Is there some reason I need to do more than laugh at the victims and move on.
Like usual when multimillionaires get robbed while trying to dodge government controls.
Going to be?
My basecase: bitcoin and the major altcoins bust in 2018, taking ICOs and most of the blockchain hypechain with it, but a handful of actually useful applications of the tech carry on, and become very important in their fields ni 5-10 years. Basically the dotcom bubble all over again, but more niche.
There is a nut of some interesting technology ideas involving blockchains that could potentially have applications that would be useful to explore. In short, by allowing for the synchronization of data structures across a multitude of systems without requiring any single one of those systems to be "in charge," the tech enables the development a unique class of applications, the properties of which we don't yet understand. The first of these applications to be developed involved a system for tracking and transferring the the ownership of digital pogs - aka, Bitcoin. This capability was latched on to by crazed Ron Paul fans who see it as a tool for overthrowing the Fed, as well as by online drug dealers.
It was the online drug dealers who found the most actual use for it, and for a time the thing actually worked as a semi-functional currency given that specific context. The Ron Paul fans, for their part, were content to just keep buy the stuff and never sell it. Its digital gold! However, it was not libertarians or drug dealers that actually created this wealth, except to the extent that many people from those groups also belong to the group that is now running the show: outright charlatans. These are the people who have basically figured out how to manipulate prices on the various cyrptocurrency exchanges, in large part by "printing money" in a way that would make the Fed ashamed.
The dirty secret that everyone knows is that a huge portion of the various cryptocurrency being traded is not being exchanged for actual money, but rather for something called "Tether," which have been created on the premise that every Tether in existence is backed by hard fiat currency in the form of a US dollar sitting in a bank account somewhere. Oddly enough, that bank account has never been audited, but the full faith and credit of the Tether Company seems good enough for teh market.
And yet, somehow a whole bunch of Tethers magically come into existence before every hike in the price of Bitcoin. So, these Tethers have been used to bid up the price of cryptocurrencies beyond all reason, and this has been magnified by a level of media hype that has brought in dumb-money "investors" out of the woodwork. This has had the infuriating effect of making Ron Paul fans very rich - at least on paper.
However, the cracks in the whole thing are showing as it becomes more and more apparent that actually extracting money from this system is very difficult. Bitcoin's usefulness as an actual currency went out the window months ago, as the price of conducting transactions has gone through the roof. And of course, the computers behind it use as much electricity as Ireland.
The whole thing is so goddamn unsustainable.
13.1 is a magnificently qualified statement. Thing is, AIUI, the libertarian stupidity is built into Bitcoin, where the total money supply is capped, for no reason at all save latter-day goldbuggery. Similarly, the blockchain is designed to be "trustless" with authorities, for apparently no good reason; and the production of currency is linked to computing power, just to avoid having a fiat currency; and seemingly all the ventures outside the banks are aping Bitcoin.
If I understand the OP link correctly, the way this hack happened arose directly from the ideology: running code on the Ethereum network entails expending Ether (not as part of paying the bills for the servers or anything, just built into the currency itself, again for no apparent reason); developers accordingly designed wallets to be as terse as possible, including library calls, which were exploited by the attackers.
by allowing for the synchronization of data structures across a multitude of systems without requiring any single one of those systems to be "in charge," the tech enables the development a unique class of applications, the properties of which we don't yet understand.
As a distributed system jock, I must (MUST) demur. What is described above has been possible since 1987 (Lamport's Paxos paper, Oki's thesis work), and implemented at massive scale by many companies, most notably Google (Spanner database) for decades. Spanner itself is such old-hat tech that Google published a paper about it (the only way Google's tech ever gets published, is when it's old enough that it no longer is worth keeping secret).
What *is* (or is supposed to be) new about blockchain, is that the systems (computers) are not necessarily trustworthy -- and some percentage of them can cheat, without the entire system crashing to a halt in incoherence, or giving false answers (technical term: "Byzantine Fault Tolerance" (BFT)). I said "supposed to be" because it's actually a serious question whether BFT (in the theoretical sense) actually yields any real-world sense of BFT (that is, that in fact computers in the real world can be run by mutually untrusting parties and still reach decisions in a consensual manner (e.g. agree on the balances of money accounts).
There are *no* good (legal) applications for BFT -- so we're left with Paxos, and again, that shit's been bog-standard for decades.
15 is on target. Bitcoin is essentially a distributed ledger without centralized trust and some fault tolerance for "bad" nodes, The novelty doesn't lie in "distributed" or "ledger" parts, at all.
Is there any novelty in the "crypto" bits. The mining part I've interpreted as purely ideological, a substitute for gold reserves. The block validation thing I've never really understood. Does it have any actual usefulness?
I been joking at work that what we really need is a inverse/leveraged exchange traded fund of marihuana stocks, denominated in Bitcoins. (It's a very conservative firm, from an investment perspective, and we're not allowing our brokers to solicit trades of any of the above sort of securities. This message brought to you by the Standpipe & Exchange Commission.)
17: the distributed consensus approach is interesting,yes. More for its potential than current implementation. The mining is necessary for this to work, currently, although people are working on other approaches.
17: I think you're asking several questions, so I'll answer them separately. The "crypto bits" actually come in three parts.
TL;DR: the only "useful" crypto bit is the "chained-hashing of blocks". The mining is strictly nuts.
(1) identity in all blockchain systems is via public-key cryptography. All tranactions are signed via public-key crypto. This isn't new; you could imagine doing that in a normal relational database. But further, in these blockchains there is no "identity" separate from the public/private key. Which is ..... nutty, b/c in no computer system prior to blockchains, would an identified user be "onboarded" (== allowed to use it) without first providing some other identifying bit of data. e.g., a username. Or an email address. Or at a company, their employee ID, and signoff from their manager. This isn't new or controversial -- just .... weird. But then, if you want a system where people can sign up willy-nilly, yeah, you might dispense with usernames, and make everybody pseudonymous. Think of it like mailinator.com, but on steroids.
(2) hashing the blocks in the chain. This isn't such an awful idea. Basically, you've got a replicated database. So all the copies are supposed to be identical. In-sync [with certain caveats, but let's ignore that for now.] But suppose you want to allow the possibility that replicas get out-of-sync -- how would you detect that? You could compare the entire disk state of two databases and if they're equal, they're in-sync. But that's infeasibly expensive. How about you take a *checksum* of each database, and just compare the checksums? That's great -- except that doing that every time you want to check in-sync-ness, is not cheap either. Well-designed databases have a nice property, though: their state can be thought of as the effect of starting with an initial state (the 'genesis block') and applying changes to it in a determinstic sequence. Those changes come from "blocks" in a "log". Thnk of it as a consecutive sequence of numbered index-cards. So now, we could put a checksum on each card, and that checksum would be of the the card, and the checksum of the previous card. Now, as we change the database, we end up computing a new checksum, but it's cheap. And it's always maintained. So comparing two databases to see if they're equal is .... cheap. You could also use this checksum as a way of much, much later, verifying that nobody had gone in and tampered with the database. So, for historical auditing.
But you could do this in any replicated database. There's never been a good reason, b/c up until blockchain, all the replicas of a database were controlled by a single authority, and "BFT" was never a concern (there is not, to my knowledge, a single commercial application of BFT outside of blockchains, and it's not clear that blockchains count as commerce -- does kidnapping count as transportation? j/k)
(3) [the one to which you were referring, probably] the "mining" process involves some sort of hashing, which I won't get into, b/c this comment is long enough already. But it's also referred t as "crypto". This hashing actually has very little to do with the above two aspects, though it does depend on #2. This "mining" is a substitute for having a designated "leader" who decides which blocks to put in that "log" (from above) and in what order. And in short, it's (a) a mad, mad way of doing it, (b) only useful if you literally want to [pretend to] avoid the need for -any- coordination amongst the people running the replicas), and (c) there are well-known protocols (the BFT versions of Paxos) that could be used and then completely eschew this "mining" bullshit.
To answer about "mining" vs "gold": mining isn't actually a way of making BTC like gold. You could imagine a version of BTC with a fixed supply (in theory, that'll happen when 21 million BTC have been mined) or one with an infinitely-growing supply (ethereum is like that). What you can't imagine, is one where the supply of BTC is controlled by some central bank, and can be grown/shrunken based on policy considerations. Because the people who invented BTC specifically thoght that was .... morally unacceptable. That's where the goldbuggery comes in.
21: That's very useful, thank you. Could you please expand on (3.1), if you have time?
TL;DR there's nothing "decentralized" about BTC/Ethereum consensus: the software is written by a small central group, and almost all operators (== "miners") have no idea how it works, and could *not* afford the staff to actually analyze and stay up-to-date. The power to control the software running BTC/ETH, is the power to control the blockchain, and we know this from real lived experience.
