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BitCoin – Trading & Mining (und andere Crypto Currencies)2018-12-14T04:11:25+00:00

The 5 biggest threats for bitcoin that have the potential to destroy it

Bitcoin is specialized in the use case of serving mankind as a currency. From a technological point of view, it tries to achieve this goal as easily and safely as possible — as much code as necessary, but as little as possible — so not to complicate things unnecessarily. Bitcoin came to stay.

The amount of all Bitcoin is limited to 21 million, but you can divide this amount to the eighth decimal place down to a single Satoshi. However, more than 80% of all possible bitcoins are already in circulation. But don’t forget that Bitcoin as a cryptocurrency and the blockchain as underlying technology are still very young. Bitcoin is a child. The current version number is 0.17.0 — in other words: The software has not even reached version 1.0 and the last available Bitcoin will be mined (or minted, if you prefer the term) in the year 2140. If you consider this point in time (and not the arbitrary allocation of a version number) to be the age of majority, then Bitcoin has an “age” of 19 month — assuming that 21 years is the age of majority. 18 years equals an age of 16.5 month. Bitcoin is thus not only a child, Bitcoin is a baby!

Bitcoin apparently did well in its first phase of life. If you stick to the comparison with a toddler, Bitcoin is just learning how to crawl or is taking its first steps. Or do the acquisition of the first language skills and will to communicate manifest in developments such as the Lightning Network? It’s too early to speculate.

What could possibly go wrong?

From Bitcoin’s young age and the application of Murphy’s law, Bitcoin will face many dangers in its future life. For some time now, I have been thinking about the dangers Bitcoin could face that could bring his existence to an abrupt end. It is due to the imponderability of life and the comparatively short human lifespan that this list is pretty general and does not claim to be exhaustive!

Judge for yourself:

5. Sun flare or coronal mass ejection

A direct hit of a coronal mass ejection, which hits the earth almost anywhere, leads directly to the destruction of all electrical equipment and electronics not encapsulated in a Faraday cage.

Electrical cables laid above ground act like global antennas spanning entire continents. They conduct the enormous amounts of energy of a coronal mass ejection directly to the transformer stations, which are irretrievably destroyed. The global satellite network is also destroyed and becomes space junk in minutes. All private computers connected to the power grid and without sufficient shielding by a completely closed metal housing with grounding are destroyed. Whether the contents of the hard disks remain readable is doubtful. Even underground computer centres are only partially protected. Only if they can be disconnected from the power grid sufficiently early and the systems can be shut down quickly enough give the stored data a chance of survival.

If such a disaster occurs, mankind has other problems than saving the Bitcoin, one might think. But this way of thinking is wrong. Especially in case of failure of global communication, governments, banks, infrastructure, production, food supply, security, etc., a globally available and reliable currency, which ensures values and fast value transport across national borders, will become extremely important.

Assuming that all mining facilities are destroyed in one fell swoop, the remaining intact Bitcoin nodes must first contact each other again. This requires the restoration of the power grid and the Internet. The nodes will agree relatively quickly which transactions they consider valid. But the development of new blocks is stopped first of all. The difficulty is too high for the current hardware to generate a valid block within ten minutes. Even if hardware manufacturers and large mining facilities still have hardware in stock, they are likely to have major problems getting enough power to resume full operation. It can be assumed, however, that there is still some orphaned hardware around, which is being put into operation in a very decentralized way. Ideally, the difficulty should decrease every fourteen days until the block production gets going again. I’m not sure if the difficulty adjustment algorithm can start the block production again. But even if that was not the case, the implementation and distribution of a new software version that allows mining on CPUs again or reduces the difficulty manually would quickly remedy the situation. As always, consensus on how to proceed is ensured by acceptance and activatingof a new fork by the majority of nodes.

According to a report published in 2012 by physicist Pete Riley of Predictive Science Inc., the chance of Earth being hit by a Carrington-class storm between 2012 and 2022 is 12%.

Bitcoin should be able to survive a solar flare. It is questionable whether measures can be taken with sufficient speed and determination to protect Bitcoin’s integrity and ensure its continued existence.

The same applies to comparable global disasters (eruption of a supervolcano, ice age, or global nuclear war) that damage the infrastructure sustainably enough to bring block formation in the Bitcoin blockchain to a halt. Unfortunately, I feel like quoting Albert Einstein at this point:

I do not know with what weapons World War III will be fought, but World War IV will be fought with sticks and stones.
Albert Einstein, 1949

4. Quantum computing

Although different teams with different concepts are working under high pressure on the development of quantum computers, it is still a long way to a functioning quantum computer with sufficient computing power. But the time will come …

Bitcoin’s hash algorithm is called SHA-256. In block formation and transaction processing, nodes compete building blocks from unprocessed transactions and attempt to form a hash value over them that has a certain number of leading zeros depending on the level of difficulty. Whoever wins this race and publishes a block that meets this conditions and is accepted by the network receives a reward. These calculations are extensive and correspond to a “trial and error” of solutions — it’s a brute force attack. An target block formation time is ten minutes. At the current level of difficulty, this time span can only be adhered to through the mass use of highly specialized chips (ASIC). Assuming that the hash algorithm is not changed anyway, this is the crux of the possible danger of using a quantum computer.

Regular computers are able to calculate digitally with information units of zeros or ones so called bits. Quantum computers are different. They accept all possible values and thus are able to execute calculations with these super-information states simultaneously. Such information units are called qubits. If one can interconnect qubits in sufficient quantity with each other, the number of parallel executable arithmetic operations increases exponentially. The problem lies in determinating the result.

A functioning quantum computer could perform most of the “testing” of possible solutions for transaction confirmation and block formation in fractions of the time an actual standard arithmetic unit can do. Thus it could form longer block chains and, similar to a 51%-attack, nihilate all transactions already processed and seemigly validated. If this happens in secret, a serious threat to the integrity of Bitcoin must be assumed. A quantum computer could quickly crunch a more than considerable number of blocks back to a state months or years before. A necessary rollback would be devastating. Nobody would trust Bitcoin anymore. It is questionable whether Bitcoin could recover from such a blow.

