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Ed Hartouni
Trad climber
Livermore, CA
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Jan 17, 2018 - 09:29am PT
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No serious investor touches anything he doesn't completely understand.
in terms of bitcoin I don't think it is hard to "completely understand" it. The "it" is a computation entity that exists on a distributed set of servers that continually validate it, and share that validation to achieve a consensus, this is encoded in the blockchain.
It is a computational entity. It exists on the internet. It depends on the rate of validation/consensus being much higher than the rate of counterfeiting (which makes it susceptible to disruptive computational technologies like quantum computing could be).
But presuming it can maintain an identity, it is an entity.
In someways, bitcoin is a brilliant advertisement for blockchain technology.
Charles Ponzi was an Italian swindler and con artist
I think this is not an apt characterization of bitcoin. Bitcoin derives its value from what people are willing to pay for it, so much more like the Tulip example. A Ponzi scheme is quite different, basically a losing "investment" for which some set of investors, usually the early ones, get paid by the later investments. At some point the rate of incoming investments cannot sustain the rate of payout.
Bitcoin is something rare and a market has grown around it, its price is tied to that perceived value. Any number of investments are based on equally ephemeral properties.
Many of us have "banked" our labor in retirement investments we expect to be paid back to us at a later date.
Whether or not this is a Ponzi scheme awaits for some later time.
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Reilly
Mountain climber
The Other Monrovia- CA
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Jan 17, 2018 - 10:02am PT
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At best it is unregulated gambling. At worst it makes a Ponzi scheme
look good if it is in fact being secretly manipulated.
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Banks
Trad climber
Santa Monica, CA
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Jan 17, 2018 - 05:08pm PT
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Bitcoin, cryptocurrencies and blockchain technology are here to stay and are part of the future. Historically, when new technology and innovation come along, the old guard ignore it at first, then mock and deride it, and finally try to join the party before its not too late. And we are seeing this happen with regards to Bitcoin and blockchain. CBOE, CME, NYSE, etc. are all investing heavily in blockchain technology and companies that use the tech. Goldman Sachs is opening a crypto trading desk this summer. Others will soon follow.
Financial and technological innovations take time to implement before widespread adoption takes place. Your average person in the early 90's thought internet shopping wouldn't take hold and that using your credit card online was crazy. Fast forward to 2018 and online banking/payments are routine and we all wish we had bought Amazon stock back in the day.
Yes, it is a volatile market. But that is because it is a young and relatively small market. Current market cap is 550 Billion. Taken on a global scale, that is small. As it grows, it will stabilize. Yes, 90% of altcoins are sh#t and will never amount to anything except to line the pockets of the developers and speculators. The others will become the Googles of tomorrow. If it all goes to sh#t in the future, you can say I told you so. But I'm betting that will never happen.
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Tom
Big Wall climber
San Luis Obispo CA
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Jan 17, 2018 - 05:15pm PT
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The New York Times ran this article last week:
NYTimes article on cryptocurrency culture
In case a reader is too young to remember the dot-com boom and bust, a big part of that time of irrational exuberance was the presence of outsized enthusiasm coming from an "insider culture" wielding faux-clever names, arcane terminology, promotional mugs and t-shirts, outrageously expensive project-themed parties, and outlandish-to-ludicrous predictions that defied simple economic logic.
In the NYTimes article, one of the interviewees says that he "does ICO's", meaning "Initial Currency Offerings". In other words, he helps people set up their own cryptocurrency, and then take it public in order to cash in. There have been thousands of these ICO's recently.
That is like people printing their own paper money, convincing others that it has value, and then taking it "public" with an IPO (initial paper offering). Use of a modern technology, such as color-shifting ink, may lend a tenuous air of legitimacy to such "currency", and make it harder to copy, but it would still be just paper and ink. Very few people would buy into a bunch of privately-printed pieces of paper that were claimed to be a "government-independent form of currency".
But, that is what cryptocurrencies are. The only difference is that it is much harder for someone to copy it himself, and add his inventory to the existing pile. And, the blockchain technology is, ostensibly, more permanent than a piece of paper, and that, supposedly, makes cryptocurrency a reliable store of value.
Last month, South Korea began regulating Bitcoin and other cryptocurrencies. This was following a computer security breach at a trading house that left its clients divested of their investments. The alleged security of the blockchain was unable to prevent the theft.
