I've been fascinated and appalled in equal measure at the fanboy community, at the intolerance of criticism that sprang up very quickly, and how strong feelings ran (likely because of financial investment in the tech).
It's also been interesting watching it go from simple CPU mining, to multiple GPU rigs in dorm rooms, all the way through FPGA and then to massive installations of custom ASIC miners.
But I've always hoped it wouldn't go mainstream for two reasons - limited supply with weighting in favour of early adopters, and the massive electricity costs of the 'mining' and transaction validation process. Scalable, competitive proof of work systems for a widespread currency are an ecological disaster in the making, and deflationary currency with a handful of early users controlling a huge proportion of the total currency supply... these aren't "features".
I'll be very interested in what happens next, and for the reasons given I hope it's not just a BTC clone with better governance.
It's a great mechanism and could be readily adapted to digital currencies. Have a group of banks that may issue loans in the currency and have a central authority that will issue bonds and pay interest on them in the currency. Set the lending rate to under the bond rate to "bootstrap" the initial currency flow, then manage it from there.
Management could be automated by computers to constantly find the optimal rates for loans and bonds.
To that degree, Bitcoin has failed, because massive SHA256 crunching is now easy to do at scale and hard for individuals.
More varied challenges, like BOINC, or PoW that is bandwidth, connectivity, latency, or disk-space based, will provide a lot more value to the community and make it easier for individuals to contribute. I eagerly await the day that one of these alternatives becomes mainstream.
I don't know. What I do know is that in a centralised crypto-currency system you don't need any of this as the issuing authority merely signs the transactions and we're away. I hope that some bright spark comes up with a way to make a decentralised one almost as simple...
The existence of high frequency trading already proved this. All that technology built and maintained, all that electricity wasted, merely so that one company's bots could play a zero-sum game nanoseconds faster than another company's bots, undermining them.
This isn't something newly discovered, I hope.
> limited supply with weighting in favour of early adopters
How is that not true for the royal families of Europe or pretty much all the billionaires in China/India/Russia? Of course, it is not a desirable feature as we've discussed in criticism of pg's essay but what option do we have?
While I agree there are problems when individuals can accrue control of such a disproportionate amount or influence and economic output... I don't think it's quite the same.
2/3 of all the Bitcoin that there will ever be already exist. The number of people involved in Bitcoin is comparatively small. Were it to become a mainstream world currency, on the scale of the dollar, some of these folks would likely become trillionaires. Those oligarchs in India, Russia and China are wealthy, but they haven't got such a huge proportion of all currency sewn up. And because of the nature of 'fiat' currency, we can always make more. With BTC this isn't the case.
>Isn't Bitcoin mining a waste of energy?
>Spending energy to secure and operate a payment system is hardly a waste. Like any other payment service, the use of Bitcoin entails processing costs. Services necessary for the operation of currently widespread monetary systems, such as banks, credit cards, and armored vehicles, also use a lot of energy. Although unlike Bitcoin, their total energy consumption is not transparent and cannot be as easily measured. Bitcoin mining has been designed to become more optimized over time with specialized hardware consuming less energy, and the operating costs of mining should continue to be proportional to demand. When Bitcoin mining becomes too competitive and less profitable, some miners choose to stop their activities. Furthermore, all energy expended mining is eventually transformed into heat, and the most profitable miners will be those who have put this heat to good use. An optimally efficient mining network is one that isn't actually consuming any extra energy. While this is an ideal, the economics of mining are such that miners individually strive toward it.
That's not the question. The question is if more energy is being spent than is necessary to achieve the goals of a well-secured, well-operated a payment system, and I think there are very strong reasons to believe the answer is yes. (Among many other things, Ripple and Stellar are existence proofs of being able to get something with comparable security and much lower energy usage.)
> Furthermore, all energy expended mining is eventually transformed into heat, and the most profitable miners will be those who have put this heat to good use.
> While this is an ideal, the economics of mining are such that miners individually strive toward it.
And it is equally valid to say that the economics of cloud computing are that cloud hosts should individually strive towards it, too, but is AWS so much as keeping a single pizza warm?
Is there any previous case in human history where "Negative externalities could be turned into profitable positive externalities with cleverness" has worked?
I understand that this is the way BitCoin protects itself. I want to be clear that I am saying I think this is a bad way of doing things. As someone that understands a bit about crypto - most crypto schemes that are hard to break are not hard to break because the encrypting device has worked so hard at encrypting them. They're hard to break because they have been designed in a mathematically sound way.
I hope this endless grind is not something inherent to the idea of decentralised crypto-currency, but if it is I don't think the decentralisation aspect is worth it, and as we see in this article it can be illusory anyway and the amounts of energy involved are pretty huge.
>> Furthermore, all energy expended mining is eventually transformed into heat
This is just such a cop-out!
Are you willing to trust any central authority? Maybe a government, maybe a set of independent businesses you can chose among, maybe a specifically selected advisory committee, one really cool dude. Just anything.
If you are, then burning coal and compute cycles is just insane and wasteful.
If you aren't, then you might be willing to admit that from some angles it is an inelegant solution, but it is a solution.
Taking Bitcoin on its own terms, as a solution to a problem you may not personally care about, the wastefulness of the process isn't really a problem. If anything, I agree with what someone else said down thread -- it would be better if mining for Bitcoin wasn't profitable, and it was a lottery people played at a loss (wasting even more resources!). That would discourage the centralization of mining power. IMO the biggest problem Bitcoin faces is that it put voting power in the hands of miners instead of users, and then encouraged those miners to coalesce into a relatively small coalition of big-money players.
