A Quantum Immortal

Out of the many arguments people have against Bitcoin, one of the strong ones seems to be what I call “the early adopter problem”. The argument goes as follows: suppose that Bitcoin eventually does succeed and becomes a significant portion of the world’s currency or store of value. Over 6 of the eventual 21 million bitcoins have already been mined and are in the hands of a fraction of the worlds population. If bitcoin is successful, this means that too much wealth will be concentrated into the hands of too few people, who just happened to be in the right place at the right time.

There are a few reasons why this is not, in fact, a real problem:

• Bitcoin was not designed to be a fair currency, just a more efficient currency than its alternatives. Dollars and Yens aren’t “fair” either.
• It is not random luck that is rewarded – it is one’s ability to research and arrive at correct conclusions. In this scenario, the people that found out about bitcoin at “an early stage” and made the decsicion to either mine or buy them, are rewarded for a smart technological and economical decision – much like early investors in successful startup companies are rewarded.
• It is not too late – in this “bitcoin wins” scenario”, the final value of bitcoin will be a few orders of magnitudes higher than its current value. If you’re reading this now and think that “it’s not fair only a few early adapters win”, you can still join us.
• Perhaps the strongest argument IMO is the economical argument – If bitcoin “wins”, but its wealth remains concentrated in too few hands, it won’t be as useful to the rest of the world because of over-pricing and scarcity. As a result, this will be reflected in bitcoin prices, because the public will not be willing to pay the outrages amounts demanded by the early adopters – in fact, it will make bitcoin “lose a little bit”, or not reach its full potential. In turn, this will motivate said early adopters to sell some of their stash (nobody likes to be on a losing horse), thus moving bitcoin to other parts of the population. Once the market believes this is no longer a problem, the price of bitcoin may rise to its “real” and full value. In shorts, the market will auto-correct any such problem.

To answer a few questions I got in the last few days about BitCoins:

How do I sell bitcoins in exchange for USD?

You can use the CoinCard service.

How should I secure my bitcoins?

The bitcoin wiki has a very good article about this. Let me summerize:

• Find your wallet file:  %APPDATA%\BitCoin\wallet.dat
• Encrypt it (several options are pointed at in the article, I used TrueCrypt)
• Backup the encrypted wallet, delete the original
• You should probably maintain two accounts, one that is encrypted and one open. Keep most of your money in the encrypted account.
• Preferably, the encrypted wallet should only ever be opened on a computer where you’re reasonably sure no spyware/keyloggers are running. For large amount of bitcoins, I recommend a freshly installed computer with nothing except bitcoin running (and perhaps an encryption/backup software).

I encourage you to read the original article.

What are transaction fees?

In short – in the future, you might elect to pay minimal transaction fees to help speed up the processing of your bitcoin transactions. (should be very negligible, not at all like the huge fees charged today by credit card companies, banks and PayPal). Today, in practice, even without paying transaction fees payments are usually cleared within a few minutes.

Read the full story in the wiki.

How should I buy my bitcoins?

I still recommend Mt. Gox, and haven’t checked out other options. If you want to do the research and try out the alternatives, be my guest (and please tell me about it!)

When I joined the bitcoin party less than a month ago, one bitcoin was worth $0.8.

Now, a bitcoin is worth $1.4. Euro parity … here we come.

(Check out MtGox for the current exchange rate)

I know I’m posting almost exclusively about BitCoin for the last couple of weeks, but since in the last few days several of my friends asked me “Where do I buy bitcoins from”, I thought I’d save myself the trouble and summarize it in a post.

There are a few different bitcoin merchants out there, but the only one that I had direct dealing with is Mt. Gox.

This is the largest bitcoin dealer (according to the bitcoin forums), and thus has more trust. Some smaller merchant might offer better deals, but might also disappear after you send them money, without sending you any coins. As the market is very small and unestablished at this point, I prefer to minimize my chances and go with Mt. Gox.

Another advantage for me is the Mt. Gox is willing to sell up to $500 a day per person, while smaller merchant have much lower limits.

