What does Giantitp think of block chain applications?

[Cikomyr2]

Usually the latter. There are services that will allow you to take cryptocurrency as payment, automatically handling the exchange into dollars at whatever the current rate is. Just a plugin, mostly.

so the crypto is *not* used as an actual medium of exchange, since the actual price is determined in USD.

[Yora]

Well, bitcoin could become a more stable currency in the future when it overtakes dollar and euro as primary global currency.

And won't all you doubters look silly then.

[wumpus]

[tl:dr] Most of this is repeating "don't use a block chain, use a trusted server". Of course, this is largely thanks to just how bad current blockchain solutions are. But it also hits the fundamental problems of *why* they are so bad.[/tl:dr]

Some thoughts, mostly on the theoretical side since I recently have been reading up on the subject and have little interest in owning bitcoins...

First, the blockchain.

The buzz in the blockchain is at least partly because it solves a problem in computer science old and vexing enough to have its own name: the byzantine generals problem. Add to that the fact that bitcoin in particular and other crypto-currencies have made billions of dollars for various people (well, on paper. I'm guessing that it will collapse leaving nothing but electric bills) and you have some serious buzz.

But the blockchain itself is little more than a linked list where each block contains a cryptographically secure hash (SHA256) of the previous block. This makes it impossible to insert anything in the middle. The other issue is that the "real blockchain" is the blockchain with the longest chain (there will always be competing "last blocks", and quite possibly competing "last few blocks").

The big problem with the blockchain is that this "determining the longest chain" bit also involves "proof of work" where you try to brute force a cryptographically secure hash into giving you the "best answer". The most blocks with a sufficiently "best answer" are the "longest/real chain". This is expensive in hardware and electricity and will costs will asymptotically grow until they match the benefits of mining (although bitcoin's deflationary design might help reduce the number of miners to those with existing efficient hardware and surplus electricity).

Note that "proof of work" isn't technically required. You could substitute "proof of whatever", but that opens a different can of worms (explored below). But as long as you are using "proof of work" for your cryptocurrency, you are effectively creating a "currency backed by [already used] electricity".

Now, cryptocurrency: (this only describes Bitcoin, but as far as I know the others have this issue. I've heard etherium has something called "proof of stake", which appears to be designed to create recursive sub-cabals [see below]).

Bitcoin famously introduced the blockchain (possibly fixing something used into a real tech) as a means of cryptocurrency. Which brings a second point about using a blockchain. It is clearly inferior to a mutually trusted server. Since bitcoin was designed with the assumptions of "trust no one", this makes sense. If you can/need to trust someone, don't use a blockchain.

Note that the blockchain can be "taken over" by a conspiracy of roughly half the miners (unfortunately, I can't figure out how to google this. Obviously "bitcoin conspiracy" has a lot of weird hits). But if half the miners insist on following their own blockchain, there is nothing the rest of the group can do but accept it (and lose any future benefit) or quit. On the flip side, any design that avoids this issue by making it require *more* than half the miners (call it N%) can be then DDOSed by a clique of (1-N)% of miners refusing to accept the new blockchain. Note that "taken over" means that any "mining cuts" go to the cabal, and while any forgeries can be determined by non-cabal users as invalid (assuming they bother to check), any transactions have to be approved by the cabal. At this point the non-cabal miners will drop out (same electricity costs for no benefit). The cabal can then cut their electricity usage down as long as they don't draw enough miners to overthrow them. They might also produce a recursive loop of sub-cabal after sub-cabal...

Proof of work means that such conspiracies have to provide half the electricity and computing power of all combined miners. Trying to reduce the power requirements for accepting each block means reducing the size needed for your cabal and makes for difficult tradeoffs.

