Is Investing in Bitcoin and Other Cryptocurrencies Worth the Gamble

Is Investing in Bitcoin and Other Cryptocurrencies Worth the Gamble

Is Investing in Bitcoin and Other Cryptocurrencies Worth the Gamble

The Technology Behind Cryptocurrencies

 

The creation of Bitcoin back in 2008 fueled the exponential growth of the cryptocurrency ecosystem, facilitating the creation of a rich diversity of coins and applications that many would deem revolutionary. Those who invested in cheap coins at the outset are reaping huge returns on their capitals, dwarfing the average returns one can acquire in the stock markets. Think about it; if you had bought $1,000 worth of Bitcoin in 2010, you’d be worth a staggering $35 million now. The possibility of earning colossal returns has attracted many to the arena, and this begs a crucial question: Is the hype on cryptocurrencies warranted or it is just a game of Russian Roulette?

The birth of Bitcoin – the first digital cryptocurrency that is decentralized by design – gave rise to a technology with the potential to redefine the very fabric of our status quo. This technology is called the Blockchain, which underpins Bitcoin’s protocol.

“Every informed person needs to know about Bitcoin because it might be one of the world’s most important developments.” — Leon Luow, Nobel Peace Prize nominee

Blockchain is essentially a distributed, digital ledger where every transaction is broadcasted publicly and recorded chronologically. The database is ever growing, expanding in tandem with the amount of transactions made on the network. The decentralized nature of Blockchain technology ensures that transactions are immutable and thus immune to change, offering full transparency for each and every transaction. Add to that the traits of increased security, higher efficiency, error-resistant and reduced transaction costs, it leaves no doubt as to why many are excited about Blockchain’s possible use cases. The utility of Blockchain technology is endless, with an ever-growing list of governments, industries and companies looking to further explore its usage.

Hotbed for Money Making

The birth of a revolutionary technology would always entail those looking to capitalize on its profitability. Blockchain is no different. Investors, traders and speculators can get in on the action by buying cryptocurrencies, which are digital currencies manifesting as variant applications of the Blockchain technology. There are over 900 coins available, with each offering a slightly different approach to solving a range of problems. Many early adopters have made a great sum of money, by buying the coins cheaply at its outset and realizing them much later on. Based on the statistics provided by ICOSTATS, the return on capital of 40 cryptocurrencies since their inception stands at a staggering 6703%! In order for you to earn similar rates of returns in the stock market, it will take you approximately 957 years.

These stellar returns inevitably attract many who are looking to earn multiples over their capital. Given the extreme technicality of cryptocurrencies and the underlying Blockchain technology, many do not fully understand the fundamentals of what they’re investing in. The immaturity of the current infrastructure – stemming from the relative infancy of the cryptocurrency industry — results in an inefficient price discovery mechanism, thereby creating an extremely volatile market environment. This poses huge risks for those looking to invest in a comprehensive list of coins.

Simply entering the market with the hopes of massive short-term gains without understanding the coins and their technology is akin to playing a deadly game of Russian Roulette. The radical volatility of the coins’ prices may significantly put your capital at risk. Just to draw a picture, Bitcoin’s price lost 40% of its value in a matter of days in December 2013, and at the start of this year, Bitcoin lost approximately 34% of its value in a week. While this can spell doom for many, there are those that find gratification by profiting from the intense gyration of prices.

The Verdict?

Nine years after Bitcoin kickstarted the technological revolution, the ecosystem centered around Blockchain technology has flourished and is looking ever so promising. New coins solving real world problems are launched at a tremendous pace, with new functionalities and applications pushing the boundaries of this nascent technology. With increasing user adoption and a keen interest by nations and corporations, it is only a matter of time before Blockchain technology becomes ubiquitous in our lives.

A flip side of this emergent technology is the great risks associated with investing in cryptocurrencies, especially for those with a short-term horizon and an absence of understanding in the coins they have invested in. Truly, the extraordinary volatility unique to cryptocurrencies creates a superficial impression of high stakes gambling in the eyes of many. Armed with the right understanding and knowledge of Blockchain technology, you would begin to appreciate its innate beauty.

 

David Ogden
Entrepreneur

DAvid Ogden Cryptocurrency Entrepreneur

 

Author: Aziz Bin Zainuddin

David

Bitcoin Could Hit Near $4,000: Goldman Sachs’ Chief Analyst

Bitcoin Could Hit Near $4,000: Goldman Sachs' Chief Analyst

 

Bitcoin Could Hit Near $4,000: Goldman Sachs’ Chief Analyst

 

Although bitcoin price has grown 3x at peak levels this year, better gains are yet to come, according to Goldman Sachs’ chief technician.

