SharperDingaan

A few comments to aid in understanding cryptocurrency ... 1) A currency is simply a unit of account AND a payment system. 2) Every user must decide, per payment, what is MOST important to them; speed OR security (not both). If you're paying for coffee, 5-10 seconds for the machine to process your card is acceptable; 10 minutes+ for a miner to verify your token is not. 3) Every user must decide, per payment, the level of security required. If you're paying via a FI card, the FI stands behind the transaction, and fast processing via a database becomes practical. If you're paying with crypto, NOBODY stands behind the transaction, and slow processing via the miner network on a distributed ledger is a necessity. 4) Every user must decide, per payment, the level of anonymity required. The more it matters, the more you require the total anonymity of Bitcoin. Most of us will never require that level of anonymity, and if so - only very rarely. Hence it should be very clear that for the vast majority of payments, we don't need a crypto running on a distributed ledger; the existing rails of cash and FI cards are more than adequate. With no demand for your product (MR), you cannot cover your costs (MC), and must go out of business. To survive, your payment system must offer something that people will pay for - level of anonymity. Bitcoin is completely functional, anonymous digital cash, that exists entirely outside of the financial system. Records are immutable, it can be exchanged into any fiat currency you want, does everything that a fiat currency does, doesn't cost anything to keep secure, and is always available, at any time, anywhere in the world. It is an incredibly valuable store of value, and it is of most value to the criminal element. Nothing prevents CBs from banding together to create a competing 'Bitcoin' under a non-sovereign organization (UN, World Bank, etc.). The coin could be used to settle global trade payments, removing the need to convert into fiat currency (USD, Euro, etc) to pay bills as they come due. The coin could partially displace current sovereign gold and foreign currency holdings, as an alternative diversifying asset. However, the coin could also support a global fractional reserve banking system - which Bitcoin CANNOT. Throughout history, 'good' money has always chased out 'bad' money; most would expect a global CBDC to do something similar to a Bitcoin. The result is that Bitcoin survives as a valuable niche store of value, offering total anonymity as a unique value proposition, and there is nothing wrong in that. SD

Were were around for the dot.com era, and learned from some of the masters of the time (long employer, short competitor, keep the 'funny' money when it explodes). It's hard to see how token investing doesn't end in tears, but ultimately we think it's the desirable outcome. The money here is in how 'XYZ' business chooses to use the block chain and smart contract technology in their day-to-day business, and helping them to do it. Money earned the 'old fashioned' way. Philosophically we think we're looking at the equivalent of the age of horse and buggy, just as the IC engine of the 'motor carriage' was beginning to displace everything. Anti-fragility, not cash, is king. SD

There isn't much point in switching to government issued digital currencies. I can already pay instantly with Apple Pay. I can pay almost instantly with credit/debit cards and if I pay my balance every month (which I do), not only does it not cost me anything, but they pay me to do it. Why would I care if there was a fedcoin dollar or not? What makes people care about Bitcoin is that it is digital gold and not state/corporate controlled. You don't care because you currently don't see a charge to pay; the recipient paid it for you, in return for your business. A CBDC has zero transaction cost, so recipients have strong incentive to switch receipts to CBDC over accepting credit cards - unless they get a better deal. And if you have to ask to use the credit card .... you must need the 'credit', as you can't afford to pay by either cash, debit, or CBDC? To show your 'status' you'll either use a 'prestige' card (& now pay for it), or pay by CBDC to avoid the debit card transaction fee. You will not use 'fiat cash', as you'll look like someone who has to count their pennies. Social control. Today Bitcoin doesn't have a directly comparable competitor, but it'll change. If you want to use Bitcoin, you must be a criminal because apparently you feel the need to remain anonymous? So why do I want anything to do with you? You may object to state control, but so does the criminal - & just as much. You are guilty by association, and your reasons don't really matter. SD

This is a very good paper. One of the key takeaways is that it is token users who benefit, and not token owners (Bitcoin excepted). This is the same result that occurs when tokens ran on a database versus a distributed ledger. In both cases the 'user' is the organization employing the technology, you or I buying that organizations products or services - are only secondary beneficiaries. Bitcoin itself is exceptionally clever, but its core natural market is also its greatest liability; for many the restraint on widespread adoption is not the technology - it is the possibility of RICO charges by association. Bitcoin 1.1 is very likely to be a central bank version, running on a database, that essentially does all the same things - but runs in the light. Bitcoin 1.1 being used for global trade settlements, versus Bitcoin itself. The 'investable' opportunities are the shares of the application providers, and their clients, versus the token themselves. Consistent with our view that it's primary an investment in 3) and 4) that improves productivity, profitability, and cash flow. Nice to see a confirmation from an independent 3rd party source. Thanks for posting. SD

