bitcoin bust; bitcoin etf

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bitcoin bust; bitcoin etf

Post by nisiprius »

"The U.S. Drug Enforcement Administration recently posted a forfeiture notice indicating that agents had seized 11.02 Bitcoins worth $814 from 31-year-old Eric Daniel Hughes for allegedly violating the federal Controlled Substances Act"--Charleston Post-Courier, some weird free-subscription thing and I will clean out my cookies after reading it... So much for the idea that bitcoins are beyond the reach of the authorities.

Winklevoss Twins Plan First Fund for Bitcoins; which "would allow any investor to trade bitcoins, just as if they were stocks. The plan involves an exchange-traded fund, which usually tracks a basket of stocks or a commodity, but in this case would hold only bitcoins.... part of a broader effort to remove the stigma hovering over bitcoins."

This has set some part of the world abuzz, and searching Google News for "bitcoin ETF" will bring up dozens of articles about it, mostly ridicule and mockery.

One Seeking Alpha poster thinks it's a way to corner the bitcoin market, a la the robber barons like Jay Gould, and, certainly, the creating of a fresh and as-yet-unregulated financial product creates fresh opportunities to perpetrate old scams that are muted by regulation in the old markets. Some think there is no possibility at all that the SEC will approve it, in which case it's not clear to me what their motivation would be other than simple publicity-seeking....

I have no intention of investing in bitcoins, or of buying any until the time comes when there's something I wish to buy that is most conveniently purchased that way, but certainly they are a such a conspicuous financial innovation that one needs to "take action" in the sense of actively deciding to give them a wide berth. And I do think that some of the hostility to them from the mainstream financial community is because they are a financial innovation they didn't think of themselves. Don't you dare fleece my lambs!
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Re: bitcoin bust; bitcoin etf

Post by bottomfisher »

I recently read this article written by a journalist running a trial on a Bitcoin mining hardware device:

http://arstechnica.com/gadgets/2013/06/ ... -bitcoins/

I don't know much about Bitcoins so it was an interesting introduction to this currency. He made $700 by just plugging it in, troubleshooting and "mining bitcoins." At the end of reading the article, I couldn't help but think how is this not some version of Ponzi like scheme?
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Re: bitcoin bust; bitcoin etf

Post by GeneParmesan »

bottomfisher wrote:I recently read this article written by a journalist running a trial on a Bitcoin mining hardware device:

http://arstechnica.com/gadgets/2013/06/ ... -bitcoins/

I don't know much about Bitcoins so it was an interesting introduction to this currency. He made $700 by just plugging it in, troubleshooting and "mining bitcoins." At the end of reading the article, I couldn't help but think how is this not some version of Ponzi like scheme?
These little ASIC machines are totally a Ponzi scheme, or at least something like it. There's an adjustable difficulty factor that controls how much "work" you have to do in order to get a bitcoin. As more and more people start doing "work" (running hashes), the difficulty increases, and you get fewer bitcoins from the same work equipment. These ASICs drastically change the cost of work; as soon as they are widely available, the difficulty factor will change to account for all the extra work being done, and they will stop being so profitable. The reason this person made $700 is because they were given early access. Once everybody has access to the some technology, it becomes a game of who has the cheapest energy to feed to the technology, as that becomes the most variable part.

The only way to really make mining profitable are to (1) be the first with a huge technology advancement, (2) operate at a big scale with access to cheap energy, (3) operate at a truly massive scale, control >50% of the hashing power on the network, and completely compromise the security of the entire network.

The bitcoin world is now big enough that unless you are the one inventing the technology in (1) or their personal best friend, you almost certainly won't be able to take advantage of the new technology. I'm surprised that these early ASIC companies haven't thought larger and tried to make big plays by holding on to all their ASICs and manipulating the difficulty factor. They are building the shovels used in a gold rush; however the shovels don't really need a human to operate them, so why are they selling them? Presumably to exchange one type of risk for another, but still, it's a bit suspicious.

