target.

Re:Nelson Muntz - Ha ha (3, Insightful)

brxndxn (461473) | about 8 months ago | (#45629823)

It only takes an hour if you elect to pay zero fee.. If you pay a higher fee (like 5 cents worth), your transaction will be processed near instantly. Then, it will be verified usually around 10 minutes to an hour later.

Also, the ledger is only gigs in size after years of Bitcoin use.. When it gets more popular, the ledger will increase faster. But, the size of hard drives is increasing - and you don't even need to have the whole ledger in order to participate. Lightweight clients, such as Multibit, allow you to only obtain enough of the ledger to be certain of the transactions. In the end, it might just be large institutions and hobbyists that all hold the Blockchain (ledger)..

As far as hacking, Bitcoin will get hacked the moment everything else is already hacked.

gov regulation can be good. (0)

Anonymous Coward | about 8 months ago | (#45629715)

if the banks do a boom and bust, its with the tacit approval of the higher up political figures that
the banks have bought. there are limits to what one can accomplish when one is actively avoiding
being labled a criminal... and must take steps to appear reasonable and to cover federal requirements
to the minimum standard.... just water those standards down? your doing business....

bitcoin is out of the control of the politicians, mostly. they cant be rewarded for turning the other way....
they can't fund their campaign's with donations that were required to allow for the watered down
standards.... when they are beyond regulation.

I know slashdot is simplistic and not particularly aware of reality... but cant you guys just clue into this?
bitcoin is entirely vulnerable to the whims of the dominant currency holders without any intervention
whatsoever by meddling politicians looking fro bribe money... because they are not required.

the establishment leeds us regularly, systematically, and in a controlled manner. Like the vampires in
the "blade" movie series, they need us... they have to make compromises in their hunger for survival.

bitcoin? no requirement for any compromise. completely and entirely at the mercy of an open international
market which does not even identify itself and its holdings. The alpha dog's rule unchallenged by anything
other than their own limited creativity.

boom and bust.... its all fake.

you buy bitcoin as an investment? you'll get whats coming to you. what you deserve.

the banks had to work their evil little asses off to get into the subprime morgage game....
bitcoin is completely without any interference. no hoops to jump through... no rules to bend,
no piper to pay. no witnesses.

you are all so utterly simple.

nice article (0)

Anonymous Coward | about 8 months ago | (#45630259)

thanks for posting the link. Wish it had a few more graphics and diagrams though. Maybe I'm more of a visual person.

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