How To Use Bitcoin – The Most Important Creation In The History Of Man

Miscellaneous General
101

Yes, you are correct. However, money substitutes carry maintenance costs, and these impose a lower limit on the transaction costs. Bitcoin does not require substitutes so there is no lower limit on the transaction costs, and in long term they equillibrate at the marginal cost of electricity (plus computer hardware depreciation plus internet connectivity, but for the foreseeable future the electricity costs dominate).

We have already discussed this in the past, I believe. It is not always possible to determine how many bitcoins you have. If you mine them through a tor-connected node, for example (which has been suggested as the most paranoid method), it’s practically impossible to determine who the owner is. Furthermore, there are plenty of ways of obfuscating the flow, for example laundries, offline transactions and so on.

Also, even if the government knows what you have, you can still create dead man switches and other algorithmical defenses, which you can’t do with gold. You can hide gold and pray that the attacker does not torture you or kindnap your family.

This is very simplified method of viewing it. Bitcoin is just data and code. It can exist in any form, anywhere. It can hide in plain sight and you won’t see it. It can defend itself through encryption, distribution or redundancy, for example. Imagine that your alarm rings because someone is cracing the safe where you hide gold. They have guns and you know you can’t overpower them. What do you do? Forget about the gold and run. With Bitcoin, you just take a second copy of the private key and transfer the balance away. The “thief” then finds an empty safe. I’m pretty sure I have not even scratched the surface of all the defensive capabilities Bitcoin has.

That’s great, I’ve been in a heated debate about it for over two weeks now, good to have someone to agree.

Well, at the moment, the easiest approach seems to be mercury → gold conversion, but hypothetically iron → gold is also thinkable.

There is a certain element of truth in what you’re saying, but not entirely. Even bugs in code or a successful cryptoattack cannot increase the supply of Bitcoins. At most they cause problems with online transfers, and cause the 21 million to be generated earlier than planned. There are several layers of defense that mitigate this, so a proactive switch should work out in a typical scenario.

Again, I can’t entirely disagree with this. In the end, it can work out to be either advantage or disadvantage. But I would argue that Bitcoin is more flexible and this is what makes it interesting.

102

OK.

Tor is not completely safe. Proof can be seen by latest attack of Anonymous on dozen or so pedophiles. They successfully recovered their original IP addresses.

You certainly have a point but all your trickery has fatal flaw - it significantly raises costs associated with bitcoin - it makes its usage a lot harder and costly.

I’m aware of those capabilities, but they add a lot of layers. Security is compromise on ease of use. The more secure you make your wallet the more impractical it is to use. The more impractical it is to get its promised benefits the less widespread it will be. And I can always turn your argument against you: You can hide bitcoins and pray that the attacker does not torture you or kindnap your family (sorry couldn’t resist ;))

I wouldn’t get too hung up about impossibility to raise limit. Impossibility to use your bitcoin in transaction will be enough for people to look for alternatives. I mean what use is money to me if I can’t use it to buy groceries?

I want my money to be as boring as possible. Boring is predictable and stable. To each his own I guess;)

103

It has not happened. He is probably thinking of the MtGox exchange breech.

104

That is my guess as well, I just thought I’d double check.

PS I’m at the European Bitcoin Conference in Prague during the weekend, if any of you want to meet me and have a chat.

105

Ask Von Haus

There is no central control or sponsor. The only known weakness is with the total brute force computational ability of the bitcoin network, which exceeds the total power of at least the top 10 unclassified supercomputers in the world combined. Anonymous could breach my username on this forum, even if I was using Tor, and backtrace me to my IP. Probably. (Anonymous didn’t backtrace all users of that pedo-site, BTW) It is actually impossible for either the US government or Anonymous to determine, with any certainty, my total bitcoin wealth. They might be able to prove that I have some bitcoins, by proving that I possess a specific set of bitcoin addresses; but it’s impossible for anyone to prove that those are all that I have without determining the ownership of every address in the blockchain, with is a practical impossibility.

Could there be an unknown exploit in the codebase? Certainly. Programmers are not perfect. The the protocol is truely elegant.

106

Please lets be a bit more serious. Lack of known weaknesses is not the same as no weakness. It should be painfully obvious to anyone in background with computer science or even to anyone that used any software for any extended period of time. Bugs in implementation could make cracking any encryption algorithm very easy.

Even is that is true, is that what are you saing supposed to make me feel safe? BTW bitcoin itself is not deemed anonymous in any shape or form by one of its maintainers (can’t be bothered to find a quote but he said it in some interview when asked about tor site trading “illegal” drugs with bitcoins). It is not fair to argue in favor of bitcoin possible anonymity as if it is built into bitcoin. It isn’t. If you want honest debate you should mention cost associated with every layer of added security. Most importantly (to me) there comes a cost of usability and increase of complexity which in turn raises probability of error and bugs somewhere along the road.

