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Author Topic: Original "Genesis" Bitcoin (and a few thousand more)  (Read 2286 times)
Dekbit
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May 17, 2011, 05:15:13 PM
 #1

Hi all,

I am new to bitcoin and the bitcoin forums so I hope you will take it easy on me if this has been asked or covered before or if I make any undue assumptions. I was unable to find an exact answer to this question on this forum or elsewhere so please forgive me in advance. 

I am interested in both generating and using bitcoins however I am extremely curious where the first bitcoins are now. I see in the block chain that at least the first few thousand coins that were generated have never been used.  (See http://blockexplorer.com/b/0 and click next a few thousand times)  Did the original creator of bitcoin generate a ton of coins for himself at the very beginning to establish a large pool to sell on the market later at inflated prices?

In the "canonical newbie friendly post" it clearly states there is "no man at the top" and "Neither is there any kind of scheme in BitCoin to harvest money off of unsuspecting people in complicated ways. " To me, if there is some small group that controls a massive amount of bitcoins right from the start before there was a widespread distribution of miners and that group is simply wait for enough unsuspecting buyers to come along and actually use the system as it was intended before dumping all their worthless coins on them IS a complicated way to harvest money off of unsuspecting people who have no idea how the software worked in the early days. I can only assume that is why the coin generation is being done like it is. By gradually increasing scarcity and significantly increasing difficulty they insure themselves a huge pay day. Am i wrong? Or is this just seen by the community as compensation for the hard work of setting up the system in the first place? I would think at least a FEW of the coins would have been used if this was not the plan all along. If it was the plan then that would in effect mean bitcoin itself IS a massive scheme to harvest money off unsuspecting people in complicated ways.

As I said at the start, I am sure I don't know all the facts.

Thanks!
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May 17, 2011, 05:32:46 PM
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satoshi, the creator, is known to have a large number of bitcoins.  How many?  I don't think we will ever know.  There are 6 million bitcoins in existence now which is about a quarter of all the bitcoins, a total of 21 million, that will exist.

My take on it is that satoshi did not know if his project will succeed or fail.  At the time bitcoins were less than 1 cent each.

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theboos
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May 17, 2011, 05:45:33 PM
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Someone had to generate the first block, and the one after that, and the one after that, ad infinitum. Early adopters of the currency are naturally in a good position to make money when it becomes valuable. Likewise, if Bitcoin had never gotten off the ground, they would have wasted a lot of time and computing power.
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May 17, 2011, 05:57:02 PM
 #4

Profit is a reward for successful risk-taking. The risk that the early adopters took was all the hundreds or thousands of hours of getting the thing off the ground. For all they knew, it might have been a complete waste of time.

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iya
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May 17, 2011, 06:00:51 PM
 #5

Most of Satoshis writing was brilliant and I don't understand how he could overlook this. Did he ever mention it when he was still active?
He seemed more interested in the technical side and probably thought that market forces could sort it out, and most people here also believe this.
But I think having 1/3 of all ever existing coins in the hands of maybe 10000 people will never allow long term growth.

@theboos and MacFall
That's the standard answer, and maybe true, but it doesn't solve the problem.
Just go out on the street and ask a random person, or even a person new to this forum, why they didn't invest in Bitcoins a year ago.
Blitz­
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May 17, 2011, 06:02:19 PM
 #6

Just go out on the street and ask a random person why he didn't invest in Bitcoins a year ago.
Because he either didn’t know or understand it.

"Bitcoin had been transformed from an anarachistic challenge to the financial status quo, to the crypto spawn of Satan, fuelled by cut-throat greed and delusions of avarice." - MatTheCat
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May 17, 2011, 06:07:16 PM
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whatever he has, in a year, wont be a third of the total bitcoins... the currency is growing still remember, and its growing rather evenly due to the pools. there are of course winners in this game of economics.

ZOMG Moo!
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May 17, 2011, 06:08:56 PM
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These coins will eventually find their way into the market. And yes, unless they are met with new demand, they would depress the price from where it otherwise would be. But they're not all going to get dumped on the market at the same time.  Every person has different risk tolerances.  Let's assume early adopters have external net worth of essentially zero (a rounding error compared to bitcoin net worth). In that situation, would you be comfortable holding your entire $10M net worth in bitcoins? How about $50M or $250M?  At some point, each person will have their risk tolerance passed, and they will decide to sell some.  If you think about it, bitcoin wealth is actually much MORE distributed than the stock of a typical successful startup.  When Google went public, only 3 people (L/S/E) jointly owned about 35% of all the stock outstanding.  That has not seemed to have too much of a negative influence on the stock price. All three of them have slowly diversified some of their stock over time, as the market was able to bear it.
iya
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May 17, 2011, 06:16:04 PM
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Just go out on the street and ask a random person why he didn't invest in Bitcoins a year ago.
Because he either didn’t know or understand it.
Exactly. He couldn't decide for or against, because he didn't know it.
The risk was not the same a year ago as it is now and will be in a year.

