tag:blogger.com,1999:blog-8702840202604739302.post1515782847407032472..comments2024-03-28T03:38:53.734-07:00Comments on MacroMania: A bit more on the economics of BitcoinDavid Andolfattohttp://www.blogger.com/profile/12138572028306561024noreply@blogger.comBlogger41125tag:blogger.com,1999:blog-8702840202604739302.post-18108482856878002692016-03-13T05:45:05.698-07:002016-03-13T05:45:05.698-07:00Bitcoin is a form of digital currency, created an...<a href="http://www.mmmbitcoin.us/2015/12/what-is-bitcoin.html" rel="nofollow">Bitcoin is</a> a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros - they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems. It’s the first example of a growing category of money known as cryptocurrency... ty davidAsep Supriatnahttps://www.blogger.com/profile/10412263716647830525noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-83497428073556672892015-01-24T05:24:17.282-08:002015-01-24T05:24:17.282-08:00What should I expect from all the conversations ma...What should I expect from all the conversations made about <a href="http://www.bidnessetc.com/calculator/bitcoin/" rel="nofollow">Bitcoin</a>? Either this digital money set up will be followed by everyone legally or this chapter will be closed once and for all?<br /><br />Anonymoushttps://www.blogger.com/profile/11806263406630274185noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-84371668280863293562015-01-09T02:55:00.032-08:002015-01-09T02:55:00.032-08:00bitcoin in india is a radical solution and a great...bitcoin in india is a radical solution and a great choice for fiat currency which have <br />subjugated the globe for quite lots of time now. Though, the main issue with this crypto-<br />currency is that this is volatile and its substitute rate fluctuates like any other currency, <br />plus for that cause it is necessary for you to interpret the most recent news to know the <br />newest exchange rates. If you have been keeping an eye on the news lately, you have to <br />have observed that there have been lots of fluctuations in the price. The prices went <br />higher in the early on part of the year plus then went down lots afterward a couple of <br />months.<br />Addison pfhttps://www.blogger.com/profile/15253273961173354344noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-86506457506344368932014-03-24T15:53:42.406-07:002014-03-24T15:53:42.406-07:00Bitcoin or Ripple > NACHABitcoin or Ripple > NACHASH22https://www.blogger.com/profile/09210082694073673035noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-88794515258768847572014-02-12T14:03:03.138-08:002014-02-12T14:03:03.138-08:00Excellent questions, Tara.
[1] Sure, I can see it...Excellent questions, Tara.<br /><br />[1] Sure, I can see it retaining value as a store of value, like gold, for example.<br /><br />[2] I worry about that too -- the conclusion seems inevitable to me -- high concentration of power, which at the end of the day we must trust (perhaps for good reason because they would want to protect their francise value--but then, the same is true of banks).<br /><br />[3] Good question.David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-53997196678515708992014-02-12T14:00:21.244-08:002014-02-12T14:00:21.244-08:00Apple shares are also in circulation. When was the...Apple shares are also in circulation. When was the last time you used an AAPL share to buy a cup of coffee?David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-26792553414669916122014-02-12T07:15:01.241-08:002014-02-12T07:15:01.241-08:00David,
excellent post as usual. My undergrad econ ...David,<br />excellent post as usual. My undergrad econ class is very much into bitcoins and I have a guy who bought a load of bitcoins at a dollar. He is swimming in money right now. I have two questions for you, the first one is about the inherent deflation built in bitcoins. As you mentioned, bitcoin is subject to wild short-term swing in prices because of the limited supply. If bitcoin was created as a peer to peer currency to facilitate trade, given the limited supply, would bitcoin not turn into a store of value (assuming that people believe it has value and someone will always demand bitcoin) rather than as "medium of exchange", thus going against the original idea of its creator. The second question may be more techie. Mining Bitcoin already requires a lot of computer power. This raises two issues. Since it relies on the community for the verification and validation of transactions, given the increased need for computer power as more bitcoins are mined, it seems to me that mining will be done by entities that want to heavily invest in such computing power. This opens the door for fraud and potentially abuse of power. The second issue is regarding computer power. When we will get closer to the 21 m of bitcoins, will we have the computer power to solve the algorithms? Talking to some techies, it is not clear unless there is easy and cheap access to a quantum computer. