understanding bitcoin

Why you need to understand Bitcoin?

www.shuoyangdesign.comShuo Yang

http://www.shuoyangdesign.com

Why another kind of money?

The Times 03/Jan/2009

The first Bitcoin block is mined contains the text:

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe they would be

revolution before tomorrow morning.”

– Henry Ford

https://www.goodreads.com/quotes/34770-it-is-well-enough-that-people-of-the-nation-do

–Thomas Jefferson

“If the American people ever allow private banks to control the issue of their currency first by inflation then by deflation the banks and

corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent

their Fathers conquered... I believe that banking institutions are more dangerous to our liberties than standing armies... The issuing power

should be taken from the banks and restored to the people to whom it properly belongs.”

https://www.goodreads.com/quotes/405594-if-the-american-people-ever-allow-private-banks-to-control

– The Federal Reserve Bank of Chicago, Chicago Fed Letter, December 2013, No. 317

“The bitcoin protocol provides an elegant solution to the problem of creating a digital currency—i.e., how to regulate its issue, defeat counterfeiting and double-

spending, and ensure that it can be conveyed safely—without relying on a single authority... It represents a remarkable conceptual and technical achievement,

which may well be used by existing financial institutions (which could issue their own bitcoins) or even by

governments themselves.”

What is money?

Skip the easy answer

time shifting value and resources space shifting

The origin of money - Nick Szabo, 2002

The precursors of money, along with language, enabled early modern humans to solve problems of cooperation that other animals cannot -- including problems of reciprocal altruism, kin altruism, and the mitigation of aggression.

美国原住民⻉贝壳串项链

http://nakamotoinstitute.org/shelling-out/


Collectable

Ostrich-eggshell beads, Kenya Rift Valley, 40,000 B.P

Beads made from shells of the pea-sized snail, South Africa, 75,000 B.P

Shell and tooth pendants appear in Australia from 30,000 B.P

Collecting and making necklaces must have had an important selection benefit, since it was costly -- manufacture of these shells took a great deal of both skill and time during an era when humans lived constantly on the brink of starvation


Russia, 28,000 BP, Each mammoth ivory bead may have required one to two hours of labor to manufacture.

Evolution, Cooperation, and Collectibles

"money is a formal token of delayed reciprocal altruism”

– Richard Dawkins, 1935

– The General Theory of Employment, Interest, and Money, John Maynard Keynes , 1935

"For the importance of money essentially flows from its being a link between the present and the future."

http://en.wikipedia.org/wiki/John_Maynard_Keynes

Evolution, Cooperation, and Collectibles

清洁⻥鱼

吸⾎血蝙蝠

On a good night, vampire bat bring back a surplus; on a bad night, nothing. Their dark business is highly unpredictable. As a result, the lucky (or skilled) bats often share blood with the

less lucky (or skilled) bats in their cave.

How to delay reciprocal altruism?

Credit？

Face？

Value measurement problem

Altruism between monkeys

Paleolithic man

If clams can be money, furs can be money, gold can be money, and so on -- if money is not just coins or notes issued by a government under legal tender laws, but rather can be wide variety of objects -- then just what is money anyway?

Why did humans, often living on the brink of starvation, spend so much time making and enjoying those necklaces when they could have been dong more hunting and gathering?

Nineteenth century economist Carl Menger -(founder of the Austrian School of economics) first described how money evolves naturally and inevitably from a sufficient volume of

commodity barter.

barter

Barter requires coincidences of supply or skills, preferences, time, and low transaction costs. Its cost

increases far faster than the growth in the number of goods traded. Barter certainly works much better than no trade at

all, and has been widely practiced. But it is quite limited compared to trade with money.

Thus trade almost always did benefit both parties. Trade created value as much as the physical act of making something. !Benefit from lower transaction costs

Gains From Wealth Transfers


Kula Ring

http://en.wikipedia.org/wiki/Kula_ring

Melanesia

(Western end of the Pacific Ocean)

Necklaces circulated clockwise, and armshells counter-clockwise, in a very regular pattern.

