One of the cornerstones of this vision is the need for a decentralized, distributed, and pseudonymous currency in order to digitally transmit value from person to person. You cannot truly transfer power grondilu bitcoin stock the hands of the people without giving them economic sovereignty, and they cannot have economic sovereignty so long as money and currency are tied to the real world and controlled by monopolistic central banks and governments.
For various reasons, none of these systems have taken off. Bitcoin is a peer-to-peer digital currency. What are some of the properties of good money? Money should be easily divisible into arbitrary units of value in order to handle all sizes of transactions, from the small to the very large. In order to be a reliable store of value, money must stand the test of time. Anything which decays or rots would not be a good choice.
One dollar is equivalent to another dollar, and one kilo of gold is identical to another kilo of gold. Money can then act as a numeraire or measure of value, just like a meter is a measure of distance. The ideal money is one which holds its value and does not steal value through arbitrary inflation and deflation. When it comes to fiat currencies, central banks are supposed to fulfill this role, and when it comes to physical commodities such as gold, this standard is enforced by the laws of the universe. It is physically impossible for someone to conjure up a cubic meter of gold out of thin air, which is why it can preserve its value so well. For something to begin life as money, it should add value in order to seed its own growth.
Gold added value through its beauty and artistic uses, and Bitcoin has the potential to add value through the properties of decentralization, openness, and pseudonymity. I mention openness as the project itself is open source, and the code, protocol, and implementation are all open to scrutiny and analysis. I consider these to be among the most important properties that something needs in order to be accepted as money. It is ideal if the properties of money are inherent in the medium itself, such as with gold. Gold has all of these properties and more, and this is why it was not only chosen spontaneously by the people across different continents and cultures, but it is also why it has held its value for thousands of years. So far, I’ve explained what money is but I haven’t yet said how this applies to Bitcoin. How can a digital currency possibly be scarce?
After all, digital storage and processing power are extremely cheap and getting cheaper by the day. Bitcoin has employed a novel solution which uses encryption and brute-force power in order to preserve the scarcity of the currency. The graph on the left is a chart of the overall Bitcoin supply over time. Bitcoin has the potential to revolutionize the online payment industry, but furthermore, it could even place economic power back in the hands of the people. Hefty transaction fees currently discourage micropayments, but Bitcoin could completely change that, opening up a whole new micropayment industry in blogging, online gaming, and many other areas.
Where to get it Bitcoin can be downloaded from Bitcoin. There are currently clients available for Windows, Mac OS X, and Linux. If I install this, will this eat up my CPU and share my files? Bitcoin is not filesharing software, so it does not share your files. Can I take my bitcoins to the local bank and get some cash in exchange?
I think it’s a little early for that. What you can do though is participate in one of the many exchanges and trade bitcoins for USD, EUR, or other various options. So, I don’t get it — is the value of a bitcoin determined by the resources expended to produce a bitcoin? Like anything else, the value of a bitcoin is determined solely by supply and demand.
If the market value of a bitcoin is higher than the production cost, then it will be worthwhile to devote resources to mining more bitcoins. In this sense, the cost of mining will tend to approximate the value, but it does not drive the value. It is the combination of supply and demand that drives the value. If the value of Bitcoins rise, then isn’t this deflation?
I define inflation and deflation as changes in the monetary supply, and it is when we define them in this way that we can see the damage that they cause. If someone could just conjure up a billion dollars out of thin air and spend it at today’s prices, then they have effectively stolen value from everyone else. Likewise, the deflation that follows an unsustainable credit boom and the ensuing bubble burst can be painful. Ok, so, what can I do with these Bitcoins? The market for Bitcoins is still small, but it is growing every day. You can check out many different services available at the Bitcoin trade page, and you can visit the Bitcoin faucet to get some free coins to get you started. With over 5 million coins in circulation, Bitcoin is currently in a nascent point of growth, and the sky is the limit.