SERVING THE QUANTITATIVE FINANCE COMMUNITY

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Posts: 23951
Joined: September 20th, 2002, 8:30 pm

### End of bitcoin?

QuoteOriginally posted by: Alanmy impression is that all bitcoin exchanges are like internet retail before amazon -- they all suck -- becausethey think they can magically automate stuff without real customer support. At some point a Jeff Bezos ofbitcoin will come along and take away all this business. This probably won't happen for a while becausethe market is too small to be worth the effort. But 10 years from now, if bitcoin is still around, all these crapbusinesses will be washed away.Paypal has this issue, too.Customer service related to money is expensive in terms of both labor and remediation of fraud. But everyone picks the entities with the lowest fees and then complains about the poor service.

Alan
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### End of bitcoin?

QuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: Alanmy impression is that all bitcoin exchanges are like internet retail before amazon -- they all suck -- becausethey think they can magically automate stuff without real customer support. At some point a Jeff Bezos ofbitcoin will come along and take away all this business. This probably won't happen for a while becausethe market is too small to be worth the effort. But 10 years from now, if bitcoin is still around, all these crapbusinesses will be washed away.Paypal has this issue, too.Customer service related to money is expensive in terms of both labor and remediation of fraud. But everyone picks the entities with the lowest fees and then complains about the poor service.Exactly! Here is a similar example I read about just a couple weeks ago: As Square considers IPO, rancor from merchants is a trouble spot

Posts: 23951
Joined: September 20th, 2002, 8:30 pm

### End of bitcoin?

QuoteOriginally posted by: AlanQuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: Alanmy impression is that all bitcoin exchanges are like internet retail before amazon -- they all suck -- becausethey think they can magically automate stuff without real customer support. At some point a Jeff Bezos ofbitcoin will come along and take away all this business. This probably won't happen for a while becausethe market is too small to be worth the effort. But 10 years from now, if bitcoin is still around, all these crapbusinesses will be washed away.Paypal has this issue, too.Customer service related to money is expensive in terms of both labor and remediation of fraud. But everyone picks the entities with the lowest fees and then complains about the poor service.Exactly! Here is a similar example I read about just a couple weeks ago: As Square considers IPO, rancor from merchants is a trouble spotInteresting! I'm not surprised.Retailers can readily cover their customer service costs in the mark-up between wholesale and retail prices.But the markup on money is nearly zero which is justified (even regulated) by the fact that the ideal conception and the majority of actual transactions are virtually cost-free (a millisecond of bandwidth and a millisecond of CPU time on some ledger DB). But when it goes wrong (e.g., a disputed charge), then the customer service cost is huge. Moreover, if one tries to automate financial services customer service (e.g., "click here for a full refund of the disputed charge"), all it does is attract automated fraud and even higher customer service costs.

Alan
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### End of bitcoin?

Curiouser and curiouser!Bitcoin Exchanges under Massive and Concerted Attack'

farmer
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Joined: December 16th, 2002, 7:09 am

