Researchers Find Problems With Rules of Bitcoin

holy_calamity (872269) writes "Using game theory to analyze the rules of cryptocurrency Bitcoin suggests some changes are needed to make the currency sustainable in the long term, reports MIT Technology Review. Studies from Princeton and Cornell found that current rules governing the mining of bitcoins leave room for cheats or encourage behavior that could destabilize the currency. Such changes could be difficult to implement, given the fact Bitcoin — by design — lacks any central authority." The main problem discovered is that transaction fees do not provide enough incentive to continue operating as "miner" after there are no more bitcoins left to be mined.

Comments

That main issue is actually the solution.

[Kremmy]

After all of the bitcoins are mined, there is no longer an incentive to treat it in this goldrush-like manner. The only people who will have reason to run a miner are the people who use bitcoins as a currency, to be a node in their decentralized economy. Most of the problems people describe seem to be directly related to its use as a pump and dump, actually. I must wonder what's going to happen once we reach that point.

Re:That main issue is actually the solution.

[teambpsi]

The transactions are BY DESIGN to subsume the block reward and will handily make mining worth the price of admission.

Re:That main issue is actually the solution.

[Anonymous Coward]

>It would take a single machine, even loaded with graphics cards, years to find a coin. You need to have dozens of racks of equipment to expect to turn a profit these days.

My 60 Ghash miner that's the size of a small breadbox says differently (about 6 months to a coin, of course, that's increasing). And a double PCI card from the same company (who, amazingly, actually delivered a 600 Ghash card without lying too much this time) says that you could get a coin this month even after difficulty increases if you'd like one. And while the parts ain't cheap, the cost of admission isn't anything more than you'd spend on an old used car.

Now, as far as mining earning you more than just investing that money at the outset, you're right, you're not really buying a money printing mahcine, you're buying a money dump. But you can easily get more than 1 coin this year without sacrificing much space or melting your face off.

Re:That main issue is actually the solution.

[thegarbz]

The problem is what is the economic incentive? Do you want to use a currency where there is a real cost to using the currency? One of the premises of bitcoin was that we would no longer have to pay the middle man in a transaction, however now we need to pay the electricity company just to be involved in the process?

This kind of removes the incentive to mine. In the analogy of a real mine it's like you're operating the mine in your backyard despite making a loss on doing so all so you can keep using the dollar. You wouldn't do it. Unless the mining process can break even or at least remain cheaper than paying interest or transaction fees at financial institutions then there's no point in being involved.

Re:That main issue is actually the solution.

[iluvcapra]

The problem with transaction fees is there's no way to properly market them-- theoretically the higher a transaction fee you pay will give you a higher quality of service, but in practice the terms under which your transaction is processed are completely voluntary. It might happen, it might not, and it's definitely in the interests of large mining guilds to run up the price, and the large guilds are very effective at locking out upstarts. A cartel of two of them would easily control a majority of the blocks that get signed onto the chain, and thus set the price of transaction processing.

Re:That main issue is actually the solution.

[swb]

What currency doesn't involve real costs? The cost for printing and coining production of US currency is over $4 billion dollars. None of that covers the actual costs of the overhead of accounting, distribution and management of currency at the manufacturing and initial delivery level nor does it include the distributed costs of currency management by end user businesses (cash accounting, armored cars, bank fees for currency management, etc).

It's not like any of this is free to anyone, even the consumer, who pays for it indirectly through taxes and banking fees.

Re:That main issue is actually the solution.

[thegarbz]

That's a false comparison because the reserve is not going to give up on the US Dollar simply because people are using bitcoin.

Your alternative world involves paying for mining AND upkeeping the current cost of the US monetary system. The only break you are getting away from is banking transactions and even then only if bitcoin exchanges don't charge a conversion fee because you're a US company and as such report in USD.

Re:That main issue is actually the solution.

[jefe7777]

"...more than 1 coin this year without sacrificing much space or melting your face off."

Melting your face off is half the fun!

Re:That main issue is actually the solution.

[VortexCortex]

The problem with transaction fees is there's no way to properly market them

It's called escrow. A trusted 3rd party that holds the money until transaction is confirmed and/or refunds transactions on bad deals. Essentially transaction insurance. Are you saying that credit cards aren't marketable?

Re:That main issue is actually the solution.

[petermgreen]

The only people who will have reason to run a miner are the people who use bitcoins as a currency

You forgot those trying to do a "51% attack" for the purposes of killing or controlling bitcoin.

If mining rewards drop signinficantly and consequently lots of miners quit then said attacks will get easier both because they will require less hashing power and because there is likely to be a lot of uses mining hardware turning up on ebay at knockdown prices.

Re:That main issue is actually the solution.

[Bengie]

All it takes is one machine to process a transaction. If these guilds run up the prices to the point that it becomes profitable for lowly home-users to make a profit, then you'll see more people start "mining" again. The only real way these guilds could lock out the little guy is if they controlled more than 50% of the overall processing power, but then they could do much worse things.

Re:That main issue is actually the solution.

[bobbied]

Oh great. All we need is a pile of secondhand miner hardware out running on mom and dad's electric bill. I suppose the ROI is worth it if somebody else is paying the power bill, at least while they are still giving out coins for mining. There is just NO future in mining Coin in the long term. Once the last coin gets issued, unless the exchanges can support doing the hashing though their fees, this thing will die, and die quick.

Re:That main issue is actually the solution.

[Anubis IV]

After all of the bitcoins are mined, there is no longer an incentive to treat it in this goldrush-like manner.

That's the problem, actually. The gold rush provided a massive incentive for people to mine bitcoins, thus decentralizing everything, which is an important function of the economy, NOT because it mints new currency, but rather for its lesser-known purpose: to provide decentralized synchronization of blockchains and verification of the transactions made against them. This is a system that is inherently built on distrust, so ensuring that the synchronization and verification can occur in as decentralized a fashion as possible is of the utmost importance, and that's what mining served to do.

Without the decentralized mining that naturally results from having it incentivized, synchronization and verification become more and more centralized. The whole system could potentially collapse if those functions are only being served by a handful of groups (e.g. "51%" attacks, such as verifying a false transaction by controlling the majority of miners). Moreover, if the miners aren't being rewarded with newly-minted currency, they'll need to be compensated for the upkeep costs of running mining machines in some other way.

Essentially, bitcoin mining can't go away, so they need to find some other way to incentivize it so that the economy can stay afloat. As people are beginning to realize, the way to do that is through transaction fees and other such costs that are more typical of everyday banks. And various groups are already promising to not collude in order to accomplish a 51% attack, since that threat is already a very real one, but it's still rather worrying that they have to make such assurances.

Re:That main issue is actually the solution.

[petermgreen]

The only real way these guilds could lock out the little guy is if they controlled more than 50% of the overall processing power, but then they could do much worse things.

According to blockchain.info the top three mining pools between them control over 54% of the total mining power add number four and you get up to 67%.

So if they were to team up into a cartel they could arbiterally prevent blocks they didn't like from staying in the blockchain. The interesting question is if the leaders of the guilds decided to do this to enforce higher transaction fees would their members go along with it or would they break ranks in sufficient numbers to negate the affect?

Re:That main issue is actually the solution.

[Bengie]

Each pool is made of many people. At best, they would be stealing from themselves. It would be like convincing 50% of a country to try scamming the other 50%.

Re: That main issue is actually the solution.

[kellymcdonald78]

Until the third party runs off with your Bitcoins, that is

Re:That main issue is actually the solution.

[Areyoukiddingme]

It would be like convincing 50% of a country to try scamming the other 50%.

I see you're acquainted with the US political system...

overblown

[adam3us]

The selfish mining paper makes sense in mathematically simplified game theory model but does not take into account real-world issues of latency. Anyway simple work-arounds exist eg for pooled miners, the winning miner can broadcast their winning solution to random nodes in the network, which prevents selfish mining (selfish mining depends on keeping the transaction secret temporarily delaying broadcast). Hosted mining is a problem, but people should stop overpaying for hosting mining contracts, and demand to control their own vote. The long-run economic question of fees crossing over with reward is WAY to early to declare defeat. We have large amounts of bitcoin reward for decades, bitcoin can be scaled to handle more transactions, and what do we know now about the bitcoin transaction fees & economic picture 20 years out).

Re:overblown

[BitZtream]

and what do we know now about the bitcoin transaction fees & economic picture 20 years out).

That it will be a footnote in history ... just like Internet time by Swatch. Thats what we know about bitcoin 20 years out.

Re:overblown

[dns_server]

With my pebble watch and a custom watch face I can tell you that the current swatch time is @150.

Re:overblown

[tmosley]

If you know that, why haven't you bet the farm shorting bitcoin?

Oh, you're saying you DON'T know that, but are just talking out of your ass like the bottom half of an oracle?

Re:overblown

[tmosley]

You can short currencies. Are you really this ignorant?

So you are saying you aren't sure about what you are saying at all, and that you would rather just be safe with the herd? Gotcha.

Re:overblown

[petermgreen]

If you know that, why haven't you bet the farm shorting bitcoin?

AIUI many shorting contracts require you to cover your short once your losses reach a certain level. You can still lose even if you turn out to be ultimately right.

Oh my

[Anonymous Coward]

So there is a potential problem that manifests itself in 25 years from now... We're doomed.

Re:Oh my

[oscrivellodds]

Given the recent pace of problem discovery and theft do you really think it will last that long? I have my doubts.

Re:Oh my

[jythie]

Well, if BTC wants to be used as a general or replacement currency, yeah, problems on that time scale matter a great deal.

Did they actually look at the bitcoin rules?

[ras]

Firstly, there already is a "tax" of the sort they say is needed. Currently the bitcoin relays don't accept transactions containing a tip of less than 0.6cents per kilobyte.

Secondly, there is nothing to force a miner to pick up a transaction, now. Right now, if a transaction doesn't contain a fee there is no incentive for the miner to include it in the block they are working on. Regardless of whether the miner includes transactions or not, they still get the mining reward.

Transaction fees are like an auction. The customer puts in a bid at the lowest price he thinks the miners will accept, each miner decides whether that fee makes it worth his while to include the block. If the customer wants the transaction processed quickly he will put a comparatively high fee on it so every miner will be interested. If not, they put a low fee on it.

This is called a market. It is how bitcoin is supposed to work.

Re:Did they actually look at the bitcoin rules?

[ras]

except the problem of criminals leveraging other peoples resources. When you can utilise bots to farm for you you can effectively undercut other peoples market making any legitimate miner completely unprofitable.

Said like a person who doesn't have a clue about the shear amount of resources being thrown at bitcoin mining.

Currently, the bitcoin mining network is doing 6,549,663,840,000,000 SHA-256 hashes per second. Lets say you have a botnet of 1 million Haswell's. The fastest Intel CPU there is, a Xeon, and it can't do more than 20M hashes per second. So your 1 million Haswell botnet will manage to capture 0.3% of the bitcoin networks mining power.

Yes, people have speculated in the past that bitcoin might be susceptible to botnets. Even if was true the vulnerability window has well and truly closed.

Re:Did they actually look at the bitcoin rules?

[TiggertheMad]

Just because botnets aren't efficient doesn't mean they aren't worth running. Stolen CPU time is free, so some profit is still free profit. I mean, if logic and reason governed criminal activity, 95% of it wouldn't even exist.

Re:Did they actually look at the bitcoin rules?

[Anonymous Coward]

Currently, the bitcoin mining network is doing 6,549,663,840,000,000 SHA-256 hashes per second

What a fucking waste of energy.

Re:Did they actually look at the bitcoin rules?

[TheRealMindChild]

By the time a CPU submits a share it is stale. There are much more profitable ways to use a botnet

Re:Did they actually look at the bitcoin rules?

[ras]

and you really think all that effort in mining is going to be maintained once the coin pool is exhausted and they are only competing for transaction fees?

Just about all mining is done using ASIC now, and ASIC's are in an unenviable position. Unlike CPU's and GPU's or even FPGA's, they are utterly useless outside of bitcoin. So they will remain deployed until they cost more in power to run than they get in mining fees. This means the current mining power isn't going away any time soon.

Botnet's can earn a return from a variety of sources, not just mining. So the question becomes "is it worth competing against the ASIC's"? In terms of power cost a top end Intel CPU's is roughly 100,000 worse than an ASIC. So even if some miners drop out Botnet's are unlikely to win more than a minor percentage. If the rewards of mining have dropped so much that ASIC's are dropping out, then it's a minor percentage of a small number. Add to that mining's soaking up 100% of CPU time makes an infection by the bot stand out, which decreases the half life of your botnet ... and yeah, I expect it will continue even when there are only transaction fees.

