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Ben X

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Ben X   

I just saw an online organisation asking for donations specifically in bitcoin, and it made me realise that I don't really understand how this thing works.

 

So, it's a digital currency, right? It's essentially like transferring money to your Paypal account but with a different exchange rate. Is it safe? Easy? Ethically sound?

 

Also, it seems like there's a social stigma attached to it. Is it because it's so nerdy and annabe-cyberpunk, or is there some kind of alt-right/MRA/similar association?

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clyde   

From what I gather it is untraceable transfers of currency guarenteed by a network that shares information that the exchange took place. There are a lot of details that follow the inherencies of that.

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James   

I've never used Bitcoin myself, but cryptocurrencies are pretty interesting, so here's my half-remembered summary of how it all works:

 

The whole idea behind Bitcoin is that it's decentralised and anonymous. The technical details of how this is achieved are a bit complicated, but broadly speaking it's an ongoing ledger of transactions (a "blockchain"), and it relies on consensus to ensure nobody fiddles the system (you would have to manipulate over 50% of the devices running it in order to give yourself more bitcoins than you have, which would essentially be impossible). It all uses a similar encryption scheme to how you connect to secure (https://) websites, hence "cryptocurrency".

 

New bitcoins are introduced into the system by "mining", which is basically making computers look for special numbers ("hashes"). The return on this diminishes over time, so it's gotten to the point where miners form pools and divide their earnings, and you have to be careful that you're not spending more on the electricity and hardware required to mine bitcoins than those bitcoins are actually worth. It's very computationally intensive, and has no value other than being an arbitrary way of introducing money into the system, which I think is pretty wasteful and feel a bit weird about.

EDIT: I'm refreshing my memory by re-watching the videos I posted, and I should point out that the work done isn't pointless; it's required for how one block in the blockchain connects to the next. Nevertheless, it still doesn't seem very efficient, particularly given that it's competitive. I don't know if there's any way around that – whether perhaps it could piggyback on some other more useful distributed computing effort. Due to the nature of hashes, probably not. Still, hopefully cleverer minds than mine are thinking about it.

 

You don't have a Bitcoin account as such. You have a wallet, which despite its name isn't exactly a container for your money. Instead, it's more like your credentials. It allows you to point to certain transactions in the blockchain and say "that was me", and from there work out how much money you have. But, if I'm not mistaken, the wallet itself doesn't actually change. It's just a public key/private key pair: people use the public key when transferring you money, and you use the private key to prove you are who you are and the money you've been transferred is yours to spend. If you lose your private key, you lose access to your money. There's no authority to turn to who can retrieve it for you; the key is the identity. In fact, if you lose your private key, not only is the money lost to you; it's lost to the whole system. There's no way of ever getting it back. So it's important to have it secure, both from loss and from theft. So I guess you should have it in several places, but all of them encrypted.

 

(There is wallet software that I believe will manage a lot of this stuff for you.)

 

As for the social stigma, I think there's probably at least a couple of reasons. Firstly, the anonymity aspect is obviously attractive to criminals. There's an impression that it's only really used to buy drugs and worse. That's not accurate – it's used for legitimate transactions, too – but I believe a disproportionate amount of cryptocurrency transactions are illicit. Secondly, the anonymity and decentralisation is also appealing to libertarians, and they're pretty insufferable. Thirdly, the technological aspect is appealing to Silicon Valley technology-utopian blue-sky-thinking disruptors or whatever you want to call them, who are also pretty insufferable. And maybe fourthly it might be associated with a certain amount of paranoia – if you're worried about the government spying on your spending habits, cryptocurrencies are an obvious way to go. Perhaps some people look down on those kinds of fears.

 

Oh, and the value can be kind of all over the place. I think it did gain an awful lot of value a few years ago, which I don't think it's complete lost, but if I'm not mistaken it's kind of volatile.

 

Here are some videos that explain it better than I can:

 

 

 

 

An interesting detail about bitcoin mining is that it's the kind of operation that benefits from matrix operations. That's the kind of processing that graphics cards specialise in, so mining rigs often use a lot of graphics cards, running 24/7, to try to find the hashes. I understand this wears the graphics cards out fairly quickly, contributing another expense besides the electricity. Also it's apparently led to shortages of graphics cards, although this problem may subside now that they're starting to introduce cards specifically designed for cryptocurrency mining.

