18
Jun

Fundamentals and Long-Term Predictions: Bitcoin and Commodity Metals

by adminadam in articles, home

  • INTENDED AUDIENCE: Beginning to intermediate investors, technologists, cryptocurrency enthusiasts
  • READ TIME: 30 minutes
  • NOTE: This article is not intended as financial or investment advice. Be sure to do your own research or consult your financial advisor before making any investment decisions.

STARTING ASSUMPTIONS: COMMODITIES IN GENERAL

  • Commodities are generally volatile over the span of days, weeks, and months.
  • Over longer time-frames, reduced volatility and greater price stability may be observed. No guarantees, however.
  • Most natural commodities have a cyclical component, with periodic booms and busts. This can be seen in oil, gold, wheat, and so on and on.
  • Supply and demand for any asset can influence the price just as much as sentiment can.
  • Markets may appear or act in irrational ways even over an extended period of time.
  • Distortions of data which hinder your ability to make accurate predictions may arise from imperfect information, complex regulatory environments, or other factors.
  • Known or estimated scarcity in a given commodity may generally be viewed as “bullish” in terms of price fundamentals, although not everything that is rare fetches a consistently high price on the open market, certain collectibles for instance.
  • Macro-economic trend analysis and forecasting is difficult for many reasons, some of which are listed above. I would posit, however, that improvements in forecasting and prediction methodologies should proceed in lock-step with advances and refinements in Big Data and Machine Learning. For example, see: Orbital Insight, a satellite Big Data company which today offers Machine Learning-derived “actionable insights”. This includes everything from infrared-mappings of chlorophyll activity being used to predict crop yields to live-streamed retail activity tracking utilizing shopper car-count and traffic patterns.

STARTING ASSUMPTIONS: COMMODITY METALS

  • As far as commodity and precious metals specifically, I would first assume you already have some understanding of — or can imagine — how metals such as gold, platinum, and silver can be seen performing distinct functions in the different realms of industry, technology, and finance. For example:
    • Central Bank gold bullion reserves [finance];
    • Platinum in catalytic converters [industry]; and
    • Physical vapor deposition of silver for thin-film solar panels [technology]
  • Next, I assume you can appreciate that an American Gold Eagle Coin costing $1330 and a New Zealand Darth Vader Silver Coin costing $21 don’t compete for the same market segment. This is true despite the fact that both coins are well-engineered and are made of precious metals.
    • You would recognize that gold’s superior valuation over that of silver is strongly correlated to the abundance (or paucity) of each element in Earth’s crust. Specifically, 75 parts-per-billion of silver and 4 parts-per-billion of gold are thought to exist in aggregate, roughly an 18:1 ratio.
    • Additionally, you could differentiate between an “investment-grade coin” and a numismatic coin if asked to do so.

      Darth Vader 1 Oz. Silver Numismatic Coin (New Zealand Mint)

  • Finally, I would suggest that a long-term investor who is evaluating precious metal coins and bullion to add to his/her portfolio would most likely want to select coins with qualities such as name recognition and convenience (high fungibility and ease of transport and storage). Later on in the article, I will offer a few suggestions of coins that I feel meet these criteria.

