5 Dec 2013

Lamborghini Accepts Bitcoins, Sells First Car + What You're Not Being Told About Bitcoin

By Michael Krieger: I’ve been waiting for this headline. It was just a matter of time before the exchange of BTC for a Tesla happened. The purchase took place at  Lamborghini Newport Beach in California, and this isn’t just a one time gimmick. The dealership has announced that:
Lamborghini Newport Beach in California is proud to announce that we are fully capable of accepting Bitcoin as payment for vehicles.  We are excited to be opening the door to this new currency.
This is what you see if you go to the dealership’s blog:
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The world is changing fast (you can even buy airline tickets for BTC), as well as purchase a “Bought with Bitcoin” shirt made by yours truly!
In Liberty,
Mike


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What You're Not Being Told About Bitcoin
StormCloudsGathering: Bitcoin has a fatal design flaw that almost no one is talking about. The current bubble is just the tip of the iceberg.
Bitcoin has gone through the roof in the past several months rising from around $200 to over $1000 in November of 2013 alone. This is obviously a speculative bubble, and like all bubbles it will pop. There is a lot of chatter on the internet as to when it will pop, and how low it will fall before stabilizing. Optimists like to compare the current bitcoin bubble to the dot com bubble of the late 90s. After all, the dot com bubble may have burst but the internet survived. Bitcoin could do the same thing right? On the surface it sounds like a reasonable comparison however there is a variable in this equation that almost no one is talking about: Bitcoin has a fundamental design flaw, and fixing that design flaw will require completely changing the way the Bitcoin network operates.
In its current form the Bitcoin system is able to facilitate transactions without a centralized database by requiring each client on the network to download a copy of the blockchain. What's the blockchain? The blockchain is a record of every transaction ever made using bitcoin from 2009 to present. With every transaction this file gets bigger. You can find a record of the blockchain size over time at blockchain.info.

At first the file size was negligible. It stayed below 1 gigabyte until mid 2012. However with increased interest in the currency the blockchain began to grow exponentially. By September of 2012 it had jumped to 2 gigabytes, in September of 2013, just one year later, the file was over 9 gigabytes, and by the end of November it had passed 11 gigabytes. If interest in the currency continues to increase and the number of transactions continues to grow at its current rate the blockchain will easily reach 50 gigabytes within a year and 250 gigabytes within 2 years.

Security expert Dan Kaminsky's analysis of the scalability problem:

Now what's interesting here is that on the official Bitcoin website Gregory Maxwell responds to Dan Kaminsky's critique and in the process admits that to handle the number of transactions that visa handles in 3 months the bitcoin system will require 14 Terabytes of storage space. That's 14 terabytes of hard drive space you would have to add every 85 days! https://en.bitcoin.it/wiki/Talk:Scalability#Disk_space
Wikipedia quotes a research article that estimates that "in 2020 a two-platter, 2.5-inch disk drive will be capable of storing more than 14 terabytes(TB) and will cost about $40". This can hold about 85 days of data (~3 months) at "visa-speed". This is a bit pricey, but within the scope of a normal user, and definitely enough for enthusiasts.
To assume that people are going to be willing to buy 14 terabytes of disk space every 3 months (even if it is just $40 in 2020) is a leap. Furthermore this projection (based on Moore's law) overlooks the fact that there are other variables involved which may lead to prices being much higher (cost of materials, etc...)
Now, the specific amount of time it will take the blockchain to reach a particular size is beside the point.
What it comes down to is this: in its current form Bitcoin is not scalable. The way the system is designed right now the block chain will eventually reach several terabytes in size. Of course the average user will be unable to participate long before that happens.
Somewhere along the way Bitcoin will have to be restructured to allow individuals to use the network without downloading the entire blockchain. This is no simple task and making the shift will involve introducing a degree of centralization into the mix.
An example proposal to address the issue would be to use what some have referred to as super nodes as intermediaries. A supernode would handle the blockchain for you and you would communicate with the supernode to deposit or spend bitcoins, so essentially Bitcoin banks. Now this arguably still better than the current banking system because bitcoin banks wouldn't be able to engage in fractional reserve lending and some have tried to make the case that anyone could theoretically start a bitcoin supernode, However given the fact that blockchain is designed to keep growing and growing these super node operations would eventually require massive arrays of servers and storage space with industrial grade electrical and internet connections. This is not the kind of thing you would run out of your garage. These would be more like modern day server companies and such facilities easy to bring under regulatory control.
Once that happens bitcoin will no longer be outside the system as it is now. Maybe that wouldn't be such a big deal if it weren't for the fact that one of the major reasons people are buying Bitcoin is to bypass the system. That means its value cannot be separated from its form.
We know that form is going to change.We know that bitcoin is going to have to be restructured but no one knows how the bitcoin of the future will work not even the developers themselves because by their own admission they haven't decided on a solution.

What's the takeaway here? Don't treat Bitcoin as a stable, long term investment, because it's not. In the short term if you own a lot of Bitcoins you're probably feeling pretty wealthy right now. Good for you. Just make sure you're treating this like a day trader in the stock market who's holding a very volatile commodity. If you sell at the right time you might make a lot of money. However those who get blinded by their ideological attachment to the currency are likely to lose their shirts



Sources

The official bitcoin website admits you would need 14 terabytes of hard drive space every 85 days to handle as many transactions as Visa. https://en.bitcoin.it/wiki/Talk:Scalability#Disk_space
The blockchain explained: https://en.bitcoin.it/wiki/Blockchain

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