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Bitcoin: Virtual money created by CPU cycles

Bitcoin: Virtual money created by CPU cycles

Posted Nov 11, 2010 2:38 UTC (Thu) by fsateler (subscriber, #65497)
Parent article: Bitcoin: Virtual money created by CPU cycles

> but the question remains: are the CPU cycles you spend "mining" for
> Bitcoins worth the value of the Bitcoins you receive?

Of course not. The value of any currency (at a very high level) depends on 2 factors: how much does it cost to get it, and how much do you/others actually want to get it. If these two factors go out of balance (in your example, it is cheaper to create money than to buy it -> it costs less than what people want to pay for it), you can arbitrage that difference and make money "for free" by creating coins and selling them. In fact, that is what several governments have done (because they are the only ones allowed to print money), search for what is called Seigniorage. In the Bitcoin case, where nobody has the power to mint extra coins, the arbitrage possibility is lost, which means that it must be more expensive (or at least the same) to produce a coin than to buy it.

That's why you don't see much people trying to print money and instead trade money for their services: it costs too much to produce (plus risk of getting caught).

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Where to start ?

Posted Nov 12, 2010 13:30 UTC (Fri) by copsewood (subscriber, #199) [Link]

Not sure why this one should fare better than similar proposals which have either failed or turned out as scams. Initial analysis suggests that should this experimental network ever scale to anything the size of an national economy, only owners of the most powerful and well connected data centres will have any good first chance of synchronising understanding and verification of the valid next block. That is not what I would call a 'peer to peer' network; this approach to cryptographic guarantee of anonymity seems to result in a currency system dancing to the tune played by the likes of Google, Facebook and the botnet herders.

These are not a group of potential prime movers I'd trust with defining the future policies and parameters of a monetary system more than the current bunch of jokers, whom we can vote out of office on occasion when we feel like it.

This particular experiment also seems to offer more a means of _consuming_ valuable resources than a means of _offering_ such as guarantee in exchange for currency offered in exchange for goods and services marketable in consideration for other currency options.

Distribute this one into millions of microcurrencies and more people can play at defining the parameters and acting as notaries within the context of more community localised networks. You also reduce the anonymity to something similar to current bank networks, which are politically tolerable from this point of view: anyone underwriting a system genuinely anonymous enough to fund terrorism or assassination will be taken out using military intervention if lesser sanctions fail. But if you are going to do this using millions of microcurrencies, you may as well use double entry accounting without arbitrary constraint on fiat monetary quantity, supported by issuer reputation, conventional crypto and smart cards.

Where to start ?

Posted Nov 13, 2010 0:39 UTC (Sat) by jgarzik (subscriber, #8364) [Link]

At the size of a national economy, you're right, bitcoin P2P network would be managed by Big Players (albeit algorithm-sanctioned participants, not government-sanctioned participants).

With regards to anonymity, see

While bitcoin addresses are randomly generated cryptographic signatures, not obviously associated with any one person, the entire block chain is publicly readable, and you can readily see transactions between any bitcoin address:

Thus, "anonymity" must be in quotes. Even if one follows the recommended practice of using a new bitcoin address for each transaction, statistical analysis can be performed on the public transaction data.

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