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accolay

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #50 on: July 25, 2017, 12:00:37 PM »
Which goes to show that there is still a ton of upside to it from an investment perspective.

I'd use the word "speculation."

Still not convinced. I'll pass.

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #51 on: July 25, 2017, 01:24:36 PM »
Which goes to show that there is still a ton of upside to it from an investment perspective.

I'd use the word "speculation."

Still not convinced. I'll pass.

You can use whatever term you'd like. Ultimately every single investment is speculative in nature. Diversification doesn't change the speculative nature of an investment. For example, buying stock into a company, is speculative because you feel that it will be more valuable in the future. It moves from speculation to investment only once you begin to understand the business itself. If you understand the business moves they're making to position the company for future profits (ie, your profits), then it becomes less speculative in nature. The same is said for the S&P 500, just because it is diversified, doesn't make it less speculative. It only lowers risk and I'd posit that it is actually more speculative in nature because you can't possibly know well the business postures of all the companies within the S&P 500 index. Lowering risk doesn't mean you're less speculative.

The same thing can be said about Bitcoin. You may call it speculative, but one person's speculation is another person's understanding. Understanding how Bitcoin works and the technology and use cases behind it is what moves it away from speculation. Understanding the market, economy, or particular business is the only way to lower the speculative nature of any investment.

Along these same lines, John Bogle argued that in most cases investment and speculation are indistinguishable. All markets benefit from both speculators and investors, so I'm not saying that either is wrong to participate in. But, if you're risk tolerance is low, then it is paramount that understanding becomes the key to investing wisely even if your only investment vehicle is an index fund.

Like I said, I am not looking to pass my risk tolerance onto anyone else. Ultimately it is not about whether an investment in speculative or not (they all are), but more about matching an investment's risk profile with your own risk tolerance. But, passing over Bitcoin as "speculative" without understanding Bitcoin itself or realizing the speculative nature of every investment out there is a close-minded approach to investing. Good luck with that!

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #52 on: July 25, 2017, 02:24:54 PM »
For those who are pro-bitcoin, how do you justify the risk of getting your money stolen?  See this link:

http://gizmodo.com/the-6-biggest-bitcoin-heists-in-history-1531881137

The problem with bitcoin in my mind is it is untraceable. So when bitcoins get stolen, you have no way to trace the thiefs who steal your money.

It all comes down to securing your private key. If you alone own your private key, it is next to impossible for your bitcoin to be stolen.

Most of the "heists" in the article you linked to were cases where the private key that owned the Bitcoin on the blockchain was in the hands of another organization. This is why it is widely advocated that if you own large sums of Bitcoin, it is imperative that you also own your private key to those Bitcoin. If you place the trust of your Bitcoin in a third-party organization, then you're at the mercy of that organization's information security policies...and we all know how well companies handle their information security.

Securing your own private key comes down to risk analysis. The more Bitcoin you own, the more precautions you'll likely want to take.

If you own just a few hundred dollars in Bitcoin, then simply owning your own private key in a local software wallet may suffice.

If you own a few thousand Bitcoin, then you'll likely want to make sure that your private wallet software is encrypted and password protected and not stored on a computer that you regularly browse the internet with.

If you own tens of thousands of Bitcoin, then you'll likely want to use some type of cold-storage. This is where your private key is never stored on a computer that is connected to the internet. This means that the cold-storage computer/device simply signs the transactions and another internet connected device broadcasts that signed transaction onto the Bitcoin network for payment. That prevents an attacker from ever being able to steal your private key over the internet since your private key is never on any internet connected device.

There are also a lot of hardware wallets that are not internet connected and require various authentication methods to sign transactions. These are very secure and good for storing large sums of Bitcoin securely.

Also, using a hierarchical deterministic wallet that uses seed words as a backup method can be used to secure Bitcoin securely as well. You can generate the seed for backup and then physically store the seed words somewhere securely. The wallet that generated the seed could be completely deleted electronically. As long as you can physically guarantee the safety of those words, then your Bitcoin associated with that private key is safe. This is similar in concept to a paper wallet.

Finally there is a brain wallet which is a private key that is only stored in your head. Though the safety of that wallet greatly depends upon your ability to 1) remember your key and 2) remember a key random enough to ensure its safety.

So there are a lot of approaches to securing your Bitcoin, but the first and most important step is to own your private key. If you're the only one in control of your private key, then you can be sure that your Bitcoin is safe. That alone would've saved many of the victims in your article from losing millions of dollars.
« Last Edit: July 25, 2017, 02:27:45 PM by lifeanon269 »

maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #53 on: July 25, 2017, 02:27:35 PM »
For those who are pro-bitcoin, how do you justify the risk of getting your money stolen?  See this link:

http://gizmodo.com/the-6-biggest-bitcoin-heists-in-history-1531881137

The problem with bitcoin in my mind is it is untraceable. So when bitcoins get stolen, you have no way to trace the thiefs who steal your money.

Except for the first case which was a botnet that would mess up your life if you let yourself get infected whether or not you were investing in bitcoins, the other five examples are all cases where people didn't bother to transfer their bitcoins to a wallet they controlled themself. Leaving a significant sum money deposited at an exchange or on a darknet marketplace is just a plain bad idea. At that point you've sacrificed basically all the the security advantages bitcoin (and similar currencies) are supposed to provide.


Cookie78

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #54 on: July 25, 2017, 02:33:19 PM »
For those who are pro-bitcoin, how do you justify the risk of getting your money stolen?  See this link:

http://gizmodo.com/the-6-biggest-bitcoin-heists-in-history-1531881137

The problem with bitcoin in my mind is it is untraceable. So when bitcoins get stolen, you have no way to trace the thiefs who steal your money.

It all comes down to securing your private key. If you alone own your private key, it is next to impossible for your bitcoin to be stolen.

Most of the "heists" in the article you linked to were cases where the private key that owned the Bitcoin on the blockchain was in the hands of another organization. This is why it is widely advocated that if you own large sums of Bitcoin, it is imperative that you also own your private key to those Bitcoin. If you place the trust of your Bitcoin in a third-party organization, then you're at the mercy of that organization's information security policies...and we all know how well companies handle their information security.

Securing your own private key comes down to risk analysis. The more Bitcoin you own, the more precautions you'll likely want to take.

If you own just a few hundred dollars in Bitcoin, then simply owning your own private key in a local software wallet may suffice.

If you own a few thousand Bitcoin, then you'll likely want to make sure that your private wallet software is encrypted and password protected and not stored on a computer that you regularly browse the internet with.

If you own tens of thousands of Bitcoin, then you'll likely want to use some type of cold-storage. This is where your private key is never stored on a computer that is connected to the internet. This means that the cold-storage computer/device simply signs the transactions and another internet connected device broadcasts that signed transaction onto the Bitcoin network for payment. That prevents an attacker from ever being able to steal your private key over the internet since your private key is never on any internet connected device.

There are also a lot of hardware wallets are not internet connected and require various authentication methods to sign transactions. These are very secure and good for storing large sums of Bitcoin securely.

Also, using a hierarchical deterministic wallet that uses seed words as a backup method can be used to secure Bitcoin securely as well. You can generate the seed for backup and then physically store the seed words somewhere securely. The wallet that generated the seed could be completely deleted electronically. As long as you can physically guarantee the safety of those words, then your Bitcoin associated with that private key is safe. This is similar in concept to a paper wallet.

Finally there is a brain wallet which is a private key that is only stored in your head. Though the safety of that wallet greatly depends upon your ability to 1) remember your key and 2) remember a key random enough to ensure its safety.

So there are a lot of approaches to securing your Bitcoin, but the first and most important step is to own your private key. If you're the only one in control of your private key, then you can be sure that your Bitcoin is safe. That alone would've saved many of the victims in your article from losing millions of dollars.

I don't really understand the terms.

My brother gave me a physical bitcoin back when it was worth $20. I threw it in with the rest of my foreign coins. I only have a physical coin, the 'key?' is hidden under a hologram sticker. The value I found out recently is 1.001 bitcoins. Is it 'secure' (besides the fact that it could be physically stolen)?