Then there is the whole other question of "does it matter?" If a botnet does take over the mining pool, there is the little issue that bitcoin is intrinsically worth nothing. It's not like they have taken over a pot of gold. Bitcoin is only worth something if people trust it. So if they don't undermine it, they have something that will pay out forever. If they do undermine it, they have got control of 2^51 bits that no one in the right mind would buy and their source of transaction fees has dried up.

It's weird actually. Claiming bitcoin can never succeed because it is worth nothing has to be one of the more popular meme's. The reality is being worth nothing is one of bitcoin's core defences. So far all currencies that have been based on something tangible (like e-Gold) have lacked that defence, and have failed.

Re:Did they actually look at the bitcoin rules?

[mysidia]

Yes, people have speculated in the past that bitcoin might be susceptible to botnets. Even if was true the vulnerability window has well and truly closed.

Don't be too sure.... a large botnet could potentially do some nasty things to the availability of the network ---- particularly, a Botnet with control of sufficient number of Bitcoins to generate an overwhelming volume of transaction spam, so legitimate transactions can't get through --- by using transactions of the minimum size, Or more traditional DDoS techniques such as packet storming the IP addresses of key nodes in the Bitcoin network.

Re:Did they actually look at the bitcoin rules?

[ras]

The current block reward is 25 * $577 = $14,425. This is huge compared to the current transactions fees.

Yes, it is huge compared to today's transaction fees. But mining fees will continue for some time yet. The bet is by the time they become insignificant mining fees won't be so small. A clue is the credit card network current roughly 10,000 transaction per second. If bitcoin managed that at 0.6c per kilobyte (the fee bitcoin relays demand) mining fees would be $72,000 per block.

To gain an insight into the odds of that happening, Paypal processes around 9 million transactions per day, or 100 per second. Paypal's revenues were $6.6 billion last year. That translates to Paypal making over $2 per transaction. Bitcoin doesn't offer the same service of course, but it currently charges $0.002 for a single transaction. (A transaction takes roughly 360 bytes).

remember that Bitcoin isn't the only game in town and miners can switch to mining an altcoin if they're not satisfied with the way "bitcoin is supposed to work".

You forget there are users of these coins - be they bitcoins or altcoins. In the end it is the users that pay the mining costs, be they transaction fees or mining rewards. In a word of competing altcoins, this translates to only the users having a vote on what the best set of rules are. What the miners think of the rules is largely immaterial. If you think this isn't true, try and set up a altcoin with spectacular miners rewards and see how many users you get. Maybe you will succeed where all other altcoin founders have failed.

The bitcoin foundation seems to be very aware of this underlying reality, and is behaving accordingly.

Re:Did they actually look at the bitcoin rules?

[ras]

Don't be too sure.... a large botnet could potentially do some nasty things to the availability of the network ---- particularly, a Botnet with control of sufficient number of Bitcoins to generate an overwhelming volume of transaction spam, so legitimate transactions can't get through --- by using transactions of the minimum size, Or more traditional DDoS techniques such as packet storming the IP addresses of key nodes in the Bitcoin network.

A botnet in control of a huge quantity of bitcoin's, throwing them at the miners network in minimal transactions sounds like a miners delight to me. There is a minimum mining fee, so while in the short term it might cause the bitcoin miners to gag on their feast, in the long term all it will do is transfer that huge quantity of bitcoins to the miners. Why on earth would anybody do that?

As for traditional DDoS - the history of bitcoin is one DDoS after another. Just recently some bright spark must have decided that because mtgox said there was a transaction malleability flaw it must be true, and started modifying every transaction they could get their hands on. In other words: if every there was a network battle hardened against DDoS's, it's bitcoin.

Re:Did they actually look at the bitcoin rules?

[iluvcapra]

To gain an insight into the odds of that happening, Paypal processes around 9 million transactions per day, or 100 per second. Paypal's revenues were $6.6 billion last year [paypal-media.com].

Just throwing it out there, but it's really hard to talk about Paypal profits in dollars compared to a miner's profits in Bitcoins, mainly because BTCs are expected to appreciate relative to dollars (and in the steady-state case, will appreciate relative to consumer prices). A lot of Paypal's profits are not in the transaction itself but in interest of the significant float on Paypal's books: they hold the money for a day or two before you transfer it out, and this is a huge amount of money in aggregate, and this is a kind of profit that's impossible to quantify just by looking at the blockchain.

Re:Did they actually look at the bitcoin rules?

[jythie]

And that is kinda the problem. The people who are pushing BTC are using economic models and thinking that were dropped decades ago. That is what makes the movement around it kinda surreal, it is a bit like people trying to bring back crystal spheres or the ether.

Re:Did they actually look at the bitcoin rules?

[ultranova]

The people who are pushing BTC are using economic models and thinking that were dropped decades ago.

Were they thrown out because they were proven incorrect or because economists, working for the banks and other large financial institutions, did their master's bidding? Because I can't help but notice that current economics neither prevented nor seem to be facilitating recovery from Great Depression 2.0. They have, however, done a fine job of justifying letting the infrastructure crumble to dust from lack of maintenance.

Re:Did they actually look at the bitcoin rules?

[squiggleslash]

The policies that were put in place to "recover" from the Great Recession were ad-hoc, and mostly centered around austerity, having much in common with Bitcoin's "price of everything, value of nothing" mentality. Only the monetary easing appears to have had any positive effects, but given it can't be targeted, it ended up disproportionately helping those who already had money and weren't actually having problems.

In the meantime, people using Keynesian models were very successful in predicting how all these anti-Keynesian policies would pan out. That's not the same thing, of course, as saying the models would definitely have worked if, for example, there actually had been a net stimulus from our governments, but it certainly did predict what, for example, cutting 750 thousand jobs from American governments (local/state/Fed) payrolls would do.

Re:Did they actually look at the bitcoin rules?

[ed1park]

From the article:

"That threat began to feel genuine in January this year when the G.Hash mining group from China grew to control 41 percent of the network’s power, before backing off in the face of outcry. Nonetheless, the dominance of a handful of large mining operations suggests a 51 percent attack remains possible, whether from one growing or two colluding. G.Hash now controls 29 percent of the network’s power, with the next three largest controlling a further 42 percent between them."

What's to stop a government from forcing the top few groups to do a 51% attack under duress? (Via an all out secret or public war on bitcoin.)

Some scenarios: G. Hash group is forced to collude with the Chinese government and their own secret offline cloud of servers to do a 51% attack. US could force Amazon Cloud, MS Cloud, NSA servers, etc. to all run the mining software and do 51% attack with the sole intention of destabilizing and ruining Bitcoin. And US, Russia, China could all work together and force collusion on the top groups in their countries with threat of jail or execution.

Re:Did they actually look at the bitcoin rules?

[jythie]

If we are going to use that as a measuring stick, considering people are calling the current downturn 'Great Depression 2.0' shows just how well newer economic theory has done. We are so spoiled by prosperity we actually consider the current situation to be earth shattering.

Re:Did they actually look at the bitcoin rules?

[tmosley]

The 49% notice what is happening and fork Bitcoin.

It happened before (different circumstances). It wasn't a big deal.

Re:Did they actually look at the bitcoin rules?

[Immerman]

Not really - unless the currency fluctuation rate is *extremely* high, and I'm talking "race to the store with your wheelbarrow full of today's paycheck because it won't be worth much tomorrow" levels, it is only the value at the time of transaction that matters. After all Paypal could immediately buy Bitcoin with their profits, just as bitcoin miners could immediately buy gold. Or both could immediately buy stock in an up-and-coming corporation.

Re:Did they actually look at the bitcoin rules?

[Immerman]

>Only the monetary easing appears to have had any positive effects, but given it can't be targeted, it ended up disproportionately helping those who already had money and weren't actually having problems.

Or, you could say monetary easing is inherently targeted - transferring wealth away from those who count their wealth in dollars rather than stock and other capital assets, aka the 99%

Re:Did they actually look at the bitcoin rules?

[sexconker]

I'm more into Dodgecoin myself. Much more trustworthy.

Many Doge
Such coin
Very trust
Much worthy

Re:Did they actually look at the bitcoin rules?

[Anonymous Coward]

Keynesian policies have never been carried out. Keynes proposed a grease and brake cycle to be coutercyclical to the business cycle, wheras the actual practice was a cycle of normal greasing and sloppy over the top greasing. Even if Keynesian policy were a sound practice, the inherent structural motivation of capitalism prevent its actual practice. Where ideology is similar, voters will vote for the canidate they think will bring them or thier community the greatest benifit, i.e. tax-funded infrastructure, welfare programs, or jobs.

And the economist's disagreements isn't in the short term effects of easing and austerity acst, but in it's impact on the long term. Additionally you could start a KeyneCoin that incorporated macroeconomic measures into it's creation algorythm, measures that could degrade old coins, and creation through a proof of stake system that would rewardstakes on coins the number of times they had been trasfered from a verfified distinct economic entity to another (verfied through a CA or bayasien algorithm) during a bust to decrease real interest and encouraage spending. During boom times decrease the rate of coin degradation and shift proof of work to simply the age of the stake to slow velocity and increase interest. This I think would be an interesting expiriement.

No big surprise there

[retep]

Ignoring game theory, it's easy to see how the model of mining being only paid by transaction fees doesn't make sense. After all, mining security is something that benefits all holders of Bitcoin, regardless of whether or not they perform transactions, so surely all Bitcoin holders should be contributing to that security.

How do you do that? Make everyone pay equally. Currently that is how Bitcoin works due to the inflation subsidy. (about ~10% per year right now, leading to a per transaction cost of about $50) Just keeping that subsidy indefinitely at some sane level, say 1%, is perfectly reasonable. There's other options too, but fundamentally people like a free lunch.

-Peter Todd, Bitcoin developer

Re:No big surprise there

[Laxori666]

The security of people who don't spend isn't at stake. Their coins can't be stolen even if there's a 51% attack. Plus the security of people who make transactions isn't at stake - their transaction can't be altered even with a 51% attack. What's at stake is people who perform a 51% attack doing some double-spending. Even so, I don't see why people wouldn't just increase transaction fees up to the point where that is infeasible.

OTOH it doesn't seem like the worst thing if there was a low level of constant inflation. As far as I understand, that's still an option, if everybody agrees to update their client so the network doesn't fork.

Re: No big surprise there

[Immerman]

I would *love* to see credit card companies compete with a 1% fee, especially for international purchases - as it is I think 5-10% is far more common, even if it's often hidden from the consumer. Then again quite a few stores and businesses are beginning to make those fees far more transparent - the last time I went to the dentist they charged ~10% less if I paid with cash rather than credit card.

Re:No big surprise there

[Laxori666]

Sorry, by "inflation" I meant "increase in money supply". It would be really easy to have constant inflation - just set the block reward such that every 52600 blocks mined (~1 year) would increase the amount of bitcoins in circulation by 2%. This would also be predictable. However it would constantly devalue everybody's bitcoins, just like with fiat money, so I don't know if it'd be ideal. It would incentivize mining though.

Re: No big surprise there

[Immerman]

Hey, I think of the shareholders! Of course in the interest of good taste I won't tell you *what* I think of the shareholders }:-).

But seriously, that is *exactly* why I think Bitcoin is a good thing - as it gains legitimacy the banks get a major new competitor they can't buy out or coerce, and so they're forced to optimize their own infrastructure to offer a competitive service. Rather like the effect of Open Source on proprietary software - even if you don't like their offerings, you've gotta like the fact that they keep the competition honest(er).

Cheats?

[fustakrakich]

You can't win unless you cheat. That is what the system in general rewards. Liars win elections, thieves win on Wall Street, bullies become sheriff. Cheats and bullies are top dogs in today's society. They are the gangsters who write the rules. Bitcoin is just another chapter. If there was no way to cheat, it would never have gotten this far.

Re:Cheats?

[TheDarkMaster]

You are the troll, "dude". What he said is an uncomfortable truth that nobody wants to hear, but still a fact.

Transaction Fees Change

[Bob9113]

Such changes could be difficult to implement, given the fact Bitcoin - by design - lacks any central authority." The main problem discovered is that transaction fees do not provide enough incentive to continue operating as "miner" after there are no more bitcoins left to be mined.

I'm not sure that is an accurate reflection of the research, but if it is, it is not very good research. Transaction fees can change, and have changed. The minimum transaction fee changed from 0.0005 BTC to 0.0001 BTC during the runup to $1100, to keep transaction fees low enough for small transactions. There is a central organization, The Bitcoin Foundation, whose authority is explicitly derived from consent of the governed; the miners and users choose to update their software to match recommendations by The Bitcoin Foundation.

