Let's clear up some common Bitcoin misconceptions.
- 1 Bitcoins don't solve any problems that fiat currency and/or gold doesn't solve
- 2 Bitcoins are worthless because they aren't backed by anything
- 3 Bitcoin is a form of domestic terrorism because it only harms the economic stability of the USA and its currency
- 4 Bitcoins can be printed/minted by anyone and are therefore worthless
- 5 Early adopters are unfairly rewarded
- 6 Bitcoins are stored in wallet files, just copy the wallet file to get more coins!
- 7 It's a giant ponzi scheme
- 8 Bitcoin can't work because there is no way to control inflation
- 9 Anyone with enough computing power can take over the network
- 10 Bitcoin violates governmental regulations
- 11 Fractional reserve banking is not possible
- 12 Point of sale with bitcoins isn't possible because of the 10 minute wait for confirmation
- 13 After 21 million coins are mined, no one will generate new blocks
- 14 Bitcoin has no built-in chargeback mechanism, and this isn't good
- 15 Quantum computers would break Bitcoin's security
- 16 Bitcoin mining is a waste of energy and harmful for ecology
- 17 Shopkeepers can't seriously set prices in bitcoins because of the volatile exchange rate
- 18 Like Flooz and e-gold, bitcoins serve as opportunities for criminals and will be shut down
- 19 Bitcoins will be shut down by the government just like Liberty Dollars were
- 20 Bitcoin is not decentralized because the developers can dictate the software's behaviour
Bitcoins don't solve any problems that fiat currency and/or gold doesn't solve
Unlike gold, bitcoins are:
- easy to transfer and store
- easy to verify authenticity
Unlike fiat currencies, bitcoins are:
- predictable and limited in supply
- not controlled by a central authority
Unlike electronic fiat currency systems, bitcoins are:
- potentially anonymous
- assets cannot be frozen
Bitcoins are worthless because they aren't backed by anything
Gold isn't backed by anything either, except its intrinsic, physical value. Bitcoins have properties inherent to its design that are subjectively valued by individuals. This valuation is demonstrated when individuals freely exchange for or with bitcoins. Please refer to the Subjective Theory of Value. See also myth Bitcoin is backed by CPU cycles.
Bitcoin is a form of domestic terrorism because it only harms the economic stability of the USA and its currency
http://en.wikipedia.org/wiki/Definitions_of_terrorism#United_States according to this, you need to do violent activities to be considered a terrorist for legal purposes. This has no bearing on politicians and idiotic US attorney's public remarks.
Also, Bitcoin isn't domestic. It's a worldwide community. See this map of Bitcoin nodes http://forum.bitcoin.org/?topic=2346.0
Bitcoins can be printed/minted by anyone and are therefore worthless
Bitcoins are not printed/minted. Instead, Blocks are computed by miners and for their efforts they are awarded a specific amount of bitcoins + transaction fees. See Blocks for more information on how this process works.
Early adopters are unfairly rewarded
Early adopters are rewarded for taking the higher risk with their time and money.
In more pragmatic terms, "fairness" is an arbitrary concept that is improbable to be agreed upon by a large population. Establishing "fairness" is no goal of Bitcoin, as this would be impossible.
The vast majority of the 21 million Bitcoins still have not been distributed. By starting to mine or acquire bitcoins today, you too can become an early adopter.
Bitcoins are stored in wallet files, just copy the wallet file to get more coins!
No, your wallet contains your secret keys, giving you the rights to spend your bitcoins. Think of it like having bank details stored in a file. If you give your bank details (or bitcoin wallet) to someone else, that doesn't double the amount of money in your account. You can spend your money or they can spend your money, but not both.
thereof thereof thereofthereof thereof thereofthereof thereof thereofthereof thereof thereofthereof thereof thereofthereof thereof thereofthereof thereof thereofthereof thereof thereofthereof thereof thereofthereof thereof thereof
It's a giant 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. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters profit from the usefulness of a stable and widely accepted p2p currency.
Not to be confused with the Bitcoin Randomizer which is a game that really is self-described as a Ponzi scheme.
thereof thereof thereofthereof thereof thereofthereof thereof thereof
Bitcoin can't work because there is no way to control inflation
Inflation is simply a rise of prices over time, which is generally the result of the devaluing of a currency. This is a function of supply and demand. Given the fact that the supply of bitcoins is fixed at a certain amount, unlike fiat money, the only way for inflation to get out of control is for demand to disappear. Temporary inflation is possible with a rapid adoption of Fractional Reserve Banking but will stabilize once a substantial number of the 21 million "hard" bitcoins are stored as reserves by banks.
