Top Bitcoin questions I’ve been asked

by brown • 12 years ago

82 98 12 years ago

moonhorse2• 12 years ago

Great pos! The more I learn about bitcoin, the more I feel like it still has a long way to go. There are a few hurdles that can not be easily solved now: 10min transaction time; deflationary (this pretty much means it would have a hard time to act a real "currency" based on nowadays economic thinking); the resources wasted in mining and the potential consolidation of mining; the programmable aspect is very limited today. What is your take of it?

reshmakh4• 12 years ago

In the short term, I think it will have a hard time gaining use as a currency. A few currency scenarios might pop up, for example countries with unstable government or corrupt governments could see people store $ in BTC instead. However, I do think it could be very valuable as an application. Like if you layered it on top of the existing payment system to provide better security/anti-fraud.

moonhorse2• 12 years ago

Agreed!

jafaku13• 12 years ago

A few currency scenarios might pop up, for example countries with unstable government or corrupt governments

Sounds like most of the world would benefit from Bitcoin then.

sneak• 12 years ago

There are a few hurdles that can not be easily solved now: 10min transaction time

For almost all practical applications for which bitcoin is being used, this doesn't actually come in to play very often.

the resources wasted in mining

It's not wasted if it's being used to process bitcoin transactions.

and the potential consolidation of mining

Now you've got one - this is a huge threat to bitcoin today. It'll be interesting to see how it plays out over the next 6-12 months.

lmkg• 12 years ago

For almost all practical applications for which bitcoin is being used, this doesn't actually come in to play very often.

But could this be a self-fulfilling prophecy? Perhaps this property of Bitcoin is hurting its adoption, by relegating it only to uses where this is not a hurdle.

ars2• 12 years ago

For almost all practical applications for which bitcoin is being used, this doesn't actually come in to play very often.

Not exactly. If you have all your coins in a single transaction, you will get change - which can take 10 minutes to confirm before you can spend it again.

Yes, you can solve this by splitting up your money, but it's not something people expect.

It's not wasted if it's being used to process bitcoin transactions.

Yes it is being wasted. Waste doesn't mean "unused", waste means "using more than necessary". Due to the hashrate arms race, tremendous amounts of power are being wasted doing nothing useful.

Bitcoin is powered by electricity, a better currency would spend something else instead.

olalonde3• 12 years ago

deflationary (this pretty much means it would have a hard time to act a real "currency" based on nowadays economic thinking)

This argument makes no sense to me. If Bitcoin's deflationary nature prevented it from acting as a currency, it would also prevent USD/CAD/dogecoin/etc. from acting as currencies because people would chose to buy Bitcoin instead of spending their inflationary currency on anything else.

Every time you spend USD on something, you can instead buy an equivalent amount in Bitcoin. Not buying bitcoins can effectively be thought of as buying them and spending them.

In fact, the truth is that no one knows if Bitcoin will be inflationary or deflationary within the next year due to its current small market cap and risky nature. But in an hypothetical world where Bitcoin does become a stable and deflationary currency, why would any selfish actor chose to hold an inflationary currency?

amscanne2• 12 years ago

If Bitcoin's deflationary nature prevented it from acting as a currency, it would also prevent USD/CAD/dogecoin/etc. from acting as currencies because people would chose to buy Bitcoin instead of spending their inflationary currency on anything else.

This is exactly what happens. No one holds currency.

People don't generally have their assets as cash, just what they need to be liquid. They hold their assets as a mix of stock (incl. funds, bonds, options), real estate, etc.

In fact, the majority of people have practically no cash at all because they lend it to a bank (i.e. putting it in a checking or savings account) who invests it or lends it for a return! The bank only holds a small portion of what they say is in the account.

jafaku13• 12 years ago

10min transaction time, resources wasted in mining, programmable aspect is very limited, deflationary, nowadays economic thinking

Getting really tired of these arguments. Transactions take 0-2 seconds. The resources are not wasted, they are used to secure the network and are way lower than what VISA or any other big company use. And It's deflationary because people like me are suffering from this form of theft called inflation, and we desperately needed something like Bitcoin. Besides, without an economic incentive why would people risk money? Nowadays economic thinking is pretty much a pseudoscience, just like Psychology.

