What if the Bitcoin bubble bursts?
economist.com
economist.com
I swear I should launch one that's backed by my dog's ability to produce shit, at this point I figure it has a minimum $2M value at launch.
Think about that. You purchase these BAT tokens from trading platforms to place ads that only Brave browser users will be able to view.
To say the least, they'll be having a hard time competing against Google with that premise.
But I guess I should switch my wallet to micropup as it's creating even more value and it's totally carbon indexed.
I think the concept is sane, I think the potential is there, I think Satoshi was brilliant, but I don't see BTC adoption for the things it promises.
It can also generate a bank account for you, allow you to store it in your brain, then delete all record that it ever existed, and then at some later date recreate the account from memory.
It can maintain its value during a default of the U.S. federal government.
Money has value to the extent it can do things. Dollars can do things Bitcoins can't. Bitcoin can do things dollars can't. These define their relative value.
Same goes for horse shit. Ever though bout that? It too, is just created. Sure, there's a virtually unlimited amount of horse shit, but if you want the supply limited, I've got a single horse to sell you.
Stocks pay dividends and entitle the owner to certain rights. Btc gives you some crypto that others trust.
Not very similar.
Btc is actually a detriment to the environment without any real utility. The evidence of work algorithms burn fossil fuels and add CO2 and other pollution into the atmosphere, and at the end of the day, all you have is a bunch of useless 1s and 0s that we attribute with value that are incapable of doing anything other than represent a finite portion of a really complex math problem that we attribute value to.
From my understanding their "actual value" is massively inflated through a similar monopoly as De Beers for diamonds (except it's China as opposed to a single company).
I agree that BTC is a massive determent to the environment and so on, but rare earth mining isn't a picnic either. While all of those materials do have practical uses, their perceived value is massively over-inflated.
June 2011. from 30 down to under $1, and Feb 2014 when MtGox finally imploded.
These last few have been sell offs and market manipulation which only lasted a few days.
The volatility has quite a few causes, among them:
- Other currencies are used for all sorts of things that don't involve trading them–i.e. when have you last thought about exchanging those USD in your pocket for Euro? That creates stability. Compare to bitcoin, where almost everyone owning any keeps an eye on the market and is principally willing to buy or sell when they think they see an opportunity.
- Markets for real currencies operate under government supervision and regulation, and the facts that influence their value, such as employment numbers or GDP growth, are public, and reliable. For bitcoin, some rumour from China can move the market because nobody knows which information to trust.
I think this issue will be solved when there are more places accepting BTC. Then you wouldn't need to keep an eye for when to buy/sell it. You would be able to spend it.
I read on /r/btc/ someone saying that "currently, BitCoin are like Magic The Gathering cards". And it really does!
The smaller a market is the less buffer it has against volatility.
The problem is once the number of miners drops enough someone,likely with a strong stake in an Altcoin, can simply buy enough hashing power to just take over for a few weeks resulting in an abrupt end.
Currently, ethereum has inherited all of the problems that bitcoin has and and magnified them by a substantial amount. We'll either witness the development team pull off a miracle - or more likely, in my opinion, watch the house of cards come crashing down.
Now, they are hitting scaling issues. But it will be interesting to see if they are more responsive.
https://eprint.iacr.org/2013/881.pdf
https://github.com/ethereum/wiki/wiki/Design-Rationale
https://blog.ethereum.org/2015/09/14/on-slow-and-fast-block-...
At least, new kids on the block are warned there is still a risk. Everyone knows that
was a bit surprised myself
Recently Ethereum has been taking a chunk out of Bitcoin's market share. One of the big reasons why is that it does not currently have this problem of a massive transaction backlog requiring large transaction fees.
And the transaction pressure then wasn't even what Bitcoin normally handles. (I'm not sure if that says more about the state of Bitcoin or Ethereum however.) Anyway, if you need transaction capacity, look elsewhere.
Most cryptocurrencies work like that, especially since they were all more or less inspired by Bitcoin. The capacity to which Ethereum and Bitcoin can scale can differ by a constant factor at most. (Where the latter is likely at an advantage, due to smaller transaction sizes and simpler scripts.)
Scaling Bitcoin to a global payment network for everyone's daily transactions is probably not realistic. But it could very well act as the clearing backend for such a system. (See, for example, Lightning Network.)
http://www.livebitcoinnews.com/ico-investor-pays-us1500-wort...
https://etherscan.io/tx/0x0ca73d29dd82b48eba41331ed5d33ab836...
The simplistic explanation is that the Bitcoin network effectively incorporates a hard upper limit on the number of transactions per unit time. (Every new transaction must be recorded in the blockchain, and the blockchain only grows so fast.) So as the currency becomes more popular and demand for transactions increases, either your waiting time to get the transaction confirmed on the blockchain increases, or your transaction fee has to increase.
In theory, you should wait for a transaction to have at least six confirmations on it before truly trusting it. That has always taken an average of an hour from the transaction first going into a block. It's the "first going into a block" part that takes longer now, unless you attach a higher fee to ensure that it goes in quickly.