But there is protection. If the hash algorithm is changed early enought to a “quantum computer safe” version, Bitcoin will fend off such attack easily. Quantum-safe algorithms have already been developed, but apparently not yet tested. Due to the fact that the development of quantum computers is only carried out by a handful of governments, companies and research institutions, it should be possible to take action in due course. It is also questionable whether an attack on Bitcoin would be the first target for a quantum computer. But the danger remains: Under the right circumstances, a functioning quantum computer with sufficient processing power poses a potential threat to the existence of the Bitcoin network in its current form.

3. Software bug in the code

But maybe you don’t need a quantum computer to endanger the integrity of Bitcoin, make a rollback necessary and let Bitcoin die from a lack of trust. A simple error in programming the commonly accepted and used client could destroy Bitcoin.

The scenario described above is closer than one might think. In versions 0.13.0–0.16.2 of the core client was a double spending bug. When validating transactions and grouping them into blocks, a great deal of technical effort is put into eliminating so-called “double spends”. That is a problem Satoshi Nakamoto’s whitepaper for Bitcoin from 2009 is is primarily concerned with. Bitcoin as a digital currency has to make sure that a value is not transferred first to one address and at a second, later time to another. It would be like spending a dollar twice. In the morning for a cinema ticket, in the afternoon for a coffee. Obviously for banknotes double spends cannot happen, for digital financial transaction banks ensure that a double spend is impossible, but in the Bitcoin network, a third party is eliminated as a supervising authority. This is achieved by writing valid transactions into the blockchain and providing the blocks with a timestamp. Only the first transaction is considered legit, all further transactions are discarded by the network.

With the software bug in versions 0.13.0–0.16.2, it was potentially possible to create double spends. To take advantage of this bug, however, a considerable amount of hash power would have been required and a great will to destroy Bitcoin would have been necessary either. These two factors obviously did not come together. Since the blockchain is an “open ledger”, the occurrence of double spends was permanently monitored.

The danger remains. The bug became publicly known and a possible exploitation could be observed. The Bitcoin Core development team is known for testing new versions extensively. However, a similar bug may occur again in the future, and under different circumstances, banks, governments, or corporations may make efforts to destroy Bitcoin by undermining its integrity. Quite apart from that, a random malicious node with enough hash power can also lead to invalid blocks. 100% immunity to software bugs is not possible, but extensive testing and open discussion of the code in public should provide sufficient security.

2. Sabotage (e.g. for political reasons)

This idea seems to be related to the possibility of exploiting a software bug, only that here probably not the intention of personal enrichment is at the forefront, but the clear will to destroy the Bitcoin. As far as not exploiting an existing bug is concerned, a “bad guy or party” with destructive intentions will have more options to attack the Bitcoin network. Sudden deprivation of hash power, block building disruption or banning of Bitcoin-specific network packets, ports or infrastructure are on the table. This would be possible through massive union of governments, hardware manufacturers and large corporations by withdrawal or manipulation of hardware or infrastructure.

Bitcoin seems to be far away from “too big to die” to survive such an attack. At the moment Bitcoin is an ant peeing on an elephant’s leg. But this perception could change and mergers of different globally acting groups and units could have the goal of destroying Bitcoin. But even if the attack options are not foreseeable, Bitcoin already has two trump cards up its sleeve that nobody can beat. One is its flexibility and responsiveness through independent developers. If an attack vector is created, it can easily be countered by changing the code.

Similar to the development of a quantum computer, the community would fend off attacks on Bitcoin by changing the software. A hostile takeover of the hash power would make the entire hardware obsolete in fractions of a second by changing the hash algorithm. This is where the second trump card comes into play: user acceptance. Only software that is accepted and used by users in sufficient quantity is valid. Whatever version of Bitcoin is attempted to be destroyed, the answer will always merged into a new version accepted by enough users.

A chance of such an attack seems to be extremely small since practically the whole world would have to unite to destroy Bitcoin. How often the whole world has been united in the last centuries can be seen in periods of global peace and harmony, or currently in the unity of UN since its existence.

1. Ignorance and disinterest

As an enthusiastic Bitcoin enthusiast this possibility actually came to my mind last, but in ignorance and disinterest, I actually see the greatest danger for Bitcoin or other 2nd-layer technologies like the Lightning Network, which depends among other things on the presence of the Bitcoin blockchain.

Bitcoin has the potential to become a global currency that is not only used on the Internet. It is not necessary invented to wipe out other fiat currencies, on the contrary, fiat currencies must stay to be used to evaluate Bitcoin durig the global mass adoption. Finally, Bitcoin must be assigned a relatively stable value of some established values. Bitcoin should not become a single currency but should serve as a leading currency that exists independently of governments and offers every single user the same benefit.

In my opinion, the only things that stand in the way of this long-standing goal are ignorance and disinterest. If people do not want to recognise or acknowledge the benefits, the value and the possibilities of Bitcoin, Bitcoin will surely die. Therefore I consider HODLing to be a problem in the future, but still a necessary evil at the moment. Every Satoshi that is held but not spent has a counterproductive effect on the transformation of Bitcoin into a globally accepted lead currency. The effect is similar to saving fiat money. Saved money (or gold) is withdrawn from the economic cycle and hinders markets and economic development by decreasing liquidity. Since in addition speculative-manipulative and centralizing effects occur with the HODLing of Bitcoin, it has a bad effect in the long run. Anyway, unfortunately, HODLing is currently (shortly after the collapse of the first large valuation bubble with broad public perception) the only way for smaller investors to adequately participate in the benefits of Bitcoin!

I consider the chances of Bitcoin’s death from ignorance to be extremely small, but it is in the realm of possibility.

Conclusion

You can clearly see from these examples that Bitcoin is not sufficient and immune to all types of attacks, but it still makes sense to trust Bitcoin as your favorite currency. The defensive measures against possible dangers are based on the acceptance of the users and are not subject to the goodwill of third parties.

Bitcoin owes its strength to independence, integrity and sovereignty. Bitcoin’s future depends on only one factor: the trust that its users place in it and in its benefit and value.

Last remarks
One should not completely disregard the possibility of a “suicide of Bitcoin” or some kind of self destruction. A badly organized and executed hard fork or disagreement between different tendencies within supporting groups, or developers, could end the “Bitcoin” experiment. Such disputes have already begun in the past, but Bitcoin has circumnavigated that cliffs sovereignly. Of course, this does not necessarily mean that it can not happen again in the future.


