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GostHacked

Bitcoin downfall MT Gox shut down.

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Youve only waded into this water about 6 inches and youre already in over your head.

Says the guy that can't understand an argument when it is spelled out for him.

Re-read my last post. Get back to me when you figure why your response is ridiculous.

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Says the guy that can't understand an argument when it is spelled out for him.

Re-read my last post. Get back to me when you figure why your response is ridiculous.

The only one that does not seem to understand is you. Dre seems to understand, as does Bonam. Your arguments have not been solid in this thread at all. And those reasons have been spelled out for you as well.

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Your arguments have not been solid in this thread at all. And those reasons have been spelled out for you as well.

The only person who shows any understanding of the points I am making is Bonam.

That said some, non-rhetorical questions for BitCoin fans:

1) Would it be possible for the owner of a BitCoin exchange to "borrow" BitCoins from the account holders without their knowledge?

2) If the answer to 1) is No then please explain exactly why this can't be done? (Note that you can't argue that they will be worried about being eventually found out because that is arguing that it *can* be done).

3) If the answer to 1) is Yes then is it possible that there were no hackers and the reason for these recent exchange collapses was the "borrowing" was about to be discovered?

Edited by TimG

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The only person who shows any understanding of the points I am making is Bonam.

That said some non-rhetorical questions for BitCoin fans:

1) Would it be possible for the owner of a BitCoin exchange to "borrow" BitCoins from the account holders without their knowledge?

2) If the answer to 1) is No then please explain exactly why this can't be done?

3) If the answer to 1) is Yes then is it possible that there were no hackers and the reason for these recent exchange collapses was the "borrowing" was about to be discovered?

First off, anyone stupid to trust Bitcoin to online storage is an idiot. Storing it yourself in an offline wallet is really the only way you can control your Bitcoins.

Sure there is a possibility it was an inside job, but more likely an attack from outside. We had seen the FBI take down one exchange, and China took down a couple themselves. So I would say it is more likely that it was an attack from the outside.

But your question is a little hard to answer with a definitive yes, or no.

No - reasons being is all transactions are tracked and uploaded and added to the blockchain and distributed to all users via some of the exchanges or simply a site that tracks the transactions without holding any of them. It is a large decentralized mesh grid. In a way it self corrects as it self updates There may be no way to game that system.The algorithm is complex and hard to crack. It is designed to be that way. And only gets harder as more coins are mined.

There is nothing that cannot be hacked in a sense, since it is all digital and ones and zeroes. And can be manipulated if you know what you are doing.

There is no way for an exchange to steal or use other people's Bitcoins without leaving a digital trace. Bitcoins may be anonymous, but the network and paths they are taking are not. However there are no laws governing theft of cryptocurrency. Then you have to figure out if Japan's laws applies, or the laws of the countries of the users of the exchange. To add, it is up to you to monitor and control and store your Bitcoins. But even if you store them online, you have a transaction and a code update to your digital wallet. If a person is able to use those coins and then put them back into the account, each transaction is added to the blockchain. If a person goes to access their coins online, they will see a mismatch in the wallet compared to the online storage.

The attack was not on the Bitcoins themselves. It was a denial of service attack on the exchange server network. Meaning their network was flooded with bogus traffic grinding the exchange to a halt. Or it was a planting of a virus that caused their networks to have issues. Banks experience these kinds of attacks every day. So the attack had to come from outside the network. I would suspect they have hardware that logs all network traffic, paths and equipment IDs of where the attack came from. Easy way to determine if it came from outside or in.

Edited by GostHacked

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First off, anyone stupid to trust Bitcoin to online storage is an idiot. Storing it yourself in an offline wallet is really the only way you can control your Bitcoins.

This article agrees: http://www.marketwatch.com/story/to-secure-your-bitcoins-print-them-out-2014-02-26

But even the biggest bitcoin fans recommend a real wallet or physical safe. “Printing off the private key from your bitcoin, putting it into a paper form and sticking it in your hip pocket or house wall safe is one way to make sure it’s safe,”

Except this does not make sense to me. If a printed form of bitcoin is valid tender then someone could photocopy it without your knowledge and "borrow" your bitcoins that way.

There is no way for an exchange to steal or use other people's Bitcoins without leaving a digital trace. Bitcoins may be anonymous, but the network and paths they are taking are not.

Sure, but if the money is back in the account whenever people ask for it then no one will bother to look. You seem to be confirming that borrowing bitcoins is possible.

No - reasons being is all transactions are tracked and uploaded and added to the blockchain and distributed to all users via some of the exchanges or simply a site that tracks the transactions without holding any of them. It is a large decentralized mesh grid.

