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BITCOIN Discussion v. 8 Coins on an Old Computer

Thou

Bluelighter
Joined
Mar 10, 2007
Messages
10,860
Location
One of the Americas.
Bitcoin is a new electronic currency. I stumbled on this interesting new technologically driven economic endeavor by researching that 'Silk Road' vendor forum that's gained some media attention recently.

They used Bitcoin exclusively and it's funded with bank transfers.

What are bitcoins?

Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (eg: “100 BTC”) A Bitcoin isn't actually a 'thing' you can point at. It is just a number associated with a Bitcoin Address. See also an easy intro to bitcoin.
How can I get Bitcoins?

There are five ways to get Bitcoins:

* Buy them on an exchange such as Mt. Gox or #bitcoin-otc on FreeNode.
* Accept Bitcoins as payment for goods or services.
* Find a local trader on tradebitcoin (or somewhere else) and trade with him in cash
* Create a new block (currently yields 50 Bitcoins).
* Participate in a mining pool.

Can I buy Bitcoins with Paypal?

While it's possible to find an individual who wishes to sell Bitcoin to you via Paypal, (perhaps via #bitcoin-otc ) most major exchanges do not allow funding through Paypal. This is due to repeated cases where someone pays for Bitcoins with Paypal, receives their Bitcoins, and then fraudulently complains to Paypal that they never received their goods. Paypal too often sides with the fraudulent buyer in this case, and so exchangers no longer allow this method of funding.

Buying Bitcoins from individuals with this method is still possible, but requires mutual trust. In this case, Bitcoin seller beware.
How are new Bitcoins created?
Number of bitcoins over time, assuming a perfect 10-minute interval.

New coins are generated by a network node each time it finds the solution to a certain mathematical problem (i.e. creates a new block), which is difficult to perform and can demonstrate a proof of work. The reward for solving a block is automatically adjusted so that in the first 4 years of the Bitcoin network, 10,500,000 BTC will be created. The amount is halved each 4 years, so it will be 5,250,000 over years 4-8, 2,625,000 over years 8-12 and so on. Thus the total number of coins will approach 21,000,000 BTC over time.

In addition, built into the network is a system that attempts to allocate new coins in blocks about every 10 minutes, on average, somewhere on the network. As the number of people who attempt to generate these new coins changes, the difficulty of creating new coins changes. This happens in a manner that is agreed upon by the network as a whole, based upon the time taken to generate the previous 2016 blocks. The difficulty is therefore related to the average computing resources devoted to generate these new coins over the time it took to create these previous blocks. The likelihood of somebody "discovering" one of these blocks is based on the computer they are using compared to all of the computers also generating blocks on the network.
What's the current total number of Bitcoins in existence?

Current count

The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is 50 BTC for each of the first 210,000 blocks, 25 BTC for the next 210,000 blocks, then 12.5 BTC, 6.25 BTC and so on.
How divisible are Bitcoins?

Technically, a Bitcoin can be divided down to 8 decimals using existing data structures, so 0.00000001 BTC is the smallest amount currently possible. Discussions about and ideas for ways to provide for even smaller quantities of Bitcoins may be created in the future if the need for them ever arises.
How does the halving work when the number gets really small?

The reward will go from 0.00000001 BTC to 0. Then no more coins will likely be created.

The calculation is done as a right bitwise shift of a 64-bit signed integer, which means it is divided by 2 and rounded down. The integer is equal to the value in BTC * 100,000,000. This is how all Bitcoin balances/values are stored internally.

Keep in mind that using current rules this will take nearly 100 years before it becomes an issue and Bitcoins may change considerably before that happens.
How long will it take to generate all the coins?

The last block that will generate coins will be block #6,929,999. This should be generated around year 2140. Then the total number of coins in circulation will remain static at 20,999,999.9769 BTC.

Even if the allowed precision is expanded from the current 8 decimals, the total BTC in circulation will always be slightly below 21 million (assuming everything else stays the same). For example, with 16 decimals of precision, the end total would be 20999999.999999999496 BTC.
If no more coins are going to be generated, will more blocks be created?

