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Author Topic: Accidental Currency Destruction Issues and Bitcoin Banks and fatal flaws  (Read 1215 times)
matrix29
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June 10, 2011, 01:51:23 AM
 #1

Accidental currency destruction issues should be obvious

The physical presence of any Bitcoin is that the Bitcoin Currency is backed by is found in every active computer owned by the Bitcoin users. Therein, the liquidity of the currency is in relation the the available computational power and electrical power supplies. A massive power down would essentially destroy the Bitcoin currency in a region (leading to other problematic issues) by disabling the physical devices that the Bitcoins are stored upon, are accessed by, and are processed by. Also, simple physical destruction of a computer via a house fire would destroy all Bitcoins contained on the computer, thusly permanently removing them from circulation and existence. A power plant being destroyed in a community would instantly render every human in that zone Bitcoinless without battery backup until the overall community power is restored.

In fact, if you factor in hard drive failures (average every 2 years), accidental cellphone destruction (average every 2.6 years), and accidental computer destruction (tornadoes, house fires, floods, EMP events, etc average every 10-30 years), then the Bitcoin currency is bound to have some serious physical flaws with an inability to create replacement currency. Note also that this increases the probability of outright computer theft as stealing all of your computational power equals instant profit of all your stored Bitcoins.

Bitcoin "Banks" could offline store Bitcoin copies in multiple secure locations and once a Bitcoin is spent, deletes the redundant secure-location Bitcoin copy, but the logical problem is that Bitcoin "Banks" win in the end given this scenario. The reason is simple. Any offline Bitcoin copy retained past the average accidental destruction period of the hardware storing the currency automatically becomes a free Bitcoin replacement Bitcoin.

Let us say for example, I have 1000 Bitcoins on my home PC, I have copies stored in a trusted secure bank. My house is destroyed by fire and the Bitcoins are permanently lost. The Bitcoin Bank retains the hash codes for these Bitcoins and are free to "remint" them later as their own property if I cannot produce any contrary Bitcoins. However if both the Bitcoin Bank and my home PC are destroyed then the Bitcoins are gone forever. An obvious problem with Bitcoin Banks is that if you have your currency coped offline at a location, there is a Hurricane Katrina type power out, then all operating Bitcoin Banks not affected by the disaster can now instantly spend their offline Bitcoin backup copies (your Bitcoins) and without any computer claiming the contrary, the Bitcoins are now theirs.

Next obvious problem.  Bitcoin relies on the Internet.  Once WI-MAX Internet is common or the WiFi networks are so ubiquitous (with WiFi repeaters are found in washing machines, refrigerators, power poles, car engines, solar arrays, etc) so that one power hit does not cripple the Internet mesh, then we have security.  However, since the Internet is not ubiquitous and obsessively passively redundant to that point, merely cutting off or crap-flooding a local Internet to stop or bog down communications would result in the ability for Bitcoin copy holders to cash out some other people's Bitcoins at no legal danger to themselves.

Actual currency is also vulnerable to physical attacks, but not usually communication outages and can be reminted.
Actual currency is also vulnerable to bank thievery, but that money remains in existence.
If people do not use Bitcoin Banks, then when the Bitcoins are gone by accident or terrorism, then they are permanently gone forever.
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imperi
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June 10, 2011, 01:56:39 AM
 #2

This is more serious than gold falling off of Spanish Galleons! Oh dear.
beetlefeet
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June 10, 2011, 03:49:42 AM
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> I have copies stored in a trusted secure bank.
...
> Bitcoin Banks not affected by the disaster can now instantly spend their offline Bitcoin backup copies (your Bitcoins)

Maybe you shouldn't have trusted this bank?
Seriously; one of your concerns seems to be that if you entrust banks with your money, then they can steal your money. How is that any different to storing $USD in a bank at the moment?
liberty
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June 10, 2011, 06:06:09 AM
 #4

Also, simple physical destruction of a computer via a house fire would destroy all Bitcoins contained on the computer, thusly permanently removing them from circulation and existence.

You are clueless.

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