October 11, 2012

Can somebody please dumb down the theory and practice of Bitcoin for me?

Several readers have suggested that I accept contributions in Bitcoin.

I've gone to the Wikipedia page on Bitcoin several times to learn what it is, but I immediately feel like I'm reading a monograph on how the Wizard of Oz is an allegory about the bimetallism debates of the 1890s. 

Personally, I'm not confident that I totally understand why, say, the grocery store accepts my greenbacks in return for food, so asking me to grasp a novel form of non-governmental currency that exists mostly in cyberspace is way too many levels of abstraction for me.

So, please help me achieve Bitcoin enlightenment.

In the meantime, I am accepting payment in several convenient ways:

First: You can send me money via Amazon (not tax-deductible). Click here and then click on the button for the amount you want to pay. It's especially quick if you already have an Amazon account, but any major credit card will work fine. (I want to thank all the generous folks who helped me work out the kinks in this method, using their own real money.)

Second: You can make a tax deductible contribution to me via VDARE by clicking here. You can use PayPal for that.

Third: You can mail a non-tax deductible donation to:

Steve Sailer
P.O Box 4142
Valley Village, CA 91617-4142



IHTG said...

Here's some help: Don't listen to those readers.

Hargreaves said...

Bitcoin is a scam which was once a quixotic attempt to introduce a new digital currency. To a computer guy or an applied mathematician the mechanisms of Bitcoin are interesting, but as a medium of exchange Bitcoin is al failure and I advise you not to waste your limited time on this Earth fooling around with it.

Anonymous said...

Bitcoin is essentially a big, distributed ledger. The ledger generates new issues every 10 minutes or so. The new issue contains all the transactions that have occurred since the last one, plus a bonus for whoever successfully published the new issue of the ledger.

To accept bitcoin transactions, all you need is to install some software or become a user at some website that allows you to generate an address that other people can then send bitcoins to. Those bitcoins will only be spendable by whoever has a private key associated with that address (in this case, you).

See weusecoins.

If you want to convert bitcoin to, say, US dollars, you have to sell them to someone. Recently the rate has been about 12 USD per bitcoin. You can do this on various exhanges. The biggest one now is Mt. Gox. Google around. To get the USD deposited to a US bank account, you may need to use an intermediate like Dwolla.

gwern said...

Yeah; at this point, Bitcoin isn't really worth accepting. (What's Steve going to do, spend it on Silk Road? Waste hours figuring out how to get from an exchange to his bank account?)

JeremiahJohnbalaya said...


chucho said...

Couldn't you just accept them and immediately cash out? I'm sure there's a brutal spread involved.

Anonymous said...

Basically, you want to use one of the less technical bitcoin services, like http://www.flexcoin.com/ . This will allow people to put bitcoins into your 'wallet' easily.

Now, what do you do with those bitcoins in your wallet? You probably want to sell them for USD, and lots of lots of people will give you USD for your bitcoins. A partial list is here: https://en.bitcoin.it/wiki/Selling_bitcoins

Think of bitcoins as digital gold. If I offered to mail some gold to your PO box, there would be a bit of hassle involved before you could bay your electric bill- you'd need to sell the gold to someone who'd rather have gold than USD. The benefit is that it's even less traceable than putting gold in the mail- someone who would rather that their bank not know they supported Steve Sailer can put bitcoins in your flexcoin wallet, you can sell them for cash, and then everyone's happy.

I project it will take at most 1 hour to set up a bitcoin wallet, and then at most 3 hours to sell your first bitcoins. (The expected amounts of time are probably a fifth of that for both.) Depending on the value of your time and the projected value of bitcoin donations, it might be worth it, it might not.

You've noted that having more payment options might decrease donations, and this will possibly increase that effect. Unlike Amazon Payments / Paypal, though, this is a radically different payment method that you might expect a different class of donors to use, and so it could lead to an net increase in donations.

AllanF said...

Pretty sure it's a joke. Both the suggestions you take them, and Bitcoin itself.

For the wisenhiemers, you might want to add pre-1964 dimes, quarters, and half-dollars mailed to your PO Box to your graciously accepted forms of remuneration.

