text:
Is CPU mining even worth it?
I would like to start mining, but my GPU isn't the greatest and I don't really want to spend the money on a dedicated rig. Is mining from my CPU (in a Linux environment) still worth it? Or will I not be able to keep up?

For the amount of time you would spend setting up a CPU miner, at minimum wage in the US you would be at a loss.
Even GPU mining is barely profitable for most people right now. It would definitely be more profitable to speculate, and even more profitable to operate a Bitcoin business. There are a great deal of people who want to use their Bitcoins for purchases.
At the current exchange of under $10:1BTC, the most efficient graphics cards are taking months to pay off their initial investment (with free electricity).

Is CPU mining worth it now at $1000:1BTC?

@SliverNinja +1. What have you found out so far?

It depends on your specific valuation of "worth it."
By most valuations (i.e. value of BTC produced > electricity costs) it is not, but if you don't pay for electricity it might be. It might also be worth it to you to mine at a loss if you truly believe that 1 BTC might be worth thousands someday.
Realistically, though, it is probably more worthwhile to simply purchase BTC at an exchange or from another user.

How can I calculate my expected return (in BTC) based on my CPU speed (assuming I also have other applications using my CPU). Or should this be another question.

@MaxMackie check How much Bitcoin will I mine right now with hardware X?

I'm in a mining pool, using several multi-core servers and generating about 7-10Mhashes/second.  It has yielded me currently about $0.01 dollars in the last 36 hours.  I do not pay for electricity.  I made a penny.  It's not that exciting. :) There are GPUs that can accumulate my MHash rate that I create across several CPUs, without even getting warm.  So my guess, based on my experience, is "no"

In addition to Tenebrix and Fairbrix (as mentioned by phelix), Litecoin also is designed to be mined by CPU. At the time of writing, it might even provide adequate return to cover the cost of power in some cases.

CPU mining is only worth it if you are not paying for your electricity.

use this calculator http://www.coinish.com/calc/
I think it will answer your question perfectly
use 'expert' mode for most accurate results (never 100% correct, that's impossible)

All the mining pools I tried required you to have .01 BTC in credits before withdrawing. With a CPU at the current rate, this could easily take a year to reach. And as the difficulty continues to rise, there's a large chance that you would never reach this .01 BTC threshold. So unless you're doing something like operating a botnet, the answer is "no". And even with a botnet, there are more profitable things you could be doing.
That said, do tell me if you happen to find a pool that has a smaller (or no) payment threshold.

The forks Tenebrix and Fairbrix are designed to give an advantage to CPUs. It might be more profitable to CPU mine them than Bitcoin or other GPU-algorithm forks.


text:
Is there a bitcoin source, fork available that does not include a GUI?
I would like to try to download and compile a barebones variation of the Bitcoin daemon.  Specifically, I'd would prefer to not have a copy of the code with any GUI implementation.
Does such a reliable, and maintained, forked project exist on Github or any where else?

Any reason why you don't want the GUI code at all? You can just compile bitcoind, which doesn't include the GUI or or any dependency on GUI libraries.

@PieterWuille: I'm looking for a clean codebase because I want to implement my own GUI interface.  In short, I want to start with "nothing".  Is bitcoind in a separate project, or will I need to weed out all of the unnecessary code from the github project?

The simple solution is go get the Github linux version meant to be compiled with QT and go over the dot pro file.  Consider it the ' build the program in to a GUI ' form of file with the added benifit of all the rest of the needed files in source directories.  I have had to do something similar for another currency just to get it to compile in Ubuntu.

Bitcoind is Bitcoin-Qt without the GUI code. It is in the same repository, but all GUI code is in the qt directory. Just ignore it if you want to.

@PieterWuille shouldn't you post your reply as an answer?

Yes. If you compile the bitcoin client using the following commands, it will not build the GUI components:
./autogen.sh
./configure --without-gui
make

source: Stack Exchange

license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/3.0/

sort: votes


text:
What is required to generate a block?
I've read a little about BitCoins and think the idea is very interesting.  I was wondering what is required to generate a block?  I assume there is some software you need.  Do I also need an account somewhere like Mt Gox?

Generating blocks is usually referred to as "mining", so I believe that this is a duplicate of How can I start mining Bitcoin? Also see What exactly is Mining? for more info.

MtGox is an exchange (i.e. a place to sell and buy bitcoins for USD, EUR, GBP, etc.). If you want to get a few coins quickly you can buy them there.
To generate blocks you need to use your computer's processing power (this is called mining). Currently, it is very hard to produce a block by yourself so most people mine in group and split the rewards (pool mining). Check this question for more information:
How can I start mining Bitcoin?

To generate a block you need to run a Bitcoin network node (such as the standard Bitcoin client) and a miner (mining software) such as poclbm. The rewards for blocks you generate will be automatically delivered to an address controlled by your node, you do not need any external account.
That's the theory though, in practice what you'll want to connect your miner to a mining pool, and let the pool handle receiving rewards and delivering them to an address of your choice (which could either be controlled by a local client or an eWallet service). And, to do this with any effectiveness you will need suitable hardware such as an ATI graphics card.

all_licenses: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/3.0/


text:
How do I build Bitcoin source in Windows 7?
I am trying to build the current Bitcoin source in Windows 7x64 - Does anyone know of an idiot-proof tutorial? Some of the steps in the included doc give me errors.
When I try to tar openssl with msys, I get symlink errors.
Is there a better walk-through?

Take a look at Windows Build Instructions By Matt Corallo, it's outdated, but has some additional comments to the included doc.

Install:

MinGW Automated Installer from
http://sourceforge.net/projects/mingw/files/OldFiles/mingw-get-inst/mingw-get-inst-20110316/.
  Install with the C++ and MSYS options checked.
Activestate Perl (for building openssl) from
http://www.activestate.com/activeperl/downloads.  You don't need
  anything except ActivePerl and Perl, none of the other fancy crap.
  You do want to add Perl to your PATH (its an option in the
  installer).

Download:

WxWidgets 2.9.1:
http://sourceforge.net/projects/wxwindows/files/2.9.1/wxWidgets-2.9.1.zip/download.
  Unzip to C:\wxWidgets-2.9.1-mgw
OpenSSL 1.0.0d:
  http://www.openssl.org/source/openssl-1.0.0d.tar.gz.     Untar  to
  C:\openssl-1.0.0c-mgw (yes bitcoin is designed to build with
  1.0.0c, but might as well use the latest version since it works right?) Hint: untar using the tar binary which is included in MinGW (do not use 7-zip, it will not handle symlinks correctly) using cd \c\ && tar xvvf\c\Users\Matt\Downloads\openssl-1.0.0d.tar.gz && mv openssl-1.0.0d openssl-1.0.0c-mgw in the msys shell
Berkeley DB 4.7.25 NC: http://download.oracle.com/berkeley-db/db-4.7.25.NC.zip.  Unzip to C:\db-4.7.25.NC-mgw
Boost 1.43.0:
http://sourceforge.net/projects/boost/files/boost/1.43.0/boost_1_43_0.zip/download. Unzip to C:\boost-1.43.0-mgw
Boost Jam:
http://sourceforge.net/projects/boost/files/boost-jam/3.1.18/boost-jam-3.1.18-1-ntx86.zip/download. Unzip wherever you like, I used C:\bjam
miniUPnPc binary
http://miniupnp.tuxfamily.org/files/download.php?file=upnpc-exe-win32-20110215.zip.
  Unzip to C:\upnpc-exe-win32-20110215
miniUPnPc source
http://miniupnp.tuxfamily.org/files/download.php?file=miniupnpc-1.5.20110215.tar.gz. Untar to C:\upnpc-exe-win32-20110215\miniupnpc (you only need *.h, but the others won't hurt) untar with cd \c\upnpc-exe-win32-20110215 && tar xvvf \c\Users\Matt\Downloads\miniupnpc-1.5.20110215.tar.gz && mv miniupnpc-1.5.20110215 miniupnpc

Note that the reason for using the binary miniupnpc release is that I
  was unable to get it to build on my system.
Add C:\MinGW\bin to your PATH environment variable (Google is your
  friend as it depends on your Windows Version).
In the DOS Shell:
wxWidgets:
cd \wxWidgets-2.9.1-mgw\build\msw
mingw32-make -f makefile.gcc

Boost:
cd \boost-1.43.0-mgw
\bjam\bjam.exe toolset=gcc --build-type=complete stage

In the msys Shell (MinGW shell in your start folder or
  C:\MinGW\msys\1.0\msys.bat):
OpenSSL:
cd /c/openssl-1.0.0c-mgw
./config
make
perl util/mkdef.pl 32 libeay enable-static-engine > libeay32.def
dllwrap --dllname libeay32.dll --output-lib libeay32.a --def libeay32.def libcrypto.a -lws2_32 -lgdi32

Copy the libeay32.dll file
  to the folder where you are building/running bitcoin.
Berkeley DB:
cd /c/db-4.7.25.NC-mgw/build_unix
sh ../dist/configure --enable-mingw --enable-cxx
make

Bitcoin
If you wish to use git to pull keep a local repository, you'll have to
  download msgit from
  http://code.google.com/p/msysgit/downloads/detail?name=Git-1.7.4-preview20110204.exe&can=2&q= . Otherwise, you can download the latest zip of bitcoin from
  https://github.com/bitcoin/bitcoin/zipball/master In the msys shell,
  cd to the unzipped location and
make -f makefile.mingw

Run with ./bitcoin.exe (make sure you have the libeay32.dll in bitcoin
  folder)


text:
Where can I find a list of merchants who accept bitcoins?
Is there a list of merchants who accept bitcoins?

I belive that this is covered by Is there a list of established sites that have started accepting Bitcoin? and A list of trusted Bitcoin websites?. Agree?

@D.H.: The question is actually quite distinct from these two. One focuses on preestablished businesses, the other on recording merchants' reputation.

