Tag: bitcoin

What Presents to Give for Crypto Christmas

Three years ago, in December 2015, John LeFevre, creator of@GSElevator on Twitter, wrote The Unofficial Goldman Sachs Guide to New Year’s Resolutions.  One of his recommendations said: Invest in a Bitcoin wallet. Because it will be the best-performing currency in 2016. Those who followed it, at the end of 2016 were much richer people. In 2016 bitcoin appreciated by 120%, easily beating 20% gains posted by the Brazilian Real and the Russian Ruble. Although at the end of 2018 bitcoin costs four times as much as it did three years ago, we all know that the year has been a hard one. Only in November bitcoin lost 36% of its value. Probably, at the moment recommending to buy cryptocurrencies is not a good idea, because you may find it awkward to talk to your relatives and friends whom you convinced to do it. However, a bitcoin debit car might be an appealing gift, for Christmas or for some other holiday. Or you may opt for a Bitcoin Gift Card. If bitcoin appreciates, you get gratitude from the person you gave the present to, if it depreciates, you lose nothing. Bitcoin Debit Cards To those who deal a lot with cryptocurrencies, bitcoin debit cards are becoming a necessity. At present it is easy to order a debit card and connect it to the bitcoin balance. It is Christmas, so treat yourself! You can choose a cheap utilitarian card or something expensive with a posh name and design. The number of companies that accept bitcoin as payment is growing, but sometimes using bitcoin can be awkward. Bloomberg reports, how one of the University of Puget Sound’s alumni decided to make a gift to his alma mater in crypto, and the University was baffled by this donation. A bitcoin debit card would have come handy in this situation. Bitcoin debit cards are prepaid debit cards that usually have a Visa or a Mastercard logo. They are much like regular debit cards, but owners top them up with bitcoin which is then converted into fiat. Bitcoin is drawn from a cryptocurrency wallet instead of a bank account. When one makes a purchase using the crypto card, an amount of crypto coins is automatically exchanged for fiat currency, and sent to the merchant. It is done fast and seamlessly. In this text we will tell you how to choose such a card, what to pay attention to and what to avoid at all costs. The first thing to avoid is scam cards. Surely, you heard some hype about Floyd Mayweather, one of the best defensive boxers in history, and music producer DJ Khaled, who were promoting the ICO of Centra Tech Inc. But we are interested not in their recent settlement with the SEC. This story is about the Centra card they were promoting.  Centra’s ICO raised $32 million from investors, and its co-CEOs said the money would be used to build a debit card for cryptocurrencies through a partnership with Visa. The trouble was that Visa never heard about this intention because the company never applied to run Centra cards on the Visa network. So avoid scam cards. And try to find some information about the card provider: it is not unlikely that the company has already announced its plans to close the project. On January, 5, 2018 many popular Visa’s bitcoin debit cards suddenly stopped working because Visa suspended the WaveCrest Startups that provided the major part of such cards on the market. The reason was a compliance issue. There is always a risk that something like this may occur again.  Mind that you BTC and other digital coins will be controlled by a third-party. However, you can reduce this risk by depositing a small amount of your Bitcoins into card balance.  Check where the card can be used. Some of the most popular bitcoin debit cards can’t be used, for example, in the US. Visit the card provider’s website to see if its English version is really good. Sometimes it is not, and you would not want to hand the reigns over your money to someone whom you are not able to understand. Check what fiat currencies the bitcoin debit card supports. If you need EUR and GBP, the card that supports only USD may be useless for you. Conversion rate. Normally, foreign currency conversion fees vary from 1% to 5%, but some cards offer no bitcoin conversion fees. ATM transaction fee. That would start from 1% of the transaction, otherwise the card may have a flat rate:  from $2.5 to $3.5 USD. Also check the number of ATMs at which the card can be used. There may also be a limit on daily maximum withdrawal. Some providers offer virtual bitcoin debit cards only. Such cards are convenient for online shopping, but there may be trouble with cash withdrawal. Virtual cards have smaller monthly service fees – starting from $1. Plastic cards have bigger fees – from $15 per month. Some issuers provide access to their platform to unverified users (with limitations placed on unverified accounts), while other demand verification that involves submitting several proofs of identity, address documents and Skype interview. Verification can take up to 10 working days. There may also be some hidden fees, from fees for worldwide delivery (which may be free, or may be not) to issuance fee and inactivity penalties. Some projects require to hold their tokens for a certain period. Some bitcoin debit cards are linked directly to a certain wallet system, which is by all means convenient, but unfortunately works in several countries only. You can find reviews about bitcoin cards here, here and here. There are dozens of bitcoin debit cards on the market already, and definitely there will be more. And if you are looking for a good present, a bitcoin debit card would certainly be appropriate. Either to yourself, or your relatives and friends.

