7 ms·

Veteran fraud expert sets his sights on Bitcoin

49 points by DanielBMarkham 12y ago

eternauta3k 12y ago
Won't increasing reliance on the blockchain lead to a wasteful computing power arms race?
- TomGullen 12y ago
  Honestly, even if you consider it wasteful (and there's a strong argument to contest this) it's currently pretty low on the things to lose sleep over. There's a lot more low hanging fruit in wasted resources in this world that we should be looking at first. In my opinion Bitcoin comes under too much unfair scrutiny in this regard.
  - eternauta3k 12y ago
    Would that still be the case if a significant part of transactions went through Bitcoin?
    - TomGullen 12y ago
      I'm not sure, you'd have to measure the cost of Bitcoin computers versus costs of the parts of the current system of transaction that it replaced. It would be difficult to measure!
    - ougawouga 12y ago
      Yes. The majority of the energy is spent maintaining the network's security. Once that security has been obtained, additional transaction volume -- assuming it's within the network's constraints -- will add little to no additional cost. To expand, Bitcoin's security is maintained by the miners, who also expend the majority of the network's energy. Transaction volume for the most part is borne by all the network's full nodes, which use relatively little energy.
      - DennisP 12y ago
        Miners don't choose whether to mine based on whether the network is secure. They mine if it will be profitable to mine. So we can expect the total cost of mining to be approximately equal to the total block rewards plus transaction fees. The more valuable Bitcoin becomes, the more valuable those rewards will be, and the more money will be spent on mining. Some percentage of the mining cost will go to energy, and the rest to hardware. So it's possible to estimate the energy cost of mining at various price levels and times (since block rewards decrease over time). Ignoring transaction fees, it's actually not terrible. I figured out a while back that it would be something like several gigawatts, if Bitcoin became a trillion-dollar currency in twenty years. But if transaction fees become significant it could get a lot worse. (Luckily there's some work in progress that could increase scalability enough to keep the fees low.)
- weavejester 12y ago
  Well, you don't necessarily need to build a blockchain on proof of work, and you don't necessarily need to use a proof of work algorithm that's easy to parallelise.
- Estragon 12y ago
  This is one reason why burst coin is so interesting. It's mining algorithm uses stored pre computed values to force commitment of storage space rather than computation. It's way more efficient.
TomGullen 12y ago
> When you know that there’s, what, 13 million coins in circulation, and more than 50% of the them are owned and managed by about 950 people, you realize how shallow the market it is and how subject the market is to manipulation. Is it wrong to apply this to say, Microsoft stock? For the sake of the argument let's say Bill Gates owns 50%, and a handful of other employees 20%. Does that intrinsically make it a shallow market, subject to manipulation? And what sort of manipulation is he talking about exactly? > There’s no evidence that people who spend down their wallets buy back in. There is evidence, people do this all the time. I'm not sure if he literally means no evidence, or that he's suggesting it's an insignificant minority. > When you heard the hype coming from the community, and … that people were spending money on this stuff, they needed to know the truth. I really just don't think this is as objective as he thinks it is... there isn't a 'truth' that desperately needs exposing here. It's more complicated than that and we're still yet to see how it develops. He does raise some good points though, and I find it interesting he says Bitcoin isn't very good for money laundering. I can also see why someone would think it's a pump and dump - it does appear to share many characteristics from an outside view. People pump it sure, but the vast majority of 'pumping' I observe is sincere, backed by a strong belief and excitement in Bitcoin. Not to realise quick profits. Also now with a total dollar value of billions, it's not really in the traditional value range for 'pump and dumps', schemes that tend to rely on much lower value and easily manipulable assets. I do think telling the average Joe on the street right now to probably stay away from Bitcoin is becoming an increasingly savvy advice. There's a lot of scams and bad ideas out there.
- gatehouse 12y ago