 

Bitcoin has been on a historic tear in 2017. After ringing in the year at $1,000 on the very first day of January, bitcoin price reached an all-time high of $3,000 in mid-June. The remarkable rise amid an overall boom period for cryptocurrencies has seen skepticism from some observers who have pointed to inflated values amid accusations of a bubble. Others are looking at more bullish gains.

 

In a note sent to clients, Sheba Jafari – Goldman Sachs’ head of technical strategy predicts bitcoin to climb higher, ultimately getting near $4,000.

 

Jafari, who was persuaded into covering bitcoin by Goldman Sachs’ clients recently, sees the current corrective course to tread longer with upward gains to be the ultimate outcome.

 

Jafari, who is also the vice president of the investment bank’s securities division, sees bitcoin “still in a corrective 4th wave”, as reported by the Business Insider.

 

That fourth wave “shouldn’t go much further (lower) than $1,857”, the head analyst told her Wall Street clients.

 

The upcoming 5th wave is to take a bullish turn, according to her analysis.

 

She wrote:

 

From current levels, this has been a minimum target that goes out to $3,212. There’s potential to extend as far as $3,915. It just might take time to get there.

 

It was “due to popular demand” that Jafari began covering bitcoin a month ago. The first analysis, in comparison, was a more bearish take based on price trends at the time.

 

As things stand, bitcoin is up 5.28% on the day, according to data from CoinmarketCap. The cryptocurrency is trading at $2573 on a global average and struck a high of $2,601 on Monday, a 7-day high following the downward turn a week ago.

 

On Bitstamp, bitcoin hit a high of $2,595 on Monday.

 

David Ogden
Entrepreneur

David Ogden

 

Author:Samburaj Das

David

Traders Plan for Correction as Crypto Market Falls Below $100 Billion

Traders Plan for Correction as Crypto Market Falls Below $100 Billion

Traders Plan for Correction as Crypto Market Falls Below $100 Billion

The total value of all publicly traded cryptocurrencies may be at an all-time high, but trader confidence isn't keeping pace.

After rising more than 1,500% from just over $7bn on 1st January, the market is beginning to show signs that its rapid ascent in 2017 may be slowing.

According data from CoinMarketCap, the cryptocurrency asset class fell from a high of $117bn yesterday to just under $100bn today, a period in which more than 80 of the top 100 cryptocurrencies have seen double-digit declines.

While this decline may just be a speed bump in the world of cryptocurrencies, some analysts report it is sufficient enough that they are beginning to reassess their positions in light of recent activity.

Hedging for a crash?

Indeed, several traders spoke with CoinDesk about the strategies they're currently using to hedge against a potential decline in cryptocurrency prices, with some indicating they're employing simple strategies by reducing their holdings.

For example, Charlie Shrem, a bitcoin entrepreneur and over-the-counter (OTC) trader, is in this camp. He reported he's been buying more bitcoin lately, with "less than 10%" of his portfolio in alternative assets.

Marius Rupsys, a cryptocurrency trader and co-founder of fintech startup InvoicePool, took a bolder approach, telling CoinDesk he liquidated his entire cryptocurrency portfolio and has started shorting bitcoin, actively betting its price will go down.

Rupsys predicted:

"There should be larger correction at some point which will cause altcoins to fall and bitcoin to fall at the same time."

While several traders identified portfolio management and active trading strategies as ways to hedge against a cryptocurrency price crash, cryptocurrency trader Kong Gao offered a different solution.

One way to hedge against this decline, he said, is to begin mining on alternative asset protocols, and simply hold the coins they receive instead of selling them.

Irrational exuberance

Elsewhere, Rupsys spoke to how he believes the increasing price has been largely caused by highly optimistic newcomers, a prospect that leads him to believe the bull run could soon fade.

"Many of these new traders are retail traders that have little knowledge of crypto-assets or trading in general," Rupsys told CoinDesk.

He added, many people have contacted him interested in getting rich quick.

Tim Enneking, managing director of cryptocurrency hedger fund, Crypto Asset Management, also spoke to the exuberance in the market.

While cryptocurrencies have been experiencing sharp gains, they will reverse direction at some point, Enneking predicted. Crypto Asset Management has set up stop loss orders to liquidate positions in certain cryptocurrencies should these digital assets suffer an "abrupt crash", he said.

