How do you convert money to bitcoins wiki

Some of these are still not ready for everyone. Most Bitcoin businesses are new and still offer no insurance. In general, Bitcoin is still in the process of maturing. Why do people trust Bitcoin? Much of the trust in Bitcoin comes from the fact that it requires no trust at all.

Bitcoin is fully open-source and decentralized. This means that anyone has access to the entire source code at any time. Any developer in the world can therefore verify exactly how Bitcoin works. All transactions and bitcoins issued into existence can be transparently consulted in real-time by anyone.

All payments can be made without reliance on a third party and the whole system is protected by heavily peer-reviewed cryptographic algorithms like those used for online banking. No organization or individual can control Bitcoin, and the network remains secure even if not all of its users can be trusted. Can I make money with Bitcoin? You should never expect to get rich with Bitcoin or any emerging technology. It is always important to be wary of anything that sounds too good to be true or disobeys basic economic rules.

Bitcoin is a growing space of innovation and there are business opportunities that also include risks. There is no guarantee that Bitcoin will continue to grow even though it has developed at a very fast rate so far. Investing time and resources on anything related to Bitcoin requires entrepreneurship. There are various ways to make money with Bitcoin such as mining, speculation or running new businesses. All of these methods are competitive and there is no guarantee of profit.

It is up to each individual to make a proper evaluation of the costs and the risks involved in any such project. Is Bitcoin fully virtual and immaterial? Bitcoin is as virtual as the credit cards and online banking networks people use everyday. Bitcoin can be used to pay online and in physical stores just like any other form of money. Bitcoins can also be exchanged in physical form such as the Denarium coins , but paying with a mobile phone usually remains more convenient.

Bitcoin balances are stored in a large distributed network, and they cannot be fraudulently altered by anybody. In other words, Bitcoin users have exclusive control over their funds and bitcoins cannot vanish just because they are virtual. Is Bitcoin anonymous? Bitcoin is designed to allow its users to send and receive payments with an acceptable level of privacy as well as any other form of money. However, Bitcoin is not anonymous and cannot offer the same level of privacy as cash.

The use of Bitcoin leaves extensive public records. Various mechanisms exist to protect users' privacy, and more are in development. However, there is still work to be done before these features are used correctly by most Bitcoin users. Some concerns have been raised that private transactions could be used for illegal purposes with Bitcoin.

However, it is worth noting that Bitcoin will undoubtedly be subjected to similar regulations that are already in place inside existing financial systems. Bitcoin cannot be more anonymous than cash and it is not likely to prevent criminal investigations from being conducted. Additionally, Bitcoin is also designed to prevent a large range of financial crimes.

What happens when bitcoins are lost? When a user loses his wallet, it has the effect of removing money out of circulation. Lost bitcoins still remain in the block chain just like any other bitcoins. However, lost bitcoins remain dormant forever because there is no way for anybody to find the private key s that would allow them to be spent again. Because of the law of supply and demand, when fewer bitcoins are available, the ones that are left will be in higher demand and increase in value to compensate.

Can Bitcoin scale to become a major payment network? The Bitcoin network can already process a much higher number of transactions per second than it does today. It is, however, not entirely ready to scale to the level of major credit card networks. Work is underway to lift current limitations, and future requirements are well known. Since inception, every aspect of the Bitcoin network has been in a continuous process of maturation, optimization, and specialization, and it should be expected to remain that way for some years to come.

As traffic grows, more Bitcoin users may use lightweight clients, and full network nodes may become a more specialized service. For more details, see the Scalability page on the Wiki. Legal Is Bitcoin legal? To the best of our knowledge, Bitcoin has not been made illegal by legislation in most jurisdictions. However, some jurisdictions such as Argentina and Russia severely restrict or ban foreign currencies.

Other jurisdictions such as Thailand may limit the licensing of certain entities such as Bitcoin exchanges. Regulators from various jurisdictions are taking steps to provide individuals and businesses with rules on how to integrate this new technology with the formal, regulated financial system.

Is Bitcoin useful for illegal activities? Bitcoin is money, and money has always been used both for legal and illegal purposes. Cash, credit cards and current banking systems widely surpass Bitcoin in terms of their use to finance crime. Bitcoin can bring significant innovation in payment systems and the benefits of such innovation are often considered to be far beyond their potential drawbacks.

