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bitcoin: fact or fiction
Old 12-21-2013, 06:44 AM   #1
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bitcoin: fact or fiction

I have been hearing a lot of talk about bitcoin as some kind of digital currency. Does anyone know anything about it? does it have actual value? how do you spend it? just curious.

frank
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Old 12-21-2013, 10:08 AM   #2
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I've converted my whole portfolio to bitcoins. What could go wrong?
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Old 12-21-2013, 10:13 AM   #3
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I listened to a radio article on the CC numbers stolen from Target. An undercover operative was explaining that the numbers go on sale on a criminals' sort of eBay where criminals in the USA buy batches of the numbers at up to $100 for each number, and the currency used is Bitcoin.
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Old 12-21-2013, 10:16 AM   #4
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I've converted my whole portfolio to bitcoins. What could go wrong?
It does seem to go up and down quite a bit. If you time the buy and sell right you could be making 100's of percent a month on this investment.

Or if you mine them, you can get them for "free" - although some very large computers seem to be in on this aspect now, so it will be hard for an individual to keep up.
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Old 12-21-2013, 10:19 AM   #5
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It's a speculation, pure and simple, in my opinion. When the Chinese nixed the things the other day, it immediately went down by a lot.
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Old 12-21-2013, 10:23 AM   #6
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I've converted my whole portfolio to bitcoins. What could go wrong?
Even better, you could buy my collection of Beany Babies. I have been assured they will soon turn into a small fortune.
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Old 12-21-2013, 10:30 AM   #7
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I've converted my whole portfolio to bitcoins. What could go wrong?
Don't forget the need to diversify. Some would recommend converting part of your Bitcoin stash to alternatives.
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By December 2013 there were more than 60 cryptocurrencies available for trade in online markets
List of cryptocurrencies - Wikipedia, the free encyclopedia
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Old 12-21-2013, 01:47 PM   #8
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BitCoins (BtC) are a weird form of currency. It does appeal to persons of a certain ideological bent, but it has some pretty poor properties for a medium of exchange (which is what a currency is fundamentally for. Beats bringing two cows and a goat to the hardware store when you want a table saw...)

Bitcoins are designed to exist as a relatively fixed quantity of currency, with 'new' bitcoins made available through computational 'mining' to discover additional coins. Each coin is a unique computed value. The computational effort to discover new bitcoins rises over time, to the point now that special programmable application specific integrated circuits (ASICs) capable of performing hundreds of billions of cryptographic hashes per second are used to 'mine' for bitcoins. Since the supply of bitcoins is bounded, fractional bitcoins exist, each linked to an original bitcoin, to facilitate exchanges of smaller sizes than a coin.

Bitcoins are not actually anonymous or untraceable. Each full coin is computationally unique, and can be validated through an exchange protocol. When a bitcoin is 'mined' and registered by the miner, it starts a new block chain that tracks the history of the coin. This is needed to validate a coin as being real. Software exists to walk back through a block chain to identify the 'history' of a coin. Th anonymity comes from the nature of the online bitcoin 'wallets', which are abstract numerical values with a cryptographic basis themselves.

Bitcoin 'tumblers' exist as an online financial service to obscure the history of a specific transaction. These services charge a commission in exchange for mixing together many bitcoin transactions and deposits so as to keep a party receiving a bitcoin payment from identifying the origin of the payment by examining the block chain history of the coin. The payee gets the bitcoin amount the payer sent via the tumbler (less the tumbler's commission) but not the bitcoins proper. (Well, unless the payer is responsible for most of the bitcoins moving through a tumber, as in a recent theft case. Overload the tumbler and the back tracing works pretty well...)

The biggest issue I have with bitcoins is the deflationary nature of the currency. With a relatively fixed supply of bitcoins, and increasing quantities of goods and services that can be purchased, the purchasing power of one bitcoin rises over time. (This is the bit that appeals to some folks) Since there are fractional bitcoins, this doesn't mean that the marketplace runs out of currency, of course. It does have an interesting implication for economics. Since the value of one bitcoin will likely rise over time, there is a disincentive to use it as a medium of exchange, and an incentive to hold onto the bitcoin proper. This also acts as a disincentive to use the bitcoin to invest, as the bitcoin itself may grow in value, perhaps giving a higher return than if used for a capital investment.

This may sound familiar. 'Liquidity crunch', anyone? Deflationary processes act asa strong brake on economic activity. Yeah, just like late 2008 and early 2009.

There are other problems with bitcoins, but most of them are shared with other forms of currency. (Theft, anonymity of transactions, etc.)
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Old 12-21-2013, 01:50 PM   #9
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I've converted my whole portfolio to bitcoins. What could go wrong?

Don't forget to store the bitcoins offline, so they don't get stolen by a bit of trojan software ("virus", but that's really a misnomer). Yes, more pieces of malware now snoop for bitcoins aswell as credit card numbers and bank accounts.

Seems funny that for a currency designed for Internet transactions it is best stored on something not connected to the Internet. Oh well...
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