Bitcoin Architect: Everything You Need To Know About Bitcoin

thanks jim for all of your input.
i'm a retired graphics artist that started with photoshop vs 2.5 on floppies and live in the same town as ps' creator thomas knoll and have chatted about digital this and that with him at various seminars and once began to pursue C++. having said that, i'm an old maid now and have always been a write a check so i have a receipt and conduct business in person type. i was taught business by my grandparents who lived during a not so trusting era.(make sure yu inspct the merchandise before you buy) and i have a garage full of receipts.

i understand that i was born(1953) at a peak in this society and now have the luxury to become old as the society declines rapidly. i guess the fur on my forearms bristles when i hear of any construct touted as safe. it's my early warning device going off(DEW the defense early warning system of the us over nuclear attack by soviet union)).

under more safe conditions, i would mostly agree with you re bitcoin.

clearly these are interesting times

i find human nature to be as much a constant as any variable in financial, politics, surviving etc. so i weigh bitcoin along with presidential addresses, etc  against the constant of human nature, ie fraud, greed, selfishness, the opportunity to exploit… yadayada how does the new hold up against what time has teste as true about human nature.

the farmer i bought my land from sold to me in 2006, at $6700/acre to me and $10K / acre to my neighbor. 3 years ago  the farmer on his right died and the children wanted 5K /acre…he passed on it because he want to pay $4K/acre. now the farmer on his left has died and the children want $10K /acre. and he moans unfair etc.  you tell me. did he not set the value when he sold to me and my neighbor?

these are the things that will play out. the things to take into consideration. how will they play out with basic human nature.

i would like to hear more what others think will play out when the constructed concepts poop out due to various obvious logic.

Everything in life has risks, that much is clear.The internet as a whole was from the beginning designed to withstand the acts of war. That said, governments, could actively shut down parts of the it on command due to unfortunate centralization of nodes. But most parts of society relies on the internet these days and the demand only accellerates, so taking down all of it would be quite difficult as the sentiment for keeping it up is very big. The network itself can quite well run on very little solar power or other means of sustainable energy. It can also be a lot more decentralized than today. In fact there are a few projects in the works to ensure a functioning internet even in the case of war or governments trying to shut it down. One is called https://projectmeshnet.org/ - a peer 2 peer routing network and very resilient to shutdown attempts.
If you are afraid of zero day attacks, I would advice you to run a true and tried open source OS that has been properly peer reviewed. They do exist. There's a good reason why agencies like the NSA prefer to run Linux. So start in that area - there's plenty of distributions to choose from.
Bitcoin is not dependent on American servers or Chinese servers for verification. The distributed ledger (the blockchain) gets verified by whatever miners are in the network at a given time, event 1 miner is enough. It can also survive being fragmented, and when reconnected to other fragments, the forked blockchain will be merged again.
Bitcoin can also be exchanged as a physical commodity. https://www.casascius.com and paper wallets are examples of that. It's perfectly possible to handwrite paper wallets with small amounts, say $10, and exchange those instead. You see, the access to an amount on a paper wallet in essense requires nothing more than the letters and numbers of a private key (e.g. 5KJvsngHeMpm884wtkJNzQGaCErckhHJBGFsvd3VyK5qMZXj3hS) - that part can be communicated with internet, phone, radio, morse, letter, handovers and any other imaginable way of exchanging information.
Bitcoin does not rely on the will of any government - it's an encrypted peer to peer distributed ledger. Sure, governments could deem it illegal and try to enforce its failing, inflated fiat currency on people. Just as the Roosevelt administration did with Executive Order 6102 on gold. As history shows, after the order was revoked, the price on gold soared. Contrary to gold, bitcoins can not be confiscated as long as the owner of the bitcoins does not or is not able to reveal the private key unlocking the amount. It is also important to remember that Bitcoin as a distributed system, in essense, exists everywhere. It knows no laws, no physical boundaries, no governments. It's based on cryptography and hard math.
In the event of a collapse, it would seem foolish not to hedge even just a small of your wealth in bitcoins.

get out and grow something!  I can't wait til it's over.
got protein? 

