help! Bitcoin Article to be published, please review

[BeeCee1]

Bitcoins are digital tokens of value that can be exchanged anonymously between users across the internet or stored on disk.

I'd drop the 'of value' wording, that will distract some people who get stuck on "only gold and silver have value"

•   Bitcoins have no central issuer whereas fiat currency is issued at will by a central bank. There will never be more than 21 million Bitcoins in circulation, unlike fiat currency which has no limit.

The second sentence is a bit distracting too, it makes you have to explain why there are only going to be 21 mill coins, then you have to explain that it is just a rule coded in the client and if everyone decided to change it then we could.  More important at this point is that the rate at which they are created is fixed and, for the time period this article will be relevant, the rate won't change.  How about:

•   Bitcoins have no central issuer whereas fiat currency is issued at will by a central bank.  New bitcoins are created at a slow and predictable rate, unlike fiat currency which can be created at the whim of the central bank.

•   Bitcoin ownership is private and not subject to outside inspection and therefore asset monitoring or confiscation for any reason is not possible.

Unless the confiscate the computer with your wallet file on it.  I'd drop the confiscation part since it clearly isn't true.  Remember, there was gold confiscation in the 1930's and gold ownership was also "private and not subject to outside inspection".

How do I use Bitcoin?
My own experience using Bitcoin has been a blast, especially when compared to the slow and cumbersome nature of traditional financial institutions. To use Bitcoin, the place to start is bitcoin.org. There’s no registration or payment required to start – just download the software. After installation, you’re ready to exchange Bitcoins with your friends across the world.

The quantity of services that use Bitcoin is small but steadily growing. Notable websites thus far are bitcoinmarket.com, which allows exchange between various fiat currencies and Bitcoins, and biddingpond.com, which is an implementation of e-bay with Bitcoins. If you want a few coins to start with, go to freebitcoins.appspot.com for some initial bit-capital.

Getting bitcoins to play around with is a vital part of getting started, put it right after the downloading the client part.

My own experience using Bitcoin has been a blast, especially when compared to the slow and cumbersome nature of traditional financial institutions. To use Bitcoin, the place to start is bitcoin.org. There’s no registration or payment required to start – just download the software. After installation, go to freebitcoins.appspot.com for some initial bitcoins and you’re ready to exchange Bitcoins with your friends across the world.

The quantity of services that use Bitcoin is small but steadily growing. Notable websites thus far are bitcoinmarket.com, which allows exchange between various fiat currencies and Bitcoins, and biddingpond.com, which is an like e-bay with Bitcoins

[epaulson]

I like your revised article, although you may have gone too far in simplifying and leaving out details. Under the section "How Bitcoin Works" you might mention that it is based on public key cryptography, which is the same technology used for virtually all secure websites on the internet.

[Anonymous]

Thanks for all the feedback so far, keep it coming! I'm very busy this week so it may take me a while to integrate and post a 3rd draft, but rest assured I'm reading your feedback in the meantime. Thanks

[Anonymous]

Okay, I integrated most of the feedback here. Please review and send more feedback! Thanks.

Bitcoin Electronic Currency: The Future of Money

What is Bitcoin?
The first completely decentralized, anonymous, electronic currency has been created, and its name is Bitcoin. Its creator is Satoshi Nakamoto, a cryptography expert. Bitcoins are digital tokens that can be exchanged anonymously between users across the internet or stored on disk. Bitcoin serves the purpose of not just a currency, but also of an online virtual banking system.

Although Bitcoin is not a “hard” currency in the sense that it is not directly backed by a commodity, it differs greatly from traditional government issued fiat currency and regulated banking in several important aspects:

•   Bitcoins have no central issuer whereas fiat currency is issued at will by a central bank. Currently, Bitcoins are slowly being issued in a decentralized manner, but new issuance will forever halt at exactly 21 million coins.
•   Bitcoin transactions are anonymous whereas a wire transaction in a government run banking system requires a federally licensed financial institution to act as a middleman. This third party must report on transactions to the regulators, and so in effect all financial transactions are monitored by the government. With Bitcoin, no third party can spy on, prevent, control, or tax transactions.
•   Bitcoin ownership is private and not subject to outside inspection and therefore asset monitoring or confiscation for any reason is nearly impossible.

