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FROM BITCOIN TO SHITCOIN IN ONLY A FEW DAYS.

It's all over mainstream media. Reuters, Forbes, and many others  — all say that bitcoin has taken a serious blow because of the collapse of the Mt. Gox bitcoin exchange.


I don't see how anyone could have trusted their bitcoins to Mt. Gox, a web site started by guy to buy and sell geek cards for the game Magic: The Gathering, hence the name Magic: the Gathering Online Exchange.

I don't get bitcoin at all, I guess. I thought that anyone installed a piece of software on his computer, called a wallet, and then by buying bitcoin from someone else through selling cash or checking account credit, that one always had his bitcoins as long as his hard drive didn't crash or he didn't lose his computer or forget his wallet password.

I thought bitcoin exchanges existed only for those who wanted to sell out of bitcoin and buy bank credits denominated in dollars, yen, euros, krone or Swiss francs; or for those who wanted to buy bitcoins, perhaps to sit on those coins hoping to gain appreciation relative to bank credits denominated in central bank cash of one of the many centralized bank note systems in operation today, or maybe to buy drugs who deliver drugs through postal services.

So I thought that bitcoin exchanges were like down-the-street, real-life gold and silver coin dealers, numismatists who buy and sell gold and silver coins and rounds and the like. I thought bitcoin exchange operators earned their profit from either charging a fee in bank credits of a designated banking system  (USD, EUR, JPY, GBP, CHF, CAD, AUD, NOK, etc.) above the trading price of bitcoin as a small percent for handling exchange or they charged a part of bitcoin for exchanging bitcoins into bank credits of various kinds.

So I don't see how a bitcoin exchange could lose anyone's bitcoins unless they also were providing a warehouse service. But why would anyone use a warehouse service giving up possession in his bitcoins?

Doesn't using a warehouse service defeat the purpose of being in control of one's bitcoins and being anonymous? Could not any government agents raid any bitcoin exchange and examine by IP addresses and other digital fingerprints to discover who owns those bitcoin warehouse accounts?

Recent articles in Forbes attack bitcoin as a Ponzi scheme and as presenting problems to American retailers with sales tax liability.

It is illusory that anyone possessing bitcoin has currency, which is another way of saying bearer negotiability, or the property in the bitcoin goes with every exchange without needing proof of ownership, the same as cash, unlike bank credit. Every transfer of bitcoin requires challenge and proof of property, that is, proof of exclusivity, which amounts to de facto ownership.

In the real world, when a right of ownership (property) dispute arises, people have recourse. They can plead their cases in court regulated by law in the administration of justice. In the Bitcoin world, if someone swipes your bitcoins from your bitcoin wallet, you become the loser with no recourse.

Bitcoin is a weak circulating medium. So few retailers take bitcoin relative to the hundreds of millions of retailers the earth over who take bank credits seemlessly and without doubt who always take cash of the local banking system. It would be a stretch to say that more than 2,500 retailers the earth over take bitcoin. SpendBitcoins publishes this directory of firms, which accept bitcoins as payment.

Supposedly, as the story goes, a computer-geek named Satoshi Nakamoto published an academic paper in 2008 detailing a digital payment system  that would allow online payments to be sent directly from one party to another without the need of the central clearing house of any banking system. Bitcoins get created by computers programmed by individuals to solve complex mathematical problems, which require significant real computing resources, like equipment and electricity.

There is a finite number of coins which can get mined and that number is 21 million. Bitcoins get produced on a schedule of 25 bitcoins about every ten minutes. In 2017, that schedule changes to 12.5 bitcoins every ten minutes. In turn, that shall get halved ever four years until 127 years from now, in 2140, when the final bitcoin shall be generated, assuming that bitcoins acceptance survives that long.

Right now, over 11 million bitcoins have been generated and now are in possession of some. Each bitcoin can be divided by anyone in possession to eight decimal places, making the smallest division 0.00000001 of a bitcoin. This division is known as a satoshi.

As I understand it, when anyone installs wallet software on his computer, he gets a complete ledger that details every transaction ever conducted using the specific bitcoins in his wallet. In geek-speak, each bitcoin has a record of transactions associated with it known as "block chain."

Known as peer-to-peer, the bitcoin system records all transactions publicly with a timestamp, which lets bitcoin users agree on a history of the order of transaction as a method to block anyone from trying to spend the same coin twice. According to Satoshi Nakamoto, the bitcoin system is vulnerable from a group of attacker nodes against an honest node.

If anyone loses his wallet, all his bitcoins get lost, not only for him, but everyone else as well. The lost bitcoins remain in the tally of mined coins, but no one can get access to those coins to spend those coins. In effect, it is as if someone rocketed those coins into deep space.

There seems little reason for anyone to be involved with bitcoins. Online retailers and retailers the earth over accept debit cards, credit cards and often Paypal. And who doesn't accept cash as payment?

There is no recourse through bitcoins. No one can plead right of action in court for recovery against fraud.