This Time is Different Part 2: What Bitcoin Really Is ...
Bitcoin price prediction after halving in 2020
Bitcoin Hyper-Deflation, Gold and Silver Report
Putting $400M of Bitcoin on your company balance sheet
Also posted on my blog as usual. Read it there if you can, there are footnotes and inlined plots. A couple of months ago, MicroStrategy (MSTR) had a spare $400M of cash which it decided to shift to Bitcoin (BTC). Today we'll discuss in excrutiating detail why this is not a good idea. When a company has a pile of spare money it doesn't know what to do with, it'll normally do buybacks or start paying dividends. That gives the money back to the shareholders, and from an economic perspective the money can get better invested in other more promising companies. If you have a huge pile of of cash, you probably should be doing other things than leave it in a bank account to gather dust. However, this statement from MicroStrategy CEO Michael Saylor exists to make it clear he's buying into BTC for all the wrong reasons:
“This is not a speculation, nor is it a hedge. This was a deliberate corporate strategy to adopt a bitcoin standard.”
Let's unpack it and jump into the economics Bitcoin:
Is Bitcoin money?
No. Or rather BTC doesn't act as money and there's no serious future path for BTC to become a form of money. Let's go back to basics. There are 3 main economic problems money solves: 1. Medium of Exchange. Before money we had to barter, which led to the double coincidence of wants problem. When everyone accepts the same money you can buy something from someone even if they don't like the stuff you own. As a medium of exchange, BTC is not good. There are significant transaction fees and transaction waiting times built-in to BTC and these worsen the more popular BTC get. You can test BTC's usefulness as a medium of exchange for yourself right now: try to order a pizza or to buy a random item with BTC. How many additional hurdles do you have to go through? How many fewer options do you have than if you used a regular currency? How much overhead (time, fees) is there? 2. Unit of Account. A unit of account is what you compare the value of objects against. We denominate BTC in terms of how many USD they're worth, so BTC is a unit of account presently. We can say it's because of lack of adoption, but really it's also because the market value of BTC is so volatile. If I buy a $1000 table today or in 2017, it's roughly a $1000 table. We can't say that a 0.4BTC table was a 0.4BTC table in 2017. We'll expand on this in the next point: 3. Store of Value. When you create economic value, you don't want to be forced to use up the value you created right away. For instance, if I fix your washing machine and you pay me in avocados, I'd be annoyed. I'd have to consume my payment before it becomes brown, squishy and disgusting. Avocado fruit is not good money because avocadoes loses value very fast. On the other hand, well-run currencies like the USD, GBP, CAD, EUR, etc. all lose their value at a low and most importantly fairly predictible rate. Let's look at the chart of the USD against BTC While the dollar loses value at a predictible rate, BTC is all over the place, which is bad. One important use money is to write loan contracts. Loans are great. They let people spend now against their future potential earnings, so they can buy houses or start businesses without first saving up for a decade. Loans are good for the economy. If you want to sign something that says "I owe you this much for that much time" then you need to be able to roughly predict the value of the debt in at the point in time where it's due. Otherwise you'll have a hard time pricing the risk of the loan effectively. This means that you need to charge higher interests. The risk of making a loan in BTC needs to be priced into the interest of a BTC-denominated loan, which means much higher interest rates. High interests on loans are bad, because buying houses and starting businesses are good things.
BTC has a fixed supply, so these problems are built in
Some people think that going back to a standard where our money was denominated by a stock of gold (the Gold Standard) would solve economic problems. This is nonsense. Having control over supply of your currency is a good thing, as long as it's well run. See here Remember that what is desirable is low variance in the value, not the value itself. When there are wild fluctuations in value, it's hard for money to do its job well. Since the 1970s, the USD has been a fiat money with no intrinsic value. This means we control the supply of money. Let's look at a classic poorly drawn econ101 graph The market price for USD is where supply meets demand. The problem with a currency based on an item whose supply is fixed is that the price will necessarily fluctuate in response to changes in demand. Imagine, if you will, that a pandemic strikes and that the demand for currency takes a sharp drop. The US imports less, people don't buy anything anymore, etc. If you can't print money, you get deflation, which is worsens everything. On the other hand, if you can make the money printers go brrrr you can stabilize the price Having your currency be based on a fixed supply isn't just bad because in/deflation is hard to control. It's also a national security risk... The story of the guy who crashed gold prices in North Africa In the 1200s, Mansa Munsa, the emperor of the Mali, was rich and a devout Muslim and wanted everyone to know it. So he embarked on a pilgrimage to make it rain all the way to Mecca. He in fact made it rain so hard he increased the overall supply of gold and unintentionally crashed gold prices in Cairo by 20%, wreaking an economic havoc in North Africa that lasted a decade. This story is fun, the larger point that having your inflation be at the mercy of foreign nations is an undesirable attribute in any currency. The US likes to call some countries currency manipulators, but this problem would be serious under a gold standard.
Currencies are based on trust
Since the USD is based on nothing except the US government's word, how can we trust USD not to be mismanaged? The answer is that you can probably trust the fed until political stooges get put in place. Currently, the US's central bank managing the USD, the Federal Reserve (the Fed for friends & family), has administrative authority. The fed can say "no" to dumb requests from the president. People who have no idea what the fed does like to chant "audit the fed", but the fed is already one of the best audited US federal entities. The transcripts of all their meetings are out in the open. As is their balance sheet, what they plan to do and why. If the US should audit anything it's the Department of Defense which operates without any accounting at all. It's easy to see when a central bank will go rogue: it's when political yes-men are elected to the board. For example, before printing themselves into hyperinflation, the Venezuelan president appointed a sociologist who publicly stated “Inflation does not exist in real life” and instead is a made up capitalist lie. Note what happened mere months after his gaining control over the Venezuelan currency This is a key policy. One paper I really like, Sargent (1984) "The end of 4 big inflations" states:
The essential measures that ended hyperinflation in each of Germany,Austria, Hungary, and Poland were, first, the creation of an independentcentral bank that was legally committed to refuse the government'sdemand or additional unsecured credit and, second, a simultaneousalteration in the fiscal policy regime.
In english: *hyperinflation stops when the central bank can say "no" to the government." The US Fed, like other well good central banks, is run by a bunch of nerds. When it prints money, even as aggressively as it has it does so for good reasons. You can see why they started printing on March 15th as the COVID lockdowns started:
The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals.
In english: We're going to keep printing and lowering rates until jobs are back and inflation is under control. If we print until the sun is blotted out, we'll print in the shade.