If that summary is an accurate reflection of the research, it sounds like they don't really know much about how Bitcoin works. I mean, I know that much, and I've only spent a few hours reading about it.

Re:Transaction Fees Change

[Anonymous Coward]

>>The minimum transaction fee changed from 0.0005 BTC to 0.0001 BTC during the runup to $1100

>Which is exactly the problem they are referring to. The fee dropped to the point of being not worth it.

Er, what? The fee went from 0.0005 BTC to 0.0001 BTC because the VALUE of the BTC went UP.

Here is a hint:

  0.0005 * $5 0.0001 * $1100.

Such arrogance.

Re:Transaction Fees Change

[compro01]

The minimum fee set by default on the client the Bitcoin Foundation maintains (Now called "Bitcoin-core") was changed.

Any other clients or anyone who feels like doing their own compiling can set the minimum fee to anything they like, including 0, but there's no guarantee their transaction will ever get included in a block if they set it very small.

Re:Transaction Fees Change

[swillden]

The minimum transaction fee changed from 0.0005 BTC to 0.0001 BTC during the runup to $1100

Which is exactly the problem they are referring to. The fee dropped to the point of being not worth it.

Yes, but their conclusion is wrong in two ways, because the two parameters (fee and cost) are both variables.

The fee is actually a market-driven value, essentially a distributed real-time auction. Those who perform transactions bid for the services of the miners who generate the blocks to record the transactions. You're free to place any bid you want, but if there are higher bids available the miners will take those instead, so your transaction could fail to ever complete.

The cost, in computation, is a variable that is centrally controlled. In the past it has only been ratcheted gradually upwards to counter Moore's Law and the shift from general-purpose CPU to purpose-built ASIC mining. However, the increases can be halted, which will result in a gradual decline in monetary cost per block. Or it could even be decreased, to further lower the cost. However, it is important to keep the cost high enough that blocks can't be trivially generated, which in turn will keep the fees up.

Re:Transaction Fees Change

[Animats]

The minimum fee set by default on the client the Bitcoin Foundation maintains (Now called "Bitcoin-core") was changed.

Any other clients or anyone who feels like doing their own compiling can set the minimum fee to anything they like, including 0, but there's no guarantee their transaction will ever get included in a block if they set it very small.

Right The big mining pools get to decide what the transaction fee should be. Only miners can validate transactions. The default value in the wallet is only meaningful if the big mining pools are willing to accept it.

Also, remember that the block chain limits Bitcoin transactions to about 7 per second. That limit was hit a few times back in the day (last fall, when Bitcoin was booming) and no and low-fee transactions didn't get through for days, if at all.

Re:Transaction Fees Change

[J Story]

The fee is actually a market-driven value, essentially a distributed real-time auction. Those who perform transactions bid for the services of the miners who generate the blocks to record the transactions. You're free to place any bid you want, but if there are higher bids available the miners will take those instead, so your transaction could fail to ever complete.

I'm not sure I understand this. If "Joe" initiates a transaction with a very low fee, and no miner chooses to incorporate that transaction, is there any way for Joe to void the transaction and re-initiate it with a higher fee? If not, it seems to me that there is a danger that transactions may end up in no-man's land, with the bitcoins being "spent" from the purchaser's point of view, but with nothing showing up at the seller's end. In effect, money is lost. This looks to be a serious problem.

Re:Transaction Fees Change

[mysidia]

Er, what? The fee went from 0.0005 BTC to 0.0001 BTC because the VALUE of the BTC went UP.

No..... someone was apparently allowed to hastily make changes to decrease the minimum transaction fee in the client, because of some perceived increase in value on 3rd party exchanges that ultimately ended up being insolvent.

Since the price has gone back down, and BTC is now perceived to be worth even less than half as much on current exchanges as during that temporary runup ---- how come the minimum transaction fee wasn't restored to its original place, huh?

Re:Transaction Fees Change

[tmosley]

Did I miss something? When did the price crash back to $5?

Re:Transaction Fees Change

[Immerman]

Presumably because it hasn't been seen as enough of an issue in the community for the central non-authority to recommend a change. A 50% reduction is hardly on the same order as a 220x increase. The miners are of course free to ignore transactions that offer only the minimum fee, and people are free to increase their offered fee to entice miners to process their transaction. A fixed minimum fee on the other hand sets a hard limit that must be dealt with by the whole community.

Re:Transaction Fees Change

[tompaulco]

Since the price has gone back down, and BTC is now perceived to be worth even less than half as much on current exchanges as during that temporary runup ---- how come the minimum transaction fee wasn't restored to its original place, huh?

You don't HAVE to use the minimum transaction fee. You could always offer more to process your transaction.
I suspect they also haven't modified the minimum transaction fee because the price is still pretty high, about half of the all time high in fact. They adjusted it down because the price had gone up by orders of magnitude since the original minimum was set. It has not changed by an order of magnitude since the last change.

Re:Transaction Fees Change

[thoromyr]

replying to ac, but...

From your statement it sounds like you know absolutely nothing about the history of US currency and just made something up to support your baseless bitcoin fantasies.

When do you think the USG started issuing the dollar? (Hint, it was after the country was founded.) Do you know what was in use before the USG started issuing currency? Do you even know *what* the USG issued as currency? (Hint, it wasn't "worthless drabble that nobody wanted".)

Re:Transaction Fees Change

[JesseMcDonald]

If somewhere down the line someone eventually gets to processing the original transaction, then Joe might get double-charged, because I don't know if there's a way to void the previous transaction, but it may expire on its own after a certain period of time, so that might not be an issue.

The inputs to a transaction are specific unspent outputs from previous transactions, so once either of the transactions is included in the block chain the other one becomes invalid. That applies even if some or all of the bitcoins are sent to address they came from; even though the address hasn't changed, the coins still moved to a new transaction with different outputs. So you can't get double-charged, and there's no need to explicitly void the unwanted transaction; at most one will go through. Most likely the one with the higher fee.

Re:Transaction Fees Change

[mysidia]

You could always offer more to process your transaction. I suspect they also haven't modified the minimum transaction fee because the price is still pretty high

Yeah.... and I could always configure my bitcoind to treat transactions with a fee less than 0.005 as non-standard and not propagate them (which I do)

But my point is it's kind of silly for the network default minimum to "track exchange value" changes, if the minimum doesn't go back up, when the price movement on the exchanges sees a reversal.

Bullshit

[Laxori666]

The difficulty of mining scales with the amount of miners. If the amount of miners drops, the difficulty will drop, such that you still get a block every ten minutes or so. Then the only danger is that it is easier to mount a 51% attack, since there's less total mining power. Everyone who transacts in bitcoins will have an incentive to keep the difficulty high enough such that this is unfeasible. Plus, all the transaction fees are optional - you can put out a zero-fee transaction, or a 5 BTC-fee transaction, if you like. If the recommended fees that Bitcoin Core suggests are not sufficient then everybody can just offer more fees.

Re:Bullshit

[medv4380]

Really, what is the difficulty of mining when all coins are mined? You still need the miners, but if transaction fees don't actually make enough of an incentive then you end up with fewer and fewer miners. I'd say RTFA but you're a 'coiner reading and comprehending a counter argument isn't in you, and highlights the main flaw.

Re:Bullshit

[Laxori666]

It's like you didn't even read what I wrote at all!

Really, what is the difficulty of mining when all coins are mined?

"The difficulty is adjusted every 2016 blocks based on the time it took to find the previous 2016 blocks." So if it takes 14 days (2016 * 10 minutes) to mine 2016 blocks, the difficulty is exactly the same. If it takes more than 14 days, the difficulty is lowered. If it takes less than 14 days, the difficulty is raised. The difficulty has nothing to do with how many new coins are being generated.

Thus, if there are fewer miners, it will take longer to mine the blocks at the current difficulty, so when the next 2016 blocks have been mined, the difficulty will decrease.

Also note that as the difficulty decreases, it becomes cheaper and cheaper to mine. So the difficulty will adjust to whatever it has to be so it's economically feasible based on the amount of fees gotten from the transaction volume.

Re:Bullshit

[Laxori666]

You might like to take a look at blockchain.info and note that just about every single transaction that's being posted right now includes a (non-mandatory) fee. It looks like your entire argument is founded upon a fallacy!

Re:Bullshit

[Laxori666]

This was evident to those of us 3 years ago, who casually downloaded the bitcoin client, left it run for a week or so, and saw not one coin in return. We (by which of course I mean "I") subsequently lost interest and uninstalled the client.

Yep, bitcoin has been doing really poorly over the past 3 years.

Re:Bullshit

[ObsessiveMathsFreak]

Two things:
1) The transaction ratios here are of the order of 80 to 1, and the blocks chains are becoming ever more difficult to verify. How sustainable are these ratios as time marches on?

2) There is an inherant bias in verified blocks. Right now transactions are being selected, in part, based on their attached transaction fees. However, as the Bitcoin craze dies down, or even becomes mainstream, I don't see the practice of transactions fees catching on as individuals choose freeloading over payment.

Re:Bullshit

[ObsessiveMathsFreak]

Sorry the transaction ratios are of the order of 80,000 to 1. I can't see this continuing as blocks become more and more difficult to verify.

Re:Bullshit

[medv4380]

The point of the difficulty is to control the creating of bitcoins. The part your complaining about specifically is about what happens when there are no more coins to mine. They're saying that the fee wont be enough to keep people in. Really, but bother to read their counter argument before you spout off about it.

Re:Bullshit

[Laxori666]

Miners can simply choose to never include transactions below a certain fee. If enough miners do this then people can keep trying to freeload by posting free transactions, but they're going to take a really long time to get into the blockchain. Miners can and will choose to only mine blocks where the total fees are worth it to try to mine. So high-fee transactions will get in quicker, and low-fee transactions will take longer.

Besides, if miners do start to drop out, the difficulty will decrease (built-in network rule), and it'll become easier (and thus cheaper) to mine. Miners will drop out until the difficulty is such that it's worth it to mine the blocks, whatever the fees are. There's no danger of not having enough computation power to run the network.

Re:Bullshit

[Laxori666]

They're saying that the fee wont be enough to keep people in. Really, but bother to read their counter argument before you spout off about it.

I RTFA. I countered this point in each of my replies. Here it is again. I'll even bold the important parts:

As miners pull out, it will get easier to mine blocks. There will never be a shortage of computation power to run the network, because if half the miners pull out, it'll get twice as easy to mine blocks. If 75% of the miners pull out, it'll be 4x easier to mine blocks. If 90% of the miners pull out, it'll become 10x easier to mine blocks.

Get it? Whatever the number of miners, transactions will continue to be verified at exactly the same rate. Look at the hashrate chart. The network was chugging along just fine in July when there were < 1,000 terahashes/second. Now there are over 40,000 terahashes/second. So if 97.5% of the miners drop out, the network will run just as well as it did in July, that is, perfectly fine.

So when you reply, tell me again why it is a problem if some miners decide to pull out? Please don't just repeat once again that the article says that the fees will be too low and thus the miners will pull out. I get that that's what the article says. Why is this an issue, given the above?

Re:Bullshit

[ysth]

No, the point of the difficulty is to make attacks, err, difficult. Nothing to do with creating of bitcoins. If you are misunderstanding things this grievously, sit back and let other people talk for a while.

Re:Bullshit

[BasilBrush]

That's a chart of a Ponzi scheme.

Re:Bullshit

[Eskarel]

Except there is a hard cap on the number of Bitcoins, by design. At that point, there will be no more coins to mine, period, at any difficulty.

Re:Bullshit

[Anonymous Coward]

Except there is a hard cap on the number of Bitcoins, by design. At that point, there will be no more coins to mine, period, at any difficulty.

You are confusing blocks with bitcoins. When the cap on the number of bitcoins is reached, you can still mine blocks, but the incentive for doing so is the transaction fees instead of the new bitcoins created by the new blocks.

Re:Bullshit

[Laxori666]

Yes... I know. And what would be the problem with that? If you say it's because some miners will decide to pull out, I will pull out my own hair, because that's exactly what my post was addressing.

Re:Bullshit

[AK Marc]

I would consider the proper test of his hypothesis to be the number of "coins" mined by people mining their first coin. But I couldn't find a chart for that.

Crypto's Behave More Like Securities Than Currency

[teambpsi]

Bitcoin for all its technical sophistication is more of a threat to "stock exchanges" or "equity allocation" than it ever will be to "currencies"

It is not suitable to a "drive-thru" transactions due to the number of "confirms" required to have veracity in the exchange.

