Bitcoin Brawl
March 27, 2015 6:43 PM   Subscribe

The Race to Replace Bitcoin
An epic battle between two bitcoin 2.0 contenders grips the crypto world
posted by andoatnp (84 comments total) 13 users marked this as a favorite
 
Okay, who had March 2015 in the pool?
posted by eriko at 6:54 PM on March 27, 2015 [6 favorites]


In other news, Fortran 2015 comes out in a few months (in late 2016, of course) – but the entire software world waits with bated breath to see how it will stack up against Fortran 2008. What will be the future of this cutting-edge software development platform? Only time will tell!
posted by koeselitz at 6:57 PM on March 27, 2015 [12 favorites]


This will eventually go down in history as the most amazing bubble ever, after it pops. At least with tulip bulbs you could grow them and see the flowers...
posted by Chocolate Pickle at 7:11 PM on March 27, 2015 [5 favorites]


Putting stock in faith indeed.
posted by rhizome at 7:19 PM on March 27, 2015 [2 favorites]


Oh, boy. Do I wish I could comment on this! Unfortunately, I'm employed by one of the parties involved...

All I can say that it's "less inaccurate than other tech gossip articles I have read".

> In other news, Fortran 2015 comes out in a few months

> This will eventually go down in history as the most amazing bubble ever, after it pops.

> Putting stock in faith indeed.

I am personally dubious about cryptocurrencies as a mechanism for storing value - but as a mechanism for payments, for transferring value, they are not just a good idea but inevitable - goodbye to dinosaurs like SWIFT and FIX.
posted by lupus_yonderboy at 7:29 PM on March 27, 2015 [6 favorites]


That's sort of the amazing thing, from what little WhateverCoin stuff I've done. The mechanisms for getting and valuing cryptocurrencies are extremely stupid, but setting aside that the blockchain balloons ridiculously, and the whole 50%+1 problem, the actual architecture for transferring currency between accounts is extremely handy, much simpler and easier to use than any other money transfer thing I've ever seen.
posted by kafziel at 7:35 PM on March 27, 2015


Bitcoin and other crypto currencies are terrible for most ordinary money transfer operations. They simply don't meet the use cases developed over centuries for things like letters of credit and checks. Furthermore the underlying mechanism of a p2p shared ledger and scaling proof of work is computationally inefficient by design and wastes huge amounts of energy. How much electricity are all those Bitcoin mining rigs using? The answer is millions of megawatts, one MIT researcher suggested it could be in the Gigawatt range.
posted by humanfont at 7:37 PM on March 27, 2015 [13 favorites]


> Furthermore the underlying mechanism of a p2p shared ledger and scaling proof of work

That's not intrinsic to the idea of a cryptocurrency and most of the currencies discussed in the article don't in fact work that way.
posted by lupus_yonderboy at 7:42 PM on March 27, 2015 [2 favorites]


The answer is millions of megawatts, one MIT researcher suggested it could be in the Gigawatt range.

I've heard estimates of up to 1.21 gigawatts.
posted by snofoam at 7:42 PM on March 27, 2015 [6 favorites]


How are they different from bitcoin? I scrolled through the article looking for that but all I saw was drama I don't care about. Maybe I missed it.
posted by ctmf at 7:42 PM on March 27, 2015 [3 favorites]


I am personally dubious about cryptocurrencies as a mechanism for storing value - but as a mechanism for payments, for transferring value, they are not just a good idea but inevitable


I think the main issue, though, is people treating them as a mechanism for creating value. Which brings them closer to the realm of extraordinary popular delusions (topsyturvyedom). At least you could eat a tulip bulb.
posted by TheWhiteSkull at 7:48 PM on March 27, 2015 [9 favorites]


Dramacoin
posted by charlie don't surf at 8:01 PM on March 27, 2015 [15 favorites]


I've still got a bunch of Flooz and Beenz but I'm looking to move it all into Dogecoin for long-term stability.
posted by LastOfHisKind at 8:04 PM on March 27, 2015 [13 favorites]


Once again it is demonstrated that people have mistaken a replacement for cash as being a replacement for gold
posted by DoctorFedora at 8:17 PM on March 27, 2015 [8 favorites]


Even without the interpersonal drama (none of which paints him in a particularly good light as far as I can tell), I see no reason whatsoever why anyone should trust the guy behind Mt.Gox with their money ever again. He repurposed a dumb but harmless website into something both he and it were spectacularly ill-equipped to handle, and when it all predictably blew up, thousands of credulous but essentially innocent people lost their money. Cryptocurrency may fill a need, but this dude is one of the last people I would trust to handle it. He can't (or won't) even tell anyone whether the $450 million of other people's money he lost last time (which was only last year, mind) was stolen, embezzled, sent to the wrong people, or just drifted off into the aether and disappeared forever.
posted by Copronymus at 8:24 PM on March 27, 2015 [14 favorites]


1) Holy shit that was a long hit piece
2) Who would trust either of these companies
3) Startup culture needs to die, please, somebody kill it
4) "Mr. McCaleb also happened to be one of the world’s foremost cryptographers, arguably in a class with Alan Turing, the father of artificial intelligence and modern computing." LOL. Arguably. 40 Years from now we'll be seeing a best acting Oscar given to Lord of the Gox.
posted by benzenedream at 9:35 PM on March 27, 2015 [7 favorites]


Stripe and Ripple Labs shared dinner at El Tepa Taqueria to celebrate the pending acquisition of the latter by the former. Present were (from left) Stripe’s head of business development, Jed McCaleb, Patrick Collison, Chris Larsen, the CFO of Stripe and some other guy.

