I'm getting tired of these Keynesian "deflation is bad and scary" thought police.  If I come up with a basket of essential goods (lets say what the average person needs to eat each day to survive) and publish a price index based on it, people could use it as a reference point when pricing goods and services in order to get a desirable and stable accounting unit...people could base loans and contracts on this index.  People could even choose to view all prices and bitcoin balances in terms of this index (given the necessary software infrastructure).  I don't need to invent any new currency or digital commodity to accomplish this feat.  Bitcoin is a commodity that acts as an anonymous, irrevocable medium of exchange on top of which all sorts of derived capabilities can be based.  Its value will rise as the infrastructure evolves and more people transact in it, but this rising value is not going to bring about any great economic calamity.

The real difference between inflationary fiat currency and a deflationary digital commodity like bitcoin is who benefits from the changing value.  In the case of bitcoin, deflation (loss of coins) dissipates wealth to all the current holders of bitcoin.  In the case of fiat, printing more money (inflation) transfers wealth from current holders of the currency to those with privileged access to the central bank.

M2 only tells part of the story.  M2 could be expanding substantially while the overall money supply (including M3 and other bank created money) could be shrinking....such as was happening during the credit contraction and de-leveraging in late 2008.  I do agree with the overall analysis that the dollar is in trouble, but it bothers me when people throw up charts like this that only show part of the picture and can be misleading.

(note: I also like to point out that M2 expansion benefits a small, favored population in our society that has first access to this newly created money...it is an insidious and clandestine transfer of wealth)

You shouldn't worry about super computers...it won't pay...mining will migrate toward the most cost effective hardware, not necessarily the fastest.  Already people claim that a 5870 card is more cost effective than a 5970.  Pooled mining with commodity hardware is probably going to be more cost effective than super computers.

Ended up with one of these: http://www.directron.com/cs4801.html?gsear=1 (Seems very similar to that codegen 4U-600)...had to remove the 3.5" drive rack to make room for the GPU card, but I didn't need it anyway and it's better without it since it was between the fan and the GPU card.

Starts at ~44:02

A few things should be pointed out here:
- by buying bitcoins as an investment, you are forgoing something else that you could have done with that money (a nice dinner, a new ipod, a vacation, a new car, or some other investment)
- by buying bitcoins you are increasing the value of existing bitcoins in circulation, that gives others that hold bitcoins more options to do more things with that additional wealth...such as spend more time working on the bitcoin infrastructure
- by holding bitcoins, you have incentive to help build out that infrastructure to ensure the future value of bitcoins is secure
- by investing in bitcoins you are allocating resources to the bitcoin community rather than allocating them to other types of investment or to consumption

So...I too completely disagree with the premise that it's easy money...it's hard earned money that you've chosen to not use for consumption, but rather to invest in and support an idea that you believe may one day be successful and bring about a positive change for many people.

So, let's supposed btc2 is introduced and is (for one reason or another) technically superior to btc...what would transpire?  Would btc collapse in value?  Would btc2 fail to gain a foothold because of the mind share that btc has already attained?

It would seem that any new crypto-cash would want to leverage the value of the existing btc economy (both the value of the money, the community of people using it, and the supporting tools and services) rather than bootstrap from scratch again.  A new superior, digital coinage could be brought into existence through some kind of exchange for bitcoins.  I'm interested to know if anyone has outlined how this might occur technically.  I would think that you would want a way of verifying that any bitcoins you turned in were permanently retired from the system (and of course you'd want a way to ensure the new coinage only came into existence through the exchange of bitcoins).  Having something like that planned for in advanced...and even having a guide to how someone could bootstrap a new digital coinage from bitcoins, might be a good idea to give people additional confidence in using bitcoins today.

When the backing of bitcoins is solely the community of people using and exchanging it, if something new and obviously better came along, it may cause the old coinage to rapidly lose value as people rushed to use the new coinage.  Though I suppose if the new coinage came into existence in a similar way to btc (which is part of what bootstraps btc's value), the new stuff would be scarce...it might be cheap initially, but you'd taking a risk that it wouldn't gain broad adoption.

I'm interesting in trying out mining...I'd like to very accurately track the cost of mining...does anyone use (and can recommend) a power metering device that you plug the mining rig into?

Can any recommend a good&inexpensive rack mount case for mining?  (one that can obviously be well cooled).

I like the idea...I prefer btc:// to bitcoins:// ...I would also add that there should be a button in the client to allow one to generate a payment URL for a specific amount that would be copied to a clipboard (and by default, a new address should be created each time too).  I also think for mass adoption, a simplified UI that hides some of the technical details of bitcoin addresses and such is needed (I'd prefer one client with different UI modes...one for casual users that simply trust the whole systems works...and another for experts that want to see all the technical details).

