A beginner’s guide to getting started in the cryptocurrency world
blog.goodaudience.com
blog.goodaudience.com
"It is often asserted (for example, in the Bitcoin white paper [22]) that a cartel can double-spend Bitcoins. In a strict sense, this is true: a cartel can spend a Bitcoin by paying it to a player Alice, receiving goods or services, and then shifting the consensus choice of history to a branch where that coin is instead paid to a different player Bob...
Bitcoins have value because people are willing to trade them for goods and services. If players were unwilling to accept Bitcoins for trade or unwilling to spend Bitcoins for fear of having their payments nullified, the value of Bitcoins would diminish significantly as players lost confidence in the system...
Worse, because players are encouraged to generate a new identity for each transaction and because identities are not linked to any side information, players cannot easily determine whether a proffered payment is coming from the double-spending cartel or an honest user.
A rational player should refuse to accept any payments when there is a significant threat of double-spending. As a cartel must outmine the entire Bitcoin network and thus outspend the entire Bitcoin network for as long as it would remain a cartel, we believe it is very unlikely that a cartel could double-spend enough to recover the cost of the attack."
The question at this stage, with the price of Bitcoin so high, is if this rationale still holds. What if a cartel were able to double spend one (or multiple) of the big 40 "whale" Bitcoin accounts before destroying the entire network? The one-time billion dollar theft could offset the cost of putting together the computing power to pull off a 51% attach, especially if the cartel assembled that power maliciously through a botnet.
[1] http://www.econinfosec.org/archive/weis2013/papers/KrollDave...
I don't think 51% attacks work that way. You can't spend at all without the private keys of the whales because the network nodes won't trust the chain. If they have enough power, they can double spend their own coins by rewinding the history till the point they are spent. This is why around 6 blocks time is considered as a must to prevent double spends. In fact as the price increases the lost opportunity cost also increases (they could have just mined and gotten the reward instead of attacking). How ever, there are still players out of the net currently who don't care about the rewards and have enough hash power (governments). It's just that at this point of time they are ambivalent to the little monster that is growing up before their eyes (like a cute little dinosaur).
Here is a simple library to recover the private key of ECDSA and DSA signatures sharing the same nonce k and therefore having identical signature parameter r
But - some miners and mining pool operators are rumored to be among the bigger Bitcoin whales themselves. They already own (or at least control) a large part of the ASIC hashing power. None of them is even close to 51% today, but then you also don't really need 51% to pull off a double-spend attack, 30-40% should do it, as long as you pull that hashing power from the legit network at the same time. A cartel made up of the top miners and mining pool owners should be able to comfortably reach this critical mass of hash power. So effectively it comes down to whether they assume that it's better for them financially to continue supporting the networks' health or to pull a one-time heist, destroying the networks' credibility in the process. For the moment, the former seems to be still true. But nobody knows for sure whether that may change some day...
EDIT: I am not saying this is a probable threat, but there are some risks associated with Bitcoin.
https://steemit.com/ethereum/@dhumphrey/update-f2pool-manipu...
These kinds of things look theoretical but might be happening in real life without any one knowing about it.
My impression is that right now, and for the last couple of years, this is untrue, with speculative demand vastly exceeding demand from people actually wanting to spend bitcoins on goods and services.
1 USD is worth .87 Euro or 1.3 Euro (at any given time), where 1 feels like a magic number; but 1 USD is worth (right now) 6.6 Yuan or 113 Yen, where it's more obvious 1 is not a magic number.
So I'm confused by the belief that .001 or .00001 is closer or further than where something 'should' be. How do we reach the conclusion that the value should be this thing or not this thing?
https://cointelegraph.com/news/satoshis-best-kept-secret-why...
Yes, and you can abstract that observation from blockchains to cryptography in general, which is the underlying foundation of blockchain technology’s game theoretic fault tolerance. This is particularly clear once you move closer to cryptography’s theoretical and mathematical foundations and away from specific applications (such as encryption or authentication).
Many cryptography textbooks begin with an elementary definition and discussion of the field using notions such as confidentiality, integrity, authentication, non-repudiation, etc. These are all correct, but I prefer Oded Goldreich’s definition, from his Foundations of Cryptography:
Cryptography is concerned with any problem in which one wishes to limit the effects of dishonest users.
In an abstract sense, cryptography has a direct mapping from game theory, and can be considered the use of computational complexity to resolve scenarios in adversarial relationships.
If you’re enjoying looking at blockchains through this lens, you might want to read a few papers on cryptogenography, or zero knowledge proofs (the latter has far more literature). There is also a lot of fun research that uses game theory to model fault tolerance and economics in blockchains.
but the problem is that it isn't really. Bitcoin coin cash implemented big block size to expand the transaction capacity. Meanwhile bitcoin stuck with the small block size.
As I recall, that has always been part of the dream. Plus the potential for early adopters to become unimaginably wealthy ;)
This piece of bullshit in particular stood out to me:
> Where were you when libor was fixed? Where were you when gold markets were fixed? When high-frequency traders used front-running...
It's odd that he uses these examples to support the "trustless" blockchain architecture, because blockchain does nothing to improve any of these. The opposite is true: it makes it far easier to manipulate markets because all transactions are anonymous, censorship-proof, and it's impossible to recover funds from bad actors.
