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October 14, 2012 4:42 AM   Subscribe

Three Years In, Bitcoin Gains Momentum

Bitcoin, a digital-only currency, has made a comeback since the major crash. But Bitcoin lives in a legal gray area, combining the anonymity of cash with the anonymity of the 'Net. Formerly only readily available for online transactions, debit cards and better public awareness are planned. But there are still security issues - last month, $250,000 was stolen from a trading site.

Matthew Feeney at Reason credits the rise of Bitcoin and alternative currencies to fears of a currency collapse. Previously: Bitcoin with Multi-Signature Transactions
posted by the man of twists and turns (64 comments total) 10 users marked this as a favorite

 
Formerly only readily available for online transactions, debit cards and better public awareness are planned

So by "formerly", you mean "currently"?
posted by nicwolff at 4:52 AM on October 14, 2012 [3 favorites]


combining the anonymity of cash with the anonymity of the 'Net

So by "anonymity" you mean "non-anonymity"?
posted by DU at 4:58 AM on October 14, 2012 [5 favorites]


One poor security choice results in $250,000 Bitcoin heist
Bitfloor operator admits to leaving unencrypted wallet keys laying around, leading to theft of 24,000 Bitcoins

Whoops.
posted by the man of twists and turns at 5:12 AM on October 14, 2012 [1 favorite]


So by "anonymity" you mean "non-anonymity"?

Doo doo doo-doo-doo, non-anonymity.
posted by griphus at 5:42 AM on October 14, 2012 [1 favorite]




Actual coin bitcoins are void unless you use them to pay while wearing a trenchcoat, gloves, fedora, sunglasses and scarf across your mouth and nose.
posted by griphus at 5:53 AM on October 14, 2012 [5 favorites]


Spikey anime hair, bandoleers, and fingerless gloves also work.
posted by TheWhiteSkull at 6:31 AM on October 14, 2012 [2 favorites]


Matthew Feeney at Reason credits the rise of Bitcoin and alternative currencies to fears of a currency collapse.

But Bitcoin has already crashed once and the US inflation rate is at 1.7% and hasn't hit 5% in twenty years.
posted by octothorpe at 6:32 AM on October 14, 2012 [10 favorites]


Isn't the value of Bitcoin pegged to the collective level of geek hubris?
posted by Thorzdad at 6:38 AM on October 14, 2012 [19 favorites]


I never expected to see a comment like this on economist.com.
posted by scruss at 7:09 AM on October 14, 2012 [2 favorites]


Bitcoin is far from perfect, but I think it works as a good pressure cooker to explore some good ideas about how online transactions could be done outside of the rigid control and arbitrary censorship of entities like paypal (see wikileaks, or anybody you know who has had their paypal account frozen and had to prove they arent money launderers for engaging in the brazen behaviour of trying to sell their own music on bandcamp), or all the crazy redundant fees of other online banking systems.

Like napster it shows some ideas in the rough that may reappear later in far more polished form. Though I think the current bitcoin software is far superior to the original napster.

That said a lot of the current "ecosystem" surrounding the core bitcoin network is cowboy country craziness and computer security amateur hour - just look at recent shmozzles like Bitcoinica, GLBSE, Bitcoin Savings and Trust, etc.

I think bitcoins will be priced at roughly the cost of electricity it takes to run the bitcoin network.. plus a small margin.
posted by zog at 7:14 AM on October 14, 2012 [2 favorites]


I don't know how readily available they are. First you have to buy them from some trader with a name like "frobgun99.tv" using ACH, then you have to deposit them into PayPal's adopted stepbrother's PO box if you want to buy anything.
posted by Brocktoon at 7:17 AM on October 14, 2012 [2 favorites]


All the MeFi Bitcoin Hate is just because mathowie once snarked about bitcoins in a MeFi podcast, without explaining himself. Wake up, sheeple. </hamburger>.

More seriously, do the haters:

1. Think that the Bitcoin implementation is laughably bad, but agree with some or all of the motives?

2. Think that there are not legitimate reasons to want to be able to make purchases or donations without having a record of one's purchases and donations, along with other personal information, available to all manner of corporate entities that are not one's own, chosen bank?

2a. Think that there are legitimate reasons why anonymous transactions are desirable, but that the potential for sketchy abuse of such a system outweighs the benefits?

3. Think that anonymity of transactions is a worthwhile goal, but don't see why the focus isn't on developing a widespread mechanism for exchanging extant government-issued currencies anonymously?

4. Hurf durf lol stereotypes?

5. Something else?
posted by kengraham at 7:26 AM on October 14, 2012 [2 favorites]


So by "anonymity" you mean "non-anonymity"?