Trade of food delay reciprocity can increase food sharing

Transaction costs were usually too high -- bands were far more likely to fight than ever trust each other.

Flints, axes, furs, and other collectibles were used as media of exchange.

Different tribes specialized in different prey

seasonal specialization

Different tribes specialized in different prey

Band A Band B

Mutually beneficial trades

Band A Band B

1. An available source of meat at a time of the year when one would otherwise starve.

2. An increase in the total supply of meat.

3. An increase in the variety of nutrition from meat, by eating different kinds of meat.

4. Increased productivity from specialization in a single prey species.

Mutually beneficial trades

Trade was thus not the only kind of wealth transfer, and probably not the most important kind during the long human prehistory where high transaction costs prevented the development of the kinds of markets, firms, and other economic institutions we now take for granted

We now turn to one of the most basic kinds of wealth transfer that we humans take for granted but other animals do not have -- passing wealth onto the next generation.

Kin Altruism• Coincidence in time and

locale of supply and

demand for trade was

rare

• Most kinds of trades and

trade-based economic

institutions we now take

for granted could not

exist.

• Heirlooms

The Spoils of War

!

• When two neighbor tribes were not at war, one was usually paying tribute to the other.

• 700 BC Lydia were the first major issuers of coins in the archaeological and historical record

• From that day to this, government mints with self-granted monopolies, rather than private mints, have been the main issuers of coin.

Collectibles provided a fundamental improvement to the workings of reciprocal altruism, allowing humans to cooperate in ways unavailable to other species.collectibles have the following desirable qualities:

1）More secure from accidental loss and theft.

2）Harder to forge its value.

3）This value was more accurately approximated by simple observations or

measurements.

Attributes of Collectibles

Primitive money was not modern money as we know it. It took on some of the function modern money now performs, but its form was that of heirlooms, jewelry, and other collectibles.

The use of these is so ancient that the desires to explore, collect, make, display, appraise, carefully store, and trade collectibles are human universals -- to some extent instincts.

The results for our ancient forebears were the first secure forms of embodied value very different from concrete utility -- and the forerunner of today's money.

Conclusion on the origin of money

Shell money from Sumer, c. 3,000 B.C.

How money is created now

Hidden Secrets Of Money

- Mike Maloney “Hidden Secrets Of Money”http://youtu.be/iFDe5kUUyT0?t=6m21s

http://youtu.be/iFDe5kUUyT0?t=18m54s



Money creation in the modern economy - Bank of England

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Monetary Base

http://en.wikipedia.org/wiki/Monetary_base

― Richard Buckminster Fuller

“You never change things by fighting the existing reality.

To change something, build a new model that makes the existing model obsolete.”

http://www.goodreads.com/author/quotes/165737.Richard_Buckminster_Fuller

https://www.youtube.com/watch?v=6MnQJFEVY7s

– Milton Friedman 1999

“One thing that’s missing but will soon be developed is a reliable e-cash, a method whereby on the Internet you can transfer funds from A to B without A knowing B or B knowing A – the way I can take a $20 bill and hand it over

to you, and you may get that without knowing who I am.”

https://www.youtube.com/watch?v=6MnQJFEVY7s

– Richard Feynman

“The difference between knowing the name of something and knowing something.”

https://www.youtube.com/watch?v=05WS0WN7zMQ

What is Bitcoin

A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.

https://bitcoin.org/bitcoin.pdf

https://www.youtube.com/watch?v=r2704tWyz6I

Bitcoin made simple – video animation - theguardian

http://www.theguardian.com/news/video/2014/apr/30/bitcoin-made-simple-video-animation

How does Bitcoin protocol work?

First steps: a signed letter of intent

http://blog.shuoyangdesign.com/?p=902

“I, Alice, am giving Bob one bitcoin”

+ digital signature

Problem: Send message multiple times












Does that mean Alice sent Bob ten different bitcoins? Was her message accidentally duplicated?

