What if the Bitcoin bubble bursts?(economist.com)
economist.com
What if the Bitcoin bubble bursts?
http://www.economist.com/news/leaders/21722841-latest-frenzy-tulip-mania-gold-rush-or-dotcom-boom-what-if-bitcoin-bubble
129 comments
A bunch of people will learn a very good lesson on gambling. One thing I do enjoy about bitcoin is that it's complicated/technological enough that traditional media doesn't have good language to speak about it. With stocks, there's this huge vocabulary which is used to obscur the fact that most people have no clue why it's moving, they just throw out some jargon. Seeing that stripped bare for altcoins is really refreshing.
Seriously, some of the altcoins I've seen are launched on such terrible ideas... The Brave browser devs launched one that promises to pay people out for viewing ads. On their open source web browser that anyone can bot. It sold for something like $33M.
I swear I should launch one that's backed by my dog's ability to produce shit, at this point I figure it has a minimum $2M value at launch.
I swear I should launch one that's backed by my dog's ability to produce shit, at this point I figure it has a minimum $2M value at launch.
Offer fractional ownership in the dog, I'm sure you'll get at least 10 times as much. Suggested currency name: the micropup.
The most ridiculous part of it all is the fact that advertisers need to purchase their BAT tokens to place ads in the browser in the first place.
Think about that. You purchase these BAT tokens from trading platforms to place ads that only Brave browser users will be able to view.
To say the least, they'll be having a hard time competing against Google with that premise.
Think about that. You purchase these BAT tokens from trading platforms to place ads that only Brave browser users will be able to view.
To say the least, they'll be having a hard time competing against Google with that premise.
Gambling is a 0 sum game, but Bitcoin is creating value. The lesson I've learned is back up the truck. The media doesn't have a good language to talk about it, and even analysts seem a bit perplexed. There are no earnings to discount to, no cash flow, no coupon, no dividends. The value is what the highest bidder at t0 thinks it is. It could be a rational speculative bubble or it could be the Internet of money. I've really liked the work that the analysts at Needham & Co have done, and their research is worth a read.
What value is that? I don't see it yet. It's promising a whole lot but delivering very little. I guess in this area it's similar with a couple of SF unicorns.
I think the concept is sane, I think the potential is there, I think Satoshi was brilliant, but I don't see BTC adoption for the things it promises.
I think the concept is sane, I think the potential is there, I think Satoshi was brilliant, but I don't see BTC adoption for the things it promises.
It is a web application that settles transactions, and works in every jurisdiction. That's worth something.
It can also generate a bank account for you, allow you to store it in your brain, then delete all record that it ever existed, and then at some later date recreate the account from memory.
It can maintain its value during a default of the U.S. federal government.
Money has value to the extent it can do things. Dollars can do things Bitcoins can't. Bitcoin can do things dollars can't. These define their relative value.
It can also generate a bank account for you, allow you to store it in your brain, then delete all record that it ever existed, and then at some later date recreate the account from memory.
It can maintain its value during a default of the U.S. federal government.
Money has value to the extent it can do things. Dollars can do things Bitcoins can't. Bitcoin can do things dollars can't. These define their relative value.
See the people catch up with jargon "Bitcoin is creating value" is very trendy righ now.
But I guess I should switch my wallet to micropup as it's creating even more value and it's totally carbon indexed.
But I guess I should switch my wallet to micropup as it's creating even more value and it's totally carbon indexed.
> There are no earnings to discount to, no cash flow, no coupon, no dividends.
Same goes for horse shit. Ever though bout that? It too, is just created. Sure, there's a virtually unlimited amount of horse shit, but if you want the supply limited, I've got a single horse to sell you.
Same goes for horse shit. Ever though bout that? It too, is just created. Sure, there's a virtually unlimited amount of horse shit, but if you want the supply limited, I've got a single horse to sell you.
The much more interesting question: what if it doesn't?
The article states that bitcoin transactions take hours. Is that true?
It's ... very complicated. In most situations, as long as the transaction has a reasonable fee attached to it, you can proceed immediately (this is called a 0-conf transaction), as you can be pretty sure that it will be confirmed eventually. Of course, there are some transaction malleability edge cases that allow double-spends that are fixed with a new feature called segwit that hasn't rolled out yet, so if you are dealing with a potentially malicious party then 0-conf isn't good enough.
In theory, you should wait for a transaction to have at least six confirmations on it before truly trusting it. That has always taken an average of an hour from the transaction first going into a block. It's the "first going into a block" part that takes longer now, unless you attach a higher fee to ensure that it goes in quickly.
In theory, you should wait for a transaction to have at least six confirmations on it before truly trusting it. That has always taken an average of an hour from the transaction first going into a block. It's the "first going into a block" part that takes longer now, unless you attach a higher fee to ensure that it goes in quickly.
>as long as the transaction has a reasonable fee attached to it, you can proceed immediately (this is called a 0-conf transaction)
Not true. A 0-conf transaction is a transaction which has not been confirmed at all, which is orthogonal to its fee.
A transaction with a reasonable fee may not even be confirmed at all, as it only takes a few days to fall out of every mempool and average fees are currently unreasonable, so it is not safe to trust 0-conf transactions currently as they may never make it on-chain.
Not true. A 0-conf transaction is a transaction which has not been confirmed at all, which is orthogonal to its fee.
A transaction with a reasonable fee may not even be confirmed at all, as it only takes a few days to fall out of every mempool and average fees are currently unreasonable, so it is not safe to trust 0-conf transactions currently as they may never make it on-chain.
The question to ask is why are the fees high? Because the demand for faster transactions is very high.
While this seems like a technical glitch to some, it is easily addressed using traditional finance techniques or via side chains.
