Things You Need To Know About Bitcoins
hongkiat.com
hongkiat.com
"Satoshi Nakamoto was so talented that he even solved the problem of double spending of digital currency in his system."
That was solved by David Chaum over a decade before Bitcoin.
"You will be anonymous in the system"
That was shown to be untrue long ago. Bitcoin does not exist in a vacuum and Bitcoin users can be tracked and associated with other information.
"Security experts and digital freedom enthusiasts praise Bitcoin"
I am working on a PhD with a focus on cryptography and secure multiparty computation, and I have nothing but bad things to say about Bitcoin. It has numerous technical shortcomings that other digital cash systems do not have.
https://dl.acm.org/citation.cfm?id=1754992
In a sense, Bitcoin has ruined digital cash, by stealing the attention of people who might have been early adopters of a DigiCash revival. Now everyone thinks the digital cash is Bitcoin, and so any other system would be forced to either compete with Bitcoin or to reassure everyone that digital cash is possible after Bitcoin's potential (i.e. near certain) failure.
Would you care to elaborate or point to posts/articles which explain those shortcomings?
https://dl.acm.org/citation.cfm?id=1754992
In layman's terms, the result is this: every time you make a secure digital cash transfer, the amount of information needed in future transfers of the money increases. The increase is, in the best case, linear in the number of offline transactions. Traditionally, that is solved by having a "bank" that issues the initial information, and which will re-issue currency to reset its size.
In the case of Bitcoin, there is no such authority, meaning that either you'll hit this scalability problem or you cannot have secure offline payments. In Bitcoin's case, solutions have been given for the scalability problem; it is safe to conclude that offline payments are impossible.
Lacking offline transactions is a big deal in practice. It means that we cannot meet anywhere "off the grid" and expect to be able to transfer money. It means that gas pumps need reliable Internet connections. It means that hot dog stands need Internet service. In other words, it means that Bitcoin cannot replace paper money -- whereas Chaumiam-style systems could, or at least have a stronger case for being able to.
There is also reason to doubt Bitcoin's security model. See, for example, this work on analyzing the publicly available information in Bitcoin to de-anonymize its users:
http://arxiv.org/abs/1107.4524
Really, if I were to be as conservative about security as possible, I would say that the only security Bitcoin provides is protection against double-spending in online transactions; I would not rely on anonymity, and I would not even think about offline payments. Considering how much work was done in the early 90s on digital cash systems that not only protect against double spending, but which also allow secure offline transactions and which ensure the anonymity of users, I don't think it is unfair to say that Bitcoin has technical weaknesses compared to other systems.
If lack of offline transactions is bitcoins biggest flaw, I am going to invest all my money to bitcoin. Come on, even if bitcoin gains 1% market share in e-commerce or in a niche such as online gambling, it would be a very big deal. Nobody cares if it can't be used for offline transactions if it can be used to circumvent the gambling regulations.
> I don't think it is unfair to say that Bitcoin has technical weaknesses compared to other systems.
Are these other systems used anywhere? Like a gambling startup that made over $400 000 in profit last month.
http://www.reddit.com/r/Bitcoin/comments/17oba6/satoshidice_...
In other words, the future of Bitcoin is in the black market. Which means that the police are just going to look for people who are engaged in Bitcoin transactions, and particularly those engaging in large volume transactions, and they will just happen to be patrolling in that person's neighborhood.
"Are these other systems used anywhere?"
The timing was bad; David Chaum tried to create a company that facilitated digital cash in the 90s, but faced so much trouble and so much resistance by the US government (which at the time was actively thwarting cryptography deployment on the Internet) that his company ultimately went bankrupt. There is nothing stopping a digital cash revival if you want to start it up again -- smartphones could add something interesting to that mix, like phone-to-phone payments (and unlike Bitcoin, you could do this in a way that does not require either phone to have Internet service -- so people could transfer money in New York City's subways, for example).
All the deanonymizing work done heretofore is wrong because of multi-sig transactions
I may be mis-reading that, but it looks like that is not an offline transaction, but a transaction facilitated by a payment processor. They seem to be trying to solve the problem of quickly verifying a payment.
