Why Bitcoin is bullshit, the expert explained

Why Bitcoin is bullshit, explained by an expert

Cryptocurrencies such as bitcoin constantly in the news how the blockchain technology behind them.

If, like me, you really don’t understand these things, it’s hard to know what to do with all this. Such Bitcoins and other cryptocurrencies, the future or is it an experiment to gradually fade away as a historical footnote? This cryptocurrency is actually a decentralised or they are controlled by small groups of people? They are forgery-proof, or they can manipulate outsiders?

To get some answers, I turned to Nicholas weaver, a researcher at the International computer science Institute in Berkeley. Weaver teaches a course on the blockchains and it seems that the technology is at best erroneous, and at worst fraud. So I asked him to state his case in simple terms.

A slightly edited transcript of our conversation.

Sean Illing

I don’t really understand bitcoin or blockchains, and I think that I’m not alone. So let’s start with the basic question: what is the blockchain?

Nicholas Weaver

It depends on what you mean. There are private blockchains, which is a 20-year-old technology, which causes idiots to throw money at him, and then you have public blockchains which should be decentralised accounting structure, but, in fact, both centralized and terribly inefficient. The use of private blockchains are quite diverse, because there is nothing new and is an old idea. The use of public blockchains basically boils down to cryptocurrencies.

Sean Illing

You say that bitcoin is decentralized, and yet people are in love with these currencies because they believe they are decentralized. What are they missing?

Nicholas Weaver

None of the crypto currency truly decentralized. They are actually centralized system for miners that is possible in principle to rewrite history at will.

Sean Illing

I’m not sure that we can understand who are the miners, if we understand how Bitcoin works. Can you walk me through it?

Nicholas Weaver

Imagine we have area, which recorded a Bank balance of all, and if I want to send you some money, I basically write a check to You and post it on the main square of the city. The miners collect all these unofficial checks and to carve them on stone tablets, which then goes to the square.

So if I sent you a check and you want to see what’s good, you just look on tables of stone and make sure it’s good. Think of miners as the accounting clerk, who is to manage all these. They check receipts to make them in a bundle (called a block), and then they get paid for their role in the process. The miners are de facto the Central government in exchange of cryptocurrencies.

Sean Illing

There are many people who see crypto-currencies, but deficiencies, as a step in the right direction, because they, at least, to take power away from government and give people more freedom. But you seem to think it’s bullshit. Why?

Nicholas Weaver

Well, there are several arguments. These systems require an incredible amount of energy to function. And blockchains not decentralized, and they are not effective, so that cuts the two main points in its favor. But cryptocurrencies don’t work because they really don’t work as a currency.

Sean Illing

What do you mean they don’t work as a currency?

Nicholas Weaver

The rationale for these things is that there is no Central authority, which means no one can block or cancel the transaction. And so far, at least, it’s true that transactions are not blocked. But why do you need such a system? Because you are making transactions that the Central body would otherwise block how to pay for a Hitman or buying drugs.

If you need money for cryptocurrency are the only game in town. But if you don’t need to buy drugs or hitmen, cryptocurrencies are much less effective. I mean, look at the volatility of bitcoin and other digital currencies are everywhere. So if you go to one of the few legitimate merchants that accept Bitcoin, they actually do not accept Bitcoin. They use a service that allows them a price in dollars, and this service immediately sells the Bitcoins and deposits in dollars with vendors. Therefore, there is a mandatory conversion step.

If I want to buy something with bitcoin, I don’t like that the price bounces up or down. So I have to turn dollars into Bitcoins, and then do the wiring, and this is a very expensive process. That, in my opinion, this is not a system that works.

Sean Illing

It seems that the main achievement of Bitcoin is that it allows people to buy things in secret, only in a horribly inefficient way.

Nicholas Weaver

Right. But if you want to buy something You don’t want people to know about them, you can just use a prepaid credit card. Still no need for Bitcoin.

Sean Illing

You say that all cryptocurrencies suffer from fraud, which were banned in the 1930-ies. Can you explain?

Nicholas Weaver

Exchange of crypto-currencies are not like regular stock exchanges. In the stock market, stocks are all tied together, so the prices are very close. These Bitcoin exchanges are unregulated entities that allow all kinds of things that are outright scams. For example, in a conventional stock exchange, you are not allowed to trade with yourself, because it’s price gouging. But this is normal on these exchanges of cryptocurrency.

Some of these cryptocurrencies are accused of front running, so the people who run them use them to access to see what customers want to trade and then to trade on them to get the advantage. There are also credible allegations of insider trading on the various bitcoin exchanges. I could go on but you get the point.

Sean Illing

You see, the cryptocurrency that arise in the future that is more viable than what we’ve seen so far?

Nicholas Weaver

Well, in order to make cryptocurrency work, you need stability. The value to hold. So you need that person that will accept, say, dollars and give you cryptodollars one-on-one, and Vice versa. But we know that those institutions; they are called banks and they use notes. And if you build a cryptocurrency that way, you have one of three options.

One, you’re acting as a regulated financial organization like PayPal or venmo and do not allow criminality. So where is the novelty? Two, you become like a wild cat, Bank 1800 years and the issue of banknotes not backed, but then you run the risk of the Bank, and your value will be zero. So what’s the point? Or do you have cryptocurrency, which actually translates into money and does not allow criminal activity, but, as before; it was called the liberty reserve, and it was closed for money laundering in 2013, by the U.S. government.

Sean Illing

Is yours a minority opinion in the world of cryptocurrency?

Nicholas Weaver

Yes, because there is self-selection bias. Most people who think it’s nonsense to just go away. Those who are believers are believers. Very few people follow it like I’m five years ago and still think it’s funny, but that’s because I’m a scientist and I have the space to do it and I find parts of it, especially crime, interesting. But the arguments in defense of this things get crazy better crazy better.

Sourse: vox.com

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