@MeniRosenfeld: Well, yes, but the first one already mentions the wiki trade page in the question and the second one overlaps with this one. I agree that the questions are not identical but I'm pretty sure that anything that turns up here will already be covered by one of the other questions. But, anyway, I will leave this question open unless others want to close it.

As well as the https://en.bitcoin.it/wiki/Trade page you could look at:
http://www.thebitcoinreview.com/
and
http://www.thebitcointrader.com/p/bitcoin-better-business-bureau.html
Both of these sites try to give some kind of rating or review but the data is limited at the moment.

There are so many places A quick google search will yield many results But other than the main list on the wiki i think the following directories seemed pretty populated.
'Official Lists'

Exchanges
Local Directories
Marketing
Online & Real Business
Games & Gambling
Real World Shops map overlay
Donation Accepting Sites

Articles

75 Places to Spend your Bitcoins
Online Stores Accepting Bitcoin
10 Places to spend Bitcooin in the UK (Telegraph)
NASDAQ - What Companies Accept Bitcoin
FORBES - How to Use bitcoin to shop at Amazon, Home Depot, CVS and More
The Guardian - Where can you spend Bitcoins
HONGKIAT - 20 Places to Spend Bitcoin

Directories

BitPay Business Directory
World Map Depicting Locations of Bitcoin Business
Bitcoin Aware, Directory with some news Feeds
Team Bitcoin, Directory of educations resources, exchanges and merchants
Spend Bitcoin - Directory with site reviews along side listings
The Bitcoin Review - Another directory including reviews of listings
The Bitcoin List - A Categorized Directory Index
Bitcoin Source - A fairly comprehensive directory of all things bitcoin
Bitcoin-Directory - A Still somewhat sparse Directory
Shops4Bitcoin - Nothing Listed yet, but potentially a good future resource
BTC Pages - A Clean designed directory with a reasonable number of listings
Coin Made - Another fairly well populated directory
Yellow Coins - Not many listings here yet
bitcoin dir - some good listings still could be more populated

Cryptostocks, IPO's, Profit Shares, and Equities

CryptoStocks - A good all round offering of stocks etc available in the crypto Market place
Havelock Investments - A reputable listing of IPO's available for Crypto, with stringent controls for registering an IPO etc
Bitcoin Bourse - A Bitcoin Exchange (currently 05/03/2013) offering some stocks on thier trading system as well as Crypto Trading
Crypto-Trade - Although Recently they seem to have had some kind of security Breach they do offer a variety of securities for Trade
P2P Bitcoin Loans

Some Places I spend My Bitcoin

Scan.co.uk - UK based computer hardware Retailer
Takeaway.com - Order Takeaway for Bitcoin (not all restaurants accept all BTC)
Bitcoin Store - A good all round store US based so a killer on import Duty and Delivery was a little slow last time I ordered.  But shier customer Service was excellent

Yes, the most comprehensive and well-known such list is at https://en.bitcoin.it/wiki/Trade.

Check http://coinmap.org this may be of help for you

Unfortunately the Bitcoin wiki (https://en.bitcoin.it/wiki/Trade) has grown completely unwieldy and has many outdated / no-longer-working links.
Coinmap is a decent place if you're looking for "brick and mortar" businesses, and spendabit.co lists millions of products from a growing number of Bitcoin-enabled merchants (including the usual list -- Overstock.com, TigerDirect, etc).


text:
How many bitcoins will there eventually be?
Since bitcoins are being regularly rewarded to miners, will the number of bitcoins continue to grow indefinitely, or will there be a maximum total number of bitcoins in existence?  And if there is some kind of limit, what is it and how is it enforced?

A pre-defined schedule limits the total number of bitcoins so that they gradually approach a total of 21 million (ignoring those that have been lost through deleted or misplaced wallet files).  The limit of 21 million bitcoins is "hard-wired" in to the protocol, and there will never be more bitcoins than this:

Note that there are some assumptions built into the timing and unless the protocol is changed, they will actually be mined a bit earlier than this chart suggests.

Or later--if the value drops precipitously and difficulty takes a while to get low enough again.  But the graph is a good rough approximation.

I think that's very unlikely. Even if there are a few precipitous drops, I think that will be outweighed by the overall trend of increasing hashing power (and they'll be followed be precipitous drops in difficulty). But, yes, that is possible.

I think saying "hard wired" is a bit misleading. The production schedule is coded in the software and could be changed to create more bitcoin. Fortunately anyone or any group that could change it is strongly incentivized to maintain the limit as it is integral to our idea of and trust in bitcoin.

Every block introduces 50 new coins in the system. This quantity (50) halves every 210,000 blocks. So, getting the limit of coins it is possible to generate is quite easy : it's the sum of a geometric series.

Also, note that this is an upper bound ; the actual quantity will probably be a bit lower due to rounding issues (BTC has a finite number of decimals, 8).

Artefact, yes but that is not the theoretical limit... Basically its (10^8)... 100,000,000

As Artefact2 mentioned, Bitcoin uses fixed-point math to calculate the block subsidies. So, ignoring the unspendable genesis block, the sundry lost coins and unclaimed rewards, the maximum number of bitcoins is 20999999.9769 BTC.
I found that number through the following python program:
COIN = 100 * 1000 * 1000
nSubsidy = 50 * COIN
nHeight = 0
total = 0
while nSubsidy != 0:
    nSubsidy = 50 * COIN
    nSubsidy >>= nHeight / 210000
    nHeight += 1
    total += nSubsidy

print total / float(COIN)

It's intended to mirror this code from the Bitcoin client:
int64 static GetBlockValue(int nHeight, int64 nFees)
{
    int64 nSubsidy = 50 * COIN;

    // Subsidy is cut in half every 210000 blocks, which will occur approximately every 4 years
    nSubsidy >>= (nHeight / 210000);

    return nSubsidy + nFees;
}

Of course, it only differs from 21 million BTC by only 3 bitcents, so the difference isn't significant.

According to a BIP (Bitcoin Improvement Proposal) I found, this code:
 nSubsidy >>= (nHeight / 210000);

will actually wrap the reward generation back to 50 at some point in 2200 or so. Making the supply of bit coins infinite. The python code above does not have this property. The C++ code does. See BIP https://github.com/bitcoin/bips/blob/master/bip-0042.mediawiki

This is actually the right answer. Unfortunately many people are not aware of it because they don't do C++.

Carefully note the date on that BIP.

You should provide a little more details: are you talking of an integer overflow case? Is this code located in the reference implementation or in a pull request proposed by a BIP, and which one? Is it a tracked bug?

As per the current rules there will only ever be 21 million coins at most (explained in other answers here). However, I'd like to add that this is by general agreement, which means that it can be changed.
See this question: Could there be hyperinflation in Bitcoin?
Looking at the history of money, I am skeptical that there will only ever be 21 million coins. I don't know of too many instances in history when money could be created out of thin air and wasn't. It would be foolish to ignore history. Whether or not there will be more than 21 million coins depends on whether or not "the people" demand it, and once again history is our guide.

Re. 'how is it enforced?':
The 21 million limit is enforced by game theory. Theoretically, 50% of miners could adopt code that would increase the rate of production but this would break the social contract that Satoshi created, irrevocably harm the integrity of bitcoin, and crash the price. Therefore, anyone or any group that could change the limit is incentivized to not do so.

This is incorrect. Full nodes in the network validate all blocks, and if miners would adapt their code to increase the amount of money printed, their blocks would be invalid, and simply ignored by the network. Of course, miners could also try to convince the entire ecosystem to adopt the new rules, but that's much more complicated than just game theory.

Saying, "miners could also try to convince the entire ecosystem to adopt the new rules," is wrong, I think. Wouldn't it just have to be 51% not the entire ecosystem?

@AlexMillar The limit is enforced by the social contract. That contract is understood in terms of game theory.

I wrote a detailed analysis of the supply and inflation in Bitcoin, for those who are interested in the math behind it. Below is a formula expressing Bitcoin supply as a function of block height:

where S is supply, h is block height, alpha=1/2, beta=210,000, R_0=50 and topless square braces denote the floor function.
Taking its limit as h-> infinity, we arrive at the same result provided by @Artefact2.

all_licenses: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/


text:
Where do bitcoins come from and what gives them their value?
Where do bitcoins come from?  From the WeUseCoins.com video it appears they are just being produced by "miners" and sold to people.  So who backs Bitcoin or gives it its value?

@Jonah There will only ever be around 21 million Bitcoins. Right now, there are fewer than that. The mined Bitcoins come from the mining process. Bitcoins are basically just numbers and the process of mining is the process of generating numbers.

What gives the Mona Lisa value? What gives your house value? Value is what people say it is. Scarcity is a quality that humans look at when assigning value e.g. gold, art, diamonds and of course the provably scarce... Bitcoin.

Although individual bitcoins enter the Bitcoin economy as miners are rewarded for processing transactions, it's much more helpful to think of all 21 million bitcoins as having been created when Satoshi Nakamoto defined the Bitcoin protocol and launched the Bitcoin network in 2009.
The reason for this is that the Bitcoin protocol specifically defines and controls when and how a limited total number of coins are rewarded to miners for the job of securing the Bitcoin network.  These "bitcoins" are really just mathematical tokens which are very carefully controlled by the network protocol to prevent counterfeiting, theft, etc.
By agreeing to use these mathematical tokens as money, the larger Bitcoin community is essentially "backing" their value and turning them into a currency in the same way traditional African and Asian societies used the money cowry despite the absence of any central bank.  Unlike the money cowry:

there will never be more bitcoins
they are impossible to counterfeit
they can be divided into as small of pieces as you want
and they can be transferred instantly across great distances via a digital
connection such as the internet.

