Bitcoin

pedroeibar1

The Corinthian wrote: »

Well, to a degree you'll find that in the most traditional of investment options; lest we forget, didn't we have an investment bubble a few years ago in property? My attitude is that adults are perfectly entitled to be greedy idiots, so long as they can deal with the consequences of being greedy idiots (which many of the losers of the aforementioned bubble were not, as they cried about being duped by everyone else).

As with all bubbles, pyramid schemes and even scams, the promoters thrive on the greedy, ignorant, stupid and, above all, lazy. I add the last because in most cases, especially in today's interconnected World, it takes relatively little effort to do even basic research on an investment opportunity and realize what the risks are (or even if it is an out-and-out-fraud). A frightening number don't bother and will rather seek others to advise, and do the legwork for, them than even do a simple Google search - the poster who came on and revived the thread was a classic example of this.

To me, I maintain that in the long run something like Bitcoin will become part of our financial future; but I think it unlikely to be Bitcoin and when this will finally happen is another question. Also even ignoring the lack of regulation involved, it is hugely volatile and thus clearly falls into the 'high risk' category, something which has clearly been ignored by some of the evangelizing comments made by some posters here.

But one thing that no one seems to have really talked about is Bitcoin's origins. Who is Satoshi Nakamoto? He's only been mentioned in passing here and I suspect more than half of those with Bitcoins don't even know who that is (actually, none of them do, as no one knows who it is). People are seeking to invest in a financial product (essentially this is what it is) which is based upon mathematics designed by someone whose identity we don't even know and who's agenda or motivations we have no clue about.

For me, that is ultimately the scariest thing about the currency.

ESB now restored, sorry for delay. I agree with almost everything you wrote so we are +/- on the same page. With moneymarket rates at an all-time low, risk capital needs a market. Bitcoin does not and never will fill that gap, for reasons both of us have outlined. What is far more interesting (in the real world) is the rapid growth in the use by the big reinsurers of capital markets for insurance linked securities, particularly for the catastrophe risk sector.

relaxed

alb wrote: »

My coins are perfectly safe.

It depends on your definition of safe I suppose.

If they are worth $1000 one week then $300 a month later then I would not classify that as safe.

The Corinthian

@alb; I appreciate the time and effort you took with your reply, but you actually failed to respond to what I asked. There may be proofs to parts of the entire process-algorithm that was proposed by Satoshi that can be proven correct, but that doesn't mean the entire process-algorithm is and, at least from your post, you ran us through that process, but proffered no such proof.

And that's what Bitcoin comes down to; that it is not simply based on an unproven algorithm, but comes from and untrusted anonymous source. How does that differ from, say, RSA? RSA wasn't from an anonymous source - they could be traced and ultimately exposed of wrongdoing (which is what has happened).

I find that many proponents of Bitcoin are putting a lot of trust in the altruism of an anonymous individual and the motivation for this trust appears to be fuelled by either greed (for those who what the present bubble to continue being profitable for them) or ideology (as a reaction against the present international monetary and banking system).

alb wrote: »

What if someone invents a way to cheaply manufacture gold?

Comparing a potential flaw in Bitcoin with the discovery of the Philosopher's Stone, smells a lot like a straw man, TBH.

alb

pedroeibar1 wrote: »

(1) Bitfinex is a start-up that remains in 'test' mode and is not open for business, so it offers nothing other than a dream (possibly for many better described as a nightmare.)
(2) Bitfinex is a mickey-mouse operation registered in Hong Kong.

But there's no reason a legitimate business can't fill this need right? It's early days.

pedroeibar1 wrote: »

(3) If you a such a big fan of Bitcoin (the success of which appears to be predicated on its unregulated status) why are you suggesting a regulated futures market?

Businesses acting as counterparties in Bitcoin related services depend on users 'trusting' them with their money. They can be regulated like any other financial services to stop people getting ripped off. Many of the bad stories people are hearing about bitcoin are due to scam businesses in the bitcoin economy.

Bitcoin can be used without any counterparty (which is the whole point) trusting any business or counterparty with your bitcoins is an optional choice.

pedroeibar1 wrote: »

(4) If your financial security is to be based on hedging/forward contracts/futures, would it not be an idea to check out the market, find out who the counter-parties are and even look to see what would/should /could happen when a hedge was tested?

