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Author Topic: "Failure to Understand Bitcoin Could Cost Investors Billions" (Bitcoin's flaws)  (Read 42736 times)
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AnonyMint
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April 01, 2014, 08:09:28 AM
 #381

BTC is likely headed below $400 (possibly with a dip below $300) and the recovery will not likely be swift rather a U bottom.


https://medium.com/p/ba5f3fcce103

Finding Equilibrium : Searching for the true value of a Bitcoin

Vinny Lingham, CEO of Gyft, discusses some of the current forces affecting the price of bitcoin. A very worthwhile read imho.

Excellent article. I agree with everything he wrote.

I also have made the point that Bitcoin asymmetrically favors merchants at this stage. And he points that out well.

Risto you should read that article above. Then you will understand where the selling pressure is coming from and what has changed.



Did you read the article or not?
yes I did read the article. he said it will form a base in the next quarter, not crash. as for the range he describes, why would you believe he has the formula to predict $350 bottom?  436 bottom has given us all the signals we need.
all the past bubbles have consolidated in a wedge. thats a sequence of 5. if the price dropped to 350, this one would break that rule. wedges have significant meaning in consolidation.

Did you read his points about why there is now more structural selling? Specifically that there are too many retailers and retailers convert immediately to fiat. And consumers are not growing as fast. Because Bitcoin is wonderful for merchants (no chargebacks) but sucks for consumers .




This is why it is going lower, much, much lower:

http://www.businesswire.com/news/home/20131211005909/en/BitPay-Exceeds-100000000-Bitcoin-Transactions-Processed#.Uzp95qIryho

Quote
processed over $100 million in transactions this year, and has increased its merchant base to over 15,500 approved merchants in 200 countries

http://seekingalpha.com/news/1465461-bitcoin-bitpay-volume-triples-m-m-european-regulators-weigh-in

Quote
BitPay volume triples M/M in November after the roll-out of a new pricing plan and integration with Shopify. Transaction volume tripled during the same period

Thus using an geometric series, I can estimate their December sales were $40 million, January, $120 million, February $360 million, March over a $1 billion. Now surely their Xmas surge was greater than normal M/M growth, but you can clearly see this is much larger now and very significant.

The more success Bitpay has, the worse for Bitcoin. Because Bitpay is all about liquidating BTC from investors (not bringing in proportionally new customers to the ecosystem).

How could we have missed that! (Slams forehead into the wall)

I saw the silver chart pattern indicating a long grind lower ahead, and I saw the asymmetry in appeal for merchants vs. customers, but I didn't put 2+2 together.

The Gyft owner has a bullish bias so that is why he is saying $350. In fact, markets don't work that way. They have momentum and overshoot either upwards or downwards.

Bitcoin is pointed down now and it will be a vicious cycle that feeds on itself. It is structural and we have to go down and restart from a low equilibrium.




This is why it is going lower, much, much lower:

http://www.businesswire.com/news/home/20131211005909/en/BitPay-Exceeds-100000000-Bitcoin-Transactions-Processed#.Uzp95qIryho

Quote
processed over $100 million in transactions this year, and has increased its merchant base to over 15,500 approved merchants in 200 countries

http://seekingalpha.com/news/1465461-bitcoin-bitpay-volume-triples-m-m-european-regulators-weigh-in

Quote
BitPay volume triples M/M in November after the roll-out of a new pricing plan and integration with Shopify. Transaction volume tripled during the same period

Thus using an geometric series, I can estimate their December sales were $40 million, January, $120 million, February $360 million, March over a $1 billion. Now surely their Xmas surge was greater than normal M/M growth, but you can clearly see this is much larger now and very significant.


Oh fuck look what just happened under our nose while we were not paying attention!

https://www.goldsilverbitcoin.com/bitpay-worlds-first-zero-transaction-fee-payment-processing/

Quote
BitPay’s new model, however, asks for $30 per month per merchant, with zero additional fees. This is unprecedented in payment processing space, and will certainly send shockwaves through various payment processing spaces.

Both BitPay and Coinbase represent the world’s first zero-fee payment processors, driving home how revolutionary modern payment methods are.