Not having to trust a central authority for the ledger does nothing to prevent collusion or frontrunning in markets. From what I've seen, cryptocurrency markets are constantly being manipulated in ways that are both unethical and illegal.
> Bitcoin vs Ethereum is like Sharks vs Lions...
He claims that Bitcoin specializes in ways that Ethereum does not, but this isn't true: effectively, Bitcoin is a subset of Ethereum. He claims that Ethereum "scales 10x worse" than Bitcoin, but I don't know where he got that number from: the reality is more nuanced, but by any practical measure, Ethereum is already better-equipped to scale and the protocol is actively evolving (as opposed to Bitcoin's, which is immutable as long as its community remains as toxic as it currently does).
If he means the size of the full blockchain, in practice Ethereum implements compression techniques that make it much more compact--the Bitcoin blockchain is currently at about 100gb, while the uncompressed "archival" version of Ethereum is at 300gb but the standard compressed version only requires about 15gb.
In terms of transaction throughput, Bitcoin has a stupid hard limit of 1mb per 10mins of data, and so Ethereum far outscales it in that regard. If you hear the term "lightning network" as a counterargument, you can ignore it: the lightning network doesn't yet exist, and when it does, it will have several practical problems, including that it requires onchain scaling to work[1].
[1] http://cowpig.github.io/bitcoin/cryptocurrency/2017/06/24/Se...
It doesn't work as a replacement for transactions generally, though.
> Where were you when libor was fixed? Where were you when gold markets were fixed? When high-frequency traders used front-running...
It's odd that he uses these examples to support the "trustless" blockchain architecture, because blockchain does nothing to improve any of these. The opposite is true: it makes it far easier to manipulate markets because all transactions are anonymous, censorship-proof, and it's impossible to recover funds from bad actors.
It’s deeply frustrating hearing someone who is ostensibly an evangelist say these things. It’s actually worse than what you’re saying - not only does he demonstrate a lack of understanding about a blockchain’s market capabilities, he evidences a basic lack of understanding about the market.
For example, I don’t know what it’s going to take for people to understand that high frequency trading isn’t front-running. It’s frightening to me that a “thought leader” on stage can mention something so incorrect in passing and the audience will mostly just nod their heads and internalize it. If this person can’t be bothered to understand the very basic, cursory characteristics of his examples, what else can’t I trust him to tell me correctly that I can’t immediately figure out is wrong information?
It’s like being educated about a subject from someone who reads only the article headlines and top comments of stories on the front page of reddit. When I hear or read a claim that is 1) confident, 2) definitive, 3) utterly incorrect, I simply disengage from that person. It’s one thing to be ignorant and willing to be educated. It’s another thing entirely to assume a mantle of authority and promulgate this misinformation. It signals to me that the person is either incapable of, or unwilling to use critical thinking.
...which is not front-running, nor is it illegal. This is exactly what I'm talking about.
These words have a very specific legal definition - this is not a case of, "I wish people still used the word 'hacker' like they did in the 80s!". There is no vernacular drift; ascribing the term "front-running" to high frequency trading is virtually always incorrect. Its continued use muddles any attempt at legitimate discussion about the subject because there are several groups of people involved who:
1. understand both HFT and front-running, and do not use the latter to describe the former.
2. understand neither HFT nor front-running, and conflate the two liberally,
3. understand HFT but not front-running, and use the latter to describe the former,
4. understand front-running but not HFT, and "borrow" the former term to describe the latter (inappropriately).
...etc. Throw in ideological bias and you get a debate in which everyone talks past each other and no one learns anything.
It's definitely front-running in the commonly-understood sense of the word, and sometimes it's specifically front-running in the sense you're talking about: a large company puts in orders for large buys on several exchanges, e.g., and a low-latency HFT sees one of them before it hits the other markets, and puts those buys in first.
edit: This theoretically _will_ happen without any malicious actors, btw: HFT uses machine learning and its inputs include recent trades. Recent trades include large buys from said bank, which previous history indicates the price will go up. HFT puts the buy in. That's front-running.
I'm not sure what you mean by "fair", but no, (again), it's not front-running.
> It's definitely front-running in the commonly-understood sense of the word
No, it's not. At what point do we get to come up with arbitrary definitions simply because many people misunderstand them? Would you like "front-running" to become as meaningless a term as "literally" is for emphasis?
> a large company puts in orders for large buys on several exchanges, e.g., and a low-latency HFT sees one of them before it hits the other markets, and puts those buys in first.
This is not how latency arbitrage works. Exchanges have a fiduciary duty to you as your trading intermediary. They may sell your order flow to other parties, such as HFT firms, but they are still liable for how that information is used. High frequency traders are not capable of seeing your order before it arrives at an exchange. While they will have order flow visibility and buy/sell positions at multiple exchanges, they also must abide by a NBBO price, which means they cannot cross the spread. You cannot bid above the best offer and skip ahead of existing orders in the book.
They are free to alter their prices in reaction to orders in different exchanges, but this is designed to improve accuracy, not target any single particular trade. This also does not constitute front-running, in either the real definition or the imaginary one where they can magically skip ahead of you.
