Electric Knives

 

electric knife
How are altcoins like the electric knife?

 

Electric knives weren’t as popular as the 1986 Christmas sensation Cabbage Patch Kids but there was a period of time in 1965 suburban America when they were one of the most desirable gifts to be given or received. Shortly after its introduction, the electric knife became a popular kitchen tool. However, there were many drawbacks. The knife required constant maintenance. It had to be taken completely apart and cleaned thoroughly after each use to prevent the spread of germs and the corrosion of rust.  Busy people soon found this more of an inconvenience than an advantage. When the blades weren’t set back in place exactly, they snapped or caused injury when the knives were turned on. After the novelty wore off, a majority of households returned to the old-fashioned knife for slicing food and reserved the electric knife for carving meat at the holiday table.  You can still find electric knives for sale in places like Bed Bath and Beyond but I can’t remember the last time I saw one in use.

The electric knife is a good example of an invention that came on the scene, was popular, and then, for all intents and purposes, disappeared for lack of use and a good raison d’etre.  Altcoins that have no good reason for being will suffer the same fate.

Bitcoin

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Bitcoin is a cryptocurrency.  “Crypto” meaning encoded; “currency” meaning money.  It was invented by someone named Satoshi Nakamoto in 2009.  He was trying to solve the problems of digital currency such as using money online for shopping or banking.  His solution was so thoroughly thought out that one could say he gave birth to Bitcoin whole and fully formed.  In 2008 he published a white paper describing his invention, then formed a group of programmers who could create and follow his design. He then disappeared and no one knows who he is or where he is to this day.

Bitcoin is the result of something else Nakamoto created called a blockchain.  A blockchain is a distributed, decentralized network.  You all know what a centralized network is where every node in the network is directly attached to a central hub.  Our online banking systems work like that.  Every transaction goes through a central hub.  A decentralized network might have several hubs scattered throughout the network.  This would be what you would imagine our fire department looks like with stations scattered throughout the city.  A distributed, decentralized network is slightly different from these.  With a distributed, decentralized network there are no hubs.  Every intersection in the network between two or more users is considered a node.  Each node has several neighbors.  A blockchain is a distributed, decentralized network of nodes.  The Bitcoin blockchain has over 11,000 nodes at the moment.

In Nakamoto’s design for Bitcoin, each node would have a computer running the Bitcoin blockchain program.  The program would do several things.  It would each a ledger of every transaction made anywhere on the network at any time from the beginning of the network until the present.  It would communicate with its neighbors.  A typical node might have five or six neighbors.  Remember, this is all running on the Internet so a cyber-neighbor on the Internet does not mean it is a physical neighbor.  The nearest neighbor for a node in New York could be Chicago, London or South Australia.  The time for a signal to travel around the world is a small fraction of a second.

distributed network

When some at node A gives a Bitcoin to someone at node B that is called a transaction.  A transaction would be written as “A gives B one Bitcoin”.  The program at node A tells its neighbors this transaction.  Let’s say its nearest neighbor is node C.  The program at C receives the message “A gives B one Bitcoin” and records it as a new transaction and marks it as “Pending”. It then checks all previous transactions to see if A really has enough Bitcoin to give one Bitcoin to B.  If it finds the current amount of Bitcoin at A is sufficient to pay B one Bitcoin it sends a message back to A and B and says “Transaction confirmed” meaning that transaction can proceed.  Node A and B record the confirmation and write “Transaction pending.  1 confirmation”. C then goes on to tell all of its neighbors about this new transaction.  Node C tells D, E, F, G, and H.  They, in turn, check their ledgers to confirm that the transaction is authentic and allowable and send back confirmations if they do.  The process continues until Node A and B have 1000 confirmations.  At that point the transaction is considered authentic and allowed to proceed.  “Pending” status is changed to “Confirmed.” The 1000 confirmations make the network very, very difficult to cheat.  You would have to get 1000 strangers whom you do not know in advance to collude with you in order to cheat the system.

The transactions continue until there are a sufficient number of transactions to fill a block.  A block is about 1 kilobyte of data. When that happens the block is attached to the previous block to continue the chain. Now, Satoshi Nakamoto realized that he would have to get people to maintain all of these nodes, with a computer and a large disk drive at each one.  He created a very unique method for doing that.  These people would be called “miners.” A Bitcoin miner had 1) to be motivated to do the work, and 2) be chosen at random so that no one could take over the system for themselves.  His solution was this: he would pay them (in Bitcoin) for doing the work, and, he would create a very difficult mathematical problem for people to solve.  The problem was so difficult that even with a super-fast computer the miner would take about ten minutes to solve the problem.  And, the solution would be totally random so that even smart, fast computers did not have an advantage over anyone else doing the same thing.  The problem was to guess the password for the next blockchain.  This would be a random thirty-character password that took even the fastest computer about ten minutes to guess and looked something like this: 00RasOd2FsM5Gsdfd88up8pUs5QdWss:426SD38E1a.

