From the Front Page - Guest Blog
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How many bitcoins does it cost to maintain the Bitcoin network?
August 21st, 2014 by
Tim Swanson Let us be quite clear: if Bitcoin was a cheaper or more efficient transaction method, for-profit organizations such as large payment processors would have forked it long ago and would likely already be using it internally in order to shore up their margins. They do not because it is not cheaper, in fact, it is significantly more expensive to maintain than any of a number alternative centralized methods (e.g., running MongoDB on a Pi server.
The bottom line to them is that the marginal value in these centralized solutions has to be greater than the cost of maintaining it (MV>MC) otherwise none of the companies would be able to generate a profit. As described below, Bitcoin currently does not fulfill that characteristic.
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What we have today is not Bitcoin but BINO
August 17th, 2014 by Tim Swanson [A PDF version is also available]
Yesterday I was told by a China-based WeChat user that I was "hating on a technology" and "expending energy trying to destroy it." It being Bitcoin. This is untrue, I like some of the ideas in Bitcoin (the protocol) circa 2009 and work daily with startups to create value in this space. However, what currently is called "Bitcoin" is a shell, at most, of its former self for at leas...
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Grandpa, Tell Me 'Bout the Good Ol' Days
August 14th, 2014 by
Tron Black Editor: Cheryl
“Hey Jimmy what do you have there? Oh goodness, I haven’t seen that shoebox since I was teenager. Were you in the back of my closet? Bring it here. Open it up and let's take a look. It’s my box of old paper dollar bills. I thought they might be worth something someday. Boy! Was I wrong!”"When I was kid, back in 2014, people used to trade this paper for housing, food, gas, and cell phone service. Yes, believe it or not -- paper. I know, it’s bizarre and still makes me chuckle. And they had these big machines called ATMs back then that were bolted to the sides of buildings we used to call 'banks'. These ATMs would spit out these green paper slips with pictures of dead presidents on them. And then, for whatever reason, other people would trade these slips of mostly green paper for things they wanted. Surprisingly it worked. Sure, it seems archaic now, but people didn't think so at the time.”
“What? Oh, banks? Yeah, they would store and track your money like your Samsung S27 bitcoin wallet does now, only they were entire buildings staffed with real people. In fact that social center down on Main Street where they have that little room with the ice cream machine and the big steel doors -- that was a bank. If memory serves, Bitcoin existed back then, but I guess it just took some time to adjust to the new way of storing and sending value.“
“What happened to paper money? Oh, that’s a long story. It started a long, long time ago in the early 1970s when President Nixon decided that the paper money was accepted well enough that it didn’t need to be backed by anything, so he just stopped allowing convertibility to gold. Looking back with 20/20 hindsight, it was a really stupid thing to do, but it worked for a while. Nobody thought much of it at the time.”
“What happened next? Oh, not much at first, but in 2008 the first problems started. It wasn’t so much because of Nixon’s bone-headed decision, but because those ‘banks’ I was telling you about were allowed to loan out more than they held in deposits. They created more money by making loans, and they could create as much as they wanted as long as they could find people to borrow. They started loaning to everybody, and I mean everybody. ‘No job, no problem, here’s your loan.’ Sure, looking back, it seems insane, but I don’t think people in that era really understood money.”
“Then, the banks had this brilliant idea to insure against loan defaults and sell the loans as investment grade. The banks used some clever, but ultimately self-destructive methods to hide the bad loans and pretend they were investment worthy. Well, as you’ll soon learn in your history class, and what should’ve been obvious at time, those with no jobs couldn’t pay their loans, so they didn’t. There were so many of these bad loans that the insurance companies couldn’t make good, so the whole system was at-risk.”
“Well, as you can imagine, this was a pretty scary time for those that benefitted from creating money out of nothing. What were they to do? What could they do? They figured they could make more money out of nothing and use it to try to save the system, so that’s what they did. They just started creating money like crazy to buy Treasury bonds. This helped the political class back then because they could spend this new money to create programs and buy votes. There were dozens of different programs to get the money out into the economy. It didn’t matter how crazy the idea. We were even sending money to other countries to buy their cooperation.”
