I really wish I knew how he is hedging his bets on this.
One of the first rules you learn in managing other peoples money is always hedge the downside. Or put another way, you need asymmetric upside/downside risk inorder to make any investment.
One of the biggest risks to bitcoin is the old saying that in down markets all products have a correlation of 1. Meaning when panic sets in, leveraged firms, which is almost all hedge funds, have to deleverage.
Unfortunately, in a large crash this means that everything gets sold pushing down prices more and causing another round of selling.
If the US cash equities markets does have a large crash this year, bitcoin is in the cross hairs as one asset that could have a selling spree that retail money has no hope of supporting.
EDIT
Ah this is his venture capital fund, so I guess the LP's are used to not being able to hedge and hence the naked speculation is appropriate....
Interestingly, if the bottom doesn't fall out from under BTC in this hypothetical scenario, investors may flee to BTC rather than dumping it into precious metals or overseas equities. Deleveraging comes in many forms and it can bring us to strange places.
I agree by numerical value the difference is huge and under appreciated. But like many things wealth is correctly perceived logarithmically not linearly. There aren't hundreds of shades of gray between a millionaire and a billionaire, there are few steps, I wrote about them here http://www.kmeme.com/2017/11/the-richer-scale.html.
>I really wish I knew how he is hedging his bets on this.
is this a bet or a payoff? is he trying to prop BTC up so that his investors and allies can continue converting their offshore holdings back to USD?
I am going to guess it is just a modified straddle - fund is long bitcoin and long a promising payment tech that already exists. The idea is that if BTC investment does well then existing payment tech does poorly and if existing one does well then probably BTC would do poorly.
I'm bullish on crypto, but there are many better ones out there other than bitcoin. The scaling and transaction cost issues that have been on display for the past couple of months should scare anyone heavily invested in it. Without serious usage, what good is it?
One analysis on bitcoin is that the entire value of the blockchain comes from the PoW powered by it. The bitcoin blockchain has so much more work that's gone into protecting it against double spending than any other blockchain.
I used to agree with that, but at the current price levels I would say that if this is the source of value, then it is absolutely and incredibly overvalued. In addition, the PoW is centralized (for the most part) within a few massive mining operations. A 51% attack isn't an impossible notion.
I know many would disagree with this, but while Bitcoin was the first of its kind, and it absolutely cleared the way for all the subsequent coins, its quickly becoming unusable. And that's not even considering the massive volatility of it. Such volatility implies that proper volumes aren't there to support its value. With that in mind, and also the notion of an aging technology, I think investing in it is not a good idea.
I read somewhere that several bitcoin mining facilities in China, when counted together own over 50% of the hashing power currently online in the Bitcoin network. If true, collusion scenarios could easily be imagined.
Certainly not impossible, but one thing is a disincentive to commit a 51% attack is that if you had that much computing power a more profitable use of it would be to just mine rather than create fake transactions which, if detected, could crash the value of the currency.
How people think of that hypothetical if-then scenario depends a lot on numerous factors. I think, in places where corruption is more common, it is easier to believe it's less likely you'll get caught, or minimize the consequences when thinking about it. There's also a lower threshold for your imagination to go wandering off in that direction and begin architecting plans.
"If detected, could crash the whole thing" is a way of thinking more common in cultures where the rule of law is far more established in the common mindset.
I'm not making any sort of prediction (and I own bitcoin myself, though not a large amount). I'm just saying - this is how our minds work.
Consider that if a state goal was to wipe out the wealth of the other 49% as a plausibly deniable economic attack, then having a majority of the mining power within your borders makes a lot of sense.
Last I checked it was around 60%. Also, Bitmain is the sole supplier of ASICs to most of the Chinese miners, and thus has some power over what those miners do or don't do (particularly in the Core vs Cash debate).
Some networks use other hashing methods, so just comparing hash to hash is pointless - if anything, you could compare instructions per second, not hashes per second.
Then, for certain hash methods, GPUs/FPGAs/ASICS give no speedup, so even if there are far fever instructions per second, they would be just as expensive to attack.
Also, there are POS/DPOS, and other proof of sth networks, where it's not really about hashes, but about other resources - again, cost of attack would be a better metric here, not hashes.
But most importantly - after a certain point, a network attack is so unlikely that additional security matters much less than other system properties, like speed, ability to execute smart contracts efficiently, or the ecosystem of startups around it.
Exactly. Since the point of PoW is to make 51% attacks expensive, the best measure is how expensive it would be. Ethereum is approximately equal to Bitcoin on this measure.
That seems circular. Bitcoin's massive PoW comes from its massive value (or more precisely, the massive value of block rewards). If Bitcoin's value dropped to one cent tomorrow, the PoW would disappear. Conversely, if some altcoin's value suddenly jumped such that its mining rewards were at Bitcoin's level, it would almost instantly gain Bitcoin-level PoW.
Being circular doesn't make it wrong, but it does seem like a fragile basis for value.
It’s true that mining is mostly done for ROI; if you can’t make a profit by running your ASIC miner, or your GPU miner, or whatever else, then you won’t run it.
That doesn’t mean, though, that Bitcoin would lose its network robustness; before BTC had any value at all, people were mining it “altruistically”, purely for the sake of adding auditing strength to the network so that they could use BTC to make transactions. The Bitcoin mainnet has far more of those plain-old CPU miner nodes than any other network, and they’d still be there even if the profit-mining operations cashed out.
On the other hand, if the ASIC and GPU mining pools “went dark”, it’d always be a worry that someone would pay to start them up again just for long enough to execute a Sybil attack. But Bitcoin has been “steered” away from such attacks before with community forks, and I doubt such a future would be any different.
If all of the ASIC mining dropped off Bitcoin would end up with a "frisbee on the roof" problem with its difficulty scaling, ie with the current difficulty there wouldn't be enough mining power left to mine enough blocks (2016) to reach the next difficulty reset in any reasonable amount of time, effectively killing Bitcoin as its transaction throughput would grind to a halt. This is an unlikely death, but still a possible one.
Why would all the ASIC mining drop off? What mechanism could cause such a thing?
More generally, a severe hashpower reduction could be problematic. An emergency hard fork to a better difficulty readjustment algorithm (like what other coins use) would solve that. Ideally that change would be made before it ended up being needed.
A huge drop in price could result in a death spiral. If the price drops such that the mining rewards no longer cover their electricity, they might shut down until the price goes back up. If enough of them do this, it could further collapse the price as the transaction rate drops.
It wouldn't need to be all of the ASIC mining, of course, just a large enough portion of it to result in massively increased block times.
Don't forget that transaction fees help to entice mining too, not just the block reward. The death spiral never happened during the frequent difficulty swaps with BCH because fees simply went up until it was profitable to mine a block -- to as much as 40% of the block reward. There's no reason in principle it couldn't go much higher if necessary.
There's a limit to how high they can go (can't offer more in transaction fees than you actually have) and even before you hit that point you may encounter the back side of Bitcoin's Laffer Curve where the expense results in lower total transaction fees per block even as individual fees rise.
It's possible that point would be far beyond any conceivable price crash, though, I don't know how to put it into anything resembling concrete numbers.
The moment the transaction fees and block rewards go down, the very expensive Prof of Work mechanism will weaken and future transactions are unprotected.
Proof of Stake can offer the same protection mechanism without needing to finance a huge value destruction operation.
And to those saying that the electricity is not wasted because it protects the block chain: If a mechanism exists that works without throwing away electricity, then that's definitely wasted.
It's like saying my monster truck doesn't waste gas because it carries a child to school.
I’m not necessarily disagreeing but what if the monster truck is carrying a child to the hospital? And the other option is to take the homemade electric hot rod your neighbor just completed yesterday?
> The moment the transaction fees and block rewards go down, the very expensive Prof of Work mechanism will weaken and future transactions are unprotected.
Exactly.
One critical, related vulnerability that I haven't seen people discuss:
Right now, every new block gives miners about (12.5 new BTC + 3.5 BTC in fees) * $15,000 = $240,000
So miners are making a quarter million every ten minutes.
That incentivizes massive capital expenditure on mining hardware and massive electricity burn.
