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Technical: A Brief History of Payment Channels: from Satoshi to Lightning Network
Who cares about political tweets from some random country's president when payment channels are a much more interesting and are actually capable of carrying value? So let's have a short history of various payment channel techs!
Generation 0: Satoshi's Broken nSequence Channels
Because Satoshi's Vision included payment channels, except his implementation sucked so hard we had to go fix it and added RBF as a by-product. Originally, the plan for nSequence was that mempools would replace any transaction spending certain inputs with another transaction spending the same inputs, but only if the nSequence field of the replacement was larger. Since 0xFFFFFFFF was the highest value that nSequence could get, this would mark a transaction as "final" and not replaceable on the mempool anymore. In fact, this "nSequence channel" I will describe is the reason why we have this weird rule about nLockTime and nSequence. nLockTime actually only works if nSequence is not 0xFFFFFFFF i.e. final. If nSequence is 0xFFFFFFFF then nLockTime is ignored, because this if the "final" version of the transaction. So what you'd do would be something like this:
You go to a bar and promise the bartender to pay by the time the bar closes. Because this is the Bitcoin universe, time is measured in blockheight, so the closing time of the bar is indicated as some future blockheight.
For your first drink, you'd make a transaction paying to the bartender for that drink, paying from some coins you have. The transaction has an nLockTime equal to the closing time of the bar, and a starting nSequence of 0. You hand over the transaction and the bartender hands you your drink.
For your succeeding drink, you'd remake the same transaction, adding the payment for that drink to the transaction output that goes to the bartender (so that output keeps getting larger, by the amount of payment), and having an nSequence that is one higher than the previous one.
Eventually you have to stop drinking. It comes down to one of two possibilities:
You drink until the bar closes. Since it is now the nLockTime indicated in the transaction, the bartender is able to broadcast the latest transaction and tells the bouncers to kick you out of the bar.
You wisely consider the state of your liver. So you re-sign the last transaction with a "final" nSequence of 0xFFFFFFFF i.e. the maximum possible value it can have. This allows the bartender to get his or her funds immediately (nLockTime is ignored if nSequence is 0xFFFFFFFF), so he or she tells the bouncers to let you out of the bar.
Now that of course is a payment channel. Individual payments (purchases of alcohol, so I guess buying coffee is not in scope for payment channels). Closing is done by creating a "final" transaction that is the sum of the individual payments. Sure there's no routing and channels are unidirectional and channels have a maximum lifetime but give Satoshi a break, he was also busy inventing Bitcoin at the time. Now if you noticed I called this kind of payment channel "broken". This is because the mempool rules are not consensus rules, and cannot be validated (nothing about the mempool can be validated onchain: I sigh every time somebody proposes "let's make block size dependent on mempool size", mempool state cannot be validated by onchain data). Fullnodes can't see all of the transactions you signed, and then validate that the final one with the maximum nSequence is the one that actually is used onchain. So you can do the below:
Become friends with Jihan Wu, because he owns >51% of the mining hashrate (he totally reorged Bitcoin to reverse the Binance hack right?).
Slip Jihan Wu some of the more interesting drinks you're ordering as an incentive to cooperate with you. So say you end up ordering 100 drinks, you split it with Jihan Wu and give him 50 of the drinks.
When the bar closes, Jihan Wu quickly calls his mining rig and tells them to mine the version of your transaction with nSequence 0. You know, that first one where you pay for only one drink.
Because fullnodes cannot validate nSequence, they'll accept even the nSequence=0 version and confirm it, immutably adding you paying for a single alcoholic drink to the blockchain.
The bartender, pissed at being cheated, takes out a shotgun from under the bar and shoots at you and Jihan Wu.
Jihan Wu uses his mystical chi powers (actually the combined exhaust from all of his mining rigs) to slow down the shotgun pellets, making them hit you as softly as petals drifting in the wind.
The bartender mutters some words, clothes ripping apart as he or she (hard to believe it could be a she but hey) turns into a bear, ready to maul you for cheating him or her of the payment for all the 100 drinks you ordered from him or her.
Steely-eyed, you stand in front of the bartender-turned-bear, daring him to touch you. You've watched Revenant, you know Leonardo di Caprio could survive a bear mauling, and if some posh actor can survive that, you know you can too. You make a pose. "Drunken troll logic attack!"
I think I got sidetracked here.
Bears are bad news.
You can't reasonably invoke "Satoshi's Vision" and simultaneously reject the Lightning Network because it's not onchain. Satoshi's Vision included a half-assed implementation of payment channels with nSequence, where the onchain transaction represented multiple logical payments, exactly what modern offchain techniques do (except modern offchain techniques actually work). nSequence (the field, but not its modern meaning) has been in Bitcoin since BitCoin For Windows Alpha 0.1.0. And its original intent was payment channels. You can't get nearer to Satoshi's Vision than being a field that Satoshi personally added to transactions on the very first public release of the BitCoin software, like srsly.
Miners can totally bypass mempool rules. In fact, the reason why nSequence has been repurposed to indicate "optional" replace-by-fee is because miners are already incentivized by the nSequence system to always follow replace-by-fee anyway. I mean, what do you think those drinks you passed to Jihan Wu are, other than the fee you pay him to mine a specific version of your transaction?
Satoshi made mistakes. The original design for nSequence is one of them. Today, we no longer use nSequence in this way. So diverging from Satoshi's original design is part and parcel of Bitcoin development, because over time, we learn new lessons that Satoshi never knew about. Satoshi was an important landmark in this technology. He will not be the last, or most important, that we will remember in the future: he will only be the first.
Incentive-compatible time-limited unidirectional channel; or, Satoshi's Vision, Fixed (if transaction malleability hadn't been a problem, that is). Now, we know the bartender will turn into a bear and maul you if you try to cheat the payment channel, and now that we've revealed you're good friends with Jihan Wu, the bartender will no longer accept a payment channel scheme that lets one you cooperate with a miner to cheat the bartender. Fortunately, Jeremy Spilman proposed a better way that would not let you cheat the bartender. First, you and the bartender perform this ritual:
You get some funds and create a transaction that pays to a 2-of-2 multisig between you and the bartender. You don't broadcast this yet: you just sign it and get its txid.
You create another transaction that spends the above transaction. This transaction (the "backoff") has an nLockTime equal to the closing time of the bar, plus one block. You sign it and give this backoff transaction (but not the above transaction) to the bartender.
The bartender signs the backoff and gives it back to you. It is now valid since it's spending a 2-of-2 of you and the bartender, and both of you have signed the backoff transaction.
Now you broadcast the first transaction onchain. You and the bartender wait for it to be deeply confirmed, then you can start ordering.
The above is probably vaguely familiar to LN users. It's the funding process of payment channels! The first transaction, the one that pays to a 2-of-2 multisig, is the funding transaction that backs the payment channel funds. So now you start ordering in this way:
For your first drink, you create a transaction spending the funding transaction output and sending the price of the drink to the bartender, with the rest returning to you.
You sign the transaction and pass it to the bartender, who serves your first drink.
For your succeeding drinks, you recreate the same transaction, adding the price of the new drink to the sum that goes to the bartender and reducing the money returned to you. You sign the transaction and give it to the bartender, who serves you your next drink.
At the end:
If the bar closing time is reached, the bartender signs the latest transaction, completing the needed 2-of-2 signatures and broadcasting this to the Bitcoin network. Since the backoff transaction is the closing time + 1, it can't get used at closing time.
If you decide you want to leave early because your liver is crying, you just tell the bartender to go ahead and close the channel (which the bartender can do at any time by just signing and broadcasting the latest transaction: the bartender won't do that because he or she is hoping you'll stay and drink more).
If you ended up just hanging around the bar and never ordering, then at closing time + 1 you broadcast the backoff transaction and get your funds back in full.
Now, even if you pass 50 drinks to Jihan Wu, you can't give him the first transaction (the one which pays for only one drink) and ask him to mine it: it's spending a 2-of-2 and the copy you have only contains your own signature. You need the bartender's signature to make it valid, but he or she sure as hell isn't going to cooperate in something that would lose him or her money, so a signature from the bartender validating old state where he or she gets paid less isn't going to happen. So, problem solved, right? Right? Okay, let's try it. So you get your funds, put them in a funding tx, get the backoff tx, confirm the funding tx... Once the funding transaction confirms deeply, the bartender laughs uproariously. He or she summons the bouncers, who surround you menacingly. "I'm refusing service to you," the bartender says. "Fine," you say. "I was leaving anyway;" You smirk. "I'll get back my money with the backoff transaction, and posting about your poor service on reddit so you get negative karma, so there!" "Not so fast," the bartender says. His or her voice chills your bones. It looks like your exploitation of the Satoshi nSequence payment channel is still fresh in his or her mind. "Look at the txid of the funding transaction that got confirmed." "What about it?" you ask nonchalantly, as you flip open your desktop computer and open a reputable blockchain explorer. What you see shocks you. "What the --- the txid is different! You--- you changed my signature?? But how? I put the only copy of my private key in a sealed envelope in a cast-iron box inside a safe buried in the Gobi desert protected by a clan of nomads who have dedicated their lives and their childrens' lives to keeping my private key safe in perpetuity!" "Didn't you know?" the bartender asks. "The components of the signature are just very large numbers. The sign of one of the signature components can be changed, from positive to negative, or negative to positive, and the signature will remain valid. Anyone can do that, even if they don't know the private key. But because Bitcoin includes the signatures in the transaction when it's generating the txid, this little change also changes the txid." He or she chuckles. "They say they'll fix it by separating the signatures from the transaction body. They're saying that these kinds of signature malleability won't affect transaction ids anymore after they do this, but I bet I can get my good friend Jihan Wu to delay this 'SepSig' plan for a good while yet. Friendly guy, this Jihan Wu, it turns out all I had to do was slip him 51 drinks and he was willing to mine a tx with the signature signs flipped." His or her grin widens. "I'm afraid your backoff transaction won't work anymore, since it spends a txid that is not existent and will never be confirmed. So here's the deal. You pay me 99% of the funds in the funding transaction, in exchange for me signing the transaction that spends with the txid that you see onchain. Refuse, and you lose 100% of the funds and every other HODLer, including me, benefits from the reduction in coin supply. Accept, and you get to keep 1%. I lose nothing if you refuse, so I won't care if you do, but consider the difference of getting zilch vs. getting 1% of your funds." His or her eyes glow. "GENUFLECT RIGHT NOW." Lesson learned?
Payback's a bitch.
Transaction malleability is a bitchier bitch. It's why we needed to fix the bug in SegWit. Sure, MtGox claimed they were attacked this way because someone kept messing with their transaction signatures and thus they lost track of where their funds went, but really, the bigger impetus for fixing transaction malleability was to support payment channels.
Yes, including the signatures in the hash that ultimately defines the txid was a mistake. Satoshi made a lot of those. So we're just reiterating the lesson "Satoshi was not an infinite being of infinite wisdom" here. Satoshi just gets a pass because of how awesome Bitcoin is.
CLTV-protected Spilman Channels
Using CLTV for the backoff branch. This variation is simply Spilman channels, but with the backoff transaction replaced with a backoff branch in the SCRIPT you pay to. It only became possible after OP_CHECKLOCKTIMEVERIFY (CLTV) was enabled in 2015. Now as we saw in the Spilman Channels discussion, transaction malleability means that any pre-signed offchain transaction can easily be invalidated by flipping the sign of the signature of the funding transaction while the funding transaction is not yet confirmed. This can be avoided by simply putting any special requirements into an explicit branch of the Bitcoin SCRIPT. Now, the backoff branch is supposed to create a maximum lifetime for the payment channel, and prior to the introduction of OP_CHECKLOCKTIMEVERIFY this could only be done by having a pre-signed nLockTime transaction. With CLTV, however, we can now make the branches explicit in the SCRIPT that the funding transaction pays to. Instead of paying to a 2-of-2 in order to set up the funding transaction, you pay to a SCRIPT which is basically "2-of-2, OR this singlesig after a specified lock time". With this, there is no backoff transaction that is pre-signed and which refers to a specific txid. Instead, you can create the backoff transaction later, using whatever txid the funding transaction ends up being confirmed under. Since the funding transaction is immutable once confirmed, it is no longer possible to change the txid afterwards.
Todd Micropayment Networks
The old hub-spoke model (that isn't how LN today actually works). One of the more direct predecessors of the Lightning Network was the hub-spoke model discussed by Peter Todd. In this model, instead of payers directly having channels to payees, payers and payees connect to a central hub server. This allows any payer to pay any payee, using the same channel for every payee on the hub. Similarly, this allows any payee to receive from any payer, using the same channel. Remember from the above Spilman example? When you open a channel to the bartender, you have to wait around for the funding tx to confirm. This will take an hour at best. Now consider that you have to make channels for everyone you want to pay to. That's not very scalable. So the Todd hub-spoke model has a central "clearing house" that transport money from payers to payees. The "Moonbeam" project takes this model. Of course, this reveals to the hub who the payer and payee are, and thus the hub can potentially censor transactions. Generally, though, it was considered that a hub would more efficiently censor by just not maintaining a channel with the payer or payee that it wants to censor (since the money it owned in the channel would just be locked uselessly if the hub won't process payments to/from the censored user). In any case, the ability of the central hub to monitor payments means that it can surveill the payer and payee, and then sell this private transactional data to third parties. This loss of privacy would be intolerable today. Peter Todd also proposed that there might be multiple hubs that could transport funds to each other on behalf of their users, providing somewhat better privacy. Another point of note is that at the time such networks were proposed, only unidirectional (Spilman) channels were available. Thus, while one could be a payer, or payee, you would have to use separate channels for your income versus for your spending. Worse, if you wanted to transfer money from your income channel to your spending channel, you had to close both and reshuffle the money between them, both onchain activities.
