Bitcoin Update

[imoldernu]

From this old thread ( August 13, 2013) when bitcoin was trading @$128, an update on the current value, and a new worry...
http://www.early-retirement.org/forums/f28/aug-17-bitcoin-108-25-a-67967.html

Now, with the value @ about $500, some concern about the bitcoin miners and their safety... Looks like they may be safe, but investors may see it differently.
One group controls 51 percent of Bitcoin mining, threatening security sanctity | PCWorld

Fears that a Bitcoin mining pool controls more than half the total computational power used to create the digital currency have prompted a decline in its value.

Bitcoin was hovering around $600 on Monday, according to CoinDesk.com, which tracks prices on exchanges, down from $653 on Wednesday.

The decline follows reports that a group is now in a position to conduct a so-called “51 percent attack” on the cryptocurrency, a situation in which it could potentially interfere with transactions or even spend bitcoins twice.

Not to worry... no one here has bet the farm, but along the way, some folks may be getting a bit antsy.

Also....

 

[inquisitive]

The concept of bitcoin is fantastic, but it has a number of problems, not just the 51% control that you have mentioned. Hundreds of millions of dollars, if not more, has been stolen. Thus a large % of the outstanding bitcoins is being controlled by criminals, drug lords, etc. I'm not sure that bitcoin itself will be successful because of its negative perception, but it has established the viability of a digital currency.

 

[aim-high]

The concept of bitcoin is fantastic, but it has a number of problems, not just the 51% control that you have mentioned. Hundreds of millions of dollars, if not more, has been stolen. Thus a large % of the outstanding bitcoins is being controlled by criminals, drug lords, etc. I'm not sure that bitcoin itself will be successful because of its negative perception, but it has established the viability of a digital currency.

Don't we already have digital currency? I don't know if my bank or brokerage accounts have much hard money.

 

[inquisitive]

Bitcoin is a purely digital currency. There is no physical equivalent. If you wanted to cash out of your bank or brokerage account you can do so in cash for the total amount of money. This cannot be done for bitcoins.

 

[Totoro]

Don't we already have digital currency?

This one is not backed by any country or central bank, and that makes all the difference.

No official exchanges, you can't pay taxes with it, no protection against theft, loss, fraud. Also no anti-money laundering or manipulation by a central authority (there is none).

I bought $5k worth of bitcoin when they were at 9 usd, sold at 22 usd or so. If I held on to them would have been worth 250k+.

Still think I made the right decision. Could have been 0 USD, still likely to end up that way. Something will be along to replace it though if it does.

 

[imoldernu]

Another Bitcoin update 10/6/2014
Bitcoin Prices Are Down 73 Percent Since We All Went Crazy Over It

The value of Bitcoin plummeted nearly 20 percent over the weekend.

The cryptocurrency was trading around $286 -- its lowest price of the year -- on Sunday but rallied back to roughly $325 Monday morning. Prices are down 73 percent from an all-time high of $1,147 hit on December 4, 2013, according to CNBC.

Over the last year and a half, Bitcoin has traded on average at $337, according to Coin Desk, a Bitcoin news organization.

And a link to a positive view:
http://techcrunch.com/2014/10/06/what-is-happening-to-bitcoin-right-now/

 

[gcgang]

http://www.coindesk.com/economist-milton-friedman-predicted-bitcoin/

I was thinking that Bitcoin sounds like a Libertarian/Monetarist's dream, so I Googled Bitcoin and Milton Friedman and found the above, stating that Friedman had actually predicted an e-currency emerging back in 1999.

I loved Uncle Miltie back during my Econ undergrad days, writing a term paper sitting in a little cubicle listening to a reel to reel tape deck on his Negative Income tax from a talk he had given at my college. Those were the days, my friend...

I have trouble committing to a belief in Bitcoin, however. Don't know why. It seems to make more sense as a currency than what the Central Bankers of the world are doing, creating "money" buying up public and private debt. I guess Full Faith and Credit of the US Treasury still means something to me.


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[cooch96]

I was super excited when bit coin first came around. It was a very fresh idea to me and I figured, "Well, this prototype will inevitably fail soon, but the next iteration will likely be a firestorm!"

Wish I'd invested the first time around instead of waiting. Oh well, I guess I'm just not smart enough to time the markets.

 

[Totoro]

Wish I'd invested the first time around instead of waiting. Oh well, I guess I'm just not smart enough to time the markets.

I bought $5k worth of bitcoins when they were at $9. Sold at something above $20.

So keep in mind you need to be right twice when you time the markets

 

[mpeirce]

Interesting article about Patrick Byrne (from another recent thread) investing in bitcoin based cryptosecurity:

Overstock.com Assembles Coders to Create a Bitcoin-Like Stock Market | WIRED

Counterparty

 

[gerntz]

I bought $5k worth of bitcoins when they were at $9. Sold at something above $20.

Sorry for your capital gain. Are they taxed as investments or as collectibles?

 

[John Galt III]

Too bad if you had your bitcoin fortune in Mt Gox, however.

 

[yakers]

So does anyone use bit coin as a currency? I would find that interesting, more that then as an investment.

 

[Totoro]

Sorry for your capital gain. Are they taxed as investments or as collectibles?

As an expat in the Netherlands, not taxed at all.

 

[gerntz]

As an expat in the Netherlands, not taxed at all.

