Introduction


Video courtesy of weusecoins.

Bitcoin takes the bankers out of banking. It takes the responsibility to print and mint money away from the treasurer. It takes the 3rd parties out of transactions. It allows one user to send money directly to another user basically for free. This website will go over some of the basics of Bitcoin and then go deep into some of the more advanced topics. I will be discussing Bitcoin in relation to the USD and all other financial instruments.

Bitcoin is an international and decentralized network that contains a blockchain with stores of value in it at certain addresses. Just like the USD, Bitcoin provides for a mechanism to store wealth and to make trades. The blockchain contains all of the transactions between these addresses and so much more than that. A user of Bitcoin would need a password and private key to transfer funds from that address. Anybody can send money to the addresses on the Blockchain. The blockchain is also an open network where anybody willing to participate is allowed if they follow the rules. The Blockchain is very complicated and I am only going to give a brief overview of it here at this website.

In this website, I will write about some of the most important parts of Bitcoin. I will also give my personal opinion on Bitcoin and go over other peoples opinions. I will discuss everything and anything involving Bitcoin. If you have any topics that you would like me to write about that is related to Bitcoin, please leave a comment below! If I can respond in the comment, I will do that. If your inquiry deserves a full article, then I will write an article.

What a bitcoin Can Be Priced At?

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The price of bitcoins could fall to a low level if there are not a lot of people that used it and they only used it for small transactions. If they were worth $1 each, then the maximum transaction would be about $14 Million and that is if they were all used in a single transaction. That is not possible, because many different people own bitcoins. In international trade, $14,000,000 is a very small amount. Currently, $35,000,000 trades hands in bitcoins every day. They would at least have to be worth $2.50 each to maintain that transaction volume. Not all bitcoins get traded every day. The entire price of all bitcoins is about $3,500,000,000. Only a small fraction of the bitcoins trade hands every day. A lower limit on the price of bitcoins would have to be enough to support the daily transaction price with the percentage of bitcoins being traded factored in. If they were priced at $1,000.00 each, then all bitcoins combined would be worth $14 Billion. Trading in foreign exchange markets averaged $5.3 trillion per day in April 2013. If Bitcoin could grab even 1% of the market, then the price will should go up much higher than it is.

For large organizations or individuals that want to trade a billion or more dollars worth of bitcoins, then they would either have to buy about a quarter of all bitcoins in circulation at the current rate. If wealthy individuals wanted to own bitcoins to transfer or store wealth, then the price would have to go up. I don’t think it is unlikely for the price of bitcoins to go back up near $1,000 in the not too distant future based on how much trade happens every day in the international community and how much in transaction fees people could save.

I’m not sure if using the $5,300,000,000,000 is correct or it includes extra items that should not be compared to exchanging bitcoins without further analysis. Also, the actual number might be higher because this may not include every single trade between every single person on the planet in a given day. There is no way to record that as of now. Possibly in the future, all transactions on our planet would have to be recorded by some international law or treaty. That would be hard to control unless if all transactions had to be done electronically and linked to an identity.

With the liquidity of bitcoins and the continued mining, I’m not sure it is going to skyrocket too high. Most companies just sell the bitcoins as soon as they receive them. Maybe that will change if the price keeps going up, but it is too much of a gamble for a large company to hold onto the bitcoins unless if they have plenty of cash reserves to cover the potential drop in the price of bitcoins. I think the cost to mine will stay aligned with the price because why would someone pay more for bitcoins when they can pay less to mine them and the other way around, so the two should stay pretty close together. And, there is only so much hashing power being created every month so the price could surge more in the short while hashing power surges will be more long-term.

And, the blockchain tech is really about proof of existence – a hash of a document can be stored on the blockchain to prove that it existed at a certain time. The more valuable the documents that get put on the blockchain, then the hashing needs to be greater to ensure that they are secure and that will bring up the price. I don’t see it happening that quickly, but I might be very wrong. A huge surge of newcomers coming in could increase the demand so much higher than the supply, that the price will have no choice but to go up. Mining hardware would be out of stock if that happened since it would technically be cheaper to mine it than to buy it. It will be an interesting ride watching all the variables interacting with each other.

Is Bitcoin a Ponzi Scheme?

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By no means can Bitcoin be labeled as a Ponzi scheme. It provides very valuable services. Bitcoin is not being sold either. The term “bitcoins” is a store of value on the Bitcoin network. This store of value can be sent or received by anybody else with a wallet on the Bitcoin network. This transfer of value is the same service that the major credit card companies provide. Yet, Bitcoin provides the service for nearly free or potentially free. Credit card companies charge huge fees to transfer wealth from one individual to another. Take a look at how much Western Union charges to transfer money from person A in one country  to person B from another country.