Presumably, the members of the Bitcoin community who choose to accept them as money consider these features to be worth something, and value the bitcoin accordingly based on supply and demand on open currency exchanges.
Because bitcoins are given their value by the community, they don't need to be accepted by anyone else or backed by any authority to succeed.  They are like a local currency except much, much more effective and local to the whole world.
So to sum up, bitcoins come from the Bitcoin community's agreement to follow a set protocol, and are backed by everyone who uses them as money.

As we could see over the last days and weeks the Bitcoin protocol DOES NOT prevent theft. It is as easy to steal BTC as it is to steal cash.

The Bitcoin protocol certainly prevents theft in that it has stronger built-in security mechanisms than cash.  Of course, if someone doesn't use those mechanisms properly (i.e. by securing their private keys), then the built-in mechanisms don't really help.  Cash basically has no built-in anti-theft mechanisms except physicality.  Bitcoin done properly is much more theft-resistant than physicality.  Bitcoin done poorly is much, much less theft-resistant.

"they can be divided into as small of pieces as you want" is factually incorrect. The smallest unit a bitcoin can be divided into is 1 satoshi which is 1/100,000,000th of a bitcoin.

"Bitcoin economy as miners are rewarded for processing transactions". Today miners are almost entirely rewarded for mining blocks, not processing transactions. You can mine a block with no transactions and you still get the mining reward, which is massively larger than the tiny transaction fees.

"there will never be more bitcoins" This is almost universally accepted to be untrue by people who deeply understand the protocol and dynamics. This paper does a good job explaining why... https://bfi.uchicago.edu/working-paper/the-economic-limits-of-bitcoin-and-anonymous-decentralized-trust-on-the-blockchain/

That is basically it. They have value because they are scarce, fungible (one Bitcoin is as good as another), easily transferred, and easily verified.
The only other component they need to have value is a general agreement that they will be used as a medium of exchange or a prevailing belief that they will be in the future. It is the variation in these two factors that accounts for most of the volatility in the value of Bitcoins today.
They aren't backed by anything because they're a commodity. What is gold backed by?

+1 it might be worth formatting the above as a list to ease quick scanning later

Gold is backed by having uses other than just as money. If gold was being used as money, but then it fell out of favor, it would still be useful for its industrial purposes and use as jewelry (which would limit how low gold could go.)

@dg123 Right, but that limit is so low as to be of no practical value. It's also creates two disadvantages to using gold as a currency. First, if those uses change in popularity, the value of the currency will change. Second, the cost of gold for those uses is artificially inflated by the use of gold as a currency, which discourages economically efficient uses of gold.

This answer has been moved to this question through merging an exact duplicate question into this one. It might need slight editing to fit here.

I'd push back on " fungible (one Bitcoin is as good as another)". We are already seeing that people are willing to pay a premium for "provence" bitcoins - that is, coins who's ownership chain can be traced back to an environmentally clean miner and does not include any questionable transactions (mixers, thefts, etc).

@bigjosh This happens with coins and bills as well, yet they are considered fungible. Fungible means I can give you a bill for some amount and we don't have to negotiate beyond that.

The value comes from their scarcity. To use something as a medium of exchange, it only has to have a certain set of properties. Bitcoins have these properties, so they can be used as a medium of exchange.
They are fungible. That is, 10 bitcoins is 10 bitcoins. This makes Bitcoins more useful as a medium of exchange than, say, apples, which vary widely in quality, size, and so on.
They are scarce. The number of bitcoins is predictable over time.
They are easily transferred. They are not easily counterfeited.
That's pretty much all you need. Nothing needs to back them just like nothing backs gold. The primary purpose of a backing is to ensure scarcity. But the block generation algorithm does that for Bitcoins.

"The primary purpose of a backing is to ensure scarcity."  good!

Gold backing a currency does more than just ensure scarcity. It also sets a floor value for how low a unit of currency can go. If $1 is backed by 1 oz. of silver, and the value of the $1 went under an oz. of silver, people could exchange their dollars for the more valuable silver until the value of the dollar was brought back up to the value of what was backing it (the oz. of silver.)

Bitcoins are just ledger entries. Like all modern currencies they are not backed by anything, but have value based only on their usefulness and their supply.
The addition of bitcoins into the money supply is controlled by the bitcoin software and is limited to a pre determined amount and rate of distribution.
The reason mining causes new bitcoins to be created is two-fold.  On the one hand it's a mechanism to introduce bitcoins into the money supply that is controllable and essentially random (like winning little lotteries).  On the other hand it motivates people to run the mining software which helps to secure the entire system.

From my research the best short answer is that they have use value as a medium of value exchange. Their use value comes from having properties of gold (limited supply), and digitally transferable over the internet so can be called digital cash. There is no central authority, so you can trust the wisdom of the crowd. Another good described is a digital distributed notary system.
Also see this larger discussion: http://bitcoinweekly.com/articles/bitcoin-what-is-it

Although a simple question, "What gives Bitcoin value?", the answer is not as simple as the question.  What gives Bitcoin it’s value, can best be answer by the formula
PB = (SW + TX) / BC
The value of a Bitcoin is derived from the total value of the Bitcoin used for storage of wealth (SW) plus the total amount of the Bitcoin required for concurrently transacting in it (TX).  The sum of these two numbers divided by the amount of Bitcoins in circulation (BC) (currently 12.2 million, ultimately 21 million), will give you the price of Bitcoin (PB).
There are estimates of the total amount of gold in existence (mined) in the $10-13 Trillion range. If $1 Trillion (10%) of the amount of wealth that would have gone into gold, instead lands in Bitcoin, that would increase the price of Bitcoin to ($1Trillion + TX) / 12.2 million, or by $83,000 per Bitcoin.  Remember, this leaves out the TX component, which will further increase the price of Bitcoin.  Over time, funds will shift from other asset classes being used for wealth storage to Bitcoin.
There are many advantages to storing wealth in Bitcoin as opposed to specifically gold, for example, as you can divide Bitcoin into very tiny pieces (difficult with gold) and you can send Bitcoin to someone on the other side of the planet within minutes (impossible with physical gold). These use cases illustrate why Bitcoin is a good alternative for gold (and other assets) for storage of wealth.
From a transaction perspective, as more citizens, businesses, and governments transact in Bitcoin, the amount of ‘wealth’ that must be placed into Bitcoin must be large enough to allow these transactions to happen.
For example, if it becomes common place for real-estate purchase payments to be processed via Bitcoin, then the amount of value in Bitcoin required to allow this to happen will need to be as large as the current working set of real estate transactions in progress.  This logic applies to online sales and brick and mortar sales.  If, on a daily basis, $250 Billion is required to allow all Bitcoin transactions to occur, the Bitcoin price only in terms of TX requirements, is $20,500.
The price of Bitcoin (PB) = (SW + TX) / BC.  SW and TX will both change as time passes. In geek terms, SW, TX, and BC are functions of time f(t). Therefore to more accurately predict the price of Bitcoin, you need to estimate these two components for a given time, and then divide by the number of Bitcoins in circulation.  BC can easily be obtained from many websites and is updated live.
Bitcoin works well as a storage of value and for financial transactions, therefore it will often be used as a substitute for both currency as well as common wealth storage assets (e.g., gold).  Bitcoins utility (global register – the block chain) is what makes this possible.  The worth of Bitcoin comes into play because of this utility, wealth storage and transactions will happen ontop of this platform.  And using the formula above, the price of Bitcoin (PB) can be computed by estimates of these two quantities.

Like fiat money, the valuation of BitCoin stems from its changing share per unit of world GDP transacting in it -   the share of world economic activity expected to transact in BitCoin vs. the supply of BitCoin.  Consider what gives fiat money value: is it the “faith in and credit of” the issuing government or its quantity relationship to real GDP?
The CPI or purchasing power (valuation) of fiat money is clearly determined by its supply relationship to real GDP wherein excess money vs. production of goods and services determines the CPI.
Figure 1: U.S. M3/Real GDP vs. CPI 1981-2006 (latest date for M3 available data from Fed)
The period of CPI trending above the ratio of M3/real GDP coincided with massive (in relation to GDP) increase in foreign investment in the U.S.  A broader measure would look at the world stock of dollars vs. world transactional share of GDP in dollars.  This can be done for gold during the pure world gold standard.
When gold was the money supply under the pure Gold Standard, and CPI was measured in relation to gold, the same determinant of the CPI held.   The world above ground gold stock/world real GDP vs. World CPI relationship demonstrates this in Figure 2.
Figure 2: World Gold Stock/World Real GDP vs. World CPI 1820 – 1913 Pure Gold Standard
This article does not deal with the effects of political agendas as they may aid or impede transactions in BitCoin or technical issues relating to the security of either BitCoins themselves or the code generating them; but rather strictly with the economics of BitCoin valuation.  The former most certainly can in a moment remove large swaths of GDP from BitCoin transaction and thus move its price in relation to the share of GDP change – as China recently did.
The U.S. dollar, gold, and BitCoin are world media of exchange since, in fact, transactions are taking place denominated in each of these media globally.  The fundamental economic differences are that the growth rate of the stock of gold and BitCoin (the latter having a finite future maximum quantity) are less than the growth rate of world real GDP and are thus deflationary (inherently grow in purchasing power).  Some may question this assertion about gold in view of its historic price swings and may choose to read my Seeking Alpha articles on gold and published academic journal papers to see why.
BitCoin has a further economic distinction from both fiat money and gold: its global acceptance curve as a medium of exchange is just beginning.  Thus, its price is mostly a function of the share of world GDP accepting it in relation to supply.  Fait money and gold in contrast have reached acceptance maturity.   At a current market cap of $7.1 billion (see www.bitcoinwatch.com) and an estimated world GDP of about $88 trillion, its share of world GDP acceptance may be in the range of .000081.
A simple model of the potential value of BitCoin, other factors (which are crucial and beyond scope here) aside, may be built as shown below where if the world GDP acceptance share of BitCoin was 1%, its price per unit would be about $40,000 if its supply was also at its maximum 21 million units.  Of course, by the time the maximum is reached, world GDP is likely to be much greater and the transaction share may be greater.
While there are other factors affecting the valuation of BitCoin, which factors also affect the price of gold, they are minor in relation to its global acceptance growth curve.  Those other factors include the real yield, fiat exchange rates, the expected world inflation rate and the cumulative world inflation rate.
Other digital currencies may affect BitCoin valuation to the extent they compete for world transactional acceptance by offering attributes such as superior technical, security and transactional ease features or compliance with regulatory requirements.

