The Cryptocurrency Thread 2

[joesxm3]

I've heard some sentiment that crypto -- broadly speaking, not so much a specific coin -- has had an effect on gold. This theory is offered up in partial explanation for why gold's price has not behaved as might be expected in these times of inflation.

So, 1st, I'd be interested in any expansion on why that is -- or isn't -- the case.

2nd, for those NOT planning on investing in crypto, are there impacts in broader markets that should be considered going forward? Are there metrics that might carry over?

There is a narrative floating around that younger people are buying crypto as an inflation hedge rather than buying gold. I have not attempted to verify the volume of gold transactions to see if it has changed lately. This narrative posits that the boomer generation who has bought gold as an inflation hedge is dying off and their heirs are dumping the inherited gold and buying crypto instead.

Another narrative I have heard recently, which is probably older, is that the price of gold is being suppressed by activity in the futures market where "paper gold" can be sold much in excess to the actual supply.

A couple things I have been wondering about is whether a drop in the stock market will trigger a flight to the safety of bitcoin as some pundits predict and also if a blow off top in crypto might trigger some diversification into stocks among the young crypto buyers.

I saw another article saying that in 2020 and 2021 there was quite an increase in the number of younger people opening brokerage accounts. I wonder if this group will be more receptive to crypto and perhaps swing trade between stocks and crypto.

 

[joesxm3]

So signing a previous transaction and placing it on the chain with the new owner info transfers the title. You still have the double risk of buyer not delivering cash or seller not signing over the title. Trust is needed by all parties. Seems very risky for a broken transaction.

That is how it works more or less. The internals of the transaction are more like taking dollars and cents out of your purse and assembling them on the counter. Say you had bought 1 bitcoin and now wanted to send someone 0.25 bitcoin. The transaction would have the digital address of the 1 bitcoin, an instruction to create a new item of 0.25 bitcoin to the receiving address and a new item of 0.75 bitcoin back to you as change. (I guess my programming bitcoin book has provided some value ).

I don't understand the details, but projects like Ethereum and Solana have "smart contracts" that would have conditions to be satisfied before the actual transfer happens. That would probably help down the road when things are more figured out or maybe now if I understood better.

However, you are right about the need for trust. The same as meeting in an ally with a suitcase of $100 bills to trade for krugerrands or diamonds.

 

[jim584672]

Since the blockchain is public what stops someone from attaching bad info, bad data, illegal data (like obscenity), credit cards, SS numbers to it and poison it?

 

[joesxm3]

As I understand it, there must be some sort of format rules for the transaction requests and for the blocks themselves. The miner computers assemble the next block and compete by trying to solve a comp!ex cryptographical problem. The one that finishes first adds the block to the chain.

Once a block is added, it is easy to validate the block and all of the nodes validate the new block.

So if a user wanted to inject bad stuff, the transaction would probably be rejected. If a miner wanted to create a bad block, it would probably not be validated. The first transaction in a block pays a reward to the miner, currently 6 bitcoin. So if a miner were lucky enough to solve the puzzle first, it would cost him $240,000 to inject the bad stuff.

That being said, I seem to remember something about Satoshi putting some sort of libertarian rant in the first block. So there may be some sort of comment section in the block format.

But as far as crashing the system it seems not to have been possible so far.

 

[captain3d]

But how would you mechanically do that. I transfer money to you and how would the coin change title?

It used to and maybe still happens locally. Meet up hand over cash. Seller sends the bit coin to you wallet. The change of ownership is defined by the wallet that contains the Bitcoin

 

[joesxm3]

I listened to a discussion with a guy from Holland who said that a lot of rich Europeans have issues with the American banks and having to explain where their millions of dollars came from or worried about their account being frozen for some stupid reason. He said that a lot of the really expensive real estate transactions now days are being settled with bitcoin transfers.

 

[jim584672]

I listened to a discussion with a guy from Holland who said that a lot of rich Europeans have issues with the American banks and having to explain where their millions of dollars came from or worried about their account being frozen for some stupid reason. He said that a lot of the really expensive real estate transactions now days are being settled with bitcoin transfers.

Governments will freak out about getting around AML laws.

 

[Hamlet]

https://arstechnica.com/information...stole-nearly-400-million-in-crypto-last-year/

So if crypto theft is frequent how many people are being burned?

Would it reduce demand if enough people who were victimized decide to stop trading crypto?

A very interesting timeline of Crypto/NFT scams, hacks, and fails is kept by Molly White here-

https://web3isgoinggreat.com/

Something sketchy is happening pretty much every day. On the plus side, the NFT space is so terrible that it makes plain old crypto look FDIC insured in comparison.

