Winklevoss Twins Aim to Take Bitcoin Mainstream with a Regulated Exchange
dealbook.nytimes.com
dealbook.nytimes.com
It doesn't seem like you can regulate BTC, and the reason is because of something unexpected: arbitrage.
(To be clear, you can create a regulated exchange, but that doesn't really help you. I'll explain why.)
When exchange A's price is different from exchange B's, that represents an opportunity. As the difference grows, that opportunity becomes more lucrative. That's why, at any given time, all exchanges are at roughly the same price.
But that means if one exchange is playing by some bad rules, or is acting in a shady way, like the behavior described in https://willyreport.wordpress.com/, then that directly affects every other exchange.
So unless all exchanges are playing by the same rules, having a single "safe" exchange won't save you. One exchange's shadiness will always affect every other exchange.
Whether this is a fatal flaw is a separate question. I don't think it is, but it seems hard to know.
What do you think? It seems true, but perhaps I'm overlooking something obvious.
Also, this is strictly about price manipulation. It's probably true that no amount of bad behavior at exchange A can result in a catastrophic failure of exchange B. But one question I've been trying to figure out the answer to is: does price manipulation even matter?
There are plenty of examples in financial markets where lower risk is correlated with lower returns, and this may be another.
There's a reason they're called pyramid schemes
Just because someone call something a pyramid scheme, it doesn't mean it is one.
I don't think that is correct. A shady exchange will be avoided by market participants if it significantly deviates from a fair price.
Markets are inherently shady, and there is no such thing as a 'fair price.'
If you can fix a market, you will. That goes double if you can fix it even more effectively with a price-fixing cartel - especially a state-sponsored one.
(Arguably this is what QE really does, only QE is quasi-legal.)
The only protection is good regulation. Markets on their own tend naturally to criminality and/or instability.
Karpeles was typical in that he was playing a variation on the usual games. But he wasn't professional enough to play them well.
Also, I'm not quite seeing the logic of promoting a currency system that has been proven to be trivially hackable.
(Although I suppose if you can get enough people to believe that next time will be different and your exchange will be the exception, there's certainly money to be made.)
> The only protection is good regulation. Markets on their own tend naturally to criminality and/or instability.
Regulation like how Argentina's government mismanages their peso to disastrous effect (people have to trade currency on the black market to get by)? Or how some governments have pulled the "print money" lever until the currency is hyperinflated to zero value?
Governments are inherently shady.
That's false. An exchange going down due to criminal activity is in no way Bitcoin being hackable. Bitcoin was not hacked, and MtGox criminal activities are a reflection on them, not on Bitcoin.
I can set up my own independent exchange to trade, say, gold in the same way there are thousands of online gold exchanges. Then I can artificially inflate the gold prices on my exchange, using fictitious money (like the willy bot did), leading customers to come to me to trade their gold for high prices, and therefore impacting the worldwide market price of gold... at least a tiny little bit for a tiny little while... until customers find out that they can't withdraw their fictitious money from my exchange, so my sham and its impact ends right there. This is what happened to MtGox in February 2014.
The bigger the market you are attacking is, the less time it takes for the sham to be discovered, because the tiny percentage of people who try to benefit from the fictitious high prices quickly overwhelm your ability to fake solvency. A huge market like gold would pretty much suffer no effect due to its size. And as the Bitcoin market continues to grow, the hypothetical impact of such a sham should diminish over time.
In summary, I do believe regulation can and already does help BTC. They bring finance professionals in the market who have a clue (unlike Karpeles). They bring trust. They bring more trading volume. These are all things that make BTC less manipulable, hence less manipulated.
In that situation the bad actor is unregulated, and the others are all regulated. With Bitcoin the opposite is true - only one exchange is regulated. Does this matter?
(note: this wasn't an invitation to argue about whether Git or Mercurial is better...just trying to point out that sometimes, one company can have a massive effect on a community, especially a community that's small and devoted like Bitcoin but has no real banner to follow)
FX in general is very difficult to regulate and there are a lot of shady firms and exchanges out there. However, I think it's hard to argue that the price isn't reflective of the true exchange rate. Over $5 trillion/day changes hands at a tight spread and very low volatility. Finance is based on trust and eventually legit venues get reinforced through a feedback loop.
There have been large periods where the degree of shadiness on certain bitcoin exchanges has led to large, and persistent price discrepancies. For example, during the huge bull run of late 2013, there was a large and consistent price premium for bitcoins on MtGox. The reason was that MtGox was not processing USD withdrawals in a timely way, but was processing bitcoin withdrawals. If you had tried to arbitrage the price on MtGox vs. Bitstamp or BTC-e, you would have found your money tied up in 3 week limbo while the withdrawal was processing.
To put it another way, if price manipulation is happening, you typically won't notice a price discrepancy. The reason is because of arbitrage. Since price discrepancies are lucrative, people will use arbitrage to take advantage (and hence eliminate) any price discrepancy. The end result is that the price was manipulated across all exchanges, even though only one exchange is being shady.