The value of bitcoin is created by demand and offer by the need of market.
If you want deeper estimation let assume two hypothetical examples:
Hypothesis 1:
 * All people in USA has equal savings and all savings are in BC. BC is used only in USA
 * Average Savings Amount for Americans is 3,800$.
 * USA population is 317,161,000

Because the number of bitcoins is restricted, let divide the bitcoins equally among people.
317,161,000 / 21,000,000 = 15.10 BC. In this hypothetical example has every American 15.10 BC and it correpsond to 3800$ of saving. It implies:
1 BC = 3,800/15.10 = 251.66 $

Let estimate another hypothesis.
Hypothesis 2:
    * Bitcoin will replace all gold.
    * There is 171,300 tons of gold in the world.
    * The price of gold is 1,245.5 USD/Troy ounce.

1245.5$/Troy ounce = 40042.825 $/kg
Price of all gold in the world is 40,042.825* 171,300,000 = 6,859,335,922,500$
If we replace the gold with the bitcoin, we get price:
1BC =  6,859,335,922,500 $ / 21,000,000 BC = 326,635 $

Another hypothesis:
Hypothesis 3:
 * All people in the world has it's savings only in BC.
 * World population is 7,127,000,000

21,000,000 / 7,127,000,000 = 0.0029BC
It means that median saving amount of people is only 0.0029BC. It includes babies and poor people in Africa, India..
With three different (unreal) hypothesis and very simple estimate and we can get three different prices.

The question is not very well worded, but I this article is the best response to the question of "What backs Bitcoins?"
libertariannews.org/2011/12/01/why-do-people-want-a-gold-standard-when-history-shows-us-it-does-not-last/


text:
Will deflation destroy Bitcoin?
With the limited total quantity of bitcoins, and people losing their wallets constantly decreasing that number, won't rampant deflation destroy Bitcoin?

Nah! Bitcoin is the future of money.

There are two potential ways in which monetary deflation can impact a currency:
1.  Usability
Most modern currencies have a minimum unit, such as the penny in the United States, or the yen in Japan.  If these currencies existed in only finite quantities, then as the economy grew and/or physical money was lost, there might eventually be too few of these units in circulation to allow normal commerce.  Imagine if, for example, the U.S. dollar became so rare that you could buy a car with a single U.S. penny.  How would you buy a loaf of bread?
Bitcoin, however, does not have this problem because unlike the physical currencies of most countries, bitcoins are infinitely divisible.  Even if only one bitcoin remained, it would be sufficient to run a substantial economy on, based on the ability to use tiny fractions of it like the Satoshi.  If even the Satoshi were to become too highly valued/unavailable for commerce, the Bitcoin protocol could be updated to allow even smaller denominations.  So the usability of bitcoins is safe from the effects of deflation.
2. Broader economic consequences from deflation
Many economists believe that deflation is bad for an economy because people will be less likely to invest their money if they can "earn" increased value simply by holding on to it.  Why buy something today, the argument goes, if you could buy it for half as much in a few months time?  Also, taking out loans becomes very difficult, because to be practical they have to have negative interest rates and then why would anyone loan out money in the first place?
However, there is good reason to believe that deflation might not have such a negative effect on Bitcoin.  For one, Bitcoin is unlikely to become the only currency in the world economy, so investments, loans, etc. can simply be denominated in another currency.  But even more importantly there are several concrete examples from history of strictly deflationary currencies.
For example, the Iraqi "Swiss" dinar was a currency that ceased being printed after the first Gulf War, and was left in use only by the Kurdish regions of the country.  With a finite number of "Swiss" dinars in existence, and some being lost or damaged over time, this left the currency in precisely the same state as Bitcoin.  Since it was no longer backed by a government, many economists expected the currency and its economy to collapse.  Instead, the Kurdish economy continued largely as normal for 13 years, and the "Swiss" dinar even appreciated against the "Saddam" dinar that was meant to replace it.
Rick Falkvinge also raises another excellent point regarding deflationary economies.  If, as economists expect, people would decline to buy something today as opposed to next year for half price, then it should be the case that no one ever buys computers, right?  But in fact, the computer industry thrives despite this continued trend of "whatever something costs today, it will cost a fraction of that within a few years".
Ultimately, this is a question for economists to duke out, and you can find more information about how different economic schools approach the problem here.  Suffice it to say, this cannot be considered a crippling fault in Bitcoin as a technology.

just a note to say that I think this model is the best for answering questions that have an inherent degree of speculation/opinion. Lay out the possible reasons, admit there are multiple views, and give counter-examples. Well done!

What does "continued as normal" mean for the Kurdish economy and is that our target for the bitcoin economy? That economy also received $8.5b in food-for-oil aid.

@Jamie Since this is not a strategy site for the promotion of Bitcoin, but rather a site to compile quality Q&A about Bitcoin, there's no such thing as "our target."  This is merely a peripheral example that attempts to invite a comparison to a similar situation in history in order to point out that moneys in and of themselves can be deflationary and still survive.  I'm sure different economists have their own opinions on the degree of success Bitcoin will experience, but that's getting fairly off-topic for this site.

@eMansipater I was just pointing out that a currency which survived a deflationary period, in a war zone, and with $8.5bn foreign input, is hardly a useful example, since there were some extreme factors that likely played a more significant role in the currency's viability and the country's economy. I do not believe that this evidence provides "good reason" for whether or not deflation will have a "negative effect" on bitcoin in a first-world country, with the US dollar as its primary currency, and not surrounded by enemies. YMMV.

@jamie comments aren't really for discussions.  The example offered is not claimed to be representative, only to open a possibility (which a single counterexample suffices for).  As above, the degree of success is something for economists to argue about and history to figure out for itself.

fwiw, i enjoyed the discussion. if comments are not for discussion, then what are they for? :P

@nanotube :) I know, I know.  But anything that goes more than one 'round' should really be in chat.

Gold and silver have been a form of deflationary currency around the world fo a very long time. At least in regards to having a limited supply to go around.

Bitcoin is the greatest asset bubble in history, because: (2) deflationary money is obsolete economics, and (1) fixing your usability point requires a hard fork that is not coming.

No.  There are many things that could destroy bitcoin, but deflation is not one of them.  While deflation is problematic for a currency backed by debt (as most, if not all, national currencies are), it is not an issue for commodity currencies (and bitcoin is most similar to commodity currencies).
The deflation argument goes something like this: everyone, believing that the value of the currency is going to rise will simply hold the currency and never spend it.  But this argument completely ignores the need for diversification (would you put all of your wealth into bitcoin?).  It also ignores the fact that if people decided to put all their wealth into bitcoin and save everything, they would still need to eat and buy things at some point.  They would have no choice but to spend it.  And, if everyone actually did invest everything into bitcoin, it would create a bubble in the value that would eventually deflate and teach everyone why diversification is good.  The argument also ignores the fact that hoarding itself is not bad...when people hoard bitcoin, they cause the value to rise and that creates wealth that others can use for their needs.  In a way, hoarding is an investment in the broad bitcoin economy.

No, for two reasons:
First, Bitcoins are very divisible. So it wouldn't create the kinds of problems having a penny be enough to buy a car would create. (How would you buy a candy bar?)
Second, while deflation would provide an incentive for people to hoard a currency rather than spend it, it provides an equal incentive for people to try to pry that currency out of other people's hands by any means. If I'd rather hold my Bitcoins than spend them (so that you'd have to offer me more for them), you'd rather have my Bitcoins than something else (so you'd be willing to offer me more for them). It simply cancels out.

In order for a currency to be used to pay wages, and therefore widely used in general, the prices for goods that people buy would be fairly stable. Otherwise, people will reject the currency. Perhaps more importantly, employers will not agree to pay workers in a currency that is appreciating in value, as this would require them to lower wages constantly, something workers will not accept.

If we lived in a world with stable currencies rather than inflating currencies, you could make this very same argument to show that people would never agree to be paid in dollars, because that requires them to get constant wage hikes, something employers will not accept. But they do. So this is pure speculation that is against the evidence. Employees accept inflating currencies, there's no reason to think employers won't accept deflating ones.

Falling prices will cause people to delay purchases, and is symptomatic of lower demand in general. This causes a depression. The example of computers given by many respondents is wrong. This is a case where new, higher quality models are replacing older models at the same price-point. It would be correct if the overall amount of money spent on computers (new and old) declined, but this is not the case.

Again, if we had a stable currency, this same argument would be used to show people will never accept the dollar. Why would anyone sell me anything today if they can sell it for more tomorrow? Don't rising prices cause people to delay sales?

"Don't rising prices cause people to delay sales?" - greatly put. I have been following our deeply flawed, doomed-to-fail monetary system for a while now, but I never thought of this sort of argument. Thank you. You have expanded my knowledge today.

