"...one fundamental building block that BTC needs right now: legitimacy"
"Imagine if you were able to provide governments assurance that every BTC wallet that cashed out into USD had a thorough KYC procedure performed on the transaction"
I'm afraid this kind of legitimacy will never be obtained for Bitcoin - not because it's impossible, but because many (most?) of Bitcoin's strongest proponents are pushing for the exact opposite goal.
On one hand, we have people wanting to "fix" Bitcoin by providing more transparency - through decreased anonymity. On the other hand, we have people trying to "fix" Bitcoin by providing increased anonymity at all costs.
Personally, I believe both goals are admirable, but the conflict may ultimately hurt Bitcoin's chances of long-term success and mass adoption.
It comes down to this question: do we want Bitcoin to become "legitimate" and fit in to the current landscape of government regulation, law enforcement, consumer protection, etc., or do we want Bitcoin to fundamentally disrupt all of those ideas and stand as something all of its own? The first option ensures greater chances of (quick) widespread adoption without rocking the boat too much, while the second option flies in the face of systems of power and influence that have been in place for thousands of years.
I wouldn't bother using Bitcoin if it was more of the same bullshit, just digital. For instance, if it depended on my government, I would never be able to use Bitcoin, just like I'm not able to use gold or any other currency that the government can't use to steal from us through inflation, seizures, etc. People from first world countries have a hard time seeing the real benefits of Bitcoin.
But it is not a mutually exclusive dichotomy of either legitimate or subversive. It can be (and already is) both. Some users, especially legitimate merchants, will have to follow the letter of the law. Other users, however, who are willing to break the tax law, can and will - just as people break those laws with cash transactions.
I can pay someone in bitcoin for work or services, not report it, and it is just as under-the-table as paying in cash.
A big difference is that bitcoin has the public ledger.
With cash, if both parties are complicit to keeping it secret, you can keep your acts secret. Bitcoin is very much not like that, and you have to try a lot harder to hide what you're doing.
This hits the nail on the head. It's slightly unfortunate that many of the most vocal proponents for bitcoin are anarchists/libertarians who seem to disagree with the fundamental nature of things like law enforcement and taxation.
Bitcoin ends up being two things: one is a fiat currency that is made for digital transactions. This point is the one that could actually generate a lot of wealth. The other one is that it's decentralised. A lot of proponents buy into the myth that this means that it's anonymous, but it's not really. If enough of the market decides against anonymity they can force it, and the public ledger can help a lot with that. But this second point is portrayed under the myth of anonymity and policy makers start freaking out, and the rest of us can't get what we really want (an easy way to pay for stuff).
Some people think that this can become a sort of general revolt against the dollar or whatever, but so long as taxes exist and the government has guns, we're probably not going to get far down that route.
> I'm afraid this kind of legitimacy will never be obtained for Bitcoin - not because it's impossible, but because many (most?) of Bitcoin's strongest proponents are pushing for the exact opposite goal.
Not sure about this. We have a public ledger which will hold information about any transaction ever made. You get access to my wallets and you have my financial life right there.
There are mixers of course, but I'm not 100% if you can't use algorithms to trace back the total amount of bitcoins coming out of a mixer or other approachers. I'd like to read some technical papers how one can track or hide bitcoin transactions... I mean this could be used as a tool for the exact opposite reason: Say every political party should accept money only through known/identified wallet via bitcoin. Only transaction that are ID-id should get accepted. Same with taxes, etc.
It's interesting all the "how is this useful" examples she gives are for international commerce: money transfers, doing business with international customers, countries where cards are harder to accept.
I'm still waiting to hear concrete examples of how Bitcoin would compete with credit cards in a First World market. There's a lot of talk about how "expensive" and "inefficient" the credit card system is (it's almost a mandatory part of any intro to Bitcoin). But so far I've heard nothing concrete. Anyone have a good link I should read?
Some weeks ago I tried to buy a mobile top-up online - my bank card was repeatedly rejected for some unknown reason (after having to re-enter my entire address and card numbers multiple times). More recently, I decided to try Bitcoin for this, and was able to buy a top up voucher code with no problems.
This may be a rare example, but it highlights something key: The merchant is getting cash. They have no need to perform fraud checks. They have no worries, and can make the customer's life easier as a result.
I've struggled with traditional card payments many times in the past. Using Bitcoin is pure bliss in comparison.
I see a future where Bitcoin wallets are browser add-ons, and payments really can be one-click on any website.
Kids who may not have bank cards yet is also a hugely overlooked area imo.
Of course merchants would prefer cash. It doesn't have the consumer protections cards have. But that's not a reason for consumers to adopt it. Just the opposite.
I agree with you that your example is probably a rare one. Which is why I'm still searching for an answer as to how this is all supposed to supplant the card system.