This would be like calling the internet a Ponzi scheme or calling email a Ponzi scheme. Bitcoin is a protocol. That means it is just a set of standard rules that a network must follow. The rest of the network can verify if any single node is not following the rules and not accept the work that they performed. Data center provide their processing power for a fee to businesses that need a website. E-mail is free for the end user because the companies that are paying for the hosting is also placing ads and making revenues from the users that way. Since Bitcoin is such a useful financial instrument, it can not be a Ponzi scheme. A Ponzi scheme can’t be selling a useful product. Some people are calling Bitcoin one of the greatest inventions of all time comparing it to the likes of the telephone. To call it a Ponzi scheme is completely inaccurate since it provides so much for nearly nothing.

When you buy bitcoins, you are buying a tool to make trading goods and services more easily. The USD is a tool to make trading goods and services more easily. Gold used to be a good store of wealth and excellent to trade for goods and services. However, it is very inefficient to send gold back and forth between people. The US Dollar was a receipt of gold before they detached its value from gold. It was then set by how much money they print and what people can get with the money that they have. Some financial institutions provide services like Bitcoin does, but they charge a large amount of fees to use it. Even if Bitcoin is not successful, it will be a competitor to the current financial markets and force them to lower the prices or risk losing customers.

The current institutions might try to make up for their losses by increasing their prices even more. This would, in turn, make more people try to find alternative sources. In the end, I think Bitcoin will be used around the globe and it will force the large financial institutions to lower their prices for their services. The financial institutions must adapt to meet the advancing technology that the human race is discovering. We are currently locked in an old system that a few wealthy individuals control. Bitcoin will free the world from the current monopoly and give the two out of three people on the planet banking that currently do not have it.

Bitcoin: Buy or Mine?

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Should I Mine Bitcoin?

In my opinion, I would say yes if you would enjoy doing it as a hobby. It is not a significant difference compared to buying it right now. However, you could be mining bitcoins for cheaper than you could buy bitcoins or buy bitcoins for cheaper than you could mine them. You can do the math and make your best guesses at what the hash-rate, difficulty, the price of a bitcoin, shipping, electricity, etc… You can make an upper and lower bound of what you will make and compare it to what the price would be if you just bought the bitcoins outright. If the price jumps up in a few months, you won’t be able to buy it for as cheap as you could mine it. I would recommend mining bitcoin if you are a DIY hobbyist type of a person that would enjoy doing such a thing.

I know it sounds silly, but heating homes in cold climates might be profitable. I just bought two AntMiner S5s because I have an un-insulated addition on my apartment that does not have heat. I live in New England. I was going to buy a space heater for that room anyways. I do the mining as a hobby, but I think it would be a brilliant idea to make home heating systems as Bitcoin miners. The components would need to be able to be easily upgraded to keep up with the growth rate of the processors required to mine. I would be thinking about getting a couple for each room if they weren’t so loud. It would be cheaper than using my gas heat. The mining hardware will get quieter over time. Maybe I could attach a dryer vent around the front of it and place it in my basement having the heat come up into my apartment. This is where the future is heading. Home & Business heating will be done from the heat given off by a distributed system of supercomputers.

Should I Buy Bitcoin?

In my opinion, I would say yes. Investing is always risky and this risk is higher than average. However, with great risks, come great rewards. It has the potential to go to extreme heights, but it is impossible to tell when. It could fall to a lower price and stay there for a while. We don’t know what that price might be. It could be replaced with a superior cryptocurrency. Governments could start creating their own crypto currencies. The USD might someday be a crypto-currency that will be printed on paper embedded with a tiny chip. I think in the not too distant future, a bitcoin will be worth thousands. It might go down below $100 before that happens, but it is much too useful to stay at such a low price for very long. I can’t say whether it will be tomorrow or next year or 5 years, but the price will go up eventually. It must go up considering what it can be used for and the adaptability of the network to sustain itself no matter what the price of a bitcoin is.

Bitcoin Commentary

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I think the price of a bitcoin is going to be hovering around the cost to mine a bitcoin for a while, but it will see some spikes and drops. It can be calculated how much it would cost to invest in mining bitcoin versus buying bitcoin. People with deep pockets will choose the cheapest of the two. Over 3600 new bitcoin get mined every day. At $250, that is nearly $1 million everyday of new bitcoins that people will need to buy in order to sustain the market so price don’t rapidly decline. Bitcoin mining is inflation. This is also what the treasury does with the USD. With Bitcoin, this inflation is temporary. Every 4 years, the number of bitcoins that the miner earns gets cut in half.