The miner that guessed the password correctly was paid 12 bitcoin and had the privilege of creating the next block and communication that to the network.  Twelve (12) bitcoin today is worth over $100,000 so there are many people who want to do mining.   There are a total of 21,000,000 bitcoin in the system.  There will never be any more than that.  16,800,000 have already been distributed and there is enough bitcoin to pay miners for the next 100 years.  In the year 2108, the miners will have to charge fees to do the work.

Bitcoin is just one cryptocurrency.  Since it was created in 2008, there have been many more cryptocurrencies created.  To date, there are over 1500 cryptocurrencies recorded.  Not all will survive.  Each one was designed to do something different from the others.  There are currencies which are just for real estate.  There is one just for contracts.  There are several for online gaming, sports gambling, international finance and so one.  Their creators hope that they become popular and successful.  Some will.  Some won’t.  The most popular ones today are Bitcoin, Ethereum, Litecoin, and Ripple.  To see the Bitcoin network in action take a look at bitlisten.com. Since all transactions are public, at this URL the programmer created a bubble for each transaction and displays the size of the transaction in the bubble as they appear.

So what’s the big deal about Bitcoin?  Why all the fuss? How to get Bitcoin? How to keep Bitcoin safely? What are bitcoin wallets? These and many more questions are subjects for future discussion.  You can read more about Bitcoin at bitcoinARL.com.

 

(?) To Be or Not To Be

Bitcoiin.jpgAt the core of the crypto- controversy “scam or new asset class?”, is a personal belief from which all else flows.  If you think that Bitcoin is a Ponzi scheme, everything which is generated from that essential belief only serves to confirm a negative opinion of cryptocurrencies. No amount of ‘evidence’ is going to dissuade one of these thinkers from believing bad things will ultimately updo Bitcoin.  The only problem for them is how to prove that the value of bitcoin will go to zero, even though Bitcoin hovers around the $10,000 mark.  If they wanted to profit by the misfortune of others, they might even purchase a Bitcoin short position.

On the other hand, if you believe Bitcoin is only the beginning of a new asset class, that hundreds, if not thousands of other cryptocurrencies will follow, that many of them will be widely traded and prove to be a very lucrative investment for those who bought in early, your problem is two-fold.  First, you have to prove that the value of bitcoin will go as high as one million dollars per coin, even though bitcoin presently hovers around the $10,000 mark.  Second, to take advantage of this glorious insight you have to choose in which cryptocurrencies to invest.

Ultimately, a sufficient number of use cases will prove the value of cryptocurrencies, or not. Be on the lookout for those.  Uses cases are the best argument you can make about in which cryptocurrencies to invest or if to invest in Bitcoin at all.

J.P. Morgan’s Risky Behavior

725_Ly9jb2ludGVsZWdyYXBoLmNvbS9zdG9yYWdlL3VwbG9hZHMvdmlldy8zZDczMWVhYjBjZWFlZDUxZjhmZTZhMDVhZThmYTVhMy5qcGc=Today’s headline reads: J.P. Morgan Chase Bans Buying Cryptocurrency With Credit Cards.

“At this time, we are not processing cryptocurrency purchases using credit cards, due to the volatility and risk involved. We will review the issue as the market evolves.”

That’s about as disingenuous as Jamie Dimon’s “bitcoin is a fraud.”  Since when does the bank watch out for consumer risk and volatility?

“I’m sorry.  You were attempting to place a bet on a 15 to 1 shot in the 7th race.  J.P. Morgan will not facilitate that bet due to the long odds.  How about that favorite, Sugar Biscuit, going out at 3:1 in the eighth race?”

Overheard at an Atlantic City casino:

“Damn credit card won’t work. J.P. Morgan says they don’t fund buying an inside straight.”

Message from the online escort website:

“Due to the risky nature of unprotected sex, use of this credit card without a condom is prohibited.”

Message on a pack of cigarettes:

“Cigarettes are risky business.  J.P. Morgan credit cards should not be used in the purchase of cigarettes and other tobacco products.”

Bartender in an Irish pub to a customer:

“Your bank credit card won’t work here.  Sometin’ about binge drinking and risky behavior. Don’t know.”

