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How the First Bitcoin Hedge Fund Approaches Security

timothy posted about a year ago | from the I'm-thinking-of-a-number dept.

Bitcoin 124

An anonymous reader writes with a link to a story at Forbes about what's said to the first Bitcoin hedge fund; the article goes into some of the details of how the (literally) valuable data is kept. A selection: "The private key itself is AES-256 encrypted. After exporting Bitcoin private keys from wallet.dat file, data is stored in a TrueCrypt container on three separate flash drives. Using Shamir's Secret Sharing algorithm, the container password is then split into three parts utilizing a 2-of-3 secret sharing model. Incorporating physical security with electronic security, each flash drive from various manufacturers is duplicated several times and, together with a CD-ROM, those items are vaulted in a bank safety deposit box in three different legal jurisdictions. To leverage geographic distribution as well, each bank stores only part of a key, so if a single deposit box is compromised, no funds are lost."

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124 comments

Really? (2, Insightful)

Anonymous Coward | about a year ago | (#43125401)

So hundreds of thousand of dollars of peoples money (most of it virtual none the less) relying on some $50 flash drives.....No thanks. Ill pass.

Re:Really? (4, Insightful)

Shavano (2541114) | about a year ago | (#43125677)

So hundreds of thousand of dollars of peoples money (most of it virtual none the less) relying on some $50 flash drives.....No thanks. Ill pass.

You think the bank's computer systems are safer?

Re:Really? (1, Troll)

hsmith (818216) | about a year ago | (#43125993)

Yes

Re:Really? (0)

Anonymous Coward | about a year ago | (#43126341)

How so? In detail, please.

Re:Really? (-1)

Anonymous Coward | about a year ago | (#43126577)

Don't be such an ass. Where do you live? In your mom's basement? Get a clue, idiot.

Re:Really? (0)

Anonymous Coward | about a year ago | (#43128229)

Get a clue, idiot.

That's what I was trying to do, until some jerk-wad [slashdot.org] decided to butt in.

Re:Really? (2)

1s44c (552956) | about a year ago | (#43127971)

No.

There is nothing as secure as a computer system that's switched off. These keys are off-line, distributed, and safely stored. Nothing any bank has is better than that.

Re:Really? (0)

Anonymous Coward | about a year ago | (#43127069)

"Dad, how am I going to stop monsters breaking in to my room?"

"I know, Son, let's break this key up in to 3 pieces, they'll never get in."

What about the lock in the first place?

Re:Really? (2)

1s44c (552956) | about a year ago | (#43127987)

What about the lock in the first place?

Good question but the bitcoin lock in question has been proved secure. It's 256 bit ECDSA.

Re:Really? (1)

GrandCow (229565) | about a year ago | (#43127711)

You don't actually think they really did this, do you? Bitcoin people love to make big promises and not deliver on them. In reality it's probably stored on a flash drive, possibly on 2 drives for "redundant backup!" and kept in a box on top of a refrigerator.

Re:Really? (1)

1s44c (552956) | about a year ago | (#43128003)

It's Exante, a real financial services company.

https://exante.eu/products/ [exante.eu]

Re:Really? (2)

Hal_Porter (817932) | about a year ago | (#43128087)

How do you reckon those financial services people afford all that cocaine? More to the point how good would you be at your job if you put Bolivian Marching powder on your Rice Krispies in the morning instead of sugar and then put so much Charlie up your nose you could see the pixies dance on you monitor while you stuffed a tampon up each bleeding nostril by lunchtime?

That's literally the reality of financial services. Literally. They snort your life savings and then make up some crazy cokehead shit about 'CDOs' and 'how it turns out the market has seriously mispriced risk' and then go back to their office and wash the bits of hooker off their Armani suit and try to work out how they'll get the Fischer account off that weasel Paul Allen.

Wake up man. There never were any CDOs or 'credit default swaps' or 'market'. All that happens is that your money gets turned into Columbian Nose Candy and put into a huge trough and all these red braced, stripy shirted fucks snuffled in it like Scarface, baying like elk in heat.

Re:Really? (1)

1s44c (552956) | about a year ago | (#43127965)

So hundreds of thousand of dollars of peoples money (most of it virtual none the less) relying on some $50 flash drives.....No thanks. Ill pass.

If the same flash drives cost $5000 would you feel safer?

Pizza Analogy (0)

Anonymous Coward | about a year ago | (#43125403)

Could someone explain what that all means in the summary using a pizza analogy?

I don't get it.

Re:Pizza Analogy (2)

r1348 (2567295) | about a year ago | (#43125449)

A pizza is split in 3 parts, and kept in 3 different banks in 3 countries. Bank robbers never get a full pizza.

