In the latter scenario, coinbase just looks like a giant transaction fee with nothing changing except an entry in their database. Are they generating enough value to justify these fees? Note coinbase/bitpay makes money when (1) they sell you (the customer) bitcoin (2) the buy/sell spread when you buy btc (3) merchant fees and (4) buy/sell spread again when the purchase occurs.
A big selling point for bitcoin was that you'd avoid credit card processing fees. Has someone done the math on whether this is turning out to actually be cheaper than credit cards after all fees are considered?
And even if they turn out to be marginally cheaper, is it justified from the consumer's point of view given you don't even get the consumer protections that you get for free with a credit card?
That's why I'm skeptical with Bitcoin as a replacement for everyday payments. However, there is a chance of it finding significant niches online and internationally. Furthermore, it also has a value as a store of wealth, which is its main price driver (buying an hording a Bitcoin has a much bigger impact on price than buying and spending a Bitcoin with a merchant that sells it again).
It will be possible to do everyday payments with it, it's not that because that bitcoin is decentralised that no centralised value can exist with it. It's just so beautiful that you can interact with it any you want. Take for example mint.com that has to acquire and integrate with each and every bank separately, with bitcoin anyone can build a mint.com with the blockchain. It has the potential to change the world in ways we cannot imagine yet.
I'm even dreaming about open governments where we can actually see the governments spending... I'm a dreamer.
It is not that simple, in my opinion. While the merchant may hold the bitcoins for a very short while post-purchase, the customer will probably not have automated infrastructure, and not be that efficient. The main usage of "bitcoin seconds" in the transaction while likely be the bitcoins sitting on the buyers wallet or bitcoin exchange account prior to the purchase.
Now, I am just doing guesswork, but it doesn't seem that unlikely that a customer will acquire the bitcoins for the purchase a few hours, or perhaps even a few days in advance.
I think this is illegal now in New York. The new regulation requires that companies keep profits in USD and not bitcoin.
For bitcoin to succeed, it needs to become safe. It's still incredibly easy to lose your money if it's stored in bitcoin.
Moreover, as I understood it, the proposed regulations apply pretty much entirely to those holding others' BTC, not to retailers. I didn't see anything in my (admittedly very cursory) reading to suggest a company that only takes BTC as payment for services would be disallowed from investing in, or making payments in, BTC.
It's not that "bitcoin has to become safe" - it's that the users have to become security-minded. If it's even possible for that to happen in a mainstream way, it's going to be a very slow process. Like decades or generations.
Given this major disadvantage, what benefit does Coinbase Vault offer to outweigh it?
This, of course, does not even factor in all the transactions that happen off blockchain.
Another factor to consider is that if you count purchasing power transferred (which I assume means dollar value times transactions) you'll end up giving a lot of weight to events like when coinbase/mtgox moved their coins from one wallet to another.
Here he compares bitcoin to m-pesa which is a deeply misleading comparison. The former has a floating price, the latter is a money substitute and its price is fixed against the currency which is substitutes for. This is why I've suggested to Tim that it is total purchasing power transferred that should be measured, and I think I have convinced him of that.
Same reason why corporate financial reports are done on a quarterly basis. Or else there would be plenty of peaks and dips from week to week.
Realistically though we're both playing with figures to show the result we expect.
I've found plenty of merchants who accept it who have seen little to no revenue from it or shrinking revenues when they original saw some. Do you know of many merchants that are seeing increasing bitcoin customers and revenue?
I once compiled datapoints showing the growth of BitPay (ie. customers spending bitcoins on real goods and services from real merchants). You will find it interesting: https://news.ycombinator.com/item?id=7974197
That reply is actually to me in a previous discussion. As I said before Bitpay has known to do the exact same thing(use short term spikes) and attribute it to daily volume. They did it during the last holiday season along with Coinbase then both ended up deleting all the blog posts when called out on their figures not matching up.
So until I see a long term trend from them that is >$1m/day or I see merchants coming forward and saying they are seeing increased sales I'm going to take that figure with a grain of salt.
As for the rest. Half your stats there are increased employee and office count which come from them raising money.
The other half is an increase in merchant adoption which makes sense. Everything about bitcoins in legitimate transactions is beneficial to merchants by putting all the risk and fees on the consumer side.
