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Bitcoin: A Peer-to-Peer Electronic Cash System (2008) [pdf] (bitcoin.org)
516 points by sova 11 months ago | hide | past | web | favorite | 385 comments



It truly is a wonderful paper. Lots of information in it. You don't need that much background knowledge to understand it, but it can take a few reads to wrap your mind around it.

I would suggest also taking a look at the annotated version of the whitepaper on Fermat's Library:

- https://fermatslibrary.com/s/bitcoin

I wrote some of the annotations and tried as much as possible to make it so that this annotated version would provide a motivated reader with all the resources needed to truly understand the bitcoin protocol.

Michael Nielsen's blogpost about Bitcoin (http://www.michaelnielsen.org/ddi/how-the-bitcoin-protocol-a...) is also a great read.


Wow, thanks for sharing that link to Fermat’s library. What an amazing resource.


Will it ever be possible to use AI/ML to identify Satoshi based on the writing style of this original paper of bitcoin?


I think I remember seeing a medium article speculating that the NSA has done this.

Found it: https://medium.com/cryptomuse/how-the-nsa-caught-satoshi-nak...


I don't think the NSA is/was the threat. If there is ever a singularity moment and an AI comes to emerge, it'll need funds to build it's power. What better way than finding the identity of Satoshi and getting his private keys?


Very interesting!


that'd explain why he's missing


Do we know if Satoshi lurks around hacker news and is having a chuckle reading the comments here?


A fellow coder can dream.


As the population size increases so does the error-rate in stylometry. See the case of Andrej Holm.


I expect he took some precautions in this area, of course it's no guarantee against future advances.


Similar to Fermats Library is the annotated version from Genius.com: https://genius.com/3869621


for a more "idiots guide" approach, I recommend

https://learnbitcoin.cash

there is even a faucet (pretty much the site sends you a few pennies worth of BCH for free) and instructions to setup a wallet.


That faucet doesn't appear to work.


I didn't read the whitepaper for years because I assumed I wouldn't understand it.

When I finally (recently) did I was dumbstruck by its simplicity.

This was a big lesson for me: I should always at least try to understand these big ideas even if deep understanding will probably elude me.


Yeah, the whitepaper is very approachable. It's amazing how simple it is.

Along similar lines (complex topics explained beautifully and simply by their creators), I recommend Relativity: The Special and General Theory[1] by the man himself. It's a great explanation of relativity without the need to have a strong math background. He explains it in the form of thought experiments, as only he could do. "What if you were in a cage in space with a rope tied to the top and it was being pulled upward by a giant at a constant acceleration (simulating gravity)? How would you perceive the world?" (Spoiler: This is gravity.) "What if you were on a spinning disk and had a ruler and tried to calculate pi?" "What if you were on a train moving really fast and two lightning bolts struck at the same time?"

[1] https://www.amazon.com/Relativity-Special-General-Albert-Ein...


> "What if you were on a train moving really fast and two lightning bolts struck at the same time?"

I read one of Albert Einstein's popular science on the same topic and folded when a completely paradox statement was justified by saying, welp you'll surely agree on this.


Difference is that Bitcoin actually works, Relativity on the other hand remains a theory.


Says the guy who probably uses the GPS (one of the most visible application of Relativity) on his phone every other day.

Like we don't already have enough problem with trolls on other sites, we now have them on HN. Sigh


Relativity is hugely useful for scientists and make predicted with extreme accuracy.

So it's a theory, but one could say that it is much more useful than Bitcoin.

Btw, Bitcoin also works based on mathematical theories. If someone were to prove P = NP, Bitcoin doesn't work any more, because I can now steal all your money. The current belief is P != NP, that's why people trust bitcoin, and crypto in general. But it's still a theory.


A theory that makes verifiable predictions is one that "works". Relativity fulfills this criteria.


Yeah it was hilarious for me too.

When I first started learning about Bitcoin, I automatically assumed that the whitepaper would be filled with all kinds of fluff like most other research papers, so I never read it.

Instead I tried to learn from all the "Learn Bitcoin in 10 minutes", "Build your own Blockchain in 200 lines", and all that stuff, all of which are nothing more than a shallow scraping the surface type of pop-sci content.

The problem with these Medium articles and "intro to Bitcoin" posts is that they're trying too hard to abstract out something that's already simple, that the abstraction itself is much more complex than what it actually is. Not to mention the fact that after reading all that stuff, all you come away with is some abstraction, not the actual Bitcoin.

Anyway, so I thought why not just take a look at the whitepaper. And I was blown away. I've never seen a "research paper" with so little fluff. The whitepaper helped me understand Bitcoin much better than all the weird analogy intro blog posts that litter the web.

I recommend anyone to just start from the whitepaper.


I think I see where you're coming from here. When I see something typeset with Latex/in the Computer Modern font...the quick assumption I make is that I'm not going to understand a single word of it.


That is my default assumption too, that I will not get what they are saying.

OT: This paper is produced using a wordprocessor; my PDF reader says it is produced by OpenOffice.org 2.4. The word spacing and justification of paragraphs makes me think that this is not LaTeX, nevertheless it looks professional. Tex experts have also come to this conclusion [1]. But is it the original PDF or someone's version/copy of it?

[1] : https://tex.stackexchange.com/questions/306754/was-anything-...


It's the original. Satoshi used Computer Modern for the headers, which is kind of strange. I guess they wanted to give it the TeX vibe, but didn't want to use LaTeX for some reason.

If anyone wants to collaborate on a TeX version, let me know!


There are two sides to that issue. On the one hand, the point of publishing research is to make knowledge available to humanity, so if you are having trouble understanding even the basic premise of a research paper (what problem it is addressing, etc.) then the authors are failing to achieve that goal. On the other hand, if every published paper was written to be accessible for non-experts in the field, papers would become longer and longer over time as lines of research progressed.

Unfortunately there is no reward for researchers taking the time to write tutorial and survey papers that give more readable explanations of particular lines of work.


Should there be? Seems pointless to target every paper for entry level understanding, paper length would grow exponentially and it would quickly become unreadable.


Kind of like LISP. When I read McCarthy's original papers, it had that same feeling of simplicity, and you could easily see how it mapped directly to the hardware. Original papers are often the best. Chuck Moores book on FORTH was finally released as a PDF, but he wrote it in the early 1970's. Amazing. I knew FORTH was linked to LISP, and the link is explained in there.


Do you mean Programming a Problem-Oriented Language?

http://www.forth.org/POL.pdf

This is really great, I didn't know about this.


> I should always at least try to understand these big ideas even if deep understanding will probably elude me.

To be fair, even Satoshi apparently didn't understand the applications of blockchain beyond currency.


Of course he did. Smart contracts had been floating around for a while. And that's why he included all those operators in the Bitcoin scripting language which then had to be disabled early on because their security & resource consumption were totally unpredictable.


There's an argument that Satoshi is Nick Szabo, the person who invented the term 'smart contract'.

https://en.wikipedia.org/wiki/Smart_contract

> The phrase "smart contracts" was coined by Nick Szabo in 1996, and reworked over several years. Szabo's first publication, "Smart Contracts: Building Blocks for Digital Free Markets" was published in Extropy #16,[3] and then later reworked as "Formalizing and Securing Relationships on Public Networks."[4]


I doubt it: he explicitly denied it in a blog post, and it's not clear how good he is at programming and system design (for all that he's obviously smart). More speculatively, I kind of doubt his personality as shown by his writing is that compatible with maintaining Nakamoto's personality as shown by theirs.

Also, your prior shouldn't be too high: although Szabo is well-known from his writings now, they didn't come out of nowhere. He previously worked for Agorics, Inc., which was founded to develop these ideas: https://e-drexler.com/d/09/00/AgoricsPapers/agoricpapers.htm... which I think of as more fundamental than Szabo's smart-contracts paper. (Admittedly I never finished slogging through that one.) If you think of smart contracts as emerging from nowhere then it probably seems more likely for Nick Szabo to be the lone genius behind it all.


It's always good to read the masters.


That is the beauty of it. It is only eight pages long, but fundamentally changes the concept of money.

The only thing that people should recognize is that it doesn't really try to explain the game theory behind it. It is a technical paper. When it all sinks in, it becomes clear that it is pure genius, but that certainly took me a while to grasp.


Yes, that's why it highly irritates me when people repeat the Tulip bulb analogy. Bitcoin may be in a bubble, and it scares me. But it amazes me how little people think, before that kind of pattern matching.

I read the paper about 2 years back, after reading Nathaniel Popper's book 'Digital Gold...' which presents the history of cypherpunks, leading upto Satoshi's white paper. The book was enjoyable to read. And the paper's brilliance was stunning.

That said, when I think of it deeply, it does seem to me similar to pyramid schemes. The early adopters have a unfair advantage.

Also, its better that an alternative to proof-of-work is found. Although the argument is support of that, is that, it perhaps takes more energy to sustain the present financial system, the base of which Bitcoin intends to replace.

So I find myself in a curious position of being in the Blockchain camp, and unwillingly though. Which is because people who typically are in that camp, say the tech is good, but Bitcoin is not. But I believe Bitcoin by itself is a fantastic and disruptive thing. Without that app there is no platform (blockchain) evolution.

