Bitcoin is just like all other digital currencies; nothing new

Nearly all other digital currencies are centrally controlled. This means that:
They can be printed at the subjective whims of the controllers
They can be destroyed by attacking the central point of control
Arbitrary rules can be imposed upon their users by the controllers
Being decentralized, Bitcoin solves all of these problems.
Bitcoins don't solve any problems that fiat currency and/or
gold doesn't solve
Unlike gold, bitcoins are:
Easy to transfer
Easy to secure
Easy to verify
Easy to granulate
Unlike fiat currencies, bitcoins are:
Predictable and limited in supply
Not controlled by a central authority (such as The United States Federal
Reserve)
Not debt-based
Unlike electronic fiat currency systems, bitcoins are:
Potentially anonymous
Freeze-proof
Faster to transfer
Cheaper to transfer
Bitcoin is backed by processing power
It is not correct to say that Bitcoin is "backed by" processing power. A currency being
"backed" means that it is pegged to something else via a central party at a certain
exchange rate yet you cannot exchange bitcoins for the computing power that was
used to create them. Bitcoin is in this sense not backed by anything. It is a currency in
its own right. Just as gold is not backed by anything, the same applies to Bitcoin.
The Bitcoin currency is created via processing power, and the integrity of the block
chain is protected by the existence of a network of powerful computing nodes from
certain attacks.
Bitcoins are worthless because they aren't backed by
anything
One could argue that gold isn't backed by anything either. Bitcoins have properties
resulting from the system's design that allows them to be subjectively valued by
individuals. This valuation is demonstrated when individuals freely exchange for or
with bitcoins. Please refer to the Subjective Theory of Value.
See also: the "Bitcoin is backed by processing power" myth.
The value of bitcoins are based on how much electricity and
computing power it takes to mine them
This statement is an attempt to apply to Bitcoin the labor theory of value, which is
generally accepted as false. Just because something takes X resources to create does
not mean that the resulting product will be worth X. It can be worth more, or less,
depending on the utility thereof to its users.
In fact the causality is the reverse of that (this applies to the labor theory of value in
general). The cost to mine bitcoins is based on how much they are worth. If bitcoins
go up in value, more people will mine (because miningis profitable),
thus difficulty will go up, thus the cost of mining will go up. The inverse happens if
bitcoins go down in value. These effects balance out to cause mining to always cost an
amount proportional to the value of bitcoins it produces.
Bitcoins have no intrinsic value (unlike some other things)
This is simply not true. Each bitcoin gives the holder the ability to embed a large
number of short in-transaction messages in a globally distributed and timestamped
permanent data store, namely the bitcoin blockchain. There is no other similar
datastore which is so widely distributed. There is a tradeoff between the exact number
of messages and how quickly they can be embedded. But as of December 2013, it's
fair to say that one bitcoin allows around 1000 such messages to be embedded, each
within about 10 minutes of being sent, since a fee of 0.001 BTC is enough to get
transactions confirmed quickly. This message embedding certainly has intrinsic value
since it can be used to prove ownership of a document at a certain time, by including a
one-way hash of that document in a transaction. Considering that electronic
notarization services charge something like $10/document, this would give an
intrinsic value of around $10,000 per bitcoin.
While some other tangible commodities do have intrinsic value, that value is generally
much less than its trading price. Consider for example that gold, if it were not used as
an inflation-proof store of value, but rather only for its industrial uses, would certainly
not be worth what it is today, since the industrial requirements for gold are far smaller
than the available supply thereof.
In any event, while historically intrinsic value, as well as other attributes like
divisibility, fungibility, scarcity, durability, helped establish certain commodities as
mediums of exchange, it is certainly not a prerequisite. While bitcoins are accused of
lacking 'intrinsic value' in this sense, they make up for it in spades by possessing the
other qualities necessary to make it a good medium of exchange, equal to or better
than commodity money.
Another way to think about this is to consider the value of bitcoin the global network,
rather than each bitcoin in isolation. The value of an individual telephone is derived
from the network it is connected to. If there was no phone network, a telephone would
be useless. Similarly the value of an individual bitcoin derives from the global
network of bitcoin-enabled merchants, exchanges, wallets, etc... Just like a phone is
necessary to transmit vocal information through the network, a bitcoin is necessary to
transmit economic information through the network.
Value is ultimately determined by what people are willing to trade for - by supply and
demand.
Bitcoins are illegal because they're not legal tender
In March 2013, the U.S. Financial Crimes Enforcement Network issues a new set of
guidelines on "de-centralized virtual currency", clearly targeting Bitcoin. Under the
new guidelines, "a user of virtual currency is not a Money Services Businesses (MSB)
under FinCEN's regulations and therefore is not subject to MSB registration,
reporting, and record keeping regulations."
[1]
Miners, when mining bitcoins for their
own personal use, aren't required to register as a MSB or Money Transmitter.
[2]

