Crypto-Cornucopia Part 2 - "This System Is Garbage, How Do We Fix It?"

Tyler Durden's picture

Authored by Dr. D via Raul Ilargi Meijer's The Automatic Earth blog,

Part 1 "Bitcoin Is A Trust Machine" here.

You have to understand what exchanges are and are not. An exchange is a central point where owners post collateral and thereby join and trade on the exchange. The exchange backs the trades with their solvency and reputation, but it’s not a barter system, and it’s not free: the exchange has to make money too. Look at the Comex, which reaches back to the early history of commodities exchange which was founded to match buyers of say, wheat, like General Mills, with producers, the farmers. But why not just have the farmer drive to the local silo and sell there? Two reasons: one, unlike manufacturing, harvests are lumpy. To have everyone buy or sell at one time of the year would cripple the demand for money in that season. This may be why market crashes happen historically at harvest when the demand for money (i.e. Deflation) was highest. Secondly, however, suppose the weather turned bad: all farmers would be ruined simultaneously.

Suppose the weather then recovered: the previous low prices are erased and any who delayed selling would be rich. This sort of random, uncontrolled, uninsurable event is no way to run an economy, so they added a small group of speculators into the middle. You could sell wheat today for delivery in June, and the buyer would lock in a price. This had the effect of moderating prices, insuring both buyers AND sellers, at the small cost of paying the traders and speculators for their time, basically providing insurance. But the exchange is neither buyer, seller, nor speculator. They only keep the doors open to trade and vet the participants. What’s not immediately apparent is these Contracts of Wheat are only wheat promises, not wheat itself. Although amounts vary, almost all commodities trade contracts in excess of what is actually delivered, and what may exist on earth. I mean the wheat they’re selling, millions of tons, haven’t even been planted yet. So they are synthetic wheat, fantasy wheat that the exchange is selling.

A Bitcoin exchange is the same thing. You post your Bitcoin to the exchange, and trade it within the exchange with other customers like you. But none of the Bitcoin you trade on the exchange is yours, just like none of the wheat traded is actual wheat moving on trucks between silos. They are Bitcoin vouchers, Bitcoin PROMISES, not actual Bitcoin. So? So although prices are being set on the exchanges – slightly different prices in each one – none of the transfers are recorded on the actual Bitcoin Ledger. So how do you think exchanges stay open? Like Brokers and Banks, they take in the Bitcoin at say 100 units, but claim within themselves to have 104.

Why? Like any other fractional reserve system, they know that at any given moment 104 users will not demand delivery. This is their “float” and their profit, which they need to have, and this works well as far as it goes. However, it leads to the problem at Mt. Gox, and indeed Bear Sterns, Lehman and DeutscheBank: a sudden lack of confidence will always lead to a collapse, leaving a number of claims unfulfilled. That’s the bank run you know so well from Mary Poppins’ “Fidelity Fiduciary Bank”. It is suspected to be particularly bad in the case of Mt. Gox, which was unregulated. How unregulated? Well, not only were there zero laws concerning Bitcoin, but MTGOX actually stands for “Magic The Gathering Online eXchange”; that is, they were traders of comic books and Pokemon cards, not a brokerage. Prepare accordingly.

The important thing here is that an exchange is not Bitcoin. On an exchange, you own a claim on Bitcoin, through the legal entity of the exchange, subject only to jurisdiction and bankruptcy law. You do not own Bitcoin. But maybe Mt.Gox didn’t inflate their holdings but was indeed hacked? Yes, as an exchange, they can be hacked. Now you only need infiltrate one central point to gain access to millions of coins and although their security is far better, it’s now worth a hacker’s time. Arguably, most coins are held on an exchange, which is one reason for the incredibly skewed numbers regarding Bitcoin concentration. Just remember, if you don’t hold it, you don’t own it. In a hack, your coins are gone.