Fees exist to incentivize miners to participate, and so "unreasonably high" fees should result in more miners participating and fees going down. Due to the scale of Bitcoin, adding non-trivially to the mining capacity takes a pretty massive investment, so we should expect a gradual correction.
Overall this is a good thing because it enhances the overall cryptosystem significantly while clearly signaling (via the price) what needs to happen.
While it is tempting to solve this technocratically, I'd argue that institutional stability (even if it seems a bit like calcification) is extremely valuable to the formation of long term incentives and risk-taking for the ecosystem as a whole.
While this seems like a technical glitch to some, it is easily addressed using traditional finance techniques or via side chains.
Fees exist to incentivize miners to participate, and so "unreasonably high" fees should result in more miners participating and fees going down. Due to the scale of Bitcoin, adding non-trivially to the mining capacity takes a pretty massive investment, so we should expect a gradual correction.
Overall this is a good thing because it enhances the overall cryptosystem significantly while clearly signaling (via the price) what needs to happen.
While it is tempting to solve this technocratically, I'd argue that institutional stability (even if it seems a bit like calcification) is extremely valuable to the formation of long term incentives and risk-taking for the ecosystem as a whole.
More miners will not make the fees go down. The limited resource is space in each block, currently 1 MB. Having more miners does not increase the block size.
It would be nice to have a proper economic feedback mechanism on this, e.g. miners decide how big to make the block based on how high the fees are getting. However, the costs for big blocks are externalized and so I think miners would make blocks as big as possible to capture as many fees as possible. The cost of storing those blocks in perpetuity costs the whole Bitcoin ecosystem.
I consider this a major crisis for Bitcoin as with current fees, the system is not very useful. The original thinking was that block sizes could be increased a lot and provide transaction rates that match what credit card companies can do. Current Bitcoin core developers and miners can't seem to increase the block size, each blames the other for inaction. Some suggest the core team is mostly controlled by Blockstream and their business model depends on expensive transactions forcing people to use their Lightning network instead. Miners are fine with high fees as long as the Bitcoin price doesn't collapse.
I don't know how this will play out. Perhaps some clever idea will come forth to solve the scaling problems. If so, Bitcoin should continue to be adopted and rise in price. If things say deadlocked, I could see Bitcoin wither away as other crypto-coins do the same job but for lower transaction fees.
It would be nice to have a proper economic feedback mechanism on this, e.g. miners decide how big to make the block based on how high the fees are getting. However, the costs for big blocks are externalized and so I think miners would make blocks as big as possible to capture as many fees as possible. The cost of storing those blocks in perpetuity costs the whole Bitcoin ecosystem.
I consider this a major crisis for Bitcoin as with current fees, the system is not very useful. The original thinking was that block sizes could be increased a lot and provide transaction rates that match what credit card companies can do. Current Bitcoin core developers and miners can't seem to increase the block size, each blames the other for inaction. Some suggest the core team is mostly controlled by Blockstream and their business model depends on expensive transactions forcing people to use their Lightning network instead. Miners are fine with high fees as long as the Bitcoin price doesn't collapse.
I don't know how this will play out. Perhaps some clever idea will come forth to solve the scaling problems. If so, Bitcoin should continue to be adopted and rise in price. If things say deadlocked, I could see Bitcoin wither away as other crypto-coins do the same job but for lower transaction fees.
Great points. It could be argued that adjusting a parameter like block size should be easy and that this not being possible is a design limitation of Bitcoin.
However if you consider that miners (or more abstractly, mining rigs themselves) are easily repurposed to mine a BTC fork which could potentially include a larger block size from the start.
So the conflict is between the beneficial network effects of BTC and the transaction cost imposed by arguably "bad" governance (corrupt governance, if the rumor you mention is true).
There are lots of interesting incentives that apply to BTC at scale that are hard to predict when reading the paper.
I think we'll see a very messy world of many competing cryptocurrencies and difficult-to-understand layers of overly centralized governance resulting in layers upon layers of perverted incentives.
But the silver lining is that the blockchain is a nice way to offer the kind of transparency that could make a system like that actually far better than the kind of messes we end up in with fiat currencies :)
However if you consider that miners (or more abstractly, mining rigs themselves) are easily repurposed to mine a BTC fork which could potentially include a larger block size from the start.
So the conflict is between the beneficial network effects of BTC and the transaction cost imposed by arguably "bad" governance (corrupt governance, if the rumor you mention is true).
There are lots of interesting incentives that apply to BTC at scale that are hard to predict when reading the paper.
I think we'll see a very messy world of many competing cryptocurrencies and difficult-to-understand layers of overly centralized governance resulting in layers upon layers of perverted incentives.
But the silver lining is that the blockchain is a nice way to offer the kind of transparency that could make a system like that actually far better than the kind of messes we end up in with fiat currencies :)
Why should adjusting the block size be "easy"? Who gets to adjust it, and what is the mechanism? How do you prevent bad actors from picking adjustments that benefit them but that hurt the ecosystem over all (i.e. a tragedy of the commons situation)? I don't think you've thought this through enough.
I will tell you that, right now, I can just about barely fit the entire blockchain onto my laptop. With a bigger block size, that would no longer be possible. Similarly, the network requirements of transmitting much bigger blocks would hemorrhage users as well. What we need is something like Lightning Network, which is a multiple-level system that doesn't require that all participants download all data from the levels beyond level one. Just naively scaling up level one removes lots of participants from the system and still hits a cap at well below what we'd want Bitcoin to finally be capable of handling.