KOREAN BITCOIN TRADER BANKRUPT AFTER HACKERS STEAL MILLIONS
SOUTH KOREA REGULATES BITCOIN, AND OUTLAWS INITIAL COIN OFFERINGS
Here are three other recent instances of hackers stealing Bitcoin from dealers:
HONG KONG BITCOIN TRADER HALTS TRADING AFTER HACKERS BREAK IN
SLOVENIAN BITCOIN DEALER ROBBED OF $64 MILLION
ANOTHER DAY, ANOTHER ONLINE BITCOIN THEFT
Other governments, including (especially?) the United States, can be expected to take regulatory action on cryptocurrencies. Despite being promoted as being "government-independent", trading Bitcoin for dollars in the U.S. would be relatively easy to control. Notice how easy it was for the U.S. government to ban online gambling, and use the FDIC as muscle against banks that issue credit cards that allow payment to offshore casinos.
The notorious Winklevoss twins (who once claimed to own Facebook) are heavily invested in Bitcoin. They were among the first to file for permission from the U.S. government to offer Bitcoin derivatives, such as options and futures. Responding to the current crash in Bitcoin prices, they have said they intend to keep their long positions, and expect Bitcoin to go up ten, or twenty, times in the near future.
Dave Chapman, Managing Director of cryptocurrency trading firm Octagon Strategy, sees the price of Bitcoin exceeding $100,000 before the end of 2018.
In keeping with those faux-sagacious investment predictions, here is one that is climbing-related:
When Valley Giant cams are no longer produced, they will become very collectible. I see the prices exceeding $100,000 at auction, with the earliest examples fetching up to $1,000,000 within a decade.
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Reilly
Mountain climber
The Other Monrovia- CA
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Jan 17, 2018 - 05:24pm PT
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I strongly encourage everyone to read Nobel laureate Robert Shiller’s Irrational Exuberance.
It thoroughly explains bubbles with a particular emphasis on real estate, but it is all the same.
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Ed Hartouni
Trad climber
Livermore, CA
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Jan 21, 2018 - 10:49am PT
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the NYTimes Magazine has an article in it today which I think does a good job of examining the potential of the blockchain technology, especially as it pertains to the use of the internet.
Worth a read if you are following this thread:
Beyond the Bitcoin Bubble
by Steven Johnson
For all their brilliance, the inventors of the open protocols that shaped the internet failed to include some key elements that would later prove critical to the future of online culture. Perhaps most important, they did not create a secure open standard that established human identity on the network.
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The paradox about Bitcoin is that it may well turn out to be a genuinely revolutionary breakthrough and at the same time a colossal failure as a currency.
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First, Bitcoin offered a kind of proof that you could create a secure database — the blockchain — scattered across hundreds or thousands of computers, with no single authority controlling and verifying the authenticity of the data.
Second, Nakamoto designed Bitcoin so that the work of maintaining that distributed ledger was itself rewarded with small, increasingly scarce Bitcoin payments...This process has come to be called “mining.”
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What Nakamoto ushered into the world was a way of agreeing on the contents of a database without anyone being “in charge” of the database, and a way of compensating people for helping make that database more valuable, without those people being on an official payroll or owning shares in a corporate entity. Together, those two ideas solved the distributed-database problem and the funding problem.
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In this one respect, the Bitcoin story is actually instructive: It may never be stable enough to function as a currency, but it does offer convincing proof of just how secure a distributed ledger can be. “Look at the market cap of Bitcoin or Ethereum: $80 billion, $25 billion, whatever,” Dixon says. “That means if you successfully attack that system, you could walk away with more than a billion dollars. You know what a ‘bug bounty’ is? Someone says, ‘If you hack my system, I’ll give you a million dollars.’ So Bitcoin is now a nine-year-old multibillion-dollar bug bounty, and no one’s hacked it. It feels like pretty good proof.”
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The blockchain worldview can also sound libertarian in the sense that it proposes nonstate solutions to capitalist excesses like information monopolies. But to believe in the blockchain is not necessarily to oppose regulation, if that regulation is designed with complementary aims. Brad Burnham, for instance, suggests that regulators should insist that everyone have “a right to a private data store,” where all the various facets of their online identity would be maintained. But governments wouldn’t be required to design those identity protocols. They would be developed on the blockchain, open source. Ideologically speaking, that private data store would be a true team effort: built as an intellectual commons, funded by token speculators, supported by the regulatory state.
