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Desperate: How long to hold out / What would you do in my situation
Hey guys, Throwaway, for obvious reasons. I'm a regular in /pf, /bitcoin and /bitcoinmarkets but I chose to make this account because my girlfriend is a redditor too and I don't want to get any backlash by posting this on my main account. For that reason I need to obfuscate some details of my story but I think you guys will understand. I'm in a pretty bad situation and I need some advice on how to proceed. A few years ago I became in charge of my family's finances. One of my parents passed much earlier than expected. My remaining parent didn't understand anything about finance or investing so I naturally stepped in to take over things and try to plan something for our family so that we could be financially secure for at least 10 or 15 years, enough time for me to get to a position in my career where I could take care of everyone with my own income stream. I started learning about trading, first with Forex. I was trading EURUSD and USDJPY primarily just with small amounts at first. Spent a lot of time on babypips.com learning technical analysis and how to extract as much value as possible from chart patterns. When I started I just used small amounts of money. My initial bankroll was $500. I ended up using too much leverage and blowing through my whole account because of some poorly time trades. Yes I know I should have used some common sense and not taken gigantic risks but I was just learning at the time. I worked at it a bit and started getting profitable. I would usually do my work late at night watching charts and drinking espressos, and there were several times that I took positions that netted me large profits so I'm confident that I've learned from my early mistakes. Then about a year and a half ago I started hearing about bitcoin, and how it was getting more valuable. I started reading about the blockchain, and this technology that is going to revolutionize the way the world thinks about money. I was excited about it, truly. I knew in my heart that this was going to be gigantic. So I took a leap. I took about half of all the cash I had in my checking account and deposited it at Mt.Gox. I didn't use any of the inheritance money, just my own from my part time job while I was a college student. Yeah. I know. Terrible idea in hindsight. I never got the money out before the whole thing collapsed. I wish I hadn't done it, but at the same time it wasn't a great deal of money to learn a lesson. That we can't just trust individual exchanges. Anyway, I learned a lot during that experience. I spent a lot of time analyzing charts. I learned how to use MACD and RSI indicators. I started getting good at being able to time things and on paper (of course) I was making very good profits. It's a shame that I didn't cash out before the whole thing went to shit because I probably would have enough money to last atleast a few years. Anyway, after Gox, I became really depressed but I still believed in bitcoin. I still thought it was going to be around for a very long time so I started looking for some more honest exchanges. I knew that what happened to me was just an unfortunate event that was unlikely to happen again. After all, Gox was being run by a pretty shady group. After I picked myself back up, I decided to deposit some of the inheritance money in some legitimate exchanges. In total we had about $300k after medical bills and other issues from the settlement of the estate. It was sitting in a checking account until about April of this year. I decided to put in $50k into two exchanges to diversify my risk exposure. Half I put into bitfinex and the other half I put into bitstamp. I spent 7 to 10 hours a day trading. The problem is that I've been taking mostly long positions. Every time the price drops 30 to 40 dollars I have been telling myself this is it -- this is the bottom and will take a position to make up for previous losses. I cannot understand why this is happening. I made some serious money several times but for the past 6 months or so I have taken huge losses. After the initial 50k I deposited another 50k, and then after losing much of that, and determining (wrongly, I might add, but I don't think my analysis was wrong) that we were definitely at the bottom, I went on to deposit another 125k. So far I am down a lot. My average cost per bitcoin is around $623. The losses just keep compounding. I don't know what to do. I'm getting incredibly desperate and sallow. I don't know how I'm going to explain this to my family. They know very little about bitcoin, but I have mentioned it on occasion and how I'm an enthusiast. I've even sent my sister and cousins some bitcoin to get them started. But now I'm worried that maybe this isn't going to work out. Every day I get out of bed and dread looking at the price of bitcoin. Because I know its going to translate into losses on the positions I've taken. I have tried really hard to avoid looking at the price but at this point I cannot take it any more. I'm just looking for a reason, any reason, to believe that things are going to get better. So far I've lost a lot of the estate money and I'll do anything to get it back. But I'm getting to the point where I feel like I might need to get to grips with reality and just cut my losses, admit to my family what I did and try to make it up to them. So I ask of you, please convince me one way or another (with some solid reasoning) to either sell all the coins I have on margin right now or just hold fast and weather this storm. Thanks
Bitfinex chapter, quick preview: an attempt to explain WTF. Doesn't include latest developments. Please nitpick.
Currently trying to do a non-shit cover for the book, which is actually a huge amount of work given I have no artistic talent whatsoever (though I'm OK at graphic design). So instead of doing that, here's what I have so far on a current rich seam of comedy gold! Please look over this and flag any inaccuracies or unclear bits. What they did is convoluted and confusing, and a good example of why bankruptcy laws exist, so we need to maximise clarity. The latest developments are not included, except the redemption. But OH BOY WILL SAID DETAILS BE FUN! Bitfinex: software competence turns out not to be optional If you’re not interested in mining or selling something to get bitcoins, exchanges unfortunately haven’t improved much since Mt. Gox. Bitfinex is one of the closer things Bitcoin has, or had, to a reputable exchange. Advocates liked and trusted it and enjoyed using it – it has margin trading and other fancy features – and recommended it to others. Its software turned out to be made entirely of copy-and-pasted cheese and string that nobody at all knew how to fix. This is quite typical of Bitcoin-related code and systems, as if financial software and systems had never happened. Bitfinex was based on the codebase from defunct exchange Bitcoinica, which was founded by sixteen-year-old Bitcointalk user “Zhoutong” and shut down after being hacked in 2012. One of Bitfinex's early developers described what the system was like when he had been working on it:
It has proved impossible to cleanly modularize and upgrade zhoutong’s spaghetti code. (Or if it is possible, Bitfinex technical team doesn’t know how to proceed.) In the current system, everything is entangled. There is no clean separation of concerns. They inherited this steaming shitpile of a codebase and they're stuck with it. Their legacy data model, as implemented in their current system is insane. The system was designed by a 16 year old FFS! Everything is ad hoc, there is no specification, there was zero documentation, there is minimal accounting for edge cases, exception handling was tacked on as an afterthought. There was no thinking things through. Everything is ad-hoc! Therefore it kinda works except when it doesn’t!
A Bitfinex representative responded stating that “a grand total of 0 lines from Bitcoinica's code exist on Bitfinex” (the site moved at least partially to the AlphaPoint platform in 2015), but the poster asked him to explain, if Bitfinex had an all-new codebase, how they had accurately reproduced bugs that dated back to Bitcoinica. The software problems were glossed over for years, because day traders are otherwise known as compulsive gamblers, and cryptocurrency day traders are the worst. I don’t often use the word “degenerate,” but if I did, they’re who I’d apply it to: reduced to a lizard brain, typing and clicking obsessively and watching for a number to change and provide a hit to the pleasure centre, all other mental and bodily functions atrophied. They make foreign exchange day traders look sober, considered and balanced. On 12 August 2016, nearly 120,000 BTC (then around US$60 million) was stolen from Bitfinex customer accounts. The accounts were secured with multiple signatures, including from third party agency Bitgo, but the hacker seemed to know Bitfinex’s systems and even overrode Bitfinex’s transaction limits. On many accounts, two of the three signatures were Bitfinex, and Bitgo routinely allowed all requests from Bitfinex because there were so many. Usually a theft of this magnitude heralds an exchange disappearing or shutting up shop with apologies, or the regulators noticing their existence and swooping in. In this case, as the supplier of gambling trading facilities not available elsewhere, Bitfinex felt there was sufficient demand for their services that a drastic action would be considered acceptable to their users. To wit: a 36% “haircut” for all customers. Depositors who had been hacked would be compensated with money from depositors who hadn’t. You might think that compensating your customers using money from other customers, while the managers or owners don’t take a hit in any way, would be grossly illegal in any reasonable financial system. Particularly as bankruptcies usually go creditors, then depositors, and equity holders last. But welcome to Bitcoin. Why on earth did the users put up with this? Secondly, because this was claimed to be the haircut they’d take if Bitfinex were to liquidate. (No, Bitfinex didn't show their working.) But firstly, because they were obsessive gamblers, desperate for more access to their strip mall casino. Bitfinex promptly went back up to No. 1 on the Bitcoin exchange volume charts, because Bitcoiners never learn. Bitfinex didn’t want its users to feel they’d been left high and dry. So it offered them Bitfinex tokens (BFX) for their losses, saying (though not guaranteeing) that they’d totally come through at some later date on these IOUs and reimburse the holders with their face value:
The token is a notional credit, is dependent on the Bitfinex Group’s recovery of Losses, and is subordinated to any claims against the Bitfinex Group not related to the Losses.
Meanwhile, you could trade these tokens – trading away your right to reimbursement if the stolen coins were recovered – and use them as collateral for financed trades! Only on Bitfinex, of course:
The token and your rights pursuant thereto may not be assigned except with notice to, and the prior consent of, the Bitfinex Group, on terms to be determined by the Bitfinex Group.
You might think this would constitute offering an unregistered security, but welcome to Bitcoin. The price for BFX dropped below its $1 face value even before release, opening at $0.80 and ending the day at $0.32. Bitfinex redeemed about 1% of the BFX in early September. As it happened, they had enabled margin trading on BFX one day before, and the price went up from $0.40 to $0.56 just before the announcement. Speculation was that they had paid for the 1% redemption using insider margin trading on the BFX itself, thus looking good for free, but I’m sure it was all just pure coincidence. Bitfinex was getting their customers coming and going, and keeping them coming and going. Around the time of the 1% redemption, 30% of trading on Bitfinex was BFX, which they collected trading fees on. Furthermore, the BFX tokens kept their customers on Bitfinex in the hope of a payout, rather than just cashing out and never coming back. In October, they came up with another layer on the scheme: the Recovery Right Token (RRT), for everyone who had converted their BFX for further gambling. Should any of the stolen coins ever be recovered, Bitfinex would first pay back the BFX holders who had not converted their BFX to something else, then pay back RRT holders with the remainder. That’s a made-up token on a made-up token on money they would normally have had to pay back. Convoluted arrangements like this are part of why bankruptcy laws, let alone financial trading regulations, exist: so that creditors and depositors get paid first and fairly in a clear and open manner, rather than having what they are owed obscured in fast-talking flimflam. In the meantime, Bitfinex set a financial and security audit in motion. Not by any such tawdry profession as actual accountants; they used “Ledger Labs Inc., a top blockchain forensics and technology firm,” which happens to be run by Vitalik Buterin, creator of altcoin Ethereum (of which more later). They also posted an open letter to the hacker, seeking “a mutually agreeable arrangement in exchange for an enormous bug bounty”, i.e., if only they would explain how they’d hacked Bitfinex: “Our interest here is not to accuse, blame or make demands, but rather to discuss an arrangement that we think you will find interesting.” It was entirely unclear to any observer what possible arrangement would be more interesting to the thief than “I have all your bitcoins now.” The stolen bitcoins are slowly being sold off through other exchanges. This is very like a bank accepting dye-marked notes known to have been stolen from another bank and deciding they don’t care. At least Bitfinex will never have to cash in those RRTs. In April 2017, Bitfinex announced they would finally redeem 100% of the BFX tokens for their $1.00 face value! This involves paying back the dollar value of the stolen bitcoins at the time of the theft – i.e., about half what it was by April. They also shut down all margin positions on BFX, putting users with insufficient collateral into debt to them (on a margin position on their own debt). The founder of Bitfinex, Raphael Nicolle, has never seemed to appreciate the problem financial regulators tend to have with schemes that pay early investors using money from later investors. He enthusiastically backed the Pirateat40 Ponzi – though at least he later apologised for that one – and came up with a high-yield scheme of his own:
So I'm thinking of the following plan: when I need more coins than I have to fill an order, I will ask everyone that previously “registered” with me to lend me some btc. After 7 days, I will return all of it, principal + 2% interests. For you to be contacted, you would have to post here or in PM to say you might lend me bitcoins, and approx. how many you'd be willing to lend me.
