The news for the last few weeks has been that the latest embodiment of financial crisis in Cyprus is causing Cypriots to buy Bitcions, and this is part of the reason Bitcoin prices are rising. This seems extremely unlikely to me.
Agreed - the situation in Cyprus, where ordinary citizens woke up to find the threat of a 10% deduction on their bank accounts, subsequently causing a run on the ATMs, is draconian for recent times. It's not unprecedented though - throughout history governments and kings have arbitrarily seized people's assets . But it's been a bit of an eye opener for a lot of European citizens, previously living in a cotton-wool padded world where small bank accounts were presumed to be safe.
But why would Cypriots move from savings accounts to Bitcoin? It still takes a fair amount of technical or at least economical knowledge, and time as well, to set up a Bitcoin wallet, register with an exchange, and start buying Bitcoins. Unless people were flying in with laptops and printers to generate and hand over Bitcoin certificates to people in the market place (no reports of that), then mass-Bitcoin buying seems unlikely.
Furthermore, bank accounts were frozen. So how were they paying for the coins they were supposedly buying?
Finally, if as a Cyprus bank account holder, you managed to get your hands on your cash, why trade it in? You've got your savings. The rational response would be to hide it in a safety box somewhere, or just possibly convert it to something valuable and familiar like gold. Moving it to an experimental cryptocurrency still in its infancy seems like an unlikely choice.
And the same goes for the Bitcoin ATM story - in these uncertain times why would anyone in Cyprus insert the spare cash from their wallets into a strange machine to get Bitcoins?
Friday, March 29, 2013
Is Bitcoin a bubble?
A bubble is "a trade in products or assets with inflated values." Most people associate a bubble with rapidly rising prices of an asset or commodity without any rational underlying rhyme or reason, and the fear is that at some point the bubble will burst, usually leaving ordinary common people who got sucked into the bubble at the end with a worthless investment.
So, is Bitcoin a bubble? Three answers follow:
1. Maybe. You can never identify a bubble as a bubble until it bursts.
2. Yes. Just look at the rate at which the prices have been rising - that's unsustainable. Anything that shows its price doubling every couple of months has to be a bubble.
3. No. If Bitcoin ends up taking even just 1% of the currency market in ten years, it needs to be worth 100,000 dollars a coin at that point. For that value to be reached Bitcoin should be showing rapid value increase, especially in the early days.
Personally, I stand by answer 1. You only know what was truly worth investing in in hindsight. But if I'm honest I do lean a bit towards 3.
So, is Bitcoin a bubble? Three answers follow:
1. Maybe. You can never identify a bubble as a bubble until it bursts.
2. Yes. Just look at the rate at which the prices have been rising - that's unsustainable. Anything that shows its price doubling every couple of months has to be a bubble.
3. No. If Bitcoin ends up taking even just 1% of the currency market in ten years, it needs to be worth 100,000 dollars a coin at that point. For that value to be reached Bitcoin should be showing rapid value increase, especially in the early days.
Personally, I stand by answer 1. You only know what was truly worth investing in in hindsight. But if I'm honest I do lean a bit towards 3.
Thursday, March 28, 2013
Is Bitcoin a Ponzi scheme?
There are frequent accusations on various blogs and bulletin boards, and in various news articles that Bitcoin is a Ponzi scheme.
A Ponzi scheme is a pyramid scheme in which the scheme operator uses money from new investors to pay old investors, and needs to keep recruiting further new investors in order to keep the money flowing. By its very nature a Ponzi scheme will eventually collapse because either the scheme will come to the attention of the authorities (who will shut it down), or the stream of new investors dries up because there's aren't any more suitable people to invest, and the money stream dries up.
Charles Ponzi, the person this kind of fraud is named after, was promising investors that he was buying food stamps in Italy at a low price, and selling them in the US at a higher price, thus making a profit. In actual fact he was doing no such thing, and the money from the increasing numbers of investors was used to pay fantastic "profits" to the older investors.
So how could Bitcoin be a Ponzi scheme?
Firstly, there is no operator. The Bitcoin system is open - the mathematical and economic ideas behind it are openly published, as is the block chain containing all the transactions, and no one controls the system.
