Still not a good idea to keep money in a bitcoin exchange.
January 6, 2015 9:52 AM   Subscribe

Bitstamp halts trading after a $5,000,000 bitcoin theft. Most of the bitcoin services in the US and western countries are heavily dependent on the Bitstamp market to buy, price and sell coins. This hack may put the entire, fragile, bitcoin ecosystem at risk.
posted by empath (115 comments total) 15 users marked this as a favorite
 
As usual, this Advanced Bitcoin Simulator lets you experience the thrills of mining and trading bitcoins with none of the risks.
posted by Joakim Ziegler at 9:56 AM on January 6, 2015 [48 favorites]


I wonder what percentage of bitcoins have either been stolen or seized by the government at some point.
posted by empath at 9:58 AM on January 6, 2015


Fool me seven or more times, shame on me.
posted by Palindromedary at 9:59 AM on January 6, 2015 [43 favorites]


They did auction off a bunch of silk road/DPR bitcoins last month. Could extrapolate what percentage from there the auctions represented. (link claims "To date, the government has recovered 173,991...")
posted by k5.user at 10:01 AM on January 6, 2015


Awesome!
posted by ReeMonster at 10:02 AM on January 6, 2015


Man, the invisible hand is a dick
posted by Ray Walston, Luck Dragon at 10:04 AM on January 6, 2015 [18 favorites]


I still cannot figure out how bitcoins have value. Not one resource I have found can explain where the value of a bitcoin comes from.
posted by grubi at 10:04 AM on January 6, 2015 [1 favorite]


From friendship!
posted by Admiral Haddock at 10:05 AM on January 6, 2015 [17 favorites]


My Libertarian Pony: Friendship is Bitcoins?
posted by GenjiandProust at 10:06 AM on January 6, 2015 [29 favorites]


As usual, this Advanced Bitcoin Simulator lets you experience the thrills of mining and trading bitcoins with none of the risks.

That was perfect.
posted by Theta States at 10:08 AM on January 6, 2015 [5 favorites]


I still cannot figure out how bitcoins have value. Not one resource I have found can explain where the value of a bitcoin comes from.

It's all explained here
posted by Ratio at 10:09 AM on January 6, 2015 [8 favorites]


I still cannot figure out how bitcoins have value.

Scarcity is sufficient. Other things are better (e.g utility) but scarcity will do.
posted by memebake at 10:11 AM on January 6, 2015 [4 favorites]


Good.
posted by MartinWisse at 10:11 AM on January 6, 2015


I still cannot figure out how bitcoins have value. Not one resource I have found can explain where the value of a bitcoin comes from.

The only reason ANY currency has value is because everyone using it agrees it has value. This isn't a Bitcoin exclusive thing. Why does the USD have value even though it's a worthless piece of paper? Because every other person in the United States accepts that it has the value equivalent to what's printed on the piece of paper. Plus the government mandating that everyone has to accept it for debts, public and private doesn't hurt either.
posted by Talez at 10:14 AM on January 6, 2015 [11 favorites]


I still cannot figure out how bitcoins have value. Not one resource I have found can explain where the value of a bitcoin comes from.

Your "American dollars" have value because the goverment says they do

Bitcoins have value because a largish community of nerds, drug dealers, and libertarians say they do

HTH
posted by prize bull octorok at 10:16 AM on January 6, 2015 [20 favorites]


Man, the invisible hand is a dick

Yes, but at least bitcoins users are free of the statist-imposed slavery of fraud regulations and deposit insurance!

Also, from the first link:

After Mt. Gox’s bankruptcy, Bitstamp became a popular alternative to top exchanges BTC China, based in China’s uncertain regulatory environment, and BTC-e, a mysterious operation run by unknown owners thought to be based in Bulgaria.

It's like bitcoin uses are demanding to be defrauded and stolen from.
posted by Sangermaine at 10:18 AM on January 6, 2015 [11 favorites]


By the way, "Bitcoin is the Worst Investment of 2014".
posted by Monochrome at 10:19 AM on January 6, 2015


Plus the government mandating that everyone has to accept it for debts, public and private doesn't hurt either.

I think that is the main part for me, and that "not being backed by a large powerful group" part of bitcoin always confused me.
posted by Theta States at 10:19 AM on January 6, 2015 [1 favorite]


The only reason ANY currency has value is because everyone using it agrees it has value.

I tried to explain this to a sovereign citizen I met. He could not understand that there was no cosmically divined absolute value to gold, which is why its price fluctuates wildly like, say, (other) fiat currencies. Finally I asked him if, when the inevitable global collapse he imagines is coming finally occurred, and he was sitting on a big pile of gold, he thought he could find anyone who would be willing to trade away their useful guns, bullets, food, and raided drugstore goodies for a metal that has the useful features of being shiny and extremely heavy.

The people with guns will simply ride in and take your gold and use it to decorate their dune buggies and hockey masks, and you will find that the post-apocalyptic economy appears to run on petrol, sand, and mohawks.
posted by Palindromedary at 10:21 AM on January 6, 2015 [54 favorites]


I still cannot figure out how bitcoins have value.

It has something to do with tulips.
posted by lilburne at 10:22 AM on January 6, 2015 [17 favorites]


I think that is the main part for me, and that "not being backed by a large powerful group" part of bitcoin always confused me.

