Thursday, November 16, 2017

Techno-hype part 2

Don't, don't, don't, don't believe the hype!
Public Enemy

Enough about the hype around self-driving cars, now on to the hype around cryptocurrencies.

Sysadmins like David Gerard tend to have a realistic view of new technologies; after all, they get called at midnight when the technology goes belly-up. Sensible companies pay a lot of attention to their sysadmins' input when it comes to deploying new technologies.

Gerard's Attack of the 50 Foot Blockchain: Bitcoin, Blockchain, Ethereum & Smart Contracts is a must-read, massively sourced corrective to the hype surrounding cryptocurrencies and blockchain technology. Below the fold, some tidbits and commentary. Quotes not preceded by links are from the book, and I have replaced some links to endnotes with direct links.

Gerard's overall thesis is that the hype is driven by ideology, which has resulted in cult-like behavior that ignores facts, such as:
Bitcoin ideology assumes that inflation is a purely monetary phenomenon that can only be caused by printing more money, and that Bitcoin is immune due to its strictly limited supply. This was demonstrated trivially false when the price of a bitcoin dropped from $1000 in late 2013 to $200 in early 2015 - 400% inflation - while supply only went up 10%.
There's recent evidence for this in the collapse of the SegWit2x proposal to improve Bitcoin's ability to scale. As Timothy B Lee writes:
There's a certain amount of poetic justice in the fact that leading Bitcoin companies trying to upgrade the Bitcoin network were foiled by a populist backlash. Bitcoin is as much a political movement as it is a technology project, and the core idea of the movement is a skepticism about decisions being made behind closed doors.
Gerard quotes Satoshi Nakamoto's release note for Bitcoin 0.1:
The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.
And points out that:
Bitcoin failed at every one of Nakamoto's aspirations here. The price is ridiculously volatile and has had multiple bubbles; the unregulated exchanges (with no central bank backing) front-run their customers, paint the tape to manipulate the price, and are hacked or just steal their user's funds; and transaction fees and the unreliability of transactions make micropayments completely unfeasible.
Instead, Bitcoin is a scheme to transfer money from later to earlier adopters:
Bitcoin was substantially mined early on - early adopters have most of the coins. The design was such that early users would get vastly better rewards than later users for the same effort.

Cashing in these early coins involves pumping up the price, then selling to later adopters, particularly in the bubbles. Thus Bitcoin was not a Ponzi or pyramid scheme, but a pump-and-dump. Anyone who bought in after the earliest days is functionally the sucker in the relationship.
Satoshi Nakamoto mined (but has never used) nearly 5% of all the Bitcoin there will ever be, a stash now notionally worth $7.5B. The distribution of notional Bitcoin wealth is highly skewed:
a Citigroup analysis from early 2014 notes: "47 individuals hold about 30 percent, another 900 hold a further 20%, the next 10,000 about 25% and another million about 20%".
Not that the early adopters' stashes are circulating:
Dorit Ron and Adi Shamir found in a 2012 study that only 22% of then-existing bitcoins were in circulation at all, there were a total of 75 active users or businesses with any kind of volume, one (unidentified) user owned a quarter of all bitcoins in existence, and one large owner was tying to hide their pile by moving it around in thousands of smaller transactions.
In the Citigroup analysis, Steven Englander wrote:
The uneven distribution of Bitcoin wealth may be the price to be paid for getting a rapid dissemination of the Bitcoin payments and store of value technology. If you build a better mousetrap, everyone expects you to profit from your invention, but users benefit as well, so there are social benefits even if the innovator grabs a big share.
Well, yes, but in this case the 1% of the population who innovated appear to have grabbed about 80% of the wealth, which is a bit excessive.

Since there are very few legal things you can buy with Bitcoin (see Gerard's Chapter 7) this notional wealth is only real if you can convert it into a fiat currency such as USD with which you can buy legal things. There are two problems doing so.

