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Bitcoins! Cargo Cult Economy of the Future!
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Sam



Joined: 09 Jul 2006
Posts: 9458

PostPosted: Sat May 04, 2013 4:43 pm    Post subject: Bitcoins! Cargo Cult Economy of the Future! Reply with quote

THE SHORT LIST OF BITCOIN RULES

1. it is a fascinating sociological experiment
2. watch from afar, don't touch it or actually use bitcoin
3. scams scams scams scams scams and bruce wagner
4. see #2.
5. scams scams scams scams Pirateat40
6. see #2

THE LONG EXPLANATION OF THE FASCINATING WORLD OF BITCOIN

Heresiarch wrote:

Because I am between tech writing jobs and am apparently some kind of masochist:


A Bitcoin FAQ for GBS


-Short version-

1) Should I buy bitcoins?

No.

2) But if they drop down to a dollar, then I can snap some up and

No. You are one of thousands of people who want to do this. Telling the thread that you are going to do this doesn't make you look smart.

3) How does this shit work? It doesn't make any sense!

No, it really doesn't. It's impossible to explain bitcoin in anything less than tl;dr terms so you should probably just not worry about it. Go do something useful instead of reading this awful thread full of socially inept people laughing at another group of socially inept people.


-Long version-

1) I really want to understand how bitcoin works. Please.

Okay, you asked for it. With some severe simplifications and a painfully neutral pov:

Bitcoin is a decentralized "cryptocurrency". It is a network of software that shares a common protocol designed to allow secure transfer of bitcoins between users. It uses distributed cryptography to verify transfers and balances.

Bitcoin is also the subculture that has sprung up around this software, which includes additional software that is not part of the core design. The most high-profile of these are trading services that allow users to buy and sell bitcoins using US dollars and other real-world currencies.

Bitcoins users have files called "wallets". This is sort of a misnomer, because these wallets do not actually contain anything except a cryptographic private key. One's bitcoin balance is actually recorded inside the distributed network, which is why you cannot edit your wallet file to give yourself more bitcoins. Bitcoins can be added to a particular balance using a public bitcoin address, which acts as a cryptographic public key. The private key is contained in the wallet, and bitcoins cannot be transferred out of a balance without that private key.

(If you don't understand public-key cryptography, do some reading because you can't understand bitcoin without it. While you're at it, read up on cryptographic hash functions.)

Transfers between wallets are recorded in "blocks", which are verified by the distributed cryptography system. The act of verifying transactions and then adding those transactions to the historical "blockchain" is called "mining". Transactions are stored in the blockchain using cryptographic hashing methods which allow the entire blockchain to be independently verified for consistency and integrity. In order to make blockchain verification an attractive prospect, the design of bitcoin gives "bitcoin miners" two reasons to tie up their computing hardware to maintain the network, both based around competition.

The first reason is that bitcoin transfers can contain optional transaction fees which are paid to the miner that verifies the transaction. Paying a transaction fee makes it more likely that your transaction will be processed in a timely manner, because those transactions are more attractive to the miners.

The second reason is that mining gives the miner a chance of receiving a batch of newly created bitcoins. The more cryptographic power one brings to bear, the more likely it is that the next batch of new bitcoins will be yours. There are a fixed number of bitcoins which can ever be mined, and the difficulty of the cryptography will continue to increase over time.

An important aspect of mining is that the network is designed to handle one complete block (containing a specific number of transactions) every ten minutes. If more computing power is added to the distributed network, making the blocks take less time to process, the difficulty of the cryptography increases. The inverse is also true. This scaling difficulty is meant to help prevent a single user or group of users from gaining complete control over the network by using more computational power.

The distributed verification process determines the "truth" of a transaction block by whether or not the majority of the network (as measured by contributed cryptographic work) considers it valid. The original designer thought it unlikely that any one user or organization could acquire a majority of the network's cryptographic power and therefore "cheat" the system in some way.

