Being an evangelist I make it a point to mention that I work with Bitcoin when getting to know anyone. Most people have heard of it now and most people still know next to nothing about it. I will typically get the question, "So, should I get some bitcoin?" And for some reason I always seem to answer "Yeah, not sure about that." Why? Why do I do this? Some evangelist I am. Here is a reflection of my own failings in this arena.
Bitcoin is too expensive. This was my personal bias merging in with my general advice. A bitcoin was $1100 at the time. I was not willing to buy bitcoin at that time so why should I tell other people that they should? I think the argument is valid but I need to back it up with my reasoning on the individual situation. I tend to assess situations, give a recommendation, and not give people background data so they can make their own decision. I need to work on that.
You are not ready for Bitcoin. Part of my assessment of an individual is whether I feel they can start up a client, encrypt their wallet, and backup their wallet in alternative locations. Really the barrier right now is "are you capable of being your own bank." That kind of responsibility is just too damn high, especially if they have to figure out how these things are accomplished and not just perform the tasks. The last thing I want to do is recommend people get bitcoin just to have them go and lose their wallet.
No, you cannot have my bitcoin. If setting up a scheme to protect your local wallet isn't hard enough, try explaining the hoops people have to go through to get bitcoin. If you wanted bitcoin bad enough you would already have found out how to get them on your own. Anything I would tell you would just confirm your bias that it is too hard to get your hands on bitcoin and you will give up before you try. The simplest way for them to get bitcoin is to purchase them from me directly. I may be an evangelist but I am not going to be sucked dry of my bitcoin just to proclaim the good news of Bitcoin. Afterall, bitcoin is difficult to acquire with all the hoops you have to jump through, even for me. And yes getting sucked dry would happen. I have found that the hardest part of selling bitcoin is telling people that you have no more to sell them. It is like a spigot connected to suction. You want to let a little out but staunching the flow becomes a chore.
In short, I want to be a better evangelist. What I should be telling people is, "Of course, I think everyone should own bitcoin. It is still not an easy thing and you will have to work to get it, but it is rewarding."
Tuesday, December 17, 2013
Thursday, December 12, 2013
My thoughts on Casascius in trouble
According to the website casascius.com and a followup report by Wired the company (Casascius) was contacted by FinCen with language that made them take a step back and turn off operations for the time being. Right now it is hard to separate speculation from actual news but I thought I would weigh in on what I have heard.
For those that don't know Casascius, they are the 800 pound gorilla in the physical bitcoin market. They produce metal coins that are hollow in the center and cardstock with a secret key printed on it is placed into this space. The hollow space with the printed key is then covered with a tamper evident sticker. The result is a fancy cold storage wallet that you can give to someone else with confidence that the secret key was not accessed. The public key (actually firstbits of the public key) are printed on the coin so that you can verify the balance of the coin. I have some Casascius coin and I would definitely recommend them for people who like collectibles and want to introduce Bitcoin to new comers in a way that they will understand.
FinCen is the enforcement branch of the US treasury. They deal with money laundering and other financial crimes. Where factual reports of this case and speculation seem to blur is what exactly FinCen had a problem with regarding Casascius. The consensus opinion seems to be that the business process Casascius uses can lend itself to money laundering so it needed to register itself with FinCen as a money transmitter and verify and keep records of its customers. Here are the specifics to how that works. When you order a 1 bitcoin coin from Casascius you pay Casascius 1.25 bitcoin (this is not the current rate, just an example). You pay .05 BTC for shipping and .2 BTC for the markup and when you get your coin in the mail Casascius will send 1 BTC to the address of the coin. The problem is that Casascius is collecting bitcoin from orders from all over the place and the 1 BTC that is going on the coin is not necessarily part of the 1.25 BTC you originally sent. There is nothing wrong with that, it is just that FinCen wants you to be registered and follow their rules and regulations for your customers if you are doing that.
If, on the other hand, Casascius was charging .25 BTC for the coin as a blank and telling the recipient that it was up to them to charge the coin then Casascius is not transmitting money. They are just taking payment for a product. Whatever happens, I am very interested to see how this all pans out.
Wednesday, December 11, 2013
Not many thoughts
I was busy moving over the weekend and got a cold on top of that. Most of my thought regarding Bitcoin are on two different projects I am running through to see if I would like to bring either of them to light. If either go anywhere I will certainly be announcing them here as well as other places.
Friday, December 6, 2013
Personal outlook on deflationary currency
A big argument against deflationary currency is that people will horde it and not spend it because it will be worth more tomorrow and spending means they lose out. A great counter argument is that people will start to value durable products over disposable products which would be good for society, but I wanted to counter the idea of hoarding versus spending with inflationary currency head on.
