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Category: bitcoin – Page 57

Titles are chosen by editors and not journalists or experts. I fought my editor over the above title. Yes, I address the teaser—and I explain a solid altcoin investment model. But, that comes after the break. The first part of this article should be titled “Why would anyone quote cost or value in Bitcoin?”. The subjects are highly related, so bear with me…

Today, a reader asked this question:

Some financial sites discuss value in Bitcoin terms, rather
than dollars or Euros. Why would I calculate the value of a
new car, my rent or an investment in this way? It’s hard to
understand how much money I need!

Answer: Your right! It’s difficult to estimate the value of a car or your rent in terms of Bitcoin. You are paid in dollars or Euros—and your landlord quotes rent in the same currency.

On the other hand, it’s natural to gauge the value of something by comparing it to a commodity that you earn and spend at a steady or predictable rate. Therefore, your assumption that it makes more sense to determine value on a dollar-basis is absolutely correct. No one determines the value of a new car by comparing the cost with a government’s national debt—or the number of donuts you would need to sell (unless you are a donut maker).

But, this assumption is transitory. It is based on a historical paradigm that is gradually changing. We are entering a bold new era. A big debate is shaping up over How gradual is the change? But make no mistake: This change is occurring in our lifetimes…

That change will eventually lead you to estimate, earn, spend and value things in Bitcoin or a similar cryptocurrency. One day soon, fluctuations in the value of the US dollar or Euro will cause you to wonder “What is happening with the dollar?” rather than shake your confidence in Bitcoin. Bitcoin (or something similar) will integrate into your mindset as the exchange medium, rather than fiat currency of a nation state.

Naturally, a series of dominos must fall, before you realize that Bitcoin is the money. I predicted this four years ago, and the process is already occurring. It is retarded by two unfortunate events, but these are both temporary setbacks:

  • Today, more people are hoarding and speculating rather than accepting or spending Bitcoin for goods and services. This delays the day that it can act as a useful, functional currency.
  • Miners, users, vendors and developers are chasing different goals. This makes it very hard to agree on necessary changes that will address several critical technical problems (i.e. transaction cost, speed, electrical demand, replay issues, etc).

Both of these problems have solutions, and we have already seen the solutions at work in altcoins. Think of forks and altcoins as beta tests…Bitcoin will fold in the best of these technical improvements and will very likely continue to inch toward becoming the world’s de facto currency.

Revenue Neutral Investing

To answer the question in the title, let’s look at this from a completely different angle. The individual who asked the original question went on to ask this:

Cryptocurrency sites compare and track the cost of altcoins in
terms of Bitcoin rather than dollars. What’s with that?! Do they
assume that we will all be selling Bitcoin to buy the new altcoin?

It actually makes sense to value altcoins in terms of Bitcoin—even today. How so?…

This growing trend provides very useful information. This method of quotation helps the reader to determine the relative change in value between the two currencies and compare it to fundamentals that they learn from news and research. The information can then be used to hedge an investment or even craft a revenue-neutral investment strategy. Allow me to explain…

I am long on Bitcoin. This is not likely to change. So I keep a significant fraction of my wealth in this form.

But, I also understand that the use and market for cryptocurrencies is young and very immature. A very few other forks and altcoins are the real deal. They have solved some major technical flaws with Bitcoin and they have the potential to become a credible, functional currency. This isn’t the place to explain my favorite coins, but the strategy is relevant.

Since I already have a substantial position in Bitcoin, I wish to avoid further exposure in the market. Therefore, I invest long and short at the same time (for example, using puts and calls)* on certain coins that are likely to perform better than other coins. This reduces risk, by leaving me without a loss, if the entire market rises or falls. The only way I might lose is if I get it exactly wrong! That is, if the coins that I believe are scams do better than the ones that I feel are well-designed and with a solid adoption trend. (Remember: The risk reduction strategy is to invest on the difference between an overvalued dog and an under-performing beauty).

To avoid the downside scenario (i.e. getting it exactly wrong), focus on fundamentals and not the cost of a unit, short term trends, emotional zeal, or other technical issues. Don’t follow the crowd! Bet on value and bet against hype. (TIP: The take-away, here, is to do both at once!). Investors who consider only asset cost and trends are in a craps shoot. The smart money determines which coins are likely to be a better functional instrument than other coins and then sticks with a dollar cost averaging plan for months at a time.

Want to learn more? Want to know which coins I admire? Reach out. Let’s talk. I don’t bite.

