Buying bitcoins

Amberman wrote: »

The bitcoin markets are already regulated. Most of the big ones like mt.gox already comply with US anti-money laundering regulations.

Its still unknown how governments will react to it.
Its very much not 'inside the fold'.
There are some basic engagements with it - recent FinCEN guidance - but its all very far from mainstream or approved.

Amberman wrote: »

It really isnt. There isn't a head on the beast which you can chop off. Its a distributed peer to peer network.

http://en.wikipedia.org/wiki/Peer-to-peer

You are basically saying 'its a peer-to-peer network, therefor it can survive an attack from a nation state'.
But that argument is thin.

There's loads of vectors you can use to attack a peer-to-peer network.

Plus, Bitcoin is not like Bittorrent, where you and I and our friends can all run a Bitcoin network in Dublin, and even if we are cut off from the rest of the Internet, our network will still work. Rather, all clients need to be connected to the main network, so that they can get the authoritative blockchain.

Furthermore, if Alice is downloading songs from Bob, it'll become pretty clear to Alice if Bob is actually a malicious node; and there's no real cost associated with that - it just means that Alice has wasted some time. But if Alice, on the other hand, is connected to a set of malicious Bitcoin cancer nodes, that is an entirely different story.

And thats just one attack. What about computational attacks, or DOS, or attacks that stop clients boot strapping etc.

If someone like the USA is willing to spend national level resources on suppressing Bitcoin, perhaps because they perceive it as primarily facilitating illegal trade (and there was some very negative initial reaction form lawmakers in that direction), or funding terrorism, or just a threat to their currency - and nation states will be likely to respond to serious threats to their currency - then you're not going to get very far just saying 'its peer-to-peer'.

I'm not sure of what properties Bitcoin has that makes it particularly resilient to proper suppression measures.

In the presense of such measures, even if the network still functions in some form, its not going to be usable for average-joe at all, in which case, as this is the investment forum, if it is crippled in that way, its not really going to be the big internet currency thats worth $100k per coin, right?

Basically, you guys were very hard on Cavehill, who said there was downside here - but have you really thought about this?

fergalr wrote: »

I'm not sure of what properties Bitcoin has that makes it particularly resilient to proper suppression measures.

The part where you need to compromise over 50% of the network is what makes it resilient. Even a nation state cannot easily do this.

srsly78 wrote: »

The part where you need to compromise over 50% of the network is what makes it resilient. Even a nation state cannot easily do this.

Network is currently at 47,597.74 GH/s [0]

Avalon ASIC, when it ships, will do 60,000 MH/s and costs $1300 [1]

You need 50,000 GH/s to take half the network.

Thats 50,000,000 MH/s.
Thats about 900 Avalon chips.

Thats about $1.2M, bought commercially at retail.

A nation state could have such a chip in Fab already. Wouldn't even be a rounding error in the NSA computational budget, and those guys do large computational projects in secret all the time.

Thats if they even bother to attack it computationally, and don't just send people around to whoever is controlling the large mining pools.

And thats only one class of attack, possibly the least effective, in its crudest possible form.

Maybe I'm missing something? I did all the calculations right there, maybe I made an error?

[0] https://blockchain.info/stats
[1] http://www.bitcoinx.com/bitcoin-mining-hardware/

The rest of the world will also have ASICs, so network capacity will also go up.

If you could spend a million to take over a billion then someone would do it!

In reality they would just go after the exchanges.

srsly78 wrote: »

The rest of the world will also have ASICs, so network capacity will also go up.

So, you are saying its vulnerable now, but that you think the vulnerability to computational attack will decrease in future?

Because, if a proper computational pissing match happens between the governments and the enthusiasts, such that the governments take control of the chip fabs (very easy, probably all basically under state control already; will certainly have working relationships with national security apparatus (and by 'take control' I just mean 'require that bitcoin asics are only supplied to government')), then what?

The enthusiasts will make their own chip fabs?

Thats actually not that easy to do?

Oh... it's 50% of the network... not 50% of the mining capacity. The attacker has to make their own blockchain the official one.

srsly78 wrote: »

Oh... it's 50% of the network... not 50% of the mining capacity. The attacker has to make their own blockchain the official one.

