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Author Topic: Bitcoin: The Good, The Bad and The Ugly  (Read 5403 times)
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« on: 2011-June-08 11:00:21 PM »

Bitcoin: The Good, The Bad and The Ugly

BEWARE of the new Bitcoin fad and Michael Suede

For latecomers: I have REVERSED my initial position on Bitcoins. My original position was based on the unfortunate fact that the first article I read was the one at LibertarianNews written by Michael Suede--as detailed below. ALL of the issues I raise are addressed much better in a Bitcoin Wiki FAQ at the following address (with NO thanks to Michael Suede who was too busy creating ad hominems to provide any link whatsoever):

I also recommend the following video interview by Stefan Molyneux at Freedomain Radio:

I will be setting up my Artemis Zuna Trading Post to accept Bitcoins AND offer Bitcoin graphics on shirts, etc. The following link will be updated at that time:

Before making your own decision on Bitcoins, be sure to read the interview with Doug Casey below at

BEWARE of the new Bitcoin fad and Michael Suede

By Dennis Lee Wilson 2011-Jun-08

It looks to me like a clever way to suck in people who are sincerely fed up with paper fiat money. All the appeals to libertarians are there--and it is even claimed to be BETTER than gold!! Who could resist?

After reading the Bitcoin article at

I posted the following (Message #18, if it does not vanish). The RED text and capital letters were in the original article.


2. "Total Bitcoin production will TOP OUT in the future meaning NO NEW BITCOINS WILL BE CREATED BEYOND A CERTAIN DATE."

3. "If you have additional concerns, please take the time to research the answers on your own.   Don’t blindly dismiss it because of a concern that could easily be addressed with some simple research and questioning of those who are current users of the system."

The first two statements are arbitrary assertions with NO attempt made to prove them (but plenty of obfuscation regarding encryption which is a completely different issue). As for the third statement, YOU are asserting that Bitcoins are a value, YOU should provide convincing proof. It is not for ME to do the alleged "simple research". I find it particularly interesting that you take pains to deny that it is a PONZI scheme, but provide nothing as proof of your denial.

To those who jump in, good luck.

Dennis W.

Michael Suede [Moderator] 43 minutes ago in reply to Dennis W.
You are an idiot Dennis.

The first two statements are explicit fact and can easily be verified by a simple Google search.

Further, Bitcoins have value because the market says they have value. I can exchange 1 coin for nearly 30 dollars right now. That is also a verifiable fact. You don't need to take my word for anything. See the sidebar of my blog for current market prices of Bitcoins.

Dennis W. 0 minutes ago in reply to Michael Suede
Oh, well. I guess your assertion that I am an idiot settles all questions about artificially inflated and explains how it is possible that no new Bitcoins "WILL" be created.

As for the "market value", the same chart is available for that wonderful commodity, the US Dollar. And Chairman Ben has asserted how wonderful HIS money is. But, like the idiot that I am, I notice that HE doesn't bother to provide convincing proof for HIS assertions either.

Michael Suede [Moderator] 0 minutes ago in reply to Dennis W.
Dennis, if you want to claim bitcoins can be artificially inflated, go review the source code and get back to me with the code snippet that makes this possible.  It's all open source.

Until then (I happen to be software developer), I trust that there is no possible way this can happen because I can see the code for myself an because thousands of other people have reviewed it and have come to the same conclusion.

Thus, your nonsense is just that - nonsense.

Dennis W. 0 minutes ago in reply to Michael Suede
I "happen to be" a software developer also. So I am NOT intimidated by your claim to authority.  Even Phil Zimmerman, who developed the popular PGP encryption program, doesn't claim that "there is no possible way" to break PGP. It would just be very difficult and expensive.

Furthermore, I am not required to disprove anything. YOU, who is making the assertions, are expected to back up your assertions with some real, convincing evidence. If you cannot do so--or worse, actively EVADE doing so--then YOUR assertions are highly suspect.

Michael Suede [Moderator] 9 minutes ago in reply to Dennis W.

Well Dennis, the NSA disagrees with your assertion that SHA 256 can be broken.

If it is secure enough for the NSA, I consider it secure enough for me.

Since SHA 256 has never been broken, I stand behind my claim that bitcoins can not arbitrarily be inflated.  

If at some future date SHA 2 becomes compromised, a currency change over to one that utilizes SHA 3 will take place. SHA 3 doesn't even exist yet.

Dennis W. 0 minutes ago in reply to Michael Suede

Michael, I never asserted that "SHA 256 can be broken". Besides EVADING the original points I made about YOUR unproven assertions, you have now sidetracked the discussion completely away from your problem.

"If it is secure enough for the NSA, I consider it secure enough for me."

I find it very interesting that an alleged "Austrian" and "libertarian" feels secure with what the government agency NSA says.

Michael Suede [Moderator] 1 day ago in reply to Dennis W.
You came in here stomping your feet demanding proof of everything while offering nothing in refutation.

If you want proof, go dig it up yourself.  I am not your research assistant.

I am putting out good information and if you think it is wrong, feel free to show others why it is wrong by refuting me.


I was linked to your article because I am interested in Bitcoins and wanted to know more. I have an on-line business and I am looking for a replacement for eGold and electronic Liberty Dollars, both of which were destroyed by the USA government. Bitcoins "MIGHT" be a good replacement. Unfortunately for me, yours was the first article I read about it, and it contains assertions without proof or links to proofs.

Dogmatically repeating assertions in upper-case red letters does not make them facts anymore than the following (without the RED color):

For proof, google "santa claus" and then research the "About 50,800,000 results" and then prove to me that it is false. The New York Times published an excellent article on Santa Claus and that is good enough for me. This is "good information and if you think it is wrong, feel free to show others why it is wrong by refuting me."

You very seriously need to remove the chip from your shoulder and to study the scientific method.


The remaining items were NOT posted at Michael Suede's site

I found THIS STATEMENT at Bitcoin Wiki under the WHY section:
"The limited inflation of the Bitcoin system's money supply is distributed evenly (by CPU power) throughout the network, not monopolized by banks."

"LIMITED INFLATION" does NOT mean the same thing as Michael's assertion that "Bitcoins CAN NOT BE ARTIFICIALLY INFLATED."

Some google results. (Not included in posting above)

Official NORAD Santa Tracker
[HEY! If it is good enough for NORAD, it is good enough for me--even though they DID STAND DOWN on 2001-Sep-11!!]
Welcome to NORAD Tracks Santa. Santa has completed his flight this year. Come back next December to see him fly again! - Cached - Similar#3 in Christmas

History of Santa Claus
The American version of the Santa Claus figure received its inspiration and its name from the Dutch legend of Sinter Klaas, brought by settlers to New York ...

