An explanation of what Blockchain is

fpalb

Registered User
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190
Firstly fair play for being inquisitive and open-minded, you're definitely getting the gist of it. I agree with almost everything you've said in the above comments.
2. It is not though some unique mathematical object. According to Antonopolous there are 1,000 competing alt coins so one wonders just how relevant is the artificial scarcity.

Yes, because the code for bitcoin is open source, it's freely available and it's not copyrighted (https://github.com/bitcoin/bitcoin). What that means is that anyone can copy the code, change the name, tweak a few setting and they have their own separate blockchain, wallet software, mining software etc. The code is easy to copy. What is NOT easy to copy is the whole ecosystem - exchanges and online wallet services, users, miners willing to dedicate resources to your blockchain. In a way the fact that there are 1000s of competing coins, many mostly pump and dump scams by the creators, makes it more difficult for a single competitor to bitcoin to emerge. I don't rule out that it could happen some day, it won't happen overnight and I'll be ready and happy to leave bitcoin for something better if it comes to it.

3. The mining thing is key to understanding it. As fpalb explains, mining is a completely artificial game albeit its rules are adjusted automatically and outside centralised control. The rules target to settle transactions every 10 minutes and to reward the miners with BTC for confirming that settlement. The objective is presumably to let the monetary supply grow in pace with the number of end users - creating 21m BTC day one wouldn't work at all. The game is extremely crude - the asymmetric cryptology is very clever I'm sure but the game itself is pure brute force. The miners have to make their header so its code is of a certain smallness (as a number). They keep tampering slightly with the header until they pass this test. This is done, as I say, by brute force not by clever strategies. The rules keep changing to target that 10 minute settlement. These days it might take around 80 million tries to get the answer. This needs massive computer power way beyond your humble PC and consuming large amounts of electricity. But I emphasise this is all completely artificial. As Antonoplous explains it is like setting a massive Sudoku puzzle. The asymmetry is that it takes an awful lot of effort to solve the puzzle but is very easy for all the players to confirm that it has been solved. However, nothing of any aesthetic value is being achieved here, even for nerds.

If 21 million had been created up front, who would have owned them? As I mentioned earlier one of the subtle things about the mining is that it solves the problem of how to fairly award bitcoins. Those who took the risk of supporting bitcoin by spending money on mining equipment and electricity in the early days got coins as their reward, which is as fair a way as any to distribute the new coin supply.

One thing I am struggling with is the artificial limit on the money supply and how the consensus works.
I originally thought that Bitcoin was a mathematical object of which, mathematically there was limit of 21M. I thought miners were really pointy headed guys who found these increasingly difficult objects.

Yes the 21 million is an arbitrary number, and as I mentioned earlier it's actually just a result of starting with a 50 coin reward per block, and then halving it every 210,000 blocks. If you work out how many coins that results in by the time the coin reward halves enough times to become negligible you get close to 21 million.

But none of this is sacrosanct. By consensus the rules could be changed any time in any way. There could be a consensus to stop the creation of new money now, or to greatly increase the artificial limit or to double everybody's balance as a one off.

This is a great point, some aspects of bitcoin in isolation are mathematically enforced, such as requiring the private key to spend from an address and having to brute force the solution to a block, but other aspects rely on consensus or what the economic majority decide to do. The rules can be changed if there is consensus to do so. This has resulted in a bloody civil war for the past couple of years about how to scale bitcoin. Some people wanted to increase the 1MB block size limit, and others didn't, but the majority were on the side of not doing it.

For a conventional currency these powers of course reside with the Cèntral Bank and one of the big claims for BTC is that the consensus will ensure that their currency is not abused. All the same there seems to be some conflict here - miners want to increase their productive capacity, non-miners would like there to be no further money creation. How is the consensus arrived at?

People, even seasoned bitcoiners really struggle with the 'power' aspect of bitcoin. Some think the main devs have the power because they can change the code that the majority are running, but if they abuse that power people can decide to run different code. Some think the miners have power because they decide what they consider a valid block and the network depends on them, but if the miners play dirty the users and exchanges could refuse to acknowledge the coins they mine. They could even do something really drastic like change the mining hashing algorithm so that all the dedicated miner hardware no longer worked! Some say the exchanges have power because when you log into an exchange to buy bitcoin... they get to define which blockchain is bitcoin by which coins they sell you, but if they decide bitcoin is something other than what users actually want, another exchange will be happy to steal their customers and give them what they want. Because the system is open, no group of participants can hold the rest to ransom.

So overall, I believe nobody has absolute power over bitcoin, what bitcoin is defined as (which may change) will always be what the economic majority decide it is. And by economic majority I mean the influence any actor has is relative to their economic power in the system. A large exchange or miner or someone holding 100,000 coins (with the possibility to dump them all on the market at once) have more influence than someone holding only 1 coin, and they should, because they have more at stake by bitcoin failing.
 