If by "anonymity" you mean "keeping your real-life identity separate from your Bitcoin transactions", then I think it is possible.
posted by orme at 7:36 AM on October 14, 2012


Look at the basic check, now does that ever have problems? See "Catch Me if you Can". Bitcoin or something like it will be the future.
posted by sammyo at 7:36 AM on October 14, 2012


Isn't the value of Bitcoin pegged to the collective level of geek hubris?

Yeah, the current exchange rate is 1 Bitcoin to 5 Goldblums.
posted by griphus at 8:02 AM on October 14, 2012 [1 favorite]


octothorpe, inflation at 1.7% percent? Ha.
posted by vsync at 8:28 AM on October 14, 2012


kengraham, my main objection to Bitcoin is the annoying libertarian rhetoric surrounding it combined with the hucksterism and unreality. I like the idea of online anonymous transactions too, but Bitcoin does not provide anonymity. The replicated Bitcoin transaction record is the opposite of anonymous transactions. For a practical example of tracking Bitcoins, see Bitcoin thieves yet to spend stolen hoard.

The unregulated nature of Bitcoin poses a lot of problems, like the rampant fraud and theft that continues to plague the very center of the Bitcoin economy. And as we've seen in eGold and other alternative Internet payment systems the main use of these minor currencies is black market trade: drugs, hacked computers, credit card codes. Black markets serve their purpose in the world, but it's hard to get excited about mainstream adoption of a currency whose main purchasing power is mail-order LSD.

The Scientific American article linked here talks about a reason for Bitcoin that was new to me: merchants like it because transactions are non-reversible. No risk of a credit card chargeback. Which is awesome for the merchant, but absolutely terrible for the consumer. When I buy things online from an untrusted seller I do so mostly because I know my credit card company will help me if the purchased goods don't show up. Why would I use Bitcoin instead?

PS: a graph of Bitcoin vs USD since the beginning. My big concern in summer 2011 was the volatility; you really want your value reserve to be relatively stable, and going up quickly is as bad as going down. It's calmed down a bit in 2012 although we've still seen a swing in value of 3x over a year.
posted by Nelson at 8:38 AM on October 14, 2012 [10 favorites]


Think that there are not legitimate reasons to want to be able to make purchases or donations without having a record of one's purchases and donations, along with other personal information, available to all manner of corporate entities that are not one's own, chosen bank?

I think there ARE legit reasons to want this, which is (at least one reason) why BitCoin is a bad idea.
posted by DU at 8:42 AM on October 14, 2012


I still can't see why the proof-of-work thing is so necessarily central to BitCoin.

As I understand it, the network as a whole generates a consensus on the difficulty of the work to be proved, in order to regulate the speed at which new BitCoins are minted. It has to do this because hardware is getting better all the time; without a difficulty regulation mechanism of some kind, Moore's Law would lead to an exponentially growing influx of new work proofs and hence new coins.

So given the necessary existence of such the consensus-generating mechanism, why does the work need to be hard at all? Why doesn't the consensus-generating mechanism put a direct rate limit on new coin acceptance? That way, IDs for new coins could simply be generated at random at each node, and new coins chosen by consensus from a randomly selected active node as the need arises, avoiding a hell of a lot of wasted electricity.

What am I missing here?
posted by flabdablet at 9:05 AM on October 14, 2012


More seriously, do the haters:

1. Think that the Bitcoin implementation is laughably bad, but agree with some or all of the motives?


About the only press Bitcoin gets, which for people who aren't actively searching out information about it, is all the information we have, is the almost monthly news reports about how some Bitcoin bank or user lost 10s to 100s of thousands of Bitcoins due to theft.

If I put my money in the bank, even if the bank is robbed, I still get my money.

Seriously, do a Google search for bitcoin theft. There are 520,000 results. One of the most fundamental requirements for a currency is safety and piece of mind.

Unless you are selling drugs (bitcoins, drugs: 720,000 results on Google).

Either all the bad press is true or Bitcoins has a very serious public relations problem.
posted by eye of newt at 9:08 AM on October 14, 2012 [1 favorite]


What does that objection have to do with the thing you quoted, eye_of_newt?
posted by LogicalDash at 9:18 AM on October 14, 2012


He asked why there is so much bitcoin hate. He then offered multiple choice answers, none of which really fits. #1 is somewhat close in that the implementation must be bad if there is so much apparent theft.
posted by eye of newt at 9:25 AM on October 14, 2012


DU : So by "anonymity" you mean "non-anonymity"?

This keeps coming up, over and over and over and over.

Most people use the "anonymous" to mean "You can't associate this with me IRL". They don't care whether or not anyone can see that a given transaction exists.

Or more to the point, BitCoin offers exactly the opposite kind of privacy (and the more useful of the two, IMO) as most real-world banks - Banks protect your transaction details (except from the government), but not your identity. BitCoin conceals your identity, but publishes the transaction details.
posted by pla at 9:51 AM on October 14, 2012


Well, there's lots of theft in dollars too; but you consider that more acceptable because banks are federally insured. That's not a property of dollars, it's a service provided by the U.S. federal government. So I guess you're objecting to Bitcoin on the basis that it doesn't have any analogue to federal theft insurance.