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-80697590524487793182014-02-03T23:27:14.705-08:002014-02-03T23:27:14.705-08:00“Is Bitcoin a good money?” - Yes it is good money....“Is <a href="http://www.betcoin.tm" rel="nofollow">Bitcoin</a> a good money?” - Yes it is good money. It wouldn’t be in circulation if it isn’t. Investors, entrepreneurs won’t be using it if not, right?Anonymoushttps://www.blogger.com/profile/01524576490371091745noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-62019074286989538552014-02-02T12:22:01.265-08:002014-02-02T12:22:01.265-08:00Why are bitcoin ledger entries valuable whereas an...<i>Why are bitcoin ledger entries valuable whereas an entry in some other ledger conveying equally accurate information is worthless? </i><br /><br />Because accurate information is not necessarily relevant information?<br /><br /><i>The market cap of all dogecoins is more than that of all sexcoins, does that mean that dogecoins record information in a more useful manner?</i><br /><br />Not more useful, but just more, perhaps? I can write down a model of fiat money, where two countries use their own fiat currency. The purchasing power of the respective currencies can depend on (among other things) the size of the economies. But interesting question, nevertheless..<br /><br /><i>Bitcoin went from being worth $0 to some positive value. Does this mean that it made a sudden switch from recording information in a non-useful manner to a useful manner?</i><br /><br />The value of the bitcoin must also depend on the future prospect of its use, no? If people suddenly expect the network to expand, shouldn't this drive up the value of this type of information? David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-39201120246961775862014-02-02T12:17:14.932-08:002014-02-02T12:17:14.932-08:00Hmm, not really. Something is blocking my brain fr...Hmm, not really. Something is blocking my brain from absorbing the idea. I hope it isn't just the fact that I am dense! Let's keep talking Ian -- we can work on a paper together. David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-49717470841888188772014-02-02T12:12:16.255-08:002014-02-02T12:12:16.255-08:00sethhoskins: Sure, point taken. However, it seems ...sethhoskins: Sure, point taken. However, it seems to me that the current banking system has the technology to implement this "frictionless" payment system you describe, no?David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-30138894594431768102014-01-31T17:48:55.486-08:002014-01-31T17:48:55.486-08:00So how could a 51% majority misbehave?
One possib...So how could a 51% majority misbehave?<br /><br />One possibility would be to start generating blocks that didn't contain any transactions except for the coinbase transactions for the reward miners get for finding a block. Or they could direct so much computing power to mining that the system automatically increases the difficulty of the puzzles in order to keep at 1 block per 10 minutes and then abandon the mining process. If they have much more computing power than all other miners combined it will take very long for the difficulty to readjust and in the meantime no one can have new transactions confirmed or their mining rewarded so everybody abandons the coin. I believe Bitcoin miners have done this to rival coins which subsequently collapsed.<br /><br />They could also make payments with the system, wait for the goods to arrive and then roll back history by starting a new chain of blocks on top of the block just before the block they made their payment in. The honest miners would have a head start, but if the dishonest miners have more computing power they will eventually catch up and all honest nodes will jump ship to the new longest chain. The initial payment will effectively have been rolled back, which means the original owner can try to spend it a second time.Martijn Meijeringhttps://www.blogger.com/profile/12081666469671666008noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-14446556810671159282014-01-31T17:48:30.992-08:002014-01-31T17:48:30.992-08:00"The basic idea is that the monitoring activi..."The basic idea is that the monitoring activity must be made costly, because otherwise there is an incentive for scammers to announce that their scam deals (e.g., attempts to double spend) are legitimate."<br /><br />What the mining process does is to create a timestamped ledger that cannot be altered afterwards. New entries can be added, but old ones cannot be erased.