7 ms·

Establishing Trust in the Bitcoin Ecosystem

31 points by carlchenet 12y ago

grovulent 12y ago
This article is correct in stating that trust and reputation is a serious problem for Bitcoin. But I don't think the article diagnoses exactly what is causing it. After all - there is nothing in all these negative headlines that give you a strong reason to believe that the Bitcoin ecosystem is less reliable overall than more traditional institutions. For every Bitcoin related scandal you can find an enormous number relating to the traditional financial system. The Bernie Madoff ponzi scheme alone was six times the size of the entire Bitcoin market cap at the moment. Yet every Bitcoin related scandal is interpreted by commentators as a sign of the anarchic failure of its central premise; while every scandal relating to the traditional sector does nothing at all to impede its reputation as the default way of doing business. I presume the explanation for this bias than a deep and abiding fear of distributed consensus - not just in the authorities and institutions that would lose their power; but in the culture at large. What else could it be? I don't know what you should do to combat that - but it's clear to me that this is the fundamental idea that needs to be targeted.
- jacquesm 12y ago
  Any kind of new monetary device will attract good and bad people, bitcoin has had a number of very high profile versions of the latter but what seems to be the problem here is that instead of attributing that to the people it is wrongly attributed to bitcoin as an institution. At this point in time even though there isn't anything wrong in particular with bitcoin it is still safe to say the brand has been damaged.
- Nursie 12y ago
  >> The Bernie Madoff ponzi scheme alone People who invest tons of cash in schemes like this, or in fact make investments at all, should be doing a lot of due diligence. Investment is not something that Joe Average thinks about much, if he can help it. He doesn't have millions of dollars, he probably has small-scale retirement funds managed by companies he didn't even choose by himself, just some default adopted at some point. Any cash he's sitting on is managed by other people as well, and is protected and insured in a variety of ways. Joe looks at Bitcoin and sees there have been scams and hacks by the dozen, and that when they happen there is little to no comeback, legal or otherwise. Some of the perps were the people running the services. He's probably also heard about the Silk Road. When it comes down to it he probably doesn't have a clue about computer security so there's no way in hell he's going to keep his cash on his own computer in a file he could lose with a hard-drive crash, that a hacker could steal from an infected machine. And if he's going to trust a third party with his money, why a bitcoin third party? There's no compelling reason to use bitcoin anyway when he has a credit card, and the credit card has the insurance and chargeback facilities that make Joe feel comparatively safe. I realise that from a technology standpoint most of this stuff is not specific to bitcoin. But where money is concerned I doubt the technically-correct* standpoint is going to win. I think the fear of distributed consensus might well be there too, but it's probably waaaay down the list of concerns, if most people even have any idea what it is. (*the best kind of correct!)
  - logicallee 12y ago
    madoff's scheme worked precisely because people did do due dilligence. they shouldn't. they should have just asked him how he got the returns, and rejected his offer when he didn't have a compelling answer. EDIT: someone asked why the paragraphs aren't contradictory. The thing about due dilligence is that to me it sounds like looking into past investors and other things, doing reference checks. The thing about ponzi schemes is that until they crash, they produce lots of high-quality references. In the case of Madoff, people who have received reasonable returns from him for 20 years. He also managed charities' money, as well as contributed civicly. None of these stuff matters, though, because despite the stellar references (which is what makes ponzi schemes work) there is no underlying way to actually generate returns.
    - maxerickson 12y ago
      Now explain how those paragraphs aren't contradictory. Your second paragraph is certainly a reasonable step in a comprehensive appraisal. edit: Due diligence means understanding the thing you are investing in. For something like investing millions of dollars with Madoff, that includes more than asking his other customers what their returns were.
    - Nursie 12y ago
      That's not enough due diligence then. Further I guess I didn't make things clear - Joe Average (hell, let's say it's me) sees investments, particularly rich-people investments, as a separate class of transaction from his day to day use of money. There is risk involved. You have to take care of what you're doing. The idea that someone might just run off with his bank account, either through operator fraud or through hacking of a service or his own machine, and there not being much anyone can do about it, is pretty terrifying.
  - grovulent 12y ago
    I think you're not quite seeing my point. I agree that something like what you wrote is likely descriptive (very roughly) of the conscious thoughts of the average punter - but what we need here is an explanation of WHY this is going through the average punter's head. And such an explanation is not necessarily going to be something that is included on their conscious list of concerns (though it might). What you have reiterated here is just what the article has already said. We already know facts like: - Punter hears about silk road, associates Bitcoin with illegal drug markets. What we want to know is why hearing such a fact causes such an association. Now you might think that there is no explanation here that is needed beyond how reputations are assigned generally by human societies. You might just think that - well, it's natural to associate a low reputation score to a system when you hear headlines about Silk Road style marketplaces, and so there is nothing more to say here. I'm saying - no, there is something more going on here than just standard