> This theoretically _will_ happen without any malicious actors, btw: HFT uses machine learning and its inputs include recent trades. Recent trades include large buys from said bank, which previous history indicates the price will go up. HFT puts the buy in. That's front-running.
I don't understand what you're getting at here. This is not front-running.
This thread is becoming kafkaesque...do you have a problem with basic information asymmetry in the market?
> Entering into an equity trade, options or futures contracts with advance knowledge of a block transaction that will influence the price of the underlying security to capitalize on the trade[...]
Can you explain how the practice I described does not fit this definition? Or provide a definition that better suits your position?
[1] http://www.nasdaq.com/investing/glossary/f/front-running
> Entering into an equity trade, options or futures contracts with advance knowledge of a block transaction that will influence the price of the underlying security to capitalize on the trade. This practice is expressly forbidden by the SEC. Traders are not allowed to act on nonpublic information to trade ahead of customers lacking that knowledge.
The key terms here are “advance” and “nonpublic.” “Advance knowledge” and “nonpublic information” refer to information that other market participants could not have had without breaking a confidentiality agreement or a fiduciary duty. It does not refer to information which is merely difficult to find nor does it refer to information which is public but unevenly distributed. HFT firms cannot see your orders before the exchange receives them and executes them. They are further not obligated to a confidential or fiduciary duty with respect to your interactions with the exchange once the orders are executed, and the order flow is technically “public” once broadcasted by the exchange.
HFT firms are very fast, but they are fundamentally operating by the same processes as other market participants. They purchase order flow, use colocation and write extremely low latency bespoke trading software, but they are not intrinsically doing something that bypasses the normal operating procedure of the markets.
Information asymmetry is not illegal if you’ve “earned” it, in the same way that you can “insider trade” if you come upon “secret” information without breaking a confidentiality agreement or fiduciary duty. There are legitimate arguments that can be made against HFT, but starting off with “front-running” is absolutely not one of them. You need to levy an argument that the same processes of information asymmetry break down in ways that are bad for overall market efficiency and price discovery at high speed, not that HFT firms are doing something other than “information asymmetry, fast.” And this is a hard argument to make in full view of the liquidity offered to the market by automated market making algorithms, i.e. HFT.
> HFT firms are very fast, but they are fundamentally operating by the same processes
This is the key part I disagree with. A lot of firms set up shop right next to exchanges and built fiber optic connections between them, so that it's impossible for anyone without such a setup to trade on the same information.
I don't see how you could interpret that as "good" for anyone other than the HFT firms who do it best. It's pretty clearly this:
>bad for overall market efficiency
It’s not front-running.
> This is the key part I disagree with.
You’re not just disagreeing, you’re incorrect by definition. I explained why in my last comment. It’s not front-running to gain an advantage through capital expenditure. Capital expenditure (like colocation) is not fundamentally an advantage other market participants don’t have. It doesn’t matter if you think it is, it’s not. Insider trading is an example of an advantage that is fundamentally unavailable to other market participants. If we accept your argument, we might as well say that spending more money than competitors to build a better performing fund is unfair.
> I don't see how you could interpret that as "good" for anyone other than the HFT firms who do it best. It's pretty clearly this: >bad for overall market efficiency
No, it’s very clearly not, for anyone who has worked in finance or who is familiar with how market making works. High frequency traders improve net liquidity in the market. Would you prefer the pit days of preferential treatment by manual market makers, or much slower (and thus less accurate) price discovery?
I don’t know what else to tell you at this point. You have done exactly the thing I was talking about in my original comment. I’ve explained to you that high frequency trading does not satisfy any legal definition of front-running. You’re free to make up an arbitrary definition of front-running, but it’s not the correct definition. Do you need me to cite research showing why high frequency trading improves liquidity and explaining why it can’t step in front of other retail traders’ orders?
Except that it is. Market participants cannot all be right next to exchanges, for physical impossibility reasons.
> High frequency traders improve net liquidity in the market.
I agree that there are forms of high-frequency trading that improve market liquidity
> Would you prefer the pit days of preferential treatment by manual market makers...
This is a straw man
> legal definition of front-running
I'm not a lawyer, and don't know what courts have decided about this issue. I'm guessing they've sided with you. But there are plenty of situations where judges make decisions I disagree with, and I'm guessing there are probably some practical issues with making this kind of front-running illegal anyway. Have any other exchanges opened with rules that address this?
Anyway, I certainly don't think all HFT are evil or anything like that, but what you call "latency arbitrage" is clearly front-running and bad for the market: it's basically a "distance from the exchange" tax that doesn't provide any value. I don't know how that should be fixed though, or whether it's possible.
Also, I would love some links on ways in which HFTs are good for the market :)
The time between exchange A receiving original order (point 2.) and exchange B receiving remains of that order (point 4.) is extremely small, but larger than zero. The argument here is that until exchange B acknowledges reception of the original order in its ledger, that information is not public at exchange B and acting upon that order in exchange B until exchange B acknowledges said order is acting on non-public information, therefore front-running.
> <...> the order flow is technically “public” once broadcasted by the exchange.