Not true. A 0-conf transaction is a transaction which has not been confirmed at all, which is orthogonal to its fee.
A transaction with a reasonable fee may not even be confirmed at all, as it only takes a few days to fall out of every mempool and average fees are currently unreasonable, so it is not safe to trust 0-conf transactions currently as they may never make it on-chain.
"as long as the transaction [will be confirmed within several days], you can be pretty sure that it will be confirmed eventually".
While this seems like a technical glitch to some, it is easily addressed using traditional finance techniques or via side chains.
Fees exist to incentivize miners to participate, and so "unreasonably high" fees should result in more miners participating and fees going down. Due to the scale of Bitcoin, adding non-trivially to the mining capacity takes a pretty massive investment, so we should expect a gradual correction.
Overall this is a good thing because it enhances the overall cryptosystem significantly while clearly signaling (via the price) what needs to happen.
While it is tempting to solve this technocratically, I'd argue that institutional stability (even if it seems a bit like calcification) is extremely valuable to the formation of long term incentives and risk-taking for the ecosystem as a whole.
It would be nice to have a proper economic feedback mechanism on this, e.g. miners decide how big to make the block based on how high the fees are getting. However, the costs for big blocks are externalized and so I think miners would make blocks as big as possible to capture as many fees as possible. The cost of storing those blocks in perpetuity costs the whole Bitcoin ecosystem.
I consider this a major crisis for Bitcoin as with current fees, the system is not very useful. The original thinking was that block sizes could be increased a lot and provide transaction rates that match what credit card companies can do. Current Bitcoin core developers and miners can't seem to increase the block size, each blames the other for inaction. Some suggest the core team is mostly controlled by Blockstream and their business model depends on expensive transactions forcing people to use their Lightning network instead. Miners are fine with high fees as long as the Bitcoin price doesn't collapse.
I don't know how this will play out. Perhaps some clever idea will come forth to solve the scaling problems. If so, Bitcoin should continue to be adopted and rise in price. If things say deadlocked, I could see Bitcoin wither away as other crypto-coins do the same job but for lower transaction fees.
However if you consider that miners (or more abstractly, mining rigs themselves) are easily repurposed to mine a BTC fork which could potentially include a larger block size from the start.
So the conflict is between the beneficial network effects of BTC and the transaction cost imposed by arguably "bad" governance (corrupt governance, if the rumor you mention is true).
There are lots of interesting incentives that apply to BTC at scale that are hard to predict when reading the paper.
I think we'll see a very messy world of many competing cryptocurrencies and difficult-to-understand layers of overly centralized governance resulting in layers upon layers of perverted incentives.
But the silver lining is that the blockchain is a nice way to offer the kind of transparency that could make a system like that actually far better than the kind of messes we end up in with fiat currencies :)
I will tell you that, right now, I can just about barely fit the entire blockchain onto my laptop. With a bigger block size, that would no longer be possible. Similarly, the network requirements of transmitting much bigger blocks would hemorrhage users as well. What we need is something like Lightning Network, which is a multiple-level system that doesn't require that all participants download all data from the levels beyond level one. Just naively scaling up level one removes lots of participants from the system and still hits a cap at well below what we'd want Bitcoin to finally be capable of handling.
This makes bitcoin much less useful in my personal opinion.
IMO we really should be pushing for GNU Taler, which is a system that doesn't have proof of work, is confirmed effectively immediately, and has many more privacy properties similar to cash. It works by having a mint sell customers coins (using whatever standard method of payment you like), the customer spends coins on merchants and then the merchants can redeem the coins for "real" money.
In particular, customers cannot be identified (nor can their transaction history) but merchants' income can be identified (for tax reasons). As the system doesn't require proof-of-work the speed problem is massively reduced as well as the transaction cost.
In addition, Taler is _federated_ not fully decentralised. It works basically how cash works, except you don't need to be a new country to set up a new currency. In order for a particular mint's cash to be spent you only need that mint to be around.
I don't get why "decentralised or bust" is the end goal. Federation with individual privacy is still an improvement over centralised credit card companies. Also, like it or not, but Taler has much better privacy guarantees than BitCoin.
This is assuming retail stores will wait for 6 confirmations to get 100% assurance in the blockchain. Many retail stores take a certain level of risk with all plastic/digital transactions currently with credit/debit cards. I doubt many would see much utility in waiting for more than 1 confirmation, considering the difficulty involved in faking one and the lack of real stories of this 'scam' actually happening.
Especially for low-margin sales like coffee, food, or other sub-$100 transactions.
As with any scam of this nature it will likely involve side-step the crypto system somehow (ie, target the mobile apps used for PoS) rather than breaking the blockchain confirmation scheme directly.
We really need Lightning Network, which segwit enables. That allows near-instantaneous (with only network propagation delays) transactions.