In general, there are a number of currencies in existence that are not official
government-backed currencies. A currency is, after all, nothing more than a
convenient unit of account. While national laws may vary from country to country,
and you should certainly check the laws of your jurisdiction, in general trading in any
commodity, including digital currency like Bitcoin, BerkShares, game currencies like
WoW gold, or Linden dollars, is not illegal.
Bitcoin is a form of domestic terrorism because it only
harms the economic stability of the USA and its currency
According to the definition of terrorism in the United States, you need to do violent
activities to be considered a terrorist for legal purposes. Recent off-the-cuff remarks
by politicians have no basis in law or fact.
Also, Bitcoin isn't domestic to the US or any other country. It's a worldwide
community, as can be seen in this map of Bitcoin nodes.
Bitcoin will only enable tax evaders which will lead to the
eventual downfall of civilization
Cash transactions hold the same level of anonymity but are still taxed successfully. It
is up to you to follow the applicable state laws in your home country, or face the
consequences.
While it may be easy to transfer bitcoins anonymously, spending them anonymously
on tangibles is just as hard as spending any other kind of money anonymously. Tax
evaders are often caught because their lifestyle and assets are inconsistent with their
reported income, and not necessarily because government is able to follow their
money.
Bitcoins can be printed/minted by anyone and are therefore
worthless
Bitcoins are not printed/minted. Instead, Blocks are computed by miners and for their
efforts they are awarded a specific amount of bitcoins and transaction fees paid by
others. See Mining for more information on how this process works.
Bitcoins are worthless because they're based on unproven
cryptography
SHA256 and ECDSA which are used in Bitcoin are well-known industry standard
algorithms. SHA256 is endorsed and used by the US Government and is standardized
(FIPS180-3 Secure Hash Standard). If you believe that these algorithms are
untrustworthy then you should not trust Bitcoin, credit card transactions or any type of
electronic bank transfer. Bitcoin has a sound basis in well understood cryptography.
Early adopters are unfairly rewarded
Early adopters are rewarded for taking the higher risk with their time and money. The
capital invested in bitcoin at each stage of its life invigorated the community and
helped the currency to reach subsequent milestones. Arguing that early adopters do
not deserve to profit from this is akin to saying that early investors in a company, or
people who buy stock at a company IPO (Initial Public Offering), are unfairly
rewarded.
This argument also depends on bitcoin early adopters using bitcoins to store rather
than transfer value. The daily trade on the exchanges (as of Jan 2012) indicates that
smaller transactions are becoming the norm, indicating trade rather than investment.
In more pragmatic terms, "fairness" is an arbitrary concept that is improbable to be
agreed upon by a large population. Establishing "fairness" is no goal of Bitcoin, as
this would be impossible.
Looking forwards, considering the amount of publicity bitcoin received as of April
2013, there can be no reasonable grounds for complaint for people who did not invest
at that time, and then see the value (possibly) rising drastically higher.
By starting to mine or acquire bitcoins today, you too can become an early adopter.
21 million coins isn't enough; doesn't scale
One Bitcoin is divisible down to eight decimal places. There are really
2,099,999,997,690,000 (just over 2 quadrillion) maximum possible atomic units in the
bitcoin system.
The value of "1 BTC" represents 100,000,000 of these. In other words, each is
divisible by up to 10^8.
As the value of the unit of 1 BTC grows too large to be useful for day to day
transactions, people can start dealing in smaller units, such as milli-bitcoins (mBTC)
or micro-bitcoins (BTC).
Bitcoins are stored in wallet files, just copy the wallet file to
get more coins!
No, your wallet contains your secret keys, giving you the rights to spend your
bitcoins. Think of it like having bank details stored in a file. If you give your bank
details (or bitcoin wallet) to someone else, that doesn't double the amount of money in
your account. You can spend your money or they can spend your money, but not both.
Lost coins can't be replaced and this is bad
Bitcoins are divisible to 0.00000001, so there being fewer bitcoins remaining is not a
problem for the currency itself. If you lose your coins, all other coins will go up in
value a little. Consider it a donation to all other bitcoin users.
A related question is: Why don't we have a mechanism to replace lost coins? The
answer is that it is impossible to distinguish between a 'lost' coin and one that is
simply sitting unused in someone's wallet.
It's a giant ponzi scheme
In a Ponzi Scheme, the founders persuade investors that theyll 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. In a ponzi scheme, early adopters can only profit
at the expense of late adopters, and the late adopters always lose. Bitcoin has an
expected win-win outcome. Early and present adopters profit from the rise in value as
Bitcoins become better understood and in turn demanded by the public at large. All
adopters benefit from the usefulness of a reliable and widely-accepted decentralized
peer-to-peer currency.
Finite coins plus lost coins means deflationary spiral
As deflationary forces may apply, economic factors such as hoarding are offset by
human factors that may lessen the chances that a Deflationary spiral will occur.
Bitcoin can't work because there is no way to control
inflation