Nicolle has not been seen online since the 120,000 BTC hack. The Bitfinex hack does answer one common question about Bitcoin: “If you're so down on Bitcoin, why don't you short it?” “Well ...” 1 elux. Comment on “[Daily Discussion] Sunday, October 04, 2015”. Reddit /bitcoinmarkets, 4 October 2015. 2 Bitfinex. “BFX Token Terms”. August 2016. 3 e.g., 7a11l409b1d3c65. "Buttfinex pays back 1% of their debt - Butters cheer, not realizing that they have been scammed again". Reddit /buttcoin, September 2016. 4 Zane Tackett. “Bitfinex: Update Regarding Security Audit, Financial Audit, And More”. Reddit /bitcoinmarkets, 17 August 2016. 5 Giancarlo Devasini. “Message to the individual responsible for the Bitfinex security incident of August 2, 2016”. Bitfinex blog, 21 October 2016. 6 Andrew Quentson. “Bitfinex’s Hacked Bitcoins Are on the Move; 5% Recovery Bounty Offered”. CryptoCoinsNews, 27 January 2017. 7 “100% Redemption of Outstanding BFX Tokens”. Bitfinex, 3 April 2017. 8 unclescrooge. “[shame thread]The sorry and thank you Pirateat40 thread”. Bitcointalk.org Bitcoin Forum > Economy > Marketplace > Lending > Long-term offers, 17 August 2012. 9 unclescrooge. "Unclescrooge 1-week deposit program at 2%/week". Bitcointalk.org Bitcoin Forum > Economy > Marketplace > Lending > Long-term offers, 13 September 2012. 10 Andrew Quentson. “Bitfinex’s Founder Seemingly Tried to Start a Ponzi Scheme”. Cryptocoins News, 8 June 2016. hai
Hydro AMA Q&A Roundup with BitcoinMarkets (Slack), 15 June 2018
I've taken the liberty of rounding up all the questions and answers provided from Hydro's most recent AMA hosted with BitcoinMarkets incase you missed it. Enjoy! Hydro Q&A’s Q (knonsu): How does Snowflake relate to other identity protocols out there like Civic and uPort ? A.1 (Anurag): We see snowflake as existing a layer below these types of projects. Even without blockchain, identity is a broad term. Different people around the world have different forms of identity (state ID, country ID, social media IDs, etc). Civic, uPort, and other blockchain projects help to build specific types of an on-chain identity for a user; however those IDs are meaningful in different ways to different observers. For instance, imagine that a government or business builds a system that accepts Civic as a form of identity while another government/business only recognizes uPort identities. On top of this, certain systems only care about information tied to a user’s social media profile. A user can maintain one standard Snowflake as a base layer and set each of these different forms of identity as a resolver. Snowflake eliminates the need for global unanimous adoption of a singular identity standard and rather allows systems to build business logic off of identity standards they themselves recognize. Follow up Q (knonsu): thats cool. so its totally depends on the person/ institute utilizing it . One problem I found is how easy its to create fake identities (in their basic system). A.2 (Anurag): Yup! So people can conduct off-chain verifications to prove that you own a snowflake, and then tie an on-chain verification to your Snowflake. This links real-world KYC to your on-chain ID, so sure you could mint another snowflake, but that same party won't validate it again for you. Anyone who trusts that party would be able to accept their validations, and people who don't trust that party can rely on a different validator they do trust. — Q (kat): How big is the team working specifically on Hydro products? Can we get a numbers breakdown of engineers, biz dev, etc? Do you have plans to scale this team as the Hydro project develops? A.1 (Andy): Our Hydro team is 8 people. Devlopers (Myself and Noah) Product (Anurag and Shane) Community (Nahom) Founders (Mike and Matt) Partnerships/BizDev (Gunjan) The nice thing about Hydrogen though is we have a team of 30 people who we can leverage for different things. For example, Noah and I do not build mobile apps, but we have a front end team that is well versed in mobile app development. So while they are not directly on the Hydro team they do have a direct impact on Hydro. Hydrogen as a company is working to grow pretty rapidly. As we grow we will be filling out more positions in both blockchain and non-blockchain rolls. A.2 (Anurag): To add to Andy's answer - pretty much everyone working for Hydrogen helps out with Hydro in some way, whether via design, front-end development, API support, business discussion, etc. Here's our full team: https://www.hydrogenplatform.com/about — Q (rocket man): So in the age of ICOs, what motivated your team to not pursue that funding model and instead have a token distribution for developers? A (Andy): This was something that we spent a very long time considering and discussing. We spent a lot of resources (time, money & energy) trying to find the best solution for us going forward. When it was all said and done, we decided on an airdrop because of two main things, getting the token into the hands of people who will actually use it and regulatory concerns. We feel as though our distribution was the fairest approach that allowed for people with actual interest in the Hydro community to get involved. Overall, we have been very pleased with the level of community engagement from people who are interested in the utility of the Hydro token and we feel that a lot of this can be credited to our distribution strategy. — Q (matheussiq8): How hydro tokens will be used is still vague in the Snowflake whitepaper draft. Would the amount required to hold depend on the volume of API calls or some other parameter? For example, if I decide to implement raindrop and later snowflake in my small webshop would I need to hold the same amount of tokens as Binance (if they ever implement it of course…)? A (Noah): as always, the permissionlessness of public blockchains is a double-edged sword. smart contracts partially solve the problem by letting us enforce certain things on-chain (minimum token balances, signature validity, etc.), but there are limits. so, re. your specific question: in raindrop we do not vary the staking requirement across users, because that would necessarily involve value judgements we are not comfortable making as a centralized entity. however, there are two types of staking required for raindrop:
“institutional staking” requires entities who wish to sign up raindrop users *on their behalf* (i.e. passing new users’ addresses to the smart contract as parameters rather than new users transacting directly from their accounts) to stake a significant amount of hydro. these are the players we want to ensure are acting in the best interests of the community. in this model, hydro is simply one of many institutional stakers (where we sign up users on our kickass mobile app, which will be out soon).
“user staking” requires individuals who wish to sign up for raindrop on their own, i.e. transact directly with the smart contract, are able to do so by staking a much smaller amount of hydro.
What this all means for you, as a potential customer of our API, is that you don’t actually have to worry about the staking requirement or signing up users at all, and can simply use our API in conjunction with the Hydro app. Looking ahead to Snowflake, we have big plans to integrate increasing sophisticated uses of the token into the product. to some extent these are still up in the air, but rest assured that we are very focused on building a strong tokenomics structure. At a high level, the core token mechanism for snowflake will involve depositing tokens into the snowflake smart contract. These deposits will allow native staking/payment/incentive functionality denominated in hydro, without the hassle and worry of using ether with every call. — Q (Hodlall): When is raindrop Android app is releasing A (Andy): It is currently under development. We have a bunch of android phones with different OS on the way. It is hard to give a set date as we don't know what unforeseen issues could come up during the process though. All I can say is it is literally all that our mobile development team is working on — Q (Jeff_We_Cannafi): To piggyback on matheussiq8’s question, how do these identity tokens compare to existing forms of identity authentication, and do you anticipate the tokens themselves will be traded on exchanges? A (Andy): In my opinion, the main difference between what we are working towards and others like civic and uport is the scope of what we are aiming to do. We understand the value of having KYC on the blockchain and "One click signup", but really I think blockchain identity can be so much more than that. We are aiming to create a completely extendable and modular protocol which will allow for people to link anything they desire to their blockchain identity. Other protocols can tend to lean towards centralization (more a fault of current KYC procedures than the projects themselves) and we feel like this doesn't have to be the case. At least for now, something like KYC needs to have central authorities to verify user information, but why can't I also link my crypto kitties to my blockchain id or my linkedin profile to my blockchain id? Overall, what we are trying to build will easily allow for other blockchain developers to create robust identity solutions for whatever application they feel fit with Snowflake being at the core of that. We feel that this is crucial to eventually creating a completely open and decentralized identity system. Anyone can join and anyone can add what THEY consider to be an identity, but I only have to accept what I consider to be an identity. As far as trading, Snowflake Identity tokens will never be tradable. We feel that you identity should always be linked to you. This would be a dangerous road to a very easy black market for people's identities — Q (Jrock): What do you find the hardest part of pitching icos to regular companies? Also what do you think needs to happen for widespread crypto adoption? A (Shane): If you mean pitching Hydro to regular companies (we're not an ICO :stuck_out_tongue:), I would say the hardest part is getting the larger companies to move faster than a snail's pace. There are too many chefs in the kitchen and sometimes there is a lack of top-down strategy on blockchain, and it leaves large enterprises paralyzed sometimes. We try to resolve this by pitching how easy Hydro is to use, and how it connects to our broader Hydrogen ecosystem which can add value in a lot of places. In my opinion, widespread crypto adoption is going to be dependent on how parallelization plays out. If crypto's only option is to create a new parallel economy, widespread adoption is going to be slow and arduous and will take decades. However, if blockchain is able to be infused or layered on some of the current systems we have in place, the adoption will be much faster and broader. Ultimately this comes down to the usage of private vs public chains - the more private and centralized chains that get implemented, the farther the mainstream adoption will get pushed out. — Q (Luke): One aspect of Hydro that is beginning to really intrigue me are the potential use cases and dapps that can be built by external developers ontop of the Hydro protocol layers for each phase.
Having held various dev meetups and networking at various conferences, how are you finding the process of attracting developers to start building dapps and products in your ecosystem?
I understand the HCDP is getting updated with various new rules and bounties for dapps to be built, have you approached any developers yet with this new offer, and if so, how has the reception been?
How else do you intend to attract developers towards building on the Hydro protocols?
Through our events, we're mainly focused on helping expand the blockchain-focused developer community. We help give exposure to projects we find to be doing neat, innovative work in the space and keep ongoing dialogue with these communities.
In particular, to provide impetus to developers in the Hydro ecosystem, we've established the HCDP. The new process will involve putting out specific task requests. In the next week or so we'll have published specifications for dApps that can be built on top of Snowflake. We ourselves will not be building these dApps (they have nothing to do with Hydrogen's space as a company). This helps the ecosystem expand outside of Hydrogen-specific use-cases.
^^Through the above process to get them started. Eventually, we want the Hydro development process to be community-driven, so people are building on Hydro because it benefits their own programs and applications.