But of course Bitcoin has flaws, and we could be in a big bubble. But no half baked Tulip bulbs analogy please+.

Another flaw which I find with Bitcoin is the ownership is very fragile, compared to real world ownership. In these days of phone cameras, all it takes is an accidental photo of my secret 12 words, for my satoshis to get compromised. Or there is no alternative, if I lose my private key. Real world banks have ample ways of addressing the identity and tend to offer more robust possession safety.

+ - I have not seen that analogy on HN, thankfully, but its there every where. Yesterday, I saw a respected VC making it on LinkedIn.

Edit: minor


> The early adopters have a unfair advantage.

That's absolutely true but consider this: early adopters always have an advantage, in fact just being born earlier than someone else gives you an advantage. Family wealth, real estate ownership, rent seeking, tenure and so on are all linked because of this.


Furthermore, I've tried to pay lots of people in bitcoin over the last couple of years, and often the response is "fake money? no thanks, I want real money please".

Largely from the same people who complain most loudly about inequality. You can lead the horse to water, but you can't make it drink...


Always is a big word. So you are saying people living today have a disadvantage against people from 200 years ago? I mean I get where you are coming from... less competition and more room left to explore but there is also less knowledge to start from and less people to cooperate with. The advantage depends not on time but on how resources, in particular knowledge, is distributed in a society - bitcoin makes a design decision which undouly favors early over late adopters but it wouldn‘t necessarily need to.


> bitcoin makes a design decision which undouly favors early over late adopters but it wouldn‘t necessarily need to.

Explain please how it would be possible to create something like bitcoin which does not in some way or other favor early adopters over later ones, I really can't see it so this is a genuine question. Not 'pre-mining' is roughly equal to simply not adopting it at all. I see it analogous to a founder not believing in their product to the point that they will not use it. Of course 'Satoshi' could have not pre-mined as much but who is to say whether those coins are even accessible today?

And anybody that joined in later than that already lost that early adopters advantage compared to those that joined earlier.

Which probably means that (wild hyperbolic assumption following) if you haven't done anything with it so far you'd look at me and my miserly number of coins as an 'early adopter' whereas I was - and still am - pretty skeptical about bitcoins long term viability.


Sorry for the late reply, I am not a regular poster so I forgot about the comment :(

I didn‘t say that there wouldn‘t be any favoring towards early adopters... a „better system“ will by definition always favor early adopters at least through efficiency gains accrued through the usage of the system over users who have not yet adopted. BUT bitcoin is crazy in terms of „value“ increase that is not related to any real gains in practice. People buy tokens because people invest money to find tokens because people buy tokens. And because everyone seems to be „making money“ from that things just continue... It‘s like with the rat who can control its own cocain supply...

So what I meant to say is - this specific system design is madness!

DLT in general is very interesting and I am playing around with some ideas regarding currency pegged tokens that increase in value if empirically verifiable achievments/improvements have been made. The goal is to create common-interest communities that are rewarded for realizing real-life impacts. So even people not participating profit. People who join in profit a little more. The goal is to have sustainable growth and predictable prices.


Bingo. Love the theory. It should work. Let's see.


And your secret 12 words, even if never revealed to anyone, presents to you considerable frailty:

https://www.youtube.com/watch?v=foil0hzl4Pg


That's a talk about brainwallets, which is something else. Brainwallets are generally chosen by humans; you can't rigorously prove how much entropy they have, and in practice it's usually much less than people realize.

With a proper 12-word phrase, each is randomly chosen from a list of 2048 words for 11 bits of entropy per word. That's 132 bits of entropy, which is not crackable. (With a 24-word phrase you subtract 8 bits for a checksum; I'm not sure about the 12-word format, but 124 bits of entropy isn't crackable either.)


Ah, I did not realize that. Thanks for clarifying for me!


These are all important considerations that any investor in bitcoin needs to consider.


"That is the beauty of it. It is only eight pages long, but fundamentally changes the concept of money."

Not really; it only serves to validate the beliefs of people who already agreed with the basic premise that money is something that can exist without central authority. That view was already common long before the Bitcoin paper. Plenty of libertarians believe that money is an emergent phenomenon of free markets, something which arises on its own as the market converges on a common currency as its medium of exchange.

On the other hand, if you are aligned with the mainstream of economics, the entire premise of the paper is easily dismissed. In that view, money can never be separated from banks, the paper is basically nonsense.


Money is an emergent phenomenon of markets, and it has nothing to do with libertarians.

https://en.wikipedia.org/wiki/Coincidence_of_wants


How does that prove money is an emergent phenomenon of markets? In fact, that article suggests exactly what the historical evidence suggests: markets cannot really exist without money. Societies without money tend to only engage in trade with strangers, rather than having markets:

https://monoskop.org/images/3/36/Graeber_David_Toward_an_Ant...


For an example of money showing up in Barter systems look at diablo 2's use of stone of Jordon's as a proxy for money.


It can't prove it any better than than anything else can bridge the is-ought gap. I agree that markets can't exist without money, but I think historical evidence suggests that they will create money in order to exist. Almost every society in human history has developed a monetary system; either one based around a commodity as simple as camels, bullion or sea shells, or backed by fiat.


Well, the same author from the link I gave happens to have also written a book on that very topic that you might find interesting:

https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years


I'll check it out. Thank you.


> "Money is an emergent phenomenon of markets, and it has nothing to do with libertarians."

let me fix that for you: "Money is an emergent phenomenon of markets, markets are a fundamental feature of libertarianism, therefore money has everything to do with libertarianism."


Markets are ~10,000+ years older than libertarians. Some early examples had people swapping from banditry to trade depending on how well armed the people they encountered where. No outside forces nessisarily, but no rule of law either.


Sure markets may be older than libertarians, but even though libertarians didn't exist to enunciate libertarian theory back then, the fundamental libertarian phenomenon of non-aggression and voluntary exchange as you mention was indeed present.


But most non-libertarians believe in non-aggression and voluntary exchange too. They just argue that some taxes aren't aggression and some exchanges aren't really voluntary.


These where often rather agressive trades, even without violence actually occurring it's threat was still on the table.


Markets are a reflection of human action. Political science is concerned with quantifying and influencing human action, thus markets are a fundamental feature of all political schools of thought.


No need to be so dismissive. The abstract term "decentralized" hides a lot of the complexity in Bitcoin. It is also programmable money, irreversible money, geographically unbound money, fast money, and transparent money.


> On the other hand, if you are aligned with the mainstream of economics, the entire premise of the paper is easily dismissed. In that view, money can never be separated from banks, the paper is basically nonsense.

So, did banks invent gold? Or did gold give rise to banks?

How can banks even exist in the first place unless we already have a common medium of exchange (gold), which can deposited into said banks?


Actually, the first banks, along with the first money and the first markets, developed from the palace economies of early city states. Originally the proto-bank maintained records of what each person had deposited with the temple, what had been given to various people, and what was available to give. Those ledgers recorded each type of deposit (wheat, cloth, olives, etc.) with a different unit; the innovation that gave rise to money was the transition to a single unit of account.


That’s really interesting! Were these banks private enterprises? I assume people voluntarily deposited commodities in exchange for a common medium of exchange.

The problem arises when depositors can’t redeem their medium of exchange for the commodities they originally deposited, or something of equivalent value.

By the way, I’m convinced Bitcoin will not function without credit instruments, just like was the case with gold. I’d argue there’s a huge difference between redeemable and irredeemable credit instruments, though. The latter being an artifact of government regulation.


"Were these banks private enterprises?"

Sort of; at that time it the boundaries were less clearly defined between what was governmental and what was private. The basic economic structure was for a large temple to store the various goods people produced, and to give the goods out to people as necessary. For example, a farmer would deposit grain, and the grain would be redistributed throughout the city-state; the farmer would receive other things from the temple, like clothes and tools. The record-keeping served two purposes: to keep track of what was available for distribution, and to keep track of who was contributing what. This was the "palace economy:"

https://en.wikipedia.org/wiki/Palace_economy

The bible makes reference to such a system in the story of Joseph (which is ancient enough that palace economies still existed when the story was first written), who was the administrator of such a system in Egypt:

http://www.mechon-mamre.org/p/pt/pt0141.htm#47

"I assume people voluntarily deposited commodities in exchange for a common medium of exchange."

Not originally and not universally. It was more like a system of 100% taxation in some of the early palace economies, where everyone deposited everything they produced with the temple, and then received things as they were needed. You were basically not allowed to live in the city without contributing something (he who does not work shall not eat), though a person could always work for the temple itself e.g. as a sacred prostitute. Of course the specific laws and economic organization varied from city to city, and plenty of people lived far outside the cities and had their own ways to manage goods; the specific details varied with different places and periods of time.

What you received for your deposit was often just an update to the temple's ledgers clearing a debt you owed the temple (i.e. indicating you paid your taxes; often referred to as "offerings" in the biblical legal code) and possibly offset future taxes. If you were unable to make good on that obligation, your land could be seized and you could become a slave until the king declared a general amnesty (not uncommon in the ancient world; the biblical legal code requires slaves to be given amnesty after 7 years of service, and a similar amnesty provision is in the code of Hammurabi). The story of Joseph also indicates that this exact scenario had played out under Joseph's administration in Egypt: the farmers were forced to turn their lands over to the government during a famine (I am not suggesting that the bible is historical; rather, in ancient Israel at the time that story was written, people were familiar with the situation).