The question is how can the "mesh" know who is the rightful owner of a given bitcoin? If there is no way to know then bitcoins can be borrowed by exchanges or "electronic wallets".

Also all of the bitcoin crypographic protections disappear as soon as fractional bitcoin transactions are allowed because that means multiple people have to share ownership of the same bitcoin.

Your answers leave me with the impression that fractional reserve banking *is* possible for bitcoins which really undermines the claims being made about the currency.

Edited by TimG

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Your answers leave me with the impression that fractional reserve banking *is* possible for bitcoins which really undermines the claims being made about the currency.

No a bank that tried to leverage a fixed pool currency the way they leverage currency in the FR system would get into a lot of trouble really fast, just like they did when they tried it with gold. The only reason the current fractional reserve is possible is because the central bank acts as a lender of last resort, and the government insures the deposits. If that was every single commercial bank would have already been brought down by its own depositors.

Also, without the government making the whole process legal, it would be an act of theft and fraud. No different then if you rented a mini-storage locker to keep your care in, and the owners of the storage company rented it out to other people to make profit. They would go to jail if they got caught, and all it would take is for you to show up while your car is being rented and theyre busted.

This is called a bank run and its the whole reason the current central bank/FR system was created in the first place.

So no... pointing out that financial fraud is possible with bitcoin does nother to undermine any of the claims being made, nor does it do anything to validate your origional claim that the widespread adoption of a fixed pool currency would do nothing to undermine the business model used by commercial banks.

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No a bank that tried to leverage a fixed pool currency the way they leverage currency in the FR system would get into a lot of trouble really fast, just like they did when they tried it with gold.

It really depends on how liquid the market is. They may not be able to sustain 90%+ ratios that commercial banks sustain but they could potentially sustain a system where depositors bitcoins are borrowed and invested.

Also, without the government making the whole process legal, it would be an act of theft and fraud.

It depends whether your contract stipulated that if you removed the bitcoins from your account you would receive the exact same bitcoins or any bitcoin. If it stipulates that you would receive any bitcoin then nothing is illegal as long as you got the money when you demanded it.

They would go to jail if they got caught, and all it would take is for you to show up while your car is being rented and theyre busted.

How does one own a 'fraction of a bitcoin'? Seems to me that such a thing can only exist because some intermediary is offering accounts where deposit holders are entitled to any bitcoin which opens the door to borrowing by institutions.

The subtle point you are missing is the supply of bitcoin is restricted so the price of a single bitcoin will have to rise if the currency gains acceptance. That means the majority of transactions will be for fractions of coins that have to depend on brokers who manage the accounts.

Edited by TimG

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This article agrees: http://www.marketwatch.com/story/to-secure-your-bitcoins-print-them-out-2014-02-26

Except this does not make sense to me. If a printed form of bitcoin is valid tender then someone could photocopy it without your knowledge and "borrow" your bitcoins that way.

That is one approach that is wrong with Bitcoin. By nature it cannot be physical apart from the device you store it on. By design it cannot ever be physical. However if it is printed, it would have a unique code or address, like serial numbers on fiat money. Once that paper version is used the code is thrown back into the blockchain mix and accounted for again. Any manipulation of the code would be found.

Sure, but if the money is back in the account whenever people ask for it then no one will bother to look. You seem to be confirming that borrowing bitcoins is possible.

It is possible, but a trace of the movement and use of the coins will be added to the information of the bitcoin. Each time it moves, code is added and the rest of the network is updated accordingly. Each transaction also increases the amount of data for that coin. So one day I could look at it would be X number of megabytes, then X+N the next time I check it and it was moved/used. Kind of like a digital fingerprint. If the data before does not match the data now, then something happened to it. It really is an easy thing just to compare file sizes.

The question is how can the "mesh" know who is the rightful owner of a given bitcoin? If there is no way to know then bitcoins can be borrowed by exchanges or "electronic wallets".

Not meant to be rude, but you do have a lot of questions considering your claims of bitcoin. It's not an easy concept to visualize and understand. It is still a bit confusing to me.

The electronic wallet has a specific address. You as a bitcoin user has a specific address. I give you a code, and you can transfer me bitcoins directly to my account. Since it is an open source type of currency, the transaction is logged by one of the exchanges and updates all other exchanges. Transactions are verified and it continually updates everyone with the information.

But you are still assuming there is no way to know if they have been borrowed or not. And what we saw was an attack on MT Gox's network, not the bitcoins itself. Big difference when understanding if the currency itself can be manipulated and how the transaction network can be disrupted.

