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Revisiting Bitcoin - initial experience and questions

I first read about Bitcoin a number of years ago, and was intrigued. I scanned Satoshi Nakamoto's initial whitepaper that kicked it all off, and looked into the burgeoning scene emerging around Bitcoin mining - generating the proof-of-work required to discover a particular hash value to generate a new valid coin by expending CPU power and electricity. Back then there wasn't much you could do with a Bitcoin other than transfer to a small but growing number of other willing individuals. But I thought it was interesting enough to have potential, and obviously plenty of other people did too.

Unfortunately I never took the next step to actually set up a miner. In those days it would have been feasible for me to do it with an old PC with a new graphic processer thrown in. In hindsight, this could have been a pretty profitable exercise. Many of those who got in early and persisted seem to have done quite well for themselves (which has led some to compare Bitcoin to a ponzi scheme, although this is an innacurate comparison).

These days to solo mine, or even contribute to a pool mine, you apparently need a whole lot of Application Specify Integrated Circuit (ASIC) or Field Programmable Gate Array (FPGA) devices and a cheap power source to make it worthwhile. This is because the network automatically adjusts the difficulty of mining to maintain a steady pace. Only 21 million Bitcoins will be created, so far nearly 12 million are in circulation and mathematically, with the value of coins per generated block decreasing at a steady rate, it is expected the last Bitcoin would be created in 2140 (if the whole scheme hasn't been hacked or regulated out of existence by then, or replaced by competitive P2P digital currencies).

So I don't really have the time or hardware geekery required to get involved in mining (though it is interesting to me the way Bitcoin mining is driving innovation in power-efficient number crunching rigs - something that might have spin-off implications for cryptography and other areas).

But I am interested in experimenting with Bitcoin, to give me some context for all these news stories about innovative exchange start-ups, buying real-estate in China or donating to US political parties with the trendy digital currency. So that leaves me to install some wallets - MultiBit on my PC and Bitcoin Wallet on my Android phone. All set up, I've got my unique address ID and QR code ready to go. Now I guess I should just buy a Bitcoin from somewhere. How's the exchange rate tracking?

Oh.

1 BTC= $AUD460, up 187% from $160 just one month ago.

Looks like I'm late to the party again. 

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Comments: (3)

Elton Cane
Elton Cane - News Corp Australia - Brisbane 14 November, 2013, 13:55Be the first to give this comment the thumbs up 0 likes

I almost forgot the question. This is a volatile currency, and in the recent past pretty big devaluations have come off the back of hacking and theft incidents (and take down of SilkRoad marketplace). But $1 million of Bitcoins were stolen from an Australian online bank last week, and I just read this story today about $5 million worth and a possibly dodgy Chinese Bitcoin platform going missing in action But the bubble persists?

A Finextra member
A Finextra member 15 November, 2013, 07:09Be the first to give this comment the thumbs up 0 likes

Not so sure whether investing in Bitcoins would be such a good idea ...

Apart from more fundamental questions like “How come that someone can turn mere computer calculations into something like money?” and “Should Bitcoins be treated equivalent to real money ?”, one ought to be aware that hackers can steal those fancy Bitcoins – see also 

http://www.theregister.co.uk/2013/11/05/bitcoin_exploit/

This is not just a theoretical threat, rather there have been three incident reports just within the last week:

http://www.theregister.co.uk/2013/11/08/bitcoin_burglar_bags_a_million_bucks/

http://www.theregister.co.uk/2013/11/12/bitcoin_gbl_hong_kong_collapse/

http://www.theregister.co.uk/2013/11/13/bitcashcz_burgled_and_closed/ 

Regulators ought to draw a line between hazardous online gambling and decent means for payments.

 

A Finextra member
A Finextra member 15 November, 2013, 09:32Be the first to give this comment the thumbs up 0 likes

It is certainly inaccurate to describe bitcoins as a ponzi scheme. They're more like subprime loans in 2006.

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