As the economies became better developed and the scale increased, money (i.e. a single unit of account that serves as a common medium of exchange) and markets (i.e. trade between inhabitants of the same city) began to replace the temple economy system, at which point private banking enterprises became more clearly defined. For example:

https://en.wikipedia.org/wiki/House_of_Egibi

https://en.wikipedia.org/wiki/Murashu_family


And yet, reality has seemed to prove these economics wrong.

You can use this "nonsense" money right now. And nothing that any economist says about it can stop you.


if I'd be willing to pay 6-20 bucks for a simple transaction with a volatile currency and wanted to live with the threat of having my account hacked and no insurance whatsoever, sure


Your money has been hacked. You just don't recognize it.

https://d3fy651gv2fhd3.cloudfront.net/charts/united-states-m...

PS. Every standard sized bitcoin transaction bar the past three days (and those will too), that people paid over 5c for has been committed to the blockchain.


Yeah, that rampant inflation sure destroyed my savings account.

Oh wait, no it didn't.


House prices look like they're continuing their 30-year boom in my area. Oh that's right, they took them out of inflation statistics in 1983.

How's education costing these days, anyway? Healthcare?


Can you buy the same things for the same prices as when you first started saving?


That's not my money because I do not own any US Dollars, and more importantly I don't really see why a graph showing me the money supply is supposed to convince me to buy Bitcoin


Don't. No one is forcing you to buy bitcoin. If you don't recognise its value proposition, don't invest in it.


You cannot use it to pay your mortgage, nor to pay your taxes. You cannot even use it to pay Steam...


I have a bitcoin debit card. I use it to pay all of these things. Your argument is akin to a person in the US saying that a person from Europe using their visa card, isn't using real money, because you don't control it.


> I have a bitcoin debit card. I use it to pay all of these things. Your argument is akin to a person in the US saying that a person from Europe using their visa card, isn't using real money, because you don't control it.

If the person from Europe comes to US, goes to McDonald's, buys a meal whose price is denominated in USD with his European credit card and tells me he made the purchase with Euro, I would consider that a false statement. To me, he made the purchase in USD, his credit card company just will make the FX conversion for him and accept EUR from him when he pays his credit card bill.


What is a Bitcoin debit card? What payment system does that card actually use?

Converting BTC to fiat currency on the spot is not really the same thing as using Bitcoin to pay your bills, any more than selling some shares of stock and using the money to buy a house is the same thing as buying a house using shares of stock.


It's a standard mag stripe card that draws from a Bitcoin account and can be used anywhere. They're quite common.


IOW you are not paying with BTC, you are selling BTC for some fiat currency and using the proceeds to make the payment.


If I take my US debit card to Europe and buy things there, essentially the same thing happens.


But you are not paying the European merchant with USD.


Neither are you paying with USD even if your debit card directly debits your USD account. It's a proxy for paying with USD, just like a bitcoin debit account is a proxy for paying with bitcoin. That the conversion and account adjust ment happen in one currency or another does not mean that currency is directly involved, it is merely a convenient stand-in for the number reflecting your balance, an attribute of it.

People think that banks hold their money: they don't. The bank simply owes you your money but they don't hold it for you. What you get in return for your money is a statement from the bank what debt they owe you and a device to convert that debt into goods whenever you feel like it. That device is not the same as the underlying money, it is merely a proxy for your debt.

Which you'd find out about in a hurry if your bank ever went under and your card stopped to work.


Are there standard mag stripe/chip cards that draw from a BTC account and exchange into fiat at the time of purchase of a good?

All the cards I've seen when I looked into it a bit ago converted into fiat at the time of charging the card with BTC (ie, you send BTC, that got converted into fiat immediately (at pretty mediocre rates), and then you could use that fiat to purchase stuff or withdraw cash (at pretty mediocre rates, again)).


If you buy a debit card with $1000 on it with an ounce of gold, do you now have a gold debit card?


Yes. I think GoldMoney issues those kind of cards.


Maybe I'm not clear on how a btc debit works but that seems foolish. Maybe a few years ago when it could actually function as a medium of exchange. Now the transaction fees are exorbitant.


> Now the transaction fees are exorbitant.

All the remarks about the skyrocketing fees can be cut short by pointing out that Bitcoin Cash (which is much closer to the Bitcoin described in the white paper than Bitcoin Segwit [BTC]) doesn't have this problem. Just like Satoshi Nakamoto said that the block size limit could be raised once blocks started to get full, the developers of the Bitcoin Cash software also say the current max. block size of 8 MB can be raised if the blocks get full.


If you want an alt coin with more capacity than bcash, more decentralised, and faster, use litecoin. It even has atomic swaps with bitcoin.

Look at the price. Going bananas.


No, I'm good. Besides, Litecoin's capacity isn't bigger.


Like i said...


> I'm not clear on how a btc debit works but that seems foolish.

Not sure there's any response possible for that one. "I don't know how it works, but I think it's dumb."

> Now the transaction fees are exorbitant.

Every standard sized bitcoin transaction bar the past three days (and those will too), that people paid over 5c for has been committed to the blockchain.


Either pay a ridiculous fee or wait a ridiculous amount of time for confirmation?

Replace by fee is a thing, as long as the tx is unconfirmed it could be replaced. You're effectively saying the wait time is now 3 days unless you want to pay a fee of several dollars. So that rules out most transactions.

How do you pay for anything given those restrictions?


By aggregating commits to the blockchain, and doing them in batches.


Sorry but non of this sounds very convenient or useable. It seems like you just really like btc so you're making concessions on usability.


> Sorry but non of this sounds very convenient or useable

Then you don't understand how bitcoin works, so it's probably best you refrain from commenting on bitcoin architecture.

https://www.youtube.com/watch?time_continue=6&v=4E3NiDC9i8E


You can't explain how your bitcoin debit is usable without paying a high fee or waiting a long time, so I don't know how bitcoin works? I hardly think that's fair. Your responses are practically non-sequiturs.

Lightning network hasn't been rolled out yet. It has nothing to do with our conversation.


What it did, was it made it possible to create a decentralized store of value without the need of a central authority. And that has definitely made people question their understanding of what money even is.


Not really. Anyone who is confident in the mainstream view of money, which requires the existence of a bank or government of some kind, would quickly dismiss Bitcoin. If I cannot pay my taxes or mortgage with it, why should I accept it?

(And of course, if I can pay my taxes and mortgage, how can anyone claim to have removed the central authority from money? Just like the gold standard, nothing would prevent a government from changing its mind about whether or not to accept Bitcoin for tax payments.)

Like I said, if you already believe that money can exist without a central authority, Bitcoin simply serves as validation. Otherwise it does not really change anything, because if you accept mainstream views of money, then the premise of Bitcoin makes no sense at all.

You think Bitcoin is a decentralized store of value? Tell that to all those people whining about the Mtgox bankruptcy proceeding, which is being resolved by paying for the lost BTC according to the price in Yen at the time Mtgox declared bankruptcy which is a tiny fraction of the current prices. When push comes to shove the "value" being stored is measured in fiat currency, with all its associated central authorities.


> You think Bitcoin is a decentralized store of value? Tell that to all those people whining about the Mtgox bankruptcy proceeding

That is a gross misrepresentation and a misunderstanding of the point of a decentralized store of value. "All those people whining about the Mtgox bankruptcy proceeding" were not using a decentralized store of value. They were using a centralized broker that handled things for them. If they kept their own private keys and managed their coins directly, in a decentralized way, they would be still whole today.


> Tell that to all those people whining about the Mtgox bankruptcy proceeding

Not sure what your point is, dollars(cash) can be stolen as well.


The context: MtGox is currently going through a bankruptcy proceeding in Japan. The complaint right now is that the creditors i.e. people who had accounts with positive BTC balances when MtGox declared bankruptcy will be repaid in JPY, according to the price of their BTC balance when MtGox declared bankruptcy in 2014. Since then, the value of BTC has obviously increased quite a lot, so much so that MtGox can actually use its remaining BTC assets to repay those creditors, leaving plenty of BTC to pay the shareholders.

In other words, even if you think Bitcoin acts as a "store of value," that still does not make it "money" according to the law. You can have 1BTC or 100BTC, but the law is only concerned with the monetary (i.e. fiat currency) value at some particular time (not necessarily right now).


Ergo : Don't trust banks.


...the same would apply if I had promised to pay you in BTC and then failed to make that payment. This is not really about trusting banks.


Actually it is.


> Anyone who is confident in the mainstream view of money

That belief structure is being challenged as we speak.

> Tell that to all those people whining about the Mtgox bankruptcy proceeding

The only thing that proved, is that you can't trust a bank.


Gold and silver were a decentralized store of value from about 600BC till 1935AD, so ~2500 years. FDR and Congress made owning gold illegal in 1934 and then the dollar went off the gold standard in 1971. Previous fiat currencies have usually not lasted more that a few generations before they blow up. Now is about the right time for that to happen.