Nursie5• 12 years ago

A crypto currency network that requires constant hash thrashing is not one I'd call well designed. It appears to be a trade-off for the decentralisation of initial currency issuing, not something everyone considers important.

dperfect2• 12 years ago

From the article:

"...one fundamental building block that BTC needs right now: legitimacy"

"Imagine if you were able to provide governments assurance that every BTC wallet that cashed out into USD had a thorough KYC procedure performed on the transaction"

I'm afraid this kind of legitimacy will never be obtained for Bitcoin - not because it's impossible, but because many (most?) of Bitcoin's strongest proponents are pushing for the exact opposite goal.

On one hand, we have people wanting to "fix" Bitcoin by providing more transparency - through decreased anonymity. On the other hand, we have people trying to "fix" Bitcoin by providing increased anonymity at all costs.

Personally, I believe both goals are admirable, but the conflict may ultimately hurt Bitcoin's chances of long-term success and mass adoption.

It comes down to this question: do we want Bitcoin to become "legitimate" and fit in to the current landscape of government regulation, law enforcement, consumer protection, etc., or do we want Bitcoin to fundamentally disrupt all of those ideas and stand as something all of its own? The first option ensures greater chances of (quick) widespread adoption without rocking the boat too much, while the second option flies in the face of systems of power and influence that have been in place for thousands of years.

jafaku13• 12 years ago

I wouldn't bother using Bitcoin if it was more of the same bullshit, just digital. For instance, if it depended on my government, I would never be able to use Bitcoin, just like I'm not able to use gold or any other currency that the government can't use to steal from us through inflation, seizures, etc. People from first world countries have a hard time seeing the real benefits of Bitcoin.

fragsworth• 12 years ago

But it is not a mutually exclusive dichotomy of either legitimate or subversive. It can be (and already is) both. Some users, especially legitimate merchants, will have to follow the letter of the law. Other users, however, who are willing to break the tax law, can and will - just as people break those laws with cash transactions.

I can pay someone in bitcoin for work or services, not report it, and it is just as under-the-table as paying in cash.

rtpg2• 12 years ago

A big difference is that bitcoin has the public ledger.

With cash, if both parties are complicit to keeping it secret, you can keep your acts secret. Bitcoin is very much not like that, and you have to try a lot harder to hide what you're doing.

rtpg2• 12 years ago

This hits the nail on the head. It's slightly unfortunate that many of the most vocal proponents for bitcoin are anarchists/libertarians who seem to disagree with the fundamental nature of things like law enforcement and taxation.

Bitcoin ends up being two things: one is a fiat currency that is made for digital transactions. This point is the one that could actually generate a lot of wealth. The other one is that it's decentralised. A lot of proponents buy into the myth that this means that it's anonymous, but it's not really. If enough of the market decides against anonymity they can force it, and the public ledger can help a lot with that. But this second point is portrayed under the myth of anonymity and policy makers start freaking out, and the rest of us can't get what we really want (an easy way to pay for stuff).

Some people think that this can become a sort of general revolt against the dollar or whatever, but so long as taxes exist and the government has guns, we're probably not going to get far down that route.

atmosx3• 12 years ago

I'm afraid this kind of legitimacy will never be obtained for Bitcoin - not because it's impossible, but because many (most?) of Bitcoin's strongest proponents are pushing for the exact opposite goal.

Not sure about this. We have a public ledger which will hold information about any transaction ever made. You get access to my wallets and you have my financial life right there.

