So you trust the blockchain to your app maker’s cloud (which you can afford to do, because there are many other entities with their own copies of the blockchain to keep them honest), but keep your own wallet on your own device. An individual wallet doesn’t need to store the entire blockchain; in fact, it takes quite a small amount of data, small enough that you can easily print it out on a piece of paper.
Agreed (all you need to keep secure is the device you use to digitally sign your transactions). But you are saying the existing smartphone apps do not do that, or are all broken, or…?
The original concept was for it to be a currency. Then a funny thing happened.
To make more bitcoin (and I suppose the other flavors too) you must “mine” the coins. Unlike a government-backed currency, there is no central bank that just decides to mint more coins. As you probably know, mining coins is a matter of massive number crunching until you solve a complicated math problem and find one. For bitcoin there is a fixed finite number of coins possible, and the more that are found, the harder it is to find more.
So the rise in demand exceeded the flow of new supply, presumably because there are a whole lot of people out there who want virtually untraceable transactions, or possibly a handful more who are just anti-government. This caused the exchange rate to climb, and that’s when it became ripe for speculators to treat it as an investment.
Pretty sure he is saying he can use Venmo to transfer regular currencies via Venmo, so what’s the point of Bitcoin, which is much more cumbersome. Which is more-or-less agreeing with you.
Yes, criminal activity is the big *use *for Bitcoin. However, investing now, in a extremely volatile market, is what moves most Bitcoin.
Venmo transactions are not untraceable.
Neither are Bitcoin transactions. Bitcoin transactions are 100% traceable, that’s the whole point of blockchain.
I know that blockchain transactions are all recorded, but can the transaction be mapped to a real person? I thought it was quite easy to remain anonymous.
If I am mistaken, then why is it so popular for illegal transactions? I got an extortion email with a bitcoin account number in it. Can’t they just go arrest him?
No, that was not my point, but obviously I didn’t explain very well.
My point was to offer an alternate to this statement
Cash and debit cards are simple. Venmo is another simple thing. Behind the scenes, whatever Venmo is doing is quite complicated. They’re doing some ACH transfers, probably, but also have some fraud detection and… other stuff. I don’t know. The point is you don’t need to be a banking expert to use it.
Imagine if there was a Venmo-like app for Bitcoin. It was simple and easy and all you had to do was pull out your phone and transfer the bitcoin and voila. Well, then you wouldn’t need any degree of computer literacy and computer equipment beyond the phone that almost everyone carries. A few years ago, I think it was a not totally unreasonable assumption that someone would build that for Bitcoin, and that we might use it in the future to easily transfer money. For a variety of reasons, that didn’t happen.
There’s not generally a known mapping between bitcoin accounts and people.
Bitcoin is 100% traceable from account to account, but the accounts are all numbered, and finding out what human has access to a given account is sometimes a hard problem requiring lots of investigation.
It’s an uncrackable problem if everyone using Bitcoin used it perfectly, with the intent of being untraceable. But almost nobody does that, and it takes very few leaks to be able to reconstruct a lot of information. Those ransomers who get paid in bitcoins will in turn spend those bitcoins. They’ll either spend them at legitimate businesses, or with other criminals. If it’s legitimate businesses, then the police can go to them and ask things like “When a customer spent money with you out of this wallet, what did they buy? If it was ordered for delivery, where did you deliver it to?” and so on. If it was with other criminals, then you look at where they spent it, and repeat the process.
So why do criminals like bitcoin so much? In short, because a lot of criminals are stupid.
My pet conspiracy theory is that Bitcoin was invented by the FBI, NSA, or some other government agency, for the specific purpose of fooling criminals into using it to make them easier to track.
Anybody can create an anonymous bitcoin wallet on their own computer, but at that point all you have is bitcoins that can be transferred elsewhere. Eventually most people will either want to buy or sell dollars. The legitimate endpoints that do that are usually traceable (by law, depending on the country).
Gonna be careful about board rules here, but it’s not hard to launder your own bitcoin, and there are even services that to it for you, not dissimilar to how it’s done with fiat currencies. Large and midlevel criminals typically do this, sometimes their protection is enough to insulate retail buyers from the consequences, but retail buyers typically don’t even do the tiniest bit of protection. They think they’re benefitting from cryptographic protection but really it’s just safety in numbers.