Bitcoin verification power is typically measured in the speed at which a system can perform cryptographic hashes, which are required to verify the blockchain and to add transactions to it. The difficulty of the mining process is determined by the amount of "hashing" required to add a new block to the chain.

These are the core aspects of the original bitcoin design. In short, bitcoins are assigned to "wallet" addresses, with balances stored in a distributed "blockchain". The accuracy of the blockchain is verified by "miners", who have a vested interest in doing so through a reward system. Attacks (such as double-spending) are prevented by the distributed nature of the network, where any invalid transactions will be caught by other mining systems.

2) That was painful to read.

It was painful to write.

3) So what went wrong?

A lot of things, some of which are due to problems with the original design, and others which are due to problems with the bitcoin community.

Bitcoin was originally a proof-of-concept project by an anonymous crypto specialist who used the pseudonym "Satoshi Nakamoto". It is unlikely that he was actually Japanese, but his identity still remains a mystery. Bitcoin was meant to be a testing ground for theories about how cryptocurrencies might work. Initially, bitcoin was a curiosity and there was little participation in the network, as bitcoins had no real-world worth.

This all changed as bitcoin was discovered by three types of people. First, there were the internet libertarian types who liked the idea of a currency that was not controlled by a government. For them, bitcoin represented an ideology. Second, there were people who wanted to use bitcoin as a semi-anonymous international currency for illegal transactions, such as drugs, weapons, or illicit pornography, as well as a possible method for laundering money. For them, bitcoin represented safety from the law. Third, there were people who viewed bitcoin as a method to get rich by getting in on the ground floor of a new kind of money. These people saw bitcoin as an investment.

The history of bitcoin is too complicated to go into detail here, but these three groups shaped the bitcoin network and community into what it is today, which is a gigantic goddamn mess of idiocy, greed, and bad decisions.

4) What happened to the neutral pov?

I'm tired.

5) Well, then where is bitcoin right now?

Right now, the bitcoin community has been overwhelmed by the use of bitcoin as, essentially, a commodity to be bought and sold. Individual bitcoiners may talk about the future of bitcoin as a currency, but the vast majority of bitcoin transactions today are the buying and selling of bitcoins themselves using real-world money, and not the buying of goods or services using bitcoins. There is an extremely limited number of things you can spend bitcoins on without first converting them to dollars (or whatever), and many of those are done through third-party bitcoin-to-dollars systems where the merchant never sees any bitcoins.

Bitcoins are purchased and sold much like other commodities such as gold, petroleum, and the like. Exchange services are set up, where people who wish to buy the commodity put forth "buy orders", where they offer to buy a certain amount of the commodity at a given price, and these buy orders are matched with "sell orders" put in by people who wish to sell that commodity.

There are several bitcoin exchanges that let one buy and sell bitcoins using dollars and other currencies, but the most important one is "mtgox". Amusingly, Mtgox started life as "Magic: The Gathering Online eXchange", an exchange service for virtual Magic: The Gathering cards.

When someone says "bitcoin is at $50" or something similar, usually they mean that the most recent buy order on mtgox was for $50 a bitcoin.

The market prices for bitcoin have historically tended to rapidly inflate and then crash spectacularly. Bitcoin's market value has dropped by 50% in less than a day on multiple occasions.

Regardless, true believers in bitcoin (typically the libertarians or the investors, who are sometimes one and the same) keep throwing more money at the speculative market, in the hopes that one day their currency will be treated with respect by the world, or at least they'll eventually make up for their losses. Neither scenario is likely.

6) Why is this funny?

Because we're children who like laughing at dumb people, and bitcoin people are a truly spectacular level of stupid.

7) So could bitcoin ever be a real currency?

No, for one simple reason. Bitcoin does not scale. The network is already creaking under the weight of relatively few transactions, and more importantly, the blockchain size is increasing rapidly. The blockchain file is currently several gigabytes in size, and the entire chain must be downloaded in order to mine or verify your own transactions. You can use a third-party service to store and transfer your bitcoins, but these services have historically tended to get hacked or just suddenly vanish, taking all your internet funny-money with it.