It's not simply a question of what the consumer wants. Look at it from the other side.
The merchant may be very strongly incentivized to use Bitcoin because it cuts payment fraud to zero. This saves the merchant the direct cost of payment fraud, which averages 1-2% of revenue in the US (therefore up to 50% of profit margin in some industries). Note that 1-2% is an average -- some industries have higher rates of payment fraud, and they will therefore have greater savings.
As Bitcoin payments require no fraud prevention, they also save the merchant the cost of lost business from customers deterred by cumbersome fraud prevention methods, and losses due to legitimate customers who are rejected when fraud prevention gives a false positive.
Therefore, merchants will have the option of reducing prices for items purchased with Bitcoin.
This leads to a simple question: do there exist any industries where the merchant's savings could be big enough that they could reduce prices sufficiently to encourage a significant number of customers to pay with Bitcoin, while still earning a higher margin than they would from other payment methods? I think there probably are, but we're a long way from seeing this question answered by the market. Relatively few merchants accept Bitcoin, and many of them offer no special discounts.
Source? Wikipedia summary on credit card fraud puts it at just 0.07% [1] The "2%" figure is more what average card processing fees are. But most of that is passed back to the consumer in the form of rewards and benefits. Part of the reason it's hard for cash to compete for significant purchases, or anywhere cards are accepted.
As for the idea that merchants will do differentiated pricing for cards... couple problems with that.
First, it's historically a really tough case. It's generally not worth the risk of losing a sale. But let's put that aside.
Second, you've got the competitive landscape wrong. The Durbin amendment changed everything. Did you know that debit card interchange is now regulated down to 21 cents + 0.05%? And they come with some consumer protections and are "built in" to most bank accounts and all the infrastructure's in place. That's what Bitcoin or any new method that competes on price is competing with. So that narrows the opportunity to almost nothing.
>Wikipedia summary on credit card fraud puts it at just 0.07%
Yes that's true, Wikipedia does say that, but please think about that number for a minute.
0.07%
With all the wailing and moaning we hear about credit card fraud and identity theft every day, does that figure sound plausible? Would anyone really care about fraud if the cost was actually that low?
Certainly it's true that Bitcoin has none of the consumer protection features of credit cards, and that will be a major deterrent to consumers in many situations. It's also true that differentiated pricing isn't something that every merchant will just want to casually drop in.
As for the Durbin Amendment, you seem to know more about this than me, so I'll ask you a question: Since it was introduced, has there been any significant reduction in the percentage of revenue that merchants lose as a result of identity theft (card not present) or 'friendly fraud' (chargebacks)?
Thanks for reading the report behind the Wikipedia summary. I just did as well and I agree it's more the in ballpark of 1%. You should update Wikipedia.
The bigger question here is whether bitcoin can actually improve on this or just change the type of fraud that happens. If for example it shifts the burden from merchants (who absorb most of it with cards) to consumers (who can never recover lost bitcoins) then it's not going to gain traction. It's got to appeal to both sides of the market.
Yes, to gain traction, Bitcoin would have to be used in a way that appeals to both sides of the market. Both sides have to somehow share in any savings that it brings.
It also has to be significantly better than the status quo. There are many markets where using Bitcoin currently doesn't have a significant advantage over the existing payment options, I think. In fact, I'm fairly sure there is often a net greater cost spread across both parties if they use Bitcoin, if you consider the case where someone exchanges other money for bitcoins in order to pay with bitcoins, and the merchant exchanges the bitcoins for other money.
However, and this is an important point, Bitcoin does not have to be suitable for all markets worldwide to establish a presence in some markets. In fact, it doesn't even have to appeal to every merchant operating in a market - just to some of them, perhaps those with the lowest profit margin. If Bitcoin is to succeed as a method of payment, then I expect a scenario where Bitcoin gains a small bridgehead in niche markets, which then slowly expands to some other markets.
Markets that suffer the largest burden of ID theft/chargeback fraud as a percentage of profit seem to be the most promising candidates for that bridgehead. An online merchant with a 4% net profit margin, who is also in a high risk market where they're losing 1% of revenue (i.e. 25% of profit) to fraud, might consider offering a 10% discount to customers who use Bitcoin, for example.
I'd guess the reasons that we don't see so this happening very often, so far, are: lack of familiarity with Bitcoin on the part of merchants, lack of sufficient volume to make it worthwhile to add a new payment method, and finally, some early adopters are still willing to spend bitcoins for ideological reasons or because they made an enormous profit by buying in early, so there's no need to offer those people an incentive.
I've always wondered this too. Everything else being equal, a credit card seems like the better choice - cashback, the option to perform a chargeback if the transaction goes south, and sometimes an extra long warranty. It costs the store an extra ~3%, but I'm not paying that, they are, so unless they directly pass the savings onto me, there isn't really any benefit currently.
