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a new open source P2P e-cash system, originally developed by Satoshi Nakamoto

URL = Bitcoin Wiki

Download Bitcoin v0.1 at ; Design paper at


1. Bitcoin is a leader in distributed P2P Currency. Each participant can be part of a network as wide as they can reach, or as small as they choose to make it. The only drawback of Bitcoin is the necessity to use the Bitcoin currency. This is offset for many by the fact that, because the currency is 'in force' and widely used, a number of exchanges have popped up, allowing users to trade coins for other currencies. Bitcoin may be useful for a P2P Network as an immediate replacement for cash with low infrastructure requirements for implementation.

2. From the Wikipedia:

"Bitcoin is an open source peer-to-peer electronic cash system developed by Satoshi Nakamoto. The system is decentralized with no central server or trusted parties. Bitcoin relies on cryptographic principles to create unique, unreproducible, and divisible tokens of value. Users hold the cryptographic keys to their own money and transact directly with each other, with the help of the network to check for double-spending." (

3. Springwise

"Bitcoin bills itself as “the first digital currency that is completely distributed.” In essence, that means that it’s managed collectively by a global network of users, so no bank or payment processor is required between buyers and sellers in any transaction. Users begin with Bitcoin by downloading its client program for Linux, Mac or Windows, thereby creating a digital wallet and associated Bitcoin address for themselves. Next, very small quantities of Bitcoins are available for free from the Bitcoin faucet, but to get larger ones, users can visit various currency exchanges and sites. They can also accept Bitcoins as payments for goods and services. Either way, once they have Bitcoins — abbreviated “BTC” — users can spend them at various participating online merchants for a wide variety of goods and services. It’s free for merchants to accept Bitcoins, and there are no chargebacks or fees. Currently, there is no charge for processing Bitcoin transactions, but eventually a small fee of about one bitcent will be charged every transaction to one of many competing Bitcoin “miners,” who create Bitcoins in a controlled way by running a dedicated program." (


1. Satoshi writes:

"It’s completely decentralized, with no central server or trusted parties, because everything is based on crypto proof instead of trust.

The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.

A generation ago, multi-user time-sharing computer systems had a similar problem. Before strong encryption, users had to rely on password protection to secure their files, placing trust in the system administrator to keep their information private. Privacy could always be overridden by the admin based on his judgment call weighing the principle of privacy against other concerns, or at the behest of his superiors. Then strong encryption became available to the masses, and trust was no longer required. Data could be secured in a way that was physically impossible for others to access, no matter for what reason, no matter how good the excuse, no matter what.

It’s time we had the same thing for money. With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure and transactions effortless.

One of the fundamental building blocks for such a system is digital signatures. A digital coin contains the public key of its owner. To transfer it, the owner signs the coin together with the public key of the next owner. Anyone can check the signatures to verify the chain of ownership. It works well to secure ownership, but leaves one big problem unsolved: double-spending. Any owner could try to re-spend an already spent coin by signing it again to another owner. The usual solution is for a trusted company with a central database to check for double-spending, but that just gets back to the trust model. In its central position, the company can override the users, and the fees needed to support the company make micropayments impractical.

Bitcoin’s solution is to use a peer-to-peer network to check for double-spending. In a nutshell, the network works like a distributed timestamp server, stamping the first transaction to spend a coin. It takes advantage of the nature of information being easy to spread but hard to stifle. For details on how it works, see the design paper here at

The result is a distributed system with no single point of failure. Users hold the crypto keys to their own money and transact directly with each other, with the help of the P2P network to check for double-spending."

2. Aran explains:

Bitcoin is an open source peer-to-peer (a.k.a "p2p") electronic cash system that's completely decentralised, with no central server, trusted authorities or middle men. The availability of bitcoins can't be manipulated by governments or financial institutions. Bitcoin already has a number of exchanges for converting to and from other currencies; BitcoinFX, New Liberty Standard, Bitcoin Exchange and Bitcoin Market.

Bitcoin may last for years and become a popular global currency, or it could be just a flash in the pan, but either way I think this is an important sign of the times to come. This is one of the first truly decentralised currencies and has paved the way for hundreds more to compete together in the new arena of Cipherspace over the coming years. This is one of the key factors in the transition of global society into the post-nation-state economy talked about in The Sovereign Individual.

In a p2p computer network there are no servers, the entire network is composed of users running instances of the application on their computers. Each running instance offers a small amount of processing and storage resource to the network so that it can deliver the services it was designed for such as redundant storage, anonymity or voice-over-IP applications.

In the case of a p2p currency system, some of the services the network is designed to offer are privacy, verification, authentication, currency creation and transfer of ownership. To ensure a reliable and tamper-proof system requires a lot of resource, and that amount is proportional to the amount of coins in the network. The network is able to pay the users for the resource they offer by making the coin-creation process part of the network protocol itself instead of being handled by a central trusted authority. This creates a natural and incorruptible link between the supply of currency in the network and the demand for it.

Even aside from the ability to exchange bitcoins for other currencies, it still makes a very useful tool for independent organisations and groups because it allows them to trade and settle accounts amongst themselves independently and privately. It effectively gives them a "bank" that has a trustworthy system of accounts that can't be tampered with and requires no corruptible central authority to operate. See the Bitcoin Whitepaper for more detail about how it works.

To try Bitcoin, download the Bitcoin software, then once it's running, click 'Generate Coins' which will pay you bitcoins in exchange for your computer working to validate bitcoin transactions. Check the exchange rate to calculate how many bitcoins need to be sent. The payer can purchase additional bitcoins if needed. The payer's previously generated bitcoins allow for a lower out of pocket payment. The payer then sends the bitcoins to the receiver using the Bitcoin software. The receiver can then sell their bitcoins for dollars. The receiver's previously generated bitcoins allow a higher dollar payout." (source?)

How does Bitcoin work

Graphic at

1. FAQ

"Q. What is Bitcoin?

A. Bitcoin is a peer-to-peer currency. Peer-to-peer means that no central authority issues new money or tracks transactions. These tasks are managed collectively by the network.

Q. How does Bitcoin work?

A. Bitcoin utilises public-key cryptography. A coin contains the owner's public key. When a coin is transferred from user A to user B, A adds B’s public key to the coin, and the coin is signed using A's private key. B now owns the coin and can transfer it further. A is prevented from transferring the already spent coin to other users because a public list of all previous transactions is collectively maintained by the network. Before each transaction the coin’s validity will be checked." (

2. IEEE Spectrum's By Morgen E. Peck:

"The simplest way to understand Bitcoin is to think of it as a digital ledger book. Imagine a bunch of people at a table who all have real-time access to the same financial ledger on laptops in front of them. The ledger records how many bitcoins each person at the table has at a given time. By necessity, the balance of each account is public information, and if one person wants to transfer funds to the person sitting across from him, he has to announce that transaction to everyone at the table. The entire group then appends the transaction to the ledger, which they all need to agree on. In a system like this, money never has to exist in a physical form, and yet it can’t be spent twice. 

This is basically how Bitcoin works, except that the participants are spread across a global peer-to-peer network, and all transactions take place between addresses on the network rather than individuals. Address ownership is verified through public-key cryptography, without revealing who the owner is. 

The system turns traditional banking privacy on its head: All transactions are made in public, but they’re difficult to link up with a human identity. Maintaining the dissociation takes vigilance on the part of the Bitcoin user and careful decisions about which outside applications and exchange methods to use, but it can be done. “Anonymity is typically compromised by means outside of Bitcoin’s control, in other words,” says Jeff Garzik, who is on the team of programmers now responsible for developing the Bitcoin software. Bitcoin is often described as providing pseudoanonymity, by creating enough obfuscation to provide users with plausible deniability.

People who own bitcoins have a program—called the Bitcoin client—installed on their computers to manage their accounts. When they want to access their funds, they use the client to send a transaction request. The innovation of Bitcoin is to use the processing of these transaction requests as the mechanism for creating new currency.

