Bitcoin's big mystery: who created the virtual currency system?

By Shawn Knight
May 20, 2013
Post New Reply
  1. It’s no secret that Bitcoin comes with its fair share of controversy but what most people don’t realize is, it’s also shrouded in a veil of mystery. That’s because, even five years after its launch, nobody knows who came up...

    Read more
  2. customcarvin

    customcarvin TechSpot Enthusiast Posts: 102   +7

    I still don't get it...

    1. It says that all currency has something of REAL VALUE (gold, silver) to stand behind coins and notes.
    Bitcoin has hashes, or strings of code. -Why are these valuable, and to whom are they valuable?

    2. A centralized government(s) control currency.
    If I read correctly, everyone involved in Bitcoin, essentially, controls Bitcoin via P2P software... is this right? So, we are then trusting the developers of the software(s) for accuracy of all funds, transactions, etc, etc.
    -Is most of this software open source?

    3. The "server network" checks strings for uniqueness, which to me, implies that there is a database... somewhere. -Who maintains this? Who has access to this data? How can we trust that this data is accurate?

    4. Are half of the available Bitcoins already mined? -Why is the circulation restriction set at 21 million?

    I have more ?'s but, ya... I still don't get it.
  3. Ranger12

    Ranger12 TechSpot Guru Posts: 617   +111

    I don't know that every currency has something of real value behind it. Especially since the only examples given were gold and silver. The dollar is not backed by any physical commodity such as gold or silver. You might be able to make a case that its backed by the entirety of the nations GDP but really I would just say its backed by the interactions of supply and demand.
    The supply is capped at 21 million because that the way the algorithm works out-something the creator chose. Technically though you can have more than 21 million because of fractional reserve banking and the money multiplier effect but I won't go into that because we'd all probably fall asleep.
    Because of the cap I would expect there to be some extreme deflation in value if it bit coins ever really caught on.
    There has been talk of splitting up bit coins to a smaller milli-bit coin so as to curb this issue.
  4. spencer

    spencer TechSpot Enthusiast Posts: 199   +21

    Aaron Dykes, that's my guess. He was there at the formation of bitcoin and admitted to being one of the founders; and a week after he came on the Alex Jones show bitcoin exploded after telling everyone to invest in it then. Next week; bitcoin goes up 250%. Also when asked by Alex if he was he would always sort of laugh and not say yes or no to that question. He also created virtual currency. If he is found I guarantee if the founder is publicly announced he will be assassinated/arrested for no real causes. Josh Kokesh?!?!
  5. The first statement was wrong...most (if not all) currencies today are not backed by a physical commodity. Instead, we have fiat (let it be) currencies that only have values because governments say so.
  6. PinothyJ

    PinothyJ TechSpot Enthusiast Posts: 429   +15

    If Canandia invaded the US while they were too busy invading/attempting to run every other country but their own and declared that the US dollar had no value than it would be so. Gold would still have value. Zinc would still have value. But the US dollar would not. If they declared it illegal to trade in it than it would only ever have value to the underground and a currency you can only use behind closed doors is useless to most people.

    Also, all of the developers across the globe who have anything to do with BitCoin would ALL have to be in on a scheme to steal BC otherwise it would not work. As the system is P2P, if the programs from corrupt developers does not line up with the rest of the system than alarms go off and the jig will be up.

    :)...
  7. captaincranky

    captaincranky TechSpot Addict Posts: 10,016   +716

    Did any of you stop to wonder, "if nobody will admit to creating BitCoin, then it probably is a scam". Personally, I think a Nigerian Price started it, so it's got to be on the up & up.....
    Ranger12 likes this.
  8. cliffordcooley

    cliffordcooley TechSpot Paladin Posts: 5,098   +1,189

    There is only one possibility that makes sense to me.

    An electric company started it, under the pretense of giving greater value to computer CPU cycles than power consumption. If everyone knew an electric company was the creator, they could then easily see bitcoin as a scam. Hiding the origin may be the only way to keep it alive.
  9. slh28

    slh28 TechSpot Paladin Posts: 1,925   +170

    The cap is there to prevent deflation. If there was no cap the market would keep getting flooded with new Bitcoins and the value would keep depreciating, basically what the Fed, BoE, etc. are doing.