There is a real world cash based economy. A lot of person to person trust exists in that world too. Not everyone is middle class and above, drinking their Starbucks coffees paid for on their credit cards, even in this "first world"... Have you never been to a local market? Stallholders generally much prefer cash, even to the extent of causing the customer inconvenience. Bitcoin is the internet equivalent of this.
I don't actually think it will be of huge benefit to people like you who are happy with their credit cards. What Bitcoin will (and is already doing) is enable new applications and a new internet economy where location and real identity is no longer important.
(In this sense, I suppose I'm kind of agreeing with you, since I don't necessarily think there are any absolutely concrete examples of Bitcoin supplanting CCs. I think Bitcoin's greatest potential is elsewhere in untapped areas.)
Hold on, cash-based transactions work in the real world because you can inspect goods beforehand or you're paying for services already received. It doesn't require a lot of trust.
That doesn't hold in the mail order or online world. Consumer protections are more important.
Firstly, there's a debate on whether BTC is closer to FIAT or to an asset (e.g. Gold).
Let's say we skip that part. Until a world-wide bank like say UBS or a country decides to implement an infrastructure for bitcoin, it won't cut it.
Why a country would want to do that, is beyond me - and probably beyond anyone with a basic understanding of macro-economics - and so we're left with other possible implementations of the protocol.
Until we find a way for average Joe to switch from USD/EUR to BTC and back easily and without fear of money loss, I don't think we'll see any widespread adoption as a payment system.
ps. The argument about using bitcoin in societies where finance is not well evolved, is as ridiculous as it is dangerous. Imagine bitcoin-driven banks in Addis Ababa handing out loans (in bitcoin or the local ETB currency?!) and financial products based on bitcoin. Then imagine that an unknown, early adopter, from the other side of the world decides to withdraw 100.000 bitcoins at once: There you go, you got Ethiopians playing wall-street pranks!
Because otherwise ordinary people will not have access to BTC and you can't achieve adoption without them.
A Bank has an infrastructure that could make BTC virtually omni-present in the physical world. Any other non-gov institution, would have a hard time setting up an infrastructure in large scale. A bank has also the knowledge to protect herself from bitcoin itself, because (supposedly) understands the financial (and social) ramifications of every choice made AND should be held accountable if things get out of hand.
If UBS (as in the example above) starts accepting BTC transactions, it means that thousands of hundreds of average Joes get instant access to the system. Otherwise, it's just you me and a couple of bleeding edge technophiles.
The big one is micro transaction. Card fees make it inefficient to work with a high number of small (say $0.25 or less) transactions, Bitcoin solves that.
I totally agree. Consumers won't miss their protections and rewards there either. But at the same time, it's a relatively small niche. So if that's "the big one" then it's hard to see Bitcoin competing with cards more broadly.
There are a couple cases of underserved merchants based in the US where Bitcoin would compete with CC in a first world market.
The first is marijuana merchants in CO and WA. Marijuana is legal at the state level but not federally. These merchants have a hard time using the banking and credit card systems and transacting in BTC would help them do e-commerce.
The second is very low denomination transactions (like 10c). It may become profitable for compensate people at scale for doing some very small amount of work. Like giving someone who finds a typo some small amount of compensation. Credit cards are very poor for this.
As for replacing CC, that is a tall order. They are expensive and inefficient, but accepting credit cards does increase top line revenue if a merchant accepts them. If a payment method is going to get adoption it needs to grow revenue (vs. reduce cost) for a merchant if the merchant accepts it.
Some of the first world benefits are not necessarily related to the immediate use for customers. However in a situation, such as the Target breach, that released peoples credit card and personal data to thieves, if you used bitcoin you would not even have to go to any effort to see if you were affected. If you used Traget and paid by CC then you need to check if your email was one of the compromised ones, check statements for unusual purchases, deal with reclaiming that if necessary and also fixing your credit report (potentially). If you paid by bitcoin all they have is the address you paid from and your delivery address (which they have if they get your personal info anyway).
Tough sell. You wouldn't get the rewards and consumer protections that cards offer. Those include pretty good protection from fraud like that.
Plus, Bitcoin has its own security nightmare scenarios, like customer wallets getting hacked. And unlike cards, there's no recourse for recovering your bitcoins stolen by fraud.
Read about multi-signature transactions. That's something you can't do with fiat, and libertarians (or any other conscious person) will gladly use that.
Something I've been wondering about Bitcoin: If Bitcoin is going to be used as a currency, you'll need to be able to get loans, short term like a credit card and long term like a mortgage. But isn't taking a loan in a deflationary currency very risky? Kinda like short selling, possible to lose/be in debt an infinite amount of money?
Assuming Bitcoin becomes widespread, how do you convince people to take a salary that goes down every year? It's going to take a lot of re-education -- a completely different way of looking at money.
