Attack of the 50 foot Blockchain (2017)
blog.koehntopp.info
blog.koehntopp.info
Like the author, I think crypto is doomed to be outside of the main financial system unless they manage to shed the idiocy and outright scams that surround it. Unfortunately, the scams and idiotic ideals are really what draws people to the field so I don't see it happening anytime soon.
Like I said in my blog post, I realize that some people have made money investing in crypto. Good luck to them but I think in general it is a negative sum game.
[0] https://sheep.horse/2019/12/book_-_attack_of_the_50_foot_blo...
That's really the crucial point. If someone gets rich from a startup that is generally because they have created lots of value (exception: rent seeking, which might constitute a significant chunk of finance, ad tech). Bitcoin, you have many people putting in a lot of money, and some of that makes a few people very rich, and some of it goes to pay for electricity to solve Sudokus.
* miners, they have actual capital outlay (equipment and electricity) but so long as the bitcoin they sell covers their expenses they are sitting pretty.
* exchanges, running an exchange is cheap and people give you real cash. You do have to buy some bitcoin with that cash but not as much as you think, especially if you are less than honest (which you are because you run a bitcoin exchange). You can get away will telling people you have bought bitcoin on their behalf without actually doing it - allowing you to keep the cash. This is only a problem if they try to move the bitcoin off the exchange so be sure to provide incentives for them not to do that. Maybe offer them fake money instead.
* people selling stuff for bitcoin. I am not sure this is still a big industry since the big marketplaces got shut down but I am sure you can sell your drugs, illegal porn, or unregulated weapons if you try hard enough.
People do make money trading Bitcoin but the real market (once you remove Tether and such-like) seems very thin. My guess is most traders come out with a net loss.
Agreed, though it obviously depends on the cost (price of ASICs and electricity), revenue (price of BTC), and competition (hash rate & difficulty), as well as the timeframe to set up an operation. Interesting problem.
> * exchanges
Big ones, yes. That seems to be pretty much an issue where your fixed costs are high, but marginal costs very low, so you really really want volume. So, hard to break in, and as a smaller exchange, you might well go bankrupt.
And, the big exchanges charge enormous fees, from what I can see, much more than the good old "legacy tech" equity exchanges. LOL.
> * people selling stuff for bitcoin.
Hm, interesting. Yeah. Savoury guys.
I'd add though
* people that mined/bought very early, and now realise their gains.
These guys certainly exist but there are probably less of them than you think. So much bitcoin has been lost or stolen over the years that I think many of them are out of the game.
On top of that, they have to be careful. The actual market for cash<->bitcoin is very thin so cashing out is a long slow process. That said, there probably are a number of people who support themselves every month by selling enough bitcoin from their huge stash.
* ransomware groups. Their business model relies almost completely on cryptocurrency.
You can not, on average, come out ahead by trading bitcoins.
For example:
A: I'm a nice person. Send me one bitcoin, you'll get two bitcoins back.
B: Here is one bitcoin.
A: –
B: :-(
Next level:
A: I'm a nice person. Send me one bitcoin, you'll get two bitcoins back.
B: Here is one bitcoin.
A: Here are two bitcoins.
B: Thanks! Here are one hundred bitcoins.
A: –
B: :-(
Next level:
A: Be careful, B, there are scammers who promise double your investment back, but they lure you with doubling your first investment, then keeping your subsequent investments.
B: Darn! Those evil scammers!
B: (I'm so smart. I can scam the scammer!)
C: I'll double your investment.
B: Here are one hundred bitcoins.
C: –
B: :-(
(A was not Elon Musk)
I like to get a balanced view of crypto but I have grown to find these so-called no-coiners really insufferable.
I might get heavily downvoted but I would rather criticize Bitcoin from the perspective of how can we make this better, rather than oh this is a useless ponzi scam rhetoric, which their audience loves.
It's not nice to say but I honestly believe many of these people just dont want to see something they missed out on succeed, this is coming from someone who has lurked in their communities for a long time.
FWIW Bitcoin is not perfect. And many of it's biggest promoters are self serving scammers but I don't appreciate, or lets say grew tired of people who just like to bash something without offering a solution.
But it is working! Bitcoin has hundreds of thousands of transactions per day on the main chain alone where it settles 2B+$ in value, eth has tons of really useful defi projects that people actually use (maker, compound, aave, uniswap, etc).
Just go through github, whitepapers and technical discussions to see the serious side of the industry, rather than being stuck to the surface level of fraudsters/speculators promising 100x money returns on social media.
Although there are some cases under oppressive regimes where black markets may be a moral good, on the whole enabling financial crimes is, in my value system, bad.
