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Bitcoin's Nightmare Scenario Has Come To Pass
HughPickens.com writes: Ben Popper writes at The Verge that bitcoin's nightmare scenario has come to pass as the bitcoin network reached its capacity, causing transactions around the world to be massively delayed, and in some cases to fail completely. The average time to confirm a transaction has ballooned from 10 minutes to 43 minutes. Users are left confused and shops that once accepted Bitcoin are dropping out. For those who want the Bitcoin system to continue to grow and thrive, this is troubling. Merchants can't rely on digital transactions that can take minutes or hours to validate. A number of prominent voices in the Bitcoin community have been warning over the past year that the system needed to make fundamental changes to its core software code to avoid being overwhelmed by the continued growth of Bitcoin transactions. A schism has developed between the team in charge of the original codebase for Bitcoin, known as Core, and a rival faction pushing its own version of that open source code with a block size increase added in, known as Classic. "Many in the US Bitcoin community had hoped that hitting this crisis point — a network maxed out, transactions faltering — would result in closure, with miners quickly moving to adopt whichever chain proved more valuable to their economic interests," says Popper. "But so far the debate is dragging on without one side claiming a clear victory, leaving tens of thousands of consumer transactions stranded in limbo."
I don't need any of your fiat currency .
I wouldn't use cars as currency either !
I don't know if there's more backstory, but perhaps users have been slow to adopt because "Classic" sounds like what you'd call an older and (in the usual context) more limited option?
If I'm developing a new technology with potentially millions of $USD riding on its availability and adoption, I'm not going to call it "Classic." "NextGen," or "Enhanced," or even "CC" for Corrected Chain? This sounds less like the free market and more like terrible marketing.
Wouldn't it be easier to dig up a sunken ship with Golden Doubloons and use this as the accepted currency. Frankly I'd rather be a pirate that sails the seas, than one that pirates movies and music.
I don't need any of your fiat currency .
Gold is great until you need more of it, which you always do, because economies grow (all being well) and extra money is needed to support that. The other problem would be getting too much of it too quickly (ie building a mine) and ending up with a glut inflation. Fiat currencies are the only way to have a quantity of money that matches the size of the economy. I know we all want to believe that there's some quantity of precious metal somewhere that backs our cash, it's comforting, but real economies don't work well like that.
Is it too much to hope that the bitcoin trouble means that the business model of the ransomware extortionists is now broken?
Conversely, fiat currencies don't necessarily represent the actual amount of wealth in the economy - hence the economic crash. A currency you can literally just make up out of confidence (or false confidence) isn't representative of real wealth.
You're right in that gold doesn't scale as a currency backing - because the amount of effort required to get it is not a fair representation of economic output any more (it used to be - you needed men and basic equipment so it was a reasonable proxy representation of how much economic surplus you had).
Cryptocoin could be regarded as a currency backing that actually scales with economic output - because there are no physical limits beyond manufacturing the ASICs and generating the energy (until you hit physical limits for those...).
With that much internal bickering sabotaging the whole project, it MUST be OSS.
SJW's don't eliminate discrimination. They just expropriate it for themselves.
Its doubtful - the main issue here is the core BitCoin team who are blocking changes.
This is a fantastic post on the topic, from an authoritative source: The resolution of the Bitcoin experiment.
My guns and ammo say that your gold is now my gold.
As an AC over on SoylentNews already asked - is there a significant amount of Bitcoin transactions due to ransom payments for crypto-locked data?
I seriously wonder, as there's apparently been quite a surge of corresponding infections lately, and it also seems that quite some victims actually pay up.
Sure but the gold standard did not prevent economic crashes, eg in the 30s, and coming off the standard at that time helped. And there's a need to change the amount in circulation up and down to match what's going on in the economy.
As an aside, I rather think that using the vast quantities of energy to keep mining is a bad use of resources. At a time we're trying to be more efficient, creating a system that deliberately inefficient seems is dumb.
This is a neither interesting nor insightful post. It's glib, ignorant and stupid.
People are happily exchanging bitcoins for goods and services and back again. In fact they're so happy with it that they exceed the capacity of the network.
If you sell some stuff for bitcoins, then buy some other stuff for bitcoins, then it is just inane to claim that you have been scammed.
SJW n. One who posts facts.
This only works for old coins. Modern coins are so adulterated that the currency would have to crash very hard indeed for you to cover smeltering costs with the value of the nickel/copper/silver in them. Tin is very, very cheap.
Seven puppies were harmed during the making of this post.
