Bitcoins

[LaurV]

Originally Posted by Prime95

Pardon my question if it could be easily answered by google. What happens to bitcoins once it becomes uneconomic to mine them (or they are all found)? My pitiful understanding is that the miners also act as some kind of distributed server that somehow verifies or records bitcoin transactions. If these miners/servers are turned off, how are bitcoin transactions verified/recorded?

It is already "uneconomic" to mine them. Without specialized equipment (read: ASICs) one wastes more money for electricity than he can get by selling the bitcoins he mines. Most people still mine them for fun, or because is "cool" to tell your friends that you have few bitcoins, or they are driven by the same adrenaline which makes you buy lottery tickets (yes, you still can be lucky to crack a block, with even the oldest hardware, or CPU, and there are about $15K in that block, so you won't think that you can waste the electricity one year and find nothing).

Mining is not a recipe to get rich fast. I am mining for years, and still the most of the wallet is bought (with real money, when the price was $7-$13 per bitcoin) and not mined.

Your question is not a stupid question, or "easy to google". Most people don't understand how the bitcoin works, either. Even people well educated in both math and economics (the best example, Mr. Mayer here around (still can't forgive him for editing that post of mine! hehe, I would have said many things at that time, but his edit cut me off, so I kept quiet, even if the SIWOTI syndrome was tickling me inside)).

General opposition to bitcoins rely on few fallacies, the most important one are "how can they have any value, if they have nothing behind, they are pulled out from thin air", well, your dollars are also created from thin air, by your bank, and they have nothing behind, they are just pieces of paper which you can use mostly to wipe your butt clean, when they don't carry to many germs for that either (because they are handled by obscure people, on a daily basis).

Or "who creates the blocks"? People don't understand how this works. You create the blocks, when you transfer money. If no money is transferred, then no block is created. The "block" is just a list of money transfers. Nothing more. People will continue to transfer money after the "creation" (please remark the quotes) of all bitcoins is done. Even the term "creation" is wrong. The miner does NOT create anything. All the money were "created" long time ago, when Satoshi outlined the concept. The money were created by its first pencil draft of that paper where the concept was described, in the same way as your bank creates money "from the thin air" when it is printing a new monetary emission. The money are only "distributed" (more or less equitable) to the miners, i.e. the people who HELP the network.

Let's be clear here. If you have your (real) money in a bank, the bank takes care to maintain the money supply (reprints, etc), it takes care that nobody else can spend your money, it takes care that you can't spend other people's money, it takes care that you can not spend more money that you have in your account (double spending), and so on, and so forth. For that, you pay to the bank commissions. HUGE commissions!

The bank lives from the huge commissions (including interest) that is charging. The most part of the US external debts is due to the those HUGE interests and commissions.

Think of the fact that hundreds of bank employees live from these commissions, and a lot of money are spend for... money maintenance (which are also created from thin air), for advertizing (yes! that beautiful shiny printed papers you receive in your mail box, telling you to open that or this kind of credit, Dr. Al. Elder tells this story about trying to open an account and the bank give him to fill a form printed on a paper with golden borders, blah-blah, he runs away and opened an account at a bank which gave him to fill a form printed on a normal, cheap paper, he considered that the second bank cares more about his money).

In a word, the bank takes care about your money, and about your money transactions. For this, you pay the bank, to be sure noone is spending YOUR money except you, and to be sure no-one spends more money than he has, i.e. pays for the goods you sell to him with money he does not have. (we don't talk here about credits, they will be covered further if somebody is interested).

With bitcoins, these things are done by the "network", i.e. by all participants, by all the people who have "money" (bitcoins) in the network, and they have the interest to mentain their own "wealth". Therefore, all these maintenance and safety related costs are almost zero. I.e. the "commissions" are almost zero. The "taxes" for bitcoins are (almost) free, compared with a bank. The safety of accounts is ensured by the encryption, and the safety of transactions is ensured by the miners.

