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Cryptocurrency: Your Total Cost Is 01001010010

May 09, 2012  By Shawn Powers
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Most people have heard of gold. Most people are familiar with dollars. For a handful of geeky folks, however, the currency they hope will become a global standard is digital. Whether it's a problem or not, the currency you use on a day-to-day basis is tied to the government. The global value of the money in your pocket can vary widely, and if you're a conspiracy theorist, your concern might be that it could be worth nothing in the blink of an eye.

Surely gold and silver are wise investments if you're concerned your paper dollars will drop in value, but using gold as a means to buy a gallon of milk is a bit difficult. Perhaps cryptocurrencies are the solution. The most popular form of cryptocurrency is the Bitcoin. A very simple explanation of how it works is as follows:

  • Users download the bitcoin client and use their computer to solve complex math problems, which create a cryptographic record of any transactions on the Bitcoin P2P network.

  • Users are rewarded Bitcoins for successfully "hashing" the cryptographic record of transactions, and that reward system is how Bitcoins are created.

  • Users then securely transfer Bitcoins back and forth to purchase items, and those transactions are recorded in the cryptographic history for the entire P2P network to see.

The process is, of course, a little more complicated than that, but that's basically how it works. The computers creating the cryptographic history of transactions are called miners, and "Bitcoin Mining" is simply the act of solving complex math problems in order to make a cryptographic record of transactions. Because mining Bitcoins is how the currency is created, lots of people are connected to the network, racing each other to get a solution that will generate a reward. In fact, it's so competitive, that unless you have a high-end GPU that can process the equations extremely fast, there is no point in trying for the rewards.

Are Bitcoins the future of global currencies? Will one of the alternative cryptocurrencies like Litecoin or Solidcoin become commonplace? The number of places that accept cryptocurrencies are extremely limited, so it's not any easier to buy a gallon of milk with a Bitcoin than it is with a lump of gold, but many think that day is coming. What about you? Do you think cryptocurrency has a future, or do you think it's a geeky fad that will fade away? Send an e-mail with "CRYPTOCURRENCY" in the subject line to shawn@linuxjournal.com, and I'll follow up with an article based on your feedback. For more information on cryptocurrencies, check out these Web sites: http://www.bitcoin.org, http://www.litecoin.org and http://www.solidcoin.info.

______________________

Shawn Powers is an Associate Editor for Linux Journal. You might find him chatting on the IRC channel, or Twitter

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The is the underground market

Anonymous's picture
Submitted by Anonymous (not verified) on Sun, 07/15/2012 - 16:58.

The is the underground market economy. Who knows what this is going to do with governance of money around the world. with taxes and purchasing of different items with no tracking. from Paul at http://public.fotki.com/car-insurance-calculator/auto-insurance-calc/?view=roll

It is important that more

CashAdvance's picture
Submitted by CashAdvance (not verified) on Tue, 05/29/2012 - 03:04.

It is important that more vendors start valuing their merchandise in bitcoin. Every vendor who values their merchandise in bitcoin is helping to anchor the value of the currency to the commodities they sell. In short, they are pseudo-backing the currency with a commodity. If this does not happen, the value of bitcoin will likely continue to float around wildly as people try to decide its worth as a stock. I personally believe bitcoins have very little worth as a stock. But that is just my little opinion.

CYBERCURRENCY- a big no no

Anonymous's picture
Submitted by Anonymous (not verified) on Sat, 05/19/2012 - 11:50.

All forms of currency whether in hard cash or on paper are ultimately controlled by the governments that issue them.

You earn, you are taxed, and inevitably you are paying for all the worlds
shortfalls in the financial, banking and governmental shortcomings.

No one escapes the financial burden that they are born into, they just have to pay for it throughout their life.

Cybercurrency will not exist, the financial and governmental world is looking at ways to get control of this invisible currency, and that will have no basis for survival.

Math Worksheets

Math Worksheets's picture
Submitted by Math Worksheets (not verified) on Tue, 05/15/2012 - 03:49.

in this form talking about the curacy that you should use as gold change into currency

Inevitable.

zeromodulus's picture
Submitted by zeromodulus (not verified) on Sat, 05/12/2012 - 05:52.

Digital currency is inevitable. It's too convenient not to use. There is zero cost of use. With The Federal Reserve, you are automatically in debt, unless you displace your debt by competing in the corporate arena. There is a price to pay for having a federally controlled concurrency. The cost of printing money, managing money, legislating money, storing money, and safeguarding money is ultimately deferred to the user of the money.

Every printed dollar comes with a maintenance cost.

We replaced the gold standard for this reason, because it was expensive. Using the system came with a price. The cost of storing, guarding, maintaining, and tracking was really high. So, we came up with a new system, printed money, because it's easier to store, transport, track, and divide.