STARTING ASSUMPTIONS: BITCOIN

  • You have at least a little understanding of how bitcoin and other cryptocurrencies can be employed for distinct purposes, each use-case arguably aligning with one of the following four categorizations:
    1. Store of Value
    2. Medium of Exchange
    3. Distributed Public Ledger
    4. Programmable Token Platform
  • Store of Value:
    • ‘bitcoin’ (the coin) is a deflationary commodity with, I perceive, a significant-yet-undefined amount of capital appreciation potential extending out into the future.
    • That only 21 million units will ever come into existence is axiomatic to the Bitcoin protocol and software.
    • Bitcoin’s monetary policy can best be described as “Asymptotic Money Supply Targeting” (AMST). In actuality, the total number of coins in existence will approach but never reach 21 million even on an infinite time horizon. See Nakamoto Institute commentary for more on this: “The Bitcoin Central Bank’s Perfect Monetary Policy
  • Medium of Exchange: With bitcoin you can:
    • Buy gift cards from Gyft to use at your favorite retailer
    • Buy precious metal coins and bullion from Provident Metals
    • Execute trades on 50+ financial markets using Whaleclub.co‘s online exchange
    • Send either currency-pegged or floating-rate cross-border payments using Coinapult
  • Distributed Public Ledger:
    • As per the design of the Bitcoin protocol, you can view and audit all transactions, and all blocks of bitcoin transactions, starting from the original “Genesis Block” generated on Jan. 3, 2009, and extending to the most recent blocks.
    • This transaction ledger is referred to as the “block chain”.
    • See: Wiki; Blockchain History.
  • Programmable Token Platform:
    • You could think of Bitcoin (the network) as a “distributed, peer-to-peer, cryptographic asset network with built-in APIs” in the abstract.
    • To unpack this a bit, individual bitcoins or fractions of a coin are discrete, transferable bits of data.
    • These transferable (and divisible) “units” are cryptographically secured using a keychain (private key) that you control.
    • As well as allowing you to exchange and hold these ‘value tokens’, the bitcoin network does three things to create a novel digital infrastructure platform AND asset-class. To give a concise summary is difficult, but these are the three basic things that the Bitcoin network does:
      1. It coordinates resources to form a consensus on which coins are legitimate and which transactions are valid. This ensures no one cheats by trying to “double-spend” their coins or make an infinite number of them.
      2. It checks that every user and node in the network is using the same copy of the rules that govern bitcoin interactions, like what types of transactions are allowed. The way the network is constructed serves to incentivize users to adopt a consistent set of standards. These policies and mechanisms, including how “mining” works, are defined in the Bitcoin Protocol Specification.
      3. While the consensus can shift over time to accommodate upgrades to the network, it is fairly conservative. However, its conservatism and consistency in design in effect form a solid technical foundation that facilitates construction of secondary network layers and new capabilities starting from simple propositions. For example:
        • An individual transaction input (token) can be given an arbitrary association, which is recorded and embedded in the blockchain forever.
        • This embedded information can be anything from a plain text snippet, to a link to code functions, to a simple URL.
        • “Jobs”, a.k.a ‘Smart Contracts’, can be built using such basic, logic-based building blocks.
        • Users and Developers can set up such Jobs to be run automatically under X, Y, or Z conditions.
        • In the most abstract sense, this could be equated to “running a virtual machine on Bitcoin’s Virtual Machine Network”.
        • Two other applications which are usable today are: Multi-Signature Wallets with shared, custodial control; and Blockchain Identity and ID Protection services. Respectively, see: Copay.io‘s “multi-sig wallet” and Civic’s free ID Theft Prevention service.
        • All of these so-called “Blockchain Applications” rely on A) Bitcoin’s consistent consensus rules and incentives; and B) its highly secure, publicly auditable, and most importantly unredactable ledger.

PURPOSEFUL SPECULATION: A THOUGHT EXERCISE

Having established these starting assumptions, my hope is that the reader would then be prepared to consider how the consumption and application of these tangible and ethereal resources may change over time. Might we now be able to consider use cases and comparisons that would have sounded ludicrous previously? My thesis is that over time, compounded by the pace of technological change, what is currently difficult to imagine becomes imaginable, which next becomes difficult or unwieldy, ultimately becoming economical, feasible; common-place and eventually taken for granted. For instance, few of those present at the dawn of the internet imagined or could have conceived of live-streaming high-fidelity video and audio to thousands of fans at once. My belief is that performing such brainstorming exercises — even when it results in mostly ‘bad ideas’ — helps the individual to visualize a possibility-space which they may never have otherwise done…

To start off, here is a fanciful scenario involving Biotech, Coordinated Nanobot Swarms, and P2P Cloud Computing:

  • Individual gold-infused nano-particles associated with specific atomic-bitcoin units enable adaptive and highly-targeted drug delivery to extinguish rapidly proliferating cells throughout the body of a leukemia patient.
  • This computationally intensive effort is orchestrated using heterogeneous compute resources leased from various locations around the world via an automated smart-contract bidding process executed on the OpenBazaar market clearinghouse.
  • During this process a whole-body map is also drawn, updating the previous records stored in a hashed-and-encrypted format in the blockchain, protecting patient privacy…
  • Simultaneously a perfect, auditable 4D recording of the whole procedure is generated to mitigate malpractice claim risk to the medical practitioners who are supervising the process.
  • Ultimately, the operation is a success; the patient walks away cancer-free the very same day.

Here is a starkly more mundane example using an analogy that highlights a trait that gold and bitcoin have in common:

  • Gold is to scarce physical resources as Bitcoin is to scarce digital resources;
  • Neither asset can feasibly be manufactured artificially or independently;
  • Neither asset can be generated or acquired though means other than:
    • physical resource extraction and refining in the case of gold; or
    • verifiable computational work doing SHA256 hash calculations; these are entered into a drawing every ten minutes for a chance to win the ‘coinbase’ lottery known as the bitcoin “block reward” (currently 12.5 BTC for each new block).

A somewhat plausible-sounding scenario, using bitcoin to record and track gold deposits in vaults:

  • A private bullion vault offers a blockchain-based recording and tracking service to customers who have gold delivery bars on deposit in their vault.
  • This service correlates and stores the individual delivery bar’s assay records, origin data and other identifiers in the bitcoin ledger, creating a permanent association with a specific bitcoin tracking token, which none other than the legal and rightful owner of the gold can control or use to track and audit their holdings.
  • Additional thoughts: physical asset tags, QR codes, and RFID chips could potentially be added to further improve remote auditing capabilities.
  • An extension of this: starting with this well-tracked physical gold and building off of a smart-contract platform like Rootstock, you could tokenize your bullion to use as collateral for new and risk-laden enterprises, or for the formation of (truly!) gold-backed derivative products, like malleable personal Exchange-Traded Commodity Funds, and so on.

