Auteur Sujet: Bitcoin - Beyond the hype  (Lu 9408 fois)

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djohnston

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Bitcoin - Beyond the hype
« le: 19 juin 2013 à 22:31:18 »
What is bitcoin?

According to their website,

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Bitcoin uses peer-to-peer technology to operate with no central authority; managing transactions and the issuing of bitcoins is carried out collectively by the network. Through many of its unique properties, Bitcoin allows exciting uses that could not be covered by any previous payment systems.
http://bitcoin.org/

According to Wikipedia,

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Bitcoin is a cryptocurrency first described in a 2008 paper by pseudonymous developer Satoshi Nakamoto, who called it a peer-to-peer, electronic cash system.
https://en.wikipedia.org/wiki/Bitcoin

How are bitcoins created?

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New bitcoins are generated by the network through the process of "mining". In a process that is similar to a continuous raffle draw, mining nodes on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a new block).
https://en.bitcoin.it/wiki/FAQ#How_are_new_bitcoins_created.3F

Well, that doesn't tell us much. Let's find another answer to that question. (It is a very complicated answer.)

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As a Bitcoin user sends bitcoins to a recipient, the bitcoins involved in the transactions are made public to other users running the bitcoin client software.  The other bitcoin clients are able to verify that the bitcoins are valid and the sender has not attempted to respond [sic] (should be "resend") bitcoins that were used in a previous transaction.

According to the bitcoin protocol, or rather the rules programmed into the bitcoin computer code, the valid transactions are bundled together into a block of data after a cryptographic puzzle is solved by the Bitcoin users running the Bitcoin client software. The Bitcoin client software will adjust the puzzle accordingly to the computational power attempting to solve it so that roughly every ten minutes, the new block of data will be added to the previous chain of verified blocks.

Because creating the blocks of verified transactions is so crucial to the security of the Bitcoin network, the Bitcoin protocol includes a mechanism to encourage people to conduct this activity on their computers. This encouragement takes the form of rewarding newly created bitcoins to the bitcoin client that solves the cryptographic puzzle that initiates the new blocks creation. While another mechanism to encourage mining exists aside from the newly created Bitcoin reward, presently this is the largest financial incentive to encourage people to participate in the block creation process.
If you are not thoroughly confused yet, you can read the full explanation here.

Scarcity

For a monetary unit to retain its value over the course of time, it should have a certain amount of scarcity. As an example, gold has a certain amount of scarcity. Although newly mined and refined gold can be introduced into the worldwide supply, it is labor intensive to mine and refine the gold obtained from the mining process. One cannot create new gold. It must be mined from a finite supply available on Earth.

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At its inception, 50 bitcoins were originally released every 10 minutes for roughly the first 4 years of its existence beginning on January 3, 2009.  That number was halved to 25 bitcoins every 10 minutes on November 28, 2012.  During the first four years 11.5 million bitcoins were released to users. New bitcoins will continue to be distributed at a rate of 25 bitcoins every 10 minutes for the following four years when again the number will be halved. This pattern will continue until the ultimate number of 21 million bitcoins is released.
http://monedial.com/index.php/en/2012-12-21-20-51-25/general-information-sites-about-bitcoin/how-are-bitcoins-created-what-is-bitcoin-mining

It is projected that the "mining" of bitcoins will be completed in the year 2140.

How spendable are bitcoins?

Bitcoins are touted as "acceptable by more and more vendors every day". This much is true. But, the transaction must be conducted through the internet in order to be verified as authentic. Suppose one did not have access to the internet? Have you ever heard of coronal mass ejections?

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In scientific circles where solar flares, magnetic storms and other unique solar events are discussed, the occurrences of September 1-2, 1859, are the star stuff of legend. Even 144 years ago, many of Earth's inhabitants realized something momentous had just occurred. Within hours, telegraph wires in both the United States and Europe spontaneously shorted out, causing numerous fires, while the Northern Lights, solar-induced phenomena more closely associated with regions near Earth's North Pole, were documented as far south as Rome, Havana and Hawaii, with similar effects at the South Pole.

