If my wallet is in my pocket, I would say that I have the dollar. But if there's an equally-spendable copy of that dollar in my computer at home, and I'm not at home, I couldn't confidently say that I have it.

Sorry I did forget about transaction fees. I accept your way of looking at it.

When you have three currencies with independent exchange rates, those rates are kept consistent by arbitrage. So as the bitcoin economy grows we can expect that there will be times when people are using arbitrage to correct the market prices. For example, instead of buying BTC with electricity, there will be times when it is more worthwhile to sell electricity for USD and buy BTC with those USD.

I've been struggling with that person/computer dichotomy the whole way through. I would like to always say "you" instead of "your computer". It's more human, more friendly, more understandable, and yet ... sometimes it just isn't true.

The keys really are on your computer. Sure, if you manually back them up onto a USB drive and put that in your pocket, then "you" have the keys. But so does anyone who steals your computer, so I can't really say that "only you" have the keys.

It was a disappointing surprise when I got home. But I can see the funny side of it.

That's an interesting way to look at it, but that "currency analogy" will surely fall apart in the future when electricity/btc becomes enormous (as bundle sizes halve every 4 years) and eventually infinite (when the size of generated bundles reaches zero).

If the analogy didn't fall apart, all of us would become wealthier than Bill Gates, and our great-great-grandchildren would become infinitely wealthy around 2140 :-)

Yeah that's great! Unfortunately, your P4 laptop is unlikely ever again to generate a block, with the difficulty rises since then.

My own story goes the opposite way. I arrived at this forum when Bitcoin was featured on slashdot, and wanted to generate some coins. But then I discovered that the Linux client didn't work on Fedora Linux, so I wasn't able to start generating until later - by which time the difficulty had shot up by the maximum increase of four times.

A while after that, my family and I visited relatives for a few weeks. I left my computer generating at home on all cores, at 4500 kHash/sec, expecting to find some juicy bitcoins awaiting when I got back three weeks later. Can you guess what went wrong?

Yep, the day after I left my house, the overflow vulnerability was discovered in 0.3.9 and my computer spent three weeks and many kilowatt-hours generating a nice bundle of worthless coins.

Then, I suggested to my wife that we buy some BTC. Up till then I had just dabbled with very small quantities. She decided to think about it for a week, after which she agreed, but in the meantime the BTC price had doubled.

Despite those setbacks (and also some minor hassles with PayPal that increased the cost of one of my deals), I count myself lucky to be one of the early adopters.

Doesn't that just mean that the effect on the exchange rate will be predictable rather than nil?

I agree, but I want to say that elsewhere. Perhaps in a part entitled "HOW BITCOIN WORKS". Something like this:

"You don't need to have your Bitcoin software running when someone
sends you coins. The network records the transaction, but only your
computer has the keys to spend the coins."

Thanks for the feedback everyone. Believe it or not, it took about twenty hours to write and refine that small script!

I am working on the animation now, but that's a much bigger job so it will take some time.

I am releasing the script under Creative Commons Attribution (CC-BY), so if anyone wants to make an alternative animation they are welcome.

My finished animation will be released under the same license, so that others can replace the soundtrack by one in another language, or do other kinds of mashups.

Indeed. I wish I had done the same myself.

But you haven't won until you liquidate the gold for more than your purchase price, as a lot of people found to their cost in 1980 (see the red line on this chart).

In my opinion, the time to sell will be when "everyone including the shoeshine boy" is buying gold as an investment and the price is skyrocketing.

There are such massive fundamentals at play with Bitcoin (growth in users, difficulty adjustments, exchange problems, concerns or misunderstandings about security and scalability, etc), that it's not clear to me whether technical analysis can yield useful results.

I'm looking at making a short animated movie, pitched at the same level as the "This is Flattr" video. Notice how the Flattr introduction doesn't use much technical language.

At this forum, most of us have technical knowledge, but the next wave of Bitcoin users will be drawn from people for whom the word "client" means a human being rather a piece of software, and for whom any mention of "hashing a block" will make their eyes glaze over.

So I'm hoping to make a short introductory animation. If it is well-received, other similar animations could address more specialized topics ("How does Bitcoin work?", "How do I back up my Bitcoin wallet?" etc etc).

Here's my first version of a two-minute script. Comments are welcome.

