Nicholas Weaver on Cryptocurrencies

This is well-worth reading (non-paywalled version). Here’s the opening:

Cryptocurrencies, although a seemingly interesting idea, are simply not fit for purpose. They do not work as currencies, they are grossly inefficient, and they are not meaningfully distributed in terms of trust. Risks involving cryptocurrencies occur in four major areas: technical risks to participants, economic risks to participants, systemic risks to the cryptocurrency ecosystem, and societal risks.

I haven’t written much about cryptocurrencies, but I share Weaver’s skepticism.

EDITED TO ADD (8/2): Paul Krugman on cryptocurrencies.

Posted on July 24, 2018 at 6:29 AM60 Comments


OllieF July 24, 2018 7:09 AM

… and those are just some of the reasons why Betamax will win out over VHS, as technical merit points are always the consumers’ main concern

Graham July 24, 2018 7:23 AM

Nice succinct demolition. Amazing the number of people who believe in the infallibilty of technology that they don’t understand.

echo July 24, 2018 8:21 AM

I’m still drafting a document covering international money transactiosn and how companies have implemented over-zealous practices which go beyond the requirements of the law and discriminatory policies which impact lawful transactions especially for women and other groups. I have in mind covering the risks and difficulties this creates including forcing people into alternative ways of transferring money internationally and this article covers, on first inspection, a number of issues I would like to mention.

Denis July 24, 2018 8:28 AM

@OllieF VHS and Betamax were both fit for purpose (i.e. recording and playing video). Whether cryptocurrencies are fit to be currencies – refer to article.
Note that cryptocurrencies != blockchain (although whether the latter can/should be used for purposes frequently associated with it is also open for debate).

jbmartin6 July 24, 2018 8:31 AM

I have the same skepticism about blockchain and so-called smart contracts, which cheerleaders keep touting as solutions to various non-cryptocurrency problems. Usually problems they don’t solve or problems we have already solved in other ways.

L July 24, 2018 8:32 AM

I understand the skepticism, but disagree with the overall conclusion.

Cryptocurrencies as they are today are not really “useful” for citizens of developed countries. For people living in countries where their financial and general freedom is severely limited however (coughVenezuelacough), cryptocurrency seems to have some very real benefits, to the point where people are willing to risk legal penalties.

They are an on-going experiment, bringing multiple true paradigm shifts, both positive and negative, and I think that it would be foolish to write the entire technology off as unimpressive and irrelevant given its current state. The Internet we know today was nothing like the Internet of 20 years ago.

I don’t see Bitcoin as an investment opportunity. Instead, I see it as a fascinating technology that has already begun to dramatically change our notions of how international finance can work. It will be interesting to see how it evolves over time.

GCR July 24, 2018 8:37 AM

Most of the people dabbling in this technology aren’t following the axiom: Never invest in anything you don’t understand.

P July 24, 2018 8:38 AM


Bruce, you (like Mr. Weaver and some of his ilk) are too smart for me to believe that you are simply missing the point. It seems more likely that you are for some reason motivated to resist the proliferation of permissionless, trustless, disintermediated systems of economic exchange.

Nicholas Weaver July 24, 2018 9:30 AM

The problem is they aren’t trustless: There is a huge amount of trust and centralization flowing through these systems.

Eric J July 24, 2018 9:34 AM

I love reading comments about crypto currencies. They fall into the blind faith or abject fear categories. (Although you should probably be afraid)

What is best, most people who speak either way have zero understanding of economics in general, currency markets and currency controls and how they effect both. Let alone the problems of economic/currency-flight or market controls. An absence of such things makes a market and currency very unstable.
While this is great for speculators, not so much for anyone else.

I am not saying don’t invest in crypto-currencies, I am just saying, most people are really in the dark about it’s true nature and they are likely to get hurt. Worse, such ignorance will destabilize the market except for a few players with great influence.

There are many other structural/architectural problems with them too. If you do invest, don’t bet the farm, you will lose it. I’m kind of with Bruce and Weaver on this one.

Jilles van Gurp July 24, 2018 9:42 AM

You could point this argument at regular currencies as well and you’d have a really good point. The banking system is grossly inefficient (expensive to use), people manipulate and abuse currencies all the time (e.g. the use government funding tax breaks with freshly printed dollars), and when they get it wrong the results are disastrous for society. Just look at Argentina, Greece, or Zimbabwe for some recent examples of unstable currencies.

A more important question to ask is how we fix this. In my opinion, not using crypto for that long term would be madness. I agree the current batch of crypto currencies are not a very good solution. I don’t agree that the issues with these coins are unfixable. Actually fixing these issues seems to be a big area for investment currently.

L July 24, 2018 9:44 AM

@Nicholas Weaver
Creating a truly trust-less system isn’t a realistic goal. At least with Bitcoin, as I understand it, the goal is that points of necessary trust should be minimized as much as possible.

I believe that with Bitcoin, we have the most trust-less system in known history. There are obvious areas for improvement, but in comparison to what we had before, Bitcoin is much more trust-less on average. But again, this is essentially still a brand-new technology, and it’s development is ongoing.

Denton Scratch July 24, 2018 9:47 AM

I deplore the huge waste of energy that Bitcoin/blockchain requires. I also disapprove of the deliberately disinflationary design of Bitcoin in particular; as Weaver notes, a rational person holding a disinflationary currency will never spend it.

One of the nice features (to my way of seeing things!) about these systems is that they take the control of currency out of the hands of governments. Governments have a disgraceful history of currency manipulation to the disadvantage of citizens, and to the benefit of politicians. Monetary authorities can create economic booms at will, and they do – typically in the run-up to a general election, inevitably followed by a crash later (when no election is looming).