I am saving for retirement. I am a natural saver, I am frugal and disciplined, and I am barely doing good enough although compared to my peers I am a superstar. People like to put thing into perspective in terms of today's money. I need to save $1.5 million to retire how I would like to. If they are retiring in 30-40 years what they will find out is they really need $4 million to retire how they are imagining because of the erosion of the value of their dollar. At current rates I am not going to meet that inflated goal which means that I have to save more. That's right, inflating currency means I cannot spend if I want a reasonable self reliant retirement. If you want to keep up with inflation you have to put your nest egg at risk in investments.
Now if I have a deflationary currency I start feeling richer as my currency buys more. It is pretty well known that the way to get people to shop is to make them feel richer. They don't have to be richer, they only have to feel it. This is was a major source of fallout in the sub-prime market. A lot of people were getting cheap money and felt richer without actually being richer. When that reversed, people stopped buying things even though inflation was still present.
Another argument I would like to address is that with a deflationary currency you don't risk it by investing in the future. I would address this by saying this one has me stumped. If I put myself in the mindset of having a deflationary currency I really don't want to invest. Holding the currency is investment enough. I am not sure that I see a way around this one and I think it is a real problem. It would be great if someone could explain this one to me because I believe in the power of crowd funding innovation and unseating the stodgy old dogs of yesterday.
I am saving for retirement. I am a natural saver, I am frugal and disciplined, and I am barely doing good enough although compared to my peers I am a superstar. People like to put thing into perspective in terms of today's money. I need to save $1.5 million to retire how I would like to. If they are retiring in 30-40 years what they will find out is they really need $4 million to retire how they are imagining because of the erosion of the value of their dollar. At current rates I am not going to meet that inflated goal which means that I have to save more. That's right, inflating currency means I cannot spend if I want a reasonable self reliant retirement. If you want to keep up with inflation you have to put your nest egg at risk in investments.
Now if I have a deflationary currency I start feeling richer as my currency buys more. It is pretty well known that the way to get people to shop is to make them feel richer. They don't have to be richer, they only have to feel it. This is was a major source of fallout in the sub-prime market. A lot of people were getting cheap money and felt richer without actually being richer. When that reversed, people stopped buying things even though inflation was still present.
Another argument I would like to address is that with a deflationary currency you don't risk it by investing in the future. I would address this by saying this one has me stumped. If I put myself in the mindset of having a deflationary currency I really don't want to invest. Holding the currency is investment enough. I am not sure that I see a way around this one and I think it is a real problem. It would be great if someone could explain this one to me because I believe in the power of crowd funding innovation and unseating the stodgy old dogs of yesterday.
Tuesday, December 3, 2013
PSA: Your bitcoin does not exist in your wallet
It is a commonly repeated falsehood that your bitcoin wallet contains your bitcoin. It does not and making the correct distinction is very important for people to grok if they want to keep their bitcoin safe.
Your bitcoin, my bitcoin, everyone's bitcoin exists on the blockchain. That is it, end of story. You don't have bitcoin in your wallet file. What you have in your wallet file is the key to access the bitcoin at a specific address. I have heard it described like this. The user facing portion of the blockchain is like a post office with a bunch of P.O. boxes. The backend of the blockchain is a system of automated servitors that can put transactions into any of these P.O. boxes. As I stated in a previous post, bitcoin is a unit of measure and these transactions are measured in bitcoin. You enter this post office with your key that will only fit one P.O. box. If that box (bitcoin address) contains transactions, you can take these transactions from your box and command the backend automated servitor to put the transaction into any P.O. box you want. In truth all of this is done in one step. You create a transaction that is signed with your secret key and it is the job of the network to verify that your transaction is legitimate but for purposes of metaphor I am breaking it up into the things that are going on.
The reason that this distinction is important for people wanting to keep their bitcoin secure is that there are ways to attack their bitcoin addresses that have nothing to do with gaining access to their system. The most common mistake is in the use of Brain Wallets. A Brain Wallet is a way to derive a Bitcoin secret key from an easier to remember phrase. SHA256 hash your phrase to generate a 256-bit number which is your key. Now if the concept of having bitcoin in your wallet is true then once you get your bitcoin into your wallet everything would be safe as long as you protect your wallet. But we know that is not true. Bitcoin is stored on the blockchain. What happens is that attackers know that other people are using Brain Wallets and they use sophisticated programs to try words, phrases, and permutations to see if any of them yield bitcoin when hashed into a 256-bit number. This attack is done locally on their machine against the local copy of the blockchain (because every full client has a full copy of the blockchain). Because it is all done locally, they can attack this word space as fast as their computers will let them which turns out to be billions of attacks per second. If they stumble upon the same Brain Wallet you have set up, they have the key to your P.O. box. They don't need access to your computer, it does not matter if your wallet is encrypted.
