First off, what are bitcoins? They have been mentioned here before and I spent quite a while looking into it to understand the details behind it. If nothing else, it is a really interesting look at distributed hashing, which is something that has relevance in the tech world today. For example, torrents use it and even Amazon uses it for their database functionality.
Bitcoin (sign: BTC) is a decentralized digital currency based on an open-source, peer-to-peer internet protocol. It was introduced by a pseudonymous developer named Satoshi Nakamoto in 2009.
A simple explanation - If you have no idea what I am talking about, watch this video:
A much more in detail explaination, from the TWiT network podcast Security Now (Start at 41:57)
Bitcoins are currently worth $140 each, with a global market cap of over 1 billion, rising from $40 each in the last few weeks that I have been paying attention.
. The value of the currency has risen astronomically in a short period of time—it’s increased by a factor of ten this year alone—driven by uncertainty about the euro, coupled with new regulations from the Financial Crimes Enforcement Network that solidifies the legal standing of Bitcoin
You can buy lots of things with bitcoins, and the number is growing every day. Both POS machines and Internet checkout options are available and NFC devices will allow 'tap and pay' solutions to be plausable. There is an ebay for bitcoins, and you can even order pizza. A more complete listing is available here.
Heard a bit about this over the last couple weeks, and know that some people here (used to) mine them. Thought this might generate a little interesting discussion and let people know who are holding onto them what is happening.
Also relevant to the discussion is the imminent release of affordable dedicated ASIC Bit Coin mining machines, which will essentially raise the computational power available per dollar invested by a large factor (well over 30 times, in my opinion).
This is important because the difficulty of creating mining a bitcoin block (currently 25 bitcoins) is related to how much computational power is working on it. That is, because there can only be a certain amount of coins created - currently 25 coins every 10 minutes, increasing in difficulty until the year roughly 2140, when it will cap at 21 million bitcoins.
From Wiki
Quote:
To compensate for increasing hardware speed and varying interest in running nodes over time, the proof-of-work difficulty is determined by a moving average targeting an average number of blocks per hour. If they're generated too fast, the difficulty increases
Currently a roughly $150 video card currently produces about 200 Mega Hashes/second, and the new equipment claims 4.5 Gigahashes per second (about a 22x increase), with a drastically reduced power consumption.
So with the drastic increase in value, the likely increase in difficulty to mine without purchasing specific hardware and the increasing acceptance of law enforcement, does this become a viable thing to do?
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Last edited by Rathji; 01-18-2014 at 06:56 PM.
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Watch the first video and check out the New Yorker article.
The point of my post was to
1) Let people know that this was out there and provide a little information (the first video and article)
2) If they knew it was out there, and maybe had some from when they were almost worthless, that they were drastically raising in value, so they could act accordingly.
3) Provide a place to discuss the recent changes in legal status and the implications of the upcoming difficulty increases due to cheap hardware being available.
Most people will only be interested in the first point, and thats fine.
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I would treat it as any other instrument of speculation like subprime mortgages, penny stocks or tulip bulbs. Probably worthwhile for now, but I'd be looking to get out before you're the one left holding the bag.
It is absolutely NOT worth getting into mining. ASIC machines are quite new and so far, out of the 4 companies that took huge preorders (as these machines go for $2000+ a pop), only one has delivered. One company is still "testing". Another company just took everyone's money and ran. One company is delivering TINY amounts, while keeping the vast majority of machines to mine themselves. The companies all have huge backorders and will deliver on the order of months to years later.
By the time you get one (IF you get one), that huge computational power once again becomes a drop in the bucket, and will take quite a bit of time to recoup your costs assuming that bitcoins doesn't continue their exponential increase in value.
Now as a currency, I'm somewhat ambivalent to it. As a law-abiding, non-government-hating, regular joe-schmoe citizen, it has zero value to me. If you have the tin foil hats on regarding how the government is always out to screw you, then I think it might be worth holding some bitcoin on principle.
Personally I think the most ingenious innovation that props bitcoin's value up is the fact that a regular person can invest in mining as a get rich quick scheme. Keeps demand high because everyone thinks that THEY can be the one to mine some coins and get rich for nothing but electricity costs. Doing so, is obviously a much more difficult task (especially this late in the game), so I guess once people realize what's happening, the support for bitcoin will wane.
Lest anyone think otherwise this is a total bubble. That chart showing the parabolic rise in value is all you need to know to recognize that fact.
I totally agree. The recent Cypus situation is almost entirely the cause for the jump, with the announcement from the FCEN being only a minor factor.
The bubble will almost certainly burst, which is part of the reason for posting this. I know there are some CP users who have bitcoins laying around, and this would be a good time to dump them, IMHO.
The only realistic expectations anyone should have from bitcoins is at least as an interesting application of a the power of distributed computing, or as an interesting hobby. This isn't a way to make money, by any stretch. The most you could reasonably expect, is to break even, but only if you are mining with efficient and cheap equipment, on low or non-existent power costs.
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With the huge increase in value (but presumably not an associated difficulty in mining yet), would it maybe become reasonable from a power cost point of view to have any computers that would otherwise be sitting idle mining?
Not going out and buying hardware to mine, but just if you've got a computer or two lying around at home kind of thing.