Otherwise, bitcoins as an investment are at best a currency, which is definitely not a Boglehead style investment, is it? And on top of it, it's a currency with an enormous amount of volatility, that is currently widely used for blackmarket activities, and whose exchange with governmental currencies can be regulated out of existence at the drop of a hat. A huge huge risk, and at this point the only money to be made on bitcoin as bitcoins (as opposed to another business that just happens to use bitcoins as currency) is by being a bank or some other mover and shaker in the field.
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Re: bitcoin bust; bitcoin etf

Post by Jay69 »

I admit I would buy $100 of shares so I can talk big at the water cooler :wink:

I would be interesting to watch and see what happens 40 years from now.
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Re: bitcoin bust; bitcoin etf

Post by chaz »

Where do bitcoins come from? What gives them value?
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Re: bitcoin bust; bitcoin etf

Post by Sidney »

BITCOIN ETF = FICTION BET
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Re: bitcoin bust; bitcoin etf

Post by nisiprius »

Sidney wrote:BITCOIN ETF = FICTION BET
Beautiful!
chaz wrote:Where do bitcoins come from? What gives them value?
Where do songs come from? What gives them value?
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Re: bitcoin bust; bitcoin etf

Post by chaz »

nisiprius wrote:
Sidney wrote:BITCOIN ETF = FICTION BET
Beautiful!
chaz wrote:Where do bitcoins come from? What gives them value?
Where do songs come from? What gives them value?
Are Cameron and Tyler Winklevoss idiots?
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Re: bitcoin bust; bitcoin etf

Post by MindBogler »

In theory they have value because the supply is finite. The supply is currently growing asymptotically towards a larger, yet still finite supply.
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Re: bitcoin bust; bitcoin etf

Post by nisiprius »

Mindbogler, do you happen to know offhand why on earth Satoshi Nakamoto designed it to have a fixed, finite, supply (21 million) as opposed to, say, allowing it to grow at 4%/year (current rate of world GDP growth)?
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Re: bitcoin bust; bitcoin etf

Post by MindBogler »

I do not know for certain. Speculatively, I think it may have been modeled after gold. There are a number of analogies like mining for currency, after all.
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Re: bitcoin bust; bitcoin etf

Post by z3r0c00l »

I have to admit a bitcoin ETF is a pretty brilliant idea, if 6 months too late.

Synically speaking, lots of money to be made in selling such a product, both for the high management fees involved, and for those who already own bitcoins and need to find the next greater fool, so to speak. Such an ETF, if it took off the way the gold ETF bubble has, could save bitcoin. Or at least delay the collapse.
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Re: bitcoin bust; bitcoin etf

Post by rnitz »

nisiprius wrote:Mindbogler, do you happen to know offhand why on earth Satoshi Nakamoto designed it to have a fixed, finite, supply (21 million) as opposed to, say, allowing it to grow at 4%/year (current rate of world GDP growth)?
I've also been curious of this. Fascinating idea and implementation (although I'd never invest in it with a 10 foot pole). But as a friction-less medium of exchange it's brilliant. The problem is that for something on the order of the US economy there's about a trillion dollars of real currency. So if Bitcoin ever really took off and rivaled the dollar, with only 21 million Bitcoins in existence they might end up having a value of something on the order of $ 50,000 each. I know there are a lot of decimal points defined in the software, but buying gum for .00001 Bitcoins seems kind of ridiculous. (unlike the general thought of buying gum with Bitcoins.... ???? :) )
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Re: bitcoin bust; bitcoin etf

Post by z3r0c00l »

At that point they can change the name to Berkshire Hathaway Coins.
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Re: bitcoin bust; bitcoin etf

Post by Ketawa »

Bitcoins actually have 10^-8 accuracy, and at that point a bitcoin is called a satoshi. There are 100 million satoshis in a bitcoin.

People could just start quoting prices in satoshis instead of bitcoins. A bitcoin would have to be worth $1,000,000 for one cent USD to be one satoshi.
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Re: bitcoin bust; bitcoin etf

Post by HenryPorter »

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Re: bitcoin bust; bitcoin etf

Post by linenfort »

Jay69 wrote:I admit I would buy $100 of shares so I can talk big at the water cooler :wink:

I would be interesting to watch and see what happens 40 years from now.
I'll wake you in 40, Rip Van Winklevoss. ;-)
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Re: bitcoin bust; bitcoin etf

Post by ogd »

Felix salmon on the bitcoins ETF: Financial innovation of the day, Winklevii edition .

Executive summary: hold your bitcoins yourself if you must (it's a bad idea anyway) and besides, the SEC will never approve this.
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Re: bitcoin bust; bitcoin etf

Post by mcblum »

the whole thing sounds kind of tulippy tome.....
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Re: bitcoin bust; bitcoin etf

Post by brett_harris »

So it is my understanding that there are only a handful of places on the internet that you can exchange your bitcoins for actual currency. It is only going to take a couple of more incidents of people purchasing narcotics for the Feds to step in and shut these places down and the market for bitcoins drop out of existence. It's my opinion that we'll see bitcoins disappear (maybe a few years down the line) and then a revised "better" replacement comes along and serves this function better.
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Re: bitcoin bust; bitcoin etf

Post by stratton »

I prefer gold-pressed latinum.