However, it is VERY WELL SUITED to the exchange of equity -- and is, given the current settlement times, much more of a threat to public ledgers like TORRENS (property exchange logs) -- or stock/ownership exchanges.

Look at Visa and Mastercard

[goombah99]

Visa and Mastercard tried this transaction fee model, and we all know they went out of bussiness. Case proven.

2140

[Salsaman]

Well, fortunately we won't have to worry about that until 2140. By which time I am sure transaction fees will be more than enough to compensate.

SSDD: Dot-com=energy=real-estate=Bitcoin

[VikingNation]

The phrase "same stuff different day" comes to mind when I think of the future of Bitcoin. In the last 10-15 years we have witnessed the Dot.com bubble, Energy bubble (remember ENRON), real-estate bubble (CDOs, Credit Default Swap, etc.) Bitcoin is the brave new world for the Wolf's of Wall Street.

Bitcoin advocates talk about a lot of positive aspects to the system. People naively assume that everyone will 'play by the rules' and do what is best for the long term stability of the currency. Wall Street will continue to invent creative and complicated ways to fleece others of their money. There is truly no honor among thieves. I for one will not be holding the bag when Bitcoin implodes due to dishonest games by white collar criminals.

[1] - Reference from Stephen King novel but a little more vulgar in the book

A new cryptocurrency?

[gonnagetya]

cryptocurrency Bitocin

Bitocin? Must be some offshoot of Bitcoin. Or the editors failed to "edit" anything and just want to be paid for sitting around, jacking off and hitting submit occasionally.

Re:Bitcoin again? come on.

[Laxori666]

gameable how?

Re:Wrong

[Kremmy]

This is entirely speculation until we've reached the point where the coins are no longer being issued.

Re:Bitocin?

[benjamindees]

Eliminates parasites.

main issue is the whole system

[globaljustin]

Most of the problems people describe seem to be directly related to its use as a pump and dump, actually.

No. **maybe** we'll see a viable "crypto-currency" but we have not yet.

BTC's main issue is that **whoever** controls a BTC exchange and mining operation can manipulate the currency at will, especially at the pinch points like when BTC values decrease by half at intervals. It's not just that someone could game the system, its that there is absolutely nothing preventing them, systemically and externally.

BTC has **built in** feedback loops, from a system science perspective. Areas where problems cannot be corrected if they arise given certain conditions.

The system doesn't have a fix for certain problems **by design** because...and everyone just needs to accept this: BITCOIN IS A SCAM

Re:main issue is the whole system

[JaredOfEuropa]

everyone just needs to accept this: BITCOIN IS A SCAM

We all "just" need to take your word for it, or did you have anything to substantiate this claim?

Bitcoin is just a mechanism to transfer tokens ("coins") securely from one wallet to another, and gradually add tokens to the available pool by letting anyone who wants to mine them. There's no scam in the design; the scammy part is in the way we attached value to those tokens, and the way exchanges manipulate that value (or just take off with our coins). Calling Bitcoin a scam is a bit like calling tulip bulbs evil by design because at some point in history silly people paid fortunes for them. Or calling the dollar scammy by design because Motherf..ing Guido just made off with the wad of cash you gave him for safekeeping.

Re:main issue is the whole system

[bobbied]

everyone just needs to accept this: BITCOIN IS A SCAM

I am no fan of BitCoin but it is not a SCAM. It may be that people use BitCoin to run their scams, but that does not make BitCoin a scam. It may be used nearly exclusively as a tool for criminal activity, but I don't think the inverters of BitCoin intended to foist some cryptocurrency scam on the world.

Investing in BitCoin is stupid, to be sure, but that's because BitCoin and other cryptocurrencies are rife with people who don't mind getting you to part with your money. If you want to buy something using BitCoin and somebody doesn't mind accepting them, fine, just don't fool yourself into thinking BitCoin is an investment and try to hold them.

Hey, lay off the guy . . .

[mmell]

Sounds to me like he just took a bath (financially speaking).

Crypytocurrency will not disappear.

[mmell]

Unfortunately.

It is a fantastic way for, say, drug or arms dealers to move money around more or less "off-grid". C'mon, say it with me . . . L - A - U - N - D - R - Y.

As I've pointed out before, it's currency, but it isn't what I'd call money. Money, you see, is that (often colorful, often artistic) representational marker created by a sovereign government for use as legal tender. It's tracked, monitored, regulated . . . all of the things that I for one expect my money to be. Currency on the other hand (if you insist on counting cryptocurrency as currency) is something of value (not necessarily paper or coin, but those will do as well) which is commonly exchanged in a marketplace. Unregulated currency? Okay, but when something goes wrong don't come to your government (including the police and the courts, by the way) for help - they may or may not do you any good, but you have to remember that they have a vested interest in seeing you use their competing product - that is, money . After all, what are you, a tax cheat or worse yet, some kind of criminal?

Now, the government (here in the US) has no problem with seizing and liquidating those assets when they can (and they have - see Silk Road). There's no denying that cryptocurrency has a value and government's worldwide aren't about to overlook that. Protecting you and me when the next BitCoin Exchange goes *pffft* and takes our (offshore, untracked, untaxed) assets with it? I'm not sure how that works (and I doubt that many bitcoin miners are in a hurry to declare their virtual income to the real IRS).

Re:Crypytocurrency will not disappear.

[mmell]

Did you make it past the links from guys who are selling stuff? I did.

From Wikipedia :

A definition of intermediate generality is that a currency is a system of money (monetary units) in common use, especially in a nation.[4] Under this definition, British pounds, U.S. dollars, and European euros are different types of currency, or currencies. Currencies in this definition need not be physical objects, but as stores of value are subject to trading between nations in foreign exchange markets, which determine the relative values of the different currencies.[5] Currencies in the sense used by foreign exchange markets, are defined by governments, and each type has limited boundaries of acceptance.

So you're right, I'm wrong - because cryptocurrency isn't currency of any kind. Is it? Let me emphasize - ...are defined by governments.... Every other reasonable definition of money and currency both contain this kind of wording. You're right, there. Ergo, cryptocurrency isn't currency at all - just a really clever pyramid scheme.

Re:Crypytocurrency will not disappear.

[mmell]

Sure - as a barter item, not as a currency. It didn't become a currency until someone had the bright idea to mint coins - suddenly, how much and how pure weren't questions any more. That someone was (as a matter of history, wait for it) . . . a government! Go figure.

According to your logic, a '97 Ford Thunderbird is currency. I traded one for a '95 Buick Regal. Was that Buick money too?

Is it 2140 already?

[Anonymous Coward]

It's 2014, why are we discussing this at all? As difficulty increases to the point that it is no longer financially feasible, miners will switch coins thus giving those who stay a better return rate. And at the current rate of valuation, 21Mil bitcoins will eventually be at least worth $21 Trillion or more with the current inflation rate of the dollar. And with the full transparency of bitcoin, its only a matter of time before the whole world moves to it. So laugh indeed all you wish... these "pump dumpin cheats" are easily making back what they invest in their systems.

Re:pfft

[dimko]

And that ABSOLUTELY doesn't happend with $$$$??? Like not even remotely as much as it happens to $$$? So far technically bitcoin has not been hacked or anything. All of problems happened with no specific relation of Bitcoin mechanism. Guess what, IRL currency get's manipulated much worse.

Way back when ...

[Taco Cowboy]

Back in the 1920's when that great depression struck, many banks folded, and people who had money in banks ended up with nothing.

No matter for what reason the banks folded depositors were the ones left holding the empty bag.

Kinda like what is happening in the various Bitcoin exchanges. No matter if it's stupidity, lack of security, or malice, it's the depositors (whoever parked their Bitcoins in that exchange) ended up losing it all.

Well ... back to the 1920's.

When the banks folded, did people abandon the greenbacks ? Yes or no ?

Same situation here ... The fact that exchanges vanishing into thin air doesn't render Bitcoins invalid.

True, some of the "rules" are flawed ( I kinda have a sense something is amissed ever since Bitcoin came out, back in 2009, but I just couldn't pin-point what is wrong with it, but thanks to those scientists at least now I know, but I digress ... ) and they may need to be changed ( ... as been pointed out, the implementation of the necessary rule change may turn out to be very hard ... ) but all in all, the system of Bitcoin, at least, for the concept of it, is still as valid as ever.

Many people are digging at Bitcoin, trying their best to make it sounds as if it's something uncertain, something ephemeral, something "flash in the pan" but if we are to look at the alternative to Bitcoin, ie, the FIAT MONEY SYSTEM, it too has been damaged beyond repair --- as so much money was created out of thin air, which means, the value of the fiat money is no longer valid.

Re:Way back when ...

[Anna Merikin]

Geeks who run with anarchists will be the first the anarchists turn on when "authorities" are gone. The greenback has an important phrase printed thereon "For all debts public and private" (within the USA.) Bitcoin has no such mandate.

And,. yes, people did abandon the greenback in the sense the greenback worth .05 oz. of gold was replaced by one worth .028 oz. in 1934.

Two hundred-thirty-some years after independence, dollars are still circulating because people believe in them. Still, there are those old-fashioned enough to disbelieve in "new" currencies and hoard an even more ancient and worthless material -- gold. And there are nearly three billion people who live in nations where gold is more desired than fiat currencies.

The world does not move as fast as true-believing miners would have us believe. Those who drink the crypto-curremcy kool-aid are clearly operating out of some fervor based entirely on faith, not logic.

That's quite OK, as economics is simply applied mass psychology, more or less, and not a hard science. So one can excuse geeks' lack of understanding of the subject. But to ignore the impolsion of this particular crypto currency at this time is absurd.

Re:Way back when ...

[iserlohn]

We developed a complete string of measures to prevent that from happening again. This requires public oversight and a certain amount of state control. However, the whole point of Bitcoin (originally, as proposited by S. Nakamoto) is the cut the state out from the equation, reverting to the previous state. So the question is, what can we do to provide the same amount of safeguard we have now for cryptocurrencies, without changing it's very nature?

Re:Way back when ...

[tmosley]

Why are you conflating anarchists (the people who run around trashing businesses at G8 meetings, seeking to destroy governments and heirarchies with force) with cryptoanarchists, who seek to make governments and central authorities obsolete by providing something better that people can chose to use?

Also, normalcy bias much?

Re:Way back when ...

[tmosley]

Those banks failed because of Fed interference in the markets. They should have been allowed to fail, and the Fed should have been shut down. Instead, we have built up a system where every bank is interdependent both with each other and the Fed, destroying their incentive to be conservative with their investments, instead being incentivized by the one size fits all FDIC premium to take outsized risks in search of greater bonuses.

It's sort of like lashing a thousand boats together. The owners of each individual boat see no need to maintain their boats, or even bail out the water that is leaking in, since they can just rely on the collective to bail them out. That works until it doesn't, then the whole systems goes underwater.

When that happens, you will be glad there is such a thing as bitcoin. Almost happened in 2008. Another crisis is coming like a noreaster. Don't know if the system will survive the next one.

Re:Way back when ...

[locust]

Hate to break it to you, short of koku, pretty much everything is fiat money.

Re:Way back when ...

[Marxist Hacker 42]

Actually, implementation of a rule change is drop dead easy.

Dump bitcoin and invent a new currency with the new rules.

Re:Way back when ...

[Marxist Hacker 42]

If you can't see the obvious connection between the two, try linguistics.

Re:Bitcoin again? come on.

[fnj]

the top-50 largest holding companies have assets totaling $15,681,169,806 in thousands of dollars

What the bleep? That's a pretty absurd way to write "$15,681,169,806,000".

Re: Bitcoin again? come on.

[VikingNation]

You missed the point. If this were to happen in the financial services sector you could't just wave you hand at it to make it go away. Bitcoin foundation says on their website the software is new. There are no doubt holes in the protocol that have yet to be exploited.

Re:Bitcoin again? come on.

[VikingNation]

I agree. What is the better way to wright it? Also, do you agree or disagree with my point?

Re: pfft

[GodInHell]

Can't tell if serious or successful troll.

Re:Wrong

[iluvcapra]

Mathematical modeling isn't speculation; it's not a guarantee, but it's a lot more than an unfounded guess, which is what the contrary position is. Economics is a science, it's not astrology.

why it's an issue

[Anonymous Coward]

You're ignoring the real problem: when the gold rush is over, most of the miners will disappear. Yes it will be easier for the remaining people, but that's the problem. That means it will be a hell of a lot easier to mount a 51% attack. If you own bitcoin, it's in your interest to invest heavily in mining even after the gold rush is over; otherwise a surprise 51% attack from a botnet could steal all of your bitcoins.

