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The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

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Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#141

Post by smokeyj »

barrkel wrote: post #134
pizza wrote: post #122

Earlier quoted context omitted.

1) Bitcoin has a bootstrap advantage, not disadvantage; like all Ponzi schemes, it has the potential to return real profit to early adopters. Can't the same be said for people who bought Apple or Google stocks early on?

Ownership of a stock is a claim on the net value and future profit of the company. In a theoretically efficient market with perfect information, stock price would be fixed; its value would be the same as the net present value of all income streams associated with that stock. But we don't have perfect information, especially about the future; so a certain amount of the stock price is formed from expectations about fut…

>> Can't the same be said for people who bought Apple or Google stocks early on?

> Ownership of a stock is a claim on the net value and future profit of the company.

Ownership of currency is a claim on the net value and future profit of the currency. How does this address OP?

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#142

Post by achompas »

mcantelon wrote: post #136
achompas wrote: post #129

Earlier quoted context omitted.

Looked at in another way, think of Bitcoin as something more like MMORPG loot. If people are willing to spend vast amounts of "real money" on items for their WoW character, spending that money on Bitcoins instead makes it seem like a sane investment rather than just flushing it away. What is the intrinsic value of Bitcoins, then? That people are willing to spend money on Bitcoins? As an investment vehicle these are t…

>Bitcoins have no intrinsic value. Part of the value is in their utility as an anonymous currency: try taxing the guy that's paid in Bitcoins. Another part is the integrity of the currency: the currency is backed by math, rather than men, and not subject to hyperinflation resulting from corruption (i.e. the US Fed can create money out of thin air, but there is no authority that can create Bitcoins out of thin air: th…

I didn't downvote you, (I don't think I'm allowed to!) but the "US Fed" (the Federal Reserve) does not simply add $X million to the money supply--it actually purchases Treasury bills on the open market. The net transaction is $0 (an exchange of currency for T-bills of equal value), but the market now contains more paper money.

Meanwhile, I've already discussed Bitcoin's potential as an alternative currency (or lack thereof) in other comments. If people demand Bitcoins as a "tax haven" from the government, then Bitcoins aren't long for this world.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#143

Post by pornel »

dogas wrote: post #22

I think the other article ( http://apenwarr.ca/log/?m=201105 ) written about bitcoin failing is more detailed and contains potentially more plausible ways of how bitcoin can fail. The openwarr article refers to potential failures with the SHA256 backbone of bitcoins. "With bitcoin, a single failure of the cryptosystem could result in an utter collapse of the entire financial network. Unlimited inflation. Fake transac…

If SHA-256 gets completely broken, then yes. However, such instant breakdown may not happen in practice:

* weaknesses found usually still require some computation time, which may be prohibitively expensive. Reducing 2^128 to something like 2^90 is terrible disaster from crypto perspective (and buyer confidence), but won't open floodgates for fake coins (if faking a coin costs thousands times more than mining/buying, then nobody will bother on large scale).

* attacks typically have certain limitation, e.g. only generate collisions, but not preimage, or apply only to certain types/lenghts of data. Hash could be totally broken for one set of cases (MD5 digital signatures are useless) and at the same time still hold strong for other (MD5-hashed salted passwords are safe, as best known preimage attack is 2^123), so even if some terrible flaw in SHA256 is found, it may not be applicable to the way Bitcoin uses the hash.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#144

Post by espes »

cheez wrote: post #135
mycroftiv wrote: post #13

The current design of Bitcoin is obviously not correct for the long term, and I am sure it will be supplanted by more evolved crypto-currency systems. There is absolutely nothing preventing people from taking the open-source code and creating an alternative "Bittoken" currency which changes problematic design elements such as the minting/issuance model. Given the rewards that have already accrued to Bitcoin early ado…

> There is absolutely nothing preventing people from taking the open-source code and creating an alternative "Bittoken" currency which changes problematic design elements such as the minting/issuance model. Yes there is. The protocol is not documented at all. That's one of the reason I'm a little hesitant to touch it.

What? There are already multiple independent implementations...

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#145

Post by Kadin »

romaniv wrote: post #85
nl wrote: post #38

Earlier quoted context omitted.

Yes, you are right about deflation increasing the value of Bitcoins. That might make them a great investment . But Bitcoins are supposed to be a currency , not an investment. A currency needs to be used to transfer value, not sit around appreciating. If people sit on their Bitcoins as an investment then it will fail, because no one will ever accept it as a currency.

Ideally (from a consumer's standpoint), a currency should be relatively stable. I should be able to either buy things with it, or just keep it for the time when I need to buy something. I don't think deflation in itself is a problem, but the current rate of deflation of BC does worry me. I wonder whether this might be caused by a relative lack of way to spend it.

In the short term, over the next year or so, there isn't going to be a deflation problem with Bitcoins; there will be significant inflation. The BTC supply is set to increase something like 30% next year.

Right now the value of BTC has been going up (relative to USD) hand over fist due to increased demand. But eventually -- and I think it's going to be pretty quickly -- the buying spree is going to end and the miners are still going to be churning out new Bitcoins.

It's going to feel more like holding Zimbabwe dollars than Krugerrands for a while, I suspect.

