Bitcoin soon to enter early adopter phase

[Adeptus]

Re: Bitcoin soon to enter early adopter phase

I have to admit that I enjoyed the movie, The Social Network and especially the portrayal of the Winklevoss Twins by one actor. The bottom line here is that they are trying to create an ETF that makes money by charging investors for the right to have fractional ownership of an imaginary currency controlled by one or more people no one has ever met.

I think you'll find the Bitcoin community itself (click the various article 'comments' links) with a wide range of views on this, all the way from: "oh this is awesome, it will legitimize bitcoin if the government allows for this legal asset class to exist", all the day down to, "This is ridiculous why would anyone want to buy paper versions of bitcoins which are less valuable due to management fees involved, there's not even any significant costs to holding bitcoins (just a tiny bit of hard drive space), unlike gold". Some are afraid that this will take away from the value of bitcoin itself, in a similar way that if all those people buying GLD ETF had bought gold instead, the price of physical gold would be way higher. And then there's ZH, who highlighted quite a few glaring risks in this ETF.

As for the last part of your comment...

...in imaginary currency controlled by one or more people no one has ever met

Bitcoins are not imaginary, they exist as 0's and 1's which can even be printed on physical paper if you wanted to - you know, just like pretty much every single fiat currency - the vast majority of fiat currency is not printed on paper, it exists as 0's and 1's, just like any stock or bond you hold in your 401K/RRSP. I think it would be more accurate to call them virtual, but that only means they exist inside computer devices... you know, like the billions of cell phones and computers already existing out there in the world. Also, no one entity controls bitcoin - that's the beauty of it. It's why bitcoin is considered a *decentralized* system, unlike fiat money which is controlled by a central bank or the paypal payment mechanism which is controlled by a private company. Even the core software developers can't control it. In short, they can attempt to make programming changes to the bitcoin code, but those changes could only affect bitcoin if the thousands of miners voted to agree to accept those changes. Further, having actually met in person several of these not-at-all anonymous core developers (Video: Gavin Andresen - one of 6 core developers of Bitcoin), I can say I was very pleasantly surprised to say they are some very level headed, balanced and humble individuals - not one sided/biased deluded bitcoin cheerleaders as one might imagine. To be fair, the only anonymous EX-core developer was the inventor of bitcoin itself, but he is no longer involved in bitcoin, he just "moved on to other things". As for bitcoin users never having to meet to exchange them... well, I consider that an amazing feature on many levels, not much different than paypal really, minus 99.999% of the fees + some degree anonymity + no charge backs.


PS. Here's bloomberg's Video today on the Winklevoss ETF: http://bloom.bg/13phXf

[*T*]

Re: Bitcoin soon to enter early adopter phase

I think bitcoin, and any cryptocurrencies that replace it, will fail eventually for reasons connected to peak oil.

I'd also like to hear your thoughts on this: it's an avenue of thought I haven't explored.

[cobben]

Re: Bitcoin gets the MSM Treatment

I've been thinking that this could easily be "fixed" by just cloning bitcoin, as many times as necessary to make the original uninteresting as a long-term "investment" and thus increasing the "velocity" sufficently to create "inflation".

There you have it, now, do I qualify as the world's first bitcoin(s) central banker?

Ran across this, not really following bitcoin. Long blog post, go to the original for details & discussion.


"Readers may find that George Selgin's Synthetic Commodity Money adds more dimensionality to the fiat/not-fiat distinction. Selgin argues that bitcoin is not fiat money, but belongs to a heretofore undefined category called synthetic commodity money."


Milton Friedman and the mania in "copy-paste" cryptocoins Wednesday, June 26, 2013

When I last wrote about alternative cryptocoins — the universe of small bitcoin competitors — TerraCoin and PPCoin had just debuted, but by and large the list was a relatively stable one that included Litecoin, Namecoin, Devcoin, and a few non-functioning coins. All of these alt-coins paled in size and breadth to Bitcoin, of course, and as the chart below shows, this dominance continues to be the case.