Of course it didn't. But the guy who got hurt in the economic crash is the fool. The guy who kept his gold and didn't borrow too much did just fine right through the crash and beyond. Nowadays it seems we reward the fools for being foolish and punish the cautious.
Seven puppies were harmed during the making of this post.
Who exactly do you think would be running the gold mine?
Do you really think that somehow, getting rid of fiat currency will also somehow invalidate the old rule of "it takes money to make money?"
You do not have a moral or legal right to do absolutely anything you want.
Gold is crap as money. Good money needs to be a medium of exchange, store of value, and unit of account. It fails at all three of these. No one accepts gold as payment - we've moved on to other technologies. No one uses gold as a unit of account - considering its value can literally double (or fall in half) in the space of 1 calendar year, it'd make business wildly unpredictable. (Just imagine... that mortgage you got denominated in gold? One year later you owe twice the value of the house.) The only thing it sort of works for is being a store of value - it's deficient there, due to its volatility, but the volatility is different than other asset classes' volatility, so works as a hedge against a crisis. It's more insurance than it is money.
The World Wide Web is dying. Soon, we shall have only the Internet.
In that case, the Canadian Dollar is a scam.
Try spending one in 99% of the world's shops. Yet you've never seen any riots at shopping malls or Walmart.
Pay higher fees if you are in a hurry.
The demand for most goods tends towards infinity as the cost drops. Bitcoin transactions have been fantastically cheap, which everyone sensible knew couldn't possibly last.
So, do we make bigger blocks, or increase fees? Miners should get more fees from either option. Users would prefer bigger blocks, since it keeps their costs artificially low.
But the real problem is the relay node shortage. Running a node is no longer trivial, and there is no mechanism to recover costs. The blockchain is around 80 GB now (including the index), and growing by ~100 MB per day. Larger blocks will only make that worse, and will almost certainly knock yet more nodes offline.
Someone made a distro that ran bitcoin entirely out of tmpfs. I once had a bunch of super-fast nodes using it. When the blockchain finally exceeded my ability to add more RAM to those boxes, the average time for a new node on the network to sync up increased by a factor of 3 or so.
That's just my personal example. Hundreds of other nodes have dropped off for their own reasons.
See that "Preview" button?
Currently we mine 1-1.5% of the existing supply of gold annually.
That means that unless your economy grows less than that, or mining rates go up significantly, you are basically having deflation: Your gold becomes worth more over time.
Deflation is generally seen as a really bad thing, as it makes people prefer saving over spending. Money being saved is not part of the available supply, causing more deflation, causing more people to save their money, etc.
The people hardest hurt are those that can't save any money, as they need to spend all they earn on things like food.
Deflation is really good for people who have a lot of money, as they can save most of it, becoming richer over time, without doing anything.
If they let other people borrow the gold at an interest, their pile of gold also grows, on top of it getting more valuable.
The end result becomes a situation where those few people who have enough gold that they spend less than they earn by lending, will end up with all the gold very quickly.
This has happened many times in the past, when gold was the main type of currency. It usually ended by some King using their power to steal the money from whatever bankers had the big gold piles. (Kings always have wars to spend money on, so they usually spend more than they can earn and then some).
RogerWilco the Adventurous Janitor
Like most things in life, currency policy is one of tradeoffs. You can have wild swings in value and deflation associated with hoarding, or you can have steady but stable inflation. The main downside to steady inflation is that hoarding cash becomes a money-losing endeavor. Of course, that's rather the point... Solution: buy something else instead of hoarding money. If you are comfortable with gold, hoard gold. If you like equities, get those. Or mix it up a little.
Another advantage of steady inflation is that salaries go down over time. Usually this is all but impossible, even though the laws of economics demand it for an efficient economy. The disadvantage is that, well, your real salary goes down over time. But in theory a rising tide lifts all boats. In practice there are winners and there are losers. This was the case during the gold standard as well.
W..w..W - Willy Waterloo washes Warren Wiggins who is washing Waldo Woo.
US coins do not contain tin.
"I'm not sure I like the fugnutish tone you used in your post!" -RogL (608926)-
At least paper money can be used as an actual fan.
Paper money only has value because enough people think it does. People will be willing to give you things of tangible value (goods and services) in exchange for paper money and tin coin because they have confidence they can turn around and trade it for more goods and services from someone else at a later date.
Gold only has value because enough people think it does. Most people, however, will NOT be willing to accept gold in exchange for goods and services. In all but a handful of special cases you'll have to first convert that gold to an agreed upon currency first, possibly via some process that certifies the quantity and purity of the gold first.