Secondly, the Bitcoin system is not designed to take money from the newer investors and hand it over to the older investors. Bitcoins are a finite resource that are created at a steadily decreasing rate. Exchanges exist to give people who don't want to buy mining equipment or spend time setting it up the chance to buy them with cash. There's still a technical and capital threshold for setting up a profitable mining operation. It's comparable to gold - I don't want to go panning in Lapland or buying mining equipment, land and refining equipment to get hold of gold: it's easier for me to buy it (and I'm better at making money by testing software - my chosen profession). Similarly, a car mechanic or novelist or dentist who wants Bitcoins will want to buy them.
So claiming that because increasing prices mean early adopters of Bitcoin are somehow profiting from a Ponzi scheme is like claiming that gold, or even Beanie Babies are a Ponzi scheme.
That doesn't mean that at some point in the future the whole system might no crash (due to a fatal design flaw yet to be exposed, or an attack from a hostile government, or even a large meteor strike that takes out the internet). But the same risk exists if you buy Apple stock, or US dollars, or collectible stamps. If for one reason or another the public interest in any of these disappears, they collapse and people who invested at the end lose out. But that's a "bubble" - not a Ponzi scheme.
A Ponzi scheme is a pyramid scheme in which the scheme operator uses money from new investors to pay old investors, and needs to keep recruiting further new investors in order to keep the money flowing. By its very nature a Ponzi scheme will eventually collapse because either the scheme will come to the attention of the authorities (who will shut it down), or the stream of new investors dries up because there's aren't any more suitable people to invest, and the money stream dries up.
Charles Ponzi, the person this kind of fraud is named after, was promising investors that he was buying food stamps in Italy at a low price, and selling them in the US at a higher price, thus making a profit. In actual fact he was doing no such thing, and the money from the increasing numbers of investors was used to pay fantastic "profits" to the older investors.
So how could Bitcoin be a Ponzi scheme?
Firstly, there is no operator. The Bitcoin system is open - the mathematical and economic ideas behind it are openly published, as is the block chain containing all the transactions, and no one controls the system.
Secondly, the Bitcoin system is not designed to take money from the newer investors and hand it over to the older investors. Bitcoins are a finite resource that are created at a steadily decreasing rate. Exchanges exist to give people who don't want to buy mining equipment or spend time setting it up the chance to buy them with cash. There's still a technical and capital threshold for setting up a profitable mining operation. It's comparable to gold - I don't want to go panning in Lapland or buying mining equipment, land and refining equipment to get hold of gold: it's easier for me to buy it (and I'm better at making money by testing software - my chosen profession). Similarly, a car mechanic or novelist or dentist who wants Bitcoins will want to buy them.
So claiming that because increasing prices mean early adopters of Bitcoin are somehow profiting from a Ponzi scheme is like claiming that gold, or even Beanie Babies are a Ponzi scheme.
That doesn't mean that at some point in the future the whole system might no crash (due to a fatal design flaw yet to be exposed, or an attack from a hostile government, or even a large meteor strike that takes out the internet). But the same risk exists if you buy Apple stock, or US dollars, or collectible stamps. If for one reason or another the public interest in any of these disappears, they collapse and people who invested at the end lose out. But that's a "bubble" - not a Ponzi scheme.
Wednesday, March 27, 2013
Will Bitcoin hit $100 soon?
Bitcoin has been gaining against the dollar in leaps and bounds recently. Will it hit $100 soon?
No. As we get close to the hundred mark, a lot of old-timers are going to start selling off their bitcoins for profit taking. This will cause the price to drop down (I would guess to somewhere between 60 and 80 dollars - I'd be surprised if it went down below 50 dollars). The level of trading is low, and the number of traders is low so a sudden change in trading activity such as approaching the 100 dollar milestone will have a profound effect on the price.
After a dip, people will start buying back in, so the price should bounce up back to the 90s again fairly quickly - within a few days or a week at most.
Update: this post was set to autopost on 30 March, but events got ahead of it. Looks like the 100 dollar dip happened earlier than I expected.
No. As we get close to the hundred mark, a lot of old-timers are going to start selling off their bitcoins for profit taking. This will cause the price to drop down (I would guess to somewhere between 60 and 80 dollars - I'd be surprised if it went down below 50 dollars). The level of trading is low, and the number of traders is low so a sudden change in trading activity such as approaching the 100 dollar milestone will have a profound effect on the price.
After a dip, people will start buying back in, so the price should bounce up back to the 90s again fairly quickly - within a few days or a week at most.