Re:Pizza Analogy (2)

alexander_686 (957440) | about a year ago | (#43125591)

What you saying is correct, but I am missing a step here.

You hand over your bitcoins for the fund to invest. They split the bitcoins into 3 pieces. o.k. - but how is that investing? If they are just keeping the bitcoins secure that is not even banking.

Re:Pizza Analogy (0)

Anonymous Coward | about a year ago | (#43125651)

but how is that investing?

It's not. A clue is "Hedge fund" was mentioned. Whenever the term "hedge fund" is used, that's when you put your hand on your wallet and runaway.

Re:Pizza Analogy (1)

Anonymous Coward | about a year ago | (#43125725)

A hedge fund is where other people get richer by using your money to make bad investments.

Re:Pizza Analogy (1)

MMC Monster (602931) | about a year ago | (#43126899)

I think the idea is that they hold on to the Bitcoins as the investment. Sell them off in the future believing that the worth of the Bitcoins will go up in the future.

Given past performance of Bitcoins against the U.S. dollar, that may be a reasonable strategy.

Re:Pizza Analogy (1)

hedwards (940851) | about a year ago | (#43127449)

Well, that's precisely why BTC will ultimately fail.

The strategy works provided that you manage to get out before the market freezes up permanently. There's a huge incentive to not sell as the BTC will be worth substantially more in the future than it is presently, what's more the work you have to engage in to earn them in the future is substantially more than in the past.

So, holding them is the wise strategy for the individual. However, if too many people do hold onto them as a strategy, which they are and will, you wind up with ever increasing paper values for the coins, and fewer people trading them. Which leads to increased volatility until the whole thing comes crashing down.

A currency should always be at roughly 0% inflation and deflation over the long term, when people expect otherwise, it leads to problems as people act expecting their money to be worth less in the future or more, which tends to negatively effect the economy. Just take a look at the way that spending has increased in the US over the last 30 years. The Fed ensures that there will be no deflation and keeps the interest rates low, since there's little incentive to keep small amounts of money in the bank, people spend it. Resulting in over spending and only those with the capital available to invest make any of that money. The rest lose money on anything they try to save.

Re:Pizza Analogy (1)

SampleFish (2769857) | about a year ago | (#43128091)

Ed, You have it a bit backwards. You just described what is wrong with the stock market. The reason we are in a "recession" is because the money is not in circulation. Money doesn't just disappear. The amount of money available at any given time is controlled by small groups of people. When they hold they can crash whole economies. The problem wasn't "overspending" it was under investing in the proper channels. When a company has less money available it lays off employees who no longer make a paycheck and don't contribute to the economy. In fact they become a burden on the system through unemployment where the few people left with a job are paying for the unemployed to not work. This reduced spending capacity of the public results in lower profits and further lay offs in vicious cycle that could lead to economic collapse if money isn't put back in to the system. The money exists but you can't earn it.

Every dollar you don't spend is a dollar I can't earn.

If there was "overspending" then there would be plenty of opportunity to make money and thus economic growth. The stock market is based on the concept of perpetual growth which is unpossible in a world with finite resources. The system is doomed to failure. It can't continue to drive the economy.

Re:Pizza Analogy (2)

Shavano (2541114) | about a year ago | (#43125683)

A pizza is split in 3 parts, and kept in 3 different banks in 3 countries. Bank robbers never get a full pizza.

But if they stole any part of the pizza, could you eat the rest?

Re:Pizza Analogy (1)

ragingbull1965 (2755663) | about a year ago | (#43125893)

None of the pizza can be eaten unless you have two of the three slices. If you put two of the slices together, the third slice will magically appear, completing the pizza. So it doesn't matter if someone runs off with the slice they control. One slice is useless by itself. They also keep all the slices in different countries.

Re:Pizza Analogy (1)

davester666 (731373) | about a year ago | (#43126979)

Infinite pizza! Just keep running off with one piece, then bring the other two together to get a new third piece!

Or does the missing piece teleport to where the other two pieces are?

second kind failure (-1)

Anonymous Coward | about a year ago | (#43125413)

There is a second kind failure.
Let us imagine - you have perfectly secured system. Then you made some failure/human error and you cannot access your own system. This is the most likely event to occur. This is the highest risk for this fund. Let us imagine: their office got destroyed by fire and then at least one flash drive is not readable. By-by client money.

Re: second kind failure (0)

Anonymous Coward | about a year ago | (#43125445)

That's why each of the 3 shares is duplicated onto multiple drives.

