A Quantum Immortal

In the last Bitcoin meetup with had in Tel Aviv, a bunch of us decided to create a place for the Israeli Bitcoin Community.

So, if you’re in Israel (or just read Hebrew), and dig Bitcoin, drop by the site and subscribe. The site is of course non-profit, and its goal is to build and strengthen the Israeli Bitcoin Community, ranging from “Bitcoin Curious” through users to developers and investors.

P.S. We are looking for content writers – if you’d like to write articles about Bitcoin in Hebrew (and maybe even earn a few BTC in the process), be in touch.

In case you have been living in a hole and haven’t heard about SOPA, I’ll just explain it briefly – it’s a proposed US bill that if passed, would literally destroy the internet as we know it. This bill includes massive punishment for anyone who hosts or streams copyrighted material, or even merely links to such sites (Go TV Links!).

Even sites that host or index user generated content such as Facebook, Wikipedia, WordPress or Google are not except. What’s especially outrages is that no court order is required for liability – if anyone doesn’t like a certain blog post that contains links to copyrighted material, and they file a complaint, if the owner does not remove the offending content, then he is liable, as well as a vast array of internet infrastructure that “assist him in his activity” – Internet Service Providers are expected to block his domain name, payment networks such as Paypal are expected to refuse to work with him. It’s a literal thought police, and it could happen.

Luckily, a lot of companies have stepped up and announced their objections to SOPA. If passed, SOPA could destroy those companies, but I believe that a major part of their objections is also on moral grounds. SOPA is pure evil, a revert to darker times.

Today, the U.S government still controls the internet. The major internet user-facing business are based on U.S soil, as well as payment processors and ISPs. This will not be the situation forever. Bitcoin is proving to be an alternative to the U.S dollar and Paypal, that no body can shut down or control. Namecoin can be a fully distributed alternative to DNS and SSL Certificates. These technologies are not yet mature, but the very idea of SOPA being proposed in the so called “land of the free” clearly shows the necessity of disentangling the internet from U.S control.

The internet is our home. It’s the force that binds us together, and we will not let it be corrupted and controlled.

I just finished the first version of Bitcoin Pie – a service that displays the values and market caps of alternative crypto-currencies.
Besides Bitcoin, it supports Tenebrix, NameCoin and SolidCoin.

It appears that Bitcoin is now only 98.5% of all the crypto-currencies, with Tenebrix and Namecoin taking up 1.4%.

A while back, I wrote this piece about why Hoarding is not hurting the Bitcoin economy. A few days ago, I got this reply from Owen that basically disagrees, and proposes a new virtual currency called FreeCoin that will not incentivize hoarding (not to be confused with the the open source Bitcoin client called FreeCoin).

This is my response. TL;DR – I really doubt it will work out.

The article is a really interesting and balanced article.

“if the potential exists to get rich of bitcoin, bitcoin can by definition never achieve value stability.”

I don’t agree with this statement. The current volatility comes from the very small market cap and general size of the Bitcoin economy. Why do you think the value will be unstable if 10-50% percent of the world’s economy is based on Bitcon? Imagine that Bitcoin is like a new kind of mineral, found in space, in very small quantities, with magical properties that allow it to be almost infinitely divisble and transferable to anyone. People don’t know yet how much should this mineral be worth, hence the ongoing speculation.

But, if in 5 or 15 years everyone realized this magical mineral is so good as a currency they would trade in all their fiat currency for it, then there would be no more speculation. As Gavin said, it would be boring, like the US Dollar is (relatively) boring.

Let’s talk for a second about that “poor merchant” trying to price his goods for Bitcoin. In the next few years, until Bitcoin achieves world dominancy, that merchant can price his goods with USD, and offer Bitcoin as an alternative means of payment, with always-updated price calculated using the realtime BTC/USD rate. He can immediately sell off any Bitcoin he gets, isolating himself almost completely from Bitcoin related risk. If he’s feeling a little risky, he can keep 10% of his reventue in Bitcoin. If he’s a complete die-hard Bitcoin fanatic, he will just keep a lot more of his Bitcoin earnings and will hardly sell them – but exactly how much BTC to sell is his choice.

Now, fast forward twenty years from now. Bitcoin has now become the de-facto means of payment. Some old fashioned individuals still keep dollars, but most have long realized the benefits of Bitcoin and have long ago sold any holding in USD. The prudent move for that merchant will be to keep close to 100% of his revenue as pure Bitcoin. The percentage of Bitcoin he sells off immediately will depend on an abstract “bitcoin stability indicator”. In the long run, I see no reason why he won’t feel completely safe holding most or all of his money in BTC. It’s not Bitcoin that will flucuate, it will be everthing else. The Oil/Bitcoin rate will flucuate like it does today, but the Groceries/Bitcoin rate will not.

