This article covers a lot of interesting ground, and isn't the usual same, old same-old article about Bitcoin. I especially liked the reminders of earlier examples of online currencies.
The conclusion is tentative, and reasonable. Along the way, the author brings up many interesting facts about Bitcoin, about its supporters, and about its critics.
I think it is especially reasonable to assume that Bitcoin exists with the tacit consent of the United States National Security Agency, even if the NSA didn't invent Bitcoin.
AFTER EDIT: Addition of my FAQ-in-progress about Bitcoin for Hacker New. A while ago I wrote that perhaps the greatest contribution the Bitcoin experiment will make to humankind is to teach you and me and our neighbors more about the realities of economics. And later I added that the Bitcoin experiment will also contribute to greater understanding of attack surfaces and online crime. Many of the ideas about how to mine Bitcoins, store Bitcoins, and trade with Bitcoins as a medium of exchange illustrate both the strengths and weaknesses of any other medium of exchange in a world full of human beings. Seeing the discussion of Bitcoins here on Hacker News reminds me of early online discussions in the 1990s of online payment systems such as PayPal, and the arguments beforehand that PayPal wouldn't have to invest a lot of time and effort (as it eventually did) building defenses against theft and fraud. If a weakness in a system is attached to a lot of money, the way to bet is to bet that someone will go looking for that weakness, even if you haven't thought of it.
This prompts a question for all the security-knowledgeable persons who participate here on Hacker News, a question once asked of the inventor of Pretty Good Privacy (PGP). How expensive do you think it would be for the United States National Security Agency (or a comparable organization from another national government) to crack a Bitcoin store, given that we know that some Bitcoin caches have already been cracked? And if the organization storing Bitcoin data held personal bank account data too, how attractive a target might it be to thieves?
How expensive do you think it would be for the United States National Security Agency (or a comparable organization from another national government) to crack a Bitcoin store, given that we know that some Bitcoin caches have already been cracked?
This would be a reasonable 1~2 weeks project for a pentester with less than one year of professional experience, so I'd put a rough upper bound on that at $20k. i.e. it is trivially within the capability of governments, organized crime, and any intermediate Rails programmer who wants a fun side project.
If you 10X the numbers I would not bet against the outcome "Achieve a systemic compromise of the bitcoin client." (Bitcoin, by design, fans transactions out to every client on the network. The transactions contain executable instructions in a language which is interpreted by C code. Do I need to paint a very detailed picture of the risk here?)
>I think it is especially reasonable to assume that Bitcoin exists with the tacit consent of the United States National Security Agency, even if the NSA didn't invent Bitcoin.
How so? If the NSA really hated bitcoin, what would they do? Even if it were made illegal in the US, the United States are not the world, and it would be extremely hard to enforce.
Bitcoins are not the future. But they're a great start.
Bitcoins have two major problems stopping mainstream adoption; excessive volatility that isn't managed and the fact that is a deflationary monetary system, with the latter being a much bigger issue.
Fundamentally a currency needs to move around fungible value. That's it. If it doesn't do that - it's useless.
Bitcoin incentivises hoarding - the opposite of value transmission - and that's the main reason it'll remain as nothing more than a mere speculative currency, like modern day tulips, and why it won't ever become an actual alternative to actual cash.
Now - this isn't a knock against crypto-currencies - which are awesome - it's merely a knock at the fact that monetary supply in the bitcoin system isn't adaptive. Bitcoin needs a central decentralized bank that will help to stabilise the system and inflate (punish hoarders) as the economy grows in fits and starts.
I'm sure that one day in the not too distant future, another crypto-currency will come about that takes all the advantages provided by bitcoin, and combines them with stability/incentives of a nation-backed currency such as the US dollar. When that happens, we can finally end the monopoly held by large financial institutions that so clearly have literally no idea what they are actually doing (see Deutsche bank just recently).
Bitcoins are just the beginning of a whole new financial world, free from restriction, fees and abuse (hopefully :).
This is fundamentally the difference between the left and right economic worldviews. The left prizes inflation, spending, and centralized nation states. The right supports deflation, saving ("hoarding"), and powerful individuals or voluntary groups. And now we are finally going to have an empirical test where the left can't wave a gun at the right to force them into inflation.
You may think that deflation and hoarding is bad. However people are drawn to it. Fortunately, you can't tell people what to do and where to store their money. Thus, a currency that allows hoarding will always be more attractive to people than the one which doesn't.
Soon enough people will learn that there is no deflationary spiral. They will also learn that currency can be both deflationary and move around. Bitcoin is divisible, so it doesn't matter if someone hoards a significant amount of it - trade will still flourish and enough transactions will take place precisely because you can divide one bitcoin into smaller parts.
