Bitcoin solved a major technical problem, but not an economic one • Hacker News Board

Re: Bitcoin solved a major technical problem, but not an economic one

#61

Post by declan » Mon, Dec 30, 2013, 4:12 AM UTC

johndevor wrote: post #46

declan wrote: post #40

Earlier quoted context omitted.

Gold and silver have industrial uses. Gold and silver are used in jewelry. Gold and silver have proven to be a store of value for thousands of years. Gold and silver are also, to a first approximation, truly anonymous. Not one of those four characteristics is true for Bitcoin, so saying it's "just like" gold and silver is a bit of a stretch. This doesn't mean Bitcoin is awful, as Krugman's trollish column is titled,…

I meant to say that Bitcoin - or something like it - will emerge to facilitate online transactions of the black market kind. Rightly so that Bitcoin doesn't inherently gain value from the black market, but I do believe the black market will use something to do online transactions (as shown by the Silk Road and others). Thus far, that currency has been Bitcoin. Gold and silver have industrial uses today. That may chan…

These are reasonable points. I don't know enough about modern-day black markets to say how much Bitcoin facilitates them.

If you're right that Bitcoin is a major factor, then yep, that could be an effective price floor (at least until a better rival comes along). It would be interesting to learn how much of Bitcoin purchasing is due to black market transactions. My intuition says it's mostly speculation, but I'd be happy to be proven wrong.

Re: Bitcoin solved a major technical problem, but not an economic one

#62

Post by baddox » Mon, Dec 30, 2013, 5:10 AM UTC

rlpb wrote: post #34

apw wrote: post #25

Bitcoin is far more than "just" a solution to the Byzantine Generals problem. Inside every Bitcoin transaction is a small program that contains no loops. If that program when executed returns true, the transaction is valid. The simplest, most boring kind of transaction--but the one that most people assume " is Bitcoin"--is a transfer from address P to address Q. Where things get more interesting is in using those lit…

> Inside every Bitcoin transaction is a small program that contains no loops. If that program when executed returns true, the transaction is valid. I've read elsewhere that the official client no longer processes any such scripts except for ones that are whitelisted. That reduces the current protocol to a single feature set, instead of the promise of future extension without requiring further agreement from miners. C…

I think that's true, but clients can change.

Re: Bitcoin solved a major technical problem, but not an economic one

#63

Post by baddox » Mon, Dec 30, 2013, 5:13 AM UTC

hackinthebochs wrote: post #51

panarky wrote: post #47

Earlier quoted context omitted.

> their parents operated in a world based on centralized authority subject to rent-seeking corruption Krugman is surely correct that it's silly to waste resources digging gold out of the ground only to re-bury it in a bank's vault. And if Bitcoin was just another currency, it would be equally silly to waste compute resources mining it. But if crypto-currencies could disrupt even a small part of the centralized, rent-…

>It's about freeing that process from the gatekeepers who control it and extract rents from the labor of others. And do you think these gatekeepers are going to relinquish their power quietly? There are many ways that the entrenched powers can stall or even kill bitcoin. One declaration by China saw a loss of 50% of bitcoins value in a day or so. The claim that bitcoin is disruptive to the system is vastly overblown.…

You could say the same thing about copyright infringement. The governments, with all their guns, still lost that battle, despite very real and high profile lawsuits and crackdowns. When something is extremely easy and completely ubiquitous, it becomes very difficult for government to scale its enforcement. You could say the same thing of something offline, like marijuana in the US (although with that one I would argue that there is no sincere desire on the federal level to eliminate marijuana or even reduce marijuana access and use).

Re: Bitcoin solved a major technical problem, but not an economic one

#64

Post by wmf » Mon, Dec 30, 2013, 5:19 AM UTC

rlpb wrote: post #34

apw wrote: post #25

Bitcoin is far more than "just" a solution to the Byzantine Generals problem. Inside every Bitcoin transaction is a small program that contains no loops. If that program when executed returns true, the transaction is valid. The simplest, most boring kind of transaction--but the one that most people assume " is Bitcoin"--is a transfer from address P to address Q. Where things get more interesting is in using those lit…

> Inside every Bitcoin transaction is a small program that contains no loops. If that program when executed returns true, the transaction is valid. I've read elsewhere that the official client no longer processes any such scripts except for ones that are whitelisted. That reduces the current protocol to a single feature set, instead of the promise of future extension without requiring further agreement from miners. C…

Let's go to the source: https://en.bitcoin.it/wiki/Script "Note that there is a small number of standard script forms that are relayed from node to node; non-standard scripts are accepted if they are in a block, but nodes will not relay them."

