Interview with Andreas Antonopoulos, bitcoin entrepreneur

The Joe Rogan Experience podcast episode #446 has a long and informative interview with Andreas Antonopoulos, a bitcoin expert who does a good job of explaining how the bitcoin money platform works and why "trust by computation" is a lot better than trusting banks (like drug cartel money launderer HSBC) and the federal reserve (which basically gives free money to the rich people who own the banks).

(Above, a Disrupt Athens talk by Andreas Antonopoulos)

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  1. Yeaah. Andreas seems to be a true believer in bitcoin as a currency, but he fails to mention some of the serious deficiencies of bitcoin.

    He says transactions happen instantly, but they don't. They have to be agreed on and added to the block chain. This can take upwards of 10 minutes making bitcoin impractical for a wide variety of uses. On top of that, if people start actually using it as a currency, this number will skyrocket. The blockchain is already huge (it takes days to download the whole thing).

    Related to the blockchain size, Andreas seems to throw out peer-to-peer a lot. The fact of the matter is though, there aren't all that many full peers and growth in that number is almost certainly going to stagnate if/when the blockchain becomes so large that you need an array of drives just to store it or transactions come in so fast that you need specialized hardware and/or multiple CPUs just to verify transactions. Most people using bitcoin however go through a centralized exchange. In this, bitcoin is not that much different from our current system except we're paying to buy them in our local currency, transmitting them around for free and, for most people, converting it back into various country's currencies.

    Then there is the fact that the value fluctuates dramatically. Having bitcoins means tomorrow you can wake up with 30% less money than the day before. This is hardly conducive to being a replacement for a world reserve currency like US dollars. And while Andreas seems to think Chinese investors were buying bitcoin as an alternative to keeping their money in Renminbi, evidence suggests they were buying it in order to transfer it to another exchange and convert it to a hard currency in order to get around the limit sthe Chinese government places on getting money out of the country.

    The he talks about the "cost" of doing money transfers, but in order to get your bitcoin transfer to happen faster, you have to pitch in some fraction of a bitcoin to speed things along. And while that is typically a flat rate, it isn't all that much different from your ACH/EFT charge which is also independent of the amount transferred.

    Don't get me wrong, bitcoin is neat, but it has a long way to go.

  2. Yeah... that would seriously disrupt high frequency trading. Wait ... why is this bad again?

  3. lhl says:

    Yeaah. Andreas seems to be a true believer in bitcoin as a currency, but he fails to mention some of the serious deficiencies of bitcoin.

    Personally, I think this video of his, from a lunch discussion w/ an investing club goes much more in depth on technical details and risks: https://www.youtube.com/watch?v=JP9-lAYngi4

    He says transactions happen instantly, but they don't. They have to be agreed on and added to the block chain. This can take upwards of 10 minutes making bitcoin impractical for a wide variety of uses.

    For regular transactions (buying a coffee, etc), 10 minute confirmations are pretty aren't a huge issue - you're already seeing payment processors take the double spend risk. For more substantial transactions, you should wait for the confirmation. In general, Bitcoin is a lot safer/more reliable than existing transaction methods. Now, that's not to say there aren't a bunch of ways that crypto currencies could be much improved over Bitcoin as a daily medium-of-exchange - but I think faster confirmations is relatively minor. At the same time, I don't think there's a reason Bitcoin needs to be (or should, or even can be) the everything currency.

    Related to the blockchain size, Andreas seems to throw out peer-to-peer a lot. The fact of the matter is though, there aren't all that many full peers and growth in that number is almost certainly going to stagnate if/when the blockchain becomes so large that you need an array of drives just to store it or transactions come in so fast that you need specialized hardware and/or multiple CPUs just to verify transactions. Most people using bitcoin however go through a centralized exchange. In this, bitcoin is not that much different from our current system except we're paying to buy them in our local currency, transmitting them around for free and, for most people, converting it back into various country's currencies.

    In terms of encouraging full-nodes, I think a Proof of Stake approach is interesting. MasterCoin and others doing some interesting stuff w/ distributed exchanges (properties, contracts, etc). I think it's still too early to tell how things shake out, but blockchain size is one that's explicitly addressed in Bitcoin's design - transactions are hashed in a Merkle Tree and historical/spent transactions can be stubbed out. The fact that the blockchain design forces a public, distributed ledger though is a huge differentiator than existing exchanges.