If the price drops significantly -- or Lightning Network etc solve the scale challenges, and transaction fees come down -- or in June 2020, when the block reward halves -- any combination of those may lead to a future where it's uneconomical to mine again, except in places where electricity is unnaturally cheap.
When that happens, tons of mining equipment will fall idle. The network difficulty will adjust down, and in the immediate term Bitcoin will continue as normal.
But now there's a big pool of latent hardware left over from the bubble, which can be activated at any time.
This may break assumptions about the cost of attack. If, say, a Chinese mining group owns tons of hardware that is no longer economical to operate continuously, there's nothing stopping them from shorting BTC and then doing a "spawn camp" repeated 51% attack.
(If you already own enough hardware, then such attacks are pretty cheap--you only have to burn tons of electricity a few times, for a few minutes each time.)
If this was pulled off successfully, the value of bitcoin tanks, thus harming the attacker. It's still game theory. I don't worry about miners trying to attack bitcoin, it's governments.
In the scenario I'm describing, the attacker profits when the value of bitcoin tanks.
Two new developments:
- Vast investment in mining hardware due to the bubble.
- Liquid BTC markets, including futures and shorting.
Say that the world's miners accumulate so much hardware that it costs $1m / hour in electricity to run it all. At current prices, they'd still be making a profit! But if that changes, datacenters in China will go dark, BTC difficulty will go down, lots of hardware will sit unused.
So if one group ever finds itself sitting on a ton of no-longer-profitable mining hardware, they could take a large short position and then attack the network.
But is there additional value in more (proof of) work or are the returns diminishing?
In economic terms the best network hashrate would be the one that is sufficiently secure to protect against bad actors but uses as little electricity as possible. Anything more than that is waste, not added value.
Bitcoin has scaled as designed, but it was not designed to handle this many transactions. As such, some transactions are slower (as designed). If you need fast transactions, use a currency designed for a higher TPS.
I have hope that Bitcoin's scaling issues will be solved eventually, though as we've seen it's going to be a slow, arduous process to get consensus among the various factions.
If and when they are solved, the incredible hashing power of the network plus the massive amount of Bitcoin software and support should restore its reputation as the premier cryptocurrency.
Which cryptos are you looking at that are better than bitcoin in dealing with the scaling and transaction cost issues? I'm watching BitShares pretty closely.
So far IOTA is centralized, it relies on snapshots. It is just my intuition - but it does not look like "the tangle" could ever be decentralized - there is just no mechanism that would protect the network from bad actors.
Have you actually tried to use IOTA? It's really bad, you get different balances depending on which node you connect to, sending is weird, odd things like that.
Isn't it closed source and run by a single corporation? What's the benefit of being tied to a block chain if for a centralized currency? Just copy the current visa/banking system and you're good to go.
Ripple is interesting. If you're a true believer of the decentralized concept of crypto, you shouldn't like Ripple because it is controlled by a company (but is open source, similar to Java), and many financial institutions use it. So it's kind of towing the line between centralized and decentralized.
I'm really loving RaiBlocks too. My main concerns now is that there's no financial incentive to run a node, and the current price seems fictional (because 99.98% of the supply is locked up in wallets). I have high hopes for it, though, I read the whitepaper and nothing stood out as a huge problem, which is good.
The worst whitepaper I've read recently was for something called Verge, which was basically "we're gonna run a bitcoin wallet over Tor for anonymity you guys!"
Voted you up. I think if people looked into how Cardano does what they do, they'd realize it "cures" all of the ills of Bitcoin, Ethereum and every other unscalable PoW currency in an elegant, provably correct way. I personally think the future of cryptocurrency is going to look far more like Cardano than Bitcoin. Not saying any of the top contenders are going away, they just will be glued/superseded by something like Cardano for more or less anything these others aspired to become, e.g. microtransactions, better/nearly infinite scalability, etc.
PoW is not ecologically friendly, and that will be one of its growth inhibitors.
Ok, what's going on here is that people have this expectation of Bitcoin not based in reality.
Bitcoin was not designed to be a high-throughput currency. It's a store of value.
You put your money in it and let it sit. That's it.
If you don't want to do that, don't use it. But that's what it's for. Or at least what it's evolved into.
I think it can cause a gigantic speculative bubble that will put people like Thiel in control over even more wealth in the world than they already have – if BTC goes to $1M/coin, what do you think will happen? $10M? There's no upper limit.
But that's a separate issue.
Bitcoin doesn't have to do anything except what it was designed to do. And it was designed this way. Satoshi certainly thought through this scenario and specifically decided to do this, and not something else. So those who are putting money into BTC are betting on Satoshi's original vision.
Now, do you think Satoshi really believed BTC would be the only crypto? I think he knew others would spring up. He solved the byzantine generals problem with sybil resistance. Of course he knew others could solve it too, in slightly different ways.
So I think he just said "Well, let them do that." And hence, use different cryptos for different circumstances.
Maybe this was the intention all along, but this idea has only recently reached some saturation among information channels.
Because I haven't heard much about "store of value" until about a month ago. Which seems to be either a shifting of goalposts which is bad, or a complete morphing of why people are interesting in crypto which is even worse.
It means, people are scrambling trying to justify why the hell they're throwing all their money at crypto.
Where does this "bitcoin is a store of value, not a medium for exchange" nonsense come from? Literally the first line of the white paper:
> A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
Yeah, that is the problem with relying on Coinbase. You have essentially no recourse when they freeze your assets, which happens a _lot_ more often than the banking system, with its consumer protections and actual regulations.
That's why you don't store assets on coinbase...the whole point of crypto is that it allows you to be in exclusive control of your assets. Why is that so hard to understand?
The response when somebody tries to do transactions on-chain:
> And it is. When you pay Coinbase, they send you BTC. Then you're free to send your BTC around if you decide the $20 transaction fee is worth it.
The response when somebody tries to do transactions off-chain:
> That's why you don't store assets on coinbase...the whole point of crypto is that it allows you to be in exclusive control of your assets. Why is that so hard to understand?
The important thing is to make sure that no matter what anybody does, they're wrong, and that way bitcoin cannot possibly have any flaws.
It's called Bitcoin, not Bitgold. It was sold to the public as an anonymous, decentralised, safe, fast, and cheap way to transfer money. It has failed on every single one of those claims.
> Bitcoin was not designed to be a high-throughput currency. It's a store of value.
Could've fooled me with the whitepaper title "A Peer-to-Peer Electronic Cash System".
Before a store of value it was also billed as a mechanism to high-fee trans-border remittances, a solution for micropayments on the Web, currency replacement for countries with high local currency volatility, etc.
> Bitcoin was not designed to be a high-throughput currency. It's a store of value.
I think you should spend some time reading https://bitcoin.org/bitcoin.pdf before making factually incorrect statements. Bitcoin is only viewed as a store of value today because it no longer can be utilized for its original purpose. It's a complete failure in that regard.
The whitepaper lays out the current predicament quite well.
> The incentive can also be funded with transaction fees. If the output value of a transaction is
less than its input value, the difference is a transaction fee that is added to the incentive value of
the block containing the transaction. Once a predetermined number of coins have entered
circulation, the incentive can transition entirely to transaction fees and be completely inflation
free.
I think most people who read the paper focus on the early parts, rather than gaming out the implications of the later parts.
This what it evolved into, yes. The knee jerk objection is always “De whitepaper de whitepaper!” Let it go already! Satoshi has not weighed in for quite some time now.
Satoshi is most likely dead, because I doubt there is anyone on the planet with enough self control to have not touched Satoshi's wallet to liquidate some of its value.
> Bitcoin was not designed to be a high-throughput currency. It's a store of value.
That's a straight up falsehood right there. Bitcoin was explicitly designed as a currency, or medium of exchange. It became a store of value (ha!) because it was growing in use as a currency so its value was increasing and more and more people started "investing" in it. But it's volatility and rapid rise in value diminished its value as a currency. Its present value is a collective delusion.
I don't know why everyone is saying this is a falsehood, but this will be my last comment on the subject.