That's a legit reason not to use Bitcoin, but I don't know that I'd describe it as an objection to Bitcoin per se. Maybe to the Bitcoin market?
posted by LogicalDash at 9:55 AM on October 14, 2012


eye of newt : He asked why there is so much bitcoin hate.

The short-but-true answer? They didn't get in early enough to help bootstrap the currency by mining blocks, and now need to defend that choice by ridiculing the entire concept (aka, "post-decisional dissonance").

BitCoin certainly has its flaws, but the haters seem especially bad at correctly identifying them.
posted by pla at 9:56 AM on October 14, 2012 [1 favorite]


kengraham: None of those.

Bitcoin is a fundamentally a distributed ledger, the legitimacy of additions to which are "voted on" by completing proof of work hashes.

This is a game-theoretic house of cards. Eventually some subset of Bitcoin miners controlling more than 50% of the network's processing power will decide it is in their best interest to fork the blockchain to fake transactions, at which point everyone will have to decide whether they trust the scrip this bloc issues until such time as another split occurs. I predict one high-profile split will be the end of this scheme.
posted by phrontist at 10:06 AM on October 14, 2012 [1 favorite]


So given the necessary existence of such the consensus-generating mechanism, why does the work need to be hard at all? Why doesn't the consensus-generating mechanism put a direct rate limit on new coin acceptance? That way, IDs for new coins could simply be generated at random at each node, and new coins chosen by consensus from a randomly selected active node as the need arises, avoiding a hell of a lot of wasted electricity.

This is a good explanation.
posted by phrontist at 10:13 AM on October 14, 2012


Moore's Law would lead to an exponentially growing influx of new work proofs and hence new coins.

The difficulty of mining new blocks grows significantly faster than Moore's law.

I find Bitcoin silly and tragic because it is yet another example of geeks creating solutions that only work in a world created as a shared delusion -- a logically run digital utopia that shares points with the real world but overall maps fairly poorly.

Bitcoin exists by the grace of the U.S. government and is currently tolerated because it's such a tiny outlier that it's not worth anyone's time to shut it down.

If anyone were to do a large transaction -- say, buying a company for a few million USD -- you'll see Bitcoin regulated so fast it will make your head spin. "But the distributed nature of Bitcoin means it can't be regulated!" you say. And I say "Remember that shared delusion I mentioned above? Reality is about to butt in."

I do agree with what zog said about Bitcoin being a useful field test for digital currency. Major mistakes are being made and the model is being tweaked to try new ways of coping with them. If and when a government backed digital currency appears -- although it's not clear why one would -- it will owe much to this experiment.
posted by Tell Me No Lies at 10:55 AM on October 14, 2012 [4 favorites]


Most people use the "anonymous" to mean "You can't associate this with me IRL". They don't care whether or not anyone can see that a given transaction exists.

They don't mention it, but they probably care.

But I wasn't even talking about that. I'm talking about all that transaction history just sitting out there for all of time. You only need your ID revealed once to have ALL transactions EVER traced back to you.
posted by DU at 11:25 AM on October 14, 2012 [1 favorite]


Why should I trust a currency technology system whose inventor(s) are evasive to a ridiculous extreme?
posted by Bwithh at 11:34 AM on October 14, 2012


@kengraham

yeah, hurf durf stereotypes and the kind of mental retinopathy required to look at something that's often used to purchase illicit drugs, talk about how its users are unstylish/fat/declasse, and be from one of the mainly pay-to-post sites where this kind of talk goes on

and then somehow not think it's about capital-c Class
posted by This, of course, alludes to you at 11:36 AM on October 14, 2012


There are very interesting things you can do with bitcoin that nobody is doing yet.

Bitcoin is fundamentally a globally synchronized ledger. Think of it this way, every single bank in the world has their entire transaction history available for the public, live. You can use that ledger for more than just exchanging a single currency on that ledger.

Because you can accurately trace the transaction history of coins, as everything is logged, you can overload the coin to have other contractual properties, simply by creating a document that says the 0.00000100 coins derived from this single transaction counts as 100 shares of freely tradeable common stock (you'd need something like a last-in-first-out order specified in the contract).

By tracing who owns individual shares, you can then give voting rights to those addresses (and because they have crypto signature built in, you can vote on board members, etc. Further, since you know the addresses for bitcoin ownership, you can issue dividends. The dividends can be priced in bitcoin, or more interestingly, the dividends can be denominated in US DOLLARS. You can specify 0.00000001 bitcoin as 1 share of an ETN, making 1 share equal to 1 USD backed by a bank.