...and the award for best photo caption of all time goes to...
posted by Literaryhero at 9:56 PM on March 27, 2015 [11 favorites]


I am personally dubious about cryptocurrencies as a mechanism for storing value - but as a mechanism for payments, for transferring value, they are not just a good idea but inevitable - goodbye to dinosaurs like SWIFT and FIX.

Wait, you don't store value in it but you transfer value in it? So the idea here is that you want to transfer USD (since you don't store value in crypto currency) and to do that, you first convert it to some crypto currency that the receiver accepts and transfer *that* to the other person, who then converts it back USD (since they don't store value in crypto currency either).

This really does not sound inevitable. This sounds very very evitable.
posted by nicolas.bray at 10:06 PM on March 27, 2015 [10 favorites]


Yeah whoa that was a lot longer than I was expecting. The first two comments on the article are quite interesting (insofar as that they're there).
posted by Standard Orange at 10:19 PM on March 27, 2015


My money's still on Dogecoin. If it was good enough for the Venetians, it's good enough for me...
posted by problemspace at 10:37 PM on March 27, 2015 [7 favorites]


I donno if "replace" Bitcoin is technically correct. It's way too subjective so the true believers will hold out. Yes, there are digital transaction technologies that'll "eclipse" Bitcoin though.

A currency based on RSA blind signing (1980s) could eclipse Bitcoin if a backer appeared. Ala a nation that wants far more foreign investors.. or maybe that needs to quickly swap out currencies.

An altcoin might succeed by being flashy ala Ripple, Stellar, maybe Ethereum, etc. Or by possessing an intrinsic value like Filecoin, maybe Etherium Swarm. Or an "auctioncoin" intrinsically provides an auction site, creating a p2p Silk Road.
posted by jeffburdges at 10:47 PM on March 27, 2015 [1 favorite]


So many terrible people in that story. I don't know where to start hating first.
posted by Justinian at 11:01 PM on March 27, 2015 [4 favorites]


Mr. McCaleb also happened to be one of the world’s foremost cryptographers, arguably in a class with Alan Turing, the father of artificial intelligence and modern computing.

Lupus, would you agree with this statement?
posted by fatbird at 11:08 PM on March 27, 2015


I still have millions of Gil in my Final Fantasy 7 save file that I'm looking to roll over into a traditional IRA.
posted by Mr.Encyclopedia at 11:11 PM on March 27, 2015 [15 favorites]


Mr. McCaleb also happened to be one of the world’s foremost cryptographers, arguably in a class with Alan Turing, the father of artificial intelligence and modern computing.

That is trivially disproven: MtGox used MD5 password hashing in 2010.
posted by topynate at 11:15 PM on March 27, 2015 [9 favorites]


Why do they keep calling him "Mr. McCaleb"? That's just weird.
posted by OnTheLastCastle at 11:15 PM on March 27, 2015


Why? It looks like the house style. Just like the NYT refers to everyone (male) as Mr. after the first mention of their name.
posted by Justinian at 11:18 PM on March 27, 2015


Is the house style also to continuously fellate every subject in the story?
posted by fatbird at 11:25 PM on March 27, 2015 [11 favorites]


I've heard estimates of up to 1.21 gigawatts.

I did some quick searching and found some research that suggests that terawatt-scale energy consumption generates enough waste heat to raise average Northern hemispheric temperatures by 1°C. Granted, 1.21 GW/yr is not on the scale what the world consumes per year, but as this cryptocurrency libertarian stuff gets bigger each year, it literally generates hot air that is doing its non-zero part to help slowly cook the planet and us to death.

If we were to actually get something of value out of the heat pollution this process generates, it might be a different discussion, but this really seems like it is about whichever 20-something in the Bay Area can skim/scam enough cream off the top from the arbitrage of converting real currencies to bitcoin-like scrip before the authorities show up, and these guys don't need to price in hidden costs like climate change, because computational efforts like these just treat the planet like a cost-free heat sink.
posted by a lungful of dragon at 11:40 PM on March 27, 2015 [3 favorites]


How much energy does it cost to make paper money?
posted by topynate at 11:47 PM on March 27, 2015


How much energy does it cost to make paper money?

That's doesn't seem, to me, like the relevant question. The question should, I think, be "how much does it cost to make paper money valuable?". Unlike bitcoin, paper money doesn't have value because of the process of its creation.

The first step in answering that seems to be realising that the value of paper money is derived from the trust placed in the power of the state to guarantee its worth. Assuming that trust does not persist for long without good reason the answer would be "as much energy as required to maintain trust in the economic stability and power of the state."