I operate my own little Lightning Node

Feel free to open a channel e.g. with

clightning
lightning-cli connect 03f810ac5ca2edf9e­7908b4edf98411a26b­555d8aee6b1c9a0a­5ad62b9359aa546 81.7.17.202 9735
lnd
lncli connect 03f810ac5ca2edf9e­7908b4edf98411a26b­555d8aee6b1c9a0a­5ad62b9359aa546­@81.7.17.202:9735
eclair
eclair-cli connect 03f810ac5ca2edf9e­7908b4edf98411a26b­555d8aee6b1c9a0a­5ad62b9359aa546­@81.7.17.202:9735

(please be note that you have to remove hyphens from the line above, after copy/paste  somewhere) or try my already working online tipping tool. Check it out! Send me some Satoshi throught the Lightning Network, please! (Beta)

9. Dezember 2018|Schlagwörter: , , , , |0 Kommentare

DIY: #RaspiBlitz – bau Dir Deine eigene #Bitcoin und Lightning Network ⚡ Full Node für den Hausgebrauch

Auf Github bin ich auf das Repository eines Projektes names raspiblitz des Users rootzoll gestoßen und habe gleich mal davon geforked. Das Projekt beschreibt den Aufbau einer Bitcoin Full Node mit darauf aufbauendem Lighting Network Client (lnd) auf einem Raspberry Pi. Es enthält Amazon Shopping Listen für Frankreich, Großbritannien und die USA. Mein Fork bietet  auch eine Shopping Liste für China von Taobao/T-Mall. Hardwarekosten (inkl. Versandkosten innerhalb Chinas) belaufen sich umgerechnet auf etwa 111 Euro.

Das besondere an dem Projekt ist, daß die ganze Installation schon vorkompiliert für den Raspi ist und das Setup komplett scriptgesteuert abläuft. Ich hoffe, dass man später nicht nur eine Full Node zur Entwicklung und Test weiterer externen Anwendungen hat, sondern darauf aufbauend den RaspiBlitz direkt als POS oder Zahlungsterminal nutzen kann. Der von mir verbaute Bildschirm ist ein Touchscreen und so könnte man sowohl Benutzereingaben verarbeiten als auch eine für den User angenehme Ausgabe bewerkstelligen. 

Das kleine Kästchen könnte einfach in einen Automaten eingebaut werden, man könnte Zahlunsginformationen anzeigen (QR-Code) und die anschießend via Lightning auf dem Telefon mit Bitcoin bezahlen. Ideal auch für Bitcoinautomaten (Bitcoin ATM), aber der Raspiblitz könnte auch ein Zahlungsterminal für Bitcoin in einem Geschäft oder Restaurant sein oder mit einem Kassensystem im Supermarkt verbunden werden. 

Die Möglichkeiten sind beinahe grenzenlos! 

Impressionen

12. September 2018|0 Kommentare

@rogerkver and @JihanWu: Offends, bad meme and even relaxed dialog could not convince you that sticking to Bitcoin Cash is an obsession. Can scientific research?

Downside in BCH ($268), and cryptoassets which attempt to inherit brand recognition and provide minimal technological advantage to incumbents

Seems legit.

@rogerkver and @JihanWu: Offends, bad meme and even relaxed dialog could not convince you that sticking to Bitcoin Cash is an obsession. Can scientific research?

It is humans’ nature that one wants to repeat events one was very successful or felt very comfortable with. There is a tiny reward center in our brains which teaches us that way. That’s why never an ice cream tastes like the first ice cream you ever licked had, no heartbeat while kissing will ever be stronger than the one you had while your first kiss, and all the parachuters are searching for the kick of their first jump with every time jumping out of a plane afterwards. Your dad’s respect, a good meal, sex, drugs … The list of examples is countless.

But seldom a second part of a movie is granted the same success than the the first one.

Consider the following facts:

  • According to Bitmex’s report Bitmain, world’s monopolist in hardware supply of Bitcoin mining hardware and one of Bitcoin Cash’s biggest supporters, already lost about $328 M in attemps to turn the altcoin Bitcoin Cash (BCH) into a success.
  • The Lightning Network, a peer-to-peer network supporting Bitcoin and other participating cryptocurrencies, has not reached a reasonable version number but already more active nodes on the mainnet than BCH.
  • In the recently published analysis of the cryptocurrencies market by the research firm SATIS GROUP (published on bloomberg.com) in the author’s opinion Bitcoin Cash ist sentenced to sink in insignificance within the next 10 years. Hence Bitcoin Crash was the better name.

Who will call a halt before it is too late?

1. September 2018|Schlagwörter: , , , , , , , , , |0 Kommentare

How the monopolist Bitmain exploits his supremacy to milk the world

My findings are based on first-hand experience. I have lived in China since late 2011. I operated home mining from 2013–2016 with equipment from Bitmain (S3, S3+, S5, S7), bought hash power from Hashnest (Bitmain) and had cloud mining contracts with Genesis mining and Hashflare.

During this time Bitmain has always pushed itself further than to the top of the mining industry and displaced all another concurrence. Fraudulent companies that announced hardware but never built it contributed to Bitmain’s success.

The process to collect transactions, to put them in blocks and validate them is called mining. As an incentive to complete this task properly, one may prescribe oneself a reward if successful. This reward is also used to bring new Bitcoin into circulation. Roughly every four years, the reward is halved. This is supposed to simulate, similar to gold digging, that it becomes more and more difficult to mine values. This is not to be confused with the difficulty, which is adjusted approximately every 14 days (2016 blocks) to smooth significant increases or decreases in the global hash rate and provide an average block processing time of 10 minutes.

In the early days of Bitcoin, mining took place on CPUs. With a rising exchange rate of Bitcoin, the use of GPU became efficient. But the invention of ASIC, highly specialized chips, changed the circumstances dramatically. Satoshi Nakamoto does not seem to have foreseen the possible development, his whitepaper practically only talks about CPU power. Bitmain focused very early on the development and use of ASIC. The company is headquartered in China and has close business relationships with a large number of mining pools located there. Bitmain mines in large facilities themselves, develops new hardware at relatively short intervals and sells it worldwide. With China-based mining pools depending on Bitmain’s hardware you could already start a 51%-attack. Don’t worry — below more about that.

