Why would someone rent hashing power?

Monacoin, bitcoin gold, zencash, verge and now, litecoin cash. At least five cryptocurrencies have recently been hit with an attack that used to be more theoretical than actual, all in the last month. In each case, attackers have been able to amass enough computing power to compromise these smaller networks, rearrange their transactions and abscond with why would someone rent hashing power? of dollars in an effort that’s perhaps the crypto equivalent of a bank heist.

While there have been some instances of such attacks working successfully in the past, they haven’t exactly been all that common. They’ve been so rare, some technologists have gone as far as to argue miners on certain larger blockchains would never fall victim to one. It’s too costly and they wouldn’t get all that much money out of it. But that doesn’t seem to be the case anymore.

Examples of some popular bitcoin wallets include:

NYU computer science researcher Joseph Bonneau released research last year featuring estimates of how much money it would cost to execute these attacks on top blockchains by simply renting power, rather than buying all the equipment. These attacks were likely to increase. And, it turns out he was right. Generally, the community thought this was a distant threat. Even I didn’t think it would start happening this soon. Inside the attacks Stepping back, cryptocurrencies aim to solve a long-standing computer science issue called the “double spend problem.

Why would someone rent hashing power?

Essentially, without creating an incentive for computers to monitor and prevent bad behavior, messaging networks were unable to act as money systems. To make money using this attack vector, hackers need a few pieces to be in place. For one, an attacker can’t do anything they want when they’ve racked up a majority of the hashing power. But they are able to double spend transactions under certain conditions. 3 transaction on a cup of coffee.

An attacker will only benefit from this investment if they’re able to steal thousands or even millions of dollars. As such, hackers have found various clever ways of making sure the conditions are just right to make them extra money. That’s why attackers of monacoin, bitcoin gold, zencash and litecoin cash have all targeted exchanges holding millions in cryptocurrency. By amassing more than half of the network’s hashing power, the bitcoin gold attacker was able to double spend two very expensive transactions sent to an exchange. 500,000 at the time of writing.

Though, the attack on verge was a bit different since the attacker exploited insecure rules to confuse the network into giving him or her money. Small coins at risk But, if these attacks were uncommon for such a long time, why are we suddenly seeing a burst of them? Rather, there a number of factors that likely contributed. For example, it’s no coincidence smaller coins are the ones being attacked. Further, zencash co-creator Rob Viglione argued the rise of mining marketplaces, where users can effectively rent mining hardware without buying it, setting it up and running it, has made it easier, since attackers can use it to easily buy up a ton of mining power all at once, without having to spend the time or money to set up their own miners. Meanwhile, it’s grown easier to execute attacks as these marketplaces have amassed more hashing power. Hackers are now realizing it can be used to attack networks,” he said.

Transaction status

719 to attack using rented computing power. 1 million a day to attack, you should reconsider what you are doing,” tweeted Cornell professor Emin Gün Sirer. But, while Crypto51 gives a rough estimate, ETH Zurich research Arthur Gervais argued to take the results with a grain of salt, since it “ignores” the initial costs of buying hard and software. Thus, the calculations are oversimplified in my mind,” he added. The solution: a longer wait Gervais further argues it’s worth putting these attacks into context.

He pointed to other malicious bugs, such as one found in zcoin, where, if exploited, a user would have been able to print as many zcoin as they would like. As an industry, we have to put an end to this risk,” Viglione said, pointing to efforts on zencash to stop this from happening again. Either way, one way for users or exchanges to make sure they aren’t defrauded is to only accept money that’s older, or has been buried by more blocks of transactions, called “confirmations. Initially, exchanges where bitcoin gold was stolen required only five confirmations, and the attacker was able to reverse all of them with their hashing power. In response to the attacks, they have upped the number of confirmations to 50, which has successfully plugged up the attacks, at least for now. Because of this, developers and researchers contend bigger blockchains with more hashing power behind them are more secure since they require fewer confirmations. Remember this next time someone tells you they use altcoins because they’re ‘cheaper’ to use.

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Last week I received a comment from a reader named Paul. Curious why you view REITs as an inflation hedge any more than stocks are an inflation hedge. As it happens, that’s a question I’d been pondering a lot of late. My thinking was they would serve as an inflation hedge. The idea being in times of inflation people flee cash and buy tangible assets, like real estate.

The fact that VGSLX pays about a 3. Now while I like to receive dividends as much as the next guy, for reasons I lay out in the post Dividend Growth Investing I am not a fan of pursuing them as a portfolio strategy. Suffice to say the dividends were a very distant secondary consideration. Still, they provided a stark advantage over, say, gold. The point Paul was correctly making is that stocks also serve well as an inflation hedge. People forget that stocks are not just pieces of paper. Stocks are pieces of ownership in operating businesses.

