It unlawful to have child porn on your computer, when will it be illegal to have a bitcoin wallet on your hard drive?  Or at least an unregistered wallet.

Anyone care to chime in?

Everytime I think I understand Bitcoin, things get fuzzy.

First, Bitcoins are not unique items, you cannot identify one Bitcoin from another, in fact that statement almost makes no sense.  Bitcoins are values that are assigned to addresses.  The addresses are unique and each address has a currently Bitcoin value and transactions transfer values between addresses.

Secondly,  it seems the whole system works because all the participants agree to play by the same rules.  What prevents a rule change if everyone agrees to it.  Changing how many bitcoins are given to miners, how much the difficulty changes, etc.  they are arbitrary.  What if a majority agree to a rule change?

Lastly, I read about Bitcoin theft.  If I have a wallet of addresses that is backed up.  A virus penetrates the wallet and transfers all my Bitcoins to some other address.  Since I have the original addresses, I can see where they went.  If I clearly demonstrate the above to the Bitcoin community, what's preventing the Bitcoin community from disallowing any transactions from any address that received my stolen coins?  Yes it would be difficult to convince everyone but is it theoretically possible?

I am looking for holes in the system.  Not because I want to exploit them. It because I want to trust the system.

What if a large pool of miners goes rogue.  The Evil Mining Pool (EMP) decides to only recognize and work on blocks that were created by other miners of the EMP.  They could have a hidden handshake, the address for the new coins in the block could have a particular hash only recognized by EMP miners.  Also when an EMP miner discovers a block ( or nonce, or POW, whatever it is called) they don't broadcast it to the world immediately.  The EMP starts working on the next block without telling anyone outside the EMP what the block is.  They could be two or three blocks ahead.  As soon as someone outside the EMP releases a block, the EMP releases there's, and maybe one ore if they are 2 or 3 ahead.

Is this discussed anywhere?

More newbie questions... Does everyone have the same transactions?  Why do we have different merkle roots if we have the same transactions?

As a miner how do I get transactions?  How often will I get more transactions?  Do I have to recompute the merkle root each time I get a new transaction and then restart the nonce?  This sounds like a job for Sisyphus.

It is Start Over in the sense that the billions of nonces that didn't work for one block might work for the next block, you may as well retry all the nonces that failed.

Joelkatz,  thank you very much for exactly th answer I was looking for.  I am not into stealing but I am into understanding why this will entire bitsphere will work.

Apparently i still don't understand mining.  Isn't mining finding the nonce for the next block and that nonce is dependent on the previous block?  So as soon as there is a new block, nonce searching has to start all over?

The search for nonces changes every 10 minutes.  An address with a lot of coin might be in cold storage and you might be able to search for months uninterrupted and your reward might be very high.

That happens about every ten minutes, correct?  Every ten minutes there is a new cryptographic puzzle and solving the old one is no longer of any value.

This is very helpful.  Thank you.

So it seems machines mine for nonces and get rewarded bitcoins. Once a nonce is found, the block is created which always has the new reward bitcoins and other transactions and the search for a new nonce begins. 

Mining cannot be done offline since every ten minutes you start searching for a different nonce.  Is that correct?

And if you find a nonce seconds after someone else you will most likely not get the reward because the majority of miners will start searching for the nonce following the block of the person that got there just before you.   Seems like there is a high frequency trading strategy here.  If you find a nonce, you are better off if you can propagate it faster than everyone else.

More questions

Why arent bitcoins that solve more difficult problems worth more?
Or the first bitcoin, that should be worth more.  I would rather have one millionth of the first bitcoin or the last bitcoin than one in the middle.

More questions

All bitcoins solve the same problem but with increasing levels of difficulty , is at correct?

If I mine a bitcoin today that barely solves the problem, I should immediately put it in a block and take ownship.  But if I mine a bitcoin that solves the problem by a wide margin, I can sit on it because even when the difficulty goes up my coin will still be valid.  Is that correct?

Another way to put it is I could mine a coin that would have been a  slid bitcoin 6 months ago, but because the bar has been raised, it is not a bit coin today.  Today it is worthless.

Yes this has been very informative.  New questions:

There seems to be at least 3 cryptographic elements

1- addresses have public and private keys, they can be easily generated but doesn't seem like there is any reason you couldn't have duplicate addresses, other than highly improbable.

2- the nonce within a block.  It seems like this has to be found like mining.  Do most miners mine for nonces?  Once someone discovers the nonce for the current block the block is finalized and search for a new nonce begins.

3- bitcoins themselves.  These seem to be some other key that miners search for and seems to be independent of the nonce.  Once a coin is discovered (mined) it is put in a block so the miner has ownership, it is assigned to the miners address.

Does each new block contain one and only one new bitcoin along with a bunch of other transactions?

Coqui33 thanks for your post, it was very informative, but as a newbie I still have lots of questions.  Part of the confusion is that the term Bitcoin often refers to a fraction of a Bitcoin.  Santoshi's article states "We define an electronic coin as a chain of digital signatures.". How does that chain of digital signatures get stored in a wallet?  Each time a coin (or fraction thereof) a new block is added to chain.  Does that mean the digital signatures get longer and longer?  A block in the chain contains the addresses of both parties.  Are those public addresses which correspond to private addresses?  Are those private addresses the privkeys you refer to?  Do I have privkeys for every bitcoin ( or fraction thereof) I receive?  Should I consolidate them by doing a transaction to myself.

I apologize for so many questions.  Thanks for any replies.