“It worked for a while. They just kept pumping more ‘free’ money into the system, and people didn’t seem to care. If you were poor, you got free stuff. Why complain? No job? -- free money. If you were rich, you got even richer since borrowing costs were super low so you could borrow cheap and invest in the stock market. If you were a CEO, you couldn’t lose because you could just borrow cheap, buy back your own stock and get rich. But, if you were a saver back then, you got crushed.”
“Jimmy, would you hand grandpa that drink of water? Thanks.”
“It wasn’t until 2017, when things turned bad for almost everyone. There weren’t enough people working to keep the system going. The defaults started again, and surprisingly they hadn’t learned anything the first time. They ramped up the printing presses again to buy even more Treasury bonds. Only now, there was so much interest owed it was like running on an accelerating treadmill. We could loan ourselves more money out of thin air and be the only buyers with an infinite imaginary bank account, or we could offer more interest to get other interested buyers, but only at our own peril because increasing interest rates on our massive debt was crippling. We were trapped.”
“Even the Wall Street guys could see the writing on the wall and started looking for safe havens. What’s Wall Street you ask? Ah, funny story, there was this guy from New York named Ben Lawsky. He started Wall Street’s woes, but that’s a story for another time. I’ll take you to the Wall Street museum sometime.”
“Anyway, they were desperate to get dollars into the economy, so dollars were easy to come by. If you had something that had real value, you could get lots and lots of dollars, but saving dollars was futile. Savers were again getting crushed. People wanted anything that couldn’t be conjured out of thin air. It wasn’t only bitcoin that people wanted, it was also food, gold, real estate, and farm land. Bitcoin was the easiest to store, and transmit, so it worked best when trading for food and other daily needs.”
“Once the ball was rolling, it picked up speed. Some say it made the Weimar Republic look tame by comparison. Since nobody wanted the green slips of paper, but wanted bitcoin instead, the transition happened very quickly. Thankfully, your grandma and I did fine because we already had some bitcoin before the rush started. I kept that shoebox full of dollars, partly as a reminder, and partly because I really thought they might be worth something someday.”
“Well, off to bed."
The events depicted in this story are obviously fictitious -- there’s no way paper money can last ‘til 2017. Any similarity to any person living or dead is merely coincidental - except for Ben Lawsky - he’s real and couldn’t be reached for comment because he’s too busy shooting NY in the foot.
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Overstock to Cryptostock
August 12th, 2014 by
Daniel Larimer Orignal (dhimmel):
The crypto-currency industry has been abuzz ever since Wired published an article entitled Overstocks Radical Plan to Reinvent the Stock Market With Bitcoin. Patrick Byrne, CEO of Overstock.com, has seen firsthand how Wall Street has been corrupted to the core, and hes eager to do something to fix it. He has identified two primary sources of corruption: centralized clearing (exchanges) and fractional reserve banking. These systems enable unscrupulous insiders to sell shares in companies that dont exist while allowing investors to exploit loopholes in stock settlement, such as naked short sales, harming public companies and the economy as a whole.
The primary question Byrne has been concerned with is, How might a public company go about issuing a crypto-security? Earlier this year, he and others at Overstock held discussions on this very subject with developers of Bitshares and Counterparty, platforms that aim to extend Bitcoin technology to enable securities issuance and trading without the need for third-party brokers or centralized exchanges. To foster discussion on what might be involved in issuing a cryptosecurity, Overstock recently launched a web page editable by anyone. The new webpage has sparked a wiki-war over the merits and drawbacks of a dozen or so Bitcoin 2.0 crypto-security platforms either on the market or close to launch. In my opinion, two systems, NXT and BitShares X, appear to have emerged as the leading contenders in the Overstock wiki arms race. Both of these systems provide built-in, decentralized exchanges that allow users to issue their own assets (though the SEC may call the assets securities , depending on whether issuers make any promises with respect to the assets).
Do any of the existing technologies offer a ready-to-go solution with which a public company could list a new crypto-security? At the current time, none of the existing systems seems to meet all of the regulatory and business requirements for a successful crypto-security issuance. Even if a satisfactory platform did exist, a crypto-security issuer would no doubt need to work closely with developers to customize their blockchain to fit their particular circumstances and goals.
In my opinion, the primary difficulty with existing platforms is that, in most jurisdictions around the world, it is illegal for a public company to issue shares that function effectively as bearer shares. The essence of bearer shares is that they are freely transferable securities that are owned by whomever holds them, and by possession alone they demonstrate participation in a company. By contrast, with registered or conventional shares, the name of the owner is included with a share and will also be entered in the registry of company shareholders. Changing the ownership of conventional shares requires a change in the share endorsement and registry.