You would first have to understand the algorithm in detail in order to manipulate it without leaving a trace. And you would have to then hack the whole system at once to not leave a trace. You wont be able to manipulate the algorithm and not get caught even if you knew what you were doing.

Also all of the bitcoin crypographic protections disappear as soon as fractional bitcoin transactions are allowed because that means multiple people have to share ownership of the same bitcoin.

No they become owner of fractions of the Bitcoins. It can be divisible down to any amount you desire, but by design will never exceed 21 million Bitcoins.

Your answers leave me with the impression that fractional reserve banking *is* possible for bitcoins which really undermines the claims being made about the currency.

One the last bitcoin is mined, the algorithm is dead. Meaning the code will not allow any more coins to be mined period. Fractional reserve banking allows a bank to loan out money at a 10:1 ratio over what they have. So they lend 10 bucks for every dollar on hand. By nature Bitcoin cannot be subjected to fractional reserve banking, because you have that limit of 21 million coins. You wont be able to conjure up more than 21 million, but you can divide each coin by as much as you want. You are not increasing the supply one bit after the last coin is mined.

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The subtle point you are missing is the supply of bitcoin is restricted so the price of a single bitcoin will have to rise if the currency gains acceptance. That means the majority of transactions will be for fractions of coins that have to depend on brokers who manage the accounts.

You know the dollar breaks down into quarters, dimes, nickles and pennies, right? Well not so much pennies now but you get the point.

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Not meant to be rude, but you do have a lot of questions considering your claims of bitcoin.

I don't believe bitcoin is any different from any other commodity like gold and think the same rules apply. The fact that each unit is individually identifiable adds a twist but I don't think it will make any difference. I am simply looking to see if I could be wrong. So far it does not look like it.

By nature Bitcoin cannot be subjected to fractional reserve banking, because you have that limit of 21 million coins.

If multiple people can use the same coin the limit does not apply. If people are allowed to deal in fractions of bitcoins then a single coin can have many owners. It would not be hard to design a system where the assets the owners believe they have exceeds the number of bitcoins actually held.

Another factoid: The CDN$ money supply is around $2 trillion. To be as relevant as the CDN$ each bitcoin would have to be worth about 100,000 CDN$. This means that virtually all consumer level transactions and accounts would be in fractions of bitcoins. So if we want to talk about the future of bitcoin the only question that matters is how fractional transactions are handled. Cryptography protections that apply only to whole bitcoins are not relevant.

Edited by TimG

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You know the dollar breaks down into quarters, dimes, nickles and pennies, right? Well not so much pennies now but you get the point.

What makes bitcoin different is each unit has a unique identifier. There are no unique identifiers for fractions of bitcoins. Edited by TimG

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The only person who shows any understanding of the points I am making is Bonam.

That said some, non-rhetorical questions for BitCoin fans:

1) Would it be possible for the owner of a BitCoin exchange to "borrow" BitCoins from the account holders without their knowledge?

2) If the answer to 1) is No then please explain exactly why this can't be done? (Note that you can't argue that they will be worried about being eventually found out because that is arguing that it *can* be done).

3) If the answer to 1) is Yes then is it possible that there were no hackers and the reason for these recent exchange collapses was the "borrowing" was about to be discovered?

1) Yes. Mt.Gox and most other exchanges operate by holding the bitcoins themselves, on your behalf. That is, you open an account, transfer in or buy x bitcoins, and then they exist there in your account with Mt.Gox. Mt. Gox can then do what it wants with those coins... presumably on the customer's request, but nothing in the underlying technology prevents them from just taking the coins and running, or borrowing them.

3) Certainly. In fact, Mt.Gox has been found to be doing fishy things several times in the past and this is, in retrospect, not particularly surprising.

Edited by Bonam

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There is no way for an exchange to steal or use other people's Bitcoins without leaving a digital trace. Bitcoins may be anonymous, but the network and paths they are taking are not. However there are no laws governing theft of cryptocurrency.

They definitely can't steal the bitcoins without leaving a trace... but they can steal the bitcoins and run, not caring that they left lots of trace. There is no built in recourse.

Edited by Bonam

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What makes bitcoin different is each unit has a unique identifier. There are no unique identifiers for fractions of bitcoins.

