Bitcoins spiked because they appeared on the gwaker network., because they had an article about silk road. Fiat currencies only work because the government forces you to buy and sell with it. Once drug dealers move on to something that is easier, that will be the end. The only way this would work is with an exchange, and a fixed amount of bitcoins.
Alright guys. I am a computer guy, econ buff of the Austrian bent, etc. In one sentence: Bitcoins are a secure and anonymous internet currency backed by the processing power of the computers behind them. Details: How they are created: Bitcoins are produced by people running software that "discovers" new coins. Each coin is basically an encryption key. The keys must be found by computers crunching numbers. You know how there is software that looks for new prime numbers? Think of it like that. There are thousands or tens of thousands of nerds out there using their computers to try to find bitcoins. Their computers are crunching numbers all day and night to discover new bitcoins - new passwords/keys that are secure within the bitcoin network. How they are limited: The peer to peer network is self aware to the extent that it understands the total money supply. It automatically throttles the production of bitcoins to limit bitcoin inflation. It is progressively more difficult for computers to find new bitcoins, just like how it becomes more and more difficult to find bigger prime numbers. How they are "secure": At no point is your name associated with bitcoins, just like CASH. Also, because you have no bank account (yet) to deposit these in, if your computer crashes, you lose your bitcoins if they were not backed up. Just like CASH. So when you hear senators complaining, they are just complaining about the same weaknesses that exist in CASH. How they are backed: Computers. Silver dollars were backed with silver. Under the gold standard, dollars were backed with gold. With bitcoins, the coins are literally backed by the computers that created them. Gold/silver dollars are the easiest comparison. When gold dollars become very valuable, ie, when you can buy a lot with a gold dollar, gold miners ramp up production to produce more gold. Same deal with bitcoins. When bitcoins go up in value, more people dedicate their computers to find new bitcoins. Fast forward 5, 10, 25 years from now. Why should google have acres of servers? There is plenty of idle computation power in the world today that if google could figure out how to harness it, they could offload all of that work onto the net. Their very demand to utilize the combined computation power of the net (including your computer when you aren't using it) can potentially be the driving force of bitcoin value. If demand for computation pool power goes up, ie, google wants to add capacity dedicated to their software, they can pay in bitcoins. This would lead people to divert their resources from "mining" bitcoins to serving google's demand. Bitcoins serve to commoditize computational power. One bitcoin will represent x number of computational time/production. This creates a trade off for a "miner": mine/create more bitcoins (gold) or sell your computation time for other pursuits, such as to run google. This leads to a currency backed by computation. If you compare gold to a computer, which is more useful? As far as trading goes, here are the main risks: 1. Anyone with $10-20 million and know how could walk in and crush this market by dominating the production process. By the way, if anyone wants to do this, send me a message. I can help you monopolize the bitcoin production market. 2. It is very volatile right now. For better or worse, swings from $10 to $30 are commonplace within a couple days, sometimes intraday. You can't short (yet, mtgox is working on bitcoin margin so who knows?). You can only buy low and sell high. You can't sell high and buy low. 3. Also for better or worse, you can see a fair representation of the market depth at some exchanges. Some show you most of the limit orders. There is some ability to have shadow orders that are invisible. But you can still more or less get a feel for the market and predict how you can move the market far more than most other markets. Also given the limited size, it is within the ability of many here to move. 4. Some people have a shitload of bitcoins. One guy has like 297,000 bitcoins. At recent prices of ~$20 per coin, that is like $5,940,000 worth of bitcoins. If someone like that tries to cash in too quickly, they will destroy the market.
Wow thanks for clearing things up. I like the term miner it is very accurate as when bitcoins go down in value, production will be effected as people will have better things to do. In that sense it is indeed alot like gold, Since used computing power is not a hard asset, I'm not sure to say it is backed by it. If cash was backed by gold, and the cash got burnt you would still have gold to sell, Here the computing power has been used. I guess it is some thing to ponder upon. How hard is it to mine? and how many coins can be mined ? I understand this depends mostly on the person that is mining but what is the average yearly production or the average time it would take to mine one, and what is involved?
You have no idea what you are talking about, you cannot dominate the production process...Even now the miners are barely breakeven on the electricity used to mine 1 bitcoin, and it's a geometric series... Just read the wikipedia man, this is not rocket science. Computer guy.... The real risks are 1) a major holder flooding the market to cause a temp crash. 2) a more popular p2p currency comes into play backed by a major company etc.., phases out bitcoin. ------------------------------------------ It's definitely a cool novelty and who knows what will happen in 10-20 years the way all the countries are printing their paper money nonstop. I just want to get $1000 worth, then dump it in a usb for 10 years and see what happens. Bought bunch more at $10, $17, $20. Btw tradehill.com is the way to go, very clean and fast, finally a good site to trade even though it's still a basement outfit. Liquidity is not as good as mtgox but not too bad.
Found this AFTER my last post. <iframe width="560" height="349" src="http://www.youtube.com/embed/oHw6fldrObo" frameborder="0" allowfullscreen></iframe> This crap look to me like a penny stock scam. same hype, same hustle. same morons. If you think this is gonna fly and keep flying, you're too dumb even for ET. Bitcoin target
lol. in the vid it says that bitcoins are not backed by anything, as he said neither is the US dollar. The us dollar is more stable then bitcoins. But bit coins is fairly new. Probably each country that gets in to them starts off with a lot of interest and then it wares off. causing fluctuations. If it is a good system or not, eventually the price should become more and more stable. The fact that they are in limited supply, does mean that they have value. As stocks are in limited supply they sell for more then they are worth. Even during the tech bubble when people knew that they were not really investing in the idea of a company but more so in a market that was going out of controll. They were investing in the magic of supply and demand. his pointing out of short comings is off. The main short coming is simply that if another similar system pops up it will double or quadruple the supply of these types of investments causing a fall in prices (as mentioned above). There can be multiple systems like this popping up. It is likely that a big company eventually takes over making Bit coins obsolete if it is considered legal and ethical. This indeed will make them in to shit coins I wanted to go see the F1 but prices of tickets were through the roof due to a high recent interest in the F1. People made money off buyers due to the psychological weakness of people not to plan ahead. but in general it will be held back, as many other commodities are (increase in production), by its legal problems, and competition. Its a great social experiment, money can be made but it is risky as hell unless you have studied the psychology of buying fake money