Images for "SANTA CLAUS"
« Last Edit: 2011-December-25 08:10:20 PM by DennisLeeWilson » Logged

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« Reply #1 on: 2011-June-09 12:26:35 AM »

Apparently michaelsuede has encountered others who are skeptical of the value of Bitcoin. Here is his own article defending it. He starts with a bit of intimidation by authority (he is a computer programmer and studied monetary theory), but since *I* am also a computer programmer (and probably have been longer than he has been alive) and *I* have also studied monetary theory, I was not intimidated.

Libertarian Goldbugs Hating On Bitcoin – Free Market Money
June 6, 2011
By michaelsuede

Let me start off by giving you a little background as to my knowledge on the subject of monetary theory.  As you can see in the header bar of this page, I’ve put together my own little online college in Austrian economics that is composed of over 150 individual lectures on economic theory by Austrian economists.

I have pretty much watched every single one of those lectures (and hundreds more), in addition to reading such works as Man, Economy, and State, along with numerous other books, in-person lectures, and journal articles.  I have a business school undergrad and I work as a software developer, which forces me to think logically on a daily basis (there is a reason why so many software developers are libertarians).

I feel I have a pretty damn good grasp of Austrian economic theory and its core tenants.  Thus, it was incredibly surprising to me when I set about visiting numerous libertarian forums to discuss the new peer-to-peer currency called Bitcoin and was met with wide ranging hostility.  To be fair, not everyone was hostile to the idea, but it was clear from the responses that the majority saw the new currency as some kind of a scam.

I was accused of promoting a ponzi scheme, accused of promoting a pump and dump, accused of promoting unsound currency that would eventually implode, etc.. etc.. etc.. All the while, none of my detractors actually bothered to comment on the economics of the Bitcoin monetary system. [Well, Michael, perhaps it is because so little can be determined about the economics of Bitcoin...Dennis] It was like they had been brainwashed into believing the only legitimate money is gold while everything else must automatically be junk.

I suspect that many libertarians who denounce Bitcoin as a legitimate currency system have purchased large quantities of gold and silver, and are looking to recoup some of their investment by having those metals make up the groundwork for a new monetary system.  It would stand to reason that anyone who holds large amounts of precious metals would be opposed to any new currency system that is not based on those metals. [This makes a nice strawman, Michael, but it EXPLAINS NOTHING ABOUT HOW BITCOIN is supposed to be such a stable currency. What you are doing is drawing attention AWAY from the issue, which is Bitcoin itself! ..Dennis]

At the time I started promoting the currency I had NO HOLDINGS of Bitcoins.  Only recently did I manage to actually purchase some – AFTER they had already inflated in price. ["AFTER they had already inflated in price!?!?! What happened to the idea of currency being inflation proof? Or do you mean a price increase in terms of US dollars? If you cannot use language properly, what good is all your alleged study of Austrian economics? And WHO is this mysterious "THEY"?...Dennis]  Further, I own a good chunk of physical silver myself, and I’ve always been a strong advocate of a gold standard currency system.

That said, I want to cover the economic reasons why Bitcoin (at least in my view) is a superior currency to precious metals.  (The equivalent of shooting myself in the foot with my silver holdings).

The primary questions people should concern themselves with is;  why did the markets chose gold as a currency and what properties does gold have that make it a currency?

Let’s begin by defining what a commodity is, then I will explain why Austrian economic theory believes that real money MUST be a commodity.  Wiki defines a commodity as “a good for which there is demand, but which is supplied without qualitative differentiation across a market.”

[Why use the Wiki definition instead of an Austrian economics definition such as

A commodity is a basic good, material, or product that is produced in very large quantities and is usually sold in raw or only partly processed form. The most common commodities are essential agricultural products such as wheat, sugar, rubber, and coffee and basic mineral-derived products like copper, tin, or silver. On a more general level, a commodity may also be any manufactured product — for example, computer chips — that has become so common or inexpensive in design or manufacture that it is almost impossible to tell the difference between two producers' versions of that commodity.

So a commodity is typically something tangible, fungible, and divisible. [Now THAT is quite a leap! YOUR definition says nothing about those attributes. Furthermore, some commodities do NOT HAVE those attributes. You are just throwing buzzwords into the discussion an hoping that some of it sticks to the walls! ....Dennis]  Gold would be an example of a commodity.  I don’t care which gold coin I am paid with, I simply care that I am getting a gold coin as payment.  I don’t care what shape the gold coin has, but I do care how much it weighs.

Austrian theory demands that money be a commodity for a few reasons:

It is logically impossible to have prices arise from anything other than a commodity. [This is a very poor explanation of money, especially from an alleged Austrian...Dennis]  If there were no money in the world, it would be impossible for a government to print up some paper notes, write some numbers on them, and then tell people to start trading them as a money.  People would have no idea how much a single unit of the currency was actually worth.

Is a candy bar worth 1 unit or 10,000 units?

Prices must be set by trading weights of one good for another.   Only after prices have been established in weights can paper notes be used to represent the actual amounts of the commodities being traded.

The dollar used to represent 1/32nd an ounce of gold.  Thus, the dollar was actually a representation of weight.  And through this, price levels in terms of dollars were able to be established.

If it is logically impossible for prices to arise any other way, then we can say markets demand that real money be some kind of a commodity (a product that is fungible, divisible, and for which demand exists).

The argument I hear from the peanut gallery is that Bitcoins aren’t actually a commodity because you can’t pick them up and hold them.  They are intangible; therefore, they must not be a commodity.  I would argue this is false because the nature of Bitcoin’s coding actually turns them into tangible goods that meet all the criteria of being labeled a commodity.

So let’s break down the dictionary definition of a commodity and compare it to the properties of a Bitcoin:

Is it a good? – yep.

Is there demand? – yep.

Fungibility? – yep.

The nature of the Bitcoin network ensures the uniqueness of each coin and completely prevents arbitrary replication of the digital product called a Bitcoin.  Bitcoins are NOT like a software product which can be installed on multiple computers while incurring almost no physical cost to replicate.  The soundness of the currency lies in the strength of its cryptography.  If the cryptography is secure, then so too is the uniqueness of each digital coin. [So Bitcoins are serial numbered. Nothing you have said prevents Bitcoins from being created with NEW serial numbers without limit--they are apparently prevented from reusing existing serial numbers. ...Dennis]

For example, a Bitcoin wallet file can be replicated a billion times over, but the network knows exactly how much that wallet file is worth.  No matter how many times the wallet file is replicated, the number of Bitcoins that are accessible to that file remain the same.  The file itself is a tangible product that must be physically stored at some location, either on a USB thumb drive, remote server, smart phone, or home PC.

What is the difference if I am holding a USB key that contains a file which the markets have deemed to be worth $1,600 or a physical ounce of gold?

