Bitcoin on the rise

[bryan]

@fish, Bitcoin is the world's first programmable/digital money that doesn't have a fatal flaw (well... that's what we thought a few years ago.. some now think there are flaws e.g. fees or throughput) which means it can be universally used. We've wanted programmable money since computers were invented and especially since the internet came online. Impossible (unless some huge counter-party like EU/IMF/USA/APPL created such a thing). You can use BTC in your computer programs, to a much greater extent than solutions like banking APIs or Stripe/Paypal. You can also think of Bitcoin as a bearer instrument in that whoever has/knows the private key for a BTC can spend the BTC (or a few other things..).

Could ransomware be such a successful thing without the invention of Bitcoin? Online drugs? Barely scratching the surface of possibilities. Prediction markets are the holy grail in my mind.

https://www.youtube.com/watch?v=mD4L7xDNCmA for some nice use cases, also look up some Andreas Antonopoulos talks.

[Kriegsspiel]

I think I can be perhaps more succinct for Fish.
Yes, one of the theoretical use cases of BTC is protecting against hyperinflation, money printing (supply is effectively fixed) exchange rate manipulation etc. Theoretically, it can also be transferred without incurring substantial fees from trusted, centralised payments providers. Particularly for people in countries without highly developed payments infrastructure and with governments prone to appropriating wealth, the potential here for lower cost cross-border transactions is huge.

I think most of us can agree that BTC is not living up to these theoretical promises though (congested network, volatility, fees going through the roof, etc.).

That's not to say that other newer cryptocurrencies won't live up to these theoretical benefits more fully. Or even, I suppose, changes to BTC itself could allow it, but I don't know enough about the tech to say for sure.

I still don't see how BTC, or any other cryptocurrency, is an effective protection against money printing/a good store of value. I get that the supply of BTC is limited to 21 million, but it seems the blockchain concept is infinitely (as long as electricity is cheap) reproducible. A proliferation of different cryptocurrencies that dilutes the value of each seems inevitable.

[fiby41]

New Age Technology, Old Fashioned Fraud

All the sobering counter-arguments one could think of.

[Fish]

From what has been presented thus far I don't see a compelling use case for myself personally. I can see the appeal for cross-border remittances (thanks @Solvent), but that's a limited use case . I remember the mid to late-1990s internet and how trust was such a pain in those days. People were reluctant to give out CC numbers for fear of fraud, checks had to be held a week to clear payment, eBay sellers insisted on "verified" Paypal accounts, foreign transactions were near-impossible, etc. So maybe if that is my reference frame, then @bryan's argument of "digital money that works" seems very appealing. But in the last 20 years we've figured out how to live on the internet using the old systems, and it's kind of clunky but it gets the job done. The fiat and credit networks have adapted and the 20th century solution is stable.

Then I see @hank's vision and I would agree that it could work (i.e. the 21st century solution is also stable), but what I don't see is a transition plan for getting from point A to point B. As an end user, I'm just going to adopt the payment system used by the majority. I think a lot of humans are also in my same situation and it's a matter of getting them to flip. It's not going to happen in the present where the primary use cases are limited to speculation, illegal activities and cryptokitties.

I think commerce (both internet and physical) is the more likely driver. It depends if and when sellers start accepting, then demanding crypto as a preferred form of payment due to lower processing fees and protection from chargebacks. When I can save 1-2% on a large purchase then I will bite the bullet and finally buy my first digital coins. But until then, I think the status quo is simply too stable and crypto adoption will be slow. BTC and cryptocurrencies arrived 2 decades too late from that perspective (think of how quickly it would have been adopted had it been available 20 years ago when e-commerce was in a nascent stage!). I'm reminded of this:

1. First they ignore you.
2. Then they laugh at you.
3. They they fight you.
4. Then you win.

It seems we're currently at the "laughing" stage. At a rational level, I understand that a transformation is under way and that the rewards for being an early adopter can be immense. But I'm not a participant in this. At the same time, I know that given my attitude about technology adoption (I'm a laggard) it's dangerous to speculate, so I won't. This has helped me remain calm during the huge run-up in BTC, i.e. I'm not kicking myself for not getting in sooner and agonizing over "what if" scenarios with respect to FI/RE.