Absolutely! Even before the creation of coins ends, the use of transaction fees will likely make creating new blocks more valuable from the fees than the new coins being created. When coin generation ends, what will sustain the ability to use bitcoins will be these fees entirely. There will be blocks generated after block #6,929,999, assuming that people are still using Bitcoins at that time.
But if no more coins are generated, what happens when Bitcoins are lost? Won't that be a problem?

Not at all. Because of the law of supply and demand, when fewer Bitcoins are available the ones that are left will be in higher demand, and therefore will have a higher value. So when Bitcoins are lost, the remaining Bitcoins will increase in value to compensate. As the value of Bitcoins increase, the number of Bitcoins required to purchase an item decreases. This is known as a deflationary economic model. Eventually, if and when it gets to the point where the largest transaction is less that 1BTC, then it's a simple matter of shifting the decimal place to the right a few places, and the system continues.
If every transaction is broadcast via the network, does BitCoin scale?

The Bitcoin protocol allows lightweight clients that can use Bitcoin without downloading the entire transaction history. As traffic grows and this becomes more critical, implementations of the concept will be developed. Full network nodes will at some point become a more specialized service.

With some modifications to the software, full 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). It's worth noting that the MasterCard network is structured somewhat like BitCoin itself - as a peer to peer broadcast network.

Learn more about Scalability.
How does the BitCoin network handle the CAP theorem?
Why do I have to wait 10 minutes before I can spend money I received?

The reason you have to wait 10 minutes is that's the average time taken to find a block. It can be significantly more or less time than that depending on luck, 10 minutes is simply the average case.

Blocks (shown as "confirmations" in the GUI) are how the BitCoin achieves consensus on who owns what. Once a block is found everyone agrees that you now own those coins, so you can spend them again. Until then it's possible that some network nodes believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal. Only 6 blocks or 1 hour is enough to make reversal computationally impractical. This is dramatically better than credit cards which can see chargebacks occur up to three months after the original transaction!

Why ten minutes specifically? It is a tradeoff chosen by Satoshi between propagation time of new blocks in large networks and the amount of work wasted due to chain splits. If that made no sense to you, don't worry. Reading the technical paper should make things clearer.
Do you have to wait 10 minutes in order to buy or sell things with BitCoin?

No, it's reasonable to sell things without waiting for a confirmation as long as the transaction is not of high value.

When people ask this question they are usually thinking about applications like supermarkets or snack machines, as discussed in this thread from July 2010. Zero confirmation transactions still show up in the GUI, but you cannot spend them. You can however reason about the risk involved in assuming you will be able to spend them in future. In general, selling things that are fairly cheap (like snacks, digital downloads etc) for zero confirmations will not pose a problem if you are running a well connected node.
Why does my Bitcoin address keep changing?

Whenever the address listed in "Your address" receives a transaction, Bitcoin replaces it with a new address. This is meant to encourage you to use a new address for every transaction, which enhances anonymity. All of your old addresses are still usable: you can see them in Settings -> Your Receiving Addresses.
Economy
Where does the value of Bitcoin stem from? What backs up Bitcoin?

Bitcoins have value because they are accepted as payment by many. See the list of Bitcoin-accepting sites.

When we say that a currency is backed up by gold, we mean that there's a promise in place that you can exchange the currency for gold. In a sense, you could say that Bitcoin is "backed up" by the price tags of merchants – a price tag is a promise to exchange goods for a specified amount of currency.

It's a common misconception that Bitcoins gain their value from the cost of electricity required to generate them. Cost doesn't equal value – hiring 1,000 men to shovel a big hole in the ground may be costly, but not valuable. Also, even though scarcity is a critical requirement for a useful currency, it alone doesn't make anything valuable. For example, your fingerprints are scarce, but that doesn't mean they have any exchange value.
What if someone bought up all the existing Bitcoins?

What if somebody bought up all the gold in the world? Well, by attempting to buy it all, the buyer would just drive the prices up until he runs out of money.

Not all Bitcoins are for sale. Just as with gold, no one can buy a Bitcoin that isn't available for sale.
Bitcoin's monetary policy causes a deflationary spiral

See the article Deflationary spiral.
Doesn't Bitcoin unfairly benefit early adopters?