I thought Americans needed to report out-of-USA income on US tax returns. No? Thanks.

 

[Totoro]

I'm not American

 

[tryan]

Little bit interesting ... my son (high schooler) wanted to set up a Mt Gox account to exploit the seeming LOW price Mt Gox was trading bitcoins. Sooo I said to him "an efficient market place would close any difference instantaneously ... if a difference exists long term it must be fraudulent". Being a high schooler - he persisted "let's open an account and MOVE bit coins to the higher marketplace and SELL them." So I told him to research what it takes to open accounts .... Mt Gox collasped a few days later.

Good lesson for him ... I think.

 

[ArkTinkerer]

While I love the idea of a medium of exchange not controlled by any government I can't buy into the economics of Bitcoin.

In the end, what you are purchasing is a bit pattern of 1's and 0's in computer storage. This pattern has no intrinsic value like say a database or computer program. Its value is strictly what other people will pay for it.

The dollar is very similar EXCEPT people in this country must have dollars if for no other reason than to pay their taxes.

 

[Totoro]

Well, take gold then.

Its intrinsic value is also mostly what other people will pay for it. It can be used as a raw material / commodity, true, but that's not what drives its value. Incidentally, there is also huge volatility there.

Or diamonds, even worse.

 

[ArkTinkerer]

I don't disagree. And while diamonds and gold have some commercial use and significant use as jewelry and art, bit coins lack even that.

Even if the paper dollar collapses you can wipe your bum with them and burn them for fuel. Try that with digitally stored ones and zeros!

 

[dallas27]

The problem with bitcoin is that society can create an infinite number of clones. Yes, i know bitcoin has a limited supply thAt can be mined, im talking about dogecoin, litecoin, all the me-too's. Theres and endless number of equivalent currencies that can be created. Hell, we could each have our own if we like.

Who the hell wants to be in the boat of upgrading their money, and paying for the service probabyly


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[kgtest]

The problem with bitcoin is that society can create an infinite number of clones. Yes, i know bitcoin has a limited supply thAt can be mined, im talking about dogecoin, litecoin, all the me-too's. Theres and endless number of equivalent currencies that can be created. Hell, we could each have our own if we like.

Who the hell wants to be in the boat of upgrading their money, and paying for the service probabyly


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I think it was one of the google co-founders that was recently quoted saying "Oh yeah, money...we can reinvent the whole thing!" Leave it to a tech startup guru to "re-invent the whole thing" with money lol. Personally if you ask me currency is a unit...a measurement of something and yes any new way of measuring something has a good probability of being improved. SCARY.

 

[inquisitive]

The problem with bitcoin is that society can create an infinite number of clones. Yes, i know bitcoin has a limited supply thAt can be mined, im talking about dogecoin, litecoin, all the me-too's. Theres and endless number of equivalent currencies that can be created. Hell, we could each have our own if we like.

Who the hell wants to be in the boat of upgrading their money, and paying for the service probabyly


Sent from my iPhone using Early Retirement Forum

This is not a problem with bitcoin. This is an example of competition in a market economy. For McDonald's there is also Wendy's, Burger King, etc. There could be an infinite number of "clones." Dogecoin, litecoin, and the others will never take off because they are inferior to bitcoin and cannot overcome the higher prevalence of bitcoin usage. Bitcoin might work out when the problems are identified and dealt with, or it might be a new currency that will supplant bitcoin because it is superior, but in any case you would be able to trade your other digital currencies for the new currency at prevailing exchange rates. There are so many possible advantages to a digital currency over traditional ones that I think one will become successful at some point, am not going to put anything into bitcoin now though.

 

[Rustic23]

You can stuff in a thimble what I know about Bitcoin, and still have room to spare. That's one reason I stay away.

But, what keeps Bitcoin from being hacked? What stops the creator, from just adding a few zeros to his/hers account. If it is ones and zeros in a computer, somebody has to have access to the core program.

 

[M Paquette]

You can stuff in a thimble what I know about Bitcoin, and still have room to spare. That's one reason I stay away.

But, what keeps Bitcoin from being hacked? What stops the creator, from just adding a few zeros to his/hers account. If it is ones and zeros in a computer, somebody has to have access to the core program.

Math. Really, really hard math.

Each bitcoin represents a solution to a really difficult computation. New bitcoins are created only by performing this computation, called 'mining', and adding each 'block' of bitcoins so discovered to a public ledger, the 'block chain', with a cryptographic hash of the previous block in the chain, the block itself, and a cryptographic nonce, or single-use authentication number. The size of the nonce increases over time, such that the computation time needed for the bitcoin network to produce a new nonce is always about 10 minutes. The number of bitcoins associated with each new block will decrease over time, until circa 2140, where the limit of 21 million bitcoins will be reached. There are currently about 13.5 million bitcoins in circulation.

Someone trying to pad their account with zeros will find that their bitcoins don't match any block in the block chain, and are not valid. Vendors being paid in these counterfeit bitcoins will automatically reject them, as the open source transaction processing software finds no block chain entries for the coins.

A successful transaction updates the block chain for the bitcoins, preventing 'double spending', or trying to use the same bitcoin with two different sellers. A sane vendor will not transfer merchandise until the bitcoin payment appears in the block chain.

The 'core program' is open source.