I once saw a proposal for the abolition of the idea of a national currency. The idea was that one could offer any currency in payment of debts; it would be up to the debtor what currencies they would accept. Currencies subject to government manipulation (e.g. by printing money, also known as Quantitative Easing) would not find favour. There would effectively be a market in currencies, which would tend to encourage governments to play straight. Actually, this happens; I understand that in Zimbabwe, for example, Zimbabwe dollars cannot be given away, and all trading is now in US dollars.

It is the custom for governments to require tax debts to be paid in national currency, of course. But I suppose one could simply convert one’s chosen store-of-value to national currency immediately before paying one’s tax. And like Haddock[1], one could arrange to deliver the payment in the smallest denomination of national currency possible, as a protest; Haddock tried to pay in copper coins[2].

[1] Uncommon Law, by A.P. Herbert.
[2] I gather that copper coins are nowadays only legal tender in the UK for debts up to 20p. Uncommon Law was written in the 1930s, and the law was no doubt different then.

L July 24, 2018 10:16 AM

@Denton Scratch

The energy consumption factors, as they are today, is undesirable, no doubt. But I think it’s important to also note that the entirety of the energy consumption within the Bitcoin system is very small in comparison to the entirety of the energy consumption within the United States fiat system.

Of course, Bitcoin also offers a lot of improvements over the tradition system, even if most of its most valuable aspects are features which are really only needed by people living outside of the Unites States; which is probably why the majority of people who are excited about this technology are excited for the wrong reasons.

Also, going back to energy consumption, in comparison to fiat all over the world and cryptocurrency in total, it’s hardly even a comparison at all.

eloy July 24, 2018 12:20 PM

It’s a good article overall, but a little too generalized. “The only winning move is not to play” is great advice for someone looking to “invest in crypto”, but not for a cryptographic researcher—there is still interesting research to be done. Relatedly, the complaints about power usage are specific to proof-of-work systems; it’s stated, but the article might lead people to believe that’s the only way to run a cryptocurrency. Maybe it is, but people are certainly looking for alternatives. Current cryptocurrencies are not fit for purpose overall (except as noted by L, and maybe in other “special” cases); future ones may be.

The security problems are very real, but I view them a bit differently (it’s cynical, I’ll admit): cryptocurrencies are the largest security-research fund ever established. If you ever break ECDSA (secp256k1) you’ll be an instant billionaire, notwithstanding the problems of converting that to “real” money. People have already claimed their “prizes” for discovering bad randomness, “brainwallets” with weak passwords, exchanges vulnerable to everything from transaction malleability to simple authentication/overflow bugs. The public doesn’t get much benefit from that stuff, but we do benefit from the more general security research that results. Secure hardware coprocessors, better interprocess/inter-VM isolation, fixing the zero-days that were used to steal coins, etc.

mngr July 24, 2018 12:34 PM

I disagree with Weaver:
What he takes in consideration are all the problems of Bitcoin, that will be solved with future cryptovalues.

Bugs: they may be bugged but we know that bug can be solved. And maybe actual banks found a way to have ZERO bugs?

Security Flaws: he opened a wallet and waited for a theft, it happened because he did not managed his own wallet, but used a third party wallet..

Energy, memory, and bandwidth consumption are all problem that third-geeration cryptoalues are trying to solve (look Cardano or EOS)

In My personal opinion all the technical problem that cryptovalues have today may be solved (maybe they will still have economic problem, but it is not my field so I can’t really say anything, but I am trusty)

MikeA July 24, 2018 12:44 PM

@Denton Scratch — IIRC, at least in the U.S.A., an actual copper penny is worth more for its copper content than its face value. That only applies to pennies minted before some time in the mid 1980s (also IIRC).

Of course, it is illegal to melt down your copper pennies for their scrap value, but then, it’s illegal to steal copper wire and melt it down, and still the occasional power outage from such theft indicates that the law does not actually prevent it.

Fred P July 24, 2018 1:49 PM

I found the section on societal risks interesting; I’ll have to admit that I hadn’t considered criminal bandwidth risks when evaluating blockchain-based “currencies”.

Chris July 24, 2018 2:11 PM

The biggest functions that cryptocurrencies fill are money laundering and avoiding government currency control. There’s nothing else that does as well filling those “needs”. Bitcoin & friends will always have some value as long as people (criminal or otherwise) have something to hide from government — or until something perceived as better comes along.

The rest is just pure speculation.

L July 24, 2018 2:41 PM

This isn’t even remotely true. The vast majority of transactions seem to be for legitimate purposes.[1] That said, most people don’t seem to be doing their taxes correctly, but not because they are actively trying to avoid paying taxes. If they were, they wouldn’t be registering through exchanges which require government issued identification and traditional banking services.

Using cryptocurrency for illicit purposes is actually more dangerous for criminals because of the technical requirements involved with Internet privacy practices.


MarkH July 24, 2018 2:44 PM

In basic economics textbooks, the typical definition of a currency enumerates three functions:

• medium of economic exchange;

• unit of account; and

• store of value

So far, “cryptocurrencies” (neither “crypto” and nor “currency” is a really accurate description) have demonstrated some limited utility in the first function, while making up a microscopic fraction of economic transactions world-wide.

The same could be said of contrived media of exchange in online games, which can be exchanged for normal currency or other values in ad hoc markets. (The now-dead Mt. Gox, which went down in spectacular flames as a Bitcoin exchange, started life as an exchange for physical cards and other valuables of an “online game economy”).

So, medium of exchange: yes, a little bit.

Unit of account and store of value? Not so much. As long as they remain arbitrarily improvised commodities with drastic real-world value fluctuations, they won’t be a safe place to park money, and a grossly impractical accounting measure.

I just took a peek, and saw that the dollar value of Bitcoin jumped almost 8% in the past 24 hours. Fun for gamblers, no doubt … but not a sound basis for currency.

If you’re a Russian, I suppose you could make the case that they’re as dependable as your rubles. If you’re lucky enough to have access to a more stable currency, then they don’t look much like currency at all.

