The Hitch

"The hitch is that the payment systems we have today are not available to just anyone. In fact, a vast majority of humanity does not have access to such tools, which is a major reason for poverty in the world. The financially disenfranchised are confined to only local trade and cannot extend their trading relationships with the world.
A major, if not a primary, purpose of developing Bitcoin was to solve this problem. The protocol set out to weave together the currency feature with a payment system. The two are utterly interlinked in the structure of the code itself. This connection is what makes bitcoin different from any existing national currency, and, really, any currency in history." -- https://fee.org/articles/what-gave-bitcoin-its-value/

Basics

Q. What is Bitcoin? A. Bitcoin is a peer-to-peer currency. Peer-to-peer means that no central authority issues new money or tracks transactions. These tasks are managed collectively by the network. Q. How does Bitcoin work? A. Bitcoin uses public-key cryptography, peer-to-peer networking, and proof-of-work to process and verify payments. Bitcoins are sent (or signed over) from one address to another with each user potentially having many, many addresses. Each payment transaction is broadcast to the network and included in the blockchain so that the included bitcoins cannot be spent twice. After an hour or two, each transaction is locked in time by the massive amount of processing power that continues to extend the blockchain. Using these techniques, Bitcoin provides a fast and extremely reliable payment network that anyone can use. -- From the Bitcoin Wiki FAQ

Dominoes

"The final domino to fall, of course, is the power which governments wield over their flock via their ability to print, regulate, and control the nation's money. When a state currency is challenged, the state itself is challenged, and market forces move swiftly around sickly, depreciating inhibitors. The press conferences of someone like Bernanke would become less and less important, because the currency he printed would be used in narrower and narrower circles. Instead of fighting the government, Bitcoin enables individuals to sidestep it - to ignore it to a large degree. Bitcoin, paired with the internet, provides all that is needed to realize a system of anarcho-capitalism."

Money and State

"If the “separation of money and state” is a familiar concept to the next generation of schoolchildren, Bitcoin will have succeeded." -Erik Vorhees

Knock Knock

What did the dollar tell the bitcoin? "Take over the world, son? Why, you can't even get into a stripper's pants!" Bitcoin was mildly offended and so it devalued the dollar until it became useless and then laughed as people began to burn them for heating fuel in the winter and use them as toilet paper.

Blood Diamonds

“Would you rather buy a diamond or a blood diamond?” he asks rhetorically. “Obviously a diamond. So, would you rather use a Bitcoin or a dollar? When I gave someone $5 in Bitcoin, I didn't kill any ­ children in Iraq.” Johnathan Mohan, as quoted in the Washington Tribune

Backing Bitcoin

What is bitcoin backed by? The currency is backed by a public ledger, called the blockchain, which specifies which bitcoins are in which account and identifies everyone's holdings. The blockchain is in turn backed by decentralized replication, consensus, advanced cryptography and a network with the most computing power of any network in history. Each coin can only exist in one account at a time; the blockchain identifies every coin, and has that coins complete history, showing which accounts it has been in and which account it currently sits in. When the coin is in your account, only you can send the coin out of your account, with your private key/password. When you send a coin from your account to another account (say "account B"), that's a transaction, and the bitcoin network processes that transaction, checking to be sure that the coin in question is in your account and appending a new line to that coin's history indicating that it is no longer in your account and now exists in "account B." It is the network that processes these transactions that actually backs bitcoin. This network is the most powerful computer network currently known. Specifically, the network which verifies the blockchain and confirms all the transactions has over 2000 "petaFLOPS" of computing power behind it, contributed by a decentralized network that could not be shut down without turning off the internet, globally. For some reference, compare to the worlds most powerful supercomputer which currently computes at about 55 petaFLOPS. The bitcoin network is approximately 36 times more powerful than the worlds most powerful supercomputer. It is this processing power that truly backs bitcoin, in the sense that in order to compromise the currency (i.e. "hack" it in such a way that you could stop people from making transactions or otherwise screw it up) you would need to have more than 50 percent control of the network. So to compromise bitcoin right now, you would need to bring more than 2000 petaFLOPS to the table, meaning you would need to have 36 of the worlds most powerful supercomputer (which, by the way, belongs to China. It cost them $290 million to build it. Good luck buying 36 of them. America's fastest supercomputer is capable of only a measly 27 petaFLOPS). So, the US Dollar is backed by the US Government and all of it's armed forces. The Bitcoin is backed by the most powerful computer network in history. If the 2000 petaFLOPS existed as one single supercomputer in some warehouse somewhere, there would be no question about it--the US Government would shut it down, using their force if needed, or at least the implied threat of force. But with the 2000 petaFLOPS spread around a decentralized network, the Bitcoin infrastructure would be many times harder to shut down than, for example, Peer-To-Peer file-sharing through Torrent files, which the government has tried and failed to stop. The fact that this transaction and payments network is so unstoppable; coupled with the attributes of the currency itself (easy and cheap to transfer, impossible to freeze, finite and predictable supply, completely transparent and yet also potentially anonymous, nearly infinitely divisible, not affiliated with any political organization, no chargebacks, nearly instantaneous and completely non-reversible transactions) are the "backing" behind bitcoin. These attributes, and the strength of this network, give it value, not as a commodity, but as an efficient and greatly preferable unit of exchange. This is why, Rob Golden, Bitcoin will take over the world. And I would like you to know that I personally researched and wrote this essay, this is not a "copy-paste" situation, this is a "I just spent two hours explaining bitcoin to you so please read the whole thing" type of situation. Happy birthday.