Bitcoins are the first digital commodity to come into existence that do not require a central point of control.  The Bitcoin solves the double spending problem that has plagued digital currencies from their inception.  This is  a new class of software that is unique in its own right.  It is worthy of being branded a “digital commodity.” ["Trust me. I know about computers... Sorry! That dog won't hunt!...Dennis]

I’ve recently seen arguments by supposed free market economists arguing that Bitcoins are nothing, therefore they are inherently worth nothing.  This is a fallacious argument.  To claim Bitcoins are nothing is like claiming your operating system is nothing, therefore it is worth nothing.  Clearly an inordinate amount of time and resources went into the development of your computer’s operating system.  The time and resources that went into the development of the software constitutes “something”, which is obviously more than nothing.  Software can have inherent properties that give it value in and of itself. [Your analogies are fallacious, but they also do NOT establish Bitcoin as something to be valued. I have seen enormous amounts of time, money and energy expended creating computer programs that were not worth running--or would not even run. You need to re-examine what Austrians say about "VALUE"....Dennis]

Let’s look at some other reasons besides the inability of fiat money to establish prices as the basis for demanding real money be a commodity. [Huh?...Dennis]

Rothbard writes on monetary units as commodities:

  • Obviously, the more valuable the units of a commodity are, the smaller the size of the units used in daily transactions; thus, platinum will be traded in terms of ounces, while iron is traded in terms of tons. Relatively valuable money commodities like gold and silver will tend to be traded in terms of smaller units of weight. Here again, this fact has no particular economic signifi­cance.
  • The form in which a unit weight of any commodity is traded depends on its usefulness for any specific, desired purpose.

The weight of a Bitcoin is infinitesimally small, but indeed a Bitcoin does have physical weight if we consider that the digital hash which makes up a Bitcoin must reside on a physical storage medium.  The more Bitcoins you have, the more storage medium required.

So why is such an infinitesimally small digital commodity worth so much money? Because of Bitcoin’s usefulness for the specific desired purpose of measuring and storing value.

An ounce of gold is not worth $1600 today because it can be made into shiny jewelery.  Gold is worth $1600 dollars today because it is a scarce resource that can not be arbitrarily inflated, which makes it ideal for representing the value of other goods and services.  Its scarcity, fungibility, and divisibility give it properties which lend itself to acting as a measure of wealth.

In the same way gold acts as a measure of wealth, as determined by free markets, so too do Bitcoins act in the same capacity for the exact same reasons.  Bitcoins are scarce, [Now THAT is an arbitrary assertion for which convincing proof has NOT been presented....Dennis] they are fungible, and they are even MORE divisible than gold (in functional terms).  And they can be sent across a wire transaction, while gold requires expensive shipping costs and insurance to actually deliver. [And you are just going to skip over the major objection to Bitcoins and pretend that the objection does not exist!...Dennis]

So lets look at how commodity pricing comes into existence.  First, a commodity must be mined and extracted from the earth.  Then the markets must chose that commodity as a trade intermediary.  Then the miner must spend the commodity into the economy by having people freely decide just how much each individual unit/weight is worth.  As the law of supply and demand dictate, the more of something there is, the less valuable it will become.

This is exactly how Bitcoins currently operate.  Miners run specialized software that labors to produce the unique hash that makes up a Bitcoin. [NOW you are in Fantasy Land...Dennis]  The miners incur real world electrical costs and computer resource costs on producing a Bitcoin. [Those alleged costs are so trivial as to be absurd, which makes you and your argument equally absurd....Dennis]   By being able to spend that coin into the economy first, they economically benefit in the same way a person mining for gold does.  As they spend the coins into the economy, the market then determines the value of each coin.  Bitcoin production does not differ at all from how gold comes into existence as a money.

Another way in which Bitcoins are superior to gold is that gold can be indefinitely mined forever.  The supply of gold is always increasing to some degree and always will be.  Bitcoin production on the other hand will reach a point where no new coins can ever be created. [THIS is the other assertion that is unproved. Dennis]  This means that in the future, the supply of Bitcoins will never be subject to supply side economic factors.  This removes a huge layer of uncertainty when trying to gauge the future value of a Bitcoin in comparison to gold.  It also means that there will never be price inflation with Bitcoins due to an  arbitrary expansion of the money supply.

There is no government out there demanding that people transact in Bitcoins.  There is no government out there telling people that they must accept Bitcoins in payment of debts.  There is no government out there controlling the issue of Bitcoins.  The only forces that are giving Bitcoins the value they have are free people deciding on their own that Bitcoins do indeed have value as a store of wealth and as a trade facilitator.  The markets have decided that the time and labor that went into producing the Bitcoin software, along with the properties of the software itself, have real value in the real world.

Whether Bitcoins are currently experiencing a bubble in prices or not is immaterial to their efficacy as a currency unit.  They have value because the market says they have value.  And because they have value, and because they are divisible, fungible, and scarce, they ARE free market money.  If I thought there was some aspect of Bitcoin production that would throw a monkey wrench into the free market economics espoused by Austrian theory (such as arbitrary inflation, interest rate price fixing, centralized control, etc.. etc..) I would be denouncing Bitcoin at the top of my lungs.  - I can tell you that no such problems exist with the system. [And YOUR arbitrary assertions are not a substitute for convincing proof, either....Dennis]

Austrian economists don’t want a gold standard because they simply like shiny yellow metal.  They want a gold standard because historically when people were free to choose, they chose gold.  The markets chose gold because of its properties of scarcity, divisibility, fungibility, and recognizability.  In the same way the markets chose gold, and for the same reasons, we WILL see Bitcoins come to dominate the currency markets to the exclusion of all other currencies.

Bitcoins are free market money.
« Last Edit: 2011-June-09 02:21:41 PM by DennisLeeWilson » Logged

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« Reply #2 on: 2011-June-11 02:13:02 PM »

It looks like Michael is good at ad hominems as well as shoddy logic. Here is a sample following this article:

Showing 7 comments
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    Pango 39 minutes ago
    This is literally the dumbest fucking thing I have ever read.
    Michael Suede [Moderator] 38 minutes ago in reply to Pango
    Coincidentally, your reply happens to be the dumbest fucking thing I have ever read.
    Todd 38 minutes ago
    BBA in MIS more like BABBY in MISTAKES
    Michael Suede [Moderator] 37 minutes ago in reply to Todd
    Todd short for toddler.  Because you certainly argue like one.
    Jimbob 36 minutes ago
    Every single point you make is correlation = causation. That's not how an argument works. Try taking an entry level philosophy or ethics class.
    Fart 36 minutes ago
    Michael Suede [Moderator] 35 minutes ago
    Looks like I struck a cord with the communist block.