I was thinking about this. I don't know what the miners do, but I know it takes a lot of processing. Suppose I transfer $10 of bitcoins. Does that require a large amount of processor power to verify? If so, couldn't I paralyze the system by sending a million transfers with one bad byte? Would they be forced to process all the garbage I sent them, to determine it is worthless? Traden4Alpha Posts: 23951 Joined: September 20th, 2002, 8:30 pm ### End of bitcoin? QuoteOriginally posted by: AlanCuriouser and curiouser!Bitcoin Exchanges under Massive and Concerted Attack'This is what the internet does best. Find a flaw and exploit it without mercy. The malleability of transactions in these kinds of distributed financial systems seems like a serious systemic design flaw (and related to some of the problems we discussed on the altchain thread about participants who manipulate the blockchain to increase their profits by delaying or manipulating the commitment of trades).Maybe quantum finance could provide a way to represent and manage malleable transactions that are in a superposition of event states? Alan Topic Author Posts: 9785 Joined: December 19th, 2001, 4:01 am Location: California Contact: ### End of bitcoin? Bitcoin Protester Confronts Mt. Gox Executive And in related news ...Bitcoin's volunteer army tested by attack'Quote .. A great proportion of these developer's personal wealth depends on them fixing this, so don't underestimate the motivation involved.. Last edited by Alan on February 14th, 2014, 11:00 pm, edited 1 time in total. Alan Topic Author Posts: 9785 Joined: December 19th, 2001, 4:01 am Location: California Contact: ### End of bitcoin? Bitcoin's largest exchange is is dying. Here's why that's not a problem for BitcoinThe current transaction prices support this guys thesis. The problem is, this is exactly thekind of thing people thought at the beginning of the Financial Crisis. I doubt anybodyunderstands all the ramifications of a Mtgox failure, if indeed it plays out that way.My vague impression is that in bitcoin world, 90% of the people are trading it, 5% are buying drugs with it, which leaves5% for legitimate, useful purposes.That leaves all kind of room for a Lehman-type crisis with all the Lehman-type counterparties collapsing. Or, maybe not Source: bitcoincharts.com Last edited by Alan on February 15th, 2014, 11:00 pm, edited 1 time in total. Traden4Alpha Posts: 23951 Joined: September 20th, 2002, 8:30 pm ### End of bitcoin? I agree with Alan about the user segmentation of 90% speculation, 5% illegal trade, 5% legal trade. Thus a speculative crash seems quite likely. Bitcoins have even less intrinsic value than fiat currencies because as far as I can tell, there's not sticky pricing in bitcoins -- it's all pricing in fiat currency with an instantaneous numerical conversion to BTC. That is, there's nothing that 1 BTC will buy today that one can be reasonably confident that that 1 BTC will buy tomorrow. The more interesting issue, given all the noise around transaction malleability is whether the sum total of bitcoins that people think they own exceeds the sum total of bitcoins ever created. I don't think bitcoin is in the same boat as Lehman et al because there's (almost?) none of the nonlinear payoff instruments (e.g. CDS), leveraged amplification of losses, chaining of balance sheets (in which one entity's assets are another entity's liabilities and the second entity's assets are a third entity's liabilities, etc.), or transparency requirements (by which the reputations of entities may be damaged by required reporting of losses). As a medium of exchange, bitcoin is interesting but imperfect due to the messy blockchain transaction commitment process and under-resourced exchanges. As a store of value, bitcoin is utterly horrible due to extreme volatility, lack of sticky-price goods, regulatory risks, lack of transaction repudiation mechanisms, and the inability to recover stolen coins. An entity might choose to transact in bitcoins for a number of reasons but no sane non-speculative entity would hold bitcoins for very long. farmer Posts: 13461 Joined: December 16th, 2002, 7:09 am ### End of bitcoin? I think if I looked into it, I would find the bitcoin distributed protocol has many flaws, and flawed assumptions. But the biggest flaw might be the informal parts of it: A big part of bitcoin's popularity is only possible if people use third parties to verify transactions faster than the block chain system can do it. People transfer their bitcoins to shopping services and exchanges, which third party can then tell your counterparty he has received money, faster than the original protocol can do it.Let's suppose you pay transaction fees over the year equal to 10% of your money on deposit. The third party has to stay in business 10 years to make as much money as he can get by simply stealing all the coins today. What are you going to do, go to court and say hey I am John Smith, and that money belongs to me? You are using bitcoins specifically so that you can never say in court hey I am John Smith, and that money belongs to me.The original protocol works, but it is not very useful to people. The useful version, where Mt Gox or Silk Road or someone validates transfers, is useful, but it does not seem to work. It just creates a big stealable pot of money. farmer Posts: 13461 Joined: December 16th, 2002, 7:09 am ### End of bitcoin? Mark Karpeles does not seem very cautious. So why not just buy bitcoins on mtgox for$112, and sell them on bitstamp for \$575 all day? Is it just taking him a while to get them uploaded to bitstamp?

Alan
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### End of bitcoin?

The lawsuits are starting and I'll guess we're at the beginning of the mt gox end game.Unfortunately for their customers, it seems increasingly plausible scenarios at this point are either a bankruptcy declaration and/or the japanese authorities seize the place and freeze all the assets. Either of those outcomes, the courts get to sort it all out. Some interesting analogies here with various online poker bankruptcies:Why Mt. Gox may be headed for bankruptcy Source: bitcoincharts.com
Last edited by Alan on February 19th, 2014, 11:00 pm, edited 1 time in total.

farmer
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Joined: December 16th, 2002, 7:09 am

### End of bitcoin?

I like these bitcoins less and less. I was thinking about whether whoever stole the mtgox coins could have also gotten all the ones in cold storage.Put yourself in the shoes of mtgox. You have all these character strings, on paper or on CD or whatever. You have to load them into a computer, with a network connection, to figure out if they are worth anything. So suppose you test one, and it has already been spent. Or suppose you spend one, but you don't know if the transaction went through. So now you have all these CD's around, each with dozens of coins. Some CD's contain sequences that are spent, sequences that aren't spent, and sequences that you don't know.Do you throw away the CD's when all coins on them are spent? Do you have a database that says what is on each CD, and where that CD is stored? It is a horrible mess to keep track of data, when your intention is to not store the data on the computer or network you are using for your management software, to avoid theft.It is a mess to keep track of millions of any physical object. And the coins will either be physical objects, or exposed to theft. And the physical objects need to be transferred into memory, to even be weighed to determine if they exist.

katastrofa
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### End of bitcoin?

farmer
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Joined: December 16th, 2002, 7:09 am

### End of bitcoin?

QuoteOriginally posted by: katastrofahttps://twitter.com/The_Pocius/status/435568115791826945You are a funny character. If your dog ran away, you would be happy to see it get run over by a car.I have never watched that show "Game of Thrones" but I bet you would like it. It is some sort of Revenge of the Nerds, I think, but where the nerds are vain.So far as libertarians, police are nice in a utopian sense. But in the world as we find it, violations of private property amount to a small percentage of arrests. So you will be more likely to get arrested for using bitcoins, than for stealing bitcoins, for example.
Last edited by farmer on February 20th, 2014, 11:00 pm, edited 1 time in total.