I guess I should address why "distributed consensus" in the BTC/Ethereum world is ... insane. It's actually not that hard to see, from a metaphor. There's an old joke "you don't have to control who gets to vote, when you instead control who -counts- the votes". So you could think of the BTC guys as wanting to invent a way to conduct elections, without having to appoint vote-counters. Or even decide who's a voter. Their idea is, the "populace" (== all the miners) decides who won, and by gossipping about it, eventually everyone comes to the same conclusion. This -seems- really great (skipping past the details of how they accomplish it) EXCEPT for one really important thing they set aside:
Each voter counts all the votes, and he does it using a *program*. That program got written by some smaller group of folks. And most (nearly all) voters lack the skill or resources to analyze that program to make sure it isn't cheating. In effect, the smaller cabal is counting the votes. And so there's nothing decentralized about it. Nothing.
And we have a real-world example of this happening: the "DAO hack". The Ethereum folks deployed this "DAO" to manage money, and the idea was, you had no humans to interact with, just this program. So if the program said you were getting paid, well, you got paid. Period. But then some guy found a bug in it, and stole $50m (accurate? it was millions)
SUDDENLY the leaders of the DAO, and the inventor of Ethereum, decided that they must change the software (a "hard fork") to take that money back. To go back to your metaphor, they stopped the vote-count, changed out all the software, and started it back up. Of course, some of the miners didn't want to change (but many, many did). This is all insane: The idea of "decentralized consensus" was that no appointed controlling committee could control the fate of the blockchain (the election). So instead, you got an unelected cabal of cronies doing it.
Progress!
"you neither have to control who gets to vote, nor who -counts- the votes,when you control the voting machine software!"
23: Thanks again. Is there a distinction between ledger changes recording the creation of currency (what I've previously understood to be called mining) and changes recording the transfer of pre-existing currency from one party to another?
22: Mossy, lemme try. It might get too abstruse, but I'll try.
(1) like I wrote above, every blockchain is effectively a database, and every decent database is based on a log. The log is what is replicated -- the rest of the database is just the effect of "interpreting" the log-records and applying them to some set of tables. All of this equally true of bitcoin and of Mysql on your Linux box.
(2) So it's all about that log. What's a log? It's a consecutively-numbered sequence of records (= "byte-strings"). And a "consensus protocol" is a way for a bunch of computers to agree on what those strings will be. So that if you ask -any- replica "what's the string at index 42" you'll get the same answer. And of course, you want the highest-numbered index at which there is a non-empty value, to increase with time -- this is called "progress" or "liveness".
(3) How can we achieve this? That is, how can replicas agree on what the "next" empty index will be filled-with, in this sequence? Obviously, they'll "vote" on what the next value will be. And there are protocols (Paxos, BFT) that do this, but they require something that's anathema to crypto-nutjobs: all the replicas have to be known and registered in some list, that is, again, known to all the replicas: a "whitelist". The nutjobs want replicas to be able to freely come and go, and still get to "vote" on what the value will be.
(4) But this is now really, really hard. B/c when two different replicas have different ideas about the value they want for slot 42, how does the system decide? In real life, we have voter rolls, and we count votes. But remember: "no central vote-counter, no voter-rolls". So that won't work. So instead, the way blockchain does it, is that whichever replica wins for their value at slot 42 (by basically convincing other replicas to accept that value, let's not worry about how), will get paid some money, but only after two things have happened:
(a) at least 100 more blocks have been added (so we're on block 143 or later AND their value for block 42 is in that slot)
(b) it's -hard- to create a block, that other replicas will accept (this is where "mining" comes in), so basically all replicas are rolling a low-probability die to create the block.
(5) So now, imagine that two replicas (A, B) win the dice roll in #4.b (since this is completely decentralized, nobody communicates with anybody else). They send around their blocks (blkA, blkB) (for slot 42) to other replicas, and those replicas check the blocks to make sure that they're kosher (#4.b checks out) and accept them. Why wouldn't this result in two warring cliques of replicas with different logs (starting at slot 42)? Well, *everybody* wants to get paid when they win the dice roll in #4.b. So if a replica could only guess which of the two camps (camp blkA and camp blkB) is going to have the largest # of replicas in it. B/c that will be the camp which is able to extend its log fastest. And nobody gets paid for adding a bock, until 100 more blocks have been added. So every replicas has an incentive to be in the camp that is largest. This "natural economic incentive" is enough to make replicas that aren't trying to commit fraud converge pretty quickly to one or the other of the camps, b/c if one camp gets even a *little* further ahead, it's going to win big.
(6) Here's the thing: for all of the above to work, you need for the frequency of occurrences of "more than one replica simultaneously creates a valid block for slot N" to be really rare. This is where "mining" comes in. And basically, it amounts to ALL the replicas madly rolling dice as fast as they can, trying to get snake-eyes. And if more computers are added, then the "difficulty" is recomputed to make the dice-roll harder.
That's *insane*. Add more computers, and the system doesn't get faster, or able to hold more data, or anything. The GOAL of the protocol (to achieve common agreement (== "consensus") on the log REQUIRE that as more computers are added, the protocol SLOWS DOWN. It is INTRINSICALLY WASTEFUL and INTRINSICALLY NON-SCALABLE. That's NUTS.
BTW, they do have these cray-cray ideas for what they call "proof-of-stake" that will supposedly fix all this. I've read some of the descriptions, and pithily,they don't know what they're doing, and they don't know that they don't know what they're doing. They don't understand how to prove a protocol correct, and I doubt that that's going to change anytime soon. The idea that you could run anything relevant to the world, on systems designed by these children is laughable.
I just want to say that I have learned more from this thread than from anything else I have read in the past year. Thank you Chet and Mossy
24: answering your question about "creation" vs "transfer".
The only distinction is "how long you have to wait before anybody else will believe that you actually have the coin".
(1) in the case of a transfer, in theory you have the BTC right after the transfer shows up in the blockchain. You're selling a Maserati. I walk up, use my computer to send you some BTC. You check with your computer that the transfer came thru. You hand me the keys. I drive away.
THEN OH NOES b/c you were unlucky, or I cheated, that tran is "undone" (it's called a fork) and now you no longer have the BTC. Ouch! [must note that what you wanted was "settlement finality" -- when the system says you got paid, you *got* *paid*. BTC doesn't offer it -- instead, it gives you a probabilistic guarantee.]
How do you prevent this? Well, you wait until "enough" more blocks come out in the log, AFTER the block in which your tran was recorded, that you're confident the log won't change. It's a probabilistic argument, basically, that after enough blocks, it's all good. Suppose ten blocks come out in the log, and your tran is still there in the place you saw it before. Now, for somebody to rewrite the log, then have to modify your block, and the ten that follow. that'd 11 dice-rolls they have to get snake-eyes on. And meanwhile, they could be adding blocks to the existing log, and getting paid. Your Maserati better really be worth it ....
(2) in the case of creation (== "coinbase transactions") the created coins aren't recognized by other miners (so they can't be used in "valid transactions") until 100 more blocks are appended. That means that 100 * 10min (which is about the frequency at which a miner somewhere on earth will create a valid block (== "dice come up snake-eyes")) or the better part of a day. Why? That's part of the "economic incentive" to get miners to all converge to a single version of the log -- so they can get paid faster.
BTW, that 10 minutes isn't a joke. It's actually 10minutes. And 2megabytes per block. at about a kbyte per tran, that gives us .... SIX trans per second. And like I said above, it's *designed* to not get faster as you add more computers. *DESIGNED*. They have this plan to increase the blocksize to 8MB. Whoo! 24 TPS! Whoo!
Idiots.
Good god. WRT to "dice-rolling":
1. In terms of creating BTC, I understand it thus: each bitcoin is one of 21 million unique numbers. Acquiring such a number entails "rolling dice" until you find one; this is what btc mining server farms are doing. This is nuts, but I think I get what's going on. (And look forward to finding out I don't.)
2. How does rolling dice have anything to do with transactions?
a. As Chet described it, each block is a hash (or hash-of-hashes) representing all transactions that have been entered in the ledger over a given period.
b. All the nodes validating submitted blocks are therefore checking the submitted hash against a hash generated from its own copy of the ledger.
c. How does dice-rolling enter such a process?*
d. The nodes are voting on the correctness of transactions. In absence of proofs of identity, what information does the node have with which to evaluate?
*I'm feeling this question indicates I don't understand how cryptographic keys work.
Mossy, it's OK, it's all insane, so there's no good reason why anybody who's computer-literate would understand, unless they wasted the time to become knowledgeable about it. I wasted that time. But it *was* wasted. So ....
(1) a block just contains a list of trans. each tran specifies a transfer, and one tran will specify the coinbase "creation".
(2) I'm using dice-rolling as a metaphor for what actually happens. So now, I guess I'll explain what actually happens.