I don't understand your post just there, I'm afraid.

The 51% computational attack refers to a party that accumulates 51% of the hashing capability, as I understand it.
Not necessarily 51% of the nodes in the bitcoin network.

Because this then allows them always decide what gets into the longest chain, and the rest of Bitcoin accepts the longest chain as authoritative.

I think the values I quoted before are in roughly the right ballpark - are you saying something different?

tsiehta

The illicit drugs trade via Bitcoins is a teeny, tiny drop in the ocean compared to the value of the global illicit drugs market. Why on earth would governments bother to invest resources in suppressing it?

Negative PR leading to moral panic, maybe. But even then, I think your proposal that the government would actually prohibit the sale of ASICs to the general public is completely daft. Restricting the sale of chips which are very good at cryptographic hash computation in order to thwart a tiny slice of the illicit drugs trade? Are you mad?

Furthermore, how much more efficient would these ASICs actually be than high-end GPUs, and GPUs or in the future? And what if FPGAs advance to the point where they can mine bitcoins efficiently?

Finally, why would they try to supress bitcoins, as opposed to going after the black marketplaces on which they are used? There's nothing illegitimate about bitcoins themselves.

fergalr wrote: »

I don't understand your post just there, I'm afraid.

The 51% computational attack refers to a party that accumulates 51% of the hashing capability, as I understand it.
Not necessarily 51% of the nodes in the bitcoin network.

Because this then allows them always decide what gets into the longest chain, and the rest of Bitcoin accepts the longest chain as authoritative.

I think the values I quoted before are in roughly the right ballpark - are you saying something different?

It's explained here: https://en.bitcoin.it/wiki/Weaknesses#Security_Vulnerabilities_and_bugs

Having over 50% gives them control over new blocks, but most blocks have been mined already. edit: Ok or not... now I am confused as well.

Now we are on to a discussion about whether governments would bother to suppress Bitcoin, rather than a discussion about whether they could.

Its important to mark that distinction.

Whether or not they are likely to bother is very much a matter of speculation.
I was pointing out that they probably could, if they chose to, regardless of the fact that its a peer-to-peer system.

tsiehta wrote: »

The illicit drugs trade via Bitcoins is a teeny, tiny drop in the ocean compared to the value of the global illicit drugs market. Why on earth would governments bother to invest resources in suppressing it?

Negative PR leading to moral panic, maybe. But even then, I think your proposal that the government would actually prohibit the sale of ASICs to the general public is completely daft. Restricting the sale of chips which are very good at cryptographic hash computation in order to thwart a tiny slice of the illicit drugs trade?

That seems unlikely, to me also.

tsiehta wrote: »

Are you mad?

Don't be silly, of course I'm not :-)

I was really stepping in, because people were telling Cavehill that Cavehill didn't understand the tech, and were really being quite dismissive of a possible downside risk, by saying that it wasn't technically possible to suppress Bitcoin. I thought the situation wasn't quite that simple, and I said so.

I agree it seems improbable that people would outlaw Bitcoin to stop the illegal activity. You can't disregard these possibilities out of hand, though. You are assuming a very rational process, and a rational analysis of the cost/benefit of shutting down bitcoin to stop illegal activity, and you are assuming that there isn't more adoption by criminals.

Someone mentioned the war on drugs earlier. Want to talk about the cost/benefit of that, and how that works?
Or what about the lengths the USA goes through to prevent on-line gambling? Whats the cost benefit there?
These things are often political, and so difficult to predict.

If you are analysing Bitcoin as an investment, I think itd be foolish to rule out the risks that someone like the USA, or a collection of states, outlaws it for one of those reasons.

But it seems more likely, to me, that Bitcoin will take regulatory flack, in the case where it starts emerging as a serious currency.
How likely is that? I don't know. But the people who are very bullish on it, and, I speculate, driving some of the investment interest at the moment, paint a picture of a situation where bitcoin is one of the major world currencies.

In which case, it wouldn't be crazy to expect a response of some kind.

tsiehta wrote: »

Furthermore, how much more efficient would these ASICs actually be than high-end GPUs,

According to here:
https://en.bitcoin.it/wiki/Mining_hardware_comparison

an avalon ASIC will do: 60,000MH/s
Whereas a very high end GPU will do 1,200MH/s

So, the ASIC will be quite a bit more efficient.

tsiehta wrote: »

and GPUs or in the future?