And according to Charles Hayter, co-founder and CEO of cryptocurrency exchange CryptoCompare, a crash is likely. The attention alternative asset protocols have gained lately have highlighted some of this overconfidence, he said.

While there may be no clear signs yet, Hayter is still putting his money where his mouth is, noting CryptoCompare is going so far as to reallocate its active positions in the market.
 

David Ogden
Entrepreneur

 

Author: Charles Bovaird

David

Getting High on Cryptocurrencies

Getting High on Cryptocurrencies

Getting High on Cryptocurrencies

There are now four times as many cryptocurrencies in circulation as fiat currencies.That's amazing. And encouraging.According to the Swiss Association for Standardization, which maintains the International Standards Organization database, there are 177 national currencies currently in use. That list generously includes four precious-metals and four bond-market units (codes XBA to XBD, for the curious).NUMBER OF DIGITAL CURRENCIES753The CoinMarketCap website lists 753 cryptocurrencies, all the way from Bitcoin and Ethereum down to StrongHands and Paccoin (current value: $0.00000014).With a retired basketball star promoting one such incarnation — tied to marijuana — on a recent trip to a repressive Asian nation lying to the north of South Korea, I'm tempted to call Peak Crypto.But let's not kid ourselves: The madness is far from over. Bitcoin skeptics have been eating their words ever since the leading digital currency reached $1,000. January seems like such a long time ago now that Bitcoin is trading above $2,700.

Bruised Bears

Although Bitcoin has climbed 300 percent in the past 12 months, giving its "coins" in circulation a value of $45 billion, Satoshi Nakamoto's brainchild is actually declining in relative importance. From more than 95 percent in late 2013, Bitcoin now accounts for 39 percent of the value of all cryptocurrency in circulation. Ethereum has caught up fast, from 3.9 percent at the start of the year to 31 percent of the total now, according to CoinMarketCap. Ripple is in third place at around 8.8 percent after briefly overtaking Ethereum last month.

VIRTUAL VALUE

The other 20 percent of cryptocurrency value is unevenly distributed among the 750 wannabes along a very long tail. It's possible some will rise to a level of legitimacy that will make them viable in the long term. Many are betting not on mass uptake but on niche acceptance — one pitches itself as the payments platform for online games; another limits the amount of coins to the number of kilometers between Earth and its moon; one seeks to be the official currency of a fictitious nation.

Market Force

Bitcoin remains the world's biggest cryptocurrency, but its dominance has waned

Yet Bitcoin itself remains so niche that the WannaCry hackers reaped a minuscule harvest after infecting more than 200,000 computers, because they insisted on being paid in the cryptocurrency.Just because the boom is ridiculous doesn't mean it lacks momentum — it just tells you that consolidation also is inevitable. Not in the traditional M&A sense, but in the way that messenger apps like AIM, ICQ, Yahoo and MSN quietly gave way to WhatsApp and WeChat, which then led to the ubiquity of instant-messaging technology.Morgan Stanley posited last week that government acceptance will be key to Bitcoin's continued rise, with the flipside being some kind of regulation of the currency. That's probably right, and if proponents of cryptocurrencies think they'll achieve widespread uptake without a nod from the authorities, they're probably smoking something.

David Ogden
Entrepreneur

Author : Tim Culpan

 

 

David

Bitcoin, Ethereum and a New Direction for Cryptocurrency Investment

Bitcoin, Ethereum and a New Direction for Cryptocurrency Investment

Bitcoin, Ethereum and a New Direction for Cryptocurrency Investment

This week CoinDesk released its State of Blockchain Q1 2017 study, which details recent trends, statistics and sentiment around cryptocurrencies and blockchain technology.

While the entire report is worth a read (there are some surprises), two slides especially caught my attention. When put together and compared with current data, they point to what could be a fundamental shift in market dynamics.

Now, why would investors give up bitcoin to buy into ethereum? Either they believe that bitcoin will soon start heading down – slide 62 shows that almost 45% of respondents are negative on the cryptocurrency – or that it could continue to go up, but that ethereum will increase by even more. Either way, we’re looking at an asset reallocation.

If you take a look at the ether trading volumes today, though, you see a different picture.

The volume of fiat purchases of ether has shot past that of bitcoin to account for approximately 70% of volume (at time of writing). A large part of that growth is due to a jump in interest from South Korea, but US dollar purchases have also increased significantly.