A loan could be delivered and repaid in Bitcoin... but have the calculation of its interest/principal be in some other unit.
An example is the Chilean "Unidad de Fomento", which does not circulate, and varies against the peso which does circulate. But the Unidad de Fomento is used for loan terms.
> If Bitcoin is going to be used as a currency, you'll need to be able to get loans, short term like a credit card and long term like a mortgage. But isn't taking a loan in a deflationary currency very risky? Kinda like short selling, possible to lose/be in debt an infinite amount of money?
No, the amount of money is fixed by the terms of the loan.
The potential value might be unbounded (but any currency can be deflationary, even those that are actively managed to avoid deflation, so that's not entirely a unique risk.)
The real issue with a designed-to-be-deflationary currency is that the rate of deflation puts an effective lower bound on interest rates, which means there becomes no economic sense to lending money below a certain interest rate. If such a currency becomes dominant with more than very mild deflation, it could have a serious negative effect on the availability of credit.
To be a bitcoin believer, its not necessary to think it will displace fiat. Bitcoin is deflationary like gold, so it shouldn't be much different then the gold commodity market or returning to a gold standard. For most of the united States growth and prosperity, it was on the gold standard.
Most people are not expecting Bitcoin to completely replace any government-issued currencies. If you take a job with remuneration in Bitcoin it will likely be a certain dollar amount worth of BTC rather than a certain amount of BTC.
This isn't specific to Bitcoin, although Bitcoin prompted the question. For a non-superficial answer, you'd want to read papers by Austrian economists.
Well. Assuming an efficient market, and given equal levels of price stability: taking a loan in a deflationary currency should not be more any more risky than taking a loan in an inflationary currency. Nor should the real price substantially differ.
Of course, psychological perceptions are a trickier matter, which is why we hear about "sticky wages"...
Great pos! The more I learn about bitcoin, the more I feel like it still has a long way to go. There are a few hurdles that can not be easily solved now: 10min transaction time; deflationary (this pretty much means it would have a hard time to act a real "currency" based on nowadays economic thinking); the resources wasted in mining and the potential consolidation of mining; the programmable aspect is very limited today. What is your take of it?
> For almost all practical applications for which bitcoin is being used, this doesn't actually come in to play very often.
Not exactly. If you have all your coins in a single transaction, you will get change - which can take 10 minutes to confirm before you can spend it again.
Yes, you can solve this by splitting up your money, but it's not something people expect.
> It's not wasted if it's being used to process bitcoin transactions.
Yes it is being wasted. Waste doesn't mean "unused", waste means "using more than necessary". Due to the hashrate arms race, tremendous amounts of power are being wasted doing nothing useful.
Bitcoin is powered by electricity, a better currency would spend something else instead.
> Due to the hashrate arms race, tremendous amounts of power are being wasted doing nothing useful.
But they are doing something useful. They're preventing someone from turning up and performing a 51% attack, thus ensuring the security of the network. You could suggest that there's better ways of doing that, but our ideas so far haven't panned out.
Interestingly, how it works at the moment is that essentially, through the mining of bitcoins, every bitcoin holder's bitcoins are devalued to pay for the security of the network. Therefore, if a significant amount of bitcoin holders decided that they could deal with less network security, they would use a coin which provided less network security (by paying miners less).
As it is, at the moment, we're not sure exactly how much security we need. Therefore, we're willing to pay for as much security as possible; nobody wants their bitcoins to be worthless tomorrow because they didn't pay enough to protect the network.
The thing I don't like about the way bitcoin mining works is that it's an arms race that leaves attacker and defender on equal footing - quite unlike a lot of crypto, where adding a bit increases the defender's work linearly but the attacker's exponentially. By its nature, then, we have to keep burning off more in value than someone could make with a 51% attack, regardless of improvements in tech efficiency.
Of course, lacking a better proposal, it could be that this is the best we can do. I don't have to like everything about every piece of technology in the world...
> You could suggest that there's better ways of doing that, but our ideas so far haven't panned out.
Can I ask, have you heard about Peercoin, which uses a combination of a proof of work and a proof of stake system rather than just a proof of work system? Do you have an opinion as to why such as system wouldn't be at least as secure as bitcoin?
My understanding is that it's currently unproven, and certain ideas we used to have about it have already been disproven. I'd love to see an actual academic paper on what it would take to break the network.
There's also the fact that wealth inequality - specific groups of people owning significant amounts of money - will break the network's assumptions. This could be a good or bad thing, depending on your point of view.
Additionally, minting a proof-of-stake block locks your stake for 520 blocks. Most reasonable people would be angry that they can't access their money for that long. There's a workaround of reserving a certain amount of coins so that it can't be used for proof-of-stake, but that doesn't actually solve the problem, and generally means that the poor will reserve all their money and never generate a proof-of-stake block.