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Re: bitcoin bust; bitcoin etf

Post by z3r0c00l »

brett_harris wrote: It's my opinion that we'll see bitcoins disappear (maybe a few years down the line) and then a revised "better" replacement comes along and serves this function better.
Paypal could do it no problem if they wanted to. I guess the question is why? Electronically sending dollars works well enough.
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Re: bitcoin bust; bitcoin etf

Post by brett_harris »

z3r0c00l wrote:
brett_harris wrote: It's my opinion that we'll see bitcoins disappear (maybe a few years down the line) and then a revised "better" replacement comes along and serves this function better.
Paypal could do it no problem if they wanted to. I guess the question is why? Electronically sending dollars works well enough.
I couldn't even begin to answer that...I think maybe its because it is a nonregulated currency and is anonymous?
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Re: bitcoin bust; bitcoin etf

Post by ryuns »

chaz wrote: Are Cameron and Tyler Winklevoss idiots?
Like a fox. They have just enough star power (thanks, David Fincher!) to do something like this to keep their name in the news. If they sporadically come up with even poor ideas to give themselves exposure, they'll surely eventually stumble upon a less-than-terrible idea to make themselves more money. Plus, I'd bet they have plenty of hours in the day. I mean, a man can't live on rowing and good genetics alone.
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Re: bitcoin bust; bitcoin etf

Post by SSSS »

I have an strong interest in Bitcoin (as a currency, not an investment), but I'm really skeptical about how an ETF would work. Converting USD to BTC or vice versa requires dealing with an exchange. The exchanges are mostly small, unregulated businesses operating in a wide variety of foreign countries. The US government is very hostile to exchanges that have any sort of US presence (even just having a US bank account to service US customers better), and other national governments have similar hostility. Most exchanges have had at least once hacking incident resulting in BTC loss. Exchange operators are often anonymous, and some have simply closed down and disappeared, keeping all BTC and USD on deposit there.

Maybe they're planning on running their own exchange? I'd welcome a more secure, credible exchange but the US government probably wouldn't.

I'm also wondering how they'll secure their wallet files, considering the trouble other exchanges have had.
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Re: bitcoin bust; bitcoin etf

Post by 3CT_Paddler »

nisiprius wrote:Mindbogler, do you happen to know offhand why on earth Satoshi Nakamoto designed it to have a fixed, finite, supply (21 million) as opposed to, say, allowing it to grow at 4%/year (current rate of world GDP growth)?
To create buzz and the incentive for early adopters to jump in. There are Bitcoin alternatives that follow that low inflationary model, but surprise, surprise they don't catch on quite the same.

If you want some entertainment, peruse the bitcoin forums. Its as if the Ron Paul nation has been transported back to 1630's Holland... :)
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Re: bitcoin bust; bitcoin etf

Post by nisiprius »

bitcoins are an exclusive limited edition. Each one is stamped with its individual serial number. Not just a unit of exchange, these are masterworks of art, personally designed by the beloved Thomas Koolaid, Pointer of Nulls®. You will be amazed at their rich artistry and sculptural detail. But when they are gone, they are gone. No more will ever be made. So act now, supplies are limited. Operators are standing by. Call within 20 minutes and get absolutely free this lovely polished blockchain on which to hang, store, and display your bitcoins.
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Re: bitcoin bust; bitcoin etf

Post by momar »

MindBogler wrote:In theory they have value because the supply is finite. The supply is currently growing asymptotically towards a larger, yet still finite supply.
That is a horrible theory. Just because something isn't infinite doesn't mean it has value. I can only type a finite number of words before I die, but no one is paying me for this sentence. It's more likely people would pay me to not write it.
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Re: bitcoin bust; bitcoin etf

Post by hazlitt777 »

MindBogler wrote:In theory they have value because the supply is finite. The supply is currently growing asymptotically towards a larger, yet still finite supply.
Is there some contractual agreement with those who purchase them that the supply will only grow at that rate? Will it be enforced in the courts? It just seems to open to fraud.
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Re: bitcoin bust; bitcoin etf

Post by Epsilon Delta »

hazlitt777 wrote:
MindBogler wrote:In theory they have value because the supply is finite. The supply is currently growing asymptotically towards a larger, yet still finite supply.
Is there some contractual agreement with those who purchase them that the supply will only grow at that rate? Will it be enforced in the courts? It just seems to open to fraud.
It's supposed to be enforced by the mathematics. If the math works as described you need to control half the computing power of the bit coin community to commit fraud, so the math enforces a sort of general consensus, there is no central authority nor is there a need for one.
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Re: bitcoin bust; bitcoin etf

