Bitcoin’s roller-coaster ride gets wilder as Wall Street, China climb on

http://arstechnica.com/tech-policy/2013/12/bitcoins-roller-coaster-ride-gets-wilder-as-wall-street-china-climb-on/

by hkimura • 13 years ago

38 63 13 years ago

Question from one of the uninitiated: I heard that the Bitcoin block chain is already many gigabytes. How is this expected to scale over time and are there any challenges for the network if it becomes too large to quickly/easily share? (Or not since only the tail is really needed?)

fragsworth• 13 years ago

The block chain is designed to grow (roughly) linearly, while storage capacity grows exponentially. Also, the protocol can be changed to accommodate any technical limitations in the future.

lingben• 13 years ago

I've often wondered how exactly the protocol would be changed. Who is in charge? who would make the change? how would it be implemented and enforced in a decentralized system?

ngoldbaum• 13 years ago

It's easy to beat an exponential with a linear function, at least over the short term. Anyway, isn't that true only in the limit where the number of transactions per second remains roughly constant?

nerfhammer• 13 years ago

what if the amount of transactions grows exponentially?

gibybo2• 13 years ago

This is the size of the blockchain over time: https://blockchain.info/charts/blocks-size. It's currently 12 GB and has a maximum growth rate of ~6 MB/hour. The hope is that storage and bandwidth get cheaper faster than the blockchain gets bigger.

There are definitely challenges with its current growth rate. As currently designed, it's capped at about 25,000 transactions per hour. The developers are working on addressing this limitation, but the solution is complex and they aren't done yet. We went from ~200 transactions/hour in Jan 2012 to ~2,700 transactions/hour in Dec 2013, so it's conceivable we end up getting pretty close to (or hitting) the cap in the near future.

mynewwork• 13 years ago

Does that mean someone can denial-of-service all of bitcoin just by moving a balance between a couple wallets repeatedly? Can one person (or group)'s activity crowd out other people so their transactions can't be added to the blockchain? What prevents that from happening?

25,000/hour is a shockingly small number to me. I feel like I must be misunderstanding something, or else someone from 4chan would have already DOS'd bitcoin for fun.

mediocregopher• 13 years ago

As you say, only the tail (or really, the head, if you think in terms of cons-ing onto a linked list) needs to be present for a client to operate at almost full operation. The only entities that really NEED the full chain are those who are doing historical accounting, like the various blockchain explorers and those who run analytics. These people are already putting some investment into scaling and processing concerns anyway, so I'm not worried about them.

feral• 13 years ago

I heard that the Bitcoin block chain is already many gigabytes.

True.

How is this expected to scale over time and are there any challenges for the network if it becomes too large to quickly/easily share?

This is debated.

(Or not since only the tail is really needed?)

That's basically the first approach.

If you trust someone else to tell you the state at time X (give you a 'checkpoint' basically), then the volume of data still grows with the number of separate accounts that have 'bitcoins' in them, but [where all the remaining money is as of recent time X] is a lot less information than [the complete set of previous transactions for all time].

Or you could have a thin client, that trusts some other service to maintain and monitor the current state of the system, which your thin client regularly queries.

Both of these schemes cut down the data storage requirement a lot, and sort of solve that scalability problem.

However, both require trusting some third party to supply you with an abbreviated version of the transaction history (or group or parties, or chain of authority, etc.), and its open to debate whether, if you do that, you lose some of the 'decentralised' aspects of the system that make it nice. Or you could say that's "just a philosophical concern" that doesn't really matter.

I personally guess that the various developers will be able to engineer around this problem.

I'd be more worried the system handling real time transaction volume, if it became mass adopted, and people tried to do all transactions on the blockchain.

Check out https://en.bitcoin.it/wiki/Scalability as a starting point.

samwise• 13 years ago

I would check out https://en.bitcoin.it/wiki/Scalability . In the paper published by "Satoshi Nakamoto" he detailed a technique called pruning in which old transactions that can longer affect other transactions are drop from the blockchain

knowitall4• 13 years ago

The original whitepaper already mentions a way to reduce the size of the blockchain using Merkel Hashes (iirc) - they show that it is sufficient to only remember parts of the blockchain. It hasn't been implemented yet, but I suppose if the problem becomes really pressing it will be implemented.