reputation assignment. Why? Well - as I said before - because for every negative headline that is supposed to prove Bitcoin's low reputation, we can produce a fact about the traditional system that completely trumps the negative bitcoin headline. As another example since you mentioned Silk Road. What is the financial instrument used overwhelmingly by the world's drug dealers to exchange value? It is the U.S. 100 dollar bill. But is the reputation of the U.S. dollar impacted by this? Not at all. The even greater irony is that while the Bitcoin ecosystem overall gets branded as the province of nutbar libertarians that love drug dealers - the U.S. government is renown the world over for fighting the war on drugs. Except the U.S. has done nothing to remove the hundred dollar bills that drug dealers love to use. There is no greater single act the U.S. government could do to fight the drug cartels. It doesn't do it. So the reputation assignments here are odd to say the least. They certainly aren't consistent. This is something that cries out for explanation.
ianpurton 12y ago
The reason Bitcoin is not used for remittance is not due to trust, it's due to the fact Bitcoin doesn't have an advantage in the remittance space. There are companies such as https://transferwise.com/ https://transferwise.com/ that provide cheap money sending with no Bitcoin involved. Quick, simple and easy to understand. Bitcoin has many strengths, but remittance isn't one of them.
- luizparreira 12y ago
  I will have to disagree with you on that. I don't think this is the reason, I think the reason is that most companies fail to partner with other established financial institutions. Although this companies, such as transferwise and dwolla do a great job around Europe and US, most of them are not even known in the developing countries, in those countries people still rely on the old fashioned, bank transfers and western union mostly. There is a great opportunity out there for serious people to create great companies, and remittance surely is one of them.
  - davidgerard 12y ago
    rebit.ph is making a serious attempt at remittances to the Philippines using Bitcon, but have discovered they basically have to become a Bitcoin exchange as not enough people are buying the Bitcoins at the .ph end. Also, the expensive bit that you're paying Western Union those fees for? Turns out to be the last mile, that a Bitcoin-based remittance company would also have to implement.
debacle 12y ago
The problem with the Bitcoin "ecosystem" is simply that the people in that ecosystem are the same people who have been attracted to Bitcoin: speculators, opportunists, and wide-eyed idiots. The biggest problem of Bitcoin is that the problem it solves is not the problem fiat currencies need solving. Bitcoin has no real competitive advantage over traditional currencies, and many drawbacks.
- Rmilb 12y ago
  I would disagree that it has no competitive advantages. For people in Venezuela and other places where the state has failed to control inflation, Bitcoin allows people to escape capital controls(Think China). Of course there are still many drawbacks, but there are competitive advantages over 'some' currencies.
luizparreira 12y ago
I think he makes a valid point on the article, however, I do think all this bad stuff that has happened to it was going to happen anyway, its impossible to stop it from happening, the traditional system does not stop it neither, this is part of human nature where there are large sums of money there will be other people trying to hack into it to benefit themselves and its peers. But the joy of the bitcoin ecosystem, and one that he fails to point out on the article, is that it rewards and encourages players to follow the rules, because in terms of cost of running enough computing power that hacks into the block-chain and a system that mines bitcoins to get the rewards associated with it, the latter is way more viable. I think that the Bitcoin Bloc-Chain is going well, with needs for some updates in the system, as any other software does, but going well so far. What really needs to be done, and the writer recognizes that in the article, is all the businesses built around it must follow best-practices, following the example of established organizations, to increase the overall trust in the ecosystem and people start to accept it more into their daily lives, this is obviously easier said than done, but I think that any serious individual who are starting a Bitcoin related company must have building trust relationship with the rest of the world at its top priority, and to do that he must follow practices that other people know and trust.
wmf 12y ago
The spirit of Bitcoin is to trust no one and nothing. If that can't be accomplished in practice due to things like interfacing with the real world, you might as well use Stellar and save yourself a lot of mining.
- Nursie 12y ago
  Yup, the spirit of Bitcoin, at least its original spirit, was total distrust, with no authorities needed or wanted, and it was designed specifically to fulfil this function. The article talks about starting groups of trusted companies, setting up barriers to entry etc etc, in order to build trust. These are authorities. Arguably Bitcoin is already dependent on trust - collusion between pool operators is entirely possible, they and the developers have already shown that they are an authority (when the various forks and merges have happened). A crypto-currency with an authority can be done in such a way that mining is unnecessary.
  - superobserver 12y ago
    Collusion isn't just possible. It's already been going on for at least two years now. As was said by one pool operator (paraphrasing), "the only people mining are 12 pools". Bitcoin isn't about distrust. It's about decentralized trust as that is the primary function of the blockchain. Bitcoin as an ecosystem hasn't been about distrust, but decentralized trust, and it has long been moving away from decentralization, which is fundamentally problematic.
    - Nursie 12y ago
      It's very interesting to watch. In microcosm it demonstrates something I've often thought about libertarian proposals for government-less societies - in fairly short order a class of barons will appear and we're back to feudalism of a sort.