Since April, what was once a trickle of new alternative cryptocoins has turned into a veritable flood. Nowadays, a new coin is being announced every day, and it isn't rare for two or three to debut on the same afternoon. Almost all of these are "copy-paste" coins. Their creator simply takes the source code of a previous coin (usually Litecoin), alters a few parameters, and then announces its debut on the alternative crypto-currency forum at Bitcointalk.

Most of the changes implemented by new alt-coins are arbitrary. RichCoin, one of the newest coins, sets an 88.88 million upper limit for the number of coin in existence and a block reward of 88 coins, presumably to appeal to the Chinese user (Bitcoin has a 21 million upper limit and block reward of 25). FastCoin targets a block generation rate of twelve seconds, compared to Litecoin's 150 seconds, and Bitcoin's nine minutes. These are little more than cosmetic modifications that involve changing a variable or two in the initial source code.

New issuers usually jazz up their coin with a cheezy logo made in MS Paint, a website, and a silly gimmick, like SexCoin did by proclaiming itself as the coin "for the adult industry". Sometimes their creators forget to erase references to the coin they've copied. YACoin, for instance, launched May 6, was mocked for accidentally including NovaCoin's logo on its client, the coin from which YACoin drew its sourcecode. Apart from amusing errors like these, it seems that creating your own coin these days is as easy as printing up business cards. In fact, this blog post provides a complete guide for coining one's own fiat alt-chain.

Here is a partial list of new coins and issue dates.

. . .

[verdo]

Re: Bitcoin gets the MSM Treatment

Bitcoin recently got banned in Thailand. This trend may pick up steam elsewhere

http://www.cnbc.com/id/100923551

[Adeptus]

Re: Bitcoin gets the MSM Treatment

Bitcoin recently got banned in Thailand. This trend may pick up steam elsewhere
http://www.cnbc.com/id/100923551

Hmm... apparently not: https://btcglobal.net/blog/post/bitcoin-is-not-illegal-in-thailand

[verdo]

Re: Bitcoin gets the MSM Treatment

For me to believe that the Bank of Thailand isn't at least actively trying to shut it down for good, I'll have to see that from a source that doesn't have skin in the game tbh. For all I know, these BTC Global guys could be the GATA of the crypto currency world. I mean...it's a blog post after all...

not saying you're wrong btw. But i just need to see a source more credible on it

[c1ue]

Re: Bitcoin gets the MSM Treatment

Bitcoin recently got banned in Thailand. This trend may pick up steam elsewhere

http://www.cnbc.com/id/100923551

Hmm... apparently not: https://btcglobal.net/blog/post/bitcoin-is-not-illegal-in-thailand

The original press release stated that 2 other bitcoin exchanges were still open. The issue is apparently whether Bitcoins can be exchanged for actual money - as the license under question was for money exchange.

If Bitcoins cannot be legally exchanged for money in Thailand, however, the theoretical legality of Bitcoins there is of value only symbolically.

[Adeptus]

Re: Bitcoin soon to enter early adopter phase

Ran across this, not really following bitcoin. Long blog post, go to the original for details & discussion.
"Readers may find that George Selgin's Synthetic Commodity Money adds more dimensionality to the fiat/not-fiat distinction. Selgin argues that bitcoin is not fiat money, but belongs to a heretofore undefined category called synthetic commodity money."
Milton Friedman and the mania in "copy-paste" cryptocoins Wednesday, June 26, 2013
. . .

I won't re-quote the entire thing, but great find cobben. Having spent several hours per day, nearly 7 days a week in bitcoin/crypto-currency land for the past 5 months, allow me to explain why bitcoin has survived in the face of dozens of copy/tweak/paste alt-coins:

1) Lack of real innovation - Aside from PPcoin with Proof of Stake, Litecoinw with Scrypt, and Namecoin with decentralized DNS (namecoin was 51% attacked early on and hasn't recovered), pretty much all the others have next to no substantial innovation to speak of. I admittedly haven't analyzed every single one, but have seriously looked at about a dozen of them a few months back.
2) Lack of a serious support team - Even Litecoin with a market cap of 50 Million USD has struggled to get less than $20K in donations to support the core developers, let alone all the other "scam-coins" (aka. alt-coins) whose support teams are seriously lacking, aside from the opening posts announcing the coin. Support teams are critical to the progress of the coin and to keep up with patches as required. Even Litecoin right now (second largest crypto currency) has admitted that they are primarily just trying to keep up with Bitcoin's software development updates until the core devs are funded sufficiently to quit their day jobs and work on it full time, which not even all the bitcoin core developers have managed to do yet, although a few have.
3) Lack of services integration - Aside from creating a coin, you need mining software, some mining pools to keep an eye on likelihood of 51% attacks, a diverse software development community who believes in it and creates services such as: Currency Exchanges (convert/trade X cryptocoin for Y cryptocoin and also to fiat currencies). Most importantly you need Merchant Payment service providers (i.e. bitpay.com, bips.me) to attract common users to actually use the currency for the very reason a currency exists. Even litecoin right now is barely accepted by even 5% of all the sites that accept bitcoin, or likewise if you want to compare volume of merchants accepting litecoin vs bitcoin. Hence why litecoin which supposedly should be worth 25% of bitcoin (because there will be 4x more coins - 84Million vs bitcoin's 21 Million), is still only worth aprox 2.5% of bitcoin's value: ~$2.50/LTC vs ~$100/BTC as of the time of this writing.

Admittedly, pretty much every cryptocurrency as far as I know needs to go through a speculation phase to attract enough people to form communities to then develop the services required to justify its ultimately legitimacy as a currency. The speculation phase I speak of is primarily related to mining the coins or actually just buying them in large quantities while they are worth pennies or fractions thereof.

Ultimately, the above 3 items are what give the crypto currency value in the eyes of the crypto currency community. Sure, many of the copy/tweak/paste clones have small but still relatively significant fiat monetary value, but I ascribe most of that to pump and dump schemes and outright speculation.

In short, at the present time, for the most part the crypto currency community is made up of enough smart people to call a scam when they see one, albeit there's surely enough fools/specuvestors who dip their toes with real money to provide value to all these currency clones, but I don't think the total monetary value of all the scam-coins put together amounts to any inflationary concerns for bitcoin.

I can think of four main categories of concern for the end of bitcoin:
1. Legislative - Government(s) decree bitcoin/virtual currencies illegal because of {insert faux fear meme here} (i.e. used to sell drugs, child porn, terrorist funding, money laundering, etc).
2. Technical - Attacks or major bugs crash the system, and by proxy its monetary value.
3. Trading - Expert quant/algo traders backed by deep pocket institutions control too much of the bitcoin value.
4. Better Coin - A much superior coin is released. Interesting features: full anonymity; ASIC, botnet quantum computer safe; less deflationary/stable price/improved economics in general; faster transaction confirmations; smaller blockchains; full time core dev team assigned; etc

Adeptus

[Southernguy]