CyberBusiness

This: "Then there's 'cyberbusiness'. We're promised instant catalog shopping—just point and click for great deals. We'll order airline tickets over the network, make restaurant reservations and negotiate sales contracts. Stores will become obsolete. So how come my local mall does more business in an afternoon than the entire Internet handles in a month? Even if there were a trustworthy way to send money over the Internet—which there isn't—the network is missing a most essential ingredient of capitalism: salespeople." Clifford Stoll, Newsweek, Feb 26, 1995 Is what people sound like to me when they try to explain why bitcoin won't work.

Inherently Peaceful

"What honest reason could there be to attack an inherently peaceful tool for transferring value?" - P. Rosenberg http://www.monetaryfreedom.org/#

Sound Money

"For more than 100 years, from roughly 1800 to 1912, the purchasing power value of the dollar under the gold-and-silver standard was essentially constant. With the creation of the Federal Reserve and its discretionary policies of the last century, however, the dollar’s value has declined by more than 95 percent." - http://www.soundmoneyproject.org/?p=9136

Not that we should go back to the gold standard. We should switch to bitcoin, of course. It's not inflationary and the "printing" of it is governed by mathematical formula that are inherent in it's technology and cannot be changed without breaking the entire system.

McAfee

"McAfee also says the growth of electronic currencies like Bitcoin is unstoppable, despite efforts by governments to curb their use. “Things like Bitcoin are completely outside the control and the knowledge of anyone.” To his mind, anyone who does not seriously consider electronic currency as a mode of currency exchange is “doing themselves a misservice,” given its encrypted and algorithmic protection from thievery. “It will be everywhere and the world will have to readjust. World governments will have to readjust.”McAfee also says the growth of electronic currencies like Bitcoin is unstoppable, despite efforts by governments to curb their use. “Things like Bitcoin are completely outside the control and the knowledge of anyone.” To his mind, anyone who does not seriously consider electronic currency as a mode of currency exchange is “doing themselves a misservice,” given its encrypted and algorithmic protection from thievery. “It will be everywhere and the world will have to readjust. World governments will have to readjust.”"

Hunger

Sean's Outpost has fed over 167,360 meals to homeless people, funded entirely by bitcoin donations. http://seansoutpost.com/

Freedom

Bitcoin is freedom. Freedom from arbitrary purchasing restrictions, freedom from obligated identification, freedom of independent wealth preservation, freedom from centralized control; bitcoin is a revolutionary vehicle to change things for the better.