Well as Peter so eloquently said in reply to my ramblings: You can hide and pray that the attacker does not torture you or kindnap your family. It works for gold AND bitcoin. Except government can know that you have at least some bitcoin for sure whereas it can not know if you have any gold at all. Transaction log for all gold transactions is not public after all :wink:

So it is about subjective preference of whether you fear programming errors more than possiblity of converting something to gold becoming feasible. I’m not saying it is only choice you have to make when considering bitcoin but it is one of them. This one is, at least to me, obvious loss to bitcoin.

107

I had spent over an hour working out a lengthy response to this post, but then it wouldn’t submit and this Windoze machine that I have at work nuked the post.

Short version, Bitcoin has it’s own issues that a rational critique can me made against; but these aren’t them and you don’t know enough about how the system works to even mount a plausible assault. Digital cash has literally never been done this way before, and as best as I can tell, neither has anything else. It’s entirely a novel method, so the means that you believe that would work against it will not.

And yes, it’s a subjective decision. It’s a choice. I choose to trust the mathmatics of the bitcoin system over my own capacities to keep gold safe or my ability to choose a trustworthy repository; because I understand how the system works. And it does work.

108

Everything must be possessed, including bitcoin. If you are gold can be physically thieved, what physical items are holding bitcoins? Is there a central server or something? Why couldn’t that be stolen. The main reason it’s tough to steal gold is cause it’s damn heavy :stuck_out_tongue:

The test of a commodity is that if you weren’t using it as a currency, you could use it to do some other productive thing. Bitcoin does not pass this test. Sorry. You’re twisting the definition of ‘commodity’ to call it so. Bitcoin is a token. It’s a wooden nickel, with no intrinsic value in and of itself. Gold actually has economic utility outside serving as a store of value. So do all other true commodities. Paper money is not a commodity, it’s fiat currency, because the value of the paper and ink that makeup a dollar do not correlate to a single dollar. Our coins are equally fake.

Not so. It’s quite difficult to inflate gold. To inflate bitcoins merely requires it mathematical security to be broken.

Lower transaction costs why? Innovation isn’t a measurable quality.

All physical matter can be converted into gold, sure, sure, BUT AT WHAT COST, is the question you’re missing here. It’s not likely that we’re ever going to be able to convert even lead into cost in a cost-effective manner. Meaning it will always cost more to transmute X element into gold than gold is worth. Therefore, this objection is negligible compared to the weakness of mathematical security in a virtual currency. I’ll take physics based security over a mathematical one.

Who controls the reins of when and how it switches encryption? I thought you said it had no C&C structure.

109

What exactly do you mean by this. Define your term and context, 'cause I don’t think it means what you think it means. In what sense is a bitcoin fungible?

So does producing a physical dollar, but it’s still a fiat currency. Am I missing something here?

This is also true of dollars–a fiat currency. Everything is subject to supply and demand, gold included. You’re not making a good case for bitcoin by throwing out random facts that have nothing to do with whether it’s a fiat currency or not.

Clearly fiat currency doesn’t require government force, since bitcoin seems to be the first fiat currency without government sponsorship!

Sigh. This is just gobbledeegook. You do realize that banking was invented in the first place in the era of gold and silver based commodity currencies, right? Thus, history invalidates your “retort” but leaves my objection intact. Electronically trading gold is not done by a substitute, but rather with virtual gold certificates–each of which ostensibly still draws its value from the existence of an actual piece of physical gold somewhere in the world. Bitcoin is nothing like that.

First of all, a non-fiat commodity can use -any- commodity, not merely gold. Meaning if a method of producing gold cheaply were created, you could quickly and easily switch your entire system to a new commodity with little problem.

Secondly, no, it’s not shortsighted; it’s based on rational scientific truths:

Gold is created in large quantities -only- in supernovas. Good luck starting one of those.

Thinking about FRB, loans, and bitcoins is interesting, and that article raises some interesting discussions. Since Bitcoin is fundamentally limited in money supply (21m), you’d likely have deflation each year.

I like that.

The tightly controlled nature of bitcoins seen in this instance seems to be a detraction from its utility.

Very cheeky, but when i consider that bitcoinis a fiat currency proposing to fix all the problems created by fiat currencies–I’m still not seeing it. If I really need imagination to see why bitcoin is an improvement, as you seem to suggest, then perhaps there’s nothing there.

What is the nature of this decrease in transaction cost? If it’s an artificial transaction cost, then you’re gaining little to nothing. Meaning, if your sole proposal is to route around Visa and Mastercard, et al., then that might be good in the short term but in the long term, the cost of any digital transaction is the same.

110

[/quote]

Bitcoin is neither a commodity nor a fiat currency, nor is it a token. There is no such thing as intrinsic value, gold’s commodity value is significantly lower than it’s monetary value. Bitcoin is not different in this fashion, for users value Bitcoin in part for it’s low transaction fee functions, which cannot exist separately from the monetary unit.

No, breaking the security algo does not permit inflation of Bitcoin. The only condition that would permit the arbitrary inflation of bitcoin is a consensus among it’s userbase to do so. That is about as likely as consensus among parliment, probably less.