+1 insightful...however I don't know if I'd call that an escrow service.  Maybe more generally a trusted third party, immediate settlement service (escrow to me generally means you don't want immediate settlement...you need time for both parties and the trusted third party to agree that the exchange of some good or service is satisfactory before settling the payment). 

Immediate payment accounts could have minimal bitcoins on deposit...enough to cover the maximum value of transactions anticipated over some period that would allow for reasonable verification in the bitcoin network.  The accounts might not even need that minimum if the settlement service is comfortable extending momentary credit to the payer for an amount that covers the transaction.  The payee would trust the settlement service.  The payer would make a bitcoin transfer into the settlement account and the settlement service would immediately transfer that amount to the payee.  The payee trusting the settlement service and the settlement service either trusting the payer or requiring the payer to have a prior balance of bitcoin on deposit would allow the entire transaction to be conducted immediately.

Edit: let me add that the three accounts involved are all just regular bitcoin wallets...one the payee controls, one that the trusted third party controls (and is held on behalf of the payer) and one that the payer controls.  Payment goes from the payer wallet to the 3rd party wallet and from the third party wallet to the payee wallet.  Payee trusts that the 3rd party won't double spend and third party trusts that the payer won't double spend (and third party indemnifies the payee against any double spending by the payer).

I don't think a low velocity is "obviously unhealthy" ...it might be, but I'm not certain.  Also, the notion that a steady inflationary economy is healthy because it induces people to spend is Keynesian BS IMO.  On the surface it seems intuitive...better to have people spend or invest money than to hoard it.  However, if you realize that hoarding is benefitting those that hold whatever is being hoarded with greater purchasing power, then what you are in effect doing is making a rational economic decision between investing in the community as a whole (hoarding) vs investing in some specific endeavor or consuming some good or service.  So, it's not obvious to me that steady inflation or hoarding are either good or bad.

You are absolutely right about Gresham's law being a factor...but your conclusions about the detrimental effect on btc couldn't be more wrong.  Gresham's law works in bitcoin's favor, not against.  Yes, people will hoard btc and be reluctant to part with it, but that is a good...no, that is a *great* thing.  People will not have to work any more or less hard due to the value of btc.  They will still need to work hard against their competition...but the value of btc is irrelevant in that.  People will offer substantial discounts for payment in btc if they know btc is likely to appreciate in value.  And people will offer their goods and services in either btc, or dollars, or other currencies so long as they know there is a liquid and relatively hassle free exchange market.  They will start to value things in terms of btc if they can count on its value rising.  Would you say that gresham's law is negatively impacting the gold and silver markets today?  

What is critical is that it's very, very easy to exchange btc for currencies that are broadly accepted around the world.  If had had to pick an aspect of bitcoin to put more energy into, it's the exchanges.  It needs to be easier and cheaper for people to convert in and out of btc.  In fact, if you hold a lot of btc, you are an investor in the btc community and I would advise doing everything you can to make it easy for people to exchange various currencies for btc.  Exchange code should be open sourced, there should be lots of them, and people should offer the ability to exchange at minimal cost (it shouldn't be viewed as a profit maker...if you operate an exchange, your profit will come when btc goes viral and millions around the world use it...and exchanges will be the key enabled for that to happen).  My plan is to establish myself in the OTC and other exchanges and then offer my services (for free) to people in my local community that are curious about btc and have a decent understanding of money and investing.  I can take some of the pain in acquiring btc away for them.  Of course I also intend to accumulate btc.

The biggest risk I see in bitcoin is institutional.  The governments and financial institutions around the world are not going to like this one bit.  People in the btc community need think very carefully about this.  Btc will be labelled a ponzi scheme in the mass media.  Criminals will eventually find out about btc and use it for money laundering and other criminal activity.  One of the biggest tools that law enforcement has is the use of the financial system to track the activities of criminals.  The bitcoin proposition effectively takes that tool away from law enforcement.  It has to be socialized among the general population that part of the cost of freedom is that it makes some things, like law enforcement, more difficult.  But, at least for me, that is an acceptable cost to keep instruments like the financial system out of the hands of tyrants.  It also makes it more difficult for a government to finance itself...you are basically taking the printing press away from the government...you know force the government to be honest with respect to the wealth it must extract from the people.  They won't like that.

Bitcoin needs to spread, and it need to spread fast, and internationally...before these institutions are able to squelch it.