  The enthusiastic and energetic manipulation of the stock market is well documented and is the reason for the formation of the SEC in 1933. One difference between pre-SEC stock manipulation and bitcoin is that the "controllers" of bitcoin can't arbitrarily issue more bitcoin. Controlling a company you can issue new stock and debt at will which opens up a lot more possibilities for market manipulation. My personal opinion on bitcoin (the specific blockchain, not the tech), is that it is either a good currency or a good investment, it can't be both. Since people are calling it a currency and treating it like an investment, I've only bought/sold it before/after transactions. With a pump-and-dump scheme, you have a small number of people who are insincere (the dumpers) and a large number of people who are sincere (the pumpers). For example, you have promoters saying "BTC is decentralized" because the ledger is decentralized, but on the other hand ownership and mining power are highly concentrated. One area where I think the author is wrong is that he seems to be predicting a slow death. I think that is unlikely since it has already crashed hard twice in three years: https://blockchain.info/charts/market-price?timespan=all https://blockchain.info/charts/market-price?timespan=all EDIT Here is an example of some stock market manipulation from the 1800s: The entire period in the affairs of the Erie system from the ascendancy of Daniel Drew in 1851 to the end of the Civil War witnessed an endless succession of stock-market exploits both large and small. In the spring of 1866, however, Drew found an opportunity to achieve a real masterpiece in manipulation. The stock of the Erie road was then selling at about 95 and the company was in pressing need of funds. The treasurer came to the rescue as usual and made the necessary advances on adequate security. The company had in its treasury a considerable amount of unissued stock and had also the legal right to issue bonds to the extent of $3,000,000 which could be converted into stock. Drew took these bonds and the unissued stock as security for a loan of $3,500,000. It so happened, naturally, that Drew was soon heavily short of Erie stock in Wall Street. The market was buoyant; speculation was rampant; and the outside public, the delight and prey of Wall Street gamblers, were as usual drawn in by the fascination of acquiring wealth without labor. All this time our friend, Daniel Drew, was quietly selling Erie stock and closing contracts for the future delivery of the certificates; and he was doing this at rising prices. As the days went by, his grave, desponding manner grew more and more apparent. Erie stock continued to rise. In the loan market its scarcity became greater hour by hour. The rumor began to spread that "Uncle Daniel" was cornered. His large obligations for future delivery must be met. Where was the Erie stock to come from? The stock continued to soar, and Treasurer Drew seemed to become more and more depressed. Then the blow fell. Drew laid his hands on the collateral which he held for his loan to the Erie. In the twinkling of an eye his $3,000,000 in Erie bonds was converted into Erie stock, which he proceeded to dump in Wall Street. Eric quotations fell from 90 to 50. Every one at last realized the trap—but not before Daniel Drew had pocketed a few millions in profits. Source: Moody, The Railroad Builders, Chapter 6. http://www.gutenberg.org/ebooks/3036 http://www.gutenberg.org/ebooks/3036 https://archive.org/stream/cu31924070687961#page/n93/mode/2up https://archive.org/stream/cu31924070687961#page/n93/mode/2u... The struggle for control that follows the part I quoted is also pretty interesting.
DennisP 12y ago
This idea that the "blockchain" can be divorced from a currency that has value ignores a simple fact: if you don't reward miners with something that has value, few people will mine and the blockchain won't be secure anymore. (And a mature version of proof-of-stake would have similar issues. There has to be something at stake.)
- semiel 12y ago
  I don't think the incentive structure of mining is fundamentally tied to a "currency", per se. A tradable asset of some sort, yes. But that's arguably a much lower bar to reach. (For instance, a Starbucks gift card makes a perfectly good tradable asset, but not a fabulous currency.)
  - jacquesm 12y ago
    I highly doubt bitcoin would be where it is today if the payout to the miners was in starbucks gift cards.
  - TeMPOraL 12y ago
    Wouldn't a Starbucks gift card be equivalent to currency in this case?
    - Sanddancer 12y ago
      Not really. One of the things that defines a currency is near-universal acceptance. Starbucks fails this because a good number of people won't accept a Starbucks card as an equivalent to its cash value. Most stores won't accept it, my caffeine intolerant housemate won't accept it, etc. It has value, but it's not a ready means of exchange.
- wmf 12y ago
  That still leaves the possibility that Bitcoin's rules (semi-fixed block reward and 21M BTC limit) are bad and some other altcoin will have much better rules.
modeless 12y ago