If the exchange is lying or gets in trouble, your coins are gone. If someone is embezzling, your coins are gone. If the Government stops the exchange, your coins are gone. If the economy cracks, the exchange will be cash-strapped and your coins are frozen and/or gone. None of these are true if YOU own your coins in a true peer-to-peer manner, but few do. But this is also true of paper dollars, gold bars, safe deposit boxes, and everything else of value. This accounts for some of the variety of opinions on the safety of Bitcoin. So if Polinex or Coinbase gets “hacked” it doesn’t mean “Bitcoin” was hacked any more than if the Comex or MF Global fails, that corn or Yen were “hacked”. The exchange is not Bitcoin: it’s the exchange. There are exchange risks and Bitcoin risks. Being a ledger Bitcoin is wide open and public. How would you hack it? You already have it. And so does everybody else.

So we’ve covered the main aspects of Bitcoin and why it is eligible to be money. Classically, money has these things:

 

1. Durable- the medium of exchange must not weather, rot, fall apart, or become unusable.

2. Portable- relative to its size, it must be easily movable and hold a large amount of value.

3. Divisible- it should be relatively easy to divide with all parts identical.

4. Intrinsically Valuable- should be valuable in itself and its value should be independent of any other object. Essentially, the item must be rare.

5. Money is a “Unit of Account”, that is, people measure other things, time and value, using the units of value to THINK about the world, and thus is an part of psychology. Strangely that makes this both the weakest and strongest aspect of:

6. “The Network Effect”. Its social and monetary inertia. That is, it’s money to you because you believe other people will accept it in exchange.

The Score:

 

1. Bitcoin is durable and anti-fragile. As long as there is an Internet – or even without one – it can continue to exist without decay, written on a clay tablet with a stylus.

 

2. Bitcoin is more portable than anything on earth. A single number — which can be memorized – can transport $160B across a border with only your mind, or across the world on the Internet. Its portability is not subject to any inspection or confiscation, unlike silver, gold, or diamonds.

 

3. Bitcoin is not infinitely divisible, but neither is gold or silver, which have a discrete number of atoms. At the moment the smallest Bitcoin denomination or “Satoshi” is 0.00000001 Bitcoin or about a millionth of a penny. That’s pretty small, but with a software change it can become smaller. In that way, Bitcoin, subject only to math is MORE divisible than silver or gold, and far easier. As numbers all Bitcoin are exactly the same.

 

4. Bitcoin has intrinsic value. Actually, the problem is NOTHING has “intrinsic” value. Things have value only because they are useful to yourself personally or because someone else wants them. Water is valuable on a desert island and gold is worthless. In fact, gold has few uses and is fundamentally a rock we dig up from one hole to bury in another, yet we say it has “intrinsic” value – which is good as Number 4 said it had to be unrelated to any other object, i.e. useless. Bitcoin and Gold are certainly useless. Like gold, Bitcoin may not have “Intrinsic value” but it DOES have intrinsic cost, that is, the cost in time and energy it took to mine it. Like gold, Bitcoin has a cost to mine measurable in BTU’s. As nothing has value outside of human action, you can’t say the electric cost in dollars is a price-floor, but suggests a floor, and that would be equally true of gold, silver, copper, etc. In fact, Bitcoin is more rare than Rhodium: we mine rare metals at 2%/year while the number of Bitcoins stops at 22 Million. Strangely, due to math, computer digits are made harder to get and have than real things.

 

5. Bitcoin is a unit of account. As a psychological effect, it’s difficult to quantify. Which comes first, the use of a thing, or its pricing? Neither, they grow together as one replaces another, side-by-side. This happened when gold replaced iron or salt or when bank notes replaced physical gold, or even when the U.S. moved from Pounds and Pence to Dollars and Cents. At first it was adopted by a few, but managed to get a critical mass, accepted, and eventually adopted by the population and entirely forgotten. At the moment Bitcoin enthusiasts do in fact mentally price things in Bitcoins, especially on exchanges where cross-crypto prices are marked vs BTC. Some never use their home currency at all, living entirely according to crypto-prices until home conversion at the moment of sale, or as hundreds or thousands of businesses are now accepting cryptocurrencies, even beyond. For them it is a unit of account the way Fahrenheit is a unit within the United States.