Anyone can use anything for currency so long as there's some general consensus among the people that want to use it. Think about it. For thousands of years currency was backed by nothing more than a rock and millions of people going "oooooh shiny!".
posted by Talez at 10:22 AM on January 6, 2015 [2 favorites]


I still cannot figure out how bitcoins have value. Not one resource I have found can explain where the value of a bitcoin comes from.

I think the simplest explanation is this:

The bitcoin network is a trustless, peer-to-peer distributed ledger. It allows people to keep track of who owns which bitcoins without any centralized authority. Which basically means that you can transfer some value between people without using a bank or moving cash or physical objects around. I'm sure you can imagine cases where such a thing might have value. Black markets come to mind, but also legitimate uses like moving money out of a country whose currency is failing. The network works whether bitcoins are worth thousands of dollars or fractions of a penny, as long as the price is relatively stable. The price is really just a function of how many bitcoins are available (as opposed to being held) and the volume of transactions on the network.

The problem as I see it is that the bitcoin network is a pain in the ass to use, and difficult to keep secure. And as soon as you start building all the traditional financial infrastructure on top of the bitcoin network, a lot of its advantages go away.
posted by empath at 10:24 AM on January 6, 2015 [1 favorite]


The people with guns will simply ride in and take your gold and use it to decorate their dune buggies and hockey masks, and you will find that the post-apocalyptic economy appears to run on petrol, sand, and mohawks.

Well then I'm going to issue notes that lay claim to a certain amount of gold that can be issued in its place and HEY! I KNOW WHAT YOU'RE DOING THERE!
posted by Talez at 10:24 AM on January 6, 2015 [2 favorites]


The Bitcoin network to me has always been like a sort of modern day Rai stones. You don't need to own it. It doesn't even need to exist (like the proverbial stone at the bottom of the ocean). You just need community consensus on who owns it.
posted by Talez at 10:26 AM on January 6, 2015 [3 favorites]


Once again, one of the biggest financial dealers in Bitcoin claims a lapse of security. Maybe Bitstamp's terrible security was just an accident and some lucky outsider stole $5M. Hey, maybe they'll even reimburse the individuals whose money Bitstamp lost. But how can you trust that? It's equally likely some Bitstamp employee is $5M richer today.

That's small potatoes compared to Mt. Gox though. These articles talk about Mt. Gox as if it were some little weird hack event. It wasn't The company "lost" 650,000 Bitcoins, or roughly $400M at the exchange rate at the time. There's still no clear answer where it's all gone but there's a lot of people thinking it was at least in part an insider fraud. Also enough info has leaked since Mt. Gox shut down that there's evidence that Mt Gox was being used to fraudulently manipulate the currency. It's crooked through and through.

I feel a little bad for Coinbase. They're the US Bitcoin company with the most likelihood of actually being legitimate, they have a business with respected investors that has a business plan more than "we enable black markets" or "we're a way to launder money out of China". But they chose to harness their business to Bitcoin, so they're going to live or die by it.
posted by Nelson at 10:35 AM on January 6, 2015 [2 favorites]


This hack may put the entire, fragile, bitcoin ecosystem at risk.

So, it's Tuesday then.
posted by Tell Me No Lies at 10:37 AM on January 6, 2015 [15 favorites]


Talez, you're not far off, except that the consensus on bitcoins is a lot more strong than community consensus. Rather than being based on the memory of the people in an area, ownership is recorded identically by all bitcoin transaction processors. Pretty much the most interesting thing about the algorithm is that it is pretty strongly resistant to "double spending" even if some transaction processors want to cheat the system, and this resistance is not actually based upon the usual distributed systems methods like "voting," where you know the total number of voting members and trust that decisions agreed to by some majority are correct.

Another thing that is nice about the bitcoin system is that it's based on public key cryptography. Every "account" in the ledger is a public key, and it is computationally infeasible to transfer bitcoins out of an account without knowing the private key that corresponds to the public key.
posted by rustcrumb at 10:39 AM on January 6, 2015 [1 favorite]


Bitcoins have value because a largish community of nerds, drug dealers, and libertarians say they do

The problem is that seem so unreliable for the drug dealers, though. Bitcoin appears to be less reliable and more of a hassle than hanging out with my burnout friend Pat from high school, which is really quite a trick for a currency.
posted by Greg Nog at 10:39 AM on January 6, 2015 [12 favorites]


Just keep saying "blockchain" over and over again, as that somehow makes bitcoin valuable. If you don't say blockchain, Tinkerbell WILL DIE.

But hey, they had a bowl game! So that makes it just as viable as Tostitos or Taxslayer!
posted by fifteen schnitzengruben is my limit at 10:42 AM on January 6, 2015 [3 favorites]


Does anyone know if there are purpose-built Bitcoin laundering networks? From what little I understand, because of the way Bitcoin transactions are tracked, in order spend stolen Bitcoins, you have to combine them (?) in transactions with legitimate Bitcoins to obscure their origins. And, relative to regular money laundering, the Bitcoin infrastructure makes it easy to do exactly this kind of layering, although it does take some finagling if you didn't prepare beforehand (i.e.: you'd need some set of wallets shuffling enough volume around so that the additional volume of dirty Bitcoins isn't so easy to track). It seems like between this recent event and the earlier Mt. Gox thing, there should be at least some demand for a system that was designed specifically to do just this.
posted by mhum at 10:44 AM on January 6, 2015


They're called tumblers, mhum.
posted by skymt at 10:49 AM on January 6, 2015 [1 favorite]


I read somewhere the theft may not be and was a way to halt trading after the market saw a big downturn and hurt VCs invested in Bitstamp. Might be a conspiracy theory but anything seems possible.
posted by stbalbach at 10:50 AM on January 6, 2015


Another thing that is nice about the bitcoin system is that it's based on public key cryptography. Every "account" in the ledger is a public key, and it is computationally infeasible to transfer bitcoins out of an account without knowing the private key that corresponds to the public key.