Use separate wallets on separate computers and as different ones acquire btc, use transactions to send them to the one wallet you want to hold most of your btc (and back that one up and encrypt the backups)...and make sure your computer where you run you main btc client is secure.  Sending btc between your different wallets is a great way to get a feel for how it works.  Basically, when you spend btc, you are creating a transaction and broadcasting it...that transaction rapidly spreads through the P2P network (which is why you don't have to send ip addresses or anything when exchanging money with anyone else on the btc network)...the transaction gets confirmed when it is rolled into a block in the chain...multiple confirmations just mean that more nodes in the network have accepted it as part of a valid block of transactions.  It really is a beautiful system on many different levels.

My thinking is that the amount of resources you would have to amass to pull off double spending means that it isn't going to be profitable to attempt such a thing for a few transactions of small value.  In fact, I think the transactions would need to be on the order of $10k or more in value for it to be worthwhile...in which case waiting a little while for the transaction to confirm won't be a problem.  And, as others have said, peripheral networks that clear instantly and centrally and are backed btc are likely to arise.  In fact, the various exchanges are already good examples of that (as is youtipit)...you deposit your btc in a trading account and trust they don't run off with the money (and trades settle instantly).

So, I guess in a nutshell, I think this is a non-issue (though it is certainly worthwhile to explore the topic in depth).

The title is a bit misleading...I should stress it's just a forum posting, not anything official from the Mises Institute.  One thing I've thought about is what if another cryto-money just that functioned just like BitCoin appeared.  What would that do to the value of BitCoin?  The value of BitCoin is directly related to the community of people that use and exchange BitCoin.  In a very real sense, when you own and hold BitCoin, you are investing in that community.  You are increasing the value of the btc in circulation and thus enabling others to use their btc holding to further build out the btc infrastructure (should they choose to use their btc in such endeavors).  It is in a sense like buying shares of a company, except in this case, it's a community rather than a company.  The more people build out the infrastructure around btc, and the broader btc it is adopted, the more valuable the btc itself becomes.  I know what I'm stating is probably obvious to most, but I like saying it.

So, to the extent that another crypto-currency is able to gain broad adoption and builds out its infrastructure, it would compete with btc.  However, I think there is quite a bit of room for a number of crypto-currencies to grow.

I read the thread about scammers...and I was think about the escrow services...the one I saw seems to refund BTC to the sender if some amount of time passed.  I wonder if that's the best policy.  Wouldn't it be better to not release the funds until both parties sign off on a desired transaction to close out the escrow?  If they don't sign off together, then the funds would just stay locked up indefinitely (forcing them to come to some settlement if they ever want to see the BTC again).  After some lengthy period of time (say 1 year), the funds could simply revert to the operator of the escrow service (to avoid having BTC in a limbo state permanently).

There seem to be a lot of options for converting USD to BTC and vice versa...I'm a bit overwhelmed by those options.  What is the most cost effective (and trusted) mechanism to convert USD into BTC?  (I could do it from a US bank account or a credit card)

What will hoarding do?  It will drive up the exchange value of BitCoin...that will cause more people to desire bitcoin as they see the price rise.  As a consequence, more people will start to turn in their currencies and gold in exchange for BTC.  People will also start offering more and more products and services in exchange for BTC.  They'll even offer those products and services at a big discount compared to traditional currencies because they'll be mindful of the rising value of BTC.  This is all good for the viability of BTC.  If everyone is trying to spend it, then that's basically pushing *down* the value of BTC and that is not good for BTC.  The key is to offer more and cheaper ways of exchanging BTC for other currencies and metals.  If people can readily see a deep and liquid exchange market, they'll have no problem holding a portion of their savings in BTC.  So, hoard away people!!!

Someone on the Mises Institute forum had this to say about BitCoin:

"One day, while I was learning about cipherspace, I discovered BitCoin.  BitCoin is a completely decentralized, anonymous online monetary system that relies on a distributed database to facilitate transactions.  The creator put a great deal of effort into ensuring that the system is secure and reliable.  Unfortunately, there are no real assets backing he currency of BitCoin (and no coercive government backing it either).  Thus ends BitCoin."

(url to the post is here: http://mises.org/Community/forums/t/9853.aspx)

Myself, I believe the inherent value of gold is the fact that no one can manufacture it out of thin air (yes, they can mine it, but there are significant costs to that), it can be traded anonymously, relatively small amounts of it have a high value (which is due to its scarcity on earth), and it has world wide marketability.  It does have some value as a conductor and jewelry, but I believe that is insignificant relative to its value as a money.  I believe BTC has these same monetary attributes and hence I believe the view of this poster (that a money needs some tangible asset backing) is incorrect.  I am curious what people here think.