Cryptocurrencies

[rkbabang]

So (correct me if am wrong) the technology is a distributed ledger? To simplify, it's pretty much bittorrent for transactions (or even more generally, any records in general)?

 

The value is that, if party A makes a transaction with party B, and then both party A and B sends a signed receipt to everyone else in the world...well nobody can come by later and say "well no, party A still has not transacted with party B".

 

I can see how this adds another level of security, for sure.

 

So my thoughts are, the technology and the coin aspect are two distinct things.

 

The technology is just a record keeping platform, which is stronger the more people use it. You can't generate profit from it, correct?

 

The coin aspect is only as valuable as people make it. So, the more people who transfer their wealth into bitcoins, the more valuable bitcoins are. Until of course, the last marginal person converts their dollars into bitcoin.

 

So to value the coin aspect, you have to have an understanding on how and why people will move their wealth into bitcoins. What drives this behavior? Is it security (i.e. people fearing the bank holding their money)? Is it ease-of-use (i.e. a completely digital society where everything is bought/paid for digitally?). Some other reason?

 

Curious to your two cents on these thoughts, particularly the last one...

 

Even after the last person moves to Bitcoin it's value, i.e. What you can buy with it, will increase due to supply and demand. And given a fixed or even shrinking supply and a growing demand from a growing society with increasing wealth and increasing productivity, you should see a certain amount of increasing value.  This of course is a simplistic example as I don't think Bitcoin will be the only currency in society. So it will always be able to also gain or lose against the other currencies in existence.

[Liberty]

Even after the last person moves to Bitcoin it's value, i.e. What you can buy with it, will increase due to supply and demand. And given a fixed or even shrinking supply and a growing demand from a growing society with increasing wealth and increasing productivity, you should see a certain amount of increasing value.  This of course is a simplistic example as I don't think Bitcoin will be the only currency in society. So it will always be able to also gain or lose against the other currencies in existence.

 

The supply of bitcoin is fixed (and declining as people lose access to them..), but the supply of cryptocurrencies in general is infinite. That'll be an interesting dynamic to see in action over the coming years and decades..

[rkbabang]

Even after the last person moves to Bitcoin it's value, i.e. What you can buy with it, will increase due to supply and demand. And given a fixed or even shrinking supply and a growing demand from a growing society with increasing wealth and increasing productivity, you should see a certain amount of increasing value.  This of course is a simplistic example as I don't think Bitcoin will be the only currency in society. So it will always be able to also gain or lose against the other currencies in existence.

 

The supply of bitcoin is fixed (and declining as people lose access to them..), but the supply of cryptocurrencies in general is infinite. That'll be an interesting dynamic to see in action over the coming years and decades..

 

+1.  That is why I think there will be a small handful of winners. I think there will be different categories of blockchains, at least 2-3 categories globally, or maybe this will vary slightly by region as well.  But within each category the network effects are what makes them valuable, so I don’t think there will be too many of them.  Why are there only 4 credit card networks (VISA, MC, AmEx, Discover)?  Why aren’t there thousands?  There could be an infinite number of them right?  It is because a credit card is useless unless it can be used almost everywhere.  This limits the number of them that can exist profitably.  I think the same market forces will be at work in this industry. Here are the 3 categories of blockchains I predict:

 

1) Bitcoin (or something else like it), with its high fees, slow transfer speeds, and fixed/shrinking supply looks to me like it will be "digital gold".  Good for long term storage of large sums of money or to safely facilitate large transactions safely.  Maybe it will be used mostly by the wealthy or with its very public ledger by corporations to store or transfer large amounts transparently.  I don't see it as the everyday unit the average person gets paid in and uses to buy a coffee and a donut at Dunkin Donuts.  But the average person might have some as a deflationary savings vehicle.

 

2) Ethereum (or maybe Tezos) or something else like it.  Being Turing complete will be used for smart contracts and to build businesses on top of and other specific types of instruments I’ll call “tokens” here.  This will be a much faster blockchain able to handle an enormous number of transactions per second and probably either the base token or a derivative token will be the unit people use for everyday transactions.  Tokens on this block chain will also represent stock in corporations and will be traded in all the ways stocks are traded today.  And there will exist derivative financial instruments coded in smart contracts such as calls, puts, etc.  Dividends can be paid in either the base token or in the token shares (like dividend reinvestment).  And of course the company can buy back its tokens on the market and destroy them or do secondary offerings and create more tokens.

