NYSE launches a Bitcoin index | Hacker News Reader

NYSE launches a Bitcoin index

americasmarkets.usatoday.com

149 pointsghosh47 comments

NYXBT: https://www.nyse.com/quote/index/NYXBT

Methodology: https://www.nyse.com/publicdocs/nyse/indices/NYSE_Bitcoin_In...

It's apparently calculated once a day within two hours of 4 PM UK time (GMT +1) and relies on one source: Coinbase Exchange.

The methodology is scheduled to be reviewed four times a year.

This is similar to (as in, they've basically copied, right down to the 4pm timing) the methodology used to set the WM/Reuters closing spot rates: http://www.wmcompany.com/pdfs/WMReutersMethodology.pdf

Good to see Bitcoin going mainstream!

Sadly Bitcoin is fundamentally unstable. If the difficultly ever stabilised it is vulnerable to a mining efficiency attack that de-stabilises it. It's one reason that I'll be staying clear even if it does become more mainstream.

May you please elaborate on why do you think difficulty is important and what are exactly the "mining efficiency attacks"? This is the first time ever I see someone mentioning this.

The statement makes no sense. If difficulty stabilises then it still requires between 30 and 51% to carry out an attack. Adding that to the network causes the difficulty to increase so you need more computing power to get your 30%. If we assume the bad actor already has that computing power then they could do it now or alternatively they are sitting on unused bitcoin hashing power which is becoming less useful everyday.

Let's say that difficulty plateaus, that means that mining hardware no longer is deprecating, because output in bitcoins is dependent only on difficulty*hash rate. (It is a common misconception that hashing is a competition like a "race" and others hash rate affects how quickly you can find bitcoins.)

If difficultly is stable then what matters is how efficiently you can mine, i.e. how many bitcoins you can mine relative to how much electricity you spend.

Well if you control say a third of the pool, then you can obviously capture a third of the bitcoins and spend a third of the electricity.

Or, you can mine alternate difficultly periods.

When you mine, the next period the difficulty will be 1. Then you chose not to mine and the pool loses 1/3 of the hashing power, so next round the difficulty will be 2/3. Then it adjusts back and it will be 1 again.

The result is that you get to mine at a lower difficulty than the rest of the population. The difficulty increases from your hashing is paid for by everyone else and not by you, then you get the enjoy the reduced difficulty from others not mining as fast.

This becomes de-stabilising because the rational thing when faced with this is to join you on only mining the easier periods which further makes the problem worse.

This effect starts happening with any amount of hashing power, even with 1% hashing rate you would see a small efficiency improvement by mining alternate difficulty periods.

It seems like the result of this is to cycle, with a decrease in difficulty resulting in a following increase in difficulty and then an increase in difficulty resulting in a decrease in difficulty. This is meta-stable: it's not a system that converges on a single value, but it's a system that oscillates between overshooting and undershooting the true value.

Plenty of systems work fine like this in nature - it's pretty much a textbook predator/prey dynamic, and yet carnivorous life has been going on for several hundred million years on Earth. It would be a problem if the dynamic was for the number of miners to drop to zero or explode to infinity instead, but this is a negative-feedback cycle, not a positive-feedback one.

It's not meta-stable because if there is a difficulty above which mining is not profitable then the oscillations will become larger and larger until eventually it is too expensive to complete the next difficult adjustment period. The easy adjustment periods will become shorter and shorter.

You are wrong as characterising this as negative-feedback, this is positive feedback because if you are presented with a situation where in even "weeks" (which now last 6 days) the difficulty is 10% less than odd weeks (which now last 8 days), then you will join mining only the easy weeks which further feedsback to more distortion.

edit to add: I realise the adjustment period is not aimed to be 7 days, this is for easier illustration.

Interesting. It seems like a classic "tragedy of the commons" situation. Even if miners want to see Bitcoin succeed (in order to get a return on their mining hardware investment), at some point they have to join the alternating adjustment period schedule to remain profitable, making the problem worse, and riding the sinking ship down...

The question is what is the "activation energy" required to initiate the oscillations. Is a large miner (how large?) likely to attempt this knowing the ultimate outcome?

And more importantly, can it be fixed? The protocol isn't set in stone.

Will 2/3 difficulty guarantee more than twice revenue?

No, but profit is what matters.