Yeah, but it seems to be that securing that private key is next to impossible.
posted by empath at 10:55 AM on January 6, 2015 [1 favorite]


Just keep saying "blockchain" over and over again, as that somehow makes bitcoin valuable. If you don't say blockchain, Tinkerbell WILL DIE.

Heh. You know, at this point, people explaining Bitcoin sound pretty much exactly like people explaining that it's actually about ethics in video game journalism.
posted by Jimbob at 10:56 AM on January 6, 2015 [4 favorites]


There's been some effort to trace the stolen/lost Mt. Gox money through the blockchain. I'm not following it closely but my impression is there's no consensus on where the money has gone. I'm not even sure we know how much of it has ever been transferred, although presumably that should be easy enough to know? Anyway a couple of old links on efforts to trace the Mt. Gox bitcoins: reddit detectives! and hacking daily.

If someone knows of a more recent source it'd be nice to know. It's such a paradox: Bitcoin transactions are the opposite of anonymous or untraceable. And yet, money gets stolen and no one can figure out where it went.
posted by Nelson at 10:57 AM on January 6, 2015 [4 favorites]


skymt: "They're called tumblers, mhum."

Ah, that's the term I couldn't quite remember. I guess the follow-up question is whether or not there are tumblers large enough to successfully launder the 19,000 Bitcoins from this heist or even the 650,000 Bitcoins still unaccounted for from Mt. Gox? In practice, I imagine you'd need a sufficient amount of legitimate volume being shuffled around in a tumbler in order for this to work properly.
posted by mhum at 11:04 AM on January 6, 2015 [1 favorite]


empath, yes, securing any piece of information of sufficiently high value ends up being a hard problem. Especially if you actually need to use that information frequently. These exchanges all seem to use a "hot wallet," an account from which they transfer bitcoins into and out of all the time to satisfy requests to buy and sell bitcoins.
posted by rustcrumb at 11:04 AM on January 6, 2015


This means it's back to the Beef O Brady Bowl, right?
posted by octobersurprise at 11:05 AM on January 6, 2015 [3 favorites]


The whole Bitcoin ecosystem and associated shenanigans are like something out of Idiocracy. None of it makes any sense except to True Believers and hucksters out to fleece them.
posted by uncleozzy at 11:07 AM on January 6, 2015 [1 favorite]


I still cannot figure out how bitcoins have value.

It has something to do with the Sultanate of Kinakuta, I guess, and maybe adding value for the shareholders of Epiphyte(2).
posted by the phlegmatic king at 11:12 AM on January 6, 2015 [17 favorites]


The whole Bitcoin ecosystem and associated shenanigans are like something out of Idiocracy. None of it makes any sense except to True Believers and hucksters out to fleece them.

If you go over the r/bitcoin, it's sadly hilarious. First, of course, the real problem is fiat currency. Second, you'll see calls for audits and greater transparency of exchanges.

People are learning in real time why we have all these financial regulations in the real world.
posted by Sangermaine at 11:17 AM on January 6, 2015 [7 favorites]


The whole Bitcoin ecosystem and associated shenanigans are like something out of Idiocracy. None of it makes any sense except to True Believers and hucksters out to fleece them.

The design of the bitcoin network is brilliant. Read the white paper. I think something similar will end up being useful for something. I just happen to think that right now, it hasn't found a killer-app, and it's an extremely high risk market to play around in, full of con-artists, ideologues, suckers and incompetents. But set aside 15 minutes and read the white paper. It's extremely well written and lucid.
posted by empath at 11:20 AM on January 6, 2015 [7 favorites]


Your "American dollars" have value because the goverment says they do

Bitcoins have value because a largish community of nerds, drug dealers, and libertarians say they do


Picture the Venn diagram that overlaps these two sets, with the big label SUCKER right smack dab in the middle.
posted by a lungful of dragon at 11:21 AM on January 6, 2015


It has something to do with the Sultanate of Kinakuta, I guess, and maybe adding value for the shareholders of Epiphyte(2).


That's what they want you to think. All of that stuff about WWII gold hidden in the jungles of Southeast Asia is just a diversion to keep people from noticing that the Tessier-Ashpool clan is running it all from up in the spindle.
posted by You Can't Tip a Buick at 11:23 AM on January 6, 2015 [7 favorites]


Why does the USD have value even though it's a worthless piece of paper? Because every other person in the United States accepts that it has the value equivalent to what's printed on the piece of paper. Plus the government mandating that everyone has to accept it for debts, public and private doesn't hurt either.

Ugh. This comparison comes up all the time in Bitcoin discussions and it's myopic.

The dollar isn't backed by 'nothing', it's backed by the "full faith and credit" of the largest and most powerful organization in the history of human civilization, with both the power and demonstrated inclination to force people to accept it. The dollar gained much of its value vs. other currencies by virtue of rather cunning geopolitical maneuvering, made possible largely by winning a World War or two.

