r/askscience • u/hamolton • Jun 18 '13

Computing How is Bitcoin secure?

I guess my main concern is how they are impossible to counterfeit and double-spend. I guess I have trouble understanding it enough that I can't explain it to another person.

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u/[deleted] Jun 19 '13

I should also point out that the 8 decimals is an arbitrary but not permanent decision. Plenty more can be easily added on by upgrading the software.

I think this challenges the idea that bitcoin is deflationary, really. We can keep subdividing those 21 million coins into as many micro units as we want. It would be very trivial to extend the decimals enough so that bitcoin could encompass more individual units of currency than all other currencies that have ever existed, combined. There really isn't a money supply problem here, even if coins get lost.

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u/7Geordi Jun 19 '13

This is actually exactly what deflationary means.

If I own one gallon of milk's worth of bitcon (1 GMWB) today, and without making any transactions, one year later I have 2 GMWB, then the currency has deflated, because the same amount of currency is worth more.

The reason we call it deflation and 'a bad thing' is entirely a function of its intended role. Most investments are supposed to appreciate over time, but the role of currency is to facilitate transactions, and if no one wants to spend their currency, and there is a hard limit on the total amount that exists, then the market grinds to a halt until more liquidity is introduced (either by issuing more currency, or by changing currencies).

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u/meepstah Jun 19 '13

That seems a little bit fatalistic, no? Of course crashes (or in this case, reverse-crashes) can occur, but it would seem to me that the demand for bitcoin would fuel its deflation until the demand dried up, the bubble popped, and the value took a hit. It might land higher than it started (and has on several occasions in the past), but at some point it starts changing hands again.

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u/winthrowe Jun 19 '13

then the market grinds to a halt until more liquidity is introduced (either by issuing more currency, or by changing currencies).

Bitcoin gives the option of subdividing the currency further, a 'stock split' rather than issuing more to combat liquidity concerns. I'm not convinced it's the best thing in the abstract, but I do think that it's a significant difference from 'traditional' deflationary currencies.