> Contrary to the central banking and political class insistence that deflation must be prevented at all costs, an economy with a monetary unit that increases in value over time provides significant economic benefits such as near zero interest rates and increasing demand through lower prices. Let’s look at some remarks from leading thinkers on deflation.
"that is a deflationary monetary system, [...] being a much bigger issue"
The market currently proves you wrong. This is not an "issue". Everybody knows about deflation, yet spending is massively increasing. BitPay alone recorded a merchant transaction volume increasing from $687k in February to $5.2M in March. (BitPay is the largest Bitcoin transaction processor, providing a very clear indicator of whether people are spending or hoarding).
For most people the deflationary part is a good thing. If you don't spend them they actually increase in value. Or the people selling things for bitcoin who will get more and more value over time without having to increase prices.
It would hurt people who borrow money, but that's not what bitcoin is primarily used or was intended to be used for, and the interest rate people borrow money at could just be adjusted accordingly. (Which would then encourage people to loan instead of hoard as the amount of bitcoins they get back at the end of the day would be the same either way, but this way they would get interest on top of it. So your "hoarding" problem is self correcting anyways.)
If someone was hoarding bitcoins it doesn't hurt or affect anyone else. Your central bank inflating it wouldn't just punish hoarders, but everyone who used the currency. To the benefit of whatever group controlled it or got the newly "minted" bitcoins.
Bitcoin does have a built in way of inflating the currency by people "mining" more of it, but that was a necessary evil of getting the first bitcoins into circulation relatively fairly. There is no actual benefit of having people wasting vast amounts of computing power otherwise, or making everyone else's money worth less.
A gradual rate of deflation didn't stop world markets when they used an international gold standard.
Very few people forgo buying something they need because they could get 2% one year later if they hold on to the currency.
I think deflation IS economically inefficient, but the negative effect of slight deflation has been exaggerated in the popular economic literature.
For a peer-to-peer currency network, a fixed money supply could even be beneficial by creating an incentive for bitcoin holders to invest in the technology.
Bitcoin is working, has created the most powerful distributed supercomputer in the world, and is processing an increasing number of instant global transactions every month.
It works in practice, as a medium of exchange, and that is a better argument for it working as a currency than theories about how deflation affects economies.
What we are moving into is not a world with one cryptocurrency that is hoarded or inflated - but rather a world of many many cryptocurrencies where people will move from one to another adjusting to the circumstances. There will be the 'lateral inflation' in creation of new cryptocurrencies. When the old ones become stuck into the deflation spiral - new currencies will be used eventually unstucking the old ones, by making them less attractive.
I have not looked into the details - but Ripple looks like hitting the nail on the head.
Bitcoin is excessively volatile now, and probably will be for a while. This is due to many, many reasons related to its age as a currency. The exchange rate will never be stable, but will not always be so volatile.
Regarding deflationary monetary systems, there is much debate. However people exchange things of value when there is mutual benefit - when something I have is worth more to you than to me, and vice versa, we will exchange as it is mutually beneficial. If an asset is appreciating, it affects what value I give it and for what I am willing trade, but it does not disincentive trade - it only changes the value calculation.
If I have $100 that will probably be worth $90 in 5 years, I'm willing to trade it for something that adds about $90 of value to me over the next 5 years. If I have $100 that will probably be worth $110, I'm willing to trade it for something that adds $110 of value over the next 5 years.
I think the anti-deflation argument is entirely bunk, and inflation has dire consequences for those who have fewer assets and education to protect themselves.
Royal Canadian Mint tried a "crypto-currency" called Mintchip. They only had 500 devkits and it had probably a ton of security issue, but it's great to know that they are interested in this kind of technology.
Its a nice write up, but it gets many points wrong.
1) Bitcoin is not anonymous. Its pseudonymous since all transactions take place in public between pseudonyms (ECDSA keys). This is a big difference, one that hasn't been examined too well, and what has been written on it is not encouraging[0].
2) Bitcoin is not the first currency to prevent double spending without a third party. That minimally goes back to 2006 and a paper "Compact E-cash"[0] where double spending a coin reveled the user's identity and allowed for prosecution.
The problem Bitcoin actually does solve is you don't have to trust the bank to not devalue your currency.
3) Bitcoin does not solve the Byzantine generals problem. Bitcoin is assumed to be correct if 51% of the computation power is honest. If everyone is equal, this means that bitcoin only requires that the majority of the generals are honest. The Bzyantine generals problem has no solution if even 1/3 of the generals are malicious[2]: this is a rather famous result.