Bitcoins are a 'currency' only by the most trivial definition of one, e.g. one that includes Canadian Tire money, Pokemon cards, or goats. The fact that you can use them as a medium for exchange, i.e. that they have value—to somebody, somewhere—is a very low bar.

The whole "dollars are fiat money therefore anything can be money!" argument is facile.

If Bitcoin is a currency, it's a bad currency, and it's certainly a bad investment. As a decentralized payments network it's somewhat interesting (actually, quite cool), but the currency-like aspects are the worst part of it. Unfortunately, those aspects seem to attract both the most media attention, and are apparently catnip to lots of talentless hacks who seem to be collectively working through an empirical proof of the Dunning–Kruger effect as it applies to banking.
posted by Kadin2048 at 11:42 AM on January 6, 2015 [28 favorites]


It's not like people do any better investing in "real" currencies. Forex has a lot of suckers too.
posted by smackfu at 11:44 AM on January 6, 2015


Dunning Krugerrands
posted by rustcrumb at 11:47 AM on January 6, 2015 [13 favorites]


If Bitcoin is a currency, it's a bad currency

To give you an idea of how bad an investment it is, you'd have been better off in rubles than bitcoins this year.
posted by empath at 11:52 AM on January 6, 2015 [7 favorites]


At least when I got ripped off on Bitcoins it only cost me 9k Dogecoins.

Still hoping to achieve my longterm goal of owning one of every crypto currency, but really that means shorting Bitcoin so go haxxors!

(And really, what I want to own them for is because I want an excuse to play around with guilloche design and make paper currency for them.)
posted by klangklangston at 11:57 AM on January 6, 2015 [2 favorites]


Vault of Satoshi, one of the largest exchanges operating in Canada, just announced that they are voluntarily shutting down and/or selling their company (their stated reason is to focus on other ventures. The speculated reason is that trading volume is too low).

In cases of Bitcoin exchange "hacks" like Bitstamp, I can't help but strongly suspect that the owners decided to just walk away with the deposits, making excuses to string along customers until attention blows over. I mean, not 4 months ago this very scenario occurred with the exchange Mintpal 2.0.
posted by muddgirl at 12:02 PM on January 6, 2015


I would be 100% more likely to use a virtual currency if I could have a glowing crystal payment token on my person that projects hologram animations of bitcoins flying at the recipient and makes cool beep boop sounds. So, you know, get on that, bitcoin.
posted by jason_steakums at 12:03 PM on January 6, 2015 [3 favorites]


Joakim Ziegler: this Advanced Bitcoin Simulator lets you experience the thrills of mining and trading bitcoins with none of the risks.

Oh man, that was so perfect. I market timed and made like $780 on my 4 bitcoin purchases + sales, and now I'm waiting 22 months to withdraw my cash. I'm sure nothing will go wrong while I wait...
posted by RedOrGreen at 12:06 PM on January 6, 2015 [3 favorites]


I think the simplest explanation is this:

This explains nothing about the initial value of a bitcoin.
posted by grubi at 12:06 PM on January 6, 2015


It's not like people do any better investing in "real" currencies. Forex has a lot of suckers too.

True; there are suckers everywhere. But the fact that day-trading Forex is as bad as Bitcoin doesn't really redeem Bitcoin, it just makes clear how bad Forex is.

If Forex is a casino, Bitcoin is the game of three-card monte going on in the alley behind it. You're probably going to lose your shirt either way, but in the alley you may also get mugged.
posted by Kadin2048 at 12:06 PM on January 6, 2015 [11 favorites]


There are also, like, laws and all sorts of protections around Forex trading.

If a Forex exchange pulled what Bitstamp is pulling ("Whelp, seems like we got hacked and lost $5 million. LOL!") there would be legal and maybe even criminal hell to pay.
posted by Sangermaine at 12:09 PM on January 6, 2015


This explains nothing about the initial value of a bitcoin.

It explains why it's greater than 0. The actual value is whatever the market it decides it is, basically. If you want to send money to your friend in Uzbekistan, for example, you buy it at whatever the price is and he sells it at whatever the price is. It doesn't really matter what the price is to either of you, because you'll be in and out of it in a day. It could be 10 cents or 10,000 dollars, for all you care, as long as it doesn't change too much between when you bought it and he sold it.

I have a suspicion, though, that barring some kind of either selling or buying frenzy, that the price of a coin should hover around the marginal cost of mining a coin by the the largest mining pools, since they control supply and are unlikely to sell at a loss for very long, and can't hold out for too high a price because of competition.
posted by empath at 12:11 PM on January 6, 2015 [2 favorites]


It's not like people do any better investing in "real" currencies. Forex has a lot of suckers too.

People do not invest in currencies. People speculate in currencies. Or to use a less polite word, people gamble in currencies. But at least with forex the house rules are pretty well enforced.
posted by Nelson at 12:16 PM on January 6, 2015 [5 favorites]


Personally, I think the long slide in price is primarily due to shaking out the get-rich-quick folks, and increasing market liquidity and the centralization of mining into a few asic farms, which reduced the cost to mine and caused the price to fall into a commodity model where it essentially tracks the cost of production. If that's the case, at some point it should flatten out and become relatively stable until the mining reward halves at some point next year. It will be interesting to see what happens then, I think, in at least an academic sense. The transaction volume has remained relatively stable, so I would assume that a supply constriction would raise the price, but who knows with this stuff.
posted by empath at 12:21 PM on January 6, 2015


Bitcoins have been so knocked down, drug out, and shat on in the past year that this almost inspires pity rather than schadenfreude.

