Wednesday, January 31, 2018

South Korea Will Not Ban Crypto Exchanges

Several weeks ago word hit the cyber street that South Korean authorities were preparing to ban local crypto exchanges, similar to what China's government did. As South Korea has come to represent a large share of global crypto trading, this hammered the prices of several cryptos, chiefly Bitcoin.

A few hours ago, the South Korean Finance Ministry clarified their position: crypto trading is fine, anonymous accounts and foreign currency exchange in violation of national regulation is not.

The anonymous accounts portion of their gripe is easily understood as to what it is. For combating illicit activities, virtually no governing authority allows anonymous ownership of financial accounts (regulations banning anonymous accounts went into effect in South Korea yesterday).

The illegal foreign currency exchange part is a bit more tricky, but easy enough to explain. Basically, South Korea maintains tight controls on "capital outflows" from the country. Relatively small amounts sent overseas trigger reporting requirements (as the first article I've linked to above states, it's $3000 USD equivalent). What people were doing was buying cryptos locally in South Korean won (KRW) and sending it to a partner located somewhere overseas. This partner would then sell the cryptos for the local currency there and distribute the proceeds into local accounts on their behalf. Ordinarily, this kind of activity must be carried out by licensed FOREX entities in South Korea. Because this arrangement was not carried out in KRW, it skirted the foreign exchange licensing and reporting requirements.

The intervention of South Korea's Finance Ministry is thus understandable, and expected. Fortunately the assumption that they would follow China's lead and effectively ban large-scale cryptocurrency trading has proven false, as they appear to be limiting their enforcement actions to those things that are actually violations of South Korean law. So once again, rumor traveled faster than fact, and in such a tiny global market as cryptos, it had a huge effect on the price. This news is only a few hours old, so as word spreads about it, perhaps we'll see some favorable movement in the market cap of cryptos generally as a result.

Tuesday, January 30, 2018

GBTC Splits 91-for1

This morning I took a peek inside of my self-directed 401(k) in order to update my records, and I noticed that the value on my spreadsheet was down by several thousand, while the stated value of the account at the brokerage was still correct.

It was my Grayscale Bitcoin Investment Trust (GBTC) position, with a pre-market printed price of $19.14, rather than the $1700-$1800 per share price that I've been accustomed to seeing lately.

Sometimes this kind of thing is just a misprint of the price when the information coming through the relevant networks gets scrambled. Other times, it's something else. So I scanned right, and sure enough, it was that something else: GBTC just completed a 91-for-1 split.

Basically, in order to make the stock more accessible to a wider number of potential owners, the company has increased the share count without changing the value of the stock. The entirety of the trust is still worth what it was prior to the split, but now there's ninety-one times the number of pieces of the whole pie, which each being smaller are much easier to trade (if you're trying to maintain defined allocations in a portfolio, that is; the actual buying and selling of GBTC shares is just as easy as it was before).

This is excellent news for me as I hold GBTC in my 401(k) as part of a crypto-inclusive take on Harry Browne's "Permanent Portfolio." It did great for me, doubling the account up until I rebalanced the portfolio in December (which by blind luck I did on December 18th, right before the Bitcoin price began to fall from its high to current levels). However, after doing so I was left with so few GBTC shares that continuing to rebalance in order to keep that portion of the portfolio within a 25% allocation was going to be very difficult. I mixed in MGTI shares to the allocation to give it some more flexibility, but now I may not need to maintain that stake for that purpose.

Monday, January 29, 2018

Futures Markets Manipulated by "Spoofing," Gold Bugs Right All Along?

I saw this come across one of my news feeds this morning (I don't remember which, I pay attention to several):
"WASHINGTON (Reuters) - U.S. authorities were set to arrest several people on Monday in connection with a federal investigation into so-called spoofing and manipulation in the U.S. futures market by three European banks, three people with direct knowledge of the matter told Reuters...

...UBS, Deutsche Bank and HSBC and former traders at the banks, as well as individuals at other firms, were charged following a large-scale multi-agency probe including the Commodity Futures Trading Commission (CFTC) into so-called “spoofing” in metals and equities futures...

...Spoofing, which is a criminal offense under the 2010 Dodd- Frank financial reform law, involves placing bids to buy or offers to sell futures contracts with the intent to cancel them before execution. By creating an illusion of demand, spoofers can influence prices to benefit their market positions." -- M. Price
I have part of my portfolio in precious metals. I keep up on goings-on with those particular investments by reading and listening to podcasts. It has been a persistent theme among the so-called "gold bugs" that contribute their viewpoints that the price of gold and other precious metals has been artificially suppressed by futures market manipulation of the spot price, absent which prices of precious metals would soar. And so they patiently stack up bullion while waiting for the day to come (a day that they insist is inevitable, but always seems to be tomorrow...).

Well... what if they're right?

The article I've linked to above states that the investigation that has led to these pending arrests has been going on "for more than a year." Consider this one year gold price chart from Money Metals Exchange:

There are a lot of factors that drive the price of a global commodity like gold. However, its pricing is heavily dependent upon price discovery in the futures markets. So as these arrests go forward and the word spreads that market manipulation doesn't pay anymore, if the prices of gold and silver suddenly begin to rise, then one has to wonder...

Sunday, January 28, 2018

Coincheck Hacked, NEM Stolen; Don't Keep Your Coins in Exchanges, Part 2

Yesterday I began writing about the recent Coincheck hack and the resulting theft of NEM coins as a way of introducing the key distinction between an exchange getting hacked and the frequent misrepresentation of such events, which often is portrayed as "Bitcoin being hacked."

The exchange, Coincheck, is now going to be refunding the value of the stolen NEM coins to affected users, a total at the time of the hack of approximately $534 million (I assume the various news sources are quoting this in USD-equivalent value). Ouch.

Pertinent to this two-part series of posts I've decided to do is this key detail about the hack that has emerged: Coincheck was storing customer NEM holdings in a single "hot wallet" on their servers.

When I began writing on this topic yesterday, I described the hacking of an exchange versus the mistaken notion some have that Bitcoin is what gets hacked in such an event as being like someone simply taking paper currency notes out of your wallet, rather than them somehow changing the nature of the notes themselves to make them disappear from your wallet. Then I described an exchange as being like a closet full of wallets kept behind a locked door, which someone could pick and gain access to the wallets. That is exactly what happened here.

Then I posted the public key of one of my Bitcoin wallets:

If you've patronized a business that accepts Bitcoin, you've probably seen one of these near their register. It's a QR code that a Bitcoin payment app can scan to input the merchant's payment address into the app, to which you send the appropriate amount of Bitcoins from your wallet. This is what is known as the "public key" of a Bitcoin address that leads to a Bitcoin wallet, and with it you can look into the wallet associated with the address, see its balance, and when Bitcoin has arrived at and departed from it.

Sounds kind of weird, even insecure, maybe? You don't just leave your physical wallet (or purse) lying around, right? So why would you broadcast this information to the world?

But what if your physical wallet had a property to it where people could look in it all they want, but they couldn't remove anything from it?

Outside of cyberspace, that would have to be some kind of force field, magic, or a Rottweiler named Jesus.

In the realm of cryptocurrencies, this is all part of the code that drives it, which includes these public keys, but also another one, the private key.