Articles/December 25, 2018

In November Bitcoin Lost 36% of its Value, but It Is Here to Stay

The bloodbath on the crypto market that we all witnessed last week swept away several hundred dozens of dollars of capitalization. The market sell-off and “hot news”, including the articles about Chinese crypto miners that are selling mining equipment ‘by kilo’, brought to life all kinds of speculations. Last week we wrote about the possible reasons for the crypto capitulation. Now let’s talk about what to expect next. Take a deep breath and relax, this is a long story. I do not know how much Bitcoin will cost by the end of this year or by the end of June, 2019. But some people seem to know: they expect the price to be anywhere from $2500 to $25,000. You can read their predictions here, here and here.  I am not so brave to make my own forecasts, but I would like to remind you several well-known stories. The first is about the tulip mania in the Netherlands when fortunes were lost after the bubble burst. Still, the Netherlands remains the biggest market of tulip distribution.  The second story is about the first banknotes that were issued in Stockholm also in the 17th century. The idea belonged to Johan Palmstruch, founder of Stockholms Banco. Unfortunately, the printed banknotes were not secured, and Stockholms Banco issued too many. Palmstruch was sent to prison, but soon was reprieved as the acknowledgment of the significance of his invention. The other two cases are more recent: the bubbles on the dotcom and mortgage markets. In all the four cases the bubbles burst, people and corporations lost money, but after some time a new market emerged which is still flourishing. I would dare to propose that the developments on the crypto market will be similar. There will be several months (let’s hope that not years) of crypto winter, and then a new reality will emerge. There might be some bad news on the ICO market in this new reality. “The ICO market is dead — over,” says Barry Silbert, the founder of crypto investment fund Digital Currency Group. But Bitcoin and cryptocurrency market are here to stay despite the bear market: “We’re 5, 6, 7, times through this now. The first couple of times you see your balance sheet drop by 80 percent, it’s kind of rough on the stomach. By the third or fourth time, you get used to it. Now we view this as a fantastic opportunity.” “Somehow bitcoin has lived in a swamp and survived,” Jeff Sprecher, chairman of the NYSE and CEO of its parent company, Intercontinental Exchange. “The unequivocal answer is yes [crypto will survive].” Institutional investors are knocking on the door While crypto investors are nursing their wounds, a lot of interesting things are happening below the surface. According to Silbert, institutional investors have not slowed down, and “behind the scenes companies are being built that will provide infrastructure for them. Massive on-boarding might happen as early as in 2019, he says. One of the game-changing developments was in October 2018 when Harvard, Dartmouth, MIT, Yale, and Stanford announced that their university endowments had started investing in cryptocurrencies.  And the University of Basel made the creator of ethereum, Vitalik Buterin, an honorary doctor. Here are some examples of infrastructure that will soon be in use: In January 2019 Bakkt, the cryptocurrency trading exchange owned NYSE’s parent company, opens a futures market that delivers physical Bitcoin to its investors. Its biggest rival, NASDAQ, will do the same in Q1 2019. One of the biggest US crypto exchanges, Coinbase, has launched over-the-counter (OTC) trading for institutional customers. “We launched our OTC business as a complement to our exchange business because we found a lot of institutions were using OTC as an on-ramp for crypto trading,” - Christine Sandler, head of sales at Coinbase, said. Fidelity Investments, one of the biggest asset managers in the world, is expanding its institutional crypto asset platform to include trading services for the top five to seven cryptocurrencies by market capitalization.  Fidelity has 13,000 institutional clients, and they are interested in bitcoin and ether because they make up a large part of the current market cap, explained Fidelity Digital Assets CEO Tom Jessop. Goldman Sachs, the biggest investment bank, has been clearing Bitcoin futures contract for its clients since June, said its CEO David Solomon. However, Goldman Sachs is not able to hold cryptocurrencies for its clients, because it needs regulatory approval to do this. Bitcoin technology blockchain is also making gradual advance to the new sectors. The South Korea is completing its voting system on distributed ledger technology.  And the United Arab Emirates want to conduct half of its government’s transactions on a blockchain platform by 2021. And just one more figure to conclude. In November, when the trading volume was high, Bitcoin made over $8 billion a day, which is comparable of $12 billion per day for Mastercard, the second largest credit card network in the world.

