Wiki article - Bitcoin

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Wiki article - Bitcoin

Post by LadyGeek » Sat Sep 09, 2017 8:41 pm

As suggested by TD2626 in Re: Suggestions for the Wiki:
TD2626 wrote:
Fri Sep 08, 2017 5:40 pm
Should a wiki article briefly defining and describing bitcoin/cryptocurrency be created? Given the volume of discussion currently in the forum about it, it is surprising that there is no mention of it in the wiki. (I looked around but found nothing; my apologies if I missed something obvious).
Such an article could describe briefly and factually what cryptocurrency is, and what the technology behind it is (blockchain). The article would need to emphasize why it is a speculative and risky gamble not consistent with general Boglehead long-term investment principles.

Note: I feel that bitcoin/cryptocurrency is an excessively risky, speculative gamble that long-term investors should avoid. In my opinion, it is unsuitable for use as an investment or for inclusion in a long term portfolio – and it is inconsistent with Boglehead principles. (Also, I know little about this area and have little interest in it. Those with more knowledge could possibly write a more balanced article).
We have a few enthusiasts who have recently started quite a number of bitcoin discussions. My concern echos TD2626 - new investors are being mislead by the discussions and think this is something they should be doing. Quite simply, that is certainly not the case.

Only invest in bitcoin if, and only if:
  • You know what a bitcoin is (Never invest in anything you don't understand)
  • You have the ability, willingness, and need, to take on this very risky product
Considering the possibility of investors doing the wrong thing, I have created a draft wiki article we can work on. See: Bitcoin Right now, it's more of an outline than an article. I'd like the members' help to complete it.

First and foremost, the wiki is an investing resource. It is there to educate investors to understand not only what to do, but what not to do. Bitcoins are the latter.

The intent of the article is to explain bitcoins from an investing and financial perspective. It should be at a sufficiently high level that those not familiar with bitcoins will understand the content.

The article is not a tutorial on bitcoin technology. There are more than enough articles elsewhere. We can give a brief overview and link to the relevant articles for further reading.

I've included references to Investor Alerts from the SEC, FINRA (Financial Industry Regulatory Authority) as they are the most credible, unbiased sources I could find on bitcoin. When the SEC and FINRA issue alerts, pay attention. Content from those alerts will be incorporated into the article.

There is a lot of forum discussion on taxation of bitcoins. Since the wiki should only utilize information from credible sources, I've included content from the IRS - which has final say on the matter.

That being said, the above is only my opinion and may not represent a forum consensus. It's a starting point for the discussion.

Comments / questions / corrections are welcome. All wiki editors are welcome to edit the page directly.

Members can post content here and a wiki editor (including myself) will update the page on your behalf. If we don't have a consensus on content, we can discuss it here.

Update: Revised wiki article link.
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Re: Wiki article - Bitcoin

Post by Uncle Pennybags » Sun Sep 10, 2017 10:38 am

Does anyone truly know enough about the workings of "coin"? From my brief research what is actually happening with "coins" people believe cannot happen. "Coin" is not regulated, nether the laws of men or physics apply.

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Re: Wiki article - Bitcoin

Post by smesman » Sun Sep 10, 2017 2:37 pm

As for the role in a bogleheads' portfolio, I think the 2 most important points about bitcoin are:

1. It's not an investment as it doesn't produce any value. For the average investor, real return after expenses will be negative.
2. Therefore, the best use of bitcoin would be as a safe inflation-adjusted store of value that's negatively correlated to stocks. However, we have no way of knowing if bitcoin will behave in this way (at the very least it is much more volatile than what you'd like something "safe" to be) and we already have some pretty good alternatives such as (international) short term TIPS and bonds.

Bitcoin is very exciting and we will invest in it indirectly as companies index start making use of it, or new companies are added. There is no need to put money in it personally.

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Re: Wiki article - Bitcoin

Post by TD2626 » Sun Sep 10, 2017 5:50 pm

Thank you for drafting the article, and thank you to those contributing.

I think a presumption that there is a consensus against cryptocurrency should be followed in drafting the article unless evidence suggests otherwise. Countless well-respected forum members have expressed deep skepticism in a large number of cryptocurrency-related threads. In addition, standard "lazy portfolios" are so time-tested that I feel the burden of proof should rest with those suggesting radical departures from such portfolios.

That being said, balance and being respectful to all sides is important. One could possibly see a situation in which a highly knowledgeable, very experienced investor with a large and otherwise well diversified portfolio of low cost index funds could make an carefully-reasoned argument in favor of a very small allocation - say, 1% - to a diversified basket of cryptocurrencies. . If any of those folks wish to contribute to this article, that would probably round it out and make it balanced. However, those starting bitcoin threads aren't often making those sorts of arguments - it's more commonly the case that someone naive and inexperienced is contemplating an utterly inappropriate action and don't give due weight to the risks that they are taking.

My guess is that people often search the wiki for basic information and if they find nothing, they post. I was curious as to why there were so many bitcoin threads lately - and maybe that's because of there being no wiki article. Having this article on the wiki may answer people's basic, low-level questions without the need for an entire thread.

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Re: Wiki article - Bitcoin

Post by LadyGeek » Sun Sep 10, 2017 8:50 pm

The wiki article has been significantly revised. Due to the urgent need to educate investors, I have "gone live" with the article. See: Bitcoin

Since the Commodity Futures Trading Commission (CFTC) has ruled that bitcoins are a commodity, bitcoins are now categorized in the wiki as an "alternate asset class".

I have added a strong caution at the top of the wiki article, as there is overwhelming evidence that bitcoins are not suitable in a portfolio. Only invest if you can afford to lose the entire amount.

This does not mean the article is done. It's only a first pass that is "good enough" to help investors.

Comments / questions / corrections are welcome. (Suggested updates in a "from" "to" format would be appreciated.)
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Re: Wiki article - Bitcoin

Post by lack_ey » Sun Sep 10, 2017 10:11 pm

Almost everything in the article except the second half of the first sentence applies to cryptocurrencies more broadly. Given that there is interest in cryptocurrencies other than Bitcoin, I think the existence of other popular cryptocurrencies (e.g. ethereum*, the recent bitcoin cash fork) should in the very least be mentioned or addressed. Maybe the page could be restructured to be about cryptocurrencies generally, with a paragraph or sentences about bitcoin specifically, because most text wouldn't need to be changed anyway.