Is there a better way to store it that isn't complicated? Also a way that it doesn't 'disappear' when I die, like my brother's 80+ bitcoins did because no one knows the 'key'?


maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #56 on: July 25, 2017, 05:07:34 PM »
The short answer is yes the physical coin is secure. To ensure that a wallet doesn't get lost when you die, make sure there is a copy of your private key somewhere the executer of your will can find it. For example a hard copy in a safety deposit box with any other important papers.
« Last Edit: July 26, 2017, 07:42:39 AM by maizeman »

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #57 on: July 26, 2017, 05:50:48 AM »
I don't really understand the terms.

My brother gave me a physical bitcoin back when it was worth $20. I threw it in with the rest of my foreign coins. I only have a physical coin, the 'key?' is hidden under a hologram sticker. The value I found out recently is 1.001 bitcoins. Is it 'secure' (besides the fact that it could be physically stolen)?

Is there a better way to store it that isn't complicated? Also a way that it doesn't 'disappear' when I die, like my brother's 80+ bitcoins did because no one knows the 'key'?

As maizeman said, the physical coin is secure. Secure and treat it as you would a "$2600" dollar bill if there ever was such a thing, since that is essentially what it is. The hologram sticker is usually there to ensure that the private key remains hidden on it and you can ensure that it wasn't tampered with. Technically, if someone saw the private key and remembered or took a picture of it, they could steal your bitcoin even if you were still in possession of the physical bitcoin "bill", but the sticker over it prevents someone from doing so and ensures that you can tell if it was ever tampered with or removed. Other than that, the only way someone could steal your bitcoin is if it were physically stolen from you. So in your case, physically securing that bitcoin is good enough (safety deposit box, firesafe, etc).

Ensuring that your survivors can retrieve your bitcoin in the event of your death is a whole different story. In your case, just ensure that they have access to your physical bitcoin wherever you keep it and you're good. It would be no different than wanting someone to have that "$2600" dollar bill after your death. It is a whole different story for people who store their bitcoin in an electronic or hardware wallet.

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #58 on: July 26, 2017, 07:47:30 AM »
What percent of the population has the knowledge to understand half of what you just posted, or the resources and discipline to follow through on it?  This is why bitcoin will at best be a niche currency held by IT nerds, or at worst will collapse when something better comes along, or there is a panic.

Who says they need to? They only need to trust that it works. How many people know how the VISA network works or how ACH transactions work behind the scene? Most people probably have no idea what ACH is and yet their money goes through it all the time. Thirty years ago people said the exact same thing about computers, now two year olds can operate them.

Digital Dogma

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #59 on: July 26, 2017, 08:24:33 AM »
I've jumped into the bitcoin speculation, but I took a different approach that fits my lifestyle. My hobbies have always included building PCs, gaming, photoshop, and so I selected a highly upgrade-capable motherboard when I constructed my desktop ~5-6 years ago. I was more recently able to get a high end extreme edition processor for an 85% discount on Ebay, and purchased a high-end graphics card to match it as an upgrade a few months ago. This doubled my processing power, and increased my graphics processing cores by factor of 10.

I've been using the CPU/GPU to process various different currency transactions which change from moment to moment based on their current profitability, in return I receive regular micro-payments as low as 0.00000010 BTC that add up to about 0.0018000 BTC/day. At the most recent exchange rates, thats about 4-5$ worth of BTC per day, or ~100+$ a month, for the cost of a few dollars of electricity. I'm not technically mining for bitcoin, but being paid in bitcoin to mine other crypto currency. I'm speculating that the bitcoin I'm being paid today will be worth more sometime in the future. By using hardware I've already got, I can keep down the cost of acquiring the currency over the long-term.

I'm using the same buy and hold, dollar cost averaging approach to bitcoin that I apply to my vanguard index funds. The potential upside to being an early adopter of the currency is worth the potential downside of a little more electrical consumption in my opinion. Obviously the time to get in if you were purchasing, or mining bitcoin on your own was years ago, but I feel that there is still potential gains to be made in the long run.

The long term security and viability of any one cryptocurrency is questionable in my opinion, and so my plan moving forward is to identify other cryptocurrency which I can diversify into (just for the sake of listing an alternative, Litecoin perhaps) and keep them as a smaller portion of my digital portfolio in different wallets to offset the risk of failure/loss/theft.

I'm constantly trying to understand whats going on with this technology, one of the projects that I thought was great was lbry, I'll leave this link here for the lbry currency/service. I could attempt to explain it, but you're better off just finding out for yourself if you're really interested in "What could this stuff do for ME?"

https://lbry.io/learn
« Last Edit: July 26, 2017, 08:31:28 AM by Digital Dogma »

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #60 on: July 26, 2017, 10:57:00 AM »
You don't have to know how ACH works because the banks and the government can trace transactions.  With bitcoin, you are responsible for securing your bitcoins.

You missed the point. There are technologies out there that make using Bitcoin as easy as paying a bill, using a credit card, or using an app. If I can teach my non-technical brother how to use bitcoin, then anyone can learn, lol. My analogy was to point out that one does not need to understand how the bitcoin network operates to use it securely.

If you have $100,000 grand in bitcoin, you'll probably want to take extra precautions in securing it just like you would take extra precautions in securing that amount of cash in fiat (perhaps even by speaking with a financial consultant).

Cookie78

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #61 on: July 26, 2017, 11:03:58 AM »
You don't have to know how ACH works because the banks and the government can trace transactions.  With bitcoin, you are responsible for securing your bitcoins.

You missed the point. There are technologies out there that make using Bitcoin as easy as paying a bill, using a credit card, or using an app. If I can teach my non-technical brother how to use bitcoin, then anyone can learn, lol. My analogy was to point out that one does not need to understand how the bitcoin network operates to use it securely.

If you have $100,000 grand in bitcoin, you'll probably want to take extra precautions in securing it just like you would take extra precautions in securing that amount of cash in fiat (perhaps even by speaking with a financial consultant).

I don't think I am particularly dense, but I had a hard time figuring out what was safe, how to use my bitcoin, and what all the terminology meant. In my research I didn't learn enough to be at all comfortable with security levels or lack thereof. I got my boyfriend to look into it, him being more technically inclined than myself, and even he thought it was rather confusing. After an afternoon of research all we decided was that it was best for a $20 gifted 'investment', just to leave it alone and see if the value keeps going up. Maybe I just need it explained to me by someone who already knows, rather than sifting through the internet trying to figure out whats legit.

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #62 on: July 26, 2017, 01:27:18 PM »
Not true.  If you have $100,000,  you can go to any bank in the country and get an FDIC insured account.

FDIC insurance doesn't have anything to do with this. FDIC/NCUA insurance doesn't cover loss from theft/fraud, which is what this discussion was about. Certainly such insurance coverage from financial institution failure is a benefit if that institution participates in lending. FDIC/NCUA insurance isn't necessary for Bitcoin because it is backed by the blockchain. If you get your lending from somewhere else, then such an insurance vehicle isn't necessary for the bitcoin you own because your deposits would be backed by the blockchain. The only reason why we need FDIC insurance to begin with is because banks are allowed to lend while only keeping a fraction of its reserves for deposit liabilities.

Also, FDIC/NCUA insurance only covers certain low-yield type accounts like checking, savings, MM and CoD's. So if you have $100,000, you'll probably not want to keep that amount of money in an account like that from a financial wealth perspective. In which case, FDIC insurance isn't going to cover mutual funds, annuities, bonds, etc.

Not sure what your point was by that.
« Last Edit: July 26, 2017, 01:33:27 PM by lifeanon269 »

phil22

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #63 on: July 26, 2017, 05:34:52 PM »
if you want bank/ACH level simplicity, you can get that with bitcoin.  open an account at coinbase.  at the moment there's not a lot of reason to do this aside from speculating.  you have to trust coinbase and that coinbase won't get hacked.  if this is your intended use then no, cryptocurrencies aren't that useful.

if you don't want to trust your coins to a company, you can run bitcoin wallet software on your computer or phone.  this allows you to pay anyone online for anything without asking for anyone's permission.  bitcoin allows you to safely "give" someone money, rather than a check or credit card where you give them sensitive information and they "take" money from your account later.  that's why cryptocurrencies are the future of money.  this option carries the risk of malware stealing coins from your computer, but is useful if you're trying to send money to relatives overseas on a regular basis, if you live in or are moving to or from a restrictive country, or if you want digital cash to keep the government out of your personal business.

if you are very tech savvy you can run fully offline wallet software on a dedicated computer (separate laptop/trezor/etc) and you can be 100% in control of your funds stored only in your head.  banks, cash, gold, etc., can't offer that level of security.  if you want or need this level of security then cryptocurrencies are necessary, not just useful.

