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Epsilon Delta
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Re: Buying and Spending Bitcoin

Post by Epsilon Delta »

grayfox wrote: Tue Jan 30, 2018 12:35 pm Bitcoin in Freefall! :D
"Freefall" is an understatement. Powerdive with the throttle to the firewall would be closer.

It's not that I think Bitcoin will crash today, but when you look at the scale on the y-axis it does nothing as gentle as coast. Plot bitcoin on the same scale as anything else and you have the bitcoin line and a horizontal line.
feh
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Re: Buying and Spending Bitcoin

Post by feh »

Epsilon Delta wrote: Tue Jan 30, 2018 2:39 pm
grayfox wrote: Tue Jan 30, 2018 12:35 pm Bitcoin in Freefall! :D
"Freefall" is an understatement. Powerdive with the throttle to the firewall would be closer.
Everything is relative. Is it abrupt compared to the S&P 500? Sure. Is it significantly different from the price change of bitcoin in the past? No.
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grayfox
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Post by grayfox »

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queso
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Re: Buying and Spending Bitcoin

Post by queso »

Yeah...I'm getting close to my IPS' sell point.
WanderingDoc
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Re: Buying and Spending Bitcoin

Post by WanderingDoc »

Was up 350% in a month across my small 'play money' cryptoasset portfolio. Now, the portfolio is up ~30%.

Time to sell or hold long term to see what happens guys?
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queso
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Re: Buying and Spending Bitcoin

Post by queso »

WanderingDoc wrote: Thu Feb 01, 2018 12:10 pm Was up 350% in a month across my small 'play money' cryptoasset portfolio. Now, the portfolio is up ~30%.

Time to sell or hold long term to see what happens guys?
yeah, that's the problem with this stuff and with market timing in general. Who the heck knows where the top and bottom are? It's just fun money, but nonetheless I forced myself to write an IPS a while back which had me cashing out a third every time it hit a certain multiple on an upswing. On the downside I set a floor that I am getting pretty darn close to. If I drop another few thousand I'll be moving some things off my hardware wallet and into a couple exchanges and preparing to pull the plug.
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grayfox
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Post by grayfox »

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Jonathan
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Re: Buying and Spending Bitcoin

Post by Jonathan »

grayfox wrote: Thu Feb 15, 2018 1:09 pm Here is a cool visualization:

Bitcoin Cash vs. Bitcoin Core Live Transaction Visualizer

This is very clever.
Be mindful of the "Bitcoin Core" phrasing. It's often an indicator of what some people believe is an attempt to usurp the bitcoin brand in favor of bitcoin cash. Note also Bitcoin Cash's administration of the bitcoin.com website, which is rife with Bitcoin vs. Bitcoin Cash crypto-ambiguities (comparable to the bogleheads.com controversy).

Bitcoin Cash's founder frontman recently made an appearance on The Alex Jones Show, and was upbraided by call-ins. Obviously, Alex Jones is not the single most credible human being in all of civilization, but it was quite funny: https://www.youtube.com/watch?v=qw9YEvFkxxc

The visualization is still cool.
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grayfox
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Post by grayfox »

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Jonathan
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Re: Buying and Spending Bitcoin

Post by Jonathan »

grayfox wrote: Thu Feb 15, 2018 2:46 pmWhat about bitcoin as a payment system?
You may be interested in the new Lightning Network, which allows for rapid bitcoin payments.

https://en.wikipedia.org/wiki/Lightning_Network
https://motherboard.vice.com/en_us/arti ... ve-bitcoin
https://coincenter.org/entry/what-is-th ... ng-network

White paper: https://lightning.network/lightning-network-paper.pdf

There are MANY altcoins that address rapid payments. Rumor is that implementation of lightning (or various other second layer protocols) will render many of them obsolete. Ironically, there may be some truth in the "bitcoin bad, blockchain good" meme - it may be the second layer solutions, running on top of bitcoin, that address the various scaling challenges.

Also of note is the differentiation between two components of a "payment": confirmation and settlement. For example, many credit cards confirm in seconds, but do not settle for an entire month, during which time charges can be variously disputed. Bitcoin's challenge is in addressing confirmation times; settlement times are actually excellent when compared with more traditional payment systems.
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fatlever
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Re: Buying and Spending Bitcoin

Post by fatlever »

grayfox wrote: Thu Feb 15, 2018 3:23 pm It sounds like Bitcoin needs the Lightning Network to become a useful payment system.

But does the Lightning Network need Bitcoin?

Lightning Network is actually live on the Bitcoin mainnet right now. There are 700+ nodes and about $48K worth of bitcoin in the open channels. You can explore the nodes and how they are interrconnected to each with the explorer:

https://lnmainnet.gaben.win/

The work has been done with developers working on Bitcoin but Lightening Network is not exclusive to Bitcoin. Like everything in Bitcoin, all the cryptos will benefit from its research and development. Other cryptos can also be used in the Lightening Network and it'll be possible in the future to have exchanges between cryptos like Bitcoin and Lighcoin. They have already done this in the testnet.

Also, this doesn't have to be just Bitcoin forked codebases like Litecoin. Stellar (founded by the same guy who founded Ripple) actually has Lightening Network as the #2 goal in its 2018 roadmap.

As far as what this means for the value for different cryptos if payments for each can be processed instantly on the Lightening Network? I don't think anybody knows. But it's a pretty amazing leap if you play around with the testnet - you scan a payment request and click a button and boom, Bitcoin payment processed instantly.

