Cryptocurrency: is it worth it?

Vebyast · Post by **Vebyast** » Mon Jun 06, 2011 8:01 am

Koumei wrote:WoW Gold: less real
Digital Gold: less real
This: even less real than that

I'm certain that this is going to be misinterpreted, given how thoroughly the tools of rational discourse have been coopted by passive-aggressive trolls and other idiots, but: What's your reasoning?

Koumei · Post by **Koumei** » Mon Jun 06, 2011 8:17 am

WoW gold: you can't use it for real purchases and real things, but people are willing to convert USD or whatever to it, and they buy in-game things with it that they invest emotions and time into. So it's less real than so-called real money, but you can see how someone could attack a value to it.

Internet Gold is just stupid bullshit speculation, it... as much as a gold-backed currency is a silly idea in the real world, this is just crazy because you don't even have the actual gold there to use for the few uses it has, or to look pretty. You're just swapping money around and hoping another sucker makes you rich when you cash out.

Then there's this. It's not even that. It's not even speculating on something that may not even exist, it's just... setting computers aside to idle, doing nothing of value and hoping the lottery declares you a winner so you can have some money that you can spend on drugs. Now sure, maybe stores will, one day in the future, accept it as a method of payment, in which case it is just another form of money (and you get taxed on it like any other kind of money), but that depends on the stores all agreeing on a set value it has and not minding that every now and then someone comes along and magics up a few more of them. So at the moment, you can just use it for fraud or drugs, and you get them by pure arbitrarium that is based on even less than the internet gold speculation. Which is hard to do, given it has less meaning than WoW gold, which in turn is not something you can use to buy your groceries or fill your car up.

Murtak · Post by **Murtak** » Mon Jun 06, 2011 8:27 am

I find it hard to regard a system that artificially creates valuable tokens and later on makes those same tokens scarce as anything but a variant pyramid scheme. With any other online service you would expect the number of tokens to increase as the number of people who use the service increase. Heck, you would probably expect exponential growth, with more people using those tokens on more services. But at the very least linear growth should be expected. Logarithmical growth is extremely suspicious.

Vnonymous · Post by **Vnonymous** » Mon Jun 06, 2011 8:43 am

You can exchange money for bitcoins pretty easily nowadays. You can also exchange bitcoins for drugs, web hosting, clothes, computer parts and groceries.

And besides, you cannot say that the gold standard is bad and silly and condemn bitcoins while holding the same position. A bitcoin is worth exactly as much as a fiat currency(much like the USD) - they are both "completely unreal", and Bitcoin is a shit-ton more convenient than USD.

Draco_Argentum · Post by **Draco_Argentum** » Mon Jun 06, 2011 10:54 am

Vebyast wrote:I'll cite my sources, then. Bitcoin clocks in around 50 petaflops and is running 24/7.

Wow, this just went from silly to sad. 50PFLOPS wasted on playing the lottery and only 8PFLOPS for the biggest project that is actually useful.

Humanity, I am dissappoint.

RobbyPants · Post by **RobbyPants** » Mon Jun 06, 2011 12:43 pm

Vnonymous wrote:And besides, you cannot say that the gold standard is bad and silly and condemn bitcoins while holding the same position. A bitcoin is worth exactly as much as a fiat currency(much like the USD) - they are both "completely unreal", and Bitcoin is a shit-ton more convenient than USD.

Sure you can. The complaints are completely different for gold and bitcoin. My biggest complaint about bitcoin would be a lack of regulation.

Kaelik · Post by **Kaelik** » Mon Jun 06, 2011 2:42 pm

Vnonymous wrote:Bitcoin is a shit-ton more convenient than USD.

HAHAHAHA!

Oh wait, you were serious.

Vebyast · Post by **Vebyast** » Mon Jun 06, 2011 4:33 pm

Kaelik wrote:Oh wait, you were serious.

Your opinion is meaningless until you have evidence or an argument to support it. Bitcoins are a lot more convenient than paypal, credit cards, or any of the other things that work online. Not even kidding. Try it.

RobbyPants wrote:My biggest complaint about bitcoin would be a lack of regulation.

I'm not sure it's an issue; bitcoin is not and never will be the sole currency, so it can just piggyback off everybody else's economic stability. Still a valid point, though.

Murtak wrote:Logarithmical growth is extremely suspicious.

As far as I can tell, the choice was either completely arbitrary (though I have no idea why they'd do that) or was chosen to get people in in the first place. Bitcoins are infinitely divisible, so there isn't any "scarcity". As the economy expands bitcoins just deflate.