 

The risks I see to bitcoin are quite honestly not technical, they are marketplace and exchange-rate focused.Much like credit cards, to be accepted at the point of receipt, the receiver of a bitcoin must have a computer, and it must be connected to one of the miners for verification.  Of course you can accept a bitcoin without verification.  Is anyone here willing to do that from someone you don't know and trust? 
What's more, for the verification to be certain, that miner that does the verification must be part of a larger network.  If it is off on its own segment, then it cannot verify that this bitcoin has not already been spent on a different segment.
These things aren't technical issues even though they seem technical.  They are faith issues.  They go straight to the issue of "can I have faith that this bitcoin I'm accepting is real and unique?"  Assuming a situation where network connectivity is gone, once people realize that they can no longer validate the bitcoin, their own personal willingness to accept them and give others scarce real items in exchange will suffer, possibly fatally.  A person cannot examine a bitcoin themselves and determine if its real.  Once the validation system suffers an interruption of service, just like credit cards, bitcoins will most likely be (more or less) worthless until that system comes back online again.
And apart from the validity risk, the acceptor also is taking exchange rate risk as well.  If disconnected from the network, how can one determine the current exchange rate?  Everyone who trades knows that when risk increases, bid/ask spreads blow out.  Without network connectivity, what might the bid/ask spread be of an unvalidatable bitcoin?
Thought experiment: most people's credit cards are valid, yet how many places accept credit cards during blackouts?  Then imagine the blackout lasts longer than a week?  A month?  How many would accept cards then?  At that point, the "card" transaction slip simply becomes an IOU, and its more about individual trust than about the card itself providing any sort of guarantee.  What's more, with an IOU denominated in local currency, there is no exchange rate risk.
Presumably, during times of emergency one would like one's store of value to work with people other than your close friends.  There are scenarios under which bitcoin does not do so; under those scenarios, other things such as FRNs and/or physical PM will likely do substantially better.
As long as we understand the circumstances that will affect people's faith in being able to accept bitcoins and determine if they are real (and have not already been spent somewhere else), we can figure out where bitcoins might fit in our planning.  Certainly, if the network were in place and I wanted to move money, bitcoin seems pretty cool.  How could a repressive government detect me transporting my bitcoins if the key is only a pass-phrase stored in my brain?
So I believe that in some situations, they are great.  Others, they will not do so well.  If the Internet were largely offline for six months, I believe that the value of bitcoins would likely approach zero during that period and in those areas affected by the outage.  Would they rebound afterwards?  Now that's an interesting question.  I suppose it would depend on the view people took as to the likelihood of another internet outage happening again.
FWIW I'm a big fan of open source too.  My router runs openwrt.  Possibly this will help my subnet to survive if an unpleasantness hits, although its unlikely I'll be able to talk with anyone else…

i've seen this loss of faith in money---- credit cards.
shortly after events in 2008,(spring09) local merchants refused to accept credit cards, reasoning that if the user didn't pay his/her bill , the business owner was out the money same as in a bad check. those shoppers without other means of puchasing, were out of luck. trust started to unravel fairly quickly for strangers in this small farming community. trust remained and held the line among locals and the local bank.exception was the local sand and gravel who accept cash only from everyone.things back to normal within 6 months.

didn't take any imagination to see how things could lock up.

If Gavin Andresen gets paid in bitcoins how difficult is it to do his taxes?
 

 

I guess you made the big time when the regulators start paying attention.
http://www.forbes.com/sites/kashmirhill/2013/08/12/every-important-person-in-bitcoin-just-got-subpoenaed-by-new-yorks-financial-regulator/

The department is starting out by subpoenaing 22 digital-currency companies and investors to get a lay of the Bitcoin land. They sent letters to the major Bitcoin players asking them to hand over information regarding their money laundering controls, consumer protection practices, source of funding, pitch books (for Bitcoin start-ups) and investment strategies (for Bitcoin investors).  The recipients of the subpoenas are nationwide and include everyone on the “people making real money on Bitcoin” list, such as Bitcoin exchanges and processors, “ mining equipment” maker Butterfly Labs, and major investors, such as the Winklevosses, Marc Andreessen & Ben Horowitz, and Google’s venture fund.

