Everyone's favorite topic when it comes to bitcoin is price. I understand why, the price is exceptional, but it focuses attention on the wrong things and gives voice to the wrong people, namely the speculators. It also gives a metric to judge the success of Bitcoin that really is ancillary at this point.
But you cannot escape the debate and it is important to note because speculation can end up helping and/or hurting Bitcoin. It is also inevitable that speculation will enter a market where value is important. So I wanted to give my opinion on price speculation and tell you what to look out for when listening to other people. I believe that in 4 years the price of a bitcoin will be around $10,000. I base this on adoption rate the value of the trade market for Bitcoin as a protocol. When you are trading something of value back and forth, the value of the medium has to expand to match what it is being traded for. I believe the market will have to expand to $200 billion for what is being traded in Bitcoin in this time.
The big question on people's lips right now is $1000, is that a bubble? Every time I have tried to predict a bubble I have been incredibly wrong. I told my father in March that I did not understand why a bitcoin was $45 and he should not buy in at that price. Bitcoin has not seen $45 since that time. There was a bubble to $250 and an over correction down to $65 but $45 was not seen. So that is part of my opinion on how to look at other people's opinions. They do not know. If they are correct it is on accident. Don't let anyone tell you they knew what was going to happen after the fact unless they were the ones that manipulated the market. Anyone who talks without humility and absolutely knows what is going to happen is full of crap. Anyone who uses words like "obviously" and "fool" and other bullying manipulative language and does not back it up with math is not worth listening to.
People worth listening to will tell you how they came to their conclusion so you can decide whether you believe the data they used to reach that conclusion. Also, short term predictions should never be believed because data really only works in the long term.
Thursday, November 28, 2013
Tuesday, November 26, 2013
Altcoin boom!
Over the past week, the real appreciable gains have been in the altcoins. Maybe they are playing catch-up. Maybe there is a psychological barrier regarding the bitcoin price and people are looking for (and fulfilling their own prophecy) the next up and coming crypto-currency. Whatever the case I got a surprise dropped on my lap when I remembered that for a year I was simultaneously mining Namecoin with my Bitcoin. Now if only the Namecoin client wasn't so inefficient updating its own blockchain so I could do something with them.
My take on the altcoin market tends to be fairly curmudgeonly. They don't provide anything I need that bitcoin does not already do. Litecoin in particular draws my ire because it really seems to bring nothing new to the table. Faster confirmations at the cost of a more cumbersome blockchain. I do, however, shine to the argument that the altcoin space is a great place to prove out other ideas to bring into bitcoin and I also believe that having more avenues in this space makes the activity of crypto-currency that much more robust and able to survive attack. If basic investment has taught us anything is that you diversify to mitigate risk.
My take on the altcoin market tends to be fairly curmudgeonly. They don't provide anything I need that bitcoin does not already do. Litecoin in particular draws my ire because it really seems to bring nothing new to the table. Faster confirmations at the cost of a more cumbersome blockchain. I do, however, shine to the argument that the altcoin space is a great place to prove out other ideas to bring into bitcoin and I also believe that having more avenues in this space makes the activity of crypto-currency that much more robust and able to survive attack. If basic investment has taught us anything is that you diversify to mitigate risk.
Monday, November 25, 2013
Bitcoin 101: bitcoin is a unit of measure
There seems to be plenty of introductions to Bitcoin on the internet but most of them seem to focus on the technology and gloss over the important tidbits you need so that you have a proper frame of reference. So I am going to post my own Bitcoin 101 in segments and I hope it encompasses what you need to know before being introduced to Bitcoin.
bitcoin (lowercase 'b') is not a thing, it is a unit of measure: What gets most people hung up at the beginning is this idea that I have a bitcoin and then it is somehow divided into parts of a bitcoin. The mental image is that I sent part of this bitcoin to someone and it gets mixed with other parts of bitcoin and somehow it all traces back to some original single bitcoin. That paradigm is incorrect. Don't let the name fool you. Don't think of it like a coin. Instead what someone will send you is a transaction and that transaction will be worth a certain amount of bitcoin. That transaction is measured in bitcoin. In truth US dollars are like this as well. Someone will hand you a bill that is measured as 20 dollars, or a coin that is measured as 5/100 of a dollar. There is no originating dollar that your nickle is part of.