— Q (elmer_FUD): Hey Hydro Team! Here's a few question I've got for you after checking out the Raindrop and Snowflake whitepapers: How has your experience working in the Ethereum ecosystem been so far? While you are currently focused on the financial sector, would you consider actively marketing to other sectors such as healthcare and education in the future? It seems like both Raindrop and Snowflake would be useful in any environment that processes or stores sensitive data. Do you have plans to release official Raindrop SDK packages in other languages in the future? A bit more of a specific question: Raindrop is looks like a great product to use in a PCI-DSS environment - do you have thoughts on whether or not it the product is ready for primetime and do you think the industry standards and government regulation is prepared to handle these kinds of systems? A (Andy): Thanks for the questions! I'm gonna answer each in a separate response in this thread Overall it has been pretty solid. There is still a ton of room for growth in terms of documentation and stuff like that, but it is miles ahead of basically every other blockchain platform I have worked with. By far the biggest pain has been handling gas costs when considering the user experience. When trying to build actual products that people will want to use we feel that making it user friendly is something that many blockchain projects have not focused on nearly enough. Yeah certainly. We focus on fintech as that is where the rest of our companies APIs focus and that is where we have the most connections, but much of what we are building is much further reaching than that. Just as far as authentication goes, it really can apply to any major field and we intend to market it as such. We currently have Python and JS SDKs and have had a few java ones submitted through our community dev program. We have been revamping that program, but I anticipate we will be putting up more bounties for most major languages. I have considered making a few more myself, but we feel that they could be better suited as community projects. I completely agree. Raindrop and blockchain authentication when handling anything around payments is a great application. I think the biggest thing is actually convincing regulatory bodies that the protocols we have build are secure (since many can still be scared of blockchain). I definitely see this as a direct use case though — Q.1 (khonsu): What kind of banking relations do you have as a company, do they (banks) understand what you are trying to do ? Any VCs approached you for funding ? explain your business model. A.1 (Shane): Hydrogen has existed since 2009 in the form of Hedgeable. Hedgeable is a consumer-facing online investing app, and the tech behind it eventually spawned the Hydrogen tech platform. The story of how the transition happened goes essentially like this: (1) Hedgeable was disrupting banks & investing firms, (2) banks & investing firms started contacting us and seeing if we would help them digitize & automate their own businesses, (3) we started packaging up our tech and selling it to the banks. There was so much demand for this from financial institutions that we spun out a new company (Hydrogen). So to get back to your original question: we have some long-standing relationships in the banking & finance world, and to this day we have inbound leads from that space coming in every week. The key thing to keep in mind is that these institutions move extremely slowly, but they do understand the core value prop of our platform. Many of these firms are still in the midst of basic digitization efforts (i.e. moving from really slow offline processes to simple digital infrastructure), and that is the primary thing we are helping them with in early stages. But they are also keen on blockchain tech and they will naturally turn to us for that once they reach that point. We do have a few relationships with big financial companies in which Hydro/blockchain are already part of the discussion. We have revenue and don't need to rely on VCs. It is our general philosophy that building a business sustainably with actual clients and revenue is a good approach, but we would consider working with the right VC if that came to be and we wanted to scale more quickly. Right now, that is not an immediate concern for us. Our business model is in charging developers and enterprises to access the Hydrogen technology platform, which currently consists of products like Atom, Ion, and Hydro. Developers pay a per-user fee to hit our core APIs, while large enterprises negotiate custom (usually multi-year) contracts with us that typically include recurring revenue. Hydro, specifically, is being offered for free right now, as we attempt to gain adoption. But it is important to note that Hydro is just one piece of our ecosystem. Q.2 (Joleen): When you say fee - is this fee HYDRO? And when do you envisage HYDRO to no longer be offered FOC? A**.2 (Shane):** Sorry if it wasn't clear, I meant free to use our Hydro tech/APIs. The usage of HYDRO tokens within that is a separate issue - they still need to have HYDRO and we do not give it away for free to clients — Q (guacam0le): Adoption of an identity management solution (etc) would potentially involve a lot of identities. Further, scalability is a hot topic w/ blockchain. Is this a potential bottleneck? What is or might be done to address such? Tackling a competitor like Google or Authy's 2FA is no small feat. Also, not everyone is yet to embrace blockchain-based solutions. Have you found it difficult to interface with enterprises & get them excited about the idea of an overhaul? A (Anurag): nowflake is designed to be relatively low-load on the blockchain. A user needs to conduct a single transaction to “mint” their Snowflake. Once this is complete, they would need to complete one-time transactions to set each of their different forms of identities as resolvers as needed. A Snowflake is designed to be built out via resolvers over the duration of a user’s lifetime, so there’s never a need for heavy, frequent transactional capability. Similarly, smart contracts simply need to be set as resolvers by users; they do not themselves transact. Network scalability improvements will increase the range of use-cases for smart contracts that can be tied to Snowflake, but they aren’t a necessary prerequisite to some important early use-cases such as KYC platforms, and a few basic user-interaction platforms. As far as competition, we feel that current adoption of 2FA is, in general far short of where it should be, and any 2FA is generally better than none. Many businesses use text-message based 2FA, etc. In the short-run we are aiming toward pilot implementations with small businesses. To further this, we have put out many integration resources, guides, and documentation and accordingly believe implementation of Raindrop is a more straightforward workflow. As far as large enterprises go, Hydrogen has clients, so it is helpful for our project to have those connections. Large institutions are generally relatively slow-moving, but have expressed interest in using Raindrop, in particular for securing employee accounts. As the product grows, we may eventually move in this direction with Client Raindrop, but resources will always be available for any site that wants to adopt it. Additionally, we are looking into making a wordpress plug-in to make implementation much more accessible for many developers. -- Q (Smithymethods): I know Hydro is a fintech company, hydro plan to curb phishing and hacking to the bearest minimum we know that hacking is very rampant these days on MEW and with other wallet. Is Hydro planning to create a wallet that support hydro and other tokens using their raindrop Technology? As this will put an end to the problem of phishing and also promote hydro A (Noah): like everyone in the crypto space, we’re very worried about phishing, both personally and on behalf of all hydro token holders. we first want to reemphasize that preventing scams and fraud has to be a community-driven effort: teams and users need to be vigilant and promote best practices (never trusting links in public chats, shunning fake accounts, etc.). we are excited about raindrop’s potential to help combat phishing, though. we actually talked with someone about mycrypto about integrating raindrop into their desktop app. we’ve forked their code and are researching how feasible an implementation would be, stay tuned for updates! — Q (Hodlall): What security measures in place for hydro , I see lot of tokens being hacked nowadays , and money is stolen.. how does hydro make sure their team tokens are completely secured or as much as possible A (Andy): We all have been in crypto for a while and are pretty well versed in securing our stuff. Our tokens that are currently locked are in cold storage. Others are held in hardware wallets — Q (Joleen): We know that the Hydrogen platform is going to be used by CI Investments, a large insurance firm and a world top 20 bank, have these companies already begun purchasing Hydro OTC? A (Andy): This is something that we feel is best to be hands off with. It is really up to the discretion of our partners — Q (khonsu’s mumaffi): Ill be honest i have not yet fully read the whitepaper but id like to know other than investor growth do you truly believe there is interest in a model where users have to pay each time for access? How big do u expect this fee to be...for large companies dont you believe this is an unscalable practice? This may be a question more about most technologies built on token based economics too. A (Andy): So we have 2 different authentication protocols. One happens less often and is in the same vein as OAuth. This is called Server-Side Raindrop. This requires tokens to be sent. This protocol would only happen once per day for a business when accessing something like an API. I don't feel that these values are extremely high for increased security. Our second protocol, Client-Side Raindrop, functions much more like google auth. This logic actually does not require any tokens or even a transaction by the end user. It is 100% free for them to use and they will never have to pay for a transaction. Here the responsibility is on the implementing party to stake tokens. This allows them to onboard users and authenticate them. We felt it was crucial to have an authentication that did not have a cost per user login as it is not scalable — Q (khonsu’s mumaffi): Also do u plan to tokenise atom and ion too and if not covered earlier how big of an impact do the market conditions have on your business A (Anurag): Tough to say we're going to "tokenize" them since that word can carry a lot of different meanings in different contexts, but we do plan on integrating the entire Hydrogen platform with Hydro. This will most likely take the form of enhancements to systems leveraging Hydro. You can find a more detailed breakdown on our Hydro roadmap: https://medium.com/hydrogen-api/project-hydro-features-in-depth-look-39faa29f0d61 Market conditions don't really have an impact - we're still building the same tech on a day-to-day basis — Q (ghost): As a company in the space, do you see the fact that tokens have to be acquired on exchanges as an issue? How would a company that wants to develop with you acquire tokens? A (Anurag): Depends on what they're developing. dApps developing using Hydro smart contracts to create native functionality to their applications would need to acquire those tokens on their own; however, companies using the Hydrogen API will not. Here's a detailed article outlining when a developer would need the token for the Client Raindrop smart contract: https://medium.com/hydrogen-api/how-to-use-client-raindrop-without-using-the-hydrogen-api-bb04934ae293 — Q (jarederaj): Can you describe your stakeholders and give me a better sense of the exigency of your products? Who are you focused on serving with your platform and why are they motivated to use your platform? A (Shane): The Hydrogen platform serves developers and enterprises who want to build applications. We are specifically targeting the financial services sector, including banks, investing firms, insurance providers, and financial advisors. This includes large enterprises, individual developers, and startups. Our products are Atom (core digital infrastructure & engine for finserv), Ion (AutoML & business intelligence capabilities), and Hydro (blockchain & decentralization layer). Each has a different use case but these products combine to form an ecosystem of tools for developers to build sophisticated applications with. The main pain point we are addressing is the resources required to build, launch, and run a digital financial application. These resources include both time and money. Large enterprises have resources, but they waste years and millions of dollars trying to launch digital platforms (we've seen this first-hand), often unsuccessfully. The motivation here is obvious. Startups and smaller developers, on the other hand, do not have access to huge resource pools, so they are forced to look for solutions that make the process more efficient. In the same way that Wordpress makes launching a blog easy and also allows for extended functionality, Hydrogen makes launching fintech application easy. — Q (shujjishah): When the app will be released??? A (Anurag): We're going through our mobile development very iteratively. Since we work very closely with the product, there are things we can't recognize until we've got people beta testing the app. As we started Beta testing and conducting user-research, we realized that one aspect of the UI for the app was not intuitive to about half of our testers. We decided to make a few API changes to enable the mobile app to display a "linked" vs "unlinked" status in order to improve the user experience. Our front-end team is finalizing these changes, so our Beta testers will receive a new build in their testflight apps within the next few days. This new build will require another round of Beta testing to ensure that none of the code changes causes any problems on devices; if this change goes smoothly, and our mainnet testing goes smoothly, we will be able to release the app this month. Since there isn't much precedent on releasing a product into the app store that connects users with the ethereum mainnet, our primary concern is making sure the product works fully as intended and provides an intuitive user experience. Misc Q&A’s Q (elmer_FUD): What's your favorite thing to drink? A.1 (Andy): Overall, I really love Baja Blast Mountain Dew. If I am drinking, I'm a big fan of fruity beers like Blue Moon and Shocktop. Also had a really good raspberry sour recently A.2 (Nahom): Primary=water but i do enjoy Jamaican ginger ale/beer. We keep honest tea in the office too, i love it because it brings me back from the dead:skull_and_crossbones:, @Hydro Andy drinks most of it behind my back though :triumph: A.3 (Noah): hard: tequila or picklebacks soft: any sour beer other: mango juice i also crush like 2 nalgene’s worth of water every day at work A.4 (Shane): For hard alcohol: whiskey/bourbon A.5 (Anurag): ooh, went to the finback brewery last weekend; was wonderful — Q (Joleen): Do you HODL any other tokens personally? A.1 (Andy): I do. I think it is probably best to not say which, but if you follow me enough in #altcoins I am sure you will see me talk about a few A.2 (Noah): im a bit of an eth maximalist actually :grimacing: i do dabble though — Q (Joleen): Who got who in the World Cup sweepstakes? A.1 (Andy): I'm going for Germany, but I know next to nothing about soccer A.2 (Shane): I'm rooting for Portugal, but I don't think they're going to win the cup — Q (Joleen): Who's got the best banter in the office? And who has the worst? A.1 (Andy): One of our backend devs, Paavan, typically has some great banter and even better hot takes A.2 (Noah): dont @ me for worst banter A.3 (Shane): Sabih (BA @ Hydrogen) banter is by far the best
Chart analysis ETH & BTC, 25.3.2017 - "The Flippening"
Hey dear ethtraders (and BitcoinMarket traders)! In this post I am going to provide my take on the current market from a Technical Analysis (TA) point of view. My general impression is that many (if not most?) of you do not "believe" in TA, but rather think that one should trade based upon Fundamentals only. However, the success rate of this methodology should be measured in bear markets as well. In such cases, disregarding TA yields worse results because many fail to minimize their exposure in bear markets. Those who are new to cryptomarkets and don't believe me, should take a look at the charts of the previous ETH bear market, which started in September last year - immediately after phenomenal news has been revealed during DevCon 2 in September! As unbelievable as it sounds, the price fell below 6$ in December until it finally stabilized. The important part about this is that it is not possible to predict such bearish periods using Fundamentals only. Many who have considered themselves as "holders" have sustained severe losses during this period of time, blinded by great Fundamentals of Ethereum. Some who credited themselves as holders have even sold ETH pretty much at the bottom. If you think that a bear market (or a strong down correction) is impossible at this point, let me assure you that this belief is the psychological result of the green candles you have got complacent with. If you are new to Ethereum, you are likely in profit and you are used to be in profit because you were introduced as part of a new wave of money, which is typical for strong bull markets. You, newcomer, are part of the reason why we are having all those green-colored charts! By the same implicitness, believe it or not, people used to refer to Bitcoin as "store of value" and "digital gold", discounting the fact that Bitcoin was simply bullish and thus increased in value. These name tags were mere side effects of the elevated sentiment during bull markets. All the fundamental problems it has now were present last year, but were not reflected by market movement. It was basically the contrast to the ETH bear market in Fall 2016! So, how does TA help? Basically, according to TA, you make a quantified plan to control your exposure to the market. You want to quantify your risk and your reward at any state of the market. To do this, you extract information looking at price charts. Since it is preferential and complex, I will not talk about risk/reward setups and money management here, but will simply provide my perspective on the current charts. I will focus only on the dominant forces in this market, BTC and ETH. I think the rest of the altcoin market pretty much follows ETH (and DASH) with a lag, so everything else is as bullish as ETH. Whether you believe that "The Flippening" will happen (soon) or not, having some ideas on how to minimize risk in an overbought market could prove useful. For chart analysis, I like to use an ADX & RSI & Bollinger Bands setup as my primary trading system, so I will talk in this context. However, I think it is easy to see similar patterns in many trading setups (MACD, StochRSI, Ichi clouds, etc). You may as well use two Moving Averages and outperform a lot of traders long-term - a simple system, but it can work extremely well. I also like to keep it simple in terms of patterns - you won't see many triangles in my charts. In my opinion, TA trading systems are purely stylistic and the core of success is discipline and patience. BTC/EUR https://i.imgur.com/DCgxVhB.png I would like to introduce this daily chart by showing the crucial incision point after the day of the ETF rejection, March 12th (1). We see a beautiful interplay between Fundamentals & TA, where the price went down immediately due to the rejection, but recovered the days after for purely technical reasons! After a few days, the trend, measured by the ADX (2, red curve), turned bearish and since that we see a very decisive down move, where in my eyes ~840€ and ~750€ are the two ultimate support lines. I think the lower one should be tested with an oversold daily RSI (3) and then stabilize in-between both support regions for a while. ETH/EUR https://i.imgur.com/y1HjoJ0.png I am sometimes undecided whether to look at BTC/ETH or ETH/fiat. Movements within the cryptospace should be measured via BTC/ETH, but I think new money going to ETH is what is driving our current bull trend, hence I consider ETH/fiat as more relevant. For more in-depth TA trading, both charts are important. The two focal points in this chart are the two tops (1a, 1b), which I consider as temporary tops for now. In my opinion we are currently seeing a bearish divergence, visible on the 4H charts (and even clearer, on the daily) with a weakening RSI (2). In my opinion we could go a bit higher in low volume, maybe a spike to above 60€ with lower momentum. A strong support in my opinion can be found in the 37€-39€ area. Bearish news (yes, such things exist!) could bring us down to the 25-27€ range, but for now I think it is unlikely. The trend, measured by ADX (3, red curve) is still bullish, albeit weaker than during the first top. This usually means that we are looking to consolidate, but it is unclear where this could happen, so I expect more price discovery (up) with receding momentum in the next days/weeks. The rest Going long into altcoins now yields less-than-good risk/rewards and I think that DASH should slowly but clearly find some downside, but predictions are difficult to make here. I think if ETH and/or DASH breaks, lower caps should follow to some extent.