 

[aja8888]

A very interesting timeline of Crypto/NFT scams, hacks, and fails is kept by Molly White here-

https://web3isgoinggreat.com/

Something sketchy is happening pretty much every day. On the plus side, the NFT space is so terrible that it makes plain old crypto look FDIC insured in comparison.

That stuff is hilarious. Imagine buying a hard copy of a book at an auction for $2+ million and thinking you have the copyright rights to it! What fools.

 

[jim584672]

You definitely want to get to cold storage as quickly as possible if you are playing in this game. crypto.com (Matt Damon) has just frozen all transactions due to customers reporting thefts in their accounts.

 

[turbo89]

You definitely want to get to cold storage as quickly as possible if you are playing in this game. crypto.com (Matt Damon) has just frozen all transactions due to customers reporting thefts in their accounts.

This was an interesting case, as it apparently impacted people who had 2-factor authentication activated.

I certainly understand why folks would want to use cold storage, but the transact fees and loss of staking yields make it less attractive in my eyes.

This is “part of” crypto… its kind of the Wild West. As investors we need to pick good exchange(s) with enhanced security measures and good insurance. Staking adds a layer of security, as it can be used to lock your money up for specific durations.

 

[Markola]

I read through the article in post #158 above and a few others. It seems almost all of these exchange hacks involved hot wallets and other internet-connected assets, and the Coinbase hack and some others involved 2fa authentication Sim swap scams. I haven’t seen one yet of hack of cold storage on a reputable exchange or a personal custody hardware wallet but please post if you see one.

My bank and other systems also use 2fa authentication, which was touted as the gold standard of online protection. From what I can tell, scammers have better success with texted codes rather than authentication apps.

 

[all4j]

There is a narrative floating around that younger people are buying crypto as an inflation hedge rather than buying gold. I have not attempted to verify the volume of gold transactions to see if it has changed lately. This narrative posits that the boomer generation who has bought gold as an inflation hedge is dying off and their heirs are dumping the inherited gold and buying crypto instead.

Another narrative I have heard recently, which is probably older, is that the price of gold is being suppressed by activity in the futures market where "paper gold" can be sold much in excess to the actual supply.

A couple things I have been wondering about is whether a drop in the stock market will trigger a flight to the safety of bitcoin as some pundits predict and also if a blow off top in crypto might trigger some diversification into stocks among the young crypto buyers.

I saw another article saying that in 2020 and 2021 there was quite an increase in the number of younger people opening brokerage accounts. I wonder if this group will be more receptive to crypto and perhaps swing trade between stocks and crypto.

Interesting -- thanks for insight. A few thoughts...

Actually part of what I heard was along the lines of outflow from gold to crypto (at least in US/Europe, but opposite in Asia). To me though, that is perhaps more of a symptom than a driver. Implies investor did own gold, then switched. Folks buy gold for different reasons, especially in some cultures. I believe that some who try to create a simple, etf version of the permanent portfolio/golden butterfly/all weather generally substitute bitcoin for part of the commodity (not cash/dollar) portion. I wonder if this will become more prominent as crypto matures & has greater liquidity/efficiency. I still question why one would see a greater inflation hedge in crypto than other assets? It does move away from a currency being devalued, but does it secure greater assurance of retaining purchasing power in the future?

Demographics are an interesting dynamic for sure. I wouldn't read much into an increase of younger folks opening brokerage accounts. At least some of that was driven by the meme stock craze -- perhaps not long term investing. I have heard some have tired of renting or living at home. Coupled with more work at home opportunity, they are generating demand for real estate more than previously.

As central banks shift their intervention in upcoming months, there will undoubtedly be shifts in allocations. If, as you say, there is perceived "safety of bitcoin", perhaps it will get inflows at the expense of stocks & bonds. For a generation of investors who haven't seen risk in the marketplace, it may be uncharted waters

 

[explanade]

I read through the article in post #158 above and a few others. It seems almost all of these exchange hacks involved hot wallets and other internet-connected assets, and the Coinbase hack and some others involved 2fa authentication Sim swap scams. I haven’t seen one yet of hack of cold storage on a reputable exchange or a personal custody hardware wallet but please post if you see one.

My bank and other systems also use 2fa authentication, which was touted as the gold standard of online protection. From what I can tell, scammers have better success with texted codes rather than authentication apps.

Supposedly Google Voice numbers are better because scammers can't reach Google employees to fool like they can telephone company employees.

 

[joesxm3]

I saw some discussion that the crypto.com hack got past 2FA, including things like Google Authenticator. While looking for more info, I came across this article on how malware on the phone can get at the secret sauce used by the phone based authenticators.

I guess the main takeaway is if you are using Google Authenticator for something serious like your brokerage account, it would be worth the extra cost to have a dedicated phone to run it on that you never download apps to. I suppose that is hard with so many apps being force fed to phones these days.