This looks like ‘new money’ is coming into cryptocurrencies and choosing ethereum over other alternatives. Bitcoin’s trading volume is also increasing (and still dwarfs that of ethereum), but not by as much.

What could this mean?

While trading data of a few weeks does not necessarily translate to new market trends, it could hint at a shift in portfolio prominence. While bitcoin has traditionally been the main cryptocurrency holding for both private and institutional portfolios, ether is emerging as a strong contender.

One interesting effect from this will most likely be a change in the conversation. It should move from the 'bitcoin isn't money' diatribe, to one of 'what can ethereum do?'.

Although over 85% of our survey respondents felt that ether could serve as a currency as well as bitcoin could, it has never worn the currency cloak like bitcoin has. Ether has traditionally been positioned more as a ‘digital token’ that can engage with scripts and contracts, and can be used to enable apps across a wide range of sectors.

From an asset allocation and a sentiment perspective, ether’s rise in prominence is encouraging. A shift in focus from threat to innovation would be more constructive for all, and should push development in the cryptocurrency sector even further.

From an asset allocation and a sentiment perspective, ether’s rise in prominence is encouraging. A shift in focus from threat to innovation would be more constructive for all, and should push development in the cryptocurrency sector even further.

David Ogden
Entrepreneur

Article by Noelle Acheson

Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.

David

Hedge Funds Are Quietly Investing in Bitcoin

Hedge Funds Are Quietly Investing in Bitcoin

Hedge Funds Are Quietly Investing in Bitcoin

Bitcoin’s price has gained over 180 percent this year, while hedge funds have only returned 3.5 percent on average. Most hedge fund managers have stayed away from bitcoin. However, the few that have included it are significantly outperforming their peers.

Average Hedge Funds Return 3.5% This Year

Hedge fundsHedge Funds Are Quietly Investing in Bitcoin are investment funds whose clients are accredited or institutional investors. They are less regulated than mutual funds since they are not subject to strict rules designed to protect investors. Some of them are not even required to register or file public reports with financial regulators.

Investments in hedge funds are only restricted by each fund’s mandate. They can effectively be anything including land, real estate and currencies, as long as they seek to maximize investors’ returns while reducing risks.

The comprehensive overall returns of hedge funds are measured by the hedge fund absolute return index (HFRX), which is representative of all hedge fund strategies. Hedge Fund Research (HFR), which provides data on more than 150 hedge fund indices, is the industry’s leading provider of hedge fund index data. According to HFR, the HFRI Weighted Composite Index only returned 0.46% in May and 3.5% year-to-date. In comparison, the S&P500 total return was 1.16% in May and 9.61% year-to-date.

Bitcoin Helps Hedge Funds’ Bottom Line

HFR’s data reveals that most hedge fund strategies underperformed the market both in May and year-to-date, CNBC reported. The index provider noted that technology and currencies were the only two strategies that performed well in both time periods, adding that:

The FX funds did well because of exposure to digital currencies like bitcoin.

The hedge funds that do invest in bitcoin currently do not have large positions. The best performing hedge fund index in May was the HFRI Macro Currency Index which gained 3.49% in the month and 8.22% year-to-date.

“In addition to contributions from Euro, Swiss Franc, New Zealand Dollar and Korean Won, the Currency Index also had strong contributions from exposure to digital currencies,” according to the HFR report.

Why Don’t More Hedge Funds Invest in Bitcoin?

“Many hedge funds are still very reluctant to dip a toe into the asset class,” CNBC recently reported. One hedge fund veteran, with 16 years of experience, told the news outlet:

To be honest, I just don’t know enough about it.

The reasons hedge funds are reluctant to invest in bitcoin “really boils down to concerns over volatility, security and perception,” Louis Gargour, the founder of asset manager LNG Capital, told the publication.

He listed three concerns. Firstly, “bitcoin’s extreme volatility doesn’t sit well with managers working on a risk-adjusted return basis.” Secondly, fund managers are concerned with the digital currency being hacked or stolen. Lastly, “there’s a perception that bitcoin remains a niche, retail investment that does not yet demonstrate sufficient quality to be seriously considered for many reputable institutions,” he explained.

However, as bitcoin continues to outperform other asset classes, more hedge fund managers may start following their peers and invest in the digital currency. At press time, Bitstamp shows that bitcoin has gained over 180% so far this year and over 70% in May.