Like the original internet itself, the blockchain is an idea with radical — almost communitarian — possibilities that at the same time has attracted some of the most frivolous and regressive appetites of capitalism. We spent our first years online in a world defined by open protocols and intellectual commons; we spent the second phase in a world increasingly dominated by closed architectures and proprietary databases. We have learned enough from this history to support the hypothesis that open works better than closed, at least where base-layer issues are concerned...
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Reilly
Mountain climber
The Other Monrovia- CA
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Jan 21, 2018 - 11:48am PT
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HaHaHa! The Economist and the LA Times had better articles this week about the security
vulnerabilities and the LENGTHY LIST of the billions ‘stolen’ so far. Of course, technically
speaking how does one steal something that doesn’t really exist? 🤪
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Ed Hartouni
Trad climber
Livermore, CA
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Jan 21, 2018 - 12:00pm PT
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ironically, these "thefts" were not compromising the actual blockchain,
the compromises were due to the failure of trusted institutions, e.g. phone companies allowing phone numbers to be moved to other phones...
It doesn't surprise me, given your background, that you misunderstood this
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Reilly
Mountain climber
The Other Monrovia- CA
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Jan 21, 2018 - 12:11pm PT
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I certainly don’t and never claimed but because I do understand economics I see no utility
in this nonsense unless you’re a drug dealer or tax evader hence I hope most people lose
their shirts. The Economist and LA Times articles indicate the problems are far more serious
and rooted in actual vulnerabilities within the blockchain.
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Ed Hartouni
Trad climber
Livermore, CA
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Jan 21, 2018 - 12:24pm PT
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you didn't read the NYTimes article very carefully
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Reilly
Mountain climber
The Other Monrovia- CA
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Jan 21, 2018 - 12:27pm PT
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I didn’t read it at all because I could care less about the technical minutiae. I read articles
about the economic and regulatory issues and gloss over the mumbo-jumbo. I operate
like I did when I had a real security clearance: it’s on a need-to-know basis. To me the many
Korean university students gambling away their financial futures is more important than the
bits and bytes issues.
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Moof
Big Wall climber
Orygun
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Jan 21, 2018 - 12:29pm PT
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So a currency that costs $20 everytime you use it, requires your compute infrastucture is hardened against hackers, takes days to clear transactions, and is subject to +/-2x value swings on a weekly basis. Where do I sign up?
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Ed Hartouni
Trad climber
Livermore, CA
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Jan 21, 2018 - 12:31pm PT
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as I said, it isn't surprising given you background that you would focus on those issues, which are real.
as for the blockchain, the "minutiae" are important
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Banks
Trad climber
Santa Monica, CA
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Jan 21, 2018 - 05:04pm PT
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If you keep your Bitcoin on an exchange, you are a moron. Keep it in cold storage and you will be fine.
If it costs you $20 dollars and multiple days to complete a transaction, you're doing it wrong.
Ask a Venezuelan if they would prefer the short term volatility of Bitcoin or the hyperinflation of their native currency.
Ask a fleeing refugee or a person living under a repressive government if they appreciate the use of block chain technology.
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Moof
Big Wall climber
Orygun
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Jan 21, 2018 - 06:09pm PT
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I don’t live in Venizuela.
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Ed Hartouni
Trad climber
Livermore, CA
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Jan 21, 2018 - 06:42pm PT
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the LATimes mentions a paper but doesn't cite it or provide a link, what's up with that?
It wasn't too hard to find it though,
A Survey on Security and Privacy Issues of Bitcoin
but I think it would be considered highly technical for most, and definitely in the "minutiae." An unsophisticated reader might conclude from the shear number of cases considered that it sounds dicey.
They might miss comments in the concluding paragraphs e.g.
"One of the major contribution of Bitcoin is the degree of transparency and decentralization, that it provides along with the adequate level of security and privacy, which was previously deemed impossible. The original concept of mining, which could be based on proof of work, proof of stake, proof of burns or some other scheme, not only secures the blockchain but it eventually achieves the distributed consensus. In particular, the most important steps that make the whole process so cohesive includes, the way these schemes binds the votes to something valuable, give rewards in exchange to pay for these valuables, and at the same time controls the supply of the cryptocurrencies in the system."