Exactly. And you are doing it. You look at the weekly average (short term), while I look at the quarterly average (long term). Please understand that taking the average on longer periods of time will hide/smooth out short time spikes in a way that is statistical and purely objective (unlike your subjective interpretation of short term spikes).
In fact, the peak of number of transactions you said happened around March-April 2013 was precisely due to one of these short term spikes: a bubble where BTC went from ~$15 on January 1, 2013 to ~$260 on April 10, 2013: http://bitcoincharts.com/charts/bitstampUSD#rg730zczsg2012-1... (people were all buying/selling/trading BTC like crazy).
You are inferring too much from BitPay's post deletion. For all we know their numbers in the immediate 2-3 months following Bitcoin Black Friday 2013 were down (Black Friday sales were great, hard to sustain). Maybe they felt a bit disappointed by them, so they took them down. So what? Their overall growth is indisputable: "BitPay processed $5k/day in May 2012, $18k/day in Sep 2012, $160k/day in March 2013, $300k/day average through 2013, and now $1.0M/day." It does not matter if they are doing $500k/day or $1M/day or $2M/day. Growth is here, which is why they got bit VC funding.
So what is not that they took them down because sales slumped they took them down because they were using them to justify the types of numbers that you quote immediately following that.
>BitPay processed $5k/day in May 2012, $18k/day in Sep 2012, $160k/day in March 2013, $300k/day average through 2013, and now $1.0M/day.
These numbers. It's easy for them to pick and choose spikes in the data and report that.
> It does not matter if they are doing $500k/day or $1M/day or $2M/day
Then why do you keep going on about them doing $1m/day if you're not convinced yourself?
>Growth is here, which is why they got bit VC funding.
Definitely. In merchant adoption. VC funding could just as easily be a speculative bet that that merchant adoption will eventually convert to sales not that it already has. Beenz and Flooz got VC as well remember(the first one almost as much as all bitcoin vc so far).
Anyhow. We're circling around around to the same points and using the data to suit our own needs and arguing over a figure that doesn't really mean anything(number of transactions) since it can easily be inflated and because we can both use it to show our own views. At least we're not discussing my wallet accounts or coinbase accounts.
I'll ask again. Do you know many merchants who are seeing strong and consistent sales in bitcoins? What are they? Do they specialize in bitcoin related products?
Even if you assume BitPay is lying by reporting peak days, it would still likely imply growth: higher peaks likely correlate with higher average volume.
When I say it does not matter whether today they are at 500k or 1M or 2M, I mean it does not matter because they were at 160k in March 2013, so any number above that demonstrates a growth.
CheapAir.com and Overstock recently said they see consistent sales: http://www.coindesk.com/cheapair-tops-1-5-million-in-total-b... Also Amagi Metals has always reported very consistent and growing Bitcoin sales. These are a few that come to mind right now.
Overstock has definitely not said they have seen consistent sales. Their sales have been shrinking since they started.
Jan 10 - 130K
Jan 11-29 - $26K/day average  (600,000-130,000)/18
Next 36 days to March 4th they do $400K  - $11K/day average
Next 83 days to May 27th they do $600K  - $7200/day average
Amagi Metals reported very strong growth up last year. Literally reporting every milestone they hit($50K, $175k, $220k, $750k) then in April of last year they just stopped. Then a year later after someone else reports selling $10m worth of stuff they suddenly appear again saying "Oh ya we passed $10m already".
Please keep coming up with them though. It would be good to see some winners. The only one I've seen so far is a bar in Florida that hosts weekly bitcoin meetups.
In reality sales are highly cyclical: you need to look at least at the year level to measure a trend. This is why I keep pointing you to payment processors BitPay and Coinbase, as they have existed for at least 1.5 years (and they publish numbers despite being private companies). Now that the first public companies are starting to accept Bitcoin (Expedia, Dell, Dish Network, Overstock), it is going to give us more data on Bitcoin's growth as they release public financial reports.
Besides that you're comparing 2 quarters out of many with 2 quarters that are all the data we have. If those 2 quarters were their most recent then yes we could say their revenue is shrinking.