In the long and exhaustive scaling debate that ended in the activation of SetWit in 2017 and resulted in several hard forks, Bitmain spoke out against SegWit activation but later joined SegWit2x. It seems obvious that they promote Bitcoin Cash and other altcoins — probably for reasons that become clear below.

How could a Chinese Hardware supplier monopolize a whole industry?

Bitmain’s strategy is very simple but requires continued growth. It is based on technology and knowledge advantages and a unique position to manipulate the market and the “raw material” market at the source almost arbitrarily. The strategy below does not claim to be complete, and a $4 billion company has certainly purchased a few experts to optimize its processes and cover up any traces as best it can.

  1. It all starts with the development of a new hardware generation of mining machines
  2. Bitmain starts mining with its own hardware but takes care that difficulty raises only slowly. at raising exchange rate Bitmain earns a lot of wealth already
  3. At a time when ROI is relatively low (low difficulty, high exchange rate) Bitmain starts selling this hardware generation in mass. They earn again lots of money with, but the risk of investment shifts to the buyer
  4. The latest generation of hardware is sold for months until the market is saturated or the ROI reaches the limit of the buyers’ willingness to take risks.
  5. Over the entire period it makes sense for Bitmain to push the price of Bitcoin through sales on all markets
  6. The hardware buyers make only small profits, their hardware just reaches the ROI.
  7. Now follows the death blow: By using additional hardware the difficulty is significantly increased and at the same time the bitcoin exchange rate is extremely pressed for 4–6 weeks.
  8. a) Mining is no longer efficient for a large part of the worldwide mining pools at the same energy costs. They have to switch off their devices because the electricity costs are higher than the yields.
    b) Cloud miners, follow a similar strategy and after a trial period, the contracts end with the clients. However, it can be assumed that the devices will not really be switched off, but will continue to be operated in the hope of a strongly rising exchange rate in the near future.
  9. Since Bitmain, due to its high volume on the international trading platforms, can keep the price down for as long as it likes (probably with a silent agreement or even in cooperation with the large trading platforms), they can also cash-in by “betting on falling share prices”- with high leverage!
  10. If the global hash rate should drop, it will be compensated by additional hardware by Bitmain and kept stable.

Now Bitmain can let the exchange rate rise again in a controlled manner, the majority of the hardware now works for Bitmain, they have the proceeds from the hardware sale and from the speculative business, and mining revenues flow directly to Bitmain as the exchange rate rises.

Sometime in the meantime, Bitmain has developed a new hardware generation, which may even already be in use. A new cycle of exactly the same game begins. Big non-Chinese mining pools have no choice but to play along and try to make maximum profit from the situation. The risk is permanently shifted to the customer through cloud mining contracts.

Bitmain is a monopolist who skilfully and mercilessly exploits its unique supremacy to maximize its profits. I don’t want to take that further at this point, but any commitment to decentralization hides Bitmain’s real ambitions only. It’s a multibillion-dollar company and they’re just looking at the profit.

They already applied the same strategy to dash, zcash and bitcoin gold. The fact that this business model works brilliantly makes Bitmain’s negative attitude to developments such as the Lightning Network easy to understand.

The Lightning Network removes the foundation of their business model by shifting trust in the individual transaction to the network and degrading validation to a simple recording device — a distributed database. In this sense, Bitmain’s strategy is a game on time and is already shifting to other cryptocurrencies that work with a PoW consensus mechanisms and refuse SetWit and the Lightning Network. So the problem should go away on its own, or?

What to do?

If you want to break Bitmain’s preeminence, you can only develop ASIC-based hardware yourself. Corresponding efforts have failed in the past. The high initial investments and the high risk let all efforts fizzle out.

The PR China is forcing large mining facilities to move gradually by slowly increasing energy costs, but as long as energy costs are below the global average and Bitmain can move its mining farms to appropriate areas, the game will continue.

However, for bitcoin the limit of minting output will soon be reached, it will become unprofitable to operate large facilities because there is not much more Bitcoin to get. Even if the Bitcoin price rises exorbitantly, the increase in the global hash rate is no longer worthwhile. One can only hope that at this point in time, the hash rate is distributed as evenly as possible across the globe.

Bitcoin found:

  • Today ~80%
  • ~ Year 2030 95%
  • ~Year 2140 all Bitcoin in circulation (21m)

As you see, Bitmain has a long way to go, if they want to continue their game. In the meantime, an article like this may shed some light on their machinations.

By the way: No worries about a 51% attack or a sudden failure of large hash capacities or even an attempt by China to expropriate Bitmain and/or all miners in China. Bitcoin is not determined by the miners or developers and certainly not by a hardware manufacturer — even if they like to think so. Bitcoin is operated by the nodes, in case of doubt by the wallet operators. In case of a hostile takeover, the hash algorithm would simply be changed and/or a fork to another consensus algorithm. All mining hardware worldwide would be worthless at a stroke and all Bitmain’s investments would be gone.

But the best thing to beat Bitmain is the Lightning Network! As described above and in my other articles, the Lightning Network will adjust the balance of power and move it back to the user. I am convinced that this is the reason why Bitmain is increasingly focusing their activities on “classic PoW” coins. Here Bitmain can expect to abuse and the position of power and to continue this devil’s game.

The future will show who has the staying power.


This article first appeared on Medium.


I operate my own little Lightning Node

Feel free to open a channel e.g. with

clightning
lightning-cli connect 03f810ac5ca2edf9e­7908b4edf98411a26b­555d8aee6b1c9a0a­5ad62b9359aa546 81.7.17.202 9735
lnd
lncli connect 03f810ac5ca2edf9e­7908b4edf98411a26b­555d8aee6b1c9a0a­5ad62b9359aa546­@81.7.17.202:9735
eclair
eclair-cli connect 03f810ac5ca2edf9e­7908b4edf98411a26b­555d8aee6b1c9a0a­5ad62b9359aa546­@81.7.17.202:9735

(please be note that you have to remove hyphens from the line above, after copy/paste  somewhere) or try my already working online tipping tool. Check it out! Send me some Satoshi throught the Lightning Network, please! (Beta)

25. Juli 2018|Schlagwörter: , , , , , , |0 Kommentare

Bitcoin’s future: Paradigm shift ahead — mining Bitcoin is doomed

In Bitcoin the processing transactions of the peer-to-peer network and to pack that transactions in blocks, seal and timestamp them, and finally store them in a long blockchain is called mining. To ensure the highest security the Bitcoin inventor Satoshi Nakamoto wrapped that task in some kind of competition combined with a difficulty factor. The hashes needed to put that transactions in a block must start with a specific number of zeros. The more zeros needed the harder a hash value to find. This difficulty factor is adjusted every 2016 blocks in a way that the average time to find a block is around ten minutes. Depending on the global hashrate around every fourteen days the difficulty is adjusted. So far, so good.

