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Hearn: The resolution of the Bitcoin experiment

[Posted January 15, 2016 by corbet]

Core Bitcoin developer Mike Hearn writes that the Bitcoin experiment has failed. "In a company, someone who did not share the goals of the organisation would be dealt with in a simple way: by firing him. But Bitcoin Core is an open source project, not a company. Once the 5 developers with commit access to the code had been chosen and Gavin [Andresen] had decided he did not want to be the leader, there was no procedure in place to ever remove one. And there was no interview or screening process to ensure they actually agreed with the project’s goals." If Bitcoin is indeed failing as the article says, it's failing due to project governance issues rather than technical or regulatory problems.
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Hearn: The resolution of the Bitcoin experiment

Posted Jan 15, 2016 4:40 UTC (Fri) by pr1268 (guest, #24648) [Link] (1 responses)

Closely related article from the NY Times, also focusing on Mr. Hearn. Their article seems to imply that it's both project governance (internal politics) and technical issues (e.g. scalability, limit on transactions per second, etc.) which led to Bitcoin's failure (as Hearn sees it).

Or, more accurately, the attempts to address the scalability matters ended in acrimony and recrimination.

Hearn: The resolution of the Bitcoin experiment

Posted Feb 3, 2016 23:50 UTC (Wed) by Rudd-O (guest, #61155) [Link]

Because this conversation has lacked any sort of actual refutation of Hearn's falsehoods (or mentions that he went to work for Big Finance immediately after publishing his ragequit):

Bram Cohen addresses Hearn's ragequit.

Greg Slepak's point by point, epic refutation of Hearn's ragequit.

That should balance the conversation -- highly stinky of politics at this point -- quite a bit.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 15, 2016 6:20 UTC (Fri) by b7j0c (guest, #27559) [Link] (36 responses)

> If Bitcoin is indeed failing as the article says, it's failing due to project governance issues rather than technical or regulatory problems.

he directly addresses a technical issue in his post...one hinted at in the original satoshi paper...52% of mining capacity is now in the hands of two pools in china, which are alleged to be controlled by a common leadership

Hearn: The resolution of the Bitcoin experiment

Posted Jan 15, 2016 18:43 UTC (Fri) by kjp (guest, #39639) [Link] (35 responses)

Who wouldda-thunk that people (miners) would choose to form a cartel (and gain leverage over the rest) instead of staying "lone wolves". /s Looks like that experiment is finished, indeed.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 15, 2016 20:20 UTC (Fri) by ken (subscriber, #625) [Link] (34 responses)

Well if the miners is a real problem all you need to do is change the hash function to something that they can not use the current accelerators on and in an instance you have redistributed the "power".

sure its easier said than done at this point since there is a problem spreading out the new "code" to every user especially since there is several implementations of the bitcoin protocol at this time.

But the point is that its the users (wallets) that has the final say if they want a different protocol than the miners, The miners is the ones that in the long run will lose that power struggle.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 15, 2016 20:55 UTC (Fri) by Cyberax (✭ supporter ✭, #52523) [Link] (13 responses)

> Well if the miners is a real problem all you need to do is change the hash function to something that they can not use the current accelerators on and in an instance you have redistributed the "power".
And how would you do that? Miners can simply ignore your fork and continue on with the current hash function.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 15, 2016 21:13 UTC (Fri) by ken (subscriber, #625) [Link] (12 responses)

to what end ??? if the clients do not accept the data they mine anymore.

It used to be that every client also was a miner not just in pools with special hardware and that would be what happens again if you change the hash algorithm. At least for a while.

But you need to be on the winning side as this would mean a split in the blockchain and if you coins exists on the loosing side you end up with nothing.

So far the problems has not been big enough so nothing like this has really happend yet.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 15, 2016 21:26 UTC (Fri) by Cyberax (✭ supporter ✭, #52523) [Link] (11 responses)

> to what end ??? if the clients do not accept the data they mine anymore.
Which clients? Nobody controls the developers of client applications, they do whatever they want.

What do you think client developers are going to do when faced with two choices: support the old blockchain that is steadily growing and is used by pretty much all other clients or fork to a new blockchain that has no clients and uncertain future?

Keep in mind, that we're talking about actual clients that do actual business transactions. Not a group of people who want to accumulate more "coins" by doing nothing.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 15, 2016 21:39 UTC (Fri) by ken (subscriber, #625) [Link] (7 responses)

>> to what end ??? if the clients do not accept the data they mine anymore.

>Which clients? Nobody controls the developers of client applications, they do >whatever they want.

But ?? that is exactly my point! if the miners is the problem they will lose as there is much much more users "clients" that can change the protocol regardless of what the current miners wants.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 16, 2016 0:18 UTC (Sat) by Cyberax (✭ supporter ✭, #52523) [Link]

> But ?? that is exactly my point! if the miners is the problem they will lose as there is much much more users "clients" that can change the protocol regardless of what the current miners wants.
Why? Clients do not particularly care about miners. In fact, sky-high cost of new blockchain blocks is a selling point for them.

It's a free market! With all the problems of monopolies and externality costs.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 21, 2016 21:34 UTC (Thu) by Fats (guest, #14882) [Link] (5 responses)

> But ?? that is exactly my point! if the miners is the problem they will lose as there is much much more users "clients" that can change the protocol regardless of what the current miners wants.

No, clients only generate transactions and transactions only have value if included in a block by a miner. A cryptocurrency using another hash functions can hardly be called bitcoins. Clients already have the choice of a whole bunch of alternative cryptocurrencies but the only one that currently can be used for anything more than a curiosity is bitcoin.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 21, 2016 22:20 UTC (Thu) by nybble41 (subscriber, #55106) [Link] (4 responses)

> No, clients only generate transactions and transactions only have value if included in a block by a miner.

Clients also validate the blocks they receive before appending them to their own local copy of the blockchain. If a block isn't seen as valid by a majority of clients, regardless of how many miners approve of it, then the block is effectively not part of the blockchain. Clients will not show the transactions in that block as confirmed (including the coinbase transaction though which the miner gets paid), or recognize other blocks which depend on those transactions as valid. As a result, miners cannot effectively avoid following any rules which most clients choose to enforce.

Miners do have more power when it comes to *rejecting* blocks, since even if you get a majority of other clients to accept your block as valid, the other miners can simply ignore it and build a longer alternative blockchain by virtue of having significantly more computing power at their disposal; the longest valid chain will be seen as the authoritative ledger. Changing this property would make it much more difficult to ensure convergence.

A change in the hash function would be a rule enforced by the clients. Assuming a majority of clients backed the change, miners who continued to use the old hash function would find that their blocks carry little weight. Transactions spending the mining reward and fees from blocks using the old hash function would only be seen as valid by a minority of clients, who in turn would only be able to spend what they receive within the limited circle of clients following the old rules; network effects would push the remaining holdouts, both miners and clients, to switch to the new hash function.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 21, 2016 22:42 UTC (Thu) by Fats (guest, #14882) [Link] (3 responses)

>Clients also validate the blocks they receive before appending them to their own local copy of the blockchain. If a block isn't seen as valid by a majority of clients, regardless of how many miners approve of it, then the block is effectively not part of the blockchain. Clients will not show the transactions in that block as confirmed (including the coinbase transaction though which the miner gets paid), or recognize other blocks which depend on those transactions as valid. As a result, miners cannot effectively avoid following any rules which most clients choose to enforce.

Again no, miners are by design the entities in bitcoin that enforces rules and build the blockchain. Clients who don't follow will in the end not be possible anymore to generate transactions that will be included in blocks mined by the miners. Of course you can ignore bitcoins send to you in a block you don't like but you can't send bitcoins a second time that is already in a block accepted by the miners.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 21, 2016 23:04 UTC (Thu) by nybble41 (subscriber, #55106) [Link] (2 responses)

> miners are by design the entities in bitcoin that enforces rules and build the blockchain.

Again no, miners may build the blockchain, but by design all nodes enforce the rules. (And any node that contributes to building the blockchain is a miner by definition, so the first part is a tautology.)

> Clients who don't follow will in the end not be possible anymore to generate transactions that will be included in blocks mined by the miners.

