8 Bitcoin Weaknesses that Affect the Economy

[rbc2012]

1) It is NOT anonymous at all. In fact it's a government's dream come true. *All transactions* are irrefutably logged and available to everyone.
All you have to do is associate addresses with individuals. Which with government alphabet soup powers is not too difficult, not to mention hackers, trojans, key loggers, and real world eves-dropping/monitoring.
Also, imagine a court subpoena of your wallet or outright seizure. Every address you have ever used is in there and every expenditure and receipt is in the public block chain.
This is probably of little concern to most users but see #2 below.

2) The utter ridiculous hassle of having to deal with multitudes of addresses to get any measure of privacy or know who sent you bitcoins.
No Mom, that's your address this time, really, it just changes every time you use it. No it is him. The money Uncle Ted sent you was sent to this address see, that's how you know it's from him. No, that was the address from before, it's different now. No, when Chris sends you money it's this address. No, you're suppose to use this address for now with Aunt Sally. No, it still in the same wallet. No, they are all different ... ! ... look ... how about I just get you a prepaid VISA card?

3) A very very tiny handful of people own a significant percentage of the entire money supply.
When the difficulty was extremely low the mining pay out should have been at a tiny fraction of a bitcoin instead of 50, and then increased as the difficulty increased, up to a limit of say 100 at a difficulty of 2 million, then slowly decrease due to time as slated to do. This would have provided a chance for bitcoin to be dispersed into far more hands.
It still would have given bitcoins to the creators and first users just not at a mega-royal amounts.
As it is, we have a few people sitting on gargantuan hoards.
In comparison, it would be like a handful of people having 3-4 trillion U.S. dollars sitting around. Yes, over the years as more dollars were created the dollars would be worth less and a smaller percent of the total supply. The exact opposite is true with Bitcoin.

4) The complexity of the entire system is easily handled by tech people but the iPhone crowds can't and won't try to figure it out and if they do try they will get aggravated by the complexity and fleeced because they don't know how to protect their wallet or privacy. In other words, it's the Linux of the currency world. BTW I have a strong suspicion that Torvalds is Satoshi! (j/k)

5) The slowness of the transactions. Waiting ten minutes or more to be sure the payment is valid is a huge draw back.
Of course you can use places like MyBitCoin for immediate payments, but wasn't one of the main selling points of Bitcoin that no middleman had to be trusted?
Well not if you want timely transactions. So it's really no longer a selling point. Especially in the wake of MyBitcoin.

6) The lack of ability to do true micro payments (less than USD 1 cent). Due to the concern of network bog down with millions of micro payments, they enforce transaction fees that make micro payments worthless. Solution? Yep, back to a middleman. Please visit my site: BitcoinMiddleman.com(j/k I just made that site up.)

7) The best medium of exchange is stable, neither inflating nor deflating.  The response is that bitcoins are divisible to eight decimals places.
So what. That doesn't change the fact that it's deflating. Yes, holding onto a deflating currency is great, especially for those holding huge amounts, but what does constant deflation do to the Bitcoin economy at large? Has anyone studied any economy or currency that had *perpetual* deflation?

8 ) Since bitcoin is like cash, it's a thief's dream come true, because once you send the bitcoins, they're gone. The scammers and con artists will ceaselessly zerg the Internet from the convenience of their terminals in far away lands, in their never ending quest to steal anything they can.

[geek-trader]

These are all good points, especially #2, and I like that way you wrote that one, aslo.

[kjj]

1. It would be trivial to delete old addresses when you are done with them.

2. Nothing prevents anyone from using a single address for everything.  Oh, and I have never seen any indication that the multiple addresses scheme has ever caused any real problems for anyone, ever.  Unless you count forum posts asking why it changed, or posts like this speculating that it might cause confusion.  Your story reminds me of late night infomercials full of actors pretending to be confounded by trivial every day tasks.

3. Yeah, I feel for ya.  I didn't get to this party early enough either.  Oh, and Congress/the Fed has the ability to create new money out of thin air, without limit, so whatever problems you think this might cause for bitcoin are already true in the real world.