BTC is not gold
Gold is a good asset for doomsday-preppers. If society crashes, gold will still have value. How do we know that? Gold has held value throughout multiple historic catastrophes over thousands of years. It had value before and after the Bronze Age Collapse, the Fall of the Western Roman Empire and Gengis Khan being Gengis Khan. Even if you erased humanity and started over, the new humans would still find gold to be economically valuable. When Europeans d̶i̶s̶c̶o̶v̶e̶r̶e̶d̶ c̶o̶n̶q̶u̶e̶r̶e̶d̶ g̶e̶n̶o̶c̶i̶d̶e̶d̶ went to America, they found gold to be an important item over there too. This is about equivalent to finding humans on Alpha-Centauri and learning that they think gold is a good store of value as well. Some people are puzzled at this: we don't even use gold for much! But it has great properties: First, gold is hard to fake and impossible to manufacture. This makes it good to ascertain payment. Second, gold doesnt react to oxygen, so it doesn't rust or tarnish. So it keeps value over time unlike most other materials. Last, gold is pretty. This might sound frivolous, and you may not like it, but jewelry has actual value to humans. It's no coincidence if you look at a list of the wealthiest families, a large number of them trade in luxury goods. To paraphrase Veblen humans have a profound desire to signal social status, for the same reason peacocks have unwieldy tails. Gold is a great way to achieve that. On the other hand, BTC lacks all these attributes. Its value is largely based on common perception of value. There are a few fundamental drivers of demand:
Means of Exchange: if people seriously start using BTC to buy pizzas, then this creates a real demand for the currency to accomplish the short-term exchanges. As we saw previously, I'm not personally sold on this one and it's currently a negligible fraction of overall demand.
Criminal uses: Probably the largest inbuilt advantage of BTC is that it's anonymous, and so a great way to launder money. Hacker gangs use BTC to demand ransom on cryptolocker type attacks because it's a shared way for an honest company to pay and for the criminals to receive money without going to jail.
Apart from these, it's hard to argue that BTC will retain value throughout some sort of economic catastrophe.
BTC is really risky
One last statement from Michael Saylor I take offense to is this:
“We feel pretty confident that Bitcoin is less risky than holding cash, less risky than holding gold,” MicroStrategy CEO said in an interview
"BTC is less risky than holding cash or gold long term" is nonsense. We saw before that BTC is more volatile on face value, and that as long as the Fed isn't run by spider monkeys stacked in a trench coat, the inflation is likely to be within reasonable bounds. But on top of this, BTC has Abrupt downside risks that normal currencies don't. Let's imagine a few:
A critical software vulnerability is found in the BTC codebase, leading to a possible exploitation.
Xi Jinping decides he's had enough of rich people in China hiding their assets from him and bans BTC.
Some form of bank run takes hold for whatever reason. Because BTC wallets are uninsured, unlike regular banks, this compounds into a Black Tuesday style crash.
Blockchain solutions are fundamentally inefficient
Blockchain was a genius idea. I still marvel at the initial white paper which is a great mix of economics and computer science. That said, blockchain solutions make large tradeoffs in design because they assume almost no trust between parties. This leads to intentionally wasteful designs on a massive scale. The main problem is that all transactions have to be validated by expensive computational operations and double checked by multiple parties. This means waste:
BTC was estimated to use as much electricity as Belgium in 2019. It's hard to trace where the BTC mining comes from, but we can assume it has a huge carbon footprint.
A single transactions is necessarily expensive. A single transaction takes as much electricity as 800,000 VISA transactions, or watching 50,000 hours of youtube videos.
There is a large necessary tax on the transaction, since those checking the transaction extract a few BTC from it to be incentivized to do the work of checking it.
Many design problems can be mitigated by various improvements over BTC, but it remains that a simple database always works better than a blockchain if you can trust the parties to the transaction.
The fundamentals of bitcoin as an asset exist and they are stupider than you can imagine
tldr; tldr; Hodling is deflationary and all those wild price swings from bitcoin are changes in the fundamental value of bitcoin. Really. tldr; Imagine there is a market where $100 worth of goods are sold every day using 100 bitcoins which cycle around. Then each bitcoin would be worth $1. Now suppose that 50 of the bitcoins were being held in anticipation of growing in value so only 50 bitcoins were cycling each day. For all the goods in the market to be sold every day each bitcoin will now be worth $2. Introduction There has been a lot of discussion about what the fundamental value of bitcoin is. The consensus view in this subreddit is that the fundamental value is zero. I argue in this post that the fundamental value of bitcoin is whatever the price is right now, or a something close to it. This is because the fundamentals of bitcoin are stupid. Unimaginably stupid. Bitcoin as Currency Bitcoin is a terrible currency compared to normal statist filthy fiat. Bitcoins are often permanently lost due to hacking or easily made mistakes. Transactions take considerable time to be confirmed. The price is highly volatile. But this post isn’t going into those issues in depth. There is little evidence for mainstream Bitcoin use. A report by Morgan Stanley on the acceptance of Bitcoin from online retailers found that only 3 out of the 500 online retailers tracked accepted Bitcoin payments, a decrease from 5 in the previous year. The report concluded: “Bitcoin acceptance is virtually zero and shrinking”. The number of transaction on darknet markets is large. On darknet markets users buy illegal products using cryptocurrencies (not just Bitcoin). Due to their illegal nature, it is impossible to know the exact value of transactions that take place on them. Between February 2011 and July 2013 the darknet market Silk Road had 1,229,465 transactions comprising 9,519,644 bitcoins in revenue. Darknet markets, along with ransomware payments are the only uses where there is evidence of a substantial number of bitcoin transactions taking place. To work at scale darknet markets require cryptocurrency to pay for goods on sale. The anonymous nature of cryptocurrency allows transactions to take place without the buyer or the seller knowing anything about each other (although if a buyer has drugs mailed to them the seller will know who they are). If darknet markets used another form of payment then law enforcement could buy something and then track both the money going to the seller and the commission paid to the darknet market. It isn’t true as many people have claimed that nothing backs bitcoin. Bitcoin is backed by darknet markets. There are a few kinds of people who buy bitcoin and want to spend it. They include drug buyers, those who need to pay off ransomware, money launders, fraudsters, and a few others but for simplicity’s sake I will just call them drug buyers. Likewise, there are a few types of people who sell products for bitcoin but again for simplicity’s sake I will call them drug sellers. Non-circularity Bitcoin is a currency with a property that I call non-circularity. With Actual Money, when I buy something in a shop, the money I paid with goes towards the wages of the staff, rent and the products themselves among other expenses. This money then flows on to others. When a drug seller receives bitcoin in exchange for their drugs they can’t use the bitcoin to pay for their groceries or to pay their rent. They must exchange the bitcoin for filthy fiat to buy food. The inability to use bitcoin for further purchases means it is a non-circular currency. Bitcoin is a medium of a medium of exchange. A full bitcoin transaction thus consists of three parts:
A drug buyer goes to a bitcoin exchange to get bitcoin in exchange for filthy fiat
The drug buyer goes to the DNM to exchange bitcoin for drugs from the drug seller
The drug seller goes to the bitcoin exchange to get filthy fiat in exchange for bitcoin