Offline payments should allow this:
1. Alice receives money from some online payment.
2. Alice sends money to Bob via an offline payment.
3. Bob sends money to Catherine via an offline payment.
4. Catherine spends her money online.
In that scenario, Bob should not be required to ever do anything online. In other words, it should be possible for parties to only ever deal in offline transactions, without ever going online, as it is possible for people to only ever deal in paper cash.
"But what he created was definitely the fantasy of every tech guy in the world."
No, not really. Some of us have other dreams than creating a crypto-currency with a fixed supply, or a crypto currency at all.
Also hasn't the reward halved? This article still says 50 BTC per block.
So where are you saying them? Where's your blog post?
Care to tell us what it is, or it doesn't exist.
Also, you don't sound someone who is doing his PhD, you sound more like someone from some government agency upset about a parallel currency system that has the potential to stop its users from being unknowingly abused of their personal information.
In my opinion, If Bitcoins are implemented on a massive scale, then there is a heavy chance that the rich will no longer become richer and the poor will no longer become poorer. If and only if implemented properly, on a massive scale. Right now, we can only hope.
William Jennings Bryant's "Cross of Gold" speech pilloried the gold standard precisely because it preserves the wealth structure through time. Fiat money, on the other hand, promotes the churn of money and thus tends to de-stabilise the hierarchy of wealth over time.
Switching to a fixed supply currency, e.g. gold or Bitcoin, means those who hold wealth would become wealthier by virtue of holding wealth.
This is how we know you are not being realistic. Bitcoin is not pixie dust.
Let's put it this way: rich people could just buy all the Bitcoin currency units out there with their other assets, and then you would see them become even wealthier just by holding on to those units as deflationary trends kick in, and that is assuming that we lived in a universe where currencies without any legal structure around them can really become big. Do you really think people are going to forget about US Dollars or Euros or Pounds Sterling overnight? People still need to pay taxes, they still have to use courts to settle disputes, and so forth -- and poor people are going to be in much greater need of the currencies used for those things than rich people, and will be much more willing to exchange Bitcoins for those currencies.
>That was solved by David Chaum over a decade before Bitcoin.
To be exact, David Chaum figured out a system that prevents double spending yet doesn't have traceable transactions.[1] But it still required a central authority that keeps the ledger and which can block your account.
The innovation of Bitcoin is to prevent double spending without having any centralization at all.
[1] http://www.hit.bme.hu/~buttyan/courses/BMEVIHIM219/2009/Chau...
Bitcoin's innovation was allowing currency to be issued without a central authority and still preserving the security against double spending. That comes at a high cost: you lose secure offline transactions or you incur a scalability problem (for Bitcoin, it is the former: no offline transactions). Chaum proved that this is the case for any digital cash system, regardless of central authorities (and in fact, central authorities are a handy way to deal with the issue: you choose the scalability hit and then allow the central authority to exchange used currency units for fresh ones):
Sounds cool, where can I download the source code and test this system?
It was not exactly something you could compile and run yourself. On the other hand, if you have time, you can go ahead and implement any of the systems Chaum proposed (you'll probably want to scroll down to the 80s and 90s):
http://www.informatik.uni-trier.de/~ley/pers/hd/c/Chaum:Davi...
Really though, Chaum's digital cash ideas involved building infrastructure around existing currency to protect privacy and prevent certain kinds of fraud (e.g. double spending, identity theft). Chaum was not trying to bring down the world's economic system with digital cash, he was just trying to give people a more secure way to pay for things electronically. The failure of his system in the real world was likely linked to the strong pushback by the US government against the use of good cryptography by "commoners."
Very 'Internet Tough Guy'. I'm extremely impressed by your insights.
Do you have any links to support your assertions?
In normal currency, a central bank would generate notes that are backed by an equivalent valuable good (ex. Gold, Jewels, etc). I am aware that's not true in modern systems because a central bank can emit more inorganic notes, but that has a direct impact in the inner value of the currency.
In this system, I can't see who is in charge of emitting the digital "note". So, how is exchange rate calculated then? Bitcoin mining is another blur concept.
Does anybody know how this actually works?
Edit: Fixing some typos
When someone sends you Bitcoins, your bitcoin software will decide whether they are fake or not. Since the entire transaction history is public, it can find all transactions to and from the person who is sending you coins, and see if they indeed have enough to pay you.
