Bitcoin's Achilles Heel
Something was pointed out to me several months ago that changed my mind towards Bitcoin.
I have learned that Bitcoin is a good storage of value due to it's extremely low quantity in existence and the extreme low print rate. This extremely low quantity of Bitcoin makes it similar to gold in the respect that there is a limited supply. Unlike gold, Bitcoin is very liquid. You can move large sums of Bitcoin easily. You just couldn't do this with gold. The caveat is that Bitcoin doesn't make a great currency as it is costly to transfer and that there is a limited supply. While the cryptocurrecy community may want to store value in Bitcoin, the real use of a currency will be the ones that are cheap/free to transfer and there is a plentiful supply that grows to accommodate new people adopting the currency.
Bitcoin requires mining to perform transactions. This is Proof Of Work (POW). Part of the security of the Bitcoin blockchain is that it is costly to attempt to get a majority of the mining. The blockchain requires a consensus that the transactions are valid. When someone has a majority of the mining power, they become the consensus and can make fake transactions. Since they own the majority of the mining power, they can validate the fake transaction. Bitcoin and many POW coins already have pools of mining power that make up the majority. The back up mechanism is that the majority owner of the mining will not want to create fake transactions as they have spent considerable amount of money to build up the infrastructure to have the majority. Making fake transactions will deflate the value of the coin they profit from. The majority mining control is however not the Achilles Heal.
The mining of Bitcoin is essentially a reward system for the first computers to win a transaction. When a transaction is submitted, a mechanism that most refer to as "complicated puzzles" are added intentionally for the mining computers to solve. The first to solve the puzzle gets the right to process the transaction. The computer is then rewarded for processing the transaction. These puzzles are getting more difficult over time to prevent faster computers from taking over the mining dominance even though that has already happened.
But what is the Achilles Heal?
It is the simple fact that Bitcoin takes many millions of dollars worth of resources each day to keep it alive. I knew that there are many large mining operations around the world that utilize massive warehouses, employing people to maintain the top-of-the-line computers, using massive electrical power, and constantly replacing those computers with more powerful ones to maintain competitiveness. What the pivotal point for me was hearing the cost of mining. It is many millions of dollars every day. That might be a drop in the bucket compared to the market cap of Bitcoin, but that adds up over time. It then requires that much of new investment into Bitcoin every day just to keep the price of Bitcoin stable. Imagine if gold that you own actually requires people to buy gold just to keep the value of your gold from plummeting. If a POW currency doesn't have enough new investment to cover the cost of mining, the currency is not sustainable.
This is why I like STEEM
STEEM doesn't rely on POW to function. The actual transactions that take place are simple and fast for a computer to accomplish when there are no "complicated puzzles" to solve. Since STEEM doesn't rely on solving puzzles, transactions can be extremely fast. For STEEM, transactions are recorded every 3 seconds. It also doesn't cost any money to make the transfer. It is FREE. STEEM works on a different system that divides the majority of the transactions among 20 witnesses. Those witnesses are voted into position based on popularity, proof of good intentions, and other factors. If any witness shows signs of being a bad actor or not keeping their nodes operational, then they can immediately be pulled out of power. They are also being rewarded differently than POW systems. The witnesses have a reward pool specifically for witnesses much like our own reward pool. The witnesses don't rely on us to pay them or winning a transaction to get paid. The division of power is also important factor. With the STEEM system, power is automatically divided which brings security to the system. The witness votes that put the witnesses into power is based on stake. The more SP someone has invested, the more voting power they have to choose the witness in the top 20 position. For those people that have invested heavily, they have an important task to vote witnesses that are not bad actors because they want to keep their investment secure.
An added bonus is that STEEM has a community that actually uses it. STEEM also has a conservative print rate that can support growth. Wallet depots addresses are not some crazy long string of numbers and letters. If I want to send currency to bobmeyers, I just send it to @bobmeyers. While this is not financial advice, I feel that STEEM has an incredible potential for growth.
I hope you enjoyed reading my Blog. Please remember to Upvote, Resteem, and Follow. Thank you.
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For a breakdown of how Steemit Rewards system works:
https://steemit.com/steemit/@socky/simple-steemit-rewards-breakdown-how-it-works-since-hf20
For a breakdown of Steemit Keys:
https://steemit.com/life/@socky/do-you-understand-your-steemit-keys
For a breakdown of why Steem Power is Important:
https://steemit.com/steemit/@socky/why-is-steem-power-important-beginners-read
How to improve STEEM payment system:
Bitcoin is always be good,i agreed i love steem very much honestly it is my first platform ever in social media that i would be stay in long term..
