Bitcoin hits $700! (I actually spent some of my bitcoin!)

The price of bitcoin has been going crazy. Bitcoin is now at a 2-year high. I speculate some of this has to do the the upcoming halving.  You can read some of my thoughts on a old article I wrote for Coinbuzz. I might talk about about this and some of my experience writing for Coinbuzz in another post.

Anyway, with this huge upward price movement. I may have made a mistake. I didn’t anticipate the price of bitcoin to continue to rise so much, Earlier this week I made my first purchase with bitcoin ever! I used egift to buy an Amazon gift card, (I love shopping on Amazon!). I have a video on how to do it yourself at the bottom of the post.

Performing the transaction I experienced:

Fees	0.0007 BTC

Which was  ( at the time) about 40 cents of fees. This fee might seem high to you, but it is the result of receiving bitcoin in many small transactions.  A Lot of the bitcoin I have received is from faucets, and when you finally spend it, the transactions fees can be a bit high. Each source of btc counts as an input, which is one of the factors used in determining transactions fees. If you are interested, I talk about this more here.

As I continued and finished the transaction I noticed, it looks like Coinbase provides this service for egifter, so I don’t know if egifter even holds on to any of the bitcoin. Initially, I recommended spending some of your bitcoins right now if you have any, but I am no longer certain what the future holds for the price of bitcoin.

Big Tuna

I have just hit 10,000 views!  I mentioned this to my mother and she was astounded. But really it's not that big of an accomplishment.

In other news, it looks like the price of bitcoin has increased dramatically over the past few days. In my memory it has been awhile since bitcoin has broken $500. Let's see what happens, but it might be time to spend some of those bitcoin now! And I just learned a great way to do this...

Some of my friends when I talk to them about bitcoin are convinced bitcoin is used exclusively to buy drugs or other illicit things. “It’s just for buying pot” one friend would say. I would joke, no lol, that is what potcoin is for.  And I would elaborate that bitcoin isn’t just for drugs. You can buy anything with bitcoin. Anything. Like literally you can by tuna online with bitcoin, here is the link. Isn’t that something.

Faucets in trouble?

Recently my favorite faucets have been changing their payment amounts and not just in the normal pegged to a USD value type of way. During the past two weeks, https://freebitco.in and https://freedoge.co.in were giving out the smallest earnings I have ever seen. In the recent past, the smallest payout has been equal to the highest payout divided by 100,000 times 2. Prior to this, the smallest payout was equal to the highest payout divided by 100,000. But during these past two weeks, the smallest payout is the highest payout divided by 142,875. The highest payout is pegged to a USD value, which is $200 for both sites.

https://freebitco.in  has just returned to normal payouts (twice at base level) and   https://freedoge.co.in  is giving 100,000th of the highest payout.

Another blogger has given some analysis on why his own faucet is struggling.

The article discussed how google adsense is no longer allowing faucets to have ads on them. Perhaps some of these faucets are feeling the pressure. In fact, I speculate this is why

http://bitcoinzebra.com is for sale now.

Still, here is a faucet tip:

Bookmark all your faucets with the same interval for redemption into one folder on chrome or firefox. Then right click that folder and open them all at once.  For example, all of my one hour faucets are in a one hour folder. I also have a moon folder for my variable time faucets. You can see my faucet list here.

Happy Belated Birthday Liberland

Liberland recently had its one year anniversary. My Editor decided to go on strike, so I am just releasing the post on it now.

Liberland is located on an unclaimed area in between Serbia and Croatia. As you may know, Serbia and Croatia disagree on the border between their two countries. Border disputes are quite common when a river is used as a boundary. Rivers have a tendency to move over time, often resulting in one country preferring the new boundary with the other claiming the old boundary (This is particularly common as winding rivers become more straight, resulting in oxbow lakes and areas of land that were once on the opposite side of the river). The border between Serbia and Croatia is no different with the windy Danube river dividing them.

Liberland has plans to release its own cryptocurrency, which will be called the merit. The merits will be awarded to those who perform services for the country, hence the name. The nation seems quite aligned with libertarian values. Its citizenship is quite expensive; it will cost 10,000 merits, which is to be initially pegged to the USD 1:1. Liberland seems reminiscent of REPUBLIC VENETA  which I wrote about in a past post.

The Future of Currency and Bitcoin

The Future of Currency and Bitcoin

The Future of Bitcoin

Bitcoin is a type of cryptocurrency which, in its simplest form, is digital currency that operates without a central authority or bank. Bitcoin finds its place in the world of cryptocurrency as one of the most used and well known types. With a market cap of about $5.7 billion (as of February 6, 2016), the future of bitcoin looks rather promising (coinmarketcap.com). However, it must be kept in mind that even with all of its potential, bitcoin, from a technical standpoint, is not the best cryptocurrency and has quite a few issues that other cryptocurrencies better resolve.

