How the Bitcoin 1% manipulate the currency, deceive its user community
blog.p2pfoundation.net
blog.p2pfoundation.net
> the subgraph of these transactions contains many strange looking chains and fork-merge structures, in which a large balance is either transferred within a few hours through hundreds of temporary intermediate accounts
This is what happens when someone with a large account balance spends it a little at a time using the default Bitcoin software: each time they send coins to someone else, some of them go to the recipient, while the rest (the "change") goes to an automatically-created new address that's kept in the same wallet. If there are hundreds of transactions in a short time, you're probably looking at a wallet that's controlled by a Bitcoin-oriented business such as an exchange.
> or split into many small amounts which are sent to different accounts only in order to be recombined shortly afterwards into essentially the same amount in a new account.
This sounds like coins getting withdrawn from an exchange, circulating a little bit, then getting deposited back in the same exchange. This also happens if someone takes all their coins (split between different addresses because they've been doing transactions on them), and sends them all to the same address (eg, to move them to a new wallet). Alternatively, it might be a coin-mixer (eg, I have read that Silk Road does coin-mixing on its depositors' coins). And there are other things that make weird transaction patterns, like Satoshi Dice.
> It is remarkable that 97% of all owners had fewer than 10 transactions each, while 75 owners use the network very often and are affiliated with at least 5,000 transactions
This doesn't say anything about the owners, only about the addresses. Large numbers of addresses are created and used only once, because that's what the software does. A few addresses are reused many times, because they're published and many people send coins to them
There is no good reason for the "1%" to dump and run. Bitcoin is either going to give you 10000x returns or it is not. In that sense, investing in bitcoin (either in actual btc, in mining hardware or in bitcoin startups) seems similar to angel investing. Yes, some may make money in speculation and day trading, but there's still no incentive to sell out if you hold a significant %, as your real stake is in the possibility of wide bitcoin adoption.
Everyone knows that only a small % of bitcoins are actually used as currency at the moment, and further it's understood that a decent percentage of that use is for illegal activities. That's why there is excitement about startups that might engender greater circulation and wider adoption as currency.
tl;dr: "The Ron/Shamir paper contains provably-false key assumptions. Further, their data source (website scraping) is a secondary data source known to have served invalid data in the past.
We do not claim this wholly invalidates their statistical results, but given the web wallet and cold storage examples, seems likely to introduce statistically significant changes in the results."
Oct. 31 UPDATE
The authors have introduced several revisions to their paper, available at the same URL as before.
The criticism below may be outdated in part or in full.
Yes there is a fair deal of manipulation (pump&dump and all that and more).
No it's not a kill-switch. In order to exercise their advantage, big hoarders have to sell coins, and not just a few, and not invisibly, they have to do it publicly, on the exchanges to move anything. And everytime they do, no matter if they're ghost-trading with themselves, they loose some, thereby re-distributing the coins, usually to those with less coins.
A big horder sellout isn't the "end of bitcoin". It'd just be the big equality readjustment that occasionally happen, when prices convince holders to sell.
Yes there'll be tears and all that, and a bunch of people loosing everything, but after it happened, the market's more balanced, and ready for the next round. And then the round after that, and so forth, ad-nauseum.
Welcome to bitcoin.
It's like when android first came out, all these people got upset because it informed you about what personal information apps wanted. So some went back to IOS despite those apps doing the same things (you just didn't know about it). Way to punish transparency.
"The most damning fact revealed in the paper is not the extreme top-heaviness of the Bitcoin ownership pyramid, but rather the elaborate lengths to which the hoarders went in order to conceal their existence from “rank and file” users."
I don't see how it could possibly have been made any clearer.
If I had 5% of all bitcoins I wouldn't keep them in single wallet either.
http://eprint.iacr.org/2012/584.pdf
"[W]e isolated all the large transactions in the system, and discovered that almost all of them are closely related to a single large transaction that took place in November 2010, even though the associated users apparently tried to hide this fact with many strange looking long chains and fork-merge structures in the transaction graph."
Why people keep saying such things? If 1% were to sell all bitcoins they have for 0.01 $ then other people would just suck them up at such price. Mostly miners would be interested in acquiring bitcoins well below price of the electricity they use to mine. Since mining gear is becoming increasingly specialized it's either bet on bitcoins bouncing back or write off all your investments in hardware.
If people who own most bitcoins cashed up they would have to do it at significant loss to themselves and even then they could not drive bitcoins to 0. Even if bitcoin lost 99.9% of its current price it doesn't significantly harms its utility as a mean of exchange. Paradoxically it would make it even more attractive for investors.
Some people think that if price drops significantly people will just abandon the thing. It's not tulip bulbs or hollow dotcoms. It's the first truly valuable thing on the internet.
For example, what if the NSA discovers that Bitcoins are being used by terrorists and decide they want to make Bitcoins useless. NSA has lots and lots of computing power that can be used to mine Bitcoins, and, as far as I know, there are no laws that provide any kind of legal protection for Bitcoin or its users.
The current network hashrate (about 180 terra hashes per second) outclasses all top 500 supercomputers on the planet taken together by a factor of about 10x.
ASICs miners are good for only one thing, mining bitcoin. They have no other practical use. No matter if you're an agency or company, you'll have to justify throwing hundreds of millions of dollars out the window for something most people consider geek toys.
We've all seen some real apple haters, or Microsoft, or vi vs. emacs wars, but man the energy that goes into bitcoin FUD is worth a study in itself.
Even worse if you just ask people on the street (I have) does a non-FED controlled currency that has low transaction fees and was easy to send over the internet sound interesting or useful to you?
Everyone, to a man, says yes.
I guarantee a dollar is more useful than Bitcoin, simply because it's far more popular and most people don't care enough about the benefits of Bitcoin to outweigh its downsides.
Even if you grant that Bitcoin is based on sound principles, I expect it to remain of limited popularity for the same reason than Plan 9 didn't replace Unix: "the most dangerous enemy of a better solution is an existing [thing] that is just good enough."
If you believe the socioeconomic pyramid to hold true, the middle and lower classes will always outnumber the top 1%. And by achieving this power of economic majority, they can gang up on the "elites" by means described in this paper. I'm not going to get into the messy debate of whether it's justifiable; just that the capability exists. Maybe this paper won't do it. Maybe one that comes out in 30 years will, under the correct economic and political climate, finally incite people to make this happen.
Or you could argue that the top 1% would have been prepared by using some of their wealth to gain control of the means of production (mining machines) and secure an economic majority. What's to guarantee they won't rig up some positively reinforcing rules to ensure their prosperity at the expense of the general public?
Currencies run on immutable rules. BitCoin has had a good run so far, but its kill switch is already in the collective hands of three people: the leaders of ASICMiners, Slush, and BTC Guild.
I meant the 1% problem being almost a validation for btc, in the whole "things change but they stay the same" vein.
[EDIT] - While the article does indeed discuss doing something about it/focusing on the 1% problem, I was not surprised by their findings -- hoarders gonna hoard.