 

Bitcoin wallets and transactions do not require encrypted connections. They don't really need to. Your coins all have a "serial number" that is tied to a wallet number. Think of each wallet as a numbered bank account that is not tied to any one person. You can create them any time you want and send money back and forth or use them just one time only and never again. This keeps your identity (fairly) hidden.  
But because every Bitcoin server (miner) gets to record EVERY transaction - everybody in the world keeps the ledger and can track the entire history of the serial number assigned to the bitcoin from its genesis. So there is a history to watch the transactions - each time it's traded and divided (Down to 8 decimal places).  You can download the "TOR" browser and get on the encrypted world wide web and be off the grid completely if you choose to conduct your affairs that way as well. (Google TOR Browser for more info).
 

As bitcoins are a virtual currency - they exist as data…ones and zeros as is all data you are now looking at over the internet. Does that make them less real?  Are my words you are reading now real?  
The big difference is the Fed plays by its own rules. It can make more money when and if it wants.  As do all central banks. THere is nobody to stop them.
 
Bitcoin is regulated by math. It's the ultimate power in the universe and cannot be changed. There rules indicate that a predicable, obvervable set of currency will be issued every 10 minutes. This is a "law" that cannot be changed*. Because of this predictablity, it will eventually likely gain a VERY stable price point once it is mass-adapted. Currently there are only about 11 million coins in existance. The amount created drops to half every four years (Bitcoin started into existance just over four years ago with blocks of 50 every 10 minutes. It was just halfed recently and will half again in about four more years…until about 21 million coins are eventually created into existance - still more than 100 years down the road. 
The first purchase using bitcoins was 20,000 to buy two pizzas.  Now converted to about $100 each, those pizzas "real cost" in today's dollars? - 2 million dollars. 
 
Think of bitcoins as "God's money" (As it is controled by natural law of math) and controlled by the people, not central government. It's revolutionary. The Internet - of money. You're open-minded??? How about "Future Minded"?  What happens to the value as bankrupt companies (See Argentina) put captial controls on foreign money and gold purchases. What happens to the value when demand for those paultry 11 million coins is demanded by 20 million broke Argentina, Greece, etc…etc.
 

  • Possible to change in an emergency IF you can convince at least 51% of all intenet bitcoin miners to change out their software  to use the new code base.  Getting 51% of tens of thousands of people all over the world to agree to a change would be difficult but possible if there was a really, really, really good reason (Huge bug found?)

 
First they ignore you, then they laugh at you, then they fight you, then you win.

A lot of people in this disccusion speak only in terms of shtf.  Yes, bitcoin probably isn't going to be the saviour of mankind during a moment like that. Some people think precious metals will be?  I own a lot of silver, but how long is that going to be accepted?  Not enough people have it in my opnionion.  Without an internet, who can tell how much value a ounce of silver is worth?

So I think there is a place at the table for virtual currencies. I don't think they can be dismissed out of hand. The concept is WAY different than what we've considered money in the past.  The whole concept of money is when it comes down to it -a mass illusion.  For the most part it is digital ones and zeros in a computer. The silly paper money is just a symble of the mass illusion of a common medium of exchange.

 

But think of this:  Almost nobody knows what bitcoin is still. It's VERY early in its life. Most of the world has no access to banking systems in third world. With bitcoin, all they need is access to a smartphone. This is much easier.  You don't have to open an account or be "credit worthy". You can buy things all over the world for bitcoin and its still in its infancy.  With such a limited supply - and demand to EXPLODE as the world wakes up to this existance, imagine the possiblity of what a few coins now might be worth in another 10 years?  Thining as a futurist - people might one day LAUGH that it took a full bitcoin to pay for a house. Transactions might be held in .0000001 bitcoin for dinner. (Probably called nano-bc units by then). For even the possiblity of that future, what's the harm in plopping down $100 to buy just one bitcoin?  As an experiment, buy $100 in silver and put a paper wallet of you bitcoin in a jar, then 3.5 oz of silver in the jar next to it.  Which one will be more likely to buy a house in 10 years?