Welcome! Yesterday, there was quite a discussion in /bitcoinmarkets. As I told Kibubik, after the discussion erupted it became untenable for me to continue posting these thoughts there, because no matter what was said, someone would say it was off-topic and another huge discussion would follow. But that's fine. People who want to visit /bitcoinmarkets can continue to do so, and those who want to read these posts can come here (or do both). I'll still read all the bitcoin forums. If you want to post your thoughts, then feel free to create a new topic. Feel free to talk about anything about cryptocurrencies; it doesn't have to do with markets. Make sure your post has some content and isn't just a link with a direction to "discuss." As long as most of your post is about cryptocurrencies, you can also add comments on other stuff, too. Consider this a multi-person blog; we'll see if anyone is interested in posting.
It is unbelievably difficult to retain data (and wallets)
Retaining data for a long time is unbelievably difficult. Over the past four years, I have had two instances where costly catastrophes have ensued. In the first case, I was restoring a large amount of data from a backup when the backup array also failed, so I had to pay $1500 for data recovery (but all the data was restored). In the second case, despite using a RAID-6 with every piece of data backed to six external drives, the array got corrupted and one of the external drives had unrecoverable read errors on it. I was again able to restore all the data because the only corrupted files were one CD I had ripped, which was easily replaceable. But it took almost 2 months each time before the system was back. If you are trying to come up with a system to store a bitcoin wallet, security is important, but actually retaining the wallet is even more important. People may not know that the average hard drive lasts only a little longer than three years, but we'll round down to 3 for easy math. If you make three copies onto three independent disks made by different manufacturers at the same time, and you don't constantly verify that the disks work, then the odds of losing all your money is as high as 1/8! To make things worse, there are things called unrecoverable read errors, which can occur when a disk still spins but only the sector where your wallet is stored can't be read. These errors are so common that they occur every 10 terabytes of writes or so, which means that a 2TB disk only needs to be overwritten five times before you are more likely than not to have these errors in them. Making one backup is not enough. If you are trying to secure a wallet for cold storage, encrypt it with a long password, and then store it on five disks. By the way, as I said in a post yesterday, evoorhees, the guy recently fined by the SEC, had three backups of his wallet at one point, but he still lost 10,000 bitcoins ($6.5m) because none of the backups were working.
Trading is possible, but not the most profitable
greenearplugs has been very vocal lately about how he believes that it is impossible to beat the averages. I agree with him when he says that daytrading is not a better strategy than buy-and-hold. But that is not the same as saying that you can't make money if you sit in front of your computer all day. This Sunday was a perfect example of a time when you could have made easy money. Bitcoins are so volatile that a good plan is to buy every time there is a huge crash, and to sell immediately thereafter, because there is almost always a recovery within a few hours. You can make money this way - I tried this on paper. But when you look at the results, you notice that there are a lot of trades that look like: huge crash at $339, buy, then sell at $450. Huge crash at $630, buy, sell at $660, and so on. It's easy to make money this way, but you can make a lot more money if you didn't sell at all, and you don't get killed by fees that way.
Trading on the bubble cycle is the only more profitable strategy than buy and hold
I propose that trading on the bubble cycle is the only strategy more profitable than simple buy and hold. Bubbles are so predictable and so dramatic that you don't have to sell at the top and buy at the bottom to make money. You don't have to sit in front of a screen all day; just buy and sell at 6 and 2 month intervals. As I discussed with moral_agent yesterday, people should be looking at what the next bottom is, 7 months out from now, not what the next top is going to be. Everyone knows that if bitcoins rise to $5k this summer it will be a bubble, not a "new paradigm." If you are conservative and sell at $2.5k, and then put all that money back in whenever the news looks to be the absolute worst the next time around, you'll probably still be ahead. If you look at the charts, you'll notice that you could even have made money by panic selling during the initial bubble crash, and then coming back six months later - so you don't even have to be worried whether this actually is the "new paradigm" or not. The biggest concernto be worried about is not buying in much above the all-time high of the previous cycle.
The 1MB transaction limit is about freedom
There are some users who take the position that not only does nothing need to be done about the 1MB transaction limit, but that even if something could be done, no action should be taken. They are wrong. This limit is important because it restricts the ability of people to send bitcoins without dependence on others. It is possible that services like Coinbase will provide free transactions. But in jurisdictions like China, where bitcoin services are likely to be permanently banned, people will need to be able to install the bitcoin-qt client directly and sign their own transactions. If fees rise too high, then it will become impossible for people in dictatorships like China to work around their governments' regulations. Centralization is one solution to this problem, but centralization significantly degrades one of the core promises of bitcoins - to allow anyone to send money to anyone without relying on the government.
Bubbles aren't that complicated
People are now starting to talk about bubbles as if they have five or seven phases. To me, it seems that this is just curve-fitting taken to the extreme. If one looks hard enough, (s)he can find patterns in just about any data. The three-phase bubble cycle (down, steady, up) is a much more simple and accurate model than trying to separate bubbles into seven phases. Not only that, but the first few bubbles don't fit the seven-phase cycle, making this model have little support.
A word of advice for day traders, especially if you are new. My bitcoin trading story. Please read.
I know this is long, but I think it is a great story for any traders in the bitcoin market to read. I'm a realitivaly new trader with some experience and want to share it to you all and hope you learn something from it, so you guys don't make the same mistake as me. And you guys can comment if you have a different opinion about something or any good information to help out, what I think works and what you think works. Here at BitcoinMarkets were part of a family, so feel free to express what you think. In the end it's not about being bullish or bearish, its about having a larger net worth when the day is over with. First let me start out back when I was a young teenager. A very successful man, whom I know that is worth hundreds of millions told me before Lesson 1:"In stocks get out while you are ahead, make your 20-30% and get the hell out", he says with stocks he's an in and out kind of guy, make 30% and get out. I wish I took what he said to heart because for the past week I really didn't. And I hope you guys don't do the same as me. Now, if you are a professional trader and/or manage some multi million dollar fund it can be a different story because you know how to manage risks/rewards better than most. A little bit of info about my self, I'm 20 years old, passed high school with a 2.5 GPA by doing just enough to get by. Now I'm working full time at a retail job which pays for my college, and I'm a part time student at a community college studying business administration and finance. For a while I have been interested in stocks I've been looking in to the stock market and trading quite a bit. I was successful with a few stocks like TSLA, MJNA, and LNCO. I like to look at stocks that are undervalued, oversold, or stocks or a product related to a stock about to get a lot of buzz, then and after extensive research, it's time to buy in, make a few bucks, then get out. Also I love stocks that generate a lot of buzz you've just got to buy in to them fast, like a bat out of hell before the sheep do or other possible investors, make that 15-30% and sell out. I bought in at TSLA at $100/share and sold at $120, I know I missed the rally to $190 but who cares. Bought into MJNA mid October of last year when it was trading around $0.07 because I knew some online pot activist and news online about pot being legalized in a few states with a new vallot for voters, and stuff is going to get crazy about legalizing marijuana this month. So I bought in before all the buz at $0.07 and sold at $0.40, now it's worth .10, I may invest into MJNA or some other stock related to marijuana again when some big pot buzz about legalizing in more states comes up in the news. The only stock that I am highly confident of me getting x2-x3 returns within the next 5-8 years going long is BAC, I don't plan on selling that for 5-8 years, it is highly undervalued and the price can triple or who knows maybe even more within the next 5-8 years due to increasing mortgage rates. Right now I dream of running my own company or website service, being a very successful stock trader, and buy and rent out homes to generate enough passive income to live off of for retirement. I've always wanted to be an entrepreneur, as a child I would dig up plants and sell potted flowers for half dollars around my neighbourhood, In middle school I would put custom hacked firmwares on students PSPs I was charging $50 to hack each PS3, and you know almost everyone had a PS3 back in the day and everyone wanted me to mod it, I was always the man with the money in middle school. Then In High school I had a successful PlayStation3 moding business for hacking call of duty MW2, people would ship me their PS3s and I would transfer a few hacked files to it so they could run challenge lobbies and have infinite health, ammo etc. on multilayer, I was charging $250 per PS3 made enough money to pay for a car with a some money to still save over, heck I had a website, youtube and was dealing with multinational customers. At one point one of my videos got so much attention because it was on some huge gaming news website N4G.com titled "Modern Warfare 2 hacked to shreds on PS3" , within like 6 hours a video of mine on youtube went from 50,000 views to 1.5 million views. I thought yes! this is awesome more subscribers and people to do business with keep on complaining about people hacking on COD MW2 and sending out my video everywhere anyone who says that’s cool will go to my channel and find I hack PS3s for a service. Well it didn't turn out as planned, those millions of people flaged my video because "it was marked as spam" And my whole youtube account was taken down. It was only big for a while though because It was to hack COD MW2 for the PS3 and once that game was over, no more business. I have a youtube channel too which I haven't been really active on but need to start to do things because I'm a partner with them.http://www.youtube.com/useMcSpankn Now back to bitcoin To start out, I have known about bitcoin for a few years. I bought some bitcoin back when they were trading around $5 per coin in 2011 and used the coins to buy things that most of the bitcoin population did back in that time. I always thought, what if I invest $5,000 into bitcoin and one day I will be a millionaire with the rate of this coin going up. I simply told my self it is too risky and couldn't afford losing that money, so I didn't buy any coins. Around the same time a friend that called, telling me he was buying a $2,000 gaming computer, I told him instead of investing $2,000 in a stupid gaming computer which will keep you off task from college, invest that $2,000 in bitcoin if you have nothing else to do with it, one day you will thank me. Well today he ignores me and I think we have lost our friendship. Fast forward to this year Last month I told my self I'm not letting the same thing happen to me as it did a few years ago, missing out on huge potential profits. It's time to step into the Bitcoin market. I made an educated decision to buy because anything with potential profits in tech promotes a lot of buzz. Just look at what happened with twitter IPO was around $20, and now it is trading around $50. Also, with all of the talk in media and some of the Feds were pro on the notion of crypto currencies, so I decided to play low risk and spend $400 to buy coin last month @500/coin. I sold out when my investment was worth $800. Then I did some day trading on bitfinex. "Lets play with house money"(The money that you have won from trades. House Money Effect - profits from trades are more likely used to fund positions with higher risk), In a period of a few days I reached a high of $2,000 and in a matter of a few hours I was back to $400 because I went to work and wasn't able to close my position. (Lesson 2: "When day trading set a stop order to cover yourself from losing money and/or, if you aren't at the computer to watch charts its always a good idea to not have any position open in the highly volatile market of BTC.") Then I thought "hmm, let me invest $5,600 into day trading and once I make a decent profit I will get out and transfer the money back to my bank". I've been pretty successful so far trading so lets invest some more money. $5,600 is a moderate risk for me because It is about half of my savings, but that risk was worth it when I saw the major bear signal, bad news in China, and lots of selling. It's more of a moderate risk because fortunately I live with my parents, work full time retail (not making the best amount of money) but at least they pay for my community college, so $5,600 is a risk but I am working through college so I will make that back no matter what. And the money is to fund something that I will most likely profit from after making an executive decision that I would short bitcoin with those funds due to bad news in china, high selling, and many other factors. I decided to send the $5,600 to bitfinex. Lesson 3: Don't risk what you can't afford to lose. In my case I have a full time job, live with parents, have a car, no debt, money in checking and savings account, and have my college paid for by work. So I can afford to lose $5,600. Right now my out of pocket cost on putting money into bitcoin trading is about $6000. I did a few trades and would bounce between $7,000 and back to $5,600 last week. Now this week was a major bearish signal for me, I put $5,600 into a short order and kept shorting back and forth. Within 5-6 hours I tripled my money with a high of $18,000 yesterday. At that point I said "let me put that money in the bank, I'm already up over 300% of my investment", but my heart said "I've already made x3 my original investment, lets try to x3 $18,000, its house money any ways.