In blocks mined by the miners using the old rules, you mean—blocks which will be ignored by the majority of clients following the new rules. No loss there. Clients will just get their transactions included in other blocks mined according to the new rules.

> Of course you can ignore bitcoins send to you in a block you don't like but you can't send bitcoins a second time that is already in a block accepted by the miners.

You can if the other block wasn't accepted by most clients because it didn't follow their rules. Those clients will not see your transaction as double-spending, because they don't acknowledge the existence of the other block or the conflicting transaction it carried.

To change the rules to allow previously invalid transactions or blocks you need the support of a majority of the miners, because a majority of miners working together can always block a valid transaction from appearing in the blockchain. However, to prohibit previously valid transactions or blocks you only need the support of a majority of the clients. Even if every single (existing) miner was opposed to the change, it wouldn't be enough to make those transactions or blocks appear valid to the majority of recipients, which is where the real power lies.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 21, 2016 23:20 UTC (Thu) by Fats (guest, #14882) [Link] (1 responses)

> In blocks mined by the miners using the old rules, you mean—blocks which will be ignored by the majority of clients following the new rules. No loss there. Clients will just get their transactions included in other blocks mined according to the new rules.

OK, now you are talking different. Now you are talking about a hard fork, e.g. if there are miners that use different rules the clients have the choice which miners to follow. I agree with that but that is all the power they have. But the whole scaling discussion is so difficult because hard forks are so difficult; nothing something easy the clients can choose as you seem to indicate.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 22, 2016 4:56 UTC (Fri) by nybble41 (subscriber, #55106) [Link]

>> In blocks mined by the miners using the old rules, you mean—blocks which will be ignored by the majority of clients following the new rules. No loss there. Clients will just get their transactions included in other blocks mined according to the new rules.
> OK, now you are talking different. Now you are talking about a hard fork, e.g. if there are miners that use different rules the clients have the choice which miners to follow.

Actually, that is exactly what I've been saying all along. However, it's not like the miners form some sort of invite-only cartel. Clients have the option of becoming miners themselves, if no one else wants to do the job according to their specifications. Ergo, they always have a choice of miners to follow.

Hard forks are difficult for social reasons more so than technical ones. No one wants to see a situation where a significant minority backs the losing fork, even if it is short-lived. It makes for bad press. This is why hard forks generally require 95% or higher buy-in before they take effect, and why Bitcoin XT was roundly criticised for setting a lower threshold before it started accepting and mining larger blocks. However, there can be little question that it's ultimately the merchants who accept bitcoin as payment who determine the minimum standards for acceptable blocks. The miners can notarize whatever transactions they want, but they won't get any worthwhile reward unless their blocks are considered valid by the merchants holding the goods and services they wish to purchase.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 16, 2016 3:12 UTC (Sat) by drag (guest, #31333) [Link] (2 responses)

> What do you think client developers are going to do when faced with two choices: support the old blockchain that is steadily growing and is used by pretty much all other clients or fork to a new blockchain that has no clients and uncertain future?

It's not a either or choice. Clients can continue to support using the old block chain, and then support using the new one.

This is the sort of thing that appears to be happening with the 'Classic Bitcoin' and it's predecessor effort 'TX' (which got shutdown due to massive DDOS attacks). I am not a big fan of bitcoin itself, but I think the concept has merit. So I am not 'hip' to all the technicalities.

This is what they claimed with TX:

> Bitcoin XT supports a larger block size.[9] As of version 0.11A the following is implemented to determine the maximum block size.[10][11]

> If a block is mined before the minimum forking date of 11 Jan 2016 00:00:00 UTC, the maximum stays at 1MB.

> According to mining consensus rules. If less than 750 of the last 1000 blocks (75%) support a bigger block size, the maximum stays at 1MB.

> After a block is encountered that triggers the 75% majority, a grace period of 2 weeks starts, during which the maximum stays at 1MB.

> Unless the above rules restrict size, the maximum block size starts at 8MB, doubling approximately every 2 years for a maximum of 10 times.

> This makes the new maximum block size range between 8MB and 8192MB depending on when the block is mined.

The thing that most people miss about free markets is that the 'client' or the 'consumer' is the one that has the real control, not the producers. Unless they face some sort of significant force/violence preventing them from acting in their own best interests.

The 'miners' can do whatever they want, but it's only the clients that assign what they doing any value. It's a lovely idea to be able to make 'free money' by mining bitcoins, but the reality is that they are compensated for providing what amounts to a public service. They are not the ones in control of the situation even though they seem to be trying to take control through other channels (DDOS, etc).

The point of bitcoin is to allow transactions _after_ the numbers are mined out. It's inevitable that the number of miners are going to drop down to small numbers because the cost of bitcoin mining is going to continue to rise exponentially as the pool of available numbers drops closer to zero. After a certain point it only becomes feasible for people with access to cheap power and cheap hardware to keep going.

I don't know if bitcoin itself is fatally flawed (it seems that it's very likely due to reasons unrelated to the newest drama or lack of active miners), but it's a massive step forward for the internet. The potential is to allow cheap and easy way to transfer wealth and lower transaction costs in significant way. a way that is not controlled by a small handful of banks (debit/credit cards) or a single company (paypal). Maybe even make things like 'micro-transactions' possible so a large number of internet folks will be able to survive the coming 'advertising market implosion' apocalypse.

So maybe not bitcoin, but what comes after bitcoin, or even after that.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 19, 2016 3:32 UTC (Tue) by smoogen (subscriber, #97) [Link] (1 responses)

My limited understanding was that miners will always matter even if all the coins have been mined. Instead miners will be needed to "sign" the next block chain and are to be paid the transaction fees in that block. Thus there is always a market for a lot of miners over time as that is how the costs of who wins the "fees" gets solved.

However that may be flawed as it was from a talk a couple of years ago.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 19, 2016 16:10 UTC (Tue) by drag (guest, #31333) [Link]

Could be true. I don't know enough about the technicalities. I know there is transaction fees for signing.

Looks like economic pressure worked on the Chinese minors. They seem to now be switching to 'Bitcion Classic' and are increasing their block sizes to avoid a crash in the price.

https://news.ycombinator.com/item?id=10920902

Hearn: The resolution of the Bitcoin experiment

Posted Jan 15, 2016 23:54 UTC (Fri) by rgmoore (✭ supporter ✭, #75) [Link] (19 responses)

Well if the miners is a real problem all you need to do is change the hash function to something that they can not use the current accelerators on and in an instance you have redistributed the "power".

The problem is with who makes the decision to change the hash function. There's no centralized group that has the authority to make changes like that unilaterally; lack of a central authority is the whole point of Bitcoin. So what you're proposing is effectively a fork of the system, with all the problems of inertia that generally make forks difficult, plus the problem that winding up on the wrong side of the fork could cost people real value in their bitcoins. Forcing a switch is not going to be easy.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 19, 2016 6:57 UTC (Tue) by shemminger (subscriber, #5739) [Link] (18 responses)

The whole wasting of kilowatts of energy to create virtual currency seems to be one of those ideas that was a mistake to start with.
There probably wasn't a better way in the original design. But with a total anonymous creator who could you ask why?

Hearn: The resolution of the Bitcoin experiment

Posted Jan 19, 2016 7:09 UTC (Tue) by Cyberax (✭ supporter ✭, #52523) [Link] (17 responses)

No, that's a feature. Kilowatt-hours are necessary for a "proof of work" to make bitcoins valuable.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 19, 2016 21:34 UTC (Tue) by drag (guest, #31333) [Link] (9 responses)

Value is not derived from 'work'. The whole 'labor theory of value' _should be_ thoroughly debunked right now if it wasn't for the fact that it's been institutionalized into academic and policy organizations (which itself leads to whole bunch of really poor policy decisions on the part of governments. Sort of like putting a creationist in charge of MIT)

Value is derived from each individual's perspective. Something is valuable if the 'end user' or 'consumer' finds use in it. The fact that you can do something useful financially with bitcoin is the source of the value. What makes bitcoin useful to individuals (and thus the source of it's value) is because it's a limited set of verifiable numbers and that those numbers can be transferred around in what is supposed to be a secure and verifiable manner and thus can be used in financial transactions.

