Bitcoin Mining

[Reub]

Another major hack and theft at a bitcoin website! A very foolish place to invest.

[Reub]

Another major hack and theft at a bitcoin website! A very foolish place to invest.

http://mobile.nytimes.com/2016/08/04/bu ... acked.html

[bitcoininthevp]

Are you saying it is foolish to keep your bitcoin investment in the exchange (because it could be hacked)?

Or are you saying bitcoin is a foolish investment because the price can drop when companies in the bitcoin space have problems?

[dualstow]

I admittedly don't know much about it. I just have the fractional bitcoin that Marc generously gave on this site. But, if I had my gold stored at a fort that kept getting raided, I'd want to pull out. And if no fort felt secure, I might give up on gold.

[bitcoininthevp]

dualstow, totally reasonable.

The option to store bitcoin yourself is there as well. You dont need an exchange to hold it for you.

You can store your wallet on a piece of paper and secure that.
Or you can have paper copies of it with trusted individuals.
You can use a "brain wallet" and store it in your own memory (cool, but not recommended).
You can actually split parts of your bitcoin wallet and share in different locations such that each piece doesnt get access to any funds (shamir secret sharing) and 3/5 pieces would restore the wallet. Good for long term "cold" storage. Even cooler is that you can keep sending bitcoin to this split up and secure wallet without having to get all the pieces together. (as you "stack")

[dualstow]

I guess I have a wallet. I don't even remember how it works, but I have a very long code printed on paper and stored in a binder on the shelf. I guess I thought that it was also stored on a server somewhere. That is not necessarily the case?

(if I had more than a fractional coin, I'd have done a lot more reading up on it )

[bitcoininthevp]

Dual,

The code you have printed on the paper is what is referred to as a "cold/paper wallet". The code is essentially a long password. It doesnt exist anywhere else in the world (unless youve given it out).

Due to the "magic" of cryptography that password unlocks your special bitcoin address without you having to actually ever give out that password to the outside world.

I think your bits are probably safe as is, but if you need help moving them or whatever in the future, ping me and I can walk you through the process.

[dualstow]

Cool, thanks.
Mind-boggling stuff!

Due to the "magic" of cryptography that password unlocks your special bitcoin address without you having to actually ever give out that password to the outside world.

[Kbg]

So this Bitcoin stuff is awesome...


Hong Kong-based Bitcoin (COIN, OTCQB:BTCS) exchange Bitfinex said it may spread the $68M loss among its users, including ones not directly impacted by the hack. "We are leaning towards a socialized loss scenario," the exchange wrote in a blog post. Bitfinex is still "settling positions and balances" and will provide more details soon

[bitcoininthevp]

Much like storing gold with a third party, storing bitcoin at a bitcoin exchange introduces third party risk.

The ecosystem around bitcoin (exchanges, etc) is young and this risk is particularly high at the moment as services start to build up around bitcoin.

I hope people learn not to store significant sums of bitcoin at exchanges!

But it is quite interesting to follow the news around these exchange "hacks".

[Reub]

Owning bitcoin is a recipe for disaster. I would recommend finding other more tangible investments.

[bitcoininthevp]

Owning bitcoin is a recipe for disaster. I would recommend finding other more tangible investments.

Reub,

Im a big fan of "Rule #9: Don't ever do anything you don't understand." Is that is what you are saying above? If so, more power to you.

If what instead you are saying instead is bitcoin is a bad investment, Id like to hear your specific criticisms of it. Believe me there are plenty of risks, criticisms and downsides, Im not here to say its perfect.

It seems like you have concerns about tangibility. You can hold bitcoin tangibly if youd like (see the paper wallet examples earlier in the thread). However its "digitalness" is viewed as one of its upsides. Do you believe email is not valuable because you cant hold it and instead prefer to communicate via letters? What about your mp3s vs cds? Do you hold all of your stock and bond certificates tangibly? What about cash?

[dualstow]

Do you hold all of your stock and bond certificates tangibly? What about cash?

Those are very fair points. I do feel like we are better protected when it comes to these instruments, though. For example, when someone used my credit card number to buy a bunch of computer equipment from a company that supplies that stuff to businesses, I was able to clear it right up. If I get mugged and someone steals cash from my wallet, I'm probably out of luck.

Putting myself out there digitally (credit card) makes it easier for thieves to steal in the first place. Oddly, though, I feel more comfortable physically walking down the street with an ATM/credit card and very little cash because of the systems in place to protect me. Not perfect, but good.

Stocks are a little different. In addition to the regular risk that a stock may naturally fall, there's the chance of corporate mismanagement and finally, the perennial fear (in some hearts) that "the system is rigged." But, the intangibility of my stock holdings is not an issue because I trust my brokerage houses. They're not perfect, but they make me feel safe, even if that's an illusion. A stock certificate could get torn apart by a pet or lost in a flood, easily.