Update: this post was set to autopost on 30 March, but events got ahead of it. Looks like the 100 dollar dip happened earlier than I expected.
Tuesday, March 26, 2013
Why I think Bitcoin is currently like gold
I happen to think that Bitcoin is analogous to gold at the moment. Although the initial idea behind Bitcoin was that it should be a currency to buy and sell services and goods, what I've read about Bitcoin transactions shows that most Bitcoins are being held as an investment. Of the coins that are actually circulating, a few are being used to buy stuff, some are being used for gambling (mainly at Satoshi Dice), and the rest are being traded on exchange sites such as Mount Gox.
Similarly, most gold is stored in jewelry (50%), in vaults (40%) and only a little is used in industry (10%) according to Wikipedia, which as we all know is an irrefutable fount of knowledge. And although jewelry is attractive to look at (usually), most of it sits in jewelry boxes in cupboards, where no one can see how pretty it is. A gold plated necklace looks just as good as the 18 carat real deal, but people still buy the solid gold one, presumably because they get a kick out of knowing that it's valuable. As for usage - we have ten times what we need.
In uncertain times people transfer their money to safety - historically gold has been one of these safe havens. We've seen the gold price soar over the last five years with the arrival of the global financial crisis. Many pundits attribute the sudden rise in Bitcoin over the last few months to an increase in Southern European investors seeking somewhere to put their money in the light of recent threats by the Cyprus government to levy a 10% "tax" on all Cypriot bank accounts as a rather drastic measurement to overcome their deficit.
A Bitcoin private key that unlocks a hundred Bitcoins has little use if you're stuck on a desert island. But neither does a bar of gold. Both only have value in a society, and both only have value if that society thinks they are valuable. Gold has a long history as being considered precious - Bitcoin is a lot lot younger, but looks like it's heading the same way.
Then there's the obvious stuff - there is a limited supply of gold, and there's a limit supply of Bitcoin. Both are fungible - one gram of gold is like the next, one Bitcoin is like the next, and both can be subdivided (with the fractions retaining the fractional value and functionality of the whole),
So what's the real difference between gold and Bitcoin at the moment?
Similarly, most gold is stored in jewelry (50%), in vaults (40%) and only a little is used in industry (10%) according to Wikipedia, which as we all know is an irrefutable fount of knowledge. And although jewelry is attractive to look at (usually), most of it sits in jewelry boxes in cupboards, where no one can see how pretty it is. A gold plated necklace looks just as good as the 18 carat real deal, but people still buy the solid gold one, presumably because they get a kick out of knowing that it's valuable. As for usage - we have ten times what we need.
In uncertain times people transfer their money to safety - historically gold has been one of these safe havens. We've seen the gold price soar over the last five years with the arrival of the global financial crisis. Many pundits attribute the sudden rise in Bitcoin over the last few months to an increase in Southern European investors seeking somewhere to put their money in the light of recent threats by the Cyprus government to levy a 10% "tax" on all Cypriot bank accounts as a rather drastic measurement to overcome their deficit.
A Bitcoin private key that unlocks a hundred Bitcoins has little use if you're stuck on a desert island. But neither does a bar of gold. Both only have value in a society, and both only have value if that society thinks they are valuable. Gold has a long history as being considered precious - Bitcoin is a lot lot younger, but looks like it's heading the same way.
Then there's the obvious stuff - there is a limited supply of gold, and there's a limit supply of Bitcoin. Both are fungible - one gram of gold is like the next, one Bitcoin is like the next, and both can be subdivided (with the fractions retaining the fractional value and functionality of the whole),
So what's the real difference between gold and Bitcoin at the moment?
- Bitcoin is a lot more volatile (but gold has been known to be volatile too)
- Bitcoin is virtual and intangible, gold is real and tangible (more on that later though)
- You don't have to worry that you've being sold a bar of tungsten coated in a thin layer of Bitcoin
Monday, March 25, 2013
What is value?
I've used the word "value" on several occasions in my previous posts. One of the great things about getting involved in Bitcoin is that it makes you question your understanding of concepts that previously seemed simple. The concept of "value" is one of those.
If you'd asked me a couple of years ago "is a golden ring valuable" or "is a 100 dollar bill valuable" I would have answered "yes" without a moment's hesitation. Now I'd be more likely to say, "well, it depends."
