How Will the Bitcoin Mania End?

I’ve tried to remain pretty balanced in my view on Bitcoin and cryptocurrencies in general. Back in 2013 I said Bitcoin was definitely money and that the ideological hatred of it was irrational. This monetary view is consistent with the general view I have on cryptos as a part of someone’s portfolio – as I said yesterday, no one really knows how this will play out so you need to be extremely cautious and avoid taking recklessly ideological positions in either direction. As a monetary nerd I am much more interested in the application of cryptocurrencies than I am with the unpredictable value of the corresponding coins. I think of it as trying to decipher the utility of the internet circa 1995 as opposed to trying to figure out if Netscape is overpriced or not.

That’s a good segue into this post. So I’ll get this out of the way upfront – I have no idea how any of this is actually going to play out, but I have an opinion and I think that opinion might help some people better understand what’s going on and what could go on. So let me elaborate on all of this.

bitcoin mania

First, I think it’s helpful to hash some of this out by defining some of the terms we’re using:

Bitcoin is a peer to peer electronic cash system.

Blockchain is a type of distributed ledger created to trace the use of a decentralized application.

Mining is the process of creating new coins in exchange for validating the ledgers and verifying their accuracy.

Cryptocurrency refers to any of the coins being created to incentivize the mining for various blockchains and their corresponding applications.

There are two elements at work here. First, there is the actual utility via an application; and second, the coin that validates the ledger that traces that utility. So, for instance, in the case of Bitcoin and the Bitcoin blockchain the coin itself is a payment processing tool. The Bitcoin blockchain itself is validated by the miners who are incentivized to mine for Bitcoin. You might use Bitcoin to process a payment with a local business and that transaction will be verified via the mining process. So it’s a decentralized payment system that is self validating and secure. At present, Bitcoin is kind of the “central coin” in a crypto world with a whole bunch of coins. It’s kind of like the reserve currency of cryptos.

The real goal of a cryptocurrency is to create a decentralized system of peer-to-peer applications. For instance, if you had a crypto wallet that traced the title of your house in your name then you could theoretically give that title to a new home buyer in exchange for some amount of crypto. You cut out all the middlemen in the process and the title is secured on the blockchain as a valid transaction. Super secure, safe and inexpensive. You could take this general framework and apply it to millions of other applications.

There’s a couple of problems with this system and I’ve touched on them in the past:

The coins have no par price settlement. This is a colossal problem with any form of money. The reason we centralize money is mainly because we can create stability in its value relative to everything else. No, not the real value, the nominal value. Yes, governments sometimes do a piss poor job of this and create hyperinflation, but in general fiat currencies are extremely stable in nominal terms. You can almost always settle a payment at par even if you’re losing some marginal purchasing power over time. Cryptos currently have no par settling mechanism which makes them a pretty bad currency. I’ve described the current iterations as non-financial collective equity because they are more like commodities than currencies. Centralized money is very good at settling at par in nominal terms because the entities that achieve this do so through massive economies of scale and, in the case of the government, no need for profit. Many Bitcoin advocates claim that Bitcoin’s decentralized nature is its strongest point, but you could also argue that the lack of a centralized market maker settling at par, is also its greatest weakness since the utility of the coin collapses when its value collapses. This is not a small flaw in Bitcoin. It is arguably a fatal flaw. The historical graveyard of monetary units is comprised of instruments that could not maintain stability in either nominal or real terms.

Some crypto activities aren’t consistent with public purpose. Again, this is arguably the greatest strength and weakness of cryptocurrencies. The decentralized peer-to-peer applications are going to be extremely useful and world changing because they cut out the middleman in many transactions and transfers. But they can also be used to evade taxes which creates a big problem for society as a whole. We have taxes for specific reasons. We need firefighters, public roads, police officers, military, etc. And we need revenue to pay those people so we need to be able to tax. One of the main reasons we centralize forms of money is so we can regulate it primarily so we can tax it and create a system whereby everyone chips-in to public purpose. Yeah, I hate taxes as much as the next guy and I think we all pay too much in taxes and that governments suck at spending our tax dollars, but I also realize there’s a logical need for some level of taxes. Therefore, a currency has to be consistent with implementing public purpose. It has to be taxable.

Now, when I think of the current state of cryptocurrencies I think we’re still way in the early stages. Just like Friendster gave way to MySpace which gave way to Facebook we will likely see many iterations of these coins over time as they evolve and become more consistent with solving practical real-world needs.

That brings me to my grand conclusion and how I think this might all play out over time. Bear in mind I am just spit balling, but I think this view kind of resolves the above issues and creates a parallel crypto world where these decentralized applications blossom.