The number of miners is growing at a rapid pace. There is an all time high of the hash rate right now and it constantly growing over time so every week it reaches another all time high. There are plenty of people that are buying bitcoin and saving them as a store of value. The value of the USD is growing so more bitcoin can be purchased for less. That might be partly a reason for the declines in 2014. There are plenty of people that want to buy bitcoin at lower prices. Currently, you can see many buy orders at the exchange that go about 25% down from the going rate. There are fewer sell orders until about 50% above going rate. So, more people are ready to buy then there are to sell as of the writing of this article. The technology and the computing power dedicated to bitcoin is already huge and it is growing at an exponential rate. This computing power will be directly proportional to the going rate. Over the long run, you can see that both the computer power and price have steadily grown since 2009.

Bitcoin will be used by the masses for many different purposes in the future. It is inevitable since the utility Bitcoin offers for near free will be able to fiercely compete with banks and credit card companies. Once more people see this truth, more people are going to want to buy and hold onto bitcoin as a store of wealth. This, in turn, could make the value of bitcoin go up. When will this happen? We can’t say exactly, but it could take several years or several months. There are only about 13.8 million bitcoin available right now and there can only ever be 21 million bitcoin. The network behind bitcoin will be comparably more powerful than some banks holding hundreds of billions as a store of wealth. Since there is no mining at banks, it is like comparing apples and oranges.

Currently, all bitcoin is worth about $4 billion. I think it will be worth hundreds of billions in the not too distant future. That being said, multiply the $250 by about 25 if all of bitcoin would be worth $100 billion. A lot of very rich people don’t want to buy bitcoins right now because it would be like funding the competitors of their current investments. Someone that is well vested into banking stocks will not want to see bitcoin take 10% of the market. That would be a loss for them unless if they owned a significant amount of bitcoins or had stake in a 3rd party Bitcoin app. There are a lot of people that don’t want bitcoin to succeed since it is a transfer of wealth and power.

There are also a lot of semi-rich and powerful people that do want to see bitcoin succeed. It will be used to send money around the world for free without having to give the banks a cut in the transfer. It will be used as simply a store of wealth. It will be used to safely make small purchases online so you don’t have to worry about entering your credit card information for a $0.99 purchase at a random website in China or Argentina. It has so many more uses than I have mentioned. Many books can be written about just a fraction of the possibilities. Bitcoin will be worth a lot someday – it might be the world’s most valuable banking system someday. It might be the biggest international trade network that has ever existed.

Bitcoin can be compared to gold or modern currencies with free banking services attached to it. I say free services because the costs of transactions will be offset from the user just like the costs of e-mailing are not directly billed to the user; the costs of using Bitcoin will be taken care of by 3rd party apps that put advertisements in the free services that they provide. 3rd parties will give Bitcoin credit lines to individuals and entities that have good credit. There will be Bitcoin Credit Reporting Agencies (BCRA’s) that have information just like the current Credit Reporting Agencies (CRA’s). The BCRA’s will be attached to transactions on the Bitcoin Blockchain.

Proof of Existence

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The Block Chain can be used to prove that a document existed at a certain date. The way that it is done is that a hash of a document gets stored at an address on the Block Chain. The hash and date is now stored on the Block Chain for all of eternity. A document could then be verified to have existed on the Block Chain at a future date. This would be good for copyright, wills, deeds, and similar. This would be similar to getting a document notarized. It will have a signature stating that the document existed at a certain date. Courts and other legal entities only accept notarized documents from a certified notary. It would be much easier and cheaper to get a document notarized on the Block Chain. It could then be sent over the internet without creating a printed out copy. That would be excellent for the environment since using electricity and computers is more efficient than paper. Think about how much effort is done to bring paper documents across the country. You could argue that an e-mail is also proof of existence. However, an e-mail is harder to verify and make publicly available. It is certainly not as secure of a method as using the Block Chain. E-mails can be erased from existence fairly easily. A transaction on the Block Chain will never be erased.

How would using the Block Chain for this affect the price of a bitcoin? I would argue that the more valuable the Block Chain is, the more secure it would become. And, the more secure that it would become, then everything that the Block Chain is used for that is useful would become more valuable. Miners secure the network and receive bitcoin as a reward. If bitcoins are not valuable, miners will not secure the network. The more valuable bitcoins and the Bitcoin network is, then the higher the price of a bitcoin.