This attack does not work against raw random Bitcoin secret keys because the full space of 256-bit numbers is so large. The fastest cluster of computers would be working for millions of years before they would have hope of stumbling across the first address that actually contained bitcoin. So my message above does not mean Bitcoin is unsafe, just keys that are derived from the smaller space of memorable phrases.
Your bitcoin, my bitcoin, everyone's bitcoin exists on the blockchain. That is it, end of story. You don't have bitcoin in your wallet file. What you have in your wallet file is the key to access the bitcoin at a specific address. I have heard it described like this. The user facing portion of the blockchain is like a post office with a bunch of P.O. boxes. The backend of the blockchain is a system of automated servitors that can put transactions into any of these P.O. boxes. As I stated in a previous post, bitcoin is a unit of measure and these transactions are measured in bitcoin. You enter this post office with your key that will only fit one P.O. box. If that box (bitcoin address) contains transactions, you can take these transactions from your box and command the backend automated servitor to put the transaction into any P.O. box you want. In truth all of this is done in one step. You create a transaction that is signed with your secret key and it is the job of the network to verify that your transaction is legitimate but for purposes of metaphor I am breaking it up into the things that are going on.
The reason that this distinction is important for people wanting to keep their bitcoin secure is that there are ways to attack their bitcoin addresses that have nothing to do with gaining access to their system. The most common mistake is in the use of Brain Wallets. A Brain Wallet is a way to derive a Bitcoin secret key from an easier to remember phrase. SHA256 hash your phrase to generate a 256-bit number which is your key. Now if the concept of having bitcoin in your wallet is true then once you get your bitcoin into your wallet everything would be safe as long as you protect your wallet. But we know that is not true. Bitcoin is stored on the blockchain. What happens is that attackers know that other people are using Brain Wallets and they use sophisticated programs to try words, phrases, and permutations to see if any of them yield bitcoin when hashed into a 256-bit number. This attack is done locally on their machine against the local copy of the blockchain (because every full client has a full copy of the blockchain). Because it is all done locally, they can attack this word space as fast as their computers will let them which turns out to be billions of attacks per second. If they stumble upon the same Brain Wallet you have set up, they have the key to your P.O. box. They don't need access to your computer, it does not matter if your wallet is encrypted.
This attack does not work against raw random Bitcoin secret keys because the full space of 256-bit numbers is so large. The fastest cluster of computers would be working for millions of years before they would have hope of stumbling across the first address that actually contained bitcoin. So my message above does not mean Bitcoin is unsafe, just keys that are derived from the smaller space of memorable phrases.
Monday, December 2, 2013
Erik Voorhees is my hero
I am going to take a break from my usual subpar writing and just post a link to an open letter from Erik Voorhees to Peter Schiff:
http://www.reddit.com/r/Bitcoin/comments/1rxmk3/my_open_letter_to_peter_schiff_followup_from_the/
I one day hope to meet Erik. He is inspirational in his eloquence and patience in the field of Bitcoin apologetics. Digging into SatoshiDice was mind altering. All I have to watch for now is my own bias clouding my judgement when Erik gets something wrong.
http://www.reddit.com/r/Bitcoin/comments/1rxmk3/my_open_letter_to_peter_schiff_followup_from_the/
I one day hope to meet Erik. He is inspirational in his eloquence and patience in the field of Bitcoin apologetics. Digging into SatoshiDice was mind altering. All I have to watch for now is my own bias clouding my judgement when Erik gets something wrong.
Sunday, December 1, 2013
Ponzi, Pyramid, and Tulip oh my!
There are three things that someone can say about Bitcoin that gives you license to no longer listen to them when they are talking about Bitcoin. Without further adieu they are:
Bitcoin is a Ponzi scheme: This can be translated into "I don't know anything about Bitcoin, and/or I have no idea what a Ponzi scheme is." Peter Schiff was using this one (actually he used all three) and the interviewer had to stop and ask Peter if he knew what a Ponzi scheme even was. A short description is that someone sets up an opaque investment claiming that they deliver a guaranteed return. When people who were suckered in at the beginning attempt to divest themselves, the Ponzi operator pays them out with money that later suckers are contributing. Paying out to early investors amplifies the trust in the scheme operator and more suckers join in. The keys to refuting Bitcoin as a Ponzi scheme are that it does not meet any of the strict criteria of a Ponzi scheme. Ponzi operations are opaque where Bitcoin is about as transparent as value trading has ever been. Ponzi operations are centrally organized where Bitcoin is distributed. Ponzi schemes to not have second and third runs. When they collapse and unwind the fund is gone. Bitcoin price has gone through several "busts" and then it rebounds.