Not just merchants will develop an inner understanding of this indicator – “plain people” will start hearing about more and more shops accepting Bitcoin and offering discounts due to the reduced fees, and will finally request their employees to start paying a portion of their wage in Bitcoin.

This is the “Bitcoin wins” scenario, at least. It is by no means a certainty at this point – the risks are great, of course, and this is the reason the price of Bitcoin hasn’t skyrocketed to $1000 per BTC yet. However, I see no fundemntal problem with the scenario I described.

You said a merchant pricing in BTC will have “wated energy to reprice his goods whenever the value changes”. Don’t you think this repricing can be fully automated? It already is today for online shops.

Now, to analyse FreeCoin.

I honestly believe it just can’t work like you described. I’m not sure what you meant by mining “having a fixed difficulty”. This can be interpreted to mean one of two things:

1. Any miner generates a fixed number of coins per unit of time (on a given hardware), regardless of how many other miners are mining.
2. The total amount of coins generated in an hour is fixed, and is split evenly among miners according to hash power.

The second option is very similar to how Bitcoin behaves today, with one exception that today the number of BTC generated per hour is designed to halve ever four years. Let’s call the amount of FreeCoin generated every day X, and that and the vision is that within 20 years FreeCoin will replace all the world’s currencies. If this is true, in 20 years from now there will be 20*365 X FreeCoin in existence (assume coin loss due to hard drive crashes are negligible).

Since 7300*X FreeCoins will replace all the world’s currency, this means X FreeCoins will be worth quite a bit of money (1/7,300 of the total money in the world, to be exact). If you start the protocol today, I can mine X FreeCoins in a few days without any problems, because there aren’t a lot of miners involved. I know that in 20 years I won’t be able to mine as much, because everyone and his sister will be running a mining rig, so it will be very difficult to run a mining rig. So, if I think FreeCoin will succeed in the future, I will value it quite a lot today, leading to speculation, the very thing you set out to prevent.

Let’s explore the second definition of “fixed difficulty” – everyone calculating 100 hashes per second can generated 100 FreeCoin per second, always, regardless of how many other miners there are. So, if I buy 100 FreeCoins for $500 today, what guarantees they’ll be worth $500 in the future? If there is no limit at all to to how many FreeCoin there will be in 10 years from now, why would anyone expect that 100 FreeCoins will retain their value in this time period? Scarcity is a fundamental property of currency, and a coin without some form of inherent limit to the number of generated coins cannot maintain its value.

It is my belief that the “hoarding problem in Bitcoin” is in fact one of its key genius feature – it is a currency that is designed to so overwhelming to people you just can’t resist joining the game, even if the current state of the economy is sub-optimal (no encryption, hacks, difficult to use etc…). People believe its usability, adoption and value will grow, so they join in early tell their friends, thus bringing in more people etc… It is a bit like a pyramid scheme, only it’s not – there is no reason to believe an equilibrium valuation cannot not be reached (this will take a few years, of course).

The Bitcoin millionaires did do something, they did not get rich for free – their wealth is their reward for being smart and brave enough to support a new p2p virtual currency, something that hasn’t been tried before. They incentive miners to secure the network, and “plain people” to buy Bitcoin. While some of this bought Bitcion will be hoarded, parts of it will be spent – I think hoarding will be much less of a problem when valuations reach the real target value. Hell, if I could spend my Bitcoin today at $1000 a BTC, I wouldn’t hesitate on spending them – I simply believe they’re worth a lot more than $5, so I’m not willing to part with them for such a low reward.

While they didn’t necessarily do it for idealistic reasons, the early angel investors that invested in Google, Facebook or Microsoft also has monetary gains in mind. The world has become so much better due to that initial investment in these companies, even if a few people got filthy rich in the process – and the same might be true for early Bitcoin adopters.

I admire your moral imperatives, but I believe they conflict with reality. In a “morally perfect world”, everyone has everything they ever needed. In our world with finite resources, it’s the smart, capable and willing that reap the rewards. Let us hope they will not just bask in the glory but contribute some of their wealth back to society. Regardless of their own individual actions, I believe society is improved by innovation and risk taking, even if it creates some islands of inequality. Even if early adopters get rich, the rest of the population can enjoy all the other benefits Bitcoin will bestow upon us.

Got questions about Bitcoin?
The Bitcoin Q&A site is finally open for business.

Check out the best questions.

I posted some months ago about a proof of concept Bitcoin Bond. The sale of that bond was conducted via a forum thread.

