
The Big Book of Bitcoin - An introduction - alphydan
http://alvarofeito.com/articles/the-big-book-of-bitcoin/#.UUxY7MrTvGw.hackernews
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willholloway
This is a great intro to bitcoin. It made me feel more optimistic about the
prospects of the currency.

It highlights many of the risks and benefits but misses out on what I think is
the Achilles' heel of bitcoin, the ability for sovereigns to shut down the
exchanges.

Without the ability to convert bitcoin to fiat easily, the currency loses its
usefulness as a proxy for fiat currency. Does anyone have a convincing
argument for how the exchanges are not vulnerable?

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meta-coder
The situation is like the chicken-and-egg dilemma.

Definition 1: 'Good producer' is a producer that accepts bitcoins.

Definition 2: If all the good producers together produce all that you need,
then the number of producers is 'enough'.

Definition 3: 'Ideal state' is when enough good producers exist.

Theorem 1: A producer will accept bitcoins if either of the following is true:
i. Ideal state has been attained. ii. There exists exchanges that trade you
physical currency against bitcoins.

Observation: Once we are in the ideal state, we no longer need to have
bitcoins converted to physical currency. So we don't need the exchanges to
exist forever. We need exchanges only till enough producers have started
accepting bitcoins.

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aneth4
Except the only ideal state is when you can buy anything in the world, not
just "enough."

The great thing about good currencies is they can be exchanged for almost any
currency and therefor can be used to purchase almost any good or service that
is for sale.

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jstalin
Does anyone know of an explanation of the bitcoin protocol in plain English?
I'm a non-math guy who's trying to write a legal treatise on the use of
bitcoin, and I'd like to give some background on how it works to my readers.
Can anyone help?

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eof
Have you tried just the original white paper? You can understand without
understanding the underlying algos. bitcoin.org/bitcoin.pdf

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jstalin
I have, but it doesn't seem to discuss how mining works, for instance.

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arpp
but it does, check it again: 4. Proof-of-Work

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eof
Yes. 4. Proof-of-work combined with 6. Incentive

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mikemoka
"Bitcoin is obviously not the solution to these issues, nor will it be a key
enabler to crime. It is just a currency with some interesting features on top:
peer-to-peer, security, public transactions and potential anonymity."

Not a key enabler, but I think criminals would definitely appreciate a hardly
traceable and potentially anonymous currency, don't you think?

It's not an opinion unfortunately, there is already evidence floating around
that they are using it or that they are very interested about it.

Because of this I don't think bitcoin should replace a national currency
anytime soon, can you convince me otherwise?

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alphydan
I can't. I think criminals will find their way with Bitcoin or without it.
It's easy to fall for the easy argument: "the standard banking/monetary system
is even worse, so bitcoin is ok". As a small example HSBC was considered too
big to jail (they laundered last year about twice the size of the Bitcoin
Economy, helping criminals, drug lords, etc), and only got a slap on the hand
(a $1.8bn fine). The powerful can launder their money, do tax evasion, use tax
havens ... now it's available to all technicaly skilled ones (good or bad?).
Drugs sold on silk road were evaluated (<http://arxiv.org/abs/1207.7139>) last
year to about $14m/year ... a good 20% - 30% of the bitcoin Economy, so yes
it's looking pretty tainted so far. I would however highlight one innovative
point: If you slip (leave any trace, don't use TOR, use a physical address,
leave your IP), the community can track you down! And I think it will happen.
Because ledgers are public, you can make algorithmic criminal enforcement
:)(for those criminals or corrupt politicians who are not careful enough)

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gregpilling
Well said.

I also think criminals will avoid it like the plague. Bitcoin could
conceivably tell law enforcement everywhere you received money from and
everywhere you spent it. I realize it is one long number transacting with
another long number, but law enforcement have computers too, and they have
time on their side. Using bitcoins could be like leaving DNA on the scene of
the crime - probably not a good idea if you want to get away with whatever you
are doing.

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gcv
If I understand the idea correctly, using a different key pair for every
transaction should help mask user histories. Not sure if this is easy in
practice.

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disclosure

      < The bitcon economy is growing fast.
      > The bitcoin economy is growing fast.

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tocomment
I just got to wondering, how would charging for a monthly service work in
bitcoin? A user can't just give you an account number and say bill me $X every
month, right?

Any thoughts on how to design such a system?