Yes, you have read right. When you do mining, you don't "create bitcoins". That is an idiocy. When you do mining, you verify transactions done by (yourself and) other people. You "mark" the verified transactions in such a way that they can not be "reverted". Like I buy a gtx790 from George, I pay bitcoins, he give me the board, then I change my mind and delete the transaction (which is just "few bytes" somewhere in the network). Or pay him money which I don't have in the wallet, then I run out with his card, and stay hidden.

So, you "verify" transactions. By doing that, you help the "bank"/network. For your hard work, the network is rewarding you: the people who transfer money pay you commissions to verify their transactions fast (no need to wait days for confirmation, when you send money to someone, like it would be with a real bank), and the transactions with higher commissions are verified first. That is how you make money, by mining.

You do not "create" money from the thin air. You can not "create" bitcoins, as you can not "create" US dollars. The money were created long time ago, as explained.

The only question is how to distribute those created money to the population. The "initial distribution", the "IPO" as someone would say, must be done in such a way that the procedure is as smooth as possible, and as equitable as possible, and also, only the people which are interested in shares may get them (otherwise, they will get destroyed and lost, I have this experience from real life, after the communism went down in my country, the new government distributed "coupons" of "shares" to the population, for the national wealth, factories, etc, you could fill in the company where you apply your share, and at the end, an evaluation would be done, and real shares distributed. People didn't know what to do with those papers, mostly ignored them, other burned them, other sold them for drinks in bars, at the end the "wealth" concentrated in the hands of few, who were initially supposed to educate the people, in fact).

The solution chosen by bitcoin for the "IPO" is beautiful: give them to the miners, by lottery. You do your hashing, if you are enough lucky and "find" a block, you will get few bitcoins, from the 21M which were created, "printed", years ago.

The mining will continue as long as people will transfer bitcoins and pay fees for fast confirmations. For few, it will be worthy to mine, even after the "distribution" of the bitcoins will end. The mining will continue as long as the people will transfer bitcoins, even for no fee. I can "mine" my own transactions, to help them be confirmed fast (as odd as it sounds, this is possible, and mathematically/economically safe: once "marked", a block can not be "unmarked", or at leas not in an easy way, it would be more complicate than printing "real" money).

The bitcoin is not "dead". The bitcoin is a wonderful concept. It will exist long after we all die. It has many advantages comparing to actual banking systems. It has also few disadvantages (no one contests that, but the "disadvantages" are not those who most people think of, like "created from thin air" or whatever, here there is no difference from the real money - the disadvantages of bitcoins are more difficult to see, and are more subtle).

But you know something? The first (real) money the people used were not perfect either. The system is done to be improved. One of the bitcoin children or grandchildren will destroy the banking system, as we know it today, and will change the humanity's view about money, same as the internet or smartphones changed humanity's view about communicating and staying in contact to each-other, in the last few years. I may be too old to see this, but the younger of you here on this forum will see it.

[LaurV]

[part 2... it became too long after few edits and additions, and I had to split it, sorry]

Who hates bitcoins?

And puts a lot of work and time in defaming and disparaging it? Well, the banks in the first place. Cryptocurrencyes are their first enemy, because they show a viable alternative to the actual banking system. Bitcoin may die. All alt-coins existent today (including Litecoin, which has no fundamental value, nobody is trading it for real goods, except for bitcoins!) will die. But some of their children will succeed. Because we, the average people, don't need banks to tell us what to do with our money, and take away a third of them for those unwanted advices.

Stupid people in the governments also hate bitcoins, because (in their mind) it is more difficult to control and it is easy to avoid proper taxation. This is false, but as I said, those people are the stupid side of the government. Every government has stupid people and clever people. The clever people in the governments love the bitcoins. As I said, a good part of the US external debt, for example, is due to taxes and interest. Imagine that US debt without the named part... It needs only some crazy guy in the Japanese or South-Korean government (they still produce 90% of the world integrated circuits together!) to say that his country support this or that type of cryptocoin and have plans to replace the national currency with it in 2, 5, 20 whatever, years or so. Even some African country is enough to start. Well, not really, the international monetary institutions will crush it fast, but well... the ides is: "most people don't realize: this phenomenon just need a spark".