First, Nakamoto's million-Bitcoin hoard is not actually worth $7.5B. It is worth however many dollars other people would pay for it, which would be a whole lot less than $7.5B:
large holders trying to sell their bitcoins risk causing a flash crash; the price is not realisable for any substantial quantity. The market remains thin enough that single traders can send the price up or down $30, and an April 2017 crash from $1180 to 6 cents (due to configuration errors on Coinbase's GDAX exchange) was courtesy of 100 BTC of trades.
Second, Jonathan Thornburg was prophetic but not the way he thought:
A week after Bitcoin 0.1 was released, Jonathan Thornburg wrote on the Cryptography and Cryptography Policy mailing list: "To me, this means that no major government is likely to allow Bitcoin in its present form to operate on a large scale."
Governments have no problem with people using electricity to compute hashes. As Dread Pirate Roberts found out, they have ways of making their unhappiness clear when this leads to large-scale purchases of illicit substances. But they get really serious when this leads to large-scale evasion of taxes and currency controls.

Governments and the banks they charter like to control their money. The exchanges on which, in practice, almost all cryptocurrency transactions take place are, in effect, financial institutions but are not banks. To move fiat money to and from users the exchanges need to use actual banks. This is where governments exercise control, with regulations such as the US Know Your Customer/Anti Money Laundering regulations. These make it very difficult to convert Bitcoin into fiat currency without revealing real identities and thus paying taxes or conforming to currency controls.

Gerard stresses that Bitcoin is in practice a Chinese phenomenon, both on the mining side:
From 2014 onward, the mining network was based almost entirely in China, running ASICs on very cheap subsidised local electricity (There has long been speculation that much of this is to evade currency controls - buy electricity in yuan, sell bitcoins for dollars)
And on the trading side:
Approximately 95% of on-chain transactions are day traders on Chinese exchanges; Western Bitcoin advocates are functionally a sideshow, apart from the actual coders who work on the Bitcoin core software.
Gerard agrees with my analysis in Economies of Scale in Peer-to-Peer Networks that economics made decentralization impossible to sustain:
Everything about mining is more efficient in bulk. By the end of 2016, 75% of the bitcoin hashrate was being generated in one building, using 140 megawatts - or over half the estimated power used by all of Google's data centres worldwide.
This is the one case where I failed to verify Gerard's citation. The post he links to at NewsBTC says (my emphasis):
According to available information, the Bitmain Cloud Computing Center in Xinjiang, Mainland China will be a 45 room facility with three internal filters maintaining a clean environment. The 140,000 kW facility will also include independent substations and office space.
The post suggests that the facility wasn't to be completed until the following month, and quotes a tweet from Peter Todd (my emphasis):
So that's potentially as much as 75% of the current Bitcoin hashing power in one place
Gerard appears to have been somewhat ahead of the game.

The most interesting part of the book is Gerard's discussion of Bitfinex, and his explanation for the current bubble in Bitcoin. You need to read the whole thing, but briefly:
  • Bitfinex was based on the code from Bitcoinica, written by a 16-year old. The code was a mess.
  • As a result, in August 2016 nearly 120K BTC (then quoted at around $68M) was stolen from Bitfinex customer accounts.
  • Bitfinex avoided bankruptcy by imposing a 36% haircut across all its users' accounts.
  • Bitfinex offered the users "tokens", which they eventually, last April, redeemed for USD at roughly half what the stolen Bitcoins were then worth.
  • But by then Bitfinex's Taiwanese banks could no longer send USD wires, because Wells Fargo cut them off.
  • So the "USD" were trapped at Bitfinex, and could only be used to buy Bitcoin or other cryptocurrencies on Bitfinex. This caused the Bitcoin price on Bitfinex to go up.
  • Arbitrage between Bitfinex and the other exchanges (which also have trouble getting USD out) caused the price on other exchanges to rise.
Gerard points out that this mechanism drives the current Initial Coin Offering mania:
The trapped "USD" also gets used to buy other cryptocurrencies - the price of altcoins tends to rise and fall with the price of bitcoins - and this has fueled new ICOs ... as people desperately look for somewhere to put their unspendable "dollars". This got Ethereum and ICOs into the bubble as well.
In a November 3 post to his blog, Gerard reports that:
You haven’t been able to get actual money out of Bitfinex since mid-March, but now there are increasing user reports of problems withdrawing cryptos as well (archive).
Don't worry, the Bitcoin trapped like the USD at Bitfinex can always be used in the next ICO! Who cares about the SEC:
Celebrities and others have recently promoted investments in Initial Coin Offerings (ICOs).  In the SEC’s Report of Investigation concerning The DAO, the Commission warned that virtual tokens or coins sold in ICOs may be securities, and those who offer and sell securities in the United States must comply with the federal securities laws.
Or the Chinese authorities:
The People's Bank of China said on its website Monday that it had completed investigations into ICOs, and will strictly punish offerings in the future while penalizing legal violations in ones already completed. The regulator said that those who have already raised money must provide refunds, though it didn't specify how the money would be paid back to investors.
This post can only give a taste of an entertaining and instructive book, well worth giving to the Bitcoin enthusiasts in your life. Or you can point them to Izabella Kaminska's interview of David Gerard - it's a wonderfully skeptical take on blockchain technologies and markets.