Elizebeth Starks the CEO Lightening Labs also gave a presentation of LN at my workplace (Fidelity Investments) and she talked about the possibilities of a 3rd Layer even which might have decentralized applications, exchanges, etc. The Bitcoin blockchain itself would be the most secure and decentralized 1st layer protocol that we build things on top of.
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in_reality
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Re: Buying and Spending Bitcoin

Post by in_reality »

If one purchases something with by using bitcoins that have appreciated in value since the bitcoins were obtained, is one supposed pay tax similar to capital gains?
fatlever
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Re: Buying and Spending Bitcoin

Post by fatlever »

in_reality wrote: Thu Feb 15, 2018 7:55 pm If one purchases something with by using bitcoins that have appreciated in value since the bitcoins were obtained, is one supposed pay tax similar to capital gains?


Technically yes since the IRS treats it as property that you sell and then use those funds to purchase something. But when buying a something from Overstock.com or Microsoft, they are are not going to report this to the IRS and you're not getting a 1099. Also, the IRS isn't going to do an blockchain analysis of how much bitcoin you purchased and Coinbase and if that went to an overstock wallet. But if you bought a house for Bitcoin, you might want to be sure you report that.
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nisiprius
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Re: Buying and Spending Bitcoin

Post by nisiprius »

As Greyfox noted, Bitcoin was designed and up to maybe 2015 universally presented as a practical payment system, not a base technology on which others could build a practical payment system someday. It was supposed to directly compete with credit cards and PayPal online. What little real-world exposure to cryptocurrencies there has been in the form of Bitcoin "ATMs" has been to Bitcoin. They don't AFAIK dispense Ether or Dogecoin.

What little real-world exposure to cryptocurrencies there has been in the form of ATM's has been, almost entirely, to Bitcoin. Very few of them handle anything else. A quick check using https://coinatmradar.com, for example, shows that of 164 ATMs in New York City, less than 10% of them handle any cryptocurrency other than Bitcoin.

All the proposed fixes are too new to judge, and Lightning Network is as centralized and trust-based as PayPal has been analyzed as necessarily being highly centralized, and thus requiring trust in a way that Bitcoin was not supposed to require.
Last edited by nisiprius on Fri Feb 16, 2018 6:13 pm, edited 1 time in total.
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Jonathan
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Re: Buying and Spending Bitcoin

Post by Jonathan »

nisiprius wrote: Fri Feb 16, 2018 9:32 am What little real-world exposure to cryptocurrencies there has been in the form of Bitcoin "ATMs" has been to Bitcoin. They don't AFAIK dispense Ether or Dogecoin.
FALSE. Please perform a simple Google search on this topic.
nisiprius wrote: Fri Feb 16, 2018 9:32 amLightning Network is as centralized and trust-based as PayPal.
FALSE. Please consider doing some research prior to making such a broad and sweeping statement.
fatlever
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Re: Buying and Spending Bitcoin

Post by fatlever »

nisiprius wrote: Fri Feb 16, 2018 9:32 am Bitcoin was designed and up to maybe 2015 universally presented as a practical payment system, not a base technology on which others could build a practical payment system someday. It was supposed to directly compete with credit cards and PayPal online.
Actually if you dig down to the founder's comments and discussions, he always saw it as a great experiment and put in things like timeLocks, etc which might allow payment channel mechanisms to scale in the future because he knew the Blockchain model by itself could never scale if the network became widely used.
nisiprius wrote: Fri Feb 16, 2018 9:32 am All the proposed fixes are too new to judge, and Lightning Network is as centralized and trust-based as PayPal.
Lightning Network is trustless just like the Bitcoin network itself. The nodes you connect to, process your transactions, they route value from one node to another, until it reaches the final destination. Just like in the Bitcoin network now, they have no control over your money. Just like the Bitcoin network, they cannot steal money you are sending to a destination address.

What is interesting is, the nodes that process your transaction don't even know where the money is going. Lightening uses source routing where originator defines the optimal path of hops to take and encrypts each hop in the path and embeds in layers. 1st node can only read outer layer, each node can only read where the next destination is and only the final node that knows the final destination. Conversely, the final node won't be able to map back and who the originator was. Each layer is encrypted with the node's public key and only that node would be able to get the information that is intended for them.

So you're not trusting some centralized authority with your money where they might be able to steal it, hold it, freeze it, censor it and track who is doing what.

If by centralized you mean there are going to be a few nodes that will be the center of transactions, that also remains to be seen. Unlike mining that require huge investments in hardware and availability of cheap energy, to run a well connected Lightening Network node, you need liquidity which is easier to accumulate than the huge mining investments. Also, a centralized hub that is a massive liquidity provider is also going to be taking a lot more risk.

So for these reasons, it's more likely that there is decentralized mesh network of nodes than a centralized hub and spoke model. But I don't think anybody really knows how the network will look a few years from now.
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Nate79
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Re: Buying and Spending Bitcoin

Post by Nate79 »

nisiprius wrote: Fri Feb 16, 2018 9:32 am As Greyfox noted, Bitcoin was designed and up to maybe 2015 universally presented as a practical payment system, not a base technology on which others could build a practical payment system someday. It was supposed to directly compete with credit cards and PayPal online. What little real-world exposure to cryptocurrencies there has been in the form of Bitcoin "ATMs" has been to Bitcoin. They don't AFAIK dispense Ether or Dogecoin. All the proposed fixes are too new to judge, and Lightning Network is as centralized and trust-based as PayPal.
Bitcoin and other crypto ATM searchable map:
https://coinatmradar.com/
Valuethinker
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Re: Buying and Spending Bitcoin

Post by Valuethinker »

Jonathan wrote: Fri Feb 16, 2018 11:13 am
nisiprius wrote: Fri Feb 16, 2018 9:32 am What little real-world exposure to cryptocurrencies there has been in the form of Bitcoin "ATMs" has been to Bitcoin. They don't AFAIK dispense Ether or Dogecoin.
FALSE. Please perform a simple Google search on this topic.
nisiprius wrote: Fri Feb 16, 2018 9:32 amLightning Network is as centralized and trust-based as PayPal.
FALSE. Please consider doing some research prior to making such a broad and sweeping statement.
Dear Jonathan

It is interesting to me that you are not the only bitcoiner who uses this argumentation style. Maybe it is common somewhere else in the internets?