Because there is no trusted third party necessary in a long distance transaction, like there would be for buying something online via a credit card or Paypal. The transaction costs are not zero, but they are significantly lower than they could be if managed by a bank than needs to pay teller salaries.

[quote=“Peter Šurda”]

Not only is the security model upgradeable in situ, at the will of the end users, (but not downgradeable, it’s complicated) it doesn’t depend upon the strength of any encryption algo. Security depends, primarily, on the ability of the Bitcoin network to out-process any single attacker or group of same working in unison. As hardware upgrades, so does the security model of Bitcoin.

The end users control this. It’s a majority vote mechanism, really. The rules of the network can only be changed if a majority of the processing power of the total network is willing to do so, by changing to a codebase that honors the new rules. This is the known weakness of the network, that overwhelming processing power can force a fork for as long as the attacker can keep it up. If a majority of the Bitcoin network (by processing power) decides that a change in the rules are desireable, but the remainder do not, it would force a blockchain split that can only be resolved by one side or the other quiting and leaving to start their own network. Minority code splits have happened a number of times around Bitcoin already, due mostly to some guy disagreeing with some arbitrary variable or another, such as the target block interval. None have done well except for ‘Namecoin’ which fills a different nitche as it uses the Bitcoin’s blockchain & proof-of-work system to impliment an alternative DNS system that cannot be mucked with, but is not itself a currency in direct compatition with Bitcoin.

111

false. Gold jewelry is much more expensive, by weight, than gold bullion.

112

True, but entirely irrelevent to the commodity value of gold.

113

Interesting. What is relevant to the “commodity value of gold”?

114

Gold jewelry is much more expensive, by weight, than gold bullion.

And a steak at Ruth’s Chris’ costs way more than the equivalent portion of cow.

I’m pretty sure that someone added some value along the way.

115

Every bitcoin is of equal value and usefulness as any other. Said another way, gold is generally fungible, but not every item of gold is of quite equal value. A round made by a trusted mint is of slightly higher value than others. Bitcoins are also infinitely divisible, presently down to the eight decimal place with the current implimentation. Gold is also highly divisible, but a trade currency based upon grains of gold are more difficult to assay than a millionth of a bitcoin. A running bitcoin node can assess the validity of any amount of bitcoin in milliseconds for a nominal cost of zero.

The definition of “fiat” is “by decree of the king”. Bitcoin is a currency, but neither a commodity (as any Austrian would define it) nor a fiat currency. It’s something completely different. All comparisions to existing systems ultimately fail. That said, the closest thing that exists to Bitcoin is a Local Exchange Trading System (LETS) type currency, wherein the local trade zone is the whole of the Internet.

Actually, not quite. It will take until 2130 or so before all 21 million bitcoins are issued and issing ceases. So bitcoin is currently quite inflationary, and will be higher than 3% APR for many more years.

How?

116

Gold jewelry is one use of the commodity of gold. Therefore the commodity value of gold can, and frequently is, much greater than the exchange value. When you buy a gold chain from a jewelry dealer, you pay a premium for the commodity. When you later attempt to use your gold commodity as money, generally people value the jewelry by weight. In these instances, which I hope we can agree are the vast majority, the monetary value of gold is less than the commodity value.

117

In the case you describe, the monetary value of the gold (by weight) is less than the commodity value of jewelry, not of the commodity value of gold, which is invariablely lower than of any useful item made from it. As another poster tried to point out already, the difference is value added through skilled labor. The commodity value of gold is always less than or equal to it’s monetary value, and the only time it’s equal is when it’s monetary utility is failing, for the the monetary trade uses of a commodity is, itself, an added value.

118

How do you define a “commodity” if it is something different from a “useful item”?

119

Yes and no. The present systems for online transactions (involving Visa, Paypal, etc) all involve financial entities with human overhead. Bitcoin has no human overhead. It’s total transaction costs are a function of the median cost of electricity and the availability and costs of efficient computer hardware. Perhaps also costs of bandwidth, but that depends upon who you are, for it’s entirely possible that Bitcoin can “piggyback” with only nominal network loading over a network connection paid for by other wants or needs. Bitcoin doesn’t presently require anything near the bandwidth of other wants such as bittorrent or shoutcast even for a full node, and ‘lightweight’ nodes have been part of the protocol since day one, so the vast majority of users can disregard the costs of network bandwidth completely so long as they have a respectable data plan on their Android phone.

120

A commodity is what useful items are made from. For example, steel is a commodity and an I-beam structural member is a useful item made from same. Tea leaves, water and suger are commodities, while sweet tea is a desirable drink made from them. Silver is a commodity (and a money), but it has numerous uses in industry that gold does not, such as an anti-bacterial agent when infused into surgical wound dressings and a heat conductor when infused into grease and sweezed between a hot cpu and it’s heat sink. Discounting the uses in jewelry, gold’s commodity value would be less than silver’s at present, in part, because there is less silver in an elemental form available today than gold. Yes, silver is more rare in an ‘above ground’ and refined form than gold. Gold is only much more valuable than silver due to it’s history as an ideal money, and thus it’s monetary value.