So ultimately this leads to situation when blockchain grinds to halt every two weeks of four. Will not happen. If needed btc core will be patched to calculate difficulty in some other, tamper resistent way, and miners WILL ACCEPT this patch gladly.

This attack can be pulled off in economically satisfying way only then your electricity costs dominate your overall costs, i.e. you do not pay rent, wages etc. And this is false.

Given miner's situation (he pays wages and rent) to use this attack effectively miner needs to represent significant part of hashing power of network. This means that his stakes are high and engaging in destructive behavior may undermine reputation of Bitcoin as network, BTC price and ultimately miner's own business.

In case lower scale attack (manipulation of hashing power of a pool) pool and his operators are there to punish such behavior.

EDIT: language

>even with 1% hashing rate you would see a small efficiency improvement by mining alternate blocks.

Do you mean alternate difficulty periods, as opposed to alternate blocks (whch would mean switching on/off every 10 minutes and would not affect the difficulty significantly.

Yes, sorry I mean alternate adjustment periods. I'll edit that part.

The problem with your theoretical attack is, as per the Bitcoin protocol, the target (which determines the difficulty) cannot change by more than a factor of 4 between rounds.[0]

You can't rapidly jump between difficulties like that.

[0] https://en.bitcoin.it/wiki/Target

Even if you controlled 50% of the mining pool then it wouldn't increase by more than a factor of 4. (It would jump from 2/3 to 1).

It's about the fact that you mine more efficiently not suddenly mining a lot more bitcoin. (You actually mine fewer blocks overall but at a larger reduction in running time costs than the reduction in mining.)

The target isn't the same as the difficulty. The target is what is limited to a factor of 4, not difficulty.

Mining "more bitcoin" or mining "more efficiently" don't matter. What matters is the speed at which 2016 blocks are produced network-wide.

I'm not sure that your example makes sense. Suppose a scenario in which there are three miners with equal hash rates and a protocol which emits 3600 coins per difficulty period. The division of coins will be approximately 1/3 per miner when everyone is running. You're a miner and decide to enact your strategy.

What happens is that in higher difficulty periods your competitors who keep running constantly are making 1800 coins each. When the hash rate drops and you come on everyone gets 1200 coins each. Your expected revenue becomes 600 coins/period. The result of your strategy relative to just running constantly is halving revenue.

The only variance introduced is the speed at which new blocks are generated in each period.

While it's true that your remaining miners get more coins, kWh/coin is far higher and the power costs are most likely in normal currencies. In addition, the transaction times would become highly variable, reducing the utility (and hence value) of the cryptocurrency. Given both those points, you could cause huge instabilities in hash rate assuming you could persuade enough miners to join in.

The important point is that an attacker could use this just to wreck the cryptocurrency in question, although they may simply buy more coins at the lower price and profit from any rebound.

> The result is that you get to mine at a lower difficulty than the rest of the population.

Everyone mines at the same difficulty. If you choose not to mine for a period (and the difficulty adjusts to a lower level), you're just encouraging more miners to fill your void - your absence represents new opportunity for miners who might not have been profitable at the higher/original difficulty.

Even if new mining doesn't increase difficulty to the original level, you're always mining at the same difficulty as the rest of the population, so your supposed gain is everyone else's gain, meaning it's effectively non-existent.

In other words, just because you can affect difficulty by temporarily choosing not to mine, your absence (and lower difficulty) does not decrease participation of other miners; if anything, it will encourage more mining and ultimately cause the difficulty to increase for everyone.

So are all assets. It's one of the quirks of capitalism that markets remain efficient only to the extent that people believe that they're inefficient, and liquid only to the extent that people are misinformed about an asset's value. To see why, imagine a perfectly efficient asset market with perfect information, where the goal of every participant is to maximize their financial returns. In such a market, all participants know everything that all other participants do, they know that all other participants know everything they do, and they can transact instantaneously without cost. Prices in this market converge instantly upon the "true" value, which can be agreed upon by all market partipants because of their omniscience. Such a market has zero liquidity. Why would anyone transact if they know that a security already has the correct value? For there to be profit potential, the person who sells to you must be misinformed about the security's true value, which contradicts the assumption of omniscience. The interesting thing is that the more market participants believe in the market's efficiency, the more inefficient it becomes. With little incentive to do their own research (why bother, when the current price reflects more information than they could possibly amass?), the underlying fundamental value of the asset can drift further from the consensus price without anyone noticing. This increases the profit potential for people who assume that they know better than everyone else. Eventually, a few of them get rich, the consensus breaks down, lots of people lose their shirts, and the market becomes efficient again. The result is the business cycle. Periods where people believe in the market's efficiency are bubbles (when the consensus price is above the true value) and panics (when the consensus price is below the true value). Periods when they don't are crises, where the prevailing momentum swings but this change in opinion is unevenly distributed. Lots of things fundamental to the modern world are unstable. The whole concept of a financial asset is one of them. I can think of a number of individual industries that have an unstable dynamic, but I'm not going to name them because I believe there's profit potential in them. Public opinion is yet another one.

