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BitCoin – Trading & Mining (und andere Crypto Currencies)2019-02-21T02:58:52+00:00

Trading Bitcoin: Looking forward to Christmas 2021

BTCUSD brief idea about Bitcoin's future on a logarithmic scale by jagottsicher on TradingView.com

BTCUSD brief idea about Bitcoin's future on a logarithmic scale by jagottsicher on TradingView.com

BTCUSD brief idea about Bitcoin's future on a logarithmic scale by jagottsicher on TradingView.com


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 Satoshis throught the Lightning Network, please. (Beta, but fast as lightning!)

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 Satoshis throught the Lightning Network, please. (Beta, but fast as lightning!)

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 Satoshis throught the Lightning Network, please. (Beta, but fast as lightning!)

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 Satoshis throught the Lightning Network, please. (Beta, but fast as lightning!)

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