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More Flaws in BitCoin|
- will it collapse?
The general consensus, says Mike Hearn, one of the volunteers who maintain the Bitcoin software, is that with this new generation of ASICs, mining will have approached a point where only those with access to free or cheap electricity will continue operations, and even they will produce a relatively marginal return on investment, rather than the huge multiples (when exchanged into traditional currency) possible even earlier this year.
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But as part of Bitcoin's design, the reward for mining a block halves every 210,000 blocks, or roughly every four years. Sometime in 2017, at the current rate, it will drop to 12.5 Bitcoins. If the returns from mining decline, who will verify the integrity of the block chain?
To head off this problem, a market-based mechanism is in the works which will raise the current voluntary fees paid by users (around five cents per transaction) in return for verification. "Nodes in the peer-to-peer network will try to estimate the minimum fee needed to get the transaction confirmed," says Mr Hearn.
- twisted by the pool
As I wrote above, LiteCoins can still be reasonably mined using ordinary hardware. As BitCoins become more and more difficult to mine, arbitrage suggests everyone would move to LiteCoin or other alternatives. Who, then, would be doing the mining (which is really transaction verification) for BitCoin? Sure, there would be legacy miners who won't bother switching to alternatives, but won't BitCoin's exchange rate have collapsed? Increasing fees mean that BitCoin becomes less attractive for retailers and consumers and it will migrate toward the services provided by the banksters.
Bitcoin's growing popularity is having other ripple effects. Every participant in the system must keep a copy of the block chain, which now exceeds 11 gigabytes in size and continues to grow steadily. This alone deters casual use. Bitcoin's designer proposed a method of pruning the chain to include only unspent amounts, but it has not been implemented.
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These nodes relay transactions and transmit updates to the block chain. But, says Matthew Green, a security researcher at Johns Hopkins University, the ecosystem provides no compensation for maintaining these nodes—only for mining. The rising cost of operating nodes could jeopardise Bitcoin's ability to scale.
This is a problem inherent in the cryptocurrency. Gold has no such burden and registering of paper money transactions is controlled by the banksters computers in a much simpler fashion.
As well as the existing flaws, the indeterminate nature of future changes to the protocol (like Monsanto's meddling with GMOs) risks mistakes being made and the system collapsing: The protocol, like the currency, is a fiction they accept as real, because rejection by a large proportion of users—be they banks, exchanges, speculators or miners — could cause the whole system to collapse. Mr Hearn notes that he and other programmers who work on Bitcoin's software have no special authority in the system. Instead, proposals are floated, implemented in software, and must then be taken up by 80% of nodes before becoming permanent — at which point blocks from other nodes are rejected. "The rules of the system are not set in stone," he says. The adoption of improvements is up to the community. Bitcoin is thus both flexible and fragile.