Cryptocurrency (or "What the hell is a bitcoin?")

merphle wrote:
Stengah wrote:
manta173 wrote:

Same here. Coinbase has a giant userbase so it is a big target, but I also believe they have the most to lose by hacking of any of these services. The whole crytocurrency world knows hacking is a big concern... in theory coinbase is covering their asses.

I just sold off some etherium (I made 10 bucks off of my 20...) I was planning to wait until I doubled my money, but wanted to bank this little victory as everything else is still down from when I bought it.

Just a general reminder to people that any profit made from selling cyrptocurrencies is required to be reported on your taxes. The IRS considers it property, so if you've held it less than 1 year, it's a short term gain and treated as ordinary income for tax purposes. If you've held it for more than 1 year it's considered a long-term gain and taxed at a lower rate. Coinbase or other exchanges aren't likely to send you any forms stating what your gains are, so it's up to you to figure it out. The IRS just recently successfully sued Coinbase for info on users buying, selling, or transferring more than $20,000 worth of bitcoin between 2013 and 2015, and with how huge the bubble was (and is still) you know they'll be asking for user info again.

That's a great reminder. Coinbase just recently released a "beta" report generation tool to help determine tax cost basis, but it has some disclaimers about not being actual legal or tax advice.

I sure hope everyone who already cashed out has retained some for ol' Uncle Sam in April.

This gets a bit more complicated for folks who have used the "currencies" to actually buy things as they need to track values as "bought" and "sold" rather than as investments. You need to actually have a FIFO or LIFO tracking (especially if you split bitcoins up between transactions). It could get a bit complex. If the IRS challenges what you report, you need to have a tax position that has consistency and can be legally backed in a tax court.

People who know how to play the currency markets have a level of expertise that is highly marketable. Not for dilettantes.

So I went ahead and did it, but even though it says my verification from id will take 5-10 minutes, it’s been pending since last night. Presuming this is Just because of the load on the server...

Following on from my exchange with merphle, two further things have been nagging away at me.

One. Why has the inventor of blockchain/bitcoin chosen to remain anonymous? I'm hard-pushed to think of a recent technological innovation where the inventor hasn't wanted their name attached to it.

Two. I've read a lot of commentary about the blockchain, rather than Bitcoin, being the important thing. Different coins will come and go, the talk goes, but blockchain - the ability to verify and record transactions without a single 3rd party intermediary - is what will stay. But does that still hold true given the time it can take to verify transactions and the energy costs involved?

detroit20 wrote:

One. Why has the inventor of blockchain/bitcoin chosen to remain anonymous?

My own belief is that he didn't want to go to jail or be killed. Bitcoin's roots are in the very anti-government cypherpunk community, and bitcoin is more-or-less deliberately designed to attack a major component of modern government power - control of the money supply. For example, from his announcement of bitcoin 0.1:

Satoshi Nakamoto wrote:

The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.

When you go after people with that kind of power and lack of moral restraint, I would consider it a very good idea to remain safely anonymous.

But does that still hold true given the time it can take to verify transactions and the energy costs involved?

The amount of energy you need to secure a blockchain is related to how important that blockchain is. A global money and transaction system like bitcoin needs a lot, because people with huge resources (i.e. major criminal organizations and nation-states) are going to be looking to compromise it. Other systems can likely get by with a lot less. There's also a lot of research going into replacing proof-of-work with something less energy intensive, but still secure or even more secure.

He also owns approximately 1 million bitcoins, worth 19 billion dollars at the last peak. Add that to how the people who've merely been suspected to be Satoshi have had their privacy intruded upon by journalists and enthusiasts and I can't blame him at all for not wanting to publicly out himself.

Thanks for replying, Aetius, Stengah

Both your explanations for Satoshi's desire to remain anonymous would seem to require that they (singular or plural, but my instinct is plural) knew - when they published their white paper - that Bitcoin would (a) gain traction and (b) increase significantly in value in a short period. How could they possibly know that in advance? Unless of course there were enough people involved in the early stages of Bitcoin to ensure that it had critical mass.

Aetius - It's interesting that the quote you provided refers to debasing the currency. My own view is that the current valuations for Bitcoin are effectively destroying it as a viable alternative currency (though I'm still not convinced it meets the definition of 'currency'). It has instead become a speculative asset.

Satoshi Nakamoto wrote:

I'm sure that in 20 years there will either be very large transaction volume or no volume.