With bearer shares, since no name is included, any person who holds them in their possession is recognized as the owner. If an owner of bearer shares wishes to transfer them to a third party, it suffices to just hand over the relevant certificates. There is no need for any paperwork or changes to the registry of the company (except for anti money-laundering measures in certain jurisdictions) because only the amount of bearer shares that were issued to create the company and their numeration are shown, without making any reference to their owners. Thus, transference of bearer shares is similar to the operation of a cashiers check, whereby any person presenting it can collect the amount contained therein.
The legal and regulatory measures many countries and organizations have been enacting against money laundering and tax fraud have created a significant stigma around bearer shares. Pressure on the governments of widely-used tax havens has forced most offshore jurisdictions to restrict the use of bearer shares. Normally, these constraints take the form of rules that serve to immobilize securities. That is, bearer shares are required to be in the custody of banks, trust firms, or a registered company agents who usually must maintain a record of the owners. The objective of such measures is to keep track of any change in ownership of the company and to be able to determine at all times who holds the legal ownership. With such restrictions, not only is the raison-detre of bearer shares lost, but they are often not in the hands of their rightful owners, making their transmission more complicated.
How to Legally Issue a Crypto Security
The solution to Byrnes problem lies in finding a crypto-system that supports the issuance of registered or conventional shares for which the owners names are included and tracked in the register of company shareholders. In effect, the crypto-systems blockchain itself would serve as the register of shareholders.
While some crypto platforms, such as BitShares with its TITAN technology, already enable users to transfer shares to other users by account name rather than account number, no system currently in use supports the restriction of share ownership to certified identities. The BitShares system aims to be the first to provide the market with a practical, easy-to-use solution to this critical problem.
The solution implemented in the BitShares system would be very simple. An Identity Authority would be required to sign a BitShares account with a certification that the owner has provided the necessary Know Your Customer documentation. Then, the BitShares account would need to digitally sign the shareholders agreement and release the shareholders identity information to Overstock. After these signatures were place, then--and only then--would the blockchain allow a particular account to buy, sell, send, or receive the relevant securities. Such a system might not seem ideal from a crypto-anarchists point of view, but from the perspective of a company like Overstock it would help them achieve a primary goal: the creation of an honest and transparent securities market, one that would be provably free of fractional reserves, naked short sales, and high-frequency trading.
Better Market Algorithms
Byrne says that one of the things hes trying to eliminate is high-speed trading that serves no real purpose
In todays world of computerized trading on Wall Street, the markets move at nearly the speed of light, with trades executed in milliseconds. This type of speed is not possible in a decentralized system because, even moving at the speed of light, information would need 200 milliseconds or so to circumnavigate the globe.
The speed barrier faced by decentralized systems is no problem for Byrnes vision; indeed, it is consistent with his goal of eliminating high-frequency trading. In fact, trading speed is not the real issue facing decentralized trading systems. The critical issue instead is how to remedy a fundamental flaw in the order-matching algorithm that traditional stock exchanges use. What is a market price, really? It is fundamentally a collective judgment about the value of a company. As such, it should only change when new information becomes available and can be processed by the shareholders themselves. Human judgement cannot possibly operate at 200 milliseconds, and it is challenged to operate on the shortest time intervals (10 seconds) currently supported by BitShares or other decentralized blockchain systems.
High-speed trading is the result of Wall Street insiders attempting to front-run orders placed by people who have access to real information. When someone learns some news that causes them to want to buy, a high-frequency trader can quickly see the buy orders within milliseconds, enabling them to place automated trades to scoop up any asks lower than the buyers bid and then sell to the buyer with almost no risk. This is just one of the many games that high-frequency traders may engage in.
BitShares confronts this problem by implementing a new matching system that effectively eliminates front running by insiders. All executed orders always receive the price that was requested--nothing more and nothing less. There is no opportunity for high-frequency traders or front-runners to squeeze risk-free profit out of market participants by executing orders that steal some of the overlap between the bid and ask. Traditional order-matching algorithms that promise to give a trader the best price below his bid are an illusion because anyone else located physically closer to the exchange can capture much of the gains with little or no risk, leaving the buyer with little more than he asked for.