<<

INTRODUCING BITCOIN

Bitcoin is a currency for the internet. With Bitcoin, you can make payments
anywhere in the world conveniently and for little or no cost.

The Bitcoin system is not operated by any government. It is not controlled by
bankers. It is not the product of any corporation. Bitcoin is a peer-to-peer
internet currency. Every transaction within the Bitcoin system is checked and
processed collectively by the computers that form the Bitcoin network.

Everyone can use Bitcoin. There's no charge to join, and no need to register.
Just install the Bitcoin software and start it up. You can earn
Bitcoins by selling products and services to the Bitcoin community, or you can
buy bitcoins from exchanges.

To send bitcoins to someone else, click on "Send coins". Choose the recipient
from your address book, or paste in their Bitcoin receiving address. To receive
bitcoins, tell the sender your Bitcoin receiving address so that they can send
you some coins. You don't need to have your Bitcoin software running when someone
sends you coins.

The total number of bitcoins is fixed, but they are subdividable and can support
any level of trade. Bitcoins are originally earned by those whose computers are
processing Bitcoin transactions, and it's also possible to earn small
transaction fees from certain kinds of Bitcoin transactions. This provides an
ongoing incentive for people to allow their computers to process Bitcoin
transactions.

The Bitcoin system is underpinned by mathematics and secured by public key
cryptography. Because Bitcoin is a peer-to-peer system, only valid transactions
that are acceptable to the network will be processed. Someone attempting to
defraud the system would need to control more computer power than all of the
honest network nodes combined, so there is strength in numbers.

To get started, visit bitcoin.org and download the software or join the
forum. Bitcoin is an exciting and potentially game-changing currency.

>>


This script is licensed under a Creative Commons Attribution 3.0 Unported License. You are free to share and remix it provided you attribute it to ribuck.

S3052, what is an "hourly close" please?

It's so refreshing that people here understand this.

Outside of this forum, I don't know anyone who hasn't swallowed the rhetoric about how wonderful inflation (i.e. price inflation) is.

This is very nice, thank you. I particularly appreciate the "log scale" option.

That's not foolproof. If there is a big bubble and it bursts, there could be no buyers ever at the liquidation price. But that's a commercial risk that MtGox will need to decide.

I will be very surprised if we ever see margin trading at big ratios like 100 to 1.

Personally, I wouldn't trade on margin because I like to buy after prices drop, rather than being forced to sell at the low price. Sure, the successful margin trader more than makes up for it when prices rise, but not everyone is successful.

For those who don't trade on margin, the existence of margin trading tends to exaggerate the peaks and troughs of the market. When prices are rising, it greatly increases the number of BTC that can be bought, causing the price to rise further. When prices are falling fast enough to force liquidations, it greatly increases the number of BTC that are being sold, which depresses the price further. I don't mind this, because it gives me more opportunity to buy very low and sell very high.

If you think the price of BTC will go up, it's easy to make a profit. You simply buy some BTC for dollars, then sell them back after the price goes up.

If you think the price of BTC will go down, it's not quite so straightforward. But you can make a profit by doing this:

1. Sell BTC for dollars at the current, high price.
2. Borrow BTC from someone else, and deliver those BTC to your buyer.
3. After the price goes down, buy some BTC at the cheaper price and use those BTC to repay the person you borrowed BTC from.

Selling BTC (or stocks) that you don't own, but which you will buy later, is called short selling.

It's a gamble for the short-seller, because if prices go up instead of down they must buy later for a higher price than they sold, thereby making a loss. In addition, they must pay interest to the person who lent them the BTC.

Short selling has gained a bad reputation (because short sellers are often people with "inside knowledge" that prices are about to drop), but it does add liquidity to the market, and it tends to push prices towards their "true" value, by making the market price reflect that "inside knowledge".

10 BTC is a good price. And I love Linux; I'm posting this using Linux.

I just don't like stickers enough. And my fridge is already full of magnets. And I already have a keyholder.

Margin trading only makes sense if the price is going to rise. In that case there's no hurry to sell.

Billed the difference and pursued outside the exchange. Certainly not forgiven.

This suggests to me that MtGox would liquidate before the margin is exhausted (i.e. when it drops to some percentage) which gives the exchange some leeway for a further drop in price before the liquidation can be carried out.