the idea of putting copyrights on the blockchain: suddenly there’s an irrefutable copyright worldwide. This makes zero sense. Refutation has never been a problem with copyright. The problem with copyright is enforcement. Blockchains can't help with that. I'm not sure he has a good grasp of what a blockchain actually is.
- Renaud 12y ago
  It makes sense in the fact that the blockchain can be used to store a proof of copyright that may help in settling disputes when two parties claim to be the origin of the thing being copyrighted. So, you could imagine storing in the blockchain proof that your wrote some code. If someone comes along and pretend it's theirs, you have irremediable proof that it's not. You could build a whole framework of copyright registration around this. Say you could register the hash or fingerprint of pictures you took, so nobody could claim that they were theirs. Of course, this doesn't solve the issue of enforcement but it gives a way for the owner to prove ownership, making it arguably easier to settle conflict.
  - modeless 12y ago
    A blockchain can't prove that you created anything. It can only prove that you have possession of the same private key as a person who had knowledge of some information at a certain time in the past. Having knowledge of something isn't the same thing as creating it, and furthermore possession of a private key isn't proof that you are the sole or original owner of that key. So, I fail to see how a blockchain could prove ownership of any copyright. Furthermore, proof of ownership is rarely the main issue in copyright disputes, so even if a blockchain did work to prove ownership of copyrights it wouldn't even be useful.
semiel 12y ago
I've started reading the book, and it's an interesting read. I'm very, very interested in cryptocurrency, but he hits a lot of skeptical notes that resonate with thoughts I've had. Bitcoin is an awesome technology, and it's easy to accidentally assume that it must therefore also be useful and valuable. Unfortunately, those are actually three separate questions. Plenty of things are technically cool but not useful, or useful but not profitable. Personally, I think there's a serious chance that cryptocurrencies will disrupt (in the original sense) a lot of economic and organizational systems, but I also think it will take a lot more than Bitcoin to get there. EDIT: Probably worth saying that I don't unreservedly endorse the book. There's more than a bit of misunderstanding, exaggeration, and hyperbole. But it's a useful counterweight to the hype.
williamcotton 12y ago
Can anyone else name a distributed public data store that acts as a point of truth that is not controlled by anyone in particular? Can anyone else name a system where everyone has equal read and write privileges to a data store where that data is reliably available? Look at this stuff: http://coinsecrets.org/ http://coinsecrets.org/ http://cryptograffiti.info/# http://cryptograffiti.info/# https://www.coinprism.info/address/1BvvRfz4XnxSWJ524TusetYKrtZnAbgV3r https://www.coinprism.info/address/1BvvRfz4XnxSWJ524TusetYKr... https://blockchain.info/new-transactions https://blockchain.info/new-transactions The currency aspect and the incentives for mining keep these transactions secure and make sure they're propagated to clients over the network. There has never been any thing remotely like this kind of shared public space on the Internet. Blogs and RSS are private residences. Twitter and Facebook are giant private residences that many people interact within. The Bitcoin blockchain is like a public park or sidewalk. We've never seen anything like it before.
- wmf 12y ago
  Maybe one day they'll even add a good payment system to it.
  - williamcotton 12y ago
    There's a lot of truth to that somewhat sarcastic response and I agree that Bitcoin probably won't be the kind of day-to-day mechanism that people use to buy lunch and concert tickets. It's a shame you didn't really engage with what I had to say.
    - codehalo 12y ago
      Don't expect real conversation regarding bitcoin, most of the people that comment on bitcoin related threads are trolls and bank shills.
- zaroth 12y ago
  There's definitely an identity crisis, because core Bitcoin users believe in the primacy of currency. If it's not a financial use, some even consider it an unethical or unfair or exploitative use of the Bitcoin blockchain. So then you have altcoins, which you would hope someone would consolidate into a converged tree-like blockchain. But ultimately it's the services that are built on top which provide/capture the value.
vonklaus 12y ago
>But then there is this aspect of the pretend currency and the pretend commodity. Part of the con is in the pretend commodity, because this is a completely shallow, liquidless market. When you know that there’s, what, 13 million coins in circulation, and more than 50% of the them are owned and managed by about 950 people, you realize how shallow the market it is and how subject the market is to manipulation. You just described the U.S economy.