(3) You know how checksums work, yes? You have a string, and you have a function that computes an integer from it, right? One way might be to treat all the characters as integers (8-bt integers) and add them up, say modulo 2^32. Or whatever. There are lots of others. We also call this "hashing". In the cryptography world, they care a lot about two things:
(a) we want that two strings that are close together (don't differ by much) are still mapped to different hash-values. This is of course impossible in general -- the space of strings is vastly larger than the space of (say) 256-bit integers.
(b) we want that given a particular hash, it is very, very difficult to discover a string that hashes to that hash-value. In short, we want the function to be difficult-to-invert.
(4) So now, suppose I have a pile of trans. How do I build a block? Well, a block would have three parts: (a) the hash of the previous block; (b) a 64-bit integer field, called the "nonce", (c) the trans, as a list/array/whatever.
(5) a VALID block (that will be accepted by other replicas/miners is going to be one where the block HASHES to an integer with some globally-agreed-upon (let's not worry about how we agree on that ;-) number of zeroes at the end. Say, the last ten bits of the hash have to be zeroes. Oh, and of course, for a block to be a valid block 42, the "previous block hash" slot in the block, better have the hash of block 41 in it, right? That's what's called "chain-hashing" (which is where the word "chain" in blockchain arises).
(6) Now remember, our hash-function is hard-to-invert. This pretty much means that in order to get a block with the desired property, we have to take the block we have, and start putting values into that nonce field. We set it to 0, then hash the lblock. Did the hash end in ten zeroes? Nope. Set the nonce to 1. try again. Still no joy? How about 2? Etc.
(7) each miner/replica will typically have a different set of trans it's trying to add as the newest block in the log, and each will be trying to divine a value for the nonce, that causes the hash of the block to have the desired number of zeroes at the end.
The reason I called this "dice-rolling" is that mathematically ,it's pretty random-looking (I'm no mathematician, but that's what I understand is happening) // pseudo-random, the function from the block of bytes, to the hash-value. So discovering the nonce value might as well be likened to rolling dice. Heck, instead of enumerating the nonce value as 0,1,2,3,etc, you might as well use a pseudo-random number generator. Hence, dice-rolling.
As you can see, NONE OF THIS has anything to do with transactions. It's ALL about ensuring that with high probability, only ONE MINER at a time is able to construct a block, that other miners will accept.
I'll answer the rest of your Qs next.
"21m bitcoin": each block has a consecutive number, starting at 0 (the genesis block). So there's a "schedule" basically, where blocks in some range (I've never looked it up, b/c don't care) say 0-N1 each create (coinbase) (let's suppose) 100 BTC, and from N1-N2, say 50 BTC, and from N2-N3, 25 BTC, then 12.5, and at some point, new blocks don't create anymore. It's not a matter of there being 21m -numbers-. Just that each block in some fixed range creates a fixed amount of BTC, and once all those blocks have been created, that's it.
I suspect your confusion might be partially b/c in all of this, nobody's answered "what IS a bitcoin? I mean, really?"
So lemme answer that. First, what is a dollar? It's a piece of paper, sure. But almost all dollars in the world aren't pieces of paper. Instead, they're values in rows in a table of a database at the Federal Reserve Bank. in that table, there are rows for each bank that is a Fed customer. The row could look something like ("WELLSFARGO", 10,000,000) or whatever. That line says that Wells has $10m on deposit at the Fed. When Wells instructs the Fed to pay Citi $1m, the fed decrements Wells' row by $1m, and increments Citi by the same. THAT is what dollars are -- rows in a database.
But this isn't the only way you could organize the table. You could instead have something like
owner: name-of-bank
timestamp: time at which tran occurred, down to nanosecond
value: dollars
[and the "primary key" (every row has to have a different value, and this is used to lookup the row) is (owner, timestamp)]
So now, Wells might have a BUNCH of rows in the table, and Wells' balance would be the sum of the value column for all those rows. And now, to transfer from Wells to Citi some amount, Wells would submit a tran that specified which rows to delete, and which rows to create. This tran would go in at a specific time (suppose trans execute in strict serial order, so each tran executes at a different timestamp) so the rows created would have that timestamp.
Why would we use this instead of the one-row-per-bank model? Ugh, I don't want to get into database stuff, but there are good reasons why you might choose this approach.
Anyway, bitcoin uses this latter model, albeit much more complicated. But at base, this is really it.
So how does a node validate a tran? Easy -- it has an up-to-date copy of this table in-memory all the time. So it just checks that when Wells submits a tran, all the rows-to-be-deleted are owned by Wells, and the sum of the value column of the rows-to-be-deleted is >= the sum of the value column for the rows-to-be-inserted.
For a miner to validate a list of trans, it just keeps track of the deletes and inserts, so that if a subsequent tran in a list deletes something that a prior tran in the list inserted, it can reconcile, right? It's all just book-keeping.
I don't want to turn this into a treatise on how databases work, so I'll stop here. But it's really very straightforward stuff in database-land. So again, the only interesting bit, is the way in which "who wins the right to add the next block" is decided. By this dice-rolling. everything else is bog-standard.
I'm assuming this is all done in SAS so normal people can follow it.
For the financial industry, Bitcoin has served as a proof-of-concept of the possibility of distributed ledgers. Whether or not exchanges and centralized counterparties could have gone to distributed ledgers in 1987 or not is an interesting counterfactual, but only vaguely relevant.
I am super interested in this question, because one of my brothers has drunk the koolaid big-time on BitCoin, and has sunk a decent sum of money into it, I believe. He has such a smooth, authoritative style of conversation that I would be hopeless to push back on some of his notions, but I'm glad to understand a little better that he's nuts.
Also he didn't say anything about the mining of bitcoins, but he did say that something like 30% of the total aren't in circulation, and they're owned by the mysterious person who created BitCoin, and all signs point to that person being....Elon Musk. At that point I squawked at him, "Just because it would make a good novel does not mean it's actually what happened."
This thread is taking me forever to read.
Heebie likes to see her brother's nuts.
I wonder when the last time was that I saw my brother's nuts. We stopped sharing a room around 1982.
So essentially one earns btc by finding nonces?
Hey your brother probably read a blog post ghost co-authored (not using his name) by the person I just stopped working for. I was around when he was talking about writing that post, and that theory.
If your computer rolls snakeyes and you're wearing a skirt, you can get pregnant with a bitcoin which is the only way to make more once 21 million have been mined.
If I understand the OP link correctly, the way this hack happened arose directly from the ideology: running code on the Ethereum network entails expending Ether (not as part of paying the bills for the servers or anything, just built into the currency itself, again for no apparent reason); developers accordingly designed wallets to be as terse as possible, including library calls, which were exploited by the attackers.
Being able to run code in a shared, verifiable computing space is actually a useful idea, and using digital pogs to cover the cost of it is actually the best use of pogs I've seen. I mean, ETH pogs can have value by actually paying for a service, which is similar to how the US dollar has value because it can be used to pay taxes to the government. In contrast, the only value of BTC pogs is that some people think they have value.
Whether that service can actually used to run applications that provide socially beneficial functions is yet to be determined. The system has far more adoption, far more mindshare, and far more money being thrown at it right now than the precursors that Chet noted, so its possible something will come out of it. So far the main application they have found is launching and trading unregulated securities, which is both legitimately useful and highly problematic. There is also an application for trading pictures of cats that is so popular it has brought the system to its knees.
In terms of the bug in question, it is far to generous to say it was the result of using terse code. It was, in fact, because a function that should have been scoped as "private," was actually left unscoped, and thus by default scoped to "public". This is an example of language design that is perhaps inappropriate for code designed to support financial transactions in a public environment.
Among the many laughable claims of the BTC evangelicals, the gold standard one is the funniest. There are already hundreds of clones of varying value, including some that were made as a joke (Dogecoin) but still have significant USD equivalent value. At least gold takes billions of years and a nuclear furnace to create, any hack with a computer can declare an ICO and create new number snippets that have value if people believe they have value.
35. I was thinking I might bring this thread to the attention of a good friend whose son is bitcoin obsessed. He's worth between $1m and $3m in BTC depending on the time of day. Last time I saw her she was having a rant about how she wished he'd sell out and buy into an ordinary bubble like city housing; and the next day they dropped by $2,000.
The people most heavily into bitcoin are generally too young to recall the dot com bubble, and barely even remembers the 2008 economic crisis. Its unfortunate that these lessons must be learned over and over again.
On the other hand, if I had listened to these people in 2012 I'd be stupid rich.
Listening to Sifu in 2014, that was my mistake.
What's it like in the future? Is you-know-who still President?
No. We got all the horcruxes.
It was really hard to find the right disk so we just fyndfired the whole farm.
Thanks Chet for the clear explanations! Sucks that you missed the boat on investing. I think people here are smart enough to take the gratuitous-haterade parts of Chet's posts with salt.