 

6. Bitcoin has the network effect. That is, it is widely accepted and publicly considered money. It’s in the news, has a wide following worldwide, and exchanges are signing up 40,000 new users a month. It’s accepted by thousands of vendors and can be used for purchases at Microsoft, Tesla, PayPal, Overstock, or with some work, Amazon. It’s translatable through point-of-sale vendor Square, and from many debit card providers such as Shift. At this point it is already very close to being money, i.e. a commonly accepted good. Note that without special arrangements none of these vendors will accept silver coins, nor price products in them. I expect if Mark Dice offered a candy bar, a silver bar, or a Bitcoin barcode, more people would pick the Bitcoin. In that way Bitcoin is more money than gold and silver are. You could say the same thing about Canadian Dollars or Thai Bhat: they’re respected currencies, but not accepted by everyone, everywhere. For that matter, neither are U.S. dollars.

Note what is not on the list: money is not a unit created or regulated by a central authority, although governments would like us to think so. In fact, no central authority is necessary or even desirable. For centuries the lack of monetary authority was historic fact, back with medieval markets through to private banks, until 1913, 1933, 1971, and the modern evolution into today’s near-total digital fiat. Besides the technical challenge, eliminating their overhead, oversight, control and corruption is the point of Bitcoin. And right now the government’s response to Bitcoin is a strange mixture of antipathy, ignorance, oppression, and opportunity. At $160 Billion it hardly merits the interest of a nation with a $500 Billion trade deficit, and that’s spread worldwide.

This leads into one of the spurious claims on Bitcoin: that it’s a refuge for drug smugglers and illegal activities. I assure you mathematically, that is not true. According to the U.N. the world drug trade is $435B, 4 times the total, and strictly theoretical value of Bitcoin, coins locked, lost, and all. Besides if you owned $160B coins, who would you transfer them to? You’re the only user. $435B/year can only be trafficked by major banks like as HSBC, who have paid public fines because money flows that large can’t be hidden. This is so well-known the U.N. suggested the drug-money flows may be one reason global banks were solvent in ‘08. Even $160B misrepresents Bitcoin because it had a 10-fold increase this year alone. So imagine $16B total market cap. That’s half the size of the yearly budget of Los Angeles, one city. Even that overstates it, because through most of its life it’s been around $250, so imagine a $4B market cap, the budget of West Virginia.

So you’re a drug dealer in illicit trades and you sell to your customers because all your buyers have Bitcoin accounts? Your pushers have street terminals? This doesn’t make sense. And remember as much as the price of Bitcoin has risen 40-fold, the number of participants has too. Even now, even with Coinbase, even with Dell and Overstock, even with BTC $10,000 almost no one has Bitcoin, even in N.Y.C. or S.F.. So who are these supposed illegal people with illegal activities that couldn’t fit any significant value?

That’s not to say illegal activities don’t happen, but it’s the other half of the spurious argument to say people don’t do illegal acts using cash, personal influence, offshore havens, international banks like Wells Fargo, or lately, Amazon Gift Cards and Tide Detergent. As long as there is crime, mediums of value will be used to pay for it. But comparing Bitcoin with a $16B market cap to the existing banking system which the U.N. openly declares is being supported by the transfer of illicit drug funds is insanity.

Let’s look at it another way: would you rather: a) transfer drugs using cash or secret bank records that can be erased or altered later or b) an public worldwide record of every transaction, where if one DEA bust could get your codes, they could be tracked backwards some distance through the buy chain? I thought so. Bitcoin is the LEAST best choice for illegal activities, and at the personal level where we’re being accused, it’s even worse than cash.

We showed that Bitcoin can be money, but we already have a monetary and financial system. What you’re talking about is building another system next to the existing one, and doubling the costs and confusions. That’s great as a mental exercise but why would anyone do that?

In a word: 2008.

It’s probably not an accident Bitcoin arrived immediately after the Global Financial Crisis. The technology to make it possible existed even on IRC chat boards, but human attention wasn’t focused on solving a new problem using computer software until the GFC captured the public imagination, and hackers started to say, “This stinks. This system is garbage. How do we fix this?” And with no loyalty to the past, but strictly on a present basis, built the best mousetrap. How do we know it’s a better mousetrap? Easy. If it isn’t noticeably better than the existing system, no one will bother and it will remain an interesting novelty stored in some basements, like Confederate Dollars and Chuck-e-Cheez tokens. To have any chance of succeeding, it has to work better, good enough to overcome the last most critical aspect money has: Inertia.