The core argument I see in this debate is whether we consider exchange network as one large source of public information with multiple access points and accept non-immediate distribution of information through the network as unavoidable technical detail.
There is no automatic overflow function that will transfer (the rest of) an order between two exchanges. At best either the original investor can decide to split up his order, or someone else can decide to buy at B and sell at A. But still the HFT will be hoping that actually happens.
Example: Customer places an order to sell 1 million shares of Apple. Exchange shorts Apple, sells customer's shares causing price to go down, picks up cheaper shares to cover short.
HFTs don't do this, they just arbitrage between exchanges really quickly.
Maybe it's best to ignore anything in medium blog form or similar that wants to explain the blockchain to you. Fortunately, the field is mature enough that there are learning resources by people who know what they are doing out now (for instance the Bitcoin technology book by Arvind Narayanan and others seems pretty good).
I've heard this a few times online despite not really knowing anything about Roger Ver. I am capable of coming to logical conclusions on my own.
> 1mb limit isn’t stupid, it’s what creates the fee market which makes spamming the blockchain very costly and keeps blockchain size in check.
Very costly in the sense that an individual Bitcoin transaction curently costs about $20, an order of magnitude more than my bank transfers cost.
> Already you wouldn’t be able to sync the ethereum chain from genesis block, I can still do that on raspberry pi node in less than two weeks.
I literally synced the Ethereum chain on my laptop last weekend.
> Whether the limit should be upped is still a question up for debate
This is only true if you are using the phrase "up for debate" in the sense that smoking being bad for you is up for debate, or that we should do something about climate change is up for debate, or that net neutrality is up for debate: there are powerful self-interested actors for whom the obvious conclusion is expensive.
you've cherry-picked the exact point in time when due to various factors ("civil war" between bitcoin and bitcoin cash supporters, propaganda campaigns, price rally) transaction fees are at their peak. if you look at the graph - https://jochen-hoenicke.de/queue/#all you'll realize that for majority of this year transaction fees were well below 50c. this is what happens if you blindly believe the echo chamber.
besides, i'm not convinved all and every transaction belong on the chain. chain provides bunch of very strong guarantees that no other system in the world provides - it's ridiculous to claim that those guarantees are not worth anything.
> I literally synced the Ethereum chain on my laptop last weekend.
lol, nope. let me guess, `geth --fast`? well, i suggest you go read up on what `--fast` means. i challenge you to try syncing from the genesis block.
> This is only true if you are using the phrase "up for debate" in the sense that smoking being bad for you is up for debate
no, it is literally up for debate. there is a multitude of bottlenecks involved in having a healthy blockchain and a network around it, they are all affected by bumping the blocksize in non-trivial ways through secondary and tertiary effects. and it's not even obvious we can handle the primary effect of growing blockchain and utxo set - that quite literally leads to centralization of full nodes via making it prohibitively expensive to run it which runs against one of the core tenets of bitcoin itself.
I picked this number because it's what I paid yesterday
> lol, nope. let me guess, `geth --fast`? well, i suggest you go read up on what `--fast` means. i challenge you to try syncing from the genesis block.
I used Parity, and instead of suggesting I "go read up on" something I already understand, maybe you'd be more convincing if you made an argument as to why the difference should matter (it doesn't).
> bunch of broad, abstract claims
I can't argue with any of those because you didn't provide any reasoning or facts to address.
right, so you got unlucky and now you're sad, i get it. just don't start misrepresenting what's actually happening.
> the rest
there is plenty written on both scaling and checkpointing/snapshotting, seems you've picked your side, don't see the point spending my sunday evening convincing you of anything. time will tell.
Not the op, but I'd be interested in seeing sources. I haven't made up my mind.
Ethereum does not have this limitation because balances are kept in individual accounts, thus the requirement for global consistency is a lot lower.
[0] https://www.newegg.com/Product/ProductList.aspx?Submit=ENE&D...
In the long run the UTXO set will always grow because of lost keys and dust amounts worth less than the fees to move them, yet it is politically unacceptable nor practical to drop any of these from the consensus, so the problem will only get worse.
It is, of course, not a problem if you think SPV wallets are the way forward, but this view has been stigmatised as "centralisation" so it also leads to no real solutions.
This is not true at all, and a strange statement to make from someone who identifies with the technical side of cryptocurrencies.
Ethereum made two important departures from the Bitcoin design. One is to have accounts instead of unspent transactions (UTXOs). We don't know if Satoshi considered an account based design first, but it is not unlikely since it is a design one is likely to think of first. We can however make an educated guess as to why the UTXO model was chosen instead. It enables SPV wallets which is mentioned as early as in the whitepaper.
Ethereum can not have thin and trustless wallets by design. SPV wallets wasn't really as straightforward as people thought them to be, and one design isn't necessarily "better" than the other, but one is not a subset of the other.
The other important change was bytecode to support compiling from popular languages, such as javascript, instead of specialized bytecodes to support the low level operations of the protocol. This is a different design that requires changes to other aspects of the protocol, including the fee model to a price on execution time. Bitcoin programs are supposed to anchor to the chain, not completely live on it.