The waste heat from these operations are not being reused. The energy most likely came from a coal fired power plant, or from a nuclear reactor.
Back before spam filters got good, one of the proposed solutions to the spam problem was to require everyone to compute an easy to verify, difficult to produce hash for their email message and bounce everything which didn't come with an attached hash. The idea was that a regular user could spend 1 or 10 seconds hashing each email, but a spammer couldn't spend the time hashing millions of spam messages.
Now I suspect that we would have just ended up with data centers full of highly efficient hashing hardware cranking out signatures for spam messages.
I wonder if that could have been foreseen in the halcyon days of the late 90s, when the image of the l33t hax0r was someone sitting in the middle of a cobbled-together supercomputer in a garage with painted over windows, and not in the middle of an anonymous coffeeshop with a botnet.
I would assume this would be implemented at the SMTP level, so when I connect to gmail with my phone, it's their servers that need to generate the hash before they send it through SMTP.
People disagree about the reality of global warming. Does that mean we throw out the entire system of laws of the United States and other world powers because it hasn't yet addressed this problem?
This is exactly why I never bought the concept of BitCoin as a 'libertarian' currency. There's always politics, there's always governance. It becomes political as soon as more than one person is involved. And as soon as it's political, institutions, processes, procedures, and laws become necessary - also known as "government."
I still believe in BitCoin, however. Ultimately, there's a way out of this tangle, and like with most political problems, it's a political solution. BitCoin will either adapt and scale up or stay the same and scale (way) down.
edit: To clarify, I'm not trying to say I agree or disagree with the author, as I don't know anywhere near enough about the bitcoin community to say either way. I'm merely pointing out that the OP was talking past the author's points, not addressing them. (In particular, they built a strawman against governance and political solutions.)
And yes, I did read it.
Step A is realizing that the political processes aren't working, and Step B is figuring out a way to make them work. Step B is not throwing up your hands and quitting.
It may be helpful in evaluating the above to note that I'm an open and notorious critic of Bitcoin and believe efforts to save it are poorly advised, but I'll happily function as a world-readable notary to say "Yep he really did try doing that; I watched it happen."
XT may still be the go-to option when scale and transaction bandwidth actually starts being an existential problem.
You'll find that people rarely react as urgently as they need to until the problem starts making their wallet lighter. But for the last year Bitcoin has increased both in popularity and price. And even at their slowest, actual settlement times of transferring monetary value on the BitCoin network are still lifetimes faster than clearances on ACH or other traditional financial networks, which means Bitcoin still has a competitive advantage over the traditional financial system. When that competitive advantage starts going away, I have an intuition that the block size will suddenly increase. I don't know for sure, but I have a feeling.
That's the genius of it all. Even the governing body doesn't prevent people from running the existing patches. As soon as the impasse becomes an existential threat, we already have a solution, and anyone who wants to run it can run it. Downloading and running the new Bitcoin is kind of like voting.
This was a deliberate design decision. Mike Hearn didn't think he was going to get widespread support, so he set the threshold for it to fork Bitcoin at 75% of the last 1000 blocks indicating support, which actually means it would activate with less than 75% support from miners due to variance and the fact that he was retesting the condition every block until it succeeded. Potentially quite a lot less, if I remember correctly, maybe even a minority.
If enough did so, then isn't that a vote?
If Bitcoin can't survive without centralized control over miner software, isn't that a sign of broken decentralization?
Really? Were they actually usable/used? How/when/where?
Bitcoin doesn't move fast and break things-- and that's one of its strengths, not a weakness.
Also, its inherently democratic- those with the hashing power , and thus the most on the line, determine its future. IT's in their best interests to find solutions-- in a considered way.
I don't see that this system has broken down at this point.
It's Bitcoin or bitcoin.
Not just directing this at you as numerous people have pointed this out, but it seems awfully pedantic to quibble over my capitalization of a letter than to address the substance of the point which is that the technical issue here is quite fixable and that the political will to fix it is not impossible.
It seems like he makes some cogent criticisms, for which the best solution seems to be to fork the project, or begin developing for any of the other *coins that were so popular a couple of years ago. But BitCoin has the dominant brand and the people who control the mining and the source code can do whatever they want. Something tells me that bitcoin itself isn't dead because there's been too much invested in it by too many people, whatever the problems. But it's dead in the eyes of the author and maybe for several others, and that's all that matters in the context of his blog.
When the BTC community has become so hostile to literally attack those who criticize it, it becomes hopeless to resist. The best you can do is walk away until the community stops being so hostile.
Fixing Bitcoin would be the best solution, but the politics and governance structure aren't letting this happen. Aside: As I age I'm understanding more and more how critical leadership is. All of the pieces are there for Bitcoin to succeed, but they aren't organized correctly.
The second option is the community choosing to change to a different client, so that by a grassroots movement, eventually the blockchain moved in the right direction. It would likely be a rough transition for uneducated people, companies, and software for businesses that use Bitcoin, but if it can't be official, it would have to be something done similarly to XT.
The last solution is to switch to another cryptocoin and blockchain entirely. I don't keep up with news, so hopefully some of the smaller coins have implemented fixes. This would set back blockchain-based cryptocurrency a few years, though. If the whole community abandoned Bitcoin and moved to Vertcoin or Dogecoin, companies that went out of their way to support Bitcoin might be reluctant to follow.
