Controlling how hard it is to make usually creates supply problems. Since bitcoins are divisible, it only creates a perception of undersupply. As demand for more resources and currency grows, there seems to be only a decrease in calculations in the algorithm to counter the automatic deflation of the currency. The threat of making a new block and blockchain from something previous is the limiting factor for the ease of calculations. I still don't understand why the self-regulation needs to be a calculation humbling cloud super-computing.


Thank you for the clear explanation. I didn't think that block chains could be recreated in situations where blocks lack trading. I guess if the next block were discovered, and the couple of blocks after that, and the several after that were discovered by the same person, then in that time a resourceful hoarder could indeed record 'who traded what' according to their best interests. Who controls the past controls the future even over 20 or 30 minutes with the way verification is structured. With high work requirements and demand, it's unlikely the same group/person would get the most recent blocks and corrupt them. A fix would be hard to come by with automatic acceptance of the newest blocks.

I was thinking that with anything like a basis or alternative, the scenario could be averted because blocks would not be awesomely fungible. Maybe having something like a shared recognition of all blocks within the same time period (right after creation) would lessen the chance that corrupted blocks get the sort of system-shock acceptance seems possible.

Money in lending terms is like a system of IOUs. Federal Reserve Notes are like promises backed by the solvency of the government. If an individual is insolvent, there used to be debtor prisons. Now there's a credit number that disallows your IOUs. Repo men and the IRS take loans seriously!

With anonymity and no fraud protection, bitcoin does not lend itself to modern finance. It prevents binding contracts, and in doing so limits credit. If this new currency catches on, it will have to work in tandem with the existing lending system. Bitcoins would be used more for reserve purposes and dollars will continue to be used for debts.

Bitcoin is backed by things like entrepreneurial rig-running miners, state of the art encryption, reliable ISPs, legal tolerance, and belief. Blackouts, disappointed miners, revolutionary quantum physics advances, a bad cybersecurity czar or a bad Satoshi Nakamoto could turn bitcoins into greenbacks. Don't forget that fungibility is a trade-off for permanence: there are hundreds of posts about data loss. Lightning, water, static, forgotten passwords, and theft limit the safety of the currency in a big way.

The most tangible and probable backing for bitcoins are hourly wages. Would you work for 2BTC per hour? Would your geeky CEO tell payroll to set up a bitcoin security deposit option? If companies can accommodate PayPal for email addresses, they might be willing to take an extra step/exchange. Maybe have a single percentage of net wages transferred to an address for that purpose. Backing bitcoin with service work is the best way for the currency to gain traction and stability.

I don't understand why exactly there needs to be so much processing power devoted to trigger new blocks. Technically it could make a random number generator and reliable hosting, but is it necessary? There are limits to the system bitcoins are based on. What if another cryptocurrency were based on something other than (excessive) number-crunching.

Right now currency is based on decisions in banks, large and small, to create debt. The need for cars, houses, business loans, and a range of other things are met on promises that there will be more money in the future. Money today grows in a slow exponential curve as interest on debts multiplies over time. IOUs have gotten us a long way.

Would it make sense to base have a currency that auto-generates based on a the passage of time, but also on something practical? What if there were thousands of users to begin with, could a random number generator decide which addresses got new blocks by a weighted distribution? There would be the problem of multiple unchecked addresses, but the largest reserves would grow at theoretically the same rate as all other currency in existence. With a steady creation of new blocks, a new unit of currency created in an address could be the equivalent of winning a mini-lottery.

If not based on randomness, maybe a peer to peer currency could be based on power (Kilowatts) like utilities trade and measure. Would it make sense for food stored in grain elevators to trigger new currency with implicit food value? Should every new birth equate to a new unit? What if the time spent working were reliably measured? There are other value systems that could act as inputs in currency generation. What alternatives are out there?

It's a new species, price changes are due to speculation. This isn't a derivatives market or a bond market or a national currency. It's still small and flys on word of mouth from forums to Forbes, Wired, bloggers, and random hype. I wouldn't advise speculation, judging by solicitations in these forums there's a thriving currency market.

Correct me as I'm learning, but is there a sharp drop in the algorithm to 1/2 bitcoins generated from mining or is there a half life of four years? Either way the long-term design is deflationary. Even with increasing efficiencies, more people, and greatly increased volume, the design is for less bitcoin blocks to be created.

This is stabilizing, unique and ingenious because blocks are nearly infinitesimal. There would be less units of currency but greater utility and value -deflation. Would you feel comfortable making .048BTC, then .045BTC, then .044BTC as you kept working the same hours? Assuming the currency stabilizes like familiar markets, there would be a downward decaying trend as data is lost and demand outpaces supply. It would be a psychological headache, especially to those speculators out there.

All the excitement is over something designed not to take off into the sky, but to nose-dive and survive.

Thanks, I earned .022BTC

This processing power equality/competition issue would be mute if in a couple years some super-cooled quantum bits produce something useful. I know quantum computing is years away, but not decades away. In the meantime the existence of bitcoins will act like an X-Prize for revolutionary computing.

When it does happen, it will be like the atomic age: the university team making the first discovery will have to test discovering the next blocks for hours or days against the entire network. It will be a shock, and then the usual volume of mining will resume (if all the bricks aren't discovered first). Like nations in the 1950s, the knowledge of a higher power will be haunting. Then the system will be in limbo until competing quantum computers appear. At least that's how I imagine the processing competition issue to resolve itself.

I'm done with school but always thinking: I was too old for Pokemon, Blaztoise. Children have always used baseball cards, hockey cards, basketball cards, pogs, magic cards, Yugioh and now newer series from Bandai or Hasbro. "Gotta catch 'em all" sort of defined the game. Kids can imagine value and rarity as easily as adults.

What I mentioned before was that the best place for bitcoin-type currency is in a world of fantasy. Can you imagine if a card game or video game made use of a peer to peer currency? I think it would work, and optimistically it could ingrain a very different monetary system.

5% additional interest,
on top of a pyramid scheme,
just to get a higher rate of return
on a purely digital form of growing currency

Ever consider gardening?

The primary problem with bitcoins is that they have no utility in a material world. I'm not for edible currency or gold, but at some point money's meant to be SPENT.

Second Life was a great idea, it promised a ready virtual reality when I used it four or more years ago. The concept of Bitcoins is an apt parallel: HTML is omnipresent but SL never caught on because people were not willing to make an effort to download, navigate, code, and keep using such a new program.

The primary utility for bitcoins is in a digital world. What would result if Second Life or World of Warcraft had a slowly expanding currency? There would be hacking, there would always be new macros, and probably severe deflation. But that wouldn't break the bank, there would be utility within the game environment as long as the game continued.

Bitcoins are a great idea, they have a messiah, mystery, and authenticity. The problem with the currency is that it doesn't need to replace the US Dollar. A variant can be used in a game world with just the right amount of value and permanence. (I had 50 million Star Wars Galaxies Credits, and the game's servers shut down to run KOTOR Online.)

I wouldn't be surprised to find a large pay to play game using a spamcoins sometime soon.