This is essentially the very same argument recently put forth by paul krugman. And it is wrong. Deflation is only a problem with debt-based money. Therefore not a problem with bitcoin. For details see the following article:
http://seekingalpha.com/instablog/530678-minorman/214527-paul-krugman-s-take-on-bitcoin

I appreciate the enthusiasm of those who have answered this question.  Everyone here clearly wants bitcoin to succeed, and so everyone is enthusiastic.  I am enthusiastic, too.
I am afraid, however, that this enthusiasm is coloring respondents' logic.  Literally every response on this page (especially the highest ranked one) is wrong.
In order for a currency to be used to pay wages, and therefore widely used in general,  the prices for goods that people buy would be  fairly stable.  Otherwise, people will reject the currency. Perhaps more importantly, employers will not agree to pay workers in a currency that is appreciating in value, as this would require them to lower wages constantly, something workers will not accept.
The upshot is that inflation must ideally be between 0 and 4%.
In order for that to happen, the supply of money must grow at the same rate as the overall economy.   If the supply of money is constant, then the prices of goods will fall in a growing economy.  And the economy generally does grow.
Falling prices will cause people to delay purchases, and is symptomatic of lower demand in general.  This causes a depression.  The example of computers given by many respondents is wrong.  This is a case where new, higher quality models are replacing older models at the same price-point.  It would be correct if the overall amount of money spent on computers (new and old) declined, but this is not the case.
In the 1930s in Europe, abandonment of the gold standard was the key that allowed the European economies to grow again.  Those who held onto the gold standard longest suffered the most greatly.
It is just a fact that a fixed money supply in a growing economy is deflationary.  This will limit bitcoin to the same role that gold holds now.  It is a useful hedge against inflation, but not capable of replacing the more flexible fiat currency, because it cannot maintain price stability.

Interesting answer, however, your answer assumes that wages and prices would be denominated in bitcoin. Some of the negative consequences of bitcoin's deflation would already be countered if contracts and prices would be denominated in local currencies, but payable in Bitcoin.

Also, imho our excessive consumerism is one of the prime reason our planet's natural resources are quickly declining. Delaying purchases is a good thing in my opinion: People will still buy things that they need, however, people would be more reluctant to buy shit they don't have immediate use for. That might hurt some product category and ultimately might change culture, but could be a great thing in many other ways.

My point is merely that wages and probably prices for staples, cannot be denominated in bitcoin.  This will limit the scope of bitcoin's use and relegate it to a niche.

You can still be paid in bitcoin, even when the value is denominated in another currency. Just set up your contract such that "Salary is $X payable to bank account Y or as equivalent number of Bitcoins calculated with the pay-day's current spot-price from source Z to Bitcoin address Q".

@HaroldNaparst I updated my answer with responses to yours. If we had a stable currency, all of your arguments would equally well work against the dollar. Yet people accept it just fine.

@Gracchus.  In order to maintain price stability, Central banks add or remove money from the system in times of less or greater economic activity, exactly as you suggest.  This flexibility is the great strength and rationale for fiat currency.

One has to distinguish between three different sources of deflation. Based on the famous quantity equation there are three possible scenarios how a deflation can happen.
M * V = Y * P
M= Money Supply;
V= Money Velocity;
Y= Output/Production/Real GDP;
P= Price Level
Deflation is commonly defined as a decrease in overall price level (e.g. P goes down).
So there are 3 ways this can happen:
M decreases: So called Debt Deflation. This is a huge problem for banks and that is what most economists fear. Obviously this cannot happen to Bitcoin because M is fixed. (Except for lost wallets).
Y increases: This would be economiv growth due to an increase in productivity. Since that is a good thing there is no problem here.
V decreases: This means that people hoard their money and dont spend it. Usually this happens in times of high economic uncertainty. When you are unsure wether you will get income next month you will save a little bit more. This could become a problem in a bitcoin economy if that money is just asleep in peoples wallets.

Doesn't this assume that bitcoin is ONLY currency in use? Bitcoin's V decreasing is not a problem in an economy with multiple currencies.

Understanding bitcoin price behavior with the Quantity theory of money
M · V = P · Q

Money supply times the Velocity of money equals the Price level times the Quantity of goods.
Several arguments against the success of Bitcoin are doing the round:

Bitcoin is a bubble, the present $1000+ price level bears no relation to the small bitcoin economy.
People are hoarding bitcoin and not using it. How can that possibly be a successful currency?
Bitcoin has a deflation problem. The general price level would have to keep falling to accommodate the growing bitcoin economy, given the fixed supply of bitcoin. (And somehow predictable deflation is assumed to be a bad thing.)

People could use this theory to 'prove' that when the money supply M is fixed and the economy Q grows, the price level P must drop to accommodate it, which would mean deflation.

But then you are falsely assuming V, the velocity of money, to be
  constant.

What happens when people expect a drop in price level P? They will postpone spending. You know your bitcoins will be worth more tomorrow, so there is a free profit to be had. This drop in spending now would mean there is less bitcoin chasing after goods today. People are hoarding bitcoin. Price levels in bitcoin will adjust, going down today. Saying that the price level in bitcoin goes down, is the same as saying the value of a bitcoin goes up.
This hoarding will continue until the expected change in price level does not provide a free lunch anymore. In a bitcoin economy with a fixed money supply it can't be the Price level adjusting to the growing economy. It is the amount of bitcoin used in spending, or the Velocity of money.
People will hold on to their bitcoin at first. The bitcoin value should be expected to climb rapidly and stabilize.

So what the Quantity theory of money shows us is:

The price of a bitcoin should be expected to move now, to a level fitting the size of the future bitcoin economy. Assuming bitcoin adoption, the $1000+ price is rational given the low market capitalization compared to that needed in a reasonably sized future bitcoin economy.
Bitcoin hoarding is normal. The velocity of bitcoin will be higher tomorrow than it is today. Bitcoin hoarding is a logical consequence of the expected growth in the bitcoin economy in combination with the limited supply of bitcoin. It is rational and here to stay for the foreseeable future.
There will be no constant deflation. The price level, or the value of a bitcoin, will jump to a level that fits the expected size of the future bitcoin economy. It is the velocity of money, or the number of bitcoin actually used in spending, that will adjust to the growing economy, not the price level.

Deflation:
Because the monetary base of bitcoins cannot be expanded, the currency would be subject to severe deflation if it becomes widely used. Keynesian economists argue that deflation is bad for an economy because it incentivises individuals and businesses to save money rather than invest in businesses and create jobs. The Austrian school of thought counters this criticism, claiming that as deflation occurs in all stages of production, entrepreneurs who invest benefit from it. As a result, profit ratios tend to stay the same and only their magnitudes change. In other words, in a deflationary environment, goods and services decrease in price, but at the same time the cost for the production of these goods and services tend to decrease proportionally, effectively not affecting profits. Price deflation encourages an increase in hoarding — hence savings — which in turn tends to lower interest rates and increase the incentive for entrepreneurs to invest in projects of longer term.
Source

@ Gracchus Agreed. The only way to fix this global monetary problem is to replace our debt-based money system with a debt-free money system. Under a debt-free money system, all new money would be spent into circulation interest-free instead of loaned into circulation at interest. This is just common sense. If the government can issue a dollar bond, it can issue a dollar bill. Both have the same backing. The only difference is that one bears interest, the other does not; one serves the banking elite, the other serves the general public.

Bitcoin was modeled after a non-renewable resource extraction curve similar to gold, silver, and oil. Gold and silver have be used throughout history as an effective currency. To say that it would fail due to deflation, would be to say that gold/silver would have met the same fate.
Until the modern era, gold and silver was the main form of money used throughout the world. People did carry it around with them and spend it freely to acquire goods and services.
If someone says to you that deflation will kill bitcoin, tell them to show how gold/silver didn't work for spans of time up to a millennia.

Wait a minute... what do you mean with "non-renewable"? Isn't bitcoin an endless resource (unlike gold or silver)?

Well, it is a diminishing in output (less bitcoins produced over time). They are not an endless resource, there will only be at most 21M of them, and there will be less over time as they are lost.

But the value of the coins change accordingly, right? So at most, we will have less granularity, but just as much capacity to represent money, correct?

The value of bitcoin is roughly proportional to the size of the bitcoin economy, since bitcoin has a fixed supply. This means that for the value of bitcoin to go up (deflation), the bitcoin economy must be experiencing growth. How can growth kill an economy?
The deflation spiral theory is self contradicting, at least in the case of bitcoin. In the case of the fractionally reserved fiat paper banking system that our governments impose on us, it's a little different.

It's been a long time since my Econ101 class but let's see if I can get this right...
Deflation of the currency is only an issue in two circumstances, neither of which currently apply to bitcoin.

Deflation harms individuals who have large debts in the deflating currency, especially those with fixed payments. If the value of one dollar doubles tomorrow then a $1,000 mortgage payment suddenly seems quite a lot to pay for a property that was entirely worth that sum not long ago.
Deflation harms individuals when the lag time between the deflation and price changes is substantial or when companies hold large amounts of stocks purchased at pre-inflation prices and are unwilling to sell at a "loss" even though the money is now worth more.

To my knowledge, no one is making or taking out substantial loans denominated in BTC with fixed payment plans, though that may soon change. There are also many discussions on the forums and elsewhere regarding how loans denominated in BTC might be made more feasible in a deflationary system.
As for #2, there are few (if any) companies who hold stock purchased with BTC and sell at fixed BTC prices. Almost all companies have stock purchased with fiat currency and their pricing is automatically updated at the time of sale to reflect a fiat value, so they do not face the "selling at a 'loss'" scenario.

Not at all, it simply means that we have to come up with different debt models than are traditionally used, like reverse interest. These both also become smaller and smaller issues as volatility continues to decrease.

"Every man has his price."
Sooner or later, you're going to find something priced in BTC that you want or need. And you'll want or need it "now." Consider the situation when buying a computer: they are always going down in price. By the deflationista's argument, nobody would be buying electronics. Ever. If a faster computer is going to be cheaper next week, then I won't buy one this week. Same thing for next month. And next year. Forever...
Except it misses one important point: computers are useful, and sooner or later a buyer's price (the tradeoff between the computer's usefulness and future computer purchasing power of money) will be met.
The "deflation" argument falls down with this one simple example.

Welcome to the Bitcoin Stack Exchange!  Answers that mostly repeat the content of other answers are discouraged here.  Unlike in a forum, you shouldn't answer unless you have something significant to add that has been missed.  Just don't want you to be discouraged if this answer is downvoted!

