Bitcoin

Bitcoin value tumbled from over $900 per coin to under $500 as the currency's largest exchange unexpectedly shut down amidst rumors of the theft of $375 million worth of bitcoin.

Mtgox users are understandably worried and upset that their currency stored in mtgox's systems may not be returned to them.

Meanwhile, other bitcoin industry leaders are distancing themselves from mtgox issuing a statement that says in part, "RS tragic violation of the trust of users of MT. Gox was the result of one company's actions and does not reflect the resilience or value of bitcoin and the digital currency industry... As with any new industry there are certain bad actors that need to be weeded out, and this is what we are seeing today."

As always, I suggest that if you do engage in holding crypto currency, you only use online transaction systems to transfer it, you don't actually store your currency on someone else's servers. Alternately, store it on many servers, so when one goes down the loss only represents a fraction of your holdings.
 
Cryptocurrency is the new wild west. Travel there at your own peril.

I had read that the estimated theft was only $330,000, though. And then Mt. Gox shutting down (perhaps in response to the threat of theft??) represented an additional (though as yet uncertain) loss. Do you have a more reliable link than I have, @stienman?
 

Dave

Staff member
Cryptocurrency is a to like normal currency now. Unless you have a metric fuckton of powerful servers to throw at it, it's not worth your time or effort. In most cases you'll spend more in electricity than you'll make in mining.
 
Cryptocurrency is a to like normal currency now. Unless you have a metric fuckton of powerful servers to throw at it, it's not worth your time or effort. In most cases you'll spend more in electricity than you'll make in mining.
There IS a point where you'll make a profit mining stuff. It's just that you need to be able to...

- own a warehouse
- own the servers
- need to rig the roof with solar to help power everything
- need to do it somewhere where you get plenty of sun, but not a ton of heat

Rigging the place with solar panels is basically how you offset the cost of the electricity, but even then you have to look long term... and no one is sure that crypto currency will be around in 2-3 years. It's still a gamble.
 
There IS a point where you'll make a profit mining stuff. It's just that you need to be able to...

- own a warehouse
- own the servers
- need to rig the roof with solar to help power everything
- need to do it somewhere where you get plenty of sun, but not a ton of heat

Rigging the place with solar panels is basically how you offset the cost of the electricity, but even then you have to look long term... and no one is sure that crypto currency will be around in 2-3 years. It's still a gamble.
So, you need to be rich.
 
http://www.npr.org/blogs/thetwo-way...-exchange-mt-gox-goes-dark-after-theft-report


"an unverified document circulating online claims that Mt Gox has lost 744,408 bitcoins (worth around $350 million) due to theft related to the trading fault."
This is going to be an ongoing problem. You put gold in a bank, it's not going anywhere unless guys with clown masks storm the joint and even then it's insured for up to 10 grand. Same with digital dollars: it gets stolen, it's insured and you can sue the bank for the difference. But bitcoin has no backing authority on it except it's unreplicatable code and what value people put on it, so if it's stolen, it's gone... and you have no way of knowing proving that any set of bitcoins were yours. Worse, it can vanish at the speed of light.

My guess? Bitcoin houses are going to start offering insurance for bitcoin.
 
I don't think they can. It's way too volatile right now, and speculation is rampant. They're going to stick by their terms of use agreement, limited liability, and say, "too bad!" When something goes wrong.
 
I can't say that I'm surprised at any of this craziness surrounding a virtual currency. I know how much I lost when Halbucks went under last year.
 
Even on this news bitcoin is still trading at well over $500. I don't think this one failure will doom the currency, but it will make people more cautious about where their coin is stored.

Looking at a few things onlie it appears that mtgox has been losing coins to this technical problem for years. It has to do with the currency itself, as well as how mtgox was storing and handling it. Mtgox hid the issue from users but worked with people in the background to fix he currency issue. The reality is that others haven't had this issue because they do things differently, still the issue was fixed in the currency itself so that no matter how people handle it, it won't happen exactly this way again.

Mtgox has been slowly losing their coins over the years. It's only that now they've run out, so they can't hide it any longer since when someone requests a payout in coins they don't have them to give. They tried to resolve this by creating a fiat mtgox currency, but the reality is that by that time they were so far in the hole there simply was no crawling out without working with other members of the community.