Here is how I see value now (and apologies for re-inventing centuries of philosophy):
Some things have innate value, because people need them. Clean drinking water. Food. Medicine. Housing. And in Finland - heating. Without these things our lives are dramatically shortened. And yet ironically, the more important the item with innate value, the cheaper it is in Western civilisation. There seems to be a drive in civilisations to reduce the cost of essential, innately valuable items. Without water you can survive three to five days, and yet clean drinking water costs cents per liter in Finland (and I flush most of it down the toilet or use it to wash my clothes). And although every one is complaining that food is terribly expensive these days, for survival you just need a bag of rice or potatos (one euro per kilo), and some fruit and vegetables (cabbage, carrots or cheap apples are also a few euros per kilo), Medicine and housing are more expensive (actually, health care is an odd one, which possibly needs more discussion). But when I look at the breakdown of my own family budget I find that the quicker we'd all die without it, the less we spend on it.
Other things seem to have value because we want them. Nice cars. CDs or DVDs. Gold rings. But without them you'd still live to see another day. They're considered valuable because they reduce boredom, or because they give us some kind of satisfaction. Personally I've felt a strange desire to have the latest computer gadget, or technological toy at some gut level even though I've known at an intellectual level that it wasn't going to really give me any kind of real lasting satisfaction. It's like the desire of dragons in fantasy novels to obtain and hoard gold - they have no real need for it, but they feel compelled to have and hold it. Similarly, a Lada is just as good as a Corvette to get you from A to B (and a lot cheaper with it), but I know which one I'd like to own and drive (unfortunately I own and drive the other one).
Finally there's things that have value because they can get us things in the other two categories. Dollar bills, or Euro notes, or gold bars. Bank notes don't even make good kindling or toilet paper. Gold is just as good as the next heavy metal, but costs substantially more. However, if you have it, you can give it to people to get them to give you stuff you want, or need. You can get them to work for you. And Bitcoins are clearly in this final category. The easier it is to give them to people, and the more widely they are accepted for things you need or want, the more valuable they will become.
If you'd asked me a couple of years ago "is a golden ring valuable" or "is a 100 dollar bill valuable" I would have answered "yes" without a moment's hesitation. Now I'd be more likely to say, "well, it depends."
Here is how I see value now (and apologies for re-inventing centuries of philosophy):
Some things have innate value, because people need them. Clean drinking water. Food. Medicine. Housing. And in Finland - heating. Without these things our lives are dramatically shortened. And yet ironically, the more important the item with innate value, the cheaper it is in Western civilisation. There seems to be a drive in civilisations to reduce the cost of essential, innately valuable items. Without water you can survive three to five days, and yet clean drinking water costs cents per liter in Finland (and I flush most of it down the toilet or use it to wash my clothes). And although every one is complaining that food is terribly expensive these days, for survival you just need a bag of rice or potatos (one euro per kilo), and some fruit and vegetables (cabbage, carrots or cheap apples are also a few euros per kilo), Medicine and housing are more expensive (actually, health care is an odd one, which possibly needs more discussion). But when I look at the breakdown of my own family budget I find that the quicker we'd all die without it, the less we spend on it.
Other things seem to have value because we want them. Nice cars. CDs or DVDs. Gold rings. But without them you'd still live to see another day. They're considered valuable because they reduce boredom, or because they give us some kind of satisfaction. Personally I've felt a strange desire to have the latest computer gadget, or technological toy at some gut level even though I've known at an intellectual level that it wasn't going to really give me any kind of real lasting satisfaction. It's like the desire of dragons in fantasy novels to obtain and hoard gold - they have no real need for it, but they feel compelled to have and hold it. Similarly, a Lada is just as good as a Corvette to get you from A to B (and a lot cheaper with it), but I know which one I'd like to own and drive (unfortunately I own and drive the other one).
Finally there's things that have value because they can get us things in the other two categories. Dollar bills, or Euro notes, or gold bars. Bank notes don't even make good kindling or toilet paper. Gold is just as good as the next heavy metal, but costs substantially more. However, if you have it, you can give it to people to get them to give you stuff you want, or need. You can get them to work for you. And Bitcoins are clearly in this final category. The easier it is to give them to people, and the more widely they are accepted for things you need or want, the more valuable they will become.
Sunday, March 24, 2013
Is Satoshi Nakamoto a real-life Hari Seldon?