A wild-sounding notion with unknown practicability: silver-atom spin-state CPU R&D with quantum compute resources leased using bitcoin:

  • Silver atom quantum spin states modulated remotely using quantum computing processor time, leased with bitcoin on-demand.
  • Use this to test and simulate novel arrangements of silver atoms.
  • Next, using the test data, design and build a prototype silver-substrate, meta-material CPU that will allow us to extend Moore’s Law for traditional Von Neumann architectures for an additional decade.

Any of the above speculative scenarios may or may not come to pass. Personally, I find it enjoyable to fit the various commodity ‘puzzle pieces’ together, to try and picture how the interactions between metals and cryptocurrency might affect the fundamentals over time. This is an exploration of edge-cases, really. So take the above with a grain of salt. In the end you will have to decide how much you want to embrace a more speculative, growth-minded approach to commodity investing vs. a more conservative, value-investor angle. Either way I believe diversification, periodic portfolio rebalancing, and long-term planning to be essential. In any case, make sure you know why you are investing your hard-earned money, whether it be in commodities, equities, real estate, art, or otherwise.

I will say that one of my strongest convictions, though, is that the ‘all-cash position’ is unwise and will lead to successively less purchasing power for the ‘under the mattress’ investor. At the very least, if one feels uncertain about equities, bonds, interest rates, the state of the world… I believe an allocation to gold and silver of at least 10%, whether the rest is all in cash or not, should lend stability and optionality to an individual who is fearful or ‘excessively risk-averse’.

Now that we’ve explored a variety of speculative scenarios and fundamental investing principles, let’s get back to basics.

BACK TO BASICS: MY APPROACH TO PRECIOUS METALS

Gold has stood the test of time as a store of value. This should be well-known and understood to the reader already. For thousands of years humans have relied on gold’s scarcity, fungibility, and material properties to protect and exchange wealth. To me, gold is a great hedge against inflation and rising interest rates, which might degrade the performance of otherwise high-yield, fixed-income investment vehicles like bonds. Gold has limited upside potential, I believe. Although having gone through the thought exercises above, I am sure you could envision new uses for gold and other precious metals emerging over time; perhaps interacting in a nexus with bitcoin and other crypto-assets.

One way in which the Gold-Bitcoin Dynamic can be explored presently is with the Vaultoro Exchange, where users trade gold and bitcoin directly, with no settlement to USD or any other fiat currency at any point. It is a full-reserve service and exchange, with storage of gold in private Swiss vaults, fully attributed to the customer. The exchange operates continuously, 24/7/365.

Vaultoro represents a sophisticated offering in our day in my view. However, in the future I can imagine exchanges like Vaultoro taking a greater variety of forms, with expanded feature sets. For example, I could see such exchanges offering margin-trading, partial or shared ownership of assets, more automation and scripting options, etc. To experiment with the current offerings and gold-bitcoin exchange features might allow an individual to better conceptualize subsequent iterations and evolutions of such combined metal-and-crypto platforms.

Ultimately, whether you store it in private vaults or at home in a safe, gold remains a viable option for maintaining wealth over the span of 5 to 10 to 20 years in my mind.

A few of the physical gold products which to live up to my personal standards for convenience and name recognition include:

  1. American Gold Eagles (1 ozt. gold coin; ~$1330 currently)
  2. South African Krugerrands (1 ozt. gold coin; ~$1285 currently)
  3. Canadian Gold Maple Leaf (1 ozt. gold coin; $1290 currently)
  4. The 1/4 ozt. sizes of any of the above, which at ~$350 per coin are more affordable for those just getting started in investing
  5. Any National-Mint One Kilogram Gold Bars (1 kg gold bar; ~$40,800 currently)

Silver has served most often as a reliable smaller-denomination currency coin or ‘bearer instrument’. Silver’s importance in industrial, healthcare, and technological realms is unmatched. Copper emulates some but not all of the properties of silver. As a result of this, silver will likely always be an essential commercial and industrial commodity. Many investors and silver-promoters present a theses concerning “the eventual and sudden collapse in the supply of silver”, which some speculate will result in huge price appreciation. For example, some people will tell you that the silver price, under disastrous or critical-supply scenarios, is poised to jump from ~$17/ozt. to a price northwards of $80 or $100 per ounce. I can’t speak to and don’t necessarily endorse these views. However, I do think that the possibility of a supply-collapse resulting from an uptick in industrial consumption of the metal, combined with dire economic data and rapid inflation, should be considered. I like to think of it as a risk with unlikely probability but high impact. At this point, I would generally echo the notion that an investor looking to maintain his or her wealth through precious metals should likely only take on a position combining gold and silver of 5% to 10% of the portfolio at most. Remember that precious metals can be quite volatile themselves.