Furthermore I think regulatory systems will eventually move against this - in fact you see it starting. See https://doomberg.substack.com/p/a-stablecoin-applies-to-beco...
Why is this different?
One part of it is:
As both a matter of norms and law, we expect and desire more public scrutiny of financial transactions than of speech. In particular, various taxes mean that a large fraction of financial transactions cannot and should not be private. Conversely the great majority of 1 on 1 conversations raise no legal or regulatory issues.
Yes, a big part is speculation but how could it not be? Any bet on the future is speculation. Apologies if your argument is actually more subtle, in which case I'd like to hear it.
This is not true. Speculation is specifically referring to the situation where you are betting specifically because you think the bet you made will result in positive financial return.
It's possible to dislike Bitcoin for its waste of its energy, centralization one step removed or economic policy without being "the guy who bought at the top".
citation needed
> If my goal is X, then this what my goal is
does this not strike you as circular? :)
one of my goals is to visit nepal. tell me how is that objective?
It is the most outlandishly, ridiculously wasteful that humanity has ever produced. There is nothing in the history of mankind that comes even close to this level of utterly deranged waste.
Actually it's even less than that in practice. It really is that shit.
As it exists, it does not work beyond the toy levels of usage it is seeing today.
Routing in the Lightning network is an open problem in computer science, one that nobody know how to solve. Payments aren't peer to peer, they have to be routed through intermediaries. And how to do that is basically impossible to figure out, except if you just have a handful of giant hubs you can route through.
if you're trying to say that routing in lightning is an instance of traveling salesman, you're not only wrong - routing is actually shortest path problem, but even if you were right, your statement that TSP somehow makes the system unworkable is simply false in light of the fact that businesses like USPS and DHL and countless more delivery companies exist and are profitable.
> Payments aren't peer to peer, they have to be routed through intermediaries
by this metric nothing on the internet is peer to peer, because packets are routed through intermediaries.
> how to do that is basically impossible to figure out, except if you just have a handful of giant hubs you can route through
yes, there will be hubs, large and small and there will be clusters of interconnected local meshes and there will be users routing however they wish through the system instead of taking the cheapest most connected path.
if you say something is impossible to figure out - you need to back up that claim with something, anything.
what if i told you, you were lied to by skeptics and scammers, trying to sell their shitcoins, and you need to put away your biases for just a minute and invest a little time to see, if what they were saying is actually true?
I am not. I am saying we don't have the map that we need to solved the shortest path problem, and we have no way to get that map.
> by this metric nothing on the internet is peer to peer, because packets are routed through intermediaries
And we have routing protocols to do so for the internet. We do not have one for the Lightning network that works at scale.
> yes, there will be hubs, large and small and there will be clusters of interconnected local meshes and there will be users routing however they wish through the system instead of taking the cheapest most connected path.
No, there will only be a small number of very large hubs. Nothing else actually works in practice.
of course we do, connectivity graph and updates to it are gossiped all the time and each node has imperfect representation of it.
> we have routing protocols to do so for the internet. We do not have one for the Lightning network that works at scale.
we do, lightning nodes do that all the time right now.
> there will only be a small number of very large hubs. Nothing else actually works in practice.
again, you're making a statement without backing it up by anything.
your entire argument boils down to: if a node can't have perfect information about connectivity graph, then it can't perfectly route payments.
and you're right, that statement is true, but it is irrelevant because imperfect routing through imperfect connectivity graph is fine and works great.
Yes, that is exactly the part that does not scale beyond a toy network, and for which there is no solution.
maintaining imperfect and incomplete connectivity graph - much less hard.
be careful, maybe you're invested into something that becomes irrelevant if LN works, in which case you might want to be less rigid in your thinking and follow the developments more closely to pull out or risk losing your investment. because LN already works: tens of thousands of nodes and channels, millions of dollars in the network and growing at healthy rates.
Thus, it doesn't scale.
you're wrong for two reasons:
- hubs do exist (big and small) and can exchange connectivity information more efficiently (and take fees for that service), so the network isn't growing like a full mesh (that is indeed very hard to maintain connectivity graph of) but rather as a collection of interconnected smaller meshes
- payments can be split up into smaller chunks that follow different paths and are executed atomically (either all or none), and if some chunks fail you can retry them within the same payment context
right, there will definitely be huge hubs. what you didn't even try to demonstrate is why can't there be smaller hubs?