He didn't know, but he understood that if it took off, it would make him a marked man. Libertarians are familiar with the idea that it's common for new technology to be rapidly adopted by illegal and gray-market enterprises, and Nakamoto was pretty knowledgeable in that area - at one point he was arguing about whether bitcoin violated Mises' regression theorem. (If you want the details and can stand to read libertarian economic stuff, Robert Murphy has a great blog post with a lot of relevant links.)

This meant that a plausible scenario was that criminals, smugglers, terrorists, and other underground groups would adopt and use bitcoin, but that widespread public adoption would fail. In such a scenario, it's quite likely that he would be blamed.

Aetius - It's interesting that the quote you provided refers to debasing the currency. My own view is that the current valuations for Bitcoin are effectively destroying it as a viable alternative currency (though I'm still not convinced it meets the definition of 'currency'). It has instead become a speculative asset.

First, you're not wrong - the current issues with the limited transaction rate and high transaction fees are making bitcoin difficult to use on a day-to-day basis. In this context, though, debasing the currency has a specific economic meaning: it means lowering the value of the currency. The term comes from the Roman practice of reducing the amount of precious metals in their coins. In a modern context, it's inflation - creating money that didn't exist before, which lowers the value of all the existing currency. This is deliberate government policy today nearly everywhere in the world, and one of the things bitcoin was designed to counter.

Sorry, I should have been more specific.

What I meant was that Satoshi has succeeded in creating a currency that cannot be debased... too well. Fees and processing time are certainly issues, but surely the bigger issue is the massive disincentive to actually spend the things? Why spend a $10,000 Bitcoin today when it might be worth $12,000?

It would be interesting to know what percentage of recent Bitcoin transactions relate to the purchase of goods and services, as opposed sales from one speculator to another.

Given that a fair number of the few places that did accept them stopped early into the bubble, I doubt many transactions were for actual goods. A some of the alt-coins get used for that (particularly for illegal stuff), and since you can't easily buy alt-coins with normal currency, people looking to do so have to buy bitcoin first, then exchange it for whatever alt-coin they need.

Yes, that's unsurprising. No merchant in their right mind would accept payments in a currency that's so volatile. Why accept $12,000 worth of Bitcoin today when it might be worth on $10,000 when you need to cash out.

As i understand it, there are very few robust hedging solutions, so there any merchant runs huge exchange rate risks. The few that I've seen look very rickety.

Debasement isn't the same concept as inflation. It wasn't even the same thing in Roman times. There were times with the large price inflation occurring at the same time as when the Legions were flush with plundered gold and silver. The gold percentage in the coins have very little to do with the purchasing power of that coinage. This isn't to say that money creation can't cause price inflation but it depends on the health of the economy and whether adding more money to the system increases production (more goods and services available).

To say that "in a modern context, it's inflation - creating money that didn't exist before" would make bitcoin inflationary. Each mined block creates new money (at least for now) but I can't find anyone who would say that mining is inflationary or that the bitcoin is itself inflationary. The limits placed on it by the algorithm reduce the rate at which new bitcoins (new money creation) mean that if the bitcoin economy (the total amount of goods and services) increases as bitcoin proponents expect, then the purchasing power will increase (deflation).

I would love to have a conversation with Satoshi about all this. I would love to know how bitcoin is supposed to avoid the gold standard trap (over constraining the money supply starving enterprises from investment) with no fiscal or monetary levers on the economy.

I've been looking for data of what the size of the bitcoin economy might be. I've not found anything great, just back of the envelope estimates based on it becoming the international exchange clearing house or all illegal drugs being paid in it. The velocity money gives you an idea of how much the bitcoins are circulating ( http://charts.woobull.com/bitcoin-ve... ) and at the moment it doesn't look like one that is being used for transactions of "real" products versus one being used for "financial" products. Anecdotally there is a lot of hording and day trading around.

detroit20 wrote:

No merchant in their right mind would accept payments in a currency that's so volatile.

Most don't. They put the risk on people like BitPay, who have tightened up their time requirements to reduce volatility. People pay with bitcoin, and BitPay pays the merchant in the dollar equivalent at that time. Merchants who accept direct bitcoin at this point are generally looking to acquire and hold.

I'll avoid the discussion about inflation and the gold standard, except to note that Austrians, and probably by extension Satoshi, would strongly disagree.

DoveBrown wrote:

To say that "in a modern context, it's inflation - creating money that didn't exist before" would make bitcoin inflationary. Each mined block creates new money (at least for now) but I can't find anyone who would say that mining is inflationary or that the bitcoin is itself inflationary. The limits placed on it by the algorithm reduce the rate at which new bitcoins (new money creation) mean that if the bitcoin economy (the total amount of goods and services) increases as bitcoin proponents expect, then the purchasing power will increase (deflation).