Post by MindBogler »

momar wrote:
MindBogler wrote:In theory they have value because the supply is finite. The supply is currently growing asymptotically towards a larger, yet still finite supply.
That is a horrible theory. Just because something isn't infinite doesn't mean it has value. I can only type a finite number of words before I die, but no one is paying me for this sentence. It's more likely people would pay me to not write it.
The second half of that theory involves someone believing the supply had value. Using your example, someone would have to perceive value in your writing before the supply of said writing would be considered valuable. Works of art by famous painters are a perfect example. This is all supply and demand market economics.
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Re: bitcoin bust; bitcoin etf

Post by Default User BR »

nisiprius wrote:bitcoins are an exclusive limited edition. Each one is stamped with its individual serial number. Not just a unit of exchange, these are masterworks of art, personally designed by the beloved Thomas Koolaid, Pointer of Nulls®. You will be amazed at their rich artistry and sculptural detail. But when they are gone, they are gone. No more will ever be made. So act now, supplies are limited. Operators are standing by. Call within 20 minutes and get absolutely free this lovely polished blockchain on which to hang, store, and display your bitcoins.
Can I get another order free if I pay separate shipping and handling? And what is handling? What if you don't want your stuff handled?


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Re: bitcoin bust; bitcoin etf

Post by Juntistik »

GeneParmesan wrote:
bottomfisher wrote:I recently read this article written by a journalist running a trial on a Bitcoin mining hardware device:

http://arstechnica.com/gadgets/2013/06/ ... -bitcoins/

The only way to really make mining profitable are to (1) be the first with a huge technology advancement, (2) operate at a big scale with access to cheap energy, (3) operate at a truly massive scale, control >50% of the hashing power on the network, and completely compromise the security of the entire network.

The bitcoin world is now big enough that unless you are the one inventing the technology in (1) or their personal best friend, you almost certainly won't be able to take advantage of the new technology. I'm surprised that these early ASIC companies haven't thought larger and tried to make big plays by holding on to all their ASICs and manipulating the difficulty factor. They are building the shovels used in a gold rush; however the shovels don't really need a human to operate them, so why are they selling them? Presumably to exchange one type of risk for another, but still, it's a bit suspicious.

If you do more research on companies manufacturing ASIC's, namely Butterflylabs, you will learn that they had over a year delay and just recently started shipping orders. It has become a running joke.

While cryptocurrencies clearly aren't a boglehead style investment, I personally mine cryptocurrencies and I feel like there is a lot of confusion about them in general. People can still make money mining without an ASIC, but it depends a lot on electricity costs, etc.

Personally I mine Litecoin (LTC) with a mining computer that I built. Instead of speculating in cryptocurrencies by spending cold hard cash, I spent $2000 to build a computer that could mine the LTC. The thought process here is that a) you can mine cryptocurrencies with it, and b) if the price of crypto's go to zero, you still have a tangible asset that could be sold at a relatively low loss.

I started mining two months ago and have since mined approximately 300 LTC. At a current rate of $2.6 per LTC that means I have obtained approximately $780 in revenue over that period. I could easily sell my mining computer for $1000 - crushing ROI of any traditional investment given that short timeframe.

Cryptocurrency is by no means an investment, its more of a hobby/speculation that has a chance to create a windfall. By mining versus investing in crypto ETF's or buying coins you can really reduce your risk substantially


To add more understanding as to why there is a finite supply of Bitcoin, you have to understand how mining difficulty works. When a new Cryptocoin is introduced, people mine (using computing power) to run computations. When the computation is solved correctly, the miner that submitted the correct share receives a "Block" of coins. In this example, lets say a block is 20 bitcoins. After a certain amount of correct computations occur (aka, blocks distributed), the difficulty goes up. This means that correctly solving the computation takes more iterations, and therefore becomes more difficult. In addition to this, the amount of coins distributed per block goes down.

Basically, when a coin comes out, its very easy to get a large number of coins. As more and more people mine coins, they get harder and harder to mine, until eventually it will be impossible to mine more coins. This is why the supply is finite - eventually there will be no more bitcoins to be mined, ever. In addition to this, any coins that are lost (hard drive destroyed, computer stolen, wallet deleted) are gone forever. There is no minting or printing of more coins.

I hope that was informative and i apologize if it was long winded.

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Re: bitcoin bust; bitcoin etf

Post by MindBogler »

That was the most simple yet thorough explanation I have seen yet on bitcoins.