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« Reply #3 on: 2011-June-12 01:06:08 PM »

Bitcoin: Just Another Bogus Medium of Exchange
Posted by David Kramer on June 9, 2011 03:00 PM

I'm sure by now many of you have heard about Bitcoin. The fact that it's called "virtual currency" gives you an idea about its actual value as a real medium of exchange. While many people who are touting it on Facebook are enamored with the fact that it was voluntarily created by the marketplace (i.e., is not forced down our throats by a private central bank), I'm afraid that those people are losing sight of how a real medium of exchange arises in a free market.

A medium of exchange arises from something that had a material use/value in the market prior to becoming a medium of exchange, i.e., it was also a good being  bartered for other goods and services. Over the centuries, the commodities gold and silver won out as the two most preferred mediums of exchange—with gold holding the number one position due to its being more scarce than silver.

What was Bitcoin's prior material use/value? Zero. It is just bits in a computer. And what's with the "fixed" amount of Bitcoins? Who/what determined the "proper" amount of 21 million for Bitcoins to top out at? A computer program? (Next we'll find out what the proper minimum wage should be.) Only the free market can voluntarily determine how much of a real medium of exchange is needed in the marketplace over time. While the idea of  attempting to get rid of the Bankster monopoly on creating money out of thin air is commendable, Bitcoin is also money created out of thin air. Bitcoin is just substituting one bogus medium of exchange for another.

UPDATE: I've been getting a lot of reader response trying to "explain" to me the economic virtues of Bitcoin. Some responders have even mistakenly used Austrian economics to rationalize their views. I would suggest that before you write to me about the Austrian economics view of a medium of exchange, you should read the two books by one of the two giants of Austrian economics, Murray Rothbard, on what a medium of exchange is.

Here is the pdf for Rothbard's What Has Government Done to Our Money and here is the pdf for Rothbard's The Case Against the Fed. For those of you who have not yet read any Austrian economics, please do not waste your time writing to me trying to explain the "scientific" breakthrough of the bogus Bitcoin computer program. (There already was a REAL digital currency, e-gold, that was backed by a real commodity until the Federalistas shut it down. Eventually, Bitcoin will be shut down too because of its anonymity capabilities.) [See article below]
Senators seek crackdown on "Bitcoin" currency
By Brett Wolf

Wed Jun 8, 2011 11:17am EDT

ST. LOUIS (Thomson Reuters Accelus) - Two senators are pressing federal authorities to crack down on an online black market and "untraceable" digital currency known as Bitcoins after reports that they are used to buy illegal drugs anonymously.

Democratic Senators Charles Schumer of New York and Joe Manchin of West Virginia wrote to Attorney General Eric Holder and Drug Enforcement Administration head Michele Leonhart in a letter that expressed concerns about the underground website "Silk Road" and the use of Bitcoins to make purchases there.

The letter prompted a discussion among Bitcoin enthusiasts about whether the government was capable of closing related bank accounts and thereby stifling the currency.

The senators released a copy of their letter on Monday. It cites recent media reports that some tech-savvy individuals were using an "anonymizing network" known as Tor to gain clandestine access to Silk Road and buy illegal drugs.

Silk Road buyers pay with Bitcoins and sellers mail the drugs, the Gawker blog reported. The transactions leave no traditional money trail for investigators to follow, and leave it hard to prove a package recipient knew in advance what was in a shipment.

"The only method of payment for these illegal purchases is an untraceable peer-to-peer currency known as Bitcoins. After purchasing Bitcoins through an exchange, a user can create an account on Silk Road and start purchasing illegal drugs from individuals around the world and have them delivered to their homes within days," the senators' letter states. "We urge you to take immediate action and shut down the Silk Road network."

The DEA is "absolutely" concerned about Bitcoins and other anonymous digital currencies, agency spokeswoman Dawn Dearden said when asked for a response to the senators' concerns.

"The DEA is constantly evaluating and analyzing new technologies and schemes perpetrated by drug trafficking networks. While we won't confirm or deny the existence of specific investigations, DEA is well aware of these emerging threats and we will act accordingly," she said.

Silk Road may be hard to close. It could easily move from server to server around the globe and change its Web address and name at will, while remaining accessible through Tor.

However, Bitcoins must be purchased with real money; of late, they have been selling for roughly $10 each.

Therefore, there are exchanges with bank accounts, such as the Mt. Gox Bitcoin Exchange, that the Justice Department and other law enforcement agencies may be able to target. It is this weak link that worries the currency's enthusiasts.

A discussion thread this week on the primary Bitcoin forum was titled "Will Mt. Gox US Bank accounts eventually get frozen?" Some speculated that if the government bans transactions involving Bitcoin exchanges, a layer of shell companies might allow them to continue.

One user described this process as simply "growing pains" and asserted that the government "can't stop a peer-to-peer service."

U.S. law enforcers might have difficulty stopping Bitcoins without help from their peers in other countries.

While little information about Bitcoin exchanges is publicly available, an item posted on a website called Bitcoin Watch states that Mt. Gox's bank account is in Japan, and anecdotal evidence suggests many other exchanges operate outside of the US.

Mt. Gox's website does not list a phone number, representatives could not be reached via email.

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« Reply #4 on: 2011-June-15 12:30:09 PM »

For latecomers: I have REVERSED my initial position on Bitcoins.

My original position was based on the unfortunate fact that the first article I read was the one at LibertarianNews written by Michael Suede--as detailed above. ALL of the issues I raise are addressed much better in a Bitcoin Wiki FAQ at the following address (with NO thanks to Michael Suede who was too busy creating ad hominems to provide any link whatsoever):

I also recommend the following video interview by Stefan Molyneux at Freedomain Radio:

I will be setting up my Artemis Zuna Trading Post to accept Bitcoins AND offer Bitcoin graphics on shirts, etc. The following link will be updated at that time:

Before making your own decision on Bitcoins, be sure to read the interview with Doug Casey below at

« Last Edit: 2011-June-23 12:05:37 PM by DennisLeeWilson » Logged

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« Reply #5 on: 2011-June-23 11:55:54 AM »

Just when I thought it was safe to endorse Bitcoins, someone hacked one of the major eWallet holders--which only underscores the fact that anything (gold, silver, cash AND Bitcons) held by some other person is vulnerable to loss. Apparently the Bitcoin itself is still secure. More detail is found in the following interview with Doug Casey and the article he links to that is copied below.    Dennis
Doug Casey on Bitcoin and Currencies
June 23, 2011

Interviewed by Louis James, Editor, International Speculator

Recently: The World According to Doug Casey

L: Doug-Sama, we’ve had a number of readers ask for your take on this new Bitcoin system. As a person who likes to see the private sector compete in areas that governments try to reserve for themselves, this seems right up your alley – what do you think?