Would you mind breaking that up into paragraphs... It's easier to read that way

So are all assets.

It's one of the quirks of capitalism that markets remain efficient only to the extent that people believe that they're inefficient, and liquid only to the extent that people are misinformed about an asset's value. To see why, imagine a perfectly efficient asset market with perfect information, where the goal of every participant is to maximize their financial returns.

In such a market, all participants know everything that all other participants do, they know that all other participants know everything they do, and they can transact instantaneously without cost. Prices in this market converge instantly upon the "true" value, which can be agreed upon by all market partipants because of their omniscience.

Such a market has zero liquidity. Why would anyone transact if they know that a security already has the correct value? For there to be profit potential, the person who sells to you must be misinformed about the security's true value, which contradicts the assumption of omniscience.

The interesting thing is that the more market participants believe in the market's efficiency, the more inefficient it becomes. With little incentive to do their own research (why bother, when the current price reflects more information than they could possibly amass?), the underlying fundamental value of the asset can drift further from the consensus price without anyone noticing. This increases the profit potential for people who assume that they know better than everyone else. Eventually, a few of them get rich, the consensus breaks down, lots of people lose their shirts, and the market becomes efficient again.

The result is the business cycle. Periods where people believe in the market's efficiency are bubbles (when the consensus price is above the true value) and panics (when the consensus price is below the true value). Periods when they don't are crises, where the prevailing momentum swings but this change in opinion is unevenly distributed.

Lots of things fundamental to the modern world are unstable. The whole concept of a financial asset is one of them. I can think of a number of individual industries that have an unstable dynamic, but I'm not going to name them because I believe there's profit potential in them. Public opinion is yet another one.

Thanks. I had it in paragraphs originally, but copied & pasted it back in from the back button after accidentally deleting it and the formatting didn't copy over.

I think your conclusion of zero liquidity is wrong because there will still be people entering and exiting the market.

Even if participants all have perfect information, I feel like you're forgetting something fundamental to instruments, at least primary instruments. If I buy an instrument, I'm expecting returns, I don't buy primarily to speculate, but to gain returns, which can be fixed or variable. So for say a sovereign state with little credit risk, why do funds but the state's government bonds? Because there is contractual income to gain. There will always be someone wanting to sell and let go off that income, because for most people money is an utility that is accumulated to be used. On the other side, even in a perfect market, there will always be someone who has received the money from the spender, and wants to get income from that instrument.

Or is there something I'm missing?

People trade in ForEx (possibly more than any other market?). Holding currency doesn't have a contractual return.

Bitcoin will go down in history as virtual place where a whole pile of virtual money went down the virtual tubes. These virtual currencies will never fly so long as currency speculation is legal. They are repeating all the same mistakes that the current "real" money system exhibits. Bitcoin is subject to the same crooked manipulation schemes that we have operating in the banking systems today.

The list of non-events like this that will be taking Bitcoin mainstream is long and full of non-starters and non-producers.

It's an index from a company that maintains over 2200 indices at the moment.

now if I could only get my company to accept payments in bitcoin...

Only a good idea if they immediately convert to fiat, at which point they'll lose out on advantages of a price rise. However, the alternative is worse, as it's pretty easy to lose percentage points in value on any given day. I'd hate to be the guy who had to explain why yesterday's $1.00 payment was now worth $0.97. Perhaps a hedge would be to tie your paycheck to Bitcoin's value at the beginning of the pay period.

Can you trade an index ?

In most cases, no. But Futures and Options on Futures are usually tradable on an Index once the futures are created.

If I make one hundred pieces of blue paper and I call it a currency and I start selling it to people, would this type of behavior be questionable? Bitcoin is just a complicated high tech version of this. It's debateable whether or not Bitcoin is empty dreams, outright fraud, or an actual currency. What bitcoin is, is not the point. The point is this "index" you want to buy.