We aren't. SD

Re 'valuation'. Pre Bitcoin; hard currency, gold, and sex, were the world's primary stores of value. If you had to run, you could use them to bribe your way out, and set up anew elsewhere. The distributed ledger has simply given us additional options (more supply), ranging from currency (Bitcoin), through to digital gold (Bit Gold). The demand for hard currency is now spread over additional supply (Bitcoin). Drug dealer, arms merchant despot, tax avoidance, and bribe demand shifts to Bitcoin as the payment medium, versus hard currency; driving up the price of Bitcoin and lowering the price of hard currency. Computer ransom is charged in Bitcoin for a reason. Demand for physical gold splits over both physical and digital gold, as digital gold is much more portable - and very good at escaping capital controls. A significant supply problem for physical gold, that resembles the supply of Bitcoin; recycling and new mining makes it progressively less scarce - a sudden switch to digital gold floods the physical market with large quantities of supply, abruptly dropping price. It's also a competitive world. Nothing prevents groups of CBs from banding together to create a competing 'wealth' coin - to suck some of the demand away from Bitcoin. Most people would prefer not to be co-investing with the 'undesirables' of the world. The technology is disruptive, and fundamentally changes how we do business. Welcome to some of the changes. SD

If you want to use Coinbase or a similar company than you will need to give all the same info as opening a bank or brokerage account. If you want to do it without that download a bitcoin wallet to your phone (Bread or Jaxx are good), then find a bitcoin ATM (https://coinatmradar.com/), you simply put cash in the machine and scan your QR receive code from your phone and no one knows you own that bitcoin but you. For most of us there are currently three ways to buy a Bitcoin. Directly from source (bitcoin.org) via an ATM machine, indirectly through an exchange (coinbase), or via a derivative. For the most part, all unregulated (Chicago exchanges excepted). For educational purposes, most would invest no more than a token amount in each, and do a buy/sell on all 3. Per the global AML/ATF requirements, everyone will ask for your basic information. Not all will be as diligent about it. Hence a wallet holder has to recognize that the less information they are willing to disclose, the more likely that other users are going to be from the underworld. Lot of pro's/con's to this, but it is to the wallet holder to act responsibly. Retail Bitcoin is estimated to be 30-50% Japanese, a society in which primarily women (Mrs Watanabe) make the investment decision. Outside of Japan, retail Bitcoin is estimated to be 90% male, between the ages of 24-48. The range runs from a few that are very smart, to a very large number that just think they are smart. As at December 31, 2017 there were 1,381 crypto-currencies in the world. All but 28 trade for less than USD 0.01. The top 5 by market cap are Bitcoin, Ripple, Ethereum, Bitcoin Cash, and Cardano. For most people, buying token through an ICO, is not the road to riches. All our family, are well practiced in the use of crypto currency. The very best are the little old ladies, many of whom have led 'colourful' lives in times past. Mrs Watanabe keeps great company. Good luck SD

Came across a truly original way of doing this .... 1) Buy yourself a number of Bitcoin rigs, and a freezer chest. Drill a hole through the chest for the wiring. Seal the gaps with foam insulation. Rigs are faster and more efficient when they are cold, and freezer chests are explicitly designed to remove heat. 2) Install sufficient solar on your roof, and/or a windmill on the homestead. Power up a flywheel/battery storage rig. Draw down on the storage rig to power the Bitcoin rigs and freezer. For the truly gifted .. relocate the freezer compressor in your fresh air intake - as a heat exchange. 3) Claim the carbon credits on your 'green' electricity generation, certify via a block chain, and sell on an exchange. 4) Windy days welcome - they just crank up the RPM on the fly wheel. The electricity is free, you're paid in carbon credits and bitcoin, and your only costs are depreciation and interest carry. Repeat until rich! SD

For the most part, R3 are the prime brokers - and they primarily serve the institutional side of the market. Value proposition drives the market - Tzero either serves markets that others will not, does it at a lower price, or with more 'flexibility'. The market is just starting to learn how 'indirect' CB control works. One side of every Bitcoin F/X exchange is against a fiat currency, coming to/from an account in a FI - controlled by a CB. You're visible, capital controls can be imposed at any time (account freeze), and the private key on your phone/laptop is very hackable. Welcome to the dark side. SD

47% TWR, mid year repatriation of 60% of capital, all family mortgages retired, year end cash at 23%. Hard to complain. Growing our T-Bill position through the 1st half of the year for a June 30 repatriation, saved our arse. It kept our o/g and iron positions lower than they would have been, and forced some trims; reducing our losses and enabling repurchases at generally lower prices. Bitcoin was a lucky break. The 700% 2H increase, on a portfolio 40% of its previous size, really goosed results. For us crypto currency has served its educational purpose, & we’re unlikely to return to it anytime soon. We were lucky. Nothing wrong in that, but its not going to be repeatable for quite some time. SD

