boutell: (shave)
OK, on a macro scale I'm not surprised at all, but on a micro scale I'm curious about the mechanics of this theft.

If I read this right, flexcoin's "hot wallet" just consisted of a big ol' pile of bitcoin that belonged, cryptographically speaking, to flexcoin itself. And a pile of user accounts, in a very conventional "this is a site with some accounts in a database" system, with balances. None of those people actually *had any bitcoins* in the sense that can be mathematically verified by a party outside flexcoin.

That enabled a pretty simple attack that worked because they were tracking their accounts with chewing gum and string - excuse me - using a database that wasn't transactional and couldn't guarantee that it wouldn't finish adding over here unless it also finished subtracting over here.

Am I right about that?

And why would anyone who thought bitcoin was worthwhile want to *not actually own* the bitcoins they "own", in the most cryptographically sound manner possible?

Could it be that *most people using bitcoin have zero comprehension of how it really works*? OK, yes, of course it's that.

But also, how crappy is my own crappy understanding of "owning bitcoins"? There is some sense in which the original miner signs them and stuff, right? And some sense in which if ownership is transferred, the new owner gets to sign them in that crazy "blockchain" thing? Except that doesn't happen in these "hot wallet" systems? Because... why???

Will bitcoin "exchanges" be replaced by a system in which the math of this craziness, however unproven, is at least applied to every transaction?
boutell: (shave)
At this point I'm no longer sure that Bitcoins are beanie babies. But the emerging alternatives to Bitcoin, like Litecoin, are definitely shitty knockoff beanie babies at the corner store. The whole point of Bitcoin is proven, permanent scarcity that means they could theoretically hold value. That only works once.

As for actual Bitcoins, they are now trading near the $1K mark, which is pretty jawdropping, and the price graph over the last couple years is remarkable. People are now selling dedicated mining rigs with custom chips ("ASICs") engineered solely for the purpose; it is no longer considered profitable to mine with an off the shelf PC, not even with software that takes advantage of the smarts in your graphics card.

There are now around 12 million bitcoins in circulation. At a valuation near $1k a pop, they are currently worth $12 billion. Of course, if everyone were to try to sell them tomorrow, they would be worth nothing tomorrow.

Am I going to start mining them? No. I do kinda wish I'd mined them three years ago, socked away 1K of them, and sold them off this summer. But only in the most cynical way, because I remain very skeptical that they will hold value. Sure, they are scarce, but only because people consent to view this particular algorithm as the magical one that "counts." It's not like gold, which has intrinsic value, or the dollar, which has... heh heh heh heh heh heh heh.

September 2014

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