So given that Bitcoin is unfamiliar, less accepted, harder to use, costs real money to keep online, why does it keep gaining traction, and rising in price with increasing speed? No one would build a Bitcoin. Ever. No one would ever use a Bitcoin. Ever. It’s too much work and too much nuisance. Like any product, they would only use Bitcoin because it solves expensive problems confronting us each day. The only chance Bitcoin would have is if our present system failed us, and fails more every day. They, our present system-keepers, are the ones who are giving Bitcoin exponentially more value. They are the ones who could stop Bitcoin and shut it down by fixing the present, easy, familiar system. But they won’t.

Where has our present system gone wrong?

The criticisms of the existing monetary system are short but glaring. First, everyone is disturbed by the constant increase in quantity. And this is more than an offhand accusation. In 2007 the Fed had $750B in assets. In 2017 they have $4.7 Trillion, a 7-fold increase. Where did that money come from? Nowhere. They printed it up, digitally.


The TARP audit ultimately showed $23 trillion created. Nor was the distribution the same. Who received the money the Fed printed? Bondholders, Large Corporations, Hedge Funds and the like. Pa’s Diner? Not so much. So unlike Bitcoin, there not only was a sudden, secret, unapproved, unexpected, unaccountable increase in quantity, but little to no chance for the population to also “mine” some of these new “coins”. Which leads to this:


Near-perfect income disparity, with near-perfect distribution of new “coins” to those with access to the “development team”, and zero or even negative returns for those without inside access. Does this seem like a winning model you could sell to the public? Nor is this unique to the U.S.; Japan had long ago put such methods to use, and by 2017 the Bank of Japan owns a mind-bending 75% of Japanese ETFs:


So this unelected, unaccountable bank, which creates its coin from nothing without limit or restraint, now owns 75% of the actual hard labor, assets, indeed, the entire wealth HISTORY of Japan?

It took from the Edo Period in 1603 through Japan-takes-the-world 1980s until 2017 to create the wealth of Japan, and Kuroda only 6 years to buy it all? What madness is this?

Nor is Europe better. Mario Draghi has now printed so much money, he has run out of bonds to buy. This is in a Eurozone with a debt measuring Trillions, with $10 Trillion of that yielding negative rates. That’s a direct transfer from all savers to all debtors, and still the economy is sinking fast. Aside from how via these bonds, the ECB came to own all the houses, businesses, and governments of Europe in a few short years, does this sound like a business model you want to participate in?

So the volume of issuance is bad, and unfairness of who the coins are issued to is as bad as humanly possible, giving incredible advantages to issuers to transfer all wealth to themselves, either new or existing.

But if the currency is functional day-to-day, surely the issuance can be overlooked. Is it? Inflation is devilishly hard to measure, but here’s a chart of commodities:


CPI:


The US Dollar:


or vs Gold (/silver):


Does that look stable to you? And not that Bitcoin is stable, but at least Bitcoin goes UP at the same rate these charts are going DOWN. One store coupon declines in value at 4% a year, or may even start negative, while the other gives steady gains to loyal customers. Which business model would you prefer?

But that’s not all...

*  *  *

Part 3 tomorrow...

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
nmewn's picture

This would be the BitNet guy confusing a promissory loan involving money and fish, right? ;-)

Government needs you to pay taxes's picture

The solution involves rope and lampposts.  Ya think as crypto becomes a larger % of wealth, or users shift away from fiat to crypto to a significant degree that the banksters, their political puppets, and their mercs arent gonna tax, confiscate, and kill to retain their leech-like hold on wealth?  Rope and lampposts.

Giant Meteor's picture

Indeed, that's the spirit !

"The only chance Bitcoin would have is if our present system failed us, and fails more every day. They, our present system-keepers, are the ones who are giving Bitcoin exponentially more value."

On the other hand the question  still remains ..

What exactly are "they" gonna do about it !?

N0TME's picture

Bitcoin a hedge?, hmmm, whoda thunkit.