Bitcoin is designed to be a huge step forward in making money more secure and could also act as a significant protection against many forms of financial crime. For instance, bitcoins are completely impossible to counterfeit. Users are in full control of their payments and cannot receive unapproved charges such as with credit card fraud.

Bitcoin transactions are irreversible and immune to fraudulent chargebacks. Bitcoin allows money to be secured against theft and loss using very strong and useful mechanisms such as backups, encryption, and multiple signatures. Some concerns have been raised that Bitcoin could be more attractive to criminals because it can be used to make private and irreversible payments.

However, these features already exist with cash and wire transfer, which are widely used and well-established. The use of Bitcoin will undoubtedly be subjected to similar regulations that are already in place inside existing financial systems, and Bitcoin is not likely to prevent criminal investigations from being conducted.

In general, it is common for important breakthroughs to be perceived as being controversial before their benefits are well understood. The Internet is a good example among many others to illustrate this. Can Bitcoin be regulated? The Bitcoin protocol itself cannot be modified without the cooperation of nearly all its users, who choose what software they use.

Attempting to assign special rights to a local authority in the rules of the global Bitcoin network is not a practical possibility. Any rich organization could choose to invest in mining hardware to control half of the computing power of the network and become able to block or reverse recent transactions. However, there is no guarantee that they could retain this power since this requires to invest as much than all other miners in the world.

It is however possible to regulate the use of Bitcoin in a similar way to any other instrument. Just like the dollar, Bitcoin can be used for a wide variety of purposes, some of which can be considered legitimate or not as per each jurisdiction's laws. In this regard, Bitcoin is no different than any other tool or resource and can be subjected to different regulations in each country. Bitcoin use could also be made difficult by restrictive regulations, in which case it is hard to determine what percentage of users would keep using the technology.

A government that chooses to ban Bitcoin would prevent domestic businesses and markets from developing, shifting innovation to other countries. The challenge for regulators, as always, is to develop efficient solutions while not impairing the growth of new emerging markets and businesses.

What about Bitcoin and taxes? Bitcoin is not a fiat currency with legal tender status in any jurisdiction, but often tax liability accrues regardless of the medium used. There is a wide variety of legislation in many different jurisdictions which could cause income, sales, payroll, capital gains, or some other form of tax liability to arise with Bitcoin.

What about Bitcoin and consumer protection? Bitcoin is freeing people to transact on their own terms. Each user can send and receive payments in a similar way to cash but they can also take part in more complex contracts.

Multiple signatures allow a transaction to be accepted by the network only if a certain number of a defined group of persons agree to sign the transaction. This allows innovative dispute mediation services to be developed in the future. Such services could allow a third party to approve or reject a transaction in case of disagreement between the other parties without having control on their money.

As opposed to cash and other payment methods, Bitcoin always leaves a public proof that a transaction did take place, which can potentially be used in a recourse against businesses with fraudulent practices. It is also worth noting that while merchants usually depend on their public reputation to remain in business and pay their employees, they don't have access to the same level of information when dealing with new consumers.

The way Bitcoin works allows both individuals and businesses to be protected against fraudulent chargebacks while giving the choice to the consumer to ask for more protection when they are not willing to trust a particular merchant. Economy How are bitcoins created?

New bitcoins are generated by a competitive and decentralized process called "mining". This process involves that individuals are rewarded by the network for their services. Bitcoin miners are processing transactions and securing the network using specialized hardware and are collecting new bitcoins in exchange. The Bitcoin protocol is designed in such a way that new bitcoins are created at a fixed rate.

This makes Bitcoin mining a very competitive business. When more miners join the network, it becomes increasingly difficult to make a profit and miners must seek efficiency to cut their operating costs. No central authority or developer has any power to control or manipulate the system to increase their profits. Every Bitcoin node in the world will reject anything that does not comply with the rules it expects the system to follow. Bitcoins are created at a decreasing and predictable rate.

The number of new bitcoins created each year is automatically halved over time until bitcoin issuance halts completely with a total of 21 million bitcoins in existence. At this point, Bitcoin miners will probably be supported exclusively by numerous small transaction fees. Why do bitcoins have value? Bitcoins have value because they are useful as a form of money. Bitcoin has the characteristics of money durability, portability, fungibility, scarcity, divisibility, and recognizability based on the properties of mathematics rather than relying on physical properties like gold and silver or trust in central authorities like fiat currencies.