In essence, the blockchain becomes the ultimate insider. What this market algorithm does is take all of the surplus that could have been earned by front running (the overlap between bid and ask) and collect it as fees for the network. This algorithm ensures that market participants place orders at exactly the prices they are willing to pay based upon their opinion of fair value. As a result, market participants now face less price risk in the execution of their orders. By removing the profit potential from front-running, BitShares is the only system to date that is less likely to be vulnerable to attacks by high-frequency traders attempting to squeeze risk-free profits out of bid/ask overlap.
A beneficial side effect of the BitShares matching algorithm is that traders attempting to manipulate the market by walking the book in a single trade will face a much higher cost than traders who walk the book at a slower pace. Thus, once again, the trading algorithm implemented by BitShares punishes fast traders and rewards value traders .
Eliminating Fractional Reserves
There is one other aspect that companies looking to list their shares on a decentralized exchange must consider: what will the newly-listed shares be traded against? In the case of all existing crypto-security systems (except for the soon-to-be introduced BitAssets in BitShares X), the only thing that new company shares can be traded against is shares in the system (e.g, units of NXT) or shares in other assets listed on the system. This means that if Overstock wanted newly-issued shares in a crypto platform to trade against USD, then someone would have to issue bearer bonds denominated in USD on the platform. These bearer bonds would be a promise to pay $1 on demand and thus would no doubt be a second highly-regulated security.
In this scenario, Overstock would likely have to issue its own Overstock USD bond to trade on the system against the own shares. This once again opens up an enormous regulatory challenge centered around Know Your Customer laws. If Overstock USDs are not part of the solution, then the only alternative would seem to be USDs issued by some exchange that is subject to regulations and potential fractional reserve issuance.
Fractional-reserve issuance is one of the primary issues Patrick Byrne has identified that needs to be resolved. It is counterproductive to rely on crypto-IOUs for users to trade in a newly-issued crypto-stock. After all, using a blockchain for order matching would seem to be of little advantage if management of IOUs still requires relying on third parties. Furthermore, absent crypto-dollar IOUs, the only assets left for Crypto-Overstock shares to trade against would be other crypto-assets that would have market capitalizations equaling only a small fraction of Overstocks.
Eliminating the need for cyrpto-IOUs is where BitShares X, with its internal BitUSD asset collateralized by shares in BitShares X itself, provides a unique advantage over all other crypto systems on the market or in public development. BitUSDs are not an IOU issued by a central party. Rather, they are a crypto-asset that has no counterparty, is not a security, and confers no legal obligation to any party. They are created by free market forces, and by design each unit of BitUSD is collateralized, i.e., backed by 1.5 to 2 dollars worth of BTSX and fully backed by the Bitshares network.
With BitShares X, companies like Overstock can allow their shares to trade against trust-free assets pegged to the dollar, gold, silver, or other national currencies. This provides a significant advantage over all other systems known at this time.
Conclusion
In the near future, the BitShares X system, with its certified accounts and collateralized assets such as BitUSD, will be able to meet the regulatory, philosophical, and business requirements outlined by Mr. Byrne. BitShares X will resolve the problems arising from fractional reserve banking, naked shorting, and high-frequency trading manipulation. An equally important advantage of BitShares is that its developers are not simply faceless identities hiding behind anonymity on the internet; the leaders within the BitShares ecosystem are real people who will be able to draw upon their expertise to help customize solutions to suit the needs of Overstock and other public companies.
As exciting as it would be to see Overstock or another company issue a crypto-stock in the next few months, I think it would do far more harm than good. Careful evaluation of the various issues and risks from regulatory and business perspectives can help ensure that the amazing potential benefits of being able to issue shares on a crypto-ledger are realized.
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Bitcoin and Intrinsic Value
August 6th, 2014 by Tron Black Warren Buffett, generally a shrewd investor, surely knows the financial definition of intrinsic value, but inexplicably he does not understand Bitcoin. How do I know he does not understand Bitcoin? Because he called it a "mirage," said it had “no intrinsic value,” called it “a joke,” and compared it to a check. A check? Bitcoin, the network, can be compared to the entire banking system that processes a check, which includes the clearing system, the image scanning system, the ATM network, the credit and debit system of the Automated Clearing House, the SWIFT financial messaging system, and ultimately the institutions that we trust to safely track our balances and return our deposited funds upon request.