It is reasonable to expect that arbitrage will tend to make manipulation harder. The basic goal of arbitrage is to recognize open bids that are 'wrong' according to some estimate of the broader market, and to then act on the profitable ones. So in the presence of arbitrage, the manipulative bids that are against the market will quickly disappear.
If a large segment of the market is simply fraudulent, all bets are off. Fraud may well be a better description of what was going on at Mt. Gox than price manipulation (for instance, it isn't really simple price manipulation if their stated customer (dollar) account balances were 10x greater than the paper currency that had ever been deposited).
If I can sell a bitcoin for $200 on a perfectly stable exchange, or for $202 on an exchange where there's a 1% risk I will get nothing, then by switching from the stable exchange to the risky exchange there's a 99% chance of +2 and a 1% chance of -200, for an expected benefit of 0.992+0.01-200=-0.02 so it wouldn't make sense to use the risky exchange. The exchange with a 1% risk would have to offer a price of at least $202.02 for it to make sense to switch to them.
Of course, knowing the relative chances different exchanges will collapse is the hard part!
2) it's very expensive to do. For example if you inflate prices at an exchange at 10% of market price, then you must pay that rate sooner or later when inevitably people sell at a 10% premium and cash out. If you run a ponzi, it'll collapse inevitably.
3) honest regulated exchanges that interface with other honest regulated aren't affected. The market is affected, but not the individual exchange. i.e. if Mt. Gox was still alive and this new Winklevoss exchange Gemini didn't trade with them, it wouldn't affect Gemini if Mt. Gox collapsed. Individual traders who traded at both Gemini and Mt. Gox would be affected, but that's the risk of trading on a crappy unregulated exchange. But the honest exchange itself isn't affected, it cannot result in a catastrophic failure like you say. (feel free to elaborate on that)
tl;dr: not unique to bitcoin, doesn't happen often because manipulating the market has a price tag and a risk tag, and while markets are affected by manipulation (obviously) one bad exchange cannot spawn failure or security problems or ponzis or insolvency at other honest exchanges from arbitrage efforts of its users. It just doesn't work that way.
At present, arbitrage between different exchanges is easy if you are moving bitcoins, but moving USD is very time consuming and requires all sorts of verification. When the exchanges start accepting certain dollar denominated crypto assets you will be able to move USD between exchanges as easily as moving bitcoins. Liquidity and market efficiency and prices will all become extremely similar across markets. Any bad exchange will rapidly be shown up as a fraud as they will collapse within hours as any price differences or manipulation will be attacked by speculators. If anyone stops paying out deposits they will be called out within hours (vs. months and months when mtgox stopped paying out USD) and will rapidly lose credibility and collapse.
Same goes for CADcoin or GBPcoin, maybe EURcoin would be different but unlikely. You would have to set it up as a centralized service where all transactions req proven identity paper trail which in the end is just as cumbersome as using regular banks.
There's tons of other regulations like preventing your USDcoin from being used for online gambling, which is why Paysafecard must sell crippled PINs in US.
Look at the spread there. Bitcoin is not short of coders who can automate obvious arbitrage opportunities, so spreads like that directly indicate just how damn hard it actually is to get ActualMoney out of them.
I have no doubt if they can pull this off that it'll be a successful venture, especially after the horrible year of 2014 which saw tonnes of cryptocoin exchanges (including Mt. Gox) get hacked and disappear, driving down the price each time. They have a bit of competition in the space, I think overcoming the regulation issues and having actual proper accountability will help bolster the credibility of the exchange.
The executives in pretty much every corporate scandal, ever, held vast numbers of company shares.
Is this the accepted narrative? It seems overly generous to bitcoin and the various exchange operators. A lot of these exchanges were shutdown by their owners so they could, with impunity, steal the coins of their customers and other dirty dealings. Hacker attacks, which are often used as cover for these criminal activities, seem to have been the least of bitcoin's problems.
> I think overcoming the regulation issues and having actual proper accountability will help bolster the credibility of the exchange.
If I wanted to use an easy and stable regulated currency why not the USD? I can trivially pay using a variety of sources: my own bank, paypal, my credit cards, direct deposit, wire, etc. If bitcoin gets turned into a strongly controlled and regulated currency then I don't see its competitive advantage outside of very, very narrow use cases (darknet purchases, investing, ransomware, illegal activities, etc).
So far, no Bitcoin exchange has done this. Over half of them have gone bust, often taking the customers' funds with them. This is not a coincidence. There's a lot of big talk about how some exchange is safe. Coinbase doesn't have a real business address and has "it's not our fault if we lose your money" terms of service. Most of the others are worse. After seeing the terms of the Winkelvoss EFT, which are awful (if they lose the Bitcoins, they're not responsible), I suspect this new exchange may be equally sleazy.
1) A multi-sig product, meaning you can store money using their product purely as a software layer. You control the private keys and you have full autonomy. If they disappear or go bankrupt your money is still as safe as you kept it.
2) USD wallets are kept in an FDIC insured bank account. As a money transmitter without the proper licenses they're not allowed to invest custodial funds or use them to finance business operations.