When a Bitcoin wallet is generated (or any other crypto; the following is true of all of them, but I'll just refer to Bitcoin to keep things simple), a public key and a mathematically-related private key are simultaneously generated (they are in truth what a crypto wallet is). The private key is required in order to send Bitcoin from a wallet. Think of it like an extremely long PIN number associated with a debit card. Without that private key, Bitcoins cannot be removed from the associated wallet. This is why when you hear stories of "lost" Bitcoins, it's actually this key that has been lost, as the Bitcoins in the wallet associated with it stay put and are clearly visible to the entire world, but no one can reach them (worst of all, visible to but unreachable by their true owner).

The need for and the use of the private key is why coins kept on a crypto exchange can be vulnerable to theft. Because the private key is required to send Bitcoins from a wallet, in order for an exchange to facilitate the sends that their customers might order from their own wallets, the exchange must be in custody of the private keys of those wallets. This creates the potential for someone to break into the system and steal the private keys, and with those keys, steal the coins stored in the wallets that are hosted on the exchange (or in the case of Coincheck, "wallet," as they had everyone's NEM coins stored in one giant wallet).

So, as I've said previously, when an exchange gets hacked, it is not the stolen coin or its blockchain that has been hacked. They work just like they are supposed to: when the blockchain network receives instructions to send coins from one wallet to another, and the proper private key is used, the system works exactly like it is supposed to. It was the security failure on the part of the affected exchange that allowed the private keys to fall into the wrong hands, which is the root cause of the theft.

This is why many (myself included) recommend that you do not keep the bulk of your crypto currencies on exchanges. Just enough for immediate spending wants and needs, or for trading, should be kept in these so-called "hot wallets."

So if it's not a good idea to keep your cryptos on an exchange, where do you keep them? For that, you have several options. These are the most common:
  • Hardware wallets: these are special purpose electronic devices that can store cryptos on them, also providing wallet address management, such as generating new wallets and moving your cryptos into them, all on the device itself, so that your coins become a "moving target" on the blockchain. Hardware wallets keep a firewall of sorts between themselves and the computers they are attached to such that the private keys are never transmitted to the computer, only signed transactions (sends), allowing them to be used even on untrusted computers with a high degree of security. Downsides: a special purpose physical device like this can become lost or damaged (though there are ways to recover your wallet(s) to a new device), they demonstrate that you probably own Bitcoins (might be an issue at a border crossing, for example), and they cost a bit. Some popular examples: Trezor, Ledger Nano S. This is the storage method that I'm planning to go with in the near future.
  • Software wallets: this is a wallet hosted on your computer, tablet, smart phone, etc, facilitated by a wallet app like Mycelium. These apps store and manage private keys within them, with varying degrees of security sophistication, and while more secure than the "custodial wallets" of exchanges, being directly connected to the internet does introduce some vulnerability. This is a reduced risk given the fact that a hacker would have to attack your device directly, which is a "needle in a haystack" sort of proposition that it unlikely to interest them, given the time involved, the difficulty, and the "small fish" that you represent relative to an exchange. All the same, the most obvious downside is that this kind of wallet could be hacked, so they should be treated as a "hot wallet" in which you only keep enough of your coins for near-term, anticipated uses.
  • Paper wallets or "cold storage": This is exactly what it sounds like, a crypto storage "device" made of paper. It is simply a paper printout of the address and QR code of both the public key and the private key of a crytocurrency wallet, to which the owner sent coins at some point. Because the private key only exists offline, there is simply no way to steal coins from this kind of wallet without physically obtaining the paper the private key is on. They are generated by websites that can be run in offline mode, by smartphone apps, etc., which are typically one-time events that are not stored in the memory of the device used to generate them. Bitcoins kept in this way must be "swept" into a hot wallet account in order to use them, typically by using a software wallet app like the one mentioned above, which is as easy as scanning the QR code on the private key paper and moving the balance of the coins to that new hot wallet. The potential downsides here are interception of the private key upon generation if the device used to generate the wallet is compromised, retrieval of the private key by a hacker from the memory of the printer, etc. All of these possible attacks, the probability of which are remote, require that appropriate precautions be taken before and after generating and printing the new wallet. The biggest downside, however, is more ordinary stuff: because the private key is on a piece of paper, it is vulnerable to fire, water, theft, cats, etc. You can mitigate this risk by keeping multiple copies of your private key in water-resistant containers, locked up at secure sites that you can remember (mine are kept in ziplock bags under lock and key in public places where anyone attempting to coerce me into giving them the key would be surrounded by dozens of witnesses, plus I'm usually armed).
If you've been thinking about getting into Bitcoin, Litecoin, etc. but have hesitated because of these "Bitcoin hacks" you've probably heard of, hopefully this information helps you better understand what is really going on by separating facts from headlines. Cryptos are decentralized systems, meaning "The Man" is not in charge, and as such securing your coins and using them wisely is entirely upon you. This is the tradeoff for the liberty that cryptocurrencies offer: they require individual responsibility. That said, it's not as hard as it might sound to protect your coins, it's just that the FUDsters out there love to make it sound like it is.

Saturday, January 27, 2018

Coincheck Hacked, NEM Stolen; Don't Keep Your Coins in Exchanges, Part 1

A few days ago the news came out that a hack occurred at the Japanese crypto exchange, Coincheck. The hack was directed at NEM coin holdings on the exchange, leaving other coins such as Bitcoin and Ripple untouched.

Naturally, this led to another decline in the price of Bitcoin, about 7%.

Any time an event like this occurs, the perception is that a crypto got hacked. Not an exchange, but the coin itself. There's an important distinction here to be made that makes a huge difference in understanding the risks involved in holding cryptocurrencies.

To understand the difference, simply think of this in terms of fiat paper notes in your wallet (U.S. dollars, British Pounds, Mexican Pesos, any of them). Let's say that you're walking down the street with your wallet in your pocket, and a skilled pickpocket fishes your wallet out of your pocket while you're distracted by something. She takes the dollars out of your wallet, and before you notice, slips it back into your pocket. You discover later that your money is gone.

Now, would you say, "my dollars were hacked?"

No, of course not. Your dollars were stolen from your wallet. Wherever it is that they've gone to, the dollars still exist, the wallet still exists, and neither of them have been altered in any way. It was just that the dollars being in your wallet, which was in your pocket, did not offer sufficient security to prevent the dollars from being taken out of your wallet against your will.

The problem wasn't with the dollars. The problem was with the location you had them stored and the level of security if offered.

Bitcoin and other cryptocurrencies work in the same way. The nature of the blockchains that back all of them eliminate the possibility that the system driving them can be hacked. This is due to the distributed nature of these networks and the insurmountable cost involved in taking over enough computers on the network to hack the blockchains, which makes it more profitable to join the network as a miner than to try and attack it.

What gets attacked are exchanges, which you can think of as a big closet full of wallets. When someone hacks an exchange, it's like they picked the lock on the closet door, and they simply have gained access to the wallets inside the closet, giving them the ability to remove money from those wallets and place it in their own somewhere else. The stolen coins, the wallets, and the blockchain behind them function like they should, there is no alteration to the code or an exploit of a bug within it. The problem was the "lock" securing the exchange, which is code that has nothing at all to do with the blockchain of the stolen coins, it is a completely separate system.

How do you defend against this? It's actually pretty simple to do, but I'm going to leave the details of that for tomorrow's post, basically because this could get pretty long, and because I haven't eaten breakfast yet and I'm starting to feel a little light headed.

