Thursday, November 21, 2013

Rumplestatskin — Everything I was Afraid to Ask about Bitcoin but Did

Bitcoin, transaction cost, reversibility, trust.

Naked Capitalism
Everything I was Afraid to Ask about Bitcoin but Did
Rumplestatskin, a professional economist with a background in property development, environmental economics research and economic regulation.

1 comment:

Ryan Harris said...

This guy is using common meanings of transaction reversal when talking about how the bitcoin maintains integrity of transactions in it's database. The reversibility has nothing to do with a failed ebay experience or a returned product to a retailer. Just as with your credit card or a fedwire, once a charge has posted or been submitted in batch, the initial transaction can not be canceled. Instead you initiate a new refund transaction at a later date to reverse it.

The idea in bitcoin is similar. The reversal happens outside the system in a new transaction. Since all peers store the transaction records for every bitcoin, for a reversal to happen in process to the initial transaction every peer on the network would have to be notified that a transaction was voided which might take quite a long time between the time the transaction happened and when it is reversed. The bitcoin itself might be used many times in between that time and be owned by someone across the world. So if you tried to reverse that bitcoin record it would be impossible. Bitcoins have IDs, every single one is accounted for at all times. They are far more traceable than USDs or bank reserves. There can not be counterfeits without a massive, and I mean massive, network of computers to deceive all the other computers in the world. So reversal isn't possible in most instances because one bitcoin can't be substituted for another like cash in a cash register. Each is unique. I'm not sure anyone at MNE would really care about my rant, but I feel better. Thanks.