End of the break. Back to work now... making "real money" hehe ... But if you like my gibberish, you can donate few satoshi... (here is where the wallet usually goes, but I am afraid that the yellow minions will skin me alive, so if you are serious about donations contact me on PM )

[E_tron]

For now, bitcoin isn't a useful currency. It's extremely deflationary and the value fluctuates every rapidly. For now (and probably forever), bitcoin will be a speculation vehicle. Also, coins are lost pretty easily. If coins are transferred to an invalid address or the "wallet" is lost, then the coins vanish with it (never to be replaced).

I wonder if the crypto-currency guys can figure out a way to peg a new type of crypto-currency to US Dollars, gold, or something more inline with... money?

Most all of the cypto-currencies are deflationary and will probably never function well as a medium of exchange. PPCoin "Peer Coin" has an inflation and coin destruction component. I suspect it is better poised to be a useful medium of exchange. Unfortunately, it runs on SHA-1 hashes and is vulnerable to ASiC chips taking over the network too. http://en.wikipedia.org/wiki/Peercoin

[LaurV]

Originally Posted by E_tron

For now, bitcoin isn't a useful currency. It's extremely deflationary and the value fluctuates every rapidly. For now (and probably forever), bitcoin will be a speculation vehicle.

This is... speculation. You don't know. 200 years ago people believed that a vehicle can't go faster than 22 miles per hour, because the air will go off and you will die by asphyxiation. The first US dollars also fluctuated the same way in the west, during the gold rush. In fact, in the beginning, nobody wanted to trade his hard mined gold for government's papers... They forced them by the gun...

Also, coins are lost pretty easily.

And?... What's the difference from the dollars? (euros, etc, here I only used the name "dollars" but I don't want to be understood as having something against US dollars, please understand this name as "money" in general).

If coins are transferred to an invalid address or the "wallet" is lost, then the coins vanish with it (never to be replaced).

You can not transfer coins to an "invalid address". Here is where the bitcoin is better than money. You can burn your dollars if you like. With bitcoins, you have to do some more effort (like putting them in a wallet and "forgetting" the password :D). There is not such thing as "transferring to an invalid address". You may transfer them to a random (valid) address, but in this case someone, the unknown possessor of that account, will "find" them. Same as for real money.

I wonder if the crypto-currency guys can figure out a way to peg a new type of crypto-currency to US Dollars, gold, or something more inline with... money?

What??? THAT would be a big mistake. All those things are going down. A much better way may be to "peg" it to some commodities, wheat, potato, etc. (except oils, gases, fossil fuels, which will become obsolete, metals, etc). For those, the prices are rising for the last hundred year, and they will still rise for the next few hundreds, as there are more and more people, and less and less resources to grow them.

Most all of the cypto-currencies are deflationary and will probably never function well as a medium of exchange. PPCoin "Peer Coin" has an inflation and coin destruction component. I suspect it is better poised to be a useful medium of exchange. Unfortunately, it runs on SHA-1 hashes and is vulnerable to ASiC chips taking over the network too. http://en.wikipedia.org/wiki/Peercoin

What is wrong with deflation? People! don't believe everything they feed you. Try to think for yourself! Deflation is the scary monster, because "if the prices are going down, nobody will buy goods, they will wait for the goods to become cheaper, so the goods will not sell, the producers of goods will not produce goods which will not sell, they will not be able to pay their workers, which in turn will have no money blah blah, all the economy will collapse and we will return to stone age".

This is the biggest idiocy which the keynessians could produce. And to believe it, you must either be naive, either be "part of the system".