Which is why, perhaps, libertarians love bitcoin quite as much as they do.
posted by howfar at 1:49 AM on March 28, 2015 [5 favorites]


I have to admit I enjoy the unfolding story of cryptocurrency as an object lesson in the absurdity of capitalism in general and money in particular. It's like something from a Burroughs routine. Next logical step will be when, post-collapse, we finally adopt the model I have long advocated and take up the bottle cap, a la Fallout 3.
posted by Aya Hirano on the Astral Plane at 2:38 AM on March 28, 2015 [2 favorites]


That's not intrinsic to the idea of a cryptocurrency and most of the currencies discussed in the article don't in fact work that way.

Then what makes “cryptocurrency” more than a fancy word for what the likes of PayPal have been doing for years?
posted by Fongotskilernie at 3:23 AM on March 28, 2015


My garage full of Tide detergent is still safe, right?
posted by ShutterBun at 3:33 AM on March 28, 2015 [15 favorites]


Umm, Bitcoin does not have value through the process of its creation either, howfar. In fact, paper money gains considerably more value through its creation since people will actually be forced to pay takes. RSA blind signed currencies are anonymized contracts with the mint, giving them value. Also, there even blockchain currencies whose work function creates value, like Filecoin and Ethereum. Bitcoin has only socially constructed value.
posted by jeffburdges at 5:16 AM on March 28, 2015 [1 favorite]


Here's another crypto clearing house that got robbed blind because the owner was unable to secure an application:

https://www.allcrypt.com/blog/2015/03/what-happened-and-whats-going-on/

Tldr: hacker got admin access to the site's WordPress blog, and was able to parlay that into read/write access to the application db.
posted by askmehow at 5:43 AM on March 28, 2015


Came for the Flooz joke, was not disappointed.
posted by chavenet at 5:44 AM on March 28, 2015 [1 favorite]


How much energy does it cost to make paper money?

According the Federal Reserve, it costs
  • 4.9 cents to make a $1 or $2 bill
  • 10.9 cents to make a $5 bill
  • 10.3 cents to make a $10 bill
  • 10.5 cents to make a $20 or $50 bill
  • 12.3 cents to make a $100 bill
The US Mint [PDF] says that
  • a penny costs 1.66 cents
  • a nickel costs 8.09 cents
  • a dime costs 3.91 cents
  • a quarter costs 8.95 cents
I can't find how much of that is energy costs, but I did find this Sustainability Report [PDF] from the US Mint.
posted by Elementary Penguin at 5:55 AM on March 28, 2015 [2 favorites]


And basicincome.co sounds interesting.
posted by jeffburdges at 6:10 AM on March 28, 2015


Bitcoin has only socially constructed value.

Just like gold
posted by thelonius at 6:23 AM on March 28, 2015 [2 favorites]


How much energy does it cost to make paper money?

Paper money is a teeny-tiny fraction of most currencies most of it is accounted for electronically nowadays.
posted by snofoam at 6:24 AM on March 28, 2015 [1 favorite]


Just like gold

Gold has industrial uses in electrical connectors and shielding. Take away the social value of gold for exchange, decoration, and jewelry, and it would still have value.
posted by tylermoody at 6:36 AM on March 28, 2015


The use of gold as a store of value or a medium of exchange is centuries older than it's minor usefulness in electronics. It is not made of metaphysical value-stuff; societies chose to consider it valuable. I will admit that It does have some natural properties that help its suitability for this, like not being reactive (it doesn't rust or corrode), and looking pretty, and being easy to work with, to cast into coins and bars, or jewelry. But I've talked with people who seem to think that it is inherently valuable, as opposed to "artificial" fiat currency, and I think that is nonsense.
posted by thelonius at 6:48 AM on March 28, 2015 [5 favorites]


Only 12% of the world's gold is used for industrial purposes; the rest is jewelry or sitting in vaults. Gold is useful, but it would be worth far less if people didn't think it was pretty.
posted by Elementary Penguin at 7:03 AM on March 28, 2015 [3 favorites]


Wake me when the war is over.
posted by BWA at 7:40 AM on March 28, 2015


Isn't part of the value of gold also that it's impossible to counterfeit because everything with greater density is rarer and thus more expensive? The cheapest form of a solid block of gold is a solid block of gold.
posted by fatbird at 8:30 AM on March 28, 2015


I can use a $100 bill for wiping my ass. Take away the social value of bills for exchange and it still has value.
posted by Zalzidrax at 8:38 AM on March 28, 2015


Fatbird, there's always tungsten. I kind of doubt this happens much, if at all, but it is a possibility.
posted by Hactar at 9:45 AM on March 28, 2015


this really seems like it is about whichever 20-something in the Bay Area can skim/scam enough cream off the top from the arbitrage of converting real currencies to bitcoin-like scrip before the authorities show up, and these guys don't need to price in hidden costs like climate change

I brought this up on hacker news a while back, and it didn't take long to get a response that seemed to be:

* ASICs/more specialized hardware will solve the computational cost (including energy/heat) problem
* but how much energy are we using NOW -- bitcoin isn't worse, right?
* someone will invent something else (apparently besides the afforementioned specialized hardware) that takes care of piping out waste heat

