171113 Bitcoin’s Next Milestone

MilestonesBitcoin roars back to life after a tumultuous weekend where prices dropped from last Wednesday’s high of over $7800 to this weekend’s low of $5414, a 33% fall. Ouch!  The Bitcoin Gold fork is now behind us.  The Bitcoin Segwit2X fork has been canceled.  Bitcoin Cash struggles to remain afloat after a huge uptick this weekend.  In it’s rise to legitimacy and value, Bitcoin must reach some new milestones before its next leg up.

In the world of patents, inventors know that a patent isn’t worth nearly as much when you first are awarded the patent as when you have won in court against a patent challenger.  As Bitcoin matures with age, as these different challenges come to pass, as Bitcoin expands its use cases and market cap, it becomes more and more a fact of life and less a matter of speculation.  Every day that goes by makes Bitcoin a better investment.  Every challenge it weathers strengthens Bitcoin’s ability to stay.

There was some disturbing information regarding Bitcoin’s use cases.  It seems that after an entire year, Bitcoin’s use cases have not increased.  The only increase has been in speculative Bitcoin investments.  From personal experience, that feels about right.  While there is little information about new uses for Bitcoin, there are thousands of new Bitcoin owners hoping to profit from the investment opportunity.  There have been some very good ideas circulated regarding Bitcoin uses, however.  For example, sending money abroad, safely and fast.  People from Venezuela have been using Bitcoin to send money home without fees or the hassle of VISA or Mastercard.  The people of Catalonia, looking for a new currency in their fight for freedom from Spain, may adopt Bitcoin as their currency.  These would be huge boosts to Bitcoin’s viability.

Here are three milestones we should be on the lookout for. Anyone of these would be a home run.

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  1. Any of the big banks such as Goldman Sachs, Bank of America, or Morgan-Chase accepting Bitcoin to buy, hold and sell for their customers.  That would signify a huge influx of big investor dollars into Bitcoin. Every billion dollars increases the price of Bitcoin by $60.00.  A big bank coming into the Bitcoin market would lead, at a minimum, some $40B into the Bitcoin market.  That would raise the price of Bitcoin by $2400.00.
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  2. Any large retailer announcing that they now accept Bitcoin payments such as Starbucks, Subway, or Amazon online.  That would be huge.  Some exchanges have already started offering Merchant services; that is to say, provide resources that a merchant would seek were they to begin accepting Bitcoin.  For example, any merchant that would not want to become a speculator in Bitcoin would want to accept it and sell the Bitcoin without holding onto it for any length of time. Exchanges are offering merchants the ability to convert Bitcoin as soon as it is received.
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  3. A country or region switches from their local currency to Bitcoin, e.g. Catalonia or Venezuela.  Even Catalonia which only represents about 20% of the Spanish economy would generate $200B in GDP.  If Bitcoin were used to represent that economy, the market cap for Bitcoin would rise considerably.
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Anything that expands the uses of Bitcoin is a good sign.  We continue to publish Bitcoin application ideas in the hopes of fostering new and exciting Bitcoin opportunities.

 

171030 The Inevitability of Bitcoin

distributed networkBitcoin is a cryptocurrency.  If the term is new to you, a cryptocurrency is a digital currency; virtual money.  It was the byproduct of another invention, blockchain.  Blockchain was invented by Satochi Nakamoto, an unknown inventor.  In 2009 he made the following announcement:

Announcing the first release of Bitcoin, a new electronic cash system that uses a peer-to-peer network to prevent double-spending. It’s completely decentralized with no server or central authority.  

Double-spending was the biggest problem for any electronic cash system.  If someone pays you online, how do you and your bank know that the payee didn’t already use all his money somewhere else?  You rely on your bank and the payee’s bank to ensure that the money hasn’t been double-spent.  It involves a lot of secrecy, electronic handshaking, passcodes, keys, locks, and accounting.  In the end, those systems aren’t very good.  There are often long delays, there is often theft, there is fraud and misdirected funds.  Blockchain is the technology that creates a decentralized network.  There is no central clearinghouse for the exchange of Bitcoin.  Bitcoin is the currency that is being exchanged.  We can go on and describe how it Bitcoin works in greater detail but suffice it to say over the past eight years Bitcoin has gained a huge following and spawned many other cryptocurrencies.

Before getting into all that, it’s important to ask “why?”  Why Bitcoin? Why now?