> it just progressively works worse and worse. Doing multiple routes atomically just gives you more reasons a single payment can fail.
no, exactly the opposite is true. in case with single payment for X satoshi you need to re-try it multiple times until you find a route that has X capacity on every hop. with atomic multipath payments you need to find N routes that support X/N capacity (much easier) and if any number of those fail you can retry only those failed parts, so after 2-3 iterations your entire payment succeeds.
Maybe you are right that I do not know enough about the Lightning network, because I was not aware there was a vulnerability that big and easy to exploit built into it.
p.s. i'm sure you can google about DoS attacks on lightning and how to deal with them yourself
There is no missing out though. There is buying when it's lower and selling when it's higher and you can do that starting now as you always could. Or buy and hold if you think that's what you should do or whatever.
I really have no dog in the fight and don't really care one way or another. Just for the sake of the argument though: something can be complete shit with no redeeming qualities. It is not a must that it's good but imperfect and that it requires a solution to make it better. So the opinions of "no-coiners" are not inferior by default. You have to actually prove that they are with some form of argument or evidence.
And that can also be true of pyramid schemes with no redeeming qualities, Bernie Madoff style fraud, or of sheer random gambling. You have to actually prove that blockchains are not in those categories.
If you were aware of Bitcoin when it was worth a couple hundreds of dollars and you wrote it off as a fad or whatever and turns out you were completely wrong about it, you would definitely feel like you missed out, no? Sure, better late than never, but you still can't change that feeling.
Of course, the question then becomes whether Bitcoin will be more like Pets.com or whether it will climb higher. I have a guess, but I don't claim to know for sure.
Bernie Madoff's fraud lasted longer than that.
Not to mention that the entire argument is based on a get rich quick scheme which is exactly what the doubters argue crypto coins are, and the entire post which I replied to originally can be summed up to 50Cent "You just jealous cause I'm rich".
This approach enables you to disregard the opinion of literally everybody who owns no BTC. That's going to cause trouble.
I was aware of Bitcoin when it was under a dollar. I wrote it off as a fad. I continue to write it off as a fad, albeit one that became more dangerous than I expected.
The fact that Ethereum is tackling the energy use problem head on with proof of stake and and doing so within the next year makes it incredibly appealing.
https://tokenist.com/buterin-explains-why-ethereum-2-0-upgra...
> Originally, the plan was to work on shard chains before the merge – to address scalability. However, with the boom of layer 2 scaling solutions, the priority has shifted to swapping proof-of-work to proof-of-stake via the merge.
My ETH is already staked as ETH2, and it looks like the plan is still to do the merge in “2021/2022”.
You don't get to claim PoS is happening until it happens, given Ethereum's consistent track record of failure to make any such thing happen.
If the ETH token readily tradeable for money on crypto exchanges is not at all based on PoW before the last quarter of 2022, I for one will be tremendously surprised.
Missed out on what profit? I've just started reading about Ethrereum and its still a baby. No one really knows what its going to grow into. But it reads much bugger than coins / NFTs when you start peeling back the layers. But people love blood and theres a lot of it in the coin / NFT space.
she's been in crypto journalism for years, and knows her stuff thoroughly, and where the bodies are buried.
Sure anyone can run a node. But most nodes are in centralized pools running code that few developers can approve pull requests too.
I'd bet dollars to doughnuts that any crypto is an order of magnitude more centralized than any nation's treasury department
A coin might be fairly centralized, but the centralized coders and miners are replaceable in an organic fashion. If they were all shut down others could pop up and even if there were forks one fork could eventually triumph over others.
Unfortunately, critics never seem to do this.
how do you even know it's schneier's post? how could you trust any digital signature schneier might use to prove authenticity of that post?
etc, etc.
this is the kind of garbage that post can be reduced to.
If I trust that my choice of cryptocurrency software (or hardware wallet) is legit, and I'm wrong, I lose all the savings I put into crypto, with zero chance of recovery.
ultimately all the services you rely on to keep your savings safe can be built by other companies on top of bitcoin for a fee (already happening btw). it's just an option in addition to the rest of financial world. eggs, basket, yadda, yadda.
I have a blog of the same name: https://davidgerard.co.uk/blockchain/
And a second book, about Facebook's Libra.
In my experience, the bitcoin subculture is really bad at doing the reading, and accepting any version of history that doesn't reinforce their assumptions that they're going to get rich for free.
There's a history of extremist libertarian ideology in bitcoin, and that's still how the subculture talks about their common beliefs. But the subculture's behaviour is more accurately predicted if you assume their only interest is "number go up."
So printing billions of "dollars" of questionably-backed digital wildcat banknotes is good news for bitcoin, if it keeps number going up.
The noisy online cultist sort of bitcoiners will swear everything is fine with Tether, but the traders know damn well it's going to explode some time.