I don't want my financial security to depend on any third party. My ideal situation is to hold my own Bitcoins securely and not trust anyone else.

alb

The Corinthian wrote: »

@alb; I appreciate the time and effort you took with your reply, but you actually failed to respond to what I asked. There may be proofs to parts of the entire process-algorithm that was proposed by Satoshi that can be proven correct, but that doesn't mean the entire process-algorithm is and, at least from your post, you ran us through that process, but proffered no such proof.

You're welcome, I don't know what else to say. The algorithm isn't too complex, it contains no hidden aspects and no one has been able to find a flaw in it, and it's been working solidly for 5 years.

The Corinthian wrote: »

And that's what Bitcoin comes down to; that it is not simply based on an unproven algorithm, but comes from and untrusted anonymous source. How does that differ from, say, RSA? RSA wasn't from an anonymous source - they could be traced and ultimately exposed of wrongdoing (which is what has happened).

The RSA code was closed-source - the public could not read the code and audit it.

The Corinthian wrote: »

I find that many proponents of Bitcoin are putting a lot of trust in the altruism of an anonymous individual and the motivation for this trust appears to be fuelled by either greed (for those who what the present bubble to continue being profitable for them) or ideology (as a reaction against the present international monetary and banking system).

I tried to explain why I don't need to trust Satoshi at all to trust Bitcoin, I don't know what more I can say to make it clearer.

The Corinthian wrote: »

Comparing a potential flaw in Bitcoin with the discovery of the Philosopher's Stone, smells a lot like a straw man, TBH.

My point was just that Bitcoin may not be 0% risk but I don't see any other store of value as 0% risk either.

The Corinthian

alb wrote: »

You're welcome, I don't know what else to say. The algorithm isn't too complex, it contains no hidden aspects and no one has been able to find a flaw in it, and it's been working solidly for 5 years.

I didn't ask if it was complex. I asked if it had been mathematically proven. Seriously, if it is proven to be airtight, then fair enough - that's what I keep on asking and I keep on getting deflections.

The RSA code was closed-source - the public could not read the code and audit it.

And this is relevant to the point I made how? Seriously, read what I wrote before you address that.

I tried to explain why I don't need to trust Satoshi at all to trust Bitcoin, I don't know what more I can say to make it clearer.

Without proof that his algorithm will always behave as intended, then you are asking us to trust Satoshi.

My point was just that Bitcoin may not be 0% risk but I don't see any other store of value as 0% risk either.

Which is a very weak point. After all, walking across the street is not 0% risk and neither is wrestling great white sharks. Just because they share that common feature, does not mean we can equate them in terms of risk.

alb

The Corinthian wrote: »

I didn't ask if it was complex. I asked if it had been mathematically proven. Seriously, if it is proven to be airtight, then fair enough - that's what I keep on asking and I keep on getting deflections.

I don't know how it can be proven other than that many people have written code as specified by the algorithm and it works as expected. It's like me trying to tell you how you can mathematically prove a recipe for a cake results in a cake, and the best i can give you is that everybody that followed the instructions had a cake at the end

The Corinthian wrote: »

And that's what Bitcoin comes down to; that it is not simply based on an unproven algorithm, but comes from and untrusted anonymous source. How does that differ from, say, RSA? RSA wasn't from an anonymous source - they could be traced and ultimately exposed of wrongdoing (which is what has happened).

Ok I'll try this again, we have
RSA: supposedly trusted, non-anonymous source. Released malicious closed-source code. Public could not audit the code, had to trust RSA. Sure RSA got caught, but it was too late then, people had already been spied on

Bitcoin: untrusted, anonymous source. Code is open-source, we audit the code, check it does what it's supposed to and all is well. Don't care who created it from then on, no trust in anyone needed.

Closed-souce *always* requires trust in whoever wrote it, open source does not. Again I don't know what more I can say, this isn't even anything Bitcoin specific.

The Corinthian wrote: »

Which is a very weak point. After all, walking across the street is not 0% risk and neither is wrestling great white sharks. Just because they share that common feature, does not mean we can equate them in terms of risk.