We, humans, valuate the goods according with our needs. Not according with their prices. That is why I will pay a fortune for things you don't give a shit, and viceversa. In all supermarkets there are products going by "everyday low prices". Supermarkets make billions by reducing the prices every day. I didn't see nobody waiting for the next day to buy grapes or detergents because "tomorrow it will be cheaper". Tomorrow it will be spoiled or somebody else will buy it.

Think about computer or electronics industry. The prices are going down not day by day, but hourly. If you bought your computer now, the same computer is cheaper after 30 minutes. I didn't see anyone of you here saying "I will buy computer tomorrow, because it will be cheaper than today". The computer industry is one of the most prolific industry in the world, and it produces revenues of hundreds of billions yearly, with all afferent things around it (software, robotics, aviation, space, etc). And the prices go down every minute.

[ewmayer]

Money - whether government-backed or "crowdsourced" - is only a reliable medium of exchange insofar as it correlates to real economic activity, that is, wealth creation. The world is currently suffering from a large-scale collective bout of governments actively trying to decorrelate these for various misguided reasons, but nonetheless, there is still a fairly reliable correlation even if it comes with an inflationary tax. You can deride these "worthless fiats" all you want, but as long as people are *using* them, getting paid and buying things with them, they remain correlated.

The bitcoin pumpers like to blather about the strength of their crypto algos and the "guaranteed limited supply" of their product, but the scam has nothing to do with the algorithm - it has to do with how the initial issuance of any fiat currency - be it a sovereign's fiat or digital fiat - occurs. One could refer to this as the "currency initialization problem". When an existing sovereign issuer of currency (or consortium thereof, as occurred with the Euro) introduces a new currency, this is via a well-defined set of procedures involving a defined changeover period and a fixed exchange rate for said period, presumably one which leaves the total money supply as measured by the exchange rate constant (although new currencies which also represent a step-function devaluation are also possible). Beyond the end of the changeover period it may still be possible to exchange the old fiat - in fact there are many reasons to make the window open-ended - but then it will be at a floating exchange rate, and it typically gets more difficult to offload the old fiat as time goes on, except for units thereof having historical and collector value, or intrinsic metal-content value.

Now a bunch of guys construct a new "stateless digital currency" and get a bunch of folks to exchange their "soon to be worthless fiat" for units of their creation. What is to prevent them from simply spending the fiat, at the same time folks are trying to spend the digital currency it paid for? I don't recall the bitcoin initial issuers making a show of burning the stacks of "worthless fiat" they got for their bitcoins. Ergo, it's simply a form of counterfeiting. Sure, governments do it too, but as long as they have the security apparatus to say "when we do it it's OK" and make it stick, we gotta accept that. But the digi-currencies pretend they're "better than that" ... so show us the "bonfire of the fiats" which would back it up, guys.

So long as there is no transparent mechanism to ensure that the fiat accrued by the initial "miners" never re-enters the economy except via reverse exchange (bitcoins pulled from circulation in exchange for fiat), it's a scam.

I have yet to see any Bitcoin proponent address the above issuance problem in any sensible way - even Mish Shedlock, whose views I generally respect quite a lot, failed on this one. Earlier this year I asked him the above after he wrote some stuff on Bitcoin and the best he could do was to try to argue from authority:

What's the scam?
They disclosed the algorithm
They disclosed what they are doing and why
There are no false claims
There is no debt
No more bitcoins are lended than exist
This does not make the investment idea any good, but it is not a scam
Goldmoney agrees

None of which addresses the initialization/duplication issue.

[LaurV]

Originally Posted by ewmayer

Now a bunch of guys construct a new "stateless digital currency" and get a bunch of folks to exchange their "soon to be worthless fiat" for units of their creation. What is to prevent them from simply spending the fiat, at the same time folks are trying to spend the digital currency it paid for? I don't recall the bitcoin initial issuers making a show of burning the stacks of "worthless fiat" they got for their bitcoins. Ergo, it's simply a form of counterfeiting. Sure, governments do it too, but as long as they have the security apparatus to say "when we do it it's OK" and make it stick, we gotta accept that. But the digi-currencies pretend they're "better than that" ... so show us the "bonfire of the fiats" which would back it up, guys.