[BRUTE]

no, bitcoin has entered the beginnings of the fighting stage about a year ago. humans don't laugh any more, they ban and yell "Monopoly money!" and write serious articles about how it's a bad idea.

when bitcoin works well (which it currently doesn't), transactions are incredibly convenient - in brute's opinion, more so than credit cards, and certainly better at everything than wires. vs. credit cards, a nice fact is that bitcoin doesn't require giving anyone the credit card number, so there is much less of a trust problem. it can also be much cheaper than wire transfer fees, and easily crosses international borders.

[jacob]

Remind me again ... (or tell me if this is fundamental noob stuff and that I should know better and go study on my own):

I've seen comments that each bitcoin transaction requires enough energy to run a US household for seven days. How was this figure arrived at? Does it really require that much energy or is this a "ghettoed" number that was arrived at by dividing the electricity costs of mining with the actual number of transactions (which I suppose is low).

tl;dr - Suppose the cost of electricity 3x'ed or 10x'ed in the future. Now, we already have a bunch of mined coins that we paid for in computing power because they are really hard and increasingly hard mathematical problems. But what about those transaction costs? Could we end up in a situation where bitcoins (and blockchains in general) become stranded assets because they're too expensive (in energy) to transact. Asking in another way, can you [still] perform a transaction on a Commodore64 or an HP48SX? Or is the viability contingent on maintaining a high performance network of computing power?

[BRUTE]

brute doesn't know where the "seven days" number comes from, but it sounds oversimplified.

there are currently (AFABK) two mechanisms of securing blockchains: proof of work, and proof of stake.

proof of work is the original Bitcoin mechanism. it basically requires computers to solve increasingly complex mathematical puzzles by guessing hashes. this requires tons of computing power.

proof of stake is more like vote-by-land-owners, it simply requires cryptographic proof of asset (e.g. coin) ownership to vote for consensus. this method underlies some alt-coins, and some of the major ones (e.g. Ethereum, the current #2/3 alt-coin depending on day of the week) is planning to switch over from proof of work to proof of stake some time soon.

there are debates if stake is as secure, "no such thing as a free lunch", et cetera.

if computing costs rise, proof of work could indeed become too expensive to be worth it. but then again, that is true for all payment mechanisms. it costs money to ship gold - one of the major reasons very few humans use gold for international transactions. building giant skyscrapers, heating them, and hiring bankers also requires money. theoretically, the costs of maintaining/facilitating any currency could rival its benefits, making it useless.

[edit]

regardless of the current speculation/bubble/gold rush qualities that cryptocurrencies have, brute thinks that they will do to the banking industry what social media did to the news and email to the postal service. it might not be Bitcoin, just like it wasn't Friendster or Myspace that eventually won out. some players will likely adapt, or even take large shares of the new market. but brute thinks it will fundamentally alter how humans transact with each other, this time not just with likes and letters, but in commerce and all other things money.

[jacob]

How is proof of stake different from the existing financial system?

[BRUTE]

it still works on a blockchain. the value-add of a blockchain is that several parties can reach consensus and avoid double spending without having to resort to one central authority (FED, courts). in effect, the protocol becomes the authority, and whoever disobeys it will be ostracized. in a way it is a self-enforcing democracy, where Dear Leader jacob's money is only accepted if he also accepts the money of others, preventing him from printing more.

[jacob]

But given proof-of-stake the administrative costs become the same and the primary difference is whether I(*) trust a central authority or a distributed one?

(*) "the average person"

[BRUTE]

yes, the rest is more incremental improvement than qualitative difference.

Dear Leader jacob will not have to trust the receiver of the money (unlike with credit cards), fees can theoretically be much lower than anything in existence (currently not true for all crypto currencies), transaction time can be quasi-instant (some have seconds, some have minutes, some have days), and it works regardless of country/nationality/banking system, plus it potentially cuts out all the middle men (kind of like cash).

brute is actually quite convinced that proof-of-stake has much lower admin cost than existing currency systems, and isn't convinced that proof-of-work is actually more expensive. Bitcoin Cash and Ethereum transaction costs are in the fractions of the penny, and so was Bitcoin's a few years ago. since then, transaction costs for Bitcoin have increased due to internal politics, not for technical reasons.

if transactions cost fractions of pennies, are the miners eating all those electricity bills out of charity? brute isn't convinced.

[disparatum]

...they are really hard and increasingly hard mathematical problems....