An exchange is any place which matches buyers and sellers of bitcoin. This includes online exchanges like Coinbase as well as LocalBitcoins which matches people for face to face transactions. As nobody receives bitcoin for payment except drug dealers, the only place for drug buyers to get bitcoin is an exchange. The extreme volatility of bitcoin means that drug buyers and sellers try to complete the process as quickly as possible and avoid holding onto bitcoin. Perfect Price Unstickiness For normal currencies prices are sticky. That means that nominal prices do not respond quickly to changing economic conditions. In contrast bitcoin has what I call perfect price unstickiness so the price of goods in bitcoin changes almost perfectly to changes in the value of bitcoin. This is because prices for items which can be bought with bitcoin are never actually set in bitcoin, probably due to the high volatility. Instead they are set in fiat. The amount in fiat can either be listed directly, so $US50 for these drugs, or the price can be listed in the converted amount of bitcoin, 0.005BTC if 1 BTC = $US10,000. Changes in the price of bitcoin on exchanges are instantly reflected in the prices of drugs in bitcoins on darknet markets. Hodling Another feature of bitcoin that should be considered is that people hodl bitcoin. The word comes from a typo of ‘hold’. Bitcoin is often bought on exchanges not for use as a currency to buy drugs, but as an asset in expectation of a price rise. Hodlers are the third type of user of bitcoin along with drug buyers and drug sellers. Although they don’t use it. What’s the difference between an asset that is held and one that is hodled? This is admittedly vague, but an asset is hodled if it is being held, it can be held for long periods at low costs, it can but isn’t generating any income and there are no plans to generate income from it soon. Cash under the mattress is being hodled, cash in my wallet that I am going to buy stuff with soon is not. Money in my bank account is generating income and so is not hodled. Bitcoin held in anticipation of price rises is being hodled. Bitcoin bought to buy drugs but which has not been used yet is not. Gold stored in a vault is being hodled, gold used for electronics purposes is not (jewellery is a harder case). A vacant block of land with no plans to develop it or use it for anything is being hodled but one that is soon going to have an apartment block built on it is not. Commodities can be held and do not generate income until sold but it is expensive to hold most commodities for long periods of time. This prevents most commodities from being hodled. Velocity The velocity of money is the average number of times a unit of fiat changes hands in a period. You can skip the next three paragraphs as they are a little annoying and you can get by without them. Just know that I am defining the velocity of bitcoin as what the velocity of bitcoin would be if no bitcoin was being hodled. Due to hodling, the velocity of bitcoin under the conventional definition can vary wildly. Consider two cases. Both have 100 bitcoins, 100 transactions a day and all non-hodled bitcoins are spent each day. The first has no hodled bitcoins, the second 50 hodled bitcoins. The first has a velocity of bitcoin of 1 transaction per day, the second is 0.5 per day. I want a definition of velocity of bitcoin that is not impacted by changes in hodling. I did consider doing this analysis through changes in velocity but the final formula is easier to understand if we find a definition of velocity of bitcoin that is independent of the level of hodling. The definition that achieves this is (Length of Time)/(Average length of time to complete transaction). When there is no hodling the two definitions agree but the new definition is unchanged by any rise or fall in the level of hodling, which is what we need. From this point on when I refer to the velocity of bitcoin I am referring to the second definition. The actual time to complete a bitcoin transaction seems to be over a week. In an interview one vendor claimed that it took one week for the bitcoin to be released from escrow and longer to convert it to actual money. Intuitive argument Assume that the amount of drugs sold on darknet markets changes little from week to week. If the price of bitcoin doubles over the week then the number of bitcoins flowing through the darknet markets will halve. So where have the bitcoins gone? Drug buyers and sellers don’t have them. The only option is hodlers. In fact, it was the hodlers buying the bitcoins that caused the price to change. Formula The conventional formula for the relationship between velocity of money (V), nominal amount of money (M), price level (P) and real economic activity (Q) is V*M = P*Q I am going to change that equation slightly so it now concerns the velocity of bitcoin (V), the total number of bitcoins (M), the price level of bitcoin (P), the total value in fiat of all economic transactions (Q) and the proportion of bitcoins that are hodled (h). If h*M bitcoins are being hodled then there are (1-h)*M bitcoins being used in economic transactions. The new equation is V*(1-h)*M = P*Q Next we isolate P: P = V*(1-h)*M/Q If the price level changes from 1 to 1.1 that means that there has been 10% inflation over the period and that the value of bitcoin has fallen. To find the value of a single bitcoin we have to take the reciprocal of P and that gives a formula for the true value of bitcoin: 1/P = Q/[V*(1-h)*M] In the rest of the post when I write the price of bitcoin I mean the price bitcoin sells for on exchanges. I establish in the next section that this price must be close to the true value of bitcoin. Equilibrium This section uses the flow of bitcoin model established earlier. We assume no activity from hodlers and that economic users do not hodl bitcoin (not true but it simplifies and does not hurt the model). Furthermore, we assume that all activity on the bitcoin exchanges happens, then all activity on the darknet markets happens. Drug sellers sell their bitcoin to drug buyers, then drug buyers use the bitcoin to buy drugs on the darknet markets. Neither the exchanges or the darknet markets charge commissions. I use specific numbers but my reasoning is easily generalizable. To establish why the equation is true we must consider what happens if the actual price is higher or lower than the price given by the formula. First let us suppose that the price is lower than the price predicted by the formula. Over the time period of a day suppose that Q = 100 (so $100 worth of transactions a day), V = 1 (transactions take a day), M = 100 (100 bitcoins) and h = 0.5 (50 bitcoins are hodled). This gives a predicted price of $2. Suppose the price is instead $1. Every day there are $100 worth of drugs available to be sold and buyers willing to buy $100 worth of drugs. At a price of $1 and with only 50 bitcoins available for economic use each day that means that only $50 worth of drugs can be sold. This would drop Q to 50 and immediately correct the equation. However, there are buyers and sellers who want more drug dealing than that. Some buyers are not going to be able to get their drugs given the current price. Some of them will be willing to pay higher prices for bitcoin to guarantee they can have their drugs. Suppose that the drug sellers have 50 bitcoins (hodlers also have 50). They want to sell their 50 bitcoins to drug buyers on an exchange. Some drug buyers then bid the price of bitcoin up to $1.10 (for example). This benefits other drug buyers as now $55 worth of drug transactions can take place each day. In this way, the price will be bid up to $2, the equilibrium price. If the price is $1 and the drug buyers have the 50 bitcoins then they will spend the bitcoins to buy $50 worth of drugs and then we are in the situation above. Now suppose the reverse happens and the actual price is higher than the predicted price. Let the actual price be $4, with all the same example values from the previous example, so the predicted price is $2. On the exchange drug sellers have 50 bitcoins worth $200 to sell. Drug buyers want to buy $100 worth of bitcoin. At this price only 25 bitcoins are sold. To ensure they sell more of their bitcoin, drug buyers bid down the price. If the price does not immediately reach $2 then the left-over bitcoins will be held by the drug sellers until the next day when the price will be bid down again. The drug sellers holding bitcoin for a few extra days is not the same as hodling because they are actively trying to sell them on an exchange but they haven’t because the price isn’t in equilibrium. They could instead decide to sell only 25 bitcoins and hodl the other 25. This would raise h to 0.75 and the price would be in equilibrium again. Now suppose that the drug buyers have 50 bitcoins and the price is $4. Then $100 worth of drugs are bought with 25 bitcoins. The drug sellers will not be able to sell their bitcoin as drug buyers already have enough bitcoin to buy the next round of drugs they want. The drug buyers spend their last 25 bitcoin and drug sellers now have 50 bitcoins and the situation is as above. In conclusion, the price of Bitcoin is fundamentally determined by speculators and brought into equilibrium by criminals. Inflows and Outflows of Hodling The previous section treated the level of hodling as constant, except when drug buyers or sellers decide to hodl extra bitcoins that are in their possession. Now we will treat the amount of hodled bitcoins as changing. The next topic to consider is the relationship between filthy fiat spent to hodl bitcoins and the bitcoin price. To calculate how much it costs to raise the hodl ratio from 0 to h we assume that the bitcoins are bought continuously. We integrate the function Q/[M*V*(1-t/M)] between 0 and h*M. The result is (Q/V)ln[1/(1-h)]. To double the price of bitcoin by taking h from 0 to 0.5 will cost (Q/V)ln(2). In fact, it will always cost this amount to