David. said...

Today's notes from the blockchain hype-fest include:

1. Blockchain moves beyond its 'moonshot' phase , an American Banker interview with Brian Behlendorf, executive director of the Hyperledger Project.

2. P&G Could Use the Blockchain in Its Next Proxy Fight, in which Matt Levine admits that:

"This problem could all be solved by having a single central computerized voting system run by some trusted intermediary that provided clear voting instructions and kept a secure auditable electronic record of votes that could report its results in real time. This is not, like, Star Trek-level sci-fi at this point. People keep records on computers these days. We have the technology for it, and honestly we had the technology for it long before blockchains were invented."

So why exactly would P&G use a blockchain?

3. American Express inks blockchain deal: Will use tech to pay UK folk who bank with Santander:

"Blockchain tech found another friend in American Express and UK customers of Santander. Well, sort of.

The firm has slipped inside its international payments platform the network of the digital startup Ripple, according to a press release.

The network allows select American Express business customers to make payments to businesses in the UK that bank with Santander. "

This looks like another toe-in-the-water deal aimed at good PR rather than a real commitment.

David Gerard said...

cheers, and thank you :-)

you're right, I did indeed jump the gun on the Bitmain mining warehouse. Though I understood it had in fact been built. Then heard it hadn't. Time to hit Google Translate again ...

I also do a blog now, descended from the book:

David. said...

There's Some Intense Web Scans Going on for Bitcoin and Ethereum Wallets reports Catalin Cimpanu at Bleeping Computer:

"With both Bitcoin and Ethereum price hitting all-time highs in the past seven days, cyber-criminals have stepped up efforts to search and steal funds stored in these two cryptocurrencies.

These mass Internet scanning campaigns have been recently picked up by various honeypots installed by security researchers across the Internet."


"Brought to Bleeping Computer's attention today by security researcher Dimitrios Slamaris, crooks are engaged in a mass scan campaign that makes blind requests to the JSON-RPC interface of Ethereum nodes.

This interface is a programmatic API for Ethereum clients that should be, in theory, only exposed locally. The reason is that this interface does not support authentication. Wallet apps installed on the user's computer can make calls to this Ethereum client to move and manage funds.

If the user's computer is connected online, an attacker can also make requests to this JSON-RPC interface and issue commands to move funds to an attacker's wallet, Slamaris told Bleeping Computer today in a private conversation."

David. said...

The SEC just filed its first enforcement action against a pair of ICO promoters.

David. said...

Paper wealth in BTC is all very well, but turning it into money you can buy stuff with can be a problem. Hat tip to David Gerard.

David. said...

A brief history of Bitcoin hacks and frauds by Timothy B. Lee hits many of the low points from 2011 to 2016.

David. said...

Yet another thing you can't buy with Bitcoin, games on Steam:

"Valve is ending support for Steam purchases made with bitcoin, the company said today, citing “high fees and volatility” in the value of the cryptocurrency. ... transaction fees that are charged to the customer by the Bitcoin network have skyrocketed this year, topping out at close to $20 a transaction last week (compared to roughly $0.20 when we initially enabled Bitcoin)."

