Feeds

back to article Bitcoins: A GIANT BUBBLE? Maybe, but currency could still be worthwhile

The Bitcoin economy is a bubble and it'll all end in tears. Bitcoin is the greatest thing since sliced bread and will change the world forever. What might surprise some of you is that there's no contradiction between these two statements. Whether the internet currency is in a bubble or not, and whether that bubble bursts and …

COMMENTS

This topic is closed for new posts.

Page:

This post has been deleted by a moderator

Re: "there's a reasonable possibility that...

"What you're thinking about is photons."

It's worse than that, actually. Even if we were considering wires rather than fibres, it wouldn't be Grand Crossing's wires that passed the electrons that go into my PC. If you actually dig into it a bit, you discover that in ordinary applications, the electrons themselves only wander along wires at a rate of a few millimetres a second. So the electrons that delivered the packets to my PC in fact delivered them only during the last small-fraction-of-an-inch, and certainly haven't seen the inside of either of the two firewalls under my desk.

1
0
Silver badge

Have we turned into El Graun?

I read the original post. I have no idea why it's been modded. It was just classic El Reg commentard pedantry.

1
0
Silver badge

Re: Have we turned into El Graun?

I don't think so. It's usually a sign that the article has been amended thus rendering the post (at best) confusing. I've lost a few that way, myself.

I think the 'right' thing to do is use the 'Send corrections' facility, though I get the impression that comments sometimes provoke a swifter response.

0
0
Silver badge

Re: Have we turned into El Graun?

It'd be nice to have an explanation for the removal though. Perhaps a sign that reads "The article has been amended. This comment is redundant."

3
0
Rol
Bronze badge

Free trade?

Is it possible that this could be a currency that transcends geographical boundaries allowing for the first time a free market, no longer held to ransom by the large self serving institutions that want a slice of everything that moves?

Bet again,

If this takes off, I give it 3 months before it is swallowed up by the usual suspects to become another controlled market or banned outright as a divisive threat to western democracy.

9
3
Silver badge

Re: Free trade?

the anonymity of purchase from point A to sale at point B would be an auditors nightmare with respect to laundering practice.

1
0
Meh

Re: Free trade?

"the anonymity of purchase from point A to sale at point B would be an auditors nightmare with respect to laundering practice"

Bitcoin, use of Linden Dollars and online gambling are very minor problems from this point of view compared to cash.

2
0
Silver badge

Re: Free trade?

>the anonymity of purchase from point A to sale at point B would be an auditors nightmare with respect to laundering practice.

for tax evasion they will just focus on the weak point of the system and force the credit card/debit card makers to inform them of any charges to from any of the major exchanges. Granted that won't catch everything but probably the vast majority which is usually good enough for them.

0
0
Anonymous Coward

Re: Free trade?

"anonymity of purchase from point A to sale at point B would be an auditors nightmare with respect to laundering practice."

Lack of anonymity didn't seem to worry HSBC or their customers, nor did dodgy dealings bother HSBC's auditors. The $2bn dollar fine (sorry, "penalty", no criminals to be found here) probably won't either. We'll see.

http://www.bbc.co.uk/news/business-20673466

So called "anti money laundering" measures as seen by Joe Public opening a new account etc are for theatrical purposes only.

1
0
Silver badge

not really

"Of course, holding onto an asset simply because you think the price will rise - and for no other reason than market momentum - that's the perfect recipe for a bubble"

Not really. A bubble (in this sense) is something being valued wildly greater than it should be. Bitcoins (at the end of the day) are a finite calculable resource, not too different from the real world trading of gold/precious metals. There is a definite limit to the amount in circulation. The dotcom era of buying shares in companies with no growth potential was a bubble.

If everyone holds onto bitcoins then the value will hold or even increase - especially if side trading occurs. Everyone sells the value will drop. The word you are looking for is speculation.

The main problem with solid currency trading will be trading with a view to laundering. It is an ideal laundering tool if it can be bought for "cash".

1
2
Silver badge

A finite calculable resource [like] gold/precious metals -- NOT

No they are not alike. I can hit you over the head with my heavy block of gold, I can stand on it to look over your head, I can attract mates with the glimmering qualities of it -- but all you can do is confuse people with those bits and bytes.

