171106 Frontier Days

Screen Shot 2017-10-18 at 8.45.27 PMWhat’s happening in the world of cryptocurrencies reminds me of the time when the Internet was just becoming known and getting popular.  People were scrambling to understand the Internet, to learn what a browser was, why you would call a web address a URL and other such new phenomena.  You could register a domain name for $9.95 and they were ALL available. “They would be worth good money some day,” someone told me.  Anyone could have registered macdonalds.com, coupon.com, or ford.com if they’d had a mind to but no one could think of what one would do with them, and it wasn’t clear that they would be worth money then.

When the use of blockchain technology and cryptocurrencies spread through our society, there will be tokens or cryptocurrencies for everything.  There’s a good chance that half of all the cryptocurrencies out there already will be valuable at some time in the near future.  We’re at the beginning of virtual money, and as currencies come into being, with a little imagination, all you have to do is put out your hand and grab some.

I founded and managed a small software company for many years that specialized in barcode.  I learned a great deal about barcode during those years.  Barcodes are like languages in that if you print a certain barcode type and your scanner is capable of reading that barcode type you will be understood.  The reasons for different types of barcodes are many.  One barcode type might be capable of being printed smaller than another.  There is a barcode for really bad printers.  There is a barcode just for pharmaceuticals.  There is a barcode that can hold two thousand characters.  There is a barcode just for military purposes.  So, too, are there now cryptocurrencies with special features and applications.  The list is already enormous and keeps growing.  We already need a dictionary of cryptocurrencies to understand the universe of virtual money.

There is no doubt some will be enormously popular and some will disappear.  The world is evolving quickly.  No doubt fortunes will be made and lost during this process.

171109 Blockchain

HandshakeBitcoin is difficult for most people to understand.  It’s based on trust, cryptography, finance, and computing. All of these are complex subjects. But, Bitcoin is an important phenomenon taking place and there’s good reason to be able to appreciate what’s happening.  Let’s look at some of the features of this new currency that make it so special.

The Bitcoin network, called a blockchain, give Bitcoin it’s strength. Blockchain technology works so well that thousands of blockchains have been proposed and are in various stages of actualization.  These are being created by banks, insurance companies, healthcare providers, and Fortune 500 companies to help secure data and provide trusted information to large networks. A blockchain network is described as a distributed network.

We are familiar with centralized networks where everything is sent in and out of the network through a centralized node.  We also are familiar with decentralized networks where many different nodes are scattered across the network.  A distributed network is a little different.  But that difference is very important.

distributed network

In a distributed network every node is connected to all of its neighbors.  There are no great distances between nodes.  A new node may be added to the network by attaching itself to an existing node.  Before we talk about how block change works, let’s look at the problem it solves.

If you were in charge of some very sensitive, valuable information but you had to keep it on a computer how would you keep the data safe, preventing damage and free from unauthorized tampering, and secure, free from vandalism and theft? Remember, this is someone else’s data and they need access to it whenever they want. How do you keep the data safe and secure but still allow the rightful owners access?

First, to prevent loss there should be copies. How many? The more the merrier, actually. If everyone who had data in your care also had an exact copy of all of that data, wouldn’t that be great?  If someone were to steal your computer, the data would be with all of the other players. In fact, if someone stole half of all the computers in the network, there would still be multiple copies of the records.

Ever hear the phrase “garbage in, garbage out”? This is another motto that applies to blockchain in spades. To ensure every new record is a good record, before adding it to the chain of all the blocks of old records, it is verified by comparing it to the existing records. Remember, of the 21,000,000 Bitcoin that can ever be created, 16,600,000 is already out there.  They are being kept in Bitcoin wallets, and the amount and address of each wallet are the data in the blockchain. So before a new record is added which says X number of Bitcoin from address A is being transferred to the owner of address B, that new record is checked to see that there is, in fact, X Bitcoin and then the differences recorded after the transaction. Before a Bitcoin transaction is built into a new block and added to the chain, hundreds of checks of this type are verified. That’s why Bitcoin transactions are not instant.  They usually take about 10 minutes. But, having made those thousands of checks, the new block of transactions can safely be added to the blockchain.