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I don't know what you mean by "mining" and really only have a limited understanding of this whole fad, but the reality is that the value is supposed to come from supply and demand. What's stopping someone from counterfeiting these though? Or producing more? I get that the difference is that with fiat money someone can just produce more and devalue the currency, so what's stopping that here....someones word?
For example, using my home PC, with a ATI 6770 card, I could get 180 Mh/s, and it uses about 75W extra power to do so, according to my little power meter. Given that, I would earn about $1.60 ib bitcoins per day (almost $50 a month) over my electricity costs. I don't do that, because I don't want to reduce the lifespan of my only video card, which is an important consideration, of course. edit: I have to wonder how warranty and product replacement plans would deal with cards burnt out by mining.
If you have a machine and/or GPU sitting around, you can check the expected hashrate on these charts to see if it would be worthwhile.
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I don't know what you mean by "mining" and really only have a limited understanding of this whole fad, but the reality is that the value is supposed to come from supply and demand. What's stopping someone from counterfeiting these though? Or producing more? I get that the difference is that with fiat money someone can just produce more and devalue the currency, so what's stopping that here....someones word?
Without getting technical, these cannot be counterfeited and are produced at a rate of exactly 1 block every 10 minutes, regardless of how much computing power is being used to 'mine' them. A block varies in its results, always decreasing. For example, a couple years ago, it was 50 bitcoins reward to solve a block, but now it is 25, it will reduce again at some point, based off the difficulty.
To make a real long story short, you mine a block my doing extremely complicated cryptographic calculations on your PC/device and if you get the right answer, you get a reward (which is currenlty 25 bitcoins). To put things in perspective, on my PC, if I mined constantly I could reasonably expect (on average) to mine a block every 5+ years. Because of this, people used pooled miners for the most part now, where they break the big complex problem down into parts and let a whole bunch of people try and solve it at once, and then split the reward among them.
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It's worth pointing out too that investing in mining is a losing proposition long term - the bitcoin currency is capped at 21 million units, and once those are all mined, there will be no more mining - the emphasis will then shift to collecting on posted offers to quickly verify transactions, and I'd expect the market for that kind of activity will quickly settle out to a few huge transaction houses with more processing power than you can ever hope to throw at it (essentially, the first bitcoin clearinghouses/brokers for lack of a better term), and who will then collect the lion's share of the fees for verifications.
I don't know what you mean by "mining" and really only have a limited understanding of this whole fad, but the reality is that the value is supposed to come from supply and demand. What's stopping someone from counterfeiting these though? Or producing more? I get that the difference is that with fiat money someone can just produce more and devalue the currency, so what's stopping that here....someones word?
Yes, basically.
Everything is open source though, from the code that calculates difficulty, to the release of bitcoins and all that. You can even see where every single bitcoin in is in the entire system. The guy with the most bitcoins in one wallet currently has something like 110k bitcoins, while the next person has 80k.
In some ways, I can see it attractive - since all of the machinations are transparent. Not just "We're printing money until the economy improves" in the "real" world.
If your idea of a hobby is being involved in a massive money laundering scheme, yes I agree.
I fully expect that will become one of, if not, the most important role of bitcoins - it's a cryptographically secured, massively distributed and anonymized currency exchange with no central or regional oversight, running on an infrastructure that nobody has to pay for in aggregate.
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What's stopping someone from counterfeiting these though? Or producing more?
Every bitcoin, and every transaction involving an exchange of bitcoins, is cryptographically verified by the peer-to-peer network of people participating - it's not possible to counterfeit coins or transactions, since the peer-to-peer network calculates consensus on the validity of the transaction.
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It's worth pointing out too that investing in mining is a losing proposition long term - the bitcoin currency is capped at 21 million units, and once those are all mined, there will be no more mining - the emphasis will then shift to collecting on posted offers to quickly verify transactions, and I'd expect the market for that kind of activity will quickly settle out to a few huge transaction houses with more processing power than you can ever hope to throw at it (essentially, the first bitcoin clearinghouses/brokers for lack of a better term), and who will then collect the lion's share of the fees for verifications.
The cap of 21 million coins will be hit in 2140, a time frame not relevant to anything any of us really should care about.
Quote:
Originally Posted by sclitheroe
If your idea of a hobby is being involved in a massive money laundering scheme, yes I agree.
I fully expect that will become one of, if not, the most important role of bitcoins - it's a cryptographically secured, massively distributed and anonymized currency exchange with no central or regional oversight, running on an infrastructure that nobody has to pay for in aggregate.
I don't see how it is any better way to launder currency than any traditional method. In order to convert bitcoins to cash, you need to have the same type of ID verification that you need to set up a RRSP or anything similar. In the end, you still need a front to do it.
Is it a possible avenue for such funds? For sure.
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I don't understand who backstops this currency or how does it have any real value? It's not tied to anything, is it?
What backs the USD?
The only thing that gives currency value is the belief that the person accepting it can then spend it on something else.
If you can buy and sell a currency, and spend that currency on things, that is what gives it value. Since all of these things seem to me happening with bitcoins, I think that means they do have value.
I don't think the current value is realistic long term, but if it is, then it will likely be partially the result of things like money laundering, like Scott said.
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Bitcoins & Crypto Currencies