Just to leave you with a taste, here's the address of one of my Bitcoin wallets. You can actually look into my wallet and see how many Bitcoins I have in it.

Why the hell would I show this to the world, you might be asking. Well, because the world can already see it, if they have the "wallet address" (which you now do), and there's no way for anyone to take anything out of it anyhow. All anyone can do with this information is put more Bitcoin into my wallet (and doing so will make you feel awesome!). Because of how I have these Bitcoins stored, no one can access my wallet to send Bitcoins from it to somewhere else.

How this works I will explain tomorrow.

Friday, January 26, 2018

Multiple Streams of Income as a Hedge Against Disaster

My working life these days is as a one-man show in the pest control industry, which is an endeavor that is currently in the middle of its seventh year.

Yesterday was one of my "on" days working at my business, which started dark and early. I have a particular client that requires I be on-site and ready to go at 06:00 when I head there for my weekly rounds, so into the cold and black morning went I.

When I left my house, there was no ice. When I got to my destination, there was also no ice.

In the middle of the trip, in a low spot on the highway I was traveling, there was ice. Black ice.

I hit it coming out of a curve, and my truck just kept going the wrong way. It began to fishtail, so I took my foot off the accelerator and tried to turn into the spin, but the truck wouldn't correct. It then spun 180ยบ around and began sliding sideways across the on-coming lane and off the road.

I was traveling past a wheat field, so there wasn't much to hit, except for an old wooden fence running perpendicular to the road. I slid into the field going backwards, and I think my rear bumper must have taken out the one post that got knocked down, because other than a busted exhaust line hanger and a slightly bent tailpipe, there wasn't any body damage. What luck, eh?

I started the truck back up, put it into 4-wheel drive, drove out of the field and up to the nearby farmhouse that I assumed was where the owner lived. Turned out that it was his fence that I hit, so I gave him my business card and said I'd be back later when the sun was up so we could figure out what to do about it all.

I went on to my first job site, took care of business there, then went to a local specialty muffler shop in town to get the only apparent damaged repaired. They were able to straighten the exhaust pipe and replace the broken hanger, which was done in just twenty minutes and cost me $50. Not bad!

I drove back to the farmer's house to see what the fence looked like in the daylight and to take some pictures. All in all, the damage was not great. It was just a post that got broken down, a few rails maybe, too, and a "goat fence" panel was pushed over. Definitely not anything that was worth engaging with my insurance company and my $1k deductible over, so I went up to the farmer's house to talk it over with him.

He didn't seem too concerned about the whole affair (I think he was just happy that someone owned up to it; he said that his fences had been hit several times this winter, but most people had just driven off...). That section of fence wasn't meant to keep any animals in, mostly it is just a property marker of sorts is what I gathered from our conversation. I told him my insurance deductible was easily way too high to make it worth it to go through them, so he asked if we could just handle it with cash between us. I said "sure!" and offered him $250, figuring that beyond materials I should pay for his time or the time of whomever he might hire to rebuild the fence. He liked my offer, we shook on it, and I promised to come back on my way home at the end of my day and bring it to him. Then he said, "you should give it to my wife, that'll make her happy." I got a bit of a laugh out of that.

What does any of this have to do with multiple streams of income? Well, two things. For one, if I had been injured and unable to work, I'd still be earning through some other means. The other thing is that what came in yesterday from my other streams helped to offset the loss my pest control business incurred yesterday.

So between the exhaust line repairs and the farmer's fence, I was down $300. However, yesterday my other income streams contributed:
  • $110.49 in dividends from the stocks I hold for income in my Robinhood account
  •  $35.64 daily average rent was earned on the various pieces of property I have let out
  • $3.20 of daily interest was paid into my cash value life insurance
  •  $1.58 worth of Bitcoin came in from my Hashflare mining contracts
  • $0.58 daily interest was credited to my Forex account from certain currency long positions
  • $0.50 daily dividends were earned on my land deeds in Entropia Universe
 So that's a total of $151.99 that was earned from other sources (passive sources!), and these are just the ones that kicked in something yesterday (a few others, like my Acorns account, just didn't happen to have any payout activity at the time). That wipes out slightly more than half of the loss I suffered thanks to that one patch of ice. Total revenues for my pest control business yesterday were $665 and change, so even without the passive sources, I finished the day "up" anyway. And then at the end of the day, an unexpected piece of new work fell into my lap with a potential revenue amount of $245. Bonus!

Like I said though, had I been injured and taken out of the game, those other revenue streams would keep going, because they don't require me to put my time into them (or at least, very little). Short of that level of disaster, they at least took some of the sting out of the whole affair. Yesterday morning's mishap also underscores for me the importance of continuing to build these streams. There is data out there that shows how becoming disabled is the main cause of a majority of personal bankruptcies. You can hedge against this by carrying a personal disability policy, but unlike building multiple streams of income, particularly passive types, a disability policy will only pay if you do in fact become disabled, while passive income streams pay in sickness and in health. Thanks to building these other sources of income while also paying down debts, at this point I only need to net $15k USD per year to keep my household budget funded (the roof over my head, lights, food, and a little money for fun, basically). If I were already across that threshold, where my passive income sources at least meet or exceed my annual budget, work would be optional.

And if work is optional, then there won't be any benefit in taking risks like traveling to job sites in the dark in the dead of winter...

Thursday, January 25, 2018

Atomic Swaps: Giving New Power to Bitcoin and Possibly Nuking Competitors

Yesterday I wrote about the news that the Lightning Network is essentially here and it is growing as a solution to Bitcoin's scaling problem. It will return Bitcoin to the days of being able to buy a cup of coffee with it again, because the reduced on-chain traffic will tremendously reduce transaction fees while also speeding up transactions.

There's another capability that Lightning is bringing to the Bitcoin ecosystem that will further bolster the use case of Bitcoin, as well as several other cryptocurrencies: atomic swaps.

An atomic swap is an exchange of one crypto for another without the need for a third party. So, for example, you could trade Bitcoin for Litecoin with someone else, or convert some of your Bitcoin to Litecoin without the need for an exchange, a conversion service like, etc. What's more, this all happens in one transaction and it does not require multiple steps with a counterparty that may not come through on their end of the deal. The transaction either completes in-full, or not at all, eliminating the possibility that one party might run off with the other's coins.

On that last point, that's where the term, "atomic swap" comes from: the process of the trade and its end result are all one event, a whole that cannot be divided.

This does not work for all cryptos, however, and this is where I think some big changes could occur as a result of the mass adoption of Lightning on the Bitcoin blockchain and the ability for crypto holders to do these swaps.

I think this could trash the value of a lot of alt coins that do not use the SHA-256 hash algorithm.

That is the hashing algorithm that Bitcoin operates on, as does Litecoin, fork coins that came from Bitcoin such as Bitcoin Cash, and a few lesser-known types that have successfully completed atomic swaps with Bitcoin, such as Vertcoin and Decred.

Basically, I think what will happen is that the appeal and utility of trustless swap functionality between different coins within the SHA-256 "universe," plus the first mover advantage that Bitcoin has as the best known, most widely accepted crypto for every day purchasing (not to mention its prominence in elements of traditional finance, futures contracts, representation by the stock, GBTC, availability via Bitcoin ATMs, etc. ) will draw interest away from alt coins outside of this grouping to the point that many of them will be abandoned. After all, coins not operating on SHA-256 will then require third parties to exchange back and forth with what will be the largest, most liquid, most accepted, and most active crypto universe, instantly making them cumbersome by comparison, less appealing, and thereby severely hampering, if not completely destroying, their value proposition.