Typically other forms of money originate from commodities.. ie: gold, silver, wheat, tobacco leaves, shells, etc. etc. So they already had market value that served as a 'security' for their use as money. They get elevated to the status of money once people more-or-less accept them universally in any trade.

Bitcoin 'kilowatt hours' doesn't work like that. With gold-based currency it was still gold... it was still it's original commodity. Obvious bitcoin is not a form of battery so you can't input the numbers into your computer and get back those electronic force.

So-called fiat 'government money' usually is derived from money that was once based on commodities, but has long since been divorced from it's original meaning... ie: the dollar (being the 'international standard'. Dollar originally was just a specific measurement of weight of gold or silver, but it threw off it's shackles and went off the gold standard in the late 1970's). Bitcoin is more like that, although without the force backing it and the fact that it's based a finite set of numbers you are not dependent on the USA Federal government to behave itself.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 19, 2016 22:47 UTC (Tue) by nybble41 (subscriber, #55106) [Link] (6 responses)

> Value is not derived from 'work'. The whole 'labor theory of value' _should be_ thoroughly debunked right now ...

Agreed, but that isn't the point. The work (and thus energy cost) required to mine each block contributes not only to ensuring scarcity, but also to providing for a reasonably fair initial distribution and a predictable average inter-block interval, all of which are essential to the Bitcoin system. It isn't sufficient to ensure that there will *be* value, of course, but without that energy cost bitcoins would have no value to anyone.

> Typically other forms of money originate from commodities.... So they already had market value that served as a 'security' for their use as money. They get elevated to the status of money once people more-or-less accept them universally in any trade. ... Bitcoin 'kilowatt hours' doesn't work like that. With gold-based currency it was still gold... it was still it's original commodity. Obvious bitcoin is not a form of battery so you can't input the numbers into your computer and get back those electronic force.

You're comparing apples and oranges here. Bitcoin is not equivalent to kilowatt-hours in exactly the same way that gold is not equivalent to the energy and other resources which required for gold-mining. However, the market value of those kilowatt-hours act as a price floor below which additional bitcoin mining is no longer profitable, just as the cost of gold-mining determines the lowest price you'll be able to pay for newly mined gold.

The difference is that in the case of Bitcoin, the rate of new supply is fixed by the algorithms that automatically adjust the mining difficulty. More competition in mining just means a higher energy cost for all miners, and no additional bitcoins. The demand for gold-mining is limited by the rate of increase in the demand for gold; over-supply drives prices down and makes mining uneconomical. However, since it has no long-term effect on the supply, the demand for bitcoin mining is limited only by the associated energy cost. A fixed difficulty would have been more realistic, and probably cheaper and less volatile, but under such a system it would be hard to account for improvements in computing capabilities. It would also be less secure against attempts to run a 51% attack, where the cost of the attack is the only viable deterrent and the attacker is unlikely to be deterred by a drop in market value due to over-supply.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 19, 2016 23:34 UTC (Tue) by jhhaller (guest, #56103) [Link] (5 responses)

And this suffers from the same problem which caused the US depression in the late 1800s - there was insufficient fiat currency because it was based on gold/silver, and there wasn't enough for the economy, causing trade to collapse. To be a valuable currency, rareness is much less important than stability. Stability requires a certain amount of rarity, but not to any particular absolute level. Only speculators win when a currency is volatile. Inflation (when currencies become less valuable) is a problem to lenders, while deflation is a problem for borrowers. Bitcoin doesn't suffer from this yet, because no one is borrowing or lending to any great degree, and probably won't with a volatile currency. But, one can't build an economy with borrowing and lending. One could index the loans according to bitcoin value, but to what end as long as there are real currencies which are relatively stable. One also loses the anonymity of bitcoin with borrowing and lending, as no lender in their right mind would lend bitcoin when they didn't know who was supposed to pay back the loan, and if they were likely to do so.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 20, 2016 15:29 UTC (Wed) by nybble41 (subscriber, #55106) [Link] (4 responses)

> ... there was insufficient fiat currency because it was based on gold/silver, and there wasn't enough for the economy, causing trade to collapse.

That is simply nonsense. The problem wasn't the amount of gold or silver. In the absence of fixed exchange rates, the prices of the metals will simply adjust to accommodate the current supply and demand. (Short of the price becoming so high or low that the amounts required become inconvenient to deal with, at any rate, but gold and silver have never reached that point.)

The real problem was that the U.S. government issued notes for more gold and silver than it actually had, and eventually went bankrupt (in effect, though they didn't use that term) and refused to honor its banknotes according to the original terms. First they restricted the exchange of notes for gold by individuals, then they repeatedly redefined the notes as smaller and smaller amounts of gold, partially repudiating their debt. In the end they stopped honoring the exchange value of the notes altogether.

There have been many issues with the use of precious metals as currency in the United States (bimetallism and the over-issue of banknotes beyond what the government could repay being two obvious examples), but an insufficient supply of precious metals for use in trade was never one of them.

> To be a valuable currency, rareness is much less important than stability.

I agree about the need for stability, but volatility is not an inherent part of Bitcoin. It's volatile now because it's still new, and growing rapidly. Like any new currency, the rate of inflation is very high, outstripped thus far only by the rate of increase in demand. Over time the rate of inflation will decrease, eventually to zero, and demand will stabilize.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 20, 2016 19:01 UTC (Wed) by Cyberax (✭ supporter ✭, #52523) [Link] (3 responses)

> That is simply nonsense. The problem wasn't the amount of gold or silver. In the absence of fixed exchange rates, the prices of the metals will simply adjust to accommodate the current supply and demand.
Yes. For example, by causing deflation.

Just ask Hitler about it - it helped him a lot.

> The real problem was that the U.S. government issued notes for more gold and silver than it actually had, and eventually went bankrupt (in effect, though they didn't use that term) and refused to honor its banknotes according to the original terms.
During which of about 10 crises that happened before the Gold standard?

Hearn: The resolution of the Bitcoin experiment

Posted Jan 20, 2016 19:22 UTC (Wed) by corbet (editor, #1) [Link] (2 responses)

Perhaps this suggests we're getting close to the Godwin point in this particular thread?

Hearn: The resolution of the Bitcoin experiment

Posted Jan 20, 2016 19:36 UTC (Wed) by nybble41 (subscriber, #55106) [Link] (1 responses)

It's not Godwin unless someone makes a comparison between their opponent(s) and the Nazis; simply discussing the conditions in Nazi Germany doesn't count. Just the same, any time someone complains about the supposed dangers of deflation it's probably time to wrap up the thread. Deflation doesn't cause economic problems. There are studies showing that there is no consistent correlation between instances of deflation and economic difficulties. It can sometimes be a *symptom* of deeper issues, like in the case of the American Great Depression, where the deflation followed a period of significant inflation and was accompanied by a major credit contraction which also wiped out a significant fraction of everyone's savings.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 20, 2016 19:41 UTC (Wed) by Cyberax (✭ supporter ✭, #52523) [Link]

> Deflation doesn't cause economic problems. There are studies showing that there is no consistent correlation between instances of deflation and economic difficulties.
[citation needed]

Hearn: The resolution of the Bitcoin experiment

Posted Jan 19, 2016 23:49 UTC (Tue) by Cyberax (✭ supporter ✭, #52523) [Link] (1 responses)

Here's a "1" for you! I value it at $100000. Would you agree to buy it from me for that sum?

I don't think so. In reality, it's scarcity that drives the price. The labor/work required to produce an item might be one reason for the scarcity, but it's certainly one of them. Note, that scarcity alone does not determine the value - it's a necessary but not a sufficient condition.

In case of Bitcoins the only way to guarantee scarcity is to make it hard to mine new coins. It's a distributed system, there's no other way.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 20, 2016 0:19 UTC (Wed) by karath (subscriber, #19025) [Link]

"In case of Bitcoins the only way to guarantee scarcity is to make it hard to mine new coins. It's a distributed system, there's no other way."

Mostly I agree with this but there is one key bit that I think is over-simplified. It's called mining but the activity is not actually creating Bitcoins. The miners are calculating signatures for the blockchain, so that the transactions are publicly logged and irrefutable. As a reward for this activity, the miners are awarded newly created Bitcoins. These Bitcoins are literally created from 'nothing' at a consensually agreed rate. Once all possible Bitcoins are created, the same 'mining' activity will take place but the miners will be awarded Bitcoins from the fees charged to the transactions.

