Why is Bitcoin fair?

According to the Wikipedia article on Bitcoin:

The initial bitcoin distribution is advantageous towards early-adopters. [...] However, the amount of work that must be done for one bitcoin is currently over 500,000 times more than the amount of work at which the first bitcoins were being distributed. As more people join, and also because of a reward function that halves the number of rewarded bitcoins every so many blocks, it becomes harder to generate bitcoins over time, using the same computing power.

So how is this fair? Why should someone get money just for hearing about Bitcoin before I did?

Jason

Posted 2011-12-01T21:26:14.413

Reputation: 161

5This is a valid question with a good answer. Why downvote this poor guy just for asking this? – Olhovsky – 2011-12-01T23:38:31.480

It's worth noting this has it's own entry in the bitcoin.org FAQ: https://en.bitcoin.it/wiki/FAQ#Doesn.27t_Bitcoin_unfairly_benefit_early_adopters.3F

– Highly Irregular – 2011-12-09T09:42:00.107

Answers

It's a complete irrelevancy. It is still early, and Bitcoins are worth on the order of $3 each. If you want to be an early adopter, buy Bitcoins now.

If Bitcoins never become really valuable, what difference does it make whether it's fair or not? The sums involved will be modest.

If Bitcoins ever do become really valuable, what difference does it make whether it's fair or not? You can buy Bitcoins now for a pittance and get the same benefits as the early adopters.

This is just petty jealousy. It's no different from the folks who missed out on Google stock or Apple stock when it was cheap. It's not just about hearing about Bitcoins first, it's about investing first, and taking the risk of loss. That's how everything works. Maybe it's not fair, but that's how it is.

David Schwartz

Posted 2011-12-01T21:26:14.413

Reputation: 46 931

@DavidSchwartz, while I agree with your general sentiment, I do NOT agree that early mining was as risky as early investing, as the very early miners were most likely using existing equipment and very little power to actually generate blocks. Early mining was more along the lines of fractions of fractions of pennies, not whole pennies. – mikeschuld – 2013-12-19T03:44:45.713

1I have no problems with the investing part of it. I'm specifically referring to the mining component. – Jason – 2011-12-01T21:56:01.807

8Mining is the same as investing if you keep the Bitcoins. There's no real difference between mining 100 Bitcoins and buying 100 Bitcoins. Mining, and keeping the Bitcoins, was just the easiest way to invest in Bitcoins in the early days -- it's no different from buying a penny stock. (And was just as risky.) – David Schwartz – 2011-12-01T22:02:23.327

Jason: mining is currently less profitable than investing. – molecular – 2011-12-01T23:03:03.427

David: there is a difference between mining and investing (not for the individual, you are correct on that one). Mining increases bitcoins security against double-spend and other attacks while investing increases the "worth" of bitcoin measured in FIAT currency. – molecular – 2011-12-01T23:04:41.583

If you imagine the "difficulty" as sort of a second price that you can optionally pay with resources rather than money, the question becomes functionally identical to "how is it fair that the first investors in Apple got rich just because they heard of it before me." – David Perry – 2011-12-01T23:05:38.883

3@molecular Buying Bitcoins raises the price, which increases people's incentive to mine, leading to more miners anyway. – David Schwartz – 2011-12-01T23:18:04.253

It is not that someone gets money for hearing about Bitcoin before you. They get money for TAKING ACTION before you did. What gives Bitcoin value is all the people working on the software and services to make it better. What gives Bitcoin value is people educating others about it, and getting merchants to use it. What gives Bitcoin value is people acquiring it by exchange with other currencies as a show of faith. This pushes the price higher and creates more investment capital for the Bitcoin entrepreneurs and investors to launch more ventures for ...Bitcoin. The reason they have more Bitcoin is because they are the ones who made Bitcoin what it is today. And YOU can help make Bitcoin what it is tomorrow.

osmosis

Posted 2011-12-01T21:26:14.413

Reputation: 5 061

1could also say that miners giving their cpu/gpu power to the network increases the security and makes bitcoin more valuable. – osmosis – 2011-12-02T00:12:08.090

Bitcoin was publicly announced before mining began. Those who were interested in cryptography and new digital technology were more likely than others to learn about it sooner, and it's perfectly fair that they were in a position to profit more from any rise in its value since its success would mean the information they were browsing had more value than the information others were consuming. Of those who learned about bitcoin, only a few took the initiative and got involved, something which was necessary for bitcoin to get to the stage it is at at this point in time, so it's fair that those individuals profit from its rise in value.