In short, Bitcoin is backed by mathematics. With these attributes, all that is required for a form of money to hold value is trust and adoption. In the case of Bitcoin, this can be measured by its growing base of users, merchants, and startups. As with all currency, bitcoin's value comes only and directly from people willing to accept them as payment.

The price of a bitcoin is determined by supply and demand. When demand for bitcoins increases, the price increases, and when demand falls, the price falls. There is only a limited number of bitcoins in circulation and new bitcoins are created at a predictable and decreasing rate, which means that demand must follow this level of inflation to keep the price stable. Because Bitcoin is still a relatively small market compared to what it could be, it doesn't take significant amounts of money to move the market price up or down, and thus the price of a bitcoin is still very volatile.

Bitcoin price over time: Can bitcoins become worthless? History is littered with currencies that failed and are no longer used, such as the German Mark during the Weimar Republic and, more recently, the Zimbabwean dollar. Although previous currency failures were typically due to hyperinflation of a kind that Bitcoin makes impossible, there is always potential for technical failures, competing currencies, political issues and so on. As a basic rule of thumb, no currency should be considered absolutely safe from failures or hard times.

Bitcoin has proven reliable for years since its inception and there is a lot of potential for Bitcoin to continue to grow. However, no one is in a position to predict what the future will be for Bitcoin. Is Bitcoin a bubble? A fast rise in price does not constitute a bubble.

An artificial over-valuation that will lead to a sudden downward correction constitutes a bubble. Choices based on individual human action by hundreds of thousands of market participants is the cause for bitcoin's price to fluctuate as the market seeks price discovery. Reasons for changes in sentiment may include a loss of confidence in Bitcoin, a large difference between value and price not based on the fundamentals of the Bitcoin economy, increased press coverage stimulating speculative demand, fear of uncertainty, and old-fashioned irrational exuberance and greed.

Is Bitcoin a Ponzi scheme? A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money, or the money paid by subsequent investors, instead of from profit earned by the individuals running the business. Ponzi schemes are designed to collapse at the expense of the last investors when there is not enough new participants.

Bitcoin is a free software project with no central authority. Consequently, no one is in a position to make fraudulent representations about investment returns. Like other major currencies such as gold, United States dollar, euro, yen, etc. This leads to volatility where owners of bitcoins can unpredictably make or lose money. Beyond speculation, Bitcoin is also a payment system with useful and competitive attributes that are being used by thousands of users and businesses.

Doesn't Bitcoin unfairly benefit early adopters? Some early adopters have large numbers of bitcoins because they took risks and invested time and resources in an unproven technology that was hardly used by anyone and that was much harder to secure properly. Many early adopters spent large numbers of bitcoins quite a few times before they became valuable or bought only small amounts and didn't make huge gains.

There is no guarantee that the price of a bitcoin will increase or drop. This is very similar to investing in an early startup that can either gain value through its usefulness and popularity, or just never break through. Bitcoin is still in its infancy, and it has been designed with a very long-term view; it is hard to imagine how it could be less biased towards early adopters, and today's users may or may not be the early adopters of tomorrow.

Won't the finite amount of bitcoins be a limitation? Bitcoin is unique in that only 21 million bitcoins will ever be created. However, this will never be a limitation because transactions can be denominated in smaller sub-units of a bitcoin, such as bits - there are 1,, bits in 1 bitcoin. Bitcoins can be divided up to 8 decimal places 0.

Won't Bitcoin fall in a deflationary spiral? The deflationary spiral theory says that if prices are expected to fall, people will move purchases into the future in order to benefit from the lower prices. That fall in demand will in turn cause merchants to lower their prices to try and stimulate demand, making the problem worse and leading to an economic depression. Although this theory is a popular way to justify inflation amongst central bankers, it does not appear to always hold true and is considered controversial amongst economists.

Consumer electronics is one example of a market where prices constantly fall but which is not in depression. Similarly, the value of bitcoins has risen over time and yet the size of the Bitcoin economy has also grown dramatically along with it. Because both the value of the currency and the size of its economy started at zero in , Bitcoin is a counterexample to the theory showing that it must sometimes be wrong. Notwithstanding this, Bitcoin is not designed to be a deflationary currency.