UmbilicalMosqueSweeper's picture

Been Drinkin' to that for the last 50 years!

 

small axe's picture

the system is functioning exactly as intended -- more for them, and less for you

the more bitcoin is portrayed as a revolutionary action, the more likely it is that the central banks will move to eliminate it.

ultraticum's picture

And exactly what "moves" will work?

 

They can't, or it would have already been eliminated.

Dsyno's picture

All they have to do is make it illegal to own or transact in. All in the name of fighting "terrorism", "fraud", "illegal activities", "unregulated markets", "irrational exuberance that could harm you", etc.

You'd probably be hiding your Bitcoin in cold storage, but the only way you could do anything with it would be to break the law and face imprisonment.

But!... you'll still be able be able to use one crypto: their own crypto dollar. This is for your protection, of course.

ThrowAwayYourTV's picture

Prime example of "too much of a good thing."

That and the Russian KGB psych ops.

https://youtu.be/zeMZGGQ0ERk

AlexCharting's picture

This time its different..... NOT

RedDwarf's picture

Decentralized crypto is a necessary innovation to correct the last 150 years of centralized monopoly fiat.  It IS how the current system can be fixed.  Not just the financial system, but it offers the chance to limit the power of government itself since, like in days gone by, government will not be able to print the money and thus operate without limits.

Dincap's picture

Typical slogans which accurately avoiding the understanding of how capitalism works and what is money (BTW the dominant neoclassical ideology taught as Economics removes money reduced to a sort of veil) reassures psychologically about an Eden to be restored eliminating Government and central bank.
This is real madness.

RedDwarf's picture

Dude, gibberish.  If you're going to post, make it coherent.

Dsyno's picture

He made it coherent enough to piss you off.

Government needs you to pay taxes's picture

In theory, I would completely agree with your point.  It WILL offer valuable insight into what the marketplace wants/measure dissatisfaction with the fiat system.  When it represents a threat to the fiat system, particularly its wealth-stealing banksters, their political puppets, and their hired guns, crypto will be taxed, then confiscated, then outlawed.  Without individuals willing to fight for their financial futures, crypto will not be the catalyst for positive change that it theoretically can be.

Fartsnifferbuffet's picture

Rothchilds behind this how do you become trillionares by being stupid 

Fartsnifferbuffet's picture

This gonna be anal raping of epic proportions make bernie madoff look like school boy lol

Sabibaby's picture

think of how much money you could have made if you would have bought bitcoin when you first created this zerohedge account.

marysimmons's picture

BTC closing in on $23K in Korea and $18.5K in Japan. $17.1K on GDAX now.  US exchanges have a lot of catching up to do

https://mobile.twitter.com/Edwardpumps/status/938953851843088386/photo/1

Fartsnifferbuffet's picture

Haaa moron you got 2 million in bit coin think they gonna let you sell all at once picture a club filled with drunken idiots fire breaks out everybody trys to cram thru one door at once thats waht bit coin is lol lots a idiots gonna get burned

Sabibaby's picture

You haven't been reading Zerohedge for the past few years if you're selling anything (inluding BTC, gold, silver) for USD....

Sabibaby's picture

Look how many miss'd out on the APL, AMZ, BTC boat....

If you've been around zh for a bit you should also own Au/Ag a gun and a lot of bullets.

If you don't go buy a gun and put it to your temple.... 

Drop-Hammer's picture

Stay away from Jew Coin.  It is another jew ponzi for da goyim.  Oh, but I forgot that it involves computers and sheeit so that makes it different.

Cabreado's picture

So then... crypto-mania will magically correct the motivation of, and intent of, Corrupt Control structures, eh?

And speaking of motivation and intent...

I sense no connection whatsoever between the Mania and a desire to fix what ails us, anyway.

In fact, the control structure is now helping to drive the Mania... and the Maniacs are cheering...

lew1024's picture

I don't think the control structure is driving bitcoin's growth. I think bitcoin is a major challenge to the Stasis Quo, politicians, banksters and Deep State.

