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The new security concerns risk preventing many of the benefits that the blockchain could provide to a number of industries. Click here to update your profile. Sorry, we doing some system maintenance and we could not subscribe you. Please try again later. Bitcoin dark side revealed Future of blockchain at risk. By Denham Sadler on Mar 27 The research report could have huge ramifications and is likely to impact all cryptocurrencies.
Have you ever travelled internationally and felt you were getting rorted on the exchange rate? Have you ever sent money internationally and been horrified with how large a chunk gets taken out by the middlemen?
Has anyone, ever, anywhere, had their credit-card number stolen and mis-used on the internet? Bitcoin can help with, or even completely fix, those three problems right there, and there are plenty more things it's good for A very interesting article.
I'm not sure what the reasons for some earlier criticisms, these likely have no basis in monetary economics. While I'd heard of 'mining' Bitcoins I wasn't that familiar with how they worked. So I found this article very illuminating. I engage in volunteer distributed computing projects like BOINC and Folding Home which use a decent amount of energy, but at least produce a useful outcome in terms of extending existing knowledge.
Bitcoin, on the other hand, seems redundant, not to mention, disastrous for the environment. Further, Bitcoin is sowing the seeds of its own destruction with people creating money, reducing their purchasing power. Ultimately, the usefulness of a currency as a medium of exchange relies on other people's willingness to accept it.
Hopefully though, for the sake of the environment, this collective delusion ends soon. Your purchasing power is only diminished if the supply of new coins outstrips demand.
As Nathan says, there is also a supply limit which is inherent in the bitcoin equation, so, that being the case, given there is a finite number of bitcoins, isn't there more of a risk of the price sky rocketing, than them becoming redundant?
Trusting financial transactions to some unfathomable process run by unknown people because "corporations" i. It makes perfect sense as a money laundering system, which is why ransomware and online drug dealers use it. The entire design of bitcoin is to remove control from any person or group of people.
It is a completely fathomable process that is publically defined. It is a really interesting idea, I suggest you look into it before spreading your uninformed views. Perfectly fathomable, as is regular banking, if you are prepared to put in the time. Unfathomable if you intend to point and click, as again is the regular system. My point is not the differences in fathomability and trustworthiness, but the lack thereof.
Both require either an amount of detailed investigation, or an amount of trust. What exactly, other than: Some juvenile excitement in going outside "the system". You can also be in control of your own coins at all times, and with relatively little effort, can guarantee their safety to a degree that exceeds any banking system currently known.
Might not seem like a big deal to you, but ask the greeks what they would prefer after having the government dip its hand into their back pocket and take money directly out of their bank accounts. OK, I can see the back-pocket advantage. What stops the government simply taxing you in a regular currency, forcing you to sell your bitcoin to pay it? In Greece they went to the bank accounts because people were simply not paying the taxes. I see where you're coming from on the lack of fathomability for the average bloke who's never looked into, or cares how money is created.
You're right on the tax thing, governments can take whatever they want, depending on how brutal they are prepared to be. Credit cards were not made with the world wide web in mind.
If you don't feel like paying any of banks fees for their services, you can do it yourself. When you work for your money, you should have the choice that your money goes directly to you, not a third party. The bank didn't do your work, why are they getting your salary?
I'm all for banking services if you want them, but you should have the choice. Interesting you didn't respond to the second comment. Why is Bitcoin the favoured medium of exchange of money launderers and drug dealers? Bitcoin does have legitimate uses but this issue is of concern. Sure one can use fiat currency for money laundering and drug dealing purposes but no-where near as easily as Bitcoin.
If I wanted to use bitcoin to buy drugs or guns on the internet, I would first have to acquire bitcoins. I would have to use my registered bank account, to sign up to an exchange and purchase coins. This transaction of my fiat currency for bitcoins would be recorded on the exchange. Then I would take my bitcoins, which are now associated with my bank account and transfer them to said gun or drug dealer. I don't think its logical or helpful to demonize an entire technological accomplishment because one aspect of it doesn't exceed the current system, especially when almost every other characteristic is far superior.