This is incorrect. Specifically, there is no "identifier" as such with each bitcoin, no serial code or something that goes with each bitcoin. Rather, there is a complete and permanent record of all bitcoin transactions that ever happened, that is publicly viewable by anyone. This permanent record is called the "blockchain". Whether you have 1 bitcoin or 0.5634341 bitcoins in your wallet, and whether it got there through 1 transaction or a combination of many different transactions over time, you can know exactly how it got there. Therefore, every bitcoin or fraction thereof has a unique, permanently recorded history, and it is this history that is its unique "identifier".

There is no difference in identifiability between a whole bitcoin and any fraction of a bitcoin.

And yes... before you ask, the idea of keeping a permanent record of all transactions that ever happened implies a constantly growing set of data that has to be maintained, and the volume of this data would become pretty crazy if bitcoin gained widespread use. Nonetheless, that is the fundamental premise of bitcoins, and the capacity to store and process this data is there... the computational power pointed at "mining bitcoins" (that is, maintaining and updating the blockchain) has been growing exponentially, and far more quickly than the growth rate of the number of bitcoin transactions per unit time.

Edited by Bonam

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This is incorrect. Specifically, there is no "identifier" as such with each bitcoin, no serial code or something that goes with each bitcoin.

Ok I confused bitcoins with the wallet that contained them and are used to authorize transfers to another wallet.

And yes... before you ask, the idea of keeping a permanent record of all transactions that ever happened implies a constantly growing set of data that has to be maintained, and the volume of this data would become pretty crazy if bitcoin gained widespread use.

I assume the algorithm is smart enough to only pass around changes and the download of the entire history only happens once a new processor is brought online.

That said, I don't see an issue with scalability as much as I do with transaction processing costs. Today transactions processing is paid for by issuing bitcoins. Eventually this will stop and it will start to cost money each time you use a bitcoin - much like it costs to use credit cards today.

But this block chain will be a tax auditors dream. As soon as a wallet is discovered the entire transaction history can be searched and matched against the books. If there are mismatches they have to be explained even if the party cannot be identified. It is not clear why this currency is so popular with libertarians.

Edited by TimG

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I assume the algorithm is smart enough to only pass around changes and the download of the entire history only happens once a new processor is brought online.

When you start a digital wallet, you download all of the blockchain before you can start using Bitcoins. However there is a different program you run on your computer to run the algorithm to mine coins.

That said, I don't see an issue with scalability as much as I do with transaction processing costs. Today transactions processing is paid for by issuing bitcoins. Eventually this will stop and it will start to cost money each time you use a bitcoin - much like it costs to use credit cards today.

You only pay a process transaction fees if you decide to use one of the exchanges that offer that. Otherwise, you and I can trade bitcoins and do business with each other without any cost, depending on what terms we agree on. This is one big reason it is popular in that fashion. You can use it and without any fees at all if you know how.

The fees you talk about would be an entity that transferees bitcoins into another currency.

The cost of using a bitcoin will remain the same. The real cost is the maintenance of an electronic network that facilitates the transactions of the currency. The real cost is in the computer power to mine coins, a process that doubles the algorithm when a certain amount of coins have been mined.

Some of my friends have dedicated rigs that mine coins. The cost is the computer and cost of electricity to mine the coins.

Bonam indicated that the data size of the blockchain will keep increasing with the new transactions. So no matter if you carry one bitcoin or a million, your digital wallet will have the same information everyone else has and will be the same file size. Because it is a decentralized mesh. That data is already in the GBs.

These are the technical issues I have with the currency. None of my concerns are related to how people have willingly accepted them or how the banks and governments are treating it. I want to know what that algorithm is. And what really is it calculating?

But this block chain will be a tax auditors dream. As soon as a wallet is discovered the entire transaction history can be searched and matched against the books. If there are mismatches they have to be explained.

The blockchain can track the coins,transactions and the wallet addresses, but that does not mean it is specifically tied to a name. A string of letters and numbers as an address does not identify you.

Tax auditors won't be able to make sense of the information. Because the blockchain is ALL the information. And unless they have lots of people in computer forensics, then it won't be possible for them to keep up or even wrap their heads around the handling of the currency for tax purposes.

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The blockchain can track the coins,transactions and the wallet addresses, but that does not mean it is specifically tied to a name. A string of letters and numbers as an address does not identify you.

What auditors care about is that a business is reporting all income. So it will be easy to calculate how much revenue came in an how much went out even if they don't know what it was for. Paper cash is much harder to track.

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You only pay a process transaction fees if you decide to use one of the exchanges that offer that. Otherwise, you and I can trade bitcoins and do business with each other without any cost, depending on what terms we agree on.