I think cryptocurrencies and blockchains are ways that people can trust each other, all over the world. We can work on common problems together.  Add crowdfunding, and we can cooperate people to people independently of government. Are there problems with that model? Probably, but solvable problems, it is just another variety of social-economic commerce. Humans know how to deal with those, that is what civilization is.

Government problems, on the other hand, are not sovlable. We have been trying to do that for 5000 years. We have scaled the size of governments along with wealth and latency and bandwidth of communications over longer distances. But we have not gotten the control systems right, and they are going wronger and wronger. You know, like 2 world wars in the last century, 16 years of war in the ME produced by the 9-11 false flag, and now the spread of nuclear weapons? With the intelligence services of the world less in control of their civilian governments than ever in history? An automated ubiquitous survillence system recording your every word every moment of the day, your every move, your every purchase and can produce a detailed record of when, where and what for every moment of your day?

We need to stop this, and use a new technology of governing ourselves to do it, oe that cuts out the middle men. The web has been the first stage of that. Cryptocurrencies are the next, just now beginning.

As this continues,trust in government and fiat is falling, trust in cryptocurrencies is rising, obvious from the prices.

Everything has risk. Cryptocurrencies are another way of taking options on a better future. Cheap at any price.

 

razorthin's picture

Even when the lights go out?

slightlyskeptical's picture

 "the smallest Bitcoin denomination or “Satoshi” is 0.00000001 Bitcoin or about a millionth of a penny. That’s pretty small, but with a software change it can become smaller. In that way, Bitcoin, subject only to math is MORE divisible than silver or gold, and far easier. As numbers all Bitcoin are exactly the same."

This is why bitcoin cannot be considered a currency. Decimal points to the millionth can only be readily calculated by a small % of the population. Ask the guy on the street how many zeros in a millionth and you will most likely just get a blank stare. Make it a billionth and their heads will explode. Make it 12.5 millionths and they will likely combust on the spot. 

rejected's picture

Coming soon to an exchange near you...

Paper BitCoin!

Fartsnifferbuffet's picture

Haaa haaa wasnt thereba magazine 30 yrs ago predicting world currency by 2018 this is the start lol you think the rorhchilds and money changers became trillionares by being stupid lol baaaa haaaa they laid the cheese and the shrews are feeding full force gonna get rich over night dont even have to work the trap will soon break your necks

tnuctipun's picture

jeez, your'e functionally illiterate.  

TheAntiKeynes's picture

I've read many articles that point out many of the virtues of bitcoin, and I can agree with many of them. I've not read a single one that points out a fundamental weakness: it's value outside of its use as a currency. Also, how would a bitcoin be used outside of its use as a currency? People can ignore these weaknesses, but I doubt they will be able to ignore the effects of ignoring these weaknesses.

Yellow_Snow's picture

Excellent Stuff Tyler's - thanks for keeping us up to date  :)

Keep the Revolution Moving...

scatha's picture

What a amateurish ignorant rant.

1,2,3,4,5,6 all lies full of straw man arguments no facts.

Just few rebuttals. Intrinsic value as other currencies zero: today mining cost for one Bitcoin is about $1000 and growing since it is harder and harder to mine. If BTC goes below $1000 mining will cease as gold mining would, but with devastating consequences for entire BTC network since these are miners who maintain network and do proof of work, a core feature of the BTC.

When miners are gone network is gone, no transactions previously verified on those nodes could be accessed , no way to verify whether your bitcoins are really yours defeating the system. The mining process is a way of compensating people for maintaining the network.

Current Bitcoin network is hopelessly slow useless for real time transactions the physical portability is also questionable, you do not want your iPhone with $1000000 worth BTC to be run over by a truck, you rather put it in thick vault, which is not portable so easily as you think, accross the border, and if you loose your phone, BTC is gone forever, nobody else can use it.
BTC is heavily deflationary, promoting hoarding, suffocating economy as strict gold standard did.

Want a professional review? Here it is:
https://sostratusworks.wordpress.com/2017/06/01/tales-from-crypto-world-...

GeoffreyT's picture

today mining cost for one Bitcoin is about $1000

Either you've forgotten a zero, or you have no fucking idea what you're talking about.