Inflation is simply a rise of prices over time, which is generally the result of the
devaluing of a currency. This is a function of supply and demand. Given the fact that
the supply of bitcoins is fixed at a certain amount, unlike fiat money, the only way for
inflation to get out of control is for demand to disappear. Temporary inflation is
possible with a rapid adoption of Fractional Reserve Banking but will stabilize once a
substantial number of the 21 million "hard" bitcoins are stored as reserves by banks.
Given the fact that Bitcoin is a distributed system of currency, if demand were to
decrease to almost nothing, the currency would be doomed anyway.
The key point here is that Bitcoin as a currency can't be inflated by any single person
or entity, like a government, as there's no way to increase supply past a certain
amount.
Indeed, the most likely scenario, as Bitcoin becomes more popular and demand
increases, is for the currency to increase in value, or deflate, until demand stabilizes.
The Bitcoin community consists of anarchist/conspiracy
theorist/gold standard 'weenies'
The members of the community vary in their ideological stances. While it may have
been started by ideological enthusiasts, Bitcoin now speaks to a large number of
regular pragmatic folk, who simply see its potential for reducing the costs and friction
of global e-commerce.
Anyone with enough computing power can take over the
network
CONFIRMED, see Weaknesses.
That said, as the network grows, it becomes harder and harder for a single entity to do
so. Already the Bitcoin network's computing power is quite ahead of the world's
fastest supercomputers, together.
What an attacker can do once the network is taken over is quite limited. Under no
circumstances could an attacker create counterfeit coins, fake transactions, or take
anybody else's money. An attacker's capabilities are limited to taking back their own
money that they very recently spent, and preventing other people's transactions from
receiving confirmations. Such an attack would be very costly in resources, and for
such meager benefits there is little rational economic incentive to do such a thing.
Furthermore, this attack scenario would only be feasible for as long as it was actively
underway. As soon as the attack stopped, the network would resume normal
operation.
Bitcoin violates governmental regulations
There is no known governmental regulation which disallows the use of Bitcoin.
See also: the "Bitcoins are illegal because they're not legal tender" myth.
Fractional reserve banking is not possible
It is possible. See the main article, Fractional Reserve Banking and Bitcoin
Point of sale with bitcoins isn't possible because of the 10
minute wait for confirmation
It is true that transactions can sometimes take tens of minutes to become confirmed.
Despite this, retailers can accept unconfirmed transactions with very little risk by
simply 'listening' on the network for a double-spend transaction, or partnering with a
company that provides this service. After a head start of merely several seconds, the
original transaction would reach so much of the Bitcoin network that a fraudulent
double-spend transaction would almost certainly be fruitless. An attacker would have
to commit easily-detectable fraud, in person, several hundred or several thousand
times, before one of these low-value double-spend attempts would likely succeed.
An attacker could work around the necessity of sending out a second fraudulent
transaction to the Bitcoin network by attempting to solo-mine an attack block
containing the attack transaction himself - temporarily withholding the block with the
rest of the network - and then execute the fraudulent purchase within seconds, or
minutes at most, of mining the attack block, before broadcasting the attack block.
However, the cost of such an activity would dramatically outweigh the value of
anything typically offered without a confirmation wait for several reasons.
First, mining a block (attack or otherwise) entitles the miner to a valuable block
reward, and because the attack involves temporarily withholding the block from the
network, the attacker would put himself in the likely position of his block
becoming stale, which would result in forfeiture of the entire reward. Most solo
miners solve less than one block per month, so this would represent the loss of
proceeds of potentially several weeks of mining.
Second, it is not possible for a solo miner to know exactly when his mining activity
will yield a block, and because the attack must be carried out within seconds or
minutes of successfully mining a block, the attacker will not be able to know or plan
in advance the brief window when the attack would be likely to succeed. While it may
be easy for a determined attacker to get low-value items that are sold and delivered
online instantly without waiting for confirmations (such as downloads), this
unpredictability and the briefness of the opportunity would make it extremely difficult
to commit any kind of fraud where real-life interaction is required, such as visiting a
merchant or taking possession of goods. Petty shoplifting would be far simpler. Even
if an attacker went forward with this attack, the retailer would be notified of the fraud
the moment the attack block is released seconds later.
In short, the 10-minute wait for confirmation is only practically necessary when
delivering goods of value that significantly exceed the block reward an attacker would
have to risk to perform an attack and where recourse after delivery is practically
nonexistent, such as money transfers.
After 21 million coins are mined, no one will generate new
blocks
When operating costs can't be covered by the block creation bounty, which will
happen some time before the total amount of BTC is reached, miners will earn some