When the key people of the bitcoin industry finally understood what was going on, they wrote up a plan to save mtgox, not because it was worth saving in and of itself, but to stabilize the currency and prevent the expected publicity problems that would result. The plan was essentially this: the mtgox owners would give up mtgox and all assets to a committee. The key players in the bitcoin industry would pony up nearly all the coins needed to resolve the issue within mtgox, and would rebrand the website. They have enoug coins to do that, and given that half the value of the coins was lost in the crash, it would actually be cheap for them to have resolved it this way then to watch e value of heir various hoards drop in half.

The owner of mtgox wasn't thrilled at this plan, dropped out of the leadership of bitcoin, and closed the website in response to this plan.

So while there are interested actors in trying to maintain the bitcoin currency, it's obviously not the owner of mtgox, who mismanaged his company into bankruptcy and damaged the entire community and currency as a result.

However, this will only strengthen bitcoin in the long run.
 
I honestly do not get Bitcoin. Whenever I read about it I feel old and stupid. :(
There are a lot of moving parts, and there are several distinct roles one might play in bitcoin. You hear about mining it as a way to make money, sending bit coins to people, and bitcoin exchanges, and it all becomes a big muddled mess.

For the consumer, bitcoin is an agreed upon currency, just like the dollar, yen, or any other currency. It fluctuates in value over time, but it'd just a form of money. The value is market driven, and the is no real central authority or backer. It isn't backed by gold, or a country, or anything else. The value is entirely, completely, market driven.

As such the US, for instance, can't strengthen or weaken it merely by printing more bit coins like they can with the US dollar.

Further it's designed so that transactions cannot be tracked. At all. I give you a number, you "send" bit coins to that number, and I get them. It's not an account number, and can't be tied to me except by my revealing it to someone. Further, I can generate an infinite number of these, so I could use a different number for each transaction, completely hiding who is getting the money you send. You can't find me with that number. When you send bit coins, you actually insert a little piece of information that encrypted with that number into the global bitcoin data stream. Eventually my "wallet" sees that encrypted piece of information, and can retrieve the bitcoin, while everyone sees the block of info, there's no way for them to know who sent it, or who received it. Further, they can't receive the coin themselves because of the encryption used via my number. Only my wallet (which gave me the number) can decrypt the message and retrieve the data that says, "here's some bitcoin". Inserting a transaction into the global data stream comes at a small cost, a transaction fee. This is a sort of payment to make sure the data in your transaction gets processed and added to the global data stream.

And that's it, for the consumer facing side. You don't really need to know anything else. You can get bit coins by sending someone else money at their exchange rate, and they'll give you bit coins they already have, or reverse it and give them bitcoins for cash. The are a number of exchanges people have set up to make this easier.

Since one primary goal was not to have a central authority or transaction processor, the inventor of the scheme decided to spread that work across everyone that wanted to participate. Each transaction requires additional work in the way of very difficult decryption before it can then be pulled back out of the data stream. So before you get your money, the network has to solve a series of very difficult math problems and searches. Once that's done, you'll get your money.

This process is called mining. Currently when you mine there are two things that happen, first is that new bitcoins are created. These become new currency and are given to the transaction processor, ie miner, that solves the problem first. The second thing that happens it's that a block of transactions are processed into a format where they can be retrieved.

Each block produced reduces the bitcoin creation, and eventually all the bitcoins there will ever be will have been created. After that the transaction fees are the only thing the miners will get for all this work.

The work is hard enough that a high end computer with a high end video card can solve the problem in a week or two. It's not very fast, so people work on these problems in parallel. By giving a hundred computers the same problem, but telling each one to look at only a small division of the possible problem space, the time to solve is much faster. Now they have custom microchips doing this work, and even then it takes minutes before a new block is solved.

So you might not get your money for minutes, or even hours, after it was sent. Blocks are solved sequentially, miners can't skip ahead, and only the fastest miner actually wins the reward. However the problems are designed so that finding the solution is actually random time, so as long as you keep mining at the same speed as everyone else, you'll get rewards as often as everyone else.