If bitcoin actually became popular as a currency and not just as a speculative commodity, the network would rapidly become even more unusably slow than it already is, and the blockchain would swell to an absurd and unmanageable size.

8) Some people seem legitimately angry about bitcoin.

Bitcoin would appear to be a mostly harmless way for idiots to throw money at each other, except for the fact that bitcoin mining has (not surprisingly) become an arms race to see who can get the most hashing power online.

The original design of bitcoin did not account for the possibility of specialized, expensive hardware which could make mining without that hardware almost useless. Certain kinds of ATI Radeon video cards proved so effective at performing bitcoin hashing that mining solely on a general-purpose PC CPU gives negligible results, due to the vastly increased hashing difficulty. Miners purchased huge amounts of these video cards to create custom (and often hilarous) "mining rigs", essentially converting electricity into heat and bitcoins.

The stakes have been raised again with the advent of specialized bitcoin-only ASIC hardware which is even more effective than the video cards were. The future of bitcoin mining appears to be in the hands of a small minority of users who can afford this specialized equipment, making the "distributed" nature of bitcoin something of a joke.

The bitcoin network now must use vast amounts of power, far out of proportion to its actual usefulness and typically generated by fossil fuel plants, just to maintain itself. It is a tremendous waste of actual real-world resources that could be better used on something important (like, for example, watching cat videos) and this makes some people actually angry at the situation.

9) Wait, what about this "BFL" thing, and who's "Atlas"? What the hell are you people talking about?

Look at all these fucking words I've already written. God, what a waste of effort.


Leperflesh wrote:

The issue is similar to that faced by daytraders who make dozens of trades on small fluctuations in price of some security per day; predicting floors and ceilings. There are all sorts of "technical analysis" techniques for doing this, most of which work just often enough for millions of people to rely on them, but break just often enough that millions of other people are quite sure they're useless (I'm one of the latter).

The thing is, though, real securities (stocks, bonds, etc.), and real commodities (soybeans, gold), and real currencies (euros, yen) all move in response to actual real-world events which affect the underlying thing (companies, crops, supply of metals, the financial condition of a government). So you can watch the news and make trades based on headlines, and you can watch other traders who watch the news and make trades based on what other traders do, and you can watch the overall market and make trades on individual securities which have prices that tend to respond to the overall market, and so forth.

But bitcoins are different because there is no underlying thing. The number of new bitcoins per hour is relatively fixed, so there's no surprises there for the market to respond to. That means the main events that bitcoin prices can respond to are things like "mount gox broken into again: ten bazillion bitcoins may be stolen", "silk road being investigated by Interpol", and "a famous blogger mentioned Bitcoins in his article in a way possibly interpretable as positive". These news items do move the price, of course, but since there's no real thing behind bitcoins, there's no natural floor in price set by that real thing. Soybean futures may rise or crash, but the chances we'll suddenly stop producing soybeans altogether - or produce so many soybeans that they're now totally free - are pretty much zero. Whereas the chances that at some point absolutely nobody on Earth will still use a bitcoin for anything are somewhat greater than zero. And the natural ceiling on bitcoin prices is essentially equivalent to the greatest potential of fools and money to be parted.

So I think it'd be fair to say it's harder to predict ceilings and floors with bitcoin, and thus, more difficult to make money daytrading bitcoin in the long term.