Articles/December 4, 2018

Fiat to Crypto: A Once in a Lifetime Paradigm Shift (Part 2)

Back in part one we spoke about the importance of money in allowing human societies to scale (if you missed part one of this post, and would like to start at the beginning, click here).  A monetary system that can facilitate trade between parties who don't necessarily trust each other is one which can support a society as it grows. The more barriers it removes, the larger such a society can scale, and the more complex its economy can become. We also spoke about how, in order to function properly, money needs to be hard. It must be hard to devalue either through increasing the supply or through it becoming worn down over time through use. Part two of this post seeks to explore how all of this applies to the present day and, more specifically, to crypto.  We cannot understand crypto without taking a look around ourselves at the context out of which crypto has burst forth into the world. The macro-economic context of the present day is important, because it's this that helps us to understand crypto as an answer to a number of current problems as opposed to something that's just cool, new and different. First of All, Hard Money Matters... Hard money is not just important in a theoretical or macro-economic sense - it actually changes the average person's day to day behaviour in a way they likely don't realize. Hard money incentivizes people to become more future-focused, to save and to create real value in order to accumulate wealth. When money is easy it incentivizes people to spend and consume, and even to try to 'game' the system by becoming wealthy without contributing. “Whether in Rome, Constantinople, Florence, or Venice, history shows that a sound monetary standard is a necessary prerequisite for human flourishing, without which society stands on the precipice of barbarism and destruction” - Saifedean Ammous, author of The Bitcoin Standard. Unfortunately, you're reading this at a time when money is not hard, but easy. Arguably very easy. Easy Money and Fiat Currencies You're likely already familiar with what fiat is, as the crypto community is rather scathing of it. Fiat currencies are those created and backed by nation-states, unpegged from any 'hard' asset and therefore free to fluctuate in value against one another. In a nutshell, fiat is problematic because it's easy money. Governments like fiat because it’s flexible and allows them to be reactive, adapting to the needs of the day by either raising interest rates or issuing more money. The latter - quantitative easing - is what many governments did after the financial crisis in 2008 in order to stimulate the growth they desperately needed. But the crypto community isn't angry about fiat for no good reason. Fiat currencies are very problematic too. As opposed to an economy based on the gold standard, in which creating new money is necessarily hard, 'forcing' people to create value in the world in order to be compensated, a fiat economy can create new money from thin air through 'government magic'.  The past 45 years since fiat currencies took over have been characterized by continued inflation, rising inequality and increasing national debt burdens. The devaluation of currency forces people to put their money into more stable assets, which creates a monetary premium, inflating the value of an asset beyond its utility and often creating unsustainable bubbles.  Take real estate, for example. House prices are still rising because people will keep paying more and more for a house. Why? Because real estate is one of the only assets they have access to that has for the last few generations has proven to be a stable store of wealth. Kyle Samani of Multicoin Capital explains further: "Since President Nixon took the USD off the gold standard, investors have increasingly stored their wealth in all kinds of non-money assets to escape fiat inflation...The assets that have absorbed these flows away from inflationary fiat are real estate, debt, and equities...As such, a massive amount of the world’s wealth is being stored in debt, equities, and real estates specifically as a way to avoid fiat inflation." The assets that have absorbed these flows away from inflationary fiat are real estate, debt, and equities. As central banks have printed exorbitant amounts of money over the last decade since the financial crisis, they’ve primarily purchased debt. This artificially raises the price of debt and lowers yields, which then causes investors to allocate even more capital to other asset classes, primarily real estate and equities. As such, a massive amount of the world’s wealth is being stored in debt, equities, and real estates specifically as a way to avoid fiat inflation. This would not be the case if our currencies were hard. To put the problem with easy money simply: Easy money changes people's conception of value and their financial behaviour, encouraging short-term thinking, spending and consumption. A system which people know the money they earn now will be worth less next year - because it's a feature of the system - is one which incentivizes spending and consumption over saving. For those that nevertheless do save, a system which disincentives putting one's capital to work productively by creating value in the world instead of just trying to beat inflation, is a dysfunctional system. The problem for you and I is that in a world of fiat currencies, we're forced to play a speculative game of investment in order to protect the value of our money and allow our wealth to accumulate. It's not an option to simply keep cash because its value will deteriorate over time.  