*ethereum is the platform, while ether is its currency, to be more accurate

You can check for example coinmarketcap.

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Re: Wiki article - Bitcoin

Post by TD2626 » Mon Sep 11, 2017 12:00 am

The wiki article seems well organized, it's good that it is there as a warning.

Having the article mention essentially that "most of this applies to other cryptocurrencies as well" might be helpful. (Of course, the parts in the Wiki discussing bitcoin specifically apply only to that specific cryptocurrency).

One concern is that people are calling it a "currency" ... when it is neither a "store of value" (given it's volatility) or a "medium of exchange" (see this article, for example: https://www.bloomberg.com/news/articles ... ting-lower which says few retailers accept it). Most use is for either speculation or black market activity. Trading in things that have very little legitimate use or intrinsic value is a hallmark of a potential bubble. Incredibly, this likely bubble involves trading in something that is digital and has literally no intrinsic value (at least with tulip bulbs they'd have a nice flower at the end). Too many naive investors are ignoring the massive risks and not realizing that a lot of things would have to go right for cryptocurrency to work long-term.

Also - sometimes gold enthusiasts suggest investment in gold mining stocks to get around the "gold doesn't pay dividends" issues (of course, such stocks are already in TSM and there's no clear need to overweight them). The idea of "buy related stocks" sometimes is thrown about. It's worth noting that currently, cryptocurrency / blockchain technology is not easily invested in directly - current companies are mostly startups, funded by VC/private equity, while others are penny stocks. If companies become large and joined major indexes, TSM would invest.

I think that "don't invest in something that hasn't been around for a while and has a short track record" is a good rule of thumb. These things have little track record and little regulation.

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Re: Wiki article - Bitcoin

Post by grabiner » Mon Sep 11, 2017 5:21 pm

I suggested in the wiki discussion that the page be named "Cryptocurrency", and that "Bitcoin", "Ethereum", and any other cryptocurrency which becomes popular redirect to the page.
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Re: Wiki article - Bitcoin

Post by LadyGeek » Mon Sep 11, 2017 8:29 pm

grabiner wrote:
Mon Sep 11, 2017 5:21 pm
I suggested in the wiki discussion that the page be named "Cryptocurrency", and that "Bitcoin", "Ethereum", and any other cryptocurrency which becomes popular redirect to the page.
The discussion is here: Talk:Bitcoin. Since there is another request to restructure / rename the page, we should proceed in that direction.

Additionally, we should strive to use the proper terminology. "Cryptocurrency" is the general topic, Bitcoin is one of 866 implementations. (I added Lack_ey's link to CryptoCurrency Market Capitalizations as an "External link.")

I already have a redirect ("shortcut") for "Cryptocurrency" to point to the Bitcoin page.* That can easily be changed (by me, a wiki admin).

Any wiki editor can create redirects for the other popular names.

*Typing "Cryptocurrency" in the wiki's search box will go to the Bitcoin page.
lack_ey wrote:
Sun Sep 10, 2017 10:11 pm
Almost everything in the article except the second half of the first sentence applies to cryptocurrencies more broadly. Given that there is interest in cryptocurrencies other than Bitcoin, I think the existence of other popular cryptocurrencies (e.g. ethereum*, the recent bitcoin cash fork) should in the very least be mentioned or addressed. Maybe the page could be restructured to be about cryptocurrencies generally, with a paragraph or sentences about bitcoin specifically, because most text wouldn't need to be changed anyway.

*ethereum is the platform, while ether is its currency, to be more accurate

You can check for example coinmarketcap.
Let's call this a learning experience, as I now see that Cryptocurrency is the more correct term. How can the page be restructured, i.e. what sections should change?
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Re: Wiki article - Bitcoin

Post by LadyGeek » Mon Sep 11, 2017 8:34 pm

Tanelorn has questioned the credibility of the source in the "Role in a portfolio" section. He also disagrees on a few points.

I have revised the section to cite a Bogleheads forum post, along with Jack Bogle (for the footnote). See: Bitcoin

Subject: Bitcoin in 3-fund indexed portfolio?
LadyGeek wrote:
Mon Sep 11, 2017 8:08 pm
Tanelorn wrote:
Mon Sep 11, 2017 4:24 pm
LadyGeek wrote:
Mon Sep 11, 2017 3:55 pm
Caution, Bitcoin should not be considered as cash. See the wiki: Bitcoin (Role in a portfolio)
Well, the Wiki is just quoting Peter Tchir's Forbes article and he doesn't justify much of what he says except to argue BCs are more volatile that many currencies. Sure he's entitled to his opinion, but I'm not sure why he should be afforded an authoritative position any more than any other "tune out the noise" financial author. I might listen to him talk about CDSs given his work experience, but I must be overlooking his BitCoin expertise. His part about BC prices not responding to news is clearly wrong.
Actually, I did not know the background of this author. Thank you, I have corrected the wiki and removed the article.

In its place, I cited swelfie's post and Jack Bogle to explain exactly how you should allocate bitcoins in your portfolio.

See: Bitcoin

I'll continue this discussion in the wiki thread: Wiki article - Bitcoin
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Re: Wiki article - Bitcoin

Post by Tanelorn » Mon Sep 11, 2017 9:34 pm

In reference to the above, I wasn't saying I was any more authoritative than the Forbes author, as I am certainly not an expert on BC, just giving my reasons for how I thought about the asset class / allocation question.

In terms of constructive suggestions for the Wiki, I would suggest changing the section where you call it a commodity. The argument presented is that the regulators want to regulate it as a commodity, but that's independent of its investment role. Maybe this is just symantics, but I think it's more correct to call it a currency.

Commodities are things like hogs and oil, currencies are things people use as a medium of exchange. While both can be and are typically exchange traded, nobody eats BCs or builds anything out of them and they're designed to function as a currency. The longer term investment case is arguably derived from a combination of scarcity (limited supply) and use for transactions. Until the recent increase in cost, there was hope that BC would be cheaper than credit card fees and would facilitate online micro payemnts. Yes, it's not a widely accepted currency (yet) and it's volatile, but that's true of many smaller "real" currencies as well.