How is this possible? Bitcoin isn't dealing with a fixed n Bzyantine generals, its dealing with a peer to peer system where anyone can join and you need to prevent sock puppet accounts. It's a completely different problem.
[0]F. Reid and M. Harrigan, “An analysis of anonymity in the Bitcoin system,” in Privacy, security, risk and trust (PASSAT), 2011 IEEE Third Internatiojn Conference on Social Computing (SOCIALCOM). IEEE, 2011, pp. 1318–1326.
I really like the idea of cryptographic currency, but bitcoin strikes me as a somewhat ill fated v1 of the idea.
Whatever replaces it will needs some sort of more sophisticated measure for keeping the value of a coin from fluctuating wildly; because with the way the currency is wildly deflating right now, I'd be super hesitant to "spend" a bitcoin for fear that it might be worth twice what it is now, while on the other hand, I'm also terribly afraid of buying a bitcoin, because what if they drop back down to earth? Currency only really seems spendable if its value is at least somewhat predictable.
"If we sum up the amounts accumulated at the 609,270 addresses which only receive and never send any BTC’s [bitcoins], we see that they contain 7,019,100 BTC’s, which are almost 78% of all existing BTC’s. This suggests that 78% of bitcoins are being hoarded, waiting for prices to rise."
While I'm sure many bitcoins are being hoarded, the proof presented means nothing since by default all change is sent to a fresh address. So if I had a 100 bitcoins and bought an iten worth one bitcoin I would now own a new address with 99 bitcoins and no outgoing transactions giving the impression that I had never spent any of my bitcoins.
From the paper: ('ff' letters missing due to PDF copy/paste weirdness)
===============
Due to the way
bitcoins can be repeatedly moved to fresh addresses, some of which can be very
recent, we can not claim that all these bitcoins are out of circulation. However,
76.5% of these 78% (i.e., 59.7% of all the coins in the system) are \old coins",
de ned as bitcoins received at some address more than three months before the
cut o date (May 13th 2012), which were not followed by any outgoing transac-
tions from that address after they were received.
To be even more cautious with our estima-
tion of dormant bitcoins, we decided to ignore all the transactions which took
place prior to July 18th 2010, when Mt.Gox started its exchange and price quot-
ing services. The sum of the balances of all the addresses which have not been
active since that date is 1,657,480 bitcoins. Clearly, by considering all these bit-
coins as \lost" rather than \hoarded" we are underestimating the number of
bitcoins which are kept dormant in \saving accounts".
By ignoring these very
old bitcoins and repeating the same calculation, we found that 73% of all the
remaining BTC's were accumulated at addresses which only receive and never
send bitcoins, and that 70% of these 73% (i.e., 51%) are dormant bitcoins in the
sense that they were received more than three months before our cuto date but
after it became easy to exchange them. If instead of summing the transaction
values we sum the nal balances of all the addresses that were active after July
18th 2010 but became inactive in the last three months, we get that 55% of all
coins in the system are dormant in this sense.
This is strong evidence that the
majority of bitcoins are not circulating in the system, and since it is based on the
address rather than the entity graph, this conclusion is not a ected by possible
inaccuracies in the way we associate addresses with users. Note that the total
number of bitcoins participating in all the transactions since the establishment
of the system (except for the actual minting operations) is 423,287,950 BTC's
What happens if you want to send me a $1, but your only coin is $100, and I try to steal the change by not sending you the change, sending my own address the change instead?
Is it equivalent to me just running off with a $100 bill of yours? (A real problem in an anonymous street trade).
I guess you could make change yourself -- splitting your $100 into $99 + $1 and then spending the $1. But for the network, that would look like you sending both $99 and $1 to new(?) addresses.
Anyway, the 7M unspent BTC are all "change" that hasn't been spent yet. So your 99 BTC in your example is hoarded: You got 100 BTC somewhere, and spent 1, but you haven't spent the rest.
If you eventually spend your 99 BTC change, it will be sent from the address that was formerly hoarding it. But if you get 98 BTC back in change to a fresh address, that's 98 BTC you haven't spent.
But if you ever really spend that 98 BTC, then the person you send them to may be accused of hoarding -- if they use a fresh address for more anonymity.
So in a sense all BTC ever recieved to privacy-defending users will always appear to be hoarded by their most recent owners. A better measure of hoarding then would be the 7M (owned by non-spenders) divided by transaction volume. But that is still weak, since the dimension of that measurement is Hertz (time^-1), and transaction volume can be boosted by churn across self-owned addresses.
I would have titled this much differently. More along the lines of: "A Comprehensive Guide to Bitcoin".
I just found it humorous that they titled the article "Are Bitcoins the future?" and then failed the ask or answer that question anywhere in mini novel they wrote following that title.