They can buy computers with dollars. And buying only what you need doesn't result in the same growth as buying what you want.

If people don't spend bitcoin, then miners will not collect fees. And without fees, there's no incentive to mine.   So miners will drop off.  As miners drop off, the network becomes vulnerable to a 51% attack.  So, yes, severe deflation is a major problem, but not solely for the economic reasons people are concerned about.   Far before deflation is a concern, lack of transaction volume and a decreasing money supply will kill bitcoin unless the monetary supply is loosened.  I'm guessing miners will feel the pinch and many will start dropping off by year-end 2014.
Fortunately there are many solutions.   The Bitcoin money supply can be easily changed by a majority of miners agreeing to a change.

This answer seems to disregard that transaction fees are only about 1/100 of the mining rewards, most (more than 98%) is provided by the block reward, instead. The block reward is currently 25BTC, and will be 12.5BTC for approx. 4 years thereafter. That should provide ample reason for people to mine well beyond 2014.

Unsure, can't tell at this stage if deflation will be negative, positive, or neutral. Nothing quit like bitcoin has existed before to compare it against.
For traditional currencies, deflation is a bad thing as deflation was present during most economic depressions in US history. Historically, deflationary currency equates, more often than not, to massive poverty.
The argument against this is that bitcoin is a commodity currency: (such as gold)

A commodity currency is a name given to currencies of countries which depend heavily on the export of certain raw materials for income. These countries are typically developing countries.

Bitcoin sounds a lot more like fiat money than commodity currency though. Especially in light that bitcoins don't "exist" in the physical world in the same way commodity currency does. Bitcoins do exist in on-line spaces and exchanges in much the same was fiat money does.
But even if we say bitcoin is a commodity currency there is still the problem of it being unstable and, as a result, untrust-worthy. Developing countries whose economy is heavily dependance on commodity currency don't have the best track record of stability. A developed country example is the Iraqi "Swiss" dinar which went through deflationary trends - but didn't have long term use.
The counter argument seems pretty bad: diversify your investments. While being obviously good advice, it comes across as giving up on the system as a whole. "Who cares if Bitcoin fails, you should have other investments and will be fine."
Despite the uncertainty of long-term deflation, one of the best things about this currency is its reliance on mathematical models. If/when deflation is causing horrendous problems, I am confidant the mathematical model will be adjusted for the benefit of all.
Only time will tell, after all, Bitcoin is still experimental.

People here saying that deflation is only a problem with debt based currencies are wrong.
Inflation is needed not just because of debt, but because of the growing population. With more people, come more goods being produced and consumed. If we elected to create a 1:1 economy, eventually the dollar would start deflating. This would be unavoidable unless the economy and the population never grew. We know that's not going to happen, so we need more currency to compensate for those extra bodies.
We also need it for debt, yes, but debt is just the lubricant, not the engine.
And even if you disagree with that, and you think that debt is the only reason for inflation, what makes you think that if bitcoin were to become a pervasively used currency, that people would not create debt instruments with it? They've already created a multitude of other typical financial instruments based on its value. The only reason why it's not a debt based currency is because we have not yet chosen to use it to create debt instruments. But if/when humans decide to establish bitcoin as an acceptable form of transaction, they will use it for debt, sure as the sun will rise tomorrow. And it is at that point, that people will see this inherent flaw and it will come crashing to the ground.
This does not apply to all cryptocurrencies, and it is reasonable to suspect that others will succeed where bitcoin fails because they will allow for an infinitely increasing creation of units.

Hi Bjc7227, thank you for adding a dissenting answer to the discourse. I've noticed that your answer seems to mostly respond to other answers. Please note that Stack Exchange is not a forum, we try to find the best answer for each question. As such, an answer must be able to stand by itself and independently address the topic provided in the question post, even if it does include some commentary on other answers.

We also require our users to adhere to our code of conduct.

In case it wasn't clear, I thought that your answer is useful, but it could be improved by addressing the topic at hand explicitly which was what effect the deflationary nature of Bitcoin would have on the project's outcome.


text:
How do I safely accept bitcoins without waiting for confirmations?
Are there any arbitrators that would guarantee the bitcoin transaction such that no one has to wait ten minutes to confirm the transfer of the said bitcoins?

@Dori This is not remotely an exact duplicate.  The other question involves in-person transactions, while this question is about the ~10 minute delay in confirming any Bitcoin transactions.  See http://meta.bitcoin.stackexchange.com/questions/45/closed-as-exact-duplicate-due-to-significant-overlap

@Dori While many answers might be valid for both, the questions are not exact.  I'm not suggesting this is a good answer to the other question, but conceivably the merchant could require the customer to physically wait in the store while the transaction clears.  That would answer the other question while not answering this one.  I don't know why SE even bothers to use "exact duplicate" as a close reason because clearly exact duplicate just means "very similar" in the eyes of most that vote to close.

So at what points in time did this get votes to be closed. Or did you just close it dori? As I recall this had less then 5 views when it was shut down. You closed it as exact duplicate and then changed it to possible duplicate. I bet you don't even have any bitcoins.

user9704: dori is our community moderator, but the great thing is the community can override things like this. No need to make it personal. I voted to re-open as I think the confirmation question is specific and will come up frequently.

Voted to reopen after reading discussion about it on meta.

@user9704 - you do know how to edit your username, right?

@ripper234 - My username reflects how much I care about putting effort into creating a username.

Wait - the title says "How do I ... accept bitcoins.". The body says "guarantee the buyers". Don't you mean the sellers?

Changed it to transaction (buyer/seller neutral).

There are no such arbitrators currently, as far as I know. There have been plans discussed to create trusted sources of Bitcoins. The idea would be that I'd hold my Bitcoins with an e-wallet service and ask them to transfer my coins to you. The e-wallet service would confirm (outside the Bitcoin network) that it was going to send you so many coins.
In one plan, the e-wallet service would send you a signed email containing the transaction ID and a copy of the transaction. If a conflicting transaction ever appears in the public block chain, you would have proof that the e-wallet service had cheated you, destroying its reputation.
There is another method that doesn't require the sender to use an e-wallet service. In this method, a verifier connects to as many Bitcoin clients as possible over as much of the network as possible. He monitors the transactions appearing. If he sees a transaction on all points and doesn't see a conflicting transaction anywhere, the only possible double-spend attack would be to conspire with a miner who happens to mine the next block by luck.
For most transactions, just seeing the transaction posted is sufficient. But if you add in making sure the transaction is seen over most of the network, the risk is low enough to be worth taking for all but the highest-value transactions (say $5,000 or more). For transactions higher than that, it's hard to see how a 10 minute delay is a big deal. But if it is, you'll need to develop a method to handle it.
There have also been proposals for "side chains" that generate blocks more quickly and permit transactions to be confirmed faster. However, they're really not suitable for large transactions as they are unlikely to ever see enough hashing power to ensure they're resistant to a 51% attack.
Note that if you are ever ripped off in this way, you can always prove it. If you see the unconfirmed transaction, you can save it. If no conflicting transaction gets in the block chain, you can still post that unconfirmed transaction. If a conflicting transaction does get in, you'll have both transactions. So you can at least name and shame.

The best way for an eWallet to confirm a transaction is by using its known green address. And, most likely you will be able to do this even without trusting the eWallet with your money, by using multiple-signature transactions.

Use an exchange that allows "user to user" transfers, for instance if both parties use MTGOX then they can instantly transfer bitcoins from one to the other.

There is no single answer to this question.  It involves a risk / convenience tradeoff and depends heavily on the circumstances, i.e. the risks of trusting a payment before some number of actual transaction confirmations are seen in the blockchain, vs the risk of lost opportunities by making things slow or difficult for your customers.
Generally speaking, go ahead if the risks are small in comparison to the benefits of responding quickly.  We see the same thing with credit card purchases, which are even revokable.  For small transactions, merchants typically choose to keep the checkout line moving rather than asking customers for a signature.
The risks are affected by factors like:

What information do you have about the payer - IP address?  Email address?  Do they have an online account with you?  Have you seen payments from the same bitcoin address before?  Do you have their physical address, e.g. for shipping?  Other behavior patterns?
How easy would it be for someone to get away with lots of small transactions?  Do you have good ways to limit their access if they keep coming back?

You can ask the same questions from the standpoint of potential arbitrators.  In most cases the vendor would be likely to have more information to use in making an informed risk determination than an independent arbitrator would have.  But one form of "arbitration" that is getting some attention is the use of a whitelist for bitcoin addresses.  See e.g. the Green address technique.  Arbitrators could research and maintain various whitelists suitable for different risk scenarios (e.g. payment amounts), access to which they could sell.

This is not an answer. A simple no would have sufficed if this is your view on bitcoin transactions.

@user9704 I was answering the question in your title.  If you only want the narrower question in the body to be answered, then you should change the title, which should be a basic summary of the question.  Note that the many people who only read the title on the index page will also get the wrong impression.

I would add: TL;DR - For small amounts, there is no serious risk at accepting a transaction with zero confirmations.

@ripper234 ... unless someone can get away with a lot of small amounts...  And I'd hope a merchant could find the time to read a half page of things to think about when deciding how to handle payments.

Instawallet Green Address is a way to accept bitcoins with zero confirmations and zero  risk of double spend attacks. Of course you still have the risk that Intsawallet is compromised in some way.
Also, for a lot of application (e.g. coffee shop), you can just accept with 0 confirmations with minimal/almost zero risk. The cost of ripping you off would be much more than the price of the cup of coffee. In fact, I believe Mezza Grill accepts without looking at confirmations at all, just based on the word of the customer than he transferred a few bitcoins.
I'm not aware of other methods right now, would love to see more answers.

You can hardly say that there is zero risk with the green address approach.  Financial web sites are broken into all the time, especially when they set things up so there is especially quick money to be made.