3) They're pretty reputable. Fred Ersham is one of their principle agents and on their board, just like Chris Dixon. They've got a great legal team, guys from big startups like Facebook or AirBnb as well as big finance firms like Goldman Sachs and Visa. They've received $106m in funding at close to half a billion in valuation and partner with Paypal and process payments for fortune 100 companies worth tens of billions of dollars, their investors include top VC firms, the New York Stock Exchange, a megabank and one of Japan's largest telecom companies. they're registered with Fincen and have licenses in 15+ states. That may not protect them from tech failures, but these aren't the type of people who operate an anonymous company that's super shady and will disappear and leave you with no recourse.
4) They store the vast majority of funds in cold storage. I can't argue how safe this is as not much is disclosed. But I do know that cold storage is pretty easy to set up and that their basic descriptions include a lot of redundancy and distributed trust. The gist of it is that keys never hit any network (not hackable) and are stored physically, encrypted, in locked vaults in the same banks we've trusted with storage of value, and require multiple people in different geographical locations to unlock funds. No system is perfect but this is a very secure system. 97% of funds are stored in this way, you can read a bit about it here:
https://www.coinbase.com/security
5) Their bitcoin funds are insured. The insurance includes cyber security, accidental loss and employees going rogue. Insurance is through Aon ($11b revenue in insurance premiums) and they claim only to use A+ underwriters according to S&P ratings.
Again, they're not perfect and there are certainly issues I can point out and more details I'd want to receive more information on. But if I could make a bet on (or an investment into) Coinbase I'd be very comfortable making it.
I do share the sentiment that many exchanges and bitcoin services just aren't anywhere close to bank-grade security. That's just a function of a new and nascent ecosystem. It happens in every industry and it takes a long time to get up to speed. The problem is that bitcoin is extremely sensitive because it's about carte-blance value tokens essentially, it's an extremely sensitive industry for this reason, so there's not much room for amateur-hour. But I think Coinbase, and the likes of say Xapo or Circle, and potentially Gemini, show that we're seeing an entirely different class of entrepreneurs from the likes of say last year's Mt. Gox, already.
Completely holding judgement on Gemini. I know the twins are going to strive for complete regulatory compliance, and that they're already rich and want to build a solid long-term reputable business, not a get-rich-quick scheme, and that they've got the funds to hire the right people and besides financial capital have some human capital in the VC/Tech space in their networks. So there's certainly the potential for this to work out, but we'll have to see.
So if you deposit with them, and they lose it, the limit of their liability is limited to the fees you paid them. Which is zero for their so-called "vault".
That's a totally unacceptable EULA for a depository institution.
Their insurance only helps you if you are a beneficiary of the insurance. That's the case with SIPC (all US stockbrokers) and FDIC (all US banks) coverage, but not at Coinbase.
Live by the EULA, die by the EULA. Those guys are no better than the other low-rent Bitcoin exchanges.
But I will argue that if they insure customer funds and say $5m of them get stolen by a malicious engineer (again, noting their security practices this is extremely unlikely) they're not going to tell their customers 'sorry you're all losing money' when they get that money reimbursed and it'd destroy their business to do a greedy one-time money grab like that. Hell we even saw this with Bitstamp who paid for the $10m of lost customer funds themselves, despite zero such liability in their TOS, and despite the fact they were not insured and had to pay it out of their own pockets. (amounting easily all of revenues, let alone profits, for all of 2014 by the way, paid in full by themselves, without any obligation to do so).
To think Coinbase would then not give back these funds to the consumer despite it not costing them and being insured for that is a ridiculous assumption. It goes completely against them continually claiming that customer funds are insured against non-user related losses (e.g. not when a user gives his PW to his friend and he gets his money stolen, but rather say when Coinbase has a fuckup). And yes, I know technically Coinbase is the recipient of the insurance and that the EULA claims it's not liable, it's besides the point.
I mean, what do you think that insurance is ultimately going to be there for? Do you really think Coinbase will insure customer funds, and when they're lost say 'sorry, they're lost', and then keep whatever amount was lost after the insurance pays them out? It's a ridiculous assumption and much less likely than 'we've got you covered, we're not perfect but your funds are safe with us either way'.
So while I appreciate that you're not granted protection strictly by law (although I have my doubts about whether this part of the EULA stands up when it conflicts with so many written and implied statements by Coinbase which yes, do matter in the court of law), I hope you also appreciate that a statement like this:
> Their insurance only helps you if you are a beneficiary of the insurance
Is absolutely myopic. It's more likely that Coinbase will make their customers whole, especially with their insurance policy, than not. To say that Coinbase is no better than other low-rent bitcoin exchanges is also completely ridiculous, even if neither of them were insured, there's a gigantic difference between Coinbase and say Mt. Gox.
Imho, Bitcoin is and will continue to be an interesting niche until someone comes up with something truly compelling to do with it that you can't do with traditional currency or banking. A regulated exchange is nice for traders and financiers, but it's still just a boring old exchange... another friction ordinary consumers have to overcome to walk the blockchain life.
Also some clients feel safer knowing that financial regulators of some kind are overlooking the accounts and transactions of the business they are working with.
It's probably easier to get faster payouts and the like as well, since banks will have less issue openly (snark intended) with a regulated exchange than money launderers.