 

Also, the anonymity angle is a bit complicated. If you're able to associate a public key with a person (which I guess you would be able to do if you ever knowingly transferred them money), I think you can go back through the blockchain and find all the transactions involving that person. So maybe it's less anonymous than traditional money? I'm not sure.

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Ben X   

Thanks for that, very instructive! I think it's the anonymity aspect that I hadn't really clocked and is the key to understanding a lot about it. Seems like far too much bother, especially as it wouldn't provide me with any tangible benefits.

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aoanla   
15 minutes ago, James said:

I've never used Bitcoin myself, but cryptocurrencies are pretty interesting, so here's my half-remembered summary of how it all works:

 

I actually own like 0.01 of a bitcoin (and some other cryptocurrencies), so let me reply to this. You're mostly right though!

 

15 minutes ago, James said:

The whole idea behind Bitcoin is that it's decentralised and anonymous. The technical details of how this is achieved are a bit complicated, but broadly speaking it's an ongoing ledger of transactions (a "blockchain"), and it relies on consensus to ensure nobody fiddles the system (you would have to manipulate over 50% of the devices running it in order to give yourself more bitcoins than you have, which would essentially be impossible). It all uses a similar encryption scheme to how you connect to secure (https://) websites, hence "cryptocurrency".

 

(Sort of: there's multiple cryptos in the crypto currency - there's the security of the blockchain (which relies on each "block" in the chain holding a crypto-secure hash of the previous block, so you'd need to modify all the blocks in the chain *after* the block you wanted to spoof if you wanted to try) )

 

15 minutes ago, James said:

 

New bitcoins are introduced into the system by "mining", which is basically making computers look for special numbers ("hashes"). The return on this diminishes over time, so it's gotten to the point where miners form pools and divide their earnings, and you have to be careful that you're not spending more on the electricity and hardware required to mine bitcoins than those bitcoins are actually worth. It's very computationally intensive, and has no value other than being an arbitrary way of introducing money into the system, which I think is pretty wasteful and feel a bit weird about.

 

Strictly: Bitcoin uses a "Proof of Work" system for mining, there's other mechanisms.

What "mining" *actually* is is the process of establishing that consensus about the blockchain - the mining nodes are the nodes which agree on which transactions happened, and calculate the hash of the previous block to enforce that. The need to solve a difficult math problem as part of this is actually there to make the blockchain secure - the idea is that it should be hard enough to make a block that anyone wanting to fake a transaction history would need to do all the work of recalculating the blocks after that - and will never catch up with the "current" block because the miners will have moved on since then.

 

15 minutes ago, James said:

 

You don't have a Bitcoin account as such. You have a wallet, which despite its name isn't exactly a container for your money. Instead, it's more like your credentials. It allows you to point to certain transactions in the blockchain and say "that was me", and from there work out how much money you have. But, if I'm not mistaken, the wallet itself doesn't actually change. It's just a public key/private key pair: people use the public key when transferring you money, and you use the private key to prove you are who you are and the money you've been transferred is yours to spend. If you lose your private key, you lose access to your money. There's no authority to turn to who can retrieve it for you; the key is the identity. In fact, if you lose your private key, not only is the money lost to you; it's lost to the whole system. There's no way of ever getting it back. So it's important to have it secure, both from loss and from theft. So I guess you should have it in several places, but all of them encrypted.

 

The wallet contains multiple addresses potentially (each of which is a public / private  keypair).  As you mention later, Bitcoin is a pseudonymous currency, not an anonymous one - everyone can see what a given address has transacted, and thus calculate its balance, but they can't tell who owns a given address unless you tell them. 

It's considered good practice to use more than one address in order to make your presence "fuzzier".

(There are genuinely anonymous cryptocurrencies - such as Monero - which essentially record "a thing you can use to prove you have the money, but isn't your address" for a given transaction. Monero has a much worse reputation than Bitcoin, because obviously anonymous is preferred over pseudonymous for a lot of bad actors as well as privacy freaks.)

 

15 minutes ago, James said:

 

(There is wallet software that I believe will manage a lot of this stuff for you.)