profit from transaction fees. However unlike the block reward, there is no coupling
between transaction fees and the need for security, so there is less of a guarantee that
the amount of mining being performed will be sufficient to maintain the network's
security.
Bitcoin has no built-in chargeback mechanism, and this isn't
good
Why some people think this is bad: Chargebacks are useful for limiting fraud. The
person handling your money has a responsibility to prevent fraud. If you buy
something on eBay and the seller never ships it, PayPal takes funds from the seller's
account and gives you back the money. This strengthens the eBay economy, because
people recognize that their risk is limited and are more willing to purchase items from
risky sellers.
Why it's actually a good thing: Bitcoin is designed such that your money is yours
and yours alone. Allowing chargebacks implies that it is possible for another entity to
take your money from you. You can have either total ownership rights of your money,
or fraud protection, but not both. That said, nothing inherent in the dollar or euro or
any other currency is necessary for chargebacks to be possible, and likewise, nothing
prevents the creation of PayPal-like services denominated in Bitcoin that provide
chargebacks or fraud protection.
The statement "The person handling your money has a responsibility to prevent fraud"
is still true; the power has been shifted into your own hands. Fraud will always exist.
It's up to you to only send bitcoins to trusted entities. It is possible to trust an online
identity without ever knowing their physical identity; see the OTC Web of Trust.
Quantum computers would break Bitcoin's security
While ECDSA is indeed not secure under quantum computing, quantum computers
don't yet exist and probably won't for a while. The DWAVE system often written
about in the press is, even if all their claims are true, not a quantum computer of a
kind that could be used for cryptography. Bitcoin's security, when used properly with
a new address on each transaction, depends on more than just ECDSA: Cryptographic
hashes are much stronger than ECDSA under QC. Bitcoin's security was designed to
be upgraded in a forward compatible way and could be upgraded if this were
considered an imminent threat.
See the implications of quantum computers on public key cryptography
here http://en.wikipedia.org/wiki/Quantum_computer#Potential
The risk of quantum computers is also there for financial institutions, like banks,
because they heavily rely on cryptography when doing transactions.
Bitcoin makes self-sufficient artificial intelligence possible,
which will in turn become self-aware and decide to
exterminate humanity
An artificial intelligence powerful enough to be threatening to mankind wouldn't
depend on mankind to make Bitcoin, it would just invent something like Bitcoin itself
and design it to be so attractive to us that we couldn't resist using it.
Bitcoin mining is a waste of energy and harmful for ecology
No more so than the wastefulness of mining gold out of the ground, melting it down
and shaping it into bars, and then putting it back underground again. Not to mention
the building of big fancy buildings, the waste of energy printing and minting all the
various fiat currencies, the transportation thereof in armored cars by no less than two
security guards for each who could probably be doing something more productive,
etc.
As far as mediums of exchange go, Bitcoin is actually quite economical of resources,
compared to others.
Economic Argument 1
Bitcoin mining is a highly competitive, dynamic, almost perfect, market. Mining rigs
can be set up and dismantled almost anywhere in the world with relative ease. Thus,
market forces are constantly pushing mining activity toplaces and times where the
marginal price of electricity is low or zero. These electricity products are cheap for a
reason. Often its because the electricity is difficult (and wasteful) to transport,
difficult to store, or because there is low demand and high supply. Using electricity in
this way is a lot less wasteful than simply plugging a mining rig into the mains
indiscriminately.
For example, Iceland produces an excess of cheap electricity from renewable sources,
but it has no way of exporting electricity because of its remote location. It is
conceivable that at some point in future Bitcoin mining will only be profitable in
places like Iceland, and unprofitable in places like central Europe, where electricity
comes mostly from nuclear and fossil sources.
Market forces could even push mining into innovative solutions that have an effective
electricity consumption of zero. Mining always produces heat equivalent to the energy
consumed - for example, 1000 watts of mining equipment produces the same amount
of heat as a 1000 watt heating element used in an electric space heater, hot tub, water
heater, or similar appliance. Someone already in a willing position to incur the cost of
electricity for its heat value alone could run mining equipment specially designed to
mine bitcoins while capturing and utilizing the heat produced, without incurring any
energy costs beyond what they already intended to spend on heating.
Economic Argument 2
When the environmental costs of mining are considered, they need to be weighed up
against the benefits. If you question Bitcoin on the grounds that it consumes
electricity, then you should also ask questions like this: Will Bitcoin promote
economic growth by freeing up trade? Will this speed up the rate of technological
innovation? Will this lead to faster development of green technologies? Will Bitcoin
enable new, border crossing smart gridtechnologies?
Dismissal of Bitcoin because of its costs, while ignoring its benefits, is a dishonest
argument. In fact, any environmental argument of this type is dishonest, not just