While on the topic of alternate specie, concerning IOU's from the States of California and/or Illinois... I would not suggest inviting them.

jody said...

bitcoin is...complicated.

forbes has a good blog on it, i recommend reading it all the way through, only a year of posts, to get a better feel for what the heck this bitcoin thing is.


i've been messing with it for a few years and i'm still a little confused about it. have a couple friends who have dedicated computers "farming for bitcoins", which, i start to get fuzzy on the math and theory of how this works and why a supercomputer can't disrupt the economics of it all. they tell me radeons are better than geforces for generating bitcoins, maybe i'll try some day.

what i do know is that if it becomes much more widespread than it is now, governments will probably start to take note, since they can't tax or regulate it. perhaps we're looking at a future where the united states federal government declares bitcoin is not legal tender.

makes me wish i had commented on the looper thread. this futuristic stuff is "intradasting", as the kids say on 4chan.

Anonymous said...

I'm a reasonably technical guy, and after doing a little reading up on Bitcoin after it was first suggested I can tell you I have no intention of getting involved in it. Maybe it's a fundamentally sound idea, but I'm just not going to bother. It's easier to just mail a couple of twenty's to your PO box.

That said, I'm curious why you don't take PayPal directly any more. This is in part because I've been looking into the mechanics of setting up an online payment system for a small business, and both Amazon and PayPal are obvious options. Did you have problems with PayPal?

Anonymous said...

All you need to do is set up a bitcoin address where you can recieve donations, which is dead simple.

You can worry about withdrawing the coins later, but I think it's important that you have a clearly identifiable address that's under your control. It will just be another source of passive income, since people can send you coins at any time.

Just download the latest version from here: http://sourceforge.net/projects/bitcoin/files/Bitcoin/bitcoin-0.7.0/

Install the client and just post your address.

AllanF said...

Bitcoin is at best pseudonymous.

I would be surprised only if the NSA could not hyper-inflate at will, and or back-trace every transaction on every Bitcoin since said coin's "mining."

Anonymous said...

I live in Canada, and in Canada we can transfer money directly from the bank in and out of the Canadian bitcoin exhange (cavirtex). For this reason I can't advise you precisely on how you, as an American, should exchange bitcoins, but something like dwolla to get money in and out of the bank together with the MtGox exchange ( to buy and sell the bitcoins) would be normal.
Anyway, if you are worried about the value dropping significantly then, all you have to do is sell them for cash as soon as you get them. Before you figure out how to exchange them though, you need to set up a bitcoin wallet and post a bitcoin address to your site. This may sound abstruse to you but if you give it a shot, you'll find it to be a completely trivial matter. Exchanging the bitcoins for cash can be a bit more painful because of the third parties you have to involve, but on the whole its no big deal.

Anonymous said...


Have you looked Bitcoin Fog?

You can run coins through the fog much like real-world money laundering. Assuming its not some NSA honey-pot, it makes the deterministic traceability of bitcoins impossible; that is, if the site's implementation is technically sound (which it appears to be). You can still attempt to model the network probabilistically, but if a user takes certain precautions, it will be almost impossible to track.

Anonymous said...

I would say it's worth setting up and accepting Bitcoin donations as a passive receptacle for donations. There's no downside. People who are inclined to donate dollars to you aren't going to suddenly decide not to donate dollars and donate Bitcoins instead. While people who are involved with Bitcoin and read your blog might decide to kick in a few Bitcoin over to you since you set it up.

Bitcoin has also been very volatile so the upside potential is huge. 2 years ago when it was unknown, it was literally worth less than 1 cent - it was around 0.3 cents. Last summer it peaked at around $30 - it had gone from around a dollar in Feb. 2011 to $30 in Jun. 2011. It subsequently crashed down to $2 in Oct. 2011, and is now back up around $12 a year later.

Note that the people that tend to badmouth it the most are people that knew about it back when it was worth pennies and could've gotten in on it early but missed out and are now bitter and hoping it fails.

Anonymous said...

I use Bitcoins to buy my drugs on the SilkRoad, on the TOR network.

Other than for that I see no point in it. It seems like a lot of work or nothing, and you end up losing money on commisions buying and selling the bitcoins.

Anonymous said...

Bitcoin is here to stay. There's an army of unemployed and underemployed nerds behind it that will see to that.

Mike said...

People use bitcoin for many things.

Some people like the zero-overhead nature of bitcoin transactions. No value lost to credit card / amazon / paypal fees.

Some people like bitcoin as a commodity investment. It's gone way up, down, and up again. The way it's 'created', it's not pegged to anything but it is inherently scarce. Maybe it'll keep going up. (Maybe not. It's sorta a pyramid scheme, though I guess most things are.)