Doug: It’s a sign of the times. Lots of people are actively looking for an alternative to the dollar. I think Bitcoin is a very good thing, in principle. But after the recent disastrous hack, it’s probably a dead duck, at least in version 1.0.

It’s appropriate, however, that we’re talking about Bitcoin – an Internet-driven phenomenon – while you are in Bishkek, Kyrgyzstan and I’m in Beirut, Lebanon, and we’re speaking essentially for free over the Internet. Money is increasingly going to be Internet-related. But first we should explain what Bitcoin is.

L: Sure. There’s a Wiki entry, but the basic idea is that Bitcoin is an online (and therefore digital), non-government-backed currency. It’s not backed by anything, actually, but that doesn’t seem to be a problem for many users. The system has been adopted by a growing number of people around the world in just the last two years. People are used to currencies not backed by anything, so I guess I shouldn’t be surprised, but I am. On the other paw, unlike government currency, the Bitcoin system is based on a decentralized computer system that no single person or entity – including any government – has control over. That’s part of a design to keep the number of Bitcoins in circulation (inflation) strictly in check. So I can see why some people would see Bitcoin as being just like government currency, but better, because it’s supposedly inflation-proof.

That’s the idea, anyway, but in my view, it’s still not money – no more than unbacked government promises are. You can only use them among others willing to pioneer this cyber-frontier, so I really was quite surprised to see them catch on as well as they have. I’ve seen estimates that the market value of Bitcoins in circulation rose to about $130 million before they crashed last weekend.

Doug: Again, it’s quite encouraging to see that so many people are so disgusted with government currencies, and the total lack of privacy in banking. That’s why Bitcoin could catch on at all. But let’s go back to basics, and see if Bitcoin qualifies as money. Money is a medium of exchange and a store of value. Bitcoin may work as a medium of exchange sometimes, but not a very good one, because it’s proving so unstable. It has fluctuated so much in value over its short life that it is totally unsuitable as a store of value. Over 2,300 years ago, Aristotle identified the five essential attributes that are necessary for a good money…

L: It has to be durable, divisible, convenient, consistent, and have value in itself. But don’t forget your own addendum of “can’t be created out of thin air infinitely.”

Doug: Right. Let’s see how Bitcoin stacks up. First, is it durable? As nothing more than ones and zeros on a computer network, it might seem that the answer is no – it’s certainly not as substantial as gold. But a Bitcoin is arguably a lot more durable than a piece of government-issued paper than can be lost, burned, or even fall apart in your jeans pocket if you forget to take it out before doing the laundry. Moreover, since the Internet was designed to be multiply redundant, and even able to withstand nuclear attack, it’s arguable the Bits won’t just disappear.

L: We should point out that the recent problem with a bunch of usernames and accounts being exposed was not a failure of the Bitcoin system itself, but apparently of the physical security of an intermediary business that interfaces between the public and Bitcoin. There’s another attack put together by hackers, not trying to crack the integrity of the Bitcoins themselves, but to get artificially paid by the Bitcoin system for doing computational work. Someone has also released a virus aimed at stealing users’ Bitcoin account information.

Doug: Yes, these are all serious attacks, and there are likely to be others. But it remains to be seen if Bitcoin will survive the crash in value last weekend – Bitcoins had been trading as high as $30 each and dropped to $0.01 at one point. Since Bitcoins rest on nothing but confidence, it’s going to be hard to restore that confidence now that it’s lost. But it’s interesting that the Bitcoins themselves have proven quite resistant to tampering. In short, they’ve shown significant durability. So they pass that criterion.

L: Okay. Divisible?

Doug: No problem there; they’re electronic ledger entries, so they can be divided and subdivided as many times as you like.

L: What about convenience? You can’t spend Bitcoins at a gas station or a village in Africa.

Doug: Don’t be so sure. More and more people are on the Internet these days. We’ve both seen villagers in Africa with smart phones. It won’t be long before most everybody has one. Anyone with Internet access can arguably deal in Bitcoins, so they could potentially be very convenient to use. That’s a lot more people than the number who will take, say, Russian rubles, Zambian kwacha, or Vietnamese dong.

And Bitcoins are certainly consistent; each one has identical properties.

L: Do they have value in themselves?

Doug: There’s the rub; I don’t see that they do. Bitcoins are just an electronic abstraction. They can’t be used for anything else, nor are they made of something that can be used for anything else. They are like one of those knots in a string that disappear if you pull hard enough on the ends of the string. They are not backed by anything at all. Like government fiat currencies, they are a con game, functioning only as long as people have confidence in them, regardless of whether that confidence is well placed or not.

I’ve always said that the dollar is an “I owe you nothing,” and that the euro is a “Who owes you nothing.” With Bitcoins – which no individual can be held accountable for and which have no value in themselves – I’d have to say they are a “No one owes you anything.” It was inevitable, therefore, that the scheme would collapse… at least in its present form.

Their main value seems to have been as a speculative medium. Worse, actually, in that they are – or were – based on finding a “greater fool” to pass them on to, for something of value. The bubble in Bitcoins is, however, just one of many to come as people try to get out of paper currencies in the years to come. With the bubble that arose in tulip bulbs in 17th century Holland, you might at least have wound up with a flower. This time, people just got stung. The message is clear: Get used to bubbles, as governments print up more and more fiat money.

Bitcoin reminds me of the so-called “barter currencies” people tried to start in the U.S. some time ago, supposedly trading units of “barter.” People traded chits, where a barber might charge ten for a haircut, and a lawyer 100 for an hour of counsel. But they were just another paper currency, based on confidence. And, when you’re dealing with total strangers, confidence is hard to come by…

L: Sounds like a contradiction; the whole concept of barter is trading in goods and services directly, not via media of exchange.

Doug: Well, barter chits were supposed to encourage trade among those who used them. And they were also a tax dodge, since no official money changed hands. That was a major incentive for using them. But they all dried up and blew away, and the people who wound up holding them had nothing. Sort of like when the Argentine peso collapsed ten years ago. The provinces decided to set up their own currencies, but they weren’t backed by anything either, and they all dried up and blew away as well, leaving those who held them holding an empty bag.

So, way before the dollar value of Bitcoins stepped off a cliff last weekend, I was telling people who asked me that I didn’t use them and didn’t plan to use them.

Frankly, I can’t see why anyone would, when there’s already an electronic digital currency like Bitcoin but backed with gold: GoldMoney. I should disclose that I’m a small investor in the company. But I have to say that I really do like GoldMoney. It does everything Bitcoin does – or did – but is backed by something of real value: gold. That means it’s not just an abstraction, but an actual store of wealth. The ultimate proof of that is that you can take delivery of your gold if you want to. With Bitcoin, there’s nothing to take delivery of. I don’t understand why anyone would use Bitcoin when they can use GoldMoney, which does all the same things but has real backing.