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john luc

Registered User
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482
because this is all secret we cannot know if there are individuals holding large numbers of bitcoins. am I right in this view.
 

ant dee

Registered User
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All the transactions, addresses and balances are public, however you do not know which address or addresses a single individual controls.
Also, some addresses are controlled by more than one individual, some are even custodial exchanges addresses , like coinbase, looking super-rich but in reality they hold the balance of 100k users or something.
 

Leo

Moderator
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13,024
and only someone with truly zero understanding of the technology and it's potential would come out with it.

Are some people getting too fixated on blockchain technology in and of itself giving any value to BitCoin specifically? The technology is here to stay, and many companies are betting hard on wider application, but it's all open source. BTC could well become the Betamax of cryptos.
 

fpalb

Registered User
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190
Are some people getting too fixated on blockchain technology in and of itself giving any value to BitCoin specifically? The technology is here to stay, and many companies are betting hard on wider application, but it's all open source. BTC could well become the Betamax of cryptos.
Firstly I don't see a case where blockchain tech succeeds in going mainstream without there being a successful open public blockchain such as bitcoin. Just as a private internet would never replace the public one.

Secondly, the network effect is hard to overcome. I could start askaboutmoney2.com tomorrow using the same XenForo software, and set up all the same forums on it, but it wouldn't be easy to overtake the network effect of this site. Do you think a new social networking site will overtake facebook any time soon?

Also Betamax is a funny example to use. It was technically superior to VHS but Sony did not make it open to other manufacturers. The less sophisticated technology which was open and permissionless was what won. This has happened over and over again.
 
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Duke of Marmalade

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I agree that BTC has won the race unless some step change in product offering comes along. Although with transaction fees of $20 for a cup of coffee (because of current prices) it is in danger of pricing itself out of its primary function - a medium of exchange.

Let me try another tack. Clearly there are BTC fans in abundance so this post is not a BTC bash so as not to offend. But I presume everyone accepts that BTC's primary role in life is to be a medium of exchange (with attributes over fiat which some will prefer). All other value - store of value, speculative potential - must ultimately hinge on its primary purpose as a medium of exchange. Maybe the time will come when there is a genuine and significant demand for BTC to actually make transactions. But fpalb informs us that there are over 50 other cryptos each with market caps greater than $200M. How can there ever possibly be any demand/need whatsoever to use these cryptos as a medium of exchange in preference to fiat and/or BTC? So I hope we all agree that their market cap is 100% speculative and their true value is in fact ZERO.
 

Leo

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Firstly I don't see a case where blockchain tech succeeds in going mainstream without there being a successful open public blockchain such as bitcoin. Just as a private internet would never replace the public one.

Blockchain technology doesn't have to be limited to an open crypto currency in order to be successful, there are many other potential applications. I wouldn't use the internet as an example in this space, given the level of governmental control of the underlying infrastructure :D.

Secondly, the network effect is hard to overcome. I could start askaboutmoney2.com tomorrow using the same XenForo software, and set up all the same forums on it, but it wouldn't be easy to overtake the network effect of this site. Do you think a new social networking site will overtake facebook any time soon?

Facebook wasn't the first successful social media, it won't be the last. It is already experiencing a fall off in users. If the likes of Instagram and SnapChat can grow to >250M & >170M daily users in the face of Facebook's dominant position, there's nothing to say a similar shift won't occur in the crypto space.
 

fpalb

Registered User
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190
I wouldn't use the internet as an example in this space, given the level of governmental control of the underlying infrastructure :D.
The government(s) largely don't restrict the freedom of it though. Brendan was free to launch this site without any government permission, he didn't need a license to create website, or have to go through a regulatory approval process, or be granted access by any central authority.

Facebook wasn't the first successful social media, it won't be the last. It is already experiencing a fall off in users. If the likes of Instagram and SnapChat can grow to >250M & >170M daily users in the face of Facebook's dominant position, there's nothing to say a similar shift won't occur in the crypto space.

I'm not saying it's not possible, just that it's difficult and takes years.
 

Leo

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I'm not saying it's not possible, just that it's difficult and takes years.

