I have spent the last three days doing block chain investigation to see where bitcoins have been going.

I can't assign identities to these entities, and this is somewhat hazy and open to interpretation as it depends on the disposition of the Silk road seized coins and some other auctioned coins that have not reappeared on the market.  Also the entities involved appear to be engaged in "buy, hold, and don't consolidate" - deliberately trying to avoid linking their purchased coins.  I'm only about 70% sure that the coins are held by this small set of entities, mainly on the grounds of the purchases being made in a consistent way - similar amounts at repeating times of week in the same marketplaces.  One tipoff was that in months that had large 'closed' auctions these patterns were disrupted; several of the pattern buys disappeared altogether, while others (judging by market and purchase timing) bought more apparently to avoid causing sudden changes in the level of market support.

If I'm right there are at least seven "whales" -- which apparently did not exist one year ago -- that probably have each now got about a half million Bitcoin.   They have been buying steadily for the last seven or so months, except that they bought a larger total in the months with the closed auctions (assuming it was them who got the closed auctions). They are continuing to buy very steady amounts in $US dollar terms, as the price starts to rally and the amounts of their purchases in Bitcoin start getting lower.

Holy crap that's an awe-inspiring amount of money.   But the "noise" of individual and chaotic transactions has been declining relative to these very regular clockwork transactions, and the market has changed character so that it is now increasingly *about* these semi-regular transactions - which appear in the market as flocks of buy orders spread over the course of hours or a day.  And when the noise of chaotic transactions did spike with the "bearwhale" incident last month, the patterns were disrupted as these new whales apparently sunk about 2.5 million extra into the market over the following three days.

Someone has been stuffing price stability down our throats whether we want it or not.

I could be wrong about this; I might be seeing something that doesn't mean what I think it means.  And I don't know who's doing it.  If this were two years ago, or even one, I'd say someone is getting ready to do a massive pump.  But whoever this is, they're playing a very large, long-term game - too large to NOT be in the direct eye of regulators - and I don't know whether they intend to cause a massive price spike followed by a dump and risk of jail time for market manipulation, or support a slow steady gain followed by a very carefully structured sell-out that will allow them the two or three years they'd need  to reach minimum safe distance (from prosecution) before the market is unsupported. 

Specifically?

I'd say that the American libertarians, as a movement, have mostly been "captured" by monied interests who are cynically using the libertarians to promulgate policies beneficial to those monied interests - with no regard whatever for whether the policies are also beneficial to the libertarians being used. 

The American libertarians, as the mouthpieces of corrupt monied interests,  mostly wind up speaking out in favor of the right of employers to pay as close to nothing as the labor market will bear, to provide nothing in the way of benefits, etc...  to make a 'race to the bottom' in terms of compensation for labor.  Most of them aren't employers, and would not benefit at all from such policies; in fact most of them would do substantially worse under those policies.  On the liberties that they would actually benefit from - free speech, freedom from surveillence, freedom from unreasonable search and seizure, freedom of religion, right to fair and speedy trials, and so on....  they are silent because agitation in favor of *those* liberties would not serve those who have captured their movement.

The movement in Hong Kong is much younger, and this kind of "capture" hasn't yet had time to take place.  Further, with the Beijing government much less responsive to speech in general and the Chinese labor market already deeply buried in that same kind of 'race to the bottom' for compensation, it's not clear that that kind of capture would be as beneficial for the corrupt money in China as it has been for the corrupt money in the USA.

Hmm.  Apparently you are right.  According to the article at

https://www.cryptocoinsnews.com/malleability-bankrupt-mt-gox/

Blockchain exploration reveals that the losses due to transaction malleability prior to Gox freezing withdrawals cannot have been more than one percent of the amount missing.

Of course this doesn't invalidate the point; it just shifts the bulk of the horrifying cost from the risk of crackers exploiting a technical flaw to the risk of malfeasance by a money transmitter.   The point remains that we need a trustless business model for money transmitters, regardless of whether their incompetence is more technical or ethical.

The actual point of regulation is to try to minimize the expense of dealing with them.  Unregulated businesses in a situation where they are trusted (ie, where they can screw their customers over) are very expensive.  In fact, experience shows, more expensive than tightly regulated ones.

