5 decimal places isn't that different from 6, so might as well go all the way. It'll be a lot easier to temporarily handle prices in millions of bitcoins (5mbtc) than to have to do this whole change over again down the road.

This might actually be a good time. Because the jump is so huge, nobody can really afford to get confused. Nobody is going to send 5,000,000 current bitcoins instead of 5 current bitcoins. It will be weird spending hundreds of thousands of bitcoins, but the situation will get more normal as the price goes up, instead of getting worse.

It may hush some of the bubble people. $20 per btc sounds like a bubble. $0.00002, not so much. Makes it seem like there's plenty of room to grow.

Also, big numbers have number groupings (1,000,000) and decimals don't. And people have a much easier time with thousands and millions, than with millis and micros. I think it should be done quickly and confidently, 1 btc = 1,000,000 btc.

John, I've been reading up on your threads -- great stuff! I like the idea of some tools being integrated into bitcoin itself, because it makes that part more authoritative (lots of people looking at it, good maintenance schedule).

I think you could get some really good security combining some of these ideas. For small checking accounts, you'd just use the standard Bitcoin client, probably on an encrypted volume, with backups. For large savings accounts:

1. Never use the standard Bitcoin client -- it connects to the Internet.
2. All sensitive work is done on an offline, LiveCD box. (See https://www.privacy-cd.org/)
3. The LiveCD has a command line tool that generates a new wallet with as many accounts as you want.
4. It requests a pass phrase, generates the wallet, and spits out the account codes in plain text. Signs all this stuff.
5. The pass phrase isn't stored anywhere, it's just used to encrypt the wallet and then forgotten. You can test that you entered the pass phrase correctly by attempting to decrypt the wallet on the LiveCD box. (This "verify" step should be a standard feature of the tool. It lets you feel safe that you can transfer money to the account.)
6. Copy the signed package to a USB drive and then to your regular computer and upload it all over the place.
7. Now transfer lots of bitcoins to one or all of the new addresses in the usual way.
8. To spend, use another tool on the internet computer to download the minimum amount of data needed to sign the transfer. This could be part of the standard client.
9. Export another signed package to the USB drive. Insert USB in the LiveCD box.
10. On the LiveCD box, run a transaction tool. It will ask you for an amount to transfer, recipient address to send to (or maybe let you choose from the original batch you generated), and your pass phrase. It will then write a certified transaction package to the USB drive.
11. On the internet box, use yet another tool to send in the transaction to bitcoin. This could also be part of the standard client.
12. Monitor with an online app, or another tool, or both.

This sounds like a ton of steps, but a lot of them are being done inside the tools and transparent to the user. They're all just a matter of moving a USB disk around and running a few commands. They've been thoroughly tested and they reassure you by acknowledging that you have the right pass phrase and that all your data has been checked for integrity. Ultimately, they could be consolidated into the standard client on the internet box, and an offline gui on the LiveCD box. This is also nothing new, I'm mostly paraphrasing John's previous steps, but it helps me organize it for myself and hopefully others.

1. We don't have to worry much about keyloggers or malware on the LiveCD box because: A. How would they get there? B. How would they send the intercepted data out? We still have to worry about physical keyloggers, but that's a threat most people don't have to worry about, and there are physical ways to handle that. Eventually there could be dedicated devices instead of the LiveCD box.

2. Make sure your pass phrase is really strong.

3. The biggest remaining danger is that you forget your pass phrase. I think the dead man's switch is a good way to approach this. You might have to do the whole USB shuffle once a month, but it would be great if this were built into the tools. You could even have your bitcoins sent to some online trusted entity after a year of no activity, as a final backstop.

See also:

Deterministic wallet
John's vaporware approach
Private key and wallet import/export
Private key import

There are some solid solutions in this thread, which are especially relevant to people who have tens of thousands of dollars in bitcoins. The problem is that executing the steps is hugely dangerous in itself. If you're paranoid about your computer being infected with keylogging malware that will send off your wallet pass phrase to a thief, you should be even more paranoid that you're screwing up one of the steps, or that there's a tiny bug in your vaporware. Unless you're a well known target, the chances of you screwing up are probably vastly higher than somebody remotely paying attention to everything you do on your computer.

Personally, I'd much rather use a simple but fully functional open source tool, that's successfully being used by thousands of people and is open to public scrutiny, than any homegrown scripts and protocols. I just don't trust myself enough. Can we get an open source project like this going? I'd be willing to put in a bounty.