If crypto kittens were written for Bitcoin instead of Ethereum, they would need to have certain logic off chain but track things like ownership on chain. (Compare for exampel with the Lighthouse model.) This is a different model, which is only semi on-chain and would therefore scale better.
Doing the same operations to the contract requires more transactions and produces more data in the Ethereum model. So Bitcoin would likely continue to function where Ethereum struggles (to the point where big exchanges just turn off their Ethereum processing when large events such as big ICOs happens).
> the uncompressed "archival" version of Ethereum is at 300gb but the standard compressed version only requires about 15gb
It is not interesting how big the chain is but how fast it grows. Transaction throughput is capacity, not scaling. Scaling is a measure of change.
And Etherum growth is concerning to the developers. Have you tried running a full node? I have. Even a beefy machine with SSD takes weeks to bootstrap, and the load is getting worse over time, not better. It's not clear for how long this can be kept up.
Sure, you can trust a third party to deliver you the blockchain. But someone must independently audit the blockchain, otherwise we would be much better off by running audited Postgres nodes at trusted institutions (like the global DNS infrastructure works) than just trusting a Foundation.
The "compressed" Bitcoin blockchain, by comparison, is as small as 1 GB and just as functional. But the comparison is uninteresting, because any application that can make do with such a heavily pruned blockchain would probably be better off with an SPV architecture.
Please don't read this is some sort of comparison or defense of Bitcoin's architecture. One is not "better" than the other. Ethereum changed a few fundamental design decisions and the result is different, therefore the use cases are different. One is certainly not a subset of the other.
You could parse scripts and verify transactions, and that might be useful inside the Ethereum world. But it wouldn't be useful outside of it. It would still scale like Ethereum and you would need to process the entirety of the Ethereum blockchain and the Bitcoin blockchain to do useful operations.
Are you referring to "pruning"? Bitcoin can do this too and pruning is not compression as it cause big information loss (you need to download information from other, non-pruning nodes if you want to bootstrap new one).
https://github.com/lightningnetwork/lnd/issues/468
The title makes you less confident, the comment:
> At any given point, we may be sending an additional satoshi to miner's fees. This is a result of the internal usage of milli-satoshis and our policy of always rounding down (to go from mSAT -> SAT)
makes you deeply skeptical.
That is laughably false. Ethereum node decentralization is cratering, because it is becoming impossible to even synchronize a node anymore. I'd suggest you're not as technically inclined as you assert if you don't recognize this.
> In terms of transaction throughput, Bitcoin has a stupid hard limit of 1mb per 10mins of data
Bitcoin has a hard-limit in order to protect the decentralization of its nodes, and the consensus rules of the protocol. It's OK, I suppose, if you don't mind forking a supposedly immutable blockchain every time a few big investors lose money, but bitcoin is a slightly better value proposition than that.
Only time will tell if the proponents of such action are forward-thinking or delusional.
It's simply a fact that if Bitcoin achieves much wider adoption, the value of a satoshi will necessarily become "large enough." The current exchange rate is already about 66 satoshi to a US cent, and mass-market adoption is currently, to a first approximation, nonexistent.
You don't have to be certain that Bitcoin will achieve the necessary adoption in order to plan for the eventuality. As such, "forward-thinking" is the correct characterization.
It just so happens that with Bitcoin the currency and the speculative investment vehicle are the same thing.
This is a new opinion on money that didn't exist 200 years ago.
For all the things that economists have to say about how terrible deflationary assets are at being a currency, economists fail to admit that gold and silver ran the world for thousands of years.
Using assets as a currency has its pros and cons. But it is absolutely not "completely unworkable", as many modern economists like to claim, as demonstrated by the fact that it DID work for the vast majority of human civilization.
Economics is a science we discard what doesn't work.
Economic predictions about how society would collapse if assets were used as currency is provable false. As proved by the fact that the global economic world chugged along just fine with such a currency.
People look at bitcoin and see money that can be sent anywhere without needing approval from anyone. They can store their money themselves. They can program their money. They know the supply of their money can’t discretely change underneath them.
Some people are opting to change their dollars to btc. Some are opting to hedge a small amount into this new system in case recent monetary experiments explode. Some people are speculating (as they do in forex markets today).
Just because more people want to explore this brave new world doesn’t mean it’s a bubble.
Currently on my Facebook feed there is a kid I know who is a tech support agent but now posting pictures as a "Bitcoin daytrader" and now offering classes on the subject. There is another girl who is a model for rap videos in Detroit and she posts screenshots of Bitcoin prices to show how well off she is now. I've read about hackers walking away with millions of dollars in a cryptorobbery (now a real thing). The next thing is an Ocean's 11 sequel where George Clooney and Brad Pitt pull off a cryptoheist.
I think the real innovation is blockchain and that there will be a major cryptocurrency to rise out of one of the smaller markets. I get the feeling (just a hunch) that Bitcoin will be lycos/altavista/yahoo that will inspire a Google. Maybe that company already exists (Ethereum?), maybe not.
Electricity Backed Currency: https://papers.ssrn.com/soL3/papers.cfm?abstract_id=1802166
What’s your point?
I agree with you that there is legitimate innovation happening. I enjoy reading a lot of blockchain research and the cryptographic advancements that go towards improving consensus algorithms.