And I hope that I won't be embarrassed by having got this wrong :D

Hearn: The resolution of the Bitcoin experiment

Posted Jan 21, 2016 23:11 UTC (Thu) by ken (subscriber, #625) [Link] (6 responses)

> No, that's a feature. Kilowatt-hours are necessary for a "proof of work" to make bitcoins valuable.

Well not really, it has noting to do with value actually.

The whole mining thing would not have to take massive amount of resources to do. What bitcoin needs is a way to create the next block of transactions about every 10 minutes.

The way its done now is that every full node in the system accumulates transactions and could potentially create the next block. To decide what node will actually do it the current implementation of the bitcoin protocol basically do a big lottery and the winner creates the block.

the lottery thing is what is taking so much calculation as you are trying to find a special number that starts with only 0 bits, and the amount of 0 bits is dynamically altered so the entire network on average gets a new block every 10 minutes.

But this lottery system can and in my opinion have to change in the future so that every node can participate equally. The current system is wasting way to much resources on the consensus so its fewer and fewer nodes that actually participate in the lottery.

There is people working on alternatives. search for bitcoin and consensus algorithm

But if the block size change is any indication doing that change is probably going to start a real war or something.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 21, 2016 23:24 UTC (Thu) by Cyberax (✭ supporter ✭, #52523) [Link] (5 responses)

> The whole mining thing would not have to take massive amount of resources to do.
It has to, unless you want to have some kind of a centralized agent.

> But this lottery system can and in my opinion have to change in the future so that every node can participate equally. The current system is wasting way to much resources on the consensus so its fewer and fewer nodes that actually participate in the lottery.
No, it can not. Finding the next block is by design _hard_ and requires expending significant resources.

Otherwise nobody stops me from creating 1000000000000000000 fake nodes and winning the "lottery" every time.

> There is people working on alternatives. search for bitcoin and consensus algorithm
There are no real alternatives to a hard "proof of work" for a decentralized system.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 22, 2016 0:33 UTC (Fri) by ken (subscriber, #625) [Link] (4 responses)

> Otherwise nobody stops me from creating 1000000000000000000 fake nodes and winning the "lottery" every time.

Yes that is the tricky part but I do not think its impossible to create something that is going to work better than the current way but its going to be a lot more complicated.

In worst case you end up in the same spot as today only difference is that they have to create nodes instead of running this brain dead hardware that just calculate checksums.

But you are probably right that some type of proof of work is probably needed but it has to be done in a different way I think so that its not so local as it is today.

A lot of people is thinking about this, in 2014 there was apparently about 140 papers written on consensus algorithms. Somebody is going to find a way to get around this wasteful use of energy that is the current way.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 22, 2016 3:00 UTC (Fri) by Cyberax (✭ supporter ✭, #52523) [Link] (3 responses)

> But you are probably right that some type of proof of work is probably needed but it has to be done in a different way I think so that its not so local as it is today.
Please, no. Then it will require not only boatloads of coal to generate electricity, but also tons of network bandwidth.

> A lot of people is thinking about this, in 2014 there was apparently about 140 papers written on consensus algorithms. Somebody is going to find a way to get around this wasteful use of energy that is the current way.
No, they won't.

It's a fundamental problem - if you want currency to be usable then it has to be scarce. And if it's decentralized then it means it should be _hard_ to get.

Is wasting electricity required?

Posted Jan 26, 2016 14:31 UTC (Tue) by pjm (guest, #2080) [Link] (2 responses)

> it should be _hard_ to get

Even so, we should still ask whether it absolutely needs to be so *wasteful* to get, as the originator of this sub-discussion wondered. Perhaps the proof of work could still *use* lots of resources, but delivering some side benefit to society that a miner can't directly monetize for themselves.

Is wasting electricity required?

Posted Jan 26, 2016 14:49 UTC (Tue) by nybble41 (subscriber, #55106) [Link]

> Perhaps the proof of work could still *use* lots of resources, but delivering some side benefit to society that a miner can't directly monetize for themselves.

Not a bad idea, in principle, but there are only so many classes of problems which are uniformly hard for computers to solve, with adjustable difficulty to account for variations in technology and computational capacity, and yet very easy for other nodes to check. The stochastic element where every potential solution has an equal chance of being valid is also desirable to ensure fairness, and any system which relies on a trusted server handing out work-packets is unworkable in terms of decentralization. So far no one has managed to come up with an alternative proof-of-work with the necessary properties.

Is wasting electricity required?

Posted Jan 26, 2016 19:31 UTC (Tue) by Cyberax (✭ supporter ✭, #52523) [Link]

There are some projects that attempt to do it, but it's hard to find suitable problems for that. Search for Mersenne primes is marginally better than finding hash codes with consecutive zeroes, but only marginally so.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 15, 2016 13:24 UTC (Fri) by job (guest, #670) [Link]

Scalability problems are the best kind of failure, after all.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 15, 2016 15:54 UTC (Fri) by mfuzzey (subscriber, #57966) [Link] (8 responses)

I don't understand the part about chinese miners.

Why is so much controlled by them?
If the chinese firewall is so harmful to proper mining why don't they move their operations elsewhere (or why don't miners based elsewhere take advantage of better connectivity to get an advantage)?

Hearn: The resolution of the Bitcoin experiment

Posted Jan 15, 2016 17:21 UTC (Fri) by epa (subscriber, #39769) [Link] (6 responses)

I read that in Inner Mongolia there is cheap electricity and a favourable climate for mining?

Hearn: The resolution of the Bitcoin experiment

Posted Jan 15, 2016 18:39 UTC (Fri) by zorro (subscriber, #45643) [Link] (5 responses)

And according to Wikipedia, 98% of electricity in Mongolia is generated using coal. The sooner Bitcoin disappears, the better.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 16, 2016 0:05 UTC (Sat) by teknohog (subscriber, #70891) [Link] (3 responses)

Consider the fossil fuels expended to maintain fiat currencies. This would include practical operations such as armoured trucks for distributing coinage to banks and ATMs, and good old data centres. Also keep in mind the running of an entire (police)? state that ultimately guarantees the value of its currency.

The sooner centralized, proprietary systems disappear, the better.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 16, 2016 0:52 UTC (Sat) by Cyberax (✭ supporter ✭, #52523) [Link]

> Consider the fossil fuels expended to maintain fiat currencies. This would include practical operations such as armoured trucks for distributing coinage to banks and ATMs, and good old data centres.
We're solving the problem of armored trucks with electronic transactions. Data centers are a pretty much negligible expense.

All of the US banking transactions can be run from a single fairly small DC.

> Also keep in mind the running of an entire (police)? state that ultimately guarantees the value of its currency.
Will I be able to come to your home and cut off your fingers one by one until you give me all of your bitcoin wallets once the world sees the light and switches?

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 13:10 UTC (Mon) by johannbg (guest, #65743) [Link] (1 responses)

"Consider the fossil fuels expended to maintain fiat currencies."

You need to take into account manufacturing emissions when making this argument regardless if it's a car (electric or not) or the components that make up your data center wires etc since everything is only as green as the juice it's running or manufactured on.

To achieve "greener world" means that you need to move manufacturing plants to the nations that provide that "green energy" ( Iceland, Paraguay, Sweden, France etc ) at the expense of re-allocation cost for companies, higher manufacture prices ( which results in higher prices on the consumer market which is opposite to what that market demands/wants ) and the economy collapses of the nations that already host and run those manufacturing plants or invent or find alternative means to produce that green energy for those nations that currently cannot as well as to having to implement that solution nation wide ( implementation which is measured in decades, the larger the nation the longer it takes and as you know the world still have countries running on 110v ).

Instead of actually dealing with the issue "nations" came up with energy/carbon trading scheme to make it look like those nations are actually doing anything about when in fact they are not ( these are workaround means to circumvent ) and the end result remains the same.