Some questions to consider in forming an allocation target for silver in your portfolio, should you choose to do so, are:

  • How much liquidity do you expect you will need in an emergency or a sudden economic downturn, knowing that some of the more popular silver coins are probably easy to sell for around $15-20 a piece at any local coin shop?
  • Are you bullish on the fundamentals of the metal for industrial and technological uses; do you expect to benefit from capital appreciation by investing in silver?
  • Do you have another reason, aesthetic, diversification-related, or otherwise for wanting to own silver?

My favorite investment-grade physical silver products include:

  • American Silver Eagles (1 ozt. silver coin; ~$19 currently)
  • Canadian Silver Maple Leaf (1 ozt. silver coin; ~$19 currently)
  • Silver One Kilogram Bars from reputable vendors such as Asahi, Geiger, Apmex, Valcambi (~$570 on average)

As an aside, my favorite numismatic silver coin is: the Austrian Maria Theresa Thaler, minted continuously starting from the mid-18th century. It typically carries only the symbolic year of 1780 to commemorate the end of Maria Theresa’s reign as Empress of the Austro-Hungarian Empire.

ASSESSMENT OF OTHER METALS: PLATINUM, PALLADIUM, COPPER

I am somewhat curious about Palladium, having recently learned via a Macro Voices podcast episode that this metal is poised to absorb some portion of the catalytic converter role that Platinum has traditionally performed.

Platinum is pleasant aesthetically; it’s very rare in the Earth’s crust, however I have no desire myself to own it as it looks no different than silver to the casual observer. Again name and visual recognition constitute my first requirement for “investment-grade metals”.

Copper is critical in infrastructure, healthcare, and technological realms. However, it’s value as measured in dollars has declined from roughly $4.00 per pound to around $2.50 per pound over the last 20 years.

I find looking at comparison charts and 20-year charts for these metals, gold and silver to be helpful. Here are three such charts from Provident Metals:

Source: https://www.providentmetals.com/spot-price/chart/gold/ (see also: comparison charts)

The 20-year performance trend breakdown and rankings for the five metals is:

  1. Gold UP 4X: $300 to $1200
  2. Palladium UP 3X+: $250 to $850
  3. Silver UP 3X: $5 to $15
  4. Platinum relatively UNCHANGED: $830 to $930
  5. Copper DOWN: $4.00 to $2.50

FUNDAMENTAL CAPABILITIES OF BITCOIN

  • Act as the arbiter of truth in situations where strangers and business partners cannot trust each other
  • Enable nearly-unlimited sum payments internationally that settle within an hour for a minimal fee, without the oversight or interference of 3rd parties like banks and remittance companies
  • Boot-strap and launch a store of value asset protocol based on mathematically-provable scarcity with ever-growing computing power used to secure said assets

My approach to evaluating Bitcoin based on its fundamental capabilities. I would ask myself these questions:

  1. The idea that blockchain records and other data can never be expunged or tampered with; how much is this worth to me?
  2. How might I be limited by either lack of banking/remittance infrastructure, poor customer service, high fees, the interference of middle-men in my financial affairs, etc.?
  3. On this note, am I comfortable being one of the first people I know to try out this new technological money system?
  4. To what extent do I believe various network effects are likely to keep Bitcoin firmly cemented in the dominant position in an ecosystem of rapidly-proliferating crypto-assets and alternative cryptocurrencies: Developer Mind Share; Store of Value Network; User Activity; Miner Hashing Power, etc.?

With the above questions as a starting point — and ideally with the speculative scenarios in mind to help calibrate your thinking nearer to the conclusion of your assessment of Bitcoin — hopefully you have a better sense now than when you started reading the article of how you can determine for yourself Bitcoin’s “Worthiness as an Investment”.

Thank you for reading and all the best to you!


Should you have any questions, feedback, or other inquiries, please feel free to email me at: 84adam [at] thrivenotes [dot] com


Further Reading: 

17
Dec

Minimal Effective Stack, v3.0

by adminadam in articles

Minimal Effective Stack

1. creatine hcl — 750 mg, AM
2. noopept — 10 mg, AM-12-PM
3. cdp choline — 300 mg, AM-PM
4. modafinil — 200 mg, AM
5. ashwagandha — 600 mg, AM-PM
6. bacopa — 300 mg, AM
7. cod liver oil — 1000 mg, AM-PM
8. melatonin — 500 mcg, PM

Benefits

creatine hcl

  • energy
  • muscle building
  • muscle exertion
  • general cognition

noopept

  • extreme focus
  • verbal fluency
  • absorb information
  • memory retrieval

cdp choline

  • memory retrieval
  • verbal fluency
  • eye health
  • general cognition

modafinil

  • extreme focus
  • energy
  • wakefulness
  • stimulant, non-jittery

ashwagandha

  • immunity
  • anti-anxiety
  • sociability
  • reduce cortisol

bacopa

  • general cognition
  • memory formation
  • neuroprotection
  • vasodilation

cod liver oil

  • positive mood
  • general cognition
  • vitamin d
  • vitamin a

melatonin

  • sleep quality
  • sleep onset
  • antioxidant
  • general cognition

Additional Recommendations

  • nicotine (1-2mg a day)
  • probiotics
  • raw unmodified potato starch
  • zinc-copper
  • citrulline malate
  • l-theanine
  • rhodiola
  • turmeric/curcumin-piperine
  • l-tryptophan
  • aniracetam
  • oxiracetam
  • piracetam
3
Nov