Reading history is fun and can help one understand the present. I'd highly recommend it. "Debt: The first 5000 years" is a great book and a good start at trying to understand what money is/has been.


> it made it possible to create a decentralized store of value without the need of a central authority

In itself, that always existed: it's called gold and gems. It's the most primitive store of value ever- modern economies were born when we went past it.


Gold and gems can't be instantaneously and safely transacted over the internet.

Name-calling cryptocurrencies "primitive" when they're clearly not doesn't lend a lot of weight to your argument.


Yes, bitcoin is better than gold in that it's virtual and can be transferred over the internet. But that doesn't change the fact that it's a store of value like gold is, and not a currency.

> Name-calling cryptocurrencies "primitive"

I called gold primitive as a currency. And made an argument for bitcoin (specifically) being similar to gold.

Edit: btw, gold 500 years ago had the same exact property of bitcoin today: it was immediately transferable to anybody you were in contact with and could buy goods from. That didn't make it better.


BTC cannot be instantaneously transacted at all, over the internet or otherwise.


It's closer to a commodity than a currency: fixed supply. In fact, the IRS is treating BTC as a commodity, to be valued, for tax purposes.


You should probably at some point recognize that everyone doesn't live in America


Oh sure, US was just demonstrative: I think commodity is the right mindset, both as a user and as a community. Banning it's not going to happen, taxing it will be tricky, and it may be premature to rework anybody's tax system just for BTC.


Pretty sure paper says it is a p2p cash system. The goal wasn't a store of value that was a natural side effect of the limited supply and the utility of the network effect from being a means of transacting.


please read.

not necessarily related to this thread.

for you own good. this is straight from satoshi. I know you hate him. I don't care.

https://fr.scribd.com/document/359522859/Bitcoin-Network-Top...


> fundamentally changes the concept of money.

If there is something Satoshi Nakamoto didn't seem to understand, is money. He designed a system that, being capped to a max amount of units, is intrinsically deflationary, and thus cannot serve as money. You don't transact with something that was worth x last year and 2x this year (not to mention 10k last week and 17k this week), it's just dumb.


> intrinsically deflationary, and thus cannot serve as money.

It is hard getting out of the inflationary currency mind-set, I recognize that.

> it's just dumb.

It's great. The money put on my debit card card a few months ago means that the beers I buy today are 1/3 of the price of what they were relative to the time the money was put on the card. And you know what's better than beer? Good beer on special.


You do know that trend isn’t sustainable, right? Bitcoin evangelists in 2017 seem to love talking about the rate of increase in price as if increasing in value by 300% every couple of months is a built-in feature.


I expect bitcoin to stabilize at an ever appreciating value in line with existing inflation. And not government CPI, with their hedonic quality adjustments either, actual inflation. But I don't see getting to that point for a long long time.


Why would you expect bitcoin to stabilize? I see no mechanism that would do that. Gold has had thousands of years of use as money-like instrument, and only periods of relative (nominal) stability during the last century or so have been when there have been organizations (central banks) to keep that stable.

http://www.macrotrends.net/1333/historical-gold-prices-100-y...

(be sure to play around with the "inflation adjusted" checkbox)


Yes, cryptocurrency prices will stabilize when they displace all fiat currencies ;) Because, until they do, they'll be too damn attractive for speculative investors to resist. That was part of the original plan, as I recall from discussion in various cryptoanarchist forums.


I think you shouldn't buy those beers: in a few more months they'll be a 1/9th of the price. And maybe then you should wait again...


In that case I assume you never brought a computer from 2000-2010, when you could wait a year or so to get twice the computation for the same price?

For that matter, would you even buy beer now, when you could instead invest the money risk-free in US govt. bonds so you could buy more beer in future?


I did, but during the years I certainly delayed the purchase of many technological goods because I assumed that waiting for their price to decrease or their performances to improve was a wise thing to do. Didn't you? Imagine how companies loved that, and imagine extending it to just everything, from food to housing.

However, with technological items there was always another side: the new ones were so much better than our current ones, ours were actually getting old faster, and we were driven to buy. The same won't happen with the other goods on the market.

The interest of gov bonds or of any other financial instrument afaik represents (and is proportional to) a risk of not getting repaid.


>I did, but during the years I certainly delayed the purchase of many technological goods because I assumed that waiting for their price to decrease or their performances to improve was a wise thing to do. Didn't you?

But you still purchased it eventually. In that sense a deflationary currency might change the balance of consumer spending vs saving in favour of more saving, but that doesn't mean a continuous downwards spiral in spending, it could just be a new equilibrium.

>Imagine how companies loved that, and imagine extending it to just everything, from food to housing.

Personally I'd absolutely love if house prices halved every year, as at the rate they're currently increasing it'll be a long time before I could afford even a tiny apartment anywhere near where I work.

>However, with technological items there was always another side: the new ones were so much better than our current ones, ours were actually getting old faster, and we were driven to buy. The same won't happen with the other goods on the market.

Would it be bad thing if it did happen to other goods on the market? If e.g. a 2005 car was better than a 2000 car to the same degree that a 2005 computer was better than a 2000 computer.

>The interest of gov bonds or of any other financial instrument afaik represents (and is proportional to) a risk of not getting repaid.

I was referring to https://en.wikipedia.org/wiki/Risk-free_interest_rate : "In practice, to infer the risk-free interest rate in a particular situation, a risk-free bond is usually chosen—that is, one issued by a government or agency whose risks of default are so low as to be negligible."


> But you still purchased it eventually

For the reasons I explained, and that apply only to a small subset of goods.

> Would it be bad thing if it did happen to other goods on the market?

That is definitely not decided by the currency.

> risks of default are so low as to be negligible

Those have also negligible interest rates, that is, ones that only repay you of the inconvenience of not spending your money now. You know, there's also a non negligible risk that you'll die before you get your money back.


He (and all the rest of them) dont understand the modern economy. It's like banging your head against a wall.

You explain the importance of monetary policy, why the gold standard is problematic, why this means Bitcoin will not replace modern currencies, yet they don't really hear. They just don't like "The System" and want to subvert it.

Bitcoin is great, but it will not change 'the system'. It is a novel and ingenious asset, nothing more.


This has been said many, many times, but I will say it again: the criticism of Bitcoin being deflationary would be valid only if Bitcoin was to replace the entire financial system. But it's perfectly fine for it to be deflationary if it's replacing only parts of the system.


Could you explain briefly why? I don't see how it can be deflationary and used as a currency, period, be it the whole system or part of it.


Can you give any other data-point that shows the dangers of deflation that didn't happen during during a world war and wasn't actually caused by fractional reserve banking and government interference?

Gold has existed for thousands of years, surely this commonly accepted idea is based on more than one or two heavily flawed data-points.


Or perhaps it is you that is wrong, and all the illusions you cling to amount to nothing more than the indignant declarations from seventeenth century clergy of the intolerable social consequences if it were to be widely accepted that god may not exist.

Things do not endure merely because some social engineer has a tortured explanation for them he trots out at every opportunity to justify the construct.


One thing we can be certain of, is that 'the system' will change.


I’m not sure why you are being down voted. What you are illustrating is the time value of money, a real economic concept. A deflationary currency like bitcoin encourages non productive hoarding at the expense of investment and commerce. It makes a great store of value, but a terrible medium of exchange. And when we say “currency” we are usually talking about the medium of exchange purpose of money...


That is the effect of our current financial system, where the use of debt to bid up the price of fixed assets has been labeled 'commerce' and 'investment'. The only effect of which has been the punishment of savers.

Bitcoin is that systems reckoning.


It also disincentivises investment, resulting in an economy less productive than it could be, and with built-in bias and stratifying wealth transfer, not unlike the system of bankers it seeks to replace.


That's assuming the return on investment is _always_ lower than the rate of deflation. Which is, nonsense.


The return on investment only needs to be lower some of the times for deflation to start hurting the economy


Do we have data on this or is it still just a theory?


It's the basis of mainstream economics, and the reason for the 1-2% inflation target that most central banks use.


I know this, but this doesn't answer my question

Edit: do we know if economies really behave like this under these conditions? Are we really using a scientific approach on this? Or are we holding these models as divine truth?


It’s a bit like asking if the Church-Turing thesis is true or not, and if we’re really using a scientific approach to answering that question. On the one hand.. I’m writing this on a computer, dude! There is a pragmatic sense in which the Church-Turing thesis is “scientifically true” in the amount of progress that has been made in the domain of computer science which it invented, which does follow a scientific process. It allows us to make accurate predictions and test them. But it is embarrassing to say the thesis itself is just that, an axiomatic assumption. (There are some pretender proofs out there, but not consensus that they are correct.)