But from the simple principles of effective rhetoric:

- I would rewrite your first assertion as "I do not believe this is correct" and follow with a citation. Better yet, a citation and a selected quote from that citation (since 98% of readers would not click thru)

- again on your second assertion as above, and avoid the attack on nisi's argument that goes along the lines of "you have not done your homework"

You have to be mindful that Nisi has 20k+ posts here, and they are of quality which varies from good to exceptional-- he's one of the most thoughtful posters therein.

All that comes out of your reply is a sort of angry reaction that someone dissed your shiny thing. As in the response of a zealot. Which may not be true, of course, but because you have advanced no counterarguments nor new information, it does not have any persuasive effect (assuming that was your intention-- to be persuasive to a 3rd party reader).

Don't ask someone else to do a bunch of homework-- do it yourself.
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Re: Buying and Spending Bitcoin

Post by Jonathan »

I disagree Valuethinker. nisiprius has made false assertions, without posting any evidence. I'm not certain why you have chosen to criticize me for debunking those assertions, and not him for initially posting them. My responses were polite, and requested that nisiprius please perform either a basic Google search, or the rudiments of any research prior to making such statements.

nisiprius's post count does not entitle him to superior treatment, just as your, or nisiprius's, or anyone else's distaste or disapproval for bitcoin or those who appreciate bitcoin does not grant you the right to participate in a near-constant bashing of this asset class.
onourway
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Re: Buying and Spending Bitcoin

Post by onourway »

Jonathan wrote: Fri Feb 16, 2018 4:18 pm I disagree Valuethinker. nisiprius has made false assertions, without posting any evidence. I'm not certain why you have chosen to criticize me for debunking those assertions, and not him for initially posting them. My responses were polite, and requested that nisiprius please perform either a basic Google search, or the rudiments of any research prior to making such statements.

nisiprius's post count does not entitle him to superior treatment, just as your, or nisiprius's, or anyone else's distaste or disapproval for bitcoin or those who appreciate bitcoin does not grant you the right to participate in a near-constant bashing of this asset class.
Nope. Not polite.

You might learn something from Nisiprius's posting style. Undoubtedly he has patiently responded to others here in the past who have made false assertions. Likely hundreds of times.
Last edited by onourway on Fri Feb 16, 2018 4:33 pm, edited 1 time in total.
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Nate79
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Re: Buying and Spending Bitcoin

Post by Nate79 »

I just get a kick out of this thread getting bumped back up when I see the words "spending bitcoin." LOL Those are 2 words that just don't belong in the same sentence unless the words in front of them are "No one is".
EnjoyIt
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Re: Buying and Spending Bitcoin

Post by EnjoyIt »

Nate79 wrote: Fri Feb 16, 2018 1:33 pm
nisiprius wrote: Fri Feb 16, 2018 9:32 am As Greyfox noted, Bitcoin was designed and up to maybe 2015 universally presented as a practical payment system, not a base technology on which others could build a practical payment system someday. It was supposed to directly compete with credit cards and PayPal online. What little real-world exposure to cryptocurrencies there has been in the form of Bitcoin "ATMs" has been to Bitcoin. They don't AFAIK dispense Ether or Dogecoin. All the proposed fixes are too new to judge, and Lightning Network is as centralized and trust-based as PayPal.
Bitcoin and other crypto ATM searchable map:
https://coinatmradar.com/
Seams like there are a decent amount of ATMs for several cryptocurrencies. The few that I looked at had very high transaction costs. I can't understand why someone would choose to use them instead of purchasing them online.

I also find it interesting how Jonathan calls these coins an "Asset Class." Although the coins have value I think they are an asset class similar to other collectibles such as art, classic cars, or baseball cards. Sure some places will allow you to barter with these coins, but the transaction is always based in the local currency. I have yet to see something for sale for a specific cryptocurrency value. Generally the price is listed as local currency and the crypto currency price needs to be calculated every time at incidence of purchase. That may or may not change if prices actually stabilize at some point.

As for Nisiprius, despite him not knowing there are plenty of ATMs that dispense Ether and Dogecoin, over the years I have found Nisi's posts to be some of the most insightful and well thought out comments on this forum.
Last edited by EnjoyIt on Fri Feb 16, 2018 5:28 pm, edited 1 time in total.
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Re: Buying and Spending Bitcoin

Post by Jonathan »

EnjoyIt wrote: Fri Feb 16, 2018 5:14 pmI also find it interesting how Jonathan calls these coins an "Asset Class." Although the coins have value I think they are an asset class similar to other collectibles such as art, classic cars, or baseball cards.
I find this interesting too! I picked it up from watching some of the newer SEC and CFTC regulatory meetings on cryptocurrencies. I did poke around a bit for the definition of "asset class", and I think it might be a more accurate designation than "currency", and probably better than the casual term "cryptos". Some of the more esoteric tokens are so wacky that a broad term like this is probably sensible.

Interestingly, those regulatory meetings were stunningly bullish. US financial regulatory leaders seem to be taking on a strategy similar to the internet, in that an encouraging environment, coupled with strict enforcement against bad actors, will provide the opportunity for the US to achieve the gains in crypto that it did in the rise of the WWW.
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nisiprius
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Re: Buying and Spending Bitcoin

Post by nisiprius »

Jonathan is correct, that I posted assertions without evidence in that posting.