I will tell you that, right now, I can just about barely fit the entire blockchain onto my laptop. With a bigger block size, that would no longer be possible. Similarly, the network requirements of transmitting much bigger blocks would hemorrhage users as well. What we need is something like Lightning Network, which is a multiple-level system that doesn't require that all participants download all data from the levels beyond level one. Just naively scaling up level one removes lots of participants from the system and still hits a cap at well below what we'd want Bitcoin to finally be capable of handling.
If a transaction fails to be confirmed for several days, then its fee was by definition not reasonable; it was too small. A fee significantly smaller than the average fee on transactions making it into blocks is unreasonably small.
By that definition, your first comment was a meaningless tautology. If a "reasonable" fee is one that causes a transaction to be accepted, then your first comment can be rewritten as:
"as long as the transaction [will be confirmed within several days], you can be pretty sure that it will be confirmed eventually".
"as long as the transaction [will be confirmed within several days], you can be pretty sure that it will be confirmed eventually".
You can tell, based on the fee, whether it's sufficient for the transaction to be confirmed soon, and if so, accept it immediately. This isn't hard, and I don't believe that you didn't actually understand it. I don't understand what value your replies have added.
Doesn't taking an hour or more to confirm a transaction basically make bitcoin useless for any real-time transactions ( buying something at a shopping mall, buying fast food/coffee etc)
This makes bitcoin much less useful in my personal opinion.
This makes bitcoin much less useful in my personal opinion.
In practice this is not really a problem.
This is assuming retail stores will wait for 6 confirmations to get 100% assurance in the blockchain. Many retail stores take a certain level of risk with all plastic/digital transactions currently with credit/debit cards. I doubt many would see much utility in waiting for more than 1 confirmation, considering the difficulty involved in faking one and the lack of real stories of this 'scam' actually happening.
Especially for low-margin sales like coffee, food, or other sub-$100 transactions.
As with any scam of this nature it will likely involve side-step the crypto system somehow (ie, target the mobile apps used for PoS) rather than breaking the blockchain confirmation scheme directly.
This is assuming retail stores will wait for 6 confirmations to get 100% assurance in the blockchain. Many retail stores take a certain level of risk with all plastic/digital transactions currently with credit/debit cards. I doubt many would see much utility in waiting for more than 1 confirmation, considering the difficulty involved in faking one and the lack of real stories of this 'scam' actually happening.
Especially for low-margin sales like coffee, food, or other sub-$100 transactions.
As with any scam of this nature it will likely involve side-step the crypto system somehow (ie, target the mobile apps used for PoS) rather than breaking the blockchain confirmation scheme directly.
It is really a problem. Because of the stochastic nature of block finding, assuming that the transaction is slated to go into the next block (which likely isn't true anymore unless it has high fees), it can still sometimes take an hour or more for the next block to be found. The average is 10 minutes, but it's a Poisson distribution, with a long tail to the right.
We really need Lightning Network, which segwit enables. That allows near-instantaneous (with only network propagation delays) transactions.
We really need Lightning Network, which segwit enables. That allows near-instantaneous (with only network propagation delays) transactions.
In it's current state, I'd argue bitcoin competes more with large bank wires than credit card or paypal transactions. Bank wires usually carry a $25 fee and take a few hours. Bitcoin, disregarding the relative technical difficulty of it all, is similar.
The key thing is that bitcoin transactions are not reported to the government -- very helpful if you're desperate to move a large amount of cash out from a country with heavy currency controls like China or Venezuela.
The key thing is that bitcoin transactions are not reported to the government -- very helpful if you're desperate to move a large amount of cash out from a country with heavy currency controls like China or Venezuela.
That's not the worst of it. The transaction fee is enormous, something like ~$5 and is even larger if you consider the amount of wasted mining power trying to mint a new block (that number peaked at ~$100 per transaction a year ago).
IMO we really should be pushing for GNU Taler, which is a system that doesn't have proof of work, is confirmed effectively immediately, and has many more privacy properties similar to cash. It works by having a mint sell customers coins (using whatever standard method of payment you like), the customer spends coins on merchants and then the merchants can redeem the coins for "real" money.
In particular, customers cannot be identified (nor can their transaction history) but merchants' income can be identified (for tax reasons). As the system doesn't require proof-of-work the speed problem is massively reduced as well as the transaction cost.
IMO we really should be pushing for GNU Taler, which is a system that doesn't have proof of work, is confirmed effectively immediately, and has many more privacy properties similar to cash. It works by having a mint sell customers coins (using whatever standard method of payment you like), the customer spends coins on merchants and then the merchants can redeem the coins for "real" money.
In particular, customers cannot be identified (nor can their transaction history) but merchants' income can be identified (for tax reasons). As the system doesn't require proof-of-work the speed problem is massively reduced as well as the transaction cost.
Taler isn't a decentralized currency though, so what's the point? It doesn't seem much better than using a credit card, but at least my credit card is already accepted everywhere.
Your credit card has a history of all of your transactions (and we know that data is used to profile you). Taler makes it so that your transaction history is private.
In addition, Taler is _federated_ not fully decentralised. It works basically how cash works, except you don't need to be a new country to set up a new currency. In order for a particular mint's cash to be spent you only need that mint to be around.
I don't get why "decentralised or bust" is the end goal. Federation with individual privacy is still an improvement over centralised credit card companies. Also, like it or not, but Taler has much better privacy guarantees than BitCoin.
In addition, Taler is _federated_ not fully decentralised. It works basically how cash works, except you don't need to be a new country to set up a new currency. In order for a particular mint's cash to be spent you only need that mint to be around.
I don't get why "decentralised or bust" is the end goal. Federation with individual privacy is still an improvement over centralised credit card companies. Also, like it or not, but Taler has much better privacy guarantees than BitCoin.
I agree, this one of the bigger problems, in the short-term, that Bitcoin is facing. Moreover, faster and cheaper transactions is some of the benefits that Bitcoin is proposing.
