What is Bitcoin?

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objectivefunction
Posts: 109
Joined: Wed May 04, 2016 10:20 am

Re: What is Bitcoin?

Post by objectivefunction » Wed Sep 13, 2017 5:06 am

mnaspbh wrote:
Tue Sep 12, 2017 7:43 pm
No cryptocurrency is required to make use of blockchain technology
That's not true of Ethereum (it has a native ether currency) and I don't believe it is true of blockchain in general. I don't believe blockchain divorced from a native currency will ever work. The whole reason Bitcoin works is because miners have an incentive to extend the blockchain---an incentive paid in bitcoin. That incentive compensates miners for the real cost they expend and makes miners part of the ecosystem.

I think that financial institutions will attempt to divorce the blockchain from bitcoin, but either end up making something that is centralized and unnecessarily uses blockchain when some other technology would have worked better or make something that differs from bitcoin in name only (i.e. CitiCoin).

I'm not the only one who believes this:

"Nothing is more indicative of a change in sentiment, however, than a sudden rise in scrutiny. Simon Scorer, from the Bank of England’s digital currencies team, noted in a blog post last week that there is scope to make DLT systems more compatible with centralised environments. The problem is 'by adapting DLT in this way, you move further away from the principles for which it was originally designed'."

"Growing scepticism challenges the blockchain hype" https://www.ft.com/content/b5b1a5f2-503 ... 7009366969

Here's an opinion piece from CoinDesk: "With Blockchain, Where There's Smoke, There's Usually More Smoke" https://www.coindesk.com/blockchain-tec ... ore-smoke/

mnaspbh
Posts: 204
Joined: Fri Sep 09, 2011 12:26 pm

Re: What is Bitcoin?

Post by mnaspbh » Wed Sep 13, 2017 4:13 pm

objectivefunction wrote:
Wed Sep 13, 2017 5:06 am
mnaspbh wrote:
Tue Sep 12, 2017 7:43 pm
No cryptocurrency is required to make use of blockchain technology
That's not true of Ethereum (it has a native ether currency) and I don't believe it is true of blockchain in general. I don't believe blockchain divorced from a native currency will ever work. The whole reason Bitcoin works is because miners have an incentive to extend the blockchain---an incentive paid in bitcoin. That incentive compensates miners for the real cost they expend and makes miners part of the ecosystem.

I think that financial institutions will attempt to divorce the blockchain from bitcoin, but either end up making something that is centralized and unnecessarily uses blockchain when some other technology would have worked better or make something that differs from bitcoin in name only (i.e. CitiCoin).
There are already private Ethereum blockchains that don't use Ether at all (gas prices of zero, or valueless tokens)--they just need willing miners. There are forum posts where Ether "investors" are crushed to learn that businesses can benefit from Ethereum-style blockchain- and smart-contract technology without having to drive up the price of Ether. A blockchain is just a series of cryptographically-linked entities (the "immutable ledger"). It may be advantageous to make the blockchain public, or to encourage decentralization, but those are not requirements. Bitcoin uses a cryptocurrency to try to encourage decentralization and encourage participation, but that's not required. I can start a new blockchain without any cryptocurrency, while still gaining the advantages of a blockchain. Here's one right now:

742 This paragraph is a blockchain. Each "block" (line)
584 has a hash based on previous blocks. To compute the
385 hash of a new line, add up the values of each character
871 in the line, where 1 is 1, 2 is 2, a is 10, b is 11,
730 and so on. Ignore punctuation. Then add the hash from
586 the previous line or the "genesis" value of 42 for the
452 first line. If the sum is greater than 1000, just use the
392 last three digits. Anyone can check the blockchain entries
294 by computing the hash values themselves. Of course,
236 this is not a very useful blockchain. The hash function
190 is very weak, as it is pretty easy to find some kinds of
059 changes that still have the same hash. There should be a
015 clear process for how new lines get added to the paragraph,
930 like a voting scheme. The contents of the blocks are not
868 useful, but instead of rambling they could be lines that
766 represent transactions like "Alice owes Bob 7 dollars",
319 "Alice sends 10 dollars to Bob" and then
926 "Bob sends 3 dollars back to Alice as change".
719 This paragraph is still a blockchain, and there is
718 no cryptocurrency involved. But anyone who sees this
632 post and trusts in this blockchain can tell that Alice
082 and Bob had a debt and settled it.

The banks, governments, and businesses interested in blockchain are not interested in creating new cryptocurrencies, and generally not interested in using existing ones. They want the advantages that a blockchain can provide--an immutable and auditable record of transactions. Are these forms of blockchains more useful than non-blockchain technology? In a lot of cases, I think so--a lot of companies are riding the hype wave, and even some governments are doing so too trying to show they're "with it" and are "modern". But most people hear "bitcoin" when someone says "blockchain" without understanding the distinction (or deliberately ignore it to try to promote their favorite cryptocurrency).