pertaining to Bitcoin. Along similar lines, it could be argued that wind turbines are
bad for the environment because making the steel structure consumes energy.
Ratio of Capital Costs versus Electrical Costs
The BFL Jalapeno hashes at 5.5 Gh/s using 30W. That device consumes about $40 per
year in electricity (using U.S. residential average of about $0.15 per kWh.) But the
device costs over $300 including shipping. Thus just about a quarter of all costs over a
two-year useful life goes to electricity. This compares to GPUs where more than 90%
of costs over a two-year life went to electricity. Even more efficient designs can be
expected in the future.
Shopkeepers can't seriously set prices in bitcoins because of
the volatile exchange rate
The assumption is that bitcoins must be sold immediately to cover operating expenses.
If the shopkeeper's back-end expenses were transacted in bitcoins as well, then the
exchange rate would be irrelevant. Larger adoption of Bitcoin would make
prices sticky. Future volatility is expected to decrease, as the size and depth of the
market grows.
In the meantime, many merchants simply regularly pull the latest market rates from
the exchanges and automatically update the prices on their websites. Also you might
be able to buy a put option in order to sell at a fixed rate for a given amount of time.
This would protect you from drops in price and simplify your operations for that time
period.
Like Flooz and e-gold, bitcoins serve as opportunities for
criminals and will be shut down
Visa, MasterCard, PayPal, and cash all serve as opportunities for criminals as
well, but society keeps them around due to their recognized net benefit.
Hopefully Bitcoin will grow to the point where no single organization can
disrupt the network, or would be better served by helping it.
Terrorists fly aircraft into buildings, but the governments have not yet
abolished consumer air travel. Obviously the public good outweighs the
possible bad in their opinion.
Criminal law differs between jurisdictions.
Bitcoins will be shut down by the government just like
Liberty Dollars were
Liberty Dollars started as a commercial venture to establish an alternative US
currency, including physical banknotes and coins, backed by precious metals. This, in
and of itself, is not illegal. They were prosecuted under counterfeiting laws because
the silver coins allegedly resembled US currency.
Bitcoins do not resemble the currency of the US or of any other nation in any way,
shape, or form. The word "dollar" is not attached to them in any way. The "$" symbol
is not used in any way.
Bitcoins have no representational similarity whatsoever to US dollars.
Of course, actually 'shutting down' Liberty Dollars was as easy as arresting the head
of the company and seizing the offices and the precious metals used as backing. The
decentralized Bitcoin, with no leader, no servers, no office, and no tangible asset
backing, does not have the same vulnerability.
Bitcoin is not decentralized because the developers can
dictate the software's behavior
The Bitcoin protocol was originally defined by Bitcoin's inventor, Satoshi Nakamoto,
and this protocol has now been widely accepted as the standard by the community of
miners and users.
Though the developers of the original Bitcoin client still exert influence over the
Bitcoin community, their power to arbitrarily modify the protocol is very limited.
Since the release of Bitcoin v0.3, changes to the protocol have been minor and always
in agreement with community consensus.
Protocol modifications, such as increasing the block award from 25 to 50 BTC, are
not compatible with clients already running in the network. If the developers were to
release a new client that the majority of miners perceives as corrupt, or in violation of
the projects aims, that client would simply not catch on, and the few users who do try
to use it would find that their transactions get rejected by the network.
There are also other Bitcoin clients made by other developers that adhere to the
Bitcoin protocol. As more developers create alternative clients, less power will lie
with the developers of the original Bitcoin client.
Bitcoin is a pyramid scheme
Bitcoin is nearly opposite of a pyramid scheme in a mathematical sense. Because
Bitcoins are algorithmically made scarce, no exponential benefit is derived from
introducing new users to use of it. There is a quantitative benefit in having additional
interest or demand, but this is in no way exponential.
Bitcoin was hacked
In the history of Bitcoin, there has never been an attack on the block chain that
resulted in stolen money from a confirmed output. Neither has there ever been a
reported theft resulting directly from a vulnerability in theoriginal Bitcoin client, or a
vulnerability in the protocol. Bitcoin is secured by standard cryptographic functions.
These functions have been peer reviewed by cryptography experts and are considered
unlikely to be breakable in the foreseeable future.
It is safe to say that the currency itself has never been 'hacked'. However, several
major websites using the currency have been hacked, often resulting in high profile
Bitcoin heists. These heists are misreported in some media as hacks on Bitcoin itself.
An analogy: Just because someone stole US dollars from a supermarket till, doesnt
mean that the US dollar as a currency has been 'hacked'.
Most bitcoin thefts are the result of inadequate wallet security. In response to the
wave of thefts in 2011 and 2012, the community has developed risk-mitigating
measures such as wallet encryption, support for multiple signatures, offline
wallets, paper wallets, and hardware wallets. As these measures gain adoption by
merchants and users, it is expected that the number of thefts will drop.