(The money that you have won from trades. House Money Effect - profits from trades are more likely used to fund positions with higher risk). My medium term goal has been to make enough money for a down payment on a house to rent out at 20 years old. I decided I will keep trading, I knew that $18,000 may go back down but with the way bitcoin is lots of people got in believing they will make tons of money but when they realise the true value of coin is well bellow $500 everyone will panic and sell.** Lesson 4: "The bull rises slowly and the bear jumps out the window" ** Especially when BTC is in a bubble and the incompetent buyers who invest in coin see the price is getting dumped they will do the same. Drastically making the price drop because there is no support, rather than coming down slowly. Within a few trades that $18,000 turned to $10,000. I took a break and waited until last nigh (Wednesday night/Thursday early morning) when trading was quiet but still moving downwards slowly. I have been following trading patterns and with bad news still in china to me another crash was bound to happen. Everyone last night was saying "oh we are going to crash again" and even looking at the charts that was another major bearish signal for me. Looking at the history on the charts compared to the sell off on Tuesday night, it looked like the same would happen Wednesday night. So I put that $10,000 back into short, next thing you know china is pumping out of no where, to me it was a bull trap. Well I was wrong and I ended up closing my position, and now I'm back to $5600. Still a few hundred dollars below my initial investment. Lesson 5: Don't get greedy and risk too much. I tried to push my profits too far, without realizing I was already up 300% and should have reduced risk. I was trading at 4x leverage, After I made it to $18,000 I should have reduced my leverage or not put as much money into a position. Lesson 6: Don't listen to what any else says to make your decision, be independent when trading, because you never know who is swimming naked until the tide goes out. I am pretty mad at myself because at the point of time before I put that short order in last night I was thinking, what if this is what china wants us to think, we have had a crash 2-3 times in a row. I'm upset today because not only did I lose out on even more potential profits but I am set back to less than my original investment. I though, what if they create a pump and make the market think we are heading "back to the moon" if you would say? I thought "no, that can't happen the market agrees we are bearish, and the value of bitcoin is based on the population that is involved in bitcoin and most of them are bearish." So, I'm sort of mad that I didn't take a long position because $10,000 would have taken a 76BTC long position at $520/btc, and now which would be worth $11,000-$15,000 or even more if I kept adding more BTC to my long position on the way up. And here's another lesson Lesson 7: Don't keep falling on the negatives and opportunities you didn't grab in the past thinking "what if" "I was going to do this but.." and "why didn't I do this", "if I did X" "I would have $100,000" etc." So, what lesson did I learn and need to en-script it into my head? "Get out while you are ahead", and I believe you all should do the same, especially in this current highly manipulated and volatile market but some will still get lucky, now it is more like gambling. As of today no one knows what chinas true intentions are so I'm not trading for a while. And I believe for new traders that don't know much should stay out of trading until more news in china comes out, because who knows how long this pumping from china will continue and what if it sparks more people to buy in causing the price to sky rocket back to $1000, and at any time whales can dump because they’ve already made their profits, and know another crash is bound to happen so they will dump their coins and buy in when BTC hits another low, rinse and repeat. Lesson 8: do research on trading before trading bitcoin, or stocks." Here is a good source of information to learn about trading, different types of orders, and do and don’t s http://www.investopedia.com/active-trading/ If I ended up reading this stuff in the first place I would have more insight of how to trade and what to do in certain situations. My day trading days with bitcoin are over for a few days because at this point either bitcoin is going to keep getting manipulated and out of no where whales may crash, especially after hitting a low 3 nights in a row. Now I am just lending USD on Bitfinex.com at 1% per day for a few days to calm down and reminisce on the positives of how I tripled my money. Also, I need to devise a plan on how to not go from having everything to going back to one thing. I know some have questions about lending on Bitfinex.com. It is great because it is low risk and low reward, over time the money does add up. And it's a good way to let me study the market by still making guaranteed profits. I lent out $5600 for 3 days with an interest rate of 1% per day, after 3 days and minimal fees I will profit $151 off my 3 day investment of $5600. I love the fact all of the risk is on the trader not the lender. The trader needs money in his account to cover any loses he may make and the fees to be paid back to the lender. How does lending work still? Well for example: Bob has $500 in his account and wants to borrow $500 to buy 1 bitcoin because he believes bitcoin will rise and wants take risk and try to double his profits. So Bob borrowed the $500 and is paying .1% interest on it daily. Now Bob has a total of $1000 to buy 1 bitcoin @ $1000. OMG Bitcoin rose to $1100 today, and Bob wants to close his position, he closed it and he gets back his initial investment of $500 + the profit he made on the trade which was $100 because his starting $1k turned into 1BTC that is now worth $1100. And I the lender get my $500 back + $5 paid in interest. But wait, the lender didn't lose any money because Bob went positive, what if Bob goes negative? Won't I lose money? Well lets work this out. Same casenario Bob has $500 in his account and wants to borrow $500 to buy 1 bitcoin because he believes bitcoin will rise and wants take risk and try to double his profits. So Bob borrowed the $500 and is paying .1% interest on it daily. Now Bob has a total of $1000 to buy 1 bitcoin @ $1000. OMG Bitcoin is now at $500 and is about to reach $400, WTF my long position closed for no reason screw you bitfinex. Well if you read the side bar it says required net margin must be at least 65% or your position will close. Bobs networth went from $1k to $650, 65% of 1k is $650 so Bobs long position closed and he gets back his less than his initial investment, he gets back $150 and has to pay the $5 interest fee And I the lender get my $500 back + $5 paid in interest. See lending and borrowing are that simple, I tried to simplify it some. I hope you guys learned something from my experience within the last few months. I still can't get over the fact I was up to $18,000, it's depressing because the money I had made was the amount of me working for almost 8 months. It's hard to get out of my head that I had that much money and it was gone in no time. I know another opportunity awaits. Maybe within a week or so after studying the market I will get back in with a new game plan, and sticking to new rules. Thinking optimistically, I tippled my money in a few hours by trading on bitfinex.com. On a side note for those of you who do trade, Bitfinex.com is an exceptional platform allowing trading, and margin trading for taking short/long positions on BTC and LTC. They also let you lend/borrow LTC, BTC, and USD. If there is anyone who wants to trade on Bitfinex.com I do have a coupon code for 10% off trades for a month, use the code RAgkOOFTJL Just remember "Get out while your ahead" and don't get too greedy like me if you trade.
Hi all, I would like to introduce you all to the first decentralized cryptocurrency hedge fund. It is an exciting time to be trading and investing in crypto. You can also find this announcement on /ethereum. https://www.reddit.com/ethereum/comments/4nwazx/ann_first_decentralized_hedge_fund_ibb_dao A brief history Wen, the founder of ibankbitcoins.com began his start in cryptocurrency with a venture to mine bitcoins in 2014. After KNC miner failed to deliver machines on time, a refund was requested and the refunded bitcoins started Wen’s trading in cryptocurrency. Carrying over 6 years of stock and index futures experience, bitcoin trading became very profitable. We took interest in ethereum since it released, participated in the crowd sale for Augur in the early days. then we started development of IBB DAO in February 2016. What is a decentralized hedge fund? Smart contracts on the ethereum network allows IBB to interact with its token holders through our decentralized autonomous organization (DAO). Functionalities like issuing dividends, reinvestments, vote on proposals are hard coded into the contract and executed on the network. Performance Wen, our technical analyst, has generated over 180% of bitcoin return since 2014 with verifiable record. In addition, his ethereum trades since March is 108%. All trades are non-leveraged, not compounded and equal capital. While Wen focuses on longer term speculative trades, Jimmy, our software dev lead will be rolling out algorithmic trading across exchanges. Short term techniques include, market making and arbitraging. Security and Transparency We take security very seriously. Our first priority before launching is to have a security audit of our code by crypto experts and then open source the ethereum contracts. We plan to implement the following services to our token holders for transparency: Proof of reserve for cold wallet storage. Bit-go proof of reserve on live exchanges. With this, users can observe our fund’s holdings in real time on an exchange. Crypto financial audits by independent firms proposed by our DAO, disclosure of quarterly report on fund performance and holdings. Our crowdsale will start soon, accepting BTC and ETH. Find out more on our website at https://ibbdao.com , learn about our DAO, fund management and past performance record. Ethereum contracts will be released shortly. Edit1: subscribe to /ibbdao for news update. FAQ compiled from questions in the comments
What is the advantage of investing your fund compared to buy and holding ETH/BTC?
Ethereum is in the growing phase coming out of beta. It is definitely profitable to hold on to ETH while it appreciates. However, just like with bitcoin, and traditional asset classes. It can consolidate, stall, turn bearish for an extended period of time. When I started trading bitcoin in 2014, BTC price was 600, it is still ~600 today. During the same period from my performance page, you can see that the fund trades both directions, long and short. Therefore, during a bear market, the fund would actually make value instead of losing value by betting that it will go down. To summarize, the fund's performance is trying to capture the volatility of the price movement, both up and down.
Hard limit on token sales?
While we haven't ironed out all the details for the token offering, we don't have any plans to issue any additional tokens after the sale. We want to build our fund and brand organically and grow. If we do issue, it would be a brand new market segment and a proposal up for vote. It was bitcoin 2 years ago, ethereum now, who knows what people come up with in the future.
Is this related to TheDAO?
The slock.it, TheDAO is not related to us.
What kind of voting can you do with IBB DAO?
While we haven't finalized the details, the voting system can be used to do a few things we have in mind:
Financial auditors are voted by the dao, so we get independent auditors. They also write up the quarterly report.
Vote on the percentage to reinvest the money which will appreciate the tokens or payout.
proposal to fund other ETH funds, projects, alt coin trading. Currently only ETH and BTC
In the off chance the fund need to be resolved.
How do I know this is not a scam/ponzi etc..?
I don't expect you to trust an internet stranger. However, there needs to be some level of trust for devs whether its ethereum or some altcoin. That being said, we have been transparent since 2014. You can easily vet us yourself through our linkin, github, or any past trades. We offer a lot more for transparency compared to other crowd funds in terms of security and proof of reserve measures listed above. In addition, our office is set up in the US which has the one of the most strict security regulations, you can drop by to talk to us. I personally believe in building a brand organically, just like I have with many traders on bitcoinmarkets, angel investors and twitter followers.
I've started to use bitcoins during the course of normal life, now that many sites accept them and because some of those sites provide a discount significant enough to make a difference. However, bitcoins remain expensive to spend for a variety of reasons, and I'd be glad to spend them in even more cases if it weren't for these fees. I thought that it would be worth examining the experience of doing business with bitcoins online for those who have not done that yet. First, I'll talk about customer service. On Thursday, we will be installing the production server for the mining pool, and some of it was purchased with bitcoins using purse.io. purse.io's customer service is exceptionally poor. They have bugs in their site that allow users to overdraw their accounts by a few cents due to transaction fees. The overdrawn accounts then cannot be paid out to the buyers, even if there is no dispute. When my brother complained to them, they actually told him that he needed to pay purse.io the balance of the error to fix their bug. He refused and allowed the buyer of the bitcoins to open a claim, so that one of the other two parties had to take that loss. We may not use purse.io in the future because of their representatives' poor attitude. Cryptsy is another unprofessional company which we may be forced to leave as soon as Mintpal releases a working API. I've been submitting tickets to Cryptsy for months. One time, they released an API update that incorrectly locked people out due to security checks. It took them 24 hours before they responded about such a serious issue, during which I was completely down. I've submitted three other tickets to Cryptsy, and each of them required days before I even received a response. One of these tickets was comically reopened last week by someone who asked me if it had been resolved, over two months later. More seriously, my brother called Cryptsy on the phone to try to get some answers from them. They put down the phone and (apparently forgetting to mute it) made fun of a customer while he was listening right there. How Cryptsy is able to stay in business when they treat people like this is beyond me; as soon as there is valid competition, their angry customers are going to leave in droves. While some people might say that the bitcoin industry is "growing up," there still seem to be many companies that launched before they were ready and which do not recognize the importance of responding to customer complaints respectfully. I suspect that companies like this will eventually fail because they will be unable to develop the relationships necessary to retain repeat customers.