For starters, bitcoin is often praised for the level of anonymity it provides to its users. However, it isn’t really as anonymous as one might think. Bitcoin allows one to send and receive bitcoins without providing any personally identifying information. A bitcoin user is assigned an address with which they can use to perform transactions. So what’s the issue? An article on bitcoinsimplified.org states that, “Every transaction involving that address is stored forever in the blockchain. If your address is ever linked to your identity, every transaction will be linked to you.” So while bitcoin does offer a low level of anonymity, it is still possible that transactions could be linked back to a specific individual.

Not only do people want more anonymity, but they also want things done quicker. With the evolution of currency, the speed at which a transaction can occur has continuously increased. With the advent of electronic payments, we have seen that transactions can take place rather quickly. For example, when your job deposits your paycheck, the funds are usually available for use a day or two later. When bitcoins are sent to another party, a third party of people, who are referred to as miners, confirm the transaction. Transactions are grouped and confirmed in blocks; a bitcoin block is solved every ten minutes. This means that a transaction may receive one confirmation every ten minutes (bitcoin.org). Many businesses want at least three confirmations of payment before they are mostly confident that they have the coins (assuming that the spender doesn’t control a significant amount of bitcoin’s mining power). But three confirmations take 30 minutes to obtain. If you are skeptical of someone you might want more than three confirmations. This means to do a transaction in bitcoin you will require 30 minutes of time at least. While 30 minutes is a lot quicker than a couple days, it is slower than other types of cryptocurrency.

Another downside to bitcoin is the limited volume of transactions it can currently perform. Only about 7 transactions a second can be processed, while Visa for example, can process 10,000 transactions a second (washingtonpost.com).  Bitcoin transactions are executed in blocks, which are batches of transactions. In order to reduce the threat of spam and potential denial-of-service attacks on the network, the amount of transaction data that could be carried in a block was drastically reduced (coindesk.com). This added level of protection, however, could lead to a backlog of transactions. As bitcoin becomes more popular, there is an increasing amount of transactions. With the increased level of bitcoin transactions, many of the transaction blocks are being filled and, as a result, other transactions have to wait. Visa, on the other hand, processes on average nearly 2,000 transactions a second (usa.visa.com). So unless bitcoin can scale up their operations and still provide a high level of security, they may be headed down a difficult road.

Lastly, bitcoin has many technical barriers to entry. In its current state, an individual needs quite a lot of technical knowledge to use bitcoin. Additionally, you must have proper safety and security measures in place to ensure you will be able to access your bitcoins and others will not. It may take time for everyday users to understand bitcoin and how it operates. Hopefully in the future it can be simplified and can grow on a larger scale to be user friendly for the masses.

The Future of Cryptocurrency

While bitcoin in particular may not be the future, it is possible that cryptocurrency in one form or another could be. A simple search for cryptocurrency on the internet will return information on hundreds of different types of cryptocurrency. As of February 2, 2016 there were 676 cryptocurrencies available for trade in online markets but only six had a market capitalization over $10 million (coinmarketcap.com).

It is clear that bitcoin is currently the most valuable cryptocurrency as far as market capitalization goes but yet, as mentioned earlier, it lacks important features that other cryptocurrencies excel at. The following paragraphs will detail other cryptocurrencies that clearly outperform bitcoin in certain areas.

Other coins have higher levels of anonymity; Dash (formerly Darkcoin) and XCoin are the best example of this. In order for bitcoin to be able to maintain more anonymity of transactions, it needs to rely on other add-on services. Dash has anonymity features built into its algorithms which allow it to mask transactions and IP addresses of participants of a network (cointelegraph.com).

As mentioned earlier, bitcoin transactions take about 10 minutes to confirm. Other cryptocurrencies have even faster transaction times. For example, Litecoin and Dash take about 2.5 minutes. Back when Dash was still called Darkcoin, they introduced InstantX technology which “makes payments instant” (thus it charges a small additional fee). However, even by taking into account incomparably higher speed, commission charges when using Dash are tens times less, than when using bitcoin (cointelegraph.com). As can be seen, cryptocurrencies are improving very quickly and becoming more and more efficient. Cryptocurrencies may have the potential to replace traditional fiat currency.

When comparing bitcoin to other types of cryptocurrency, other coins are able to process more transactions. For example, of the top six cryptocurrencies with a market capitalization above $10 million, bitcoin has the fifth smallest available supply of currency at about 15.2 million units (coinmarketcap.com). This is compared to Dogecoin and Ripple (other types of cryptocurrency that are in the top six cryptocurrencies) that have 103 billion and 34 billion units, respectively.