Not only did the inhabitants of Hawaii, Havana and Rome witness their first aurora borealis, but telegraph lines throughout the United States and Europe failed under the solar blitz. Telegraph operators in New England discovered they could actually disconnect their telegraphs from their power and still operate on solar storm energy alone. Of course, back in 1859 the invention of the telegraph was only 15 years old and society's electrical framework was truly in its infancy. A 1994 solar storm caused major malfunctions to two communications satellites, disrupting newspaper, network television and nationwide radio service throughout Canada. Other storms have affected systems ranging from cell phone service and TV signals to GPS systems and electrical power grids. In March 1989, a solar storm much less intense than the perfect space storm of 1859 caused the Hydro-Quebec (Canada) power grid to go down for over nine hours, and the resulting damages and loss in revenue were estimated to be in the hundreds of millions of dollars.
http://science.nasa.gov/science-news/science-at-nasa/2003/23oct_superstorm/

Of course, if a coronal mass ejection took out large portions of a country's power grid, it would cause overloads and, probably, failures to power transformers. In that scenario, it could be months or years before power is restored, if even then. Gas stations could no longer pump gas. Most sewage systems, being electrically powered, would shut down. Grocery stores could not keep food fresh. None of the electrical appliances in your house would be operational without supplemental power from off-grid sources. Accessing the internet would be the least of your worries, unless all your savings were in digital bitcoins instead of gold, silver and copper coins.

Can bitcoins be stolen?

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Bitcoin, the decentralized virtual currency whose value has skyrocketed in recent weeks, faced a key test Monday as a veteran user reported that Bitcoins worth hundreds of thousands of dollars had been stolen from his computer.

The user known as "allinvain" is a long-time contributor to the Bitcoin forums. He says he's been mining Bitcoins for over a year, and had amassed a fortune of 25,000 BTC. This was a modest sum a few months ago, when Bitcoins were worth pennies, but over the last two months the value of a Bitcoin skyrocketed to around $20, which means 25,000 BTC would have been worth half a million dollars. "I remember watching the price like a hawk," he wrote.

And then disaster struck. "I just woke up to see a very large chunk of my bitcoin balance gone," he wrote. "Needles [sic] to say I feel like I have lost faith in bitcoin." He speculated that a Windows security flaw may have allowed the culprit to gain access to his digital wallet. "I feel like killing myself now," he said.

Some other members of the Bitcoin forum expressed skepticism about allinvain's story, but most believed it. Another member of the Bitcoin forums chimed in to report that he'd lost a smaller amount of money to the same Bitcoin address.

Ars Technica talked to Gavin Andresen, the leader of the Bitcoin software project, about the incident. Andresen said that it would be difficult to confirm the authenticity of the report. "All Bitcoin transactions are broadcast on the network," he said. "So if someone wanted to claim they lost a bunch of bitcoins, they could claim that any transaction on the network belonged to them."

Still, the kind of attack described in the post is certainly possible. Andresen says he always emphasizes that Bitcoin is an experiment, and not (yet) for the faint of heart. "Unfortunately, this is an expensive test case for the guy who lost the Bitcoins," he said.

Andresen says that there's currently no good infrastructure for tracking down stolen Bitcoins. And, he said, there may never be a good mechanism for reversing unauthorized transactions because Bitcoin transactions are designed to be irreversible. "Once a transaction hits the network, you can generate other transactions that depend on that transaction," he said. "So Bitcoin transactions get tangled up fairly quickly."

Even if it were technically feasible, adding a mechanism for disputing transactions would create headaches of its own, because that mechanism could be used fraudulently as well. "Merchants like that there are no chargebacks" with Bitcoin transactions, Andresen said."
Jun 15th, 2011
http://arstechnica.com/tech-policy/2011/06/bitcoin-the-decentralized-virtual-currencyrisky-currency-500000-bitcoin-heist-raises-questions/

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A security breach at a purveyor of virtual currency Bitcoins (BTC) has resulted in the loss of very real dollars totaling around $250,000. Bitfloor, a major banking and exchange service for Bitcoins, may be facing shutdown after nearly their entire inventory was stolen.
Sep. 5th, 2012
http://www.nbcnews.com/technology/250-000-worth-bitcoins-stolen-net-heist-980871

There are other stories of computer crackers stealing bitcoins from private users and from bitcoin exchanges, both large and small. See the Bitcoin Forum thread titled Can my Bitcoins be stolen? for more candid information.

The internet is still available, so I can access my bitcoins when I am ready to conduct a transaction.

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Mt. Gox was just hacked and we can see this with by the fact that the Bitcoin value has dropped to 0.01 - and then Mt. Gox was shut down and nobody can login. At the time of writing nobody know what will happen to their balances at Mt. Gox. Meanwhile this site is being set up in order to give people an opportunity to get information about Mt. Gox from an independent source.
June 19th, 2011
http://www.mtgoxsucks.org/14-sample-data-articles/72-bitcoin-flash-crash

Mt. Gox is, or was, the largest bitcoin exchange system. Recently, Mt. Gox went offline for a few days, leaving users high and dry.