Poon-Dryja Lightning Network
Bidirectional two-participant channels. The Poon-Dryja channel mechanism has two important properties:
No time limit.
Both the original Satoshi and the two Spilman variants are unidirectional: there is a payer and a payee, and if the payee wants to do a refund, or wants to pay for a different service or product the payer is providing, then they can't use the same unidirectional channel. The Poon-Dryjam mechanism allows channels, however, to be bidirectional instead: you are not a payer or a payee on the channel, you can receive or send at any time as long as both you and the channel counterparty are online. Further, unlike either of the Spilman variants, there is no time limit for the lifetime of a channel. Instead, you can keep the channel open for as long as you want. Both properties, together, form a very powerful scaling property that I believe most people have not appreciated. With unidirectional channels, as mentioned before, if you both earn and spend over the same network of payment channels, you would have separate channels for earning and spending. You would then need to perform onchain operations to "reverse" the directions of your channels periodically. Secondly, since Spilman channels have a fixed lifetime, even if you never used either channel, you would have to periodically "refresh" it by closing it and reopening. With bidirectional, indefinite-lifetime channels, you may instead open some channels when you first begin managing your own money, then close them only after your lawyers have executed your last will and testament on how the money in your channels get divided up to your heirs: that's just two onchain transactions in your entire lifetime. That is the potentially very powerful scaling property that bidirectional, indefinite-lifetime channels allow. I won't discuss the transaction structure needed for Poon-Dryja bidirectional channels --- it's complicated and you can easily get explanations with cute graphics elsewhere. There is a weakness of Poon-Dryja that people tend to gloss over (because it was fixed very well by RustyReddit):
You have to store all the revocation keys of a channel. This implies you are storing 1 revocation key for every channel update, so if you perform millions of updates over your entire lifetime, you'd be storing several megabytes of keys, for only a single channel. RustyReddit fixed this by requiring that the revocation keys be generated from a "Seed" revocation key, and every key is just the application of SHA256 on that key, repeatedly. For example, suppose I tell you that my first revocation key is SHA256(SHA256(seed)). You can store that in O(1) space. Then for the next revocation, I tell you SHA256(seed). From SHA256(key), you yourself can compute SHA256(SHA256(seed)) (i.e. the previous revocation key). So you can remember just the most recent revocation key, and from there you'd be able to compute every previous revocation key. When you start a channel, you perform SHA256 on your seed for several million times, then use the result as the first revocation key, removing one layer of SHA256 for every revocation key you need to generate. RustyReddit not only came up with this, but also suggested an efficient O(log n) storage structure, the shachain, so that you can quickly look up any revocation key in the past in case of a breach. People no longer really talk about this O(n) revocation storage problem anymore because it was solved very very well by this mechanism.
Another thing I want to emphasize is that while the Lightning Network paper and many of the earlier presentations developed from the old Peter Todd hub-and-spoke model, the modern Lightning Network takes the logical conclusion of removing a strict separation between "hubs" and "spokes". Any node on the Lightning Network can very well work as a hub for any other node. Thus, while you might operate as "mostly a payer", "mostly a forwarding node", "mostly a payee", you still end up being at least partially a forwarding node ("hub") on the network, at least part of the time. This greatly reduces the problems of privacy inherent in having only a few hub nodes: forwarding nodes cannot get significantly useful data from the payments passing through them, because the distance between the payer and the payee can be so large that it would be likely that the ultimate payer and the ultimate payee could be anyone on the Lightning Network. Lessons learned?
We can decentralize if we try hard enough!
"Hubs bad" can be made "hubs good" if everybody is a hub.
Smart people can solve problems. It's kinda why they're smart.
After LN, there's also the Decker-Wattenhofer Duplex Micropayment Channels (DMC). This post is long enough as-is, LOL. But for now, it uses a novel "decrementing nSequence channel", using the new relative-timelock semantics of nSequence (not the broken one originally by Satoshi). It actually uses multiple such "decrementing nSequence" constructs, terminating in a pair of Spilman channels, one in both directions (thus "duplex"). Maybe I'll discuss it some other time. The realization that channel constructions could actually hold more channel constructions inside them (the way the Decker-Wattenhofer puts a pair of Spilman channels inside a series of "decrementing nSequence channels") lead to the further thought behind Burchert-Decker-Wattenhofer channel factories. Basically, you could host multiple two-participant channel constructs inside a larger multiparticipant "channel" construct (i.e. host multiple channels inside a factory). Further, we have the Decker-Russell-Osuntokun or "eltoo" construction. I'd argue that this is "nSequence done right". I'll write more about this later, because this post is long enough. Lessons learned?
Bitcoin offchain scaling is more powerful than you ever thought.
I've been in since May 2017, lessons learned, and some real talk.
I've only been in the crypto game since mid 2017. I remember back then when I was assessing the market, BTC was below $1k a few months earlier, LTC was around $4 that January and by the time I finally got in BTC had more than doubled to around $2,500 and LTC was $30. I thought ETH and XRP (and everything else) were just shitcoins because I didn't know shit and I just listened to the herd (Back then the argument was "Bitcoin is digital gold and LTC is digital silver and everything else is a scam.") Now, I'm pretty invested in several coins, because this market is anything but rational. Screw off if you think otherwise. Try to think logically in this market, and you're going to get smacked in the face. After exchanging my first fiat for crypto, in the next couple of months the market "crashed" and I was fearful. By crashed, I mean BTC went from $2,800 to $1,800. I just decided to let my cryptos ride. I pretended that money was gone, but I'd check prices every day for whatever damn reason. I wasn't even putting that much in. Hell, I would spend more eating out and going to the bars every weekend with friends or work colleagues than I was dropping into BTC. It was pretty common that I'd drop $100 a night on sushi, beers, and Sake Bombs. But, when money you could get back loses value, it makes you feel dumb for putting money in. Logic is out the window when I can't get that $100 back from my sushi and drink purchases, but my crypto dropped 30% that week, so I was dumb for investing in crypto but not for my $500+ per month on eating out and drinking with friends. Several weeks later, I was back to even on my crypto investments. Well shit, that was fast. Then I was suddenly up 25%. "Fuck it, I'm just putting money in. I'm not missing out." By the the winter of 2017, I was up over 10x with my crypto speculation. My initial LTC went from $30 to over $350; my BTC went from $2,500 to $20,000. I also just threw $300-$1,000 here and there on random sub-200 market cap coins only to see them 6x in a few weeks. I remember thinking how stupid I was for not buying during that dip down to $1,800, but how good of an investor I was because my gains. What a fucking dope I was. I was sitting there looking at my account on December 10th, 2017. I was about to sell because I could have paid off my car and 50% of my student loans. I wasn't even using my car because I was in another country traveling. "Nah, I can't sell. This is just the beginning; let's wait until I can pay off all my student loans" my delusional self said. I never cashed out. I remember sitting there with a dude who had his GDAX account open after BTC "crashed" from $20k to $13k two weeks later. We just got back from surfing. He was still sitting at $250,000 in his account and was nervous as shit. "What should I do?" he asked rhetorically. Then immediately answered himself, "It will rebound," he said, "it always does." This guy had been through the MTGOX hack and gave me plenty of advice while we surfed. And I listened as if he was prophetic. What a fucking dope I was. When hopium is in the air, we all get irrational. I still wonder about that guy and his cryptos. He went north back home for the Christmas holiday, while I headed south for more traveling, and I've never seen him again. February 2018 was both euphoric and scary as shit. "Holy shit! BTC is under $10k I never thought it would be down here again. But it could keep dropping. But it was just $20k a month ago." I was skeptical that it wouldn't keep dropping so I waited. Then, I didn't want to miss out. BTC was making a run from $6,500 up to testing $10k. "If it breaks $10k, I'm getting back in." A short time later, it did break $10k, only to be hit a wall at $12k, then again...then, the inevitable crash to $6,200 happened where it fluctuated in August - November of 2018 up until, what, November 10th-ish when BCH shitfork shat out and then BTC-Shit-Vision and BTC-LMNOP started paying miners to mine their forked fork of BTC and everyone shat themselves as the market tanked yet again. That was it for me. That was the day I stopped caring. I remember thinking how stupid I was to invest so much time in this. You can't predict this shit. I didn't regret investing in crypto, I regret all the time spent looking at my portfolio, trying to time the market, pretending I was some guru in my head because I threw $300 at POE when it was less than a penny and weeks later it was selling for $0.21 and could buy another trip to whatever country I wanted. Sure, you can use TA to see what support or resistance is there, but it's still a 50-50 chance whether Fake Satoshi is going to spoof trade or some rando is going to drop three 7,000 BTC market buys to break through resistance. So, what did I learn through this whole experience? Other than what I've already stated (You have no way to predict whether it's breaking through resistance or crashing through support). I just remember the main thing that has persisted this last two years. "I wish I could go back in time to when BTC was around $3,000 and LTC was $30." When BTC dropped below, $4k that was heaven. I never thought it would get back to when I was buying when I first got into the market in 2017. So, I bought, and I bought hard. This time around, I have strong buy strategies and sell strategies. They are set; no question. For me, I'm not selling until two weeks before the LTC halving in August. Even then, I'm only selling my LTC for BTC. Then I'll sell 25% of my BTC for fiat 2 weeks before the BTC halving in 2020. I will never have less than my preferred number of BTC's, ETH's, LTC's and a few others. Don't follow my advice here, I'm just saying I know what I want and what my strategy is. You need to have a strategy to buy and strategy to sell. Be reasonable. I previously had a "strategy." It was once I could pay off my student loans with all of my crypto gains minus taxes, I would sell. Yeah, well, looking back if I would have just sold when could pay off my car and 50% of my student loans, I would have been able to invest even more when BTC was down in $3,xxx range and LTC was $22-$35, etc from December 2018 through March 2019. DCAing is the way to go. No question. You don't need to do TA, you don't need to check your portfolio, you don't need to do shit but either 1) setup an automatic buy order with your exchange or 2) login and buy whatever you want. You have your buy strategy (DCA at x interval) and you have your sell strategy. Figure it out. Don't pretend you're gonna time the market. Don't pretend you're some guru. Those people, like me, learn the hard way. No TA, no waiting for google searches of BTC to increase, no waiting for BAKKT, no waiting for Faktoshi to shut the fuck up. Before November 2018, I would only throw money when BTC was on a run. "Oh, we're finally on the way up. It's time to buy!" Like when it went from $2,800 up to $6,200 in the summer 2017, then from $10k to $20k in late 2017. Or when it went from $6,200 back up to $10,000 then to $11,900 in February of 2018. I would think I could time the market. What a pathetic loser, right? Some people grow up in this market like the cable version of themselves only to transition to the directv version. Listen to us dopes that have been there and done that. Learn from our mistakes, but also don't think that we have all the damn answers. Anyone that comes in here acting like the 2nd coming of Craig Wright's dumpster twin, you can be rest assured they are as delusional as Justin Sun. The problem is, even if they are delusional, this market is anything but rational, so they might just be proven right enough for you to think you should follow their advice. This shit is crazy. Stop acting like you've got it figured out. Nobody does, but it feels good to have confidence in this random speculation, right? I'm here to tell you this. My life has drastically improved since November 2018 when I started viewing Crypto investments like a bill. Every two weeks, I would send money from my paycheck to my exchange. Then, I'd buy a certain amount every single week after it had cleared. That money, is all but "gone." It was a "bill" I paid. When the market is going down, I send more fiat and I buy more crypto. When it is rising, I still buy, but not as much; I pull back. You may say I'm trying to catch a falling knife. I just learned that the way I was investing before was bad practice. I'd rather people think I'm trying to catch a falling knife than to feel that FOMO and only buy when the market is up. Right now for example, I'm not buying this week. Not because I think I know what hell is going to happen, but because it's my strategy to not chase a run, and to spend more when it drops. I'll wait until next weekend and see what the market is doing. What happens in between now and next weekend, I don't give a shit. Could I miss out on another run? Sure, but I don't give a shit. Maybe it's because I'm 2 years in and I've seen this shit before, or maybe it's because I've been buying BTC when it was around $3,000 both in 2017 and just about a month ago, so I feel fortunate to have gotten another chance at BTC at $3,xxx. I also learned my lesson that fakeouts happen. I've been burned enough to not give a shit about being BTC going from $3500 to $5,200 in the last, what, 5 weeks? Been here, done it, don't give a shit. I don't know if this helps anyone, but seeing the last two years of this shit, I don't care about some random 30% pump. I also don't care that BCH is up 86%, or ADA is up whatever it is. I'm not into them, but if you made gains, I'm happy for you. I'm serious too. Maybe you're new to this game, or maybe you've only been in since $20k. If so, you're still here, and there are plenty others like you. I'm not a BTC maximalist, I don't think LTC is the truth, I don't think only ETH is the dApp platform. I don't know shit. I'm just some speculator that is speculating on some of this sit. There are also plenty of people that were like me in 2017 that are waiting in the wings, only to buy when the market is on the rise. There are plenty more that buy when it's rising then set stop losses that whales will fish for only to wreck the market in a day then to see a bounce back even stronger while those people FOMO back in. Also, the turd version of satoshi could start shitting in public this week and the media could write about how Satoshi is literally shitting on a physical Bitcoin as we speak and some shitcoin creator then posts a Twitter video that goes viral about how the hashrate and energy consumption of the satoshi shit-pile is not sustainable and then some whale market sells down to below the new TA shit-support level of $4,400 and then all the dopes with stop losses in that range get shit fucked only to see a spoof limit order set at $4,400 of 10,000 BTC and everyone's dick shrinks into their stomach as they hurry to Tether as BTC drops back down to $3,500 before whale #2 shit fucks your emotions with a $1,500 green dildo in a 15 minute span sees the "sell wall" disappear which starts the next FOMO run on up to $6,200 a few weeks later while TAers say "We broke out on great volume" then other TAers agree and the self-fulling prophecy starts another run only to get hit with more whale fuckers. You can't predict this shit. Give it up. Market goes up, market goes down, can't explain that. With the LTC halving in August, the BTC halving in May 2020, I think we are about to get into the 2017 euphoria again though. We are getting closeTM to the point you could just thrown money at any coin and get 10x your investment. What does "close" mean? I have no idea. Eff anyone that thinks they know. Someone could predict it is this week, next month, or after this current fakeout bull run, or in December, or next Spring, and someone will be right. The only advice I have is to do your best to not get emotional about your money or crypto. It's going to do the exact opposite of what you think it will. Even when you try to do the opposite, crypto will shit-fuck you in your sleep. If you believe that the sentiment is changing, and let's be real, we are in speculation phase and this is all based on hopium and belief, then DCA at certain intervals. This isn't some cult. It's all based on sentiment. If you think people are starting to get interested, then that is a sign speculation is about to be in our favor. If you are putting money in that needs to be rent money, do yourself a favor and just walk into a casino and put it all on red. If you win, then put your winnings in crypto. If you lose, I saved you the anguish of checking your portfolio every hour only wish you would have done the opposite of what you did. You're welcome... Or, do the opposite. Check the market every hour for the next 12 months only to look back and realize that you kept buying on the way up, got scared and sold on the way down, and then FUD yourself in your sleep because of your stop loss sells were triggered while whales were fishing for fear. So, there are all of my shit thoughts. What are yours? What are your strategies? There are plenty of people that have been in longer than me, what are your strategies? Are we heading for a the next bull run? Is the bottom in? Do we still have a massive, short-lived capitulation event coming? Let's chat. TL;DR: You can't predict this shit, just DCA, live your life, get a buy strategy, choose a sell point, make this shit as simple as possible. If you try to complicate things by predicting the next run, the next drop, the next consolidation, then you're probably going to be wrong like 99% of people. And don't be that guy that ends up $250,000 in your account in the next bull run only to see it drop down $67,000 literally a week later.
