I can't access any of the wiki pages most of today (Google's cache is helpful, here).

Do we need a mirror for this site?  Seems like it has been down quite often, and, as a central repository of technical information it's a bit frustrating to have it be unavailable.

We are frequently asked for details about Bitcoins and how they work.  So we have prepared this "white paper" that goes into a bit more depth than the typical introductory material available online.  While not designed to be a technical explanation, we hope that this will be of some use for people trying to decide if they should get more involved in the Bitcoin economy, focusing on the benefits and risk of using Bitcoins.

A Bitcoin Primer (PDF)

Here's an outline of the sections (it's about 8 pages long).


What is Bitcoin?
How does Bitcoin work?
What are the benefits of Bitcoin?
  Financial Self-Determinism and Control
  Irrevocable Transactions
  No Need for Middlemen
  Low Cost Transactions
  A World-wide System
  An Inflation Hedge for Long-term Savings
What are the Inherent Risks of Bitcoins?
  Irrevocable Transactions
  Underlying Value and Volatility in Prices
  Anti-Inflationary
  Computational Attack
  Regulatory Uncertainty
  Risk of Loss
  Is Bitcoin “The One”?
Applications Well-suited to Bitcoin
References and Links


Corrections or suggestions for improving this document as a general resource would be appreciated.

Though I love the Bitcoin protocol, and it's elegant solutions to double-spending and cheating, it still bothers me that it takes a prodigious amount of energy to mine for new currency (something like 25 Megawatts are being consumed by miners right now).  So I've been trying to think of ways to substitute a less costly process for the current hashing problems required by BitCoin.

If you think of mining as a form of lottery, each computation of a nonce hash is like buying one "ticket" - the more tickets you buy, the higher the probability of your winning the 50 BTC+ prize.  Why don't we replace mining with a more DIRECT lottery?

Every 10 minutes, say, each person that wants to participate buys how every many tickets they want (using the same currency), and then the winner is chosen randomly such that your odds of winning are proportional to your ticket purchases.  The winner not only receives the 50 coin bounty in the block, but also all the tickets purchased in the block.

This has the same incentives and rewards as Bitcoin, but reduces the net cost of "mining" to near zero (all the "costs" of mining are returned to the winner of the block).  It's "fair" since your chance of winning is proportional to the amount of coin you risk in each auction.  A simplification is to treat the amount of "tip" included in each transaction as the "ticket purchase" amount (you can enter a NULL transaction with a tip in any block when you want to mine, but not sending a real transaction).

The remaining problems to solve are:

• How to fairly decide the winner of the lottery (without relying on trusted 3rd party).
• How to decide that an accepted block is "canonical".

The first problem can be solved by hashing all the user addresses of the ticket purchases in the block, and using that as a seed to a cryptographically secure random number generator.

The second problem feels non-trivial to me and still a source of possible cheating.  Any ideas?

Has this all been discussed before???

I'm liking the new Bitcoinica UI.  But, as someone who is not very experienced with Forex trading concepts, it seems to me the interface is unnecessarily complex.  Let me propose an alternative, simpler model; I'd love to hear from those more experienced in trading interfaces why I'm wrong.

Suppose Bitcoinica displayed only:

• Your $ account value.
• Your BTC account value.

Every time I "trade", one account loses some value, while the other gains.  Bitcoinica could lose the concept of an "open position".  A margin call could come into play if my total account value ($ + BTC) becomes less that a fixed percentage (say, 20%) of my LONG account balance.

An example:

• Suppose BTCUSD = $2.50
• I send 100 BTC to Bitcoinica ($ = 0, BTC = 100, Net Value = $250)
• I buy 100 BTC at $2.50 ($ = -$250, BTC = 200, Net Value = $500 - $250 = $250 => 50% of LONG)
• BTCUSD decreases to $2 ($ = -$250, BTC = 200, Net Value = $400 - $250 = $150 => 37% of LONG)
• BTCUSD decreases to $1.50 ($ = -$250, BTC = 200, Net Value = $300 - $250 = $50 => 16% of LONG)
• Bitcoica force liquidates 166.67 BTC @ $1.50 ($ = 0, BTC = 33.33, Net Value = $50)

I can grok what is happening much easier with this system.  There is no need for Open Positions separate from my Currency Accounts, and it's much easier to see if I am truly LONG or SHORT which currency (and by how much).

Thoughts?

As most people know, the rate of production of Bitcoin mining drops in half sometime in January of 2013 (it goes to 150 BTC per hour, from the current 300 BTC per hour).

So, what will happen the the exchange value of a Bitcoin then?  Over the last 6 weeks, Bitcoin prices have been remarkably stable (at least compared to the previous crazy volatility exhibited over the last year); fluctuating in the narrow range between $2.00 and $3.00.  I find it interesting that this value is very close to the energy cost of mining (at $0.05 per kwh) - of course depending on how efficient your mining rig is.

So, in 2013, the cost of mining will double.  I could see one of two scenarios coming to fruition:

• The price of bitcoin would rise to meet the cost of mining (i.e., about $5/BTC)
• Enough miners drop out of mining, to reduce the difficulty to cost again about $2.50/BTC.

This will play out if the primary driving the the $/BTC rate is on the supply side; i.e., people are hoarding Bitcoin as speculators.  I think that's certainly in play today.  Buyers need to either buy Bitcoin on the open market, or mine for them.  So they switch between these two options, keeping the price at around $2.50 today.

The other alternative is that the price of BTC would switch to the demand side.  For this to occur, we'd have to have many more opportunities for using Bitcoin in real commerce, driving up the demand for Bitcoin as an instrument of exchange.  As it stands today, very few people NEED to use Bitcoin for anything.  I think that will have to change eventually or the speculative fad could crash the value of BTC as people lose interest in it.

I feel nervous about preserving private keys in any of the wallet solutions I've seen.  In all cases, even if the keys in the wallet are encrypted, there is a non-zero chance the wallet.dat file (or equivalent) will be lost, making the deposits in the wallet irrevocably lost.

So, why not generate all the public/private keys in a wallet based on a user-provided seed?  It's certainly possible to deterministically regenerate an arbitrary number of public/private key pairs, given only a random seed as a starting point (e.g., a string like "service-name/user-name/passphrase").

If the wallet need never be stored because it can always be regenerated, then you just have to ensure that you don't loose the seed value (i.e., your password).

I'd love to hear if someone has already implemented something like this.  I'd be willing to work on including it as an option in the BitCoin client as well.

Thanks,
Mike Koss
Coinlab.com
Seattle, WA