Won't increasing reliance on the blockchain lead to a wasteful computing power arms race?

TomGullen 12y ago
Honestly, even if you consider it wasteful (and there's a strong argument to contest this) it's currently pretty low on the things to lose sleep over. There's a lot more low hanging fruit in wasted resources in this world that we should be looking at first. In my opinion Bitcoin comes under too much unfair scrutiny in this regard.
- eternauta3k 12y ago
  Would that still be the case if a significant part of transactions went through Bitcoin?
  - TomGullen 12y ago
    I'm not sure, you'd have to measure the cost of Bitcoin computers versus costs of the parts of the current system of transaction that it replaced. It would be difficult to measure!
  - ougawouga 12y ago
    Yes. The majority of the energy is spent maintaining the network's security. Once that security has been obtained, additional transaction volume -- assuming it's within the network's constraints -- will add little to no additional cost. To expand, Bitcoin's security is maintained by the miners, who also expend the majority of the network's energy. Transaction volume for the most part is borne by all the network's full nodes, which use relatively little energy.
    - DennisP 12y ago
      Miners don't choose whether to mine based on whether the network is secure. They mine if it will be profitable to mine. So we can expect the total cost of mining to be approximately equal to the total block rewards plus transaction fees. The more valuable Bitcoin becomes, the more valuable those rewards will be, and the more money will be spent on mining. Some percentage of the mining cost will go to energy, and the rest to hardware. So it's possible to estimate the energy cost of mining at various price levels and times (since block rewards decrease over time). Ignoring transaction fees, it's actually not terrible. I figured out a while back that it would be something like several gigawatts, if Bitcoin became a trillion-dollar currency in twenty years. But if transaction fees become significant it could get a lot worse. (Luckily there's some work in progress that could increase scalability enough to keep the fees low.)
weavejester 12y ago
Well, you don't necessarily need to build a blockchain on proof of work, and you don't necessarily need to use a proof of work algorithm that's easy to parallelise.
Estragon 12y ago
This is one reason why burst coin is so interesting. It's mining algorithm uses stored pre computed values to force commitment of storage space rather than computation. It's way more efficient.

> When you know that there’s, what, 13 million coins in circulation, and more than 50% of the them are owned and managed by about 950 people, you realize how shallow the market it is and how subject the market is to manipulation. Is it wrong to apply this to say, Microsoft stock? For the sake of the argument let's say Bill Gates owns 50%, and a handful of other employees 20%. Does that intrinsically make it a shallow market, subject to manipulation? And what sort of manipulation is he talking about exactly? > There’s no evidence that people who spend down their wallets buy back in. There is evidence, people do this all the time. I'm not sure if he literally means no evidence, or that he's suggesting it's an insignificant minority. > When you heard the hype coming from the community, and … that people were spending money on this stuff, they needed to know the truth. I really just don't think this is as objective as he thinks it is... there isn't a 'truth' that desperately needs exposing here. It's more complicated than that and we're still yet to see how it develops. He does raise some good points though, and I find it interesting he says Bitcoin isn't very good for money laundering. I can also see why someone would think it's a pump and dump - it does appear to share many characteristics from an outside view. People pump it sure, but the vast majority of 'pumping' I observe is sincere, backed by a strong belief and excitement in Bitcoin. Not to realise quick profits. Also now with a total dollar value of billions, it's not really in the traditional value range for 'pump and dumps', schemes that tend to rely on much lower value and easily manipulable assets. I do think telling the average Joe on the street right now to probably stay away from Bitcoin is becoming an increasingly savvy advice. There's a lot of scams and bad ideas out there.