If we put aside all the man made problems that affects the planet and man kind ( pollution, hunger, religions, wars etc ) and the steps which are required to solve those problems ( which is not something that people, nations and industry's are truly willing to due, heck people cannot even agree on standardization which just highlights the fact the people dont posses the mental capability at this point in time to deal with issues on much larger and global scale ) and focus only on the "emission" problem the fact is that a single volcanic eruption here in Iceland produced on average three times the amount of sulphur dioxide ( which for example is produced by burning fossil fuels and other industrial processes such as smelting ) emitted in the six-month period it was active to all of Europe's human-made sulphur dioxide for that same period of time [1]. ( we have roughly 1500 active volcano's world wide ) so it's debatable how much affect the human produced sulphur dioxide affects the planet's ecosystem on global scale rendering any "green" or rather "Let's pretend we are green and are doing anything about it" argument moot.

1. http://onlinelibrary.wiley.com/doi/10.1002/2015JD023638/a...

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 22:45 UTC (Mon) by pboddie (guest, #50784) [Link]

If only sulphur dioxide were the only thing to worry about.

As for "green energy" countries, globalisation, the transfer of manufacturing and polluting industries, and the role of China, it pays to not have a static view of these and other matters. While politicians in certain countries seem to have a static view of renewable energy technologies, and arguably a decades old view at that, as they push lifespan-extension fossil fuel extraction programmes as their least-effort response to energy supply concerns (and leaving it to "the market" to figure the rest out), countries like China are actually investing substantially in renewables, and not merely the high-profile, controversial hydro-electric projects that make the television news. I totally expect a lot of European nations to get caught out by underinvesting in the technologies, all the time pointing the finger at a China that no longer exists.

But as for the point about electricity consumption and Bitcoin, I think we have to consider wider issues such as how much electricity gets used in needlessly centralised computing and in the extravagant bandwidth usage it demands. And just as we have seen with the evolution of the Web, it isn't unreasonable to question what all the different devices are actually doing, and whether they need to burn down their batteries all the time doing overengineered client-side stuff, just to keep everything "hyperactively connected".

Hearn: The resolution of the Bitcoin experiment

Posted Jan 16, 2016 12:47 UTC (Sat) by ballombe (subscriber, #9523) [Link]

Inner Mongolia is in China.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 15, 2016 17:46 UTC (Fri) by b7j0c (guest, #27559) [Link]

presumably, their power is unmetered

it may even be possible that their operations are state supported, so it might not be feasible for them to leave

in any case, they proved that it was possible to subvert bitcoin.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 17, 2016 0:05 UTC (Sun) by copsewood (subscriber, #199) [Link]

Supposing 1. that an unconventional currency is already suitable for handling transactions concerning new kinds of organised crime, the beneficiaries of DDOS and Cryptowall style network and data ransom attacks, and the organisation of more efficient markets for illegal weapons etc. Supposing 2. that some or all of the main beneficiaries of these markets also effectively control this currency. It follows that the group currently in control have little incentive to relinquish their control over this currency to a larger community, so, if they have this capacity and criminal intention, they will DDOS any perceived threat to their control out of existence.

If the main reason new users have to buy into the currency is to pay such criminal demands, regulation of the demands made upon new victims to balance cashing out by the organisers using the same exchanges will stabilise the exchange value of the currency better than when the number of new users buying in is a speculative bubble phenomenon inversely driving increases or decreases in those attempting to cash out, as it was in the earlier days of this currency, when demand for it was driven by misplaced enthusiasm and conventional media reportage. Also if much of what is being sold for Bitcoins is calling off a large DDOS attack, or cryptographic keys which enable a Cryptowall victim to restore their data, there is little worry for the criminal beneficiaries if transactions take a day or so to clear - the victims are obliged to pay regardless or lose their data or network availability.

So perhaps the question of whether Bitcoin has failed depends upon your interpretation of what it means for Bitcoin to succeed. If it puts money into the hands of a bunch of criminals who control it, the latter might consider it entirely successful. If the criminals who control the exchange stability it are a different group than those who mine the currency, paying transaction fees to the miners is a relatively small overhead upon a criminal operation concerning which Visa transactions are not in competition.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 17, 2016 3:57 UTC (Sun) by jcm (subscriber, #18262) [Link] (45 responses)

Bitcoin as implemented was always doomed to failure. To be successful as a currency, you need governments backing you and underwriting your efforts (same as you need industry heavyweights - e.g. IBM et al in the previous decade - backing Open Source software for it to actually be successful at scale). The dollar works because of the United States government, military, nukes, and so on. It doesn't just keep chugging along because people love the greenback. Sure, there are always a bunch of laissez faire types who jump on the misguided libertarian bandwagon and go do their own thing. They always fail because they neglect to consider how the real world actually runs, in that place called reality, not the Internet.

Blah blah blah "you're so wrong Jon..."

Except I'm not. But sure, tell me how wrong I am.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 17, 2016 5:23 UTC (Sun) by JanC_ (subscriber, #34940) [Link] (1 responses)

There is lots of open source software that became hugely popular without “industry heavyweights” backing it. Some even *lost* market share after such companies became involved…

Hearn: The resolution of the Bitcoin experiment

Posted Jan 17, 2016 5:31 UTC (Sun) by marcH (subscriber, #57642) [Link]

Software - like many other forms of intellectual "property" - is unusual: it can be copied at near zero cost. This makes it a very special case economically. Generally not a good example.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 17, 2016 5:27 UTC (Sun) by marcH (subscriber, #57642) [Link] (10 responses)

> The dollar works because of the United States government, military, nukes, and so on.

"Democracy is the worst from of government... except for all the others."

With all their respective and very many sins and despite "the 1%", democracies are still the most... "decentralized" forms of control. So Bitcoin failed to beat this; let's watch and see what comes next.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 17, 2016 11:56 UTC (Sun) by Wol (subscriber, #4433) [Link] (9 responses)

> "Democracy is the worst from of government... except for all the others."

Actually, democracy is "government of the middle class, by the middle class, for the middle class". Which is why it's now under so much threat. And which is also why attempts to impose it on other countries fail so disastrously.

Democracy blossomed in Britain with the rise of the Victorian middle class. Democracy survived in India despite people saying it wouldn't, because there was a large middle class. Various attempts to "democratise" South America have imploded because the countries had no middle class to speak of and they elected a dictator to power (and just look at the similar mess in Africa. In fact, because of hyper-inflation, that's probably why a certain AH was *elected* to power in Germany!).

The middle class is being squeezed. More and more of the world's wealth is being concentrated in the hands of fewer and fewer people. Even as the "average salary" is rising, the salary of the "average man" is falling ...

I think our democratic experiment is coming to an end. Look at pretty much EVERY election nowadays, America being a perfect example, victory goes to the person who managed to outspend everyone else. Our setup isn't quite so bad - there are strict spending limits - but it's still pretty obvious that throwing money at a constituency will win that constituency. It's just that there's a limit to the amount of money you can throw.

Cheers,
Wol

Hearn: The resolution of the Bitcoin experiment

Posted Jan 17, 2016 17:16 UTC (Sun) by spaetz (guest, #32870) [Link] (6 responses)

> I think our democratic experiment is coming to an end.

Could people (not just you) please discuss their general political opinions in fora dedicated to these topics and leave lwn for technical and open source-relevant issues, please? The signal2noise ratio seems to detoriate pretty quickly these days. Thanks.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 17, 2016 21:03 UTC (Sun) by epa (subscriber, #39769) [Link]

"Time to end the disastrous democratic experiment." -- Sword_of_truth

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 7:47 UTC (Mon) by marcH (subscriber, #57642) [Link] (4 responses)

There's still an easy and quite reliable way to avoid seeing political discussions on LWN: whenever you find an article about a fairly political topic - like for instance a new and revolutionary currency - then simply avoid reading its comments section.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 23:00 UTC (Mon) by flussence (guest, #85566) [Link] (3 responses)

I'm not fussed either way but spaetz has a legitimate complaint: it's quite hard to skip over large off-topic threads in the "unread comments" interface.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 20, 2016 7:20 UTC (Wed) by marcH (subscriber, #57642) [Link] (1 responses)

Missed that, don't use this interface much. Maybe because it's... not that convenient to use and should be enhanced :-)

Hearn: The resolution of the Bitcoin experiment

Posted Jan 20, 2016 7:24 UTC (Wed) by marcH (subscriber, #57642) [Link]

Thought of this just now: http://dir.gmane.org/gmane.lwn - now this would really rock!