31 points by carlchenet 12y ago

This article is correct in stating that trust and reputation is a serious problem for Bitcoin. But I don't think the article diagnoses exactly what is causing it. After all - there is nothing in all these negative headlines that give you a strong reason to believe that the Bitcoin ecosystem is less reliable overall than more traditional institutions. For every Bitcoin related scandal you can find an enormous number relating to the traditional financial system. The Bernie Madoff ponzi scheme alone was six times the size of the entire Bitcoin market cap at the moment. Yet every Bitcoin related scandal is interpreted by commentators as a sign of the anarchic failure of its central premise; while every scandal relating to the traditional sector does nothing at all to impede its reputation as the default way of doing business. I presume the explanation for this bias than a deep and abiding fear of distributed consensus - not just in the authorities and institutions that would lose their power; but in the culture at large. What else could it be? I don't know what you should do to combat that - but it's clear to me that this is the fundamental idea that needs to be targeted.

jacquesm 12y ago
Any kind of new monetary device will attract good and bad people, bitcoin has had a number of very high profile versions of the latter but what seems to be the problem here is that instead of attributing that to the people it is wrongly attributed to bitcoin as an institution. At this point in time even though there isn't anything wrong in particular with bitcoin it is still safe to say the brand has been damaged.
Nursie 12y ago
>> The Bernie Madoff ponzi scheme alone People who invest tons of cash in schemes like this, or in fact make investments at all, should be doing a lot of due diligence. Investment is not something that Joe Average thinks about much, if he can help it. He doesn't have millions of dollars, he probably has small-scale retirement funds managed by companies he didn't even choose by himself, just some default adopted at some point. Any cash he's sitting on is managed by other people as well, and is protected and insured in a variety of ways. Joe looks at Bitcoin and sees there have been scams and hacks by the dozen, and that when they happen there is little to no comeback, legal or otherwise. Some of the perps were the people running the services. He's probably also heard about the Silk Road. When it comes down to it he probably doesn't have a clue about computer security so there's no way in hell he's going to keep his cash on his own computer in a file he could lose with a hard-drive crash, that a hacker could steal from an infected machine. And if he's going to trust a third party with his money, why a bitcoin third party? There's no compelling reason to use bitcoin anyway when he has a credit card, and the credit card has the insurance and chargeback facilities that make Joe feel comparatively safe. I realise that from a technology standpoint most of this stuff is not specific to bitcoin. But where money is concerned I doubt the technically-correct* standpoint is going to win. I think the fear of distributed consensus might well be there too, but it's probably waaaay down the list of concerns, if most people even have any idea what it is. (*the best kind of correct!)
- logicallee 12y ago
  madoff's scheme worked precisely because people did do due dilligence. they shouldn't. they should have just asked him how he got the returns, and rejected his offer when he didn't have a compelling answer. EDIT: someone asked why the paragraphs aren't contradictory. The thing about due dilligence is that to me it sounds like looking into past investors and other things, doing reference checks. The thing about ponzi schemes is that until they crash, they produce lots of high-quality references. In the case of Madoff, people who have received reasonable returns from him for 20 years. He also managed charities' money, as well as contributed civicly. None of these stuff matters, though, because despite the stellar references (which is what makes ponzi schemes work) there is no underlying way to actually generate returns.