Read https://bitcoin.org/bitcoin.pdf. Read section 6, incentives. Note transaction fees. Read the conclusion. Note "We have proposed a system for electronic transactions without relying on trust." None of this has anything to do with being a currency, or being low-overhead.
It is named bitcoin. The first line of the paper you cite: "A purely peer-to-peer version of electronic cash would allow online
payments to be sent directly from one party to another without going through a
financial institution."
I'm not sure how you can say it was only meant to be a store of value with a straight face. I don't know whether to question your sanity, your reading skills, or your integrity.
CFTC and SEC classify bitcoin and other cryptocurrencies as commodities. In that case high transaction fees are appropriate. It's like handling oil or pork bellies. No joke!
I can buy pork on amazon, or in any store. Transaction costs: maybe $2.50 for shipping. The SEC's categorisation is among the most insane arguments I've heard. If you seriously believe it (which I doubt) you're engaging in some mind-bending motivated reasoning.
They could be going long on the bet that the Lightning network will go through and turn Bitcoin into something reasonable to use for transactions again.
This is my long-term expectation as well. The best criticism of "BTC as payment solution" remains fees / confirmation times. And the LN directly addresses this.
But who knows how long it'll take for a critical threshold of users to adopt LN payment channels.
And, of course, skeptics will just find another point of criticism, which is good because that's how technology evolves.
That's why I'm bullish on Ripple ( Tick = XRP ). Transactions take about 3 seconds vs an hour on Bitcoin [1]. Plus Ripple's Blockchain technology has real use-cases with about 100 Banks around the world already using it for cross border transfers and liquidity.
I also have concerns about distribution of coins. I get the feeling that there is a cartel that own 90% of the coins and is keeping them off the market to inflate prices.
That's my concern about RaiBlocks too. I love that it's zero-fee and instant transfer with no proof of work or mining, but the fact that it's only on a few exchanges with a daily volume of 0.003% of the total supply is... dubious.
Some people might have ethical or technical problems with Ripple, but personally I don't care, as long as it makes some money for me. I own some Ripple, but not much at this moment. In the future I would like to add more to my portfolio, as I believe Ripple will be much less volatile compared to Bitcoin, so that would give more ease of mind. Of course, the profits are likely less as well.
That's fine, but it's really just different from a cryptographic currency. It should be seen as a bank settlement service company, and be treated as such. You can trade the token, which is weird, but it's more like a company stock than anything else.
Of course it will, segwit is not "infinite scaling". It's under 2x, at best. Bitcoin cannot survive on 2, 3, 10, 100, 1000 times scaling. In order to be the "digital cash" the white paper proposes it as it will need to scale to millions of times its current size.
The <2x increase is from SegWit. That post is primarily talking about the Lightning Network, which is _not_ SegWit, is _not_ currently production ready, but _is_ an improvement to scaling.
Unfortunately it's a much wider ranging change than SegWit is and has a lot more gotchas and caveats, not least that you're essentially just running a second layer that has nothing to do with bitcoin, save that you need to lock your money in the LN to use it and must do this with a transaction. In order to get money back out of the LN, you need to settle it with the blockchain, which still relies on the blockchain.
Essentially, "how fast can SegWit + lightning go" is not actually all that useful a question. SegWit is wildly insufficient to let the LN work as a fast settlement layer over bitcoin because opening and closing LN channels still requires bitcoin transactions, and there simply isn't the throughput for this at scale. The only way that that can work is if we rely on the lightning network completely and effectively ignore bitcoin. In this case it can work, but the LN in this context is a centralised beast because you cannot afford to open new payment channels due to lack of space in the underlying layer.
The promise of lightning, way back when, was the idea that you'd be able to instantly send money to your coffee shop via your existing channels with bob and alice, and if you didn't have a path to the coffee shop then it was no big deal beacuse you could just open one, and then you become alice and bob's conduit. Unfortunately, with the lower settlement layer unable to scale, we're in the scenario where you cannot open that payment channel with your coffee shop because you can't afford the fees because even at 4x today's capacity there simply isn't enough room for everyone to open payment channels to their coffee shops.
So you open a payment channel once, to your bank or a bank-like entity, and they have payment channels to everyone else. Great, it works, you never touch the blockchain, and it's a centralised system again that has none of the properties people like about cryptocurrencies - whoops!
Well, you don't do LN transactions on a blockchain at all, that's where the speed improvements come from. It's all a lot more ad hoc than that. If I send you $5 via the LN, then the only communication that needs to happen is between us. We do _not_ announce it to the world like you do for a blockchain, there's no one centralised ledger of events. Eventually we need to "settle" our payment channel, because the way this works is that in order to send you $5, I need to commit that $5 to a payment channel first (which requires a bitcoin transaction to lock that money in place), send it to you via the channel, and then we can settle the payment channel (which requires another transaction to unlock the money, except to you instead of me)
This is extremely inefficient for one transaction, though. You'd really need to commit a lot more money to your payment channel so you can use it for many things. If you use it for more than two things, you're gaining efficiency, but rememebr that you can't add money to it or take money out without going onto a blockchain.
This unfortunately still leaves us with the cruical flaw of blockchains, in that they're a decentralised and consistent ledger and that's actually really expensive to maintain. It's why there's so much push-back against making bitcoin's blocks bigger, 'cos the bigger your blocks are the harder it gets to move everything around fast enough to keep things running. It might seem trivial to move 1MB every ten minutes, but remember that that's 1MB every ten minutes to every node on the network, sometimes via connections which aren't very fast. Most notably, the great firewall of china is actually not very fast at all, and so blocks moving into and out of china have to do so relatively slowly. We triple the block size and maybe we can't keep up any more, and if the network can't talk to itself fast enough to move blocks around every ten minutes we have a network partition that won't fix itself and a big problem.
And that's fundamental, right? You can strip out PoW, you can tune all the values you like, it's just a question of bandwidth. 10MB blocks every ten minutes, 1MB blocks every minute, 100kb blocks every few seconds, it doesn't matter. The bandwidth to move that around a distributed global network isn't there. We can move all the LN opens/settlements to a different blockchain, but all we'll do is make it so that we have scaling problems on a different blockchain.
To be perfectly honest, I can't see a way for it all to work smoothly. There's unsolved, Hard-with-a-capital-H distributed computing problems which need solving to make this work, and there hasn't been any progress made towards solving them. Bitcoin and friends appear to work because they balance in a kind of "habitable zone" between throughput and usage, where eschewing Consistency and Partition Tolerance from the CAP theorem doesn't seem too bad, because even though we've dropped Consistency the fact that we don't really get long network partitions means that your transactions aren't going to get undone very often (but it absolutely can happen!), and even though we've dropped Partitian Tolerance that isn't that bad because we don't really get long network partitions and we have a partitian resolution operator that only drops transactions sometimes.
But if blocks can't get around the network fast enough then suddenly we do get major network partitions, and that means our mitigation for lack of consistency falls apart, and so we don't have a working partition resolution operator. We're left with our choice to pick only "A" from CAP, and have a highly available network that doesn't reliably commit transactions and very often splits into multiple partitions. Argh!
Multiple blockchains could mitigate this issue, but they can't really talk to each other very well, not without incurri...
> Well, you don't do LN transactions on a blockchain at all, that's where the speed improvements come from.
Yes, but I meant using a blockchain for the decentralised aspect of things.
> Multiple blockchains could mitigate this issue, but they can't really talk to each other very well, not without incurring further losses of efficiency. In that scenario we'd need four transactions to send our $5 - one to open the channel, one to close it, and two to jump blockchains. Ack!
Is it bad to use 4 transactions for 1 transaction when it makes your transaction througput 100000x higher?
> These are just really hard problems and hopefully they can be solved, but right now there are no even proposed solutions which can fix this.
Aren't there already altcoins that have solved the transaction scalability problem?
>Is it bad to use 4 transactions for 1 transaction when it makes your transaction througput 100000x higher?
Not really. It'll increase latency on commit confirmation and that might suck, though.
>Aren't there already altcoins that have solved the transaction scalability problem?
Nope. There's ones that can scale better than bitcoin, but in the end there's only so many parameters you can tune and an actual solution requires more than just tuning block size / block rate.