No they are doing the same thing - but on their own competing database. Use our database and you don't need many of the staff you currently have, or the space they currently occupy - were they not currently doing an ICO, most folks would never have heard of them. https://www.tzero.com/#home There is nothing wrong with competition. But the gorilla in the room is the R3 Consortium consisting of the biggest FI's in the world (80%+ of the entire global market), its Corda ledger, and its backing by many of the major CB's in the world. Corda, with its CB blessing, is to become the FI portion of the hyper-ledger (internet-of-things). We wish Tzero luck, but it's hard to see how they survive as anything other than a tiny boutique; maybe 2-3 principals running an Oracle, & a bunch of sales people. Ya pays yur money, 'n ya takes ya chances, SD

"Rootstock is just released I believe (www.rsk.co) and I believe it (or something like it) will likely put huge downward pressure (and eventually kill) the perceived value of ethereum." Elegant solution, and inclined to agree as to the eventual outcome. Processing ultimately separates along the spectrum of speed versus security, and at a higher level of scaleability than is currently the case. SD

No - it's ability to raise productivity by keeping output constant, and permanently reducing input. Securities lending is already automated in the R3 Corda ledger, runs on a data base, and most prime brokers are already R3 members. Bigger suppliers already maintain their inventory on in-house ERP systems (data bases) - block chain and smart contracts simply run on top. Outputs stay the same, but most of the related 'admin/back-office' processing gets displaced. SD

Bitcoin has a design cap of 21M token, that is earned by miners at a declining rate. Until the 21M cap is reached, a user’s cost to verify a bitcoin transaction is free. Once the cap is reached the user’s pay the cost out of their digital wallet, in bitcoin, at market rate. The miners are monopolies with the ability to charge more for faster processing; say $25 for a hash in 2 seconds or less, or $5 for a hash in 30-45 minutes. A business that needs fast hash processing either pays up or goes someplace else – if they are able. The disruption makes Bitcoin costly to use, lowering its price, and the tide on which all other crypto currencies float – creating widespread losses, ICO opportunity loss, and a significant loss of ‘faith’ in crypto. Lots of pain. To do it - the mining syndicates simply stop processing, and publicize it. Hash complexity and difficulty automatically drop to restore hash rate, but with no syndicates participating, slow CPU processing, and low payments for hashing - a very large back-up develops. Keep the hash complexity low, pay what the syndicates want, the supercomputers come back on line, and the backup clears in minutes. Rinse and repeat. For an exorbitant extortion fee, all Bitcoin need to do is raise the 21M cap, and the pain goes away. And if there's internal reluctance to charge, the friends in low places apply the baseball bat. Hard cap and a wheelchair, or soft cap and ability to walk – which do you think wins? Munger lived through the 1929 depression, and saw first hand the con-men, grifters and ‘hardmen’ of the era doing their thing. We would suggest that it was great training, and that he's seeing quite a few similarities. SD

As far as I know, Bitcoin doesn't have the ability to perform smart contracts natively, not without layering a third party on top. You might be thinking of Ethereum. Agreed that if you want to pay with Bitcoin and need the smart contract, you must use a 3rd party 'Oracle'. However nothing prevents you from also setting yourself up as the 3rd party Oracle, that transacts in crypto-currency between 1st & 2nd parties; the standard solution. As a quick & dirty reference, the below are a useful reference guide; For a Bitcoin: 1) Yes, 2) Yes, 3) Yes, 4) No For an Ethereum Application: 1) Yes, 2) Yes, 3) Yes, 4) Yes For most block chain applications running on a database (ie: IBM): 1) Yes, 2) No, 3) Yes, 4) Yes SD

It's useful to recognize that Bitcoin is simply one combination of 4 SEPARATE technologies 1) token crypto-currency, 2) distributed ledger, 3) block chain, and the 4) smart contract. It's a very smart combination, and performs its function extremely well, but like everything - it has limitations. Most people see crypto-currency as the investment opportunity. The currency is worth anywhere from 1) what another 'momentum investor' will pay for it, through 2) total $ value of transactions (demand) divided by total supply of token (supply), and even 3) a little more that the paper fiat in your pocket. The smarter developers are trying for 2) and are attempting to both grow their market segment, and their market share within it. Very competitive. The actual investment opportunity is in the services supply chain, as 3) and 4) run on a fully scaleable database; to materially reduce labor, space, and working capital requirements. Productivity rises in a big way, break-even levels plunge, all kinds of previously closed markets open up, and competition returns to value-add versus price. Almost all blue sky, and very little competition. The preferred approach is to take an existing business; and do 3) & 4) to it, to drive up its earnings and CF through productivity gains. The earnings fund acquisitions, the CF pays the interest carry, the back office moves the acquisitions processes onto the existing block chain infrastructure - producing even larger CF savings. Long term, the sleepier the industry the more you make. Brains, vision, block chain expertise, and experience with operating leverage required ;) It is a measure of how young, and inexperienced the industry is; that so many very smart people are all looking in what is essentially the wrong place. May it continue for some time! SD