Bitshares is a decentralized ledger for equity. Nubits is a system that attempts to stabilize the price at 1 nubit = 1 USD. Neither solves this problem of having to trust someone when you exchange for traditional currencies.
This is a common refrain seen around /r/bitcoin as well.
If few people use it as a currency now, and the majority of people that buy it simply sit on it hoping it will appreciate, why do people think lots of people will want to use it as a currency in the future?
If cryptocurrencies were to become significantly more user friendly in the future and there was an economic niche revealed where their use made sense for lots of people, wouldn't people be more likely to choose a cryptocurrency that didn't come with a built in rentier class of people who have piled up large amounts of the cryptocoin while praying that a vapor future demand be made manifest?
The twins have placed themselves firmly in the camp of those who believe that Bitcoin will survive only if it has regulatory oversight.
At present bitcoin's two main use cases seem to be buying recreational drugs[0](which I have no problem with) and paying for things related to computer fraud(which I think is a destructive waste of time by misguided minds.) Both of these things are presumably things that regulators would like to regulate out of existence as best they could. So if they are even partially successful in doing that, what is going to drive the demand for bitcoin?(tell me something other than remittances, or if you insist on remittances then please explain why if it is not a suitable option for many now, how it could become one in the future.)
- - - -
[0] As a side note on this, bitcoin does seem to be very well suited to the online drug trade, it of course has already proven itself in this area, but from my outside perspective it seems current or potential future problem areas are the on and off ramps, the exchange between fiat and crypto. But imagine if the loop could be closed between the drug buyers and sellers.
So after a drug dealer has accumulated a large amount of crypto, he'll need to convert it to a more widely accepted currency to pay for the cultivation/production of more drugs, food, housing, etc. I guess the current method is to use a mixer then cash out at Bitstamp or btc-e or something, but say that bitcoin becomes regulated to the point that this becomes much more difficult to manage. So to close the loop, using bitcoin or another crypto, the drug dealer with the accumulated crypto sells to a network of crypto dealers, these crypto dealers then sell to a smaller hub in the network and on and on until the drug buyer instead of going over to the neighborhood weed dealer, goes over to the neighborhood crypto dealer, then buys his weed online with the crypto.
There would likely need to be some profit incentive in this, so maybe the drug dealer would sell their cryptocoin to large hubs in the crypto dealing network at a discount in exchange for not dealing with more onerous regulated off-ramps, that discount then gradually being reduced as the crypto radiated out through the network.
Of course with the way drug laws are being re-developed, hopefully all of this becomes moot in the not to distant future.
For these sort of questions, simply compare it to gold: Is it dying because "no one is using it" to buy groceries? Does it sometimes go down, and yet a lot of entities, including central banks, consider it a great store of value?
> For these sort of questions, simply compare it to gold
For something to work as a store of value, there's got to be some other aspect of it that has a value/utility in another way. For gold this is it's resistance to corrosion, millennia of history, for the usd it is its broad acceptance as a medium of exchange, I could even store value in something like canned goods, or toilet paper, or firewood, or soap, or solar panels...
With bitcoin the case could be made that the structure of its network is this other side of the coin, intrinsically valuable aspect of it. That might bear out and more people might gravitate toward that, but that is far from a given at the moment. (do keep in mind that this aspect of it is endlessly replicable open source software, so it really boils down to the community, brand, ethos... that is built up around a given cryptocoin network. Another differentiating aspect I suspect we will see more of is innovative distribution/mining models. And then the other thing that establishes a currency is that it has to be the sole coin of the realm in a given realm/economy no matter how small, which we have seen you could say in the darkmarkets, but I think something along these lines but a little more 'legit' is what is really needed to see a cryptocoin take off.)
So it's my view that by saying it is being used as a 'store of value' before it has established utility/gained currency in a significant way in other realms is putting the cart before the horse. And that's why I'm asking if all the people that are just sitting on it, so sure it's going to take off in one way or another, how is it going to take off? What is it going to being used for? Also, that sounds less like a store of value and more like a calculated risk/speculative purchase.
As mentioned in my previous comment, I also see its current primary use as a 'store of value,' i.e. a land grab in attempt to profit from speculative future uses, as being a hindrance to its use in any of those speculative future uses.
[1] https://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-op
https://blockchain.info/charts/estimated-transaction-volume-...
I love how Bitcoin is destroying all these economic "theories".
Money serves no purpose beyond a convenient means for economic transactions and paying taxes. There is no magic behind it, nor is it meant to be a long term store of value. It has to turn over to be useful. So if you're holding Bitcoin as a store of value (relative to what?) then there is no point comparing it to money.
There's also a difference between "saving" and "hoarding".
It couldn't happen to a more deserving set of twins.
Bitcoin provides the option to remove yourself from the system if you decide that for you, in your personal context, it is the right thing to do. It's the option that matters, not just doing it for the sake of it to follow someone else's concept of what's important.
[1] http://www.sec.gov/Archives/edgar/data/1579346/0001193125144...
Also: http://www.reddit.com/r/Buttcoin/comments/2rv44y/the_winklev...
Actually when they were buying Bitcoins it ran up to $250 over the course of a few weeks, then crashed down to $75. That's my recollection of events.