double the price of bitcoin as we can see by finding the difference between the total value of hodled bitcoin when we consider hodling levels of h and (h+1)/2. This means that the price of bitcoin rises exponentially when a constant amount of new money buys bitcoin to hodl. I would illustrate this with a log-scale graph but I don’t know where to find one. It also means that the market capitalisation of a cryptocurrency gives very little idea about how much the cryptocurrency is worth. It is an impossibility for all hodlers to receive the Actual Money that they think their bitcoin is worth. Volatility People hoping to get rich and their buying and selling bitcoin is what causes bitcoin’s extreme volatility. Theoretically this could be stopped if there was a bank where hodlers could deposit their bitcoins and earn interest. However, for this to work would require the existence of a bitcoin bank which is not a Ponzi which seems like an unlikely outcome. Hodling Gold A quick digression into gold, but I suspect someone has already thought of what follows. We can consider gold like a conventional commodity with conventional supply and demand curves (the real world for all commodities is more complicated but this is going to be quick). But people also hodl gold. If hodlers decide to buy $100 million worth of gold produced in the year, then that will change the equilibrium price. The new price is such that the difference between the quantity demanded by non-hodlers and the quantity supplied at that price multiplied by the price is 100 million. If the overall level of hodling declines then the reverse happens. The hodlers sell an amount of gold, that amount is the difference between the amount supplied and demanded. The hodlers earn that amount multiplied by the new lower price. (I assumed people bought a fiat amount of gold and sold a volume of gold to make things easier). Without another hodler to take on the gold or an improvement in market conditions, the hodlers are guaranteed a loss. To make a profit hodling gold you need there to be hodlers to sell it on to (or an improvement in the underlying factors). It follows that all the gold hodled in the world today cannot be sold without causing the fundamentals of gold to collapse. With 40% of the gold produced in 2017 being hodled this will eventually become a significant issue. Full Reserve Banking Another place where we can consider the impact of hodling is full reserve banking. It is a form of banking where banks are required to have cash on hand equal to the full amount in all demand deposit accounts. The bank does not lend this money. This contrasts with the present system where banks are only required to have a certain fraction of this amount on hand, called fractional reserve banking. Money in a fractional reserve bank account is not being hodled (or is, but to a more limited degree) as it is being lent on to other people and it is generating income for the depositor. Deposits under full reserve banking are hodling. They are like cash stuffed under a mattress but have better security. In a recession people increase their saving rates. Much of this additional saving will be in liquid assets because of fears of economic trouble. This rise in deposits under full reserve is an increase in hodled cash which then causes deflation. This is a big problem in a recession. (Somebody else has probably already made this observation). Velocity and Value Consider the equation of bitcoin’s value again. Notice that the value increases when V decreases. Which means that the length of time to complete a transaction has increased. Bitcoin is an asset and a currency and its value as an asset increases as the length of time it takes to complete a transaction increases. This is a minor bit of stupidity which surprised me but seems obvious in retrospect as if bitcoins take longer to be processed then they must be worth more so that all transactions can happen. (This is assuming that a decrease in V does not also cause a decrease in Q which might be caused by drug buyers and sellers switching to a different cryptocurrency). Hodler Behavior With one exception which I might make in another post I make no assumptions about hodler behaviour. I think they are buying and selling with no rational basis. But there are two rational reasons why someone would expect the price of bitcoin to rise: increased economic activity using the cryptocurrency in the darknet markets or an increased level of hodling in the future. The DNM is an actual economic activity but due to its illegality knowing anything about the amounts involved is impossible for almost everyone as is predicting their trends. Future hodling levels are also impossible to predict, unless you run a pump and dump. We can’t expect any sort of rational behavior from hodlers. Nakamoto Scheme Preston Byrne developed the concept of a Nakamoto Scheme to describe cryptocurrencies because of how they differed from Ponzis and pyramid schemes. While bitcoin has been frequently called a Ponzi or pyramid scheme it is clearly something different. There are no “dividends” paid or any sort of organised structure. There are similarities, notably early adopters make their money at the expense of later adopters. Like in pyramid schemes hodlers try to convince new people to join in. It is best to consider bitcoin as a type of asset which is uniquely suited for a pump and dump. When hodlers buy bitcoin, and encourage others to do the same (the pump) the fundamental price of bitcoin really is raised by these actions which helps the pump. To add to Byrne’s work, we should put the properties of cryptocurrency assets at the centre of the scheme. A Nakamoto scheme works like this: first create a cryptocurrency and keep most of it for yourself. Then release it and try to get as many other people hodling as possible and try to get the darknet markets to adopt it (I’m looking at you Monero). This increases the fundamental value of the asset. Then dump your hodlings. Pocket the actual money. This is probably legal right now. But I’m not a law-knowing person. For the hodler the Nakamoto scheme is like going to a party. You arrive and leave later on. If there are more people at the party when you leave compared to when you arrived then you’ve made a profit. There is also drug dealing going on at the party. The change in the level of drug dealing also impacts your profits. You have to try and get more people to come to the party and be careful of everyone else at the party who have the exact same incentives as you. It is a weird new form of scam. Lower bound on price While the price of bitcoin can theoretically be infinitely high there is a lower bound on the price when the hodling ratio is zero. For given levels of Q, V and M the value of bitcoin can never go below Q/[V*M] (the highest possible price for bitcoin is when 1 satoshi is equal to the value of a transaction). Some bitcoins have been permanently lost due to people losing their wallet keys or bitcoins being sent to the wrong address. If we suppose that H is the proportion of coins that have been permanently lost then the actual lower bound is Q/[V*(1-H)*M]. Note that a hodler losing their coins does not change the present fundamental value of bitcoin. What could cause bitcoin’s price to go lower? Besides a mass hodler sell-off the obvious reason is a permanent decline in Q. What could cause this? Law enforcement have successfully shut down many darknet markets but others have replaced them quickly. What could really hurt darknet markets is increased government scrutiny of exchanges. When governments realise that bitcoin has no use beyond criminal transactions and speculation they might decide to treat every bitcoin transaction as inherently suspicious and regulate exchanges heavily. This will make bitcoin much harder to use for criminal transactions and thus greatly decrease Q and the value of bitcoin. Previous work This post is not entirely original. Satoshi himself said that if a bitcoin user wanted to give a donation to everyone else then they should delete the keys to their wallet and increase the value of everybody else’s bitcoins. I realised that someone who hodled a bitcoin would temporarily have the same effect. More significantly Joseph C Wang came up with a formula very similar to mine. A significant difference is that he thought increased economic activity with bitcoin would not cause an increase in bitcoin’s value but an increase in its velocity. My model has nominal prices of drugs in bitcoin falling when Q increases. Wang has prices remaining the same and the velocity of bitcoin increasing to handle the extra transactions. I developed my formula before I became aware of Wang’s work. Further Topics This post is over 4000 words so I have not gone into depth on a few subjects like the costs of block rewards (higher than you think), shocks like darknet market shutdowns, why bitcoin can’t fall to a liquidity trap, how to value a cryptocurrency that isn’t being used for economic transactions and why it makes sense that bitcoin and bcash had a higher combined value at the time of the fork compared to bitcoin alone. If there is demand I’ll put together a second post which will cover these issues.
