alternative currency

[RedSpawn]

From today's Dealbook:

https://www.nytimes.com/2017/11/27/technology/bitcoin-price-10000.html

 

Hmmmm. Bitcoin is very expensive.

 

From Bloomberg:

About that bitcoin. . .

 

https://www.theguardian.com/technology/2013/dec/11/ernst-young-warn-bitcoin-payment-problems

[y66]

Tyler Cowen takes a semi-hedged position on bitcoin:

 

There is a joke circulating on Twitter: “A boy asked his bitcoin-investing dad for 1 bitcoin for his birthday. Dad: What? $15,554??? $14,354 is a lot of money! What do you need $16,782 for anyway?”

 

To put it mildly, the price of bitcoin has been volatile as of late. Last week, the price rose about 40 percent in 40 hours, with plenty of seesawing before and after.

 

In August I argued that bitcoin is here to stay, due to its role in helping people transact without a gatekeeper, and its function as a store of value and for portfolio diversification. The next question, of course, is what the price of bitcoin should be, and whether the recent range of $15,000 to $20,000 is insanely high, just right or still undervalued.

 

One approach is to ask what role bitcoin and other cryptoassets are likely to play in global portfolios. Under one (very rough) estimate, total global wealth is about $241 trillion. Because the total value of cryptoassets has been hovering in the neighborhood of $300 billion, that constitutes about one-eighth of 1 percent of the total global portfolio. If you think of cryptoassets as taking on some of the hedging functions of gold or government securities, that valuation doesn’t sound so crazy.

 

To consider some other rough estimates, the total estimated value of the above-ground gold stock is about $7.5 trillion. Diverting 1 percent of gold holdings into bitcoin gets its value up to about $5,000. The current bitcoin price is several times beyond that, but a range of $15,000 to $20,000 again seems within the bounds of reason, at least to this observer. To the extent bitcoin is a store of value and a hedge, it is competing with gold more than with government fiat currencies, which ultimately are defined by their transactions uses.

 

Or compare a $200 billion to $300 billion market cap for bitcoin to a $450 million price for a single painting by Leonardo da Vinci -- one that is arguably mediocre and perhaps not by Leonardo’s hand at all. Bitcoin values seem at least as easy to defend, even if they have a subjective component just as artworks do. In recent years, the world has moved more broadly to much higher valuations for focally important stores of wealth, whether they be Swiss government bonds, famous paintings or bitcoin. We don’t know those higher valuations will prove correct in the longer run, but seeing bitcoin as part of that broader trend is very different from simply asserting it is a bubble to be banned, as Nobel laureate Joseph Stiglitz has done.

 

On one common view, the high and rapidly fluctuating price of bitcoin is a sign of a malfunctioning market. Maybe so, but there is an alternative hypothesis that bitcoin is still not very well understood. That means even small pieces of information can cause big revaluations. Perhaps it will take us a very long time to understand the properties ruling the value of bitcoin and other crypto-assets. That could mean the asset’s price gyrations become the new normal rather than an exceptional period of unusual froth.

 

One striking feature of bitcoin is the sociology of its acceptance and promotion. There is a small coterie of people who have mastered the details of its operation, and ownership is quite concentrated. You can take that as evidence for a manipulative clique and thus a bubble, or it may be a sign that the price could yet rise. I am regularly struck by how many people, including business sophisticates and my professional economists, have little idea how bitcoin works. They seem to have no interest in buying it, but perhaps that will change, if only through their pensions and mutual funds.

 

The real story of bitcoin is a heartening one of community. Less than 10 years ago, the bitcoin asset was worth virtually nothing, but a small group of people believed in it and worked tirelessly to promote it, and now the whole world is watching. It’s a tale at least as old as Christ and the Apostles. Maybe the bitcoin believers are as much of a miracle story as that of the brilliant inventor Satoshi.

 

The thing is, I don’t always believe in miracle stories of community, not in these days of declining governance and possibly fraying social order. Yet I’ve become emotionally involved in tracking the bitcoin price, perhaps because I realize that if one such miracle of “ex nihilo” creation can be sustained, others are on the way. I don’t think bitcoin is a bubble, but every morning I wake up doubting.

[y66]

Bitquote of the day:

 

It can spice up a portfolio. Think of it as cayenne pepper in your soup. A pinch can go a long way but if you dump a teaspoon in you’ll ruin it.

Andreas Antonopoulos, author of Mastering Bitcoin and The Internet of Money. Mr Antonopoulos recommends investing only “to the extent you understand the technology”. But expunging it entirely from your investments is unnecessary, he adds, in spite of its many risks.

[y66]

From Clearmatics:

 

“In distributed ledger technology, we may be witnessing one of those potential explosions of creative potential that catalyse exceptional levels of innovation.”

 

The sentiment behind this proclamation in a report by the UK Government’s Chief Science Advisor is shared in the private sector. Accenture estimates DLT can save eight of the ten largest banks 30 percent in costs. Goldman Sachs estimates it can save global capital markets $6 billion annually. And Santander believes it can save the banking sector $15 and $20 billion a year in infrastructure costs. DLT can elegantly and securely solve the inefficiencies presented by storing data in centralized ledgers.

 

However, while DLTs can verify transactions, they cannot automate their execution. Business processes will still be run through complex, error prone, and highly inefficient models that often rely on third party “black box computation.” These existing processes are inefficient, opaque, and costly.