The only bright side is that crypto is not systemic to the real economy, even the paper economy. So if Tether and/or a major exchange blew up - Binance is looking like a hot prospect, with the amount of regulatory heat it's been getting in just the past few weeks, and with multiple reports of people unable to get their money or even their cryptos out - and bitcoin crashes, then the rest of the financial world will barely be affected.
Bitcoin has exactly one real use - transferring money without pesky government oversight, effectively money laundering, which it doesn't even do that well. Everything else is either speculating on the value going up (it's not actually a Ponzi scheme as such but it could be called I-can't-belive-it's-not-a-Ponzi due to the way the exchanges pump the price) or some kind of idiotic banking-the-unbanked scheme that is doomed to failure.
The price remains high due to Tether and the abundance of real money flowing around at the moment. But as soon as that money dries up Bitcoin will be the first investment class to be wiped out.
Bitcoin will always be worth something - in 50 years there will still be some oddballs running nodes in their garden sheds. But the investors and scammers will have moved on to something else.
2. Those that have gotten rich - where did the money come from? It seems like a negative sum game to me (as you have to pay the ASICs and power, ie mining rewards). How is that different from a "normal" stock?
But from 2014 on, bitcoin mining was indisputably centralised - it's only ever been decentralised in the sense of "can't sue me bro", not in operational practice. In 2015, the men controlling 80% of bitcoin mining stood on stage together at a conference. Three or four entities have run bitcoin mining since then - assuming they don't share ownership behind the scenes.
The only thing preventing miner misbehaviour is wanting to avoid spooking the suckers. That's the game theory here.
The miners would love to increase the reward. The trouble will be selling it to the subculture. They'd need to make a convincing case that it was necessary to number going up.
2. You're correct: no money comes out of bitcoin that didn't go in. So for everyone who got rich, there's a pile of suckers who got poor. Everyone who talks about bitcoin as an great investment does so with massive survivorship bias.
A securities issuance is supposed to (this is the brochure version) fund investment in a productive enterprise. You get a pile of capital together, you invest it in an enterprise, it generates wealth.
A pile of bitcoins can't do that. It's just a pile of a commodity, that doesn't do anything else. All you can do is buy, hold or sell it.
Early bitcoin buyers are only ever paid with actual dollars from later bitcoin buyers. This is technically not a Ponzi, because nobody is running it, but it works very like one. Holders are incentivised to promote the scheme so as to help grow the supply of later bitcoin buyers to offload their bags onto, so they can cash out at all.
People who bought in later than they did.
The reason I find Bitcoin speculation so distasteful is that the only way to make money from it is to wait for more people to be convinced to buy in, so you can sell your Bitcoin at a higher price then you bought it.
The reason this differs from the stock market is that stocks are attached to companies which have an inherent value and, through dividends, share that value with the holders of the stock. Sure, there's a lot of speculation, but there's also genuinely useful economic activity happening, generating real value.
People who want Merkle trees and a trusted institution don't understand either.
I haven't read the book, but I suspect this refers to the deafening "Blockchain not Bitcoin" hype from 2015-2018.
It turns out that Bitcoin solves a very specific problem in a manner that looks general. It's taken several years for that idea to play out, but it appears to be on a well-deserved decline.
It's possible to see Bitcoin as the answer to a range of problems without seeing it as the solution to every problem.
> The book nicely separates out the useful tech part from the political propaganda, and deflates the entire hype around it (Hint: Most people want Merkle trees and a trusted institution, but think they need a Blockchain - they will end up with a blockchain, a centralized institution and a large energy bill).
The amazon reviews seem pretty mixed about it though
https://www.amazon.com/Attack-50-Foot-Blockchain-Contracts-e...
I'm astonished the review scores are that high, given the number of extremely-online people with a strong financial incentive for that book to review poorly.
BTC is a digital bearer instrument, meaning its value is wholly digital and is a decent option as property rights for those at the bottom of the pyramid.
If you've lived through hyperinflation, Bitcoin is a decent option to consider.
I highly recommend this article with a purview of Bitcoin outside the West: https://bitcoinmagazine.com/culture/check-your-financial-pri...
The massive societal and economic harm of ransomware is not voluntary. This is entirely powered by bitcoin and other cryptocurrencies, and we do not get to choose whether giant criminal gangs should be given a way to extort businesses all over the world, businesses that provide crucial services to people.
Nothing about this is voluntary. The harm is forced on everybody.
Here's a more in-depth thread on Bitcoin and the Environment if you need access to more articles: https://twitter.com/asianhodl1/status/1392678699531575302?s=...