An examination of fees
Next, let's examine the impact of fees on bitcoin transactions to see when they are useful for online commerce and when they are not. One of the best uses for bitcoins until they were directly accepted by many stores was to use bitcoins to purchase gift cards, at a 3% discount. However, I don't do this because it is not the optimal way to save money for most stores. First, at least one of the cashback credit cards usually gives 5% in the category that you are buying, so using one of those cards is a better idea than a 3% bonus for spending bitcoins when it is available. If such bonus is not available, then the 3% that is saved in bitcoins is actually only saved on the next purchase, and only then if you use the same site to purchase gift cards again. Therefore, there is always going to be a loss on the last card you purchase, whenever that is, because there will be 3% you can never redeem. Finally, there are sites that sell used gift cards for 15% or 20% off, which is much more than one can get with the bitcoin gift card sites. You can stack those sites with cashback bonuses, and receive even greater discounts, if the card you're looking for is available. A further hindrance to bitcoin usage is that you lose 1% to Coinbase every time a "re-purchase" is made, and you also lose transaction fees in at least one direction. To purchase something with purse.io, for example, it costs 1% to purchase bitcoins, 1% to pay purse.io's fees, and the network's transaction fees, which can be as high as 1% because these companies use very high fees for transactions. That means that 3% is lost before any savings are realized at all. There's also another catch: the vendors where the gift cards are available to are not always the cheapest vendors for the items you need. We were not able to use purse.io for all items because Amazon does not have competitive prices on 90% of the items we were looking for. I don't purchase many gift cards using bitcoins because I never have time to buy anything except food, and grocery stores are a low-margin business where gift cards are not available. The best savings are on things that aren't great deals to begin with, like expensive restaurants, which means that you still pay more after all of the discounts. In conclusion with fees, Coinbase is a big roadblock to progress in this area because they are a huge drag on the bitcoin economy. The issues preventing bitcoin adoption for me are that Coinbase has no competition to drive down their profits, that the 1MB transaction limit is forcing higher and higher fees on the blockchain, that discounts on gift cards purchased with bitcoins are in "rewards points" that are not immediate discounts, and that 5% cashback bonus periods of credit cards overwhelm any savings offered by using bitcoins.
A long period of nothing ahead?
Emocmo yesterday pointed out that breaking the 620 line would result in a very long formation coming up, which I take to mean that it will be a long time before anything happens with the bitcoin price. Looking at the August 2012 false bubble, one can see that a long period of low volatility is pretty much what happened after that "failure to launch." With no new significant developments on the horizon to demonstrate that we are not on the downtrend of a false bubble, there is unlikely to be a rise soon. After I wrote this message, I edited it to say that Emocmo posted a new point and figure chart that implies a new formation of only four columns. He comes to the same conclusion: that even if the price breaks out of the range, there still won't be much movement.
Professionals versus amateurs
Someone in /bitcoinmarkets pointed out that it's amazing how the patterns just repeat themselves over and over again. They said that the reason for the patterns is that the market is filled with amateur investors. That seems to be a common theme, but I haven't seen any evidence provided by anyone that the majority of investors in bitcoins are amateur. It's likely that people in /bitcoinmarkets are amateur investors, but that doesn't mean that the people who hold the majority of the bitcoins (and who actually move the markets) are amateurs. There is a a catch, then. There may be a majority of people who know little about investing, but they control very little of the money invested in bitcoins, and that means that the market is not being influenced by amateurs. Something else that's interesting is the idea of "disclaimers" that moral_agent brought up in a post he made recently. moral_agent's posts now have large disclaimers at the top with the usual warning not to consider what he says trading advice and so on. The law states that professional brokers who are giving advice have to include disclaimers like that in their statements, just as lawyers who post online often include disclaimers. There is, of course, no law preventing non-licensed professionals from sharing their opinions without such disclaimers. To people who are not curious enough to learn trading before putting up money, these blatant warnings make advice from professional traders seem inaccurate, and some of the magical charts in /bitcoinmarkets with no explanation for their lines accurate. In a society that does not place a high value on personal responsibility, we inadvertantly encourage people to follow the wrong advice with such huge disclaimers.
I posted this on my blog a couple of weeks ago, and since Bitcoin has been getting a lot of press lately I thought investing might be interested. Also bitcoinmarkets pretty much hated it and told me to post it here instead. I won't be going in too deep of the underlying technology behind it, cause, you know..it's boring as shit. Of course the technology part is of great importance, but it's better explained by math/computer geeks - aka smart people. In short, Bitcoin is a peer-to-peer network containing units (bitcoins) that can be transferred in the system with zero to low costs. These units can themselves incorporate other pieces of data. Every transaction is verified by the computers running the system. The math behind it makes it impossible for any entity to mess with this process of continuous update of the ledger. The ledger being a sort of receipt which contains all previous transactions in the network. To break the system you would need to muster up more than half of the systems combined computer power. Discounting the possibility of quantum computing this would be incredibly expensive and/or impossible. Which is why banks around the world are working with this technology (not Bitcoin but the block-chain tech) to make tradingsystems where traders can buy/sell stocks. But to understand why Bitcoin is a good hedge, we need to understand money and the fragility of our current economy, and why this might lead to a lot of demand for bitcoins. Money Money is one of man’s greatest inventions. Since we left the barter system and started using mediums of exchange, different types of mediums has been used for trading. Gold, grain, salt amongst others, gold obviously being the most famous one. The right to redeem those papers you hold in your wallet for gold ended in a peculiar fashion with the death of Bretton Woods, and ever since then, we've been trading in fiat.(1). Like art, the intrinsic value of gold is definitely questionable. Yes, everyone does seem to desire gold, still it has very limited usefulness. Paper money being a lot worse, one could argue these unredeemable paper notes are worth as much as regular paper. But the fact that you need this fiat-money to pay taxes gives the market certainty of demand in the future, which I believe is the main reason why the markets are able to attribute these notes value. Governmental control of money As fiat became the predominant transmitter of wealth in our economy, governmental control over money increased. From a naive standpoint that power shift could seem unsignificant, but I would argue it has given us a profound shift in real economic activities. Money in the form of gold had a certain inflation built in to it, since people continuously dig it up from the ground. Yet the gold-economy saw price deflation as production became more efficient, thanks to the invisible hand of the market and advancements in technology. These deflationary powers were at times greater than the inflation coming from new gold findings. This might seem a little off topic but what I want to say is that price-deflation has historically been the norm, and shouldn't be viewed as dangerous. In todays fiat-world however, we hear about central banks trying to fight deflation, believing such an environment would be bad for the labour market. The main argument being that workers have a hard time accepting lower nominal wages, and that this causes overwhelming troubles for companies when they have to cut labour costs. Although fairly logical, I think this theory is disputed by our economic history and should in my opinion definitely not be taken as a fact. However, today when we hear about central banks fighting deflation, what they're really fighting is a credit crunch. Debt, also a form of money, has been growing increasingly for quite some time, driven of course by both fiscal and monetary policy actions. A deleveraging of debt would shrink the amount of debt-money, largely concentrated in stocks/bonds/real estate. This is what central banks are fighting, their job is basically to get this overly leveraged economy, more leveraged. Needless to say, we're in uncharted territory and their might be huge systemic risks involved. Bitcoin may be one way to hedge against this. Government deficits and unfunded liabilities At which rate would you be willing to loan money to Greece? This one is really a no-brainier, meaning you shouldn't have to think to come up with an answer, since Greece wouldn't pay you back either way. Greece has a enormous debt and a whole lot of unfunded liabilities. These unfunded liabilities are mostly consisting of workers pensions and healthcare obligations to the greek people. Greek politicians will always rank these payment obligations as a higher priority expenditure than to give "greedy speculators" back their money. That simple fact holds true for most government bonds. Therefore I think almost all government bonds are worth substantially less than they are being priced today. Right now the market deems these bonds as low-risk assets. For example, the U.S 10-year bond yields around 2%. In other words; you'll get close to no return (if the FED manages to reach close to its inflation target) for loaning out your money to the worlds largest debtor nation for a period of ten years. This anomaly is so great and profound, it should be viewed as a major indicator on just how messed up things have become. How did we get these absurd yields? Well, demand for bonds drive the yields down, and ever since the financial crisis central banks like the FED and ECB has been on a buying spree. Speculators joined them in their buying and have been betting on the the continuing bondpurchasing from the CB's, or holding a belief that the CB's will be unable to reach inflation targets, basically taking a bet on deflation. In a real market economy (not driven by central banks) with a low savings rate like the United States, these bonds would yield a lot more. The fact is the U.S, much like Greece, can’t repay its debt, ever, it’s impossible, nope, can’t be done. The U.S national debt is around 18 trillion dollars and their unfunded liabilities sums up to another whopping 210 trillion (as testified to congress by Boston university economic professor Laurence Kotlikoff).(2) Even though a lot of these future expenditures as Kotlikoff is including in his measurment could be slashed, some of them, like pensions, are going to be extremely unpopular to cut. If you listen to austrian economists they are pretty much all agreeing, proclaiming that the writing has been on the wall for quite some time. Fear of haircuts If this whole experiment with low interest rates fails, and economic chaos indeed ensues, I expect governments around the world to act in a similar fashion as seen in Greece/Argentine. Bank depositors will most likely have to take a haircut on their deposits to refinance the banking system. I believe the threat of this bail-in approach to reach debt-equilibrium in the financial world, will drive people to assets which cannot be confiscated. And if you don't think bail-in is a high probabilty event in your country, here's Reuters reporting on the new bail-in legislation: "Bail-in legislation is now being extended to other EU countries, regardless of whether they're in the Euro or not."(3).We’ve already seen some correlations of the Bitcoin price with bad economic sentiment, and I expect that trend to catch on as time proceeds. The most clear cut example of this we got during the summer, with the increase in demand for bitcoins during the Greek-crisis. The day Greece reached an agreement with its creditors- Bitcoin dropped 12%. Yet, recent volatility in global stocks has not been accompanied with upward pressure on Bitcoin. When Dow Jones fell a thousand points intraday, Bitcoin fell as well. Suggestion the link between financial instability and the value of bitcoins at least for now is rather weak. But take a look at Argentine and their post collapse economy and you'll find something very interesting. After suffering a bond market collapse and soaring inflation, it is here where bitcoin is having the most impact as an actual money transmitter. As NYT notes ”Argentine has been quietly gaining renown in technology circles as the first, and almost only place where bitcoins are being regularly used by ordinary people for real commercial transactions.”(4) Valuation and risk First of all, one should obviously not invest more than what's bearable to lose, since there's a nontrivial chance of bitcoin having the value of zero in the future. I also don't want to be responsible for anyone losing a big piece of their net worth, but if you invest your money according what someone on the internet with the name "UngNaiv" (young and foolish) you probably have no one to blame but yourself. Anyway, today Bitcoin have a market cap of about 4.5 billion dollars. Besides a small market cap, the uncertainty of demand and the arguably lack of intrinsic value is two of its biggest weaknesses. Even if you believe in the idea of a digital currency, Bitcoin is far from the only one out there. There's competition in the form of other cryptocurrencies with similar but different properties, and only the future will tell which of these (if any) will come out on top. As for now though, Bitcoin has established itself as the clear frontrunner. There is also a high governmental risk involved. If our political leaders start seeing this digital money as a threat to its powers of taxation, or fears grow about what it might do to enable shady transactions, it will certainly go out of its way to try and stop it. Even though the Bitcoin as a system itself is resiliencent to government intervention, one could easily foresee regulation aimed to strangle Bitcoin companies operating in the real world, making mass adoption a lot less likely. So far the western world haven’t cracked down too much on Bitcoin, in some places it has even been declared as a currency, not a commodity, meaning any potential gains in one's holding in those countries would be free from taxation. I'll leave the risks of the underlying technology to be explained by someone else, but google the words Bitcoin+fork and you'll find another very good reason not to go full retard in bitcoins. References: https://history.state.gov/milestones/1969-1976/nixon-shock (1) http://cnsnews.com/news/article/barbara-hollingsworth/economist-tells-congress-us-may-be-worse-fiscal-shape-greece (2) http://ca.reuters.com/article/businessNews/idCAKBN0OD14Z20150528 (3) http://www.nytimes.com/2015/05/03/magazine/how-bitcoin-is-disrupting-argentinas-economy.html?_r=0 (4)
Just remember, there is no theoretical reason why Bitcoin couldn't be recognized by a major investment house for what it is - an easier version of Gold asset allocation basket - and dump the fund's gold allocation into it overnight and raise the marketcap to Gold and thus $600,000 per Bitcoin.