However, beating the markets is a rich man's game. The barriers to entry on things like accredited investor laws, up front and setup fees on mutual or index funds, the costs of financial advisors etc. means that our current fiat financial system basically amounts to an organized upward transferal of wealth from the many to the few. Enter Bitcoin It's in this context that, on January 3rd 2009, the Bitcoin genesis block was mined. You'll likely already know that Satoshi encoded the words of a headline from a U.K. newspaper into that first block: "Chancellor on brink of second bailout for banks" and, in doing so, cemented Bitcoin's mission as an alternative to the worst over-exuberances of the fiat system. Bitcoin represents perhaps the hardest money that has ever existed.  As we said in part one, money is hard if it cannot be devalued through either increasing its supply or wearing it down through use. From a supply perspective, Bitcoin's supply schedule is fixed and transparent - we know exactly how many new bitcoins will be minted, hour by hour, from now until the end of its life. From a durability perspective, Bitcoin is a digital asset that cannot be destroyed by any central entity - its main vulnerability is a 51% attack, which is arguably very unlikely. That Bitcoin is hard is profound because the barrier to entry is so low. Bitcoin represents an opportunity for hundreds of millions of people to move their money into a hard asset for the first time - something that many simply can not do because the barriers to entry (e.g. the size of a house deposit) are too high. Let's return to Kyle Samani, in his blog post titled '$100 Trillion', to explain the potential impact of this: "Although it’s come to be accepted that many assets can act as a store of value to hedge fiat inflation, I assert that on a long enough time scale, we’ll look back and think it was crazy that non-money assets ever gained a monetary premia that’s measured in the tens of trillions of dollars. Now that we have objectively better state-free money, capital will slowly flow out of these non-money assets into money-assets, of which cryptocurrencies are by far the best option." The effect of such democratization of access could be a mass-scale societal shift in mindset - from spending, consumption and debt to saving money and creating wealth. From a short-term to a long-term focus. Easy Exchange = Greater Societal Scale... It's not just that Bitcoin is hard either. Bitcoin represents the potential for a money that lives natively on the internet, being transported as easily as information is now. Consider the changes that the internet has had on the world over the last 20 years through removing the barriers to free and permissionless exchange of information. That communication and information now lives on the internet has made for open source, open access conditions have changed the world. Blockchains can do this for money. Crypto can facilitate trade and exchange between people across national borders in a way that the traditional financial system cannot. By doing so we're likely to see a reorganization of human society that sees nation-states become less relevant. Conclusion To sum up, greater Bitcoin adoption could represent a move towards hard money. This could lead to a difference in society's conception of value that sees a greater emphasis on saving and creating value than on spending and consumption. This is a profound shift because we're arguably living within a monetary paradigm that is almost exactly the opposite of this. Bitcoin and crypto are also pioneering a kind of money that lives natively on the internet, which will remove many barriers to exchange and facilitate easier trade. Whenever this has happened through history, it has resulted in humans organizing in larger groups - nation-states could become less relevant as a truly global economy emerges. It's important at times, particularly during bear markets, to take a step back and remember just why we became so interested in this space in the first place. Crypto is a rabbit-hole that many never want to emerge from, and that's a fantastic thing. Keep up with the Cryptonomos blog to stay up to date with the latest developments, as well as exploring some of the more timeless themes within crypto. See you again soon! Resources for Further Exploration: Shelling Out - Nick Szabo (essay) $100 Trillion - Multicoin Capital (blog post) Invest like the Best - Saifedean Ammous (podcast) The Quiet Master of Cryptocurrency - Nick Szabo - The Tim Ferriss Show (podcast) Saifedean Ammous - The Bitcoin Standard (book) The History of Money - Jack Weatherford (book) Debt: The First 5000 Years - David Graeber (book) Yuval Noah Harari - Sapiens (book)