But forget about all of that. Really, forget it, it's all irrelevant. All you need to know is that there does not exist a single way to trade bitcoins that is regulated. Every option for buying and selling bitcoins relies on unregulated intermediaries who, demonstratably, have a terrible record of reliability. You could be 100% certain that the price of bitcoin is about to go up for the next 30 minutes, buy into a position, and then see all your bitcoins locked up inside a shitty website for three hours while it's "down due to another DDOS" or whatever excuse. You could sell all your bitcoins at a huge profit, and then never get your money because the bullshit website run by amateurs that you have your money in finds its Polish bank account seized by authorities. There are several exchanges for bitcoins and they each have listed exchange rates that are utterly out of sync with each other. The fact that arbitrageurs do not very, very quickly resolve those differences demonstrates that they are fucked up; it means the costs, in terms of transactional fees but even more especially in terms of time, are so huge and problematic that people are not able to efficiently exploit a ten dollar difference in BTC price across two exchanges which persists for hours or even days.

Real securities, real commodities, real currencies are traded on incredibly reliable, government-regulated exchanges run by professionals with actual knowledge and experience, whose organizations are able to handle billions of dollars per day of other people's money entirely due to having established impeccable reputations for reliability and safety. Huge corporations and the world's richest individuals trust their wealth to these agencies because these agencies have proved themselves to be trustworthy again and again.

If you want to dabble in technical trading or whatever, do it someplace where your money isn't quite so likely to disappear into a black hole overnight due to gross incompetence or illegal activity or both, on the part of the unaccountable and often anonymous people running the exchange.


Whee!


Last edited by Sam on Mon May 13, 2013 2:30 pm; edited 2 times in total
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ShadowCell



Joined: 03 Aug 2008
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PostPosted: Sat May 04, 2013 5:10 pm    Post subject: Reply with quote

wait wait wait

the blockchain for each bitcoin contains a record of every transaction that bitcoin was involved in?

how does that make this attractive to people trying to buy illegal stuff?
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WheelsOfConfusion



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PostPosted: Sat May 04, 2013 5:47 pm    Post subject: Reply with quote

Because you can set up a ton of anonymous wallets or use online wallets as if they were shell companies, or proxy servers. Nobody has to know who's behind a particular wallet, and with enough wallets in the chain it can be like trying to peel back the layers of Tor.
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fritterdonut



Joined: 24 Jul 2012
Posts: 1149
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PostPosted: Sat May 04, 2013 6:46 pm    Post subject: Reply with quote

Arc Tempest wrote:
Another day, another bitcoin scandal.


And another: http://gawker.com/massive-bitcoin-business-partnership-devolves-into-75-487857656

And another: http://www.theverge.com/2013/4/17/4236876/bitcoin-exchange-bitfloor-shuts-doors

And another for good measure: http://motherboard.vice.com/blog/a-working-bitcoin-atm-is-in-san-diego-but-its-most-vocal-backer-is-gone

I've pulled all my money out of the exchanges and got it wired back to me. My interest in bitcoin isn't completely doused, but the infrastructure surrounding it has left me with zero confidence that anyone involved actually knows what the fuck accountability is.

It blows my mind that people can run exchanges as a legitimate licensed business, then somehow not understand that they have to conform to anti-money laundering laws, then say it's not their fault when their bank accounts get closed.

This is essentially my attitude on the matter:


Monkey Mcdermott wrote:
I'd be shocked if it wasn't blatantly obvious that the whole thing is set up basically like a ponzi scheme designed for a handful of "in the know" folks to prey on stupid libertarians.


It really doesn't help that a single highly-invested individual selling out can cause the market to crash, then buy back in an hour later for cheaper and pull the market back up again.

WheelsOfConfusion wrote:
It's already gotten to the point where enthusiastic amateurs can't even "mine" bitcoins profitably, even with GPUs. ASICs are pretty much the only way you can own the hardware that does the work and still do better than break-even.


^This. And ASICs are extremely expensive and a good way to get scammed out of your money.

------------
Crossposted because relevant to topic.

Although to be fair, I did make a 220% return on my investment.
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Felgraf



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PostPosted: Sat May 04, 2013 6:50 pm    Post subject: Reply with quote

From my understanding, Bitcoins were sort of an interesting idea crafted by someone as a PhD thesis/research. A sort of proof-of-concept.