How to Deal with a Narcissist

by adminadam in articles

john_william_waterhouse_echo_and_narcissus

Rules Adapted from: 12 Steps to Dealing with Narcissists – Emotional Self Protection and Boundary Setting
Author/Producer: RICHARD GRANNON SPARTANLIFECOACH
Original Video: https://www.youtube.com/watch?v=R-Ud9tV90U0

A Twelve-Step Program

  1. Identify and admit that you are dealing with a narcissist.
  2. Test it: do you feel like crap when you speak to them?
  3. Clarify to yourself what you are feeling at the moment (while dealing with them).
  4. Clarify the boundary between your problems and their problems. (say “I’m not having that problem.”)
  5. Assert to yourself that you don’t let people treat you like this.
  6. Be aware they have ulterior motives and an interminable agenda. (It won’t get better.)
  7. Physically withdraw as much as possible and create distance between you and them.
  8. Psychologically withdraw from them. Don’t be tempted to share or be friendly.
  9. Recognize and remind yourself that you cannot help or fix them, no matter how reasonable or compassionate you may be.
  10. Manage your own state of being and remember that they are provoked the most by vulnerability (exploiting the weak).
  11. Remember that they need your pain and discomfort to feel good.
  12. Do not discuss personal issues with narcissists. Redirect the conversation.

My Challenge

I find I always have to remind myself most that they cannot be helped (#9) and it will not get better (#6). As a reasonable and empathetic person myself, I am so often flabbergasted by their inability to integrate new self-knowledge via external feedback, coaching, guidance, and so on that they receive from others. The fact that they engage in feedback-seeking behaviors without the fundamental capacity (and/or willingness) to induce personal growth in themselves using said feedback just confounds me. I constantly find myself feeling sorry for myself that it *truly* won’t get any better and I can’t do anything to change, halt, or unravel the narcissist’s indiscriminate vomit-spewing agenda.

And then I find myself caught in this rabbit-hole loop of positing new and ever more refined, plausible-sounding theories about the childhood trauma-based, alcoholism-exacerbated, insecurity-ridden, self-aggrandizing, other-invalidating behaviors that eminate from this pathetic shell of a person. This pathetic shell of a person who gets drunk and then cries for her mama after she’s done trash-talking you and your family for an hour. This pathetic shell of a person who pounds his chest and interrupts the meeting 38 times in 25 minutes so he can feel like Big Important Ape-Man and then go cry in his car for an hour in the office parking lot while drinking himself stupid.

And I feel the damned temptation to be merciful, compassionate, and understanding. But at least I am not damned like them. I have the ability to choose how I bring these patterns and this fluctuating dynamic into my conscious awareness, to choose to see things as they really are. I am blessed to have this burden that is empathy, that is other-awareness, that is sense-of-fairness, that is self-awareness. Not everybody has that particular giant boulder to push up the hill every day now do they?


The Myth of Sisyphus

1
Mar

AI Metasolutions

by adminadam in videos

Meta-SolutionsWe are dealing with information overload. The data overhang in fields like Big Data and Genomics is crushing us. We lack the means to process so much information. Entertainment, if allowed, could eat more of our time than exists in the universal time remaining. How can we personalize and streamline our data, our technology, and our experiences to maximize our time and innovate more?

aimetasolutions

 

System complexities such as climate and weather patterns, disease and globalization, macroeconomic and political trends, and other physical processes are almost certainly indomitable and inevitably impossible to synthesize perfectly for any unaided human individual at this time. Perhaps A.I. systems and algorithms, such as those being built by DeepMind at Google, can be relied upon to help us become the masters of our time and of our environments. This is the argument — presented quite compellingly, I might add — which Demis Hassabis effectively advances at talk at the RSA conference in November of 2016.

Demis Hassabis on the benefits to humanity of accelerating technology:

16
Feb

Economics Beyond Financial Intermediation

by adminadam in articles

A concise and accessible exploration of Bitcoin’s internals and potential impact.

Main topics include:

  1. Technology: How Bitcoin allows for the secure transfer of unforgeable assets over the internet.
  2. Economics: Distinct advantages Bitcoin has as a deflationary currency (through a ceiling on the number of mine-able bitcoins) in a world full of inflationary fiat currencies being actively manipulated by central bankers and politicians.
  3. Potential Benefits to the Poor: How Bitcoin-based remittances, peer-to-peer/micro-finance, and development aid can help the poor route around corrupt financial institutions and inept governments in order to improve their lives.
  4. Additional Use Cases: Blockchain smart contracts as distributed, uncensorable, self-enforcing contracts; other programmatic aspects of Bitcoin to be exploited.