Articles/November 8, 2018

Crypto is a Brand New, Once in a Lifetime, Monetary Paradigm (Part 1)

Those who've been interested in Crypto for a while will have heard the following before, probably multiple times:  In order to understand the significance of Bitcoin as a technological and societal innovation, one must first understand the history and function of money. What follows over the next two Cryptonomos blog posts is: In part one: A short summary of the successive monetary paradigms that have existed throughout human history An exploration of the ways that monetary paradigms shape human society and behaviour In part two: How this all applies to crypto, using Bitcoin as a case study The intention is to provide an understanding of the fundamentals, as well as a few jumping off points for further exploration of the best thinking in the space.  It's easy for HODLers and bag holders to let themselves feel down during bear markets, so hopefully these posts will encourage investors to take a step back and remember the bigger picture and why they became interested in the space in the first place. Money at its Best Money can work well for people, facilitating greater exchange and increasing the wealth of the population it serves. It can also work badly, creating harmful inequality and limiting productive co-operation. Money works best when it is a stable store of value that is easy to exchange. Each successive monetary paradigm shift throughout history has represented a move towards greater optimization of one or both of these factors. Let's go back in time. Primitive Societies - Money and Larger Groups Some believe that primitive societies were barter societies, in which goods and services were exchanged directly for one another - e.g. three chickens for a goat, you help me build my house and I'll help you build yours.  The idea of the barter society is a useful thought experiment but there's little evidence that it ever actually existed. Primitive societies had complex cultural phenomena guiding interaction and etiquette around the exchange of goods and services, including marriage, tribute and rituals.  “The real origins of money are to be found in crime and recompense, war and slavery, honor, debt, and redemption...in fact, our standard account of monetary history is precisely backwards. We did not begin with barter, discover money, and then eventually develop credit systems. It happened precisely the other way around...Barter, in turn, appears to be largely a kind of accidental byproduct of the use of coinage or paper money: historically, it has mainly been what people who are used to cash transactions do when for one reason or another they have no access to currency.” - David Graeber, Debt: The First 5000 Years Others contend, therefore, that money was invented as a means of keeping track of peoples' debts. Either way, in pre-money society the problem of the double-coincidence of wants - two people each needing to have something that the other wants at the same time in order to trade - set too high a barrier for trade and limited the number of people whom one could exchange with solely to those whom people could trust. The Grandfather of Bitcoin himself, Nick Szabo, explains why this was problematic in his essay, 'Shelling Out': "Just the stone tool-kit of even early Paleolithic man that has survived for us to find was in some ways too complicated for brains of our size. Keeping track of favors involving them – who manufactured what quality of tool for whom, and therefore who owed whom what, and so on – would have been too difficult outside the boundaries of the clan...If cooperation occurred between clans and even tribes, as the archaeological record indicates in fact occurred, the problem gets far worse still, since hunter-gatherer tribes were usually highly antagonistic and mutually distrustful." Whether the barter or debt hypothesis holds more truth, the problems inherent in trade led people to invent money as a superior means of storing wealth and facilitating trade. This in turn led to changes in the organization of society through greater incentives for productive co-operation and less trust needed between parties in order to exchange. Money solved the problem of the double coincidence of wants and allowed people to productively cooperate in larger numbers and to accumulate wealth over time. The invention of money led humans to be able to co-operate with more people in a way that fundamentally reorganized