Damn, this is pretty good! Thanks for posting. SD

The vast majority of people have no idea what Bitcoin is; but know that you can bet on it, make a lot of money, and look really cool. Just as you don't need to know how a calculator works, in order to use it - the same thing applies to Bitcoin. Simply be able to cite a few buzzwords, pull up a price (at any time) on your smart phone, think quick, and possess the 'gift of the gab'. Most more knowledgeable crypto investors see only the mining process, because it is the source of new coin. To them there is only one way, it is the distributed ledger, and it allows you to create and sell your own 'money' through an ICO. The reality is that we have always been able to create and sell our own 'money' - we just call it loyalty points; and almost all crypto applications would run a lot more effectively on a database versus a distributed ledger. To many, a Bitcoin is an asset class - because the taxman says it will be taxed as though it were an asset; the same way that a bond is rated as 'investment grade' because the rating agency says it is. A bond produces a cash flow of interest, a property produces a rental cash flow, a patent produces a royalty stream, a project or piece of machinery produces a future benefit, a bitcoin - produces squat. It's the 'magic' asset. As Gekko (Wall Street) likes to say .... You're walking around blind without a cane, pal. A fool and his money are lucky enough to get together in the first place. SD

Merry Christmas to all! SD

Core to concentration is recognition that you are riding market cycles (macro tides), rather that names (boats on the tide). It's much less about selecting the best stock (boat), and more about knowing how to read a tide table (macro projection). Diversification is only useful if you are investing in the tides at different places. If you're just investing in different boats on the same tide, at the same place, it's pretty useless. Hence either truly diversify, or don't do it at all - there is no in between. SD

Up to the value of a modest 3 BR house in our area, per circle of comptence. After that we start to sell down & return capital. SD

The 18-35's are going to get burned, and there is not going to be a 'rescue'. Bitcoin is this generations 'dot com', it will end the same way the dot com era ended, and CB's have an enormous incentive to stay out. CB's have not imposed market 'discipline' since the collapse of LB in 2008 (10 years), and need the bunnies to learn 'moral hazard' the hard way. Too many people have zero experience with what life is like - when there isn't a 'once in a lifetime' CB put on the economy. Hard to see how they do not get a lesson. SD

I sure hope so. I'm buying more under $9K, under $5K would be ideal. Just curious, but how are you determining your price points to add? There is no real way to determine an intrinsic value, so is it just based on regressions or prior trading ranges? Primarily gut feel, & thinking like a grocer - as there are no real metrics at this point. We have a 10 cases of 'specialty' apples on the shop floor, are charging what we think the market will bear; but are taking the risk that some of our cases will never sell (rot, go obsolete, etc). Or we could put them on sale right now, to clear them out immediately. Which of these options is the more valuable to us - going forward? Make the right decision and you eat well. Make the wrong one and you're eating apples for the next little while. SD

We're in the concentrated camp, and typically hold just 1 company per circle of competence - same as the small business person. Every small business person we've ever met tries to hedge their intrinsic risk - but risk management execution expertise is very limited. Most use property, some use investment in other businesses, but almost nobody uses cash/t-bills or long term sovereign bonds/gilts. As risk management execution is in our circle of expertise, we have the luxury of being able to do it in reverse. We have also broadened 'circle of competence' to now include 'long term thesis' (estate planning kicking in). We have adopted the 50 year view that Newfoundland will benefit from global warming, and the opening of the NE and NW sea passages to Asia, much as Aberdeen and Scotland have benefited from the development of their off-shore oil fields. Panama traffic shifting northwards, Newfoundland resources going west (oil, iron, fish, removal of land locks, etc.), opening of new resources as Labrador melts. Execution via passive investment ranging from housing through to resource investment through to technology creation. Beneficiaries being today's and future grand kids. Newfoundland vs BC? Newfoundland doesn't have the earthquake risk of possibly falling into the ocean tomorrow, and it's a rare 'newfie' who cannot talk his/her way out of trouble via the 'gift of the gab'. Hopefully it works out well for us. SD

And now big enough to trigger circuit breakers and start the mass exits on Asia's exchanges. Hard to see how it doesn't drop another 50-75% from here over the next month or so. SD