But besides this primary function of confirming transactions the minting of new coins and bring them in circulation is also done in the mining procedure. That is where the term mining comes from, while in the original whitepaper it was not called so, but Satoshi Nakamoto compared the process with gold digging. In reality this is realized quite simple. Whenever a miner produces a potential version of a new block it starts with a transaction which rewards himself with a specific amount of bitcoin. If the block is correct and fulfills all requirements of a regulary block (in time, block height not already exceeded, difficulty okay, self-indulged reward height okay and so on) and several node accept it the creator will get his reward.

The reward rate is halfed approximately every four years. In the beginning you could get 100 Bitcoin per block, then 50, 25 and today you can still “find” 12.5 Bitcoin in a block.

Intermediate result: Mining has two purposes — a primary and a secondary one:

  • Primary:Processing transactions, confirm them and produce a valid block
  • Secondary:Minting new coins and bring them in circulation

Although the primary reason for mining is the by far more important one and the secondary one is just to incentivize nodes to play fair and provide cpu power to the network.

Once upon a time minting became mining

The rest is history — not a long one, but history. To make a long story short: Mining with CPUs became mining with GPUs, the difficulty level raised, Bitcoin became more and more popular, the exchange rate went up, as a single miner you could not afford mining anymore, pools combining their hash power were created, first decentralized, but then centralized structures popped out, ASIC were invented, hardware inventor and miners could barely keep abreast of the fast growing industry, centralization in China and northern Europe took part, the exchange rate exploded, the transactions fees also, and finally on Bitcoin’s exchange rate’s all times high the ongoing struggle about the scaling and general future of bitcoin culminated in a fork to an altcoin Bitcoin Cash (and as an altcoin sticking to the principles of “having your own money printing machines” in giant data centers (in China — or meanwhile other countries with cheap and dirty power) from the original Bitcoin. The groups , who Satoshi handled the baton over to, still takes up the cause of developing Bitcoin to a real currency and not a worldwide accepted commodity only.

DOOMED — you are all doomed!

The final amount of Bitcoin is limited to 2,100,000,000,000,000,000 Satoshi. That are 21 Million Bitcoin, but can be divided up to the 8th decimal place. 17 Million Bitcoins are already in circulation, that means more than 80% are already found. The amount of Bitcoin will grow linear, the last block will be found in the year 2140 — as I know.

Meanwhile the global hash rate grew non-linear over the last 10 years and took the difficulty with it on a journey of accelerated growth. That made it for lateral entrants nearly impossible to start mining today without high investments in hardware. But the market is more or less controlled by one supplier. For a home miner or small miner it is already impossible to catch up in time to keep up to date with the newest mining hardware — not least because that one hardware supplier is also world’s biggest pool operator and seems to release new hardware to the public, near of its end of useful time. So when available the newest hardware generation is already outdated, and the hardware supplier even can control the point in time when it becomes inefficient and obsolete — except you have your own nuclear power plant at home.

The exorbitant effort which needs to be expended to “dig out” the last 4 Million Bitcoin over the next 122 years and the full control over it with a quasi-monopoly have been foreseen. The involved companies, governments and indivudials for sure know and refelct about it. Institutional investors and the community compare it for longer term already with the manipulated gold price. The parallels are obvious.

Bitcoin is over? A fail?

Don’t worry. Bitcoin’s first big bubbles are over. The price tumbled at below 6000 USD, but that is a pretty “normal” development if you step back and see the big picture. Bitcoin is adjusting it’s value to the mean. If you are a Bitcoin enthusiast and evangelist — as I call myself one — you could also say something like “One Bitcoin will always stay one Bitcoin — it is fiat money which is fluctuating!”. Okay, I stole that quote somewhere, but it is true. Unfortunately my local bakery does not accept Bitcoin — not yet. (Below more about that.)

Bitcoin is a revolution which is intended to become a global digital currency, and shall allow transactions between peers without to trust and out of the control of third parties. The ideological idea is to disempower financial institutions, global enterprises and governments and give back the monetary power and financial control to the user. At least so I understand it. Bitcoin is not a commodity or a wealth storage or a big technological breakthrough. Dont’ get me wrong, that statement shall not diminish Satoshi’s achievements, but turn your head into the right direction to focus on the real use of Bitcoin.

If I interepret webistes like Bitcoin NVT Ratio right, then the network is in a phase of high growth and big investors already have an eye on big returns OR the price is forming an unsustainable bubble. Personally I lean towards the former, but I don’t exclude the option that another giant bubble is forming. Both I am okay with and soon you will read why.

Am I just a hopelessly optimistic person, conceited by years-long wrong imaginations and preaching Bitcoin ideology?

I spy with my little eye …

I am in crypto and especially in Bitcoin since late 2013. That gives me an advantage of experience in both technological development and assessment of the situation. I don’t want to conceil that some of the following ideas are “based on a feeling the guts” or call it intuition.

Please follow my considerations:

The Bitcoin exchange rate is low. But far lower than what to expect if there are no bad news on the way. The public attention of Bitcoin is still high and more and more investors and institutional investors are focussing on Bitcoin and other cryptos. But there is no upward movement of trade seen — even if news like “The Rothschilds are going Bitcoin” are spooking through the media. On the other hand negative headlines (like hacked exchanges) and the “subtle menace” of tries of regulation (by governments) or taxing Bitcoins and control of ICOs can not explain the Bitcoin price is so low without any signs of recovery.