No, Bitcoin is not the future. Most people need to deal with their nation's currency to pay taxes and settle debts, most businesses need a currency that is at least reasonably stable, and that is not getting into the extremely questionable security of the Bitcoin system itself.
The difficulty in settling debts directly does not prevent Bitcoin from being the future.
The Bitcoin as a currency is not a new concept. Right now, Bitcoin is almost exactly like gold. You don't pay your taxes with gold but it could be exchanged for your nation's currency to settle debts.
Some people exchange gold directly for goods and services but very few things are priced in gold. People price things in their local currency so you must exchange the gold for national currency to purchase.
Almost everything about gold is the same as Bitcoin and gold is a very trusted and traditional way to store value.
Sure, if for some reason you assume an economy only has one currency.
It might well be the case that bitcoin becomes a currency for rapid interchange of funds globally and everyone keeps local currencies for everything else.
Or a million other possible scenarios. In no way is an all-or-nothing approach required.
I've seen a more recent estimate that it would be $20 million to mount such an attack. That's chump change for a power like the US, or even another major industrialized nation. It's about the price of one older fighter jet and a faction of the price of a current one.
That paper you link to uses a trusted third party. I highly doubt you could run a 51% attack for any significant amount of time on $20MM. Consider the coins being mined everyday are worth ~500,000USD.
That is not to say it is impossible, but there is almost no way anyone in the world could pull it off for $20MM except the people who already have ASIC designs.
> I've seen a more recent estimate that it would be $20 million to mount such an attack.
The point of BTC's resistance to attack is that as it grows as an economy it becomes harder to attack. It is vulnerable now because it's market cap is in the millions while the US gov't deals in trillions. If BTC markets ever came close to rivaling a fiat currency nobody would realistically be able to mount a trillion dollar or more hardware attack on the "good" guys in the block chain.
If bit coins are used to avoid tax, as they could easily be, and that seriously threatens a government's tax take then the government would kill bitcoin. Even if it meant shutting down the internet. If it only mildy threatens the government you might find transactions being slowly split into two, one part in local currency for tax purposes and a second part which is anonymous and digital.
As far as I can tell bitcoin is a neo-conservative wet dream, if it gained mass traction anyway.
If governments tried to shut down the internet they would have significantly more enemies than just currency speculators to war with. Also, any first world economy that cut off the internet today would go back into the dark ages and would suffer a more severe recession than the great depression.
No government in the first world could realistically try to shut down the Internet. And if BTC gains transaction, it becomes harder and harder (eventually prohibitively so) for a gov't to disrupt the block chain or launch an attack on it.
Every time I see an article about bitcoin I do a ctrl-f on the comments for the word "laundering" and come up empty. At some point, the men in black are going to make an example of someone.
As soon as bitcoin transactions tend to be over 10K, the FBI and Secret Service and IRS are going to be all over it. Do what you want with your banknotes. Just be warned: The dealer on the corner taking dollar bills is much, much, much safer to deal with than any digital currency.
Bitcoins are valuable only because people are hoarding it. It's a classic case of bubble. In the end, they're just bits, and that doesn't have much value.
Your (traditional currency) bank balance is "just bits". The only reason that a number stored on a bank's computer has value is that we have all agreed to trust the bank not to mess with that number. They are allowed to add and subtract from it in very limited circumstances, usually only when they modify another bank balance by the same amount (unless it's a bank in Cyprus!).
Bitcoin replaces that trust in banks with fancy cryptography. Assuming the cryptography is up to snuff, there is no reason why people won't come to accept it's value in time, just as we now accept that the "bits" that represent our bank balance denote value.
Judging by the original paper, the subsequent writings, and the kinds of things prominent members of the Bitcoin community say, it is likely that whoever created Bitcoin was an amateur. There are few references made to the work done by Chaum or Okamoto. The security proof in the Bitcoin paper considers only one specific attack strategy. ECDSA and SHA256 are referenced but little is said about whether or not they compose securely with the Bitcoin protocol, or even if the Bitcoin protocol itself is secure.
It is not that I mean to insult amateurs -- amateurs can theoretically make secure cryptosystems (though Bitcoin is not secure under the security notions used by cryptographers), but it is usually pretty clear when a system was designed by someone who is not well-versed in cryptography. It is unfortunate, however, that Bitcoin's developers cannot be bothered to search Google:
"Bitcoin is unknown territory. It draws praise from Silicon Valley fixture Paul Graham and simultaneous dismissal from Nobel Prize winning economist Paul Krugman. "
No, No, nO!! There is no Nobel Price in economics, period.