It is more accurate to say Bitcoin is intended to inflate in its early years, and become stable in its later years. The only time the quantity of bitcoins in circulation will drop is if people carelessly lose their wallets by failing to make backups. With a stable monetary base and a stable economy, the value of the currency should remain the same.

Isn't speculation and volatility a problem for Bitcoin? This is a chicken and egg situation. For bitcoin's price to stabilize, a large scale economy needs to develop with more businesses and users. For a large scale economy to develop, businesses and users will seek for price stability. Fortunately, volatility does not affect the main benefits of Bitcoin as a payment system to transfer money from point A to point B.

It is possible for businesses to convert bitcoin payments to their local currency instantly, allowing them to profit from the advantages of Bitcoin without being subjected to price fluctuations. Since Bitcoin offers many useful and unique features and properties, many users choose to use Bitcoin. With such solutions and incentives, it is possible that Bitcoin will mature and develop to a degree where price volatility will become limited.

What if someone bought up all the existing bitcoins? Only a fraction of bitcoins issued to date are found on the exchange markets for sale. Bitcoin markets are competitive, meaning the price of a bitcoin will rise or fall depending on supply and demand. Additionally, new bitcoins will continue to be issued for decades to come. Therefore even the most determined buyer could not buy all the bitcoins in existence.

This situation isn't to suggest, however, that the markets aren't vulnerable to price manipulation; it still doesn't take significant amounts of money to move the market price up or down, and thus Bitcoin remains a volatile asset thus far.

What if someone creates a better digital currency? That can happen. For now, Bitcoin remains by far the most popular decentralized virtual currency, but there can be no guarantee that it will retain that position. There is already a set of alternative currencies inspired by Bitcoin. It is however probably correct to assume that significant improvements would be required for a new currency to overtake Bitcoin in terms of established market, even though this remains unpredictable.

Bitcoin could also conceivably adopt improvements of a competing currency so long as it doesn't change fundamental parts of the protocol. Transactions Why do I have to wait for confirmation? Receiving notification of a payment is almost instant with Bitcoin. They can also accept Bitcoins as payments for goods and services. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.

We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible. A generation ago, multi-user time-sharing computer systems had a similar problem. Before strong encryption, users had to rely on password protection to secure their files, placing trust in the system administrator to keep their information private.

Privacy could always be overridden by the admin based on his judgment call weighing the principle of privacy against other concerns, or at the behest of his superiors. Then strong encryption became available to the masses, and trust was no longer required. Data could be secured in a way that was physically impossible for others to access, no matter for what reason, no matter how good the excuse, no matter what.

With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure and transactions effortless. One of the fundamental building blocks for such a system is digital signatures.

A digital coin contains the public key of its owner. To transfer it, the owner signs the coin together with the public key of the next owner. Anyone can check the signatures to verify the chain of ownership. It works well to secure ownership, but leaves one big problem unsolved: double-spending. Any owner could try to re-spend an already spent coin by signing it again to another owner. The usual solution is for a trusted company with a central database to check for double-spending, but that just gets back to the trust model.

In its central position, the company can override the users, and the fees needed to support the company make micropayments impractical. In a nutshell, the network works like a distributed timestamp server, stamping the first transaction to spend a coin. It takes advantage of the nature of information being easy to spread but hard to stifle. The result is a distributed system with no single point of failure. Users hold the crypto keys to their own money and transact directly with each other, with the help of the P2P network to check for double-spending.

Aran explains: Bitcoin is an open source peer-to-peer a. The availability of bitcoins can't be manipulated by governments or financial institutions. Bitcoin may last for years and become a popular global currency, or it could be just a flash in the pan, but either way I think this is an important sign of the times to come. This is one of the first truly decentralised currencies and has paved the way for hundreds more to compete together in the new arena of Cipherspace over the coming years.

This is one of the key factors in the transition of global society into the post-nation-state economy talked about in The Sovereign Individual. In a p2p computer network there are no servers, the entire network is composed of users running instances of the application on their computers. Each running instance offers a small amount of processing and storage resource to the network so that it can deliver the services it was designed for such as redundant storage, anonymity or voice-over-IP applications.