* A regulated financial exchange for puts and calls does not exist for altcoins. But, with a little research, you can create an nearly equivalent futures contract or options instrument. You may need to be a bit creative.

Philip Raymond co-chairs CRYPSA, publishes A Wild Duck, hosts the Bitcoin Event and kicked off the Cryptocurrency Expo in Dubai. Click Here to inquire about a live presentation or consulting engagement.

Oh, Cheez…We’re back to this question, again!

As a Bitcoin columnist, I get this question a lot. Today, an answer was requested at Quora.com, where I am the lead contributor on cryptocurrencies:

“Clearly, some people value Bitcoin. But How can
this be? There is nothing there to give it value!”

Many individuals, like the one who asked this question, suspect that Bitcoin was pulled out of thin air—and that it is not backed by gold, a government, or an authoritative redemption guaranty. After all, it is just open source code. What stops me from creating an ElleryCoin using the same code?!

Let’s start with the short answer:

  • Indeed, it was pulled out thin air
  • It isn’t backed by an asset, government or promise
  • You could easily clone Bitcoin (the entire mining ecosystem) and distribute it yourself. It would be exactly like Bitcoin. Yet, Bitcoin is clearly valued by everyone, and your new coin is unlikely to generate interest or adoption.

A More Complete Answer: What is value?

Bitcoin has more intrinsic value than a government printed paper bill. The value arises from a combiation of fundamental properties:

  • It has a capped supply
  • It is widely recognized, liquid, and resistant to legislation
  • It has attained the robust supply-demand of a growing, 2-sided network.
  • It is open and transparent. This elevates user trust
  • Unlike cash and credit, Bitcoin requires no back-end settlement. That’s because it is not a payment instrument. Rather it is money itself.
  • Finally, it’s value is likely to be durable, because it is not printed by a country that has racked up debt. In fact, it can never be inflated.

Downside and Risks

But wait! What about the long transaction delay and high cost? There are sharp disagreements anong miners, users and developers concerning block size, transaction malleability, and replay issues. Aren’t these a deal killers? And what about wild volatility in the exchange rate? Doesn’t this retard adoption as a functional currency?

These are transient issues associated with a new technology. Although Bitcoin is weathering growth pains that arise from a new and distributed governance technology (democracy can be messy!), all of these issues have sound solutions. We have already witnessed and tested the solyutions with various forked coins. Think of them as beta tests. Even if current problems delay the day when you can spend bitcoin at every retail establishment—it is already sucking liquidity from national currencies and becoming the world’s de facto reserve currency.

Many individuals find all of this hard to accept. That is because we have been conditioned to think that ‘value’ arises from assets with ‘intrinsic’ value, the promise of redemption, or by edict. This is not true. In all things, (including gold, a Picasso painting, or your labor) value arises from simple supply and demand.

Some individuals claim that all other factors are secondary. But, even this statement is false. All other factors are irrelevant. They may be related, but they are not the source of value.

I recognize that this answer may seem smug or definitive. So, allow me to suggest related questions with answers that are a bit more interesting, because they are subtle. Unlike the question of value, these two questions are open to analysis and opinion: (1) “Will people continue to value bitcoin in the future?” — And (2) “When will Bitcoin stop swinging wildly in value?” (measured by its exchange rate with other currencies).

This is fun! Let’s explore…

Philip Raymond co-chairs CRYPSA, publishes A Wild Duck and hosts the New York Bitcoin Event. Last month, he kicked off the Cryptocurrency Expo in Dubai. Click Here to inquire about a live presentation or consulting engagement.

Let’s say that you no longer trust your currency exchange to host your Bitcoin wallet and you don’t trust a Trezor or Nano hardware wallet. You don’t trust your memory and you don’t trust your kids. And you certainly know better than to keep your wealth in your PC or phone. That would be downright crazy—right? What can you do?!

A growing number of people are printing paper wallets. It is the ultimate form of security. Some individuals even delete their cloud wallet, leaving everything to a string of hex characters or a QR code printed onto a slip of paper. (NB. You had better be certain that you and a few trusted individuals know how to find that piece of paper!)

But here’s an interesting mystery. If you print the paper wallet off-line and delete your other wallets, then how can the blockchain ‘know’ that you have changed wallets? The short answer: It doesn’t and you haven’t!

Let’s explore a bit deeper…

  • The deed to your house is stored and maintained by a registry. It is housed in a court house or other government building.
  • With a bearer bond, a certificate in your posession is the actual item of value.