The thing to notice here is that with proof-of-work, any benefits the blockchain might produce are used up in electricity. Any proof-of-something-else must carefully make sure that the "something else" isn't going to be concentrated in a cabal that can simply write their own blockchain. And if the cabal can benefit more by writing its own blockchain (or preventing a "real" blockchain from existing) than the "miners' benefit" of honestly mining for the blockchain, it will make it that much easier to set up a cabal and pwn the blockchain. It becomes increasingly hard to justify *why* you need to keep your ledger on untrusted servers. And remember, those cybercriminals/hackers/trolls/griefers are out there: if they weren't, you'd just use any old server (without bothering with the "trusted" part). They also likely know more about blockchains and ways to exploit it than you ever will (such a mind will spend hours thinking up a way to get something for nothing than minutes doing actual work).

The entire thing (the original Bitcoin spec) is quite brilliant, and solved several previously unsolved problems (there are a number of cryptocurrencies suggested in Applied Cryptography [1996], none of them work). It still isn't clear that it really needed to be solved, or that cryptocurrencies are a useful thing, but they theory is likely worth learning for its own sake (just don't expect to use it anywhere else. Unless somebody creates a better "proof-of" than "proof-of-work").

[Jasdoif]

Note that the blockchain can be "taken over" by a conspiracy of roughly half the miners (unfortunately, I can't figure out how to google this. Obviously "bitcoin conspiracy" has a lot of weird hits).

Try "51% attack".

[137beth]

As far as I can tell (and I am NOT an expert, so take everything I'm about to say with a heapload of salt), decentralized crypto currencies really have two things that make them different from traditional electronic payment systems like Paypal

1)A way of generating coins without a central authority issuing them (mining).
2)A way of making digital payments without a central authority processing every single transaction.

(1) is not a good thing: we abandoned the gold standard for a reason. And mining adds an extra cost in electricity. On the other hand, (2), is potentially useful. I expect that any applications of blockchain technology in the future will find ways of getting (2) without (1), like so-called 'stablecoins.'

From a user standpoint, using a stablecoin isn't significantly different from using a debit card. With a debit card, you pay your bank real money, and they assign a virtual value to your account. You can pay other people with this virtual value, and whoever you pay has to trust that their bank will let them redeem it for real money. A stablecoin can be used in the same way: the main difference being how the organization running it processes payments. Some big banks have already started using stablecoins via Ripple for bank-to-bank payments. If they can figure out how to do it effeciently, I would not be surprised if Paypal and their ilk started using a blockchain-based system for processing payments while keeping everything the user sees the same.

On the other hand, I also wouldn't be surprised if stablecoins never really take off outside of big organization-to-organization trading. Maybe there will be another application for blockchains, or maybe not.

I do agree with those who said some companies are just putting "crypto" or "blockchain" into their marketing just to cash in on a futuristic sounding name.

Cryptocurrency is for criminals and the black market; with "mining" a disgusting waste of resources.

Blockchain is a solution looking for a problem and is massively over-hyped.

I do think it is somewhat strange that Bitcoin and similar coins somehow got a reputation for being well-suited for the "black market." In fact, Bitcoin is an absolutely terrible fit for illegal transactions, because it uses a public ledger. Every single bitcoin transaction every made is completely public.

If you use a credit card to buy illegal drugs, the credit card company has a record that you did it which they could share with law enforcement. On the other hand, if you use bitcoin to buy illegal drugs, than everyone has a record that you did it which they could share with law enforcement.

The real danger of illegal use of cryptocurrencies, as Yora pointed out, is shadow banking.

[wumpus]

As far as I can tell (and I am NOT an expert, so take everything I'm about to say with a heapload of salt), decentralized crypto currencies really have two things that make them different from traditional electronic payment systems like Paypal


(1) is not a good thing: we abandoned the gold standard for a reason. And mining adds an extra cost in electricity. On the other hand, (2), is potentially useful. I expect that any applications of blockchain technology in the future will find ways of getting (2) without (1), like so-called 'stablecoins.'