    The crucial part of the cap is that the difficulty of the mining increases as time goes on so even though half of them have already been mined it will be 2140 until all 21 milion have been created.
  10. Ranger12

    Ranger12 TechSpot Guru Posts: 617   +111

    If there was no cap then there would be rapid Inflation assuming the amount of goods being bought and sold remained the same. Excessive supplies of money causes inflation, or a general increase in the price of goods and a drop in the value of the currency. So the cap would be to prevent inflation and not deflation. I think the two words may seem counter-intuitive. However, it it true that, "there will always be the knowledge that the number of Bitcoins in the market is limited. As a result, to the extent the GDP of the Bitcoin economy increases (the total value of all Bitcoin transactions completed increases in "real" terms), there will continue to be price deflation." (Bitcoin Wiki)

    Retrieved From: https://en.bitcoin.it/wiki/Deflationary_spiral
  11. captaincranky

    captaincranky TechSpot Addict Posts: 10,016   +716

    Do any of you understand that there can't be a, "Bitcoin economy", unless people are stupid enough to put their own real money into it?

    Even an economy based in "currency", and not precious metals , has to have goods & services extant and of proportional value to justify its own existence.

    .
  12. Ranger12

    Ranger12 TechSpot Guru Posts: 617   +111

    That seems to be the issue with the last two major "crashes" in bitcoin value. As the value rose, more and more people started speculating and hoarding bitcoins at which point they became worthless because there were no transactions being facilitated by bitcoins. Then wham-o the bottom falls out.
    I don't believe bitcoins are a scam. I believe they are risky but they have potential if they can work the serious kinks out of the system.
  13. cliffordcooley

    cliffordcooley TechSpot Paladin Posts: 5,098   +1,189

    So it's gambling, designed by scam artist much the same way a casino operates.
     
  14. captaincranky

    captaincranky TechSpot Addict Posts: 10,016   +716

    Then what you're saying is that "Bitcoins" are an imaginary internet hoax, and when people place a value on them the system falls apart. And this is "money" how?

    Do they have display cases for bitcoins?

    I guess I'll have to be even less "subtle" this time... Here, listen to George Strait, he wants to sell you some, "Ocean Front Property in Arizona....;)



    And BTW, My Nigerian Prince can kick your Nigerian Prince's a**.......:p
  15. PinothyJ

    PinothyJ TechSpot Enthusiast Posts: 429   +15

    You do not understand currency or you are being deliberately difficult. Currency is exactly what you described so sarcastically. It is the reason a good friend of mine has a one billion or trillion (one of the two) genuine note from Zimbabwe. A currency is one of those things that, the more people believe in it the more it becomes true. This applies to US dollars and BitCoins alike. Made especially so when you consider only around ten percent of all currency is actually coin and notes, the rest is a string of ones and zeros. So, if anything, BC's are exactly the same as ninety percent of the world's existing currency. The more people believe in it, the more it will become true. The less people believe in it, the less it will be true. But considering the exposure it has been getting the in last two months alone, and considering the two big crashes that the system managed to weather quite triumphantly, it looks like it could be edging towards the former rather than the latter.

    BCs are no more illegitimate than any other type of currency...
  16. captaincranky

    captaincranky TechSpot Addict Posts: 10,016   +716

    Me, being deliberately difficult? That doesn't sound like me at all. Plus I absolutely do understand currency, and the fact it is an abstraction. But, "the coin of the realm" is legal tender for all debts public and private", "bitcoin is not.
    Before you start spouting, "I know so and so, who has this and that", at least do us the courtesy of having the facts. But if anything, your anecdote just proves me right. The only value currency has is under that of a stable government. Every genocide and tribal purge in Sub-Saharan Africa renders the old "currency" useless, and a new one "fabricated".
    But rather more so to "bitcoins", I'd say.
    Well, In still use USDs to buy food. So you screw around with internet play money all you want, I have to eat.
    The same could be said of most "urban legends".

    You know, they ran the film, "The Wizard of Oz" once a year on broadcast TV for decades. As the years progressed you simply can't imagine how many members of the lesbian community believed in Judy Garland. That's unrelated you say? Well so is "bitcoin" and actual purchasing power. So now, all you have to do is click your heels together three times and say, "my bitcoins are real money", "my bitcoins are real money", "my bitcoins are real money", and if your theories about believing are true, that will happen for you.