 

 

 

Bitcoin: Bubble Made of Mylar Not Soap

Soap-Bubble.jpgBitcoin stands at $8697 and has hovered around $8550 for the last twelve hours.  This has been the softest the cryptocurrency market has been since last summer.  Prices are still higher than they were at Thanksgiving time last year, yet coming down from highs around $19,500 the market doesn’t feel optimistic.  Broadly speaking the market has been plagued with bad news of late.  Governments are cracking down on cryptocurrency ICO’s, exchanges with bad trading practices are in the news and Facebook has put a ban on all crypto ads. The billions pouring into cryptocurrencies in hopes of making a fast buck have exited.  The entire cryptocurrency marketplace has fallen in lockstep with Bitcoin.

Yet, I can’t help but think what the naysayers that appear daily on Bloomberg and other financial talk shows speaking of Bitcoin going to zero and the “biggest bubble in human history,” are going to say when Bitcoin emerges from this episode in fine fiddle and goes on to bigger things. It is easy to see who understands what Bitcoin offers and who is clueless.

Bitcoin’s a bubble made of mylar, not soap.

#Bitcoin #BTC #ETH #LTC #XRP #crypto

Someone Just Bought 250,000 Bitcoin ($2.5 Billion)

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A little after one a.m. on January 31, 2018, Bitcoin hit bottom at $9647. After that, some interesting things began to happen.  
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There’s a fun website called BitListen which displays, in real time, every bitcoin trade as a soap bubble.  In the middle of each BitListen bubble is the amount of bitcoin that was traded.  With each trade, there is also a sound, much like wind chimes.  The pitch of each sound is relative to the size of the trade. If you or anyone you know is not convinced that bitcoin is alive and well send them over to Bitlisten.com.

Last night, while President Trump was giving his State of the Union Address, some unusual trading started happening.  Bitcoin had been falling for the past few days and most precipitously today.  By evening it was below $10,000 and by 10:00 pm EDT was hovering around $9800. Suddenly, on the BitListen screen appeared the largest bubble I’d ever seen.  It took up a quarter of the screen and read BTC 6209.02 Bitcoin!  That is sixty million dollars.  This bubble appeared with a deep — BONGGGG.  Was this the big sell off or an entry point for a big investor? 

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A 6209.84 Bitcoin (US$60,856,432) trade appeared on bitlisten.com as Bitcoin fell to $9800 earlier in the evening.  

BTC 6209.84 Bitcoin is $60,848,200.  That’s an enormous trade.  More astonishingly, almost as soon as that huge bubble drift off the top of the screen than another bubble appeared with an equal value.

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Another $61M trade appeared on the screen. The amount of Bitcoin represented by the bubble is written in the middle (B 6208)

Another $61M was traded.  Remember, every trade has a buyer and a seller.  Or, in this case, buyer and sellers.

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Trade after trade continued to appear for the next sixty minutes.

Another trade of an equal amount happened.

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Notice that the amount of Bitcoin with each of these enormous trades is slightly less than the trade before it if you can call four Bitcoin “slightly less”.  

Then another. Screen Shot 5 2018-01-30 at 11.31.53 PM.png

 

Then another. Screen Shot 6 2018-01-30 at 11.36.08 PM.png

As of this writing, I counted 40 such trades in the course of 45 minutes for 6200 Bitcoin or about $60,000,000.

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Screen Shot 11 2018-01-30 at 11.45.40 PM.png Screen Shot 12 2018-01-30 at 11.48.53 PM.png Screen Shot 13 2018-01-30 at 11.50.56 PM.png Screen Shot 14 2018-01-30 at 11.52.58 PM.png

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That was roughly $2.49 billion dollars spent buying Bitcoin in $60 million increments. What are we seeing?  It looks like a large exchange or brokerage preparing to trade bitcoin by stocking up so they can have a supply at the ready.  Getting in at a bottom means they will also earn money on the appreciation as well as the fees for trading.

 

 

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On Leaving the Poor Box Unattended

friar tuck poor box--robin-hoods-robins

It’s difficult to think what the advantages and new possibilities are for blockchain because we don’t think about strangers being trusted partners, especially on the internet.  We assume everyone is potentially a bad player.  For example, we’re not accustomed to trusting a website visitor unless they have been verified.  How do we know that visitor isn’t here to do malicious mischief for personal gain, to steal from other users, or harm someone else?

But let me give you an example:  Try to imagine a doctor’s office hosting an online public calendar, where any one of their present or future patients, without having to log in, can enter an appointment with name, date or time.  “Too much chaos,” you say? “The temptation for someone to grab another person’s appointment as their own would be too great.”

