Saturday, February 15, 2014

And You Want to Put Your Money Into This?

WSJ reports:
A fix to the software code behind bitcoin won't be ready until next week, according to the lead programmer charged with solving the problem, highlighting the vulnerabilities of the computer-driven virtual currency[...]

"It will take two or three days to write the code and longer than that to test it and convince ourselves that we didn't break something else," said Gavin Andresen, the chief scientist of the Bitcoin Foundation, a trade organization representing bitcoin-related businesses. Mr. Andresen is head of the five-member team of programmers attempting to fix the problem[...]

"One of the real challenges is getting work done when there is a lot of noise," said Mr. Andresen, who described a barrage of requests that flooded in Tuesday, after news of the attack emerged, from anxious merchant payment processors, brokers and digital wallet providers. "There is a real danger of trying to do too many things at once or doing things sloppily. And that is probably the biggest challenge: to try to balance being focused but also listen to what everyone is saying, making suggestions, making complaints, accusations."
To date, I have not spent much time discussing the technical aspects of Bitcoin. I have always believed, and continue to believe, that Bitcoin is most vulnerable because of future government regulations, however, the recent Bitcoin code problem shows that the fanboys who hailed Bitcoin because it is based on mathematical equations have underestimated the vulnerabilities in the code itself.

Fanboys will pooh pooh the latest Bitcoin crisis as growing pains, but how do we know there aren't other more serious bugs that will only become evident in the future? Indeed, Trace Mayer has admitted:
 Bitcoin has developed rapidly to such a point that it is likely beyond the ability of any single person to completely comprehend, if anyone ever did.



  1. How do we know that a giant gold mine will not be discovered tomorrow which drastically increases the supply and depresses the prices? My point is that one must separate "possibilities" from "probabilities".

    So far, Bitcoin has an amazing track record of growth and resiliency but It is not for the timid. Don't invest anything you are not willing to lose. That can be said for any investment though.

    I think the Bitcoin technology will continue to grow and become stronger. I certainly like it better than fiat and, in many ways, better than metals. Nevertheless, I hold bitcoins, silver, gold and dollars in that order. It wasn't always that way. I started with a very small amount in bitcoins which has appreciated to the point where it is the highest percentage of value in my portfolio. I have no intention of selling it as I believe the value will go much higher and, if it does, there may be no reason to ever sell it.

    If someone is interested in hedging, they might consider acquiring a small percentage of their overall portfolio. That way, if its usefulness dissipates, the loss is minimal. If its usefulness continues to grow, it could appreciate in value wildly. That's what has worked for me and the more I learn about Bitcoin the more I trust it. In my book, Bitcoin is already a success as it has already exceeded my expectations and it satisfies my purposes.

  2. Yes, I tend to like 1000% Annual Returns...but maybe I'm crazy.

  3. Ha ha! Look at Honey Badger defending shitcoins again. Seems like that's all he does. There are soooooo many problems with it that it's true....why would any invest anything at all in this crap?! I'll take my chances that no one will find a giant gold mine and keep buying gold which has been used for eons. Bye bye shitcoins.

  4. It's not a vulnerability with the Bitcoin protocol; it's a vulnerability in some third-party code written around the protocol that improperly tracks transactions by unconfirmed transaction IDs. Some people using Bitcoin got sloppy and took shortcuts. Bad for them when it caught up to them, but not a problem with Bitcoin itself.

    If someone hacks UPS's website and changes the tracking number on a shipment of gold headed to your house before it arrives, is that a "vulnerability" with gold? I think not.

    1. "If someone hacks UPS's website and changes the tracking number on a shipment of gold headed to your house before it arrives, is that a "vulnerability" with gold? I think not."

      Of course this represents a vulnerability with gold. Nobody cares about the bitcoin or gold in isolation (in fact, considered in isolation, there's no such thing as money). People care about their ability to ultimately trade the bitcoin or gold for something they want in the future. This involves a slew of stuff in addition to mathematical equations or particular arrangements of electrons.

      To the degree the entire value chain of bitcoin is riskier than the entire value chain of the alternatives, bitcoin will remain on the fringes. Perhaps, ultimately, bitcoin will shore up each link in the chain and, at that point, people will switch. But, as Robert continues to point out, one link in that chain involves the government's ability to interrupt its flow at the retail level. It seems to me that the risk involved in that particular link will be very difficult to overcome.

    2. The difference is the company (UPS or the company I bought from) will replace my stolen gold or refund in cash. Not so with shitcoins. bye bye to your shitcoins ...when they're gone, theyre gone. and I've NEVER had a problem having my physical gold shipped. ever. I use reputable, insured companies. put that in your pipe and smoke it!

  5. I have always believed, and continue to believe, that Bitcoin is most vulnerable because of future government regulations...

    Agree. I expect the criminals in Washington to do everything they can to kill electronic currencies. It may not prove impossible to remain hidden, while at the same time providing transparent verifications of transactions, but I'm sure there will be heavily-trumpeted busts of "law-breakers" who defy government prohibitions, as a way of discouraging people from trying to buck their overlords.