Because bitcoin supports complex transactions, you can conduct a single transaction of 1 share for 1 USD in a single atomic transaction, with no need for complex clearinghouses as we do today.

Here's where things get crazy: by using distributed hash tables, such as what people use to find peers in bittorrent DHT, you can build a trading floor. The trading floor can have bid-ask spreads (although only the ask side can run without escrow), this means you can build an entire stock exchange with functionally no actual middlemen beyond the distributed bitcoin transaction ledger. All you would need to do is broadcast on the DHT peer-to-peer network an open bitcoin transaction that says "I will accept any transaction that pays me 3 bitcoin for this specially marked 0.00000001 bitcoin that is 1 share of stock in ABC Corp.", which is supported in bitcoin's protocol.

Here's also where things get creepy: if you had a nation-state that recognized this as a valid corporate structure, you could build a company in which ownership is completely unknown. Also, if a hedge fund that invested in these companies, and created a machine learning algorithm that invested successfully and bid on computing power (paid for in bitocoins), and the hedge fund owner was ran over by a truck, you'd have an independent entity surviving on the network with complete agency, with no human control.

There are a lot of creepy things that can happen, a lot of possibly good things (reducing middlemen in banking), either way, we've only begun to scratch the surface of what bitcoin means. If you think it's exclusively the domain for a bunch of wackjob gold bugs hating on the Federal Reserve, I think you're underestimating what bitcoin may be able do in the future.
posted by amuseDetachment at 11:52 AM on October 14, 2012 [19 favorites]


Ulitmately I dislike BitCoin because there's an upper limit on the number of BitCoins and the idea of re-inventing the gold standard, but with even less flexibility, strikes me as rather mad.
posted by Grimgrin at 11:56 AM on October 14, 2012 [2 favorites]


also, because of the capital-c Class politicization of this, it is my opinion that the point at which bitcoin stops receiving scorn for being for gross plebs is the point at which it has finally become merely another tool of power
posted by This, of course, alludes to you at 11:57 AM on October 14, 2012


It's been fascinating to follow the bitcoin forums. It's a science-fictiony, wild-westy scene, but it's actually playing out in real life. It's straight out of a William Gibson or Neal Stephenson novel.

Initially it was interesting to me as a computer science problem. Can you make a secure, reliable currency system without any dependance on a central authority? How to prevent double-spend attacks, fake transactions, DOS attempts, etc. Since you need a distributed network of participants just to maintain the system, how you provide motivation structures to get people to spend the computing and network resources to keep the system running? But having solved those problems, naturally attackers just go after the weakest link in the chain by targeting the unsecured edges of the system and stealing the old unencrypted wallet files. But solutions to those problems are progressing. Encrypted wallets, two-factor transaction authentication, etc. So we move on to the age of scams. Why steal bitcoins from people when you can just trick them into handing them over?

But even more so than the math aspect of it, I love watching the different factions of the bitcoin scene fight it out. They are all involved heavily in the day-to-day drama of bitcoin, but are very distinct groups and they generally don't like each other very much.

The most devoted bitcoin zealots are committed to the idea that bitcoin is the way of the future and some day it will be a dominant (if not THE dominant) form of currency for standard everyday transactions. The zealots are motivated by ideology and tend to invest heavily in bitcoins, planning to hold for the long term. I'm not trying to say anything about the OP by this, but the zealots are the ones that are usually trying to seed bitcoin-positive news stories on blogs and news-aggregator sites. Some are trying to set up bitcoin-related businesses or are just actively evangelizing the use of bitcoins in existing business.

A (widely disliked) subset of the zealots are the goldbugs, who are sure that all fiat currencies are going to collapse any day now and then we'll all wish that we had also sunk our net worth into gold and bitcoins. The hardcore libertarian vibe that a lot of people get from bitcoin comes from this group.

A large and still growing faction is the ruthless daytraders. They buy and sell bitcoins on the exchanges trying to turn fast profits on the volatility. They live by the rule of the wolf, reading the rumours that might influence the exchange rate, seeding the rumours, "investing" in the scams, and/or running the scams. A common sentiment from the daytrader wolf is that if you lose your money to a scam, then it's your own fault for being gullible or for not recognizing the scam and profiting indirectly from it. This group appears to control a large majority of the day-to-day bitcoin trading. The biggest bitcoin exchange organization processes about $11 million in trades per month (bitcoins to/from USD).

An interesting trend is that scams and hacks aren't getting any less frequent, but the impact on the value of bitcoins is dropping. The early big thefts, hacks, and scams caused major drops in the value of bitcoins. Last summer after the collapse of the MyBitcoin online-wallet service for about $1 million (it's still unclear whether the company was hacked as they claimed or whether it was a scam by the owners) the bitcoin rate dropped from over $30 quickly to $15 and then as the traders continued to flee the market, dropped more slowly to bottom out around $3. The rate rebounded a bit and then was stable around $5 for 6 months.