 

As for the social stigma, I think there's probably at least a couple of reasons. Firstly, the anonymity aspect is obviously attractive to criminals. There's an impression that it's only really used to buy drugs and worse. That's not accurate – it's used for legitimate transactions, too – but I believe a disproportionate amount of cryptocurrency transactions are illicit. Secondly, the anonymity and decentralisation is also appealing to libertarians, and they're pretty insufferable. Thirdly, the technological aspect is appealing to Silicon Valley technology-utopian blue-sky-thinking disruptors or whatever you want to call them, who are also pretty insufferable. And maybe fourthly it might be associated with a certain amount of paranoia – if you're worried about the government spying on your spending habits, cryptocurrencies are an obvious way to go. Perhaps some people look down on those kinds of fears.

 

Oh, and the value can be kind of all over the place. I think it did gain an awful lot of value a few years ago, which I don't think it's complete lost, but if I'm not mistaken it's kind of volatile.

 

Bitcoin is particularly volatile at this very moment, as the blockchain has currently "forked" - a small subset of the miners decided to disagree on the majority consensus and build their own chain, due to a disagreement about some feature changes. The "main bitcoin" (trades as BCT, generally called Bitcoin or Bitcoin Core) and the forked coin (BCC, "Bitcoin Cash") have been engaging in wild swings of value, especially from BCC (which has changed value by an order of magnitude repeatedly in the past week since it existed).

 

15 minutes ago, James said:

An interesting detail about bitcoin mining is that it's the kind of operation that benefits from matrix operations. That's the kind of processing that graphics cards specialise in, so mining rigs often use a lot of graphics cards, running 24/7, to try to find the hashes. I understand this wears the graphics cards out fairly quickly, contributing another expense besides the electricity. Also it's apparently led to shortages of graphics cards, although this problem may subside now that they're starting to introduce cards specifically designed for cryptocurrency mining.

 

Interestingly, a lot of post-bitcoin cryptocurrencies accept this as a problem, and advertise themselves as "ASIC-resistant" or "GPU-resistant" if the mining PoW they use is designed to not do well on custom hardware or GPUs. (And then there's the non-PoW coins, which don't use PoW at all.)

 

15 minutes ago, James said:

 

Also, the anonymity angle is a bit complicated. If you're able to associate a public key with a person (which I guess you would be able to do if you ever knowingly transferred them money), I think you can go back through the blockchain and find all the transactions involving that person. So maybe it's less anonymous than traditional money? I'm not sure.

It's less anonymous than cash (for which you'd want Monero as your altcoin), but more anonymous than a bank account, I think.

 

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James   

Thanks for that @aoanla. I've edited my post several times as I've identified errors, but I don't think I have the kind of mind that can hold all of this sort of thing in it all at once.

 

So how does this fork work? Is all of the money preceding the fork duplicated across them? If I had 1 BCT before the fork, do I now have 1 BCT and 1 BCC? And do we expect the fork to collapse? Also, what does the miners starting their own chain entail? Do they just tell their software not to accept blockchains from certain addresses or something? Are vendors and standard users having to choose which to use? Can you select a particular chain to use?

 

Speaking of resolving conflicts, I understand that usually what happens is the longest chain wins out, and the transactions in the shorter chain are rolled back. Wouldn't this mean that people are essentially "refunded" for transactions that have already been completed (for example, goods have changed hands)? Or is there a delay on transactions to ensure that there is no conflict, somehow?

 

Oh, and a completely different note, is there any endgame for the ever-growing size of the blockchain, or is the idea that technology outpaces it? I know that you don't need the whole blockchain on client devices, but presumably it will still eventually become a problem?

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aoanla   
5 minutes ago, James said:

Thanks for that @aoanla. I've edited my post several times as I've identified errors, but I don't think I have the kind of mind that can hold all of this sort of thing in it all at once.

 

So how does this fork work? Is all of the money preceding the fork duplicated across them? If I had 1 BCT before the fork, do I now have 1 BCT and 1 BCC? And do we expect the fork to collapse? Also, what does the miners starting their own chain entail? Do they just tell their software not to accept blockchains from certain addresses or something? Are vendors and standard users having to choose which to use? Can you select a particular chain to use?