So long as there is no transparent mechanism to ensure that the fiat accrued by the initial "miners" never re-enters the economy except via reverse exchange (bitcoins pulled from circulation in exchange for fiat), it's a scam.

Well, there is no way I could beat you on English (I really like how you are wording it, and I wish I should be able to write in that way!), but just for my better understanding: are you talking about those 50 bitcoins "honorific" rewarded to Satoshi Nakamoto, with which all the things (chain) started?

Because all the other people following in the chain worked for the money they got... They contributed electricity and computing time for you to be able to buy alpaca socks, LCD TV, or make your sejour in Ibiza using bitcoin payment (yes, it is possible, you may not believe it, nor may like it, but there are thousands of manufacturers and service providers around the world, accepting bitcoins for their goods and services, and their number is growing day by day).

By your logic, US dollars are fake, because appeared after the British pounds, and Euros are fake too, because appeared after the US dollars... The initial people which were "rewarded" with dollars didn't burn an equal quantity of pounds...

Say some bush of tomatoes grow in my garden and I put some water on them form time to time, when I am not drunk. When they ripe, I sell some of them to you. Assuming you don't eat them, but use them to buy alpaca socks, in the same time I buy alpaca socks with the money you paid me. Where is the counterfeiting? Why shouldn't be the tomatoes same valuable as the money you paid for them, as long as the socks maker agrees to sell socks for them, and for money too? If now my bush makes more tomatoes, and I want to buy socks with those tomatoes, but I didn't pay any money for them, should I burn an equal quantity of money before spending my tomatoes? (I didn't "pay for them", except of course the water I watered them with). You are dreaming man! And IF I would do so, IF I would be so crazy to do so, then it WILL be not only illegal (and a good reason for the government to ban my tomatoes), but also bad for my "new currency" tomatoes. To connect it to a value of a dead horse...

One may not know, but the bitcoin "legality" was recently discussed in the US senate (2013, Nov.16-18, to quote wikipedia), and they concluded that "it is ok" (people suspect that was what caused the price jump last weeks, from $200 to $700). Just a small step till some country makes it "legal tender"... You may be left behind, before you knew it...

[E_tron]

Please DO NOT send some bitcoin to address: 31etronzHogaPeGnFsNPBSbLAf7odtBsjj. I assure you this address is a bitcoin oblivion. The private key doesn't exist. Bitcoin can be sent there, but it will never be recovered. You cannot find this money.

I'm just pointing out that bitcoin isn't bullet proof. The deflation, destruction, and loss of currency is a big problem for the sustainability of the stuff. http://onbitcoin.com/2013/10/29/reco...-drive-wallet/ Furthermore, the mining endgame is going to be a significant liability to the security of the network: http://thegenesisblock.com/op-ed-bit...alized-future/

Also, image how long is the blockchain is going to be in a few decades? The entire transaction history has to be kept in memory to participate. http://bitcoin.stackexchange.com/que...be-fully-syncd

[LaurV]

Yet, that is a valid address. Why should you store that address in your wallet, is beyond my imagination. And if it is not stored, and you are not intending to send money to it, then you will have real trouble typing it correctly by mistake, to be able to "destroy" your bitcoins.

We agree that bitcoin isn't bullet proof. That is what I said, talking about its "children" or "grandchildren".

Storing whole the chain is a false problem. The chains can be "cut", you don't need to keep the Merkle tree for all the history. Even the banks are keeping tons of paper with transactions for the last 5, 10 years. But not 50 or 100 (except in special cases). Bitcoin stores "checkpoints" of the chains, behind of a checkpoint everything is small and goes fast. After a checkpoint, you have to recheck all, to make sure some third party is not interposed between you and the net and he is feeding you wrong data (he can't feed you wrong checkpoint, unless he has enough power to hash a "valid" checkpoint, there is where the 51% attack falls).