Many of the cryptocurrencies (but notably, not Ethereum) also impose an arbitrary limit on the maximum number of “units” which can exist.

This is actually a worse version of the “gold standard.” Now, people who don’t understand the strange abstractions of finance often hold up the gold standard as a sort of Platonic ideal — but there is actually a rational basis for policies that manage currency supply for the benefit of overall economic health.

That the currency supply was controlled by the effectiveness of pulling minerals out of the ground became more and more impractical.

But the limited cryptocurrencies are designed so that after a few years, a condition is reached where further supply growth rapidly approaches zero.

There might be some future world in which that makes sense, but in the economic conditions of the past few centuries, having a principle currency with such a constraint would have (or when tried, actually did) create a terrific drag on economic growth.

L July 24, 2018 3:23 PM

I’m just gonna use the word “Bitcoin” instead of “cryptocurrencies”, as I think it just makes writing out these statements a bit easier to follow (certainly easier for me).

So I agree that Bitcoin as it is today, is not very practical for use as an actual currency, following the definition you’ve referenced. But that’s not to say that it can’t become a practical option for the average person at some point in the future. In fact, in countries where the rate of government issued currency inflation is skyrocketing, Bitcoin already has become a sensible option, even with its large price fluctuations.

And for the record, it’s estimated that new Bitcoins will continue to be introduced into the system until around the year 2140. That’s a little longer than “after a few years”.

Furthermore, this 21 million “coin” limit is code that’s written into the protocol. Which means that if, for some reason, this were to “create a terrific drag on economic growth”, then the code could be changed through majority consensus. Also, if you could point to some sources for that last paragraph which do in fact examine the negative aspects of a deflationary currency, I’d be interested in reading them.

But it’s also important to remember that Bitcoin isn’t anything like any other currency in the history of humankind. I know that’s a pretty haughty sounding statement, but before Bitcoin, what other currencies were there which operated at this level of decentralization and could be used on a global scale practically instantaneously in comparison?

So even if there are some examples from history of deflationary currencies which proved to have overwhelmingly negative aspects, it would still be like comparing the postal system to email.

65535 July 24, 2018 5:28 PM

I don’t use Bitcoin and I am somewhat confused on its legal status. Is Goldman Sachs trading in Bitcoin via Circle company? If so how is it doing?

[Old independent article]

“Goldman Sachs will finally launch its widely-rumoured Bitcoin trading operation after the investment banking giant succumbed to pressure from clients enthusiastic about cryptocurrency… “Despite some initial posturing, the reality is most big banks have already invested significant amounts in research and development into blockchain technology, and cryptocurrencies themselves. It will still take time for institutional investors to fully come around – and the fact that Goldman won’t be buying or selling actual coins suggest some scepticism remains – but there’s a growing acceptance that these assets are here to stay.”… Goldman Sachs the first major Wall Street bank to open a Bitcoin trading desk, however it will only offer a limited numbers of derivatives at first…Goldman Sachs will use its own funds to trade Bitcoin futures on behalf of clients… investment bank will likely wait until there is more regulatory certainty surrounding Bitcoin and other virtual currencies before it begins directly trading cryptocurrency…”-independent


Circle is a peer-to-peer payments technology company…September 2015, Circle received the first BitLicense issued from the New York State Department of Financial Services. In April 2016, the British government approved the first virtual currency licensure to Circle.[6] Circle is headquartered in Boston, Massachusetts …The company has received over US$135 million in venture capital from 4 rounds of investments from 2013 to 2016, including US$50 million led by Goldman Sachs… As of 2015 a Circle account can be funded in USD via “US-issued Visa and MasterCard credit and debit cards”, US bank accounts. As of 2016, European customers can also use Circle in EUR and GBP.[21] The Circle conversion rate is not pegged to a specific exchange and may fluctuate around other Bitcoin exchange rates but according to the Circle President “it’s simply never a revenue generator”. Britain’s Financial Conduct Authority granted Circle an electronic money license in April 2016, expanding the use of Circle’s services to the United Kingdom and broadening Circle’s relationship with UK bank Barclays…On February 26, 2018, Circle announced that they purchased Poloniex Cryptocurrency exchange for $400 million. Amid the developments around the acquisition, one of Circle’s leaked documents detailing its plans on operating Poloniex revealed the company’s moves to become “The US’s First Regulated Crypto Exchange” supported by its mutual understanding with the SEC…

Can anybody confirm that Goldman/Circle is still trading Bitcoin or Bitcoin derivatives? Is bitcoin legal in the USA and UK?

Could having Goldman Sachs and other investment banks pumping money into Bitcoin explain some of the huge rise in Bitcoins USD price?

Eldoran July 24, 2018 5:28 PM

Thank you for mentioning this. Nicholas Weaver did a good overview of the problems surrounding the so called “cryptocurrencies”, but those where technical problems. I mean that these mostly did not concern whether theses “cryptocurrencies” could even work as a currency.
When I read the headline I recalled an article I read a few months ago (german behind paywall). Like you mentioned, a currency as defined in economic theory has several properties as you mentioned, which certainly don’t apply to those “cryptocurrencies”. Actually there are more requirements, to actually achieve those goals and support the growth of the economy and prosperity. According to the so called “Modern Monetary Theory” our current fiat money is actually very close to the optimum for that.

L July 24, 2018 6:04 PM

I can’t comment on the Goldman Sachs topic, but as for the legality of Bitcoin in the United States, in 2013 the U.S. Treasury classified Bitcoin as a “decentralized virtual currency” [1]. In 2015, during the U.S. v Murgio et al. hearings, the U.S. Commodity Futures Trading Commission classified Bitcoin as a commodity, and thus, sales of Bitcoin are subject to capital gains tax [2].

In the United Kingdom, the legality is quite similar. It’s treated as a “foreign currency” and is subject to the same capital gains tax [3].