In summary, the thing that is sent on the Bitcoin network is a transaction (or spend). This transaction is measured in bitcoin.
bitcoin (lowercase 'b') is not a thing, it is a unit of measure: What gets most people hung up at the beginning is this idea that I have a bitcoin and then it is somehow divided into parts of a bitcoin. The mental image is that I sent part of this bitcoin to someone and it gets mixed with other parts of bitcoin and somehow it all traces back to some original single bitcoin. That paradigm is incorrect. Don't let the name fool you. Don't think of it like a coin. Instead what someone will send you is a transaction and that transaction will be worth a certain amount of bitcoin. That transaction is measured in bitcoin. In truth US dollars are like this as well. Someone will hand you a bill that is measured as 20 dollars, or a coin that is measured as 5/100 of a dollar. There is no originating dollar that your nickle is part of.
In summary, the thing that is sent on the Bitcoin network is a transaction (or spend). This transaction is measured in bitcoin.
Saturday, November 23, 2013
Another kind of Altcoin
SatoshiDice opened my eyes to another facet of the power of Bitcoin. For those who have not heard of SatoshiDice it is bitcoin gambling. You send bitcoin to a predetermined address. The transaction id of that bitcoin send is hashed using a predetermined "salt". The value produced by this hash is compared to another predetermined number. If your hash is lower, you win and the bitcoin prize is immediately paid back to the address you sent from. While that explanation is not exact it is close enough to explain what is going on.
Now I want to talk about how SatoshiDice works from a server/service perspective. The front end of SatoshiDice is a web server that at the very least must provide information about where to send bitcoin to make a bet. I will call this the point of discovery because it is the touch point with the user where the user discovers the information needed for them to proceed. In order to access this point of discovery the user has to know that they need to go to SatoshiDice.com and browse there with their browser. In order for that server to be known as SatoshiDice.com the owner of the server has to register SatoshiDice.com coupled to an associated IP address for the server with a global nameserver. Nameservers are used to route internet traffic to the correct end server. Because you have to register everything and the physical location of the server is known because of the associated IP address it means that the point of discovery is physically findable by those with means to do so. This is an issue for gambling sites that have been declared illegal. In order for people to find your server you inherently have to provide a route for people to physically find your server.
The server that actually process the gambling for SatoshiDice does not face the same limitation of opening itself up to physical discovery. That server is merely a node accessing the distributed bitcoin network. Bitcoin works because you have all bitcoin information and the secret keys you have allows you to access and modify certain parts of that information. Because of this you can set up your server anywhere that has internet access and you do not need to broadcast location information about the server. The workhorse of the gambling operation is run on a server that can avoid confiscation and can move immediately without external coordination.
A fork of the Bitcoin code base (an altcoin) can be created to give the point of discovery the same benefits that as the SatoshiDice gambling server. Specifically the script section of the transaction can be expanded in size to accommodate additional information. In my vision this larger script allocation would simply be filled with html. A browser could then be repurposed to monitor a single address and parse transactions as web pages. All clients have the entire blockchain so technically each node has the entire "internet" on their machine much like each participant in Bitcoin has the full transaction history of Bitcoin. Now if you want to publish information meant to be a point of discovery (like hosting a website) you would instead send a transaction to a known publication address with the webpage as a payload in the transaction.
A full system of page updates and market driven page importance could easily be worked into the system. Pages could appear in order of importance by the amount of altcoin paid to the publication address. A system of hashtags could be used to reference and bump pages or submit edits.
A fork of the Bitcoin code base (an altcoin) can be created to give the point of discovery the same benefits that as the SatoshiDice gambling server. Specifically the script section of the transaction can be expanded in size to accommodate additional information. In my vision this larger script allocation would simply be filled with html. A browser could then be repurposed to monitor a single address and parse transactions as web pages. All clients have the entire blockchain so technically each node has the entire "internet" on their machine much like each participant in Bitcoin has the full transaction history of Bitcoin. Now if you want to publish information meant to be a point of discovery (like hosting a website) you would instead send a transaction to a known publication address with the webpage as a payload in the transaction.
A full system of page updates and market driven page importance could easily be worked into the system. Pages could appear in order of importance by the amount of altcoin paid to the publication address. A system of hashtags could be used to reference and bump pages or submit edits.
Thursday, November 21, 2013
Thank you China???
I am an American in every sense of the word. I love the freedoms that are afforded to me. I moan and gripe about any type of infringement on that freedom. I participate where I can in our democratic process. I think our government is horrible and full of horrible, greedy, and sometimes inanely stupid people but I am glad I can say that without fear of reprisal. And I am subtly arrogant enough to mean people of the United States when I say American even though that term is valid for Canada, Central, and South America. Although it is kind of like the term Asian never referring to Russians.