Furthermore, the "pyramid scheme" problem doesn't exist. At all. The defining characteristic of a pyramid scheme is that there is no "steady state". Eventually, the pyramid scheme has to end, and when it ends everybody except the people at the top get screwed. Bitcoin, though, has a steady state: all bitcoins are created, miners are supported by transaction fees instead of block rewards, your transactions clear, and everything still works. Computer scientists and mathematicians may sound insane sometimes, but we have a pretty good track record for recognizing and avoiding idiot mistakes like this.

[quote="Koumei]WoW gold: you can't use it for real purchases and real things, but people are willing to convert USD or whatever to it,[/quote]
On the other hand, it's hard to convert WoW gold back to USD, I don't play WoW, and minimum wage is way better than what I can get by farming and selling WoW gold. As far as I'm concerned, it's almost completely worthless. By comparison, I can use bitcoins to buy a chair that I can sit in for a few years.

Finally, something else that I should clear up. Hundreds of thousands of bitcoins are transferred or spent every day. Maybe ten thousand are generated. The majority of the movement in bitcoins is people actually using them. The lottery you're up in arms about is for creating bitcoins, not spending them, and is only and entirely to get people to help create blocks. Blocks are important because they nail down a linear sequence of events. Compare mining to running a distributed credit card exchange; miners run the servers in math-land and get paid for their trouble, while everybody else (99% of users) just use the system that the miners are running. You get your bitcoins by accepting them for services or by buying them with other commodities, just like any other currency.

TL;DR: you're all complaining about an incidental feature of the system that is neither important nor a part of the system's steady state. There are legitimate complaints about bitcoin (which I think currently outweigh the arguments for it), but since only a tiny (and rapidly shrinking) proportion of the bitcoin economy involves mining, the "lottery" argument isn't one of them.

name_here · Post by **name_here** » Mon Jun 06, 2011 8:22 pm

DSMatticus wrote:
name_here wrote:Admittedly, running on a cryptographic algorithm created by the NSA basically means they're counting on that not happening anyhow, because anyone who says they believe the NSA released an algorithm they knew they couldn't break is someone with more faith in the government
Welcome to math. It has facts and proofs. Your conspiracy theories are useless here.

Dude, intentionally sabotaging algorithms to allow them to decrypt anything used with them in much less time than pure brute force is something the NSA has done. Like, more than once. Because it turns out that you can break a 256-bit key if the actual keyspace is a lot less than 2^256 possibilities.

DSMatticus · Post by **DSMatticus** » Mon Jun 06, 2011 11:18 pm

name_here wrote:Dude, intentionally sabotaging algorithms to allow them to decrypt anything used with them in much less time than pure brute force is something the NSA has done. Like, more than once. Because it turns out that you can break a 256-bit key if the actual keyspace is a lot less than 2^256 possibilities.

Dude, 1) cite sources, because I'm pretty sure those cases are going to differ significantly, and dude, 2) we have the algorithms and their implementations. These are not mysterious black boxes that we can't see the inside of. We know what these algorithms do. We have analyzed them. Countless mathematicians have analyzed them. If you could break one, or find a flaw, you could become a very rich (or maybe just very arrested) man.

Algorithms are a series of steps, and we know the steps for these cryptographic algorithms you're referring to. Nobody's 'slipped something into them.' They may have a mathematical flaw, but this is so very unlikely as to be laughable. I'm reasonably sure there is even mathematical proof for certain cryptographic problems that they are NP problems (as in, not easily solvable). Proof of the mathematical variety attributed to the very cryptographic algorithms you're referring to. Then again, I haven't paid too much attention to the rigorous mathematics of cryptography, so I'm not sure where the various algorithms stand on proof. I may be wrong, and we may just be fairly certain they're NP problems.

Vebyast · Post by **Vebyast** » Tue Jun 07, 2011 3:52 am

DSMatticus wrote:I'm reasonably there is even mathematical proof for certain cryptographic problems that they are NP problems (as in, not easily solvable). Proof of the mathematical variety attributed to the very cryptographic algorithms you're referring to. Then again, I haven't paid too much attention to the rigorous mathematics of cryptography [...]

I have, compared to most people that don't actually do crypto or computational complexity theory for a living.