Almost!

EDIT: OH SHIT! They finally dropped below 300!
posted by edheil at 12:22 PM on January 6, 2015


What's the bitcoin to WoW gold exchange rate these days is what I wanna know
posted by prize bull octorok at 12:22 PM on January 6, 2015 [1 favorite]


If the price of Bitcoins continue to fall, though, I wonder if it would be worth $21M for someone to essentially step in and backstop the value of Bitcoins with a 1:1 USD peg. Since there are a fixed number of Bitcoins that can ever be "mined" (it approaches but never reaches some fixed value around 20-22 million IIRC, although a substantial number have been unrecoverably lost) you have a limited amount of downside risk. The worst thing that could happen is you end up owning all the Bitcoins in existence and be out $20 mil.

With it pegged to the dollar, you could then use it as a transactions network with very low fees, and it would probably be a hell of a lot more attractive to merchants than Bitcoin right now because you'd have removed the volatility.

More amusingly, I wonder if someone with $21M stepped up and said "we're going to backstop BTC at $1, but no higher" if that would actually cause the value to fall to that level. (And if so, does anyone want to fund a kickstarter to do that just to wipe out the morons who bought at $900? We could rename them Schadenbux afterwards if you want.)
posted by Kadin2048 at 12:23 PM on January 6, 2015 [4 favorites]


you could then use it as a transactions network with very low fees

And very low volume; 7 transactions per second. Across the whole world. Compare PayPal at ~100 TPS or Visa peaking at 47,000 TPS. Yes, in theory the Bitcoin network throughput could be increased, but I'll believe it when I see it. The first link goes into some of the technical challenge details. The way every single fully participating Bitcoin client needs a copy of every single transaction ever made for all of history is one such challenge.
posted by Nelson at 12:29 PM on January 6, 2015 [6 favorites]


That bitcoin simulator in the first link in this thread - make sure you play with it long enough to get to the text adventure at the end. It is hilarious.
posted by jbickers at 12:36 PM on January 6, 2015 [1 favorite]


Who needs caveat emptor when you've got Bitcoin? (part of the BitcoinMania series!)

also btw can bitcoin do this? :P
Joyce et al do not go as far as to state that there’s no link between the Bank’s QE programme and the fact that UK stocks have all but doubled since the depths of the crisis...

But we’d suggest there’s a more obvious extension to this work — such as simply asking where the money went that institutional investors switched from gilts into corporate bonds.

It seems pretty common knowledge that corporate bond issuance has boomed over the last three years — money that companies have largely used to buy back stock.

That has put share prices up.

It has also juiced the remuneration of those who are largely paid in stock, such as corporate executives.

However uncomfortable it might be to policymakers, that’s the primary transmission mechanism that’s been on display here.
posted by kliuless at 12:48 PM on January 6, 2015 [2 favorites]


The way every single fully participating Bitcoin client needs a copy of every single transaction ever made for all of history is one such challenge.

This is not the case, you just keep the hashes.

Also, the bitcoin network is centralized into a few data centers at this point, with gigs and gigs of bandwidth. The transaction limit is not an issue.
posted by empath at 1:03 PM on January 6, 2015


And very low volume; 7 transactions per second.

It's even lower than that. Individual transactions are getting larger and larger, while the block size stays the same, so the max transaction rate has actually been decreasing. I've seen a bunch of analyses that pretty much agree with this one - the current limit is somewhere around 3 tps.

Also, the bitcoin network is centralized into a few data centers at this point, with gigs and gigs of bandwidth. The transaction limit is not an issue.

Bandwidth doesn't actually have anything to do with it. The transaction rate is hard coded with a block size limit - the original idea was that this would prevent blockchain spam.
posted by muddgirl at 1:07 PM on January 6, 2015 [2 favorites]


Even if it weren't an issue for current users, it's definitely an issue if BTC (or any other cryptocurrency) ever wanted to be a serious rival to other payment options. The peak transactions per day for BTC was about 103k, or an average of about 1.2tps. Even assuming the 7tps number is accurate, that doesn't leave a lot of headroom for growth.

There are enough other problems with BTC that will probably keep it from hitting whatever the theoretical limit of the network is for a while, but even if those were all solved, the network kind of sucks for many things you'd want it to do.
posted by tonycpsu at 1:18 PM on January 6, 2015


It's hardcoded in the protocol, but it's not a technical limitation, they just wanted to limit the size of the blockchain growth and so on because people were running the client on home pcs over regular internet connections. It can easily scale up to meet demand now that the typical bitcoin client isn't a home pc.
posted by empath at 1:22 PM on January 6, 2015


Yes, it can scale up to meet current demand, not the kind of demand that truly widespread adoption would bring.
posted by tonycpsu at 1:23 PM on January 6, 2015


And, quite frankly, the farther you get from BTC clients being commodity PCs, the more the BTC network is just like the legacy CC payment processing regime with its middlemen, etc. Seeing these wallet/exchange sites get popped (or just learning that they were criminal enterprises all along) doesn't make the claim that it's mostly big centralized entities in charge of things very comforting. It's that very centralization that was one of the things cryptocurrency was supposed to get people away from.
posted by tonycpsu at 1:25 PM on January 6, 2015 [4 favorites]


Oh, I absolutely agree with that. It's a real danger. Ghash.io controlled a big chunk of the hashrate last year, but it looks like Discus Fish has caught up and surpassed them, and no one controls more than 25%. I think as long as there are a few large pools spread out amongst different countries it should be okay, though.
posted by empath at 1:31 PM on January 6, 2015


the bitcoin network is centralized into a few data centers at this point

Yeah, I was careful to qualify my statement with "fully participating Bitcoin client". Of course civilians shouldn't try to run their own distributed cryptocash clients to participate in the decentralized cryptocash system. We should just trust wallets like Bitstamp to hold our Bitcoins, they're reliable and safe!