David. said...

Another day, another huge Bitcoin theft, this one may be "worth" $62M.

David. said...

The likely advent of Bitcoin futures trading has sparked a series of posts from Izabella Kaminska. The first of today's posts asks What happens when bitcoin’s market cap overtakes world GDP?:

"Because there’s no reason why it couldn’t. And that’s the problem.

Unlike any other market in the world, there are no natural sellers in bitcoin. Even the miners who mint coin stockpile as much of it as possible and try to obtain as much free energy from alternative non monetary sources."

This lack of sellers drives the Bitcoin bubble. Kaminska's second post today, The smartest bitcoin trade in town? looks at how a hypothetical player could profit from the start of futures trading to implement the dump that matches the current pump:

"If you’re gunning to be the only entity in town prepared to sell bitcoin futures, it would be in your interests to start “pre-hedging” physical bitcoin as soon as possible with a view to locking in a risk-free basis return once the ability to sell futures on a regulated venue becomes possible.

Ideally, the trade would require an average purchasing price that’s much lower than the rate bitcoin futures would eventually be sold at. To maximise this trade, as much value would have to be ploughed into the purchase (or generation) of bitcoin ahead of time, as likely buyside demand for the futures once launched."

Both posts, and their predecessors here and here are well worth reading.

David. said...

Bitcoin surges to $15,000—a 25-percent rise in 48 hours:

"It's hard to deny that Bitcoin is in the midst of a massive bubble."

David. said...

See also Kaminska's Five signs of a really *functional* market. The first is:

"1) The spread between the top three exchanges offering your product is no less than… $4,000."

Unknown said...

David. said...

"About 40 percent of bitcoin is held by perhaps 1,000 users ... The top 100 bitcoin addresses control 17.3 percent of all the issued currency, ... With ether, a rival to bitcoin, the top 100 addresses control 40 percent of the supply," reports Olga Kharif. And:

"At least some kinds of information sharing are legal, says Gary Ross, a securities lawyer at Ross & Shulga. Because bitcoin is a digital currency and not a security, he says, there’s no prohibition against a trade in which a group agrees to buy enough to push the price up and then cashes out in minutes.

Now the pump, then the dump.

David. said...

Bitcoin futures trading is live, with the market believing there's no way but up. Traders should read Why Bitcoin futures and a shoddy market structure pose problems from Izabella Kaminska.

David. said...

"The cost to complete a Bitcoin transaction has skyrocketed in recent days. A week ago, it cost around $6 on average to get a transaction accepted by the Bitcoin network. The average fee soared to $26 on Friday and was still almost $20 on Sunday." reports Timothy B. Lee at Ars Technica.

And SegWit2 isn't taking off:

"But only a small minority of transactions have taken advantage of this option so far, so the network's average throughput has stayed below 2,500 transactions per block—around four transactions per second."

David. said...

"If I purchase 0.000,000,001 of a bitcoin from Kadhim for $100, should the value of one bitcoin should now be considered to be $100bn per bitcoin?" asks Izabella Kaminska. She links to this awesome tweetstorm relating how a Google engineer tried to turn some of his Bitcoin into Swiss Francs.

David. said...

A cryptocurrency based on a directed acyclic graph not a blockchain is a very interesting idea.

David. said...

Getting a little ahead of the game, David Orban spams me with What is the role of the United Nations in the age of blockchain?.

David. said...

"One sceptic is Internet Hall of Famer, Radia Perlman, who gave the keynote presentation on the subject at last month’s Asia Internet Engineering Conference — AINTEC 2017 — held in Bangkok, Thailand. ... For Radia, blockchain is currently undergoing a ‘honeymoon’ phase that many new technologies before it have experienced; one where hype and FOMO (fear of missing out) are clouding people’s perception of what the technology actually is, and how it compares to other things." reports Robbie Mitchell.