Not sure why annabellish's comment is dead. It's not wrong. One of the Darknet markets raised their min product price to $3 because of the transaction fee problem.
waiting for 6 was published as part of the original whitepaper. the hash power is a different level now. i would argue waiting for 2-3 is fine.
Sure, but how long do credit card transactions take?
apparently yes, https://blockchain.info/charts/avg-confirmation-time
was a bit surprised myself
was a bit surprised myself
When a bitcoin transaction is created it sits in the transaction backlog until a bitcoin node validates it. Nodes have the economic incentive to pick transactions with the highest fees. If you do not set a high enough fee, you risk your transaction sitting in the backlog for hours or days.
Is there an easy way to see current queue status?
Here: https://blockchain.info/unconfirmed-transactions
Recently Ethereum has been taking a chunk out of Bitcoin's market share. One of the big reasons why is that it does not currently have this problem of a massive transaction backlog requiring large transaction fees.
Recently Ethereum has been taking a chunk out of Bitcoin's market share. One of the big reasons why is that it does not currently have this problem of a massive transaction backlog requiring large transaction fees.
That's a rich statement to make, when we have just cleared the gigantic backlog of Ethereum transactions of the BAT token sale two days ago.
And the transaction pressure then wasn't even what Bitcoin normally handles. (I'm not sure if that says more about the state of Bitcoin or Ethereum however.) Anyway, if you need transaction capacity, look elsewhere.
And the transaction pressure then wasn't even what Bitcoin normally handles. (I'm not sure if that says more about the state of Bitcoin or Ethereum however.) Anyway, if you need transaction capacity, look elsewhere.
Not only was there a backlog, but Ethereum users were paying almost $2000(!) in transaction fees to be included in a block.
http://www.livebitcoinnews.com/ico-investor-pays-us1500-wort...
https://etherscan.io/tx/0x0ca73d29dd82b48eba41331ed5d33ab836...
http://www.livebitcoinnews.com/ico-investor-pays-us1500-wort...
https://etherscan.io/tx/0x0ca73d29dd82b48eba41331ed5d33ab836...
Just out of curiosity, where should you look? Is the transaction capacity problem inherent to Ethereum like it is for Bitcoin? I'm willing to overlook transaction capacity for the short term (while the currency is still immature and large speculative transactions overwhelm spot capacity), but I firmly believe that the market will eventually settle on the solution with the lowest transaction costs and the fastest transaction resolution.
I know it's a non-answer, but it depends very much on what your use case is. Any global system where every node stores every transaction for all eternity will be limited in capacity. If that is a problem depends on what your use case is.
Most cryptocurrencies work like that, especially since they were all more or less inspired by Bitcoin. The capacity to which Ethereum and Bitcoin can scale can differ by a constant factor at most. (Where the latter is likely at an advantage, due to smaller transaction sizes and simpler scripts.)
Scaling Bitcoin to a global payment network for everyone's daily transactions is probably not realistic. But it could very well act as the clearing backend for such a system. (See, for example, Lightning Network.)
Most cryptocurrencies work like that, especially since they were all more or less inspired by Bitcoin. The capacity to which Ethereum and Bitcoin can scale can differ by a constant factor at most. (Where the latter is likely at an advantage, due to smaller transaction sizes and simpler scripts.)
Scaling Bitcoin to a global payment network for everyone's daily transactions is probably not realistic. But it could very well act as the clearing backend for such a system. (See, for example, Lightning Network.)
I think the point is that there's more bandwidth on the Ethereum network; number of transaction is sometimes more than Bitcoins and the fees are much smaller. Moreover, it seems to me that Ethereum dev team has a good roadmap that address scaling to more transactions and moving to PoS.
You get to decide based on how much transaction fee you're willing to pay to the miners that confirm your transaction.
The simplistic explanation is that the Bitcoin network effectively incorporates a hard upper limit on the number of transactions per unit time. (Every new transaction must be recorded in the blockchain, and the blockchain only grows so fast.) So as the currency becomes more popular and demand for transactions increases, either your waiting time to get the transaction confirmed on the blockchain increases, or your transaction fee has to increase.
The simplistic explanation is that the Bitcoin network effectively incorporates a hard upper limit on the number of transactions per unit time. (Every new transaction must be recorded in the blockchain, and the blockchain only grows so fast.) So as the currency becomes more popular and demand for transactions increases, either your waiting time to get the transaction confirmed on the blockchain increases, or your transaction fee has to increase.
It is the number one wedge issue in the community right now. It's also why alt coins are doing well - they present solutions
Altcoins present temporary solutions, but are fundamentally limited by the same scaling problems as Bitcoin. Just watch - as altcoins become popular the fees and wait times will similarly rise. Ethereum already had multi-hour backlogs recently as the network was trying to process all of the (rejected) transactions trying to get into the Basic Attention Token ICO.
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The recommendation with Bitcoin is to wait for six confirmations before considering a transaction secure. That's about an hour, best case. It might be overly secure for most applications, but that's generally what people use.
Other PoW-based systems have similar recommendations. You can have more frequent blocks, but the economic security offered by each confirmation will be lower.
There are other nifty networks called payment networks which promises instantly secure transactions, the most well known being Lightning. They offer that by identifying cheating and offering both parties to get their money out in case the other party does. They are still pretty experimental but the results are promising.
Other PoW-based systems have similar recommendations. You can have more frequent blocks, but the economic security offered by each confirmation will be lower.
There are other nifty networks called payment networks which promises instantly secure transactions, the most well known being Lightning. They offer that by identifying cheating and offering both parties to get their money out in case the other party does. They are still pretty experimental but the results are promising.