But the scams and hacks keep happening and the exchange rate has been relatively stable. The Bitcoin Savings & Trust ponzi scheme was worth several several million dollars when it collapsed a few months ago and was the biggest such event so far. But the exchange rate hardly blinked. Since the spring the rate had been growing steadily up to $12 until BCST defaulted (the growth possibly caused by BCST itself). There was a few days of violent volatility, then it restabilized at $12 and has been holding steady since. It seems like the wolves are just eating themselves and they don't consider the scams to be cause for concern anymore. The BitFloor theft last month (linked in the OP) had no visible reaction in bitcoin value.

The drug traders are the largest faction in population (in my estimate) but are also the quietest. The wolves don't care, but it is a continuing concern for the zealots that the biggest market for bitcoins as regular currency is the black market.

There are also the bitcoin miners who care mostly about running (sometimes large farms of) computers to profit from block generation and transaction fees. But these guys are pretty insular and less interesting in the broader politcal bitcoin fights.

I don't know what the future of bitcoin will be. Growth outside the wolves and black market exists, but is still very slow. It seems like there will be a place in society in the future for something with the properties of bitcoin. Something with the properties of cash, but in purely digital form. It's unclear whether it will be bitcoin, or some other movement that learns from bitcoins mistakes.

Governments could attempt to stamp out bitcoin if they wanted to stamp out the associated black market, but it will be difficult. As mentioned in the SciAm link in the OP, the most attackable aspect of the system is the payment processors and currency exchanges where trade bitcoins for regular currency. However that would take an internationally coordinated effort to be completely effective. The biggest exchange currently resides in Japan, but they can work from any country that has banking interactions with a user's country.

All I know for sure is that it's fun to watch.
posted by dodecapus at 12:24 PM on October 14, 2012 [14 favorites]


kengraham, since you asked: Modern American Libertarianism seems to be based on an assumption that rights and property can exist in isolation, outside of any human society. I think that is hooey, and that our rights and property are thoroughly dependent on the society we live in. Bitcoin just seems like the application of the same mistake to money.

Though I honestly haven't studied up on the idea at all, and am probably basing a lot of my view on seeing enough stereotype to prime the ol' hurf-durf pump.
posted by benito.strauss at 12:25 PM on October 14, 2012 [1 favorite]


I (seriously) thank several people for giving real answers to my question.

This, of course, alludes to you: I don't quite understand your comment, but I would like to. Could you please elaborate?
posted by kengraham at 12:35 PM on October 14, 2012 [1 favorite]


DU : They don't mention it, but they probably care.

Fair enough, I'll agree-to-disagree on that one, even though I can't understand why someone would care (case in point, I pay $79.95 a month for my crappy overpriced internet service; good luck tracking me down from that useless fact).

However...


You only need your ID revealed once to have ALL transactions EVER traced back to you.

That simply does not hold true. Each and every transaction pair uses a new ID (which doesn't even really work as an ID, more like a one-time public key). Revealing the owner of one of those IDs/keys exposes the owner of exactly one transaction pair.

Consider the worst case scenario, the hack of an Amazon-like BitCoin merchant with their Bitcoin wallet released online. At the same time, the attackers release sufficient extra information to tie the merchant's sales to actual human buyers.

That would not compromise anyone else's wallet. It would not allow for any sort of identity theft (beyond what the non-BitCoin related data would allow in isolation). Most importantly, let's say that both A and B bought something from this compromised "M"erchant, and that B made her purchase using BitCoins obtained directly from A. M cannot tell that B's bitcoins came from A, because AB counts as an entirely different identity than AM. And going further, AM1 also differs from AM2, such that M can't even tell (solely from the transaction details) that A has bought from M more than once.


amuseDetachment : you can then give voting rights to those addresses (and because they have crypto signature built in, you can vote on board members, etc.

Voting rights? Board? Did you just change the topic to something completely unrelated? Because pretty much nothing you said has any relevance or application to BitCoin-the-currency.
posted by pla at 12:38 PM on October 14, 2012


pla: Bitcoin the currency/protocol can be used to create a peer-to-peer stock exchange.

It's like writing share certificates on paper dollar bills using black marker ink. Only, since the dollar bills are digital, you can do neat things with them (sending funds to current shareholders of the stock directly, etc). All you need to do is check who currently owns the digital equivalent of the paper dollar bill with the share certificate written on it.
posted by amuseDetachment at 12:41 PM on October 14, 2012 [1 favorite]


Actually, now that I think about it, a more accurate (but still incomplete) analogy would be for a company to announce that whoever owns the dollar bill with serial number 123A123456 owns 1 share in ABC corp. The dollar bill can change hands, but whoever currently owns that dollar bill owns one share.