As requests pile up in the system, individual computers, running “mining” programs, bundle them into chunks called transaction blocks. Before each block of transactions becomes part of the accepted Bitcoin ledger, or block chain, the mining software must transform the data using cryptographic hash equations. The Bitcoin client accepts the resulting hash values only if they meet strict criteria, so miners typically need to compute many hash values before stumbling upon one that meets the requirements. That process costs a lot of computing power—so much that it would be prohibitively difficult for anyone to come along and redo the work. Each new block that gets added and sealed strengthens all the previous blocks on the chain. 

The “miner” whose computer first finds an acceptable hash value is rewarded with newly minted bitcoins. The Bitcoin system adjusts the difficulty of the hashing requirements to control the minting rate. To its proponents, this is one of Bitcoin’s biggest attractions: Unlike the printing of “fiat” currency, which can be done on demand, the creation of Bitcoins will gradually taper until it reaches a limit of 21 million coins. 

As more and more miners compete to process transactions, mining requires more computing power. Brock Tice, who mines bitcoins in St. Paul, Minn., has a whole room stuffed full of enough mining computers to heat his office in the winter. But Tice first became interested in the network for a different reason. He thought it would be a better way to accept money from customers online." (


"The total number of bitcoins is programmed to approach 21 million over time. The money supply is programmed to grow as a geometric series every 210,000 blocks (roughly every 4 years); by 2013 half of the total supply will have been generated, and by 2017, 3/4 will have been generated. To ensure sufficient granularity of the money supply, bitcoins are divisible down to eight decimal places (a total of 2.1 × 10^15 or 2.1 quadrillion units)." (

Note: the eight decimal places are only an artifact of the datatype used in current implementations. Should the need ever arise, this can be changed in the code. [1]


Rainey Reitman (EFF):

"To understand digital currency, one must first note that money in the digital age has moved from a largely anonymous system to one increasingly laden with tracking, control and regulatory overhead. Our cold hard cash is now shepherded through a series of regulated financial institutions like banks, credit unions and lenders. Bitcoin, created in 2009 by Satoshi Nakamoto, is a peer-to-peer digital currency system that endeavors to re-establish both privacy and autonomy by avoiding the banking and government middlemen. The goal is to allow individuals and merchants to generate and exchange modern money directly. Once the Bitcoin software has been downloaded, a user can store Bitcoins and exchange them directly with other users or merchants — without the currency being verified by a third party such as a bank or government. It uses a unique system to prevent multiple-spending of each coin, which makes it an interesting development in the movement toward digital cash systems.

The model proposed by Bitcoin is in many ways a response to some of the privacy and autonomy concerns surrounding our current financial system. Current money systems now increasingly come with monitoring of financial transactions and blocking of financial anonymity. A peer-to-peer currency could theoretically offer an alternative to the bank practices that increasingly include sharing information on their customers who don't actively opt-out, and who may even then be able to share data with affiliates and joint marketers. Bitcoin is particularly interesting in the wake of recent events that demonstrated how financial institutions can make political decisions in whom they service, showcased by the decisions of PayPal, Visa, Mastercard and Bank of America to cut off services to Wikileaks. Bitcoin, if it were to live up to the dreams of its creators, might offer the kind of anonymity and freedom in the digital environment we associate with cash used in the offline world.

But Bitcoin's current implementation won't resolve all of the issues surrounding autonomy and privacy. Notably, the anonymity on Bitcoin is not entirely secure at this time, which makes its merits as a more private form of currency tenuous at best. There are also other weaknesses to the system, some significant, which should be understood before using Bitcoin. And as of this writing, Bitcoin can't be used to donate to Wikileaks. But even more important than these concerns is the fact that governments around the world may raise legal issues with any digital cash scheme — ranging from money laundering to tax evasion to a range of other regulatory concerns. Nonetheless, Bitcoin is an intriguing project and worth watching to see how it develops in the coming years." (



Benjamin Wallace:

"Nakamoto himself mined the first 50 bitcoins—which came to be called the genesis block—on January 3, 2009. For a year or so, his creation remained the province of a tiny group of early adopters. But slowly, word of bitcoin spread beyond the insular world of cryptography. It has won accolades from some of digital currency’s greatest minds. Wei Dai, inventor of b-money, calls it “very significant”; Nick Szabo, who created bit gold, hails bitcoin as “a great contribution to the world”; and Hal Finney, the eminent cryptographer behind RPOW, says it’s “potentially world-changing.” The Electronic Frontier Foundation, an advocate for digital privacy, eventually started accepting donations in the alternative currency.

The small band of early bitcoiners all shared the communitarian spirit of an open source software project. Gavin Andresen, a coder in New England, bought 10,000 bitcoins for $50 and created a site called the Bitcoin Faucet, where he gave them away for the hell of it. Laszlo Hanyecz, a Florida programmer, conducted what bitcoiners think of as the first real-world bitcoin transaction, paying 10,000 bitcoins to get two pizzas delivered from Papa John’s. (He sent the bitcoins to a volunteer in England, who then called in a credit card order transatlantically.) A farmer in Massachusetts named David Forster began accepting bitcoins as payment for alpaca socks." (

Prehistory: the dream of anonymous digital currencies

By Morgen E. Peck:

"The dream of an anonymous, independent digital currency—one where privacy is maintained for buyers and sellers—long predates Bitcoin. Despite obituaries in magazine articles from Forbes, Wired, and The Atlantic, the dream is far from dead.

The pursuit of an independent digital currency really got started in 1992, when Timothy May, a retired Intel physicist, invited a group of friends over to his house outside Santa Cruz, Calif., to discuss privacy and the nascent Internet. In the prior decade, cryptographic tools, like Whitfield Diffie’s public-key encryption and Phil Zimmermann’s Pretty Good Privacy, had proven useful for controlling who could access digital messages. Fearing a sudden shift in power and information control, governments around the world had begun threatening to restrict access to such cryptographic protocols.

May and his guests looked forward to everything those governments feared. “Just as the technology of printing altered and reduced the power of medieval guilds and the social power structure, so too will cryptologic methods fundamentally alter the nature of corporations and of government interference in economic transactions,” he said. By the end of the meeting, the group had given themselves a name—“cypherpunks”—and the superhero-like task of defending privacy across the digital world. In just a week, cofounder Eric Hughes wrote a program that could receive encrypted e-mails, scrub away all identifying marks, and send them back out to a list of subscribers. When you signed up, you got a message from Hughes: 

- Cypherpunks assume privacy is a good thing and wish there were more of it. Cypherpunks acknowledge that those who want privacy must create it for themselves and not expect governments, corporations, or other large, faceless organizations to grant them privacy out of beneficence.

Hughes and May were deeply aware that financial behavior communicates as much about you as words can—if not more. But outside of cash transactions or barter, there’s no such thing as a private transaction. We rely on banks, credit card companies, and other intermediaries to keep our financial system running. Will those corporations save and even share a dossier of your spending habits? Even using cash requires trust that the bill will maintain its worth. Will governments print too much currency or too little? Many cypherpunks would say that the only way to answer these questions is to build an entirely new system.

Gradually, their mistrust germinated into an anarchist philosophy. Most simply wanted to be able to buy things without someone looking over their shoulders. But others on the mailing list imagined liberating currency from governmental control and then using it to lash back at their perceived oppressors. 

Jim Bell, a onetime Intel engineer, took these fancies further than anyone, introducing the world to an odious thought experiment called an assassination market. Citizens needed an effective way to punish politicians who acted against the wishes of their constituents, he reasoned, and what better punishment than murder? With an anonymous digital coin, argued Bell, you could pool donations from disgruntled citizens into what amounts to bounties. If a politician made enough people angry, it would only be a matter of time before the price pushed him out of office or cost him his life. Bell’s essay, “Assassination Politics,” eventually attracted the attention of federal agents. His spiral through the U.S. court system started with an IRS raid in 1997 and ended this March with his release from prison. 