Did they break up, did other groups get more mining power, or do they still have enough control to theoretically fake any transaction on the blockchain they want? I think that's the fundamental problem with the bitcoin-is-distributed-therefore-no-central-control argument - large companies are much better at acquiring large chunks of computing power than individuals. If the problem is too many carbon emissions from coal-fired power plants, then isn't the solution to shut down the coal plants and replace them with a carbon neutral alternative like solar, wind or nuclear?
Professor John appears not to know what he's writing about. Fiat currency also has no value in an age when nations have no compunction in printing more money to shore up sluggish economies. Rule number one in economics is the law of supply and demand - the more currency there is in circulation, the less each unit is worth inflation , which means all currency under central bank control is ultimately worthless.
As long as the central banks control the money supply, currency is just a goverment's promise to pay. And we all know what government promises are worth. The cost of energy required to produce anything is now highly political, which means it is also being centrally manipulated. This pretty much makes the point of this OP moot. Rejecting a non-fiat currency like Bitcoin on the basis that it is environmentally unsustainabile is clearly a red herring.
The writer would of course know this. The question is, why is the good professor trying to obfuscate? It's easier to understand why the establishment fears Bitcoin and others like it don't forget the others, when one looks at the basis of their expertise and reputations. The foundations of established economics expertise are built on the concept of 'national' wealth - e. Adam Smith's 'Wealth of Nations'.
These foundations more or less crumble if a trading currency is independent of national collateral. If these free market, non-fiat currencies succeed, much of the exonomics of nationhood will become irrelevant, and the concept of 'nationhood' and its accompanying taxation rights will have to change.
Political and geographical borders will have no economic basis any more. No wonder it frightens the establishment. In a perishing world, nationhood is the principal defence against global tyranny. The smart money is on Bitcoin and the others over the long term. The danger is not in the energy cost of production but in the social and political cost of decoupling taxation from trade. It's enough to spook even the most committed puppet-statist.
Gold and silver only have value because they have limited supply and are popularly perceived as valuable. Are not Bitcoin just the new gold and silver? This article is a joke, 0 research was done. In the introduction of 'Bitcoin: A Peer-to-Peer Electronic Cash System' by Satoshi Nakamoto guy who created bitcoin , the rationale for bitcoin is stated as 'an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.
He does not see the benefits to bitcoin - a programmable currency that has unlimited potential, if you have listened to Andreas Antonopoulos, or anyone with a working knowledge talk about the possibilities eg.
In summation this article reads like it was created by a high school student who has heard a few things about bitcoin, it is ridiculous that the title of professor is next to the authors name because there is nothing scholarly about this article. Satoshi Nakamoto is a genius!
I am positive he has a bank account in a brick and mortar bank with millions and millions of dollars in it thanks to people buying and transacting Bitcoin.
Jane, please do some research on what bitcoin actually is, and how it works before making such assumptions. Satoshi Nakamoto doesn't take any kind of transaction payment; that's not how the network works. As Lachan said above, it's a cryptographic scheme where two people can transfer bitcoin without a trusted third party.
Nakamoto would be a 'trusted third party' if he was running transactions. If he made money out of bitcoin, it was entirely due to owning the first several bitcoins back when mining was trivial, then having the value of bitcoin go up when people got in. He's anonymous, incidentally - nobody actually knows who he is. Your lack of knowledge about Bitcoin is as terrible as your lack of foresight. Please refrain from writing opinion pieces about topics you have not taken the time to qualify yourself to provide an opinion about.
You'd hope a professor would possess more intellectual rigour. I kept reading expecting to see a punchline that never came. This article has to be a new low for the ABC. Surely someone with some standards should have seen it before publication and cringed and hit the delete key. Heh, really enjoying the bitcoin nuts harping on about fiat currency here. Quiggin is correct; the production of new Bitcoins is an environmental disaster, but as the currency has no long term future it's not likely to be a lasting problem.
Yep, I think all the bitcoin users are whipping themselves into a lather about an article written by someone who is clearly more intelligent. If they think that bitcoin won't go the way of other pseudo currencies they deserve to lose their money or bitcoins. I assume they still use the money the rest of us use. It may go, it may stay.