Bitcoin is a Pyramid scheme: This can be translated as "I have no idea what a pyramid scheme is. Dear God, what is Bitcoin." Again, a simple description of a pyramid scheme should be all that is needed to show why Bitcoin is not one. A pyramid scheme involves a single party recruiting friends and family to get involved and to recruit their friends and family and then sending a percentage of the involvement up the chain to the top. The idea is that the real work is recruiting and the scheme will last until there isn't another sucker to be found by the lowest tier. Bitcoin, however, is a free market. While the people first involved can and will benefit more than those late to the game, it is no different than an early investor in a company. It would seem that Bitcoin evangelists are just trying to find the next sucker to bolster the value of their stash. A true Bitcoin evangelist does not encourage speculation for speculations sake. They will talk about the value of Bitcoin as a tool in hopes that you will also see value in using it.
Bitcoin is the next Tulip Mania: This comparison is simultaneously the most absurd and the most relevant. It is absurd because most people are not talking about the actual happenings of the tulip price bubble, but what they in their modern 21st century ivory tower of knowledge consider to be a good example of people acting stupidly. Where it turns relevant is when you look at the actual story. Pulling tulips out of their 17th century context means not understanding how rare and prized they were and how difficult it was to get viable progeny. It was one of the first examples of the use of a speculative futures market and people who were not interested in acquiring tulips were purchasing tulips. This is relevant with Bitcoin because people are acquiring with no intention to use it. It seems beyond a reasonable doubt that speculation has a great deal to do with the current price of bitcoin. That is really where the comparison should end though. It is difficult to assess how it parallels tulips because 1) there is no futures market for bitcoin, you can really only directly acquire it and 2) even if there was a futures market, transferring and acquiring bitcoin is far easier than tulips so the futures market magnifier would be much smaller or that magnifier is already built in. There is also an issue of comparing the desirability of a tulip with the utility of a bitcoin especially when said utility would dampen the need for a futures market. While tulips may have been nice to have and would have been seen as a show of personal success, bitcoin should last a lot longer if it can prove to be a better way to get things done. There is always value in utility.
Bitcoin is a Ponzi scheme: This can be translated into "I don't know anything about Bitcoin, and/or I have no idea what a Ponzi scheme is." Peter Schiff was using this one (actually he used all three) and the interviewer had to stop and ask Peter if he knew what a Ponzi scheme even was. A short description is that someone sets up an opaque investment claiming that they deliver a guaranteed return. When people who were suckered in at the beginning attempt to divest themselves, the Ponzi operator pays them out with money that later suckers are contributing. Paying out to early investors amplifies the trust in the scheme operator and more suckers join in. The keys to refuting Bitcoin as a Ponzi scheme are that it does not meet any of the strict criteria of a Ponzi scheme. Ponzi operations are opaque where Bitcoin is about as transparent as value trading has ever been. Ponzi operations are centrally organized where Bitcoin is distributed. Ponzi schemes to not have second and third runs. When they collapse and unwind the fund is gone. Bitcoin price has gone through several "busts" and then it rebounds.
Bitcoin is a Pyramid scheme: This can be translated as "I have no idea what a pyramid scheme is. Dear God, what is Bitcoin." Again, a simple description of a pyramid scheme should be all that is needed to show why Bitcoin is not one. A pyramid scheme involves a single party recruiting friends and family to get involved and to recruit their friends and family and then sending a percentage of the involvement up the chain to the top. The idea is that the real work is recruiting and the scheme will last until there isn't another sucker to be found by the lowest tier. Bitcoin, however, is a free market. While the people first involved can and will benefit more than those late to the game, it is no different than an early investor in a company. It would seem that Bitcoin evangelists are just trying to find the next sucker to bolster the value of their stash. A true Bitcoin evangelist does not encourage speculation for speculations sake. They will talk about the value of Bitcoin as a tool in hopes that you will also see value in using it.
Bitcoin is the next Tulip Mania: This comparison is simultaneously the most absurd and the most relevant. It is absurd because most people are not talking about the actual happenings of the tulip price bubble, but what they in their modern 21st century ivory tower of knowledge consider to be a good example of people acting stupidly. Where it turns relevant is when you look at the actual story. Pulling tulips out of their 17th century context means not understanding how rare and prized they were and how difficult it was to get viable progeny. It was one of the first examples of the use of a speculative futures market and people who were not interested in acquiring tulips were purchasing tulips. This is relevant with Bitcoin because people are acquiring with no intention to use it. It seems beyond a reasonable doubt that speculation has a great deal to do with the current price of bitcoin. That is really where the comparison should end though. It is difficult to assess how it parallels tulips because 1) there is no futures market for bitcoin, you can really only directly acquire it and 2) even if there was a futures market, transferring and acquiring bitcoin is far easier than tulips so the futures market magnifier would be much smaller or that magnifier is already built in. There is also an issue of comparing the desirability of a tulip with the utility of a bitcoin especially when said utility would dampen the need for a futures market. While tulips may have been nice to have and would have been seen as a show of personal success, bitcoin should last a lot longer if it can prove to be a better way to get things done. There is always value in utility.
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