[It is NOT the same thing! GoldMoney is as vulnerable to confiscation as eGold and Liberty Dollar because it is a centralized system. The decentralized nature of Bitcoins, plus the completely anonymous nature of transactions, are the big differences that Doug Casey did not mention (but mentions later)....Dennis]

L: Neither do I. I was quite surprised to see that the idea had actually caught on. I loathe the government currency monopoly as much as anyone, but I wasn’t even tempted to try Bitcoin out, because it wasn’t backed by anything. Maybe it’s simply Bitcoin’s case for being inflation-proof. This gets to your addendum to Aristotle’s five qualities: People clearly placed great value on Bitcoin’s promise to limit circulation to a finite number. The perception among people who’ve forgotten what money really is – which is most people – is that money is only a medium of exchange. In this case, the meme that “it’s better than government paper” created enough perception of value to keep the things in circulation – or did until last weekend. Bitcoin looks more like “Bit the Dust” now. But in spite of its problems, do you still seem pleased with the whole Bitcoin experiment.

Doug: I like the fact it’s untraceable and secret. I like the idea that it was trying to be an alternative to the dollar; it’s great to see people trying to get out of the U.S. dollar. The dollar is a state monopoly of the worst kind. It’s not only the world’s reserve currency for central banks, but it’s become the world’s de facto international currency. If you’re Canadian or Asian or African or South American and travel abroad, you pretty much need U.S. dollars as soon as you leave the borders of your country. Even the euro isn’t much good outside of the eurozone. That something like Bitcoin can gain any traction at all is a real – if early – challenge to the supremacy of the U.S. dollar.

This is quite significant. That was probably one thing on Senator Charles Schumer’s warped little mind when he referred Bitcoin to the Justice Department for investigation recently. Schumer is always on the wrong side of absolutely everything.

The U.S. dollar has actually become a major weapon in the hands of the U.S. government now. All bank transactions go through the U.S. SWIFT system. Even the Chinese and Russians, who have no love for the U.S. government, have to use dollars for international trade. They don’t like it. Muslims all around the world are coming to feel that they are enemies of the United States, so they don’t want to use the dollar either. And the more regulations the U.S. puts in place about how money is transferred and used – like FATCA – the harder people will look for alternatives. The U.S. government is treating everyone’s dollars as its personal property. They’re becoming desperate, and desperate governments are especially dangerous. This one is starting to thrash around like a large, stupid dinosaur in its death throes – stay out of its way.

Mohamed Mohatir in Malaysia, following the dictates of the Koran, which I understand states that only gold and silver should be used as money (the dinar and dirham), actually made moves towards establishing a new gold standard. He tried to get other Islamic governments to buy into it, and cut the dollar out of their international trade. But most of those governments – then as now, although things may be changing – are both U.S. stooges and kleptocracies, so they weren’t interested in honest money.

There’s huge and growing appetite around the world for alternatives to the dollar. Bitcoin is a beta version of what’s coming in the post-dollar world. GoldMoney, however, is already a proven version 2.0.

L: So … Investment implications?

Doug: Well, it’s only a question of when, not if, the world will go off the dollar as its international and reserve currency. That has huge implications for the price of gold – and even greater implications for gold-related stocks. It’s also very bad news for the U.S. government itself, which has only the dollar and a bloated military left to prop it up. A third-world-style collapse in the U.S. would have major financial and economic implications, obviously, but also major social and political changes would follow. It will be very, very messy. The U.S. is not a place I want to be when that happens.

That’s why the U.S. government and its media lapdogs have been so antagonistic to Bitcoin, claiming it’s primarily of interest to drug lords who want to use it as soap for their money laundering. They always mention it in conjunction with Silk Road, which claims to allow purchase of any drug through mail order, using Bitcoin as its payment system. I have no problem with that, but it’s a totally impractical idea in today’s world. It’s just an idea intended to scare witless Americans. Frankly, I’m disgusted at the fact money laundering is even accepted as a crime; thoughtless people believe whatever they’re told. It’s not a crime, by any rational definition. But that’s another subject for another day.

L: Well, I’m not surprised the U.S. government should take such action. It already shut down e-gold, and more recently the Liberty Dollar. If Bitcoin really caught on, it would only be a matter of time before they’d try to shut it down too. Even if Bitcoin’s systems did turn out to be government-proof (which I doubt, given what a few criminals have been able to do already), the government could always go after users, punishing anyone caught with a Bitcoin account. [ALL of the very same things can be said of GoldMoney...Dennis]

Doug: Yes, that would likely happen. Like Bitcoin, GoldMoney has the unique advantage of allowing transfers of capital anywhere in the world without going through the Fed. That’s a huge plus – although one now has to report ownership of a GoldMoney account to stay within the law, if one is an American. If you’re an American, everything has to be reported to the state today. You have zero financial privacy. But as people become more desperate for alternatives to the dollar, and the systems get better at providing anonymity, more and more people will abandon worthless government paper, one way or another. I have no doubt gold will return to the forefront as money. But in this digital age, people aren’t going to carry much of it around in their pockets – it’s going digital too.

L: Hm. Well, if this is a sign that the end game for the U.S. dollar is approaching, can you say when?

Doug: No. All we can say now, responsibly, is that this Bitcoin flap is an important straw in the wind. There are about seven trillion U.S. funny-money units floating around outside the U.S. At some point there’s going to be a panic, and billions of foreigners are going to try to dump trillions of dollars. It’s going to be a sight to behold. Pity the poor fools who are left holding the monopoly money then – most of them will be Americans, I fear.

L: Besides the obvious ideas of shorting the dollar, going long gold and great gold stocks, is there a way for speculators to play this now?

Doug: It’s certainly worth repeating the obvious, because it’s not obvious to everyone. Gold, though it has gone way up, is nowhere near its top – it’s going through the roof. And the right gold stocks are going to the moon. I believe the gold bubble some people are talking about is just starting to inflate, and it’s going to create a market mania for the record books.

L: You’re singing my song again.

Doug: It’s a bit self-serving, I know, but it also happens to be completely true.

L: Okay then – until next time.

Doug: Next time.

If you want to get into gold but have no idea what “the right gold stocks” are, let the Casey Research team help educate you. A ninety-day trial subscription to Casey International Speculator gives you access to its deep archives as well as current issues. Best of all, it’s absolutely risk-free. Details here.

June 23, 2011

Doug Casey (send him mail) is a best-selling author and chairman of Casey Research, LLC., publishers of Casey’s International Speculator.

