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Author Topic: The current Bitcoin economic model doesn't work  (Read 81252 times)
BubbleBoy
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June 06, 2011, 07:01:49 AM
 #361

The value of money produced equals the value of capital sacrificed, with capital being composed of means of production (hardware), used up materials and labour. How could this be desirable? Such a society puts all its efforts into producing its currency. And all it can buy for it is its currency.

You are clearly correct on your underlying assumption: Bitcoin is similar to gold in that, at equilibrium, it tends to have the same value as the work needed to create it. If by a thought experiment we equate the value of all goods and services with the market capitalisation of Bitcoin we have a full blown eco-catastrophe one our hands: I computed that if Bitcoin were to replace the USD monetary base somewhere in the next 10 years, minting bitcoins would suck up 70% of US's electricity production at current prices.

So Bitcoin is a quite inefficient format of money but I wouldn't go so far as to say "all the society can buy is the value of bitcoins". Once mintend bitcoins have an unlimited shelf life and can participate in an indefinite number of transactions. For the first transaction the global "fee" imposed by bitcoin is 50%, for the second 33% and so on. This is the same way a limited supply of USD monetary base (~2trillion) can participate in a 14 trillion GDP every year.
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June 06, 2011, 07:05:53 AM
 #362

The value of money produced equals the value of capital sacrificed, with capital being composed of means of production (hardware), used up materials and labour. How could this be desirable? Such a society puts all its efforts into producing its currency. And all it can buy for it is its currency.

You are clearly correct on your underlying assumption: Bitcoin is similar to gold in that, at equilibrium, it tends to have the same value as the work needed to create it. If by a thought experiment we equate the value of all goods and services with the market capitalisation of Bitcoin we have a full blown eco-catastrophe one our hands: I computed that if Bitcoin were to replace the USD monetary base somewhere in the next 10 years, minting bitcoins would suck up 70% of US's electricity production at current prices.

So Bitcoin is a quite inefficient format of money but I wouldn't go so far as to say "all the society can buy is the value of bitcoins". Once mintend bitcoins have an unlimited shelf life and can participate in an indefinite number of transactions. For the first transaction the global "fee" imposed by bitcoin is 50%, for the second 33% and so on. This is the same way a limited supply of USD monetary base (~2trillion) can participate in a 14 trillion GDP every year.

Gibberish.

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June 06, 2011, 08:21:47 AM
 #363


Without the introduction of any assumptions, the Equation of Exchange is a tautology ( http://en.wikipedia.org/wiki/Tautology_%28logic%29 ) like it is stated in http://en.wikipedia.org/wiki/Equation_of_exchange . Equations always need to be fulfilled - that's why they are called equations!  On the left, (M=Total quantity of bitcoins in exchange) x (V=Total number of times the quantity of bitcoin in exchange is exchanged in a certain time period) should equal the right, (Q=Total quantity of goods/services/other exchanged for bitcoin in exchange in a certain time period) x (P = Value relationship between M and Q, giving rise to a rate of exchange, inflation/deflation in the rate of exchange)


English Wikipedia is not entirely correct on this matter. I was just pointing you to the fact that only the classical version of the equation of exchange is the one that is a tautology. The one where T is replaced by Q is just an approximation. Try google translate on the german wikipedia, it has some explanation.