By Kevin Helms

 

David Ogden
Entrepreneur

David

Australian Stock Exchange Announces First-Ever Bitcoin Investment

Australian Stock Exchange Announces First-Ever Bitcoin Investment

Australian Stock Exchange Announces First-Ever Bitcoin Investment
 

In a first, Melbourne-based Blockchain Global Limited (BGL) has used bitcoin in an AUD$4.35 million investment to acquire a 40% stake in ASX-listed blockchain payments fintech DigitalX.

Details from an announcement today on the Australian Stock Exchange (ASX) reveal DigitalX to receive, in bitcoin, AUD$300,000 in a convertible loan. A further AUD$550,000 will be invested in convertible notes along with AUD$3.8 million in shares.

“DigitalX has received AUD$300,000 by way of a convertible loan in Bitcoin (BTC),” the announcement stated. “The convertible loan is convertible into shares in DigitalX…”

Blockchain Global Limtied (BGL), formerly operating as the Bitcoin Group, began as a bitcoin mining operator before diversifying into a blockchain solutions provider, a corporate incubator and more recently, an ICO specialist. The Bitcoin Group raised AUD$5.9 million and missed out on its target of AUD$20 million following a number of delays to get listed on the ASX itself.

Ultimately, the firm scrapped its efforts to become the world’s first publicly-listed bitcoin miner after the ASX raised liquidity and regulatory concerns.

Perth-based DigitalX, formerly Digital CC, also saw a rebrand in late 2015 and shifted its objectives from mining bitcoin to blockchain software development. As a part of its shift in strategy, DigitalX has now developed AirPocket, a blockchain payments and remittance app that enables payments to 14 countries with a majority of them in Latin America.

“DigitalX welcomes BGL as an investor in the company, and appreciates the confidence it has shown in DigitalX’s growth and understanding within the blockchain ecosystem,” said DigitalX CEO Leigh Travers.

The executive added:

“Having just returned from Consensus, the biggest blockchain conference in the world, the growing support for blockchain, digital currency and decentralized organisations is unquestionable”.
 

As a part of its investment, BGL is voluntarily escrowing its shareholding in DigitalX for a 12 month period from the date of issuance.

Meanwhile, the ASX is invested in blockchain technology itself, having paid AUD $14.9 million for a 5% equity interest in New York-based blockchain startup Digital Asset Holdings (DAH). Australia’s biggest private stock exchange is currently trialing a DAH-developed blockchain system to replace its existing post-trade processing system.

Author: Samburaj Das

David Ogden
Entrepreneur

David

Russia is looking to regulate bitcoin but still doesn’t see it as a currency

Russia is looking to regulate bitcoin but still doesn't see it as a currency

Russia is looking to regulate bitcoin but still doesn’t see it as a currency

Russia is exploring ways to regulate bitcoin, the country's central bank governor has told CNBC, but sees "doubts" over the benefits of the cryptocurrency and even questions whether it should be considered a virtual currency at all.

In an interview with CNBC, Elvira Nabiullina, governor of the Russian Central Bank, explained that she views bitcoin as a digital asset rather than a currency, and this is the way it should be thought about with regards to regulation.

When asked whether the Russian Central Bank is looking to regulate bitcoin, Nabiullina said that the authority is "analyzing" the possibility and needs to "understand more about this internalization of bitcoin and our regulatory systems." She added that there are "risks" with the cryptocurrency.

"We don't consider that bitcoin can be considered as a virtual currency. It's more digital assets with the regulation of assets," Nabiullina told CNBC in a TV interview.

The central banker did not elaborate on what specific regulation would look like and said she is in no rush to put any policy into place. The governor said that the central bank does have doubts about bitcoin.

"We have some doubts, we don't see some huge benefits from introducing digital assets in our economy," Nabiullina said.

Bitcoin recently hit a record high of $2,791, according to data from industry website CoinDesk, marking around a 180 percent rally year-to-date. There's bullishness in the market with some predicting the price could go as high as $6,000 this year and even $100,000 in a decade.

With surging prices and a market capitalization of around $38 billion, governments are becoming increasingly interested in ways to regulate the digital currency, especially as more retail investors are getting involved in the market.

Japan recently passed a law to legalize payments in bitcoin which helped boost the price, with major trading volumes now coming from the country.

The stance of Nabiullina marks a changed view from Russian authorities who have been trying over the years to ban bitcoin. If Russia somehow regulates bitcoin, this could potentially affect the price, especially if more investors get involved in the asset.