Adam Back & Greg Maxwell are experts in mathematics and engineering, but not in markets and economics. They should not be in charge of "central planning" for things like "max blocksize". They're desperately attempting to prevent the market from deciding on this. But it *will*, despite their efforts.
Adam Back apparently missed the boat on being an early adopter, even after he was personally informed about Bitcoin in an email from Satoshi. So Adam didn't mine or buy when bitcoins were cheap. And he didn't join Bitcoin's Github repo until the price was at an all-time high. He did invent HashCash, and on his Twitter page he proudly claims that "Bitcoin is just HashCash plus inflation control." But even with all his knowledge of math and cryptography, he obviously did not understand enough about markets and economics - so he missed the boat on Bitcoin - and now he's working overtime to try to make up for his big mistake, with $21+55 million in venture-capital fiat backing him and his new company, Blockstream (founded in November 2014). Meanwhile, a lot of the rest of us, without a PhD in math and crypto, were actually smarter than Adam about markets and economics. And this is really the heart of the matter in these ongoing debates we're still forced to keep having with him. So now it actually might make a certain amount of economic sense for us to spend some of our time trying to get adam3us Adam Back (and nullcGregory Maxwell) to stop hijacking our Bitcoin codebase. Satoshi didn't give the Bitcoin repo to a couple of economically clueless C/C++ devs so that they could cripple it by imposing artificial scarcity on blockchain capacity. Satoshi was against central economic planners, and he gave Bitcoin to the world so that it could grow naturally as a decentralized, market-based emergent phenomenon. Adam Back didn't understand the economics of Bitcoin back then - and he still doesn't understand it now. And now we're also discovering that he apparently has a very weak understanding of legal concepts as well. And that he also has a very weak understanding of negotiating techniques as well. Who is he to tell us we should not do simple "max blocksize"-based scaling now - simply because he might have some pie-in-the-sky Rube-Goldberg-contraption solution months or years down the road? He hasn't even figured out how to do decentralized path-finding in his precious Lightning Network. So really what he's saying is:
I have half a napkin sketch here for a complicated expensive Rube-Goldberg-contraption solution with a cool name "Lightning Network"... which might work several months or years down the road... except I'm still stuck on the decentralized path-finding part... but that's only a detail! just like that little detail of "inflation control" which I was also too dumb to add to HashCash for years and years... and which I was also too dumb to even recognize when someone shoved a working implementation of it in my face and told me I might be able to get rich off of it... So trust me... My solution will be much safer than that "other" ultra-simple KISS solution (Classic)... which only involved changing a 1 MB to a 2 MB in some code, based on empirical tests which showed that the miners and their infrastructure would actually already probably support as much as 3 MB or 4 MB... and which is already smoothly running on over 1,000 nodes on the network!
That's his roadmap: pie-in-the-sky, a day late and a dollar short. That's what he has been trying to force on the community for over a year now - relying on censorship of online forums and international congresses, relying on spreading lies and FUD - and now even making vague ridiculous legal threats... ...but we still won't be intimidated by him, even after a year of his FUD and lies, with his PhD and his $21+55 million in VC backing. Because he appears to be just plain wrong again. Just like he was wrong about Bitcoin when he first heard about it. Adam Back needs to face the simple fact that he does not understand how markets and economics work in the real world. And he also evidently does not understand how negotiating and law and open-source projects work in the real world. If he didn't have Theymos theymos supporting him via censorship, and austindhillAustin Hill and the other venture capitalists backing him with millions of dollars, then Adam Back would probably be just another unknown Bitcoin researcher right now, toiling away over yet another possible scaling solution candidate which nobody was paying much attention to yet, and which might make a splash a few months or years down the road (provided he eventually figures out that one nagging little detail about how to add the "decentralized path-finding"!). In the meantime, Adam Back has hijacked our code to use as his own little pet C/C++ crypto programming project, for his maybe-someday scaling solution - and he is doing everything he can to suppress Satoshi's original, much simpler scaling plan. Adam is all impeding Bitcoin's natural growth in adoption and price, through:
Transactions vs. Price graph showed amazingly tight correlation from 2011 to 2014. Then Blockstream was founded in November 2014 - and the correlation decoupled and the price stagnated. Seriously, look closely at the graph in that imgur link: https://imgur.com/jLnrOuK What's going on in that graph?
Transactions and price were incredibly tightly correlated from 2011 to 2014 - and then at the start of 2015, they suddenly "decoupled".
This decoupling coincided with the attempt by Core / Blockstream to impose artificial scarcity on blocksize. (Blockstream was founded in November of 2014.)
So it seems logical to formulate the following hypothesis:
Absent the attempt by Core / Blockstream to impose artificial scarcity on blocksize and, and their attempt to confuse the debate with lies and FUD, the price would have continued to rise.
This, in a nutshell, is the hypothesis which the market is eager to test. Via a hard-fork. Which was not controversial to anyone in the Bitcoin community previously. Including Satoshi Nakamoto:
Satoshi Nakamoto, October 04, 2010, 07:48:40 PM "It can be phased in, like: if (blocknumber > 115000) maxblocksize = largerlimit / It can start being in versions way ahead, so by the time it reaches that block number and goes into effect, the older versions that don't have it are already obsolete."