Warren’s uninformed and off-the-cuff remark sparked a conversation about the intrinsic value of Bitcoin. We need to begin by defining "intrinsic value," because it has a different definition for a financial investor than it does for most noninvestors. Investors look at the book value and add the discounted cash flow to arrive at the intrinsic value, which is often different from the market value. Most noninvestors think of intrinsic value as the value of a thing itself. Noninvestors often cite the example of gold, or of a knife that can cut, splice, and dice. Gold can be used for industrial purposes. It is extremely malleable, shiny, and contains other unique physical properties. I posit, however, that gold’s real value lies in its scarcity and in its worldwide acceptance as a store of value. Knives, on the other hand, are great tools of utility value.
Mr. Buffet’s ability to calculate the difference between intrinsic (or fundamental) value and market value gives him a real investing edge. I respect his investing acumen and I mean no disrespect for him when I declare he is wrong about Bitcoin.
Perhaps if Warren thought about Bitcoin differently, he might come to a better conclusion. He regularly purchases stocks, so he understands that market. A stock, based upon the investor's definition of intrinsic value, represents partial ownership in an ongoing business that holds assets (book value) and makes money, which can be included in its value when discounted for time. Once Mr. Buffet learns a bit more about Bitcoin, I hope he will realize that upper-case Bitcoin, the network, holds tremendous value because it can be compared to a banking system, or a worldwide collection of banks and all of their systems. While lower-case bitcoin, the currency, can be compared to an index fund or an exchange-traded fund, which would indlude all the bitcoin companies in the Bitcoin ecosystem.
Value is subjective and contextual. It is subjective because it depends on the feelings and opinions of the person doing the valuing. It is contextual because it depends on the circumstances and setting of that person.
Let’s explore this with a simple example. Imagine you are stranded alone on a desert island with no internet connection. You are hungry, thirsty, and you cannot get off the island. Three things wash ashore -- a laminated-paper bitcoin wallet that gives the private key for an address that holds 100 BTC, a shoebox full of freshly printed US $100 bills, and a crate containing a knife, some flint, nine hens, a rooster, and several large sealed bottles of crystal-clear purified water. Which has the most value -- to you?
Now change the context, and imagine you just polished off a meal at a five-star restaurant and you ate too much dessert. You’re faced with the choice between the same items, but now you might want to count the $100 bills and check the public bitcoin address to decide whether you would rather take the bitcoin or the shoebox full of cash.
OK, one last example. This time you have eaten a nice meal while reading about China and Russia striking a deal to use their native domestic currencies to settle trade and purchase energy in the form of gas, oil, and coal. You are faced with the same choice of food, bitcoin, or dollars. But now you’re rattled. You think, “What if the dollar is losing its status as the global-reserve currency? What if dollars come flooding back to the United States as other countries choose not to hold them? What if government numbers for inflation are being blatantly manipulated?” You give it more thought, and you reason that you could take the dollars and buy stock in global companies in order to protect yourself. Then it hits you: “This is why the stock market is doing so well. It is not in recovery at all. People are shifting to stock assets in the face of a manipulated and devalued currency.” Your choice now comes down to buying global stocks, or taking the bitcoin. You look at the history of Bitcoin over the last few years, compare it to the S&P 500, and you make your choice without even needing to count the dollars in the shoebox. Read More -
The Evolution of BitShares (Formally ProtoShares)
July 30th, 2014 by
Michael Pair How ProtoShares evolved to become BitShares X and other future DACs.
Original (dhimmels):
On October 5, 2013, at the Cryptocurrency Conference, Daniel Larimer, the founder of Invictus Innovations gave a presentation on Decentralized Autonomous Companies (DAC). One idea that he presented was the creation of ProtoShares (PTS). PTS is a mineable cryptocurrency used to raise funds for the development of a suite of DACs sponsored by Invictus Innovations.
ProtoShares was initially mineable only with CPUs and then eventually with GPUs. They were not pre-mined and quickly rose in value to over $9.00 USD with a market capitalization that exceeded $30 Million Dollars within 45 days of launching. Quite impressive.