Also, the piece you linked to talks about CUDA cards for mining - that's been pointless for more than 18 months (I could always get 4-month-old CUDA cards for my quant work, at a 60% discount to retail, because of BTC-miner upgrade cycles).

In other words, you don't really know what the fuck you're talking about. It would be like discussing gold mining by saying

"Gold miners typically have a pack-mule, a pick, a shovel, and a gold pan in which they swirl river-water looking for alluvial gold. They wear dungarees and braces, too...

So you're going to need those to do gold mining in twenty-fucking-seventeen"

.

Maybe you're not a complete fuckwit, and your only sin is t hat you're only counting electricity and pool fees, and ignoring the capital works cycle (which in BTC is measured in weeks).

Currently, a 14Thash/sec ASiC unit is $3K (was $5k two months ago) and can generate "output" of 0.08 BTC/month. That will cost you $200 in electricity and 2% (~0.0016 BTC) in pool fees.

Let's assume you have enough compute infrastructure to generate 1 BTC/month, and you literally bought your compute power yesterday.

Guess what? You paid $45k for it. 

You thought the outlay was going to be less, right?

Maybe you had it in mind that one ASIC unit could (theoretically) produce 0.08BTC/month running 24/7, then producing 1BTC/month requires 1/0.08 (i.e., 12.5) ASIC units.

Nope.

You'll be lucky to get away with using less than 15, and it would be smarter to have 18, ASIC units to target 1 BTC/month... and that's only based on this month's difficulty/global block hashrate.

Fun fact: you will never ever get a 14Thash/sec unit to run at 14Thash/sec for an entire month; you will need 25-30% more compute power than a straight "1/0.08" calculation would suggest.

Your electricity bill alone: something of the order of $3K.

And guess what? You better write down your ASIC units by ~30% (on a straight line depreciation schedule) or 40% (if you're using double-declining-balance depreciation), because your machinery is going to be pretty much worthless in another 2-3 months.

It sure as shit will not produce 1 BTC next month; and in 4 months using a rig built with 14Thash/sec units will be like using a Titan X video card now - i.e., your monthly output will be measured  in "kilo-satoshis".

.

A decent rig-profitability calculator comes in really handy - the one I built includes a sensitivity analysis for changes in

  • energy prices;
  • energy use per ASIC unit;
  • downtime per unit; and
  • dificulty

And guess what?

If difficulty increases 10% from current levels, a 14THash/sec rig never generates enough to pay its way even with BTC at US$15k/BTC.

$1k per BTC to produce? In your fucking dreams, mate. Back to the drawing board.

Global Douche's picture

Oh my damn! There is a HARD LIMIT of 21 million BTC. At this point in time, just over 16.7 MM have been minted. The remainder won't be mined until around 2140, provided Bitcoin still remains then. An estimated 2.8 MM of existing BTC may well be lost (not stolen, but actually orphaned in an address[es]) due to a number of technical reasons such as lost wallets, no backups, broken HDs, losses in exchanges which had no backup. (e.g., Bitomat)

The author has several valid points but may have missed the MOST IMPORTANT one; Bitcoin essentially is the escape valve from the ESF, PPT and their bedtime-stories bankers who for now run the shitshow.

 

 

TheEndIsNear's picture

"8 December 2017: In a secret vote of the United Nations Security Council under pressure from it's members, the UNSC has directed ICANN to replace all IP addresses of Bitcoin exchanges with http://127.0.0.1 in the Internet's core routers in order to protect the inegrity of the world's sovereign currencies. ICANN expects the updates to be propagated to all edge routers in less than 8 hours."
http://www.un.org/en/sc/

PrometeyBezkrilov's picture

"it can continue to exist without decay, written on a clay tablet with a stylus."
What a pile of HS. What if I write the same number on a clay tablet? Who and how is going to verify transactions if the internet is down? What if I just buy a bitcoin, print its code and make 10 thousand copies. The internet is down, who can verify these copies? Bitcoin depents on two infrastructures that are controlled by the global elites. Who can one call a digital tulip bulb dependent on two networks money. Money is something that doesnt depend on anything. A silver coin in my pocket is still a coin whether we have internet and electricity or not.

