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Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

davidgerard.co.uk

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Re: Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

#161

Post by Mtinie »

log_base_login wrote: post #127
inimino wrote: post #62

Earlier quoted context omitted.

The "crypto" in bitcoin is about being able to know that the copy of the blockchain you have is indeed the "authentic", consensus blockchain. It has nothing to do with keeping anything secret, as the entire blockchain is literally as public as it is possible for data to get.

Thank you for clarifying that for me. I recall reading some article about how, when mining for bitcoin (for example), what was really being mined are progressively larger prime numbers, or scientific data, or some such data requiring lots of computation. Isn't there something of real value being mined? If not, what is being done when people _mine_ bitcoins?

> I recall reading some article about how, when mining for bitcoin (for example), what was really being mined are progressively larger prime numbers, or scientific data, or some such data requiring lots of computation.

You're most likely thinking about Primecoin[0].

> Isn't there something of real value being mined? If not, what is being done when people _mine_ bitcoins?

"Real value" in a computational sense is difficult to articulate. Making a calculation part of a mining algorithm that ultimately results in _new_ information is challenging because it, by definition, requires a lot of effort to not just calculate, but verify. Folding proteins, searching SETI datasets, etc. presumably require the same amount of effort to verify as they do to solve in the first place. The way that cryptocurrencies that use a "proof of work" ("PoW") are typically set up is to make it very difficult to solve a computation, but very easy for others to verify that the solution is correct. The other component of PoW that makes it beneficial as a verification tool is the ability to increase or decrease the difficulty of solving the calculations required by the network. Without the concept of adjustable "difficulty," a network could not adapt or grow as more (or less) computational power is brought online. This difficulty of computation is a core component of the decentralized, distributed nature of blockchains.

If you'd like to learn more about it, here are a couple of resources to get you started:

- "Proof of Work" (Wikipedia)[1]

- "Is there a way to set up proof-of-work systems so they would be even more useful?" (StackExchange, orig. asked in Sept. 2011, updated Dec. 2017)[2]

- "The Fair Cost of Bitcoin Proof of Work" (Tomaso Aste, University College London, 2016)[3]

- "FoldingCoin" (HN discussion, Jan. 2015)[4]

Bitcoin's hashing scheme's "value" is in its ability to make it computationally difficult (and of significant real cost) to attempt to cheat the network.

Simplifying a very complex discussion, you can consider it, in a limited sense, analogous to the different ways that the World's governments and assorted financial institutions spend untold billions of USD, EUR, RMB, YEN, etc. every year to secure, confirm, compensate, and extend the underlying infrastructures that support global financial exchange.

---

[0] http://primecoin.io/

[1] https://en.wikipedia.org/wiki/Proof-of-work_system

[2] https://bitcoin.stackexchange.com/questions/331/is-there-a-w...

[3] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2801048 (Note: A subscription to Elsevier is not required to view or download this research paper)

[4] https://news.ycombinator.com/item?id=8962896

Re: Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

#162

Post by neinnein »

davidgerard wrote: post #15

(author here) I originally submitted this with just the second part of the title, 'cos Part 1 doesn't deliver on "why you can't cash out". I expect two or three more parts, that answer the question: KYC/AML, oddly-convenient ineptitude, and hoo boy Tethers.

damn u dumb

Re: Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

#163

Post by alpatters »

greglindahl wrote: post #43
kentt wrote: post #29

edit: removing because I don't enjoy getting into internet arguments. All the best to you.

"replace bitcoin with gold" and you'd have a different article. One of the two has a many-thousand-year history of liquidity, and a lot more market demand and trading (on regulated exchanges) today.

I don't think the history of gold changes the argument here. As a store of capital gold has also been stolen by corrupt governments in history.

Re: Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

#165

Post by alpatters »

I think the comparison of bitcoin with gold is a better one than stocks. The value of gold today is not tied to the underlying precious metal any more. Gold is kept in vaults likely never to be looked at or touched. It might as well be a digital number. Instead gold is a place to store capital with a value agreed between buyers and sellers. It is limited in quantity and is very difficult to copy. Bitcoin is quite similar is many respects. It also doesn't have to be stored and corrupt governments cant easily steal it.

Re: Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

#166

Post by Pyxl101 »

smokeyj wrote: post #52
dehrmann wrote: post #7

Earlier quoted context omitted.