I read far too many investing sites. Whenever a run-up and crash occurs in some fad stock, the proponents of said stock never seem to lose money. They always seem to be "still in the green". Amazing, really.
So, a complete opposite of what Bitcoin philosophy is. Gotcha.
Bitcoin doesn't exist without human input, it requires active agents to engage it. So even if the rules are set in the code there is an element of humanity embedded in the protocol. Just look at the core developers. I can guarantee you they have a philosophy on what should and should not be done during maintenance and major upgrades to the protocol.
But if you want to reduce the definition of philosophy to those things you mentioned, I'm happy to rephrase: the philosophy of Bitcoin is thus that there is no philosophy. Think of it this way: if you have a rule that says you have no rules, you still have one rule that there are no rules.
From another angle, would you say that a car engine has a philosophy? No. But the designers had a philosophy when they designed it.
edit: Further analogizing with human designed artifacts, such as a towel or a laptop, I think this is a debate on semantics. An object can't have a philosophy, but it can embody or reflect one.
In the relationship between Bitcoin and it's users/developers/miners/nodes there are of course the ideologies of each individual interacting with the protocol (libertarian, anarchist, etc...). Then of course there is the protocol itself. Then you can step back and look at the whole set of individuals each having their own (potentially hostile) philosophies, but still interacting with the protocol in the same way (i.e., they are following the rules) to achieve distributed consensus. How do you categorize that phenomena (embedded was the wrong word choice)? That is the question that I was referring to with the comment "philosophy of Bitcoin."
Now, let's address some points in your post.
>If the developers or miners could freely enact change on the network, then there would be a fuzzy line between the design and the implementation, and you could lay the philosophy on the implementation.
Not one miner is in control? The two largest pools (Discus, ANT) are both located in China. Ghash just shut down it's cloud mining to take back control of the hashing power because of low prices.
Eligius, a pool known for extending the will of Luke Jr. (submits to Bitcoin Core frequently) can change IsStandard to exclude OP_RETURN or Mastercoin transactions or whatever else. That is emergent behavior that is a result of someone's will.
Blockstream has a handful of core devs and many influential minds in the space on their team to work on sidechains. Who knows what that will end up causing? Maybe a split in allegiances and a hard fork? You give Bitcoin more credit then is due. It still requires human input, after all.
edit: we are arguing different points here, let's leave it at that.
I mean all these hashes are nice and all, but the little magic math hash.. is about as valuable as a painting. Whatever the idiot gives for it.
Imho, if there is a real product developed with the donated cpu power in exchange for crypto coins which stand for a money value in relation to the developed product/medicine etc.
Like combining distributed computing, crypto currency and a product (e.g. medicine) which we could all benefit from. And those miners aren't simply wasting electricity.
Yes i consider bitcoin, and sort in current form, mining a waste of electricity.
Bitcoin is similar to a pyramid scheme. Started mining early? You are rich! Started mining yesterday? you are screwed. And the more people get interest, the more fopping rich (i still think bitcoins have zero value), increasing value their mined coins will have.
Don't be so naive please.
Don't be so stubborn please.
The actual hashes are pretty worthless, but that's the service mining is providing. Personally, I think it's kinda worthless to build a bunch of skyscraper on perfectly fine land just to fill with people working for some bank, just to keep my $ secure. For my intents and purposes, having a bank company (with employees, offices, leaders who get compensated like kings, etc) is a bigger waste that I can't wait to get rid of. Same with my VISA debit card, employing thousands just to let me access my money. Also charging a 3% fee on every transaction.
If only there was some kind of network of computer programs that could replace those people...
This has to do with bitcoins, exchanges (the 3% fee people mentioned before). And people that are about to stuff their money into a futile idea. And don't pretend your comment is contributing in any way.
People doing bitcoins now, people starting the exchanges, online wallets etc, take the exact same positions as bankers have/had now. Pretending they know it all so well and right. And soon they too will take from you just as bankers. This exchange is not going to bring any change to bitcoins, it's just the winklevoss brothers trying to make the news again, and hope they finally have a product own besides a shitload of lawsuit money.
“I'm quite openly against [proof of work] mining as the future of digital currencies based on the amount of energy it wastes, and damage it does to the environment – without giving anything back apart from making the fiat rich richer.”
-- Jackson Palmer, author of Dogecoin.
And i share this point of view.
Does replacing Bitcoin's logo with the picture of a cute dog now make you some sort of authority on distributed consensus algorithms?
> And i share this point of view.
And just like him, you don't even understand PoW.
> consensus means all members of a party agree upon something. Not just 50%+1, majority rule.
Actually, consensus means "majority opinion". And I don't know where you got the 50%+1 expression from anyway, or why you think it matters . What are you referring to, exactly? Would you say there isn't consensus for the validity of the theory of evolution, just because initially, or even today, someone disagreed?
No more than owning some Bitcoin makes one an authority on monetary economics and finance.
Consensus, from the old latin, consentīre, to feel together, agree.
Something everybody in 'a party' can agree with.
"An attacker that controls more than 50% of the network's computing power can, for the time that he is in control, exclude and modify the ordering of transactions."
