Bitcoin, Driver of Technological Innovation?

Communities Science, Engineering, & Security
1

Bitcoin is an exciting technology, and currency for that matter. Its value seems to be taking off ever so recently. A %2200 increase over the last 3 months with todays average from MtGox at 142USD. 

You need computing power to use/trade/buy/create bitcoins (to my best knowledge at least), called bitcoin mining. Computers crunch very large algorithms and hashes and encriptions and blocks and... stuff. Anyways, you need computing power (feel free to elighten, experts). The diffculty of completing said "equations" doubles, I believe, every 4 years. Thus requiring 2x more computing power every 4 years.

Now my question(s), with such a potential for Bitcoin Miners to make some dough, does their success depend on doubling computer power every four years? does this mean computers, processors and graphics processors must do the same? Will this create a positive role in the world of technological innovation? What if technology can't keep up with the bitcoin? Will it slow down trading? Will miners go "out of bisiness"? 

You get my point. Please chime in where you see fit.

 

Zee Goonch

 

2

Come on! No thoughts?

3

I think you have quite a few misconceptions about what a bitcoin is and what the whole system regarding them  involves.

Let me clarify a few things.

Firstly, bitcoins and mining are not "technology". They are simply software (essentially).

Secondly, you only need computing power to mine bitcoins, i.e. attain them without paying for them (besides electricity costs).

For example, I can go buy some bitcoins right now with real money. I can trade them, use them to buy things, whatever, without computing "power". Unless you consider any computer computing "power", but that's not what is meant by that in regards to bitcoins.

Thirdly, the reason it doubles "every 4 years" is because of two reasons.

1. The more coins that get released, the higher the difficulty gets. And...

2. The difficulty is also set to how many people are trying to get bitcoins.

The 2nd one is very important. If everyone stopped right now, the difficulty would plummet and anyone would be able to mine them easily with minimal hardware (until lots of people started doing it again).

So basically, bitcoins don't really "push" hardware, because the more hardware is pushed, the more bitcoin is pushed. It because a "chicken or the egg" scenario, basically.

Lastly, all your questions besides one are answered by my explaining how difficulty for mining is found. The one that's not answered is "Will this create a positive role in the world of technological innovation?" but that's in reference to technology being pushed by bitcoin, which it won't be, as I said.

However, bitcoin opens up interesting possibilities, if only temporarily. As long as the government doesn't stick it's hands in bitcoin, it can be used for many things. A less than useful example is online gambling. There is at least one online gambling site that uses bitcoins atm, and because of this, it's the only legal way to gamble online in the US as gambling with "real" money is illegal.

What else it might be used for; however, remains to be seen, for me at least.

4

EDIT: Ninja'ed

From what I understand the harder they are to mine, the easier they will become.


Meaning: When they become to hard to mine it will slow down, becoming easier so it will ballence itself out.


I think...

5

Well, yes and no.

Basically, as time goes on, Bitcoins become harder to mine. This makes them scarcer. Meaning there are less of them being put into the system while there are already a lot in the system.

Since less of them are being released into the market, the price of each one will go up.

This means, even though less are being mined, those that are being mined are worth more. So yes, it balances out, but not the way you imagine.

6

To sum it all up, economically it is just supply and demand that causes the price to change.

If nobody wanted them they'd be worthless. As more people want them, they become higher cost.

And as more are mined, the supply goes up, so it levels itself out in that sense.

But with the current market spike going on, I wouldn't be surprised to see the trade values hit some stupid number like $5000USD/BTC.

Media coverage has a lot to do with it, and because it's gotten so much recently, it will continue to rise like it is. But it can easily drop to nothing if everyone takes their money and runs.

It's also like having stock in a company, but has fewer variables that change the value of it.

7

Yes, it being a stock is true.

As long as the government doesn't touch it, it will have quite a few uses that will keep people using it which will mean it will keep some form of a value. Particularly that gambling thing. People love to gamble.

8

Thanks for clearing things up. I understand that bitcoins are just a software. What i didnt understand is the second concept you outlined in your first post. thanks for explaining.

I'm still slightly confused though. 

Does the program not depend on increasing computing power to mine the bit coins at all? 

Potentially could a point arise where lots of miners will go out of bisiness because the cost of running their machines or buying updated computers out weighs the amount of bitcoins collected whilst mining? IE the do bigger miners with more powerful computing have a better cost of production to currency gained ratio... now, or in the future? Will the basement/mom and pop miner go out of bisiness as the difficulty increases?

Online resources are welcomed as well.

Thanks for all the comments, very appreciated.

 

 

9

How poinient... On todays The Tek (52) Wendell breifly discusses the future of Bitcoin with new ASIC technology. Its pointed out that this might mean an end to the low end miners or perhaps even a big toll on Bitecoin itself. Litecoin is mentioned in compliment, a solution to this possible problem. Litecoin requiring more computing power and perhaps more defensible against growing technology.

I'm probably slighty off in my interpritation of his comment but still his point remains, thoughts? (Wendell??)

10

It's becoming the trading system of the rich.

11

wow holy hell!

Has Bernanke and friends finally realized they can use fiat to buy real currency?? 

Bitcoin has had a crazy day to day, hopefully on the road to recovery.