Like a lot of what goes in SV, I think it's likely enough a lot of underlying thinking fueling interest and adoption isn't just self-interested boosterism; there's a strong strain of technoutopianism where the faith is that every problem will have a technological solution on the horizon where we'll need it.
posted by weston at 11:20 AM on March 28, 2015


Industrially speaking, silver and platinum are far more useful than gold.
posted by Chocolate Pickle at 11:31 AM on March 28, 2015


> Wait, you don't store value in it but you transfer value in it? So the idea here is that you want to transfer USD (since you don't store value in crypto currency) and to do that, you first convert it to some crypto currency that the receiver accepts and transfer *that* to the other person, who then converts it back USD (since they don't store value in crypto currency either).

> This really does not sound inevitable. This sounds very very evitable.

But this is exactly how the rest of industrial society works. Take power transmission for example - you don't get heat power and rotational power and all the rest sent separately - even though the power is generated in different ways, it's all converted into one fungible form and sent to your house, where you plug in to a unified plug with an appliance that converts the electric power into the form you need.

And to continue the metaphor, nearly all the transmission occurs in the form of ultra-high voltage power - huge transmission lines that you or I could never make use of - and this is done for exactly the same reason, efficiency!

Both the Stellar and Ripple networks allow transactions directly between any pair of currencies - even "dollars here to dollars there". The reason that they have their own cryptocurrencies - the Ripple and the Stellar (both companies suffer from Smurf Naming) - is for liquidity, and therefore efficiency - to make it much more likely that there is a short cheap path between any two points in the system. The overwhelming majority of the transactions that go through their cryptocurrencies start and finish in other "conventional" currencies (or "third-party" cryptocurrencies like Bitcoin) - the homegrown cryptocurrencies are like "virtual particles" in physics.

(You could make a similar metaphor about the internet - we don't have separate audio, video, or Metafilter internet packets, but one generic type... but I think I've said enough. :-))

As a consumer, you should welcome this. Today, if you transfer money out of your account to pay someone and your bank says it was done, and the counterparty says it wasn't done, you are in a bad place. In a future where transactions are protected by strong crypto, your "receipt" is a mathematical proof that the transaction was completed in a certain manner.

--------

There's a short list of topics that Metafilter does badly, and this is one of them.

Sure, it's not a lead pipe cinch that the future of currency includes crypto (but then I'm a little doubtful about the future of Western Civ in general), but if you haven't sat down and figured out why a lot of talented, skeptical people with a great of technical experience from a rich variety of related fields (and from a wide range of political persuasions) find this a promising idea you should perhaps ask questions rather than snark.

Signing and verifying transactions using strong crypto is an extremely persuasive idea - it seems like an obvious winner to everyone in the field - and if you don't understand why this is so, it's worth spending some time to find out before simply dismissing it out of hand.
posted by lupus_yonderboy at 11:43 AM on March 28, 2015 [10 favorites]


but if you haven't sat down and figured out why a lot of talented, skeptical people with a great of technical experience from a rich variety of related fields (and from a wide range of political persuasions) find this a promising idea you should perhaps ask questions rather than snark.

I can come up with a ton of reasons that have nothing to do with the long-term economic viability of cryptocurrency. It's profitable for the early providers and adopters; acting as the middleman in economic transactions is a source of both money and power; ego; the technoutopianism that weston mentioned above.

I work in tech for a startup, I'm not coming at this from a Luddite perspective. And I do think the concepts involved are pretty compelling - lag time while transferring funds (between my own accounts, even) seems really archaic and obnoxious to me. But if I look at the individuals who are cheerleading the current generation of cryptocurrencies, it doesn't inspire a lot of trust, and that was true even before I read this article.
posted by spaceman_spiff at 11:55 AM on March 28, 2015 [5 favorites]


Signing and verifying transactions using strong crypto is an extremely persuasive idea... and if you don't understand why this is so, it's worth spending some time to find out before simply dismissing it out of hand.

This isn't what's being dismissed out of hand. Mt. Gox, Silk Road, breathy proclamations of the end of fiat currencies, digital nomadism, and an ongoing fail parade of startups are what's being dismissed. The collective result of the development of cryptocurrencies seems to be people like Jeb McCaleb and businesses like Mt. Gox and a significant number of idealistic technolibertarians getting bilked out of a lot of cash.

If I were trying to launch a cryptocurrency today, I would start by distancing myself from everyone involved so far.
posted by fatbird at 12:19 PM on March 28, 2015 [8 favorites]


There's a short list of topics that Metafilter does badly, and this is one of them.
lupus_yonderboy

There's also the possibility that you're too caught up in the hype and deep in the bubble to be objective about the topic.

There are also a lot of very smart people of all political persuasions who are deeply skeptical of the crypto currency hype train for good reasons.