Step 2: Using serial numbers to make coins uniquely identifiable

• I, Alice, am giving Bob one bitcoin, with serial number 1234567

• When Bob get the message, he will check

1, the bitcoin with that serial number belongs to Alice;

2, Alice hasn’t already spent the bitcoin

• “where do serial number come from? - (third party-bank)


Step 3: Making everyone collectively the bank

• eliminate the bank entirely from the protocol

• Assume that everyone using bitcoin keeps a complete record of which bitcoin belong to which person. You can think of this as a shared public ledger showing all bitcoin transactions. We’ll call this ledger the blockchain.

• Bob can use his copy of the block chain to check the transaction。If that checks out then he broadcasts both Alice’s message and his acceptance of the transaction to the entire network, and everyone updates their copy of the blockchain.


Double Spending Problem


Double Spending Problem

““I, Alice, am giving Bob one bitcoin 1234567”

““I, Alice, am giving David one bitcoin” 1234567”

confirm

confirm

Step 4：Solve The Double Spending Problem

• When Alice sends Bob an bitcoin, Bob shouldn’t try to verify the transaction alone. Rather, he should broadcast the possible transaction to the entire network of bitcoin users, and ask them to help determine whether the transaction is legitimate.

• If they collectively decide that the transaction is okay, then Bob can accept the bitcoin, and everyone will update their block chain.


“…” waiting to verify

Problem：Alice can taking over the network by set up large number of identities


Suppose Alice wants to double spend in the network-based protocol I just described. She could do this by taking over the Infocoin network. Let’s suppose she uses an automated system to set up a large number of separate identities, let’s say a billion. Alice’s sock puppet identities swamp the network, announcing to Bob that they’ve validated his transaction, and to Charlie that they’ve validated his transaction, possibly fooling one or both into accepting the transaction.

Step 5: Proof-of-work

1. Artificially make it computationally costly for network users to validate transactions;

2. Reward them for trying to help validate transactions.


I, Tom, am giving Sue one infocoin, with serial number 1201174. !I, Sydney, am giving Cynthia one infocoin, with serial number 1295618. !I, Alice, am giving Bob one infocoin, with serial number 1234567. ……

Block

David

unconfirmed transactions

SHA-256 hash

Mining

• Initially, this was set to be a 50 bitcoin reward. But for every 210,000 validated blocks (roughly, once every four years) the reward halves. This has happened just once, to date, and so the current reward for mining a block is 25 bitcoins. This halving in the rate will continue every four years until the year 2140.

• You can think of proof-of-work as a competition to approve transactions

previous block hash + transactions hash + nonce(unknown)

Hash 1312af178c253f84028d480a6adc1e25e81caa44c749ec81976192e2ec934c64

Result need to start with a certain number of Zeros 00000000000000002e0af2a8c92696a5f1146a9557369dfd9468a98b1dad6e06

https://blockexplorer.com/block/0000000000000000042aed1324cf6322521fa56c47f26d31967439139b0b1795

“Bitcoin mining the hard way” http://www.righto.com/2014/02/bitcoin-mining-hard-way-algorithms.html

http://www.righto.com/2014/02/bitcoin-mining-hard-way-algorithms.html

new block 2 hash

Hash of current

block’s TXsNonce 3

new block 1 hash

Hash of current


previous block hash

Hash of current


new block 3 hash

Hash of current

block’s TXs

Each block containing a pointer to the immediately prior block:

Occasionally, a fork will appear in the block chain. This can happen, for instance, if by chance two miners happen to validate a

block of transactions near-simultaneously

They both broadcast their newly-validated block out to the network, and some people update their block chain one way, and others

update their block chain the other way:

6 confirmations

What could it possibly do?

What could it possibly do?

• Internet is not just faster telegram

• Email is not just faster mail

• Bitcoin It’s not just money

• Bitcoin is a revolutionary protocol for information synchronization. It can precisely order all database entries and check their validity without any central authority.

• Blockchain acts like a giant accounting ledger, allowing the storage and transmission of financial information.

• It can serve as a worldwide public record, for many potential purposes, without need of a central controlling authority. For example: Proof of ownership

Bitcoin as Money

• Script in blockchain made it can be programmable.

• For example: transaction will be executed on a certain date or met certain condition.

• Complex example: Kickstarter

Bitcoin as Secure Record Keeping !