I hear cex.io is the up-and-coming, they had a strong market position. Or is that Discus Fish you say?
posted by Nelson at 1:49 PM on January 6, 2015 [1 favorite]


Oh, I absolutely agree with that. It's a real danger.

OK, then I guess I'm taking issue with your effort to have it both ways here. On the one hand, you acknowledge centralization is a problem, but on the other, you casually dismiss concerns about the transaction rate, which might just be a hard-coded constant, but not one that they can change on a whim without significant problems for many of the participants in the economy who aren't running in big data centers. You seem to be aware of the problems, yet in some cases talk as if they're no big deal.
posted by tonycpsu at 1:53 PM on January 6, 2015


I don't think upping the transaction rate will impact participants. You can upload transactions and verify them without running the full client. It's already not profitable to mine bitcoins if you aren't in a data center, so that ship has sailed. Hell, it's not even profitable to mine them in a data center unless electricity is super cheap (geothermal in iceland, for example). There are very, very few people mining bitcoins on low bandwidth connections or home pcs.

Centralization on the other hand, is a real potential problem, which I don't think has a technical solution.
posted by empath at 1:58 PM on January 6, 2015


How easy is it to get cash or goods out of a Bitcoin transaction at this point, since all of the exchanges seem to continuously shit themselves and the markets seem to focus mainly on drugs and other illegal merchandise?

What are these hackers going to do with their 5 million BTC winfall if they're destroying the infrastructure that's used to turn it into useful cash?
posted by codacorolla at 2:43 PM on January 6, 2015


As far as I can tell nobody ever does something as vulgar as actually buy anything with bitcoins. No, bitcoins are like baseball cards or beanie babies-- they must be safely sequestered away from actual use, their metaphorical tags protected to maintain their value.
posted by Pyry at 2:48 PM on January 6, 2015


Like diamonds!
posted by clavdivs at 3:15 PM on January 6, 2015


I wonder what percentage of bitcoins have either been stolen or seized by the government at some point.

I was just wondering the same thing about government issued tender!
posted by hal_c_on at 3:27 PM on January 6, 2015


How easy is it to get cash or goods out of a Bitcoin transaction at this point

About as easy as setting up a bank account. I messed around with Coinbase for a few months, and it's literarily as easy as paying a bill online anywhere else. You put in your bank routing number, and transfer money to them. It takes a few days for the transaction to clear in either direction, but the price is locked in immediately. I bought and sold a half dozen times and had no problems.
posted by empath at 3:33 PM on January 6, 2015


That's why I keep my money in Doge.
posted by Obscure Reference at 3:34 PM on January 6, 2015 [5 favorites]


empath,

Prior to this hack people said the same thing about Bitstamp. That's the problem: these exchanges seem so fragile and prone to fraud. And it's happened again and again.
posted by Sangermaine at 5:52 PM on January 6, 2015 [1 favorite]


That's why I keep my money in Doge.

Ahem. I hear it's time to... get out of Doge.

I'll see myself out.
posted by The Michael The at 5:59 PM on January 6, 2015 [11 favorites]


That's the problem: these exchanges seem so fragile and prone to fraud. And it's happened again and again.

That's just things settling down. Administrators will become competent and con artists will stop preying on people anytime now.
posted by Tell Me No Lies at 6:02 PM on January 6, 2015 [1 favorite]


Further investigating the capabilities of Bitcoin laundering, I came across this Guardian article about people trying to track the disappearance/theft of 96,000 BTC from the defunct black market site Sheep Marketplace in late 2013 (bonus: Bitstamp makes a cameo appearance). The article details the efforts of some former Sheep Marketplace customers to trace the missing Bitcoins as they made their way through a tumbler. I think this is the most relevant Reddit post. Given the sheer volume that needed to be laundered, it looks like it was pretty easy to follow, although the exact details elude me.

The article makes it sound like this effort was a failure because all they did was ultimately trace the stolen Bitcoins out of the tumbler and into a wallet belonging to BTC-E, a Bitcoin exchange, where they were probably then converted into actual money (?) and hence no longer trackable by internet sleuths. However, I don't see it that way at all. If this were a proper tumbler laundering operation, no one should have been able to trace these Bitcoins even to BTC-E. If law enforcement were involved, it should be no problem to subpoena BTC-E to find out all the relevant information (jurisdictional issues aside). Now, it could simply be that the original thief wasn't super-concerned about properly laundering the ill-gotten Bitcoins and that a more diligent and/or patient launderer would have been able to hide their tracks better. Or, it could be that the overall legit volumes going through tumblers are too low to properly launder these quantities (c.f. Season 5 of Breaking Bad).
posted by mhum at 6:17 PM on January 6, 2015


so the basic problem with bitcoin, beyond the omnipresent layer of fraud and incompetence firewalling a technically trustless system, is that it provides the least efficient solution possible to a trivial problem.