Re:why it's an issue

[Immerman]

So long as ASICs make mining 1000s of times more efficient than general-purpose computers, I suspect there will be far more profitable uses of a botnet than trying to overwhelm the bitcoin network.

Re:why it's an issue

[Laxori666]

[...] otherwise a surprise 51% attack from a botnet could steal all of your bitcoins.

This is patently false. A 51% attack cannot steal anybody's bitcoins. Stealing coins requires knowing somebody's private key, which amounts to cracking ECDSA, and if somebody can do that they don't need 51% of the computing power to mount it.

Here is what a 51% attacker can and cannot do:

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. This allows him to:

* Reverse transactions that he sends while he's in control. This has the potential to double-spend transactions that previously had already been seen in the block chain.
* Prevent some or all transactions from gaining any confirmations
* Prevent some or all other miners from mining any valid blocks

The attacker can't:
* Reverse other people's transactions
* Prevent transactions from being sent at all (they'll show as 0/unconfirmed)
* Change the number of coins generated per block
* Create coins out of thin air
* Send coins that never belonged to him

As to:

If you own bitcoin, it's in your interest to invest heavily in mining even after the gold rush is over [...]

Right. Everyone who actually uses bitcoin will have an interest in making sure there's enough computing power out there to prevent even those weaknesses that remain. Plus, note that a 51% attacker doesn't gain that much, financially, from exploiting those weaknesses. They can't really steal very many coins. The most they can do is double-spend, but for large transactions, people will want to wait for at least a few confirmations, which makes the double-spending almost impossible. What a 51% attacker can really do is screw over the network and attempt to destroy it, but if they're investing that much in the computing power, they're financially better off just legitimately mining for the fees. Then they too have a vested interest in perpetuating the integrity of the network.

Re:why it's an issue

[thoromyr]

so, your just fine with someone DOSing bitcoin ("Prevent some or all transactions from gaining any confirmations" is a sufficient example) and don't see that as a weakness? You also can't figure out any incentives for someone to do so?

If I could be arbitrarily prevented from using any of my credit cards or spending money in my bank account, I would consider that a serious concern.

Re:why it's an issue

[JesseMcDonald]

The attacker can't:
* Reverse other people's transactions

I'm not sure that's true. The attacker can control whether or not a transaction is included in a block, and can replace recent blocks on the chain with other blocks including different sets of transactions. Put together, that should imply that they can allow anyone's transaction(s) to confirm, and then produce a longer chain without those confirmed transactions. The transactions would go into the block chain the moment the attack let up, assuming they're still valid, but in the meantime the coins have reverted to their original addresses and can be re-spent if the attacker allows it.

Bitcoin has to be BETTER than fiat currency

[Camael]

And that ABSOLUTELY doesn't happend with $$$$???
Like not even remotely as much as it happens to $$$?
So far technically bitcoin has not been hacked or anything. All of problems happened with no specific relation of Bitcoin mechanism. Guess what, IRL currency get's manipulated much worse.

All this, unfortunately, is irrelevant. Bitcoin in itself has no inherent value. Its only value lies in what its users, and ultimately what the public perceives it to be worth. If I agree to accept 1 bitcoin from you in payment for goods worth USD$1, to both of us it is worth USD$1. If I refuse to accept any bitcoins in payment, to me it is worth nothing.

This brings me to the second point- all this widely reported scandals involving hacks, scams and failed exchanges is very, very bad for bitcoin. It does not matter where the failure lies- the general public will simply perceive bitcoin to be unsafe and hence refuse to accept or use bitcoins. Hence to the general public, bitcoin is worth nothing.

To be widely adopted, bitcoin has to prove that it is better than fiat currency and so far it is doing a terrible job. The failure of the ex-largest exchange, Mt. Gox is the cherry on top.

Re:Bitcoin has to be BETTER than fiat currency

[Immerman]

>To be widely adopted, bitcoin has to prove that it is better than fiat currency and so far it is doing a terrible job. The failure of the ex-largest exchange, Mt. Gox is the cherry on top.

So, let's see you send some cash from the US to a friend in Asia or Africa faster and cheaper than you could with Bitcoin. Hell, I bought something from the UK a few years back, and it took like a week and cost me almost 10% just to give them my money. Remember, Bitcoin was invented as a decentralized electronic payment system, not a currency. That it is growing into a currency is thanks to the fact that it does have inherent value as a payment system, and a bunch of anarcho-capitalists are jumping on the band wagon. It'll be years or decades before the hype-based bubble fades away to expose a stable value - in the meantime some folks will enjoy gambling with it, the same as with any unstable currency, and others will simply take advantage of its design purpose of cutting the banks out of money transfers, while actually storing their wealth in more stable currencies.

Re:Bitcoin has to be BETTER than fiat currency

[codebonobo]

All this, unfortunately, is irrelevant. Bitcoin in itself has no inherent value. Its only value lies in what its users, and ultimately what the public perceives it to be worth.

Are you suggesting their is no inherent value for a system that allows me to send thousands of dollars instantly and securely to anyone in the world with costs ranging from half a penny to 0? Are you suggesting a technology that allows me to use escrow/arbitration services that are free and remove all risks with counter-party trust has no value?

I would love for you to provide me an alternative solution that can accomplish these things. Until such, bitcoin has tremendous inherent and intrinsic value outside of merely what speculators perceive.

Re:Bitcoin has to be BETTER than fiat currency

[Immerman]

>Is there some reason you can't just use paypal?
Yes, I was preordering a Pandora handheld, and they didn't accept paypal. Something about terms of service I believe, or maybe they just couldn't take the risk that their assets would be indefinitely frozen, as is not uncommon with Paypal. Even the credit-card purchases, which I started with, ended up being frozen and refunded - something about a comparative nobody suddenly getting like $1M in payments sending up red flags. And this was before Kickstarter caught on.

>What you actually seem to want is just a digital payment system, which is not at all what bitcoin does.
What do you mean? It's *exactly* what bitcoin does, the very essence of its functionality. That it does so without regard to national currencies is, depending on the application, either a benefit or disadvantage. A benefit since it sidesteps virtually all national and international currency-based regulations, and a disadvantage only if you're dealing with someone else who would prefer the same currency you use, in which case there are lots of other options available at relatively low cost. It certainly simplifies the infrastructure - buy virtual widgets from anyone selling them in your local currency, transfer them quickly and securely, and let folks on the other end convert from widgets to their local currency. IIRC that's *exactly* what the white paper released with the initial implementation proposed. The whole currency thing came later.

Re:Bitcoin has to be BETTER than fiat currency

[Immerman]

Ugh. Meaningful international banking reform - I'll believe in such a thing when I see it. Heck, I'd take meaningful national-level banking reform as a proof-of-concept. Not holding my breath for even that though.

I think that's one of the biggest things Bitcoin brings to the table - it's a disruptive technology for international money transfers and, assuming it continues on towards becoming a major player, one way or another the banks are going to have to figure out how to compete with it. Heck, they may even incorporate it, or something like it, into their own transfer systems. If I could walk into the bank and reliably transfer money to someone in Africa (who may not have an actual bank account, or possibly even official ID) for a 1-2% fee I wouldn't much care about Bitcoin, aside from its ability to act as a low-barrier non-inflationary currency to hedge against governments screwing their populace over with hyper-inflation. And even that is limited - just like with any other currency, somebody needs to be willing to buy your hyper-inflated local currency for you to be able to translate. At least unless the competing currency is popular enough that it is accepted instead of the local scrip. And if that's the case it'll probably be banned by the very people manipulating the local currency. It's good to be the king.

The whole deflationary currency thing is interesting, but available evidence suggests the idea of a steadily growing economy is an industrial-revolution anomaly, certainly the idea of perpetual economic growth is ridiculous on the face of it - exponential growth curves *always* eventually slam into hard limits, usually with unpleasant results. And without perpetual economic growth even a fixed-numeracy currency won't be perpetually deflationary, even if other competing currencies don't interfere with any deflationary tendencies.

Don't underestimate the convenience factor

[Camael]

In the analogy of a real mine it's like you're operating the mine in your backyard despite making a loss on doing so all so you can keep using the dollar. You wouldn't do it. Unless the mining process can break even or at least remain cheaper than paying interest or transaction fees at financial institutions then there's no point in being involved.

Aside from the cost issue, there's also the convenience/nuisance factor to consider. I think most people would have serious objections to having to purchase, maintain and run a miner just to be able to make payments compared to paying an intermediary like a bank fees to take care of transaction costs for them.

Re: wooo look at that strawman BURNNNNN

[allcoolnameswheretak]

Where did the money go in the Wall Street crash?

Money on stock exchanges is never lost. For every seller there is always a buyer. For every investment there is a payout. It's like the conservation of energy. Money changes hands, but it can not simply vanish, like BitCoins apparently can, unless you actively destroy cash currency.

And here we go again

[Chas]

Cue all the Bitcoin boobs about how this guy is wrong, and Bitcoin is justsowonderful and nobody who isn't slobbing the Bitcoin knob knows anything.

Bitcoin has basically shown that we've now supassed Barnum's Law. Suckers are now continuously spawning at a rate approximating the Planck Instant.

Game theory to fiat dollar system

[Flammon]

Of course, when we apply game theory to the current fiat dollar system, there's absolutely no way anyone can cheat.

I must not be getting this..

[joe user jr]

After all the bitcoins are mined, you can't mine them, right? Because they're all mined.

There aren't any left to mine.

So you can't mine them.

I don't see how this is a problem that incentives can solve, and I don't see how it is a problem period.

Re:I must not be getting this..

[squiggleslash]

MIners in Bitcoinworld have two roles. One is to "dig for Bitcoins", that is, solve cryptographic problems that result in the creation of new bitcoins. As you say, this role has, effectively, an expiration date (which means Bitcoin is unsustainable, FWIW, if you're vaguely left wing read Keynes for an explanation. If you're right wing, Milton Friedman's over there and he'll explain it to you too. This isn't rocket science. But that's another story.)

The other role is to facilitate transactions. Bitcoin transactions are performed by maintaining the "blockchain", the giant ledger (I'm not making this up) that records every single Bitcoin transaction ever. (Again, I'm not making this up.) Obviously if any old person could add a line to the ledger it would be fairly insecure, so instead someone who wants to give money to someone else sends a message to the miners, signed with their wallet's key, that says "I'm transferring Bitcoin $X from my wallet to $this_person's", and each miner verifies, using the blockchain, that they have Bitcoin $X, and if so adds the line to the blockchain transferring the Bitcoin, and broadcasts a message to all the other miners saying what they've done so everyone else ends up with the same blockchain.

And once enough miners have confirmed they've added the transaction, the two parties with the wallets involved say "Yay, we transferred the monies" and they're happy. At the same time, the miners involved, using some algorithm I'm currently unfamiliar with so will not bother to explain in detail but the point is it exists, take a share of the transaction they facilitated as a "transaction fee".

It's this transaction fee that's the second method of making money from mining and it's why it's expected that mining will continue after all the Bitcoins are mined, although this brings us to the story, which argues they won't because people won't be willing to pay transaction fees that are economic enough to make it worthwhile.

Re:I must not be getting this..

[crtreece]

using some algorithm I'm currently unfamiliar with so will not bother to explain in detail but the point is it exists, take a share of the transaction they facilitated as a "transaction fee"

The sender in the transaction specifies the transaction fee. The wiki has more info.

"the person attempting to make a transaction can include any fee or none at all in the transaction. On the other hand, nobody mining new bitcoins necessarily needs to accept the transactions and include them in the new block being created. The transaction fee is therefore an incentive on the part of the bitcoin user to make sure that a particular transaction will get included into the next block which is generated. It is envisioned that over time the cumulative effect of collecting transaction fees will allow somebody creating new blocks to "earn" more bitcoins than will be mined from new bitcoins created by the new block itself. This is also an incentive to keep trying to create new blocks even if the value of the newly created block from the mining activity is zero in the far future. "

Re:I must not be getting this..

[Immerman]

Almost.

Basically as I understand it "mining bitcoins" *is* facilitating transactions. It's the same exact operation - when you successfully add a block to the ledger part of that block says "transfer N fresh new bitcoins from the ether into my wallet" as the transaction reward - that's the mining part. You could instead say transfer 100*N bitcoins, but then nobody else would accept your block because you're not playing by the rules.

As for the transaction fees - there is no algorithm by which the network skims a cut of your transaction - basically when you want to make a transaction you broadcast to the network "I want to transfer X coins from wallet A to wallet B, and I'm posting a bounty of Y coins to make it happen". The size of Y is completely up to you, but obviously the bigger it is the more miners will want to include your transaction in their next block. Then when a miner creates a block recording K transactions it records X1 through Xk transactions between various wallets, as well as Y1 through Yk transactions into the miner's wallet.