Any parties that have an interest in the Block Chain or bitcoins or any technology that utilizes Bitoin will have vested much and would support the system – they would not let it fail. If they have to buy up all the bitcoins to increase demand and raise the price, then they will attempt to do that in order to secure the digital proofs. The internet is very secure for sending encrypted and non-encrypted data from two points on the network. The Block Chain is built into the internet and it is not going anywhere anytime soon. It allows for encrypted data to be sent over an un-encrypted network.

Bitcoin is a public ledger to verify certain transactions at certain dates. The implications of this are huge. This proof of existence will be important for information that will be online. When an individual or entity creates some digital content, they want proof that it is there’s. If someone can have an immutable proof of existence that the whole world can verify, that is huge! Using the Block Chain for this very task is extremely convenient!  I don’t think Bitcoin or Block Chain will ever go away – it will exist as a historical artifact even after we stop using it. By the time it is obsolete, the human race will have at least inhabited several galaxies. Even then, it may still be useful. It may be one of the longest running and widely used currency, but we can’t say for certainty just yet. We will have to wait and find out. I would recommend buying a few bitcoins just in case if Bitcoin and the Block Chain take off.

Bitcoin Dynamics

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Amplification

A group of coordinated wealthy individuals or businesses could have a large impact on the market. The way the buys and sells are setup is that people make a bid to buy or sell a certain number of bitcoin at a certain price. There are only so many bitcoins listed on the market. If someone wanted to buy 10,000 bitcoins, then they would not be able to buy that many at the current market rates. There might only be 100 listed within +1% of current price, 1000 withing +5% of current price and 10,000 within +20% of current price.

If they wanted 10,000 bitcoins, then they would have to buy some of those bitcoin from sellers that list their price at higher than the current market rate. This would in turn bring the rate up. A single exchange might not be able to handle that many bitcoins without the price skyrocketing to +100% of current market rate. The wealthy individual would be better off buying 1,000 bitcoins from each of the major exchanges. They would need to buy a percentage of these bitcoins each day over a longer period of time in order to not cause a spike in the price. However, they would risk that the price goes into a temporary bubble or a longer term increase in price and they would end up paying more for the bitcoins then they would have if they just bought 10,000 outright. The market is extremely volatile! There would need to be a carefully planned entry into the market for these individuals to get a maximum amount of bitcoin for the most minimal price possible. There would be no perfect solution for this. It is a gamble on the unknown of the market.

High Prices

The high price of bitcoins are making it so average people will not buy or use Bitcoin. The prices need to come down so that people will buy them and use them. The actual price is irrelevant to their use since it is interchangeable with the USD. There are currently only 13.8 million bitcoins and there will only ever be 21 million. There are 8 digits on the left of the dot and 8 digits on the right: “13,800,000.12345678”. There is plenty of divisibility here. The high prices have a psychological effect on people in both directions – some people like the fact that the price of a single bitcoin is higher rather than there being 13 trillion bitcoins and there only ever being 21 trillion bitcoin. If the dot was shifted to the left 6 places like this 13,800,000,000,000.12 then, it would be fundamentally the same. Some people would prefer this for purely psychological reason.

Once more people use Bitcoin, then the value of the market will increase. Once the value of the market increases, bitcoins will have a higher price tag. The price will find an equilibrium between this and an uncountable (maybe countable) number of other factors. The price to mine a bitcoin will be factored into the price. Why would someone pay $400 for a bitcoin when they can mine one for $300 or less? The price to mine a bitcoin has been decreasing. This decrease will hit a critical point and then start getting more expensive to mine. The halving of the block reward that is predicted for around 2016 will make for a price increase of a possible factor of 2.

Moore’s law suggests that computing power on a processor doubles every two years. For the ASICs that mine bitcoin, they have doubled every 6 months. This has huge implications in of itself! This will make it cheaper and cheaper to mine bitcoin. However, if the demand for bitcoins increases to a number larger than what the miners are generating and selling, then current bitcoin holders will sell their holding or the price will rise significantly. Buyers will have to be willing to spend the higher amount of cash for a bitcoin or wait for someone to sell at a lower price. That might not ever happen. Some people depend on selling their bitcoins to pay their bills, so they can’t wait forever to sell – they are forced to sell at low prices. All of these factors will make for a natural & free market. There could be short-lived crashes and bubbles, but I think the price will stay at around the price of mining with the supply & demand factored into some complex equation.