Speaking of long term, STEEM account is a forever account without the fear of being charged in the future to use it or the ever looming chance the account being shut down.
oh yes...i missed it..STEEM forever bro! :))
I'm glad I jumped on Steem when I did. All my friends that went after bitcoin got out of the game after the January bears. But here I am, still plugging away and still gaining wealth out of it.
To many more years of Steem!
I am hopeful. All the major mechanisms are here at STEEM for the currency to dominate. Just need adoption to catch on.
I just realized I don't even know how to perform a transaction using Steem. It looks like all of the wallets are designed for posting to the network instead of for using as a payment system.
Hmm. You should research it a little. It is quite ingenious. The ledger that stores the wallet information is part of the Blockchain. They are accessible through different apps or software. Either you use a software type wallet that communicates directly with the blockchain, or you use a wallet through a web front-end like Steemit or busy. The real beauty is there is safety built into the wallet. If you keep STEEM in your wallet, it doesn't earn you anything and is not safe if your active key is compromised. However, if you store STEEM in SP, then any hacker will have to wait 13 weeks to fully liquidate your wallet. That gives you plenty of time to discover your account has been compromised. You then use your master key to reset all the keys long before the hacker has a chance to withdraw funds. The active key the hacker has will no longer work. If you never use your master key and keep it off-line, the master can never be compromised. The posting key doesn't allow access to transfer of currency. If it gets compromised, all a hacker can do is spam some people until you change the key. There is a bunch of safety built into the STEEM wallet system that other currencies don't have.
Let me explain a little further. Say I meet you at a Starbucks and you mention that you have a copy of Robotech: The Macross Saga #5. I've been looking for this particular issue, so I want to buy it from you. If we use bitcoin or ether for the transaction, it's very simple.
In the case of bitcoin, you download a wallet, generate an address, and send me the address. In the case of ether, you install a wallet extension on your Chrome browser, generate an account address, and send me the address. I then send you the bitcoin or ether using my wallet. Once the transaction is finished, there is a record on the blockchain. But this record doesn't show my identity or yours.
In the case of Steem, it seems the only way this would work is if you sign up for a Steemit account. This will cost five dollars worth of ether or bitcoin or require you to wait two weeks to get an account. But you just want to accept payment for the comic book. You don't want an account with a social network.
I do see that you have a point though. If the Steemit platform becomes as popular as Facebook...so that it seems everyone has an account, then people may use it for some transactions just because it's convenient. This is why many people use Facebook Instant messenger right now (although I personally try to stay away from it). It's because all of their friends are on Facebook, so it seems convenient to use Facebook's messenger app.
But there is another problem: If you make a transaction on the Steemit platform, it shows up in your wallet and is tied to your Steemit identity. You can create a pseudonym for Steemit to keep your "real world" identity private, but you are still getting your personal financial transactions associated with your social networking identity. This seems like a problem to me.
OK, first, you can get an account from me. I can create them at will with no cost to you. I will give you a master key in which you can use to change all the keys and that account will be truly yours. Simple as that. I can do it instantly with no email or phone verification. If you need an account for a family member or friend, just hit me up on Steem.chat My user name is Socky there.
As far as the identity thing, it is a new way of handling things. However, there are ways to conceal identity if you are concerned. For instance, @freedom is one of the largest STEEM account holders and nobody knows who he or she is. that account never comments or bloggs, but is active and uses the witness voting.
I appreciate the offer, Socky. But this is more of a theoretical issue rather than a personal one. If I was going to create a new account, I would probably just use this account to create the new one.
I'm personally quite happy using Ethereum to pay for things outside of the Steemit platform. All of my Steem is vested into Steem Power. I never use it to pay for anything.
I've enjoyed our conversation though. :) Please keep up the good work.
I agree completely with your analysis of what is wrong with bitcoin. I read an analogy a few days ago that said something like "imagine if I created something called 'IdleCoin' that you are awarded with if you leave your car idling all day." I thought to myself "yeah, and then imagine if the length of time you have to idle your car to get a coin increases as more people collect the coin." Once a person realizes how bitcoin works, it seems completely preposterous.
I'm a fan of AgAu gold myself. I can't wait for it to be released early next year. I agree that the transaction fees will be a problem in the beginning. But my hope is that Tarco will get a crypto bank started very quickly, which will eliminate transaction and storage fees and allow savers to earn an interest rate. I think this is the worst problem the world faces today; the problem of no one being able to earn a yield on his/her savings.
I like Steem too. But Steem seems more like an equity than a currency to me. It's kind of like owning a tech stock. it's got great growth potential, but I think it's too volatile to serve as money.
Great post though, Socky. I always love reading your articles.
Hi @socky, I'm @checky ! While checking the mentions made in this post I noticed that @bobmeyers doesn't exist on Steem. Did you mean to write @blmeyers ?
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