[cryptography] (off-topic) Bitcoin is a repeated lesson in cryptography applications - was "endgame"
iang at iang.org
Fri Feb 24 21:53:28 EST 2012
I changed the title so those only interested in pure crypto can delete
and move on.
On 25/02/12 04:24 AM, lodewijk andré de la porte wrote:
> This was an offtopic discussion from the start. The original paper does
> not include anything about crypto.
Yeah, except Bitcoin is a cryptographic construct from the get-go.
It is a singular lesson in what happens when cryptographers dabble
outside their particular expertise - in this case, monetary
architecture. I.e., some very smart cryptographer thought he had solved
the 'gold' problem with a cryptographic construct. But alchemy has a
longer history than he realises.
It is also a singular lesson in the emotive power of cryptography to
encourage large numbers of people to hash their intelligent thought
processes. What we are seeing is otherwise rational people invest much
time & effort into what amounts to a ponzi or bubble or pyramid scheme.
Many people are being hurt by this, and more to come. Same or similar
thing happened with PKI, digital signatures, Digicash, SSL, e-gold, etc...
I suggest it is professionally important for serious cryptography people
to follow this story and try to understand what goes wrong. Or right.
One day, you might be asked to design something like this. Then you'll
Then you'll find out about Santayana's curse - those that don't study
history are doomed to repeat it. For reference, start with read John
MacKay, _Extraordinary Popular Delusions and the Madness of Crowds_.
Published in 1841.
> Anyway, the problem you mention is exactly the one described in the
> "Using Mancur Olsen's rationale that a prince is a bandit that stops
> roving, the notion of the mining franchise being captured by the botnets
> might have been an acceptable compromise to the economy growing up
> around bitcoin mining, if it went no further [Olsen]. However,
> criminals are rarely satiated. Several things happen: (a) incentives
> for easy money naturally cause an increase in criminal participation at
> all levels, such as direct theft of bitcoins. This increase across the
> board encourages (b) honest users to pack up and leave. Both of these
> effects combine to create rising criminality, and (c) at some stage the
> Feds get involved. Finally, (d) the system collapses."
> So "criminals" exist and they want to make money (which they already
> could but now they want more). Now something happens that summons an
> unbeatable* nemesis/third party and everything goes to hell.
> Nice line or reasoning. Very certain, unbiased, etc.
> Funny thing is that everyone believes them because they can use LaTeX,
> put references (to websites, most of which are bullocks themselves) and
> call it a paper. It's just another rambling about something that could
> but really won't happen.
> Don't forget to put things into perspective.
Perspective ... there's a funny word. Here's mine, from the e-gold
experience and others [*].
What happened to e-gold was this: it worked, it boomed. It was
structured fairly well to avoid the obvious attacks. It was good.
It was very cheap for users - around 0.5% transaction fees. And
payments were final. Which happened to work for an "arbitrage" class of
customer variously known as real-time games, ponzis and pyramids. This
is e-gold's "porn video" story, if you remember the 1980s.
The problem with these games was that (a) they were making a lot of
money and doing a lot of transactions, (b) they were taking a lot of
money from people who wanted to play, (c) which latter would then turn
around and complain to "authorities" and (d) the games were more or less
illegal in some sense or other.
Each of those points by themselves was challengable and acceptable and
mitigatable at some level. Together however the result was as laid out
in that paper. At some point something happened and /the feds/ or the
nemesis got interested. Endgame.
The weaknesses that brought down the e-gold story were two-fold [$].
Firstly the management had a certain belief set that led them to charge
on and not take pause - to not respond to emerging developments (in a
way that Paypal were able to do for example). They did not respond so
well to the games.
Secondly, the exchange network. Although highly diversified,
independent and robust as a system, each exchanger had to be somewhere
and had to have relationships with the primary banking system. This
made them vulnerable to a single phone call. And so it happened - phone
calls were made, exchange relationships were dropped. Most of the
exchangers had perpetual trouble opening and losing bank accounts.
Eventually most dropped out or were raided or had their funds seized or,
This second weakness exists with Bitcoin. The bigger the exchangers get
the more vulnerable they get, hence the exchange network has scalability
problems at the nodal level. To get a taste of what this is about, see
Jon Matonis' blog:
You can almost hear the phone call....
So yes - I'm as certain as history can make it. What is predicted in
that paper is certainly based on history. The pattern was repeated. It
was even known in advance of e-gold: someone I knew laid out the
e-gold story for me before it happened. He said it would take 6 years.
He was right.
> *can't really beat anything, they can only make it crime-exclusive. (you
> make it illegal and only those that don't care about the law can use it.)
That's it! Now, leave aside the libertarian hopes and the politics and
the freedom bias and right to code and the "this time it's different"
and all that crap -- and ask yourself.
Where do you want to invest your future?
[*] I wasn't e-gold, I was running a company called Systemics that
made hard crypto payment systems, and was preparing the next generation
of software, in a sense. But over time I became a sort of trusted
advisor to e-gold, one of the inner circle, and I saw most of everything.
As well as being part of the e-gold experiment, I came from the same
town as the DigiCash experiment. I was influential in the goldmoney
experiment, and involved in countless other small scale issuances of
money. About a decade++ building payment systems.
[$] ok, there were other weaknesses. I am handwaving them away to get
the point across.
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