Both paper money and gold are fiat currencies in this way: They have little or no intrinsic value, but instead serve as proxy of value. It's traded based on a level of trust that the per-unit-value will remain relatively stable (or increase) in the time it takes to turn around and trade it to someone else.
All of this is true for Cryptocurrencies as well. It has value because people want it, not because it's intrinsically valuable. If nobody wants it or is willing to accept it in trade, then it's worthless. You can't even burn it for warmth like paper money or make decorations and tableware out of it like you can with gold... it is absolutely devoid of intrinsic value.
=Smidge=
That's expected to happen if you have a currency not tied to a precious metal (not saying it's a good idea, merely an observation) as you can create money without respect to the amount of any other resource. In these systems excess money is usually created (either by design in order to encourage inflation or due to reckless government action) which means that as time goes by its value naturally decreases with respect to the material of which the physical currency is made. A U.S. penny costs the government more than it's face value to mint because it has lost sufficient purchasing power that the metal it is composed of and the labor expended to min the coin has more value than the coin itself. Over a long enough period of time (about 150 years assuming annual inflation remains at around 3% on average), it will be useless to have anything less than whole dollars.
Also, this ignores the fact that in a real crisis, a gold coin isn't worth any more than a quarter for most people. You'd probably be more able to get someone to take it, but you can't eat it. Also, really old coins are worth far more than the gold or other metal it is made from simply because it is old and heavily supply constrained. Melting it down would destroy most of its value to other people who are interested in old coins. Even some of the older coins from the U.S. are worth more as collectibles than either their face value or the metal they contain. For example, a US half penny (we used to have one before the government decided it was useless to keep making because it had lost its value) can fetch thousands of dollars depending on year and condition.
We lived for centuries writing checks and they don't clear instantly either. Why is it essential that Bitcoin clear instantly?
THe desgin of bitcoin anticipated this. Initially the profit for adding transactions to the block chain with bitcoin mining. But it was always expected that as the return on mining slowed that it would become fee based. The problem is the fees offered are not reaching the required levels for more miners to enter.
Some drink at the fountain of knowledge. Others just gargle.
No! It's not the fiat-currency-price of gold which doubles and halves, it's the real price, the only price that matters, the amount of goods and services which you need that you can purchase with it, which is the only real way to value an asset. (It's one of those terms of art in economics that actually means exactly what it says on the tin.)
And the amount of gold may be stable, but its value is not. You don't hold gold because of its intrinsic value. If no one else wants gold anymore you will not benefit from its intrinsic usefulness by turning it into pretty jewelry or using trace amounts in the manufacture of electronic components. You hold it because it has an effective value, because people demand it, and that demand is just as artificial as the demand for the "fiat" US Dollar, which is a bedrock of stability in comparison. For all the laser-focus on the supply side, gold-bugs have lost sight of the other half of economics, demand.
Oh, and fun fact: You can convert between fiat-currency price and real price using Math. The typical math involved is a little thing you may have heard called the "consumer price index" that measures inflation. In its worst year ever, US dollar inflation once hit 14.76%. Of course that kind of yearly change from gold is just business as usual.
The World Wide Web is dying. Soon, we shall have only the Internet.
Your prices change, either they go up or they go down in response and people react accordingly.
Accordingly means that falling prices should result in a negative interest rate, but you can always get a zero interest rate by keeping the money in a box. This means that in a deflationary environment, you can't borrow (enough) money to invest, and the economy slows down.
By your definition, a "fool" in the 1930s would be anyone with a loan or mortgage. That's what the gold standard did - people spent less, thus money became more valuable (deflation). But the loans didn't change - if you borrowed $5,000 to buy farmland in 1925, the bank still expected $5,000 (+ interest) to be paid back, regardless of the true value of that $5,000.
Today, if we had the risk of deflation, a "fool" would be anyone who borrowed to get a higher education, or a reliable vehicle, or a home.
The opposite of a "fool" would be someone who didn't invest their money but instead put it under the mattress.
So think carefully about your definition of a fool.
People also have trust in Swiss franks, perhaps even more than in the US dollar, and they have only a very small military.
Well if Bitcoin is going to get expensive to use... then why would merchants (or customers) have any reason to like it over credit cards? Credit cards settle in seconds, and the network has scaled to massive size and can continue to scale no problem. The alleged advantages of Bitcoin that people liked to bandy about were that it was supposed to be really fast and not cost a bunch like credit cards do. If you can't deliver that (and it can't, it cannot scale to the levels it would need to) then there's little point.
