Saturday, March 17, 2018

Old News In The Latest News: Criminals Don't Prefer Bitcoin

As increasing regulatory scrutiny is directed at Bitcoin, something that those of us who have been involved in cryptos for a long time know about is finally starting to creep into the awareness of the major financial media: criminals don't prefer Bitcoin.

One of the constant attacks levied at Bitcoin by critics who do not actually study what they're criticizing is that it's a tool for criminals, terrorists, and North Korea to launder money.

At one point, it was, no doubt. This is because names are not explicitly attached to Bitcoin wallets, and wallets can be generated anonymously. Instead, Bitcoin wallets are in essence "numbered accounts." A key difference between a classic numbered account and the blockchain within which Bitcoin wallets reside is that there is no central authority who actually knows the identity of the owner of such an account, who is charged with keeping that information secret.

However, unmasking the identity of a Bitcoin account owner is possible to do with associations between wallets, by tracing transactions between wallets with known owners and other wallets with which a known wallet has conducted transactions. All of this is publicly available information on the blockchain, and it always has been.

For example, here's one of my wallets, which I have posted to this blog before:

Now that the world knows that I am the owner of this wallet, it's possible to begin tracing my wallet's association with other wallets. In this case, you can see that this wallet has only ever received spends from other wallets. Most of these sending addresses trace back to Coinbase, and maybe a few to Gemini, where I was purchasing Bitcoin prior to storing it here in my paper wallet. 

So then, if I were suspected of conducting illegal activity of some sort, investigators could use this information to trace relationships between me, others suspected of the same crimes, and Bitcoin wallet addresses we had interacted with in common. As more and more of these associations are detected and mapped out, it becomes increasingly likely that the owner of a particular wallet can be unmasked. There are now many software tools that make this process even easier.

Basically then, Bitcoin was only ever "anonymous" when it was relatively new and no one had begun to map out the associations between wallets. But owing to the antics of people who used Bitcoin's early pseudo-anonymity for illegal activities, the attention and resources of law enforcement agencies were focused on it and that pseudo-anonymity quickly went away.

So while "anonymous Bitcoin" has never really existed, the myth has persisted. Finally, it appears that the reality of the situation is coming to light. Anonymous cryptos do exist, and that is actually where criminal enterprise shifted to a long time ago:

"According to a recent report, illicit activity that is typically associated with bitcoin is on the decline, with the cybercrime industry and money launderers moving away from bitcoin to so-called privacy coins, like Monero—coveted by the underworld for the anonymity of transactions—luring away those who once turned to bitcoin for such features.

“It was clear from this research and from other sources that Bitcoin’s moment in the criminal sunshine may be declining in favor of other types of VC,” officials at virtualization-based security firm Bromium wrote in a recent news briefing on cryptocurrency usage.

“One reason why criminals avoid Bitcoin relates to the transparency of the blockchain and the increasing number of tools for detecting how funds are transferred via bitcoin wallets,” Bromium wrote." -- A. Hankin
Monero (XMR) is one of a few so-called "privacy" coins that were built to do something that Bitcoin does not: completely hide the identity of wallet owners (I own a little bit of Monero, which I have mined with spare CPU cycles on my several computers using Minergate). Law enforcement agencies can pick off individual Monero wallet owners, but that would only be because they had seized equipment upon which said owner had a Monero wallet. Beyond that, the trail runs cold, because Monero and other cryptos like it scramble the identities of other wallets with which a particular one has sent and received spends (it even disguises amounts of Monero sent between wallet addresses, taking away all possible "bread crumbs" that could conceivably be used to map out relationships between entities).

It's good to see this information finally getting out there in front of a broader audience. The criticism, "Bitcoin is used by money launderers and blah blah blah" has force in that it can convince those who are not yet involved in cryptocurrency that they should stay away from it. Never mind the fact that the same criticism can be levied against the U.S. Dollar and that these same people would not stop using it; the fact of the matter is that they are already familiar with the USD and really can't stop using it, and that it's simply not relevant what someone else does with their units of USD to an individual's moral character. All the same, perceptions drive decisions, both personal and of public policy, so a misguided perception that Bitcoin is a tool of crime will be reflected in the actions taken in both spheres, which then is reflected in the price of the commodity. Greater awareness of what has been stated here, that those days are more or less behind now for Bitcoin, will in time bring more people into the space.

Friday, March 16, 2018

Panos Mourdoukoutas: Google Crypto Advertising Ban Good For Bitcoin

This will be a quick one since I have a 3am start time at my first job site today (yeehaw...).

Most of you probably have heard by now that Google is banning advertisements for crypto currencies from its ad services. That has caused a big slide in the market and made many think that it's all over.

But perhaps not...

What if instead, this only hurts the multitude of pointless crypto coins that have proliferated out there?

Bitcoin is a household name. But the latest crap coin to come along? No one knows of it and it needs tons of advertising to even crack .01 cent per coin.

"Major cryptocurrencies like Bitcoin, Ripple, Ethereum, and Litecoin do not need advertisement, because they are well-known in the investment community...

