Bitcoin failure

For bitcoin to work politically, authority over the currency needs to be distributed over a large group of peers. If power is concentrated at a single point, the state can dominate that point, whoever controls that point can steal other people’s currency and do a variety of bad things.

Bitcoin was designed so that “voting” depended on computing power and network connection. Initially, almost everyone who had a client was a miner, there were a huge number of miners, everyone who used bitcoin had roughly equal influence because they contributed roughly equal computing power to the block chain.

Today, bitcoin is controlled by by a single miner., which was a predictable consequence of bitcoin’s scaling problems.

What we need is a crypto currency which is controlled by the top one hundred or so owners of the currency that are well connected to the net and have adequate computing power, with influence over the currency proportional to the amount of currency that they own, rather than the number of cycles that they burn.

In principle it should be possible to do this using bilinear maps, but the details are a bit tricky, because we have to make sure that manageable number of votes reflects an infinitely divisible currency whose ownership changes continually. So the shares (private and public keys in groups with a bilinear map) have to be reissued frequently, while ownership of the infinitely divisible currency is given value by the fact that if you own a lot of it, you get shares proportional to the amount you own. Since shareholders are people who own a lot of currency, they have an incentive to not misbehave, to continue to reissue shares according to currency ownership and validate transactions according to the rules, since to do otherwise would destroy the value of the currency that they own.

The number of shares remains manageably small, however many people use the currency and however many transactions take place. The shares underlie the value of the currency – and absolutely nothing underlies the value of the shares. Of course we still have other scaling problems, to which I have not figured out a solution except in alarmingly vague outline.

26 Responses to “Bitcoin failure”

  1. Alrenous says:

    Hey, isn’t that the exact failure mode they had previously found, but dismissed as unlikely?

    One solution considers scenarios in which messages may be forged, but which will be Byzantine-fault-tolerant as long as the number of traitorous generals does not equal or exceed one third. The impossibility of dealing with one-third or more traitors ultimately reduces to proving that the 1 Commander + 2 Lieutenants problem cannot be solved, if the Commander is traitorous.

    Moreover, proving I’m stupid once again, this is in hindsight obviously a winner-take all situation. Only one firm can have the most efficient mining operation, it’s not like AU-197 where there’s diverse deposits.

  2. Candide III says:

    I don’t see any large difference. Majority shareholders in your scheme can collude to screw over the minority shareholders (currency holders). As you say, this will likely make their shares worthless. With bitcoin, if, say, GHash.IO executes or even attempts an attack, the currency will collapse and both pilfered currency and its investments (specialized hardware etc.) will become worthless. After an attack people will not want to accept bitcoin and they will not be obliged to because it is not legal tender.

    In addition, pools don’t have ultimate control of their hashing power. Large miners, alarmed by the uproar, have been pulling hashing power out of GHash.IO and its share is now down to about 37% (https://blockchain.info/pools).

    • jim says:

      People who have the most currency have the greatest incentive to uphold the value of currency. Miners have a lesser incentive, and that incentive diminishes as mining diminishes.

  3. Trimegistus says:

    I never understood Bitcoin. It always seemed like a kind of programmer’s LARP: “let’s all pretend this stuff is real money.” It never passed the one fundamental test of whether money is real or not: can you pay taxes with it? If you can’t pay taxes with it, it’s just a gift certificate or play money, and you need to rustle up some real money when the tax man comes to the door.

    Because Bitcoin was so loudly trumpeted as a non-government currency by the kind of dorm-lounge anarchists who believe anarchy can be anything other than a war of all against all until a despot arises, there was no way that any government would ever accept Bitcoin as payment for taxes.

    Which means that there was always a choke point at whatever place one would convert between Bitcoins and dollars/euros/yuan/etc. To make Bitcoin worthless, governments need only tell those converters (be they banks, Paypal, whoever) “you can’t do that.” And since any financial institution depends on laws for its existence, the bank/paypal/whoever says “okay, Boss” and Bitcoin vanishes like fairy gold.

    The only mystery to me is how anyone thought there was a different outcome.

    • Steve Johnson says:

      All of what you said 100% applies to gold – there are good arguments against bitcoin but yours isn’t one of them.

      • Helmuth says:

        Which would you rather have in your hand–a pound of bitcoin or a pound of gold? Substitute any other ersatz “store of value” for bitcoin if you wish.

      • Thales says:

        Really? Did the Cathedral shut-down all the coin dealers? You mean I can’t convert my specie into currency anymore?

        • Steve Johnson says:

          “Did the Cathedral shut-down all the coin dealers?”

