Greetings!  I’m the guy who made bitcoin difficulty shoot up from 45.0 to 181.5 for a while.  My apologies for that by the way; I was not expecting it to rise that high.

Many people on the bitcoin forums seem to have watched the process, some even drawing up conspiracy theories about how I am related to some banker who wants to enforce the system.  Others implied that I used the resources of my employer to do this.  I would like to say that the forum thread is absolutely hilarious.

The purpose was to demonstrate in two ways that the Bitcoin system can be attacked.  This was demonstrated with higher than expected success in both areas:

• cause an effective denial of service through taking control of the proof-of-work difficulty by ensuring that there was an artificial inflation in available compute resources;
• cause speculation in the bitcoin economy, especially the exchanges (e.g. a ‘bank rush’);

The first aspect has been partially hedged against in the Bitcoin 0.3.2 client.  This is a good thing, as it should (at least according to my own review of the change) ensure that people who have access to large amounts of compute resources cannot effectively game the proof-of-work difficulty level.  This ensures that people who do not have the same level of access as I do have a fair chance at solving a block and getting coins.

The second one is harder, and it is a problem typically seen with “dark” currencies.  This problem is also seen in real life: look at our own stock exchanges and currency rate.  There is evidence of speculation in the USD->EUR market, for example.  Speculation is going to be a hard problem to deal with when there is ultimately no regulation or enforcement from an oversight party.  But, this is the nature of bitcoin, so I don’t expect that ‘bug’ to be corrected.  The ‘bug’ could also be considered a ‘feature’, as in theory, the market can ignore the speculators.  The question is: will the market ignore the speculators.

I think bitcoin has a lot of potential in the microcurrency area, especially for MMOs.  Consider for example, Second Life.  You buy stuff in Second Life (clothing, objects, property, etcetera).  Now consider if we decentralized that environment… made it where anyone could run the server software (this is already possible with OpenSim).  Now we need a viable form of commerce that is not biased to any particular party. This is where BitCoin shines.  Because BitCoin is truly independent, it allows for the possibility for inter-grid commerce.

I do not believe that bitcoin will ever replace actual money.  Some people would like for it to replace actual money, but frankly I am not one of those people.  I do however, see places where BitCoin is a practical solution to a problem that exists.  BitCoin could really improve and innovate the way micropayments work in games.  Is it the only solution?  No.  MochiMedia has MochiCoins.  But the problem here is: MochiCoins are backed by a single individual party, MochiMedia.  Therefore, MochiCoins are worth whatever MochiMedia says they are worth.  With BitCoin, a game vendor can take the BTC revenue they get from their games and sell it on the market to yield the highest possible profit.

Linden Lab implemented it’s own microcurrency, called Linden Dollars, or L$ for short.  One way that speculation is avoided is through manipulating the value of the currency.  Unfortunately, even with such manipulation, people still speculate in it.  People speculate in it, because they have deduced the pattern at which their L$ is valued or devalued, so they can buy when it is at it’s lowest price and sell it when it’s the highest.  In order to ensure the stability of BTC value as a currency, a solution to the speculation problem has to be found early.

If these problems can be solved, I think BTC has a very good chance at being used in some form as a microcurrency in games.  In fact, this is what I am actually hedging on.  Unfortunately, I can’t yet disclose what I intend to do with the coins I have generated, but I am sure you can probably figure out parts of it based on what I have written thus far.