Topic: Mises on BitCoin (Read 5906 times)

Not really, gold has a use in the economy, i.e. electronics, science, manufacturing, etc.   But the parallels between the two are rather close in all other regards.

First off, the scenario of 50% of the network power being able to create a false blockchain with a greater proof-of-work is practically impossible, as the attacker would need vastly more than 50% in order to gain enough on the honest network in order to perform any kind of attack.  50% would just let an attacker maintain a chainsplit for as long as he could maintain 50% of the network, shortly after he dropped to 49.9%, his false chain would be obliterated by the rest of the network. 

Second, it's a strange thing to say "fake" bitcoins in this context.  If you had a modified client that could pre-calculate the proof-of-work (let's call it a magical client, since part of the design of the blockchain makes pre-calculations of blocks, if not actually impossible, astronomicly unlikely sans a shortcut error in sha-256, and if you found an error in sha-256 you would be famous) then your client would functionally represent itself as a much more powerful node than it really is, resulting in the honest processing of blocks being your least risky and most profitable activity, neutering similar efforts by unknown attackers.  Even honest generation takes 100 blocks before the owner can spend them, and a dishonest node is going to have a hard time maintaining a chainsplit for 100 blocks even if he precalculated some of them, and is otherwise limited to the same number of coins per block as if he came by them in the honest manner, because other nodes will immediately reject blocks that tried to create more than the proper reward, or any blocks that the transaction signatures didn't match.

An honest node can check the transaction signatures. No matter how long your proof of work is, you can't fake other people's signatures. So all you can put into your fake blocks is honest transactions plus your own double-spends.

Of course, if you can trick other people into using your modified client, then that client can show those people that they have a balance of three pink unicorns. But it won't convince the rest of the network of that.

Thanks for your response, and it seems like you are (and I hope you are) probably correct. But a quick scenario:

If I made a fake bitcoin client, with proof of work already done for thousands of blocks (performed by servers as I am writing my fake bitcoin software) and longer chains than the honest nodes.

If I distributed my fake bitcoin and reach 50% + 1 and some time, how would the honest nodes know to reject my blocks? If my proof of work is longer and the blocks I fake are recent?

And if I already had the proof of work, doesn't the need for computing power go away, since verification is fast and easy?

(Apologies if this has been answered before, and I am somewhat new to crypto.)

No one can ever create new bitcoins in an illegal way, even if they have 99.99% of the network. Similarly, no one can ever spend coins that they have never owned in the past.

Network nodes can't influence transaction verification unless they control a very large portion (>80%) of the network. They need to segment the network, surround peers, or block transaction/block propagation. It is a design goal of Bitcoin for network nodes to be as powerless as possible. Only computational power should matter.

Is this correct?

It seems to me that if you had >50% of network nodes running a modified version of the BTC client then they could, given a bit of time, verify forged bitcoins. Eventually (time is key) the forged chains of block transactions would become longer the legitimate ones and even honest clients would accept them. And I am just talking about >50% of nodes, not processing power

Am I wrong?

This is false.  The demand for drugs is not as hard as energy.  The price of drugs is a ratio with respect to it's supply versus it's demand.  The legality of drugs effects the risks of production and importation, resulting in a lower supply, increasing the price.  The risk premium of drugs is so high, that it is not unreasonable for the street price to be half or less if all drugs were decriminilized.  This is why, even though tobacco is not yet illegal, that Illinois can only raise their sin taxes so high before there are cases of otherwise normal Americans getting caught "smuggling" a station wagon full of tobacco products from Kentucky.

If you're just "using it as money" you won't really keep it for long. You keep it if you also see it as a way to save/invest.
By money I was talking just about "means of exchange", not a way to store savings.

Requirements for "good money" are features like:

• Slow inflation
• Easy to transfer, protect, store
• Easy to verify as authentic

And so on. It's on this sense, of "good means of exchange", that I'm certain that bitcoins beats gold.