Some people like it as an anonymous currency. Along with legit uses, you can buy drugs and weapons with bitcoins.

Some people like it since it's not centrally-administered and manipulatable like other currencies. You don't need to ask permission from a payment processor to send or receive payments, nor do you need to worry about a central government printing more.

What it gets down to for you, though, is it makes it easier for tech-savvy people to give you money, in a way that isn't dependent on the uptime or fickleness of third-party services like Amazon or Paypal. Once you get bitcoins, maybe you could let them pile up and get some young techie to help you translate them into dollars 2x/year or something.

socks said...

To bootstrap a new faith based currency, people need motivation. I have friends, online poker players, that needed better options than were available after the government started interfering with transfers. It was enough to make them take that leap of faith.

As for hardware, don't forget to factor in the watts/coin: https://en.bitcoin.it/wiki/Mining_hardware_comparison

Anonymous said...

Bitcoin has been remarkably robust and resilient:


Anonymous said...

"Bitcoin Ends Month Up 22%, Quarter Up 85%, YTD 2012 Now Up 162%

For the seventh month in a row, the BTC/USD exchange rate ended higher than the level it was at when the month had begun."


Seattle said...

OT, but while perusing Amazon I noticed that Tom Wolfe's Back to Blood will be released October 23. I'll be looking forward to Steve's review.

DoJ said...

I wouldn't want my salary denominated in it since Bitcoin is not backed by the US government, but for one-time donations which you quickly convert to USD, it's harmless fun. Maintaining anonymity when using it seems to be tricky, but that's not a concern for you.

Qiang said...

Bitcoin sounds about as shady as your gut says it is. It looks like mostly they get used for illegal online transactions or hoarded by nerds.

In the short time it is has been around there have been several major thefts/hacks that affected hundreds of thousands of dollars in bitcoin credits and major spikes and drops in value as might be expected.

On the other hand, if someone's offering it as a donation and not willing to offer one in another currency, then what do you have to lose?

DirkY said...

The main actual use of bitcoin appears to be ordering drugs from some underground versions of eBay. A trickle of random $50 and $100 payments might look to the government's computers a lot like a dealer rather than user.

Bitcoin itself is not perfectly secure, but it is enough of a hassle that the government probably does not hack it directly. However, I'm sure they've hacked and/or secretly run some of the sites for converting bitcoins to dollars.

stari_momak said...

Can you use them to buy weapons for World of Warcraft?

Anonymous said...

I'm one of the readers who suggested Steve accept bitcoins.

The point of accepting bitcoin isn't that I think there is a lot of pent up money out there that people want to give to Steve but aren't because he doesn't accept Bitcoin.

The point is that taking bitcoin costs nearly nothing (a few minutes of time), so when every penny helps why the hell not?

More importantly, taking bitcoin is a marketing move. It's a dog whistle to the exact kind of people Steve should be trying to reach: young, smart white people who hate the establishment, who "get it". The kind of people who are involved in bitcoin are the kind of people who should be reading this blog.

Anonymous said...

No, you shouldn't accept bitcoin.

Why does it have value? Don't worry about that. If you never hold it, but cash out immediately whenever people donate, you don't care.

What is it good for? Mainly avoiding centralized control. It makes sense for drug dealers and cybercriminals to accept bitcoin. It makes sense for wikileaks to accept bitcoin, when the government told Visa, etc, not to allow money transfers to them. But if the government does that to you, you have worse problems. You could avoid the current hassles with Amazon randomly turning on and off, but at the expense much greater hassle for you and your donors of figuring out how to use it.

If there is a large chunk of donors who are only willing to pay in bitcoin, then obviously it's worth it. If someone writes to you to say that, demand a pledge. If someone writes that it's the answer to the current problem with Amazon, the answer is no.

Eric said...

Bitcoin is here to stay. There's an army of unemployed and underemployed nerds behind it that will see to that.

If it ever actually becomes more than an intellectual curiosity, the feds will do the legal equivalent of turn bitcoin sites into a smoking hole in the ground. The put a lot of effort into getting Vegas businesses to refuse casino chips because the chips had become a local competing currency to the USD.

It's almost certainly illegal to use bitcoins already, mostly because everything involving money is illegal beyond the narrow set of actions you normally take, and I wouldn't interpret the lack of action on the government's part for acceptance.

AllanF said...