(Check http://dir.gmane.org/gmane.linux.kernel if you never heard of gmane before)

Hearn: The resolution of the Bitcoin experiment

Posted Jan 20, 2016 19:22 UTC (Wed) by Wol (subscriber, #4433) [Link]

At least you've got "unread comments" :-)

Non-subscribers just have an "all comments" view, as best I know ...

Cheers,
Wol

Hearn: The resolution of the Bitcoin experiment

Posted Jan 17, 2016 23:54 UTC (Sun) by anselm (subscriber, #2796) [Link] (1 responses)

Contrary to popular belief, Hitler wasn't actually elected by the German people, he was artificially installed as chancellor of the German Reich by the Reich president, Hindenburg. In fact, in the last non-rigged election Hitler's party actually lost votes compared to the one before that, and didn't achieve a parliamentary majority that would have been sufficient to form a government (which is why Hindenburg stepped in). To be fair, Hindenburg wasn't a huge fan of Hitler's either – Hindenburg was popular as a general and war hero and used to think of Hitler, who had fought for a time during WWI, as “that Bohemian corporal” –, but by that time he was quite elderly and his advisors assured him that a coalition government consisting mostly of Conservatives that included only two Nazi ministers apart from Hitler himself as chancellor couldn't be so bad.

Also, when Hitler came to power, the German hyper-inflation had been over for 10 years or so. There was a period of several years of relative stability and prosperity between the hyper-inflation and the Great Depression, and the latter did contribute to the political that eventually led to the Nazis coming to power.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 0:31 UTC (Mon) by Cyberax (✭ supporter ✭, #52523) [Link]

> Also, when Hitler came to power, the German hyper-inflation had been over for 10 years or so.
Moreover, it was actually a period of severe _deflation_ with all the problems of a deflationary spiral.

Hitler stopped it by introducing a "stimulus" program in the form of huge military expenditures and public projects (like the initial Autobahn system).

Why is it important? Bitcoin is by design deflationary - the value of the individual coins will increase over time.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 17, 2016 5:45 UTC (Sun) by Cyberax (✭ supporter ✭, #52523) [Link] (22 responses)

Bitcoin failed because people just don't really use it for anything legitimate. It's a real digital cash with all of its drawbacks - if somebody steals your wallet it's GONE. You can't just go and dispute the fraudulent transactions on your bank's website. Ditto for losing your wallet.

The fact that bitcoins replicated another "feature" of cash and are used mostly for criminal and semi-criminal purchases doesn't help the matter a bit.

And since nobody really controls the amount of bitcoins in circulation, it's subject to wild currency swings.

All of this makes bitcoins a really bad idea for anything important. And I think that solving these problems is not really possible without introducing some form of ...errr... government.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 9:35 UTC (Mon) by accumulator (guest, #95885) [Link] (17 responses)

people just don't really use it for anything legitimate

I did. From ordering takeaway food, repaying friends I loaned money from and paying in bars and restaurants. Same goes for my bitcoin using friends.

if somebody steals your wallet it's GONE. You can't just go and dispute the fraudulent transactions on your bank's website

Banks can have a role here, just like they provided a role (long time ago) storing your gold. Bitcoin is gold-like in this context. You could CHOOSE to have a bank be your intermediairy and get the associated 'benefits'.

nobody really controls the amount of bitcoins in circulation

It's actually baked into the algorithm, which is defined by consensus. Besides, ever since banking went to fractional reserve banking the amount of money in circulation was getting less restricted, and after we left the gold-standard even more so. It was then that the boom-bust cycles appeared, with devastating effects.

solving these problems is not really possible without introducing some form of ...errr... government

Of these 3 'problems' you describe, 2 are not really problems. And w.r.t. criminal use, I guess you hate physical cash as much as bitcoin?

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 10:01 UTC (Mon) by Cyberax (✭ supporter ✭, #52523) [Link] (13 responses)

> I did. From ordering takeaway food, repaying friends I loaned money from and paying in bars and restaurants. Same goes for my bitcoin using friends.
Congratulations. You're an exception.

> It's actually baked into the algorithm, which is defined by consensus. Besides, ever since banking went to fractional reserve banking the amount of money in circulation was getting less restricted, and after we left the gold-standard even more so.
Yes, and that's a good feature. It allows to scale the amount of currency to the needs of the economy.

> It was then that the boom-bust cycles appeared, with devastating effects.
Actually, the first boom-bust cycles happened before even the official gold standard. Even before the US itself had been established.

> Of these 3 'problems' you describe, 2 are not really problems. And w.r.t. criminal use, I guess you hate physical cash as much as bitcoin?
Correct.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 11:58 UTC (Mon) by accumulator (guest, #95885) [Link] (12 responses)

> Congratulations. You're an exception.

Thousands of legitimate businesses disagree with you.

> Yes, and that's a good feature.

In theory. But in practice governments can't help themselves letting this get out of hand, every. single. time.

> Actually, the first boom-bust cycles happened before even the official gold standard

Yes, like I said, after the start of fractional reserve banking.

>> I guess you hate physical cash as much as bitcoin?
> Correct.

I admire your confidence in having a government with so much power.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 12:06 UTC (Mon) by Cyberax (✭ supporter ✭, #52523) [Link] (11 responses)

> Thousands of legitimate businesses disagree with you.
And hundreds of thousands of illegitimate businesses cheer with me! By a some estimates, the illicit businesses are responsible for more than 90% transactions.

> In theory. But in practice governments can't help themselves letting this get out of hand, every. single. time.
So why hasn't dollar hyperinflated? Or maybe yen or renminbi?

In reality, governments are now pretty good with managing inflation.

> Yes, like I said, after the start of fractional reserve banking.
So... Since some time in the Republic of Rome?

> I admire your confidence in having a government with so much power.
And I admire your naïviete. If government wanted to take your money, bitcoins wouldn't save you. And the correct approach is not to try and stockpile gold and canned food, but change the government.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 14:38 UTC (Mon) by accumulator (guest, #95885) [Link] (8 responses)

> illicit businesses are responsible for more than 90% transactions.

You can throw around statistics, but where's the proof? I highly doubt this number.

> So why hasn't dollar hyperinflated? Or maybe yen or renminbi?

It has, according to the austrian definition of inflation. But I'm sure you will counter with the Keynesian definition.
For a number of recent examples, just look at Argentina.

> And I admire your naïviete. If government wanted to take your money, bitcoins wouldn't save you. And the correct approach is not to try and stockpile gold and canned food, but change the government.

I'm not talking about bitcoin here (nor stockpiling stuff), but about physical cash. If you can't see the negative effects that abolishing physical cash could have, you're the naïve one.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 18:41 UTC (Mon) by Cyberax (✭ supporter ✭, #52523) [Link] (7 responses)

> You can throw around statistics, but where's the proof? I highly doubt this number.
It's a bit dated, from the middle of 2014. I'm searching for the report. Basically, it looked at the value of seized wallets and their transactions and compared it to the total value of transactions through legitimate payment processors.

> It has, according to the austrian definition of inflation. But I'm sure you will counter with the Keynesian definition.
Ah, yes. Austrian inflation is usually a GOOD thing.

I absolutely detest how Austrians latch on a scary term and redefine it completely. While still pretending that it still is scary even though it's redefined.

It's like calling "bitcoin" a "form of cancer". Why do you support cancer?

> For a number of recent examples, just look at Argentina.
Why not Zimbabwe? Or maybe the emperor Diocletian?

> I'm not talking about bitcoin here (nor stockpiling stuff), but about physical cash. If you can't see the negative effects that abolishing physical cash could have, you're the naïve one.
Cash serves little purpose other than for small transactions between individuals and small businesses. There's no real value in large cash transactions.

Denmark and Sweden are pretty much cashless these days, and I don't see death squads roaming the streets there.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 18:57 UTC (Mon) by Wol (subscriber, #4433) [Link] (6 responses)

> > It has, according to the austrian definition of inflation. But I'm sure you will counter with the Keynesian
> >definition.

> Ah, yes. Austrian inflation is usually a GOOD thing.

