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OK, let’s approach this from another angle.

The core problem Bitcoin tries to solve is how to get consensus in a continuously changing, free-for-all group. It “solves” this essentially insoluble problem by making everyone walk through treacle, so it’s always evident who is in front.

But the problem is, it isn’t really evident. Slowing everyone down doesn’t take away the core problem: that someone with more resources than you can eat your lunch. Right now, with only modest resources, I could rewrite all of Bitcoin history. By the rules of the game, you’d have to accept my longer chain and just swallow the fact you thought you’d minted money.

If you want to avoid that, then you have to have some other route to achieve a consensus view of history. Once you have a way to achieve such a consensus, then you could mint coins by just sequentially numbering them instead of burning CPU on slowing yourself down, using the same consensus mechanism.

Now, I don’t claim to have a robust way to achieve consensus; any route seems to open to attacks by people with more resources. But I make this observation: as several people have noted, currencies are founded on trust: trust that others will honour the currency. It seems to me that there must be some way to leverage this trust into a mechanism for consensus.

Right now, for example, in the UK, I can only spend GBP. At any one time, in a privacy preserving way, it would in theory be possible to know who was in the UK and therefore formed part of the consensus group for the GBP. We could then base consensus on current wielders of private keys known to be in the UK, the vast majority of whom would be honest. Or their devices would be honest on their behalf, to be precise. Once we have such a consensus group, we can issue coins simply by agreeing that they are issued. No CPU burning required.

Well, that got a flood of comments.

Suppose I take 20 £5 notes, burn them and offer you a certificate for the smoke for £101. Would you buy the certificate?

This is the value proposition of Bitcoin. I don’t get it. How does that make sense? Why would you burn £100 worth of non-renewable resources and then use it to represent £100 of buying power. Really? That’s just nuts, isn’t it?

I mean, it’s nice for the early adopters, so long as new suckers keep coming along. But in the long run it’s just a pointless waste of stuff we can never get back.

Secondly, the point of referencing “Proof-of-work Proves Not to Work” was just to highlight that cycles are much cheaper for some people than others (particularly botnet operators), which makes them a poor fit for defence.

Finally, consensus is easy if the majority are honest. And then coins become cheap to make. Just saying.

A friend alerted to me to a sudden wave of excitement about Bitcoin.

I have to ask: why? What has changed in the last 10 years to make this work when it didn’t in, say, 1999, when many other related systems (including one of my own) were causing similar excitement? Or in the 20 years since the wave before that, in 1990?

As far as I can see, nothing.

Also, for what its worth, if you are going to deploy electronic coins, why on earth make them expensive to create? That’s just burning money – the idea is to make something unforgeable as cheaply as possible. This is why all modern currencies are fiat currencies instead of being made out of gold.

Bitcoins are designed to be expensive to make: they rely on proof-of-work. It is far more sensible to use signatures over random numbers as a basis, as asymmetric encryption gives us the required unforgeability without any need to involve work. This is how Chaum’s original system worked. And the only real improvement since then has been Brands‘ selective disclosure work.

If you want to limit supply, there are cheaper ways to do that, too. And proof-of-work doesn’t, anyway (it just gives the lion’s share to the guy with the cheapest/biggest hardware).

Incidentally, Lucre has recently been used as the basis for a fully-fledged transaction system, Open Transactions. Note: I have not used this system, so make no claims about how well it works.

(Edit: background reading – “Proof-of-Work” Proves Not to Work)

I mentioned my work on the Google Certificate Catalog recently. One thing I forgot is a command-line utility I wrote to perform the check for you automatically.

You can find it here.