 

High Risk investment… probably a good way to think of it for now. But for my money, I don't mind playing a fun poker game with they guys, or drop a few bucks at a blackjack table - it's "fun money" that I kind of expect to loose, but honestly if I have gambling money to spare - I belive my odds and potention to be very rich are MUCH better in putting it down on this bitcoin idea before the herd rushes in.  If just one million people in the world get that same curiosity - can you predict the price?  Cash out to dollars and convert that to gold in two years.  Imagine the possiblities,

 

How would goverment found its social programs? 
what about the money that the goverment receive from our transactions. How can goverment support for example justice, medicine, science if its going to receive less money. Is goverment going to do nothing just see how transactions in bitcoins get bigger?

Does anyone can get a loan in bitcoins to build a house, or create something that has good future but needs more bitcoins that he has? And what would be the interst? Maybe paid in bitcoins that doesnt exist yet? 

 

Dave, thanks for the calm and well-thought-out analysis.  I fully agree on your risk analysis, based on the nature of the current internet, and your assessment of the Chief Scientist.I'd like to speculate a bit, though, about the possible fate of the internet as The Long Descent occurs (I'm basing this on John Michael Greer's model of a slow, rough, stairstep decline, rather than a fast, apocalyptic crash).
First, an aside: Bitcoin seems to me to be in the well-established company of alternative currencies, which have been developed in many times and places, typically in response to major dysfunctions of official currencies.  (Peter North's book "Local Money" is a good survey of recent examples; for a more comprehensive look at monetary systems, see Bernard Lietaer's "New Money for a New World", which somewhat unintuitively harks back as far as ancient Egypt.)  Of course, Bitcoin takes good advantage of a widespread online "community", leveraging a confluence of technologies.
It seems to me that one could use the design of Bitcoin to create a local version, circulating within a geographically "compact" community.  For example, a city could, in principle, set up a "Gotham City Bitcoin", with mechanisms to keep it local, and other mechanisms to convert between it and other systems to facilitate trade.
I'm going to guess that, as global and national electric grids and other systems become unreliable, on the way to becoming unavailable, there could arise multiple local networks (meshnet, etc); these would be able to stay reliable considerably longer (think of packet networks based on a ham radio network, using locally generated electricity from solar, wind, geothermal, etc).  As long as computers of reasonable power can hook up to communications with reasonable bandwidth (and/or patient users), there could be networks, and possibly something vaguely like Bitcoin.
Again, I'm not predicting, just speculating.  Anybody else got a good story?

  1. Isn’t BC in a way backed by US Dollar because US$ (fiat currency) itself is used for purchasing BC. How is this aspect not factored in? Afterall, the Fed isn’t issuing BC’s along with paper currency? Hopefully - FED could issue BC’s with appropriate laws and regulations in place in future but till then BC is only a very tiny buffer catering to those who have the hands to operate a computer? It has to go beyond young tech-savvy hipsters.
  2. On Point 1 alone, BC, I feel, cannot to be treated or construed as currency/money despite it being marketed as such by the BitCoin Community. Gavin himself hints at this being a barter instrument (an instrument accepted for barter but not entirely as money  ... ala sophisticated Baseball cards perhaps??) … in a way succinctly clarified by him at the 17:01 mark & also by quoting “It is like cash” at the 18:41 mark. So Gavin himself was careful to not call it money - at least not directly. If you can’t pay govt. taxes, mortgages, then it cannot be mainstream - one should consider these as highly acceptable baseball cards thanks in part to the internet. An acceptable form of currency has to be govt. sanctioned & not be reliant on internet alone. There are billions without access to internet/technology - is this not to be considered?
  3. If tech-savvy geeks control the authentication of transactions, then there is a possibility of manipulation by these geeks in the future? If LIBOR can get manipulated, what stops the pool of geeks from coming together and manipulating the BC just like the printed money today?
  4. This is exposed to the fallibility of how internet operates - solar flares, cable outage, political viewpoints, govt. restrictions thru’ institutions like NSA, etc are all good reasons to see BC in a skeptical light. Let us not forget that NSA controls Google and is a virtual spy on all who use technology. BC could very easily & effectively be ‘curtailed’ if things get too ‘enthusiastic’ - as we all know privacy rules are only on paper as far as NSA is concerned.
  5. OS like Android are vulnerable to malware attacks.
  6. There has to be an organized officially & legally, perhaps federally recognized regulated structure for BC even if it has to be outside the purview of govt policies & political spanners in order for BC to be truly autonomously considered with the freedom to transact with whosoever without central banks or exchange rates. Unless this is accepted by state, it is safe to argue that BC could be regarded as a more ubiquitous form of barter out there .. mainly because of the internet. I don’t mind bartering in either baseball cards or bitcoins if it serves my purpose to an extent. Taking care of all of the above, however, BC could then become a viable alternative to fiat currency.