  - maxerickson 12y ago
    Now explain how those paragraphs aren't contradictory. Your second paragraph is certainly a reasonable step in a comprehensive appraisal. edit: Due diligence means understanding the thing you are investing in. For something like investing millions of dollars with Madoff, that includes more than asking his other customers what their returns were.
  - Nursie 12y ago
    That's not enough due diligence then. Further I guess I didn't make things clear - Joe Average (hell, let's say it's me) sees investments, particularly rich-people investments, as a separate class of transaction from his day to day use of money. There is risk involved. You have to take care of what you're doing. The idea that someone might just run off with his bank account, either through operator fraud or through hacking of a service or his own machine, and there not being much anyone can do about it, is pretty terrifying.
- grovulent 12y ago
  I think you're not quite seeing my point. I agree that something like what you wrote is likely descriptive (very roughly) of the conscious thoughts of the average punter - but what we need here is an explanation of WHY this is going through the average punter's head. And such an explanation is not necessarily going to be something that is included on their conscious list of concerns (though it might). What you have reiterated here is just what the article has already said. We already know facts like: - Punter hears about silk road, associates Bitcoin with illegal drug markets. What we want to know is why hearing such a fact causes such an association. Now you might think that there is no explanation here that is needed beyond how reputations are assigned generally by human societies. You might just think that - well, it's natural to associate a low reputation score to a system when you hear headlines about Silk Road style marketplaces, and so there is nothing more to say here. I'm saying - no, there is something more going on here than just standard reputation assignment. Why? Well - as I said before - because for every negative headline that is supposed to prove Bitcoin's low reputation, we can produce a fact about the traditional system that completely trumps the negative bitcoin headline. As another example since you mentioned Silk Road. What is the financial instrument used overwhelmingly by the world's drug dealers to exchange value? It is the U.S. 100 dollar bill. But is the reputation of the U.S. dollar impacted by this? Not at all. The even greater irony is that while the Bitcoin ecosystem overall gets branded as the province of nutbar libertarians that love drug dealers - the U.S. government is renown the world over for fighting the war on drugs. Except the U.S. has done nothing to remove the hundred dollar bills that drug dealers love to use. There is no greater single act the U.S. government could do to fight the drug cartels. It doesn't do it. So the reputation assignments here are odd to say the least. They certainly aren't consistent. This is something that cries out for explanation.

ianpurton 12y ago

The reason Bitcoin is not used for remittance is not due to trust, it's due to the fact Bitcoin doesn't have an advantage in the remittance space. There are companies such as https://transferwise.com/ https://transferwise.com/ that provide cheap money sending with no Bitcoin involved. Quick, simple and easy to understand. Bitcoin has many strengths, but remittance isn't one of them.