In the case of a p2p currency system, some of the services the network is designed to offer are privacy, verification, authentication, currency creation and transfer of ownership. To ensure a reliable and tamper-proof system requires a lot of resource, and that amount is proportional to the amount of coins in the network. The network is able to pay the users for the resource they offer by making the coin-creation process part of the network protocol itself instead of being handled by a central trusted authority.

This creates a natural and incorruptible link between the supply of currency in the network and the demand for it. Even aside from the ability to exchange bitcoins for other currencies, it still makes a very useful tool for independent organisations and groups because it allows them to trade and settle accounts amongst themselves independently and privately.

It effectively gives them a "bank" that has a trustworthy system of accounts that can't be tampered with and requires no corruptible central authority to operate. See the Bitcoin Whitepaper for more detail about how it works. To try Bitcoin, download the Bitcoin software, then once it's running, click 'Generate Coins' which will pay you bitcoins in exchange for your computer working to validate bitcoin transactions. Check the exchange rate to calculate how many bitcoins need to be sent.

The payer can purchase additional bitcoins if needed. The payer's previously generated bitcoins allow for a lower out of pocket payment. The payer then sends the bitcoins to the receiver using the Bitcoin software.

The receiver can then sell their bitcoins for dollars. The receiver's previously generated bitcoins allow a higher dollar payout. FAQ "Q. What is Bitcoin? Bitcoin is a peer-to-peer currency. Peer-to-peer means that no central authority issues new money or tracks transactions. These tasks are managed collectively by the network. How does Bitcoin work? Bitcoin utilises public-key cryptography.

A coin contains the owner's public key. B now owns the coin and can transfer it further. A is prevented from transferring the already spent coin to other users because a public list of all previous transactions is collectively maintained by the network. Peck: "The simplest way to understand Bitcoin is to think of it as a digital ledger book. Imagine a bunch of people at a table who all have real-time access to the same financial ledger on laptops in front of them. The ledger records how many bitcoins each person at the table has at a given time.

By necessity, the balance of each account is public information, and if one person wants to transfer funds to the person sitting across from him, he has to announce that transaction to everyone at the table. The entire group then appends the transaction to the ledger, which they all need to agree on.

This is basically how Bitcoin works, except that the participants are spread across a global peer-to-peer network, and all transactions take place between addresses on the network rather than individuals. Address ownership is verified through public-key cryptography, without revealing who the owner is. Maintaining the dissociation takes vigilance on the part of the Bitcoin user and careful decisions about which outside applications and exchange methods to use, but it can be done.

Bitcoin is often described as providing pseudoanonymity, by creating enough obfuscation to provide users with plausible deniability. People who own bitcoins have a program—called the Bitcoin client—installed on their computers to manage their accounts. When they want to access their funds, they use the client to send a transaction request.

The innovation of Bitcoin is to use the processing of these transaction requests as the mechanism for creating new currency. Before each block of transactions becomes part of the accepted Bitcoin ledger, or block chain, the mining software must transform the data using cryptographic hash equations.

The Bitcoin client accepts the resulting hash values only if they meet strict criteria, so miners typically need to compute many hash values before stumbling upon one that meets the requirements. That process costs a lot of computing power—so much that it would be prohibitively difficult for anyone to come along and redo the work. Each new block that gets added and sealed strengthens all the previous blocks on the chain. The Bitcoin system adjusts the difficulty of the hashing requirements to control the minting rate.

As more and more miners compete to process transactions, mining requires more computing power. Brock Tice, who mines bitcoins in St. Paul, Minn. But Tice first became interested in the network for a different reason. He thought it would be a better way to accept money from customers online.

In the world of atoms we achieve security with devices such as locks, safes, signatures, and bank vaults. In the world of bits we achieve this kind of security with cryptography. To ensure sufficient granularity of the money supply, bitcoins are divisible down to eight decimal places a total of 2. Should the need ever arise, this can be changed in the code.

Our cold hard cash is now shepherded through a series of regulated financial institutions like banks, credit unions and lenders. Bitcoin, created in by Satoshi Nakamoto, is a peer-to-peer digital currency system that endeavors to re-establish both privacy and autonomy by avoiding the banking and government middlemen. The goal is to allow individuals and merchants to generate and exchange modern money directly. Once the Bitcoin software has been downloaded, a user can store Bitcoins and exchange them directly with other users or merchants — without the currency being verified by a third party such as a bank or government.