The problem is that we have no proofs of anything. The strongest claim we can make about most of our cryptosystems is that they are really, really hard to do if and only if P != NP. For example, the output of the Blum Blum Shub pseudorandom number generator (think "deterministic dice based on some state known only to the people communicating") can be predicted efficiently if and only if you can factor a very, very, very large number into two very, very large prime numbers. For a reference point, the current state of the art takes two years to factor a three-hundred-digit number using hundreds of computers, and doing that would break exactly one message, and not even a very well-protected one at that (these days you use a five-hundred-digit number, which would take roughly two hundred orders of magnitude longer to factor). RSA, one of the most commonly used cryptosystems in the world, depends on the same problem, but includes some other features which make it just a hair easier to do; the best attack that we know about, though, is to factor a very, very, very large number into two very, very large prime numbers.

Why is this a problem, though, if it takes so long? Because it's still possible that there is a better way to do it. We have no proof that integer factorization is difficult. We haven't found a way to do it, but we haven't proven that we can't. We haven't even started to be able to prove it. We strong, strongly suspect that it's difficult (if you want to look it up, we have no proof that NP-complete != co-NP-complete), but we can't prove anything. For all we know someone could find a way to do it in thirty seconds on a cell phone.

That's not to say that all is lost, however. If anybody has ever heard of P = NP, you'll know what's coming. There is an entire class of mathematically-identical problems, called NP-complete, for which we have no proof of difficulty. Traveling Salesman, Knapsack, Boolean Satisfiability, Automated Theorem Proving, Vertex Cover; the list just goes on and on. There is mathematical proof that an efficient solution to any one of them would efficiently solve all of them... and would break the world straight in half. First, all of our cryptosystems (which are dependent on the hardness of NP-complete problems!) would become breakable. All your bank account would belong to us. Also all your email, all your government, and all your pr0ns. Second, remember how I mentioned "automated theorem proving"? Imagine a computer solving every single one of the millennium prizes in three months flat. Imagine a computer discovering a good way to build a strong AI. Imagine an AI proving ways to make itself faster at an exponentially-growing rate until it runs into the fundamental limits of the universe, at which point we might as well stop asking whether God exists and just start worshiping. Needless to say, we're basically certain that this isn't going to happen, so we assume that P != NP and our crypto is provably secure.

(note: there are cryptosystems which are resistant to this problem; however, they're a hell of a lot slower and harder to work with.)

DSMatticus · Post by **DSMatticus** » Tue Jun 07, 2011 5:08 am

Vebyast wrote:only if P != NP

A proof that cryptographic problems are in NP is more than sufficient for me.
Edit: Then again, we don't have this proof. Or rather, we have this proof, but we don't have proof that NP isn't in P. So this was sort of a useless thing for me to say.

I would not consider the slim chance of someone hiding a P = NP proof on top of the slim chance that P actually equals NP even worth considering. That's two long shots too many.

Vebyast wrote:We have no proof that integer factorization is difficult. ... strongly suspect that it isn't

Wait, am I reading this backwards or are you saying we think integer factorization is in P, we just haven't shown it yet?

Vebyast · Post by **Vebyast** » Tue Jun 07, 2011 6:10 am

DSMatticus wrote:
Vebyast wrote:We have no proof that integer factorization is difficult. ... strongly suspect that it isn't
Wait, am I reading this backwards or are you saying we think integer factorization is in P, we just haven't shown it yet?

Whoops, fixed. Thanks. Can't brain today; I have the dumb.

Draco_Argentum · Post by **Draco_Argentum** » Tue Jun 07, 2011 7:43 am

name_here wrote:Dude, intentionally sabotaging algorithms to allow them to decrypt anything used with them in much less time than pure brute force is something the NSA has done. Like, more than once. Because it turns out that you can break a 256-bit key if the actual keyspace is a lot less than 2^256 possibilities.

I've heard some suggestion that NSA knows there are flaws in the implementations of AES that allow for side channel attacks. But nothing suggesting that the NSA was retarded enough to tell the US govt it was good enough to use whilst knowing of a flaw in the algorithm.

Murtak · Post by **Murtak** » Tue Jun 07, 2011 8:45 am

Vebyast wrote:
Murtak wrote:Logarithmical growth is extremely suspicious.
As far as I can tell, the choice was either completely arbitrary (though I have no idea why they'd do that) or was chosen to get people in in the first place. Bitcoins are infinitely divisible, so there isn't any "scarcity". As the economy expands bitcoins just deflate.

Inflate you mean? As in "become more valuable because there is less of them per transaction". And this is exactly the problem. Early adopters get more currency by virtue of starting early, then sit back as their currency becomes more valuable. And at that point, why sell? Why use currency that will only become more valuable? It all becomes a betting game, like a stock market bubble, where values keep increasing because values keep increasing, until the market crashes.