With this system, two total strangers can exchange Bitcoin in full confidence that there is real Bitcoin, it hasn’t been lost or stolen and is the property of one to give to the other.  The transaction is anonymous, that is a person’s name is not attached to the address.  There are also no fees required to make this transaction.  The work of keeping the distributed ledger up to date and accurate is done by miners who are rewarded for their work by getting paid in Bitcoin.  There is a payment process which keeps the function of mining random and allows anyone to join.  The reward is randomly given to one of the miners.  It is a large reward and there is enough Bitcoin in reserve to pay miners for the next 120 years.  At that point, the system changes to a fee-based system.  By having a system that gives all comers an equal opportunity to be a miner, it prevents certain interests from monopolizing the mining function.








171106 Trusted Distributed Networks

trusted bridgeYou’re walking along the street, minding your own business, when a stranger comes up to you and says, “I’ll give you $10,000 for your hat.”  You know the hat is worth at best $25.  In fact, there is no love lost were you to part with this hat which you’ve been meaning to replace for months.  But this man’s proposal is crazy.  Who would pay $10,000 for a cheap hat? And, were you to agree how would he pay you?

If he gave you $10,000 in cash, chances are much more likely the bills would be counterfeit than real. Besides, who wants to walk around with $10,000 in cash on them? A check wouldn’t be worth the paper it was written on.  By the time you cashed it this guy would be long gone.  You can accept Mastercard or Visa with your smartphone.  The fee, though, is 6% or $600.00 in this case.  His phone allows him to make a Paypal payment.   But you don’t have a Paypal account.  What do you do?

You use Bitcoin, of course. You flash your Bitcoin wallet address barcode which his Bitcoin wallet reads and sends you the $10,000 in Bitcoin.  You give him the hat.  An instantaneous, no-fee, anonymous transaction.  You don’t have to pay a processing fee, the transaction happens in the wink of an eye, he doesn’t have to know your name, you don’t have to know his, and it is completely trustworthy.  That’s the value of Bitcoin’s trusted, distributed network.

171105 Month Old Bitcoin Gold ($7535)

Month old Bitcoin Gold does not disappear,
Papa Bitcoin roars ahead, what has it to fear? — Allen Lubow

A fork called Bitcoin Gold happened October 23, 2017, at block 491,407, which had been planned since before the last Bitcoin Cash fork.  There is a very good article telling the whole Bitcoin Gold story here.  Bitcoin Gold tries to solve the problem of Bitcoin mining being too specialized.  A specially designed computer gives professional miners a huge advantage over just anyone with a computer.  That means fewer miners.  Ordinary folk would not attempt to out-compute a miner’s equipment.  If you owned any Bitcoin at the time of the fork you received an equal amount of Bitcoin Gold.  It is still not clear which exchanges honor Bitcoin Gold or help you retrieve it from the Private Key which you have. It would be the same key as the Bitcoin that you owned at the moment of the fork.

Bitcoin continues to do well on its merry path into the stratosphere.  Bitcoin Gold hit a high of $486 and then fell to about $150 where it has remained.  Here’s the real problem, as illustrated by the Bitcoin Gold (BTG) Twitter account.  Eighty-one percent of the world’s Bitcoin mining pools occur in China. Screen Shot 2017-11-05 at 8.50.30 AMWhat happens if China decides to shut down Bitcoin mining? Bitcoin Gold is designed to remove the advantage of special mining equipment in the hope that more mining operations appear around the globe.  China has already shown what it can do with a heavy hand regarding cryptocurrencies.  But will this prove to be enough of an incentive to buy Bitcoin Gold instead of Bitcoin?  I doubt it.  There would have to be some sort of incident that illustrated to everyone just how serious this Chinese monopoly can be.