Hot Commodity

People will want to get into Bitcoin. They have seen the potential. The psychological effect of 1 bitcoin is going to have an impact on the price of a bitcoin since there are only 14 million bitcoins now and there will never be more than 21 million. It wouldn’t be hard to see a market of millions of people in Bitcoin in the near future. A significant number of people will, psychologically, want at least one whole bitcoin. It will be a milestone. Investment firms are hiring people specializing in Bitcoin. This will attract wealthy individuals that want more than just one bitcoin. They will be pitching Bitcoin to investors that have large quantities of money and to average people. Some of them will want to buy one, tens, hundreds, thousands or tens of thousands of bitcoins or more. Bitcoin is a very powerful network that is capable of scaling to handle a large portion of national and international transactions for a much cheaper price than what is currently available. It will be a great asset that should increase in value & price.

Fundamentals of Bitcoin Mining

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Mining Rewards

Currently, miners are getting a reward for mining. This started at 50 bitcoin and halves every 4 years. It is currently at 25 and should fall to 12.5 sometime around the end of 2016 or beginning of 2017. This process of halving continues until there are about 21 million bitcoin in existence. After that, miners do not get rewarded with blocks for mining. However, there is a transaction fee built into the system. It is currently very low since the miners get rewarded with new bitcoin instead of the transaction fees. In the future, transactions are going to cost money. This cost will have to be competitive with other services in the market. Learn more about the Costs of Bitcoin paid through inflation and transaction fees.

Energy Costs

The cost of energy to mine coins will be factored into the equation to figure out the price of a bitcoin. The amount of energy to provide the equivalent amount of computer power decreases over time. For example, the AntMiner S1 has a Power efficiency of 2 W/GH/s on wall. That is, it costs 2 watts of power to process 1 gigahash in one second. The AntMiner S5 has a Power Efficiency of 0.51 W/GH/s. This is about a half a watt of power to process 1 gigahash in one second. Another word for W/GH/s would be a Joule. Over time, we will use lesser and lesser energy to provide the same amount of processing power. This fact makes it so the costs to maintain the Bitcoin network do not grow exponentially. I would not be surprised to see rates of 0.01 W/GH/s in a few years from now. Moore’s law states that processing power doubles every 18 months – the processing power for ASIC miners for Bitcoin doubles every 6 months. This time for doubling is shrinking. We could see doubling of processing power every month at some point in the future. Most people predicted that Moore’s law would slow down, but this might not be the case. However, there are some physical limitations in our universe that will prevent us from further increasing processing power. I would say the most extreme limitation is the speed of light.

Processing Bitcoin a Waste of Energy

Does all the processing and effort done by the miners just waste resources? It does create the market for the software & hardware jobs in engineering and manufacturing surrounding Bitcoin mining. The results from the work that mining accomplishes is more valuable than what the mining costs. This work would be done by expensive bankers if it was not done by the computer hardware. Computers can solve problems more efficiently than people in a lot of cases. Financing may well be one of them. Obviously, individuals will need to have control over the system and they will. The energy & resources consumed in the Bitcoin network is much less than the energy & resources that are consumed with the old-fashioned method of banking & finances. This energy can be reused as a method of heat in cold climates. I personally use miners to heat an addition to my home.

Mining Causes Heat

This heat needs to be put to use for it to be efficient. It would be useful in colder parts of the world. A mining community could exist in a colder part of the world. Heating the community would be profitable. I have two AntMiner S5s running in my spare room that is semi-attached to my house. I think it might have been an addition that was put there in the 1960’s, but it gets ice cold in there during the winter months. I use it as my little hobby/work room and the miners now provide, basically, free heat. I know it is not profitable with the current prices to mine bitcoin at home anymore. I did it as a hobby/educational scientific & engineering research type of a project. I will hold onto the bitcoins until they, hopefully, reach much higher prices. If they ever reach the peak of $1150 again, it will be fairly profitable for me to mine bitcoins. But, then again, I could have used that money to just simply buy bitcoins and that would have been more profitable in the hypothetical scenario where the value of a bitcoin again reaches $1150. I did buy them with a credit card on a 0% APR promotion so I would not have been able to purchase the bitcoins directly with my credit card as I can with the mining hardware. I will also be able to, hopefully, sell the miners in May when the warm weather approaches. This makes mining profitable for my specific case.

Typically, the only profitable mining can be done by large data centers with very cheap electricity. The cheapest electricity is in China – that is where most mining is done. KnCMiner is setting up mining facilities in the arctic where cool air is free and the electricity will be generated by solar and/or wind. That type of bitcoin mining that is going to survive for a very long time. The others will die in a process of selection of the most fittest mining operations.

Cloud Mining & Exchanges

Miners can potentially make more money by selling 12 month contracts because they can sell the hashing power at current rates and by the time 6 months has passed, the company can buy twice the hashing power for the same price in terms of processing and electricity. Note that Moore’s law states computational power on standard chips doubles every 2 years.