It is also worth pointing out that gold-backed digital currency – such as what GoldMoney offers – also differs from Bitcoin in important ways. Gold has the obvious advantage of thousands of years of historical precedent as money, as well as having a physical form that can be used in trade. However, the major disadvantage of a gold-backed currency is that it requires a central repository, which implies (1) storage fees (2) vulnerability to raids and inspections and ultimately (3) complete monitoring and control by regulators. The unfortunate fate of both E-Gold and the Liberty Dollar is tantamount to the fact that any centralization of a currency system is vulnerable to outside monitoring, tampering or outright confiscation. Bitcoin does not have any of these risks.

How do I use Bitcoin?
My own experience using Bitcoin has been a blast, especially when compared to the slow and cumbersome nature of traditional financial institutions. To use Bitcoin, the place to start is bitcoin.org. There’s no registration or payment required to start – just download the software. After installation, you’re ready to exchange Bitcoins with your friends across the world. If you want a few coins to start with, go to freebitcoins.appspot.com for some initial bit-capital.

The quantity of services that use Bitcoin is small but steadily growing. Notable websites thus far are bitcoinmarket.com and mtgox.com, which allow exchange between various fiat currencies and Bitcoins, and biddingpond.com, which is an implementation of e-bay with Bitcoins. You can visit bitcoin.org/trade to see a list of services that accept Bitcoin.

How does Bitcoin work?
Everyone that uses Bitcoin has a balance stored in their account. This balance can be changed by sending and receiving money in transactions. A transaction is money changing ownership from one account to another: it specifies the giver account, the amount, and the receiver account. When you want to make a transaction, you announce the details of it publicly to everyone.

Each user has the ability to perform a digital signature with their account, which operates just like a normal hand-written signature. Before announcing a transaction, the giver signs the transaction first. In this way, everyone can take a look at any publicly announced transaction and know that the giver account owner truly agreed to that transaction.

When a transaction is announced, everyone audits the transaction to ensure that it is valid. This is possible because everyone knows the balance of each account. (Despite this, nearly complete privacy is achieved because account ownership is not known, and each user can own an unlimited number of accounts – ideally, you should create a new account to receive the balance of each new transaction.)

Dealing with Dishonesty
Not everyone is allowed to publicly confirm the validity of new transactions – if this were true, the system would be too easy to fool if a large number of users were dishonest. Instead, after successfully auditing the transaction, users must place the new transaction on top of a virtual stack of the previous transactions. To seal the transaction on the top of the stack, they must perform very difficult computational work – this is akin to the physical work required to cement blocks on top of one another. As a reward, those who complete this work first get a small transaction fee, and then they share the new stack with other honest users who audit and verify that it is correct. Honest users accept the tallest stack as the correct and most up-to-date consensus.

Dishonest users cannot possibly build a stack of false transactions continuously faster and taller than honest users, because it is likely that the combined computational resources of honest users will be greater than that of any single cooperating group of dishonest users. Even if a group of dishonest users managed to get more resources than honest users, they would have to decide between using it to earn legitimate transaction fees, or to destroy trust in the currency and thus the legitimacy of their own wealth.

Other Details
Finally, it’s worth noting that many details were left out of the above description for simplicity. You may want to visit bitcoin.org and read the FAQ or technical paper for more information.

Conclusion
Despite the fact that Bitcoins do not exist in the physical sense, a cursory glance shows that they do serve the primary functions that make money useful. Bitcoins provide medium of exchange (anonymous and across great distance), unit of account (private), divisibility (up to eight decimal places), scarcity (21 million limit), portability (transferred electronically), and store of value (current exchange rates – as of August 2010 – put 1 Bitcoin, or BTC, equal to 0.065 USD).