Re:second kind failure (1)

Anonymous Coward | about a year ago | (#43125483)

It's a 2-of-3 system. You must lose 2 keys (or a thief must gain 2 keys) to lose money.

Overly simple example:
One drive has the first half of the key.
The second drive has the other half.
And the third has the first half XOR the second half.

Literally (1)

Anonymous Coward | about a year ago | (#43125417)

Using "literally" to describe valuable data makes no fucking sense. It either is or isn't.

Why do so many people not know how to use this word?

Re:Literally (2, Funny)

Anonymous Coward | about a year ago | (#43125485)

Because they are literally stupid.

My Hedge fund (1, Funny)

Hal_Porter (817932) | about a year ago | (#43125423)

It's based on the Zimbabwean dollar. It's pretty secure too - I've rented safe deposit boxes all around the world and put the notes in them.

For some strange reason though, the money's not exactly pouring in.

Re:My Hedge fund (0)

Anonymous Coward | about a year ago | (#43125513)

BadAnalogyGuy would be proud!

Re:My Hedge fund (0)

Anonymous Coward | about a year ago | (#43125539)

Exactly.

If you cannot access the money due to all the security then really you don't have the money in the first place.

I can't imagine the logistics of adding and removing money from this hedge fund if they do it the way they say they do. It would cost a fortune in time and money to update everything. Truth is, I doubt they do it like they say. I sure at their office they have all the keys in one place and everything is open. That's the weakest point right there.

That's the problem when trying to secure electronic things. They need to be accessible and inaccessible at the same time. It's impossible.

Re:My Hedge fund (1)

1s44c (552956) | about a year ago | (#43128033)

What makes you think they are lying? It's doesn't seem difficult at all to secure things the way they are suggesting.

It would be time consuming to withdraw bitcoins but this is meant to be a hedge fund, not a current account. I'm sure it's time consuming to withdraw a ton of gold from a bank too.

You can add bitcoins to a private key knowing only the public key ( the bitcoin address ).

Take the money and run (0)

fragMasterFlash (989911) | about a year ago | (#43125463)

It only takes one person in the organization who decides to go on permanent holiday to make an illicit copy of the various Bitcoin wallets and then transfer the funds to their own account once they have already landed in a place with no extradition treaty.

Re:Take the money and run (1)

Anonymous Coward | about a year ago | (#43125549)

That's why they're using Shamir's secret sharing scheme.

Re:Take the money and run (1)

IamTheRealMike (537420) | about a year ago | (#43125831)

The article says that they've already thought of that, and taken steps to prevent it - hence the use of secret sharing and other threshold schemes.

Re:Take the money and run (1)

fragMasterFlash (989911) | about a year ago | (#43127359)

Those measures only apply to the offsite backups of the Bitcoin wallets, there is nothing preventing a fund manager who routinely performs transactions on these accounts from going rogue.

Re:Take the money and run (1)

1s44c (552956) | about a year ago | (#43128039)

A rouge fund manager could only access the funds he was given to manage. He could not steal whats locked up in cold storage.

Re:Take the money and run (0)

Anonymous Coward | about a year ago | (#43126469)

No it doesn't, because you're a fucking retard who didn't even bother to read the summary. Kill yourself.

Re:Take the money and run (1)

slimjim8094 (941042) | about a year ago | (#43127617)

Would you even need a place with no extradition treaty? Or would the court view it as "I sent you these bits and now I want them back!"? I mean sure it's a "currency" but I'm not sure the courts recognize it as something with value.

For the love of god, shut up about buttcoins! (-1, Flamebait)

Anonymous Coward | about a year ago | (#43125477)

Seriously, nobody gives a shit outside of a bunch of armageddon-fantasy Paulites who masturbate to Ayn Rand.

Re:For the love of god, shut up about buttcoins! (2, Insightful)

Anonymous Coward | about a year ago | (#43125563)

Scanning down through the day I can't find another story more fitting of the site's slogan "News for nerds, stuff that matters." As a nerd, news that a crypto-anarchists P2P currency has reached the stage of hedge funds only 4 years after being launched and details of how the fund manager intends to secure the keys for customers is simply fascinating.

Re:For the love of god, shut up about buttcoins! (0)

Anonymous Coward | about a year ago | (#43125665)

It may be news for news, but it's hardly stuff that matters.

Re:For the love of god, shut up about buttcoins! (1)

Wonko the Sane (25252) | about a year ago | (#43125713)

Some people are just mad that they missed [slashdot.org] the boat [slashdot.org] and didn't get in as early as they could have.

