mfioretti: bitcoin*

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  1. A recent report suggests that at current prices, Bitcoin miners will consume an estimated 8.27 terawatt-hours per year. That might sound like a lot, but it’s actually less than an eighth of what U.S. data centers use, 1 and only about 0.21 percent of total U.S. consumption. It also compares favorably to the currencies and commodities that bitcoin could help replace: Global production of cash and coins consumes an estimated 11 terawatt-hours per year, while gold mining burns the equivalent of 132 terawatt-hours. And that doesn’t include armored trucks, bank vaults, security systems and such. So in the right context, bitcoin is positively green.
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  2. L’indovinello ha le sue regole. Ogni blocco viene formato da un’insieme di informazioni che vengono scritte come puro testo, secondo un ordine e regole di composizione determinate. Una di queste informazioni è un insieme di caratteri che identifica univocamente il blocco precedente, calcolato matematicamente secondo una funzione precisa che si chiama “hash”. Questa funzione è particolare: restituisce sempre per ciascun blocco (può essere un file, ma non necessariamente) una e una sola “impronta”, una stringa di caratteri esadecimali (da zero a nove e da a ad f) di lunghezza predeterminata, qualunque sia la dimensione del file. Non solo. Qualsiasi modifica, anche infinitesimale al file, genera un’impronta completamente diversa.

    Un esempio chiarirà visivamente di cosa si tratta. Ad esempio, usando l’algoritmo SHA256, la frase:

    tanto va la gatta al lardo che ci lascia lo zampino

    genera un’impronta di hash (o semplicemente “hash”)


    Se uso la maiuscola all’inizio, e dunque

    Tanto va la gatta al lardo che ci lascia lo zampino



    Predire come sarà un hash è dunque praticamente impossibile, perché ogni minima modifica del blocco originario genererà un hash completamente diverso. L’hash, in sé, non ci dà nessuna informazione su come sia il file che lo genera, né quanto è grande, né cosa contiene.

    Qui viene il puzzle. Come detto, non posso prevedere né forzare in maniera calcolabile come sarà l’impronta hash. Se chiedo che qualcuno mi dia un testo la cui impronta di hash contenga in qualsiasi posto due “a” consecutive, lui probabilmente prenderà blocchi arbitrari di testo fino a che non ne troverà per caso uno con due “a” consecutive: nell’esempio di sopra ci sono arrivato al secondo tentativo. Allora complico il problema: chiedo di trovare un blocco che abbia due “a” all’inizio dell’hash. Magari il candidato ne troverà uno dopo cento tentativi (16 al quadrato=256 combinazioni possibili). Se gli impongo di trovare un blocco che abbia sedici zeri (16 alla sedicesima = 1,844*10 alla diciannovesima combinazioni, ovvero circa diciottomila milioni di miliardi di combinazioni) ci metterà ben più di una vita. Anzi no, lo fa fare a computer superpotenti che lo faranno per lui, suddividendosi i compiti.

    Questo è in pratica l’indovinello: trovare un blocco che generi un hash che abbia un certo numero di zeri all’inizio e che contenga tra le altre cose l’impronta hash del blocco precedente. Una di queste informazioni è dunque disponibile solo a partire da un certo momento. Lo sparo dello starter può avvenire solo quando uno dei nodi ha immesso in rete la sua soluzione, e questa soluzione è accettabile. Da lì posso partire.

    Siccome l’algoritmo è fatto per generare un blocco in media ogni dieci minuti, ho solo dieci minuti per risolvere l’indovinello, il quale è già oggi estremamente difficile. E diventa sempre più difficile con l’aumentare della potenza di calcolo totale impiegata per risolverlo: se l’indovinello si dimostra troppo facile, automaticamente la difficoltà viene fatta aumentare (1).
    Tags: , by M. Fioretti (2017-12-27)
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  3. Yaroufakis agrees that there are numerous design flaws with the currency. Not least, he adds, “the fact that there are no controls, no democratic checks and balances of a bit issue and no way of back-stopping financial transactions by means of some kind of insurance policy for those that get defrauded.” Yet his central criticism focuses upon what he refers to as “the fantasy of apolitical money.”

    To Varoufakis, money is inherently political. The decisions regarding whether money is produced or not, how it is distributed and who receives it, all have significant political consequences, benefiting certain social groups over others. Bitcoin’s central design feature, that it is not governed by a central bank or decision-making authority, means that responsibility for its distribution is forfeited. This can have profound social and political implications in times of crisis.

    To understand what Varoufakis means by the political nature of money, consider how governments respond to financial crises. When a major financial crisis occurs, it is usually caused by the failure of widespread and interconnected debts. Once these debts fail, what happens is that a large part of the money supply effectively disappears. With this money gone, governments have a choice whether to replace it or not. Choosing not to replace it through the creation of new money (inflation) becomes a political decision with political repercussions. As Varoufakis suggests, “effectively you are choosing to shift the burden of a crisis onto the debtors and usually the weakest and poorest of debtors. So effectively you are redistributing power and wealth against the weaker members of society.”