What about UK inflation - as officially measured, it does not include house prices, so given that a typical house where I am (about 10 miles from the city centre) rents for £1100pm or so ($1500, per month, for a *small* three bed semi), inflation does not include the single biggest expenditure in a young person's profile. And if you move into the centre itself that probably wouldn't even get you a one-bed flat.

Surely it can't be good that we have an *un*regulated rental market, and the average house costs about TEN times the average salary ...

Cheers,
Wol

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 19:31 UTC (Mon) by Cyberax (✭ supporter ✭, #52523) [Link] (3 responses)

> What about UK inflation - as officially measured, it does not include house prices, so given that a typical house where I am (about 10 miles from the city centre) rents for £1100pm or so ($1500, per month, for a *small* three bed semi), inflation does not include the single biggest expenditure in a young person's profile. And if you move into the centre itself that probably wouldn't even get you a one-bed flat.
Inflation includes the average price over the whole country, but it misses the localized effects.

Oh, and Austrian inflation also doesn't take localized effects into account. You can very much have skyrocketing local prices even with generalized deflation.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 19:52 UTC (Mon) by clump (subscriber, #27801) [Link] (2 responses)

To your point, in the States, housing prices in San Francisco are very high. Inflation measurements in the States do include housing, and despite that inflation is still virtually non-existent.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 19, 2016 11:03 UTC (Tue) by Wol (subscriber, #4433) [Link] (1 responses)

How easy is it for you to reduce your housing costs, by moving further away and commuting? Actually, I gather commuting in the States isn't that easy ...

The thing is, it depends how "lumpy" house prices are. Here, we may have political initiatives to address it, but the fact is that most people under 40 simply can't afford to buy their own home, ANYWHERE. Okay, it's taken maybe 30 years to do it, but, relative to income!, house prices have trebled or more even in my own adult lifetime - my original starter home is probably now way out of reach for someone in the same position I was.

Cheers,
Wol

Hearn: The resolution of the Bitcoin experiment

Posted Jan 19, 2016 16:18 UTC (Tue) by raven667 (subscriber, #5198) [Link]

> How easy is it for you to reduce your housing costs, by moving further away and commuting? Actually, I gather commuting in the States isn't that easy ...

People complain about commuting but cities in the US have built out massive road networks for commuters. Using Chicago vs. London as an example, suburbs like Joliet or Schaumburg are at least as far away as the M25 around London and there are neighborhoods going out even further, as far as Milton Keynes and Bletchley is from London, Mundelein or Libertyville are still primarily commuter homes for the greater Chicago area.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 19:57 UTC (Mon) by rgmoore (✭ supporter ✭, #75) [Link]

What about UK inflation

The "Austrian" inflation he was talking about was as defined by the Austrian school of economics, not inflation in Austria. The Austrian school defines inflation in terms of increase in the monetary supply*, not as price inflation. It's a good, real-world example of what Thomas Kuhn was talking about when he said that people following different paradigms can't communicate with each other because they use the same term to mean different things.

*Strictly speaking, increase in the ratio of the broad monetary supply to the demand for money, so that there is no inflation if the monetary supply increases with the economy as a whole.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 19, 2016 18:58 UTC (Tue) by markhb (guest, #1003) [Link]

Heh... I'm in a small city in the US (which many of the people in the country would consider "a small town in the boondocks"), which happens to be trendy at the moment. Our newspaper recently did a series and found that 2 BR w/ utilities rentals in the city were averaging nearly $1600/month. Note that that includes heat, which is important where I am. Large cities like Boston and Philadelphia are worse, and forget about the nexuses of insanity that are Manhattan and the San Francisco peninsula.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 15:23 UTC (Mon) by spaetz (guest, #32870) [Link] (1 responses)

> And hundreds of thousands of illegitimate businesses cheer with me! By a some estimates, the illicit businesses are responsible for more than 90% transactions.

I know that the tourism industry is somewhat fishy, but calling expedia (http://techcrunch.com/2014/06/11/expedia-now-accepts-bitc...) and thousands of travel agencies (https://blog.bitpay.com/partnering-with-ypsilon/) illicit businesses is somewhat strong ;-P.

Let me trump yours: Here is my estimate: 92% of all cash transactions are funneled through illicit businesses.
There you go: By some estimates, the illicite bussines are responsible for more than 91% of all cash transactions. Beat that :)

That having said, I bought bitcoins when they were at $0.03 and got cold feet when they were at $1, I have no horse in this race. They won't go away, but they will never replace the greenback. I find it interesting though that many people are not really aware how they work and what the drawbacks will be. E.g. they are not necessarily free (http://bitcoinfees.com/ explains it well) and can beat credit card fees at times.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 18:12 UTC (Mon) by Cyberax (✭ supporter ✭, #52523) [Link]

Do you have problems with logic? The fact that there are SOME legitimate businesses does not mean that most of the transactions are legal.

The state of Bitcoin is summed up here: http://www.coindesk.com/5-facts-from-the-q3-2015-state-of...

> Let me trump yours: Here is my estimate: 92% of all cash transactions are funneled through illicit businesses. There you go: By some estimates, the illicite bussines are responsible for more than 91% of all cash transactions. Beat that :)
Let's eliminate cash, then.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 11:43 UTC (Mon) by paulj (subscriber, #341) [Link] (2 responses)

You're wrong, boom-bust cycles have been seen in economies long before countries detached currency from precious metals. There are at least as many ways for boom-bust cycles to exist as there are things that humans can speculatively value - which is a vast array of goods and services, including loans and expected returns, and even plants bulbs (see Netherlands and tulips). Even currencies attached to precious goods (e.g. metals like gold or silver) can be affected by speculation on the expected supply of those goods, and unforeseen events like the discovery of new supplies (e.g. the likes of Spain and other European countries went through a huge boom when they discovered the 'new world, and found new supplies of gold - devaluing the existing stock significantly over time).

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 14:23 UTC (Mon) by accumulator (guest, #95885) [Link] (1 responses)

> You're wrong, boom-bust cycles have been seen in economies long before countries detached currency from precious metals. There are at least as many ways for boom-bust cycles to exist as there are things that humans can speculatively value

Please read. I didn't say boom-bust cycles started when the gold standard was let go. And yes, there can be bubbles (as opposed to cycles) in non-monetary assets, but that's speculation, and discretionary. It is entirely different if the boom-bust cycle is happening in the medium of exchange.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 18:59 UTC (Mon) by clump (subscriber, #27801) [Link]

Please read. I didn't say boom-bust cycles started when the gold standard was let go.
You're telling others to read?
Besides, ever since banking went to fractional reserve banking the amount of money in circulation was getting less restricted, and after we left the gold-standard even more so. It was then that the boom-bust cycles appeared, with devastating effects.
If you're trolling, mission accomplished.

Hearn: The resolution of the Bitcoin experiment

Posted Feb 3, 2016 23:37 UTC (Wed) by Rudd-O (guest, #61155) [Link] (3 responses)

There are so many factual errors in your post, it's hard to begin arguing against it.

No, most bitcoins are not used for criminal activity. They are used as a store of value, use case that is first only to its second: legal commerce. All of those are *legitimate* uses.

You are not totally wrong here -- there is absolutely a demonstrable and substantial (even if minor) illegal use of Bitcoin. You clearly see that as a bug due to your bias for obedience stemming from your political indoctrination (which you've made very obvious, and entirely gratuitously, at the expense of the S/N ratio of this comments section).

You know what else is used, much more often, to trade drugs and other contraband? Dollars. Far more than Bitcoin, in fact. Why not go rant somewhere else about all of those illegals illegally trading in illegal disobedience your political rulers while using dollars? Post to reddit.com/r/politics where your post will be received with open arms into the circlejerk of obedience.

Yes, cash has this problem where, if you're pickpocketed, the cash is gone. Irreversible transactions have their advantages and disadvantages, and therefore they have their good use cases and their bad use cases. The fact that *you don't like* others having the option of using something you don't find appealing, doesn't mean said something is bad. It just means you're intolerant of others' decisions.

Another fiction in your post, easily proven wrong: everyone participating in the Bitcoin network algorithmically and precisely controls the amount of bitcoins available for circulation. If you wanted to disabuse yourself of this fourth erroneous notion, all you'd have to do is read a file of C++.