Perhaps you've read Isaac Azimov's Foundation Trilogy, in which there is a character called Hari Seldon? Seldon invents a new science, psychohistory, which allows him to predict the collapse of the galactic empire, and set up a new civilisation on a planet called Foundation, to preserve human knowledge.
When I look at how Bitcoin has progressed over the last four years, I can't help thinking there's a bit of Hari Seldon in Satoshi Nakamoto. The whole history of Bitcoin reads like a science fiction novel, and the prescience in the system is remarkable.
Firstly the anonymity - no one knows who Satoshi Nakamoto is. Various journalists and investigators have tried to profile him, and have come to the conclusion that he's probably British (even though the first post was in US English, the rest were in UK English), the time stamps on his bulletin board posts fit GMT if he was following a typical "get up in the morning, go to bed in the evening" pattern of living, And probably an academic, as his programming style isn't that of a professional coder. But perhaps there's already some misdirection going on there - pick a top layer false identity with a Japanese name, and then under that have a second false identity that makes you look like a British university professor. Who knows how many further layers there could be?
Why would the inventor of Bitcoin keep his (or perhaps her?) identity hidden? Perhaps it's modesty, or perhaps the inventor was supposed to be working on something else and was putting work time into Bitcoin. Or perhaps Satoshi was playing the long game - presumably as the first Bitcoin miner there wasn't much competition for the 50 coins every ten minutes. In the first four years of Bitcoin, coins were being generated at a rate of over 50,000 a week. Satoshi could well be sitting on a pile of at least a quarter of a million Bitcoins (if not many many more). At current prices of about 50 euros a coin, that's over 12 million euros. If you're a multimillionaire, it's better to be anonymous than a public figure; less money needs to be spent on security and bodyguards for starters.
Or perhaps Satoshi was worried about what would happen to him when Bitcoin started overtaking Government currencies. In today's political climate the inventor of something that could possibly one day wipe out the dollar could easily be labelled a "fiscal terrorist".
Then there's the interplay between the rate of Bitcoin mining reduction, mining power and the value of Bitcoins. For the first four years or so the reward for mining Bitcoins was 50 coins, and initially there were very few miners. But Bitcoins were not worth anything, so anyone putting time and computing power into it were either doing it because they were highly optimistic about the cryptocurrency's future, or because it seemed like an interesting thing to do. As the price increased from mere cents per thousand Bitcoins to dollars, and then on to tens of dollars per Bitcoin, the computing power expended on mining increased, the technology improved from CPU to GPU to FPGA and now ASICs, and then the number of Bitcoins per mining reward halved. Three variables that interact and could easily have gone terribly out of balance (and still could in the future, I suppose). But in general it all meshes together rather nicely. And the number of Bitcoins in the mining reward are scheduled to halve again and again until 2140, when the full amount will have been allotted. That's a very long term plan. For comparison, think back to what the world was like according to the history books in 1878...
So, is Satoshi relaxing on the deck of a yacht, enjoying his millions and congratulating himself on a plan well executed? Or is he a bemused elderly university lecturer in north London, packing his brief case every morning and heading off to give his daily mathematics lectures to unsuspecting undergraduates? I wonder if we'll ever know.
When I look at how Bitcoin has progressed over the last four years, I can't help thinking there's a bit of Hari Seldon in Satoshi Nakamoto. The whole history of Bitcoin reads like a science fiction novel, and the prescience in the system is remarkable.
Firstly the anonymity - no one knows who Satoshi Nakamoto is. Various journalists and investigators have tried to profile him, and have come to the conclusion that he's probably British (even though the first post was in US English, the rest were in UK English), the time stamps on his bulletin board posts fit GMT if he was following a typical "get up in the morning, go to bed in the evening" pattern of living, And probably an academic, as his programming style isn't that of a professional coder. But perhaps there's already some misdirection going on there - pick a top layer false identity with a Japanese name, and then under that have a second false identity that makes you look like a British university professor. Who knows how many further layers there could be?
Why would the inventor of Bitcoin keep his (or perhaps her?) identity hidden? Perhaps it's modesty, or perhaps the inventor was supposed to be working on something else and was putting work time into Bitcoin. Or perhaps Satoshi was playing the long game - presumably as the first Bitcoin miner there wasn't much competition for the 50 coins every ten minutes. In the first four years of Bitcoin, coins were being generated at a rate of over 50,000 a week. Satoshi could well be sitting on a pile of at least a quarter of a million Bitcoins (if not many many more). At current prices of about 50 euros a coin, that's over 12 million euros. If you're a multimillionaire, it's better to be anonymous than a public figure; less money needs to be spent on security and bodyguards for starters.
