The $100k is not linked to W1234 in the register. The only thing in the register is 5 coins were taken from one wallet and put into another. There’s is nothing in the register about the money or whatever caused those 5 coins to transfer. However, if the transfer of the 5 coins was done through a coin exchange, like Coinstar, the exchange itself may keep a record of all the transactions and who the people are behind the transactions. If the authorities get access to the exchange’s logs, then they can see that Pat transferred 5 coins to Joe because the exchange knows that W1234 is Pat and W4567 is Joe. And they know that the value of 5 coins on that date was $100k, so they know that essentially $100k of value was transferred from Pat to Joe.
The first bitcoin transaction was supposedly when someone offered 10k bitcoins to whoever delivered a pizza to his house. He may have done it on a public message board. Someone took him up on it and got 10k coins for delivering a pizza (this was back when the coins were essentially worthless). The register will only show that 10k coins went from one wallet to another. It won’t say why that was done. The “10k coins for a pizza” is just an agreement between two individuals and is not recorded in the blockchain anywhere.
There’s no record of why a transaction was made, but then, that’s also true of most other mediums of exchange. But there is a record, completely publicly accessible, of every transaction between every wallet, and if even a small fraction of the users of the cryptocurrency are sloppy about how they use it, that transaction record can reveal a huge wealth of information. Let’s say that the police nab some small-time drug dealer, and find out from him what wallets he’s been using to transfer money to his supplier. They can then see from the blockchain what wallet the small-timer has been transferring them into, and where the money is going from that wallet. Those payments might go to some other criminal, but eventually, someone’s going to use the money to buy something legitimate. Maybe the Big Boss criminal buys some expensive luxury item: The luxury company is completely legitimate, and willing to cooperate with law enforcement, and they say to the police “Yes, that’s our wallet that the funds were transferred into, and that transaction was used to buy a fur coat, that we shipped to this address”. Now you have an address for a guy who’s been getting upstream payments from drug dealers, and whoever lives there is going to have to explain that.
As for the backing of a currency, one big difference is that nobody ever prices anything in crypto. Lots of places will accept crypto, but the prices are always in dollars or some other conventional currency. Like, Subway was one of the earlier adopters: I can go into a Subway and pay $8 for a footlong sandwich. If I go tomorrow, or next week, or next month, it’ll probably still be $8 for that same sandwich. The price might go up (or even down), but it’s probably not going to change very often. All of which means that, in part, Subway sandwiches are part of the backing of the US dollar: The Sandwich Standard says that a dollar is 1/8 the cost of a footlong sandwich. And likewise for all of the other businesses with prices they don’t change very often listed in dollars, which is almost all of them.
Alternately, I can go to Subway and buy a sandwich with Bitcoin. But the price isn’t such-and-such many coins; it’s “$8 worth of bitcoins”, whatever that is. If the value of a bitcoin falls by 50% tomorrow, then when I go back to Subway tomorrow, my sandwich will cost twice as many bitcoins. So even though Subway takes payments in Bitcoin, them doing so doesn’t do anything at all to stabilize the value of Bitcoin.
Let’s say I want to buy $100k worth of quatloocoins. I need to get $100k out of the bank and in the hands of someone who already has QCs. There needs to be some sort of link between my money and this wallet, or the guy I’m giving the money to in exchange for his coins. I’m agreed that if things stay entirely in the register, everyone is just anonymously trading coins, but once you leave the trading coin space, there has to be a link to the real world.
I don’t “have trouble” understanding what cryptocurrency is and is not; my point is that from a regulatory standpoint cryptocurrency isn’t well defined and thus subject to differing views of how to treat it legally. And this is kind of the point of crypto ‘bros’ who want a currency-like concept that cannot be regulated by a national authority. Which is great in the world of libertarian economics until you come to the reality that ‘crypto’ is being used to bankroll terrorism, or as a means of ‘untraceable’ ransom exchange, or is being driven by specially informed speculators against the interest of the investing public at large. Nobody wants regulation until it turns out that unregulated activities affect you, and next thing you know they are running for president of the home owners association and mandating that everyone paint their front door the same shade of off-white to prevent the neighbors from coloring their doors and trim in a truly horrifying shade of fluorescent puce.
