Cryptocurrencies

[wachtwoord]

I for one am thankful for the discussions regarding bitcoin and block chain. I am not buying into the bitcoin bull market, but there is certainly an investment opportunity here. It seems to me that block chain based protocols have a place where counter party or third party trust cannot be obtained or is not desired. I think the underground economy is one, but I could also see an institution like the United Nations using it to transfer funds, Why shouldn’t they create their own block chain based currency currency to facilitize funds movements acros nations borders without interference from anyone? Gaming is another advantage where it could be used to exchange goods between gamers. I am sure there are many others.

 

Blockchain "technology" is useless without Bitcoin as without the security, decentralization and lack of the need to trust any 3rd party provided by a system in which the tokens have a real world proven value,  it's simply an extremely inefficient database.

[SharperDingaan]

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

 

 

 

[Liberty]

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.

 

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.

[SharperDingaan]

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.

 

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

 

 

 

 

[EricSchleien]

Can someone explain to me Munger's comments around how the incentives allow people to create more Bitcoin? How would this work exactly?

[Hielko]

Can someone explain to me Munger's comments around how the incentives allow people to create more Bitcoin? How would this work exactly?

Bitcoin Gold, Bitcoin Cash, Bitcoin whatever etc....

[rkbabang]

Can someone explain to me Munger's comments around how the incentives allow people to create more Bitcoin? How would this work exactly?

Bitcoin Gold, Bitcoin Cash, Bitcoin whatever etc....

 

I can create an auction site and call it zbay, does that mean Ebay is worthless? As an experiment go create a clone of bitcoin yourself, start mining blocks, and see if anyone else uses it. While your doing that I’m going to start producing a cola and making Coke worthless, because anyone can make brown sugar water.

[SharperDingaan]

Can someone explain to me Munger's comments around how the incentives allow people to create more Bitcoin? How would this work exactly?

 

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

 

[Guest cherzeca]

@sharper

 

"For most block chain applications running on a database (ie: IBM): 1) Yes, 2) No, 3) Yes, 4) Yes"

 

but isnt the most intriguing application of blockchain those niches where there is no individual database...such as securities lending?  cf medici.  putting inventory together from many suppliers onto a distributed ledger makes a lot of sense...to everyone but the prime brokers

[SharperDingaan]

@sharper

 

"For most block chain applications running on a database (ie: IBM): 1) Yes, 2) No, 3) Yes, 4) Yes"

 

but isnt the most intriguing application of blockchain those niches where there is no individual database...such as securities lending?  cf medici.  putting inventory together from many suppliers onto a distributed ledger makes a lot of sense...to everyone but the prime brokers

 

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

   

[wachtwoord]

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.

 

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.

 

Not natively as that is a security risk but on top of it is very possible. 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.

[SharperDingaan]

"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 

[Guest cherzeca]

@sharper

 

"For most block chain applications running on a database (ie: IBM): 1) Yes, 2) No, 3) Yes, 4) Yes"

 

but isnt the most intriguing application of blockchain those niches where there is no individual database...such as securities lending?  cf medici.  putting inventory together from many suppliers onto a distributed ledger makes a lot of sense...to everyone but the prime brokers

 

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

 

 

Sounds like tzero is going to do something quite different

[SharperDingaan]

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

 

 

[Liberty]

https://medium.com/@preethikasireddy/fundamental-challenges-with-public-blockchains-253c800e9428

[Guest cherzeca]

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

 

what drives the business? prime brokers? or their customers, pension funds and institutional investors. give the customers a better deal and guess what happens.

[Liberty]

http://www.smh.com.au/business/bitcoin-tensions-rise-as-investors-claim-banks-freezing-their-accounts-20171229-p4yy3z.html

[rkbabang]

http://www.smh.com.au/business/bitcoin-tensions-rise-as-investors-claim-banks-freezing-their-accounts-20171229-p4yy3z.html

 

More evidence that the “then they fight you” phase is beginning.

[SharperDingaan]

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

 

 

[wachtwoord]

I understood that he Australian bank requirements for reserves are particularly strict and as such large outflows of money would limit the banks ability to lend and invest and therefore badly hurt the topline.

 

Of course this is no excuse for their malignant behavior but it does explain it.

[rkbabang]

I want to experiment with buying bitcoins, to learn the system initially. should I give them all credentials such as date of birth, social, bank account # etc ? I am concerned as I read these exchanges are hacked and would lose all the information in the hands of hackers. What do you advise? It looks like I may need to give all of the info as I give to a brokerage account?

 

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.

 

[Aberhound]

I want to experiment with buying bitcoins, to learn the system initially. should I give them all credentials such as date of birth, social, bank account # etc ? I am concerned as I read these exchanges are hacked and would lose all the information in the hands of hackers. What do you advise? It looks like I may need to give all of the info as I give to a brokerage account?

 

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.

 

Exchanges like Kraken are having major difficulties with massive demand. The exchange system has many delays and a new system is in process and the company reports problems by their Japanese bank in processing the volume of bank wires used for funding. I expect another run like we experienced after Thanksgiving. Even so adoption is tiny. Look how few board members are invested. Why as it is obvious the price has to rise with adoption so it is not a bubble until adoption starts to slow. Many new listings and funds are making crypto investment easily available to the wider investing public. This year I expect investors to start to sell off other assets or to take on debt to buy crypto. Watch for a crypto sell off when taxes are due this spring as this will be a good chance to enter. Most crypto investors can't resist the urge to switch coins and those that don't pay will have their coins seized and sold by the tax authorities. Anybody that thinks the coins are not tracked are fools. I personally saw the CRA seize $80,000 in BTC and sell it for $600 each only a couple years ago. If they let the taxpayer hold their coins today $80000 in tokens would now be worth $2M. Guess who the tax authorities will audit first?

[wachtwoord]

In case anyone is interested a high quality paper on the economic state and future of the whole crypto space. Very well written and researched:

 

https://s3.eu-west-2.amazonaws.com/john-pfeffer/An+Investor%27s+Take+on+Cryptoassets+v6.pdf

[Guest cherzeca]

In case anyone is interested a high quality paper on the economic state and future of the whole crypto space. Very well written and researched:

 

https://s3.eu-west-2.amazonaws.com/john-pfeffer/An+Investor%27s+Take+on+Cryptoassets+v6.pdf

 

i guess if i dont want to own gold i am unlikely to want to own bitcoin (that i understand)

[Cardboard]

How could one possibly compare gold with crypto is beyond me? There is simply no comparison in terms of confidentiality, liquidity, ease to buy and sell, and on and on.

 

Maybe you made lots of money, maybe it will continue but, it isn't comparable at all.

 

Cardboard