SERVING THE QUANTITATIVE FINANCE COMMUNITY

  • 1
  • 4
  • 5
  • 6
  • 7
  • 8
  • 53
 
User avatar
farmer
Posts: 13462
Joined: December 16th, 2002, 7:09 am

End of bitcoin?

March 21st, 2014, 12:01 pm

Here is some more evidence that bitcoins cannot survive natural selection:QuoteEmbattled exchange Mt.Gox said Friday that it has found 200,000 bitcoins in a "forgotten" digital wallet -- a haul worth $116 million at current prices. Mt.Gox CEO Mark Karpeles said in a statement that the bitcoins had been uncovered in an old-format wallet that was thought to be empty.Money is not the coins. Money is the ledger. Whoever controls the ledger controls the money. If the ledger is not controlled by the person who owns the money - if the ledger is not specifically designed to name whom the money belongs to - then your probability of having the money is weakened.For the most part people do not hold cash currency, paper and coins. They are easier to steal and misplace than a bank ledger with your name in it. But bitcoin is even worse. You cannot hold bitcoins. All you hold is a number. The ledger may say that number is not valid, and you cannot even know.QuoteThe bitcoins were later moved to "offline" wallets.This is an inferior scheme for enforcing the ownership of money.
Last edited by farmer on March 20th, 2014, 11:00 pm, edited 1 time in total.
 
User avatar
Traden4Alpha
Posts: 23951
Joined: September 20th, 2002, 8:30 pm

End of bitcoin?

March 21st, 2014, 12:41 pm

QuoteOriginally posted by: farmerHere is some more evidence that bitcoins cannot survive natural selection:QuoteEmbattled exchange Mt.Gox said Friday that it has found 200,000 bitcoins in a "forgotten" digital wallet -- a haul worth $116 million at current prices. Mt.Gox CEO Mark Karpeles said in a statement that the bitcoins had been uncovered in an old-format wallet that was thought to be empty.Money is not the coins. Money is the ledger. Whoever controls the ledger controls the money. If the ledger is not controlled by the person who owns the money - if the ledger is not specifically designed to name whom the money belongs to - then your probability of having the money is weakened.For the most part people do not hold cash currency, paper and coins. They are easier to steal and misplace than a bank ledger with your name in it. But bitcoin is even worse. You cannot hold bitcoins. All you hold is a number. The ledger may say that number is not valid, and you cannot even know.QuoteThe bitcoins were later moved to "offline" wallets.This is an inferior scheme for enforcing the ownership of money.Money can be coins or a ledger. For most of history (and even today), a large percentage of people have used coins or other physical currencies. Before the invention of writing and the rise of literacy, the number was 100%. Even the in U.S. today, 8% of households don't use ledger money, they are unbanked. Worldwide, the figure is about 35% although it would seem that almost 100% of the population uses some coinage and some times. The problem with ledgers is two-fold: they require a lot of trust (that the ledger-keeper will acknowledge the depositor's claims) and they are a single-point-of-failure (if the ledger-keeper does something stupid like loan all the money to subprime borrowers, everyone loses their money). Ledger systems are not immune to theft: bank robberies, identity theft, and embezzlements happen every day. Against those disadvantages is the advantage of the ledger being a natural central clearinghouse of transactions.Bitcoin has many problems, but so do ledger systems.
 
User avatar
farmer
Posts: 13462
Joined: December 16th, 2002, 7:09 am

End of bitcoin?

April 4th, 2014, 12:35 pm

It is interesting how closely litecoin tracks with bitcoin. I have never heard of criminals using litecoin, and I would think it would benefit from weakness in bitcoin.My own preferred coin to steal is dogecoin. It is the only stealer's coin that is truly of, by, and for idiots.
Last edited by farmer on April 5th, 2014, 10:00 pm, edited 1 time in total.
 
User avatar
Alan
Topic Author
Posts: 9804
Joined: December 19th, 2001, 4:01 am
Location: California
Contact:

End of bitcoin?

April 4th, 2014, 10:31 pm

Who remembers Where's Waldo. Where's Satoshi?
 