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Re: bitcoin bust; bitcoin etf

Post by 3CT_Paddler »

While there may be a finite supply of Bitcoins, there is an infinite supply of potential cryptocurrencies that can perform the same function as Bitcoin (the source code for Bitcoin is open source). Its volatility makes it a poor medium of exchange, but an excellent source of speculation.

The technical implementation is pure genius, but there is a lot of mystery surrounding its founder and his real purpose is unknown. As a way to potentially enrich himself and other early adopters, its very clever. I think some techies get caught up in the smart implementation and the romantic idea of an unregulated global currency (and they see dollar signs), without really thinking through why you would want a stable currency vs a speculative currency. The reality is that the US and other governments are starting to regulate it, so even Bitcoin will have to comply with government regulation if it continues to mature. Its kind of like fiat (no intrinsic value) without the force of law... a precarious position for a currency to be in.
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Re: bitcoin bust; bitcoin etf

Post by rnitz »

3CT_Paddler wrote:Its volatility makes it a poor medium of exchange, but an excellent source of speculation.
I think this encapsulates Bitcoin's rollout problems. It's real value should be as a friction-less medium of exchange, not as a store of value. But the huge swings in value really damage it's use for exchange (but is like crack for speculator-addicts). If it could replace all of the nuisance fees associated with wire transfers, money orders, paypal fees, retailer credit card charges, etc. it would make a real contribution to the world economy (not to mention the elimination of inflation, due to Govt. currency printing, Quantitative Easing, etc.).

And while I'm at it, I want everyone to have ponys that are real unicorns :)
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Re: bitcoin bust; bitcoin etf

Post by Juntistik »

3CT_Paddler wrote:While there may be a finite supply of Bitcoins, there is an infinite supply of potential cryptocurrencies that can perform the same function as Bitcoin (the source code for Bitcoin is open source). Its volatility makes it a poor medium of exchange, but an excellent source of speculation.

The technical implementation is pure genius, but there is a lot of mystery surrounding its founder and his real purpose is unknown. As a way to potentially enrich himself and other early adopters, its very clever. I think some techies get caught up in the smart implementation and the romantic idea of an unregulated global currency (and they see dollar signs), without really thinking through why you would want a stable currency vs a speculative currency. The reality is that the US and other governments are starting to regulate it, so even Bitcoin will have to comply with government regulation if it continues to mature. Its kind of like fiat (no intrinsic value) without the force of law... a precarious position for a currency to be in.
While you were pretty much spot on, I don't understand what you mean by the U.S. government starting to regulate Bitcoin. It is technically impossible to regulate Bitcoin, or cryptocurrencies in general - and that is by design. What the U.S. government has done is start to restrict opportunities to trade Bitcoin for USD. This is quite different than regulating cryptocurrencies themselves. Many people argue that this could a deathblow to crypto, as everyone eventually wants USD, but who knows where this will all end up.
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Re: bitcoin bust; bitcoin etf

Post by FNK »

I think the ETF, if it becomes a reality, is brilliant.

Set up the legal structure. Set up a little computer that exchanges blocks of one electronic asset (bitcoin) for blocks of another electronic asset (etf share). Charge a management fee. DONE.

On one hand you get idiots with money willing to pay you that management fee for no apparent reason. They heard something bitcoin, Vinklevosses had something to do with Facebook, here's my online brokerage, take my money please.

On the other you have cypherpunks who want to do large scale BC-USD conversions.

You sit in the middle and collect fees.

Brilliant.
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Re: bitcoin bust; bitcoin etf

Post by stratton »

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Re: bitcoin bust; bitcoin etf

Post by Valuethinker »

Juntistik wrote:
GeneParmesan wrote:
bottomfisher wrote:I recently read this article written by a journalist running a trial on a Bitcoin mining hardware device:

http://arstechnica.com/gadgets/2013/06/ ... -bitcoins/

The only way to really make mining profitable are to (1) be the first with a huge technology advancement, (2) operate at a big scale with access to cheap energy, (3) operate at a truly massive scale, control >50% of the hashing power on the network, and completely compromise the security of the entire network.

The bitcoin world is now big enough that unless you are the one inventing the technology in (1) or their personal best friend, you almost certainly won't be able to take advantage of the new technology. I'm surprised that these early ASIC companies haven't thought larger and tried to make big plays by holding on to all their ASICs and manipulating the difficulty factor. They are building the shovels used in a gold rush; however the shovels don't really need a human to operate them, so why are they selling them? Presumably to exchange one type of risk for another, but still, it's a bit suspicious.

If you do more research on companies manufacturing ASIC's, namely Butterflylabs, you will learn that they had over a year delay and just recently started shipping orders. It has become a running joke.