I'm sure there were smart, talented people dealing in tulip bulbs too. Perhaps you should take your own advice and ask some questions.
posted by Sangermaine at 12:32 PM on March 28, 2015 [4 favorites]


I can't comment further. The associated technoutopianism and libertarianism are in my mind irrational and undesirable, and some of the characters involved reprehensible (though I personally only work with decent people I can trust)

However, comparing even the worst players as described in the article to actual bankers is like comparing a parking scofflaw to a compulsive drunk driver.

The underlying ideas are fascinating and will probably succeed or fail on their own merits, regardless of the personalities of the early adopters.
posted by lupus_yonderboy at 12:35 PM on March 28, 2015


if you haven't sat down and figured out why a lot of talented, skeptical people with a great of technical experience from a rich variety of related fields (and from a wide range of political persuasions) find this a promising idea you should perhaps ask questions rather than snark.

OK.

Let's say I have a grasp of mathematics up through a typical freshman two-calc sequence (and maybe some very rusty linear algebra and number theory), and also a basic knowledge of software development.

What would I need to study in order to really understand how cryptocurrencies work and their promise?
posted by weston at 12:36 PM on March 28, 2015


What Lupus said. Bitcoin is lots of things, and many of them are ridiculous or actively damaging to anyone who gets involved. But the underlying ideas are compelling and will define whole new sets of important cultural and economic activities.

What Bitcoin (actually, distributed crypto-backed ledgers) gives you is the ability to create unique digital tokens that cannot be faked or copied, but need no central agency to authenticate. You can attach things to those, if you like.

This means that authenticity becomes a digitally transferrable attribute where ownership can be unambiguously demonstrated without the need to say anything about oneself, and where there's no way to revoke or fake that ownership or the authenticity (at least, robustly). So we can have, say, voting rights for organisations, shares in companies, authentic limited edition artworks, access and control rights to physical objects (IoT ahoy), and whatever sort of token-denominated value transfer you like, all in the digital domain and all independent of the organisations that have grown up to provide these sort of services in the physical world (for better or worse).

We haven't even begun to explore what this could do. To take just one basic concept: what does legal ownership of something mean? People can own things, organisations can own things, but things can't own things - a robot or a distributed service can't have a bank account. Now, it can control things of economic value and deny access to them to other actors, no matter what the law says. What will independent, hard-to-control, non-human economic entities at large do to our economic systems? I don't know, but 'nothing' seems unlikely.

So, yes, "bitcoin" today is a source of much amusement and lots of well-deserved ridicule. There's a lot more going to happen, though, and it has the potential to change... well, everything.
posted by Devonian at 12:42 PM on March 28, 2015 [6 favorites]


Then why is it that it seems like crypto currency community leaders and "successes" are all con men and drug dealers? This McCaleb guy oversaw the largest fraud in BitCoin history, "lost" hundreds of millions of dollars of other people's money, and yet is still at the forefront of the movement?

It's very hard to not see this as an endless series of scams.
posted by Sangermaine at 12:55 PM on March 28, 2015 [8 favorites]


A little more charitably, maybe: who's working on non-scammy, non-technolibertopian uses for distributed, cryptographically secured ledgers, and in what direction?

I do get that bitcoin represents the opening of a pretty fundamentally new thing, and it's not that seedy origins are a reason to dismiss it. I'm fond of telling people just how much the Internet they use today was worked out, in practical terms, by the online pornography business of the 90s.
posted by fatbird at 1:20 PM on March 28, 2015 [1 favorite]


> What would I need to study in order to really understand how cryptocurrencies work and their promise?

First, you need to have some understanding of how strong cryptography works - not just for concealing data, but also for signing data. The key term is public-key encryption.

The key takeaway is that you create a pair of keys - a public key that you give to everyone, and a private key that only you yourself have. If someone encodes something with your public key, then only you can decode it - conversely, if you encode something with your private key, anyone can decode it with the public key, but only the private key could have encoded it, and the contents are therefore "signed" by you.

"Only" means "Unless there's some very unlikely breakthrough in computer science and mathematics" - which certainly isn't impossible but won't happen overnight...

Next, you need to learn about hashing, and in particular, cryptographic hashing - where I can take a document of any length and make a fixed length fingerprint out of it that is effectively unique - we call this a "hash".

("Unique" means "no two documents that humans will ever create will have the same hashes." "Effectively" means, "While collisions (two documents having the same hash) are possible, the chances of this occurring at random is so small the universe would end before it happened, and there is no known way to deliberately make this happen either.")

This gives you all sorts of fascinating powers. For example, if you and I cryptographically sign a cryptographic hash and then make it public, we have publically signed a private contract, but one that either party could at a later time reveal at will and have legally enforced.

(If you were serious about the backstory here, I'd take a quick diversion to look at the theory behind git, and see how hashing allows you to represent the branched, evolving state of any digital system in a compact but unambiguous way.)

Now you need to learn how Bitcoin works. Yes, there are many issues with it - proof-of-work in particular isn't going to work out for the long term, but it was an essential way to get people in the game to start with, because it's one of the only ways to establish some sort of trust out of a vacuum ("It might be a puppet, but it's not a cheap puppet!") - but it's also full of good ideas.

The big idea from bitcoin is the block chain - a cryptographically signed ledger that provably encodes every bitcoin transaction. I like this article on the topic.