So in other words, too big to fail? I don't necessarily disagree with you, but that sure seems to support the argument that the Bitcoin ecosystem as a whole isn't in a very healthy place.
What -exactly- does this mean?
Additionally, what does it say about the managers of the project when the Bitcoin Core people decide that (because ever-shrinking available capacity means ever-more unpredictable [and gradually-upward-trending] transaction fees) it's better to allow a transaction partner to silently reverse a transaction they made, rather than increasing the maximum block size to keep up with the ever-growing (due to Bitcoin's increasing popularity) transaction volume?
Hmm. That's one way to interpret it.
Is it true that that -without a max block size increase-, Bitcoin can't process a higher volume of transactions than it processes now?  That -in fact- the unpredictable -and generally increasing- transaction fees are a feature of the network designed to shed load -by discouraging "less important" transactions- when the network is at or near capacity?
 Which is -apparently- somewhat less than three transactions per second. 
 Seriously, think about that for a second. :)
I don't know anything about Bitcoin but the promise seemed to be to invent a technical form of money, with limited supply, that would be free of politics and interference from governments.
To quote the beginning of the article:
> What was meant to be a new, decentralised form of money that lacked “systemically important institutions” and “too big to fail” has become something even worse: a system completely controlled by just a handful of people.
Bitcoin became valuable enough to attract people with a lot of real money on the wrong side of the Chinese capital controls, who've taken it over as their major use case.
You have a bunch of down-votes, but you're right. Taxes are the best driver of demand since they force the currency to be the unit of account in a country. In essence, any bitcoin transactions in the US will need to be accounted in USD in order to taxes to be paid. Thus, bitcoin is, as you say, commodity money.
Bitcoin can only operate as a stand-alone medium of exchange in regions without taxes (or in transactions where taxes are ignored).
By the way, the position that you're taking that taxation creates money is called monetarism. It peaked in the 1970s and has been discredited in mainstream economics ever since. The reality is that people create government, and people create money, not the other way around.
Just to be clear, I'm not some big bitcoin propnent. Bitcoin is an interesting experiment but I'm keeping my US dollars.
Monetarism is the basis of the neoliberal agenda which enjoys near perfect adoption all over the world. It is the mainstream. Austrian economics is mainstream amongst "conservatives" and MMT is on the fringe of everything because it sounds too conservative to be progressive and too progressive to be conservative (and yet contains the most complete description of how currency works out of any of them!)
Precisely. I find amusing how every time there is a trend up in the price, there is a flood of doom sayers, as though they want to force the price down...
I think the bitcoin network is fine. These issues will eventually be resolved, although not likely to OP's satisfaction or the way he wants to solve them.
In the conclusion he states: "<i>Even if a new team was built to replace Bitcoin Core, the problem of mining power being concentrated behind the Great Firewall would remain.</i>"
Bitcoin's decentralized nature encourages power pool formation by promoting economies of scale. It is not surprising that like the production of electronics, clothing, toys, etc. the lowest cost center is in China.
They have the trifecta of a majority of mining power, two of the largest exchanges, and several key developers on board. More importantly the miners supporting the project are in agreement on increasing the block size. It goes a long way to addressing most of the things Mike brings up in this post.
Mike's done a lot of Bitocin particularly by bringing to light the issues with Bitcoin core. At the same time this post strikes me as alarmist. It seems more like a rationalization of his decision than anything else.
When we were preparing for XT, we also went and talked to the Chinese miners. They told us that the original 20mb limit Gavin proposed was too high, but that they could accept 8mb. So we compromised and went with 8 + a growth function. Then after XT was launched they changed their mind and said any growth after 8 at all was totally unacceptable. Now they're telling the Classic guys that 2 is the most they could handle. Did the Chinese internet border really get 4x worse in the span of 3 months? I doubt it.
Western miners aren't much better. One told me quite clearly they'd start voting for BIP101 back in November (though: voting in such a way that it wouldn't actually activate!). But they didn't. When I followed up, they again said it was on their todo list and they'd start really soon. But they didn't.
The miners have proven over and over again that what they say they will accept and what they actually do accept is not aligned. So right now I'm seeing some excitement (maybe more like desperate hope) that Bitcoin Classic will solve anything. Maybe now the "Scaling Bitcoin" conferences have come and gone and Core's reputation is much worse, they'll have better luck, but even then the best case scenario is that Bitcoin gets a 2mb limit. That isn't nearly enough and big backlogs will still occur.
More to the point, even in the best case scenario, the community will essentially accept that Bitcoin is controlled by the Chinese government and grows or shrinks at their whim.
I supported BIP101, but your unwillingness to compromise - they offered 4mb doubling every 4 years I believe - played a great part in it's eventual failure.
The situation now is very much different with almost 100% of miners saying they will support 2mb and some 50% already supporting bitcoin classic with more to come.
So, I share your concerns, but unfortunately mistakes were made, some of them grave mistakes, mistakes from which we learned, and are thus now well placed to move forward.
On your point about the current dominance of China in mining. Two years ago people were flipping out that Ghash.io might have the ability to perform a 51% attack and now they barely register a whole number percentage share of the hashrate. Things change.
https://www.reddit.com/user/anarchystar as a random example that comes to mind.
like, yay it fixes a technical issue, but I'm doubtful that a group that acts like children in forums has any long-term sustainability.
This is exactly why I went from being a great champion of Bitcoin in 2011 (came on board late 2010, right after Mike if I recall) to totally disengaging with the project today.