The relationship between productivity plus inflation (both measurable) and economic growth is similar. It’s the bedrock of modern macroeconomic theory, which has largely been successful in both explaining and predicting the effect macro policy has on economic growth. The history of North American and Western European economies after going off the gold standard, and asian and Eastern Europe economies more recently all show these same correlations. Outside of external influence, economies which stray outside of the ideal parameters end up either stagnating (lack of investment) or experience dramatic boom-bust cycles (excessive poor investments). I’m on mobile but there’s a fair number of reports by Fed and other central banks justifying their choice of interest rate based on historical examples, and with the purpose of achieving certain productivity (capital investment) and price inflation (money supply). You could also pick up just about any macroeconomics textbook and chase the footnotes and references or spend some time on Google scholar.


> The history of North American and Western European economies after going off the gold standard, and asian and Eastern Europe economies more recently all show these same correlations.

So what you're saying is that it's all based on one data point, the second world-war. Gold existed for thousands of years, why is this incredibly bizarre period of history used as a proof of anything about the gold-standard?

Even worse, the gold standard wouldn't have collapsed if it weren't for the widespread use of fractional reserves banking, along with many government policies at the time that significantly worsened the situation.

The 40's, 50's and 60's were a period of unprecedented growth for the US, which was on the gold standard during that whole period, but no one tries to claim that the gold standard was responsible for that.


But I like beer. So that's why I buy them.


Don't buy them now, and you'll eventually get more. Damn, you can buy a villa and fill the swimming pool with beer, if only you can wait long enough.


But.... beer is delicious. In fact, I kind of feel like one right now.


What debit card do you use that keeps your balance in BTC and concerts on purchase? All the ones iv seen convert from BTC to USD when you load them.


Just FYI, you wrote "debit" and "card" twice.


Oops. I did it on my phone. Sometimes that happens. Thanks.


Surely, if 1000 people own 40% of a currency which had evangelical aims to service 7.5 billion people, then it is impossible to call it decentralised... Add this to the obvious fact that the vast majority of new bitcoins mined are from china, which due to the scale of processing power now has a monopoly due to capital barriers. The conclusion is... great experiment, but as in all deliberate implementations of social ,political, or economic theory. The real world is a very different beast to one man's view from a desk. I feel sorry for any new uneducated investors getting in now. This has become nothing more than a pyramid scheme that adds no value whatsoever to the world. Not cryptocurrency as an idea, but bitcoin's current iteration and implementation.


> Surely, if 1000 people own 40% of a currency which had evangelical aims to service 7.5 billion people, then it is impossible to call it decentralised...

Decentralized can have many meanings. What is important is that you can transact with anyone without a third party having any say. For that 99% of all coins could be in the hands of a single person as long as there would be enough left for others to use.

> Add this to the obvious fact that the vast majority of new bitcoins mined are from china, which due to the scale of processing power now has a monopoly due to capital barriers

As long as they do not collude to destroy or disrupt the network it has no relevance at all.

> This has become nothing more than a pyramid scheme that adds no value whatsoever to the world. Not cryptocurrency as an idea, but bitcoin's current iteration and implementation.

As Bitcoin is practically useless due to high fees and congestion, I agree. But not because the reasons you gave.


> Decentralized can have many meanings. What is important is that you can transact with anyone without a third party having any say.

I understand the premise of decentralised transactions, it's just that if the value of the currency can be manipulated by small group, it is not removing the need for trust, just shifting it...

> As long as they do not collude to destroy or disrupt the network it has no relevance at all.

I thought the point of decentralisation was to remove the need to trust others...

> As Bitcoin is practically useless due to high fees and congestion, I agree. But not because the reasons you gave.

AGREE! 7tps vs Visas 4,000tps with a peak capacity of 56,000 tps...


> it's just that if the value of the currency can be manipulated by small group, it is not removing the need for trust, just shifting it...

I think there's different aspects to "manipulated".

Large holders or exchanges can always manipulate the price, this is true for cryptocurrencies, the stock market and other things as well. Cryptocurrencies is however much less mature and more easily manipulated, but I foresee it to stabilize in the years to come.

If we're thinking of the miners to manipulate the coin I think the real genius of Bitcoin is they are heavily incentivized not to. All miners are heavily invested in Bitcoin's success so it's in their best interest not to destroy Bitcoin's value.

> I thought the point of decentralisation was to remove the need to trust others...

To be clear: what miners can do if they collude is try to revert transactions or block new transactions. If this happens it would be obvious and Bitcoin's value would be severely damaged.

There is trust yes, but it's more trust in the incentives behind Bitcoin than to specific miners themselves.


> "7tps vs Visas 4,000tps with a peak capacity of 56,000 tps..."

Lightning Network will far exceed 56,000 tps.


> As Bitcoin is practically useless due to high fees and congestion

I disagree here. Gold is very expensive to get into and out of on a percentage basis, also requires careful storage, and is more difficult to exchange (manual pickup/delivery or insured registered mail). And yet it is worth eight trillion dollars.

In addition, believing that Bitcoin is dead for transactional uses because of temporary issues may be a mistake. It is simply software after all, and there are now hundreds of billions of reasons for the developers and users to get it right. My thought is that the alt-coins are simply testing “improvements” to the core technology, and if any updates are sufficiently proven and begin to threaten Bitcoin they will simply be stolen by Bitcoin’s users and eventually co-opt the alt-coin’s value due to Metcalfe’s law.


Yes okay. I can add that Bitcoin is practically useless because you can get the exact same service using other coins like Bitcoin Cash.

The problem is uncertainty if your transaction goes through, because it's practically impossible to predict if the fee you just paid will be enough, and that Bitcoin cannot support more users.

Gold does not have these issues. Gold also has other usage but what is the use of Bitcoin if you cannot move it?

> In addition, believing that Bitcoin is dead for transactional uses because of temporary issues may be a mistake.

Agree. I should say that Bitcoin is practically useless right now when the fees and confirmation times are skyrocketing.


It's not hard to titrate your fee to your desired confirmation speed. Just look at the mempool, sorted by fee and age of transaction: https://bitcoinfees.earn.com/


If everyone else does the same you're out of luck. Your best bet is to pay a lot more and hope you pay more than the others.

This is because you're not only competeing against the transactions in the mempool but also against future transactions which may enter after you make your transcation and before more blocks are found.


The white paper doesn't discuss wealth distribution at all. Bitcoin is a critique of money involving trust in entities not party to a transaction, and not much else. Where this leads us as far as far as wealth distribution goes is potentially interesting, but was never evangelized by the white paper or the community that built it.

The idea that money should be distributed more broadly than 1000 people controlling 40% of it sounds really nice, but it is missing the level of formalism that Bitcoin brings to the question of money.


> Surely, if 1000 people own 40% of a currency which had evangelical aims to service 7.5 billion people, then it is impossible to call it decentralised

Haha. Where do you get that? If a random guy says you so, don't believe in him.



That 1000 number likely includes many exchange wallets


In my view Bitcoin as a very important flaw it's distribution timing it should have been scheduled with a more linear curve and to last at least 100 years so you can achieve a fairer distribution or alternatively to have a small inflation system built in.


cryptocurrency can be used in the background for fiat money settlements, It has made me a better software engineer for sure, secure code will always be in fashion. Also the majority of online gambling which is a billion dollar industry is better suited with cryptocurrency. I don't think it is going away, it could crash 80% and I still wouldnt sell as long as the money remains programmable.


Equally elucidating are the responses on the Cryptography List from other cryptographers[1], plus the responses a few months later when Bitcoin 0.1 was released[2].

You can pretty easily tell which cryptographers read the whitepaper and which ones did not. :)

[1]: http://www.metzdowd.com/pipermail/cryptography/2008-October/...

[2]: http://www.metzdowd.com/pipermail/cryptography/2009-January/...


> I made the proof-of-work difficulty ridiculously easy to start with, so for a little while in the beginning a typical PC will be able to generate coins in just a few hours.

If only I had given up “just a few hours” back in 2009...


...and held the coins until today. Or maybe next year it will be worth 10x more.

Put another way, if you had sold your desktop and invested all the proceeds in Amazon stock in 1997, and held that stock until now, you would have a 66000% return; basically you would have become a millionaire by now. Of course you would have had to held those shares through two big market crashes and the recessions that followed.

On the other hand, how could anyone have known that 20 years ago Amazon was going to be the winner? You might have invested all the proceeds in some company that did not survive the dot-com crash. Likewise, in 2009 most people doubted Bitcoin; even today there is plenty of doubt about the long-term prospects. There is no point in kicking yourself over a failure to invest in a big winner, especially when that winner defies all the wisdom on valuations.


Brin and Page themselves tried to sell Google to excite.com for less than $1MM in 1997. Luckily for them they got turned down. Hal Finney stopped mining coins after it started overheating his PC too often. Would he have done this if he believed each 50 coin block would someday be worth over half a million bucks? I think that would justify buying a second desktop or perhaps a better cooling fan.

Nobody knows what the future fortunes of any venture will be, anyone who claims to have known the future success of Bitcoin all along is lying, or they would have sold their blood and worldly possessions to snag as many coins as humanly possible in anticipation.


Thanks for sharing this. Of all the Sathoshi candidates, Hal Finney seems to be the closest (Not my analysis, but I tend to concur). Although he always denied it. When I read this[1] early reply by him, he seems to totally grok it.

[1] http://www.metzdowd.com/pipermail/cryptography/2009-January/...


This is a genius’s reply to a genius’s idea. Nice to read.