I think your correct, that money laundering and other illicit uses of cryptocurrency provides one of the floors to their value, and as long as there’s value they’ll stay around. If all the major financial players heavily regulated cryptocurrency there would still be a market for those who are willing to break the law anyway.
If you include market manipulation as investment activity, I might agree. There has been a lot of talk about massive, widespread manipulation. If you combine that with money laundering and black market transactions I think these would account for the vast majority of transactions. I think retail investment and legal purchases are a very small portion of transactions.
One obstacle for retail investors has been difficulty converting their cryptocurrency to dollars through the exchanges. Most exchanges have limits on how much you can cash out at a time (daily and other limits), and there’s always the worry about whether you will really be able to cash out when you need to. In the case of QuadrigaCX, customers have been having trouble cashing out for months because QuadrigaCX is in disputes with their banks, so even QuadrigaCX’s cash isn’t available to them. Many of these exchanges operate at the edge of the law, and legitimate banks don’t like that, so the exchanges turn to shady banking practices to pay their customers.
I’m not trying to write a Bitcoin tutorial here, but there seems to be some confusion about how it works, so I hope the below will help.
Storing the entire blockchain (currently about 200 GB), and validating it, is what the Bitcoin people call a “full node”. A wallet is considered a lightweight client, and connects to full nodes to submit and verify transactions. There is no reason to run a full node just to submit transactions.
A wallet app (or program) will connect to one or more full nodes to submit transactions. These nodes need not be managed by the app provider, and it’s probably best if they aren’t. When you send a payment from one or more of the addresses in your wallet it will generate a transaction signed by your private key(s), so that even the nodes you submit it to can’t alter it* without the transaction being rejected. It shouldn’t matter what nodes you submit your transaction to because they will broadcast it to the network so that every node has it.
The transaction is then added to the pending transaction pool. That’s where “miners” come in. Each miner will look at the pool and pick out what it thinks are the best combination of transactions, which are usually those with the highest transaction fees, although transaction data size and other things come into play. It will package all these transactions into a block, and then try to find a magic** signature for that block. If it finds it, the miner will submit it to the blockchain. A full node will only accept the block as valid if it can verify the signature. Assuming the block is valid, all the full nodes accept the block, and it’s now the last block on the blockchain.
Meanwhile the lightweight client (wallet) is checking back from time to time asking if its transaction is now in the blockchain. It’s also asking if any other transactions affected any addresses it controls. Once it sees the transaction (or another affecting its addresses) on the blockchain, it will update those addresses’ balances in the wallet, and the transaction is done.
One important note which wallets probably take into account is that blocks are only added to the blockchain every 10 minutes or so, by design***. Due to possible blockchain hijacks transactions aren’t considered fully verified until 6 blocks are added. So it actually takes 60 minutes for a transaction to complete. It’s also possible that the transaction pool exceeded capacity, and if your transaction didn’t have a high enough transaction fee included it might take many blocks before the miners include it.
- There have been a few weaknesses found where part of a transaction could be altered due to not all of the metadata being included in the transaction signature. As far as I know, these would just result in a Denial of Service since the transaction would be rejected by other nodes. There was some speculation that this could have been used malevolently in the wild, but I haven’t seen anything definitively.
** The magic signature for a valid block is a SHA hash that is numerically less than what they call difficulty. The miner is basically taking a random number and hashing it with all the transaction signatures in a block. If the SHA signature is a less than the difficulty, that miner wins. If it doesn’t win, it tries again as quickly as possible. An approximation of how to tell if the computed signature is less than the difficulty is how many leading 0s there are in the resulting hash in hexadecimal. I found that amusing in its simplicity when I first learned about it, because it’s so easily visualized as whether or not you found a hash with enough zeros.
*** The difficulty is recalculated every two weeks. They take the amount of time it took to calculate the previous 2016 blocks and adjust the difficulty so that if the rate is the same it would take 10 minutes for each block going forward. This is how the network adjusts for changes in the amount of mining (hashrate) available. Here’s some graphs of how the difficulty has adjusted recently.
