There’s a separate public/private keypair for every bitcoin address. You don’t have a single private key that unlocks everything. Bitcoin addresses are a 160-bit hash of the public key, everything else in the system is 256-bit.
Bitcoins are sent to and from bitcoin addresses, which are essentially random numbers with no identifying information.
The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.
Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.
Once it gets bootstrapped, there are so many applications if you could effortlessly pay a few cents to a website as easily as dropping coins in a vending machine.
It could get started in a narrow niche like reward points, donation tokens, currency for a game or micropayments for adult sites. Initially it can be used in proof-of-work applications for services that could almost be free but not quite.
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.”
For micropayments, you can safely accept the payment immediately. The size of the payment is too small for the effort to steal it. Micropayments are almost always for intellectual property, where there’s no physical loss to the merchant. Anyone trying to steal a micropayment would probably not be a paying customer anyway, and if they want to steal intellectual property they can use the file sharing networks.
As things have evolved, the number of people who need to run full nodes is less than I originally imagined. The network would be fine with a small number of nodes if processing load becomes heavy.
The traditional banking model achieves a level of privacy by limiting access to information to the parties involved and the trusted third party. The necessity to announce all transactions publicly precludes this method, but privacy can still be maintained by breaking the flow of information in another place: by keeping public keys anonymous. The public can see that someone is sending an amount to someone else, but without information linking the transaction to anyone. This is similar to the level of information released by stock exchanges, where the time and size of individual trades, the “tape”, is made public, but without telling who the parties were.
As an additional firewall, a new key pair should be used for each transaction to keep them from being linked to a common owner. Some linking is still unavoidable with multi-input transactions, which necessarily reveal that their inputs were owned by the same owner. The risk is that if the owner of a key is revealed, linking could reveal other transactions that belonged to the same owner.
For greater privacy, it’s best to use bitcoin addresses only once.
Bitcoin is still very new and has not been independently analysed. If you’re serious about privacy, TOR is an advisable precaution.
You could use TOR if you don’t want anyone to know you’re even using Bitcoin.
At first, most users would run network nodes, but as the network grows beyond a certain point, it would be left more and more to specialists with server farms of specialized hardware. A server farm would only need to have one node on the network and the rest of the LAN connects with that one node.
The bandwidth might not be as prohibitive as you think. A typical transaction would be about 400 bytes (ECC is nicely compact). Each transaction has to be broadcast twice, so lets say 1KB per transaction. Visa processed 37 billion transactions in FY2008, or an average of 100 million transactions per day. That many transactions would take 100GB of bandwidth, or the size of 12 DVD or 2 HD quality movies, or about $18 worth of bandwidth at current prices.
The existing Visa credit card network processes about 15 million Internet purchases per day worldwide. Bitcoin can already scale much larger than that with existing hardware for a fraction of the cost. It never really hits a scale ceiling.
I don’t mean to sound like a socialist, I don’t care if wealth is concentrated