Early adopters have a large number of bitcoins now because they took a risk and invested resources in an unproven technology. By so doing, they have helped Bitcoin become what it is now and what it will be in the future (hopefully, a ubiquitous decentralized digital currency). It is only fair they will reap the benefits of their successful investment.

In any case, any bitcoin generated will probably change hands dozens of time as a medium of exchange, so the profit made from the initial distribution will be insignificant compared to the total commerce enabled by Bitcoin.
Is Bitcoin a Ponzi scheme?

In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters profit from the usefulness of a stable and widely accepted p2p currency.

The fact that early adopters benefit more doesn't alone make anything a ponzi scheme. Apple stocks aren't ponzi even though the early investors got rich.
Networking
Do I need to configure my firewall to run bitcoin?

Bitcoin will connect to other nodes, usually on tcp port 8333. You will need to allow outgoing TCP connections to port 8333 if you want to allow your bitcoin client to connect to many nodes. Bitcoin will also try to connect to IRC (tcp port 6667) to meet other nodes to connect to.

If you want to restrict your firewall rules to a few ips and/or don't want to allow IRC connection, you can find stable nodes in the fallback nodes list. If your provider blocks the common IRC ports, note that lfnet also listens on port 7777. Connecting to this alternate port currently requires either recompiling Bitcoin, or changing routing rules. For example, on Linux you can evade a port 6667 block by doing something like this:

echo 173.246.103.92 irc.lfnet.org >> /etc/hosts
iptables -t nat -A OUTPUT -p tcp --dest 173.246.103.92 --dport 6667 -j DNAT --to-destination :7777 -m comment --comment "bitcoind irc connection"


How does the peer finding mechanism work?

Bitcoin finds peers primarily by connecting to an IRC server (channel #bitcoin on irc.lfnet.org). If a connection to the IRC server cannot be established (like when connecting through TOR), an in-built node list will be used and the nodes will be queried for more node addresses.
Mining
What is mining?

Mining is the process of spending computation power to find valid blocks and thus create new Bitcoins.

Technically speaking, mining is the calculation of a hash of the previous block and a nonce. If the hash value is found to be less than the current difficulty, a new block is formed and the miner gets 50 newly generated Bitcoins. If the hash is not less than the current difficulty, a new nonce is used, and a new hash is calculated. This is done thousands or millions of times per second by each miner.
I've been mining for a long time and haven't created any new Bitcoins. What's wrong?

In the early days of Bitcoin, it was easy for anyone to find new blocks using standard CPUs. As more and more people started mining, the difficulty of finding new blocks has greatly increased to the point where the average time for a CPU to find a single block can be many years. The only cost- or time-effective method of mining is using a high-end graphics card with special software (see also Why a GPU mines faster than a CPU). Since CPU mining is essentially useless, it may be removed from future versions of the Bitcoin software.
Is mining used for some useful computation?

The computations done when mining are internal to Bitcoin and not related to any other distributed computing projects. They serve the purpose of securing the Bitcoin network, which is useful.
Is it not a waste of energy?

Spending energy on creating a free monetary system is hardly a waste. Also, services necessary for the operation of currently widespread monetary systems, such as banks and credit card companies, also spend energy, arguably more than Bitcoin would.
Why don't we use calculations that are also useful for some other purpose?

To provide security for the Bitcoin network, the calculations involved need to have some very specific features. These features are incompatible with leveraging the computation for other purposes.

I think this is a revolutionary new idea and see it as good thing for future economic systems, as well as for offhand endeavors like drug legalization and the like.


Thoughts? Opinions? I don't know Jack about economics but it seems legit to me.
 

Swerlz

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Joined
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Fent Liquordale
BTC is extremely volatile right now.. it was 1BTC = ~$7USD a week ago.. now it's over $20.. There's no point in "investing" in these right now... or ever for that matter
 

Kenickie

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i like the idea of an untraceable, anonymous, totally 'free' 'currency' such as bitcoin, but i echo what Swerlz said. it's extremely volatile and will probably burst soon enough .
 