There is a "Nobel MEMORIAL price" made by a central bank to propagate their propaganda as scientific, huge difference.
[+] [-] tokenadult|13 years ago|reply
The conclusion is tentative, and reasonable. Along the way, the author brings up many interesting facts about Bitcoin, about its supporters, and about its critics.
I think it is especially reasonable to assume that Bitcoin exists with the tacit consent of the United States National Security Agency, even if the NSA didn't invent Bitcoin.
AFTER EDIT: Addition of my FAQ-in-progress about Bitcoin for Hacker New. A while ago I wrote that perhaps the greatest contribution the Bitcoin experiment will make to humankind is to teach you and me and our neighbors more about the realities of economics. And later I added that the Bitcoin experiment will also contribute to greater understanding of attack surfaces and online crime. Many of the ideas about how to mine Bitcoins, store Bitcoins, and trade with Bitcoins as a medium of exchange illustrate both the strengths and weaknesses of any other medium of exchange in a world full of human beings. Seeing the discussion of Bitcoins here on Hacker News reminds me of early online discussions in the 1990s of online payment systems such as PayPal, and the arguments beforehand that PayPal wouldn't have to invest a lot of time and effort (as it eventually did) building defenses against theft and fraud. If a weakness in a system is attached to a lot of money, the way to bet is to bet that someone will go looking for that weakness, even if you haven't thought of it.
This prompts a question for all the security-knowledgeable persons who participate here on Hacker News, a question once asked of the inventor of Pretty Good Privacy (PGP). How expensive do you think it would be for the United States National Security Agency (or a comparable organization from another national government) to crack a Bitcoin store, given that we know that some Bitcoin caches have already been cracked? And if the organization storing Bitcoin data held personal bank account data too, how attractive a target might it be to thieves?
[+] [-] patio11|13 years ago|reply
This would be a reasonable 1~2 weeks project for a pentester with less than one year of professional experience, so I'd put a rough upper bound on that at $20k. i.e. it is trivially within the capability of governments, organized crime, and any intermediate Rails programmer who wants a fun side project.
If you 10X the numbers I would not bet against the outcome "Achieve a systemic compromise of the bitcoin client." (Bitcoin, by design, fans transactions out to every client on the network. The transactions contain executable instructions in a language which is interpreted by C code. Do I need to paint a very detailed picture of the risk here?)
[+] [-] GuiA|13 years ago|reply
How so? If the NSA really hated bitcoin, what would they do? Even if it were made illegal in the US, the United States are not the world, and it would be extremely hard to enforce.
[+] [-] stevenrace|13 years ago|reply
So 'tacit consent' is quite likely indeed.
[1] https://bitcointalk.org/index.php?topic=6652.msg146198#msg14...
edit - I mispoke regarding location, it was the CIA HQ. However, the 'emerging technologies conference' was for the broader US intelligence community.
[+] [-] unknown|13 years ago|reply
[deleted]
[+] [-] confluence|13 years ago|reply
Bitcoins have two major problems stopping mainstream adoption; excessive volatility that isn't managed and the fact that is a deflationary monetary system, with the latter being a much bigger issue.
Fundamentally a currency needs to move around fungible value. That's it. If it doesn't do that - it's useless.
Bitcoin incentivises hoarding - the opposite of value transmission - and that's the main reason it'll remain as nothing more than a mere speculative currency, like modern day tulips, and why it won't ever become an actual alternative to actual cash.
Now - this isn't a knock against crypto-currencies - which are awesome - it's merely a knock at the fact that monetary supply in the bitcoin system isn't adaptive. Bitcoin needs a central decentralized bank that will help to stabilise the system and inflate (punish hoarders) as the economy grows in fits and starts.
I'm sure that one day in the not too distant future, another crypto-currency will come about that takes all the advantages provided by bitcoin, and combines them with stability/incentives of a nation-backed currency such as the US dollar. When that happens, we can finally end the monopoly held by large financial institutions that so clearly have literally no idea what they are actually doing (see Deutsche bank just recently).
Bitcoins are just the beginning of a whole new financial world, free from restriction, fees and abuse (hopefully :).
But they most certainly are not the end.
[+] [-] temphn|13 years ago|reply
[+] [-] snitko|13 years ago|reply
Soon enough people will learn that there is no deflationary spiral. They will also learn that currency can be both deflationary and move around. Bitcoin is divisible, so it doesn't matter if someone hoards a significant amount of it - trade will still flourish and enough transactions will take place precisely because you can divide one bitcoin into smaller parts.
[+] [-] tensafefrogs|13 years ago|reply
http://www.forbes.com/sites/jonmatonis/2012/12/23/fear-not-d...