While cypherpunks like Bell were dreaming up potential uses for digital currencies, others were more focused on working out the technical problems. Wei Dai had just graduated from the University of Washington with a degree in computer science when he created b-money in 1998. “My motivation for b-money was to enable online economies that are purely voluntary,” says Dai, “ones that couldn’t be taxed or regulated through the threat of force.” But b-money was a purely personal project, more conceptual than practical.

Around the same time, Nick Szabo, a computer scientist who now blogs about law and the history of money, was one of the first to imagine a new digital currency from the ground up. Although many consider his scheme, which he calls “bit gold,” to be a precursor to Bitcoin, privacy was not foremost on his mind. His primary goal was to turn ones and zeros into something people valued. “I started thinking about the analogy between difficult-to-solve problems and the difficulty of mining gold,” he says. If a puzzle took time and energy to solve, then it could be considered to have value, reasoned Szabo. The solution could then be given to someone as a digital coin.

In Szabo’s bit gold scheme, a participant would dedicate computer power to solving cryptographic equations assigned by the system. “Anything that works well as a proof-of-work function, producing a specific binary string such that it can be proved that generating that string was computationally costly, will work,” says Szabo. In a bit gold network, solved equations would be sent to the community, and if accepted, the work would be credited to the person who had done it. Each solution would become part of the next challenge, creating a growing chain of new property. This aspect of the system provided a clever way for the network to verify and time-stamp new coins, because unless a majority of the parties agreed to accept new solutions, they couldn’t start on the next equation. 

When attempting to design transactions with a digital coin, you run into the “double-spending problem.” Once data have been created, reproducing them is a simple matter of copying and pasting. Most e-cash scenarios solve the problem by relinquishing some control to a central authority, which keeps track of each account’s balance. DigiCash, an early form of digital money based on the pioneering cryptography of David Chaum, handed this oversight to banks. This was an unacceptable solution for Szabo. “I was trying to mimic as closely as possible in cyberspace the security and trust characteristics of gold, and chief among those is that it doesn’t depend on a trusted central authority,” he says. 

Bit gold proved that it was possible to turn solutions to difficult computations into property in a decentralized fashion. But property is not quite cash, and the proposal left many problems unsolved. How do you assign proper value to different strings of data if they are not equally difficult to make? How do you encourage people to recognize this value and adopt the currency? And what system controls the transfer of currency between people?

After b-money and bit gold failed to garner widespread support, the e-money scene got pretty quiet. And then, in 2008, along came a mysterious figure who wrote under the name “Satoshi Nakamoto,” with a proposal for something called Bitcoin." (

Technological Issues

Review of incidents related to Bitcoin, by Benjamin Wallace:

"Even the purest technology has to live in an impure world. Both the code and the idea of bitcoin may have been impregnable, but bitcoins themselves—unique strings of numbers that constitute units of the currency—are discrete pieces of information that have to be stored somewhere. By default, bitcoin kept users’ currency in a digital “wallet” on their desktop, and when bitcoins were worth very little, easy to mine, and possessed only by techies, that was sufficient. But once they started to become valuable, a PC felt inadequate. Some users protected their bitcoins by creating multiple backups, encrypting and storing them on thumb drives, on forensically scrubbed virgin computers without Internet connections, in the cloud, and on printouts stored in safe-deposit boxes. But even some sophisticated early adopters had trouble keeping their bitcoins safe. Stefan Thomas had three copies of his wallet yet inadvertently managed to erase two of them and lose his password for the third. In a stroke, he lost about 7,000 bitcoins, at the time worth about $140,000. “I spent a week trying to recover it,” he says. “It was pretty painful.” Most people who have cash to protect put it in a bank, an institution about which the more zealous bitcoiners were deeply leery. Instead, for this new currency, a primitive and unregulated financial-services industry began to develop. Fly-by-night online “wallet services” promised to safeguard clients’ digital assets. Exchanges allowed anyone to trade bitcoins for dollars or other currencies. Bitcoin itself might have been decentralized, but users were now blindly entrusting increasing amounts of currency to third parties that even the most radical libertarian would be hard-pressed to claim were more secure than federally insured institutions. Most were Internet storefronts, run by who knows who from who knows where.

Sure enough, as the price headed upward, disturbing events began to bedevil the bitcoiners. In mid-June, someone calling himself Allinvain reported that 25,000 bitcoins worth more than $500,000 had been stolen from his computer. (To this day, nobody knows whether this claim is true.) About a week later, a hacker pulled off an ingenious attack on a Tokyo-based exchange site called Mt. Gox, which handled 90 percent of all bitcoin exchange transactions. Mt. Gox restricted account withdrawals to $1,000 worth of bitcoins per day (at the time of the attack, roughly 35 bitcoins). After he broke into Mt. Gox’s system, the hacker simulated a massive sell-off, driving the exchange rate to zero and letting him withdraw potentially tens of thousands of other people’s bitcoins.

As it happened, market forces conspired to thwart the scheme. The price plummeted, but as speculators flocked to take advantage of the fire sale, they quickly drove it back up, limiting the thief’s haul to only around 2,000 bitcoins. The exchange ceased operations for a week and rolled back the postcrash transactions, but the damage had been done; the bitcoin never got back above $17. Within a month, Mt. Gox had lost 10 percent of its market share to a Chile-based upstart named TradeHill. Most significantly, the incident had shaken the confidence of the community and inspired loads of bad press.

In the public’s imagination, overnight the bitcoin went from being the currency of tomorrow to a dystopian joke. The Electronic Frontier Foundation quietly stopped accepting bitcoin donations. Two Irish scholars specializing in network analysis demonstrated that bitcoin wasn’t nearly as anonymous as many had assumed: They were able to identify the handles of a number of people who had donated bitcoins to Wikileaks. (The organization announced in June 2011 that it was accepting such donations.) Nontechnical newcomers to the currency, expecting it to be easy to use, were disappointed to find that an extraordinary amount of effort was required to obtain, hold, and spend bitcoins. For a time, one of the easier ways to buy them was to first use Paypal to buy Linden dollars, the virtual currency in Second Life, then trade them within that make-believe universe for bitcoins. As the tone of media coverage shifted from gee-whiz to skeptical, attention that had once been thrilling became a source of resentment.

More disasters followed. Poland-based Bitomat, the third-largest exchange, revealed that it had—oops—accidentally overwritten its entire wallet. Security researchers detected a proliferation of viruses aimed at bitcoin users: Some were designed to steal wallets full of existing bitcoins; others commandeered processing power to mine fresh coins. By summer, the oldest wallet service, MyBitcoin, stopped responding to emails. It had always been fishy—registered in the West Indies and run by someone named Tom Williams, who never posted in the forums. But after a month of unbroken silence, Wagner, the New York City bitcoin evangelist, finally stated what many had already been thinking: Whoever was running MyBitcoin had apparently gone AWOL with everyone’s money. Wagner himself revealed that he had been keeping all 25,000 or so of his bitcoins on MyBitcoin and had recommended to friends and relatives that they use it, too. He also aided a vigilante effort that publicly named several suspects. MyBitcoin’s supposed owner resurfaced, claiming his site had been hacked. Then Wagner became the target of a countercampaign that publicized a successful lawsuit against him for mortgage fraud, costing him much of his reputation within the community. “People have the mistaken impression that virtual currency means you can trust a random person over the Internet,” says Jeff Garzik, a member of bitcoin’s core developer group." (

Yanis Varoufakis: Bitcoin’s two fundamental flaws

As with all things digital, there are a number of concerns to do with security; with the fear of hackers and e’spivs. Imagine a world that has shifted entirely to bitcoin. Would we not live in fear that some ingenious hacker will get the better of Nakamoto’s algorithm and manipulate it to his benefit? Would it be wise for humanity simply to assume that the bitcoin algorithm is un-hackable (especially so in the absence of some authority that can intervene and save the day if something horrible happens to the algorithm)? Besides, even if the algorithm is safe, there is always the danger of waking up to the realisation that one’s bitcoin stash was e’looted during the night. And if one entrusts one’s stash to some company with better firewalls and computer security, what happens (in the absence of a bitcoin Central Bank) if that company goes broke or simply disappears into the Internet’s darker crevices (with its customers’ bitcoins)?

