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Author Topic: the oddly familiar world of bitcoin economics  (Read 1268 times)
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December 11, 2011, 04:39:44 PM
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the oddly familiar world of bitcoin economics

2011-12-10
Greg Fish

http://worldofweirdthings.com/2011/12/10/the-oddly-familiar-world-of-bitcoin-economics/

About Greg Fish:
"Greg Fish is a computer science grad student and science blogger whose work appears on BusinessWeek, Discovery News and The Panda’s Thumb, and featured on Bad Astronomy, SEED, and io9. He specializes in writing about unusual cutting edge science and promoting skepticism and sound scientific education."

The author asserts "Nakamoto never intended to have large bitcoin pools concentrated in few hands or to have users hand over a large virtual wallet to online repositories which functioned exactly like the banks that were meant to be made obsolete by the P2P nature of the currency. "

I guess Bitcoin didn't really fix the problem of concentration of control, now did it? This is made even more painful by the small, small size of the bc universe. So small in fact, that it resembles nothing so much as the world of low market capitalization penny stocks, where the total value of shares outstanding in a given issue is so small that it can be manipulated by a single player or a few in collusion.

A private bitcoin wallet in your possession and control is a basic and nifty feature, I have some lunch money in one myself. It would appear that implementing the "possession and control" part is neither clear nor appealing for many individuals. Not my problem, but I've seen a couple of "I think I've been hacked by space aliens" threads here that illustrate why folks may be found who would gravitate to a deposit service, so bitcoin as currently implemented is not addressing their need.

I suspect you would find that if the bulk of bitcoins were in private wallets used for primarily for in-kind exchange there would be less volatility as well, but at some point an exchange needs to take place, for example merchants receiving payment need to pay their bills in the local coin of the realm. Inevitably, these concentrations of value that link bitcoin with other currencies become vehicles of hedging and speculation - can you say Bitcoinica?

This and other issues, for example the mining implementation and perhaps the mining concept itself, make me hope that Bitcoin is not an end state. It's a very clever exercise technically, but I can only hope what we have here is the testing of a prototype that should result in improvement.

"Bitcoins are for the most part as useless as they ever were."
 - Edward50
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December 11, 2011, 06:36:25 PM
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the oddly familiar world of bitcoin economics

2011-12-10
Greg Fish

http://worldofweirdthings.com/2011/12/10/the-oddly-familiar-world-of-bitcoin-economics/

About Greg Fish:
"Greg Fish is a computer science grad student and science blogger whose work appears on BusinessWeek, Discovery News and The Panda’s Thumb, and featured on Bad Astronomy, SEED, and io9. He specializes in writing about unusual cutting edge science and promoting skepticism and sound scientific education."

The author asserts "Nakamoto never intended to have large bitcoin pools concentrated in few hands or to have users hand over a large virtual wallet to online repositories which functioned exactly like the banks that were meant to be made obsolete by the P2P nature of the currency. "

This is demostratablely not so.  I've seen posts on this forum by him/her that imply that he expected some consolidation of hashing power into professional mining groups, and that when the time was right, a parrallel transaction clearing network would arise that would leave the main bitcoin network as a kind of user accessible 'backbone'.  It may or may not have occurred as s/he imagined it, but that is part of the point.  The rise of professional financial bitcoin services is not what s/he was trying to prevent; but instead prevent a form of central bank from arising that could dominate the network.  Although it requires that we pay attention, any mining pool that approaches the 51% mark gets knocked around by the membership.  This will no longer be necessary after a certain size, much like it's no longer necessary for us to be too concerned about a single majority attacker today.  The pools, at least, can't really hide their network power.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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December 11, 2011, 09:04:55 PM
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the oddly familiar world of bitcoin economics

2011-12-10
Greg Fish

http://worldofweirdthings.com/2011/12/10/the-oddly-familiar-world-of-bitcoin-economics/

About Greg Fish:
"Greg Fish is a computer science grad student and science blogger whose work appears on BusinessWeek, Discovery News and The Panda’s Thumb, and featured on Bad Astronomy, SEED, and io9. He specializes in writing about unusual cutting edge science and promoting skepticism and sound scientific education."

