The NYT has a great article on this, where they suggest the bulk of Bitcoin users are Chinese citizens gambling on price fluctuations. And their stats seem to support this assertion:
http://www.nytimes.com/2016/07/03/business/dealbook/bitcoin-...
I pay for things with cryptocurrencies fairly frequently. I don't want every company I buy things from having my name, address, date of birth and credit card info if they don't need it. If I'm buying goods or services that don't require physical shipping, all they need to know is what I want and that the money has changed hands. Crypto facilitates those kinds of transactions.
It would have to be a very compelling argument to persuade me that transacting through a middle-man (who then holds all my personal information and card details and also takes a cut) is better than just handing over cash and getting what I want.
Once you get to the point of using a reputable escrow system (which will have to charge a fee), that plus the bitcoin fees (either direct transfer fees or the implicit tax that is mining rewards) are unlikely to be cheaper than the credit card system (which doesn't have to burn immense amounts of processing power for business-as-usual). Having all participants be anonymous and untrusted adds a lot of overhead; in a civilized environment with a reasonable legal system you can shave that off by being willing to trust your counterparties (trust that is made possible by central clearing houses and verified identities).
Participants aren't necessarily anonymous; if you're buying from a known vendor and having something shipped to your house, neither party is all that anonymous. People are working on adding verified identities, for people who want them.
Ethereum hopes to do away with mining by early 2017.
At which point why use this instead of a credit card?
> Ethereum hopes to do away with mining by early 2017.
How are they doing byzantine-fault-tolerant consensus without it?
They're switching to proof of stake. Early PoS designs have some issues, like the infamous "nothing at stake" problem, but theirs addresses those. People lock up ether for several months, and bet it on which blocks will be included in the chain. The blocks that get the best odds in the betting are the ones that get included, so basically you're betting on what everybody else will do. You start with low-confidence bets that don't risk much, and as you see other people's bets you progress to high-confidence bets that pay off better, and it converges.
Miners essentially do the same thing: by choosing a block to mine on, they're betting their energy cost on that block being chosen.
Sure, but that doesn't really change anything. Their service will cost a certain amount to run, and so you'll end up paying an average of x amount per transaction/per dollar spent, whichever way you slice it.
> Either way you're paying only for the arbitration, not for stockholder dividends.
And yet for-profit companies usually end up being the most effective way to get something done. If I need a tree cut down in my yard I don't try to find some non-profit tree-surgeon collective, I call a professional from a reputable company. (And I would think that anyone who supported cryptocurrencies - which are all about directly transferring money without involving a social layer - to feel this way even more strongly).
> They're switching to proof of stake. Early PoS designs have some issues, like the infamous "nothing at stake" problem, but theirs addresses those. People lock up ether for several months, and bet it on which blocks will be included in the chain. The blocks that get the best odds in the betting are the ones that get included, so basically you're betting on what everybody else will do. You start with low-confidence bets that don't risk much, and as you see other people's bets you progress to high-confidence bets that pay off better, and it converges.
> Miners essentially do the same thing: by choosing a block to mine on, they're betting their energy cost on that block being chosen.
Hmm. Doesn't that mean the reward for fraud is much higher? Can't someone just bet a massive amount that their fork will win, and then their fork wins precisely because they bet a massive amount on it?
If you're not dealing with dodgy people, the big pain points are getting it, and keeping it safe once you have it.
I would like to know how much REAL MONEY went into this thing rather than its "value" as a result of funny-money speculation. I expect that any adult that put money or compute cycles into ethereum understands that the value could literally vaporize at any time, so it seems disingenuous to throw around dollar figures inflated by speculation. Is anyone _really_ losing their shirt at this point?
This. This is what I'd like to know before I can give a crap about crytocurrencies. Otherwise, it is all tulip bulbs in a land far, far away.
With cryptocurrencies, however, there isn't enough "legitimate activity" (i.e. people actually conducting business with Bitcoin) to allow a stable price to emerge. This makes them vulnerable to manipulation because there is no function for the form to follow. At least with regular currencies, speculation has to follow reality. With cryptocurrencies, reality follows speculation!