We would like to not labor under the cost of regulation.  But avoiding regulation doesn't work to keep costs down either, unless we can come up with trust-free (ie, where they CAN'T screw their customers over) models for these services.

This is about adoption; if Bitcoin remains more expensive (ie, if the cost savings of a trust-free business model remains something we can't actually deliver to end users and businesses) then there isn't an economic motive for mainstream businesses to adopt Bitcoin. 

At the risk of intruding on all the price speculation and we're-gonna-be-rich/poor stuff on here, I want to focus on something more fundamental for a minute.

There are essentially two threats that make transferring value online risky (and risk is expressed in expense).  The first is exploitation of a technical flaw by a cracker to redirect or obstruct the transfer.  The second is malfeasance by a money transmitter (which is why money transmitters have to get licensed and monitored, etc).  This is a trillion-dollar problem, in terms of it costing the world trillions of dollars per year to deal with this risk.

Blockchain-based cryptocurrency (at the moment, Bitcoin) is so far the only method of transferring value online to offer cryptographic protection from both of these threats.  So, at least potentially, the world has much to gain by doing business in Bitcoin. 

That said?  We take our business off the blockchain often enough for both threats to be relevant to Bitcoin transactions regardless of cryptographic protections.  We see prime examples of both risks in the collapse of Mt.Gox. 

Gox had a fatally flawed method of handling transaction malleability, and someone (or someseveral) exploited the technical flaw to steal a half-billion dollars worth of coin from Gox over a period of nearly a full year.  In fact we don't even know whether that technical flaw was a genuine mistake or deliberately inserted by people at Gox in order to facilitate the theft.  Which brings us to the second risk - malfeasance by a money transmitter.   Whether or not people at Gox planned the theft, they continued operating as a "fractional reserve" system long after they became aware of it - AND FAILED TO FIX IT, exposing themselves and their clients to continued theft!!  To cover the past and ongoing theft, they deliberately manipulated the market using "Willy Bot," sending the prices on an unsupported stratospheric ride as a desperate attempt to hold off the collapse.  This manipulation sucked more and more money into the black hole which was Gox for nearly eight months, multiplying both the duration/expense of theft and the collateral damage done in the collapse by at least factors of six.

Thus, even though the blockchain protocol is designed specifically to protect both against exploitation of technical flaws by crackers and against malfeasance by money transmitters, we have horrifically expensive examples of both wrapped up in a single incident.  Why did this happen?  It happened because we trusted Gox with our blockchain-secured money even when they were not using the blockchain protocol.  Essentially people gave up sole control of the cryptographic keys that controlled their coins, leaving them to Gox and trusting Gox as holder of keys to tell them whether or not the blockchain was intact with respect to their coins.  And Gox lied.

Malfeasance by money transmitters (such as Gox) has been demonstrated as a genuine risk for Bitcoin because Bitcoiners  allowed Gox to do something we didn't have to allow them to do.  Because we gave up control of our coins to another party, and trusted that party to be honest.  We made ourselves vulnerable to the primary risks that the Bitcoin protocol was designed to protect us from.  The expense of Gox's collapse put Bitcoin firmly into the same expense category as credit card transactions, wiping out the financial advantage of using Bitcoin.  Now as Bitcoin becomes more accepted, we're getting more money transmitters.  Bitpay, etc, are, like Gox, in the business of holding the keys to other people's money.  They are money transmitters whose potential for technical failure and malfeasance continues to put Bitcoin business in the same risk category as credit cards - and, inevitably, therefore in the same expense category as credit cards. 

This model (with money transmitters, online wallets, etc) does not realize the potential savings to the world of using Bitcoin.  Because merchants are still exposed to the risks of technical failure and of malfeasance, they are not saving risk (and therefore not saving expense).  The issue is not about whether Bitpay etc are immediately selling coins - the issue is about people trusting someone who is not themselves to hold their keys and therefore being vulnerable to the risk of that party's failure to hold the keys securely.

So, short version of the story; had you asked me a year ago, I would have said that the emergence of money transmitters in Bitcoin was an aberration because the protocol was built specifically so that people could do all of that for themselves.  I'd have said that Bitcoin would take off when people got over their reliance on third parties and therefore started realizing the potential for financial advantage.   But when I look at it today and I see money transmitters becoming entrenched in the Bitcoin economy, it's becoming more and more clear that if we don't get away from that, then we have nothing to offer merchants better than what the credit card companies are offering them.