The catch is that other reason to have mining is to allow a sufficient number of users to agree on a "real" blockchain. This is expensive. You can make a "stablecoin" by having each bank submit a block "round robin" style, but all this means is that each bank allowed to submit a block is a de-facto "trusted server". Presumably this would give the banks the illusion of equals without keeping the ledger on the Fed (or EU/China/Whatever) equivalent, and would have the advantage of using real dollars (euros/yaun/whatever) instead of "stablecoins".

Most of the math needed for the blockchain would go away, and you would be left with only the crypto needed to show that each block was submitted by the right bank and fits in the chain.

[Jasdoif]

I do think it is somewhat strange that Bitcoin and similar coins somehow got a reputation for being well-suited for the "black market." In fact, Bitcoin is an absolutely terrible fit for illegal transactions, because it uses a public ledger. Every single bitcoin transaction every made is completely public.

If you use a credit card to buy illegal drugs, the credit card company has a record that you did it which they could share with law enforcement. On the other hand, if you use bitcoin to buy illegal drugs, than everyone has a record that you did it which they could share with law enforcement.

A ledger of transactions of coins between two anonymous accounts. Your credit card company has your name, address, and other personally identifying information to have gotten your credit score before they'd consider giving you an account in the first place; and the identity of whoever they fulfilled the transaction with on your behalf. There's nothing of the sort here. For law enforcement to have anything to consider acting on, the accounts would first have to be associated with a physical person/location through some out-of-band means....Which will be far more difficult, at the very least, than a credit card company telling them where they sent the last bill.

[asda fasda]

2)A way of making digital payments without a central authority processing every single transaction.

That was the idea, but as i understand right nów most of transaction go through bit-coin exchange places which are not so much anonymous and can be easly regulated

[wumpus]

That was the idea, but as i understand right nów most of transaction go through bit-coin exchange places which are not so much anonymous and can be easly regulated

The exchanges are for converting bitcoins (and other cryptocurrency) into "real money". On the other hand, bitcoin has a terribly long delay between updates (especially considering the size of the market) and getting all the updates in a block requires some funky hacks (no idea what the limits are and how many transactions happen per block), so for all I know, the exchanges have their own means of transactions between each other (presumably some private bitcoin ledger).

One of the few clear ways to profit from bitcoin is to run such an exchange and steal all the money. This seems to happen far too regularly.

[asda fasda]

Yes, that's what I've heard, but this means that the whole idea of secure and anonymous payments can be thrown into thrash if you are unable to pay directly with bitcoin and one need a middlemen to make the transaction as otherwise it would take to much time for the transaction.

Ironically that's pretty much exact reason why paper cash was invented instead of gold : P

[Tyndmyr]

so the crypto is *not* used as an actual medium of exchange, since the actual price is determined in USD.

Sort of. To the buyer, they only send crypto, so they do accrue whatever quasi-anonymity advantages that the coin they're using has.

But yeah, prices are not generally set in bitcoin, only translated to it. Other real world currencies that are less popular also function in this fashion, with the dollar being the most common currency to peg things to.

So, one could argue that Bitcoin is better than various obscure currencies, but certainly not more commonly accepted than the dollar or the euro, nor even close to equal with either.

As to the issue of trust, it is perhaps most applicable to currency. For most applications, say...running a game, you generally need to trust whoever makes the game anyways. Since they code the game, they can always break it, but are not motivated to do so because they make money from the game. So, if they manage hosting, the same applies, and there really isn't any additional risk. Same entity is being trusted either way.

The big issue with currency is that monetary policy can change. This isn't necessarily malicious, there are many reasonable causes for fiscal policy to change, and it's not possible to perfectly predict the economy for the lifetime of a currency. The advantage/disadvantage of crypto is you can set the policy in stone in a way that's just not possible for traditional currency. We know exactly how Bitcoin will deflate and when. That foreknowledge is unique and absolutely safeguards against undesirable changes...but it also cannot change with the market. The inflexibility means it's going to be volatile.