This would be useful for bitcoin because the transaction history for 0.0000001 of bitcoin is completely traceable if you have a normalized way to account for it (Last-In-First-Out) -- then you would have the equivalent of knowing who currently owns that "dollar bill with the serial numbers" specified in the company's charter, you can then send dividends to the current owner of that 0.00000001 (1 share of ABC), as well as voting since an address is a ECDSA public key.

My point is that bitcoin as a ledger has interesting properties that many haven't considered yet.
posted by amuseDetachment at 12:57 PM on October 14, 2012 [2 favorites]


amuseDetachment : Bitcoin the currency/protocol can be used to create a peer-to-peer stock exchange.

[Re-reads your earlier post more carefully...]

Ah. I see now what you mean... For some reason, I missed the "hypothetical" part of your comment. My apologies, I actually agree with most of what you wrote. :)
posted by pla at 1:04 PM on October 14, 2012


Bitcoin just seems like the application of the same mistake to money.

I agree with your premises about rights and property, and my own hurf durf-pump is pretty well primed where capital-L Libertarians are concerned, but it seems to me like the modern, "conventional" economy has many features that seem like attempts to have rights and property exist independently of (most of) human society, too. I know very little about Bitcoin, but from what I can tell, it seems like like an imperfect prototype of something that could be used to allow people to function outside of corporate power structures that have very little to do with "human society", either.

More interesting from this point of view is RipplePay, perhaps. I've wanted to do an FPP on RipplePay forever, but it would be friend-of-a-close-friend's-linkage; someone else should...
posted by kengraham at 1:17 PM on October 14, 2012 [1 favorite]


Yeah, it's hypothetical in that nobody's doing this today, but the only thing preventing it is a corporation actually issuing shares this way, because it doesn't require any change to the bitcoin protocol, or any software update for the miners. It's just a bunch of people doing it on the side, the transactions operate/look like normal bitcoin transactions. The only special software needed is tracking future bitcoin transactions in a LIFO manner (to see where the coins go).

I'm especially surprised no one's doing it because it enables an enterprising black-market bank to make a USD ETN and people would go nuts day-trading the USD-BTC currency pair on the bitcoin network. You could buy and sell bitcoins to USD all day with much lower fees. It also recontextualizes the "gold bug" argument, because if you hate the speculative nature of bitcoins, you can exclusively buy 0.00000001 BTC specially marked shares (from a reputable bank of course) that equal 1 USD. You could make bitcoin transactions purely denominated in dollars, that's pretty fucking cool, it changes the whole deflationary gold bug argument when you view it as an exchange/ledger protocol.

That's the reason I mentioned it. Bitcoin could be used as a medium of exchange for pretty much a digital equivalent of a bank-backed equivalent of US Dollar cash.
posted by amuseDetachment at 1:17 PM on October 14, 2012 [1 favorite]


Governments could attempt to stamp out bitcoin if they wanted to stamp out the associated black market, but it will be difficult. As mentioned in the SciAm link in the OP, the most attackable aspect of the system is the payment processors and currency exchanges where trade bitcoins for regular currency

This is incorrect. The most attackable aspect of the system are the humans. Sure you can use Bitcoin if you don't mind the ten year prison sentence if you get caught. That bank that just turned state's evidence and is handing over IP addresses? Whups! You get arrested on a minor drug dealing charge and they find Bitcoin software on your computer? Whups!

As has been demonstrated time and again the users of Bitcoin are not computer security geniuses. A few high profile arrests and you can say goodbye to the whole thing.
posted by Tell Me No Lies at 2:26 PM on October 14, 2012


Well, if you get caught holding illegal drugs that will get you a prison sentence too and we can see how well that is doing at eliminating drug use. I'm not claiming that people are perfectly safe to deal in the black market and always will be just because they are using bitcoins. I'm claiming that if a government, for instance the US, decided tomorrow that they wanted to ban all use of bitcoin, then it would be very difficult for them to enforce. The system can be accessed through tor and there are already easy-to-use prepackaged, encrypted flash-drive linux distros that make it easy to use in a secure fashion.

Anyway your bank generally has your real name and address so they don't need your ip address. The connection between the banks and the exchanges is what I meant about the aspect of the bitcoin system most vulnerable to government interference.
posted by dodecapus at 5:01 PM on October 14, 2012 [1 favorite]


Governments could attempt to stamp out bitcoin if they wanted to stamp out the associated black market, but it will be difficult.

If BitCoin does end up representing a significant portion of transactions, states will likely want to ensure these transactions are being appropriately taxed. Many states go to considerable effort to track the cash economy for this reason, and BitCoin is off to a bad start because all transactions are public.

It would be trivial for any state to track transactions, a little harder to match real-world tax units to the accounts (probably achieved by leaning on exchanges), and a little harder still to discover and pursue those tax units that are not paying the proper taxes (very resource intensive). States would pick and pursue high-profile and high-value accounts, and hope that scares everyone else in to properly paying their taxes.
posted by kithrater at 6:45 PM on October 14, 2012


This is a good explanation.

