[Cryptography] What has Bitcoin achieved?

[ianG]

On 20/06/2014 17:05 pm, Lodewijk andré de la porte wrote:
> 2014-06-20 16:31 GMT+02:00 ianG <iang at iang.org <mailto:iang at iang.org>>:
> 
>     Take a block.  Calculate the amount of money spent on the mining of that
>     block, which you can use 25BTC as a proxy for.  Divide that by the
>     number of transactions in the block.
> 
> 
> I do not, at all, think that's fair.


Fair?  What does that mean?  Just curious, do you mean, calculating a
cost that way seems inapplicable, or do you mean that there is a notion
of what would be 'fair' in a cost allocation sense?


> It is some sort of indication of:
>     * how unprofitable mining would suddenly become if the blockreward
> would dissapear
>     * how expensive transactions would be if miners would still demand
> payment (read: how Bitcoin would suddenly die if that happened)
>     * how Bitcoin is "fractional reserve" in a way, only if people put
> in what we call "market cap" would others be able to get it out. It's
> more or less like fractional reserves in that not everyone can get "his
> money" out.
>     * how disproportionate the current mining efforts are to the value
> of a transaction


One could see things that way, sure.  I'm just trying to be pragmatic here:

What does it cost to run the entire machine?
How is that cost distributed?  Who pays, who is compensated?


> And that last one is just as intended and a good feature. In a way you
> can say that your fee buys you security, by buring your transaction
> under a certain amount of hashes. Now there is money out of nowhere
> paying for a whole load (maybe around 60x) more security than you paid
> for. That's a good thing because Bitcoin is (used to be?) kind of small
> and thus hackable, and is now (maybe around 60x) less hackable.


Well, when we establish a cost, someone has to pay it.  Then, we can
then build a marketing myth around why Joe-customer should pay that
cost, as a participant, a consumer.  Idk that I give a lot of attention
to such a myth.  "It's the security you deserve..."

I think I'm more interested myself in comparing the costs of various
machines and seeing where the market can be improved.  We can compare
the cost of say the credit card machine (4%?) as against the Bitcoin
machine (25BTC/block) as against the world wide slow SWIFT machine
(20-60?) ... and so far we're not seeing a lot of difference.

Which means happy days -- there is fantastic opportunity to improve the
matter.  I reckon I can do it for pennies ;)


> The question of who pays for that is peculiar as it seems in many ways
> as if money comes out of nowhere. The complexity of supply and demand
> does not nessarily change the value (although supply might correlate
> with amount in existence) of the coins as they increase in quantity. I
> would say that "newcomers" that push the price compensate for the
> pulling of the price caused by selloffs through mining. The truth is
> miners are purchasing new coins from nobody, not affecting supply/demand
> directly and securing the network through it. It's a very good choice
> for Bitcoin. So good that you'd almost like to make a coin stable versus
> hashing power.


Right, so the myth is that the money comes from nowhere, sure.  It's
free.  Don't worry your pretty little head over it.

The reality is that there is huge latent pent-up demand for open payment
systems from the general public, and people are prepared to pay for
that.  Currently the exchange rate seems to be say 5% which is pumping
up a lot of exchange business, and the demand is overwhelming other
factors such as the cost of mining.  So mining 'appears' to be free, but
in fact it is only cheap while the system is growing and demand is
pushing up the price so as to overwhelm the cost-transfer accounting.



> And what's worse: this does not depend upon any one transaction at all.
> And what's better: this means that by your account the Bitcoin
> transaction price is expected to regularly drop /dramatically/!


Well, if the system can be run at scale without the mining reward, e.g,
when it switches over to fees-based only, then we can also hope that the
cost will drop dramatically.

But wait -- if so, why did we need the miners in the first place?  It
was to stop the double spend, right?  Or the false spend, to include a
wider degree of ills.  So as long as the miners are doing their job on
this on a fee-basis then it is fine.

(idk the answer to this, I've basically ignored fees and distribution of
same to this point, what's the story?)


> I think you should add the cost of developing software for Bitcoin, if
> you take initial coin distribution into account. And to think that the
> price ends up being similar to a bank transfer!


Ah, now you're speaking to my heart!  Developers are taken for a ride on
this one.  There was a sort of proxy reward for the original developers
in that those close to the code could mine most.  But that was so rough
a connection that it is pretty well wiped out within months (I speculate).

Now we have the problem that the dev team is the SPF or CVP for the
whole darn network.  And they're not funded at all, directly.  This is
why ripple and ethereum and others have started foundations before hand
and pumped value into them -- so as to ensure the survival of the dev
team.  Meanwhile every startup is eating out the core of the dev team
and bidding the developers up through the roof.  This does not end well.
 Am I the only one who sees this???



iang



ps; SPF == single point of failure, CVP centralised vulnerability party.