These concerns would probably suffice to put a dent in bitcoin’s prospects. But they are not the main drawbacks of the currency. No, there are two insurmountable flaws that make bitcoin a highly problematic currency: First, the bitcoin social economy is bound to be typified by chronic deflation. Secondly, we have already seen the rise of a bitcoin aristocracy (a term ‘coined’ by Greek blogger @techiechan) which, besides the issues of distributive justice which it raises, evokes serious fears about the capacity of very few entities or persons to manipulate the currency in a manner that enriches them at the expense of financial instability. Let us look at these two problems in some detail.

First, deflation is unavoidable in the bitcoin community because the maximum supply of bitcoins is fixed to 21 million bitcoins and approximately half of them have already been ‘minted’ at a time when very, very few goods and services transactions are denominated in bitcoins. To put simply, if bitcoin succeeds in penetrating the marketplace, an increasing quantity of new goods and services will be traded in bitcoin. By definition, the rate of increase in that quantity will outpace the rate of increase in the supply of bitcoins (a rate which, as explain, is severely constricted by the Nakamoto algorithm). In short, a restricted supply of bitcoins will be chasing after an increasing number of goods and services. Thus, the available quantity of bitcoins per each unit of goods and services will be falling causing deflation. And why is this a problem? For two reasons: First, because an expected fall in bitcoin prices motivates people with bitcoins to delay, as much as they can, their bitcoin expenditure (why buy something today if it will be cheaper tomorrow?). Secondly, because to the extent that bitcoins are used to buy factors of production that are used to produce goods and services, and assuming that there is some time lag between the purchase of these factors and the delivery of the final product to the bitcoin market, a steady fall in average prices will translate into a constantly shrinking price-cost margin for firms dealing in bitcoins.

Secondly, two major faultlines are developing, quite inevitably, within the bitcoin economy. The first faultline has already been mentioned. It is the one that divides the ‘bitcoin aristocracy’ from the ‘bitcoin poor’, i.e. from the latecomers who must buy into bitcoin at increasing dollar and euro prices. The second faultline separates the speculators from the users; i.e. those who see bitcoin as a means of exchange from those who see in it as a stock of value. The combination of these two faultlines, whose width and depth is increasing, is to inject a massive instability potential into the bitcoin universe. While it is true for all currencies that there is always some speculative demand for them, as opposed to transactions demand, in the case of bitcoin speculative demand outstrips transactions demand by a mile. And as long as this is so, volatility will remain huge and will deter those who might have wanted to enter the bitcoin economy as users (as opposed to speculators). Thus, just like bad money drives out good money (Gresham’s famous ‘law’), speculative demand for bitcoins drives our transactions demand for it.

Can these two flaws be corrected? Would it be possible to calibrate the long-term supply of bitcoins in such a way as to ameliorate for the deflationary effects described above while tilting the balance from speculative to transactions demand for bitcoins? To do so we would need a Bitcoin Central Bank, which will of course defeat the very purpose of having a fully decentralised digital currency like bitcoin." (

Other P2P Currencies vs. Bitcoin

Is Freicoin in competition with Bitcoin?

"Yes and no, but mostly no.

We are in favor of a free monetary market. We believe that there should be a free monetary market and monetary diversity. In this respect, yes, Freicoin and Bitcoin will compete with each other for users as currencies. But that doesn’t mean that you can’t use both for different reasons or that one of them has to necessarily disappear. In any case, that’s for you and the the marketplace of ideas to decide, not us, the bitcoin community or any coercive agency. Silvio Gesell wrote that money was a natural monopoly and thus the state should operate it, but we disagree with him on that point. Thousands of complementary currencies in circulation today are a living proof that this is not the case.

The Austrian school of economics underlies Bitcoin’s design. Most Austrian economists don’t support a monetary monopoly, even if such a money system were based on gold, which Bitcoin is designed to resemble. E.C. Riegel was a strong opponent of a state monopoly on money. Bernard Lietaer argues that both competition and diversity are important for the efficiency and resilience of a market economy. There are many other inspirations to defend a free monetary market inclusive of both Bitcoin and Freicoin.

Bitcoin and Freicoin support each other as collaborative free software. Free software is software that respects your freedom as a user and with a collaborative development model. Freicoin is a fork of Bitcoin because we don’t want to compete with it technically. The technical improvements we develop will be submitted “upstream” to the Bitcoin developers, and we will of course draw upon features and bug fixes applied to Bitcoin. Our software development relationship with the bitcoin community is based on collaboration, not competition.

We don’t compete with bitcoin for miners either. Merged mining allows network operators to secure both currencies simultaneously. The merged mining technology first developed for Namecoin allows miners to use their proof of work in several block chain networks simultaneously. We’re currently evaluating the tradeoff between security and the convenience of having merged mining included early-on, since some new chains have been attacked by bitcoin pools (even without the users of that pool knowing it) and merged mining makes new currencies vulnerable to such attacks. Even if Freicoin isn’t merged-mine capable at launch, it will be in the near future. The result is more security for both Freicoin and Bitcoin." (

Can Ripple be integrated with Bitcoin

Interview of Ryan Fugger, conducted by Samuel Benson:

"Ben: Can Ripple and Bitcoin integrate?

Ryan: Sure, they can integrate in lots of ways. For example:

There’s a discussion on the Bitcoin forums about Ripple being a good way to implement instant Bitcoin transactions.

Ben: What plans do you have for Ripple over the next few years?

Ryan: I don’t know… I’d like to have a working distributed server implementation. Beyond that, I hope the idea catches on further and more people starting building systems like this.

Ben: Any thoughts on Decentralized currencies and networks growing in India?

Ryan: Ripple would be a great way to build a Hawala network:

You can look at Ripple as Hawala with automated routing.

There is no API to Ripplepay yet and Ripple still has a few problems to solve. It has the strong potential to be a monetary system to work alongside Bitcoin. Similarities can be found in the PayPal exchange website" (

What is the difference between Coinbase and every other Bitcoin wallet service?

From an interview of Brian Armstrong, conducted by Samuel Benson:

There are several good online wallets for Bitcoin, and open source Bitcoin clients for the desktop.

Why should someone use Coinbase instead?

Here are a few ways Coinbase tries to be different:

They try to make Bitcoin easy to use for non-technical users. This means they avoid asking the user to deal with private keys, encryption, or any topics they might be unfamiliar to them. They try to make buying and selling Bitcoin with your local currency as simple as possible. They handle security and backups for you so don’t have to worry about losing your device, or forgetting to back it up. (Note that all of these may not be built yet, but this is their goal for the product.) They understand there are a variety of users in the Bitcoin ecosystem from beginner to advanced, and they certainly do not claim to be the best solution for everyone.

What is the difference between Coinbase and PayPal?

Coinbase uses a different currency underneath (Bitcoin) which is a distributed, open-source protocol for transmitting money. Bitcoin is still relatively new, but they believe it is a good platform to build on top of due to the following properties:

Low (or zero) transaction fees Payments arrive instantly (at about the speed of an email) and are confirmed within the hour Works internationally They try to make Coinbase easy to use and help avoid transaction fees when making payments." (


Excerpted from a more detailed interview:

"Klint Finley: Could you give us a brief overview of what Bitcoin is for the unfamiliar?

Gavin Andresen: Sure. Bitcoin is the first peer-to-peer currency - it is money created by people instead of by a central bank or government.

And how does it work?

Everybody trying to create bitcoins and everybody trading bitcoins is connected by a peer-to-peer network. And the code everybody is running makes sure nobody else is cheating - nobody else is creating more bitcoins than are allowed, nobody is trying to spend their bitcoins more than once, and that bitcoins are only being spent by their rightful owners.