A QUICK HISTORY OF CRYPTOCURRENCIES BBTC BEFORE BITCOIN
by Ian Grigg
Before Bitcoin, there was cryptocurrency. Indeed, it has a long and deep history. If only for the
lessons learned, it is worth studying, and indeed, in my ABC of Bitcoin investing, I consider not
knowing anything before Satoshis paper as a red flag. Hence, a very fast history of what came
before.
Early Days
The first known (to me) attempt at cryptocurrencies occurred in the Netherlands, in the late 1980s,
which makes it around 25 years ago or 20BBTC. In the middle of the night, the petrol stations in the
remoter areas were being raided for cash, and the operators were unhappy putting guards at risk
there. But the petrol stations had to stay open overnight so that the trucks could refuel.
Someone had the bright idea of putting money onto the new-fangled smartcards that were then
being trialed, and so electronic cash was born. Drivers of trucks were given these cards instead of
cash, and the stations were now safer from robbery.
At the same time the dominant retailer, Albert Heijn, was pushing the banks to invent some way to
allow shoppers to pay directly from their bank accounts, which became eventually to be known as
POS or point-of-sale.
Digital Cash
Even before this, David Chaum, an American cryptographer, had been investigating what it would
take to create electronic cash. His views on money and privacy led him to believe that in order to do
safe commerce, we would need a token money that would emulate physical coins and paper notes:
specifically, the privacy feature of being able to safely pay someone hand-to-hand, and have that
transaction complete safely and privately.
As far back as 1983 or 25BBTC, David Chaum invented the blinding formula, which is an extension
of the RSA algorithm still used in the webs encryption. This enables a person to pass a number
across to another person, and that number to be modified by the receiver. When the receiver
deposits her coin, as Chaum called it, into the bank, it bears the original signature of the mint, but it
is not the same number as that which the mint signed. Chaums invention allowed the coin to be
modified untraceably without breaking the signature of the mint, hence the mint or bank was blind to
the transaction.
All of this interest and also the Netherlands historically feverish attitude to privacy probably had a lot
to do with David Chaums decision to migrate to the Netherlands. When working in the late 1980s at
CWI, a hotbed of cryptography and mathematics research in Amsterdam, he started DigiCash and
proceeded to build his Internet money invention, employing amongst many others names that would
later become famous: Stefan Brands, Niels Ferguson, Gary Howland, Marcel BigMac van der Peijl,
Nick Szabo, and Bryce Zooko Wilcox-Ahearn.
The invention of blinded cash was extraordinary and it caused an unprecedented wave of press
attention. Unfortunately, David Chaum and his company made some missteps, and fell foul of the
central bank (De Nederlandsche Bank or DNB). The private compromise that they agreed to was
that Digicashs e-cash product would only be sold to banks. This accommodation then led the
company on a merry dance attempting to field a viable digital cash through many banks, ending up
eventually in bankruptcy in 1998. The amount of attention in the press brought very exciting deals to
the table, with Microsoft, Deutsche Bank and others, but David Chaum was unable to use them to
get to the next level. At one point Microsoft offered Chaum $180 million to put DigiCash on every
windows PC. But Chaum that it was not enough money, and the deal fell through, and Digicash ran
out of money.
Second Wave Web Based Money
On the coattails of Digicash there were hundreds of startups per year working on this space,
including my own efforts. In the mid 1990s, the attention switched from Europe to North America for
two factors: the Netscape IPO had released a huge amount of VC interest, and also Europe had
brought in the first regulatory clampdown on digital cash: the 1994 EU Report on Prepaid Cards,
which morphed into a reaction against DigiCash.
Yet, the first great wave of cryptocurrencies spluttered and died, and was instead overtaken by a
second wave of web-based monies. First Virtual was a first brief spurt of excitement, to be almost
immediately replaced by PayPal which did more or less the same thing.
The difference? PayPal allowed the money to go from person to person, whereas First Virtual had
insisted that to accept money you must be a merchant, which was a popular restriction from banks
and regulators, but people hated it. PayPal also leapt forward by proposing its system as being a
hand-to-hand cash, literally: the first versions were on the Palm Pilot, which was extraordinarily
popular with geeks. This geek-focus was quickly abandoned as PayPal discovered that what people
real users really wanted was money on the web browser. Also, having found a willing userbase
in the eBay community, its future was more or less guaranteed as long as it avoided the
bank/regulatory minefield laid out for it.
As PayPal proved the web became the protocol of choice, even for money, so Chaums ideas were
more or less forgotten in the wider western marketplace, although the tradition was alive in Russia
with WebMoney, and there were isolated pockets of interest in the crypto communities. In contrast,
several ventures started up chasing a variant of PayPals web-hybrid: gold on the web. The
company that succeeded initially was called e-gold, an American-based operation that had its
corporation in Nevis in the Caribbean.
e-gold was a fairly simple idea: you send in your physical gold or junk silver, and they would credit
e-gold to your account. Or you could buy new e-gold, by sending a wire to Florida, and they would
buy and hold the physical gold. By tramping the streets and winning customers over, the founder
managed to get the company into the black and up and growing by around 1999. As e-gold the
currency issuer was offshore, it did not require US onshore approval, and this enabled it for a time to
target the huge American market of goldbugs and also a growing worldwide community of Internet
traders who needed to do cross-border payments. With its popularity on the increase, the
independent exchange market exploded into life in 2000, and its future seemed set.
The Regulatory Bust
e-gold however ran into trouble for its libertarian ideal of allowing anyone to have an account. While
in theory this is a fine concept, the steady stream of ponzis, HYIPs, games and other scams
attracted the attention of the Feds. In 2005, e-golds Florida offices were raided and that was the end
of the currency as an effective force. The Feds also proceeded to mop up any of the competitors and
exchange operations they could lay their hands on, ensuring the end of the second great wave of
new monies.
In retrospect, 9/11 marked a huge shift in focus. Beforehand, the USA was fairly liberal about
alternative monies, seeing them as potential business, innovation for the future. After 9/11 the view
switched dramatically, albeit slowly; all cryptocurrencies were assumed to be hotbeds of terrorists
and drugs dealers, and therefore valid targets for total control. Its probably fair to speculate that e-
gold didnt react so well to the shift. Meanwhile, over in Europe, they were going the other way. It
had become abundantly clear that the attempt to shut down cryptocurrencies was too successful,
Internet business preferred to base itself in the USA, and there had never been any evidence of the
bad things they were scared of. Successive generations of the eMoney law were enacted to open up
the field, but being Europeans they never really understood what a startup was, and the less-high
barriers remained deal killers.
Which brings us forward to 2008, and the first public posting of the Bitcoin paper by Satoshi
Nakamoto.
Conclusion
Whats all this worth? The best way I can make this point is an appeal to authority:
Satoshi Nakamoto wrote, on releasing the code:
> You know, I think there were a lot more people interested in the 90s,
> but after more than a decade of failed Trusted Third Party based systems
> (Digicash, etc), they see it as a lost cause. I hope they can make the
> distinction that this is the first time I know of that were trying a
> non-trust-based system.
Bitcoin is a result of history; when decisions were made, they rebounded along time and into the
design. Nakamoto may have been the mother of Bitcoin, but it is a child of many fathers: David
Chaums blinded coins and the fateful compromise with DNB, e-golds anonymous accounts and the
post-9/11 realpolitik, the cypherpunks and their libertarian ideals, the banks and their industrial
control policies, these were the whole cloth out of which Nakamoto cut the invention.
And, finally it must be stressed, most all successes and missteps we see here in the growing Bitcoin
sector have been seen before. History is not just humming and rhyming, its singing loudly.
Bitcoin :
Bitcoin The curreny of the digital world Divya Kumar Divya.Chakraborty@gmail.com

