If, for some reason, you missed it, Forbes blogger Kashmir Hill spent a week using nothing but bitcoins as cash in what I can only assume was an experiment to prove that it can be done and to demonstrate the viability of Bitcoin as a currency. The true believers will inevitably point to this experience as an example of Bitcoin working in the real world, but their bias blinds them to the truth: it is not possible to survive using nothing but bitcoins. As a publication is totally unbiased and entirely honest with regard to bitcoins, we’re here to point out the things that bitcoiners ignored or glossed over.
Our heroine (or victim, depending on your viewpoint) began with a sum of five bitcoins (when they were selling for roughly $142.00,) purchased through Coinbase, since the Magic: the Gathering Online eXchange¬†is awful and legitimate banks won’t allow funds to be transferred to a shady Japanese “business.” She immediately discovered that you can’t buy food with bitcoins unless you’re willing to buy questionable preserves from strangers or stock up on end-of-the-world survivalist rations. Someone eventually pointed her to a service which acts as a middleman, ordering things from local restaurants and then delivering them, adding a service fee for the convenience. For some reason, they accept bitcoins. She immediately handed over an entire bitcoin, giving them around $130.00 at the time for orders yet to be made.
We focus primarily on Bitcoin here because it’s the most prevalent, the most awful, and the most hilarious, but since it was released as an open source project, other developers were free to use its source and create their own versions of the cryptocurrency, offering what they considered to be improvements or extra features. Most of them are more or less pump and dump schemes and don’t actually provide anything useful or act as a viable alternative.
The general lifecycle of one of these altcoins is as follows (thanks to SA forums poster eames for the easily digestible info):
1. Copy-paste bitcoin-, litecoin- or similar code from github and slightly modify it, maybe even hire a coder to add an actual feature. The latter is optional because but it may make the marketing in step 4 easier.
2. Hire a professional web and logo designer… to make the whole deal look “trustworthy” to buttcoin investors. (MS Paint would likely suffice)
3. Start mining the new currency privately with a few… buddies until you all have a couple hundred thousand or whatever. This is called “premining”.*
4. When you have a large enough headstart, publicly release the coin, telling everybody that now is the time to become an early adopter. Your new coins are the future! Marketing! Hype! Since the community is full of people with more Buttcoins than brains, you’ll have no problem finding adopters who will gladly buy your useless coins. **
5. Once the coin has gained some momentum, tell btc-e.com you may accidentally send them hundred thousand of your coins if they start trading the coins on their site in return.
6. Very slowly dump your hundred thousands of coins after the IPO on btc-e.com, trading them into hundreds or thousands of BTC which you can sell for actual money.
7. Weeks later, by the time people realize that it is all a huge pump and dump, you have hopefully sold off a good chunk of your coins for BTC.
8. btc-e.com removes your new coin because the trading volume is too low and nobody is interested in it anymore. People forget about it and move on. You convert your BTC to USD and buy a nice house and car. A very nice house and a very nice car.
* Step 3 may not work anymore because the buttcoin community has realized that premining is not cool. You could still rent mining power for the very rewarding period right after the launch and/or DDoS any mining pools that may pop up during the first “land rush” to make sure the currency is not evenly distributed and you get all the initial coins.
Now that we’ve established how to make your own *coin, let’s take a look at a few of the notable failures.
In an interview with Bloomberg TV, former U.S. Rep. Ron Paul (R-TX) said that he is concerned about the ‚??erraticness‚?Ě of the dollar, that Bitcoin is too complicated and that gold is still the standard by which the value of our currency should be measured.
Erik Schatzker and Sara Eisen, hosts of the show ‚??Inside Track‚?Ě asked Paul whether he‚??s concerned about about the recent drop in the price of gold after a ten year boom.
The conversation ranged over the Consumer Price Index as an indicator of national economic health, as well as whether or not the country is currently facing a high or low level of inflation. With regards to the collapse of the Internet currency venture Bitcoin, Paul said he wasn‚??t interested.
‚??To tell you the truth, it‚??s little bit too complicated,‚?Ě he said. ‚??If I can‚??t put it in my pocket, I have some reservations about that. But it has been designed in the free market. If it is a means of exchange, it would not ever be illegal. You shouldn‚??t regulate it in the free market, but I do not think it fits the definition of money, which has been around for 6,000 years.‚?Ě
What am I supposed to do with all the Ron Paul Bitcoin Checks now?
A bored pentester used this one weird old trick to find out Silk Road’s public IP address, which has the potential to compromise the entire operation.
EDIT: Don’t go into freak-out mode here! This is potentially serious, but is fixable and I disclosed to DPR alone about 15 hours ago. He’s good, skilled, and this will be investigated and fixed in no time, I am sure. In the interim, if you need to use Silk Road BE SURE TO USE GPG. The beauty of Bitcoin and Tor is that even if the server were to be seized, if your messages are GPGed, it’s near-impossible to get anything valuable. I just know that not everyone uses GPG.