I have no idea how long it might take for this to become a widespread, every day kind of thing. All I can say is that I see it on the horizon, and because of that I have even less of an interest in most altcoins than I did before. I already don't think the future is bright for many of them as most of them solve no unique problem and have none of the name recognition, appeal, and use that Bitcoin does. Now, I think their future is even dimmer (and approaching faster). I see most of them as pointless "also rans" that are just copycats that will fade. For coins within Bitcoin's orbit and sharing its hashing algorithm, however, I think this could benefit them greatly, perhaps increasing their value as the addition of Lightning on top of the Bitcoin blockchain increases its value.

I already own some Litecoin. I could see myself swapping some of the Bitcoin that my Hashflare mining contracts are yielding for more Litecoin, especially if its potential as a 4-to-1 complement to Bitcoin begins to be reflected in its U.S. dollar price...

Wednesday, January 24, 2018

Faster Bitcoin: The Lightning Network's First Flicker

Click here to learn more
If you've been an owner and user of Bitcoin for the last couple of years, then you're well aware of the delays that can happen when trying to buy and sell with it (termed, "sends") as the number of transactions on the blockchain has increased. This is a growing pain of the technology that has at times hampered its value proposition. Naturally, people are working on solutions for it.

One of the ways people have attempted to resolve this is by forking Bitcoin into new blockchains with different rules. The primary example of this is the fork that resulted in Bitcoin Cash, which occurred last August. This created a new blockchain system with one key difference from its parent chain: the size of the blocks that contain the transaction data people generate by using the coin was increased to eight megabytes from two. More transactions being recorded in each block was thought to be the easiest, most obvious way to increase the speed of the blockchain. There are pros and cons to this approach, and its utility and value proposition remain to be seen.

Several years ago a different approach was proposed and began to be developed: instead of tinkering with the existing blockchain, why not layer what amounts to a smaller, faster blockchain on top of it, which only finalizes transactions that take place within it after all "micro transactions" between parties are concluded, effectively only recording on the Bitcoin blockchain the final balance of Bitcoin between two wallets?

They called it, "The Lightning Network."
"The Lightning Network lets Bitcoin users create "payment channels" with each other. In these channels, Bitcoin transactions can be sent without the normal wait times, because the transactions aren't committed to the Bitcoin blockchain. Instead, the Lightning Network keeps record of transactions without finalizing them, and later sends a message describing only the final balances of the channel to the Bitcoin network as a regular transaction, closing the channel and securing the balance on the blockchain.
This system cuts down on the number of messages that the Bitcoin network has to process, since only these important messages finalizing many smaller ones are included in a Bitcoin block—chronological entries that, together, make up the blockchain" -- J. Pearson
The first known real-world transaction using this network reportedly occurred this past Saturday, January the 20th ("real world" here meaning not just a test, but an actual consumer initiating payment for something). All indications are that it was a success. The amount of Bitcoin involved changed hands almost instantly, with no fees and no errors.

This is huge. This directly answers one of the big criticisms of this technology, that with increasing adoption comes increased transaction costs, and therefore fewer practical uses. This is why several FUDsters out there constantly harp on Bitcoin's "failure to work as money." If all you wanted to do with it is buy a cup of coffee, then yes, it becomes the wrong tool for that particular job. But it would be (is) foolish to assume that the people developing this technology would come this far, only to stop and let it grind to a halt under its own weight; the Lightning Network is an answer to that challenge.

As the Wired article I've linked to here states, this isn't a done deal. Just like Bitcoin itself, Lightning requires adoption to become more of a force in this space. However, given the potential benefits of Lightning, participation is growing.

Bitcoin as a stable store of value that cannot be manipulated by crooked banks or inflated away by corrupt governments has always been the dream behind it. It was envisioned as a secure network that requires no trust on the part of any party, simply operating by set, clearly defined rules across any border. Its potential value as that to people all over the globe is tremendous, and that is the big reason it has gotten to the valuation is has now. Yes, it has fallen far from its most recent peak, but even after all that it's worth thousands per coin. All that, with at this time barely one quarter of one percent of all of humanity using it. Despite the growing pains and the howls of all of Bitcoin's critics, its fundamental worth as a solution to problems of access, security, and resistance to corruption is still the case. With more barriers to its everyday usefulness removed, just imagine where it could go next...

(...and I'm dreaming of the possibilities of what this could do for the value of my Hashflare mining contracts!)

Tuesday, January 23, 2018

Forex Opportunity: Catch A Falling Kangaroo

I'm seeing an alignment of factors that I like as an opportunity to go short the Australian Dollar (AUD): historic price trends and a key falling commodity price.

First, AUD's current value relative to the U.S. Dollar (USD):

As you can see, it's sitting at just about $1 AUD to $0.80 USD. In the recent past, it hit resistance at this level and then fell. A big part of the reason for that is the effect a stronger AUD has on Australia's exports: it makes them less competitive on the global stage. This harms Australia's economy, which is a situation that invites intervention by the Reserve Bank of Australia to bring the currency down.

The other major factor is the price of iron ore, Australia's key export. It's at a high right now and beginning to fall. As this chart shows, iron ore is exhibiting a pattern that in the time frame displayed above looks quite a bit like that of the AUD/USD pair:

Factors at work here: rising prices led to rising production, which has now led to increased supply, which will lead to lower prices; a forecasted slowing Chinese economy, the main buyer of Australia's ore, meaning less demand, further bolstering supply and lowering prices; possible imposition of steel tariffs on Chinese steel here in the U.S., further weakening China's demand for Australian iron ore.

Put all of this together, and AUD looks ripe for a fall.

Short AUD/USD is not my trade though. Not yet; for now, I'm going long the British Pound (GBP) against the AUD:

I've circled the entry that I've identified per my method, which will simultaneously explain why I'm not going short AUD/USD at this time in favor of this trade.

As you can see, my chart is a daily (24 hour) chart that is fairly clean, including just three indicators: a 13 and a 34 period exponential moving average, and a 50 period simple moving average. For the purposes of identifying an entry, it's the 50 SMA that's the most important, with a close above or below it indicating a potential long-term change in trend. At this stage, the 13 and 34 EMA indicators serve as initial stop-loss order points, and I use an initial risk of 1% of the net asset value of my portfolio to determine the size of the trade from this initial stop-loss point. As the trade develops, the two EMA indicators just help me to keep an eye on the momentum of the price action.

That's the reason why I'm not going short AUD/USD at this time, despite it having served as the prompt for exploring AUD pairs: the entry signal is a long way from appearing at this point in time, despite the historical significance of the current exchange rate and the economic headwinds AUD now faces.

Basically, what happened was that I noticed the resistance AUD/USD long was running into, so I began scanning other AUD pairs. Most of them look identical to the AUD/USD chart, save for GBP/AUD. When I spotted that potential entry, then I began searching news articles about AUD. That led to the discovery of the key factors that can influence the exchange value of AUD I mentioned above, which when combined with recent good news on the U.K.'s effort to leave the European Union, possibly sets the stage for a continued rally of GBP against the AUD, a possible continuation of the trend only recently interrupted.