User avatar
farmer
Posts: 13462
Joined: December 16th, 2002, 7:09 am

End of bitcoin?

April 5th, 2014, 12:55 pm

QuoteOriginally posted by: AlanWho remembers Where's Waldo. Where's Satoshi? Dude has like $400 million in bitcoins, who wants to dig in his basement?
 
User avatar
Alan
Topic Author
Posts: 9804
Joined: December 19th, 2001, 4:01 am
Location: California
Contact:

End of bitcoin?

April 7th, 2014, 1:29 am

This is amusing ... The Bitcoin ATM nightmare
 
User avatar
farmer
Posts: 13462
Joined: December 16th, 2002, 7:09 am

End of bitcoin?

April 7th, 2014, 11:08 am

QuoteOriginally posted by: AlanThis is amusing ... The Bitcoin ATM nightmareAll I have to do is stencil "robocoin" on a wooden box, and I can steal bitcoins all day? Maybe it is early in the morning and I am lacking creativity. But I am having trouble thinking how I could steal so easily with any other cash, card, or collectible.Edit: To be honest, I would rather steal a dogecoin. But I will take whatever you want to hand to me.*Also, I noticed the person selling the tacos did not ask for photo id.**Whoever spent $900 million to build that ATM really drank the koolaid...
Last edited by farmer on April 6th, 2014, 10:00 pm, edited 1 time in total.
 
User avatar
farmer
Posts: 13462
Joined: December 16th, 2002, 7:09 am

End of bitcoin?

April 7th, 2014, 11:54 am

If they made me chairman of the Bitcoin Central Bank, I would hired some regulators and auditors and protocol designers, and fix this thing. And also introduce some price stability.But like I said in another post, the economies of scale are not there. I would charge 10% a year of the value of all bitcoins, just to keep my office floors polished.Edit: Or, if we are talking dogecoin, I would probably be willing to do it all for free out of a shack, and persuade others to do so also, just until things pick up.
Last edited by farmer on April 6th, 2014, 10:00 pm, edited 1 time in total.
 
User avatar
farmer
Posts: 13462
Joined: December 16th, 2002, 7:09 am

End of bitcoin?

April 9th, 2014, 11:14 am

This line from the original Satoshi led to all the crazy behavior:QuoteInstead of the supply changing to keep the value the same, the supply is predetermined and the value changes. As the number of users grows, the value per coin increases. It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value.Thinking this through even a little bit exposes it as flawed. Users and collectors are not the same. You could say more people will be willing to accept bitcoin as payment, if they expect the value will rise. But if people who hold them think the same thing, they will not want to spend them. It is only by setting some immediate price that is so high, that both parties think it is equally likely to fall as rise from that price, that any transactions will take place.The price will be moved immediately to fair value given the endlessly increasing value. So while the expected increase in value will be priced in and removed as an incentive to buy right away, the volatility will be increased. You will have all the volatility without any more of the expected increase, making the predetermined supply a deterrent to new users. Once the price rises in anticipation of an endless rise, you are left with only the volatility punishment, and none of the attraction.Plus you have the fact that people who own the coins will tend to be speculators and dreamers who think they are worth more than people who are in the business of selling things. The price will be moved above where a reasonable person thinks there is still the possibility of increase. So rather than people who accept them and people who own them agreeing on a price from which they are not more likely to go up than down, at any price the holder will generally think they are worth more than the person he wants to pay. The majority of owners will be people who do not want to spend them, at a price at which sellers are willing to accept them.There is the additional problem of a conflict between hoarding in anticipation of price rises, and actual use. To use the coins, you have to put the data into devices and services so that they become exposed to theft. So you are encouraging people to invest and expose their entire savings to theft. This results in even more bad stories than the volatility alone, further damaging the reputation of the coin compared to one with price stability.In conclusion, intentional price instability cannot lead to increased use over time. Because rational participants will instantly move the price to where there is no longer any "free money" effect. After this time, intentional price instability is more likely to create horror stories and aversion, and skew use to idiots. People will only transact at a price from which they no longer think it will rise, so that there is little opportunity for the perception of free money and actual use to coexist.A more plausible feedback loop is from increased use to increased volatility to decreased use to increased volatility to decreased use. This may be balanced by some actual utility of use, so that the equilibrium level of use remains above zero. But this equilibrium level will be lower than if there were price stability. Some hoarders may profit if bitcoin use becomes more common. But it would probably become even more common if this were not the case. It is probably not necessary to pay hoarders to compensate the maintenance and promotion of bitcoin.If the governance of the coin is controlled by hoarders, it is difficult to transition to a price-stability scheme. At least not until it drops to $1. It is possible the coin could be displaced by one with price stability. Such an alternative coin could perhaps be promoted to critical mass by an association of merchants. It is not clear that price stability could be achieved through mining regulation. Because inflation or a collapse in coin price, might require decreasing the supply. Decreasing the supply would require calling back coins, which would imply they were loaned, which would imply a central bank.Dogecoin, by contrast, is inherently likeable. The volatility is totally worth it, just to see that dog in your hand. Is not ownership of a dog more than adequate compensation for the cost of ownership of a dog, in a bourgeois society? It is like money that comes with a free movie and popcorn, and pays a commission of your team winning the championship, every time you use it. Its total adoption is therefore inevitable.
Last edited by farmer on April 8th, 2014, 10:00 pm, edited 1 time in total.
 