I think that's one reason Bitcoin is taking off so fast, while Ripple still hasn't gained traction. Even though Ripple is a very interesting idea in its own right, the incentives for adoption aren't nearly as strong.

Sounds a bit like Ripple, actually.

The biggest bolt-on service to the bitcoin platform these days is mining pools. The success of mining pools illustrates both a triumph and a flaw in the bitcoin economic theory. The sheer number of individual miners is fantastic for the stability of the system, but the existence of centralized pool operators is bad for system security and illustrates the flaw in the system. Difficulty has simply become too high for individual miners to play with. Mining is only worthwhile with a pool.

If this is addressed in bitcoin itself, the system reverts to its usual secure, p2p nature, and becomes even stronger. The success of the mining pools themselves proves that this is a crucial feature. One option is to bake pooling into bitcoin. A miner can either do conventional mining, but at much lower difficulty as he would today in a pool, or he can fulfill the role of a pool operator and aggregate blocks. This would require some clever tricks to make sure miners and operators don’t cheat each other, but the payoff is huge.

Another option is to keep difficulty at a flat, low level, and instead of raising difficulty, split the block chain into ever more branches. Each miner would work on the block chain that corresponds with his bitcoin account (via a modulus operation), and work only on transactions that correspond with his bitcoin account. This has the added advantage of balancing work among many nodes. The major issues here are how to prevent double spending, since older transactions could be in any branch, and whether the security of the system would be compromised, since it would be much easier to attack any one branch.

I'm sure there are many other ways of tackling this, but the point is that mining pools are a clear signal pointing out perhaps the biggest problem yet discovered with bitcoin.

The problem with ideas like the Nefario exchange is they try to solve both problems at the same time. The really important part is determining the market price for, say, USD vs BTC. You don't need to interface with any real world banks for this, it's just a betting market. That means you can use the full power of the bitcoin model, and make it p2p, not rely on trust, keep it entirely on the internet, and make it pseudonymous.

The second part, actually exchanging BTC and USD, is easy once the going price has been established. Think of private people selling used cars based on the blue book price. You just find somebody near you and do a cash swap, or find someone on #bitcoin-otc and do something with dwolla or regular bank accounts. At this point it's just a couple of individuals doing a harmless little transaction which is almost impossible to identify or fight.

Sorry if I'm repeating myself, but these are pretty new concepts, so I'm not sure how best to get the point across.

What we'd want is not a website but something very similar to bitcoin itself, a p2p client app. You don't need a web of trust for bitcoin and you shouldn't need a web of trust for an exchange. A transaction is a transaction.

A currency exchange addresses two problems:

1. Coordinating the market price of the currency pair.
2. Safely transferring ownership of the traded currencies.

The first problem can be solved completely within a p2p system using only bitcoins as the currency. See Prediction Markets.

The second problem is tricky because it involves transferring ownership of fiat money, e.g. USD. But, if the market price is known to all via (1), it becomes a lot easier to just meet somebody on the street and swap dollar bills for bitcoins, or do it via #bitcoin-otc. So I think the hard problem here is the prediction market.

This is a serious concern and there's a lot of thought going into this already. See, for instance: http://forum.bitcoin.org/index.php?topic=11189.0

Very cool idea. Something like this almost certainly has to happen. I've got to read up more about the details.

I agree. Decentralization of everything is the key. Not just because it makes it harder to hunt people down technologically, but because it distributes the risk so that no one person can really get into too much trouble. If the risk is low, and the government has to expend lots of resources just to hunt down one bit player (because nobody is more than a bit player), it really becomes impossible to fight this.

One really cool project would be to try to port a forum like this, with all the functionality people expect from a forum, to a p2p network like Tor. Is anybody interested in putting up bounties for that?

If we could lobby for sound money, free trade, and legal drugs, what would we need bitcoin for? The point of bitcoin is not to get permission from government, but to make government irrelevant.

Money laundering seems custom made for a good p2p app. I'm sure these will make an appearance at some point. Bitcoin is just the beginning, a whole economy will grow up around it.

To me, Bitcoin is exciting precisely because it lets you do things the government doesn't want you to do. Isn't that the whole point?