With that said, I really do not believe most people buying cryptocurrencies want to explore a “brave new world”. I doubt most people buying cryptocurrencies could explain to you 1) what the word “trustless” means, 2) what their investment thesis is, 3) why they’re buying one cryptocurrency over another.
They want to sell to a greater fool. Just as real estate was a legitimate investment vehicle during the 2007 bubble, cryptocurrencies (and bitcoin in particular) can simultaneously enjoy legitimate utility and extreme irrational exuberance.
> The vast amount of bitcoin is paid for from savings, not debt.
Holy crap, got any evidence for this statement?
And when one of the big Bitcoin whales cashes out, there will be a crash, and all those people's money will be gone. Or will they be? I guess you can argue they will still have their bitcoin money, but sadly they won't be able to pay their rent or buy food with that...
Some people are opting to change their dollars to btc. Some are opting to hedge a small amount into this new system in case recent monetary experiments explode. Most people are speculating (as they do in forex markets today).
And there is nothing wrong with speculation, but when Coinbase is adding 100k accounts every few days it is not people thinking fiat money is about to implode.
As an aside, if you listen to the hardcore BTC people and replace BTC with gold it is the exact same arguments. Over long periods gold has been a terrible investment compared to something like the S&P [1] so keep that in mind when hyping BTC.
[1] http://www.marottaonmoney.com/since-1979-the-sp-500-grew-13-...
The next time a significant market correction happens, those of us who value honest saving will have a place to hide. The fed won’t be able to save you at our expense next time.
But if more people want to explore this brave new world _too quickly_ it may be a bubble. As it happened several times already. Yes, the price is much higher at the end of each bubble than at the beginning, but they were bubbles nevertheless.
They're not motivated by the actions of the central banks, they likely have no idea what the central banks do. They see "Bitcoin increases 100% in a day!" on the news or on a website and want in on that sweet money making. Coinbase makes it so easy, they have to do absolutely minimal research, don't even have to wait for transactions to be confirmed.
You think its lack of faith in the current banking system and belief in the new tech that's driving the price up as high as it is now, when it's mostly greed and ease of access. Taking that into account it's naive to not believe there is a Bitcoin bubble.
I guess the people you know are not the average joe.
Do you really think the majority of purchases (as in tranfers from fiats to BTC or another) are done so with intent to pursue political and economic advancement? I mean, is it theoretically possible? Perhaps -- but do you truly believe that the majority even understand the technology at a cursory level?
I'm not sure but I think that already has a wealth inequality problem.
So let's say initially 1 million "coins" are created and people put $1 million in total in them, so each are worth $1. To keep that $1 price, you'd have to increase the amount of coins each time more people want to buy more such coins.
So if new people put another $1 million into the cryptocurrency, you'd have to automatically generate another 1 million coins. So you'd maintain, roughly, that $1 per coin value.
Otherwise, with any relatively finite amount of coins in a cryptocurrency, you're going to see an exponential rise in their values, as more people get interested in that cryptocurrency.
It doesn't matter if you create 1 million or 1 trillion coins initially. If the inflation rate is "only" say 10% per year, but millions of dollars, and then tens of millions of dollars, and then billions of dollars are put into that cryptocurrency within a relatively short amount of time, its value is going to explode.
Price doesn't depend purely on number of available units.
Don't think that the lack of discussion about this means it isn't an issue. It is a massive, massive showstopper to Bitcoin adoption. The reason you don't see more people talking about this is because Bitcoin is absolutely nowhere near becoming the default currency used by anybody. Much easier to beat up on all the other massive technical flaws in Bitcoin...
That said, if it were to happen, I don’t think you will have to buy bitcoin from a handful of early adopters. It is more likely that your employer would start paying you in Bitcoin when it becomes inevitable. Those same early adopters who hold a lot of the wealth will likely use their wealth to invest in startups/charities/companies/etc. the same way as entrepreneurs and rich people do today.
For existing companies, they would need to purchase, but if a significant portion of US dollars moves into bitcoin then it is likely every company would start having to hold a portion of their cash in bitcoin as a hedge long before it actually overtakes the dollar.
Capital tends towards centralization, not equitable distribution.
* the 'founders share' is ridiculously high, 10% in some cases
* in many different coins, you see that these shares aren't used to catalyze the market, but as a hoarding in the event of lift-off. Hoarded coins don't make a crypto currency survive.
In case you are serious about this you might want to check Peercoin. While it doesn't have the skew you want, the supply is designed to attain an annual inflation of 1% instead of deflation in bitcoin.
Unfortunately, I don't know much more about that project at this point.
The issue is why use them? The bootstrap problem.
Anonymity is the killer feature of a currency.
This is why right now I am keeping an eye on Monero more than anything.
I do now have a server mining Monero which I'll probably hold on to for a longer term though (I'm paying a fixed fee per month for it, so when it's otherwise idle it doesn't cost anything extra to start it mining).
How is Bitcoin any more anonymous than cash?
No, seriously, please read it! The Bitcoin white paper should be required reading before anyone is allowed to interact with this technology.