As same as you guys i lost money when Mtgox "went down" in March of 2014. I lost around 1000 $ and when it happened i just thought for myself to just "take the loss". I did get some e-mails after a year or so about the bankruptcy for Mtgox, but never really thought that it was any idea for me to get involved in the process. Partly because i live in Sweden and my English is pretty limited, especially when it comes do academic/law English. So i just deleted the emails and did not put much energy to it. But 1-2 weeks ago i received a letter from japan regarding "Civil Rehabilitation proceedings". As i mentioned before my English is limited so the letter did not make that much sense. So after a bit of googleing and finding out that the case against mtgox has moved from a bankruptcy to a "Civil Rehabilitation proceedings" with the changed conditions that you could get your bitcoins back and not just the fiat currency that the bitcoins was valued back at 2014. Because the surge in price of bitcoins the last years this felt like i needed to look deeper into. So that is why i write here, have looked here a little bit but it seems like most people here has already filed a claim or at least been more involved? My question is: Is it too late to do anything now, and what should i do? (where do i start). The only thing i know from when Mtgox was still online is my e-mail and approx balance. I do not know my password, account number, BTC-adresses etc. I have tried to look a bit here:https://claims.mtgox.com/assets/index.html#/ But i do not get wiser. Sorry for the trouble, but all these advanced English just gives me a headache. Any tip or help would be really appreciated! Thanks in advance
Apologies for typos and grammatical errors; wanted to get this out as soon as possible for those that weren't able to watch the live stream. Cleaned up formatting to make it more readable.
While this isn't a 100% word-for-word transcript, the overtone of the meeting should have been conveyed. SEC and CFTC want protections for consumers, but don't want to outright ban crypto. I was under the impression that both agencies were well-educated, but understaffed. They both want to introduce protections for customers and investors and go after scam artists, but don't want to impose any restrictions or regulations that would be bad for crypto as a whole (both from a security perspective, and a technological innovation perspective). Overall a huge positive.
Touched on the definition, use, history, all-time-high, market cap, negative news
Mentioned that the techonology has positives to transform the financial landscape, transfer risk
Volatility, 1000% rise, 60% fall, compared to DOW Jones
touched on scam artists/hackers, undereducated market participants
mentioned there are regulatory gaps, potentials for abuse
neither SEC/CFTC has authority to police all aspects
mentioned some analogies to the dotcom bubble
may be used to fund illicit activity
says they need to do more to get ahead of the curve
"don't forget your day jobs to pursue and punish misconduct", mentioned the 3 big banks being punished recently
crypto brings us to a new age, but don't overlook the princilpes of going after the bad guys and being tough
estimated highest market cap $700 bn; promising new technology
great efficiencies, including capital markets; seek to WORK WITH those who seek to bring innovation
Crypto currencies - replacement for dollars
widely known introduced as substitutes
make it easier and cheaper ot buy and sell goods
verification and fees/costs eliminated
ICOs - stock offering
stocks and bonds, under a new label
security being offered is a virtual token
"if it functions as a security, it IS a security"
doesn't mean you are investing in blockchain ventures
market have less oversight than traditional securities
if it looks like a stock exchange, don't take comfort
no capital and conduct requirements
many ICOs are conducted illegally
creators not following securities laws
those who try to circumvent the SEC are in their crosshairs
do not have control over the regulation of the markets that exchanges exist in
"do not view this as a request for increased SEC jurisdiction"
"I believe every ICO I have seen is a security"
we are working with the DOJ to enforce laws
story about how his kids recently showed an interest in Bitcoin
"we must foster their interest, but crack down hard on those that abuse"
response should have several elements:
learn as much as we can - Lab CFTC to engage with innovators
put things in perspective - as of this morning, Bitcoin 113 bn market cap. less than the market cap of McDonald's. sometimes compared to gold; value of gold dwarfs Bitcoin at 8 trillion market cap
educate consumers - podcasts, webinars, visits to libraries, outreach to seniors
legal authority - "The CFTC does not regulate the dozens of cryptocurrencies"; through their authority, they have enforcement over spot coin markets; analyze manipulation
tough enforcement - they have already launched civil actions, more will follow overall take: wants to work to foster education but introduce protections
Suggesting that perhaps one or both of SEC/CFTC may or should have full control
we should all come together and have a coordinated plan for dealing with the virtual currency market
far from how the stock market is addressed
asked by Crapo if there needs to be additional measures, responded "we may"
FINCEN has been active with AML/KYC
there isn't a comprehensive structure to deal with this
cross-border and international concerns; what challenges?
international nature means patchwork is not sufficient
FINCEN reports that these currencies are used for
encourages FINCEN to continue pursuing this
Markets have been global
Challenge working with overseas and bringing regulations
Challenge requires a lot of new thinking
Encourage to work together to decide how the regulation should look
ICOs raised $4bn globally
SEC focused to protect investors
not clear how much was raised in the U.S., due to unregulated basis; "significant portion"
cooperation between SEC and CFTC regulating Bitcoin but doesn't mention consumer protection bureau CFPB
we're in the enforcement perspective, i can check on that
report that "SEC has stopped enforcement actions against wall street firms"
"I saw that report"; found it annoying; gestation period is 22-24 months, latency period
we've put out a comprehensive report; i'm happy with that
we're pursuing our securities laws vigorously
troubled by a statement "SEC might lose 100 of its enforcement staff by not hiring those who leave"
how are you going to stay on top of everything else we've talked about as well as virtual currencies
personnel is my biggest challenge at the moment
we have a hiring freeze - natural cost, trouble finding people, etc
would receive the "greatest return for additional bodies"
is that the message that you're not the cop it should be?
not at all
I hope you will ask for money and flexibility
I've been very straight about money and value that can be added
Federal reserve is the biggest bank regulator we have
how are you going to put together a task force to deal with crypto currencies before this gets out of control
treasury secretary has brought us together to talk about this
"the funny thing is, they only work for their purported purpose if they're integrated with the financial service"
we are going to be coordinating responses; needs to be clear as to what we're doing
do you need additional legislation
we may be back to ask for that
virtual; go to a virtual doctor, virtual currency, etc
"i started out with pencil and paper in school"
Lack intrinsic value, lack liquidity
gained money going up, lost money going down
don't know where the floor is
relation between Bitcoin value and the cost of mining
charts plotting the correlation
the floor isn't zero, because there is some cost
"think there is something to the value of the crypto exchange"
"I'm not seeing the benefits manifesting themselves in the market yet"
"I'm interested in protecting the main street investors; they should see that"
in the securities world, there are rules that dictate how much you have to tell someone about what they're investing in
we will give you every tool you need to do your job and to hire every person you need to execute that
(essentially) do you have any cryptologists?
emerging area; could always use more horsepower
hired the industry's first "chief innovation officer"
started Lab CFTC
formed virtual currency task force
brought 3 cases against bitcoin fraudsters
used bypass authority for additional resources (13% over budget)
Bitcoin isn't the only one; there are seemingly new ones every day
are you tracking them all?
is someone looking at the long-term systemic effects
eerily similar to late-90s derivatives
Bitcoin is one of many; important to know that many are fraudulent
"MyBigCoin" which became known as "MyBigCon" - Ponzi scheme; we went after them
relatively small market, but we have to watch it
we have had to watch it because they're integrated with the markets we do oversee
on systemic - agrees with Giancarlo
if people are getting ripped off, that is an issue
"I used a pen and pencil as well"
fascinating to see how things are moving
we keep coming back to dollars and cents
new type of exchange; bartering
could avoid determination of the value of the dollar and cents
how do you tax? how do you recognize income?
seems that have to be filled, but basics that a lot of us don't understand
how do you respond to ICOs?
definition of a security is broad
"when you're offering me something and i give you money and the purpose of me giving you money is to profit from your actions going forward"
is Bitcoin a commodity or a security or is it both?
has characteristics of both
is a "medium of exchange, store of value, or a means of account"
we hear a lot of people holding - "HODL - hold on for dear life"
30 year old niece bought some years ago, is holding on
in this regard, it's a commodity
we are looking for fraud and manipulation so that people like his niece are protected
Jan 26th Bloomberg "SEC weighs a big gift [...] blocking class action lawsuits"
wants to get a straight yes/no - "do you support this enormous change in SEC policy"
bottom line - "I can't dictate whether or not this issue comes to us, but I'm not anxious to see a change in this area"
change can't happen without your approval
I'm only 1 of 5 votes
I'd guess there will be at lest 2 votes against it
It would take a long time
I'll let you get away with that
SEC's mission is to protect; not throw under bus
advisers that put fees, kickbacks for recommending product ahead of interest of clients
I want to know that you will not weaken the protections for retirement savers
that's what I'm trying to do - the relation between a broker and their client is regulated by no less than 5 people (the SEC)
want to make sure you're not jeopardizing investors
insufficient standard, lack of clarity, "the standard is only as good as the remedy available"
what dollars do you actually collect when someone does you harm?
if you want to strengthen it, i'm with you
who pays for frivolous lawsuits?
regulatory arbitrage, hard to trace
South Korea, China
was a largely unregulated space
each country is now taking regulatory measures
there's a lot happening beyond the understanding of your average investor
what do we need to do to combat this?
regulatory arbitrage, price arbitrage
different regional and international market
regulation - i think some time ago there was a perception Bitcoin was off the regulatory grid
enforcement / ICOs - we're using our full authority
we will go after misconduct
pump and dump
unregulated exchange, ability for price manipulation
we've taken 3 cases in the last few weeks, more to come
digging deep, learning a lot, seeing a lot
we are working the beat hard
what about retail investors?
formed partnership with CFPB (Consumer Financial Protection Bureau)
Bitcoin is one of the most frequently searched term on library computers
enhancing outreach to educate people coming to the library
getting the word out - financial intermediaries
are you protecting retirement investments
seniors seem to be the prey of choice - not just for Bitcoin
we seek to prosecute these predators
article from Kentucky "Bitcoin is my potential pension"
what would you do to protect them?
troubling, which is why we're putting out so much material
"if it sounds too good to be true, it is"
"if you're giving them money, you'd better be prepared to lose it"
disruptive technologies, but you shouldn't bank on it
pumping all of your money into a disruptive technology has a very high probability of not working out
"there will be winners, but there will be many losers"
want to ensure it's not used against terrorist groups and countries like N Korea
working with FBI; will require cooperation among multiple organizations
also has a dark web working group
when was the last time you bought a fund?
a year or two ago, index funds
did you read the fine print?
not cover to cover
so what's the point of all this over-disclosure if nobody's reading it?
why do we want to do the same for Bitcoin?
adequacy of full disclosure
"I don't think the disclosure we have right now works"
good for lawyers / financial advisers, but right now, we over-disclose
how far should we go to protect people from themselves?
how far do you think we ought to go here? should we just go after the shysters and fully disclose?
what is the right way to deal with this new technology?
we want to deal with ICOs; don't want to go too far
our securities laws work pretty well, but disclosure can be improved
we have to have disclosure that works, and helps the helpless people
if we see the same continued growth, we may see the market cap at 20 trillion dollars by 2020
we may see the same transformation take place
we are going to have to wrap our hands around this
not sure what the right answer is, but this could systemically rise to an FSOC-level event
if this does keep going, is this a systemic issue?
want to go back to separating these two things
should regulate ICOs like securities
false disclosure is fraud, period
so much more to be done
Ethereum - creating "file sharing or extra computer time"
are these in your realm?
if it's an ICO that promises to deliver server time, it's a security
worried that we need a much more coordinated effort
could be as transformational as wireless technology
it is important; we are all working to understand our authorities
bitcoin futures are different; fully transparent and regulated, compared to Bitcoin that's opaque and unregulated
ICOs should be taken under our regime
Putting aside Bitcoin and other distributed ledger, what do you think the value is?