<eye-roll> I know I shouldn't waste the key strokes, but here goes... any fiat, which bitcoin most decidedly is, is only as good as the faith people have in it. Hyperinflation is the symptom of people losing faith in a particular fiat.

Since bitcoins are completely intangible and require a fairly high-tech infrastructure to make work, it is trivial business to induce people to lose faith in them: flood the market with bitcoins, shutdown one of the major exchanges, spread rumors that a few of the minor exchanges are govt honeypots, spread rumors that some portion of the cryptography has been hacked, etc. I bet how-to papers have been written on it at War College before bitcoin was even in existence. I'd not be surprised the CIA's hyper-inflated real currencies worth far more than bitcoin just to prove they could.

Anonymous said...

Bitcoin isn't a fiat currency. It doesn't have a centralized issuing authority. It's a digital commodity that's finite in supply. The total number of Bitcoins is 21 million. The network is programmed to increase the Bitcoin supply until that limit.

Orthodox said...

Bitcoin is like something out of a sci-fi novel, the digital money of the future. That give it appeal.

The best appeal, however, is how the (limited supply of) money is created. The users compete to receive new money, and anyone can participate. It's sort of like if the Federal Reserve gave out free raffle tickets and then printed money to give the winners. Lots of people would be interested. Since Bitcoin is limited in supply though, interest may slip once there are no new bitcoins.

Anonymous said...


Get bitcoins in donations, cash out with gold and silver:


If goldbugs are trading their metal for bitcoins, the currency is here to stay.

Those that choose to remain ignorant of the network protocol known as Bitcoin and its many uses can keep on using the green pieces of paper and debt-ladened, fee-burdened fiat system in general. Good luck to you in the next couple of years. Or you can educate yourselves a little bit, like you had to do when email and the web came along.

That's always the choice: throw feces and catcalls at things one don't understand or try to comprehend whatever it is that causes such vexation in the first place.

Anonymous said...

I'm a big fan of bitcoin. All the same, yes, it is in a vulnerable stage. As another poster stated, governments could go after the exchanges which would severely diminish their value. For bitcoin to go beyond government reach it has to be used outside of the current choke points. If everyone starts using bitcoin everywhere the exchanges won't be necessary and the government won't be able to do much about it.

That it's just another "fiat" currency isn't really true. Their is no central agency with the power to print them at will. The supply will always be limited by the network. The algorithm determines the speed at which new coins enter the market. Miners get the new coins as a reward for verifying transactions. When miners start using greater computing power the difficulty automatically adjusts, so throwing more computing power at mining just results in an armsrace (as intended).
Eventually when all 23 million coins are produced, the miners only reward will be the collection of transaction fees. How that will play out I'm not sure, but again there have been no significant oversights made by the designers.

jody said...

yeah i know a guy who buys and sells silver and bitcoins interchangeably. maybe he's a looper!

derp. he's not a looper. just some guy in the netherlands who prefers metals to euros, but wants none of his wealth traceable so he converts it into bitcoins eventually.

OlioOx said...

Prof. Robert Sapolsky of Stanford U has a large series of introductory lectures on Human Behavioral Biology that mention very recent research on genes and behavior, including the fact that 'junk' DNA actually performs all kinds of functions. The lectures are from 2010. Start here:

Anonymous said...

yeah i know a guy who buys and sells silver and bitcoins interchangeably.

You mean you "know" the guy on the internet.

Anonymous said...

I know you read Neal Stephenson, Steve. Didn't you read Cryptonomicon? All you need is a tangible asset (gold) and strong crypto.

As bankrupt governments QE their way to the final accounting, good digital currency will be more and more worthwhile.

Cail Corishev said...

"Bitcoin isn't a fiat currency. It doesn't have a centralized issuing authority. It's a digital commodity that's finite in supply. The total number of Bitcoins is 21 million."

If there's no centralized issuing authority, who decides the supply stops at 21M? (I'm guessing maybe the algorithm only allows that many valid keys, but in that case it seems like an odd number.)

It's a cool idea, but it does seem kind of fragile, for the reasons others have listed. And I say that as one of the early (small) purchases of e-gold back in 1996. I think viable alternative currencies are coming, but I don't think we're there yet.

stari_momak said...

Will you take mackerel?

Anonymous said...

Your question seems to be: "Why should I take bitcoins?"

The question should be: "Why aren't I taking bitcoins?"