What the fuck no. If you want to build something yeah maybe, but this is exactly what's wrong with cryptocurrencies at the moment - it's somewhere in between a cult and a club for insiders. This is why we have shitty wallet software and lots of existential uncertainty, rather than products that regular people can use with confidence without needing to understand how they work.
You don't require kids to read Adam Smith on the fundamentals of fiat currency before they learn how to buy candy. But when you go to the Bitcoin Website you're offered some 10 different wallets and told to 'educate yourself' with hardly any further help.
This approach is extremely exclusionary. When you write a beginner's guide, your job is not to mint a new cryptocurrency expert, it's to help someone understand why they might want to use cryptocurrency, get a wallet, put something in it, and complete a transaction (eg by getting them started with some low-risk variant like DogeCoin).
I've been following Bitcoin since shortly after it got started and the biggest hurdle to cryptocurrency adoption is the 'secret handshake' mentality that aspires to make a special currency for people in the know for private advantage, rather than offering simple, reliable, and accessible tools to people who need an alternative to the official economy (as much because of poverty or social exclusion as ideology). All people need to know about cryptocurrency theory is that it's secure, whether or not it's private, and how volatile it is.
It's a hash together of what the author has seen on Bitcoin and thinks is cool.
It's an attempt to convince an idiot that's it's really complicated and they should BUY BUY BUY HODL HODL.
It's a terrible article and Bitcoin is a terrible mix of core developers who are innovating crazy solutions on top of crypto with spurious documentation, server farms run on cheap electricity in various places of a disreputable nature and college kids investing their student loans on internet money. Plus, now, a small amount of the general public who read an article or two and are playing the high stakes casino tables with their savings/rainy day money.
https://www.amazon.com/Attack-50-Foot-Blockchain-Contracts-e...
At this point, a wallet for my iPhone that I can back up to say iCloud (accepting the risk that comes with that) and that isn't going to get wiped by accident due to a patch would probably be ideal.
I remember trying to get into bitcoin by signing up for Mt Gox, and we all know how that went. "iPhone-hosted" seems like the ideal thing, but I don't know if there's something like that?
However using the same word list (which you back up on paper) you can recreate the seed and derived keys on software that uses the same key derivation standard.
https://doc.satoshilabs.com/trezor-apps/index.html#recoverin...
Actually now that I’ve typed that all up, I agree with your initial point. For the average person setting something like this up is still a huge hurdle. It does offer some protection against a hack for the more technically comfortable.
A hardware wallet like Trezor or Ledger are the most user friendly ways to do this right now, but yes, to the average user it’s a steep learning curve.
Not fun when you plunk down a hundred dollars to realize that you have to buy another device once you start getting interested in other ALT coins.
I think the only reason for Proof of Work is to make it seem like "mining" is some expensive activity. But it doesn't have to be. It's a bit silly, actually.
In practice, PoW just winds up "electing" the next miner who you hope will compile all the transactions they see into a block. That's a single point of failure, they can charge inordinate fees, they can be DDoSed, and so on.
Miners are just another form of payment system like Visa. You have to pay them transaction fees to process your payment. Sometimes it's reasonable, sometimes it's insane.
Bitcoin has solved exactly zero problems.
Sending an infinite amount of money anywhere in the world 24/7 in less than an hour from your command line for a couple of dollars.
I asked them whether they invest in managed funds, stocks, foreign currencies and whether they go to the casino. If they answer with four times "no", then I tell them to hold back on the pure greed/fomo/speculation/hype.
I wonder if the price pressure is due to that.
Kraken's trading engine is utter crap, but as an on- or off-ramp for fiat it seems to be worthwhile. I guess for USD it should work just as well, though GDAX/Coinbase seems to be the most-used on/off-ramp there.
As people have already pointed out there are some things @aantonop says that aren't true like that bitcoin doesn't suffer from pump and dumps or front running, often exchanges not only run their own front running market making bots that get priority if they are the same price as other orders in the orderbook, but there are massive scandals without transparency & truth like the whole tether debacle, no one knows so you can assume the worst...
Extreme volatility right now to checkout our live forecasts/charts for pro traders: https://bitbank.nz currently based on poloniex data.
We also have a referral program where you can earn .003 BTC every paying user.
Theres also an API/bulk data for those technical HN types so you can build HFT systems on our platform.
That page is actually https://bitcoin.org/en/getting-started and has nothing to do with Reddit.
Even the FAQ videos are heavily, heavily biased towards the /r/bitcoin mantra/meme "hodl! hodl!" position.
Warning, the exchange rates and/or fees tend to be exorbitant.
It's a tool for buying from GDAX, which if used correctly will result in close to 0 in fees paid to Coinbase/GDAX (it's the same entity).
The number of posts from people who delusionally believe Bitcoin is a sure thing, "safer than a savings account", and has nowhere to go but up has increased exponentially in recent weeks.. along with posts from people taking out loans to "invest".
That's going to leave a bad taste in the mouths of many new 'adopters' (speculators) when the rate of incoming greater fools slows down and the market takes a massive downturn.
This won't end well.
So many claims in one sentence!
Here are a few questions for you, so I can understand your thesis better:
1. How do cryptocurrencies specifically improve upon fiat currencies’ inflation when they are prone to systemic volatility? Bitcoin experienced a 40% swing in price in one day, and frequently moves out of boundaries the CME has stated would cause them to shut down trading on their futures.