"Instead of trying to change governments with a useless vote, or pathetic pleading, we merely abandon the government's powerbase - the power derived from control of exchange and currency." - Eric voorhees

Proof of Work

"A proof of work must have the following characteristics: a) have an adjustable "difficulty" which works under a very large range (bitcoin difficulty is ~150,000,000x higher today than at genesis and likely will go another 10x to 100x over next year). b) be very fast to verify (<100ms). Bitcoin has 52K blocks per year so someon bootstrapping 10 years after genesis woould need to validate 520K blocks in a timely manner. c) the input of the proof must be linked to a prior proof to prevent precomputation (Bitcoin uses the prior block hash as input for current block hash to prevent solving "future" blocks). d) the proof should be relatively compact (Bitcoin uses a 32 byte hash) e) the solution should be probabilistic. This means that given two competitors and one has 10x the computing power the smaller competitor should find ~9% of the solutions. Many problems are not probablistic such that the faster competitor will always arrive at a solution first. That would be bad from a security standpoint. f) require no outside "trusted" source or central authority for issuing or assigning work. h) have a mechanism to prevent duplicated work across the network without any communication to a peer or outside data source." - DeathAndTaxes

Known and Unknown

Of course bitcoin is complicated, but you might argue the US dollar is even more complicated. How many bitcoins currently exist? That question will always have a concrete answer that is easy to find. How many US dollars currently exist? Well that depends what you mean by "exist," and you'll never get a firm answer (probably because it would be too easy for people to catch on to the way they're just printing more off like there's no tomorrow)...

Middlemen

"One thing bitcoin does quite handily is remove lots of middlemen. “Bitcoin has opened the door to a whole new level of person to person exchange and individual freedom, which is one reason why I wanted to be involved,” said Allen. “I imagine a world where a large coffee farm or the head of a farming co-op can deal directly with both smaller end-buyers and even the larger multinationals on a much more level playing field if they could sell, trade and auction their coffee directly via bitcoin. If they can accept a ‘currency’ that’s used by buyers from many different countries – and then use or convert that currency in their own area – everyone benefits.” "

Plagiarized

I am trying to give credit wherever it is due, but many of these snippets I have lost the sources for. If you feel you've been plagiarized, send me a note and I will give you credit for your words.

Plagiarized from the comments section of the below linked news article: "The reason it's so hard for most people to understand Bitcoin is that most people don't really understand money. Money isn't wealth. It's an accounting system for facilitating the exchange of wealth. (The paradox of money is that while everyone wants it, no one actually wants it -- they want the stuff they can buy with it.) Many people are put off by the fact that bitcoins are "just information" -- but that's what ALL money is! More specifically, money is a means for credibly conveying information about value given but not yet received (or at least not yet received in a form in which it can directly satisfy a person's wants or needs). To put it yet another way, money is a ledger. With fiat currencies like the dollar, that ledger is centralized. And that gives the central authority responsible for maintaining that ledger tremendous power, power that history has proven will inevitably be abused. With Bitcoin, the ledger is decentralized. And that means that no one individual or entity has the power to arbitrarily create new units (thereby stealing purchasing power from existing holders of the currency), freeze your account, or block a particular payment from being processed. We've had decentralized money before. For example, no one can simply print new gold into existence. And the "ledger" of gold is distributed because the physical gold itself (the "accounting entries" in the metaphor) is distributed. But with gold, that decentralization comes at a heavy price (literally). The physical nature of gold makes it hugely inefficient from a transactional perspective. Enter Bitcoin. It is the first currency in the world that is both decentralized and digital. It is more reliably-scarce than gold, more transactionally-efficient than "modern" digital banking, and enables greater financial privacy than cash. It could certainly still fail for one reason or another, but if it doesn't, it has the potential to be very, VERY disruptive. To learn more, google bitcoin!" http://finance.yahoo.com/news/chinas-google-now-accepting-bitcoin-182100345.html

Paradigms

“In order to change an existing paradigm you do not struggle to try and change the problematic model. You create a new model and make the old one obsolete.” - Buckminster Fuller

TomCars

“Any startup company should maximize potential payment methods and we see bitcoin as a valid burgeoning payment format, just like credit cards were in the 1970s,” said David Brim, co-founder and CEO of the Australian firm. “When our Tomcars are suited to many driving environments, it makes sense to accept a global currency without nation state borders.” -- Nov. 2013

Corruption

“Corruption in governments worldwide is rife and as long as governments control the money supply, they have ultimate power over their people. I don’t want to get into the debate over whether this is good or bad, but bitcoin can flip this on its head and as such it should have a bigger impact on the world as we know it.” -- Halford-Thompson