But it will not do either for the reasons presented in the original post. I believe that is the source of the negative comments. Claiming a new system that is in competition with other existing systems is an "environmental disaster" without also presenting a comparative analysis of the competition and a thorough justification of the underlying assumptions is not an argument.
The author assumes that over time the hardware used will continue to use the same amount of electricity as it does today. This is counter to all IT trends for the last 70 years. The author implies that the alternative existing systems don't consume any electricity at any time.
For some systems such as geothermal the cost over the life of the power plant is actually significantly less. Politically more difficult, higher initial cost, but cheaper over the lifetime of the power station. A professor should have known better.
Mr Quiggin is way off the mark. The Blockchain and it's token the bitcoin is coming, it's unstoppable. What Mr Quiggin's piece is about is that the financial institutions have recognized its importance as a technology, a killer app, and the banks etc, are desperate to maintain their social and financial relevance and therefore their profitability. The Blockchain is a Community project, to provide the Market with services that the Market currently doesn't supply.
It's relatively 'distributed' and to continue to make a motza of profit the financial sector need to centralize the technology. They may succeed, but it's more likely they won't, as their centralized principle will have a very expensive time to match the hashing power of the distributed bitcoin network.
Give your hashing power to the bitcoin Blockchain, screw the banks. To learn bitcoin and the Blockchain is a useful personal literacy project. It's a kindergarten for learning about encryption and privacy, both skills everyone will need to navigate with over the next decade and onwards. The Blockchain and it's emerging 'ecology' of technologies will replace more than just the "credit " card.
Perhaps the coin's limited supply will be its strength and so worth the initial cost of electricity. Preventing its manipulation and resulting inflationary tendencies may well be a value with the knowledge that it can't be manipulated and rob people of value via the money printing fractional banking system. I absolutely agree with every single point brought up in this article. When I first heard of the existence of Bitcoin in , I remember trying to think of one single way that such a "currency" could be of any value to humanity in any way.
I'm still yet to come up with or be convinced of a single way. It's a shame that there are so many jokers out there who would prefer to increase their own material wealth by burning precious energy, wasting huge quantities of semi-conducting devices that cold be used for serious computing i.
I frankly don't care how much Bitcoin "protects freedom of speech", if you don't feel comfortable with having an online transaction being able to be tracked back to you by the police, perhaps you should reconsider said purchase.
The benefit is that its supply is dictated by an algorithm that cannot be manipulated to reduce its value by a government or central bank.
It is also good for making anonymous, instantaneous, cash-like transactions over the internet with low fees. I have found BTC to be a great investment.
Have you tried to get into Peer to Peer lending in Australia using Fiat currency? If you could gain access only available to sophisticated investors at the moment I can easily invest fractions of a cent worth of bitcoin over thousands of loans Yes it can be expensive to mine, so you don't, but regardless it's a tiny fraction of the energy used to manage even our currency let alone every currency in the world.
How much energy is used by say Armagaurd to physically transport cash every day? By bank tellers just going to and from work? By all the ATM's and bank servers?
Actually printing our currency? I don't like that it uses so much energy but that's simply the nature of the beast and is essential to it being secure. This article is a waist of time - literally! To state my biases - I think bitcoin is a complete waste of time and would never be bothered with it.
I did whoever do some research before coming to this conclusion and have a sound knowledge of what a bitcoin is and the system that it works within.
This article is so full of biases, untruths and misconceptions that it would be easier to write a complete factual article from scratch than it would be to correct the error in this one. I commend you on your effort so far to understand the bitcoin payment network, it seems you have done some research into it. I think what you are missing though, is that the energy used by the bitcoin network is not 'wasted' or 'useless'. The energy consumed is the very thing that gives bitcoin security as a currency.
Think about Australian paper currency. But the resulting currency would have no security No, they spend a vast amount of energy and money producing and replacing paper currency, the machines that produce them, the buildings that house them the staff that run them etc. The energy that the bitcoin network consumes enables the creation of something truly worthwhile: It is one that is not restricted to a few banking institutions, but allows anybody on earth with an internet connection to access it.