I'll explain a detail he alluded to: how they're planning to increase the transaction throughput. It's called "Segwit", short for "Segregated Witness". The idea is that each stored transaction on the blockchain has two parts: the transaction itself, and the signature of the miner who verified it (that's the "Witness" part). But if all we care about is keeping a record of who has what coins, we don't really need every user/node in the network to keep track of the [hashed signature of the] miner for each block, so rather than hash the combined transaction-plus-verifier and make everyone store that, we hash them separately and save space in the block by only sending the hashed witness part to people that specifically request it. This lets us pack more transactions into a block which lets us get more transactions through the network.
Re: Bitcoin's use cases, here's a QZ article laying out how people are using cryptocurrency in the developing world as a way to keep their economy going under conditions of hyperinflation of the local government currency.
I have a dumb question (but have to alter pseuds because I have a genuine stake in learning the answer.)
There are apparently a bunch of computers at different locations in which this magic* resides. Presumably the computers are owned by someone, who is paying rent on the space and the power bill. Are such people Princes of BTC? How do they get selected and paid?
* I appreciate effort expended in crafting the explanations above, but am still in a state where Clarke's third law applies.
54 is a good question. What if somebody powered them all down, or a significant proportion of them?
I just want to say that I have learned more from this thread than from anything else I have read in the past year. Thank you Chet and Mossy
Thirded (forthed?), this is a great explanation.
I explained only the *computer science* issues behind BTC. For those with friends/loved-ones who are "investing" in BTC, this paper by Brian Manley debunking the "economics" of cryptocurrencies is really good: https://arxiv.org/abs/1312.2048 . It's *brutal*. Also, will be useless in convincing people to sell now while they can, b/c .... well, nobody ever convinced a goldbug now, did they?
Also, there's an entirely *other* set of insanity in the design of Ethereum. It starts with the fact that *every* Ethereum transaction is run on *every* ethereum miner. Which is .... insanity. And Ethereum's "state" (persistent storage) is not a btree, but a hash-lookup key/value store. So you can't build relational tables on it.
I'm not going to deconstruct it. But quite simply, there's a good reason only ICOs have been built on it: it's *intrinsically* unsuitable for building any complicated business logic applications.
54, 55: Anyone who wants to can download the BTC protocol and start running it, becoming a prince in their own right.
Anybody can join the network and mine bitcoin. They get paid when they computer finds one of the special numbers that the whole network is looking for. If a computer finds the right number it can use it to mine a block that has a list of a bunch of transactions that are being accepted on to the chain. All the transaction fees go to the miner that mines the block, as does a hunk of the original 21 million BTC that is being created.
Since the chances of any given single computer finding a special number is really, really tiny, miners "pool" together - teaming up their computing resources and splitting the payoff from of any blocks that get mined by any member of the pool.
Yes, the people who control these pools are indeed basically the Princes of BTC.
posts with salt
For the hashes, right?
54: is a *great* question, and goes to the heart of what "decentralized" means in "decentralized consensus".
The answer is that anybody can run a BTC "miner", connect to the BTC network of miners, and with luck, start mining BTC and getting paid. Because there are *so* *many* miners, and some of them are giant arrays of special-purpose processors (ASICs), if you use a normal computer you're not going to make BTC fast enough to pay your power bills. At any point, there are some number of BTC miners out in the world. They're mining blocks, which are getting added to the blockchain (== "log"). On about a two-week-ly basis, miners compute how fast blocks are being added, and from that, compute a new "difficulty metric". This difficulty metric is the "number of zeroes you need in the hash of a block for it to be valid". They choose metric so that a new block comes out (somewhere in the world) about every 10 minutes.
So if someone double the # of miners *tonight*, for a couple of weeks the blockchain would produce blocks twice as fast. But then the difficulty would be recalculated, and thngs would slow back down to "one every 10min". Similarly if 90% of the miners were powered-down, the blockchain would slow down 10x, but by a few weeks later, the difficulty would have been adjusted down, and you'd be back at "one every 10min". B/c that's the -goal- of the system -- to produce blocks every 10min, no matter how many computers there are, attached.
There's a related and amusing question, which is: "what happens if the worldwide BTC network is partitioned into large chunks?" (maybe the Russians cut our transatlantic cables?) And the answer is, both sides proceed as if the other side had been powered-down. Later, when the partition is fixed (with high probability) one side or the other had added more blocks to their version of the chain, and that side "wins" (with the losing side adopting the winning side's entries). But the real silliness is, when the network partitions, each partitions *SLOWS* *DOWN*. Yeah, way to go guys, you built a system that, when it's under stress, INTENTIONALLY SLOWS DOWN.
The bitcoin protocol, in its sufficient indistinguishability from magic, is available to those with and without the ability to pay for large amounts of electricity and computing power alike.
it's *intrinsically* unsuitable for building any complicated business logic applications.
Its unsuitable to run on the public Ethereum blockchain due to costs/lack of privacy/ridiculous overhead associated with having that many computers actually run your code. But the jury's still out on the usefulness of private blockchains.
For example, a consortium of banks, each running a node, could potentially use it to create a shared, resilient, basically unsalable record of transactions between them. There is value in that kind of application, but no one is quite sure how much value.
Spike, I don't know what your background is, so I'm going to pretend that you're somebody who's written web-applications that store their data in databases (like mysql). Anybody who has written web-applications storing their data in databases, has been part of a standard "way of working" that goes back to Ted Codd and his seminal paper "A Relational Model for Shared Data Banks". In that paper, he explains how for writing business applications, you pretty much need something that can support relational tables with secondary indexes.
Well, Ethereum, by design, cannot support that. So sure, there are lots of ridiculous prototypes out there but none of them will come to real fruition, b/c the last fifty years tells us that eventually business applications need the full generality of relational database tables.
None of this means that the idea of building a replicated database application environment is a bad one. But then, that's already been done -- and it's called Google Spanner. [n.b. I don't work for Google, and I never worked on Spanner.]
53: That article is garbage. It doesn't lay out anything, links mostly to partisan sources, and contradicts itself on multiple points. In no particular order:
By contrast, most alternative currencies are peer-to-peer. That means they are managed by users themselves and do not require intermediaries.As chet points out, the users have no control at all. The developers have control, and answer to no-one.
A person buying the equivalent of $1 in Bitcoin in 2009 would now possess roughly $25 million.Taking the market exchange rate of the currency as an indicator of success. A little later:
Most of these [cryptocurrencies] are user-controlled and are interest-free. One cannot make money by simply trading in them. Hoarding makes no sense in this new world. This is because value is not in the accumulation but in the exchange.The vast majority of activity in bitcoin, if not all crypto, is speculation and hoarding. Here's one of the sources. (Please do click through and make your own assessment of impartiality.)
Africa is emerging market with lots of opportunities. And people have been failed over time by fiat money that doesn't hold value. It is arduous for our local business people because the local currency doesn't hold value and most of the time it has to be changed to dollars in other to access international market for raw materials and machinery, but with cryptocurrencies holding same value globally.... it will be extremely seamless to transact business by Africans globally.Transacting seamlessly, at 6 transactions per second, possibly to increase to 24; storing value, when
Their upward and downward swings reach over 10% of the value on a weekly basis.Note btw, the author of the QZ piece, and the guy quoted on Africa, explicitly endorse Bitcoin by name. Whatever the hypothetical uses of crypto in those environments, btc doesn't supply those needs, and these sources can't or won't recognize that.
I suppose during the dot-com boom prices for suitable properties were bid up to ridiculous levels.
Like any gold rush, maybe it's the hardware store owners that get rich on this one.
66: Who would be a better choice than the developers to make decisions about things like whether or not to implement Segwit, whether or not to increase block size, etc.? They're smart people with emotional and financial interest in Bitcoin's continued success. Both you and the article are overemphasizing the word "control".
IDK much about the South Africa sitch but it certainly seems like it's been useful about South Africa.
I agree with you that the article itself is biased, links to biased sources, and that its author likely owns some BTC. (Disclosure: so do I!) I was mostly looking for a brand-name publication that mentioned the Venezuela situation.
Er, "useful about South Africa" s/b "useful in Venezuela"
68: Who would be a better choice than the developers central bankers to make decisions about things like whether or not to implement Segwit, whether or not to increase block size change interest rates, increase the money supply, etc.? They're smart people with emotional and financial interest in Bitcoin's their countries' continued success. FTFY.
"useful in Venezuela" Here's the linked source.
According to Bitcoin brokerage Surbitcoin.com, the number of Venezuelan users skyrocketed, from 450 in August 2014 to more than 85,000 in November 2016.There are 31 million people in Venezuela.
