Veteran fraud expert sets his sights on Bitcoin
fortune.com
fortune.com
Is it wrong to apply this to say, Microsoft stock? For the sake of the argument let's say Bill Gates owns 50%, and a handful of other employees 20%. Does that intrinsically make it a shallow market, subject to manipulation?
And what sort of manipulation is he talking about exactly?
> There’s no evidence that people who spend down their wallets buy back in.
There is evidence, people do this all the time. I'm not sure if he literally means no evidence, or that he's suggesting it's an insignificant minority.
> When you heard the hype coming from the community, and … that people were spending money on this stuff, they needed to know the truth.
I really just don't think this is as objective as he thinks it is... there isn't a 'truth' that desperately needs exposing here. It's more complicated than that and we're still yet to see how it develops.
He does raise some good points though, and I find it interesting he says Bitcoin isn't very good for money laundering.
I can also see why someone would think it's a pump and dump - it does appear to share many characteristics from an outside view. People pump it sure, but the vast majority of 'pumping' I observe is sincere, backed by a strong belief and excitement in Bitcoin. Not to realise quick profits. Also now with a total dollar value of billions, it's not really in the traditional value range for 'pump and dumps', schemes that tend to rely on much lower value and easily manipulable assets.
I do think telling the average Joe on the street right now to probably stay away from Bitcoin is becoming an increasingly savvy advice. There's a lot of scams and bad ideas out there.
My personal opinion on bitcoin (the specific blockchain, not the tech), is that it is either a good currency or a good investment, it can't be both. Since people are calling it a currency and treating it like an investment, I've only bought/sold it before/after transactions.
With a pump-and-dump scheme, you have a small number of people who are insincere (the dumpers) and a large number of people who are sincere (the pumpers). For example, you have promoters saying "BTC is decentralized" because the ledger is decentralized, but on the other hand ownership and mining power are highly concentrated.
One area where I think the author is wrong is that he seems to be predicting a slow death. I think that is unlikely since it has already crashed hard twice in three years: https://blockchain.info/charts/market-price?timespan=all
EDIT
Here is an example of some stock market manipulation from the 1800s:
The entire period in the affairs of the Erie system from the ascendancy of Daniel Drew in 1851 to the end of the Civil War witnessed an endless succession of stock-market exploits both large and small. In the spring of 1866, however, Drew found an opportunity to achieve a real masterpiece in manipulation. The stock of the Erie road was then selling at about 95 and the company was in pressing need of funds. The treasurer came to the rescue as usual and made the necessary advances on adequate security. The company had in its treasury a considerable amount of unissued stock and had also the legal right to issue bonds to the extent of $3,000,000 which could be converted into stock. Drew took these bonds and the unissued stock as security for a loan of $3,500,000.
It so happened, naturally, that Drew was soon heavily short of Erie stock in Wall Street. The market was buoyant; speculation was rampant; and the outside public, the delight and prey of Wall Street gamblers, were as usual drawn in by the fascination of acquiring wealth without labor. All this time our friend, Daniel Drew, was quietly selling Erie stock and closing contracts for the future delivery of the certificates; and he was doing this at rising prices. As the days went by, his grave, desponding manner grew more and more apparent. Erie stock continued to rise. In the loan market its scarcity became greater hour by hour. The rumor began to spread that "Uncle Daniel" was cornered. His large obligations for future delivery must be met. Where was the Erie stock to come from? The stock continued to soar, and Treasurer Drew seemed to become more and more depressed.
Then the blow fell. Drew laid his hands on the collateral which he held for his loan to the Erie. In the twinkling of an eye his $3,000,000 in Erie bonds was converted into Erie stock, which he proceeded to dump in Wall Street. Eric quotations fell from 90 to 50. Every one at last realized the trap—but not before Daniel Drew had pocketed a few millions in profits.
Source: Moody, The Railroad Builders, Chapter 6.
http://www.gutenberg.org/ebooks/3036
https://archive.org/stream/cu31924070687961#page/n93/mode/2u...
The struggle for control that follows the part I quoted is also pretty interesting.
It only works because of the hype ('pump'), and it's pretty rare for a pump to go viral enough that the pumping would be sustained without the perps marketing their trash. That would move their clients into the realm of the pumpers as well.
Think of pump-and-dump as a mini bubble inflated by high pressure marketing to gullible targets.
Stock is not a currency either.
This means that anyone who is a major shareholder is forced to publicly announce whenever they are buying, and whenever they are selling.
With Bitcoin, it is basically anonymous whenever the "insiders" are making a move.
And yes, people are trusting wallets that have been generated by others.