And that leads on to another issue with proof-of-stake; the rich get richer, as a rule that's explicitly built into the system. Probably not much richer, but it's against common ideology.
The other thing that most cryptocurrency enthusiasts won't like about Peercoin is that it's eternally mildly inflationary. While some will understand that this is essentially payment for security, others will argue that those who use the network more should pay more (via transaction fees), rather than a "tax".
I suspect that it will see a mild increase in use when they prove that they can get rid of centralised checkpointing, but I think there's a very significant core group that will not be able to get past the ideological issues and lack of academic research.
> Yes it is being wasted. Waste doesn't mean "unused", waste means "using more than necessary". Due to the hashrate arms race, tremendous amounts of power are being wasted doing nothing useful.
Due to the arms race, it's only getting more and more efficient.
> nothing useful
Again with that? You are starting to sound like a troll.
> Bitcoin is powered by electricity, a better currency would spend something else instead.
Can't you say the same about everything? Why does Bitcoin's energy consumption bother you so much, while you have cars, factories, and everything else still using fossil fuels, coal, etc.? Is your computer running on dark matter energy or what?
Imagine a computation-intensive crypto-coin-mining activity somehow linked to a real-world, practical use, say, curing cancer (say, by digging through vast amounts of genetic data). Instead of paying for the computation time directly, people could work on chuncks of the problem as they wish and be rewarded with CCCs (Cancer Cure Coins) for defined partial results.
Then we could say the computing ressources are not wasted.
This is a frequent point that comes up from people who haven't really thought through all the details of how PoW based cryptocurrencies work.
A good proof of work function needs two things (among other desirable properties I will elide):
1) For some difficulty factor D, you should be able to generate an instance of the problem that takes time proportional to D to solve
2) The solution should be verifiable in time much less than D (preferably constant time)
So until you can show me a foolproof way to generate protein folding problems, genetics problems, or SETI problems, etc. that have these properties (I haven't found one myself), it seems quite difficult to make a "useful" PoW.
Now, theoretically, if you found a "useful" problem that had property 1, but not property 2, you could convert it into a viable PoW using efficient zero knowledge proof techniques [0], but at the moment that isn't really viable.
It was just an example to clarify the criticism of "cryptocurrencies waste energy". It would be up to the cryptocurrency advocates to show such a function.
On the plus side, the problem does not necessarily be "proportional to D", in fact, finding a better function would be incentivized. Since the computer cycles would produce a "real" value (curing cancer), the upper limit for these coins would be the amount of money society would spend on a cancer treatment.
> For almost all practical applications for which bitcoin is being used, this doesn't actually come in to play very often.
But could this be a self-fulfilling prophecy? Perhaps this property of Bitcoin is hurting its adoption, by relegating it only to uses where this is not a hurdle.
In the short term, I think it will have a hard time gaining use as a currency. A few currency scenarios might pop up, for example countries with unstable government or corrupt governments could see people store $ in BTC instead. However, I do think it could be very valuable as an application. Like if you layered it on top of the existing payment system to provide better security/anti-fraud.
If you look to the top of the page, next to your username, there's a number in brackets. Wouldn't it be nice to take that number and buy something real with it? You could, if it was a fun cryptocurrency that had at least a little traction.
I'd imagine certain people could use their Stackoverflow Coins to buy a house!
So what property does Dogecoin have that Bitcoin doesn't, that enables us to do this? The answer is nothing, and Dogecoin is redundant. Might as well use Infinitecoin or any other copycoin before Dogecoin, they are all the same copy/pasted code, with no technical added value and the only effort they put goes to marketing.
> deflationary (this pretty much means it would have a hard time to act a real "currency" based on nowadays economic thinking)
This argument makes no sense to me. If Bitcoin's deflationary nature prevented it from acting as a currency, it would also prevent USD/CAD/dogecoin/etc. from acting as currencies because people would chose to buy Bitcoin instead of spending their inflationary currency on anything else.
Every time you spend USD on something, you can instead buy an equivalent amount in Bitcoin. Not buying bitcoins can effectively be thought of as buying them and spending them.
In fact, the truth is that no one knows if Bitcoin will be inflationary or deflationary within the next year due to its current small market cap and risky nature. But in an hypothetical world where Bitcoin does become a stable and deflationary currency, why would any selfish actor chose to hold an inflationary currency?
> If Bitcoin's deflationary nature prevented it from acting as a currency, it would also prevent USD/CAD/dogecoin/etc. from acting as currencies because people would chose to buy Bitcoin instead of spending their inflationary currency on anything else.
This is exactly what happens. No one holds currency.
People don't generally have their assets as cash, just what they need to be liquid. They hold their assets as a mix of stock (incl. funds, bonds, options), real estate, etc.