Without Bitcoin, there would be nothing. everything grew out of it.
applications range from financial services and banking, to charity dollars are spent, refugee, access to banking for those who don't have it
66 million tons of soybeans were traded using Bitcoin
allow regulators to do really close market surveillance with precision
challenges, but the potential is significant
agree the potential is significant
hope people pursue it vigorously
DOW Jones fell 4.6%; dollar seen 2% inflation or less; Bitcoin seems to be very volatile in comparison
we have seen volatility but in our world, we're used to it
emergence of futures to provide those who are exposed to it
don't really know what's driving the volatility
not related to foreign currencies
must be something different
lot of volatility compared to what they're supposed to be a substitute for
(essentially) so how does that bode to its claim?
it would not be a very effective means of exchange
with the volatility and delays, there's a significant risk
(quick shout out to) rogue nations, hackers, etc
under what circumstances do the SEC and CFTC have a role in regulating this?
fraud and manipulation - will not hesitate to take authority
what about manipulating to avoid U.S. sanctions?
I'll have to look into that
are there gaps that could create vulnerabilities?
part of a virtual currency task force; includes the fed and FINCEN
meeting with FINCEN this week to get some discussion of cooperation started
seen increase in ICOs; investors using digital tokens
grew from $96mil in 2016 to $4bil in 2017
celebrity promotion - Floyd Mayweather, Kardashian, et al
investors may not understand true risk when they see a product promoted by celebrities
we put out an alert that if you promote a security, you are taking on securities law liability
can you walk us through why the SEC is not comfortable with approving ETFs with crypto currencies?
we've made it clear that there are some issues - price discovery, custody, volatility
don't want to approve an ETF product with a cryptocurrency underlier without working out these issues
don't ETFs mitigate those concerns? are crypto currencies different?
MGT act - modernizing government technologies
create a fund for federal agencies to rid themselves of legacy technology
allows access to dollars; move to cloud
i would be delighted that there isn't a SEC/CFTC hack in the papers soon; advise strengthening cyber security
Kodak and Burger King investments
companies are using block chain as an opportunity to pump up stock prices
Long Island Ice Tea - Long Blockchain
nobody should think it's okay to chain your name to something that contains block chain when you have no idea what you're doing
any time there's something new that can raise the value of their stock without the underlying goods being there, it's not good
ICOs misrepresenting their affiliation where there are wild claims
"Our big task is bringing in enforcement cases and letting people see that"
3bn Bitcoin have been hacked, $500bn hack weeks ago, MtGox
what can buyers do to get their money back?
when you engage in investing online with an offshore entity, the chances that we can do anything to get your money back are very low
for the underlying spot markets, we don't have the authority to enforce safeguards and protections; this is a problem
"It's the old axiom "buyer beware"."
(in regards to the stock market) "Is this perhaps more than ordinary correction?"
I asked my staff and the federal government the same question
nothing to indicate any of our systems didn't indicate properly
largest volume since 2016
Neither single stock nor circuit breakers triggered
Nothing that came out of this are concerning
Is it profit taking? Is it a spook?
Interest rates? Fed has info we don't have?
Economy high, unemployment low?
Combination? Can we really say?
I can't really say. Lots of opinions.
Our job is to look at the systemic risks.
I've not seen anything.
"Markets up? More people bought than sold. Market down? More people sold than bought."
Markets are very complex. Fundamentals are sound. Doesn't appear to be any significant breeches.
Some ICOs are legitimate, some are just Ponzi schemes
"It's now so bad that Facebook recently banned all ads for virtual currencies"
How do we make ICOs safer?
Companies raised more than $4bil
How many companies registered with SEC?
Can you say just a word as to why that's so?
the gatekeepers haven't done their job. we've made it clear what the law is.
there are thousands of private placements. we want them to raise capital. but we want them to do it right.
folks somehow got comfortable that this was new and it's okay.
Diversifying your 2018 investment portfolio with high risk and low risk coins
After months of thorough research I put together the best portfolio in crypto in my opinion. The portfolio is divided into high risk, high return (100x) bets, medium risk medium return (10x) and low risk, low return (3x-10x). If you want to put $30k into crypto, here is what I recommend to get the best outcome.
1. $10k into high risk high return coins XSPEC, SUMO, ECC, ODN, BNTY, SNOV.
XSPEC and SUMO are 2 are privacy coins that are currently at a tiny market cap of $9M and $4M. 3 months ago, when Bitcoin was at its All-time-high, their market caps were at $113M and $32M respectively. In case, Bitcoin goes up to its ATH of $20,000 again, those 2 coins will go back to their ATH again, too. The thing is, altcoins behave the same as Bitcoin, only that they move at a much higher percentage than the big one, Bitcoin. For example, if Bitcoin goes up 30%, all small altcoins with a market cap under $10M, such as XSPEC, will go up by around 90%. Privacy coins such as Monero are one of the most sought after cryptocurrencies currently and experts expect a big rise of privacy coins 2018. XSPEC and SUMO are very similar in technology to Monero, maybe even superior though their market cap is 100 times less, since they are less than 1 year old. ODN, BNTY and SNOV are the small market cap coins with the biggest expected commercial use of the blockchain as a messenger (ODN), Bug-Bounty platform (BNTY), lead-generation (SNOV) and decentralized file storage (ECC). There already exists a file storage coin Siacoin at 20x the market cap of ECC without much reason for the big gap due to ECC's solid technology. There are a also a few more very small cap coins that I considered, such as DNA in the medical field, and ELIX, though I found their potential less convincing than that of the above mentioned cryptocurrencies.
2. $15k into medium risk medium return (10x) coins, COSS, POE, PRL, DBC, ENJ.
COSS is the platform coin of the COSS crypto exchange. It is an exchange like Binance, but it is seen as one of the best small and innovative exchanges that currently exist. They will also release their mainnet in a few weeks, which will give them another boost. DBC is one of the few cryptos that make use of artificial intelligence. They have a very strong team and are one of the few cryptos in the AI space. ENJ, this is probably the coin with the most real-world usage of all cryptos. There are already a few gaming coins out there, such as FUN and MobileGo, however, ENJ is one of the few that real numbers behind them. With more than 18 million users and 250,000 gaming-based communities, **Enjin* is among the world’s largest social gaming platforms. Recently, Enjin launched its cryptocurrency—Enjin coin—an Ethereum-based token to be used on a platform that allows for the development, distribution, organization, and trading of virtual goods. As of 2 weeks ago, they closed a partnerships with one of the biggest games, Minecraft and will be used as a currency within Minecraft. POE is a decentralized platform that allows publishers to license, identify, and monetize digital content such as blog posts, news articles, YouTube videos, audio/music, e-books and more. Here is a very good article about them. https://www.reddit.com/CryptoCurrency/comments/7oubqm/my_thoughts_on_poe_and_why_2018_could_be_big_fo PRL is a very interesting one. It gives website owners the ability to generate revenue from their visitors without having to feature pushy advertising by storing encrypted data, but by mining PRL. https://www.reddit.com/CryptoCurrency/comments/7t4o95/oyster_prl_is_going_to_change_the_internet_heres/
Ok let's get to the juggernauts. If you are rather conservative, Bitcoin and Ethereum will make you a good profit in the coming years, maybe even 10x if you're lucky. However, if Bitcoin goes 10x, all smaller altcoins go 100x, so it is worth diversifying a little. The thing is, Bitcoin's technology is very outdated. It cannot handle more than 20 transactions per second, it uses as much energy as a small country and with increased usage their fees will skyrocket again. This is the problem of 1st generation blockchains. Bitcoin cash has the same problem and while they can handle double as many transactions as Bitcoin due to their block size being twice as big, it's only a drop in the ocean, since they need to be able to handle 1000x as many transactions as now if they want to be used as a payment processor. A good comparison to get an idea for transaction volume is VISA, which handles a couple of thousand transactions per second and is able to handle 60,000 transactions /second at peak times. A crypto payment processor needs to be as good as that. However, 60,000 transactions (tx)/second isn’t even a good benchmark. It’s the same as comparing the number of faxes sent with the number of emails sent. If you want to surpass old technology, you should go for 100x the amount of usage. More on that in the paragraph about IOTA. I personally won't put anything in Bitcoin and Ether, because they are rather outdated cryptocurrencies now and they can only grow another 10x maximum within the next year or 2, while there are many other coins that can grow 100x or more within the same time frame. Now we have VeChain, a supply chain cryptotechnology. VeChain is already very mature and it is the most popular and loved altcoin next to Nano. It is a safe bet. Let’s get to IOTA. They have built a very exciting new technology. They are not using a blockchain, but a Tangle. It is a 3rd generation blockchain that has zero fees and instant transaction times. IOTA’s real world application is in IoT, Internet of Things. They are using their tangle to connect to and make transactions between millions of small devices, be it temperature regulator, heating, car, lights. Now you can see why a high transaction volume is so important, because these devices communicate multiple times every second with one another through these transactions. It is estimated that in 10 years time, 80 billion IoT devices will exist worldwide, which probably create 80 billion tx/second or more. IOTA is designed to do exactly that. Bitcoin can only do 10 tx/second. Currently, 8 billion IoT devices are connected to the internet. However, IOTA has not been stress tested at this volume. It is not yet clear that transactions will remain instant at this volume, nor is it clear if the Internet of Things will ever take off. Maybe there will only be 500 million Internet of Things devices ever, this is not sure. However, IOTA has the biggest potential for me. Let’s get to BNB. BNB has the same purpose as COSS. It is used on the Binance exchange to reduce your trading fees. That means, the value of BNB rises and falls with the success of Binance and Binance is now the second largest, most loved exchange. They currently process 10% of all crypto trades. Among the sea of scammy and unprofessional exchanges, Binance stands out as very professional, intelligent, fair, with excellent customer service. They will also soon release the first decentralized CryptoCurrency exchange in a month. I believe BNB will be among the top 10 cryptocurrencies within 1 year. Let’s get to the final one Nano. It is my personal overall favourite. It is what Bitcoin always wanted to be, only a lot better. While Bitcoin is still struggling with high energy use, extremely low transaction volume and high fees upon increased usage, Nano has all that figured out already. Similar to IOTA, they are also a 3rd generation blockchain technology. They have zero fees, instant transactions and one millionth the energy usage of Bitcoin. Furthermore, they have been proven to work flawlessly while maintaining a 1000 tx/second volume. They are a payment processor. Furthermore, it looks like Nano could replace BCH as a trading pair soon, since BCH trading pairs get little traffic, KuCoin has removed BCH trading pairs yesterday and there is already an exchange with that trades all of his currencies with Nano, called Nanex. All in all, NANO and IOTA are on par for me while IOTA has more potential but also more risk, since it still has some security issues that haven’t been ironed out yet and they are somewhat reliant on the success of the Internet of Things. However, if the internet of things, really permeates our lives as described above, IOTA will replace Bitcoin and become the one most used cryptocurrency. Here is an excellent article about IOTA vs. Nano https://hackernoon.com/iota-vs-raiblocks-413679bb4c3e
Having said all this, if you believe that Bitcoin has now reached its full potential already and will never ever be worth more than now, don't invest in crypto anymore. If you think that Bitcoin can potentially go to $20k again or to $40k or that cryptocurrencies will replace FIAT in 5 years, then you can look at 10x returns. Many people fall victim to the cognitive bias of thinking Bitcoin is too risky, while the maximum risk is losing everything they invested, which can be $2,000. Sure, it is annoying to lose $2,000, but I put the possibility of Bitcoin never going to more than $7,500 at maybe 1%, while I put the likelhood of it going up to $20,000 or $30,000 at 60%. So, the odds are in your favor. All in all, it's a large upside to a small downside. If you are very sceptical of Bitcoin, but you are looking to diversify your portfolio, $2,000 is a sane investment amount that yes, is annoying to lose, but won't change your life. If Bitcoin goes up again significantly, you will simply make a large amount of money. Small downside, large upside. If you already have a significant amount of money in crypto, it's better to shift away from Bitcoin. Yes, you will probably make a 2x to 3x on Bitcoin as well, but you can make 50x from the best altcoins in the same time. EDIT: I didn't include
NEM, because their market cap is too high for average uniqueness and potential
XRP, because they are centralised. It's too risky to say they will grow with BTC, since they are going against the philosophy of crypto.
LTC, because they are just as bad as BTC and BCH
EOS, because they have too many red flags
Cardano, because they don't have a product yet, too much hype
Stellar, because one of the founders was a MtGox founder and a large portion of Lumens are owned by the foundation/founders. Not worth the risk.
NEO, I almost included them, but they didn't make the cut. Good coin though.
Tron, because they can't write a proper white paper
Monero, because there are good alternatives at a fraction of the price.
DASH, because they are an ok coin, but nothing outstanding that convinced me
ETC, because they are the same as ETH
QTUM, ICON, OMG because their market cap is too high for average uniqueness and potential
Lisk, I almost included them, but they didn't make the cut. Good coin though.
Bitcoin gold, cheap copycat
Zcash, I almost included them, but they didn't make the cut. Good coin though.
Verge, shill factory, hype, bad vibe
DGD, because their market cap is too high for average uniqueness and potential
There are several good coins in the top 100 still, Waves, Ziliqa, WTC, PIVX, Bat, REQ, ENG, SKY, LINK, though all of the high risk coins I mentioned do the same or have a bigger or equal potential as them 20x smaller market cap. These top 100 coins aren't 20x better than the high risk coins, even if they were 5x times better, it would be better to invest in the high risk coins, because you would still make 4x more profit. That's why the medium risk coins are only starting at number 133, 140 and 202. This makes them are undervalued for being the best utility coins currently.