Even at the current high price, I tried to buy more BC a few days ago but my vendor wasn't selling.
I agree with the notion that BC is similar to gold because it is an alternative to fiat currencies.
The author James Richards has the good idea of putting the dollar about 10% on the gold standard to loosely tie the dollar to gold so when money is "printed" at least part would need to be backed by a physical gold purchase.
I agree with the notion that BC is similar to gold because it is an alternative to fiat currencies.
The author James Richards has the good idea of putting the dollar about 10% on the gold standard to loosely tie the dollar to gold so when money is "printed" at least part would need to be backed by a physical gold purchase.
Gold is inflated in of itself. The industrial value is way smaller than the trading value. Just because you can touch something and it's not a bunch of numbers on a PC, it doesn't mean it has value.
Of course there will be corrections. There are a small number of people who own a large enough percentage of BTC that when they cash out the market will correct significantly.
There are some forces acting against this:
- The general usefulness of BTC, which reduces the incentive to move wealth out of BTC
- The incentive for these large holders to transact slowly, preventing an abrupt correction.
There are some forces acting against this:
- The general usefulness of BTC, which reduces the incentive to move wealth out of BTC
- The incentive for these large holders to transact slowly, preventing an abrupt correction.
If it bursts, it bursts. A few get wealthy, a lot get poor. But everyone gets educated for a time. Then another bitcoin bubble or another bubble in another crptocurrency or another asset get blown up. Rinse repeat.
Just hope than no real retirements funds have invested in this shit gambling with other people saving...
I've heard rumblings of this from some big players who are trying to sell some of their bitcoin, but network transactions are so backlogged that it's an illiquid market for them at the volumes they are looking to trade.
They are worried that they won't be able to move in time if the market drops because they are sitting on such huge sums. Any market panic is only going to compound the transaction volume problem, leading to greater panic like people experience when there's a bank run.
It's kind of a self-fulfilling prophecy until the block size / transaction volume issue is resolved, but the community's inability to address this problem could be the death of it.
They are worried that they won't be able to move in time if the market drops because they are sitting on such huge sums. Any market panic is only going to compound the transaction volume problem, leading to greater panic like people experience when there's a bank run.
It's kind of a self-fulfilling prophecy until the block size / transaction volume issue is resolved, but the community's inability to address this problem could be the death of it.
> I've heard rumblings of this from some big players who are trying to sell some of their bitcoin, but network transactions are so backlogged that it's an illiquid market for them at the volumes they are looking to trade.
This is false for two reasons.
1. It makes no sense. If a big player wants to move some Bitcoin, getting it in the next block is no problem. For a few bucks in fees you can pretty much guarantee your million bucks will be in the next block. I'm sure that's negligible as compared to moving that money afterwards.
2. If there are numerous big players trying to make huge exits, then the price would reflect that.
Comments like these make it so difficult to read about Bitcoin on hn. It appears that people are blindly and desperately hoping that Bitcoin goes down to the extent they'll abandon their otherwise clear thinking. Is it just frustration that they missed out or don't understand the complexities of money?
This is false for two reasons.
1. It makes no sense. If a big player wants to move some Bitcoin, getting it in the next block is no problem. For a few bucks in fees you can pretty much guarantee your million bucks will be in the next block. I'm sure that's negligible as compared to moving that money afterwards.
2. If there are numerous big players trying to make huge exits, then the price would reflect that.
Comments like these make it so difficult to read about Bitcoin on hn. It appears that people are blindly and desperately hoping that Bitcoin goes down to the extent they'll abandon their otherwise clear thinking. Is it just frustration that they missed out or don't understand the complexities of money?
That doesn't make sense. Transactions aren't slower if you move more Bitcoins. In fact, if you move a big stash then the transaction fees probably doesn't matter much and your transaction can be first in line.
Most exchanges still need those six confirmations however, so any bank run would be limited by that. If you need instant sells you have to keep that stash with an exchange at all times. That requires a fair bit of trust in them, which I wouldn't recommend for regular users, but for an institutional investor that's probably how they would do it anyway. Those guys don't exactly walk around with an USB stick carrying their private keys.
Most exchanges still need those six confirmations however, so any bank run would be limited by that. If you need instant sells you have to keep that stash with an exchange at all times. That requires a fair bit of trust in them, which I wouldn't recommend for regular users, but for an institutional investor that's probably how they would do it anyway. Those guys don't exactly walk around with an USB stick carrying their private keys.
You're technically correct, but people trying to sell off millions of dollars worth of bitcoins can almost never do that in a single sale. What happens in a market is, if a large enough bid order hits the market, people freak that a large player is selling off the asset (Do they know something we don't? Maybe we should sell now, too, just in case!). Bitcoin, with its small size (relative to fiat currencies) and slow confirmation rate, exacerbates that.
So to actually sell off a million in BTC, you have to do it in regular, steady small sales that won't spook anyone. This takes time, which is not your friend if you expect the value to go down.
So to actually sell off a million in BTC, you have to do it in regular, steady small sales that won't spook anyone. This takes time, which is not your friend if you expect the value to go down.
What you're saying is that Bitcoin markets is illiquid. That's something I can understand and perhaps even try to give a reasonable answer to.
That "network transactions are so backlogged that it's an illiquid market" is not. (Backlogs doesn't make for illuquid markets, and even if it did it doesn't affect the "big players" at all.) Trading on exchanges is off-chain in the sense that no transactions takes place on the public blockchain.
Bitcoin markets used to be rather thin, but volumes haven't dropped in proportion to rising value. Which is to be expected with a more mature market. Your specific example of a million (US dollars, I presume) would hardly be noticable on any of the big exchanges today. That's just 500 bitcoins. I wouldn't worry about it.