luizparreira 12y ago
I will have to disagree with you on that. I don't think this is the reason, I think the reason is that most companies fail to partner with other established financial institutions. Although this companies, such as transferwise and dwolla do a great job around Europe and US, most of them are not even known in the developing countries, in those countries people still rely on the old fashioned, bank transfers and western union mostly. There is a great opportunity out there for serious people to create great companies, and remittance surely is one of them.
- davidgerard 12y ago
  rebit.ph is making a serious attempt at remittances to the Philippines using Bitcon, but have discovered they basically have to become a Bitcoin exchange as not enough people are buying the Bitcoins at the .ph end. Also, the expensive bit that you're paying Western Union those fees for? Turns out to be the last mile, that a Bitcoin-based remittance company would also have to implement.

debacle 12y ago

The problem with the Bitcoin "ecosystem" is simply that the people in that ecosystem are the same people who have been attracted to Bitcoin: speculators, opportunists, and wide-eyed idiots. The biggest problem of Bitcoin is that the problem it solves is not the problem fiat currencies need solving. Bitcoin has no real competitive advantage over traditional currencies, and many drawbacks.

Rmilb 12y ago
I would disagree that it has no competitive advantages. For people in Venezuela and other places where the state has failed to control inflation, Bitcoin allows people to escape capital controls(Think China). Of course there are still many drawbacks, but there are competitive advantages over 'some' currencies.

luizparreira 12y ago

I think he makes a valid point on the article, however, I do think all this bad stuff that has happened to it was going to happen anyway, its impossible to stop it from happening, the traditional system does not stop it neither, this is part of human nature where there are large sums of money there will be other people trying to hack into it to benefit themselves and its peers. But the joy of the bitcoin ecosystem, and one that he fails to point out on the article, is that it rewards and encourages players to follow the rules, because in terms of cost of running enough computing power that hacks into the block-chain and a system that mines bitcoins to get the rewards associated with it, the latter is way more viable. I think that the Bitcoin Bloc-Chain is going well, with needs for some updates in the system, as any other software does, but going well so far. What really needs to be done, and the writer recognizes that in the article, is all the businesses built around it must follow best-practices, following the example of established organizations, to increase the overall trust in the ecosystem and people start to accept it more into their daily lives, this is obviously easier said than done, but I think that any serious individual who are starting a Bitcoin related company must have building trust relationship with the rest of the world at its top priority, and to do that he must follow practices that other people know and trust.

wmf 12y ago

The spirit of Bitcoin is to trust no one and nothing. If that can't be accomplished in practice due to things like interfacing with the real world, you might as well use Stellar and save yourself a lot of mining.

Nursie 12y ago
Yup, the spirit of Bitcoin, at least its original spirit, was total distrust, with no authorities needed or wanted, and it was designed specifically to fulfil this function. The article talks about starting groups of trusted companies, setting up barriers to entry etc etc, in order to build trust. These are authorities. Arguably Bitcoin is already dependent on trust - collusion between pool operators is entirely possible, they and the developers have already shown that they are an authority (when the various forks and merges have happened). A crypto-currency with an authority can be done in such a way that mining is unnecessary.
- superobserver 12y ago
  Collusion isn't just possible. It's already been going on for at least two years now. As was said by one pool operator (paraphrasing), "the only people mining are 12 pools". Bitcoin isn't about distrust. It's about decentralized trust as that is the primary function of the blockchain. Bitcoin as an ecosystem hasn't been about distrust, but decentralized trust, and it has long been moving away from decentralization, which is fundamentally problematic.
  - Nursie 12y ago
    It's very interesting to watch. In microcosm it demonstrates something I've often thought about libertarian proposals for government-less societies - in fairly short order a class of barons will appear and we're back to feudalism of a sort.