In fact, the majority of people have practically no cash at all because they lend it to a bank (i.e. putting it in a checking or savings account) who invests it or lends it for a return! The bank only holds a small portion of what they say is in the account.
Not sure if you are disagreeing with me but in case you are: suppose those assets (stocks, bonds, real estate) could be transferred as easily as a currency (instant transfer/fungible/divisible/liquid/etc.), would people use cash at all? What would be the use case for cash? My point was that Bitcoin would be such an asset.
Perhaps a deflationary currency would have a negative overall impact on the economy, but that's not what I'm arguing about.
I was disagreeing, but I don't think you are wrong: just misinterpreting.
I think that a good currency really has couple properties: fungible, no inherent value (i.e. not a good value store).
(This could be viewed as a weakness but I think is actually a strength in this circumstance).
If the currency is a value store, it changes the dynamics of spending it. I feel this is the reason that salt (going back in time) is not a particularly good currency either. Imagine it this way -- if all of a sudden salt was more useful (perhaps it's a hot summer, and meat is spoiling), then all of a sudden there's an extra inertia on all transactions, i.e. the cost of all goods changes.
The point of a currency is to facilitate transactions. If there's any sort of speculation around the inherit value of the currency (as per bitcoin -- the knowledge that demand will increase and supply will be lost) then it increases friction in spending.
I would certainly have to think a lot harder all the time if I were spending stocks or tiny pieces of land.
> I would certainly have to think a lot harder all the time if I were spending stocks or tiny pieces of land.
You said it yourself: people don't hold cash. They sell their assets before buying something with cash. And it doesn't seem to prevent them from spending. With Bitcoin, it would be the same thing except the whole "sell your assets before you buy" process could be skipped.
Of course I oversimplified a lot here. People don't literally sell their stocks/real estate before they buy something. But I'm sure they would if those assets allowed them to.
> 10min transaction time, resources wasted in mining, programmable aspect is very limited, deflationary, nowadays economic thinking
Getting really tired of these arguments. Transactions take 0-2 seconds. The resources are not wasted, they are used to secure the network and are way lower than what VISA or any other big company use. And It's deflationary because people like me are suffering from this form of theft called inflation, and we desperately needed something like Bitcoin. Besides, without an economic incentive why would people risk money? Nowadays economic thinking is pretty much a pseudoscience, just like Psychology.
A crypto currency network that requires constant hash thrashing is not one I'd call well designed. It appears to be a trade-off for the decentralisation of initial currency issuing, not something everyone considers important.
"It appears to be a trade-off for the decentralisation of initial currency issuing, not something everyone considers important."
Mining isn't (primarily) for currency issuance - it's decentralization of secure transaction processing. Which still isn't something everyone considers important, of course.
Well sure, it does both. There are (theoretical) systems that allow cryptographically secure transactions to take place without so much thrashing though. Even verifiable offline transactions.
Of course bitcoin's major advantage is that it's already here and working.
Certainly. Using it to distribute the currency, before there's the critical mass of people wanting to make transactions enough to pay your miners seems a perfectly good fit once you're already needing to mine, though.
"There are (theoretical) systems that allow cryptographically secure transactions to take place without so much thrashing though. Even verifiable offline transactions."
Verifiable offline transactions with no centralization? Can you link to some?
And no, not everyone values decentralisation, sorry. I ddon't consider it an important aspect of a currency or payment scheme. Good for you if you do. Personally I value consumer protections and ease of use way more.
The inflation one is the only one that's really fundamental to the currently. Part of the core of the Bitcoin system is that the validity of everything that happens is proven by being accepted by all of the nodes that make up the system, rather then by some special authority figure. There are authority figures that publish the node software, but they can't force anybody to go along with any change they make. They have to tell the world what their changes do, and hope that everybody is willing to upgrade.
Part of the rules of the system that are enforced is how new coins come into existence, and the current rule for that is the fixed reward per block mined, with logarithmic decrease in reward amount. It is possible to change that, but the fundamental nature of the system is that the coin creation has to be controlled by an algorithm shared and repeatable among all nodes, and so cannot ever be based on any arbitrary or external factors.
Even making a change that remains within those limits is risky. To keep the currency in existence, there must be broad agreement among all of the people running nodes as to what the rules of the currency are. If the core developers decide to make a change in that, and 20% of nodes refuse to upgrade, it would be a disaster. And so they aren't likely to risk doing anything that might piss off a significant fraction of the users.
So love it or hate it, the fixed inflation system isn't going anywhere.
Remember although, you can release an altcoin that doesn't release coins logarithmically like bitcoin does. You can release one that has a linear %1 permanent inflation rate for example.
I think the second guy at the end of the video raises an important question. Why use this over any other currency? If you are worried about the "control" of the said currency why not use a more "free" one like Swiss francs?
