In the Solomon Islands long lengths of twine with hundreds of tiny shell disks stacked up on them are a valuable currency (although only for traditional things these days) and yet the shells aren’t particularly rare or special. However, making the little shell disks takes quite a bit of time (I imagine) and thus their value comes from the time sink of creating them and their acceptance by other people as things of value.
I suck at finance-related metaphors or similes or whatever, but I do see something similar going on here.
Yeah, that stopped being a real currency in 1882. What do they use now? Some crazy thing called the “Solomon Islands Dollar.”
You’re right in that Bitcoin is very similar to that, though. The lesson we can take away is that this kind of currency, when used in a tiny, pre-industrial island society… still fails, because it’s an incredibly terrible idea.
During the initial distribution of currency, bitcoins are basically just given away for free to whomever cracks the hash first. Anybody not in the circle of first adopters who wish to get bitcoins would then have to buy them off the people that have them?
How the hell would you convert bitcoins into USD, EUR or whatever real world currency? There’s a going rate for bitcoins, but who is stupid enough to actually buy them or accept them as payment?
Right. I mean, virtual currencies are not that uncommon. We also know them as giftcards or loyalty programs etc. But there at least you have a backing organization who promises to actually pay out a real currency amount corresponding to the amount on the giftcard.
There’s always money to be made taking advantage of fools–if, that is, you can stomach the ethics (or lack thereof) of it–and the entire bitcoin edifice is designed to do exactly that.
Mybitcoin came back, admitted they got “hacked”*, and lost half their coins. They’ve refunded 49% of deposits, and people seem oddly happy with that and prepared to move on and forget what happened.
Somebody created a new currency, Ixcoin, a fork of the current Bitcoin code except tweaked to generate coins much faster and hit the cap much sooner. Yay, you can generate large numbers again! Everybody loves large numbers. Except some people were unhappy that the guy generated a bunch of coins for himself first, so they took Ixcoins and forked I0coin off of it, starting with no pregenerated coins. Now everybody can be an early adopter, wheee! And this is in addition to the ‘namecoin’ and ‘devcoin’ forks that already existed, and they’re all incompatible with each other.
It does actually seem to have affected the main Bitcoin network, as the average time between block generation has gone up, implying that computing resources have shifted away to somewhere else. Because that’s just what a currency struggling for adoption and legitimacy needs, to be split up into a bunch of incompatible, even-more-unstable currencies…
The “hack” appears to be because of their own greed. A node normally needs to receive news of a transaction from 8 different other nodes before it accepts it, and even then it’s just conditionally accepted and isn’t truly permanent until the next block is generated. If I understand correctly, what mybitcoin did was modify their wallet code to accept only 1 report of a transaction before allowing a user to initiate further transactions. This gave mybitcoin the competitive advantage of processing transactions faster, but also let the hackers ‘double-spend’ coins into mybitcoin, have it accepted, then move real coins out of mybitcoin before the rest of the network rejected the duplicate transaction. Of course, this couldn’t have happened if mybitcoin had followed the proper processes, as certified by OH WAIT.
The more I hear about this stuff, the more comical it becomes. It’s a wonderful, objective cautionary tale for the more starry-eyed libertarians, except that the types who’d take this sort of thing seriously are immune to empirical evidence.
Hilariously, the reporters tried to buy Bitcoins during the recent hacking and theft scandal so they got a firsthand look at how sketchy the whole thing seems.
When we started working on this story, $7 got you one bitcoin. But when we went to the exchange, something crazy had happened. The price had more than tripled — to $23.80.
Bitcoin had had a wild couple of weeks. After the website Gawker ran a story about an online market where you could use bitcoins to buy heroin, LSD and other illegal drugs, the exchange rate for bitcoins started rocketing up.
Then someone posted online that they’d had a half million dollars worth of bitcoins stolen.
A few days later, the main bitcoin exchange web site got hacked and had to shut down for a while. So we couldn’t buy bitcoins there.