I suppose some of the fun parts would go away then, such as the possibility to view every transaction that has ever been made - in the Merkel Hashed blockchain not all information would be preserved.

Edit: I suppose it would still be possible to monitor all transactions and remember them by some other means, just not in the blockchain.

wmf• 13 years ago

https://en.bitcoin.it/wiki/Scalability

I agree with fragsworth that once Bitcoin is mature the blockchain will grow linearly; in the short term we may see more rapid growth. Most users are not expected to store the whole blockchain; using SPV or UBC a peer can store much less data.

sillysaurus2• 13 years ago

I bought 0.4 BTC via Coinbase right when the price dipped to $900. Once the price climbs back to $1200/BTC, that'll net me $115 after fees.

When the price suddenly dives, you may want to consider buying. It's always paid off so far. It seems like a solid investment strategy, because Bitcoin is still very young. Therefore it's probable that the infrastructure will continue to grow, and it will continue to become more popular over time.

It's looking like the price is about to enter into a "slow'n'steady" phase of growth... I predict it will rise from $1100 to $1500 over the next month or so.

Consider this: If you have $10k lying around, you can set up a Coinbase account and buy 9.5654BTC right now. Then you can set up an MtGox account and sell those coins when the price climbs to $1500 (which seems pretty inevitable). Therefore your $10k will become $14,262 after fees, which you can then wire back to your bank account. $4k is a pretty nice chunk of change, so you may want to seriously consider it.

But you must be willing to keep your money in BTC if the price tanks. It requires a lot of discipline not to freak out and sell. The overall thing to remember is that BTC will almost certainly hit $1500; it's just a matter of when. So if you have a mutual fund, you may want to redeem it buy BTC instead.

Something else to consider: the price of BTC won't be able to double very many more times. That means an opportunity exists right now; an opportunity that won't exist very much longer. In a year or two, I predict you won't be able to count on BTC steadily rising in value. Whereas you can pretty much count on it between now and then. Anyone who's interested in growing their money on a long-term basis should seriously consider investing now.

EDIT: My comment was written mainly for historical purposes. A year from now I'm going to go back to this comment and see how wrong I am. This is the first time I've been confident in an investment opportunity of any kind, so it'll be interesting to see whether that confidence is misplaced.

EDIT2: Don't invest any money you aren't comfortable with losing, obviously. But it's unlikely you'll lose more than half of it. I'd say there's a 95% chance that putting up $10k now will net you $4k sometime in the future, because BTC is only going to grow in popularity and capability, not diminish. Therefore the question is how long you're comfortable with waiting.

EDIT3: Hm, I've hit a nerve. I wasn't trying to tell anyone what to do... but it probably sounded that way. Sorry. I was just doing a quick writeup of my own personal thoughts regarding Bitcoin's near future outlook. I'm nobody special, so please don't take financial advice from me.

knowitall4• 13 years ago

Also, taxes

chriskelley• 13 years ago

Is there a canonical source for tracking the price of BTC? Would be nice to set up an alert for large downward swings to take advantage of lows without having to watch the ticker all day.

http://bitcoinity.org/markets seems handy for this.

coconutrandom• 13 years ago

Take a look at http://live.bitcoinindex.es/ and http://bitcoin.clarkmoody.com/

waterlesscloud• 13 years ago

The mobile app Bitcoin Paranoid lets you set up to get alarms based on certain percentage swings. Quite handy.

socialist_coder• 13 years ago

Have fun waiting 3 months for Mt Gox to send you your money. There's a reason the price is higher on that exchange...

I would use btc-e or bitstamp over Mt Gox.

foobarqux7• 13 years ago

You would use a financial institution in Slovenia with unknown operators over one based in Japan with known operators?

ssafejava• 13 years ago

Just use coinbase. IMO it's the only exchange that actually does fiat currency to BTC correctly - all the rest have horror stories posted all over bitcointalk and reddit.

ryanhuff• 13 years ago

Being "young" doesn't make anything a solid investment, and there is no tangible evidence that BTC has entered "slow'n'steady" growth, or crash to $1. Point of warning people to not exit BTC if it crashes touches on why it may very well crash. People panic, and with so many speculators out there, I wouldn't be surprised if BTC lost 90% of its value in one day. Honestly, your comments might be seen as a buy now or miss the boat sales pitch, although I suspect that was not your intent.