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #64 on: July 27, 2017, 06:21:05 AM »
Many have mentioned the security of bitcoin vs credit cards for transactions.  What's to stop CC companies from adapting blockchain technology to make CC transactions more secure?  That seems logical as it could happen behind the scenes and consumers wouldn't have to change behaviors or worry about currency exchanges. 

I may be missing an important detail here - please help me understand.

The security of Bitcoin transactions come from the fact that when paying someone, you're never transmitting your private key. You're private key is only used to sign the transaction that gets broadcasted onto the network. So a bitcoin transaction never exposes the private key on the network. Therefore there is nothing that could be stolen with regard to that transaction that would compromise any Bitcoin.

Credit cards have a similar feature with the EMV chip cards in the sense that when making a transaction at the merchant, only a unique one-time token is exchanged with the merchant and your confidential card information is never part of the transaction exchange.

The problem is that credit card issuers face the same problem that Bitcoin faces today: adoption. Right now, all EMV chip cards also have mag stripes on them to make them backward compatible with merchants who have yet to accept EMV chip cards. Someday, it is the hope that mag stripes will be phased out completely, but all merchants would have to (or be forced to) accept chip cards. Credit card issuers likely will have an easier time with adoption because they're a powerful and persuasive industry. They have legislative backing that places the liability of fraud on those that don't accept or issue EMV chip cards. In other words, if fraud occurs at a merchant that does not accept chip cards, then the merchant will be liable for damages due to that fraud. So it places pressure on merchants to start accepting EMV chip cards sooner rather than later. Bitcoin doesn't have that hefty clout yet.

The downside with this move to EMV chips is that it simply moved the fraud from POS to online. Since EMV chips don't provide any protection for online transactions, fraud has simply moved from the point of sale terminal to online transactions and account takeovers. So credit card companies still have work to do to improve security for online transactions. We're all still putting in our credit card numbers when placing orders online and that's not secure. There are plenty of technologies out there to help with this problem as well (such as Paypal or ApplePay). But the same issue of adoption is faced here. If a merchant doesn't accept a payment method, then it obviously can't be used.

Even if credit card company adopted blockchain technology on the backend (behind the scenes as you say), it wouldn't help secure the online POS transaction unless something changed with the way those transactions take place. That means that we can't be giving our credit card numbers away when making transactions. The only way to change that is for merchant and user adoption to take hold of whatever new technology comes along. Something would need to change about the way we make transactions.

So the same problem that Bitcoin faces, credit card companies face the same thing: adoption.

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #65 on: July 27, 2017, 10:18:29 AM »
My point was you don't need to speak to a financial consultant or take special precautions to store $100,000.  If you put it in the bank you are FDIC insured from bank robberies and bank failures.  If you have money in the bank or credit cards you are protected from fraud / identity theft as well (not by FDIC insurance but from federal law - as long as you report it quickly).  Bitcoin theft is untraceable. 

As opposed to bitcoin which is unregulated so if coinbase goes bankrupt like mtgox your money is gone.  If you have $100,000 in bitcoin you can store your bitcoins at home but that is like have $100,000 in a safe in your house, it's protected pretty well but not if someone you know and trust steals from you that has your passwords.  Also, when you die, that money could be lost unless you have the discipline and forthought to provide instructions about how to access the bitcoins.  And then if these instructions are written down, someone can find it and steal it.

My point was that if you have $100,000, then you're likely taking precautions, whether it is even simply opening an account or talking with someone, to secure that amount of money. Yes, FDIC insurance protects the individual from failures of the financial institution such as bank robberies or other institutional financial loss. But, why are you even comparing that to Bitcoin when Bitcoin is a non-trust decentralized money model that doesn't require institutional solvency to exist. With Bitcoin, you don't need to worry about the net-worth ratio of any institution.

So the concern with Bitcoin is your own personal security, not some other institution's (which is what FDIC insures). Personal security still comes into play with fiat currency even if you are just putting your money into a checking account and leaving it there. Yes, the CFPB provides a ton of liability protection for the consumer in the event of fraud, but that doesn't mean the consumer can be complacent with what is going on with their money and that protection isn't endless.

I understand the point you're making in the sense that Bitcoin transactions are irreversible and from a fraud standpoint, that makes Bitcoin riskier because once a fraudulent transaction takes place on the blockchain, there is no getting it back unless the owner of the private key to which it was sent signs a new transaction to return it. But that same concept can also be used to prevent fraud as well.

That being said, Bitcoin transactions, contrary to popular belief, are not untraceable. All transactions take place on a public ledger and while effort can take place to launder Bitcoin to make it very difficult to trace, with enough effort on law enforcement's end, it can be tracked. There have been auctions of seized Bitcoin. Obviously that isn't returning it to their rightful owners in anyway, but it's to illustrate the point that Bitcoin can be tracked.

You're correct about the risk with crypto-currency exchanges. They should not be treated like banks and most Exchanges attempt to acknowledge this for their customers. They're not secured or insured like banks are and there is a history of exchanges failing sadly at the customer's expense. I wasn't arguing about the security of Exchanges though, I was merely arguing about the security of the Bitcoin system itself.

Yes, adopting Bitcoin does shift some risk from the institution to the individual. I'm not going to argue all points on that front. But with that, it also reduces many risks so long as the individual takes some simple precautions. Precautions that I don't feel are far beyond the level of precautions that people should be taking with their fiat money today anyway. That's the main point I'm making. In that essence, it is very empowering for the individual and I think time will show that such an empowering solution will eventually be embraced. The security of one's monetary wealth is returned to the individual, which in my opinion is where it should be.

maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #66 on: July 27, 2017, 10:59:30 AM »
@L.A.S. I would agree with (a). For (b) currencies do two things, 1) facilitate transactions and 2) act as stores of value. I'd argue cryptocurrencies are already quite good at #1, but the volatility definitely undermines their use for #2. So they're halfway to being currencies.

@lifeanon269 @Moustaches

Allow me to summarize and suggest that the two of you are not, in fact, in disagreement.

Pros of bitcoins: Significantly less likely to be stolen.*

They can be used in ways (paying for things online) that would expose you to fraud and theft if you used a credit card but are essentially zero risk with bitcoin. There are still ways bitcoin can be stolen (if someone has access to your computer either through malware or having access to your home and knowing your passwords) but in those cases that same person would be able to steal your credit card information just as easily if not more so.

Cons of bitcoins: Significantly less recourse than if someone steals your bitcoins than if someone stole your credit card info.

So it boils down to a matter of how individual people weigh the trade off between the likelihood of theft and the severity of theft if it were to occur. It sounds like the two of you just place different weights on probability of bad things happening and severity of bad things happening.

*Unless you leave all of your bitcoins deposited at a currency exchange like coinbase or a darknet marketplace like silkroad/alpha bay.

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #67 on: July 27, 2017, 02:44:56 PM »
Howard Marks thinks that crypto-currencies are not real.  I just got done reading the latest Oaktree memo --  a discussion of digital currencies begins on page 15.

https://www.oaktreecapital.com/docs/default-source/memos/there-they-go-again-again.pdf

I think that he makes a pretty good case that they are (a) not an investment because one cannot determine an intrinsic value for them and (b) not currencies because they are too volatile.

Ya, I read Howard Marks' memo. It is clear from the start that he has very little understanding of what crypto-currencies are or how they work. With his history of being cautious, I think he's trying to send warning out about anything and everything regardless of whether or not he fully understands it.

He even called crypto-currencies pyramid schemes which proves his lack of understanding of them from a technology perspective.

He uses the term imaginary frequently simply because of the fact that they're intangible as if using such a word validates his concerns more so. Not to mention the numerous "they're not real!" exclamations throughout the read, it really makes it hard to take him seriously.

To break down his arguments, once he actually gets to discussing crypto-currencies (more than a page later), he starts off talking about their volatility. Chiefly he mentions their astronomical price surge of the last couple years. He specifically calls out Ethereum's surge of 4500% since the start of the year where it started out with a price of around $10.