Re: Bitcoin soon to enter early adopter phase

The SEC Shows Why Bitcoin Is Doomed

By Timothy Lavin Aug 8, 2013 12:11 PM GMT-0300


This week, a ruling by a federal judge in Texas was cause for optimism among a small group of technologically minded investors.
The case involved a man who had lured unwitting Bitcoin enthusiasts into what the Securities and Exchange Commission alleges was a rudimentary Ponzi scheme. The defendant (who referred to himself, inauspiciously, as a "pirate" in his online profile) argued that the SEC couldn't sue him because the Bitcoin investments he was offering didn't amount to actual, real-life securities.
The judge thought otherwise. The suit will proceed. And Bitcoin fans have concluded that Bitcoin is now a step closer to being respected as actual, real-life money. (My colleague Kirsten Salyer explains their reasoning here.)
But instead of affirming Bitcoin's legitimacy as a new and revolutionary currency system, the case actually demonstrates its insoluble contradictions: The closer Bitcoin gets to being an accepted currency, the less useful it will be as a method of exchange. And the less useful it is as a method of exchange, the harder it is to see why it has any value at all.
Almost all the advantages Bitcoin has -- it's cheap, somewhat convenient, anonymous, free from centralized authority -- derive from the fact that governments haven't taken it very seriously. As the Texas case shows, that's changing. The SEC has issued a pointed warning about investment schemes using virtual currencies; its crackdown is unlikely to stop with the wayward Texan. The Treasury Department's Financial Crimes Enforcement Network has issued rules defining virtual currency exchanges and administrators as "money service businesses," with all the attendant regulation that implies.
The Federal Bureau of Investigation has expressed its interest. So has the Homeland Security Department. And the Internal Revenue Service has surely noticed Bitcoin's appeal for some other users -- say, citizens with a lot of money and not much civic enthusiasm. I bet the percentage of users who pay taxes on the gains they realize after selling bitcoins approaches zero. That means guidance from the IRS is on the way. And Bitcoin users won't like it one bit.
See, the thing about transferring money -- the thing that makes it expensive and cumbersome and oh-so-20th-century -- is that it comes with these annoying rules. Companies that move money have to register themselves and apply for licenses. They have to comply with money-transmitter laws. And the Patriot Act. And the Bank Secrecy Act. And international anti-money-laundering norms. And, if they're overseas, the profoundly complicated and meddlesome Foreign Account Tax Compliance Act. And then there's the taxes.
All of which is to say that doing anything legally with bitcoins -- and especially converting them into fiat currencies -- is going to get harder and more expensive as governments involve themselves. So hard and so expensive, I'd argue, that any advantages the crypto-currency may have over normal means of exchange, like credit cards, will soon disappear.
And if Bitcoin isn't an improvement as a method of exchange, what's it good for? Unlike gold or silver, bitcoins have no intrinsic uses; they can't be turned into dental fillings or jewelry. Their price is unstable, meaning they're unlikely to overcome network effects and implausible as a store of value. They can't be used to pay your taxes. They are algorithmically in finite supply -- 21 million will eventually be created -- so either users will willingly submit to a further deflationary spiral or, more likely, they'll clamor to expand the stock. Or do so by fiat. Either would negate Bitcoin's putative advantages over normal central banking. And should the system get hacked? You've got no bitcoins, no deposit insurance and no one to complain to.
The only people likely to still be interested, then, will be those who want to purchase things anonymously. And they should have some doubts about just how anonymous they're going to remain.
The group of developers who came up with Bitcoin did not produce a viable replacement currency, a revolution or even a particularly wise investment opportunity. They invented a very clever peer-to-peer payment system that also happens to enable fraud, tax avoidance, drug dealing and other sordid pursuits that governments won't abide for much longer.
Transactions on that system, by the way, follow some awfully strange statistical patterns. If you still plan to invest in Bitcoin, I won't give you my money. But I'd be happy to play poker with you.
(Timothy Lavin is an editorial writer for Bloomberg View. Follow him on Twitter.)

[Blindweb]

Re: Bitcoin soon to enter early adopter phase

I own bitcoins that I mined. I see no threat in the next year or two. So many reasons that they'll fail that I won't think through the specifics until I need to narrow the time frame down.

Moore's law is one easy answer. I think that will fail within a decade. Bitcoin depends on the ever increasing size of the block chain. I'm sure there will be ways to summarize the block chain, but that will come at a cost.

In times of crisis people fall back on old systems, not new. Bitcoin has to go mainstream before the global currency crisis happens to make it past that point. The current user base will become weak hands at that time and liquidate. Even gold holding bitcoins users will wonder why am I holding bitcoins when I could have just bought more gold.

If WWIII breaks out they're done. Which seems 50/50 to me.

There will be internet outages and utility outages. Cyber crime will increase dramatically. Money and confidence will pour out of the internet into local infrastructure. Middle to lower class peoples will drastically reduce there expenditures outside the necessities and will have no need for 'fancy' money.

If bitcoins are to last 5+ 10+ years the upper-middle to upper class have to adopt them in some major fashion.