Because of the inflation mechanics, the velocity will not be high enough, for the distribution to become acceptable.
There's a small chance it might work out, but this chance would have been much higher if the inflation would have been different.
Hal
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May 17, 2011, 06:20:16 PM
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I started using Bitcoin the first day. Satoshi sent me 10 btc within a day or two, so he must have spent at least one of his early blocks.

Hal Finney
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May 17, 2011, 06:25:48 PM
 #11

The guys who made the system (or helped set up the network in early days) get a profit margin on the scale of the market size they created.

It's not something new or strange. Yep, they'll be rich if this works out. So what? I think they did a much better job than, say, the facebook founder. Why don't people go complain that this dude doesn't deserve the money? Bitcoin is a new concept, not that easy to do and comes with a lot of legal trouble. Yes, it's fairly hardcore to have 5M BTC generated before the general public found out about the system. But will we stop using it because of that? Nope.

There are so many people I can rage against for getting rich in an unfair way, why would I care about those who actually did something useful in the process?
M4v3R
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May 17, 2011, 06:40:32 PM
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But I think having 1/3 of all ever existing coins in the hands of maybe 10000 people will never allow long term growth.

If you look at currently used money in the world, it's worse than that. 6% of all people have 60% of world's wealth, IIRC (stat taken from miniature earth project).
rezin777
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May 17, 2011, 06:49:55 PM
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I posted this in another thread. Threads like this pop up all the time by the way.

"It like this. Some smart fellow invented the wheel. It allowed some dude to do more work with less energy. He had a huge advantage over everyone else who was still dragging carcasses, sticks, and whatnot around using barrows (wheelbarrow without a wheel). A few of the people around him see the benefit of the wheel. They start using it. They start telling their friends. The people on the other side of the world are the last to hear about this fantastic new invention: the wheel.

Now, do the early adopters of the wheel have an advantage over the people on the other side of the planet who haven't heard about it yet? Yes.

Did that make the wheel a poor tool? No! (In fact, we still use it today)

Is it unfair that the people who started using the wheel first had an advantage over the people on the other side of the planet? Maybe, but that's life.

Bitcoin isn't going to stop being useful because the people who saw it's usefulness first might profit from being first. Those who choose to boycott Bitcoin for these reasons will simply have to continue life without having the advantages of this particular useful tool. Time will tell if this becomes a disadvantage for them or not."

Dekbit
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May 18, 2011, 01:22:08 AM
 #14

Thank you all for your thoughtful responses.

@theboos, MacFall: You are all absolutely correct. Knowing that to be the case, I am interested in finding out why many early Btc have never been used. Btc at the start were literally worthless due to the fact that there was no market to trade them in and no one accepting them for services. They only gain value by people using them for goods and services or in trade and assigning a value to them.

@bpd: Understanding the relative risk tolerance between individuals, wouldn't it make sense that some of the first Btc would have been used as the currency has gained value? I just clicked through a fraction of the records (the first 100 then a random sampling) but the ones I saw were all unused at the start of the block chain. Hence my post. I am tempted to write a script to analyze the block chain and see how many Btc are really stashed away out of the first million or so generated. (Anyone have a url of a tool that already does this?)

@iya: To me it would seem natural that the first Btc would have been used to stimulate the nascent Bitcoin trade. I am just curious why it appears many have laid unused.  If one to two thirds of currently existing Btc are in the hands of a few (<10k) individuals who don't actually use bitcoins as a currency then to me Bitcoin is more of a speculative investment vehicle than a currency in the traditional sense. Someone will get left holding the bag. Your comment is illuminating in coming to terms with how many Bitcoins are used in trade and how many are held by the original network participants.