The really novel idea is a mechanism for preventing bitcoins from being spent more than once WITHOUT relying on a central authority.

The other mostly new idea is limiting the supply of bitcoins without relying on a central authority.

How do you accomplish these things without a central authority? And how do Bitcoin clients and servers find each other?

Let me tackle the easy one first - how do Bitcoin clients find each other:

All p2p networks have "the bootstrapping problem" - without central servers, nodes (machines) on the network need to be able to find each other. Bitcoin solves it using three mechanisms:

1. By default, Bitcoin clients join an IRC chat channel and watch for the IP addresses and ports of other clients joining that channel. The name of that channel (and the name of the IRC chat server) is hardcoded into the Bitcoin software.

2. There is a list of "well known" Bitcoin nodes compiled into the software in case the IRC chat server is unreachable for some reason.

3. You can manually add (via configuration file or command-line option) IP addresses of other machines running Bitcoin to connect.

Once you're connected to the Bitcoin p2p network, other machines send you messages containing IP addresses (and ports) of other machines they know about, so after bootstrapping you find other Bitcoin nodes via the Bitcoin network itself.

There is a lot of discussion about alternative bootstrapping mechanisms, so I wouldn't be surprised if alternative Bitcoin implementations that use something else pop up in the next year or so.

I'm guessing you can also change the IRC server and channel manually as well?

No, actually, you can't - you'd have to recompile Bitcoin to do that." (

Commons Aspects of Bitcoin

Triple Accounting and the Verification by the whole network of peers


"The most remarkable innovation brought by Bitcoin deals with the system of accounting that we use today.

Double-entry bookkeeping is what we use today to make sure that earnings and expenditures match, basically authenticating the flow of money and making sure “nothing is duplicated”.

From an historical perspective, the double-entry bookkeeping system is very ancient and barely actualised through the ages: it was described by an Italian mathematician and Franciscan friar named Luca Pacioli in his book “Summa de arithmetica, geometria, proportioni et proportionalità” published in 1494 in Venice.

The second half of his book, dedicated to geometry, is a section titled “Trattato de computi e delle scritture” in which he describes the necessity of mathematics in accountancy. Those principles were certainly not invented by Pacioli, but mostly actualised, formalised and translated in his tractatus, as demonstrated by the existence of a previous book “Della mercatura e del mercante perfetto” by Benedikt Kotruljević published in Latin some decades before, or as hinted by the presence of another figure behind his portrait in the famous painting attributed to Jacopo de’ Barbari who is believed to be Albrecht Dürer, an artist and traveler who shared Pacioli’s passion for geometry and magic.

Such a system is still, as of today and despite its flaws, the one in use on large scale around the world by most accountancy systems. Being a system that ensures the univoque matching of what is written with what is real, it can be seen as gateway to the digital dimension and can undoubtedly benefit from the technical innovation through digital tools. Hence my argument that Bitcoin is basically this innovation or, more precisely, the implementation of an innovation as the triple-signed receipt method.

Quoting Ian Grigg:

- The digitally signed receipt, with the entire authorisation for a transaction, represents a dramatic challenge to double entry bookkeeping at least at the conceptual level. The cryptographic invention of the digital signature gives powerful evidentiary force to the receipt, and in practice reduces the accounting problem to one of the receipt’s presence or its absence. This problem is solved by sharing the Digital Press – 7 – 6 April 2013Bitcoin, the end of the Taboo on Money D.J. Roio records - each of the agents has a good copy. In some strict sense of relational database theory, double entry book keeping is now redundant.

The accounting system of triple-signed receipts in Bitcoin respects the original role of money as contract (and digitized speech, I’d argue).

Quoting Marco Sachy’s research on complementary and alternative currency:

- The ontology of money is as relational, abstract and cogent as agreements are in general and the possibilities to formulate these agreements are unimaginable, bearing in mind that the orthodox process of currency design and creation is - drawing from Adorno and Horkheimer’s Dialectic of the Enlightenment - an arbitrary and historically determined one.

It is the very substance of those cogent agreements that money represents and can be verified by matching declarations on two books or, as Bitcoin does, calling the whole network of participating peers to witness every contract and entangling it into a cryptographic blockchain. Simply put, this is bookkeeping in the age of Bitcoin." (

Aspects of Bitcoin

Bitcoin's Energy Use

Brad Plumer:

", a site that tracks data on Bitcoin mining, estimates that in just the last 24 hours, miners used about $147,000 of electricity just to run their hardware, assuming an average price of 15 cents per kilowatt hour … That’s enough to power roughly 31,000 U.S. homes, or about half a Large Hadron Collider.

It’s a stunning stat, but does this really count as a “disaster”? That’s less clear. After all, we need to consider the counterfactural: Is it possible that these computers would be used for other activities and calculations anyway, if they weren’t mining Bitcoins?

In any case, Gimein’s piece does touch on a red-hot topic in energy circles — how much electricity does all of our computing and Internet infrastructure actually consume? A 2011 study by Stephen Ruth of George Mason University estimated that the entire global information and communications technology industry accounts for “only about 3–5 percent” of the world’s electricity use. So it has a much smaller environmental footprint than, say, cars, trucks, and planes (which account for 25 percent of all energy demand.)

On the other hand, the Internet’s energy needs are expected to swell significantly in the coming years — even though computing keeps getting more energy-efficient. An interesting new study in Science by Diego Reforgiato Recupero finds that Internet traffic volume tends to double every three years. But network energy-efficiency isn’t keeping pace. As a result, the world’s IT infrastructure will consume 19 percent more energy in 2013 than in 2012.

Interestingly, as Alexis Madrigal explains here, most of the energy used by our computing infrastructure comes from wireless and cellular networks — by contrast, data centers themselves only use about 10 percent of the electricity involved. What’s more, those wireless networks don’t seem to be improving their energy efficiency all that quickly. That’s why overall energy use could keep growing, particularly as cloud computing becomes more widespread.

Bottom line: On the vast scale of environmental disasters, Bitcoin barely registers. And, in the grand scheme of things, the Internet is still relatively green (that’s particularly true if it cuts into other activities, like driving). But it’s also true that our computing infrastructure is becoming an increasingly significant part of the world’s energy demand." (

Bitcoin as cryptograpic breaktrhough

by Benjamin Wallace:

"In November 1, 2008, a man named Satoshi Nakamoto posted a research paper to an obscure cryptography listserv describing his design for a new digital currency that he called bitcoin. None of the list’s veterans had heard of him, and what little information could be gleaned was murky and contradictory. In an online profile, he said he lived in Japan. His email address was from a free German service. Google searches for his name turned up no relevant information; it was clearly a pseudonym. But while Nakamoto himself may have been a puzzle, his creation cracked a problem that had stumped cryptographers for decades. The idea of digital money—convenient and untraceable, liberated from the oversight of governments and banks—had been a hot topic since the birth of the Internet. Cypherpunks, the 1990s movement of libertarian cryptographers, dedicated themselves to the project. Yet every effort to create virtual cash had foundered. Ecash, an anonymous system launched in the early 1990s by cryptographer David Chaum, failed in part because it depended on the existing infrastructures of government and credit card companies. Other proposals followed—bit gold, RPOW, b-money—but none got off the ground.

One of the core challenges of designing a digital currency involves something called the double-spending problem. If a digital dollar is just information, free from the corporeal strictures of paper and metal, what’s to prevent people from copying and pasting it as easily as a chunk of text, “spending” it as many times as they want? The conventional answer involved using a central clearinghouse to keep a real-time ledger of all transactions—ensuring that, if someone spends his last digital dollar, he can’t then spend it again. The ledger prevents fraud, but it also requires a trusted third party to administer it.