But, in both cases, the fact that you made a photocopy of your deed or corporate bond is not of any consequence to others. It is the same with a Bitcoin wallet. (In this case, the ownership record is netiher in a government warehouse nor in your posession. It is crowd-sourced).

Printing out a paper wallet does not change your wallet ID. The paper wallet is simply another method of storing and retrieving the proof that you own a part of a mathematical solution set—That is, you know the solution to a problem.

Your paper wallet is just a copy the keys to your wealth. Of course, you may choose to destroy the other keys, that’s your business. No one knows or verifies that you still have access to your stored knowledge or how you stored it. It’s up to you to maintain access to the “document”. The blockchain only records a transfer of ownership from one wallet to another at the time of a payment transaction.

Got it? I hope you like the metaphors. I am fairly proud of myself for this explanation.

Philip Raymond co-chairs CRYPSA, publishes A Wild Duck and hosts the New York Bitcoin Event. Last month, he kicked off the Cryptocurrency Expo in Dubai. Click Here to inquire about a live presentation or consulting engagement.

Everyone likes a good mystery. After all, who isn’t fascinated with Sherlock Holmes or the Hardy Boys? The thirst to explore a mystery led us to the New World, to the ocean depths and into space.

One of the great mysteries of the past decade is the identity of Satoshi Nakamoto, the inventor of Bitcoin and the blockchain. Some have even stepped forward in an effort to usurp his identity for fame, infamy or fortune. But in this case, we have a mystery in which the subject does not wish to be fingered. He prefers anonymity.

This raises an interesting question. What could be achieved by discovering or revealing the identity of the illusive Satoshi Nakamoto?…

The blockchain and Bitcoin present radically transformative methodologies with far ranging, beneficial impact on business, transparency and social order.

How so? — The blockchain demonstrates that we can crowd-source trust, while Bitcoin is much more than a payment mechanism or even a reserve currency. It decouples governments from monetary policy. Ultimately, this will benefit consumers, businesses and even the governments that lose that control.

Why Has Satoshi Remained Anonymous?

I believe that Satoshi remains anonymous, because his identity, history, interests and politics would be a distraction to the fundamental gift that his research has bestowed. The world is still grappling with the challenge of education, adoption, scaling, governance, regulation and volatility.

Some people are still skeptical of Bitcoin’s potential or they fail to accept that it carries intrinsic value (far more than fiat currency, despite the absence of a redemption guaranty). Additionally, we are still witnessing hacks, failing exchanges and ICO scams. Ignorance is rampant. Some individuals wonder if Satoshi is an anarchist—or if his invention is criminal. (Of course, it is not!).

Outing him now is pointless. He is a bright inventor, but he is not the story. The concepts and coin that he gave us are still in their infancy. Our focus now must be to understand, scale and smooth out the kinks, so that adoption and utility can serve mankind.

Related Ruminations:

Philip Raymond co-chairs CRYPSA, publishes A Wild Duck and hosts the New York Bitcoin Event. He was keynote at the Cryptocurrency Expo in Dubai. Click Here to inquire about a live presentation or consulting.

Bitcoin has many characteristics of a currency. It is portable, fungible, divisible, resistant to forgery, and it clearly has value. Today, that value came close to $20,000 per coin. Whether it has ‘intrinsic value’ is somewhat of a moot question, because the US dollar hasn’t exhibited this trait since 1972. Today, economists don’t even recognize the intrinsic value of gold—beyond a robust, international, supply-demand network.

Lately, Bitcoin is failing as a viable currency, at least for everyday consumer transactions. The settlement of each transaction is bogged down with long delays and a very high cost. The situation has become critical because of squabbling between miners, users and developers over how to offer speed transactions or lower the cost of settlement. Bitcoin forks and altcoins such as Dash and Bitcoin Cash demonstrate that these technical issues have solutions. Since Bitcoin is adaptable, I believe that these issues are temporary.

But an interesting question is not whether Bitcoin will eventually become a consumer currency. it is whether Bitcoin can distinguish itself as a store of value, rather than just an instrument for payment or debt settlement. After all, a Visa credit card, a traveler’s check and an Amazon gift card can all be used in retail payments, but none of them have value unless backed by someone or something. US Dollars on the other hand are perceived as inherently valuable. They carry the clout and gravitas of institutions and populations, without users questioning from where value arises. (This is changing, but bear with me)…

What about Bitcoin? Does owning some bitcoin represent a store of value? Yes: It absolutely does!

