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On 26 February 2014 12:18, Simon Cozens <simon@example.com> wrote:

So you invent a distributed peer-to-peer currency which doesn't require

trusting a centralized institution, and what's the first thing everyone does?

Yup, a lot of people should have known better than to leave their money on an exchange, and it's not like there weren't plenty of warning signals. It seems like a lot of people just don't trust themselves to look after their private keys, which I suppose is understandable. It sounds like a very simple problem: Memorize some information or hide some information, split in as many locations as you like, in any combinations you like, anywhere you like. But in practice it seems to be quite hard for our monkey brains to avoid screwing it up. Unfortunately this also means we can't do encrypted communication properly either.

But it's also genuinely hard to make a functional currency exchange without having a trusted party holding at least _some_ of the funds for you. Online crypto exchanges are quite a tricky problem; All the difficult aspects of dealing bitcoin - regulatory uncertainty, difficulty securing something that can be irrevocably stolen, high enthusiasm-to-competence ratios - crash up hard against a whole bunch of the banking problems which bitcoin is supposed to be helping to avoid: High costs, slow transactions, reversibility, arbitrary censorship and regulation (which you need to avoid bank failures) resulting in weak competition and poor, dozy service.

I suspect that for the first generation of exchanges the fact that it's such a tough problem produced a self-selection effect that made matters worse: If you were confident that you could run a bitcoin exchange without either getting arrested or losing everybody's money, that's a good sign that you lacked either the expertise or the risk aversion that you needed to actually do it.

Edmund Edgar

Founder, Social Minds Inc (KK)
Twitter: @edmundedgar

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http://www.socialminds.jp

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Re: [tlug] [OT] Mt.Gox Debacle. Please Comment.