# Re: [cryptography] Digital cash in the news...

```I get back from vacation and suddenly my inbox is filled with
misconceptions.```
```
While this is supossed to be a fairly technical mailinglist (about
cryptography) it seems clear many people haven't quite understood bitcoins'
workings.

Let me break it down:
* With a private/public key combination you can sign a message stating
you're transferring a certain fraction of value (a bitcoin is what we call
the 1 value).
* This message you sent to nodes within the bitcoin network.
* Each node checks whether or not your transaction can be executed and
compiles these correct transactions into a 'block'.
* Each node will try to find a proof-of-work for the block he made. Once he
has it, he can ship the block off towards everywhere (as many as possible
other nodes).
* Recieving nodes will check the block and when they accept it, put a
reference (hash) to it in their next block. The resulting chain of blocks is
called the block 'chain'
Now that the transaction is solidified in a block one can proof he has some
amount of money, by referencing a payment to him in the block.

How do the first bitcoins enter the system? By making a block one gets an
award. The amount given per award is getting steadily lower. If you're
thinking you can get rich quick by letting your computer solve blocks, think
again! There's only one block to be solved every ten minutes, if it goes to
fast the blocks will get harder, and there's a lot of people trying to solve
it, you're electricity will likely cost you more than solving blocks is
going to earn you. You're welcome to try though, solving a block makes
transactions happen.

What will happen when the awards are nearly gone? Then the total amount of
bitcoins will stay nearly the same. This'll happen after quite some years.
The total amount will be nearly 21 million bitcoins. The transactions will
be paid for by bounty set on every transaction. As long as someone is
willing to make the proof-of-work your transaction will end up in the block

That is basically the system. The whole
whitepaper<http://www.bitcoin.org/bitcoin.pdf>isn't long or hard to
understand and I highly suggest reading it.

I know of only two (not dealbreaking) issues:
1. Transactions take time to happen (they are non-instant) (bank
transactions are much worse though).
2. Because of the deflation all coins gotten earlier were easier to get and
are now "worth" as much a block gotten now. I prefer deflation over
inflation and if this really takes of the earliest of adaptors really
deserved the money.

On the (geo)economical side I think this is the best that every happend to
the world. The bitcoin is quite violent right now, because there's still so
little value being traded with them. But that will sort out and after that
it'll just keep on getting more stable. "Regular" currency's (dollars,
euro's, yen, whatever) are only as stable as their backing organisations or
resource. Anything that goes up has got to fall, and bitcoins aren't
anything, not even air! Trade has always been based on "when I give you
this, what can I do with what you give me back?" and so, when people accept
a certain amount of bitcoins for something, bitcoins have use and thus
value.

There is a wonderfull elegance in something we can trade at no costs,
without any ability to cheat or adversely manipulate it's amount. Even
without saying who (exactly) we are!

It's propable that when you swap something as elementary as our
not-wonderfull money with this it'll give some turbulance. And as with
anything new, especially when it gives true freedom, people will get their
panty's all up in a bunch. Usually their arguments either rest on not
understanding what's going on, or claiming that this gives a security issue.
The first argument I'll always counter with knowledge and logic. For the
second argument I'd like to parphrase Benjamin Franklin: "He who sacrifices
essential freedom for safety, deserve neither.". Surely being able to own
and transfer what you own is an essential  freedom.

I'd prefer not going into political conversation on here but I think it far
too interesting not to have it at all.

-- Lodewijk "Lewis" Andre de la Porte

2011/6/13 Nico Williams <n...@cryptonector.com>

> On Mon, Jun 13, 2011 at 10:50 AM, Nathan Loofbourrow <njl...@gmail.com>
> wrote:
> > The good old market played a role here too. There are lots of investors
> > whose risk profile dictates that they should be in "safe" investments,
> e.g.
> > pension funds and old people. With the interest rates held on the floor,
> and
> > Greenspan and Bernanke sitting on their chest, those safe investors
> started
> > to buy up mortgages, because mortgages were big dumb investments and
> > everyone paid their mortgage.
>
> You just proved the point: the market was distorted, with private
> actors acting _within_ the distorted market parameters.  Thus people
> who needed to make low-risk investments did make what _seemed_ like
> low-risk investments (after all, real estate had been a low-risk
> investment for decades in the U.S.), but actually were not just
> high-risk, but bound to fail.
>
> You can blame the derivative sinners (pun not intended) all you like,
> but there's an original sin here.  Everyone else was either fooled
> into sinning, peer-pressured into it, or outright forced, and though
> there surely were some who understood what was happening and sought to
> profit from it, you can hardly blame them either -- we all do
> something of the sort (if you see inflation coming and manage your
> money accordingly, are you ripping off all those who can't or don't
> know to do anything about inflation? and if so, are you a terrible
> person for it?).
>
> > After a while you run out of big dumb mortgages, and we did. So the
> pressure
> > was on to create more of them. Once everyone has a mortgage, or maybe
> two,
> > you start lending to folks with a risk profile that wasn't so hot
> anymore.
> > The whole tranching process masked the fact that this was happening
> because
> > you could still issue AAA bonds out of these and everyone bought in.
> > tl;dr: everybody gets to wear a hat that says "dummy", whether private,
> > public or individual.
>
> The whole tranching thing was almost brilliant, and would have worked
> out fine (securitized mortgages from the 80s seem to have done fine,
> no?) if there had been no bubble (but in a bubble the securitization
> helped it along), and if all the issues in tracking the underlying
> loans (and thus pricing the securities) had been worked out correctly.
>
> > ObCrypto: sorry, got nothing.
>
> Yeah, well, we need a sub-list for OT discussions.  At Sun we used to
> have lists with sub-lists named the same + a "-extra" suffix, where
> people who wanted to participate in these sorts of long, flame
> war-ish, OT discussions could.
>
> Nico
> --
> _______________________________________________
> cryptography mailing list
> cryptography@randombit.net
> http://lists.randombit.net/mailman/listinfo/cryptography
>
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