Costs will go up. Electricity will go up; bitcoin miners will increase fees. I'm sure the developers have answers to all these issues and will come up with stopgaps, but the issues will just keep building and building.

Ultimately the entire internet is going to have to drastically reduce its energy usage, and maybe be reduced mostly to text; short wave radio based even. But I realize that puts me in an extreme peak oil camp.

[BadJuju]

Re: Bitcoin soon to enter early adopter phase

The Internet doesn't really use much energy. It uses around 1-3% of energy globally, but think of all the energy it saves and can potentially save.

[Adeptus]

Re: Bitcoin soon to enter early adopter phase

Wow Southernguy, that article is like something straight out of MSM. Doesn't seem to fully understand bitcoin, has a tunnel vision view perspective of bitcoin from authoritarian/government perspective and ultimately assumes bitcoin won't evolve around all these supposed issues. I don't even know where to begin.

The closer Bitcoin gets to being an accepted currency, the less useful it will be as a method of exchange. And the less useful it is as a method of exchange, the harder it is to see why it has any value at all.

That's a pretty bold claim, with nothing to back it up. I'm left scratching my head as to what the author is talking about. If it is accepted as currency, how exactly is it less useful as a method of exchange!?? IMO, the exact opposite is true.

First I would say the USA is not the world. SEC, IRS et all are US entities that have zero jurisdiction on the other 199+ countries on this planet. If the USA wants to keep its citizens in the 20th century, then that sux for you if you are American; but really it won't matter. Nearly all the concerns stated disappear the second bitcoin goes fully anonymous. A big "F'U" to the government(s) and they know it, which is probably why they haven't clamped down on it fully yet. Like I said many times before, Pandora's box has been opened, they can try, but they will fail to clamp down on decentralized crypto currencies 100%. At most, they can pass laws to make it "illegal", which yes, for sure really reduces mass adoption, especially for brick and mortar uses, but watch the US bond crisis erode people's confidence in central bank's and then I'm curious if we won't see a civil revolution against fiat currencies... or maybe I'm just a naive dreamer here; but at minimum an anonymous decentralized crypto currency would easily survive underground much like torrents have.

I could go on, but articles like the above are quite narrow minded and ignorant of the potential of decentralized crypto currencies.

[Adeptus]

Re: Bitcoin soon to enter early adopter phase

As for blockchain size being an issue, that's not really an issue yet, but yes, it is a limiting 'feature' in the sense that it takes much longer to download the full blockchain for beginners. Again bitcoin can evolve. There's already MIT Phd professors working on the problem as evidenced by the bitcoin 2013 lecture on the subject as well as alt-chain crypto currencies with different work arounds involving lite-client wallets.

Bitcoin is not a perfect protocol, these and many other challenges/issues exist, but to speak of crypto currencies as if they will fail because of any of these issues is quite silly IMO. Innovation is happening much faster than governments can figure out how to shut it down.

Further, I would add that it is a good thing that people like "pirate" are caught and legally brought to justice, although if bitcoin were truly anonymous, this would be one of the likely downsides.

As for bitcoin using up a lot of energy, this is nonsense. Here's a video that is now a few months old (network hashrate is now aprox 400 TH, not 60), but the overall idea is mostly the same. In fact, bitcoin is highly likely to use less and less energy over time (from a mining perspective) as we evolve from GPus to FPGAs to ASICs. Come Q1 2014, I would be extremely surprised if the network hashrate isn't above 1000 TH, could even be approaching 2000 TH by then in fact. This is because we are about to witness 28nm ASIC designs for bitcoin miners, making all the previous higher energy using devices obsolete. For reference, the top of the line intel CPU will soon use 14nm technology. The lower the "nm" (nano meters), the smaller the chip, the smaller the chip the less electricity it requires to power the same number of transistors.

[c1ue]

Re: Bitcoin soon to enter early adopter phase

First I would say the USA is not the world. SEC, IRS et all are US entities that have zero jurisdiction on the other 199+ countries on this planet.