DanI-S• 13 years ago

I'm fairly optimistic about the future of Bitcoin, and I own a few myself. However, I don't think this was a responsible post to make.

When the price suddenly dives, you may want to consider buying. It's always paid off so far. It seems like a solid investment strategy

This isn't really an "investment strategy", it's just speculation - betting on the short term future and hoping it pays off. It's a fun way to gamble your money, but it's a lot riskier than the OP suggests. A "solid investment strategy" is putting a fraction of your paycheck into an index fund each month, not trying to predict the price of Bitcoin.

If you've really done your homework and you think the price of Bitcoin will go up in the long term, by all means buy a couple. Don't worry about waiting for the price to spike down; in fact, maybe stagger your purchase over a period of time to smooth out any variation (this is called 'dollar cost averaging'). Don't try to speculate on short term fluctuation; you will probably get burned.

Consider this: If you have $10k lying around [...] your $10k will become $14,262 after fees

Or, the price could drop to $500 and you'll lose a few thousand. Can you afford to lose a few thousand dollars, even for a few months while the price recovers? Would you be better off investing it in something less risky? Do you know that you won't need that money in 6 months to pay for emergency surgery, or to fund 3 months' runway for your new startup idea?

You should try to think of investment return as compensation for taking on risk. If there's a large return in a short time, there's probably a big risk, too. Some people can afford to take big risks, but most of us can't.

dsowers• 13 years ago

I had the same strategy as this but I realized one important thing: I was spending all of my time looking at the damn charts.

The opportunity cost of being constantly distracted and worried about your investment might be higher than the profits you're realizing. Especially if you are a developer and command decent hourly rates.

It's also not enjoyable to wake up at 4:30 in the morning, worrying about what the current price is.

shredfvz• 13 years ago

261 days ago, I stated:

Facebook's market cap is $63,000,000,000. If the market cap of Bitcoin were just 10% of Facebook, each Bitcoin would be worth about $500. 1% and it's about $50. Can a global financial system conceivably give the world just 10% of the value of Facebook? Because just ten percent ... and one BTC is $500.

https://news.ycombinator.com/item?id=5398140

I couldn't have possibly imagined that Bitcoin would soar so quickly. In all honesty, the infrastructure has NOT improved noticeably over the last 6 months. This runup in price was fueled by shameless speculation, or possibly the Chinese seeking to evade capital controls. I've followed the Bitcoin market closely since the time I made that post, and what you'll notice is the price moves up considerable amounts based on miniscule volume. Liquidity is dire.

I would advise very cautious optimism if not pessimism at this point. Is Bitcoin worth really 20% of Facebook right now? That's a tough question, especially considering the open regulatory question in America, which I personally don't see doing so hot.

I think Bitcoin was a fantastic, visionary buy at $10-$50 back when nobody was taking it seriously, and I enthusiastically stated as much to everyone who would listen. However, at this point I'm telling people they've missed the boat. There's still plenty of value in Bitcoin, don't get me wrong. It's just that this run up was 100% speculative, and based on people hoarding coins because the price was going up. Not the sign of a healthy foundation.

hayksaakian• 13 years ago

Maybe the real question is: is Facebook worth 500% of bitcoin?

zimbatm• 13 years ago

The only conclusion is that Bitcoin generates more value than Facebook for it's users ;-)

To be honest I don't think you can compare a company and a market. I don't even know how you can estimate what is a "reasonable" price for a bitcoin ; since it's a finite resource it seems normal that the price would go up when more participants enter the system but I don't know of how much.

phyalow• 13 years ago

Dollar cost averaging is not an effective strategy (buying dips), all capital upfront is your best bet.

aayushranaut• 13 years ago

Looks like the bitcoin fell to almost $500 now. Don't worry I am an investor in bitcoin too, bought it around $800 myself and am pretty optimistic about it. I think it would be better if I traded daily to earn more profits as compared to keeping it for a long time.

kolev2• 13 years ago

I think the news about China is pretty bad as it cut off one of the arms of Bitcoin - being used as currency. With very limited use in e-commerce so far, I think it will stay as a speculation tool for a while. I personally think it will drop below $1,000 as it ran out of steam trying to break $1,200 several times without much success. The drop in transaction volume after it passed $1,000 speaks for itself, too. Also, a lot of speculators are now looking into altcoins, which hurts Bitcoin, too.