Is it equitable to have a system where you reward some arbitrarily issuer during deflationary periods with more bitcoins, and inversely punish subsequently all bitcoin holders by debasing their existing holding during inflationary periods?  Will you be able to withdraw bitcoins during an inflationary period to keep your M constant in your system? Are you only going to ask the arbitrary issuing parties from the deflationary period to return their bitcoins when an inflationary period arrives, or are you going to give to some in a deflationary period and take from all in an inflationary period? When goods/services/other offered for exchange with bitcoins decreases (inflationary bitcoin system) - all the holders of bitcoins will have to bear the brunt of the decrease in the value relationship (rate of exchange = P = Value relationship between bitcoin and goods/services/other available for exchange with bitcoin).  The holder of bitcoin makes the decision whether he would offer more bitcoin available for exchange, thus influencing M (M = bitcoins available for exchange).  Thus holders of bitcoins should be rewarded/punished as more or less goods/services/other are offered for exchange with bitcoins available for exchange.  Bitcoin already adjusts the Equation of Exchange dynamically - and does not reward some arbitrary issuer under deflationary circumstances - and punish all bitcoin holders under inflationary circumstances.  Coin generators are incentivised by network difficulty changes in combination with their reward (for securing the network) based on P (value relationship of bitcoin to other) to increase/decrease their share of supply to the network difficulty - bringing balance in network difficulty based on the Equation of Exchange's balanced P.  Every coin generator has another profitable decision point on this, depending on his cost/profit/future expectation structure.  Your system is doomed for failure - as it will reward a non-holding issuer (imagine that in the sense of company shares, I'm a holder of shares but someone else dilutes my value by issuing more shares not to us holders - but to himself!!) during deflationary periods and punish existing holders during inflationary periods (imagine that in the sense of company shares, now that the shares are less valued - the other person who is issuing shares in deflationary periods are not un-issuing shares now that we have an inflationary period and all holders of shares now get devalued shares!!)  Deflation/Inflation is necessary as a measurement of how much bitcoin is valued.  If you feel uncomfortable with deflation/inflation (of bitcoin, shares, pigs, gold, etc.), don't be a holder of them - if you still want to use them in trade - trade for them and minimize your risk by minimizing your exposure risk period by exchanging on the fly.  Ultimately the holder of bitcoin is taking the risk, and should be rewarded or punished by uptake or flight of exchangeable goods/services/other from the bitcoin system.

If you do not want to invest in Bitcoin by being a Bitcoin holder and having the subsequently reward/risk on your investment (free market capitalism),

but still want to use it as a medium of exchange and reduce your exposure to its reward/risk (deflation/inflation) - there is a simple solution - exchange it immediately after you received it in exchange, back to your medium of choice (on the fly, programmatically if you prefer).

With regards to hoarding - as long as people have needs and only other people can fulfill in that need and they have some medium of exchange, wouldn't they use that medium of exchange to fulfill in that need?  Isn't nearly 5x more bitcoin exchanged than gold due to its ease of exchange?

With regards to early adopters - wouldn't people adopting now, again be viewed as early adopters in a year as well?  If you valued something when no one else did, didn't you satisfied the equation of exchange at your time of adoption?  Again aren't you exposed to possible reward/risk (deflation/inflation) from your point of adoption?

I wonder what you mean by "arbitrarily issuer" ? I don't want to change the system how bitcoins are issued, they are still generated when a block is solved by the network. Just the number of bitcoins generated should be adjusted according to the equation of exchange.

You change your definition of M in this paragraph to the one above.

Yes the equation of exchange is already balanced by a changing P, but as you said yourself, it is a tautology, so this is not surprising. What is necessary for a currency though, is stable value. So it should not be balanced by P, which should stay constant, but by the money supply, which is a constant 50BTC/10min at the moment, and will only decrease in the future.

I'm not uncomfortable holding a good that's rising and falling in value. But i would never exchange a good that i expect to rise in value for another good which i don't expect to rise in value. That's why i will keep my bitcoins and not use them as a medium of exchange.


alexk
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June 06, 2011, 08:36:28 AM
 #364

alexk, how are you going to measure the demand for money?

Hint: its impossible.

Thank you for the question.

You are right in your statement, that the current money demand is hard, if not impossible to measure. In my opinion, you can give a pretty good estimate by looking at the past demand of money, the part P*T of the equation of exchange.

How are you going to measure the current computing power of the bitcoin network? It's also impossible. But still, the difficulty is changed dynamically by linking it to some average of past computing power.

