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If 50%+1 of the Bitcoin miners agree, couldn't they just mint 700000 extra bitcoin to make the depositors at MtGox whole? The confidence it inspires would prob

by powera 13y ago

If 50%+1 of the Bitcoin miners agree, couldn't they just mint 700000 extra bitcoin to make the depositors at MtGox whole? The confidence it inspires would probably be worth more than the impact of the inflation, and with Bitcoin prices dropping miners need to support the price to stay above break-even.

patio11 13y ago
Technically speaking, yes. That would kill Bitcoin, though, because the community depends on it having an (eventually) fixed supply rather than it being having "an eventually fixed supply, except when we have a really good reason to do quantitative easing."
- mtrimpe 13y ago
  Does it really? Could it not just as easily help Bitcoin to become a currency with real-world controls? I already remarked once that Bitcoin is remarkable democratic in a way; perhaps this is a good time to leverage that...
- yummyfajitas 13y ago
  I know this is somewhat tangential to your point, but a bailout isn't remotely the same as quantitative easing. Quantitative easing is buying financial assets at marginally above-market price with printed money in order to boost inflation and lower real wages. It's a useful policy (assuming you believe in Keynesian stimulus) because the distributional effect is close to nil, unlike fiscal stimulus or mailing money to specified individuals. The distributional effect is small because the bank buys a bond worth $9,000 for $9,003 or so. This puts $9,003 in circulation but the person receiving $9,003 in cash receives only $3 of profit. So you've increased the money supply by $9003 but you've given the beneficiaries of QE only $3. QE is a far more efficient way to increase inflation than fiscal stimulus since fiscal stimulus nearly always results in malinvestment/malconsumption (e.g., building bridges to nowhere, etc) and usually has highly non-stimulative side effects (raising nominal wages of government workers). A bailout is highly targeted. Inflation is a side effect. The people receiving the money trade nothing of value in return for the money. It's totally not the same policy.
  - einhverfr 13y ago
    > It's a useful policy (assuming you believe in Keynesian stimulus) because the distributional effect is close to nil, unlike fiscal stimulus or mailing money to specified individuals. Except that we don't really see QE causing the hyperinflation many feared or the lowering of real wages. If it is intended to do these things, it is a miserable failure. The fact is that when you dump a whole lot of money into what Steve Keen called "the slowest part of the system" it isn't going to actually have much effect. Velocity in money matters if you want the money to actually circulate.
    - yummyfajitas 13y ago
      That's simply incorrect. According to Krugman (back in 4/2013, back when data was not yet released) 2013 will be a test of Market Monetarism (QE to target NGDP), since the QE3 will be offset by fiscal austerity: ...we are in effect getting a test of the market monetarist view right now, with the Fed having adopted more expansionary policies even as fiscal policy tightens. http://krugman.blogs.nytimes.com/2013/04/28/monetarism-falls-short-somewhat-wonkish/?_r=0 http://krugman.blogs.nytimes.com/2013/04/28/monetarism-falls... The results are in: http://econlog.econlib.org/archives/2014/01/the_parrot_is_s.html http://econlog.econlib.org/archives/2014/01/the_parrot_is_s.... By the criteria laid out by QE's detractors, it worked.
- intelliot 13y ago
  Technically speaking, no. patio11: that is not how the Bitcoin protocol works. Even if 99% of the Bitcoin miners agree, they cannot create extra bitcoin; it is simply impossible because that is not something that miners control. Every full node (client) on the Bitcoin network verifies the validity of each block. A block that created more bitcoins than allowed by the protocol would be rejected by the clients (and the miners who follow the original rules). The "extra" bitcoins would be on a hard fork and thus invalid to anyone on the main (original) blockchain. More info: https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_computing_power https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_...
  - ProblemFactory 13y ago
    But the protocol can be changed. If the most common bitcoin clients are updated to allow this "bonus", and at least 51% of the network installs this update, their blockchain will become the authoritative one. Older or other clients will have to accept it if they still want to participate in the chain.
    - VMG 13y ago
      The authoritative blockchain only determines the order of valid transactions, not which transactions are valid. A transaction that conjures Bitcoin out of nothing is certainly invalid. Patio11 got this wrong.
      - ProblemFactory 13y ago
        The validity of transactions is checked by the individual bitcoin clients. After all, something, somewhere must check if they are valid according to the protocol rules! And this client code can be changed to anything at all, as long as most miners agree to update to it. Transactions that make up bitcoin out of nothing are already used as rewards for mining a block.
        VMG 13y ago
        Individual clients don't have to use the same client that miners use. If 51% of miners start using an inflationary version of Bitcoin "Bitcoin-QE", but the clients (exchanges, merchants, wallet providers, etc) don't approve, they won't update the client and use the partition of the network that is secured by the remaining 49% of miners. People wouldn't want to accept the Bitcoin-QE mined on the inflationary branch and the investment wouldn't pay off. Of course Bitcoin-QE miners could start an attack on Bitcoin in other ways, but that also woudn't be necessarily economical. It's very hard to tell what 51% will do, but it is clear that you don't have full control of the currency.
intelliot 13y ago
No. See https://news.ycombinator.com/item?id=7296376 https://news.ycombinator.com/item?id=7296376
josephagoss 13y ago
This is actually impossible. Bitcoin has two security points, the miners (proof of work) and the nodes (clients such as the reference client). Gaining 51% can allow you to double spend your own transactions, but you can't spend other peoples money or make more coin, because the clients will reject those transactions even if 100% of the miners put it through. The nodes verify what the miners do. Even 100% control does not give you God power. The best you can really do is deny all transactions and thus destroy Bitcoin.
justincormack 13y ago
You want a bailout of the (once) rich? Talk about remaking the financial system in the image of the existing one!