User avatar
Alan
Topic Author
Posts: 9804
Joined: December 19th, 2001, 4:01 am
Location: California
Contact:

End of bitcoin?

April 9th, 2014, 3:01 pm

You make some good points. Essentially, deflationary expectations lead to hoarding, not spending.It's pretty clear that bitcoin is essentially a collectible. One thing that it has going for it is that, with allthe flaws, unloading a bitcoin for, say dollars, is currently easier than unloading a Rembrandt. With most collectibles, though, there is a secondary use: you can drive around in that classic car,hang the painting on the wall, admire your coin collection. With bitcoins, I guess the secondaryuse is `talking about your bitcoins', being in a club with other anarcho-libertarians, etc. So, really, bitcoin should be called the first crypto-collectible.
 
User avatar
farmer
Posts: 13462
Joined: December 16th, 2002, 7:09 am

End of bitcoin?

April 10th, 2014, 10:30 am

Here is some actual facts that you might say fit my model:QuoteIn the days since Robocoin's launch announcement the price of Bitcoin has jumped from $177 USD to $881 USD (on the Bitstamp exchange according to Bitcoincharts.com.) While China's bitcoin enthusiasm and a remarkably positive US Senate hearing helped lead bitcoin's recent price surge, Robocoin contributed by injecting unprecedented present and perceived bitcoin liquidity along with favorable press, mainstream acceptance and technological leadership with Anti-Money Laundering and Consumer Protection compliance.So we see, it was impossible for bitcoin to become more accepted, without an explosion in price volatility. You could hypothesize the worst story affecting the reputation of bitcoin is mtgox. And the mtgox story would not have happened, if it were possible for bitcoin to become popular without causing insane speculation.These people funded and built that ridiculous ATM when bitcoin had to be under $50. There were plenty of ways to promote bitcoin without discrediting it, it did not require turning it into a tulip-crazed mob of idiots.It is very elegant how supply regulation, and transfer, and the public ledger, are all one clever knot. But it is actually a terrible idea, to achieve one goal at the expense of another facet working well, and at the expense of having something useful. It is not, in fact, an open-source currency. Since the blockchain is fatally slow, actual transfers take place behind the cloudy walls of places like mtgox and silk road.If bitcoin had stayed at $50, or wherever it was when they funded that ATM, sane people would not scoff at it, regulators would not hate it, and investment portfolios would not run from it.
Last edited by farmer on April 9th, 2014, 10:00 pm, edited 1 time in total.
 
User avatar
farmer
Posts: 13462
Joined: December 16th, 2002, 7:09 am

End of bitcoin?