Who can say? Is there a reason to think that GPUs will become better at hashing than special purpose hardware?
Edit: I will note here, that GPU performance is getting harder; theres quite a few credible people saying to expect smaller gains in GPU performance in the near future.

tsiehta wrote: »

And what if FPGAs advance to the point where they can mine bitcoins efficiently?

Again, not in the same ballpark as the ASICs.

And, honestly, trying to get into a symmetric computational contest with the government is just laughable.
Its in the 'dont even think about it' class of things.

tsiehta wrote: »

Finally, why would they try to supress bitcoins, as opposed to going after the black marketplaces on which they are used? There's nothing illegitimate about bitcoins themselves.

Well, thats what the government(s) decides, isn't it?

If Bitcoin emerges as a threat to an existing currency though - which again, is currently just the speculation of a few, who predict very high valuations per bitcoin as a result - then all that stuff starts to play.

The point is, that as an investment, all this is currently unknown; and that regulatory risk, and the risk of it being shutdown, thus is present and should factor into any investing decision.

srsly78 wrote: »

It's explained here: https://en.bitcoin.it/wiki/Weaknesses#Security_Vulnerabilities_and_bugs

Having over 50% gives them control over new blocks, but most blocks have been mined already. edit: Ok or not... now I am confused as well.

Having 51% allows you to basically double spend.

My understanding is that in that scenario, its game over.

Roonbox

srsly78 wrote: »

The rest of the world will also have ASICs, so network capacity will also go up.

If you could spend a million to take over a billion then someone would do it!

Doesn't sound like a Sound currency.

fergalr wrote: »

Having 51% allows you to basically double spend.

My understanding is that in that scenario, its game over.

https://en.bitcoin.it/wiki/Double-spending#51.25_attack

Apparently the honest network has an advantage over the attacker, so outcomputing the entire rest of the world just got harder.

srsly78 wrote: »

https://en.bitcoin.it/wiki/Double-spending#51.25_attack

Apparently the honest network has an advantage over the attacker, so outcomputing the entire rest of the world just got harder.

I don't see that anywhere on that page?

Regardless, my understanding is that with 51% of the network, you can basically destroy it, and that that is well within nation-state capability, at the moment.

Would we agree on that point?

From the link above: "however, waiting for confirmations does increase the aggregate resource cost of performing the attack, which could make it unprofitable or delay it long enough for the circumstances to change or slower-acting synchronization methods to kick in"

I think your analysis is simplistic, out computing the entire world is not easy. Maybe some nation states would choose to defend the network

srsly78 wrote: »

From the link above: "however, waiting for confirmations does increase the aggregate resource cost of performing the attack, which could make it unprofitable or delay it long enough for the circumstances to change or slower-acting synchronization methods to kick in"

We've no idea what that actually means, if it means anything.
Its just a vague unsourced claim on a wiki. Does it mean in theory? Or if something was different than it actually is?

Besides which, we are talking about an adversary who doesnt care whether its 'profitable'.

srsly78 wrote: »

I think your analysis is simplistic,

It was better than yours :-)

srsly78 wrote: »

out computing the entire world is not easy.

We made an appoximate calculation of how hard it was, and it was cheap in government terms.
That point stands.

srsly78 wrote: »

Maybe some nation states would choose to defend the network

Well, maybe; but thats a long way from 'governments cant destroy it'.

MyPeopleDrankTheSoup

Great posts fergalr, I agree with pretty much everything you wrote. Bitcoin by its promise attracts a serious tin foil hat element with a vague technical understanding, who view it as 100% untouchable from governments, when it's not, as you showed.

But will a government do something? Not a hope IMO. The anarchists love to think they're shitting it in Washington, I say they barely care about Bitcoin.

milltown

Agreed.

I'm in the remedial tech savvy class and interested in both the tech and socio political sides of Bitcoin. This thread had been, basically, an argument between two sides, both of whom had their la-la fingers in their ears when the other side was speaking. Fergair is the first poster to address the techno side of the defence with reason and knowledge.