The Journal of Private Enterprise 30(3), 2015, 19–50

Economics beyond Financial Intermediation: Digital Currencies’ Possibilities for Growth, Poverty Alleviation, and International Development — [Download PDF]

By Saifedean Ammous
Lebanese American University


Abstract

Bitcoin is the first technology for the final transfer of digital goods online, facilitating instant global payments without intermediation. Bitcoin’s operation is based on a distributed, decentralized, and transparent asset ledger that acts as an ongoing chain record of all transactions. The system issues coins to reward those who contribute processing power to the network’s operation. The possibilities created by this innovation are significant for the world’s poor, who could skip traditional political and financial institutions and move to digital currencies in the same way they have gone straight to using mobile phones and skipped landline telephones.


Highlights

  • “Through the use of cryptography, Bitcoin brings the scarcity, rivalry, finality, and irreversibility of physical transactions to the digital realm. A digital song can now be treated just like a physical cassette or CD, a rival good that cannot be played on two machines at the same time. This is not just true for music files, but for all kinds of digital data, goods, programs, and, most significantly, currency.”
  • “Instead of utilizing a trusted third-party intermediary, Bitcoin is based on cryptographic proof verified by the central processing unit (CPU) power of the total network. As such, Bitcoin can be understood as being to currency what email is to paper mail: an infinitely faster and cheaper digital shortcut for a physical-world activity that has been carried out for millennia.”
  • As the network grows and currency adoption increases, bitcoin’s real-world purchasing power also increases, thus ensuring that the block-mining reward, while decreasing in terms of bitcoin and costing more in terms of CPU, is worth more in terms of real goods and services. This is the most strikingly ingenious facet of Bitcoin’s design: if the network grows, the rise in the currency’s purchasing power ensures that the reward to the computers that run the network increases, thus incentivizing ever-more processing power to be dedicated to verifying the network. The programmed decreasing rate of increase of coin issuance, combined with the fast growth of the network, ensures that miners who operate the network continue to be rewarded for running it as it grows.”
  • “The Bitcoin network grows as fast as bitcoin adoption rises, or, in other words, as fast as the bitcoin economy grows. The money supply, however, only rises at a predetermined rate, which is roughly halving every four years, as the block reward declines. Though the supply of the currency is increasing, and will continue to do so indefinitely, the currency’s real purchasing power has increased drastically in the six years it has been circulating. The increase in adoption explains the rise in bitcoin’s purchasing power since circulation started in 2009. The first recorded exchange rate of bitcoins for fiat currency was 1,309.30 BTC for 1.00 USD, offered in October 2009 (Wallace 2011). By July 2015, the exchange rate had risen to fluctuate around 0.004 BTC for 1.00 USD, reflecting roughly a 330,000-fold (or 33 million percent) increase in the price of a bitcoin in US dollars in six years.”
  • “Bitcoin exists as a real-world experiment in this inflation-deflation debate. Whereas traditional currencies are continuously increasing in supply and decreasing in purchasing power, bitcoin has so far witnessed a large increase in real purchasing power despite a moderate (but decreasing, controlled, and capped) increase in its supply. If bitcoin’s depreciation rate is measured with respect to the US dollar, it is highly negative, as table 2 shows, averaging a negative 24.5 percent depreciation rate in the four years for which data are available.”
  • “While still a technology in its infancy, Bitcoin offers a blueprint for how billions of the world’s poor can partake in international, modern capitalism without having to reside in countries with supportive modern institutions. Bitcoin could be life-changing to those individuals and could also offer credible competition to national monopolies in financial services, currency issuance, judicial systems, and credit provision.”

DOWNLOAD THE FULL ARTICLE (PDF)

Economics beyond Financial Intermediation: Digital Currencies’ Possibilities for Growth, Poverty Alleviation, and International Development — by Saifedean Ammous

4
Feb

Tokyo Bitcoin News ep. 10 – Bitcoin ATM’s and Multi-sig

by adminadam in videos

Lazy translation:

— Bitcoin ATM’s: Here’s an ATM next to us. Where are these made?
— Generally in America.
— There are more and more Bitcoin ATM’s around the world. We can see them on the map. There are 555.
— 16 in Japan, huh?
— Yes, there are different brands too: Genesis ATM is the leading manufacturer of Bitcoin ATM’s. Lamassu is #2. One’s that are easy to use are becoming more common. We are adding one Bitcoin ATM per day on average right now around the world.

— Recently the price has been going up and down. But it seems more people are buying bitcoin these days; we can safely ignore the recent Hearn debacle.