This was a major part of the NYTimes report.
Finally, blockchain technologies are open source, which is a tremendous advantage when improving the security issues, as the ones so comprehensively described in the paper.
If you read far enough in the paper Section III E. Practical attack incidents on Bitcoin you find the relatively few incidents, and realize that the "then" value of the crypto-currency makes a difference when you quote the cost of the losses. Also, you find that there is some question as to the actual loss. There have been no exploits at the protocol level, though the paper explains how these might happen. The "minutiae" confirms the inherent security of the protocol. All bets are off if you loose your wallet someplace. If that happens, then just like in real life, the people who find the wallet can spend the money.
Maybe the difference is too subtle for the LATimes reporter to understand (if that reporter actually read that far into the paper).
Oh, and here is the LATimes article:
Hackers have stolen about 14% of big digital currencies
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Tom
Big Wall climber
San Luis Obispo CA
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Jan 21, 2018 - 10:05pm PT
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I watched the earliest Bitcoin documentary I could find, and what those early pioneers were focused on was its potential for use as an actual medium of exchange, as opposed to a speculative investment. Bitcoin was designed be be divisible into 100 million parts (a "Satoshi", or about 1/100th of a penny as of last week). So, any conceivable transaction can be accommodated.
The idea that you can exchange this new currency anywhere in the world, in any amount, and for negligible transaction fees sounds wonderful. Bypassing government control is whipped cream, and various Silk Road deliveries are the cherries on top. Anybody in America who doesn't hate banks, at least a little bit, isn't paying attention to how they conduct their business. Bitcoin promises freedom from the oppression of banks. It's almost too good to be true.
A mega-player who sends $10 million in Bitcoin to launder drug proceeds by purchasing a Malibu mansion will pay almost nothing in fund-transfer fees. And, a micro-player who wants to pay four cents to hear Limp Bizkit's new song can do that, too, because the transaction fee would not be 30 cents (like it would be for a bank card transaction). In a perfect Philip K. Dick world, you would show your Smart Ring to a Starbucks robot, and pay for your synthemesc latte with Bitcoin.
The problem with Bitcoin as a reliable medium of exchange, though, is its price volatility. A vendor who accepts Bitcoin runs the risk of it either going back down to $500, or going back up to $20,000. That sort of Lotto Economics doesn't work for most businesses. A stable, reliable business relies on at least some predictability. Using a currency that is wildly all over the place - - - up, then down, then up, then gone - - - is not conducive to business survival.
Also, the "free transaction" benefit of Bitcoin goes right out the window as soon as you want to exchange it for Dollars, Euros, Yuan, etc. Coinbase, which is one of the bigger cryptocurrency traders, charges several percent to convert Bitcoin into dollars, and vice-versa. And, their exchange rate for Bitcoin (according to their website) is based on the current market rate, how much your are exchanging, and - get this - how long you have been a Coinbase customer.
The biggest risk for Bitcoin is a false pollyanna of global independence from government control or interference. Any government that loses control over its medium of exchange can't survive for long. Controlling the money supply has been a primary function of government since before the Roman Empire. South Korea is already moving to control Bitcoin and other forms of VaporCoin. Unless you plan on exclusively trading Bitcoin with other Tor-browsing believers, you will have to submit to government regulation.
Warren Buffet says he would never buy, or even short-sell, Bitcoin. But, he says he would love to take a five-year put option. Maybe the Winklevoss twins will sell him that put option, backed by their Facebook fortune.
EDIT:
WIKIPEDIA ARTICLES THAT MAY PROVIDE CONTEXT TO THE DISCUSSION
Dutch tulip mania, 17th century
British South Seas Company stock mania, 18th century
Scottish Poyais land mania, 19th century
American Beanie-Babies mania, 20th century
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eeyonkee
Trad climber
Golden, CO
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Jan 22, 2018 - 09:20am PT
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In the business section of the New York Times today is an article on the vast amounts of electricity needed to power Bitcoin. "The total network of computers plugged into the Bitcoin network consumes as much energy each day as some medium-sized countries". The main discussion point in the article is whether the high electricity consumption is worth it in light of global warming.
https://www.nytimes.com/2018/01/21/technology/bitcoin-mining-energy-consumption.html
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