Sean Walsh, a partner at Redwood City Ventures which invests in bitcoin and blockchain companies, said that further regulation could boost the price of the cryptocurrency and get rid of the handful of "bad actors" using it for illegal things.

"I agree with the view that for retail and professional investors greater regulatory structure is very supportive because it adds to the legitimacy of the whole network," Walsh told CNBC in a phone interview.

Taxation plan?

Still, it's unclear where Russia plans to go with bitcoin regulation. The country's Deputy Finance Minister Alexey Moiseev recently said the authorities hope to recognize bitcoin and other cryptocurrencies as a legal financial instrument in 2018 in a bid to tackle money laundering.

"The state needs to know who at every moment of time stands on both sides of the financial chain," Moiseev told Bloomberg in an interview.

"If there's a transaction, the people who facilitate it should understand from whom they bought and to whom they were selling, just like with bank operations."

The Russian Central Bank's Deputy Chairwoman Olga Skorobogatova has also reportedly revealed plans to tax the cryptocurrency.

"(Digital currencies already circulating in Russia will see) certain regulations with regard to taxes, monitoring and reporting, as a digital commodity," Skorobogatova said, according to news agency Interfax.

Blockchain in focus

Bitcoin has traditionally been known to allow users to make payments and money transfers anonymously. So it may seem that any taxation policy from the authorities could be difficult. But Walsh said some developments in the bitcoin community could make this policy feasible.

Firstly, bitcoin transactions have become slower and more expensive. This makes the practice of trying to split up transactions to cover your tracks very difficult. Secondly, several start-ups have emerged that are able to use algorithms to track transactions on the blockchain – the public ledger of bitcoin activity. This could allow authorities to see who owns bitcoin.

While Nabiullina admitted there were still risks with bitcoin, she expressed the Russian Central Bank's interest in blockchain technology. Because of the way blockchain technology can create a tamper-proof ledger of activity, many major banks are looking into how it can be used for tasks such as trading.

"I think it's more important to understand (the) benefits of new technologies … like blockchain which is on the basis of bitcoin," Nabiullina told CNBC.

David Ogden
Entrepreneur

 

Authors :
Arjun Kharpal Technology Correspondent
Geoff Cutmore Anchor, CNBC

David

The Cryptocurrency Market Is Growing Exponentially

The Cryptocurrency Market Is Growing Exponentially

The Cryptocurrency Market Is Growing Exponentially

Bitcoin dominates over other digital currencies today, but the data suggests its market share will drop significantly in the next few years.
When it comes to the future of money, there is a growing consensus that cryptocurrencies are set to play a major role. One cryptocurrency, in particular, has entered the public lexicon as the go-to digital asset: Bitcoin.

But the cryptocurrency market is significantly more complex than the public lexicon might suggest. And while there have been plenty of studies examining the role and future of Bitcoin, there have been few that explore the broader cryptocurrency market and how it is evolving.

Today that changes thanks to the work of Abeer ElBahrawy at City University in London and a few pals who have examined the cryptocurrency market as a whole and say that it is significantly more complex and mature than many had thought. The evolution of this market even bears a remarkable similarity to the evolution of ecosystems in many other areas, providing some insight into the way the cryptocurrency market might change in the future.

First some background. The big challenge with digital currency is to prevent unauthorized copying. Cryptocurrencies use two mechanisms to prevent this. The first is to publish every transaction in a public record and to store numerous copies of this ledger online in a way that allows them all to be automatically compared and updated. This prevents double spending—using the same bitcoin to buy two different things.

The second mechanism is to protect the ledger cryptographically. Every update collects together a range of new transactions and adds them to the existing ledger. But to do this, the earlier version of the ledger is first frozen and encrypted.

The new version of the ledger—called a block—includes the encrypted copy of the earlier ledger. Anybody can use this encrypted data to generate a number that can be used to check the veracity of the block. However, it is extremely hard to generate this number computationally in an attempt to game the system. It is this feature—that the blocks are easy to check but extremely hard to copy—that secures the system.

Of course, as the ledger continues to be updated, new blocks must be created, piggybacking on the old ones and creating an unbroken chain of blocks. Hence, the term blockchain technology.

Bitcoin is by far the most famous of these cryptocurrencies. It is also among the oldest, having first emerged in 2009. But it is by no means the only cryptocurrency. So an interesting question is how the cryptocurrency market is evolving.

