Understanding the Transition Problem with Bitcoin

I share Cory Doctorow’s ambivalence towards to increasingly popular digital currency, Bitcoin. I like the abstract idea since I first encountered rough forms of it in fiction. Reading up on Bitcoin, I have failed to find anything that convinces me that it either will ultimately replace a large chunk of traditional currency or it will implode, perhaps dangerously so, due to some fatal design or implementation flaw. I am a bit mystified at why it has succeeded where so many other schemes, ones arguably better designed, haven’t managed to go anywhere.

I appreciate that Cory is drawing attention to some of the better considered and researched discussions of Bitcoin, like this post by Edward Z. Yang. In it he works through how the hardwiring of SHA-256 will at some point force a transition to a successor currency and how a decentralized scheme for doing so will falter compared to a centrally managed one.

At this point, we’ll take a short detour into the mooncake black market, a fascinating “currency” in China that has many similar properties to an obsolescing Bitcoin. The premise behind this market is that, while giving cash bribes are illegal, giving moon cake vouchers are not. Thus, someone looking to bribe someone can simply “gift” them a moon cake voucher, which is then sold on the black market to be converted back into cash.

The problem with mooncake vouchers, which must be converted into actual cakes at the Autumn Festival, is the same as the method for a decentralized transition from Bitcoin to a notional successor. At some point, the bottom falls out of the market as fewer and fewer buyers remain willing to purchase the quickly obsolescing cash.

Yang admits this all assumes Bitcoin has the staying power to make it to the point where SHA-256 is broken and needs replacing. Given how quickly MD5 was thoroughly defeated and practical attacks were demonstrated against SHA-1, it isn’t an unreasonable question to ponder even if the currency has a short lifespan.

Bitcoin is not decentralized, Inside T5 via BoingBoing

BitCoin Reaches Dollar Parity

Despite its flaws, namely that it isn’t exactly as anonymous as actual cash, the online only, cryptographically rooted currency, BitCoin, seems to be garnering more attention than any of its predecessors in the space. As Slashdot notes, it arguably has achieved greater actual success too attracting a considerable number merchants, markets and open exchanges (for converting BitCoins into other kinds of spendable currency). Last year EFF announced they would accept donations via the P2P system. (I followed their example soon after, see my support page for the details on BitCoin donations.)

The point of the Slashdot post, however, is to note that BitCoins have grown in value to the point where the most common exchanges now hover right around the one-to-one rate with US Dollars.

Online-Only Currency BitCoin Reaches Dollar Parity, Slashdot

Support via BitCoin

I’ve been following development of the distributed, cryptography-based digital cash, BitCoin, for a while. I’ve been fascinated by the space since the days I used to lurk on the cypherpunks mailing list. Having only PayPal for small, peer oriented transactions, let alone private and untraceable ones, has always been frustrating. BitCoin has been running almost non-stop on my desktop machine, in generation mode, for weeks.

While I’ve been waiting for my first few coins to accrue through my contribution of cycle time, I was first intrigued by EFF’s announcement that they will now accept donations via BitCoin then encouraged when noted technologist, Simon Phipps, made the same move. I’ve been thinking about doing so myself, it seems like good timing to help build on the momentum of others.

If you’ve been frustrated by the few means of directly support this site and the podcast, then I will happily share my receiving address for anyone else using or even just experimenting, like me, with BitCoin. You can send donations to 16LN7eYwryFW5bYArMayT3TMdwpM7goQ5r if you like. There is a good list at the project site of other services accepting this currency for payment and exchanges where you can buy in or cash out.