This week markets fell from $650/BTC to $550/BTC yesterday before oscillating between $570/BTC and $610/BTC before ending at $590/BTC where it sits right now.
Some believe this crash to be the result of the US Marshall announcing an auction for about 30k BTC of the Silk Road seized coins. But I don't think this is the case. First, the re-introduction into circulation of 30k out-of-circulation BTC is a very small fraction of the total 12.9m BTC that exists (let's say 80% of this is in circulation i.e. not lost, not belonging to a deceased person, not belonging to Satoshi). The price impact of that (including strong 10x ripple effects) should probably be no more than $20 down. Second, since the announcement in January that the US Marshal would likely be auctioning off the seized coins, the market expectation for the auction should have mostly been priced in i.e. a 90% probability of the auction happening now becomes a 99% expectation instead of starting at 0% expectation. Altogether, the price impact of the auction announcement this week should have been safely less than $5 by my estimates.
More information about the auction:
- Bitcoins will be sold in blocks of 3000.
- $200k must be wired over as a deposit for a seat at the auction.
- Winning bidder must wire over bid sum within 1 day of winning the auction. Otherwise his/her $200k deposit will be forfeit.
- The auction will be held online.
- It does not specify what the auction style will be (e.g. English, Dutch, first-price sealed-bid, Vickrey). On a side note, I prefer the Vickrey auction because truthful bidding dominates all other strategies (e.g. bid shading to avoid the Winner's Curse) and it saves time since only one bid per participant needs to be placed. For anyone interested, you can read more about it here: http://bit.ly/1oZNxsN;http://bit.ly/1hSfGRS.
- For more information on the US Marshal auction: http://1.usa.gov/1oj0zE7.
In other news:
- Expedia now accepts bitcoin: http://bit.ly/1l96H9U.
- Google finance and Yahoo finance now track bitcoin price: http://tnw.co/1nzn4RG.
- DuckDuckGo provides bitcoin address search functionality: http://bit.ly/1ljaFNa.
- GHash.IO crossed 50% of the network hashrate: http://bit.ly/1ptx7uE. More on this below.
- Gavin Andresen, recently made a blog post about co-opting some features of Ethereum without the need for a separate protocol: http://bit.ly/TUvoBl. More on this below.
GHash.IO recently crossed 50% of the network hashrate spurring concern of a 51% attack. Most core developers and bitcoin veterans have said that this is nothing to be concerned about since the 51% attack is only theoretical and in practice, the mining pool with 51% has a much greater incentive to continue mining honestly and reaping the benefits of the block rewards and transaction costs rather than completely undermine the network for a double-spend. For a double-spend to be worth it, the size of the transaction must be of a magnitude greater than the discounted future value of honest block production over the course of bitcoins future life. For all practical purposes, it is extremely unlikely for this situation to arise. It's also worth remembering that a 51% attack does cannot create coins out of thin air or manipulate ledger balances, it only allows for double-spending with inevitability (i.e. inevitably the 51% pool can outrace the rst of the network in block production in the long run). I agree for the most part with this assessment. However, I am still uneasy because a pool having 51% of the network hashrate causes the bitcoin protocol to become more "fragile", in the Nassim Taleb sense. Should the 51% pool get hacked or seized by some malicious actors, the normal and rational incentives of the pool operator may not matter. On the bright side, any evidence of an actual double-spend would cause many pool participants to leave the pool so even in the worst of the worst cases I don't see more than a few double spends happening. In fact, the reason why GHash.IO can't maintain 50% of the network hashrate is because every time it crosses 50% or gets close, many pool participants leave of their own volition.
In Gavin's recent post, he begins by saying that although Ethereum has some great properties like funds bound to contracts, arbitrary code and state, it's complexity may be unnecessary and ultimately lead to security problems. Instead he suggests a sort of bit-thereum whereby many of Ethereum's good features can be implemented on top of the bitcoin protocol so long as we permit contract verification by a set of semi-trusted oracles instead of the entire network. Since most interesting contracts would require data from outside the blockchain(bitcoin)/blocktree(Ethereum) anyway, even an Ethereum system would require trust at some point to arbitrate these types contracts (e.g. contracts based on the price of bitcoin on an exchange). So the only real loss in having a bit-thereum oracle system instead of Ethereum would be the requiring of trust to verify contracts which are based entirely within the blockchain (e.g. contracts based on bitcoin transactions from address to another). Gavin goes on to talk about incentive structures for the oracles and for those using the oracles. You can read more about it here: http://bit.ly/TUvoBl. Also check out RealityKeys for automated oracle systems and dispute mediation (http://bit.ly/1qddVkX), Orisi for distributed oracle systems for cryptocurrency contracts (http://bit.ly/1uqou1V), and Truthcoin for decentralized bitcoin prediction markets (http://bit.ly/1iirA14).
Kevin & Team Buttercoin
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