For the record, I deeply and vehemently disagreed with Mike about the direction of the project on numerous occasions (e.g., coin "redlists"), but I'd much, much rather spent my time around Mike (an all-around nice guy, by the way) than the idiots and know-nothings than presently have come to form the Bitcoin "community". Things were far, far different back in 2011-2012, before the first big price jumps led the current crown on board. Ironically, their "participation" in the project (mostly screaming, censoring, and belly-aching on Reddit) will only cause the thing their fear most: a Bitcoin bus-plunge and loss of most of their assets.
Mike, if you read this, I was only a minor player in Bitcoin core (< 5 commits) but I appreciated your work and particularly your talks about Bitcoin, as well as your work on Bitcoinj, an extremely well-led open source project. I look forward to seeing your next endeavors.
The lowest cost center for mining bitcoin is absolutely not China. The reason mining power is currently centered in China is because producing the latest-generation ASICs is cheapest and quickest in China and for various reasons the companies involved prefer to just bring them online in China quickly.
Soon ASICs will stabilize on the most modern production processes and commoditize and Bitcoin mining will shift to where the marginal cost of mining is low -- Iceland or other cold countries with extraordinarily cheap energy.
The other major reason that Bitcoin mining is big in China is that it's far and away the biggest source of capital looking to escape government controls. You put in yuan at one end, turning it into ASICs and electricity, and you take bitcoin out at the other end. Say what you want about bitcoin, but it's a whole lot easier than your yuan deposits at the Industrial & Commercial Bank of China to get across the border.
Some day these things will change. But for now, Bitcoin is stuck with Chinese miners.
I moved my GPU mining farm in 2011 to Douglas County, Washington state where my electricity cost was 2 cents per kWh. China does not beat that. In fact to this day none of the large professional mining farms beat this cost. At best they match it: in 2013 the first professional miners—MegaBigPower—came into Douglas County... http://www.spokesman.com/stories/2014/apr/26/northwests-chea...
China has a quarter of the world's hydroelectric generating capacity, but its utilization rate is low, far lower than in places like the Unites States, Canada, or Norway. This is primarily because much of the potential hydropower cannot be absorbed by the grid in western China, where many dams have been built over the past decade on the rivers flowing off the Tibetan plateau. Bitcoin mining operations are the rare customers that can show up near an isolated, idle hydropower station and gobble up electricity from turbines that otherwise wouldn't even be spinning.
The other factor I mentioned, that bitcoin mining in China provides an added return in the form of expatriated revenue, does not enter into the calculation of marginal cost. But it does effectively add several percent—the price of moving money out of China via other mechanisms—to Chinese miners' marginal revenue. And it's marginal revenue minus marginal cost that matters, not marginal cost alone.
For example the lowest Chinese costs I remember reading were from a remote farm who benefits from hydro power and admits that paying 3 cents per kWh is already "on the cheap side": https://bitcointalk.org/index.php?topic=1072474.msg11472186#... Farms don't usually disclose how much they pay (strategically sensitive number), but I always do some back-of-the-napkin math when possible, eg. when they release approximate figures, and I usually calculate somewhere between 4 and 10 cents per kWh.
In other words, the lack of people mining at a loss makes mining profitable and hence subject to forces of centralization.
There are several reasons why mining as a lottery substitute is rare, a major one being that commodity hardware is inefficient by many orders of magnitude,
making even a botnet next to useless.
Perhaps, if a proof of work, whose efficiency gap (with custom hardware) is at most an order of magnitude, were adopted (or slowly phased in), enough lottery players would arise to make mining unprofitable at scale.
Botnets should then just be welcomed as a modest increase in decentralization.
You can see here many alternative coins and an estimated market cap:
A lot of altcoins came up as mere clones of another, pump-and-dump schemes, or with irrelevant or plain bad changes; but there were quite a few valid innovations. Bitcoin has barely changed in it's core protocol. I hope other projects get more exposure in the future (or Bitcoin becomes less afraid of change).
"You can't possibly get a good technology going without an enormous number of failures. It's a universal rule. If you look at bicycles, there were thousands of weird models built and tried before they found the one that really worked. You could never design a bicycle theoretically. Even now, after we've been building them for 100 years, it's very difficult to understand just why a bicycle works – it's even difficult to formulate it as a mathematical problem. But just by trial and error, we found out how to do it, and the error was essential." -- Freeman Dyson
1) Mining power is still decentralized. It's not evenly distributed, true, but it is decentralized.
2) Just because some significant percentage of it is in China, doesn't mean it's controlled by one single entity like you're trying to present it here. It's still distributed across thousands of independent miners.
> ...the block chain is controlled by Chinese miners, just two of whom control more than 50% of the hash power.
That's a pretty unique situation.
If a predominant amount of hash power were concentrated in China, but distributed among some large (100+ to 1000+) number of miners, that would be fine. But a system of any kind is no longer decentralized the moment more than 49% of that network is entirely controlled by a small [enough] group of people.
A pool is not a single entity, it's composed of hundreds, thousands of miners.
To do some evil thing they will have to convince all of their miners to participate, and stay quiet at the same time. And all for what? So they can perform a >50% attack, crash the value, and ruin their investment?
I would worry more about things like BitFury's ASIC datacenter, which is a true singular entity.
There's some neat tech that gets around this that is compatible with Bitcoin, for example p2pool. It's not super popular yet but it solves some of these problems.
(2) Take both pools offline.