The problem with discrediting these currencies based on their staggering rise is price is that almost all crypto-currencies start out with an almost negligible amount of value to them. Why? Because there is almost no proof-of-work (few miners) behind them at the beginning. Therefore their value is less than pennies to start with. It is almost impossible for a limited supply asset/currency to not have a meteoric rise in price when its starting point is mere pennies. Even if it takes decades to reach adoption, because of its starting point the price chart will still appear parabolic in shape simply because of its fractional starting point. That's why it is ignorant and short-sighted to discredit crypto-currencies as currencies because of their early volatility or parabolic price chart. Is volatility good for them in the long wrong? No, but given time, the parabolic curve will give way to stability and comments like Howard Marks' will be shown to be short-sighted as they are.

Next, he goes on to make the capitalization comparison to Paypal and Goldman Sachs. He asks the reader would they rather own one of those companies or all the Bitcoin and Ethereum in the market. Obviously that is a rhetorical question, but the point of the question is meaningless. Bitcoin and Ethereum's price is only validated because of supply and demand. So one person owning all of any given currency doesn't provide value to the currency at all. It is a paradoxical scenario. The same thing could be said for all currencies, virtual or not. Unless there are buyers that still value it, then owning all of them would be pointless. How valuable would the dollar be if every single USD was owned by one person. I'm pretty sure we'd probably have a new currency at that point and the value of the dollar would be worthless. Currencies depend upon markets of both buyers and sellers, not all of one or the other.

Also, you can tell of his lack of understanding with crypto-currencies by the complete lack of acknowledgement of the massive infrastructure in place that supports it. If one person owned all the Bitcoin in the world, but there was still the same hash rate of miners supporting the network, you can be sure that massive infrastructure would still seek to retain the value of it or else they wouldn't continue to waste tons of energy to support it. As an analogy back to his original question to the reader, that would be like asking the reader if they would rather own the PayPal or Goldman Sachs companies, but no one would be working for those companies when you acquire them. How valuable would those companies be then to the reader? Probably $0. By failing to acknowledge the infrastructure in place for crypto-currencies, he completely misunderstands the value given to these currencies. The miners, the businesses, the markets, etc are massive behind these currencies and they all contribute to the demand and value that they represent.

I understand that the real point of the memo was to just urge people to be cautious, but the way he presented that caution with regard to Bitcoin and the way he demonstrated his understand of crypto-currencies completely failed to make his point legitimately.

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #68 on: July 27, 2017, 04:56:49 PM »
I know, he even acknowledges this.  I think that part of his argument is that crypto-currencies are not really understandable in an investment sense and should be approached with caution as a speculation:

Quote
But they’re not real!!!!! Nobody has been able to make sense to me of these currencies.

I understand that he acknowledges his lack of understanding of the technology, but in my opinion, if someone doesn't understand something, then they probably should not attempt to analyze it using their lack of understanding.

Numerous times, even though he doesn't understand it, he makes critiques based upon his knowledge of what he does understand.

1) He claims they're "imaginary", and as a reader, we're supposed to take this with some hefty weight even though he openly acknowledges that he doesn't understand it?
2) He claims that they're a pyramid scheme even though the software and technology is open source and decentralized.
3) He makes tired comparisons to other historical bubbles without actually attempting to make an analysis or comparisons between them (hint: they have little in common).
4) He makes comparisons to corporate capital investments without understanding the differences between corporate valuation and bitcoin valuation (he understands the former very well, but is ignorant on the latter).
5) His only attempt at an actual analysis is an elementary look at the parabolic price chart and simply uses that as a reason why that can't possibly be considered currency (as if being labeled "currency" is actually even important).

Sorry, it just gets tiring hearing old-time investors attempt to stay relevant by giving their uneducated critique of a technology they don't fully understand.

aspiringnomad

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #69 on: July 27, 2017, 10:39:27 PM »
@L.A.S. I would agree with (a). For (b) currencies do two things, 1) facilitate transactions and 2) act as stores of value. I'd argue cryptocurrencies are already quite good at #1, but the volatility definitely undermines their use for #2. So they're halfway to being currencies.


Based on my user experience, they are not good at #1 relative to current fiat alternatives. It takes 10+ minutes for a BTC transaction to be confirmed and transactions are not completely free with many coins unlike fiat, using for example, Venmo.

I'm very interested in new tech, disruption, and all that jazz, but I think failure is more likely than success for 99% of the coins currently out there. Perhaps good for a bit of fun speculation, as I'm guilty of, but an unwise place for any serious investment. Noobs jumping in right now and calling themselves early adopters portends trouble, IMO.

mxt0133

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #70 on: July 27, 2017, 11:44:12 PM »

Based on my user experience, they are not good at #1 relative to current fiat alternatives. It takes 10+ minutes for a BTC transaction to be confirmed and transactions are not completely free with many coins unlike fiat, using for example, Venmo.


You are right that compared to physical cash it's not instantaneous.  But compare them to digital fiat it's much faster.  How long does a bank transfer take? 3 days or so.  How long does an international wire take? 5+ days.  Compare them to  credit cards they are far superior.  Even though you can pay with a credit card and walk out with goods in seconds the actual transfer of money takes days for the merchant to get it in their bank account.  There are intermediaries that facilitate this transaction and take the risk that the funds will not be transferred and they charge for those services.  Remember stores take a 2-3% discount when people pay with credit cards which they pass along to the customers by increasing the cost of the goods sold.

Crypto currencies are meant for digital transaction but can also be used for physical transactions which compared to credit cards are far more efficient.

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #71 on: July 28, 2017, 07:44:23 AM »
Re 3: Well, yes.  The thing about bubbles is there are usually no fundamentals of the underlying "investment" to analyze.  Further the actual object undergoing a bubble has no rhyme or reason to it, it could be a tulip bulb, real property located somewhere in Florida, a stock in a company whose business model is to loose money on a website and Super Bowl ad, etc.  The only thing that can be analyzed, and compared, is the mass psyche of the people who a have bought in.  I think the comparison is apt.  Here, there is a large run-up in market price for a new "investment" in a short period of time, and people who have bought in have convinced themselves of boundless future wealth.  However, it is the adopters who are short on the details.  The skeptics don't have to prove the negative, they are skeptical and unconvinced (and consequently hanging onto their money).  Anyone would have to admit that the bitcoin does exhibits some hallmarks of a classic bubble, which is, ipso facto, a huge run-up in price without any apparent underlying reason besides people buying in and hoping for a higher future price. 

Re 5:  There isn't much else to analyze.  The actual use of the crypto-currency is currently limited to very few actual merchants, illicit activities, and (as Marks points out) as a means to raise funds for more crypto-currency endeavors.  The mass adoption sought by the true believers is still mostly wishful thinking.  Further, looking through the mirror, the same price charts are basically being used to justify the crypto-currencies as legitimate.

It seems you are convinced of the soundness of crypto-currencies (or at the very least you want others to be convinced of their soundness). But, it might actually do you some good to heed the warnings of stodgy old time investors.  Old time investors are the ones who have not blown themselves and their clients up (i.e. lost all their money, and then some) in previous bubbles, and euphoria, which do happen periodically.  I believe that through their experience, they know what to look for and what to avoid.  Further, if an investment is unsound, one does not need to fully understand it and point out some flaw using the investment's internal logic.  It is enough to simply point out that something doesn't meet the traditional definition of an investment or a currency and warn others to approach it with caution.

Plus ça change, plus c'est la même chose.

I beg to differ. There is almost always hindsight analysis of a bubble that can be performed to understand why it took place. We know why the housing market blew up. We know why the dotcom bubble exploded. Yes, sometimes bubble occur out of pure speculation, but there is always an analysis that can be performed in hindsight to understand why there was speculation in the first place and what went wrong with that speculation.

I cringe whenever I hear a seasoned investor make stock bubble comparisons to Bitcoin. Speculation with stock bubbles yield almost no comparisons to what is taking place with Bitcoin. When someone makes a stock bid, they're essentially making a valuation of the company whose stock they're purchasing. You become a stakeholder because you have a stake in the company (a very small one). By purchasing stock at a given price and at a given stake in the company, your making a valuation of that company whether you think about it that way or not. Whenever a frenzy occurs in stock purchases in a given company, it is because a lot of people suddenly see a higher future valuation in the company than what it is today. However, as the price of that stock continues to rise, so does the valuation. If a company gets too ahead of itself with its own valuation and can't turn that around into an actual business, then its stakeholders lose out. This is like what happened with the dotcom bubble. Too many crazy business startups being valued way too high with no quality business model to back them up. It doesn't take a stodgy old investor to see that coming.