I'm already seeing "No True Scotsman" arguments popping up from bitcoin advocates. It's not a *real* blockchain unless it has a publicly-spendable cryptocurrency attached. It's not a *real* blockchain unless there are no big backers. It's not a *real* blockchain unless the whole thing is always public. And so on.

incognito_man
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Location: Madison, WI

Re: What is Bitcoin?

Post by incognito_man » Wed Sep 13, 2017 5:40 pm

https://www.coindesk.com/blockchain-tec ... ore-smoke/

I think this is a good read on what blockchain (and bitcoin) are and are not.

Wolinsky's (founder of the Genesis project) advice at the end:
One – investors need to differentiate between the few projects that unleash the Bitcoin-style disruption into new markets from the many so-called "blockchain" (use-case) projects that merely repackage common protocols that empower existing participants; and, two – if the blockchain technology industry persists in pretending to build blockchain technology, then the investment community should "pretend" to invest money.

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abuss368
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Re: What is Bitcoin?

Post by abuss368 » Wed Sep 13, 2017 10:57 pm

There is an interview on CNBC today with Jamie Dimon, JP Morgan CEO. He noted that Bitcoin will collapse and it will end very badly.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

incognito_man
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Location: Madison, WI

Re: What is Bitcoin?

Post by incognito_man » Wed Sep 13, 2017 11:36 pm

abuss368 wrote:
Wed Sep 13, 2017 10:57 pm
There is an interview on CNBC today with Jamie Dimon, JP Morgan CEO. He noted that Bitcoin will collapse and it will end very badly.
Dimon is not exactly an authority on the subject. Plus JP Morgan is a partner of the Enterprise Ethereum Alliance which is notably NOT a cryptocurrency in and of itself, but is based on ethereum which is, loosely, a competitor to Bitcoin.

Dimon has almost made statements years ago that Bitcoin would collapse (and it hasn't yet).

That being said, the crypto market did falter briefly after his comments.

objectivefunction
Posts: 109
Joined: Wed May 04, 2016 10:20 am

Re: What is Bitcoin?

Post by objectivefunction » Thu Sep 14, 2017 6:12 am

mnaspbh wrote:
Wed Sep 13, 2017 4:13 pm
I can start a new blockchain without any cryptocurrency, while still gaining the advantages of a blockchain.
What you're missing here is defining what "advantages of a blockchain" means. My contention is that what you think are advantages of a blockchain are actually advantages of the *bitcoin system*, that blockchain is not bitcoin's innovation (it pre-existed bitcoin), and blockchain is a terribly complicated and inefficient database for a centralized system.

From the other things you are saying I would guess you think that the advantages of blockchain are that it is immutable and auditable. Auditability has nothing to do with technology. It has everything to do with access. Whatever the database you need access to get auditability.

The story to how bitcoin gets immutability is a little more complicated. There's nothing magical about the bits that are written to make the blockchain. They're just like any other piece of data: they can be changed. "Series of cryptographically-linked entities" existed before blockchain in source control systems like git, bazaar, and bitkeeper, and in the Merkle Tree (invented in 1980). You can easily rewrite history and rehash everything in those existing technologies, but the rules of bitcoin make the blockchain immutable.

If someone wanted to change a block in bitcoin's blockchain they would have assemble some new set of transactions and then pick a nonce so that that new set of transactions matches the hash for the old block. In addition, to get all the thousands of bitcoin nodes to accept their new block they'd have to present it as part of a longer chain than the old one (bitcoin's software implicitly trusts the longest chain of blocks). The task of choosing a nonce that produces exactly the same hash as the old block is much, much harder than extending the existing chain, so this attacker is going to waste unfathomable amounts of computing power. Meanwhile all the other miners are extending the existing chain so the task of the attacker is getting harder as time goes by.

A much easier task would be to rehash the block you want to change, and all the blocks on top of it. Who cares if they get different hashes as long as your chain is longest no one will care. The best case scenario would be changing the block at the tip of the blockchain since there are no other blocks on top of it. But to do even that you have to race against other miners who are adding new blocks, so you have to essentially do twice the amount of work of any other miner. The blockchain doesn't inherently have immutability, it is imbued with immutability by longest chain+enormous computational cost+an arms race between miners, and this arms race between miners is fueled by winning bitcoins for completing their task. And the mining arms race, the proof-of-work, the ditributed nodes, and everything else that makes up bitcoin is aimed at producing a system that removes counter-party risk without a central authority, which is the exact opposite of what banks and financial institutions want out of "blockchain."