Theymos: "Chain-forks [='hardforks'] are not inherently bad. If the network disagrees about a policy, a split is good. The better policy will win" ... "I disagree with the idea that changing the max block size is a violation of the 'Bitcoin currency guarantees'. Satoshi said it could be increased."
https://np.reddit.com/btc/comments/45zh9d/theymos_chainforks_hardforks_are_not_inherently/). And the market probably will test this. As soon as it needs to. Because Bitstream's $21+55 million in VC funding is just a drop in the bucket next to Bitcoin's $5-6 million dollars in market capitalization - which smart Bitcoin investors will do everything they can to preserve and increase. The hubris and blindness of certain C/C++ programmers In Adam's mind, he's probably a "good guy" - just some innocent programmer into crypto who thinks he understands Bitcoin and "knows best" how to scale it. But he's wrong about the economics and scaling of Bitcoin now - just like he was wrong about the economics and scaling of Bitcoin back when he missed the boat on being an early adopter. His vision back then (when he missed the boat) was too pessimistic - and his scaling plan right now (when he assents to the roadmap published by Gregory Maxwell) is too baroque (ie, needlessly complex) - and "too little, too late". A self-fulfilling prophecy? In some very real sense, there is a risk here that Adam's own pessimism about Bitcoin could turn into a self-fulfilling prophecy. In other words, he never thought Bitcoin would succeed - and now maybe it really won't succeed, now that he has unfairly hijacked its main repo and is attempting to steer it in a direction which Satoshi clearly never intended. It's even quite possible that there could be a subtle psychological phenomenon at play here: at some (unconscious) level, maybe Adam wants to prove that he was "right" when he missed the boat on Bitcoin because he thought it would never work. After all, if Bitcoin fails (even due to him unfairly hijacking the code and the debate), then in some sense, it would be a kind of vindication for him. Adam Back has simply never believed in Bitcoin and supported it the way most of the rest of us do. So he may (subconsciously) actually want to see it fail. Subconscious "ego" issues may be at play. There may be some complex, probably subconscious "ego" issues at play here. I know this is a serious accusation - but after years of this foot-dragging and stonewalling from Adam, trying to strangle Bitcoin's natural growth, he shouldn't be surprised if people start accusing him (his ego, his blindness, his lack of understanding of markets and economics) of being one of the main risk factors which could seriously hurt Bitcoin. This is probably a much more serious problem than he himself can probably ever comprehend. For it goes to one of his "blind spots" - which (by definition), he can never see - but the rest of the community can. He thinks he's just some smart guy who is trying to help Bitcoin - and he is smart about certain things and he can help Bitcoin in certain ways. For example, I was a big fan of Adam's back when I read his posts on bitcointalk.org about "homomorphic encryption" (which I guess now has been renamed as "Confidential Transactions" - "CT"). But, regarding his work on the so-called "Lightning Network", many people are still unconvinced on a few major points - eg:
LN would be quite complex and is still unproven, so we actually have no indication of whether it might not contain some minor but fatal flaw which will prevent it from working altogether;
In particular, there isn't even a "napkin sketch" or working concept for the most important component of LN - "decentralized path-finding":
It is simply unconscionable for Adam to oppose simpler "max blocksize"-based, on-chain scaling solutions now, apparently due to his unproven belief that a more complex off-chain and still-unimplemented scaling solution such as LN later would somehow be preferable (especially when LN still lacks a any plan for providing the key component of "decentralized path-finding").
Venture capitalists and censors have made Adam much more important than he should be. If this were a "normal" or "traditional" flame war on a dev mailing list (ie, if there were no censorship from Theymos helping Adam, and no $21-55 million in VC helping Adam) - then the community would be ignoring Adam. He'd be just another lonely math PhD toiling away on some half-baked pet project, ignored by the community instead of "leading" it. So Adam (and Greg) are not smart about everything. In particular, they do not appear to have a deep understanding how markets and economics work. And we have proof of this - eg, in the form of:
He [Greg Maxwell] is not alone. Most of his team shares his ignorance. Here's everything you need to know: The team considers the limit simply a question of engineering, and will silence discussion on its economic impact since "this is an engineering decision." It's a joke. They are literally re-creating the technocracy of the Fed through a combination of computer science and a complete ignorance of the way the world works. If ten smart guys in a room could outsmart the market, we wouldn't need Bitcoin.
~ tsontar Adam and Greg probably read comments like that and just brush them off. They probably think guys like tsontar are irrelevant. They probably say to themselves: "That guy doesn't have a PhD in mathematics, and he doesn't know how to do C pointer arithmetic - so what can he possibly know about Bitcoin?" But history has already shown that a lot of times, a non-mathematician, non-C-coder does know more about Bitcoin than a cryptography expert with a PhD in math. Clearly, tsontar understands markets way better than adam3us or nullc. Do they really grasp the seriousness of the criticism being leveled at them?
They are literally re-creating the technocracy of the Fed through a combination of computer science and a complete ignorance of the way the world works. If ten smart guys in a room could outsmart the market, we wouldn't need Bitcoin.
https://np.reddit.com/btc/comments/44qr31/gregory_maxwell_unullc_has_evidently_never_heard/czs7uis Do Adam and Greg really understand what this means? Do they really understand what a serious indictment of their intellectual faculties this apparently off-handed remark really is? These are the real issues now - issues about markets and economics. And as we keep saying: if they don't understand the real issues, then they should please just get out of the way. After months and months of them failing to mount any kind of intelligent response to such utterly scathing criticisms - and their insistence on closing their eyes and pretending that Bitcoin doesn't need a simple scaling solution as of "yesterday" - the Bitcoin-using public is finally figuring out that Adam and Greg cannot deliver what we need, when we need it. One of the main things that the Bitcoin-using public doesn't want is the artificial "max blocksize" which Adam and Greg are stubbornly and blindly trying to force on us via the code repo which they hijacked from us. One of the main things the Bitcoin-using public does want is for Bitcoin to be freed from the shackles of any artificial scarcity on the blockchain capacity, which guys like Adam and Greg insist on imposing upon it - in their utter cluelessness about how markets and economics and emergent phenomena actually work. People's money is on the line. Taking our code back from them may actually be the most important job many of us have right now. This isn't some kind of academic exercise, nor is it some kind of joke. For many of us, this is dead serious. There is currently $ 5-6 billion dollars of wealth on the line (and possibly much, much more someday). And many people think that Adam and Greg are the main parties responsible for jeopardizing this massive wealth - with their arrogance and their obtuseness and their refusal to understand that they aren't smarter than the market. So, most people's only hope now is that the market itself stop Adam and Greg from interfering in issues of markets and economics and simple scaling which are clearly beyond their comprehension - ie (to reiterate):
Hope all is well guys. Our third Intelligence report is out. Again, thank you all very much for the feedback on our last Bitcoin Trading Intelligence newsletter. We hope we were able to address some of the issues from last time. Feedback and any other comments are welcome. If you like this and want more, you can now reserve your spot in our Bitcoin Trading Intelligence platform. We haven't figured out pricing for the course yet. I would appreciate if you guys took a look at the Bitcoin Trading Intelligence platform and let me know what you think is a fair price for this. BTCVIX is our trader and with his real time alerts subscribers have a chance of making some serious money Bitcoin in August August has witnessed the rapid devaluation of Bitcoin, accelerated by fundamental data and augmented by technical glitches. The possible forking on the minds of the Bitcoin community, the repeated blows following the Mt Gox disaster and the effects of the BitLicense have cast a bearish shadow over the market which resulted in a month that managed to breach significant lows.