Some folks took it and ran with it, to the point that the researcher has backed off/disavowed it? In a "THIS WAS NEVER INTENDED TO BE AN ACTUAL CURRENCY" sort of thing.
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fritterdonut



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PostPosted: Sat May 04, 2013 6:55 pm    Post subject: Reply with quote

Felgraf wrote:
From my understanding, Bitcoins were sort of an interesting idea crafted by someone as a PhD thesis/research. A sort of proof-of-concept.

Some folks took it and ran with it, to the point that the researcher has backed off/disavowed it? In a "THIS WAS NEVER INTENDED TO BE AN ACTUAL CURRENCY" sort of thing.


The guy(s) who developed the original concept, who goes by "Satoshi Nakamoto", is anonymous. No one knows who he was, although there are guesses; despite the Japanese name he used British grammar and spelling, IIRC. He left I think 2 or 3 years into it, and hasn't been seen since. Not sure if they know why he left.
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Monkey Mcdermott



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PostPosted: Sun May 05, 2013 12:23 am    Post subject: Reply with quote

The best part of this was listening to people who screech like shitflinging rhesus monkeys about the gold standard tortuously convince themselves that bitcoin, backed by basically nothing was so much better than cash backed by a sovereign nation.
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stripeypants



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PostPosted: Sun May 05, 2013 4:04 am    Post subject: Reply with quote

Bitcoin makes less sense the more I hear about it....
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fritterdonut



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PostPosted: Sun May 05, 2013 4:23 am    Post subject: Reply with quote

stripeypants wrote:
Bitcoin makes less sense the more I hear about it....


Easiest way is to think of it is as a very volatile, small market cap (~1 Billion USD) commodity. Essentially a useless form of a rare precious metal. Any value assigned to it is assigned to it arbitrarily by the userbase, not due to any kind of industrial demand.

Bitcoin is essentially the same as distributing pieces of paper that say "1 SinCoin", and saying that they are worth $10 USD each. Nothing is there to actually make them worth $10 USD each, except the time or effort it took to print them, and no industry needs them to produce a product - they only maintain that $10 USD parity if users continue to accept them at such a value.

In short: They are no better than the fiat currency they wish to replace, when it comes to actual, physical value; As Monkey said.

On that note, I suggest avoiding the bitcoin forums unless you have a bulk discount on brain bleach.
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Dogen



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PostPosted: Sun May 05, 2013 4:40 am    Post subject: Reply with quote

fritterdonut wrote:
In short: They are no better than the fiat currency they wish to replace, when it comes to actual, physical value; As Monkey said.

By "no better" do you mean "considerably, undeniably, impractically, damn near unconscionably worse?"
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fritterdonut



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PostPosted: Sun May 05, 2013 4:46 am    Post subject: Reply with quote

Dogen wrote:
fritterdonut wrote:
In short: They are no better than the fiat currency they wish to replace, when it comes to actual, physical value; As Monkey said.

By "no better" do you mean "considerably, undeniably, impractically, damn near unconscionably worse?"


Pretty much.
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Dennis J. Squidbunny



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PostPosted: Sun May 05, 2013 12:50 pm    Post subject: Reply with quote

oh man I should have read this thread before I dropped $2500 on a facebook advertised 2/5gb bitcoin miner.
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Thy Brilliance



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PostPosted: Mon May 06, 2013 8:41 am    Post subject: Reply with quote

http://money.cnn.com/2013/03/28/investing/bitcoin-cyprus/index.html

hi hi.

The bitcoin exchange isn't going anywhere btw.
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Michael



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PostPosted: Mon May 06, 2013 9:57 am    Post subject: Reply with quote

I wonder how much it's used for money laundering / tax evasion ("I don't say evasion, I say avoision")
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Michael



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PostPosted: Mon May 06, 2013 9:58 am    Post subject: Reply with quote

stripeypants wrote:
Bitcoin makes less sense the more I hear about it....


Perhaps you've discovered a new physical principle (The Law of Pants)
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