The bullet list at the end of the post is good. As usual, Radia is making a lot of sense. Here is her abstract:

"So much of what is written about "blockchain" gives the impression that it is a revolution in computing, will completely transform society, and any forward-thinking engineer should base all future designs on it. Most of what is written treats it as a black box with magic properties, including low latency commitment of data, and “immutability”. Does “blockchain” actually have those properties? How do blockchain security and efficiency properties compare with traditional solutions? To add to the confusion, the term "blockchain" is a moving target buzzword that has been used to describe anything that involves computers, cryptography, storage, and networks. This talk will focus on the technology behind Bitcoin, where the term "blockchain" originated. This talk is an invitation to technical debate."

David. said...

Bitcoin Could Make Banks Extinct: Israel Prime Minister Netanyahu:

"The 70-second video shows Netanyahu discussing the function of banks, which he says act as middlemen and to protect their customers by offsetting risks and preventing theft, according to ETHNews. "The truth behind what I just said is what's propelling bitcoin upwards ," Netanyahu concluded.

David. said...

Wonkblog makes a good point: "When the next financial crisis comes, societies dependent for liquidity on bitcoin miners would starve."

David. said...

The Hard Math Behind Bitcoin's Global Warming Problem by Adam Rogers at Wired is a good overview:

"32.71 terawatt-hours consumed by the Bitcoin network—or 0.15 percent of the total world consumption of electricity. ... Google—all of Google, the whole Google—used only 5.7 TWh in 2015 and went completely renewable in 2017."

Bitcoin bumper sticker: "I'm warming the planet, ask me how"

In the bad old days when BTC was only about $10K, Eric Holthaus calculated that:

"at bitcoin’s current growth rate, ... By July 2019, the bitcoin network will require more electricity than the entire United States currently uses. By February 2020, it will use as much electricity as the entire world does today."

David. said...

David Gerard is back with Why you can’t cash out pt 1: Why Bitcoin’s “price” is largely fictional, which you should read before putting your money in.

David. said...

Tim Wu drinks the Kool-Aid in The Bitcoin Boom: In Code We Trust:

"Bitcoin’s rise may reflect, for better or worse, a monumental transfer of social trust: away from human institutions backed by government and to systems reliant on well-tested computer code."

While his criticisms of governments may be well-chosen, and be part of the reason for the obvious loss of trust in government, Wu hasn't noticed that, in order to use Bitcoin in practice, you need to trust human institutions such as exchanges that are far less trustworthy than governments.

David. said...

HOW TO MAKE A MINT: THE CRYPTOGRAPHY OF ANONYMOUS ELECTRONIC CASH is by the NSA from 1996. Tip of the hat to Kadhim Shubber at Alphaville.

David. said...

Another day, another Bitcoin heist. North Korea suspected in latest bitcoin heist, bankrupting Youbit exchange by Sean Gallagher:

"Attackers made off with 17 percent of the exchange's cryptocurrency assets, including an undisclosed amount of bitcoin. In the wake of the attack, Youbit has declared bankruptcy and is allowing customers to withdraw only 75 percent of their accounts; the remainder will be paid out after the company is liquidated.

There have been three documented attacks attributed to North Korea against other South Korean cryptocurrency exchanges this year, including one against Youbit's predecessor company, Yapizon, in April—in which even more cryptocurrency was stolen.

This is the second major bitcoin-related digital heist reported this month. On December 7, the Slovenia-based cryptocurrency-mining exchange service NiceHash was robbed of more than $60 million dollars' worth of bitcoin in a security breach."

David. said...

Totally not a bubble:

"The Long Island Ice Tea Corporation ... announced a significant change of strategy that would start with changing its name to "Long Blockchain Corporation." ... The stock market loved the announcement. Trading opened Thursday morning more than 200 percent higher than Wednesday night's closing price."

David. said...

A wave of selling has hit cryptocurrencies:

"After rocketing to a high above $19,500 last Sunday, bitcoin's price has been steadily dropping this week. Those losses accelerated overnight, with the cryptocurrency falling below $13,000.