The second link you give (the one from genesis block, about "bitcoin centralized future") is a very interesting one, especially the last part, with the "risks", but I think you are interpreting it in a wrong way. Those are not risks for bitcoins, but risks for a company which would want to attack bitcoin in the future (and get monopoly on it). The article mainly says: ASIC manufacturers may be able to get the 51% of the hashing power in the future, to control the net, but doing this, they will risk the following.... (and describe the risks, devaluation of the bitcoin, due to the attack, i.e. you put a big fight for something, but at the end, because of the fight, that something is destroyed, or the company can be cyber attacked, or physical attacked, possibility to be physically "hijacked" by the government, or terrorists, etc.). So, that article is in fact not "against" bitcoin, but "pro" bitcoin, giving motivations why someone will NOT want to 51%-attack the net.

[chalsall]

Originally Posted by LaurV

We agree that bitcoin isn't bullet proof. That is what I said, talking about its "children" or "grandchildren".

Please forgive me if I'm about to revel my ignorance about both bitcoins and economics, but...

My understanding is there are a finite number of bitcoins. Further, finding more is generally uneconomical.

However, a single bitcoin can be broken down into something like 10^8 pieces.

So, if some are lost, based on the economic principle of scarcity, those remaining simply gain greater value.

As an aside, I think it's worth noting that most other currencies of the past and present are or were based on rare metals, such as silver and gold. Now they're just paper and agreements.

[ewmayer]

Originally Posted by LaurV

Well, there is no way I could beat you on English (I really like how you are wording it, and I wish I should be able to write in that way!), but just for my better understanding: are you talking about those 50 bitcoins "honorific" rewarded to Satoshi Nakamoto, with which all the things (chain) started?

It is my understanding that the initial "wave" of bitcoins - not sure of the % of the current total but I believe it is appreciable - cost negligibly to "mine". Even were the mining cost roughly correlated to the "current market value" for the whole shebang, the fact remains that the mining cost is uncorrelated - actually even worse, hegatively correlated - with productive economic activity.

Because all the other people following in the chain worked for the money they got... They contributed electricity and computing time for you to be able to buy alpaca socks, LCD TV, or make your sejour in Ibiza using bitcoin payment (yes, it is possible, you may not believe it, nor may like it, but there are thousands of manufacturers and service providers around the world, accepting bitcoins for their goods and services, and their number is growing day by day).

Again, they did 0 productive work, and many of them are probably neglecting such in furtherance of their bitcoin-chasing.

But yes, let's consider things from the merchant's perspective - this is the "economically literate" merchant here, which is perhaps in short supply w.r.to bitcoins, but if things ever "take off" the way the bitcoin pumpers advocate, lots of folks smarter than the usual cannabis-seller will think along these lines, because their long-term livelihood will depend on it. Alice comes to me with $10, needing to buy $20 of my stuff. Previously we had a deal where she would work the sales counter for an hour to earn the other $10. Now Alice runs her GPU for a couple days to "mine" $10 worth of bitcoins, then offers me $10 cash plus the bitcoins. Now I still am about to part with $20 worth of merchandise, but I got nothing in return for the extra $10, and - this is crucial - neither did any other economic entity. Sure, the local power company was happy to sell Alice the extra juice, but that cost resources - time, material, labor - to produce, which previously could have been used to produce something of real value, say a a pair of Alpaca socks, since you like those so much.

So while bitcoins are gussied up in "new cryptocurrency paradigm" terms, fundamentally things are no different than if I came to you and touted a scheme whereby you supposedly could "make money by leaving your lights on and fridge door open 24/7". Would you look askance at such an offer? (If not, I'll explain it to you for $50 of worthless fiat.)