Bitcoin as Proof of Ownership !

Bitcoin as a Decentralized Stock Exchange

- The Present

- Near Future:

- Future:

Public payments

He received $25,000 in Bitcoin in the first 24 hours

Four-sided network effect

(1) consumers who pay with Bitcoin,

(2) merchants who accept Bitcoin,

(3) “miners” who run the computers that process and validate all the transactions and enable the distributed trust network to exist.

(4) developers and entrepreneurs who are building new products and services with and on top of Bitcoin.

The Myth of Satoshi

In Nov. 2008, Satooshi published a paper on The Cryptography Mailing list

http://www.mail-archive.com/cryptography%40metzdowd.com/msg09959.html

What Did Nick Szabo Say?

From“Myself, Wei Dai, and Hal Finney were the only people I know of who liked the idea (or in Dai's case his related idea) enough to pursue it to any significant extent until Nakamoto

(assuming Nakamoto is not really Finney or Dai). Only Finney (RPOW) and Nakamoto were motivated enough to

actually implement such a scheme.”

http://unenumerated.blogspot.com/2011/05/bitcoin-what-took-ye-so-long.html

– Nick Szabo

http://unenumerated.blogspot.com/2011/05/bitcoin-what-took-ye-so-long.html

What Did Wei Dai Say?

“Two reasons, One: in Satoshi’s early emails to me he was apparently unaware of Nick Szabo’s ideas and talks about how bitcoin ‘expands on your ideas into a complete working system’ and ‘it achieves nearly all the goals you set out to solve in your b-money paper’. I can’t see

why, if Nick was Satoshi, he would say things like that to me in private. And, two: Nick isn’t known for being a C++ programmer.”

http://www.gwern.net/docs/2008-nakamoto

– Wei Dai


Dai/Nakamoto emails

“Nick considers his ideas to be at least an independent invention from b-money so why would Satoshi say “expands

on your ideas into a complete working system” to me, and cite b-money but not Bit Gold in his paper, if Satoshi was Nick? An

additional reason that I haven’t mentioned previously is that Satoshi’s writings just don’t read like Nick’s to me.”

www.gwern.net http://www.gwern.net/docs/2008-nakamoto

– Wei Dai

http://www.gwern.net


Bitcoin and me (Hal Finney)

I had long been interested in cryptographic payment schemes. Plus I was lucky enough to meet and extensively correspond with both Wei Dai and Nick Szabo,

generally acknowledged to have created ideas that would be realized with Bitcoin. I had made an attempt to create my own proof of work based currency, called RPOW.

So I found Bitcoin fascinating. !

Today, Satoshi's true identity has become a mystery. But at the time, I thought I was dealing with a young man of Japanese ancestry who was very smart and sincere. I've

had the good fortune to know many brilliant people over the course of my life, so I recognize the signs.

https://bitcointalk.org/index.php?topic=155054.msg1643833#msg1643833

– Hal Finney

https://bitcointalk.org/index.php?topic=155054.msg1643833#msg1643833

MT Gox Dead

1. The Bitcoin ecosystem is growing up.

2. Haters gonna hate

3. Antifragile.

How Does Mass Media View It?

Bitcoin Is Dead — Long Live Bitcoin - March 23, 2014 https://news.vice.com/article/bitcoin-is-dead-long-live-bitcoin

Bitcoin CEO found dead in Singapore, suicide suspected - March 06, 2014 https://news.vice.com/article/bitcoin-is-dead-long-live-bitcoin

The Face Behind Bitcoin - March 06, 2014 http://www.newsweek.com/2014/03/14/face-behind-bitcoin-247957.html#

The Antisocial Network - Paul Krugman - April 14, 2013 The fruitless search for dehumanized money. http://www.nytimes.com/2013/04/15/opinion/krugman-the-antisocial-network.html?_r=0

https://news.vice.com/article/bitcoin-is-dead-long-live-bitcoin

https://news.vice.com/article/bitcoin-is-dead-long-live-bitcoin

http://www.newsweek.com/2014/03/14/face-behind-bitcoin-247957.html#

http://www.nytimes.com/2013/04/15/opinion/krugman-the-antisocial-network.html?_r=0

