On the success of Bitcoin

At the moment of writing this post, 1 bitcoin (BTC) is worth exactly 8 US dollars.

Bitcoin is a success. Compared to even one month ago bitcoin is getting a lot of news coverage online. The software development scene for mining bitcoins is getting bigger and bigger. Online 'pools' are popping up all over, where instead of gambling on whether or not you'll find coins, you can dedicate your CPU/GPU power and receive a steady reward instead. Mining coins with a Radeon 6870 at this pool will earn you a steady 1.44BTC every day, which is $12 at the current exchange rate.

I did not see this coming at all. Back when I last wrote about Bitcoins I was fairly negative. I thought that the difficulty factor would go up like crazy and that the exchange rate would stay fairly similar. Instead, the opposite has happened. Bitcoins are worth 8 times as much as 2 months ago, but the difficulty only rose by a factor of 2. Needless to say, if I had confidence that this was going to happen, I would have invested more money in bitcoins. Instead, I foresaw the whole thing losing popularity and I sold all my coins back in early April, just before the boom started. I'm still angry at myself for not following through on the idea I had in December last year, to buy $1000 worth of Bitcoins, which at the time would have amounted to 4000BTC. That would have been worth $32000 right now. Repeat after me: rv's an idiot.

I'm still mining for coins, hoping to grab some for myself before the difficulty level increases again. Bitcoins are hot right now. At least that's what the exchange rate is telling me. The point is: even if the number of people mining for coins increases tenfold, it will not accelerate the speed at which new bitcoins are found. The whole system was designed to deliver bitcoins at a steady pace, never suddenly increasing or decreasing. The more GPU power you throw at it, the further the difficulty increases. In other words: supply is steady, and demand is increasing far beyond all reasonable expectations. I just wonder how long this trend will continue before something horrible happens and the market collapses. The whole thing could collapse catastrophically if a flaw in the hashing algorithm is found, or even if some governments declare the concept illegal. Both are extremely unlikely to happen, but you never know. Then again, bitcoin is probably more stable right now than most currencies of third-world countries.

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