Adam Smith Hates Bitcoin • Hacker News Board

Re: Adam Smith Hates Bitcoin

#71

Post by Andrew_Quentin » Sat, Apr 13, 2013, 12:25 AM UTC

yk wrote: post #47

bradleyland wrote: post #16

Earlier quoted context omitted.

Can you explain this in more detail for those of us who don't fully understand how bitcoins come in to existence, because it sounds like one of those things that violate some laws of thermodynamics, like the "hydrogen generator" that you strap to your car to increase fuel economy. I ask because I know I've heard about people building huge computers with lots of expensive video cards for the purpose of mining bitcoins…

Rather abstractly Bitcoin is a scheme to solve the Byzantine General problem[1]. The problem is, how can we build a trusted history of accounting without knowing which nodes in the network are trustworthy. And the way Bitcoin does this is essentially by letting every miner vote with his CPU power and the history backed by the most computing power wins. Therefore as long as the majority of miners (weighted by their co…

What do you mean by "the history backed by the most computing power wins"? Doesn't each transaction need to be verified by at least 6 miners?

Are you saying that each transaction that is verified has many miners competing to verify it and the one with the most gpu power wins the race? And if so, does that mean that the gpu that won the race an then say it is verified even if to say it is an incorrect transaction would be the truth?

If instead you are merely referring to the 50%> effect, the solution to that is way easier than the potential for abuse intrinsic if the statement quoted above is correct, i.e. simply have more miners.

Re: Adam Smith Hates Bitcoin

#72

Post by penny500 » Sat, Apr 13, 2013, 12:31 AM UTC

smokeyj wrote: post #70

penny500 wrote: post #50

Earlier quoted context omitted.

Mainstream economists aren't central planners. I don't mean just economists from both administrations. I meant mainstream economists from every school on the US News and beyond.

When the entire mainstream media portrays a complex and controversial issue as entirely one sided, this gives you confidence?

"mainstream media" != "mainstream economists"

I'd prefer the opinions of PhD economists with a special emphasis on currency transactions over yours or anyone else's, actually.

Re: Adam Smith Hates Bitcoin

#73

Post by smokeyj » Sat, Apr 13, 2013, 1:19 AM UTC

penny500 wrote: post #72

smokeyj wrote: post #70

Earlier quoted context omitted.

When the entire mainstream media portrays a complex and controversial issue as entirely one sided, this gives you confidence?

"mainstream media" != "mainstream economists" I'd prefer the opinions of PhD economists with a special emphasis on currency transactions over yours or anyone else's, actually.

Economists who don't agree with Keynes aren't credible because they're not the majority? I prefer science over mob mentality.

Re: Adam Smith Hates Bitcoin

#74

Post by yk » Sat, Apr 13, 2013, 2:03 AM UTC

Andrew_Quentin wrote: post #71

yk wrote: post #47

Earlier quoted context omitted.

Rather abstractly Bitcoin is a scheme to solve the Byzantine General problem[1]. The problem is, how can we build a trusted history of accounting without knowing which nodes in the network are trustworthy. And the way Bitcoin does this is essentially by letting every miner vote with his CPU power and the history backed by the most computing power wins. Therefore as long as the majority of miners (weighted by their co…

What do you mean by "the history backed by the most computing power wins"? Doesn't each transaction need to be verified by at least 6 miners? Are you saying that each transaction that is verified has many miners competing to verify it and the one with the most gpu power wins the race? And if so, does that mean that the gpu that won the race an then say it is verified even if to say it is an incorrect transaction woul…

Bitcoin transactions are stored in blocks, which are then chained together by cryptographic hashes. ( That is, each block contains a hash of the previous one.) To build a valid block, a miner needs to verify that all transactions in the block are valid and solve a cryptographic problem, which requires 10 minutes for the aggregate computing power of the entire network. On the other hand, checking that the block chain is valid is a rather simple task, since it only involves checking if all the hashes are valid.

    B1 -> Bx -> Bx3 -> Bx4      branch (with non valid block Bx)
       \
         ->B2->...              branch with all valid blocks (the miners work on this one)

The trick is then, that the longest block chain (without an invalid block) is assumed to be correct, and the honest miners are all working on this longest chain. ( That is what I meant with 'backed by most computing power.') For a transaction to be verified, there is actually no hard standard but in the Bitcoin paper [1] it is suggested to wait, until the transaction is 6 blocks removed from the newest block, since a malicious transaction could be introduced into the top of the block chain, e.g. at block Bx above. But the honest miners would not accept the block, continue to try to extend B1, and eventually they will find B2. ( And extend this branch.) The attacker ( who is working on the Bx chain) can then perhaps beat the network by luck for a few blocks ( Bx3, Bx4), but assuming the honest miners control most of the computing power at some point they will win. ( It should be noted that AFAIK there are no known deterministic algorithms for creating a valid block. Because of this, who solves the next block is a probabilistic process. So it is not the guy with the most computing power, but some random guy who had a chance proportional to his computing power just like everyone else.)

[1] http://bitcoin.org/bitcoin.pdf

Re: Adam Smith Hates Bitcoin

#75

Post by bbbhn » Sat, Apr 13, 2013, 3:28 AM UTC

andyakb wrote: post #35

guylhem wrote: post #29

Maybe, just maybe, it's not Adam Smith who hates bitcoin like this misleading title suggest, but Krugman. The guy may have a nobel prize, but his strong leftist views seems to be clouding his judgement. Never before in history was there anthing like bitcoin. It's not a commodity like gold - is is pure fiat money, fully based on trust. Hoarding gold or silver or any metal or rare thing was a bad idea because of the al…

You dont refute his point at all. There is something inherent to bitcoin that may hamper a "country to convert a great part of this dead stock into active and productive stock;" the fact that you need to take an insane amount of computing power and electricity to "create" new bitcoin. He could hate something that did not exist in his lifetime because he hated the principles that are fundamental to the process.