You keep pointing me to self reporting figures randomly released in press releases by companies that have been dishonest with them in the past. You keep doing that not because it makes sense but because it supports your beliefs.
Heres one for you. 5 years in there are only ~600,000 wallets with at least $50 worth of coin. Given how many people split up their coins between multiple wallets how many actual users do you think that leaves?
Anyhow I'm done with this discussion. It is clear nothing will convince you and you'd rather drag goal posts around a field than face the fact that maybe just maybe customer adoption isn't happening in Bitcoin. Good luck with your investment I hope it makes you rich because the alternative is going to be a lot of people in serious financial troubles.
"yes we could say [Google's] revenue is shrinking"
Here lies your lack of knowledge. No analyst ever said Google's revenues were shrinking when their 2014Q1 results were announced. Instead analysts said they "grew revenues 19 percent year over year." See http://www.theverge.com/2014/4/16/5621450/google-q1-2014-ear... . This is because, as I explained, it makes no sense to compare one quarter with the previous one as this is only 6 months of data and as sales are cyclical (typically a yearly cycle). So analysts compare a quarter with the same quarter from the previous year to cover a span of 15 months (a full yearly cycle).
"how many actual users do you think that leaves"
You make a common mistake: assuming that each user has at least 1 address. In fact, a LOT of users leave their coins on exchanges who tend to consolidate coins in a small number of Bitcoin addresses. Therefore you cannot estimate the number of users from the number of addresses with a non-zero balance.
ed: And like I said in my other comment to vijay, it's not even clear that much of this represents positive-sum economic activity.
Exactly. You called this +50% growth "more or less constant", which is why I corrected you.
As to judging how much of this +50% growth is due to increased economic activity, it is impossible to prove due to the anonymous nature of Bitcoin. However indicators like the growth of Bitcoin payment processors (BitPay and Coinbase) very clearly show there is extreme growth. Eg. look at this data about BitPay: https://news.ycombinator.com/item?id=7974197
I do think that 50% growth in a year, especially when it is not that clear-cut that it really is 50%, isn't that impressive by itself. Perhaps there's a lot more growth in off-chain activity.
I remember reading an estimate that Bitcoin has < 500,000 users which seemed quite small to me given the hype surrounding it. So I'd be interested in seeing if there is growth in the number of wallets holding bitcoin. If bitcoin is taking off, we should be seeing that number explode, right?
"This means either merchants aren't seeing too many bitcoin sales OR a lot of these sales are happening offchain through coinbase/bitpay." (...) "in the latter scenario..."
And then you say something that makes little sense... what giant fee are you talking about?? Merchants are actually offering DISCOUNTS for payments via Bitcoin.
That's a great question and I had wondered the same after reading the coinbase site the other day. How do they keep the balance between buyers and sellers and shield against that volatility? Further even if they do that today, this week, etc what will happen if there is an event in the future which alters the market?
Right now it seems like there is a "rising tide" which might be working in coinbase's favor. 
 This is more of a question than a statement and I'd be curious what others think along these lines.
If you want an answer, it is easy: companies like coinbase or bitpay know very well what they are doing, and participate in the market in ways that minimise the exposure risk. OP does not deserve to be top post in a site that is supposed to have quality debate like HN.
So the question is: how they do it?
As some have pointed out, KYC is for buying bitcoin, not for making purchases with bitcoin, this is a fair point, but I think it's still noteworthy to recognize that most people will endure that KYC process to acquire bitcoins since the alternative is something like localbitcoins (scam prone and considerable effort for a newbie). Additionally, it's still true that for most people, the practical utility of bitcoin is a function of the services that these 3rd party companies are willing/able to provide, if some of these big players went bankrupt, suffered from long term DDOS, encounter legal problems or have their coins stolen by hackers, suddenly your average consumer has lost practical use of their bitcoins.
At the end of the day, these are still Bitcoin transactions and if Coinbase et al started engaging in onerous practices you could very easily switch to another Bitcoin processor without much friction.
Now if you start seeing things like Coinbase only accepting payment from other Coinbase users...
I agree, it absolutely makes sense from a business and security perspective, but at the end of the day what you end up with are a few key players who represent a centralized point of failure for spending your bitcoins on mainstream goods and services. More and more, the community is moving away from decentralization, relying instead on these centralized services to facilitate bitcoin purchases and off-chain transactions. The more companies that jump on board with bitpay and similar services, the bigger the disruption will become when one of these companies inevitably hiccups, fails, or gets hacked.