All that said, thank you China! United States "paid for" representatives have been more than ready to brand bitcoin as "illegal activity" at the behest of their main financial supporters. It was too small for anyone to actually make any actions against it, but the language was clear enough. Germany showed interest in bitcoin by acknowledging it and defining its use and how the government would deal with it, but they are our allies and still a small percentage of our economic might so business continued as usual. Then China did roughly the same thing and the whole game changed.
When it come to the only fight that matters (economic dominance) China is a real contender and they contend. The move for China to embrace bitcoin as legitimate can only be viewed as a direct shot at the the US. The notion that China would embrace a pseudo-anonymous currency it cannot control because it thinks it is a good idea is absurd. China loves the idea that maybe there is a financial instrument that will undermine US dollar dominance as a reserve currency and they can get in on the ground floor and take a large stake. Now when being attacked, when self preservation is at stake, US representatives actually take notice and start acting like maybe they are not paid to create laws for the short term benefit of large private donors.
Language about bitcoin in the Senate hearing did a full 180 including some Senators recanting things they had previously said with the tried and true "I never said that, you just misunderstood what I was saying." It was a great moment for bitcoin and was brought about by competing markets. Some part of me marvels at the timing of the China stance and the Senate hearing. I do not believe it to be coincidental but I am not ready to put in an opinion on what it might mean.
All that said, thank you China! United States "paid for" representatives have been more than ready to brand bitcoin as "illegal activity" at the behest of their main financial supporters. It was too small for anyone to actually make any actions against it, but the language was clear enough. Germany showed interest in bitcoin by acknowledging it and defining its use and how the government would deal with it, but they are our allies and still a small percentage of our economic might so business continued as usual. Then China did roughly the same thing and the whole game changed.
When it come to the only fight that matters (economic dominance) China is a real contender and they contend. The move for China to embrace bitcoin as legitimate can only be viewed as a direct shot at the the US. The notion that China would embrace a pseudo-anonymous currency it cannot control because it thinks it is a good idea is absurd. China loves the idea that maybe there is a financial instrument that will undermine US dollar dominance as a reserve currency and they can get in on the ground floor and take a large stake. Now when being attacked, when self preservation is at stake, US representatives actually take notice and start acting like maybe they are not paid to create laws for the short term benefit of large private donors.
Language about bitcoin in the Senate hearing did a full 180 including some Senators recanting things they had previously said with the tried and true "I never said that, you just misunderstood what I was saying." It was a great moment for bitcoin and was brought about by competing markets. Some part of me marvels at the timing of the China stance and the Senate hearing. I do not believe it to be coincidental but I am not ready to put in an opinion on what it might mean.
Wednesday, November 20, 2013
Bitcoin, the Euro that actually makes sense.
I would like to thank reddit user BCLaraby for pushing me down this train of thought and crystallizing these ideas with his post (http://www.reddit.com/r/Bitcoin/comments/1r20ts). He claims that Bitcoin is truly the first world currency. It is a currency that absolutely anyone can participate in and nothing in the bitcoin protocol can keep others out. In a way it is the grown up version of Euro experiment and the way bitcoin is set up it should be obvious why bitcoin is leagues better than the Euro at the very thing the Euro was designed to do. I will attempt to explain.
The Euro was put in place to grease the wheels of commerce. It is a single currency that could cross sovereign borders and would be accepted everywhere. It removed the clog of currency conversion which was either placed on the visitor (waste of time and additional expense) or the retailer (stockpile, risk, clearinghouse, additional expense) and these effects were only magnified in large commerce. Suddenly the European countries worked a little more like the United States where you were technically crossing governing borders, but the people and commerce became much more homogenized. Where the Euro idea breaks down and why it works in the United States is that unlike countries in Europe, states are not sovereign.
Sovereign nations are allowed to make unilateral decisions and typically what keeps them in check from making really bad decisions is the fact that they are held culpable for the decisions that they make. This is true in monetary policy. If a government borrows more than they can pay back or fractional reserve banking and government policy creates states of hyperinflation then the nation has to deal with their destroyed currency. But when that currency is the same as the currency of your sovereign neighbors, you will drag them down with your problems. Being a sovereign nation the other countries cannot tell you what to do. You can declare bankruptcy, but your status still hurts your neighbors in very meaningful ways. It is in their best interest to help you out and you have learned that you can be irresponsible and in the end get away with it. Whether they are helped or not, irresponsible nations will destroy the Euro. One way to get around this is to violate and remove the sovereignty of troubled nations stating that they can't be trusted so you must be allowed to govern them. You can effectively use the monetary system to conquer your neighbors. Some people believe this was the intent of the Euro all along.