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Bitcoin day traders are at loose ends again today, as the major exchange Mt. Gox just announced they’ve shut down trading, in order to “allow the market to cooldown following the drop in price.”

“First of all we would like to reassure you but no we were not last night victim of a DDoS but instead victim of our own success!”

“Indeed the rather astonishing amount of new account opened in the last few days added to the existing one plus the number of trade made a huge impact on the overall system that started to lag. As expected in such situation people started to panic, started to sell Bitcoin in mass (Panic Sale) resulting in an increase of trade that ultimately froze the trade engine!”
April 11th, 2013
http://betabeat.com/2013/04/mt-gox-halts-trading-temporarily/

So, Mt. Gox was ill-prepared to handle any substantial increase in the amount of transactions flowing through its portals. They had to close down the exchange in order to build out the infrastructure to handle the increased traffic flow. Bear in mind, they are, or were, the largest transactions dealer. The very next month, they came under fire from a U.S. governmemnt agency.

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The Department of Homeland Security and US District Court for the District of Maryland issued a ‘Seizure Warrant’ for the funds associated with Mutum Sigillum’s Dwolla account (a.k.a. Mt. Gox)," a Dwolla spokesperson told NYO's BetaBeat. "Dwolla has ceased all account activities... for Mutum Sigillum while Dwolla’s holding partner transferred Mutum Sigillum’s balance, per the warrant."
May 14, 2013
http://arstechnica.com/tech-policy/2013/05/feds-seize-money-from-top-bitcoin-exchange-mt-gox/

As I understand it, Mt. Gox had filed documents with the state of Maryland stating that they would not be executing financial transactions. In reality, it was the brunt of their business model. Mt. Gox's actions speaks volumes about the owner's integrity and forthrightness. It doesn't bode well for other bitcoin exchanges who will be under increased scrutiny as a result.

Another digital currency exchange, Liberty Reserve, which is not affiliated with and does not deal in bitcoins, was seized on May 24th, 2013.

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In conjunction with Costa Rican authorities and Spanish police, U.S. law enforcement participated in a joint operation on Friday to arrest the founder of Liberty Reserve S. A., a private digital currency exchange service based in Costa Rica.

U.S. authorities accused the currency exchange of facilitating $6 billion worth of money laundering, calling it a “bank of choice for the criminal underworld.”

Today, the website domain is resolving again but a notice on the homepage states: “THIS DOMAIN NAME HAS BEEN SEIZED by the United States Global Illicit Financial Team.” Domain names were also seized for asianagold.com, exchangezone.com, moneycentralmarket.com and swiftexchanger.com most likely for their affiliation with Liberty Reserve.

According to the indictment unsealed today, U.S. prosecutors said that the case involved law enforcement agencies in 17 countries and “is believed to be the largest international money laundering prosecution in history.” This latest action follows the 2007 closure of Doug Jackson’s famous e-gold service and this month’s seizure of Mt. Gox’s assets and account facility at U.S.-based Dwolla.
May 28th, 2013
http://www.forbes.com/sites/jonmatonis/2013/05/28/u-s-authorities-close-another-digital-currency-exchange/

It should be noted that Wells Fargo and a few other large U.S. banks were recently caught red-handed laundering billions of dollars in drug money. Each got nothing more than a token slap on the wrist.

Can I mine bitcoins?

Yes, anyone can mine bitcoins. More than half of the available bitcoins have already been mined. As a result, it is becoming increasingly difficult to mine new coins. Not just any GPU-equipped PC or computer is up to the task. There's a thread on overclock.net where a forum user asks,

Wondering about bitcoin mining on my old rig
http://www.overclock.net/t/1398980/wondering-about-bitcoin-mining-on-my-old-rig

His "old rig" consists of an ASUS 4.0 gHz P5K-E motherboard, which he wants to use in conjunction with two nVidia 8600GT GPUs. He is told by another forum poster that "If you mine with Nvidia you LOSE MONEY because even with AMD cards you only make about $1-2 a day before electricity costs". If he uses a single 8800GT card, he will "only make around 19 cents per day, or around $17 every three months." So, what kind of rig do you currently need to come out ahead when bitcoin mining? Here's a good idea of what is involved from someone who has built and uses several machines in a cluster:

How to build a bitcoin mining rig guide
http://ewoah.com/technology/a-very-good-guide-to-building-a-bitcoin-mining-rig-cluster-guide/

There are now vendors who sell preconfigured hardware suitable for bitcoin mining. Each runs at least US$1,000 and most are several thousand $US.