processing seven transactions a second could be done reliably in a shell script on a raspberry pi. on the other hand, the best possible case for bitcoin is that it currently uses approximately 200 million times as much electricity to accomplish the same goal.

because this absurd energy expenditure is currently paid for by block rewards, bitcoin is a blindly inflationary currency, putting the actual cost per transaction between $10 and $20.

the network is secure because the capital costs of attacking it are high. over time, the cost of mining a bitcoin is at least a bitcoin (basically all mining hardware has a negative roi unless you're in a warehouse in iceland. also economics). every arbitrary time period the block reward halves. the next halving will see huge sums of money tied up in unprofitable, absurdly specialized hardware useful only for mining at a loss or attacking the network for a potential profit. if mining companies aren't already planning on, for example, conspiring to only include transactions in their mined blocks which have sufficient fees to pay for their operations they are dumb. the best case for bitcoin here is that it gets priced in to the whole mining economy and it suffers only a perpetual, proportional loss of security as time goes on and rewards decrease.

most of these problems were papered over by a succession of bubbles whose repetition is the sine qua non of bitcoin. the upside of all this energy and money thrown into the fire, the one thing that separates it from a pi-powered paypal clone, is that it requires no trust in a payment processor, just in your customer, vendor, escrow and/or exchange.

ultimately trust is a necessary precondition for almost every conceivable financial transaction. for example, bitcoin flourishes in the markets in which it has no competitors, mostly buying drugs on the internet, which still require you to not only trust a unknown with your freedom, but also your $60.

it is a solution in search of a problem, a toxic stew of increasingly desperate bag holders and predatory scammers, and an aesthetically repulsive monument to dull greed. i do not like bitcoin.
posted by Ictus at 6:19 PM on January 6, 2015 [30 favorites]


Still not a good idea to keep money in a bitcoin exchange an exchange.

MF Global: "nobody disputes the fact that MF Global officials dipped into customer accounts and took...customer money."

You put in your bank routing number, and transfer money to them.

Would it really be that easy for someone in Russia or Uzbekistan to put Rubles or Soms into a Coinbase account?
posted by Golden Eternity at 6:23 PM on January 6, 2015


it is a solution in search of a problem, a toxic stew of increasingly desperate bag holders and predatory scammers, and an aesthetically repulsive monument to dull greed

I've never seen you around here before, but I like the cut of your jib.
posted by tonycpsu at 6:36 PM on January 6, 2015 [5 favorites]


That's just things settling down. Administrators will become competent and con artists will stop preying on people anytime now.

As much as I enjoy bagging on Bitcoin I have to say that in every area of development someone has to go first. When it comes to online distributed currency schemes a tremendous amount is being learned (or at least confirmed) by watching the whole mess unfold.

I don't think Bitcoin has a chance in hell of ever being anything more than a curiosity, but I think that the lessons learned from it will inform quite a lot of future thinking in the area.
posted by Tell Me No Lies at 9:58 PM on January 6, 2015 [2 favorites]


I love this description "This hack may put the entire, fragile, bitcoin ecosystem at risk." it makes me think of bitcoin users as the stars of a nature documentary where someone with a British accent hushedly observes the timid little anemones in their tidal pool as they gently wave their fronds.
posted by supercrayon at 5:23 AM on January 7, 2015 [9 favorites]


Gee, people still messing with Bitcoin? Everyone knows Dogecoin is superior.
For additional snarks, see buttcoin.
posted by Carius at 5:54 PM on January 7, 2015 [2 favorites]




So it's really just a secure package for wire transfers? Or a value on a secure package for wire transfers? And people are speculating on the value of the secure package for wire transfers? And trading the value of secure packages for wire transfers?

So it's A.) a solution to a problem contemplated in 1995 and is less of an issues now (secure money transfer) and it's 2.) a mechanism for people to take advantage of?

I just...
posted by grubi at 3:26 PM on January 8, 2015


My online heroin dealer doesn't take wire transfers. Also people pay me in Bitcoin for time on my botnet, so it's a very convenient currency for my lifestyle of online crime.
posted by Nelson at 3:42 PM on January 8, 2015


Bitstamp is Open for Business - Better than Ever!. You can totally trust them again because they're running in the cloud now.
posted by Nelson at 8:35 PM on January 9, 2015 [2 favorites]




Bitcoin investor who renounced US citizenship now can’t get back in

I am often critical of our immigration and border-control system, but it's nice to see that occasionally, it works as intended.
posted by Kadin2048 at 7:28 AM on January 12, 2015


So.... it's not really anything? This still doesn't make any sense to me. It seems like everyone's assuming a lot, but nothing has been defined.
posted by grubi at 8:56 AM on January 12, 2015


It's a distributed transaction ledger. It's worth whatever you think that's worth. My opinion currently is that it's worth something, but not as much as has been invested in it. I think some of the second generation blockchain ideas like ethereum are more interesting. It's possible to do computing on the blockchain, for example. So you could create an autonomous wallet with some logic to how it distributes coins. You could essentially create an AI corporation living in the cloud.
posted by empath at 9:08 AM on January 12, 2015


Okay, but HOW is a distributed transaction ledger worth anything? Ever?
posted by grubi at 9:10 AM on January 12, 2015


Okay, but HOW is a distributed transaction ledger worth anything? Ever?