I agree that it's a good exposition of the mechanism that BitCoin currently uses, but I still don't see why the proof-of-work part, specifically, is such a vital design feature.

As outlined in the linked article, proof-of-work acts to limit the rate at which network nodes can generate new transaction blocks to present as candidates for linking to the end of the consensus block chain. But there's also all that stuff about requiring a newly-linked block to have embedded itself at least six links in from the bleeding end of the chain before the network as a whole considers it trustworthy; that's what I referred to as a "consensus-generating mechanism" in my original question.

That consensus-generating mechanism looks to me as if it ought to be robust enough to let consensus emerge even in the face of quite large amounts of new-block contention. It also seems to me that by putting a network-negotiated limit on the rate at which any given network node will accept candidate bliocks, such contention could be reduced sufficiently to let the consensus generator deal with it.

As things stand now, BitCoin mining is an arms race between people willing to spend real money on GPUs and electricity. It seems to me that a protocol change transforming it into a straight lottery should be do-able and would save a heap of time, trouble and electricity.
posted by flabdablet at 8:12 PM on October 14, 2012


the haters

Just because they don't share your POV or point out problems doesn't make 'em all haters.

Something else?

People who are supported by the present system don't like rocking the boat. 'Round these parts one can find posters who were 'grrr Bush' about various topics are are silent when "their man" is doing the same if not worse.

As noted upthread - there is a strong tie to Libertarians in bitcoin advocates. And on the Blue the libertarian viewpoint gets shouted down.

day-trading the USD-BTC currency pair

Already been done. A regular topic on the linux link tech show

Bitcoin could be used as a medium of exchange for pretty much a digital equivalent of a bank-backed equivalent of US Dollar cash.

Something that others assign value to and isn't actually valuable?
posted by rough ashlar at 8:26 PM on October 14, 2012


I find capitalism silly and tragic because it is yet another example of humans creating solutions that only work in a world created as a shared delusion
posted by leonard horner at 9:34 PM on October 14, 2012 [1 favorite]


Congrats. How's that working out for ya?
posted by Joseph Gurl at 9:35 PM on October 14, 2012 [2 favorites]


I find capitalism silly and tragic because it is yet another example of humans creating solutions that only work in a world created as a shared delusion

You ain't the only one. When reality comes knocking its going to knock hard.
posted by Tell Me No Lies at 9:38 PM on October 14, 2012


flabdablet: Proof-of-work is necessary because there's nothing stopping someone with a botnet from loading up 50,000 computers on the node. Hell, you don't even need a botnet, if you were a malicious network engineer at a Tier-1 ISP, you could probably do it with a single computer if you could get your hands on enough IP addresses.

Proof-of-work is a way to "fairly" allocate who randomly gets to write to the blockchain, and it works as long as there isn't a cabal above 50%.

Additionally, without proof-of-work, you're much more vulnerable to sybil attacks with a blockchain split. Without proof of work, there's no reason for one person to listen to your blockchain over mine. When there is a lack of consensus on whose blockchain is correct, it opens you up to double-spend attacks.


rough ashlar: The way people day-trade USD-BTC currency pairs is they use a centralized exchange (such as Mtgox), which operates no different than a standard currency exchange or stock market (GLOBEX or NYSE), I was describing a P2P currency ETN where there is no central exchange that charges per-transaction fees.
Something that others assign value to and isn't actually valuable?
No, as in a bank will give you USD cash when you return any bitcoins to the bank, whose transactions can be traced back to bitcoins from the specific transaction (e.g. 0.00000100 bitcoins sent in a transaction is $100, and can be returned for that value so long as those 0.00000100 bitcoins can be traced on the blockchain as the original 0.00000100 BTC).
posted by amuseDetachment at 9:54 PM on October 14, 2012


rough ashlar: Here's an example on how I'm not talking about magically declaring something worth X amount in USD.

Alice wants to send Carol $100 USD over the bitcoin network.

Alice goes to Bob the Bank and gives Bob a $100 USD bill. Bob sends Alice 0.00000100 BTC and says you can send these to whomever you want, they can get $100 from me in the future if I can trace the transaction back to the 0.0000100 BTC.

Alice sends Carol 0.00000100 BTC she received from Bob.

Carol, instead of cashing out the 0.0000100 BTC, decides she owes David $100. She sends David the 0.00000100 BTC.

David needs cash to pay for gasoline, so he returns the 0.0000100 BTC to Bob. Bob checks the transaction history in the bitcoin blockchain of that 0.0000100 BTC. Bob sees that the 0.0000100 BTC came from the same one he sent to Alice. Bob gives David a crisp $100 bill.