With regard to bitcoin ATMs, I was influenced by this article:
I tried to buy $1 of bitcoin from a Las Vegas ATM — and it just proves how far bitcoin is from replacing regular money
  • Some Las Vegas restaurants accept payment in bitcoin, so I decided to try to buy bitcoin from a casino's bitcoin ATM.
  • I lost all my money.
  • Considering the exorbitant bitcoin ATM fee, I have real doubts as to whether or not bitcoin has a real future as a currency.
The author of the article doesn't specifically address the question of why he didn't choose a different cryptocurrency, so I am assuming, without evidence, that the ATM he used didn't offer any other choice.

It would be nice to have a reliable list of well-known, large Internet merchants other than Overstock.com that accept cryptocurrency. I would exclude websites like Craigslist that simply connect buyers and sellers and allow them to negotiate a payment method, as well as claims that "you can buy from Amazon with cryptocurrency" meaning there are websites where sellers offer to sell you Amazon gift cards cryptocurrency. Overstock's checkout screen does indicate that Overstock accepts "any leading blockchain asset," and that the system is "powered by Shapeshift."

Image

With regard to Lightning Network, I should not have compared it to PayPal. However, Mathematical Proof That the Lightning Network Cannot Be a Decentralized Bitcoin Scaling Solution claims to provide mathematical proof that Lightning Network will need to be centralized in order to function, and I don't see how you I can trust a centralized network without trusting the central hubs in the network.
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nisiprius
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Re: Buying and Spending Bitcoin

Post by nisiprius »

With regard to cryptocurrencies handled at ATM machines, if I use the coinatmradar.com website recommended above, and set the scale so that it will give me a total for ATM machines in New York City, like this,
Image
then I find a total of 164 ATM machines. If I uncheck Bitcoin, and search for ATM machines that handle the others, I find a total of 16. Thus, only 16 out of 164, or less than 10%, handle other cryptocurrencies, and thus more than 90% of the cryptocurrency machines in New York City handle Bitcoin only.

Accordingly, I am editing my post above to say, not that ATMS don't handle other currencies, but that based on New York as a sample it appears that the overwhelming majority of cryptocurrency ATMS only handle Bitcoin.
Last edited by nisiprius on Sat Feb 17, 2018 8:26 am, edited 1 time in total.
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Jonathan
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Re: Buying and Spending Bitcoin

Post by Jonathan »

I appreciate your response nisiprius. We all post assertions without evidence. Sometimes we do it in poor form, but sometimes we do it because it's a perfectly acceptable practice in casual online discussions.

List or not, you are correct that few merchants accept crypto as payment. You don't need to evidence this. This is not a terrible argument against cryptos, but the counter-arguments about future payment systems are good too. Related: Coinbase's new announcement of a system for merchants to accept digital currency.

I see a meme (even alluded to by John Bogle himself) of "bitcoin is a crypto-currency...crypto-currencies are currencies...here's why bitcoin could never be a currency". I think it's not the strongest anti-bitcoin argument.

I'm also not exactly enthusiastic about crypto ATMs. The volume charts for local bitcoin transactions are a better metric for popular adoption.

Sometimes you shouldn't bend over backwards to evidence your claims. Note the internet discussion tactic called Sea lioning. I do NOT see nisiprius as a sealioner (quite the opposite, actually), but I do see it on bogleheads, and I'm not sure it's been identified.
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Re: Buying and Spending Bitcoin

Post by patrick »

nisiprius wrote: Fri Feb 16, 2018 5:44 pm With regard to Lightning Network, I should not have compared it to PayPal. However, Mathematical Proof That the Lightning Network Cannot Be a Decentralized Bitcoin Scaling Solution claims to provide mathematical proof that Lightning Network will need to be centralized in order to function, and I don't see how you I can trust a centralized network without trusting the central hubs in the network.
The article doesn't mention trust, and in the comments the author says you don't have to trust the hubs. That is, you don't need to trust them not to steal your money. The problem instead is that hubs could block transactions. Note also that the article isn't against cryptocurrency in general but rather is favoring larger blocks (i.e. Bitcoin Cash).
Jonathan
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Re: Buying and Spending Bitcoin

Post by Jonathan »

patrick wrote: Fri Feb 16, 2018 6:33 pmThe article doesn't mention trust, and in the comments the author says you don't have to trust the hubs. That is, you don't need to trust them not to steal your money. The problem instead is that hubs could block transactions. Note also that the article isn't against cryptocurrency in general but rather is favoring larger blocks (i.e. Bitcoin Cash).
Also note that author's other articles. He certainly does appreciate bitcoin's crypto-doppelganger Bitcoin Cash. :wink:

Crypto ATMs are minutiae, whether or not their various crypto offerings are characterized correctly.

The notion that someone could store wealth by memorizing 12 words is stunning. There are some lovely use cases, like refugees fleeing failed countries with their assets stored in their heads. There are also extraordinary concerns; how can government function if it cannot forcibly tax or otherwise extract money from its citizens? Or even prove that they have money?

NYT touched on this concept recently: Why the I.R.S. Fears Bitcoin. Obviously I am not advocating tax evasion, but I am advocating discussing its problems openly. Snippet from the NYT op-ed:
Here is a simple tax dodge that would be hard for the I.R.S. to prove: Suppose A, B and C are electronic addresses you own. You let the I.R.S. know you own A, but not B and C. You buy one Bitcoin at $15,000 and park it at A, expecting the price to go up. Just a few hours later, when a Bitcoin is worth $15,500, you send that Bitcoin to B and then to C.