It may not be a pyrmaid scheme in the traditional sense. It may not even be intentional. But to me it looks like the effects are quite similar. Early adopters get money, late adopters get screwed, the system crashes. As far as I can tell this is built into the system right from the start.

Orion · Post by **Orion** » Tue Jun 07, 2011 8:54 am

No. See, maybe a bitcoin is worth 10 hamburgers right now. And maybe I buy a bitcoin, and I sit on it for 20 years, and at that point the economy has expanded so much that my bitcoin is now worth 20 hamburgers.

On the other hand, somebody else got those 10 hamburgers back in the past, when he sold me the bitcoin. So basically I'm trading 10 burgers today for 20 burgers in 20 years. That's a perfectly fair trade, because the future is less valuable than the present.

Murtak · Post by **Murtak** » Tue Jun 07, 2011 9:12 am

Wtf? You are basically arguing that because x percentage of deflation is fine any amount of deflation is fine. It should be blatantly obvious that this is bullshit. You should be arguing that deflation is going to stay manageable, but of course we do not know whether that will be true.

I can however take a guess. If bitcoins are ever going to be universally useful the whole system will need quite a bit of growth. Exponential growth in fact, given the lifetimes of technology these days. Unless more bitcoins enter the system that means that your 10 hamburgers are worth 20 hamburgers next year (some tech sites implemented bitcoins), 1000 hamburgers the year after that (bit coins start getting useful) and 1000000 hamburgers in three years (if its online you can pay with bitcoins). To counter exponential growth you would need an exponentially rising supply of bitcoins. At the very least I would expect the mining process to merely scale to available computing power but be otherwise flat. X hours of computing time = 1 bitcoin, with x being any fixed numbers. But instead you need more and more hours. If bitcoins get adopted at all, I can't see their value going anywhere but up.

But here is the rub: if you can assume that bitcoins are going up, why would you sell them? Mine them early, then sit on them. Except of course, if everyone does just that, biutcoins won't get spend, the currency will not spread and no one gets anything.

I guess it is possible to walk the fine line between the two extremes, but it seems unlikely to me. As far as I can tell, the entire system is unstable. I fully expect it to tank, the only question is whether it will bubble first.

K · Post by K » Tue Jun 07, 2011 10:00 am

Vnonymous wrote:You can exchange money for bitcoins pretty easily nowadays. You can also exchange bitcoins for drugs, web hosting, clothes, computer parts and groceries.

And besides, you cannot say that the gold standard is bad and silly and condemn bitcoins while holding the same position. A bitcoin is worth exactly as much as a fiat currency(much like the USD) - they are both "completely unreal", and Bitcoin is a shit-ton more convenient than USD.

Bitcoins are no different from magic beans, as per Jack and the Beanstock. The inability to convert them to other forms of currency without conning someone else into buying them is the critical flaw.

The fact that only a handful of vendors accepts them means they fail to pass the first and only important test of a currency (ability to freely buy goods and services).

As for gold being bad and bitcoins being good like the USD.... well, the difference is that the USD has assets and a government to back up the power of it's fiat currency, meaning they can buy back their own currency from other nations in order to stabilize it's value. Bitcoins are bound to suffer wild swings in value depending entirely on nothing more stable than fashion while the buying power of the USD will be related to the economic power of the US compared to other nations.

My real question is this: was this entire thread a fishing trip to try and see if anyone here is dumb enough to buy your magic beans?

Koumei · Post by **Koumei** » Tue Jun 07, 2011 11:12 am

I'm pretty sure Cynic started the thread out of curiosity, and the proponents of bitcoin in this thread desperately want everyone to buy the magic beans - either to fob them off onto someone else and make a profit before it tanks, or to get more people into it to add validity.

mean_liar · Post by **mean_liar** » Tue Jun 07, 2011 1:45 pm

Well, I'm seriously considering them for their use on SilkRoad. I'm white collar these days. I'm willing to pay for convenience.

Parthenon · Post by **Parthenon** » Tue Jun 07, 2011 2:07 pm

The mechanism for creating bitcoins is horribly, stupidly, dishonestly flawed.

The fact that you will never be able to use bitcoins for day to day purchases or while physically shopping makes it half a currency.

The fact that it is deflationary rather than inflationary encourages hoarding rather than spending, and the fact that the people with most bitcoins have the least need to spend them will lead to further hoarding.

The fact that it is limited to areas with broadband and slows the rate of bitcoin production over time fucks over third world countries since they can't make it now and in the future when they can make it there isn't as much to make. Especially with the fact that if it is a worldwide currency then there won't be enough for everyone.

The fact that most of the population doesn't understand and won't be willing to understand it means it won't be trusted and won't be used by a large proportion.