Displace Fiat

"If bitcoin continues unchecked it will likely displace fiat currency to a large degree. Fiat currency is the main power source for the entire banking industry and to a lesser degree the US Govt. ... ...[govt/banks] want to destroy it. They have already done the same with EGold, Liberty Dollar, and many others. However, bitcoin is so widely held, popular, apparently difficult to attack [from a technical enforcement standpoint], and clearly a moral good that a traceable attack, at this point, is going to be a last resort. I'd expect to first see a continued propaganda effort and further attacks on the fiat-bitcoin interface [i.e. making it illegal to sell bitcoin for US dollars]. This will [attempt to] drive bitcoin further underground and give impetus to the propaganda that it is the currency of illegal activities. Eventually this can attempt to build public support for destroying bitcoin." -lorax2013

Nov '13

"My opinion: There's still plenty of time to make a life-changing amount of money here. Depends how long it is. Imagine you could have invested in the future potential of 'the internet' in '91. You could have made a killing. And in '95-'96 people were really just starting to see it's potential. And you still would have made a killing then. That's where we are now. The world hasn't seen nothin' yet." -mootinator

Ten Signs

"Top 10 signs you may be too involved in Bitcoin 1.) Your mining rig has doubled as a heater in winter. 2.) You met a local bitcoin seller in person at a Starbucks and paid in cash before you became established at an exchange. 3.) You stayed up 3 hours past your bedtime just to get continued endorphin rushes while watching the bitcoinity graph flash "All Time High!" 4.) You have a serious distaste for the word "tulips". 5.) You know the exchange rate for the Yuan. 6.) You've used the term "you've been goxed". 7.) You knew what DPR stood for before the Silk Road bust. 8.) You doubled your investment in 3 weeks and wondered if there was anything you could have done more efficiently. 9.) You've kicked yourself numerous times for selling bitcoins below $100. 10.) You put more time in reading up on bitcoins than you put in doing homework." -btcprice

Private Keys

"... if you don't have the private key you don't have any Bitcoins (ask the users of Input.io, Bitcoinica, bitfloor, instawallet, etc, etc, etc)." -DeathAndTaxes

Do not Understand

"The One Thing Bitcoin Has Taught Me ... is that even when presented with clear evidence of how governments and central banks devalue currency, and even when there's a great alternative currency that no government can devalue in that way, and even when you're talking to people who actually come to you asking for ways to make money online - they still run away from anything they don't understand." -WilderedB

Understand

"Bitcoin has taught me to trust and believe in decentralized systems. To believe in the idea itself and fight for it even when no one or very few people are. I was in after the big crash from ~$30. Decided to first understand the idea, to understand Bitcoin. Believe me if you do you will still rally for Bitcoin even if TODAY it fell from $700 to 50 Cents." -lophie on November 19, 2013 (with some spelling corrections)

Plausible Scenarios

"In some plausible scenarios the actual value of bitcoin as a tool to solve real-world problems is quite high. In that case, the value is not really increasing all that quickly and has a ways to go." -tvbcof

7 Million Sodas

"So, you do understand how a dollar breaks into one hundred pennies, right? Well, a bitcoin breaks into exactly 100000000 Satoshis. Meaning right now, you can pick up a million satoshis for about $7. Assuming that bitcoin replaces all fiat currency and becomes the standard global unit of exchange, 1 satoshi will be worth about what $1 is today. So, if you do believe that bitcoin will ultimately become the global unit of exchange, or even if you just think it might be possible, it would be a pretty good idea to spend $7 on a million Satoshis today. If you live to see the day that bitcoin becomes the global currency, you'll have a nice $7Million USD worth of bitcoin. Of course, USD will no longer be in use, but still--you'll have enough bitcoin to buy 7 million cans of soda at a NYC deli."  -- Henry Romp on Nov. 19th, 2013

Minutes to China

"To test bitcoin’s efficiency Kapron bought 10 BTC in the US through CoinBase, sent it directly to BTC China and withdrew the money in CNY, which “takes 20 minutes or less once you know what you’re doing”."