A really interesting piece John. I can't help but wonder though as at least one person pointed out, what about the coins that have already been mined? Also, once the cost of mining them is more than what they are worth, I understand no new ones will be produced, but wouldn't the older coins still hold some value as a unit of trade, to be dictated by the market pricing?
I'm confused as to why coins already mined would get a zero pricing. That would imply they are worthless - I'd suggest they wouldn't be worthless while people are willing to trade them. Thanks John for an interesting article. I think the fact that costly calculations of no use to anyone, are used in creating bitcoins, may be a bit of a red herring. Is bitcoin any stranger than people accepting the current economic system? I have often thought that accountants would get better results handing out monopoly money i.
How long until this news 'article' is pulled? If only cash were as traceable as Bitcoin, there would be a lot less illegal activity. Every Bitcoin can be traced; transaction by transaction, back to its discovery, it's called a blockchain. This is what makes it secure and does away with a single 3rd party approver.
The other major flaw with this article is it implies that the mining of Bitcoin will go on forever, and ignores all the environmental costs we currently accept in our stride. How much electricity does the current system consume? Once a Bitcoin is mined, that Bitcoin will only ever consume energy if it's traded.
I'd put a Bitcoin or two on the current system being far worse energy consumption wise. I'd also challenge the author to declare they have no conflict of interest in this article All I've heard recently is banks closing ranks around the Bitcoin issue, and now this. I wonder how the weighted average carbon footprint of all of Australia's paper and metal currency compares on a carbon-per-dollar basis to that of bitcoins, especially considering that notes and coins get retired from circulation and replaced periodically.
Whilst the longevity and stability of bitcoins is a valuable discussion to have, linking their viability to their carbon footprint seems a very, very long stretch to me, and the figures quoted for the energy required to mine one don't quite smell right to me either At least if there is an energy cost associated with creating them it does to some degree put a floor under their price though!
I think that the inevitable way forward for currency is the complete removal of physical cash, and I think it is probably only a decade away.
Without cash, consumption tax i. I'm sure that there must be significant downsides to going cashless, and I'd be interested to hear what they are, because I cant really see any of significance and it just seems so obvious and inevitable. I agree with your assessment of the positives. However, here are a few down sides to a cashless society that can be seen by very ordinary person: Errors are onerous to have corrected.
It is difficult even now to change providers, with the accompanying need to advise every other body with who one deals; this would become more so if there were no cash system for small and frequent transactions - again, an invitation to defraud those less able to supervise their financial activities.
AND 4 A system where all transactions are mediated through electronic systems is not only an invitation to forgo our privacy, but a guarantee that we do so. Number 4 is the down side that bothers me most. It is not only about our sense of personal autonomy, but also freedom from being pestered by advertisers. Already I can't buy a book on line without being bombarded by other on-line retailers. I am so tired of this that I no longer use a credit card or any 'loyalty' cards and pay cash when ever possible.
Thanks Connie, you make good points Government payments to the vulnerable are already made electronically - anyone receiving welfare necessarily must have a bank account as far as I understand it. The problem only exists for the homeless who have fallen outside of the welfare net and rely on begging. This is still clearly a problem, but surely not an insurmountable one. Busking on the other hand would be pretty much dead as a pastime, and that would be a mostly sad thing.
Cash is also vulnerable to theft albeit on a small scale , but more generally with the threat of violence around it. Given that a very significant portion of the economy is already cashless, we would not be introducing new risks we already face them , so much as eliminating existing ones. As I said in point 2, a significant proportion of our economy is cashless already, so the administrative burden already exists. I would suggest that this administrative burden is inherently scale-able however and in the long run would be more efficient than a mixed currency economy.
I agree that this point about privacy is the most significant and structurally unavoidable problem. Whilst the advertising issue doesn't bother me at all a. You cannot walk m down the street in a city and not be bombarded with advertisements, b. I quite like getting new reading suggestions from my kindle and am happy to ignore the unsuitable ones!
