Thank you for excellent explaination, I translated it in Italian and put it online on my website, now mainly orientated toward Bitcoin, and being the biggest source of information in Italian language:
http://ilporticodipinto.it/faq/bitcoin-%C3%A8-uno-schema-di-ponzi-o-uno-schema-di-marketing-piramidale

I tell you this in case you want to link the italian version to your index page.

Please tell me if you want me to credit you for the original text, if you want a link to this page or whatever.

I plan to translate other faq as well in the feature.

Thanks!

While not intended to be an investment, BitCoin certainly can be treated as one.  In particular, it is a speculative investment.  This means if Bitcoin becomes more useful, it's value may increase.  If it turns out that the usefulness is overestimated by the investors, then the value may go down.  Speculative investments are not Ponzi schemes, though.  A speculative investment IS very risky and you could lose a great portion of your investment (even all of it).  This does not make it a scam, though.

There are some similarities between speculative investments and Ponzi schemes that make some people have trouble telling them apart.  In a speculative investment, you are betting that people in the future will want to invest (or use) what you are buying.  There is no guarantee that happens.  In a Ponzi scheme and Pyramid scheme, you are betting that other people will come after you (if you are aware of what you are in).  The difference is there is no actual possible value in a Ponzi or Pyramid scheme.  You are either fooled into thinking what you are buying is valuable, or you think that there will be greater fools that come after you.  A speculative investment is different in that you actually know what you are betting on.  You still can be wrong (it might not be very valuable, or you overestimated its value), so that's why people can get confused.  Speculative investments should not be done with money you mind losing.  A speculative investment actually has a chance of paying off for everyone down the line by actually creating value.  A Ponzi scheme and Pyramid scheme collapses eventually because no value is created.

You shouldn't sink all of your retirement accounts into Bitcoin (unless you don't mind losing most of it!), but it may make a decent investment.  Do not base your decision only on what it's done in the last few months.  The past rate of growth is unsustainable for a long period of time (otherwise owning a Bitcoin would be worth all the wealth on Earth after enough time, and I don't think anyone thinks that will happen).  It might go up.  It might be overpriced now.  It might be fairly priced.  Do your homework, try to figure out what would actually make it valuable and how valuable it would be in those cases.  Figure out how likely each of those scenarios are to play out.  Figure out your risk tolerance (most people would not risk $100,000 for a .1% chance at becoming a billionaire, even though mathematics say it's a good deal).  Then invest.  Or start using them for something useful.  Buy goods where it is cheaper to buy them.  Take advantage of the semi-anonymous nature of it.  Buy something you can't otherwise purchase.  Build a business model that takes advantage of Bitcoins.

I like your approach to keep it simple and straight forward for the new guys. I can see this FAQ growing into much more robust hub of information about bitcoin making clear of it's facts and myths. Very nicely done. 

Go for it!

Hi, i'm completely new to BitCoin and am completely baffled by the concept, I'm also not 100% sure I'm asking these questions in the right place, but i will ask, and hopefully be pointed in the right direction.

1. is the 21 million bitcoins equal in value to the sum of global resources (including both physical, and  intellectual)?

2. according to what i've read, everything is transparent. Coupled with the fact that almost every country in the world considers it illegal not to pay tax on transactions, do i have any security from prosecution? or alternatively, why have governments not clamped down on bitcoins already?

3. Am i correct in saying that BitCoin is essentially a global unified on-line autonomous resource tracking system?

4. assuming that the answers to the previous questions are all positive, can BitCoins  be extended to function globally as a complete replacement for the current credit based economic system?

I hope that someone can either assist me or point me to someone who can

thanks

Welcome here!  This is a perfectly good place to ask these kinds of questions.


Bitcoins vary in value according to supply and demand.  But if you mean will 21 million bitcoins be enough for global-level trade, then the answer is almost certainly yes.  As they currently stand bitcoins can be subdivided down to the eighth decimal place so that, as an example, even if the entire present-day U.S. economy ran solely on bitcoins, it would still be practical to buy small items with 0.00000001 btc.  Long before bitcoins would ever run into this problem, however, they could be easily "upgraded" to allow even smaller denominations.  So for all practical purposes bitcoins are infinitely divisible.  But it's unlikely that bitcoins will ever be the only currency or means of exchange on the planet.  Does this answer your question?


Are you saying that you plan not to pay taxes on bitcoin transactions or income?  Bitcoins are very much like cash:  even if your transactions aren't centrally stored somewhere, you are still expected to pay taxes.  Cash is used extensively to try and avoid taxes, so it's likely that bitcoins can be used for that as well.  But in both cases you're going to have to explain to the IRS agent where the money came from to buy your new yacht.  Trying to avoid taxes by using bitcoin is both illegal and ill-advised.

To answer your second question, governments have not clamped down on bitcoins already because they haven't needed to.  If bitcoins start to be used to fund illegal activities, launder money, evade taxes, etc. then they will simply pursue the people who do these things as they would if these things were being done with cash, gold, or expensive art.  It would be fairly impractical to shut down the BitCoin network itself, as it doesn't appear to be illegal in most countries, and has no central point where it could be blocked or turned off.  Consider the example of another peer to peer technology:  file-sharing.  P2P file-sharing has enabled activities that some governments have considered harmful, and so both civil and criminal prosecution has been used against companies or individuals participating in them.  But there's no way to shut down P2P file-sharing itself, and it would be ridiculous to make file-sharing technology illegal when it has so many legitimate uses.  Similarly, unless BitCoin devolves into some sort of black market crime tool, it won't get shut down.  But if people use it to break laws, you can be certain governments will prosecute them--both individuals and organisations.


Yes, if I understand you correctly.


In theory, yes.  In reality, however, people tend to use different tools for different things so that they can take advantage of contrasting features.  So it's highly likely that BitCoin will only ever be one of many tools for measuring and transferring value.  Just like many people use cash, credit cards, and PayPal, there will probably be many different products that offer different features and services.  It's conceivable that all of these could end up being built on BitCoin in a similar way to how many world currencies are based on the U.S. Dollar, but we're a long way off from that happening so that would be pure speculation.


You're very welcome.  I hope my answers were helpful--feel free to ask or explain more if you need to.

Fascinating stuff, Rob!  I'll have to read more of it when I get a chance.   I agree that with some careful implementation BitCoin could have incredibly powerful economic consequences.  But something tells me there's still a lot of hard work to be done to get there, so I'm diving in!

There is no server source. There's no server. It's peer to peer. Everything about bitcoin is in the published client source code. If you look around these forums you'll see the cryptography discussed in depth. It's also explained in Satoshi's paper.

Satoshi is an encrypted identity, he might be helping out on the board or wherever, you just don't know. 

@hiakuryu - what brocktice said, and:

See protocol specification. And you're not encrypting or decrypting anything, you're hashing.

That's kind of the point, we don't know and we don't care, because it's not about him. He doesn't have more power over Bitcoin than anyone else.

People talk about transparency, decentralisation and the fact that trust is not needed because the Bitcoin protocol relies on proof-of-work, not trust. (Compare to actually making trade with bitcoins, which requires some sort of trust, reputation or mediation).


There are mechanisms in place to stop transaction spam.