Once you have this, you suddenly understand that you can perform irrevocable, unambiguous financial transactions without a central authority.

The central authorities today charge a very great deal to move money around - particularly for individuals, particularly when it gets to the edges of the system and particularly when it's small amounts of money. Moving $1,000,000 from New York to Los Angeles costs a small fraction of a percent - moving $100 from New York to Bosnia could easily cost half the principal!

The financial system today feels much the same as the early days of computer networking - when you'd have a Compuserve account and get access to the Compuserve network, and only have access to other networks grudgingly and at great expense. Even affluent individuals are charged many dollars for transactions that actually cost a fraction of a cent to complete, and the poor are (as usual) disproportionately extorted by this system. It's hard not to believe given the huge financial incentives that a decentralized technology will revolutionize the financial industry in exactly the same way that the Internet revolutionized networking.
posted by lupus_yonderboy at 1:26 PM on March 28, 2015 [11 favorites]


I did some quick searching and found some research that suggests that terawatt-scale energy consumption generates enough waste heat to raise average Northern hemispheric temperatures by 1°C.

Reading this thread has convinced me of nothing about what, if anything, might eventually replace Bitcoin. I hope it's something better than Ripple. But at least I learned something. Not that waste heat from human energy use has warmed half the world by 1 degree, that would be ridiculous.

What the research purports to show is that waste heat from cities affects large-scale wind patterns by enough to change temperatures in some places, thousands of miles away, by up to 1 degree. Warmer by that much in some, colder by that much in other places. The net effect on temperature is said to be about 0.01 degrees. So if that scales linearly, the net warming from bitcoin mining might be up to 0.000002 degrees.
posted by sfenders at 1:27 PM on March 28, 2015


Richard Gendal Brown has been thinking deeply about the future of finance:
-Identity and The Blockchain: Key Questions We Need to Solve
-A simple model to make sense of the proliferation of distributed ledger, smart contract and cryptocurrency projects
-Cost? Trust? Something else? What’s the killer-app for Block Chain Technology?
-A Simple Model for Smart Contracts
-A Central Bank “cryptocurrency”? An interesting idea, but maybe not for the reason we think

also btw...
-Cryptoasset Valuation for Designers [pdf]
-A new raison d’être for cryptocurrency, but an age old problem
-The problem of liens on Bitcoin
-IBM looking at adopting bitcoin technology for major currencies
-IBM Reveals Proof of Concept for Blockchain-Powered Internet of Things
-Big Names Put Cash In Bitcoin Startup 21 Inc.
-More than a currency, bitcoin is an enabling technology
-Blockchain scalability
-On payments systems and blockchain tech
-How Small Bitcoin Miners Lose on the Crypto-Currency Boom-Bust Cycle
-Why Bitcoin is and isn't like the Internet
-Crypto-currencies, Bitcoin and Blockchain
-We Deserve Better Payment Products

oh and...
-Bill Gates at [the SWIFT International Banking Operations Seminar]: Banking is Changing (viz. cf.)
-Apple Pay gets a big vote of confidence from the U.S. government
-You Can Now Send Money on Facebook. What’s in It for Them?
-Tech’s Four Horsemen of the Apocalypse: Amazon, Facebook, Google, Apple
-Some Notes from the Basic Income Congress
-My Tanner lecture comment on Elizabeth Anderson [*]
-Georg Simmel’s Philosophy of Money: 4. Individual Freedom (via)
posted by kliuless at 2:22 PM on March 28, 2015 [6 favorites]


* ASICs/more specialized hardware will solve the computational cost (including energy/heat) problem
* but how much energy are we using NOW -- bitcoin isn't worse, right?
* someone will invent something else (apparently besides the afforementioned specialized hardware) that takes care of piping out waste heat


It's not an apples-to-apples comparison, but I was interested in pricing out the cost of making real money (notes) and the cost of making bitcoin-scrip.

We can do some back-of-the-envelope calculations to compare on the basis of cost — and then perhaps consider some less tangible details:

1. What the money is spent on in creating paper notes vs cryptoscrip (materials and energy).
2. What pollution and other waste products are generated with each result.
3. What value is generated from each product.

From CNN:

The government produced 6.4 billion new currency notes [in 2010]. Each one cost 9.6 cents to produce, including the cost of paper and printing.

The cost of printing bills in 2010 was 6.4B * 0.096 dollars / 1 year. The average lifespan of common paper note denominations is approximately 6 years. So we get a rough, amortized estimate of $102M / year, give or take fluctuations in material cost etc.

We can perhaps use some stats to calculate the equivalent cost of mining cryptoscrip, using 2010 energy prices and 2015 hardware costs and performance specs.

The current hash rate for one popular form of c.c. is 335M GH/s (cite).

One reportedly "at-current-most-efficient" mining device ("ANTMINER S4") mines 2 TH/s per S4 or 2000 GH/s/S4.

Dividing the hash rate by device rate, all the miners in the world are running the equivalent of 0.168M S4s.

The maximal energy consumption of an S4 device power supply is 1.4 kW. We can be conservative (giving more benefit to miners) and estimate a power supply running at 80% efficiency, or 1.12 kW usage per S4.