PowerPoint Presentation:
What is a bitcoin ? It is a digital currency that is created and exchanged independently of any government or bank. The currency is
generated through a computer program and can be converted into cash after being deposited into virtual wallets.

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In 2008 , a programmer known as Satoshi Nakamoto - a name believed to be an alias - posted a paper outlining Bitcoin's design
and later in 2009 released software that can be used to exchange Bitcoins using the scheme. That software is now maintained by
an open-source community coordinated by developers.

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How does it works? It exists through an open-source software program and its supply is controlled by a computer algorithm. Once
you download and run the Bitcoin client software, it connects over the Internet to the decentralized network of all Bitcoin users and
also generates a pair of unique, mathematically linked keys, which you'll need to exchange Bitcoins with any other client. One key is
private and kept hidden on your computer.

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The other is public and a version of it dubbed a Bitcoin address is given to other people so they can send you Bitcoins . The process
of generating Bitcoins is quite complicated and involves solving complex algorithms and sharing the solution with the entire network.
The "mining" is very computationally intensive and requires powerful computers

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How to transfer bitcoins ? When you perform a transaction, your Bitcoin software performs a mathematical operation to combine the
other party's public key and your own private key with the amount of Bitcoins that you want to transfer. The result of that operation is
then sent out across the distributed Bitcoin network so the transaction can be verified by Bitcoin software clients not involved in the
transfer.