It uses a unique system to prevent multiple-spending of each coin, which makes it an interesting development in the movement toward digital cash systems. The model proposed by Bitcoin is in many ways a response to some of the privacy and autonomy concerns surrounding our current financial system. Current money systems now increasingly come with monitoring of financial transactions and blocking of financial anonymity.

A peer-to-peer currency could theoretically offer an alternative to the bank practices that increasingly include sharing information on their customers who don't actively opt-out, and who may even then be able to share data with affiliates and joint marketers. Bitcoin is particularly interesting in the wake of recent events that demonstrated how financial institutions can make political decisions in whom they service, showcased by the decisions of PayPal, Visa, Mastercard and Bank of America to cut off services to Wikileaks.

Bitcoin, if it were to live up to the dreams of its creators, might offer the kind of anonymity and freedom in the digital environment we associate with cash used in the offline world. But Bitcoin's current implementation won't resolve all of the issues surrounding autonomy and privacy. Notably, the anonymity on Bitcoin is not entirely secure at this time, which makes its merits as a more private form of currency tenuous at best.

There are also other weaknesses to the system, some significant, which should be understood before using Bitcoin. And as of this writing, Bitcoin can't be used to donate to Wikileaks. But even more important than these concerns is the fact that governments around the world may raise legal issues with any digital cash scheme — ranging from money laundering to tax evasion to a range of other regulatory concerns.

Nonetheless, Bitcoin is an intriguing project and worth watching to see how it develops in the coming years. That means that the quantity of Fed-issued dollars in circulation is supposed to vary in response to the changing dynamics and needs of the real economy. The Fed is expected to monitor economic activity, and conduct a monetary policy that provides us with a stable but flexible medium of exchange. Bitcoin, by contrast, is much more rigidly designed so that new bitcoins are introduced into the system at a mathematically predictable rate that is almost completely independent of any economic activity for which bitcoins might be used.

As a result, the number of bitcoins in existence will effectively flatten out at 21 million in about — if anybody is still using the Bitcoin system by then. But long before the rate of bitcoin growth will slow very dramatically. The Bitcoin system therefore possesses a hard-coded and extremely rigid monetary policy determined by the software itself, software which lives on the computers of everyone who is participating in that system.

Now what does this mean for the future value of Bitcoin as a medium of exchange? That all depends on whether the Bitcoin economy — the universe of producers of goods and services who accept bitcoins in payment — continues to grow, or instead settles into a small and unchanging niche economy for a limited number of enthusiasts. But suppose as a thought experiment that the Bitcoin economy continues to grow, and that the volume of goods bought and sold with bitcoins continues to increase, as the rate of bitcoin creation first slows and then flattens.

Then one of two extremes might occur: either i prices in bitcoins remain stable as the rate of bitcoin transactions increase, or ii the rate of transactions stays roughly the same, but bitcoin prices fall as the finite quantity of bitcoins is spread over more and more transactions. Since the pace of transactions depends on real-world constraints on production and consumption, the effect that is likely to be the dominant one is that prices will fall.

In other words, there will be a deflationary spiral in the Bitcoin economy. This makes Bitcoin a poor long-term candidate for a stable, alternative medium of exchange. Deflation might appear to be an attractive thing at first look. But economists associate deflation with two negative phenomena: First, if prices are falling then the incentive to hoard the currency increases, since anybody who possesses that currency is seeing its value increase each day.

Hoarding by an individual agent is no big deal, but it is clearly bad news for the economy when hoarding is widespread, since if people stop buying things, then producers stop producing things and stop paying workers to produce things. The other problem with deflation is that contracts and debts are usually fixed in nominal terms, and so deflation makes debt more onerous. If the deflation continues, Sal will be wiped out.

As we have noted, Bitcoin has a built-in mechanism for adding new bitcoins to the system at a decreasing geometric rate. But note that new bitcoins are not simply sprinkled evenly among all bitcoin users when they are added to the system. So you can see why you would very much like to be a miner in a thriving Bitcoin economy and why early adopters of Bitcoin are so fanatical about keeping the system going.