My idea for bitcoins is to dynamically change the number of bitcoins created per block dynamically and link it to some average of the number of transactions, to keep the price level constant. As the difficulty to solve a block is already changed dynamically this wouldn't be difficult, i think.

Long answer:
During the gold standard, gold was the value standard and money was the medium of exchange. Central banks gave the guarantee, that everyone can, at any time, exchange his currency holdings into gold. This guaranteed that the value of money was linked to the value of gold, that's why gold is called "value standard" here.
Suppose that the central bank overestimated money demand and increased money supply too much. People would then start to exchange currency into gold more, which would force the central bank to limit money supply to protect their gold holdings. If the central bank underestimated money supply people would start to exchange gold into currency, thus giving the central bank an indicator to increase money supply.

Offtopic:

This is how central banks promised they would opperate, its not how they actually operated.
[/quote]

I'm sure there are more historical details to it, I just wanted to explain the function of the value standard. If you have some more knowledge i would appreciate if you share it.


alexk
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June 06, 2011, 08:49:21 AM
 #365

I tried to give you a constructive answer.  Maybe a Eureka moment will come.

Hopefully and then you will realize you can not calculate the demand for money because nobody is able to access the needed information.

Btw, you can keep trying to explain how you can calculate the demand for money. Its entertaining.

And still his Eureka moment did not come  Huh

Thank you for the permission to try and shed light on the matter for you.

After proving a tautology (the Equation of Exchange) in a previous post to you, this is taken as truth, fact, cast in stone (without further assumptions):  M x V = P x Q     -- Simple mathematics, logic and common sense - you can not change it - unless you live in a different distorted reality.

If
M x V = P x Q
and %... means % change of ... ,
as an approximation, this equation may apply:
%M + %V = %P + %Q

Current M = 6,448,200 BTC ( http://www.bitcoinwatch.com )
From 17 August 2010 to 5 June 2011 (292 days):
bitcoin medium of exchange rate 292 days ago = 0.07 MtGUS$ / btc Close rate ( http://bitcoincharts.com )
bitcoin medium of exchange rate current = 16.70 MtGUS$ / btc Close rate ( http://bitcoincharts.com )
In the bitcoin system for the previous 292 days, the following will be
M expansion past 292 days = 50btc/10 min x (6 x 10 min / hour) x 24 h / day x 292 days = (50 x 6 x 24 x 292) btc = 2,102,400 btc
For the past 292 days:
%M = (M expansion) / (Current M - M expansion) = 2,102,400 btc / (6,448,200 btc - 2,102,400 btc) = 48.3777%
%P = (bitcoin medium of exchange rate 292 days ago - bitcoin medium of exchange rate current) / bitcoin medium of exchange rate 292 days ago = (0.07-16.70) / 0.07 = -237.57143 x 100% = -23,757.143%
%V = 0 assumed

To calculate %Q:
rearrange above equation to:
%Q = %M + %V - %P
substituting values for past 292 days:
%Q = 48.3777% + 0% - (-23,757.143%) = 23,805.5207%

%Q is the percentage change of goods/services/other offered in exchange for btc.

To calculate the demand for M for past 292 days:  Take %M as zero additionally and substitute into formula to calculate %Q (as %Q - change in goods/service/other offered in exchange for medium of exchange, should equal the change in demand for medium of exchange in a system where the medium of exchange stays constant, the velocity of the medium exchange stays constant and only the value ratio between the medium of exchange and the goods/services/other offered for exchange changes together with the quantity of goods/services/other offered for exchange with the medium of exchange changes):

So %Q = %M + %V - %P
substituting %M as 0% as well together with prior values:
%Q = 0% + 0% -(-23,757.143%) = 23,757.143%

this is however a distortion because %M were taken as 0% and not the correct 48.3777%.  If the medium of exchange did not suffer expansion - the inverse of 48.3777% would have been included in %P in the system and %P would have equaled %P = (-23,757.143%) - 48.3777% = 23,805.5207%

substituting these values in %Q = %M + %V - %P gives:
%Q = 0% + 0% + 23,805.5207% = 23,805.5207%