I am worried that Bitcoin will never be used as a standard if a regular, Facebook user, can't manage to get his hands on it, and afterwards use it. It's a catch 22 in my opinion.
Sure it's easy for IT people to use it, but my mom doesn't even know about PayPal for instance. And I am sure she is not the only one.
My personal top question - as I understand it, to earn new bitcoins, you must mine them by verifying the ledgers from previous transactions. The first one who solves this puzzle gets the bitcoins. Question - why doesn't the fastest computer win every time? If the puzzle is a number crunching puzzle and computers are all doing the same thing, shouldn't the winner always be the same computer?
The answer is that the puzzle is huge and non-determininstic. The puzzle is to take a block of data - all of the transactions that haven't been confirmed yet - and append a value to it that makes the hash of it below a given number. That number is called the difficulty, and is dynamically set. Systems trying to solve it simply keep trying different values and running the hash to see what the value is.
Any particular guess-and-hash operation has a certain probability of finding a solution, and that probability is the same for all systems, no matter how fast or slow they are running. Faster systems just guess-and-hash faster, and thus have more opportunities to succeed. That difficulty is set dynamically based on the estimated total rate of operations, or hashrate, of the entire network, so you can think of the system overall doing a certain number of hashes per second. A solution is essentially a random event that one particular hash will satisfy. So the higher the hashrate, the higher the probability that you will succeed, but it's still a probability. You never have a guarantee that you will succeed, no matter how fast you are, and even slower systems have a chance.
That's why there are these malware-created networks of low-power systems doing bitcoin mining. They're all pretty slow, but with enough of them working, one of them will succeed every once in a while.
I think you have to add that everyone is solving a different puzzle, I.e. if I'm not mistaken, an identifier of the miner (I would guess her public key, I can't really check right now) is included in the string she hashes (plus they may not all have the same list of pending transactions). otherwise you would still have the problem that if people use the same software for guessing the random string, the fastest would always win.
True, but not really relevant to this. Even if they were all the same, it wouldn't change things. The fastest would indeed win if all hashing devices started at the same nonce value and all incremented it in the same way. (the nonce is the extra data put into the block solely to make the block's hash meet the requirements) But precisely because of that, there is no reason for any device to try nonces in a deterministic way.
maaku's explanation makes clear a very good point - trying any particular hash only tells you whether that one succeeds or fails; it doesn't tell you anything about whether any other value will succeed or fail. Any particular hashing device will maximize its chances of winning/finding a solution by trying nonces in such a way that it is unlikely that any other device is trying the same ones, but that it never tries the same one itself twice.
I don't know offhand how many mining algorithms are out there and how they go about picking nonces, but I'd bet they do something like pick a strongly random starting value and then increment it by a fixed, small amount each try.
But yes, all of the miner's blocks are generally different. Each block that a miner is working on must have special Coinbase transaction that awards a specific number of new BTC to a chosen address. If you are an independent miner, that would be your address, but pool miners generally use a pool address. I don't actually know how the latest pool mining algorithms work, but I think they all have more elaborate systems for how payouts work.
The block being hashed will include the payout address set by the miner, which will make the block he is working on different than the ones the others are working on.
The block includes a nonce, a random number which is changed for each try until one gives a hash < target. That nonce is picked at random independently by the miners, so that also makes the blocks they are working on different.
Very astute question. That's the reason the proof-of-work function has to be "progress-free". Each time the miner performs a hash and finds an insufficient value, they are no closer to finding a block than when they started. Each hash has a liklihood of being a solution of approximately 1 / (difficulty * 2^32), but is also a a truly random lottery. Finding a trillion bad hashes doesn't make you next hash any more or less likely to be the solution.
The "puzzle" to be solved is a hash (of recent transactions and an arbitrary number) with certain required characteristics, and finding a valid solution is a matter of chance - basically through brute force. The fastest supercomputers do have greater chances of finding a solution (because they're testing more hashes per second), but they aren't guaranteed to win every time.
Finding the next block is a random procedure. Miners try to guess a number that 'solves' the block puzzle. It could take 2 seconds or it could take 30 minutes. On average it takes 10 minutes. Faster computers can try more numbers but slow computers have a chance too. The faster your computer the better your chances.
> The money supply for BTC increases slowly. This is discouraging transactions because (if you believe in the currency and its future) you should hoard your BTC. The amount of new BTC going into circulation is low, barring any disaster (e.g. Germany banning BTC, Kraken hacked), it just makes sense to hold because what you have today will be worth more tomorrow.
Just another Dogecoin shill with unproven claims. What you said is absolutely false. In donations alone, bitcoiners have spent more (millions of dollars worth at the time) than dogecoiners have spent in everything.