Cloud mining is when a mining company sells the shares of their mining hardware. This is done by selling Gh/s, that is Gigahash per second. People make bids to buy or sell a certain number of Gh/s at a certain price. When someone owns the shares they get the earnings that were made from the last block that was solved. The mining company will subtract the maintenance fees from the earnings. Once the maintenance fees are higher than the earning for 10 consecutive days, they will retire the old hardware. They have generations of hardware for sale and the latest hardware gets the most earnings for the least maintenance fees. The profits made from the shares can be used to purchase more shares. And the shares that are owned can be listed in the exchange as for sale and at a higher price than what they were purchased. This may maximize the amount of earnings. However, the prices of the hardware and bitcoin may decline and it is possible to lose money between the buy/sell price and the amount of earnings versus maintenance fees.

Hash Rate

The hash rate has grown to be very powerful and a lot of companies have been dedicated to hashing Bitcoin. The network is currently at about 300 Terahertz (300,000,000 hertz). Hertz means cycles per second. I would not be surprised to see this number get very large. It is growing at an exponential rate. It could soon be measured in petahash, exahash, zettahash or yottahash. Those are real words, too! petahash means 100,000,000 cycles per second. Yottahash means 100,000,000,000 cycles per second. The Bitcoin network is currently around 300,000,000 GH/s.

Mining Bubbles & Crashes

Mining is directly affected by the price of bitcoin. When the price of bitcoin drops, old mining equipment becomes unprofitable and thus the operators turn it off. This in turn, makes it more profitable for the newer mining equipment since there is less competition. The rewards are assigned to the miners based on how much processing power they supply. There is a difficulty factor that can go up or down based on how much mining power there has been in the last couple of weeks. When the price of bitcoin falls, the miners make less money and the old equipment gets removed from the market. The efficient miners with the new equipment remain profitable. This process will help the mining market progress. When bitcoin price raises, people invest making faster and more efficient mining equipment.

The mining equipment that uses the least amount of electricity will make the most profits as long as the price of building hardware to get the low electricity outweighs the profit. There is an equilibrium between all of these factors where the only outcome will be a balance between the hash rate, difficulty and price. The difficulty is a factor that makes the network as secure as possible with the amount of processing power that is currently possible. The more processing power that is contributed to the Bitcoin network, then the more secure it is. This balance should make minor spikes and drops in the hash rate over time.

During price drops, there will be less hashing and the network will be less secure, but the network will be worth less. It will always remain unprofitable for someone to attack the network. Even if the hashing power drops, then the intruders could not make a profit at the current rate of the bitcoin. It is not a trivial task to intrude on the network. It would take a significant amount of resources that nobody currently has. Someone would need the processing power of 15,000 times higher than the world’s 500 supercomputers combined. And, if they did accomplish this, then the price of bitcoins would be worthless anyhow, so they wouldn’t make any gains. If a very powerful entity or group of entities could make huge profits by shutting down the Bitcoin networks, then it would be profitable for them.

However, that would cause a fork and the developers would make efforts to stop the counter network from intruding on the newly created network. The act of taking down the Bitcoin network would be an act of cyber warfare. People from many nations have their wealth stored in Bitcoin. It is the duty of nations to protect its’ citizens from wide scale attacks. It would be the same as if a nation attacked the computer networks of businesses in a nation. The attacked nation would have the right to respond militarily. I think in the distant future, an effective attack on the Bitcoin network would be construed as an act of war against many nations. There will be terrorists and criminals that could attempt to attack the network, but that would be the same as terrorists and criminals attacked a bank. The Bitcoin network should be resilient against attacks from terrorists and criminals. Terrorists and criminals would never acquire the resources to launch an effective attack against the Bitcoin network. They would probably be able to more easily steal or buy a nuclear bomb from a nation.

It is the duty of nations to protect its’ citizens assets and interests. Citizens from many nations have vested interest in Bitcoin. An attack on the Bitcoin network by individuals will be regarded as an act of terrorism against all the countries who have citizens that are vested in Bitcoin. Nations would be obligated to protect the Bitcoin network. If a nation attacked the Bitcoin network, it will be viewed as an act of cyber-warfare against many nations at once. People argue that the Bitcoin can’t be legitimate because there is no nation that backs it. However, there are many nations that back it. It already has more backing by more nations than any other currency.