Bitcoin did away with the third party by publicly distributing the ledger, what Nakamoto called the “block chain.” Users willing to devote CPU power to running a special piece of software would be called miners and would form a network to maintain the block chain collectively. In the process, they would also generate new currency. Transactions would be broadcast to the network, and computers running the software would compete to solve irreversible cryptographic puzzles that contain data from several transactions. The first miner to solve each puzzle would be awarded 50 new bitcoins, and the associated block of transactions would be added to the chain. The difficulty of each puzzle would increase as the number of miners increased, which would keep production to one block of transactions roughly every 10 minutes. In addition, the size of each block bounty would halve every 210,000 blocks—first from 50 bitcoins to 25, then from 25 to 12.5, and so on. Around the year 2140, the currency would reach its preordained limit of 21 million bitcoins." (

Bitcoin Business and Economics

Bitcoin Research

Publications including research and analysis of Bitcoin or related areas,

list of researchers, via [2]

  • Jerry Brito (@JerryBrito), senior research fellow at the Mercatus Center at George Mason University. [3]
  • Russell Roberts (@EconTalker) of the Library of Economics and Liberty. He hosted an EconTalk episode on Bitcoin: [4]
  • economist Jon Matonis (@JonMatonis) who recently presented on using Bitcoins as a currency to monetize game play: [5]


  • Timothy B. Lee (@BinaryBits) sees problems with Bitcoin (bubbles, vulnerable to cartel, etc.): [6]

The problems of Bitcoin

"What Bitcoin doesn't provide or doesn't provide in an effective manner:

   * Cost of creating money
   * Method of reaching a consensus, based on computing power
   * No "real value" to back it
   * Settlement risk not covered
   * Scalability issues
   * All the lacking features of a "soft" currency."


Bitcoin as a legitmate investment vehicle

Kurt Eichenwald:

"Bitcoins are not an investment. They are an investment fad that someday could be a real digital currency, but if they continue to behave as they have, they will instead be nothing. This is not hard to understand. The fact is that real investments—outside of manias—do not quadruple or sextuple, much less gain 20 times their value so quickly.

Add to that the reality that Bitcoins have no true method of underlying valuation. You want to buy a stock? Pull up its filings with the S.E.C. and assess its financial structure and business strategy. A municipal bond? Same thing. A national currency? Assess the present economic conditions of the issuing country and check relative interest rates, etc., to determine which currency is the most valuable at that time.

Assess Bitcoins? All you can do is examine the trading patterns, which do not provide a real analysis of any underlying economic value. The economics of investments are not solely based on supply and demand, and that is all that goes into Bitcoin prices. It doesn’t matter if the demand comes from a currency panic in Spain—which is one of the rationales being offered for the jump—or rank speculation. There is nothing backing up the values—not a government, not an underlying financial value, nothing.

Then throw one more bit of news on the pile. Mt. Gox, the major Bitcoin trading platform, today announced it was halting trading because of what it called a panic. Halting trading? I don’t recall Mt. Gox halting trading when the stock was zooming up at irrational speed. I don’t recall it declaring that ridiculous growth as a mania, although it’s fine calling the collapse a panic. If trading in a financial instrument can be shut down without notice on a decline—but is kept open when it is going up—that instrument is being subjected to a rules-based manipulation. And given the amount of hoarding involved in Bitcoins—78 percent of the market is being hoarded, according to an academic study published last month—the probability of a pure manipulation of the price by big holders after everyone “cools off” is too high for comfort. (By the way—news for the big holders: if anyone does try to manipulate Bitcoin prices when trading begins, they will probably go to jail. It might not classify as securities fraud—after all, Bitcoins are not a security—but it certainly would be wire fraud.)

Here’s the bottom line. Bitcoins are not a real investment; they are bets inside a casino. If the price goes back up, don’t be fooled. In the parlance of popping investment bubbles, it’s something called a “dead-cat bounce.” People who are desperate to keep the game going rush back in, hoping to bring the price back up, but it never lasts.

As I said, maybe someday Bitcoins will be a real currency. But if you think they are a great investment worth a huge chunk of your savings, check Google maps for your nearest bankruptcy court. You’ll be there soon." (


See: Bitcoin - Discussion

Amongst the issues raised in our separate discussion entry are:

  1. A summary of BitCoin criticisms
  2. Scarcity Aspects of Bitcoin
  3. Mining Privileges associated with Bitcoin
  4. The Difference between Bitcoin and Open Coin
  5. Is Bitcoin a deflationary currency?
  6. Bitcoin wastes energy
  7. Is Bitcoin Legal?

The fallacy of a non-political currency

Yanis Varoufakis: On “The fantasy of ‘de-politicised’, ‘honest’ money

“The Crash of 2008 has infused our societies with enormous scepticism on the role of the authorities, both government and Central Banks. It is quite natural that many dream of a currency that politicians, bankers and central bankers cannot manipulate; a currency of the people by the people for the people. Bitcoin has emerged as the great white hope of something of the sort. Alas, the hope it brings to many people’s hearts and minds is false. And the reason is simple: While it is true that local communities have, in the past, generated successful communitarian currencies (that enabled them to improve welfare in their midst, especially at a time of acute economic crises), there can be no de-politicised currency capable of ‘powering’ an advanced, industrial society.

Since the second industrial revolution made possible the emergence of large, networked oligopolistic companies (the Edisons and Fords of the 1900s, and the Googles or Apples of today), capitalism became dependent on large credit spurts for the purposes of financing these capital corporations’ needs. Such credit spurts required large boosts in the money supply, both in order to finance the creation of new capital goods and also to support the new consumption patterns that were necessary to maintain the economy’s new productive capacity. Even when capitalist economies operated under the Gold Standard, banks found ways of creating money by lending increasing quantities against the existing, stable, stock of gold.

The 1920s thus demonstrates the impossibility of an apolitical money supply. Even though the monetary authorities were insisting on a stable correspondence between the quantity of paper money and gold, the financial sector was boosting the money supply inexorably. Should the authorities stop them from so doing? If they had, the Edisons and the Fords would have never flourished, and capitalism would have failed to produce all the goodies that it did; indeed, it would have stagnated and spawned social tensions that would put its institutions under a cloud well before 1929. So, the authorities stood by, allowing the bubbles of the 1920s to inflate, leading to 1929 and to the disaster of the Great Depression.

To the extent that bitcoin attempts to emulate the Gold Standard, if a large portion of economic activity is denominated in bitcoin, the dilemmas of the 1920s will return to plague the bitcoin economy. Finance will either have to find ways of introducing bitcoin denominated securities, 1920s-style, that will cause asset bubbles to form or the bitcoin political economy will nosedive into a deflationary spiral that either causes untold hardship amongst its users or leads them, as is more likely, to abandon bitcoin altogether.

The reason that money is and can only be political is that the only way of steering a course between the Scylla and Charybdis of dangerous ponzi growth and stagnation is to exercise a degree of rational, collective control over the supply of money. And since this control is bound to be political, in the sense that different monetary policies will affect different groups of people differently, the only decent manner in which such control can be exercised is through a democratic, collective agency. In brief, while apolitical money is a dangerous illusion, a Central Bank that is democratically controlled (as opposed to the indefensible notion of an ‘independent’ Central Bank) remains our best hope for a form of money that is for the people and by the people. Bitcoin, despite its many interesting features, can never be that.

Bitcoin enthusiasts, just like believers in the Gold Standard, understand money as if it were some commodity which has spontaneously emerged as a unit of exchange – a little like cigarettes did in the POW camp ‘economy’ that R.A. Radford (1945) described so brilliantly. This is a gross misconception based on the unexamined (and dangerously false) faith that there is no substantial difference between Radford’s POW camp and a modern capitalist economy; that, like in that POW camp, output is independent of expectations and demand is always abundant enough to absorb the produced output. As for investment, it is assumed to be uni-directionally determined by savings which are, in turn, determined by the rate at which present consumption is deferred to the future. None of that holds in an economy involving not only exchange but also production and investment. It is these two activities, production and investment, that preclude the possibility of apolitical money.” (

Why Bitcoin is Flawed from a Monentary Reformers' Point of View

Anthony Migchels:

"Bitcoin’s existence is very useful for all monetary reformers as it will allow us to gather information about the strategies that the adversary will use to disable it.