However, there was one huge problem. In order to mine PTS, miners spent an enormous amount of money on hardware, software, and cloud services. This realization caused Invictus Innovations to devise a new means of raising capital for DACs that did not divert funds away from the DACs ecosystem. Mastercoin, a Bitcoin 2.0 protocol, raised funds via a donation crowd sale in August 2013. This eliminated the need for mining while maximizing the fund raising efficiency. I believe this served as a pivotal example and encouraged the company to adopt this concept.
Invictus Innovations introduced some new features to this crowd sale donation concept. One feature was to create a second asset called AngelShares (AGS) that allowed individuals to fund future DACs and receive a stake in them. This idea is now commonly referred to as crypto equity. The second feature was to attract individuals in the crypto currency community who have a long term view of DACs concepts and its ecosystem. A third benefit was for new DAC developers to gain initial community support if they would honor a social consensus contract. This contract stated that a new DAC developer would set aside a minimum 20% stake in their DAC. This stake which would be split equally between AGS and PTS holders in exchange for community support, testing, and promotion of the new DAC. Also, the developer would gain access to the technology toolkit and support from Invictus Innovations.
The AGS donation period starting Jan 1, 2014 and ended July 19, 2014. During this time, one could donate Bitcoin (BTC) or PTS and receive a percentage of 5000 AGS distributed daily. This was a very successful donation campaign.
On Feb 28, 2014, Invictus Innovations conducted a snapshot for BitShares X which grants all holders of PTS and AGS a new allotment in BitShares X when released. AGS donations after Feb 28, 2014 did not earn any stake in BitShares X or its derivative DACs. However, the post snapshot donations earned a stake in the following and future DACs (non BitShares X):
Domain Names
The secure alternative to todays domain name system that eliminates domain name squatting while providing security against government seizures, man-in-the-middle attacks.
Voting
Transparent-yet-anonymous elections and polling
Charity
Finding ways to help others with the technology of decentralized autonomous charities.
Gaming
Honest and transparent gaming of all kinds is now possible.
Insurance
Get 'insurance' through a Mutual Aid Society with minimal overhead using decentralized autonomous insurance policies.
Lending
Lending is one of the more difficult systems to decentralize because it generally involves matters of trust and credit worthiness. These things typically require individual judgment and ultimately accountability.
Music
With the latest technologies that enable transparent decentralized ledgers, it is now possible for artists to sell shares of their songs rather than copies of their songs.
Invictus Innovations renamed ProtoShares to BitShares PTS and AngelShares to BitShares AGS. On July 19, 2014, BitShares X (BTSX), a decentralized bank and exchange was release. AngelShares holders can claim their shares in this asset.
I hope this was helpful to clarify how ProtoShares has evolved from the beginning. For more information about BitShares click here.
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Bitcoin vs. Ponzi
July 28th, 2014 by Tron Black “I can’t believe you fell for that Ponzi Scheme!” or “Sounds like a pyramid scheme to me.” Have you ever heard this when telling someone about Bitcoin? Don’t worry, it happens all the time. Let’s take a closer look at why.
We have Charles Ponzi, a 1920s notorious scam artist, to thank for the lending his name “Ponzi” to the practice of ripping people off by promoting a fake investment with huge returns, then not really investing the money, but rather siphoning funds while paying the original investors with new investor’s money.
Why would anyone even compare bitcoin to a Ponzi scheme? There are two reasons.
First reason -- the huge returns. In a Ponzi scheme the high returns are paid to the original investors so the original investors put in more money, and also to get testimonials to entice new investors (suckers). With bitcoin, the high returns are simply the increase in market value of a new digital asset class that can’t be counterfeited. Bitcoin benefits from the network effect in the same way that the telephone, the Internet, and Facebook have benefited. Since the returns for bitcoin, so far, have been massive, those that don’t recognize the sea change, compare it to other “investments” with massive returns -- the dreaded Ponzi scheme.
The second reason for the comparison is the similarity of the passion of those talking about bitcoin with the fervency of those promoting a Ponzi scheme. This passion is sometimes described as being cult-like. For the Ponzi scheme promoter the fervency is a matter of survival. If new money doesn’t come in, the Ponzi scheme collapses, and there will never be enough to make everyone whole because it has been paid out to early investors or siphoned off. With Bitcoin, I believe the cult-like passion comes from understanding what this new currency means for the future, and desire to share it with others. I’m guilty of this.