Bitcoin doesn't operate on that same valuation premise. Its price is determined by supply and demand. The more people that demand Bitcoin, the higher the price. It is that simple. There is absolutely some speculation that is going on. I'm not denying that. But, there is also a ton of innovation and business behind it as well (as has been discussed). There are also a lot of use cases that bitcoin can fill that have yet to come even close to reaching market saturation. So while demand may be perceived as hot in the media, it really isn't even close to saturation yet. The reason for its parabolic rise has nothing to do with demand and everything to do with the mere fact that it started off at a price worth fractions of a penny. It is nearly impossible in a human time frame to not have a parabolic price chart when it starts off where it did. Also, yes, the price chart also does lend to its legitimacy. It is like a rags to riches story. When something of so little value is able to achieve the acceptance it has, that is a great success story whether you want to admit it or not. Not many would've predicted the path it has taken 7 years ago.

Make no mistake, this is a brand new industry that has been born, further yet, it is a brand new industry upon which future industries can be build. To say that it is a fad (which is what Howard Marks says) is like saying that any company that built itself up using the benefits provided by internet were a fad. That's essentially what Howard Marks is saying when he misrepresents the value provided by smart contracts backed by a blockchain. Amazon can't exist without the internet any more than some of the most innovative companies that will come out of cryto-currencies could exist without blockchain technology.

aspiringnomad

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #72 on: July 28, 2017, 08:03:33 AM »

Based on my user experience, they are not good at #1 relative to current fiat alternatives. It takes 10+ minutes for a BTC transaction to be confirmed and transactions are not completely free with many coins unlike fiat, using for example, Venmo.


You are right that compared to physical cash it's not instantaneous.  But compare them to digital fiat it's much faster.  How long does a bank transfer take? 3 days or so.  How long does an international wire take? 5+ days.  Compare them to  credit cards they are far superior.  Even though you can pay with a credit card and walk out with goods in seconds the actual transfer of money takes days for the merchant to get it in their bank account.  There are intermediaries that facilitate this transaction and take the risk that the funds will not be transferred and they charge for those services.  Remember stores take a 2-3% discount when people pay with credit cards which they pass along to the customers by increasing the cost of the goods sold.

Crypto currencies are meant for digital transaction but can also be used for physical transactions which compared to credit cards are far more efficient.

Right, but that there is no intermediary guaranteeing the transaction is a key distinction. Starbucks wouldn't let you walk off with your $5 latte (well, not you, you're Mustachian) until the block is confirmed 10-15 minutes later because there'd be no recourse for them to get that money back in the event it is not confirmed. Queues for days. And eventually, in the case of BTC, the mining rewards will be so small/nonexistent that transaction fees will have to make up the difference.

But you do make a good argument for leveraging DLT, just not necessarily in the form of existing cryptocurrencies.

kenaces

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #73 on: July 28, 2017, 10:58:53 AM »
Thanks for the Oaktree link.  His caution about overall markets reminds me of Jesse Feldler's blog(also worth reading). 

I thought that one of the big risks to BTC was some change in Chinese economy/policy as they have be a huge driver in run up?


MilesTeg

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #74 on: July 28, 2017, 11:33:43 AM »
Extremely useful for money launderers, sellers of illegal goods and services, scammers and other users who have ill intent and want a very hard to trace method of transferring value.

Also very useful for speculative "investment" gamblers.

A neat toy for tech heads to play around with and feel "cool".

But, not so useful as an actual currency for every day folks.

phil22

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #75 on: July 28, 2017, 06:56:37 PM »
Extremely useful for money launderers, sellers of illegal goods and services, scammers and other users who have ill intent and want a very hard to trace method of transferring value.

it can certainly be used for illegal activities, and can be hard to trace, just like cash.  like the internet and all tech, cryptocurrencies can be used for good or bad.  freedom and privacy are good things in general and cryptocurrencies give those attributes to money.

i don't believe cryptocurrencies are useful for laundering any significant amount of money.  buying and then later selling cryptocurrencies won't work that well because the markets are shallow and you have to deal with cash on both ends anyway.  the bigger popular exchanges (where you won't affect prices as much buying/selling) are all KYC regulated.

Quote
Also very useful for speculative "investment" gamblers.

agreed, i think this is probably most of the present-day "use" of cryptocurrencies.

Quote
...not so useful as an actual currency for every day folks.

some uses for every day folks, especially for those outside the USA:

- replace cash in restrictive countries (India, Greece, Cyprus)
- maintaining your wealth in a country with hyper inflation (Venezuela)
- access to basic banking with only a phone (Africa)
- access to "bank account like" features when you're underage or in a restrictive country
- lower fees on regular remittances to relatives in another country (Asia, Africa, Pacific/Caribbean countries)
- making investments outside of your home country (China, Iceland)
- allowing donations to restricted causes (nonprofits, political activists, WikiLeaks)
- holding an asset not correlated to any other asset class
- paying for something online without giving private info (credit card or bank account)
- alternative to paypal, notorious for closing accounts and unavailable in many countries
- buying pharmaceuticals or other restricted or artificially overpriced items
- accepting anonymous payments for white hat security work
- avoid currency conversion charges while traveling
- avoid credit card chargeback fraud

obviously exchange rate volatility makes many of these uses somewhat tenuous, but cryptos are still better than other options in many places.  for those of us in the USA i think speculation is the number one use.

accolay

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #76 on: July 29, 2017, 01:41:35 AM »
A little late for this response but here goes.

You can use whatever term you'd like. Ultimately every single investment is speculative in nature. Diversification doesn't change the speculative nature of an investment.

No. Speculation vs. investing is pretty well defined. See Benjamin Graham.

accolay

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #77 on: July 31, 2017, 03:40:38 PM »
More bitcoins in the news:

"Bitcoin rebels risk 'currency trading chaos'"
http://www.bbc.com/news/technology-40779767

Sounds real solid to me.
/sarcasm.

accolay

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #78 on: July 31, 2017, 03:53:47 PM »
I just was reading through a bit more so I'll reply:

Quote
...not so useful as an actual currency for every day folks.

some uses for every day folks, especially for those outside the USA:

- replace cash in restrictive countries (India, Greece, Cyprus)
- maintaining your wealth in a country with hyper inflation (Venezuela)
- access to basic banking with only a phone (Africa)
- access to "bank account like" features when you're underage or in a restrictive country
- lower fees on regular remittances to relatives in another country (Asia, Africa, Pacific/Caribbean countries)
- making investments outside of your home country (China, Iceland)
- allowing donations to restricted causes (nonprofits, political activists, WikiLeaks)
- holding an asset not correlated to any other asset class
- paying for something online without giving private info (credit card or bank account)
- alternative to paypal, notorious for closing accounts and unavailable in many countries
- buying pharmaceuticals or other restricted or artificially overpriced items
- accepting anonymous payments for white hat security work
- avoid currency conversion charges while traveling
- avoid credit card chargeback fraud

obviously exchange rate volatility makes many of these uses somewhat tenuous, but cryptos are still better than other options in many places.  for those of us in the USA i think speculation is the number one use.

I agree that in the US speculation is the number one use. Perhaps the rest of your list is valid for other countries....but I still doubt that most of the examples listed are for "every day folks."

Like accepting anonymous payments for white hat security work is something most people do, even around the world? Come on...

phil22

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #79 on: July 31, 2017, 06:43:53 PM »
some uses for every day folks, especially for those outside the USA:

- replace cash in restrictive countries (India, Greece, Cyprus)
- maintaining your wealth in a country with hyper inflation (Venezuela)
- access to basic banking with only a phone (Africa)
- access to "bank account like" features when you're underage or in a restrictive country
- lower fees on regular remittances to relatives in another country (Asia, Africa, Pacific/Caribbean countries)
- making investments outside of your home country (China, Iceland)
- allowing donations to restricted causes (nonprofits, political activists, WikiLeaks)
- holding an asset not correlated to any other asset class
- paying for something online without giving private info (credit card or bank account)
- alternative to paypal, notorious for closing accounts and unavailable in many countries
- buying pharmaceuticals or other restricted or artificially overpriced items
- accepting anonymous payments for white hat security work
- avoid currency conversion charges while traveling
- avoid credit card chargeback fraud

obviously exchange rate volatility makes many of these uses somewhat tenuous, but cryptos are still better than other options in many places.  for those of us in the USA i think speculation is the number one use.