          They have in the past – along with ordering everyone to sell their gold at a price the government set.

          “You mean I can’t convert my specie into currency anymore?”

          You can convert bitcoins into currency, too.

          It’s not like there are no reasons to be skeptical of bitcoin but try to come up with reasons that don’t also apply to gold.

          • Thales says:

            “What makes you think dinosaurs will roam the Earth again?”

            “They have in the past!”

            The optics and potential gains on shutting down BTC vs. confiscating Au are entirely different. The optics are obvious: shutting down BTC can be couched as keeping Middle America™ safe from drug dealers, money-launderers, etc. Confiscating Au immediately vindicates the Alex Jones crowd and frightenes everyone else. Meanwhile, the upside of shutting down BTC are obvious — one less rival currency in the quest to maintain FRN hegemony (and the ~600Billion/year worth of T-Bills that status brings), meanwhile creating a black market for Au achives, well, nothing really since Au is simply a store of wealth for those who own it.

    • jim says:

      To make Bitcoin worthless, governments need only tell those converters (be they banks, Paypal, whoever) “you can’t do that.”

      Or will that make government currency worthless?

    • peppermint says:

      As with climate change, there are the bitcoin skeptics, and then there are the bitcoin retards.

      Bitcoin does do what it minimally claims to do, create a commodity with a defined owner of each bitcoin.

      It does not make it impossible for a government which controls enough people to tax or confiscate pro-rata, and it in fact makes it possible for the government to see every transaction anyone has ever made.

    • Alrenous says:

      Your economics education seems to be incomplete. Read these, in any order you see fit:

      http://www.safehaven.com/article/5205/why-the-global-financial-system-is-about-to-collapse

      http://szabo.best.vwh.net/shell.html

      https://startpage.com/do/search?q=economics+in+one+lesson

      It won’t take as long as a Master’s in economics, but will educate you better.

  4. RJPadavona says:

    Bitcoin fails on several levels. It can’t function as a good medium of exchange or unit of account because it will never be given legal tender status. If contracts can’t be upheld in bitcoin, then what is it good for other than a plaything for anti-establishment dreamers?

    Bitcoin can’t function as a good store of value because of regression theorem. There is no long held tradition of saving surplus wealth in bitcoin like there is with gold. Furthermore, you can’t hold an actual bitcoin in your hand, so there’s always counterparty risk, which is another reason it makes for a poor store of value.

    If you don’t like what your government is doing to your currency, then don’t save in the currency. It’s just that simple. There’s also no need to get rooked into a Ponzi scheme crypto-currency like bitcoin just so you can feel like you’re sticking it to “The Man”. Something most folks don’t realize is that currency is not an end, it’s only a means to an end. Currency is no different than poker chips or credits in a video game. It’s just a way to keep score. It’s meant to be spent, not saved!

    There’s a reason governments and central banks hold massive tons of gold as reserves. It’s there in order to recapitalize the monetary system when the dollar-based debt system ceases to function in its current form. In order for this to happen, central banks will bid for gold at a MUCH higher price in order to shore up the asset side of their balance sheets whenever the SHTF. Basically, the US Dollar is removed as the centerpiece of the global monetary system and becomes just another currency floating against the price of gold. This is not a gold standard, it’s just using gold as a reference point to value currency.

    If you look at the architecture of the euro, it’s already set up for the new system. Most folks think the euro was established as a way to improve diplomatic and trade relations between the different European nations. Yeah, that was part of it, but the main reason was in order to establish a currency that was big enough to be there as a model for when the US dollar ceases to function in the way it currently does. The same way the US Dollar was there when the British pound ceased to function as the world’s reserve currency.

    So, please folks, don’t get suckered into bitcoin. There’s just too many reasons why it is NOT the future of money. And remember this quote from Another….. “Your wealth is not what your currency says it is!”

    • peppermint says:

      what does ‘contracts can’t be upheld in bitcoin’ mean? Does it mean that a carpetbagging judge can force you to take worthless Union scrip instead of proper Confederate money?

      Please do yourself a favor and appreciate what bitcoin is before mouthing off. Some of us skeptics would like to be taken seriously.

      • RJPadavona says:

        “Contracts can’t be upheld in bitcoin” means when you borrow money to buy land, a home, a car, or start a business, the promise to pay in the contract you sign is denominated in x amount of US dollars, euros, etc, depending on where you reside. Since bitcoin doesn’t have legal tender status (and never will) then it’s no good as a medium of exchange or unit of account because if someone owes you x amount of bitcoin in a contract you sign, then you have no legal recourse to get your money back.