“After the stunning price action of the last couple weeks we have seen BTCUSD grind up the traders seeing patterns that aren’t there, complete chopfest. Rather than whittling away hard earned profits remember NO position IS a position — just need to know when them time is. Just like me, many other traders in the Whaleclub believe that sometimes not trading is a right decision and people should appreciate that.” BTCVIX, Professional Bitcoin Trader
Post the flash crash last week, the market has tested 200 and has been on a correction curve ever since. With many countries calling for increased regulation, let’s see how market emotions fared last week. Nigeria’s central bank has called for Bitcoin regulation in order to stop money laundering and avoid international penalties. Dr. Okwu Nnanna the governor of the financial system at Nigeria’s Central Bank has cited that cryptocurrencies have no borders and hence are an easy channel for money laundering and thus there is a need to monitor them. AB 1236, a proposed California law to regulate virtual currencies has faced lot of opposition from industry lawyers. It has now been amended saying companies that take ‘full custody’ of the currency are to be licensed and the bill is being backed by other major companies who are mostly made up of software developers. Another important country to look out for whose ecommerce demographic can play a pivotal role in the development of bitcoin system would be India. With major companies like Microsoft and IBM backing bitcoin based startups, the Governor of RBI has made it clear that cryptocurrencies are being observed for now and would be regulated in the future. The collapse of Mt Gox has racked up many controversies and the latest one, the arrest of Mark Karpeles, is over the issue of a fresh warrant for allegations that he has pocketed over $2.6 million from the company funds of Mt Gox. While Japan’s cryptocurrency scenario is restructuring for the best after the impact of Mt Gox, the Japanese Government has decided to regulate cryptocurrencies so as to avoid the risk of money laundering and terrorist funding. How these coordinated regulations among different countries would affect/aid the growth and development of bitcoin is to be seen. While the ‘one-off’ depreciation of the Chinese Yuan has beaten the stock markets down in the USA and China, BTC China’s Greg Wolfson has remarked that the corresponding dip in prices in bitcoin is not devastating and in the times of uncertainty just like Gold, people are turning towards bitcoin as their safe haven. The immediate correction after the dip is being seen as people hedge their positions in bitcoin. Meanwhile on the Korean front, things are looking bright with a new exchange traded fund (ETF) tracking the value of bitcoin planned for launch on Korea Exchange next year. This news coupled with Korean Bitcoin Exchange ‘Korbit’ announcing the launch of Bitwire, which allows people to send money using Bitcoin to any Korean bank account in less than two hours, the bitcoin ecosystem in Korea is trending towards a positive position. On the European continent, the sentiment is consolidating with the launch of Mycelium Gear with Cashila’s API being integrated, this enables merchants to accept bitcoins that are automatically converted to Euros. The financial crisis in Greece is here to stay for some time and bitcoin services providers like Cubit are trying to do what they can to help. Cubit in coordination with BTC-Greece is helping Greek citizens move their money out of the country to business partners and suppliers. The aim is to try and work around the various capital controls that have been enforced in Greece in the hope that some private businesses can get back up and running once more. They have plans to install 1000 ATMS in order to make the this work. Even in the Black Sea Basin there are more than 13,600 locations where you can access bitcoin related stores, ATM and service providers. On a corporate front, things have been picking up pace with Intel expressing its intention to unify the Internet of Things with bitcoin transactions. World Wide Web creator Tim-Berners-Lee leads the W3C to establish online payment standards, including Bitcoin, another sign of positive acceptance. UBS’s Alex Batlin’s statements about Blockchain, saying that the technology will be an opportunity or threat to companies like UBS basing on how quick they act on it, has once again clarified that the technology is here to stay and is slowly gaining traction. Patrick Byrne, the founder of Overstock.com, has acquired a broker-dealer firm built deep into the DNA of Wall Street. When the technology at the center of the acquisition is switched on, Byrne said, it will mark the first time the decentralized ledger behind bitcoin is plugged directly into Wall Street. This way it will be possible to bridge the gap between bitcoin technology and the blockchain. With Coinbase reaching a valuation of $1 billion, it is listed as one of the top 50 tech startups in the USA. Fortifying their market share, they have launched services to purchase bitcoins through debit cards and credit cards and most recently launched in Canada. While the service providing companies are doing well, the exchanges have taken a back step last week. The Bitfinex trade engine was blamed for the flash crash and many people experienced problems with exiting their positions during the crash, Australian Exchange, iGot, halted their trading activity and this has led to angst among its traders and customers. So in conclusion, it is fair to say this past week of has seen lots turmoil in bitcoin trading with loads of negative factors contributing to the market sentiment bearish. Long Term Technical Analysis On a weekly scale, the market has tested its long term support level at 200 and retraced quickly to 227. The bearish arc of this swing was a strong move ranging over a month, driven by fundamental factors. The Bollinger bands in the weekly chart still remain parallel showing that the market is in bounds and judging by the regression lines, is setting up for a bull trend after consolidation. On a long term scale, RSI is approaching oversold region while MACD just took a bearish turn crossing the signal line. Since the market is yet to consolidate, taking a long term position right as of now wouldn’t be feasible. Short term trades around 224 region with stop loss around the lows of previous week’s candle, targeting 5 SMA would be feasible. Long term trades can be planned on basis of consolidation. As soon as both Bollinger and 5 SMA become trending in the upward direction after significant consolidation, entering into trades with a long term plan would be profitable. Proper entry points for such trades would be around 220 region with stops below 217. With Market trending, possible exit points could be 266, 300 and 317. If the market breaks out on the downside, breaking the support zone at 200, possible targets can be 157 and further drop in prices would seem likely. Midterm Technical Analysis In the daily chart, the support encountered around 217 region was breached and market has now found long term support at 200. With the Bollinger bands and SMA’s pointing downwards, the setup is going to remain bearish for some time until a base of consolidation is formed. The descending triangle as shown in the daily chart between the downward trend line and support line at 200 might possibly see good number of volumes being traded in the coming days. In which direction the break out would be or the setup would change will depend on how the market approaches the vertex of the triangle. If the Bollinger bands and short term SMA’s don’t straighten out or change direction, the break out might as well be in the downward direction, continuing the set trend. The MACD is about to cross the signal line and turn bullish, RSI has crossed 30 from the downside indicating impending bullishness in the market but when the bull run takes