-- https://en.bitcoin.it/wiki/Weaknesses
That's 50% plus one, and that's certainly not a consensus, that's majority ruling. Perhaps you don't know as much about bitcoins as you think you did/do. And if you read the link you'll notice some more issues.
And those are mainly technical issues, not even the unfair investment in power, hardware. Simple example, electricity in my country is so expensive, if you'd find a bitcoin, it would hardly cover the costs of the electricity that i spend on it.
Consensus and majority ruling are not the same. We, you and me, probably won't come to a consensus about this. But if one of us was significantly stronger then the other, you could do a majority (in muscle power) ruling and claim your way is the only way to go, and everybody should stick to that (and yes there will be very unhappy people in that situation, the other half).
The quoting of the opinion of the dogecoin author, merely is to indicate there are more people that think like me. Even authors of crypto currencies with funny dog logos. So no it doesn't make him an authority; though i think its safe to assume he is somewhat more knowledgeable about crypto currency than the average greedy miner that just buys a few GPU's and starts mining in hope of (highly speculative, e.g. previously referred to, paintings.) fortune.
http://en.wikipedia.org/wiki/List_of_cryptocurrencies
Why do you think there are so many different crypto currencies. They all are greedy and want to harvest as much in the early stages of their mining, maximum returns on investments. Or sit in that place where banks are at in our current position. (what the Winklevoss brothers now want to be).
And if i don't seem to understand, in your eyes, what proof of work is, then please elaborate. Tell please try to enlighten me about the actual work that is getting done with bitcoins (or other crypto currencies)? What is this work exactly, because as far as i have understood over the years, it's a useless hash. Art like; Art that gets created on resources, we ruin our planet for.
Only thing they managed so far in my opinion is to create a somewhat, (its not,) anonymous payment system that allows the selling and buying of things that are generally illegal. (if those things should be illegal is a different discussion).
So to get back to evolution theory, there certainly isn't a consensus on this around the world. Else why are there still people that frantically fight that idea, and claim there is a creator? People are killing each other every day over this? Trying to do a majority ruling.
Have a good and happy mining weekend :)
I won't fight over a stupid dictionary definition, but in case you want to know: The one I used I took it from one. Now what? Do you have any algorithm so that we can achieve consensus on this, or I'll have to accept what you say as a doctrine? The fact that you insist so much on a definition makes it clear that your argument is pretty weak, you have no clue how to attack Bitcoin anymore. You just have an irrational hate against it and want it to go away.
And I don't consider any of those coins "investments". They are redundant, they don't do any significant thing that Bitcoin doesn't, and Bitcoin has a much larger network effect, which is one of the most important things for a protocol and a currency.
> That's 50% plus one
Since you keep saying that, let me explain that simple majority isn't 50% plus one, it's >50%. For example, if we have 9 participants, the majority would be 5, not 5.5.
> Why do you think there are so many different crypto currencies. They all are greedy and want to harvest as much in the early stages of their mining, maximum returns on investments.
Yes, people are greedy. Some try to innovate, some just copy/paste the code, like your beloved dogecoin. But what's your point anyway?
> And if i don't seem to understand, in your eyes, what proof of work is, then please elaborate.
It's an algorithm for achieving distributed consensus, and the cost is those hashes. If you think distributed consensus is worthless, that's a separate issue and you should discuss it as such.
> Only thing they managed so far in my opinion is to create a somewhat, (its not,) anonymous payment system that allows the selling and buying of things that are generally illegal.
Cash is much better for illegal activities. Do you know who said this? The FBI. But your hate is too strong to accept this.
> So to get back to evolution theory, there certainly isn't a consensus on this around the world.
I'm talking about the scientific community, obviously. What do I care what preachers or soldiers say about a scientific issue?
> Have a good and happy mining weekend :)
What makes you think I mine? I don't mine Bitcoin, just like I don't mine gold.
You read things that are not written. :D :D amazing.
Says the guy who confuses "then" with "than".
http://bitcoin.stackexchange.com/questions/20879/why-cant-we...
And just because something has been discussed more often, doesn't mean it should not be mentioned at all?
What it comes down to is that I don't think every story about bitcoin needs to have a bunch of facile criticism of bitcoin attached to it. Criticism specific to the story is great, as is well thought out, deeper criticism.
Who are the fools who exchange cash for them? Why do they have any value? Some people say you can use them as currency. You can use dollars as currency. Or gold. Some say it can transfer money, but so can wire transfers. Perhaps it is decentralized (who cares? Not I. Wire transfers work for me) etc. But gold has value, while Bitcoin has nothing. I remember during the dot bomb days when there were commercials for Flooz and Beenz.
The leaders in the Bitcoin community are being sued and jailed for fraud, the price has gone from $1100 to $230, yet suckers are still bamboozled to trade cash for these worthless hashes. It will go to $115, then $57, then eventually $0. I doubt all those who already lost money or who are being jailed will learn anything.
I mean I would never put my own money into something that is more volatile than the share market. At least in share market I can see it coming, except rate crashes and when that happens everything goes down not just my own holding.