– Read the rest of the interesting article here

+++

A Complete Beginner’s Guide To Blockchain

You may have heard the term ‘blockchain’ and dismissed it as a fad, a buzzword, or even technical jargon. But I believe blockchain is a technological advance that will have wide-reaching implications that will not just transform the financial services but many other businesses and industries. A blockchain is a distributed database, meaning that the storage devices for the database are not all connected to a common processor. It maintains a growing list of ordered records, called blocks. Each block has a timestamp and a link to a previous block. Cryptography ensures that users can only edit the parts of the blockchain that they “own” by possessing the private keys necessary to write to the file. It also ensures that everyone’s copy of the distributed blockchain is kept in synch. Imagine a digital medical record: each entry is a block. It has a timestamp, the date and time when the record was created. And by design, that entry cannot be changed retroactively, because we want the record of diagnosis, treatment, etc. to be clear and unmodified. Only the doctor, who has one private key, and the patient, who has the other, can access the information, and then information is only shared when one of those users shares his or her private key with a third party — say, a hospital or specialist. This describes a blockchain for that medical database.

blockchain

Blockchains are secure databases by design. The concept was introduced in 2008 by Satoshi Nakamoto, and then implemented for the first time in 2009 as part of the digital bitcoin currency; the blockchain serves as the public ledger for all bitcoin transactions. By using a blockchain system, bitcoin was the first digital currency to solve the double spending problem (unlike physical coins or tokens, electronic files can be duplicated and spent twice) without the use of an authoritative body or central server. The security is built into a blockchain system through the distributed timestamping server and peer-to-peer network, and the result is a database that is managed autonomously in a decentralized way. This makes blockchains excellent for recording events — like medical records — transactions, identity management, and proving provenance. It is, essentially, offering the potential of mass disintermediation of trade and transaction processing.

How does blockchain really work?

Some people have called blockchain the “internet of value” which I think is a good metaphor. On the internet, anyone can publish information and then others can access it anywhere in the world. A blockchain allows anyone to send value anywhere in the world where the blockchain file can be accessed. But you must have a private, cryptographically created key to access only the blocks you “own.” By giving a private key which you own to someone else, you effectively transfer the value of whatever is stored in that section of the blockchain. So, to use the bitcoin example, keys are used to access addresses, which contain units of currency that have financial value. This fills the role of recording the transfer, which is traditionally carried out by banks.

It also fills a second role, establishing trust and identity, because no one can edit a blockchain without having the corresponding keys. Edits not verified by those keys are rejected. Of course, the keys — like a physical currency — could theoretically be stolen, but a few lines of computer code can generally be kept secure at very little expense. (Unlike, say, the expense of storing a cache of gold in a proverbial Fort Knox.) This means that the major functions carried out by banks — verifying identities to prevent fraud and then recording legitimate transactions — can be carried out by a blockchain more quickly and accurately.

Why is blockchain important?

We are all now used to sharing information through a decentralized online platform: the internet. But when it comes to transferring value – money – we are usually forced to fall back on old fashioned, centralized financial establishments like banks. Even online payment methods which have sprung into existence since the birth of the internet – PayPal being the most obvious example – generally require integration with a bank account or credit card to be useful. Blockchain technology offers the intriguing possibility of eliminating this “middle man”. It does this by filling three important roles – recording transactions, establishing identity and establishing contracts – traditionally carried out by the financial services sector. This has huge implications because, worldwide, the financial services market is the largest sector of industry by market capitalization. Replacing even a fraction of this with a blockchain system would result in a huge disruption of the financial services industry, but also a massive increase in efficiencies.

But it is the third role, establishing contracts, that extends its usefulness outside the financial services sector. Apart from a unit of value (like a bitcoin), blockchain can be used to store any kind of digital information, including computer code. That snippet of code could be programmed to execute whenever certain parties enter their keys, thereby agreeing to a contract. The same code could read from external data feeds — stock prices, weather reports, news headlines, or anything that can be parsed by a computer, really — to create contracts that are automatically filed when certain conditions are met. These are known as “smart contracts,” and the possibilities for their use are practically endless. For example, your smart thermostat might communicate energy usage to a smart grid; when a certain number of wattage hours has been reached, another blockchain automatically transfers value from your account to the electric company, effectively automating the meter reader and the billing process.