One of the biggest strengths to Bitcoin, and one often ignored in developed nations such as the United States, is that you don't need to have a physical bank account to send and receive Bitcoin. All you need is an Internet connection, which many Venezuelans have in the form of mobile phones.Astonishingly, this can and has been solved without recourse to cryptocurrencies.
If you really want to help those in developing countries, a gift of Bitcoin might be the best bet for a sustainable recovery.Actually, I think a gift of USD would be a whole lot better; and I imagine Venezuela is permitting BTC use largely to avoid the embarrassment of everyone using US currency.
Yes. I use cash more often than I did before 2008.
Originally, it was because I was pissed at banks for crashing the economy. Now it's because I'm pissed at whoever set up the credit card infrastructure for fucking screeching at me to remove my card with no pause in which I might remove the card before it screeches.
Spike, I don't know what your background is, so I'm going to pretend that you're somebody who's written web-applications that store their data in databases (like mysql)
Yeah, I've written web applications that store data in databases, and I've also written web apps that talk to services, or pull data off a queue. Relational databases are one model (and a good one! I never went for that NoSQL foolishness.), but they are not the only one. And things get complicated for relational databases when it comes to things like replication; relational databases are particularly ill-suited to being managed across organizations.
Blockchain tech does not have good performance as compared to relational databases for use cases that involve doing lookups against an index. So, don't use it for that. Use it as a pipeline for communicating shared data state between entities - basically a queue that allow to different organizations to record their consensus as to the value of various data attributes. Then let enterprise software within the individual organizations pull the data from the blockchain and do the business work, like storing data in a relational structure for reporting and analysis.
I'm not familiar with Google Spanner, so I can't comment on its technical attributes. But I'd not want my cross-enterprise collaboration software to be controlled by Google. Partly because they are the borg, and partly because they have a reputation for dropping development of interesting products and leaving developers in the lurch.
Thanks for the explanations. Bitcoin has seemed like an obvious bubble to me since I first heard of it, though I'm not exactly Warren Buffet when it comes to savvy investment strategy and frankly I barely understand it even with Chet's explanations.
One thing I've learned from the two previous bubble crashes I've lived through is that watching the cocky jerks who bought into the obvious bubble suffer while you self-righteously stand aside is way less fun and satisfying than it seems like it's going to be when the bubble is inflating.
Venezuela has shitty internet and frequent blackouts. Also, people there are poor and perhaps disinclined to pay Bitcoin's $30 transactions fees.
74.2: This time will be different, I just know it.
A couple of weeks ago I very gently (because I like him and because what he does is make [very good] pizza) tried to talk a guy out of buying bitcoin. He was looking for an alternative to investing his surplus in rental property.
I suppose S&P 500 index funds would be a bit too radical.
I don't like him enough to go into that level of detail.
Times have been good enough long enough that I'm getting that irrational feeling that we're due for a crash soon, and so now is not a great time to invest in stocks. How irrational is this?
The man feeds your children. Do the right thing.
81 to 79.
80: IDK. My underinformed read is (1) that China is a crash waiting to happen but (2) that US corporations overall will likely remain profitable anyway, as they have been since 2008; and they of course are the beneficiaries of the new oligopoly.
Honestly, thinking along the lines of 80, I'm not sure it would be helping him. Especially since his family owns a small number of rental properties in the area. I think he knows what he's doing in that. (The topic arose because he was asking me for very specific details about streets in my area.)
Also, I don't have children. Just child.
Happy New Year from Arrakis you reprobates!
Great thread btw. Many thanks to Chet.
Which others? Be specific and use examples to support your answer.
Times have been good enough long enough that I'm getting that irrational feeling that we're due for a crash soon, and so now is not a great time to invest in stocks.
This is exactly what I thought after Trump go elected, and I moved a bunch of my stuff into cash. Then the S&P 500 delivered a 19% return this year.
Apparently Wall Street loves having an irresponsible Republican in the White House, cutting taxes, slashing regulation, and pumping up the military industrial compex. Who knew?
I think the lesson I've taken from Bitcoin is that bubbles can last way longer than they should. So, yeah, the stock market is due for a downswing, eventually. But at this point I'm expecting it to go up a bit first.
72- Costco gives you a nice little two-tone ding dong. Maybe you just shop at stores that assume their customers are incompetent.
I'm not crossing a whole river just so I can use a credit card.
I don't know, free Ding Dongs is a nice incentive.
I think people comparing the crypto boom and the dotcom boom are kind of similar: lots of techies and nerds are super-excited about it, early use cases are limited and seem like worthless toy applications ("only 85,000 Venezuelans not the whole country"), and the coolest stuff won't be built on top of it until more people have wrapped their heads around it.
For instance, one super-cool thing no one's talked about in this thread yet is the Lightning Network, which I've been struggling through the white paper on. My tentative summary would be that it allows transactions between two parties to take place "off-chain" with the chain receiving only the balance between the two parties -- basically if you and I plan to be exchanging money a lot, we group it all into one big transaction.
A corollary to the crypto=Internet of money comparison is that Bitcoin could be Pets.com. I'm betting it's not; they have the strongest and most mature developer community and the first-mover advantage in a world where network effects are super-important.
"People comparing [the booms] are right that they're kind of similar". My New Year's resolution is more grammatical Unfogged comments.
The Lightning Network - if it ever actually gets launched - will fail due to a shit user experience. If if Alice wants to do business with the local coffee shop in bitcoin, she has to put a bunch of bitcoin in escrow up front and settle up with the coffee shop sometime down the road.
Also, there is some crazyness about providing liquidity for other people. Like, if Alice owes Bob money (as indicated in the pre-funded escrow account with each other), and Bob wants to pay the coffee shop, the debt gets funneled through Alice's account with the coffee shop. That's got to suck for Alice when she tries to pay for her own coffee and finds out her account is drained.
How this is supposed to compete with Visa, I am unclear.
Happy almost New Year from Central European time!
2018 will mark 20 years since I worked in/around financial markets, and the four most dangerous words are still "This time is different."
Thanks, Mossy, Chet, et al. for the technical discussion.
I'd bet that BTC has potential liquidity problems that make Lehman CDOs look like G7 currencies.
96.1: What's wrong with putting some money in escrow? It's one thing if you're trying to buy a house, but paying for a couple week's worth of coffee in advance doesn't seem like it'd be that big a deal for most people.
I don't understand the details of 96.2.
There's no fucking way I'm learning a whole new system to buy a cup of coffee.
Anyway, I don't understand the problem being solved.
Yeah, I guess I could prepay to the coffee shop, and to every other merchant I do business with on a regular basis. No doubt I'd do a crap job of estimating expenses, though, so there would be various over and-under-funded accounts to keep track of. Also, I'd be sacrificing liquidity for the sake of a benefit that is unclear to me.
Visa, on the other hand, gives me extra liquidity by not demanding payment for a month after a charge occurs. Also, Visa provides fraud protection, and insulates me from of misbehavior on the part of the merchant. Bitcoin seems temperamentally unable to do that. Chargebacks do not exist in the bitcoin world. Visa protects me as a consumer; with Bitcoin its buyer beware.
If everyone wants to make buying things more of a pain in the ass, why not make Green Stamps happen again? At least the glue tasted good.
I'll stop (I promise) after this comment, but: I felt it relevant to note that there are two independent rationales for why crypto-currencies are ridiculous:
(1) "computer science": the "consensus" protocols they use are laughable. Attempts to fix them are laughable. No well-respected computer scientists are willing to stake their names to this shit. And then the "application programming models" (Ethereum) built on top are completely unsuitable for building real applications.
(2) "economics": there's a famous saying of Lord Keynes': "the market can stay irrational longer than you can stay solvent". Just b/c it's going like gangbusters, doesn't mean it's wise. Maybe this means you shouldn't believe me, nor many other economists who have said (essentially) "I don't know what BTC will do next, but I do know it's eventual price ...." But at the least, before you "invest", you should understand carefully the economic case, and it had BETTER NOT BE the Greater Fool Theory.
If anything, the computer science case against BTC/Ethereum is -less- convincing than the economics case.
OK, I'm done.
94.1: Your claim was "Bitcoin certainly seems like it's been useful in Venezuela". Venezuela is one of very few places where a problem bitcoin was largely designed to solve (hyperinflationary monetary policy) actually exists. In this situation for which it was designed, Bitcoin appears in reality to be useful to 0.3% of Venezuelans. Granted those 0.3% are probably a disproportionate share of GDP; they are nonetheless a very tiny minority. You can hold plausibly that some kind of distributed virtual currency would be useful there, but cannot hold plausibly that that currency would be bitcoin or anything based on it, for the reasons Chet has given.
I'll start listening to you when you rebut Chet's haterade point by point. Why don't you start with 28 last, since you've talked about it already? Specifically, how can Venezuela run on BTC at 24 transactions/second? Network effects are super-important; but the Bitcoin network is designed such that it cannot scale. BTC retains prominence because it's being used primarily not as a network for transactions but as a vehicle for speculation.