> Contrary to the central banking and political class insistence that deflation must be prevented at all costs, an economy with a monetary unit that increases in value over time provides significant economic benefits such as near zero interest rates and increasing demand through lower prices. Let’s look at some remarks from leading thinkers on deflation.
[+] [-] mrb|13 years ago|reply
The market currently proves you wrong. This is not an "issue". Everybody knows about deflation, yet spending is massively increasing. BitPay alone recorded a merchant transaction volume increasing from $687k in February to $5.2M in March. (BitPay is the largest Bitcoin transaction processor, providing a very clear indicator of whether people are spending or hoarding).
http://www.marketwatch.com/story/bitpay-eclipses-silk-road-i...
[+] [-] Houshalter|13 years ago|reply
It would hurt people who borrow money, but that's not what bitcoin is primarily used or was intended to be used for, and the interest rate people borrow money at could just be adjusted accordingly. (Which would then encourage people to loan instead of hoard as the amount of bitcoins they get back at the end of the day would be the same either way, but this way they would get interest on top of it. So your "hoarding" problem is self correcting anyways.)
If someone was hoarding bitcoins it doesn't hurt or affect anyone else. Your central bank inflating it wouldn't just punish hoarders, but everyone who used the currency. To the benefit of whatever group controlled it or got the newly "minted" bitcoins.
Bitcoin does have a built in way of inflating the currency by people "mining" more of it, but that was a necessary evil of getting the first bitcoins into circulation relatively fairly. There is no actual benefit of having people wasting vast amounts of computing power otherwise, or making everyone else's money worth less.
[+] [-] aminok|13 years ago|reply
http://bitcoin.stackexchange.com/questions/3338/how-does-bit...
As for being deflationary, that hasn't stopped the rapid growth in the number of transactions per day:
http://blockchain.info/charts/n-transactions
I posted this elsewhere, but it applies here:
A gradual rate of deflation didn't stop world markets when they used an international gold standard.
Very few people forgo buying something they need because they could get 2% one year later if they hold on to the currency.
I think deflation IS economically inefficient, but the negative effect of slight deflation has been exaggerated in the popular economic literature.
For a peer-to-peer currency network, a fixed money supply could even be beneficial by creating an incentive for bitcoin holders to invest in the technology.
Bitcoin is working, has created the most powerful distributed supercomputer in the world, and is processing an increasing number of instant global transactions every month.
It works in practice, as a medium of exchange, and that is a better argument for it working as a currency than theories about how deflation affects economies.
[+] [-] 3825|13 years ago|reply
[+] [-] zby|13 years ago|reply
I have not looked into the details - but Ripple looks like hitting the nail on the head.
[+] [-] aneth4|13 years ago|reply
Bitcoin is excessively volatile now, and probably will be for a while. This is due to many, many reasons related to its age as a currency. The exchange rate will never be stable, but will not always be so volatile.
Regarding deflationary monetary systems, there is much debate. However people exchange things of value when there is mutual benefit - when something I have is worth more to you than to me, and vice versa, we will exchange as it is mutually beneficial. If an asset is appreciating, it affects what value I give it and for what I am willing trade, but it does not disincentive trade - it only changes the value calculation.
If I have $100 that will probably be worth $90 in 5 years, I'm willing to trade it for something that adds about $90 of value to me over the next 5 years. If I have $100 that will probably be worth $110, I'm willing to trade it for something that adds $110 of value over the next 5 years.
I think the anti-deflation argument is entirely bunk, and inflation has dire consequences for those who have fewer assets and education to protect themselves.
[+] [-] dwild|13 years ago|reply
[+] [-] contingencies|13 years ago|reply
[+] [-] edwtjo|13 years ago|reply
[+] [-] anologwintermut|13 years ago|reply
1) Bitcoin is not anonymous. Its pseudonymous since all transactions take place in public between pseudonyms (ECDSA keys). This is a big difference, one that hasn't been examined too well, and what has been written on it is not encouraging[0].
2) Bitcoin is not the first currency to prevent double spending without a third party. That minimally goes back to 2006 and a paper "Compact E-cash"[0] where double spending a coin reveled the user's identity and allowed for prosecution.
The problem Bitcoin actually does solve is you don't have to trust the bank to not devalue your currency.
3) Bitcoin does not solve the Byzantine generals problem. Bitcoin is assumed to be correct if 51% of the computation power is honest. If everyone is equal, this means that bitcoin only requires that the majority of the generals are honest. The Bzyantine generals problem has no solution if even 1/3 of the generals are malicious[2]: this is a rather famous result.