I believe that Bitcoin has enormous potential, but it will have to stand the test of time and the marketplace. Even if Bitcoins do not catch on in the mainstream, it still provides a glimpse into a decentralized monetary future. As distrust in central banks continues to increase as the financial crisis drags on, my expectation is that private currencies will continue to grow in popularity. Finally, for those who claim that Bitcoin is too virtual: what about the US dollar?

References
Satoshi Nakamoto, “Bitcoin: A Peer-to-Peer Electronic Cash System”, www.bitcoin.org, 2009

[kiba]

Hey! Why you're leaving out mtgox?

[Anonymous]

Alrighty sir, I added you in (I just edited the above post to include mtgox)

[Ground Loop]

each user can own an indefinite number of accounts

I don't think "indefinite" is the word you're looking for here.  Maybe "limitless", "unbounded", or "unlimited".  Probably not "infinite".

But indefinite implies that the precise number of accounts is uncertain, vague, lacking precision.  Not so, right?

[Anonymous]

each user can own an indefinite number of accounts

I don't think "indefinite" is the word you're looking for here.  Maybe "limitless", "unbounded", or "unlimited".  Probably not "infinite".

But indefinite implies that the precise number of accounts is uncertain, vague, lacking precision.  Not so, right?

Thanks, I made the change in the above post.

[Insti]

This article is really improving.

1) If I'm reading this article and I get to the "but new issuance will forever halt at exactly 21 million coins." line. I'm thinking "21 million is never going to be enough." and stop reading there.

Maybe:

Bitcoins have no central issuer whereas fiat currency is issued at will by a central bank. Currently, Bitcoins are slowly being issued in a decentralized manner, but in ever decreasing amounts, which will eventually stop.

If you're going to talk about there 'only' being 21 million, you need to talk more about the divisibility (I think I said this before..). And you need to make sure that the divisibility talk is in the next sentence!
But for a general overview piece I don't think mentioning the 21million number is relevant at all.

2) Dealing with dishonesty.
This section is better than it was but it is still waaaaay too confusing.
(Here I quote it and put the readers questions after each section.)


"Not everyone is allowed to publicly confirm the validity of new transactions – if this were true, the system would be too easy to fool if a large number of users were dishonest" - What? Why? So it is a centralized system?

"Instead, after successfully auditing the transaction, users must place the new transaction on top of a virtual stack of the previous transactions." - Ok (skeptical about where this is going)

"To seal the transaction on the top of the stack, they must perform very difficult computational work – this is akin to the physical work required to cement blocks on top of one another." - Why do they need to do something difficult? Isn't that thermodynamically perverse?

"As a reward, those who complete this work first get a small transaction fee," - So I'm still paying a fee, this is no different from credit cards.

"and then they share the new stack with other honest users who audit and verify that it is correct." - They don't share it with the dishonest users?

"Honest users accept the tallest stack as the correct and most up-to-date consensus." - If a stack is taller it has more transactions? What do dishonest users do with it?

"Dishonest users cannot possibly build a stack of false transactions continuously faster and taller than honest users," - Why?
"because it is likely that the combined computational resources of honest users will be greater than that of any single cooperating group of dishonest users." - The bad guys can just make lots of transactions to themselves, this will make their stack taller.

"Even if a group of dishonest users managed to get more resources than honest users, they would have to decide between using it to earn legitimate transaction fees, or to destroy trust in the currency and thus the legitimacy of their own wealth." - What if the government wanted to destroy the system and was not concerned about creating wealth with it?

[throughput]

I think, that you may as well just note, that

pseudonymous transactions are audited by the majority of the participating community against double-spending

without introducing further details, since that is the goal of the blockchain and the p2p storage system.
You may also add, that

invalid transaction records are rejected by the majority of honest nodes, posessing the most computing power

And maybe that

There are some economical incentives for the nodes to remain honest and support the system, apart from the availability of the payment system they are connected to

Forgive me my English.