Of course, but it also means we can't dismiss Bitcoin solely because we are unable to prove it has 0% risk.

The Corinthian

alb wrote: »

I don't know how it can be proven other than that many people have written code as specified by the algorithm and it works as expected.

Then read up on mathematical proofs.

It's like me trying to tell you how you can mathematically prove a recipe for a cake results in a cake, and the best i can give you is that everybody that followed the instructions had a cake at the end

It's not. Read up on mathematical proofs.

Ok I'll try this again, we have

No, I won't even bother quoting the rest of what you wrote because it had nothing to do with what had posted. My point had nothing to do with being open or closed source. Nothing. Absolutely nothing.

Of course, but it also means we can't dismiss Bitcoin solely because we are unable to prove it has 0% risk.

Where did I do that? Seriously, why do you persist repeating the same straw men?

alb

An algorithm isn't a mathamatical proof. Satoshi didn't derive a proof, he designed an algorithm that solved a problem.

srsly78

Rather the bitcoin protocol is built upon mathematically proved building blocks. As a whole it is open to scrutiny tho - mathematicians have had years to find flaws with it. None have been found yet, but it's true that there could be lurking weaknesses.

alb

srsly78 wrote: »

Rather the bitcoin protocol is built upon mathematically proved building blocks. As a whole it is open to scrutiny tho - mathematicians have had years to find flaws with it. None have been found yet, but it's true that there could be lurking weaknesses.

A weakness sure, but there being a chance of hidden malicious intent from Satoshi is what I was mainly disputing.

The Corinthian

alb wrote: »

An algorithm isn't a mathamatical proof. Satoshi didn't derive a proof, he designed an algorithm that solved a problem.

I'm aware that an algorithm isn't a mathematical proof, it's a process for arriving at a solution. Whether you can be confident that it will arrive at the correct solution depends on whether that algorithm has been proven or whether it is still theoretical.

If the latter, then it could be wrong, which is not a big deal as long as it doesn't turn out to be wrong while you're using it to manage the World's money supply.

So, with two unproven algorithms; one from a known source and one from an unknown source, which poses greater risk to use?

OK, so now you either understand what I'm saying or you don't.

The Corinthian

alb wrote: »

A weakness sure, but there being a chance of hidden malicious intent from Satoshi is what I was mainly disputing.

Why, are you lovers?

And how exactly were you disputing the chance of hidden malicious intent?

alb

The Corinthian wrote: »

I'm aware that an algorithm isn't a mathematical proof, it's a process for arriving at a solution. Whether you can be confident that it will arrive at the correct solution depends on whether that algorithm has been proven or whether it is still theoretical.

If the latter, then it could be wrong, which is not a big deal as long as it doesn't turn out to be wrong while you're using it to manage the World's money supply.

So, with two unproven algorithms; one from a known source and one from an unknown source, which poses greater risk to use?

OK, so now you either understand what I'm saying or you don't.

Yeah, it's tough to just read the algorithm and be confident that it will work, that's why no one trusted it at first. Bitcoin had to running well for a couple of years surviving attacks, not being compromised etc before almost anyone trusted it. It's a gradual thing, the longer it's running uncompromising the more we'll be inclined to trust it. We'll never be 100% sure I guess but we may be as confident as we are in any alternative. That was what my point about gold related to.

Ok, I think I understand the confusion with the RSA point now. RSA didn't provide an algorithm, they provided a application which they said implemented an algorithm, but really that had added malicious code also.

So think of it like this:
Satoshi gave us a cake and said this tastes great and has no bad ingredients in it. If you don't trust me here's the recipe with the list of ingredients, try baking it yourself and you'll get the same cake.

RSA gave us a cake and said "we're trustworthy you don't need to know the recipe or the ingredients" but their cake was poisoned.

srsly78

But at least you know who is poisoning you in that case

The Corinthian

alb wrote: »

Yeah, it's tough to just read the algorithm and be confident that it will work, that's why no one trusted it at first. Bitcoin had to running well for a couple of years surviving attacks, not being compromised etc before almost anyone trusted it. It's a gradual thing, the longer it's running uncompromising the more we'll be inclined to trust it.