What I don’t understand about Ripple is that from what I’ve read, their partnerships with banks are using their technology not their cryptocurrency, so where does the value in XRP come from? As in, I see the value in the Ripple platform but I don’t see the value in XRP. e.g the American Express announcement explicitly states they are not using XRP. Can you clarify for me? Thank you!
Why on earth would the value of XRP rise in the long term? The price of one XRP has no impact on its use cases. What is the logic of holding XRP now instead of a currency that is actually constantly burned by its users?
Bitcoin has the advantages of being the natural shelling point (the first big cryptocurrency), having a proven (if suboptimal) improvement / decision making process (many smaller ccs have not made significant changes to their tech, and so one can't know how they would handle that), not having an overly powerful scripting language.
Many weaknesses in tech can be fixed or built around. Adoption, community, and trust are hard to get.
It seems like there's a couple of possible explanations for the continued dominance of bitcoin:
1. It's being mispriced by the market for some reason and will correct over time (i.e. it will lose valuation compared to other cryptos). This seems to have happened some in the past 2 weeks or so, but it's pretty early to see how this will play out.
2. The network effect of already being the biggest is strong enough to offset its "weaknesses" relative to other currencies.
3. The primary value of bitcoin, at least at present and in the short to medium term, is different than crypto enthusiasts believe. There is massive value in being a decentralized, secure, easily transferrable store of relatively large amounts of money, as basically a settlement layer. And there is relatively less value (at the current time) in being a new payment method to buy everything down to a cup of coffee, or powering smart contracts, or other things that crypto enthusiasts get excited about. To the extent that those things become important to the market, usage of Ethereum or other coins will increase. To the extent that privacy becomes important to the market, usage of ZCash or Monero or other coins will increase, etc. But the increases of these others won't necessarily reduce the primary value of Bitcoin itself.
I personally think #3 is true, although long-term factors like the energy consumption of mining may be strong enough to render other currencies significantly better even for this primary use case.
The most important value of bitcoin is that transfers are non-repudiable. Any situation where sellers do not trust their buyers and have to eat the cost of things like credit-card chargebacks, there's a huge savings in accepting payments in a form that the buyer can't reverse.
Of course, the huge dark side to that is that there's now a way to easily send money in a way you cannot reverse. This provides a huge incentive for things like kidnappers demanding their ransom in bitcoin. It's often valuable to be physically incapable of doing things.
I'm long-run bearish on Bitcoin because of this analysis - the majority of its value is in something that makes governments and other coordination mechanisms interested in destroying it.
Transfers are 100% reversible by going to court, so Bitcoin is really only non-reversible for criminal activity (dealing drugs, gambling, etc) where someone cannot bring an action because the contract was illegal in the first place.
This technical non-repudiability is a feature that only works for criminals and is an anti-feature for legitimate users.
True, there is a lot of middle ground where that higher standard for reversibility is useful though (e.g. compared to dealing with PayPal or credit cards, which are the primary alternatives for international/inter-currency transfers and provide very little in the way of security for the seller). Especially interesting for smaller sums though, and there the current level of transfer fees really gets in the way.
> There's a huge savings in accepting payments in a form that the buyer can't reverse.
Bitcoin just kind of flips the problem, it doesn't solve it. In a world where payments can easily be reversed, sellers take on all the risk. In a world where they can't be, buyers take all the risk.
You can get pretty far with a reputation system, and in a market with many more buyers than sellers it's nice that now only the seller's reputation matters. But for a lot of people there's still benefit in having a trusted middleman like Paypal.
Only using the flawed measure of market cap, which decreases in accuracy with decreases in liquidity.
The problem with market cap is that it multiplies the last traded price with total supply, thereby assuming that there exists people willing to purchase all coins in existence at the same price (the mid price of the order book).
Thankfully, we don’t need to make this assumption, since the order books of most exchanges are public. But, as far as I’m aware, no websites compare coins by market depth, unfortunately.
It’s a bit like me selling a painting I’ve painted for $10,000, and then creating 100 of the same paintings and claiming I’m a millionaire. It doesn’t work like that for illiquid assets (I’d probably be lucky to find even a single new buyer at the same price).
No, trading volume is not a measure of liquidity. It doesn’t matter how many times per second some coin — deposited at an exchange — changes owner (according to that exchange’s database) if selling $1m worth of the coin crashes the price to zero.
A trader can easily inflate volume by creating two accounts and trading back and forth with himself, thus making his two deposits count many times over in the trading volume of that exchange. But in the order book his deposits can only count once.
That trick costs a bunch of money in fees though. Volume is still a better measure than market cap. And If you don't like using the volume or market cap, what do you use?
> That trick costs a bunch of money in fees though.
Only if the exchange in question charges trading fees.
> And If you don't like using the volume or market cap, what do you use?
Market depth. Looking at the order book to see how much money is bidding on/being sold for bitcoins right now. See my reply to other comments for an elaboration.
market depth understates liquidity dramatically because a lot of liquidity is hidden / dark. Nobody is going to show a big order in a super volatile asset.
It's indeed a flawed comparison but marketcap is still the best we have now. If you use other metrics to mesure popularity like the number of transactions, Bitcoin is already behind Etherum.
> It's indeed a flawed comparison but marketcap is still the best we have now.
I disagree. Many exchanges have public order books, so you can see exactly how much the price would slip if you sold, e.g., $1m worth of a coin. This is what is relevant for something functioning like money, not the last traded price multiplied by number of coins in existence.
You look at the public order books. So, for example, the order book for a particular exchange's BTCUSD market might contain the following buy orders (from various people who've deposited USD and wish to buy BTC):
If you sell 67.5 BTC into this market, you will sell the first 10 BTC for 15,000 USD each, the next 10 BTC for 14,900 USD each, and the remaining 47.5 BTC for 14,800 each, netting you a total of 150,000+149,000+703,000=1,002,000 USD. The average price would then be 1,002,000/67.5=14,844.4444, which means you would incur a slippage of (15,000-14,844.4444)/15,000=0.0103703733=~1% (which is the difference between your average selling price (14,844.4444) and the price of the first buy order that your sell order matched against (15,000)).
i m interested in this as i m trying to use historical data to calculate something indicative of "real invested value". do you know if there are appropriate models ?
> I disagree. Many exchanges have public order books, so you can see exactly how much the price would slip if you sold, e.g., $1m worth of a coin.
Yeah, but if you wanted to sell $1M worth of coins you'd probably use an auction at Gemini or elsewhere so you don't move through more than 2 or 3 price levels of the book.
You'd also probably enable some sort of smart selling algo for the same reason were you try and move $1M worth of BTC not at auction.
You could make the same argument for Gold or Platinum being over valued based on slippage from open interest at a point in time.
> Yeah, but if you wanted to sell $1M worth of coins you'd probably use an auction at Gemini or elsewhere so you don't move through more than 2 or 3 price levels of the book.
Selling $1m worth of bitcoins on GDAX, Bitstamp and Bitfinex results in a slippage of 0.2864%, 0.3527%, and 0.2910%, respectively.
As far as I can gather from Gemini's fee schedule[1], they take a >0.40% fee even if you've traded for more than $10m in the past 30 days, so I'm not sure it's worth it for a $1m market sell.
> You could make the same argument for Gold or Platinum being over valued based on slippage from open interest at a point in time.
I disagree. I'm not arguing that anything is over-valued. Simply that market cap as a measure of value of commodities does not make sense, because of the great difference in marginal utility between them.
> The scaling and transaction cost issues that have been on display for the past couple of months should scare anyone heavily invested in it.
There are definitely issues, but no one has managed to solve them so far. A lot of competing cryptocurrencies claim to have solved the challenges that Bitcoin faces, but there hasn't been any fundamental innovation in this space since Bitcoin. Except for MimbleWimble[1], which has made advances in terms of both scalability and privacy. All other solutions out there just move further towards centralization, while in the process gaining scalability (which everyone already knows is trivially possible).
> In the above example, you had to share your private key (the blinding factor) with Carol. In general, even though private keys should never be reused, this isn't generally very desirable. Practically, this isn't an issue because transactions include a change output.
Yes - it's a change output and a new private key but it's not a great way of doing things.