Or, let’s return to our medical records example; if a doctor or patient issues a private key to a medical device, say a blood glucose monitor, the device could automatically and securely record a patient’s blood glucose levels, and then, potentially, communicate with an insulin delivery device to maintain blood glucose at a healthy level. Or, it might be put to use in the regulation of intellectual property, controlling how many times a user can access, share, or copy something. It could be used to create fraud-proof voting systems, censorship-resistant information distribution, and much more. The point is that the potential uses for this technology are vast, and I predict that more and more industries will find ways to put it to good use in the very near future.

  • Forbes

+++

Bitcoin Can Now Buy You Citizenship in Vanuatu

Got some bitcoin burning a hole in your digital wallet? And paradise on the mind? You could use it to buy a second passport. Vanuatu, a South Pacific archipelago of some 80 islands, will now let outsiders use the volatile cryptocurrency to apply for so-called investment citizenship. Fork over the equivalent of about $280,000, and your family of up to four can receive passports from what the New Economics Foundation, a U.K.-based think tank, calls the fourth-happiest country in the world. (It ranked No. 1 when the list was first published in 2006, but like the vagaries of the market, happiness can be a fleeting thing.

With bitcoin reaching a record price of $5,209 on Thursday, more than five times its value at the start of the year, passports for the whole clan cost about 53.8 bitcoin. Vanuatu isn’t the only island that offers citizenship for a price—the list includes Antigua, Grenada, Malta, and St. Kitts and Nevis—but it’s the first to allow payments via bitcoin. The development was announced in a press release on Investment Migration Insider, a website focused on investment citizenry. Tourists watch eruptions in the crater of the active Mt. Yasur on Tanna, an island in Tafea, Vanuatu. The volcano is continually active at a low to moderate level. Visitors may approach the rim to view the crater eruptions when the activity level is not dangerously high.

vanuatu

Vanuatu citizenship offers several advantages. The country has the 34th-most-“powerful” passport in the world, providing visa-free visits to 116 other countries, according to the Passport Index, a list of rankings maintained by Arton Capital, a company that facilitates foreign residence and citizenship applications. Vanuatu falls right below Panama and Paraguay (tied) and above Dominica; the U.K. is in a tie at third place, the U.S. at fourth, and Russia at 40th. The country also has no income, inheritance, or corporate tax. It’s not even customary to tip there, according to the Vanuatu Tourism Office. The archipelago is relatively accessible: about a three-and-a-half-hour flight from Sydney to Port Vila, the capital. And scuba aficionados will appreciate that it’s home to the world’s largest diveable wreck—the SS President Coolidge, a luxury liner-turned-troop ship that sank during World War II.

Should you really want a place to escape, Vanuatu’s abundance of islands and relatively small population (about 290,000) mean that your own private island may be within reach. The least expensive one currently on the market, according to real estate website Private Islands Online, is Lenur, priced at about $645,000. For that you get 84 acres including three sandy beaches, a handful of sleeping bungalows, and an open-plan kitchen. Most of the property is covered in coconut, fruit, and nut trees. Still, like investing in cryptocurrency in the first place, tropical life doesn’t come without risks. Earlier this month, residents had to be evacuated from the northern island of Ambae because its volcano, Manaro Voui, had rumbled to life and was spewing steam and rocks.

– Bloomberg

+++

All You Need to Know About Bitcoin

What is Bitcoin?

Bitcoin‘s inventor, Satoshi Nakamoto, described Bitcoin as “A Peer-to-Peer Electronic Cash System” in the original 2009 Bitcoin whitepaper – the document which created the roadmap for Bitcoin. To date, this is still the most simple and accurate description. Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is perhaps best described as ‘cash for the Internet’, but Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence. It is also known as digital cash, cryptocurrency, an international payment network, the internet of money – but whatever you call it, Bitcoin is a revolution that is changing the way everyone sees and uses money.

The beauty of Bitcoin is that it requires no central servers or third-party clearing houses to settle transactions – all payments are peer-to-peer (P2P) and are settled in about 10 minutes – unlike credit card payments, which can take weeks or months before they’re finally settled. All Bitcoin transactions are recorded permanently on a distributed ledger called the “blockchain” – this ledger is shared between all full Bitcoin “miners” and “nodes” around the world, and is publicly-viewable. These miners and nodes verify transactions and keep the network secure. For the electricity they use to do this, miners are rewarded with new bitcoins with each 10-minute block (the reward is currently 12.5 BTC per block).

bitcoin

The Bitcoin protocol is also hard-limited to 21 million bitcoins, meaning that no more than that can ever be created. This means that no central bank, individual or government can come along and simply ‘print’ more bitcoins when it suits them. In this sense Bitcoin is a deflationary currency, and as such is likely to grow in value based on this property alone. Bitcoin is still a cutting-edge experiment in technology and economics, and like the worldwide web in 1995, its myriad potential, purposes and applications are yet to be decided. Is it just electronic money? A foundation for smart contracts and electronic shares? Is it underground and subversive, challenging the power of governments, or will it integrate into mainstream finance and go unnoticed? If you know the answers to any of these questions, or if you can figure out how to capitalize on them there may be many lucrative opportunities for you in the Bitcoin space.