The total estimated energy cost of running these S4s is: 0.168M S4 * 1.12 kW/S4 = 0.188M kW.

The average cost of electricity in the United States in 2010 was $0.0983 per kWh.

Thus, the cost to run all these S4s in 2010 would be 0.188M kW * $0.0983 / (kW * hr) or $0.0185M/hr.

Over the course of 2010, therefore, the cost to run the S4s is $0.0185M/hr * 24 hr/day * 365 days/hr = $162M/year.

The cost of the S4s themselves is 0.168M S4s * $1749 per S4 or $293.8M (US).

These have to be replaced on a continual basis to reap efficiencies, given the pace of processing speeds. But let's say we only replace 50% of these S4s a year.

So the cost of mining bitcoin scrip in 2010 would be at least an estimated $162M + $147M or $309M.

Putting aside power and miner costs, I'm not sure exactly how we can estimate the cost of administration staff and time, as well as the cost of the cooling, networking and power infrastructure required to support the computational equivalent of 168,000 S4s. But we can maybe try.

Given capital costs that Google spends on one of its data centers, perhaps the facility charges would average out to $30-60M per year, amortized roughly over a decade. Miners do not operate on the scale of a company like Google, so this is again giving their operation the benefit of Google's size and ability to lower operational costs.

Keep in mind that most mining devices are not listed as being as efficient as an S4, so the equipment costs and electricity usage estimates alone are very conservative, or "best case scenario" efforts, where all of humanity is directed to using the most-efficient and lowest-cost available mining gear, and the electricity or energy cost is based on what the "free market" can provide at the best price.

It looks like the conservative, back-of-the-envelope cost of making paper notes at 2010 prices ($102M/yr) is somewhat less than the cost of making bitcoin-scrip ($340-370M) at 2010 prices (with 2015 hardware).

Some thoughts:

- The CNN article suggests most of the year-to-year increase in making paper notes has been in the increased price for cotton. Once printed, real money is a one-time cost for ~5 years, and its continual exchange keeps generating value (based on taxation).

- Money can be widely and directly exchanged for nearly all goods and services. Cryptoscrip cannot, outside of very small, very specialized marketplaces, and cannot be used to pay taxes or debts.

- Notes and coins can be recycled — cotton can be shredded and incorporated into new paper, and metals can be melted. Cotton is grown by photosynthesis and so its energy costs are entirely due to harvesting through normal farming methods, which are increasingly efficient to the point where only 2-9% of the cost of farming production is in energy.

- Conversely, ASICs have to be replaced continually to gain efficiencies. The end-point of obsolete hardware is generally Chinese and African landfills, polluting air and water with toxic heavy metals and PCBs. Recycling might one day put a serious dent into this, but manufacture of new computing hardware is also a notably "dirty" process. Their operation nearly entirely converts electricity into waste heat in the process of generating calculations. The lifespan of an ASIC seems to create comparatively larger amounts of pollution.
posted by a lungful of dragon at 2:47 PM on March 28, 2015 [2 favorites]




* ASICs/more specialized hardware will solve the computational cost (including energy/heat) problem

For now, maybe, because Bitcoin is small and exotic hardware is expensive.

If Bitcoin were to handle the economies large nations as its pushers suggest? Not a chance. The fundamental flaw of any currency founded on proof‐of‐work is that if you want to defend against an attacker with x resources, you need to muster x resources of your own. If what’s at stake is control of the global economy, a significant fraction of the globe’s resources would need to be devoted to its security.

Contrast this with ordinary encryption of the sort my bank uses: the resource equation is deeply asymmetrical. In a tiny fraction of a second, the phone in my pocket can secure my communications against brute‐force attack by multiple supercomputers working for years.
posted by Fongotskilernie at 5:04 PM on March 28, 2015 [3 favorites]


According the Federal Reserve, [making paper money] costs...

That ignores the law enforcement and military expenditures which give that money value.
posted by fivebells at 5:43 PM on March 28, 2015


I don't know much about fiat currencies, but MAN was that article badly written.
posted by signal at 6:03 PM on March 28, 2015 [3 favorites]


ASICs, etc. cannot solve the energy consumption problem in Bitcoin, weston, because Bircoin creates trust via proof-of-work competition. ASICs can only raise the bar to entry.

As I mentioned, there are two approaches that'll eclipse Bitcoin eventually :

First, if centralized mints issue RSA blind-signed contracts then consumers gain real anonymity, unlike the pseudonymity offered by Bitcoin's blockchain. A nation could actually be the mint since the system can be designed to prevent tax evasion too.

Second, a blockchain based crypto-currency could be designed around a proof-of-useful-work scheme, like Filecoin or maybe Etherium, presumably achieving more predictable exchange rates than BTC and avoiding the environmental damage inherent in BTC.
posted by jeffburdges at 5:50 AM on March 29, 2015 [1 favorite]


ASICs, etc. cannot solve the energy consumption problem in Bitcoin, weston, because Bircoin creates trust via proof-of-work competition. ASICs can only raise the bar to entry...