Copyright © 2011 Casey and Associates
The Best of Doug Casey
« Last Edit: 2011-December-30 10:44:31 PM by DennisLeeWilson » Logged

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« Reply #6 on: 2011-June-23 12:22:35 PM »

Plunderous Malware Makes Off With Bags of BitCoins

By Rachelle Dragani
06/20/11 11:10 AM PT

The value of the virtual currency BitCoins has crashed recently due to a piece of malware designed to allow thieves to steal users' electronic loot. Security experts have urged caution in dealing with BitCoin, though this certainly isn't the first time the value of the virtual currency has fluctuated greatly.

A new malware attack aimed at stealing BitCoin wallets is on the loose, according to information released by security firm Symantec (Nasdaq: SYMC). The attack has led to reports of at least one theft amounting to approximately US$500,000.

BitCoins are a form of virtual currency. The relatively unregulated method of trading that appeals to so many users comes with a downside -- unencrypted codes can lead to large security breaches, such as in the case of the malware exposed by Symantec.

Days after the attack was publicized, the value of BitCoins has fallen significantly.

"Infostealer.Coinbit," as the Trojan is known, targets a BitCoin user's wallet, then sends that information to the attacker's e-mail.

Analysts suggest that BitCoin users take steps to ensure their safety.

"Requiring user interaction -- such as entering some password, for example -- could improve security. This should be a mandatory change and wouldn't imply a change on the system itself, so [it] could be applied quickly," Luis Corrons, technical director of Panda Security, told TechNewsWorld.

Symantec did not respond to requests for comment.

Future of Currency?

Despite the hopes of many BitCoin users for a viable form of cloud currency, security concerns might change the way they operate since by nature it is difficult to regulate.

"BitCoin itself is not a business. It's a decentralized virtual currency. As such, it will be up to those who trade and create BitCoins to make any changes," Roel Schouwenberg, senior antivirus researcher at Kaspersky Lab, told TechNewsWorld.

Another concern is the instability of BitCoin as a currency. Even before the security breach, the value fluctuated greatly but could usually be found somewhere between $8 and $18. After the attack, however, a massive sell-off occurred and the price tanked to a low of under $2.

The value is rising slowly, but it could be a while before it's back up to pre-attack prices.

Not Simply Fraud

Politicians and analysts have security concerns about BitCoin beyond the online scamming world -- they're concerned that the accessibility of unregulated funds make purchases for illegal goods such as illicit drugs easier.

Websites such as Silk Road, which is often characterized as a digital black market, use BitCoin for payment methods. U.S. Senators Charles Schumer (D-NY) and Joe Manchin (D-W. Va) have written a letter to U.S. Attorney General Eric Holder expressing their concerns about the use of BitCoins to easily buy, sell and ship illegal drugs worldwide.

Still, BitCoin wallets will likely continue to have a place in the virtual world.

"It is pretty clear that there are many users willing to use a currency system that is not controlled by the state and their politicians, so I think that this BitCoin system or something similar has a place in the free market," said Corrons.

Once again, consumer vigilance is the key to staying safe.

"Overall, I don't see these attacks changing anything other than how careful people will be with their virtual wallet," said Schouwenberg.

Hack attack pushes Bitcoin to the brink

By Stephen Foley in New York

Tuesday, 21 June 2011

Bitcoin, an online currency beloved of libertarians and technophiles, which had been threatening to break into the mainstream, was facing the worst crisis of its two-year existence last night after hackers brought down its biggest exchange.

The attack, an apparent attempt to steal the contents of users' online accounts and convert them into real money, is the latest in a string of disasters to hit Bitcoin in the past few weeks, raising questions over whether the currency has a future.

In the UK, supporters of Bitcoin made an urgent appeal to the Financial Services Authority to regulate the largest London-based exchange, so as to reassure people that using Bitcoin is safe. "Unregulated businesses don't usual cry out for regulation," said Donald Norman, co-founder of the exchange Britcoin. "But because we are unusual, and because we are dealing with people's money, and because of all the scary stories around Bitcoin, we would like nothing more than to have a government authority looking into our accounts – especially now."

The exact nature of the attack on the Japan-based Mt Gox exchange was not immediately clear. Mark Karpeles, who runs Mt Gox, said attackers gained access to a computer that had details of all account users and their encrypted passwords. As of last night, the company was still running "intrusion tests", as rumours swirled about how much money might have been stolen in the heist.

Bitcoin was invented as an open source project in 2009 as a decentralised alternative to real world currencies. By setting an absolute limit on the amount of Bitcoins that could be created, its adherents believe, the currency could one day become a "gold standard" against which government-operated currencies could be valued. The currency could also become an easy way to conduct commerce online, away from expensive taxation, regulation and bank fees.

As of 2pm, New York-time on Sunday, the number of Bitcoins in existence were worth more than $100m (£61.7m), on electronic exchanges that valued them at $17.50 apiece. Moments later, the price appeared to crash to just pennies, because of irregular trading on Mt Gox.

The latest disaster will fuel the online debate over whether Bitcoin can become a serious currency, or is simply too volatile. As mainstream interest began to take off last month, the US dollar-value of Bitcoins surged 1,000 per cent. Earlier this month, it crashed by 30 per cent on a single day.

Hundreds of small online merchants and Bitcoin adherents have started to accept the currency as payment for goods and services, though no major retailers do.

The currency has started to attract the attention of politicians in the US after reports that Bitcoins have been used to purchase illegal drugs. Last month, US Senator Chuck Schumer called Bitcoin "an online form of money laundering used to disguise the source of money".
« Last Edit: 2011-June-23 12:55:55 PM by DennisLeeWilson » Logged

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« Reply #7 on: 2011-June-23 01:14:06 PM »

Bitcoin Weaknesses
Contents [show]

Might be a problem

Wallet Vulnerable To Theft

The wallet is stored unencrypted, thus it becomes a valuable target for theft. That this is a problem was evidenced by the negative publicity following Allinvain's June 2011 claim that his wallet was stolen.

Forcing clock drift against a target node

See Timejacking for a description of this attack. It can be fixed by changing how nodes calculate the current time.

Tracing a coin's history

Tracing a coin's history can be used to connect identities to addresses. More info.

Cancer nodes

It's trivial for an attacker to fill the network with clients controlled by him. This might be helpful in the execution of other attacks.

For example, an attacker might connect 100,000 IP addresses to the IRC bootstrap channel. You would then be very likely to connect only to attacker nodes. This state can be exploited in (at least) the following ways:

    The attacker can refuse to relay blocks and transactions from everyone, disconnecting you from the network.
    The attacker can relay only blocks that he creates, putting you on a separate network. You're then open to double-spending attacks.
    If you rely on transactions with 0 confirmations, the attacker can just filter out certain transactions to execute a double-spending attack.
    Low-latency encryption/anonymization of Bitcoin's transmissions (With Tor, JAP, etc.) can be defeated relatively easy with a timing attack if you're connected to several of the attacker's nodes and the attacker is watching your transmissions at your ISP.