It's one thing for me to explain to a CFO that they don't need the money transmitter or the exchange and that they can manage their own wallet and be fully protected from that third-party risk; but in the first place they don't usually believe me. Worse, there is a legit worry about first-party risk (ie, that a company insider with access to the wallet could steal the company's Bitcoin, as may or may not have happened at Gox).  Relying on money transmitters (third party risk that's bonded and insured) is their standard method for mitigating first-party risk (an inside job for which they'd eat the loss directly).

So, if we think Bitcoin is advantageous to the world -- if we want there to be a financial advantage to the world from using it -- we have to find ways to actually deliver the savings that the protocol was designed to deliver.  We have to enable the users to cut out money transmitters and third parties.

Ye gods, that bitch who had the hots for sociopaths and mass murderers?  If anybody took her seriously they need their heads examined.

Heh.  If you're playing an "all in" bet, you're giving up any possibility of playing another hand if you lose. 

"All in" means, in poker, that you're losing.  An "all in bet" is something that somebody who is playing a smarter game never ever has to do, and every time players are driven to do it, they are one hand of cards away - literally the luck of a single draw - from losing everything they've got.  

In the long run skill dominates luck.  Anybody can win or lose a single hand, but the skilful players win just a bit more often, or when they've bet just a bit more, or lose when they've bet just a bit less, consistently.  If skill isn't on your side, sooner or later you wind up making all-in bets and hoping to get lucky on just one hand.  It can work once or even twice, but  if skill *still* isn't on your side, you get stuck in that situation again and again and again.... until luck isn't on your side either.  And then your game is over.

I've been watching the Hong Kong protests, and those people are committed to libertarian ideals in a way that is profoundly needed and even heroic.  It's very moving, and also WEIRD, to hear a thousand voices singing "Do You Hear The People Sing" from Les Miserables, in Cantonese!  The personal risks and self-sacrifice they are undertaking for the sake of their libertarianism are just stunning.  In a lot of cases you can see the fear on their faces or hear it in their voices, but they are there anyway, even knowing that it means they'll get hunted down like dogs later, or at least blacklisted from every possible profession, if they fail to get international support. And maybe even if they do, since the Chinese government is kind of like that.

And then I look at the irrelevant, stupid greedy crap that American libertarians are worried about, and how most of it seems driven (or at least co-opted) specifically by corporate wealth and greed and complete disregard for the society and people around them. The contrast is like night and day. 

This is kind of like the difference between labor unions in the 1890's "rail barons" era where the US was run by a tiny oligarchy of monopolists that viciously oppressed the laborers, and the people were driven to form unions out of desperation, and then in the 1970s in the US when labor unions had *BECOME* the inescapable monopolies and you couldn't even get a job without paying extortionate "union dues" that did nothing for you, and they had become the instrument of oppression by which the Mafia was sucking American business dry.   

You take the same rhetoric, some sort of version of the same ideals at work on the individual level, and completely different context and driving forces, and it makes it heroic in one instance and just venial in another.  And the venial corrupted versions always try to assert the moral authority earned by the heroic people who were driven to it by desperation and did it even though they faced harsh personal consequences for standing up for their beliefs when nobody else had the courage.

Nothing is the right thing all the time, in every context.  You've got to look around yourself and see the whole picture and decide what's right and wrong right where and when you are.

Of course.  But parents who feed their children have legally sanctioned power (at least in most societies) to force their children's cooperation.  The children are not permitted to undertake adult responsibilities.  Decisions are made for their welfare by other people. 

When all human beings are treated the way we now treat children, there will be no further obstacle to feeding, clothing, and housing them all.  Whatever agency is capable f treating them as children is capable of forcing them to cooperate.  And like a good parent, we presume that agency will feed, clothe, and house humans because it chooses to.  We could be wrong about this, but that's the optimistic view at least.

Oh, well, that's much easier.  All that would require is for there to be some agency capable of forcing all human beings and nations to cooperate whether they want to or not. 

We'll probably have that problem solved within another 70 years at the outside.  Could be within 30 if we're "lucky."