society around larger and larger groups. Towards Gold - Harder Money Money was invented in numerous places, independently and consistently around the world. Humans in the Rift Valley in Kenya for example appear to have used shells, while Native Americans used clam shells, teeth and furs. People's choice of material here is revealing and, perhaps surprisingly to some, has important consequences for crypto. To put it simply, people have always chosen to use for money a material that is both rare (hard to increase supply) and durable (hard to wear down through use). A store of value which fails on either of these counts is not fit for purpose. Saifedean Ammous, author of The Bitcoin Standard, explains why: “I like to call this the easy money trap: anything used as a store of value will have its supply increased, and anything whose supply can be easily increased will destroy the wealth of those who used it as a store of value” For these reasons from the moment that money was invented and for as long as it remained a physical item, humans were arguably on an inevitable path towards using gold as money.  Gold represents the end of a continuum - it is one of the most chemically stable metallic elements, and one of the most scarce physical materials on earth. Because gold does not ruin, it's stock has accumulated over thousands of years. The gold that we began using for money thousands of years ago is still around, so the gold that is newly mined each year can only ever represent a tiny fraction of the whole. In other words, gold is a reliable store of value because it is hard to devalue it either through increasing its supply or through wearing it down. Easy to exchange - Towards coins and paper In order to fulfil its purpose as a store of value, money needs to be hard and durable. But this isn't money's only function.  In order to fulfil its purpose as a medium of exchange, money also needs to be easy to transport and exchange. This is precisely the reason that coins and, subsequently, paper money - in which paper notes were circulated that were redeemable for a given amount of gold - were invented. These successive innovations created conditions in which exchange became easier with little to no tradeoff in terms of the 'hardness' of money.  Hardness and ease of exchange shaped the monetary paradigm of many of the world's largest economies for around 300 years, beginning in 1619 with the formalization of the Gold Standard - formalized in 1619. Gold fulfilled its purpose for a period during which the human population swelled from 500 million to 5 billion people. Gold isn't the sole reason for this population explosion, but it was probably a pre-requisite. Necessary but not sufficient. However, it wasn't without its problems. Throughout the 20th Century, beginning shortly after World War 1 when government finances deteriorated, gold ceased to fulfil the needs of the world's biggest economies.  Proponents of the Gold Standard would suggest that this means the priorities of the world's biggest economies were wrong. Nevertheless, the 20th century saw those economies unpeg their currencies from gold one by one until, in 1971, President Richard Nixon hammered the final nail into the Gold Standard's coffin. This ended the U.S. governments promise of the direct convertability of U.S. dollars into gold, and thus began the era of fiat money. Conclusion Money facilitates exchange, allowing more people to productively co-operate through trade. This creates wealth. Money that works well creates more wealth. Greater wealth can support larger populations and more complex societies and economies. The move away from gold towards fiat was a move from away from hard towards easy money. This is why one must understand the history of money in order to understand the technological and societal significance of Bitcoin, which represents a significant improvement in terms of both hardness and ease of exchange. We are where we are today, a population of over 7 billion people, directly or indirectly, because of successive innovations in monetary paradigms. Monetary paradigm shifts have profound effects for the way that human society is organized, facilitating the productive exchange and co-operative between more and more people, which increases the wealth of society.  Crypto potentially represents one such monetary paradigm shift - it's more than just a speculative investment. Part 2 of this blog post will explore why.

Articles/November 6, 2018