A few months later, when your Bitcoin is now worth $25,000, you send it from C to A and tell the I.R.S., “I sold a Bitcoin to an anonymous counterparty at B back at $15,500 and just now bought a Bitcoin from another anonymous counterparty at C for $25,000.” As a result, you owe taxes on capital gains of just $500 rather than $10,000.
This is just the tip of the iceberg. This often-ignored aspect of crypto could disrupt much more than just financial markets.
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in_reality
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Re: Buying and Spending Bitcoin

Post by in_reality »

Jonathan wrote: Sat Feb 17, 2018 1:29 am
NYT touched on this concept recently: Why the I.R.S. Fears Bitcoin. Obviously I am not advocating tax evasion, but I am advocating discussing its problems openly. Snippet from the NYT op-ed:
Here is a simple tax dodge that would be hard for the I.R.S. to prove: Suppose A, B and C are electronic addresses you own. You let the I.R.S. know you own A, but not B and C. You buy one Bitcoin at $15,000 and park it at A, expecting the price to go up. Just a few hours later, when a Bitcoin is worth $15,500, you send that Bitcoin to B and then to C.

A few months later, when your Bitcoin is now worth $25,000, you send it from C to A and tell the I.R.S., “I sold a Bitcoin to an anonymous counterparty at B back at $15,500 and just now bought a Bitcoin from another anonymous counterparty at C for $25,000.” As a result, you owe taxes on capital gains of just $500 rather than $10,000.
This is just the tip of the iceberg. This often-ignored aspect of crypto could disrupt much more than just financial markets.
Someone invested $400 million at $6,000, so now at around $10,000, they have made quite a bit of money.

I guess it's just another story of a (nearly) billionaire not having to pay taxes.
WanderingDoc
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Re: Buying and Spending Bitcoin

Post by WanderingDoc »

in_reality wrote: Sat Feb 17, 2018 1:58 am
Jonathan wrote: Sat Feb 17, 2018 1:29 am
NYT touched on this concept recently: Why the I.R.S. Fears Bitcoin. Obviously I am not advocating tax evasion, but I am advocating discussing its problems openly. Snippet from the NYT op-ed:
Here is a simple tax dodge that would be hard for the I.R.S. to prove: Suppose A, B and C are electronic addresses you own. You let the I.R.S. know you own A, but not B and C. You buy one Bitcoin at $15,000 and park it at A, expecting the price to go up. Just a few hours later, when a Bitcoin is worth $15,500, you send that Bitcoin to B and then to C.

A few months later, when your Bitcoin is now worth $25,000, you send it from C to A and tell the I.R.S., “I sold a Bitcoin to an anonymous counterparty at B back at $15,500 and just now bought a Bitcoin from another anonymous counterparty at C for $25,000.” As a result, you owe taxes on capital gains of just $500 rather than $10,000.
This is just the tip of the iceberg. This often-ignored aspect of crypto could disrupt much more than just financial markets.
Someone invested $400 million at $6,000, so now at around $10,000, they have made quite a bit of money.

I guess it's just another story of a (nearly) billionaire not having to pay taxes.
I am curious to know what they mean by "anonymous counterparty".. Are they implying that the I.R.S. wouldn't need any information beyond that?
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Re: Buying and Spending Bitcoin

Post by in_reality »

WanderingDoc wrote: Sat Feb 17, 2018 2:07 am
in_reality wrote: Sat Feb 17, 2018 1:58 am
Jonathan wrote: Sat Feb 17, 2018 1:29 am
NYT touched on this concept recently: Why the I.R.S. Fears Bitcoin. Obviously I am not advocating tax evasion, but I am advocating discussing its problems openly. Snippet from the NYT op-ed:
Here is a simple tax dodge that would be hard for the I.R.S. to prove: Suppose A, B and C are electronic addresses you own. You let the I.R.S. know you own A, but not B and C. You buy one Bitcoin at $15,000 and park it at A, expecting the price to go up. Just a few hours later, when a Bitcoin is worth $15,500, you send that Bitcoin to B and then to C.

A few months later, when your Bitcoin is now worth $25,000, you send it from C to A and tell the I.R.S., “I sold a Bitcoin to an anonymous counterparty at B back at $15,500 and just now bought a Bitcoin from another anonymous counterparty at C for $25,000.” As a result, you owe taxes on capital gains of just $500 rather than $10,000.
This is just the tip of the iceberg. This often-ignored aspect of crypto could disrupt much more than just financial markets.
Someone invested $400 million at $6,000, so now at around $10,000, they have made quite a bit of money.

I guess it's just another story of a (nearly) billionaire not having to pay taxes.
I am curious to know what they mean by "anonymous counterparty".. Are they implying that the I.R.S. wouldn't need any information beyond that?
What info could the I.R.S get? On form 8949 Sales and Other Dispositions of Capital Assets, one never discloses who the asset was sold to, do they?

Maybe they are referring to the fact that many of the ip addresses used for bitcoin transactions are not known.
The IRS partnered in 2015 with a company called Chainanalysis to identify owners of digital wallets who haven’t been paying their bitcoin taxes, according to a contract discovered by The Daily Beast last year. Still, Chainanalysis only has information on 25 percent of all bitcoin addresses, its co-founder Jonathan Lewis wrote to the IRS, meaning that the other 75 percent remain anonymous
https://www.theverge.com/2018/1/29/1692 ... liance-irs
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Re: Buying and Spending Bitcoin

Post by patrick »

in_reality wrote: Sat Feb 17, 2018 3:54 am
WanderingDoc wrote: Sat Feb 17, 2018 2:07 am
in_reality wrote: Sat Feb 17, 2018 1:58 am
Jonathan wrote: Sat Feb 17, 2018 1:29 am
NYT touched on this concept recently: Why the I.R.S. Fears Bitcoin. Obviously I am not advocating tax evasion, but I am advocating discussing its problems openly. Snippet from the NYT op-ed:
Here is a simple tax dodge that would be hard for the I.R.S. to prove: Suppose A, B and C are electronic addresses you own. You let the I.R.S. know you own A, but not B and C. You buy one Bitcoin at $15,000 and park it at A, expecting the price to go up. Just a few hours later, when a Bitcoin is worth $15,500, you send that Bitcoin to B and then to C.