Literally no one thinks that Bitcoin scales as-is, so the fact that it doesn't save everyone in Venezuela doesn't disprove its further usefulness as the technology improves.
That said, the long-run value of a bitcoin is zero, and most of the people speculating on Bitcoin now will lose everything. In some ways it's a more shocking bubble than the dotcom bubble, because at least most dotcom companies had some revenue or at least some plan to get some revenue. Bitcoin has nothing. A colleague and I have tried coming with some way in which the fundamental value of Bitcoin isn't zero, no matter how far-fetched. Economists love contrarian takes, so if we came up with one we could publish it. But we have completely failed.
more optimistic would be a happy news year. But wishing all reprobates both
One final comment on ethereum:
at some stage last year I spent half an hour talking to a moderately well known games designer from the early years of the PC boom who is a FoaF and heavily into blockchains as a way to make his next fortune. His plan, which I see has now progressed to an ICO, is to use ethereum to provide a global gambling platform which would be impossible either to tax or to regulate. This seems to me entirely monstrous: taxing and regulating gambling is one of the things that societies exist to do; but his conversation was absolutely evangelical in its vision of code-based "efficiency" that would transform society by making people free to choose whether to fuck up their lives. He thought this was a completely uncomplicated, inevitable development for the good, from which, by the benevolent dictates of providence, smart people were going to make a shitload of money.
Which leads to an insight about decriminalising drugs: the argument is not that that people should be free to become addicts, but that legalisation would make it in some ways harder, by making regulation more effective and more open. I don't think this is an absolute argument: for one thing alcohol (and other drug) consumption rises with availability and really rigorous prohibition does work where it's enforceable. (Narnian reports welcome here). But it certainly works after a tipping point is reached, when prohibition is attempted but ineffective.
The new year can go to hell. Humankind are miserably begotten creatures that deserve nothing but suffering. May each and everyone one of you be dragged off to Hell as God intended.
Consider NW's friend. Obviously he deserves to be dragged to hell. Are any of you any better? Are you sure? Best to drag you to hell just to be safe.
Teacher? Wtf, iPad. "I can be a total drag."
Ipad definitely going to hell.
106 Shouldn't that be "Happy News Year!"?
106 Shouldn't that be "Happy News Year!"?
See my point? If Barry had been dragged to hell, we would have been spared the double post, and he would have been spared the shame of it.
His plan, which I see has now progressed to an ICO, is to use ethereum to provide a global gambling platform which would be impossible either to tax or to regulate.
Speculating on cryptocurrencies is so popular that one need not resort to an official gambling platform anymore.
Another thing I've noticed recently is the emergence of "CFD Trading" apps, which allow people to make leveraged bets on the price swings of foreign exchange and other commodities from the comfort of their phones. This shit is going to be the new Candy Crush, except more evil.
Maybe on topic, maybe more of a redpill thing? (I don't know why he was threatening to take out his comrades.)
108:
I'm skeptical about the extent to which Narnian drug prohibition shows that that level of rigor is achievable for other societies. You need to control for the fact that it is an island and tiny. (The same goes for all other controlling aspects of the Narnian govt, which may look like a good idea when tried in a small island city, but may not work so well in places that have too much land area to police to the extent that Narnia does.) Most drugs enter other countries through an extremely porous land border, which Narnia lacks.
The dude's name in 120 is an anagram for I'D DOOM A TECH GIRL.
I thought this was interesting https://hackernoon.com/ten-years-in-nobody-has-come-up-with-a-use-case-for-blockchain-ee98c180100
Looks like the one thing underpinning bitcoin's value may be going away.
I don't think "criminal underworld" is sufficient to explain Bitcoin. Sure, the criminal underworld wants some way to move money around, but what incentive do people have to convert Bitcoin back into cash? A criminal organization could maybe enforce its use internally, but outside the boundaries of the organization it doesn't seem sustainable without some sort of external demand for Bitcoin, i.e. edgy teenager libertarians.
It's not "sufficient to explain" it, but it's about the only sustainable value it has been shown to have. What incentive to people have to convert bitcoin into cash? Wanting to engage in legitimate commerce? The whole point of money laundering is to get usable cash.
But why would I give you cash for your Bitcoin? What's in it for me?
Because you are a goldbug/anarchist/person in country with capital controls/criminal with surplus cash.
I know a guy who was in to bitcoin early, the last couple months he was helping other people we know get onto exchanges and buy in. Every time I would make a joke about how he needs suckers further down the pyramid so he can cash out. Claims he's still holding on long-term, though.
And by criminal with surplus cash, I include customers of dealers of criminal goods.
130 has he figured out how to get out of it though?
129: But then you only need goldbugs and anarchists to explain its existence. They can just buy it from miners or each other. Criminal organizations are just an accidental beneficiary of internet lunacy.
132- He claims he can cash out at any time, that he's on an exchange (I forget which) where trading the volume he has isn't overly restrictive.
I imagine the challenge isn't anticipating the right price to sell at so much as anticipating when your exchange will get hacked.
129: But then you only need goldbugs and anarchists to explain its existence. They can just buy it from miners or each other. Criminal organizations are just an accidental beneficiary of internet lunacy.
I mean, they are, obviously, but they're still the only sustainable providers of value. After all, it should only have value to goldbugs and anarchists if it offers some utility that other crypto doesn't. Goldbugs like gold because other people like gold stuff (otherwise they'd be protactiniumbugs or something). At the moment, that value is that it's very useful for criminals.
And again, I'm not trying to explain its existence. Clearly it exists because of goldbugs and anarchists. I'm saying that the only long term value it has is derived from criminal activity (some of which may be morally legitimate but nonetheless illegal in a given jurisdiction).
But why would I give you cash for your Bitcoin?
Because the cash was from an illegal transaction and you wish to launder it?
Anyway, I'm sure there is a criminal reason for somebody to be a counter-party to buying or selling Bitcoin.
Right, so all the criminals buy Bitcoin so that they can launder money, but now they're stuck with a bunch of Bitcoin. Somebody outside of the criminal underworld has to be willing to buy the Bitcoin off them later. You need a moron to be left holding the bag at the end of the day.
You need a moron, but not at the end of every day.
For sample, one criminal is a smuggler and is eager to exchange a whole bunch of elephant tranquilizer for any currency he can convert into dollars. Another criminal wants to buy bitcoins to launder money. So the smuggler sells the coins to the launderer.
And the ransomware people mentioned above are collecting bitcoin from victims. Presumably they want to convert at least part of that into rubles.
"You either lay-off [identity redacted] and replace her with me, an operator 100x better that she is oppressing. Or I will take out your entire company along with my comrades via a cyber attack."
You can tell this guy is also one of those guys who goes on finance websites crying about how big government is illegally interfering with the free market, because in the free market his investments would be doing great while in reality, which is artificially biased and manipulated, he picked the wrong investments.
Anyway, criminal transactions only need non-criminal counter-parties to cover the net balance of all criminal transactions, not to cover each criminal transaction.
143: And feminism is why he can't get laid.
Funnily enough, one of the most recent Black Mirrors could only slightly tendentiously be described as getting laid via smart contracts.
If criminals are wanting to change Bitcoin into dollars then logically they must have got the Bitcoin from a victim in some way, through ransom or whatever, so obviously there will be a natural market for bitcoin consisting of people who want to buy some in order to pay ransoms in it.
Do criminals ask for 1 bitcoin, or do they ask for $15,000 payable in bitcoin?
If criminals are wanting to change Bitcoin into dollars then logically they must have got the Bitcoin from a victim in some way, through ransom or whatever, so obviously there will be a natural market for bitcoin consisting of people who want to buy some in order to pay ransoms in it.
Ransoms, drugs, unlicensed pharmaceuticals, illegal weapons, etc. Not all cash going into the criminal bitcoin system is coming from victims, at least directly.
If you ever want to see your child again, send 10 5 0.7 3 1 BTC to this wallet.
If you want to see your child in April, buy a three-month bitcoin future.
If you're thinking of committing any kidnapping or other crimes, you might want to wait a few weeks until the price stabilizes some. Or at least use more traditional means of money laundering.
"Give me $20,000 in non-sequential small denomination bills and Starbuck's gift cards."
While you may feel that this won't be true in X months or years when people realize it's All a Scam, at this specific moment it's very easy to get out of large-sized Bitcoin positions on GDAX without affecting the price. E.g. there were 25000 BTC bought/sold there in the past 24 hours.
156. What about then transferring funds back out? A common complaint about unregulated entities that store valuables is this difficulty. Technical delays in getting money out but not in, locked accounts on withdrawal requests and the like, leaving aside the possibility of theft or negligence by management which also doesn't show in transaction stats.