 

3) Monero, DASH, or something else.  I see the need for a private currency.  This one will mostly be just a currency, like bitcoin, with limited smart contract programmability, but with complete privacy as to how much you own or what transactions you made and with whom.  Maybe this exists and Bitcoin doesn’t, or maybe Bitcoin hardforks to something else which works this way.  Or maybe this exists as a separate thing as it does now.

 

Those are the three categories I see. There may only be 1 or 2 winners in each of those categories and, as I said above, category 1 might go away and only categories 2 and 3 end up existing long term.  Of course this is all so new that I might be completely wrong.

 

[SharperDingaan]

So (correct me if am wrong) the technology is a distributed ledger? To simplify, it's pretty much bittorrent for transactions (or even more generally, any records in general)?

 

The value is that, if party A makes a transaction with party B, and then both party A and B sends a signed receipt to everyone else in the world...well nobody can come by later and say "well no, party A still has not transacted with party B".

 

I can see how this adds another level of security, for sure.

 

So my thoughts are, the technology and the coin aspect are two distinct things.

 

The technology is just a record keeping platform, which is stronger the more people use it. You can't generate profit from it, correct?

 

The coin aspect is only as valuable as people make it. So, the more people who transfer their wealth into bitcoins, the more valuable bitcoins are. Until of course, the last marginal person converts their dollars into bitcoin.

 

So to value the coin aspect, you have to have an understanding on how and why people will move their wealth into bitcoins. What drives this behavior? Is it security (i.e. people fearing the bank holding their money)? Is it ease-of-use (i.e. a completely digital society where everything is bought/paid for digitally?). Some other reason?

 

Curious to your two cents on these thoughts, particularly the last one...

 

Bitcoin is just one of many token designed for anonymous reliable transacting in a zero-trust environment. It offers greatest value add to all those who need to transfer value in an anonymous way - the drug merchants, arms dealers, money launderers, etc. High security, easy use, and total anonymity - as long as the miners don't consolidate into a group with > 50% of the CPU power. The main weakness isn't the scaling limitation, it's the vulnerability to miner extortion; as a majority group (>50%) has the CPU power to 'double-spend' all the token issued to date. While they can get rich in token, to cash out - they need someone to lend them cash against token. So far it hasn't happened in any quantity.

 

It's highly likely that we will have a hybrid of the Bitcoin model for very high net worth clients, but with 'vetted' miners, and a consortium of central banks acting as cash/token exchange facility. Wealth transfers out of banks into cyberspace, with the real protection being no way to get the cash out - unless you go through a bank (where it's traceable). If the consortium maintains a fixed FX rate, there will be zero valuation effect.

 

SD

   

 

   

[wachtwoord]

@rkabang I agree with you about Bitcoin and Monero being the likely winners for their respective categories. Although there is a chance Bitcoin will get strong privacy (for example through Mimblewimble).

 

I'm not yet sure about your second category and if it ends up proving useful I expect something like RSK to win as its build on Bitcoin and the currency aspects of Ethereum are just beyond terrible.

[clutch]

How Practical It Is To Live On Bitcoin In 2017 | CNBC

 

[rkbabang]

@rkabang I agree with you about Bitcoin and Monero being the likely winners for their respective categories. Although there is a chance Bitcoin will get strong privacy (for example through Mimblewimble).

 

I'm not yet sure about your second category and if it ends up proving useful I expect something like RSK to win as its build on Bitcoin and the currency aspects of Ethereum are just beyond terrible.

 

 

My second category is something fundamentally different from money.  It is about decentralized applications running on a decentralized internet.  You could be right that everything ends up running on Bitcoin's blockchain in the end, but I'm not sure you want applications running on the same blockchain as your money.  I think the requirements are too different to mix them.  The money blockchains need to emphasize security above all else, where the application blockchains would really be all about speed, scalability (to an almost infinite degree), ease of programing, power efficiency, and sure security too, but only secure enough.

 

Here's an interesting piece I just read which talks about a lot of Category 2 developments and projects.

https://hackernoon.com/the-good-the-bad-and-the-ugly-of-consensus-2017-8776056f97a3

 

[rkbabang]

One reason I see this as probably the biggest opportunity of a lifetime is that right now it is pretty much just tech people with no investing experience at all fooling around with this stuff.  Articles like this one abound every time there is even the slightest drop. It's quite amusing to see a drop back down to where it was last week called a massacre and people panicking.