This means that with a middleman bank, you can transfer actual currency over the bitcoin network. Bob doesn't need to authorize transfer of ownership from Carol to David, unlike if Bob ran a centralized system (i.e. Paypal). People can make transactions with each other like paper currency without any communication with the Bank. Bob had no idea that it would ultimately be David cashing out.

You can replace Bob with a company issuing shares if you want to make it a stock (which is the actual interesting use case).
posted by amuseDetachment at 10:11 PM on October 14, 2012


Proof-of-work is a way to "fairly" allocate who randomly gets to write to the blockchain

Sure. My point is that it is surely not beyond the wit of smart people to come up with an equally fair and robust method that doesn't create a perverse incentive to piss electricity up against the wall.

and it works as long as there isn't a cabal above 50%.

That 50% presumably being 50% of available processing power, as opposed to 50% of the number of participating nodes or number of transactions (which could obviously be generated in unlimited numbers as required).

It just seems to me that processing and electrical power are both fairly squishy-soft as limited resources go, making them poor choices to back a currency. I'd prefer to see a system based on something more akin to eBay reputation ratings.
posted by flabdablet at 1:54 AM on October 15, 2012


There was a discussion a couple nights ago over beverages where my friends and I decided that the people we would least like to be stuck on a train next would be vegan bitcoin agitators.
posted by lumpenprole at 2:08 AM on October 15, 2012 [2 favorites]


rough ashlar : Just because they don't share your POV or point out problems doesn't make 'em all haters.

People who calmly explain that they don't use BitCoin for a few of its real flaws don't count as haters. People who stay out of the discussion entirely don't count as haters.

People who go on and on about "Ponzi schemes"; about nonexistent weaknesses in the currency; about how many exchanges or clueless users got scammed this week (as though that reflects on the currency itself)... Yeah, haters. They don't just "not use" BTC for rational reasons - They froth at the mouth at the mere thought that someone, somewhere, might use this vile means of exchange.


Something that others assign value to and isn't actually valuable?

You could say that about any "currency" other than food, shelter, and sex. :)


flabdablet : My point is that it is surely not beyond the wit of smart people to come up with an equally fair and robust method that doesn't create a perverse incentive to piss electricity up against the wall.

Well, sure! The traditional "proof of work" involves posession of shiny-but-useless yellow lumps. The "work" in that case comes from either digging them out of the ground, or sending a war-fleet across the ocean to kill natives and take theirs.

And I'd love to see some numbers comparing the two, but I have a strong feeling that far, far more energy has gone into getting those yellow lumps, than has gone into BitCoin production - And unquestionably far, far more blood.
posted by pla at 3:54 AM on October 15, 2012


Gold isn't useless. It's a valuable engineering metal that would find wide spread use in many mundane objects if it wasn't so rare.
posted by Mitheral at 6:13 AM on October 15, 2012 [1 favorite]


I thought the primary point of the proof-of-work stuff was to enable the Bitcoin transaction log. The coin minting process is the incentive, but the real value was distributing previous transactions. But it's been awhile since I read the protocols, I could easily be wrong.

a centralized exchange (such as Mtgox), which operates no different than a standard currency exchange or stock market (GLOBEX or NYSE)

Except GLOBEX and NYSE aren't hit by theft on a regular basis. Mtgox has had at least two thefts in its short life, totalling over $50,000. They're one of the better Bitcoin services, though; their $1000 limit on transfers saved them from bleeding a lot more money. Which is a nice security control, but that tiny limit makes it useless as a real bank or market.

It's not hating to point out all the problems of crooks and amateurs running Bitcoin financial exchanges, the regular thefts and frauds. The libertarian argument for Bitcoin is if you create the store of value, the currency itself, you're done. No need for governments, institutions, laws! Here in the real world it turns out most people like a little regulation and safety. If Bitcoin is ever going to be more than an interesting cryptotoy and a minority currency for black market trade, it's going to need more institutional rigor. And then it starts looking like an ordinary currency or EFT type system, except with some interesting and awkward crypto protocols underneath it.
posted by Nelson at 7:43 AM on October 15, 2012 [1 favorite]


Isn't the value of Bitcoin pegged to the collective level of geek hubris?

That's unlikely to suffer shortfalls... sounds stable to me!
posted by Zed at 2:02 PM on October 15, 2012 [1 favorite]


Get in on the ground floor of the hubris bubble! too late
posted by hattifattener at 10:47 PM on October 15, 2012


The current bubble started in 1650 with the start of the Enlightenment. Believe it or not it has actually shrunk a bit from where it was in the late 1800s.
posted by Tell Me No Lies at 9:57 AM on October 16, 2012 [1 favorite]


You can't "gain" momentum. The whole point of inertia is that it stays constant. Momentum has to be transferred or imparted from somewhere.
posted by Eideteker at 12:55 PM on October 16, 2012




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