My thoughts on Bitcoin

This page is a collection of my thoughts and experiences on Bitcoin.

Contents

What is Bitcoin?

Bitcoin is money for the internet. It is a cryptocurrency that uses difficult algorithms to provide value and security. Using bitcoin is like using cash; it is fairly anonymous, but unlike cash, you can transfer it to anyone in the world for almost no transaction fee.

Detailed explanation

I stole this well written description from AgentME on Reddit

+ Click to expand

Why I Like Bitcoin

As an American, this type of money offers a lot of freedom. For my part, I see Bitcoin less as freedom from government and more as freedome from big-banks. Out side the US of A, it serves as freedom from tyrannical governments and provide banking to the masses.

As a consumer, Bitcoin allows you to spend money digitally without revealing your payment authorization key. Credit cards allow you to spend money digitally, but you must give the store your authorization key. Any time you use your credit card, anyone close to your card can take a quick picture of your card and use it anywhere. While credit cards are legally required to give you your money back should someone use your credit card in this way, it is a hassle for everyone involved.

As a computer programmer, I like Bitcoin because each transaction has its own program to verify it. For the most part, this program is very simple and just confirms the transaction was signed. But using script, you can be quite expressive. Script is a Turing incomplete stack based language. I.e. Forth without loops.

Aside from buying Bitcoin, I also am running a full node and contributing to the core code. Details can be found here.

Examples of 'special' transactions, such as:

  • Providing a Deposit
  • Escrow and Dispute Mediation
  • Assurance contracts
  • and more!

can be found here.

What I've done with Bitcoin

I started with Bitcoin in March of 2013. Initially, I mined with my GPU. This was not profitable for very long, but the few parts of a Bitcoin I mined for two months account for most of my current holdings during the first year. I am glad I kept on mining for a few weeks after it became non-profitable (i.e. electricity to run GPU was larger than what I mined, but not in today's price).

I mainly hold bitcoin as an investment (see Predictions). At this moment, I do not hold very much, as most of my disposable income goes into Legos.

I use http://www.coinbase.com to trade between Bitcoin and USD.

I am trying to get my wife to accept Bitcoin for her BeautiControl business. You should contact her and offer to buy something and pay with Bitcoin!

Update: I am now running a full node and will begin to start testing and eventually contribute to the reference client. The steps I followed can be found here.

Cold Storage

I have not yet figured out how to securely store my Bitcoin. I am certain this is the first large challenge to solve. Third parties seems like the most likely way forward for those new to Bitcoin. In fact, I believe it is the only way to start; there are too many ways to screw up your own storage.

I am leaning toward:

  1. Encrypting my private key(s) with a long password
  2. Sharing that encrypted file, along with how it was encrypted, with 'everyone'
  3. Leaving a copy of that password in a secure place

My memory is not great, so I fear forgetting my password as much as having my password 'discovered'. Also, if I die with a large sum of Bitcoin, I'd like my family to have it.

A fireproof safe or safety deposit box are leading candidates. Trusting a Bitcoin bank would be the traditional answer, but all Bitcoin banks are too new for me to trust.

Predictions

I predict the value will go to $10k per Bitcoin in the next five years. Once it hits $10k per Bitcoin, I think it will stay fairly stable and slow increase in value to $100k per Bitcoin. I don't know if it will hit $100k in my lifetime or not.

I am 100% sure crypto currencies are here to stay. Bitcoin has a large lead and there is a large chance that anything wrong with the protocol will be fixed before another crypto currency takes significant market share. Other crypto currencies seem like they will keep a small percent of market share by servicing nitch groups.

In case I am wrong, I am still investing most of my retirement money into a traditional 401k.

For Bitcoin to really take off in America, businesses (i.e. banks, paypal type places) need to offer services on top of the basic network. Using Bitcoin on credit, for instance. Offering escrow services also seems like a need to be filled.