In other words the change in goods/service/other offered for exchange (%Q) for the medium of exchange (M) will equal the demand for medium of exchange in a system where the velocity of the medium of exchange (V) remains constant (%V = 0%) and this will be reflected in the expansion of the medium of exchange (%M) in combination with the change in the value ratio of the medium of exchange and the goods/services/other offered for exchange (%P).  So if you can measure %Q it will give you the demand for medium of exchange, otherwise you need free market exchange ratio (P) discovery to do it for you and not be tampering with medium of exchange expansion/contraction (%M) or if you do you need to tamper this tampering need to be included in calculating your %Q.

Bitcoin's status quo, without the proposals for changes mentioned in this post, has a known rate of medium of exchange expansion (%M known) - so it is easy to include it in the calculations.  Actually the change in the medium of exchange's market valuation rate is determined automatically by the free market and in known (%P known), keeping the relationship between medium of exchange and goods/services/other offered for exchange intact with regards to the Equation of Exchange.  If you knew the correct change in the velocity of the medium of exchange, and do not want to assume %V = 0, the velocity of medium of exchange will be known as well  (%V known).  From %M, %P and %V known you may calculate %Q if you wanted to.  If you have a very comprehensive network of reporting you may calculate the changes in goods/services/other offered in exchange for the medium of exchange (%Q known) and then you can calculate the correct value for the velocity of the medium of exchange which you assumed as %V = 0.  But then again if the unknown (if no reporting data available to calculate) is proportionally and inversely cancelled by each other in %Q and %V, and you have %P and %M and assumes %V=0% this will give you and adequate relationship to calculate the demand for medium of exchange as reflected in the variable %P.

Disclaimer:  Postings of Cloud9 are only individual views of opinion and/or musings and/or hypothesisses.  On a non-authoritative, peer-to-peer public forum, you do not need permission from Cloud9 to derive your own conclusions or opinions, so please do.  Calculations and assumptions to be verified.
alexk
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June 06, 2011, 09:02:14 AM
 #366

With Bitcoins, I see the great opportunity to create a currency that's both value standard and medium of exchange, but, unlike other currencies, you can adjust the supply dynamically to the demand exactly, since the number of transactions and the velocity of money can be calculated exactly.

While it's easy to find a party willing to receive the proceeds of seigniorage, how do you propose to diminish the monetary base in inflationary times ? A tax perhaps, so that besides loosing value, the money you hold are automatically taxed by the system ? Basically, rewarding those responsible for inflation (debtors) and punishing savers ? I think this would quickly lead to an inflationary spiral where everybody wants to get out of that pesky currency that looses value by the minute.

The only way to achieve what you are proposing would be if the receivers of seigniorage are committed to defend the currency during inflation, by selling for bitcoins the assets bough during expansion. I think it's fair to say that will never happen, so the best we can hope is for a non-deflationary currency, that could lose value at any moment if the market decides to abandon it.

Thank you for your reply and for thinking about my proposed idea. This is a very good point.

As you correctly point out, if the number of transactions in the bitcoin economy is decreasing, with my proposed idea the number of bitcoins generated per block would have to be negative. Then there is no more incentive for the miners to let their computers run.

One simple solution would be to set a minimum of 0 created bitcoins per solved block and accepting light inflation, if the bitcoin economy is shrinking. As i don't expect the bitcoin economy to shrink very often, this might be feasible.

Another solution would be, to take some fraction of the transaction fees, that are awarded to the successful miner and remove it from the system. The miner would still get a positive return on a solved block.

There might also be some better solutions to this problem.


PS: I'd very weary of using the equation of exchange without fully understanding what's being exchanged: the "goods" are MtGox dollars, for which there's no intrinsic demand inside the Bitcoin economy, and the price index is purely artificial, driven by the speculation that someday the economy will exchange other things besides dollars.