Just to be clear, I summarized the HN response I got because I think they're representative of a strain of foolish technoutopianism (combined with a surprisingly limited consideration of underlying math/science) rather than because I think they were effective rebuttals regarding energy cost/efficiency concerns.
posted by weston at 3:05 PM on March 29, 2015 [1 favorite]


I embrace bitcoin drama threads in the exact same way I read Eve Online drama threads.
posted by Theta States at 7:16 AM on March 30, 2015 [1 favorite]


Zalzidrax: "I can use a $100 bill for wiping my ass. Take away the social value of bills for exchange and it still has value."

Eh, they're not very absorbent. Even less so in countries with plastic bills.
posted by Chrysostom at 7:57 AM on March 30, 2015


Dispelling some myths about Bitcoin, from a Bitcoin fan
Myth #5: A decentralized system is safe

Fact: not necessarily


Decentralization implies that you do not need to trust anyone a priori, but you may have to trust someone a posteriori. Indeed, the bitcoin ecosystem has degenerated into a distribution of hashing power where ghash.io holds nearly 50% (and recently as much as 51%) of the hashing power.[*] They could collude with any another pool manager (or be forced to collude by an attacker, such as a government) to obtain a majority of the hashing power and launch a 51% attack on the chain. This does not seem particularly safer than explicitly choosing a set of reputable organizations. Is a group such as the Wikimedia foundation, the Swedish Pirate party, Wikileaks, and, say, the University of Hong Kong more or less likely to collude than the current pool operators? If we are to believe developer Gavin Andresen, this is not such a big deal because ghash’s incentives are to behave honestly. In this case, why bother at all with a cumbersome proof of work system? Let us have ghash sign every block and be done with it; the system would be far more efficient, much cheaper and just as safe.

Myth #6: The Bitcoin ledger is just a technology, it has nothing to do with politics.

Fact: Proof-of-work crypto-ledgers are primarily designed to withstand attacks by governments. It is the only advantage of a proof-of-work decentralized crypto-ledger over a centralized or polycentric one.


A distributed ledger signed by a hundred reputable organisations throughout the world, or a decentralized variant based on stake ownership would be far more efficient than a decentralized one using proof of work. What exactly is the threat model against such a system?

If you think governments essentially are nefarious institutions, and that the Bitcoin proof-of-work ledger could be a powerful tool in liberating the economy from their grip, you may be right. But if you think (as a famous VC does — or at least claims to) that they are a fantastic invention that is much bigger than envisioned by their cooky, fringe, libertarian makers, then you are simply not understanding the technology.
Blockchains as a public and private resource - "In other words, what’s still to be determined is whether Ethereum and its ilk would ever be more cost efficient on a per participant basis than just trusting the government to run an equivalent database on the public behalf, funded by good old fashioned tax dollars.‏"

---
[*] re: Blockchain scalability - "We can already observe empirically that more than 50% of the hashpower securing the network right now is owned by just five entities – see figure 1. This is a real security threat. Five is a small enough number that state-level actors could directly coerce all five entities without too much trouble. Five is also small enough that active collusion would be fairly easy to coordinate."
posted by kliuless at 8:08 AM on March 30, 2015


"A distributed ledger signed by a hundred reputable organisations throughout the world, or a decentralized variant based on stake ownership would be far more efficient than a decentralized one using proof of work. What exactly is the threat model against such a system?"

Uh, both of those examples are decentralized.
posted by I-baLL at 6:28 PM on March 31, 2015




It's bigger than just that.

http://www.scribd.com/doc/162503556/Mt-Gox-Wells-Fargo-Seizure-Warrants

That's the warrant for the seizure of MtGox's assets. Who is it signed to?
posted by I-baLL at 8:07 AM on April 1, 2015 [1 favorite]


Just imagine the April Fools pranks one could play on BitCoin!
posted by jeffburdges at 3:05 PM on April 1, 2015


About Carl Mark Force IV (DEA) and Shaun W. Bridges (SS) running the whole Silk Road investigation as their personal BTC heist :  I'd expect that's standard operating procedure at the DEA. Agents just pocket any available drug money. In this case, these two agents overestimated their own sillz, and got sloppy, because they were local experts on Tor and BTC.

"Why did NYC have so many Irish cops? Because the Italians came first and took the good jobs."
posted by jeffburdges at 5:36 PM on April 1, 2015


Please tell me Carl Mark Force IV is the name of a DEA robot.
posted by benzenedream at 12:14 AM on April 2, 2015 [2 favorites]


Nope, it's the nation's newest porn name.
posted by rhizome at 12:13 PM on April 2, 2015 [1 favorite]


It doesn't have to be mutually exclusive.
posted by benzenedream at 5:27 PM on April 2, 2015


In porn it does. If it already existed as the DEA robot, the porn name would have to be "Carl Marc Force IV" or something.
posted by rhizome at 9:54 AM on April 3, 2015




Well, sure. In for a penny, in for a pound.
posted by Chrysostom at 11:57 AM on April 5, 2015


...of Mexican black tar heroin.
posted by I-baLL at 9:58 AM on April 7, 2015


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