Editorial: BitCoins & LiteCoins; Mining the Future?

[dgstorm]

These are some amazing points, and I am excited to see how much thought, time and mental effort you guys have shared on the subject. I especially appreciated kodiak's responses in post number 15. He makes some excellent and convincing arguments. I also really liked FoxKat's well written and in-depth description of "sweat-equity."

I do want to suggest a couple of ideas though. Even though kodiak is correct that the history and experience of an actual physical commodity like gold are easier to "trust," the ultimate point is that trust is a subjective thing which can and does change. This applies to our "faith in government" surrounding the USD as well (or any other fiat currency).

Is it likely to change a great deal, and is it likely bitcoins/litecoins will suddenly displace the rest of the world's currencies? Not really. That doesn't mean that we should arbitrarily dismiss them. They really could take hold as an alternative international currency, although if they become too popular most of the governments on the planet would probably try to squash them.

Also, as a separate concept to explore. What really is money? I really like FoxKat's "sweat equity" analogy. I have always held the view that money is really nothing more than a numerical representation for energy, and FoxKat explains this in brilliant layman's terms. At some point in the future-history of our world it is possible we will create a "global" currency that everyone agrees holds equivalent value. Are bitcoins/litecoins that currency? Probably not, but at least the concept is being explored and new ideas are emerging.

The main reason we wanted to share this story about bitcoins/litecoins was to gauge what our members were thinking of it, and get some interesting discussions going on the subject. It looks like we did that. Regardless of what we discuss in this thread it will be interesting to see if anything becomes of bitcoins/litecoins or if they will just fade into history.

As a wild tangent, here's an idea from the futurist Ray Kurzweil. He's a bit crazy and way out there, but he has an optimistic and intriguing vision of the future. He posits that one day our technology will become so powerful it will be able to solve all of our logistical problems for us, like disease, hunger, resources and even aging. His vision of the future suggests that eventually anything we would want or need will become readily available to us. If we were to reach a point like that in the future, would we even need money anymore?

 

[kodiak799]

you have good faith just like every other currency in the world.

Like the Albanian Lek, not the USD. Yes, perhaps Bitcoin can emerge as a viable alternative to unstable 3rd world currencies, assuming said country has the internet.

 

[FoxKat]

Not accurate. The 'value' of bitcoin (and by extension, the 'mining') is the cryptography of each exchange and the necessary processing power to encrypt each transaction into the blockchain. The 'value' in the case of bitcoin is security, its essentially hackproof at current difficulty. Granted, at present, mining is being subsidized by the 25 btc reward for each block, but if the digital currency gains enough traction, the processing fees for transactions will provide the payoff.

I don't disagree that there is some miniscule value in the "rarity" of the bitcoin simply by its self-imposed "limited quantity", and also don't disagree that there is value in the so-called "security" of the cryptography that is required to "mine" such a currency. The point I was making is that there is no "transfer for value". By that I mean that the purveyor of the bitcoin isn't receiving a value for the transfer of these coins, (let's keep this point to the ones "mined" - NOT the ones that are bought outright), and so the "transfer" takes place, but the reciprocal "value" is missing from the transaction.

What is stopping me from creating a "bull..itcoin" that I say is "limited" to a certain number of production, requires an advanced algorithm to "mine" them, and in effect duplicate or clone this bitcoin? Nothing. I am bringing nothing but a promise of a perceived value. I am backing it up with no commodity of any kind, not a product, a service, a rare (or quasi-rare), metal (Gold, Silver, Platinum), or mineral (think Ruby, Emerald, Sapphire, and yes, Diamonds by the Diamond Cartel's designed "rarity"), a farmed fruit or vegetable, nothing but what I say it's worth. So as more and more people create these so-called digital currencies, each new one will diminish the value of all others before it and itself in the process. With no tangible or intrinsic backing or value, its "perceived value" is subject to pure speculation.