Keep in mind that Bitcoin is still inflationary and four times that amount is mined every day, most of which is sold. That's just what's visible, and who knows what's going on off the order books.
That "network transactions are so backlogged that it's an illiquid market" is not. (Backlogs doesn't make for illuquid markets, and even if it did it doesn't affect the "big players" at all.) Trading on exchanges is off-chain in the sense that no transactions takes place on the public blockchain.
Bitcoin markets used to be rather thin, but volumes haven't dropped in proportion to rising value. Which is to be expected with a more mature market. Your specific example of a million (US dollars, I presume) would hardly be noticable on any of the big exchanges today. That's just 500 bitcoins. I wouldn't worry about it.
Keep in mind that Bitcoin is still inflationary and four times that amount is mined every day, most of which is sold. That's just what's visible, and who knows what's going on off the order books.
> it's an illiquid market for them at the volumes they are looking to trade
This is the case with any market. Try liquidating a few million shares of any stock.
There are large volume desks already (associated with major financial institutions) who can handle very large transactions. They will take a bit of a margin on the transaction, but that is a function of market dynamics and has nothing do do with cryptocurrency vs fiat currency.
This is the case with any market. Try liquidating a few million shares of any stock.
There are large volume desks already (associated with major financial institutions) who can handle very large transactions. They will take a bit of a margin on the transaction, but that is a function of market dynamics and has nothing do do with cryptocurrency vs fiat currency.
I wonder if anyone trades by having split their bitcoin holdings into multiple wallet, and simply giving up private keys to those wallets.
Of course, there's the issue of the seller super-duper swearing that they won't use the private key until the buyer gets around to moving the new bitcoins to a new wallet...
Of course, there's the issue of the seller super-duper swearing that they won't use the private key until the buyer gets around to moving the new bitcoins to a new wallet...
if the buyer is going to move the coins anyways, it doesn't bypass the problem of stuck transactions.
plus, if they are in multiple wallets, you're paying fees for each transaction, which is already artificially high.
plus, if they are in multiple wallets, you're paying fees for each transaction, which is already artificially high.
Not if, but when, and I'd say real soon. It will burst back to $500 and then slowly up to current levels. Rinse, repeat.
I'm hoping it does so that I can buy in.
Is it possible to short BTC?
Yes, but the counterparty risk - in case of a real crash - is pretty high IMHO.
Anyway, a couple of ways to do so:
You can short BTC using "USDT" on poloniex: https://poloniex.com (USDT is a cryptocurrency theoretically pegged to the USD, but their peg hasn't be very stable lately)
Another way, which could in theory be better (or not) is using options: https://www.deribit.com/
Anyway, a couple of ways to do so:
You can short BTC using "USDT" on poloniex: https://poloniex.com (USDT is a cryptocurrency theoretically pegged to the USD, but their peg hasn't be very stable lately)
Another way, which could in theory be better (or not) is using options: https://www.deribit.com/
How does one currency peg its self to another?
If you can find someone to take the opposite bet sure, why not?
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But hasn't it at least 3 times already?
BTC trades like an accelerated stock market. Instead of crashing every few decades, it "crashes" every few months.
WHY does it operate like that? Simply because there are no opening hours? It's 24/7?
All currencies trade 24/7 (if they are traded).
The volatility has quite a few causes, among them:
- Other currencies are used for all sorts of things that don't involve trading them–i.e. when have you last thought about exchanging those USD in your pocket for Euro? That creates stability. Compare to bitcoin, where almost everyone owning any keeps an eye on the market and is principally willing to buy or sell when they think they see an opportunity.
- Markets for real currencies operate under government supervision and regulation, and the facts that influence their value, such as employment numbers or GDP growth, are public, and reliable. For bitcoin, some rumour from China can move the market because nobody knows which information to trust.
The volatility has quite a few causes, among them:
- Other currencies are used for all sorts of things that don't involve trading them–i.e. when have you last thought about exchanging those USD in your pocket for Euro? That creates stability. Compare to bitcoin, where almost everyone owning any keeps an eye on the market and is principally willing to buy or sell when they think they see an opportunity.
- Markets for real currencies operate under government supervision and regulation, and the facts that influence their value, such as employment numbers or GDP growth, are public, and reliable. For bitcoin, some rumour from China can move the market because nobody knows which information to trust.
In another thread I was commenting about the volatility of the currency and how it could be a vanity metric how we give value to it based on its USD conversion rate.
I think this issue will be solved when there are more places accepting BTC. Then you wouldn't need to keep an eye for when to buy/sell it. You would be able to spend it.
I read on /r/btc/ someone saying that "currently, BitCoin are like Magic The Gathering cards". And it really does!
I think this issue will be solved when there are more places accepting BTC. Then you wouldn't need to keep an eye for when to buy/sell it. You would be able to spend it.
I read on /r/btc/ someone saying that "currently, BitCoin are like Magic The Gathering cards". And it really does!
For a worldwide market Bitcoin is tiny. It doesn't take that much real money to significantly shift its value. Regular currencies are padded by the fact that trillions of it are spread across the globe in billions of accounts. With Bitcoin you can have one guy making a measly $50m buy and the market will go crazy. Same with a sell. And then there's all of the pileon effects when the market starts to move fast and people panic.
The smaller a market is the less buffer it has against volatility.
The smaller a market is the less buffer it has against volatility.
Your argument fits, I noticed that the bigger BTC got, the smaller the volatility.
I can only think of a few the past 4 years. Granted, 2 were in the past 8 months
A 5-10% drop in a single day on the SPX would probably cause a panic. This happens on a regular basis with BTC.
I don't think it's correct to compare index to what basically is a stock.