The fact that Bitcoin is subject to relatively large swings in price has nothing to do with how many coins have been produced. It's simply a byproduct of it being young, just like many other businesses and technologies whose value fluctuates stochastically as they gain or lose adoption. Your argumentation here is no different from demanding that a toddler perfectly pronounce "water" before handing him a water bottle, and when the toddler dies of thirst, you exclaiming "See? That thing was so stupid! LOL!" No, the kid's not an idiot -- you're just being unreasonable within the confines of your double standards.

All in all, the things you call "problems" are just fine, growth continues to the point that last year Bitcoin did better than all other asset classes. Also, no thanks, the network is already governed by math.

You are not the first person to repeatedly inject shitty "Bitcoin is doomed because it doesn't work how my obviously true political opinions say things ought to work" dogmatism into a convo about Bitcoin. You won't be the last. But at least spare us your political doctrines -- we don't come here to hopscotch around them.

Hearn: The resolution of the Bitcoin experiment

Posted Feb 4, 2016 0:12 UTC (Thu) by Cyberax (✭ supporter ✭, #52523) [Link] (2 responses)

> No, most bitcoins are not used for criminal activity. They are used as a store of value, use case that is first only to its second: legal commerce. All of those are *legitimate* uses.
So, it's kinda like stockpiling heroin?

Hearn: The resolution of the Bitcoin experiment

Posted Feb 4, 2016 8:59 UTC (Thu) by Rudd-O (guest, #61155) [Link] (1 responses)

Snark is a tell for cognitive dissonance.

Hearn: The resolution of the Bitcoin experiment

Posted Feb 4, 2016 18:36 UTC (Thu) by Cyberax (✭ supporter ✭, #52523) [Link]

And attacks on the tone of the message usually mean that the author has no ideas how to reply.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 3:10 UTC (Mon) by bojan (subscriber, #14302) [Link] (3 responses)

> Blah blah blah "you're so wrong Jon..."

I was actually thinking the opposite - how right you are. :-)

The whole Bitcoin thing always struck me as a kind of a casino type currency: play and hope for the best. Also, the whole concept of being rewarded for burning CPU cycles is very Second Life-esque - paying for things that aren't real. Bizarre...

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 9:37 UTC (Mon) by roblucid (guest, #48964) [Link] (2 responses)

What bit coins are buying, is a proportionate share of the ledger. Currencies retain value through some scarcity eg) Gold & Silver, in bit coin the "proof of work", adding a nonce which is used to find a crypto hash to begin with many zeros and seals the block chain ledger. It has to be hard, or transactions could be faked, altering the ledger and finding a new nonce/hash which looked correct before the correct block is "mined" legitimately. Maintaining a copy of the ledger & sealing transactions need an incentive, hence rewards for coins "mining" and (small) transaction fees when a block is validated. The miners are actually preventing fraud by confirming and sealing transactions, having a copy of the open transaction ledger for perusal (the block chain).

Unfortunately, miners can get a reward for empty transaction blocks, which does not do useful work and wastes energy & carbon emissions. Also distributing the whole block chain to every node becomes more and more inefficient.

To scale, some sort of hierarchy like NTP or DNS, imposed socially to have independantly run ledger copies, with mining rewards also distributed to pay for this service would be required, plus having transactions for independant wallets being verified in parallel in each confirmation window, that is multiple streams of transaction confirmations for wallets A, B, C & D which are making payments.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 12:07 UTC (Mon) by bojan (subscriber, #14302) [Link] (1 responses)

I know this is the technical explanation, but that accountants are all of a sudden these all powerful masters of universe, capable of creating money, still sounds totally bizarre to me. Maybe I'm just old fashioned...

Hearn: The resolution of the Bitcoin experiment

Posted Jan 18, 2016 16:55 UTC (Mon) by pboddie (guest, #50784) [Link]

I must be old-fashioned, too. The explanation posted above is possibly the most coherent one I've read in any summary, with most references to Bitcoin involving the hateful (and dated) "cyber" prefix glued onto "currency", pushing all the shallow journalistic buttons about alternatives to the mainstream, "anarchic groups", radicals and "free-thinkers".

But cut through the hype and you're left with something that...

  • Isn't widely accepted, relative to other well-known means of payment... Diners Club cards excluded. ;-)
  • Has fluctuated significantly and rapidly in value for non-obvious reasons.
  • Seems to involve doing business with organisations that even people with enthusiasm for the concept might have little familiarity with, meaning that random people are unlikely to trust the whole thing at all.

It might have been attractive for an individual to speculate on Bitcoin - there's even something sounding like that written in another comment here, and there are new stories about people who did well early on - but few ordinary individuals are likely to be successfully speculating on traditional currencies. Meanwhile, to retailers and the average person, any additional currency (traditional or not) can be a significant risk that is best eliminated if it appears a likely target for speculation. Just ask all the people who took out Swiss Franc loans over the years to get better borrowing rates than in their local currency.

Hearn: The resolution of the Bitcoin experiment

Posted Jan 19, 2016 6:29 UTC (Tue) by linuxrocks123 (subscriber, #34648) [Link] (4 responses)

---
The dollar works because of the United States government, military, nukes, and so on.
---

The dollar works because it's well-stewarded by the Federal Reserve and because the US economy generally is healthy, so people want to buy stuff from it. The US military has nothing to do with it, except to the extent it's protecting the US economy (and it's way overkill for that).

The euro works slightly less well because it's slightly less well-stewarded by the ECB because of intra-EU political drama. Not because the EU has fewer nukes.

The ruble sucks because the Russian economy is unstabe, and maybe also because the RCB sucks but I don't know if that's true. Russia has nukes; they're not helping much.

Bitcoin can work as a currency only if people want to buy things from the "Bitcoin economy" -- if it's easier to use Bitcoins to buy goods and services than the alternative. It doesn't work because it's hilariously inefficient by design -- like, as inefficient as the dollar would be if the raw materials to make a dollar cost $1 -- and because its decentralized nature means its monetary policy is nonexistent and so it's subject to hyperinflation and hyperdeflation at a level that would destroy any real economy based on it.

90% of the current value for Bitcoin is probably tulipmania and 9.9% is probably the underground drug market. The last 0.1% is techno-anarchist-libertarian-Randian whatevers.

---
Blah blah blah "you're so wrong Jon..."

Except I'm not. But sure, tell me how wrong I am.
---

This condescending demonstration of the Dunning-Kruger effect brought to you by the "N" in "SNR"!

Hearn: The resolution of the Bitcoin experiment

Posted Jan 20, 2016 13:54 UTC (Wed) by markhb (guest, #1003) [Link] (3 responses)

Here's a column on the subject and the Hearn article, by an American leftist (relative to the US political spectrum): http://www.theweek.com/articles/600099/decline-bitcoin-sh... .

Hearn: The resolution of the Bitcoin experiment

Posted Jan 23, 2016 5:40 UTC (Sat) by marcH (subscriber, #57642) [Link]

Nice. From it:
> All this shouldn't take away from the real genius of the block chain idea and implementation. It could be potentially transformative. But the Bitcoin failure does illustrate that human institutions must have politics in addition to technical expertise. Try to engineer around politics, and it will flood back in the most atavistic and unscrupulous forms.

Hearn: The resolution of the Bitcoin experiment

Posted Feb 3, 2016 23:46 UTC (Wed) by Rudd-O (guest, #61155) [Link] (1 responses)

A leftist insisting that without everyone obeying and groveling to Mommy and Daddy things would be chaos? Mild shock.

Despit Hearn's flipping of the tables prior to going to work for Big Finance, Bitcoin seems to be doing fairly well. Last year it outstripped other asset classes. People use it every day. The numerous lies that Hearn wrote in his post have been refuted by people better than him, including Bram Cohen himself.

Bitcoin definitely has politics hard-coded in the protocol. It just doesn't have the politics that leftists (or rightists!) would like to force onto everyone else against their will.

For some "mysterious" reason, that seems to chafe the privates of the leftists (and the rightists).

I quite like that.

Hearn: The resolution of the Bitcoin experiment

Posted Feb 10, 2016 20:51 UTC (Wed) by nix (subscriber, #2304) [Link]

Warning: your bias is showing. Oh is it ever showing.


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