 

So, splitting this up into bits:

"Does everyone with 1BCT now have a free BCC too?" yes. This is one reason for the volatility in BCC, as all the people who just wanted/believed in BCT immediately sold off their "free" BCC for "cheap profit", causing mass devaluation (and meanwhile, BCC supporters tried buying up BCC for more money to try to raise the price to make a point...)

"How do we start a chain and why?" Essentially, the details of how bitcoin works (things like the maximum size of a block) are also a matter of consensus, and are signalled in the blocks as well. It was decided that a particular block would represent the turning on of a particular feature (called SegWit), which the minority minors disliked - SegWit is intended to reduce the size of blocks by recording less information about transactions, and hence "speed up" bitcoin, whilst the minority preferred letting blocks get "bigger" (which also speeds up bitcoin, as a block can hold more transactions if it's bigger, but takes the same time for miners to hash). 

The minority miners simply elected to "recognise" a different version of that special block, and their chain splits off from that point - it shares history up to that point.

(You can get a bitcoin client to work on either chain, by letting it know which version of the chain you want to treat as "true")

"Will the fork die?" We don't know. BCC proponents argue that their decision was the better decision, and their bitcoin will "win out" over the original by being more efficient - obviously the BTC guys disagree. Essentially, you're still a functional coin as long as you have enough miners to establish consensus and hash new blocks, so the "dominant" bitcoin is the one with the most miners. It seems most likely that both bitcoins will survive for the foreseeable future, though, as they both have die-hards in their miner pools.

"Do vendors have to decide?" Technically, yes - but as you note below, the longest chain is by default the "bitcoin", and that's BCT by several hundred blocks at the moment. (BCC, being a minority fork, took much longer to mine blocks after the split, until the internal "difficulty adjustment" adjusted to the much smaller pool of miners available.) Most software will use BCT if you don't do anything special.

 

5 minutes ago, James said:

 

Speaking of resolving conflicts, I understand that usually what happens is the longest chain wins out, and the transactions in the shorter chain are rolled back. Wouldn't this mean that people are essentially "refunded" for transactions that have already been completed (for example, goods have changed hands)? Or is there a delay on transactions to ensure that there is no conflict, somehow?

 

Yes... but generally software using Bitcoin will wait until a certain number of miners have signalled that they accept the transaction as valid before accepting that it happened, which avoids this being an issue in practice. (This takes several minutes usually - or many hours for BCC after the fork! - which is one of the issues with Bitcoin that the BCT guys are trying to fix.)

 

5 minutes ago, James said:

 

Oh, and a completely different note, is there any endgame for the ever-growing size of the blockchain, or is the idea that technology outpaces it? I know that you don't need the whole blockchain on client devices, but presumably it will still eventually become a problem?

Yes - miners need to have the whole block chain, and it grows by hundreds of megs a week. The reason why BCT guys didn't make the blocks bigger - like BCC does - is precisely because they're worried about the future blockchain getting so huge that it can't be stored anywhere!

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aoanla   

Oh, and calling back to that "isn't Proof of Work wasteful?" question, I should note that some of the earliest "post-bitcoin" cryptocurrencies (generally called "altcoins" by people in the community) were precisely sold on doing "useful work" in the PoW step. Primecoin, for example, uses a large primes search, and therefore contributes by discovering large prime numbers.

 

Primecoin is also not worth much at the moment, sadly.

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James   

Fascinating stuff, thanks. The stuff about encoding other operational information into blocks was new to me, and explains a lot – I'd long wondered how changes were introduced. Relying on the same consensus mechanism for that kind of meta information is smart. So is there some sort of committee of miners that decides to simultaneously introduce these changes to a block at a certain time? Do miners have to monitor blocks for unannounced rule changes? Presumably they're fairly simple to identify.

 

That altcoin stuff is interesting, too. I think I'd heard a little about it. It's certainly preferable, but is it all pure mathematics kind of stuff? I'm presuming it is, because that's the most fertile ground for one-way operations, where the work is difficult but checking it is easy (finding a new prime is laborious, but checking a single proposed prime for factors can be done relatively quickly). I'm no sort of expert, but I don't suppose things like protein folding have the same kind of asymmetrical effort relationship.