Hell, we don't even know the identity of Satoshi. We only know that he has roughly 3 million BTC to himself. (or maybe he sold it off to someone else. No one knows)
(And a mature version of proof-of-stake would have similar issues. There has to be something at stake.)
Personally I see it as a gradual acceptance of a new technology by the public.
I don't think that's moving goalposts.
Lots of places take Paypal. Paypal will convert [insert currency] into dollars. That doesn't mean I can claim all those businesses in the US accept [insert currency] in a way that shows that [insert currency] is strong and useful. All I can really argue is that Paypal does so.
Very few companies want to possess bitcoins as a liquid store of value.
I don't disagree, this is a valid criticism. What I meant by moving goalposts was that the argument changed from "you can't pay with bitcoin anywhere" to "you can pay with bitcoin at Newegg but this doesn't count because their merchant immediately converts them into dollars"
So you can technically use a bitcoin at Newegg but it's not Newegg taking the bitcoin. It's the payment processor.
Bitcoin's market share is currently over 15 times larger than the combined market share of the following 10 most popular cryptocurrencies! An altcoin could be much better than Bitcoin technically or economically/philosophically, but it wouldn't matter since Bitcoin would be much better in practical use due to its market penetration.
An altcoin could do some really cool stuff that would in theory make it more secure than Bitcoin, but Bitcoin would be vastly more secure in practice due to its massive network.
And if an objective flaw actually were discovered in Bitcoin, it would be solved pretty quickly.
In terms of the rules, it would mean we collectively have learned to solve something like the tragedy of the commons problem or a collective prisoners dilemma.
Market participants would have to en-mass choose an asset which is worse for each of them as individuals (as it loses value) for the sake of the greater good. Without a government forcing the issue, it is my belief this can't happen.
On the other hand, substantially better technology that Bitcoin can't easily adopt might be another matter. Ethereum and Zerocash are a couple interesting candidates.
the idea of putting copyrights on the blockchain: suddenly there’s an irrefutable copyright worldwide.
So, you could imagine storing in the blockchain proof that your wrote some code. If someone comes along and pretend it's theirs, you have irremediable proof that it's not.
You could build a whole framework of copyright registration around this. Say you could register the hash or fingerprint of pictures you took, so nobody could claim that they were theirs.
Of course, this doesn't solve the issue of enforcement but it gives a way for the owner to prove ownership, making it arguably easier to settle conflict.
Personally, I think there's a serious chance that cryptocurrencies will disrupt (in the original sense) a lot of economic and organizational systems, but I also think it will take a lot more than Bitcoin to get there.
EDIT: Probably worth saying that I don't unreservedly endorse the book. There's more than a bit of misunderstanding, exaggeration, and hyperbole. But it's a useful counterweight to the hype.
Can anyone else name a system where everyone has equal read and write privileges to a data store where that data is reliably available?
Look at this stuff:
http://coinsecrets.org/ http://cryptograffiti.info/# https://www.coinprism.info/address/1BvvRfz4XnxSWJ524TusetYKr... https://blockchain.info/new-transactions
The currency aspect and the incentives for mining keep these transactions secure and make sure they're propagated to clients over the network.
There has never been any thing remotely like this kind of shared public space on the Internet. Blogs and RSS are private residences. Twitter and Facebook are giant private residences that many people interact within.
The Bitcoin blockchain is like a public park or sidewalk.
We've never seen anything like it before.
Most of the listed blockchain metadata seems to point off to one of these three: https://github.com/OpenAssets/open-assets-protocol/blob/mast... http://coinspark.org/ http://www.proofofexistence.com/
So then you have altcoins, which you would hope someone would consolidate into a converged tree-like blockchain. But ultimately it's the services that are built on top which provide/capture the value.
It's a shame you didn't really engage with what I had to say.
To expand, Bitcoin's security is maintained by the miners, who also expend the majority of the network's energy. Transaction volume for the most part is borne by all the network's full nodes, which use relatively little energy.
So we can expect the total cost of mining to be approximately equal to the total block rewards plus transaction fees. The more valuable Bitcoin becomes, the more valuable those rewards will be, and the more money will be spent on mining.
Some percentage of the mining cost will go to energy, and the rest to hardware. So it's possible to estimate the energy cost of mining at various price levels and times (since block rewards decrease over time).
Ignoring transaction fees, it's actually not terrible. I figured out a while back that it would be something like several gigawatts, if Bitcoin became a trillion-dollar currency in twenty years. But if transaction fees become significant it could get a lot worse. (Luckily there's some work in progress that could increase scalability enough to keep the fees low.)
It would be difficult to measure!
You just described the U.S economy.