These analogies are only so accurate, but the centralized service seems to try to lock-in users whereas decentralization forces the opposite way.
Coinbase or Bitpay are optional facilitators, for people who want to buy or accept bitcins. That is not centralisation, that is just providing a service. Lots of people use Coinbase to buy their coins and then withdraw them to their offline-decentralised cold wallts created in electrum.
Also the risk of failure for a mistake in being my own email service is that some of the mail I send lands in a spam folder. The risk of failure in being my own bank is that I lose all my money.
Yes, they're optional for merchants, but for average consumers who want to buy the same goods and services they can buy with fiat, it becomes an unavoidable potential point of failure. If these services go down, the consumer cannot spend their coins, they rely on 3rd parties to turn bitcoins into something that businesses actually want to accept in exchange for their products.
And I'm not going to fault them for using every user authentication mechanism under the sun- it is the responsible way to operate.
What value does the decentralized back-end provide for your average consumer who only interacts with bitcoin through the front-end? It's true that cash-like digital transactions are still possible through bitcoin, but the utility of bitcoin as "money I can use in exchange for services" hinges on the fact that these centralized 3rd parties allow individuals at the company's discretion to spend their bitcoin.
anybody can verify that coin base acts as it should.
Tell that to those who were swindled by mt.gox and the long line of shady/incompetent bitcoin players that have screwed countless bitcoin users.
About your second point. I was one of the people who had coins at Gox. Hundreds of them. I still think the parent is right and you are wrong.
Yes, and that's fine if the only place you shop is silkroad, but if you want to make purchases from real companies, these centralized 3rd parties are the only option.
Well, you're entitled to that opinion, but I think the catastrophic failure of mt.gox and myriad others pretty clearly demonstrates that the blockchain is not a sufficient defense against scams and incompetence.
People are going to scam, they are going to swindle, they are going to get hacked. Its not Bitcoin or it's blockchain's duty to do your due diligence. It simply can't. There will always be a need for trusted entities if someone doesn't want to store the coin themselves. It's a function of vetting those players.
But I agree with you: the level of professionalism needs to be upped in Bitcoin, there is no question about that. But somehow blaming the protocol for the bad actors in the space? Come on....
I didn't blame the protocol for anything.
Critiques of Bitcoin like this baffle me.
It's not a critique of bitcoin, it's a critique of the increasing reliance on centralized merchant services. All these companies accepting bitcoin payments only do so by the grace of a few centralized parties that will quickly become "too big to fail" as they continue to aggregate more and more clients. I shouldn't have to rely on coinbase to provide a path to actually spend my decentralized currency.
At least with Bitcoin, anyone can compete as a payment processor because there's no central authority with onerous licensing requirements like Visa/Mastercard.
That strikes me as a rather extraordinary claim.
The primary benefit to end users is indirect. Because Bitcoin is a decentralized network, the firms which build centralized services on top of Bitcoin are doing so in a much more competitive market, because it's much more difficult for government's to restrict competition in Bitcoin services than in their own fiat currency. That competitive market is likely to lead to better and cheaper products and services than the alternative.
As for KYC procedures, YES YOU DID provide a lot of information to Paypal. To open the bank account that you need to use Paypal in the first place, you were required to provide lots of personal info and ID, and sign lots of forms.
On the other hand, to create a Bitcoin wallet you could just throw some dice (or download electrum, among other options), and no one can even ask you any questions. Send coins to that wallet, and you can buy at Dell or wherever you like, with ton more privacy than with Paypal.
The fallacy you just made is basically that you represented the KYC requirements to BUY coins from SOME companies as if it were a property of the whole Bitcoin system. You can absolutely use Coinbase-Dell to SPEND your Bitcoins, and it will have the same privacy as if it were a P2P transaction, no ID required. Source: I have bought stuff from vendors who accept bitcoins via Coinbase.
Never any of the items that I listed in my post.
To open the bank account that you need to use Paypal in the first place, you were required to provide lots of personal info and ID, and sign lots of forms.