4. Yup.  And this is mostly caused by people living in first world countries, where responsibility is unheard of because almost nothing ever has any lasting consequences.

5. In the real world, you have two choices, instant and horribly inconvenient (cash), or slow and convenient (everything else).  Everything but cash is reversible for at least several months after you thought the matter was settled.  With bitcoin, you can make the fast/easy/cheap tradeoff on your own terms.

6. Miners and relays are allowed to set their own local policy for including/relaying transactions.  Oh, and if you really do want micropayments, just make sure your client is connected directly to one of the several mining pools that have a policy of including all valid incoming transactions.  And if you want to help make micropayments more useful for the world, set your own node to relay everything and publish the address so others can use it.

7. Many of us have studied plenty of economies that had inflation.  Not perpetual inflation, because they always end.  Always.  And usually with a horrible mess and thousands dead.

8. Wait a second.  Wasn't your first point that bitcoin isn't anonymous?  Also, everything you say here is true right now in the real world.  It is just that in the real world, the costs of being careless are not paid by the careless, but by everyone, by way of higher prices and fees at vendors, banks and credit card companies.

[timmey]

1) It is NOT anonymous at all.

That Bitcoin is anonymous is what the media told you and not what bitcoin.org says.

[other stuff]

Bitcoin is still Beta and not ready for mainstream adoption.

8 ) Since bitcoin is like cash, it's a thief's dream come true, because once you send the bitcoins, they're gone. The scammers and con artists will ceaselessly zerg the Internet from the convenience of their terminals in far away lands, in their never ending quest to steal anything they can.

As you said...it's like cash and cash can be stolen from you.

[oOoOo]

@OP
Yeah I'm neutral with all of them besides #8 & #2 As of #8 you always got scammers everywhere. I lost a not insignificant amount of Euros on ebay for example. This has nothing to do with Bitcoins.

As of #2
!!!! This is particularly tedious! And unnecessary! I agree with you 100%. Have the user select their own return adress, if they wish for privacy so much. This "feature" renders labeling useless.
.

EDIT: typo

[evoorhees]

OP - Your concerns are actually more thoughtful than most on this forum. I don't mean to dismiss them out of hand, but I believe they are generally addressable.

1) It is pretty darn anonymous, actually. Find me the MyBitcoin thief, or any bitcoin thief for that matter, and I'll withdraw this statement. The block chain is unreliable in court, because coins can change ownership without the blockchain knowing (see Bitbills, for starters)

2) Solved with time and user-friendly, trusted online wallets.

3) Don't be jealous of other people who discovered the value of Bitcoin before others. I fail to understand why an "unequal" distribution of coins is a problem for anyone who's not ideologically a communist.

4) Again solved with time and user-friendly, trusted online wallets.

5) With "green addresses" and trusted nodes and a modicum of creativity this problem is solved. Legit e-wallets will arise that can certainly be trusted for small common lighting-quick transactions. Doesn't mean you need to store your savings there.

6) I can send a micro-payment right now pretty easily. When there are "millions" of these payments, you can assume the price per bitcoin will be significant and thus processing issues will not be too problematic.

7) Over time (long-run) the price of Bitcoin will stabilize. And Bitcoin is actually inflationary, just not as fast as government fiat currencies. This inflation approaches zero, but Bitcoin will never be "deflationary" unless many people are losing their coins. And deflation, as an economic problem, is contentious. Observe that you buy computers frequently, even though you know they'll be cheaper and more powerful in 2 months. "The Deflationary Spiral" is a chimera... or at the very least is an unproven problem.

Yes, freedom requires greater responsibility. Alternatively, you can use US fiat, and enjoy steady and continuous theft from the Federal Reserve.

[RaTTuS]

How many of the early bitcoins have vanished into the bit bucket?

[cbeast]

How many of the early bitcoins have vanished into the bit bucket?

They make my bitcoins more rare. 

[TiagoTiago]

6) I can send a micro-payment right now pretty easily. When there are "millions" of these payments, you can assume the price per bitcoin will be significant and thus processing issues will not be too problematic.