Re:For the love of god, shut up about buttcoins! (1)

Anonymous Coward | about a year ago | (#43125799)

Some of us, being rather altruistic, would like to spare the naive suckers that are driving this from losing their money on something that functions as a scam.

BTC was a horribly designed currency from the getgo designed by people with no clue what they're doing in terms of the currency side of the equation. What's more, notice how it's mostly just people who have money in BTC that are advocating for it? There is an inherent incentive to talk it up as it has no value other than what suckers they can lure in to buy the worthless junk.

Unlike, say, USD where I can at least pay my taxes with it and where I can give it to people in most parts of the world in exchange for services rendered, or at least get an instant exchange done.

What's more, you can't require payments on debt in the form of BTC in the US as that's illegal which greatly reduces the utility of the coins. The regular bank robberies of BTC aren't really helping the matter either.

Re:For the love of god, shut up about buttcoins! (0)

Anonymous Coward | about a year ago | (#43126061)

I doubt trolls like you are genuinely altruistic.

Re:For the love of god, shut up about buttcoins! (1)

Anon-Admin (443764) | about a year ago | (#43126407)

BTC was a horribly designed currency from the getgo designed by people with no clue what they're doing in terms of the currency side of the equation. What's more, notice how it's mostly just people who have money in BTC that are advocating for it? There is an inherent incentive to talk it up as it has no value other than what suckers they can lure in to buy the worthless junk.

As much as I hate to feed a troll, The economic concepts behind bitcoin are sound. It boils down to the debate between deflationary currency and inflationary currency. The arguments that I have heard are that inflationary currency (The USD) it needed to maintain economic growth. The fact that the USD will buy less tomorrow than it buys today encourages people to spend it, thus driving the economy. The concept behind deflationary currency (BTC) is one that the currency does not drive the economy, supply and demand drive the economy. A deflationary currency gains value and will buy more tomorrow than it buys today, as such it encourages people to save them instead of spending them. This is an interesting debate as deflationary currency was the standard for 1000's of years and inflationary currency is still new (last 100 years or so)

Remember, a bitcoin is only worth what some one will pay for it. The value is based on supply and demand with a limited supply. As demand grows so will the value of a bit coin as the supply is limited.

I will note that I do own a few 1000 bitcoin right now and I bought them back at 1$ a coin. I dont foresee them completely collapsing as many suggest because they have been adopted within several gray areas on the internet as a means to pay for products that many processors (paypal, googlepay, etc) prohibit. I personally believe the turning point on bitcoin was when the service started that allowed you to buy bitcoin at any 7-11 or CVS pharmacy. That was the point where they became easy to get.

As to your arguments of paying taxes, big whoop! I can not pay my US taxes with Euros, gold, or any of the stocks I own. As to debt, it is not illegal, it is barter. I give you bitcoin in exchange you remove/drop/mark off my debt. Just the same as me giving some one a car or a gold coin in payment of my debt.

Re: (0)

Anonymous Coward | about a year ago | (#43127853)

Scanning down through the day I can't find another story more fitting of the site's slogan "News for nerds, stuff that matters." As a nerd, news that a crypto-anarchists P2P currency has reached the stage of hedge funds only 4 years after being launched and details of how the fund manager intends to secure the keys for customers is simply fascinating.

I agree with you 100%. It's just a shame that slashdot has been taken over by troglodytes who think encryption is a scam because they're unable to do algebra.

Re:For the love of god, shut up about buttcoins! (1)

epSos-de (2741969) | about a year ago | (#43126867)

You are mislead by the crazy people who were first to support bitcoin, look up the recent investors, who invested into bitcoin companies. Are you claiming them to be insane for having invested into similarly crazy ideas that did work out. Those VC people know money when they smell it. Have a second look at bitcoin, but do not look at it as money. Look at it as a very liquid kind of stock that you can pay with.

Article left out an important part (1)

cohomology (111648) | about a year ago | (#43125505)

The article describes impressive security precautions, but it leaves something out. Data is stored so it can be retrieved. On random days, restore and decrypt some test data, so everybody knows what to do and knows that it works.

Armory (4, Insightful)

Wonko the Sane (25252) | about a year ago | (#43125511)

Armory [bitcoinarmory.com] as a Bitcoin client would have been a better choice for this, since they could have used the same 2-of-3 method for storing the private keys, but then they'd have the ability to use watching-only copies of the wallet for accounting and auditing purposes.

Re:Armory (0)

Anonymous Coward | about a year ago | (#43125643)

You don't need specialized watching-only wallet software to have a watching-only wallet. They can just write down their Bitcoin addresses and then look them up on blockchain.info from time to time.