The Future of Money

It is clear that the world is moving away from the use of traditional fiat currency. People use credit cards and debit cards more and more, along with a trend of using more digital forms of payment like ACH payments for employees instead of traditional checks. In addition, technologies like EFT are becoming more common in the market.

As traditional paper based currencies and forms of payment are abandoned, it seems natural that digital solutions, like bitcoin, might take their place.  We can see a clear progression of currency changes throughout time. At first, people accepted commodities as a form of payment; the most used commodity was gold. Later, precious metals, like gold, were minted into coins which were used as currency; the metal in the coins gave them value. Next, paper currencies were issued that were redeemable for gold. The fact that they were redeemable gave them value and people accepted them. Finally, fiat currency was introduced. Fiat currency has no gold standard but the fact that the government and the people support the currency means that it has value.

In the US, there is a significant problem that many coins, in addition to lower denomination bills, are expensive to mint in relation to value. It costs nearly two cents to make one cent, and that just doesn’t make sense (USmint.gov). Digital currencies can eliminate this problem as the cost of creating this type of currency is essentially nothing. The next progression in the currency evolution is that the government no longer prints physical currency and everyone uses digital currency instead.

References

“2014 Biennial Report to the Congress”. USMint. 2014-12-31. Retrieved 2016-02-09.

“Bitcoin: A Peer-to-Peer Electronic Cash System”. Satoshi Nakamoto. 2008-10-31. Retrieved 2016-02-09.

“Bitcoin Money Supply”. CoinBase. 2016-02-08. Retrieved 2016-02-08.

“Bitcoin needs to scale by a factor of 1000 to compete with Visa. Here’s how to do it.”.Timothy B. Lee, The Washington Post. 2013-11-12. Retrieved 2016-02-09.

“Bitcoin Simplified”. BitcoinSimplified. Retrieved 2016-02-04.

"Crypto-Currency Market Capitalizations". CoinMarketCap. 2016-02-06. Retrieved 2016-02-06.

“DASH: Young Cryptocurrency With An Interesting Story”. CoinTelegraph. 2016-01-13. Retrieved 2016-02-04.

“Run your business”. USAVisa. Retrieved 2016-02-09.

“What is the Bitcoin Block Size Debate and Why Does it Matter?”. CoinDesk. 2015-21-08. Retrieved 2016-02-04.

Bitcoin Banking?

I have recently made an account with BTCpop.co. The site has some interesting features, one is its peer-to-peer lending options. People ask for a loan for various reasons and the people that want to fund these loans do so. In addition to loans, BTC pop also offers a 5% savings account as well as some IPO services. I want to focus on the bank like aspects of BTCpop today.

This method of lending has some interesting risks associated with it. The largest risk to these loans is credit risk, or the risk that lenders will not pay the money back. This is universal to essentially all loans (except some government bonds). These loans also carry some interest rate risk and inflation risk; however, this is quite small due to the short-term nature of these loans.

These loans also have many features not associated with similar commercial loans. One is transaction risk, the risk that the bitcoins you used to extend the loan are worth less than the bitcoins you receive at the end of the loan. This is longer than normal because it takes time to exchange bitcoins for regular currency.

In addition, these loans carry an “institutional risk” or the risk that the website/institution will fail.  In this case, the loan makers may not see any of their money.This risk is the primary risk of the 5% savings account. If the institution as a whole fails, you will not get your money in your savings account.

This savings account also has more risks associated with it than a regular savings account. As long as the bank has enough bitcoin reserve to pay off withdrawal requests, there is no problem. However, if depositors want their money bank and the bank doesn’t have enough reserves, then the bank faces a liquidity crisis. Regular banks have a few tools to avoid this problem. They are able to loan money to each other, so if one bank has excess reserves, they can lend it to another that is lacking. They also are able to borrow directly from the Federal Reserve, or the appropriate central bank.  Banks also engage in the repo market, there they give securities (like bonds) as collateral on a short term loan. It may be possible for this bitcoin bank to translate on the repo market. But that still leaves the institution with only one of the 3 tools regular banks have to handle liquidity issues.

Also, the overall risk of the bank is very likely tied to the overall credit risk of its borrowers. The bank almost certainly invests its deposits in loans to people on the site. This also means that if enough  borrowers default, the institution is at risk. So even if you have not lent money directly, by putting it in the bank's savings account, you still may lose your money. Its also important to note that normal banks are insured by the FDIC for up to $250,000. However, this bank offers no such protection. This means that the bank's approach to risk is even more important than normal.

All of this addition risk seems to be rewarded. User initiated loans have rates that at crazy even by payday loan standards. The site’s savings account offers 5% compared to less than 1% at commercial banks. The difference in rates is so great, I don’t think all the loans follow the Security Market line in the way that they should. However, that is an issue for another day.

TSA spots bitcoin!

This video is a pretty funny example of  people not understanding what bitcoin is. Enjoy!