It seems there's enough flexibility left to do some interesting things. I see discussions in the forum of things like M-of-N, nLockTime, and anyonecanpay.

Re: Bitcoin solved a major technical problem, but not an economic one

#65

Post by wmf » Mon, Dec 30, 2013, 5:23 AM UTC

heurist wrote: post #53

fragsworth wrote: post #29

The success of bitcoin, in large part, relies on faith that people will support it as a currency . If its market cap and/or trade volume isn't high enough, then a secure mining network cannot be supported, and the entire system, including all of its extra features touted by techies, will collapse. Bitcoin will succeed if enough people believe that it will succeed, and bitcoin will fail if enough people believe it wil…

I don't think it will be viewed as a currency (I agree with Krugman), but I do think it could viably be viewed as an asset backing a currency. Here's my idea: There's nothing stopping cryptocurrencies from eventually becoming centralized. Successful alternative cryptocurrencies will pop up and will be backed by governments or businesses, giving them real value. There will be a market between all cryptocurrencies and…

Successful alternative cryptocurrencies ... backed by governments or businesses

It seems like this could have been done 15 years ago with Chaumian digital cash (which requires no mining and is more anonymous than Bitcoin) or even earlier with plain public-key crypto if you don't care about anonymity. Why hasn't it?

Re: Bitcoin solved a major technical problem, but not an economic one

#66

Post by SwellJoe » Mon, Dec 30, 2013, 6:18 AM UTC

I'm sure (or at least I hope), John Levine did not ask to be referred to as an "Ubernerd". Not to belittle Levine or his accomplishments or his nerd cred, but I think this article tells us much more about Krugman's ability to differentiate technical genius from mere competence than anything useful about Bitcoin. Given the high level of nerdery representd by the people developing Bitcoin, I'm unlikely to be convinced of a negative outlook for Bitcoin on the basis of an "expert opinion" from any ubernerd that Krugman chooses to trot out. The Bitcoin ecosystem has enough nerd cred to withstand pretty much any argument other than, "here's an exploit that I have figured out" with proof of said exploit.

I found Charles Stross' critique of Bitcoin far more convincing than anything I've read from Krugman. But, not on technical grounds; merely on ethical ones. I do actually worry that we may be replacing a horrible system that enforces and thrives on inequality with a possibly more extreme system that does the same thing (possibly with a few new players at the top).

Regardless, Krugman is in way over his head on the technical aspects of Bitcoin and it shows. There has been much better technical criticism from actual nerds, including nerds who have worked on cryptocurrencies.

I believe we are seeing one of Krugman's famous bits of shortsightedness, and I believe he is falling prey to the very type of bias he claims to be trying to avoid. Bitcoin has a lot going for it, whether you call it a "currency" or something else. I believe that it's impossible to predict how Bitcoin will play out, exactly, since we've never seen anything exactly like Bitcoin. I have some vague feelings, as well (like, I feel like it's likely Bitcoin will be replaced by some other cryptocurrency within a few years...for a variety of technical and social reasons). But, it's all just a hunch, and I'm unwilling to take the kind of stance Krugman is taking, which seems almost naive (certainly on technical issues, probably less so on economic issues) from my perspective.

Re: Bitcoin solved a major technical problem, but not an economic one

#67

Post by johndevor » Mon, Dec 30, 2013, 6:30 AM UTC

declan wrote: post #61

johndevor wrote: post #46

Earlier quoted context omitted.