Re:Armory (1)

Wonko the Sane (25252) | about a year ago | (#43125655)

You don't need file systems to store files on a hard drive. You can just open up the block device with a hex editor and change the bits yourself.

Re:Armory (1)

IamTheRealMike (537420) | about a year ago | (#43125737)

More to the point, if they're at the level of doing secret sharing on private keys they are quite capable of implementing their own fund management software. For instance bitcoinj makes it easy to implement watch-only wallets, there's even a command line tool for it. I really doubt they need the help of GUI tools to set that up.

Re:Armory (1)

Wonko the Sane (25252) | about a year ago | (#43125769)

I was thinking more along the lines of transparency. They could publish a watching-only copy of their wallet on their public web site and then every person capable of running Armory can easily verify the fund owns as many coins as it claims.

Using an existing popular client instead of rolling their own lowers the learning curve for potential investors.

This makes no sense... (2, Interesting)

nweaver (113078) | about a year ago | (#43125565)

Such procedures only work for cold storage of Bitcoin: wallets where you have no access to them. Basically, the equivalent of a bank vault for gold: its there, its sitting, but you can't actually do anything with it. Worse, unlike a bank vault, you can't transfer the bitcoins while they are in this vault.

Therefore, the hedge fund's only strategy for these wallets is to buy BitCoins and sit on them. And do nothing. Which, if you believe in BitCoin, makes sense (the design is hyper-deflationary, so the only rational thing to do with BitCoins is to hold BitCoins), but thats hardly what you'd call a hedge-fund strategy.

So how can you call it a hedge fund when all it can do is buy & hold?

Re:This makes no sense... (3, Insightful)

IamTheRealMike (537420) | about a year ago | (#43125753)

That's pretty much what all hedge funds do, isn't it? Pick some asset they think will grow in value, buy it up (often using leverage), and then wait to see if their bet works out. Often they wait long periods of time. The fund is being targeted at people with lots of money and enormous appetite for risk - for these people, there aren't enough direct investment targets (like startups) so the easiest way to invest in the future success or failure of Bitcoin is indeed, buy and hold.

Hedge funds = derivatives (1)

jtara (133429) | about a year ago | (#43126423)

No, hedge funds typically use derivative instruments. Since a fundamental principal of hdge funds to to make a profit regardless of the underlying market, derivatives are a popular way to do this.

They could also simply diversify into a wide range of investments that are not correlated - or at least not correlated in the same direction (say, stocks, bonds, commodities, and properties). But that obviously isn't possible in this case. There's only one bitcoin instrument.

So, one must assume that they will create/buy instruments that are derivative of bitcoin. e.g. futures contracts, option contracts, etc.

Re:This makes no sense... (1)

LaggedOnUser (1856626) | about a year ago | (#43125955)

Bitcoin is not as deflationary as you seem to think. It is a member of a class of virtual currencies, and each member of the class can be endlessly duplicated, creating as many new virtual currencies as you like. Since there is no limit to the currencies that anyone can create (Bitcoin 2.0, 3.0, ...) none of them can rise in value without limit (deflation). Bitcoin is not a precious metal like gold. Gold is physically unable to be duplicated. It is the idea behind bitcoin that can be endlessly duplicated.

In v4 ponzi scheme! (0)

Anonymous Coward | about a year ago | (#43125569)

In v4 ponzi scheme!

What is this "bitcoin" you speak of? (0)

Jawnn (445279) | about a year ago | (#43125581)

It almost sounds y'all are talking about real money ...yet again.

Re:What is this "bitcoin" you speak of? (0)

TeknoHog (164938) | about a year ago | (#43125671)

Care to give examples of real money? I think gold and silver would be pretty close. Dollars and Euros etc. are just numbers made up whenever someone takes a loan.

Re:What is this "bitcoin" you speak of? (3, Informative)

hedwards (940851) | about a year ago | (#43125841)

I wish people would stop saying that. Yes, they are fiat currencies, but that does not mean they aren't real money or that all fiat currencies are equally arbitrary in valuation.

The value of the USD is measured against other currencies and against the things which one would like to buy. In most cases it doesn't really matter to me what it's doing versus the RMB or the CAD as I don't convert my money to pay for things brought in from those countries, I pay a price denominated in USD. Now, in practice shifts in those currency exchange rates will affect how much I pay, but so do all sorts of things that could affect domestically created things as well.

Bottom line, the folks claiming that fiat currencies aren't real don't have any idea what they're talking about. Currency is just for convenience so that you don't have to buy an entire cow just because you want a T-bone, don't want to take delivery immediately or want to do a 3 or 4 way trade.

