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The recipient just needs to verify it back to a depth that is sufficiently far back in the block chain, which will often only require a depth of 2 transactions. All transactions before that can be discarded.
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The race is to spread your transaction on the network first. Think 6 degrees of freedom -- it spreads exponentially. It would only take something like 2 minutes for a transaction to spread widely enough that a competitor starting late would have little chance of grabbing very many nodes before the first one is overtaking the whole network. During those 2 minutes, the merchant's nodes can be watching for a double-spent transaction. The double-spender would not be able to blast his alternate transaction out to the world without the merchant getting it, so he has to wait before starting. If the real transaction reaches 90% and the double-spent tx reaches 10%, the double-spender only gets a 10% chance of not paying, and 90% chance his money gets spent. For almost any type of goods, that's not going to be worth it for the scammer.
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Some places where generation will gravitate to: 1) places where it's cheapest or free 2) people who want to help for idealogical reasons 3) people who want to get some coins without the inconvenience of doing a transaction to buy them There are legitimate places where it's free. Generation is basically free anywhere that has electric heat, since your computer's heat is offsetting your baseboard electric heating. Many small flats have electric heat out of convenience.
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The guy who received the double-spend that became invalid never thought he had it in the first place. His software would have shown the transaction go from "unconfirmed" to "invalid". If necessary, the UI can be made to hide transactions until they're sufficiently deep in the block chain.
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Proof-of-work has the nice property that it can be relayed through untrusted middlemen. We don't have to worry about a chain of custody of communication. It doesn't matter who tells you a longest chain, the proof-of-work speaks for itself.
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The current system where every user is a network node is not the intended configuration for large scale. That would be like every Usenet user runs their own NNTP server. The design supports letting users just be users. The more burden it is to run a node, the fewer nodes there will be. Those few nodes will be big server farms. The rest will be client nodes that only do transactions and don't generate.
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It's very attractive to the libertarian viewpoint if we can explain it properly. I'm better with code than with words though.
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Announcing the first release of Bitcoin, a new electronic cash system that uses a peer-to-peer network to prevent double-spending. It's completely decentralized with no server or central authority.
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Bitcoins have no dividend or potential future dividend, therefore not like a stock. More like a collectible or commodity.
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How does everyone feel about the B symbol with the two lines through the outside? Can we live with that as our logo?
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If SHA-256 became completely broken, I think we could come to some agreement about what the honest block chain was before the trouble started, lock that in and continue from there with a new hash function.
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The price of any commodity tends to gravitate toward the production cost. If the price is below cost, then production slows down. If the price is above cost, profit can be made by generating and selling more. At the same time, the increased production would increase the difficulty, pushing the cost of generating towards the price.
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What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers.
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At the moment, generation effort is rapidly increasing, suggesting people are estimating the present value to be higher than the current cost of production.
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Nodes always consider the longest chain to be the correct one and will keep working on extending it. If two nodes broadcast different versions of the next block simultaneously, some nodes may receive one or the other first. In that case, they work on the first one they received, but save the other branch in case it becomes longer. The tie will be broken when the next proof-of-work is found and one branch becomes longer; the nodes that were working on the other branch will then switch to the longer one.
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The requirement is that the good guys collectively have more CPU power than any single attacker.
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Broadcasts will probably be almost completely reliable. TCP transmissions are rarely ever dropped these days, and the broadcast protocol has a retry mechanism to get the data from other nodes after a while. If broadcasts turn out to be slower in practice than expected, the target time between blocks may have to be increased to avoid wasting resources. We want blocks to usually propagate in much less time than it takes to generate them, otherwise nodes would spend too much time working on obsolete blocks.
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It can already be used for pay-to-send e-mail. The send dialog is resizeable and you can enter as long of a message as you like. It's sent directly when it connects. The recipient doubleclicks on the transaction to see the full message. If someone famous is getting more e-mail than they can read, but would still like to have a way for fans to contact them, they could set up Bitcoin and give out the IP address on their website. "Send X bitcoins to my priority hotline at this IP and I'll read the message personally."
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The receiver of a payment must wait an hour or so before believing that it's valid. The network will resolve any possible double-spend races by then.
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To Sepp's question, indeed there is nobody to act as central bank or federal reserve to adjust the money supply as the population of users grows. That would have required a trusted party to determine the value, because I don't know a way for software to know the real world value of things.
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