BitCoins mystery in New Yorker

The odd and intriguing subject of BitCoins is in the New Yorker Oct 10. This is an entirely invented and virtual “object” generated on the Web by some kind of computer algorithm, which for some reason is translated by some willing participants into actual dollar value. BitCoins are bought and sold for dollars, in other words, even though they are a fantasy object or fantasy paper. Does this make sense? Since people now buy and sell clothes and other things in computer games, pesumbly BitCoins makes as much sense as that does – and people are newly minted millionaires from the sector.

BitCoins’ price collapsed a while back but it seems their price didn’t collapse completely. But how can they keep their value when they are manufactured by independent computer setup? In the article some guy has set up a desk full of computers all pumping out BitCoins.

Judging from experience the makers of BitCoins will probably be prosecuted by the Feds, like other money substitute schemes — if and when they find out who to go after. The article says they don’t really have a way of finding anyone responsible, since it all occurs in a setup like the ori8ginal Napster, where people trade without being responsible for the manufacture. But they could just indict users, surely.

Whatever, the fact is that they are being exchanged for goods – for example, a hotel will sell its rooms for BitCoins.

The piece doesn’t really answer the basic question of how something that can be manufactured by anyone who sets up a computer in the right way can hold its value.

THE CRYPTO-CURRENCYBitcoin and its mysterious inventor.
by Joshua Davis
OCTOBER 10, 2011
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Bitcoin; Money; Satoshi Nakamoto; Encryption; Currencies; Computers; Michael Clear
ABSTRACT: DEPT. OF TECHNOLOGY about bitcoin and its mysterious creator. There are lots of ways to make money: You can earn it, find it, counterfeit it, steal it. Or, if you’re Satoshi Nakamoto, you can invent it. That’s what he did on the evening of January 3, 2009, when he pressed a button on his keyboard and created a new currency called Bitcoin. It was all bit, and no coin. There was no paper, copper, or silver—just thirty-one thousand lines of code and an announcement on the Internet. Nakamoto wanted to create a currency immune to the predations of bankers and politicians. The currency was controlled entirely by software. Every ten minutes or so, coins would be distributed through a process that resembled a lottery. This way, the bitcoin software would release a total of twenty-one million bitcoins, most all of them over the next twenty years. Interest in Nakamoto’s invention built steadily. More and more people dedicated their computers to the lottery, and forty-four exchanges popped up, allowing anyone with bitcoins to trade them for dollars, euros, or other currencies. At first, a single bitcoin was valued at less than a penny. But merchants gradually began to accept bitcoin, and at the end of 2010 the value began to appreciate rapidly. By June of 2011, a bitcoin was worth more than twenty-nine dollars. Market gyrations followed, and by September the exchange rate had fallen to five dollars. Still, with more than seven million bitcoins in circulation, Nakamoto had created thirty-five million dollars of value. And yet Nakamoto was a cipher. There was no trace of any coder with that name before the début of bitcoin. He used an e-mail address and Web site that were untraceable. In 2009 and 2010, he wrote hundreds of posts in flawless English, invited other software developers to help him improve the code. Then, in April, 2011, he sent a note to a developer saying that he had “moved on to other things.” He has not been heard from since. Tells about failed attempts to hack the bitcoin encryption code. Writer tries to deduce Nakamoto’s true identity from clues in his posts and his code. Describes the Crypto 2011 conference of cryptographers, where the writer went looking for Nakamoto. Writer speaks with two possible candidates, Michael Clear and Vili Lehdonvirta, both of whom deny that they are Nakamoto. Also tells about Kevin Groce, who runs a bitcoin-mining operation in Kentucky. Over the summer, hackers targeted bitcoin, and though they were unable to break Nakamoto’s code, they were able to disrupt the exchanges and destroy Web sites that helped users store bitcoins. The number of transactions decreased and the exchange rate plummeted. Commentators predicted the end of the currency. In September, however, volume began to increase again, and the price stabilized, at least temporarily.

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