I am willing to entertain the possibility that at some point technological progress may in fact stop.  Eventually there are laws of physics that constrain what can exist and what can be made out of the 90-odd stable atoms.  Once you climb to the end of THAT curve, and gain control of all the matter and energy you want, it's hard to understand what else may be done.

But, at that point we're also talking about immortal post-human entities having no recognizable resemblance to ourselves, living in Dyson spheres made of computronium and using computers the mass of Jupiter.  We're talking about beings who can send their encoded consciousnesses riding laser beams around the galaxy and have new bodies built at the destination, or exist simultaneously in many different bodies, light-years apart, and reintegrate their consciousness into a single coherent (though not necessarily to us today) experiential reality at some later time in some other place, or custom design and fabricate (and at will, become) new biological lifeforms.

What "post-scarcity" looks like is difficult for us to imagine or understand.  We are still a "species" instead of having whatever biology (or lack thereof) we decide we want.  We have DNA, instincts, desires, and abilities which are still influenced by biological evolution, and by the time we hit post-scarcity (if in fact post-scarcity is a thing that can happen) that will no longer be the case. 

In the industry, they are known as "vulture capitalists" - a bitter joke on their propensity to liquidate the assets of a startup if its odds of dominating its market drop lower than they like, and also on their propensity to run the companies sort of like crash-test dummies; you either dominate the market, or you get liquidated.  There is no room in their universe for a company that remains viable and makes fairly reliable small profits. 

The risk profile is very different for the vulture capitalists, who have maybe one percent of their assets invested in a company, and the company founders/employees, who are typically "all in."  The vulture capitalist is going for the market-domination windfall, but the people on the ground would really be much better served by remaining viable and making fairly reliable profits.  So there is a certain disconnect between the business decisions that each would prefer to be made.

Okay, I've finally seen a proposal for side chains that I can at least consider serious. 

The side chain creates coins ex nihilo based on a transaction in the Bitcoin blockchain which locks up BTC in a txout that will not be released without a "proof of legitimacy" from a pegged side chain.  The Bitcoin scripting language is modified to accept a "proof of legitimacy" from a pegged side chain, responding to it by "unlocking" one or more of the "locked" txouts in the bitcoin blockchain, creating two new txouts: one controlled by the entity/key specified in the "proof of legitimacy" and a "change" txout which then becomes part of the "locked" set. 

The crucial missing element is the addition to Bitcoin's scripting language.  Without it, pegged side chains simply will not work.  This is the crucial bit that means secrets (keys) associated with individual main-chain txouts do not need to be transmitted through the side chain somehow.  And this is why a pegged side chain will not work at all with the current Bitcoin infrastructure.

The side chain destroys its BTC when a "transfer" transaction is recorded in its blockchain - the "transfer" transaction producing a proof of legitimacy (with a key) that can be used in an "unlock" transaction in the Bitcoin blockchain.   

The possibility of reorgs, both in the side chain and in the main bitcoin chain, undoing just one side of the transfer-out and transfer-in transactions, creates a lot of security issues and results in transfers (in either direction) taking a long time - essentially twice the time required for a coinbase payment to become spendable, in the best case.  In the worst case, this has to be seen as a whole new attack surface and seriously examined - several weeks to several months of full time analysis by a pro would be required. 

The side chains are assumed to be merge-mined with the main chain, which seems only sensible. 

But it seems that the side chains would have to operate without a mining subsidy (ie, miners live on transaction fees alone) in order for the current bitcoin-supply structure to be maintained. 

So the question becomes, is it worth it for miners to merge-mine one or more side chains just for the tx fees generated by the side chain?  On the one hand, it requires no more hashing infrastructure than they've got now, and the configuration could be truly automatic if it were built into the default client which they base their code on.   On the other, the bandwidth and storage required would be proportional to the number of transactions performed and the number of blocks from the side chain's "genesis block". 

One possibility for compensating miners would be to let them have any coins whose keys get lost by people in the side chain.  The obvious way to do this is to have the side chains be finite in duration -- a few months to a year or two -- and have all coins not transferred out of the chain by its final day distributed among the miners in proportion to the number of side chain blocks they got for the full duration of the side chain.  As additional benefits, when a side chain comes to an end, the storage required (and bandwidth required for setting up a full node) is "pruned" from the history of all Bitcoin transactions, and Bitcoin itself would become less deflationary as coins are less likely to be permanently lost. 