So, short answer is yes, Bitcoin is legal in both the United States and in the United Kingdom. It’s essentially treated as both a commodity and a currency.


65535 July 24, 2018 6:58 PM

@ L

I do believe that just having the name “Goldman Sachs” associated with Circle and Bitcoin would boost the price of Bitcoin. But, I see another reason for the rapid rise in Bitcoin. This would be a 21 million theoretically maximum limit of Bitcoins. This maybe the biggest factor in bitcoin’s rapid rise.

[Supply of Bitcoins Wikipedia]

“Eventually, the [Bitcoin mining –ed] reward will decrease to zero, and the limit of 21 million bitcoins will be reached c. 2140; the record keeping will then be rewarded by transaction fees solely.[95] In other words, bitcoin’s inventor Nakamoto set a monetary policy based on artificial scarcity at bitcoin’s inception that there would only ever be 21 million bitcoins in total.”-Wikipedia

Hence, the “Bitcoin Bubble” may be partially explained by supply. The question is artificial scarcity of a currency a good thing? Is it a bad thing? Can this artificial scarcity somewhat gold be mitigated by fraction reserve banking or other methods?

65535 July 24, 2018 7:08 PM

@ L

I also believe that your links show Bitcoin in legal in both the USA and UK. The matter legality will probably decline as time goes on. It may not play much of a role in Bitcoin at all at some point in time.

I realize bitcoin is not for your grandma or grampa but more for those on the bleeding edge of currecy trading. If people want to buy Bitcoin then I say let them lay down their money and take their chances.

Weather July 24, 2018 8:42 PM

The speculation makes more people want to get into it, making it more valuable, the down side is sha 256 is the only thing that garrantys the money value, the block chain is about 20gig now, sorting that issues out will claspe it, all in all good but it needs tweeking

Dave July 24, 2018 9:16 PM

@Denis: Actually Betamax was horribly unfit for purpose, until Sony released too-little-too-late upgrades Beta could only record for one hour when a movie was 1 1/2 to 2 hours long, and the recorders had no built-in clock, thus making them unfit for both recording/pirating movies and time-shifting recording. So it worked fine as a player, but was a terrible recorder.

Hmm July 25, 2018 1:27 AM

I believe we can make cryptocurrency work for some purpose on some level.

Making it work as a 1:1 replacement for the entire monetary system or significant portion of that is a really unvetted idea being distributed over about a thousand implementations at minimum, with unexplored legal consequences in each jurisdiction, application, and even local wallet instance. Not to mention the legal ambiguity as far as getting any of your investment back should fraud prevail in one of the millions of ways the law can’t touch.

The current banking system doesn’t make you rich over a year’s time, but it doesn’t allow your entire economic system to swing back and forth like a dingy in the surf either. People go all in on one basket, we’ve seen. People make bad investments in hyped bubble culture/periods. The macro of that is failed states. The last one just about crushed the lower and middle classes, where I’m from. Some say that’s just the cost of doing business, I say they probably don’t run a real business talking like that.

I think South Korea had the right idea by banning them until they figure out how to integrate their own version of it sanely. The capital gains fraud alone is destabilizing.
And that’s one of the thousands of ways this can backfire spectacularly writ large.

Bruce Schneier July 25, 2018 4:05 AM


“Bruce, you (like Mr. Weaver and some of his ilk) are too smart for me to believe that you are simply missing the point. It seems more likely that you are for some reason motivated to resist the proliferation of permissionless, trustless, disintermediated systems of economic exchange.”

Cryptocurrencies aren’t any of those things. The require an enormous amount of trust. You have to trust the cryptography and protocols. You have to trust the software — the wallets, the servers — and the computers they run on. You have to trust the exchanges (read Ross Anderson’s work to see how they are abusing that trust in the Bitcoin ecosystem). And they also require intermediaries. It’s simply a myth that Bitcoin or its alternatives are permissionless, trustless, and disimtermediated. That was one of the main points of Weaver’s essay.

Bruce Schneier July 25, 2018 4:06 AM

@Jilles van Gurp

“A more important question to ask is how we fix this. In my opinion, not using crypto for that long term would be madness. I agree the current batch of crypto currencies are not a very good solution. I don’t agree that the issues with these coins are unfixable. Actually fixing these issues seems to be a big area for investment currently.”

I agree that adding cryptography to financial systems is an excellent idea. I don’t believe that any type of cryptography can replace good governance.

Bruce Schneier July 25, 2018 4:08 AM


“Security Flaws: he opened a wallet and waited for a theft, it happened because he did not managed his own wallet, but used a third party wallet.”

What does this even mean? It can’t possibly be that we think it’s a good idea for Bitcoin to be only secure to people with enough security engineering and programming expertise to write their own software (presumably on their own self-designed hardware). Any general-purpose financial anything needs to be secure when run on third-party everything.

Clive Robinson July 25, 2018 5:28 AM

@ All,

As with all currancies, there is an issue of trust at several levels.

At the top level is the question of the “Insurer of last resort” without which there is no anchor to hang the rest of the trust issues off.

Usually a currancy is backed by a country (ie dollar) ot group of countries (ie Euro) that in effect stand as guarentor behind the “I Promise to pay the bearer upon demand…”.

Now that corporations are larger in resources than many smaller countries, the question arises “Do you trust Mega-Corp A?” to provide the same gaurentee?

Having looked at History I certainly don’t trust companies of that size and I don’t think other people should either, as history points to near certain ruin for those who have…

ATN July 25, 2018 6:17 AM

We all know bitcoin is dead already, as described at:
Bitcoin has died 306 times

The reasons have not changed since the reports of very intelligent people:

And the usual phrase: Economist have successfully forecasted twelve of the last three recessions.