Remember, giant investment banks and fundmanagers need to spread their funds of hundreds of millions and billions of dollars around into baskets like Real Estate, bonds, Stocks, Gold etc to insure against risk and try to capture gains where they can. They NEED to do this. They get PAID to PUT THAT MONEY OUT THERE EVERY DAY OF EVERY YEAR. The interesting thing is that Bitcoin is VERY much like gold and in MANY ways MUCH better. It can't be destroyed or diluted in value by someone arbitrarily making more or destroying the holdings you have. Like Gold it's price is dependent largely on other big investors who also want to spread their wealth around in several indestructable places. But bitcoin is also MUCH easier to move and store and buy and sell and hide than gold - all the stuff the Big Big investor banks really like to do but can't do that well with gold. Hell, half the time when they are investing in "gold" they are just buying a ticket to a warehouse door that someone else SAYS has the gold in it. With Bitcoin they GET THE GOODS. They see THE WHOLE WORLD HAS CONFIRMED THEIR POSSESION AND ITS VALIDATY. It can be held by them easily in several different places at once with virtually no storage cost and no insurance. If a building fell on your bitocin holdings the other building inthe other city you have would have all your holdings duplicated UNLIKE GOLD. SO its better than gold. LOTS BETTER THAN GOLD FUNDAMENTALLY as a wealth storage medium. SO think of this then... SO what if one day suddenly you are running a big investment house and you realize that Bitcoin IS Better or at least Equal to gold. It finally come sto you becuase you take the time to understand bitcoin instead of laughing at lunch about it. One day you look. You suddenly realize that instead of Bitcoin selling for what it WOULD BE SELLING FOR when everyone else is holding it like they would gold - which is around $600,000 / PER BITCOIN - it is instead selling for $800 per coin. Why $600,000 per Bitcoin? Well, right now approximately 6,141,197,000 ounces of mined gold exist ( and more everyday) at $1,200 /ounce = $7,369,436,400,000 total Market capitalization. 11 to 12 million Bitcoins exist (up to 21 million max) . At the same cap rate as the total gold cap rate that is $669,948 / bitcoin. (at current 11 million mined ) That's what I think is logical to happen. Remember Bitcoin doesn't have to erode the gold market to do that. Both Gold and bitcoin can retain their total marketcap at Gold's market cap. They don't need to and probably won't divide that. It would be Gold AND Bitcoin not Gold OR Bitcoin for most fund managers. So back to the investment managers... Imagine what that investment house fundmanager would do if he had to place $500,000,000 dollars in gold, and he found a pile of it selling for not $1,200 an ounce but $1 an ounce! How fast would he buy it? ESPECIALLY if he knew at ANY MOMENT other fund managers might also realize it was so vastly underpriced and BEAT HIM TO IT! One day someone running an big investment house IS going to realize that with Bitcoin. I THINK SOON. VERY SOON. IT's been in congress,all over the news and CHINA IS BUYING IT INSTEAD OF THEIR DOLLARS ON THE PHONE! The investment fund manager are going to realize that it has all the avantages of gold and even more. They are goin to relaize that eventually it will equal gold's market cap or better for the exact same reasons gold has that marketcap.. "It's another basket to put some of their funds in and they have billions of funds to split up all the time. " How fast would that guy be able to buy btcoins ? How fast would it run right the price up to the marketcap of gold and thus be trading at $600,000 / Bitcoin? It could happen REALLY, REALLY, FAST! The only limit would be how fast places like Mt. Gox could exchange the Bitcoins to get them. How fast would it be that other investment banks ALSO realize that the FIRST ONE TO DO THIS WILL MAKE THE PLAY OF THIS DECADE AND BE IN BEFORE THE PRICE GOES TO GOLD MARKETCAP? After all if you can unload most of what you might allocate to gold into Bitcoin at today's tiny bitcoin prices and you KNOW others will NEED to do them same eventually - well, you want to do it BEFORE they cause the price to rise! SO How Fast! How fast can the exchanges place that much money? How fast would the price rise while it was happening? How slowly would the first Investment Bank doing it dare go to balance price and offloading their allocation of their Billions all while trying to have it done before the OTHER GUYS realize what he is doing? One thing is for sure. It COULD happen in DAYS. LIterally there is NO REASON once an big investment house realizes that Bitcoin is another type of Gold but it is CAPITALIZED MUCH CHEAPER FOR A VERY SHORT TIME that he couldn't move that money and capitalize Bitcoin to Gold and thus force the price to $600,000 / Bitcoin in ONE OR TWO DAYS! China may in fact ALREADY be doing this. If THEY GET IN ALL FIRST THEY WILL BE THE RICHEST SOB's on the bitcoinmarkets. Last night CHINA was stampeding markets to buy with orders that were $400 dolars over the $600 price from that morning. Why? Possibly because they aren't looking at ANY PRICE NOW. They are seeing that they can get something that will go to $600,000 WAY below that, but they can only get a LOT OF IT IF THEY GO FAST and ignore temproary price imbalances and swings. SO don't think Bitcoin has to creep along at past rates of increase. It doesn't. When a kid finds a diamond in the street and isn't sure how valuable it is and plays with it a trades it with others for bubble gum and candy because they can't possibly belive they have a diamond - well their prior pricing scheme DOESN'T MATTER. Because when real Diamond buyers come along and see the kids have found diamonds all ofver the street they are going to pay prices RELEVANT TO REAL DIAMONDS and ignore the kids candy wrapper prices. SOMEDAY SOON SOME SMART INVESTMENT FUND MANAGER WITH FREEDOM TO DECIDE ALLOCATION IS GOING TO START PAYING CAPITALIZED GOLD PRICES FOR BITCOIN FOR a poirtion of his funds. He will move fast to get in before others realize. HIS PRICES WILL BE BASED ON GOLD CAP PRICES WHICH MAKE BITCOIN $600,000 per BITCOIN. It doesn't matter WHAT the kids in the sandbox paid before him. PRIOR PRICING DOESNT MATTER ONCE SOMEONE REALIZES THE WHOLE THING IS FUNCTIONALLY WAY UNDER PRICED. He will have realized what he has, he will buy every single one he finds no matter the previous price and he will do it as fast as he can before the other investment bankers figure this out, until he has allocated a huge chunk of his funds, and he will pay the Gold Market Capitalization price for it. And, thus, in one or two or three days if the exchages can maintain the pace we could be at a gold market cap with a price per Bitcoin of over $600,000 . It could happen that fast. And all the competitive purchase price advantages that come from getting all in first would actually tend to make it happen JUST THAT WAY. So when the first investment banker or fund manager understands what Bitcoin REALLY IS and makes the decison .... FORGET THE PAST. The future would happen extremely faster.
Good afternoon! Yesterday was the darkest day in at least the recent history of bitcoin, perhaps ever. I'll get into why yesterday was more significant than Mt. Gox and China later, but the end point of this post is going to be that these proposed regulations are a breathtaking expansion of government power into areas of commerce that have never traditionally been regulated. If this passes, we may well find ourselves fighting against bitcoin acceptance.
Some basic truth about The Law
First, it's important to eliminate a common misunderstanding in /bitcoinmarkets. Some users are arguing that this law (lowercase letters) isn't that bad because while it covers a broad range of activity, it is only intended as a tool to fight money laundering (or some other goal, depending on the user). People need to understand that the long arm of The Law (capital letters) does not care what laws were actually intended to do. You either violate them, or you do not. A judge isn't going to allow a business to operate based on the argument that this law was intended for a different purpose. As you make your evaluation of the effects of this law, you need to consider every possible activity that could be illegal under it. You can't write off certain activities because they were unintentionally added to the law. The Law is not compassionate and does not allow people to get away with things because the creators were trying to prevent some other behavior. There are many examples of poorly-designed laws that have had devastating unintended consequences.
Now that we are clear that the intent of the law doesn't matter, I thought it would be worth sharing how a few examples of bitcoin-related activities in New York will work. This section includes three rows each. The first is the activity, the second is an example of what I would consider some reasonable regulations, and the third is the actions needed for compliance under this law. Since there are an absurd number of requirements for each case, I only listed one or two of the most ridiculous for each. Activity: Operating a tipping bot that sends $0.25 tips to residents of New York that holds balances Reasonable: Require the tips to be backed with 100% reserve in the tipped currency Lawsky: Collect personally identifiable information about all people ever tipped, retain it for 10 years, and submit paperwork to the department when tips qualifying as "suspicious activity" are sent Activity: Changing a variable in the bitcoin code and creating a new blockchain for testing a proposed feature Reasonable: No regulation Lawsky: Register with the NYDFS, payi thousands of dollars, wait 90 days, and undergo a background check with the FBI Activity: Operating the Elgius mining pool, which adds PPLNS payouts to its own blocks, so that users never have outstanding balances Reasonable: Allow people to take civil action if their payouts don't match what they are owed Lawsky: Register as a money transmission service, develop compliance programs, and conduct "intrusion prevention" tests against the nonexistent wallets Activity: Running a business like blockchain.info, which does not hold any balances whatsoever in dollars and pays all employees and vendors in bitcoins Reasonable: Require recordkeeping of profits and expenses similar to current laws Lawsky: This business model is expressly prohibited; no business is allowed to take profits in bitcoins Activity: Operating an altcoin exchange, which takes untraceable litecoins and exchanges them for untraceable nanotokens Reasonable: Prohibit fractional reserve banking and require that reserves be kept in the currencies they are backing Lawsky: Requires altcoin exchanges to back its reserves in dollars and to associate every altcoin address with a username. If there is a bubble, the business goes under because it is no longer able to back customers' deposits. Activity: Being a one-time arbitrator, where two parties trade something and use a multisignature transaction with you as the decider in the case something goes wrong Reasonable: At most, require background checks on the arbitrator to verify his integrity Lawsky: File paperwork with security plans, a list of anyone who might help you with collecting evidence to make the decision (even if you are never called upon to do so), and obtain background checks and fingerprints for all of them; pay thousands of dollars to register, wait 90 days to be approved, file suspicious activity report if the transaction is over $3k regardless of whether you are called upon to arbitrate or not Activity: Modify your mining pool's pay-per-share algorithm to prevent block withholding attacks, or introduce a new algorithm like PPLNS, without branching out into other business areas Reasonable: No paperwork necessary Lawsky: File new request with the Department and wait 90 days for the new model to be approved before rolling out the feature, while competitors in other states launch immediately
Businesses no logner possible to be served to New York residents
In addition to the regulation requirements, there are also some types of business models that simply cannot overcome the regulations at all. Here are some of those types of businesses:
Any sort of mixing service that allows businesses to conceal from their competitors which vendor they are obtaining inventory from
Altcoin exchanges, because all altcoins are highly volatile and these businesses are required to have reserves backing altcoins in US dollars. The risk of an altcoin bubble is too high and would destroy any profit potential if one happened
Blockchain.info, which does not hold any accounts in dollars
Arguably, the following business types could also not operate in New York because of cost concerns:
Mining pools, because the profit margin is too low to justify compliance with all the regulations (and also because there could end up being fewer altcoins)
Open source software developers on the bitcoin protocol or other protocols like Ethereum, which requires a license when no profit is being taken to fund them
The greatest problem with these regulations is simply that there is no clause for the amount of money the company has to control. While we plan to take all possible security measures, our pool's greatest security measure is that we automatically pay out balances that are too large, so that we will never owe more than $10k in customer funds. If there were to be a hack, then we would simply eat the cost of less than $10k from personal funds because it is a small amount. The reason this works is because it would cost more than $100k to provide the sort of professional infrastructure that Lawsky is requiring, so even if the site were hacked ten times, and even if we never fixed the security holes, we would still be ahead. That's why this legislation is irreparably flawed and cannot be salvaged. It makes sense for people holding a billion dollars to be subject to strict regulations. It is nonsensical to require people who hold $5k in customer funds to spend $200k/yr in compliance measures, given that taking 40 hacks are still preferable to such ridiculous regulations.