Right, and people living in the real world still need a bank account if they want to cash out their bitcoin or spend it without a 3rd party provider cashing it out for them. It is not practical to use bitcoin in the real world without a bank account or a centralized provider's bank account by proxy.
It actually is hard for me to imagine that. I don't see why having centralized payment processors (which are essentially just online wallets, fiat exchanges, and SaaS providers) makes it less practical to interact with the Bitcoin economy in other ways.
VISA was created in 1958, and nowadays there are basically only 3 companies processing credit/debit card payments: VISA, Mastercard and Amex.
The threat is obviously there, but it's still too early to make any judgements. In my opinion, the entry barriers for new payment processing companies is very small, and we will see a huge competition.
But it's also because we need a payment method that our customers cannot reverse is important to us. Bigger international customers will do a wire, but there's a lot of smaller guys and Bitcoin is a bit easier than Western Union sometimes.
But for Overstock and Dell? It's pure marketing.
User may not want it now because they're not familiar with the technology behind it or perceive it as being an uncommon and difficult/unsafe method to use.
But once they see bitcoin as an available payment option on all their favorite retail sites, they would be interested to at least learn more about it.
I hate when my banker says this to me about online banking.
If it really was noise, http://i.imgur.com/XJs4V74.png wouldn't show a relatively smooth exponential-looking curve.
For sake of argument, let's say that coinbase keeps 100 small, hot wallets around. Every time coinbase rearranges funds in their wallets, they could create between 1 and infinity transactions. If, on average, they rearrange funds daily in such a way that 25 transactions occurs, they would account for 50% of your increase alone.
Given that all exchanges and processors routinely shuffle funds around, and every move is recorded as a transaction, you need exchanges (in total) to make 55 more transactions/day to make up your superduper exponential growth.
20K increase in transactions in bitcoin is no increase in transactions.
Source: I operate a shopify bitcoin store
"we’ll be offering a special Alienware promotion wherein customers can save 10% off a new Alienware system purchase (up to $150 limit) when checking out with bitcoin"
Maybe. But that's probably just wishful thinking. Someone in marketing probably came up with this as a way to get some free publicity from all the raving bitcoin lunatics and get some sales. Offering 10% off of their Alienware systems, which are pretty well know as overpriced crap, is probably a fraction of their markup.
To the extent that it's a benefit, I would prefer it be phrased as the ability to opt out of chargback insurance, the cost of which can be shared by merchant and buyer, if it's not worth the cost.
Because the bitcoin crowd has shown it's self time and time again to be perfectly rational agents.
I get using Bitcoin to purchase when it's questionable or you otherwise want something to be anonymous, although with a physical good it is much harder to be anonymous, but why in the hell would I care if someone knows I bought an Alienware laptop or a pack of socks on Overstock? And that is assuming they someone got ahold of my transaction records anyway.
You tell your friends or post on the Internet that they did so, and more importantly, you don't purchase things from vendors that don't have a good reputation.
What do you do if a restaurant gives you horrible service? You don't sue them, because litigation is much more expensive than it's worth to you. Restaurants don't tend to provide good service out of respect for the law or fear of litigation, but rather out of the desire for continued business from customers.
The restaurant is just a terrible retort. I'm physically in a location to receive a service. This has nothing to do with paying for a product and not receiving it.
Of course if I'm receiving bad service in a restaurant I will speak with the manager. If he refuses to speak or help I will demand a check and pay without tipping. Simple as that.
Doesn't work with cash, and might not work depending on how the credit card company's arbitration works.
> The restaurant is just a terrible retort. I'm physically in a location to receive a service. This has nothing to do with paying for a product and not receiving it.
Your physical presence is irrelevant to the analogy. The point is that acting legitimately is in the interest of both the company and the customer.
> Of course if I'm receiving bad service in a restaurant I will speak with the manager. If he refuses to speak or help I will demand a check and pay without tipping. Simple as that.
Then you're out the cost of your meal. The restaurant gets your 20 bucks, and didn't have to provide good service, which is clearly profitable for them in this isolated case. So why don't all restaurants do that?
Looking at the other side of the equation- I've had TONS of customers attempt to cheat me in one way or another. Buyers have very little to lose and are much more likely to be irrational/outright thieves than someone who took the time to build up a business.