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Re: Wiki article - Bitcoin

Post by redstar » Mon Sep 11, 2017 9:42 pm

Hey, I saw the article and would be happy to help where needed. I totally understand not diving too deep technically, but if there are some frequently asked questions from forum threads, it might be worth including them. I've been messing around with cryptocurrencies for years and would be happy to try to draft some language around those.

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Re: Wiki article - Bitcoin

Post by Tanelorn » Mon Sep 11, 2017 9:51 pm

smesman wrote:
Sun Sep 10, 2017 2:37 pm
As for the role in a bogleheads' portfolio, I think the 2 most important points about bitcoin are:

1. It's not an investment as it doesn't produce any value. For the average investor, real return after expenses will be negative.
I think this is a poor argument and I dislike it as applied to other investments not just BC. Cash is also an investment in my book and currently with US inflation running around 2%, the typical US bank account paying a bit over 1% (before taxes) produces a negative real return as well. I guess you could argue people shouldn't hold any cash outside of their EF, but I think that's a pretty extreme and non-consensus view. Even short to medium term bonds are probably negative real returns currently, and hardly anyone is arguing against TBM funds on those grounds. At the end of the day, it's relative returns rather than absolute ones that matter and the distinction between positive and negative real rates doesn't matter as much as people think.
2. Therefore, the best use of bitcoin would be as a safe inflation-adjusted store of value that's negatively correlated to stocks. However, we have no way of knowing if bitcoin will behave in this way (at the very least it is much more volatile than what you'd like something "safe" to be) and we already have some pretty good alternatives such as (international) short term TIPS and bonds.
I agree with this. Ideally diversification assets would be negatively correlated to your unwanted risk factors (like equity market risk or inflation), but uncorrelated can still good enough to offer some benefit. high volatility can be even be good in some cases since it means you can hold a lot less of the asset to get the diversification benefit you want. Here is a site with lots of crypto currency correlations to other investments, currencies and commodities.

http://coincorrelation.com

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Re: Wiki article - Bitcoin

Post by LadyGeek » Mon Sep 11, 2017 10:17 pm

redstar wrote:
Mon Sep 11, 2017 9:42 pm
Hey, I saw the article and would be happy to help where needed. I totally understand not diving too deep technically, but if there are some frequently asked questions from forum threads, it might be worth including them. I've been messing around with cryptocurrencies for years and would be happy to try to draft some language around those.
Go for it - I see you've already made some updates. If you need any help, post here or in the talk page.

Wiki page edits can be seen in the View history tab.
Tanelorn wrote:
Mon Sep 11, 2017 9:34 pm
In reference to the above, I wasn't saying I was any more authoritative than the Forbes author, as I am certainly not an expert on BC, just giving my reasons for how I thought about the asset class / allocation question.

In terms of constructive suggestions for the Wiki, I would suggest changing the section where you call it a commodity. The argument presented is that the regulators want to regulate it as a commodity, but that's independent of its investment role. Maybe this is just symantics, but I think it's more correct to call it a currency.

Commodities are things like hogs and oil, currencies are things people use as a medium of exchange. While both can be and are typically exchange traded, nobody eats BCs or builds anything out of them and they're designed to function as a currency. The longer term investment case is arguably derived from a combination of scarcity (limited supply) and use for transactions. Until the recent increase in cost, there was hope that BC would be cheaper than credit card fees and would facilitate online micro payemnts. Yes, it's not a widely accepted currency (yet) and it's volatile, but that's true of many smaller "real" currencies as well.
You make good points. The reason bitcoin is defined as a commodity is due to the regulator rulings which have been discussed in this forum. I removed the article because I agreed with your assessment and we had more than enough material in the forum.

Is there a credible source that could tie the definition to cryptocurrency? As noted earlier, we should restructure the page to focus on cryptocurrency, with bitcoin as one of the implementations.
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Re: Wiki article - Bitcoin

Post by pokebowl » Tue Sep 12, 2017 3:38 am

TD2626 wrote:
Sun Sep 10, 2017 5:50 pm
I was curious as to why there were so many bitcoin threads lately - and maybe that's because of there being no wiki article. Having this article on the wiki may answer people's basic, low-level questions without the need for an entire thread.
Its not just this website, many a investing forums and communities are going through similar increases in crypto-based discussions. Crypto is currently in a massive upswing and you are seeing the enthusiasm fall out of investing into the many different currencies (both "real" and scams) due to the recent bubble that the medium is currently experiencing. Throw in some stories on how folks threw a couple bucks in several years ago and walked away millionaires and that only adds fuel to the hype train there.

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Re: Wiki article - Bitcoin

Post by objectivefunction » Tue Sep 12, 2017 9:48 am

TD2626 wrote:
Sun Sep 10, 2017 5:50 pm
One could possibly see a situation in which a highly knowledgeable, very experienced investor with a large and otherwise well diversified portfolio of low cost index funds could make an carefully-reasoned argument in favor of a very small allocation - say, 1% - to a diversified basket of cryptocurrencies.
I won't self identify as "a highly knowledgeable, very experienced investor," and I'll let you judge my actual words as to whether they are "carefully-reasoned," but this is exactly what I've been trying to argue for. Others as well. I don't think anyone has come around and argued for going all in on crypto, "carefully-reasoned" or otherwise.
TD2626 wrote:
Sun Sep 10, 2017 5:50 pm
However, those starting bitcoin threads aren't often making those sorts of arguments - it's more commonly the case that someone naive and inexperienced is contemplating an utterly inappropriate action and don't give due weight to the risks that they are taking.
I don't believe this is the case. I would encourage you to read through the many bitcoin threads. Usually they are started by someone saying something about wanting to invest a small amount in bitcoin (characterized as "fun money" "gambling money" etc.) or generally wanting to understand bitcoin and how it works, and what happens is people pile on with sarcastic comments about tuilps, or using scare quotes around words like "coin," or making fallacious arguments that because they don't understand it or have a use for it, then it must be a scam.