This leads to a negative feedback loop; people are reluctant to use cryptocurrencies for business because the price is unstable, and the price is unstable because not enough people are using them for business.
That's a wholly circular argument, and a counterfactual one.
If speculation influences prices then it's in the interest of speculators to create pricing mechanisms that are perpetually "out of whack" so they can profit from them.
There is no such thing as an accurate commodity or currency price, and there never can be. There's only market sentiment, and that's largely based on optimism or pessimism about the future - which is unknown.
Markets are just entrail reading, with very expensive and complicated entrails.
DOA was more like a meta-entrail system with an extra layer or two of obfuscation. But it was no more stable than any other market, and fell prey to exactly the same problem - manipulation of mechanisms creating a dishonest illusion of objectivity for profit.
"If speculation influences prices then it's in the interest of speculators to create pricing mechanisms that are perpetually "out of whack" so they can profit from them"
How exactly will they influence said prices without trading? Which costs money? HOw would they move a price (cost money) then move it back (cost money) without constantly losing money? You need other people to take you out of your speculative position, and those other people must be (net-net) non-speculators, and sufficient in number (which was @omegaham's point). Separately, any market which is purposefully "perpetually out of whack" is not even a market, and will quickly tend to zero participants.
"Markets are just entrail reading"
Another eye-roller so vacant that I don't know how to respond.
I wish people like you wouldn't jump in with such certainty about subjects in which you are eminently and so evidently without the foggiest of any idea, but willing to get your word in anyway.
Long ago I worked for financial traders on early electronic trading systems. One day in our Frankfurt office there was a big commotion. Our head trader thought he had made a boatload of money. But it turned out that the trader on the other end of the trade had fat-fingered an offer. The mistake-maker stood to lose hundreds of millions of dollars, destroying his company.
The exchange halted trading in that instrument, unwound all the trades, and started things back up again as if the mistake had never happened. I only heard of it happening that once; smaller mistakes were always the trader's problem. But for the exchange, the normal rules of the market did not override the purpose of the market, which was to facilitate certain kinds of commerce. There was just no point in destroying an entire company, and even our traders were fine with the outcome.
If Ethereum's goal is a market where "people can invest without fear", then it sounds like they did the right thing. Your "caveat emptor" approach has the advantage of being ideologically simple, but it results in an economically suboptimal amount of trading.
Real markets all have elaborate protections pushing them away from purity and toward economic utility. E.g., the US's stock market is a preferred place even for foreign companies to list because our strong disclosure requirements and legal protections make investors less afraid, increasing capital availability and decreasing cost. And it's not just financial markets; consider the Uniform Commercial Code: https://en.wikipedia.org/wiki/Uniform_Commercial_Code
Ethereum's hands-on approach allows them to innovate more aggressively. Bitcoin wouldn't touch this with a 10ft pole because the challenges behind such a scripting system were beyond anything they felt secure implementing. And now we are seeing why.
But Ethereum can use hardforks to keep things ~stable despite the road bumps. Some people are really glad this is happening, and those people should stay in the Ethereum ecosystem.
If that's not your style, and it's not mine, there are other coins (namely Bitcoin) that have more conservative cultures.
The DAO's own terms state: "Any and all explanatory terms or descriptions are merely offered for educational purposes and do not supercede or modify the express terms of The DAO’s code set forth on the blockchain; to the extent you believe there to be any conflict or discrepancy between the descriptions offered here and the functionality of The DAO’s code at 0xbb9bc244d798123fde783fcc1c72d3bb8c189413, The DAO’s code controls and sets forth all terms of The DAO Creation."
Obviously the hacker's intent was theft but under the DAO's own terms it was a valid activity.
Basically the code is law. If we're going to then interpret that law then we've created a system similar to the current systems we have, but lacking in maturity. The point of something like Ethereum is not that it can't be manipulated, it's that it doesn't need to be in order to function. It can be trusted explicitly because its functionality is not open to interpretation.
If I'm not being clear enough -- what they should have done is taken this as a very expensive lesson and otherwise left the system alone. Yes, a "bad person" would have profited but the system's integrity would have been untouched.