"It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights. The demand for constitutional guarantees and for bills of rights was a reaction against arbitrary rule and the nonobservance of old customs by kings. The postulate of sound money was first brought up as a response to the princely practice of debasing the coinage. It was later carefully elaborated and perfected in the age which—through the experience of the American continental currency, the paper money of the French Revolution and the British restriction period—had learned what a government can do to a nation’s currency system.

Modern cryptodespotism, which arrogates to itself the name of liberalism, finds fault with the negativity of the concept of freedom. The censure is spurious as it refers merely to the grammatical form of the idea and does not comprehend that all civil rights can be as well defined in affirmative as in negative terms. They are negative as they are designed to obviate an evil, namely omnipotence of the police power, and to prevent the state from becoming totalitarian. They are affirmative as they are designed to preserve the smooth operation of the system of private property, the only social system that has brought about what is called civilization.

Thus the sound-money principle has two aspects. It is affirmative in approving the market’s choice of a commonly used medium of exchange. It is negative in obstructing the government’s propensity to meddle with the currency system."

-Ludwig von Mises
The Theory of Money and Credit (1912)

Checkers speech said...

There was a short but adequate article in The Economist week before last which, I realize, you probably would not have encountered. What everyone else said is right, there's no reason to barter with Internet readers unless it's a car or something useful.

Anonymous said...

Wow, ingenious suggestions of your most loyal, knowledgeable, urbane readers rending the sphere as if so many bolts of STEM lightning--I'd expect you to take shekels or George W. Bush memorabilia before adopting an e-money compensation platform. But if it was just a twist on the daily fundraising post then by all means carry on...

Paradey said...

"Bitcoin is like something out of a sci-fi novel, the digital money of the future. That give it appeal.

The best appeal, however, is how the (limited supply of) money is created. The users compete to receive new money, and anyone can participate. It's sort of like if the Federal Reserve gave out free raffle tickets and then printed money to give the winners. Lots of people would be interested. Since Bitcoin is limited in supply though, interest may slip once there are no new bitcoins."

-We trust the gov't more than the guy who invented Bitcoin that he won't do something sneaky and create a bunch more bit coins for his own pockets, but actually the gov't has been doing it for years with things like quantitative easing which generate inflation. I guess the only thing that can be said is that we have more faith that the government won't do it on a massive enough scale in a short enough time to screw us out of our life savings before we can get most of it to safer harbor.

Anonymous said...

The best appeal, however, is how the (limited supply of) money is created. The users compete to receive new money, and anyone can participate. It's sort of like if the Federal Reserve gave out free raffle tickets and then printed money to give the winners. Lots of people would be interested. Since Bitcoin is limited in supply though, interest may slip once there are no new bitcoins.

It's not raffle precisely although luck is involved. Its a reward for verifying transactions (refered to as block mining). The new coins are one of two rewards. The other reward is the collection of transaction fees. The coin reward goes down at strictly determined rate set by the aglorithm, which is why no new coins will be introduced after the 21 million point.

Once the 21 million coins are introduced it still has to be worthwhile for the block miners to mine, or the system fails, so the idea is that they'll rely exclusively on transaction fees for incentive at that point. If I understand correctly, miners can choose to exclude transactions (from tranaction blocks) that don't have a threshold transaction fee, so they can make sure that there is always some profit in it for them. By the same token bitcoin users may find themselves having to pay higher transaction fees in the future depending on whatever the market decides.
Since global rate of of introduction is regulated by the algorithm, throwing more computational resources into mining will give you a bigger piece of the pie but the the other miners will then get get smaller pieces which makes it an armsrace in practical terms.

Anonymous said...

Almost every reason that anyone ever gives, here and elsewhere, for why someone should accept bitcoin, are reasons to hold bitcoin, not reasons to accept bitcoin. If you do hold them, then you will have put in the effort, so you might as well accept them; though your donors won't put in the effort and won't donate them. But if the people who advocate bitcoin do not understand the difference between holding and accepting, their advice on currency is worthless.

Anonymous said...

...I wouldn't interpret the lack of action on the government's part for acceptance.

There is not much the US government can do as Bitcoin is a worldwide phenomenon

Anonymous said...

I have never contributed to iSteve, but if you accept bitcoins I will. I enjoy reading your blog immensely, but do not want my name associated with the blog in any way.

william said...

It seems like a lot of perform or nothing, and you end up taking a loss on commisions dealing the Exchange Bitcoin.