    Bitcoin is another case of legality not keeping pace with the internet. It is illegal to issue,"currency", other than that issued by the state, within the confines of most countries.

    And that's probably the reason nobody seems to know who started bitcoin, they don't want to do time for it. If the justice dept takes this up, fraud on this scale would qualify for life sentences under current federal guidelines.

    You could arguably make a case for minting non state issued "currency", as an attempt at revolution, and revolution against a government is assimilated under the umbrella of "treason".

    Wrong! "Currency", is indeed an "illusion" or "abstraction", as you point out. Bitcoin however, is a fantasy piled on top of an illusion. A "dream within a dream", so to speak.

    I really do hope that most of this generation gets so wrapped in computer simulations of real life, such as "The Sims", "Farm Simulator", and a host of others, they forget to eat, and eventually die out. Maybe sprinkling "bitcoins" on their coffins will become a tradition.
  17. slh28

    slh28 TechSpot Paladin Posts: 1,925   +170

    Yeah I meant deflation as in deflation of the value of the currency, not the deflation of the value of goods.

    I wonder if people who are skeptical of Bitcoins are also skeptical of things like gold as an investment? Like a certain Mr. Buffett says, gold is dug out of the ground and then buried back into the ground, all at great cost. It's basically the same as Bitcoins but instead of computing power it's using manpower to dig stuff out of the ground and guard the vaults.
  18. mailpup

    mailpup TS Special Forces Posts: 8,282   +181

    Slh28, except that gold is a tangible item, bitcoins are not. Also, please don't take this the wrong way but I think you mean devaluation rather than deflation. Deflation refers to prices not currency.
  19. slh28

    slh28 TechSpot Paladin Posts: 1,925   +170

    What difference does it make if it's tangible or not? Gold has value because people say so and because there's a finite quantity, same with bitcoins. I know gold has some desirable electrical qualities, etc. but that's not why people invest in it. If you had a bar of gold in caveman times when nobody put any value on it then it would be worthless.

    Yeah you're right, but I was responding to a previous post about a limited supply causing deflation of the value of bitcoins.
  20. captaincranky

    captaincranky TechSpot Addict Posts: 10,016   +716

    Buying "Bitcoins" is the same thing as buying stock in a company that doesn't exist.

    I'm reasonably sure, that's why they're trying to pass them off as, "currency". Because if they didn't, the SEC would be all over them like stink on s***.

    IMHO, this is a stock fraud scheme, nothing more.

    Who, started it? Probably a bunch of out of work Enron execs.

    And yes, because of it's rarity gold has considerable value, in keeping with the laws of supply and demand. Our sun doesn't even have the capacity to form gold, since it's too small to nova.

    "Currency", is the avatar of goods, products, and services. It was conceived to abstract the barter system which is completely impractical considering attempting to trade over long distances and large populations.

    If you want to get tied up in some crap hole idea that ones and zeros have a finite value on some slickster's computer, go right ahead.

    But why not curl up with the Wiki page on "Pyramid Schemes" first, to help you to nod off: http://en.wikipedia.org/wiki/Pyramid_scheme

    Please note, it is illegal to produce currency in the private sector in the US. You can mint all the coins you want, but the only value you can place on them, is the price of their sale, or their value to a collector. You can't discharge any debt, public or private with privately minted money, unless it is in the confines of a barter trade. McDonald's will call the police if you try to pay for a hamburger with it.
    customcarvin likes this.
  21. Ranger12

    Ranger12 TechSpot Guru Posts: 617   +111

    I'm starting to think there might be a bit of trolling going on here...but, just in case there isn't maybe these articles from reputable sources will help clear up some of the confusion.