Given the fact that Bitcoin is a distributed system of currency, if demand were to decrease to almost nothing, the currency would be doomed anyway.
The key point here is that Bitcoin as a currency can't be inflated by any single person or entity, like a government, as there's no way to increase supply past a certain amount.
Indeed, the most likely scenario, as Bitcoin becomes more popular and demand increases, is for the currency to increase in value, or deflate, until demand stabilizes.
Anyone with enough computing power can take over the network
CONFIRMED, see Weaknesses.
That said, as the network grows, it becomes harder and harder for a single entity to do so. Already the Bitcoin network's computing power is on par with some of the world's fastest supercomputers.
What an attacker can do once the network is taken over is quite limited. Under no circumstances could an attacker take anybody else's money. An attacker's capabilities are limited to taking back their own money that they very recently spent, and preventing other people's transactions from receiving confirmations. Such an attack would be very costly in resources, and for such meager benefits there is little rational economic incentive to do such a thing.
Bitcoin violates governmental regulations
Name them if you can.
See also the legal tender question.
Fractional reserve banking is not possible
It is possible. There is no fundamental difference between classical currencies and Bitcoin as it applies to banking. Banks will still be free to take in bitcoins and present them to customers as "available for withdrawal" while still lending most of those bitcoins to a different customer for a profit. Some of those bitcoins will be held in reserves in case of a bank run. It will be up to the bank to hold a sufficient supply of reserves in order to prevent insolvency in the event of a bank run. Central banks were established to enforce reserve requirements and so, with Bitcoin lacking a central bank, some banks will almost surly collapse, taking their customers' deposits with them.
Conventional banks in the United States guarantee that account holders can withdraw 100% of their dollars based on their "word" and the fact that they are backed up by the FDIC. This program insures depositors up to a certain amount (currently $250K USD per depositor). The FDIC is widely known to have reserves sufficient to cover only a very small fraction of the total deposits it insures though the FDIC itself can be considered to be backed up by the US Congress in the event of its insolvency. After politically desired, the FDIC's role could be extended to insure Bitcoin banks and establish a minimum reserve requirement. Such a change would only happen after public outrage occurs after the inevitable collapse of major Bitcoin banks.
Because Fractional Reserve Banking is possible with bitcoins, the money supply of bitcoins (which includes demand deposits) can greatly exceed 21 million.
Point of sale with bitcoins isn't possible because of the 10 minute wait for confirmation
Transactions can take tens of minutes to become confirmed, and this won't change for the foreseeable future. Even after the computing power of the network is orders of magnitude larger than today, the difficulty of generating a block will self-adjust to maintain a target of 6 blocks per hour. Three potential solutions to allow POS transactions are:
1) For small transactions, simply assume the customer isn't ripping you off. Give the customer his latte immediately after the transaction posts to the network. The transaction should propagate through the network almost instantly, allowing the seller to see the transaction within seconds (albeit with zero confirmations.) The cost of a double-spend attack should make small-scale fraud not worthwhile.
2) Utilize a 'listening' period prior to rendering the service or good. This has yet to be formally implemented in the standard Bitcoin client, but would allow a vendor to receive the transaction and then monitor the Bitcoin network for a certain period of time (maybe 10 seconds) for possible double spends. Vendors might utilize specialized payment processors with multiple well-connected nodes for this purpose. As explained by Satoshi, the network nodes only accept the first version of a transaction they receive to incorporate into the block they're trying to generate. When you broadcast a transaction, if someone else broadcasts a double-spend at the same time, it's a race to propagate to the most nodes first. If one has a slight head start, it'll geometrically spread through the network faster and get most of the nodes. Therefore, the longer the listening period goes without a double spend attempt, the far less likely a double-spend attempt will actually succeed. If a double-spend is detected, the vendor is notified: no latte.
3) Create a network of transaction hubs. These entities would communicate using a common API. They would float short-term loans between each other to facilitate instant transactions.
Imagine that Alice uses Carol's Clearinghouse as her hub, and Bob uses Dave's Anonymous Exchange. Both Alice and Bob have accounts with their respective hubs, and have already deposited some bitcoins in their accounts. When Alice wants to buy a latte from Bob at a point of sale, Alice tells Carol "I want to send Bob x bitcoins. He uses Dave's Anonymous Exchange." After checking that Alice's account does contain at least x bitcoins, Carol sends a message to Dave, saying "Credit Bob's account with x bitcoins immediately; I'll send you the real bitcoins in the next block." Bob instantly sees his balance increase, and gives Alice her latte.
