Hi Shinobi,

You are seeing things correctly.  Theft is possible, and recovery of what is stolen is if not impossible, infeasible.  You should think of bitcoins like cash.  There is nothing to unwind when someone steals your cash, no recourse -- you either find the thief and make him pay back or be punished in the judicial system, or nothing.  Similarly, just as with cash, stealing is possible if someone can come into relatively intimate contact with your stuff -- the fact that your stuff is digital and the trespass over a network (most likely -- though physical theft of a computer system is also possible) plays merely to the ease or difficulty of the thing -- not to the nature.

So, let's talk briefly about security of assets.  To prevent theft and to allow recovery, it is possible to store your bitcoin wallet on a secure encrypted drive that would be, if not impossible, infeasible to access without your consent.  You can back up the encrypted volume and rest relatively sure that if your main disk crashes, you can restore from the backup.  Really, again, just as with cash -- don't store it by the fireplace, keep some of it in a vault, and you'll be more or less OK.  Your comments about the clearing house and how it relates to theft don't really add up -- I think you don't yet understand how the bitcoin system works.  You want to go read the FAQ and focus on the notion of the blockchain, how it works, and how it is secured by the distributed bitcoin system.  It took me a few hours of reading and pondering, but now I get it.

Your suggestion that a great amount of bitcoin wealth could be destroyed in one go is again possible, but just as with any currency, unlikely.  It's *possible* that Bill Gates' foundations would all bet all of their money on one go of a Vegas roulette wheel, or that they would store all of their assets in bonds and locate them all in one building that could go up in flames.  But this is very unlikely.  If someone had enough bitcoin wealth that their assets made up a large part of the total asset base, it's highly likely they would distribute the wealth among several wallets, and across multiple computers and locations.  Again, just as with any kind of money, a psychotic anti-self-interested party could purposely spend tons of money simply to destroy wealth (buy a billion dollar bills and burn them all, say).  Bitcoin fares no better, but no worse, in these cases.  (If anything, it fares better, because the loss of the digital assets could be replaced simply by allowing the bitcoin blockchain reward to last longer than it currently does, or similarly, to allow more decimal places in the bitcoin unit count.)

As far as the relative liquidity of the currency goes, you should think of it as a digital medium of barter, and like the older style bartered goods, it comes with a level of inconvenience at the moment.  This is a function of the small size of this nascent market (if the market were large enough, you wouldn't worry about exchange, but rather, buying things with your coins, which is itself quite easy) and of the growing pains in dealing with the transfer of funds back and forth into a "risky," "hacker culture" medium like bitcoin (seen through the eyes of, say, PayPal).

This isn't a complete answer, but I hope it helps.

-KS

Let's imagine that Bitcoin is a company whose sole value is in the outstanding value of its bitcoins -- I'll refer to it as Bitcoin's "market cap."  Today, Bitcoin's market cap is roughly 6.5m coins * $18 == $117m. (ref: bitcoincharts.com)

Bitcoin relies on network power to keep its blockchain safe from what I will call a "takedown" -- here, what I mean is the addition of transactions that are in some relevant sense not real.  It is widely understood that if there were a network player with roughly 50% of the network power, that player could potentially sabotage the blockchain in just this way.

The current network power dedicated to bitcoin mining is approximately 6.7 terahashes/s.  (ref: bitcoincharts.com)  It currently costs approximately $1000 to create a rig that can mine roughly 1000 megahashes/s -- let's say then that the cost of a megahash/s is at current difficulty $1.

By the application of math, we can see that it would cost roughly $6.7m to create a farm of computers that would equal the current power of the existing network.  If you want to factor in some overhead for a data center and electricity, you can add a few percent to this cost.

If I am in the right ballpark with these calculations, Bitcoin is subject to a "hostile takeover" (to extend the corporate metaphor) or "takedown" scenario.  This is because it would only take about 5% of the network's total value to sabotage it.

Granted that the normal forces of difficulty and increased network power serve to limit the feasibility of such a takeover over time.  My point is simply that at this moment, because of the high value of the coins and the size of the existing network, it is feasible to destroy or sabotage it.  My hypothesis is that equilibrium occurs for this system when the difference between the "takedown" value and the market cap are much closer in value than the current 20x spread.

I am interested to know whether anyone else has been thinking about this, and to what conclusions he or she has come.  Thanks!

-KS

Hello,

I would like out of the "cage" and onto the whitelist.  I have been a miner for a few weeks -- a little green, perhaps, but still an active participant.  I haven't been an active poster here, yet, because I have been following and getting myself technically caught up with everything going on.  For example, I read the whitepaper on bitcoin because I was interested in writing a python client.  I read up on namecoin because I was intrigued by the idea of using the block chain for something useful (distributed DNS).

The reason I specifically wanted out of the cage at the moment was that I wanted to be able to talk with people about what's happening to the pools.  For example, Slush's pool problem isn't merely a DDoS at this point -- his registration system is pretending to function but not letting people in.  I suppose that *could* be an indirect effect of a DDoS if in fact he has had to do something to respond to the problem, but, it would be good to talk with others about that.

Anyway, I think that I would like to participate in the community at large, and wish that I would be allowed to do so.  Thanks in advance,

-Your friendly neighborhood Kantian semaphore