@rezin777: As a newcomer to Bitcoin my original post was meant to help me determine whether or not Bitcoin is legit. As I see it is the custom here, I will match you analogy with an analogy of my own. Imagine two financial scenarios. In the first a bank sources and packages a set of mortgages into a security, selling it to investors based on the quality of the underlying loans. The bank makes a commission and hefty profits whichever way the mortgages end up going. The mortgages tank worse than predicted and the investors lose everything.  No one blames the bank for keeping the money they made. Thats called good business. Now a second scenario, a similar bank owns a massive amount of mortgages and knows they are going bad. They have got to get them off their books ASAP. So they package them into a security, selling it to investors and lying to them by telling them they quality products. They are so sure the mortgages are going to go bad they bet against the security and joke amongst themselves about the people who are buying it, and then make a killing when it tanks. Thats a scheme.

Thanks for all the insight into this. Bitcoin is very cool and seems to be well executed. I am impressed and hope it succeeds for a myriad of reasons.

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May 18, 2011, 01:55:35 AM
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The early adopters are true believers in bitcoin. And as such, they likely believe it is worth much much more than $7.

Central banks hold a large portion of the gold in the world (~20% maybe?). And they almost never trade it, even among themselves. I've been on the tour of the gold storage vaults at the NY Federal Reserve.  The last physical gold transfer between two country's cages was about 8 years ago.  And yet, even with these central banks just sitting on all their gold, there is a thriving gold market on which billions of dollars worth of gold trades every day.

Perhaps the very early BTC adopters are the central banks of the future... Of course most individuals probably have shorter time preferences, and larger yacht preferences than central banks, so I stand by my bet that these coins will eventually make their way out of hiding.  Just not yet.
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May 18, 2011, 02:29:44 AM
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@rezin777: As a newcomer to Bitcoin my original post was meant to help me determine whether or not Bitcoin is legit. As I see it is the custom here, I will match you analogy with an analogy of my own. Imagine two financial scenarios. In the first a bank sources and packages a set of mortgages into a security, selling it to investors based on the quality of the underlying loans. The bank makes a commission and hefty profits whichever way the mortgages end up going. The mortgages tank worse than predicted and the investors lose everything.  No one blames the bank for keeping the money they made. Thats called good business. Now a second scenario, a similar bank owns a massive amount of mortgages and knows they are going bad. They have got to get them off their books ASAP. So they package them into a security, selling it to investors and lying to them by telling them they quality products. They are so sure the mortgages are going to go bad they bet against the security and joke amongst themselves about the people who are buying it, and then make a killing when it tanks. Thats a scheme.

Bitcoins will only ever be worth what someone is willing to pay for them. No legitimate Bitcoin adopter will promise you that you will earn a profit by holding Bitcoins. Bitcoin may be worth nothing tomorrow. Don't invest more than you are willing to lose.

Does that clear it up?
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May 18, 2011, 06:36:57 AM
 #17

Bitcoin isn't going to stop being useful because the people who saw it's usefulness first might profit from being first. Those who choose to boycott Bitcoin for these reasons will simply have to continue life without having the advantages of this particular useful tool. Time will tell if this becomes a disadvantage for them or not."

Those who boycott Bitcoin do not need to live without its advantages. They could just fork Bitcoin and basically use the existing client(s), but a new block chain. If there are more miners from the beginning on the distribution of wealth in this fork may be somewhat more democratic. In addition, such a fork might be quite successful: In the current Bitcoin network miners hardly break even, when you count in all of the costs to generate a Bitcoin. With the forked network there are nor guarantees either, but there is quite some chance that the value of relatively cheaply minde coins will increase later on.
unk
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May 18, 2011, 06:52:09 AM
 #18

exactly! this is a crucial point that anyone investing significant money in the current block chain ought to be aware of and weigh carefully. all but a very small number of people have a strong economic and psychological incentive to see competitors to that block chain. different payments communities can start their own, etc. bitcoin as an idea is much more compelling than the idea of any one block chain as a get-rich-quick scheme.
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May 18, 2011, 07:23:38 AM
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exactly! this is a crucial point that anyone investing significant money in the current block chain ought to be aware of and weigh carefully. all but a very small number of people have a strong economic and psychological incentive to see competitors to that block chain. different payments communities can start their own, etc. bitcoin as an idea is much more compelling than the idea of any one block chain as a get-rich-quick scheme.

Go for it.  Good luck!

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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May 18, 2011, 08:55:09 AM
 #20

I think Satoshi, the early adopters, and everybody working on making bitcoin better deserve to make some money from it for taking the risk. It's a great concept and I have faith it will take off, so I've invested a little time working and a little money into it so far, although now I wish I'd invested more of both!
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