Professional Traders Show Interest in Bitcoin • Hacker News Board

Re: Professional Traders Show Interest in Bitcoin

#21

Post by mrb » Mon, Apr 02, 2012, 2:46 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 does this make Bitcoin "mathematically flawed" and different from other markets? If you find a way to crash any market, be it a penny stock or a type of commodity, for example by spreading terrible rumors, you can always profit with put options.

Is your point that the Bitcoin market is still very small and can be manipulated?

Re: Professional Traders Show Interest in Bitcoin

#22

Post by ewillbefull » Mon, Apr 02, 2012, 2:46 AM UTC

unimpressive wrote: post #17

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.

Block rewards are not the only way to earn from mining bitcoins. You also earn transaction fees of processed transactions. As block rewards dissipate, transaction fees will naturally increase to compensate.

Re: Professional Traders Show Interest in Bitcoin

#23

Post by skylan_q » Mon, Apr 02, 2012, 2:58 AM UTC

unimpressive wrote: post #17

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.

"If the rewards go down over time, eventually it won't be profitable to mine bitcoin."

Yes.

The idea is the following: If the amount that can be mined per unit of computation is decreased, then fewer will be created. And if there are less of them being created and more of them demanded, then their value increases. So this balances out. Also, computational power gets cheaper with the passage of time.

The largest caveat I see there is the part about more of them being demanded. (or equivalently, the market equilibrium of demands for bitcoin holdings shifting towards greater demand)

Re: Professional Traders Show Interest in Bitcoin

#24

Post by herge » Mon, Apr 02, 2012, 3:00 AM UTC

stuhood wrote: post #11

javert wrote: post #6

Earlier quoted context omitted.

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 p…

Inflation is not directly proportional to the supply of money. If a bitcoin's value versus the US$ drops (as it has since June), there is heavy inflation as the price of goods and services (measured in bitcoins) goes up.

Re: Professional Traders Show Interest in Bitcoin

#25

Post by ewillbefull » Mon, Apr 02, 2012, 3:03 AM UTC

soup10 wrote: post #15

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…

I don't know if this is a troll post, but I'll humor it anyway.

> The first is that it is insecure. As seen by the constant incidents of stolen and lost bitcoin's.

If this is the standard by which you deem a currency insecure, you may want to be more specific. Physical goods are also susceptible to theft.

> Physical currency is much more secure than a string of bits sitting on a hard drive

This isn't really substantiated by anything, and I implore you to read about paper wallets. But you're also ignoring another useful characteristic of bitcoin: coins cannot be counterfeited, unlike any other currency. They are crytographically ensured.

The security of your funds is not inherently endangered by the network by any means. I can accept bitcoin donations anonymously and there is no way they can be targeted without additional context. With physical transactions, there is always location.

> The second is that it's much less convenient than cash.

Cash is much less convenient than digital transactions. Have you heard of a credit card? Cash is only useful for anonymity.

> 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.

The currency incentivizes its own operation, yes, but this is not even close to a ponzi scheme -- you should look that term up. The technology does not distinguish early adopters from other participants.

Re: Professional Traders Show Interest in Bitcoin

#26

Post by unimpressive » Mon, Apr 02, 2012, 3:11 AM UTC

ewillbefull wrote: post #22

unimpressive wrote: post #17

Earlier quoted context omitted.

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.

Block rewards are not the only way to earn from mining bitcoins. You also earn transaction fees of processed transactions. As block rewards dissipate, transaction fees will naturally increase to compensate.

This is the answer I was looking for. Thank you.

Re: Professional Traders Show Interest in Bitcoin

#27

Post by steve8918 » Mon, Apr 02, 2012, 3:17 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.

Put options? On Bitcoins?? Who is going to be the counter party to those options?

The reason why options work is because there are clearinghouses that will guarantee the transaction. Without a regulated clearinghouse, you're subjecting yourself to counterparty risk, which as we discovered in 2008, is a significant risk especially during market crashes.

Re: Professional Traders Show Interest in Bitcoin

#28

Post by clarkmoody » Mon, Apr 02, 2012, 3:59 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.

As for portfolio allocation, you are right about the volatility being high, thus the allocation being small.

At this point, Bitcoin is being treated as a speculative instrument. It does not share the same status as gold, being a store of value, and thus it will not move based on the fears and hopes of fiat currencies. From that standpoint, it should be entirely uncorrelated from the fiat banking system and traditional investments. Be careful if you are trading for Bitcoins denominated non-USD, as those prices will move with exchange rates as well.

From a regulatory standpoint, Bitcoin is in limbo. Right now, it's no different than trading bottle caps, but when the regulators come down on it, there will be a different story.

In short, the two forms of investment risk you face are volatility price risk and regulatory risk.

Re: Professional Traders Show Interest in Bitcoin

#29

Post by lwat » Mon, Apr 02, 2012, 3:59 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.

Who exactly will sell me put options on BTC?

Re: Professional Traders Show Interest in Bitcoin

#30

Post by dsrguru » Mon, Apr 02, 2012, 4:02 AM UTC

"The Royal Canadian Mint ... said Bitcoin's biggest problem was that it is not backed by anything."

I don't think that's why consumers would fear it being unstable. It's probably more that they're afraid most of the current users aren't using it for its intrinsic advantages over regular currencies, but are rather investing in it as speculators (and will, therefore, eventually pull out). Since it was designed in a way that made early adopters super rich, it lends the appearance of being the very kind of investment bubble that Bitcoin advocates criticize the banking industry for creating.