The West

"I gave my grandfather a 100 BTC Casascius bar for Christmas back when BTC was around $10. It's worth a bit more now. Needless to say, my grandfather checks the ticker several times a day, and keeps up to date on Bitcoin news. He thinks it's really "nifty." He was concerned about the crazy volatility over the past 48 hours. My father sent him the following response, which I wanted to share... Here's an analogy. Bitcoin is often compared to the wild west, and it's a good comparison. Think about the wild west. You had all kinds of craziness going on. Millions of people heading westward. Indian tribes massacring each other and the settlers. Cavalry sweeping in and rounding up the Indians. Bad guys shooting it out in bank robberies. Cattleman at war with sheepherders. The transcontinental railway changing the paradigm constantly. And it goes crazy all over again when gold is discovered. And every few days there's a buffalo stampede that wipes out everything. The only thing you could count on was that civilization kept expanding, in fits and starts, but inexorably. Same thing here. The beauty and magic of bitcoin is precisely that it is so un-regulated and so free-market. That's why the market loves bitcoin. It's the wild west! It's freedom! And, yes, it's crazy. But in a good way. Don't like the West? Don't like the craziness? Stay in Boston." -- Erik Vorhees

Algebra

A protocol is basically a set of rules. Bitcoin is a decentralized protocol. You can't regulate algebra.

Escrow

The bitcoin protocol has mechanisms in place to fully automate and decentralize a great number of the services that our corrupt financial industry currently provides, allowing for a free market in these services that results in much more reasonable fee structures. Take escrow for example.

Backing Goats

"Underpinning the value of Bitcoin is the fact that people will always need a method for transferring value that does not involve carrying a goat to the market." -Piper67

Bankers and Greenbacks

"Naturally bankers of all shades are scared of losing their monopolist grip on money, yet given the vast inefficiency of their decrepit systems, it is probably already too late. Decentralized money is an idea whose time has come. Bitcoin is the breakthrough currency creating a widespread consciousness that there is an alternative to holding greenbacks, or lugging a trunk full of gold around. "

Allowances

"The question is not whether governments will allow a bitcoin economy, the question is whether Bitcoin will allow oversized governments to exist and retain the kind of power they currently do." -Nagato

USD

"The USD is a 40 year old experiment in pure fiat, that looks like its on the verge of failure." - Theodor Adorno

Gold Standard

"...it has only been 40 years since the global government currencies have been completely unbacked by anything (since Nixon closed the gold window in 1971). Would you think these governments around the world might take advantage this great ability to print money when needed? Hell yes, not only will they all take advantage of it, they will abuse it. It is this very abuse by central bankers and governments which laid the foundation for bitcoin to be created and now grow... ...what is a preposterous fantasy is that governments and central banks will stop doing what they're doing - that they will start being disciplined, will pay down all the debt, and will stop printing. Not only is it preposterous, it's also dangerous. Ask people who owned Zimbabwe currency, Argentina's peso, or the Mark during the Weimar Republic. You need to open your mind to the possibility that this 40 year experiment of pure fiat, controlled by out of control governments and central bankers, who have the ability to print money at will, will not work out. You make your bet by staying in the dollar. I will keep some of my wealth in bitcoin. Good luck to all as we see how this plays out." -Joe T

Internet Resources

"The best way to understand the value of Bitcoin is to think of other core internet resources that have a limited supply. Domain names give you the ability to host a website IP addresses give you the ability to connect a computer to the internet Bitcoin gives you the ability to send payments, property, and contracts anywhere in the world instantly and reliably There are markets for domain names and IP addresses. The prices tend to correlate to how useful people find those resources. Long term, if Bitcoin gains widespread adoption, I'd expect the Bitcoin price to correlate to how useful people think sending payments, property and contracts anywhere in the world instantly and reliably is. Personally I think this could be more useful than wearing jewelry, but maybe that's just me."

Bob and Alice

If you aren't sick of hearing about Bob and Alice, then you probably don't really understand how bitcoin works just yet.

Ledger of Title

"The Bitcoin network is, fundamentally, a ledger of title controlled by no man. Ponder that for a moment." -Erik Vorhees

The whitepaper

I can explain Bitcoin in one sentence: It is both a fully decentralized public ledger, and it is the unit of account used on that ledger. If that sentence doesn't make you suddenly go, "AHA! I SEE NOW! IT WILL CHANGE THE WORLD!" ... Oh well, go read the whitepaper.