@nealmcb - Right, corrected to "zero risk of double spend attacks"

Again, if someone pwns Instawallet (and what online site is truly safe from such an attack?), they could do double spend attacks also.

@nealmcb: That's true, but if they ever did, there would immediately be conclusive proof in the form of the conflicting transactions. Ideally, a service like this would post a bond you could claim if that ever happened. (Maybe that will happen in the future.)

Yes, I see some kind of insurance policy being the future of these types of things for both e-wallets and instant transfer.

9 years later, the best way for one to accept bitcoins without worrying about confirmations is to use the Lightning Network.
This is the best solution so far, as you do not rely on a trusted third party (pretty much as onchain Bitcoin transfers).
However, it's currently not mature enough for a non tech-savvy user to both use it in a non-custodial way and benefit from the same UX as its usual onchain Bitcoin wallet.
Recent development pace in both the protocol for implementations security and in end-user wallets integration for UX let us reasonably put great expectations on it being the de-facto way of using Bitcoin in the upcoming years, thus using Bitcoin without huge confirmation latency.


text:
What happens when someone sends bitcoin to my wallet?
I didn't get it. Should my wallet be online? What if it becomes corrupted before I make a backup? Can I use my backup wallet that was backed up few days ago?

It's actually quite simple. Your wallet is a collection of private keys, each identified by an ID. When someone sends you bitcoins, those are just assigned to one of those private keys.
The information about which key has how many bitcoins is stored in the bitcoin network itself, ie in the database each client has.
Now if you want to use the bitcoins which belong to one specific key, you need this key to sign the transaction.
So no, you don't need to be online to receive a transaction. You can also restore an older backup, as long as you haven't created any new keys in the meantime. If you have created new keys, it all depends on your luck - was the transaction sent to a new or an old key?
And if it gets corrupted before you make a backup you are SOL - nobody has the correct private key then.

Can you expand this answer a bit to explain what a private key is?

It's actually a collection of key pairs (private and public).

@lemonginger: Wikipedia has a great explanation: Public-key cryptography.

"If you have created new keys, it all depends on your luck - was the transaction sent to a new or an old key?" It's not really luck as you provide the address for the bitcoins to be sent to. Secondly, the client actually stores around 100 keys in advance of them being used, so the chance of losing coins is low unless you have used them all (by either sending coins or creating new receiving addresses). The downside of having keys created in advance is that if your wallet was stolen 2 weeks ago, you could lose coins sent to an address you created today.

Your computer does not need to be running Bitcoin to receive coins. When someone sends coins to you, it just creates a transaction that eventually gets included in the block chain (that gets downloaded by everyone running Bitcoin) ; in other words, the whole network grants you the ability to spend those coins. So you don't need to be online for this to happen.
If your wallet corrupts and you have no backup, your coins are permanently lost.
If you have a recent backup, you can reuse it safely (the wallet contains a pool of new addresses, so even if you made a few transactions it will work). However, if you made lots of transactions (more than a few dozens) since your last backup, you will lose some of your coins.

You should try to keep your bitcoin client online.  This allows the client to keep up with the latest transactions.  However, You can receive money while bitcoin is offline, the transaction is logged to the network and once you reconnect and catchup with all transactions your account will show the money you received.
You should keep your wallet file protected. This includes not posting it online or sharing it with anyone. You should also limit access to your computer with the wallet file.  Consider encrypting any backups of the file.  If anyone gains access to your wallet file they will always be able to spend money from it at any point if the future.  If you suspect your wallet file has been compromised create a new wallet file and transfer all of your bitcoins to the new file.
If your wallet file gets corrupted you can restore it from backup and tell the bitcoin client to "rescan" on launch ("bitcoin -rescan" from the command line).  This will re-parse the wallet.dat file and restore your coins.
The one exception is if you have done more then 100 transactions on new addresses since your backup.  The backup wallet file holds up to 100 addresses after you use them up bitcoin will generate new addresses.  If money is sent to those addresses, and you then restore an old wallet.dat, that old wallet will not have access to those funds.
If your wallet file is destroyed without a backup all the bitcoins it contains are lost forever, like lighting a dollar bill on fire.

The -rescan option has been automatic since Bitcoin v0.3.21. Except when you're upgrading from an older version at the same time, there is almost never a reason to specify it manually (though it won't hurt, just slow down the startup process).


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What open source miner applications are there?
What open source miner applications are there? Especially to see how the mining process works.

This question appears to be off-topic because it is about the user is asking for a list that may not be complete, hence it is unlikely that an answer is found that is satisfying.

The official list is on The Wiki and is constantly being modified since new software shows up fairly often, but here's the quick breakdown:

Poclbm - Python/OpenCL GPU miner (GUI)
DiabloMiner - Java/OpenCL GPU miner (MAC OS X GUI)
RPC Miner - remote RPC miner (MAC OS X GUI)
Phoenix miner - miner
Cpu Miner - miner
Ufasoft miner - miner
Pyminer - Python miner, reference implementation
Remote miner - mining pool software
Open Source FGPA Bitcoin Miner - a miner that makes use of an FPGA Board

Poclbm and Phoenix are probably the most popular (links go to the sources) though that's based more on my opinion than any facts or studies. In either case, both should shed some light on the mining process.

Thanks for the edit, Codler. I copied and pasted way too quickly and didn't check my output carefully enough :)

You shouldn't mention poclbm-mod. It's long outdated and is no longer maintained.

poclbm-mod has been removed, thanks.

jzgarzik wrote a very basic miner in Python. It is slow on purpose, because it shows how a simple miner works (and the mining process). It can also be reused as boilerplate code (the getwork JSON-RPC command).
https://github.com/jgarzik/pyminer/blob/master/pyminer.py

Why the downvote? This tutorial miner was especially done to show how the mining process works. That answers the question perfectly.

GPU Miners
DiabloMiner - https://github.com/Diablo-D3/DiabloMiner

poclbm      - https://github.com/m0mchil/poclbm

hashkill    - 64-bit http://www.gat3way.eu/poc/hashkill-0.2.4-x86_64.tgz

              32-bit http://www.gat3way.eu/poc/hashkill-0.2.4-x86.tgz

Phoenix     - https://github.com/jedi95/Phoenix-Miner

CPU Miners
Jgarzik     - https://github.com/jgarzik/cpuminer.git

Ufasoft     - http://ufasoft.com/open/bitcoin/

FPGAminer   - https://github.com/progranism/Open-Source-FPGA-Bitcoin-Miner

Phoenix is a very good GPU miner. While I couldn't find the exact license, it's source is available on GitHub: https://bitcointalk.org/index.php?topic=6458.0
Well, it's written in python, so you could see the source anyways. However, it's actually quite easy to understand and modify, e.g. to create your own logging interface.

The most obvious open-source mining application is the official Bitcoin client itself, available at: https://github.com/bitcoin/bitcoin
The source code is well written and shows quite clearly the way that hashing is performed in order to mine new blocks. It is however a CPU-only algorithm, and doesn't use some of the more advanced mechanisms for accelerating the hashing process.
Despite this, it definitely offers a good introduction into how the generation of blocks, hashing etc. works, without the added overhead of having to deal with potentially unfamiliar GPU-based mining code, which is intentially highly optimised and as a result will likely to be more difficult to understand, and make the basic concepts more difficult to follow.

You can see how mining process works here
https://github.com/bitcoin/bitcoin/tree/master/contrib/pyminer

CPU miner in PHP - https://github.com/codler/Bitcoin-phpMiner

Beware this is not a true "miner" it just use a curl call to the following server  http://api.bitp.it/work?

@Sydwell, it is a true miner, it is connecting to a pool mining of your choice.

https://github.com/colinrgodsey/scalaminer
Written in scala, mostly just mining device control for connecting with pools

Poclbm: An open source, python based GPU miner.
Open Source FPGA Miner: The name says it all.  Hit the source for the project.

M0mchil's poclbm, written in python, hosted on github.


text:
Is mining still profitable?
We all know that mining is supposed to keep the Bitcoin system secure. However, difficulty has risen so much that costs for power currently outstrip possible revenue for mining for a large portion of hardware - not only CPUs, but also many GPUs. Essentially for everything but specially built mining rigs.
That is, if you don't take transaction fees into account. Are they already high enough to support mining? Or are mining rigs going to be enough to keep Bitcoin secure?
edit: the question is about the current situation, not some arbitrary point in the future.

-1 - I think we would want to create questions that are timeless. This question may be out of date in a month.

Let's try this a little bit differently: http://bitcoin.stackexchange.com/questions/118/how-much-bitcoin-will-i-mine-right-now-with-hardware-x

Have a look at: http://blockchain.info/charts/miners-operating-profit-margin

disagree with the close on this question. its a highly relevant question to bitcoin future etc... why would the question be out of date in a month? also does the graph show its already unprofitable? and that the network is already long being subsidized not by the gains from mining?

There are two factors that define the profitability of mining, and they tend to change somewhat independently of one another or at least lag one another quite significantly.
The first factor is difficulty. Blocks should be generated every 10 minutes on average, regardless of the amount of processing power available to the network, so difficulty adjusts how hard it is to find the solution to a block. This factor is based solely on the total hashrate of the bitcoin network.
The second factor is price. Assuming we're speaking of profitability in terms of US Dollars or other fiat currencies, we have to account for our earnings in the same currency that was used to pay for our costs. To my knowledge there is not (yet) a power company that will allow you to pay your electric bill in bitcoins.
From personal experience I can say that my dedicated rigs consume about $4 worth of electricity to produce 1 BTC and if I'm lucky enough to be average my hardware will have a long enough MTBF (mean time between failures) that its cost amortized over the life of the machine will perhaps bring that up to $4.50 or $5 per coin. At today's rate of $8.69 per BTC, it is still profitable though just barely.
CPU mining cannot produce at a high enough efficiency to be worth the electricity cost, and the same can likely be said for less efficient GPUs. Of course some folks don't pay per kilowatt-hour for electricity usage and for these folks ANY kind of mining is still profitable.
There are also a few folks on the forums selling FPGA boards which, though quite expensive up front, consume only 10-15% of the electricity of a comparable GPU. A single Xilinx Spartan6 board, for example, produces 100 MH/s at a little under 7 watts, compared to a Radeon HD 5830 which produces around 200 MH/s (without overclocking) at about 108 watts (54 watts per 100 MH/s).