Belisarius

Bluelighter
Joined
Dec 13, 1999
Messages
11,030
Location
San Antonio, Texas
Re bubbles:
If I'm reading the following link correctly, the computer program behind it will actually cap the "supply" of Bitcoins at 21 million, which is supposedly intended to prevent runaway inflation. Well-intended, perhaps, but not so good for speculators; when the too-good-to-be-true returns (read: red flag) tank, I think you'll see the enthusiasm decline accordingly. Bubbles are bad, yes, but the stock market and forex do just fine with occasional booms and busts, and without caps.

Related reading:
http://finance.yahoo.com/banking-budgeting/article/112907/bitcoin-triples-again-smartmoney
 

ColdNorth

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Joined
Apr 21, 2011
Messages
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Uncertain
It's hard to get an exact idea about who benefits the most out of Bitcoin. The picture I have right now is that early adopters will have tons of those coins and anything could happen with the market value. It's increasing so fast now there's really no point in buying them but you don't lose much by having your GPU mine for them. One could argue it leaves a big carbon footprint to have so many W of video cards mining nonstop.

It does get slower, my somewhat old GTX260 can do 44Mhash/sec, new cards can do 200. With that 44 I get a bit under 0.1 Bitcoins in a day, which is a few euros. So far that is, I've only been mining for a few days so can't really say for sure what the average is. If you have a fast GPU or several and can use spare change, I don't see what you could lose. If you go solo mode and don't join a pool, you get 50 coins if you find a whole block yourself. That's $1000+.

Too bad they are so expensive, I would like to try Silk Road.
 

Escher's Waterfall

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Jul 4, 2010
Messages
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In the desert, worshipping thirst
The trouble with the Liberty Dollar was that they started minting coins with less than their worth in silver.

Yep. Silver rounds and bars are a much better better in that regards. I still have a few bits of pure silver around, and they've held onto their value better, although it's subject to market forces for the price of silver. I don't use them for investment purposes though, but because I occasionally wander into a place and see an interesting rounds or bars, and it tickles me to own one. Silver has a lot of history with human kind. It's a harmless hobby. (Much better hobby than my interest in defunct paper currency, by the way, at least in terms of what I could get back out of it.)

Speaking of which, while liberty dollars and other forms of silver are effectively limited by what's on hand, and what we can mine, which limits inflation (but results in market forces having a huge effect on their "value"). It seems to me that with better and better GPUs, the amount of bitcoins is going to drastically increase in the future. Unless demand also increases proportionately, bitcoins are going to suffer serious inflation.
 

Macee

Bluelighter
Joined
May 4, 2009
Messages
195
I don't understand this at all...

How do you mine for bitcoins? wtf? You leave your computer on and it creates coins ? I can't see how that would work at all. All i can think about is free money? lol
 

ColdNorth

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Joined
Apr 21, 2011
Messages
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Uncertain
I don't understand this at all...

How do you mine for bitcoins? wtf? You leave your computer on and it creates coins ? I can't see how that would work at all. All i can think about is free money? lol

That's pretty much it, yeah. The early adopters got a huge benefit, millions if bitcoin ends up becoming a stable currency. It was a gamble for them and it still is for anyone but all the economy speculation aside (which I know nothing of) I can confirm having made a few bitcoins already with just having my GPU mine coins. I can trade them for RL cash or buy stuff, good enough for me.
 

nuke

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Joined
Nov 7, 2004
Messages
4,191
Speaking of which, while liberty dollars and other forms of silver are effectively limited by what's on hand, and what we can mine, which limits inflation (but results in market forces having a huge effect on their "value"). It seems to me that with better and better GPUs, the amount of bitcoins is going to drastically increase in the future. Unless demand also increases proportionately, bitcoins are going to suffer serious inflation.

Bitcoin has a deflationary supply, so the number of bitcoins issued over time decreases as a variable known as "difficulty" increases. Presently the difficulty (amount of hashes it takes to obtain a share, I think) is increasing exponentially as the speed of GPUs and number of GPUs has been increasing. In this was its creator intended it to be much more like a commodity than a fiat currency... The only problem is that this heavily discourages spending, but its been the reason for the ever increasing price of bitcoin.