That sounds more like a religious awakening than a logical conclusion, TBH.

We'll never be 100% sure I guess but we may be as confident as we are in any alternative. That was what my point about gold related to.

So you equate the chances of a flaw in the Bitcoin algorithm to the probability that we;ll finally discover the Philosopher's Stone?

Ok, I think I understand the confusion with the RSA point now. RSA didn't provide an algorithm, they provided a application which they said implemented an algorithm, but really that had added malicious code also.

No, srsly78 got it.

Satoshi gave us a cake and said this tastes great and has no bad ingredients in it. If you don't trust me here's the recipe with the list of ingredients, try baking it yourself and you'll get the same cake.

An anonymous stranger gave us a cake and its recipe. You do understand that we only call this person Satoshi, because we don't know who they really are?

And what happens if one of the cake ingredients happens to cause cancer? That Satoshi may have even known that it causes cancer? Or not.

Not knowing the source of something represents risk. You can take that risk, and many of us do every day; how many open source projects do we use that have access to our private data, yet most of the time we're willing to take that risk. But would you trust open source software with direct access to your bank accounts to invest in the markets? How about that open source software is based on a process designed by an unknown source?

And this is where risk analysis starts kicking in, because sometimes the risk between to choices is not the same, even if it is greater than zero in all all of them. Sometimes it is acceptable and sometimes it is not. In the long term, Bitcoin really isn't as things stand.

srsly78

Open source software is used everywhere, including in banking. Are you still stuck in the 90s when businesses were afraid to use Linux etc because of it's unknown risk? Spreading of fear, uncertainty and doubt was a major tactic used by microsoft et al. You are basically trying to do the same thing with bitcoin!

The Corinthian

srsly78 wrote: »

Open source software is used everywhere, including in banking. Are you still stuck in the 90s when businesses were afraid to use Linux etc because of it's unknown risk? Spreading of fear, uncertainty and doubt was a major tactic used by microsoft et al. You are basically trying to do the same thing with bitcoin!

Banks use risk analysis before they use any open source software, because they - unlike, apparently, anyone else in this discussion - understand that risk is not a black and white affair. And so sometimes they will use open source software and other times they will not, depending upon the recommendations of that analysis (as well as other factors, including budgetary although risk is, in my experience, given priority).

So no, I am not spreading FUD tactics with regard to open source, neither am I blindly evangelizing it. Now, I think I've had enough of trying to explain the basics of risk here. And a good evening to you all.

TheMilkyPirate

I paid €12 for what I thought would be €12 worth of bitcoins. I received 0.0236 BTC which is equal to $6.98.

Not sure I understand this?

srsly78

How did you buy the coins? What rate did you buy at?

It works the same as any currency exchange, the "mid market rate" that is usually quoted is not the rate you will actually buy/sell at. The broker will apply a spread.

TheMilkyPirate

srsly78 wrote: »

How did you buy the coins? What rate did you buy at?

It works the same as any currency exchange, the "mid market rate" that is usually quoted is not the rate you will actually buy/sell at. The broker will apply a spread.

I bought them on localbitcoins.com rate was 508.47.

Probably should have done a bit more reading before I purchased them. So in future if I want €50 worth of bitcoins it'll actually cost me closer to €100?

Sorry, I'm not great with this sort of thing. The way I figured was I would pay €12 and I would receive BTC that if I wanted to sell back I would get €12 for.

srsly78

Pay attention to the rate.

"e50 worth of bitcoins" means nothing. What they are worth depends on the rate, how are you doing the valuation? You are clearly valuing the coins at a different rate from which you bought them at.

The "headline rate" you see commonly quoted is the one off the largest exchange, which usually has the best rate. If you buy at a lousy rate off localbitcoins then the other guy is probably going to make money off you. This is known as arbitrage (buy low sell high).

Similarly:
If I buy sterling of Bank of Ireland I get a lousy rate, but if I use a proper fx broker I get a much better rate. It's up to you to shop around and get the best rate possible.

TheMilkyPirate

srsly78 wrote: »

Pay attention to the rate.

