Recent Happenings in the Digital Coin World

This past Monday the US Marshals auctioned off the "Silk Road" Bitcoin wallets at a higher than expected price to a single bidder.  The Bitcoin market strengthened coming into the auction and has held on to most of the price gains.

In the alternative coin market, on the other hand, we saw panic selling of an alternative coin (but only on one site!) and aggressive selling across the spectrum of "scrypt" based coins.  "scrypt" is one of the cryptographic algos that is used to validate transactions in some of the alternative coins such as Litecoin and Dogecoin.  Bitcoin uses a different algo called SHA256.

Zerohedgers know that algos are subject to attack by other algos and that the name of the game in the HFT space has been faster-faster-faster.  This is also true in the coin space.  Coins are produced by looking for rare sets of numbers that work out to be valid using the coin's algo.  This is called mining.  Initially people mined with their PC computer.  Then a faster level of mining was achieved using graphics cards.  A new level of speed arrived when special purpose ASIC integrated cicuit chips were designed to process the digital coin algos.  There are rumors of even higher speed mining using a different type of integrated circuit called an FPGA.

The faster miners are able to gain economic profits over the slower miners and dump coins on the market.  The depressed coin prices further damage the profitability of the smaller miners.

Of more concern is the pooling of this faster crypto algo power in the hands of a smaller group of high speed coin traders.  One of the vulnerabilities of a coin network is the so called "51% problem".  The coin networks operate by consensus - a transaction is valid if most of the network calculates it to be valid.  If a small group of high speed coin operators reach the 51% level they can tamper with the consensus.  This could break a coin - ruining the slower players that are holding it.

Fortunately Bitcoin seems to be actively working to prevent this.  The alternative coins, particularly the ones that use the "scrypt" algo, are much more vulnerable to the "51% problem".  I think this explains most of the price action of the past two weeks in the alternative coin market.  The market is making the transition from an abstract maybe-someone-could concern to a real maybe-someone-is concern.  Fortunately there have been nice bounces in the affected coins so perhaps the concerns are overblown.

In response new coins have been created which use a different cryptographic hashing algo that is much more difficult to implement in specialized hardware.  One of these is called x11 (an unfortunate name choice which has been in use for decades as the Unix windows software).  The hope is that x11 will inhibit the bigger faster guys from being able to kill the coin.  It is not an encouraging sign to see an x13 algo hit the streets before the x11 coins have had a chance to make it out of the nursery.

From the perspective of hindsight it seems that the choice to use the faster and simpler "scrypt" algo was a bad choice for the early alternative coins.  Bitcoin's use of the slower and more complex SHA256 algo keeps it relatively safer for longer but as always technology marches forward.  The marching is faster when money is on the line.  Satoshi's great invention was to protect the little guy from the too big to trust institutions but now we see a glimer that even Satoshi is/was only human.

Thanks Zerohedge!
Mark Hittinger
bugs_

Comments

[crazytechnician]

Erm , how many people on this forum know what a fucking rainbow table is ? The ZH Flat Earth Society would probably think that it's something in the kitchen with some interesting exotic friut on it FFS. Trying to explain this in simpleton language , I can start explaining it in C code if you would prefer....
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[crazytechnician]

This article is fucking crap

[Fuh Querada]

This article has about as much practical use as one of Reggie Middleton's undated Max Keiser interviews.

[zipit]

Poor Reggie.  Maybe one day he will be vindicated.

[crazytechnician]

He will be.

[teslaberry]

this was the sorriest ass excuse for a bitcoin article i've ever seen.

[Pickleton]

It's too bad when 'i don't like it' doesn't make you correct or the article wrong tho, huh.  /price is right fail.

[RazorForex]

I think everyone who is into cryptocurrencies needs to read this article. There are scientific applications of the blockchain technology that should not be ignored. Now that the little guys with their gpu rigs have been pushed out of the Bitcoin mining game, they can apply their computing power where it really counts. There are other crypo's that have integrated Boinc (Berkely Open Infrastructure for Network Computing) scientific distributed computing into their own blockchains. So now instead of doing hashes you can mine and contribute to various computational science projects and get paid for it. 5 Global Problems Bitcoin’s Proof of Work Can Help Solve

>>>>>>>>> http://www.coindesk.com/5-global-problems-bitcoins-proof-work-can-help-s...

Boinc Mining Rig Video: http://www.youtube.com/watch?v=9DfJj4UZcU8

[miro1a]

Fact check - FPGA miners came out after GPU based miners.  FPGA's were replaced by SHA256 based ASIC miners.  Many GPU miners switched to mining script based alt coins.  Recent introduction of Script ASICS have skyrocketed difficulty and allowed those with script ASICS to potentially corner alt coin mining.