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An E-mail about BITCOINS (Need Answers)

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,

Mike

Thanks For your Help Bro!

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Is your friend "Liberty" minded?

It would be easier if he was. I think first you have to make sure he is on track with what we all know here at the DP.

After that, make your letter shorter, it is probably too much all at once.

Then, talk to him... letters never seem to work! It is just too complicated. Maybe you will have to be on the phone explaining everything one step at a time, and guide him through how to download the client (install it), wait 2 days for it to synchronize (!), but while you wait, you can show him one of the online wallet sites like instawallet.com or something

...and then SEND HIM 1 BTC! That will make him see better, maybe!

GOOD LUCK!

Just plain 'Happy'about the direction the world is taking! Especially if we live to reach LEV [Longevity Escape Velocity]

so far

you've laid it out quite well. I have come to the conclusion that if we wanted to End The Fed, well you can start now by sharing and trading Bitcoin as currency. Sure not everyone will accept it but when it comes to money it is all about Trust. The same trust you give to your GF not cheating on your in a committed relationship is the same trust you give when you accept any medium of exchange; Gold, Cash, Stock, Bonds, etc.

Why trust? because there will ALWAYS be Risk. when you accept a gold coin, you are taking a risk that it is not a fake. When you accept cash you are taking a risk that It will hold its value. likewise when you accept a Bond you are taking a risk that the Government will pay you back plus interest.

I see very little risk involved with Bitcoin right now. Its Encryption is extremely difficult to counterfeit and as far as privacy that is also taken at a high level.

Does the Risk outweigh Trust?

Many Conspiracy theorists talk about Electricity going out creating some national blackout. I believe some catastrophe such as that is far down the road from now if at all. Still using Precious Metals as currency is illegal under; 18 USC § 486. I dont expect this to be repealed anytime soon, I expect it to be enforced at higher penalties.

Bitcoin is exempt from this code.

As you can see Bitcoin has much more potential then just another currency. Politically, Legally, and Financially.

His name is Edward Snowden

What is Capitalism?
http://youtu.be/yNF09pUPypw

You're exactly right about Risk

There is Risk in everything.
Risk that your dollars will lose value
Risk that the government will seize your land
Risk that your silver and Gold will be stolen or confiscated
Risk That you will get hit by a car crossing the street.

The key is to minimize the risk and still live within your comfort zone.

After researching Bitcoins I came to the conclusion that it was a good area to allocate a portion of my wealth to. It's anonymous, I can buy goods with it, I can send them almost free of charge, it's secure, it's audited. There is plenty of "Pro's" which far out weigh the "Cons"