That suggests that the price is highly manipulated. There are several instances who could archieve that and maybe for different reasons. As there are early adopters with high amounts of Bitcoin (Whales), groups like big mining pools, who just need to squeeze out some money to pay their raising power bills, big investors and traders, who want to a reasonable low price to buy in again, other competetive cryptos— well, who knows? But you can be sure there is always someone.

And then there is a still totally underrated development, which will change Bitcoin and the complete ecosystem around it with a thunderstruck: The Lightning Network. It will change everything, because it will instrumentalize the blockchain to open a person-to-person payment option worldwide for low to no fees. That will make Bitcoin a global currency. (Learn more about in one of my other articles).

When the understanding of the impact of the Lightning Network becomes common knowlegde and these ideas pop up in people’s minds the interest in Bitcoin will quickly raise. After a short period a self-fulfilling prophecy effect will take place and the exchange rate will rocket high once through the ceiling. I try to avaoid that “to the moon”-term, because it still inherit sticks a valuation of bitcoin in fiat money. But that is not my point of view anymore. You should value Bitcoin by its use. Well, any don’t expect this peak will be the end, but there will be another consolidation phase. The price will calm down again.

In a second stage it will go over to some sustainable growth period. In that time an ongoing deployment of applications like Bitcoin payment in your favorite coffee shop, acceptance of Bitcoin on a worldwide goods trading platforms, on webshops, on several social media, person-to-person payment and many others more will take place. For all that it is anyway needed, that Bitcoin exchange rate stops its high volatility and growth with an more linear factor. Bitcoin will go mainstream. Don’t expect that to be the “rocket to the moon” thing. I image it more like Bitcoin use will become more and more common, when more an more people discover they can use Bitcoin to book their holidays, and buy their bagel on way to work in the morning.

Bitcoin a currency — what does it mean for mining?

My conclusion is very simple, you can call it naive, but if the Lightning Network is taking over the responsibility for the “negotiation” and uses direct peer-to-peer channels for any kind of Bitcoin transactions then the importance of the main job mining (remember: confirming transactions) will go to the Lightning Network. The primary purpose of the blockchain will shift to “bookholding”, well, better “write results to the database”.

The included fees for the miners will be lowered a lot — generally the amount of transactions which needed to be written to the blockchain also. Every 4 years the rewards will be halfed, but the global energy price will stay the same (or in tendency will raise). Mining will become more and more unefficient and the demand for mining will decrease with its importance.

Mining is doomed to descend in unimportance. Well, not really, because it is still the basis for an “independent” database and bookholding for the Lightning Network. The role miners, pools and especially companies like Bitmain see themselves in, will completely change. At least that’s what I hope for. Some devotition will help them to form their character and switch their attitude from “We are Bitcoin! We have all the power! We own everything!” to “Thanks that you still need us to find the last hidden Bitcoin.” Bitcoin’s power is on the user’s side.

The whole mining industry will shrink and consolidate. With shrinking hash power difficulty will automatically lower. All the hardware and the lots of energy will be obsolete and not be efficient anymore to find the small amounts of Bitcoins still hidden. The long-term the big data centers will be dismantled. The efficiency will not longer depend tightly on the exchange rate to fiat money, because over a longer period you can utilize Bitcoin as a currency and directly buy goods and exchange it to demand services. The importance of Bitcoin will raise when its imminent use is eventually fully discovered to the public through the Lightning Network.

Fiat money will not become extinct the short term — probably it never will. “Too big too fail” is the right term here. But any fiat currency have a flaw and that is called inflation. Bitcoin’s amount is limited which makes it nearly inflation proof. By far more value than today will be shifted to digital currencies especially to Bitcoin and other cryptos participating in the Lightning Network. The phase of fiat to digital transformation has just begun.

Bitcoin exchange rate is below 6000 USD. In my opinion his is not a pity, but this could be your last chance to hop on the train heading wealth valley!


I published this article first on MEDIUM. If you want to learn more about the Lightning Network explore this Linklist.


I operate my own little Lightning Node

Feel free to open a channel e.g. with

clightning
lightning-cli connect 03f810ac5ca2edf9e­7908b4edf98411a26b­555d8aee6b1c9a0a­5ad62b9359aa546 81.7.17.202 9735
lnd
lncli connect 03f810ac5ca2edf9e­7908b4edf98411a26b­555d8aee6b1c9a0a­5ad62b9359aa546­@81.7.17.202:9735
eclair
eclair-cli connect 03f810ac5ca2edf9e­7908b4edf98411a26b­555d8aee6b1c9a0a­5ad62b9359aa546­@81.7.17.202:9735

(please be note that you have to remove hyphens from the line above, after copy/paste  somewhere) or try my already working online tipping tool. Check it out! Send me some Satoshi throught the Lightning Network, please! (Beta)

The Lightning Network ⚡ will revolutionize a revolution or why HODLing is not the solution but part of the problem!

While preparing this article about the Lightning Network I considered severeal headlines and even after publishing I am not sure, if I chose the right one.

My alternates:

Bitcoin is dead, long live Bitcoin!

or

The Lightning Network no revolution without evolution!

or

Bitcoin is going to invent itself — again! Understand the Lightning Network!

They all somehow express what I want to explain to you.

But from the beginning. As you maybe know I am in Bitcoin since 2013. First as a home miner and ocassionally and later regulary as a trader. I sticked to Bitcoin for years as it was a hobby which led to ongoing discussions with my wife how much my hobby is worth when she paid our power bill. She showed great understanding at that time and supported me always. When trading in my early Bitcoin times I sold Bitcoins at a rate of 200 to 500 USD and enjoyed the revenue. Sometimes I hold more than 30 Bitcoins. I wished I had the knowledge of today those days. 😢

Then 2017 came and the Bitcoin exchange rate exploded, while the ongoing discussion about scaling led into an open war between different factions and controverse compromises. At this point I don’t want to go deeper into this, but eventually it led to several forks from Bitcoin and a high peak of Bitcoin’s exchange rate at around 20,000 USD. Then the long fall and todays Bitcoin’s fight against a strong bearish resistance line while recovering.

Is Bitcoin a fail?

Is bitcoin a fail?

Is this really the end? Do all the cries of naysayers to be proofed right? Was Bitcoin that giant bubble all the experts called it again and again and again?