Transaction costs are only a problem for one use case of Bitcoin (small payments). Other use cases, like hoarding and international remittances, aren't affected by it.
Bitcoin does scale, just not in the direction everyone thinks it should, which is transactions per second. It scales spectacularly well in two important other directions: number of validating nodes and hash rate.
Investing in Bitcoin long-term should be seen as an investment in the community more than the protocol IMO.
The bitcoin protocol is not written in stone. Bitcoin community could adopt improvements from other crypto currencies. Segwit is the tip of the iceberg.
That said, the community is not very nimble...either.
Would you please stop posting unsubstantive comments to HN, regardless of how bad you feel someone is? You may not owe them any better but you do owe the community better if you want to participate here, the same way you wouldn't drop litter in a city park.
This is definitely big. There are already tons of reputed investors from Silicon Valley and otherwise who started to invest heavily in Cryptocurrencies.
But bitcoin will end up being a just a store of value(like Gold) instead of an medium of exchange. What I also wonder is, apart from store of value and medium of exchange there's hardly any need for Cryptocurrencies. If two of them solve each of the above problems, why do we need 1000's of alt coins?
Go to https://www.coinmarketcap.com, visit some of the websites of the listed altcoins, and each of them will (hopefully) make a case on why their coin is different, and what problem it solves. Many of these altcoins are made by scammers who want to make a quick buck from a pump and dump.
For a notable example of an altcoin that solves a tangible problem, consider Monero. This coin uses a sophisticated transaction system to hide the identifiers of participants in a transaction. I don't know whether it is bulletproof, but it does claim to be much safer in terms of privacy.
Another one is Verge, which routes all of its transactions through Tor. I'm more bearish on this one, and its recent spike in market-cap was short-lived, suggesting that the idea still needs work.
Techmeme summary: Rob Copeland / Wall Street Journal: Sources: Thiel's Founders Fund bought $15-$20M in bitcoin, now worth hundreds of millions, spread across multiple funds, one of which began investing in mid-'17
Could those who downvote this comment please explain why you did so? I try to provide extra context for those who come across this submission, which I get from Techmeme.
Page views? There is no other link. Techmeme itself links to the original: they just provide a TL;DR style summary if the original title is brief/click-bait.
There is a difference between investing because you think something will grow, and investing because you want something to grow. You don't have to be a libertarian to bet on its price increasing.
Is it though? I thought the "Consensus" protocol was just as decentralized as anything else and is mostly different in that it allows nodes to say which other nodes they trust. That and it makes more realistic assumptions about how important it is in practice to avoid history collisions.
From what I understand, the Ripple people are only making libertarians mad because they're not opposed to making a crypto system which could actually be easily adopted by existing institutions which does not make them "centralized" by default. Being able to process more TPS doesn't necessarily make you centralized.
No, Ripple depends on a handful of so called "validator" nodes. Right now the handful of validators that exist are all run by Ripple themselves. Double spend protection in Ripple comes from trusting validators not to defraud you. So Ripple is neither trust less or decentralized in the sense that the original Bitcoin whitepaper would describe the concepts.
As opposed to Bitcoin, Ethereum and its ilk, whose problems have all (or even mostly) been figured out by the laymen people? Their PR consists of actively disclosing all their efforst in peer reviewed journals, demonstrating accountability and transparency and talking about their vision. They've already formally proved Ouroboros works, which is the core of their product. Proving means the math works exactly as intended. The proofs are available and published. If anyone with enough know how can disprove them, they are more than welcome to. No such rigor exists for ANY of the 1000 currencies.
Plus Charles seems down to earth and believes in working one's ass off, organic growth and hey, this is gonna be a favorite for all HN readers - FP!
I already bought some ADA...and will hold it. Never held Bitcoin nor Ethereum for any appreciable amount of time and I do not think they scale or can achieve massive, stellar success and assimilation into economies with their current architecture. Cardano is like Bitcoin 3.0.
What he says, particularly around the process of peer reviewed papers they're submitting to crypto conferences, makes perfect sense. No one has been able to bring this kind of rigor to cryptocurrency to date.
My only hope is they stay nimble, agile, responsive to the community's concerns and questions...... and deliver something iteratively instead of shooting for the stars. Their base is solid, they just need to build upon it now.
This isn't pure academics. It's applied and constrained by time and resources. 2020 is when IOHK's funding contract expires and renewal is contingent on performance. They've already proven Ouroboros as valid - I bought ADA, it's running. Can someone find a hole in it? Sure. The world could also come to an end tomorrow. Anything's possible. As it is, they've put more rigor than any coin so far run by "gut feeling" (e.g. testing but without formal proofs) rather than formal proofs and verification.
IOHK/Charles is pushing for performance, it's not just academic showboating.
Some of the greatest things ever were created when academic minds and experience were fused with strong business and leadership ethics.. Qualcomm for example - started out with a bunch of Ph.D.'s and a grand idea - CDMA, or rather power control and new modulation and coding schemes applied on CDMA, which is what their invention was (CDMA had existed since WW2 I think, commercially Qualcomm made it happen).
What bothers people is that most of the stuff Charles is talking about is flying way over most people's heads...so instead of sucking it up and learning about it, it's easier to just dismiss him, IOHK, Cardano, etc.
Since I don't know the future anymore than anyone else, you could be right too. Just in case, I put some money down on Cardano/ADA. So maybe I'll be right. If I'm not, feel free to gloat.
Surprised it took so long. The original thesis for PayPal was as a digital currency not controlled by a single entity but as we know, the final implementation was short of that. In that original pursuit Bitcoin ticks a lot of the libertarian boxes.
No one seems to be talking about how venture investors have transformed into cryptocurrency hedge funds over the past year.
The conversations you see from VCs has similarly changed - instead of talking about teams building enterprise value, you hear something that sounds more like speculative bubble FOMO language.
It won't be long before investors try to find ways to triple their returns, scheming and repackaging begins akin to '08. Derivatives and CDO-esque shit. You know your 401k will in some way be underpinned by some vast quantity of poorly rated repackaged crypto assets.
And good luck with regulating this nascent market in Trump's America.
186 comments
[ 2.6 ms ] story [ 234 ms ] threadOne of the first rules you learn in managing other peoples money is always hedge the downside. Or put another way, you need asymmetric upside/downside risk inorder to make any investment.
One of the biggest risks to bitcoin is the old saying that in down markets all products have a correlation of 1. Meaning when panic sets in, leveraged firms, which is almost all hedge funds, have to deleverage.
Unfortunately, in a large crash this means that everything gets sold pushing down prices more and causing another round of selling.
If the US cash equities markets does have a large crash this year, bitcoin is in the cross hairs as one asset that could have a selling spree that retail money has no hope of supporting.
EDIT
Ah this is his venture capital fund, so I guess the LP's are used to not being able to hedge and hence the naked speculation is appropriate....
Invested capital at risk: $20,000,000 (the 'hundreds of millions' is based on how much that investment has appreciated)
I think a more appropriate "first rule" would be don't freak out and over-analyze a risk that represents 1% of your portfolio.
Always boggles my mind when something in the value of billions is compared to millions.
20 million is .6% of 3 billion. The math is simple and straightforward but the real world metaphor as applied to cash actually blows my mind.
1 billion seconds =~ 32 years
1 million seconds =~ 12 days
Edit: mikeash beat me to it ;)
I do, however, feel it is a good hedge.
[1] https://fork.lol/pow/hashrate
I know many would disagree with this, but while Bitcoin was the first of its kind, and it absolutely cleared the way for all the subsequent coins, its quickly becoming unusable. And that's not even considering the massive volatility of it. Such volatility implies that proper volumes aren't there to support its value. With that in mind, and also the notion of an aging technology, I think investing in it is not a good idea.
I read somewhere that several bitcoin mining facilities in China, when counted together own over 50% of the hashing power currently online in the Bitcoin network. If true, collusion scenarios could easily be imagined.
How people think of that hypothetical if-then scenario depends a lot on numerous factors. I think, in places where corruption is more common, it is easier to believe it's less likely you'll get caught, or minimize the consequences when thinking about it. There's also a lower threshold for your imagination to go wandering off in that direction and begin architecting plans.