I am excited about the possibility of an independent currency gaining traction and taking the power back from the central banks/fed, but as a liberal minded democrat, not an anarchist.

I am also very interested in how the actual mechanics of this could work. I love the idea that the internet and its accessories have gained independence from countries and networks but being peer to peer does not offer protection to the stability a currency needs to be taken seriously. Yes, Bit-torrent has prevailed where other file sharing methods have failed but realistically there's only a couple of websites that you would need to shut down to get the majority of users to think the party is over, and go back to paying for music and movies.
Likewise, a very few targetted attacks, while not putting an end to the notion or existence of bitcoin, could make it almost completely unviable as a usable currency. If their own fanfare is to be believed, eliminating MtGox would stymie 80% of bitcoin transactions.

Roonbox wrote: »

You cant be swayed. If you find yourself completely and totally on one side of a trade and don't even consider that you may be incorrect, that is usually not a good sign.

Bitcoins have a lot of issues, the main one for me being that the general public will not adopt a currency that is this volatile.

I can be swayed if the argument is strong enough. No one is saying bitcoin is perfect. No currency is perfect.

There are a fast growing number of people accepting bitcoin as both users and merchants. I agree though, it will never be something that, lets say, 25% of the planet uses. There are only 100k or 200k or so users right now. ..I don't have exact numbers.

Fergal, just read your posts. While I don't understand what the hell you are talking about, it seems there is a technical weakness in the currency which governments could use to shut it down. I'll give you that point, though I don't understand it.

Now, is it possible that the next bitcoin, whatever that might be, could put itself beyond the control of governments, from a technical point of view...or are governments able to basically just shut down anything, given enough resources?

Amberman wrote: »

Fergal, just read your posts. While I don't understand what the hell you are talking about, it seems there is a technical weakness in the currency which governments could use to shut it down. I'll give you that point, though I don't understand it.

Its quite a complicated and subtle system; it took me a while to get my head into it, and I still don't understand all of it.

I'm not sure I'd say I'm talking about a 'technical weakness', as such.

Its more a known consequence of the design decisions of Bitcoin.
The designers knew that someone with enough computational resources can take over the system.

This is considered in the original Nakamoto paper on Bitcoin, where the designers say that they hope that anyone with enough computational power to take over the network would rather just use that power to mine bitcoins, rather than destroy the network.

Which is probably a fair assumption for most private entities, but maybe not for a government willing to spend a lot of resources to destroy the system, if that happened.

Overall, Bitcoin is probably a lot more resilient to attack than most other electronic currency systems you could think of. Most traditional electronic currency systems revolved around the idea of a centralised place which would store all the account balances.

Such a centralised place is relatively easy to shut down. You just need to find the one IP address or one set of computers etc.
Bitcoin decentralizes that, which makes Bitcoin much more resistant to attack.

My point, though, is that its still not invincible.
While it gains strengths, it still has weaknesses; nation state resources could still be used to attack it, and, I think, shut it down.

Amberman wrote: »

Now, is it possible that the next bitcoin, whatever that might be, could put itself beyond the control of governments, from a technical point of view...or are governments able to basically just shut down anything, given enough resources?

That is a very hard and interesting question you are asking.
I would say that the jury is still out on the final answer to that.

Bitcoin allows itself to be distributed, by doing some very clever things. Before Bitcoin, a lot of people would have said it was impossible to build a system that stores the currency balances in a distributed way, the way Bitcoin does.
So, who is to say what couldn't be done, with more advances in future?

After that, you start to get into a general question, about whether determined government level resources could stop a distributed system, a bit like Bitcoin, running on the Internet.

Asking that, looking out 20 years, is a very speculative thing to do, so what follows is my opinion only.

I general, I tend to think that governments are able to stop pretty much all such systems, if they are sufficiently motivated. As georgiecasey says, its easy to overestimate how much governments care about particular systems on the Internet. As a result of the fact that governments don't much care about it, and don't really understand it, the Internet has been relatively unregulated so far, and has grown in a pretty uncontrolled manner - which has probably been great for a lot of economic activity.

Will the internet remain relatively unregulated in future? That's hard to know. Things like wikileaks, and the 'arab spring' might change things.