In the typical Ponzi scheme, the investment opportunity doesn’t really exist, it’s a fictional story used to explain the huge returns promised by the Ponzi scheme promoter. A Ponzi scheme must promise huge returns because that’s how the promoter gets new money to keep the scheme going. The new money is paid out to early investors to keep the fiction going, while some of the funds are being siphoned by the Ponzi operator. For a Ponzi scheme to work, it’s critical that only the Ponzi promoter and co-conspirators know how much has been ‘invested’, because any type of audit or transparency of a Ponzi scheme will collapse it instantly.
Bitcoin can’t be a Ponzi scheme as it is the ultimate in transparency. It’s so transparent its like a glass door that you don’t see until it’s too late and you smash your face. It’s so transparent, that there’s dozens of websites that list every transaction anyone has ever made. It’s so transparent that every fraction of every bitcoin in existence can be traced from its origination to its ultimate destination address. The only thing we don’t know is who owns the keys to these addresses, and we should keep it that way.
But beware, bitcoin can be used in Ponzi schemes, in the same way scammers might use Dollars, Yen, Euros, or gold. The tell-tale signs of a Ponzi scheme will be large percentage returns, and you’ll have to send your bitcoin to someone else to get these spectacular returns. Thankfully, if you remain the sole holder of the private keys for your bitcoin you will be safe from any Ponzi scheme.
Does Bitcoin need more people using it to continue its increase in value? Sure, but Coca-Cola (NYSE:KO), Apple (NASDAQ:AAPL), and Amazon (NASDAQ:AMZN) also need more customers. Increased demand or usage translating into increased value is shared with almost every company, stock, bond, commodity, and currency in existence.
Some curmudgeons complain that the early adopters did really well. Yes, similar to the way Venture Capital firms that recognized the early potential of Facebook (NASDAQ:FB), and Twitter (NYSE:TWTR) did really well.
Sadly though, most residents of the US are not allowed to invest in early stage companies because they’re not accredited investors. Yep, even if you use your own money, early stage companies can’t let you be a part of their growth and success unless you’re quite literally a millionaire. Bitcoin has no such restriction because unlike its earlier centralized predecessors like eCash, DigiCash, and Cybercash, Bitcoin can’t be intimidated, bribed, fined, or arrested.
Bitcoin is a revolutionary global payment network that sprang into existence on January 3rd, 2009 with no promoter, and nobody robbing from Peter to pay Paul. The verdict is in -- Bitcoin is no more a Ponzi scheme than politicians are honest.
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On Value by Design: Boston and the Bitcoin Dream Protocol
July 24th, 2014 by
Ryan Walker -
Bitcoin and Tulip Mania
July 18th, 2014 by Tron Black Starting editorial review: dhimmels, 2014-07-15 9:00AM Pacific Time
(minimal edits for grammar and clarity)
Finished editorial review: dhimmels, 2014-07-15 9:20AM Pacific Time
Learning about Bitcoin forces you to think about money and value. Some people who look at Bitcoin come to the erroneous conclusion that it’s like tulip mania. Tulip mania took place in the 1600s in the Netherlands when the price of a rare or unique tulip bulb could exceed the price of a nice house. It is hard to fault these armchair Bitcoin analysts for making this comparison. After all, the spectacular rise in value of something that you can’t feel, touch, or see is outside the realm of their experience.
Tulip bulbs have an interesting property that you can breed them. The folks buying the rare and unique tulip bulbs had the idea that if they purchased a valuable tulip bulb for breeding, they could make more, sell them, recoup their original investment and then continue to sell more tulip bulbs at pure profit. This seems like a pretty good idea on the face of it. Why didn’t it work? The answer lies in the geometric growth curve. I’m not a tulip expert, so I may offend the green thumbs that are reading this. Every year, you can dig up the tulip bulbs and where one was planted, you may have more than one bulb. This number is important. If the number was always exactly 1, and every tulip bulb was recovered, those tulips might still be worth the price of a home. If no new tulip bulbs were ever created, tulips would be very rare indeed . I googled it, and the number is more than 1, so you can increase your tulip bulb count holdings every year.
I had a great Junior High School math teacher. A student asked him how to get rich. After a joke about not being a math teacher, he said, “Save fifteen percent of everything you make and invest it with compound interest and start early.” He taught us how to calculate compound interest, and since it was the Jimmy Carter days of high inflation, the compound interest rate was significant. That lesson stuck with me -- the power of compound interest, not the saving part. It turns out you need both to become rich.