The key thing is that bitcoin transactions are not reported to the government -- very helpful if you're desperate to move a large amount of cash out from a country with heavy currency controls like China or Venezuela.
Other PoW-based systems have similar recommendations. You can have more frequent blocks, but the economic security offered by each confirmation will be lower.
There are other nifty networks called payment networks which promises instantly secure transactions, the most well known being Lightning. They offer that by identifying cheating and offering both parties to get their money out in case the other party does. They are still pretty experimental but the results are promising.
I agree with the notion that BC is similar to gold because it is an alternative to fiat currencies.
The author James Richards has the good idea of putting the dollar about 10% on the gold standard to loosely tie the dollar to gold so when money is "printed" at least part would need to be backed by a physical gold purchase.
There are some forces acting against this:
- The general usefulness of BTC, which reduces the incentive to move wealth out of BTC
- The incentive for these large holders to transact slowly, preventing an abrupt correction.
They are worried that they won't be able to move in time if the market drops because they are sitting on such huge sums. Any market panic is only going to compound the transaction volume problem, leading to greater panic like people experience when there's a bank run.
It's kind of a self-fulfilling prophecy until the block size / transaction volume issue is resolved, but the community's inability to address this problem could be the death of it.
Most exchanges still need those six confirmations however, so any bank run would be limited by that. If you need instant sells you have to keep that stash with an exchange at all times. That requires a fair bit of trust in them, which I wouldn't recommend for regular users, but for an institutional investor that's probably how they would do it anyway. Those guys don't exactly walk around with an USB stick carrying their private keys.
So to actually sell off a million in BTC, you have to do it in regular, steady small sales that won't spook anyone. This takes time, which is not your friend if you expect the value to go down.
That "network transactions are so backlogged that it's an illiquid market" is not. (Backlogs doesn't make for illuquid markets, and even if it did it doesn't affect the "big players" at all.) Trading on exchanges is off-chain in the sense that no transactions takes place on the public blockchain.
Bitcoin markets used to be rather thin, but volumes haven't dropped in proportion to rising value. Which is to be expected with a more mature market. Your specific example of a million (US dollars, I presume) would hardly be noticable on any of the big exchanges today. That's just 500 bitcoins. I wouldn't worry about it.
Keep in mind that Bitcoin is still inflationary and four times that amount is mined every day, most of which is sold. That's just what's visible, and who knows what's going on off the order books.
This is the case with any market. Try liquidating a few million shares of any stock.
There are large volume desks already (associated with major financial institutions) who can handle very large transactions. They will take a bit of a margin on the transaction, but that is a function of market dynamics and has nothing do do with cryptocurrency vs fiat currency.
Of course, there's the issue of the seller super-duper swearing that they won't use the private key until the buyer gets around to moving the new bitcoins to a new wallet...
plus, if they are in multiple wallets, you're paying fees for each transaction, which is already artificially high.
This is false for two reasons.
1. It makes no sense. If a big player wants to move some Bitcoin, getting it in the next block is no problem. For a few bucks in fees you can pretty much guarantee your million bucks will be in the next block. I'm sure that's negligible as compared to moving that money afterwards.
2. If there are numerous big players trying to make huge exits, then the price would reflect that.
Comments like these make it so difficult to read about Bitcoin on hn. It appears that people are blindly and desperately hoping that Bitcoin goes down to the extent they'll abandon their otherwise clear thinking. Is it just frustration that they missed out or don't understand the complexities of money?
If there is, I hope Bitcoin will have transitioned.
And if we don't have quantum cryptography by then, not just Bitcoin, everything we use today pretty much will be at risk.
Long answer: Yes, the outgoing transaction from a ledger to another one is done using crypto that can be broken by quantum computers. But a ledger that has never been used to send money is only visible by it's hash value. So it's security is based on sha256 which is quantum secure (There is Grover's algorithm, but it should be OK for a while). BC would just need to change the signing algorithm. So unless quantum computers pop up just over night everything should be fine.
There are many threats to Bitcoin, IMO QC is one of the smallest.
Someone capturing >= 50% of the mining computation power?
How does that work with a distributed public ledger?
Anyway, a couple of ways to do so:
You can short BTC using "USDT" on poloniex: https://poloniex.com (USDT is a cryptocurrency theoretically pegged to the USD, but their peg hasn't be very stable lately)
Another way, which could in theory be better (or not) is using options: https://www.deribit.com/
Even cold storage has the risk of being held at gunpoint to transfer it over. It's akin to having a bunch of cash/gold buried under your basement. If anybody knows it's there, you better be ready!
Please don't do this. Don't look at two points on a chart, the low and high, and think your the one in a million person who would have traded at those points. That type of thinking fuels bubbles.
With a speculative and volatile investment, you either get out immediately when it starts tanking or you take your 2-3X return and consider yourself smart and disciplined.
I wonder how much Satoshi is worth these days in BTC? Didn't he mine up a whole ton of coins back when it was trivial?
Speculation is just betting.
An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative