Bitcoin: Genius or Dumbest Idea Ever?

[FestivusMiracle]

Go.

[phdapp]

Genius for the people who got a lot of bitcoin early. Seemed Genius for Charlie Shrem, et al. for a while, but I think they probably would call it dumb now.

[DropTheBase]

If we're talking about the idea of Bitcoin in general, it's brilliant, especially the fact that the computations from Bitcoin miners goes towards verifying transactions. 

 

Whether or not Bitcoin will be the peer-to-peer currency in the future is questionable, but I think that there will now always be a peer-to-peer currency. It can't be stopped. 

 

Investing in Bitcoin is a totally different issue. I think our money best contributes to the economy by supporting companies that create physically tangible services. 

[DSA]

For anyone interested in how Bitcoin works, there's a great article here about the implementation of the Bitcoin algorithm (or any similar cryptocoin algorithm): http://www.michaelnielsen.org/ddi/how-the-bitcoin-protocol-actually-works/ You might need a tiny bit of computer science knowledge to fully understand it, but I think it's useful to know how it works beyond the mediocre explanations you often get in the media.

 

I bought 0.01 BTC back when that was about $10, because I wanted to test out the CoinBase API. It's grown a little bit in value and I did some mining a while back, but nothing big.

[FestivusMiracle]

If we're talking about the idea of Bitcoin in general, it's brilliant, especially the fact that the computations from Bitcoin miners goes towards verifying transactions. 

 

Whether or not Bitcoin will be the peer-to-peer currency in the future is questionable, but I think that there will now always be a peer-to-peer currency. It can't be stopped. 

 

Investing in Bitcoin is a totally different issue. I think our money best contributes to the economy by supporting companies that create physically tangible services.

So you think it is durable as a currency? You don't think the whole concept is a gigantic bubble whose eventual bursting is inevitable?

[mdiv2014]

greater fool theory......1637 tulip mania.....

[DropTheBase]

So you think it is durable as a currency? You don't think the whole concept is a gigantic bubble whose eventual bursting is inevitable?

 

 

I certainly think it's a bubble right now. Every time Mt. Gox gets DDOSed or some government mentions it, the price swings violently. Also, I'm not certain about Bitcoin's future for technological reasons. There are a few security analysts who still believe that it can't scale up past a certain point.

 

The fact that no one controls Bitcoin is what separates it from our normal currency. It can't be regulated. Precious metals, even though they can't be arbitrarily produced, can also be regulated because they are physical objects. A powerful entity can seize control of major stockpiles at any time. Like any p2p service, there is no source. It's always alive as long as at least one person is online and has the most up to date version of the block chain. Every user has a record of every transaction ever made. 

 

If Bitcoin eventually fails, something will certainly replace it. 

[FestivusMiracle]

I certainly think it's a bubble right now. Every time Mt. Gox gets DDOSed or some government mentions it, the price swings violently. Also, I'm not certain about Bitcoin's future for technological reasons. There are a few security analysts who still believe that it can't scale up past a certain point.

 

The fact that no one controls Bitcoin is what separates it from our normal currency. It can't be regulated. Precious metals, even though they can't be arbitrarily produced, can also be regulated because they are physical objects. A powerful entity can seize control of major stockpiles at any time. Like any p2p service, there is no source. It's always alive as long as at least one person is online and has the most up to date version of the block chain. Every user has a record of every transaction ever made. 

 

If Bitcoin eventually fails, something will certainly replace it.

How is Bitcoin different from precious metals? Someone could still obtain a large enough share of bitcoins and withhold them from the market, just like diamonds. Instead of the currency being controlled by a government who has relatively benign intent, Bitcoin makes itself vulnerable to currency manipulators with less benign intent, right? (This all assumes Bitcoin surives long enough for this to happen, which I think is highly unlikely)

[DropTheBase]

How is Bitcoin different from precious metals? Someone could still obtain a large enough share of bitcoins and withhold them from the market, just like diamonds. Instead of the currency being controlled by a government who has relatively benign intent, Bitcoin makes itself vulnerable to currency manipulators with less benign intent, right? (This all assumes Bitcoin surives long enough for this to happen, which I think is highly unlikely)

 

The creator of Bitcoin elaborated on the possibility of someone obtaining a large enough share. If someone at any point in time has greater than 50% of the computing power of all Bitcoin miners, then they could presumably control the market (this is also debatable). However, due to the increasing difficulty of mining Bitcoins, the odds of that happening are going down very, very quickly.

 

The only other way someone could control the market now is by buying every Bitcoin. That's like buying every diamond or every block of gold. Good luck! The reason diamonds are so controlled is because the majority of them came from the same place and a few companies got a hold of the majority of them. That moment presumably already passed for Bitcoin. 

 

I'll reiterate what I said above. Bitcoin is fundamentally different because it's distributed over every single user. This is unlike normal currency. I know where all the Bitcoins in existence are, where they've been and who they go to when they're discovered!

 

Also, anyone can make millions of copies of his/her Bitcoin wallet. With normal currency, the government (a powerful entity) can freeze your assets and seize them if necessary. For Bitcoin they'd have to seize every hard drive all over the world with copies of the Bitcoin wallet. No entity has that control over Bitcoin. Whether or not this is a good thing is debatable. But peer-to-peer currency is certainly different.