    Then there is the fact that the value fluctuates dramatically. Having bitcoins means tomorrow you can wake up with 30% less money than the day before. This is hardly conducive to being a replacement for a world reserve currency like US dollars. And while Andreas seems to think Chinese investors were buying bitcoin as an alternative to keeping their money in Renminbi, evidence suggests they were buying it in order to transfer it to another exchange and convert it to a hard currency in order to get around the limit sthe Chinese government places on getting money out of the country.

    Value fluctuation isn't an intrinsic problem w/ the design of the currency, it's just a function w/ how small the market currently is. Let's put it in perspective. Current Bitcoin daily trade volumes are about $6M and has a market cap of roughly $12B. By comparison, AAPL's average trade volume is ~11.8M shares (~$6.5B), roughly 1000x and its market cap is just shy of $450B (38x). Looking at the charts, you can move BTC prices up/down 10% simply by trading $2M worth of Bitcoin. If/as Bitcoin grows in transaction volume and market cap, fluctations will decrease. The current US MB is about $3.8T (318x).

    If you watch the video I linked at the top where there's a discussion of the interaction of remittances and currency flight/exchange I think he's pretty well versed in how Bitcoin is being used.

    Don't get me wrong, bitcoin is neat, but it has a long way to go.

    Interestingly despite my disagreement with most of your arguments, I quite agree, as would, I think Andreas.

    That being said, I think it's worth noting Bitcoin doesn't have to be perfect - it just has to be interesting/better enough than what currently exists. Personally, I'm pretty bullish on Bitcoin's potential as store-of-value. It has the most mature infrastructure, capital & investment base, and mindshare, and while there are a lot of alt coins that are innovating in other areas (specifically on the transactional/computation ends), I haven't seen any that'd necessarily make it a better "digital hard asset" (or at least enough that it'd overcome Bitcoin's aforementioned non-technical advantages.)

    IMO, the biggest challenges facing Bitcoin atm:

    • Personal Security - figuring out how to keep wallets safe w/o re-introducing un-neccessary counter-party risk. We're seeing some interesting cold storage solutions and other innovations, but I think there's still a lot that needs to be worked on for establishing best practices. People are terrible at computer security, and then multiply that by money? That's a bad combo.
    • Systemic Security - Bitcoin is inherently susceptible to 51% (less even) attacks and we're seeing all sorts of funny business happening w/ the mining pool (GHash.io)... Bitcoin's attacks and weaknesses are well documented, and I think it'll be getting it's mettle tested in major ways in the near future.
    • Regulation/Exchanges - both MtGox and BTC-e are looking pretty shakey right now (not to mention what's going on w/ BitInstant, CampBX etc) - most of the existing/early exchanges are sort of historical accidents and it's unclear between what's going on in the regulatory environments and the intrinsic ability for these exchanges to scale, where that'll go. I don't know if any of these are enough to "kill" Bitcoin outright, but certainly they could introduce a lot of risk.
    • Financialization - there's no reason that the existing financialization against existing markets/currencies can't be applied to the Bitcoin market and w/o a doubt you're seeing lots of market manipulation funny business going on already. You're also seeing derivatives markets pop up, and lots of off-blockchain exchanges, etc. There's probably no way to stop that but... I just can't see it ending well
  4. lhl says:

    No need for facts when logical fallacies shall suffice, eh?

    Considering that the blockchain, the technology that enables the distributed public ledger (and solves the Byzantine Generals problem) was invented by Satoshi Nakomoto, I doubt you've seen any digital currency that's a "similar scheme." Bitcoin, AFAIK is the world's first decentralized digital currency.

    That's not an argument for it's longterm success. The existential risks are many (daunting even), so who knows what Bitcoin's lifespan will be.

    Your posts so far have contained a lot of snark, some blatant inaccuracies, but little in the way to show in terms of facts or clear arguments - Ponzi scheme backed by gold? Again that's quite the non-sequitur knocking down a strawman argument about generating alt-blockchains. Why's that an argument against Bitcoin? I'm sure it all made sense when you typed it.

    I could elaborate on how the blockchain could be forked/extended or why proof of burn is interesting in terms of counterparty trust, but since discourse doesn't seem to be your primary goal here, I'll just pretend there's a killfile and stop arguing on the Internet.

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