Quote
Visionaries who invested in BitPay include Trace Mayer, Peter Thiel and Max Keiser.


So who is paying those high fees? We the customers in the exchange rate!!! And liquidating our investment!

Fuck we've been sucked into a fiat vortex by that same bastard Peter Thiel who angel funded Facebook and Paypal.

This is war. I'm livid. It is time to get serious.




I believe you are too preoccupied with USD. The feedback loop of (lower USD price -> less users -> even lower price) has never before held true with Bitcoin, and I have no reason to believe it would now.

What about 2011?

In between 7-11/2011, the number of non-dust addresses grew by 30%.

Even if we assume that there is such a negative feedback loop, 2011 was a proof that it was reversed and did not self-immolate.

So far we have one vicious bear market that was reversed, and 5 years of gains. My theory is that Bitcoin has a self-reinforcing positive loop which will eventually consume fiat totally, and all the bear markets are temporary. If you say otherwise, the burden of proof is on you because such an assertion is not supported by neither history nor reason.

Strawmen avoid the points made.

1. Why can't a "vicious bear market" repeat? You admitted before that the 2011 bear market was caused by tech geeks early adopters who overextended because they are poor at speculation. Recently we've had a huge influx of n00bs into Bitcoin investing.

2. Who is arguing that Bitcoin won't continue to go up (i.e. "self-immolate") after the bottom? Not me.

3. What proof do you have that Bitcoin is different from every investment in the history of mankind, in that all investments are limited to a market segment and eventually peaked without reaching every man and woman on earth? You do no market demographics analysis. You just assume that Bitcoin will jump the chasm even though it currently lacks a compelling feature set to do so.




An anonymous coin would be great. Be sure to note it here when you find someone(s) to launch it.  A well thought out alt could grow very quickly compared to bitcoin. The market is ready established, and crypto-funded.

Note that the developer of Darkcoin admitted to me yesterday that I was correct and Darkcoin breaks anonymity by trusting the master node with your identity.

I provided him a suggestion, but it is not my best idea of how to do anonymity (which requires a different design than Darkcoin has).




Even if you are correct the US isn't the only country in the world.

I don't know to what extent tax issues (if at all) will affect European masses in adopting Bitcoin. I lack domain knowledge of those jurisdictions.

Capital gains tax is a non-issue in the developing world (masses here don't files tax returns). Yet they also are not currently the target demographic of Bitcoin.

The other issues I enumerated (look 2 posts up) should prevent Bitcoin from adoption of the masses for use as a daily currency every where on earth. Whether those issues will be fixed and whether they will be fixed in Bitcoin, offchain services, and/or an altcoin, is something that remains to be seen.

Right now Bitcoin is mainly adopted as a self-reinforcing (i.e. those who invest are supporting the rise in price, i.e. a sort of pyramid scheme of sorts but not entirely) speculative investment and some genuine use as a means to transfer value over distance. Also there are cases where one needs to use Bitcoin, e.g. buying drugs over the internet, registering domains anonymously (if you are very careful), etc.. Mostly Bitcoin is used to speculate in Bitcoin and altcoins. It is an investment unit-of-exchange. But none of that is really widespread mainstream use. I am still searching for that compelling need for the broader population.

One of the big needs I expect is when the confiscations begin, there will be a rush into crypto-currencies. Yet I expect an anonymous coin will get most of that, if that anonymous coin is respected and well established and is competing very strongly with Bitcoin (i.e. perhaps 1/10 or more of Bitcoin's market cap). Otherwise Bitcoin will get most of it.




This is an interesting point.  In the long run, this IRS opinion that miners need to report income when they mine, is frankly absurd, and will definitely be reversed in a tax court, if they don't revise it before then.

How do you figure? The network is paying them for their services of mining. Seems correct to me and it is the ruling I expected and predicted since long-time ago.

I can freely produce a work with a market value, and the act of production does not result in a taxable event, in every precedent case.  Selling the work produces a taxable event.

Mining isn't producing a unique work. It is providing a repetitive service that is scripted by the network. The litmus test is that the network is the manager, not the miner. The network sets the difficulty, the protocol, etc..

A network cannot manage anyone.  Management flows in the opposite direction.  Mining a block produces a novel work.