There are mixers of course, but I'm not 100% if you can't use algorithms to trace back the total amount of bitcoins coming out of a mixer or other approachers. I'd like to read some technical papers how one can track or hide bitcoin transactions... I mean this could be used as a tool for the exact opposite reason: Say every political party should accept money only through known/identified wallet via bitcoin. Only transaction that are ID-id should get accepted. Same with taxes, etc.

bluedevil2k• 12 years ago

My personal top question - as I understand it, to earn new bitcoins, you must mine them by verifying the ledgers from previous transactions. The first one who solves this puzzle gets the bitcoins. Question - why doesn't the fastest computer win every time? If the puzzle is a number crunching puzzle and computers are all doing the same thing, shouldn't the winner always be the same computer?

dperfect2• 12 years ago

The "puzzle" to be solved is a hash (of recent transactions and an arbitrary number) with certain required characteristics, and finding a valid solution is a matter of chance - basically through brute force. The fastest supercomputers do have greater chances of finding a solution (because they're testing more hashes per second), but they aren't guaranteed to win every time.

letstryagain2• 12 years ago

Finding the next block is a random procedure. Miners try to guess a number that 'solves' the block puzzle. It could take 2 seconds or it could take 30 minutes. On average it takes 10 minutes. Faster computers can try more numbers but slow computers have a chance too. The faster your computer the better your chances.

Does that make sense?

ufmace3• 12 years ago

The answer is that the puzzle is huge and non-determininstic. The puzzle is to take a block of data - all of the transactions that haven't been confirmed yet - and append a value to it that makes the hash of it below a given number. That number is called the difficulty, and is dynamically set. Systems trying to solve it simply keep trying different values and running the hash to see what the value is.

Any particular guess-and-hash operation has a certain probability of finding a solution, and that probability is the same for all systems, no matter how fast or slow they are running. Faster systems just guess-and-hash faster, and thus have more opportunities to succeed. That difficulty is set dynamically based on the estimated total rate of operations, or hashrate, of the entire network, so you can think of the system overall doing a certain number of hashes per second. A solution is essentially a random event that one particular hash will satisfy. So the higher the hashrate, the higher the probability that you will succeed, but it's still a probability. You never have a guarantee that you will succeed, no matter how fast you are, and even slower systems have a chance.

That's why there are these malware-created networks of low-power systems doing bitcoin mining. They're all pretty slow, but with enough of them working, one of them will succeed every once in a while.

infruset• 12 years ago

I think you have to add that everyone is solving a different puzzle, I.e. if I'm not mistaken, an identifier of the miner (I would guess her public key, I can't really check right now) is included in the string she hashes (plus they may not all have the same list of pending transactions). otherwise you would still have the problem that if people use the same software for guessing the random string, the fastest would always win.

maaku• 12 years ago

Very astute question. That's the reason the proof-of-work function has to be "progress-free". Each time the miner performs a hash and finds an insufficient value, they are no closer to finding a block than when they started. Each hash has a liklihood of being a solution of approximately 1 / (difficulty * 2^32), but is also a a truly random lottery. Finding a trillion bad hashes doesn't make you next hash any more or less likely to be the solution.

FigBug• 12 years ago

Something I've been wondering about Bitcoin: If Bitcoin is going to be used as a currency, you'll need to be able to get loans, short term like a credit card and long term like a mortgage. But isn't taking a loan in a deflationary currency very risky? Kinda like short selling, possible to lose/be in debt an infinite amount of money?

Assuming Bitcoin becomes widespread, how do you convince people to take a salary that goes down every year? It's going to take a lot of re-education -- a completely different way of looking at money.

letstryagain2• 12 years ago

Most people are not expecting Bitcoin to completely replace any government-issued currencies. If you take a job with remuneration in Bitcoin it will likely be a certain dollar amount worth of BTC rather than a certain amount of BTC.

sirsar• 12 years ago

This isn't specific to Bitcoin, although Bitcoin prompted the question. For a non-superficial answer, you'd want to read papers by Austrian economists.