Bitcoin allows all nations to participate in a global currency without risking their own sovereignty. The system is simple enough to be self governing and the governing body (the miners) are distributed without regulation as to who can participate. Because there is no method to expand money supply you can't use the tried and true "create more" method to destroy money value. Because the entire process is opt in you can simply state what you are willing to trade it for or trade for it. Markets will be less prone to manipulation because there isn't anything convoluted or hidden to manipulate. Complicated instruments based on bitcoin will undoubtedly be made, but they will be exterior to the bitcoin protocol. And finally, bitcoin will not replace any other currency. I have never believed that a country would switch to just use bitcoin. It facilitates transactions and can be (relatively) universally accepted, but fiat currencies should still be used for local business and credit markets. This is decidedly unlike the Euro that usurped local currencies and made them go away.
Bitcoin can serve to grease the wheels of commerce by being a universally accepted "reserve" currency that anyone down to individuals can participate in without exposing participants to the risks of irresponsible neighbor behavior.
The Euro was put in place to grease the wheels of commerce. It is a single currency that could cross sovereign borders and would be accepted everywhere. It removed the clog of currency conversion which was either placed on the visitor (waste of time and additional expense) or the retailer (stockpile, risk, clearinghouse, additional expense) and these effects were only magnified in large commerce. Suddenly the European countries worked a little more like the United States where you were technically crossing governing borders, but the people and commerce became much more homogenized. Where the Euro idea breaks down and why it works in the United States is that unlike countries in Europe, states are not sovereign.
Sovereign nations are allowed to make unilateral decisions and typically what keeps them in check from making really bad decisions is the fact that they are held culpable for the decisions that they make. This is true in monetary policy. If a government borrows more than they can pay back or fractional reserve banking and government policy creates states of hyperinflation then the nation has to deal with their destroyed currency. But when that currency is the same as the currency of your sovereign neighbors, you will drag them down with your problems. Being a sovereign nation the other countries cannot tell you what to do. You can declare bankruptcy, but your status still hurts your neighbors in very meaningful ways. It is in their best interest to help you out and you have learned that you can be irresponsible and in the end get away with it. Whether they are helped or not, irresponsible nations will destroy the Euro. One way to get around this is to violate and remove the sovereignty of troubled nations stating that they can't be trusted so you must be allowed to govern them. You can effectively use the monetary system to conquer your neighbors. Some people believe this was the intent of the Euro all along.
Bitcoin allows all nations to participate in a global currency without risking their own sovereignty. The system is simple enough to be self governing and the governing body (the miners) are distributed without regulation as to who can participate. Because there is no method to expand money supply you can't use the tried and true "create more" method to destroy money value. Because the entire process is opt in you can simply state what you are willing to trade it for or trade for it. Markets will be less prone to manipulation because there isn't anything convoluted or hidden to manipulate. Complicated instruments based on bitcoin will undoubtedly be made, but they will be exterior to the bitcoin protocol. And finally, bitcoin will not replace any other currency. I have never believed that a country would switch to just use bitcoin. It facilitates transactions and can be (relatively) universally accepted, but fiat currencies should still be used for local business and credit markets. This is decidedly unlike the Euro that usurped local currencies and made them go away.
Bitcoin can serve to grease the wheels of commerce by being a universally accepted "reserve" currency that anyone down to individuals can participate in without exposing participants to the risks of irresponsible neighbor behavior.
Tuesday, November 19, 2013
Finally, some energy taken out of the market
Lately the bitcoin market has housed a palpable energy and exuberance that, to me, felt dangerous. People have been panic buying and driving the price up. The panic was a physical presence and was fundamentally flawed. The last time this occurred in the bitcoin market was in April and the cold dose of "wake the hell up" came in the form of technological market manipulation carried out on MtGox. The ensuing crash was an over correction and the market took a while to stabilize again. The danger that I have been feeling with this market is that someone would again pull a manipulation and send people into a state of panic selling. Fortunately the energy seems to have been released in a more stable way. There was a final state of euphoria as the Senate hearing on crypto-currencies showed that the US was going to be shining a favorable light on bitcoin. The regular market timers saw this as their cue to take profits from the new comers and many probably bought back in during the crash effectively stabilizing the price.
It should be noted that this "easy landing" saw a high of $900 and a low of $500 in the span of a few hours. This is the world of bitcoin where a 45% correction is considered a normal boat rocking and not a capsizing.
Also to be noted is that amidst all this chaos, Bitstamp suffered closure from what was probably a DDoS attack. No doubt the work of some opportunists but I doubt it really paid off for them like the April attack of MtGox did for the previous attackers. Between April and November, we have seen an incredible diversification and maturity in the bitcoin community and this market reaction appears to be the proof.
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