The US Financial System relies on more than just Bank of America, Chase, and JP Morgan btw. There's more decentralization in the status-quo than the three or four big-name BTC Miners.
Second, there are economies of scale to be exploited. Over time, it will become more profitable for the largest miners to increase capacity vs the smaller miners. The largest miners will get cheaper power contracts. That alone gives them an advantage that will allow them to take market share from the smaller miners.
The end result is fewer, but larger, miners doing more work.
Read the article, he was clearly laying the groundwork for this move back in Thanksgiving.
“The current Bitcoin system, I mean the system we actually use today with the block chain, isn't going to change the world at all due to the 1mb limit. … So if I have a choice between helping the existing financial system build something better than what they have today that resembles Bitcoin, or helping the Bitcoin community build something worse than what they have today that resembles banking, then I may as well go where the users are and work with the banks."
"The use cases they are looking at and requirements they have cannot be met with the Bitcoin protocol, it just doesn't have the things they need. They are actually spending a lot more time looking at Ethereum than Bitcoin, as it's more obvious how to apply it to their use cases."
The quote is absolutely in line with the article; actually including the quote in the article would have rendered the headline 'Bitcoin dev thinks blockchains for banks are way cooler, has thought so for months, and is reluctantly moving on'; that might be a fun article to read, but it's not frontpaging HN.
If you read the entire article, you would not describe it as click-bait.
Additionally, I agree with kevinwang's assessment that the statement by Hearn that you quoted is 100% in line with what Hearn is saying in his Medium article. The key quote is "...the system we actually use today with the block chain, isn't going to change the world at all due to the 1mb limit.". Hearn's Medium article is -actually- ~50-> ~75% about this 1MB limit. (Spoiler alert: it's not a limit of the Bitcoin protocol, but rather a political decision made by many of the Bitcoin Core developers.)
People want to protect their investments. But because we are talking about money, don't confuse this for meaning that the investments are just about money.
Investments in code contributions, investments in all the articles read, investments in community, friends, social networking, investments in belief systems, investment in the justification for choosing one thing rather than another.
It's simply not consistent to say "oh you only have 20BTC, so you've nothing to lose" or "oh, you made no code contributions, so why are you complaining" as both ignore the potential for massive psychological and personal investments.
All these investments act as a barrier to change. It hurts, it hurts physically to lose big investments.
There is a cost benefit analysis that humans perform internally. Is the hurt of losing this investment now worse than the pain by keeping the investment later.
If we go back to the article, we see Mike repeatedly tell us that Bitcoin is an experiment. He is saying to us now "look, don't invest your time, effort and money into it" - and he is telling himself "I have made the change, I have accepted a loss by investing so much of my time and effort into this, and am moving on".
By the time independent implementations did begin to develop, it was too late to introduce diversity into the ecosystem.
The result is what we are now seeing.
Fully agreed. The largest failure of the so-called "developers" (pretenders after Satoshi) of Bitcoin have failed to concentrate their efforts on understanding and specifying Satoshi's code.
The original Satoshi bitcoin implementation is a mess of Boost-y C++ that was clearly written by a bright guy who was steeped in mediocre C++ programming (probably on Windows). Studying the code and writing a proper specification is job number one. Adding random new features onto Bitcoin without first understanding the codebase is simply juvenile.
A political entity -- not necessary a sovereign government, but perhaps a bank or financial institution -- will offer a currency swap to existing blockchain holders to adopt their crypto currency. The inducement will be a limited time window to put in your claim, with all unclaimed but mined numbers going to the financial entity to reward their followers or stakeholders.
In the real world, this is called escheat and it is a power of the crown. Bitcoin is essentially a system for recording deeds to digital land. They aren't making more numbers, so the problem is the political resolution of competing claims to the same resource. This sort of claim comes, in the end, to a network consensus of who is the sovereign.
They aren't making more numbers
"We can conveniently restrict the supply of numbers" is one of the fundamental failures of the imagination among Bitcoin enthusiasts. "There's only 21 million. Trust us. We counted." "But couldn't I make a new 21 million with a one character code change?" "Well yeah but they'd be so much less cool than our 21 million and you'd have to convince people to use them." "But wouldn't I be able to use the Satoshi adoption strategy -- give them away for cheap to bootstrap a distributed boiler room then gradually make them more expensive, enriching early participants in the scheme at the expense of later participants?" "But that's crazy, it will never work. Nobody wants worthless currency units tied to a transaction network that provides absolutely no value. They want spendable money." "Of course people want worthless currency units tied to a transaction network that provides absolutely no value, if they have the expectation that they will not be the last people to want those currency units. That describes why you invested in Bitcoin!"
https://coinmarketcap.com/ lists 650 alternate value storages which take up 650 million dollars. Bitcoin alone takes six billion.
Bitcoin will be more interesting to me once the mining pool is exhausted. At that point, we'll see how much of Bitcoin's value is in use instead of speculation.
First, the marginal utility of additional units drops for the hoarders, and marginal utility is a well established economic fact.
Second is the time preference of goods. People's lives are finite and they don't want money for money's sake, they want to exchange it for useful things. If you're really hungry, you will buy your sandwich today, not tomorrow even if it's going to be cheaper. Real world examples are electronics and the price of oil. Electronics get better and cheaper with time, and yet, people still buy today. Oil has depreciated hugely in the last months, and yet, people are buying gasoline and heating oil right now, even though signs point to it being even cheaper.
Taken together, you have the desire to hoard counterbalanced by these two factors, which creates a balance of hoarding and spending. This does an economy make.