— There was a seminar recently that we attended. How was it for you?
— I thought that it was easy to understand, and I thought it was noteworthy that transactions are almost free of fees and the fact that everyone in the network secures bitcoin together I thought was interesting. I also thought, wow, I’ve never thought about the nature of money before either…
— A lot of people were buying bitcoins there, too, huh?
— Yeah, quite a few people.
— Some individuals were buying a large amount too.

— So let’s talk about how people are getting their hands on bitcoin these days… If you buy bitcoin at an ATM you’ll either send it to a wallet on your phone, or you’ll get one of these paper wallets with the private key and the public key showing. Of course if you’ve got a lot of money on your paper wallet, it’s insecure, and you stand to lose it all if anyone scans the private key before you transfer the bitcoin associated with it away to some other wallet (and a new address).

— So how do you secure bitcoin? If you look at the top 100 richest bitcoin addresses on BitcoinRichList, it shows there are some with over $60 million worth of bitcoin in them. And notice the addresses here, there are a few that start with a 3, and most of the rest start with a number 1. The number at the beginning of the addresses tell you something. A 1 tells you that it’s a normal single-signature wallet address. A 3 tells you that it belongs to a multi-signature wallet.

— Multi-signature wallets, such as the Trezor hardware wallet, or any number of multi-sig software wallets, allow you to divide the ownership or control over a bitcoin wallet amongst three or more keys. You can distribute these keys around the world, or have your neighbor or a friend hold a third key for you while you hold two. If you hold two keys, you can use those two keys to spend your bitcoin from the multi-sig wallet that you’ve got. If you lose one, your neighbor can still help you sign off on the transaction so it can be sent.
— It’s kind of like a bank, isn’t it?
— It is like a bank except only the wallet (account) owner can move the bitcoin to a new address.

— Only about 30 out of the top 100 bitcoin addresses now are multi-sig wallet addresses. It seems rather foolish. You’re much more vulnerable keeping all your bitcoin in a single-signature wallet. I think we’ll be seeing the number of multi-sig addresses increase a lot in the near future. We could expect more multi-sig addresses to be taking up the top 100 richest address spots in the next few years.

— There are some trends in top companies around the world (having to do with dematerializaiton). So many of the world’s most innovative companies have little-to-no property or inventory; they generally just coordinate others’ resources:

  • Uber – The world’s largest taxi company owns no vehicles.
  • Facebook – The world’s most popular media owner creates no content.
  • Alibaba – The most valuable retailer has no inventory.
  • Airbnb – The world’s largest accommodation provider owns no real estate.

— I could see bitcoin fitting into such a role in the future: “Bitcoin – The world’s largest bank holds no money”.

— The Trezor is a really cool way to protect your bitcoins. If you don’t plug it into your computer, you can’t spend the bitcoins. If your computer is hacked, you’re protected because the private key for your wallet is on the other device, the Trezor. Not only is the key separated from the network (offline), but you need to enter an pincode with on-screen obfuscated number pad, but also you need to confirm two times by pressing a button on the device before you can send money to someone.

— And now Trezor is selling this multi-sig set of hardware wallets. There’s three in each package. You could take two and trust me to hold the third as a backup. You’d need both of your keys, or one of yours plus mine, in order to withdraw from the account. I can’t ever withdraw from the account because I only have one key.

— You can see this being potentially very useful for companies to secure large accounts. For example, they could distribute 15 keys to members of the board of directors. Maybe they give one to a law firm they hire to arbitrate in the case consensus cannot be reached or if, heaven forbid, more than half of the board members die or lose their keys. You can set the minimum number of keys needed to send a transaction to whatever you want: 5 of 15, 10 of 15, etc.

— There are new physical hardware wallets that work just like credit cards, too, now. They use the same kind of chip technology and everything. As of right now, there is no standard way of securing your bitcoin with hardware wallets. The bitcoin ecosystem is still in its infancy, but it is developing quickly.

— What do you think about all this?
— I feel like I want to know more now, like it would be good to know about bitcoin and how it works.

— What about the economic and technological impacts that this technology can have? What do you think about this?
— It seems like it could be useful for many things. Since you can send money to anyone it would be great for charity, wouldn’t it?
— Yes, indeed. You can donate to any given cause around the world.

— Ultimately, it’s really a young technology and is not very user-friendly yet. But the developers in the space are working at a frantic pace to build it out and make it better and easier to use.

25
Jan

The 7 Network Effects of Bitcoin

by adminadam in articles

Trace Mayer, J.D., a long-time Bitcoin Guru and Investor in Bitcoin companies such as Armory and Kraken, explains the network effects that will lead to Bitcoin’s continued success.