I am a penetration tester by trade, and while I do not use SR, I do occasionally conduct informal tests of the security of various Tor Hidden Services.
I debated for hours whether to post this, but I need to alert the community in case no actions are taken:
Last night, while SR was down for maintenance, a brief few moments allowed a certain set of circumstances that caused me to be able to view the public IP of the httpd server of Silk Road. This isn’t an obvious flaw, but it is extremely simple if you know where to look – the server basically will publish a page containing all of the configuration data of the httpd server including the public IP address.
For the sake of the site’s security, that’s all the information I’m going to reveal.
I have messaged Dread Pirate Roberts and am currently waiting a response. I do have a SHA512 hash of the public IP which I have retained as evidence if DPR needs proof.
I will keep this updated with any news received.
With such information, authorities may be able to locate and shut down Silk Road and apprehend its operator, or more. What does this mean for Bitcoin? If the Silk Road gets busted, the only thing left to prop up the price of butts is the Magic: the Gathering Online Exchange’s creaky servers and meddling hands.
For the uninitiated, SatoshiDice¬†is a Bitcoin gambling site described as a¬†”blockchain-based betting game,” accused of being a DDoS against Bitcoin by Luke-jr (notable for his fanatical devotion to “Tonal Bitcoin,” which as far as anyone can tell is actually a joke.) Users send an amount of their bitcoins to a SatoshiDice address, the “service” then determines whether the “bet” wins or loses, then returns a transaction with winnings or a fraction of the house winnings, since they’re such great guys.
The “bets” on SatoshiDice generate a tremendous volume of microtransactions (each bet takes two transactions to complete,) which spam up the Bitcoin network, and those who play SatoshiDice pay elevated transaction fees (which are, for the most part, ignored or not paid by many users,) and as a result SatoshiDice transactions receive priority when processed, forcing other transactions to wait for the next block. SatoshiDice transactions account for most of the content of the blocks generated now and its transactions filling blocks helped contribute to the blockchain fork, which caused chaos and allowed someone to perform the infamous double-spend attack.¬†This problem has been known for at least a year¬†yet nothing was done to patch or prevent SatoshiDice from forking Bitcoin.
The chart below illustrates the damage SatoshiDice does to Bitcoin.
The vast majority of the blue markers are SatoshiDice and because they pay the transaction fee, they have priority over normal transactions and are effectively choking out the rest of the economy and causing long delays in confirmations.
SatoshiDice has an allegedly legitimate purpose (online gambling,) but it appears to be much more effective as a stress test for the Bitcoin network. It’s exposed a major fundamental flaw in the scalability of Bitcoin and instead of addressing this flaw, many Bitcoiners would rather continue using the version of their software that contains a bug and try to find a way to block or filter out SatoshiDice transactions. Of course moving to the new software would further bloat the blockchain, leading to users having to download gigabyte upon gigabyte of ultimately useless information to trade their ones and zeros.
Ultimately, the SatoshiDice situation and yesterday’s hilariously panicky fork prove that Bitcoin simply cannot function as a legitimately useful currency. If the system chokes on 1,700 transactions and has trouble processing more than¬†70,000 in a day, how can it compete with existing systems that handle hundreds of millions of payments each day?
So much for that. Reddit is spending more money on people to police the currency than actual bitcoins received. A whopping 2%, what a model for the exploding bitcoin ecosystem.
In an unironic event that electical engineers and home inspectors have been expecting and predicting for some time now, a bitcoiner’s house has caught fire and left one hapless captain of industry and six innocent bystanders without a home this winter.
Allegedly this is the result of someone soldering things, but that seems unlikely since bitcoiners are generally known for electical disasters such as the following and worse:
A bitcoin user found the best use of his anonymous crypto-currency was to purchase medication from Craigslist. It went about as well as one can expect buying: nearly dead, lying on the floor in the bedroom of your studio apartment gasping for air and cursing the feds.
Ars Technica had a great article on Bitcoin’s latest crash, and instead of reflecting on what this means to the community and the possible coming age of stability of the currency, they decided to tear down this website as being a shill for the Fed and accuse us of trolling Bitcoins and causing all the problems.
The jig is up guys, we better pack it in because we’re shills for the Fed, being paid in Mt. Dew and Bugels
Also, what’s up with that “penis” spoiler tag?
HAI GUYZ DO YOU LIKE WORTHLESS CURRENCY??
Bitcoins have dropped from a stable $4 to nearly $2 in less than 24 hours.
As of this writing, Bitcoins are actually a bit lower than this graph, around $2.25.
As you can see, Magic The Gathering Online eXchange promptly shit itself over the news and is sputtering useless graphs out. That graph looks rather fortelling.