I agree that in the US speculation is the number one use. Perhaps the rest of your list is valid for other countries....but I still doubt that most of the examples listed are for "every day folks."

Like accepting anonymous payments for white hat security work is something most people do, even around the world? Come on...

point taken with the security work bullet.  but i think the items i've bolded above do apply to billions of people around the world:

Quote
Three years ago, 2.5 billion adults were unbanked. Today, 2 billion adults remain without an account.

http://www.worldbank.org/en/programs/globalfindex

maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #80 on: August 01, 2017, 08:13:55 AM »
I realize you're mostly just having fun, but I do want to point out that you would be able to separately sell your bitcoin ($2700 in your example, $2680 right now) and your Bitcoin Cash coin ($300 in the example, right now $390), so in that case you'd actually come out ahead of where you were before the fork. No guarantee that will be the case when the dust settles though.

Now who knows what will actually happen this morning.... I still haven't found any good estimates of what percent of the hashrate has been pulled away by BCC.

MilesTeg

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #81 on: August 01, 2017, 09:00:47 AM »
some uses for every day folks, especially for those outside the USA:

- replace cash in restrictive countries (India, Greece, Cyprus)
- maintaining your wealth in a country with hyper inflation (Venezuela)
- access to basic banking with only a phone (Africa)
- access to "bank account like" features when you're underage or in a restrictive country
- lower fees on regular remittances to relatives in another country (Asia, Africa, Pacific/Caribbean countries)
- making investments outside of your home country (China, Iceland)
- allowing donations to restricted causes (nonprofits, political activists, WikiLeaks)
- holding an asset not correlated to any other asset class
- paying for something online without giving private info (credit card or bank account)
- alternative to paypal, notorious for closing accounts and unavailable in many countries
- buying pharmaceuticals or other restricted or artificially overpriced items
- accepting anonymous payments for white hat security work
- avoid currency conversion charges while traveling
- avoid credit card chargeback fraud

obviously exchange rate volatility makes many of these uses somewhat tenuous, but cryptos are still better than other options in many places.  for those of us in the USA i think speculation is the number one use.

I agree that in the US speculation is the number one use. Perhaps the rest of your list is valid for other countries....but I still doubt that most of the examples listed are for "every day folks."

Like accepting anonymous payments for white hat security work is something most people do, even around the world? Come on...

point taken with the security work bullet.  but i think the items i've bolded above do apply to billions of people around the world:

Nothing on that list is better served by a "currency" subject to frequent major swings in value than a stable, universally accepted currency like the USD. An extremely volatile medium is a really bad choice for most of the things you bolded.

Add to that you can't really walk into, say, a street market in Africa, India, etc. and buy something with bitcoin and you pretty much rule out its use by the general public in those places. Even in the U.S. only a token number of businesses will accept it, and they immediately convert it back to USD because they aren't interested in trying to actually use it as a currency. It's not much different than trying to buy things with stock certificates.

If bitcoin ever proves it can hold a stable value (no more than a couple % change per year) and you can walk into a Wal Mart, a Kum&Go and/or street market in New Delhi and buy something with it, then I would agree with your list.

The problem is those two goals are at odds. In order to gain wider acceptance, a lot more people are going to need to be using bitcoin. In order for a lot more people to be using bitcoin, it's going to experience massive deflation due to the designed in arbitrary limit to the number of bitcoins that have mostly already been "mined" and are already in the hands of "investors".

Would you ever consider using Apple Stock certificates as currency knowing that 80% of those stock certificates are in the hands of maybe a few thousand people (assuming Apple would not issue more stock)?


maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #82 on: August 01, 2017, 09:50:13 AM »
some uses for every day folks, especially for those outside the USA:

- replace cash in restrictive countries (India, Greece, Cyprus)
- maintaining your wealth in a country with hyper inflation (Venezuela)
- access to basic banking with only a phone (Africa)
- access to "bank account like" features when you're underage or in a restrictive country
- lower fees on regular remittances to relatives in another country (Asia, Africa, Pacific/Caribbean countries)
- making investments outside of your home country (China, Iceland)

- allowing donations to restricted causes (nonprofits, political activists, WikiLeaks)
- holding an asset not correlated to any other asset class
- paying for something online without giving private info (credit card or bank account)
- alternative to paypal, notorious for closing accounts and unavailable in many countries
- buying pharmaceuticals or other restricted or artificially overpriced items
- accepting anonymous payments for white hat security work
- avoid currency conversion charges while traveling
- avoid credit card chargeback fraud

Nothing on that list is better served by a "currency" subject to frequent major swings in value than a stable, universally accepted currency like the USD. An extremely volatile medium is a really bad choice for most of the things you bolded.

Add to that you can't really walk into, say, a street market in Africa, India, etc. and buy something with bitcoin and you pretty much rule out its use by the general public in those places. Even in the U.S. only a token number of businesses will accept it, and they immediately convert it back to USD because they aren't interested in trying to actually use it as a currency.

The cases highlighted in red don't actually have any problems with massive fluctuations in the price of bitcoin as long as folks convert into and out of bitcoin right away, and have major advantages over using USD and/or are impossible to do with USD. (Have you tried to get significant amounts of money out of China?)

People converting straight from USD -> bitcoin -> paying bitcoin to third party -> third party converts back to USD means bitcoin is doing 1/2 of the job of currency. It's facilitating transactions but not acting as a store of value. Honestly I don't care if bitcoin ever becomes a store of value, we have plenty of things to use for that already (stocks, bonds, real estate, $100 bills stuffed under a mattress, even precious metals if you're so inclined). But moving money internationally is so much more of a pain than it has to be right now.

maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #83 on: August 01, 2017, 04:45:34 PM »
Okay, now that the dust is starting to settle:

BTC (regular bitcoin) has a hashrate of ~6,200 petahashes/sec
BCC (bitcoin cash) has a hashrate of ~200 petahashes/sec (~3% of BTC+BCC)

BTC is trading at about $2,700/coin
BCC is trading at about $280/coin (~9% of BTC+BCC)

Interestingly, thats on roughly the same order of magnitude as the ETH/ETC fork. ETC (the currency that split off) currently has about 6% of the combined value of ETC+ETH and 8% of the hashrate of ETC+ETH.

phil22

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #84 on: August 01, 2017, 05:24:01 PM »
ah, cool.  thanks for the data on that maizeman.  we'll see how long the fork survives.

unlike the Ether fork, which was an ideological fork really, both bitcoin forks (after segwit is enabled) will represent an "upgrade" to bitcoin's transaction throughput.  i would expect the combined value of both forks' coins to be higher than before the fork due to the upgrade.  so yeah looking at it in terms of percentages is helpful.

phil22

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #85 on: August 01, 2017, 05:49:53 PM »
They should fork all the time - it seems to generate new wealth out of thin air!

I agree!  And it's great that the total number of bitcoins are limited, too.  This will prevent inflation, because the supply of them cannot be controlled by a central bank -- sometime around 2040 no new bitcoins will be created, ever....well, except when there is a fork, in which case the total number of bitcoins will double, and each branch will be given a different name and have slightly different rules (or not), and require its own mining network.

continuing the thought process: where's the mining hardware and electricity going to come from for all of these forks?

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #86 on: August 01, 2017, 06:31:22 PM »
I agree!  And it's great that the total number of bitcoins are limited, too.  This will prevent inflation, because the supply of them cannot be controlled by a central bank -- sometime around 2040 no new bitcoins will be created, ever....well, except when there is a fork, in which case the total number of bitcoins will double, and each branch will be given a different name and have slightly different rules (or not), and require its own mining network.

The last bitcoin will be mined somewhere around 2140. If bitcoin were widely adopted at that point and its deflationary aspects were at work in the economy, then a fork would be a fruitless attempt at inflating the currency supply. If a fork were to occur, new rules to the bitcoin code would need to be introduced to make the two chains incompatible. In fact, maybe even the reason for the fork would be to allow more than 21 million bitcoins to be mined. At the point where a split in the blockchain were to occur, that would mean that the entire infrastructure would be split as well. We're not talking just the miners. We're talking about all the clients, wallets, etc. This means that if Bitcoin were mainstream at that point, then all the merchants would need to be ready and willing to support either one or both chains there after. All the wallets would also need to be ready and willing to support the new chain as well. If not all merchants and wallets are accepting the new chain then obviously the new chain would be worth way less that the original chain. Therefore forking doesn't really increase the money supply if you're introducing a currency that is inherently worth way less (if it is worth anything at all). Contrast that today with the USD where when a new dollar is minted, it will always have the same value the day it is minted as a USD that was minted 10 years ago.