Bitcoin in Argentina, a Match Made in Heaven? http://www.economist.com/blogs/schumpeter/2014/06/bitcoin-argentina

Bitcoin For the Poor: Cash Transfers in Africa http://www.economist.com/blogs/baobab/2014/06/cash-transfers-africa

Wall Street welcomes Bitcoin in 2014: SecondMarket CEO http://www.cnbc.com/id/101750918

Digital money: The Bitcoin bubble | The Economist http://www.economist.com/news/leaders/21590901-it-looks-overvalued-even-if-digital-currency-crashes-others-will-follow-bitcoin

http://www.economist.com/blogs/schumpeter/2014/06/bitcoin-argentina

http://www.economist.com/blogs/baobab/2014/06/cash-transfers-africa

http://www.cnbc.com/id/101750918

http://www.economist.com/news/leaders/21590901-it-looks-overvalued-even-if-digital-currency-crashes-others-will-follow-bitcoin

“A scientific truth does not triumph by convincing its opponents and making them see the light, but rather

because its opponents eventually die and a new generation grows up that is familiar with it.”

- Max Planck

http://en.wikiquote.org/wiki/Max_Planck

How does other’s view it.

– Paul Graham

“I am very intrigued by Bitcoin. It has all the signs. Paradigm shift, hackers love it, yet it’s derided as a toy.

Just like microcomputers.”

https://news.ycombinator.com/item?id=5402513

“Truly innovative ideas often look like bad ideas at the time”

– Marc Andreessen

http://video.cnbc.com/gallery/?video=3000279168

Personal computers in 1975, the Internet in 1993, and – I believe – Bitcoin in 2014.

In 20 years, we’ll talk about Bitcoin like we talk about the Internet today

http://video.cnbc.com/gallery/?video=3000279168

– Fred Wilson

“Bitcoin is still very much a fringe thing […] But I like to pay attention to the jokes, the laughing

stocks, because occasionally they get the last laugh”

Can Do vs. Can’t Do Cultures

http://www.bhorowitz.com/can_do_vs_cant_do_cultures

- Ben Horowitz

“The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all

progress depends on the unreasonable man.”

- -George Bernard Shaw


Critics of The Computer

“The Analytical Engine”

the world’s first general-purpose computer

In 1837, Charles Babbage set out to build something he called The Analytical Engine the world’s first general-purpose computer that could be described in modern times as Turing-complete. !English mathematician and astronomer George Biddel Airy advised the British Treasury that the Analytical Engine was “useless” and that Babbage’s project should be abandoned. The Government axed the project shortly after. It took the world until 1941 to catch up with Babbage’s original idea after it was killed by skeptics and forgotten by all.

Source:Can Do vs. Can’t Do Cultures http://www.bhorowitz.com/can_do_vs_cant_do_cultures


Critics of The Telephone

Alexander Graham Bell

In 1876, Alexander Graham Bell, inventor of the telephone, offered to sell his invention and patents to Western Union, the leading telegraph provider, for $100,000. Western Union refused based on a report from their internal committee. Here are some of the excerpts of that report:

“The Telephone purports to transmit the speaking voice over telegraph wires. We found that the voice is very weak and indistinct, and grows even weaker when long wires are used between the transmitter and receiver. Technically, we do not see that this device will be ever capable of sending recognizable speech over a distance of several miles. ”



Critics of The Telephone

Alexander Graham Bell

“Messer Hubbard and Bell want to install one of their “telephone devices” in every city. The idea is idiotic on the face of it. !Furthermore, why would any person want to use this ungainly and impractical device when he can send a messenger to the telegraph office and have a clear written message sent to any large city in the United States?”



Critics of The Internet

“Then there’s cyberbusiness. We’re promised instant catalog shopping—just point and click for great deals. We’ll order airline tickets over the network, make restaurant reservations and negotiate sales contracts. Stores will become obselete. So how come my local mall does more business in an afternoon than the entire Internet handles in a month? Even if there were a trustworthy way to send money over the Internet—which there isn’t—the network is missing a most essential ingredient of capitalism: salespeople.”