Bitcoin's losses come amid a broad cryptocurrency selloff. As of Friday morning, every major cryptocurrency was posting double-digit 24-hour losses. Ethereum is down 28 percent over the last 24 hours, Bitcoin Cash is down 37 percent, and Litecoin is down 32 percent."

And, of course, the additional demand for transactions pushed their price up:

"One factor weighing on bitcoin in particular is the network's skyrocketing transaction fees. Two weeks ago, the daily average fee to send a bitcoin transaction hit an all-time high of $26. This week, the network left that record in the dust, with the average fee on Thursday reaching more than $50."

Because the transaction fees are going up, they will go up!

David. said...

To oversimplify, the argument for Bitcoin and its analogs is the argument for gold, that because the supply is limited the price will go up. The history of the block size increase shows that the supply of Bitcoin transactions is limited to something around 4 per second. So by the same argument that leads to HODL-ing, the cost of getting out when you decide you can't HODL any more will always go up. And, in particular, it will go up the most when you need it the most, when the bubble bursts. As I write, the transaction cost is around $130! And its chart looks just as exponential as Bitcoin's recently did.

David. said...

David Gerard's Why you can’t cash out pt 2: Bitcoin and Know Your Customer/Anti Money Laundering laws (KYC/AML) is now up:

"The Know Your Customer anti-money laundering (KYC/AML) regulations are an endless source of woe for the Bitcoin trader.

“Know Your Customer” as we know it came in as part of the USA PATRIOT Act after 9/11. The idea was to catch money laundering by terrorists and criminals.

The tricky part for you, the customer, is that it requires your bank to treat you as the threat. And Bitcoin is notoriously a favourite of criminals and drug dealers, so it gets special attention from bank compliance officers."

Blockchains may be "trust-free", but turning your cryptocurrency into something you can buy things with typically involves trusting (a) an exchange and (b) a bank. And at $130/transaction its only worth doing for relatively large sums, which tend to get more scrutiny.

David. said...

Buttcoin sums up the situation.

David. said...

Kai Stinchcombe's Ten years in, nobody has come up with a use for blockchain is a pretty comprehensive take-down at the proposed uses for blockchains:

"Each purported use case — from payments to legal documents, from escrow to voting systems—amounts to a set of contortions to add a distributed, encrypted, anonymous ledger where none was needed. What if there isn’t actually any use for a distributed ledger at all? What if, ten years after it was invented, the reason nobody has adopted a distributed ledger at scale is because nobody wants it?"

Its the marketing analog of Radia Perlman's technology view.

David. said...

Brian Krebs points out that:

"Critics of unregulated virtual currencies like Bitcoin have long argued that the core utility of these payment systems lies in facilitating illicit commerce, such as buying drugs or stolen credit cards and identities. But recent spikes in the price of Bitcoin — and the fees associated with moving funds into and out of it — have conspired to make Bitcoin a less useful and desirable payment method for many crooks engaged in these activities."

Credit card thieves are the latest vendors to drop BTC.

David. said...

Oops, I was looking at the wrong chart. This is the average transaction fee chart, showing fees in the range of $50. The wrong chart, showing the $130 range, includes the reward of 12.5BTC/block. Which, of course, represents inflation of the BTC and thus is an indirect cost to BTC holders.

But the argument that transaction costs are (a) unrealistically high, and (b) will be high when you need to transact, are unaffected.

David. said...

The cost of bitcoin payments is skyrocketing because the network is totally overloaded by Becky Peterson at Business Insider catches up with the phenomenon:

" The surge in fees was a matter of supply and demand. As bitcoin's price surged from $10,000 to $20,000, increasing numbers of people wanted to invest in the cryptocurrency. The upsurge in users and transactions increased the demand for miners' services.

At the same time, supply is constrained. The blockchain system that underlies the cryptocurrency can only process around 3 to 7 transactions per second. So at any given moment, a greater number of transactions were competing for a relatively small number of slots in the ledger."

David. said...

Danny Bradbury at The Register has a report on the state of the Linux Foundation's Hyperledger permissioned blockchain project:

"The Linux Foundation’s Hyperledger project was announced in December 2015. When Apache Web server daddy Brian Behlendorf took the helm five months later, the Foundation’s blockchain baby was still embryonic."