    It is not a "hoax" or "scam". It is legitimately used by many vendors: http://www.forbes.com/sites/groupthink/2013/04/15/bitcoin-and-the-future-of-money/

    It is not illegal:
    https://en.bitcoin.it/wiki/Myths#Bitcoins_are_illegal_because_they.27re_not_legal_tender

    Venture capitalists take bitcoins seriously:
    http://www.businessinsider.com/investing-in-bitcoin-2013-5

    It is a legitimate currency:
    http://www.economist.com/blogs/economist-explains/2013/04/economist-explains-how-does-bitcoin-work

    I don't own bitcoins. I won't own bitcoins in the near future. I have no reason to defend it. However, I do see it as a fascinating development in technology and business, a legitimate currency that hopefully will be a precursor to a currency that is more stable while retaining the transaction security and anonymity of bitcoins.
  22. captaincranky

    captaincranky TechSpot Addict Posts: 10,016   +716

    What you call "trolling", I call an undying skepticism and utter disdain.

    Now that somebody has actually invented "money" from a pure fabrication of ones and zeroes, I suppose it will do away with all that messy nonsense of "exchange rates", and different units of currency for different countries. Converting money every time you have to cross a border. Oh wait, that's what the "Euro" is for. We will have a unified system of "money", and still nobody will know who put it there. Glory, glory hallelujah.

    For me, "venture capitalist", is a simple euphemism for, "a sociopathic parasite" or a "tick", 2nd only to a "lawyer" for leaving every a** they land on an empty husk.

    So, TBH the stock market is a way for "venture capitalists" and other fat cat Wall streeters to rob peoples pension funds,and collecting huge bonuses for selling subprime mortgages. Why on earth would I trust them with my real money, in exchange for their play money.

    Every step of the whole nonsensical affair smacks of fraud. From day one, "there will be only xxxx bitcoins ever produced". "Well gee, I better run the hell out and plunk my worthless currency down on some of those. I sure don't want the Joneses getting my share". That's the same nonsense you hear on late night TV infomercials, that try to tell you that limited edition junk, is a collectable.future bonanza.

    While you're relaxing, look up "Esperanto". That was the universal language we were all supposed to be speaking by now.
  23. cliffordcooley

    cliffordcooley TechSpot Paladin Posts: 5,098   +1,189

    Fraud often come in the form of deception, what better way to deceive someone than to play it straight for awhile. Go ahead and invest in bitcoins and see how long it will take to be bitten by loss. The stock market is real to, and full of thieves just hoping you will be stupid enough to make the mistake of buying into the wrong choices.
  24. PinothyJ

    PinothyJ TechSpot Enthusiast Posts: 429   +15

    You do not buy BC off the people who created it, you buy BC off people who have BC. People 'mine' BC and due to the market of what people agree they are worth, they pay real money for them. This is reinforced by the fact that I can buy a computer, or pet food, or go the the dentist, pay for a travel trip, buy a Dodge, eat out, rent a limo, rent a music studio, go diving, or do any number of other things by physical businesses that already support BC.

    It is impossible for BC to be a pyramid scheme. The more people who want BC the higher in value they will go. This value is the same amongst early and late adopters alike. If anything, early miners are the ones who have been screwed the most as they are the one who were paid peanuts for their efforts while late miners are nabbing BC worth much more.

    Your McDonald's argument is a logical fallacy. McDonalds do not accept BC and so your argument is not valid. There are plenty of businesses in locations where multiple currencies reside that do not accept external tender that sit next to business that do. This happens a lot in Europe where a lot of different currencies reside within several hundred kilometres of each other. This is no different to 'Café Berlin' in Las Vegas that accepts BC that is a block down from a McDonalds that does not.

    ...
  25. captaincranky

    captaincranky TechSpot Addict Posts: 10,016   +716

    Pinothy, pretty soon you're going to be over in "site suggestions and feedback" claiming that because you were arguing with me your posts are being pulled. As it turns out, you were wrong about that, and very likely wrong about "bitcoin" as well.

    So, long story short, run on as much as you like, claim I'm as wrong as you like, for as long as you please.

    To this day, "mining" requires human beings to go inside the earth, dig stuff out, then bring it to the surface. After that, it it has a value in currency as a "commodity", or a "natural resource".

    If you want to believe you can "mine" ones and zeros off some a**holes hard drive, you go right ahead.

    You can't cash those for food at McDonalds either.


Add New Comment

TechSpot Members
Login or sign up for free,
it takes about 30 seconds.
You may also...
Get complete access to the TechSpot community. Join thousands of technology enthusiasts that contribute and share knowledge in our forum. Get a private inbox, upload your own photo gallery and more.