The simplest explanation is usually the right one (Occam's Razor): "Willy" was not a conspiracy. It was exactly what Mark Karpeles said it was: a bot/API for high value clients.
I'm a little surprised that so many people are jumping straight to conspiracy theories in the last 48 hours following the "Willy Report". It especially surprises me because Willy follows the exact same patterns that so many people here have theorized would be done by "whales". Imagine you are a high value trader or company. You want to enter bitcoin or increase your position. Do you really think you would simply open up a regular trading account on MtGox, put millions of dollars into your web account, and start making million dollar trades? Absolutely no way. I've worked for two large Wall Street banks, and I can tell you flat out that high value clients have access to products and services that "normal" people do not. High value clients have dedicated staff to service them, they get taken out to dinners and events, they have exceptions done for them, they simply operate outside of the normal world that you and I live in. Willy didn't pay fees or fiat because it operated outside the purview of what a normal trader would have to do. High value clients would have direct relationships with MtGox, and would likely have special fee structure in place that they would pay to MtGox separately and at a different time than trades. Willy didn't back up trades with fiat because fiat was likely wired to MtGox separately, in bulk. Willy only bought because these high value clients weren't looking to really "trade". They were looking to enter the market, and likely couldn't find enough early adopters off-market to facilitate their needs. So, they had to go on-market. Second Market has publicly stated that they started having issues finding off-market individuals to buy from. What then? Just stop buying? Absolutely not. They instead needed to start coming on-market. However, you can't simply start making buy orders for several millions dollars. So instead, MtGox would offer an automated API that was directly connected to their servers (just like Mark said) and could make small buys at frequent intervals so as to try to not influence the market too much and cause the price to go skyrocketing. Willy had "??" in data fields because Willy likely facilitated several different clients at once. There is no grand conspiracy there. Again, I'm surprised that people aren't coming to these simple conclusions, especially since this is exactly how all of us have assumed "whales" work. What we're seeing in Willy is exactly what we expected to see in whales. Also, does anyone really think that Willy, a bot that was a small percentage of MtGox's volume, could really single-handedly incite an entire bubble when there were at least 2 or 3 other similarly sized exchanges? The truth is that Willy was just one form of high value clients entering the market on one exchange. Other exchanges likely have their own forms of "Willies" that contributed to the bubble just like it did on MtGox. And trust me, those "Willies" are no more conspiratorial than this MtGox Willy is.
The New Crypto Order & Escaping Financial Repression
The Vigilante’s View It is our first issue in months that bitcoin hasn’t hit an all-time high! And it’s the last issue of the year. And what a year for cryptos it was. To put it in perspective, bitcoin could fall 90% from current levels and it will still have outperformed stocks, bonds and real estate in 2017. Bitcoin started 2017 at $960.79. At the time of this writing it is near $13,000 for a gain of 1,250% in 2017. And, bitcoin was actually one of the worst performing cryptocurrencies in our TDV portfolio in 2017! Ethereum (ETH) started 2017 at $8. It has since hit over $800 for a nice 10,000% gain in 2017. That’s pretty good, but not as good as Dash which started the year at $11.19 and recently hit $1,600 for a nearly 15,000% gain. I hope many of you have participated in these amazing gains! If not, or you are new, don’t worry there will be plenty more opportunities in the years ahead. It won’t all be just home runs though… in fact, some of the cryptos that have performed so well to date may go down dramatically or collapse completely in the coming years. I’ll point out further below why Lightning Network is not the answer to Bitcoin Core’s slow speeds and high costs. And, I’ll look ahead to 2018 and how we could already be looking beyond blockchains. Yes, things are moving so fast that blockchain just became known to your average person this year… and could be nearly extinct by next year. That’s why it is important to stick with us here at TDV to navigate these choppy free market waters! New Years Reflection On The Evolution Of Consensus Protocols Sooner or later crypto will humble you by its greatness. Its vastness is accompanied by a madness that is breathtaking, because you quickly realize that there is no stopping crypto from taking over the world. The moment you think you have everything figured out, is the moment the market will surprise you. We are for the first time living and witnessing the birth of the first worldwide free market. Throughout this rampage of innovation, we all are implicitly aiming for the best means of harnessing consensus. As we leave this bountiful 2017 and aim at 2018, it is important for us to meditate and appreciate the progress we have made in transforming the world through the decentralization of consensus. It is also important to reflect on the changes in consensus building we have partaken in and those yet to come. Consensus is the agreement that states “this is what has occurred, and this is what hasn’t happened.” Throughout the vastness of history, we humans have only really had access to centralized means for consensus building. In the centralized world, consensus has been determined by banks, states, and all kinds of central planners. As our readers know, any centralized party can misuse their power, and their consensus ruling can become unfair. In spite of this, many individuals still praise the effectiveness of consensus building of centralized systems. People from antiquity have had no other option but to trust these central planners. These systems of control have created still-water markets where only a few are allowed to compete. This lack of competition resulted in what we now can objectively view as slow innovation. For many, centralized consensus building is preferred under the pretense of security and comfort. Unfortunately, these same individuals are in for a whole lot of discomfort now that the world is innovating on top of the first decentralized consensus building technology, the blockchain. Everything that has occurred since the inception of bitcoin has shocked central planners because for the first time in history they are lost; they no longer hold power. We now vote with our money. We choose what we find best as different technologies compete for our money. What we are witnessing when we see the volatility in crypto is nothing more than natural human motion through price. The innovation and volatility of the crypto market may seem unorthodox to some, because it is. For the first time in history we are in a true free market. The true free market connects you to everybody and for this reason alone the market shouldn’t surprise us for feeling “crazy.” Volatility is a sign of your connection to a market that is alive. Radical innovation is a sign of a market that is in its infancy still discovering itself. In juxtaposing centralized consensus building with decentralized consensus building, I cannot keep myself from remembering some wise biblical words; “ And no one pours new wine into old wineskins. Otherwise, the new wine will burst the skins; the wine will run out and the wineskins will be ruined.” – Luke 5:37 The centralized legacy financial system is akin to old wineskins bursting to shreds by the new wine of crypto. Decentralized consensus building has no need for central planners. For example, think about how ludicrous it would be for someone to ask government for regulation after not liking something about crypto. Sorry, there is no central planner to protect you; even the mathematical protocols built for us to trust are now competing against one another for our money. These new mathematical protocols will keep competing against one another as they provide us with new options in decentralizing consensus. As we look unto 2018, it is important that we as investors begin to critically engage and analyze “blockchain-free cryptocurrencies.” HASHGRAPHS, TANGLES AND DAGS Blockchain-free cryptocurrencies are technologies composed of distributed databases that use different tools to achieve the same objectives as blockchains. The top contenders in the realm of blockchain-free cryptos are DAGs (Directed Acyclic Graphs) such as Swirlds’ Hashgraph, ByteBall’s DAG, and IOTA’s Tangle. These blockchain-free cryptos are also categorized as belonging to the 3 rd generation of cryptocurrencies. These technologies promise to be faster, cheaper, and more efficient than blockchain cryptocurrencies. Blockchains were the first means of creating decentralized consensus throughout the world. In the blockchain, the majority of 51% determine the consensus. The limits of blockchains stem from their inherent nature, whereupon every single node/participant needs to know all of the information that has occurred throughout the whole blockchain economy of a given coin. This opens up blockchains to issues akin to the ones we have been exposed to in regards to Bitcoin’s scaling. It is important to make a clear distinction in the language used between blockchains and blockchain-freecryptocurrencies. When we speak about blockchains it is more proper to speak about its transactionconsensus as “decentralized”, whereas with blockchain-free cryptocurrencies it is best if we refer to transaction consensus as “distributed.” Swirlds’ Hashgraph incorporates a radical and different approach to distributing consensus. Swirlds claims that their new approach will solve scaling and security issues found on blockchains. They use a protocol called “Gossip about Gossip.” Gossip refers to how computers communicate with one another in sending information. In comparison to the Blockchain, imagine that instead of all of the nodes receiving all of the transactions categorized in the past ten minutes, that only a few nodes shared their transaction history with other nodes near them. The Hashgraph team explains this as “calling any random node and telling that node everything you know that it does not know.” That is, in Hashgraph we would be gossiping about the information we are gossiping; i.e., sending to others throughout the network for consensus. Using this gossiped information builds the Hashgraph. Consensus is created by means of depending on the gossips/rumors that come to you and you pass along to other nodes. Hashgraph also has periodic rounds which review the circulating gossips/rumors. Hashgraph is capable of 250,000+ Transactions Per Second (TPS), compared to Bitcoin currently only allowing for 7 TPS. It is also 50,000 times faster than Bitcoin. There is no mention of a coin on their white paper. At this moment there is no Hashgraph ICO, beware of scams claiming that there is. There is however a growing interest in the project along with a surge of app development. IOTAs DAG is known as the Tangle. Contrary to Hashgraph, IOTA does have its own coin known as MIOTA, currently trading around the $3 mark. There are only 2,779,530,283 MIOTA in existence. The Tangle was also created to help alleviate the pains experienced with Blockchain scaling. IOTAs Tangle creates consensus on a regional level; basically neighbors looking at what other neighbors are doing. As the tangle of neighbors grows with more participants the security of the system increases, along with the speed of confirmation times. IOTA has currently been criticized for its still lengthy confirmation times and its current levels of centralization via their Coordinators. This centralization is due to the fact that at this moment in time the main team works as watchtower to oversee how Tangle network grows so that it does not suffer from attacks. Consensus is reached within IOTA by means of having each node confirm two transactions before that same node is able to send a given transaction. This leads to the mantra of “the more people use IOTA, the more transactions get referenced and confirmed.” This creates an environment where transactional scaling has no limits. IOTA has no transaction fees and upon reaching high adoption the transactions ought to be very fast. Another promising aspect about IOTA is that it has an integrated quantum-resistant algorithm, the Winternitz One-Time Signature Scheme, that would protect IOTA against an attack of future quantum computers. This without a doubt provides IOTA with much better protection against an adversary with a quantum computer when compared to Bitcoin. ByteBall is IOTA’s most direct competitor. They both possess the same transaction speed of 100+ TPS, they both have their own respective cryptocurrencies, and they both have transparent transactions. ByteBall’s token is the ByteBall Bytes (GBYTE), with a supply of 1,000,000; currently trading at around $700. ByteBall aims to service the market with tamper proof storage for all types of data. ByteBall’s DAG also provides an escrow like system called “conditional payments;” which allows for conditional clauses before settling transactions. Like IOTA, ByteBall is also designed to scale its transaction size to meet the needs of a global demand. ByteBall provides access to integrated bots for transactions which includes the capacity for prediction markets, P2P betting, P2P payments in chat, and P2P insurance. ByteBall’s initial coin distribution is still being awarded to BTC and Bytes holders according to the proportional amounts of BTC or Bytes that are held per wallet. IOTA, ByteBall and Hashgraph are technologies that provide us with more than enough reasons to be hopeful for 2018. In terms of the crypto market, you don’t learn it once. You have to relearn it every day because its development is so infant. If you are new to crypto and feel lost at all know that you are not alone. These technologies are constantly evolving with new competitive options in the market. As the technologies grow the ease for adoption is set to grow alongside innovation. We are all new to this world and we are all as much in shock of its ingenuity as the next newbie. Crypto is mesmerizing not just for its volatility which is a clear indication of how connected we are now to one another, but also because of the social revolution that it represents. We are experiencing the multidirectional growth of humanity via the free market. Meanwhile Bitcoin Is Turning Into Shitcoin It is with a great degree of sadness that I see bitcoin is on the cusp of destroying itself. Bitcoin Core, anyway. Bitcoin Cash may be the winner from all of this once all is said and done. Whether by design or by accident, bitcoin has become slow and expensive. Many people point out that IF the market were to upgrade to Segwit that all would be fine. I’ll explain further below why many market participants have no incentive to upgrade to Segwit… meaning that the implementation of Segwit has been a massively risky guess that so far has not worked. Others say that the Lightning Network (LN) will save bitcoin. I’ll point out below why that will not happen. Lightning Networks And The Future Of Bitcoin Core If you’ve been following bitcoin for any length of time, you’re probably aware of the significant dispute over how to scale the network. The basic problem is that although bitcoin could be used at one time to buy, say, a cup of coffee, the number of transactions being recorded on the network bid up the price per transaction so much that actually sending BTC cost more than the cup of coffee itself. Indeed, analysis showed that there were many Bitcoin addresses that had such small BTC holdings that the address itself couldn’t be used to transfer it to a different address. These are referred to as “unspendable addresses.” In the ensuing debate, the “big blockers” wanted to increase the size of each block in the chain in order to allow for greater transaction capacity. The “small blockers” wanted to reduce the size of each transaction using a technique called Segregated Witness (SegWit) and keep the blocks in the chain limited to 1MB. SegWit reduces the amount of data in each transaction by around 40-50%, resulting in an increased capacity from 7 transactions per second to perhaps 15. The software engineers who currently control the Bitcoin Core code repository have stated that what Bitcoin needs is “off-chain transactions.” To do this, they have created something called Lightning Networks (LN), based on an software invention called the “two-way peg.” Put simply, the two-way peg involves creating an escrow address in Bitcoin where each party puts some bitcoin into the account, and then outside the blockchain, they exchange hypothetical Bitcoin transactions that either of them can publish on Bitcoin’s blockchain in order to pull their current agreed-upon balance out of the escrow address. Most layman explanations of how this works describe the protocol as each party putting in an equal amount of Bitcoin into the escrow. If you and I want to start transacting off-chain, so we can have a fast, cheap payment system, we each put some Bitcoin in a multi-party address. I put in 1 BTC and you put in 1 BTC, and then we can exchange what are essentially cryptographic contracts that either of us can reveal on the bitcoin blockchain in order to exit our agreement and get our bitcoin funds. Fortunately, it turns out that the video’s examples don’t tell the whole story. It’s possible for the escrow account to be asymmetric. See:. That is, one party can put in 1 BTC, while the other party puts in, say, 0.0001 BTC. (Core developer and forthcoming Anarchapulco speaker Jimmy Song tells us that there are game theoretic reasons why you don’t want the counterparty to have ZERO stake.) Great! It makes sense for Starbucks to participate with their customers in Lightning Networks because when their customers open an LN channel (basically a gift card) with them for $100, they only have to put in $1 worth of Bitcoin. Each time the customer transacts on the Lightning Network, Starbucks gets an updated hypothetical transaction that they can use to cash out that gift card and collect their bitcoin. The elephant in the room is: transaction fees. In order to establish the escrow address and thereby open the LN channel, each party has to send some amount of bitcoin to the address. And in order to cash out and get the bitcoin settlement, one party also has to initiate a transaction on the bitcoin blockchain. And to even add funds to the channel, one party has to pay a transaction fee. Right now fees on the bitcoin blockchain vary widely and are extremely volatile. For a 1-hour confirmation transaction, the recommended fee from one wallet might be $12 US, while on another it’s $21 US. For a priority transaction of 10-20 minutes, it can range from $22-30 US. Transactions fees are based on the number of bytes in the transaction, so if both parties support