Bitcoin makes these attacks more difficult by only making an outbound connection to one IP address per /16 (x.y.0.0). Incoming connections are unlimited and unregulated, but this is generally only a problem in the anonymity case, where you're probably already unable to accept incoming connections.

Looking for suspiciously low network hash-rates may help prevent the second one.

No authentication for IP transfers

Since there's no authentication when sending to an IP address (as opposed to a Bitcoin address), executing a man-in-the-middle attack and stealing the sent BitCoins is trivial. This attack is downright likely if you're using Tor.

Packet sniffing

Someone who can see all of your Internet traffic can easily see when you send a transaction that you didn't receive (which means that it's yours). This would be made more difficult (but not impossible) if node-to-node encryption was used.

Denial of Service (DoS) attacks

Sending lots of data to a node may make it so busy it cannot process normal bitcoin transactions. Bitcoin has some denial-of-service prevention built-in (it will drop connections to peers that send it too much data too quickly), but is likely still vulnerable to more sophisticated denial-of-service attacks.

Probably not a problem

Breaking the cryptography

SHA-256 and ECDSA are considered very strong currently, but they might be broken in the far future. If that happens, BitCoin can shift to a stronger algorithm. More info.


BitCoin can easily scale beyond the level of traffic VISA sees globally today. See the discussion on the scalability page for more information.


If there is even a "trickle" of a connection between two sides of a segmented network, things should still work perfectly. When block chains are combined, all of the non-generation transactions in the shorter chain are re-added to the transaction pool -- they'll start over at 0/unconfirmed, but they'll still be valid. No mature transactions will be lost unless the segmentation persists for longer than ~120 blocks. Then generations will start to mature, and any transactions based on those generations will become invalid when recombined with the longer chain. More info.

Attacking all users

The IP addresses of most users are totally public. You can use Tor to hide this, but the network won't work if everyone does this. BitCoin requires that some country is still free.

Dropping transactions

Nodes that generate blocks can choose not to include a transaction in their blocks. When this happens, the transaction remains "active" and can be included in a later block. Two things discourage this:

    Nodes only hash a fixed-size header, so there is no speed advantage to dropping transactions.
    Satoshi has communicated that he will write code to stop this kind of thing if it becomes a problem.

Attacker has a lot of computing power

An attacker that controls more than 50% of the network's computing power can, for the time that he is in control, exclude and modify the ordering of transactions. This allows him to:

    Reverse transactions that he sends while he's in control
    Prevent some or all transactions from gaining any confirmations
    Prevent some or all other generators from getting any generations

The attacker can't:

    Reverse other people's transactions
    Prevent transactions from being sent at all (they'll show as 0/unconfirmed)
    Change the number of coins generated per block
    Create coins out of thin air
    Send coins that never belonged to him

It's much more difficult to change historical blocks, and it becomes exponentially more difficult the further back you go. As above, changing historical blocks only allows you to exclude and change the ordering of transactions. It's impossible to change blocks created before the last checkpoint.

Since this attack doesn't permit all that much power over the network, it is expected that no one will attempt it. A profit-seeking person will always gain more by just following the rules, and even someone trying to destroy the system will probably find other attacks more attractive. However, if this attack is successfully executed, it will be difficult or impossible to "untangle" the mess created -- any changes the attacker makes might become permanent.

Spamming transactions

It is easy to send transactions to yourself repeatedly. If these transactions fill blocks to the maximum size (1MB), other transactions would be delayed until the next block.

This is made expensive by the fees that would be required after the 50KB of free transactions per block are exhausted. An attacker will eventually eliminate free transactions, but Bitcoin fees will always be low because raising fees above 0.01 BTC per KB would require spending transaction fees. An attacker will eventually run out of money. Even if an attacker wants to waste money, transactions are further prioritized by the time since the coins were last spent, so attacks spending the same coins repeatedly are less effective.

The "Finney" attack

Named for Hal Finney, who first described this variation of a double-spend attack involving accepting 0-confirmation transactions. Accepting 0-confirmation large-value transactions is problem; accepting them for low-value transactions (after waiting several seconds to detect an ordinary double-spend attempt) is probably not a problem.

Definitely not a problem

Coin destruction

BitCoin has 8 decimals of precision, so the entire network could operate on just a handful of BitCoins. An attacker could never destroy them all. If deflation gets to the point where transactions of more than 10BC are unheard of, the client can just shift the decimal point over so that, for example, people with 0.01 BitCoins have 1.000 BitCents.

Generating tons of addresses

Generating an address doesn't touch the network at all. You'd only be wasting your CPU resources and disk space.

Also, a collision is highly unlikely.

Keys are 256 bit in length and are hashed in a 160 bit address.(2^160th power) Divide it by the world population and you have about 215,000,000,000,000,000,000,000,000,000,000,000,000 addresses per capita.(2.15 x 10^38)[1]

I just thought you wanted to know that. You know, for your evil diabolical plan.

Rival/malicious client code

Any rival client must follow BitCoin's rules or else all current BitCoin clients will ignore it. You'd have to actually get people to use your client.

Everyone calculates at the same rate

If everyone began with identical blocks and started their nonce at 1 and incremented, the fastest machine would always win. However, each block contains a new, random public key known only to you in the list of transactions. The 256-bit "Merkle tree" hash of this is part of the block header.

So everyone begins with slightly different blocks and everyone truly has a random chance of winning (modified by CPU power).

Generate "valid" blocks with a lower difficulty than normal

Using unmodified Bitcoin code, an attacker could segment himself from the main network and generate a long block chain with a lower difficulty than the real network. These blocks would be totally valid for his network. However, it would be impossible to combine the two networks (and the "false" chain would be destroyed in the process).

    Even though your network's difficulty can be less than the real difficulty, this doesn't give you any advantage over the real network. You'll gain ground when the real network is taking more than 10 minutes to generate a block, but you'll lose ground when the network takes less than 10 minutes.
    Every few releases of Bitcoin, a recent block hash is hardcoded into the source code. Any blocks before that point can't be changed. An attacker starting at that point would have to reduce the difficulty, but this would require him to generate blocks at a much slower rate than once per 10 minutes. By the time he finally gets to a difficulty of 1, a new version of Bitcoin with an updated hardcoded block will probably have been released.
    "Block chain length" is calculated from the combined difficulty of all the blocks, not just the number of blocks in the chain. The one that represents the most CPU usage will win.
« Last Edit: 2011-June-23 01:22:35 PM by DennisLeeWilson » Logged

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