bitcoin... any onfo?

[Beja]

Any info?
Sorry didn't know how to connect the title

Hello guys
(1) Anyone knows about who is managing this money
(2) who is deciding its market value?
(3) what are the risks?
(4) what if the internet backbone is down for extended periods?

I need this info urgently as part of a research.

Thanks in advance

 

[RAJAN MBA]

https://bitcoin.org/en/faq

 

[sorex]

there were some rumours that the company behind kind of vanished a few months ago.

don't know the current status tho.

 

[Beja]

Thanks Raman for the link.

Thanks sorex,, that's why I am posting this here.. I read a lot about it, even the link Rajan had provided.. but since this issue is controversial I thought people here can shed some more lights.

 

[sorex]

their site is back online but full of bankrupsy stuff > https://www.mtgox.com/

 

[joseluis]

1) There is no company behind it. Noone is in control. Also you could say every user is in control. Bitcoin brings to the table the invention of the decentralized asset ledger, also known as the Blockchain. It allows everyone to not depend on any third party in order to pay to another person, and more (remittances with negligible fees, micropayments, appliances paying for they own needs), and not just money applications (digital assets, smart properties, stocks).

In a way, Bitcoin is doing to money like internet did for communication. For example, now you can create a website and you don't need to ask for licenses or permission to anyone and it's available to the world to see. With bitcoin you can create a financial application and you don't have to ask any banking authority for permission, you see the need, you make the app and people can use it if they want. It is open for innovation. Also bitcoin would be the equivalent to the TCP-IP protocol in the internet (transmission of packets of information), over which another protocols and applications can be run.

There are companies that give services based on bitcoin, like money exchangers for example, but bitcoin doesn't depend on them, they can thrive like coinbase or they can fail like mtgox and the world keeps turning, since the fundamentals of the technology are the same, and if that's of some value for the people around the world then bicoin will keep having value.

Here is a video that summarizes the technology if you are onto it:


2) The market value is a continuous discovery process involving everyone that uses it. There is a lot of psychology in there. It's a mix of real utility, perceived utility, expectations, greed, speculation, normal buying and selling, etc. The thing is, since the money production is determined and previsible since the beginning, (can't be artificially manipulated) it's theorized that the monetary value of the bicoin network must increase to accomodate the wealth that is deposited into it, and not be so volatile when it's used for big transactions. So all the users are affecting the value at the same time. It's fun to watch, and scary at the same time, like a rollercoaster. The general perceived consensus is that as years pass and more people use it, the volatility will keep decreasing and will become more stable.

3) The main risks for me are that a fundamental flaw is found in the underlying technology which couldn't be fixed, or that people decide that the technology is not worth, looses interest, stop using it and becomes irrelevant.

The biggest risk for individuals i guess that they loose their money for being careless, not understanding the basics on operating securely (e.g. using unencripted wallets on windows), or that they buy more bitcoins that they can afford to loose, for especulation, and since the price is still very volatile they can loose what they don't have. Or that . You see, this is still in a phase similar as internet in the pre-1994 years. It's still mainly for pioneers, believers, and risk takers. Like any new technology it needs some time to be ready for the masses and to become stable and easy enough for our moms to use.

4) It's basically a distributed ledger, so the annotations and operations will be resumed when the backbone comes back up, I guess. I'm really more worrried of a solar storm happening again like the one that happened 155 years ago, frying all our electrical devices.

EDIT: words

 

[sorex]

I doubt there were much electrical devices in normal households 155 years ago

if there is no company behind it, who sets the standards, currency rates and all that?

also 1 bit coin is now 314.45 euro, so if you buy a usb stick on aliexpress for €2 that will be 0.0063 bit coins ?

XE.com doesn't have it in its list as (valid) currency either.

 

[Beja]

Thanks codex

@Jose
Thanks and the saying that no one is behind this system, for me, is hard to buy.
It has a name, a logo, minted money, decision makers to print more bitcoins, processing fees...etc. So who the heck would believe that there are no administrators or company behind it. Do ALL people have the right to decide on the amount of circulated bitcoins? Or do they have the same rights
To manage and collect processing fees?

 

[joseluis]

I doubt there were much electrical devices in normal households 155 years ago

Of course I mean now, if it happens again, western society depends absolutely on electricity.

also 1 bit coin is now 314.45 euro, so if you buy a usb stick on aliexpress for €2 that will be 0.0063 bit coins ?

Yes.

XE.com doesn't have it in its list as (valid) currency either.

This is what I found there: "XE does not endorse nor express an opinion as to whether or not Bitcoin is an official or legitimate currency."

if there is no company behind it, who sets the standards, currency rates and all that?

It has a name, a logo, minted money, decision makers to print more bitcoins, processing fees...etc. So who the heck would believe that there are no administrators or company behind it. Do ALL people have the right to decide on the amount of circulated bitcoins? Or do they have the same rights
To manage and collect processing fees?