To find out, ElBahrawy and co analyzed the behavior of 1,500 cryptocurrencies that have emerged since 2013 and say that some 600 of them are actively traded today. They say this market has recently entered a period of exponential growth and is currently worth $54 billion. (By comparison, the total amount of money in the world is about $60 trillion.) 

But while this cryptocurrency market is growing rapidly, ElBahrawy and co show that certain aspects of it are stable. For example, the number of active cryptocurrencies has remained about the same since 2013 as has the market share distribution, which follows a well-known power law.

The team also shows how this distribution can be reproduced using a standard model of evolution in which they plug in figures for the rate at which currencies emerge and die away.

This power law distribution occurs in a wide range of systems. For example, the same law describes the size of religions, of languages and even of wars (by number of deaths). In none of these systems is there are any favored religion or language or war. But all things being equal, they all form this type of distribution.

The fact that size distribution of cryptocurrencies follows the same law is significant. It implies that as far as the market is concerned, all currencies are essentially the same. “The fit with the data shows that there is no detectable population-level consensus on what is the ‘best’ currency or that different currencies are advantageous for different uses,” say ElBahrawy and co.

Whether that is true is up for debate. Various critics have pointed out a number of technical limitations associated with Bitcoin, and this has inspired a new generation of cryptocurrencies, such as Ethereum. Whether this will influence the market remains to be seen.

While this exponential growth is ongoing, Bitcoin’s market share is falling. The top five biggest currencies—Ethereum, Ripple, Litecoin, Dash, and Monero—now account for 20 percent of the market. And the trend for Bitcoin is clear. “This would predict Bitcoin market share to fluctuate around 50 percent by 2025,” say the team.

Another factor in the market is that cryptocurrencies aren’t used only as currency. Bitcoin is also widely used for speculation and can also be used for nonmonetary uses such as timestamping.

For many of these applications there is a clear benefit to having a single currency that everyone agrees on. “While the use of cryptocurrencies as speculative assets should promote diversification, their adoption as payment method (i.e., the conventional use of a shared medium of payment) should incentivize a winner-take-all regime,” say Bickell and co.

But experience with other ecosystems suggest that this is by no means certain to happen. For example, a single computer operating system has never been able to outcompete all others, regardless of the ruthlessness of its deployment. Neither has any human language or religion or fashion wiped out all others.  

That’s not to say it can’t happen. But unless there is significant external manipulation of this market, the likelihood is that there will be significant diversity in the cryptocurrency market for the foreseeable future.

David Ogden
Entrepreneur

David

As Price Reaches Record Highs, is Bitcoin in a Capacity Crisis? – CryptoCoinsNews

As Price Reaches Record Highs, is Bitcoin in a Capacity Crisis? – CryptoCoinsNews

As Price Reaches Record Highs, is Bitcoin in a Capacity Crisis? – CryptoCoinsNews

 

Imagine you are slightly late for work, quickly getting a shower, brushing your teeth and all the rest, walking – in an almost running manner – to the tube station, to then find out there are 200,000 people waiting outside to get the train.

What’s more, the train only handles 4,000 individuals and arrives every ten minutes, during which period new individuals arrive at a rate of 4 per second. Now, it’s ok, you’re busy, you can still be one of those 4,000 individuals and get to work if you pay a high enough fee.

So you check out the notice which says the current estimated fee is $1, but since others are seeing the same notice too and paying $1 too, the fee keeps going up every second, with these higher fees paid by the new individuals that come every second, pushing you down the queue.

Tough luck, you can’t make it to work today because your $1 bid is now as good as worthless to the super congested network. The next day you learn the lesson, so instead of bidding what the notice says, you bid 10% or 20% more, but you weren’t the only one who missed work yesterday, almost everyone else did too and they have this genius but obvious idea too, making you miss work again.

The next day you get angry and pay double the fee, but you’re not the only angry one. Now, sure, some in this lottery do get to make it to work, 4,000 every 10 minutes with 200,000 waiting, but a lot don’t, resulting in a bidding war which looks like below:

As can be seen, bitcoin’s fees have gone vertical, which is bad, but if you know you’d get through for x dollars then at least you can evaluate the proposition. Instead, you’re not only paying high fees, but you don’t even know whether you will get the service you paid for because of simple logics.

Let’s take, for example, a statement by Luke Dashjr, a Blockstream “open hash contractor,” who suggested everyone pay a $5 fee and you’ll get through. If we analyze this a bit further, we can start by asking why people are not paying $5 and one good reason is because then everyone would start paying $5 meaning newcomers would outbid them by paying $5.01.