Re:I must not be getting this..

[Immerman]

>Yeah, alchemy was ever so successful.

We don't need alchemy - if we can work out how to cost-effectively concentrate metals from seawater (genetically engineered salt-water plants perhaps?) The value of gold will plummet (uranium, thorium, and various other valuable metals as well). Plus there's the possibility of discovering actual new deposits. Our deepest mines have barely scratched the surface of the Earth's outer crust, most mineral wealth is as yet untapped. Plus many asteroids are believed to be rich in rare elements.

As for counterfeit Bitcoins - someone correct me if I'm wrong, I'm a little fuzzy on the exact details here, but I don't think that's actually possible, for the simple reason that there's no such thing as an "isolated bitcoin" that could be counterfeited. Bitcoins only exist in wallets, and wallets can only receive bitcoins from other wallets or "mining" transaction processing rewards. The ledger is public, so you can't transfer more BC from a wallet than are actually in it, and nobody else is going to accept as valid a transaction block that gives a non-standard reward - I could easily create an otherwise valid block rewarding me 1,000,000BC, but that block would be rejected as a cheat, because I didn't obey the established rules for what the reward should be.

Similarly if I could even partially crack the encryption scheme I could generate new blocks far faster than anyone else, but that would simply drive up the calculation complexity so that the fixed transactions-per-week limit was maintained. If the performance gain were significant enough I might suddenly become the majority controller of the bitcoin ledger, making all sorts of potential attacks possible, but that would be immediately obvious, and I would have to expect that people would be inspecting the blocks I generate with a fine-toothed comb. I could destroy the value of the Bitcoin network by flooding it with fraudulent blocks, but couldn't quietly counterfeit anything. What I could potentially do if I had cracked the encryption is start stealing other people's money by spoofing payments from their wallets, but counterfeiting new coins? No.

Re:wooo look at that strawman BURNNNNN

[r.freeman]

No, not everyone gets burn. Only the people who choose unwiselly to keep money on some guy's bank instead in own pocket (own computer, with 2 backups on usb pen or paper etc).

Everyone gets burn in case when big banks "too big to fail" are sponsored out of pocket of every citizen. And you can NOT DO ANYTHING TO STOP THIS. Now remind me, which currency was that?

Re: wooo look at that strawman BURNNNNN

[r.freeman]

And yet NONE of this affected me! Wonderfull.

When this happesn with banks operating in fiat especially in USD, then each time every citizen is hurt when tax money "rescues" the bank/banksters who are "too big to fail".

And when USD is printed out of thin air, every user and every holder of USD in the World looses some of USD.

E.g. at some point 1 USD was worth for example 1/100,000,000,000 of entire pool of USDs, after decade it changes to say 1/200,000,000,000 of entire pool of USDs, so if totall markets using USD did not grew x2 to compensate then you lose some buying-power as USD holder/user.

USD buying power seemed to fall by x10 (1000%) over this century or so, so they over-print it.

In the same time, 1 bitcoin was, and ALWAYS WILL BE 1/21,000,000 of entire bitcoins pool. As a result, during last 2 years bitcoin RISEN in price x100, making mny ordinary people who are geeks or had a bit of fath into millionares.
While at some point this will slow down, at least you are guaranteed to always hold given fraction of totall BTC supply.
Same as with gold.
So you will not be silently stolen from by eithre printing out of think air because some man said so changing previous arragement (giving up gold standard despite initiall promises)
nor by bailouts to save banksters (unless YOU made yourself decission to give money to some crooks or irresponsible merchants/banks but that is your own choise which you have a fair chance to avoid, e.g. store most of wealth on own wallet).
This is what makes bitcoin a very fair system compared to the alternatives, for me.
Plus it's really good, fast and cheap method to send value to anywhere in the Internet/World :)

harping on limited amount of coins

[Danathar]

Can somebody explain to me WHY it matters if there is a fixed amount of coins when you can split a coin to something like 8 decimal places, price and buy things in fractions of a coin.

The dollar practically speaking can only be split into pennies. I can understand why you would need more money made. Bitcoin will probably ALWAYS have enough atomic satori to go around.

Re:harping on limited amount of coins

[codebonobo]

Can somebody explain to me WHY it matters if there is a fixed amount of coins when you can split a coin to something like 8 decimal places, price and buy things in fractions of a coin.

The dollar practically speaking can only be split into pennies. I can understand why you would need more money made. Bitcoin will probably ALWAYS have enough atomic satori to go around.

The reason 21 million coins matter is this is the limit that ultimately makes bitcoin deflationary instead of inflationary in the longterm. The divisibility of a coin does not devalue the currency but is akin to a 2 to 1 stock split where the value of the stock is half with double the shares thus the total value remains the same. When a government inflates the monetary supply it devalues the price of the currency unlike if they added more decimal places to the dollar. Currently, USD reduces in value between 5-8% a year minimum and other fiat currencies with greater rates of inflation. Bitcoin is likely to grow in value because it is designed to be deflationary in the longterm with most coins mined by 2040 and all by 2140.

Re: wooo look at that strawman BURNNNNN

[TheDarkMaster]

Money can vanish. This can happen when you have shares that worth "X" and then these shares lose 90% of value for any reason.

Re:Wrong

[ultranova]

Mathematical modeling isn't speculation; it's not a guarantee, but it's a lot more than an unfounded guess, which is what the contrary position is.

A mathematical model is just an assertion about relationships of things. It may be well-founded or a completely random guess. Drawing conclusions about the correctness of an assertion just because someone bothered to write it out as a formula makes as little sense as drawing conclusions about the correctness of an assertion just because someone wrote it in english.

Garbage in, garbage out.

Economics is a science, it's not astrology.

Most of the time, economics is a marketing campaign, trying to sell a particular product (like a mortgage) or a worldview (like laissez-faire capitalism or tax cuts for the rich). Economists are as much scientists as used car salesmen are, and far less trustworthy.

If it looks like a duck and quacks like a duck...

[sjbe]

We all "just" need to take your word for it, or did you have anything to substantiate this claim?

Seriously, it *might* be that bitcoin is legit but frankly it is absurdly easy to paint the picture that bitcoin is a Pump-and-Dump scheme. If I were to describe a hypothetical pump and dump scheme using a hypothetical digital currency, it would sound an awful lot like bitcoin. Doesn't necessarily mean that bitcoin is such a scheme but anyone who uses it without strongly considering the possibility is a fool.

Bitcoin is just a mechanism to transfer tokens ("coins") securely from one wallet to another, and gradually add tokens to the available pool by letting anyone who wants to mine them.

No it is NOT just what you describe any more than dollars are just printed pieces of paper we can hand to one another to buy things. It is a type of currency and as a result it is much more than just a mechanism of transfer. Bitcoin is the entire system it creates including the exchanges, the software, the transaction infrastructure, the rules and the rest. The ability to transfer bitcoins between digital wallets is pretty much useless without the rest of it so saying it is just a transfer mechanism really isn't correct.

What's curious about bitcoin is that functionally it's pretty much a digital money order. It seems to have some geek appeal but there isn't anything functionally novel about what it does. I think it is an intellectual curiosity that will be studied closely by economic researchers but practically speaking I don't really see much point in it. It carries a huge amount of risk and externalized cost for something that I can already do with a lot less bother.

Re: wooo look at that strawman BURNNNNN

[O('_')O_Bush]

Actually, just like with dollars, the creator can choose to inject more BTC into thesystem at any time. That feature was designed into the currency.

And holding some fixed share oof something is not a good thing. That just means it is easy to manipulate by speculators (also just like gold) in comparison to real currencies in which a stable purchasing power is desired.

As for the "many" geeks turned millionaires, that is hogwash. There were a handful of accidental millionaires, but nobody predicted the heights of the bubbles and while many made some money, with the exception of the accidents, all others liquidated at 2-3x value, not 1000-10000x value.

The middle man is still there

[sjbe]

One of the premises of bitcoin was that we would no longer have to pay the middle man in a transaction

Which is largely a false premise. Virtually all bitcoin transactions will require exchanging bitcoins for other currency. This means you have to find a middle man to exchange the money and that is never free. Furthermore by taking out the bank from the transaction you have instead incurred a lot of additional risk (exchange rate risk, counterparty risk, volatility, opportunity cost, market risk, etc) which under any sane accounting carries a cost. You have essentially taken on the costs that would normally be borne by the middle man on to yourself when you use bitcoin.

Re:The middle man is still there

[Immerman]

You raise a good point. However you must also understand that the middle man is, on average, making a handsome profit, or he wouldn't be there. So, on average, you will pay more going through the bank than you would taking on the risks yourself. In any transaction where you can't afford to bear the costs if things go sour you're probably better off using a bank - like any other form of insurance you're paying a fixed cost up front to avoid risks you're unwilling to take. But most of the time you'll be better off cutting out the middle man and pocketing their profit yourself.

Re:The middle man is still there

[sjbe]

However you must also understand that the middle man is, on average, making a handsome profit, or he wouldn't be there.

The amount of profit a middleman makes depends on a lot of factors including size, competition, technology and more. Some make a lot of money, others not so much. However absent specific legislation mandating their use (like car dealerships) middlemen cannot exist for long unless they are providing value. You pay a bank to facilitate transactions because the bank does a LOT of it and they can do it cheaper, faster and with less risk than you or I can on our own. This remains true in most cases even factoring into account the fees they charge. Now some may (and many do) decide to charge excessive fees but that is a separate issue and that is when you start shopping around. Nobody rational will use a middleman when they can do it cheaper and/or better themselves. Bitcoin at first glance appears cheaper in some cases but only until you account for the all of the costs.

Banks may be annoying and charge more than is fair way too often but I don't really see bitcoin replacing them anytime soon.

Re:The middle man is still there

[Immerman]

A fair point. For speedy international money transfers however the barriers to entry were high, and if you've ever tried it you know that the options are neither straight-foward nor cheap. And for transfers between trusted parties (such as sending money home to the family) Bitcoin offers minimal risks aside from market volatility. I propose that in the medium to long term Bitcoin and related technologies that drastically reduce the barriers to entry will serve to also drastically lower the barriers to competition, depriving the major players of a traditionally lucrative cash cow.

Re:The middle man is still there

[thegarbz]

You're working under the only assumption that the goal is to have another currency in the end. I used to think that with Paypal as well, just a stop off while I receive money before it goes into the bank.

If however I spend the same bitcoin I receive there's no requirement to convert. This isn't feasible with bitcoin currently due to its insane volatility however if the currency stabilises why would you need to convert back to dollars? And while you're thinking of your answer, think 5 years in the future or think back to when you were a kid, did you ever trade marbles for something nothing like a marble?

Re:The middle man is still there

[Immerman]

You don't actually contradict my claims. Yes, US banks could compete with Bitcoin, and hopefully will eventually, but without Bitcoin (or something like it) they have no incentive to do so. You live in a country with decent international banking? Congratulations. Now, go wire some money to a friend in the US, southern Africa, or Pakistan. Preferably a friend without any form of official ID.

As for volatility - it seems to me that, for the most part, Bitcoin prices are pretty stable over any given 4-12 hour period, which is all that's relevant when using it strictly for money transfers.

Honestly I could give a fuck about Bitcoin itself - it's simply an interesting technology that's democratizing one of the cash-cows of the banking industry. Soon enough the banks will no doubt adapt and BC will cease to be relevant.

Re: wooo look at that strawman BURNNNNN

[allcoolnameswheretak]

If you invest 100$ into one share, whoever sold you that share now has your 100$.
If later you need cash and want so sell your share, but its price is only at 10$, it means that there are buyers willing to pay only 10$ for your share.

Subjectively you could argue that you "lost" 90$. But the person who sold you the share for 100$ could now buy it back from you for 10$ and he would have "won" 90$. In total, the balance of the transactions is 110$. No money has vanished. The value of the commodity has changed, and there are winners and losers of the exchange. One mans loss is the other mans win.

Economics = science

[sjbe]

Most of the time, economics is a marketing campaign trying to sell a particular product (like a mortgage)...

Your assertion is every bit as absurd as claiming that medicine is a marketing campaign because some people try to sell pills. Economics is the study of behavior with regard to scarce resources. Economists don't have anything to do with selling mortgages or any other specific financial product, nor does the field of economics. Economics most certainly is a science and is conducted using the scientific method. Economists develop a hypothesis, build a model to predict a behavior and then try to test that model. The fact that we cannot in many cases conduct double-blind experiments due to practical constraints does not make it any less of a science. The fact that our understanding of economics is imperfect likewise does not make it any less of a science.