Ok, the confusion is on the definition of "behind it". First of all behind it is the invention, the white paper and the technology. Those are the game rules, we could say. They were well thought and defined since the begining. Things like the 21million total units that will ever be emmited, the specific rate of monetary emission (50btc every 10 minutes, halving each 4 years (since 2012 we new 25btc , and in 2016 will be 12,5 )), the proof of work system that secures that the distributed ledger can't be modified unless it's by consensus of the whole network, etc...

There is also the implementation. There is an official client done by an "official" development team that is the reference. That group of developers wasn't chosen by anyone, but they started working on it since the very beginning, and they are doing it well, so the community trusts them, and everyone is looking at them as a reference. Everything they do is open software and there can be other teams doing their own implementations. If the reference team stops working well, then another team can become the reference for the bitcoin community. Everything is like that. There are works to be done, and people that can fill those needs for the community.

There is also a very important group that is called the "miners", and they "mine" bitcoin. They are the circulatory system and the pulse of the bitcoin network. They verifies the transactions, receive the transmision fees, secures the network, and receive the new minted bitcoins. Anyone can be a miner. That means you put (an inmense amount of) processing cpu power into the bitcoin network, and compete with other miners in the big lottery of solving a cryptographic math problem, related with the security of the last 10 minutes of transactions, in order to include them in the ledger. The first one that solves it receives new 25BTC in his account, everyone in the network checks the result, agrees on it, and the race for solving the next problem begins.

So when you send bitcoins you can choose the fee, or choose no fee that goes on paying the miner that veryfies your transaction (if you don't pay a fee you are risking that no miner will want to process your transaction because he wont profit anything from it, or at least that they wont hurry with yours). And there is a standard very low fee at the moment of a 2cents or something like that. The fee system is one thing that can and will be improved hopefully, in order to allow microtransactions of a few cents, without the fee being a big percentage of the operation.

Here is good info about fees:
http://bitcoinfees.com/

 

[MikeH]

Thank you Jose, yours is the first explanation I have made headway in understanding.

Am I right in thinking, the first miner to solve the transaction receives 25 bitcoins which atm are worth 314 euro each = 7,850 euro?

Say you are that person, what would the "immense amount of processing cpu power" have cost?

This seems to be a race for the fastest processor, what happens if more than one miner had the exact same power/speed? Does that mean there would be equal ties for miners solving the transaction? Is the latest transaction released to everyone at the same time? Does it come down to the speed of the network too? E.g. If you and I have the same processing power but you live closer to the hub than I do, you would have an advantage, because your network signal would reach before mine.

 

[joseluis]

Thanks mike,

Right now (and since at least 2013) a single guy with a computer can't really compete. It's more difficult than winning the lottery several times. In 2009 you could mine with a laptop's cpu and gain some bitcoins every day. In 2010 - 2011 you needed powerfull processors and then graphical gpus (since GPUS are better than general CPUS for doing the computational operation that miners need.). Since early 2013 gpus don't cut it anymore. ASICS (circuitry specifically designed for that operation that can't do any other thing) were the thing then and now you only can compete having thousands of those. The difficulty has increased so much since the beginning that you can't imagine, you can see here the progression.

Take a look to a bitcoin mining farm with asics

The difficulty increases automatically to compensate the total processing power of the network, and to ensure that bitcoins are only found every 10 minutes in average.

The profit margin now is very low. Is a very specialized industry, and is only worth it if you have free electricity. Percentages of expected gain, getting rid of all the heat generated , maintaining the hardware, keeping up with the increasing difficulty... I wonder what will happen in the next halving in 2016.

But there are also pools.. I didn't talk about pools and are very used now. Almost all miners today are part of a pool. You can join a pool of miners, contribute computation power to the pool, and when/if it gains some bitcoin, it pays to its contributors in proportion of the power they gave. Also profit is very low.

Specifically the problem miners compete really is traying to find a hash (a cryptographical signature, a special number) that identifies a block of transactions. And that hash number must be less than X. The difficulty is increased simply by adding zeroes to the requirement. e.g. now the number must be less than X * 10-3. And the only way to find it is trying number after number until you find the needle in the haystack.

And as you said, maybe you just found the needle, but someone found it 0.1 second before, and he managed to present the proof first to the community, then the bitcoins goes to him.

But anyway all of this is irrelevant for the common man. Nobody understands how the financial system we have now works, and people keep using credit cards so... I just happen to find it fascinating for the solidity, the transparency and the endless possibilities it brings. Like... we can watch the economy flow in realtime, and let the economy become a serious social science. It's like going from astrology to astronomy.

 

[Beja]

Thanks Jose for the detailed explanation. However, it added more confusion and raised more questions.. I will come back to discuss it.
But a quick reflection, an exchange rate that jumps from two dollars to four hundred dollars is truly scary.