April 10th, 2014, 11:22 am

Off the top of my head, there were two major problems with the ATM in the video:1) The one guy, having watched the MtGox story, thought he might as well be flushing his money down the toilet.2) The other guy was shocked by the transaction delay.I can think of possible ways to begin to reduce both these problems.The first problem is partially a result of the designed price instability with the fixed supply. This can be addressed by having the mining rewards automatically adjusted in response to exchange rates. It is easy to raise the reward to increase supply. One way to reduce supply, would be that miners would also have to post coins for the right to become miners. In the event the price got too low, some of these coins would be destroyed. So far as establishing the exchange price which is used in the algorithm, I recall a car race where the winner is required to offer his engine for sale for $3000 or something. This made the race fair, by establishing a ceiling on how much entrants were willing to spend to win.So far as my limited understanding, the second problem is created because crowd verification takes time. If you were to reduce verification difficulty, someone could shoot out a bunch of nonsense verifications before anyone else in the network could react. This could perhaps be solved, by making it harder to become a miner, even as mining itself is made easier. Miners could require a probation period to develop a reputation. Or perhaps the price-stability coins they post could be forfeited if their transactions were found invalid a few hours later.
 
User avatar
farmer
Posts: 13462
Joined: December 16th, 2002, 7:09 am

End of bitcoin?

April 11th, 2014, 12:36 am

See, price is down another 25% just since this latest rant. But Heaven forbid anybody should actually try to use bitcoin, the price will go haywire up to like $900, so that you won't want to touch it with a 10-foot pole. You are suddenly going to give somebody $900 worth of goods for a bitcoin that was worth $340 the day before?It is like one of these bipolar girls you can't be nice to, or else she becomes manic and drives your car into the bay.It is ridiculous that anyone tries to present something as a medium of exchange, that goes from 1200 to 400 to 1000 in the space of a month. The only honest way to respond to that is are you serious? Are you joking? Are you fucking nuts?I propose to instead base an economy around random-length lumber futures and opium warehouse receipts.But Satoshi is like hmmm, price will go up like a million times if anyone tries to use it. Rather than try to fix that, hey, why not spin it as a good thing? Like yeah, that is actually one of the benefits dude! I did that on purpose! No you didn't, you are just a lazy fucker trying to spin your product defects.
Last edited by farmer on April 10th, 2014, 10:00 pm, edited 1 time in total.
 
User avatar
Alan
Topic Author
Posts: 9804
Joined: December 19th, 2001, 4:01 am
Location: California
Contact:

End of bitcoin?

April 22nd, 2014, 5:38 am

I have to admit -- this peer-to-peer stuff can sometimes be impressively subversive: DarkmarketLike Ash said about the Alien, if you know that movie, I admire its purity.I wonder how the feds will stop this one? -- the FBI may need its own hackathon
Last edited by Alan on April 21st, 2014, 10:00 pm, edited 1 time in total.
 
User avatar
farmer
Posts: 13462
Joined: December 16th, 2002, 7:09 am

End of bitcoin?

April 22nd, 2014, 10:52 am

QuoteOriginally posted by: AlanI have to admit -- this peer-to-peer stuff can sometimes be impressively subversive: DarkmarketLike Ash said about the Alien, if you know that movie, I admire its purity.I wonder how the feds will stop this one? -- the FBI may need its own hackathon Whatever. These dipshits live in California. They don't even put on a shirt, unless the State of California says it is ok to wear that shirt. And they like it that way! I would like to see them achieve something actually useful, like fill up their gas tanks without paying CA sales tax. But I am sure they will smoke a blunt and feel like they are true rebels, as long as they don't do it in a state-designated smoke-free zone like probably their own apartments.What will libertarians do when weed is legal? Dance really badly, no matter who tries to discourage them?
ABOUT WILMOTT

PW by JB

Wilmott.com has been "Serving the Quantitative Finance Community" since 2001. Continued...


Twitter LinkedIn Instagram

JOBS BOARD

JOBS BOARD

Looking for a quant job, risk, algo trading,...? Browse jobs here...


GZIP: On