Professional Traders Show Interest in Bitcoin • Hacker News Board

Re: Professional Traders Show Interest in Bitcoin

#11

Post by stuhood » Mon, Apr 02, 2012, 2:07 AM UTC

javert wrote: post #6

keen wrote: post #3

Earlier quoted context omitted.

Agreed. It will be interesting to see what happens at the end of this year when the block reward halves.

What do you expect to happen? What are the possibilities?

Since the block reward is the only source of 'new' bitcoin, the rate of bitcoin creation will be halving as well. So there will be two competing effects:

1) 'monetary' inflation will decrease, because the rate of bitcoin creation will drop from 7200BTC/day to 3600BTC/day

2) miners will be earning half as much when denominated in BTC

If the decrease in inflation doesn't cause a large enough corresponding increase in price, mining would be less profitable, causing some fraction of miners to drop out, and meaning longer transaction confirmation times (for at most 2 weeks, while the network adjusts to the change in capacity).

My guess is that the huge change in inflation will adequately compensate both miners and investors, and cause a significant enough increase in price to avoid lengthening confirmation time.

https://en.bitcoin.it/wiki/Controlled_Currency_Supply

EDIT: by inflation, I mean 'monetary' inflation, rather than price inflation.

Re: Professional Traders Show Interest in Bitcoin

#12

Post by sgornick » Mon, Apr 02, 2012, 2:09 AM UTC

3pt14159 wrote: post #9

Bitcoin is mathematically flawed. There are at least two attack vectors that someone with a million bucks or less could pull that would require manual overrides on the code, which, as nobody likes to talk about, is possible. edit: Disclosure: I made a bunch of money getting in on bitcoin early and then selling out at around $22. It was at that point where I looked at the whole system and determined the attack vector.…

Care to describe further this attack vector? A 50% + 1 attack is about in the $10+ million range, but still doesn't "override the code".

Re: Professional Traders Show Interest in Bitcoin

#13

Post by dailyllama » Mon, Apr 02, 2012, 2:10 AM UTC

gfodor wrote: post #5

It would be interesting to hear a real quants take on the utility of having bitcoin as a (small) asset class in your portfolio. How much correlation does bitcoin have to any other asset class? I'd wager very, very little, making it a strong candidate for diversification. That said, it's overall volatility might offset the reduced expected volatility you'd see in your portfolio by holding some.

Bitcoin is exceptionally illiquid. You can't buy or sell any meaningful quantity of them without moving the market.

As such, it's not really a viable asset class unless your net worth is ridiculously insubstantial.

Re: Professional Traders Show Interest in Bitcoin

#14

Post by mrb » Mon, Apr 02, 2012, 2:12 AM UTC

3pt14159 wrote: post #9

Bitcoin is mathematically flawed. There are at least two attack vectors that someone with a million bucks or less could pull that would require manual overrides on the code, which, as nobody likes to talk about, is possible. edit: Disclosure: I made a bunch of money getting in on bitcoin early and then selling out at around $22. It was at that point where I looked at the whole system and determined the attack vector.…

You are off by an order of magnitude. It would take $9M of FPGAs to have a clear probability of performing a majority attack https://bitcointalk.org/index.php?topic=67969.msg821634#msg8... This is without even counting hosting costs: power, cooling, space.

Re: Professional Traders Show Interest in Bitcoin

#15

Post by soup10 » Mon, Apr 02, 2012, 2:24 AM UTC

Bitcoin has several huge flaws that make it just a toy. The first is that it is insecure. As seen by the constant incidents of stolen and lost bitcoin's. Physical currency is much more secure than a string of bits sitting on a hard drive, the solution to this is having bitcoin banks that assume responsibility for the bits, but that defeats the purpose. The second is that it's much less convenient than cash. The third is that the distribution system is set up as ponzi scheme where early adopters reap enormous amounts of wealth if they recruit more bitcoin users(which is why the bitcoin astroturfing is so persistent), people generally don't like participating in ponzi schemes.

In addition to this the implementation is known to be technically flawed and vulnerable to attack. The system is easily disrupted by a sufficiently interested and funded party.