> Don’t all of the complaints about exchange rate and market cap apply to virtually any other item that is traded? > Market cap is extremely commonly cited for stock markets. Yes. Spreads usually depend on volume--high-volume securities tend to have a lower spread because there's a lot of market participants. More established markets often have market makers (entities with simultaneous bids and asks) and arbitrageurs…

Is it a solved issue for equities? How do you know the shares you purchased are valid?

Essentially, my understanding is that all the shares are held by a common trusted corporation, the Depository Trust & Clearing Corporation (DTCC), or something like it. In this way, transfers in ownership are as fast as updates to their ledger about who owns what.

I suspect it's only a matter of time before something like the DTCC is established for Bitcoin. Yes, from one perspective it would defeat the "trust-less" part of the system, but from another perspective it would enable instantaneous trades both within exchanges and between them. All that's necessary for this scheme to work is for the exchanges and other market participants to trust that the depository company will deliver on any assets it claims to owe them.

Re: Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

#167

Post by mitchellberry »

sytelus wrote: post #122
josephagoss wrote: post #102

You can cash out Bitcoin and the price is actually very accurate. The money I see in my bank account is real I can assure you of that. Also I know friends that cash out six figures at a time and the price they get is within less than 1% difference to the last sell price. The number is accurate enough for most orders under $10,000,000. Has this person actually traded Bitcoin? You might not be able to sell a large orde…

Article author actually makes a great point and it stands regardless of your ability to cash out within 1%. Big investors on current markets can whip out huge profits for themselves by using techniques such as front running, wash trades, willybot, spoofing etc. Exchanges are not even prohibited from doing their own secret trades and using their own internal database and full knowledge of all other players. If you are…

> worth pointing out that less than 1000 entities owns 40% of the bitcoins

The fiat equivalent is saying 10 entities own most of the USD in the world. They are banks with liabilities holding money for others.

Of all the bitcoin conspiracies it's provably false yet people somehow gravitate towards it.

Do worry how easily people and especially journalists fall for this. Go click on the top 10 addresses in a chain explorer, please. They are all exchanges.

Re: Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

#168

Post by mitchellberry »

omarforgotpwd wrote: post #152
sah2ed wrote: post #144

Earlier quoted context omitted.

MtGox was a major exchange and it went down but it didn't deter people from investing in bitcoins, they merely moved their business to other exchanges. Your original comment talked about a scenario where people decide against bitcoin and such a scenario can only play out if there is too much uncertainty to make them a viable investment. Because bitcoin is decentralized, the only way major governments can try to influ…

"They merely moved their business to other exchanges" The price crashed from like $1200 to $200 and it took years for it to recover. All those Moms and Dads and Grandmas who bought $10,000 of Bitcoin after Thanksgiving dinner hoping it would turn into $100,000 within a month will certainly get hit if the price falls to $1600 and doesn't recover for 3 years. All it takes is a change in the media narrative that scares…

> All it takes is a change in the media narrative.

Every article I read in the media has huge negative sentiment already. Can you point to some positive articles about bitcoin? Seems to be very few going around, it's all bubbles, energy consumption, hackers, ransomware and terror funding.

Wondering how the narrative can change for the worse from here.

Re: Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

#169

Post by mitchellberry »

charlesdm wrote: post #150
smokeyj wrote: post #49

Earlier quoted context omitted.

So the market cap is you. This doesn’t apply to bitcoin.

Maybe. But if an institution were to accumulate $1bn of Bitcoin through exchanges, I'm pretty sure that would drive up the market cap a lot more than $1bn.

What's the difference between that and the same company buying a pennystock?

This is how markets work.

Re: Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

#170

Post by Yizahi »

voidmain wrote: post #44
Edmond wrote: post #32

Earlier quoted context omitted.

No it doesn't apply to them. This is a popular argument from libertarians but unfortunately it is a purely ideological argument that has no basis in reality. The aforementioned currencies are backed by the value of their issuer's economies, those economies are real.

@patrick Every American participating in that economy must pay taxes every year on their income. The taxes must be paid in US dollars, even if the economic activity uses a different currency or barter. Therefore Americans must come up with a quantity of USD proportional to the size of the American economy every year (or "go to prison"), and provided that the total amount of USD in existence is bounded (this part is t…

Gold is valuable by itself and there is only 80-90k tons of it ever (plus some amount in the oceans). Gold would be used everywhere in the electronics in pure form if it was priced and widespread as copper or iron.
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