The various and many anonymous authorities are moving against BitCoin, and they are taking the time-tested path: shutting down the exchange operators.
This is the modus operandi that was employed with earlier innovative money suppliers, and unfortunately it is a bit of a killer strategy. In short, someone complained, someone else then lent on the major money operators, who lent on the minor ones providing exchange facilities, who in turn then pulled their accounts with the exchangers.
Paxum Ceases Business With BitcoinOver the course of the last two weeks, Paxum has been in communication with our banking partners, Mastercard, and our auditors to evaluate the best interests of Paxum (and its clients) in relation to Bitcoin.
After much discussion and consideration it has been decided that, though Bitcoin's are not illegal, they are considered high risk.
Where, 'high risk' might mean that the people who we rely on to stay in business don't like it, which makes the exchange business extremely vulnerable. Or it might mean that the Bitcoin economy has fundamental problems.
Now, it turns out that honest people have good reason to be suspicious of Bitcoin, up to and including the extreme levels of rampant criminality. And, Philipp Güring and I wrote the paper to explain it:
Philipp Güring and Ian Grigg, Bitcoin & Gresham's Law - the economic inevitability of Collapse (PDF)Abstract. The Bitcoin economy exhibits remarkable and predictable stability on the supply side based on the power costs of mining. However, that stability is challenged if cost-curve assumption is not solely expressed by the fair cost of power. As there is at least one major player, the botnets, that can operate at a power-cost-curve of zero, the result is a breach of Gresham's Law: stolen electricity will drive out honest mining. This has unfortunate effects for the stability of the Bitcoin economy, and the result is inevitable collapse.
Philipp started by modelling demand and supply for Bitcoin mining. My part was to add the economics rationale why such things cannot succeed.
It is probably a bit too late now, but we had hoped to get the paper into some relevant forum but events above have overtaken us. Hence, here it is in the style of FC++ which means we might do some tweaking, and present it somewhere in a future moment.
Posted by iang at February 23, 2012 12:35 PM | TrackBackUm ... ya.
About that botnet thing. You are aware of the difference between CPU mining and GPU mining, right?
1 GPU = hundreds, or a thousand or so CPU systems. The botnets only have CPU systems so far, and even if they do try to do GPUs as well, they'll only find a tiny fraction of systems have the high-end GPUs of the kind that Bitcoin miners use. A serious miner is running multiple rigs each with 3 X graphics cards, each card having dual GPUs.
Additionally, FPGAs solutions are now arriving where GPUs are going to have a hard time competing. How many botnets will do FGPA mining? Approximately 0.0% And that won't be changing anytime soon.
Good story though.
Posted by: Anony Mouse at February 22, 2012 11:41 PMCheaper for the bots just to steal people's bitcoin wallets.
Posted by: rfk at February 23, 2012 12:12 AMThere are way too much simplifications in the paper. Nothing mentioned about increased botnet thermal footprint (and detectability), perhaps order or two in magnitude.
Posted by: m at February 23, 2012 04:43 AMCheaper to purchase all bitcoin in the world today.
Posted by: Jon Matonis at February 23, 2012 05:38 AMBotnets will never work for minigng..they are to valuable and owners can make more (illegaly) using them in other areas..using them for minign would go the opposite..they would easier be to spot and to spot..no botnet owner right in his head would ever use it for mining..at 100$ per btc they maybe try lol but as long as they dont own specialised hardware that won`t happen..i have FPGA 50 gigahash in 4 weeks..and they are absolutely security hardened in 3 layers..won`t work out
Posted by: WIcked at February 23, 2012 05:52 AMPerhaps governments will attack the currency but that has little to do with your other arguments. They certainly don't need the coins to come from botnets to start attacking it.
I don't think it matters much if botnets mine coins. Mining was only really intended as a bootstrapping mechanism to initially distribute the coins.