Re: Professional Traders Show Interest in Bitcoin

#16

Post by 3pt14159 » Mon, Apr 02, 2012, 2:25 AM UTC

sgornick wrote: post #12

3pt14159 wrote: post #9

Bitcoin is mathematically flawed. There are at least two attack vectors that someone with a million bucks or less could pull that would require manual overrides on the code, which, as nobody likes to talk about, is possible. edit: Disclosure: I made a bunch of money getting in on bitcoin early and then selling out at around $22. It was at that point where I looked at the whole system and determined the attack vector.…

Care to describe further this attack vector? A 50% + 1 attack is about in the $10+ million range, but still doesn't "override the code".

You don't need majority. And the attack isn't about stealing money, its about taking down the system and making people lose faith in it. Remember: to make money all you need is some unlikely put options and for knowledge of market instability.

Re: Professional Traders Show Interest in Bitcoin

#17

Post by unimpressive » Mon, Apr 02, 2012, 2:25 AM UTC

3pt14159 wrote: post #9

Bitcoin is mathematically flawed. There are at least two attack vectors that someone with a million bucks or less could pull that would require manual overrides on the code, which, as nobody likes to talk about, is possible. edit: Disclosure: I made a bunch of money getting in on bitcoin early and then selling out at around $22. It was at that point where I looked at the whole system and determined the attack vector.…

The cost of such attacks will go down as bitcoin ages.

As I understand it the bitcoin rewards of mining go down over time. If the rewards go down over time, eventually it won't be profitable to mine bitcoin. So the speed of transactions goes down and the network becomes weaker because theres less cooperating computer time on it.

Maybe I just don't get bitcoin. But if true that seems like a fundamental problem.

Re: Professional Traders Show Interest in Bitcoin

#18

Post by 3pt14159 » Mon, Apr 02, 2012, 2:26 AM UTC

mrb wrote: post #14

3pt14159 wrote: post #9

Bitcoin is mathematically flawed. There are at least two attack vectors that someone with a million bucks or less could pull that would require manual overrides on the code, which, as nobody likes to talk about, is possible. edit: Disclosure: I made a bunch of money getting in on bitcoin early and then selling out at around $22. It was at that point where I looked at the whole system and determined the attack vector.…

You are off by an order of magnitude. It would take $9M of FPGAs to have a clear probability of performing a majority attack https://bitcointalk.org/index.php?topic=67969.msg821634#msg8... This is without even counting hosting costs: power, cooling, space.

It isn't a majority attack. Infact, today, it would probably be cheaper since bitcoins are a third of what they were when I found it. All you need to do is crash the market and buy put options against it, you don't need to create nonvalid transactions.

Re: Professional Traders Show Interest in Bitcoin

#19

Post by ewillbefull » Mon, Apr 02, 2012, 2:39 AM UTC

3pt14159 wrote: post #18

mrb wrote: post #14

Earlier quoted context omitted.

You are off by an order of magnitude. It would take $9M of FPGAs to have a clear probability of performing a majority attack https://bitcointalk.org/index.php?topic=67969.msg821634#msg8... This is without even counting hosting costs: power, cooling, space.

It isn't a majority attack. Infact, today, it would probably be cheaper since bitcoins are a third of what they were when I found it. All you need to do is crash the market and buy put options against it, you don't need to create nonvalid transactions.

Why would you call this a "mathematical" flaw? Your original post implied there was some algorithmic issue, when you're really just proposing dumping the exchange market -- which is a completely independent mechanism of trade.

> Also the only way to get bitcoins securely is to buy and sell them for cash. And even then there are ways of figuring out who is who.

This is ridiculous. The psuedoanonymity of bitcoin allows for laundering services which enhance your plausible deniability. You can't practically figure out "who is who" if I send a delayed transaction through a popular laundry service.

Re: Professional Traders Show Interest in Bitcoin

#20

Post by nandemo » Mon, Apr 02, 2012, 2:45 AM UTC

gfodor wrote: post #5

It would be interesting to hear a real quants take on the utility of having bitcoin as a (small) asset class in your portfolio. How much correlation does bitcoin have to any other asset class? I'd wager very, very little, making it a strong candidate for diversification. That said, it's overall volatility might offset the reduced expected volatility you'd see in your portfolio by holding some.

I'm not a quant, but you also have to consider the operational and regulatory risk of dealing in bitcoins. The people who are currently trading bitcoins don't necessarily have to follow the same regulations that banks and trading houses do.

Also, consider that over 80% of the foreign exchange market is accounted by 6 currencies or so: US dollar, yen, euro, British pound, Swiss franc and Australian dollar. Traders barely bother with the Brazilian real or Indian rupee, even though these currencies are much more likely than bitcoin to be around in 5 years.