I haven't taken the time to learn about the details of what kind of wallet (wallets?) are behind the CBOE futures. I'd be interested to know that, will try to read up it when I have a chance.
at this specific moment it's very easy to get out of large-sized Bitcoin positions on GDAX without affecting the price.
Sure, right now. But right before Christmas when the price started falling, GDAX/Coinbase basically shut down for transferring money out. That was both useful in stemming the tide of panic selling, and indicative of likely broader liquidity problems.
And that's basically the most legit exchange out there; others are far worse.
There are two issues-
1) I own some BTC and want someone to give me USD, EUR, etc. for them. This seems to happen relatively smoothly at present, enormous fluctuations aside- if two people agree on an exchange at a certain rate it can probably happen.
2) There are a limited number of sites where such an exchange can be made, and once I've made such an (irreversible) exchange, that site nominally owes me USD if I just sold some BTC. These sites are subject to "bank runs" (or whatever the exchange equivalent is) and almost certainly don't have liquid assets to pay everyone if they all want their account balance withdrawn at once, regardless of whatever the nominal value of BTC is.
I haven't taken the time to learn about the details of what kind of wallet (wallets?) are behind the CBOE futures.
There isn't one. They're cash settled.
Thanks to the explanations upthread, I feel like my big remaining question with bitcoin is the untraceability. Why is it so hard to figure out who's demanding a ransom?
You can figure out the wallet identity, but not who owns the wallet.
It's the owns the wallet that I'm wondering about.
I read something at one point about bitcoin tumblers- essentially mathematical money laundering- to make a given BTC source untraceable. I don't know how relevant that is these days.
It turns out that keeping a public record of every transaction ever made using currency is not so good for maintaining anonymity. This is particularly difficult at the point where whoever has dubiously obtained bitcoin wants to cash them out into actual money. That's why there has been a whole lot of pressure put onto exchanges in terms of compliance with Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) regimes. So, the options for money laundering are becoming more limited in that respect.
While bitcoin tumblers do exist and were a feasible solution at one point, they are decidedly less so now that the blockchain is clogged up and transactions are stupid expensive.
On the other hand, there is a new generation of crytocurrencies like "Dash" (formerly DarkCoin) that have special features for hiding your shit.
Is anyone building on a protocol that is not fundamentally bitcoin?
Sure. Ripple is one. It doesn't use a blockchain, but instead uses a centralized database to implement something like what is described in 96.2.
Currently the second largest cryptocurrency - its gone up like 50% in the past week. It claims to have a lot of banks as customers, although there is little evidence that any of them actually use it.
That means it's working for hiding?
That means somebody knows how to run a pump and dump operation.
Is that what your high school girlfriend told you?
Don't be prejudiced against people who aren't Americans or existing.
My imaginary high school girlfriend simply lived on the other side of the county. Nobody told me Canada was an option.
I spent a lot of time in Canada and at one point actually created an imaginary American girlfriend when people pressed me on the issue.
Lucky for you a distributed ledger of girlfriends hadn't been developed yet.
I'm surprised anybody believes Americans can be romantically attractive too each other.
I had suspected. The sincerity gave you away.
Also my tendency to rip open other peoples' Fed Ex packages when I'm stuck.
Lucky for you a distributed ledger of girlfriends hadn't been developed yet.
The Distributed Ledger is the new DL.
Ripple is so far the only cryptothing anyone I know has talked about buying. It sounded plausible since he said it had been around since 2012 and was actually being used for something by non-illegal businesses (bank transactions between countries). On the other hand he called it "Ripplecoin" which seems to to be its name.
Another thing I've noticed recently is the emergence of "CFD Trading" apps, which allow people to make leveraged bets on the price swings of foreign exchange and other commodities from the comfort of their phones. This shit is going to be the new Candy Crush, except more evil.
Meant to respond to this earlier, but it slipped by. CFD trading is indeed evil (in the sense that it is gambling purporting to be investment, and retail investors should not be making leveraged bets on anything) and the companies that offer it tend to be shady as fuck, and based in "light touch" jurisdictions like Cyprus. FWIW, Europe is about to ban binary options trading and heavily restrict CFD trading. I think they're both already illegal in the US.
Hilariously (in a laugh-or-cry sense), you can see ads for bitcoin CFDs on the Tube.
What's the logic to banning binary options? Is it because they are so easy to understand that dumb people find them irresistible to gamble in?
Well, you'll see the full rationale when they launch the consultation later this month, but basically that they're purely speculative instruments and have no basis being offered as investments to retail. It's clear also from previous Q&As that ESMA thinks national regulators are unable/unwilling to crack down on the rampant dodgy marketing in the sector. I think it's fair to say ESMA is also trying to rein Cyprus in more generally.
From the Twitters:
senior computer scientist, USENET co-founder, etc., Steven Bellovin: "#Bitcoin "was deployed by enthusiasts who in essence let experimental code escape from a lab to the world, without thinking about the engineering issues." https://t.co/PuLoMAvh0G"
I'm holding all my wealth in dollars despite the fact that team running the currency is clearly corrupt at the top.
I used to support investor protection laws until I met the investors being protected in the wild (on the internet). Now I think seeing them lose money is a positive good.
Wow, old dude standing here waiting for the city library to open, rehashing the Skip Gates event, how that ruined Obama's approval rating for the rest of his term. Except he called Obama "Camel jockey". Other dude arguing with him about the validity of statistical sampling and whether a survey of a small group of people can really tell you the overall approval rating.
Apparently some of them make good pizza.
193: The problem is that doing nothing creates a class of financial predators who will look to expand the number of victims using skills they learned on stupid people.
It also makes dealing with financial crises much harder because of the political fallout. One of the main reasons Italy has been so bad at sorting out its banks is that Italy allowed all sorts of unsuitable shit to be sold to retail investors, including the banks' own subordinated debt, which made bailing in the creditors politically unpalatable. Similarly, one of the largest groups of external creditors of the Argentinian government when it last defaulted was Italian pensioners.
Retail investors also have a habit of putting all their eggs in one basket, and then losing it all and becoming destitute. Until we find a way to mandate diversification, I'm in favour of banning the sale of high risk products to retail clients. Frankly, I'm in favour of banning the sale of everything but index or mutual funds, but that's not really practical.
Index mutual funds and everybody can get in a tontine designed to cover people who live past 90 or so. Long-tail funding of 401k/pension plans would not be a problem then.
Thought I'm sure it's the perfect time to get back into depositing the rent money with banks in Iceland.
From the link in 187: "However, it just doesn't make sense that rational financial institutions will voluntarily use XRP as a reserve currency to settle transactions because XRP will always be -- by definition -- less liquid than a global reserve such as Bitcoin."
FWIW, Europe is about to ban binary options trading and heavily restrict CFD trading. I think they're both already illegal in the US.
Yeah, CFD trading apps don't operate in the US, which is why I think they are still below the media's radar. But there are a whole lot of other countries that aren't on top of this.
Yeah, gross. When CFD trading apps and cryptocurrencies are cross-polinated, it makes for a seriously predatory business model.
so, I'm late to this excellent party, but I would like to know if lots of cities have telephone poster signs advertising bitcoin tutoring? because mine does.
And some of the phone # tabs have been pulled off, though perhaps that's clever marketing by the originator.
Pull them down. I pull down the ones that I think are frauds (e.g."We Buy Any House").
UK regulator finds CFD operators are dodgy shock!
In our view, none of the 19 providers in our review were acting in line with our guidance (RPPD). Additionally, these firms could not demonstrate that they were acting with due skill, care and diligence. As a result, they risk non-compliance with Principle 2 (Skill, care and diligence). We were particularly concerned with providers' lack of effective communication and challenge, given that the majority of retail investors (76%) lost money over the period we reviewed.
I went into a corner shop in a fairly poor part of town the other day and they had a vending machine in one corner that sold bitcoins. (A company called satosh/inow.c/om.)
I can't help seeing this as a bad sign.
Do they give you a thumb drive or something?
207: Not the one on Middlesex Street by any chance?
209: no, it was over towards Willesden Junction.
OT: I'm not naming names, but I think somebody here needs to go to the head offices of the Guardian and explain how just stopping Inspect a gadget isn't workable.
I thought that Bitcoin would blow over after it just separated a couple of fools from their money. Now I'm wondering if the bubble can get big enough to imperil the world economy. It would fit the spirit of the age, which is "stupid".
I can't see that happening. It's too disconnected from the financial system. Most of the entities involved struggle to even get correspondent banking services. The only way I can see it happening is by contributing to a Chinese crash, perhaps by a collapse in energy demand, but even there the contribution would surely be minor compared to, say, residential real estate, the mountain of debt that's never going to get repaid and dodgy wealth management products.