As the coin production tails off the botnets would merely be providing a cheap transaction processing service - where security of the processed transactions is subsidized by the botnets free access to resources.
That isn't likely to cause a shutdown in bitcoin, if anything it makes it even more competitive compared to other alternatives.
Posted by: Rob at February 23, 2012 07:51 AMI posted a reaction here:
https://bitcointalk.org/index.php?topic=65861.msg764437#msg764437
Mafia-concentration. In your putting, that mafia would become involved and invested in BitCoin, and would act like an authority, and authorities become sooner or later interested to to keep things running. But when criticizing something, it is presumed that there is (or can be) something better out there. Today that mafia player is the financial entity that has the power to issue money, so...?
Government. A cryptocurrency is ought to pass over one's boundaries when talking about governments. If you don't think of the USA as "the world", the USA government is not almighty. Yes, the USA government + Federal Treasury controls the dollar which many would call "de facto world currency" and those two together can do pretty much everything with US currency, but that isn't valid any more with such a currency as BitCoin. They can buy/sell large amounts of money causing big fluctuations and that would make speculators happy. Speculators also involuntarily are playing a stabilizing role (as it happens on FOREX), and more of them (more of their purchasing power actually) being involved - the more stability they bring. That government move you described would simply cause a significant value injection into BitCoin, at the expense of dollar, value that they won't be able to get it back in full amount. I therefore don't think governments will get involved in stock exchange games.
Botnets. This is not a sole BitCoin problem, but of all the systems (including the current one) that are relying more and more on computers. And mining is not all that important and serious as you're trying to put it. The fact that someone would come to label that some gain is not fair/legal is entirely subjective and again, it's not a sole BitCoin problem. Occupy Wall-Street is just a popular move, not necessarily justified. People did that all the time in history.
Proof-of-Work. This argument doesn't have any valid place at all. BitCoin acts like cash and can be stolen/laundered/anything else that criminal groups can get involved in the same way like cash is. We still have cash around, do we? Banks currently "make" money out of thin air by simply signing a credit contract. They are able to do so, they do so and nobody bothers to ask any "proof-of-work" (sound ammusing).
Segmentation. That would be a good thing. That would be a mark of an evolving world (of currencies). The best one will prevail in the end. Each new model bring improvements. You mentioned SolidCoin. It would be good if you'll check out why is it worth to exist at all and you might find in this way solutions for some of the problems that you thought of. Keep going, because each problem people put in light create demands for improvement, and unlike the current financial system, that "genius system" (or at least it's kind) is ready to address issues and to come up with a better version of itself.
Posted by: none at February 23, 2012 01:11 PMFrom an academic perspective the botnet miners are no different than the "honest" miner, so I fail to see your point. That is to say as far as the bitcoin network is concerned "n" is no different than "n+1." Your point is irrelevant unless your attackers intention is to falsify the block chain, in which case you need to do more research into what the requirements of that would be.
I'd assume you are trying to attack the bitcoin idea from an academic perspective because you put your argument into a format that vaguely resembles an academic paper and you mention "
From a practical standpoint your claims that one party can benefit from the bitcoin because they have access to "free electricity" is nonsense.
Posted by: capricrow at February 26, 2012 10:35 PMToday I woke up to find my hot wallet on the backup server had all its coins stolen. As a security measure, merchant sites keep the majority of funds offline with just enough in a ‘hot wallet’ to keep operations running smoothly.
Rest assured: I am covering Linode’s mistake from my own income. That means months of my work is wasted and I’m crushed.
...
I am not the only person affected by this. A few hours ago another guy contacted me that his Linode machine has been attacked and his coins was moved to the same wallet, asking me if I knew what happened (because he found that the 1Mining2 address is mine). We found that our issues are the same – changed password in Manager, stolen coins & Linode staff is telling they have no security issue on their side.
Posted by: Cloud (in)security -- Compromised Linode, thousands of BitCoins stolen at March 1, 2012 06:09 PM