[Anonymous]

Yet again another major re-write.... this time just the 'how does bitcoin work' section. Please review:

How does Bitcoin work?
Everyone that uses Bitcoin has a balance stored in their account. This balance can be changed by sending and receiving money in transactions. A transaction is money changing ownership from one account to another: it specifies the giver account, the amount, and the receiver account. When you want to make a transaction, you announce the details of it publicly to everyone.

Each user has the ability to perform a digital signature with their account, which operates just like a normal hand-written signature. Before announcing a transaction, the giver signs the transaction first. In this way, everyone can take a look at any publicly announced transaction and know that the giver account owner truly agreed to that transaction.

When a transaction is announced, everyone audits the transaction to ensure that it is valid. This is possible because everyone knows the balance of each account. (Despite this, nearly complete privacy is achieved because account ownership is not known, and each user can own an unlimited number of accounts – ideally, you should create a new account to receive each new transaction.)

Establishing Consensus
Obviously, there needs to be a consensus over the order and validity of transactions – if not, then one could easily see how confusing things could become if many auditors were dishonest.

Transactions are placed inside blocks, and these blocks are strung together in what is called the block chain. Due to the nature of the chain, it takes a lot of computational resources to properly add a block to the chain. However, once a chain is constructed, it’s easy to share it publicly and widely, and it’s easy to verify that it was constructed properly and that the transactions inside are valid.

In theory, there could be several different chains available – potentially because some dishonest people have been building a chain containing false transactions – but only the longest chain is regarded as the consensus. This consensus mechanism should always work provided that the combined computational power of all honest users exceeds that of any single cooperating group of dishonest ones.

Incentive
Finally, it’s worth mentioning that small transactions fees are earned by those who help build the chain. Therefore, even if a group of dishonest users managed to get more resources than honest users, they would have to decide between using it to earn legitimate transaction fees, or to destroy trust in the currency and thus the legitimacy of their own wealth.

[FreeMoney]

It's getting very good. It's a lot of work.

Yet again another major re-write.... this time just the 'how does bitcoin work' section. Please review:

How does Bitcoin work?
Everyone that uses Bitcoin has a balance stored in their account. This balance can be changed by sending and receiving money in transactions. A transaction is money changing ownership from one account to another: it specifies the giver account, the amount, and the receiver account. When you want to make a transaction, you announce the details of it publicly to everyone.

Each user has the ability to perform a digital signature with their account, which operates just like a normal hand-written signature. Before announcing a transaction, the giver signs the transaction first. In this way, everyone can take a look at any publicly announced transaction and know that the giver account owner truly agreed to that transaction.

When a transaction is announced, everyone audits the transaction to ensure that it is valid. This is possible because everyone knows the balance of each account. (Despite this, nearly complete privacy is achieved because account ownership is not known, and each user can own an unlimited number of accounts – ideally, you should create a new account to receive the balance of each new transaction.)

Establishing Consensus
Obviously, there needs to be a universal consensus over the order and validity of transactions – if not, then one could easily see how confusing things could become if many auditors were dishonest.

Transactions are placed inside blocks, and these blocks are strung together in what is called the block chain. Due to the nature of the chain, it takes a lot of computational resources to properly add a block to the chain. However, once a chain is constructed, it’s easy to share it publicly and widely, and it’s easy to verify that it was constructed properly and that the transactions inside are valid.

In theory, there could be several different chains available – potentially because some dishonest people have been building a chain containing false transactions – but only the longest chain is regarded as the consensus. This consensus mechanism should always work provided that the combined computational power of all honest users exceeds that of any single cooperating group of dishonest ones.

Incentive
Finally, it’s worth mentioning that small transactions fees are earned by those who help build the chain. Therefore, even if a group of dishonest users managed to get more resources than honest users, they would have to decide between using it to earn legitimate transaction fees, or to destroy trust in the currency and thus the legitimacy of their own wealth.

Regarding the bold: Is that really possible? They won't be correctly signed. The main forking attack is to remove transactions that you already made in order to double spend.