What some people do with it doesn't invalidate what I said at all. I'm just saying that being deflationary doesn't stop you at all from spending it. What's the difference between holding it and only spending dollars, and spending your coins and buying more coins with your dollars? There is no difference. In fact, since lots of places accepting Bitcoin give you discounts if you use Bitcoin, you are encouraged to spend it instead of dollars.
I didn't read the article but the part you quoted is basic economics. If some currency has usage but a limited supply - even if it's just cigarettes in a prison - its price will go up. When this happens, it gives a hurdle rate on spending. If relatively few cigarettes are making it into a prison, but there is no other convenient form of currency, you might well hold off trading some of yours because it will be worth more in a couple of weeks. Gold certainly can suffer from this effect and is a main reason that growth was unlocked when paper got off a 100% gold standard: if the economy needed money, you no longer had to mine it.
This is NOT a normative statement, just a fact. Bitcoin spending is going to be curtailed (fact) by a limit on the speed of increase of the money supply, just as spending is spurred (fact) by easy credit and inflation.
(Inflation for a fact spurs spending, because if inflation is 7%, then holding onto money costs you 7% per year, whereas spending it on anything can let you retain that value.)
These are not normative statements but completely uncontroversial (and intuitive) economics.
Yeah yeah, "basic economics". I'm getting really tired of all these unproven theories. Economics at this point has turned into a pseudoscience just like Psychology. Academics publishing untestable bullshit and people like you citing them ad nauseam, instead of showing some actual evidence.
You are absolutely wrong in your comparison with cigarettes, because in prison you don't have enough liquidity of cigarettes. On the other hand, you can buy all the Bitcoin you want and use it to buy whatever you were going to buy anyway, and even get a discount.
No, you can't "buy all the bitcoin you want" - it's simply not true. Look, Facebook's acquisition of Whatsapp included $4B in cash. If Whatsapp had said, "but you need to pay us in bitcoin, we'll set the price at the current trading price", then too bad, Facebook couldn't have said yes, because it would be impossible to source that many bitcoins. The total value of all bitcoins in existence is $5B today, and I doubt it could buy up 3/4 of them, including ones that were lost or refused to sell, for any amount of money. Just as there is no amount of money (in any currency) I could give you that you could spend to get 95% of all the dollars in existence into one room to give to someone - because some people will hold out. You just can't get them all. Stores, banks, the rest of the economy, everyone uses dollars. You can't just get 95% of the ones in existence. More precisely, it is "impossible" to get 95% of all dollars into one room. A hundred trillion dollars' worth of other currency and values of various kinds wouldn't come close to letting you buy up 95% of all dollars in existence - at any price.
And there are a LOT of dollars in existence.
There are comparatively VERY few bitcoins in existence.
So this simple example shows that it is absolutely false that you can buy all the bitcoins you want. If Facebook announced that it needed $4B in bitcoins at today's price, then most people would instantly start hoarding it, the price would jump to $10,000 per bitcoin, and ordinary people would be unable to buy it at any price.
Well obviously if you fix the price of Bitcoin at a certain point in time, later on it's gonna be a lot more expensive, especially if someone throws 5B at it.
Besides you are trying to find an edge case to argue about common cases, which is stupid and lame.
No, I'm showing you how the laws of economics work by appealing to your intuition.
The part you quoted before ("This is discouraging transactions because (if you believe in the currency and its future) you should hoard your BTC. The amount of new BTC going into circulation is low, barring any disaster (e.g. Germany banning BTC, Kraken hacked), it just makes sense to hold because what you have today will be worth more tomorrow.") is totally completely uncontroversial - and this is super easy to show, not only just in historical terms or by looking at how people actually behave, but if you simply think it through yourself. It's just obvious and uncontroversial.
"...one fundamental building block that BTC needs right now: legitimacy"
"Imagine if you were able to provide governments assurance that every BTC wallet that cashed out into USD had a thorough KYC procedure performed on the transaction"
I'm afraid this kind of legitimacy will never be obtained for Bitcoin - not because it's impossible, but because many (most?) of Bitcoin's strongest proponents are pushing for the exact opposite goal.
On one hand, we have people wanting to "fix" Bitcoin by providing more transparency - through decreased anonymity. On the other hand, we have people trying to "fix" Bitcoin by providing increased anonymity at all costs.
Personally, I believe both goals are admirable, but the conflict may ultimately hurt Bitcoin's chances of long-term success and mass adoption.
It comes down to this question: do we want Bitcoin to become "legitimate" and fit in to the current landscape of government regulation, law enforcement, consumer protection, etc., or do we want Bitcoin to fundamentally disrupt all of those ideas and stand as something all of its own? The first option ensures greater chances of (quick) widespread adoption without rocking the boat too much, while the second option flies in the face of systems of power and influence that have been in place for thousands of years.