 

Crypto Massacre: Why Value of Bitcoin, Ethereum, Ripple, NEM & Others Sharply Fell

 

On the FB groups you have people in an frenzy wanting to know "why is it falling?" "What's going on?"  It's crazy.

[mttddd]

At some point this is all going to go mainstream, if people think its a bubble now just wait until the masses start speculating.

 

Anyone have any thoughts on SegWit? 

[rkbabang]

At some point this is all going to go mainstream, if people think its a bubble now just wait until the masses start speculating.

 

Anyone have any thoughts on SegWit? 

 

I agree, while many people have heard the name "bitcoin" most people don't know what it is.  And the vast majority of people have never heard of any of the other blockchain projects/currencies.  After this goes full-on mainstream, when the real bubble happens, I think it will be time to sell and wait for a good crash to buy back in.  But we are years away from that right now.

 

I don't have an opinion on SegWit in particular, but in general bitcoin needs to do something to address the blocksize/scaling issues.  SegWit seems to be working fine on the litecoin blockchain right now.

 

[wachtwoord]

Increasing the blocksize will destroy the unique value propisition of Bitcoin (security, distribution and censorship resistance). Segwit (effectively) increases the blocksize (so I don't like that) buthas some other advantages (it enables 2d level scaling).

 

All the ideas to plain out increase the blocksize are made by people who are either ignorant and aim to destroy bitcoin through social engineering.

[mttddd]

Ya my concern is that it will be too divisive and in the end lead to a nasty split hammering the value. I'm debating closing out my positions in advance and buy back in after. To me at least it seems like the downside risk is greater than the upside.

[wachtwoord]

Ya my concern is that it will be too divisive and in the end lead to a nasty split hammering the value. I'm debating closing out my positions in advance and buy back in after. To me at least it seems like the downside risk is greater than the upside.

 

If this gets resolved, what do you expect the upside to be? $10k+ right I expect.

[mttddd]

10k would be nice ha, my guess is 50% upside in the weeks following if all goes well. If things go south I could see things tanking 50% in hours. Thinking I'd rather buy in 20% higher and avoid the downside risk. But as with all things crypto who knows

[rkbabang]

Someone was able to buy ETH for $13 today.

 

http://www.coindesk.com/13-ethereum-ether-prices-plunge-2500-gdax-exchange-flash-crash/

[pau_]

The fascinating thing to me is that people got hit by margin calls due to/exacerbating the flash crash.

 

These exchanges, correct me if I'm wrong, keep their own order books and balances off the blockchain (i.e. likely on some RDBMS + custom software), but it hadn't occurred to me that that meant people could margin up.

 

I also wonder, if settlement doesn't immediately happen on the blockchain, if some of the trades could be reversed by the exchange.

 

[edit: that is, if the buyer at 13 had only received etherium at an address owned by the exchange and held in the equivalent of street name, it seems plausible it could be reversed. All bets would be seemingly off if it goes directly to an address owned by the buyer]

[mttddd]

I hadn't realized people were using margin either, this stuff is volatile and risky enough I can't imagine using margin in any large capacity. I guess maybe while you wait for the block chains to confirm but it's not like you have to worry about a three day settlement period

[pau_]

mttddd I edited my comment to clarify, but my curiosity is around whether these USD-Coin exchanges happen in a conventional, non-distributed manner within the exchange. I suspect there is there is at least some degree of this because of the existence of exchange risk: of cases like Mt Gox where people lost balances held on their behalf.

[rkbabang]

It was even worse than I thought.  It didn't just hit $13, a trade went through at $0.10 

cardboard posted this story in its own thread:

 

http://www.cnbc.com/id/104544759

 

There is so much crazy going on.  $30M market sells, margin buying and stop losses.  I know derivatives exist as well, I'm not sure if that had anything to do with it.  Anyway coinbase says all of the transactions are final and can not be reversed.

 

I'm thinking there are probably a lot of people setting buy orders with ridiculously low limits right about now just in case.

 

[rkbabang]

91B is still only 91B/60T = 0.15% of world wide M2 currency

 

So if you think this will represent 2% there is still a lot of growth left.  If you think it will be 15%, or 51%, or 80% there is a hell of lot of growth left.  :)

 

Exactly. If you think there is any value at all, either as currency or store of value, then even at present prices, crypto in general is one of the most asymmetric bets of all time.