If banks and financial institutions want an efficient, centralized system, they can get that right now without blockchain, they just need to set up an Oracle database. The inefficiencies, delays, and duplications in the financial system are not because of technological challenges, but human challenges. Getting banks to work together to connect their systems, to define standard representations for digitized assets (like stocks and bonds and currency) and rules for how they are exchanged, this is not a technical challenge, it's a challenge of collaboration. Blockchain is not some magic talisman that will make everyone work together.

How would a centrally controlled blockchain work? The only successful example is bitcoin. You could try to exactly duplicate bitcoin but wall it off so that only certain nodes and miners could participate. You could decree that each miner can only have X amount of hash power. Is that a secure, immutable blockchain? What if a miner secretly uses 2X or 100X hash power to change the record? How would the miners be compensated for the real cost of the electricity and capital investments in computing power? You can say that it would use proof-of-stake or some other method for extending the blockchain, but those are only theoretical, and I don't even know that the theory makes sense. The only proven method (with an 8 year track record) is proof-of-work. I'm very skeptical that some unproved technology could work.

What happens when the central authority wants to reverse some transaction? Do all the miners stop and wait for the central authority to rehash everything? Do all the miners work together to rehash everything? How often would that happen? How does that affect transaction throughput? What if there's bug fix or some new feature to roll out? How does the central authority ensure everyone upgrades? By threat of fines and prison?

Then there's the transaction throughput. Bitcoin is struggling with a way forward on that. You're suggesting we take a system with a throughput that is way too low for the use case, change its rules and potentially it's proof-of-work algorithm to something that is unproved and untested, and centralize it when all of its features are aimed at the single purpose of decentralization?

To be clear I'm not saying that that can't work. I'm saying that I'm extremely skeptical that it could work, and if it did it would take an enormous amount of effort, when you could just setup an Oracle database instead.

"Blockchain" is a bubble that will pop, and it may have already, because people have stopped using the term "blockchain" and replaced it with the term "distributed ledger technology."

I would suggest that you (or anyone else who is interested in understanding bitcoin) read the bitcoin whitepaper http://bitcoin.org/bitcoin.pdf.

laohan
Posts: 23
Joined: Sun Feb 28, 2016 3:13 am

Re: What is Bitcoin?

Post by laohan » Thu Sep 14, 2017 7:53 am

objectivefunction wrote:
Thu Sep 14, 2017 6:12 am
The inefficiencies, delays, and duplications in the financial system are not because of technological challenges, but human challenges. Getting banks to work together to connect their systems, to define standard representations for digitized assets (like stocks and bonds and currency) and rules for how they are exchanged, this is not a technical challenge, it's a challenge of collaboration. Blockchain is not some magic talisman that will make everyone work together.
This is a very accurate description, and applies across the board to tons of problems.

Another important part of reality is that one person's inefficiencies is another person's profits.

Jeff Albertson
Posts: 372
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Re: What is Bitcoin?

Post by Jeff Albertson » Sun Sep 17, 2017 11:49 am

jadd806 wrote:
Thu Aug 24, 2017 8:22 am
How many cryptos should you hold to get your slice of the market? Consider that "Dogecoin" a totally rubbish product based on little other than an Internet meme is the #35 cryptocurrency by market capitalization. Which makes me question whether the index fund approach is truly the way to go here.
Is There a Cryptocurrency Bubble? Just Ask Doge.
https://www.nytimes.com/2017/09/15/busi ... -doge.html
Mr. Palmer, the creator of Dogecoin, was an early fan of cryptocurrency, a form of encrypted digital money that is traded from person to person. He saw investors talking about Bitcoin, the oldest and best-known cryptocurrency, and wanted to find a way to poke fun at the hype surrounding the emerging technology.

So in 2013, he built his own cryptocurrency, a satirical mash-up that combined Bitcoin with the Doge meme he’d seen on social media. Mr. Palmer hoped to use Dogecoin to show the absurdity of wagering huge sums of money on unstable ventures.

But investors didn’t get the joke and bought Dogecoin anyway, bringing its market value as high as $400 million. Along the way, the currency became a magnet for greed and attracted a group of scammers and hackers who defrauded investors, hyped fake products, and left many of the currency’s original backers empty-handed.
...
Its market value by midday Friday was about $100 million.

Tanelorn
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Joined: Thu May 01, 2014 9:35 pm

Re: What is Bitcoin?

Post by Tanelorn » Mon Sep 18, 2017 7:09 pm

This was a good blog post on the high level aspects of bitcoin.

https://valueandopportunity.com/2017/09 ... ke-myself/

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