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Sales, inventory, plants, equipment, brands et al. All of which rise in value with inflation. My concern was that during periods of intense hyper-inflation that might not hold true and the damage to the economy would overwhelm the ability of businesses to deal with it. Real estate as a tangible asset held by my REITs, would hopefully do better. For inflation of modest to modestly severe levels this might well be true. Although, upon further reflection, not so much as I might have hoped. Worse, should the problem ever reach hyper-inflationary levels, REITs would very likely fair no better than the broad portfolio of stocks held in an index fund like VTSAX.

Why would someone rent hashing power?

The problem is that REITs are made up primarily of companies that hold office buildings, apartment buildings and the like. Once you put a building on a piece of land it effectively becomes a business with the same potential and shortcomings of other businesses. That’s fine in times of normal to high inflation. In times of hyper-inflation we’re asking too much of it.

Here, with some editing for space, is the rest of my conversation with Paul starting with my initial reply. If you are interested in the unedited version you can read it in its entirety on Ask jlcollinsnh starting on May 21, 2014. Inflation is, of course, the process of prices increasing. For the last several years the Federal Reserve has been trying hard to ignite a bit of it into the economy.

Why would someone rent hashing power?

Mostly to stave off the prospect of deflation and collapsing prices, but also because modest inflation, as you suggest, is good for businesses. It allows them to raise prices and wages while posting greater profits. The problem comes when inflation rages out of control. In that scenario, business finds it far more difficult to keep up. Credit becomes tight and extremely expensive.

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Lenders demand huge interest rates to compensate for the increased risk of being paid back with currency rapidly dropping in value, perhaps to the point of worthlessness, as in Germany in the 1930s. All of this combines to overwhelm a company’s business and in the process destroys the value inflation would have otherwise created. In times like these, money flees into tangibles and real estate is perhaps the most favored. Of course, REITs are made up of real estate businesses like office and apartment buildings. These are also not immune to serious hyper-inflation. I confess that sometimes I wonder if I really need the REITS and holding just stocks and bonds appeals to my preference for simplicity. The higher dividends don’t hurt either.

As you might be able to tell, I wasn’t entirely comfortable with this explanation. Since I had the sense that Paul is an astute guy, I asked him for more on his perspective. I guess part of my reluctance to buy into REITs is from looking at the fundamentals. Land itself is not a productive asset. Therefore, unlike stocks which are based on companies, it cannot increase in productivity. Any capital gains on real estate is due to some other factor. That means if I am hoping for anything in excess of the high dividend I have to assume the REIT owns property where demand is increasing, or rely on the government to continue to incentivize or boost real estate sales somehow.

I already rent on a 6 figure salary because housing is a poor deal and I live in one of the cheaper big US cities. That’s not to say that’s a bad decision if my time value of money is lower than most people. I suspect that is a true statement for most people on this website. At best, they will beat stocks when we are incentivizing home ownership.

Why would someone rent hashing power?

Now, neither of those is bad, but neither captures the value of increasing productivity like the stock market does. The reason I’m asking here is because I can’t find good data on the historical returns of real estate vs stocks. Most of it is focused from 2000 onward. As far as the potential for hyperinflation, I’m not sure either asset will do great in those cases.

I can’t imagine selling a house is much more fun than selling a burger in a time of hyperinflation. Essentially I still kind of see REITs as similar to investing in gold. Any capital gains rely on changes in demand and supply rather than fundamental increase in productivity. Caveat here that real estate is at least far more useful than gold, which is why you see the higher stability in prices. I don’t disagree with any particular point, but like you I wonder if REITs are needed.

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Right now I own none, and I am leaning toward staying with just stocks and bonds. As you can see Paul not only reinforced my growing misgivings as the the usefulness of REITs during times of hyper-inflation, he also points out several of their other short comings. Thanks, Paul, for the great and well thought out analysis. Very helpful as I re-evaluate my thinking on these things. I’ve held them for the hedge against high to hyper inflation and to a much lesser extent for the income. While something like land might serve this role, it occurs to me once you start adding buildings RE has really become a business like any other and as such it is just as susceptible to the ravishes of hyperinflation as any other. REITs, of course, hold mostly apartments and commercial buildings.

I’m very close to changing my position on this. With that in mind, any further REIT thoughts? Also, what would your choice be for a hedge against hyperinflation? My guess is most would say gold. You’re correct that it wouldn’t be gold for me.