4
2
Silver badge

Re: A finite calculable resource [like] gold/precious metals -- NOT

You can say the same things about a nonmetallic brick. Value is in the eye of the beholder, and intangible things can have value. What is the value of a secret state document, for example? Or a company's private encryption key? Or even the bank notes in your wallet right now (nearly all currencies worth mentioning are fiat and not tied to anything physical)?

3
0
Silver badge
Mushroom

Re: A finite calculable resource [like] gold/precious metals -- NOT

One unarguable difference - gold will survive something which returns civilisation to a pre-1950s level. Of course, its owner might not. Quite probably wouldn't.

Icon may represent a Carrington event, as well as the obvious

0
0
Megaphone

Re: not really

Bitcoins (at the end of the day) are a finite calculable resource

Bitcoin the current blockchain, sure. But unlike gold and silver, the only real limit and value is purely in terms of brand recognition. Other currencies using the *exact same* algorithms, source-code clients etc. can (and in fact already have) come into existance. There's no reason that an infinite number can't pop up. And each one can be identical to bitcoin. And this is before we even talk about crypto-currencies with different/competing models.

It's not like with gold, someone can't just come along and pull another type of gold out of their arse, but with bitcoin you can.

6
1
Silver badge

Re: A finite calculable resource [like] gold/precious metals -- NOT

I am talking as an investment mechanism or currency not as a usable item, i.e. the concept of trading in gold. The whole purpose of trading in gold was due to its measurable quality and purity vs its rarity (yes various other metals can also be traded so the same could equally apply to platinum, silver, iridium etc) which further morphed into promises and currency. It could also be said that fiat currencies could only be used as toilet paper as a physical entity. The only trust you have in say the euro is that its principal countries will keep it stable. If the PIIGS have another wobble in sync then it will have a bit of a fall. Balance this against a crack in a known measurable algorithm. the strength of a (fiat) currency is down to its reliabilty and faith.

Trading in property portfolio aggregates might have physical entities attached to them but you dont expect to actually store the properties as an investor (although they do exist and are managed). Buying shares in a company is but a piece of paper tied to a company, in small amounts you get very little except the speculation that they will be worth more.

Sterling inflation is decided by whim of the bank of england. At least bitcoins inflation is known beforehand.

Yes of course someone could produce a "coinbits" based on the same variable. The greeks could also decided to go back to drachma too. Auric might sneak a dirty bomb into a gold reserve (I did like that film). As a currency bitcoins are not as far fetched as some other currencies in the world suffering from hyperinflation. Bitcoins do have a planned inflation.

The original piece talked about a bubble, bitcoins are not a bubble by a long stretch. Sure there is a surge but im sure it will settle at a "value" eventually. Ironically in order to be taken seriously as a currency it will HAVE to settle in order for people to price their goods against it.

1
0

Re: not really

Exactly. With BitCoin there's no safe failure mode. The classic example is the escalator - if it fails it becomes... a set of stairs. The value of gold may fall but you're still left with a shiny brick suitable for making non-tarnishing jewellery or conducting electricity with. If BitCoin fails you're just left with a vacuum in the information-space.

Put another way the value in a BC is similar to the value of something like, say, a Pixar movie. Pixar's product is really just an extremely long binary number (frequently stamped onto a plastic disk), but it's a number that's the result of an intensive computational process that would be almost impossible to reproduce exactly starting from scratch. The problem with a BC is that there's no corresponding utilitarian value - Pixar movies (like gold) are nice to look at. BitCoins, at the end of the day, are just bits.

1
0
WTF?

Re: A finite calculable resource [like] gold/precious metals -- NOT

Sterling inflation is decided by whim of the bank of england. At least bitcoins inflation is known beforehand.

Which means that when the money supply causes problems in the wider economy, there's nothing anyone can do about it. Some of us consider the bank of england to be a feature, not a bug.

The whole purpose of trading in gold was due to its measurable quality...

Yes of course someone could produce a "coinbits" based on the same variable. The greeks could also decided...

You miss the point - the current bitcoin blockchain really is only a brand name, and other, identical blockchains can be and are being started. There is only scarcity of "Bitcoin" branded coins, no real scarcity at all.

The original piece talked about a bubble, bitcoins are not a bubble by a long stretch.

Bitcoins have experienced absolutely classic bubbles twice now, because they are a speculative asset based on confidence and nothing more. 'Fiat' as you like to call it is backed by national economies.