gatehouse 12y ago
The enthusiastic and energetic manipulation of the stock market is well documented and is the reason for the formation of the SEC in 1933. One difference between pre-SEC stock manipulation and bitcoin is that the "controllers" of bitcoin can't arbitrarily issue more bitcoin. Controlling a company you can issue new stock and debt at will which opens up a lot more possibilities for market manipulation. My personal opinion on bitcoin (the specific blockchain, not the tech), is that it is either a good currency or a good investment, it can't be both. Since people are calling it a currency and treating it like an investment, I've only bought/sold it before/after transactions. With a pump-and-dump scheme, you have a small number of people who are insincere (the dumpers) and a large number of people who are sincere (the pumpers). For example, you have promoters saying "BTC is decentralized" because the ledger is decentralized, but on the other hand ownership and mining power are highly concentrated. One area where I think the author is wrong is that he seems to be predicting a slow death. I think that is unlikely since it has already crashed hard twice in three years: https://blockchain.info/charts/market-price?timespan=all https://blockchain.info/charts/market-price?timespan=all EDIT Here is an example of some stock market manipulation from the 1800s: The entire period in the affairs of the Erie system from the ascendancy of Daniel Drew in 1851 to the end of the Civil War witnessed an endless succession of stock-market exploits both large and small. In the spring of 1866, however, Drew found an opportunity to achieve a real masterpiece in manipulation. The stock of the Erie road was then selling at about 95 and the company was in pressing need of funds. The treasurer came to the rescue as usual and made the necessary advances on adequate security. The company had in its treasury a considerable amount of unissued stock and had also the legal right to issue bonds to the extent of $3,000,000 which could be converted into stock. Drew took these bonds and the unissued stock as security for a loan of $3,500,000. It so happened, naturally, that Drew was soon heavily short of Erie stock in Wall Street. The market was buoyant; speculation was rampant; and the outside public, the delight and prey of Wall Street gamblers, were as usual drawn in by the fascination of acquiring wealth without labor. All this time our friend, Daniel Drew, was quietly selling Erie stock and closing contracts for the future delivery of the certificates; and he was doing this at rising prices. As the days went by, his grave, desponding manner grew more and more apparent. Erie stock continued to rise. In the loan market its scarcity became greater hour by hour. The rumor began to spread that "Uncle Daniel" was cornered. His large obligations for future delivery must be met. Where was the Erie stock to come from? The stock continued to soar, and Treasurer Drew seemed to become more and more depressed. Then the blow fell. Drew laid his hands on the collateral which he held for his loan to the Erie. In the twinkling of an eye his $3,000,000 in Erie bonds was converted into Erie stock, which he proceeded to dump in Wall Street. Eric quotations fell from 90 to 50. Every one at last realized the trap—but not before Daniel Drew had pocketed a few millions in profits. Source: Moody, The Railroad Builders, Chapter 6. http://www.gutenberg.org/ebooks/3036 http://www.gutenberg.org/ebooks/3036 https://archive.org/stream/cu31924070687961#page/n93/mode/2up https://archive.org/stream/cu31924070687961#page/n93/mode/2u... The struggle for control that follows the part I quoted is also pretty interesting.

DennisP 12y ago

This idea that the "blockchain" can be divorced from a currency that has value ignores a simple fact: if you don't reward miners with something that has value, few people will mine and the blockchain won't be secure anymore. (And a mature version of proof-of-stake would have similar issues. There has to be something at stake.)

semiel 12y ago
I don't think the incentive structure of mining is fundamentally tied to a "currency", per se. A tradable asset of some sort, yes. But that's arguably a much lower bar to reach. (For instance, a Starbucks gift card makes a perfectly good tradable asset, but not a fabulous currency.)
- jacquesm 12y ago
  I highly doubt bitcoin would be where it is today if the payout to the miners was in starbucks gift cards.
- TeMPOraL 12y ago
  Wouldn't a Starbucks gift card be equivalent to currency in this case?
  - Sanddancer 12y ago
    Not really. One of the things that defines a currency is near-universal acceptance. Starbucks fails this because a good number of people won't accept a Starbucks card as an equivalent to its cash value. Most stores won't accept it, my caffeine intolerant housemate won't accept it, etc. It has value, but it's not a ready means of exchange.
wmf 12y ago
That still leaves the possibility that Bitcoin's rules (semi-fixed block reward and 21M BTC limit) are bad and some other altcoin will have much better rules.

modeless 12y ago

the idea of putting copyrights on the blockchain: suddenly there’s an irrefutable copyright worldwide. This makes zero sense. Refutation has never been a problem with copyright. The problem with copyright is enforcement. Blockchains can't help with that. I'm not sure he has a good grasp of what a blockchain actually is.