 

Sorry for all the questions. This stuff is just so ingenious.

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The way bitcoin works is, you write down a bunch of numbers on a slip of paper and take it to a group of old wise men on a mountain. They tell you either that it's worthless or that it's worth money. Usually they says it's worthless, so you throw out the slip of paper and make a new one, but sometimes they tell you it's cash. Every once in a while the old men get angry at each other and split up and then you have to decide which mountain to climb, because now the men on each mountain disagree about which slips of paper are worth money.

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5 hours ago, Ben X said:

I just saw an online organisation asking for donations specifically in bitcoin, and it made me realise that I don't really understand how this thing works.

 

So, it's a digital currency, right? It's essentially like transferring money to your Paypal account but with a different exchange rate. Is it safe? Easy? Ethically sound?

 

Also, it seems like there's a social stigma attached to it. Is it because it's so nerdy and annabe-cyberpunk, or is there some kind of alt-right/MRA/similar association?

 

Is it safe? Lol, no.

 

Easy? Lol, no.

 

Ethically sound? Ever heard of silk road? Lol, no.

 

The head of the Mt Gox bitcoin exchange is currently on trial for embezzlement after it "lost" 850,000 bitcoins and millions of dollars a few years ago.

 

The questions you didn't ask though - Is it instructive? Is it fucking hilarious?

 

Those are both Lol, yes. Bitcoins have taught thousands of libertarian nerds how dangerous and volatile currency speculation is, and also why we have banks. It was conceived as an idea about replacement of state currency but the only way it works is attaching a currency value to it, so as it exists presently it's nothing more than a digital commodity. When someone's a sneaky snake and either makes a dubious transaction or takes your precious bits in a way that is completely legal but wouldn't be if they were dollars, it's very exciting to see a bunch of sovereign state knuckleheads yell and scream that the government needs to get involved to regulate the market.

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clyde   

I went to a local fair and talked to someone who was representing the local timebank. The concepts share a lot of commonalities but I don't get the impression that the timebank attracts the same level of feverish predatory speculation.

 

Btw if crytocurrency interests y'all you should totally watch Justin Timberlake's movie In Time , not because it is masterfully executed (it is not).

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James   

Here's a pretty interesting insight into a large Chinese bitcoin mining operation:

 

 

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eRonin   

I own 0.053 bitcoin, having gotten my start in dogecoin before deciding to convert most of my dogecoin to bitcoin when I realised the amount of dogecoin I owned was no longer a trivial amount after it surged in price. I plan to use it for things like Steam game purchases since I don't know any other marketplace I trust that accepts bitcoin; but for now my bank is offering 10% cash-back on gaming purchases so I've been using my bank debit card instead. I don't fully know exactly how bitcoin works behind the curtains but as long as platforms like Steam accepts it as payment, I'll consider my crypto investment sound. For the record I dropped about AUD$50 into dogecoin a couple of years ago and ignored it for a while. After making some purchases with both to test things out, I'm still sitting on about AUD$250 worth of bitcoin/dogecoin.

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eRonin   

Dogecoin got big because doge was a real big meme at the time, and then folks with a lot of dogecoin leveraged the recognition of doge for some high-profile projects like helping fund the Jamaican Bobsled team for the winter Olympics and sponsoring a NASCAR driver. Dogedriver (Josh Wise) gained a following large enough that he eventually was voted into an All-Star race, which is a big deal for someone who was without a sponsor and wasn't placing very well in races. Several huge disasters in the dogecoin space led me to decide that despite its resurgance in price, it wasn't prudent of me to keep my dogecoin and decided to convert it to bitcoin, since I found a service that allowed me to do so easily. Converting my current bitcoin into fiat is a little more difficult, so I plan to spend it in the Steam store and maybe other places.

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There are two main things making bitcoin an ethical and environmental disaster:

 - The fact that there's a limited amount of BTC that will ever exist (the rate of new ones being 'mined' is decreasing by design) makes the currency inherently deflationary, meaning the rich will only ever get richer. The world is already in enough inequality trouble with mostly inflationary currencies.

 - The power used by the network is already at the level of a small country and will only increase due to the increase in size of the blockchain and associated computing requirements.

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