Topic: Money creation system - is bitcoin creation resistant? (Read 1619 times)

I've decided to bump this thread because, after 4 years, I'm even more sure that fractional reserve system on centralized institutions holding bitcoin is happening and is diluting the BTC supply. Especially now, when we started to pump again and market seams to forget about what happened with FTX (failed fractional reserve).

Holding coins on exchanges not only puts you in a risk (not your keys not your coins) but also decrease bitcoin value.

Right when we hit 40k for first time.


I don't have paid account either. I passed this screenshot from my discussion with friend on telegram and didn't check it. Looks like i should. Sorry.

When was that screenshot taken?

Recent data showed BTC supply on exchanges spiking back up to mid-2020 levels. This coincided with the $42K top and subsequent correction.



I'm curious what Glassnode is showing, but I don't have a paid account.

I've decided to bump this thread because i feel like its perfect time for reminder. It is highly likely that most exchanges does not have enough coins to cover balances of all users, now, during days when total balance on exchanges are going down it is possible that we will see exit scams (fake hacks) soon.

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As far as I read, not traditional banking will be updated, but a mass issue of national digital money will be launched, in which all the issues of fast and cheap payment transfers between states and banks - will be successfully resolved.
In this model of the financial world, there will be no point in modernizing the payment system to improve operations with fiat currencies.
According to statistics 60% of all bitcoins are in a state of long-term storage and will not participate in payments for about 4 years.
This has a very bad effect on the growth of the value of this currency.
For bitcoin owners who use it as a means of saving, everything will be fine if the price rises in 4 years.
If the price stays at today's level, the storage operation will not pay for itself. Or it will cause losses.

As they say, saving a man who's sinking is the job of that very man who's sinking.

Bitcoin works very well with the current Blockchain system. The only problem is that time and block sizes are small. Great transfers for a different one. Small transactions can be used in different networks. Atomic swap offers an alternative to solve these situations. LN is also an alternative.
If traditional banking does not renew itself, it will perish.

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Verifying the existence, or belonging to us, of our crypto assets must be verified, but not in this way.  Technically, it can be done by the bitcoin owner every second, every hour, or every day.
But that part of the technology is not yet available to us.
And that's a significant flaw that should be corrected soon.

Cryptography in bank security systems is common, household, conditionally reliable.

Attacking a bank's security system through a cryptographic attack itself is not necessary.

Cyber security in banks is so low that there are many other, more effective means of attack. And scammers always choose the easiest way.

Very strange solved the issue of cryptography, without our consent, in the protection systems of all banks. 

Cryptography, the technology of information management, for a long time already allows to have mechanisms of protection of owners of bitcoins from theft on exchanges, from worrying about it the owner of the asset - a crypto-asset.
Somehow do not reach hands at administrators - to start these mechanisms excluding theft, basically and forever.

Here is an interesting example of how the security system is organized for ordinary currencies, in banks of fiat assets.

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They (I do not know who these people are) make a distinction between "commercial" or general cryptography (this is the one for us) and state cryptography.

Commercial cryptography must be based on the same standards throughout the world, because modern business, let alone banking, often goes beyond the borders of a single country.

But state standards for cryptography are much better, they cannot be distributed anywhere, they will only be used within government structures and as is done in the United States.

And despite this high level (relative to "our" bank cryptography), they must be updated every five years (at the algorithmic level).

Then it is even more interesting.

Commercial structures should not have access to this algorithm itself. Thus, it will be possible to apply simultaneously public "commercial" algorithms - for us, the simple and naive, and for the celestials - to ensure the normal preservation of state secrets and other important secrets.

We, bank customers, ordinary customers, not VIPs, are confronted by organized cybercrime, which has a huge, well-organized business that operates billions of dollars annually around the world.

Far from cyberattacks are not always protected by antivirus programs or data protection technologies, because hackers' technologies are always and constantly being improved.

I'll tell you one thing I am 100% sure. There is a 100% chance some exchanges, trusted or fishy have used this method
at some point. Your words Sir are worth billions of dollars in this industry and thank you so much for sharing. I am bookmarking
this as soon as I get merits

Just wanted to remind all of you that Proof of Keys Day will take place at third of January. It is important to withdraw all your funds from exchanges that day. In my opinion it is important to take part in this event not only to check if your funds exist but also to protect yourself from storing coins on exchange that will be exposed as cheating one.

I choose the third state of affairs, as it is very risky today. Sorry, I can’t vote yet, but I think it takes time.

Thanks for the article, very technical and well structured.
Currently, bitcoin seems fairly protected from the "shrewdness" of politicians and bankers, even if it is already very unstable of its own.
It will be seen in the future if the strong powers manage to circumvent the technical limits of the blockchain. I do not think so.