nazgulnarsil• 13 years ago

bitcoin can't really stagnate, inflation is still over 10%. $4.3+ million USD equivalent demand must enter the system each day to maintain a steady price. Maybe after 2016 when inflation hits 4%. Right now it's either up or down.

kolev2• 13 years ago

Well, it can't completely - even if it drops back to $500, it still will be better than USD or CNY. I just don't think there's much interest at the moment for price above $1,000 and Merrill Lynch/BofA pretty muched capped the price temporarily at $1,300. There's another dump happening right now - the temporary increase was nothing, but the typical "dead cat bounce" we've seen before. Too much bad news isn't always good news!

SwellJoe8• 13 years ago

I find the coverage by Wall Street (well, one analyst on Wall Street) funny, actually. While I agree with the method by which he's assessing the current value, I think it's also amusingly conservative, which isn't surprising.

There's a long history of old business leaders viewing the technology that destroys them through the lens they view all of their traditional competitors, and vastly underestimating what it's impact will be. Innovator's Dilemma is one way of looking at it, but in this case I think that's woefully inadequate of an explanation (i.e. comparing a new tech company against an old tech company).

Here's the thing about Bitcoin, and the reason I've become really excited about it: If it succeeds, it means an end to banking and money as we know it.

You can't compare that to Western Union, or PayPal, or Visa, or MasterCard, or even gold, or silver. It'd be like comparing the Internet to Time Warner Cable or Clear Channel or book publishers or books, in general. It doesn't make sense. They're wholly different levels of abstraction.

If Bitcoin really succeeds, it is nearly impossible to predict its value, because it will change the entire financial world (and it will look like it happens overnight, even though it'll be 10-20 years before we see all of its effects). So, if this analyst is predicting what will happen to Bitcoin in January, he's probably right. If he's predicting what will happen a year, five years, and ten years down the road, he's gonna be in for a big surprise.

foobarqux7• 13 years ago

How can you agree with method and find it "amusingly conservative"?

SwellJoe8• 13 years ago

It's probably my own conservativism speaking. The way I justified spending a bit of money on Bitcoin when all of this hype started up a few weeks ago was to imagine Bitcoin taking over Western Union's role in the market (which is a no-brainer...it's already happening, and is very, very, very likely to be the first casualty of Bitcoin...Western Union has no reason to exist in a world with widespread Bitcoin adoption and availability). That one little aspect of the financial industry alone justifies a several hundred dollar Bitcoin valuation (I was doing this math when it was trading at $200, so that looked like a no-brainer investment to me).

Then, when you start looking further up the chain...PayPal, Visa and MasterCard, gold and silver for value store, and you try to figure out how PayPal could beat Bitcoin in a free market. I can't see any way for PayPal to win. There's nothing PayPal does better than Bitcoin. Literally nothing, and Bitcoin does it for less. So, if we assume Bitcoin subsumes Western Union and PayPal, it's actually looking undervalued by a lot. If we follow that line on out, it begins to look more and more undervalued.

So, I like the method, but disagree with stopping at silver and money transfers. Those are the low-hanging fruit. Those are the things that will first feel the wrath of their customers for being more expensive and less convenient and more intrusive than Bitcoin. But, those aren't the only things that will be disrupted by Bitcoin. It just takes a little imagination to see that the market cap for Bitcoin is potentially the same as the market cap for every currency in the world.

It's damned near impossible to predict how this is gonna play out, but if it succeeds, Bitcoin is gonna be huge.

codexon3• 13 years ago

Bitcoin will not change the entire financial world, and I am saying this as someone who owns some and tried using it as an actual currency.

- Waiting 1-2 hours for a transaction is unacceptable. Don't tell me about oddballs like Namecheap that sells products that are free to copy and can be revoked at any time.

- Getting money in and out is a hassle and doesn't seem to get better. Who is to say next week the US doesn't ban exchanges from allowing you to cash in or out? It already happened to Mtgox.

- When I tried to get people to pay with Bitcoins, they were all turned off by how slow it is to get money in and to perform a transaction.

Another crypto-currency might solve these problems, but it won't be Bitcoin. I doubt many of the speculators today have ever tried buying and selling things with it and use it only to get rich.