This is a highly uncertain trade as most of the support for GBP is political in nature, and it will probably spend some time in the red initially. My entry is also based entirely on a quick spike above the 50 SMA, which could reverse rapidly and negate the trade entirely. That is why I'm risking a maximum of 1% of my account on it; limiting losses is a key tactic for trading success, in any market, and a loss of 1% will not cripple an account.

I will go short AUD/USD if in the future a similar pattern develops and economic factors suggest it could go for a nice, long run.

As you can probably guess then, I don't favor short term trading in Forex (admittedly, what amounts to "long term" here might be perceived as short in another market). I've done day trading before, and while at times it was very profitable, most of the time it was very frustrating, and all of the time it brought on burnout quickly. This method has me at my trading terminal once or twice a day, once in the morning and sometimes again around the close of each trading session (21:00, or 9pm, Pacific time) for about ten to twenty minutes, maybe a half-hour if I find several interesting prospects in a single sitting. I definitely prefer the mornings, however, as a full recipe mug of Bulletproof Coffee and Forex go together nicely, I think.

If you're new to Forex, I have to say, don't just dive into this stuff. This post might make it sound easy, but trust me, Forex is hard. Beyond the technical setups and background research that goes into a successful trade is a reality of how it often plays out that makes this tough stuff to stomach: you will lose the vast majority of your trades. Profits in Forex are often all about the handful of winners that you allow to run while losers are mercilessly cut short. That is also the other extreme difficulty of doing this stuff: it is hard to make yourself let a winner run! When most people see gains starting to appear, they want to take them off the table. When gains begin to shrink as momentum temporarily fades, people really want to take the trade off the table and keep what's left! You can't do that though if you want to succeed in Forex, you have to just let the trades play out. For me, exit is when either my initial stop-loss gets hit, or the opposite condition appears that initiated the process of exploring the trade in the first place after a good, long run into profit: a cross over the 50 SMA in the opposite direction. There will often be a lot of ups and downs on the way there, but you just have to let the trade do what it will.

Fortunately, there's a way to explore this market and try out strategies without risking a penny. My broker, Oanda, offers a free practice account, which uses the actual data from the Forex market, but it's a "game" account with fake money. You can register for a free Oanda practice account here.

Monday, January 22, 2018

Bitcoin, Gold, and the Chinese Lunar New Year

I've seen a few articles on Bitcoin floating around lately with a misleading headline, variations of "Bitcoin's price decline is being blamed on the moon."

When you read into the articles, they admit that what they really mean is that Bitcoin is in a price decline that has occurred just about every year at this time, coinciding with the coming Chinese Lunar New Year.

This is a major holiday in China, and just like any major holiday anywhere in the world, lots of money gets spent. Since there are nearly 1.4 billion Chinese living in China at this point, that's a lot of economic activity in a short period of time, enough to shake global markets. Bitcoin is no exception to that; with many the world over having racked up massive gains in 2017, putting Bitcoin on the selling block to lock in those gains when it's time to spend some money makes sense.

This gets really interesting if you compare Bitcoin to where some of that capital may have gone...

There's one other global commodity that factors heavily into the Lunar New Year celebrations: gold.

Every year, traders around the world start watching gold for signs of Lunar New Year buying, as gold is a popular choice for gifts that will be exchanged during the festivities.

I hopped over to to put together a quick chart to compare the price action of Bitcoin with gold:

I went with a simple closing price line chart for each commodity, just to make this easy to see. Bitcoin, with data drawn from Coinbase, is the green line, while gold is the yellow line (of course).

As you can see, gold bottomed on December 11th, a Monday, and from there entered a dramatic upswing that continues right now. Bitcoin peaked a few days later on the 16th, and then began its present decline. They ran in parallel briefly at the end of December, but then on January 8th, another Monday, they parted ways.

Can the Lunar New Year explain all of this? No, it can't. Silver shows the exact same pattern as gold during the time frame displayed when overlaid on the chart, which could factor in to the festivities in the form of gifts. However, oil locks into the chart in line with gold, and I highly doubt that Chinese are giving each other barrels of oil as gifts. But as a cultural trigger for a temporary rotation out of Bitcoin and at least in part into other commodities, coming from a simply massive culture, I think the Lunar New Year can be credited with that trend in and of itself, as this has been the case in years prior.

What to do with this? That's up to you. I know a lot of people are hitting the "sell" button and heading for the hills. The haters are ensuring that there's no shortage of FUD being printed out there that is based on the price action only, completely devoid of context. All the same, that inspires people to flee. As for me, I really hate paying capital gains taxes, and even after these declines I would end up paying tons of taxes if I were to liquidate at this level (I got into Bitcoin relatively early).

I'm just going to keep building up my holding of Hashflare mining contracts for the time being. I find them to be a relatively cheap way to get in on Bitcoin production, which in this "falling knife" environment might be a more attractive prospect than buying and HODLing Bitcoin directly at this time. The cost of the contracts is fixed, the Bitcoin generated from them can be automatically reinvested back into more hashing power, and the dripping of newly mined Bitcoin into my wallet daily could result in some very nice dollar cost averaging as prices move from lows back to highs at some point.

The Chinese Lunar New Year ends on Saturday, February 17th this year. Perhaps the following Monday is when many gifts received will be sold for quick cash, which might be plugged back into Bitcoin...

Sunday, January 21, 2018

Randomness in Hashflare Auto Reinvesting

Over the last couple of days I've been keeping an eye on my Hashflare account in regard to a particular feature of it, the automatic reinvestment option.

If you're new to Hashflare, you may be unsure if it even works, as I was at first. What I've learned by watching it through a couple of successful reinvestments within my account is that it appears to execute at random. I can find no consistent pattern to the timing of the purchases, save for the most obvious: when there's enough Bitcoin in your account, the system buys as many additional mining contracts as you can afford.

Maybe this just happens because the system has to run through a list of accounts one-by-one, scanning for those that meet the purchasing criteria, which could be a long or a short list from one day to the next. Perhaps it's also a matter of the price fluctuations of Bitcoin and the value of your balance at the time.

I really don't know. I just wanted to reassure you that reinvestments do work, just in case you're new to Hashflare and you noticed the same thing that I did.

Friday, January 19, 2018

Easy Autopilot Investing with Acorns

The other day when I detailed the budgeting approach I use that eliminates a lot of mental stress, retires debts and builds assets, the 70/20/10 method, as I like to call it, I went into some detail on the "10" part, which is the investing portion.

The 10% that goes into investments I described as being a source of passive income to help feed the overall strategy. The mainstay of the portfolio I've built is made up of individual dividend paying stocks, and I recommended a particular broker for utilizing the plan in that way.

I realize that not everyone is comfortable picking and investing in individual stocks, however, so this morning I wanted to mention another low cost, easy to use option for creating that part of the plan, or just for easy investing in general if that's all you're wanting to do.

Acorns is that alternative.

This is another service that I've been using for a couple of years now. In short, Acorns is one of those "robo-advisors" you may have heard of, an investing firm that offers ready made, diversified portfolios that automatically allocate your cash deposits among the several components. They also automatically reinvest dividends and rebalance the portfolio when needed, too, all without you having to lift a finger.

