Your Bitcoin reputation aint good enough

Reputation

Throughout history the most important indicator of a private institution’s trust and security was reputation. For sure even then it was merely an indicator and not a prophetic one at that, but in the main there was no better alternative. Sometimes a company’s reputation was independently assessed, audited or promoted by another, thereby allowing institutions to increase their own reputation by leveraging somebody elses. Everything has changed with crypto currencies…

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What a difference Log vs Linear makes…

Anybody familiar with charting knows the difference between applying a log vs linear axis to your chart. That still never stops the emotional impact that the difference between the two representation creates. Take a look at the recent Bitcoin bubble that popped in December 2013 and for which we still may not have seen the low.

bitcoinMay2004linear

From this it’s easy to deduce that it’s all been a massive bubble. It also emphasizes the recent crash in memory and disregards the prior volatility both up and down. Now take a look at the axis adjusted on a log scale…

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Vertcoin > Litecoin?

Vertcoin logo

So Vertcoin, known on the exchanges as VTC, is a copy of Litecoin (LTC) that makes a purported improvement to the Scrypt hashing function. Scrypt was first introduced by Litecoin as an improvement over Bitcoin. Bitcoin which uses the SHA256 hashing function has the potential to be massively parallelized. This is computer speak which essentially means the computation can be broken up into small pieces which can be more efficiently executed by building hardware specifically for this task. As a consequence mining for Bitcoin became ultra specialized and requires new investment in quickly redundant hardware. The days of mining in your basement with your desktop computer was over for Bitcoin, but continues for Litecoin.

Litecoin developers solved this problem by adopting pieces of pre-existing technology The Scrypt hashing function is different to SHA256 in that it requires a lot of memory (RAM) in order to run. This is something that CPUs currently do very well, GPUs (graphics card) do better but top out earlier, and something that is very difficult to build hardware to scale. However…

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MtGox withdrawals update

Bitcoin Builder, an exchange within MtGox.

So they’ve released another update today. The market within MtGox has demonstrated that they discount the information that the company has issued in the past.

However I believe the company is trying to pull their PR act together. Everything within the update makes sense. Short of some disaster, we may have reached the bottom of the MtGox debacle.

For people that still don’t trust MtGox, there is an interesting new exchange Bitcoin Builder that allows people to buy and sell bitcoin locked inside the exchange’s own MtGox account. This is possible because transfers between MtGox accounts are still possible.

Interesting that of the time of writing, bitcoins traded on BitcoinBuilder are trading at 69% the value of a bitcoin, whilest in mtgox they seem to be trading at 50% the value of a BTC compared to other exchanges.

Something smells fishy about SilkRoad Heist 2.0

News has been spreading about the heist of $2.4 million from the born again nefarious marketplace Silk Road.

However one only needs a casual understanding of the problems associated with Transaction Malleability, to know that the explanation of how this hack occurred sounds suspect. The team at Silk Road 2.0 will have to explain further how the accounting for the escrow withdrawals that failed due to the exploit, were foolishly automatically resent from new cash with no oversight.

Something smells fishy

Coinbase’s article does a good job of analysing the problems with this explanation. It’s still possible that the attack happened as explained, but that suggests significant negligence on their part. Alternatively the attack didn’t happen in line with what was communicated, which would lead one to all sorts of speculation as to the cause.

Making sense of the MtGox Transaction Malleability debacle.

MtGox and especially it’s CEO Mark Kapable have become the black sheep of the Bitcoin family, raising the blood pressure of many especially as they are seen as being chiefly responsible for the Bitcoin price decline accompanying the company’s announcements to indefinitely halt withdrawals. Forbes has managed to corner him into limited interview, although as many in the comments have pointed out the questions are rather low ball.

Main take aways from the interview for me were

  • MtGox runs its own version of the Bitcoin stack that it maintains.
  • It hasn’t managed to keep up to speed with changes released by the Bitcoin Foundation
  • It sees the changes that have gone ahead without their approval as reckless.

A rebuttal to allegations made against the Bitcoin foundation can be found here by Greg Maxwell.

The decline of MtGox in public opinion has been documented pretty comprehensively by wired magazine. This investor even took a plane ride from the UK to Japan in order to confront the CEO.

Does that mean everybody’s money is lost? It’s definitely a possibility, one that this blogger will definitely be annoyed at.

Now a recap…

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A funny kind of Ponzi scheme

Bitcoin has oftened been likened to a Ponzi scheme. This is an investment vehicle, made infamous but not invented by Charles Ponzi in the 1920s, where returns are paid to early entrants of the scheme by the contributions of later entrants.  This works until there is no new money to support the structure and it implodes.

A popular post has been doing the rounds by Gary North likening Bitcoin to a Ponzi scheme. I don’t want to get into a point by point rebuttal and thankfully this has already been written by John Mather. To be honest, I find his rebuttal a little too long and tedious to read, but I want to compare two aspects of the most recent & notorious Ponzi Scheme by Bernard Madoff.

  • Steady growth. Madoff managed to keep his Ponzi scheme returning a steady 10.5% with 1% variability for over 17.5 years. A feat which is nigh on impossible for even the best asset managers .
  • Market cap. This steady return allowed Madoff to reach a market cap for his clients estimated by court proceedings of around $64 billion. To be sure, some of that was fake profits that clients felt compelled to leave in the investment to capitalize on. However given that $5 billion has been returned to Madoff’s victims, at a significant loss to the majority, it’s not difficult to imagine that the amount of money lost is somewhere in that range.

Now let’s compare this to Bitcoin…

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