The fascinating question and potential positive trad-off here in my opinion is the effect that a cashless society would have on crime. Crime would, by and large be forced into the crypto currencies, but the entry and exit of AUD from those currencies would still be traceable. Quite a few claims of "lack of research", and "what about cost of paper money", but no one seems to have thought to use Google. Ten seconds yields the answer: An unintended consequence of the mining craze, as with all endeavours in their pioneering phase, has been a boom in energy-efficient, low-cost, complex processors.
Anyway Professor Quiggan, if bitcoin is indeed a fatally flawed currency, a person in your position can rest easy, right? Surely Gresham's Law will eventually win out, no? I haven't read all the comments so forgive me if I am repeating someone else.
Surely the problem here is the burning of fossil fuels for electricity rather than the Bitcoin mining using electricity? Oops, I just contributed to the end of the world by using electricity to type this comment, eating Perspective would be a nice breath of fresh air.
In a word tulips? The only slightly longer version is that bitcoins for all the effort you put into trying to disparage them are inherently as valuable or as worthless as any other fiat currency by agreement between those who exchange it. Trading in them may well in that case take on an aspect of speculative trading in any other commodity. I would argue that hedge funds raking over derivatives and options are also a damnable waste of resources producing adding nothing worthwhile to wealth creation in any truer sense of the word.
Of course that might just be a prejudice of mine that's showing, but isn't this? Those who've the most to fear from crypto currency are probably a combination of the banks and their investors. We may not like banks but investors include most of us, and all of us who've been sold the superannuation miracle.
You may argue in that sense that it can't be allowed to succeed because of some deleterious effects of the stability of other sectors of the market we know and love. I think ultimately though the technology in a good way questions the viability of currency exchange under the current unnecessarily expensive auspices.
There simply is no reason or justification for the fees and charges that are levied on most forms of transaction if you can secure it with crypto technology. I was wondering when someone was going to point these things out. Advances in parallel computing technology change the numbers somewhat, but Professor Quiggin's overall argument still holds.
Actually, bitcoin has a built-in self adjusting difficulty mechanism which aims to keep the creation of bitcoin at a constant rate, currently 25 bitcoins every 10 minutes. Advances in computing won't make any difference, as the difficulty of the computational problem will automatically adjust.
That's just like saying because there is only a limited number of sporting trophies, no-one will use anabolic steroids, HGR, blood transfusions. Of course the individual seeks a competitive advantage even if it doesn't result in a greater number of prizes for the economy as a whole. Yes, this does drive development of optimised systems even though it won't result in more bitcoins overall. Very surprised to see such a one sided and unsupported article written by an academic.
What's your backing and research for this argument? Most articles I've read, growing acceptance of Bitcoin at various stock exchanges and the beginnings of banks to recognise bitcoin services seem to suggest the exact opposite of this.
This article is written like 1st year's facebook rant, too emotional to be taken seriously, and so much so that you almost have to suspect the Professor is actually testing a hypothesis for some research. Probably around testing if the thought on correlation of bitcoin media still has a volatile effect on bitcoin pricing i. Looking forward to reading the results, professor. What a flawed article. Firstly, Once the bitcoin exists it doesn't wear out or be consumed so its not necessary to create more.
At the moment its the end of the gold rush. Once the number of coins stabilizes due to new ones being out of reach the currency will stabilize. Secondly, You mention that it takes 3 tonnes of C02 to produce a bit coin but then said if the price of power doubles the amount of CO2 produced halves. That makes no sense. The amount of energy produced to build the coin is fixed therefore the amount of carbon produced is fixed. The only variable in the equation is the cost of power.
If the price of electricity doubles, then you need to find a way to make a Bitcoin with half the power, in order for it to still be profitable. A by-product would be half the emissions say 1. I'm going to go out on a limb here and congratulate Professor Quiggin for writing one of the funniest, tongue-in-cheek articles I have ever read.