I've had my account invested in Acorns' "moderately aggressive" portfolio since the beginning, and over the past twelve months, this is the performance it has delivered:

That's a beautiful twelve month graph, isn't it? And that's what this system has done for me, with my only involvement being an occasional  peek to see how it's doing and adding a little cash from time to time.

As you can see from the pic, this is an image I captured from the screen of my smart phone. Acorns has a web interface, but its primary interface is through the app. This makes it easy to access and use anywhere that you happen to be.

An additional feature of this platform is that you can link credit and debit cards to it and invest through "round-ups" of your day-to-day spending. What this feature does is monitor your purchases on linked cards, round up the amount to the nearest dollar, and when the round-ups equal or exceed $5, it will "sweep" that amount from your linked checking account into your portfolio, slowly feeding your investments over time based on your spending (you don't have to use this feature though, you can just add specified amount of cash to your portfolio through the app at your discretion instead).

There is a fee for this service, but for everything you get I find that it's very reasonable. On portfolio balances below $5000, it's $1 per month. When your portfolio grows past that amount, it switches to .25% annually, charged monthly and computed daily. For that you get low dollar amount investing in a diversified portfolio, dividend reinvestment, and automatic reallocation. One of these accounts can be opened with just $5. If you approach one of the "big firms" with $5 and ask for all of these services, not only would you not get access to them at this kind of price, they wouldn't let you in the door in the first place.

So check Acorns out if you want to invest but individual stocks are not your cup of tea. As you can see by the pic above, I've not done badly with it at all. It's not quite the passive income stream kind of investment I described in my 70/20/10 post the other day, but if that's not your primary concern, or if you prefer to withdraw a set percentage of your investments per year for inclusion in your budget, it can definitely work for you.

Thursday, January 18, 2018

Calculating A Hashflare Contract Rate of Return

As I've mentioned previously here, I recently began purchasing Hashflare Bitcoin mining contracts to get in on that side of the market. I'm enjoying having those as an option for participating in the Bitcoin marketplace because of their low cost, ease of purchase, and nice potential returns as the price of Bitcoin recovers.

I'd also like to say thanks to all who have signed up for it through my affiliate link. I really appreciate it!

That last point, the potential returns, that's what I wanted to talk about this morning. Right now at Bitcoin's current price as printed on Gemini, my contracts are showing a potential annual rate of return of 197.47%. What I'd like to do here is detail how I'm coming up with that figure. There's two ways to do it, and there's one result that I tend to stick to, the reason why I'll explain.

Right on the Hashflare dashboard there is a breakdown of your holdings showing your total hashing power, which mining pools its being applied to, daily revenue per terrahash, and a revenue forecast. It looks like this:

Right there you have an annual revenue forecast based on the total hashing power you own (I think it needs one payout cycle to update, however, so contracts you've just purchased may not be reflected in the total). You can take the cost basis of your contracts and divide the forecasted annual return by it to come up with a rate of return. As an example, my contracts that I've purchased thus far have cost me $136.32 (I have a few more in the total thanks to referrals, but I haven't included those in this figure as I consider them part of my return on investment). When I divide this figure by the annual forecast, I get 223.85%, as things are presently.

The other method I've been using to calculate my returns, a more conservative method that I tend to stick with, has a few more steps involved.

There's a Bitcoin mining calculator at CoinWarz that you can use to calculate the rate of return of a mining rig setup also taking into account power consumption, mining difficulty, the fee a mining pool charges, the current Bitcoin block reward, the current BTC-to-USD rate, and the cost of your equipment. These are all of the variables that are relevant to determining if owning and operating your own mining hardware is worthwhile.

To use this calculator to work up the numbers for your Hashflare contracts, you have to change several variables.

First, change the Hash Rate to reflect the total gigahash your contracts represent. In my case, right now that's 750.

Then change "Power" and "Power Cost" to zero. "Pool Fees" and "Hardware Costs" should already be zero (and that is one of the reasons I prefer these contracts over buying hardware, even though I live in a hydropower state and our electricity is even cheaper than the .10 cents/kilowatt hour that's autofilled on this calculator).

The "Bitcoin Difficulty field" and the "Block Reward" are autofilled and should be left as-is.

Finally, I change the "Bitcoin to Dollar (USD)" field to the current price printed on Gemini. I just prefer it because that's the exchange I use the most, but you can input the price from any source, such as, or another exchange like Coinbase. As I type this, the price that's printed for Bitcoin at Gemini is $11804.82, so I'll use that.

This gives me a current daily mining revenue figure of $1 USD.

Now, from this you must subtract Hashflare's maintenance fee. This is a fixed USD amount that they take in Bitcoin from your daily revenue. This is where the costs of power, hardware, and pool fees went. It's currently .0035 cents per contract, with each contract representing 10 gigahash each.

You'll have to do a little calculation yourself for this part. I have 750 gigahash right now, therefore I have 75 contracts. So I fire up my desktop calculator and plug those numbers in, .0035 multiplied by 75, and I get .2625 cents. This is the daily maintenance cost of my contracts.

Subtracting .2625 cents from $1.00 gets me a sum of .7375 cents per day of net revenue.

Multiplying this by 365 days, the result is $269.19 (rounded up to the nearest whole penny).

Dividing this by the cost basis of my contracts, $136.32, I get 197.47%.

So as you can see, using the CoinWarz calculator and adjusting it for the current price of Bitcoin, then subtracting out the maintenance cost, gets me a lower projected return than what the Hashflare dashboard shows. This could be because Hashflare may have more up-to-date mining difficulty figures, and/or they could be using a future projected value of Bitcoin rather then the current value to come up with those figures. I prefer to use the current value, but my projection then assumes the price of Bitcoin will neither increase nor decrease for an entire year. Either method of calculating the future value of your contracts' payouts are fine, they're both just educated guesses anyway; I just prefer a more conservative estimate so that maybe I'll have some surprise to the upside in the future (there could be surprise to the downside, too, but I don't prefer that!).

So that's how this all works, and where my numbers come from. Note that in the time it has taken me to type this up and get to the end of this post, all of the numbers have changed. If you try this out yourself, you'll get a different result, so consider this all to be an explanation of the process with the specific numbers here as a snapshot in time only.

Again, thanks to those of you who have signed up through my Hashflare referral link, and to all, happy hashing!

Wednesday, January 17, 2018

Budgeting for Peace of Mind and Resiliency with 70/20/10

Bitcoin and virtually all other cryptos remain in a murderous decline today, with showing that only three are in the green over the past 24 hours (yesterday there were just two).

I realized it is a good day to reiterate something I tell interested parties often, especially at times like these: for every dollar you put toward investments, put two toward your debts.

Why do that? I'll explain (strap in, this is a long one).

I've been using a budgeting strategy for nearly two decades now that was inspired by the book, The Richest Man in Babylon by G.S. Clason. I've been using it all of these years because, frankly, it works.

I blogged about it here years ago, too, though upon review of that post this morning I discovered that the flow chart I had created to illustrate how it all works became lost forever on an image hosting site I once used. No matter, it's easy enough to recreate (and retain a copy of on my hard drive, this time...).

First, the basics:

The budget prescription given in the book breaks one's income down three ways by percentages. Wages and "windfalls" (tips, money you find on the ground, prizes, etc.) are all part of your income, and for most people will start out as their sole source. 70% of this goes to your living expenses, 20% to your debts, and 10% into investments.

