July 9, 2011

I've been researching bitcoins a bit the last two days.

People who only read the popular media might be quick to discard it as the currency of criminals, but that would be missing the point. Every single bitcoin is perfectly and publicly traceable, from the moment it was created until now. The whole history of where a coin has been is viewable on This is so because every single transaction is stored in the distributed bitcoin database, and thus accessible by everyone with a bitcoin client. 

The economist in me is very exciting to see what we will learn from this data. Never before has there been a perfectly trackable currency. We can see every single payment, gift, handover, transfer. And we can run statistics on them! 

But first watch this video if the idea of a virtual currency still spooks you:

I personally think the cryptographic system is genius! For more details, read the original paper by Satoshi Nakamoto.

However the system also has serveral problems:
The benefits on the other hand there are benefits that have never been seen before:

Do you remember economics 101: In a perfect economy... Without transaction costs and perfect information, the bitcoin currency comes pretty close to the textbook definition of a perfect economy.

Oh, and to get you excited, there are currently 6,774,650 Bitcoins (aka: 101 Million USD). And the BTC-USD exchanges are active with volumes around ~ 30 Million USD per month, so there is liquidity! The inflation is fixed at +50 BTC / block (about every 10minutes) or 0.33 % per year. 

Later I might look into the statics a little deeper, but first I have to get back to work!

Discussion, links, and tweets

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