Those who manage to accumulate bitcoins in the earlier stages when the pace of bitcoin creation is high, could profit handsomely when the deflationary phase kicks in. These miners would, if the world-conquering dreams of the Bitcoiners ever came to pass, be something like the descendants of medieval vassals who acquired some poor land from their lords in an early era when there was still much land to be claimed and settled, and who then became fabulously wealthy over time by hanging onto their holdings as the finite stock of land was all brought into private owner ship and production while the population continued to increase.

With bitcoin, every transaction is written to a globally public log, and the lineage of each coin is fully traceable from transaction to transaction. Further, if Silk Road truly permits deposits on their site, that makes it even easier for law enforcement to locate the "hub" of transactions. Attempting major illicit transactions with bitcoin, given existing statistical analysis techniques deployed in the field by law enforcement, is pretty damned dumb.

Hence my argument that Bitcoin is basically this innovation or, more precisely, the implementation of an innovation as the triple-signed receipt method. Quoting Ian Grigg: - The digitally signed receipt, with the entire authorisation for a transaction, represents a dramatic challenge to double entry bookkeeping at least at the conceptual level. This problem is solved by sharing the Dyne.

Roio records - each of the agents has a good copy. In some strict sense of relational database theory, double entry book keeping is now redundant. Simply put, this is bookkeeping in the age of Bitcoin. Just as the founders devised mechanisms to allow for change in a system absent an absolute ruler, so too did Satoshi take this problem into account: - The proof-of-work also solves the problem of determining representation in majority decision making.

If the majority were based on one-IP-address-one-vote, it could be subverted by anyone able to allocate many IPs. Proof-of-work is essentially one-CPU-one-vote. The majority decision is represented by the longest chain, which has the greatest proof-of-work effort invested in it.

If angels were to govern men, neither external nor internal controls on government would be necessary — James Madison, Federalist 51 The system of checks and balances devised by the founders represented an important mechanism to both enable governance while also inhibiting overreach from any of the competing branches of government. Like the executive branch of the U. Next up is the Proof of Work security provided by miners. Similar to the American judiciary, it is the job of miners to enforce the rules of the network and ensure its continued smooth operation.

Without the security brought by miners to the transmission of transactions, the value of the underlying token e. Bitcoin decreases thus decreasing the value of the rewards they receive for bringing the security in the first place.

This is a dual incentive relationship that undergirds much of the game theory for most stakeholders in the system. Finally we get to the third branch of a constitutional republic- the legislature. Much as in the U. Playing the role of the House of Representatives are the entrepreneurs, businesses, infrastructure developers wallets, graphical interfaces, etc.

Like their governmental counterparts in the U. Some conflicts may arise in the area of short-term profits vs. The final arm of the legislature in the U. As originally envisioned by the founders this chamber was meant to be one more step removed from the people than the House of Representatives as they were elected by the state legislatures until the very misguided 17th Amendment which transitioned to direct popular election of Senators and is likely a large contributor to our present increased partisanship and misguided populist movements.

Similarly, developers can be supported by companies in the ecosystem or can contribute from their own free time. Much of their authority comes from their experience in the space. Aleksi Grym, Bank of Finland: "For all intents and purposes, that ledger is a centralised ledger. The fact that there are multiple synchronised copies of it, distributed across a network, is irrelevant, as each one has the same data. Because it is taken out of the hands of participants and relegated to an elite, privileged class of algorithm designers or large-scale miners for the determining rules, creating the money supply, approving transactions, and managing records.

Bob Haugen: "Short version: the concentration in mining is a consequence of the architectural features that were bound to de facto re-centralize the platform. There is one and only one Bitcoin core codebase that all miners use, and one and only one blockchain, although there are many replicas of the same blockchain. And the increasingly difficult proof of work was made to order for ASICs, expensive hardware chips that are designed specifically to solve them.

Thus the mining concentration. Here's an example of that kind of discussion in an analysis of Ethereum from LeastAuthority, the group behind Zcash, where Vitalik Buterin of Ethereum is one of their advisors: [7] So people in the know are aware of these problems. They are actively working on them. But often not on Bitcoin. By the way, I think the Bitcoin design was brilliant, and the architectural features that led to re-centralization may be necessary for a global digital currency.

I'm not sure they foresaw the re-centralization, though. But lotsa people did. I am just picking up on their analyses. Matthew Slater: "There is much confusion in the cryptocurrency discourse about the decentralisation of money and payments. All cryptocurrencies are built on a singleton ledger which is distributed across many machines.

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