When people get into trouble with using economic research is when they use it beyond the limits of the models. For instance the Black-Scholes equation is incredibly predictive *provided* that you stay within the constraints on the model, which are numerous. Go beyond the assumptions of the model and you do so at your own risk.

Economists are as much scientists as used car salesmen are, and far less trustworthy.

Perhaps you should actually find out what economics actually is and how it really works publicly proclaiming your ignorance to the world.

completely inaccurate

[slashmydots]

ANOTHER bitcoin article by someone talking out their ass with no idea what they're talking about. Yay!
"The main problem discovered is that transaction fees do not provide enough incentive to continue operating as "miner" after there are no more bitcoins left to be mined."
That's 96 or so years from now. By then, they're hoping the volume of transactions makes the fees worth more than the block itself. Plus, the block will be cut in half many times prior to then so it will be even earlier that the reward will drop. But then there's supply and demand. When the block reward every 10 mins went from 50 to 25, the price rose quickly. That's how it works. So if the block rewards is 1.25 and the transaction fees add up to 4.2, bitcoins are simply worth more. It auto-adjusts. That's how it was designed!

Peercoin

[ChodeMonkey]

Issues such as this might encourage use of alternate coins that don't rely on mining in the long term (e.g. peercoin).

Re:pfft

[tmosley]

Those weren't in the "bitcoin system". Those were outside the bitcoin system, in situations where people chose to trust third parties with their bitcoins and had that trust violated.

If the Mt. Gox collapse means that there is some fundamental problem with bitcoin, then the MF Global collapse means that there is a fundamental problem with every currency and market on the planet (hint: it doesn't in either case).

Also, nice strawman. OP didn't say anything about stories being made up. The premise of the article is flawed beyond belief, as there will be far fewer miners once there are no more bitcoins to be mined, so difficulty will fall, and they will get a larger share of the perhaps larger transaction fees.

Re:wooo look at that strawman BURNNNNN

[tmosley]

Everyone gets burned when the banks go under because the dollar is intrinsically linked with the banks via the Fed. If Mt. Gox was also the leading miner you might have had a point.

The relationship is more like gold and a gold exchange. An exchange can collapse, but only the people who trusted the exchange are really effected. The gold is still in vaults, private safes, and in jewelry around the world.

Re: wooo look at that strawman BURNNNNN

[tmosley]

You are a liar and should be modded into oblivion.

Re:Wrong

[tmosley]

Economics absolutely is NOT a science. Science doesn't have schools of thought that persist for decades (especially after being proven false).

Economics and science have a common ancestor in PHILOSOPHY.

Re:If it looks like a duck and quacks like a duck.

[tmosley]

Pump and dump schemes exist within markets. Markets themselves aren't pump and dump schemes. Just because there is a Highway to Hell doesn't mean we shouldn't use roads.

Re: wooo look at that strawman BURNNNNN

[njnnja]

You only lose (real) wealth via inflation if 1) you hold currency directly, or 2) you hold assets that are notionally defined and inflation is not sufficiently account for in the notional definitions.

So if you hold fiat currency directly in a non-interest bearing account, or in cash under a mattress, then you get hurt by inflation (1). Or if you hold bonds, or a savings account (2), whose interest rate is not large enough to compensate for inflation (particularly unexpected inflation), you will lose real wealth.

But note that these are not as big a problem as most people think. Generally, we do not hold our wealth in currency (1). Although it works acceptably as a store of wealth (and very well as a transaction medium), the opportunity cost is usually so high it is a poor asset over a long period of time, even if there were no inflation. For example, unlike dollars, gold has not lost money to inflation over a long period of time. However, if you held your wealth in gold, you would not have invested it in real estate, or the stock market, or a local franchise, etc. and so the real comparison that should be made is not gold versus dollars but rather gold versus any of the other things you could have invested in.

And (2) is much less of a problem because typically when we write notional contracts we account (as best we can) for inflation. So bonds during periods where inflation is expected to be high will have high nominal returns, and during periods of low inflation they will have low nominal returns.

Most people will not hold their wealth in a currency, such as dollars or bitcoin or gold, but rather, use those currencies to make transactions (ie. purchase goods and services, or temporarily as they sell one asset and buy another), and put their wealth into productive assets. The value of productive assets is not dependent on the value of the currency that they are denominated in, but rather, in the short run, the simple supply and demand for that asset, and in the long run, on the share of the total economy (across all currencies and denominations) that the asset is able to command.

If in 20 years, if some company such as Google controls 50% of the total productive capacity of the entire globe, then it doesn't matter if you sell 1/1,000,000,000,000 of the company in dollars, euros, yuan, or bitcoin, the relative value of those currencies will be balanced to reflect 50% * 1/1,000,000,000,000 of the world's GDP.

Re:Crypto's Behave More Like Securities Than Curre

[tmosley]

"I performed a 51% attack on bitcoin and all I got was this stupid t-shirt"

Re:Bitcoin again? come on.

[tmosley]

Yup, that's why we don't have physical cash. That would be, like, totally retarded and junk.

Re:Bitcoin again? come on.

[tmosley]

Less "Goldman Sachs and Capital One" and more "Ye Olde Bakery and Printte Shoppe".

Don't compare tiny 4 year old systems to planet-spanning systems that are hundreds of years old.

Re:Bitcoin again? come on.

[tmosley]

How about 15.68 trillion?

Re:Crypto's Behave More Like Securities Than Curre

[Immerman]

Depends on context - for mail order transactions the BC confirmation time is negligible, and for drive-through transactions, as others have pointed out, the risk is usually low enough to be ignored. Compare it to paying by check, an option still widely available in the world - until you have a chance to deposit that check you don't know for sure that the account it draws on even exists, it could just be a convincingly printed piece of stationary - a fraud far easier to perpetrate than double-spending bitcoins. Meanwhile you can immediately at least confirm the existence of money in the source bitcoin wallet by examining the public block chain.

Re:Crypto's Behave More Like Securities Than Curre

[Immerman]

Checks take even longer to confirm - sometimes days or weeks, and have seen widespread usage for decades.

Re: Bitcoin again? come on.

[Immerman]

>you could't just wave you hand at it to make it go away

And yet I remember a few years back a string of major bank bailouts that did just that around the world. And aside from the Iceland who charged their bankers with treason for gaming the national economy, the criminals who pocketed the profits are still mostly sitting in the same offices.

Re:pfft

[petermgreen]

as there will be far fewer miners once there are no more bitcoins to be mined, so difficulty will fall, and they will get a larger share of the perhaps larger transaction fees.

So you have a scenario where miners are giving up and the toal network hashrate (and hence the difficulty) is falling. This means two things.

1: The ammount of hashing power needed for a 51% attack goes down
2: The ammount of mining hardware available on the likes of ebay at knockdown prices goes up.

Combine the two and it potentially becomes a lot more economical to amass enough mining power to do a 51% attack.

The motives of the attacker could be varied. It could be a government who wants to destroy bitcoin. It could also be done by someone (or a cartel) for "buisness" reasons (if you control 51% of the hashing power you can enforce a minimum transaction fee by refusing to accept any blocks that contain transactions with lower fees).

Re:If it looks like a duck and quacks like a duck.

[petermgreen]

It seems to have some geek appeal but there isn't anything functionally novel about what it does.

What is novel about bitcoin is it does what it does without requiring a central authoritiy. People who have tried to make "alternative money" systems with a central authority have found themselves either crushed or subsumed into the regulated system where the government can tell you who you may or may not give money to or order transactions reversed long after the fact.

bitcoin is to e-gold as gnutella is to napster.

Re: wooo look at that strawman BURNNNNN

[r.freeman]

Actually, just like with dollars, the creator can choose to inject more BTC into thesystem at any time. That feature was designed into the currency.

What the actually fuck?

What you say is like saying "Well Linux may be nice, but one day the Linux Creator can decide to forbid everyone from using linux and change the licence of entire existing code to closed-source".

3 seconds of googling will tell you why this is basic property of Bitcoin that the number of blocks, coins, and other such things are set in stone (ofc. someone can make bitcoin2 with other properties etc, or even try to push it as hard-fork, but it's another currency then or all/most users need to agree, not something "the creator" can do!!)

Why your obvious missinformation has 2 score points? This is to me prove that slashdot moderation system is not working well.

Re: wooo look at that strawman BURNNNNN

[codebonobo]

Actually, just like with dollars, the creator can choose to inject more BTC into thesystem at any time. That feature was designed into the currency.

Anyone can choose to fork the blockchain and inject more liquidity but that new blockchain will not be "bitcoin" but an alt and the new user will be hard pressed to convince anyone to devalue their savings by using that new coin.

There were a handful of accidental millionaires, but nobody predicted the heights of the bubbles and while many made some money, with the exception of the accidents, all others liquidated at 2-3x value, not 1000-10000x value.

The Bitcoin wealth distribution has been well studied and your statement is factually incorrect. There are a little under 1K new mufti-millionares and a couple billionaires because of Bitcoin at this moment. With the next bubble (~5k per bitcoin) one should expect this figure to shoot up to 5-10,000 new millionaires and even more billionaires.

Re: wooo look at that strawman BURNNNNN

[codebonobo]

Where did the money go in the Wall Street crash?

Money on stock exchanges is never lost. For every seller there is always a buyer. For every investment there is a payout. It's like the conservation of energy. Money changes hands, but it can not simply vanish, like BitCoins apparently can, unless you actively destroy cash currency.

Nonsense, money goes missing and unreported all the time through fraud and sloppy accounting with Bitcoin, stocks, or fiat. If Private keys to Bitcoin wallets are lost than that is simply a donation to the whole user base. In fact individuals will sometimes purposely destroy their bitcoins as a charitable act to the community as it is the easiest way to donate a little money to all Bitcoin users efficiently.

Re:If it looks like a duck and quacks like a duck.

[codebonobo]

What's curious about bitcoin is that functionally it's pretty much a digital money order. It seems to have some geek appeal but there isn't anything functionally novel about what it does. I think it is an intellectual curiosity that will be studied closely by economic researchers but practically speaking I don't really see much point in it. It carries a huge amount of risk and externalized cost for something that I can already do with a lot less bother.

What an odd statement. Can you name any other way to wire funds to another person or business instantly and securely for costs of half a penny to free? Is there any other secure system that allows for multisig authentications to remove the need for counter-party trust? What about Oracles, DAO's, smart contracts? There is long list of novel features that only exist within bitcoin. Sure some of these features could be copied and created outside of bitcoin but such a system would ultimately be insecure attacks. Bitcoin will remain novel as it has first movers advantage, has the benefit of the networking effect and the hashing power that makes it near impossible for any group or government to launch a successful attack on it.

Re:If it looks like a duck and quacks like a duck.

[sjbe]

What is novel about bitcoin is it does what it does without requiring a central authoritiy.

That is how it is designed, not what it does. What bitcoin does is functionally almost identical to money orders. Furthermore it is not at all clear that the lack of a central authority is a beneficial feature or that the design of bitcoin is economically sound. This argument against central control of currencies appears to be more of an ideological argument than an evidence based practical consideration.

People who have tried to make "alternative money" systems with a central authority have found themselves either crushed or subsumed into the regulated system where the government can tell you who you may or may not give money to or order transactions reversed long after the fact.

Naive. Bitcoin does not and never will exist outside the regulatory structure of the government. If the government decides to make trade in bitcoin difficult then government will have little trouble doing so through laws and regulations. It's already illegal in some countries. Want to risk jail time to use bitcoin?

bitcoin is to e-gold as gnutella is to napster.

Without meaning to seem snide, who cares?

Re:Crypto's Behave More Like Securities Than Curre

[codebonobo]

Bitcoin for all its technical sophistication is more of a threat to "stock exchanges" or "equity allocation" than it ever will be to "currencies"

It is not suitable to a "drive-thru" transactions due to the number of "confirms" required to have veracity in the exchange.

However, it is VERY WELL SUITED to the exchange of equity -- and is, given the current settlement times, much more of a threat to public ledgers like TORRENS (property exchange logs) -- or stock/ownership exchanges.

Debit and Credit cards take much longer to confirm. Bitcoin takes between 10 minutes to an hour to confirm. Cards take 60 days to confirm and before than the transaction can be reversed as fraudulent instantly. In store purchases can be done instantly with either using a customer shopping card, allowing unconfirmed transactions for small transactions backed up by security camera footage, or payment processors like bitpay/coinbase who conduct investigations and could offer insurance like credit card companies.