The network dictates which hash to solve. Which is what the miner is paid for doing. Everything else the miners do is optional in the protocol and thus incidental.



there are 12 million millionaires in the world, and 1500 billionaires. there are only 21 million bitcoins, and I imagine most of those people dont have any.

That 21 million will never stand as the asymptotic limit (actually it isn't asymptotic because the finite limit of divisibility is 1 Satoshi), because there is no way the world's billionaires will hand power to Risto et al (of course not!). That is pure fantasy like slumber party of overgrown, naive children playing a board game. There are multiple ways it can be increased.

  • Off chain is the only way Bitcoin will go mainstream. Coins will be created just as the private banks did with gold certificates in the 1800s with gold on deposit.
  • It is impossible that altcoins won't proliferate because Bitcoin can't offer every feature.
  • One pool controls 50+% of the hash power, even one ASIC miner controls 10%. Government control of that pool (and a few miners) can force more coins to be created. This won't be done now, instead later when the lockdown is more ubiquitous and you have no way to avoid this control.



OK, no-one has still bothered to state what 'n' stands for (I'm assuming p = price) but it all sounds highly plausible.

I wrote that upthread. Here it is again.

It is the number of unique addresses from the blockchain.info chart. And Peter R showed that n^2 correlates with price p. This is Metcalf's Law and Reed's Law.

I had explained in an upthread post that if we use a ruler on the n chart along the bottoms since 2012, then should currently be at 100,000 yet it is currently at 150,000.

Also there was a divergence since February where p declined but n rose. That divergence must be resolved. Will p rise or n decline?

If n must drop by 33%, then p price could drop to 0.67 x 0.67 = 45% of recent p (inconclusive to determine which recent p to multiply by .045, perhaps $450 - $600).

I also projected the bottom from July 2012 using compounding and I also get a $300 to $350 target for the bottom within next 2 weeks.

$450 is a lot closer to the bottom than $600 was. Risto is correct about that.




AnonyMint is concerned about mass adoption, because he wants to save the world.  More power to him.  Being in the world, I think it could use some saving.  But his particular form of mass adoption is not necessary or to be expected during the time between now and the next two or three hype cycles.  IRS treatment of bitcoin can be harmful to mass adoption in the medium term, but good for institutional adoption in the near term.

Medium-term I'm concerned about those who are adopting Bitcoin now, and that they have no anonymity and they can't spontaneously mine it any more (without a serious investment in mining). And I am concerned that the mass adoption of Bitcoin will come in the form of off chain  (to fix the slow transaction speed and other issues which INTENTIONALLY won't be fixed on chain) and government control over mining and off chain coin supply, and that we Bitcoin adopters won't have any other option. We will be trapped in the new digital slavery NWO. My perspective is viewed by many as extreme and paranoid.

For next week or two, I think the tax ruling can deflate the confidence of some of the n00b investors who bought at $600 - $1000 if the price breaks down through $400. Capitulation would then come when they lose resolve to hodl. I could be wrong about this bottom call. I have presented some ways of looking at the chart of adoption to support my short-term perspective.

I also presented a new theory of the adoption curve being log-logistic instead of logistic. They key distinction is the rate of adoption would be declining since the launch of Bitcoin and not after 50% have adopted. The chart of n seems to support my view, but (from eyeballing it only) there are not enough data points yet to reliably conclude.

Because of my negative view on the potential outcome of Bitcoin on us, I have a very bad taste in my mouth if I buy BTC as an investment. I feel like I am a traitor to humanity and I would be better served to invest my time in an alternative instead. So it would take a very low bottom price to maybe cause me to potentially incriminate myself (assuming totalitarian effects of debt crisis subsequently emerge). I realize I am being somewhat irrational if my goal is to maximize return on capital. Also no man is an island.

I suppose I am not appreciating Risto as much as I used to because he preaches what I believe to be the NWO coin, and he uses hyperbole such as claiming it is at a fraction of adoption of world's population as if he can be sure how Bitcoin can morph to be compelling to masses. The only way I see it doing that is with government blessing. And this outcome is not the way investments usually work. Yeah it is always "different this time". Yet I am trying to not let this affect my feelings about any person. Frankly I need to do less talking and more working. (Mea Culpa)^1000000.

