How Dirty Money Disappears into the Black Hole of Cryptocurrency

Re:How Dirty Money Disappears into the Black Hole of Cryptoc... by badge on Saturday September 29, 2018 @02:10AM (#18098968)

Bitcoin's inflation rate is higher than the USD though?

  Bitcoin inflation rate per annum: 3.87% 
  USD Current inflation rate for the United States is

2.7%.

Early in Bitcoin history, by design Bitcoin went though a period of hyperinflation where Satoshi and a few users acquired most of the coins in circulation.

Aprox 4.11% of Bitcoin users (addresses) control 96.53% of all bitcoins in circulation.

Also there's a chance that something will make Bitcoin obsolete in the near future - immediately destroying the trade value of Bitcoin, either a new cryptocurrency, a quantum computer or cryptographic breakthrough that would allow theft of BTC private keys or more predictably a bug like what recently happened in the main Bitcoin core wallet client software which allowed a user to inflate the supply of Bitcoins past 21 million and mint more BTC for free.

So if you were truly concerned about long term stability - gold or tangible functional assets would be much safer than software based pet rocks.

https://www.livebitcoinnews.com/cve-2018-17144-the-aftermath...

  The obvious worst part of this bug was the inflation 
  exploit. An attack could create new bitcoins at will, 
  exceeding the 21 million hard cap limit that is 
  currently in place. This would absolutely destroy 
  confidence in not only Bitcoin, but every 
  cryptocurrency.


  In addition, a miner could crash every single node they 
  are connected to by producing a block with an invalid 
  transaction in it. Miners are will go out of their way 
  to connect to as many other mining nodes as possible, so 
  they receive notifications of blocks faster.


  Imagine you’re a miner, hashing away at block #1000. 
  Another miner, Jim, finds block #1001 and starts 
  propagating it around the network. However, you’re not 
  connected to Jim, so it takes an extra few seconds for 
  you to receive the block. During those few seconds, the 
  network has moved on and you’re wasting hashpower and in 
  turn money. You need to receive the new block before you 
  get started on the next one.


  All the miners are highly connected, so if one is 
  producing client-crashing blocks, many of the larger 
  miners would be hit.

Quite a concerning catastrophe that has no guarantee of being avoided in the future, as any programer knows how many bugs can hide or be exploited in any code base.

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Re:How Dirty Money Disappears into the Black Hole of Cryptoc... by kragen on Saturday September 29, 2018 @10:25AM (#18100508)

Yes, if you measure inflation by the increase in the amount of money in existence, the first block mined represented an infinite amount of inflation, the second block mined created 100% inflation over 10 minutes, the third block created 50% inflation, and so on. But, if the system functions as designed, this rate asymptotes to zero fairly quickly. You are of course correct that the system may not function as designed.

However, it is more common to measure inflation by the increase in nominal prices of goods, as I did above with gold. And, by this measure, Bitcoin is deflating. It's hard to measure the deflation rate with precision because it's so volatile, but at the beginning of 2011, it was worth 10¢, and now it's US$6600. It's oscillated wildly around the exponential trend line by about a factor of 3 on each side, but the trend line itself is a deflation by about 75% per year (or of 300% per year, if you look at deflation that way.)

Presumably this won't continue forever, as it's more appropriate to tulip bulbs than to a usable currency, but it is certainly quite far from inflation in the usual sense.

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Re:How Dirty Money Disappears into the Black Hole of Cryptoc... by badge on Sunday September 30, 2018 @02:38AM (#18104848)

You missed the point entirely.

The vast majority of the supply is owned by a very small oligarch.

The chances of Bitcoin becoming obsolete or failing catastrphically due to a glitch or bug in the protocol software - like what just happened a few days ago (luckily by someone who desired to fix it, if the bug was found by a malicious actor they would have destroyed the entire Bitcoin ecosystem), the cryptocoin software can not be guaranteed as a safe store of value.

Anyone who "invested" in Bitcoin at the start of this year has lost upwards of 50%, so that would qualify as inflation in your terms. Other cryptocoins have seen losses exceeding 80%-90%.

The way cryptocoins work is by early users dumping their supply onto new users to exit and extract real value from the suckers who then become bag holders, the new users hope to do the same but are at a severe disadvantage to early users who own the vast majority of the supply.

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Re:How Dirty Money Disappears into the Black Hole of Cryptoc... by kragen on Monday October 01, 2018 @05:24PM (#18116957)

I don't think I'm the one missing the point.

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