That's not exactly true given the revocation of Iran's SWIFT access.

Nearly all the concerns stated disappear the second bitcoin goes fully anonymous.

I think you'd need to redefine what you mean by fully anonymous - given what has turned up regarding NSA surveillance. Removing the record in the bitchain is helpful in the sense that it makes it more difficult to document past bitcoin activity - the flip side is it removes all safety and accountability. The problem though, is that bitcoin must still interact on the internet in order to be useful for anything.

How anonymous can any bitcoin transaction be if ultimately the IP side is traceable? At that point, it really doesn't matter if you paid via bitcoin, via a mailed speck of gold, or whatever if the entire affair ultimately is still traceable via the negotiation, the transaction, the shipping, etc. Note this assumes an all bitcoin payment chain - when bitcoins convert to other forms of currency, that too is traceable.

And referring to the benefits of bitcoin - I am still quite unclear as to how bitcoin is more beneficial than having the iTulip gold/silver 30% hedge. If we do get the doomer porn scenario, bitcoin will be worthless - the seats on the last helicopter out of town aren't going to be sold for bitcoins, they're going to go to the guy with the fistful of Krugs.

Not that I feel bitcoin has no value. I've noted before that it has value as a techie collectible - much as much modern art has value primarily to aficionados, and for much of the same reasons (scarcity and a good story). The whole bitcoin as a savior to the financial system, however, is a tough sell to me.

You could as easily say that Monets or old Ferraris are a savior to the financial system: they're unduplicatable, they're unique, and they're anonymous (i.e. possession).

[Adeptus]

Re: Bitcoin soon to enter early adopter phase

That's not exactly true given the revocation of Iran's SWIFT access.

Hi c1ue,
True, and I guess what I meant to say is they *should* have zero jurisdiction over the world, and while this is true it certainly is not true from an influence perspective - quite the opposite. No other country in the world has more influence over others than the USA.

In regards to bitcoin, the protocol includes its own built-in money transmitting system which means it will not rely on any 3rd parties or systems like SWIFT to transmit bitcoins.

I think you'd need to redefine what you mean by fully anonymous - given what has turned up regarding NSA surveillance.

By this I mean that there is no way to trace a transaction down to its sender or receiver, ideally, you couldn't even see the transaction if it were encrypted, and thus not even be able to tell the transaction size. Currently bitcoin's anonymity is limited to: by default not revealing the name of sender/receiver or the geographical location of sender/receiver; however, it is more by means of obsfucation than by any serious effort to make that information untraceable. Satoshi Nakamoto never said he made bitcoin (fully) anonymous. There are various efforts currently underway to make bitcoin more anonymous, but not by changing the core protocol itself. The more popular method being discussed is that of a "Mixer Service". Imagine that a transaction between any two individuals first passes through a "mixer" service. You send your bitcoins to the mixer service, it mixes your bitcoins with those of other users using the service, and the bitcoins you wanted to send to your final destination end up mostly not being your bitcoins or not yours at all, but those belonging to a whole bunch of other random people also using the service. Likewise your bitcoins end up being sent to a whole bunch of other people you don't know. In the end though, everyone gets the right amount of bitcoins sent to their intended destinations. If you think this sounds a lot like money laundering, it is, but not necessarily. Your transaction could be entirely legitimate and you just want to be anonymous, much like people who surf the web and are going to CNN via a proxy service and with special browser plugins to delete cookies and disable javascript etc. There's one (of several) such systems being designed right now that also make this mixer service decentralized and just another protocol layer on top of bitcoin; otherwise, of course authorities could just clamp down on the mixer service and shut it down.

Removing the record in the bitchain is helpful in the sense that it makes it more difficult to document past bitcoin activity - the flip side is it removes all safety and accountability. The problem though, is that bitcoin must still interact on the internet in order to be useful for anything.