To generalize, early adopters/investors who profit from emerging technologies are usually those who are interested in and learn about fields of technology that turn out to produce useful innovations, which is economically valuable since acquiring this knowledge increases the rate at which useful innovations are developed and adopted, and are those who show the initiative and invest their time and money in fledgling projects that the majority does not see much potential in, which also provides value to the economy by helping develop new technologies/businesses with high economic potential when few were willing to do so.

Amin

Posted 2011-12-01T21:26:14.413

Reputation: 1 452

5That's a very interesting take. Usually I consider the "active ingredient" to be what you do after you hear about such things. But this nicely explains why hearing about things in the first place also deserves to be rewarded. – Meni Rosenfeld – 2011-12-02T06:51:17.723

Hearing about Bitcoin is the easy part. The hard part is having the vision to understand how it's revolutionary, spending the resources to acquire it (whether other currency or electricity/compute power), taking the risk that it might not eventually succeed - and in so doing, taking a part in helping Bitcoin succeed thus making the world a better place. This deserves to be rewarded.

If you had heard about Bitcoin when the rate was $1, or $0.3, or $0.06, or when they weren't traded at all and it was just some software written by some guy consuming power and generating worthless monopoly money - would you have invested? When the rate goes up to $1000 and someone else will come complaining how it's unfair, do you want to be the guy who had the vision to invest when it was $3 and profited from it, or the guy who had the opportunity and missed it?

(I am not suggesting that Bitcoin should be thought of as primarily an investment vehicle or recommending that you do invest. There really is risk in such an investment and you shouldn't make it unless you know what you're getting into. What I'm saying is that it's all your choice and it's fair to be rewarded for making the correct choices).

Meni Rosenfeld

Posted 2011-12-01T21:26:14.413

Reputation: 18 542

From the FAQ:

Early adopters are rewarded for taking the higher risk with their time and money. In more pragmatic terms, "fairness" is an arbitrary concept that is improbable to be agreed upon by a large population. Establishing "fairness" is no goal of Bitcoin, as this would be impossible.

The vast majority of the 21 million Bitcoins still have not been distributed. By starting to mine or acquire bitcoins today, you too can become an early adopter.

ripper234

Posted 2011-12-01T21:26:14.413

Reputation: 25 192

I agree with you this "early adopter advantage" is not fair per se. But the currency has to start somewhere. And what most people mean when they say BitCoins are fair is there is not a big entity (governments) that are controlling how much money is circulated thereby reducing the value of everyone else's money. Since the amount of Bitcoins in circulation will grow according to a set algorithm the system is "fair"

mpenrow

Posted 2011-12-01T21:26:14.413

Reputation: 277

People who invest now are taking a big risk with their money. They aren't buying now what is guaranteed to be worth $1000 in the future; they are buying now what has a small chance of being worth $1000 in the future and a much larger chance of being worth nothing. If their dreams come true and Bitcoin does take off, that just means they were lucky. Anyone with a sufficiently aggressive portfolio is likely to make a windfall gain at some point, which will probably be all but cancelled out by losses elsewhere; this isn't "unfair" except insofar as chance itself is unfair.

If you're confident that bitcoin value will go up and people will be left behind, and that this is an unfair thing to have happen, you could always buy bitcoins now and resell them to late adopters at ridiculous bargain prices in a few years. If you think this is too risky, consider what that means for the actual expected value of bitcoins.

Ian Maxwell

Posted 2011-12-01T21:26:14.413

Reputation: 21

Also, if you feel that Bitcoin are likely to be worth less than their current value, you can always short them. – ripper234 – 2011-12-05T07:52:52.470

If you believe the current implementation of bitcoin is unfair, you are welcome to start your own branch - since afterall the code is open source. You can change the rules. However, without disproportionally rewarding early adopters, I don't see how it would ever take off, but good luck none the less.

Alexandre H. Tremblay

Posted 2011-12-01T21:26:14.413

Reputation: 179

1It's worth mentioning that this has been done several times already... with i0coin, ixcoin, and solidcoin. I'm still waiting for CosbyCoin though... – Highly Irregular – 2011-12-09T09:37:40.390

In what way is it "unfair"?

When the first people started mining gold in California, were they being unfair to the people who started mining long after them? Nope.

The first miners got a big reward because they took the big risk, others saw there was money to be made and followed them.

Just like with bitcoin: if those first miners/investors hadn't spent their time and energy on bitcoin then it wouldn't be here today for you to wonder why you waited so long to get in on it.

Tim

Posted 2011-12-01T21:26:14.413

Reputation: 11