Let’s tiptoe back to the tulips. These tulips were breeding at a geometric rate with nothing but the requirements of land, water, and sunlight to limit the growth. The motivation was wealth and everyone wanted to sell their tulips to recoup the cost of their original tulip investment. The only possible mathematical outcome of this exponentially-increasing tulip production was that the tulips would lose value as too many of them came into existence. This was foreseeable. I don't have the stats on how many mathematicians invested in tulip bulbs, but I'd guess the answer is none.
Bitcoin has a geometric curve too. The difference is that the multiplier for bitcoin is less than 1. It is, in fact 0.5. Roughly every four years, as determined by the original Bitcoin developer Satoshi Nakamoto, the rate at which new bitcoins will be generated will drop by half. An exponential curve with a multiplier less than 1 is known as exponential decay. The number of new bitcoins doesn’t explode like the rate of new tulip bulbs. New bitcoin production decreases and trends toward zero which is the exact opposite of tulip mania.
To summarize, tulip mania was mathematically unsustainable because tulip production grew exponentially while tulip consumption was limited by the total human population size. Bitcoin has an exponential decay of the number of new units to be distributed among the holders of bitcoin. These are apples and oranges, or tulips and bitcoins. Not the same thing at all.
The tulip bulb mania is closer to the quantitative easing policies of central banks. It is mathematically unsustainable. If I thought quantitative easing was a good idea, I’d use it myself and get one credit card to pay another, and then pay that with a cash advance from another credit card. If it worked long enough, I might even convince myself that it was great idea and that it saved me from the brink of financial ruin. I don't have the stats on how many mathematicians are invested in dollars, but I would hope none. Read More -
Simplicity, Security and Success
May 16th, 2014 by
Let's Talk Bitcoin! The market for Bitcoin wallets is slowly expanding, with more options. New to the scene is Hive, a secure wallet service that's easy to use.
Hayden Gill talks about its features and asthetics.
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Doge4Housing
May 5th, 2014 by
Visiting Author Dogecoin as a unique following of users, one that’s heavily charity based. We’ve seen all kinds of stories surrounding Dogecoin being used to fund all kinds of projects.
Erich Mische explains a unique fundraiser to help families in Minnesota get housing, it’s the Doge4Housing project, and expanding to other areas.
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The Brokenness of MaidSafe
April 27th, 2014 by Visiting Author Sometimes, you gotta feel for the idealists in this space. Their relentless optimism is matched only by their blind naivety. On one hand, you understand where they’re coming from (1), and on the other hand, you want to crack some eggs (2) and set them straight.
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El Silicon Valley de México: Bitcoin and the Success of MeXBT.com
April 26th, 2014 by
Hayden Gill If you plan to visit Silicon Valley, where Spanish names lend a sense of grand antiquity to the ornate libraries, and colleges and government agencies that stand in the foreground of youthful exuberance and financial acumen, look for MexBT.com.?? Against this backdrop of orange-purple sunsets and the personal ambitions of men and women who understand the liberating power of technology and commerce, walk amidst the former apricot orchards and ramshackle birthplaces of corporate titans. Then do indeed follow those Spanish streets and travel through Paseo de la Reforma and the greenery of Chapulltepec Park – experience El Silicon Valley de México.
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Innovation has alway been the best testament for human ingenuity
April 23rd, 2014 by Visiting Author Bitcoin and the blockchain, when utilised, will enrich the lives of millions of people on this planet by bypassing any financial institutions and centralized authorities. It will revolutionize financial transactions and liberate a monopolized service that has been centralized for the last 90 years.
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CoinBeam
April 21st, 2014 by Visiting Author New companies are springing up all the time, and some money transfer and wallet systems are part of it. CoinBeam is one such new company, offering the service of money transference for low fees. Peter Marko talks about the features of CoinBeam.
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Crowdfunding Project Gooseberry
April 17th, 2014 by Visiting Author One of the main ways that Bitcoin has been used is to give to charity and crowdsource projects. Project Gooseberry only has a few days left in its crowdfunding campaign, and maybe you can help. Check out the details about the film making project and what you can do if you're interested. Read More
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