Absolutely, though adoption rates of new technologies has been accelerating. Unless bitcoin transaction fees are significantly reduced to a point where they are viable for day-to-day transactions, there remains a huge incentive for an alternative to take over.
 

fpalb

Registered User
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190
I agree that BTC has won the race unless some step change in product offering comes along. Although with transaction fees of $20 for a cup of coffee (because of current prices) it is in danger of pricing itself out of its primary function - a medium of exchange.
Primary function these days is speculative store of value, it has overtaken the medium of exchange function for the most part. Things in that regard may get worse before they get better. I've said it before, but my primary worry with bitcoin is the current transaction limit, which is leading to the higher fees. The Lightning Network (https://lightning.network/) or some other solution to adding transaction capacity is needed urgently. In the absence of this what is currently happening is that bitcoin is partly scaling by usage spilling over into alt-coins that have cheaper transactions.

Let me try another tack. Clearly there are BTC fans in abundance so this post is not a BTC bash so as not to offend. But I presume everyone accepts that BTC's primary role in life is to be a medium of exchange (with attributes over fiat which some will prefer). All other value - store of value, speculative potential - must ultimately hinge on its primary purpose as a medium of exchange. Maybe the time will come when there is a genuine and significant demand for BTC to actually make transactions. But fpalb informs us that there are over 50 other cryptos each with market caps greater than $200M. How can there ever possibly be any demand/need whatsoever to use these cryptos as a medium of exchange in preference to fiat and/or BTC? So I hope we all agree that their market cap is 100% speculative and their true value is in fact ZERO.
There is a huge bubble in the general cryptocurrency market. There are alt-coins that are complete garbage, clones or outright scams and should be at zero. People liken bitcoin to pets.com in the dot com bubble, but I would say Bitcoin and probably Ethereum are like Microsoft and Amazon, they'll survive, and many of the alt-coins are the pets.com. This all happened already in the 2013 bitcoin 'bubble', alt coins went up more and fell more afterwards. everyone wants to be in on the ground floor of the 'next bitcoin' so there's always a market for new alt coins, and people who will hype them to take advantage of it.

On the other hand alt coins have some uses. Ethereum is something different than bitcoin, it's a smart-contracts platform. The bitcoin developers tend to be conservative in terms of changing the code, alt coins provide a test bed where new features can be tried without risk of breaking something as valuable as bitcoin. They also provide competition, bitcoin can't rest on its laurels - developers or miners or any other actor in bitcoin can't threaten or coerce the users because the users can always leave for a competitor, this is important.
 

Brendan Burgess

Founder
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45,244
I would say Bitcoin and probably Ethereum are like Microsoft and Amazon,

Agreed. They are very similar indeed. But there is one tiny little difference which might have escaped your attention.

Amazon makes about $2 billion a year in profit.

Microsoft makes about $20 billion a year in profit.

I understand fully that this is not really of much relevance to Bitcoin enthusiasts. What is much more important than dull issues like profits is the Bitcoin uses blockchain technology, which makes it just as valuable as a long-established company making $20 billion profits a year.

Brendan
 

fpalb

Registered User
Messages
190
If I wasn't clear I only meant the comparison in the context of the dot com bubble - i.e. that some companies were the real deal and survived and others were just riding the hype. The first survived and fulfilled the promise that had lead to the bubble, the others failed.
 

Duke of Marmalade

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3,416
fpalb a thought piece. Imagine that capital gains tax was 100% (assume indexation relief applies) and it was completely unavoidable. What would it do for the the following:

(1) €/$ exchange rate
(2) Gold
(3) Precious Art
(4) Stocks and shares
(5) BTC/$ exchange rate

Here are my thoughts.

(1) precious little, there would still be the primary demand of exporters and importers to transact
(2) precious little, there would still be the primary demand for jewellery, industrial use and the secondary demand for a store of value/hedge
(3) not much, primary demand for its aesthetic pleasure would remain and would support the secondary demand for a store of value
(4) in principle the primary value of a share is to earn dividends from economic effort and so in principle 100% CGT would not be relevant, however for (most) companies who reinvest some of their earnings 100% CGT would represent an actual confiscation of primary value so, yes, share prices would fall
(5) Prices would completely collapse down to the price (if any) for the primary use i.e. as a medium of exchange and nobody really needs or demands cryptos as a medium of exchange
 
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fpalb

Registered User
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190
Hi Fpalb, just looking at one of the hashes you mentioned earlier
"000000000000000000a0f386afac6d3049936453d3562559dd670257f432619f" it looks like it's 62 characters long. Am I right in thinking that it could take up to 62^58 attempts to create it ? Which is 9.09x10^103. Or am I looking at this wrong?

The effort to solve a block depends on how many acceptable valid hashes there are which depends on the difficulty, which can change every two weeks. The link I gave to that block tells that the difficulty at the time was 1,347,001,430,558.57

difficulty * 2^32 will give the average number of hashing attempts required which by my calculation gives 5.785327092×10²¹

(reference: https://bitcoin.stackexchange.com/q...-of-hashes-tried-before-hitting-a-valid-block)
 
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