Ah!  But there it is.  No one can change your appointment but you, if that calendar were set up as a blockchain calendar.  Every transaction is recorded and you are given both a public key and a private key when you make an appointment.  The public key is accessible and known by everyone but only you know the private key.  For convenience sake, only your computer knows your private key so that you don’t have to think about it.  Anyone else would be denied access.  Secretaries no longer have to be a central clearinghouse.

It seems counterintuitive because we have been dealing with sites on the internet that are either open access without restrictions or sites requiring username/password protection.  Now, we have a third alternative that allows open access but provides strict, trustworthy private controls.  That’s valuable, indeed.

Altcoins: Which Are The Best Investment?

toaster
Toaster with an Edison screw fitting, c. 1909

Both Warren Buffet and Paul Krugman believe cryptocurrency, e.g. Bitcoin, is a bubble.  Moreover, these well-respected gurus of the economy and finance say we should expect to see a bad ending.  Sorry to say, they’ve got it wrong.  When and where do cryptocurrencies end? They don’t.

Bitcoin is not a bubble.  Cryptocurrencies will never end.  Taken one at a time, a coin may or may not get the following it needs to thrive.  Some coins will see tremendous support and soar in value.  Still, others may grow and shrink in fits and starts.  But as a basket, you are going to see growth in the never-before-seen-as-an-investment category.  That is where we are at the moment.  New initial coin offerings (ICOs) and token sales are appearing daily.  New currencies are raising tens of millions of dollars in funding in just a few days time.

Having a basket of different cryptocurrencies is a form of diversification within the space, mitigating the risk.  Bitcoin is the most uncorrelated asset there is when compared to the stock market.  That means its movement is unrelated to how the stock market moves.  Fund managers, always looking to diversify, love uncorrelated assets to further reduce risk.  So should you.  Where we are today, however, is at a place where almost any coin with an active development team behind it will go up.  I know how flaky that sounds but I believe you can buy almost any coin and experience large returns in this moment in time.

This is similar to a period of history just after Edison electrified Lower Manhattan.  To supply enough electricity to power his street lighting and then indoor lighting for the Financial District Edison had to patent at least ten new inventions including the dynamo. By the time he had finished, buildings throughout Lower Manhattan were powered by electricity.  Suddenly, all of the ideas that had been floating around for decades that were never taken seriously or mass marketed because they ran on electricity, and electricity wasn’t available, were possible.

There was the idea for fans for moving air, fans for cooling, toasters to bake bread, elevators to lift people, stamping machines for manufacturing, signals for directions and signage, clocks to tell time, clocks to manage industrial processes, illuminated signs at night, musical instruments, mixers in the factory, blenders in the kitchen, washers for clothes, dryers for paint shops, lifts for industry, vacuums, motors, drills, vibrators, and scales for weights and measures, could be electrified and sold, and made available in every office across the city. Bonanza!  Eureka!!! But which idea would sell?  Which would become a viable product?  THEY ALL WOULD!!

Blockchain: Not a Bubble

three menBlockchain, the technology behind Bitcoin and other cryptocurrencies, is a big deal.  Huge.  Blockchain offers a degree of security, trust, and anonymity, so often sought in contracts and financial dealings, yet seldom achieved.

Imagine if you were to buy a beautiful, three-bedroom home in a nice neighborhood with a yard and a garage. The day you move in with your family, three men with baseball bats burst through the front door and order you to leave. “This house is the property of Carlos Danger,” they tell you.  You don’t want heads of your family to be smashed to a bloody pulp so you follow instructions and scram.  In most parts of the U.S., you would be calling the police in hopes of justice.  In many other parts of the world, that would be that; end of the story, end of the house.

It is only because we have all of the other social systems in place, including the police, the legal system, the jury system, jails, insurance, banks, currency, Department of Buildings, Department of Sanitation, Fire Department, Real Estate Boards and elected officials that our ability to purchase and own property in the U.S. is somewhat secure.  In many other parts of the world, it is not.

Blockchain provides a methodology for the same kind of security without the need for rangers with guns, or police with Tasers, or lawyers with Court Orders.  Because blockchain provides this new found security, trust, and anonymity, all sorts of new currencies will appear representing all sorts of values and worth.  Remember Airmiles?Airmiles are valuable forms of currency for travelers.  There will be cryptocurrencies for travel, for health, for sports gambling, for online gambling, stocks, international monetary trade, insurance, cybersecurity, petrol and just plain old spending money.  Many coins will be very good ideas.  No one can predict which currencies will be the most valuable but many will be around for a long time to come.