How is this possible? Bitcoin isn't dealing with a fixed n Bzyantine generals, its dealing with a peer to peer system where anyone can join and you need to prevent sock puppet accounts. It's a completely different problem.
[0]F. Reid and M. Harrigan, “An analysis of anonymity in the Bitcoin system,” in Privacy, security, risk and trust (PASSAT), 2011 IEEE Third Internatiojn Conference on Social Computing (SOCIALCOM). IEEE, 2011, pp. 1318–1326.
[1]http://cs.brown.edu/~anna/papers/chl05-full.pdf
[2]http://research.microsoft.com/enus/um/people/lamport/pubs/by...
[+] [-] overgard|13 years ago|reply
Whatever replaces it will needs some sort of more sophisticated measure for keeping the value of a coin from fluctuating wildly; because with the way the currency is wildly deflating right now, I'd be super hesitant to "spend" a bitcoin for fear that it might be worth twice what it is now, while on the other hand, I'm also terribly afraid of buying a bitcoin, because what if they drop back down to earth? Currency only really seems spendable if its value is at least somewhat predictable.
[+] [-] aianus|13 years ago|reply
While I'm sure many bitcoins are being hoarded, the proof presented means nothing since by default all change is sent to a fresh address. So if I had a 100 bitcoins and bought an iten worth one bitcoin I would now own a new address with 99 bitcoins and no outgoing transactions giving the impression that I had never spent any of my bitcoins.
See: https://en.bitcoin.it/wiki/Change
[+] [-] trhtrsh|13 years ago|reply
=============== Due to the way bitcoins can be repeatedly moved to fresh addresses, some of which can be very recent, we can not claim that all these bitcoins are out of circulation. However, 76.5% of these 78% (i.e., 59.7% of all the coins in the system) are \old coins", de ned as bitcoins received at some address more than three months before the cut o date (May 13th 2012), which were not followed by any outgoing transac- tions from that address after they were received.
To be even more cautious with our estima- tion of dormant bitcoins, we decided to ignore all the transactions which took place prior to July 18th 2010, when Mt.Gox started its exchange and price quot- ing services. The sum of the balances of all the addresses which have not been active since that date is 1,657,480 bitcoins. Clearly, by considering all these bit- coins as \lost" rather than \hoarded" we are underestimating the number of bitcoins which are kept dormant in \saving accounts".
By ignoring these very old bitcoins and repeating the same calculation, we found that 73% of all the remaining BTC's were accumulated at addresses which only receive and never send bitcoins, and that 70% of these 73% (i.e., 51%) are dormant bitcoins in the sense that they were received more than three months before our cuto date but after it became easy to exchange them. If instead of summing the transaction values we sum the nal balances of all the addresses that were active after July 18th 2010 but became inactive in the last three months, we get that 55% of all coins in the system are dormant in this sense.
This is strong evidence that the majority of bitcoins are not circulating in the system, and since it is based on the address rather than the entity graph, this conclusion is not a ected by possible inaccuracies in the way we associate addresses with users. Note that the total number of bitcoins participating in all the transactions since the establishment of the system (except for the actual minting operations) is 423,287,950 BTC's
[+] [-] trhtrsh|13 years ago|reply
Is it equivalent to me just running off with a $100 bill of yours? (A real problem in an anonymous street trade).
I guess you could make change yourself -- splitting your $100 into $99 + $1 and then spending the $1. But for the network, that would look like you sending both $99 and $1 to new(?) addresses.
Anyway, the 7M unspent BTC are all "change" that hasn't been spent yet. So your 99 BTC in your example is hoarded: You got 100 BTC somewhere, and spent 1, but you haven't spent the rest. If you eventually spend your 99 BTC change, it will be sent from the address that was formerly hoarding it. But if you get 98 BTC back in change to a fresh address, that's 98 BTC you haven't spent.
But if you ever really spend that 98 BTC, then the person you send them to may be accused of hoarding -- if they use a fresh address for more anonymity.
So in a sense all BTC ever recieved to privacy-defending users will always appear to be hoarded by their most recent owners. A better measure of hoarding then would be the 7M (owned by non-spenders) divided by transaction volume. But that is still weak, since the dimension of that measurement is Hertz (time^-1), and transaction volume can be boosted by churn across self-owned addresses.
[+] [-] nullc|13 years ago|reply
[+] [-] trhtrsh|13 years ago|reply
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[+] [-] GigabyteCoin|13 years ago|reply
I just found it humorous that they titled the article "Are Bitcoins the future?" and then failed the ask or answer that question anywhere in mini novel they wrote following that title.