From his talk hosted by CRYPSA at LaGuardia Community College – June 29, 2015.
Listen to the audio: http://www.bitcoin.kn/2015/06/crypsa-event-with-trace-mayer/

The 7 network effects of Bitcoin are as follows:

  1. Speculation — As a novel, cryptographically-backed asset class with the potential for appreciation and high volatility, Bitcoin is perfect for speculators with a high tolerance for risk.
  2. Merchant Adoption — Merchants will increasingly accept Bitcoin because they can increase their profit margins by avoiding credit card fees and chargebacks.
  3. Consumer Adoption — Consumers can use Bitcoin to save money at certain vendors. For example, getting a 20% discount on Amazon by spending Bitcoin through Purse. Additionally, consumers can buy things with Bitcoin that they cannot buy (easily) in any other way. Consider: An American can buy Persian rugs or Cuban cigars online despite trade embargoes. Bitcoin increases the efficiency of the economy, particularly in niche areas such as these.
  4. Security — Merchant, consumer, and speculator adoption lead to a higher price and thus incentivize more miners to participate and secure the system. The decentralized, immutable transaction ledger also serves as a form of Triple Entry Bookkeeping, wherein Debits plus Credits plus the Network Confirmations of transactions increase trust and accountability across the system.
  5. Developer Mindshare — Bitcoin is a “dumb”, predictable network with simple rules and a publicly-auditable codebase. It is fertile ground for the development of complicated algorithms, machine-to-machine payment protocols, smart contracts, and other tools. Its decentralized nature allows for innovation without permission. Altcoins (such as Litecoin and Ethereum) pose little threat as Bitcoin is already dominant as a store of value and as a medium of exchange in the cryptocurrency space. If you harbor doubts about the importance of this currency network effect — or worry about altcoins overtaking Bitcoin in some other way — I would point you to Daniel Krawisz’ insightful and though-provoking article on the subject: “The Coming Demise of Altcoins“. Ultimately, developers will continue to flock to Bitcoin.
  6. Financialization — Bitcoin will eat up progressively more of the market share of legacy banking institutions in areas such as remittances, micropayments, peer-to-peer lending, and the exchange of stocks and securities. This process has already begun (consider NASDAQ’s support of Open Assets/Colored Coins for the transfer of securities, NYSE’s investment in Coinbase, etc.). Old money risks dying out lest it embrace new protocols such as Bitcoin.
  7. Adoption as a World Reserve Currency — Eventually all transactions will be settled on the blockchain, including house titles, stock purchases, car titles, and other monetary instruments and currencies. Network effects one through six culminate in this final network effect. Any newcomer in the realm of cryptocurrency — or traditional currency, for that matter — would need to beat Bitcoin in all seven of these areas. This is unlikely considering the pace of development in Bitcoin Core, the level of investment in Bitcoin companies around the world, the growth in Bitcoin’s user base, and on and on… Further price increases will only accelerate the process. Finally, a speculative attack could dramatically boost the value of Bitcoin almost overnight.

Bitcoin is a strong currency: it thrives on the internet; it frees its users from 3rd parties; it saves merchants money; it is deflationary; its code can be audited by all; its developers work tirelessly to improve upon it; the list goes on. The above-listed network effects can only serve to strengthen it. Competitors beware.


READ THIS NEXT: Speculative Attack, by Pierre Rochard

An excerpt from the introduction of “Speculative Attack”:

Bitcoin will not be eagerly adopted by the mainstream, it will be forced upon them. Forced, as in “compelled by economic reality”. People will be forced to pay with bitcoins, not because of ‘the technology’, but because no one will accept their worthless fiat for payments. Contrary to popular belief, good money drives out bad. This “driving out” has started as a small fiat bleed. It will rapidly escalate into Class IV hemorrhaging due to speculative attacks on weak fiat currencies. The end result will be hyperbitcoinization, i.e. “your money is no good here”.

22
Jan

Euro Deemed a Failure

by adminadam in videos

“The €uro is a Failure”

Twitter: @AustrianMarkets
YouTube: Austrian Markets

  • ECB to continue quantitative easing and maintain negative-interest rate policy through March, 2017.
  • Stock exchanges primarily dependent on stimulus and tax-payer subsidies.
  • ECB pronounce ‘no limit to the stimulus’.
  • Maintenance of ‘Price Stability’ — Doublespeak for “guaranteed annual consumer price increase of 2%” — the driving force behind negative interest rate and quantitative easing programs.
  • More state spending is advocated to solve problems created by state spending.
  • West-German tax-payers prop up insolvent PIIGS (Portugal, Ireland, Italy, Greece, and Spain), unsustainable.
  • German Chancellor Angela Merkel forces demographic and financial burdens on German people.
  • No plan to restructure or reduce debt; proposed “Austerity”measures merely decreases in increased spending; faux Austerity Theatre.
  • Europeans uncomfortable with the notion of immediate, short-term economic pain from True Austerity; convinced by Academics and Bureaucrats that increased spending will magically solve fiscal problems.
  • Toxic Greek debt a threat to EU Area.
  • Weaker economies leaving EU, returning to own currencies, creating free-trade zones à la HK, seen as only viable path to regain solvency.
  • Minor spending decreases plus large tax increases enables irresponsible countries and bureaucrats at the expense of productive countries and tax-payers.
  • Euro deemed a failure.