    If the decision is made to replenish the money supply, like it was in 2008 through Quantitative Easing (QE), then how this money is channeled through the economy will also influence the political economy. In Varoufakis’ opinion, QE was engineered in a way to benefit large corporations.
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  4. Right now BTC works like a foreign currency. The enormous sell off of dollars to buy BTC is best understood as a currency bubble. It’s not shares in a company: companies make things. As I’ve said before, the future is a foreign country, and it is also our largest trading partner. BTC is the national currency of The Future, and people are shorting the Present to buy the FutureCoin. (Throughout I’ll refer to BTC. I really mean “and all the other currencies.) People buying bitcoin are shorting status quo.

    But The Future shares a geography with The Present. The governments own The Present, and you can’t just open “The Future” right in the middle of their turf without a dialogue. But a lot of people with a lot of money are performing a great hedge against a dollar price collapse brought on by political factors — you can imagine what a Trump impeachment followed by insurrection in the South would do to bitcoin prices, can’t you? Well, so can other people: that’s part of the risk everybody is hedging by buying Bitcoin. But, right now, nothing is for sale in BTC other than other currencies, and a few share-like instruments in companies that aren’t actually doing any real trade yet. We have a huge slab of unhedged political risk tied up in our Future Coin holdings.
    Tags: by M. Fioretti (2017-12-16)
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  5. It’s a grassroots revolution led by people who want to take charge of their own financial future, people who know that lotteries and casinos are hopeless but didn’t had nowhere to go because they were too “small” for mainstream investment opportunities.
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  6. In a report last week, the cryptocurrency website Digiconomics said that worldwide bitcoin mining was using more electricity than Serbia. The country. Writing for Grist, Eric Holthaus calculated that by July 2019, the Bitcoin peer-to-peer network—remember BitTorrent? Like that—would require more electricity than all of the United States. And by November of 2020, it’d use more electricity than the entire world does today.

    That’s bad. It means Bitcoin emits the equivalent of 17.7 million tons of carbon dioxide every year, a big middle finger to Earth’s climate and anyone who enjoys things like coastlines, forests, and not dying of mosquito-borne diseases. Refracted through a different metaphor, the Bitcoin P2P network is essentially a distributed superintelligence utterly dedicated to generating bitcoins, so of course it wants to convert all the energy (and therefore matter) in the universe into bitcoin. That is literally its job. And if it has to recruit greedy nerds by paying them phantom value, well, OK. Unleash the hypnocurrency!

    The idea of bitcoin still has the whiff of genius—a digital currency as untraceable and trustworthy as cash, unfettered from nationality and physicality, with egalitarianism and access built into its philosophical and technical firmware. But the reality, exposed by bitcoin’s remarkable run-up in value over the last three months, is that the science may not hold together. Which isn’t to say people aren’t trying to fix it.

    The thing that makes Bitcoin bitcoiny is the blockchain, the secure ledger of all payments and trades. The point of the P2P bitcoin network is the generation and maintenance of that ledger, and technically anyone can contribute updates—those recordings of transactions are blocks in the chain. But there’s a catch. (This was the bit of genius in bitcoin inventor Satoshi Nakamoto’s pitch, whoever the almost certainly psuedonymous “Satoshi Nakamoto” is or are.) In order to contribute a block, you also have to solve some really hard math, a “hashing algorithm” called SHA-256.1

    Validate a bunch of transactions and do the math, and the system might choose your block to add to the chain; if it does, you win some bitcoin. That’s called mining, and the idea of imposing a cost to enter—that hashing math—is “proof of work.”
    Tags: , by M. Fioretti (2017-12-16)
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  7. Look: no. Skedaddle is not going to eliminate Yelp or Facebook or tipping. It's not going to be "the first cryptocurrency for real world use." But at some level they're not wrong! One day 20 years from now we'll wake up and all of our interactions and performance will be tracked on the blockchain and will directly determine our income and socioeconomic status, and on the one hand we'll get pretty good customer service, but on the other hand we'll be terrified all the time. It is the logical endpoint of the "gig economy."

    The thing is that this omniscient blockchain of terror will be run by Facebook, not Skedaddle. If you just come out and say that your mission is to build a dystopia of economic precarity and constant surveillance, then you do not have the soft skills to actually carry out that mission. (Never mind if you say that your mission is "to completely take down Yelp and Facebook reviews, while completely eliminating tipping.") If you say that your mission is "to make the world more open and connected," then you have the ruthlessness, and the facility with euphemism, to actually do it.

