Escrow Transaction Details

Here's an example of how two people, Alice and Bob, use ClearCoin:

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http://www.quora.com/How-can-Bitcoin-be-exploited

http://www.quora.com/Bitcoin/Is-the-cryptocurrency-Bitcoin-a-good-idea

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About Bitcoin

• Bitcoin is the first digital currency to be distributed and was created by Satoshi Nakamoto
• Bitcoin is based on entirely open source software
• Decentralized to ensure security and freedom of use
• Encryption provides basic security functions, like ensuring that bitcoins can only be spent by the person who owns them and never more than once
• No bank is required for bitcoin distribution–anyone can create, buy, sell or accept bitcoins as a payment method for tangible or intangible goods and services
• Bitcoin creation is called ‘mining’–the network creates and distributes a batch of new bitcoins approximately six times per hour at random to somebody running the software with the “generate coins” option selected
• Miners offer competitive fees to facilitate bitcoin transactions, ensuring that transaction fees stay low

After month of research and discovery, we’ve learned the following:

1. Bitcoin is a technologically sound project.
2. Bitcoin is unstoppable without end-user prosecution.
3. Bitcoin is the most dangerous open-source project ever created.
4. Bitcoin may be the most dangerous technological project since the internet itself.
5. Bitcoin is a political statement by technotarians (technological libertarians).*
6. Bitcoins will change the world unless governments ban them with harsh penalties.

What Are Bitcoins?
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Bitcoins are virtual coins in the form of a file that is stored on your device. These coins can be sent to and from users three ways:

1. Direct with peer-to-peer software downloaded at bitcoin.org
2. Via an escrow service like ClearCoin
3. Via a bitcoin currency exchange

Each owner transfers the coin to the next by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin. A payee can verify the signatures to verify the chain of ownership.

The benefits of a currency like this:

a) Your coins can’t be frozen (like a Paypal account can be)
b) Your coins can’t be tracked
c) Your coins can’t be taxed
d) Transaction costs are extremely low (sorry credit card companies)

You can watch a simple video here: http://jc.is/jlcte0

Where Do Bitcoins Come from?
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Bitcoins are created by a complex algorithm. Only 21M can be made by the year 2140. Your desktop bitcoin software can make bitcoins, but at this point the electricity and time it would take to produce a bitcoin is larger than the actual value of a bitcoin (your laptop might take five years to make one, and they currently trade at $6.70 per bitcoin [ seehttps://mtgox.com/trade/buy for the latest exchange rate ].

Bitcoin miners use super cheap GPUs (not CPUs) to create the coins, but as more people come online to make them, the algorithm adjusts so that one block can only be made every 10 minutes.

Who Invented Bitcoins?
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An individual with the name -- or perhaps handle -- of Satoshi Nakamoto first wrote about bitcoins in a paper called Bitcoin: A Peer-to-Peer Electronic Cash System. This person has stepped back from the project and trusted Gavin Andresen to take charge as the project’s technical lead.

How Does One Buy and Sell Bitcoin?
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Currently Paypal and credit card companies are making it illegal to sell bitcoins. Why? Simple: PayPal’s terms of service prohibit "currency exchange."

CoinPal had its account frozen, details here.

Given that you can’t whip out your Paypal account and buy them, and that it will become harder and harder to get them, bitcoins will be bartered for services in the real world.

For example, a Hacker News community member named Nicholas Carlson just boasted that he is being paid for a programming project in bitcoins.

Bitcoins in Real Life
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In the next year you’ll hear about people in casinos in Vegas buying and sell bitcoins for cash and casino chips.

Imagine a bachelor party comes to Vegas and STNY (someone that’s not you) gives $550 to a guy at a bar and he takes out his laptop or tablet and ships 100 bitcoins to STNY’s phone. STNY then goes to Craigslist and ships some bitcoins to an escort and a drug dealer, who then show up in person to provide goods and services.