Also "just pay more" is a self defeating thing if people keep following that. So faster transactions are needed, so people pay more for it, as more people pay to get fast, that becomes the new slow so you have to pay MORE and so on. It hasn't solved any kind of scaling issues. You can't argue that it'll reach and equilibrium because as I noted, there's already a system that does it very fast, and doesn't cost too much (2-3% is normally what payment processors charge).
I'm gong back to tulips!
People are happily exchanging bitcoins for goods and services and back again. In fact they're so happy with it that they exceed the capacity of the network.
Well they aren't going to be exchanging them for much longer, because the exchange mechanism is broken (sort of) by design.
If you sell some stuff for bitcoins, then buy some other stuff for bitcoins, then it is just inane to claim that you have been scammed.
It wasn't intended as a scam by the creator, but it became one because of the developers that took over, that didn't view bitcoins as a currency, but rather as a store of value. They don't care that it takes hours or days to close a transaction, because they are not really on board with the idea that bitcoins can be used like money. They only see it as an investment.
Mike Hearn lays out the issues much better than I can, in his open resignation letter. Everyone knew it was coming but the people in charge refused to do anything about it despite the warnings. I really think it's because they don't care about the use of bitcoin in commerce. They view it as nothing but mattress money or a digital investment. Only time will tell how much people lose as there will be less and less people interested in bitcoin at all.
"Somebody has to do something. It's just incredibly pathetic it has to be us."
--- Jerry Garcia
You have no idea what you're talking about. The base metal melt value of the currently produced penny is $0.004775984212837.
We're heading into the Bitcoin end game, where the goal will be for the miners to extract as much money as they can from BTC users via transaction fees until the whole thing collapses. The miners want the network to saturate, and they want people to pay ever-increasing fees to get their purchases on the blockchain. Once the mining reward halves later this year, the incentive to increase transaction fees will be that much greater.
Keeping the network saturated means keeping transaction volume high and the block size fixed, hence the dDOS attacks on nodes running Classic, the spamming of the network with tiny back-and-forth transactions, and the censoring of pro-Classic comments on discussion boards. It all fits with what Hearn has described.
I wouldn't be the least bit surprised to see BTC users paying 0.5% to 2% transaction fees a year from now. It is, after all, what the market will bear when compared to bank and credit card fees.
I was asking why the U.S. dollar is not fan based, is it because of faith and trust in the government? That would sound more like fandom to me.
Nobody really needs to be a fan of the US government to realize that a currency backed by the taxing authority of the country with the biggest economy and biggest military which is accepted in trade around the globe and a long record of stability is probably of practical value. Bitcoin on the other hand is thinly traded, volatile, digital only, and relies on technology of uncertain robustness. Those things matter a lot.
The majority of pragmatists using bitcoin seem to be people engaged in activities that are not exactly legal. I'm not judging but the evidence is clear that the most enthusiastic users of bitcoin appear to be people engaged in drug trafficking or other activities where money laundering and identity hiding are of practical value. Many of the rest of the users of bitcoin seem to be people who are ideologically inclined to dislike government and/or fiat currencies or who are of the opinion that some version of the gold standard should come back. These people like the idea of bitcoin and tend to be the loudest proponents of it, a bit like fan-fiction writers. Hence the (perhaps unfair) moniker.
How about a more recent crash. Traditionally the view with housing was to put 20% down and have a monthly payment no more than 1/3 of your take home pay on a 30 year fixed mortgage. then there was the retard run in the 2000s where all the "experts" said that was wrong. My wife and I got a house doing things the old traditional way, a bunch of friends did the new way. They thought they were so smart until the shit hit the fan and they got foreclosed on, had to file for bankruptcy, or are stuck in a house they really can't afford. We took in the the shorts on equity but at the same time we didn't worry about losing the house, or bankruptcy, as our losses are what the would call paper losses since we bought a house to live in, not use as a bank. We did eventually refinance to a 15 year mortgage with a much lower rate (4.5% to 3.00%) and it cost us $18 more a month for the payment. Anyone who had half a brain should have known something was up, especially since my wife and I were approved for some silly loan amount where our monthly payment would have been $20 less than our pretax earnings. My response to the loan officer was "Are you fucking retarded? It would be physically impossible for us to make even one payment on this." I then told him what we could afford for a monthly payment and made the poor bastard work backwards to figure out what we could actually afford.