But currency is probably not exactly what it is, I see cryptocurrency coins a bit more like “reduction coupons”/”free stuff coupons”/”free meal tickets”… that can not (or should not be) traded – does that mean such coupons have no “value”?

de la Boetie July 25, 2018 6:20 AM

Regarding investment, I’ve benefited from running a mile from sectors that are “hot” and specifically being touted by the likes of Goldman Sachs. Likewise, not investing in something I don’t understand.

Widening the topic very slightly to exchangeable assets (including stocks & shares,bonds and commodities), I’m feeling that many of the same issues raised in the article apply to them too, specifically that there is a big risk of institutionalised insider dealing. The huge focus and expense of the mass surveillance systems was always going to be associated with economic advantage, and what more white collar crime than for the NSA feeds to be going straight to the Federal Reserve and some of their “favoured” investment banks. And wouldn’t it be fun & easy to run some big data analysis to pop up all kinds of economic data which you could use for advantage & manipulation. For example, simple network analysis would identify likelihood of M&A even without TAO or spearfishing.

Of course, if this were done by individuals, it would be a crime, fraudulent and insider dealing; because it’s national security and impossible-to-detect-withuot-whistleblowers, this for of institutionalised insider dealing goes unspoken. But it breaks the market just as much as vulnerability in cryptocurrency does.

Regarding criminal/tax evasion use for the rich, this is far more securely done using the traditional off-shore,fine-arts, jewellery and drugs mechanisms. The internet and cryptocurrencies are far riskier.

Tatütata July 25, 2018 9:30 AM

You have to trust the software — the wallets, the servers — and the computers they run on.

You don’t only have to trust these components, you must also have reliable electrical power and a functioning telecom infrastructure.

Having lived through a couple of major blackouts lasting many weeks, I know first hand how quickly things can go downhill, when your worries are essentially reduced to water, food, and heat.

Yes, you’ll tell me that the ATM down the street was also down, but eliminating whatever cash remaining in circulation for a cryptocurrency would be even worse.

I was interested by the hype for a while, even looked into mining circa 2011 or 2012, but quickly realised that the whole thing was already past the inflection point (and therefore wouldn’t get rich quick). What’s the point of exchanging effing banks for effing miners and other intermediaries?

I might take this more seriously when I’ll be able to settle the rent or the groceries with a cryptocurrency, implying that there will be a legal framework defining the value of a payment and the point in time when it is deemed to have been made.

I think I’ll go gather some sea shells on the beach, just in case.

TRX July 25, 2018 9:36 AM

The real questions are, “why do people want cryptocurrencies?”

A) easy transfer of value without a corporate intermediary

B) convenience for online transactions

C) some measure of anonymity

Sure, you can open a PayPal account, or wave your smartphone at some cash registers, but you’re still tied to some corporate mothership collecting and trying to monetize every bit of data about your purchases, no matter how innocent. And some people don’t like that.

RG July 25, 2018 10:02 AM

In finance the most important issues are the one the issuers don’t mention, decline to discuss or pay-off politicians (to prevent investigations or laws regulating). Subjects include:
Trust, Guarantees, Transparency, Security, Fiduciary Duty, Stress Tests, Capital Requirements, Liquidity, Nation State-level Eavesdropping, Big-data, uniform worldwide enforcement laws, Investment Risks. And finally reimbursement insurance from theft or fraud.

These are just a few concerns. Only Clive mentions the missing guarantees. In cryptocurrencies virtually no one has your back covered.

Examining on a much smaller traditional scale, SEC approved brokerages offer $5 stock trades. What’s left unstated? By using HF Trading the skimming microseconds before and after transactions. Customers are ripped-off but only a ‘little-bit’. The industry kept their trade secret for over a decade. All legal.
Now consider it took on average 15 minutes to confirm a Bitcoin transaction at the end of June 2018.

Forced Unstated Risks
During the 2008 great recession financial institutions (backed by the The Fed) stepped in with trillions of dollars to ensure no money-market accounts broke-the-buck.
However in future recessions these illiquid, uninsured money market funds are (by US Treasury design) designed to absorb substantial stock market losses. Every Main St illiquid retirement fund will take the big hit. Mom and Pop savings will be forced to pay for Wall St excess, not the US Government.
How will cryptocurrencies behave during this world-wide recession test? Or when subject to secret, intense nation-state manipulation? North Korea has just such an expert successful group.

Paint Yourself Targeting
Do cryptocurrencies exchanges allow big-data to advertise and eavesdrop? Can they be Honeypots? Or are they non-profits? /s
I searched and went to these ‘bitcoin exchanges’ web sites. As expected big-data was there lurking in the background. After data analytics fingerprinting, your ID is verified as a bit-coin interest/owner then added to your profile. Now anyone can purchase your dossier and begin crypto targeting including phone, email and IP address. Do governments buy crypto owner lists through proxies? Of those on the the crypto forums? Do banks reported crypto transfers?

Survival of the Fittest
Because of large amounts of money involved and the very real threat from immensely sophisticated nation-state actors, I would only conduct Bitcoin business using paper and pencil (Clive).
I realize that being isolated, flush with low-hanging fruit, that I’m no match against highly personalized attacks.

L July 25, 2018 11:21 AM

There’s a lot of points being made in these comments; a lot of them pretty good, a lot of them… not so much.

I think it’s interesting to note though, that many of the concerns stated here are more or less concerns about convenience. And that’s not to say that the topic of convenience is irrelevant or unimportant. On the contrary, the term “convenience” can probably be used to classify the majority of issues Bitcoin is currently facing, from the perspective of the average user.

Nevertheless, at the end of the day, Bitcoin presents people with an option they’ve never had before: to effectively be your own bank; to send and receive money from anywhere on the planet; to not have to rely on a third-party intermediary, telling you after days or weeks, whether your transaction has been deemed “valid” in their eyes; to not have to pay expensive fees to send your money from your country into another; to send and spend your money how you wish, on whatever you wish, without fearing that some entity is, without a doubt, monitoring your every transaction.