[phdapp]

The biggest threat to the value of Bitcoin is the US Government. Wait for more people to be prosecuted and there will eventually be no exchange willing to work with Americans. Just like online gambling and piracy/torrent sites... expect a crack down. When the crack down happens, expect the value to plummet.

[spectastic]

one way to find out. https://blockchain.info/charts/market-price

 

I still don't completely understand the validation process and bitcoin mining. But right now, I think it's not really a currency anymore than a stock option, or some new exploit/opportunity for rich people and drug dealers to store money. I think only a handful of places accept bitcoins as a currency. And because nobody seems to know where bitcoin is going to go next, it's pretty much a gamble to take any part in it at all.

 

I'm curious how the mining works. It happens by validating the transactions, right? And that's apparently a painstaking process by itself because a third party (miner) has to solve this puzzle, and the miner then gets a reward of 25 bitcoins, which is like $12000. And it takes a while for the process to take place, which is like waiting there for 20 minutes for your credit card to go through. I'm probably wrong, but that just seems absurd. 

[TakeruK]

I am not an expert and apologies if this is a stupid question.

 

But, my question is what are the arguments for government regulation and control of Bitcoin? Why can't people be free to use whatever they want as currency? 

[spectastic]

I think mainly money laundering and hackers. Because there is no central bank or anything governing bitcoins, you can't really regulate it or tax it. That's a window for people with money they don't want other people to know about hide it, but that's probably a stupid idea right now, due to the volatility of the currency. Also, people have tried to make fake transactions, or duplicate money. 

[DropTheBase]

Yes, exactly. If anyone used anything as currency, the law wouldn't be able to protect against counterfeiting (too many currencies to keep track of!). It's worth mentioning that you CANNOT counterfeit Bitcoins easily (or at all), as far as I know.

 

I'm not sure when Bitcoin turned into a volatile stock (blame the Winklevoss twins?), but it was and is in fact used as currency for a variety of businesses, including illegal ones. Even though Bitcoin is "anonymous", believe it or not, it's more dangerous to use Bitcoin for illegal services than real money. This is mainly because all transactions are public. Powerful computers can very effectively identify spending patterns when all the information is available.

 

The current transaction confirmation time is ~8 minutes. 

 

I personally can't wait for Bitcoin to crash. Then all the speculators will leave and hopefully the price will level out again. 

[FestivusMiracle]

one way to find out. https://blockchain.info/charts/market-price

 

I still don't completely understand the validation process and bitcoin mining. But right now, I think it's not really a currency anymore than a stock option, or some new exploit/opportunity for rich people and drug dealers to store money. I think only a handful of places accept bitcoins as a currency. And because nobody seems to know where bitcoin is going to go next, it's pretty much a gamble to take any part in it at all.

 

I'm curious how the mining works. It happens by validating the transactions, right? And that's apparently a painstaking process by itself because a third party (miner) has to solve this puzzle, and the miner then gets a reward of 25 bitcoins, which is like $12000. And it takes a while for the process to take place, which is like waiting there for 20 minutes for your credit card to go through. I'm probably wrong, but that just seems absurd. 

 

 

One of the big places that accepts Bitcoins as payment is Overstock.com.  BUT, and this is a key but, my understanding is that Overstock doesn't actually get paid in Bitcoins, but instead gets paid in dollars from a third party who manages the Bitcoin risk.  So Overstock may 'accept' Bitcoin, but they don't really accept Bitcoin.  The question is can the third party figure out a way to manage such a volatile currency (Bitcoin) and be profitable.  My guess is that that's almost impossible at this stage in the game.  That's like trying to price exports in a currency denomination that can double in value and be reduced by half on any given day.  Just doesn't happen.  

[spectastic]

Yes, exactly. If anyone used anything as currency, the law wouldn't be able to protect against counterfeiting (too many currencies to keep track of!). It's worth mentioning that you CANNOT counterfeit Bitcoins easily (or at all), as far as I know.

 

I'm not sure when Bitcoin turned into a volatile stock (blame the Winklevoss twins?), but it was and is in fact used as currency for a variety of businesses, including illegal ones. Even though Bitcoin is "anonymous", believe it or not, it's more dangerous to use Bitcoin for illegal services than real money. This is mainly because all transactions are public. Powerful computers can very effectively identify spending patterns when all the information is available.

 

The current transaction confirmation time is ~8 minutes. 

 

I personally can't wait for Bitcoin to crash. Then all the speculators will leave and hopefully the price will level out again. 

Is there a source out there claiming this, or is that your speculation? My reasoning is because bitcoin is anonymous, people can see where the money is going, but nobody can do anything about it. Furthermore, if it's truly an anonymous account, which I think it is, there would be no official record on who actually owns the money without disclosure.

[DropTheBase]

Is there a source out there claiming this, or is that your speculation? My reasoning is because bitcoin is anonymous, people can see where the money is going, but nobody can do anything about it. Furthermore, if it's truly an anonymous account, which I think it is, there would be no official record on who actually owns the money without disclosure.

 

Depending on your level of scrutiny, the Bitcoin FAQ is one source. (https://bitcoin.org/en/faq#is-bitcoin-anonymous)

 

Only someone who is extremely cautious can successfully keep anonymous bitcoin wallets. i.e. keeping the wallet constrained in a virtual machine that routes all traffic only through TOR. But that still wouldn't protect you against the spending patterns you create (unless you only ever purchase one thing or something).