14 thoughts on “Cryptocurrencies – The Bitcoin Phenomena”

  1. Your the comment about it being ‘somewhat slower’ (at the end of the article) is wrong in two ways.
    1. with design specification block generation time of 10 minutes, the average time to confirm is 5 five minutes, not 9 minutes (maths !!!)
    2. ‘somewhat slower’ than what? Sure your credit card takes 30 seconds (for you), but the transaction can be reversed, and the merchant does not get paid for at least a day, and often a lot longer. International wire transfers, moneygram etc … are all a lot slower than Bitcoin

      1. Ok … 8.13 minutes … between blocks …. which is when a transaction is confirmed .. the design spec is 10 minutes, and the difficulty algorithm is being overwhelmed by the pace of deployment of hardware.
        SO… at the moment, from the customer perspective, it is an average of 4.065 minutes from the moment they submit a transaction, to the time the next block appears. There are two things to consider – a fairly predictable interval between the blocks arriving to do the confirm (8.13 minutes at the moment) and the random timing of when a user requests a confirm. So the average wait for the user is half of the interval between blocks. The average time between blocks appearing on the block chain, is not the same average as the interval percieved by the user.

        This is the same as walking on to a train platform where a train arrives every 8.13 minutes … since the moment that you arrive on the platform is random, on average, you will wait 4.065 minutes – sometimes more, sometimes less – but on average half of the predictable interval between the arrival of trains.

  2. Transaction fees won’t have to be introduced as they already exist. Right now the block subsidy dwarfs the transaction payments, but that would change as the subsidy was reduced according to its set schedule and transaction volumes increased.

    As for using a Bitcoin-like system to trade traditional currencies, this is what Ripple does. In addition to having its own Bitcoin-like currency called XRP, it allows people to trade IOUs denominated in arbitrary currencies. Such IOUs could even be used to trade stocks, bonds precious metals etc.

    One crucial feature of the Ripple system is automatic and transparant currency conversion. If you hold IOUs in one currency and want to make a payment in another currency, the system will automatically compute the best exchange rate based on Ripple’s forex order books. Most likely such conversions will involve XRP as a bridge currency, leading to enormous implicit “demand” for XRP, even if Ripple users are only barely aware of XRP and aren’t even interested in holding XRP.

  3. Joseph VaughnPerling emailed the following comment to me with regard to the current troubles at bitcoin exchange Mt. Gox:

    “Bitcoin is in beta. Current version 0.8.6. There was/is a bug in the MTGox software which was fixed quite a while ago in the Bitcoin protocol software and most other exchanges regarding malliated transactions. To sum up the detail of that problem, the MTGOX transaction history did not match the global block-chain transaction history and they need to reconcile their transaction records with the public one and shut down redemption to do so with the statement that it would take a weekend.

    MTGOX hadn’t completed after the weekend and made a public statement blaming the Bitcoin protocol. The Bitcoin network was then flooded with tiny malliated transactions making the particular bug MTGOX has very much harder to reconcile. This was combined with a network DDOS, largest yet, which has brought MTGOX much trouble.”

  4. Warren, I disagree with the last part of this paragraph in your article:
    “Thus the story of the determination of the value of bitcoins is on the demand side. Such a system is the opposite of the gold standard or my real SDR currency board system[5] in which the value of the monetary unit is fixed and the supply adjusts to the market demand at that price. Bitcoin is a system with centralized control (via a rule) of the supply of money and decentralized (market based) determination of its value, while the gold standard was a system of centralized determination of the value of money and decentralized, market based determination of its supply.” It seems to me you are confusing the fixed price of gold ounces or grams with “determining the value of money.” In a perfect Walrasian system, it is actually the exchange of the gold ounces or grams that is happening in equilibrium transactions. As we observed during rapid economic growth in the 1880-1910 era, the value of the Units of Accounting denominated by governments went up (price indexes declined). No “fixed value” there. The problem with Bitcoin is that is CANNOT offer any “store of value” quality to the payments system, as old greenback cash can do – at least so far, unless hyperinflation is going to surprise us tomorrow.

    1. One detail of significant interest here, in spite of Warren’s believe in “institutional supervision” (e.g. SDR as opposed to “gold gram .9999), is how the new systems using Blockchain algorithms will function at the “concrete” level, e.g. in the habits of daily consumers and small investors? We in the financial-watching game know about speed of execution and the audit trail. Most people have only the need to buy. Cell phones minutes in East Africa are emerging.

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