Re:What is this "bitcoin" you speak of? (0)

Anonymous Coward | about a year ago | (#43126049)

As long as you continue to apply the word "real" to some currencies and reject it for others, expect to be ignored, and rightly so.

Re:What is this "bitcoin" you speak of? (0)

Anonymous Coward | about a year ago | (#43126131)

Um, what? Are you some sort of moron?

BTC isn't a real currency, I can't pay my taxes with it, I can't pay any of my debts with it and nobody is forcing anybody to accept it. It's not backed by gold, silver or the promise of anybody with the means to back it. In fact, it's designed to result in crushing deflation in a way that no currency is. If there aren't enough USD, you can print more, if there are too many, you can take them out of circulation when they come back.

Good luck doing that with BTC.

Re:What is this "bitcoin" you speak of? (1)

Wonko the Sane (25252) | about a year ago | (#43126327)

You just described all the best features of Bitcoin, which is exactly why it's seeing exponential adoption (not just price appreciation).

Re:What is this "bitcoin" you speak of? (1)

hedwards (940851) | about a year ago | (#43126519)

Bull fucking shit.

It's seeing exponential adoption because of the price appreciation and the price appreciation is the direct result of people flooding the market hoping to score big time. You see this in bubbles all the time. But, unlike other bubbles, this one is completely based upon nothing rather than being based upon overpriced assets that have at least some meager value.

I take it you don't know what a deflationary spiral is if you're saying that's one of the best things about BTC. Inflationary and deflationary expectations are bad, they encourage people to either spend or hoard money and the trend tends to be self fulfilling unless something comes in and disrupts the expectations. Unfortunately, because BTC is minted at a known rate and to a known maximum quantity, you will eventually hit the point where people refuse to sell any of it because it's going to be worth more tomorrow than it is today.

Now, if everybody were acting out of rational self interest and refusing to hoard their BTC, it might escape that death, but that won't happen because there's too much to be made from being one of the hold outs versus too little to gain from selling early.

The fact that there's now a hedge fund dealing in it is a pretty good indication that the bubble is going to be popping in the near future. I'd be going short on BTC if I had a way of doing that right now, as it's just a matter of time. You see this same thing before a stock bubble bursts where investment magazines have pages upon pages upon pages of mutual funds and the like being advertised, versus a much smaller number during earlier stages.

Re:What is this "bitcoin" you speak of? (1)

Wonko the Sane (25252) | about a year ago | (#43126769)

People are adopting BItcoin because it's the only way to store savings in a form that can not be arbitrarily diluted, frozen, or remotely confiscated. They are adopting Bitcoin because it gives them the ability to transfer arbitrarily large amounts of cash instantly and inexpensively to any place in the world free from any possibility of prior restraint. They are adopting it because it allows them to accept payments from customers anywhere without the risk of payment fraud. Everyone knows the deflationary spiral theory is bunk, because somebody bought the computer you are using right now even through they knew it would be cheaper in the future, so that's not very effective as a scare tactic.

Re:What is this "bitcoin" you speak of? (0)

Anonymous Coward | about a year ago | (#43126931)

It's worth noting, too, that Bitcoins are *not* a fiat currency. Fiat currencies are backed by government laws and regulations supporting their value. Bitcoin is backed by absolutely nothing.

Re:What is this "bitcoin" you speak of? (1)

crtreece (59298) | about a year ago | (#43127747)

Bitcoin is backed by absolutely nothing.

except the current cryptographic techniques, the bitcoin protocol, and the compute power of the bitcoin mining network.

Re:What is this "bitcoin" you speak of? (1)

crtreece (59298) | about a year ago | (#43127423)

BTC isn't a real currency, I can't pay my taxes with it

Right. Nor can you pay them with gold, euros, pogs, flooz, sports trading cards, or a zillion other things. Government authority in the US accepts dollars. So what?

I can't pay any of my debts with it and nobody is forcing anybody to accept it.

You can buy [bitcoin.it] software, web hosting, domain names, precious metals, gamble, clothes, electronics, dental service, legal service, books and fuck all else with it. Just because you can't pay your cable bill with bitcoins yet doesn't mean they aren't useful to others.

It's not backed by gold, silver or the promise of anybody with the means to back it.

Bitcoin is backed by the compute power of the bitcoin mining network, the bitcoin protocol, and modern cryptographic techniques. Can a 51% attack break it? Maybe. Will a flaw in the protocol kill it? If one is found and exploited, certainly. How about some breakthrough in cryptographic analysis or technique, like say quantum computing? Another possible killer.

In fact, it's designed to result in crushing deflation in a way that no currency is. If there aren't enough USD, you can print more, if there are too many, you can take them out of circulation when they come back.