My guess is that if the currency does not collapse it will approach an equilibrium where profitability is only marginal due to the cost of power required to mine blocks.
 

qwe

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glidersoft.org
as far as my conscience is concerned, i'd rather invest in anonymous drug trafficking than wall street.

if i were to invest in a bitcoin computer, what should i be looking for? obviously GPU muscle, and power usage of the GPU... is the CPU important at all (other than motherboard being able to support the GPU(s))?
 

nuke

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Joined
Nov 7, 2004
Messages
4,191
as far as my conscience is concerned, i'd rather invest in anonymous drug trafficking than wall street.

if i were to invest in a bitcoin computer, what should i be looking for? obviously GPU muscle, and power usage of the GPU... is the CPU important at all (other than motherboard being able to support the GPU(s))?

At least one AMD 58xx or 68xx or 69xx card, do not bother with any other GPUs as they are not fast enough and have poor performance/power consumption
CPU is relatively unimportant
You will need a 500w CPU for 1 of those AMD cards, 750w for two (just add another 250w for each you add)

I bought a 5870 and made the money back from the purchase within 5 days, but the difficulty has increased since then.

For instance you could buy this combo:
http://www.newegg.com/Special/ShellShocker.aspx?cm_sp=ShellShocker-_-674695-_-06212011_1

Then this power supply
http://www.newegg.com/Product/Product.aspx?Item=N82E16817703027&cm_re=750w-_-17-703-027-_-Product

And two of these cards
http://www.newegg.com/Product/Product.aspx?Item=N82E16814103185&cm_re=6950-_-14-103-185-_-Product

And pull in about $14/day until the next difficult increase... cost of power may be like $5 a day though.
 
Last edited:

skillet

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Sep 13, 2010
Messages
1,138
You will need a 500w CPU for 1 of those AMD cards, 750w for two (just add another 250w for each you add)

I bought a 5870 and made the money back from the purchase within 5 days, but the difficulty has increased since then.

You mean PSU. That's pretty cool, I guess you started close to the beginning though?

You think there's any advantage to nvidia cards? I was thinking to buy one for MD simulations as there seemed to be much better support for CUDA over OpenCL, but I guess if ATI cards are supported there's not much difference?
 

nuke

Bluelighter
Joined
Nov 7, 2004
Messages
4,191
PSU, yeah. I started about two months ago.

CUDA cards are great, I have lots of fermi cards in the lab I use for MD simulations. Theoretically though I think AMD cards should be faster as they have way more SP/DP calculations per clock (molecular dynamics is heavy floating point math) and more parallel processors. The only reason I believe CUDA cards are more often used is because nVidia invested more heavily into their software development, but I personally think within the 5-10 year future we'll see the death of the CUDA and the advent of better OpenCL support. However for Bitcoin mining nVidia cards are useless, the AMD cards have tons more integer ALUs.
 

skillet

Bluelighter
Joined
Sep 13, 2010
Messages
1,138
Hehe ok, it's moving fast then, I only heard about it about 2 weeks ago with the thread on Silk Road!

:drool: I was thinking to buy a Tesla card for a moment when I clicked a link to buy and saw it cost 2-3,000 of what I thought must be danish krone, turns out it was dollars! No thanks! Yeah I think the support plays a huge role. ATI cards have many times the number of cores as the nvidia equivalents, so I guess they should be faster (though obviously the power of each core is probably not equal) but the options for running MD with OpenCL (there was only one option I could find, and I couldn't get it to work) seem much more limited compared to CUDA.

Was hoping to link some computer porn, I'm sure I saw a company selling custom built workstations with 8 tesla cards, dual xeon and 128GB ram or something 8o but I can't find it now. They were packed in there so tight though, I wonder how hot it got!
 

nuke

Bluelighter
Joined
Nov 7, 2004
Messages
4,191
The scientists generally don't even bother with the Tesla cards because of their expense... The 470/480/570/580 work almost as well for only a fraction of the price and you can get 580s in 3GB versions which is nearly as much memory as the top Teslas. Depending on your application huge amounts of memory aren't even needed, for instance a 100,000 atom simulation with speedup by a CUDA-enabled card only uses about 300MB of that card's memory with an atomic potential cutoff of 9.
 
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