SegWit (remember that?) then the fee comes down by 40-50%. So it’s between $6 and $10 US for a one hour transaction and between $11-15 for a 15 minute transaction. (SegWit transactions are prioritized by the network to some degree, so actual times may be faster) But no matter what, both the customer and the merchant have to spend $6 each to establish that they will have a relationship and either of them has to spend $6 in order to settle out and get their bitcoin. Further, if the customer wants to “top off” their virtual gift card, that transaction costs another $6. And because it adds an address to the merchant’s eventual settlement, their cost to get their Bitcoin goes up every time that happens, so now it might cost them $9 to get their bitcoin. Since these LN channels are essentially digital gift cards, I looked up what the cost is to retailers to sell acustomer a gift card. The merchant processor Square offers such gift cards on their retailer site. Their best price is $0.90 per card. So the best case is that Lightning Networks are 600% more expensive than physical gift cards to distribute, since the merchant has to put a transaction into the escrow address. Further, the customer is effectively buying the gift card for an additional $6, instead of just putting up the dollar amount that goes on the card. But it gets worse. If you get a gift card from Square, they process the payments on the card and periodically deposit cash into your bank account for a percentage fee. If you use the Lightning Network, you can only access your Bitcoin by cancelling the agreement with the customer. In other words, you have to invalidate their current gift card and force them to spend $6 on a new one! And it costs you $6 to collect your funds and another $6 to sell the new gift card! I’m sure many of you have worked in retail. And you can understand how this would be financially infeasible. The cost of acquiring a new customer, and the amount of value that customer would have to stake just to do business with that one merchant, would be enormous to make any financial sense. From time immemorial, when transaction costs rise, we see the creation of middlemen. Merchants who can’t afford to establish direct channels with their customers will have to turn to middlemen, who will open LN channels for them. Instead of directly backing and cashing out their digital gift cards, they will establish relationships with entities that consolidate transactions, much like Square or Visa would do today. Starbucks corporate or individual locations might spend a few USD on opening a payment channel with the middleman, and then once a month spend 6 USD to cash out their revenues in order to cover accounts payable. In the meantime, the middleman also has to offer the ability to open LN channels for consumers. This still happens at a fixed initial cost, much like the annual fee for a credit card in the US. They would continue to require minimum balances, and would offer access to a network of merchants, exactly like Visa and MasterCard today. This process requires a tremendous amount of capital because although the middleman does not have to stake Bitcoin in the consumer’s escrow account, he does have to stake it in the merchant’s account. In other words, if the Lightning Network middleman wants to do business with Starbucks to the tune of $100,000/month, he needs $100,000 of bitcoin to lock into an escrow address. And that has to happen for every merchant. Because every month (or so) the merchants have to cash out of their bitcoin to fiat in order to pay for their cost of goods and make payroll. Even if their vendors and employees are paid in bitcoin and they have LN channels open with them, someone somewhere will want to convert to fiat, and trigger a closing channel creating a cascading settlement effect that eventually arrives at the middleman. Oh, and it triggers lots of bitcoin transactions that cost lots of fees. Did I mention that each step in the channel is expecting a percentage of the value of the channel when it’s settled? This will come up again later. Again, if you’ve worked in the retail business, you should be able to see how infeasible this would be. You have to buy inventory and you have to sell it to customers and every part that makes the transaction more expensive is eating away at your margins. Further, if you’re the middleman and Starbucks closes out a channel with a $100,000 stake where they take $95,000 of the bitcoin, how do you re-open the channel? You need another $95,000 in capital. You have revenue, of course, from the consumer side of your business. Maybe you have 950 consumers that just finished off their $100 digital gift cards. So now you can cash them out to bitcoin for just $5700 in transaction fees, and lose 5.7% on the deal. In order to make money in that kind of scenario, you have to charge LN transaction fees. And because your loss is 5.7%, you need to charge in the range of 9% to settle Lightning Network transactions. Also, you just closed out 950 customers who now have to spend $5700 to become your customer again while you have to spend $5700 to re-acquire them as customers. So maybe you need to charge more like 12%. If you approached Starbucks and said “you can accept Bitcoin for your customers and we just need 12% of the transaction,” what are the odds that they would say yes? Even Visa only has the balls to suggest 3%, and they have thousands and thousands of times as many consumers as bitcoin. The entire mission of bitcoin was to be faster, cheaper and better than banks, while eliminating centralized control of the currency. If the currency part of Bitcoin is driven by “off-chain transactions” while bitcoin itself remains expensive and slow, then these off-chain transactions will become the territory of centralized parties who have access to enormous amounts of capital and can charge customers exorbitant rates. We know them today as banks. Even for banks, we have to consider what it means to tie up $100,000/month for a merchant account. That only makes sense if the exchange rate of bitcoin grows faster than the cost of retaining Bitcoin inventory. It costs nothing to store Bitcoin, but it costs a lot to acquire it. At the very least the $6 per transaction to buy it, plus the shift in its value against fiat that’s based on interest rates. As a result, it only makes sense to become a Lightning Network middleman if your store of value (bitcoin) appreciates at greater than the cost of acquiring it (interest rate of fiat.) And while interest rates are very low, that’s not a high bar to set. But to beat it, Bitcoin’s exchange rate to fiat has to outpace the best rate available to the middleman by a factor exceeding the opportunity cost of other uses of that capital. Whatever that rate is, for bitcoin, the only reason the exchange rate changes is new entry of capital into the “price” of bitcoin. For that to work, bitcoin’s “price” must continue to rise faster than the cost of capital for holding it. So far this has happened, but it’s a market gamble for it to continue. Since it happens because of new capital entering into the bitcoin network and thus increasing the market cap, this results in Bitcoin Core becoming the very thing that its detractors accuse it of: a Ponzi scheme. The cost of transacting in Bitcoin becomes derived from the cost of holding bitcoin and becomes derived from the cost of entering bitcoin. Every middleman has to place a bet on the direction of bitcoin in a given period. And in theory, if they think the trend is against Bitcoin, then they’ll cash out and shut down all the payment channels that they transact. If they bought bitcoin at $15,000, and they see it dropping to $13,000 — they’ll probably cash out their merchant channels and limit their risk of a further drop. The consumer side doesn’t matter so much because their exposure is only 1%, but the merchant side is where they had to stake everything. If you’re wondering why this information is not widely known, it’s because most bitcoin proponents don’t transact in bitcoin on a regular basis. They may be HODLing, but they aren’t doing business in bitcoin. Through Anarchapulco, TDV does frequent and substantial business in bitcoin, and we’ve paid fees over $150 in order to consolidate ticket sale transactions into single addresses that can be redeemed for fiat to purchase stage equipment for the conference. For Bitcoin to be successful at a merchant level via Lightning Networks, we will have to see blockchain transactions become dramatically cheaper. If they return to the sub-$1 range, we might have a chance with centralized middlemen, but only with a massive stabilization of volatility. If they return to $0.10, we might have a chance with direct channels. Otherwise, Lightning Networks can’t save bitcoin as a means of everyday transaction. And since that takes away its utility, it might very well take away the basis of its value and bitcoin could find itself truly being a tulip bubble. One final note: there are a some parties for whom all these transactions are dramatically cheaper. That is the cryptocurrency exchanges. Because they are the entry and exit points for bitcoin-to-fiat, they can eliminate a layer of transaction costs and thus offer much more competitive rates — as long as you keep your bitcoin in their vaults instead of securing it yourselves. Sending it out of their control lessens their competitive advantage against other means of storage. It comes as no surprise, then, that they are the least advanced in implementing the SegWit technology that would improve transaction costs and speed. If you buy bitcoin on Poloniex, it works better for them if it’s expensive for you to move that coin to your Trezor. In fact, an exchange offering Lightning Network channels to merchants could potentially do the following… 1) Stake bitcoins in channels with merchants. These coins may or may not be funds that are held by their customers. There is no way to know. 2) Offer customers “debit card” accounts for those merchants that are backed by the Lightning network 3) Establish middle addresses for the customer accounts and the merchant addresses on the Lightning Network. 4) Choose to ignore double-spends between the customer accounts and the merchant addresses, because they don’t actually have to stake the customer side. They can just pretend to since they control the customer’s keys. 5) Inflate their bitcoin holdings up to the stake from the merchants, since the customers will almost never cash out in practice. In other words, Lightning Networks allow exchanges a clear path to repeating Mtgox; lie to the consumer about their balance while keeping things clean with the merchant. In other words, establish a fractional reserve approach to bitcoin. So, to summarize, Bitcoin Core decided increasing the blocksize from 1mb to 2-8mb was “too risky” and decided to create Segwit instead which the market has not adopted. When asked when bitcoin will be faster and less expensive to transfer most Bitcoin Core adherents say the Lightning Network will fix the problems. But, as I’ve just shown, the LN makes no sense for merchants to use and will likely result in banks taking over LN nodes and making BTC similar to Visa and Mastercard but more expensive. And, will likely result in exchanges becoming like banks of today and having fractional reserve systems which makes bitcoin not much better than the banking system of today. Or, people can switch to Bitcoin Cash, which just increased the blocksize and has much faster transaction times at a fraction of the cost. I’ve begun to sell some of my bitcoin holdings because of what is going on. I’ve increased my Bitcoin Cash holdings and also increased my holdings of Dash, Monero, Litecoin and our latest recommendation, Zcash. Other News & Crypto Tidbits When bitcoin surpassed $17,600 in December it surpassed the total value of the IMF’s Special Drawing Rights (SDR) currency. Meanwhile, Alexei Kireyev of the IMF put out his working paper, “ The Macroeconomics of De-Cashing ,” where he advises abolishing cash without having the public aware of the process. Countries such as Russia are considering creating a cryptocurrency backed by oil to get around the US dollar and the US dollar banking system. Venezuela is as well although we highly doubt it will be structured properly or function well given the communist government’s track record of destroying two fiat currencies in the last decade. To say that the US dollar is being attacked on every level is not an understatement. Cryptocurrencies threaten the entire monetary and financial system while oil producing countries look to move away from the US dollar to their own oil backed cryptocurrency. And all this as bitcoin surpassed the value of the IMF’s SDR in December and in 2017 the US dollar had its largest drop versus other currencies since 2003. And cryptocurrency exchanges have begun to surpass even the NASDAQ and NYSE in terms of revenue. Bittrex, as one example, had $3 billion in volume on just one day in December. At a 0.5% fee per trade that equaled $15m in revenue in just one day. If that were to continue for 365 days it would mean $5.4 billion in annual revenue which is more than the NASDAQ or NYSE made this year. Conclusion I never would have guessed how high the cryptocurrencies went this year. My price target for bitcoin in 2017 was $3,500! That was made in late 2016 when bitcoin was near $700 and many people said I was crazy. Things are speeding up much faster than even I could have imagined. And it is much more than just making money. These technologies, like cryptocurrencies, blockchains and beyond connect us in a more profound way than Facebook would ever be able to. We are now beginning to be connected in ways we never even thought of; and to some degree still do not understand. These connections within this completely free market are deep and meaningful. This is sincerely beautiful because we are constantly presented with an ever growing buffet of competing protocols selling us their best efforts in providing harmony within the world. What all of these decentralized and distributed consensus building technologies have in common is that they connect us to the world and to each other. Where we are going we don’t need foolish and trite Facebook’s emojis. As we close a successful 2017 we look with optimism towards a much more prosperous 2018. The Powers That Shouldn’t Be (TPTSB) can’t stop us. As we move forward note how much crypto will teach you about ourselves and the world. In a radical free market making our own bets will continue to be a process of self discovery. Crypto will show us the contours of our fears, the contours of our greed, and will constantly challenge us to do our best with the knowledge we have. Remember, randomness and innovation are proper to the happenstance nature of a true digital free market. Happy New Year fellow freedom lovers! And, as always, thank you for subscribing! Jeff Berwick
You know it started out innocent enough. One friend at work started talking innocently about Monero and before I knew it I had hooked the work PC up to Minergate and had started mining. After I day I saw Moneros slowly ticking in and felt that it needed to go faster, so I downloaded the client as well on my gaming PC at home, but I wasn't able to use the graphic card, the Moneros were still ticking in at a too slow rate. I did some more reading and found out that Minergate was the devil, that the way to go about this was to set up my own wallet and mine using a client, directly toward a pool. First I created a web-wallet, but then I remember MtGox and all the trouble with bitcoins being lost, so I created a shell wallet on my file server at home and downloaded a few clients, compiled, compared, tuned and after a while I started to see some real Monero dripping in. I managed to get the NVidia miner up on my gaming rig with the juicy 980Ti card and that really made the difference, but I wanted more. I work with grid solutions/high performance computing and at work we have a lab where I can basically set up whatever equipment that I want (within reason) and latch on to work's power grid. I decided to set up a dual GPU system and just leave it running in the lab area where we have the consoles and do general close proximity work to make things work in the real lab. I did not have a casing so I ordered everything I needed and after some troubleshooting (BIOS did not support the Kaby Lake CPU) I got things up and running on 2xRX480 cards, nicely hashing in on about 630H/s on each card. In the mean time, to maximize my Monero flow I had turned every device, work and private into CPU and GPU miners, every clock tick squeezed for maximum utilization and at one point I even ran clients on useless Raspberry PIs, slow file servers and Beagle Bone Internet of Things cards, yielding no more than 3-6 H/s. It all added up, but I still needed more. I started looking into building a real mining rig. I ordered an AMD Motherboard, more PSUs, CPU, RAM, USB risers, etc. and I got a rig frame flown in from China at a reasonable price. In the meantime I had already ordered another RX480 which were idling on my work desk while I was building the rig. The rig was being set up at my work desk, sitting next to my work PC which also was mining Monero at full capacity when I wasn't at work. GPU mining needs to be off if the system is to be used without severe graphics lag. I had installed 2 GPU clients on my home system as well, one that really bogged down the system, rendering it unusable for anything except mining, the other setting I could easily do other work, web-browsing and such without too much lag from the graphic cards. Whenever I left for work or went to sleep I put the heavy load version on, and when I got home from work or woke up in the morning, my living room was warm and cozy, at least 4-5'C above the usual. By now I had gathered 5 GPUs which had completely filled up my mining rig. Achievement unlocked! Although I still had some debugging work to do on it (random crashes) it still would run smoothly most of the time. The Monero is pouring in, about $10 USD worth of Monero each day, from both my rig and the myriad of fileservers, gaming and work PCs, and stupid little devices that were designed for completely different things. The value of Monero had increased from about $12 USD to $30 USD during this time, everything was with a promising outlook. Then, yesterday it occurred to me, I did move 2 cards from the first PC that I bought, to the mining rig, which means that I could get two new cards and put into that one. So, I have just ordered myself two more RX480 (which by the way are much nicer for Monero mining than the RX580s) and as I am sitting here, having just ordered those cards, I am already planning the next step, moving the first motherboard out of the PC and latch it on to a rig and connect 2 more cards (it's a mATX motherboard with 4 PCI-e slots) But now, I am wondering, where will this all end? Have I become a Monero mining addict? How many rigs and graphic cards do I need to finally feel satisfied? When do I get enough? And will this short term bankrupt me completely? Well, at least I am not using money on booze, drugs or hookers, but it still feels like an addiction. Any words of advice or comfort appreciated...