In my understanding, the goods in the equation of exchange can be anything that anyone is willing to sell for bitcoins.


PPS: what you are seeing in the block-chain is not the velocity of money, but rather an artifact of how the system operates. There's no basis to use that for macroeconomic purposes since it would be easy to manipulate the apparent velocity for example by moving my BTC 1.000.000 from one wallet to another, all day long. If you don't trust the goverment published CPI, the only valid estimator of inflation is the price in bitcoins of one alpaca sock.

Ok, i see how manipulations can be made to this system. For this to be possible though, one has to have a huge number of BTC and must be willing to manipulate the system for more inflation. I don't see how these two requirements can go together.


alexk
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June 06, 2011, 09:05:37 AM
 #367

Alexk:

In essence what you want to do is to transfer the risk/reward of holding bitcoins from the bitcoin holder to the bitcoin generator.  Which is not fair - if you dilute bitcoins, by issuing more, you are punishing bitcoin holders and rewarding the bitcoin generators you are issuing it to.  If the goods/services/other in offered in exchange for bitcoins diminish and the rate of exchange with it - from whom are you gonna retract bitcoins to enable a stable rate of exchange?  Are you only going to retract it proportionally now from all the bitcoin generators who might not even be bitcoin holders at that stage - or are you then going to punish the bitcoin holders and retract it proportionally from them - which would not be equitable because you did not issue more to them when the inverse scenario hold true?

Under the bitcoin's generation system, a bitcoin generator are rewarded by the bitcoin expansion which is quite substantial at present, and which will diminish over time, and minimum transaction fees on a massive amount of transfers will become a replacement for rewarding bitcoin generation / network securing.

Disclaimer:  Postings of Cloud9 are only individual views of opinion and/or musings and/or hypothesisses.  On a non-authoritative, peer-to-peer public forum, you do not need permission from Cloud9 to derive your own conclusions or opinions, so please do.  Calculations and assumptions to be verified.
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June 06, 2011, 09:09:22 AM
 #368

I would rather know by bitcoins exchange value what my bitcoin's share in the total number of bitcoins value are than having to do an additional calculation by calculating my number of bitcoins divided by your now changing number of bitcoins and multiplying that by the exchange value to know what my bitcoin's share in the total number of bitcoins values are.

If more goods/services/other are added for exchange with bitcoin, bitcoin's value go up.
If less goods/services/other are added for exchange with bitcoin, bitcoin's value will go down.

And actually you need to account for the bitcoin expansion already issued to bitcoin generators as well.

So if more goods/services/other are added, for exchange with bitcoin, than bitcoins are issued to bitcoin generators, bitcoin's value go up.
So if less goods/services/other are added, for exchange with bitcoin, than bitcoins are issued to bitcoin generators, bitcoin's value go down.

Disclaimer:  Postings of Cloud9 are only individual views of opinion and/or musings and/or hypothesisses.  On a non-authoritative, peer-to-peer public forum, you do not need permission from Cloud9 to derive your own conclusions or opinions, so please do.  Calculations and assumptions to be verified.
BubbleBoy
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June 06, 2011, 10:16:12 AM
 #369

One simple solution would be to set a minimum of 0 created bitcoins per solved block and accepting light inflation, if the bitcoin economy is shrinking. As i don't expect the bitcoin economy to shrink very often, this might be feasible.

That sounds like a sensible conclusion. I think it all depends on what's being done with the printed money. I would be perfectly fine to hold a decent amount of internet money if I knew they are the result of charitable giving, that is most or all printed money were exchanged for dollars that were spent to make the world a better place. If they are abandoned by the market and end up valueless, it's as if every holder of the currency was forced to foot the bill of the initial charity giving - not so bad overall.
OTOH I believe most people will reject money backed partly by a huge electricity and resource waste, partly the result of early speculators getting rich.