A few months later, when your Bitcoin is now worth $25,000, you send it from C to A and tell the I.R.S., “I sold a Bitcoin to an anonymous counterparty at B back at $15,500 and just now bought a Bitcoin from another anonymous counterparty at C for $25,000.” As a result, you owe taxes on capital gains of just $500 rather than $10,000.
This is just the tip of the iceberg. This often-ignored aspect of crypto could disrupt much more than just financial markets.
Someone invested $400 million at $6,000, so now at around $10,000, they have made quite a bit of money.

I guess it's just another story of a (nearly) billionaire not having to pay taxes.
I am curious to know what they mean by "anonymous counterparty".. Are they implying that the I.R.S. wouldn't need any information beyond that?
What info could the I.R.S get? On form 8949 Sales and Other Dispositions of Capital Assets, one never discloses who the asset was sold to, do they?
When the IRS decides to audit you they can seek information beyond what is on the 8949. The scenario seems incomplete because you don't owe any tax until you sell, but suppose there is a real sale later on, so this scheme inflates the basis for that sale. If you can't document your bitcoin purchase, the IRS can't be sure whether you had fudged the basis or instead used untaxed cash income to buy them, but either way you are evading taxes.

It isn't practical to perform full-scale audits on everyone. Perhaps the IRS will ignore the little guys and only go after those with millions. Another approach fully explored in the article is increasing reporting requirements. Requiring only US financial institutions to report bitcoin transactions wouldn't be enough, but an individual who transacts bitcoins with foreign institutions could also be required to report detailed documentation (as is already done with foreign bank accounts).
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Re: Buying and Spending Bitcoin

Post by Jonathan »

patrick wrote: Sat Feb 17, 2018 1:00 pm It isn't practical to perform full-scale audits on everyone. Perhaps the IRS will ignore the little guys and only go after those with millions. Another approach fully explored in the article is increasing reporting requirements. Requiring only US financial institutions to report bitcoin transactions wouldn't be enough, but an individual who transacts bitcoins with foreign institutions could also be required to report detailed documentation (as is already done with foreign bank accounts).
Good post. Essentially governments would also have to implement the equivalent of KYC regulations for previously-anonymous person-to-person crypto sales. So...make it illegal to sell bitcoin to an anonymous counterparty?

People can also simply claim that they lost their private keys. Like the NYT example, there's virtually no way to prove them wrong. There is also a related issue with disclosure of crypto holdings in divorces: Crypto cash divorce nightmare looming. Snippet:
Law firm Royds Withy King is acting on three separate high value divorce cases where spouses are seeking the disclosure and a potential share of cryptocurrency assets. These are a first wave of cases that the firm is expecting.

The three cases all involve husbands that have invested in or have purchased cryptocurrencies, including Bitcoin, Litecoin, Ripple and Ethereum. These divorce cases raise significant challenges in valuing and tracing cryptocurrencies and could impact on the divorce settlements spouses can expect to receive.
This stuff is good grist for productive bitcoin debates, and far more troubling and fascinating than much of the anti-bitcoin FUD that gets tossed around. It opens up potential anti-bitcoin arguments along the lines of "money can't be anonymous", as opposed to "cryptos can't be currency".
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Re: Buying and Spending Bitcoin

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If you made purchases between Jan. 22nd and Feb.11th this year using coinbase, you may have been overcharged. One user reported being charged 17 times for the same transaction. Many others had similar problems.
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Re: Buying and Spending Bitcoin

Post by nisiprius »

[Added] But note in_reality's added remarks in the post following this one.

[Further added]A Feb 16th item in Fortune judges that Coinbase's Overcharging Glitch Is Both Worldpay and Visa's Fault.
in_reality wrote: Mon Feb 19, 2018 4:59 am If you made purchases between Jan. 22nd and Feb.11th this year using coinbase, you may have been overcharged. One user reported being charged 17 times for the same transaction. Many others had similar problems.
In the fiat currency world this would be 14 times beyond intolerable. At what point will the cryptocurrency enthusiasts stop making excuses for the inexcusable? The cryptocurrency "exchanges" seem to be about at the same level of reliability as the "curb exchange" in 1920s New York.

Last week I bought two $9.25 train tickets, with a smartphone app, ten minutes apart, and I got a courtesy email from my credit card company noting the fact and asking whether it could be a duplicate charge.
Last edited by nisiprius on Mon Feb 19, 2018 8:06 am, edited 2 times in total.
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Re: Buying and Spending Bitcoin

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nisiprius wrote: Mon Feb 19, 2018 6:18 am
in_reality wrote: Mon Feb 19, 2018 4:59 am If you made purchases between Jan. 22nd and Feb.11th this year using coinbase, you may have been overcharged. One user reported being charged 17 times for the same transaction. Many others had similar problems.
In the fiat currency world this would be 14 times beyond intolerable. At what point will the cryptocurrency enthusiasts stop making excuses for the inexcusable?
I'm not sure who is to blame. Coinbase says it's Visa.
We have determined that the erroneous credit and debit charges are the result of Visa reversing and recharging transactions.
Visa doesn't agree:
"Visa has not made any systems changes that would result in the duplicate transactions cardholders are reporting. We are also not aware of any other merchants who are experiencing this issue," the company said in an emailed statement to CNBC Friday.