 

[joseluis]

jumping from 0,002 to 1 to 35 to 2 to 180 to 50 to 1200 and now back to 400 (in 4 years) would be more accurate but yes, it is such a ride. But the price of exchange to other currencies is not the main aspect, although is the one that makes more noise.

Yea, I know. It keeps happening to me too. More questions that lead to even more questions. There is no end to curiosity, and this thing is so mind blowing because we haven't experienced anything like this before. It questions so many myths and assumptions that can make one feel dizzy. So much information is out there but the main question remains unanswered. Is this invention going to remain decentralized, independant from censorship and corruption and become widely used as a universal currency? We'll see in the next few years how everything plays out.

 

[Beja]

I know what you are talking about, Jose, but the problem is not in the technology, but in the human factor.
bouncing from $"0.002 to to 1 to 35 to 2 to 180 to 50 to 1200 and now back to 400 (in 4 years)" means that so many people have been martyrs and now they are in heaven, while others became millionaires.
There is a growing world community with anti-government sentiment.. bitcoin, occupy wall street, G8 demonstrations, femen movement... all these
phenomenons, in my view, are forerunners of a real thing cooking. That thing, I believe, is the international government.. but if humanity didn't advance in the values and ethics side, then any change in the outside will be stamped with the same corruption, greed and injustice. Bitcoin is no difference.. and what we see today is just an indication that the fate of this currency will be on the hands of the same chosen few.. look at the miners.. in theory they say everyone can be a miner as long as he/she holds bitcoins.. it started clean, but now only those who own fast and redundant servers can be miners, making millions of dollars a month.. and we watch again Return of Django!

 

[joseluis]

Beja, I know what you're talking about, and I agree with the bottom point, but the path can't be smooth, since there are so many interests, forces and challenges to overcome so that the humanity can become united in some fundamentals. We have internet now and that's a big step, because it puts all of us in direct communication with each other.

What I like about bitcoin is that it's by design inclusive and open for anyone. It's not a private club, and everyone can bring something that must be there for it to work in the real world. Right now we're in a growing, adolescent phase where the speculators are playing a big role and that's good. They give the necessary liquidity, pushes the limits of the network and allows us to know how it responds under real world conditions. This is a tool for the world and we must become wise through experience, dealing with every step as it comes. Remember that this hasn't been done before, Trying to popularize a tool that empowers individuals with financial tools that can't be taken from them.

Don't get confused, the miners are not a chosen few, they are perfoming a necessary job, and not a very lucrative one by the way, since to gain much they must spend almost that much. It is one of the most efficient jobs there are since there is so much competition it's insane, but an open an auditable competition. You do know the system we have in place right now where the banks and financial institutions are creating the money and lending them to governments and receiving public funds, and being completely opaque and full of corruption, financing elections and lobbies right? We already live in plutocrat social systems, and Bitcoin has to deal with it too, but its aim is completely promethean by design. As I see it, if we all now have independant access to fire everytime we reach for the lighter in our pockets, we can also be our own independant banks every time we reach for the phone in our pockets. That's the dream.

 

[sorex]

Jose,

you said the point of bitcoin was to have a currency with no-one inbetween.

But didn't you just say that some people/companies have transaction fees? (which is logical since personel, hardware etc also costs money)
What's the point then when it costs more to transfer bitcoins around compared to a free method with the bank transfer/visa/...?

 

[joseluis]

Yes, the main point is to have a way of sending and receiving value without a third party involved in between. Obviously there is still things and protocols in beweeen. Like you can have a bike to move around the city to go see your friend without a third party involved, but you still need to use the roads, and you need the people that maintain the roads periodically, and so on.

The fees are part of the bitcoin system. They ensure that the miners have incentive to mine, to verify the transactions and so on. In the future, as the issue of currency reduces, fees will be the main source of income for the miners. And they are ultimately optional. But you are risking that your transaction gets put on hold for several hours, instead of going through in less than 10 minutes, or even not being verified at all, so it's usually a good idea always pay the fee. Which is very cheap by the way, right now is about 0.08 usd

See, bank transfer/visa are not free. Are not free in time, you usually have to wait between 2 days and a week. Many banks charges for the cards something anually. Depending on where you send it the transfer can have a big fee, maybe $30-$60 or even a % of the amount transferred and you never know exactly what the fee will be until you do it. Transfers are also monitored and you have limits, if you step over one of those limites the alarm sounds, and the operations can be frozen if you were trying for example to transfer money to a blacklisted country or if the banks thinks you are doing too many, or the sum is too high, or a word you wrote in the subject field or whatever arbitrary rules they have. Also the recipient must have a bank account and not everyone has nor can have one. If you buy something and pay with your credit card the bank charges around 3% to the seller. Can be reversed... And so on and so on.

So with bitcoin, you can have an address instantly to receive and send monetary value from anywhere in the world, without having to ask permission, and at a very little to no cost. Almost instantly, irreversible, free of censorship. It's a different feeling, and a very easy to get used to it kind of feeling. Like only knowing landline phones and then one day discovering the smartphones.