While cryptocurrencies clearly aren't a boglehead style investment, I personally mine cryptocurrencies and I feel like there is a lot of confusion about them in general. People can still make money mining without an ASIC, but it depends a lot on electricity costs, etc.

Personally I mine Litecoin (LTC) with a mining computer that I built. Instead of speculating in cryptocurrencies by spending cold hard cash, I spent $2000 to build a computer that could mine the LTC. The thought process here is that a) you can mine cryptocurrencies with it, and b) if the price of crypto's go to zero, you still have a tangible asset that could be sold at a relatively low loss.

I started mining two months ago and have since mined approximately 300 LTC. At a current rate of $2.6 per LTC that means I have obtained approximately $780 in revenue over that period. I could easily sell my mining computer for $1000 - crushing ROI of any traditional investment given that short timeframe.

Cryptocurrency is by no means an investment, its more of a hobby/speculation that has a chance to create a windfall. By mining versus investing in crypto ETF's or buying coins you can really reduce your risk substantially


To add more understanding as to why there is a finite supply of Bitcoin, you have to understand how mining difficulty works. When a new Cryptocoin is introduced, people mine (using computing power) to run computations. When the computation is solved correctly, the miner that submitted the correct share receives a "Block" of coins. In this example, lets say a block is 20 bitcoins. After a certain amount of correct computations occur (aka, blocks distributed), the difficulty goes up. This means that correctly solving the computation takes more iterations, and therefore becomes more difficult. In addition to this, the amount of coins distributed per block goes down.

Basically, when a coin comes out, its very easy to get a large number of coins. As more and more people mine coins, they get harder and harder to mine, until eventually it will be impossible to mine more coins. This is why the supply is finite - eventually there will be no more bitcoins to be mined, ever. In addition to this, any coins that are lost (hard drive destroyed, computer stolen, wallet deleted) are gone forever. There is no minting or printing of more coins.

I hope that was informative and i apologize if it was long winded.

Junt
Thank you for taking the time to write that very helpful and informative post.
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Re: bitcoin bust; bitcoin etf

Post by Valuethinker »

rnitz wrote:
3CT_Paddler wrote:Its volatility makes it a poor medium of exchange, but an excellent source of speculation.
I think this encapsulates Bitcoin's rollout problems. It's real value should be as a friction-less medium of exchange, not as a store of value. But the huge swings in value really damage it's use for exchange (but is like crack for speculator-addicts). If it could replace all of the nuisance fees associated with wire transfers, money orders, paypal fees, retailer credit card charges, etc. it would make a real contribution to the world economy (not to mention the elimination of inflation, due to Govt. currency printing, Quantitative Easing, etc.).

And while I'm at it, I want everyone to have ponys that are real unicorns :)
Good analysis.

The other issue is that governments cannot tolerate an *untrackable* means of exchange. Cash dollars is bad enough (I read that something like 80% of USD100 bills are circulating outside the USA, and the 500 EUR note is a favourite of criminals etc.).

The CIA penetrated Western Union after 911, to great effect, particularly tracking money flows from the Gulf to the West. If governments can install something like that in Bitcoin (which presumably they cannot) then it becomes an allowable means of exchange.
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Re: bitcoin bust; bitcoin etf

Post by 3CT_Paddler »

Juntistik wrote:
3CT_Paddler wrote:While there may be a finite supply of Bitcoins, there is an infinite supply of potential cryptocurrencies that can perform the same function as Bitcoin (the source code for Bitcoin is open source). Its volatility makes it a poor medium of exchange, but an excellent source of speculation.

The technical implementation is pure genius, but there is a lot of mystery surrounding its founder and his real purpose is unknown. As a way to potentially enrich himself and other early adopters, its very clever. I think some techies get caught up in the smart implementation and the romantic idea of an unregulated global currency (and they see dollar signs), without really thinking through why you would want a stable currency vs a speculative currency. The reality is that the US and other governments are starting to regulate it, so even Bitcoin will have to comply with government regulation if it continues to mature. Its kind of like fiat (no intrinsic value) without the force of law... a precarious position for a currency to be in.
While you were pretty much spot on, I don't understand what you mean by the U.S. government starting to regulate Bitcoin. It is technically impossible to regulate Bitcoin, or cryptocurrencies in general - and that is by design. What the U.S. government has done is start to restrict opportunities to trade Bitcoin for USD. This is quite different than regulating cryptocurrencies themselves. Many people argue that this could a deathblow to crypto, as everyone eventually wants USD, but who knows where this will all end up.
Junstick, it would probably be more accurate to say, that governments are starting to regulate the exchanges that trade in Bitcoin. Which is a pretty effective way to regulate the currency itself. The exchanges must comply with regulations related to money services businesses (like Paypal or Western Union).
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Re: bitcoin bust; bitcoin etf