"We are reaching out to this merchant's acquiring financial institution to offer assistance and to ensure cardholders are protected from unauthorized transactions."
https://www.cnbc.com/2018/02/16/coinbas ... hases.html
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Re: Buying and Spending Bitcoin

Post by nisiprius »

Fortune gives a long, interesting, complicated, and credible account: Coinbase's Overcharging Glitch Is Both Worldpay and Visa's Fault.

Oh so reminiscent of other technology finger-pointing arguments!

--Coinbase said blamed Visa, because only Visa cardholders experienced the duplicate charges.

--Visa blamed Coinbase, or rather Coinbase's "acquiring bank," WorldPay, because "it was only Worldpay, not Visa, that could have submitted transactions to the credit card company’s network

--Visa and Worldpay issued a joint apology.

The Fortune reporter says "Still, one thing seems clear: The glitch would never have happened if the banks hadn’t insisted on classifying Coinbase purchases as cash advances."
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Re: Buying and Spending Bitcoin

Post by Jonathan »

Much as I enjoy a good forum fracas, both positions are correct:

1. Exchanges are shady.
2. This specific problem with the Coinbase exchange may indeed have been reasonably attributable to Visa's error.

This is an important reminder to review your credit card purchases carefully; I've caught credit card fraud on Visa cards multiple times over the years: double-charges, erroneous charges, and outright card number theft where someone somehow stole my credit card number and used it to make frivolous purchases in another state thousands of miles away.

There is a rising belief that crypto exchanges are so profitable that they're incentivized to properly address any erroneous or fraudulent issues so that they can continue to stay in business.
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Re: Buying and Spending Bitcoin

Post by feh »

Jonathan wrote: Mon Feb 19, 2018 11:17 am Much as I enjoy a good forum fracas, both positions are correct:

1. Exchanges are shady.
Some are, but that's a pretty broad brush.
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Re: Buying and Spending Bitcoin

Post by Jonathan »

feh wrote: Mon Feb 19, 2018 11:20 amSome are, but that's a pretty broad brush.
Yes, that's pretty broad, but I still agree with it. Some of the shadiness is the outright fault of the exchange, some of it is associated with the anonymous nature of crypto, some with the lack of regulation, and some is just the attraction of spoofing opportunities. For example, check out this binance spoof, using a letter "N" with a dot under it. The dot can hide beneath the line under a link in an email.

Image

Most people will be protected against this type of spoof via browser warnings, but enough will be fooled to make it a worthwhile tactic for fraudsters. The only reason to have crypto on an exchange is active trading. Either you just executed or are planning to execute a trade, or you have set up a stop loss or some other automated sell or buy, or you are running trading bots.
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Re: Buying and Spending Bitcoin

Post by feh »

Jonathan wrote: Mon Feb 19, 2018 11:36 am
feh wrote: Mon Feb 19, 2018 11:20 amSome are, but that's a pretty broad brush.
Yes, that's pretty broad, but I still agree with it. Some of the shadiness is the outright fault of the exchange, some of it is associated with the anonymous nature of crypto, some with the lack of regulation, and some is just the attraction of spoofing opportunities. For example, check out this binance spoof, using a letter "N" with a dot under it. The dot can hide beneath the line under a link in an email.
I don't see how that makes the exchange shady.
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Re: Buying and Spending Bitcoin

Post by Jonathan »

feh wrote: Mon Feb 19, 2018 11:20 amI don't see how that makes the exchange shady.
You're allowed to not see that, but I offered multiple reasons to substantiate my position that exchanges can be shady. In this case, "Ripe target for fraud" is enough to raise caution, even if a particular exchange is 100% aboveboard. Source: 5+ years in crypto, and have lost tens of thousands of dollars on an exchange.
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Re: Buying and Spending Bitcoin

Post by patrick »

Jonathan wrote: Sat Feb 17, 2018 4:57 pm Good post. Essentially governments would also have to implement the equivalent of KYC regulations for previously-anonymous person-to-person crypto sales. So...make it illegal to sell bitcoin to an anonymous counterparty?
Not necessarily the same as KYC, but some sort of information gathering is one approach to prevent hiding income. As an alternative, the IRS could wait for you to buy a 30 million dollar yacht with your bitcoins, and then label you a tax evader because you never reported anywhere near that much income.
People can also simply claim that they lost their private keys. Like the NYT example, there's virtually no way to prove them wrong. There is also a related issue with disclosure of crypto holdings in divorces: Crypto cash divorce nightmare looming.
If you pretend you lost the keys to your bitcoins, you'll prove yourself wrong when you spend them.

In the case of divorces, there are plenty of other ways to hide assets that courts are used to dealing with. Is a spouse who secretly buys (or claims to have lost) bitcoins all that different from one who secretly buys (or claims to have lost) jewelry?
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Re: Buying and Spending Bitcoin

Post by Jonathan »

patrick wrote: Mon Feb 19, 2018 9:41 pmIs a spouse who secretly buys (or claims to have lost) bitcoins all that different from one who secretly buys (or claims to have lost) jewelry?
Agreed, very similar, although you get less traceability and more anonymity with bitcoin. And of course the border crossing ease.

BTW, Crypto Voices had a superb podcast three days ago, with Patrick Byrne, the Overstock CEO. Byrne is well educated - degrees in Asian studies, logic, and philosophy from Dartmouth, Cambridge, and Stanford (PhD), and he was a Marshall Scholar. The hosts of the podcast have degrees in finance and economics.