"If detected, could crash the whole thing" is a way of thinking more common in cultures where the rule of law is far more established in the common mindset.
I'm not making any sort of prediction (and I own bitcoin myself, though not a large amount). I'm just saying - this is how our minds work.
Consider that if a state goal was to wipe out the wealth of the other 49% as a plausibly deniable economic attack, then having a majority of the mining power within your borders makes a lot of sense.
Some networks use other hashing methods, so just comparing hash to hash is pointless - if anything, you could compare instructions per second, not hashes per second.
Then, for certain hash methods, GPUs/FPGAs/ASICS give no speedup, so even if there are far fever instructions per second, they would be just as expensive to attack.
Also, there are POS/DPOS, and other proof of sth networks, where it's not really about hashes, but about other resources - again, cost of attack would be a better metric here, not hashes.
But most importantly - after a certain point, a network attack is so unlikely that additional security matters much less than other system properties, like speed, ability to execute smart contracts efficiently, or the ecosystem of startups around it.
http://www.flippening.watch/
Being circular doesn't make it wrong, but it does seem like a fragile basis for value.
That doesn’t mean, though, that Bitcoin would lose its network robustness; before BTC had any value at all, people were mining it “altruistically”, purely for the sake of adding auditing strength to the network so that they could use BTC to make transactions. The Bitcoin mainnet has far more of those plain-old CPU miner nodes than any other network, and they’d still be there even if the profit-mining operations cashed out.
On the other hand, if the ASIC and GPU mining pools “went dark”, it’d always be a worry that someone would pay to start them up again just for long enough to execute a Sybil attack. But Bitcoin has been “steered” away from such attacks before with community forks, and I doubt such a future would be any different.
More generally, a severe hashpower reduction could be problematic. An emergency hard fork to a better difficulty readjustment algorithm (like what other coins use) would solve that. Ideally that change would be made before it ended up being needed.
It wouldn't need to be all of the ASIC mining, of course, just a large enough portion of it to result in massively increased block times.
It's possible that point would be far beyond any conceivable price crash, though, I don't know how to put it into anything resembling concrete numbers.
The idea that the value comes from the energy already burned is rather silly.
The moment the transaction fees and block rewards go down, the very expensive Prof of Work mechanism will weaken and future transactions are unprotected.
Proof of Stake can offer the same protection mechanism without needing to finance a huge value destruction operation.
And to those saying that the electricity is not wasted because it protects the block chain: If a mechanism exists that works without throwing away electricity, then that's definitely wasted.
It's like saying my monster truck doesn't waste gas because it carries a child to school.
Betcha that kid totally would think it's worth it, tho... Arriving to school in a monster truck would be a dream come true. :)
(Not that I disagree with your point...)
Exactly.
One critical, related vulnerability that I haven't seen people discuss:
Right now, every new block gives miners about (12.5 new BTC + 3.5 BTC in fees) * $15,000 = $240,000
So miners are making a quarter million every ten minutes.
That incentivizes massive capital expenditure on mining hardware and massive electricity burn.
If the price drops significantly -- or Lightning Network etc solve the scale challenges, and transaction fees come down -- or in June 2020, when the block reward halves -- any combination of those may lead to a future where it's uneconomical to mine again, except in places where electricity is unnaturally cheap.
When that happens, tons of mining equipment will fall idle. The network difficulty will adjust down, and in the immediate term Bitcoin will continue as normal.
But now there's a big pool of latent hardware left over from the bubble, which can be activated at any time.
This may break assumptions about the cost of attack. If, say, a Chinese mining group owns tons of hardware that is no longer economical to operate continuously, there's nothing stopping them from shorting BTC and then doing a "spawn camp" repeated 51% attack.
(If you already own enough hardware, then such attacks are pretty cheap--you only have to burn tons of electricity a few times, for a few minutes each time.)
Two new developments:
- Vast investment in mining hardware due to the bubble.
- Liquid BTC markets, including futures and shorting.
Say that the world's miners accumulate so much hardware that it costs $1m / hour in electricity to run it all. At current prices, they'd still be making a profit! But if that changes, datacenters in China will go dark, BTC difficulty will go down, lots of hardware will sit unused.
So if one group ever finds itself sitting on a ton of no-longer-profitable mining hardware, they could take a large short position and then attack the network.
In economic terms the best network hashrate would be the one that is sufficiently secure to protect against bad actors but uses as little electricity as possible. Anything more than that is waste, not added value.
Edit: typo
If and when they are solved, the incredible hashing power of the network plus the massive amount of Bitcoin software and support should restore its reputation as the premier cryptocurrency.
AFAICT it's the other way around - the value makes more hashing economically viable.
https://ripple.com/xrp/market-performance/
> What's the benefit of being tied to a block chain if for a centralized currency?
https://ripple.com/insights/the-internet-of-value-what-it-me...
But it is also possible that Lightning (a second layer over the bitcoin base) will prove to be a good solution.
* Stellar: scaling and extremely low fees, with basic smart contracts. uses federated Byzantine agreement instead of proof-of-work or proof-of-stake
* RaiBlocks: scaling and zero fees, no smart contracts
The worst whitepaper I've read recently was for something called Verge, which was basically "we're gonna run a bitcoin wallet over Tor for anonymity you guys!"
And they say it ain't a bubble...
PoW is not ecologically friendly, and that will be one of its growth inhibitors.
That corollary somehow failed in the case of fossil fuels.
Bitcoin was not designed to be a high-throughput currency. It's a store of value.
You put your money in it and let it sit. That's it.
If you don't want to do that, don't use it. But that's what it's for. Or at least what it's evolved into.
I think it can cause a gigantic speculative bubble that will put people like Thiel in control over even more wealth in the world than they already have – if BTC goes to $1M/coin, what do you think will happen? $10M? There's no upper limit.
But that's a separate issue.
Bitcoin doesn't have to do anything except what it was designed to do. And it was designed this way. Satoshi certainly thought through this scenario and specifically decided to do this, and not something else. So those who are putting money into BTC are betting on Satoshi's original vision.
Now, do you think Satoshi really believed BTC would be the only crypto? I think he knew others would spring up. He solved the byzantine generals problem with sybil resistance. Of course he knew others could solve it too, in slightly different ways.
So I think he just said "Well, let them do that." And hence, use different cryptos for different circumstances.
Maybe this was the intention all along, but this idea has only recently reached some saturation among information channels.
Because I haven't heard much about "store of value" until about a month ago. Which seems to be either a shifting of goalposts which is bad, or a complete morphing of why people are interesting in crypto which is even worse.
It means, people are scrambling trying to justify why the hell they're throwing all their money at crypto.
> A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
If I wanted to do that, I would ask my bank to do it, because they're better at it.
> And it is. When you pay Coinbase, they send you BTC. Then you're free to send your BTC around if you decide the $20 transaction fee is worth it.
The response when somebody tries to do transactions off-chain:
> That's why you don't store assets on coinbase...the whole point of crypto is that it allows you to be in exclusive control of your assets. Why is that so hard to understand?
The important thing is to make sure that no matter what anybody does, they're wrong, and that way bitcoin cannot possibly have any flaws.
It's called Bitcoin, not Bitgold. It was sold to the public as an anonymous, decentralised, safe, fast, and cheap way to transfer money. It has failed on every single one of those claims.
Could've fooled me with the whitepaper title "A Peer-to-Peer Electronic Cash System".
Before a store of value it was also billed as a mechanism to high-fee trans-border remittances, a solution for micropayments on the Web, currency replacement for countries with high local currency volatility, etc.
You're free to snipe at it, but it's simply a financial wishing well. You throw your money in and wish for more, and maybe you get some.
The world will go along with or without you. And the more people that do, the more BTC fulfills its current purpose.
Careful, though, because if the entire world decides to do that, you could find that not having any BTC isn't a very good position to be in.
I think you should spend some time reading https://bitcoin.org/bitcoin.pdf before making factually incorrect statements. Bitcoin is only viewed as a store of value today because it no longer can be utilized for its original purpose. It's a complete failure in that regard.