It is already happening:
Cryptocurrencies take more and more energy the longer the blockchain becomes, and any cryptocurrency that doesn’t periodically rebaseline is eventually going to consume more energy than its recognized value is worth, even with greater efficiencies and less competition in processing. At that point, what becomes of a currency that isn’t worth anyone processing transaction because the value of energy it consumes to process is more than the value of the transaction?
Of course, you find people saying that this is a good thing in that awareness of the issue is stimulating a shift toward higher efficiency and renewable energy for blockchain mining. To the extent that this is even true, it still doesn’t obviate the fact that all of this energy is being spent to process the blockchain operations and the only tangible benefit is a verifiable, decentralized pseudo-currency that, at least so far, isn’t actually a replacement for national fiat currencies but is instead just a way around direct currency transactions and/or another market for errant speculation. It’s like adding additional layers of meringue on top of lemon pie; it doesn’t make the pie filling sweeter or the crust crispier, and once you’ve gotten so much of it you just scrape the rest off and leave it on the side of your plate where is slowly collapses into a gooey mess.
This makes far too much sense. Real fiscal policy is not nearly this sensible.
This is fundamentally where the “Crypto will rule the world!” claims break down. You can speculate and trade in cryptocurrencies all you like, and you can even buy a Tesla, or a house from some sucker, but you can’t pay taxes with it or buy groceries or any number of ordinary transactions that you can with fiat currency (and that sellers and utilities and so forth are legally required to accept). Unless you are of the belief that entire national economies are going to collapse—in which case you have bigger problems than currency fluctuations—fiat currencies are going to remain the primary medium that businesses will use for exchange with customers and each other, especially if the valuation of Bitcoin or other ‘cryptos’ fluctuates so wildly from day to day that they cannot make financial projections based upon it. You see people bitching about a few percentage points of inflation and the effect upon the value of the cash in their pockets and the balance in their bank account but what happens when your entire liquidity vacillates tens of percentage points several times a day? There is a reason we don’t use specie or pay bills with porkbellies; because a regulated national currency allows for a constancy in purchasing power such that you don’t have to recalculate whether you can afford to buy a cart of groceries based upon the S&P index every day.
At the point at which you convert from a cryptocurrency to an actual currency that governments recognize and normal businesses accept, any supposed benefit of anonymity of lost. In theory an exchange could provide some kind of security but restricted way of converting crypto to real currency without all that troublesome government oversight, and that is exactly what you got with FTX and Sam Bankman-Fried; a scammy motherfucker playing with other peoples’ money to his own ends. Of course, that isn’t limited to cryptocurrencies; the entire banking industry has essentially been doing that since the repeal of Glass-Steagall and the Financial Services Modernization Act, and you can at least say that the government isn’t going to be bailing out anyone for their cryptocurrency losses (unless, of course, it is JP Morgan Chase). But the idea that cryptocurrency is somehow going to save investors from a collapse of the US or worldwide financial system like like thinking that “Duck and Cover” will save you from a global thermonuclear exchange.
When people originally talked about cryptocurrency in the 1980s (except IIRC nobody was using that word—they were talking about digital cash, electronic money, electronic/online payments, e-commerce, etc.), there were many genuinely useful applications in mind, like zero-transaction-cost instant payments over the Internet, smart cards that act as e-wallets that let you pay for the bus just as well as at vending machines or restaurants and shops, etc., all (potentially) untraceable, or at least difficult to trace and/or protecting the users’ privacy, in the same sense as physical banknotes and coins. Nothing weird, scammy, or criminal.
In fact even central banks have (much later on…) talked about and held conferences about topics like the “Digital Euro” (“A digital euro would offer an electronic means of payment that anyone could use in the euro area. It would be secure and user-friendly, like cash is today. As central bank money issued by the ECB, it would be different from “private money”, but you could also use a card or a phone app to pay with digital euro.”)
Those systems were/are all tied to the conventional financial system, though, denominated in dollars or euros or whatever. And it’s basically come to pass via pay-by-phone, etc. The modern use of cryptocurrency refers specifically to blockchain systems where the fundamental unit of currency is not tied to any conventional system.
A totally anonymous digital cash card probably just isn’t possible. It’s not clear what it would even mean. You can’t just store “digital dollars” on a card. There has to be some centrally accessible record of it. That’s the problem the blockchain solved: a central transaction repository without requiring a single trusted authority.
In many cases they were—certainly that is what the national and central banks are doing with the technology—but there is no technical reason why you couldn’t implement cryptographically secure Merkwürdigbucks and use them for micropayments in your closed ecosystem without them being tied to any conventional currency.
