Bitcoin - A decentralized economy

So those embedded in the hacker/nerd industry have probably heard about something called Bitcoin. Here's the standard video presentation on what bitcoin is:

So what's my take on bitcoin?

Bitcoin as a currency

First off, it is really easy to use. I bought some computer parts with bitcoin last week. I ordered them from, chose Bitcoin as my payment method. They sent me an email with a bitcoin address and an amount. I sent it and they shipped the item. Very simple. No seller fees. Easy to keep track of on the selling end - the address I sent to was unique and only used for my transaction. It's essentially online cash. No rolling back transactions. It's difficult to trace who spent it.

Bitcoin mining

I have a "mining rig" as they call it, and it generates around 0.2 BTC (bitcoins) per day. I have a program that I leave running 24/7. 0.2 BTC is not that much, but my total hardware cost was around 150 bucks. At the current exchange rate (it's been floating around $15 per BTC) that's about 10 bitcoins. So far I've mined ~ 3.50 BTC. In about a month I'll have paid off the rest of my hardware. There are a few other costs in there. The electricity required to run my computer for a month is about 144 kWhrs. At $0.07 per kWhr (Idaho is cheap... I love it,) that's an extra 10 bucks a month in overhead, which is low enough to still make bitcoin profitable. I'm just a hobbyist miner. I do it because I find the concept intriguing, not because I'm trying to make a big profit. Some people do try to make significant profits and have rigs that generate 100 times what I do. One person I know personally mines around 200-300 coins a month, or $3,000-$5,000 worth of BTC. Not enough to quit your day job, but not too bad for just letting hardware run.

Future as a currency

In the past month, the bitcoin exchange has been pretty crazy. It went from $1 a few months ago to $30/BTC in early June. It then crashed down to $10, and has been stabilizing between 15 and 20. Then this last weekend one of the main exchanges was hacked and all sorts of crazy stuff happened. Bitcoin has gotten its fair share of press coverage. A couple of US Senators have labeled it as a money laundering ploy and a vehicle for drug trafficking. If it survives the next few months I think it may stick around.

One interesting use that is emerging is online tip jars. A few communities have emerged where it is customary to tip a blog writer a fraction of a coin if you found the article interesting. With no transaction fees, leaving the equivalent of a nickel in a virtual tip jar is quite simple. A blog with 1000 readers can make a couple of bucks if people tipped a few thousandths of a bitcoin each.

I'm not sure where it's ultimately going, but I find it to be a really interesting economic microcosm. Since nobody is in charge, it ends up being a very interesting demonstration in economics, both macro and micro. I expect to have my mining costs paid off soon, and if they don't I think I've made enough to clear any losses when I sell my equipment on craigslist (it is all high end computer gaming equipment, so it shouldn't be too hard to sell).

I could go into much more detail on technical side of things. It's a pretty intricate and complicated system. Pretty genius in my opinion. It will be interesting to see how things play out.

Comments? Questions?

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