The author asserts "Nakamoto never intended to have large bitcoin pools concentrated in few hands or to have users hand over a large virtual wallet to online repositories which functioned exactly like the banks that were meant to be made obsolete by the P2P nature of the currency. "

This is demostratablely not so.  I've seen posts on this forum by him/her that imply that he expected some consolidation of hashing power into professional mining groups, and that when the time was right, a parrallel transaction clearing network would arise that would leave the main bitcoin network as a kind of user accessible 'backbone'.  It may or may not have occurred as s/he imagined it, but that is part of the point.  The rise of professional financial bitcoin services is not what s/he was trying to prevent; but instead prevent a form of central bank from arising that could dominate the network.  Although it requires that we pay attention, any mining pool that approaches the 51% mark gets knocked around by the membership.  This gwill no longer be necessary after a certain size, much like it's no longer necessary for us to be too concerned about a single majority attacker today.  The pools, at least, can't really hide their network power.

The properties of mining pools or how they are supposed to work is all very interesting, of course Bitcoin makes sense within it's own framework. There are dozens of folks around here who can recite the rules of Bitcoin, there don't seem to be many right now who are thinking outside the Bitcoin Box. For example, from my point of view, mining is a crude energy-wasting hack and a sucker game for miners who should and will achieve a near zero rate of return over time. The arms race to mine faster and faster may not affect bitcoin within itself, but does have consequences one would hope weren't by design.

In any case I made a point of leading with the phrase 'The author asserts', as what "Nakamoto" may have anticipated in the design versus actual outcomes simply can't be addressed by others, including those who cite what are *perhaps* postings by him/her/it.

Your response completely overlooks the consequences of the uneven concentration of economic power within the tiny world of Bitcoin in the form of exchanges. In this area the author of the article makes a point which is valid, not to say obvious, irrespective of what the alleged thoughts of Nakamoto may be.

Given the orphan status of Bitcoin's design and implementation, it makes particular sense to look at it as it is, not as it is *supposed* to be. So far it certainly doesn't have a flexible history of adapting to unintended consequences, and explanations to the effect that consequences are within the design are entirely too convenient to spin up out of whole cloth.

"Bitcoins are for the most part as useless as they ever were."
 - Edward50
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December 12, 2011, 04:40:19 AM
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Your response completely overlooks the consequences of the uneven concentration of economic power within the tiny world of Bitcoin in the form of exchanges. In this area the author of the article makes a point which is valid, not to say obvious, irrespective of what the alleged thoughts of Nakamoto may be.

I have never used any exchange to either obtain bitcoins, nor cash out into any other currency.  Considering that I'm surely far from unique, by what logic do you state the above?

Quote
Given the orphan status of Bitcoin's design and implementation, it makes particular sense to look at it as it is, not as it is *supposed* to be. So far it certainly doesn't have a flexible history of adapting to unintended consequences, and explanations to the effect that consequences are within the design are entirely too convenient to spin up out of whole cloth.

I do not see the unintended consequences that you seem to see.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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December 12, 2011, 04:50:47 AM
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Your response completely overlooks the consequences of the uneven concentration of economic power within the tiny world of Bitcoin in the form of exchanges. In this area the author of the article makes a point which is valid, not to say obvious, irrespective of what the alleged thoughts of Nakamoto may be.

I have never used any exchange to either obtain bitcoins, nor cash out into any other currency.  Considering that I'm surely far from unique, by what logic do you state the above?

Quote
Given the orphan status of Bitcoin's design and implementation, it makes particular sense to look at it as it is, not as it is *supposed* to be. So far it certainly doesn't have a flexible history of adapting to unintended consequences, and explanations to the effect that consequences are within the design are entirely too convenient to spin up out of whole cloth.

I do not see the unintended consequences that you seem to see.

Of course you don't. You are at the center of a perfect universe. Enjoy it while you can  Wink

"Bitcoins are for the most part as useless as they ever were."
 - Edward50
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December 12, 2011, 07:18:12 PM
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People having large amounts of coins has never been a problem. It will never be a problem. The only power that comes from that is exchanging it for equitable goods and services.

It is the means and force to distribute and allocate wealth through monetary control and seizure that cause destruction. Money itself is not that powerful of a force.