I do think that the "sound money of the future" will either be bitcoins, or something else on the same line (something digital, not physical). It doesn't make sense anymore to keep using something physical for the role of money, imo.

You do have a point though, it is difficult to separate the role of "means of exchange" from the role of "store of value". For this latter role, bitcoins are still riskier than gold.

Maybe, but don't compare currencies with drugs... the latter have a very "hard" demand, in the sense that, if it becomes more scarce, people will stop consuming other stuff in order to continue consuming drugs, that's what pushes their prices so high.

Currency, I'm not that sure... if it becomes dangerous to use bitcoins, people could simply switch back to government controlled currencies. That may cause a big devaluation. In the long run, the value would tend to stabilize and then slowly grow due to scarcity, but if you bought a lot just before the decrease, you're screwed.

Depends on what you define as Groceries: http://billstclair.com/DoingFreedom/000623/df.0600.fa.lipidleggin.html

But yes, that would slow down mainstream acceptance, But if you know anything about agorism, you know BTC is perfect for it.

Still, you won't pay for your groceries in Bitcoin then, so mainstream adoption can be severely slowed down.

Being a good investment, or at least a stable one, is a requirement for something to be a good form of money. (At least when it's not legal tender).  Few people would voluntarily accept something as money when it has what they consider to be an unreasonable risk of losing its value.

In my experience, making something illegal exponentially increases it's value. Should the US gov make btc illegal, I will immediately transfer as much assets into it as possible. They just made it the de facto currency of the black market.

That's what I meant by "lack of trust".
Faking digital signatures? Has this ever happened with the algorithms used by bitcoin?


That wouldn't change what I said. Bitcoin would keep being better as money than gold. This new, better online currency would only be even better than that.

Don't confuse "being good as money" with "being good as an investment". Bitcoins are definitely more risky as investment than gold right now.


All this rich criminal would be able to do is to fraud transactions, by double-spending. That's not an "attack to the network" but rather an attack to some individuals who are unlucky enough to deal with the criminal. And, I really doubt that the eventual benefits one could get out of such criminal activity would be even close to the great cost of gathering more processing power than the entire network. Somebody with that much resources would probably earn more by just generating, actually.


Worthless, I doubt it. At most, it would see a decrease in value if, for example, a better currency shows up or most governments worldwide declare a War on Bitcoins Exchangers. But that has nothing to do with bitcoin's qualities as money.


Again, you're confusing "being good as money" with "being a safe investment". I don't doubt gold is a safer investment right now than bitcoins.

Just as gold is backed by the assets that people are willing to exchange for it, so too is Bitcoin.

As far as i understand, controlling >50% of the network would only allow some double-spending attacks.
However if you want to print money, there is technically no possibility of enforcing "government-controlled version of Bitcoin" on everybody.

For example, if you make 60% of the network accept new type of blocks, which will allow printing more money, then the remaining 40% of the network will completely reject these blocks, which effectively will make Bitcoin split into 2 networks: the "new" one which is government - controlled, and the "classic" one.

Of course, people will choose the "classic" network (nobody want's his money to be stolen by government), and the whole operation will fail. Unless of course govs make that illegal, and Bitcoin will go underground.

True. Nonetheless...

"Qui audet adipiscitur".

As of now there is no mechanism to force people to upgrade to a newer, less desirable version of Bitcoin. the scenario you describe would require that people controlling over 50% of the network computing power adopt the newer, different software.

Bitcoin is still unproven. This site itself still warns that it's experimental beta software. There are fears that a bug will be found flooding the market with fake bitcoins, or that a new, better online currency will be introduced, or that someone with enormous computer resources will attack the network. All these might make everyone's Bitcoins worthless. These reasons are why I, and a lot of people, don't put more than a small amount of net wealth into Bitcoin.

Gold, on the other hand, has 6,000 years of history of keeping its value.

It's called forking.