Post by 3CT_Paddler »

Valuethinker wrote:
rnitz wrote:
3CT_Paddler wrote:Its volatility makes it a poor medium of exchange, but an excellent source of speculation.
I think this encapsulates Bitcoin's rollout problems. It's real value should be as a friction-less medium of exchange, not as a store of value. But the huge swings in value really damage it's use for exchange (but is like crack for speculator-addicts). If it could replace all of the nuisance fees associated with wire transfers, money orders, paypal fees, retailer credit card charges, etc. it would make a real contribution to the world economy (not to mention the elimination of inflation, due to Govt. currency printing, Quantitative Easing, etc.).

And while I'm at it, I want everyone to have ponys that are real unicorns :)
Good analysis.

The other issue is that governments cannot tolerate an *untrackable* means of exchange. Cash dollars is bad enough (I read that something like 80% of USD100 bills are circulating outside the USA, and the 500 EUR note is a favourite of criminals etc.).

The CIA penetrated Western Union after 911, to great effect, particularly tracking money flows from the Gulf to the West. If governments can install something like that in Bitcoin (which presumably they cannot) then it becomes an allowable means of exchange.
When it comes to money tracking and Bitcoin, there is a lot of confusion about how anonymous it really is. Every trade is supposedly public information, but only the ip address (not the buyer identity) is available. So you could conceivably track the money flows if you knew some information about those ip addresses. I think there are some measures you could take to make it really difficult to track, but the information itself on the trade itself is available for all to see (at least that is how I understand it).
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nisiprius
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Re: bitcoin bust; bitcoin etf

Post by nisiprius »

Every trade is supposedly public information, but only the ip address (not the buyer identity) is available.
That's not very reassuring. An IP address alone is enough to get you a "settlement letter" from the RIAA for thousands of dollars and/or court judgements against you for illegally downloading music--and a big legal bill if you decide to fight it. It might be uncomfortable if the Drug Enforcement Administration or the Department of Homeland Security thought you had bought or sold something illegal, even if they were wrong.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: bitcoin bust; bitcoin etf

Post by 3CT_Paddler »

nisiprius wrote:
Every trade is supposedly public information, but only the ip address (not the buyer identity) is available.
That's not very reassuring. An IP address alone is enough to get you a "settlement letter" from the RIAA for thousands of dollars and/or court judgements against you for illegally downloading music--and a big legal bill if you decide to fight it. It might be uncomfortable if the Drug Enforcement Administration or the Department of Homeland Security thought you had bought or sold something illegal, even if they were wrong.
Here was a paper on Bitcoin anonymity... http://arxiv.org/pdf/1107.4524.pdf

The conclusion...
For the past half-century futurists have heralded the advent of a cash-less
society [4]. Many of their predictions have been realized,e.g. Anderson et
al.'s [4]'s `on-line real-time' payment system and bank-maintained `central
information les'. However, cash is still a competitive and relatively anony-
mous means of payment. Bitcoin is an electronic analog of cash in the online
world. It is decentralized: there is no central authority responsible for the
issuance of Bitcoins and there is no need to involve a trusted third-party
when making online transfers. However, this exibility comes at a price: the
entire history of Bitcoin transactions is publicly available
. In this chapter we
investigated the structure of two networks derived from this dataset and their
implications for user anonymity.

Using an appropriate network representation, it is possible to associate
many public-keys with each other, and with external identifying information.
With appropriate tools, the activity of known users can be observed in detail.
This can be performed using a passive analysis only. Active analyses, where
an interested party can potentially deploy `marked' Bitcoins and collaborate
with other users can discover even more information. We also believe that
large centralized services such as the exchanges and wallet services are capable
of identifying and tracking considerable portions of user activity.

Technical members of the Bitcoin community have cautioned that strong
anonymity is not a prominent design goal of the Bitcoin system. However,
casual users need to be aware of this, especially when sending Bitcoins to
users and organizations they would prefer not to be publicly associated with.
I hope that puts your fears to rest... :happy
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Re: bitcoin bust; bitcoin etf

Post by stilts1007 »

Juntistik wrote:I hope that was informative and i apologize if it was long winded.