I agree with the general thrust of the wiki page, but have some comments:
  • I think the warning at the top of the page is unnecessarily heavy handed. Is there a similar warning on a page about investing in individual stocks? I think it should be enough to say that cryptocurrencies are highly volatile and can be illiquid. You should only invest in cryptocurrencies if you understand them well, and even then only in cryptocurrencies that have a long track record (relatively speaking). I'm in the minority on this, so I don't expect it to change. Fine.
  • Perhaps the "Role in Portfolio" section could be more detailed, saying something like: you should only invest a small portion of your otherwise diversified portfolio in a diversified basket of cryptocurrencies. You should be aware of the risks. You should understand there is a learning curve and start with a very small amount and as you learn and become more comfortable work your way up to no more than 1-5% of your portfolio. You should only invest with money that you are willing to lose. It might also be useful to talk about the practical difficulties of making a "diversified basket of cryptocurrencies." For example, you cannot invest in the whole market because it would require risking too much money, not all cryptocurrencies are sufficiently liquid, and some are outright scams. This means that you have to make a choice of which cryptocurrencies to invest in, which puts you in a more volatile, risky position.
  • Most of the text is copied verbatim from one FIRNA investor alert from 2014. I don't want to say plagiarized, but it is not enough to put a citation with no other indication that you are actually quoting something verbatim. This also leads to an awkward reading in the "Overview" section where it says "Mining serves two purposes. First, the miners ..." but it never comes back around to the second point (which exists in the FIRNA alert but not the wiki). Are there not more recent sources? What would be considered a reliable source?
I have some other quibbles with some of the ways the risks are worded that I think unnecessarily connote more than they need to (exchange insurance "...will usually not cover account-level breaches," but neither does FDIC or SIPC insurance; "If no one accepts bitcoins, bitcoins will become worthless" from a currency perspective this rings true, but not from a commodity perspective, no one accepts corn or crude oil as payment but they are not worthless; "Anonymity" bitcoin is more correctly characterized as pseudononymous), but at this point I don't feel like it is necessary to argue over that. The point is it is risky, and that's what is being communicated.

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Re: Wiki article - Bitcoin

Post by Barry Barnitz » Tue Sep 12, 2017 12:28 pm

HI:

Here are some academic studies from SSRN search on "cryptocurrency":

Hileman, Garrick and Rauchs, Michel, 2017 Global Cryptocurrency Benchmarking Study (April 6, 2017). Available at SSRN: https://ssrn.com/abstract=2965436 or http://dx.doi.org/10.2139/ssrn.2965436
Abstract

The first global cryptocurrency benchmarking study presents a systematic and comprehensive picture of a rapidly evolving industry, illustrating how cryptocurrencies are being used, stored, transacted and mined. The study gathered non-public data from more than 100 cryptocurrency companies and over 30 individual cryptocurrency miners in 38 countries around the world via secure web-based questionnaires, capturing an estimated 75 per cent of the cryptocurrency industry. The study breaks down the cryptocurrency industry into four key sectors – exchanges, wallets, payments and mining. Key findings and highlights from the study include our estimate that over three million unique individuals are actively using cryptocurrency today, data on regulation and compliance practices and costs at firms, and a global map of cryptocurrency mining.

Chen, Shi and Chen, Cathy Yi-Hsuan and Härdle, Wolfgang K. and Lee, TM and Ong, Bobby, A First Econometric Analysis of the CRIX Family (August 30, 2016). Available at SSRN: https://ssrn.com/abstract=2832099 or http://dx.doi.org/10.2139/ssrn.2832099
Abstract

The CRIX (CRyptocurrency IndeX) has been constructed based on approximately 30 cryptos and captures high coverage of available market capitalisation. The CRIX index family covers a range of cryptos based on different liquidity rules and various model selection criteria. Details of ECRIX (Exact CRIX), EFCRIX (Exact Full CRIX) and also intraday CRIX movements may be found on the webpage of hu.berlin/crix.
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Re: Wiki article - Bitcoin

Post by LadyGeek » Tue Sep 12, 2017 9:49 pm

pokebowl wrote:
Tue Sep 12, 2017 3:38 am
TD2626 wrote:
Sun Sep 10, 2017 5:50 pm
I was curious as to why there were so many bitcoin threads lately - and maybe that's because of there being no wiki article. Having this article on the wiki may answer people's basic, low-level questions without the need for an entire thread.
Its not just this website, many a investing forums and communities are going through similar increases in crypto-based discussions. Crypto is currently in a massive upswing and you are seeing the enthusiasm fall out of investing into the many different currencies (both "real" and scams) due to the recent bubble that the medium is currently experiencing. Throw in some stories on how folks threw a couple bucks in several years ago and walked away millionaires and that only adds fuel to the hype train there.
Thanks, that puts things into perspective.
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Re: Wiki article - Bitcoin

Post by LadyGeek » Tue Sep 12, 2017 10:15 pm

Barry Barnitz wrote:
Tue Sep 12, 2017 12:28 pm
Here are some academic studies from SSRN search on "cryptocurrency":
I have incorporated your papers along with the seminal paper which introduced Bitcoin.
objectivefunction wrote:I think the warning at the top of the page is unnecessarily heavy handed. Is there a similar warning on a page about investing in individual stocks? I think it should be enough to say that cryptocurrencies are highly volatile and can be illiquid. You should only invest in cryptocurrencies if you understand them well, and even then only in cryptocurrencies that have a long track record (relatively speaking). I'm in the minority on this, so I don't expect it to change. Fine.
The warnings are targeted for new investors, so we need to keep the terminology easy to understand. "volatile" and "illiquid" won't be understood unless you already have some background in this area.

To answer your question, we insert strong warnings in situations where new investors have a high possibility of doing the wrong thing. We don't have a page on holding individual stocks, as that's part of the Bogleheads® investment philosophy (diversification). Here are a few pages which have warnings:

- Structured products
- Inverse and leveraged ETFs
- Leverage
objectivefunction wrote:Perhaps the "Role in Portfolio" section could be more detailed, saying something like: you should only invest a small portion of your otherwise diversified portfolio in a diversified basket of cryptocurrencies. You should be aware of the risks. You should understand there is a learning curve and start with a very small amount and as you learn and become more comfortable work your way up to no more than 1-5% of your portfolio. You should only invest with money that you are willing to lose. It might also be useful to talk about the practical difficulties of making a "diversified basket of cryptocurrencies." For example, you cannot invest in the whole market because it would require risking too much money, not all cryptocurrencies are sufficiently liquid, and some are outright scams. This means that you have to make a choice of which cryptocurrencies to invest in, which puts you in a more volatile, risky position.
I agree the wording could be expanded.