I meant to say that Bitcoin - or something like it - will emerge to facilitate online transactions of the black market kind. Rightly so that Bitcoin doesn't inherently gain value from the black market, but I do believe the black market will use something to do online transactions (as shown by the Silk Road and others). Thus far, that currency has been Bitcoin. Gold and silver have industrial uses today. That may chan…

These are reasonable points. I don't know enough about modern-day black markets to say how much Bitcoin facilitates them. If you're right that Bitcoin is a major factor, then yep, that could be an effective price floor (at least until a better rival comes along). It would be interesting to learn how much of Bitcoin purchasing is due to black market transactions. My intuition says it's mostly speculation, but I'd be h…

> The value of the transactions over this period are equivalent to "roughly $1.2 billion in revenue and $79.8 million in commissions" and involved 146,946 buyers and 3,877 vendors.[13]

That was the value transacted on the Silk Road. Quite impressive numbers, given that it was a single site and much of that growth occurring in Bitcoin's less user-friendly days.

Re: Bitcoin solved a major technical problem, but not an economic one

#68

Post by tvladeck » Mon, Dec 30, 2013, 6:37 AM UTC

hexis wrote: post #31

tvladeck wrote: post #12

Earlier quoted context omitted.

He came around on the Internet (and admitted his mistake), and now believes there will be large productivity gains from Big Data. http://krugman.blogs.nytimes.com/2013/08/18/the-dynamo-and-b... Edit: I realize I'm not addressing your larger point. He still may not be the guy to go to. But that being said I think his opinions are more nuanced. Edit 2: Another post by him on the value of ICT: http://krugman.blogs.nytim…

No doubt that when bitcoin's success is obvious, he will also admit his mistake and go on to make another uninformed prediction.

I personally find that people who admit their mistakes more trustworthy because it shows they can at least learn from them. In this case, the jury is very much still out on whether BTC will succeed as a currency, and not as a protocol that's useful for some other thing (or many other things), which seems to be the crux of Krugman's argument.

Re: Bitcoin solved a major technical problem, but not an economic one

#69

Post by gojomo » Mon, Dec 30, 2013, 6:56 AM UTC

pron wrote: post #16

gojomo wrote: post #10

This analysis is true to a point, but overlooks that the 'decentralized cloud bank' innovation now allows a whole bunch of other technologies to be applied into an important economic domain without the old gatekeepers and limitations. Those other technologies are a bit more familiar to people: • global always-on connectivity • encryption constructs • easy discovery/formation of communities-of-interest • open source c…

It's hard to recognize the importance of technological breakthroughs and impossible to predict the future. With Bitcoin the problem is doubly difficult because the technology is new but the economics may be old. Unlike, say, digital publishing that democratized a process that was once in the hands of gatekeepers because of high costs, crypto-currencies try to do away with gatekeepers that were put in place because de…

Many of the problems with private/decentralized currencies in the past – problems that motivated the state monopoly and regulations – are no longer relevant, with modern technology. The global network, encryption, and transparent open-source governance render obsolete lots of the old concerns.

Also, while regulations and state monopolies always have an surface rationale based on solving actual problems, sometimes the real reason they're put in place, or maintained even as circumstances change, is because they benefit certain narrow entrenched interests.

We owe older regulatory arrangements some respect, for the effort that went into their initial crafting and their longevity across eras where (whatever other problems we have) we've survived and thrived beyond the past. (I agree with the "Chesterton's Fence" principle: don't take down a fence until you know why it was put up.)

But we shouldn't fear that old regulations and traditions are the only thing protecting us from 'horrors' of the past. The world has changed, some old risks are obsoleted by new levels of understanding and wealth, while all-new risks have arrived – including many created by the privileges and inflexibility of older 'solutions'.

Re: Bitcoin solved a major technical problem, but not an economic one

#70

Post by anonymoushn » Mon, Dec 30, 2013, 7:13 AM UTC

fonosip wrote: post #20

Gold has base value derived from its industrial, ornamental uses. But its trading value is much larger. Similarly Bitcoin has a base value in the cost of mining 1 BTC. Right now it is around $800 or so. Because of the competition in mining, asic chips development, and More's law. The cost of mining 1 BTC is going up exponentially.

I can't flip my miner into reverse and produce electricity while destroying BTC. The ability to convert $800 to 1 BTC by mining does nothing to keep the value of 1 BTC above $10.