And then there’s the environmental costs: Energy cost of ‘mining’ bitcoin more than twice that of copper or gold - New research reveals that cryptocurrencies require far more electricity per-dollar than it takes to mine most real metals
But iamthewalrus(:3= wrote that “for a variety of reasons” nobody has published a lightweight, portable bitcoin app that runs on people’s phones. Is this true? Why not? Seems like that would be an integral part of the endgame of those pushing bitcoins: to get people to use them. Have the pushers given up?
I’m a little confused what you are responding to. Is it why bitcoin isn’t used like Venmo, with an app on your phone, or is it the continuing question of why users don’t store their bitcoin in personal wallets? Those are two very different questions.
I think the wallets are probably user friendly enough that all of the hard parts are managed behind the scenes. You tell the wallet to send money to someone, enter their address and an amount, and press go. The money is sent, just like Venmo. It isn’t used like Venmo because why would anyone use it that way? No one accepts bitcoin, and Venmo transacts in dollars, so people use Venmo instead. There is a whole other conversation to be had about how bitcoin could replace Venmo and Paypal, and why that hasn’t happened, but it’s not worth getting into if that isn’t the point you are making.
As to why some bitcoin owners are using exchanges as banks, I’ll restate my previous points in a slightly different way.
Most of us are very bad at risk assessment, but we do know that Bitcoin is vulnerable to loss. We know that we are horrible at predicting all the ways we might lose access to our bitcoins. We’ve lost pictures when our hard drives failed or we dropped our phone. We’ve forgotten passwords. If we can’t even keep our pictures how can we be trusted with thousands of dollars stored in a tiny digital file when we don’t even understand how it works?
What we do understand is banks. We’ve been conditioned for generations that banks are safe and our mattresses aren’t. I know I’m being foolish if I keep my life savings in the wallet in my pocket, because I could lose it or it could be stolen. I would be laughed at if I kept it under my mattresses. The answer is to put it in a bank. We don’t even really go through the calculus of why the bank is safe, we just understand that it is. People who aren’t technically knowledgeable enough to develop an appropriate IT disaster recovery plan, i.e. most people, default to trusting the cryptocurrency “bank”, because they know they can’t do it themselves and hope the “bank” can.
It’s sad that this trust in cryptocurrency exchanges is very misplaced, and people keep losing their money. With some good oversight there could be trusted cryptocurrency banks, but we aren’t there yet.
I also think that major players or investors don’t have the majority of their money in exchanges. It’s mostly the people caught up in just wanting to own some bitcoins for whatever reason that do. In other words, it’s the little guy hurt again.
This is more concrete, not merely theoretical, evidence that bitcoins are badly designed for whatever people are apparently trying to do with it.
Why say “cryptocurrencies” if they specifically mean “bitcoin & its clones”, though? Not that I am saying it is a good idea, but why not one that does not rely on “mining” at all? Then throw in a smartphone app and enable it for cafes, vending machines, and streaming tv/movies and you’re good to go.
I’ll let him speak for himself, but I don’t think that’s what he meant. I thought what he was saying is that bitcoin isn’t comparable to Venmo because they never developed the user base that Venmo has, and that’s what would be required to make bitcoin actually usable by the general public.
There are bitcoin wallets for phones. I can’t vouch for them actually working, but they are there:
I would guess that at least one of them actually works, and you can transfer and receive bitcoin almost as easily as Venmo. You just have to deal with using bitcoin to do it, and that’s the real hurdle: why use bitcoin? The app isn’t the problem, bitcoin is.
Eh… A Prius costs more to make than gas-guzzling Suburban, but in the long term it’s cheaper. Relative cost of mining is not an argument for or against design. Gold must be physically stored, transported, guarded, accounted, minted or shaped, inspected and standardized. All these things make it a problematic means of exchange, which is why gold currency is a lot more rare than it used to be.
It may not have been intended as a tutorial, but I found it very useful and informative. Thank you, nesta !
Were the details like difficulty re-adjustment all defined in the original Bitcoin specification? Or has there been a way to modify that specification as time goes on?