Daily math problem: You bought 10 Bitcoins at $900 in Jan 2017. You do a “bad trade” on ETH-BTC when BTC was at $19,500 in dec 2017: A trade that did not generate any gains in BTC value, same day, back to BTC on your wallet after it. (It just generates a tax liability event.) . Your tax bracket is 33% (bc you probably live in California). /!\ We make the hypothesis that the Bitcoin price drops to $6,300 at the moment you need to pay your taxes. (Futures, Tethers, Regulations...) 5 questions: A/ Easy: how many BTC do you have on your wallet on the 31st of dec 2017? B/ Medium: what is the USD value of this BTC stack at the moment of the tax payment date? (Hint: btc price is $6,500) C/ Hard: how much tax to you owe, in USD ? D/ Easy: How many of your BTC do you need to cash out at the time of the tax payment date to pay this tax to the IRS ? (At the price hypothesis above) E/ Easy: How many BTC and USD do you have left? F/ Hard: based in the number of persons that will pay taxes on cryptos this year (your assumption), and the average wallet and tax gains: Will the amount of tax collected by the IRS be bigger than MtGox and Coincheck heists? (In USD) :-) —————— (Note: question D implies that you don’t have money to pay otherwise) (Note2: it’s just a simple math exercice... don’t be an ass and look for the details ;-) )
My bitcoin value has surpassed my decade long stock account
Throwaway account because I'm revealing more than I want tied to my primary account. I'll put the TL;DR at the top. TL;DR: Apparently, I'm well off and 2 years of bitcoins are worth more than 10 years of stock market investment. I'm nearly 50 years old. A few years out of college and I just barely broke $20k salary. That was worth more than $20k today, but was still a lousy wage with college loan debt. I briefly (1.5 years) had a dotcom job at the turn of the millineum making more than I do now, but I had never had money like that before and boosted the economy instead of putting any aside. I did get some nice toys, though. Add on another 1.5 years of unemployment, living off my wife's meager salary and a few odd under-the-table jobs, and I finally landed a decent paying job again. Nothing like the dotcom days, but close. However, I'd learned we could live on much less and I wanted a cushion. I dumped tons into my 401k, my savings account and opened a Scottrade account. A little money goes each month to savings and Scottrade. Roughly ten years later, my 401k is about 3 times my annual income. The Scottrade account is about 30% of it. Two years ago, I heard about bitcoin on Slashdot. It sounded interesting. I started mining on my son's gaming machine, which meant it was only mining when my son wasn't playing games and if he remembered to start the miner when he was done. I mined solo for a few days, and quickly joined a mining pool. I was getting a bitcoin every three or four days initially. That didn't last long. I opened a MtGox account, added some cash and purchased btc almost at the height of the 2011 spike. I felt like an idiot. I bought some Casascius coins. I left my MtGox account alone. This was also around the time the 99% protests were going on. I felt very sympathetic. I remember in reading about the protests, I stumbled across a site that showed what percentage people were based on annual income. With mine and my wife's income, I was above the 90th percentile and below the 95th. I remember the horror and disbelief I felt. Througout it all, I continued mining. I got lucky during the early 2013 spike and sold some of the MtGox stuff I'd had sitting there. I also got a high end SLR camera at bitcoinstore.com almost at the peak. I was feeling pretty good. I bought a ButterflyLabs Jalapeno with bitcoins just before that first 2013 spike. I also stopped even trying to mine with a graphics card soon after that because it made no sense. I did eventually get delivery of the Jalapeno. It's earned almost .68 bitcoins. Don't ask what it cost in bitcoins, because I don't remember and I don't want to know. After realizing my MtGox profits couldn't be pulled out in dollars in any reasonable timeframe, I converted them to bitcoins and pulled them out. I got more bitcoins than I sold them for, but not by much. So, now I own bitcoins in the high 2 digits, about a third of them are still in physical Casascius coins. I only have an account on MtGox, so I have no real way of converting any of them to cash. I still have $100 sitting in the MtGox account, which I should have converted into bitcoins and pulled out long ago, but I'm frustrated by the premium bitcoins require in USD on MtGox. For nearly ten years, I've been putting money in my Scottrade account. I saw the collapse in 2008 and mostly held. I bought bank stocks at that time and made a killing. That killing was offset by the REITs I'd invested in before the crash. In ten years of regular transfers to Scottrade and investment that has gotten better as I've gotten older and more cynical, I've accumulate about 30% of my annual income. In the last few days, even with the purchase of a cool SLR and the cut involved in Casascius coin purchases, my double-digit bitcoin ownership has now surpassed my Scottrade account in value. I don't have an easy way of converting that bitcoin to USD, but I'm also not concerned about that because I think that easy methods will exist soon. I fully expect that my bitcoins will be worth less in the near future. However, I believe in the long term, they'll be worth more and that I'll have a number of easier possibilities for converting them to USD if I want to. I also believe the analogies to the early WWW are flawed. I think analogies to the IP protocol are more apt and that we've only begun to imagine the possibilities. I'm in it for the long haul. They'll either be worth nothing or much more than now. And, if I add up my electricity costs and the small investment I made during the spike in 2011, I'm still ahead of the game because I have an SLR camera that my wife would never have let me buy with cash. I'm already ahead of the game and I think the game hasn't even started. EDIT: Grammar
After four months, I have some observations and lingering questions about bitcoins
I decided to put some money into bitcoins back in December (great price!) and since then have been buying small batches. I have a few observations about what I've learned: There's no right time to buy Bitcoin's price has been fluctuating crazily since I first bought in, and it probably wont stop for awhile. If you're thinking of buying in for the first time but want to wait, I'd suggest just go ahead and buy in now. There wont be a magic moment to buy in (unless you keep a sharp eye out for a quick drop) and the price will keep changing. At this rate, it will probably only go up, so you might as well get off the fence and make a decision. I wish I did back in November! Buying bitcoins is annoying People write all the time about how easy it is to buy bitcoins. I felt comfortable investing in bitcoins because of all those kinds of statements. But I'll go ahead and say it's misleading to say buying bitcoins is easy. Rather, it's easy to buy some kinds of bitcoins- and usually at a higher price. Here are the ways I know for buying bitcoins (note, I'm in the US):
Deposit cash at a bank/CVS/walmart, etc. which uses a third-party service to deliver the money to your exchange website (Mt.Gox, bitfloor, etc.). This can be pretty quick if you live near one of the deposit locations. I'll note that this process can be problematic if your store doesn't do moneygrams often. But the real problem is that there are various fees involved, sometimes up to 4% or higher of your money. Then, if you use a service like bitfloor, their btc prices are about $2.00 higher than the market rate. For the sake of rapidity, you can lose a big chunk of change if you're not observant and aware of the fees and higher rates.
Deposit money through a bank transfer to your exchange or other website. This was the first route I took and I quickly learned there are many hassles involved. Direct deposit would be ideal, but to actually get the money from your bank to an exchange usually means giving up serious amounts of personal information and possibly very long waiting times to be verified. I tried linking my bank account to dwolla then sending money to mtgox. I also looked into linking directly with mtgox. As it turns out, I had to verify myself by sending a photo id copy to dwolla and to mtgox. And then waiting for a verification, which with mtgox is currently an indeterminate wait. Personally, I was unwilling to give up that information, so I can't comment much further. But I'll point out that requiring photo verification is not industry standard for most comparable services, and it's very intrusive.
Buy bitcoins locally or on an irc bitcoin freenode. Buying locally can be done through localbitcoins.com or similar services. Basically people who live near you will sell their btc face-to-face for cash or whatever they want. This can be good if you live in a large city, but it's risky if the seller is unverified or not reviewed. The big drawback is that buying local means you pay way over market price, sometimes egregiously. And if you don't live near a big city (like me) don't expect to find many sellers if any at all. A bitcoin freenode is a basically a type of chatroom where people will sell you bitcoins through different services like paypal, dwolla, bank transfers, that aren't usually offered by major vendors (see http://bitcoin-otc.com/). I found the rates to be very high and as a layman I was unfamiliar with how these kinds of freenode things work. I'd say they are high risk because of the unverified nature of the vendors and the higher prices. But it's an option.
Using a service like coinbase. This is a hybrid that involves linking a bank account or depositing cash, and then buying bitcoins from the site at their rate for a nominal fee. Full disclosure, I do not like coinbase right now. But I recognize that it could be a good service in the future. The basic transaction occurs like this: you give money to coinbase for btc, coinbase takes your money and makes you wait about one week, then delivers your btc at the rate you purchased. Coinbase can unilaterally cancel your transaction or not deliver the bitcoins at the agreed upon delivery time (which is legally dubious). They basically act as a third-party vendor. While it's easy to use, you lose flexibility, interest value on your bitcoins, and valuable time. And because these services are still new startups, you don't know how safe your money is with them.
There are variations on these themes, but mostly all services for buying bitcoins rely on (1) cash deposits through third-party transfer services; (2) direct bank deposits; (3) some other exchange of money or goods with an independent seller. While some are easier than others, each involves a degree of risk, time, effort, and variable pricing. Right now, buying bitcoins is a hassle for most people not familiar with the processes involved, and it will probably stay that way until a new service comes along.
Bitcoin transfers are not instantaneous This was something that really caught me off guard at first. Here is this new type of money that is totally digital, so it should very fast to move around. And nearly everyone claims that it is. In my experience, however, that's not true at all. I've had simple transfers of btc that linger for hours. I have no idea where they go or why certain transfers take so long, but they just do. Eventually, everything shows up, but it's very disconcerting not knowing where your digital currency is in cyberspace. Services like coinbase highlight even more the non-instantaneous nature of bitcoins. If you stick to a major exchange like mtgox, you can expect much faster transfers, but don't panic if something takes longer than a few seconds, minutes, hours etc. Real-time bitcoin data is not always available This is important and has a significant impact on trading. There are several sites that track btc prices in close to real-time, but often there are significant lags. This is mainly due to mtgox. The real bitcoin trading currently occurs at mtgox and the market rate is pegged to mtgox. So any lapse in data or service that occurs at mtgox ripples through the other services relying on mtgox market rates. Why does that matter? If the price of btc starts dropping by a few dollars every few minutes, and then suddenly there is no longer real-time trading data, lots of people panic and start selling. The price drops even more. It's an artificial bubble popping of sorts. While btc is decentralized, unfortunately market rates/data is still pretty centralized. And that means that information can go offline... There's a lot about bitcoins that may go unknown I find, for most people, bitcoins are understandable up until a certain point. When me and my buddies discuss bitcoins, inevitably we get to the question: but what are bitcoins? While we all know they're rooted in mathematical equations in "blocks," none of us understands what that means. Maybe that doesn't matter, but for some people, it will be a hard sell if you want inspire confidence in this new currency. Here's some lingering questions I still have about bitcoins, even after four months of intensive use and familiarity:
What is a bitcoin really? Is it the answer to a mathematical equation? What equation? Who are all these people "mining?" Are they just computers linked together using combined resources to solve an equation?