Correction: Note if I remember correctly Risto wrote 99.5% of adoption remaining, which would mean 200 x 2 million = 400 million target. Actually that is not too far from my expection of the current white male demographic target market. That is qualitatively not mass adoption by the entire world. That is 1 in 17 people in world. So I am not clear if Risto is arguing for mass adoption as a currency or for white male adoption as an investment bubble? His numbers are straddling the two. My expectation is either Bitcoin will top out as an investment bubble at up to one or two hundred million, or it will be prodded by the government to become the digital fiat. I don't see another outcome for Bitcoin, because I see no relevant development at all on the block chain protocol.

Certain developers who you know their name spend more time meeting with the CIA and the Council on Foreign Relations than developing the protocol improvements.

Since when should a programmer be a political liaison  Huh

Fishy smell.




Please don't ignore the question.

...

Do you really think the government is going to give up its control over money?

I think this is a very good question, and I think the answer is no, they will not give up control over money. At least, not on purpose. So in my mind the question becomes: does the government regard cryptocurrencies as a threat to their control over money? A few years ago I might have predicted yes, but recently I have been leaning more towards no, based on less-than-hostile comments from various people like Ben Bernanke, Janet Yellen, Alan Greenspan.

Propaganda. Have you followed what Larry Summers said? They want digital currency so they can easily confiscate. The establishment is supporting Bitcoin because they can more easily track where all the money is.

....but bitcoin is not as high on that list as early enthusiasts (like me) used to think. In an ideal world, bitcoin will not topple the central banking system, something else will; and when that happens, bitcoin will save us all from chaos. I am sure my thinking on this question will continue to evolve.

It is very high on their list if it can grow.

They are trial ballooning different ways to bring the world onto a digital ledger so they can confiscate by pressing a button. Off chain on Bitcoin will be the mechanism to achieve this control.

They have nothing to fear from Bitcoin, because one pool already controls 50% of the mining. They could easily blacklist coins tomorrow if they needed to.

Now they just to manage their baby well to keep you all supporting their desired outcome of slavery.

Proof is in the facts. Bitcoin is not decentralized. You all are controlled by propaganda. The mining is already controllable by the government.

The key now is to manage it so you all don't wake up and move to an anonymous coin. To keep you all locked in by your greed and the thought the largest market size is best.




The less totalitarian governments (I include the US here) have no immediate plans to do any crazy-ass confiscations. But, if and when they decide to borrow a page from FDR ... it will be too late. Bitcoin will be entrenched.

The head of the USA Treasury department that oversees FinCEN has said in recent interview (have a link to it on my thread) they are monitoring adoption very closely. He specifically said that government oversight will increase if it becomes possible to move large amounts of money with Bitcoin and/or you can live by spending only Bitcoin. And that was only the financial crimes division. He said other departments were watching it with other mandates. This will not fly past their radar. He specifically mentioned anonymity as a threat many times. He also said they have people tracking the block chain.




The other near-term implication of the tax ruling is the margin call on miners who have to get cash before April 15.

Ditto in China apparently with April 15 deadline to sell and get out before exchanges close.

So we have perhaps persistent selling for next 2 weeks.

About the tax planning+timing issue. You just don't get it. Normal people already have no incentive to use Bitcoin and now they will really stay away from it. Why fuck with the hassle? Most people don't even know what a Schedule D is.

New software? Have you tried using H&R Block? I do every year, and they are the experts on simplification. My ex can't figure it out. I have to do her taxes this week.

Do you realize how stupid Americans are? They voted for Obama.  Cheesy

None of that affects the fundamental adoption by fanatical white males, but it is enough to bust the bubble run we've had and cause capitulation among all the weak hands.

And I think there are a lot of newbies that bought at $600 - $1000 who are sweating it right now.

Then there are those who are sure it can't go lower than $400. Some of them might capitulate as it breaks down from there.

