thoughts on bitcoin

Greetings!  I’m the guy who made bitcoin difficulty shoot up from 45.0 to 181.5 for a while.  My apologies for that by the way; I was not expecting it to rise that high.

Many people on the bitcoin forums seem to have watched the process, some even drawing up conspiracy theories about how I am related to some banker who wants to enforce the system.  Others implied that I used the resources of my employer to do this.  I would like to say that the forum thread is absolutely hilarious.

The purpose was to demonstrate in two ways that the Bitcoin system can be attacked.  This was demonstrated with higher than expected success in both areas:

  • cause an effective denial of service through taking control of the proof-of-work difficulty by ensuring that there was an artificial inflation in available compute resources;
  • cause speculation in the bitcoin economy, especially the exchanges (e.g. a ‘bank rush’);

The first aspect has been partially hedged against in the Bitcoin 0.3.2 client.  This is a good thing, as it should (at least according to my own review of the change) ensure that people who have access to large amounts of compute resources cannot effectively game the proof-of-work difficulty level.  This ensures that people who do not have the same level of access as I do have a fair chance at solving a block and getting coins.

The second one is harder, and it is a problem typically seen with “dark” currencies.  This problem is also seen in real life: look at our own stock exchanges and currency rate.  There is evidence of speculation in the USD->EUR market, for example.  Speculation is going to be a hard problem to deal with when there is ultimately no regulation or enforcement from an oversight party.  But, this is the nature of bitcoin, so I don’t expect that ‘bug’ to be corrected.  The ‘bug’ could also be considered a ‘feature’, as in theory, the market can ignore the speculators.  The question is: will the market ignore the speculators.

I think bitcoin has a lot of potential in the microcurrency area, especially for MMOs.  Consider for example, Second Life.  You buy stuff in Second Life (clothing, objects, property, etcetera).  Now consider if we decentralized that environment… made it where anyone could run the server software (this is already possible with OpenSim).  Now we need a viable form of commerce that is not biased to any particular party. This is where BitCoin shines.  Because BitCoin is truly independent, it allows for the possibility for inter-grid commerce.

I do not believe that bitcoin will ever replace actual money.  Some people would like for it to replace actual money, but frankly I am not one of those people.  I do however, see places where BitCoin is a practical solution to a problem that exists.  BitCoin could really improve and innovate the way micropayments work in games.  Is it the only solution?  No.  MochiMedia has MochiCoins.  But the problem here is: MochiCoins are backed by a single individual party, MochiMedia.  Therefore, MochiCoins are worth whatever MochiMedia says they are worth.  With BitCoin, a game vendor can take the BTC revenue they get from their games and sell it on the market to yield the highest possible profit.

Linden Lab implemented it’s own microcurrency, called Linden Dollars, or L$ for short.  One way that speculation is avoided is through manipulating the value of the currency.  Unfortunately, even with such manipulation, people still speculate in it.  People speculate in it, because they have deduced the pattern at which their L$ is valued or devalued, so they can buy when it is at it’s lowest price and sell it when it’s the highest.  In order to ensure the stability of BTC value as a currency, a solution to the speculation problem has to be found early.

If these problems can be solved, I think BTC has a very good chance at being used in some form as a microcurrency in games.  In fact, this is what I am actually hedging on.  Unfortunately, I can’t yet disclose what I intend to do with the coins I have generated, but I am sure you can probably figure out parts of it based on what I have written thus far.

3 Responses to “thoughts on bitcoin”

  1. Lachesis says:

    “cause an effective denial of service through taking control of the proof-of-work difficulty by ensuring that there was an artificial inflation in available compute resources”
    This is an attack in that you can play with the block generation rate, but the most you can influence it is 4x per 2016 blocks. If you bring 3x the network power in, you can make the difficulty go up 4x in roughly 4 days. You could then leave, forcing the block generation rate back down from a block every 2.5 minutes (at the height of your noding) to a block every 40 minutes. You would also get ~ 75,600 BTC in the process. If, however, you wanted to raise the difficulty *another* 4x, you would need to bring in another 3x the *current* network power, so you would account for 15/16 of the network. This would obviously cost more, and would net you the same reward in both increased difficulty (so called denial of service) and in bitcoins. The “solution” to this, in my opinion, is to shorten the difficulty adjust time from ~2000 blocks to ~100 blocks, but even if this attack isn’t solved, there’s nothing wrong with you controlling a large part of the network as long as your nodes are honest.

    “cause speculation in the bitcoin economy, especially the exchanges (e.g. a ‘bank rush’)”
    What do you mean by this? All you can do is sell your bitcoins for a very low price, giving whoever was around to buy them a decent chunk of coins and netting you less than ideal profit. This wouldn’t cause bitcoin to “fail” – it would just lower the market price. The price would recover eventually. You’d be better off selling the coins at some value that made you profit considering all the computer time you spent to get them.

    Nenolod, don’t spend your time worrying about those attacks. Anyone who has more than 1/2 of the network’s computer power can execute the much more dangerous “double spending” attack, which has the potential to damage Bitcoin’s reputation as well as get a lot of coins stolen.

    Cross-posted to the “hilarious” thread on the forums.

  2. _audio says:

    This currency encourages people who spend there entire life wasting away on MMORPG’s to have substance in the real world. I hate this. I live for tech but I don’ t want these wasters making money out of sitting on there asses. There is enough of this already in the workplace. I don’t think it is fair or healthy to let gamers make real money (after converting bitcoins) from something as pathetic as “raiding”. I used to have a few mates who played WOW to an obsessed level (we all know these people) to the point of, when i would visit on “raid night” i was ignored. His online mates took priority over his flesh and bone mates. this person used to be 9th in the world for Karate, now he and his wife do nothing but WOW. Give these loosers a chance to make real money out of mmorpg’s and we will see more of this on a higher level. I reckon that if we made this coin cross-transferable to other things like seeding torrents and uploading things, more constructive, contributive activities on the net the idea would be unfathomable, and actually be cool. instead of supper gay.

  3. bitcoin says:

    cool post keep them going. go forth and propser brother! peace