The current fee enforced by the official client is too big for micropayments, often bigger than the microamount people wanna transfer; and when bitcoins are worth significant more, if the mandatory fee is kept at a similar proportion of the value of 1BTC you would still be paying more in txfees than the micropayment itself.

[hugolp]

Op is an obvious troll.

Dont feed the trolls.

[Man From The Future]

Op is an obvious troll.

Dont feed the trolls.

They don't seem to be trolling to me.. I coudl be wrong, ub tit seems as if they'rea ctually trying to find flaws and point them out, even if not successful.

Anyway, number 2 made me laugh, so it was worht my time reading it!

[hugolp]

They don't seem to be trolling to me.. I coudl be wrong, ub tit seems as if they'rea ctually trying to find flaws and point them out, even if not successful.

Anyway, number 2 made me laugh, so it was worht my time reading it!

Some points even contradicted each other. Other are just ridiculous (like number 2).

[makomk]

Some points even contradicted each other. Other are just ridiculous (like number 2).

The only points I can see that seem to contradict each other are 1 (not anonymous) and 8 (thief's dream come true). Note that I say "seem" here: the reasons that they don't are that thieves are willing and able to put a lot more effort into obscuring their trail than honest folks are, and that getting away with theft only requires laundering the stolen money once whereas protecting your privacy is a much harder ongoing process that you have to think about every time you make a transaction.

[Rassah]

2) The utter ridiculous hassle of having to deal with multitudes of addresses to get any measure of privacy or know who sent you bitcoins.
No Mom, that's your address this time, really, it just changes every time you use it. No it is him. The money Uncle Ted sent you was sent to this address see, that's how you know it's from him. No, that was the address from before, it's different now. No, when Chris sends you money it's this address. No, you're suppose to use this address for now with Aunt Sally. No, it still in the same wallet. No, they are all different ... ! ... look ... how about I just get you a prepaid VISA card?

Mom, imagine your Bitcoin wallet is a stack of envelopes you store cash in. You can get as many envelopes as you want, and for all the cash you receive, you get to pick which envelope you store it in. If you don't care where the money came from, just stick all your cash into the same envelope. If you want to separate the money and track whether it came from Ted or Chris, just ask them to put the cash they send you into their own separate envelopes. You can even label those envelopes as "Cash from Ted" and "Cash from Chris." The only difference between actual envelopes and Bitcoin is that instead of you getting the cash and stuffing it into an envelope yourself, you give those envelopes to other people and ask them to put the money there themselves. Don't worry, they can only put money in. They can't take any of it out unless they ask you to put the money into one of their envelopes, and you do it yourself.


Regarding #3, personally, I think a few people with an ENORMOUS amount of money invested in a project have an ENORMOUS incentive to see the project succeed, so I actually see this as a strength. In other words, had bitcoin started the way you suggested, we'd still have a few nerds with a little bit of cash still stuck in their parent's basement (sorry for stereotyping, rich nerds   ), but instead we have a few nerds who suddenly have A LOT of cash to invest in developing this system.

As for #4, Bitcoin is doing just fine on Android, and that OS has more users than iPhone, so even if Apple never allows any Bitcoin apps, it'll only hurt them (more) in the end.

[geek-trader]

#2 is not ridiculous.  It is extremely freaking confusing to the average user.  Between that and the block chain not being up to date, there's a major confusion problem right off the bat for a new user.  Throw in "The transaction is over the size limit" pop-up when they are only sending 0.05 BTC, and the average person is going to give up with "I can't understand this crazy thing!"

The OP is not trolling, he's right on.  If you are "too smart" too see the issues, fine.  But we'll never get widespread adoption the way things are now.

[defxor]

4) The complexity of the entire system is easily handled by tech people but the iPhone crowds can't and won't try to figure it out

https://market.android.com/details?id=de.schildbach.wallet

Granted, it's for Android, but "the iPhone crowds" have no problem with that UI and functionality.

5) The slowness of the transactions. Waiting ten minutes or more to be sure the payment is valid

It's as valid instantly as anything else we consider valid in day-to-day transactions. After an hour it's more valid than a credit card transaction is for months.