Bitcoin is inevitable.  At the beginning of the United States of America, when we had to create our own currency, we based our currency on gold. It was possible to trade paper and coin for gold.  Gold became impractical to use as everyday currency.  It was not easy to carry, divide or weigh.  For the next 250 years, paper and coin was the currency of choice.  Today most of our financial transactions are done with debit or credit cards.  Checks are quickly falling out of favor.  In fact, only 11% of people prefer cash as a method of payment.

Furthermore, more and more of our transactions are done online.  For those, we must use a digital form of payment.  In the very near future, a new payment requirement will become necessary — computer to computer payments.  Your computer will interact with the computer of a good or service without your direct involvement.  Those payments might be very, very small and/or very, very fast.  For example, you will go to a website where you pay to read what is there by the word.  A word might cost $0.0001324.  Your Lyft, Uber or Apple driverless car service gets directions and the payment from your smartphone.  You pay for groceries simply by bagging them and carrying them out of the store.  There are no cashiers.  Much of this will be micropayments and they will happen quickly, too quickly for us to be actively involved.  Nor would we want to be.  For this type of transaction, it will be necessary to have a cryptocurrency, one that can be divided into 1/100,000,000th of a coin if necessary.  Also, the cryptocurrency will have to be decentralized.  There is no time to send a message back to a central clearinghouse, wait for a response, and then send messages off to a couple of exchanges and two or more banks in order to keep up with the necessary bookkeeping.

Bitcoin does all of this with ease.  Until you have actually received or spent a bitcoin it is hard to imagine just how easy bitcoin is to use.  To keep bitcoin you use a bitcoin wallet.  Bitcoin is placed in the wallet by means of a public and private key.  To receive bitcoin, you would give the payee your bitcoin wallet public address.  Your address is part of the bitcoin blockchain.  Every single owner of bitcoin has a complete record of every bitcoin transaction, kept in the blockchain.  New transactions are not permitted until all of the modes in the bitcoin network surrounding the new transaction agree that it is a legitimate new transaction.  For a more detailed description of the blockchain technology and why it works, other entries cover that in great detail.

One of the first questions about bitcoin is “Isn’t bitcoin used by drug dealers and money launderers?”  Yes, it is.  That’s because it is totally anonymous, secure and fast.  But that is also why it is used by families sending money home to Venezuela and the Philippines.  That is why people suggested to the independence-seeking Catalonians who are now looking for a new currency to use Bitcoin.  The best part about Bitcoin — there are no fees.  There is no central government or governing body.  There is no clearinghouse or regulations, at least for now.  It would be very surprising if a country allowed bitcoin without imposing some sort of regulations or governance.  In fact, China has already barred some forms of cryptocurrency and announced they will be issuing regulations on Bitcoin soon.  Russia has already outlawed Bitcoin but then restated their intent to regulate it.  Russia will, however, be issuing CryptoRubles, a state-owned cryptocurrency.

There are 16,600,000 bitcoins in existence.  Some more will be issued as time goes on but the total will never exceed 21,00,000 bitcoins.  That makes them exceedingly rare when they have to be shared by the world’s 7.5 billion people.  On January 1, 2017, bitcoin was valued at a little over $600.  At the moment, bitcoin is $6150.  Estimates range from $6000 to $25,000 for the value of bitcoin by the end of 2018.  Estimates range from $0 to $1,000,000 for the value of bitcoin at some point in the future.

Technology requires that there be a cryptocurrency.  Paper and coin, which replaced gold nuggets, isn’t flexible enough to work with computerized systems.  When we use debit or credit cards over the internet we are practically using a digital currency.  The only difference is that the banks, the exchanges, and the clearinghouses that handle the digital transactions are all involved.  The only role the cards are playing is acting like the account numbers for the banks to keep in their ledgers.  Each of those players must keep the information secret, and take responsibility for its being genuine.  There are long delays; often days are set aside while transactions are proven, settled and cleared.  Technology in the near future will require fast, reliable, secure, anonymous transactions.  Blockchain technology promises to deliver all of that.  In fact, blockchain is so well liked and reliable that most of the Fortune 500 companies are already using blockchain to secure all sorts of networks from financial to legal to real estate.  Why not currencies, too?

If you want to get a sense of how popular bitcoin is already, check out bitlisten.com. There the programmer has made a bubble for each bitcoin transaction with the size of the bubble equal to the amount of bitcoin.  The tone played gets lower with the size of the transaction as well.  You’ll be surprised.  There are hundreds of transactions per minute. Bitcoin is inevitable and it’s here to stay.