<br /><br />Payment instructions are forwarded between computers running the Bitcoin protocol, so in principle everybody ends up with the full set of transactions. However, each computer will generally receive the transactions in a different order, since that order depends on how many hops you are removed from the person who generated each transaction. But the various nodes need to agree on one shared order, otherwise they can't tell which of two conflicting transactions will go through.<br /><br />If you had a single central party, that would be easy enough, but the idea with Bitcoin is not to need a central party.<br /><br />You might try to let people announce a new set of transactions (a new block in the blockchain) at random and let every node stick to the first announcement they had heard. That would work if new blocks weren't announced too frequently. At the very least you would want the frequency to be above the average time it takes to broadcast a new block across the network.<br /><br />Bitcoin's trick to determine this frequency is to make it artifically difficult to create a block by adding a mathematical puzzle to each block. A block is only valid if it contains a valid solution to the puzzle. The answer to this puzzle is a number called a nonce. There are very many solutions to each puzzle, yet only a small fraction of all numbers is a valid solution and which solutions are valid varies from block to block. The only known way to solve the puzzle is by sequentially trying all possibilities. By varying the difficulty of the puzzle the system arranges for one solution to be found roughly every ten minutes.<br /><br />Generally each node will hear only a single proposed new block, because everybody abandons looking for a solution to the current problem once a new block comes in, because they know everybody will use the block they heard first.<br /><br />Occasionally two nodes may find a valid block roughly simultaneously, and one part of the network will start building new blocks on top of one of these block because that's the block they received first, while another part will build on top of the other block because they happened to receive that other block first. If a node has only a single candidate for block n, but more than one for block n+1, it will stick with the one it heard first. But once additional blocks are added on top of these blocks, a node will jump ship to the longest chain, which means the longest branch starts growing faster while the shorter chains start growing more slowly, so before long all minority nodes will have jumped ship and consensus is reestablished.<br /><br />So all miners can do is 1) to order transactions and 2) to censor them, perhaps based on transaction fees. Whether is a transaction is valid or not is determined by all nodes, regardless of how much computing power they can muster so they cannot falsify transactions.Martijn Meijeringhttps://www.blogger.com/profile/12081666469671666008noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-34592274484738261782014-01-31T16:56:54.722-08:002014-01-31T16:56:54.722-08:00I've got a gatling gun's worth of question...I've got a gatling gun's worth of questions for you:<br /><br />"But bitcoins truly are purely fiat in nature (they have no intrinsic use in either consumption or production). Does this mean that the value of bitcoins must eventually crash to zero (their fundamental value)? No. Bitcoins are information -- record-keeping devices. You can't eat my credit history either, but some companies would value (and pay for) this information nevertheless. So as long as Bitcoin conveys accurate information, its value can persist indefinitely"<br /><br />Companies might pay for information about your credit history, but I can unearth all sorts of other record keeping devices and ledger entries that contain accurate information that no one would pay to own. Why are bitcoin ledger entries valuable whereas an entry in some other ledger conveying equally accurate information is worthless? <br /><br />The market cap of all dogecoins is more than that of all sexcoins, does that mean that dogecoins record information in a more useful manner?<br /><br />Bitcoin went from being worth $0 to some positive value. Does this mean that it made a sudden switch from recording information in a non-useful manner to a useful manner? If so, how does this happen? Doesn't a bitcoin worth $0 (as they were in 2009) still provide accurate record keeping devices? I'm skeptical of the idea that the informational content of a e-coin can explain bitcoin's value (ie. why it can't fall back to $0) if it can't explain its debut.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-52776667196434030472014-01-31T13:23:08.953-08:002014-01-31T13:23:08.953-08:00Hi David.