If someone hacked into Vanguard, I think I'd still get my shares back eventually. And, if someone hacked into my bank and/or robbed my branch at gunpoint, I'd still get my FDIC-insured dollars.

I'd like to see the same thing from bitcoin, rather than, we're spreading the loss around to our customers even if they were not direct victims of the hack. Until then, as you have pointed out, we don't need those exchanges to store our bitcoins in the first place.

- - -
What about spending the coins? I saw a couple of interviews in the past, possibly posted at this forum. It was a pro-bitcoin interviewer who scared me. He said that once someone tried to purchase something online and the "merchant" took his bitcoins and delivered nothing. The pro-bitcoin guy proudly announced that many people in the bitcoin community generously donated a coin each to the victim.

That's heartwarming and everything (and I don't mean that in a snarky way), but I don't think I'd like to depend on that. People have been known to buy entire automobiles with a credit card. After hearing this story, I'm not sure how I could feel safe exchanging $45- or $65,000 in bitcoins and then waiting for delivery. Or maybe there are new safety mechanisms in place since that story aired a few years ago?

[MachineGhost]

Stocks are a little different. In addition to the regular risk that a stock may naturally fall, there's the chance of corporate mismanagement and finally, the perennial fear (in some hearts) that "the system is rigged." But, the intangibility of my stock holdings is not an issue because I trust my brokerage houses. They're not perfect, but they make me feel safe, even if that's an illusion. A stock certificate could get torn apart by a pet or lost in a flood, easily.

They're not bearer, just fancy scribbles and graphics on paper evidencing your registration on the books at the corporation.

Like cash, Bitcoins is nonrecourse once spent unless "they" hard fork the blockchain to claw back the money as they did in Etherum's case over the DAO theft. Stick to using exchanges in this country as they're regulated as money transmitters by the Treasury.

Anyway, blockchain v3 will be out soon as HEAT. Bitcoins days may be numbered since the Chinese that own the vast majority of the mining power aren't that interested in collaborating together to impose changes or evolve.

[dualstow]

... But, the intangibility of my stock holdings is not an issue because I trust my brokerage houses.
... A stock certificate could get torn apart by a pet or lost in a flood, easily.

They're not bearer, just fancy scribbles and graphics on paper evidencing your registration on the books at the corporation.

Ok, so no worse than digital holdings, then. Perhaps one rung higher in the case of identity theft.
I still feel safe with intangible stock holdings, though, and for good reason.

[MachineGhost]

Ok, so no worse than digital holdings, then. Perhaps one rung higher in the case of identity theft.
I still feel safe with intangible stock holdings, though, and for good reason.

I think the core thing here is there is no rule of law about the blockchain. If a controlling majority decides to do something that isn't in your best interest including stealing your bitcoins, there is no recourse other than to quit using it. Some may like this Wild West free-market tyranny for ideological reasons, but it isn't the rule of law which typically focuses on protecting minorities from majority rule.

[Pointedstick]

Some may like this Wild West free-market tyranny for ideological reasons, but it isn't the rule of law which typically focuses on protecting minorities from majority rule.

That's basically it. The Bitcoin world is exciting in an ideologically pure way, but that excitement has to give way to a certain amount of order and stability before it can break out of the world of the early adopters and into the mainstream. If it doesn't, then it becomes irrelevant--nothing more than an interesting experiment that didn't pan out.

I say this as a former merchant who accepted payment in Bitcoins (and always delivered the goods! )

[bitcoininthevp]

If someone hacked into Vanguard, I think I'd still get my shares back eventually. And, if someone hacked into my bank and/or robbed my branch at gunpoint, I'd still get my FDIC-insured dollars.

I'd like to see the same thing from bitcoin, rather than, we're spreading the loss around to our customers even if they were not direct victims of the hack. Until then, as you have pointed out, we don't need those exchanges to store our bitcoins in the first place.

If the world, like you, demands insurance or a set of standards for bitcoin-related companies to adhere to before doing business with them, I believe those types of companies will appear and thrive. There are some starting. I suspect, and hope, that there will be a variety of *choices* in types of bitcoin companies. Some insured, some uninsured (and cheaper!), some getting together and following similar legal standards, some staying anonymous perhaps.

Coinbase is insured https://support.coinbase.com/customer/p ... e-insured-

Others may follow suit.

What just happened with the bitfinex theft will help shape market preferences and people will vote with their dollars... or bits.

What about spending the coins? I saw a couple of interviews in the past, possibly posted at this forum. It was a pro-bitcoin interviewer who scared me. He said that once someone tried to purchase something online and the "merchant" took his bitcoins and delivered nothing. The pro-bitcoin guy proudly announced that many people in the bitcoin community generously donated a coin each to the victim.

That's heartwarming and everything (and I don't mean that in a snarky way), but I don't think I'd like to depend on that. People have been known to buy entire automobiles with a credit card. After hearing this story, I'm not sure how I could feel safe exchanging $45- or $65,000 in bitcoins and then waiting for delivery. Or maybe there are new safety mechanisms in place since that story aired a few years ago?