off is to be seen. In the medium term, it appears that it is going to be bearish/sideways for some time. Shorting opportunities at the trend line and retracement trades with 5 SMA as support hold good potential. Short term Technical Analysis On a short term scale, the market has retraced over 220 levels and is expected to trade in this range for some time before either consolidating and going for a reversal or crashing down further more. We can observe that 100 SMA is offering good support and market has not been able to go beyond 34 SMA. Picking longs over 100 SMA with 34 SMA as target would be a good short term trade. With the Bollinger bands and SMA’s still pointing downwards and higher time frame charts supporting, shorting around 34 SMA would be a good option. The possible targets for such trades would be 100 SMA and if the market gets further trendy, a crash down back to 200 levels can also be expected, although these trades have to be done with tight stop loss. The MACD and RSI don’t give much indication as the market is sideways in the short term and retracing. Sentiment Analysis This week saw a lot of action with countries announcing regulation moves and unveiling of technologies which ease bitcoin and blockchain adoption. While the sentiment was bearish majorly, let’s take a look at what happened in the market: The Bank of England has announced that Bitcoin is ‘harder money’ than Gold because of Deflation. During a presentation on digital currencies, Andy Haldane, Chief Economist and the Executive Director of Monetary Analysis and Statistics of the Bank of England stated the above statement explaining that sustained adoption would see ongoing deflation. An article from ibtimes has given a thorough analysis of how adopting blockchain technology to the existing banking system would be difficult and how Deutsche bank’s economist sees blockchain as a threat because of the lack of the IT infrastructure to support the technology involved. On educational front, Stanford has joined NYU and Duke University in offering bitcoin course, Princeton has launched its own bitcoin course on Coursera, strengthening the sentiment that cryptocurrencies are here to stay and further studies and research in these fields embedded into the course work is a strong possibility. On the technological front, with e-coin launching Bitcoin Debit card affiliate program, which aims at bridging the gap between traditional financial services and bitcoin, it’s now possible to load bitcoins into debit cards and make payments for the transactions. With Coinbase also enabling purchase of bitcoin through debit-card/credit-card, we are now in a transformative phase where the traditional financial services are being used to develop and adopt systems that would be framework for the future bitcoin usage. How the technology will evolve to accommodate or change the traditional banking system is to be seen. Developments in Blockchain On August 20th, Nasdaq revealed its plans with the underlying technology of Bitcoin and Blockchain. In an interview with efinancialnews Fredrik Voss, Vice President and head of Blockchain strategy at Nasdaq answered questions about how the program is progressing and what other applications Nasdaq is thinking of. Nasdaq is planning to launch the private market initiative later this year and is clearly looking at commercial uses for the Blockchain now. The application of distributed ledgers in financial markets for things like settlement and custody, to create efficiency in back-office processes is the primary aim. Another application of Blockchain this week would be the launch of John McAfee SwiftMail which is a new free peer-to-peer, proof-of-work, encrypted mail system that uses the technology underlying Bitcoin to replace email. The system is said to have very high encryption as privacy is one of the key aspects of SwiftMail. Technocorner On the techspace, what has been hogging all the limelight is the new chip for Antminer S7 by Bitmain that is believed to be more powerful than its predecessor. Bitmain, the bitcoin mining ASIC provider, announced on August 20th it is launching its fourth-generation ASIC, the BM1385. This chip is claimed to generate a 45 percent increase in hashrate while needing 50 percent less electricity than its former chip, the BM1384. Another interesting development would be Netcoins which can supposedly turn any device (iPad, Android devices) into a bitcoin ATM. It is ideally designed for retailers to enable transactions in bitcoin and attract tech savvy customers. News that’s also been doing rounds is about the Mike Tyson ATM. While initially the prospect was heralded to be a scam, the ATM was launched in Las Vegas with Bitcoin Direct backing the launch. While security threats in Windows 10 has put the wallet developers in a tight situation, the iOS space is now crowded with launch of new wallets everyday making it hard for the users to choose from the many apps. Most people believe that the advanced bitcoin demographic belongs to iOS users and this is the primary reason for the competition while some say that the lack of a secure wallet in Android and security issues with Windows has led to this development. For the same report with the Technical Graphs please see the original post: Bitcoin Trading Intelligence: September 1st, 2015
Part One: Bitcoin is not deflationary — its money supply is relatively constant. First, we need to establish what “deflation” refers to. While decreasing prices are colloquially referred to ... Source: St. Louis Fed. This inelasticity makes Bitcoin and any other similarly constructed crypto-currency…. Deflationary. A deflationary currency is closely related to being inelastic, but we need to look specifically at the deflationary aspects of Bitcoin because conventional economic thought is that “deflation is bad,” and it is — if you’re using debt for money. In the bitcoin frame, we are experiencing extreme deflation. Since 2011, bitcoin-CPI is -99.98. Of course, the bitcoin bugs don’t mention the balance sheet implications of this. Suppose a business is doing perfectly fine, except that it uses bitcoin as its unit of account—called numeraire. It made an initial investment of $1,000,000 in 2011 in factory, inventory, etc. As this businesses ... Deflation is a general fall in the price of goods measured in a particular currency. Deflation indicates an increasing value of currency so that over time, less and less of that currency is required to purchase the same value of goods. Learn more… Top users; Synonyms; 21 questions . Newest. Active. Bountied. Unanswered. More Bountied 0; Unanswered Frequent Votes Unanswered (my tags) Filter ... Bitcoin is controlled by all Bitcoin users around the world. While developers are improving the software, they can't force a change in the Bitcoin protocol because all users are free to choose what software and version they use. In order to stay compatible with each other, all users need to use software complying with the same rules. Bitcoin can only work correctly with a complete consensus ...
Inflation versus Deflation - And why Bitcoin is changing economics forever
An explanation of how bitcoin transactions work. 01:27 - Transaction Basics ↳ 08:45 - Change ↳ 12:49 - Graph ↳ 15:10 - Coinbase Transaction ↳ 17:24 - Fees 20:00 - Transaction Data ↳ 35 ... WHERE Is The Bitcoin PRICE Going? [Bitcoin BTC Technical Analysis Price Prediction 2020] - Duration: 10:34. Sajad Recommended for you #bitcoin #longercycles #crypto #altcoin #interest #stockmarket #recession #bearmarket #bullmarket #davincij15 #mmcrypto #btc #bitcoinprice #bitcointoday #crash #economy #inflation #ecb #fed # ... Si vous deviez choisir qu’on vous offre le graphique de cette vidéo OU un Picasso… vous devriez choisir le graph. Pourquoi ? Réponse en vidéo. ★☆★ Les l... BITCOIN PRICE UPDATE: In this btc video update today we quickly look at bitcoin zoomed out on the monthly chart and discuss what may be getting ready to happ...