3
0
Silver badge

Re: not really

Wow I see the doomsday bunker crowd is starting to get worried about putting their life saving into gold bricks now the price isn't going up any more. Gold has one enormous drawback though. Its incredibly dense and heavy and like any physical thing it can be stolen so you have to worry about storing it safely (granted bitcoins can be stolen also physically if you store them plaintext like a dumbass or give your passcode away). I am not saying putting your life savings in bitcoin is smart either (i own none but do think the idea is kind of neat) but it is actually possible to carry 10 million dollars of bitcoins on your person right across an international checkpoint (AES-Twofish-Serpent triple encrypted good luck breaking that). If you are counting on society collapsing your best bet is not gold but weapons (can get you things even better than any currency), generators and canned foods anyway.

0
0

Heisenberg-coin

Investing in Bitcoin changes the nature of Bitcoin. If people don’t invest in it, and use it like a currency, it has value. As soon as people start investing in it, it stops functioning like a currency, and no longer has any value. Given that some nation states have failed to control their currency, it was hopelessly naïve to think that a very simple money supply algorithm could.

Everything new is old again

As a distributed currency, not only does it not work very well as a currency, it won’t be very distributed. We’re seeing mining become increasingly concentrated in those with the money and expertise to invest in banks of single-purpose computing devices. Remember, its the majority of mining power that controls what happens to Bitcoin. Now, it appears, with the Winklevoss brothers, it’s big money cornering the market; the rich using something overvalued to become even richer. That wasn’t the basis of the 2008 financial crisis, was it? I can’t imagine this is the brave new financial world, the cypherpunks were promised.

Can we fix it? No we can’t

The majority of mining power could change the underlying supply to try to fix Bitcoin’s problems, but this brings its own problem. Big money has for company big lawsuits. If the supply of new bitcoins is made variable, to stop hoarding and to try to make it work as a viable currency, the price is going to drop dramatically. Partly because of the necessary increase as Bitcoin gets new adopters, but also because of the short-term uncertainty and loss of confidence. If the Winklevoss brothers feel this has caused them to not make quite as much profit as they thought they were going to, what will they do? Find everyone they can who’s associated with the change, and sue them for millions.

The measure of a bitcoin

If we look at Bitcoin’s value over its history, we can see two different parts. There’s the bubble part and an underlying part. In the middle of 2011, Bitcoin went through its first bubble, and we’re currently in the middle of a bubble now. So far, the current bubble looks the same as the first one. The spike on the graph is taller and slightly wider, but it’s basically the same shape. The algorithm hasn’t changed and neither has people’s reaction to the idea of making a quick buck. Every time Bitcoin bubbles, it’s going to be the same, until everyone gets bored and loses interest.

If you take away those two spikes, you get a general trend showing its utility to drug users and American gamblers. Doing this, you get an underlying value for one bitcoin somewhere around twenty dollars. Which is fine, until those who imbibe drugs or gamble in countries where the government would rather you didn’t, move on to “Bitcoin 2.0”, whatever it is, that fixes some of Bitcoin’s negatives.

0
0
Rol
Bronze badge

Re: not really

"You can get a lot farther with a smile and a gun than you can with just a smile."

Al Capone.

Well, maybe not his wisdom, but wisdom non the less.

0
0
Silver badge

Re: A finite calculable resource [like] gold/precious metals -- NOT

. I can hit you over the head with my heavy block of gold

Don' t forget to wrap it in a slice of lemon.

4
0

Re: Heisenberg-coin

http://upload.wikimedia.org/wikipedia/en/b/ba/Centralised-decentralised-distributed.png

Decentralised. Not distributed, decentralised.

0
0
Bronze badge

Re: A finite calculable resource [like] gold/precious metals -- NOT

Have you ever held $100 bill? It's just a piece of paper. Yet it is worth $100.

Currency used to be backed by gold or silver - old pound notes used to have 'I promise to pay the bearer...'. They haven't had that for a long time, and the government can print as many as they want these days. And yet people are happy to exchange these 'worthless' pieces of paper for real things.

Bitcoins have value if others are prepared to accept them in payment for things. It's just a representation of value, it has no real inherent value, just like a bank note.

Bitcoin is a little more interesting than other digital currencies due to its implementation, it's p2p nature. The fact you can transfer funds relatively anonymously across the web to anyone in the world is quite revolutionary when you think about it. Think porn, gambling...