This might not mean much to all of us, people living in “first-world” countries, where convenience and instant gratification are the top priorities, where privacy is defended in public, but “forgotten” in private. But for the other people of the world, people living in “third-world” countries, people who don’t have bank accounts because they don’t meet certain requirements or perhaps because they simply live too far away, who have to deal with corrupt regimes which dictate how they can spend their money on a daily basis, monitoring their transactions and imprisoning them when they don’t follow the status quo, charging them expensive fees to send their money just across one border, or not allowing them to send their money outside of the country at all, not allowing them to participate in the global economy, not allowing them to interact with the rest of the world, where the rate of inflation is so high that people have to spend the money they make as soon as possible, where people are really struggling just to survive.

For these people, Bitcoin is an alternative which provides them with some hope. An option that allows them to bypass these restrictions and endows them with the power of financial freedom, to truly choose what to do with their own money, perhaps for the first time in their lives.

Of course, as I’ve said before and as it’s been pointed out here multiple times, Bitcoin isn’t perfect. There’s still a lot of work to be done and a lot of issues which are pretty concerning. But The fact that this new technology, even at this point in its life, is able to more or less do all of these things, for the people who really need them, even if most of these people are unaware of its existence, just the fact that something like Bitcoin exists, well, I think that’s pretty cool, and I think that for anyone who feels empathetic towards these oppressed people, who feels that what these people have to endure is wrong, well then I think that what Bitcoin really is, is an opportunity; an opportunity to make a big difference in these people’s lives. And I think that’s pretty exciting.

ZQ July 25, 2018 12:44 PM

Bitcoin is extremely secure if you reduce the definition of “security” to the cryptographic aspect, something that no security professional would ever do and that makes absolutely no sense from the common user standpoint.

Hmm July 25, 2018 1:37 PM


“without fearing that some entity is, without a doubt, monitoring your every transaction.”

I think that may have been true at one time but going forward cannot be expected.

Why would you assume transactions aren’t being monitored? Do you think that’s true of all CC’s?

L July 25, 2018 2:15 PM

Again, I’m not really talking about “first-world” circumstances; countries with powerful security agencies being able to review almost all of an individual’s personal records whenever they conclude that doing so is appropriate, ect.

I’m talking about countries where the government actively exploits its citizens on a daily basis, putting severe limits on how much money they can withdraw/deposit from/to their bank account per day, where there are laws in place which state that a person can only buy a certain amount of food per day, where a person can only buy certain types of goods, where the country has government officials monitoring neighborhoods looking for (and often taking advantage of) people who aren’t following these laws (because even the government officials are barely getting by), where sellers are forced to sell goods at whatever price the government dictates, themselves suffering even more as a result. [1][2]

There are a lot of countries where this is the norm. Venezuela is one example, but there are many others which don’t seem to make headlines as often.

First source is in Spanish, translates pretty well if you need to do that. Obviously these two examples are just a portion of a bigger picture. If you’ve been in contact with someone from Venezuela, the stories they have to share are much more telling.


Weather July 25, 2018 3:10 PM

This is a bit different but would it be possible to transfer information like a program or something with bitcion, if the world, UN takes it up might be…

L July 25, 2018 3:41 PM

Possible but not very efficient and in almost all cases, unnecessary and generally not a good idea. Doing so is also a fairly technical process.

Bitcoin allows a user to write up to 80 bytes of arbitrary data to the blockchain per transaction, and through the use of a Segregated Witness transaction, I believe the limit is 300 bytes.

However, a much simpler and lighter-weight alternative would be to use a Bitcoin address to verify a message, proving the authenticity of the message based on the fact that the owner of that address is trustworthy and is in fact the only one in control of the private key used to produce the Bitcoin address in the first place (that’s the part which can often be complicated, for obvious reasons).

So, something like the public source code of a program could be hashed into to a small amount of text, proving the code hasn’t been tampered with, and then, one would take that hash, along with any other necessary text and most importantly, a Bitcoin public address that they own, and put all of this text into a single message.

Other people could then use that public key that’s in the message itself in order to verify that the message was indeed signed with the Bitcoin private key associated with that public address, trusting that the private key is owned by this individual and hasn’t been compromised.

There are other “cryptocurrencies” which allow users to write larger amount of data onto a blockchain, but really these are essentially just unalterable databases, increasing in size every time data needs to be “altered” (you just upload a new version of the data to the blockchain, but the old one is still there), and the level of decentralization of these systems is questionable at best.

Weather July 25, 2018 4:20 PM

They have a hash now with five nulls, add they dollars value as a key to the rest of the hash and search the block chain, there is anof of modifying bits to send messages.
good post by the way

Hmm July 25, 2018 7:54 PM


Oh, fair enough I had no idea we were talking about Venezuela as the setting.

I don’t understand fully how CC’s help defeat that kind of failure of overbearing government.

I could see how internally a cash shortage could make “anything else” valuable, not to mention a distributed digital pseudo-anon network currency would defeat some top-down measures, but do consider that blockchain IS A CHAIN, and each link is leaving its mark in the sand. Yes you can move money invisible to one set of eyeballs, but while invisible the eye of mordor maybe can glance your way, depending. TOR would be a similar applicable metametaphor. You are invisible by IP, sorta, but by no means invisible. In fact you stand out, once they look your way.

A yuppie 1st world example is Venmo, publishing all transactions by default for some reason. (I think, I don’t use it so correct me if I’m wrong.)

As far as defeating an overbearing-but-failing government, good luck.
If there were a coinhash that incremented in bits of justice, I would.

L July 26, 2018 1:12 AM

Ya, it’s a common misconception that Bitcoin transactions are fully anonymous. Bitcoin provides psuedo-anonymity in that transactions can still be tied back to real life identities if people aren’t careful. The simplest example of this would be when someone advertises a Bitcoin public address over the Internet in a way that can be traced back to them. That said, some privacy improvements are being worked on which are pretty interesting.