It Bitcoin it can be a bug, a hack, or just many Bitcoin holders dumping Bitcoins. Also it never made sense to me that I could have been richer if I had access to those fancy super-fast CPUs to "mine" the Bitcoins. Maybe I missed the gold rush but then again I don't want to encourage another absurdly overpriced commodity which really have no meaning (or rather say "value") in real world except some overenthusiastic people and the "hoarders" trying to push it up.
So that's where your hate comes from. I see...
No, you don't see. You are just being casually snarky.
Because I bought a pair of Sennheiser headphones from a local audio equipment selling website and this in bumfuck South Africa we're talking about. I doubt the merchant is even aware they accept Bitcoin as "legal tender" since it happened through PayFast and was completely transparent to them. The point is _I_ could use it as legal tender. So from my point of view it has incredibly amount of value.
Bitcoin is not legal tender anywhere in the world.
The long and stable history of the US government gives weight to these promises.
That these worthless hashes still have people paying $226 a pop for them is a sign of all those things stated here on HN of all that loose money sloshing around due to monetary easing. It reminds me of all those subprime loan billboards I saw in the ghetto in 2007, or the pets.com Super Bowl commercials, and other such bubbles. The kids who did Dogecoin created a $14 million market cap with some goofy 4chan pictures and memes. The $3 billion market cap for worthless Bitcoin hashes are equally ludicrous.
Why are Bitcoins collectively worth $3 billion? It is an unanswerable question. The same reason the subprime real estate market, or Pets.com-type dot bomb stocks, or Dutch tulip bulbs for that matter attained crazy prices. Bubbles happen. This is the first time I can recall that something completely worthless became worth $3 billion though ($13 billion before the scam started unwinding).
The answer to the question of why fiat money has lasted for 44 years is too much to go into in an HN comment. It can be answered in a questions like you did though.
Why, with 10000 years of civilization, if it is possible for a state to create non-precious currency of a lasting like gold out of nothing, why if this can be done, did states only start doing it in the past 44 years?
The US allowed dollar to gold conversion prior to 1971, if the dollar really is priced on its own accord, why does the US still maintain over 10,000 tons of gold in Fort Knox and other facilities?
In 1971, an ounce of gold was worth $40, today it is worth about $1290. Conversely, a dollar in 1971 would be worth about seventeen cents today. Why did gold retain its value but not the dollar?
You can pay your taxes with it. It's really just that simple; that's what gives fiat its value. Your government accepts it, thus it's backed by the productive capacity of the country.
Because people want them. And why do people want them? Because they find them useful for transferring wealth (see the remittances market: people no longer have to pay 10% or more to Western Union and banks), and as a store of value. It doesn't matter that you don't find them useful, or that you write angry comments. If you don't like Bitcoin don't use it, just like you don't use many other things. Unlike fiat currencies, Bitcoin is 100% voluntary, there's no violence involved.
Are people actually using bitcoin for remittances anywhere on a large scale? It seems the hassle of converting to and from bitcoin in the areas remittances are typical doesn't outcompete the X% fee until bitcoin is much more widely accepted.
If bitcoin was accepted everywhere or it was perfectly easy to convert to another currency, yes it would be great for remittances, but as things stand what advantage does it have in most cases?
Also, western union uses computer networks too, they don't actually physically transport cash.
But to most people none of that makes much sense if you don't even grasp what bitcoin is and why it matters. Hell I couldn't even be bothered reading about that if it didn't matter. Only once you grasp why it matters can you get into the technology and economics and see if it still adds up. And you generally don't want to start with the question of 'why it matters' from a highly technical research study.
But this op-ed is titled exactly that: 'why bitcoin matters'. I think it's an excellent place to start thinking about bitcoin. I use the word research in an informal sense, hence the word 'basic research'. ('looking into something') Sorry if that was misleading.
Now you can say 'he's biased, he is heavily invested'. Or you can say 'He is heavily invested because he is willing to put his money where his mouth is and make a big bet on this technology and not without good reason'. If it was a short-term bet, your criticism is valid. (I invested in A, I pump A, I dump A, I profit deluding others). But this is a long-term bet, you don't generally make those unless you genuinely believe in its fundamentals. And it's not just an opinion, but a large bet, there is money at stake.
So I'd say the op-ed is very valid, perhaps much more so than someone who isn't invested in the outcome and thus has no risk saying something completely wrong, unlike Marc.
How can you even claim to know what sort of bet it is? I don't believe Mr. Andreesen is nefarious, but I fully expect him to talk his book. It would be foolish otherwise.
As far as his Op-Ed, I find this interesting:
"Target is happy because it has the money in the form of Bitcoin, which it can immediately turn into dollars if it wants, and it paid no or very low payment processing fees; you are happy because there is no way for hackers to steal any of your personal information"
Let's put aside the fact that people having their accounts hacked and Bitcoins stolen, amounting to hundreds of millions(?) of dollars is all over the news. We can also put aside the fact that "immediately turn into dollars" requires a fee, somewhere. How do I get a refund if need be? Target needs to record that information regarding my purchase, then we're back at square one: my information on the system of some retail operation, waiting to be stolen.
>Feel free to start there if you want.