Long term, yes, Bitcoins are designed to deflate. If they remain popular past c.2020, prices will gradually decrease and smaller and smaller fractions of Bitcoins will need to be used for transactions. (Actually the number of Bitcoins in existence will probably go down slowly over time, as people lose Bitcoin wallets and thus take the BTC out of circulation forever. There are 9000+ BTC "lost" this way at present.)

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#146

Post by gwern »

Goladus wrote: post #107
dogas wrote: post #22

I think the other article ( http://apenwarr.ca/log/?m=201105 ) written about bitcoin failing is more detailed and contains potentially more plausible ways of how bitcoin can fail. The openwarr article refers to potential failures with the SHA256 backbone of bitcoins. "With bitcoin, a single failure of the cryptosystem could result in an utter collapse of the entire financial network. Unlimited inflation. Fake transac…

> IANA cryptography expert. Is this feasible in the way the author predicts? Could SHA256 be cracked quickly, a la MD5? My gut is that it won't be able to, but I can't back up my argument. IANA cryptography expert either, but my understanding is that the biggest threat to SHA is quantum computing. http://en.wikipedia.org/wiki/Grover%27s_algorithm http://en.wikipedia.org/wiki/Quantum_computer

I am not an expert either, but I can't see what Grover's algorithm has to do with quantum computers. When you look at the known algorithms for them, quantum computers seem pretty useless... It's not hashes that fear quantum computers but existing public key crypto.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#147

Post by cheez »

espes wrote: post #144
cheez wrote: post #135

Earlier quoted context omitted.

> There is absolutely nothing preventing people from taking the open-source code and creating an alternative "Bittoken" currency which changes problematic design elements such as the minting/issuance model. Yes there is. The protocol is not documented at all. That's one of the reason I'm a little hesitant to touch it.

What? There are already multiple independent implementations...

There are, but they are derived from the official client if I understand correctly.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#148

Post by acslater00 »

Hi, I'm Adam, I wrote this answer on Quora. Against my better judgement, I'm going to wade in here and make a couple of clarifying points.

1 - Scam. I regret using the word "scam" in my answer, because I think it overshadows the broader point I was making about Bitcoin's severe structural design flaws. After watching the community react to this debate, I'm pretty confident that the average bitcoin supporter is not intentionally defrauding people. Consider my inflammatory rhetoric redacted and apologized for.

2 - Volatility. Since April 1, the average change (up or down) of the bitcoin/dollar exchange rate has been just under 8%. That's unprecedented. It's a clean order of magnitude more volatile than the stock market, which is considered a "volatile", "risky" class of asset. It's two orders of magnitude more volatile than a legitimate currency pair like the Dollar/Euro. Now, it's all fun and games while the exchange rate is basically trending up, but if that trend reverses look out below.

3 - Liquidity. All of that volatility comes on an average bitcoin volume of something like 20,000 per day. If I put in an order for $15,000 worth of Bitcoin right now, I'm pretty sure I could move the market between 5% and 10% to the upside. It's probably even worse to the downside. Call me a skeptic, but with that kind of easy price manipulation, I'm not quite ready to denominate my paycheck in Bitcoins quite yet.

4 - What It Means. A number of people criticized me for not understanding that Bitcoin is designed to be complementary to traditional currencies, and that analyzing it as an alternative is invalid. A number of different people criticized me for not understanding that Bitcoin is a different kind of currency, which will inevitably replace traditional fiat money, and that analyzing it as a component of the fiat currency system is invalid.

The Bitcoin community is diverse, and no one really knows what this is supposed to be yet. That's totally fine with me. I can assure you I don't have any skin in this game. My money is in LinkedIn stock.* But I've studied world currencies extensively (and trust me, a normal currency debate is not this lively). So, I don't know what Bitcoin will end up as, but I know two things with certainty:

a) that it's unstable as a currency

b) that it's currently behaving as a speculative vehicle in an aggressive bubble

* That was a joke

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#149

Post by mcantelon »

achompas wrote: post #142
mcantelon wrote: post #136

Earlier quoted context omitted.

>Bitcoins have no intrinsic value. Part of the value is in their utility as an anonymous currency: try taxing the guy that's paid in Bitcoins. Another part is the integrity of the currency: the currency is backed by math, rather than men, and not subject to hyperinflation resulting from corruption (i.e. the US Fed can create money out of thin air, but there is no authority that can create Bitcoins out of thin air: th…

I didn't downvote you, (I don't think I'm allowed to!) but the "US Fed" (the Federal Reserve) does not simply add $X million to the money supply--it actually purchases Treasury bills on the open market. The net transaction is $0 (an exchange of currency for T-bills of equal value), but the market now contains more paper money. Meanwhile, I've already discussed Bitcoin's potential as an alternative currency (or lack t…

>The net transaction is $0 (an exchange of currency for T-bills of equal value), but the market now contains more paper money.

Whatever the mechanism, fiat currencies are subject to inflation through the pressure of an ever-increasing money supply.

>If people demand Bitcoins as a "tax haven" from the government, then Bitcoins aren't long for this world.

It'll be interesting to see how the state tackles this. It'll be easy to drive it underground, but preventing its use will be another matter. Bitcoin transactions through a VPN seem hard to prevent.

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