From a technical point of view, while its hard to know for sure, I believe the Internet could probably be locked down in future, if there is sufficient regulatory will.

For all our talk about how decentralised the Internet is, the fact is that most traffic flows through a relatively small number of large exchanges, controlled by large corporations.

If the government is willing to pass serious legislation, and to spend resources, well, its not hard for them to bring that to bear on the big pipes through which most internet traffic flows.

But its not easy to censor internet communication, as things currently stand, because traffic can be encrypted.
This means that people trying to monitor the traffic, and censor certain systems (e.g. Bitcoin traffic) that they don't like, have a problem. If the traffic you are looking at is encrypted, you can't tell whats inside it, so you don't know what to censor.

To stop a system with certainty, the government in question would have to be willing to make some big changes to how the Internet is run. They'd probably have to be willing to require that they can read any encrypted Internet traffic. That's a very serious change, and isn't likely to happen today or tomorrow.

The other way things could go, is that it could become hard to get computers which run arbitrary code on them - i.e. where you can just install any program you want on the computer. 10 years ago, that seemed unlikely - but with the rise of the iPad, which can only run code that Apple specifically allow, that no longer seems so unlikely as it did before.
Some people think that there's a possibility that it'll be hard to find computers in future which you can just run anything you want on, without some central approval. Again, thats quite far away at the moment (?), and would be a huge change in how things are setup.

Unless something drastic like one of the above happens, it'll probably be possible to run distributed systems that are difficult to censor.

Could one of those more drastic scenarios happen in a future where an online currency is toppling the revenue streams of nation states, as some of the wilder Bitcoin proponents would believe? Your guess is as good as mine.

But, thats trying to answer the question about whether its possible to build something that governments could or could not suppress, in a fairly absolute sense.

In the short term, the answer that really matters is that its possible to build systems that are hard for governments to censor; but it doesn't matter that much, from an 'investment and markets' forum point of view, because if the government just makes a particular system illegal, and takes minimal measures to suppress it, thats probably enough to prevent it being adopted widely.

These things are already hard enough to use.

Speaking generally, its interesting to think about what might happen in the future - will we eventually have an Internet closer to the Chinese model? - there are interest groups on each side of the fence; its hard to speculate about how it will play out.

moneymad

One big problem with bitcoin is time. If you have 10 Euro, next year that 10 Euro will be worth roughly the same. Not so with bitcoins.

Best reply ever. Thanks for taking the time to do the Fergal, very valuable.

I can see an issue with shutting down certain systems like bitcoin. There are red states in the US who absolutely love to stick 2 fingers up at the Feds over matters like these...legalizing marijuana and gold and silver coins are two recent examples.

Where states law trumps federal law, there are likely to be holdouts which make blanket US censorship problematic. The growth of the tea party movement also has to be looked at here.

That being said, if the monopoly men at the Fed said, shut it down, there's likely nothing much that could be done before the network was destroyed.

As for the level of interest in Bitcoin, seems the CIA has already requested an interview with the current administrator of the network. Interest and media coverage is high and growing. http://www.youtube.com/watch?v=vTr_hTC90oQ

moneymad wrote: »

One big problem with bitcoin is time. If you have 10 Euro, next year that 10 Euro will be worth roughly the same. Not so with bitcoins.

Not necessarily true if you have 100,010 euros these days in a bank.

moneymad

Amberman wrote: »

Not necessarily true if you have 100,010 euros these days in a bank.

You still only deal with 2%inflation.

grotmaster

Amberman wrote: »

Not necessarily true if you have 100,010 euros these days in a bank.

That day is looming ever closer.

moneymad wrote: »

You still only deal with 2%inflation.

Tell that to any Cypriot who had over 100k in their bank.

moneymad

Amberman wrote: »

Tell that to any Cypriot who had over 100k in their bank.

Why would you save in currency? And why would you have 100,000 Euro in a bank? Your statement is stupid. Why would you have 100,000 worth of bitcoin for that matter?

I'm not saying to put 100k into Bitcoin.

Loads of people have 100k in a bank. Entrepreneurs, small businesses, companies, charities, HNW individuals, anyone who has just sold a house...I'm sure there are many other scenarios....but it does happen. To think it doesn't is a bit silly.