If you want amateur opinions, which I'm willing to bet is all you'll get on HN, it's been discussed to death on bitcointalk.org. Start with https://bitcointalk.org/index.php?topic=222845.0;all

fennecfoxen• 12 years ago

Well. Assuming an efficient market, and given equal levels of price stability: taking a loan in a deflationary currency should not be more any more risky than taking a loan in an inflationary currency. Nor should the real price substantially differ.

Of course, psychological perceptions are a trickier matter, which is why we hear about "sticky wages"...

stevenwagner• 12 years ago

To be a bitcoin believer, its not necessary to think it will displace fiat. Bitcoin is deflationary like gold, so it shouldn't be much different then the gold commodity market or returning to a gold standard. For most of the united States growth and prosperity, it was on the gold standard.

dllthomas6• 12 years ago

"For most of the united States growth and prosperity, it was on the gold standard."

Like the Great Depression, yes.

dragonwriter• 12 years ago

If Bitcoin is going to be used as a currency, you'll need to be able to get loans, short term like a credit card and long term like a mortgage. But isn't taking a loan in a deflationary currency very risky? Kinda like short selling, possible to lose/be in debt an infinite amount of money?

No, the amount of money is fixed by the terms of the loan.

The potential value might be unbounded (but any currency can be deflationary, even those that are actively managed to avoid deflation, so that's not entirely a unique risk.)

The real issue with a designed-to-be-deflationary currency is that the rate of deflation puts an effective lower bound on interest rates, which means there becomes no economic sense to lending money below a certain interest rate. If such a currency becomes dominant with more than very mild deflation, it could have a serious negative effect on the availability of credit.

gojomo• 12 years ago

A loan could be delivered and repaid in Bitcoin... but have the calculation of its interest/principal be in some other unit.

An example is the Chilean "Unidad de Fomento", which does not circulate, and varies against the peso which does circulate. But the Unidad de Fomento is used for loan terms.

http://en.wikipedia.org/wiki/Unidad_de_Fomento

A company called BTCjam currently arranges "linked loans" that are serviced via Bitcoin, but indexed to USD.

https://btcjam.com/faq/loan_types

It turns out that the traditional money bundle (medium of exchange, unit of account, store of value) can be unpacked somewhat.

sp332• 12 years ago

I agree it will take re-education, but it's not really risky. The rate of deflation of bitcoin is pretty stable, and predictable.

jafaku13• 12 years ago

The money supply for BTC increases slowly. This is discouraging transactions because (if you believe in the currency and its future) you should hoard your BTC. The amount of new BTC going into circulation is low, barring any disaster (e.g. Germany banning BTC, Kraken hacked), it just makes sense to hold because what you have today will be worth more tomorrow.

Just another Dogecoin shill with unproven claims. What you said is absolutely false. In donations alone, bitcoiners have spent more (millions of dollars worth at the time) than dogecoiners have spent in everything.

Dogecoin is not even in the top 5 anymore: http://coinmarketcap.com/

It was just a short lived fad, like many other copycoins. Ever heard of Infinitecoin? Probably not. Yet it also entered the top 5 at one point.

buttsex• 12 years ago

Holding and speculating is a valid use case for BTC. Many people see it as an investment and don't use it as a currency so it's not absolutely false.

If you are going to use coinmarketcap, at least filter out the non-mineable coins, Dogecoin is in the top 4.

jafaku13• 12 years ago

What some people do with it doesn't invalidate what I said at all. I'm just saying that being deflationary doesn't stop you at all from spending it. What's the difference between holding it and only spending dollars, and spending your coins and buying more coins with your dollars? There is no difference. In fact, since lots of places accepting Bitcoin give you discounts if you use Bitcoin, you are encouraged to spend it instead of dollars.

logicallee3• 12 years ago

I didn't read the article but the part you quoted is basic economics. If some currency has usage but a limited supply - even if it's just cigarettes in a prison - its price will go up. When this happens, it gives a hurdle rate on spending. If relatively few cigarettes are making it into a prison, but there is no other convenient form of currency, you might well hold off trading some of yours because it will be worth more in a couple of weeks. Gold certainly can suffer from this effect and is a main reason that growth was unlocked when paper got off a 100% gold standard: if the economy needed money, you no longer had to mine it.

