I don’t think you understand that there are many countries out there that have different legal systems. I get tired of pointing this out. Anyway, I haven’t yet learnt anything in this thread that I didn’t yet already know.
Most of the exchanges will relax the withdrawal limits significantly if you are a good “verified” customer. I don’t understand this. Are they afraid that “unverified” customers are likely to make a mistake, and then sue the exchange?
When you deposit Bitcoins in an exchange and later withdraw them, do they give you the same bitcoins you deposited? Because of the way bitcoin packets are bundled, it would often be evident if they did NOT return the same bitcoins, right?
I admit that I’m not up to speed on Bitcoin and Blockchain technology but my perception is that Bitcoin just seems like it’s probably one of the greatest scams in world history - next to religion.
Part of the point of bitcoin is that you don’t need a middleman to hold onto your money for you. The only actual role such a middleman holds in the bitcoin economy is that of being someone who can steal from you. There is no reason whatsoever to ever give any bitcoin to anyone to “hold”.
The only reason to ever transfer your bitcoin to someone else is to get something else of value in return (like, say, US dollars). If you transfer your bitcoins to an “exchange”, then they had darned well better PayPal some dollars into your conventional bank account immediately. If they don’t, then they’re just robbing you.
So why are these exchanges so popular? Mine is a serious question — I find these “exchanges” etc. more baffling than the baffling crypto-algorithms themselves!
How are stock shares moved around? If I have 2000 shares of AAPL on NASDAQ, can I transfer those shares to the NYSE? If so, would I expect/demand that the NYSE immediately give me a cash equivalent?
The exchanges are just like a stock exchange, if you have bitcoins that you want to sell or trade for other cryptocurrencies you transfer them to the exchange to facilitate that process.
Exchanges are used to buy/sell bitcoin.
They are a trusted 3rd party who facilitates the transfer between buyer and seller. In order to do that, they hold both the bitcoin and whatever other currency is being exchanged for it, then execute the sale. Then you hope that they’re really trustworthy and you can actually withdraw your bitcoin/dollars.
You can of course buy or sell bitcoin without an exchange, but it’s more time consuming and has other risks. Do you really want to take thousands of dollars in cash to some stranger, then hang around until the Bitcoin transfer is sufficiently confirmed that you’re comfortable that it won’t be undone? (which can easily take an hour or two).
One answer: it’s expensive to make a transaction on the actual bitcoin blockchain.
Bitcoin miners are what keep the blockchain moving forward. When you send bitcoin from one wallet to another, there is an option to include a fee/payment to incentive miners to include your transaction in the current block. Being rational actors, the miners will accept the higher fee transactions before the lower fee transactions. As a result, people willing to pay more to have their transaction clear will be able to transact more quickly. Recently, this has become a big problem and low fee transactions have been stuck in limbo for hours or days at a time. As of right now the average per transaction fee is $37 (worth of bitcoin). That means if you want to send $20 to your friend you’ll pay $57 to get it done relatively quickly. This scaling issue is probably the biggest issue facing the bitcoin community at the moment. There is a ton of debate on the best way to address this moving forward, and some new coins have “forked” off the original bitcoin blockchain in response (e.g. Bitcoin Cash). Currently, the bitcoin blockchain can handle 7 (yes, seven) transactions per second. Visa can handle somewhere in the neighborhood of 24,000 transactions per second. There’s clearly some work to be done before bitcoin will be used to buy your daily cup of coffee.
Trading on an exchange avoids these fees by not making trades on the actual bitcoin blockchain. The exchange is essentially one giant wallet and users have subaccounts. The exchanges have their own internal systems that keep track users’ positions. Only when transferring bitcoins in and out of the exchange are transactions sent to the bitcoin blockchain.
(Note: I consider myself an advanced layman that understands somewhere around 75% of all this bitcoin stuff. Someone more knowledgeable will probably come along and set me straight.)
This is technically true but paints the wrong picture. When you say ‘currently, it can handle…’ and ‘there’s some work to be done’, you imply that there is some engineering difficulty causing the 7 transactions per second, and that people just need to sort out some issues to make it work. But the issue is deeper than that - the limit on transactions is built into bitcoin at a very basic level by design, and is tied directly in with mining and blockchain management. Altering the transaction limit can’t be done by adding a new server somewhere or adding a new network connection, it can only be done by making major changes to the fundamental design of bitcoin, then getting the decentralized community of bitcoin to accept the changes. That’s not a small task, and the process of making such radical changes could very well destroy Bitcoin (I mean, if you’ve got to alter it that much, why not just start a new one?).