[Anonymous]

It's getting very good. It's a lot of work.

In theory, there could be several different chains available – potentially because some dishonest people have been building a chain containing false transactions – but only the longest chain is regarded as the consensus. This consensus mechanism should always work provided that the combined computational power of all honest users exceeds that of any single cooperating group of dishonest ones.

Regarding the bold: Is that really possible? They won't be correctly signed. The main forking attack is to remove transactions that you already made in order to double spend.

Great point, this paragraph needs to be totally re-written... any ideas? I think I got the idea about the "false chain" from reading the thread on network splitting. In theory, an isolated supercomputer could build up a block chain, and when reconnected to the bitcoin network could wipe out everyone's coins. But I don't want to go down that road anyway in this article...

(btw, I went ahead and edited the prior post w/ your other changes, thanks)

[FreeMoney]

It's getting very good. It's a lot of work.

In theory, there could be several different chains available – potentially because some dishonest people have been building a chain containing false transactions – but only the longest chain is regarded as the consensus. This consensus mechanism should always work provided that the combined computational power of all honest users exceeds that of any single cooperating group of dishonest ones.

Regarding the bold: Is that really possible? They won't be correctly signed. The main forking attack is to remove transactions that you already made in order to double spend.

Great point, this paragraph needs to be totally re-written... any ideas? I think I got the idea about the "false chain" from reading the thread on network splitting. In theory, an isolated supercomputer could build up a block chain, and when reconnected to the bitcoin network could wipe out everyone's coins. But I don't want to go down that road anyway in this article...

(btw, I went ahead and edited the prior post w/ your other changes, thanks)

Right, but even that wouldn't be acomplished by putting in "false transactions" it would just not include all the 'legit' generate transactions and have all the generate transactions for itself. Okay, I guess those would be "false generate transactions".

[Anonymous]

How about this?

In theory, there could be several different chains available – potentially because some dishonest users have been building a modified chain to "rewrite history" – but only the longest chain is regarded as the consensus. This consensus mechanism should always work provided that the combined computational power of all honest users exceeds that of any single cooperating group of dishonest ones.

[FreeMoney]

I just realized you should be using address in most places that you used account.


How about working on this to replace the last two paragraphs:

By choosing to accept the longest chain as valid users do not have to trust any particular individual or organization. They need only trust that the total honest computing power is greater than any villain. However; a powerful, self interested villain is more likely to prefer to collect the large number of block generation rewards than to destroy the system.

[Anonymous]

Wow, great, that really shortens it a lot! I cut the last section "incentive" completely. Now it reads:

Establishing Consensus
Obviously, there needs to be a consensus over the order and validity of transactions – if not, then one could easily see how confusing things could become if many auditors were dishonest.

Transactions are placed inside blocks, and these blocks are strung together in what is called the block chain. Due to the nature of the chain, it takes a lot of computational resources to properly add a block to the chain. However, once a chain is constructed, it’s easy to share it publicly and widely, and it’s easy to verify that it was constructed properly and that the transactions inside are valid. By helping build the chain, users earn small transaction fees.

By choosing only to accept the longest known chain as the consensus, users do not have to trust any particular individual or organization. They need only trust that the total honest computing power is greater than any villain. However; a powerful, self interested villain is more likely to prefer to collect a large number of transaction fees than to destroy the system.

[Anonymous]

By the way, I will add a final small "thank you" section to the end and add you to it for your help (as well as others from this thread that provided feedback)

[Insti]

I don't know if you want to mention that the only possible evil thing you can do with 'bad' transactions is try to double spend money you already have.
You cannot make money up from thin air and you cannot steal money from anybody else's account, which very much limits the scope of any possible attack.
Fraud is still a problem, but that's a problem in any system.

[Anonymous]

If a single villian has a super-supercomputer, then they could do worse than just double-spending, right? They could sustain a longer block chain that ignores all honest transactions, rendering Bitcoin useless for honest folk..... correct?