A few months have passed, and the Global Bitcoin Stock Exchange is almost usable now. By “almost usable” I mean it has a GUI (even if not a very intuitive one). I wanted to test this for myself, so I issued a Bitcoin Bond. The terms are simple, and listed in the bond itself: You buy shares of the bond, and I pay you 1 BTC per share at December 1st, 2011. I put 52 bonds for sale right now on GLBSE, most of them for 0.95 BTC each.

By buying these bonds, you can make 5.26% on your money, guaranteed. See this forum post for more details and discussion.

Wow, this was an exciting weekend.

Black Friday Sometime last week, I gave a friend some advice. “I think Bitcoin will rise 10% over the next 12 hours”, I said. I’ve been pretty good at predicting some of the recent price increases, so I got cocky and started thinking I’m actually smarter than the market. Then came the first Bitcoin Black Friday,  as value crashed down about 60% from a high of about $32 to a low of $11. In two days. Since then it bounced back to $20. I’m never giving short term financial “advice” or opinion again. In my defense, I did say Bitcoin is a long term investment, not something to use for short term gains, but I forgot just how much the market is still volatile. A good strategy for overcoming this volatility when buying or selling is splitting the action into a few days instead of buying/selling all at once. If for example you want to buy $1000 worth of Bitcoin, you should divide your purchase into a few smaller purchases. The downside is you’ll miss out if Bitcoin starts rallying up really fast, but you’ll incur much less volatility if you spread your purchases.

Bitcoin is not anonymous One interesting thing I discovered is that Bitcoin are really not anonymous, not under the current design at least. I summarized the arguments on this thread – basically, using some not too sophisticated analysis, you can guess out how much money belongs to each user you ever traded with. Not accurately, and it can be defended against, so I’m not worried, but it’s something that anyone with a few BTCs should be familiar with.

Diversifying into Namecoin Namecoin is a Bitcoin-based project designed to create a distributed name registrar (Bitcoin to Paypal like Namecoin to GoDaddy). Just for the heck of it, I’ve decided to diversify and purchase a small amount of Namecoin. It’s funny investing in an alpha stage startup project that’s based on a beta stage currency (or rather a POC that’s based on an alpha), but I’m curious enough to try it out.

MtGox just put 432,000 Bitcoin into a single address A lot of money is being moved. There are a lot of people false rumours like “Mt. Gox was raided by the Japanese authorities” and “shots fired at Mt. Gox, Bitcoin seized“. Some people have a huge investment and are trying to play with the market, play with people’s fears and make a quick buck.

A serious contender to Mt. Gox There’s a new exchange on the block. TradeHill has a better UI, and looks like it will develop partnerships with regional BTC sellers. I don’t know the exact volumes, but word on the street is that people are moving from Mt. Gox to TradeHill. The exchange is about a week or two old, and already is 3rd in term of volume (check out Bitcoin Charts). Nice work, we do need some competition to Mt. Gox, and having only one large exchange is risky.

A way to speed up your bitcoin client! I almost forgot, but here’s a way to add your Bitcoin client’s initialization. When it starts, bitcoin doesn’t know of any peers in the p2p network, so it hops into an IRC channel, announces itself periodically, and listens for other announcements. This can take some time. If you want to speed it up, simply add some fixed fallback nodes to your bitcoin command line. Yes, obviously this should move into the standard client, and it should cache known peers. We know the current client kind of sucks. This is the price we pay when the public’s interest in a project out-paces its development … the client will catch up.

The Faucet is empty Not too long ago, you could get 0.02 BTC for free from the Faucet. Well, since the rise on Bitcoin value, this is now equal to about 40 cents, and the Faucet’s pool was drained out. The solution is of course to lower the payout to something like 0.0001 BTC, but the problem is the client currently doesn’t allow transfer of amounts smaller than 0.01 BTC. This will be fixed in the upcoming version.

And last, but not least – I just read about Bitcoin in an Israel “dead wood” newspaper – Economy (כלכלה) by Maariv.

If you’re a loyal reader of this blog, odds are you already saw some of my recent posts about Bitcoin. The reaction of the people I’ve personally discussed Bitcoin with can be largely classified into three classes:

• Strong optimisim, usually followed by some purchase of Bitcoin
• Indifference and lack of interest
• A strong belief that Bitcoin is a bubble, current prices are way more than they should be, usually accompanied by smug looks and thoughts like “why is he putting his money into this fool’s gold”

Well, if you belong to the last category, you now have a chance to put your money where your mouth is. BitOption is a new website where you can buy PUT and CALL options on Bitcoin. If you’re convinced the Bitcoin bubble will indeed burst and BTC/USD will fall down, feel free to go to BitOption and risk some money on it. If you’re right, you could make a nice profit!