Thread: Bitcoins
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Old 06-18-2011, 10:00 AM   #17 (permalink)
thekremlin
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Here is my understanding, which may be off in a few details, FC is much more into it than me and can probably explain it much better.

Bitcoins are a fiat currency whose transactions are completely electronic and anonymous. As of right now, there are a limited number of goods that can be purchased with bitcoins, but that shouldn't be too shocking. There are a few sites where you can purchase sex toys or drugs with bitcoins, for example. Also you may recall several months ago that paypal refused to transfer money to Julian Assange. You could have donated bitcoins to him very easily.

There is a large and high-volume market where you can buy or sell bitcoins. The price has been extremely volatile. Around six months ago, they were trading for less than a penny, in the past few weeks they have traded over $30, have recently dipped to $17.

Bitcoin Charts / Markets

Because of the anonymity, it might be attractive to criminal enterprises. For example, a drug producer might move a chunk of dollars into bitcoins... that would certainly increase the value.

Unlike every other currency in the world, there is a maximum number of bitcoins that will be allowed to exist. Like FC said, around 21 million. There are currently less than that, and you are currently able to generate, or "mine" them. Basically, the many transactions involved in maintaining the currency require a lot of computing power. So people can lend their computers to the bitcoin, whatever, master server, and their computers help process the transactions. In return, bitcoins are generated. So in the beginning, you could just leave your computer on overnight and generate some bitcoins. It has since become a little harder to do as the value of bitcoins has risen, so more people are trying to mine, and we slowly approach the limit of whatever, 21 million bitcoins. But smart people have figured out ways to build "rigs" to mine bitcoins.

If you think bitcoins are going to become a mainstream currency, then the fact that there will never be more than 21 million means the value should be considerably higher. There is a greater chance that the thing never really takes off and the value goes to 0. It really just depends on what you think the probability of the two events are. I'm not a believer from this price, but from a certain price I would be buying them, so I clearly don't think the idea is totally bunk.
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