As always, trust is required - Alice has to trust Carol, and the hubs have to trust each other. Due to competition, various hubs could develop with vastly different fee structures, membership requirements, trustability, etc.
(But the point of Bitcoin is you don't need trust to execute the transaction, in the above description of option 3 you replaced the bitcoins with a trust-based centralized authority.)
After 21 million coins are mined, no one will generate new blocks
When operating costs can't be covered by the block creation bounty, which will happen some time before the total amount of BTC is reached, miners are expected to earn profit from transaction fees. thereof this page is for babbies with authority issues
Bitcoin has no built-in chargeback mechanism, and this isn't good
Why some people think this is bad: Chargebacks are useful for limiting fraud. The person handling your money has a responsibility to prevent fraud. If you buy something on eBay and the seller never ships it, PayPal takes funds from the seller's account and gives you back the money. This strengthens the eBay economy, because people recognize that their risk is limited and are more willing to purchase items from risky sellers.
Why it's actually a good thing: Bitcoin is designed such that your money is yours and yours alone. Allowing chargebacks implies that it is possible for another entity to take your money from you. You can have either total ownership rights of your money, or fraud protection, but not both. That said, nothing prevents the creation of services overlayed on top of Bitcoin that provide fraud protection services.
The statement "The person handling your money has a responsibility to prevent fraud" is still true; the power has been shifted into your own hands. Fraud will always exist. It's up to you to only send bitcoins to trusted entities. It is possible to trust an online identity without ever knowing their physical identity; see the OTC Web of Trust.
Quantum computers would break Bitcoin's security
Yes, but quantum computers don't yet exist and probably won't for a while. Bitcoin's security cthere of there of
Bitcoin mining is a waste of energy and harmful for ecology
No more so than the 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.
As far as mediums of exchange go, Bitcoin is actually quite economical of resources, compared to others.
Shopkeepers can't seriously set prices in bitcoins because of the volatile exchange rate
Your assumption is that bitcoins must be sold immediately to cover operating expenses. If the shopkeeper's back-end expenses were transacted in bitcoins as well, then the exchange rate would be irrelevant. Larger adoption of bitcoins would make prices sticky. Future volatility is expected to decrease, as the size and depth of the market grows.
In the meantime, many merchants simply regularly pull the latest market rates from the exchanges and automatically update the prices on their websites. Also you might be able to buy a put option in order to sell at a fixed rate for a given amount of time. This would protect you from drops in price and simplify your operations for that time period.
Like Flooz and e-gold, bitcoins serve as opportunities for criminals and will be shut down
- Hopefully Bitcoin will grow to the point where no single organization can disrupt the network, or would be better served by helping it.
- 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.
- Criminal law differs between jurisdictions.
Bitcoins will be shut down by the government just like Liberty Dollars were
Liberty Dollars started as a commercial venture to establish alternative US currency, including physical banknotes and coins, backed by precious metals. This, in and of itself, is not illegal. They were later shut down for counterfeiting and intent to fraud after the coins, which contained less than $1 worth of silver, were put into circulation with the general money supply, supposedly having a value of 1 USD. These actions were encouraged by the makers of Liberty Dollars.
Bitcoins are not necessarily equal in value to dollars or any other currency and no one is saying they are. No member of the public will be tricked into accepting a bitcoin instead of a dollar.
Of course, actually 'shutting down' the decentralized Bitcoin network is rife with its own set of difficult considerations.
Bitcoin is not decentralized because the developers can dictate the software's behaviour
The Bitcoin protocol was originally defined by Bitcoin's inventor, Satoshi Nakamoto, and this protocol has now been widely accepted as the standard by the community of miners and users.
Though the developers of the official Bitcoin client still exert influence over the Bitcoin community, their power to arbitrarily modify the protocol is very limited. Since the release of Bitcoin v0.3, changes to the protocol have been minor and always in agreement with community consensus.
Protocol modifications, such as increasing the block award from 50 to 100 BTC, are not compatible with clients already running in the network. If the developers were to release a new client that the majority of miners perceives as corrupt, or in violation of the project’s aims, that client would simply not catch on, and the few users who do try to use it would find that their transactions get rejected by the network.
Apart from the “official” Bitcoin client, other clients are available (and currently in development) from other groups of developers. As long as these clients adhere to the Bitcoin protocol, it is impossible for the developers of the official client to stop them from competing for blocks, because the network cannot tell them apart from official clients.