"e50 worth of bitcoins" means nothing. What they are worth depends on the rate, how are you doing the valuation? You are clearly valuing the coins at a different rate from which you bought them at.

The "headline rate" you see commonly quoted is the one off the largest exchange, which usually has the best rate. If you buy at a lousy rate off localbitcoins then the other guy is probably going to make money off you. This is known as arbitrage (buy low sell high).

Similarly:
If I buy sterling of Bank of Ireland I get a lousy rate, but if I use a proper fx broker I get a much better rate. It's up to you to shop around and get the best rate possible.

So lower the rate the better? And is there a way of calculating how much the bitcoins I receive will be worth?

Say I buy BTC at the rate of 480.57 for €50 what will the bitcoins I recieve be worth?

srsly78

They are worth whatever you can sell them for. This means look at the best sell orders available. As with foreign exchange, the "headline rate" you see quoted is the mid-market rate - ie between the buy and sell.

Also, you say "will be worth" - this means looking into the future...

If you are buying then you want the lowest rate possible. However if you are selling the position is reversed.

TheMilkyPirate

srsly78 wrote: »

They are worth whatever you can sell them for. This means look at the best sell orders available. As with foreign exchange, the "headline rate" you see quoted is the mid-market rate - ie between the buy and sell.

I understand but I paid €12 at the rate of 508.47 and the BTC came into my wallet valued at €6.98 (or thereabouts)

So say I pay €50 at the rate of 508.47 is there a way of calculating what the value of the BTC will show up as in my wallet?

srsly78

You are thinking about it all wrong.

"but btc came into my wallet valued at e6.98" - this makes no sense. As said before, you seem to be buying at rate X, but valuing at rate Y.

If rate X is really bad, then you should clearly not be buying at that rate.

The wallet just shows the number of bitcoins you have, it does not show equivalent currency values. Unless you have installed some exotic wallet software that I haven't seen.... In that case it is probably using the mtgox rate for valuation - which differs from what you bought at.

Any valuation you perform is notional (ie imaginary), it only becomes real when you actually sell for a given rate.

alb

TheMilkyPirate wrote: »

I understand but I paid €12 at the rate of 508.47 and the BTC came into my wallet valued at €6.98 (or thereabouts)

So say I pay €50 at the rate of 508.47 is there a way of calculating what the value of the BTC will show up as in my wallet?

Looks like you got the right amount to me:

volume * price = value of bitcoins
0.0236BTC * 508.47 = 11.999 euro worth

You weren't ripped off, it's just that where ever you are getting the $6.98 number from is wrong. It's probably your software using the Mt Gox price currently $284 per BTC, which is a weird price, as you currently cannot get access to any Bitcoins you buy there.

The price on bitstamp, a more reputable exchange is $627 giving your btc holding this value:

0.0236BTC * $627 = $14.79

What wallet are you using?

TheMilkyPirate

Yeah the wallet I had was using the MTGOX rate, I just transferred to another wallet and it's showing the correct amount. Sorry for being a bit stupid and thanks for all your help!

alb

TheMilkyPirate wrote: »

Yeah the wallet I had was using the MTGOX rate, I just transferred to another wallet and it's showing the correct amount. Sorry for being a bit stupid and thanks for all your help!

You're welcome, no need to necessarily transfer it to different wallets, the dollar amount you were seeing was just an estimate of trade value anyway. No matter what wallet you keep your BTC in, its real value is always the same.

PS: since you seem like a beginner, I'll remind you that you need to be careful about security. Password protection may be optional in the wallet you are using, if so be sure to set one. And I would not advise keeping bitcoins on any windows computer that you think may have a virus.

TheMilkyPirate

alb wrote: »

You're welcome, no need to necessarily transfer it to different wallets, the dollar amount you were seeing was just an estimate of trade value anyway. No matter what wallet you keep your BTC in, its real value is always the same.

PS: since you seem like a beginner, I'll remind you that you need to be careful about security. Password protection may be optional in the wallet you are using, if so be sure to set one. And I would not advise keeping bitcoins on any windows computer that you think may have a virus.

Thanks for the tip I'll only be dealing in very small amounts but will take your advice on board.