FWIW, I was an early backer of Ethereum and bought ETH during the pre-sale. I invested because I thought it was promising -- without any real expectation of return. Coincidentally I sold all of my ETH just before this hack (40x ROI). Because of the fork I would not invest in ETH again, regardless of potential returns, because Ethereum is no longer what it set out to be.
Yes, even with modern automatic theorem provers it is a bit torturous. But people are even going so far as writing a mathematically proven safe kernel (1) and Ethereum is much smaller and simpler.
In normal contract law that doesn't have a blockchain in it there is a special moral "backstop" where a judge may find a contract to be unconscionable. An unconscionable contract may contain nothing forbidden by statute, but if it is found to be profoundly unjust in terms of its outcomes (not due to change in circumstance, but as a result of its formulation), then a judge can call the contract unconscionable and it is void.
This kind of latitude is really valuable, as it recognises the fact that things are pretty complicated and that in the end the law is there to ensure justice, not to mechanically interpret a set of rules.
So, even if you have a smart contract (or as I would call it "program") which can be proven to work a certain way, that may not be enough to guarantee that it is not going to give rise to bad outcomes. For example, say we have a proof showing that the program obeys some invariants, and one may even have such a proof generated automatically. This makes us feel confident - let us irreversibly bind our future actions to the output of the program! Blockchains be praised!
However, if the real invariant being aimed for is that the program's execution is "justice-preserving" (and I would say this is a good aim), then there is a grounding problem we have missed, where the prover needs to specify formally the nature of a just situation or action.
I believe a large number of person-years have already been spent on attempts to derive such an "ethics predicate", but if anyone has found it they have not yet bothered to demonstrate it. As a result if we wish to pursue justice, we end up falling back to the position taken by the ordinary law, and we might wonder quite why we decided to use 51% of all computing power for the rest of time to keep a ledger intact in the first place.
It's also entirely dependent on judges being nice and reasonable people, who will judge according to common sense standards of "what is right" shared by a solid majority. This just isn't true. If anything, judges are likely to be less reasonable than random regular people, because
1. They have an education where argument is treated as a sport, and objective measures of bias or correctness play little part.
2. They belong to a class who firmly believe (and society backs them up on it and tries as hard as it can to make it reality) that their opinions are worth more than ordinary people's.
That was always my problem with libertarians, their eagerness look to the legal system to solve social problems (contracts, etc.). The judicial branch is the worst of all branches of government. Sensible people don't go there to get justice, it's where you go when you've given up getting justice any other way.
A judge is just as likely (if not more) to protect an unjust order as to overturn it when it's really called for. Ethereum provides a way to guarantee desirable outcomes without such arbitrariness (in the very literal sense). It failed to do so with the DAO, but at least there, bugs can be fixed. It's much harder to fix unjust judges.
However, I do think it is, or perhaps, would have been, important to put a lot of focus on moving to mathematically proven contracts.
Would the "hacker" have a chance to win in court? The DAO/Ethereum administrators are obviously breaking the terms of the contract...
Therefore changing the code would be equivalent to updating the terms of service - and many judicial systems restrict when and how you can do that.
So I don't think it would be that easy.
Splitting the road into two roads with very different outcomes sounds like a far bigger problem than hitting that road bump to me.
The biggest problem with Etherium is that many of the same people are behind Etherium, the DAO, and slock.it.
<sarcasm> Ethical dilemma eliminated.</sarcasm>
http://www.jstor.org/stable/2338493?seq=1#page_scan_tab_cont...
(If the DAO had waited the couple of years necessary to produce a provably secure system, they would have been beaten to market by someone less secure who would have been hacked instead. Because people are incredibly keen to throw money at being early adopters of cryptocurrency systems. They're the new dotcom shares.)
I'm also going to predict that a few months after the dust settles on this that another exploit is found in the DAO. What happens then?
I see what you did there
Note that Buterin cashed in 25% of his ETH just before this.
Just another premined altcoin scam.
Code is law, but there is no law which we can't abolish, especially when the law stops serving the purpose for which the law was established.