Quote
Another solution would be, to take some fraction of the transaction fees, that are awarded to the successful miner and remove it from the system. The miner would still get a positive return on a solved block.

Taxing those who trade to the benefit of the hoarders seems like a bad way to regulate the business cycle. It either leads to an economic downturn (people stop economic activity of fear of being taxed), or a rush to get out of the bad, taxy currency and into a better medium of exchange, the hiperinflationary spiral I was warning about.

Quote
In my understanding, the goods in the equation of exchange can be anything that anyone is willing to sell for bitcoins.

Sure, but both the price index and the amount of 'economic activity' (MtGox swaps) are imposed externally, by the speculative interest spurred by Bitcoin. So these are the causes of the effects on the other variables, and since they are unpredictable, as all speculative bubbles are, it can't lead to any meaningful conclusion over the Bitcoin economy.


Quote
Ok, i see how manipulations can be made to this system. For this to be possible though, one has to have a huge number of BTC and must be willing to manipulate the system for more inflation. I don't see how these two requirements can go together.

My macro intuition would call any increase in the apparent velocity to be a sign of coming inflation, so the macro model would move to reduce the liquidity, increase the value, create deflation and reward those who hold assets, who are thus incentivized to collude and manipulate the apparent velocity and game the system.
If I'm wrong and you are looking to do the opposite, then the system can be gamed by those who don't own the money they are moving, for example debtors or traders. I could borrow 2 million BTC, buy 1 million BTC worth of gold, then use the spare 1 million to game the system, devalue BTC by 10% in relation to gold, sell back the gold for 1.1  BTC, repay the 2 million and pocket the 100K BTC.
So any reliance on the blockchain for macro adjustments can be gamed by debtors or savers, and can't be countered by the the opposite party.
I wouldn't discount such an influence: if the average BTC changes hands every week - month or so (GDP/M1), the manipulator could spend it in every block, 1680 time a week. So the manipulator can increase the apparent velocity by 10% if he holds only 0.006% of the money supply.

In conclusion, the correct way to achieve price stability is the good old method: aim for constant price for the Bitcoin Standard Commodity Basket which is hereby defined to consist of one alpaca sock, four large carrots and two pizzas.
I doubt inflation estimation can be automated and made 100% reliable and mechanical.
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June 06, 2011, 11:07:03 AM
 #370


People who do not understand money can say the dumbest things.

Gotcha BTC yet or just here to troll away happily?

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June 06, 2011, 11:55:04 AM
 #371

Alexk:

In essence what you want to do is to transfer the risk/reward of holding bitcoins from the bitcoin holder to the bitcoin generator.  Which is not fair - if you dilute bitcoins, by issuing more, you are punishing bitcoin holders and rewarding the bitcoin generators you are issuing it to.  If the goods/services/other in offered in exchange for bitcoins diminish and the rate of exchange with it - from whom are you gonna retract bitcoins to enable a stable rate of exchange?  Are you only going to retract it proportionally now from all the bitcoin generators who might not even be bitcoin holders at that stage - or are you then going to punish the bitcoin holders and retract it proportionally from them - which would not be equitable because you did not issue more to them when the inverse scenario hold true?

Under the bitcoin's generation system, a bitcoin generator are rewarded by the bitcoin expansion which is quite substantial at present, and which will diminish over time, and minimum transaction fees on a massive amount of transfers will become a replacement for rewarding bitcoin generation / network securing.

I admit that destroying bitcoins is not easy to accomplish in my proposed bitcoin-generating system. I suggested two possible solutions in my post above, you might be able to find a better solution.


I would rather know by bitcoins exchange value what my bitcoin's share in the total number of bitcoins value are than having to do an additional calculation by calculating my number of bitcoins divided by your now changing number of bitcoins and multiplying that by the exchange value to know what my bitcoin's share in the total number of bitcoins values are.