I love reading papers that solve fundamental, well-known problems.

They frequently seem so obvious after-the-fact, like "how did we miss this?" Like, here, stated in just a few pages, is an idea that so many smart people have been chasing after for years. And it's presented so well that it seems intuitive, when in reality it was a very difficult challenge.


> "how did we miss this?"

If anyone is wondering, the answer is that the academics had blinders on in their search for a cryptographic solution to the problem of decentralized transaction ordering, an impossible thing. Satoshi's solution is to accept that impossibility and use economic incentives to achieve eventual consensus instead, and it turns out eventual consensus is good enough.


I doubt that that's the one true answer. If I had been researching the topic at the time, I would have accepted eventual consensus. As somebody who has done research into algorithms, the reason why I would have disregarded Bitcoin's approach is that it's inherently terribly inefficient.


Many cryptographic protocols are much less efficient. I asserted that only as someone who was in that space an personally knows the people who were doing research on this in the 90’s and 00’s. Nearly all effort was focused on finding a solution that had finality of settlement guarantees.

There was also some work on hashcash money, but it made the economically naive and inaccurate assumption that value of the currency must be linked to the cost of production, which is also explicitly not the case in bitcoin.


> it turns out

Reality check: nothing conclusive has been proven yet.

IFF we get to the VISA network level of activity, then it has "turned out" to be "good enough".


The document is littered with references to CPUs, including the phrase "one CPU one vote." I think a Bitcoin where CPUs were doing the blockchain processing would be much different that the current one dominated by farms of dedicated hardware. I don't know if it would be better, but I think this is a pretty stark reminder that Bitcoin is not behaving as intended.


This has turned into an interesting question since some coins now are specifically designed to be resistant to ASICs. The downside for those coins is that botnets or general purpose hardware (that can be purchased or rented for an attack and then resold for other uses later) are a serious threat to the network. A potential benefit for Bitcoin is that the network may actually be more secure with custom ASICS because the people investing millions into developing the custom hardware stand to lose everything if they attack or seriously harm the network. That equipment would be useless for any other purpose, and that same dominating hardware makes the Bitcoin network immune to attack from general purpose hardware.


If you need a relatively small handful of people to control the ecosystem to make it secure from large numbers of decentralized users, then what the heck do you need Bitcoin for?


I think that the mistake here is believing that the miners control the network, when most likely the miners simply work for the decentralized network. When the miners become centralized there is little they can do that the users/nodes can’t unwind with a software update, even up to the point of firing those miners completely if necessary (changing the proof of work so that their current hardware is worthless). I think that long-term the incentives are aligned for them to simply do their job.


Satoshi's mining/minting algorithm is manipulative by design.

Less computational energy and the least amount if users produced the most coins (for minimal external capital input).

Satoshi could have used a linear curve anticipating network growth matching minting and computational increase, but instead choose to exploit late adopters.

Early adopters will attempt to psychologically exploit new users by selling their asset for more than the cost of production and acquisition.

This has directly created the situation where utility is not in use but in exploitation of passing the hot potato to greater fools.

ecash should not exploit new users.


do you have examples of any cryptocurrencies that introduce such a curve. the centralization of wealth problem is serious.


A bit of trivia: the word(s) "block chain" never mentioned in the paper.


It still baffles me that the Nobel Prize for Economics was not awarded to Satoshi Nakamoto albeit a pseudonym for real person/people.


Because creating the blockchain hasn't yet been shown to have either advanced the field of the study of economics, or increased our understanding of economics. It is often years later that economists are awarded.

Giving an award for Bitcoin right now would seem more like giving an award to the financial institutions that created securitized loan products before the housing crisis. Right now it seems more like a novelty technology that hasn't yet made itself relevant for long-term innovation except to generate excitement about it.

And you underestimate that you still can't give someone an award who does not exist to receive it.


What you said makes sense.

> And you underestimate that you still can't give someone an award who does not exist to receive it.

Which is what baffles me. I thought we should be honouring ideas and the people who created/discovered them (whether or not they exist to receive the award). It's weird that people get more precedence over ideas. What's worse is that the prize isn't awarded posthumously as well!


The achievement of bitcoin is not about economics, it's about the software design, authenticity and proof of work.

It would justify a Nobel in software engineering, not economics.


Someday he'll likely get it.


There's not any new economics in bitcoin...


Can you point me to any paper (other than the Satoshi paper) that describes an immutable distributed ledger and it's implementation?

If there was no new economics in Bitcoin, can you explain why the paper would be nominated for Nobel Prize for Economics in the first place? https://bitcoinmagazine.com/articles/satoshi-nakamoto-nomina...

It's quite clear that the nomination was rejected on flimsy grounds of not awarding the Prize for "unknown people" because there is no such "precedence".


Not that creating Bitcoin wasn't an achievement, but it built upon heaps of existing systems that explored proof of work, distributed ledgers and so on.

The main innovation was the combination of ledgers with proof of work to prevent Sybil attacks in the face of a system with unidentified participants.


"Look at my great new financial product!" just isn't that interesting from a theoretical perspective, even if it really is cool and innovative. Knowing how to implement an immutable distributed ledger won't help you understand anything about the economy on its own.


Those are computer science advances. The nobel prize for economics about economics, not comp sci. There isn’t new economic theory in bitcoin.


This paper packs an enormous idea into a tiny package. It's worth reading - and re-reading.

If you've studied electronic cash systems and/or cryptographic systems before, the paper is quite easy to read. Otherwise it's a challenge. At least that's what I found.

Here's a companion article that fills in some of the blanks.

https://bitzuma.com/posts/how-bitcoin-works/


This should be required reading, along with a test, before anyone is allowed to buy/"invest" in them.


It seems to me, an understanding of financial systems and macroeconomics is much more useful (or at least as useful) in evaluating a currency than the technology behind it.

There's plenty of people who understand the blockchain quite well who have a pretty ... imaginative understanding of monetary theory.


Care to share some of your insights, or did you post solely to tell everyone how smart you are?


Sure, what do you want to know?


What do the people who understand blockchains but not monetary theory get so wrong?


Not all blockchains, but bitcoin specifically. The effect of deflation on the velocity of money is the most obvious.

https://en.wikipedia.org/wiki/Velocity_of_money

The way bitcoin was approached seemed to ignore the idea that the boom/bust cycle is mitigated through regulation and control. It isn't eliminated, but instead dampened. While economic miracles and bull runs seem great, if they are followed by devastating crashes, the market instability and "whiplash effect" of this occurring in rapid succession can slow attempts at economic recovery at best, and spark revolutions at worst. Austrian economists love the idea of "letting the chips fall where they may", but that reductive thinking ignores the social and political upheaval that the previous centuries have taught us result from instability.

The financial safeguards that we've been putting in (and unfortunately removing over the past 30-40 years) are there for a reason.


The flip side of this, of course, is that the boom/bust cycle is amplified by fractional reserve banking - banks create and destroy money by changing their lending policies in response to the current global financial situation, and this makes both the booms and the busts bigger. (Apparently, many economists missed this because their model of bank lending is wrong. Some Bank of England staff did a paper on it a while back, if I recall correctly.)


While it sounds plausible on the surface, this is not at all supported empirically. There have never been economies without fractional reserve banking that one could reasonably compare with ours.

There are also plausible-sounding arguments to be made in the opposite direction: Fractional reserve banking allows money to be created and destroyed adaptively to support the economy, which makes the economy run more smoothly overall.


Most of the information you need to understand to invest in Bitcoin (e.g. the distributed boiler room) is not contained in the white paper at all. Now that people are using Bitcoin as digital gold or digital tulips, one could even argue that the white paper is misleading.


Do you know how a fridge works? How about an airplane? How about how to make steel? How to sew a shirt? How to drill and process oil to make gasoline? Every level of the internet stack? How to program hardware drivers? How to farm everything you eat?

Do you see how stupid what you are saying is yet?


I'd argue that we should read the White Paper for any of these technologies before investing in them in their infancy :)


Is bitcoin in it's infancy?

You have CBOE offering futures on it. The prez of JPMC pro bitcoin. You have so many exchanges.

This ain't the era of mtgox, $10m pizzas and running your own full bitcoin node and joining a mining pool.

Bitcoin is out of it's infancy.


> The prez of JPMC pro bitcoin.

Jamie Dimon, CEO of JP Morgan, famously called Bitcoin "a fraud" that "won't end well" and is "worse than tulip bulbs."

You must be thinking of something/someone else?

https://www.bloomberg.com/news/articles/2017-09-12/jpmorgan-...


Bitcoin is far from infancy.

The futures are a nice touch, but they are cash settled so they will drift from spot.

We still do not have a spot market with swaps from companies you can trust.

Due to this, negative exposure is still difficult to replicate, hence why some brokers will not offer short side on the futures.


Maybe. Or a summary from experts. That paper has high level math in it and just isn't going to be comprehended by most people.


Apparently, you have not read it.


"To facilitate this without breaking the block's hash, transactions are hashed in a Merkle Tree [7][2][5], with only the root included in the block's hash." - totally approachable to the layman

I could go on about the summations and other advanced math symbolics in this paper but you seem very out of touch with the knowledge base of most people so I'm not sure it matters.