Mining will probably always be profitable to someone, and there is no threat of a low global hash threatening security. It has built in checks and balances...

Fees are somewhat of a non-factor from the miner's perspective currently. They will most definitely be important for miners down the road. Right now it is probably better to invest in bitcoins than mining gear for 99.9% of people...

It may not always be profitable... if the price of bitcoin drops, people with high electricity costs may pay more for the electricity to mine coins than they can sell the coins for.

This would cause difficulty to drop to a point where it is profitable for someone. We have seen this recently...

This is a very open-ended question and it kind of depends on how optimistic/pessimistic you may be toward the Bitcoin community and the value of the currency.
A while back PC Perspective ran an article (located here) comparing various GPUs and did a very thorough analysis of the hardware that was out there and in common use for mining.  There tests found that mining can still be considerably lucrative, however, a bitcoin was going for $14.30 each, where today it's closer to the $8.50-8.75 range.
If you are optimistic about bitcoins, then, yes, it's worth mining and banking your coins.  If, however, you feel that the price of each coin has dropped and will most likely not go back up for a while, if at all, you may feel that it's not worth the effort.
The answer really is relative.

I wanted to know whether mining is profitable right now, not in the future. I'll clarify the question.

If I had more disposable income right now, I'd be investing another mining rig.  I have faith in bitcoin and want to support it, but sadly 2.2 Ghash/s is all I can contribute right now.


text:
What wallet / e-wallet is the most convenient for new casual Bitcoin users?
I'd like to make small payments for business purposes through Bitcoin, so would like to know what the easiest method of getting setup to accept a Bitcoin payment is for a regular person, so that I can recommend it to those I want to pay.
Some options I see are:

Standard Bitcoin client
BitcoinJ
Instawallet
Flexcoin

These people will only be holding a few Bitcoin at most in their wallet, so security is not as high a priority as in other cases, but I would still like to avoid a Mybitcoin type fiasco where every one I pay loses their money.
Which method has the best combination of convenience in getting setup and security?

BitCoinJ is a library, rather than a wallet. MultiBit and other Bitcoin clients use it as an easy way to abstract the Bitcoin protocol.

related: What is a good resource to help newbies choose their first wallet/s?

Update: I ceased to be affiliated with the MultiBit project in May 2016. MultiBit is now wholly owned by KeepKey LLC and only the MultiBit HD wallet is supported.
The comment below from 2011 refers to the old MultiBit Classic wallet which nobody should be using any more.
MultiBit HD is its direct replacement and remains a viable Bitcoin wallet (subject to regular updates). You can find migration instructions here.
Further, any Bitcoin wallet should only be used in conjunction with an external hardware wallet (KeepKey, Trezor, Ledger etc) due to malware attacks.

MultiBit
I'm biased since I'm a contributor, but MultiBit provides the following features (at the time of writing):

multiple platform installers (Windows, MacOS, Linux)
manages multiple wallets (current account, savings account, business account etc)
local install (no private keys held on a server somewhere)
13 languages (more to come)
easy to use for a beginner (has a YouTube channel)
bulk public key export to support a merchant solution
free and open source under the (very permissive) MIT license

There is also a wide suite of complimentary products in the pipeline to offer a complete range of supporting products (such as a merchant solution).

I've downvoted this answer, because MultiBit doesn't make a good impression on me with all the people asking about stuck transactions and stuck wallets here lately.

MultiBit has recently been having many issues. It has some usability problems that have resulted in users potentially losing their coins. Because of the problems that MultBit has been having, it has been removed from bitcoin.org's Choose a Wallet page

I've updated my answer to reflect the changing situation and the effect of code rot. MultiBit Classic should not be used by anyone any more. MultiBit HD remains viable, but like all wallets requires continuous updates to keep in line with the ever-changing Bitcoin ecosystem.

The only true way to use bitcoin is of course to use the bitcoin client. It is a little difficult to use perhaps, but I would argue that's just about the same difficulty as online services at the moment.
That being said you may consider using an established exchange like mtgox. The identities of the people involved are known (unlike mybitcoin), and many security issues have already come up and been addressed.  Also they provide merchant services to make transactions easier on the go.
It's also very easy to quickly convert your bitcoins to cash, and get paid out whenever you want.

It takes several hours to download the block chain after installing the Bitcoin client, but I think this is the best option.

It's not the "only true way", but rather the currently only fully-functional client, which is a shame btw. Ideally, there would exist several clients so that protocol and software are clearly separated. Or maybe you could say "a bitcoin client".

@davux: There are Java and C# implementations of the bitcoin protocol under development. BitcoinJ is even the basis of the Android clients.

The wiki has a page for EWallets http://en.bitcoin.it/wiki/Category:EWallets
and clients:
http://en.bitcoin.it/wiki/Category:Clients

I've used Instawallet and Flexcoin. Instawallet is very easy to use because you don't need a login name and password. You visit https://www.instawallet.org and it simply gives you a unique and hard-to-guess web address to a bitcoin wallet which you can bookmark. I used this site together with BitPay app for Android, trading a few bitcoins in a diner.
The site has been around since April, 2011. The operator is visible in the bitcointalk forums and responsive enough to emails from users. He is also known to be the developer of the well-known site bitcoinmonitor.com.
http://www.flexcoin.com is also easy, but you need to create an account with username and password to use it.  You enjoy the benefits of instant transfer of bitcoins and simple addresses if you deal with other Flexcoin accounts. You pay a small fee when you send bitcoins outside of Flexcoin and earn interest or "discount payments" if you keep a balance in your account. This "bitcoin bank", the first of its kind, is backed by a business company.
Ever since the MyBitcoin incident where thousands of bitcoins were lost, users naturally have become more wary of third-party wallet services. There is hardly any insurance against bitcoin losses and no guarantee of continued service. However, the visibility, responsiveness and reputation of the operators and legitimate business backing, not to mention the security measures, of the service can be good signs to watch out for if you will use online wallet services.

http://campbx.com is a market but the owners are extremely public as compared to other markets and banks.

Any wallet that is listed on Bitcoin.org's Choose Your Wallet page is a good choice. In order for a wallet to be listed on that page, it must meet several criteria. These include usability, security, and availability of source code. The website also includes details about the wallets listed and some information about the security, privacy, and usability that they provide.
Personally, I would recommend that you use Electrum. Any wallet listed in the Desktop category is good too, but I would avoid using a web wallet.

Can you compare the security of desktop wallet vs mobile wallets? I have overheard some people saying that mobile wallets are more secure. I don't quite know the reasoning.

LoveBitcoins.org has a list of clients for various platforms.
I am biased because I am the a co-developer of BitcoinSpinner, but I encourage everyone who has an Android phone to try it as it is really simple, secure, and ready for use immediately.

Avoid online wallet services at all costs! None of them will ever be safer or more secure than holding the private keys yourself.
I recommend either the official Bitcoin client if you don't mind downloading the block chain, or if you have a smartphone, BitcoinSpinner.
With BitcoinSpinner, you don't have to download the blockchain and the private keys are stored on your phone so your funds are safe and it's really lightweight and easy to use, especially in a business environment for taking payments via QR code.

Saying that "none of them will ever be safer or more secure than holding the private keys yourself" is just plain wrong. It obviously depends on who the person holding the private keys is. Unless it is a very security aware and technically skilled person the money will likely be safer with a reputable online wallet (unfortunately there aren't too many of them yet though).

Sorry but I must disagree with you there.
With all the fiascos occurring with eWallet websites lately, and the fact that any random teenager can set up an eWallet website very easily, the keys will be safer held by the owner. MyBitcoin was a reputable online wallet website, and look what happened with that. The websites can disappear at any time. You wouldn't give your fiat money to a random person in the street to hold for you when you could keep it in your pocket would you? However having your own wallet does take a bit of technical skill and needs to be easier for most people.

If the user who wants a wallet has no intentions of securing their wallet (by ways of passphrase encryption and general diligence with keeping the computer secure) then yes, an eWallet service would definitely be more suitable, but who in their right mind would not make the effort to secure their money? (bar novice computer users, who shouldn't really be using Bitcoin in it's infancy yet anyway)

Yes, there have been a lot of inexperienced people starting e-wallets since it is very easy to do, but as Bitcoin grows more serious and secure alternatives are being started. What I object to is your "none of them will ever be safer...". Of course I wouldn't give my money to a stranger on the street, but I will for example give lots of money to a bank, not because  I know them personally but because of their reputation. I feel a lot safer having them there than at home in a drawer, most people do.

Fair points. As Bitcoin grows I do hope there will be more secure eWallets available


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How is 'profitability' calculated on Coinotron?
On the Coinotron, multi-currency pool website, there is a metric posted at the top-right of each page that displays how "profitable" it is to mine a specific currency.
How does Coinotron derive this value?

It divides the block rewards given multiplied by the value of the currency in USD by the difficulty to generate a this same reward on each cryptocurrency.

They compare how many BTC you get per day if you mine BTC, vs how many BTC you get per day if you mine LTC, TC, etc.
The percentage is how much extra you get, but it makes a lot of assumptions and generalizations.

I had assumed that was probably the case.  I was, however, curious if someone new exactly how this was calculated.  I know this isn't anything you can derive from the network, so, I imagine it's derived from data from a currency exchange. (Which is probably Vircurex.)