1
1
Bronze badge

Re: A finite calculable resource [like] gold/precious metals -- NOT

>>> Which means that when the money supply causes problems in the wider economy, there's nothing anyone can do about it. Some of us consider the bank of england to be a feature, not a bug. <<<

Not strictly true. Think about fractional reserve banking. There is no reason why that could not be applied to bitcoins. In the UK for example, the supply of actual physical money is far, far smaller than the amount of money in existence.

For example, I start a bitcoin bank, and you deposit 10 bitcoins, which I show on your account. I then lend those 10 bitcoins to somebody else, who uses them to buy something. The recipient of those bitcoins deposits them in my bank. You think you have 10 bitcoins, and so does the guy who received them, because both accounts say you have 10 bitcoins. Of course my bank would have problems if both my depositors wanted their bitcoins back at the same time.

It's called a bank run, and it happens in normal banks for the same reasons.

Bitcoins are just like cash in this respect too.

1
0
Silver badge

Re: not really

No, but you can pull another scare resource.

And anyhow, since most currencies are fiat, the comparison isn't really relevant - yes, of course the value of bitcoin is in terms of how many places can accept it, but I don't think that is a flaw. The same applies to currencies. No one cares if I create my own new currency, whether it's paper or virtual, unless I can get people to accept it.

Also, at best this is an argument against bitcoin being the only virtual currency, not an argument against any virtual currency. I mean, I fail to see how "But I could create a new one" is an argument against any being worthwhile at all. Even if we end up with a world where there are several virtual currencies in use, that's still a world where virtual currencies are in use, and not one where they are all useless.

0
0
Silver badge

Re: not really

I guess you can give me your money, as there's nothing like to look at on there either (unless you like pictures of the queen) :)

(Also, have any of the people talking about the shininess of gold actually invested in it? Normally these days, you don't walk into a shop and buy a gold brick, you invest in gold, and all you see are numbers on a website or paper, you don't get to own or look at your gold.)

0
0
Anonymous Coward

Bitcoin will never see widespread adoption as a financial instrument in its current form. Built into the system is a minimum 10 minute cycle before any transaction is logged, and more realistically it is 60 minutes to ensure the authority of the chain declaring the transaction. That 60 minute wait is the origin of most of the volatility. One "tick" of price changes, and you'll see a lot of sell orders, but these orders won't go through for an hour, and once that hour has registered on the graph, you've suddenly got an ungodly bust on your hands. It's why when bitcoin does crash, as it has many times, it tends to crash over the course of 3-4 hours. This is built into the system and impossible to work around without re-founding the currency, defeating the point entirely.

However, this reg hack is still entirely right. The volatility, the bubbles, the crashes and tears, won't hinder its use and the inevitable growth of new industries. Bitcoin is the first viable, anonymous and electronic medium of exchange. Like it or not, that has led to an explosion in online gambling and online sales of high-quality narcotics. The volatility will prevent it from ever being used for lower-margin products (not much point selling a 5% margin toaster on a currency that fluctuates 20% per day), but its nature as an accepted transfer medium will always guarantee some use and some velocity, and that could, hopefully, have some nice knock-on changes into the real world.

1
1

10 minute wait

'It is true that transactions can sometimes take tens of minutes to become confirmed. Despite this, retailers can accept unconfirmed transactions with very little risk by simply 'listening' on the network for a double-spend transaction, or partnering with a company that provides this service. After a head start of merely several seconds, the original transaction would reach so much of the Bitcoin network that a fraudulent double-spend transaction would almost certainly be fruitless. An attacker would have to commit easily-detectable fraud, in person, several hundred or several thousand times, before one of these low-value double-spend attempts would likely succeed.

In short, the 10-minute wait for confirmation is only practically necessary when delivering goods of value that significantly exceed the block reward an attacker would have to risk to perform an attack and where recourse after delivery is practically nonexistent, such as money transfers.'

from Bitcoin myths

0
0

A more fundamental problem with Bitcoin is that it's supply is fixed, even more so than that of gold, which at least can be mined out of the ground. If the supply of Bitcoin cannot expand as the economy itself expands, it can never be adopted as a viable currency. Neil Irwin wrote an excellent article on this at http://www.washingtonpost.com/blogs/wonkblog/wp/2013/04/12/bitcoin-is-ludicrous-but-it-tells-us-something-important-about-the-nature-of-money/.