        Yeah, it would’ve been nice if the outcome of the Civil War would’ve been different, but that’s not the world we live in, so why make such a horrible analogy when discussing monetary matters? Since you and me are nobodies and have no say in what is our national currency, I’ve found that it’s best not to think in terms of how things SHOULD be, but how things ARE.

        Just for argument’s sake, let’s say we get our wish and there’s a Balkanization of the US or the Confederacy rises again. And let’s say one of these new countries/territories is dumb enough to use bitcoin as the national currency and give it legal tender status. It would last until there was a major deflationary panic or an outbreak of war. Bitcoin is restricted in the amount of it that can be created. No government is going to limit themselves in this way when they have the power to print their own money. It’s the same reason gold standards never last.

        Governments and the majority of people want easy money. It’s just human nature and nothing can be done about it. So let them have their currency in unrestricted amounts. As long as it’s being managed well enough so you can pay your bills and buy things at the store and you’re not saving your surplus wealth in it, then what difference does it make? The world doesn’t need a new crypto-currency for people to store their purchasing power in because there’s already a vehicle for that that’s been around for thousands of years: PHYSICAL GOLD.

        If you don’t have any, you better get you some, because it’s true value will be revealed for all to see in due time.

      • Jim C says:

        Debt is the essence of money; a major function of money is to denominate debt. No debt is denominated in bitcoin, hence bitcoin is not money. Further, if bitcoin were used as money it would be a piss-poor unit of account because it would be deflationary. Each successive loan would be progressively harder to repay because the number of bitcoins would remain (relatively) constant while the bitcoin debt expands, making bitcoins more and more precious to debtors. An eventual deflationary collapse would be inevitable.

        Bitcoin is not and never will be money. People obsess over the whole ‘what should be money’ issue because they mistakenly think you have to save in money. The government cannot dictate what you save in. People save in money now in part because of the US dollar’s regressive link to gold (and credibility inflation, see below). Once USD’s link to physical world things is severed through too much abuse, a regressive link to gold will once again need to be established. The euro was designed for this.

        http://fofoa.blogspot.com/2011/06/bitcoin-open-forum-part-3.html

        http://fofoa.blogspot.com/2010/08/credibility-inflation.html

        • peppermint says:

          You say it’s deflationary – why? Because the protocol magically will never change?

          What happens when the big hashers decide to pay themselves by continuing to issue new shares? What happens when they all get your idea and decide to goose the bitcoin economy by issuing new shares – to themselves, of course?

          We hvave only their promise that they will maintain the protocol as it is. An executable constitution is still a fucking piece of paper.

          • Jim C says:

            So bitcoin is just like fiat currency then? =P

            Except now we’ll have “big hashers” controlling the money supply instead of “the elitez” or the j00!

            • jim says:

              As the defenders of bitcoin argue, this is not too bad as long as the big hashers are substantially in the black.

              Things really suck when the money supply is controlled by a government that has owes its subjects a lot of money and has glibly promised them a lot more.

              But I would rather the money was controlled by those that are massively in the black.

              The idea of bitcoin was that the money was controlled by ordinary people. I doubt that is practical.

          • Jim C says:

            “Things really suck when the money supply is controlled by a government that has owes its subjects a lot of money and has glibly promised them a lot more.”

            Doesn’t this only suck for the subjects who gave loans to the government i.e. who saved in govt. debt and debt instruments denominated in the unit the govt. controls? And by doing this, aren’t these people masochistically and idiotically enabling their own abuse at the hands of a massive government they helped create and continue to fund?

            If you voluntarily hand over your after-tax surplus to the world’s most profligate government, a government whose primary objective is making sure Shaniqua and her six bastards in Harlem are well fed and have the latest flat screen TV & xbox, then you deserve what you get: worthless savings.

            Why should we care if our whore of a government debauches our money as long as we do not save any of it? Money needs to be a medium of exchange and unit of account, but only needs to be a short term store of value. There is no reason the primary store of value has to be money. The primary problem is that we save in the same units we transact in. This problem will naturally resolve itself once those units and associated savings become worthless.

        • Dan says:

          Jim C. — I get what you are saying but most people still need savings. We will grow old, need to send the kids to college, have runs of bad luck etc.

          Should someone just accumulate more tangible things like land or shares in companies in hopes of liquidating them when cash needs to be raised?

  5. Zach says:

    No person on planet earth could have made the predictions inherent in bitcoin without scaling problems. That reality simply does not exist.

    I have been and continue to be excited about bitcoin.

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