However, as long as someone takes some level-headed precautions, matching a real life identity to a given amount of Bitcoin transactions is actually pretty hard.

Taking Venezuela as an example though, people are using Bitcoin and other cryptocurrencies over their local currency (the Bolivar) to buy goods with sellers who they trust won’t sell them out to the government. They first trade the Bolivars for Bitcoin through and similar communities, or by word of mouth (where with each of these methods, the level of expertise needed to maintain adequate anonymity is fairly low, at least for the buyer), and then they use the crypto for buying goods with these merchants and storing wealth, since whatever amount of money they used to buy Bitcoin will be near worthless within about two weeks or so on average.

Most of these Bitcoin communities also place heavy emphasis on buyer ratings too, where a buyer (or perhaps someone who knows/knew the buyer if the buyer is imprisoned for attempting to buy the illegal asset) can comment on the seller’s profile, informing other potential buyers about the trustworthiness of the seller. This rating system also goes both ways, allowing for community evaluation of both seller and buyer.

It isn’t hard to see that this system has some serious flaws. The privacy concerns are still there, but the people who would tend to gravitate towards Bitcoin in the first place (the geeks, the nerds, the weirdos, ect.) tend to also be the ones who would go the extra mile and take the necessary precautions to stay safe when utilizing the technology in a country that has ironically banned every cryptocurrency other than its own. Obviously that’s not a universally true statement, but it seems like Bitcoin is working very well for the people in Venezuela who know about it and are smart enough to take a few extra steps when it comes to their privacy practices.

Patrick July 26, 2018 3:00 AM

From time to time it’s interesting to read critical views on crypto currencies. This paper have put more thought into it than most. However, it’s not entirely up to date with current developments, makes some very bad arguments and misses some critical points.

The main theme in the paper seem to be that Bitcoin is expensive due to high transaction costs which comes from a non-scalable solution. This was true until recently. The authors might want to read up on the “Lightning Network” solution which is currently rolled out on the Bitcoin network. It solves both the scalability problems and transaction cost problems, If you compare the transaction costs and transaction times between the new market actors such as Stellar, Ripple, Litecoin, Bitcoin (with the Lightning Network) and traditional market actors such as the credit card companies, banks and money transfer companies you will soon realize the latter are about to loose their entire business model ,

With regards to the energy consumption argument. How much energy do you think the ATM’s around the world use? Yes, about the same as the Bitcoin network. How much more energy than that do you think the 60 million or so soon-to-be-redundant employees in the worlds banking sector are consuming? Or the rest of the banking infrastructure such as data centers and office buildings? You will likely find that the “Lightning Network” change the scalability/power consumption equation for the Bitcoin network quite a bit.

The authors make the argument that “almost all exchanges seek to avoid regulation”. Yes, and so does the traditional banking system. Please note that the major crypto-markets such as South Korea and Japan are in progress of implementing such regulations for exchanges.

Regarding that exchanges “implode with almost seeming regularity”. If you knew your history, you might have noticed the same occurring in the traditional banking system. With the difference that banks considered “to big to fail” have lately been saved by state sponsored entities at the expense of the tax payers. When you always save banks regardless of how non-competitive they are, you’re likely to get a statist system which cannot adjust to changes in its external environment.

Because the accounts on crypto exchanges have no state sponsored guarantees, you should never keep any savings on an exchange. You should withdraw your savings immediately after you have bought or sold.

With computer systems being utterly more complex and prone to security holes than just a few years ago, you should never ever leave your private keys on an internet connected computer. This can almost be compared to leaving your wallet in the middle of the street in order to see if a stranger will pick it up and keep it. Instead you make use of hardware wallets. Using a hardware wallet with an almost indestructible backup tool for wallet recovery seeds, such as Cryptosteel, I would argue your savings are much more safe than within the traditional banking system. You might also have noticed that companies such as HTC have recently presented mobile phones with hardware wallet capabilities.

The authors make the argument that “There are also credible allegations of exchanges enabling washtrading, spoofing, insider trading, and other market manipulations”. Yes, and the current banking sector have been fined in court or settled manipulation suites for for manipulating the Libor interest rate (2012 Barclays, 2013 RBS, Deutsche Bank, etc, 2015 Deutsche Bank, 2018 Citibank), manipulation of foreign exchange rates (2014/15 Barclays, Citigroup, JP Morgan, and Royal Bank of Scotland), the silver- and gold market (2016 Deutsche Bank), money laundering (2012, 2015 HSBC, 2018 Citibank, 2018 Standard Chartered, 2018 The Commonwealth Bank)…and…the list can go on for a very, very long time. Have you ever considered that Bitcoin have an open ledger which, in contrast to traditional banking ledgers, everyone can access and read? Including the police and the IRS. Criminals using the Bitcoin network in order to try to laundry money are probably not the sharpest knives in the drawer…

“Governments can also intervene to effectively kill cryptocurrencies, should that be desired. The most effective mechanism is simply regulation”. So the Chinese government imposed strict regulations and did this kill cryptocurrencies? South Korea and Japan are in the process of imposing new regulations and is this killing cryptocurrencies? No. I would argue that cryptocurrencies need regulations in order to grow up and mature.

Another risk the authors see is governments (domestical or foreign) disrupting the networks by clogging them with useless transactions. For Bitcoin I don’t think this will be very feasible as of the roll-out of the Lightning Network.

The authors conclusion is that “The only winning move is not to play”. If you as a company follow this advice, I think you in a few years will find yourselves in the same position as once great companies such as Nokia, Toys R Us, Yahoo, Kodak, Polaroid, Blockbuster, Blackberry, and Palm.

RG July 26, 2018 9:11 AM

@Patrick states:
“With computer systems being utterly more complex and prone to security holes than just a few years ago, you should never ever LEAVE your private keys on an internet connected computer. This can almost be compared to leaving your wallet in the middle of the street in order to see if a stranger will pick it up and keep it.”