3
1
Anonymous Coward

Re: 10 minute wait

@Jonathan 29

This only acts as an assurance for retailers wanting to check that their transaction is genuine. To use bitcoin properly you need a few more assurances. The big one is that your bitcoin is worth what the product you just sold is worth. That is impossible to assure - every user of bitcoin lives in a fog, unable to work in real-time because of the time delays, which in turn induces significant volatility. That combination of volatility, awareness of the volatility and the impossibility of working in real time precludes the stability needed for widespread legitimate use.

In addition, there is insufficient velocity to guarantee that you will be able to liquidate your stocks of btc as and when you need to. High-level financial operations generally work on two assumptions. The first is that you can buy/sell in any volume and any subdivision of the base unit (btc meets this), but the second is that you can effectively do this at any time. Bitcoin does not meet this, primarily because of its volatility, and you can see that in any of the graphs of any of the crashes - volume dries up completely. In a traditional, real-time market, the market is lubricated by shorts and suchlike. No such mechanism exists, nor can one exist, for bitcoin.

1
0
Anonymous Coward

@trousers_2000

Irwin's a tool. Traditional currencies need their elasticity because the alternative is once a year around taxation season a chunk of your population are bankrupted through lack of tangible assets. Bitcoin is not a traditional currency - there is no in-built cyclical demand, nor any requirement for its use, as you get with fiat currencies and taxes.

More to the point, the "deflation" of the goods and services bought with bitcoin is not really deflation. Bitcoin is never expected to stand on its own two feet as an independent currency, merely a medium of exchange. For example, if you go to A Well Known And Completely Illegal Online Marketplace For Drugs and check the prices, then check back an hour later, the prices will all have changed. Why? The prices are all set in real-world currencies, and the displayed btc prices are adjusted to match as close to real-time as can be achieved (the vendors also have a relatively complex system of hedging that they operate behind the scenes to partially protect against price volatility, but their high margins do most of the work in that regard).

So, bitcoin will only be deflationary if, and only if, you for some absurd reason decide to stockpile your coins. Now, we can tell you, pretty much to the minute, when the supply of bitcoins will dry up, and we can tell you how many there will be. In this instance, there is no reason to hold coins unless you are active in the economy with them. This is one of the most graceful (and near entirely accidental) elements of the currency - there will always be substantial velocity, therefore bitcoins will always be healthy. It doesn't matter if your $10 is buying you ten coins or ten thousandths of a coin, what matter is you get $10 worth of coins and the vendor gets $10 (or close enough) out at the other end.

No one's planning to start a government with these, yedig?

1
3
Silver badge

Gold is mined out of the ground.

Bitcoins are mined out of racks of Nvidia CUDA machines.

1
1
Headmaster

Re: Gold is mined out of the ground.

Nvidia GPU's are crap for bitcoin/altcoin mining even the largest EC2 instance struggles to keep up with a desktop and ATI cards

0
0
Silver badge

You're completely correct about the delays being the major drawback to Bitcoin. And it's worse than what you said, it's 10 minute cycle on average. It can easily take significantly more than that.

But I'm not so sure this has much at all to do with the volatility. Most people trade Bitcoin in exchanges like Mt. Gox. Once you put cash or bitcoins in, they keep it on account for you and (barring their frequent technical problems) can instantly execute a trade simply by raising the BTC credit in one account and lowering it in another, while doing the reverse to USD credit.

0
0

Transactions are logged immediately. You can't take out a transaction that's already been sent. The best you can hope to do is try to double-spend, but in this case you are still sending the same Bitcoin. The transactions are *irreversibly* verified after 1 hour.

Especially in exchanges, where the exchange, not the users, controls the private keys that actually own the Bitcoins, it doesn't take an hour for the exchange to go through, it happens immediately. If the exchange is centralised (as most are today), they don't even have to send it out to the Bitcoin network and can instead just record who owns how many internally, only broadcasting a transaction to the network when users want to withdraw them to a different address - which users cannot reverse, as they do not hold the appropriate private key.

Ultimately, the amount of time a crash takes is completely arbitrary. It can be based on the speed (or lack thereof) of the exchanges processing orders, the rate of the decrease or the amount/reach of news spreading panic and any number of other factors. Just like the sharp increase, the popping of the bubble isn't a rational thing.