2. How do you propose to get a cryptocurrency to a place of price stability without a centralized authority? I’m not saying I don’t think it’s possible, I want to hear your prediction.
3. Implicit in your thesis is the idea that money should not have been mass printed - do you think the government was ignorant of the economic ramifications or made a calculated bet that didn’t work out? How do you expect a given decentralized blockchain to do better based only on the valuation consensus of the market?
4. As it stands, most cryptocurrencies are actually traded in centralized exchanges, where the person doesn’t technically have control or autonomy over their money. How is this meaningfully better than a bank? What do you propose to improve this other than, “people shouldn’t do that?”
> whole argument against bitcoin is like the people were saying cars are so much worse than horses, because there are no paved roads, you need gas, maintenance, are noisy, can't scale, etc.
5. It’s easy in hindsight to say that cars are better than horses for mass transportation. This is because the “revolutions” that don’t work out are forgotten. For every example of horses and cars, people actually did know what they want, and it wasn’t the newfangled new thing, which turned out to be a solution looking for a problem. In other words, citing this example without further justification for your point is meaningless.
6. As a matter of fact, no, Bitcoin can’t scale. There are people reporting it can. There are people investigating it seriously. Look into the research - there are cryptocurrencies and blockchains that can scale, but they mostly do not use proof of work consensus systems, and they make trade-offs in Bitcoin’s original goals of decentralization and fault tolerance.
Do you know Fed is a private institution, it has as much authority as it has coca cola, atm 10 old white guys are deciding for you, but price will stabilize when there is a balance between in and out and a big enough market.
If Guverments are not ignorant how come 2008 happened, I lost my job then and lots of hardships, people I know lost their houses, etc. The Guverment is not your friend.
It can scale, lighting network + bigger blocks as the internet get better, other layers, servers get cheaper, the change from gold/silver coins to banknotes lasted 400 years you want in 7 years to be perfect.
That isn't even accounting for the fact they can knock others off the bitcoin network easily. If you have 10,000TH/s but cannot communicate with the network, that hash rate means nothing. DDoS or bad BGP routes, doesn't matter when the nodes have no way to talk.
Better question: by the time Bitcoin gets to the point that a government feels threatened enough to do this, will they be able to? And how will other governments respond? Will they start mining too so that no one government controls the network?
I think what you actually mean is bitcoin is at its core just a bunch of hype and hot air driven by internet televangelists who are very good at targeting a specific brand of libertarian an-cap.
It is true though, at its core Bitcoin was a great way to purchase drugs, launder ill-gotten funds, hire a hitman, or collect ransomware money. But now days, there are better cryptocoins for that...
No, that caught them because they were careless. Ross linked Silk Road to his meatspace email address in posts to Bitcoin Forum. And misconfigured Apache to leak Silk Road error messages via clearnet. And kept personal information about his staff on a laptop (albeit LUKS-encrypted) that he used in a coffee shop, and at at public library. Also chat logs, and a comprehensive diary.
Not Bitcoin!
This is especially true given that the large majority of people, would BTC really take over the world, would still hold their money in "banks". If BTC is a "store of value", then it is orthogonal to the banking industry and simply provides another investment vehicle like bonds to defend against keeping all of your wealth in currency.
The US has been borderline deflationary for the recent past. When people buy gov bonds to hedge their bets against instable currency they deflate the currency by removing it from circulation. If that money was moved into a different asset, it does not deflate the original currency since it was not purchased from the gov. If you store your money in housing or land or any other asset everyone needs for products like precious metals you deprive others of that asset by inflating the costs beyond the actual demand for that asset. BTC seems useful as a value store with real returns that does not effect other parts the currency economy.
In the US the Federal Reserve Bank buys and sells bonds (US Treasury Bills to be exact) as a way to increase / decrease the supply of money. It doesn't actually issue any bonds -- it just trades already issued US Treasury Bills.
At a high level, When the Fed wants to increase the money supply, it will buy bonds on the open market with money it creates out of thin air. To decrease the money supply, it sells bonds on the open market instead and pockets the cash--removing it from circulation.
Quantitative Easing is basically the same idea, only instead of short-term government bonds, the Fed purchases large-scale assets (like mortgage backed securities) instead. Why? Because if the economy is shitty enough and the interest rates are almost at zero, the conventional methods of stimulating the economy stop working...
Macro-economics is pretty cool, actually.
1. http://www.econtalk.org/archives/2015/07/wences_casares.html
Ok, how does bitcoin solve a scenario where, bear with me, a country starts blocking the internet? Something which happened during Egypt revolution:
https://www.accessnow.org/five-years-later-the-internet-shut...
In your egypt example, a person could simply call up a trusted party, perhaps a family member, over the PHONE, and send their bitcoin that way.
And even if they don't have that, well they only have lost access to their bitcoin for the short period of time that the internet was shut down.
Come back and talk to me about how shutting down the internet is an "attack vector" once ANY country at all has shut it down for a decade, without massive holes forming in there "shutdown".
And seriously, if the world governments have done a complete shutdown of the world wide web, we have bigger problems. That is revolution time.