Betting on Bitcoin

Word is getting out on bitcoins, a potentially world changing currency. By now many in tech circles have heard of Bitcoin, but still relatively few really know all about it. There isn't one easy-to-understand all encompassing guide. This results in misconceptions about Bitcoin which is complex, being both a currency and payment network for that currrency. To fully appreciate Bitcoin one really needs a good understanding of math, cryptography, computer networking, programming, economics, and the nature of "money". In light of that it's no wonder this open-source project is sometimes erroneously summed up as a "Ponzi scheme".

Still, many people around the world are betting Bitcoin will be around in the future. The bitcoin/dollar exchange rate has gone from a few cents in 2009 when Bitcoin started to over $10 per coin as of August 2012.

To answer what exactly Bitcoin is it's helpful to know several key things:

1. Bitcoin is not controlled by any central authority; it's completely decentralized
2. Bitcoins come into existence (as defined by the protocol, which everyone agrees to by using) through a process called "mining" which involves using a computer to solve a problem of varying difficulty
3. There will only ever be 21 million bitcoins generated; the problem difficulty is adjusted automatically so bitcoin creation follows a fairly stable and known inflation rate [1]
4. Bitcoins can be subdivided to 8 decimal places
5. Bitcoins obtain a value because people want them for different reasons, and they are scarce (the same way gold obtains value)
6. Bitcoins, if used properly, can provide anonymity for their use
7. Bitcoins can be used to transfer any amount of value around the world, almost instantly, by anyone, with little or no cost
8. The Bitcoin code has been reviewed by many qualified experts (it's open-source) and serious flaws, in terms of bugs, have yet to be found
9. It's unlikely any entity, such as a government, could entirely prevent the use or growth of Bitcoin without shutting down the entire Internet

With those qualities one may begin to understand the potential Bitcoin brings, but who is supposed to use it and how?

Bitcoin draws to it anyone wanting payment freedom. Bitcoin accounts can't be frozen, and anonymous payments are possible if precautions are taken. Bitcoins are also a global currency, so while their legal status is now in a gray area, should they ever be outlawed somewhere it wouldn't mean they were outlawed everywhere; that would put pressure on regimes doing the outlawing. 

More specifically, some Bitcoin users might be described as libertarian minded. Many of Bitcoin's proponents have even been called the digital equivalent of "gold bugs" because bitcoins work similar to gold as currency since they can't be arbitrarily inflated.

While it may not be easy to understand bitcoins, it's straightforward to use them. All that's needed is a standard computer and Internet connection to download freely available "wallet" software from sources like bitcoin.org. Wallets use cryptographic keypairs, consisting of a public and private key, for account addresses (e.g. 175tWpb8K1S7NmH4Zx6rewF9WQrcZv245W) allowing users to send coins to one another almost instantly. Ease of use is compared to sending email.

There are several ways to obtain bitcoins, including buying them, working or trading for them, or "mining" them. Mining is the term used to describe using a computer to solve the computational problem first and winning bitcoins, thereby bringing them into existence. Anyone can mine for bitcoins using software that is also freely available, but competition is now high. For many people it's easiest to buy bitcoins.

Bitcoins are now exchanged 24/7 for all sorts of things as would be expected of any currency. The web page at https://en.bitcoin.it/wiki/Trade gives an idea of the type and variety of available goods and services there are for bitcoins.

As word continues to spread about bitcoins, and their adoption grows there is a good chance their value will continue to rise - not just compared to fiat currency, but also for the variety of things for which they are accepted. That probably makes bitcoins a very good bet.

[1] https://en.bitcoin.it/wiki/File:Total_bitcoins_over_time_graph.png

I have a ZeroHedge account, but have never used it to submit an article

I will look into it

It's worth a shot, but don't be surprised if they don't publish it or shoot it down completely  

our mission:

to widen the scope of financial, economic and political information available to the professional investing public.
to skeptically examine and, where necessary, attack the flaccid institution that financial journalism has become.
to liberate oppressed knowledge.
to provide analysis uninhibited by political constraint.
to facilitate information's unending quest for freedom.

Thank you for taking the initiative to get Bitcoin on ZeroHedge.  Some thoughts:

A large portion of the audience (or at least the commenters) are cynical goldbugs and preppers.  Although an article introducing Bitcoin might work fine on less ideological audiences, I think that you might be more successful if you do a more ambitious two or three-part offering (or 3-section article)  that, aside from introducing Bitcoin, also addresses up front the two main objections and misconceptions likely to come up from the commenter crowd.

1. Bitcoin vs. Gold
Explaining how they complement each other, why both are necessary under different scenarios like border crossings, confiscation resilience of Bitcoin versus gold, how the stupid objections to gold ('you can't eat it') also apply to Bitcoin and vice versa, pointing to George Selgin's work which correctly classifies Bitcoin as a new type of commodity.

2. Bitcoin in a Mad-Max no-electricity no-Internet scenario.
Check out the article "Bitcoin Under the Worst Possible Conditions" from the first issue of Bitcoin Magazine. The possibility of resilient peer-to-peer mesh networks.  Barter usage via Casascius gold/silver/bitcoin hybrid coins, Bitcoin paper bills, paper wallets, and other no-electricity physical bridges.  Etcetera.

But to be clear about these suggestions, even if you ignore or disagree with them, I'll still be grateful, any article will be better than no article.

Great!  There's a lot of good material on the forum on the Bitcoin/Gold relationship, unfortunately it's dispersed across many threads (e.g. https://bt.irlbtc.com/view/100065.0), but hopefully it can be used as a starting point.  There's some very sharp Bitcoin-loving gold writers (e.g. Trace Meyer) who might be able to help out as well.  Not sure if Bitcoin Magazine has or is planning an article on the topic also, would be good to see one, and perhaps that could be leveraged onto ZeroHedge or viceversa, possibly whatever you write could also be published on the magazine.

Thank you again for taking the initiative to get something done on the ZeroHedge front!

+1
It's Fight Club! I always imagine the commenters to be a roomful of Max Keisers but without morals. One thought I had was making the article into a dialogue -- even a fictional "Bitcoin versus Krugman" shakedown of Fractional Reserve. Where's Matthew N. Wright when you need him??

To the OP acoindr: it's a great start, and don't feel bad when people start ripping the draft to pieces. It's always easier to improve upon something than to lay the foundations yourself.