If your brokerage or crypto exchange supports a hardware device like Yubikey, you are probably better off using that.

https://finance.yahoo.com/news/most-mobile-authenticator-apps-design-130000637.html

 

[oldie]

A better analogy for Bitcoin might be land on the island of Manhattan, as there is a finite number of parcels and developers are building aggressively on top of it.

There are thousands of islands out there which have also finite land but which nobody is buying.

The land of the island of Manhattan is valuable because people want to live there (for the reasons which have nothing to do with it being Manhattan), not because there is finite land.

The only value of crypto right now is speculative, and it is not backed by anything except the speculating interest of others.

 

[target2019]

When I click on the link, a pop up asks me to subscribe, and if I clear that popup, it sends me to the home page where I don't see the article.

Here is a caption from the page. There is a video as described below.

Play Video
CoinOS CEO Kris Constable and NextWorldLeader Managing Partner Shannon Allen discuss how crypto holders can protect themselves from hackers and mitigate their cybersecurity risk. "Not your keys, not your crypto," Constable said, echoing the mantra of the digital asset space.

Without banking or legal protection you're screwed. For older investors who are already prey, this is a layer of complication. So the elderly guy is watched by spyware, or a close contact is tasting his secrets on paper.

 

[Markola]

While we’re fretting about risk and friction, hoping the Bitcoin ecosystem will evolve to be a safer and simpler space before we somehow lose our own stashes, it’s worth considering some of the risks and frictions of the traditional finance system. This Bitcoin Magazine article explores how Bitcoin developers are disrupting the half-century year-old global wire transfer regime, and why that antiquated system’s security flaws, fees, delays and exchange-rate problems needs disrupting to save corporations and individuals considerable time, hassle and dollars.

In my own career, I’ve been amazed at the volume of dollars that flow via wire transfer into every organization I’ve worked for that have no identifiers except the sending bank. We spent countless hours contacting our employees asking, “Is this your money?” The blockchain ledger of Bitcoin and related apps on the parallel Lightning network are starting to solve this massive inefficiency.

https://bitcoinmagazine.com/business/bitcoin-is-a-revolution-for-global-money

 

[Markola]

There are thousands of islands out there which have also finite land but which nobody is buying.

The land of the island of Manhattan is valuable because people want to live there (for the reasons which have nothing to do with it being Manhattan), not because there is finite land.

The only value of crypto right now is speculative, and it is not backed by anything except the speculating interest of others.

Yes, I said it wasn’t a perfect analogy. This new asset class defies perfect analogy. It’s not my duty to try to persuade anyone else why growing numbers of people are buying lots on Bitcoin Island. Regardless of individual opinions, it is an eleven year global trend that isn’t slowing, resulting in 170% average annual appreciation and a spot price of $42,000 US at present. Most people who undertake an open-minded study of the space want to know more and more. The fact that the vast majority of people can’t, won’t or don’t yet “see it” means that the total addressable market remains enormous. These disruptive technologies are in the embryonic stage, and I am personally most curious to witness the next ten years.

You’re also right that there are thousands of Sh*tcoin Islands that may or may not ever be developed into anything meaningful or occupied for very long. For lots of important reasons that curious people can study for themselves, Bitcoin Island is distinct from all the rest and it is the place that I plan to HODL down.

 

[Gumby]

MODERATOR NOTE: This discussion is drifting into the Bitcoin good/bad argument, which is barred by the rules of this thread. If it continues, the thread may be closed. Please adhere to the rules.

 

[Markola]

I want to be respectful of the rules. If the mods directed this comment at me, I honestly don’t understand this “good/bad” rule and I, for one, could use some clarity; the ER Forum has endless posters making their cases for their risky investments in options, derivatives, preferred stocks, real estate of all kinds, day trading stocks, junk bonds and you name it. What is the forum’s commenting standard, please?

If the mods would please spell out where the above discussion went awry, it would provide an example to help us understand the lines not to cross, especially when someone shows up with an uninformed and critical comment. If it wasn’t directed at me, where was it directed, please?

I do understand that we don’t make comments about people’s ages, and that someone’s recent age-related comment above in #167 is still there.

 

[REWahoo]

^ Did you see the first post in this thread, where the mods set the rules for commenting?

 

[Markola]

Yes, and I try consistently to say “This is what I choose to do. YMMV.”

 

[braumeister]

Two points:

Post #1 in this thread lays out the standards for posting here. If that is still too opaque, it is probably best not to post in this thread.

Comments about moderation do not belong in the forum, but should be addressed by PM to a moderator. That has always been the rule here.

 

[jim584672]

Say I want to invest $100,000 in BTC today. I wire the funds to Coinbase (or any place that handles this stuff). How much does it cost to get my position on the Blockchain with my private key and how soon would that be done? Not interested in new and upcoming things, so today.