By your logic, US dollars are fake, because appeared after the British pounds, and Euros are fake too, because appeared after the US dollars... The initial people which were "rewarded" with dollars didn't burn an equal quantity of pounds...

While I am sure there was some degree of scammery in play there due to the greedheads present in every part of human history, I am equally sure that the initial dollar issuance was highly correlated with actual productive economic activity. Were it not so, enough of the recipients of the dollars would have felt cheated out of their goods and labor that the issuer would not have survived as a political entity, and those responsible might not have survived in the literal sense.

Say some bush of tomatoes grow in my garden and I put some water on them form time to time, when I am not drunk. When they ripe, I sell some of them to you. Assuming you don't eat them, but use them to buy alpaca socks, in the same time I buy alpaca socks with the money you paid me. Where is the counterfeiting?

You just helped me make my case - growing tomatoes is a form of genuine wealth creation, assuming the inputs cost the grower less than people are willing to pay for them. Had the grower instead been using his time and resources to "mine" bitcoins, what of any real value is produced at the end? Nothing.

One may not know, but the bitcoin "legality" was recently discussed in the US senate (2013, Nov.16-18, to quote wikipedia), and they concluded that "it is ok" (people suspect that was what caused the price jump last weeks, from $200 to $700). Just a small step till some country makes it "legal tender"... You may be left behind, before you knew it...

I expect governments will end up loving such digicurrencies, because unlike cash - the choice of the smart money launderer - they come with a complete transaction record. So much for the "anonymity" argument of the bitcoiners. Ah yes, "throwaway wallets solve that" - nope, because the complete transaction record, in the form of the keychain or what-have-you - is absolutely essential to preserve in some form for any such digicurrency. The fact that keychain validation requires ever-more expense the longer the stuff is in circulation only aggravates that aspect. Local merchant's computer down? Guess what - you don't eat, or gas up the car.

BTW, my upcoming-holiday reading list includes J.K. Galbraith's Money: Whence It Came, Where It Went. Used hardcover copy - former library book, which I like because it has the extra clear=plastic protective sleeve on the dustjacket - arrived yesterday, total cost including shipping < $5.

[Mini-Geek]

Originally Posted by ewmayer

Again, they did 0 productive work, and many of them are probably neglecting such in furtherance of their bitcoin-chasing.

But yes, let's consider things from the merchant's perspective - this is the "economically literate" merchant here, which is perhaps in short supply w.r.to bitcoins, but if things ever "take off" the way the bitcoin pumpers advocate, lots of folks smarter than the usual cannabis-seller will think along these lines, because their long-term livelihood will depend on it. Alice comes to me with $10, needing to buy $20 of my stuff. Previously we had a deal where she would work the sales counter for an hour to earn the other $10. Now Alice runs her GPU for a couple days to "mine" $10 worth of bitcoins, then offers me $10 cash plus the bitcoins. Now I still am about to part with $20 worth of merchandise, but I got nothing in return for the extra $10, and - this is crucial - neither did any other economic entity. Sure, the local power company was happy to sell Alice the extra juice, but that cost resources - time, material, labor - to produce, which previously could have been used to produce something of real value, say a a pair of Alpaca socks, since you like those so much.

So while bitcoins are gussied up in "new cryptocurrency paradigm" terms, fundamentally things are no different than if I came to you and touted a scheme whereby you supposedly could "make money by leaving your lights on and fridge door open 24/7". Would you look askance at such an offer? (If not, I'll explain it to you for $50 of worthless fiat.)

Mining is not useless, it is how transactions are verified. So the entity that benefited from the $10 worth of mining that Alice performed is..everyone using Bitcoin. When you make a transaction, you pay a small fee for this. At some point, these fees will be more important than the bitcoin reward (which will dry up eventually, by design).
https://en.bitcoin.it/wiki/Mining
https://en.bitcoin.it/wiki/Transaction_fees
https://en.bitcoin.it/wiki/Controlled_supply