Bitcoin was invented as a peer-to-peer value transfer system with elimination of trust of a third party. It was planned as an instrument to bank the unbanked and to be available all over the world. But as a genius Satoshi Nakamoto was he didn’t foresee that it had imminent flaws. Satoshi did probably not expect that ASIC would be invented. I am pretty sure, if he did, he made the mining/minting algorithm some more complex to keep it on CPU/GPU as long as possible. Maybe he just didn’t care. The success of mining pools was maybe originally also not expected or even intended. Bitcoin’s idea was a distributed ledger and decentralization. The forming of pools are exactly the opposite and in the end led to the idea in some big miner and mining equipment hardware supplier’s mind that they “own” Bitcoin or operate it and they would not give up to put their claws in their money printing machines which provided them so much wealth in the last years.

You can still find that attitude at the Bitcoin Cash (an altcoin created as a fork from Bitcoin) supporters like Jihan Wu or Roger Ver who try to mislead people what Bitcoin really is. (BTW: In their argumentation they stick close to Bitcoin’s original whitepaper but take not into consideration that you need to develop something if you realize the flaw and that only that what people accept as Bitcoin will ever be Bitcoin. They changed their manipulation tactics some, but please be aware, that Bitcoin Cash is NOT Bitcoin — and not supporting SegWit it will never be.)

Third big flaw of Bitcoin was that its exchange rates’ meteoric rise lured more and more even big institutional investors into Bitcoin. At the same time Bitcoin as a payment option was more and more turned down, because due to the long-lasting scaling debate the transaction fees turned exorbitant high. Suddenly Bitcoin was an object of speculation and Joe Everybody could not afford it anymore, which kept many not from buying it even they did not understand the market mechanism working there of understanding Bitcoin as a technology at all.

If you look at this three flaws insulated you have already a good impression of the actual situation, but you need to dig some deeper to uncover the real problem Bitcoin has and which urgently needed to be solved. Bitcoin’s intent was to be some kind of currency, but it is/was more something like a commodity. Of course you could buy this or that in webshop with Bitcoin, but within a few month the value was so high that the fees ate up the transfered value. Nobody really wanted to accept Bitcoin. Sellers, merchants and store owners saw it more like a hip payment channel not like a reasonable competitor to VISA, Paypal or Fiat Money. The success of Bitcoin and its volatile exchange rate made it impossible to be used as a currencies and all the imminent flaws worked together to drag it into direction to be a value storage and that made all the yells “Bubble! Bubble!” became a self-fulfilling prophecy.

From that point of view it is true: Bitcoin — as a currency — is a fail.

The Lightning Network will let the problems disappear

And the future?

Bitcoin is a fail, but it is not an epic fail, because a small bunch of resistant developers realized already years ago, where Bitcoin’s problems lay and how to solve them. Let me draw you a picture, which does not claim to be true in detail, but please allow me to take your hand and lead you to the right direction with a little weird idea.

Join my in the rabbit hole of conspirancy theories where Alice is waiting for us already masked as the bitcoin inventor Satoshi Nakamoto. It is up to you to believe who he is, but did you never wonder why he totally disappeared from the scene after he started with so much effort to create Bitcoin and to explain his ideas to others? Why he showed the concepts and realized an implementation of its vision, inspired lots of developers, cryptographers and mathematics worldwide without even once to step out of anonymity? I am sure he planned from long hand to pass the baton to others and then to watch from another perspective and/or to take care of other things. Or?

Nakamoto created a website with the domain name bitcoin.org and continued to collaborate with other developers on the bitcoin software until mid-2010. Around this time, he handed over control of the source code repository and network alert key to Gavin Andresen, transferred several related domains to various prominent members of the bitcoin community, and stopped his involvement in the project. Until shortly before his absence and handover, Nakamoto made all modifications to the source code himself.

Wikipedia contributors. “Satoshi Nakamoto.” Wikipedia, The Free Encyclopedia. Wikipedia, The Free Encyclopedia, 24 Jun. 2018. Web. 26 Jun. 2018.

I can not imagine he didn’t make sure that his “Bitcoin: A Peer-to-Peer Electronic Cash System” was in good hands before leaving. There are rumours that Satoshi could even be that group of people (or part of it) who are nowadays known as “Bitcoin Core”.

Now the weird imagination: The romanticist in me has an idea of a secret society of around five to ten people who share parts of a private key which can unlock the first 1 million minted Bitcoin if used together under certain conditions like a specific blockheight or amount of Bitcoin in circulation.

Sure is that that the group called “Bitcoin Core” never spent much time on marketing, put themselves in the center of attention or made a big fuzz about their person, but they put much effort in developing Bitcoin in a sustainable way. The discussion about scaling led to struggle, but Bitcoin Core never gave up any ground and let the users decide. They never cared if other trends in the community led to the creation of altcoins and how much that new coins were adopted or took market cap from Bitcoin. They ignored Turing machine-like developments like Ethereum more or less, but were willing to cooperate with cognate cryptos like Litecoin, Groestl or Dogecoin for mutual advantages and — at least that was my impression.

So SegWit as the main requirement for further developements of the Bitcoin protocol eventually had been activated successfully and that was like a starting shot for developers worldwide. I think that was what the Bitcoin Core group was aiming for, because they are aware for a long time already that the activation of SegWit if essential to turn Bitcoin from a failed speculation bubble into a successful full digital peer-to-peer payment network. SegWit’s support helping solving the scaling problem is only a bonus on the top. Bitcoin Core insisted on 1 MB blocks. If scaling was the big issue there have been solutions around like bigger block sizes and even Jeff Garzik’s lukewarm compromise (Sorry, Jeff, I have respect to you and your work! All the best for Metronome — even I think it will be obsolete within a few years) SegWit2x. By the way: The only initiative which really made SegWit possible was the UASF anyway — my two cents.

So if solving the scaling problem was not the reason to insist on SegWit and 1 MB small blocks and even let users build up pressure under which Bitcoin could break then the only reason I can see is in another use of SegWit and it already took me days to understand that only one further development can be the reason for.

SegWit conditiones several possibly deployments to the Bitcoin protocol and the installation which instrumentalizes Bitcoin’s blockchain as what it really is: A giant decentralized self-organizing public database which holds data about who owns how much. On top of this database shaking of the chains of underlying flaws Bitcoin comes to the surface again in the Lightning Network.