Now, if I had discovered a new form of precious or semi-precious mineral that only I had access to the source of, and I said that I will exchange or "transfer", that "bull..itcoin" for a certain quantity of that mineral (think "Silver Certificates"), at the then current market "value" on demand, then there is a complete transaction. In a nutshell, the bitcoin is an open-ended spiral with no known end, whereas any true and viable currency is a closed loop (leaky, maybe, but still closed). Yes, the US Government is printing money at will and yes, for each new run of bills printed, it devalues by fractions of a penny each dollar already in circulation, but it's also backed by the GDP of the country and also by the "Faith" of the country to pay its debts to the creditors both domestic and foreign who purchase their US Treasuries and other promissory notes (which is...yeah, a promise of a transfer for value).

There is also yet another intrinsic value in the currency...the expectation that as the population grows, that the young students being educated now will soon begin filtering into the economy and develop radical new products and services, and as the country becomes more productive that the total GDP will grow by some relative rate to that. In other words, we're backing (definition is "support" - i.e. carried on our backs), our currency and the increased printing of said currency on the "backs" of our children and future generations. We are "leveraging" (again supporting or lifting), our increased "float" (lift once again), on the expectation that the future production increases will at some point begin to reverse the highly leveraged currency and its value will begin to increase again, just like the balances once used to determine how much gold you exchanged for your food.

And finally, there is the ultimate "value" of the currency which is the safe haven (though somewhat diminished), from other forms of currency or commodities should they devalue under economic or political pressures, war, governmental collapse, natural disasters, etc. So the value of the dollar (and any other successful currency) has MANY backings or tangible collateral tied to it. I see NO collateral of any "real value" tied to the bitcoin other than some empty promises and the implied engineered security and engineered rarity or limited supply versus demand. If the demand goes down, then the only things left are the empty promises and the implied security. And with the rate that technology is advancing, even the security is in question. "Dr." Rosenberg (rootmaster, or (@djrbliss), just cracked the seemingly "un-crackable" algorithm used by Motorola to keep our newest RAZRs' bootloaders locked down. Truth is, there is NO lock that man can create which can't eventually be cracked by another man...it's just a matter of time. And yet, he still can't turn Lead into Gold.

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

How Secure Is My Password?

Dont get bitten by Bitcoins

 

[kodiak799]

A couple of other distinctions.

Gold is a popular hedging tool/investment. It's not particularly liquid in the sense you can't go to the store and buy a gallon of milk with gold. Granted, it's easy enough to convert to cash. In fact, I can't go to the store in the US and buy milk with pesos, or euros, or yen. That's a huge hurdle to overcome, because you need the demand but the demand is very limited when it doesn't work for most transactions.

Second is the fact the Federal Reserve has a monopoly on currency (and I assume most, if not all, other countries are the same, exception being perhaps Europe where you still have some national currencies in addition to the Euro). The banks would love to issue their own currency, and they would be all over this...if they could. It's not clear to me if electronic currency proves viable that the banks could jump in. Otherwise they certainly would, and BTC or whatever would become worthless almost overnight (the same as most online gamblers will flock to Caesars/Harrah's/etc when it's legalized because of the reputation). And that's actually a growing and somewhat cutting edge economic theory right now - banks issuing competing currency (free markets rejoice!). The driving purpose is the same as proponents of returning to the gold standard, to truly impose financial restraint on Washington. The difference is this recognizes that fiat currency is simply superior to the gold standard.

Somewhat off-topic but related...one scary thing is what happens if the power grid and/or internet is down for an extended time? Obviously your Bitcoin is useless, but if most people are like me they don't carry much cash anyway. I've been caught once or twice in extended power outages with little to no cash. Still haven't learned my lesson. It's really quite stupid.

 

[danDroid]

I decided to build a new machine this past weekend, mostly for fun of it (haven't had a Windows machine in some time), some of it to mine. I decided to start mining litecoins instead of bitcoins. It just seems like a more level playing field.


Check out my build here: My Litecoin Mining Rig!