Anyway, this seems possible, but it would need to function for a long-ish time on testnets and in altcoins before it became reasonable to do with Bitcoin itself. 

Do any of the proponents of side chains have a working testnet implementation?

He's right in a way.

Bitcoin, technically speaking, IS a fiat currency.  That is, there is no tangible good for which it can be exchanged at a guaranteed rate. 

The real difference is that Bitcoin has value by user fiat and Dollars have value by government fiat.

Fukushima? 

Sure, that's no sillier than any other theology.  Satoshi is dead. 

Sorry, I know that for the last few posts I've been talking about side chains rather than the proposal.  

This is relevant because I'm trying to demonstrate that unless someone makes a fairly profound cryptographic invention, side chains simply are not a trustless solution.  And in the long term nobody can be a point of trust without offering a point of failure and point of control to all the scammers, cons, extortionists, terrorists, dictators, governments, etc in the world.

We need this fork.  We don't have a viable alternative that can retain Bitcoin's permissionless nature.  

This only works if you are eventually cashing out the same number of tokens you cashed in for.   The minute someone actually pays someone on the side chain, and doesn't eventually get back an equal number of sidechain coins, the people they paid on the side chain have no way to get their money back to the main chain without the payer's continued cooperation.

Suppose Alice uses a Bitcoin to get 1000 mBTC tokens.  She ripens them and pays Bob 750 of them on the sidechain, then cashes out her 250 remaining mBTC tokens back onto the main blockchain, sells all her BTC  at an exchange, and takes her client offline permanently.  How does Bob ever cash his 750 tokens out without her cooperation?  Alice hasn't even stolen anything here, but she's still just being a heartless bitch. Maybe Bob is her ex-husband or something.

So essentially you still have the "Trent" problem, except that now "Trent" is whoever happened to make the original BTC-locking transaction.  Nobody can cash out their coins unless Trent is cooperating, and Trent won't cooperate when under duress or extortion.  Nor will Trent cooperate if Trent is Alice and just doesn't give a crap whether Bob lives or dies.

I've thought of that, but it doesn't work unless the sidechain coins come in non-divisible (and more to the point, non-unitable) denominations.   Otherwise the 2nd sig becomes "problematic" when facing a sidechain coin that represents a microscopic interest in each of thousands of BTC-locking transactions on the main chain -- which happens, on average, after about ten spends if the sidechain coins can be split and recombined like Bitcoin.

And you have to have Trent holding the 2nd sig of the multisignature.  The minute someone serves Trent with a photo of his wife and kids with guns to their heads, nobody can redeem their coins off the sidechain without the extortionist's approval.

I still want to know, technically, how a side chain could work, including the ability to trustlessly, without an intermediary or a human-operated point of failure or control, move coins back and forth from the side chain, through some unbounded number of side chain transactions, and back to the main chain.

Side chains last I looked, if we want to do them in a trustless network, require several important bits:

First, coin can be created "ex nihilo" on the side chain by a transaction that locks up BTC on the main blockchain.  This much, at least, is easy.

Second, the side chain can handle transactions of side chain coins going back and forth between users of that side chain.  This is also easy.  

Third, the secret/s necessary to unlock that BTC gets transmitted through the side chain to the recipients of the side chain coins.   And simultaneously the secrets held by the former owner of the side chain coins become unusable for releasing the BTC on the main chain when the side chain coin is transmitted. I don't know a good way to do this other than constructing parallels of every side chain transaction on the main chain, which makes having a side chain rather pointless.

Fourth, when someone on the side chain redeems his side chain txouts onto the main block chain, he has to be able to repatriate -- probably taking only parts of the BTC  locked up by the locking transactions, which means 'spending' that locked BTC and creating a new main-blockchain txout to hold "change".  But this has to be done in such a way that the other side chain coin holders whose coins represent  claims on that locked BTC can still redeem their coins from that same lock, for remaining coin now in the "change" txout.  

I have not seen a good solution to the above problems.  

All 'side chain' schemes I have seen involve trusting someone to exchange BTC and side-chain coins, and having the secrets to release the BTC on the main chain.  I don't think a person we can trust to be that exchanger exists.