You are 100% correct. People are well aware of the current inflationary status of bitcoin, and are also aware that only 21 million will ever be created and that 3/4ths of them have already been created. And the expectation is, in fact, that bitcoin will be strongly deflationary. This is seen by proponents as a feature, not a bug.

No one wants to be the next bitcoin pizza guy. The adjusted price for the two pizzas he bought is currently $162,785,900.

I don't want to derail the conversation too much[1], I've not read too much of the Austrian school. I kind of thought it had be superseded in economic circles by Friedman's Monetarism. Is there any good readable book on current Austrian school thought written by someone with sound academic qualifications? I did read Hayek's Road to Serfdom in university but that's more concerned with the dangers of Statism than monetary theory.

I'm more than happy to accept that Bitcoin and other cryptocurrencies are money. With the real world floating currencies, the traders are trading on the speculation about future consumption denominated in that currency. US Dollars do very well since almost all oil purchasing must be paid for with dollars and the future consumption of oil is pretty much a certainty together. Add that to all the goods that are available within the US economy together with taxes owed to the US government and it's clear future dollars will have value.

If Bitcoin is strongly deflationary as a currency where is the future consumption going to come from? You'd be completely out of your mind to take a loan denominated in Bitcoin to pay for spending. That's as true for consumption as for funding an enterprise.

[1] Though the nature of money is an amazing thing to think about and debate.

Monetarism is more-or-less an outgrowth (and partial refutation) of Keynesian thought, and it's directly opposed to Austrian thought when it comes to money. Mises' The Theory of Money and Credit is still the standard Austrian text on money. Robert Murphy's Choice, Cooperation, Enterprise, and Human Action is a more modern interpretation and extension of Mises' Human Action, which is a broader overview of current Austrian economic thought. Tom Woods' Meltdown is a good Austrian overview of the 2008 crisis which spawned bitcoin and the thinking that inspired bitcoin.

As for lending in a deflationary currency, start with Murray Rothbard's What has Government Done to Our Money. The discussion largely centers around gold because it's an older book, but there are a lot of similarities in terms of lending between gold and bitcoin. The short version is that interest rates will probably work out about the same. In theory, loans in a deflationary currency could even be offered at negative interest rates, if the deflation rate was high enough. However, paying back deflationary loans is more difficult, and thus risk is higher, which pushes interest rates up. One of the really cool things about bitcoin and cryptocurrencies in general is watching this play out in real time, as bitcoin lending is already in progress.

I found this article to be persuasive, but my bias is well-known. It presents a somewhat snarky counterpoint to the standard narrative on bitcoin, be warned. Aetius, any thoughts?

Matt O'Brien wrote:

But even in a world where bitcoin actually did work, it still might not be worth using. At least not from a societal perspective. That's because it's not just a matter of how much bitcoins cost people to use, but also how much it costs everyone else when they do — which could be quite a bit. The type of computers that can quickly solve bitcoin's cryptographically complex equations aren't cheap to run. In fact, they're energy hogs. They already consume more than 0.1 percent of all electricity (or about as much as Denmark), which is remarkable when you consider how little bitcoin is actually used right now. If that ever went up, so would its energy needs — perhaps substantially so. The important thing to understand is that the more bitcoin costs, the more incentive there is to “mine” for it, but the more that happens, the more computing power you need to win new coins. So the amount of energy it uses should go up hand in hand with its price.

Bitcoin, in other words, is one big negative-externality machine. That's what economists call a cost that someone else has to pay for something you did. The canonical example is the pollution that comes out of a factory — society at large is left with the cleanup bill — and bitcoin might not be that different. Sure, some bitcoin miners run on renewable energy sources like hydroelectric or geothermal, but a lot of them still use coal. It's the economical choice, after all. Well, at least for them. So even in the best-case scenario, bitcoin might not be cutting transaction costs so much as redistributing them from individuals to society. That's what it would mean if miners who get paid with new bitcoins replace bankers who get paid with fees as our middlemen.

This, apparently, is progress.

Bitcoin is a revolutionary technology built on reactionary economics. That first part has blinded people to the second — how could something so clever be so useless? — but it's true. Bitcoin's strictly limited money supply harks back to a time when money was a shiny rock you dug out of the ground, not a piece of paper with a dead president (or treasury secretary) on it. And its attempts to insulate miners from the forces of economic rationality are akin to nobles' old feudal protections.