I just noticed your nickname, it's well known you hate cryptocurrencies and spread FUD about them on wikipedia and forums.. what's up with that? at the same time you are a admin for Rational Wiki? and yet you are oblivious to your own bias.. incredible
https://soundcloud.com/cryptoafterdark/episode-9-vitalik-but...
https://www.reddit.com/r/ethereum/comments/4g9n2a/crypto_aft...
Not all cryptocurrencies are alike because there is this fundamental difference in governance. Personally I have a hard time envisioning a successful cryptocoin that does not have a level playing field. The oligopoly of a few companies hiring most Bitcoin developers is problematic, and the Ethereum situation much more so.
Bitcoin is defined by a reference client, which is managed by developers who are mostly employed by a for-profit company. Anyone wanting to do another implementation has to comb through a lot of hairy C++ and match it bug for bug.
Ethereum is defined by a 32-page spec, produced by a nonprofit corporation. At this point there are eight implementations, each in a different language, mostly by entities other than the nonprofit.
The problems of the mid 2000s credit bubble and subsequent near depression were down to too much laissez-faire and not enough / smart enough regulation. Crypto currencies won't fix that - they'd be worse. Their main strength seems to be for drug dealing and cryptolocker type extortion. Regulating the money supply / interest rates through an open source algorithm/AI rather than it being done by politicians might be a way forward.
Yes letting the transaction stand is boost to the confidence in the protocol at the expense of the DAO funds but it shouldn't give anyone the impression that future transactions are immune from reversal.
If bad, leveraged, investments in real-estate will not result in large losses, due to government intervention, then the real-estate market gets inflated, as when you have limited downside, your expected returns go up significantly. This also hurts less-leveraged investors (e.g. people who saved a large down-payment) as they get less house for their money, but don't gain any risk-reduction as their risk of negative-equity is much lower to begin with.
If malinvestments in ETH can be rolled-back, then any risks that are reduced by potential future roll-backs[1] will be discounted by investors, which means investors who carefully vet their investments for those risks no longer gain any benefit.
1: I'm not familiar with the fork, so don't know what the roll-back criteria are, but remember, to distort the market a roll-back need not actually happen in the future, just that a significant fraction of investors believe it is likely
Also, please don't create many obscure throwaway accounts on HN. This forum is a community. Anonymity is fine, but users should have some consistent identity that other users can relate to. Otherwise we may as well have no usernames and no community at all, and that would be an entirely different forum.
Bitcoin might have 51% dishonest problem but it can be made honest again by increasing total computation. Whether 51% are honest or not is function of total computation power [TCP]. Probablity of 51% being honest goes to 1 as TCP goes to infinity.
My point was, only very few people are about something like this.
51% being honest is fundamental assumption of a cryptocurrency [1]. The assumption gets stronger as total computation power increases.
[1] Its necessery but not sufficient condition to make the whole state dishonest. You would need to have >50% computation work done.
This assumes that the increases in computing power were not added via a mining pool, in which case the additional computing power is making things worse.
This is one reason that many view mining pools as one of the worst failures of bitcoin / other blockchains.
It's not total centralization, but it's a far cry from the level of decentralization that would be possible if mining pools did not exist.
There is a lot about this topic in the new, free book from Princeton authors titled "Bitcoin and Cryptocurrency Technologies" (a great read)[1]. There is much research being done on the front of finding the best way to eliminate mining pools or at least stop them from potentially centralizing consensus to just a handful of people.
[1]: https://freedom-to-tinker.com/blog/randomwalker/the-princeto...
This is the whole "longest chain" versus "longest valid chain" distinction. A Sybil attack can censor the Bitcoin blockchain, but 51% doesn't gain full control of the network.
The next time there is something like the DAO, people can invest without fear since rollbacks are the modus operandi. Isn't this why people are upset with the financial system? When people invest in stuff, they need to be responsible for the results. As someone who didn't buy a house in the crazy mid-2000s, I am paying the price for everyone else's stupidity in the form of crazy low interest rates (which have fueled record home prices). But who is standing up for me? No one. I thought cryptocurrencies were leading to a better world (or at least one where the system couldn't be rigged as easily). I guess not in this instance :(