Honestly, I take MMM’s wild optimism here. I assume it’s not going to happen. There’s a few reasons for this. Primarily, hyperinflation is just hard to plan for and to truly be protected from it I think you’d have to allocate a huge amount of resources that will then otherwise underperform.

The US economy is such a central feature to the world economy that I think it would be hard to avoid the consequences with any typical assets. Thirdly, if we look at the German stock market performance during their hyperinflation, it’s really not that bad, even in USD terms. Not bad as far as hedging a black swan. Lastly, I think it’s something you could somewhat see coming. I’d still avoid gold because foreign currency is a better medium of exchange and a steak is way more useful to someone on a monthly basis than a gold brick. In basically every hyperinflation situation we see that people are remarkably flexible. Due to all of that, I just don’t really think it’s a situation worth hedging against.

Ultimately, going back to MMM’s optimism, the most important asset during hyperinflation is me. If I can maintain my usefulness, I can make my way through hyperinflation. As far as last thoughts on REITs, after our discussion I’d have to say this. I think there they can make sense so long as you are following market conditions and keeping up with potential legislation as far as home ownership. I think international exposure would give more diversification although even that seems to correlate more and more with US performance. I lean toward the keep it simple approach. I think you’d have to physically own the land with all the joys that entails.

While the REITs have been a solid performer for us, they really aren’t well suited for the serious inflation protection role for which they were bought. REIT fund VGSLX and roll it into VTSAX. Since these are mutual funds rather than ETFs, this trade will execute at the market’s close. Since REITs are a form of stocks, essentially our allocation remains the same. But what about an inflation hedge? Well, first remember that stocks serve that function well in all but the worst hyper-inflationary times.

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Then take a look at that last link Paul provided on how the German market performed during the 1930 when they went thru perhaps the most famous hyper-inflation in the developed world’s history. Pretty encouraging, especially considering that true hyper-inflation is a pretty rare thing and, as Paul suggests, something that we should be able to see coming. The problem with this, as I see it, is that financial disasters are actually rare events. Structuring a portfolio focused on disaster carries a very high cost in lost opportunities when times, as they most often are, are more normal and prosperous. The value of cash is relentlessly eroded over time by even modest levels of inflation.

Gold, Browne’s inflation hedge, has no earning potential. Commodity producers, it turns out, have worked better. The cheapest solution is to hold an internationally diversified stock portfolio, so that rampant inflation in the U. A long-term, fixed rate mortgage tied to a house not purchased in a bubble will also offer an offset. A long-term mortgage is an interesting idea as in effect you are shorting the US dollar.

The major drawback being the inflation protection is heavily weighted toward the early years and disappears completely as it is paid off. Adding an international stock index fund might serve as a hedge against both inflation and deflation? I don’t see the need to hold an additional international position once you have VTSAX. Those reasons still hold true, but this new angle just might change my thinking. I’ll need to ponder and research it a bit more. Of course, this is also similar to Paul’s suggestion of holding foreign currencies, and for the same reason. At least until we have a meltdown when you’ll want food, gas, clothes and cattle to barter.

In prison cigarettes are always worth something, Buy them now and hold for future resale. So why sell the better performer to move into the laggard, especially with that laggard at all time highs? I only buy or sell for strategic purposes such as this change in our approach. Never as an attempt to time the market. I have no way to know if the recent trend for these two funds will continue. Importantly, since we hold VGSLX in our IRAs, we can sell with no capital gain tax concerns.

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This post is only sharing a change in what we are doing and why. It is not meant to suggest that if you own REITs you should also sell them. That is a decision that depends on why you own them and the role they play in your portfolio. They can be fine additions to a portfolio and were to ours for many years. We are rewarded for good works in one life by ascension to another life with better circumstances. The eventual destination is Nirvana, or Oneness with all things.

Seems there are many more than I realized. I think I got most, if not all. But if you see one I’ve missed, please call it out in the comments below and I’ll get it taken care of. With great visuals you can track your net worth, asset allocation, and portfolio performance, including costs. It is also a great tool for reaching short-term savings goals.

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And they are now a sponsor on this site. Please click on their ad at the top of the page for more info. These are affiliate links and should you chose to do business with them, this blog will earn a small commission. Do you know much about other kinds of businesses that are reclassifying themselves as REITs? I believe Weyerhauser, a large timber company has done this, and perhaps some hospitals and some power producing stations. Nope, this tactic is news to me. But for our purposes it doesn’t matter.

A total stock market index fund like VTSAX holds all investment sectors, including REITs. So with it, we own a piece of Weyerhauser regardless of how they choose to classify themselves. Of course by owning VGSLX we’d likely own a bigger chunk of it, but for the reasons outlined in the post, that no longer is a goal. So, as you say, simplicity wins!