This is NOT a normative statement, just a fact. Bitcoin spending is going to be curtailed (fact) by a limit on the speed of increase of the money supply, just as spending is spurred (fact) by easy credit and inflation.

(Inflation for a fact spurs spending, because if inflation is 7%, then holding onto money costs you 7% per year, whereas spending it on anything can let you retain that value.)

These are not normative statements but completely uncontroversial (and intuitive) economics.

jafaku13• 12 years ago

Yeah yeah, "basic economics". I'm getting really tired of all these unproven theories. Economics at this point has turned into a pseudoscience just like Psychology. Academics publishing untestable bullshit and people like you citing them ad nauseam, instead of showing some actual evidence.

You are absolutely wrong in your comparison with cigarettes, because in prison you don't have enough liquidity of cigarettes. On the other hand, you can buy all the Bitcoin you want and use it to buy whatever you were going to buy anyway, and even get a discount.

ufmace3• 12 years ago

The inflation one is the only one that's really fundamental to the currently. Part of the core of the Bitcoin system is that the validity of everything that happens is proven by being accepted by all of the nodes that make up the system, rather then by some special authority figure. There are authority figures that publish the node software, but they can't force anybody to go along with any change they make. They have to tell the world what their changes do, and hope that everybody is willing to upgrade.

Part of the rules of the system that are enforced is how new coins come into existence, and the current rule for that is the fixed reward per block mined, with logarithmic decrease in reward amount. It is possible to change that, but the fundamental nature of the system is that the coin creation has to be controlled by an algorithm shared and repeatable among all nodes, and so cannot ever be based on any arbitrary or external factors.

Even making a change that remains within those limits is risky. To keep the currency in existence, there must be broad agreement among all of the people running nodes as to what the rules of the currency are. If the core developers decide to make a change in that, and 20% of nodes refuse to upgrade, it would be a disaster. And so they aren't likely to risk doing anything that might piss off a significant fraction of the users.

So love it or hate it, the fixed inflation system isn't going anywhere.

mahyarm• 12 years ago

Remember although, you can release an altcoin that doesn't release coins logarithmically like bitcoin does. You can release one that has a linear %1 permanent inflation rate for example.

Nursie5• 12 years ago

Or possibly one that rises in proportion to hash rate... ? That might be interestimg.

andreicek• 12 years ago

First comment, go easy on me.

Have you seen https://www.youtube.com/watch?v=vnm4xFC2xNo ?

I think the second guy at the end of the video raises an important question. Why use this over any other currency? If you are worried about the "control" of the said currency why not use a more "free" one like Swiss francs?

I am worried that Bitcoin will never be used as a standard if a regular, Facebook user, can't manage to get his hands on it, and afterwards use it. It's a catch 22 in my opinion.

Sure it's easy for IT people to use it, but my mom doesn't even know about PayPal for instance. And I am sure she is not the only one.

abalone9• 12 years ago

It's interesting all the "how is this useful" examples she gives are for international commerce: money transfers, doing business with international customers, countries where cards are harder to accept.

I'm still waiting to hear concrete examples of how Bitcoin would compete with credit cards in a First World market. There's a lot of talk about how "expensive" and "inefficient" the credit card system is (it's almost a mandatory part of any intro to Bitcoin). But so far I've heard nothing concrete. Anyone have a good link I should read?

atmosx3• 12 years ago

No you can't read what doesn't exist.

Firstly, there's a debate on whether BTC is closer to FIAT or to an asset (e.g. Gold).

Let's say we skip that part. Until a world-wide bank like say UBS or a country decides to implement an infrastructure for bitcoin, it won't cut it.

