BitCoin Virtual Currency
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The lesson here is that enough of you ask me about a topic, eventually I will blog it. Here is Wikipedia on Bitcoin — it’s less than transparent, which I take to be informative in its own right. If you are late to the party, here is the confusing opening paragraph: Bitcoin is a digital currency created in 2009 by Satoshi Nakamoto.
Late last year, after WikiLeaks began releasing its trove of State Department cables, many individuals sought to show solidarity with the group by making a donation. They found, however, that many payment processors would not remit money to WikiLeaks, some say as a result of U.S. government pressure. PayPal even froze the group’s account so it couldn’t access funds already collected. “Hey, Visa, Mastercard, Paypal: It’s MY money,” media critic Jeff Jarvis tweeted at the time.
Yesterday I questioned whether we should expect demand for Bitcoins to be stable over the long run. Today I want to look at the supply side. A constrained supply of money is important to a currency’s stability. One of Bitcoin’s key selling points is that the number of Bitcoins issued will never exceed 21 million. But this promise isn’t credible. To understand why, we need to dig a little bit into how the protocol works.
My friend Jerry Brito is one of the best-connected and most insightful observers of the Internet I know, so when he starts talking up an Internet trend , I pay attention. But after reading his case for Bitcoin, a new digital currency, I remain a skeptic. The article is worth reading in full, but here’s an important part of his case for Bitcoin:
Tor (originally short for The Onion Router ) [ 5 ] is a system intended to enable online anonymity .
The effort includes secretive projects to create independent cellphone networks inside foreign countries, as well as one operation out of a spy novel in a fifth-floor shop on L Street in Washington, where a group of young entrepreneurs who look as if they could be in a garage band are fitting deceptively innocent-looking hardware into a prototype “Internet in a suitcase.” Financed with a $2 million State Department grant, the suitcase could be secreted across a border and quickly set up to allow wireless communication over a wide area with a link to the global Internet. The American effort, revealed in dozens of interviews, planning documents and classified diplomatic cables obtained by The New York Times, ranges in scale, cost and sophistication. Some projects involve technology that the United States is developing; others pull together tools that have already been created by hackers in a so-called liberation-technology movement sweeping the globe.
<img class="alignnone size-full wp-image-26784" title="xlarge_0601_silkroadnew" src="http://www.wired.com/images_blogs/threatlevel/2011/06/xlarge_0601_silkroadnew.jpg" alt="" width="640" height="360" /> Making small talk with your pot dealer sucks. Buying cocaine can get you shot. What if you could buy and sell drugs online like books or light bulbs?
MILTON FRIEDMAN famously called for the abolition of the Federal Reserve, which he thought ought to be replaced by an automated system which would increase the money supply at a steady, predetermined rate. This, he argued, would put a lid on inflation, setting spending and investment decisions on a surer footing. Now, Friedman's dream has finally been realised—albeit not by a real-world central bank. Bitcoin, the world's "first decentralised digital currency" , was devised in 2009 by programmer Satoshi Nakomoto (thought not to be his—or her—real name). Unlike other virtual monies—like Second Life's Linden dollars, for instance—it does not have a central clearing house run by a single company or organisation. Nor is it pegged to any real-world currency, which it resembles in that it can be used to purchase real-world goods and services, not just virtual ones.
Recent weeks have been exciting for a relatively new kind of currency speculator. In just three weeks, the total value of a unique new digital currency called Bitcoin has jumped four times, to over $40 million. Bitcoin is underwritten not by a government, but by a clever cryptographic scheme.