While Patrick’s overall post is superb just ‘passing through’ is sufficient to be compromised.
Clive could write a book on the perils of unsecured end-points.

Encrypted Humor: Homework assignment? Hmm…!

Alyer Babtu July 26, 2018 6:29 PM

My take:

Bitcoin is not really money, but money is not really money either.

At the beginning and end, the only thing of importance is real goods. At any given moment, real (marketable) goods have a mutual exchange ratio. At that moment, a nominal currency unit could be defined such that the values measured by that unit gave the same ratios, i.e., one could have “money” as a medium of exchange. This is a purely notional construction, dependent on the totality of goods value exchange ratios.

But some, possibly short, time later, the real goods ratios would be different, and the previously set values in terms of the money unit would be wrong. The money space is one dimensional, whereas the space of goods is multidimensional, so no money adjustment could accommodate all the diverse changes in goods exchange ratios.

The situation is hopeless since the money values are purely and merely notional/notational. If, as we are taught, one wants some single thing for purposes of convenient real goods exchange, the only way out is to make the money itself not nominal but instead always able to relate to real goods exchange ratios. This seems only possible by using a real good as the currency. Traditionally, “gold” in many cases. Although “the value of gold has never been zero”, neither has the value of a fresh can of beans, and it is still an arbitrary and so partly unreal way to handle things.

The more economically respectful thing to do, but now mostly very difficult or impossible in general, is to always be actively trading one’s real goods. Here we see “money” is mostly irrelevant and what matters is records of transactions to prove ownership as goods change hands. For this purpose any unforgeable certificate system is all that is needed. It seems here that blockchain or engraved/signed/sealed/delivered paper are equally good as recording mechanisms, assuming they can be societally supported.

This point of view underlines how fundamentally anti-economic are many common things like fixed prices, salaries, debts, rents, etc. They are idealizations that depart from reality and are only useful at local scales where changes are slow and small.

The real problem is to find some way to better respect the dynamics of real goods. As long as one is rational this should be possible in principle, except for accidents. But that’s what insurance is for.

echo July 26, 2018 11:27 PM


It’s actually real work as in it takes effort to research and draft and make all the necessary phone calls then reserach and draft again. By coincidence the core issue was covered on by The Atlantic within hours and Guardian and other media within a few days. As for blowing my own trumpet I’m not getting paid for this and earning a million headaches and PTSD attacks along the way but also learning as I go along. I say not being paid… The pay off is policy change and up to a six figure compensation package in crude terms if you want to be materialistic but this is not the goal only a side effect. In other respects it is the right of citizens to assert themselves both when obtaining services and also on a more consumer level footing. The latest studies by Sheffield University (?) prove the UK falls behind both the US and mainland EU when it comes to civic action and hospitality. Nobody else with a job title is doing it so muggins gets landed with it.

The most I have earned a single cohort is roughly £250 million p.a. This is why the government who had been using the announcement to earn political capital knowing one line of regulations tood between them and actually paying it later quitely cut this budget allocation. I guess it helps that the person I persuaded at a lunch was an ex flat mate of Tony Blair and later went on to become Lord Chancellor.

Me July 27, 2018 10:55 AM


You are right, that the worth of the copper in a penny from before 1982 is greater than $0.01, however, it is now so bad that the worth of the copper plated zinc that pennies are now made with is worth more than a cent as well.

As I understand, the nickle is actually even worse than the penny now.

Argon July 30, 2018 5:17 PM

@Bruce Schneier, the arguments you (and Nicholas Weaver) are using against Bitcoin are extremely similar to the arguments used by people who are “skeptic” about cryptography in general: An enormous amount of trust is required to believe that encrypted communications through electronic channel will keep one safe against potential adversaries. This means trusting the delivery and supply chain company(ies) in charge of bringing your new laptop to your front door, the manufacturer and all the semiconductor companies in charge of making your laptop, the firmware and software companies in charge of developing binary blobs that no one can properly review, the software engineers who programmed your OS and implemented the cryptographic libraries your favorite applications uses, the guys who designed the cryptographic protocols and those in charge of writing good documentations, the programmers who created the compiler used to build the packages containing those cryptographic applications… How could anyone in her/his right mind trust so many unknowns?

If we want to be pedantic then there is absolutely nothing “trustless” or “decentralized” in our universe.

I don’t believe that any type of cryptography can replace good governance.

But “good governance” is an utopian fantasy, isn’t it?

George August 6, 2018 6:36 AM

@ Clive Robinson wrote,

As with all currancies, there is an issue of trust at several levels.

At the top level is the question of the “Insurer of last resort” without which there is no anchor to hang the rest of the trust issues off.

Usually a currancy is backed by a country (ie dollar) ot group of countries (ie Euro) that in effect stand as guarentor behind the “I Promise to pay the bearer upon demand…”.

Now that corporations are larger in resources than many smaller countries, the question arises “Do you trust Mega-Corp A?” to provide the same gaurentee?

Having looked at History I certainly don’t trust companies of that size and I don’t think other people should either, as history points to near certain ruin for those who have…

In the real world nobody trusts anybody and for the same reason all world currencies are heavy pegged to every others. Thus all things are connected and a ripple can be felt in all as there are no corners as the earth isn’t flat as we long discovered.

Anura August 6, 2018 6:53 AM


Usually a currancy is backed by a country (ie dollar) ot group of countries (ie Euro) that in effect stand as guarentor behind the “I Promise to pay the bearer upon demand…”.

That’s not true of Fiat money, which the country is merely promising that their economic policies will ensure the currency retains it’s value.

Now that corporations are larger in resources than many smaller countries, the question arises “Do you trust Mega-Corp A?” to provide the same gaurentee?

A large corporation and a democratic gove are very different things.

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