You see, the point about Bitcoin isn't that it is always static in nature. The point about Bitcoin is that it is what everyone wants it to be. If there were a looming split in the blockchain to increase the number of bitcoins in supply, then that would only ever come about if the majority of the community were to support it. The miners, the users, the merchants, exchanges, etc. Its decentralization is one of its greatest advantages. If our economy were in dire straits because of the deflationary nature of bitcoin, then you can be sure that there would be pretty decent support for some type of effort to adjust the characteristics in a way that would benefit the majority instead of the minority. If the majority of users are benefiting from its deflationary nature, then you can be sure that a chain split in an attempt to change that behavior would not have much momentum.

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #87 on: August 01, 2017, 07:35:55 PM »
I'm not sure I fully understand the premise. Clearly the individual could take that other to court.

If it is a huge lump sum then I'd imagine that if using bitcoin for such a transaction or contract, then trusted escrow services would likely be the best thing to use to avoid such circumstances to begin with. I would think such services would become more and more common as irreversible transactions on the blockchain become more mainstream.

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #88 on: August 02, 2017, 05:46:23 AM »
Lets say someone wants to invest their bitcoins.  They are supposed to be money after all! 

So, person A loans 100 bitcoins to person B for one year.  At the end of the year person B will pay back the 100 bitcoins, plus 11 bitcoins in interest -- an 11% rate of return (this is an unsecured loan).  They can't be put in escrow for the year since this would freeze them up, and person B would not be able to be spend them in the mean time before repayment is due, which is the point of borrowing money.  The loan is legally binding. 

At the end of the year person person B has 111 bitcoins and refuses to transfer them back to A.  This is substantially all of the valuable "property" that B has -- no other cash, investments, cars, valuable chattels, or real estate, etc. A can see them because he knows B's wallet address and can watch it. 

What does person A do?  How does person A get the bitcoins they are legally entitled to back from B?

I'm still not sure I follow the point you're trying to make.

In traditional lending, a lot of times there is collateral given to insure the risk of the debt for the issuer. People don't take out loans just to simply store the currency away. That doesn't really make sense. So how is your scenario any different than today? If a bank issues an auto loan to an individual, the bank has no option for reclaiming the money itself. Why? Because the money was used already and went to the dealership. The bank's only recourse is to repo the car in this case.

Bitcoin isn't really any different than currency today. If someone loans me $10,000 and I go spend it somewhere (they have no idea what I did with it), what recourse would that lender have in getting that money back? The lender is in the same position whether that money was bitcoin or the US dollar. It doesn't matter whether that loan was originally issued in dollars to a bank account, in check form, or in bitcoin. In fact, I'd make the claim that at least in the case of bitcoin, there is a public ledger that could be used to trace the bitcoin and law enforcement could use that to investigate the individual. The situation is the same though. The lender would need to take the borrower to court and look for a resolution there. If the person literally has no other assets that can be claimed, then that is the fault of the lender for issuing out risky loans to people who probably shouldn't be carrying debt.

How is that any different from today? In fact, I can think of a recession that was caused by subprime lending recently...

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #89 on: August 02, 2017, 06:58:03 AM »
A writ of execution is a legal order to seize the property of the judgment-debtor. 
...
The fact that it does not exist in bitcoin means that the level of default in credit arrangements will necessarily go up, because there is nothing for a creditor to do if the debtor defaults.

As to your indication that law enforcement will perform some investigation.... The answer to that is: No. Not in a civil matter such as a breach of contract.  And private investigation would be fruitless since a debtor could simply start using new wallets at any time -- using new wallets through the tor network is apparently one of the selling points of bitcoin as I understand it.  And you say it is the lenders fault for making a bad loan.  Why is it the lenders fault if the loan is legally binding, the debtor has the capacity to perform by returning the bitcoins, but just chooses not to?

Disclaimer: I work for a financial institution in information security, so I have a firm grasp on the ability for an institution to reclaim unpaid debts (hint: it isn't much and it is usually just sold off to collectors).

You see this what you're not understanding. You're making the misunderstanding that people are taking out loans and then letting that loaned money sit in an account somewhere waiting for it to be seized. No no no! Loans are not issued to people where that person just has the money sit in an account somewhere. That money is spent. There is very little recourse for a lending institution to take to reclaim spent money unless there is a lien something that was paid for. I could just as easily spent $10,000 in cash without anyone knowing where that money went or ever knowing how to get it back. Once money is spent there is no legal action that could be used to get it back. Usually that debt is just written off and sold to a collector to deal with. Collectors then take it up on themselves to attempt to reclaim that debt. Very often though, if there is nothing to collect and they have very little recourse themselves.

You see, you're looking at bitcoin as if it is in a bubble. The bubble you're putting it in is as if bitcoin is the only asset/currency in the world. It isn't nor will it ever be. If loans are given out for purchases, there will be assets to be claimed. If no assets are to be claimed, then those loans are written off as losses just as they are today. That's why we had a recession. That's why banks had to be bailed out. If banks were so good as reclaiming debt as you say they are, then we wouldn't have had to bail them out to the tune of billions of dollars.

Also, how would using a new wallet end an investigation into tracing that bitcoin? I agree with you that a law enforcement investigation would likely not be made for civil matters, but simply transferring the money to a new wallet would still be tracked on the public block chain. I'm not sure you understand how the technology works and how addresses are created. A wallet consists of numerous addresses each with a private key. Transferring bitcoin to a new wallet would be no different from a tracking perspective as transferring the bitcoin to a different address in the same wallet.

maizeman

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #90 on: August 02, 2017, 07:07:52 AM »
All these hypotheticals assume an entirely unsecured personal loan and the the person receiving the loan has no other assets , savings, or income streams which could be seized in lieu of payment, correct? In that case it is worth asking how our legal system would deal with a person with no assets, savings, or sources of income, who took out an unsecured personal loan, withdrew it from the bank in cash, buried the cash in the woods, and then in court claimed that they forgot where they buried it. Essentially all the same issues with finding a way to legally enforce repayment are present, which makes me thing these problems result from the assumptions used rather than from some unique property of bitcoins or other cryptocurrencies.

Also this isn't your question but contracts specifying payments in numbers of bitcoins over periods of months or years would be an incredibly bad idea. 1) bitcoin in volatile 2) even if that ultimately goes away bitcoin is likely to be deflationary. It would make much more sense to adopt something like the ether:gas model of setting prices to handle contractually obligated future payments in cyptocurrencies so that the value of the payment stayed roughly fixed regardless of what happened to the value of the cyptocurrency being used.

Digital Dogma

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #91 on: August 02, 2017, 11:12:49 AM »
I seem to be reading the complaint that "no government or organization can seize bitcoin" for any reason what-so-ever. This is not a mistake, it is a feature.

MVal

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #92 on: August 02, 2017, 08:49:57 PM »
Following, this is interesting.
Proverbs 13:4
The soul of the sluggard craves and gets nothing, but the soul of the diligent is made fat.

Proverbs 13:11
Wealth obtained by fraud dwindles, but the one who gathers by labor increases it.

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dougules

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #93 on: August 03, 2017, 11:22:30 AM »
Interesting point.  It seems Bitcoin could be used as a store of value that's out of reach from the courts.  I wonder if people facing asset seizure will convert their assets to Bitcoin to keep it untouchable.

It wouldn't be the first time in history somebody tried to keep their assets untouchable to the courts.  If the judge found out, the assets might be untouchable, but the person hiding them wouldn't be. 


jlcnuke

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #94 on: August 03, 2017, 11:46:00 AM »
Interesting point.  It seems Bitcoin could be used as a store of value that's out of reach from the courts.  I wonder if people facing asset seizure will convert their assets to Bitcoin to keep it untouchable.

It wouldn't be the first time in history somebody tried to keep their assets untouchable to the courts.  If the judge found out, the assets might be untouchable, but the person hiding them wouldn't be.

