One of the cornerstones of this vision is the need for a decentralized, distributed, and pseudonymous currency in order to digitally transmit value from person to person. You cannot truly transfer power into the hands of the people without giving them economic sovereignty, and they cannot have economic sovereignty so long as money and currency are grondilu bitcoin charts to the real world and controlled by monopolistic central banks and governments.
For various reasons, none of these systems have taken off. Some of them were flawed because they relied on a centralized model, and others were flawed because they only work if humans are completely trustworthy, something that cannot always be relied upon. However, there is a new distributed currency which has been rapidly gaining in popularity, and it has the potential to succeed where others have failed. Bitcoin is a peer-to-peer digital currency.
Instead, these tasks are managed collectively by the nodes of the network. This implementation solves both the problem of centralization as well as the issue of trust. What are some of the properties of good money? Money should be easily divisible into arbitrary units of value in order to handle all sizes of transactions, from the small to the very large. In order to be a reliable store of value, money must stand the test of time.
Anything which decays or rots would not be a good choice. One dollar is equivalent to another dollar, and one kilo of gold is identical to another kilo of gold. The ideal money is one which holds its value and does not steal value through arbitrary inflation and deflation. When it comes to fiat currencies, central banks are supposed to fulfill this role, and when it comes to physical commodities such as gold, this standard is enforced by the laws of the universe. I mention openness as the project itself is open source, and the code, protocol, and implementation are all open to scrutiny and analysis.
I consider these to be among the most important properties that something needs in order to be accepted as money. It is ideal if the properties of money are inherent in the medium itself, such as with gold. Gold has all of these properties and more, and this is why it was not only chosen spontaneously by the people across different continents and cultures, but it is also why it has held its value for thousands of years. Legal force waxes and wanes, and conventions can change, but the laws of the universe stay constant. So, how does it work?
How can a digital currency possibly be scarce? After all, digital storage and processing power are extremely cheap and getting cheaper by the day. The difficulty of this problem is adjusted by the total production of bitcoins, so that the network as a whole produces a relatively constant rate of coins. The problem of cheating is essentially solved because a cheater cannot possibly hope to amass the amount of computational power needed to overpower the rest of the network.
The graph on the left is a chart of the overall Bitcoin supply over time. As you can see, the Bitcoin supply is currently in a period of inflation. This inflation will taper down over time and the currency will eventually reach a point of equilibrium where there is neither inflation nor deflation. The supply of bitcoins will never be inflated past 21,000,000 BTC, so mining will get progressively more difficult.
At this point, the network will transition over to transaction fees. Since anyone can run a Bitcoin node, these fees should tend toward the marginal cost of running a node, and therefore should be quite low. Hefty transaction fees currently discourage micropayments, but Bitcoin could completely change that, opening up a whole new micropayment industry in blogging, online gaming, and many other areas. Bitcoin is also open, peer-reviewed and decentralized, which means that its fortunes don’t change on the whim of a single dictator in charge, or even a single monopoly power.
In fact, I fully expect there to be competing digital currencies in the future as Bitcoin continues to grow, and this competition will help ensure that quality of the money remains first and foremost. There are currently clients available for Windows, Mac OS X, and Linux. If I install this, will this eat up my CPU and share my files? Bitcoin is not filesharing software, so it does not share your files. Can I take my bitcoins to the local bank and get some cash in exchange? I think it’s a little early for that. USD, EUR, or other various options.