 

Innovators in financial markets, the Internet of Things, healthcare, and other sectors are on the cusp of disruptive solutions promising significant economic benefits. Yet, this infrastructure will stymie these innovations. New technology and business models that rely on complex, data-rich processes need a new business processing solution.

I remember how Mosaic changed the way people viewed the Internet almost 25 years ago and the browser wars that followed. I suspect there are very good reasons why Tyler Cowen wakes up every morning doubting the miracle of bitcoin which is not the same thing as the miracle of distributed ledger technology.

[hrothgar]

From Clearmatics:

 

Let's make sure that we're including the cost of the electricity necessary to run the distributed ledgers...

 

Right now, bitcoin works because miners are able to steal electricity.

 

It used to be that they were "just" grabbing power from oligarchs in China with surplus coal plants.

 

Now-a-days, things are getting a lot more fun as cyber criminals move away from DDOS for hire and ransomware in favor of running bitcoin miners on compromised machines...

[y66]

From Matt Levine's Jan 11th column at Bloomberg:

 

Sex blockchain.

 

Sure I mean okay whatever I don't care it's fine:

 

LegalFling records sexual consent in a legally binding agreement, which is verifiable through the blockchain.

 

Sex should be fun and safe, but nowadays a lot of things can go wrong. Think of unwanted videos, withholding information about STDs and offensive porn reenactment. While you're protected by law, litigating any offenses through court is nearly impossible in reality. LegalFling creates a legally binding agreement, which means any offense is a breach of contract. By using the LiveContracts protocol, your private agreement is verifiable using the blockchain and enforceable with a single click.

 

Every sentence is ... a sentence. "LegalFling allows you to request consent from any of your contacts," the website says, and I hope it means your LinkedIn contacts. "Asking to sign a contract to have sex can be awkward," as opposed to the presumably non-awkward blockchain-based "sexual consent with the click of a button." "Only the transaction hash is stored and timestamped in the blockchain, so your privacy is guaranteed," because you wouldn't want SexCoin miners to have the unencrypted details of your sexual encounters. "Escalate a breach with a single click, triggering cease and desist letters and enforcing penalty payments," is also a sentence that appears on my computer screen right now. I hope the cease and desist letters arrive during the sex.

 

I tweeted about this thing yesterday, and some people took it a lot more seriously than it deserves to be taken. (I will bet you one SexCoin that no one will ever negotiate sexual consent on LegalFling's blockchain.) One objection that people raised is that sexual consent can be revoked at any time, and that memorializing it on an immutable blockchain does not correspond to actual human sexual behavior. The LegalFling model sort of imagines that people will come up with a clear list of sexual activities in advance, and write down and agree to that list, and that list will never change and it will be easy to tell what is on the list and allowed and what is off the list and not allowed. That seems implausible.

 

But this is not a problem of sex, it is a problem of lists. Human activity generally is varied and subtle and difficult to fully specify in advance; if you write down a list of what is allowed under any contract, that list will be incomplete and subject to interpretation and changes in circumstances. There is a utopian crypto-enthusiast belief that smart contracts on the blockchain will somehow eliminate this complexity, but that misunderstands the source of the complexity: It comes from human affairs, not from contract technology. "People who keep touting smart contracts as 'simplifying contracts' don't understand that litigating contracts is expensive because of human interpretation, not because someone forgot to write something down and get it notarized," tweeted Sarah Jeong.

 

Elsewhere in the endless crypto horror that is my inbox:

 

"Bitcoin Could End Up Using More Power Than Electric Cars," but wait until you see how much power SexCoin mining requires.

"Say Hello to Volareo: a Streaming Speaker That Pays Musicians When You Clap," but also somehow on the blockchain.

"IEG Holdings Plans to Create its own IEGH Crypto/Blockchain Currency Backed by Gold Metal and SEC Registration as a Security."

"The tea company that planned to buy bitcoin mining machines is backpedaling on its plans."

"China Quietly Orders Closing of Bitcoin Mining Operations."

"Cryptocurrencies Retreat Amid South Korea Clampdown Concerns."

"World's Top-Ranked Crypto Exchange Adds 240,000 Users in One Hour."

"Miami Bitcoin Conference Stops Accepting Bitcoin Due to Fees and Congestion."

 

That is quite enough I think. I joked last year that "If you could only say one sentence for the rest of your life, 'smart contracts via crypto make this super doable' would not be the worst choice." It would be though, it would be the worst choice. It is universally applicable, but that is why it is the worst.

This is quite enough? Agreed.

[y66]

Steven Johnson's take on how the blockchain may save the internet.

[y66]

From Sex, Drugs, and Bitcoin: How Much Illegal Activity Is Financed Through Cryptocurrencies? by Foley, Karlsen and Putniņš via Cowen:

 

Cryptocurrencies are among the largest unregulated markets in the world. We find that approximately one-quarter of bitcoin users and one-half of bitcoin transactions are associated with illegal activity. Around $72 billion of illegal activity per year involves bitcoin, which is close to the scale of the US and European markets for illegal drugs. The illegal share of bitcoin activity declines with mainstream interest in bitcoin and with the emergence of more opaque cryptocurrencies. The techniques developed in this paper have applications in cryptocurrency surveillance. Our findings suggest that cryptocurrencies are transforming the way black markets operate by enabling “black e-commerce.”