For bitcoin specifically, you can't remove any transaction from the blockchain as it would corrupt the integrity of the entire blockchain and all the bitcoin clients would reject it immediately. Bitcoin has an open ledger system that arguable is far more transparent and open than any other money system out there (with fiat currency, cash is mostly untraceable). Arguably this is the exact oposite of anonymous since it is technically possible to trace the amount of every single transaction and the "from" and "to" all the way back to the very first bitcoin transaction, it's just that you won't find people's names in the transactions but rather ugly looking transaction that look something like this :
In bitcoin block#324, "Sfjkf929jf9jsfkJSFKjSSLfj8s8f2jkfFF" sent 0.949 Bitcoins to "OSJFkSNFisffi2f2ifKFNHKCNccchfddD"'.

How anonymous can any bitcoin transaction be if ultimately the IP side is traceable? At that point, it really doesn't matter if you paid via bitcoin, via a mailed speck of gold, or whatever if the entire affair ultimately is still traceable via the negotiation, the transaction, the shipping, etc. Note this assumes an all bitcoin payment chain - when bitcoins convert to other forms of currency, that too is traceable.

The bitcoin protocol does not keep track of IPs; however, Bitcoin depends on bitcoin "nodes" to create a meshed network to propogate the open ledger as well as individual transactions. It is technically possible to setup a "protocol analyzer" (a system's administrator tool that listens in on every packet coming in or out of a particular PC or network) on one of these bitcoin PCs and then acquire IP addresses of all the data coming in our out. From the IP address it is then possible to get a rough aproximation of an individual's geographical location, usually accurate down to the city and ISP of that city. From the ISP authorities can then invoke laws to acquire exact user information. However, this process isn't perfect. A user can fake their IP address by simply using a proxy service purchased in a foreign country, typically these are either free or cost $2-$5 a month and you can even pay for some of these now via bitcoins. Further, a bitcoin node is a system that could be on any small part of the bitcoin network, meaning only a few small % of all transactions will actually pass through that node that are directly connected either to the sender or receiver to be able to identify their direct IP address. If the node is in the middle of the network, then it is not directly connected to either sender or receiver, and only other nodes, which makes the tracing far more difficult if not impossible.

And referring to the benefits of bitcoin - I am still quite unclear as to how bitcoin is more beneficial than having the iTulip gold/silver 30% hedge. If we do get the doomer porn scenario, bitcoin will be worthless - the seats on the last helicopter out of town aren't going to be sold for bitcoins, they're going to go to the guy with the fistful of Krugs.

Today, I would agree. However in 5 years from now I am not so sure. There's only so many Krug's you can carry. Sure you can carry enough to buy your way out of town under Mad Max scenario, but can you carry enough with you representing your entire networth? Very likely not for multi-millionaires. With bitcoin, you could take your entire networth to any other country without having to lift anything more than your smart phone's weight (which would contain a bitcoin wallet). From a "hedge" perspective, I would be far more careful. Bitcoin's value is extremely speculative and 50% moves in either direction can and have occured in a single day, although 5-10% moves are more common. Some might say that in the long term bitcoins will go up greatly in value due to their deflationary aspect. This is true, but bitcoin also risks going to zero without any intrensic value.


Further, Bitcoin could be considered more beneficial than gold/silver because:

* It is as easy to purchase as a few clicks of the mouse vs carrying around heavy pieces of metal. Of course over the the paper version of silver/gold they are about equivalent on this point.
* It is partially anonymous, whereas silver/gold in any substancial amounts being purcahse sold in most countries needs to be recorded by the bank or shop selling the metals.
* It cannot be easily controlled by governments. Yes governments can pass laws, but it is not very hard for bitcoin transactions to carry on without being traceable to the end users. Above I discussed how bitcoin is not fully anonymous; however, by leveraging other internet tools like proxies, vpns, TOR and/or freenet, bitcoin transactions can in fact be made fully anonymous, but this is not trivial.
* There are no arbitrary limits for bitcoin transactions. Likewise for gold/silver at the moment; however, governments can and do pass capital control or rationining laws. This cannot be easily if ever applied/eforced to bitcoin by governments
* There are not inter-jurisdiction transaction limits. Imagine you want to send somebody more than $10,000 worth of gold bars to a family member or to a business client in another country. You will risk losing your gold because there are laws in place scrutinizing such transactions, and in some cases confiscating your 'money'. With Bitcoins, I could for example travel to China with my laptop that has no bitcoins in it, go to a cyber cafe there, login to my exchange account or bitcoin wallet, and immediately have access to my millions of dollars worth of bitcoins and then use them in China as I see fit.
* Bitcoins allow me to send any amount of $ globally, near-instantly, with zero or very minimal (fractions of a penny) transaction fees. Try doing that via a Western Union transaction or Wire transfer. They cost $20-$100 per transaction, can take many days, and can be rejected by intermediary banks and if suspect, your funds can actually be confiscated.
* While silver/gold and bitcoin can all be mined, the amount of gold/silver in the ground worldwide is unknown. With bitcoin an exact finite number exists, thus making it far more deflationary (rising in value vs fiat currencies) than gold/silver. While silver has gone up 1000% in the last 5+ years, bitcoin has gone from fractions of a penny, to $100 in ~4 years. This is 10,000% + rise in value, and as bitcoin gets more widely adopted, it is expected that supply will outstrip demand and much higher valuations are likely.

Not that I feel bitcoin has no value. I've noted before that it has value as a techie collectible - much as much modern art has value primarily to aficionados, and for much of the same reasons (scarcity and a good story). The whole bitcoin as a savior to the financial system, however, is a tough sell to me.

You could as easily say that Monets or old Ferraris are a savior to the financial system: they're unduplicatable, they're unique, and they're anonymous (i.e. possession).

Actually bitcoins would have no value to techies if the value of bitcoin goes to zero. It's not like a tech toy you can show off to your friends. Bitcoin is nowhere near ready to be a savior for the financial system. I'm not even a believer that deflation, let alone agressive deflation like that of bitcoin, can make for a healthy economy in the long term. Further, as EJ has pointed out, the main adoptability hurdle for bitcoin is price/value stability. When you don't know what you can purcahse with your bitcoins from one day to the other due to extreme price/value moves, it makes it far less attractive for mass adoption. The economics of bitcoin are extremely simplistic and cannot IMO adapt to replace the global fincial system; although, that is not to say an eventual improved version down the road could not make a serious attempt.

Bitcoin is kind of like Napster. Not truly anonymous, but intially anonymous enough that people will use it. It also provides all kinds of service values which attracts the user base. To further extend the analogy, bitcoin is only the beginning, much more improvement is yet to be made to the protocol, and don't get me wrong, while I am a fan of bitcoin, I honestly don't see it lasting for many years. Right now the market cap of Bitcoin is aprox $1 Billion dollars, in the eyes of the core developers whom are not necessarily rich guys themselves (in fact I know a couple of them are just average joes from $ perspective), this is an incredible and immense responsibility on their shoulders and they have publicly stated that even the smallest of modification to the bitcoin protocol goes through an extremely thourough review process, must be approved by consensus, is open for commentary from public and is extensively quality tested before implementation. This means two things: As bitcoin gets more and more widely adopted and its value continues to increase, the speed and depth of reform which the protocol will see will be ever slower to the point where already the core developers have said things like we prefer to make as little change as possible to retain stability vs adding new cool features. This means that most of the innovation is not likely to occur within bitcoin going forward, but rather through the alternative currencies also known as "alt-chains", which were linked to further up in this thread. This is where the wild west of experimentation will take place, and my gut feeling is that at some point, somebody takes a whole bunch of cool/useful features from all these experiments and bundles them all up together into a single coin that will make it far more attractive than bitcoin; at which point we have "Kazaa/Bitcoin 2.0" and "Napster/Bitcoin 1.0" is abandoned. This evolution will continue until we have "bitorrent" where a near-utopian, and widely accepted decentralized crypto currency is here to stay for the long haul. That final version IMO is at least 3-10 years away from inception. Getting the economics part of the design right for the long-haul alone is enough to keep dozens of people busy for years.