1
0

The Bitcoin protocol is more akin to a wire transfer than a payment processor like VISA or Paypal. In the background, these payment processors still takes several days to verify with banks that the money is to be transferred. Especially in the case of Paypal, where the recipient is likely to be receiving straight to a Paypal account, Paypal merely increases their value of their account on an internal database. This is why chargebacks are possible for several days/weeks after the payment has been, "sent": it isn't instant, and it hasn't been verified.

With Bitcoin, after an hour, the payment is (considered) *truly irreversible*. Even after a single verification, it is very difficult for an individual without access to large amounts of computing power to double-spend.

0
0

Re: Gold is mined out of the ground.

Both of which pale into insignificance when compared to ASICs.

It's an arms race based on GH/KWH and therefore, those that have the money to buy custom-built ASIC farms, have the very real advantage. Perhaps the only chance as an independent prospector is to group buy ASIC or join a pool.

As sad as it is, the money goes to the money and therefore Bitcoin investment is no different to any other, however, unregulated currency distribution is novel and exciting, if only to see how the established institutions deal with it.

0
0
Bronze badge

Re: 10 minute wait

>>> This only acts as an assurance for retailers wanting to check that their transaction is genuine. To use bitcoin properly you need a few more assurances.<<<

Sure, but on the plus side, once you have a few assurances, you have the cash. Unlike credit cards, where it can be charged back any time in the next 6 months for various reasons.

So waiting an hour for several confirmations isn't great if you're selling something that needs to be delivered instantly. But if it's something expensive, to be sent mail order, then an hour wait is nothing. Remember - with credit cards, the merchant would have to wait *months* before he knows he irrevocably has the cash, it's not fraud.

1
0
Boffin

Re: Gold is mined out of the ground.

Not quite. To mining bitcoins the ATI hardware is much better. Much better as to be about 6 times faster than NVidia hardware.

It doesn't mean one is better/more evolved than other. It is, rather, a byproduct of the architecture of the silicon.

NVidia, on the other hand, is faster to folding proteins - or so I've been told.

0
0

No tulips this year

So far the flower fields have been dry and arid looking(well everything has in the surrounding area) due to the persistent winter. Now that we have had rain and sun again there is a big chance the flowers will come through soon. Although not in time to parade them around for the German and Japanese tourists:

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

1
0

I think the main issue underscoring the viability of bitcoins is the fact it can be hacked or brought down so easily. The fact that hacking one exchange can cause the value of it to crash so heavily to me shows it is more of a commodity than a currency. However unlike other commodities, this is something virtual. The advocates say that it is impossible to create more than 21 million bitcoins, because an algorthm is supposedly unbreakable, but what if someone does break it? History shows us that all secure systems have eventually been hacked by somebody. Great idea in theory but I think it is going to take a lot of time, and yes Conventional money to make it work in practise.

0
2
Anonymous Coward

If someone breaks SHA-256 they'll have bigger prizes to grab than bitcoins. Particularly when you bear in mind as soon as the crypto chain is broken, the entire currency becomes worthless and therefore not worth breaking to begin with.

4
0
Silver badge

Bitcoin uses the same algorithms governments use to keep state secrets and the like. Trust me, if they break the algorithms behind Bitcoin, they'll have much better uses for the information. As for hacking Mt. Gox and the like, this is more like a bank robbery or the hack of a real bank. It can happen anywhere, with any currency. Bitcoin just gets the press because it's not tied to a government.

1
0
Silver badge

The algorithm is basically jointly decided on by everyone who runs Bitcoin. If the old "insecure" Bitcoin isn't classed as valid any more, then it has no value any more, and you would need to transfer those bitcoins to a new "secure" version of Bitcoin in order to carry on using them. The software itself has been designed to plug in any algorithm you like to do the coin generation/verification and that's all the security you have (and need).

No different to "Switch" changing to become "Meastro" or whatever - after a while, people will stop taking your Switch card until you upgrade to a Maestro card - and there's a transition period which can be closely monitored and with exchanges accepting both for a while. And all just by keeping your bitcoin software up-to-date (some of the old bitcoin clients aren't accepted any more because they create transactions that aren't valid on the newer software - this is what the bitcoin "fork" was a few weeks ago) - you have to do that in order for your bitcoins to have any value (i.e. someone else accepting them as currency) anyway.