It’s pretty obvious that the bitcoin protocol was originally intended to be a proof of concept and not a real-world enterprise. There are fundamental problems like the transaction limit, limited number of coins, and blockchain bulkiness that are no problem at all if you have a few thousand hobbyists playing around with it, but that pose significant problems to the real world.
A more accurate analogy would be that you bought 100 shares of Microsoft on Ameritrade but for whatever reason you want/need to move the record of your holdings to Scottrade to continue trading it.
The fact that every change to Bitcoin is simultaneously an engineering problem, a political problem, and a marketing problem might be the thing that causes it to fail.
I am more than aware of that, in fact I in my own real life work in the finacial sector between multiple different regulatory systems of the multiple different countries and legal traditions.
You are invited to name one instance in the world where the deposit taking of a currency, that is the banking - taking of the deposits from the retail sector and onlending it in the fractional reservce framework is not a regulated activity.
Quite so.
And with no central political governance to speak of there’s no obvious personality to play the role of PM or president to knock heads together. It’s the same story on the engineering front: all Indians and no Chiefs. As frothy as the valuation is, any tweak, no matter how small has the risk of spooking the horses holding up that valuation.
As bad as the other things Angus has been accused of over the years, becoming known as Angus the Bitcoin Blower-Upper would be *real *hard to live down. Several formerly wealthy black marketeers might be looking for your hide to boot.
Thank you, Trom; your posts have clarified a lot. I still don’t understand why an exchange customer needs to be “verified” to get good access to his own money, but I realize PayPal has similar policies.
We’re left with the question of greatest concern: Why didn’t I buy a thousand bitcoins when it was orders of magnitude cheaper than at present? I fully expect bitcoin to get to at least $30,000 before it collapses, but still stubbornly refuse to buy. :smack:
Yes, thanks Trom for both your good posts.
I looked at Riemann’s link to the CME futures. I’m a total noob on futures anything, so not inclined to lay down any money and watch the nice croupier sweep it into his slot. But if I’m reading that page right, all the future dates are trading below the current spot price.
The implication being the overall sentiment is solidly bearish on Bitcoin. How low it goes is an open question; that it’s downward bound seems unanimous. Am I reading that right?
In a funny way, the huge run-up in Bitcoin has had the effect of shining a spotlight on all cryptocurrencies. The second generation ones that lack Bitcoin’s inherent defects may be the ultimate winners in this. First mover advantage can be highly overrated in the medium term.
For those that say that you can’t buy much with cryptocurrency, now there’s CryptoKitties! It’s like someone kept hearing the comparison of Bitcoin to Beanie babies and decided to make a digital equivalent.
Have you opened a banking account this millennium? Financial institutions of all sorts in developed countries have to verify customers that move significant amounts of money under anti-money laundering and anti-terrorism laws are identifiable. In the old days the laws on this were more lax and enforcement was iffy, now the laws are tighter and it’s taken much more seriously. Some exchanges try to dodge these requirements, but they end up being a scam, crashing and burning, or getting caught and forced to follow the laws.
I think any cryptocurrency that doesn’t have a central authority will run into the same problem. If there’s a change that needs to be made, there’s no single person or committee who can say ‘OK, we’re going to make this change to the protocol to allow more than 7 transactions per second’. So if something needs to happen, you have to work it out on a technical level, then convince all of the ‘backbone’ people (miners and exchanges for bitcoin) and all of the end users to accept it. If you don’t convince a significant majority (not just 51%), then you run the risk that people won’t accept it and refuse to adopt the change, which splits the currency and likely crashes it badly.
I don’t see how you can get around the problem without abandoning the lack of a central authority. And bitcoin was not a well-tested application started with years of real-world experience, it was a proof-of-concept that someone decided to run with, that then ran out of control, so there are a lot of significant changes that it really needs.
Updating this thread from a year ago the OP was correct:
I started playing around with mining on a spare desktop about a year back. Strictly for fun, I knew even if bitcoin prices remained stable (and they’d actually settled around 6,000 for a while) it wouldn’t really make a profit.
It’s a baseless concept. with no intrinsic value or any organization behind it. I think it’s insane that the price went as high as it did. Hell, I think it’s insane to be priced at 3,800+ (the value when I checked just now).
Ethereum is actually used for some commercial blockchain purposes (NOT for transferring money - but the calculations are used as part of the verification process) so I would have thought it might have maintained its value better but apparently not.
As I joked recently, for a while there I could have bought 2 drinks at Starbucks with my mined Bitcoin fortune. Now, only 1… and if it keeps dropping that barista ain’t getting a tip.