We don't have the system of Sweden. IN the USA, everyone is afraid of the IRS. Or at least they don't want to add hassle with IRS just to use some stupid technobabble money that they don't need any way.




http://www.wired.com/2014/03/bitcoin-currency_martin/

Bitcoin Is Pointless as a Currency, But It Could Change the World Anyway

Quote
Why Bitcoin May Be Different

If history is a guide, it is here that bitcoin’s real potential lies: in its hybrid payments technology. As Europe’s medieval merchant-bankers proved, a brilliant new means of recording and verifying money transfers can indeed be a revolutionary event — not just in economic, but in political terms.

The existing, bank-based payments system is expensive and antediluvian — but also profitable and therefore jealously guarded by its powerful owners. Other technologies co-exist — such as cash payment face-to-face, or the developing world staple of hawala for international transfers — but they cannot seriously compete with banks. If Bitcoin’s technology is as cheap, as scalable, and as secure as its advocates claim, it may be different.

That last point, of course, is crucial. One reason that cash, that most archaic of payments technologies, still exists, is because it really is anonymous. Anonymity in transactions can be abused, of course. But it remains a basic civil liberty. Payments systems that use ledgers rarely offer the same assurance. Efficiency and economy are nice to have: but not at the cost of our right to privacy.
If history is a guide, it is here that bitcoin’s real potential lies: in its hybrid payments technology.

It was thirty-five years ago — long before bitcoin, the internet, or even the Macintosh — that the French philosopher Jean-Francois Lyotard warned that “the computerization of society…could become the ‘dream’ instrument for controlling and regulating the market system, extended to include knowledge itself and governed exclusively by the performativity principle.” An unreasonably dystopian vision, perhaps, given the enormous increases in prosperity and individual freedom that the web has brought. But it is only now that computerization is transforming money — the most basic institution of all in our market societies. So it is a dystopia we must make all the more certain does not become reality.

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April 02, 2014, 12:41:32 PM
 #382

It is roughly saying we won't significantly surpass $1000 in 2014. I don't know where the correctly fitted curve would be right now, so I can't project where the price should be now and where it will be nominally. I think the slope projection is more close to accurate, so we can say that if the theory is correct (that distribution of money holders is a power law distribution as the cited research and common knowledge says it always is), then price appreciation will slow down specifically to 0.05 units on the log 10 chart per month where 1 unit is 10X appreciation. So if we bottom at $400, then price after 20 months should be $4000. Again this is a very rough eyeballed fit and would expect the refined fit to have a slightly higher slope maybe 0.06, so make that 16 months instead.




The red line below is a power law distribution for B=0.5 which you can see above is the value of B I fitted.



What that distribution says is that the rich hold most of the percentage of wealth, which we know is in fact always true. And the fitting of the cumulative distribution function to BTC price is the theoretical claim that earlier adopters will be more wealthy (by now) than later ones.

The research I cited points out is that the masses use money as a unit-of-exchange, not as a store-of-value.

However does the Metcalf's law value of money (which Peter R has shown BTC mcap and thus price is tracking) where the value is proportional to the square of the number of nodes in the network nullify my use of a power law distribution? I.e. do the wealthy not create (proportional to their wealth) more network nodes (e.g. unique active BTC addresses) than the masses?

I see the really diehard power users (e.g. SlipperySlope and Peter R) are both talking about creating a new node every day. Thus this anecdotally supports that the power law distribution applies correctly here.

Thus I think we need to take this theory seriously. It might be the correct growth curve. The linear one with a least squares fit seems really out-of-touch with historical data. It totally ignores the shape of the earliest adoption curve up to July 2011. Risto's explanation was the early adopters were bad speculators and bid the price up too much, but my interpretation is they are the most wealthy now and they were the most powerful because they are early adopters. The least squares fitting of a line to a curved adoption could possibly be (confirmation bias in play as) an (emotional "to the moon") attempt to force a linear projection on a growth curve which obviously was not always linear. Has it become linear since January 2012?

I very much doubt it!

Convince me? Risto how do you analytically defend your linear least squares fit that makes you so sure of everything and gives you the audacity to browbeat all the bears?

Add: why don't stocks follow this log-logistic curve? Maybe they do (?), if we don't compress the early adopters into a single event IPO. Also can a stock issue have network effects, i.e. does Metcalf's law apply to company shares? Seems to me yes if the shareholders network amongst themselves, but much less so than a network of money holders.

