BitCoin
Aus Leo's Wiki
BitCoin is a brilliant idea! How is it possible to
- introduce a new currency
- without a central authority that keeps track of transactions and accounts
- without disclosing persons balances
- produce this new money out of thin air with the users still gaining trust in it?
- Something that works like cash for the online world?
Disclaimer: The following thoughts are focusing on the conceptual side of bitCoin and ignore technical details.
The one problem is solved "easily". To keep track of transactions and balances you simply build a distributed database with a bit of cryptographic voodoo to decide if transactions were for real or a fraud attempt. Participants sign their transaction with their private keys. Others check if the signature is fine and vote for or against putting the transaction in an eternal log file of all transactions. Reading that log file from its beginning tells you, where the money went and thus, on what account there is what amount of money. That's all pretty straight forward.
But where does the money come from? If there is no central authority, who should "hand out" the right to use certain amounts of that new money? And to whom? In what quantity?
- 100 coins per person
- If everybody got 100 coins as a start to his account, the total count of coins would rise with each participant and peak at population*100 coins.
- But that would not work anonymously as it would highly depend on each participant to not open several accounts.
- Also it is impossible to check the one-account-per-person-integrity in a peer-to-peer network.
- OpenCA may come to mind here as there you sign other people's identity to be correct but such an approach would
- require a very complicated procedure to open accounts
- involve a very high incentive for sub-groups to willingly allow multiple-accounts
- Each account can reclaim a share of the money produced per day via a donation to some charity
- This approach would allow to have arbitrarily many anonymous accounts charged via donations.
- Some organisations make donations to them public combined with a statement by the donor.
- That statement could include the account to be charged.
- Established exchange rates combined with a required overpay where you would only get 1/3rd of your donation back would allow to limit abuse.
- This approach would lead to absurd situations where you could declare your donation as special expense and get it partly back as coins.
- The suggested overpay makes it a bit less absurd though :)
- Interfaces to organisations' donation logs would need maintenance.
- Each account can reclaim a share of the money produced per day according to its CPU power
- Now this is what bitCoin actually does.
- The network needs some CPU power to do the book-keeping.
- To propagate transactions etc.
- The book-keeping is made artificially complicated according to the amount of CPUs willing to work for it and get a share of the fresh money dealt that day.
- As by this artificial burden a single PC is not able to do significant work on the network it needs to run at full load to be able to contribute results from time to time.
- Each time a PC is the first to solve the book-keeping-riddle, it gets a share of the coins.
- As this share varies in its value, more or less people will dedicate CPU-power to the book-keeping.
- For most standard PCs the money gained from that is less than the power costs.
- Advantage of this clearly is that people trying to get a big share will not do harm to the network but rather even help it.
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Why I use bitCoin
Actually I like the idea of bitCoin being some kind of guerilla-money where central banks can do little to nothing against. Sounds like nobody can take it from me. It is like cash. Anonymous. Free. But it also is complicated. My Bank doesn't sell bitCoins to me. Actually it is traded in irc channels and forums. The USD/BTC-rate is changing a lot. Right now 2011, May 23rd during the last 30 days rates range from 2 to 9 USD/BTC. This implies there is a lot of speculation in the market. Actually my biggest concern is that the BTC is mainly used for speculation and not as a currency. I don't want to use a currency that is designed in a way making it suitable for speculations. The idea that some people are keeping big stocks of bitCoins betting on its value to rise and once bitCoins got adopted by big parts of the worlds economy sell what they bought very cheaply looks unfair to me. Imagine some person with as little as 10M$ on his account taking up this idea now. What could he do? Right now there are 6.302.700BTC in circulation. At last months lowest rate that would be 12M USD. Above mentioned person could easily have bought 5M BTC. Not on a single day for sure but if he would be with the project since long, taking some BTC at a time, he could. 5M BTC is 1/4 of the total BTC ever being created. So if BTC get widely accepted, surely more than 40M USD will run into that system. Most likely more than 40B USD. 40T USD? Anyway if 1/4th of this BTC-economy is owned by one person that feels unfair to me.
Now I changed this chapter from "Why I don't use bitCoin" to "Why I use bitCoin". Recently I chatted with many people about bitCoin and came to the conclusion that the above mentioned problem persists in all todays currencies but all these currencies cost a lot of money to transfer internationally. In the bitCoin network everybody can just participate and offer transactions for a fee or for free and now the wast majority of transactions are actually for free. That shifts the aspect of bitCoin from being speculators money to being a currency compared to all other currencies.
How I would improve bitCoin
As bitCoin looks very well designed for speculation, I would try to tweak it to be designed for circulation.
Money designed for circulation
Money should be designed for circulation and not to build up reserves. One such money that is very well known for its circulation is the Wörgl. The Wörgl was a local currency that was reduced in its value on a monthly basis. The City's employees got part of their payments in Wörgl and local companies had to accept it.
Mixing Wörgl and bitCoin
Now if 20% of the bitCoins would fluctuate per year, the bitCoin production would not need to be reduced at any time. If the production was set to be 4M BTC per year and the fluctuation to be 20% per year, the total sum of BTC would never surpass the equilibrium of .2 * total = 4M BTC. The total would be 20M BTC.
Another problem
The bitCoin way of producing ever less coins per day is well designed to limit the count of CPUs running to get a share. At some point those CPUs running compete over 1% of the BTC economy, later maybe .1%. Assuming people will put about that order of magnitude of money into energy for CPUs, that means a rather small amount of the BTC-economy is causing a waste of energy. After all it takes some CPU power to do the bare book keeping. Consequently if the bitCoin gets redesigned to redistribute 20% of its value per year by the same mechanism, this would have a dramatic impact on environment in case BTC gets widely adopted.
A fix?
Now the BTC network recalibrates the difficulty of solving the book-keeping riddle so it doesn't get solved too fast in case more and more CPU-power gets thrown at it. If the fluctuation would partly be kept in the network, the amount needed to be reproduced and thus the CPUs burning power could be reduced. How could the fluctuation be kept in the network? By redistributing those 20% on all accounts? Not quite as then the problem mentioned above would arise. People would create multiple accounts to get as much of a share as possible. But maybe one could sacrifice a bit of anonymity for a personalized account that gets such a share? Then again who would judge on an account being a person's only personalized account? Would there be the need of a central authority? Would such a system of a basic income guarantee be worth the hassle to implement a decentralized infrastructure for signing personalized accounts? Could there be an adequate resolution to punish fraud?
Conclusion
I must admit BTC does not have the problems trusted authorities bring with them and has the elegance of being cash on the net. No charge back. Losing the wallet means somebody can find it, etc. but given the fact it is so prone to speculation I hope to see some BTC2 soon :)