Digital currency will eventually take over, because the cost to maintain it is zero. The cost is minuscule, and rolled into the price of running your computer. The problems that arise with transportion, storage, security, are completely wiped out. You can send 0.1 bitcoin. You can send 0.01 bitcoin. You can send 0.001 bitcoin. To anyone in the world, without being automatically indebted to the owners of the system.

It is unimaginable to think we would abandon federal currency now, but it's not so unimaginable when you think about why we abandoned the gold standard. It was difficult and costly. We have a less difficult and costly system, but it is still difficult and costly.

It's true that maintaining

Anonymous's picture
Submitted by Anonymous (not verified) on Wed, 05/16/2012 - 12:52.

It's true that maintaining banknotes and coins is a cost, for this reason most of the money in circulation is not printed but it's in form of credit in the banking system and to keep this cost low governments and banks are encouraging people to switch from cash to credit and debit cards and other forms of electronic payments. Bitcoin could be made obsolete anytime if a similar form of payment is endorsed by the banks.

Regarding the gold standard, I believe you confuse it with gold coins. Gold standard means that every dollar is backed by gold kept in the central bank vault and every banknote can be exchanged for gold at any time.

Now all currencies are fiat money, the government doesn't have to exchange it for gold or anything else so it doesn't have any intrinsic value (as Bitcoins).

It's legal tender because it's used to pay tax and government debt, for this reason most people need it and they are willing to accept it in exchange of goods and services.

Money it's worth just how much people feel it's worth and based on their will to exchange goods and services for it.

The main problem with Bitcoin is that it's not accepted as legal tender by any government for tax payment so, even it's accepted today, there is no certainty it will accepted tomorrow. To make things worse it's not backed by a central bank, it's value can freely float and it would be fairly easy for speculators to take advantage of it.

It's a nice experiment but don't think it will ever replace "real" money, at least not in it's current state.

The current system that is in

zeromodulus's picture
Submitted by zeromodulus (not verified) on Sat, 05/12/2012 - 05:57.

The current system that is in place is dysfunctional by design.

all of the financial crises

zeromodulus's picture
Submitted by zeromodulus (not verified) on Sat, 05/12/2012 - 05:56.

all of the financial crises are because the debt spiral spirals out of control by design. Paying off debt with more debt is just going to lead to economic collapse.

correction

zeromodulus's picture
Submitted by zeromodulus (not verified) on Sat, 05/12/2012 - 05:53.

currency*

Looks Correct

paully's picture
Submitted by paully (not verified) on Thu, 05/10/2012 - 21:26.

The is the underground market economy. Who knows what this is going to do with governance of money around the world. with taxes and purchasing of different items with no tracking. from Paul at http://www.carloancalculator.com.au/

Possible abuse here?

Dave Keays's picture
Submitted by Dave Keays on Thu, 05/10/2012 - 11:25.

Let's say you got hold of a list of passwords from a popular website (I'll leave "how" up to your imagination). While I don't know the going rate, let's say 10k plain text passwords to this site would go for $100k. The passwords are hashed and salted which is a lot less valuable than plain text. Rainbow tables are out of the question since the passwords are salted and you don't have the 'puter power to brute force 10k passwords in a reasonable time.

There are esoteric solutions I don't understand but you could also budget 10$ in bitcoin mining and pay $1 for every password "solved". A $90k profit isn't bad.

Dave Keays, freelance webmaster

Salts are only used to

Anonymous's picture
Submitted by Anonymous (not verified) on Thu, 05/10/2012 - 23:47.

Salts are only used to prevent the use of rainbow tables when the attacker doesn't have access to the database. If the attacker has access to the database (the only way he/she could get a list of passwords), the salts are useless, since the salts themselves are stored in the database. So, in the situation you're describing, rainbow tables would indeed be a viable option.

It isn't always that easy.

Dave Keays's picture
Submitted by Dave Keays on Fri, 05/11/2012 - 04:19.

It isn't always that easy. Drupal7, for example, uses 2 salt- a dynamic one that is stored as a signature but it is hashed with a static salt value that is stored in a flat file. So you need more than just the database.

Dave Keays, freelance webmaster

Bitcoin is great for advertising

Anonymous's picture
Submitted by Anonymous (not verified) on Thu, 05/10/2012 - 00:58.

THis service has gotten over 2 million page views in its first 2 weeks live http://bitcoinadvertisers.com/

Okay, the market is limited

Anonymous's picture
Submitted by Anonymous (not verified) on Thu, 05/10/2012 - 00:04.

Okay, the market is limited right now but growing rapidly. For example check out the "ebay of bitcoin" www.bitmit.net

looks like you got the wrong

Anonymous's picture
Submitted by Anonymous (not verified) on Wed, 05/09/2012 - 12:58.

looks like you got the wrong address for solidcoin, their site is over at solidcoin.info

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