Add: Fact is the slope during the runup to July 2011 was 0.33 per month. Since Jan 2012, it has been 1/4 of that 0.08 roughly. Why should we expect the slope to not decline again? Why should the pace of adoption remain constant? Seems intuitively unlikely to me. Pace of adoption should slow as we slog into the less astute demographics. Larger mass with more inertia grows more slowly than smaller mass with nimble inertia.






That is irrelevant as I have explained. What it does is reduce the network effects (merchants accepting and holding Bitcoin thus being nodes in the Metcalf law valuation) within the Bitcoin ecosystem that those holding fiat must buy BTC to attain. If everything they can buy with BTC they can also buy with fiat, then there is no great need to buy BTC with their fiat.

That was precisely my point about why lose 3-5% on double exchange, when one can just buy with their credit card for 0%.


Many people prefer to use BTC rather than credit cards, even though they can use either, because BTC is faster and more convenient for online payments. They buy, wait for the price to increase, then spend when needed. It's that simple. I do not think this 3-5% double exchange loss you are talking is a significant factor in whether or not people choose to use or accept Bitcoin.

The 3 - 5% is an ancillary argument and not the core one. If they wish to be irrational and waste 3-5%, it doesn't mean they are part of a trend of new adopters who love to waste money. Whether Bitcoin holders continue to be interested in Bitcoin is irrelevant to the point I was making. I was making the point that if we don't create more merchants that accept only BTC, i.e. hold BTC and not just a useless facade for fiat, then there is no compelling need for non-Bitcoin owners to decide to acquire Bitcoin (if we are speaking about its demand as a currency and not as an investment).

On the investment demand side, the adoption is slowing and thus due to Metcalf's Law's correlation P = 1.5 x n^2, the rate of price growth (increase) has and will continue to slow. There is no linear growth on the log 10 chart "to the moon". Price growth will moderate and we won't exceed $10,000 before 2016. (note that is still a very nice gain, just not as "to the moon"). Bitcoin's price increase after 2015 will further slow, will not exceed gold. (assuming gold bottoms around $1000 in 2015 as I expect) Remember Risto was the guy calling for $300,000 by now (I've seen others write this, I wasn't around when he purportedly made that projection). How did that work out for him?

Buffet is correct, Bitcoin is just a facade for fiat. Bitpay and Peter Thiel have just put that future in concrete.

Now I sit back and watch my observations wreck havok on Risto's net worth expectations and confidence.


Add: slowing rate adoption can still be very large nominally, e.g. if going from 1 million to 100 million takes 3X longer it still happens. You see as Peter Thiel helps to convert Bitcoin to the government coin, the masses will come in as it will become essentially be a form of fiat with offchain services that Peter Thiel creates. Everything is running exactly to plan as how I expected it to go when I wrote Bitcoin : The Digital Kill Switch in March 2013 and first joined this community.

P.S. Mining is now concentrated in one pool with greater then 51% attack hash power. And there are individual miners with 7 - 10% of the entire hash power. Everything is going exactly how I predicted. Yet people still think I am wrong.

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May 02, 2014, 01:51:17 AM
 #383

Cross-posting from the following linked post:

https://bitcointalk.org/index.php?topic=558316.msg6501774#msg6501774


It is time to squash Proof-of-Stake once and for all. It can NEVER remain decentralized. Satoshi's Proof-of-Work is the only known solution to the Byzantine General's Problem (was a known unsolved problem since at least the 1970s).

Apologies I've been busy and hadn't had time to squash bytemaster's latest N.A.O.D. (nonsense algorithm of the day).

First of all, he never was able to address the issues I raised about Transactions as Proof-of-Stake quoted as follows.

This proposal appears to be flawed, unless I am missing something. I have only read the first 4 pages thus far.

1. You propose to decrease the coin rewards as coin-days-destroyed volume increases, so this makes it less costly for an attacker to obtain > 50% of the hash rate assuming the attacker includes all the transactions. You apparently are attempting to imply there is no useful attack to do if the attacker is including the most coin-days-destroyed? Please confirm or deny then I will dig into more analysis of this vector.

