An E-mail about BITCOINS (Need Answers)Submitted by PeacefulAnarchism on Sun, 12/02/2012 - 12:53
I rejected Bitcoins only because it was so far removed from the paradigm. I didn't knock it, I just ignored it as a fad. However, as the years went by and more and more people started talking about it and witnessing that Bitcoins wasn't going away but only getting bigger, I felt I should investigate it.
Now I am a huge proponent of it, It is really an ingenious platform that mimics a Gold Standard. I'm not saying that this is where your wealth should be, all I'm saying is that this is definitely a viable alternative way of conducting transactions rather than using FRN's.
I wrote a friend of mine who is stubborn and had preconceived notions asking if he could investigate some conclusions of mine about Bitcoins. He is a city auditor with a background in economics. I never got a reply from him. Propabably because he was such a vocal skeptic and critic that when inquiring about my findings his pride wouldn't let him admit he had been wrong. (He's pretty arogant but a good guy) Anyways if any one wants to give it a shot here's my letter to him:
Im hoping you can do me a favor and help me with some investment advice. I am thinking about converting a chunk of my wealth into the bitcoins currency. It’s a digital currency created by someone who subscribes to the Austrian school of Economics and is designed to mimic a gold backed currency. Except I think this is much more superior. You’re probably the smartest guy I know besides my self :) You have an awesome understanding of economic theory and finance and in addition you understand the technical aspects of computers, software, and programming a lot better than I do, so your opinion will be of much value. I just ask you look at my research objectively and try to put aside any preconceived notions.
I’ll list my conclusions and why I came to them. If you agree please let me know. More importantly if you don’t agree with my conclusions please tell me why. I’m sure there are some things I over looked which with your knowledge and expertise you will be able to point out. I’m actually counting on you finding some flaws with my research. It could potentially save me from some serious losses and heartache.
Conclusion 1: The Bitcoins platform is made to be very difficult to be hacked or shut down.
1. Bitcoin client is a P2P network with open source programming. This means there is no central server as everyone in the network acts as an independent network host. From my understanding, to stop bitcoins you would basically have to shut down the internet. If someone wanted to change the protocol and platform of the bitcoin client they would have to have a large majority of the network agree to it (updates). With so much at stake and bitcoins being open source if any major changes were to occur to negatively impact the platform currently used it would be rejected by the network.
Conclusion 2: The Bitcoins platform is made to be very difficult to be manipulated or defrauded.
1. Written into the platform programming is a mathematic algorithm that limits the number of bitcoins to ever be created at 21 million. No more will ever be made or can be made. This means there is no central authority and no one has control over the creation of bitcoins. Furthermore, Bitcoins is being Audited by Every user constantly. This is such an amazing feature! Basically, every transaction ever ever ever made is logged and recorded in a ledger. Everyone has this ledger and it is constantly being checked, scrutinized, and updated by the network. The auditing is part of any Transaction and if your cpu participates in it, you are paid a fee. The ledger is compartmentalized into “blocks” and the ledger is basically a string of these data blocks. New blocks created are comprised of a “hash” from the previous block. Making the creation of a block a sequential phenomenon. So if someone wanted to change a block in the ledger, they would have to go back and change every block ever created before it. As an auditor think about how difficult moreover impossible this is! If they did manage to do this, they’re would be so many error points when being scrutinized by the network it would be immediately rejected. This also means, Every bitcoin in existence is known. So you have an exact number of the monetary amount.
Conclusion 3 : Bitcoins offers a high level of anonymity
1. The way the bitcoins platform works is that when bitcoins are created or sent, they are sent to an account. This account is a numeric and alphabet string. Even though everyone has access to the ledger all they can see are transactions to these accounts. You can create unlimited accounts through their generator or do it yourself offline with no way of anyone having knowledge of the account you just made. The only way someone can see the transactions you were involved in is if they could physically pin point you to an account.
Conclusion 4: Transactions can not be faked, forged, reversed.
1. Basically every bitcoin belongs to an account and every bitcoin has a transaction history. The bitcoin has a unique identifier that is comprised of the account number it’s in. So only one bitcoin can belong to one account at one time. When you make a transaction you announce it to the network with a “signed” verification. The network checks their ledger to see if that bitcoin actually exists and belongs to your account. Once that’s verified it is sent to the new account and that bitcoin is now given a new unique identifier comprised of the new account number it’s in. This unique identifier is now unknown to the person who sent the account and that bitcoin is out of the control of the original person who had it then sent it.
Conclusion 5: Bitcoins can be made to be physical items.
1. I like this feature! Bitcoins can actually be made to be physically traded. This is because the unique identifier belonging to the bitcoin is the key to sending it. This identifier is a “private key” that can be witten or stored on a coin or paper. Even if you don’t know the account a bitcoin belongs to, if you have the private key it could be spent. So, IF I wanted to transfer 20 bitcoins I have in one of my accounts, all I would have to do is write down the private key on a paper and give it to you. No computer is necessary for the transaction. Ofcourse, there is some level of trust needed. Check out this site https://www.casascius.com/
Ok I guess that’s it for now, I didn’t focus on the Economic incentives but rather the technicals. If you agree with all this, Great! I'll send you my economic conclusions. If you find something wrong with what I said above than I better look it over because all of what I wrote is required to be true for me to invest!
-Your buddy ole Pal,
Thanks For your Help Bro!