Start where? Bitcoin proponents are going to have to do a better job selling the technology than "Go research it". I Google it and end up in /r/Bitcoin, which is a hell-hole. If understanding the importance and use of a technology involves independent research and attending conferences, no one will bother. The Bitcoin advocates need the public to understand the tech if they want it to go mainstream; Mr. Andreesen gets this, that's why he's writing Op-Eds in the NYT.
I find the technology fascinating, really. Especially with regards to the idea of information and contracts being passed through the blockchain. Yet every sales-pitch is about Bitcoin as currency, and I haven't seen very many compelling use-cases there yet.
This is exactly the type of thing people were saying in 2000 just before the dot-com crash - that all the old fuddy-duddies who were talking about revenues and earnings instead of eyeballs "just didn't get it".
On the subject of value, the "another view" piece says:
> Bitcoin is a digital currency, whose value is based directly on two things: use of the payment system today – volume and velocity of payments running through the ledger – and speculation on future use of the payment system. This is one part that is confusing people. It’s not as much that the Bitcoin currency has some arbitrary value and then people are trading with it; it’s more that people can trade with Bitcoin (anywhere, everywhere, with no fraud and no or very low fees) and as a result it has value.
I don't disagree with the speculation part (although speculation increases price, not value). The other part is what is nonsense. Yes you can trade it - but I can trade gold as well. Gold has had value for 10,000 years and I feel pretty safe holding it. Bitcoins are worthless hashes, and I wouldn't feel safe at all holding it, especially since it went from $1100 a Bitcoin in November 2013 to its current $230. I was saying as much here when Bitcoin was twice its current value.
"People can trade with Bitcoin and as a result it has value". No. Every commodity was traded at least once - otherwise it wouldn't be a commodity. It's traded because it is useful to someone. Currencies are just commodities with certain aspects that make them good currencies: durability, portability, divisibility and uniformity. Or pieces of paper that you can trade for such currencies.
The price of Bitcoin has halved since I said it was worthless here. Looking at your first HN post, you were telling people to buy it when it was over $600. People who listened to you would have lost 60% of their money. I'm the one who "doesn't get it" though.
Please, don't put me in the group of people screaming 'you just don't get it', trying to hype something. That wasn't my point at all. I merely said that proper research about how X works makes no sense if you don't even know why X matters in the first place. It's like teaching a robot how the internet works when it doesn't grasp why the internet matters in the first place. It's not an argument that says 'you just don't get it', it's just me saying 'people can't be bothered to read about how bitcoin works if they don't even care because they don't know why bitcoin matters'.
But fine turn it into a red herring then attack me and compare me with now famous idiots in the 2000 recession. Great point.
> Looking at your first HN post, you were telling people to buy it when it was over $600. People who listened to you would have lost 60% of their money. I'm the one who "doesn't get it" though.
Looking at my first HN post I can't see me telling anyone to buy it at all. Now I can see why you don't get it, you've made up your mind and you color the entire world around you to support that point.
Anyway I'm glad you pointed Gold out, the thing valued way beyond its industrial value, as the awesome example of something having value for its usefulness, when a global decentralized ledger which can't be forged, has durable, portable, divisible and uniform tokens, apparently is useless and has no value because it's brought about by 'worthless hashes' (which obviously aren't worthless because millions are spent on doing them and they offer the qualities of security of said ledger, you know, sort of an important and valuable component)
It's also great you pointed gold out when Gold, like Bitcoin, when adjusted for inflation was priced at $1200 at one point, and traded at $350 at a later point. Hell it was closer to $2k even. Even when not adjusted for inflation that's literally about 60% lost, hey almost like bitcoin?
And like bitcoin, if you actually zoom out and not cherry pick particular timeframes (like say, in the past few days when if you had $100k in bitcoin, you'd suddenly have $130k, because volatility goes both ways), you'd see bitcoin grew in price by 100x in 2013, and thousands of x over the past few years. I think everyone of us will sign up for a couple thousand x in a few years, no? But hey, better just cherrypick when something bad happens, then dig to someone's very first post (I wonder if you read them all?) and then lie saying I told people to buy bitcoin when I didn't. Your silly argument would've had as much value as when the price of bitcoin crashed from $30 to $2: none. Unless of course that was the end of the story, but it wasn't as bitcoin later went to $260 or $1200. That it's volatile and risky is a given, nobody denies it, and it's the very reason I recommend to almost everyone I know to buy bitcoin.
Anyway don't take these points as me trying to justify bitcoin by its price, I'm merely putting context to your ad hominem attack ('oh look he tried to sell you bitcoin and the price went down! what a fraud! and bitcoin too!'). I wouldn't mind as much if I had actually told people in my first post to buy bitcoin, when I didn't. In reality, I'd only encourage someone to buy bitcoin if they understand the risks, can handle the risks financially, and have a specific user case (whether it's long-term investment, or buying bitcoin for a few minutes to use it to transfer value quickly and cheaply for remittance using the network as a fiat-to-fiat international transfer that can beat WesternUnion rates).
If you don't feel safe holding bitcoin, that's completely fine by me, it's a very valid point and I'm the first one to say that billions of people today would feel the same and I'd agree with them, too.