Junt
Extremely informative, thank you. My one question related to the "mining" process is, my understanding that the actual computations that take place while mining bitcoins have to do with confirming transactions that have taken place (e.g., i pay you a bitcoin for some illegal drugs, that transaction is confirmed by miners, who then receive a fraction of a bitcoin for themselves for their trouble). Once bitcoins are no longer being mined, will there be any incentive for people to continue confirming these transactions? And if nobody is confirming the transactions, doesn't that somehow affect the ability of people to reliably transfer bitcoins from person to person?
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Re: bitcoin bust; bitcoin etf

Post by Juntistik »

So when it comes to anonymity, i want to clarify some things.

The "ledger" that shows every transaction does not show the IP address. You are all correct in being concerned about the idea of the IP address being shown, as that is a relatively easy way to actually identify a person. The way that Cryptocoin wallets work, is that you can generate random wallet addresses. So if person A wanted to send person B some bitcoins, they would provide them with an address to their wallet. On the blockchain, they will see Address A sent Address B 100 Bitcoins. The thing is, you can generate new addresses to the same wallet, and it is impossible to tell who owns the wallet that holds that address

So while you can see all the transactions that occur, you cannot identify either of the parties that are involved in the transaction.

In regards to the post above this which has questions about Confirmations, I'm happy to shed some light on how confirmations work.

The way you described confirmations make it sound like something that manually occurs, which isn't the case. Confirmations actually occur automatically after a certain amount of additional transactions have occurred. If I send some Bitcoin to one of your wallets, it will first show as "x amount of
Bitcoins received (unconfirmed)". After X amount of additional blocks are found, our transaction will be shown as "confirmed", because the transactions that occurred after ours, will in essence verify our transaction. So as long as transactions are still occurring, transactions will continue to be confirmed.

Also I want to make a quick comment about what Bitcoin can be used for. There is a lot you can do with bitcoin besides illegal activity. There is a service out there called Bitpay which is a payment processor that allows any business to begin accepting bitcoin. Because of this, there are actually a suprising number of places that accept Bitcoin as payment, especially in major cities like SF, NYC, Chicago, etc. I have a few friends in the bay area who regularly pay for sushi, sake, etc in Bitcoin

I hope this makes sense, please let me know if you want any additional clarification
Last edited by Juntistik on Mon Jul 22, 2013 11:10 am, edited 1 time in total.
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Re: bitcoin bust; bitcoin etf

Post by Epsilon Delta »

stilts1007 wrote:
Juntistik wrote:I hope that was informative and i apologize if it was long winded.

Junt
Extremely informative, thank you. My one question related to the "mining" process is, my understanding that the actual computations that take place while mining bitcoins have to do with confirming transactions that have taken place (e.g., i pay you a bitcoin for some illegal drugs, that transaction is confirmed by miners, who then receive a fraction of a bitcoin for themselves for their trouble). Once bitcoins are no longer being mined, will there be any incentive for people to continue confirming these transactions? And if nobody is confirming the transactions, doesn't that somehow affect the ability of people to reliably transfer bitcoins from person to person?
If bit coins becomes an accepted medium of exchange the people who use and own bit coins have a vested interest in maintaining the network. So even without mining there is incentive for people to perform the computations. The quantity of calculation needed for the integrity of the system is much smaller that currently occurs, so perhaps we could go back to people using PCs in their spare time.
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Re: bitcoin bust; bitcoin etf

Post by FNK »

Also, there's the concept of a transaction fee. If you throw in a bit for the miner, there's a chance your transaction will register sooner. That's expected to maintain the network in the future.

I personally don't believe BC will be that big because it would have to serialize the world's commerce. So I'm observing from the sidelines.
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Re: bitcoin bust; bitcoin etf

Post by sommerfeld »

Juntistik wrote:So when it comes to anonymity, i want to clarify some things.

The "ledger" that shows every transaction does not show the IP address. You are all correct in being concerned about the idea of the IP address being shown, as that is a relatively easy way to actually identify a person. The way that Cryptocoin wallets work, is that you can generate random wallet addresses. So if person A wanted to send person B some bitcoins, they would provide them with an address to their wallet. On the blockchain, they will see Address A sent Address B 100 Bitcoins. The thing is, you can generate new addresses to the same wallet, and it is impossible to tell who owns the wallet that holds that address
It may not be easy, but I wouldn't go so far as to say it's impossible. Read up on the art of Traffic Analysis - IMHO a well-funded and determined entity with access to a lot of real-world information besides the bitcoin ledger would likely be able to attach names to many bitcoin addresses. The record-keeping required by the application of money-laundering statutes to bitcoin will make this more tractable. I fully expect to see regulations requiring businesses to log names, ip addresses and similar identifiers associated with bitcoin transactions.
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