Additionally, I have revised the footnote to expand John Bogle's statement about "no more than 5% of your portfolio for funny money".
objectivefunction wrote:Most of the text is copied verbatim from one FIRNA investor alert from 2014. I don't want to say plagiarized, but it is not enough to put a citation with no other indication that you are actually quoting something verbatim. This also leads to an awkward reading in the "Overview" section where it says "Mining serves two purposes. First, the miners ..." but it never comes back around to the second point (which exists in the FIRNA alert but not the wiki). Are there not more recent sources? What would be considered a reliable source?
You're absolutely correct. The FINRA investor alert is a poor attempt to make use of limited material.

There's no point to reproduce existing material in the wiki. The FINRA investor alert has been replaced by links to bitcoin.org - the open source project started by Bitcoin's first two developers, Satoshi Nakamoto and Martti Malmi. You can't get any more credible than that.

Additionally, I included a link to the most watched Bitcoin introduction youtube video.
objectivefunction wrote:I have some other quibbles with some of the ways the risks are worded that I think unnecessarily connote more than they need to (exchange insurance "...will usually not cover account-level breaches," but neither does FDIC or SIPC insurance; "If no one accepts bitcoins, bitcoins will become worthless" from a currency perspective this rings true, but not from a commodity perspective, no one accepts corn or crude oil as payment but they are not worthless; "Anonymity" bitcoin is more correctly characterized as pseudononymous), but at this point I don't feel like it is necessary to argue over that. The point is it is risky, and that's what is being communicated.
Can you provide some suggested wording for the wiki article?

======================================

The revised page: Bitcoin

These most recent updates are specific to Bitcoin. We still need to organize the page to address cryptocurrency... (A wiki editor should create a new draft page as User:(editor name)/Cryptocurrency.)
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Re: Wiki article - Bitcoin

Post by TD2626 » Wed Sep 13, 2017 12:02 am

LadyGeek wrote:
Tue Sep 12, 2017 10:15 pm
objectivefunction wrote:I think the warning at the top of the page is unnecessarily heavy handed. Is there a similar warning on a page about investing in individual stocks? I think it should be enough to say that cryptocurrencies are highly volatile and can be illiquid. You should only invest in cryptocurrencies if you understand them well, and even then only in cryptocurrencies that have a long track record (relatively speaking). I'm in the minority on this, so I don't expect it to change. Fine.
The warnings are targeted for new investors, so we need to keep the terminology easy to understand. "volatile" and "illiquid" won't be understood unless you already have some background in this area.

To answer your question, we insert strong warnings in situations where new investors have a high possibility of doing the wrong thing. We don't have a page on holding individual stocks, as that's part of the Bogleheads® investment philosophy (diversification). Here are a few pages which have warnings:

- Structured products
- Inverse and leveraged ETFs
- Leverage
I agree with including strong warnings on articles that are about advanced or highly risky topics. This is something that is too risky to be even be considered as an investment, in my opinion.

(Also - by the way - there is actually an article on individual stocks, here: https://www.bogleheads.org/wiki/Passive ... ual_stocks. It discusses passive, buy-and-hold portfolios of 30+ individual stocks, done in an attempt to produce a DIY index fund with a zero expense ratio and beneficial tax loss harvesting opportunities.)



LadyGeek wrote:
Tue Sep 12, 2017 10:15 pm
These most recent updates are specific to Bitcoin. We still need to organize the page to address cryptocurrency.
One idea:
It may be possible to have everything on one page, say something titled "Bitcoin and Cryptocurrencies"

The only revision needed would be to put a note somewhere on the page saying something along the lines of "Bitcoin is the most popular of many cryptocurrencies. Others, such as Ethereum and Litecoin, are also generally based on blockchain technology. Although this article focuses mostly on Bitcoin, the warnings and risks apply to all cryptocurrencies."

Having prominent references to warnings from the very reliable sources of the SEC and FINRA could also help clarify the high-risk nature of cryptocurrency. It may be nice to set these apart in bold or in their own section instead of having them buried.

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Re: Wiki article - Bitcoin

Post by objectivefunction » Wed Sep 13, 2017 5:19 am

LadyGeek wrote:
Tue Sep 12, 2017 10:15 pm
The warnings are targeted for new investors, so we need to keep the terminology easy to understand. "volatile" and "illiquid" won't be understood unless you already have some background in this area.
Yes, that's reasonable! I think the warning should stay then.
LadyGeek wrote:
Tue Sep 12, 2017 10:15 pm
objectivefunction wrote:Most of the text is copied verbatim from one FIRNA investor alert from 2014. I don't want to say plagiarized, but it is not enough to put a citation with no other indication that you are actually quoting something verbatim. This also leads to an awkward reading in the "Overview" section where it says "Mining serves two purposes. First, the miners ..." but it never comes back around to the second point (which exists in the FIRNA alert but not the wiki). Are there not more recent sources? What would be considered a reliable source?
You're absolutely correct. The FINRA investor alert is a poor attempt to make use of limited material.
I actually thought the overview from the FIRNA alert was a pretty good description of Bitcoin. I would have preferred that it was quoted fully and clear that it was a quote. If we want this to be a more general cryptocurrency page, I could make an attempt at writing an overview and risks.
TD2626 wrote:
Wed Sep 13, 2017 12:02 am
Having prominent references to warnings from the very reliable sources of the SEC and FINRA could also help clarify the high-risk nature of cryptocurrency. It may be nice to set these apart in bold or in their own section instead of having them buried.
I agree. Though the reference from the SEC is about ICOs, which is a slightly different topic that perhaps deserves some treatment.