[+] [-] betterunix|13 years ago|reply
[+] [-] MichaelApproved|13 years ago|reply
The Bitcoin as a currency is not a new concept. Right now, Bitcoin is almost exactly like gold. You don't pay your taxes with gold but it could be exchanged for your nation's currency to settle debts.
Some people exchange gold directly for goods and services but very few things are priced in gold. People price things in their local currency so you must exchange the gold for national currency to purchase.
Almost everything about gold is the same as Bitcoin and gold is a very trusted and traditional way to store value.
[+] [-] waterlesscloud|13 years ago|reply
It might well be the case that bitcoin becomes a currency for rapid interchange of funds globally and everyone keeps local currencies for everything else.
Or a million other possible scenarios. In no way is an all-or-nothing approach required.
[+] [-] drewblaisdell|13 years ago|reply
[+] [-] stcredzero|13 years ago|reply
Really? Just a quick search, and I find: (2007)
http://ieeexplore.ieee.org/xpl/articleDetails.jsp?arnumber=4...
Is that the paper Bitcoin is based on? According to Wikipedia, Bitcoin was introduced in 2009.
Also, the price of a 51% attack is not that high:
http://www.reddit.com/r/Bitcoin/comments/17gqw0/the_price_of...
I've seen a more recent estimate that it would be $20 million to mount such an attack. That's chump change for a power like the US, or even another major industrialized nation. It's about the price of one older fighter jet and a faction of the price of a current one.
[+] [-] eof|13 years ago|reply
That is not to say it is impossible, but there is almost no way anyone in the world could pull it off for $20MM except the people who already have ASIC designs.
[+] [-] DennisP|13 years ago|reply
That's not the Bitcoin paper, but it looks interesting. It says the code runs on mostly-trusted servers. I found a copy not paywalled: http://sclab.cs.umn.edu/papers/ecash_ICDCS2007_corrected.pdf
And here's the Bitcoin paper (pdf): http://bitcoin.org/bitcoin.pdf
[+] [-] zanny|13 years ago|reply
The point of BTC's resistance to attack is that as it grows as an economy it becomes harder to attack. It is vulnerable now because it's market cap is in the millions while the US gov't deals in trillions. If BTC markets ever came close to rivaling a fiat currency nobody would realistically be able to mount a trillion dollar or more hardware attack on the "good" guys in the block chain.
[+] [-] artumi-richard|13 years ago|reply
As far as I can tell bitcoin is a neo-conservative wet dream, if it gained mass traction anyway.
[+] [-] zanny|13 years ago|reply
No government in the first world could realistically try to shut down the Internet. And if BTC gains transaction, it becomes harder and harder (eventually prohibitively so) for a gov't to disrupt the block chain or launch an attack on it.
[+] [-] mynameishere|13 years ago|reply
As soon as bitcoin transactions tend to be over 10K, the FBI and Secret Service and IRS are going to be all over it. Do what you want with your banknotes. Just be warned: The dealer on the corner taking dollar bills is much, much, much safer to deal with than any digital currency.
[+] [-] chris_mahan|13 years ago|reply
[+] [-] foxylad|13 years ago|reply
Bitcoin replaces that trust in banks with fancy cryptography. Assuming the cryptography is up to snuff, there is no reason why people won't come to accept it's value in time, just as we now accept that the "bits" that represent our bank balance denote value.
[+] [-] gbaygon|13 years ago|reply
[+] [-] Klinky|13 years ago|reply
[+] [-] emin_gun_sirer|13 years ago|reply
This is false. Karma was a p2p currency that did this in 2004, 5 years before Bitcoin: http://www.cs.cornell.edu/People/egs/papers/karma.pdf
[+] [-] veb|13 years ago|reply
This page claims that it could be a group of people who made it, which seems a bit more likely: https://en.bitcoin.it/wiki/Satoshi_Nakamoto
Does anyone else have any interesting insights into the origin of Bitcoin?
[+] [-] betterunix|13 years ago|reply
It is not that I mean to insult amateurs -- amateurs can theoretically make secure cryptosystems (though Bitcoin is not secure under the security notions used by cryptographers), but it is usually pretty clear when a system was designed by someone who is not well-versed in cryptography. It is unfortunate, however, that Bitcoin's developers cannot be bothered to search Google:
https://www.google.com/search?q=digital+cash+site%3Aeprint.i...
[+] [-] forgottenpaswrd|13 years ago|reply
No, No, nO!! There is no Nobel Price in economics, period.
There is a "Nobel MEMORIAL price" made by a central bank to propagate their propaganda as scientific, huge difference.
[+] [-] unknown|13 years ago|reply
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[+] [-] porter|13 years ago|reply
[+] [-] aminok|13 years ago|reply
[+] [-] morphar|13 years ago|reply