On the other hand the good aspect is the security and the fact that you can pay with 0.001 of a bitcoin means that...

Wait a moment. How exactly can you separate 0.00001 of a bitcoin? Simplified, a bitcoin is a chunk of data digitally signed to one person. Does that mean that 0.01 BTC is 1% of that data chunk digitally signed? If so, which 1%?

I'm not saying it like this is a criticism, I'm just not sure of my understanding. But anyway, the privacy and the security are great and...

Wait a moment. The whole privacy thing is borked. Either there are several things removing privacy anyway such as your postal address or licenses needed or personal exchange of goods, or it is a very limited range of online services or donations- you could buy an online server or donate to wikileaks or pirate bay or something. The main thing I can see people using it secretly for is buying porn online which will work until the owners of the porn websites realise they need to try and buy food and rent with it.

In some aspects like the security and the possibility of privacy it sounds great, but I hate the bitcoin generation and some of the implications. I worry that the price is so high because of the publicity meaning that people are investing in it stupidly fast and use is so high because the people buying with it are trying to get rid of them while it has a lot of value.

ubernoob · Post by **ubernoob** » Tue Jun 07, 2011 2:39 pm

The bitcoin lets people buy and sell drugs over the internet anonymously. That's pretty clever. The economics are whack exactly because it is laundered money. It might crash, but people are able to anonymously buy and sell drugs over the internet *right now* and that's all that really matters.

Note: If the people selling drugs for bitcoins can use those bitcoins to buy other things they want anywhere at all, then there IS a place for those bitcoins to flow to and it is a functioning economy. The amount of services for drug sellers to buy just needs to add up to the amount of drugs being sold for the cycle to work.

I think it would be a good thing if more places accepted bitcoins. I'd rather there be fewer people in prison for nonviolent crimes.

Edit: The only things that really matter for money to be a currency is for it to be a store of value (no hyper inflation or hyper deflation) and for it to be a medium of exchange). Having actual use in itself doesn't matter as every paper currency ever shows.

sabs · Post by **sabs** » Tue Jun 07, 2011 2:52 pm

Drug buying isn't a non violent crime. And Marijuana is not the only drug in the world.

Username17 · Post by **Username17** » Tue Jun 07, 2011 4:02 pm

Fiat Currency needs a monetary policy. Since the value is merely contingent on an arbitrary social contract and supply and demand, the supply must be carefully shepherded relative to the demand. Otherwise the contract breaks down.

Bit Coin only gets anyone to take their stupid social contract seriously by claiming that they will never ever change the monetary supply and couldn't even if they wanted to. That means that the social contract is doomed by definition as soon as there is a demand shock.

If demand substantially exceeds supply, the price will rise precipitously. Then no one will sell them, causing the effective supply to shrivel. This will cause the theoretical price to skyrocket, but since everyone "using" the "currency" will simply be hording, it won't be "money" in any real sense. If supply substantially exceeds demand, the price will drop precipitously. This will trigger people to try to get rid of them as fast as possible, flooding the effective market supply and dropping the price even more. When the price floors, that is also the end of Bit Coin, because the things have no intrinsic value and aren't backed by anything - so the floor is literally zero dollars.

Fiat Currencies only avoid these kinds of economy-destroying shocks with an active monetary policy. That is: putting more money into the system when demand exceeds supply and taking money out of the system when supply exceeds demand. Without doing that, you're basically doomed to have your economy destroyed by either a speculative bubble or hyperinflation. Or both (as seems most likely in the case of Bit Coin).

Commodity currencies are subject to this kind of shit too. They just happen to also be a commodity, which generally means that there is some kind of limit on hording or inflation, because there is always going to be someone who needs to buy the things (keeping everyone from hording) and there is always some kind of intrinsic value to keep things from zeroing out. Bit Coin doesn't have those things. And it does not and cannot have a monetary policy to keep the ball in the air.

Bit Coin is good for exactly one speculative bubble and exactly one crash. Then it's gone for all intents and purposes. The things will be worth exactly as much as UO Gold.

-Username17

Swordslinger · Post by **Swordslinger** » Tue Jun 07, 2011 7:01 pm

Parthenon wrote: On the other hand the good aspect is the security and the fact that you can pay with 0.001 of a bitcoin means that...

Wait a moment. How exactly can you separate 0.00001 of a bitcoin? Simplified, a bitcoin is a chunk of data digitally signed to one person. Does that mean that 0.01 BTC is 1% of that data chunk digitally signed? If so, which 1%?

I wonder how that works too.