The people who got fucked hard in 1929 were just like the people who got fucked hard in '07-'08 the ones who were over extended and didn't listen to the traditional wisdom and instead decided that the rules didn't apply this time.
Time to offend someone
This problem is self-correcting.
If there's a drop in the computational power of the network such that blocks are mined less frequently, then the difficulty drops and blocks are mined more frequently.
If people are complaining (again) about not being able to fit a ton of tiny transactions into a block without paying a fee to ensure prompt delivery, then I'll say (again):
1: Pay a transaction fee
2: Stop shitting around a bunch of tiny transactions
3: Help out and be a miner yourself
4: This is all by design - the end game scenario for BTC is that mining rewards end and all incentive is from transaction fees
If this continues and people don't recognize 1-4 above, idiots will stop using Bitcoin for a bunch of tiny transactions and the problem will correct itself. You don't need to pay .000000001 BTC every time you visit a page on a BTC funded site. You need to pay 000001 BTC to get a credit of 1000 page visits. Bitcoin isn't for massive amounts of microtransactions any more than a traditional bank is. If you want it to do that, then pay the fee (which could be a significant percentage of your microtransaction).
It costs more to MAKE a penny than its face value is worth. This takes into account wages/salaries, design costs, press maintenance (and/or cost) prorated, along with other factors.
Trump coin will posses intrinsic value regardless of the face value precisely because it had the face of Donald trump on it. It will be a really great currency made from the best bits hand selected by trump himself. There will be no cheap imported bits in Trumpcoin. And Trumpcoin will only work when you are sending money into the USA.
Even if the USA goes down the toilet the trump brand will make these increase in value. Available only at the SHarper Image.
Some drink at the fountain of knowledge. Others just gargle.
Adding more fiat money only dilutes the value of the existing money, stealing from whoever has it, and causes inflation.
You think that doesn't happen with the gold/silver/commodity supply? Why do think think BTC mining is rate-limited?
I'm a minority race. Save your vitriol for white people.
Its "Classic" as in Satoshi's original design where increasing the block size was expected. Its the current core developers that are deviating from that original. The audience for this debate are the miners who are somewhat technically informed and understand the context. Users are irrelevant to the discussion, only miners control what incarnation of the software gets used.
A few years ago this was true; but the commodities bubble has burst. Current zinc pennies are worth about 60% of face. Old copper pennies are still worth about 150%.
For all intensive purposes, "whom" is no longer a word. That begs the question, "who cares"?
A) "Fix it again, Tony!"
That's because Canadians are too damn polite to riot.
Adding more fiat money only dilutes the value of the existing money,
You're missing a key detail of modern economics: the debt economy. Think of money and debt as (loosely) matter and anti-matter. When they're together, they can cancel each other out, and one can be produced by producing an equal (except for an mentioned below) amount of the other. The federal reserve bank is able to do this, and that's where the "out of thin air" magic happens.
By producing money, which is then loaned to banks, the banks have enough money on hand to serve their customers' needs, including making more loans. That allows corporate customers to have enough money available to continue to do business, including paying out paychecks. That lets individuals continue to have money to spend, which goes back to keeping business moving. Ultimately, that's the goal of any economy: to keep goods and services moving from the people who produce them to the people who need them.
The other side of the economy is the debt. When the banks receive the loan from the Fed, they also get an equal amount of debt they are obligated to pay back. When borrowers get their loans, they also get debt. Debt, of course, doesn't get sent out with paychecks, so the borrowers have to pay the debt out of their profits, which limits how quickly they are willing to spend the money they have secured. That prevents runaway spending, and keeps the value of the money stable.
The Fed, then, can control inflation by controlling the interest rate, which affects the balance of money and debt. If they lower the interest rate, businesses (which make up the vast majority of economic transactions) are able to put more money into circulation, at the risk of increasing inflation. If they raise the interest rate, the debt increases, which will help prevent inflation, but has the risk of stopping the all-important circulation of goods and services. It's a careful balance, but it's pretty effective at stopping abrupt crashes or surges in the economy
You do not have a moral or legal right to do absolutely anything you want.
"I wouldn't be the least bit surprised to see BTC users paying 0.5% to 2% transaction fees a year from now. It is, after all, what the market will bear when compared to bank and credit card fees."
The trouble is that we are surrounded by a lot of people who are as ignorant of microeconomics as they are about macroeconomics. They'll be outraged if you point out that supply curves slope upward. That's a really bad neighborhood for experimenting with currencies.
I have heard of mining gear that is used to accelerate hashing functions. Is the software that runs the protocol 'baked' into these machines?