If more goods/services/other are added for exchange with bitcoin, bitcoin's value go up.
If less goods/services/other are added for exchange with bitcoin, bitcoin's value will go down.

And actually you need to account for the bitcoin expansion already issued to bitcoin generators as well.

So if more goods/services/other are added, for exchange with bitcoin, than bitcoins are issued to bitcoin generators, bitcoin's value go up.
So if less goods/services/other are added, for exchange with bitcoin, than bitcoins are issued to bitcoin generators, bitcoin's value go down.

In my understanding, your idea for the value of bitcoins is the following:

If more goods/services/other are added for exchange with bitcoin, bitcoin's value go up.
If less goods/services/other are added for exchange with bitcoin, bitcoin's value will go down.


In my understanding, my proposed system works like this:

If more goods/services/other are added for exchange with bitcoin, bitcoin's value stays the same.
If less goods/services/other are added for exchange with bitcoin, bitcoin's value stays the same.


I own bitcoins now and i expect there will be more goods available in the future that can be bought with bitcoins. I will not exchange my bitcoins for these goods, as they will continue to gain value. For a currency, in my opinion it is important that it has stable value.


alexk
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June 06, 2011, 02:32:59 PM
 #372


People who do not understand money can say the dumbest things.

Gotcha BTC yet or just here to troll away happily?

OMG, this thread is still going...

I'm starting to think this is a deliberate action to weaken the faith of some people (read: n00bz) in Bitcoin.
Since CIA already admitted its interest in Bitcoin, this is a likely scenario.

Of course, it is not going to be successful. Market verifies everything. People can discuss all the time and even write essays, but the market will verify their claims.

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June 06, 2011, 03:31:03 PM
 #373

OMG, this thread is still going...

I'm starting to think this is a deliberate action to weaken the faith of some people (read: n00bz) in Bitcoin.
Since CIA already admitted its interest in Bitcoin, this is a likely scenario.

Of course, it is not going to be successful. Market verifies everything. People can discuss all the time and even write essays, but the market will verify their claims.

We don't need The CIA doesn't need to post anything to ruin the project. They have I'm sure they have a fake proof-of-work ready to launch whenever they feel Bitcoin has grown too dangerous. One extra block at that chain's end transferring everybody's money into the CIA account is all what's needed for a clean game over.
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June 06, 2011, 03:52:17 PM
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OMG, this thread is still going...

I'm starting to think this is a deliberate action to weaken the faith of some people (read: n00bz) in Bitcoin.
Since CIA already admitted its interest in Bitcoin, this is a likely scenario.

Of course, it is not going to be successful. Market verifies everything. People can discuss all the time and even write essays, but the market will verify their claims.

We don't need The CIA doesn't need to post anything to ruin the project. They have I'm sure they have a fake proof-of-work ready to launch whenever they feel Bitcoin has grown too dangerous. One extra block at that chain's end transferring everybody's money into the CIA account is all what's needed for a clean game over.

LOL. So they've broken ECDSA (or at least secp256k1) and SHA-256? No, I don't think so, this isn't a made for TV movie.
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June 06, 2011, 03:58:59 PM
 #375

LOL. So they've broken ECDSA (or at least secp256k1) and SHA-256? No, I don't think so, this isn't a made for TV movie.

They don't need to break anything. If I understood the crypto design correctly, they only need to have their computers working collectively to produce an identical but longer proof-of-work which honest nodes would then endorse. I'm almost certain they started producing it much earlier than now so they'd be ready to launch it once there's a political decision. They'll also probably blame it on Iran, Anonymous, or the imaginary Al-Qaeda for the lulz.
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June 06, 2011, 04:03:12 PM
 #376

LOL. So they've broken ECDSA (or at least secp256k1) and SHA-256? No, I don't think so, this isn't a made for TV movie.

They don't need to break anything. If I understood the crypto design correctly, they only need to have their computers working collectively to produce an identical but longer proof-of-work which honest nodes would then endorse. I'm almost certain they started producing it much earlier than now so they'd be ready to launch it once there's a political decision. They'll also probably blame it on Iran, Anonymous, or Al-Qaeda for the lulz.