Bitcoin is a rapidly maturing two-sided network. Despite a meteoric rise in exchange value and wild fluctuations during the ride, it is the epitome of a stored value commodity. Regardless of government regulation, adoption as a consumer payment instrument, or the cost and speed of transactions, it has demonstrated stored value since May 22 2010, when Laszlo, a Bitcoin code developer, persuaded a restaurant to accept 10,000 BTC for 2 pizzas.

The “currency” accepted by the pizza parlor wasn’t a gift card. It was not backed by a government, a prior deposit, dollars, gold, the promise of redemption, or by threat of force or blackmail. When a large community of individuals value, exchange, and can easily authenticate something that has none of those underpinnings, that thing clearly has stored value.

In this case, value arises from its scarcity and a robust supply-demand-network. Because its value is not tied to a government or to other commodities, its exchange rate with other things will be bumpy, at first. But as it is recognized, traded and adopted as a stored value token, the wild spikes will smooth out.

A tipping point will precipitate rapid adoption when…

  • when some vendors begin to quote prices in Bitcoin (rather than national currency)
  • when some of these vendors retain a fraction of their bitcoin-revenue for future purchases, payments or debt settlements—rather than converting revenue to fiat/national currency with each sale

Bitcoin is clearly a store of value, and it is beginning to displace gold and the US dollar as the recognized reserve currency (it is gradually becoming the new gold standard). But before Bitcoin can serve as a widely adopted everyday currency (i.e. as a payment instrument—with or without the stored value of a currency unto itself), it must first incorporate technical improvements that speed transactions and lower cost.

This is taking longer than many enthusiasts would have liked. But, that’s OK with anyone who keeps their eye on the big picture. Democracy is sometimes very sloppy.

Philip Raymond co-chairs CRYPSA, publishes A Wild Duck and hosts the New York Bitcoin Event. Last month, he kicked off the Cryptocurrency Expo in Dubai. Click Here to inquire about a live presentation or consulting engagement.

In an April 2014 article, I demonstrated how one might approach a fair Bitcoin valuation.

  • Original Methodology: What fraction of the daily float
    needed to support daily global commerce will Bitcoin capture?

My methodology was based on the demand that Bitcoin would generate if it displaced a small fraction of cash and credit used for retail and commercial payments around the world. At the time, Bitcoin had a value of USD $450. I estimated that if it captured 5% of global payments, it would have a fair value of about $10,000/BTC (I didn’t complete the calculation—I left that up to the reader. That’s because I was concerned that publishing such a prediction would cause me to lose credibility as an economist and blogger. For what it is worth, I also predicted that a rise to $10,000 would take 5~8 years.

As you might imagine, my friends and family urged me to unload my BTC investment. The April 2014 price of $450/BTC seemed very high to most armchair analysts. After all, thirteen months earlier, it had been just $45.

Yet, now, just 2½ years later, Bitcoin has reached $18,000 per coin. Last week, on Dec 7, 2017, it climbed 40% in just 40 hours, and 120% in less than 2 months. Naturally, this leaves everyone asking if Bitcoin’s rapid rise in value represents an investment “bubble”.

…And so it is time to update the calculation of a fair value for Bitcoin. I can’t do better than point to a terrific prediction model described by Divyanth Jayaraj. His answer to a question at Quora presents a sound basis for valuation—much better than my original valuation method. How so?…

  • Reserve Methodology: What fraction of int’l business will be
    settled with the transfer of Bitcoin instead of Gold or Dollars?
Divyanth Jayaraj

Bitcoin is rapidly demonstrating viability as a reserve rather than a daily transaction currency. Few people believe that Bitcoin will replace national currencies throughout the world, but it very well may replace gold for government and interbank settlement, and for large intercontinental purchases of commodities, such as oil, grain or airplanes.

Sure! When developers and miners get a handle on transaction cost and delays, it may also become a de facto instrument for retail payments and debt settlement even among consumers. But, even if Bitcoin never achieves this status, Divyanth’s excellent analysis is still valid.

I won’t steal the author’s thunder. Click the link and learn what is very likely to be a fair future value for Bitcoin. Prepare to digest a very large number. I didn’t think of this valuation methodology, but I agree that it represents a realistic peek into the future.

For a few other methods of determining Bitcoin’s inherent value, check out the links at the bottom of my original article. But that was then and this is now. Give extra weight to this newer analysis. The methodology is more accurate given what we know now.