The problem is that, at first, nobody had coins. To get them into circulation a system was built: For finding a "proof of work" (just assume for now that it's something that takes a computer a certain amount of work to find), the program agrees that you earned an X amount of coins. It used to be 50 coins per proof of work, right now it's 25. It will get down to zero eventually and there will be 21 million coins in circulation. Never more.
A proof of work is easy to validate. It's like a big number is given, and you have to find its prime factors. It takes forever to search all possibilities, but once they're found, you can easily multiply them to check the validity.
So when you are sent coins, your Bitcoin program (called the bitcoin client) will check the transaction history for who found proof of works, how much they gained from it, and who sent coins to who. After this you know how much money someone has, and whether he can pay you.
It's up to your bitcoin client to use the same rules as everyone. You can decide that proof of works are worth much more or much less than everyone else agrees upon, but it will only prevent you from using the network. Most, ifnot all, other clients will reject your version of the truth.
I hope this cleared things up. It probably rose other questions, but most are asked before. Just google for it ;)
I also wrote a blogpost about Bitcoin, if you are interested: http://lucb1e.com/?p=post&id=99
Never for free. For a much smaller cost, yes. It always required the computation or at least the effort to turn the the mining software on.
The thing in the start was that nobody believed in the currency, therefore bitcoins were practically free. After some time people started using & believing in bitcoin concept, and from there on the currency started gaining value. Same as with traditional stocks.
https://en.bitcoin.it/wiki/Controlled_supply#Projected_Bitco...
You can't generate a 'enough proof of work in a cheap manner' because the rate at which currency is handed out is fixed. You can only fight other people for the currency being generated by having more computers than them.
IMHO this puts BTC in the 'massive waste of electricity' camp.
You don't see any value in a currency that can't be counterfeited, manipulated by a central bank and also enables great privacy & low-fee transactions?
And really I rather like the idea of a central bank that is able to help stabilise currency by taking various actions, but then I'm not someone that gets upset at inflation 'stealing' value from my savings. Governments and central banks can help keep money and food prices relatively stable.
The privacy, yeah, good I guess. Low-fee... don't really care. The lack of any sort of chargeback facility makes the entire system very unattractive for someone who is not an online seller.
Although there are some ideas about how to reduce the amount of computing the network needs to prevent an attacker from forking the block chain: http://gavintech.blogspot.com.ar/2012/05/neutralizing-51-att...
Another social advantage of bitcoin is that you can make transactions without being at the mercy of a payment processor. Wikileaks vs. visa and mastercard, for example.
However I don't think it covers all the cases for a payment method, and as I say, I quite like some of the features of centrally controlled currency.
As for mining... yes. Early adopters got 'free money' for buying into the system. Those with lots of computing power can more easily mine but, at present, in order to be cost effective, serious miners have had to move to custom designed hardware. It takes a serious investment and a large ongoing electrical bill to compete.
Yes and no. Yes, you can get money doing this, but many people are. Because of this, the difficulty has increased to a point where it's fairly hard to make money (you've got to consider the electricity costs, for example). GPUs are the minimum you need, many people use FPGAs. Recently released are the first custom ASIC chips designed solely to mine bitcoins, which will drive up the difficulty extremely sharply and push GPUs and FPGAs out of the market.
Samsung isn't Japanese. And what the hell is Nakamichi?
But Satoshi is a common Japanese given name.
Although there are many "new breed" entities, like bitcoin exchanges and bitcoin ecommerce solutions that quickly adopting bitcoin.
Remember: bitcoin adoption means death to entities that likes to tightly control monetary instruments and transactions. There is lots of resistance for bitcoin
Double spending is only an issue if you don't wait for the transaction to be "confirmed" by its inclusion in a block. Some services don't do this, and that's where you begin to have problems. You may end up with someone having a service they didn't actually pay for, for example.
But given that 1 BTC is ~ 20 USD at the moment and that over much of the last year it has been varied between roughly 6 USD and 14 USD, you would have roughly doubled your money.
The question is really what the future holds. Will adoption grow dramatically (in which case BTC will give an amazing return) or is it a white elephant.
Extremely high risk investment: potential high returns, high risk of total loss. Mind you, some high risks investments are needed in a well balanced portfolio.