As a buyer I'll happily take a discount equal to the cost of CC transaction fees over the "buyer protections" any day of the week.
Coinbase is out there begging to be allowed to put the "Bitcoin accepted here!" sticker on any window they can so that they can put consumers in exactly the same, or worse, spot they are in now should BC become more than funny money.
For moving money in shadows, there's Bitcoin. For everything else, there's MasterCard.
We haven't made any sales with BTC yet... (as my VP reminds me weekly ;-), but none-the-less, the company views it as a great alternative to what normally would constitute a "high risk" shipment (usually to countries were high credit card fraud rates or other scams originate from... if we get our money now, and there is no risk of chargeback, etc, then we will ship the order).
So, it's not really a "marketing ploy" as you put it, but rather a good vehicle to accept orders the company may have normally rejected due to too much risk.
So they aren't doing it to get bitcoin users they are doing it so that they get free publicity from the news media and bitcoin users going around talking about them all the time.
For example I've heard about Overstock more in the past year than I have in the past decade and they are constantly in the news. Despite the fact that bitcoin sales figures are low and have been in decline since day one for them.
That's almost certainly part of the story. But the only reason they get free publicity that they believe will benefit them is that some people are genuinely fans of Bitcoin, enough so that the negative effects of potential customers who hate Bitcoin will be outweighed by the positive effects of potential customers who love Bitcoin.
>enough so that the negative effects of potential customers who hate Bitcoin will be outweighed by the positive effects of potential customers who love Bitcoin.
I don't think people who hate bitcoin will avoid a store because they accept it. I mean I'm pretty vocally outspoken about bitcoin in that I don't think it offers anything for consumers and I don't think it will ultimately succeed but its not like I'm going to avoid Newegg from now on. :)
So ultimately by accepting bitcoin even if you don't get a single bitcoin customer you probably get spoken about in the news a bit which will maybe add more general customers. Thats more of a belief in free publicity then bitcoin though.
They will get business from the advertising not the payment method.
Bitcoin comes with essentially none of the consumer protections associated with credit card payments. All of those consumer protections represent liabilities to merchants.
Similarly, merchants usually bear the costs associated with disputes and/or fraud (depending on how they're resolved, and this depends on the company). Bitcoin offers a great way to process these transactions without any of these risks for the merchants (oftentimes at the cost of shifting those risks onto the customer).
So, it's not marketing so much as some higher-up realizing that they can now offload some of their liabilities onto their customers. At this point, why wouldn't they?
 There are other consumer protections that are independent of payment method, but I'm referring to those specifically.
Dell wants to promote Dell.
And the Alienware promotion? Alienware is used primarily for video gaming. There's quite an overlap between the demographics that play video games and own bitcoin ("geeks").
This is Marketing 101.
So given this adoption, at some point you will probably receive some bitcoins. Perhaps a friend will give you bitcoins as a birthday gift, or a coworker will insist to pay you back his sandwich in Bitcoin. Then you will say to yourself "hey, why not spend it on that ergonomic Dell keyboard"?
And you will have played a role in bootstrapping the Bitcoin economy.
What do you mean by "pay extra"? The functional exchange rate of that currency to bitcoins is the total cost of exchanging fiat currency for bitcoins.
What could be going on here is, Dell is speculating on BTC. So a 10% discount today in exchange for products they still make profit on, will result in potentially multitude of additional profit later. (The discount encourages people to give Dell their BTC, so Dell can sit on them and speculate... it's what a lot of the BTC payment processors are doing presumably).
I doubt Dell management (at any level) would green-light gambling with company revenue.
> it's what a lot of the BTC payment processors are doing presumably
Maybe some, but certainly not most.
It's the same reason why most bars don't take your drink order and money and then refuse to give you the drink. Obviously, in isolation it would be more profitable to take the money then refuse to give the drink. It's illegal, but you're unlikely to sue because of the cost of litigation. The reason the bar gives you the drink isn't that they want to sacrifice their profits just to make you happy, and it's not that they fear litigation. The reason is that it's more profitable in the big picture for them to give you the drink, because people don't tend to visit bars if they hear that the bartenders take money and don't give drinks in return.