Notwithstanding these revolutionary breakthroughs, Bitcoin does suffer from a basic flaw. It’s designed to behave like Gold. Nakamoto clearly believes Austrian Economics to the last word, including the idea that hyperinflation is the main threat to the system.

As a result Bitcoin suffers from the same problems as Gold: it is deflationary and expensive. There is never enough of it. True, Bitcoins can be divided in ever smaller denominations, so ‘physically’ there will never be a shortage, but it means Bitcoin is designed to appreciate for ever and this is the definition of deflation.

Worse still, Bitcoin does not address the interest issue. There is no possibility for cheap credit and if the unit matures, a banking system will be necessary to provide credit based on deposits.

Not only will this exacerbate the scarcity of money, it will also lead to very high cost for capital.

Yet another problem is that with a full reserve banking system as required by bitcoin (and Gold too, by the way) would allow the Money Power to mop up the money supply through compound interest within one or two decades, as you can find out here..

The basic conceptual flaw is, that Austrian Economics believes a currency should be a good store of value first and foremost. This is the fatal mistake: money is a means of exchange, and it is the agreement to use it as such that gives it value, not the other way around. This is even true of Gold today: the reason Gold is now expensive, is because many investors are speculating it will be currency again.

Because of this design flaw, Bitcoin is being hoarded by its users. They prefer to have it sit in their ‘account’, instead of spending it, hoping it will appreciate. As a result turnover is lower than it could be. The unit is already an object of speculation, hindering its primary function: to finance normal trade.

Bitcoin is a revolution and a badly needed bit of fresh air. Peer to peer and independent of banks and Government it is an example for all of us. Yes, we should press for reform at the Government level, but no, we should not await it. There is a free market for currencies and it is ours for the taking.

However, it is not credit based and it does not allow for interest free credit. It’s deflationary by nature, which is very problematic.

Its decentralized peer to peer nature and its convertibility mechanism are its main strengths. If these can be harnessed in interest free credit based units, the Money Power would be really hard pressed.

Bitcoin is a shot heard far and wide, but it is only the proverbial first shot across the bow." (

A possible p2p critique of the current p2p protocol?

Michel Bauwens:

"The great achievement of Bitcoin is that we have the very first "socially sovereign" digital currency, independent of government and corporation, that is workable, technically "peer to peer", and that it creates the enthusiasm of the hacker community, which almost certainly means it will be adapted and used later by more people. So, in this way, this is a tipping point. However, the Bitcoin design may also have some serious flaws. First of all, the way it is mined privileges the technical community itself as it can have access to networks of botnets to generate coins, in a way most people can't. Secondly it is a 'scarcity' based currency, subject to hoarding and wealth accumulation (only 21m bitcoins will be created, insuring a constant growth in value), that does not really change what is 'wrong' with the current currency system. As many so-called 'peer to peer' technologies (such as crowdfunding, crowdsourcing, etc..) it may increase wider participation and 'distribution' but without necessarily changing the dysfunctional neoliberal functioning of the market. Nevertheless, what it really shows is that socially sovereign currencies are viable, and could be created as a tool of the countereconomy, though this may require a different ruleset for its functioning. so that true 'social' peer to peer values can be integrated in the design of future 'post-Bitcoin' currencies."

Is Bitcoin truly p2p?

Victor Grishchenko:

" The very basis of Bitcoin design assumes that every node needs to be aware of every transaction in the system just to prevent double-spending:

- We need a way for the payee to know that the previous owners did not sign any earlier transactions... The only way to confirm the absence of a transaction is to be aware of all transactions.

Thus, every “full” node needs to maintain a dossier on every “coin” out there and, preferably, to keep the entire history of transactions. First of all, that is the opposite of scalability. Such a system is not “decentralized”, but more like a “replicated center” system, as there is an absolute necessity to gather all the existing data in a single point to make any meaningful operation. Partial knowledge does not work. The authors describe those full nodes as “super-peers” saying that

- Bitcoin nodes could easily keep up with both VISA and MasterCard combined, using only fairly modest hardware (a couple of racks of machines using todays hardware)... the intention is to evolve it towards a more typical two-tier structure in which low powered client nodes connect to long-lived, high powered supernodes.

Thus, Bitcoin is only “peer-to-peer” in the sense of the British Peerage system. Bitcoin “commoners” must appeal to their “lords” who have sufficient means to judge on validity of transactions and to seal those transactions as valid, likely for a fee." (

Bitcoin as a libertarian currency

Jon Matonis on the "Austrian economics" background

"Mises has written that, “Value is not intrinsic, it is not in things. It is within us; it is the way in which man reacts to the conditions of his environment.”

While I and other Austrians wholeheartedly agree with Mises on this, the notion of a decentralized bitcoin has eluded many in the economics profession. Peer-to-peer bootstrapped currencies secured by cryptography in a distributed computing project were not anticipated by Menger nor Mises. They are a reaction to our ‘politically-hostile’ environment for free market currencies. Public-key cryptography, as opposed to symmetric key cryptography, is a relatively new phenomenon that Austrian economics has not yet come to terms with.

Some may not like it, but bitcoin is a Mengerian-, Misean-, Rothbardian-, Austrian-currency in its purest form. Still actively debated within the Austrian economics community on whether or not bitcoin satisfies the regression theorem, I have gone so far as to propose a corollary." (

The deflationary economics behind Bitcoin's design are libertarian

Phillip Pilkington:

"The most popular aspect of the libertarian doctrine today is probably the idea that deflation is not such a bad thing – indeed, it may even be a morally purifying cure. Uncomfortable – like a cold shower – but necessary to rid a gluttonous populace of its worst excesses.

The economic argument among actual libertarians for this view runs broadly that prices in a competitive economy should generally be tending downwards rather than upwards. The rational argument – as is typical of extremist ideologies – for the most part masks a more deeply embedded emotional appeal. Simply put, the argument plays to the hoarding impulse so prevalent among gold-bugs, who appear to overlap strongly with libertarians.

While it would be too much of a distraction to go into the origin of the compulsive hoarding impulse here, it should simply be noted that among right-wing libertarians it is often mixed up with saving. Not only are these two distinct concepts within the sphere of economics – hoarding being a removal of wealth from circulation and saving being the deployment of present wealth to procure future wealth – but they are generally recognised as distinct concepts in psychology, both popular and medical. Even children can distinguish between Scrooge and true capitalists.

The argument for deflation appeals to the idea that the saver – who is seen as the origin of wealth and production by the libertarian – benefits because the money that they have saved becomes worth more. But, of course, this is not true of the productive capitalist whose fixed capital investments depreciate rapidly as they lie unemployed. It is only true of the hoarder, the gold bug and the miser who removes wealth from circulation or transfers it into useless fetish-objects and sits upon it until he acquires more purchasing power.

In order to get around this inconvenient fact the libertarian supplements their argument by saying that all investments that fall as the deflation tears the economy apart were merely “malinvestments” made at a time when money was too cheap. It is thus that the wanton destruction of societal wealth is justified as a sort of Judgement Day. Those who go bankrupt are simply sinners. Thus the fact that deflationary conditions wreak havoc on all those in the economy that are not unproductive hoarders is veneered over through a moral appeal to the supposed quality of outstanding investments.

Tied to this is the idea that production that does take place in a deflationary environment is morally pure. It is seen as “lean and mean” in that it requires real effort on behalf of the investor to accomplish, this in contrast to the “profligate” investment decisions that might be made when money is easy to come by. In a deflationary environment the men, as it were, are sorted from the boys. This crass notion ignores many aspects of how modern economies actually operate; for example, the fact that monopolies, oligopolies and giant corporations will find it far easier to weather a serious recession or depression than a smaller firm simply due to size and outstanding credit relations. But it is an argument that is made nevertheless because it appeals to a sense of moral righteousness and rewards the libertarian’s anti-social hoarding tendencies.