[rbc2012]

@ kjj

> 1. It would be trivial to delete old addresses when you are done with them.

The client does not support this by design. They could change it though. I think the reason they have it that way is that once the address is gone any coin sent to it from then on is good as gone too.

> 2. Nothing prevents anyone from using a single address for everything. 

If you do that anyone can see all your bitcoin transactions in the block chain. The creators recommend using different addresses.

>Oh, and I have never seen any indication that the multiple addresses scheme has ever caused any real problems for anyone, ever. 

Just because you haven't seen a problem with it doesn't mean there isn't one.

>Your story reminds me of late night infomercials full of actors pretending to be confounded by trivial every day tasks.

Interesting comment, but not germane to the actual issues.

>Oh, and Congress/the Fed has the ability to create new money out of thin air, without limit, so whatever problems you think this might cause for bitcoin are already true in the real world.

Yes, that's true. But wasn't one of the selling points of bitcoin that it's not like them? If you have a tiny handle full of people who control a significant percentage of the total money supply, a supply which is limited, and in fact will always be shrinking due to bitcoin loss.
Picking a catastrophic monetary system such as the Fed and saying bitcoin is better than that, isn't saying much.

>4. Yup.  And this is mostly caused by people living in first world countries, where responsibility is unheard of because almost nothing ever has any lasting consequences.

Well I don't know about that being the reason but thanks for agreeing.

>5. In the real world, you have two choices, instant and horribly inconvenient (cash), or slow and convenient (everything else). 

Well a credit/prepaid credit/debit card is fast and convenient.

>With bitcoin, you can make the fast/easy/cheap tradeoff on your own terms.

I don't know how you can do that without using a third party. Which again is the antithesis of the design of bitcoin, no central authority. I think no central authority is good. Because you can see what can happens with centralization, as in the case of mybitcoin.

>6. Miners and relays are allowed to set their own local policy for including/relaying transactions.  Oh, and if you really do want micropayments, just make sure your client is connected directly to one of the several mining pools that have a policy of including all valid incoming transactions.  And if you want to help make micropayments more useful for the world, set your own node to relay everything and publish the address so others can use it.

Can you explain how to do that? When I try to send 0.00008 the client demands a transaction fee of 0.001.
I can see why they are doing it, they want to prevent over load. If millions of micropayments were being done everyday the block chain would grow enormously.

>7. Many of us have studied plenty of economies that had inflation. 

Ok, but that's not what I asked. Many have studied the mating habits of the wildebeast. What does that have to do with deflation?
I said the best is stable, neither deflating nor inflating.

> perpetual inflation, because they always end.  Always.  And usually with a horrible mess and thousands dead.

I agree with that, I never proposed inflation.

>8. Wait a second.  Wasn't your first point that bitcoin isn't anonymous? 

Yes. But I did not say it's a thief's dream because it's anonymous. The point is not that they will do it because they are anonymous, they aren't. They can get caught just like with any other criminal activity. The point is the ease at which they can do it and the difficulty in getting it back. 

> Also, everything you say here is true right now in the real world.  It is just that in the real world, the costs of being careless are not paid by the careless, but by everyone, by way of higher prices and fees at vendors, banks and credit card companies.

Yes, I agree. Unfortunately it's a major problem with bitcoin. Look at the ripoffs that have happened already and it's only in its infancy. It's unavoidable. Any cash like currency will have to live with this problem.

[rbc2012]

@timmey

>> 1) It is NOT anonymous at all.
>  That Bitcoin is anonymous is what the media told you and not what bitcoin.org says.

Yes you are right. But I didn't say Bitcoin.org said it was anonymous. Don't put words in my mouth. That's unsanitary.
I was pointing it out because so many people think it is, for whatever reason, and use it as a selling point. It's really the opposite.
The forensics you can do with the block chain and a wallet are incredible.
It's like your medical records. They are private and it's quite difficult for just anyone to get a look at them, but they are not anonymous.

>Bitcoin is still Beta and not ready for mainstream adoption.

Oh ok.

