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

krugman.blogs.nytimes.com

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

#71

Post by hackinthebochs »

baddox wrote: post #63
hackinthebochs wrote: post #51

Earlier quoted context omitted.

>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 argu…

The problem is that the stuff of copyright infringement is purely virtual. For a currency to be useful it must be exchangeable for physical goods. And this physical commerce creates the endoints that allow governments to exert its influence even in the face of a distributed currency. The battle control of the monetary supply will not be a parallel.

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

#72

Post by etherael »

venomsnake wrote: post #14
mercurialshark wrote: post #9

Krugman has spent the past few months qualifying, trivializing and disclaiming his previous asinine and uninformed remarks about bitcoin. Does he have a single shred of dignity left? Insufferable. Moreover, Krugman is blissfully unaware of the hundreds of millions of people that don't have access to stable or reliable banking. How does opening the markets to untold millions, via peer-to-peer transactions, not solve a…

How dare a guy change his opinions when he gets to know the facts better. Travesty I tell you. We want that will think on Wednesday the same they thought on Monday, no matter what happens in the world on Tuesday. (Shamelessly stolen from colbert)

No.

This is like a religious fanatic retreating from a god of the gaps corner, but never considering the possibility that he might be fundamentally wrong.

Of course I can show you irreducible complexity! Look, Eyes! No wait, that doesn't work, I mean blood clotting! No no no hang on, I mean flagella based molecular motors! Ok, look, that's wrong too, but I'm still right, just, look, let me get back to you on this, OK?

Alright, good, are you there? Forget irreducible complexity. That's just hokum, but this will just knock you out of the park, are you ready? Ok, here; Bananas are clear proof of intelligent design!

Hello? Where did you go? Why is nobody listening to me? Anybody? Bombardier Beetles!

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

#73

Post by etherael »

codex wrote: post #54
Estragon wrote: post #49

Earlier quoted context omitted.

A key foundation of a modern nation's power over its citizens is the ability to arbitrarily create and destroy the national currency, to legitimately demand that taxes be paid in that currency, and to thus be able to use it to purchase arbitrary goods and services. It seems quite likely that major national governments will band together to ban transfers between bitcoin and their national currencies once they realize…

To any given government, Bitcoin looks like just another foreign currency. In many foreign countries, you can get dollar denominated bank accounts. How is Bitcoin any different than this status quo?

Governments work hand in glove with banks, they control and are controlled by the world banking system in turn, they can see what money goes where via the SWIFT system, they can approve or deny transfers based on AML/KYC laws which they can enforce if it comes down to it by applying pressure on the banks themselves, the entire system is old, well understood and thoroughly controlled.

The reserve bank of Bitcoin is completely immune to coercion, you can't freeze funds, you can't stop transactions, you can't do anything at all to the funds in one of those accounts without the consent of the account holder. If the account holder doesn't want you to, you can't even know who they are. Altogether, the entire system is the exact opposite of the global banking system, it is extremely poorly understood and almost entirely uncontrolled.

And that's just with the bank analogies, if you take it up a notch and compare fiat issuance to bitcoin issuance it gets even more frightening from their perspective. There's no nation they can apply diplomatic pressure to to change the fiscal policy of Bitcoin, that fiscal policy is linked to interests utterly alien to their own, even.

From their perspective it is indeed a dangerous thing, the only question to my mind is A) How long will it take them to figure this out and B) when they do figure it out, what kinds of actions will they take to try to destroy it.

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

#74

Post by eru »

panarky wrote: post #56
hackinthebochs wrote: post #51

Earlier quoted context omitted.

>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.…

No, the gatekeepers and rent-seekers will not fade quietly away. Just as they fought tooth and nail against digital networks and strong cryptography, they will try to smother crypto-currencies in their crib. But decentralization, pseudo-anonymity, and free software are powerful forces, maybe even more powerful than men with guns.

> Just as they fought tooth and nail against digital networks and strong cryptography, [...]

In what universite did that happen?

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

#75

Post by eru »

johndevor wrote: post #67
declan wrote: post #61

Earlier quoted context omitted.

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.

The revenue was in bitcoins not in USD. How was it converted? (If at the end, then that overstates the volume quite a lot, given the rise of bitcoin's exchange rate.)

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

#76

Post by eru »

trothamel wrote: post #41
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.