2. Also how do you choose between someone who generates a proof-of-work hash with lower coin-days-destroyed several times sooner than the network propagation delay versus another who generates it that much delayed with a higher coin-days-destroyed? If you choose the latter, then you've killed the proof-of-work incentive because it means it will always pay to be later and wait for more transactions to arrive.

3. You claim to defeat my Transactions Withholding Attack, by blacklisting those who send blocks with transactions that were not recently seen by all miners. I retorted against this recently. This centralizes the network (all for one and one for all outcome) by requiring every miner to be responsible for the incoming network connectivity of other miners. And it centralizes the network in other ways, such it can't tolerate a temporary partitioning of the network due to connectivity outages.

P.S. By coin-days-destroyed, I assume you mean coin value x days, otherwise you would motivate proliferation of dust.

The most significant flaw of any proof-of-stake system and any system that diminishes coin rewards, is it can't distribute currency from the hoarders to the users of the currency, thus it will end up with the hoarders (the banksters) accumulating all the coin and the currency usage dying.

This is because the wealthy spend a much lower % of their net worth than the masses do.

[snip]

Whereas those who actually mine are proactively using their time, ingenuity, initiative and capital to secure the network, thus it seems more capitalistic they should receive the redistribution from the hoarders. Besides it may beis the only viableplausible way to secure the public ledger.

The other attacks you describe all derive from the fundamental reason I declared all non-proof-of-work systems to be insecure back in April.

My logic was mathematically fundamental. The input entropy set is quite deterministic and well known and thus can be preimaged. For example, accumulating a lot of coin-days-destroyed and then targeting them in clever ways to subvert the security.

The randomness (entropy) of each proof-of-work is fundamental and mathematical and it can not be preimaged. It can only be surely defeated with > 50% of the network hash rate. Note I recently offered what I believe to a solution to the selfish-mining attack (the one at hackingdistributed.com that claims 25 - 35% attack).

I am skeptical that you can characterize all possible attack vectors of proof-of-stake in one coherent mathematical proof. Thus you will not know formally what the security is; instead a list of adhoc attacks and counter-measures.

[snip]

Edit: Perhaps coin-days-destroyed in some attack vectors motivates not transacting for long periods of time.



The bottom line is that no proof-of-stake system can ever remain decentralized.

They all will require some sort of delegation of reputation to achieve consensus. I would have to go through a laundry list of examples to cover all the cases. For example, in Transactions as Proof-of-Stake it is required to delegate trust of propagation to the other nodes as I explained above. Thus there needs to be some reputation system to enforce this, e.g. blacklisting, whitelisting, etc.. All the other proof-of-stake systems have a requirement for some form of delegated reputation.

I have many times explained to bytemaster and others the fundamental problem is that any system that attempts to replace proof-of-work will rely on some form of reputation, and reputation is centralization. And centralization is precisely what decentralized crypto-currency is not supposed to be because centralization will always end up control and manipulated (i.e. it is a fiat system).

Trust is orthogonal to reputation and centralization. I can trust Proof-of-Work, which is decentralized trust without reputation. Reputation isn't needed in Proof-of-Work, because the input entropy is fresh (can't be preimaged) on every new TB.

You can 75% attack it if you like, but your nodes wont have any trust, so that block chain will just be ignored.

(In any non-Proof-of-Work design, ) It is mathematically impossible for there to be external consensus trust of the honest chain if the dishonest chain is controlled by more than 51% of the peers. We've covered some of the scenarios upthread, and it always boils down to that the external viewers can not know who to trust except by trusting the majority of peers.

The only mathematical way around this is to centralize the network, by placing more trust in some peers than others over time.

Indeed long-term reputation is a mathematically viable alternative to Proof-of-Work. This is centralization. There are tradeoffs.

So this is not "7 billion individually watching the network", but rather a fewer # of peers with reputation being trusted. This is just the political power vacuum all over again with its contingent problems of vested interests Olsen power scramble:

https://bitcointalk.org/index.php?topic=226033 (No Money Exists Without the Majority)

Notwithstanding the above, any non-Proof-of-Work system can be attacked with much less than 51% of the peers, due to the fact that the input entropy is preimageable, as I explained upthread. Again the only way to work around this is to trust some established peers to guard against this.