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Re: Wiki article - Bitcoin

Post by Uncle Pennybags » Wed Sep 13, 2017 7:46 am

TD2626 wrote:
Wed Sep 13, 2017 12:02 am
This is something that is too risky to be even be considered as an investment, in my opinion.
Legitimate option trading is too risky for the casual investor. Trying to compete with insiders at their game is like a beer league softball player trying to hit a big league chin high fastball. They are going to windup on their butt.
objectivefunction wrote:
Wed Sep 13, 2017 5:19 am
Though the reference from the SEC is about ICOs, which is a slightly different topic that perhaps deserves some treatment.
Paris Hilton is pump n' dump a new "coin". "Coin" mania will end soon. Bogleheads having a Wiki shows the end is near.

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Re: Wiki article - Bitcoin

Post by LadyGeek » Wed Sep 13, 2017 8:42 pm

objectivefunction wrote:
Wed Sep 13, 2017 5:19 am
I actually thought the overview from the FIRNA alert was a pretty good description of Bitcoin. I would have preferred that it was quoted fully and clear that it was a quote. If we want this to be a more general cryptocurrency page, I could make an attempt at writing an overview and risks.
I felt that fully quoting the entire section would violate the copyright notice, hence my attempt to shorten the content. The result was to miss the important points.

Instead, I have revised the "Overview" section to (hopefully) introduce Bitcoin in a more sensible manner. The FINRA alert is at the top of the stack, followed by the youtube video, Wikipedia, then bitcoin.org. I gave a brief description which should help guide readers on what to read first.

The page has been revised: Bitcoin

Note the new developer ("Programming") references at the bottom of the page. Heads up: Free online book!
TD2626 wrote:...(Also - by the way - there is actually an article on individual stocks, here: https://www.bogleheads.org/wiki/Passive ... ual_stocks. It discusses passive, buy-and-hold portfolios of 30+ individual stocks, done in an attempt to produce a DIY index fund with a zero expense ratio and beneficial tax loss harvesting opportunities.)
Thanks, I missed that one. (It gave me an opportunity to fix the navigation menu at the bottom of the page.) Passively managing individual stocks
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Re: Wiki article - Bitcoin

Post by LadyGeek » Wed Sep 13, 2017 8:50 pm

Addressing the interest to write about Cryptocurrency and / or reorganizing the Bitcoin page. I underlined the intended efforts:
TD2626 wrote:
LadyGeek wrote:
Tue Sep 12, 2017 10:15 pm
These most recent updates are specific to Bitcoin. We still need to organize the page to address cryptocurrency.
One idea:
It may be possible to have everything on one page, say something titled "Bitcoin and Cryptocurrencies"

The only revision needed would be to put a note somewhere on the page saying something along the lines of "Bitcoin is the most popular of many cryptocurrencies. Others, such as Ethereum and Litecoin, are also generally based on blockchain technology. Although this article focuses mostly on Bitcoin, the warnings and risks apply to all cryptocurrencies."

Having prominent references to warnings from the very reliable sources of the SEC and FINRA could also help clarify the high-risk nature of cryptocurrency. It may be nice to set these apart in bold or in their own section instead of having them buried.
objectivefunction wrote:
Wed Sep 13, 2017 5:19 am
I actually thought the overview from the FIRNA alert was a pretty good description of Bitcoin. I would have preferred that it was quoted fully and clear that it was a quote. If we want this to be a more general cryptocurrency page, I could make an attempt at writing an overview and risks.
redstar wrote:
Mon Sep 11, 2017 9:42 pm
Hey, I saw the article and would be happy to help where needed. I totally understand not diving too deep technically, but if there are some frequently asked questions from forum threads, it might be worth including them. I've been messing around with cryptocurrencies for years and would be happy to try to draft some language around those.
I have created a new draft page that could be used for this update: User:LadyGeek/Cryptocurrency

We could also create a new draft page for Bitcoin if updating the current "live" page would be disruptive to the readers. Once the update is complete, we can then go "live". (Any wiki editor can create this page as User:(your username)/Bitcoin)

Post your content here. Wiki editors can edit the page directly.
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Re: Wiki article - Bitcoin

Post by LadyGeek » Wed Sep 13, 2017 8:52 pm

On the definition of Bitcoin as a commodity:
Tanelorn wrote:
Mon Sep 11, 2017 9:34 pm
In reference to the above, I wasn't saying I was any more authoritative than the Forbes author, as I am certainly not an expert on BC, just giving my reasons for how I thought about the asset class / allocation question.

In terms of constructive suggestions for the Wiki, I would suggest changing the section where you call it a commodity. The argument presented is that the regulators want to regulate it as a commodity, but that's independent of its investment role. Maybe this is just symantics, but I think it's more correct to call it a currency.

Commodities are things like hogs and oil, currencies are things people use as a medium of exchange. While both can be and are typically exchange traded, nobody eats BCs or builds anything out of them and they're designed to function as a currency. The longer term investment case is arguably derived from a combination of scarcity (limited supply) and use for transactions. Until the recent increase in cost, there was hope that BC would be cheaper than credit card fees and would facilitate online micro payemnts. Yes, it's not a widely accepted currency (yet) and it's volatile, but that's true of many smaller "real" currencies as well.
Do you (or anyone else) have some suggested wording and a reliable source you can link to?
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Re: Wiki article - Bitcoin

Post by laohan » Thu Sep 14, 2017 6:42 pm

LadyGeek wrote:
Wed Sep 13, 2017 8:52 pm
On the definition of Bitcoin as a commodity:
Tanelorn wrote:
Mon Sep 11, 2017 9:34 pm
In reference to the above, I wasn't saying I was any more authoritative than the Forbes author, as I am certainly not an expert on BC, just giving my reasons for how I thought about the asset class / allocation question.

In terms of constructive suggestions for the Wiki, I would suggest changing the section where you call it a commodity. The argument presented is that the regulators want to regulate it as a commodity, but that's independent of its investment role. Maybe this is just symantics, but I think it's more correct to call it a currency.

Commodities are things like hogs and oil, currencies are things people use as a medium of exchange. While both can be and are typically exchange traded, nobody eats BCs or builds anything out of them and they're designed to function as a currency. The longer term investment case is arguably derived from a combination of scarcity (limited supply) and use for transactions. Until the recent increase in cost, there was hope that BC would be cheaper than credit card fees and would facilitate online micro payemnts. Yes, it's not a widely accepted currency (yet) and it's volatile, but that's true of many smaller "real" currencies as well.
Do you (or anyone else) have some suggested wording and a reliable source you can link to?
Perhaps "asset" is the easiest description. Currency and commodity both have other implications and implied meanings, which people tend to be passionate about. Asset largely avoids the problem.