It is here that nostalgia rears its head. Libertarians often hold the 19th century up as a sort of model for what the present should be. Unlike extremist left-wing ideologies, like Communism, libertarianism is backward rather than forward-looking. Where Communism projects into the future a mythic ideal, libertarianism mourns over an ideal past that has supposedly been lost. (Would it surprise the reader to learn that the hoarding impulse is thought to be tied to fantasies of the womb?)

For the right-wing libertarian the 19th century is the era of a true capitalism with little or no government intervention. Indeed, even warfare was limited and required little government meddling. Yes, this era was unstable – even the libertarian would not deny that – but this instability gave rise to a dynamism and a freedom that was crushed in the “statist” 20th century.

But it is not the inflationary era of high liberalism that is often looked back upon through rose-tinted glasses, but the deflationary era of the third quarter of the 19th century. This would be unusual if we did not already understand the motivations for the libertarian argument for deflation. The right-wing libertarian needs an era that was both non-inflationary and at the same time one of “free” competition as a screen on which to project their utopian fantasies. But, as we shall see, in this they are trying to have their cake and eat it.


he most peculiar aspect of the argument favouring this deflationary period is that it completely ignores the broader historical picture. The libertarians, hiding as they are in the trees, completely fail to take notice of the woods all around them. For it is widely recognised by historians that this was the era when laissez faire capitalism fell and the ground was cleared for a new era characterised by government intervention, monopoly men and imperial conquest. As the great British historian Eric Hobsbawm put it in his ‘The Age of Capital’:

- The new era which follows the age of liberal triumph was to be very different. Economically it was to move away rapidly from unrestrained competitive private enterprise, government abstention from interference and what the Germans called ‘Manchesterismus’ (the free trade orthodoxy of Victorian Britain), to large industrial corporations (cartels, trusts, monopolies), to very considerable government interference, to very different orthodoxies of policy, though not necessarily of economic theory. The age of individualism ended in 1870, complained British lawyer A.V. Dicey, the age of ‘collectivism’ began. (P. 354)

Or again:

- A new era of history, political as well as economic, opens with the depression of the 1870s. [This era] undermined or destroyed the foundations of mid-nineteenth-century liberalism which appeared to have been so firmly established. The period from the late 1840s to the mid-1970s proved not so much, as the conventional wisdom of the time held, the model of economic growth, political development, intellectual progress and cultural achievement, which would persist, no doubt with suitable improvements, into the indefinite future, but rather a special kind of interlude. (P. 63)

This new era was to be one in which trade unions grew to become a serious force while the first true wave of corporate mergers would establish a new monopoly or oligopoly structure for the capitalist system. It was also an era in which the government would begin to play an increasingly large role in economic affairs. The foundations would thus be laid for the state capitalist systems of the 20th century – the very systems that the libertarians decry – not to mention for the rise of socialism.

Indeed, when the lifeblood of cheap money had run out the era of high liberalism ground to a halt and economic forces began to become increasingly concentrated. This is no coincidence. But nevertheless right-wingers today continue to fool themselves into believing that austerity and deflation rather than easy money and credit are the path back to some sort of purified capitalism. They are no such thing. For the libertarian right-wingers are chasing an historical ghost – a ghost that never existed in corporeal form and so one that they have no chance of resurrecting. In clinging to these crude ideological notions and historical myths it is their own ability to engage in practical politics that they bury – and those politicians who embrace their creed will not last long." (

Bitcoin is incompatible with the state system and should not seek legitimation

Jon Matonis:

" I was a radical before most of you Bitcoin users were born. That doesn't make me any better than you (hopefully I did a few things to make you better than myself), but it does give me a better perspective; time just works that way.

I've been watching the recent developments in the Bitcoin markets, and having seen this drama before (too many times), I thought I'd pass along a lesson. This will strike its target in some of you, but others of you are also likely to reject it, because it doesn't match what you want to be true.

Here's the lesson: Trying to go 'legit' will destroy the Bitcoin market.

For those of you who haven't turned away, I'll explain:

There's nothing really wrong with Bitcoin itself. The developers are doing a nice job of addressing its problems and a heartening number of people have jumped up to create new tools and new services. No problem here.

The problem is that too many people in the Bitcoin market are thinking the old way.

Understand this: Bitcoin is a new thing - it is not compatible with the old financial system.

Bitcoin and state banking systems are born enemies: only one can survive. If you are imagining that they can peacefully coexist, you are fooling yourself.

Bitcoin exposes the fraud that is state banking. If you think that politicians and bankers will calmly allow it to take over a significant percentage of world financial flows, you're in denial. States will come after Bitcoin, and hard. They have no choice. Their money can only exist if there are no competitors.

Alan Greenspan may have done a lot of bad things, but he is not stupid. And before his adventures at the Fed, he wrote this:

"(Under a fiat system), there is no way to protect savings from confiscation through inflation' If there were, the government would have to make its holding illegal, as was done in the case of gold."

What gold was then, Bitcoin is now -- times five.

So, let me try this again: Going legit gives the state a handle to grab you with. 'Legit' means registered and regulated, doesn?t it? You have to tell them your name, where you live, and where you put your money, right' It means that they can control you whenever they want to." (

Bitcoin Directory

Useful Resources via [7]: - Best place for beginners to start. - Best way to buy Bitcoins for beginners (ready by end of April 2012) - Allows quick purchases of Bitcoin via anonymous cash deposits at major banks across the US. This is currently the easiest and fastest way to buy Bitcoin in the US. - Official site of the Bitcoin project, download the wallet software here. - The leading Bitcoin exchange. Buy and sell Bitcoins here. - Another popular Bitcoin exchange. Buy and sell Bitcoins here. - Very nice online ewallet service with Android app. Store your coins here. - The official discussion forum, and large enthusiast community - Encyclopedia of most aggregated Bitcoin knowledge, very extensive. - Partial list of companies that accept Bitcoin as payment - Professional publication and news portal - Tool for viewing accounts, payments, and numerous economic statistics. - Shows current market prices and economic statistics. - Super easy Bitcoin<->fiat calculator, multiple currencies supported - Live view of transactions as they happen on the Bitcoin network. - Enables businesses to automatically accept Bitcoin payments on their website. - Another excellent merchant solution for businesses that wish to accept Bitcoin payments. - Leading gold and silver bullion seller for Bitcoin - Selling silver Bitcoin-themed 1oz rounds - Enables you to buy credit with major brands like Amazon and Southwest Airlines for Bitcoin. - Bitcoin job board - freelance projects which pay in Bitcoin. - Extensive repository of hundreds of other resources.

More Information

  • Bitcoin for beginners
  1. ; website version, no download required, start making or receiving donations.

@the best available info for beginners is

Critiques of Bitcoin


Video documentation

  1. TWIST Bitcoin episode, Full show:
  2. Gavin explains the fundamentals of Bitcoin,
  3. Who is Satoshi, the mysterious bitcoin founder?
  4. The million-dollar bitcoin question: Can the system be hacked?
  5. Jason sets his software to generate bitcoins and Gavin explains why that's a bad idea,

Other Digital Currencies

"While Bitcoin is relatively young, digital currencies have been around a long time. Digicash, released in 1994, is considered a pioneer of electronic cash using cryptography to maintain anonymity. The Ripple currency project relies on interpersonal relationships to allow communities to create their own money systems (which is similar to the Local Exchange Trading System). There is also the anonymous digital cash system eCache, which can only be accessed via the anonymous onion routing network Tor. There are also numerous other digital money projects that have been proposed over the years; Bitcoin is just the newest chapter in the ongoing effort to create wholly digital currency." (

Of interest to p2p/commons community:

  1. Freicoin
  2. Occcu

  1. eCache: an anonymous bank operating over the Tor network.
  2. Pecunix: an (optionally?) anonymous digital gold currency.