Glad the paper was helpful! I have it on...Hi David.<br />Glad the paper was helpful! I have it on my dropbox, should be available here:<br />https://dl.dropboxusercontent.com/u/5048461/p2pcurrency.pdf<br /><br />Regarding the "Bitcoin Rush" are you referring to this article?<br />http://www.bloomberg.com/news/2013-10-15/bitcoin-mining-rush-means-real-cash-for-hardware-makers.html<br /><br />It's true that Bitcoin has become popular and valuable enough that an individual with a personal computer has almost 0 chance of successfully mining Bitcoins. This has resulted in the development of both specialized hardware, and mining "pools". In pools, all users contribute towards mining, and if anyone manages to add a block to the chain (and earn some Bitcoins) the proceeds are distributed to all members of the pool, proportional to how much work they did towards adding that block. If you look here:<br />https://blockchain.info/pools<br />You can see that this has resulted in something of a concentration of mining power, however the concentration is not great enough for any individual pool to overrule everyone else. Especially considering the coordination issues within that pool that such a strategy would entail.<br /><br />Regarding how the answer to the mathematical problem verifies the transaction, I'll refer you to the section in my paper on hashing for a more technical explanation, or you can consider this metaphor.<br /><br />Imagine the public ledger as a pool of paint. Every new block of transactions will modify the colour of the paint (abstract away from how this would actually rapidly turn to brown). Further imagine that you have some target colour that you want to create, by combining the colour resulting from the ledger with one other colour. If you get it right, it'll be easy to verify, but guessing which colour to add isn't easily determined, so you guess different colours until you stumble upon the answer. Once you find the right colour combination you broadcast your solution to everyone else who was trying to find it. They'll only produce the same colour and verify your solution if you both found the right new colour, and were working off the same original colour. Once everyone accepts this the base colour plus your new one becomes the new base colour, and all following solutions will depend on it.<br />I don't know if trying to explain it in colours instead of numbers made it better or worse. Let me know! Anonymoushttps://www.blogger.com/profile/03701486643606672348noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-82049460101180984452014-01-31T11:38:09.630-08:002014-01-31T11:38:09.630-08:00And David, this source helped me understand the te...And David, this source helped me understand the technical side of Bitcoin a lot:<br />http://www.michaelnielsen.org/ddi/how-the-bitcoin-protocol-actually-works/Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-88452103689581112032014-01-31T11:34:42.900-08:002014-01-31T11:34:42.900-08:00To clarify, Ripple is a payment protocol that enab...To clarify, Ripple is a payment protocol that enables "frictionless" value transfer (of anything, BTC, USD, gold, airline miles). This is accomplished, though, by trusting gateways (similar to banks) that are entry and exit points for the protocol; these are where you would redeem/withdraw your gold. To oversimplify, it's frictionless, it includes digital currency, but it requires trust*.<br /><br />*not trust in an intermediary per se, but decidedly more trust than what the Bitcoin protocol requires.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-77494540615347530562014-01-31T11:24:56.498-08:002014-01-31T11:24:56.498-08:00Regarding gold and e-money: David, I wouldn't ...Regarding gold and e-money: David, I wouldn't say the only point of e-money (digital currency) is to avoid trusting third parties. The frictionless exchange of value, with or without third party trust, has great value for many people (e.g. those using international remittances). See the following link Diego and David for an interesting and pointed example regarding this: http://www.coindesk.com/bullion-exchange-brings-ripple-physical-world/Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-46665102925332420202014-01-31T11:14:05.462-08:002014-01-31T11:14:05.462-08:00Lles,
The value of Bitcoin has more to do with th...Lles,<br /><br />The value of Bitcoin has more to do with the core protocol. That is, the ability to send units of account securely, with no intermediary, globally, economically (low fees), and do so in minutes. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-63284852300946220392014-01-31T11:08:18.079-08:002014-01-31T11:08:18.079-08:00There is certainly a spectrum of accountability. T...There is certainly a spectrum of accountability. The level of which does seem low to me. And this is exacerbated by so few people understanding economics, money and the Fed. Bitcoin, and digital currency generally, may help people address this concern.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-54730643034689914222014-01-31T10:57:29.500-08:002014-01-31T10:57:29.500-08:00David,