    Elsewhere in dystopian blockchain fiction, here is a story about doomsday preppers who are hoarding bitcoins against the apocalypse. Doomsday prepping and bitcoin enthusiasm go well together psychologically: Both involve distrust of modern social systems, and both tap into deep libertarian and self-sufficiency themes. But they don't go at all well together logically: If modern society is wiped out in some massive catastrophe, it seems unlikely that the electric grid and global internet infrastructure will survive to run an energy-hungry blockchain for a currency with no physical form that even now basically can't be used to buy anything. But the bitcoin/apocalypse enthusiasts are undeterred:
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  8. On October 31, 2008, Satoshi Nakamoto published a paper entitled “Bitcoin : a peer to peer electronic cash system“. This paper introduced a potential revolution : the collapse of the current financial intermediaries — such as banks or states. In the midst of the economic crisis, this idea understandably aroused certain interest — be it to avoid excessive fees or to escape surveillance.

    Since then, the trend has grown exponentially. There are almost 900 cryptocurrencies, accounting for a market capitalization of $160Mds.Still, the revolution so sought after has yet to come to fruition. While it’s a rare feat of technological ingenuity, Blockchain suffers from crippling limitations as soon as it wriggles its way out of the idyllic world of theory.
    The decentralisation illusion

    Blockchain doesn’t magically disappear the need for intermediaries. Rather, it dilutes it throughout the network with the help of cryptography.

    To authenticate any given transaction between two peers, a small competition with a financial reward must first take place. This means that in order to cheat, a node would have to overtake all the other nodes within the network.

    In such a way, Blockchain has replaced an intermediary whose incentive was based on its reputation with a network of peers whose honesty is mathematically ensured. In both cases, the dominant position of a monopoly would allow for cheating, but only at the price of the collapse of the network on which it was built. However, in practice, we run into another problem.
    The Chinese oligocracy

    A whole parallel market has spread on top of these competitions. Companies have invested in specific hardware in order to keep up with the competition and profit from the financial rewards.

    Why has Bitcoin failed? It has failed because it became » a system completely controlled by just a handful of people
    Mike Hearn – The resolution of the Bitcoin

    Back in 2015, 90% of the Bitcoin mining power was sitting on this stage.

    The majority of the network mining power is concentrated in China (58%), and managed by a handful of companies. The 6 most important account for 75% of the mining power. In the case of a governing crisis, this oligocracy has the power to influence the outcome of major decisions.

    And it has already happened
    Tags: , by M. Fioretti (2017-11-13)
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  9. Bitcoin's incredible price run to break over $7,000 this year has sent its overall electricity consumption soaring, as people worldwide bring more energy-hungry computers online to mine the digital currency.

    An index from cryptocurrency analyst Alex de Vries, aka Digiconomist, estimates that with prices the way they are now, it would be profitable for Bitcoin miners to burn through over 24 terawatt-hours of electricity annually as they compete to solve increasingly difficult cryptographic puzzles to "mine" more Bitcoins. That's about as much as Nigeria, a country of 186 million people, uses in a year.

    This averages out to a shocking 215 kilowatt-hours (KWh) of juice used by miners for each Bitcoin transaction (there are currently about 300,000 transactions per day). Since the average American household consumes 901 KWh per month, each Bitcoin transfer represents enough energy to run a comfortable house, and everything in it, for nearly a week. On a larger scale, De Vries' index shows that bitcoin miners worldwide could be using enough electricity to at any given time to power about 2.26 million American homes.
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  10. where does all this leave tech startups? Struggling, and probably hoping to be acquired by a larger company, ideally one of the Big Five. While some breakout startups will still doubtless arise, they’ll be far rarer than they were during the boom years.

    We’re already seeing this. Consider Y Combinator, by all accounts the gold standard of startup accelerators, famously harder to get into than Harvard. Then consider its alumni. Five years ago, in 2012, its three poster children were clearly poised to dominate their markets and become huge companies: Airbnb, Dropbox, and Stripe. And so it came to pass.

    Fast forward to today, and Y Combinator’s three poster children are… unchanged. In the last six years YC have funded more than twice as many startups as they did in their first six — but I challenge you to name any of their post-2011 alumni as well-positioned today as their Big Three were in 2012. The only one that might have qualified, for a time, was Instacart. But Amazon broke into that game with Amazon Fresh, and, especially, their purchase of Whole Foods.

    From here on in, the existing tech titans will accrue ever more power, and startups will be increasingly hard-pressed to compete. This is not a good thing. Big businesses already have too much power. Amazon and Google are so dominant that there are loud calls for them to be regulated. Fake news shared on Facebook may have swayed the most recent presidential election.

    What’s more, startups bring fresh approaches and thinking, while hidebound behemoths stagnate in their old ways of doing things. But for the next five to ten years, thanks to the nature of the new technologies coming down the pipe, those behemoths will just keep accruing ever more power — until, we can hope, the pendulum swings back again.
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