The likely outcome of these regulations is less protection
Now that we know the local effects on certain types of businesses, we should ask what the end result is going to be a year from now, should these regulations not be completely overhauled. I propose that the end outcome of these regulations is going to be less consumer protection and more crime. The only businesses able to operate in New York will be huge banks and hedge funds. While the banks charge excessive fees and rip customers off, they already are far more trustworthy than Mark Karpeles ever was. They already practice good security anyway because they understand (unlike Mt Gox) that customer service is important. The law isn't going to have much impact on them. Furthermore, these guys aren't even into the bitcoin business yet, so (at least at first), the only people the law effects are the small guys. Meanwhile, everyone else other than the banks is going to do exactly what we may be forced to do: milk the system by applying for licenses and waiting as long as possible, and then, on the day before compliance is required, ban New York residents from our service and avoid doing business with anyone in New York. However, it will be impossible for us, or anyone else, to eliminate every single New York resident from our system no matter how hard we try or how good our intentions are. Because there is no minimum funds limit, New York residents are going to find that they are excluded from the use of nearly every altcoin, mining pool, exchange, open source project, wallet service, auction site, escrow system, and so on. They key here is that by making the regulations too hard to comply with, every site is going to be equalized. If the cost of compliance were low, then honest businesses would have no problem complying. When the cost of compliance is high, there is no distinction between honest and scam businesses because New York residents will have to do business illegally. This leads to more scams and losses of money. Whereas now a New York resident who uses a service available in New York can sue the provider of a scam, they have no recourse in this proposed new world. After all, the New York resident was engaging in illegal activity by using a non-licensed business. This allows scammers to directly target people who live in New York because they have fewer legal protections than do people who live in other states. I'm very glad that I do not live in New York right now, and I actually feel sorry for what those who have been in bitcoins since the beginning and who live in New York are going to be unable to take part in the future.
About money laundering
One of the reasons we got into this mess is because the Federal government ignored consumer protection. While they were issuing regulations about money laundering, people like Mark Karpeles were able to take advantage of a complete lack of attention to consumer protection. The Federal government wasted millions of dollars in its cases against bitcoin_charlie, who is not accused of stealing any money or participating in any violent behavior, while ignoring real consumers who were being ripped off by exchanges operating as fractional reserves like Mt Gox and Vircurex. BenLawsky is now able to seize upon the Federal government's inaction and make himself look like a hero of consumer protection because New York will do what the Feds didn't do. Proponents of anti-money laundering regulations argue that terrorists have been significantly hindered by restrictions in moving money. Terrorism is a great excuse for many things. Consider the case of airport x-ray screening devices. Every time a person goes through one of those devices, he has a 1 in 30 million chance of developing cancer as a direct result of the x-ray exposure pushing that person over the cumulative radiation exposure threshold at which cancer would develop. The risk of dying in a terrorist attack on the plane before the machines were installed was also about 1 in 30 million. Therefore, we spent hundreds of millions of dollars on machines that kill as many people as the terrorists do. Not only that, but anyone would rather die in a terrorist attack than go through chemotherapy and years of pain in a long, excruciating death. People seem to accept that money laundering rules are necessary, and are pushing the bar of regulation lower and lower every day. How much would your risk of death really increase if money laundering regulations were loosened? If you have a 1 in 1 million greater chance of death but vastly more freedom in your finances, wouldn't you take that? In a perfect world where people didn't die, that would be an unacceptable compromise. In our world, however, people do die. It is ludicrous that people allow themselves to become obese and then live in fear of a terrorist attack.
The creation of a new kind of criminality?
There were some shameful comments from people like the Winklevoss twins yesterday about how they appreciate regulation of the industry. For those guys, it's all about getting rich, which isn't surprising given how their wealth is largely based on winning lawsuits rather than actually creating stuff. Few people seem to be reading the text of the document and understanding how this goes beyond bitcoins. This is a breathtaking expansion of government power that has never been seen before in the financial world. The regulations in this document expand the scope of financial oversight into industries far removed from anything that is covered by existing financial regulations, like open source development. For the first time, they dictate how businesses may pay out profits and promote inefficiency by requiring a bitcoin -> dollar -> bitcoin conversion, widening the pockets of Coinbase. They signal the creation of a huge bureaucracy that will require ever more taxpayer dollars to process millions of "suspicious activity reports," licenses, and minute software changes. But most importantly, they require recordkeeping and information gathering of unprecedented scope, and trust so many entities to gather these records that they will be leaked to everyone. People running small mining pools that pay out $0.30 per day will be retaining passport numbers. Some people are viewing this as the "government" collecting information on people, but the government already has all this information. What will happen is that these records will be so prevalent because so many people are mandated to collect them that every hacker in the world will have a copy. In what other area of business are so many people required to keep huge databases of passport photos, utility bills, and other documentation that enables all sorts of criminal activity? These records will exist for at least 10 years, be copied in mergers and acquisitions, and leaked to the media and to the criminals, who will pay record sums for them. The criminals and rogue insiders can use the data not only to perform identity theft, but to learn everything you ever bought, who your contacts are, where you live, how much you earn, what time of day you are away from your house, and what sites you use. They can phish for passwords at just the sites you use, arrange a theft when they recognize you are on vacation, threaten to phone your employer with false allegations of rape unless you pay up, use stolen wallets to frame you by purchasing child pornography with them, and contact repressive governments to have you arrested for associating with a known dissident. That brings me back to the opening sentence in these thoughts for today. If these regulations pass and spread to other jurisdictions, we may actually find ourselves opposing the uptake of bitcoins. If more states adopt these regulations and people start adopting, then the stage will be set for an increase in government power to track everything about everyone, and a corresponding increase in criminal activity. I said in the past that bans on bitcoins would not have an impact on the technology because people would go somewhere else, so they were not a change to the fundamentals. Few anticipated such a dramatic expansion of government power like we saw yesterday. Using the technology to procure unprecedented amounts of data would be a change to the fundamentals which even Nakamoto probably didn't intend.
I apologize to those who I said I would reply to today. I'll address their comments later.
There's a cover story at Wired today about the Dark Wallet software that aims to completely anonymize transactions. Built on top of bitcoin, Dark Wallet merges transactions through a method known as CoinJoin, making it impossible to trace the destination of funds. The creators state that the goal of Dark Wallet is to make bitcoin transactions completely anonymous. I like Dark Wallet because it is built on top of the bitcoin protocol. Darkcoin, an alternative system that aims to accomplish the same thing, is more centralized (it has masternodes). Darkcoin also suffers from the simple fact that it is an altcoin, which is reason enough to believe that it is unlikely to succeed. Dark Wallet's success is more likely, because it theoretically could be used interchangably with the existing protocol. Since money flows over bitcoin and there are no colored coins representing larger values, a Dark Wallet coin is worth the same as a bitcoin. Should people start to use Dark Wallet, I predict that the Dark Wallet protocol becomes implemented by all major providers within a year of that. Should that happen, Dark Wallet will eventually become the default protocol, since traditional bitcoin has no advantages over Dark Wallet (who doesn't want to protect their privacy?) We could see it integrated into the reference client, just as the reference client uses new change addresses now to protect privacy. Ironically, the only use the non-Dark Wallet protocol would have then is for transparency purposes like proofs of reserve and huge bank transfers, so that straight bitcoin suddenly goes from the evil anonymous currency to the transparency enforcer. Pay attention to Dark Wallet. Because it is not an altcoin, and because it is so interchangable with straight bitcoin, it could eventually become the standard protocol should people start using it.
The difference between good news and actual products
I wonder if some of the discrepency between actual prices and the amount of good news that seemingly appears is because much of the good news is not actually what it seems. I was surprised to discover this morning, for example, that 1-800-flowers isn't actually accepting bitcoins. They only announced that they will be doing so later in the year, which adds them to a string of companies which stated they would be accepting bitcoins but turned out that only a small segment of the business was doing so, or that these companies' bitcoin acceptance wasn't live yet. It's also worth considering that many press releases have no real product behind them. Circle, which issued a release in mid-May, said that they were going to allow people to buy bitcoins with a credit card for no charge. Two months later, we have yet to hear a single person who has been accepted into their beta testing program. Therefore, I propose that one reason that good news has little effect on the markets is that it isn't actually good news. Perhaps the big time investors who actually make a difference see through the press releases more easily than the people on reddit do.
Why go bearish so early?
Some people questioned why I would have a negative outlook on bitcoins several weeks before we can confirm that this bubble cycle failed to launch. After all, the expected time that this bubble would peak isn't close to arriving yet. Over the past year, market movements have tended to occur about 10 days before the majority of people on reddit believed that they would happen. You can see this correlation in the crashes and rises last November pretty clearly. I've predicted that things aren't turning out the way many people believed, and that such an outcome would likely produce a downturn (but not kill bitcoins). Because things happen often happen before everyone believes they will, I would imagine that the fallout would occur before the expected timeframe of this bubble elapses.
On the New York regulations
Much has been made about how Benjamin Lawsky's proposed regulations will have a significant impact if they are released in a few weeks. I predict no impact at all. First, any regulations that are released are not going to be final; they still need to be discussed and approved. Therefore, companies will not be able to act upon them without fear of the rules changing before they are finalized months from now. Second, these regulations were to have been completed several weeks ago, and are still outstanding. As people in /bitcoinmarkets say, it's always coming "in two weeks." Finally, even if these regulations were finalized two weeks from now, there aren't any companies ready to pounce on them. Other regulations like money transmitting licenses, and simply not having the software ready, are greater hindrances at this point to these companies. Lawsky's regulations are important, but the timeframe in which they will have an effect is going to be drawn out well into the future. When they are finally approved, there probably wouldn't be much splash, since the splash always is made on the initial announcement. Their approval will set the stage for growth, but not until they are finalized and the companies are ready to go.
Litecoins are like bitcoins of the altcoin world
It occurred to me recently that people separate cryptocurrencies into two areas: bitcoins and everything else (altcoins). In some ways, altcoins can be separated into litecoins and everything else. In these contexts, bitcoins and litecoins share many characteristics. Both were the first, and most widely used, in their fields. Both use proven algorithms and provide a barebones framework, rather than attempting to experiment with extra features like anonymity or using 6 algorithms. Both serve as a reserve currency against which other cryptocurrencies are measured. Both have established uses that people need to hold them for to conduct real commerce. And both can be traded directly for dollars. This is why I do not believe that litecoins are going away. The idea of "silver and gold" is not a misdirection; the simple fact that litecoins are worth less than bitcoins has made them valuable in a number of instances where eight decimal places of bitcoins is not granular enough. Just as bitcoins' most important attribute is their network effect, litecoins have a smaller, but similar network effect. Convincing people to switch out litecoins for Darkcoins or whatever flavor of the day comes up next will be just as difficult as it would be to convince people to drop bitcoins in favor of some other currency.
Uses for the sockpuppet accounts
It's worth paying attention to flairs in /bitcoinmarkets for unusual activity. One thing those sockpuppet accounts could be used for is to influence the bulls-to-bears ratio. In yesterday's comment, I referred to the "weighted bulls to bears ratio," which is a better metric that minimizes the effects of such accounts.
Hopefully people will understand that I'm going to ask Kibubik to take a stronger hand against rule #1 ("be excellent to each other"). Most people are fine; my concern is the posts that are engaging in namecalling. I was called enough names in middle school to deal with it, but the problem is that when someone calls me names, it sets a precedent that it's OK to call other people names, and generally brings down the quality of discussion. I would ask that people word their responses so that they criticize the content of my or others' posts, and avoid unnecessary attacks that are not relevant to the current discussion. Since I do not delete posts in these comment threads, Kibubik will make the final call on what he considers inappropriate.
Thank you MEW ( MyEtherWallet ) (89 points, 32 comments)
The #2 reason to be invested in Ethereum (87 points, 26 comments)
Which burden do you want to carry: Going to PoS with an anti-Ethereum hacker holding (1)5 % of the Ethers? Or having an anti-principle fork in the history of the network which prevented exactly that? (81 points, 95 comments)
A new Bitcoin crisis: Bitcoin is suffering from a brain drain, accelerating Ethereum's brain gain (71 points, 22 comments)
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