Are there other methods of making money with bitcoins?

Yes, you can start a digital wallet or digital broker service. However, these services are coming under increasing scrutiny.

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Effective the May 31st, 2013 Tangible Cryptography has suspended new purchases of Bitcoins through our service FastCash4Bitcoins.  We take this step in response to a notice received, the same day from the Commonwealth of Virginia, that a complaint has been made that our company is operating as an unlicensed money transmitter.

The Virginia Corporation Commission did an initial investigation in response to the complaint, and determined that our activity may constitute money transmission under Virginia law. The Commission's initial assessment has factual errors which we intend to address.  The notice indicated that it appears that our company is issuing Bitcoins through the use of the website https://fastcash4bitcoins.com , which may constitute "selling or issuing stored value" under Virginia law.

As our clients are well aware this is simply an incorrect assessment of our business activity. The site is used to facilitate the purchase of Bitcoins from clients.  Tangible Cryptography is acting as a independent buyers not issuer of virtual currency.  Furthermore there is no obligation for redemption, or holding of customer funds, as would occur in a stored value system.  The view that buying, selling, or even issuing new Bitcoins, would be seen as stored value is at odds with the guidance from FinCEN earlier this year in which they stated that exchangers (and issuers) of virtual currency are not issuers of prepaid access (stored value) under Federal law.

The company has been given thirty days to provide written explanation on why our activity is exempt from licensing under current law. The commission has formally stated that unless exempt from licensing we must stop further activity until such time as we apply for and obtain a Money Transmitter license.  The prudent action is for the company to suspend all new transactions while we respond to the Commission's notice.
June 03, 2013
https://bitcointalk.org/index.php?topic=224057.0

You can see from the above that the fastcash4bitcoins business was ill-equipped and unprepared to withstand legal charges brought against them. Suffice it to say that governments do not like currencies that compete with their "officially sanctioned" fiat currencies.

Other forms of money

Traditionally, gold, silver, platinum, and copper coins have been universally recognized and used as a medium of exchange. As discussed earlier, you simply cannot create these materials out of thin air. They each have a finite supply and each have health and metallurgical uses aside from their use as a medium of exchange. As a result, they have intrinsic value as a store of value in relation to goods and services. One can claim that bitcoins have, or will have, a finite supply. However, I see no use for them other than as a medium of exchange. And, that's if the electrical grid is still up and running. Otherwise, all bets are off.

As far as I can tell, bitcoins cannot be counterfeited, something that cannot be said for precious metals coins or bars.

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The last time a story of Tungsten-filled gold appeared on the scene was just two years ago, and involved a 500  gram bar of gold full of tungsten, at the W.C. Heraeus foundry, the world's largest metal refiner and fabricator. It also became known that said "gold" bar originated from an unnamed bank. It is now time to rekindle the Tungsten Spirits with a report from ABC Bullion of Australia, which provides photographic evidence of a new gold bar that has been drilled out and filled with tungsten rods, this time not in Germany but in an unnamed city in the UK, where it was intercepted by a scrap metals dealer, and was supplied with its original certificate. The reason the bar attracted attention is that it was 2 grams underweight. Upon cropping it was uncovered that about 30-40% of the bar weight was tungsten. So two documented incidents in two years: isolated?
March 24th, 2012
http://www.zerohedge.com/news/tungsten-filled-1-kilo-gold-bar-found-uk

Would you believe there is actually a Chinese company that makes and sells counterfeit "gold bars"?

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Saowakhon Chaisena is South East Asia's oldest manufacturer and distributor of replica gold bars since 1989. Our reputation throughout the world is without equal, selling to over 1500 clients in more than 80 countries.

Tungsten's density is virtually the same as that of gold, making it the most logical choice in making gold plated bars. It is widely acknowledged that a gold-plated tungsten bar is superior to any other substitute for gold.

To learn more about us, our manufacturing and gold plating processes, or to learn how to order this unique product, visit our FAQ.
http://www.tungsten-gold.com/

A highly unscrupulous business, if ever there was one.

I admire and respect Max Keiser of the Keiser Report. He was granted patents for digital currency before bitcoin was ever a reality. However, I disagree with his asessment that bitcoin has intrinsic value equal to traditional precious metals.