There are some issues here. Hard drive crashes and no backup of your wallet? Barring some heroic drive recovery, or crypto breaking technique (which would likely break the system as well) those coins are gone forever, further lowering the number of potential bitcoins. But really, not much different than cash being destroyed.

A bitcoin can currently be broken up into 10^-8 pieces. There is room in the protocol for that to be increased. There could be 1 bitcoin in the world, and the pieces would still be useful.

Seeing how an elastic money supply controlled by private bankers has only caused larger boom/bust cycles since the Federal Reserve System was implemented, I'm at least interested in how the bitcoin system plays out. Even if it eventually dies, lessons will be learned, and the next iteration will be better.

Re:What is this "bitcoin" you speak of? (1)

Americium (1343605) | about a year ago | (#43126107)

Except all fiat currencies are deigned to expand at the same or a slightly higher rate than the exponential increase in GDP, thereby remaining flat or having low inflation. Bitcoin, by design, has an ultimate limited supply (high deflation, as has been seen already). This makes it impossible to ever use as money, because prices and wages are sticky.

This was figured out many many decades ago. This is why it's foolish to think bitcoin has a future, it's future was doomed by it's very design.

Re:Stickyness (1)

DanielRavenNest (107550) | about a year ago | (#43127081)

> because prices and wages are sticky.

Correction, were sticky. With this marvelous invention called "software", you can list prices in two currencies, and have one float against the other:

http://bitcoinstore.com/consumer-electronics/cameras-optics.html?cat=5526 [bitcoinstore.com]

Assuming I wanted bitcoins enough to get paid in them, I would not have a problem having my wage rate set in dollars, then converted on payday to the bitcoin equivalent. It's not like having software look up the market rate and do a division problem is hard or anything.

Re:Stickyness (1)

Americium (1343605) | about a year ago | (#43127841)

Actually that's my point, you want to be paid in dollars and prices to be in dollars, so bitcoin itself it not acting as the currency.

Also if it was going to be used long term, it would just encourage massive hoarding, it would be a guaranteed 10+ % interest rate. Same reason we can't use gold anymore.

Re:What is this "bitcoin" you speak of? (1)

aliquis (678370) | about a year ago | (#43126175)

But all the same could be said for bitcoins of course.

Re:What is this "bitcoin" you speak of? (0)

Anonymous Coward | about a year ago | (#43126493)

Yes, but BTC is designed for massive deflation, so once people start realizing it and hording it, which this "hedge fund" is doing, you'll see it pop fairly quickly.

One of the reasons for switching to a fiat currency from one that's on a standard is that you can't mine more gold or silver just because you need more currency and just because you're mining the ore at a given rate doesn't necessarily mean that you need the extra bills either. And having metals moving across borders can complicate things.

With BTC, you're ultimately going to see deflation because the rate at which the BTC are being added uses a curve with a decreasing rate over time and will eventually hit a cap, at which point, no new BTC are possible without undermining the entire thing.

Economists often know nothing, but in this case, they know plenty about what makes a currency deflate or inflate in value.

Re:What is this "bitcoin" you speak of? (1)

Jawnn (445279) | about a year ago | (#43126027)

Yen, Euro's, US dollars. Take your pick from the many legitimate currencies that are regularly traded for goods and services, or other currencies, around the world. More generally, any currency that one can pay taxes with. Still more generally, any currency that isn't regarded as little different than "Monopoly money" by more than a few guys living in their mothers' basements.

Re:What is this "bitcoin" you speak of? (0)

Anonymous Coward | about a year ago | (#43125685)

Hurr durr. Queue all the geektards explaining how bitcoin is real because they believe its real. At the same time they wouldn't invest in some African currency with 30% volatility in an afternoon. All in the name of privacy!!!1 (Amusingly carrying your money in cash gives you the same privacy and security)

Re:What is this "bitcoin" you speak of? (1)

ragingbull1965 (2755663) | about a year ago | (#43125867)

Can you accurately predict the money supply growth of an African currency? Does any African currency have properties that make it far superior to dollars? Can you encrypt your cash so that thieves don't get anything if they steal your wallet? Can you carry huge amounts of your cash across an international border? Does your cash work just as well in other countries? Is your cash worth 300% more than it was in January?

Re:What is this "bitcoin" you speak of? (0)

Anonymous Coward | about a year ago | (#43125987)

Yea, invest in BitCoin. Become a millionaire. I dare ya. Second mortgage your house to do so, please.

PT Barnum (1, Insightful)

MarkvW (1037596) | about a year ago | (#43125603)

"Bitcoin" and "Hedge Fund."