In either case, you're obfuscating the consumer's real demand due to 2nd order speculation. Using some particular good as a unit of account fundamentally introduces a distortion into the way that people elect to spend / save. And many people have different takeaways from this fact. If you're a goldbug or a Bitcoin enthusiast, you think that inflationary pressure is evil and deflationary pressure is good. If you're really into Keynesianism, you might think that consumption is good and saving is counterproductive. If you're the Federal Reserve, you think there is a right amount of spending that expert economists should target by tinkering with the money supply.
For anyone interested, I personally think the real answer is to look for ways to design a system that removes the distortion entirely by introducing a currency that cannot be held. In other words, a financial system in which the unit of account, the grease in the gears of the economy, only exists in the brief context of a transaction. The actual holding of wealth would all be done using electronic "shares" of real material goods, sort of like what you're buying at a commodities exchange. In this world, people's personal savings would be electronic, hyper-diversified stock portfolios. The "currency" of this system, if you could even call it that, simply acts as a yardstick for understanding relative costs, rather than needing to understand the N^2 different exchange rates of a typical barter system. You would hold micro shares in thousands of different products thanks to automatic software tools that blended expedience with your desire to personally elect what goods you wanted a long position on. In this way, the appreciation / depreciation of your personal savings would rely quite transparently on current values of the goods it represented. Crucially, removing this layer of abstraction would make it much harder for your fortune to evaporate purely on perception of value (see: Zimbabwe) since you would never give it away for less than what the underlying goods were worth to you personally.
But I'm utterly unconvinced that 'prices can only increase' for the economy to work. For example, in electronics prices for hardware have generally fallen in nominal and real terms and yet it's still a pretty big industry.
Think of a house: would you buy one if you knew that just by waiting a year its price would be 80% of what it is now? And the year after 65%? You'd probably just wait. If you waited long enough, you could buy one for, literally, today's peanuts.
Electronics sounds like a good counterexample, but electronics are also developing at extremely high speed. The price of a given device decreases very rapidly in time, but new more powerful devices come on the market every day. Sure, you could have waited five years to buy an iPhone 1, but that piece of electronics is now almost worthless compared to the other options you have on the market.
(I'm not the kind of person to complain about being downvoted, because I literally don't care, but I'd like to know what's wrong in what I said. I always thought printing money is something no sane government would do.)
If the amount of currency is fixed, but the economy grows, then the bread becomes cheaper. This has multiple effects, but one is to value work yesterday more than work today (work today will be compensated more poorly). Another is that it favours people who hold currency already over those that are actually producing useful economic output right now.
So in a growing economy, the currency supply probably should increase. It's arguable that tilting things the other way - favouring work today over work yesterday (or ten years ago) and favouring economic activity over holding cash - is desirable, so most developed economies aim for low but positive inflation.
This is my very simplistic understanding of why completely limited currencies are not a great plan.
Nothing can be further from the truth. You don't have to go too far for the example. Cigarettes in prisons are used as money. People use all sorts of things as money. State wants to control it because it wants to collect some of the value produced by other people. That is all. Bitcoin is about not giving states these powers.
No. That's barter. Money has very specific characteristics. Cigarettes in prison fail these three: divisibility, durability and uniformity.
Mackerel was chosen since it's cost was closest to $1USD, and nobody wants to eat it. It also has unique markings so they can track down theft from each other.
If it were truly the case that no one wanted it, it could not be used as money, as another good would quickly replace it.
Mackerel would be worse than cigarettes as they are not divisible. It would also be a good source of Vitamin D if you were incarcerated in northern latitudes
All other decentralized money had demand other than for its currency purposes. Cigs in jail are in demand so they became a way to store value.
Bitcoin is the opposite. It has value because people are saying it's a currency. But it's monopoly money.
In most countries AFAIK it is illegal to mint your own "currency" and call it as such, hence artifact of the state.
Bitcoin lets non-state actors create currency.. incidentally, those most equipped to fund the processing power, are state actors, hence artifact of the state.
You can make your own currency all you want. You just can't make currency and pass it off as state sponsored currency without permission from the state.
This is patently false. Money has existed before states, and it has existed without states.
Money (specie: often in the form of coinage but not limited to such) was invented when a warlord or monarch captures riches (mines, cities), strikes coins with his visage, uses the coins to pay his soldiers (who are otherwise awful credit risks), then demands taxes from the free peasantry, creating a market economy in the process. States create markets. Markets require states. If for no other reason than to provide protection over the transaction with the threat of coercion.
Before money existed, the free peasantry used credit. The historical evidence shows that first came credit, then came money, then came barter. The exact opposite of what Adam Smith and most economists believe.
The historical evidence shows that first came credit, then came money, then came barter.
The point I'm specifically trying to come to grips with is the idea that money came before barter: considering that money is used as a token that is itself bartered for goods or services, I can't understand how money came before barter. It just doesn't make sense, using money is barter.
(For anyone who wants to follow along, the PDF can be found at https://libcom.org/files/__Debt__The_First_5_000_Years.pdf)
The concept of debt predates the concept of barter a long time. Barter requires judging things of equal value. Debt however is easy to understand for humans regardless of ability to have the concept of possession (help me today and i help you tomorrow). I see no reason to believe that money or barter would become before debt in human development.
I had this discussion a few years ago and one thing that I found interesting as a thought is that barter is not something people like to do. It's generally only used if a token cannot be used because for instance the token is not stable in value. So in times of crisis people would fall back to barter as an alternative but when a stable token of exchange exists, barter does not play a role.