DWIG -There is bitcoin with its particular algorithm, and there is electronic money in general.  E-money that requires no particular mining operation, simply a digital signature of a central authority, is easy to construct.  Stored value cards (more or less) do just that.  Bitcoin's magic is that no central authority is required to construct money or validate transactions.  Heck, Gotham transport cards could be used as currency if it came to that.
Now then, I don't know bitcoin's architecture well enough to know if what you propose will work out.  It sounds interesting, but I'd have to know the algorithm at a deeper level than I actually do to know if bitcoin's operations could be regionalized.
 

It is quite apparent that many of the people posting comments about BTC have no idea what it is or how it works. It would be very refreshing if a bare minimum of research was done before hitting the send key. I suggest going to bitcointalk.org for lots of discussion about many of the aspects of BTC. There is a large and growing group of peop;e worldwide using BTC. THe largest group currently is China. THere was a very gig spike when the banks of Cyprus were stealing peoples money. There are cars , houses, land, musical instruments baklavah, range fed beef etc being exchanged for BTC. If you don't trust it you can get out of it at any time. In other words you can sell your Maserati for 1000 BTC and turn around and convert it almost instantaneously into fiat. YOu do not have to convert it into USD. It is a big world out there and there atr various exchanges. As for it being a mere digital currency  I would suggest that 95-97% of all USD are digital. As for the internet going down I suggest that your atm card will not work, you will not be able to access your credit cards etc. etc. YOu will have some very powerful partners with a vested interest in seeing that the internet does not go down for very long and certainly not world wide. Being world wide and distributed gives it a great deal of security. I remember when I was an active member here in the good old days when there were some very sharp people here like strabes and the discussions were lively, intense and much more open minded. One of the topics that got a lot of play was local currency. BTC is a global local currency period. Yes the US government can mess with it they can regulate it but that does not stop me from trading in Argentina, Germany or many other places aroound the world. THe regulations will come into play and taxes have to be paid at the interface between fiat and BTC.Currently BTC is an ideal vehicle for short term trading and long term investing. As was stated in the podcast it is a high risk investment. I think people who bought gold at $1900 are not too happy now. This will in all likelihood not see the pages of PP but that is what it is
V

I found this podcast very instructive for I had no idea how bitcoins worked as a decentralized community supported currency.
I would like to draw your attention to the work of Bernard Lietaer on complementary currencies. http://en.wikipedia.org/wiki/Bernard_Lietaer, http://www.lietaer.com/category/welcome/

It would be very interesting to have Bernard as an interviewee. His findings on the the sustainability of an 'ecosystem of currencies' are amazing. (based on the modelling of complex flow networks in ecology and physics) http://www.money-sustainability.org/

His insights on currency systems in ancient Egypt and medieval Europe and their interplay with cultural values and achievements (pyramids / cathedrals) are equally interesting.

Karlx1, thanks for that.  I've also previously recommended bringing Lietaer in.  Maybe if we get a few more folks to back the idea, it'll actually happen.

Bitcoins are not made out of "thin air", increasingly complex and expensive computers solve hashes, which is estimated to cost half a million dollars a day. This is what gives Bitcoins intrinsic value, alongside their rarity, like gold.

I agree with your view about bitcoin’s future. According to Bitcoin Daily, bitcoin’s future is still undecided and still has a lot of things to prove to be accepted globally.