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Tuesday, June 25, 2013

Bitcoins

I had heard about bitcoins some time ago, but it seems like they are everywhere now.  Apparently A Tale in the Desert is informally accepting them as an informal form of payment (basically, you send your bitcoin to Teppy and it buys you a year subscription), and Teppy is running a bitcoin casino game called Dragon Tale (which is basically a rehash of all the ATITD graphics in interesting and new games).  A bitcoin is now worth over $100, which is interesting, considering it is nothing but a piece of code.

Which brings up some of the problems with bitcoins.  Bitcoins are minted by computers solving complicated algorithms, with the goal of a block of fifty bitcoins being created every so often.  Because there is a limit on how many coins can be minted in a given time, the difficulty of solving the algorithm is determined by how many people are trying to solve the block.  The more people trying to solve the block the harder it is to solve it first, and get the bitcoins.  Because of this, the more processing or "hash" power you have, the more likely you are to get the bitcoins.  A laptop like mine trying to solve the blocks of the current difficulty would succeed in a couple years, but a server or rig running specialized equipment designed to hash could solve in a couple days or less.  This has largely crowded out small people and those unwilling to spend real money to buy equipment to solve blocks.  Small-time users can still join minting "pools" to help solve blocks, and earn fractions of bitcoins, but unless you are using one of the specialized rigs, it will still take years to earn a whole bitcoin.

While finance matters rarely are fair (especially real-world finance) I find a couple parts of this very interesting.  First, the fact people are willing to speculate with real money to buy equipment or pay others to mint the coins, and because of the influx of people doing the same, the difficulty of minting bitcoins has shot up, making some of their projections and expected revenues dry up.  Second the fact that unless you do this minting on a specialized rig, you are effectively unable to mint anything.  All the fractions of a bitcoin are absolutely worthless, and often worth nothing once you pay the transfer fee.

Just some thoughts.
-VG

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