Or perhaps Satoshi was worried about what would happen to him when Bitcoin started overtaking Government currencies. In today's political climate the inventor of something that could possibly one day wipe out the dollar could easily be labelled a "fiscal terrorist".
Then there's the interplay between the rate of Bitcoin mining reduction, mining power and the value of Bitcoins. For the first four years or so the reward for mining Bitcoins was 50 coins, and initially there were very few miners. But Bitcoins were not worth anything, so anyone putting time and computing power into it were either doing it because they were highly optimistic about the cryptocurrency's future, or because it seemed like an interesting thing to do. As the price increased from mere cents per thousand Bitcoins to dollars, and then on to tens of dollars per Bitcoin, the computing power expended on mining increased, the technology improved from CPU to GPU to FPGA and now ASICs, and then the number of Bitcoins per mining reward halved. Three variables that interact and could easily have gone terribly out of balance (and still could in the future, I suppose). But in general it all meshes together rather nicely. And the number of Bitcoins in the mining reward are scheduled to halve again and again until 2140, when the full amount will have been allotted. That's a very long term plan. For comparison, think back to what the world was like according to the history books in 1878...
So, is Satoshi relaxing on the deck of a yacht, enjoying his millions and congratulating himself on a plan well executed? Or is he a bemused elderly university lecturer in north London, packing his brief case every morning and heading off to give his daily mathematics lectures to unsuspecting undergraduates? I wonder if we'll ever know.
Saturday, March 23, 2013
What is so special about August 17?
If you're going to send a Bitcoin transaction into the peer-to-peer network it needs to start with a magic number. All Bitcoin protocol transmissions start with a specific magic number. For some reason Satoshi Nakomoto picked 0xD9B4BEF9 as his magic number.
I can't help wondering why. If you choose this magic number as a Bitcoin private key, the public key you get in standard base58 format is 17AUGpBwAP5y5ptb1ksc8HWVv6XvNh5Ary. Perhaps Satoshi Nakamoto picked his Bitcoin magic number at random. Perhaps he also chose to prefix Bitcoin addresses with 1 at random. Or perhaps 17 AUG is somehow significant to him. (Also note that bitcoin.org was registered on 18 August).
Is 17 August the day of Satoshi's birthday? Is it the day on which he came up with the concept of Bitcoin?
Or am I just fueling conspiracy theories?
I can't help wondering why. If you choose this magic number as a Bitcoin private key, the public key you get in standard base58 format is 17AUGpBwAP5y5ptb1ksc8HWVv6XvNh5Ary. Perhaps Satoshi Nakamoto picked his Bitcoin magic number at random. Perhaps he also chose to prefix Bitcoin addresses with 1 at random. Or perhaps 17 AUG is somehow significant to him. (Also note that bitcoin.org was registered on 18 August).
Is 17 August the day of Satoshi's birthday? Is it the day on which he came up with the concept of Bitcoin?
Or am I just fueling conspiracy theories?
Friday, March 22, 2013
How much could one Bitcoin eventually be worth - a gold comparison
In a later post I'll explain why I think Bitcoin is currently like (a very volatile version of) gold, and why I think that will change in the future. But for now, make the assumption that Bitcoin will be used like gold to "store value" in the near future. How much could one Bitcoin then eventually be worth?
A quick search on Wikipedia shows that there are about 170,000 tonnes of mined gold in the world. We don't have to be more accurate than that for this "back of an envelope" estimation. And a gram of gold currently sells for about 40 euros. So the total value of gold in the world is about 7 trillion euros.
The current Bitcoin scheme determines that the maximum total number of Bitcoins is 21 million. If Bitcoin became as valuable as gold then a simple division shows that one Bitcoin could be worth about a third of million Euros.
The smallest unit of Bitcoin is the Satoshi, which is 0.00000001 Bitcoins. So in the above case, a Satoshi would be worth about a third of a Euro cent. Therefore by that point we'd probably be inventing a name for one hundred Satoshis.