It's no longer something that mere mortals can hope to do and win, though. The customs chips have long since surpassed the capability of even the best alternatives.

I don't know if this clears things up, or just confuses you further. It's a fifty thousand foot overview, and for the sake of understanding I've simplified things. If you dig into it, the transaction processing model is a bit different than I've described, but this suffices to portray what is happening inside the system.

Note that if one person or group owns more than fifty percent of the bitcoins, they can completely change the currency at the code level. It's unlikely to ever happen, but the currency is essentially democratic, and thus fallible by design.
 
if one person or group owns more than fifty percent of the bitcoins, they can completely change the currency at the code level. It's unlikely to ever happen, but the currency is essentially democratic, and thus fallible by design.
This was new to me.

--Patrick
 

Necronic

Staff member
Bitcoin is one of the strongest arguments for a central bank I have seen in a while. Ignoring the fact that it is highly volatile, even its increase in value is problematic. That (deflation) is NOT something you want in a real currency, as it causes people to hord capital instead of investing it. If you view it as a commodity then...ok maybe its not so bad, but then you have to ask yourself 'what do I actually own'? Nothing. So at best/worst its a horrendously volatile fiat currency with deflationary tendencies. At worst/best its a worthless commodity.

Really its just a fun way to gamble.
 
This was new to me.

--Patrick
But if it ever happens, bitcoin would stop being used and therefore become worthless, meaning that whoever got 50% spent a ton of time/money to screw over other people without any financial gain. I don't think anyone is that big of a troll.
 
Bitcoin is one of the strongest arguments for a central bank I have seen in a while. Ignoring the fact that it is highly volatile, even its increase in value is problematic. That (deflation) is NOT something you want in a real currency, as it causes people to hord capital instead of investing it. If you view it as a commodity then...ok maybe its not so bad, but then you have to ask yourself 'what do I actually own'? Nothing. So at best/worst its a horrendously volatile fiat currency with deflationary tendencies. At worst/best its a worthless commodity.

Really its just a fun way to gamble.
Actually, I wouldn't call it worthless as a commodity. It has the unique qualities of anonymity and easy of trade, while still retaining it's usefulness. It's like having a pocket full of gold bars that weighed nothing and which you can give to someone without anyone (even the receiver) ever knowing who you are. That simple feature gives it immense value, especially for illegal actions that would have formally required hauling gold or bills to an undisclosed location along with some guys to make sure you didn't get jumped. No more backroom trade off... you can just send a file.
 

Necronic

Staff member
That bothers me though, because what you are ultimately describing is a fiat. It has value because I say it has value. It has no use, functional or otherwise, other than to convey value. I can't think of any other commodity like that. Corn, oil, energy, etc, they all are units of value, but they have other uses as well. That's why I say it's worthless.

That made me think of another funny thing about bitcoin: a lot of the same people that like Bitcoin also like to talk about how we need to return to a gold-backed dollar. I don't know how ancaps can look themselves in the mirror without busting out laughing.
 
That bothers me though, because what you are ultimately describing is a fiat. It has value because I say it has value. It has no use, functional or otherwise, other than to convey value. I can't think of any other commodity like that. Corn, oil, energy, etc, they all are units of value, but they have other uses as well. That's why I say it's worthless..
It's the exact same as cash. Cash only has value because everyone in the world agrees to the lie that cash has value.
 
That bothers me though, because what you are ultimately describing is a fiat. It has value because I say it has value. It has no use, functional or otherwise, other than to convey value. I can't think of any other commodity like that. Corn, oil, energy, etc, they all are units of value, but they have other uses as well. That's why I say it's worthless.
I disagree. It clearly has value in it's use and most of it's value is derived from it's use. People may speculate on bitcoin but ultimately many people want them to perform secure, safe, and anonymous transactions. It's what makes it more useful than all of those other objects.
 
At the risk of sounding like Charlie, there isn't a single TSA screener I would trust to scrub the airport toilets. NOT. ONE.
 
So, since non of this can be tracked, what's stopping these bitcoin companies from cashing in a bunch of their customers coins and blaming it on hackers? There's no tracing it.
 
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