Colonizing the Poles

Another claim could be made that the profitability of mining bitcoin could be used to economically colonize the north and south pole. Portable homes that generate profits from the heat they generate could be airlifted to places in the north and south pole. There could be communities built around technology. And, even further craziness, this could lead to advancements in space travel and colonizing other planets such as mars. Heating would be expensive on mars. Maybe some complex mathematical models can be simulated with the technology that is created as a result of Bitcoin. I’m not claiming that this wouldn’t happen anyways, but Bitcoin is going to speed up the process. There is evidence that you can see by measuring the rate at which processing power grows. The amount of processing power on a chip typically doubles every two years. The processing power on Bitcoin mining power doubles every 6 months. The Bitcoin network has more 15,000 times more processing power than the world’s 500 most powerful supercomputers combined. That is extremely impressive and it is something that our has not seen before! These chips are very specific purpose for Bitcoin mining, but the advancements in technology will help to solve complex mathematical models. To name a few of the fields this will benefit:

  • genetic sequencing,
  • modeling the changes in the universe over time,
  • artificial intelligence,
  • quantum computing
  • and, many more…

Unethical Bitcoin Uses

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Terrorists Use Bitcoin

Terrorists use smartphones. Terrorists use online social networks like Facebook and Twitter. Terrorists use the USD. Just because terrorists use Bitcoin, does not mean that Bitcoin should be outlawed. That would be the same as banning automobiles because terrorists use automobiles. The logic does not work. Bitcoin has a huge number of uses and just like anything useful, bad people will use it to accomplish their agenda. I do agree that governments will need to spend more effort monitoring the exchanges and the blockchain so that they can track and locate suspicious people.

Bitcoin is also a tool for the law enforcement agencies. All transactions on the blockchain are publicly available for anybody to see. Once an address is connected to an identity, the bitcoins in it can be tracked down the blockchain backwards and forward. The law enforcement agencies will then have clues to finding other criminals and terrorists. They could track down a network of criminals & terrorists.

I’m certain that wealthy bankers and politicians that are associated with the wealthy bankers will use this as an excuse to try to make more restrictions on Bitcoin. It will be the only tool that the bankers have to compete besides lowering their rates for their services. I don’t think the banks want to lose their largest income streams – very large salaries & bonuses depend on it! If governments start banning Bitcoin by the logic “because terrorists use it”, then they might as well ban airplanes since terrorists use them to crash into buildings. If a government bans Bitcoin with that logic, then they ought to start making it illegal for people to leave their homes since terrorists must leave their homes in order to commit terrorism. I guess the only way to stop terrorists is by stopping all people from leaving their homes. These related arguments against Bitcoin does not hold up if using reasonable logic.

Following the Chain

Imagine that you could follow the chain of where your money came from. With Bitcoin, you can do that. You can see where the bitcoins were created and to which accounts they were sent to by following the chain of transactions that led the money to you. The anonymity is that the addresses are not associated to anybody. Once the addresses are associated to individuals, then their is no anonymity. Some could argue that this is an invasion of privacy.

Once a person that owns some bitcoins is identified, that person could possibly be attached to bitcoins that were used in illegal transactions. It is possible that the bitcoins were legally obtained. It would be wise to keep detailed documentation if you are planning on doing a lot of business with bitcoins. Personally, I would recommend to only purchase bitcoins from a reputable source. If you don’t, then possibly your bitcoins could be seized by a government.

Court Orders

A court order could be made stating that you turn over your wallet, private key and password to authorities. This can be a good way to track down criminals online but some crimes are controversial such as marijuana. Could the authorities use Bitcoin to track down all the people that buy marijuana with bitcoins once they bust some dealer that has collected bitcoins from a large number of pot purchasers? Yes, they could. I don’t think the efforts would be made for small time criminals, but for larger more organized criminals, the authorities will have an extra tool to investigate. However, the criminals have access to the most advanced financial infrastructure to have ever existed on our planet. The general population does not even know about Bitcoin yet. However, criminals are using it everyday to transfer funds over borders instantly to anybody, anywhere at anytime.

Could courts ban transactions from being processed if they know that those funds are illegal? A court has jurisdiction over its own borders. Will the miners listen to those court orders? If the transactions in the history mapped to some bitcoin in an innocent persons wallet by legal transactions, could that money be seized? With the USD, money that was stolen can be seized by authorities. I’m not sure how far down a chain the US government could seize dollars that originated from an illegal activity, but similar laws might be applied to bitcoin in the future.

Bitcoin is More than a Virtual Currency

bitcoinismorethanavirtualcurrency

Other Open Decentralized Networks

Search Engines, Email, Social Networks. These could all be created in a similar fashion. They would cut out the big players that are making a huge cut in users online activities. If a community of servers could solve problems like search, social networks, shopping, almost any human to human interaction that we do with a computer. There could be nodes like “miners” in Bitcoin that would contain the correct answers for user queries. The network could intelligently organize any information and reward the organizers. An open source catalog could contain a valid list of the cheapest products that anybody could purchase. All of the computers would work together to locate the best available products for the lowest price. The network could connect commerce with consumers and cut out the costs of large third parties. The nodes that manage the network would be rewarded with commissions if they behave well. If they try to mess up the results, the rest of the network would find out and cut them out for new traffic immediately. This would be a decentralization of the network. Peer-to-peer networks work great for content sharing and currency, why isn’t it used for other popular online activities?