It's my opinion that free market force...David,<br /><br />It's my opinion that free market forces will keep such an attack from happening. <br /><br />Because the computing power is already so daunting, most mining concentration will occur in pools, which are much less likely to coordinate an attack. For a single attacker the cost would be incredibly high; and provided he/she is economically motivated, to undermine the currency that one is mining makes no sense. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-11417300073040426142014-01-30T20:03:22.973-08:002014-01-30T20:03:22.973-08:00There is more to it than the matching process. Yo...There is more to it than the matching process. You can go online and find some sites that will match you with someone who needs a personal loan. A bank does more than that. In the case of you making the personal loan online, you will have an asset that is highly illiquid. You will either have to abide by the terms and wait to be paid, or try to sell the asset. However, it would be very likely that you would have to sell the asset below its value. The asset would be very unique, and anyone you would sell it to would expect it to be a lemon and believe you to be taking them for a ride. Why else would you want to sell it, they would ask? You must have private information. Very few people are willing to make these type of personal loans for such reasons, so few people would find lenders. Assets that become more liquid attract buyers. Banks turn illiquid loans into liquid deposits. Its a win for people who would like to hold liquid assets and a win for the people looking to borrow since there will be more funds available to lend. This would not be possible without a fractional reserve system.<br /><br />Yes it can be dangerous, but so is nuclear power. Not using a valuable technology that can sometimes be dangerous if not used wisely is not the way to make progress.Anonymoushttps://www.blogger.com/profile/09470725506048370406noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-69059141541348770052014-01-30T19:56:33.411-08:002014-01-30T19:56:33.411-08:00Ian, your paper was a big help to me in understand...Ian, your paper was a big help to me in understanding various aspects of the Bitcoin protocol! I should have asked you permission to make it publicly available (or perhaps you have a link to it?). But I am still not exactly sure how this part of it works, even after your excellent explanation ;)<br /><br />I have another question for you. I recently read an article in Business Bloomberg on the "Bitcoin Rush." According to this article, it seems like a concentration of computing power may be developing. My understanding is that it is crucial that the computing power of any individual remain less than than 50% of the community computing power. But if one or two miners end up dominating, then what is to prevent them from scamming the system?<br /><br />I have a feeling that this is the real danger for Bitcoin, and if this concentrating of mining power is not somehow restricted, it will lead to the collapse of the system. What do you think?David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-73538783684870602772014-01-30T19:32:21.880-08:002014-01-30T19:32:21.880-08:00"the answer to which is easily verifiable. I ..."the answer to which is easily verifiable. I think that (somehow) the verification of this answer also verifies the legitimacy of the transaction (someone help me out here). "<br />And I thought I'd done such a good job in that paper I wrote :(<br />The answer produced is a function of the entire transaction record used to produce it. Any modifications to the transaction record will invalidate the answers. So other miners will only accept an answer as a valid solution if they have an identical transaction record.Anonymoushttps://www.blogger.com/profile/03701486643606672348noreply@blogger.comtag:blogger.com,1999:blog-8702840202604739302.post-80249251068663191552014-01-30T19:28:53.824-08:002014-01-30T19:28:53.824-08:00Reproducing the Bitcoin protocol is indeed costles...Reproducing the Bitcoin protocol is indeed costless. Reproducing the integrity of the public record, which is a function of how much CPU power is devoted to mining is not costless. This is the primary first mover advantage of Bitcoin over competing implementationsAnonymoushttps://www.blogger.com/profile/03701486643606672348noreply@blogger.com