@HarveyAlpha (https://twitter.com/#!/HarveyAlpha) | It would be foolish to assert that there is no power above mine. Only the attitude that I take toward it will be quite another than that of the religious age: I shall be the enemy of every higher power.
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December 13, 2011, 08:47:01 AM
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Sticky ? I like the comments below:
Quote
Gavin Andresen PERMALINK
December 11, 2011
It seems to me it is a little early in Bitcoin’s life to be drawing any large-scale lessons from it. There’s a reason I say that Bitcoin is still an experiment.
For example, right now, the Mt. Gox exchange handles something like 80% of currency trades in and out of bitcoin, but I’m about 70% sure that in… oh, five years it will handle less than 20%.
And in 5 years I wouldn’t be at all surprised if most mining was done using the peer-to-peer pools that are just getting started, because fees will be much lower. Then again, I wouldn’t be at all surprised if 5 years from now most Bitcoin mining is done by huge companies in places where electricity is cheap or the heat generated by Bitcoin mining can be put to good use.
I bet most of today’s Bitcoin Oligarchs will NOT be the big power-players 5 or 10 years from now. That’s the beauty of a truly free market, and the reason I’m excited about Bitcoin– anybody anywhere in the world with an Internet connection can be tomorrow’s Bitcoin Baron if they have a great idea, the willingness to work hard to make it happen, and the luck of it being the right idea at the right time.
If I’m wrong and in 5 years Mt.Gox and the DeepBit mining pool rule Bitcoin then feel free to gloat and remind me of how right you were.

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December 13, 2011, 11:55:02 AM
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Sticky ? I like the comments below:
Quote
Gavin Andresen PERMALINK
December 11, 2011
It seems to me it is a little early in Bitcoin’s life to be drawing any large-scale lessons from it. There’s a reason I say that Bitcoin is still an experiment.
For example, right now, the Mt. Gox exchange handles something like 80% of currency trades in and out of bitcoin, but I’m about 70% sure that in… oh, five years it will handle less than 20%.
And in 5 years I wouldn’t be at all surprised if most mining was done using the peer-to-peer pools that are just getting started, because fees will be much lower. Then again, I wouldn’t be at all surprised if 5 years from now most Bitcoin mining is done by huge companies in places where electricity is cheap or the heat generated by Bitcoin mining can be put to good use.
I bet most of today’s Bitcoin Oligarchs will NOT be the big power-players 5 or 10 years from now. That’s the beauty of a truly free market, and the reason I’m excited about Bitcoin– anybody anywhere in the world with an Internet connection can be tomorrow’s Bitcoin Baron if they have a great idea, the willingness to work hard to make it happen, and the luck of it being the right idea at the right time.
If I’m wrong and in 5 years Mt.Gox and the DeepBit mining pool rule Bitcoin then feel free to gloat and remind me of how right you were.

link please?

"Money needs to be depoliticized, and the time has come for the separation of money and state to be accomplished."
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December 13, 2011, 01:16:54 PM
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link please?

see OP link, comment area.

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December 13, 2011, 03:54:36 PM
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OMG it's not like anarchy there's like still banks, and like, big guys, it didn't work, you all suck! Roll Eyes

Bitcoin functions perfectly as a solid, international, reliable backing for value on the internet. The rest will have to be built on top of that, and this is possible.

Anybody who expects BTC to be held by the typical customer has either no idea about computer security or about the typical customer.
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December 13, 2011, 07:10:25 PM
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The properties of mining pools or how they are supposed to work is all very interesting, of course Bitcoin makes sense within it's own framework. There are dozens of folks around here who can recite the rules of Bitcoin, there don't seem to be many right now who are thinking outside the Bitcoin Box. For example, from my point of view, mining is a crude energy-wasting hack and a sucker game for miners who should and will achieve a near zero rate of return over time. The arms race to mine faster and faster may not affect bitcoin within itself, but does have consequences one would hope weren't by design.


Due to the tendency of bitcoin mining to trend toward a net profit of zero, in the future people mining solely for the profit margin will all drop out of the mining business, and mining will be done by people who have other reasons to mine. Such as large businesses who use bitcoin for transactions, and want to see those transactions processed securely and quickly. The only people making money off mining will be the people who sell mining contracts, the mining contract will be bought so the large company does not have to delve into the world of mining, they will not have an expectation of making back their investment, it is an expense to keep the bitcoin system running.

Although individual mining nor pool mining will likely never competely cease, most of the mining in the future is likely to be the above example or similar examples.  A brick-n-mortar bank in a city that issues banknotes backed by bitcoins would not really need much of a safe, but would have a vested interest in mining both to help support the security of the system that they depend upon, but also to ensure timely processing of clients' transactions.  Such banks would likely form receprocity agreements to process the free transactions of other banks' customers, as well as advertise their median hashing power to attract customers.  Also, mining need not be looked on as a primary profit goal.  ICeland could become teh bitcoin mining capital of the world, simply becasue they have high levels of geothermal eletric capacity and need the heat.  Banks in the hot places of the world could simply contract with building management companies in ICeland and Siberia to mine in their favor, and the building uses the waste heat.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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