Anyway, they talk about a concept coined by economist Hernando de Soto called Dead capital - a term to recognize informally-held property that is not fully recognized legally. de Soto's theory on why capitalism has failed in the third world revolves around the belief that because property rights are informal in many third world countries, people are hesitant to develop their property, collateralize it, or otherwise use their property rights to join in the world economy. Byrne is working on implementing blockchain-based land records to formalize property ownership.

Also of great interest to Bogleheads would be Byrne's position on fraud and inefficiencies on Wall Street. Byrne is known for his Legal campaign against naked shorting and collusion. In the podcast, he mentions his involvement in a $250 million campaign to rewrite Wall Street using a blockchain to transparently and immutably track transactions.

More: Podcast with Patrick Byrne - From Wall Street To Property Rights... Rebuilding It All On The Blockchain
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Re: Buying and Spending Bitcoin

Post by fatlever »

grayfox wrote: Thu Nov 16, 2017 3:22 am Elsewhere, I wrote that bitcoin has slow transactions and high fees, making bitcoin practically useless for buying stuff. In other words, not a good medium of exchange. But how do I know this is actually true and not just a bunch of exaggeration? The fact is, I only know this second hand from other people saying it. So I decided to find out for myself and actually buy some bitcoin.

There is a building nearby with some kind of cryptocurrency group uses for meetings. They have several conference rooms that they rent out by the hour or day, plus a coffee shop downstairs. The key is, you can only buy coffee and cake using bitcoin or Litecoin. They also have an ATM machine where you can buy bitcoin.

So I headed to the coffee shop and tried to figure out how to buy bitcoin from the machine. I couldn't figure it out. There was a sign on the wall giving directions. You needed to have a wallet on your smart phone, and it said for bitcoin use Mycelium for iOS users. I went back home and and tried to figure out how to get Mycelium. I could not find it in the Apple App Store on my computer. I gave up an went to bed.

Obviously I will starve when cryptocurrency takes over.
The Bitcoin Lightning Network is now live beta. I configured a node and connected to a channel this morning. I bought a sticker during lunch and the payment took about a second to process :D

Yes I know it's a sticker, there is no slick UI but gotta start somewhere. Some things that went through my mind were...
  • It's such a pain and slow to use a credit card, you gotta fill out all that information
  • I don't feel secure giving out all that information
  • Businesses can't really use credit cards for micropayments, $0.10 to read an article or something, watch a web video, lots of use cases
  • Businesses save money not using expensive credit card processing fees (LN is almost free)
  • Machine to Machine micro-transactions with almost zero fees



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Re: Buying and Spending Bitcoin

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Jonathan wrote: Mon Feb 19, 2018 11:36 amThe only reason to have crypto on an exchange is active trading.
So where do you store your $100,000 in bitcoin? On a USB key on your key-chain?
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Re: Buying and Spending Bitcoin

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fatlever wrote: Wed Mar 21, 2018 12:48 pmThe Bitcoin Lightning Network is now live beta. I configured a node and connected to a channel this morning. I bought a sticker during lunch and the payment took about a second to process :D
Sounds good. But it's still in beta with a limited number of users. Will it scale?
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Re: Buying and Spending Bitcoin

Post by nisiprius »

fatlever wrote: Wed Mar 21, 2018 12:48 pmThe Bitcoin Lightning Network is now live beta. I configured a node and connected to a channel this morning. I bought a sticker during lunch and the payment took about a second to process :D

Yes I know it's a sticker, there is no slick UI but gotta start somewhere.
So, can you, having adopted Lighting Network, instantly buy things from any merchant that accepts Bitcoin? For example, can you make a Lightning Network purchase from overstock.com? Reporter Matt Weinberger lost $11 and got no Bitcoin from a Bitcoin ATM machine, because he couldn't pay the $40 fee. If he adopted Lightning Network, could he now withdraw Bitcoin instantly from that machine without paying that fee?

Or do both parties to the transaction each need to adopt it before a transaction is possible?

(If both parties need to adopt it, then it isn't really Bitcoin over a lightning-fast network, it is really a brand-new cryptocurrency of its own that will have to compete against all the others.)
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Re: Buying and Spending Bitcoin

Post by fatlever »

nisiprius wrote: Thu Mar 22, 2018 3:05 pm
fatlever wrote: Wed Mar 21, 2018 12:48 pmThe Bitcoin Lightning Network is now live beta. I configured a node and connected to a channel this morning. I bought a sticker during lunch and the payment took about a second to process :D

Yes I know it's a sticker, there is no slick UI but gotta start somewhere.
So, can you, having adopted Lighting Network, instantly buy things from any merchant that accepts Bitcoin? For example, can you make a Lightning Network purchase from overstock.com? Reporter Matt Weinberger lost $11 and got no Bitcoin from a Bitcoin ATM machine, because he couldn't pay the $40 fee. If he adopted Lightning Network, could he now withdraw Bitcoin instantly from that machine without paying that fee?

Or do both parties to the transaction each need to adopt it before a transaction is possible?

(If both parties need to adopt it, then it isn't really Bitcoin over a lightning-fast network, it is really a brand-new cryptocurrency of its own that will have to compete against all the others.)
1. No, unless the merchant is accepting payments using the Lighting Network - I can't pay a merchant using Bitcoin through the Lighting Network. So no overstock.com payment.
2. No, I can't use Lightning Network on a Bitcoin ATM currently.
3. Yes, both parties need to be on the Lighting Network and need to be connected through a channel between them (directly or indirectly)

Right now only a handful of merchants are using the Lighting Network and the tools, GUI, user friendless is non-existant for non-technical users. When this is more developed AND IF if there is a network effect and increasing adoption AND IF it scales without issues then it's going to be exciting (not even talking about the price appreciation).
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