Yup. Hello, tragedy of the commons. Albeit in a slightly different form from normal.
The 51% attack problem is something that needs to be solved for bitcoin. But it isn't as bad as you think it is.
I used to think that someone who took over the network could spend my bitcoins even without my private keys. But that is not true. The actual attacks possible with 51% are significantly more minor than stealing bitcoins.
Thats pretty huge.
For an attack to be possible, the attacker needs to generate an alternate blockchain faster than the honest blockchain. This problem can be thought of as a binomial distribution where the "success" is the honest blockchain mining a block and extending its lead by a block and the "failure" is the attacking chain being extended by one, reducing the gap by 1 block.
p = probability of honest blockchain extension by 1 block
q = 1 - p = probability the attacker extends by 1 block
If p <= q, the probability of the attacker catching up at some point in time is 1. This is what makes a 51% attack possible.
If p > q, the probability of the attacker catching up is (q/p)^z where z is the number of blocks behind at the beginning of the attack.
There is a reasonable possibility for small values of z (small number of blocks behind), that 40% control would allow for the creation of an alternate blockchain longer than the honest chain, but this is mitigated by the fact that transactions require confirmations, which extends the number of blocks and makes the likelihood of an attack very unlikely.
I don't agree with your conclusions though— at 40% a determined attacker reorgs 6 confirmations with a 50% success rate. Many users don't wait even six.
Consider, even with 20%— thats analogous to having five parties 'signing' blocks— a result which is less decentralized than a fair amount of traditional financial systems. (The comparison is better than it would be with other pools because ghash primarily physically controls their own infrastructure).
Even though this is all quite concerning, Bitcoin is very dynamic— the current state isn't something that will last, one way or another.
It's interesting to see that the market price is completely decoupled from such problems coming into public attention...
I'm holding on to my stash for now, but unless the network is hard-forked to solve this issue (and other major ones on the way), I don't see a real future for bitcoin anymore.
The price could still hit $20k, but the coin would be tightly controlled by then if mining remains centralized.
Then how do you explain that apparent lack (or at least, very low rate) of such attacks? It seems to me that what we observe is evidence against your description of the incentives.
Imagine that 2 court orders (one to GHash, one to the next largest pool) are enough to reverse a transaction, or to "freeze funds" by not allowing TXs from a certain key.
If the incentive system encouraged independent mining, this would not be possible.
It's seems "decoupled" because investors know that there is a fairly high chance that the problems will be fixed when it becomes apparent that it's posing a serious threat. Ultimately what Bitcoin is is a social consensus, and that social consensus has rapidly changed before in the face of exploits and will probably do so again. Secondly, at a technical level solving the flawed incentives can be done in a backwards compatible soft-fork upgrade - a hard-fork where everyone upgrades at once is not required, which makes agreeing to and deploying such a change significantly easier.
The same way it is with any other payment system, by having the vendor pay the tax collecting authority. Again, the payment system is totally irrelevant here.
Seeing your clarification in the other response:
As for the issue of the exchange rate and convertibility on taxes, I can only speak from the local law here, but the defining section of VAT regulations says that if the sale "contract" specifies the exchange rate between the used currency and EUR, that is the rate to be used for the calculation of VAT due. If you wouldn't mention the current Bitcoin/EUR rate on the invoice, you move into undefined territory.
"Right now the only supported payout option is USD to a bank account. However, options for other countries are planned."
Which is a bit ambiguous but I think it may be only US bank accounts (or accounts accessible within the US system)?
> "Dell isn't actually doing anything with Bitcoin"
Perhaps not directly, but they don't go and accept any odd currency that comes along. It shows that Bitcoin is an interesting option to look at.
(pretty please with sugar, don't take this joke seriously)
..and what about that idea, where you buy HW with graphics card and you can earn bitcoins? It sounds so simple and unbelievable imho. That's why I am curious.
>Sometimes money just disappear
Are you talking about fiat money or bitcoin?
I am too skeptic about this whole new IT/Finance bubble. If I am wrong please correct me.
In cases where bitcoins have been stolen it is because the person failed to secure their wallet, used an insecure wallet (such as brain coins), or foolishly entrusted their wallet to an untrustworthy third party (such as MtGox).