The Bitcoin universe is changing fast and often – to stay ahead of the game it’s necessary to follow the news almost-hourly and discuss the latest events with other members of the community. Bitcoin.com exists to be a reliable information hub for beginners and industry insiders alike. That being said, ‘staying ahead of the game’ is not a necessity if you simply wish to use Bitcoin as a currency to purchase goods and services, or wish to accept Bitcoin for transactions – something thousands of people around the world do every single day.

No Central Command

Bitcoin isn’t owned by anyone. Think of it like email. Anyone can use it, but there isn’t a single company that is in charge of it. Bitcoin transactions are irreversible. This means that no one, including banks, or governments can block you from sending or receiving bitcoins with anyone else, anywhere in the world. With this freedom comes the great responsibility of not having any central authority to complain to if something goes wrong. Just like physical cash, don’t let strangers hold your bitcoins for you, and don’t send them to untrustworthy people on the internet.

Secure Your Wallet

There are several different types of Bitcoin wallets, but the most important distinction is in relation to who is in control of the private keys required to spend the bitcoins. Some Bitcoin “wallets” actually act more like banks because they are holding the user’s private keys on behalf. If you choose to use one of these services, be aware that you are completely at their mercy regarding the security of your bitcoins. Most wallets, however, allow the user to be in charge of their own private keys. This means that no one in the entire world can access your account without your permission. It also means that no one can help you if you forget your password or otherwise lose access to your private keys. If you decide you want to own a lot of Bitcoin it would be a good idea to divide them among several different wallets. As they saying goes, don’t put all your eggs in one basket.

Bitcoin Price

Like everything, Bitcoin’s price is determined by the laws of supply and demand. Because the supply is limited to 21 million bitcoins, as more people use Bitcoin the increased demand, combined with the fixed supply, will force the price to go up. Because the number of people using Bitcoin in the world is still relatively small, the price of Bitcoin in terms of traditional currency can fluctuate significantly on a daily basis, but will continue to increase as more people start to use it. For example, in early 2011 one Bitcoin was worth less than one USD, but in 2015 one Bitcoin is worth hundreds of USD. In the future, if Bitcoin becomes truly popular, each single Bitcoin will have to be worth at least hundreds of thousands of dollars in order to accommodate this additional demand.

bitcoin2

Bitcoin Exchanges

There are several ways to buy Bitcoin, but trusted exchanges are a great way to acquire Bitcoin. Because there are inefficiencies in the traditional banking system, exchanges will sometimes have slightly different prices. If the difference is too great, traders will buy low on one an exchange and sell high on another and close the gap. If an exchange constantly has substantially different prices than others, it is a sign of trouble and that exchange should be avoided. As with everything else, do your research and find an exchange you can trust. It’s also a good idea not to use an exchange as a wallet. Move your Bitcoin to your personal wallet so that you have control over your funds at all times. You can view a list of Bitcoin exchanges here.

Bitcoin Isn’t Completely Anonymous

Because all Bitcoin transactions are stored on a public ledger known as the blockchain, people might be able to link your identity to a transaction over time. Some companies offer various tools such as Bitcoin mixers to help achieve greater privacy, but it takes a huge amount of effort to use Bitcoin anonymously. You may want to follow your country’s tax regulations regarding Bitcoin in order to avoid trouble with the law, but you have the power not to should you choose to take that risk. To improve privacy, most newer Bitcoin wallets will use a new Bitcoin address each time someone sends bitcoins to you.

Unconfirmed Transactions

Bitcoin transactions are seen by the entire network within a few seconds and are usually recorded into Bitcoin’s world wide ledger called the blockchain, in the next block. While it’s possible that a transaction won’t be confirmed in the next block, in the vast majority of circumstances it is fine to accept a transaction as soon as it has been seen by the network. Unlike traditional payment systems, Bitcoin transactions are lightning fast and can be sent globally. Bitcoin is still relatively new, but with each passing day the technology becomes more reliable. It is more and more unlikely that a major bug will emerge in the system as time goes by, and people can trust the technology more with the passing of time. Each month people transact hundreds of millions of dollars worth of Bitcoin.

To know more about Bitcoin, visit this link

  • www.bitcoin.com

+++