"It means maybe one day someone will want to print out millions of bitcoins as well and if everyone agrees (or at least enough people)" well ... no! Do you imagine a situation in which majority of miners agree to kill bitcoin? Because such situation will destroy bitcoins fundamental value (limited supply). I do not.

This topic is about money creation system that base on fractional reserve implemented by companies that store bitcoin for their customers (F.e exchanges).

People forget that bitcoin COULD potentially be a creation system as well if given enough power to people who can change it.

Right now, we are using segwit for example, bitcoin when first created didn't had segwit, it surely didn't had whatever bitcoin cash or sv has but it didn't had segwit as well, which means we added something on top of the existing blockchain and bitcoin continued its existence like nothing happened.

It means maybe one day someone will want to print out millions of bitcoins as well and if everyone agrees (or at least enough people) that blockchain will be the OG blockchain and this one will become the hard fork alternative. I know that sounds very impossible but in theory it is still possible. So, we just have to wait and see.

I agree with you. In most cases (if not all cases) exchanges go into fractional reserve to avoid FUD after hacks, bugs or wrong investments. Even CZ during one of intervievs said that he knows about few hacks that happens recently on big exchanges that was not announced. The question is if they have enough funds to cover it from earnings or they have plan to cover it from future earnings implementing fractional reserve system now.
I've also heard that some exchanges simply trades with our coins. Free physical short. Quick dump our coins, trigger stoploss and rebuy them lower (they know where are stoplosses, they can count exactly how much of them will be triggered)


It's not quite that. If you borrow 100 BTC you are unable to use them. So the amount of BTC free to use (dump f.e) did not change. Problem starts when you hold your BTC in company that without your knowledge borrow them to others knowing that you most likely won't withdraw.

Fair point.

Vis a vis exchanges: I think some exchanges don't intend to be fractional-reserve or bucket-shops at first, but end up becoming bucket-shops, because if they're hacked or lose coins due to a bug, it is easier to fib that they're still solvent and remain popular than tell the truth and make everyone panic to withdraw. Easy for them to fool themselves that "we'll just keep it under wraps while we figure out some way to get solvent again".

Of course, it's hard to distinguish that situation, from the outside, against a situation where they planned to fool around with the deposits from the beginning.

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In the more general sense, though, I think the effective monetary base being able to grow bigger than the underlying asset, is impossible to avoid if we expect people to ever use BTC as money, because any lending activity at all increases M2/M0.

Imagine that I loan 100 bitcoins to someone. Afterwards, they have 100 bitcoins, and they have a 100BTC debt to me. And I now have a 100BTC credit against them.

For the moment, let's assume that the borrower is very low risk of defaulting. A well trusted, rich person with plenty of assets to seize if they default.

Now, this means that the market value of my 100BTC credit against them is really 100BTC, right?
And I can sell this debt on to people, for the same value as a bitcoin itself.
There have even been Bitcoin ETF proposals that base their asset management strategy on such an idea - buying BTC futures on CBOE rather than holding the bitcoins directly & having to worry about key control and so forth. These are debt instruments, not bitcoins, but if they are worth exactly the same amount as bitcoins at market, they still increase the "supply" of BTC on the market, don't they?

This is similar to how many countries use US dollars as a reserve currency, but they don't hold physical bills - they hold some treasury bond or long-term CD so they can at least get a little interest payment on it.

To imagine that Bitcoin will go mainstream and yet avoid this fate, you need to somehow imagine that people will stop borrowing money, which seems impossible in a world that invented debt long before it invented coinage (see also).

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Yeah, there's no such thing as absolute safety.
But let me point out that the current security model is weak in itself. Regardless of the precautions you take, it is not capable of performing its functions, because vulnerabilities are inherent in its design.

Brief analysis:

1. Cryptography.

Asymmetric cryptography (private and public key cryptography) is based on unproven mathematical assumptions (complexity of factoring and discrete logging of large numbers in a short time). For this reason, it is not used in military affairs, important diplomatic and government dispatches, etc. Only symmetrical.

Some class of elliptical curves previously successfully standardized by NIST (USA) proved unsafe. The information is not much disclosed, but it can be checked.

Elliptical cryptography itself (abbreviated as ECC) is full of unexpected surprises, details are carefully concealed, but there are verifiable facts.
Detailed analytical material, with references to sources, here:
https://bitcointalk.org/index.php?topic=5204368.40
- second post on the account of 04 December 19.

At first glance, it seems that these are sick fantasies, conspiracy theory, etc. Yes, you will have this impression until you read this analysis yourself.

Well, let me have a fantasy, then even more fantasy in the NSA and NIST (USA), the first refused the ECC categorically, and the second has nothing to do, actively looking for a replacement for all modern cryptographic systems with open and closed keys. The beginning of this story no later than 2012.  Strange.