If you are sending bitcoins directly on the bitcoin network to someone, its permanent. So someone can easily stiff you. So you need to be careful. Bitcoin is more merchant friendly and less consumer friendly in this regard. But how long will the market tolerate such actors? Reputation is important. Very similar to cash in this regard.

Merchants that use 3rd party payment processors like Bitpay are probably safer to use since Bitpay is the middle man in that, but even then I am unsure of the exact protections they have in place.

It is the wild west, but in some ways, isnt that the free market? Choice, I mean. Not a guarantee of safety.

[bitcoininthevp]

Bitcoins days may be numbered since the Chinese that own the vast majority of the mining power aren't that interested in collaborating together to impose changes or evolve.

Some might see this as a feature and not a bug.

I see bitcoin as the settlement layer that things like "3rd generation blockchains" will use as the value layer, innovating on top of.

I believe Bitcoin needs to be rock solid if that is the case and cannot be the place where the "move fast, break things" innovation is being done.

You saw what happened with ethereum!

[bitcoininthevp]

I think the core thing here is there is no rule of law about the blockchain. If a controlling majority decides to do something that isn't in your best interest including stealing your bitcoins, there is no recourse other than to quit using it. Some may like this Wild West free-market tyranny for ideological reasons, but it isn't the rule of law which typically focuses on protecting minorities from majority rule.

There may be more governance here than you think.

Miners can choose what version of the software to run, governing which transacitons are processed.
Node operations can choose what version of the software to run, governing which transactions are relayed and which blocks are valid.
Software developers can write competing implementations and even fork the code.
The blockchain can be forked in two (or more) competing currencies if there is a large enough disagreement.
Users can choose to use another crypto- or other currency for their transactions.

But most importantly and most powerfully, the holders of bitcoin, the currency, govern the price. For example, if there was a proposed change to blacklist certain transactions, or to "steal <anyones> bitcoins", the market will react and the price will change accordingly in a downward fashion. People holding dont want that. Miners, whose profit is based on the exchange rate of a bitcoin, dont want that, etc.

That doesnt mean nothing "bad" (subjectively perceived by individual market participants) can happen. It is just a different type of "regulation".

[MachineGhost]

Bitcoins days may be numbered since the Chinese that own the vast majority of the mining power aren't that interested in collaborating together to impose changes or evolve.

Some might see this as a feature and not a bug.

I see bitcoin as the settlement layer that things like "3rd generation blockchains" will use as the value layer, innovating on top of.

I suspect the Bitcoin blockshain is going to be entirely replaced by the 3rd gen, not innovating on top of it. It just has too many flaws and the "feature" of a crony majority of miners being stubbornly resistent to common sense changes because they're all selfish greedy pricks is not good public policy. But ultimately, the free market will decide. I have a chicken in every pot (Bitcoins, MaidSafe, HEAT).

[MachineGhost]

That doesnt mean nothing "bad" (subjectively perceived by individual market participants) can happen. It is just a different type of "regulation".

Yep, its not rule of law, its law of the jungle. Rule of law is what everyone agrees to ahead of time to solve the market coordination problem as well as disputes. This doesn't exist in Bitcoins and hence why it has widespread appeal only to speculators or a small subculture of crypto-anarchists. One doesn't have to be a deep intellectual to have "bad" emotional heuristics about something new.

What we really want from Bitcoins is the blockchain revolution to trickle upwards and remake traditional finance.

[bitcoininthevp]

MG,

I have not heard of HEAT, I need to look into that. Thanks for pointing me towards something new.

Good to have another crypto enthusiast in the PP forums.

What we really want from Bitcoins is the blockchain revolution to trickle upwards and remake traditional finance.

Agreed.

However, I think in order to "remake finance" in a way that doesnt get us right back where we started, different legal and governance constructs need to be applied.

“We can not solve our problems with the same level of thinking that created them” sort of thing.

But I suppose I am in the "bitcoin maximalist" and "crypto-anarchist" camp

[MachineGhost]

“We can not solve our problems with the same level of thinking that created them” sort of thing.

But I suppose I am in the "bitcoin maximalist" and "crypto-anarchist" camp

Oh, I agree with that I am just wise to the fact that the other 99.99% do not. It sucks to always be on the vanguard of everything.

[MachineGhost]

Well, never count out the market leader.

Rootstock aims to transplant Ethereum's functionality to the Bitcoin blockchain, enabling all kinds of smart contracts, near instant payments and higher scalability. It works by running a Turing Complete Virtual Machine on a Rootstock sidechain. Using a two-way peg, you can lock your Bitcoins on the Bitcoin blockchain and transfer that value to "rootcoins" on the Rootstock sidechain. And vice versa. It will use merge-mining so you can still mine Bitcoins and benefit from the new functionality <wipes sweat>.

Here's the white paper: https://uploads.strikinglycdn.com/files ... erview.pdf