From there, I customized things a bit, which this flowchart illustrates:
(click to enlarge)
Clason's original work recommended a strict adherence to these categories; basically, once funds entered one of the three categories, they and all funds subsequently generated by them stayed in that category. Living was strictly that, the maintenance of one's day-to-day life. Debt repayments were strictly confined to that category, and the income generated by investments was to be retained and compounded.

It would be perfectly fine to do things as such, but the reasons I don't are these:

1) Debt payments essentially have two components, a required monthly minimum (most of the time) and a discretionary additional payment on the principal balance. I think the required monthly servicing should be part of one's "living" expenses, because:
  • this will make them less comfortable to carry, and
  • this gives the 20% debt category far more impact as it's then entirely additional payments on principal
2) Compounding dividends and interest is a great thing, but any amount of passive income can improve one's life now. For most people the 10% put into those investments will have far more impact on their growth than reinvestment of the income they produce, and the additional funds to apply to debt will have a greater impact still. That said...

3) Combining points 1 and 2, the amount that debts cost an individual in terms of their minimum obligation have a huge impact on the sum total of their required income, such that eliminating the debts and their corresponding required minimum payments will typically propel someone toward financial independence (no longer needing to work for money) faster than investment growth usually will, so this ought to have a greater priority.

Therefore, as you can see by my flowchart, I have my budget set up in this way, with my passive income redirected back to the "top" of the chart so that it may filter down through the three categories (as such, there is some compounding of my passive income, but it's not prioritized). This both makes life more comfortable now, and it moves me closer to not having any debts faster while still building assets.

That leaves just two other tweaks to the system, one of which was actually suggest by Clason: if you have no debts, the 20% allocated to them could be broken up between the living and investment category as you see fit. When I get that far, I plan to just dedicate all of it to investments; since I'm feeding the income they produce back into the budget anyway, I figure that doing so will grow the living category with the resulting additional passive income plenty enough to keep me happy, so why not?

The other tweak is that when I do have a capital gain from my investments, I reinvest the full net amount of it, typically into something offering a higher yield than what the gain resulted from (one exception to this are those rare occasions where cashing something out and eliminating a debt with the proceeds could yield greater over-all cash flow, which was the case when I sold some REIT shares this past spring and then nuked my student loans in one go).

I have my investments spread out over lots of different asset classes, markets, and industries, far too many to list here without it becoming a blog post of its own. Among all of the options out there, I think dividend stocks are the easiest to access. Costs in the form of commissions can greatly hamper initial efforts and the resulting yields, which is why I recommend using Robinhood for this. Robinhood offers commission free purchasing and the interface is a smart phone app. Not having to pay investing commissions is huge, because it makes small purchases reasonable to do and profitable (you can literally buy just one share of something and not have your future capital gains and yields killed by commission expense), and it puts this avenue for generating passive income within easy reach of anyone.

Lastly, depending on your spending habits and inclination to frugality, the constant input of 70% of your income into the living category can result in a hefty balance building up within it. You could just let it do so and take comfort in it as a "cushion" against uncertainty, but past a certain point it might come to represent some missed opportunity just sitting there as "idle cash." What I do is set a limit on how much I allow this category to build up, which for me is five months of living expenses (five months is the typical duration of the slow season in the work that I do). When the balance of that category exceeds five months of my budget, I put the surplus toward debt, as getting rid of them removes their payments from my budget, thus shrinking the sum total of five months of living expenses, creating more surpluses...

This has become a long one. So to sum up then, this is what I have been doing for nearly twenty years now, and it works. My liabilities are shrinking, my assets are growing (and my net worth is positive, something that's unfortunately becoming increasingly rare these days), my passive income is also growing, and most importantly, the amount of money I need to earn from working is rapidly approaching zero.

And these severe down days in the crypto market, or any market, not that big of a deal. In fact, when one's affairs are arranged like this, these events take on the appearance of opportunity rather than calamity...


One more time, here's my referral link to Robinhood, where you can buy stocks with zero commission cost, and by signing up both you and I get a free share of a randomly chosen stock: Robinhood, the easiest, cheapest way I know of to build passive income from stocks

Further reading:

Tuesday, January 16, 2018

Bitconnect is toast. Or at least the lending platform is.

If you're hearing the news, you're probably hearing "ponzi," mostly. Aside from the fact that there's no proof of that (trading robots do exist), here's the thing: you still own Bitconnect Coins.

The people behind the system immediately released all active loans in the form of BCC. They didn't have to do that, they could have just shut down the site and disappeared.

Instead, the BCC blockchain still exists, and (so far) the operators are promising to continue operating the site for its wallet functions.

That the value of BCC is cratering is not an indication that this whole thing was a scam. It's the market at work: BCC pretty much had just one use, as a lending token to generate income from the trading activity of the bot. Take away that activity, and the value proposition disappears. One's property in the form of the coin itself, however, does not disappear. Were this a scam, ALL of it would have disappeared.

Since this began a few hours ago, I have at times been able to access my account. All of my BCC is there, as promised.

There's been stress placed on the system lately in the form of regulatory activity from the U.S. states of Texas and North Carolina, lots of people constantly pounding the FUD drum, and in the past several days severe DDoS attacks directed against the service, which allegedly came with a promise that they would continue relentlessly. So, the Bitconnect crew decided to pull the plug. Put all of that together and maybe the value of the service would have dropped to nothing anyway as denial of access brought about by third parties would have contributed to the FUD, lowering expectations for the platform and thereby lowering the value of BCC anyhow.

So what's the likely outcome of all of this? That the BCC will become and remain virtually worthless, probably.

However, as long as it exists, there's a chance that a use will be created for it again. Things are such with the site right now that you pretty much can't withdraw the coins (it's under extreme load and constantly fails), and even if you could you nearly can't sell them anywhere at this point. I'd say "you might as well HODL," but you're kind of being forced to, now. So, you might as well HODL...

*(If it sounds like I'm being casual about this, I'll admit that I am, because I only had an amount in the system with a cost basis equivalent of what I make in about 1/4th of the time of my average day at work, doing what I do, so in the grand scheme of my total portfolio this isn't even a rounding error. Like I have and will frequently say, never put an amount of money into something that you can't afford to lose, no matter what it is -- no one knows the future.)
The crypto market has entered into a bloodbath today, with showing just two cryptos in the green for the past 24 hours as I write this (you can click once on the "Change (24h)" column to quickly sort the list from greatest increase to greatest decrease).

Naturally this has the usual cast of characters coming out of the woodwork to pronounce Bitcoin "dead."

The thing is, this happens every year about this time. Consider this:

You may need to zoom in on the chart a bit, but the part to focus on is on the left-hand side of each yearly graph where there's a red circle highlight. As you can see looking from year to year, this is a repeating pattern.

There could be several explanations for this, but since Bitcoin is a global commodity it's difficult to pin down just one cause. Here in the U.S. at least this could be explained by our tax laws as they pertain to capital gains on property: at the end of a calendar year, one could sell losing positions to have a deduction against other gains. Another possibility: after the new year begins, it's possible to face zero tax liability on gains if one's income from wages and ordinary interest will be below a certain threshold by the end of the year.

Whatever it is that motivates people to act at this time, the short version is, "we've seen this before."