2. Key encryption systems and password (even worse biometric) authentication.
These are problematic methods if you look at the statistics of attacks using the data theft.
You hid the key in your hardware wallet, or you wrote it down on paper, protect it, don't lose it. Because they will not be stolen while lying in a stash, but when used for their intended purpose. Phishing. It grows faster than the most daring assumptions. Fraudsters need not the key itself, but its hash, the one that you will transfer to the server. You can store the key further.
Secure connection to the server? Go deep into the details of its start, read the facts, perhaps you are a free-thinking person...

06.12, 20:15] The University of New Mexico has released information about a vulnerability affecting Ubuntu, Fedora, Debian, FreeBSD, OpenBSD, macOS, iOS, Android, and other Unix-based operating systems. The problem allows you to listen and intercept VPN connections, as well as embed arbitrary data into IPv4 and IPv6 TCP streams.

The vulnerability identified by CVE-2019-14899 is related to Unix-based operating system network stacks, in particular how the OS responds to unexpected network packets.
https://seclists.org/oss-sec/2019/q4/122

[15:14, 10.12.2019] A team of researchers from the Wooster Polytechnic Institute (USA), the University of Luebeck (Germany) and the University of California, San Diego (USA) found two vulnerabilities in TPM processors. The exploitation of the problems, which have become known as TPM-FAIL, allows an attacker to steal cryptographic keys stored in the processors.
This chip is used in a variety of devices (from network equipment to cloud servers) and is one of the few processors that have received the CommonCriteria (CC) EAL 4+ classification (comes with built-in protection against attacks through third-party channels).

And now our ESUs are under attack:
[15:14, 10.12.2019] Researchers have developed a series of attacks that they call "timing leakage". The technique consists in the fact that the attacker can determine the time difference when performing TPM repetitive operations, and "view" the data processed inside the protected processor. This technique can be used to retrieve 256-bit private keys in TPMs using specific digital signature schemes based on elliptical curve algorithms such as ECDSA and ECSchnorr. They are common digital signature schemes used in many modern cryptographically secure operations, such as establishing TLS connections, signing digital certificates, and authorizing logins.

"A local attacker can recover an ECDSA key from Intel fTPM in 4-20 minutes, depending on the level of access. Attacks can also be carried out remotely on networks by restoring the VPN server authentication key in 5 hours," the researchers note.

This applies to the question of both cryptography and keys. This is when you pass a hash key, it may not be on your server first.

The Turla cybercriminal grouping (also known as Venomous Bear or Waterbug) distributes new malware called Reductor to intercept encrypted TLS traffic and infect the target network.

For more information: https://www.securitylab.ru/news/501571.php

3. Phishing.
Why is it possible? Because the client has a permanent identifier, whose hash is the subject of hunting. The server checks you, and you are the server?
Do you know what recommendations to the user on phishing protection?
Carefully study all symbols of the name of all sites that you visit.
And do not let God miss the substitution of 1 character!
And this is in the 21st century?
We are led as a brainless herd...

Facts:
[10:27, 12/08/2019]
According to the annual Security Intelligence Report prepared by Microsoft, the number of phishing attacks in recent years has grown three and a half times.

What happened?
Are there more nonchalant people or are scammers working better?
Try to answer this question.

Customers of banks, payment systems and telecom operators are increasingly becoming victims of phishers. Internet fraudsters gain access to confidential user data (logins, passwords and plastic cards), directing potential victims to fake sites and services.
Check here:
 https://www.microsoft.com/securityinsights/

Obviously, if you have a key "from the safe where the money is", they will always hunt for this key.

4. The trust certificate system to confirm that the public key belongs to a specific person. You don't even want to write facts here. Just look at the name.
We are offered a game - "believe", "do not believe".
It came to the point that you can find software that automatically generates the necessary certificates of trust.

On the subject of concepts of modern security systems based on key cryptography and password authentication - I will soon open a separate topic, I wonder what others know about this pressing issue.

Blockchain, Bitcoin, is based on cryptography on elliptical curves (for signature), by the way. 

To sum up, I want to say my opinion because I know it would be hard to believe but there is no absolute system that is totally safe. No matter if it is decentralized or not, the safety of the system is not only depending on the system itself, but how the users are using it. If you want to secure your funds, you have the right to choose which platform to use and you have the right to execute which decision you want or in simple terms, your security mainly depends on you especially on how you handle your accounts safety and security, and how responsible you are in keep your private and public keys safe from vulnerabilities.

We must not forget why centralized exchanges and exchanges were created. Only for earnings owners.
You need to remember how many exchanges in history collapsed and what were the financial consequences.

Centralized exchanges cannot be secure by definition. Security only exists in decentralized systems.

We think exchanges are safe places. We want to believe it. But I don't know how much money is in the cold wallet. Decentralized systems are safer to use. Exchange owners can make great speculation. Constantly new developments. Need to follow.