by powera 13y ago

patio11 13y ago

Technically speaking, yes. That would kill Bitcoin, though, because the community depends on it having an (eventually) fixed supply rather than it being having "an eventually fixed supply, except when we have a really good reason to do quantitative easing."

mtrimpe 13y ago
Does it really? Could it not just as easily help Bitcoin to become a currency with real-world controls? I already remarked once that Bitcoin is remarkable democratic in a way; perhaps this is a good time to leverage that...
yummyfajitas 13y ago
I know this is somewhat tangential to your point, but a bailout isn't remotely the same as quantitative easing. Quantitative easing is buying financial assets at marginally above-market price with printed money in order to boost inflation and lower real wages. It's a useful policy (assuming you believe in Keynesian stimulus) because the distributional effect is close to nil, unlike fiscal stimulus or mailing money to specified individuals. The distributional effect is small because the bank buys a bond worth $9,000 for $9,003 or so. This puts $9,003 in circulation but the person receiving $9,003 in cash receives only $3 of profit. So you've increased the money supply by $9003 but you've given the beneficiaries of QE only $3. QE is a far more efficient way to increase inflation than fiscal stimulus since fiscal stimulus nearly always results in malinvestment/malconsumption (e.g., building bridges to nowhere, etc) and usually has highly non-stimulative side effects (raising nominal wages of government workers). A bailout is highly targeted. Inflation is a side effect. The people receiving the money trade nothing of value in return for the money. It's totally not the same policy.
- einhverfr 13y ago
  > It's a useful policy (assuming you believe in Keynesian stimulus) because the distributional effect is close to nil, unlike fiscal stimulus or mailing money to specified individuals. Except that we don't really see QE causing the hyperinflation many feared or the lowering of real wages. If it is intended to do these things, it is a miserable failure. The fact is that when you dump a whole lot of money into what Steve Keen called "the slowest part of the system" it isn't going to actually have much effect. Velocity in money matters if you want the money to actually circulate.
  - yummyfajitas 13y ago
    That's simply incorrect. According to Krugman (back in 4/2013, back when data was not yet released) 2013 will be a test of Market Monetarism (QE to target NGDP), since the QE3 will be offset by fiscal austerity: ...we are in effect getting a test of the market monetarist view right now, with the Fed having adopted more expansionary policies even as fiscal policy tightens. http://krugman.blogs.nytimes.com/2013/04/28/monetarism-falls-short-somewhat-wonkish/?_r=0 http://krugman.blogs.nytimes.com/2013/04/28/monetarism-falls... The results are in: http://econlog.econlib.org/archives/2014/01/the_parrot_is_s.html http://econlog.econlib.org/archives/2014/01/the_parrot_is_s.... By the criteria laid out by QE's detractors, it worked.
intelliot 13y ago
Technically speaking, no. patio11: that is not how the Bitcoin protocol works. Even if 99% of the Bitcoin miners agree, they cannot create extra bitcoin; it is simply impossible because that is not something that miners control. Every full node (client) on the Bitcoin network verifies the validity of each block. A block that created more bitcoins than allowed by the protocol would be rejected by the clients (and the miners who follow the original rules). The "extra" bitcoins would be on a hard fork and thus invalid to anyone on the main (original) blockchain. More info: https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_computing_power https://en.bitcoin.it/wiki/Weaknesses#Attacker_has_a_lot_of_...
- ProblemFactory 13y ago
  But the protocol can be changed. If the most common bitcoin clients are updated to allow this "bonus", and at least 51% of the network installs this update, their blockchain will become the authoritative one. Older or other clients will have to accept it if they still want to participate in the chain.
  - VMG 13y ago
    The authoritative blockchain only determines the order of valid transactions, not which transactions are valid. A transaction that conjures Bitcoin out of nothing is certainly invalid. Patio11 got this wrong.
    - ProblemFactory 13y ago
      The validity of transactions is checked by the individual bitcoin clients. After all, something, somewhere must check if they are valid according to the protocol rules! And this client code can be changed to anything at all, as long as most miners agree to update to it. Transactions that make up bitcoin out of nothing are already used as rewards for mining a block.
      - VMG 13y ago
        Individual clients don't have to use the same client that miners use. If 51% of miners start using an inflationary version of Bitcoin "Bitcoin-QE", but the clients (exchanges, merchants, wallet providers, etc) don't approve, they won't update the client and use the partition of the network that is secured by the remaining 49% of miners. People wouldn't want to accept the Bitcoin-QE mined on the inflationary branch and the investment wouldn't pay off. Of course Bitcoin-QE miners could start an attack on Bitcoin in other ways, but that also woudn't be necessarily economical. It's very hard to tell what 51% will do, but it is clear that you don't have full control of the currency.

intelliot 13y ago

No. See https://news.ycombinator.com/item?id=7296376 https://news.ycombinator.com/item?id=7296376

josephagoss 13y ago

This is actually impossible. Bitcoin has two security points, the miners (proof of work) and the nodes (clients such as the reference client). Gaining 51% can allow you to double spend your own transactions, but you can't spend other peoples money or make more coin, because the clients will reject those transactions even if 100% of the miners put it through. The nodes verify what the miners do. Even 100% control does not give you God power. The best you can really do is deny all transactions and thus destroy Bitcoin.

justincormack 13y ago

You want a bailout of the (once) rich? Talk about remaking the financial system in the image of the existing one!