>> 8 ) Since bitcoin is like cash, it's a thief's dream come true, because once you send the bitcoins, they're gone. The scammers and con artists will ceaselessly zerg the Internet from the
>> convenience of their terminals in far away lands, in their never ending quest to steal anything they can.
> As you said...it's like cash and cash can be stolen from you.

Yep, an unfortunate fact.

[Transisto]

"too smart" too see the issues"  - Too smart to fail.

[rbc2012]

@evoorhees

> 1) It is pretty darn anonymous, actually. Find me the MyBitcoin thief,

For an individual to find that out, you are right, it's darn hard. I never said one person could do it (doesn't mean they can't though .  Multiple address will give you very good privacy but not anonymity.
If law enforcement chose to, they can subpoena all the traffic logs at the ISP. Get warrants, etc.
Alphabet agencies probably have their own logging at all major peering points on the Internet. Also placing enough peers on the bitcoin network can get you a lot of information.

>The block chain is unreliable in court, because coins can change ownership without the blockchain knowing (see Bitbills, for starters)

How can you make a blanket claim like that?
The prosecution presents evidence against an accused embezzler. From the wallet taken off his computer, from the computer taken from his house, they show all the transactions and huge amounts of money being transferred from and to various addresses contained in the wallet.
You are saying all the defense has to do is say it's not his wallet?

Another example.
A wife copies her husbands wallet and other info from his computer and then instigates divorce proceedings. Claims infidelity. She hires a P.I. who finds messages to a call-girl in info from husband's computer. To connect call-girl address to husband's wallet he sends payment to an address in the wallet he thinks is hers. Then contacts her and says hey you get my payment? When can we meet? She says, "Sure Hon". Now imagine if her wallet get's subpoenaed.

> 2) Solved with time and user-friendly, trusted online wallets.

So it's back to trusting a central authority. An entire peer-to-peer set-up so we can layer central authorities on top of it.

>3) Don't be jealous of other people who discovered the value of Bitcoin before others. I fail to understand why an "unequal" distribution of coins is a problem for anyone who's not ideologically a communist.

How much 'work' had to be done when mining with a low difficulty as compared to now? It would have nothing to do with "unequal" distribution, but fairness. They earned 50 bitcoin for doing a miniscule fraction of work compared to today, but that is NOT the point I was making. I never mentioned fairness, or unequal, or equal in my post. I was pointing out that a very few people are sitting on massive hoards of the entire money supply. I am saying that is not good. I am saying it wasn't necessary. It would be much better for the bitcoin community to not have huge hoards and instead have many more people holding the coins instead and that an equal reward for the same amount of work would have been the best way to do it.

> 4) Again solved with time and user-friendly, trusted online wallets.

Same reply. See above

>5) With "green addresses" and trusted nodes and a modicum of creativity this problem is solved. Legit e-wallets will arise that can certainly be trusted for small common lighting-quick transactions. Doesn't mean you need to store your savings there.

Again you've stepped away from bitcoin to using a central authority you need to trust.

> 6) I can send a micro-payment right now pretty easily. When there are "millions" of these payments, you can assume the price per bitcoin will be significant and thus processing issues will not be too problematic.

How do you do that? When I try to send 0.000005 it won't let me without forcing me to pay a transaction fee.

> 7) Over time (long-run) the price of Bitcoin will stabilize. And Bitcoin is actually inflationary, just not as fast as government fiat currencies. This inflation approaches zero, but Bitcoin will never be "deflationary" unless many people are losing their coins.

I disagree. Unless they change the limit of no more than 21 million coins, there will be deflation as more and more people use it. Plus there will always be some small but constant coin losses, due to accident, error, etc.
Imagine if over then next five years 10 million users start using it. On average all of them want to save a mere 2 bitcoins as a reserve they never spend, sort of a virtual savings.

> And deflation, as an economic problem, is contentious.

Yes, that is why I asked if anyone has ever studied a currency or economy that had perpetual deflation.

> Observe that you buy computers frequently, even though you know they'll be cheaper and more powerful in 2 months.

Computers are not used as a medium of exchange. That makes a huge difference. If they were they would be inflationary because as time goes by they are worth less.