Bitcoin is only the future if you think 1789 wasn't in the past.

I guess the thing I'm grateful for is that we are finally seeing an Austrian currency in action. And its fluctuating in ways that would appall Murray Rothbard, and which resemble the private currencies that made the American economy so unstable for decades in the late 18th and early 19th centuries. Plus ça change...

Newest craze!
Garlicoin (GRLC)

Yes, I'm going to try it out. At least off and on with my home PC. They ran a test mine for the past week or so and I was able to get it mining without too much issue. There is a discord as well that has been a great help.

http://garlicoin.io/

Official release is on the 21st. I've never mined before so it will just be a bit of fun. I'm not going out to buy a new rig to do this so I won't be doing it with any gusto. I'm hoping I can adjust the amount of GPU usage I can tell it to use. I don't want to fry my 1070.

Are you saying that we should set up a GWJ pool?

merphle wrote:

Are you saying that we should set up a GWJ pool?

That could be fun!
I don't know how pools work so I was just going to pick one of theirs.

https://pandawanfr.github.io/GarlicR...

That is one of the FAQ guide sites. it's very straight forward.

Someone also posted on the reddit that the Garlicoin subreddit just surpassed dogecoin subreddit in subscribers!

Robear wrote:

Aetius, any thoughts?

It's a pretty standard criticism, with some petty digs mixed in. Austrian economists and libertarians do, in fact, know that money is a medium of exchange - in fact, the term is central to Mises' definition of money. And libertarians do understand that trust makes economies more efficient (and argue that government in general, and the Federal Reserve in particular, have repeatedly violated that trust for their own benefit).

One detail is completely wrong - the "people who run it" haven't ruled out increasing the block size (which is what he's talking about with regard to transaction rate). The issue is that fundamental changes like a block size increase require consensus, which is hard to come by and takes time. Far from being out to abolish trust, the "people who run it" (which is more-or-less everyone who uses it) are building trust in order to make the change cleanly.

I've responded to the power claims above - far from being the same power usage as Denmark, the current mining efforts consume about as much power every year as Americans use putting up Christmas lights. It's hardly an issue, not likely to ever become one, and any externality issues are the same as every other use of electricity - it's not bitcoin miners' fault that our societies can't get it together when it comes to safe nuclear power and other clean energy sources.

Honestly, I think Rothbard would be delighted with the current state of digital currencies. Yes, they are volatile, but it's also an extremely experimental technology in its infancy and it's a competitive, almost-free market in money, which is something that hasn't been seen in a very long time.

Well, that's an important thing for the author to miss. I appreciate your clarifying it.

I still feel that the volatility is what's inherently dangerous about this type of currency (and indeed, Austrian monetary theory in general), but you explain these things well, so I wanted to know what you thought.

groan wrote:

Newest craze!
Garlicoin (GRLC)

Well, I also set up the mining software and am prepared to give it a shot on Sunday. I don't know if I'll keep it running persistently though.

Robear wrote:

I still feel that the volatility is what's inherently dangerous about this type of currency (and indeed, Austrian monetary theory in general)

I didn't mean to give short shrift to the problem of volatility - it's definitely a big problem for anything that aspires to be money. I do feel, though, that it's important to note that a lot of that volatility is due to non-market causes, like the South Korean government planning to ban cryptocurrencies. It's pretty hard to argue that South Korea's ban plans, China's already implemented ban, or Russia's ban threats are the fault of the market. On the other hand, the Bitconnect scam was just eliminated, and Ripple is still trading, so ... yeah.

While crypto is designed to be resistant to government actions, getting into a protracted battle with governments is probably not going to help with stability.

merphle wrote:
groan wrote:

Newest craze!
Garlicoin (GRLC)

Well, I also set up the mining software and am prepared to give it a shot on Sunday. I don't know if I'll keep it running persistently though.

Make sure you change the scripts to not use the test servers and get a new wallet address. the ole ones that started wit N or M won't work.

2PM Sunday. Not sure where I'll be at that time but I'll get it done some time that day. Hope I don't fry my GPU. I wonder if there's some way to throttle the rate at which you mine....

groan wrote:
merphle wrote:
groan wrote:

Newest craze!
Garlicoin (GRLC)

Well, I also set up the mining software and am prepared to give it a shot on Sunday. I don't know if I'll keep it running persistently though.

Make sure you change the scripts to not use the test servers and get a new wallet address. the ole ones that started wit N or M won't work.