> The incentive can also be funded with transaction fees. If the output value of a transaction is less than its input value, the difference is a transaction fee that is added to the incentive value of the block containing the transaction. Once a predetermined number of coins have entered circulation, the incentive can transition entirely to transaction fees and be completely inflation free.
I think most people who read the paper focus on the early parts, rather than gaming out the implications of the later parts.
That's a straight up falsehood right there. Bitcoin was explicitly designed as a currency, or medium of exchange. It became a store of value (ha!) because it was growing in use as a currency so its value was increasing and more and more people started "investing" in it. But it's volatility and rapid rise in value diminished its value as a currency. Its present value is a collective delusion.
Read https://bitcoin.org/bitcoin.pdf. Read section 6, incentives. Note transaction fees. Read the conclusion. Note "We have proposed a system for electronic transactions without relying on trust." None of this has anything to do with being a currency, or being low-overhead.
I'm not sure how you can say it was only meant to be a store of value with a straight face. I don't know whether to question your sanity, your reading skills, or your integrity.
If this happens and LN truly solves the big issues with Bitcoin (slow transactions, high fees), I truly believe the value of Bitcoin will sky-rocket.
But who knows how long it'll take for a critical threshold of users to adopt LN payment channels.
And, of course, skeptics will just find another point of criticism, which is good because that's how technology evolves.
That's why I'm bullish on Ripple ( Tick = XRP ). Transactions take about 3 seconds vs an hour on Bitcoin [1]. Plus Ripple's Blockchain technology has real use-cases with about 100 Banks around the world already using it for cross border transfers and liquidity.
[1] Source: Ripple CEO on CNBC - https://www.reddit.com/r/Ripple/comments/7miikv/ripple_ceo_w...
Also, here's the No Paywall version of the OP https://archive.is/6BD2U
Centralized.
I love decentralized crypto stuff. But let's be real, most people don't care how their payments are processed.
If XRP is actually valuable, the risk of compromise of its huge wallet should be really scary for anyone.
https://ripple.com/insights/how-we-are-further-decentralizin...
Use case is an advantage that Ripple has. However, then again, Ripple is pretty much owned by the banks, so that's a downer.
https://www.reddit.com/r/Bitcoin/comments/5f8w7f/if_both_seg...
Unfortunately it's a much wider ranging change than SegWit is and has a lot more gotchas and caveats, not least that you're essentially just running a second layer that has nothing to do with bitcoin, save that you need to lock your money in the LN to use it and must do this with a transaction. In order to get money back out of the LN, you need to settle it with the blockchain, which still relies on the blockchain.
Essentially, "how fast can SegWit + lightning go" is not actually all that useful a question. SegWit is wildly insufficient to let the LN work as a fast settlement layer over bitcoin because opening and closing LN channels still requires bitcoin transactions, and there simply isn't the throughput for this at scale. The only way that that can work is if we rely on the lightning network completely and effectively ignore bitcoin. In this case it can work, but the LN in this context is a centralised beast because you cannot afford to open new payment channels due to lack of space in the underlying layer.
The promise of lightning, way back when, was the idea that you'd be able to instantly send money to your coffee shop via your existing channels with bob and alice, and if you didn't have a path to the coffee shop then it was no big deal beacuse you could just open one, and then you become alice and bob's conduit. Unfortunately, with the lower settlement layer unable to scale, we're in the scenario where you cannot open that payment channel with your coffee shop because you can't afford the fees because even at 4x today's capacity there simply isn't enough room for everyone to open payment channels to their coffee shops.
So you open a payment channel once, to your bank or a bank-like entity, and they have payment channels to everyone else. Great, it works, you never touch the blockchain, and it's a centralised system again that has none of the properties people like about cryptocurrencies - whoops!
So, could you then make a new blockchain for all LN transactions, seperate from Bitcoin?
This is extremely inefficient for one transaction, though. You'd really need to commit a lot more money to your payment channel so you can use it for many things. If you use it for more than two things, you're gaining efficiency, but rememebr that you can't add money to it or take money out without going onto a blockchain.
This unfortunately still leaves us with the cruical flaw of blockchains, in that they're a decentralised and consistent ledger and that's actually really expensive to maintain. It's why there's so much push-back against making bitcoin's blocks bigger, 'cos the bigger your blocks are the harder it gets to move everything around fast enough to keep things running. It might seem trivial to move 1MB every ten minutes, but remember that that's 1MB every ten minutes to every node on the network, sometimes via connections which aren't very fast. Most notably, the great firewall of china is actually not very fast at all, and so blocks moving into and out of china have to do so relatively slowly. We triple the block size and maybe we can't keep up any more, and if the network can't talk to itself fast enough to move blocks around every ten minutes we have a network partition that won't fix itself and a big problem.
And that's fundamental, right? You can strip out PoW, you can tune all the values you like, it's just a question of bandwidth. 10MB blocks every ten minutes, 1MB blocks every minute, 100kb blocks every few seconds, it doesn't matter. The bandwidth to move that around a distributed global network isn't there. We can move all the LN opens/settlements to a different blockchain, but all we'll do is make it so that we have scaling problems on a different blockchain.
To be perfectly honest, I can't see a way for it all to work smoothly. There's unsolved, Hard-with-a-capital-H distributed computing problems which need solving to make this work, and there hasn't been any progress made towards solving them. Bitcoin and friends appear to work because they balance in a kind of "habitable zone" between throughput and usage, where eschewing Consistency and Partition Tolerance from the CAP theorem doesn't seem too bad, because even though we've dropped Consistency the fact that we don't really get long network partitions means that your transactions aren't going to get undone very often (but it absolutely can happen!), and even though we've dropped Partitian Tolerance that isn't that bad because we don't really get long network partitions and we have a partitian resolution operator that only drops transactions sometimes.
But if blocks can't get around the network fast enough then suddenly we do get major network partitions, and that means our mitigation for lack of consistency falls apart, and so we don't have a working partition resolution operator. We're left with our choice to pick only "A" from CAP, and have a highly available network that doesn't reliably commit transactions and very often splits into multiple partitions. Argh!
Multiple blockchains could mitigate this issue, but they can't really talk to each other very well, not without incurri...
Yes, but I meant using a blockchain for the decentralised aspect of things.
> Multiple blockchains could mitigate this issue, but they can't really talk to each other very well, not without incurring further losses of efficiency. In that scenario we'd need four transactions to send our $5 - one to open the channel, one to close it, and two to jump blockchains. Ack!
Is it bad to use 4 transactions for 1 transaction when it makes your transaction througput 100000x higher?
> These are just really hard problems and hopefully they can be solved, but right now there are no even proposed solutions which can fix this.
Aren't there already altcoins that have solved the transaction scalability problem?
Not really. It'll increase latency on commit confirmation and that might suck, though.
>Aren't there already altcoins that have solved the transaction scalability problem?
Nope. There's ones that can scale better than bitcoin, but in the end there's only so many parameters you can tune and an actual solution requires more than just tuning block size / block rate.
Many weaknesses in tech can be fixed or built around. Adoption, community, and trust are hard to get.
1. It's being mispriced by the market for some reason and will correct over time (i.e. it will lose valuation compared to other cryptos). This seems to have happened some in the past 2 weeks or so, but it's pretty early to see how this will play out.
2. The network effect of already being the biggest is strong enough to offset its "weaknesses" relative to other currencies.
3. The primary value of bitcoin, at least at present and in the short to medium term, is different than crypto enthusiasts believe. There is massive value in being a decentralized, secure, easily transferrable store of relatively large amounts of money, as basically a settlement layer. And there is relatively less value (at the current time) in being a new payment method to buy everything down to a cup of coffee, or powering smart contracts, or other things that crypto enthusiasts get excited about. To the extent that those things become important to the market, usage of Ethereum or other coins will increase. To the extent that privacy becomes important to the market, usage of ZCash or Monero or other coins will increase, etc. But the increases of these others won't necessarily reduce the primary value of Bitcoin itself.
I personally think #3 is true, although long-term factors like the energy consumption of mining may be strong enough to render other currencies significantly better even for this primary use case.