 

I can understand people saying bitcoin will go to zero. What I find odd is when people say the fair value is 50b to 100b.  Your basically saying it should be exactly 1% of world money supply which seems oddly specific

 

A good graphic which illustrates this point.

 

https://howmuch.net/articles/worlds-money-in-perspective

 

Larry Page is worth as much as Bitcoin. Just one human being out of over 7 billion is worth as much as all of bitcoin put together. Bill Gates is worth as much as all of Bitcoin + Larry Page + a few $B more.

[Liberty]

Isn't the main difference that most other currencies are being used and most cryptocurrencies are being bought to speculate at the present time? Seems like that changes the analysis when comparing BTC to M2 as a TAM or whatever...

[pau_]

GDAX is bailing out margin traders who lost their shirts (and people who sold due to a stop-loss order) from the company (VC?) coffers. https://blog.gdax.com/eth-usd-trading-update-2-216a3b946ef6

[CONeal]

GDAX is bailing out margin traders who lost their shirts (and people who sold due to a stop-loss order) from the company (VC?) coffers. https://blog.gdax.com/eth-usd-trading-update-2-216a3b946ef6

 

Understand where they are coming from and doing this in order to build their brand.  At the same time, a very slippery slope and people will always expect their money back if they lose. 

 

Personally think this is horse shit, allowing people to talk on more risk thus supporting the idea that the price can only go up.

[mttddd]

Agreed sets a dangerous precedent but they may also know more than we do. If the flash crash was due to issues with their exchange this may be a way of avoiding litigation (I'm assuming there are some strings with the bailout)

[Jurgis]

Funny ICO idea from MIT mailing list:

 

GSB ICO [1]

 

Initial Coin Offerings (ICOs) [2] are the hot new way to get rich with very little effort.  To do an ICO all you need is an idea that runs on Ethereum.  Then, you sell shares of your "company" in tokens to raise capital, similar to an IPO.  From this you can compute the market valuation of your company.  These valuations are absolutely insane given that most of these ICOs haven't actually implemented or planned anything.  In one case, an ICO led to a valuation of $300 million [3].

 

Given all that, we here at GSB are doing an ICO by following the conventional steps:

 

1.  Come up with an idea.  Deep learning is hot now, so maybe a distributed deep learning thing?  Throw in some internet of things for good luck. [4]

 

2.  Pitch the idea.  I've put the important bits between asterisks:

 

"GSB is a *distributed deep learning framework* built on top of the Ethereum network.  The *internet of things* can leverage our GSB layer to access the *global supercomputer*, enabling never before seen levels of *interoperability*.  I'm an *MIT student* doing an ICO of *5%* of GSB with a target valuation of $200 million so I can work full time on GSB.

 

Note that I'm only offering 5% of GSB.  This is important because it means that your investors have essentially no say in how the thing runs.

No one will notice this.

 

3.  (Optional) Write a white paper with some technical details of how you'll accomplish your goal.  This used to be necessary but now a flashy website with no technical details will do just fine.

 

4.  Pick a date for your ICO and hype it like crazy on Reddit.  Retail investors with no understanding of computer science or Ethereum will buy your coins like crazy.

 

5.  After you sell out of tokens, cash out everything.  ICOs often perform worse than ether.  Whether you can actually flood the market with your 95% share is yet to be seen, so you should probably do it slowly.

 

6.  Don't build anything.  You already have the money.  Kick back and relax!

 

7.  Fight off the paranoia.  This isn't illegal, right?  I mean, sure the SEC will probably make an example of a few people and send them to federal prison for securities fraud for a very long time, but come on, that won't be YOU, right?  Move to a country that doesn't extradite to the US to be safe.

 

Buy the GSB ICO at this week's [5]

 

*G i R L    S C O U T    B E N E F i T*

 

</snip>

---------------------------------------------------

 

1.  I really wanted to call this email, "How I Made $200 Million From Home," but last week's email (All Natural AWS) got caught in a lot of spam filters and this definitely would too.

 

2.  http://fortune.com/2017/03/31/initial-coin-offering/

 

3.

http://www.coindesk.com/ethereum-ico-irrationality-300-million-gnosis-valuation-sparks-market-concerns/

 

4.  I overheard some people in Kendall square the other day talking about how they wanted to do an ICO but they didn't have any ideas.

Their first mistake was thinking that they *need* an idea.

 

5.  Thanks to Ben Sherman for the GSB ICO idea.

 

This is humor. Do try it at home.  8)