Lets say I make 100 pieces of red paper but this time I say each piece of paper represents 1/100th of an index fund that tracks the cost of the blue paper. Also whoever buys a red paper from me has to pay me annual fund management fees.

You're telling me you want to buy these pieces of paper that ALREADY track a "currency" that is quite sketchy in nature? If you want to gamble your money, gamble the right way, buy the blue paper, or in other words just buy bitcoin straight up.

> It's debateable whether or not Bitcoin is empty dreams, outright fraud, or an actual currency.

It's also debatable if you've stopped beating your wife or are in a loving marriage with her. Hopefully you see what we both did there.

Context: http://en.wikipedia.org/wiki/Mu_%28negative%29

Personally, I don't consider Bitcoin a currency. It's more than that.

Perhaps my wife enjoys BDSM and thus loves being beaten while at the same time being in a loving marriage with me. Different perspectives yield different conclusions, especially when whether or not something is "currency" depends entirely on perspective itself. Hopefully you can realize that.

I'm curious to hear why you think it's more then "currency." Personally I think you can't even call it a currency yet.... Though this may change down the road.

I love your response, as it is all about context and understanding. My main point was centered on the fact you really can't speak for others unless you have their context, which is impossible because you aren't them. I do realize how important that distinction is! :)

Bitcoin provides features of currency, but does so with a nod to identity management as access is limited to those with the keys. This means cryptocurrencies could give way to federation, which is payments + identity + some standard. The problem cloud continues to disrupt everything in sight - including traditional 'currency'.

I am also surprised regulatory agencies are allowing this. An index fund which tracks prices of a currency based on a cryptographic standard.

> If I make one hundred pieces of blue paper and I call it a currency and I start selling it to people

You just described fiat currency. Just change blue to green. (in the US - others than many other colors, so pretty). Bitcoin is backed by a cryptographic standard. The USD is backed by the government and a military force. Both are seen as valuable by someone. Both have little or no true valuable items behind them, other than confidence. One, the government and the guns, the other, the anti-counterfeit nature and provability via the global ledger.

The dollar is backed by culture and tradition, the government has no control over whether or not you want to use or accept a dollar for goods.

Bitcoin is still new and thus still speculative. Being backed by cryptography doesn't mean shit. It just means you can't copy it. So what? It still holds zero intrinsic value. Sure the dollar holds no intrinsic value either. But why the dollar vs bitcoin vs some other cryptographic currency I pull out of my ass? The difference is culture and tradition, the dollar has tons, bitcoin... not as much. This is why the price of bitcoin fluctuates so wildly. Most people don't buy bitcoin to use as currency... the entire BC market is like a gambling house where people try to buy and sell paper from each other.

Don't get me wrong, I'm not saying don't buy bitcoin or don't support it... I'm just saying to be aware of what it currently is, and what it may transform into in the future...

> The dollar is backed by culture and tradition, the government has no control over whether or not you want to use or accept a dollar for goods.

The government has control through the legal system which is the ultimate recourse for dispute over payment of goods, and it exercises this control by assessing damages, when a dispute is resolved through the courts, in US dollars.

if bitcoin ever becomes currency, who says courts won't have power to enforce payment via bitcoin?

The main difference is inflating the money supply. The government cannot control the supply of bitcoin the way they do with green dollars.

> if bitcoin ever becomes currency, who says courts won't have power to enforce payment via bitcoin?

Bitcoin is currency.

What it is not is legal tender.

Courts in the US have the legal power to enforce payment in bitcoin or Euros or chickens or hours of service or any other form now. They also have well-established rules that they only do so in manners other than the legal-tender currency established by the government in certain exceptional cases.

I agree, except for the part where you say bitcoin is currency.

Most people will not accept bitcoin as a medium of exchange. I cannot go to my local grocery store and buy something with bitcoin. I can, however by something with dollars. Thus bitcoin is not yet a currency.

"If I make one hundred pieces of blue paper and I call it a currency and I start selling it to people" - This is what modern currency is. Pieces of paper issued by government.

Right, of course. But there's a difference. Why do you choose bitcoin over dogecoin? Why do most people choose the dollar over bitcoin?

Decades of culture and tradition have molded the dollar into something different from people just selling paper. Bitcoin is not yet such a thing.

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