Why a country would want to do that, is beyond me - and probably beyond anyone with a basic understanding of macro-economics - and so we're left with other possible implementations of the protocol.

Until we find a way for average Joe to switch from USD/EUR to BTC and back easily and without fear of money loss, I don't think we'll see any widespread adoption as a payment system.

ps. The argument about using bitcoin in societies where finance is not well evolved, is as ridiculous as it is dangerous. Imagine bitcoin-driven banks in Addis Ababa handing out loans (in bitcoin or the local ETB currency?!) and financial products based on bitcoin. Then imagine that an unknown, early adopter, from the other side of the world decides to withdraw 100.000 bitcoins at once: There you go, you got Ethiopians playing wall-street pranks!

jamesrom• 12 years ago

Why do you think it needs to be a bank that allows USD/EUR <> BTC?

doctorfoo2• 12 years ago

Some weeks ago I tried to buy a mobile top-up online - my bank card was repeatedly rejected for some unknown reason (after having to re-enter my entire address and card numbers multiple times). More recently, I decided to try Bitcoin for this, and was able to buy a top up voucher code with no problems.

This may be a rare example, but it highlights something key: The merchant is getting cash. They have no need to perform fraud checks. They have no worries, and can make the customer's life easier as a result.

I've struggled with traditional card payments many times in the past. Using Bitcoin is pure bliss in comparison.

I see a future where Bitcoin wallets are browser add-ons, and payments really can be one-click on any website.

Kids who may not have bank cards yet is also a hugely overlooked area imo.

abalone9• 12 years ago

Of course merchants would prefer cash. It doesn't have the consumer protections cards have. But that's not a reason for consumers to adopt it. Just the opposite.

I agree with you that your example is probably a rare one. Which is why I'm still searching for an answer as to how this is all supposed to supplant the card system.

kylebrown• 12 years ago

Both Stripe and Square "marketplace" now accept bitcoin right alongside credit cards, since only about two weeks ago.

abalone9• 12 years ago

Haven't heard a compelling, broadly-applicable reason to pay with Bitcoin instead of a card. Cards have consumer protections and reward programs.

celticninja• 12 years ago

Some of the first world benefits are not necessarily related to the immediate use for customers. However in a situation, such as the Target breach, that released peoples credit card and personal data to thieves, if you used bitcoin you would not even have to go to any effort to see if you were affected. If you used Traget and paid by CC then you need to check if your email was one of the compromised ones, check statements for unusual purchases, deal with reclaiming that if necessary and also fixing your credit report (potentially). If you paid by bitcoin all they have is the address you paid from and your delivery address (which they have if they get your personal info anyway).

abalone9• 12 years ago

Tough sell. You wouldn't get the rewards and consumer protections that cards offer. Those include pretty good protection from fraud like that.

Plus, Bitcoin has its own security nightmare scenarios, like customer wallets getting hacked. And unlike cards, there's no recourse for recovering your bitcoins stolen by fraud.

reshmakh4• 12 years ago

There are a couple cases of underserved merchants based in the US where Bitcoin would compete with CC in a first world market.

The first is marijuana merchants in CO and WA. Marijuana is legal at the state level but not federally. These merchants have a hard time using the banking and credit card systems and transacting in BTC would help them do e-commerce.

The second is very low denomination transactions (like 10c). It may become profitable for compensate people at scale for doing some very small amount of work. Like giving someone who finds a typo some small amount of compensation. Credit cards are very poor for this.

As for replacing CC, that is a tall order. They are expensive and inefficient, but accepting credit cards does increase top line revenue if a merchant accepts them. If a payment method is going to get adoption it needs to grow revenue (vs. reduce cost) for a merchant if the merchant accepts it.

jafaku13• 12 years ago

Read about multi-signature transactions. That's something you can't do with fiat, and libertarians (or any other conscious person) will gladly use that.

Top Bitcoin questions I’ve been asked

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