Frolicking, the savior is near!

The lightning network fulfills all the promises Bitcoin made in the past. There a better sources to explain the details to you like

  • https://lightning.network/
  • https://decentralized.blog/the-lightning-network-rookie-guide.html
  • https://medium.com/@argongroup/bitcoin-lightning-network-7-things-you-should-know-604ef687af5a

but let me give you this brief introduction:

The Lightning Network is NOT a new currency, there will be NO ICO or swap or something. The Lightning Network does principally something like that: Everybody with a client can take part at the Lightning Network and with every connection a self-organizing meshed network is established. Thanks to the simplicity of the Bitcoin protocol every lightning network node can create hash values which can be anchored in the Bitcoin blockchain without being already “recorded”. They’re like a hook or a bookmark in the blockchain.

If Alice wants to send Bitcoin to Bob she now can use that hook to open a direct channel to Bob on the Lightning Network. That channel is established over others members of the network. These hops have no clue about the content of the transactions they transport. They can also not stop it or influence it. They just build up a chain of trust. After the channel between Alice and Bob is established they can exchange Bitcoin in both directions for no fees. They can write each other invoices or settle payments. All the information if only hold in that channel and it is constructed in a way that it has a mutual agreed state (consenus) at any time. So even if a network connection breaks the Bitcoin in the channel is save. After all transactions are done the channel is closed, but only the result is written in the blockchain.

But the great advantage: If you made a Bitcoin payment with the Lightning Network you don’t need to care for the 6 times confirmation time. The Bitcoin is already transfered and accepted within the channel. The transaction is already negotiated and the outcome non-reversible settled. The Blockhain is only recording the result after closing the channel. And after 6+ confirmations the recording is non-reversible, too.

The Lighning Network adds all the features to Bitcoin you always wished:

  • Instant transactions with the speed of light
  • Low to no fees for low transactions
  • Low volume transactions down to 1 Satoshi
  • No direct public inview in your transaction history
  • Easy swapping of Bitcoin to Litecoin, Groestl or Dogecoin within the channel (Atomic Swaps)
  • Due to its p2p-nature the Lightning Network is “unblockable”

That opens varied use cases for really all involved parties. Please think about it! Bitcoin will turn from a commodity to a real worldwide used currency. Merchant can finally implement Bitcoin payment. Starbucks could let you pay your coffee within seconds. Facebook could reward commercials with paying Bitcoin and you could eventually tip people on the fly with your mobile. Webshops supporting the Lightning Network are not futuristic dreams, they are already reality. That was what Satoshi had in mind when Bitcoin was created! The Bitcoin Lightning Network was already introduced to people and presented by Satoshi in November 2010!

This is Satoshi's description of how the Lightning Network works from 2010

This is already a description of how the Lightning Network works.

Please take you a minute and make some conclusions, and you will realize that the Lightning Network is a revolution of the revolution Bitcoin. It is the only reasonable development to let Bitcoin become a usable real-world payment option. That will resolve all problems Bitcoin actually shows. Bitcoin does not need HODLers any more. To hold Bitcoin long-term is completely contra-productive, but unfortunately actually the only option for small investors to compete with institutional ones (and the monetary power of whales) to carry the wealth through the long waiting time until Bitcoin will become a useful, less volatile currency and “go mainstream”. You think that already happened? It didn’t. Bitcoin caught a lot of media attention, but is still far from mass adoption. Even if you are deeply interested in Bitcoin how many people you know using Bitcoin for payment in real life?

But don’t worry the time is near!

HODLing okay, but later spend Bitcoin! throught the Lightning Network

HODL now, use later!

As long the Bitcoin exchange rate is highly manipulated by whales and speculator whim and the fiat-to-digital transformation is in progress everybody HODLs and is withdrawing liquidity from Bitcoin. With no or low liquidity the use of Bitcoin is extremly limited and merchants step back from implementing tools to accept Bitcoin payment. Without merchants accepting Bitcoin and trading goods or services against it it has no use case and the interest in Bitcoin drops. The propagated use “Bitcoin holds value” like gold isn’t really existing, because Bitcoin is backed by what people are valueing it. It is more like a piece of modern art — and you know how different the evaluation can be.

The Lightning Network will break this vicious cycle. Bitcoin will go mainstream and latest when people overcome this realization Bitcoin will reach a new all-time high. I guess the big players already realized that, if the Bitcoin price goes up again sustainably it could have been the last time you saw it traded at a 4 digit price. The Lightning Network is far developed, so maybe you will stunning surprised in 2018. Even if not — you will have more time to collect BTC.

Three groups are eagerly working cooperative on the Lightning Network.

There are

  • lnd — an Lightning Network client with optional use of light clients later, also hooks for several visualizing options
  • eclair — an elegant implementation (focusing on mobile devices — I am not sure)
  • clightning — Lightning Client written in C, beta status already, providing base for several apps like payment plugins for woocommerce, tipping, or payment per article
The Lightning Network is already there

All three are very far developed. clightning is already used on the mainnet and in beta state as I know.

Although it is not recommended to use the mainnet at the state of writing there are 2337 Lightning Nodes with 5394 channels spanning a the mainnet holding 55.53 BTC.

Bitcoin exchange rate is about 6150 USD. In my opinion his is not a pity, but this could be your last chance to hop on the train heading wealth valley!


I published this article first on MEDIUM. If you want to learn more about the Lightning Network explore this Linklist.


I operate my own little Lightning Node

Feel free to open a channel e.g. with

clightning
lightning-cli connect 03f810ac5ca2edf9e­7908b4edf98411a26b­555d8aee6b1c9a0a­5ad62b9359aa546 81.7.17.202 9735
lnd
lncli connect 03f810ac5ca2edf9e­7908b4edf98411a26b­555d8aee6b1c9a0a­5ad62b9359aa546­@81.7.17.202:9735
eclair
eclair-cli connect 03f810ac5ca2edf9e­7908b4edf98411a26b­555d8aee6b1c9a0a­5ad62b9359aa546­@81.7.17.202:9735

(please be note that you have to remove hyphens from the line above, after copy/paste  somewhere) or try my already working online tipping tool. Check it out! Send me some Satoshi throught the Lightning Network, please! (Beta)

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