An example of the hype around Hyperledger is that Bradbury writes:

"We're three years into Hyperledger. The project has come a long way in that time while Behlendorf has form to take it further. He co-founded the Apache Foundation and wrote a lot of the underlying server, still the industry’s most popular web server after all these years. Behlendorf sits at the intersection of technology and community building."

Well, yes, but December 2015 is actually only two years ago.

David. said...

Absolutely not a bubble:

"Chanticleer Holdings, which owns nine Hooters restaurants and other regional burger chains like Little Big Burger, announced today that it was putting its loyalty programs on the blockchain. And just like other companies that have recently issued press releases with the word “blockchain,” its stock price shot through the roof.

The Nasdaq-listed stock, BURG, was up 50 percent this morning, jumping to $4.87 per share after the market opened. The price dipped down a bit from its morning high, but it’s still up 40 percent today."

Hat tip to Mark Frauenfelder.

David. said...

David Gerard continues his series with Why you can’t cash out pt 3: Bitcoin is not a Ponzi scheme! It just works like one:

"This is, again, why “market cap” is a misleading and useless number. If someone bought a fraction of a bitcoin at $19,000 per BTC, that doesn’t make anyone else a “Bitcoin billionaire” whose bitcoins could be sold at $19,000 each — the total actual money recoverable from the system hasn’t gone up."

David. said...

Another route from cryptocurrencies to fiat currencies just got cut off:

"the concept of a prepay crypto card that can instantly convert crypto fortunes into real spending power — because it is accepted by the Visa or Mastercard network — has captured the imagination of the suddenly enriched community. ... One of the biggest players offering such services for the crypto community for the last year has been Gibraltar-based WaveCrest, a principal issuing member of both the Visa and Mastercard networks which specialises in providing prepaid card solutions to industry."


"A press spokesman for Visa gave FT Alphaville the following additional detail. “We can confirm that WaveCrest’s Visa membership is being terminated due to continued non-compliance with our operating rules. All of WaveCrest’s Visa card programmes will be closed as a result.”

David. said...

David Gerard reports that first they came for the exchanges:

"in September the People’s Bank of China told exchanges to cease trading within the next month or two. Exchange executives were asked not to leave the country while the PBOC was investigating, “to assist refunding work.”

Then they came for the miners:

"On Wednesday 3 January 2018, a closed-door meeting on how to curb mining became public. Provincial governments have been asked to “guide” miners towards an “orderly” exit from the Bitcoin business.

cnLedger notes: “The first steps would be canceling preferential benefits and strict in checking taxes etc, and monitoring activities.” Local offices have been asked to report monthly on the Bitcoin mining companies — name, founding date and financial and tax details — and power consumption, rent or land price subsidies and electricity prices and subsidies."

David. said...

Miami Bitcoin Conference Stops Accepting Bitcoin Due to Fees and Congestion. What more is there to say?

David. said...

"Short sellers are in Nirvana with these creatures that had surged by hundreds or even thousands of percent in days after they announced a switch to “blockchain” in their business model or added “Blockchain” to their name. Their shares are now crashing." reports Wolf Richter. Easy come, easy go.

David. said...

Tom Morris' tweet succinctly sums up the mismatch between cryptocurrency aspirations and reality. David Gerard links to it and to a Hackread post pointing out that, like computers and phones, hardware wallets are not a safe place to keep your money:

"Ledger hardware wallet that is currently operating in the cryptocurrency market is vulnerable to cyber attacks. The vulnerability was identified by unknown security researchers in every single hardware wallet that allows cybercriminals to show fraudulent addresses to Ledger users/customers. When funds are requested to these addresses, the cryptocurrency is transferred to the attacker’s wallet instead of the user. Needless to say that the user will end up losing their funds."

The vulnerability is to a man-in-the-middle attack. The vendor's response:

"CTO of Ledger replies that no fix/change would be done ... but they will work on raising public awareness so that users can protect themselves from such attacks"