You don't have to invest in those to use them. You can, for example, use someone else's fridge, without first buying a fridge, and thus learn about the risks and benefits of fridges at no cost to you.

A slightly more apples-to-apples comparison: would it make sense for you to become an early investor in a new futures exchange, claiming it'll do "a new kind of futures trading", without having read any papers or textbooks on futures trading?


No, I don't know how a fridge works. And if you asked me to blindly pick one absent any regulations, I might take the cheap one that spews CFCs.

Actually though, the principles behind refrigeration are also refreshingly simple.

1. Compress gas (it heats up as a consequence.)

2. Expose the warm air to the atmosphere (it cools down.)

3. Decompress gas (it cools down even more.)

4. Expose cold gas to the area to cool.

5. Repeat.


I do.

Seriously went over your list expecting to find something I didn't know - but I can explain them all, without needing to look up wikipedia.

I may read too much.


Sorry, which of those things do you think is not worth learning?


They are all worth learning, but no one can know everything.

Knowing how something works cannot be a prerequisite to using it. That is one of the purposes of division of labor in society.


For the average person: none are worth learning


There are contexts and limitations. I have no practical use to understand my fridge to such a degree because it will yield me nothing in the future. I just need to keep it plugged in, cool, and not broken. All easy to verify.

I have control of my money and bitcoin is within the realm of learnability, so I'd say it should be required. It is intimate knowledge of a protocol with many working parts that will have a direct effect on your earnings.


How can we stop Bitcoin?

If Bitcoin wins, we'll become subservient to an algorithm we have no incentive to change.

It will only take a few more 10x increases before people stop smiling at this possibility. The time to plan for subverting Bitcoin is now, not later.

I'm deeply concerned about the potential of Bitcoin to become a financial black hole. I've written about this twice before:

https://news.ycombinator.com/item?id=15867483

https://news.ycombinator.com/item?id=15864248

The discussion was interesting, but not useful. We need plans, and we need them now, while there may still be time to do something about it.

The central question: If the entire resources of all world governments were brought to bear on the task of destroying Bitcoin, what would be the most effective way to do this?

I can't think of anything, and no one else has been able to either. Satoshi's email is prescient: http://satoshi.nakamotoinstitute.org/emails/cryptography/4/

--

>[Lengthy exposition of vulnerability of a systm to use-of-force >monopolies ellided.] > >You will not find a solution to political problems in cryptography.

Yes, but we can win a major battle in the arms race and gain a new territory of freedom for several years.

Governments are good at cutting off the heads of a centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.

Satoshi

--

Why should you worry? I've articulated some of the concerns here: https://news.ycombinator.com/item?id=15867841

Ultimately, it may be hopeless to try to solve this. But I can't shake the feeling that we're staring at a 0.1% chance of life as we know it changing forever. We will lose all monetary controls.

Doomsday prophecies have a long and sordid history, but the dinosaurs only had to look up at the sky at the right time to see theirs approaching. And, like the meteor, Bitcoin keeps growing bigger and brighter.

Look at https://i.imgur.com/h0giZzF.jpg We won't be able to deal with cases like the 2008 crash. If the basis of the worlds' wealth becomes crypto, what will we do?

Madness of Crowds is worth reading: https://vantagepointtrading.com/wp-content/uploads/2010/05/C...

It was now that the frenzy of speculating began to seize upon the nation. Law's bank had effected so much good, that any promises for the future which he thought proper to make were readily believed. The Regent every day conferred new privileges upon the fortunate projector. The bank obtained the monopoly of the sale of tobacco; the sole right of refinage of gold and silver, and was finally erected into the Royal Bank of France. Amid the intoxication of success, both Law and the Regent forgot the maxim so loudly proclaimed by the former, that a banker deserved death who made issues of paper without the necessary funds to provide for them. As soon as the bank, from a private, became a public institution, the Regent caused a fabrication of notes to the amount of one thousand millions of livres. This was the first departure from sound principles, and one for which Law is not justly blameable. While the affairs of the bank were under his control, the issues had never exceeded sixty millions. Whether Law opposed the inordinate increase is not known, but as it took place as soon as the bank was made a royal establishment, it is but fair to lay the blame of the change of system upon the Regent.


You don't have a right to dictate what abstract representation others choose to use to store their wealth.

What you're promoting is using the power of criminal law to govern the private choices of other individuals.

I'm not even going to address the faulty assumptions that go into your conclusion that voluntary adoption of Bitcoin would be economically harmful and would destroy wealth, because that's a separate issue from the fact that neither you, nor me, nor 51% of the population, have a legitimate right to use force to dictate how others choose to represent wealth and interact economically with each other.


Sometimes, I sincerely wonder if the true point of releasing Bitcoin to the wild anonymously was because the creator had a strong hunch on what would happen and how the example of Bitcoin would in one fell swoop both serve as example of the fallacy of our current currency systems, as well as simultaneously challenge them, and become this kind of black hole you speak of.

Why else would the creator remain anonymous, unless they were truly a good Samaritan or feared for their safety. This feels like an experiment and an example as much as anything.

I suspect there is much more to this story than we know, but who knows, that could just be the conspiracy theorist in me talking!


It is an experiment.


I legitimately can't tell if you are real, or if this is a fake "foil" argument, meant to drive people into Bitcoin.

Every single argument that you've mentioned, is a benefit, not a detriment.

Your arguments about how Bitcoin will prevent the government from printing money, and stealing it from people via inflation, is a pro, not a con.

I cannot think of a better pitch in favor of Bitcoin, than that you have provided.


That is why we need to be talking about this now, not later. Those benefits are all true, and that means BTC might win.

This should terrify you. Think of a world in which you cannot collect taxes, and that not even prison can strip the wealthy of their coins. The wealthy will be able to do whatever they want.

How long until it becomes a crime to speak out against bitcoin? Or if not a crime, so socially backwards that you're looked at with the same contempt that the Chinese general population looks at their political activists? If you dare say this might be a bad approach, and you don't swallow the same madness that has overtaken everyone else, will you be shunned, left behind, or forced into it? The latter is the most worrisome; you won't want to keep your money in fiat, and the last billion people to switch will be subservient to the first ten thousand.

Should I be scared now, posting this here? For trying to say that we should launch a coordinated effort to stop this madness in its infancy? I run a very real risk of this following me around the rest of my life. Communism was once in its infancy too, and those who agitated for it or against it were penalized or rewarded by the waves of chance.

This disease -- the desire to get wealthy -- has been the basis of so much misery, and so much creation. It's as human as laughter. We'll never get rid of the lust for wealth. The only way we can manage it as a species is to control it. And Bitcoin removes this control.


>>This should terrify you. Think of a world in which you cannot collect taxes, and that not even prison can strip the wealthy of their coins. The wealthy will be able to do whatever they want.

The state can exert control over all real estate, and can control the flow of physical goods within its jurisdiction (and into and out of its jurisdiction), whether or not it has control over the flow of money. Taxes will never disappear. They will just decline.

I share Friedman's view that the effect that electronic cash will have, of reducing how much the government taxes, will be beneficial to society:

https://www.youtube.com/watch?v=pK_xv_4KpzM

If we don't impose non-political checks on government power, it will continue to grow, to the detriment of the economy:

https://pbs.twimg.com/media/DMnxtDwUQAAiuSy.jpg:large


> How long until it becomes a crime to speak out against bitcoin?

> Should I be scared now, posting this here?

You seem to be the only one who wants to take freedoms away from other people. The bitcoiners don't want to take away YOUR rights. That would go against the entire concept of bitcoin, which is resistance to censorship.

Bitcoin removes control, it does not add to it.


> Think of a world in which you cannot collect taxes

That's the problem. That's exactly what is already happening. The rich already don't pay tax, and neither do the corporations they control. The only thing that is being changed is that the oversight of the masses is now being removed, because banks can no longer be trusted to look after the interests of their clients over the interests of the state.

I suspect the only viable taxes in future will be consumption taxes, property taxes, and estate taxes. If ya wanna eat, ya pay tax. If ya wanna buy something, ya pay tax. If ya wanna live somewhere, ya pay tax. If ya die, your assets are divided, the state collects its portion, and then everyone goes on their merry way again. It's no surprise that these are resisted, because they are the only taxes that are effective against wealthy people.


The loophole that allows the wealthy to avoid paying taxes usually has nothing to do with hiding money though. In the EU there is a lot of talk right now about companies like Apple avoiding taxes, if you buy an iPhone in France pretty much nothing of that sale goes to the French government, but it’s not that they are saying “no we won’t give you money”, it’s that the law allows their company to be setup in a way to avoid paying these taxes in France.

If anything Bitcoin and other crypto currencies are going to allow you to hide and transfer wealth even more. Yes Bitcoin isn’t truly anonymous, but it’s so much different to a traditional bank where you need to prove your identity and they actively report large transactions to the authorities.

And as for the taxes you mentioned, it’s pretty easy to avoid those too. If I live in Russia and I buy an iPhone in Europe I’ll have to pay VAT (consumption tax) of around 20%, but when I go back home, which is outside the EU, (home being where I am a tax resident, not necessarily where I live on a day to day basis) I can claim that 20% back. The same applies for visitors to the US.