It’s true that the earlier proposals relied on a single trusted authority to keep a database of all the validly issued coins (rather than a distributed consensus authority). That is, you withdrew digital coins from your bank. You did get “digital dollars” (using a blind signature scheme) that could be stored on a card, though. When the merchant validates the transaction, the individual coins are not supposed to be able to be traced back to you.
I said when I first heard about Bitcoin that it was a bubble. I knew when I saw crypto ads during the Superbowl that the bubble was close to bursting. Years ago, during the Beanie Baby bubble (say that three times fast) I bought a Beanie Baby bat. I tore off the tag and mounted the bat on the ceiling. A friend told me I was crazy. I said ‘In five years those Beanies won’t be worth $5 each.’ I was right.
Cryptocurrency is just tulip bulbs and Beanie Babies in a new form.
I don’t even like the ideas of NFTs. Too many of them are the work of artists that have posted images online and someone else “turns it into an NFT” (what do they do, sprinkle it with Magic Crypto Dust?) and sells it.
NFTs take all of the drawbacks of cryptocurrency, but with the benefits carefully removed. They can’t be used as a medium of exchange, they require a centralized authority, they’re insecure…
What’s incredible is that that would have been true even had NFTs been implemented decently. But they weren’t–they were implemented in about the stupidest way imaginable–so they’re even worse than you make them sound.
This is your key point. I’m not watching a 30 minute video that just reiterates what we all know - crypto uses a lot of power today. Where in the video does it make this particular point that crypto will inevitably use more energy than its value? And does that thesis make sense?
At that point, what becomes of a currency that isn’t worth anyone processing transaction because the value of energy it consumes to process is more than the value of the transaction?
I don’t know. I suspect that the answer is that the value of the currency continues to drop until people stop using it. Then people stop putting energy into sustaining the network both because the network has less to do and because there are fewer people to try to outrace to get whatever scraps are left to get. But if I understand you right, you disagree.
It’s not true, though. Blockchain-based currencies don’t take more energy the longer they get. In fact, that’s the whole point of them being block based–you only ever have to worry about the most recent block. The integrity of previous blocks is already handled by virtue of new blocks containing a hash of all previous blocks.
There is an indirect relationship, in that Bitcoin and others artificially increase the difficulty of mining over time so as to keep up with advances in both hardware speed and the number of miners, as well as to limit the total number of coins. But it has no direct relationship with the length of the blockchain. It is continuously “re-baselined,” to use the same language.
Because the relationship is artificial, if the cost of processing records ever exceeds the value, it can be brought down in line again.
The fact that it is an energy hog is intentional–in fact a requirement for the whole thing to work. But it’s not required that the energy costs eventually exceed the value of the currency.
Technical question. Is this an energy intensive process that grows longer as the number of previous blocks grows? I’m assuming here that creating a new block involves reading all the old blocks to make the hash, or do I only have to read the last hash to do that?
What does grow constantly as the system stays in existence is the entire history of the blockchain, which anyone that wants to be a miner must download and integrate into their mining program in order to be able to validate that the wallet sending money in each transaction has enough in it. This is fairly trivial to check compared to doing the hashes looking for a magic block that can be added to the chain, but in theory the history could grow at a faster rate than available storage space technology, which would eventually make it a potential issue. How close we are to that being an issue I have absolutely no clue about.
You only need the hash of the most recent block that you’re trying to add on from. The rest are just necessary for the ledger function.
Only in the sense that it typically becomes harder to get a good hash as time progresses as processing power and the number of miners increase. The latter can fall though, so it’s possible that the price to mine can fall as well, and presumably will if the market value goes low enough to dissuade enough miners from continuing.
As glowacks said, you only need the last block. That last block already contains a hash of all previous blocks, and has already been validated via previous effort. There’s no need to repeat that part.
The artificial difficulty comes from requiring a hash value that starts with so many zeroes. Normally, a hash will appear random (it’s not random of course, but it’s designed to have similar characteristics). But if you keep tweaking the input, you can eventually get a value that meets some criteria. If you demand that (in decimal) the hash starts with one zero, then statistically it’ll take about 10 tries to get that. If you demand 10 zeroes, it’ll take 10,000,000,000 tries. And so on. You can make the calculation as hard as you like by increasing the number of zeroes you demand.