Two words that each should send a potential small-scale investor scurrying off in fear.

There's a sucker born every minute.

Re:PT Barnum (1)

hedwards (940851) | about a year ago | (#43125851)

Pretty much, as a general rule, the more clever the Wall Street investment, the further away you should run.

For fuck's sake. (0)

Seumas (6865) | about a year ago | (#43126013)

Can we stop with the fucking flood of shitty BitCoin stories? What is this, 2011 and 2012 all over again?

We get it. A bunch of dumbasses are bitmining bitcoins and new world currency and blah blah blah.

Wake me up when you can do something useful with these bitcoins. last I saw, I could buy shitty overpriced Windows laptops, shampoo, speaker cable, and subscriptions at a few websites.

Re:For fuck's sake. (0)

Anonymous Coward | about a year ago | (#43126367)

You forgot to click "Post Anonymously" this time.

garden hedges? huh? (0)

Anonymous Coward | about a year ago | (#43126197)

i never heard of a hedge fund before, but i have heard of a retirement fund. when i saw the word hedge, i thought of a short row of shrubs. never heard of it used in a monetary sense except for "how much will ten bushes cost". lol btw, people still use bitcoins? i thought it crashed a while ago. guess the market is back to normal.

Here at Douchebag and Dipshit... (1)

Osgeld (1900440) | about a year ago | (#43126825)

Our first rule of security is to proudly announce our base strategy to the entire world, conveniently saving you the time and effort of figuring it out yourself.

Re:Here at Douchebag and Dipshit... (0)

Anonymous Coward | about a year ago | (#43127199)

Our first rule of security is to proudly announce our base strategy to the entire world, conveniently saving you the time and effort of figuring it out yourself.

Yeah security by obscurity rules. /sarcasm

Pretty bad (1)

gweihir (88907) | about a year ago | (#43127037)

In very limited longer-term storage experiments, I had complete data loss on several flash-drives. CD-ROM is not much better. If they understood how long-term data storage works, they would have copies on traditional HDDs and backup-copies printed on paper. What they are doing instead is on low amateur level.

Re:Pretty bad (1)

1s44c (552956) | about a year ago | (#43128095)

In very limited longer-term storage experiments, I had complete data loss on several flash-drives. CD-ROM is not much better. If they understood how long-term data storage works, they would have copies on traditional HDDs and backup-copies printed on paper. What they are doing instead is on low amateur level.

I agree CD-ROMs are not built to last but I've only ever seen 1 flash drive fail out of hundreds I've used. I've had far worse luck with both magnetic and solid state hard disks.

Paper sounds like the best idea as long as it's not the cheap laser printer rubbish that turns yellow in a year or two.

Keep it up, Slashdot readers (0)

Anonymous Coward | about a year ago | (#43127567)

I want this to be immortalized, every snarky post and all the "what is this bitcoin you speak of" nonsense. Yes, you sit at the terminal every day, slamming out code - so you *must* know what is best, right? Well, much like the first iPod you panned because it had "lame" storage abilities, you're missing the entire point of bitcoin existing.

This is about monetary freedom. This is not about whether it will be "worth" $10, $100, $1,000 or $1 million. Pay attention, this is how it will evolve.

1.) Bitcoin created - by a rather intelligent programmer (Insight: perhaps that is why he's hated so much, achieving something sublime while everyone else here is arguing about what kind of desktop to use on Linux.)
2.) Edge-Exchanges form - These serve the purpose of allowing the transition ingress to the bitcoin economy.
3.) Sovereign Currencies Fail - Again, inflationary currencies are fully allowed to express themselves by massively failing, as they always do.
4.) Simutaneously, between steps three and four - supply chains are formed in the bitcoin economy entirely priced in bitcoin, severing the relationship to the currencies it will replace.
5.) After the massive financial failure, those left out in the cold will wonder why they ever ignored the bridge to a better system.
6.) Profit? Sure, but only if you're in the bitcoin-verse.

Go ahead and ridicule - but I'd bet that most technical jobs will be priced in bitcoin before it is all over. Better do your homework before it does. Seriously.

Re:Keep it up, Slashdot readers (1)

Wonko the Sane (25252) | about a year ago | (#43127587)

4.) Simutaneously, between steps three and four - supply chains are formed in the bitcoin economy entirely priced in bitcoin, severing the relationship to the currencies it will replace.

This is already beginning to happen. Online stores have been able to use payment processors for a while now to accept Bitcoins from customers anywhere in the world. Now it's possible for that store to pay for its hosting and domain registration directly in Bitcoins, without needing to convert to local currency.

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