So, if you’d like to purchase from Mt. Gox via PayPal, these are the instructions (you can find this link from Mt. Gox’s main page, but it takes a bit of searching). Be sure to note that:

• There is a 7% commission for the trade. Every merchant takes some form of commission, this one is relatively large to what you’re used to from other markets because there is relatively little competition a.t.m. The commission will get lower as the market size increases and Mt. Gox has better, high profile competitors.
• The bitcoins will only arrive five days after your payment. The reason Mt. Gox does this is to eliminate chances of you cheating him. If they released the bitcoins sooner, you could reverse the deal via PayPal and he’ll be screwed.

tl;dr – Several interesting updates, including buying drugs via bitcoin. Read ahead to find out more.

Only a few days ago I blogged about BitCoin for the first time.

Since that, I have a few updates.

• At least two-three of my friends opened bitcoin accounts, and are considering investing.
• I created a proposal on Stack Exchange for a bitcoin Q&A site.
• You can buy one copy of Portal 2 at 20% discount via bitcoin.
• There’s a proof-of-concept for bitcoin bond trade. grondilu, a reputable member of the bitcoin forums, is offering the first known bitcoin bond. Every participant bids how many bitcoins he is willing to pay grondilu now in order to get 100 bitcoins in approximately four weeks. I bid 93.5 BTC (hey, it’s not like I have a lot of other uses for my bitcoins right now).
• If you were still confused after my last post, perhaps this introduction to bitcoin will help.
• I learned of the existence of Silk Road, a bitcoin-powered online drug store. You can buy LSD for anywhere between 24 and 150 BTC. One of the good and bad things about bitcoin that it will enable total consumer freedom. Things that were once impossible, will be possible soon. Repeat after me – “a totally anonymous and untraceable method of payment.” I don’t want to open the ideological debates here, but like all progress, a lot of good and a lot of evil will come of it. My personal belief and hope that the good outweighs the bad.
• My blog has been acting kind of slow lately, so I’m willing to pay 15 BTC to anyone who optimizes it.
• An example not directly related – A useful service I found via bitcoin is Torrent Traveler. It’s a service that offers to download torrents for you, and send them to you as email attachments (useful if you’re on a trip and don’t have consistent internet). They don’t support bitcoin yet, but it serves as an example for a good service that depends on efficient micro payments (they charge $0.25 per GB).
• The bitcoin / us dollars ratio has hovered around 0.8 BTC per dollar. I think there is a psychological barrier at $1. There’s still time to hop on the bitcoin train…

Note – this post describes exactly what I think about BitCoin. Even though I have an interest in seeing BitCoin spread, this post represents my true opinions about BitCoin – I’m not trying to tempt you to buy it so I’ll get rich (although that would be a nice outcome :))

Update – After posting this, I found this Quora question: How can BitCoin be hacked. I’m still convinced that it can’t effectively be hacked, but I don’t know enough to prove why. I’ve asked the Quora community to refute it and convince that BitCoin is safe. I advise you to read these arguments and retorts before buying a significant amount of BitCoin. Note that this question is from two months ago, when the computation power of the bitcoin network was about ten times less than today (it keeps growing exponentially, see below).

About 4 days ago, I discovered BitCoins via this Slashdot Post. I spent most of the last 4 days reading about it, and here’s the executive summary.

• What is it? BitCoin is a “startup currency”, a form of “peer to peer money”. It started about three years ago, and is starting to gain critical mass right now.
• Where can I spend it? There are already several business that accept it, ranging from ordering books, to a digg style website, to porn. Yes, you can buy porn with bitcoins. If the porn industry are doing it, this means it will become mainstream (porn have been known to lead internet technology for years)
• How much is it worth right now? About $0.8.
• How much was it worth half a year ago (on 10/10/2010)? About $0.06. Yes, this means a growth of  X13 in 6 months!
• Why is BitCoin better than “real money”? There is a variety of reasons. Read the link, I don’t want to repeat myself.
• Will it continue to grow? Well, we don’t know yet. But we can bet on it. So far, I bet $350 of my money that it will grow, and I’m planning to purchase more.
• Where can I find more about BitCoins? First, you can try the forums. If I were you, I would quickly obtain some free BiCoins from the BitCoin Facuet, then go and ask some questions over at bitcoin.witcoin.com (the Digg style, bitcoin powered website I told you about)
• And, one last question – “WTF? Are you serious? You’re paying for virtual goods, this is like buying stuff on FarmVille!”To that, I answer a resounding no. I’m very confident that this will become more and more real. If you’re quick enough to decide, and brave enough, you can join me and bet on it to. If I’m right, you may become rich *