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Re: Wiki article - Bitcoin

Post by J G Bankerton » Thu Sep 14, 2017 10:39 pm


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Re: Wiki article - Bitcoin

Post by TD2626 » Fri Sep 15, 2017 1:34 am

laohan wrote:
Thu Sep 14, 2017 6:42 pm
LadyGeek wrote:
Wed Sep 13, 2017 8:52 pm
On the definition of Bitcoin as a commodity:
Tanelorn wrote:
Mon Sep 11, 2017 9:34 pm
In reference to the above, I wasn't saying I was any more authoritative than the Forbes author, as I am certainly not an expert on BC, just giving my reasons for how I thought about the asset class / allocation question.

In terms of constructive suggestions for the Wiki, I would suggest changing the section where you call it a commodity. The argument presented is that the regulators want to regulate it as a commodity, but that's independent of its investment role. Maybe this is just symantics, but I think it's more correct to call it a currency.

Commodities are things like hogs and oil, currencies are things people use as a medium of exchange. While both can be and are typically exchange traded, nobody eats BCs or builds anything out of them and they're designed to function as a currency. The longer term investment case is arguably derived from a combination of scarcity (limited supply) and use for transactions. Until the recent increase in cost, there was hope that BC would be cheaper than credit card fees and would facilitate online micro payemnts. Yes, it's not a widely accepted currency (yet) and it's volatile, but that's true of many smaller "real" currencies as well.
Do you (or anyone else) have some suggested wording and a reliable source you can link to?
Perhaps "asset" is the easiest description. Currency and commodity both have other implications and implied meanings, which people tend to be passionate about. Asset largely avoids the problem.
It is very hard to determine what to call it. For the Bitcoin article, maybe one can dodge things by referring to it as a cryptocurrency. But you still then have to define cryptocurrency for that article.

Then, though, one would still have to define cryptocurrency. I guess "asset" is fairly neutral, although in my opinion that implies that it has value. It may or may not have any value (and in my opinion it doesn't have much foreseeable value). Other terms, like "entity" or "phenomenon" are too vague. Of course, for tax purposes, whatever the IRS rules goes. Note, though, that if you don't put money in Bitcoin, you don't have to deal with the tax implications - and since speculation is a bad idea, hopefully responsible investors will avoid the excessive risk and not need to deal with those tax ramifications.

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Re: Wiki article - Bitcoin

Post by LadyGeek » Fri Sep 15, 2017 6:32 pm

"Asset" is too general for this purpose, as many investors will think of stocks and bonds first.
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Re: Wiki article - Bitcoin

Post by lack_ey » Fri Sep 15, 2017 7:58 pm

LadyGeek wrote:
Fri Sep 15, 2017 6:32 pm
"Asset" is too general for this purpose, as many investors will think of stocks and bonds first.
You think so? I think that calls to mind real estate, valuables, etc. in addition to financial assets like stocks and bonds, whatever else has value.

But do you really need to define which asset class this is for the purposes of the wiki? It's different enough from traditional currencies, commodities, and everything else that providing a classification doesn't really increase anybody's understanding of the underlying. It's relevant to note the tax/regulatory position, but I don't think you need to find an existing label for it for potential investment purposes.

From an investment point of view, it's just something with zero carry, no return from cash flows or coins multiplying on their own. You buy in and hope the price you sell for later is higher. Kind of more like precious metals or collectibles/art (though the scarcity and limited supply works somewhat differently) in that sense, but with very little performance history, more systemic risks, higher volatility, technological caveats, and the fact that the cryptocurrencies you actually hold might not be the ones that are going to be in higher use later (or that higher use would even translate to higher exchange rates later).

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Re: Wiki article - Bitcoin

Post by Valuethinker » Sun Sep 17, 2017 7:19 am

LadyGeek wrote:
Wed Sep 13, 2017 8:52 pm
On the definition of Bitcoin as a commodity:
Tanelorn wrote:
Mon Sep 11, 2017 9:34 pm
In reference to the above, I wasn't saying I was any more authoritative than the Forbes author, as I am certainly not an expert on BC, just giving my reasons for how I thought about the asset class / allocation question.

In terms of constructive suggestions for the Wiki, I would suggest changing the section where you call it a commodity. The argument presented is that the regulators want to regulate it as a commodity, but that's independent of its investment role. Maybe this is just symantics, but I think it's more correct to call it a currency.

Commodities are things like hogs and oil, currencies are things people use as a medium of exchange. While both can be and are typically exchange traded, nobody eats BCs or builds anything out of them and they're designed to function as a currency. The longer term investment case is arguably derived from a combination of scarcity (limited supply) and use for transactions. Until the recent increase in cost, there was hope that BC would be cheaper than credit card fees and would facilitate online micro payemnts. Yes, it's not a widely accepted currency (yet) and it's volatile, but that's true of many smaller "real" currencies as well.
Do you (or anyone else) have some suggested wording and a reliable source you can link to?
There are enough similarities between Bitcoin & commodities to make that a reasonable analogy.

Commodities have been widely used in history as a means of exchange-- swaps of commodities take place either when money is too thinly available (underdeveloped economies, rigid monetary control systems) or for other reasons (eg to avoid taxation on monetary sales or income).

Bitcoin is not a currency (at least not yet). It's a financial asset.

Since commodities are generally consumed, perhaps the strongest analogy is to precious metals, and in particular gold, whose main uses are decorative. Gold is not consumed, it just remains as a stockpile somewhere, in some form.

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Re: Wiki article - Bitcoin

Post by Valuethinker » Sun Sep 17, 2017 7:22 am

TD2626 wrote:
Fri Sep 15, 2017 1:34 am
laohan wrote:
Thu Sep 14, 2017 6:42 pm
Perhaps "asset" is the easiest description. Currency and commodity both have other implications and implied meanings, which people tend to be passionate about. Asset largely avoids the problem.
It is very hard to determine what to call it. For the Bitcoin article, maybe one can dodge things by referring to it as a cryptocurrency. But you still then have to define cryptocurrency for that article.