213: What matters isn't just the overinflated bitcoins themselves but also the paper riding on them, just as 2008 was largely about MBS, insurance policies and other instruments. I don't know how many derivatives exist or are permitted at present, but if you have say 20m BTC at on the books at 10,000USD each, plus 10 times that in leveraged instruments, you're in 2008 territory.
As of now it can't happen, but we don't seem near the end of supply of greater fools. I took a taxi the other day, and the taxi driver told me he was thinking about getting into Bitcoin.
213: What matters isn't just the overinflated bitcoins themselves but also the paper riding on them, just as 2008 was largely about MBS, insurance policies and other instruments. I don't know how many derivatives exist or are permitted at present, but if you have say 20m BTC at on the books at 10,000USD each, plus 10 times that in leveraged instruments, you're in 2008 territory.
Depending on how you define derivatives, it's nothing like that. Bitcoin futures are the only "proper" derivatives around at the moment and their outstanding volumes are in the low thousands. Also the margin requirements for them are extremely high.
I don't know if there are stats on CFDs, but as noted above, they're illegal in many places and they're certainly not something that is hooked into the financial system in any meaningful way.
Also, remember that a lot of the exposure to crypto comes from other crypto. So you look at the volume of "money" raised by ICOs and it looks pretty scary, given that most of them are frauds or pie-in-the-sky, but then you remember that actually almost all that "money" is BTC or ETH, and the numbers look big because BTC and ETH's values are inflated. The amount of actual cash that people have put at risk is pretty small, though admittedly that is changing in recent months as more and more punters get pulled in by the hucksters.
The thing about 2008 was that it turned out that pretty much everyone in the global financial system (at least in Europe and the US - Canada kind of escaped via a loophole) had large exposure to US subprime, either directly, or at one remove. Almost nobody has material exposure to crypto, directly or indirectly, because among other things it's a KYC/AML nightmare, as discussed here ad nauseam. All the biggest bitcoin exchanges could collapse tomorrow and not a single mainstream bank would be in trouble.
216: Good to know. I was using "derivatives" widely and incorrectly.
remember that a lot of the exposure to crypto comes from other crypto.
Very good point.
The other thing to bear in mind about 2008 is that it wasn't (as a GFC) a crisis of risk taking, but of risk aversion. The thing that made it spread to every corner of the system and cause so much damage in the process was the quest for ostensibly very safe assets with a little bit more yield than other very safe assets. It was not a conscious move into greater credit risk. It was a question of leveraging up and holding very little capital against assets people thought, to the extent they thought about it at all, would never suffer a loss (and in the end mostly didn't).
Nobody except the diehard anarchist goldbugs thinks bitcoin is a safe asset in that sense, and you certainly aren't going to see German Mittelstand banks structuring vehicles larger than their entire regulatory capital to invest in the stuff.
219: Excellent point. I hadn't thought of the GFC like that.
216: You say that now, but eventually the bubble will grow so big that Wall Street won't be able to help themselves but to try to cash in. You say "but that would be stupid". And yes it would, which is why it will happen.
I should have know better than to joke in 146. Turns out sex with smart contracts is actually a thing. Or at least someone is trying to make it a thing.
222: that's just sex with the blockchain. If it involved a smart contract as well, that would imply that as soon as one party fulfilled the contractual obligations, sex would automatically happen with no need for further human involvement in the decision making process.
224 is the marketing angle which will sell this to every male teenager in the world. Like marital rape without the marriage.
Allons, enfants de la patrie, le cockchain est arrivé
213. China is reported to be cracking down on Bitcoin mining. ISTR they were regulating Bitcoin ownership already, but they want to phase out mining as well. Since Chinese miners are alleged to be a huge fraction of the total, that could be the pin that bursts the bubble. Would hurt AMD's and Nvidia's GPU sales as well -- miners buy most of them.
I thought the whole point of Bitcoin was that governments couldn't crack down on it.
Well, so far it seems more like they mainly want to deal with the energy usage of mining, for instance by banning the discounted electricity pricing miners were getting. I wouldn't be surprised if they went further and banned it altogether, but that seems a ways off for now.
the discounted electricity pricing miners were getting
WTF.
Supposedly many are getting special offtake arrangements with power companies/local governments (possibly both the same entity).
To which the answer is yes, of course there is.
I would like to subscribe to your electronic tontine.
229. I think it's also the case the that electricity is mostly coal-generated (being in Xinjiang). That's part of why the Chinese government is annoyed by it, or at least a good public excuse.
231. TontineCoin can't be very interesting if there is owner anonymity. How will anyone write the appropriate mystery novels?
231. TontineCoin can't be very interesting if there is owner anonymity. How will anyone write the appropriate mystery novels?
They become hacker thrillers. Two genres for the price of one!
It seems weird you stopped half way.
On topic: "Japan has a new cryptocurrency-themed J-pop band"
The group's name is Kasotsuka Shojo, which translates as Virtual Currency Girls. Each one of the eight members represents a different cryptocurrency, including Bitcoin, Ethereum, Ripple, and Cardano. The women are outfitted in maid dresses and lucha libre-style masks that denote the currency they represent....
Kasotsuka Shojo's debut single is called "The Moon and Virtual Currencies and Me" and is a blistering electro-pop song that warns listeners to be aware of fraud and to maintain their security online.
I thought that was nuts until I got to the part about the masks.
The opening line of a message in my spam folder:
My Name is Prince Harry of Wales, KCVO, commonly known as Prince Harry, the younger son of Charles, Prince of Wales, and Princess Diana. I was born on 15 September 1984. I was christened by the Archbishop of Canterbury at Windsor Castle on 21 December 1984.I am very happy to choose you as my friend, Tell me about your relationship with Humanity? What do you believe spiritually?
247 Ask him if he's read Dianetics.
I asked him about Megan, like a normal person.
I guess she spells it differently.
245 is the most Bruce Sterling thing so far this year. Still waiting for those Air Force bake sales (using market segmentation data obtained through social media scraping) though.
The women are outfitted in maid dresses and lucha libre-style masks
Obviously.
244 It was a proof of concept and besides, I didn't want to go full asshole.
Here's that ESMA consultation. Technically it's a call for evidence, so early stages still.
Binary options banned for retail.
CFD leverage capped at 5:1 for single name equities, 20:1 for indices and "non-major" currency pairs, and 30:1 for major currency pairs. Tentative proposal to cap cryptocurrency CFD leverage at 5:1, but may ban them altogether. Various other investor protections and restrictions.
As for why they want to ban binary options:
In recent years ESMA and several national competent authorities (NCAs) have observed a rapid increase in the marketing, distribution and sale of contracts for differences, including rolling spot forex (CFDs) and binary options (BOs) to retail investors across the EU.
The inherent risk and complexity of these products, the marketing, distribution and sale through on-line channels and the associated aggressive marketing techniques used by a number of firms have led to significant investor protection concerns. Several NCAs have also conducted analyses or studies showing that between 74 and 89% of clients trading in these products lose money
...
The following main features of BOs and the way in which they have been distributed, marketed or sold across the EU have required increased attention by supervisors:
- Retail investors are exposed to very high levels of risk and intrinsic negative expected returns, in the absence of compensating benefits (in contrast with, for example, vanilla options that are often suited to provide hedging functions).
These features are intrinsic to the product. - The short duration of trades in combination with the extreme pay-off distribution increases the exposure to losses and raises the risk of addictive behaviour. Indeed, retail investors in BOs often place many repeated trades, making it increasingly likely that they will lose on a cumulative basis. This holds for BOs of any variety.
- The complexity of these products and a lack of transparent information at point of sale, which limits the ability of retail investors to understand the risks underlying these products.
- The use of aggressive marketing techniques, including the offer of incentives to clients to encourage trading in these products.
I enjoyed this: http://missoulanews.com/coverstory/the-bitcoin-barons-how-a-marketer-and-a-money-launderer/article_e809edca-0142-11e8-b50b-f3bc5de3e696.html
It was either you or NicePriceMumbaiEscorts123 had started reading the Missoula News.
I hope you've stopped laundering money.
They downloaded bitcoin wallets -- it takes just an email address and a few seconds to set up -- and, one by one, Sean Walsh deposited a bitcoin into their accounts. It was his gift to his new landlords, Steve Nelson and Mike Boehme; their Realtor; and the local economic development officer, Missoula Economic Partnership CEO James Grunke, who had helped make introductions around town, and would later help Walsh's company apply for a $416,000 state grant. Grunke says he "knew nothing" about cryptocurrency at the time, but today he's able to scroll through his Coinbase app and find precisely the minute -- 8:36 p.m., May 19, 2016 -- when he started to learn.
"He gave us one just to let us know," Nelson says. "It'd be like handing [you] a $50 bill. At that time, they were worth $440. It was still significant. And his words were to us, 'Pass part of it along to some people so they can get a feel for it.'"
How is that not super illegal?