Sure, one or two guys might currently “cheat” and jump the queue by paying $5, but as long as it’s a very tiny minority the rest let it go. If instead, it went to a point where say 1,000 of the 4,000 are paying $5, the other 3,000 will probably quickly start paying $5.01.

This clearly shows ordering transactions by fee is an unworkable idea which is why Satoshi Nakamoto ordered transactions by first seen in the bitcoin clients he/she released, a rule largely enforced by the bitcoin network until full capacity was reached.

The Easy Attack

Still, even the above problems, as bad as they are, might be bearable for desperate bitcoiners, but let’s imagine I’m a wealthy company, say Vusa, or Rapp Labs, or a wealthy guy who just doesn’t like bitcoin.

Just to be very clear, no one is suggesting either of them has behaved in any nefarious way, but say I’m a competitor to bitcoin or recently attracting much hype and attention due to gaining crazy high market cap in just days. You know what I could do with just $2 million?

I could send bitcoin down crashing as far as its sole purpose of moving bitcoins is concerned. That’s because bitcoin’s capacity is limited to around 250,000 transactions, but just to make it simple let’s say it can handle only 200,000 transactions a day.

At $1, it would cost me just $200,000 to take up that space, which is fine, everyone else could pay $1.50. But, at $10 per transaction it would cost me only $2 million to send everyone else at the back of the queue.

Now sure, you can pay $11 or $12, but even at a fee of $20 it would cost just $4 million, as good as nothing considering how much value may flood to the competitors and considering the shock bitcoin would receive if all the sudden everyone is asked to pay $25 per transaction.

There is no evidence to suggest this is happening at scale, but fees went up yesterday from around $1 to around $4 for a normal transaction. It could be ordinary demand, but it could also be someone or some entity which wants to send bitcoin crashing.

They have succeeded as far as bitcoin’s sole purpose of moving bitcoins around is concerned because around 200,000 bitcoins have been stuck for the past 24 hours while fees have gone parabolic pricing everyone out.

Another Obituary?

Bitcoin has only one job – to move data from a to b – and it is failing to do that simple task. A task which is not really rocket science as some claim because everyone and their cat have launched their own bitcoin like network which actually manages to continue performing their one task.

No wonder bitcoin’s market share has now fallen down to around 48%, nearly halved from just a few months ago, but its price has now doubled to more than $2,000 and its market cap keeps going up, so, who knows. Maybe $20 fees and days for one transaction are a good thing?

Or maybe it’s all just because of the recent advertising following allegations Trump’s Press Secretary and an aid to the French President Macron had used bitcoin, combined with the recent ransom global incident.

Or perhaps it’s only because bitcoin is the main gateway to other altcoins, although ethereum has started making inroads on that front due to its own tokens system and clones.

But maybe the market sees value in a limited coin you just buy and lock away in some paper wallet somewhere, forgetting about it, like actual gold and just as difficult as well as expensive to move around.

In which case, “Bitcoin: A Peer-to-Peer Electronic Cash System,” as bitcoin’s white paper describes it, has failed, because the current bitcoin is not a cash system. Cash can be exchanged almost instantly with 0 fee and can be moved around fairly easily without getting stuck for days.

Which might be why the market is giving conflicting signals. On the one hand, it’s falling market share is probably because bitcoin investors and other market participants are looking for the real bitcoin, the cash system, which many think has just changed its name to ethereum while getting some cool new tech like smart contracts.

It may be that these newcomers think bitcoin is still the cash system rather than seemingly having changed into something else, or maybe they like this idea of gold but with very high fees or they’re in markets which have no choice, although even they could easily diversify.

Bitcoin is Dead, Long Live Bitcoin

So, to conclude, bitcoin is definitely in crisis because the real bitcoin as described in the whitepaper does not exist anymore. The real bitcoin uses the first seen rule for transactions, rather than ordering by fee. The real bitcoin never operates at full blocks. The real bitcoin has as good as no fees and confirms almost instantly.

What now is called bitcoin is an aberration, something completely different and planned to become even more different. Far more similar to ripple with its hubs and intermediary banks than to bitcoin.

The real bitcoin, the digital cash, the codable money, the global, inclusive, permissionless network, the innovative powerhouse which has grabbed the world’s imagination, that has changed its name and is now called ethereum.

Disclaimer: The views expressed in the article are solely that of the author and do not represent those of, nor should they be attributed to CCN.

 

David Ogden
Entrepreneur

David