Then, though, one would still have to define cryptocurrency. I guess "asset" is fairly neutral, although in my opinion that implies that it has value. It may or may not have any value (and in my opinion it doesn't have much foreseeable value). Other terms, like "entity" or "phenomenon" are too vague. Of course, for tax purposes, whatever the IRS rules goes. Note, though, that if you don't put money in Bitcoin, you don't have to deal with the tax implications - and since speculation is a bad idea, hopefully responsible investors will avoid the excessive risk and not need to deal with those tax ramifications.
In an accounting sense, an asset is defined as "owned or controlled, held for creation of future economic value". Generally (I'll leave aside IFRS Fair Value accounting for the moment ;-)) held at "the lower of cost or net realizable (i.e. written down) value"-- Prudence Principle at work.

In other words, an asset is held as an asset where there is a reasonable expectation of a future inflow of cash to the company which owns or controls it.

Bitcoin is an asset on this definition albeit a speculative one.

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Re: Wiki article - Bitcoin

Post by Tanelorn » Sun Sep 17, 2017 7:37 am

Valuethinker wrote:
Sun Sep 17, 2017 7:19 am
Since commodities are generally consumed, perhaps the strongest analogy is to precious metals, and in particular gold, whose main uses are decorative. Gold is not consumed, it just remains as a stockpile somewhere, in some form.
Thinking about BitCoin has a high volatility version of gold is probably about right from an investment perspective. I don't own any gold, but there are people who want an allocation in their portoflio to it (Permanent Portfolio), and having BitCoin could address similar risks in a portfolio context, hedging against inflation and geopolitical risk. Both gold and BitCoin are also subject to regulatory risks, like when gold ownership was outlawed in the 1930s-1970s and how China is taking steps to restrict trading various cryptocurrencies.

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Re: Wiki article - Bitcoin

Post by incognito_man » Sun Sep 17, 2017 9:48 am

Tanelorn wrote:
Sun Sep 17, 2017 7:37 am
Valuethinker wrote:
Sun Sep 17, 2017 7:19 am
Since commodities are generally consumed, perhaps the strongest analogy is to precious metals, and in particular gold, whose main uses are decorative. Gold is not consumed, it just remains as a stockpile somewhere, in some form.
Thinking about BitCoin has a high volatility version of gold is probably about right from an investment perspective. I don't own any gold, but there are people who want an allocation in their portoflio to it (Permanent Portfolio), and having BitCoin could address similar risks in a portfolio context, hedging against inflation and geopolitical risk. Both gold and BitCoin are also subject to regulatory risks, like when gold ownership was outlawed in the 1930s-1970s and how China is taking steps to restrict trading various cryptocurrencies.
I agree. I think of all the existing asset categories, gold comes closest to describing Bitcoin. The absolute limited supply of gold immediately disqualifies fiat currencies as a accurate descriptor. Bitcoin's lack of intrinsic value immediately disqualify stocks. etc.

Gold is really the only thing left that doesn't have any immediate disqualifiers. Note that the industrial uses of gold do not give gold its value, so I don't think the lack of industrial uses of Bitcoin are important.

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Re: Wiki article - Bitcoin

Post by LadyGeek » Sun Sep 17, 2017 10:14 am

Perhaps we can add some "insight" beyond the formal definition. Here's the current description.
Bitcoin is a commodity. The Commodity Futures Trading Commission (CFTC) has ruled that Bitcoin and other virtual currencies are a commodity covered by the Commodity Exchange Act.[6][note 2]

Note 2: Commodities are marketable items produced to satisfy wants or needs. Economic commodities comprise goods and services. See: Commodity, on Wikipedia.
The description can be conditioned with "Some Bogleheads forum members describe Bitcoin as...", for example.

If we have a consensus, the article can be updated.
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Re: Wiki article - Bitcoin

Post by lack_ey » Sun Sep 17, 2017 10:35 am

There are still plenty of important differences with precious metals, but the "digital gold" formulation is not something unique to here.

There's for example an article in The Guardian calling it just that:
https://www.theguardian.com/technology/ ... ransomware

A book:
https://www.amazon.com/Digital-Gold-Art ... B075LRBVQL

Apparently a German TV broadcast:
https://news.bitcoin.com/german-tv-chan ... ital-gold/

We have thousands of years of gold being worth something to people, with the historical usage in and relation to currency, without it getting supplanted by some other precious metal or material. Bitcoin is man-made and designed from scratch, and could be replaced. In fact, it has a number of technical weaknesses and downsides compared to other cryptocurrencies and potential designs, including the heavily wasteful resource (mostly power) consumption behind the network and theoretical security concerns, and its usage rides heavily on its first-mover advantage. It takes longer to confirm Bitcoin transactions than many other cryptocurrencies. There are concerns about the powers that be that maintain it—evidenced by a recent fork in the currency, no less—especially given that the creator is MIA. Ironically as the exchange rate increases, the usability for micropayments decreases, making it less valuable in at least one reasonable use case.

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Re: Wiki article - Bitcoin

Post by Valuethinker » Sun Sep 17, 2017 12:17 pm

Tanelorn wrote:
Sun Sep 17, 2017 7:37 am
Valuethinker wrote:
Sun Sep 17, 2017 7:19 am
Since commodities are generally consumed, perhaps the strongest analogy is to precious metals, and in particular gold, whose main uses are decorative. Gold is not consumed, it just remains as a stockpile somewhere, in some form.
Thinking about BitCoin has a high volatility version of gold is probably about right from an investment perspective. I don't own any gold, but there are people who want an allocation in their portoflio to it (Permanent Portfolio), and having BitCoin could address similar risks in a portfolio context, hedging against inflation and geopolitical risk. Both gold and BitCoin are also subject to regulatory risks, like when gold ownership was outlawed in the 1930s-1970s and how China is taking steps to restrict trading various cryptocurrencies.
Yes. It's not (yet) really a currency. And it behaves far too much like a speculative financial asset for it to be a currency (so far).

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Re: Wiki article - Bitcoin

Post by J G Bankerton » Mon Sep 18, 2017 9:11 am

"Cryptocurrency" is not legal tender. When most think of currency they think of legal tender. Calling it currency gives it a legitimacy it does not deserve.

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