How Bitcoin Works

How Bitcoin Works - A Flowchart

How Bitcoin Works – A Flowchart

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A flowchart of how bitcoin works

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  1. Though I originally supported the idea of something like bitcoin, I am now wary. When mainstream media begin o support and give preplanned opposition, makes my critical side wonder…is bitcoin a controlled opposition to current fiat currency?

    http://www.zerohedge.com/news/2014-01-08/bitcoin-sexiest-non-solution-all-time

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    • I follow Zero Hedge and it has good content. However the analysis of Bitcoin in the post is seriously flawed. Here is why:

      The issue of who is Satoshi Nakomoto is irrelevant. The entire Bitcoin saga starts with this paper: Bitcoin: A Peer-to-Peer Electronic Cash System. It is a mathematically rigorous paper clearly written by an academic in the style for publication in an academic journal.

      The point made that there is a media love affair with bitcoin is speculation. The argument goes nowhere.

      The assertion in the argument that Bitcoin can be confiscated is false. Crytocurrencies are anonymous and cannot be traced if proper security measures are followed. The allegation that the FBI has the largest bitcoin cache in the wake of Silkroad may be true, however the possession of this cache is entirely due to the breach of security rules by the SR operator and the FBI sting. The article : https://shadowlife.cc/2013/10/tracking-the-silk-road-lessons-for-darknet-services/ has a detailed technical analysis of what the S R operator did wrong.

      The next argument made is that bitcoin values can be manipulated. This is theoretically possible but the argument made that hackers will do it is sensationalism. The potential vulnerability is as follows. A bitcoin transaction has to be validated. This validation is done by a decentralized group of miners who earn a reward by validating the transaction (it goes into a bitcoin chain). The validation requires solving a complex Mathematical puzzle. Solving the puzzle requires considerable CPU power (and hence electricity). The miner who first solves the puzzle gets a small reward and he adds the bitcoin transactionto the block chain and publishes the blockchain wordwide. The reward is variable over time. The danger is that bitcoin miners could pool together in cartels and corner the mining market. Alternative currencies like litecoin are designed to eliminate this issue because memory instad of CPU power is required to solve the puzzle.

      Bitcoin is not private. Wrong. Bitcoin is untraceable if proper procedures are followed. That is why S R survived despite a massive hunt. The demise of S R was not due to any defect in the algorithm. All that the miners have is the public key of the transferee. You can create an unique public key whenever you want on your Linux computer. A public key does not disclose identity.

      Bitcoin relies on the Internet. True. But the web is not going to be shutdown ever. Also you can create massive Darknets on top of the net (peer to peer overlay networks). And furthermore there is continual open source work on building ad-hoc wireless mesh networks that do not require any wireless provider. The mesh keeps on expanding as it discovers new nodes. The entire argument on this point in the article is a non-starter.

      The suspicious nature of Bitcoin. There is nothing suspicious about it. It is a Mathematical Algorithm.

      The Volatility Of Bitcoin. True. It’s volatile because it obeys the law of supply and demand. An issue with Bitcoin is that only 41 million can be mined. This is too small for global commerce. Other cryptocurrencies are working on altering the Nakomato algorithm to increase this number.

      What The Author does not mention. Over 270 million civilians were murdered in the last century in wars. Most of the killing has been done by governments killing their own unarmed citizens. This must halt. We need to kill the money machine which prints fiat currency out of nothing and is then used to commit mass murder. Crypto-currencies are not only mathematically sound but the ethical position in creating a just world order. Starve the killers, cut off the air supply.

      Reply

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