A ledger of transactions of coins between two anonymous accounts. Your credit card company has your name, address, and other personally identifying information to have gotten your credit score before they'd consider giving you an account in the first place; and the identity of whoever they fulfilled the transaction with on your behalf. There's nothing of the sort here. For law enforcement to have anything to consider acting on, the accounts would first have to be associated with a physical person/location through some out-of-band means....Which will be far more difficult, at the very least, than a credit card company telling them where they sent the last bill.

I would imagine that the competing payment model for illegal goods isn't credit card payments but cash.

Cash may be technically traceable in some cases, but I would imagine that the buyer probably doesn't have much risk if the transaction itself isn't spotted.

Bitcoin does open up the possibility of someone later figuring out how to extract interesting information. If the dealer's account is discovered, it seems obvious that the accounts it dealt with would be investigated. Depending on what the account was used for, that could lead fairly easily to a real world address.

[NichG]

The exchanges are for converting bitcoins (and other cryptocurrency) into "real money". On the other hand, bitcoin has a terribly long delay between updates (especially considering the size of the market) and getting all the updates in a block requires some funky hacks (no idea what the limits are and how many transactions happen per block), so for all I know, the exchanges have their own means of transactions between each other (presumably some private bitcoin ledger).

One of the few clear ways to profit from bitcoin is to run such an exchange and steal all the money. This seems to happen far too regularly.

This is part of what makes the whole crypto thing seem so sketchy to me. On the one hand, people get very intense about how worried they are that e.g. a government will do something to devalue its currency and steal all their money, and they have no control over that or way to prevent it (somehow ignoring investing in other assets like property, index funds, etc). Enter crypto, which supposedly means no one has to trust anyone anymore! But then they go and cavalierly trust unregulated exchanges run by individuals who have no real accountability, and somehow the idea of having to trust those exchanges doesn't provoke the same kind of fears. Feels like saying 'I'm into crypto' is like a shibboleth saying 'we have the same philosophy, so trust me' and that has more to do with the dynamics and behavior than any sort of guarantees from the math.

Not to mention all of the sorts of things people do to broadcast their allegiance to crypto (laser-eye avatars, 'hodl' messages, changing usernames to include their coin of choice, etc)...

[Justanotherhero]

This is part of what makes the whole crypto thing seem so sketchy to me. On the one hand, people get very intense about how worried they are that e.g. a government will do something to devalue its currency and steal all their money, and they have no control over that or way to prevent it (somehow ignoring investing in other assets like property, index funds, etc). Enter crypto, which supposedly means no one has to trust anyone anymore! But then they go and cavalierly trust unregulated exchanges run by individuals who have no real accountability, and somehow the idea of having to trust those exchanges doesn't provoke the same kind of fears. Feels like saying 'I'm into crypto' is like a shibboleth saying 'we have the same philosophy, so trust me' and that has more to do with the dynamics and behavior than any sort of guarantees from the math.

Not to mention all of the sorts of things people do to broadcast their allegiance to crypto (laser-eye avatars, 'hodl' messages, changing usernames to include their coin of choice, etc)...

Bacause we were waiting for a example:

https://www.tomshardware.com/uk/amp/...-2-billion-usd

The founder of a popular crypto exchange in Turkey has disappeared, with media reports indicating that he has fled the country with $2 billion as roughly 300,000 frustrated users have suddenly lost access to their accounts.

[asda fasda]

I'm not sure that we were exactly "waiting" for an example, but yeah, having one in less then 2 months from the original discussion that says a lot about the issue at hand

[warmachine]

Always remember that commerce, including currency, depends on trust. If you have no reason to trust a trader and can't trust that a law enforcement agency will enforce the rules for you, you must have your own credible threat of retaliation or risk the trader stealing. If you're down to hoping the trader doesn't steal, such as claiming he never received the goods in the mail or steal your cryptocurrency, make sure you can afford the risk.