Taxing Tea

"The Tea Board of India... ...is perplexed by the way some of its growers are bypassing all governmental oversight and revenue monitoring by selling their goods directly online."

"Questions are being asked in Parliament."

"India is addicted to bureaucracy. It has a labyrinth of boards, ministries, agencies and regulators, state and national, which seek to authorise, deny, monitor and control virtually every commercial act that might conceivably happen."

"No wonder bitcoin seems like a tempting sword with which to slice the Gordian knot. No wonder the masters are deeply concerned. "

Protocol

"The Bitcoin protocol is to distributed finance what Internet Protocol has been to distributed information. The blockchain is IP. And through manipulation of that we can build a whole other system. In the same way that IP and the infrastructure of network nodes that make up the Internet now support functions from e-mail to video streaming, the Bitcoin protocol and its miners can support a variety of financial functions."

Currency

"Currency is just the first app on the bitcoin network."

On Paper

"Paper is poverty... it is only the ghost of money, and not money itself." -Thomas Jefferson

Apple

Just don't forget what Apple tried to do.

"The blockchain application is the same one that has been on the App Store for 2 years, with more than 120,000 downloads, no customer complaints, and a broad user base. The only thing that has changed is that bitcoin has become competitive to Apple’s own payment system. By removing the blockchain app, the only bitcoin wallet application on the App store, Apple has eliminated competition using their monopolistic position in the market in a heavy handed manner." --From Blockchain.info's official statement regarding Apple's foolish attempt.

Now, of course, they've had to reverse their position and have multiple bitcoin wallets available in their app store.

Copyright in the Supreme Court

"In the U.S. Supreme Court case Dowling vs United States, the Supreme Court explicitly valued whether copies could be regarded as stolen goods under the law, and held that they could not. "Instead, “interference with copyright does not easily equate with theft, conversion, or fraud. The Copyright Act even employs a separate term of art to define one who misappropriates a copyright: ‘[...] an infringer of the copyright.’”

Democracy

The Blockchain is a new technology enabling large groups of people to arrive at a consensus in realtime. Bitcoin is one of many things made possible by this technology. I look forward to seeing how this technology influence government during my lifetime. Democracy looks like it's a bit broken, but for the first time in history, a real-time global direct democracy could be technologically feasible.

The technology allows for a network consensus regarding the ledger that is bitcoin; a consensus, in that we all agree who has which coins, without having a central authority keeping track of the ledger. It's a rather challenging feat and not everybody even has the logic required just to follow an explanation of how this is possible. But let's go a step farther--imagine what else might be made possible by this new ability that humanity has recently developed?

Bubbles

"A fast rise in price does not constitute a bubble. An artificial over-valuation that will lead to a sudden downward correction constitutes a bubble. Choices based on individual human action by hundreds of thousands of market participants is the cause for bitcoin's price to fluctuate as the market seeks price discovery. Reasons for changes in sentiment may include a loss of confidence in Bitcoin, a large difference between value and price not based on the fundamentals of the Bitcoin economy, increased press coverage stimulating speculative demand, fear of uncertainty, and old-fashioned irrational exuberance and greed."

Ponzi Schemes

"A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money, or the money paid by subsequent investors, instead of from profit earned by the individuals running the business. Ponzi schemes are designed to collapse at the expense of the last investors when there is not enough new participants. Bitcoin is a free software project with no central authority. Consequently, no one is in a position to make fraudulent representations about investment returns. Like other major currencies such as gold, United States dollar, euro, yen, etc. there is no guaranteed purchasing power and the exchange rate floats freely. This leads to volatility where owners of bitcoins can unpredictably make or lose money. Beyond speculation, Bitcoin is also a payment system with useful and competitive attributes that are being used by thousands of users and businesses."

