Bitcoins are a creation by some who don't understand what a currency is. Bitcoins back to nothing and are only useful to the extent that you can fool another ideologue into taking them; for as long as they've been around, it is far, far easier to obtain goods or services with Warcraft gold or Microsoft Points, which aren't even trying to be universal currencies. (Just yesterday I was on a blog that cataloged the reasons Microsoft gave for various bannings, and selling services for Microsoft Points was a very common one. It's so easy Microsoft considers it a pestilence.)
Last time this came up on HN BitCoin's FAQ had a question directly asking what useful thing it backs to. I say "asking" because the answer was basically no answer at all. I see it is no longer there. This is because if they can't answer it, it is better for them not to bring the question up at all, so I guess it's a good move for them.
Currencies have to back to something. Dollars back to being able to pay the various governments of the US not to throw you in jail for breaking various laws (tax, fines, etc); a dollar is useful even in Africa to someone not subject to those laws, because you can trade it to somebody else who has that use. The way an economy works allows the value of a dollar to appear to become severed from its backing and just float in space, propped up only by mutual consensus, but this is an illusion. When the backing goes, so does the currency. History's full of examples, just look up "hyperinflation".
(Also note the difference between backing and rarity. Anybody can make something rare, backing means it's actually worth something even on its own.)
Bitcoins provide an interesting technology platform around which to build a currency, but trying to use them directly as currency is only slightly different than using Monopoly money, and the differences aren't relevant.
"Bitcoins are a creation by some who don't understand what a currency is."
How ironic that someone would say such a thing, and then immediately post a few paragraphs displaying their own misunderstandings of what a currency is.
Do you know what a "hard money" is? Bitcoin is a digital hard money.
You talk so much about backing...backing is nonsense. Gold isn't backed by anything. It's just matter, like everything else. The value of that specific form of matter is in the eye of the beholder. Lookup the Subjective Theory of Value. Then go to http://mises.org
Gold is backed by being gold. It also isn't a currency anymore; the properties necessary to be a currency are no longer true of it. Wire me some gold, please. Not some numbers that are actually disguised dollars, some actual gold.
I'm not a goldbug precisely because I don't think gold is worth anywhere near what people think it is. The "durable value" it had in the decoration field is gone. If it were ever actually put to the test it would collapse to a much lower value reflecting its actual industrial and decorative values which are nothing like what they used to be.
The subjectivity of value is why backing is so important if your currency isn't to collapse. Something's got to stop the subjective system from just deciding the value is 0, aka, hyperinflation. Or, more accurately, realizing the value is zero.
It's easy to wave some academic theories around and act intellectually superior, but call me when you've actually got a functional currency that corresponds to what you claim is possible and even remotely resembles the real world market size of even Microsoft Points or Eve Online's currency. BitCoin is not it, and it won't ever be it.
This isn't the result of free markets, but a result of the actions of violent institutions.
The "durable value" it had in the decoration field is gone. The durability isn't a matter of decoration. The durability matters most in that it's not going to rot/rust away, so that an ounce of gold remains and ounce of gold rather than turning into half an ounce of gold.
If it were ever actually put to the test it would collapse to a much lower value reflecting its actual industrial and decorative values which are nothing like what they used to be.
You're forgetting it's value for trading and as a good store of value, which are most like among the biggest reasons it is valued by most people.
The subjectivity of value is why backing is so important if your currency isn't to collapse. Something's got to stop the subjective system from just deciding the value is 0, aka, hyperinflation. Or, more accurately, realizing the value is zero.
The "backing" is also subjectively valued...everything that is valued is valued subjectively. The universe doesn't set some standard value for things that humans are supposed to agree with.
but call me when you've actually got a functional currency that corresponds to what you claim is possible and even remotely resembles the real world market size of even Microsoft Points or Eve Online's currency. BitCoin is not it, and it won't ever be it.
Bitcoin just started as a grassroots project that is growing and growing quickly. You'll be hearing more news about it's further successes, I'm sure. Maybe after a few years of watching it grow, you'll decide you're ready for it.
In particular, the section from about 10:30 discusses how Brazil combatted inflation by essentially replacing their currency with something that everyone agreed was valuable.
Bitcoins provide an interesting technology platform around which to build a currency, but trying to use them directly as currency is only slightly different than using Monopoly money, and the differences aren't relevant.
The differences are relevant. Monopoly money makes a perfectly acceptable currency for the game of monopoly. It would make for a currency between neighboring households as well except for the fact that it is easy to copy and therefore impossible to trust.
In this way you can say bitcoin is backed by the mathematical certainty that hashing functions are hard to reverse.
The idea is that it's not under any entity's control, and the amount of currency grows in a predictable (and decreasing) way. This should prevent the crazy inflation we've seen occur with normal currency where the government can always just print more.
Because every few years (4, I think), the number of bitcoins in each "block" (what you generate) is halved. So right now you get 50 BTC when you generate a block. In a few years it'll be 25. Then 12.5. Etc. In a very long time, they'll round from 10^-8 down to 0, but generating a block will still get you transaction fees from the transactions that occurred since the last block generated.
I asked why, not how :) I understood from the FAQ how it was done, but there's no mention of why it's desirable? Why not either fix the number of bitcoins now for all time, or let them grow unboundedly at a constant rate?
Ah, ok. I think they're trying to balance 2 interests:
They don't want inflation. One of the impeti for this initiative is to have a currency that some politicians can't decide to print more of.
But at the same time, they can't just issue 90% of the total money that will exist right at the beginning. No one's going to buy into a currency where the vast majority of the "wealth" goes to a few early adopters.
So it makes sense to have the money supply grow fast at the beginning, when the currency is hopefully getting more popular as well, preventing inflation, and then to gradually slow down the money supply growth to achieve the goal of preventing inflation.