A stock share is partial ownership of a for-profit venture for gain. Bitcoin is more akin to a precious metal or commodity, except that btc doesn't have any utility value like gold, silver or copper do.
Stocks pay dividends and entitle the owner to certain rights. Btc gives you some crypto that others trust.
Not very similar.
Stocks pay dividends and entitle the owner to certain rights. Btc gives you some crypto that others trust.
Not very similar.
Arguably precious metals don't have much more utility value either.
Gold, platinum, silver and copper all have use in electronics manufacturing and jewelry. Platinum is used in catalytic converters for exhaust treatment. They are very useful.
Btc is actually a detriment to the environment without any real utility. The evidence of work algorithms burn fossil fuels and add CO2 and other pollution into the atmosphere, and at the end of the day, all you have is a bunch of useless 1s and 0s that we attribute with value that are incapable of doing anything other than represent a finite portion of a really complex math problem that we attribute value to.
Btc is actually a detriment to the environment without any real utility. The evidence of work algorithms burn fossil fuels and add CO2 and other pollution into the atmosphere, and at the end of the day, all you have is a bunch of useless 1s and 0s that we attribute with value that are incapable of doing anything other than represent a finite portion of a really complex math problem that we attribute value to.
> Gold, platinum, silver and copper all have use in electronics manufacturing and jewelry.
From my understanding their "actual value" is massively inflated through a similar monopoly as De Beers for diamonds (except it's China as opposed to a single company).
I agree that BTC is a massive determent to the environment and so on, but rare earth mining isn't a picnic either. While all of those materials do have practical uses, their perceived value is massively over-inflated.
From my understanding their "actual value" is massively inflated through a similar monopoly as De Beers for diamonds (except it's China as opposed to a single company).
I agree that BTC is a massive determent to the environment and so on, but rare earth mining isn't a picnic either. While all of those materials do have practical uses, their perceived value is massively over-inflated.
Yes, they are both detriments to the environment, but precious metals provide value. Not only do they provide value, but in many cases, once they are used, they may be recycled and used again. You get to amortize the pollution over the lifetime of utility of the material until it can no longer be recovered.
The thing I love about bitcoin is that a $500 swing in a single day (or hour) is completely normal and par for the course. Sort of amusing in how ridiculous it is.
i don't think its crashed at all in the last 8 months. we've seen some shakeups, sure. But I can think of two crashes in the entire history of bitcoin.
June 2011. from 30 down to under $1, and Feb 2014 when MtGox finally imploded.
These last few have been sell offs and market manipulation which only lasted a few days.
June 2011. from 30 down to under $1, and Feb 2014 when MtGox finally imploded.
These last few have been sell offs and market manipulation which only lasted a few days.
The floor keeps going up despite the crashes though, right? They've never dropped down to the pennies they were worth at one point.
I'm not actually sure it's a crash also. Last time it went up like crazy and it had a correction to the mean value.
At least, new kids on the block are warned there is still a risk. Everyone knows that
At least, new kids on the block are warned there is still a risk. Everyone knows that
That assumes it survives with Ethereum's growing market share and better technology Bitcoin could simply die at some point in the next decade.
The problem is once the number of miners drops enough someone,likely with a strong stake in an Altcoin, can simply buy enough hashing power to just take over for a few weeks resulting in an abrupt end.
The problem is once the number of miners drops enough someone,likely with a strong stake in an Altcoin, can simply buy enough hashing power to just take over for a few weeks resulting in an abrupt end.
Some of Ethereum's tech may be better, but their Windows client is lacking in terms of customization. If you don't have enough free space on your C drive, you can't run it... at least without symlinks or manually running geth with command line options first before running the ethereum client, which is very kludgey and doesn't work well with the internal updater. Bitcoin, Litecoin, Dogecoin, etc all let you select the location of your blockchain store so a typical PC configuration of a fast smaller SSD C: and larger D: etc data store can run it without issue. And you can install those clients anywhere you like and keep the data anywhere you like for maximum customization and security.
Their GUI Linux clients weren't much better when I checked a year ago. But this is the kind of thing that will probably work itself out, being open source and all.
I see comments like this echoed whenever bitcoin is mentioned outside of the usual circles. I always assume that the individual is personally invested in ethereum's success and/or they don't understand the technology.
Currently, ethereum has inherited all of the problems that bitcoin has and and magnified them by a substantial amount. We'll either witness the development team pull off a miracle - or more likely, in my opinion, watch the house of cards come crashing down.
Currently, ethereum has inherited all of the problems that bitcoin has and and magnified them by a substantial amount. We'll either witness the development team pull off a miracle - or more likely, in my opinion, watch the house of cards come crashing down.
Having ~60 times as many blocks / hour means you can potentially secure transactions vastly faster using Ethereum’s even if the total number of transactions does not change. So, even if nothing else changes this really is a significant advantage.
Now, they are hitting scaling issues. But it will be interesting to see if they are more responsive.
Now, they are hitting scaling issues. But it will be interesting to see if they are more responsive.
The GHOST protocol only made the security properties of a group of short block times similar to longer block times. Before GHOST, short block times had worse security properties. POW over time still determines how secure a transaction really is.
https://eprint.iacr.org/2013/881.pdf
https://github.com/ethereum/wiki/wiki/Design-Rationale
https://blog.ethereum.org/2015/09/14/on-slow-and-fast-block-...
https://eprint.iacr.org/2013/881.pdf
https://github.com/ethereum/wiki/wiki/Design-Rationale
https://blog.ethereum.org/2015/09/14/on-slow-and-fast-block-...
The attack model changes based on transaction size. For sub 10,000$ transactions the threat model is not someone with more hashing power than the network. It's someone with 1/k th the networks processing power getting lucky. Which is bound by both total network hashing power and the number of blocks you wait giving a significant usability advantage to faster blocks.