Basically, anyone investing in Bitcoins is betting that it can't be hacked that way. If we're all wrong, then Bitcoin is worthless as a currency and someone will have to either patch it, or come up with a better currency. To me, the cool thing about Bitcoin is that it's a revolutionary idea. Whether the specific Bitcoin code is uncrackable is more of a technical issue.

It's fascinating to get a glimpse of the face of the coming crackdown. Fasten your sealtbelts

Bitcoin is the opening shot in a new jurisdiction. The Bitcoin Economy is thriving in a jurisdiction outside that of any government. The jurisdiction of the Bitcoin Economy is ruled by math and not by violent force. The rules are set by competing software projects, and evolve based on what works. Bitcoin says “thou shalt not double spend.” And what happens if you double spend? Nothing. You can’t. The laws are akin to the rules of physics, not the rule of kings.

Today, the Bitcoin jurisdiction is a small island. There are few inhabitants, and we must leave the jurisdiction frequently and submit to governmental jurisdiction. As more of the economy is subsumed into the Bitcoin jursidiction, it becomes a more powerful force, and government becomes weaker. For the Bitcoin project to succeed, we must find ways to move economies into this jurisdiction. We must also explore strategies to make the interface between the two jurisdictions safe and porous.

In future posts I’d like to expand discussion on two key concepts. Prediction markets can furnish the Bitcoin Economy with many of the functions of finance, without requiring an interface to government jurisdictions. This greatly expands the scope of the Bitcoin Economy, and provides an essential infrastructure for the rest of the economy.

i2i (individual-to-individual, as opposed to business-to-business or business-to-consumer but similar to p2p) describes the situation wherein large swaths of the economy are carried out by individuals trading with other individuals, rather than via large companies, corporations, and governments. The low transaction costs of the unregulated Bitcoin Economy make this more attainable, and it’s an ideal interface between the Bitcoin jurisdiction and government jurisdictions. Individuals carrying out small, ad hoc trades make terrible targets for government crackdown. They are hard to find in time and space, are low profile even if caught, and each crackdown has almost zero effect on the system as a whole. It's also bad for politics.

The combination of these two concepts packs a powerful punch, and that’s another discussion I’d like have.

I want to start with the first point about measurable reality. The idea here is that there is no official arbiter of measurable reality in the world anyway. Who decides that Obama is president? There are all kinds of events that happen, votes are reported, opponents concede, chads hang, and supreme court justices put out rulings. In the end, people just kind of fall into a clear consensus that the Prez is the Prez, and sometimes they don't.

In the vast majority of bets with some kind of expected clear outcome, like a football game or a presidential election, the prediction market itself will tend to a binary 10.0 or 0.0 once the event has been decided, say the football game is over, or Obama's opponent concedes. If we expire the bet and pay out 9.95, that's pretty much as good as some arbitrary referee calling it 10.0.

And if we expire the bet in the middle, a month before the election, at 8.23, that's ok too because there's another bet going on at about the same price that you can jump to as your bet expires. They will be tracking each other due to arbitrage. This is how future contracts work. If you think about it, betting on the wheat harvest with future contracts is the same as betting on a football game. There is no objective second when the probability of the Redskins winning jumps to 10.0. It's pretty much 10 when they're winning 42-0 with 1 minute left, and it's not even quite 10.0 when the ref calls the game, because something can always be overturned. Who knows, maybe there's proof the Cowboys were throwing the game. In that sense, the market price of 9.95 is more accurate than the arbiter calling it 10.0 at the moment of the whistle.

So how does the miner call the contract? It just takes the last valid trade before the expiration time, and that's the close. The market should make sure that's a good proxy for reality. The only thing that makes this different from wheat contracts is that you don't actually own any wheat, and you don't own any "Redskins win". That's why we have to keep money in the escrow to pay up in the end.


I didn't actually say that Bitcoin is immune to government crackdown, I said any system based on Bitcoin would be as immune to government crackdown as Bitcoin. It's a valid point that making Bitcoin even scarier than it is to governments puts even more pressure on it. However, if Bitcoin can't stand up to government interference, it loses most if its charm to me at least. And with or without betting, if it becomes a threat to government, they better hope they can take it down. Betting on football games is the least of their problems.

That's also a great point about alternate chains interoperating with Bitcoin. It would be very cool to think about how that would work. Looking at the code a bit, it's also clear that Bitcoin has a ton of functionality that's not being used yet. Who knows what it's capable of, even with the current design.