How did bitcoin start? I know about Satoshi whoever, but that just leaves me way more skeptical of its inception, and it's hard to explain that to someone without btc sounding illegitimate or conspiratorial.
How does a paper wallet work? Why can't I find an extremely simple explanation of how to make a paper wallet? I'm talking, never-uses-the-internet simplistic explanation.
Anyways, those are just some thoughts I've had recently and felt like sharing. Here's a tldr: TL;DR: With bitcoins, (1) first time investor? there's no right time to buy, just jump in; (2) buying bitcoins can be very annoying and overly-costly; (3) bitcoin transfers are not always instantaneous; (4) bitcoin market data is mostly centralized and not always available; (5) there are bitcoin complexities and unknowns outside the grasp of most laypeople. edit: thanks for the informative and helpful responses! [edit: format]
As an early investor in Bitcoin, I have come to the conclusion that in the long run Bitcoin won't work for its originally intended purpose. Understanding this simple fact is a potential source of wealth as it allows you to comprehend what will replace Bitcoin, or at the bare minimum a way to avoid a catastrophic loss of wealth by investing in Bitcoin. I'll explain the most important problem Bitcoin suffers from today. Bitcoin's value derives at least in part from the guarantee that only 21 million coins will come into existence. If people could change this number, it would significantly undermine the credibility of the currency. To remain decentralized, the protocol needs a method through which it can determine in a decentralized fashion who is allowed to determine which transactions will be acknowledged by the network as valid. The band-aid solution its inventor came up with was to invent an arbitrary computer puzzle contest. Anyone who comes up with a solution to the puzzle is allowed to declare a number of transactions are valid and receives new coins as a reward and as an incentive for people to participate in the puzzle. If a lot of people manage to solve the puzzle using their mining equipment, the puzzle is made harder to decrease the rate at which new coins are generated. The inevitable result of this solution is that participants in the Bitcoin scheme will make an investment in solving this computer puzzle roughly equal to the amount of value the newly generated bitcoins have. If a million dollar worth of bitcoins were awarded per day, Bitcoin miners would be willing to spend a million dollar per day on solving the arbitrary computer puzzle underlying the scheme. Most of those dollars will be spent directly on electricity, but some will be spent on other factors such as taxes and personnel cost. It's remarkable how well this scheme has held up in the years since 2009, but the parameters intrinsic to the protocol ensure it will come to an end. The reason is because the reward awarded to those who solve the puzzle decreases every four years to ensure a finite number of bitcoins will come into existence, while the incentive for bad players to damage the protocol increases as its value grows. When the block reward decreases, the incentive to secure the network decreases. The incentive to mine remains however, for people who have motives to mine, other than receiving new coins. A credit card company might feel threatened by Bitcoin. Environmentalists might feel threatened by Bitcoin. Governments might want to block certain transactions. Participants in competing cryptocurrencies might have an incentive to damage Bitcoin. Today it's expensive for these groups to interfere with Bitcoin. Eventually however, you'll receive less than 0.01 Bitcoin per block you mine. The current mining farms won't be able to sustain themselves, unless someone else decides to pay them. It could be bad actors, it could be good actors with a stake in the ecosystem. However, this doesn't solve the problem, because now somebody else needs to pay indirectly, to secure the network. Actors who want to keep Bitcoin functional, will need to pay money on a continual basis, to keep Bitcoin functional. Actors who want to damage Bitcoin, will only need to pay during a brief period. A 51% attack that permanently damages Bitcoin's credibility as a payment option can take place within a few hours and undo years of hard work to deliver Bitcoin credibility as a payment option. Right now Bitcoin spends an estimated 3 million dollar per day on electricity. Visa could cough up this money if it felt threatened, but can Bitcoin companies cough up this money on a daily basis, to secure the network? It's clear that this is not a realistic option. An alternative option, is one where the users pay through transaction fees. How much electricity is needed to secure the Bitcoin network? We don't have a clear answer to this question, but we know the network currently uses 700 KWh per transaction. Assuming we're paying 12 cents per kWh, this means you as a user would have to be paying for 84 dollar worth of electricity per transaction, just to secure your transaction against malicious actors. This is merely the electricity cost of solving the puzzle. I'm not counting the cost of manufacturing the hardware, cooling the hardware, paying personnel to maintain the Bitcoin mining farms, etcetera. We can imagine a scenario where the cost is distributed over more transactions, but this is no solution. It merely increases the value of the currency and thus the incentive to attack the currency, thereby increasing the money required to defend the protocol from attack. The reality is that Bitcoin came up with a very expensive answer to the question: Who do we trust when it comes to validating transactions? The answer "anyone willing to throw enough electricity at the problem" is a bad answer, because it means you're requiring people to continually spend large amount of money to secure the network. That price tag will somehow find its way back to the customer who uses the network. A much more logical answer to the question would be: "We trust people who have a direct stake in the continued functioning of the network." Those who own a large amount of Bitcoin, are people we trust when it comes to making sure transactions are properly processed. If they wanted to damage Bitcoin, they would lose a lot of money themselves. No company on the planet chooses to let its affairs be decided by those willing to solve difficult puzzles. Imagine the kind of world we would live in, if Shell or Microsoft insisted that the first guy to solve their annual crossword puzzle gets to distribute their budget. Every company on the planet ultimately lets its affairs be decided by those who have an economic interest in the continual proper functioning of the company, who in turn appoint people to manage its daily affairs. If Bitcoin will ever be used as a payment system, rather than a speculation vehicle, it will be at a tremendous disadvantage to competing payment systems, that don't choose to arbitrarily waste resources in a permanent struggle to determine who is allowed to control the protocol. Right now, the costs of securing the network are hidden from the customer, in the form of inflation. Competing protocols are able to pass on their savings directly to the customer, in the form of dividends rewarded for their participation. Whatever economic niche Bitcoin may seek to occupy as a payment processor will inevitably be conquered by a competing protocol instead, assuming that participants are rational actors in pursuit of their own economic self-interest. You might wonder why you don't notice any of this, if it's so expensive to run the Bitcoin network. The answer to this question lies in the inflation the network undergoes. You think that Bitcoin is worth 180 billion dollar today, but it's not. To start with, anywhere around a quarter of coins have actually been lost. The remaining market cap has been brought about through just a few billion dollars worth of investment. If everyone sought to take their paper wealth out, the scheme would collapse. For this reason, the practical inflation rate of Bitcoin is much higher than the rate you imagine you're dealing with. When 18 million dollar worth of new coins are produced per day, you need new entrants into the scheme to buy those coins from the miners. Current participants in the scheme who became wealthy through Bitcoin generally can't buy those coins, as their wealth is already locked up in Bitcoin. The miners can't keep their bitcoins either, as they need to pay for their costs. To prevent devaluation from the high inflation rate, Bitcoin needs a continual influx of new users. Whenever this influx stops, the price collapses, as has been witnessed many times in the past. If an investment needs a growing influx of new investors to maintain its value, you're dealing with a pyramid scheme. Or, as others have suggested, the term "Nakamoto scheme" might be more suitable. So how is it possible Bitcoin hasn't fallen apart yet? Well, imagine you own bitcoins. You want your coins to maintain their value, but you don't have money to buy new bitcoins with once they're released onto the market. So what do you do? You use your bitcoins as collateral, to borrow money. This is what a lot of bitcoin users have done. They have bitcoins stored on an exchange somewhere, that are then used as collateral to borrow money with, to buy more bitcoins. They do this, because they expect the price to go up. But what if this proves to be insufficient to keep the scheme going? Well, in that case, as an exchange operator you can take the next step. If people deposit bitcoins on your exchange, you could use the bitcoins of your customers as collateral, to issue money that can then be used to buy new bitcoins with. This is what seems to be happening, through the Tether scheme. People deposit Bitcoins on Bitfinex to gamble with, which then leads Bitfinex to issue new Tethers, which people use as if they were dollars, to buy more Bitcoins with. Back in late 2013, something similar happened. The Mt. Gox exchange that ran most of the Bitcoin economy didn't have all the bitcoins its users had deposited any longer. They decided to set up two bots that endlessly traded back and forth with each other, to generate fake volume and thereby attract new people and keep the scheme going despite functioning as a fractional reserve. Analysts believe that this is what triggered the late 2013 price rise. So, how does the scheme come to an end? There are a number of different ways in which this could happen. Remember that bitcoins have to be mined, but the rate at which new bitcoins are produced gradually decreases. A few years from now, the rate will suddenly drop by 50%, during an event known as the block halving that happens once every four years. The last block halving took place in 2016. In 2020, it will happen again. For Bitcoin miners, this is a potentially catastrophic event, for a simple reason. If you're spending 80 cents for every dollar worth of Bitcoin you mine, a sudden halving in the number of new bitcoins awarded destroys your business model. If enough of your peers decide to stop mining, the puzzle you're solving is made easier, but this doesn't solve your problem, as the market you were competing for has simply halved. In other words, you now have an incentive to seek to play against the rules. This is perhaps the most important thing to understand: Those who ultimately run the Bitcoin economy have a disincentive to keep the system functional, because their planned obsolescence is programmed into the system. There are different things you might do as a Bitcoin miner. Because you sell your bitcoins once you acquire them, you have no genuine stake in the proper functioning of the system. If someone's willing to pay you to borrow your mining machines, you might as well rent them out. On the other hand, you could force bitcoin users to start paying money to compensate your expenses. If users don't pay enough transaction fees, you decide to ignore or reverse their transaction. But what if this causes the bitcoin scheme to fail? Well, if you're a smart miner, you have bet against Bitcoin and set up a competing cryptocurrency, perhaps one with permanent inflation. Bitcoin developers are beginning to realize this problem, which is why some of them are now arguing for changes to the way the system works, as they notice the miners seem to try to sabotage the project. What's the solution to this situation? Well, to start with, Bitcoin is highly unlikely ever to be salvaged. You could try change Bitcoin, but the required changes would have to be so thorough and pervasive that we would never see consensus emerge around them. In other words, Bitcoin is a ticking timebomb, the only recommendable thing is to flee far from it while you still can. I would recommend against trying to figure out the exact moment when the scheme will fail, as markets have a habit of staying irrational for longer than you expect them to. Finally, we notice that although Bitcoin doesn't properly function, cryptocurrencies do deliver some genuine use. The solution is thus to seek out cryptocurrencies where the incentives are properly aligned. Those who are allowed to decide which transactions are valid should not be chosen through an arbitrary computer puzzle, but rather, should be chosen from those who already have a stake in the system. This is how Proof of Stake cryptocurrencies function. There are many different currencies out there that use a Proof of Stake system, we can expect all of them to grow in value relative to Bitcoin as it runs into the consequences of its flawed design. My personal suggestion would be to take a good look at Gridcoin.
Mt. Gox, called "Mount Gox" or simply "Gox", was the most widely used bitcoin currency exchange market from shortly after its inception in 2010 to its insolvency late 2013. The market was closed February 25, 2014 and has since filed for bankruptcy protection in Japan and the United States, after losing 640 thousand bitcoins. At its peak price, this would have a value of $17 billion and at its current price* nearly $3 billion. While Mt.Gox stopped all Bitcoin withdrawals on the 7th of February 2014, the exchange had already been emptied of its Bitcoins long before: Mt.Gox’s Bitcoins were reportedly stolen bit by bit ever since the beginning of 2011. Bitcoin's recent recovery came to a dramatic end at the start of September, when a cryptocurrency market crash that its value drop by around $1,000 in the space of 24 hours. Bitfinex GDAX Kraken Bitstamp Gemini Bit-x CEX.IO MTGOX. Not sure how you got here, but mtgox is dead. This page only exists for those who wish to view some historical charts. If you want to check the current bitcoin price use some other exchange. The chart below is the price change over time. The yellow line is the price [USD / BTC] at which actual trades were made. Green and red areas near ... Bitcoincharts provides real-time USD price data of the Mt. Gox exchange including charts, orderbook and more.
Visualize MtGox Bitcoin Prices and Volume in Real Time with Event Fabric Dashboards and PubNub
Troubled bitcoin exchange MtGox was forced to close and file for bankruptcy protection this week, after bitcoins worth almost $500m were apparently stolen from its servers. MtGox Bitcoins to BTC Bitcoins in 50 seconds BITCOIN PRICE , BITCOIN FUTURE in doubt http://youtu.be/eO-yrpQpIT8 What is NAMECOIN BITCOIN'S First Fork http:/... MtGox Bitcoins To BTC Bitcoins BITCOIN PRICE , BITCOIN FUTURE in doubt http://youtu.be/eO-yrpQpIT8 What is NAMECOIN BITCOIN'S First Fork http://youtu.be/oBkh... Mt Gox has moved 8,000+ more BTC. Will this cause a BTC crash? Bitcoin and alt coin technical analysis and chat live. Crypto Money Life Community Discord Ser... 3. Transferring 23.23 USD from MtGox to BTC-e via Bitinstant (1.49% fee). 4. Receiving 22.89 USD on BTC-e Bitcoin exchange. 5. Buying new Bitcoins for a price of 11.40 USD/BTC getting 2.0037 BTC ...