171104 Cryptocurrencies

DQmSdSh23GzGePEJFHc69ADtZS7wXaMctKmTzGzEue1E3wXBitcoin represents between fifty- and sixty-percent of the two-hundred billion dollar market cap of all cryptocurrencies.  It is the first and remains the largest cryptocurrency, by far.  However, rivals to Bitcoin like Ethereum, Litecoin, and Ripple are quickly coming into their own.  If you’re thinking like an investor, any time you share a marketplace with competitors that can’t be good for business.  If you’re considering the altcoin situation like that, you’d be wrong.  Bitcoin benefits by the arrival of these additional tokens, as they benefit by Bitcoin’s acceptance.

The world is an enormous place. While Bitcoin is a good substitute for other currencies, money is not always the best trading medium.  When money is the best trading medium, conditions of the trade may be unfavorable to Bitcoin.  The trade might require vast sums, or high speed, or low bandwidth.  For those situations, other tokens might perform better than Bitcoin ($7486). New cryptocurrencies, facilitating all sorts of interactions, appear every day.  The underlying technology to Bitcoin, called blockchain, is the basis for all of these other altcoins.  It is blockchain that causes the paradigm shift.

Suddenly, strangers can be trusted.  A man comes up to you on the street and says, “That is a lovely hat you are wearing.  I must have it.  I will give you ten thousand dollars for that hat.”  You might run as fast as you can to get away from the dude.  Even though $10,000 is a handsome amount that you would gladly take, there is no way that the man could pay you in a way that could be trusted, even if he gave you what looked like real US dollar bills.  But what if the man said, “I will give you 1.33 Bitcoin (that’s $10,000 at today’s Bitcoin rate) for that hat.” You could take out your Bitcoin wallet on your iPhone and flash the barcode his way.  “Here’s my address,” you say in response, confident that you will either get paid or leave.  Since you cannot compromise a Bitcoin transaction, this stranger can be trusted to give you the Bitcoin or be gone.  That is the result of the blockchain distributed network.  You will know if you receive Bitcoin from that man that the Bitcoin is authentic, that he owns it, and he that cannot use it more than once.  Blockchain creates all sorts of trusted, distributed networks.  

There are altcoins for contracts, real estate, signatures, diplomas, and scientific research.  There is an altcoin to facilitate trademarks and copyrights.  All of these cryptocurrencies may be useful and do well.  All may service in a way Bitcoin is unable to perform.  Blockchain makes it possible.  In fact, the success of one improves the chances for success of the others.  

171104 Bitcoin Strength ($7400.00)

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One-year Bitcoin price chart demonstrates explosive growth

Bitcoin’s strength is breathtaking.  You don’t have to be a clairvoyant to see where this is headed.  Coinbase, a leading Bitcoin exchange, claims 100,000 new users opened accounts in the 24 hours (November 1, 2017) after CME (Chicago Mercantile Exchange) announced they would be starting Bitcoin futures trading before the end of the year. The second American exchange, Rofex, Bloomberg reports of Argentina’s futures trading exchange, will formally announce adding cryptocurrency services to its platform. Outrageous predictions by long-time Bitcoin advocates don’t seem all that crazy now.  Max Keiser, who predicted $100,000 in 2011 when Bitcoin was $3.00, says $10,000 is just around the corner.  longforecast.com  a website that gathers future predictions says Bitcoin reaches $10,439 by the end of 2017, $28,781 by the end of 2018, and $46,232 by the end of 2019.

For the last two weeks, Bitcoin’s price has surged.  It started 2017 at $961.  By September 1, 2017, Bitcoin was up 515% to $4,957.  In the next three weeks, Bitcoin has pushed up to an all-time high of $7,412.44; a 50% increase in 21 days.  At first, the other cryptocurrencies also rose in sympathy with Bitcoin.  Of late, however, the other cryptocurrencies had dropped in price, indicating investors were shifting funds into the more lucrative Bitcoin.  Ethereum and Litecoin are now beginning to rebound.

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One-week Bitcoin price chart shows steady, aggressive growth; up 50% from October 14th.