Philip Raymond co-chairs CRYPSA, publishes A Wild Duck and hosts the Bitcoin Event. He was keynote at Cryptocurrency Expo in Dubai. Click Here to inquire about a presentation or consulting engagement.

At the end of October, I delivered a keynote speech at the Cryptocurrency Expo in Dubai. That was just 5 weeks ago. When I left for the conference, Bitcoin was trading at $6,300/BTC. But in the next few weeks, it reached $10,000. Last week, I liquidated part of my investment at just under $13,000/BTC. Now, Bitcoin is about to cross $16,000. (I began writing this 10 minutes ago…but it has risen another $1600.00. Now, it is $17,000).

Dear Reader: I believe in Bitcoin. Yet, there is a “But” in the last paragraph below…

I believe in Bitcoin. Its rise is not fueled solely by investor hysteria. Rather, it is a product of delayed appreciation for a radical, transformative network technology.

In the mid 1970s, the microprocessor was spreading to every consumer gadget. It started a trend toward tools that added power and enjoyment to all facets of life. And they were quickly becoming faster, lower-power, lower-cost and more ubiquitous. If you understood the potential of the computer chip before mainstream investors, you couldn’t really invest directly in the microprocessor. After all, it is a platform improvement. But you could come very close—You might have invested in Intel, Fairchild or Texas Instruments.

Jump forward 20 years: In the mid 1990s, the Internet was spreading to every class of citizen and to all corners of the earth. But just as with a computer chip, you could own a web site, but you couldn’t own a piece of the internet’s market potential. You can’t invest in an idea, unless you are the inventor and you hold a patent.

But, 5, 6 and 7 years ago, many individuals saw the future. They understood that Bitcoin is transformative. They recognized that—contrary to popular misconception—Bitcoin is backed by something more tangible than dollars, Euros and Renminbi. More importantly, it exhibits the potential to become the global reserve currency. And it continues to do so, even as internal bickering threatens its utility as a consumer payment instrument. That’s because It diverts liquidity away from gold and national FIAT. Ultimately, it forces governments to be transparent and accountable to its citizens. This is further reinforced by rampant inflation in countries around the world and a growing list of trading partners who seek alternatives to the US dollar.

But, just like real estate, the supply of Bitcoin is capped. No one can produce more. It’s the math, stupid! Even if you only realized this one year ago, you still would have reaped a 2000% return on your investment as of this morning. (I am cherry-picking here, but Bitcoin had just crossed $630 on October 20 2016).

Let’s be clear: This is not a dot-com bubble or a 17th century Dutch tulip bulb mania. It is far more comparable to the 19th century California gold rush. The only frenzy is to acquire a functional instrument that is still trading for far below par value—but with the strange caveat that hoarding retards liquidity and the ‘functional’ adoption that we need to sustain long-term value.

The Bottom Line

In the grand scheme of things, Bitcoin is still undervalued—even at $17,000/BTC. It will fall and it will rise, but it will certainly be valued higher years from now.

…But, I must admit that this sudden and urgent race into outer space is a bit unsettling. From an investor perspective, it is not rational to leave when I recognize that the exuberance is rational. Yet, here we are at $17,000. I am taking some bitcoin off the table—A bit of bitcoin.

Philip Raymond co-chairs CRYPSA, publishes Wild Duck and hosts the New York Bitcoin Event. He is on the New Money Systems board and led the Cryptocurrency Expo in Dubai. He frequently consults and presents.

Summary: Cryonics firm CryoGen makes a radical new proposal to freeze people before death, known as ‘mercy freezing.’ Customers will pay for the Cryopreservation: Also called cryobanking. The process of cooling and storing cells, tissues, or organs at very low or freezing temperatures to save them for future use. Used in cryonics and the storage of reproductive cells in fertility treatments. [Source – NCI].” class=” glossaryLink “cryopreservation using a new blockchain based cryptocurrency called the CRYO. [This article first appeared on LongevityFacts.com. Author: Brady Hartman. Follow us on Reddit | Google+ | Facebook. ]

Cryonics is legally allowed only after death, and during this time the body starts to decay. Cryopreservation should ideally be performed within a few minutes of the patient’s demise. This happens less than half the time for current cryonics clients, and their tissues start turning to mush before freezing.

A Russian-Swiss company named CryoGen plans to solve that problem by freezing people before death, calling it ‘mercy freezing.’ CryoGen is building a cryonics lab in Switzerland, a country where euthanasia is legal. According to a white paper on CryoGen’s website.

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