Quote from: Shinobi on June 15, 2011, 03:16:48 AM

I've been reading a lot about Bitcoins lately, and I'm impressed at what seems to be an extremely well thought out idea. I still don't understand a few things that I'm surprised is not the focus of more conversations here, though perhaps I'm missing something:

1. How do most of you expect to realize your bitcoin value when it is so incredibly illiquid? Upon trying to purchase bitcoins it became immediately apparent that one needs to jump through hoops to enter the market, with such process taking eons in light of the incredible volatility of this market (something I imagine is caused by relatively low trade volume). Without a means of quickly injecting cash into the market to capitalize on swings - and as importantly - having to suffer gouging exchange rates in order to do, what really is this other than a round-robin of folks who are mining coins and throwing them back and forth with each other?

Bitcoin itself is highly liquid, it's just that the exchange of bitcoin to/from any other currency isn't. Try exchanging a Euro for a US$ in downtown Detroit without going to the airport. If your business model doesn't require the exchange of your bitcoins with other currencies every time, then the liquidity of Bitcoin will become apparent as, slowly but surely, all your suppliers or their competitors begin to accept Bitcoin themselves; and thus you can remove one more step from the supply chain. By accepting Bitcoin, you can partially remove credit card companies from your online business model. Once your suppliers do the same, you can also partially remove the fiat currencies themselves as well. We are still probably decades away from the point that an online successfully accept only bitcoin as online payments.

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2. Without a centralized clearing house or "overseer", what is to stop people from simply stealing from each other, and eroding general faith in the currency? To me this currency can be seen to take the worst aspects of printed money (irreplacability) and combines it with the worst aspect of digital storage (lack of security and permanancy without extremely sophisticated means). In order to use bitcoins it is, by definition, necessary to make "open" one's wallet, and to do so - in the digital context - to many more people than pulling out a dollar bill at the local store.

It's still early, and as such the clients that are already available are a bit primitive. There is much to be done in the area of security, we know this. Currently, leaving your client running on your PC with the bulk of your bitcoins in the same wallet.dat file is like walking through downtown in a crowd with your wallet on your shoulder. If you are not capable of securing your wallet.dat file to a decent degree, then don't buy any bitcoins.

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3. What is to prevent a collapse of the currency from permanent deletion? Should someone with 100,000 BTC erase his/her wallet, does this not necessarily reduce the availability of the absolute amount of moveable currency? There must be a point, assuming aggregation of wealth over time by fewer and fewer people that such a scenario could drastically wipe out a large portion of the currency.

The currency is infinitely divisible in the protocol and to the eighth decimal place in the current client. The destruction of BTC, in large or small amounts, just results in the slight value increase of those that remain in circulation. They are, after all, just numbers.