That's not true, it has nothing to do with the exchanges. If you go to your bitcoin client, it will have a minimum fee to send bitcoins (i.e. perform a bitcoin transaction). The reason the fee is there is to reward miners for bothering to include your transaction in the next block that will be added to the blockchain. You can manually override this minimum, but if you do, your transaction may never be processed and included in the blockchain at all, as almost all miners have configured a set minimum fee to process transactions with.

Tax auditors won't be able to make sense of the information. Because the blockchain is ALL the information. And unless they have lots of people in computer forensics, then it won't be possible for them to keep up or even wrap their heads around the handling of the currency for tax purposes.

Also not true. It is relatively easy to correlate bitcoin transaction amounts and dates with known activity of a business/individual, and once you have that, identify their bitcoin address(es). There are many companies that operate in bitcoin that started doing shady things, scammed, or disappeared, and people on the bitcoin forums have been able to quickly perform the needed "computer forensics" to find out what was going on. I've looked at the blockchain explorer myself and it is really not hard to figure that kind of stuff out.

These are the technical issues I have with the currency. None of my concerns are related to how people have willingly accepted them or how the banks and governments are treating it. I want to know what that algorithm is. And what really is it calculating?

That information is publicly available.

Edited by Bonam

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Read what I wrote:

I know what bitcoin is and is not.

At the moment, to a certain extent, bitcoin may rely on the conversion to fiat, but not always.

If a computer tech receives bitcoin for his services and then he uses the bitcoins to purchase a table and chairs set on overstock.com with his bitcoin, then no conversion has taken place for the computer tech. He has only dealt with bitcoin.

This is already happening. The beauty of bitcoin is that it cannot be controlled and regulated. This is why governments and banks are nervous about the steady growth in the usage of bitcoin.

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This is already happening. The beauty of bitcoin is that it cannot be controlled and regulated. This is why governments and banks are nervous about the steady growth in the usage of bitcoin.

China does not like it because it allows people to circumvent their currency controls. In countries that do not have currency controls bitcoin is only a concern in the sense that it enables criminal activity since business are already required by law to report and pay tax on any sales in bitcoin. If the computer tech fails to report his bitcoin income he is commiting a crime. The fact that his transaction records are now public knowledge only makes the tax collectors job easier.

Banks themselves have no reason to worry because given the amount of currency required to keep the economy running there is no chance that bitcoin will replace fiat currencies nor are there any barriers that would prevent banks from setting up exchanges themselves and making money from bitcoin transaction fees (the days of free bitcoin transactions are numbered by design).

Edited by TimG

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one of the reasons saddam was attacked was because he threatened to change the currency (link 1, link 2, link 3) he was selling his oil in. same with ghaddafi (link).

overstock.com's addition of bitcoin as a method of payment was a great success. in the first day that they introduced bitcoin, they had 840 orders that totaled over $130,000 if converted to the dollar.

overall, bitcoin usage has increased by over 75% in the second half of 2013. when someone uses bitcoin, they don't use other currency. this is a concern for many banks, since they're losing a piece of the pie with the increasing popularity and usage of bitcoin. to say banks have no reason to worry does not make sense when you look at the numbers.

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this is a concern for many banks, since they're losing a piece of the pie with the increasing popularity and usage of bitcoin. to say banks have no reason to worry does not make sense when you look at the numbers.

There is nothing stopping banks from doing bitcoin processing and charging fees like any other bitcoin processor. The only reason they don't is because bitcoin transactions today are infinitesimal compared to their other traffic. If bitcoin is really adopted banks will use their brand names and customer networks to take over the business and force smaller processors to give up. I really don't understand why people think bitcoin is a concern to banks. Edited by TimG

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There is nothing stopping banks from doing bitcoin processing and charging fees like any other bitcoin processor. The only reason they don't is because bitcoin transactions today are infinitesimal compared to their other traffic. If bitcoin is really adopted banks will use their brand names and customer networks to take over the business and force smaller processors to give up. I really don't understand why people think bitcoin is a concern to banks.

If it puts a dent in the banks profits, you bet something will be done about it. It will be hijacked by the banks so they can make money with it, or kill it outright. So the banks have an interest in not letting Bitcoin be successful or recognized. Bitcoin is not handled by the banks, that is one of the reasons people like it.

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It will be hijacked by the banks so they can make money with it, or kill it outright.

I'm following TimG's argument but not yours. Why should they be concerned ? Is somebody lending bitcoins interest free or something ?

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the reason they should be concerned is very easy. people will not need to use banks to hold their money and make different kinds of transactions. no more interest and no more bank fees to collect. one of the beauties of bitcoin is that it can skip the traditional middle men or start using other middle men, instead of banks.

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