While I think it's true that BTC won't fall below the cost of mining 1 BTC, that's not really saying anything. If BTC falls below the cost of mining people will stop mining and the network will adjust to the reduced difficulty, making the cost of mining drop. A problem is that if too few people mine, the network becomes easy to compromise. That's a problem that bitcoin has, and other currencies (and things like gold…

Bitcoin prices will eventually fall below the cost of mining. Guaranteed. (Because eventually there will be no new bitcoins left to mine. So mining new bitcoins becomes infinitely expensive.)

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

#77

Post by oleganza »

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…

Some operations were disabled by Satoshi because they were incompete/buggy/risky. Those need majority consensus among all miners and users to enable or modify.

Some specific kinds of scripts are marked as "standard", all the rest are "non-standard". Non-standard scripts are valid and all miners will validate blocks containing such scripts. But non-standard transactions (i.e. transactions, containing a non-standard script) will not be relayed by default by the bitcoind nodes. Every node and every miner may decide for themselves whether they relay/mine non-standard transactions or not. I'm not sure how many miners accept non-standard transactions, but there are some. You can also pay some miners directly to mine a specific transaction. Or you can mine your non-standard transaction yourself, if you can afford it. Non-standard transactions typically require higher miner fees and take longer to confirm (as not every miner will include them).

The point behind standardness is to contain damage if some complex scripts will turn out to allow DoS attacks, allow losing funds or something like that. In 2012 Bitcoin was extended with P2SH ("pay to script hash") type of transaction (which is also standard) that allows you to define the redemption script during redemption, not during payment. Payer sends coins to a "hash of script" instead of the script itself. Payee then needs to provide not only signatures to redeem the payment, but also the script matching this hash (however complex it is). This has several advantages:

1. Payer does not spend higher miner fees because of the complexity of the script.

2. Payer does not wait indefinitely long till the transaction confirms.

3. Payer may not know the contents of the redemption script until it's being used. In some protocols this could be a useful feature for privacy reasons.

So with P2SH a service may already use arbitrary non-standard scripts shifting the burden of mining non-standard transactions from its customers to itself. For the customer it will look exactly like sending money to a Bitcoin address, although that address will start with "3", not with "1" (which is reserved for the usual "pay to public key hash" script).

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

#78

Post by hatu »

praptak wrote: post #4

The scenario with a large number of people wanting to cash out already assumes Bitcoin lost as a currency, so I'd say it could be a result, not the cause of Bitcoin's failure. Bitcoin succeeds or fails on whether you can buy useful stuff with it, buying other currencies is secondary.

A bank run would be as devastating on any other currency as it would be to Bitcoin of course. Loss of confidence in a currency destroys it. The same is true for the Yen or the Euro or USD too.

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

#79

Post by heurist »

wmf wrote: post #65
heurist wrote: post #53

Earlier quoted context omitted.

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?

Right idea at the wrong time maybe. A large proportion of the US didn't own a PC 15 years ago and some people still thought the internet was a fad, I'm not sure what PC adoption was like in other countries. There are still some problems to be fixed with the general use of digital currencies, but Chaumian digital cash could make a comeback if there were broader digital currency exchanges and people saw value in it. As for why countries might switch to such a currency... probably to get off the US dollar, but I don't know much about that sort of thing. They'd also have greater control over their economy if they could control their own currency's source code. Also, if bitcoins do take off then the last countries to support them will be poorest and might be better off starting their own currency. I think it could end up being like a stock market, where each unit of currency would represent some unit of specific resources.

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

#80

Post by heurist »

fragsworth wrote: post #57
heurist wrote: post #53

Earlier quoted context omitted.

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…

It may be a mistake to assume that small alternative cryptocurrencies are automatically viable. 51% attacks may become a severe problem, especially for very small mining networks. We may eventually see enough 51% attacks on altcoins that most people revert to the few largest networks (Bitcoin, Litecoin, and maybe a couple more). Or maybe we won't, and each new altcoin inflates the system.

That's a good point, I'll have to think about that more. My initial thought is that at least exchanges wouldn't be limited to currencies with that vulnerability. Most small currencies would also have limited or no initial value and probably wouldn't be worth taking over unless it was a pump and dump scheme, but centralized exchanges might be able to mitigate that.. Interesting idea, thanks.
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