There are many ways that a creditor can legally collect on payment. The agreed upon currency is not something the court can't get around. They can take physical property as payment, garnish wages/earnings/etc depending on the specific laws in their jurisdiction. That's true whether the deal was in USD, bitcoin, stamps, or bales of wheat. The courts can assign a value to whatever the thing of value is and enter judgements and assign methods of collection (as required and petitioned for).

As with any other transaction for things of value, there is always the risk of nonpayment and the default risk would need to be evaluated carefully, but there's nothing about bitcoin that makes it less significantly less safe to lend with regards to potential collection efforts since "cash" can disappear just as easily (other than the more volatile valuations which would make it a really really stupid thing for someone to use as the primary valuation for a loan imo).
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jlcnuke

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #95 on: August 03, 2017, 12:16:14 PM »
Let's say for example, someone who owes millions from a lawsuit judgement is found to have significant assets in bitcoin.  If the assets were in a bank, brokerage or real estate, they could be seized.  Since the bitcoin wallet is encrypted, he chooses not to pay.  What can the court do?  Throw him in jail?  For life if he doesn't pay?

Same thing they'd do if he hid his money in a Swiss bank account, or buried it, or any other method of hiding his assets from seizure. As a general rule though, commonly used methods to collect debts when the person can't or won't pay and money is not available in traditional banks/etc to be seized directly include garnishing wages, seizing physical assets, placing judgement liens on their property, etc

Plus the standard stuff like reporting of the unpaid debt to credit agencies.
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shotgunwilly

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #96 on: August 03, 2017, 02:20:04 PM »
Let's say for example, someone who owes millions from a lawsuit judgement is found to have significant assets in bitcoin.  If the assets were in a bank, brokerage or real estate, they could be seized.  Since the bitcoin wallet is encrypted, he chooses not to pay.  What can the court do?  Throw him in jail?  For life if he doesn't pay?

Same thing they'd do if he hid his money in a Swiss bank account, or buried it, or any other method of hiding his assets from seizure. As a general rule though, commonly used methods to collect debts when the person can't or won't pay and money is not available in traditional banks/etc to be seized directly include garnishing wages, seizing physical assets, placing judgement liens on their property, etc

Plus the standard stuff like reporting of the unpaid debt to credit agencies.

Right.  I could take out $1,000,000 in loans, liquidate every single asset and object I own, and turn it into cold hard USD and bury it (hide it), refusing to pay it back.  I'm failing to understand how this is any different than the arguments saying "but lenders won't be able to seize the BTC if they don't pay it back!"

MVal

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #97 on: August 03, 2017, 03:43:41 PM »
They should fork all the time - it seems to generate new wealth out of thin air!

Makes sense. In biology, forking tends to lead to reproduction as well.
Proverbs 13:4
The soul of the sluggard craves and gets nothing, but the soul of the diligent is made fat.

Proverbs 13:11
Wealth obtained by fraud dwindles, but the one who gathers by labor increases it.

https://tickers.TickerFactory.com/ezt/t/wGp3WGH/savings.png

lifeanon269

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #98 on: August 07, 2017, 05:38:11 PM »
I agree that bitcoin is extremely energy intensive at the moment, but I wouldn't call it unsustainable. Unsustainable nor would I call it wasteful. Unsustainable would imply that it could never be continued indefinitely and that all factors that go into bitcoin's energy consumption today remain static. But it is actually quite the contrary. First off, the article calculates energy consumption on a per transaction basis. Which is fair when comparing it to traditional transaction systems since that's really the only metric you can use in comparison. But with regard to bitcoin itself, it is unfair to calculate energy consumption on a per transaction basis and then use that as the basis for the argument that bitcoin is unsustainable. The reason for that is the fact that the transaction rate for bitcoin will inevitably go up. It has to if it ever wants to be able to scale and compete with other transaction systems.

So the energy today for today's bitcoin network to process transactions at 2 transactions per second is roughly the same for the network to process transactions at 7 transactions per second. The reason for that is the fact that the real brunt of the workload is done in the hashing algorithm, not the size of the input to that algorithm.Therefore, it stands to reason that as the network scales and is able to process more transactions per second, then it will actually become more sustainable over time.

Also, as stated in the article, payment channels like the Lightning Network (which will be possible with this month's SegWit activation), have the capability to allow millions/billions of transactions per second without the heavy workload of hashing on the blockchain. These advancements have the capability to make bitcoin even more energy efficient than today's payment networks on a per transaction basis (although the underlying bitcoin network would still be in place and operating). All this adds up to the fact that the more the bitcoin network gets used (necessitating higher transaction rates), then ultimately the more sustainable the network becomes. This in my opinion would counter the argument that bitcoin is unsustainable. That being said, in its current form and usage today, it is extremely energy intensive.

This also underlines the fact that our energy infrastructure is at the heart of the problem and with bitcoin's profitability relying directly upon that infrastructure's costs, the transformation that our energy infrastructure takes will have a direct impact on bitcoin's sustainability long term. In otherwords, the faster we see technologies like solar and wind become bigger economic competitors to coal and gas, then we'll see bitcoin become one of the first adopters of said sources of energy for the sake of mining profitability. In fact, depending on whether or not Moore's law continues long into the foreseeable future, we may even see the bitcoin network drive renewable energy investments as the network demands cheaper electricity from renewable sources as a means of staying profitable if computing power advancements/efficiencies ever slow. In fact, if we solve the energy problem itself, bitcoin's network could become one of the biggest beneficiaries of such advancements in the sense that mining for bitcoin would no longer be based on energy efficiencies and more based on hashing power alone. That would ultimately help make the bitcoin network become more decentralized since anyone with a free processor to spare could essentially become part of the mining network without worry of energy consumption.

I realize in just my one post I went from talking about bitcoin's extreme energy consumption to talking about mining bitcoin without regard to energy efficiency, but it is still an interesting idea to think about where things could go into the future.

TLDR: is bitcoin extremely energy intensive today? Yes, it is. But I don't think it will stay that way long term. The network is still young and is no where near being fully matured. The downside is that bitcoin's highest energy consumption per transaction is most heavily weighted toward its early life which also happens to consist of the dirtiest electricity that bitcoin will consume in its lifetime. In the long run though I do think the benefits outweight the downsides with regards to society and that looking at bitcoin as a culprit of our energy/environmental problems is shortsighted with blinders on. In otherwords, bitcoin's energy problems will likely solve themselves over time, let's instead worry about trying to solve the energy problems or contributors that won't solve themselves.

phil22

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Re: Bitcoin and other crypto-currencies - are they useful?
« Reply #99 on: August 07, 2017, 06:39:40 PM »
global bitcoin mining uses several times the electricity of a global corporation:  bitcoin in 2017 is using 5.5x the electricity annualized that Bank of America used in 2012:

https://about.bankofamerica.com/assets/pdf/2012-environmental-report.pdf (page 18: 10.6M GJ ~ 3 TWh)
http://digiconomist.net/bitcoin-energy-consumption (15.46 TWh)

--

yes, energy consumption going forward is a crucial issue.  i am mostly concerned about bitcoin mining driving up the price of renewable electricity for everyone else.  i'm not too concerned about pollution/emissions because bitcoin miners rely on cheap renewable power.  mining happens on very thin margins and paying for fossil fuel-generated power isn't profitable and will just get more expensive in the future.

it will be interesting to see how Ethereum handles its switch to proof-of-stake.  if that works well it might signal the end of large-scale proof-of-work cryptocurrencies.  this competition between cryptocurrencies is another reason to not be too worried about it -- the market will pick the best currencies and the winners probably won't be wasteful world destroyers.

i agree with lifeanon269 that measuring energy consumption per transaction is silly.  bitcoin secures all historic transactions with every block, not just all new transactions.  and besides, 8MB of transactions does not require 8x the electricity to hash than 1MB of transactions.

another point:  bitcoins are not free to create.  that's the point of a proof-of-work system.  the electricity cost to produce a bitcoin is what makes them hard to counterfeit and is part of what makes them valuable.  this is in contrast to inflationary government currencies where money is created, for free, which has the effect of reducing the value of the existing money. 

although securing a currency isn't "wasting" power, for future sustainability i hope we find better uses for the heat generated from mining bitcoin instead of just dissipating it.  many of us use electricity to power water heaters and furnaces and we might as well generate some bitcoin while we're at it:

https://www.coindesk.com/winter-is-coming-bitcoin-mining-for-heat-and-profit/