2PM Sunday. Not sure where I'll be at that time but I'll get it done some time that day. Hope I don't fry my GPU. I wonder if there's some way to throttle the rate at which you mine....

Yup, I'm on it. The mainnet URLs should be posted right around when the coin launches. Also don't forget to set your difficulty down from the 12 or 13 where it is now, to the starting point of 10 (I think - it'll be posted).

There is a way to throttle: the "-I" (capital i for intensity) flag. Or "--intensity". Depends on which miner software you're using.

Here’s why you can’t buy a high-end graphics card at Best Buy

the rise of cryptocurrency mining has created an unprecedented global shortage of graphics cards. If you go to your local retailer, you're likely to find bare shelves where the beefier cards used to be. Instead of trading at a discount, used cards routinely sell for well above MSRP on sites like eBay and Craigslist.
The graphics card shortage is happening because high-end graphics cards are the best way to mine Ethereum and other non-bitcoin cryptocurrencies. With the price of these cryptocurrencies rising to unprecedented heights in recent weeks, a powerful graphics card can generate several dollars per day in cryptocurrency. And so a growing community of hobbyist miners has been snapping every graphics card it can get, creating shortages and high prices for everyone else.
According to data from PC Part Picker, you could get an AMD Radeon RX 570 for around $200 last spring, while an average RX 580 cost closer to $250. But prices started to rise over the summer, with both cards costing more than $350 by early July. Prices settled down a bit in the fall, but in recent weeks we've seen an even more extreme price rise: RX 580 cards now cost more than $400 on average.

And this chart of average prices understates the degree of price rise because it includes retail stores that tend to sell closer to MSRP and sell out instantly. If you want to get a graphics card in a timely manner, you'll probably be forced to pay even higher prices to online resellers. As we write this on Thursday, resellers on Amazon are asking almost $500 for an RX 570, while some RX 580s are going for more than $600.

The story is similar for the Nvidia GeForce cards that are popular with miners. Average prices for the GTX 1060 have risen from $275 to $400 since May, according to PC Part Picker, while the 1070 has risen from $425 to $600. And again, these averages probably understate the rise, because if you actually want to get a card promptly you might be forced to pay an online reseller significantly more.

merphle wrote:
groan wrote:
merphle wrote:
groan wrote:

Newest craze!
Garlicoin (GRLC)

Well, I also set up the mining software and am prepared to give it a shot on Sunday. I don't know if I'll keep it running persistently though.

Make sure you change the scripts to not use the test servers and get a new wallet address. the ole ones that started wit N or M won't work.

2PM Sunday. Not sure where I'll be at that time but I'll get it done some time that day. Hope I don't fry my GPU. I wonder if there's some way to throttle the rate at which you mine....

Yup, I'm on it. The mainnet URLs should be posted right around when the coin launches. Also don't forget to set your difficulty down from the 12 or 13 where it is now, to the starting point of 10 (I think - it'll be posted).

There is a way to throttle: the "-I" (capital i for intensity) flag. Or "--intensity". Depends on which miner software you're using.

Waiting!
Did you get in on the Discord?
https://discord.gg/FC9sNsR

groan wrote:
merphle wrote:
groan wrote:
merphle wrote:
groan wrote:

Newest craze!
Garlicoin (GRLC)

Well, I also set up the mining software and am prepared to give it a shot on Sunday. I don't know if I'll keep it running persistently though.

Make sure you change the scripts to not use the test servers and get a new wallet address. the ole ones that started wit N or M won't work.

2PM Sunday. Not sure where I'll be at that time but I'll get it done some time that day. Hope I don't fry my GPU. I wonder if there's some way to throttle the rate at which you mine....

Yup, I'm on it. The mainnet URLs should be posted right around when the coin launches. Also don't forget to set your difficulty down from the 12 or 13 where it is now, to the starting point of 10 (I think - it'll be posted).

There is a way to throttle: the "-I" (capital i for intensity) flag. Or "--intensity". Depends on which miner software you're using.

Waiting!
Did you get in on the Discord?
https://discord.gg/FC9sNsR

I did, though it's about 90% full of people asking the same damn questions as everyone else. If people would just take a few minutes to read the chat history, it would all go a heck of a lot smoother.

Also, it seems that breadbox.xyz may have been hacked in some fashion (folks are reporting unexpected transfers out from their wallets there). If you haven't already, you might consider creating an offline wallet and change your miners to use that.

Ya, The dev for breadbox said it wasnt hacked. They ahd to bring it down though.
I generated my wallet address using the CLI and then imported it into the Garlium (electrum) app.

I'm up to 17 coins!