Why the Web Won’t Be Nirvana in Newsweek




- Ben Horowitz

“What mistake did all these very smart men make in common? They focused on what the technology could

not do at the time rather than what it could do and might be able to do in the future. This is the most common

mistake that naysayers make.”


• 2014: $1.2 Billion Funding Round At A $17 Billion Valuation • http://techcrunch.com/2014/06/06/uber-1-2b/

• 2011: Raises $11 million From Benchmark Capital • http://techcrunch.com/2011/02/14/huge-vote-of-confidence-uber-raises-11-million-from-benchmark-

capital/

http://techcrunch.com/2014/06/06/uber-1-2b/

http://techcrunch.com/2011/02/14/huge-vote-of-confidence-uber-raises-11-million-from-benchmark-capital/

"As someone who has been in the car service business his whole life, a valuation that high is asking for trouble.”

“I wish them luck; however, it is a very mom and pop industry and you will be lucky to just make a living.”

"If Uber becomes the most successful [car service company] out there, you are not looking at a billion dollar company by any means."


2011 Comments on Techcrunch

"I don't know of any competitive advantage Uber has over Carey or Boston Coach...which can launch similar technology in matter of weeks.”

"I'm looking forward to seeing if Uber is actually successful outside of San Francisco.”

"Wow, $11 million for a company that is equivalent to calling a taxi! Why didn't I think of that!”

"I'm surprised. Is Uber in the clear yet legally? Seems like they could still be shut down any day."


2011 Comments on Techcrunch

Adoption CurveGeoffrey Moore

Adoption Today

Adoption CurveGeoffrey Moore

Mainstream Adoption

How can you view it.

• Alan Kay: IQ < Knowledge < Outlook.

• “If you don’t believe me or don’t get it, I don’t have time to try to convince you, sorry.” - Satoshi

Problem: “I don’t understand it”

Satoshi Nakamoto 2010

“Like the internet, bicycles, and many financial instruments, both airplanes and Bitcoin rely on ideas

that few in the world understand fully”

Wright Brothers

Problem: “dangerous”

Satoshi Nakamoto 2010

“Like the internet, bicycles, and many financial instruments, both airplanes and Bitcoin rely on ideas

that few in the world understand fully”

Wright Brothers

Bitcoin Myths

Myth: Educated economists think Bitcoin is a load of rubbish and going no where

• 2007: Steve Ballmer, “There's no chance that the iPhone is going to get any significant market share.”

• 2010: Why Tesla Is the Next Webvan • http://www.thestreet.com/story/10838464/2/why-tesla-is-the-next-webvan.html

• 2011: How Dropbox Will Die • http://www.forbes.com/sites/davidcoursey/2011/10/18/how-dropbox-will-die/

• 2013: FINANCE PROFESSOR: Bitcoin Will Crash To $10 By Mid-2014 • http://www.businessinsider.com/williams-bitcoin-meltdown-10-2013-12

https://en.bitcoin.it/wiki/Myths

http://www.thestreet.com/story/10838464/2/why-tesla-is-the-next-webvan.html

http://www.forbes.com/sites/davidcoursey/2011/10/18/how-dropbox-will-die/

http://www.businessinsider.com/williams-bitcoin-meltdown-10-2013-12

Myth: 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.

Myth: 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

Myth: 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

Myth: Bitcoins have no intrinsic value

• 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.

Myth: Bitcoin is 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. 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.

https://en.bitcoin.it/wiki/Myths

Myth: Bitcoin is inherently deflationary. Thus less cash for everybody to spend.

8 decimal places. we can simply use smaller units of Bitcoin.

Myth: Bitcoin is designed for tax evasion.

• 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.

Myth: Early adopters are unfairly rewarded

• Early adopters are rewarded for taking the higher risk with their time and money.

• 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.

Myth: 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.

• Bitcoin is actually quite economical of resources, compared to others.

Myth: 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.

• 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.

“some people see the world and ask why, others dream about the world that never before and ask why not.”

- -George Bernard Shaw

understanding bitcoin

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