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Re : Bitcoin - Beyond the hype
« Réponse #1 le: 19 juin 2013 à 23:47:15 »

How are bitcoins created?
https://en.bitcoin.it/wiki/FAQ#How_are_new_bitcoins_created.3F

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How are new bitcoins created?
Number of bitcoins over time, assuming a perfect 10-minute interval.

New bitcoins are generated by the network through the process of "mining". In a process that is similar to a continuous raffle draw, mining nodes on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a new block).

I have not read your post completely yet, but the first question which comes to my mind, to understand what a bitcoin is : REALLY, not just incomprehensible gibberish, would be the answer to this question : "the solution to what mathematical problem or problems? And what are the blocks which are created? What kind of blocks and what do they contain?

If for instance, (I don't say that this is it, I am just suggesting an idea about it), if all this bitcoin thing would be just a matter of using some computers on the network - the cpu power - with or without the owners knowing it, to solve some problems, then indeed the one who gets the bitcoins has earned something with which they can buy real goods. And the "mining" might well produce something which is sold somewhere else?

Does this idea make any sense?

« Modifié: 19 juin 2013 à 23:49:45 par mélodie »
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djohnston

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Re : Re : Bitcoin - Beyond the hype
« Réponse #2 le: 20 juin 2013 à 00:48:48 »
I have not read your post completely yet, but the first question which comes to my mind, to understand what a bitcoin is : REALLY, not just incomprehensible gibberish, would be the answer to this question : "the solution to what mathematical problem or problems? And what are the blocks which are created? What kind of blocks and what do they contain?
(It is a very complicated answer.)
If you are not thoroughly confused yet, you can read the full explanation here.
You need to read the full explanation. I can't make it any plainer than he does.

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Re : Re : Re : Bitcoin - Beyond the hype
« Réponse #3 le: 20 juin 2013 à 10:08:28 »
You need to read the full explanation. I can't make it any plainer than he does.

I can't read it all in one step for this is hard on my eyes. For now I have read the first page "What is bitcoin?" and up to here at the next page:
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According to the bitcoin protocol, the creation and release of bitcoins is set at regular intervals on a gradually decreasing basis until a maximum number (21 million) of bitcoins are created. At its inception, 50 bitcoins were originally released every 10 minutes for roughly the first 4 years of its existence beginning on January 3, 2009.  That number was halved to 25 bitcoins every 10 minutes on November 28, 2012.  During the first four years 11.5 million bitcoins were released to users. New bitcoins will continue to be distributed at a rate of 25 bitcoins every 10 minutes for the following four years when again the number will be halved. This pattern will continue until the ultimate number of 21 million bitcoins is released.

I still don't find where this wealth power comes from to start with. It seems there weren't any work/counterpart to provide it a value (official moneys are not much more worth, considering the amount of debts owed by many countries…). I don't even have a clue yes about how it has been coded. Do you? :)

Ok I'll continue reading little by little…

Good leaders being scarce, following yourself is allowed.

djohnston

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Re : Re : Re : Re : Bitcoin - Beyond the hype
« Réponse #4 le: 20 juin 2013 à 18:34:30 »
I still don't find where this wealth power comes from to start with. It seems there weren't any work/counterpart to provide it a value (official moneys are not much more worth, considering the amount of debts owed by many countries…).

Exactly. That's one of the points I tried to make. Bitcoin's supposed value comes from solving cryptographic puzzles. After a puzzle is solved, previous bitcoin transactions are bundled together in a "data block" which is made available to people running the bitcoin client. Creating these data blocks is crucial to the security of the bitcoin network. I don't see how that has any real world value other than monitoring bitcoin transactions.

I don't even have a clue yes about how it has been coded. Do you? :)

Nope. I don't know whether the bitcoin core software is open source or not, but many other parts of it are, such as the client, libraries, etc.

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Re : Bitcoin - Beyond the hype
« Réponse #5 le: 20 juin 2013 à 20:19:24 »
If you have a look here, can you say if this is the source code of the core?
http://sourceforge.net/projects/bitcoin/files

https://github.com/bitcoin/bitcoin
Good leaders being scarce, following yourself is allowed.

djohnston

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Re : Re : Bitcoin - Beyond the hype
« Réponse #6 le: 20 juin 2013 à 22:25:28 »
If you have a look here, can you say if this is the source code of the core?
http://sourceforge.net/projects/bitcoin/files

https://github.com/bitcoin/bitcoin
Yeah, that's it. I downloaded the tarball and had a quick look. It's coded in C++.