I think that's the untrue part. The difficulty is adjusted every x number of transaction blocks so that on average it takes about 10 minutes to solve the problem and verify the block of transactions. The increasing energy use comes from competition to be the first to solve it since right now, presumably, the reward in bitcoins is greater than the cost in energy.

https://en.bitcoin.it/wiki/Proof_of_work

[jennypenny]

if transactions cost fractions of pennies, are the miners eating all those electricity bills out of charity? brute isn't convinced.

No, which is why miners are congregating in countries with low/no energy costs to consumers. Someone (econtalk?) did a podcast on the miners in Venezuela using the 'free' electricity.

[BRUTE]

...they are really hard and increasingly hard mathematical problems....

I think that's the untrue part. The difficulty is adjusted every x number of transaction blocks so that on average it takes about 10 minutes to solve the problem and verify the block of transactions. The increasing energy use comes from competition to be the first to solve it since right now, presumably, the reward in bitcoins is greater than the cost in energy.

it probably depends on perspective. the energy cost for mining 1 bitcoin or 1 block does increase, because more hashes have to be calculated at higher difficulty. but the higher difficulty is put in place because hashing became too fast, which in turn was caused by increased hash power in the network, which, amongst other things, is driven by competition and increased efficiency and invested capital.

so the energy cost to verify a block does go up, but not "exponentially over linear time", unless hash power is added forever. point being it's not an inherently self-exploding system, but a self-balancing system that responds to external inputs by putting a damper on.

[7Wannabe5]

If a mother known for her silliness wished to give her adult children a token gift of some particularly alternate version of alternate currency (one nobody has heard of,yet might just possibly survive/thrive) in lowest possible denomination, how might she best go about this?

[BRUTE]

that could be a bit of an effort, since (by definition), the rare alternate coins aren't necessarily being traded on the biggest exchanges. in addition, very few exchanges currently accept USD - brute thinks it's only Coinbase/GDAX. for the others, some crypto currency must be paid in (e.g. Ethereum/Bitcoin/Bitcoin Cash) and then used to trade to less well-known ones.

thus 7Wannabe5 could buy some Eth/Btc/Bch on Coinbase/GDAX with USD, then send it to another exchange (brute can't recommend a favorite, though he definitely recommends against bitfinex which is supposed to crumble any minute now), then buy the alt-alt-alt-coin there.

maybe easier to just give the kids some Ethereum, assuming they haven't heard of that? that could be bought directly off Coinbase/GDAX.

for clarification: Coinbase and GDAX are made by the same company. Coinbase allows customers to buy coins from them. GDAX is an exchange that facilitates trades between customers. Thus, typically, Coinbase is more expensive (commission) but more convenient, whereas GDAX allows trades with much lower commission, but requires customers to post market/limit orders and wait for order fulfillment.

[fiby41]

I had almost talked myself into buying into LTC when
Litecoin founder sold all of his LTC.

How is this cryptocraze any different than a MLM multilevel marketing scheme which has no product at its center. In instances where there is a product, it is marginally different (!= better) than alternatives but with a higher mark-up. Only way LTC is different from BTC is it takes 2.5 minutes for a block against BTC's 10 minutes and that there are 84 million of them.

In many cases, the structure or hierarchy is in and of itself the product that is being sold. In this regard the cryptocraze is comparable to the affiliate marketing/MLM softwares that people use to promote their softwares products/services/whatever.

In terms of utility, the LTC website says BTC is for big purchases while LTC is for smaller purchases.

But a lower denomination of the same currency can be and is generally used for smaller purchases.

[SnailMeister4000]

Genuine questions from someone who is probably the village idiot here (and still should introduce himself "properly") when it comes to such subjects: What would potentially be the impact of a globally existing currency, such as BTC et al., outside the regulation of national/regional bodies usually "issuing" (not sure if that is correct terminology) currencies, on national/regional economies? If there is potential for a severe negative impact, would that not probably lead to a prohibition/strong regulation of such alternative currencies at national/regional level?

[Fish]

@snail - You can check out popular books like James Rickards' "The Death of Money" for some ideas on how that scenario might play out. It's speculative crystal-ball stuff so try not to take it very seriously. Draw your own conclusions.

[Gilberto de Piento]

Long Island Iced Tea Corp. shares rose as much as 289 percent after the unprofitable Hicksville, New York-based company rebranded itself Long Blockchain Corp. It’s the latest in a near-daily phenomenon sweeping the stock market, where obscure microcap companies reorient to focus on some aspect of the mania sparked by bitcoin’s almost 1,500 percent rally this year.

https://www.bloomberg.com/news/articles ... blockchain