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melvinmt
Technical details aside, I don't want to be tied into paying for a service in
a currency that fluctuates 30-50% a month. I think that's by far the biggest
problem bitcoin currently has.

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mhartl
The price will eventually stabilize (possibly at 0).

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DavidSJ
A few minor issues: a b is a bit, a B is a byte.

A satoshi (not satochi) is 0.00000001 BTC, not 0.000000001 BTC.

Not sure where the $6,000/BTC comes from for $80b in annual transactions per
10m BTC, but consider velocity of money. A BTC can be spent multiple times in
one year. Also consider that monetary base (raw currency) is not the same as a
credit account, but you can spend either.

So in practice, you might only need 0.1 BTC per 1 BTC in annual transactions.

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alphydan
Good points about velocity and monetary base. "satochi" spelling and decimals
corrected. Thanks. The $6000 is just an order of magnitude >>>(80/12)*1000.
Too many unknowns for anything beyond guesstimates: What percentage of the
currency is hoarded by then (1/2? 1/3? 3/4?). How many bitcoins are lost
forever? As you point out velocity, or even limits on transaction speed from
block-size ...

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DavidSJ
Even for a wild guess I think you're off by at least an order of magnitude if
you don't take into account velocity (typical dollar is spent four times per
year; edit: and bitcoin, as a digital currency, is likely to have higher
velocity) and the different types of money (monetary base is maybe one fifth
of total money supply).

Note also that your math involves 12m BTC but your page says 10m.

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alphydan
I may very well be off by a factor of 10. Agreed. But what is your estimate?
and what exactly would M2,M3 and M4 be?

Let's assume 12m has been mined, 1m has been lost forever, 8m are hoarded, and
a velocity of 10. You then have 30m bitcoins in transactions but 3m bitcoins
circulating. In this case my estimate is off by a factor of 2 - 2.5 (but it
could be 10, sure). But What if it doesn't take over half of paypal's
transactions, but rather 4 times all of paypal's transactions? That's why I
think any estimate is pretty hopeless. A good order of magnitude is ... if it
reaches paypal scale it will be in the thousands.

Since there is no fractional reserve banking (yet, anyway) in the bitcoin
economy, I don't see how the monetary base can be 1/5th of the money supply
(but I might be missing something).

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xhrpost
Is the part about it costing $25,000 Million to "trick the network" true any
more, given the advent of ASICs into the mining arena? User 67117 on BTC Guild
is currently processing 6,348.98 GH/s, or roughly 10% of the entire mining
network. While not cheap, it appears it could be relatively affordable to hit
the 50% mark.

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alphydan
As of today, you can't buy the ASICs because they don't exist, so I guess it's
true (plus minus a lot of millions as it is a rough estimate). But it will be
a lot cheaper very soon for a brief period of time before miners up the arms
race [-- see reply below for clarification --]

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xhrpost
So how is this one user mining 10% of the network?
[http://mineforeman.com/2013/02/15/67117-identity-reviled-
its...](http://mineforeman.com/2013/02/15/67117-identity-reviled-its-
asicminer-now-at-2-ths/)

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waterlesscloud
My understanding (and it could be wrong) is that ASICMiner has made their own
asics for their own use. They are not selling them.

Their business model is that they have a sub-pool in a larger mining pool, and
they financed their operation by selling shares (denominated in Bitcoin). The
shares pay out weekly dividends, based on the awards the mining pool provides
to them.

There's a couple (very, very tiny) bitcoin denominated stock exchanges, and on
some of them you can buy ASICMiner "passthroughs". These represent shares in
ASICMiner that are controlled in large blocks by an individual. That
individual passes through the dividends to the passthrough shareholders, minus
a small management fee.

It's an elaborate system, but I guess money finds a way, even when it's
bitcoin.

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mrb
That is correct. ASICMINER went through an informal IPO, selling at the time
the equivalent of $200k or so of shares. With these funds plus the project's
creators own investments, they designed a custom 130nm ASIC.
<http://bitcoinmagazine.com/asicminer-starts-hashing/>

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tmflannery
The article talks about crowd processing eliminating falsified balances, but
it doesn't go into some exchanges getting hacked. Hasn't that been a security
concern? Haven't people lost money that way? I know my credit card numbers can
get stolen, is that the right comparison? Do exchanges just make you whole?

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RustyRussell
"The bitcon economy is growing fast."

Perhaps it is, but don't think it's what you meant :)

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alphydan
thanks for the typo notice. I really hope that's not what it becomes ... but
who knows? :)