Re:what is a scam then to you?

[bobbied]

I look at it this way. BitCoin is not in itself a scam, but it is a common vehicle used in scams and illegal activity.

Kind of like BitTorrent. There are some things out there you can download which are legal and don't infringe on anybodies copyrights, but the BULK of torrent downloads won't fall into that category. So, just because you are seeding torrents, doesn't mean you are infringing, although most people seeding ARE. Same with BitCoin, there are legal and legitimate uses for BitCoin, even though the majority of BitCoin use is not legitimate.

Look, I strongly recommend that folks not speculate in BitCoin as an investment, especially with money they cannot afford to loose. I think it is a lousy investment with way too much risk mainly because of the many scams we've seen that used BitCoin (and other cryptocurrencies). Exchanges are unregulated, the currency is awash in criminal activity. But so is the south side of Chicago. Stay safe and stay away..

Re:If it looks like a duck and quacks like a duck.

[petermgreen]

If the government decides to make trade in bitcoin difficult then government will have little trouble doing so through laws and regulations. It's already illegal in some countries. Want to risk jail time to use bitcoin?

While governments can sometimes go after individual users doing so on any significant scale carries a very high political cost. It's much easier to paint a handful of people who form a competing central authority as "criminals" and shut them down than it is to go after everyone participating in making a decentralised system work.

Which is not to say it's impossible for governments to crush bitcoin just much harder for them to do it than to crush comparable centralised schemes.

Re:....to be dangerous

[JaredOfEuropa]

For the record: I'm not a fan of Bitcoin and I have never had more than half a BTC or so to my name. I'll leave the rest of your comment for what it is.

like BitTorrent only with money & not at all

[globaljustin]

look you're making a pointless distinction between things that are not different...and in so doing conflating two things which are completely different into one disctinctionless mass of error.

things that are not different (but you think they are): A financial transaction system made to use for scams and an actual scam. They are the same thing. The whole point of a scam (or magic trick) is to make a system for it. You're a suburbanite white kid so you've probably seen that Magician movie with Batman and Wolverine that features Tesla...same principle.

You're talking like a person who has never seen **how** a scam works.

Everything that involves "scamming" money is a system...even the homeless people you see when you go downtown to see shows or shopping. Those panhandlers have a system.

two things that are different (but you don't think they are): BitTorrent & BitCoin. A distributed file transfer system where multple uploaders send parts of a file simultaneously to **increase download speed and avoid DRM** is not the same as a currency system that is designed to be untrackable & originates from computers lining up to process transactions.

that's all i'm going to type b/c you need to learn how to find this information for yourself

you're understanding of technology is superficial and shows "TED-talk thinking"...thinking & discussing complex interactions using only the simple aspects of interaction

just educate yourself and quit tossing around words/concepts to sound smart

Re:pfft

[tmosley]

This is in 2040. Bitcoin will have either won or disappeared long before then.

Proposed Modification

[Fnord666]

âoeIf your mining power is more than a third of the system total, this always works,â says Ittay Eyal, who did the research with colleague Emin Gün Sirer. âoeYou may be able to do it with much less,â Eyal adds.

Eyal proposes a modification to the mining protocol that would ensure that only someone controlling at least a quarter of all mining power could profit from selfish mining, and says the Bitcoin community should also make efforts to limit the power of mining operations.

Wait, what? So right now it takes 1/3 of the mining power for selfish mining to work but Eyal is proposing a change that reduces the power needed? I don't get it.

Re:If it looks like a duck and quacks like a duck.

[sjbe]

Can you name any other way to wire funds to another person or business instantly and securely for costs of half a penny to free?

No and you can't do that with bitcoin either. NOTHING is free. Half a penny? Not if you are actually considering the rest of the costs including currency exchange cost, opportunity cost, volatility risk and the rest. There also is the non-trivial fact that very few people use bitcoin so the odds of a counterparty being set up and willing to use bitcoin is close to non-existent for most of us. Do you seriously think I'm going to ask someone to waste a considerable amount of their time setting up to use bitcoin so that I can save at best a few cents on a money transfer at considerably higher risk to both of us? I honestly don't know anyone in real life who has done a single transaction in bitcoin.

Is there any other secure system that allows for multisig authentications to remove the need for counter-party trust?

Bitcoin does not eliminate counterparty risk from a transaction. At most it might shift the type of risk to worry about. Furthermore, escrow is nothing new at all in financial transactions.

What about Oracles, DAO's, smart contracts?

What about them? You're confusing the specific technology used with the function it serves. Those all have existing analogs that have nothing to do with bitcoin.

Bitcoin will remain novel as it has first movers advantage

Being a first mover is not necessarily an advantage. Second movers often can simply watch the mistakes of the first mover and act accordingly. Ask MySpace how being a first mover worked for them. Bitcoin isn't going to succeed because of "first mover advantage".

has the benefit of the networking effect

So does the US dollar to a considerably greater degree. I'm not about to use bitcoin simply because it is digital or because it is isn't a dollar. It needs to provide me with a real benefit superior to the alternatives I already have. I am a certified accountant and I honestly cannot think of a single circumstance where bitcoin would provide me any real world advantage over using dollars.

and the hashing power that makes it near impossible for any group or government to launch a successful attack on it.

Which presumes that there is no flaw in the implementation, does not account for future advances in computing power, etc. Just because it is currently secure does not mean it is safe to assume it will remain so. Are you an expert in cryptography? I'm sure as hell not and yet I'm expected to trust the code written by no one I know and certainly no one who is accountable to anyone? Yeah, not going to happen... Hell, someone doesn't have to launch an attach on bitcoin itself to make it not worth using. You think bitcoin is going to remain popular with anyone other than true believers if exchanges keep going belly up?

Re:like BitTorrent only with money & not at al

[bobbied]

As I see it, you are passing judgment on the BitCoin creators' of intent. I'm assuming you are not the creator of BitCoin and I know I'm not so there is no way for either of us to actually know what their intent actually was. So at this point, I'll agree that we disagree on this.

Now to put you on my ignore list....

Re: wooo look at that strawman BURNNNNN

[spitzak]

What?

In your scenario, originally you had $100, and the other person had a stock share that he could trade for $100. Therefore there was $200 in total value. After the stock dropped to $10 value, one person has $100 and the other has a stock worth $10, therefore the total is $110. $90 of value was lost! Inflation/deflation of dollars does not matter, the result is that you now have $90 less of value, whatever $90 is now worth.

Also your claim that "the balance of transactions is $110" is pretty bogus. If the two decided to trade the stock back and forth 5,000 for $100 then by your calculation "the balance of transactions is $500,000". That number is obviously meaningless. The actual amount of money moved around is $100.

Re:If it looks like a duck and quacks like a duck.

[codebonobo]

Not if you are actually considering the rest of the costs including currency exchange cost, opportunity cost, volatility risk and the rest.

I do not need to pay any currency exchange fees. I can directly spend my bitcoins with thousands of merchants directly or by git cards for 0 fees with the remaining ones like amazon or walmart. There is 0 need for exchanging back to fiat. If I needed, 1% or lower is much less than the 3-5 % avg for merchant processing fees. Volatility risk doesn't effect me either as I simply buy when its higher than what I purchase the coins at. So the volatility makes items less expensive.

You are also focusing entirely on the risks with bitcoin and not mentioning the many risks with debit cards or usd cash.

Do you seriously think I'm going to ask someone to waste a considerable amount of their time setting up to use bitcoin so that I can save at best a few cents on a money transfer at considerably higher risk to both of us? I honestly don't know anyone in real life who has done a single transaction in bitcoin.

Bitcoin isn't just about you but about others who are underbanked or unbanked. It benefits those that regularly have to send money so the little extra effort in initially setting things up and buying some coin is worth it. It is about countries where there is hyper-inflation or bail-ins where 60% of your savings disappear overnight. It may indeed be too much of a hassle for you now because you don't know anyone that uses it but once you join you will start to interact with the 2.5+ million and growing of our community and than you may find it actually much easier than traditional online banking.

Bitcoin does not eliminate counterparty risk from a transaction. At most it might shift the type of risk to worry about. Furthermore, escrow is nothing new at all in financial transactions.

You must be unfamiliar with the many services out their like https://www.bitrated.com/ and even hot wallets like https://www.bitgo.com/ which make it impossible for the third party escrow, bank, or arbitrator to independently steal your funds. How can this be done without a crypto-currency ledger system like bitcoin?

What about them? You're confusing the specific technology used with the function it serves. Those all have existing analogs that have nothing to do with bitcoin.

Can you cite any examples that do so with the efficiency and security of bitcoin?

Being a first mover is not necessarily an advantage. Second movers often can simply watch the mistakes of the first mover and act accordingly. Ask MySpace how being a first mover worked for them. Bitcoin isn't going to succeed because of "first mover advantage".

has the benefit of the networking effect

Bitcoin is not a central company or website so your example is poor. Bitcoin is an open source evolving protocol. Bitcoin has in the past incorporated code changes other 2nd movers like litecoin and can simply adopt other altcoins feature sets if they prove advantages. The networking effect is critical in not only open source protocols but currencies thus the stranglehold USD has on the world reserve currency and why Visa/Mastercard remain dominant above paypal. It takes something with unique features like bitcoin to start to carve out some market share.

Which presumes that there is no flaw in the implementation, does not account for future advances in computing power, etc. Just because it is currently secure does not mean it is safe to assume it will remain so. Are you an expert in cryptography? I'm sure as hell not and yet I'm expected to trust the code written by no one I know and certainly no one who is accountable to anyone? Yeah, not going to happen... Hell, someone doesn't have to launch an attach on bitcoin itself to make it not

deflection tactic

[globaljustin]

I think it's good you "foe" ppl you disagree with strongly. I do the same. It helps us to keep from feeding the trolls. Which I am not, but it's your call.

So you can't argue against my logic so you switch the controversy to something that **neither of us can prove and is completely parenthetical**

passing judgment on the BitCoin creators' of intent.

I didn't say the *act* of creating BTC is, in and of itself, *illegal*. That's what you wanted to hear.

I said it was a *scam*...of which there are myriad legal examples of. Ex: selling consumers "insurance" on products that already have a 30 day guarantee by federal trade law.

Scam is different than crime.

But you know that...you're incapable of processing your own error.

You need to learn how to be wrong and not ashamed of yourself, such that you irrationally hold to your ideas as if they are your only connection to reality.

Re: wooo look at that strawman BURNNNNN

[JesseMcDonald]

In your scenario, originally you had $100, and the other person had a stock share that he could trade for $100. Therefore there was $200 in total value.

Only if you're including the estimated market value of the share, which is illusory unless you actually sell it at that price. What actually exists is $100 and one share of stock. If you could have sold that share for $100 but didn't, and now you can only sell it for $10, nothing has been destroyed. The share still exists, and the other $90 still exists; it just isn't being offered in exchange for your share.

From your own point of view, of course, that was a major missed opportunity (in hindsight). You bet that the share was worth more than $100 and lost, badly. For the market as a whole, however, it's pretty much a wash. Resources could perhaps have been allocated a bit more efficiently if it were known in advance that the share would only be worth $10, but that's due more to whatever caused the price to drop rather than the devaluation itself (perhaps the company suffered a major setback resulting in wasted effort or materials).

Re:Bitcoin again? come on.

[VikingNation]

The point is to compare the magnitude of the MTGOX debacle in terms people can understand. The malleability feature was one of the points that was exploited for this major theft. How many more security holes and flaws are in Bitcoin?

Re:Bitcoin again? come on.

[VikingNation]

Good point. That looks right.

Re: Bitcoin again? come on.

[VikingNation]

I agree with you on the point about the recent problems with the financial services sector. Advocates of Bitcoin need to acknowledge that Bitcoin is not a panacea. I believe there are other fundamental flaws that have yet to be discovered.

Re: wooo look at that strawman BURNNNNN

[allcoolnameswheretak]

So if a crazy lunatic billionaire wants to buy your share for a billion dollars (share value at this moment 1 billion dollars) and then dies before the transaction could be made (share value back to 10 dollars), by your logic this means that 999.999.990 million dollars of value have "vanished"?

One thing is clear, the existing -money value- has not vanished. It will simply be distributed among heirs instead of being on your bank account. You are talking about the value of a commodity. I was replying to the parent claim that "money can vanish" in a stock exchange crash, which is false. There is a difference between money, which can not simply "vanish" and the value of commodities, which have whatever value people attribute it. In the case of BitCoins, it is even possible for the value they represent to actually, truly vanish, if the BitCoins are lost or deleted.