A few thoughts - Monday, April 28, 2014

[Steve Sokolowski]

Some random thoughts for today:

1. What's with all the talk going on about bitcoin having a marketing problem? That dogecoin car is nice, but bitcoins aren't a product. The US mint doesn't advertise "spend dollars, they're better." Bitcoins aren't going to make it because of the Unicode B symbol, or flyers posted on telephone poles, or whether people use "bits" or "microbitcoins." Bitcoins are a currency and a protocol, which will succeed or fail because of **developers** who use them for interesting things, not because people can say "bit" easier.

2. Dogecoins, on the other hand, are a product. They position themselves as an alternative to bitcoins that are easier to understand, more friendly, and more "cute." However, by advertising their advantages in comparison to bitcoins, they grant bitcoins legitimacy. People who use dogecoins get the hang of cryptocurrencies, and then they think "now, I want to try what the big investment bankers are using and that online merchants are accepting."

3. I'm not convinced about the talk that world events are influencing people buying bitcoins. There has been shown to be some correlation between gold and bitcoin prices, but Bitcoins are so small and volatile that huge investors aren't moving large blocks of stock into bitcoins to protect against catastrophe. The idea that events in the Ukraine or Russia are driving bitcoins is false, although that may happen in the future once bitcoins become more widely traded.

4. Some people are arguing that the bubble cycle has broken, but according to the 234-day cycle and /u/moral_agent's "bubble watch" charts, we would not expect to see significant rises until Memorial Day.

5. Likewise, even if everyone was aware of the bubble cycle, it doesn't extend the cycle; it contracts it. Those who recognize that the bubble cycle points to the rise topping out on July 24 will sell on July 23. They will buy during the third week of May, not on Memorial Day. While one can argue that a bubble won't occur for unrelated reasons, it doesn't make sense to argue that this cycle will be longer solely because "everyone knows" that a bubble is going to happen.

6. I've made clear the risks of the 1MB transaction limit before. The biggest argument as to why the limit doesn't pose a threat is that fixing it only requires an upgrade. To give an example of the real-life effect of such upgrades, one of my employees was assigned the task of figuring out why all the charts I was posting about mining profitability suddenly stopped being accurate. He determined that the cause was that several of the altcoin daemons had been hard forked by the developers, and the daemons were on the wrong chain. He upgraded the daemons and then found that it still mined on the wrong chain, so he had to delete the blockchains and wait for several hours until they were up to date. Then, he had to compare the difficulties and block rewards to what was listed at other sites, and he had to delete several daemons he couldn't upgrade because of build errors.

7. All in all, it took 18 hours to do this on Saturday and Sunday. Had he not done it, then the pool would have been paying out shares without finding blocks on the right chains, possibly leading to bankruptcy. We still haven't finished with the job, and we didn't even upgrade the daemons that had not forked. If we were a big company that was already in production, being offline for hours to get a new copy of the blockchain or sending transactions to the wrong chain would cause huge losses.

8. This is why a hard fork will be infeasible after the next bubble occurs. One could imagine that a hard fork would be treated like Microsoft's discontinuation of Windows XP, which was a day hackers waited for before exploiting all the vulnerabilities they had "saved up," knowing that Microsoft wouldn't fix them afterward. In the case of a hard fork, hackers would be waiting to pounce on sites that overlooked upgrading in time and were accepting coins of a much lower value on the old chain.

9. I'll repeat again that the Chinese news is going to continue for months to come, until Wall Street overshadows it. There are still people acting surprised that the Chinese are continuing to manipulate the market. Anyone who thinks this news is going to go away any time soon needs to look at the facts.

10. I'm starting to see the effects of the Heartbleed bug. Someone successfully logged into my Microsoft account from the Ukraine, but was thwarted by two-factor authentication because he didn't have my cell phone. Someone also started attacking my webserver, running variations of previous passwords I had used in an attempt to log in as root, but simply wasted bandwidth because the password wasn't close.

11. I edited this post to point out that just 35% of the network is running the latest version of bitcoind, months after 0.8.6 was obsolete. That should demonstrate how averse companies are against upgrading things that work.