And bitcoin wasn't hacked, wasn't brought down (nor were the exchanges - just DoS'd) - this time. Bitcoin is a system comprised of millions of people choosing to agree on what the valid "root" chain is, and what version of software is required, and is still functioning and being used every day - even during the attack and the price crash. But it was like not being able to get to the largest bank in the country for a while to draw out your funds (which, even in real life, would affect the value of the pound etc. the same way it affects the value of the Bitcoin).

The problem of Bitcoin is not hacking, but really of hoarding and poor news stories of speculation (i.e. predicting doom because a currency value varied for a short time!) - people are betting that Bitcoin will go up and down in value all the time, 50% will make money if they happen to be right at that point, but it has little to do with the actual money in Bitcoin longer-term. In the same way that banks play with my money and may not have enough to cover what my bank statement says at any given point, Bitcoin will be speculated with and people will win, lose, and affect the value of the currency. At the moment, the value can be more volatile purely because 65 million people aren't using it, and the panic that ensues when the largest exchange is inaccessible, etc. But as more people use it, and more exchanges pop up, the volatility decreases - probably to the point of every other currency at best, though.

I finally managed to get a fifth of a whole bitcoin, my first proper bitcoin transaction that wasn't a test. I intend to hold onto it and see what it's worth in a few years time. If I hear of an impending problem, maybe I'll cash it in with the rest of the cowards. But saying that a currency is useless because the value fluctuates - especially at this early stage where I can count the number of people that I know who understand what it is on a single finger (i.e. me) - is something that can be applied to any currency you like. How much is a Zimbabwean dollar worth now? And how much would it be worth if you'd put it into Bitcoins just before it crashed, and cash pieces of it out in US dollars afterwards as you needed them? It may not be perfect, but no currency is. However, the idea certainly has *VALUE* (as a process, a currency, a transaction method, and even as a savings account) even if that's fleeting, opportunistic or volatile.

0
0
Stop

"If someone breaks SHA-256 they'll have bigger prizes..."

But you don't often have to break the algorithm. Most good security hacks find flaws in the way people are using the algorithm and the data, not the algorithm itself.

Not saying the bitcoin protocol is flawed, I haven't done an analysis and I'm not (yet) qualified to, but just saying 'we use SHA256' or AES, or whatever it might be, turns out not to be very useful by itself.

2
0
Anonymous Coward

Bitcoin is an open standard - not an algorithm. You're free to implement it however you choose (this is why it is theoretically possible to move away from sha-256). The process is basically just repeating a hash process an arbitrary number of times, so there are few attack vectors, and the window for any attack is small - every 10 minutes a new block is born and the world has changed. It is surprisingly well thought out for something that was planned on the electronic equivalent of the back of a napkin.

1
0

Bitcoin itself has no single central point of failure: the weakness you're describing is in a central point of failure in the layer between Bitcoin and conventional currencies.

As a merchant, I could accept Bitcoin to a Bitcoin wallet without fear that it would be hacked.

However, you're correct that this would be a problem. A lot of people are looking toward the Ripple project to provide a decentralised method of exchanging conventional currencies into Bitcoins and back. However, that isn't finished yet, so for now, they will have to make do with centralised exchanges.

0
0
Stop

Jesus, talk about blind faith!

"Bitcoin itself has no single central point of failure: the weakness you're describing is in a central point of failure in the layer between Bitcoin and conventional currencies.

As a merchant, I could accept Bitcoin to a Bitcoin wallet without fear that it would be hacked."

So you're quite happy that the bitcoin protocol will never show a weakness in the face of gathering value?

Look at TLS - despite some of the best minds in the business being turned towards it, problems and leaks are still found, year after year. You're willing to bet your prosperity on the idea that the same will never happen on BTC, which has had nothing like the scrutiny?

0
0
Anonymous Coward

If you don't know who the sucker is...

...then it's probably you.

There are probably loads of other issues with Bitcoin but the biggest two I can see are :

1) The exchanges are not regulated

I can see a lot of potential for abuse here. Bitcoins aren't very liquid so dodgy exchanges are not necessarily going to get discovered quickly.

2) Deflation is built in.

My understanding of Bitcoin (apologies if wrong ) is that if you delete or somehow lose a wallet of Bitcoins then they are gone forever. The total number of Bitcoins is limited too so eventually there's going to be deflationary pressure. If you have a dept in Bitcoins then it will grow perhaps massively in real terms with the deflation over time.

3
0

Page:

This topic is closed for new posts.