SwellJoe8• 13 years ago

"- Waiting 1-2 hours for a transaction is unacceptable. Don't tell me about oddballs like Namecheap that sells products that are free to copy and can be revoked at any time."

First confirmation is plenty for most transactions, and you're more likely to actually see that money than a credit card transaction (which can be charged back later). And, that usually takes a few seconds. If you're paying a small fee, you're very likely to get confirmations even faster.

The only reason to wait for many confirmations is for something particularly expensive. Food at a restaurant? No need to go overboard; one confirmation is plenty. Even no confirmation is probably fine in most cases. Dine and dash is more of a fear for most restaurants than someone paying with a bogus card (or bogus Bitcoin payment), I suspect.

Anyway, I've never had a transaction where I included a fee (even a fee of less than a penny) take more than a few minutes to receive ten confirmations.

"- Getting money in and out is a hassle and doesn't seem to get better. Who is to say next week the US doesn't ban exchanges from allowing you to cash in or out? It already happened to Mtgox."

Certainly a valid concern and fear. Coinbase works great for me. But, if Bitcoin succeeds, why would you ever need to get "money" out? If Bitcoin succeeds, Bitcoin is the money you want. It's better money than the "money" you're talking about. I want to be paid in Bitcoin, and I want to pay all of my bills in Bitcoin. I never want to have to see another US dollar.

"- When I tried to get people to pay with Bitcoins, they were all turned off by how slow it is to get money in and to perform a transaction."

If you were telling them it takes two hours to send someone Bitcoins, I don't blame them.

robinhoode• 13 years ago

All of the problems you mention are solvable and present another business opportunity for an entrepreneur on HN.

SilasX• 13 years ago

Let me say first of all that I agree bitcoin is inferior for many use cases, in part by design and in part due to immaturity. However:

Waiting 1-2 hours for a transaction is unacceptable. Don't tell me about oddballs like Namecheap that sells products that are free to copy and can be revoked at any time.

Two hours is not the time that bitcoin transactions require. It is, rather, the time until full irreversibility, and it compares favorably to the same figure for conventional transfers like wire, ACH, and depositing a check.

Do you claim credit cards are useless because merchants have wait ~30 days before they get their money for sure? Or checks given that they take 7 days to clear? No, because intermediaries and protocols are layered on top of them that facilitate sufficient trust for quick confirmation.

So you're right that the protocol by itself is insufficient for PoS, and right that there aren't mature payment systems for bitcoin, but that's no different than most non-cash payment systems.

Getting money in and out is a hassle and doesn't seem to get better. ... [People] were all turned off by how slow it is to get money in and to perform a transaction.

That's a problem for users but only because it inherits the problems with the rest of the financial system to the extent that you want to interface with it.

msgilligan2• 13 years ago

A couple of points about what happens if Bitcoin "really succeeds":

1) The most interesting aspect of Bitcoin is the possibility that it will enable previously unknown financial transactions and institutions. This means it's hard to predict the future value of Bitcoin, especially in the case of overwhelming success.

2) The value that Bitcoin creates in the economy is different from the "market cap" of Bitcoin. The former could be multiple orders of magnitude higher. The value created is similar to the concept of "consumer surplus" (and we have to remind ourselves that nobody owns the entirety of the Bitcoin network and all the value it creates, so there can be no "producer surplus")

3) Given point #1, we don't know what this future economy will look like. It seems likely there will be multiple institutions (services, etc) that leverage Bitcoin and there will likely be some successful competing/complimentary cryptocurrencies. Since we can't predict the structure of this Bitcoin economy it is hard to determine the "velocity of Bitcoin" which yet again makes it hard to predict the future value of 1 BTC.

lel02• 13 years ago

These kinds of posts sound deluded and utterly ridiculous.

skinnycow• 13 years ago

And I've found your kind of post deluded and utterly ridiculous for the last 3 years.

pera• 13 years ago

Digital currency gets investment bank coverage, and the assessment is largely bullish.

So now Ars Technica is giving financial advices? ok...

msgilligan2• 13 years ago

Greenspan calls Bitcoin a "bubble". He ought to know, he's inflated a few…

(p.s. This should be read with your best John Cleese accent)

Bitcoin’s roller-coaster ride gets wilder as Wall Street, China climb on

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