The first thing that develops in a new community is debt and credit but with regards to if money or barter came first there does not seem to be a lot of agreement. I personally feel that barter is quite an unnatural concept because one party will most likely always lose. I cannot imagine that it would come naturally because it's a step back from debt and credit. The only thing it would give you is the ability to trade with someone you don't trust. And that is probably when you tribe meets another tribe which I feel is something that would happen after establishing a local currency.
I see barter as an early, rugged form of money. Many early civilizations would trade goods such as cows or other animals in exchange for services or other goods. Technically those cows or whatever else WERE a currency. You could give someone 3 cows to help you do X, Y, Z. Replace cow with 300 gold coins and there isn't an enormous difference because each only has as much value as you allow it.
Eventually through barter you'd realize maybe you don't want to give all your cows away or perhaps people begin to realize that sure maybe now they have 3 cows since they did X, Y, Z for you but now the person they need stuff from doesn't need cows because they have 100 cows. Naturally I think currency (coin, paper money... etc) would develop from this to form a more "universal" token for barter so that it could then be more easily used by whoever receives it.
The point is that "I'll give you this cow and you'll owe me one" predates "I'll give you this cow and you'll give me those chickens". To the extent that debt is a special type of barter, so is money; I think the distinction between exchanging something for a thing and exchanging something for a debt is worth making.
I don't know if livestock domestication would be said to be a precursor to gold in some places.
I would suggest "money is an artefact of societies" would be a better way of expressing this - people will otherwise get hung up on whether complex societies, with currencies, that don't look like modern nation-states, disprove this statement.
This seems to be a mistake repeated routinely throughout the tech world. You see it today's Netflix announcement about proxies. You see it with the software/media industries reliance on DRM. You see it with people trying to halt the NSA with stronger forms of encryption (or with the NSA's mass surveillance in the first place). Technology is not a cure-all and unloading an army of computer scientists on a problem isn't usually the answer.
Money is an artifact of the state; always has been, always will.
Abraham listened to Ephron, and Abraham weighed out for Ephron
the silver that he had named in the hearing of the Hittites,
four hundred shekels of silver, according to the weights current
among the merchants.
> "The folly of BitCoin is to believe that technical problems are somehow orthogonal to social problems."
This. Or, to restate it, to mistake social solutions to 'money' as technical problems that need fixing.
Here's an article from what remains of one such pre-colonial state detailing how wampum formed the basis of their international treaty laws: http://www.onondaganation.org/culture/wampum/
Money is an artifact of the state because you have to pay taxes in the state's money. If you could pay state and local taxes in bitcoin it would be possible to use bitcoin exclusively for all transactions.
I am aware of plenty of people saying it about the internet now - both that information has become an artifact of the internet and that the internet has become an artifact of the state (specifically, of American cultural and political hegemony.)
Some of these allow you to develop altcoins that are backed by Bitcoin, called sidechains (see Elements Alpha for an example ). There's other clever ways to use the scripting system to do fancy things that could help lower the cost of transactions, like the Lightning network .
 https://www.blocktrail.com/BTC (scroll to "Pool Distribution", today more than half the mining capacity is in two pools)
"The rank-size rule (or law), describes the remarkable regularity in many phenomena, including the distribution of city sizes, the sizes of businesses, the sizes of particles (such as sand), the lengths of rivers, the frequencies of word usage, and wealth among individuals. All are real-world observations that follow power laws"
Why would switching to a cryptocurrency that is better designed be a bad thing?
Additionally, admins at most major bitcoin news sites censored or banned users discussing it.
Switching to another cryptocurrency is a whole different can of worms - remember, btc right now costs around $420 a coin, and all that value is because of the total sum of people invested in it. No other cryptocurrency has anything close to the btc market cap, so capital fleeing the bitcoin blockchain may not trust alternative ones that are much smaller. The problem with bitcoin right now is that mining power is majority controlled by a very small group of people, and any other competitive cryptocurrency is much more at risk for whales taking control.
what can change to make this better? Because it seems the root of the problem is that some small group of people managed to amass a large amount of hardware.
In theory, Litecoin would not have the same pandemic ASIC runaway market control problem. GPUs would still moderately competitive, and act as a counterbalance that normal users have available to them to mine. There would be custom scrypt hardware, certainly, but it would most likely not have the insane performance advantage over general purpose computers that SHA algorithms have.p
To fix bitcoin itself, you need to commoditize the hashing hardware used by the best in the industry. If everyone had access to the ASIC's bitfury were using at reasonable prices normal people could afford, people could distribute the mining more, but as it is most of these vendors are using in house solutions that dramatically outperform off the shelf bitcoin mining hardware.
Something that's really confusing is that the word "fork" actually means at least two different things in the block-size debate context. The first is forking the bitcoin software, and the second is forking of the bitcoin blockchain/network. Bitcoin XT, Hearn's project, was the former, a software fork, that would cause a "hard-fork" in the blockchain. Hard-forks in Bitcoin are very dangerous. There has never been an intentional hard-fork of the Bitcoin blockchain since its inception 7 years ago.
There's a very difficult question of just simply, "how do hard-fork?" A hard-fork would separate the p2p network into two different networks with incompatible rules. A hasty hard-fork could very easily destroy people's money and bitcoin all together. Many, including myself, strongly disagree with Bitcoin XT's hard-fork procedure.