Web 3.0

It is the internationalization of the web. People of any language will be able to communicate financially as well as through text and audio/video. You will have a store of wealth online that can easily be transferred to others at your whim. You will be free from corporations and governments limiting your freedoms. It will allow computing resources to be used just like a currency.

Online Activities Have Too Many Fees

An open and distributed network of e-books can be created to allow for publishers to connect directly with their readers. There is no need for corporations to have a monopoly on the system and take huge cuts. Some of the cuts that they take go to pay the banks the fees for their transactions. Bitcoin takes the banks out of the transactions between merchants and consumers. This model of centralized businesses is taking too much of the money away from the the merchants and consumers. The same principle can be applied to advertisements, e-commerce and search engines.

Post E-Finance

What happens after technology takes over finance? Is the next sight on politics? Will computers handle international laws just as they are starting to handle international financial transactions? There might be an autonomous system where there are an agreed upon set of laws. The system will be able to monitor all people and enforce the laws. There will be no single person or groups of people that can go around the the international laws. As scary as it sounds, this might be a good thing. The system would be much more efficient than the current system since there are so many loopholes and contradictions in laws across borders.

Will there be some blockchain technology that has all the laws that humans must abide by? The system could reward people that follow and uphold the law and it could punish people that do not follow the law. Having such a system in place might be better than the patchwork of laws that we currently have. Are there some undeniable truths about what it is right and what is wrong? If an alien civilization came to our planet, would there laws be nearly identical to our own laws? There are some many thoughts to ponder about what will happen with technology in general.

Opinion

It will be useful for micro payments online. I personally like it for that. I like to pay $1 or so for goods. I wouldn’t give a company my credit card or bank information for such a small amount. I have been signed up for cycled billing for a minimum 12 months at $29. I should have read the terms and conditions. It would be harder for businesses to do that with bitcoin. They will be good for international orders also… the international credit card transactions sometimes fail and have to be manually approved. It is cheaper than the current services if you convert USD to bitcoin for free. Businesses usually pay about 3% CC fees and those are passed on to the customers. If the businesses/consumers could lower their prices by 3% for bitcoin customers, it would cut out the banks 3% fee for almost each and every transaction. It adds up after the same $100 gets a 3% transaction fee 10 times as the money spreads through the economy.

Alt-coins

 I don’t think an alt-coin will replace Bitcoin. It will have a small hash history and therefore be less mature. The new alt-coin would be worth about the same price as bitcoin in terms of computing power. Buying a crypto-currency will be directly proportional to how much effort it takes to create it. However, this will not hold true for alt-coins that die. If they get abandoned, then they will not be worth as much to a bitcoin in terms of computing power consumed in their generation. There will be cases where an alt-coin rewards more to mine than bitcoin. However, miners will switch their hardware to that alt-coin and then bitcoin will be easier to mine. This will enforce the price of all of the crypto-currencies to be balanced in the long-term. Some lucky people might get in early on some new alt-coins that will take off and it will be extremely profitable. But as soon as the price for an alt-coin starts rising, more miners will throw their equipment at it. Bitcoin is already “the” digital currency and it would be difficult for an alternative to surpass it.

Superior Digital Currencies

A currency that had all the abilities that Bitcoin has but was cheaper to mine would be superior. Is mining necessary? Is there a way to make a value exchange network that does not require such expensive computational power? A large network of trust might be able to be built where each node in the network receives a small reward for processing a transaction might be possible. However, the heat giving off from mining could be a valuable resource. This heat needs to be utilized in homes and businesses in areas that are cold.

Replacing Obsolete & Old Infrastructure

There are going to be battles replacing the obsolete & old financial infrastructure that is in place. They will take as much action as possible in court & media campaigns to continue maximizing their profits. Bitcoin offers new & improved services over the old.

Crazy Claims

To claim that Bitcoin can provide all the services of the Banks, Credit Card companies, PayPal, Western Union to name a few sounds crazy, but they all store and exchange wealth. Bitcoin is very effective at storing and exchanging wealth. The part about storing wealth might be argued against since people that bought at $1100 and now it is at $275, but that was an artificial spike and prices are correcting themselves to their true worth.