Deflationary Spiral

Won't Bitcoin fall in a deflationary spiral? The deflationary spiral theory says that if prices are expected to fall, people will move purchases into the future in order to benefit from the lower prices. That fall in demand will in turn cause merchants to lower their prices to try and stimulate demand, making the problem worse and leading to an economic depression. Although this theory is a popular way to justify inflation amongst central bankers, it does not appear to always hold true and is considered controversial amongst economists. Consumer electronics is one example of a market where prices constantly fall but which is not in depression. Similarly, the value of bitcoins has risen over time and yet the size of the Bitcoin economy has also grown dramatically along with it. Because both the value of the currency and the size of its economy started at zero in 2009, Bitcoin is a counterexample to the theory showing that it must sometimes be wrong. Notwithstanding this, Bitcoin is not designed to be a deflationary currency. It is more accurate to say Bitcoin is intended to inflate in its early years, and become stable in its later years. The only time the quantity of bitcoins in circulation will drop is if people carelessly lose their wallets by failing to make backups. With a stable monetary base and a stable economy, the value of the currency should remain the same.

Regulation

Can Bitcoin be regulated? The Bitcoin protocol itself cannot be modified without the cooperation of nearly all its users, who choose what software they use. Attempting to assign special rights to a local authority in the rules of the global Bitcoin network is not a practical possibility. Any rich organization could choose to invest in mining hardware to control half of the computing power of the network and become able to block or reverse recent transactions. However, there is no guarantee that they could retain this power since this requires to invest as much than all other miners in the world. It is however possible to regulate the use of Bitcoin in a similar way to any other instrument. Just like the dollar, Bitcoin can be used for a wide variety of purposes, some of which can be considered legitimate or not as per each jurisdiction's laws. In this regard, Bitcoin is no different than any other tool or resource and can be subjected to different regulations in each country. Bitcoin use could also be made difficult by restrictive regulations, in which case it is hard to determine what percentage of users would keep using the technology. A government that chooses to ban Bitcoin would prevent domestic businesses and markets from developing, shifting innovation to other countries. The challenge for regulators, as always, is to develop efficient solutions while not impairing the growth of new emerging markets and businesses.

On Disbelief

“As fanciful – and indeed Matrix-like – as this bitcoin creation system sounds, perhaps it requires no more suspended disbelief than the traditional fiat system in which a government declares paper to have value and a central bank or national mint thus issues the specie. One doesn’t need to be the caricatured miscreant, Austrian economist or anarchist to appreciate the appeal of such a system.” -John Normand, head of global foreign exchange strategy at J.P. Morgan

On Divisibility

"Because of the law of supply and demand, when fewer bitcoins are available the ones that are left will be in higher demand, and therefore will have a higher value. So, as Bitcoins are lost, the remaining bitcoins will eventually increase in value to compensate. As the value of a bitcoin increases, the number of bitcoins required to purchase an item decreases. This is a deflationary economic model. As the average transaction size reduces, transactions will probably be denominated in sub-units of a bitcoin such as millibitcoins ("Millies") or microbitcoins ("Mikes"). The Bitcoin protocol uses a base unit of one hundred-millionth of a Bitcoin ("a Satoshi"), but unused bits are available in the protocol fields that could be used to denote even smaller subdivisions. " -- From the bitcoin wiki FAQ

On Regulation

"At the end of the day, no, Bitcoin the protocol can’t be regulated. Obviously, men with guns wearing costumes are scary, but a gun can’t change the mathematics behind Bitcoin." -Roger Ver

On the cost of Electricity

"The utility of the exchanges made possible by Bitcoin will far exceed the cost of electricity used. Therefore, not having Bitcoin would be the net waste." ~Satoshi Nakamoto, August 7, 2010

Multisignature Transactions

One of the many beautiful features of bitcoin is the ability to perform multisignature transactions. These transactions allow for many solutions to many problems. They can allow for direct exchange between two strangers over the internet, with only minimal trust of a third party who serves as an arbitrator in the event of any disagreement or failure to deliver. The coins are sent to an address where spending them requires two of three private keys; the vendor, the buyer, and the mediator each have one key.

There are also many other types of transaction made possible by "multisig" transactions. Two-of-two transactions can allow for the elimination of the mediator/trusted third party, though they require a little more trust between the two strangers. Joint accounts can be formed where both owners must sign off on any transaction; parents can make "savings accounts" for their children confidently, knowing that neither parent can access the funds without the consent of the other parent; and countless other possibilities.

Many of the potential uses of multisig transactions are enumerated on the bitcoin wiki. See https://en.bitcoin.it/wiki/Multisignature#Multisignature_Applications for a complete list.