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How to trade Bitcoins ? Exchanges like Mt. Gox provide a place for people to trade Bitcoins for other types of currency. Payments
to a merchant who accepts Bitcoins are made from the wallet application, either on your computer or smartphone, by entering the
recipient's address, the payment amount. At the end of August 2013, the value of all Bitcoins in circulation exceeded $1.5 billion with
millions of dollars worth of Bitcoins exchanged daily, according to Bitcom website.

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Who controls the Bitcoin network? It is controlled by all Bitcoin users around the world. While developers improve the software, they
can't force a change in the Bitcoin protocol because the virtual currency can only work correctly only if there is a consensus among
all users.

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Future and Use of the currency Many countries are against the use of virtual currency bitcoin , nothing that is not only very volatile
but also unregulated by the authority. Highly speculative currency poses a certain financial risk to users. The currency is not
backed up by any real economic activity.

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There are no official security guarantees for the electronic safes which store the virtual currency, making the user vulnerable to
cyber attacks . The convertibility of bitcoin is not ensured, and an investor could be unable to regain his investment.

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Bitcoin in a Nutshell

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Bitcoin has almost become a household name with ever increasing coverage in the media, and fair to say its notoriety continues to
increase. So what's all the fuss about? Bitcoin appeared around 2009 as a new form of digital currency and was develop from the
off as open-source by a clever chap called Satoshi Nakamoto. We are told his true identify is 'shrouded in mystery' like he's some
kind of Marvel superhero, I suspect this simply means he's a super nerd, but there's no question, he's certainly a pioneer...

So what's it all about?:
So what's it all about? Bitcoin is a form of currency the same as any other, however it is not under the control of any government or
financial institution. The premise is for it to be owned and managed by its own community. Bitcoin is de-centralised and managed by
peer-to-peer members who all partake in new transaction activity and store previous activity in what are known as 'block chains'.
This means that a full 'copy' of all transactions are stored locally and used to verify, between participants, new activity, thereby
preventing any one person from malforming, adding or creating fake transactions within the block chain. This 'consensus' approach
protects the security of Bitcoin transactions.

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Bitcoin works in not a dissimilar way to PayPal in that you have a digital wallet with a unique address where people can send you
Bitcoins. You can simply install a wallet on your device, or you can download the full Bitcoin wallet and participate in the network as
a node. Bitcoin's value is very much an effect of supply and demand with risky investors gambling on the highs. Currently a single
Bitcoin (shown as 1.0000000) is worth 573 or $935. You can purchase Bitcoins at any of the 8 decimal places so for example
0.0100000 would cost you 5.70 and 0.1000000 would cost you 57.00, no surprise where Bitcoin got its name!

OK, where do I buy Bitcoins?:
OK, where do I buy Bitcoins? Unless you have some Bitcoins coming your way via a payment, you will need to purchase Bitcoins in
your existing currency. Purchasing is all about trust as it is not regulated, however that's sort of how eBay started out, where users
trusted each other to pay for and send items, and they've done rather well for themselves...

The Bitcoin coal face:
The Bitcoin coal face Bitcoin mining, as it is known, is the process of generating (and securing) Bitcoins and a small payment in the
form of units of Bitcoins are paid for the time and effort your hardware is used and your level of participation. This is done via a
number of methods from using your own PC's CPU or GPU (not dissimilar to other grid based BOINC projects such as Seti @
Home) to using ASIC miners (Application Specific Integrated Circuits), these are designed for the singular purpose for which they
are built, which in this case is generating Bitcoins. Unless you have significant investment to purchase powerful ASIC miners such
as those from butterflylabs.com which can run at 600GH/s (Hash's per second) you will have to look at USB ASIC Miners such as
the popular BlockErupter which generate 336MH/s. Using the BlockErupters you can create your own USB hub style rig running lots
of them concurrently.

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The reality though, is that it may be too late in the game to make any serious money from Bitcoin mining. The complexity (Hash rate)
of the Block Chain is now such that even joining and contributing to a Mining Pool, where miners work together and share the
profits, will likely see more spent in electricity than in any real financial return. Also there is a maximum limit of 21 million Bitcoins
and at present it is nearing 12.4 million and as more miners join, the quicker this limit will be reached. It is now more likely you will
make money buying Bitcoins themselves than generating them.

The future of Bitcoin... :
The future of Bitcoin... Bitcoin is an emerging technology, as such the price has been volatile, however recently it has started to
become more stable as the community of users grows. As of this writing, Bitcoin is seeing the number of transactions reach as high
as 100,000 per day. While banks and big business are yet to consider whether Bitcoin is a threat or an opportunity, there is no doubt
they are beginning to sit up and take notice of this new digital currency which continues to grow its user base daily. Interestingly our
mysterious Satoshi, the inventor of Bitcoin is thought to own, depending on fluctuations, $1 billion dollars worth of Bitcoins. Don't we
all wish we had an idea like that...