From here, there's two ways one could play this action that I see:

1) buy more crypto during the down time in anticipation of the pattern repeating throughout the rest of this year;

2) Get into something like Hashflare, which I've just begun building up myself. I purchased 460 gigahash worth of contracts yesterday for about $100 USD, and have already received my first payout. Even at these seasonally depressed BTC prices (underscored by today's massive decline), my contracts are showing a profit forecast of 213%, roughly. This will get better on its own as the price of BTC recovers, of course, but I'm making it better than that: Hashflare accounts have an automatic reinvestment option that will purchase additional hashing power for your account each time you have enough Bitcoin to afford another one. At current BTC prices, my $100 of contracts will add an additional contract roughly every five days, which will of course contribute to the revenue stream, speed up the process, and also feature an increasing profit forecast as the price recovers (likely an even better forecast than my original lot since these new contracts will have been purchased at a lower BTC price).

Monday, January 15, 2018

The DDoS attack on Bitconnect is over (or at least the attackers are going after the wrong servers now that the Bitconnect website has reportedly been migrated to new servers under different IP addresses).

I logged in to my account and found that everything was in order. The only thing I missed out on over the past two days was the ability to convert my accrued interest into Bitconnect coins, loan it to the trading robot, or convert it to Bitcoin and withdraw it to my cold wallet. Everything continued on as normal with the platform save for the ability of users to log in. Other than that, no harm done.

Sunday, January 14, 2018

Bitconnect has been under sustained DDoS attack for two days now, making the service inaccessible to users. It did come up briefly again last night, and behind the scenes all was proceeding as normal. Unfortunately the attack overwhelmed their servers again a short time later and it's back to being "offline."

If you're not familiar with DDoS attacks, here is a great explanation of what they are, how they work, and why people launch them.

While I'm stuck waiting along with everyone else to get back into my Bitconnect account, I've been exploring Hashflare, a "cloud mining" platform that provides access to powerful Bitcoin and alt coin mining operations through affordable one-year contracts. This is the "production" side of Bitcoin, as opposed to the trading side that Bitconnect represents.

As of now, given Bitcoin's price in USD and current "difficulty," a $2.20 USD one-year 10 gigahash/second contract through Hashflare would return roughly $6.02 over the term, a return of just about 274%. All that for not having to purchase, power, and operate mining equipment of my own. Not bad, huh?

One other thing attracting me to this platform is that I can purchase these contracts with a credit card. As I wrote about yesterday, I do not think anyone should use a credit card for this kind of thing and then carry the balance. What you should do is spend cash you actually have on-hand through a card and pay the balance immediately (or at least before the end of the following billing cycle, so as to avoid interest charges). Even better is to do this with a cash back rewards card, which can be used to offset some of the total cost and thus enhance your return (example: I use a card that offers 1.5% cash back, which if I apply the cash back to the balance reduces the cost of one of these contracts to $2.167 USD, boosting the annual return by nearly 4%).

A few days ago I expressed my view that one should not take on debt to make an investment in something like Bitcoin. That's still my view.

This article that appeared in Fortune recently is along those lines. It's about people using credit cards to purchase Bitcoin, which is a method that tends to come with higher commissions (the article cites a 4% fee if the purchase is made through Coinbase), and the high cost of interest on such balances over time if one does not pay the debt off within the following billing cycle.

Add these two things together and toss in a decline in the value of Bitcoin (which has been the case as of late), and it's a recipe for big losses.

So then the article mentions that some have "concerns" about Bitcoin becoming a systemic economic risk, owing to such behavior.

I just have to laugh at that, because this same behavior, when it involves purchasing ordinary goods and services on credit, things which either rapidly decline in value or represent no sort of retained value, that just doesn't seem to attract these same "concerns." lol.

All that said, if you are using or planning to use a credit card to purchase cryptos, at least do this: use a cash back rewards card that carries no annual fee, and apply the cash back to the balance, which you should then completely pay off before the end of the next billing cycle following the date of your purchase. This will in effect reduce the commission you pay to purchase your crypto, and a credit card balance paid in full by the end of the following billing cycle incurs no interest charges.

Saturday, January 13, 2018

This is a pretty good read on Ripple (XRP), and I find it refreshing to see this point put out there in a blunt and direct fashion: Ripple is not the next Bitcoin (BTC).

As the article describes, its purpose and therefore its inner workings are wholly different than that of BTC. XRP is made specifically to work in a way that traditional financial institutions can use it, given all of the regulations they must operate under.

MIT Technology Review: No, Ripple Isn't the Next Bitcoin

However, the article leaves out two points about XRP and the existing order it is designed to disrupt that are crucial to understanding its future value prospects:

1) All of the XRP that will ever exist was created on day one, unlike most crypto currencies, however, every time a transaction occurs in XRP a tiny bit of it is "burned," destroyed permanently, thus increasing the scarcity of XRP over time; this is "mining" in reverse;

2) Existing money transfer networks require large pools of capital that be kept idle on the sending and receiving ends just in case a transfer order comes through the institutions involved (termed, "nostro" and "vostro" accounts), which XRP eliminates the necessity of; these pools represent trillions of dollars globally, which would be freed up for other uses and at least in part used to purchase XRP.

Friday, January 12, 2018

I came across an article this morning about people going into debt in order to buy crypto currencies.

Don't do that. Just don't.

People make this mistake in every hot market, be that stocks, bonds, housing, and now this.

The temptation is there because it's hard to have what most would consider significant gains without first having significant capital. Scoring these thousandfold gains that some cryptos have delivered certainly blows the mind when it's on a basis of tens of thousands of dollars. When it's on a few hundred bucks, not so much. People want that one, huge, life-changing gain.

Or is it?

A gain is a gain, period. It will change your life, however great or small, only the time frame involved might be long or short (and of course, people want "short").

A blogger and podcaster that I follow named Simon Black frequently cites something called "The Universal Law of Prosperity" (I don't know if he coined this or learned it from someone else): "produce more than you consume." That's it, that's all there is to it.

I bought Ripple coins when they were .19 cents each. As I write this while reports that Ripple is at $2.14, I have a gain of over 1025%.

With Bitcoin, I've scored even more. And now with Bitconnect, I'm building up more gains.

Huge, right?

In and of itself, yes, absolutely. How much is it in actual dollars? That I'm not going to say, I'll just state that it is not "life changing" in terms of instantly freeing me from the need to work (so far...).

But it's a nice step in the right direction.

It all started from modest amounts of initial capital, too. I've not borrowed a penny to make any of my investments in this space, and I never will. In fact, I actually put $2 toward debt for every $1 that I invest. That slows my investing, but there's very good reason to do it.

And that is my final and most important point for this post: when viewed in terms of your total balance sheet, the "boring" liability side of the ledger and not just the "hot" skyrocketing asset side, the most important figure it the net amount, and a sure fire way to bring that figure up is to pay off debt faster than you speculate on the future, which may hold gains or losses. $3 split 2-to-1 between debts and investments is an increase of $3 of net worth, even though the money you put toward your debt might feel like it's "gone." But outside of your day-to-day spending habits, the debts you carry are largely what stop "small" gains on your investments from being "life changing," and creating a debt to create an investment is frequently just to run in place (at best...).

Further reading: The Richest Man in Babylon, the book that got me started on all of this stuff, and the source of the 70/20/10 money management strategy I've used for nearly two decades now that has gotten me to the point of possibly retiring within a few years, at age 42.

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