You don't need an insane amount of computing power to create new bitcoins. The amount of bitcoins generated every ten minutes is essentially set in stone. What drives people to dedicate more and more computing power to the mining process is market incentives: as you put more computing power into securing bitcoin, more of the generated bitcoins end up in your wallet.

Re: Adam Smith Hates Bitcoin

#76

Post by bbbhn » Sat, Apr 13, 2013, 3:31 AM UTC

pavanky wrote: post #45

guylhem wrote: post #29

Maybe, just maybe, it's not Adam Smith who hates bitcoin like this misleading title suggest, but Krugman. The guy may have a nobel prize, but his strong leftist views seems to be clouding his judgement. Never before in history was there anthing like bitcoin. It's not a commodity like gold - is is pure fiat money, fully based on trust. Hoarding gold or silver or any metal or rare thing was a bad idea because of the al…

The only way bitcoins are being generated is by wasting computer cycles solving problems that are of no use to anyone. Krugman's problem is not with the concept of bitcoin, but the process of mining. I may not be an economist, but the method used for mining seemed.. illogical to me as well. If a bitcoin was released into the wild based on running real world problems like folding@home or something else it would have m…

The computer cycles are useful: they secure the network.

Re: Adam Smith Hates Bitcoin

#77

Post by bbbhn » Sat, Apr 13, 2013, 3:34 AM UTC

pbreit wrote: post #31

think33 wrote: post #15

Earlier quoted context omitted.

Your quote is relevant, but it's a shame he doesn't address the implied claim that bitcoin doesn't "facilitate transactions". And while it is relatively small in that use now, he really needs to make a compelling argument to why it won't work that way in the future. Further, it's worth pointing out that Krugman endorses a monetary system that makes people poor, via inflating the money supply by printing funds to unde…

Uh, Krugman's whole point is that the capped supply is inherently deflationary so the incentive is to hang on to bitcoins, ie, not the best attribute of a currency.

When did the notion that a currency which loses value over time is ideal become orthodoxy?

There are plenty of legitimate arguments that can be constructed against the idea of an inherently inflationary currency too.

Re: Adam Smith Hates Bitcoin

#78

Post by yk » Sat, Apr 13, 2013, 3:57 AM UTC

dragonwriter wrote: post #62

yk wrote: post #47

Earlier quoted context omitted.

Rather abstractly Bitcoin is a scheme to solve the Byzantine General problem[1]. The problem is, how can we build a trusted history of accounting without knowing which nodes in the network are trustworthy. And the way Bitcoin does this is essentially by letting every miner vote with his CPU power and the history backed by the most computing power wins. Therefore as long as the majority of miners (weighted by their co…

> Therefore as long as the majority of miners (weighted by their computing power) is honest, you can trust the accounting. As computing power is a function of the expenditure of wealth, this is equivalent to saying "as long as you trust the people who have thrown the most money at having power over the bitcoin system are honest."

Never thought of it that way, but yes. However, those who have thrown the most money at Bitcoin are also those with the highest interest to seeing it succeed.

Re: Adam Smith Hates Bitcoin

#79

Post by parasubvert » Sat, Apr 13, 2013, 4:19 AM UTC

penny500 wrote: post #38

kirian wrote: post #26

Earlier quoted context omitted.

Central banks and central bankers don't work for free. How much is spent on normal banking infrastructure, cash security vans, fraud protection etc.

That's not how quantitative easing works. Quantitative easing doesn't fire up the printing presses. Bernanke can add $2 trillion into the system within 15 minutes, and no paper money is printed or manpower expensed aside from a few clicks on a computer mouse. Once you secure your financial system network, adding currency adds virtually no costs relative to the amount of currency you put into that system. You've alrea…

$2 trillion in 15 minutes might be a wee bit of an exaggeration... considering the monetary base needs to, um, actually buy something, usually Treasury Bills. Which are managed by whole swath of administrators in the Dept of the Treasury (and could lead to printing presses -- for the T-Bills, anyway), as they're usually issued in bond series, etc.

Re: Adam Smith Hates Bitcoin

#80

Post by parasubvert » Sat, Apr 13, 2013, 4:25 AM UTC

jshen wrote: post #63

guylhem wrote: post #29

Maybe, just maybe, it's not Adam Smith who hates bitcoin like this misleading title suggest, but Krugman. The guy may have a nobel prize, but his strong leftist views seems to be clouding his judgement. Never before in history was there anthing like bitcoin. It's not a commodity like gold - is is pure fiat money, fully based on trust. Hoarding gold or silver or any metal or rare thing was a bad idea because of the al…

I dont think bitcoin is fiat money. Fiat money is. any money declared by a government to be legal tender.[7] state-issued money which is neither convertible by law to any other thing, nor fixed in value in terms of any objective standard.[8] money without intrinsic value.[9][10]

It's not by definition a fiat money, but has similarities:

- it is declared by a group of cooperating people to be a form of tender (legally protected only via contract law),

- they effectively have no intrinsic value,

- nor is it fixed in value to any objective standard

It's effectively not that different from currency of the "free money" era in the 1700 through early 1800's, where there were hundreds, if not thousands, of currencies in the USA issued ("by fiat") by independent banks. The civil war mostly was what changed that.