That assumes the person actually needs fast block confirmation times. The security properties of block times gets pretty complex and bitcoin's model is no slouch: https://eprint.iacr.org/2015/1019.pdf
Ethereum has the same issue practically all current blockchains have. In order to scale, payment channels need to be used. This is why Ethereum has run into backlogs lately and has its own version of Lightning on its roadmap. Bitcoin already has usable payment channel implementations ready and waiting for the Segregated Witness bug fix to activate.
invest when it does. it's gonna keep going up and down.
Let's call "investing" in currencies what it is: speculating.
Is that not what investing is supposed to be, in most parts; or entirely?
Not according to Benjamin Graham, the father of value investing:
An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative
An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative
While it's not black-and-white, investment implies low-risk where speculation implies high-risk. Betting that bitcoin will increase or decrease relative to the USD is very risky. Its own volatility is proof enough.
I thought the difference was Investment is intended to improve the company's situation so that it performs better and kicks back some of the improvement to you.
Speculation is just betting.
Speculation is just betting.
You may be confusing investing with "trading". Subtle but important difference.
Anyone who has ever purchased bitcoin and held on to it before this past month is sitting on some amazing gains. If you purchased bitcoin at the top of the bubble in 2013, despite being down for years, today you would be up around 100%.
I'd hesitate to call it investing. More like speculating.
Has the bubble burst when it hits $100? Or has the bubble burst when it hits $1?
always keep money in reserve for when the bubble further crashes.
bitcoin has been rising to 400% and then falling to 50% in a pretty solid rhythm for a long time, and i'm kicking myself hard for not buying back when it was at 100 and then crashed to 50
> and I'm kicking myself hard
Please don't do this. Don't look at two points on a chart, the low and high, and think your the one in a million person who would have traded at those points. That type of thinking fuels bubbles.
With a speculative and volatile investment, you either get out immediately when it starts tanking or you take your 2-3X return and consider yourself smart and disciplined.
Please don't do this. Don't look at two points on a chart, the low and high, and think your the one in a million person who would have traded at those points. That type of thinking fuels bubbles.
With a speculative and volatile investment, you either get out immediately when it starts tanking or you take your 2-3X return and consider yourself smart and disciplined.
Might have lost it all due to an exchange going belly up.
I was thinking the same thing. Short of DIY cold storage, there's quite a bit of holding risk.
Even cold storage has the risk of being held at gunpoint to transfer it over. It's akin to having a bunch of cash/gold buried under your basement. If anybody knows it's there, you better be ready!
Even cold storage has the risk of being held at gunpoint to transfer it over. It's akin to having a bunch of cash/gold buried under your basement. If anybody knows it's there, you better be ready!
Or you just have a HD die on you. Or it gets lost in a move.
I remember back when it was trading for pennies and you could reasonably mine with an AMD GPU. I thought it was all one big scam and would collapse any time now. I hadn't considered that drug dealers would keep the market going. I did correctly identify that most of the exchanges are incompetent and/or corrupt though.
I wonder how much Satoshi is worth these days in BTC? Didn't he mine up a whole ton of coins back when it was trivial?
I wonder how much Satoshi is worth these days in BTC? Didn't he mine up a whole ton of coins back when it was trivial?
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when credible finance media start warning of a bubble, causes a bubble to burst. buy afterwards.
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TLDR: "If there is such a thing as a healthy bubble, this is it. To be sure, regulators should watch out that cryptocurrencies do not become even more of a conduit for criminal activity, such as drug dealing. But they should think twice before coming down hard, particularly on ICOs. Being too spiky would not just prick a bubble, but also prevent a lot of the useful innovation that is likely to come about at the same time."
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Won't Bitcoin go to zero when quantum computers can break elliptic curve cryptography?
If there is no viable alternative to EC for public key cryptography by then, a lot of things will break down, and Bitcoin wouldn't be my main worry.
If there is, I hope Bitcoin will have transitioned.
If there is, I hope Bitcoin will have transitioned.
Actually no.
Long answer: Yes, the outgoing transaction from a ledger to another one is done using crypto that can be broken by quantum computers. But a ledger that has never been used to send money is only visible by it's hash value. So it's security is based on sha256 which is quantum secure (There is Grover's algorithm, but it should be OK for a while). BC would just need to change the signing algorithm. So unless quantum computers pop up just over night everything should be fine.
There are many threats to Bitcoin, IMO QC is one of the smallest.
Long answer: Yes, the outgoing transaction from a ledger to another one is done using crypto that can be broken by quantum computers. But a ledger that has never been used to send money is only visible by it's hash value. So it's security is based on sha256 which is quantum secure (There is Grover's algorithm, but it should be OK for a while). BC would just need to change the signing algorithm. So unless quantum computers pop up just over night everything should be fine.
There are many threats to Bitcoin, IMO QC is one of the smallest.
What is the largest threat in your opinion?
Someone capturing >= 50% of the mining computation power?
Someone capturing >= 50% of the mining computation power?
There are a few ideas about how to circumvent that, most are pretty early. I think the general consensus is we still have at least 30 years to figure it out as that kind of quantum computer is more than likely, that far off. But of course it can all change pretty quick.
And if we don't have quantum cryptography by then, not just Bitcoin, everything we use today pretty much will be at risk.
And if we don't have quantum cryptography by then, not just Bitcoin, everything we use today pretty much will be at risk.
No, they would probably move to a postquantum cryptography system.
I would imagine the security of your traditional bank account would be at risk as well.
My bank account can turn off public digital transactions and trade in hard to replicate paper tokens and private network digital transactions.
How does that work with a distributed public ledger?
How does that work with a distributed public ledger?