Because you can distribute value to anyone in the world, without going through banks or without using cash. I'm sure you can see how that would be worth something to someone, somewhere.
posted by empath at 9:18 AM on January 12, 2015




Because you can distribute value to anyone in the world, without going through banks or without using cash. I'm sure you can see how that would be worth something to someone, somewhere.

Right — I get the idea of it being "of value". What I don't get is how they decide a specific monetary value. It seems completely arbitrary.
posted by grubi at 10:29 AM on January 12, 2015


It seems arbitrary because it IS arbitrary. It's the magical number that justifies dumping your life's savings into tulips and ASIC hardware. But just keep saying "blockchain."
posted by fifteen schnitzengruben is my limit at 10:41 AM on January 12, 2015


Who is 'they'? It's priced like any other commodity. How is the price of gold or oil determined?

Currently, the cost of a bitcoin approximately tracks the cost of mining a bitcoin, because the primary sources of coins on the market are large mining operations and they don't want to sell for less than it costs to mine them, and since it doesn't matter who you get them from, buyers will buy from whoever is selling them the cheapest. This pressure from both sides basically forces the price to be about what it costs for the large operations to mine them. That said, the price seems to have dropped below cost fairly recently for a lot of miners, and they're starting to have financial problems.
posted by empath at 10:42 AM on January 12, 2015


2015 is the year of Bitcoin!
posted by tonycpsu at 4:05 PM on January 13, 2015


2015 is the year of Bitcoin!

That summary is amazing, thank you.



Have you not been following up on Bitcoin lately? Been in a bit of a haze from the holidays? Or perhaps you’re a heavy alcoholic, unable to function in a normal society and slowly drinking yourself to death? What ever the case for the New Years Blues, it’s important to remember that 2014 2015 is the year of Bitcoin!

Cloud miner CEX.io have halted mining because they couldn’t make any money on it any more. That was when the price was still at $270. So there’s no money to be made by cloudmining at $270. The current price of $230 will surely be great for bitcoin and miners.

Nigeria now has their own exchange. Bitcoiners completely fail to see what’s so funny about that.

Cloudminer Hashie gets “hacked” and their site is replaced with references to Disney’s Frozen complete with a link to the song “Let it Go”. It later returns and offer users to mine frostcoins or frozencoins or something. Unclear if it was an actual hack. Most people assume the owners just faked it and ran off with the money.

posted by Theta States at 6:05 AM on January 14, 2015


$230

It's south of 200 now.

There are huge, huge, huge short positions on all the markets right now driving the price down.
posted by empath at 6:38 AM on January 14, 2015


Currently, the cost of a bitcoin approximately tracks the cost of mining a bitcoin,

See, that kind of makes (logical) sense to me. Although, it seems quite inflated, given the actual cost of electricity on a dummy server running to "mine" (whatever THAT means).
posted by grubi at 9:58 AM on January 14, 2015


There's a blockchain for that: "A good introduction — appropriately grand, appropriately skeptical — to 'blockchainiacs' (blockchain utopians)" [1,2]

also btw...
-Realtime Payments Innovation [1,2]
-How technology is changing the way consumers invest
-Off the grid: "Excellent, thorough survey of how US utilities are responding to growth of wind and solar"
posted by kliuless at 11:42 AM on January 14, 2015


See, that kind of makes (logical) sense to me. Although, it seems quite inflated, given the actual cost of electricity on a dummy server running to "mine" (whatever THAT means).

The mining is the process of cycling through hashes on new transactions trying to find ones that come out to a certain number of leading 0s. The miners are verifying transactions, and getting rewarded for it. It takes a LOT of computing cycles to generate hashes at the current difficulty.
posted by empath at 11:49 AM on January 14, 2015






Oh man I forgot about the silly Winklevoss venture. Let's hope this new one works out better than "the last major Bitcoin start-up the brothers backed, BitInstant, collapsed in the summer of 2013 before the founder was arrested."

The Economist has been doing good coverage on Bitcoin lately. This article on mining, for example.
posted by Nelson at 7:44 AM on January 23, 2015


more:
-Going Lunar
Let’s start with the big double dose of Coinbase news. On their $75 million round of funding, it wasn’t what they raised or even what the valuation was (just a shade under a cool half billion dollars) that got people buzzing. Rather it was the impressive names joining the round: the New York Stock Exchange, USAA (US financial services giant), BBVA (multinational banking giant), DoCoMo (Japanese telecom giant), former Citigroup CEO Vikram Pandit, and former Thomson Reuters CEO Tom Glocer. These are mainstream, household names, and mark the first Wall Street caliber investments into the bitcoin ecosystem. Of course, we now know why NYSE got involved. Today, Coinbase launched its exchange, Lunar, the first regulated bitcoin exchange in the country with licenses in 25/50 states.
-The unbundling of commercial banks
-British Start-Up TransferWise Raises $58 Million
-Bill Gates on Mobile Banking, Connecting the World and AI
-Apple Sees Mobile-Payment Service Gaining in Challenge to PayPal
-A model to make sense of beliefs and associated Crypto-finance platforms
posted by kliuless at 5:11 PM on January 27, 2015


I'd just like to take a moment to appreciate that, whatever its faults, Bitcoin led to a situation where there are teams of lawyers preparing to argue, before an actual court, the identity of the Dread Pirate Roberts.

That is the actual world in which we currently live.
posted by Kadin2048 at 10:00 PM on January 27, 2015 [2 favorites]


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