I'm pretty bullish on cryptocurrency, but I've actually been nervous for awhile about what you're talking about.

I think that cryptocurrency might be an example of what futurists are always talking about with regard to exponential change. In that regard, it's very much like AI (and maybe CRISPR) and a bunch of other things that we aren't even paying any attention to right now. But almost overnight, these things could basically turn all of civilization upside down, or end it as we know it. I think it unlikely for any one of them, but you only need 1. And while they might be good in themselves, I think it's the shockingly fast shift that may cause issues.

With cryptocurrency, there are a few things that give me pause though.

The first is the question of what makes cryptocurrency fundamentally different in this take-over-the-world scenario from gold? Why hasn't gold or some other precious commodity spiraled up in price to the point where it's the most valuable thing in the universe?

The second is that the USD (and other currencies) isn't going away, because you have to pay your taxes in it. So doesn't that provide an upper bound on the value of Bitcoin? Whether I'm getting paid in dollars or in BTC, the government wants 30% of it in dollars, so that's going to create a demand for dollars that keeps them from going to hyperinflation, right? I'm clearly not a macroeconomist :)

Also, isn't the price somewhat limited by how much wealth there is in the world? Not that it'd be great if BTC was worth a few million, of course, but it couldn't reach billions could it?

What actually worries me more is what happens if Bitcoin goes to $1mm or $10mm. For that to happen, a large portion of the world's wealth would have to have shifted to BTC, and the value of other currencies would drop in that case, right? It just seems very destabilizing in ways that are hard to predict. To go from something being 0% of the world's wealth to 50% or something in a decade with a totally different (and probably even more unequal) distribution of that wealth seems like it would result in a lot of nasty things.

Anyway, enough rambling, maybe cc will be fine, who knows. But I think that there's a good chance that in 100 years (assuming anyone is around to look back), things like 9/11 or Trump or nuclear war with North Korea might just be a relative footnote, and something like AI or cryptocurrency or CRISPR will prove to have been far more important and a huge inflection point in the evolution of humanity.


If you follow the money, Bitcoin does not replace fiat. If I bought $100USD of BTC on coinbase, that $100USD goes to someone else who sold me their BTC. It's still fiat. I'm not confident the governments really mind in that respect because the money is still here.

Where that money goes in the end? Some goes to speculators, and the rest goes to lots of ASICS, graphics cards, electricty bills and food for miners. But none of it is every actually really stored in Bitcoin.


But as Bitcoin becomes more and more valuable, isn’t it actually eroding the value of other currencies? So someone still has your $100 but it’s worth a little less.


> The central question: If the entire resources of all world governments were brought to bear on the task of destroying Bitcoin, what would be the most effective way to do this?

Buy a bunch of hardware to own 51% of the network and make a bunch of illegal transactions which will destroy trust in the system. The US has a federal budget of $3.8 trillion. That's pocket change to them. Or if it's china just force the companies with ASIC's to do it for you: https://medium.com/@homakov/how-to-destroy-bitcoin-with-51-p...


I think that by the time you could muster the political will to put a large fraction of the budget into countering this threat, it’d be far too late. And I could see other governments not wanting the US to own / destroy the network and countering with their own investments.

Actually, I wonder if in the long run governments will be the miners.


your own example invalidates your argument, we live under the regime of the central banker who prints money with reckless abandon and gives it out to his cronies. How many trillions has the federal reserve created since 2008? You are a misinformed fool.


I was there during the 2008 crash. And I don't mean I remember it; I lived through it. It had devastating effects on the people in my life. One of them lost their business constructing buildings, and would have lost his house if he hadn't been able to get his old job back. And he wouldn't have been able to, had those bankers not injected the money into the system and persuaded the economy to keep turning.

Bitcoin is gearing up to be the biggest financial disaster in all of human history. If it shows signs of winning, people all across the world will rush to transfer all of their currencies to BTC. What kind of upheaval do you think that will cause?

More broadly, when your grand experiment encroaches on our ability to have a solid basis of wealth -- one that has worked for centuries -- what should we do? Are we supposed to sit here and watch you gain power and legitimacy without thinking of ways to stop it, rather than merely profiting off it?

If the BTC bubble pops, it will be a massive relief. But it will only sit dormant, waiting years for speculators to pick it up again and form another bubble that gets the world excited. Someday, that bubble might encompass everyone.

When it emerges that Satoshi has passed his coins to his family, and they become the next world leaders (by power if not by politics), what should we do when we don't agree with their methodologies? When we can't collect taxes? Or divert wealth to social programs like UBI?


> had those bankers not injected the money into the system and persuaded the economy to keep turning.

So the bankers caused the problem in the first place and then we have to thank them because they convinced politicians to inject money?


sorry but I do not consent for the bankers to control every aspect of my life. you can use your debt notes created at the whims of some evil cabal and I will use a free and open source store of value that anyone can work to create and nobody can censor or steal from me. I gladly pay taxes as should everyone, but I do not agree to have my store of value inflated 3-5% every year like USD fiat.


The white paper is very approachable, and Bitcoins is a technical marvel. My big problem with Bitcoins has nothing to do with blockchains, trust or even security. All of that looks great. My problem with Bitcoin is simply that it’s a deflationary currency, and can only ever be a deflationary currency.

Prove me wrong by spending, lending or investing your Bitcoins.


OP should probably link to another source for the original Bitcoin white paper, for example https://bitcoin.com/bitcoin.pdf

The reason being is that the owners of Bitcoin.org are actively trying to rewrite the white paper even against the larger community’s wishes. I believe sometime in the near future the owners will go ahead with their plans anyways as they seem to do that when it comes to other issues too.

Ref:

https://github.com/bitcoin-dot-org/bitcoin.org/issues/1904#i...

https://github.com/bitcoin-dot-org/bitcoin.org/issues/1325


The linked whitepaper is the original, which is what matters for the purpose of this post.


It will never work.


It's all hinged on SHA-256 and RIPEMD-160 being good cryptographic hashes, and ECC being a good digital signature. Crazy town.


Maybe actually take a look at the paper.

SHA-256 could be more broken than SHA-1 and it would still serve perfectly well for mining.

If you don't reuse addresses then even if ECDSA is broken then your coins are still safe. And ECDSA being broken is pretty much the darkest scenario. In which case it can simply be replaced with something else starting at specific block.

RIPEMD-160 just hides your public key.


> SHA-256 could be more broken than SHA-1 and it would still serve perfectly well for mining.

Sure, but the block header only commits to the double-SHA256 hash tree of transactions. If SHA-2 was broken I could create a single block header that commits to two different valid histories, allowing arbitrary double-spends and irreconcilable divergent views of the network.

Not to mention being able to spend anyone's coins by finding alternate pub keys or hashes that collide with their committed p2pkh or p2sh outputs.

I'd say that's pretty broken.


Transactions follow very specific binary format. I don't think it's even plausible that you could find collision within those constraints. Plus, as you said it is double hashed. So then you would have to find collision within small fixed amount 32 bytes. It's just not happening.

Regarding the second one, google bitcoin address collision, it was repeated so many times with great analogies that I'm not going to try to do it here yet another time.


The post I was responding to was the exact hypothetical “if SHA-2 were broken...”

All arguments about collision and preimage resistance are based on the assumption of SHA-2 doing what we think it does. A catastrophic break of SHA-2 would destroy the bitcoin ledger.


This.

The FUD surrounding this is built upon a poor understanding of how these algorithms are implemented in Bitcoin.


The other scenario is quantum computing, which is even scarier, i think.


I still don’t get how if I start trying a proof of work, and someone faster than me finishes the same proof of Work first, I would never mine a single bitcoin? Is that even the right question?


There's no continuous project you're working on. It's just getting a lot of chances of winning the lottery. If someone finishes before you, you just slightly alter the number you're searching for and continue on. You're also not really working towards the same thing. Your solution probably includes you sending the blockreward to yourself and their solution includes them sending it to themselves too, on top of that you may also choose other secondary transactions. The chosen transactions influence the number you need to find.

It does happen that two blocks are found at nearly the same time, before adjustments can be made. In those cases one of the two ends up getting 'orphaned', it's relatively rare compared to normal blocks though.


More hashpower inceeases the likelihood that your find your block before the other guy, but the PoW is stateless, there's no "progress" made u til you find the solution, it's purely random each time you increment the nonce and try a new hash, thus expected rewards follow a poisson distribution.


> someone faster than me finishes the same proof of Work first, I would never mine a single bitcoin?

That's right.

Now, probabilistically, you'd occasionally get lucky and get the full (big) mining reward, in proportion to your fraction of total hash power.

The alternative is that you join a mining pool, and then receive the same amount (in expectation), minus the pool fee, but with much smaller variance, as the larger pool will much more frequently get lucky and then distribute the reward (minus the pool fee) to the contributors in proportion to their hash power.

But either way, your expected reward will be approximately the same, whether or not you work in a pool (modulo the pool fee), it's just whether you get a large amount very rarely or a small amount very often.


While they may be faster, you will occasionally be luckier, and find it first.

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