A quick search on Wikipedia shows that there are about 170,000 tonnes of mined gold in the world. We don't have to be more accurate than that for this "back of an envelope" estimation. And a gram of gold currently sells for about 40 euros. So the total value of gold in the world is about 7 trillion euros.
The current Bitcoin scheme determines that the maximum total number of Bitcoins is 21 million. If Bitcoin became as valuable as gold then a simple division shows that one Bitcoin could be worth about a third of million Euros.
The smallest unit of Bitcoin is the Satoshi, which is 0.00000001 Bitcoins. So in the above case, a Satoshi would be worth about a third of a Euro cent. Therefore by that point we'd probably be inventing a name for one hundred Satoshis.
Bitcoin addresses - an analogy
I've had a few tries at explaining Bitcoin addresses to various people with different levels of mathematical skill. This is the best analogy I've been able to come up with:
Imagine a huge warehouse with row upon row up row of glass fronted lockers. Each locker has a number on it - that's the public Bitcoin address of the locker. And you can walk through the warehouse and look inside any locker, but can't open a specific locker unless you have a key. However, each locker has a mailing slot in the shape of a Bitcoin, so you can drop Bitcoins into any locker you like, but you can't get them out again.
In total there are 1,461,501,637,330,902,918,203,684,832,716,283,019,655,932,542,976 lockers. That's a lot of lockers. For comparison, there are only 7,500,000,000,000,000,000 grains of sand on all the beaches on earth. So obviously such a warehouse can't exist in the real world. But it can in a virtual reality or a computer.
We can now wander about the warehouse, and if someone says on their web page that they've got a Bitcoin address you can go and have a look in their locker and see if they have any Bitcoins in it, or even if they once had some coins but don't any more (lockers show a full history of how they've been used). And if you had some Bitcoins you could drop them in any locker you liked (but you wouldn't be able to get them back!).
Now, how do you get your own locker that you can open? Each locker has a security code that needs to be used to open it. The security code is a 77 digit number, something between 1 and about 11,579,208,923,731,619,542,357,098,500,869,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000. You're never going to guess the security code for a given locker. However - there is a special calculator which, if you key in a random security code, will give you the Bitcoin address of a locker that it will open. So you pick a random number, key it in to the calculator, get an address, go to that locker, and hey presto - the random number you picked opens it. And if there were any Bitcoins in there you'd be able to take them out. But chances are there won't be - the vast majority of lockers are empty, and always will be.
And if you keep the random security code (also called a private key) secret, then no one else will be able to open your locker - just you.
And that's a visualisation of how Bitcoin uses ECDSA for storing the value of Bitcoin.
Imagine a huge warehouse with row upon row up row of glass fronted lockers. Each locker has a number on it - that's the public Bitcoin address of the locker. And you can walk through the warehouse and look inside any locker, but can't open a specific locker unless you have a key. However, each locker has a mailing slot in the shape of a Bitcoin, so you can drop Bitcoins into any locker you like, but you can't get them out again.
In total there are 1,461,501,637,330,902,918,203,684,832,716,283,019,655,932,542,976 lockers. That's a lot of lockers. For comparison, there are only 7,500,000,000,000,000,000 grains of sand on all the beaches on earth. So obviously such a warehouse can't exist in the real world. But it can in a virtual reality or a computer.
We can now wander about the warehouse, and if someone says on their web page that they've got a Bitcoin address you can go and have a look in their locker and see if they have any Bitcoins in it, or even if they once had some coins but don't any more (lockers show a full history of how they've been used). And if you had some Bitcoins you could drop them in any locker you liked (but you wouldn't be able to get them back!).
Now, how do you get your own locker that you can open? Each locker has a security code that needs to be used to open it. The security code is a 77 digit number, something between 1 and about 11,579,208,923,731,619,542,357,098,500,869,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000. You're never going to guess the security code for a given locker. However - there is a special calculator which, if you key in a random security code, will give you the Bitcoin address of a locker that it will open. So you pick a random number, key it in to the calculator, get an address, go to that locker, and hey presto - the random number you picked opens it. And if there were any Bitcoins in there you'd be able to take them out. But chances are there won't be - the vast majority of lockers are empty, and always will be.
And if you keep the random security code (also called a private key) secret, then no one else will be able to open your locker - just you.
And that's a visualisation of how Bitcoin uses ECDSA for storing the value of Bitcoin.
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