It's also not clear that this particular software fork, Bitcoin XT, is better. I'm not going to go into that issue here as it's extremely complicated. We have an alternative solution, segregated witness, which is effectively equivalent to Bitcoin XT's short-term plan implemented as a blockchain soft-fork. Soft-forks are significantly less dangerous as they do not segregate the network.
The idea that hard forks are dangerous or irresponsible is a belief that is not well supported. However it's a rather good piece of Bitcoin Core propaganda to scare people away from doing what's necessary.
bip99 - https://github.com/bitcoin/bips/blob/master/bip-0099.mediawi...
> scare people away from doing what's necessary
Most block size hard-forks can be deployed as a soft-fork. "It's necessary" is highly contentious and you have failed to cite any of the arguments you disagree with- you're wasting everyone's time.
An accidental hard-fork is a completely different animal from an intentional contentious hard-fork where half of the network goes one way and the other half the other way for the foreseeable future.
Could a cryptocurrency not be controlled by those who can afford to spend the most in CPU power (like governments)?
Could consensus occur by human power?
> What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.
The thing that jumps out to me the most at this point is that Nakomoto also wrote:
> The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes.
And with Heard's article, presuming that the facts are true, which seems to very much be the case, this seems to me the most serious risk to the system.
If the block size becomes a problem, it will change. It is not yet a problem. If the transition is painful, people will be more open to this kind of warning in the future. If it's painless this will all have been moot.
That's a controversial premise that the article repeatedly addresses.
You may not be convinced, but there is a lot of stuff cited in there on that exact point. Those links lead to other resources fleshing this out pretty quickly.[2, 3]
I found this bit persuasive:
> "Some customers contacted Chris earlier today asking why our bitcoin payouts didn’t execute ... The issue is that it’s now officially impossible to depend upon the bitcoin network anymore to know when or if your payment will be transacted, because the congestion is so bad that even minor spikes in volume create dramatic changes in network conditions. To whom is it acceptable that one could wait either 60 minutes or 14 hours, chosen at random? It’s ludicrous that people are actually writing posts on reddit claiming that there is no crisis. People were criticizing my post yesterday on the grounds that I somehow overstated the seriousness of the situation. Do these people actually use the bitcoin network to send money everyday?"[original article, citing ]
I'm an outsider here, and don't have a stake in this. So maybe people who have followed this debate more closely can recognize that as a total fabrication, but to me it sounded like a plausible business concern.
I actually think it seems like pretty good evidence. They're adding a (according to the author) questionable feature with notable possible downsides while ignoring a long standing problem with the simple solution because it (allegedly) furthers their goals to have the problem continue to exist.
It's opt in, anyone that wants to accept zero conf can just insist that all transactions don't opt in.
>a long standing problem with the simple solution
Hard forking bitcoin is not simple. It's never been done before on purpose, and many people are extremely hesitant to mess around with a billion dollar system.
Why is it hypocritical? He complains that some transactions took too long to go through. With RBF, those transactions could simply be resent with a higher fee. But if you're against RBF, then you need the original transaction to go through, and you'll have to wait if it had a low fee.
Basically, the problem is caused by his own opposition to RBF, as far as I see.
(Disclaimer: I've been spending less time around the bitcoin community recently, so my information might be out of date. The patch that was committed is definitely opt-in, but I can't guarantee all the mechanics work how I'm describing them.)
I think this paints Hearn's attack in a significantly worse light as I had previously thought.
The original Medium post disagrees with this premise.
This might simply mean that bitcoin is too immature and isn't quite ready for the mainstream.
So we're at what, 0.9 Exahash?
Say you want to force the change. You'd need to add three times that, or 2.7 EHash/s.
Let's say you buy a ton of AntMiners to cover that, at 3.3 GHash/s/$.
So that's a paltry, what... $820 Million?
Less if you just buy the factory in Shenzhen.
Basically just one winning Powerball ticket though.
Caveat emptor: my ability to eyeball math in the peta-exa-yotta range is spotty at best. These results may be off by a factor of... any factor.
Because if so, it sounds like you can buy your way to raised thresholds.
Oh, I see... Can you really call it a main branch if you just added all the capacity that is immediately forked? Or is it really just an independent unrelated project at that point?
Let me lay those semantic issues to rest by noting that my original post was not in any way a serious proposal. I was just thinking through the implications of a few individuals with fiat over the voting.
(We plan to build something to aggregate URLs so this will become less of an issue.)
Disclaimer: I raised bitcoin to work on open-source anticancer R&D
There was no way in hell a normal, non-tech guy could ever understand it enough to use it everyday.
This was a case of tech folks missing the woods for the trees. Even this article will go way over the heads of 99% of people on the planet.
Why would you go through all that pain when cash is everywhere, easy to access, and easy to understand?
Asking someone in their 20s or 30s to learn a completely new monetary system, one built on things as "obscure" (to the lay person) as bits and bytes - well, that's asking a bit too much.
The current monetary system might be confusing if you dig in, but its implementation is ridiculously simple.
The same can be said of Bitcoin though. Everyday usage is simple.
This means for me as punter that I can't pay with cash anymore and for me the same thing applies. All my money can be checked.
I still want to be able to spend money without anybody tracking me. You know because there are privacy concerns. Maybe governments in the future ban buying ice cream and I need to be able to buy my ice cream fix?
All kinds of famous/important people predict Bitcoin's death every week, but it just keeps going.
Either way, the main question still remains, and it doesn't look like a citation is forthcoming. Going to file this under unfounded speculation for now.