Judging by the number of furious and super-serious replies he's garnered to date I think he may well be in line for a major comedy award complete with a Bitcoin cheque. I thank him for not keeping it until April 1 next year - in a world where conventional business models are breaking down I think it's only appropriate that spoof articles can be traded any day of the year and not have to attract the sorts of penalty rates that keeping them for only that one preordained day in April normally attract.
If I'm right, you must be laughing your nuts off reading what you've generated from the gullible here today. I think this article is a waste of energy. Thousands of computers, reading an article, that the author doesn't even truly understand the concept of bitcoin or alt-coins. I've seen hydro powered bitcoin operations. So your statement for that is invalid Gold is mostly worthless, as the plating in electronics boils down to pennies these days instead of the dollars 30 years ago.
Ask any person or company that tries to recycle gold from electronics. Most of this article is based on misguided information and a lack of fact. I think the author needs to get a clue, or become more educated in what they are tearing down.
I was going to make my Daughter a kite, but after reading the worthy Professors argument about the use of "dirty" power I decided that the kite components, paper, string and plastic struts, would have used much of this dirty power to manufacture, and added to the Bitcoin crisis this was way over the top. So I burnt it. Whilst Bitcoin has many of the advantages that previous posters have pointed out, I think many are also missing the point of this post: For households to acquire Bitcoin equivalent to their current "cash and near cash" holdings would require electricity production equivalent to several times their current annual household electricity consumption.
Given we still need our fiat cash to pay our taxes etc. That I think is the point of the article. That's not how bitcoin mining works. It's not like it costs x electricity to make a bitcoin and then twice that to make two, as if you were physically digging gold out of the ground. It could easily cost less next month if fewer people were trying at the same time.
It costs electricity and computing power to secure the network. Not to mention we don't actually need any more to be created. The world could get on just fine with the 15 million or so that are already out there.
The new ones are just incentive to get people to contribute power to keep the network secure. Bitcoin is far more trackable to authorities than cash has it has a record of past transactions called a block chain that logs and displays every Bitcoin transaction in real time, and makes that data available to anyone. It is not controlled by any government, though it can be taxed.
The free market determines its value and not the committee of a central bank or finance minister. Transactions are almost instantaneous and cost free. Mining will stop because the algorithm is limited to 21 million coins. Each coin is divisible by 8 decimal places allowing fractional exchange.
You can buy bitcoins with fiat currencies — legal tender backed by the issuing government, like Australian dollars — through online exchanges, or you can create brand new bitcoins in a process known as mining.
The main feature of cryptocurrencies is that they operate on a decentralised peer-to-peer network, with no central authority or government backing. The underlying technology that makes cryptocurrencies such as bitcoin possible is what is known as the "blockchain". When a transaction is made it is added to the end of the blockchain and confirmed using a series of complex computations by the computers of other users who are on that currency's network. The most recent transactions made on the network are bundled up into a transaction "block", which is finalised roughly every 10 minutes.
Once a computer solves the block's complex equations and finds a valid hash key it is added to the blockchain, verifying bitcoin transactions between users, while at the same time rewarding the miner with new bitcoins. It can take a while for miners to reap rewards, as only the first user to solve the block by finding one of a number of valid hash keys is rewarded with bitcoins.
During the early days of bitcoin in , a common household computer would have been powerful enough to mine for dozens of new coins using its CPU or GPU. The currency automatically regulates the difficulty of the mathematical problem adding complexity to the hash value computers need to find as well as the number of bitcoins received as a reward.
If a lot of people are connected to the network to mine for bitcoins, the difficulty of solving a block increases. This is known as the hash rate. The number of bitcoins rewarded also adjusts, with an end result that means every four years only half the amount of coins created in the previous four years can be made.
Recently, the invention of specialised computers used solely for mining has dramatically increased the difficulty of obtaining bitcoin.
Bitcoins can be mined solo or as part of a pool, but even then the bitcoin or fraction of the coin you receive will likely not be enough to cover the electricity cost. Bitcoin mining was extremely easy when the network first began, but it is now out of the realm of common home computers.
Due to the way Bitcoin was coded, there is a limit of just under 21 million bitcoins that can be created. However, a single bitcoin can be subdivided as far down as the eighth decimal place 0.
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