Wednesday, March 28, 2018

Bitcoin: The Future World Currency?

I had a lot of fun applying arithmetic to DNA's prospects as a storage medium. Jamie Powell must have had just as much fun applying arithmetic to the prospect of Bitcoin becoming the world's currency in Sorry Jack, Bitcoin will not become the global currency., which is part of the FT Alphaville's excellent new Someone is wrong on the Internet series. Below the fold, some of the entertainment.

Jack is Jack Dorsey, of Twitter and Square fame, who told the Times:
The world ultimately will have a single currency, the internet will have a single currency. I personally believe that it will be bitcoin...[this will play out] probably over ten years, but it could go faster
Powell assumes that Dorsey is right, and starts by pointing out that, assuming they continue to HODL, in 2028 Satoshi Nakamoto and the Winkelvoss twins together would:
control 5 per cent of the world's liquid currency.
Dividing 2028's projected money supply by the number of Bitcoin:
each of the digital tokens would be worth just over $10m.
Based on estimates of Bitcoin's current energy consumption and energy cost:
each transaction will cost $10,374.
Even assuming two orders of magnitude decrease in energy cost per transaction, aggregated over 2028's projected 1.5 trillion transactions:
the energy cost would be 1,511,484 terawatt hours.
Or more than 60 times the Terawatt hours the entire world consumed in 2016!

Thus were Bitcoin to become a widely used medium for transactions, the process of brute-forcing partial hash pre-images (mining) must have become many orders of magnitude cheaper. But this would mean that brute-forcing full hash pre-images would also be much cheaper, which would have other effects that the Bitcoin enthusiasts might like much less. Such as the deleterious effects on cryptography and the security of Bitcoin and its wallets.


David. said...

The slides for Nicholas Weaver's class at Berkeley today on why cryptocurrencies are BS:

Slide 1

Slide 2

Slide 3

Slide 4

David. said...

Immutability is in the eye of the behodler.

"An unknown attacker has exploited a bug in the Verge cryptocurrency network code to mine Verge coins at a very rapid pace and generate funds almost out of thin air.

The Verge development team is preparing a hard-fork of the entire cryptocurrency code to fix the issue and revert the blockchain to a previous state before the attack to neutralize the hacker's gains.
This is the second security incident involving the Verge dev team, with a mysterious hack happening last fall." according to Catalin Cimpanu at Bleeping Computer.

David. said...

Kai Stinchcombe's Blockchain is not only crappy technology but a bad vision for the future makes a lot of good points, such as:

"Even the most die-hard crypto enthusiasts prefer in practice to rely on trust rather than their own crypto-medieval systems. 93% of bitcoins are mined by managed consortiums, yet none of the consortiums use smart contracts to manage payouts. Instead, they promise things like a “long history of stable and accurate payouts.” Sounds like a trustworthy middleman!"

The goal of blockchains is to eliminate trust. Low-trust societies don't work well (see the work of Robert Putnam) and end up like medieval Europe or current Somalia. The goal should be to increase trust in society, not try to program around it.

David. said...

"New York Attorney General Eric Schneiderman launched an investigation into bitcoin exchanges today, his office announced. He’s looking into thirteen major exchanges, including Coinbase, Gemini Trust, and Bitfinex, requesting information on their operations and what measures they have in place to protect consumers." reports Shannon Liao at The Verge.

David. said...

"Money is a social device. The things that make it work are not to be found inside the coins and notes, but in a network of connections between the people who use it. Bitcoin’s fundamental flaw is the myth that such workability can be “coded.” This is no more possible than it was to physically stamp society’s monetary relations at the mint. At best, Bitcoin will develop such a social infrastructure — in which case, it will work a lot like regular money, and so what’s the point? At worst, the properties coded into Bitcoin will make it unsuitable for a viable social infrastructure, and it will implode and remain niche — a disruptive technology that mainly disrupts its own users." from The Dumb Money by Mike Beggs at Jacobin. It is a good, detailed look at three areas where cryptocurrencies fail to deliver on their promises:

"What cannot be coded is:
* Acceptability: that other people will take it in payment at all;
* Value: what it is worth in terms of other currencies, goods and services, etc.; or
* Liquidity: the ease with which that value can be realized by exchanging it for those other things."