Renaud 12y ago
It makes sense in the fact that the blockchain can be used to store a proof of copyright that may help in settling disputes when two parties claim to be the origin of the thing being copyrighted. So, you could imagine storing in the blockchain proof that your wrote some code. If someone comes along and pretend it's theirs, you have irremediable proof that it's not. You could build a whole framework of copyright registration around this. Say you could register the hash or fingerprint of pictures you took, so nobody could claim that they were theirs. Of course, this doesn't solve the issue of enforcement but it gives a way for the owner to prove ownership, making it arguably easier to settle conflict.
- modeless 12y ago
  A blockchain can't prove that you created anything. It can only prove that you have possession of the same private key as a person who had knowledge of some information at a certain time in the past. Having knowledge of something isn't the same thing as creating it, and furthermore possession of a private key isn't proof that you are the sole or original owner of that key. So, I fail to see how a blockchain could prove ownership of any copyright. Furthermore, proof of ownership is rarely the main issue in copyright disputes, so even if a blockchain did work to prove ownership of copyrights it wouldn't even be useful.

semiel 12y ago

I've started reading the book, and it's an interesting read. I'm very, very interested in cryptocurrency, but he hits a lot of skeptical notes that resonate with thoughts I've had. Bitcoin is an awesome technology, and it's easy to accidentally assume that it must therefore also be useful and valuable. Unfortunately, those are actually three separate questions. Plenty of things are technically cool but not useful, or useful but not profitable. Personally, I think there's a serious chance that cryptocurrencies will disrupt (in the original sense) a lot of economic and organizational systems, but I also think it will take a lot more than Bitcoin to get there. EDIT: Probably worth saying that I don't unreservedly endorse the book. There's more than a bit of misunderstanding, exaggeration, and hyperbole. But it's a useful counterweight to the hype.

williamcotton 12y ago

Can anyone else name a distributed public data store that acts as a point of truth that is not controlled by anyone in particular? Can anyone else name a system where everyone has equal read and write privileges to a data store where that data is reliably available? Look at this stuff: http://coinsecrets.org/ http://coinsecrets.org/ http://cryptograffiti.info/# http://cryptograffiti.info/# https://www.coinprism.info/address/1BvvRfz4XnxSWJ524TusetYKrtZnAbgV3r https://www.coinprism.info/address/1BvvRfz4XnxSWJ524TusetYKr... https://blockchain.info/new-transactions https://blockchain.info/new-transactions The currency aspect and the incentives for mining keep these transactions secure and make sure they're propagated to clients over the network. There has never been any thing remotely like this kind of shared public space on the Internet. Blogs and RSS are private residences. Twitter and Facebook are giant private residences that many people interact within. The Bitcoin blockchain is like a public park or sidewalk. We've never seen anything like it before.

wmf 12y ago
Maybe one day they'll even add a good payment system to it.
- williamcotton 12y ago
  There's a lot of truth to that somewhat sarcastic response and I agree that Bitcoin probably won't be the kind of day-to-day mechanism that people use to buy lunch and concert tickets. It's a shame you didn't really engage with what I had to say.
  - codehalo 12y ago
    Don't expect real conversation regarding bitcoin, most of the people that comment on bitcoin related threads are trolls and bank shills.
zaroth 12y ago
There's definitely an identity crisis, because core Bitcoin users believe in the primacy of currency. If it's not a financial use, some even consider it an unethical or unfair or exploitative use of the Bitcoin blockchain. So then you have altcoins, which you would hope someone would consolidate into a converged tree-like blockchain. But ultimately it's the services that are built on top which provide/capture the value.

vonklaus 12y ago

>But then there is this aspect of the pretend currency and the pretend commodity. Part of the con is in the pretend commodity, because this is a completely shallow, liquidless market. When you know that there’s, what, 13 million coins in circulation, and more than 50% of the them are owned and managed by about 950 people, you realize how shallow the market it is and how subject the market is to manipulation. You just described the U.S economy.