GeoffreyT's picture

So you turn up in my shop and I don't have any way to test if the coin you're carrying is made of silver, or some alloy that just looks like silver.

What then?

Moneyness requires trust, and people claiming that PMs will be useful in the event of TEOTWAWKI are ignoring that when the shit hits the fan nobody is going to trust anybody, and fuck-all people have gold- or silver-verification equipment or expertise.

.

Your BTC example is silly: nobody would undertake exchange with you unless they could verify your ownership of the BTC you're trying to transact with, and that's not possible if the 'net is down.

They might be able to access a copy of the blockchain ledger from the instant before the system went down, though - or maybe a few hours before.

If they can get other identifiers for you (say, your ID) they might let you transact if your identifier was the bona fide owner of the BTC when the system went down. And of course they would tighten up their risk-tolerance, so you might only be able to transact up to a value of the equivalent of a hundred bucks.

So you could get away with fraud a few times on a relatively small scale - and when the lights came back on, two things would happen...

  • the proprietors of the businesses you defrauded would try to post blockchain transactions that exceeded your BTC balance;
  • some of those transations would fail;
  • the properietors of the failed transactions would notify reputation-management agencies that you had ripped them off, and you would never be able to transact again - except at a discount to face value - whether the lights were on or not.

.

What you identified could be a problem, for sure... but as a strategy it will only appeal to a complete fucking idiot who thinks that 'getting away with' a thing at the exact time you do it, is the same as 'getting away with' the thing forever.

Also... if "can't be used if the network's down" is your benchmark, then it applies to your salary deposited into your bank as well - by your logic, that is not 'money' until you withdraw it as cash, because you could not use it at any vendor if the network was down.

.

The primary demand for BTC (and other cryptocurrencies) will be people who want a store of vallue that the government can never link to their individual identity.

Here's a protip: those people aren't ever going to try and grift fifty bucks' worth of groceries when they notice the network is down, but they might very well participate in the murder of people who bring the system into disrepute.

Double protip (read this carefully).

Let's say you bought a shitload of BTC on an exchange, using your credit card or a bank transfer - some mechanism from inside FiatWorld that can be linked back to you.

If the exchange got 'hacked', the link between your name and those BTC is broken.

Large-account holders have an incentive to pay to have the exchange hacked. The hackers would get to keep small balances (as reward for their efforts), but large holders would regain control over their BTC.

Badda bing, re-anonymised BTC.

Research conclusion: most exchange hacks are orchestrated (sometimes without complicity from the exchange owners) - only the 'small fry' lose their BTC. I would bet my left nut on it.

adr's picture

If the exchange is never recorded on the Blockchain it never happened.

There can't be multiple prices for a Bitcoin on the Blockchain either. If one exchange has a copy of the Blockchain that says one is worth $23,000 and another exchange says $18k, these versions of the Blockchain are incompatible and one must be thrown out or integrated. But what happens if two addresses  contain different values. I was told years ago that the newest version of the Blockchain takes superiority. This is a rule from the beginning of Bitcoin.

This was done so one person could not inflate the price without the rest of the nodes agreeing. Lots of people lost Bitcoin on early forks and incompatible versions of the Blockchain. At the time Bitcoin was worth fractions of pennies so it didn't matter. 

So if you only hold a promise of a Bitcoin worth $18,000, and don't have the key and that part of the Blockchain has never been written, YOU HAVE NOTHING!!!!! Your fortune doesn't exist and you hold no claim to anything but a promise that the exchange has no liability to fullfil.

So this entire Bitcoin run is pure bullshit. Coinbase could be selling the rights to coins that they will never own. In other words, a complete scam.

Bloody Fkn Muppet's picture

Well I'm out of this crazy market, I've made $$$$$$$$$!! Here's how much;

 

https://www.youtube.com/watch?v=ngKT3MIfwpo

Mallus Darkblade's picture

"They, our present system-keepers, are the ones who are giving Bitcoin exponentially more value". Of course because they own the majority of the BitCoin .71% own 55% of all the Bit Coin  https://www.cryptocoinsnews.com/owns-bitcoins-infographic-wealth-distrib...