Of course, the huge dark side to that is that there's now a way to easily send money in a way you cannot reverse. This provides a huge incentive for things like kidnappers demanding their ransom in bitcoin. It's often valuable to be physically incapable of doing things.
I'm long-run bearish on Bitcoin because of this analysis - the majority of its value is in something that makes governments and other coordination mechanisms interested in destroying it.
Technically, but not legally.
Transfers are 100% reversible by going to court, so Bitcoin is really only non-reversible for criminal activity (dealing drugs, gambling, etc) where someone cannot bring an action because the contract was illegal in the first place.
This technical non-repudiability is a feature that only works for criminals and is an anti-feature for legitimate users.
Bitcoin just kind of flips the problem, it doesn't solve it. In a world where payments can easily be reversed, sellers take on all the risk. In a world where they can't be, buyers take all the risk.
You can get pretty far with a reputation system, and in a market with many more buyers than sellers it's nice that now only the seller's reputation matters. But for a lot of people there's still benefit in having a trusted middleman like Paypal.
It's less and less true as time goes by, Bitcoin dominance on the other currencies was about 85% in February, now it's only about 38%.
https://coinmarketcap.com/charts/#dominance-percentage
The problem with market cap is that it multiplies the last traded price with total supply, thereby assuming that there exists people willing to purchase all coins in existence at the same price (the mid price of the order book).
Thankfully, we don’t need to make this assumption, since the order books of most exchanges are public. But, as far as I’m aware, no websites compare coins by market depth, unfortunately.
It’s a bit like me selling a painting I’ve painted for $10,000, and then creating 100 of the same paintings and claiming I’m a millionaire. It doesn’t work like that for illiquid assets (I’d probably be lucky to find even a single new buyer at the same price).
A trader can easily inflate volume by creating two accounts and trading back and forth with himself, thus making his two deposits count many times over in the trading volume of that exchange. But in the order book his deposits can only count once.
Only if the exchange in question charges trading fees.
> And If you don't like using the volume or market cap, what do you use?
Market depth. Looking at the order book to see how much money is bidding on/being sold for bitcoins right now. See my reply to other comments for an elaboration.
I disagree. Many exchanges have public order books, so you can see exactly how much the price would slip if you sold, e.g., $1m worth of a coin. This is what is relevant for something functioning like money, not the last traded price multiplied by number of coins in existence.
Yeah, but if you wanted to sell $1M worth of coins you'd probably use an auction at Gemini or elsewhere so you don't move through more than 2 or 3 price levels of the book.
You'd also probably enable some sort of smart selling algo for the same reason were you try and move $1M worth of BTC not at auction.
You could make the same argument for Gold or Platinum being over valued based on slippage from open interest at a point in time.
Selling $1m worth of bitcoins on GDAX, Bitstamp and Bitfinex results in a slippage of 0.2864%, 0.3527%, and 0.2910%, respectively.
As far as I can gather from Gemini's fee schedule[1], they take a >0.40% fee even if you've traded for more than $10m in the past 30 days, so I'm not sure it's worth it for a $1m market sell.
[1] https://gemini.com/fee-schedule/#fee-schedule
> You could make the same argument for Gold or Platinum being over valued based on slippage from open interest at a point in time.
I disagree. I'm not arguing that anything is over-valued. Simply that market cap as a measure of value of commodities does not make sense, because of the great difference in marginal utility between them.
There are definitely issues, but no one has managed to solve them so far. A lot of competing cryptocurrencies claim to have solved the challenges that Bitcoin faces, but there hasn't been any fundamental innovation in this space since Bitcoin. Except for MimbleWimble[1], which has made advances in terms of both scalability and privacy. All other solutions out there just move further towards centralization, while in the process gaining scalability (which everyone already knows is trivially possible).
[1] https://github.com/mimblewimble/grin/blob/master/doc/intro.m...
https://eprint.iacr.org/2017/1066.pdf
https://github.com/mimblewimble/grin/blob/master/doc/intro.m...
> In the above example, you had to share your private key (the blinding factor) with Carol. In general, even though private keys should never be reused, this isn't generally very desirable. Practically, this isn't an issue because transactions include a change output.
Yes - it's a change output and a new private key but it's not a great way of doing things.
Also - what's with the name? MimbleWimble?
Bitcoin does scale, just not in the direction everyone thinks it should, which is transactions per second. It scales spectacularly well in two important other directions: number of validating nodes and hash rate.
The bitcoin protocol is not written in stone. Bitcoin community could adopt improvements from other crypto currencies. Segwit is the tip of the iceberg.
That said, the community is not very nimble...either.
Bitcoin is about the only cryptocurrency with serious usage, which is exactly the reason transaction fees are as high as they are.
https://www.reddit.com/r/Bitcoin/comments/7nod60/peter_thiel...
But bitcoin will end up being a just a store of value(like Gold) instead of an medium of exchange. What I also wonder is, apart from store of value and medium of exchange there's hardly any need for Cryptocurrencies. If two of them solve each of the above problems, why do we need 1000's of alt coins?
For a notable example of an altcoin that solves a tangible problem, consider Monero. This coin uses a sophisticated transaction system to hide the identifiers of participants in a transaction. I don't know whether it is bulletproof, but it does claim to be much safer in terms of privacy.
Another one is Verge, which routes all of its transactions through Tor. I'm more bearish on this one, and its recent spike in market-cap was short-lived, suggesting that the idea still needs work.
Wouldn't it be possible to use Tor with any coin?
That's the joke.
Brace yourself, bulletproofs are coming to Monero:
https://getmonero.org/2017/12/07/Monero-Compatible-Bulletpro...
https://en.wikipedia.org/wiki/Clarium_Capital
Could those who downvote this comment please explain why you did so? I try to provide extra context for those who come across this submission, which I get from Techmeme.
If you want to add context, go for it, but this is just comes off as begging for page views.
From what I understand, the Ripple people are only making libertarians mad because they're not opposed to making a crypto system which could actually be easily adopted by existing institutions which does not make them "centralized" by default. Being able to process more TPS doesn't necessarily make you centralized.
So you’re bound to get a cryptocurrency so complicated that no layman can figure out its problems until it’s too late.
Plus Charles seems down to earth and believes in working one's ass off, organic growth and hey, this is gonna be a favorite for all HN readers - FP!
I already bought some ADA...and will hold it. Never held Bitcoin nor Ethereum for any appreciable amount of time and I do not think they scale or can achieve massive, stellar success and assimilation into economies with their current architecture. Cardano is like Bitcoin 3.0.
Watch https://youtu.be/-zftnG6BYu4
What he says, particularly around the process of peer reviewed papers they're submitting to crypto conferences, makes perfect sense. No one has been able to bring this kind of rigor to cryptocurrency to date.
My only hope is they stay nimble, agile, responsive to the community's concerns and questions...... and deliver something iteratively instead of shooting for the stars. Their base is solid, they just need to build upon it now.
IOHK/Charles is pushing for performance, it's not just academic showboating.
Some of the greatest things ever were created when academic minds and experience were fused with strong business and leadership ethics.. Qualcomm for example - started out with a bunch of Ph.D.'s and a grand idea - CDMA, or rather power control and new modulation and coding schemes applied on CDMA, which is what their invention was (CDMA had existed since WW2 I think, commercially Qualcomm made it happen).
What bothers people is that most of the stuff Charles is talking about is flying way over most people's heads...so instead of sucking it up and learning about it, it's easier to just dismiss him, IOHK, Cardano, etc.
Since I don't know the future anymore than anyone else, you could be right too. Just in case, I put some money down on Cardano/ADA. So maybe I'll be right. If I'm not, feel free to gloat.
(1) https://en.wikipedia.org/wiki/Cornering_the_market
The conversations you see from VCs has similarly changed - instead of talking about teams building enterprise value, you hear something that sounds more like speculative bubble FOMO language.
Maybe i'm wrong, feels ominous.
It won't be long before investors try to find ways to triple their returns, scheming and repackaging begins akin to '08. Derivatives and CDO-esque shit. You know your 401k will in some way be underpinned by some vast quantity of poorly rated repackaged crypto assets.
And good luck with regulating this nascent market in Trump's America.