The only thing they can do with a longer chain is double spend their own coins or prevent the transactions of others from confirming (as long as their chain is always the longest, harder than it sounds). In order to spend other people's coins you would have to break the ecliptic curve digital signing algorithm, or specifically curve secp256k1.

How easy it is to hypothesize about Bitcoin's susceptibility to attack without even understanding how it works.
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June 06, 2011, 04:14:00 PM
 #377

LOL. So they've broken ECDSA (or at least secp256k1) and SHA-256? No, I don't think so, this isn't a made for TV movie.

They don't need to break anything. If I understood the crypto design correctly, they only need to have their computers working collectively to produce an identical but longer proof-of-work which honest nodes would then endorse. I'm almost certain they started producing it much earlier than now so they'd be ready to launch it once there's a political decision. They'll also probably blame it on Iran, Anonymous, or the imaginary Al-Qaeda for the lulz.

You talk much, but you really understand nothing about the protocol.

We have a saying in my country, which roughly translates to "A cow which makes a lot of noise, gives little milk". And that is the problem in your case.

BTW, I support the idea of creating newbie forum subsection for such foolish discussions.

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June 06, 2011, 04:20:26 PM
 #378

The only thing they can do with a longer chain is double spend their own coins or prevent the transactions of others from confirming (as long as their chain is always the longest, harder than it sounds). In order to spend other people's coins you would have to break the ecliptic curve digital signing algorithm, or specifically curve secp256k1.
Ah, so freezing the transaction confirmations, thus preventing anyone from spending their money isn't such a big deal huh? I see you're not as smart as your post-count.

We have a saying in my country, which roughly translates to "A cow which makes a lot of noise, gives little milk". And that is the problem in your case.
Right. So a cow with 1015 decibel noise which moos just for the purpose of mooing probably gives less milk than most.

I support the idea of creating a newbie forum for such foolish discussions.
And I support the idea of creating a bigmouthie forum for bored Hero Members who're desperately trying to increase their post count even by babbling fruitless nonsense.
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June 06, 2011, 04:26:26 PM
 #379

The only thing they can do with a longer chain is double spend their own coins or prevent the transactions of others from confirming (as long as their chain is always the longest, harder than it sounds). In order to spend other people's coins you would have to break the ecliptic curve digital signing algorithm, or specifically curve secp256k1.
Ah, so freezing the transaction confirmations, thus preventing anyone from spending their money isn't such a big deal huh? I see you're not as smart as your post-count.

If you would understand the specification, you would know that this is impossible.
Even if CIA accumulates 90% of network's processing power, transactions will still confirm. Much slower yes, but they will.
.
.
I support the idea of creating a newbie forum for such foolish discussions.
And I support the idea of creating a bigmouthie forum for Hero Members who're mindlessly trying to increase their post count even by babbling fruitless nonsense.

Playing "smartass" without understanding anything is the domain of the mindless.
So it is clear who is mindless here.

I have no more time to continue this idiotic & fruitless discussion, I'm outta here.

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June 06, 2011, 04:34:28 PM
 #380

Even if CIA accumulates 90% of network's processing power, transactions will still confirm. Much slower yes, but they will.
Nobody said anything about them accumulating a certain % of the network's processing power. I was talking about them developing a whole new fake blockchain thus luring the honest nodes into accepting their new fake blocks instead of the genuine ones.

If you would understand the specification, you would know that this is impossible.
The problem isn't in my understanding of the specification, it's in your ability to read.

Playing "smartass" without understanding anything is the domain of the mindless.
So it is clear who is mindless here.
+1

I have no more time to continue this idiotic & fruitless discussion, I'm outta here.
Thanks. Are you sure you won't be back shortly to waste our time while increasing your Linux pride with even more post count?
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