Financial transactions must be recorded in a public or private ledger trusted by both the spender and the recipient, otherwise funds could be unspent or double-spent to a plurality of recipients. To provide a ledger that can't be captured, Satoshi described a proof-of-work (PoW) scheme where transaction peers communicating over the network compete to be the first to solve a computational puzzle which is unique for each block of transactions added to a public ledger. The security of this ledger against double-spends has three (3) essential requirements.

1. The computational puzzle can't be preimaged, i.e. nothing can be known about solving the puzzle until the prior block's puzzle is solved.

2. Without at least 50% of the aggregate computational power of all transaction peers, it is not possible to create a modified chain of blocks starting from any present or past block, which would contain more blocks than the block chain controlled by the remaining cooperating peers. Thus the longer chain is trusted.

3. The block chain is cryptographically linked in forward order, such that the historical proof-of-work and transactions can be independently verified at any time in the future. Thus the transaction peers may leave and rejoin the network at will without need for a trusted centralized storage.

Note security point #1 eliminates from consideration PoW schemes in which the puzzle is some real-world computational work because the puzzles are known a priori and are thus pre-imageable. Non-PoW voting and membership schemes disqualify because the ordering of designation of authority (to decide which transactions are in each block) to transaction peers is pre-imageable, or requires peers trusted by reputation which is centralizing on a slippery slope towards Olsen capture.

You must also consider the negative impacts of design features when you state the positive impacts.

Reputation has many downsides:

a. It can be stolen, e.g. threaten first to extort private key, then kill, and keep key.
b. Censorship based on metadata which doesn't always correlate rationally.
c. Discriminate against early adopters out of jealously, i.e. retribution for #b.
d. Regulatory authorities can require the BitName same as they now do Social Security # and Id. They can now establish the BitName is real, because it has (duration) reputation.

The high cost to transfer or revoke a name also has many downsides, e.g. see #d.

I thinking the pool operator (server) does so little relative to work of the pool miners that it doesn't need to charge a very high fee. Thus there isn't much ability (incentive for pool miners) to undercut competitors based on fee.

So there just needs to be a slightest incentive to encourage pool miners to seek out another pool as a pool grows large. This will encourage a poliferation of pools.

How do pool miners know that a pool server isn't cheating them by paying some of the earnings to themselves pretending to be a pool miner?

Go down that line of thought and you will discover what I am thinking.

The only way you can prove a pool isn't cheating is by estimating the hash rate of the pool and comparing it to the number of blocks found.  Unfortunately, you could probably still skim a couple of a percent this way.

Modern protocols (GBT & Stratum) both have the full coinbase transaction visible to the miners, meaning you can verify that the block being built will be paid to a certain address or has a certain message encoded in the block that identifies the pool.  This allows you to audit if the pool is trying to skim blocks if certain users start seeing work without a coinbase message that identifies the pool.  In the case of BTC Guild, it's both, they always pay to the same address and always include "Mined by BTC Guild" in the coinbase message.

It's not no-trust, but all it would take is a few % of users monitoring this to determine if a pool was trying to skim blocks by sending a certain % of work that doesn't include identifying marks.

How could anything less than 100% of the pool miners know if some of the coinbase transactions were to addresses not owned by pool miners who contributed shares?

Since you can never know if you are the 100% (because mining pool shares* are not recorded in the block chain), thus seems to me there is no way to verify if there is skimming or not, as bytemaster and I wrote.

*For those who don't know the terminology, a pool share is a proof-of-work hash below some threshold that is easier than the current network difficulty. It might also be a block solution.

Why don't you just use P2Pool? Is there any reason?

I was waiting for bytemaster to answer because I wanted to know his thoughts. Seems to me that you have no way to stop the Share Withholding Attack since it is decentralized. And every peer has to run more of a full client if I am not mistake. And there is a lot more overhead I believe. And perhaps also much less resistance against denial-of-service flooding. Frankly I didn't analyze for long enough to be very sure of my initial intuition which is to stay away from it.

I know it is generally impossible to enforce reputation on a 100% decentralized system. So I am intuitively skeptical of P2Pool.

P.S. I won't have time to go back here and debate. I am technically qualified and I am 100% sure I am correct.

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