...banning cryptocurrency advertising on the part of Facebook, Google and other websites is actually cause to be bullish, not bearish, over the long term. At least for major cryptocurrencies for major cryptocurrencies like Bitcoin, Ethereum, Ripple, and Litecoin...

...Another reason is that the ban will help weed out scam coins from the market, and therefore, install confidence among investors in legitimate coins...

...Weeding out scam coins, in turn, will eventually limit the overall supply of coins, and therefore, help the prices of major cryptocurrencies rally." -- P. Mourdoukoutas
 Food for thought at we continue to slide.

Thursday, March 15, 2018

BBVA Successfully Transfering Funds Internationally Via Ripple

Good news is hard to find in the crypto space this week. Many are once again on the "Bitcoin is really dead... this time!" bandwagon again (the Bitcoin Obituaries will probably be busy for a while here). There is good news out there though, and if you can spot it in the torrent of FUD, then you may get ahead of an opportunity that others will arrive late for.

Ripple (XRP) is offering a bit of that right now.

Several articles appeared over the last twelve hours or so about a successful test by BBVA Compass of Ripple's xRapid transfer system, the one that uses the XRP crypto currency. The articles I'm finding all say the same thing, that transfers of assets between countries in Europe and Latin America where the bank has operations all went smoothly, with each transaction completing in a matter of seconds (all of these articles seem to trace back to a Dallas Business Journal article that is behind a pay wall).

The significance of the speed of this transfer is that the existing money transfer networks in place around the world would have taken three to four days to complete each of these transactions, and at a much higher price...

It's also no small thing that many of the partnerships that Ripple is forming are occurring in the developing world, which as this article on Ripple's website points out, is where 85% of the global population lives, which includes 90% of the globe's population of people under 30 years old (a very key point if you're familiar with how demographics and consumer cycles function) and where much of remittances from developed countries flow to.

When all of this is put together, it's easy to see the trend that is emerging here for XRP. However, at the moment, with everyone's attention fixated on the torrent of Bitcoin FUD that the major media is spewing like a broken sewer pipe, it can be easy to miss. Many will, and the price of XRP will likely continue down. That's where the opportunity exists, because while the price may be going down for now, the use case for the technology is rising.

Wednesday, March 14, 2018

Crypto Mining For... Tomatoes!

Bitcoin and much of the crypto market is getting hammered yet again right now, with the so-called "Tokyo Whale" selling off hundreds of millions of dollars USD worth to partially cover Mt. Gox debts, Google deciding to follow Facebook and ban cryptocurrency and ICO advertisements (not a bad thing on the ICO part of that, really), and Christine Legarde of the IMF beating the "Bitcoin money laundering" dead horse again, because everyone knows that drug dealers and terrorists prefer publicly visible permanent blockchain records for hiding their money! (Not to mention that the international order of fiat institutions she represents hates competition for such business...)

So, for some pleasant crypto news amidst all of the doom, gloom, and FUD, have some tomatoes!

‘Cryptomatoes’ Grows 5 Acres Of Fruit From Bitcoin Mining Heat
"The co-founder of Czech cryptocurrency exchange NakamotoX will launch a Blockchain startup based on growing edible crops from excess mining heat.

In a Twitter discussion March 10, Kamil Brejcha said staff had created bespoke housing for Bitcoin servers, which harnesses heat and sends it to greenhouses currently growing tomatoes.

The project, which will soon be accompanied by a new business called Agritechture, has been in stealth mode but has now delivered its first crop - a five-acre greenhouse full of tomatoes dubbed ‘Cryptomatoes.’

“We are using the excess heat for the tomato greenhouse and it is working,” Brejcha confirmed." -- W. Suberg
This is a neat idea. Crypto mining does produce a huge amount of heat, and aside from hobbyist miners running rigs at home that sometimes allow them to keep their houses warm in the winter, most industrial scale crypto mining operations just have to deal with the heat as a waste product.

This company is recycling that heat. As the article goes on to describe, the heat generated by their mining rigs is pumped into specially built greenhouses, where so far they've been growing tomatoes. In fact, in their case, the electricity they're using to power their miners is coming from biowaste, giving their project more of a closed energy loop than any other I've heard of.

Maybe an approach to crypto mining like this will make the Siberian tomato more than "Siberian" in name only one day.

Just in terms of where Bitcoin was this time last year, the price is still up about nine times compared to then. Like I wrote about the other day, right now regulatory uncertainty is being cleared away, bit by bit, and once much of that news has been digested more people will wade in to this space. More people getting in means more demand, prices rising, and a reduction in volatility as ownership continues to spread out into smaller positions in an increases number of hands. So relax, have a cryptomatoe, and try to ignore the FUD.

Monday, March 12, 2018

Changelly Bringing A New Trading Platform Online, "Oxygen"

Today I received an email from the folks behind Changelly announcing that they are bringing the latest distributed ledger tech trading platform to the world, Oxygen.

There's three interesting things to be aware of from the get-go:
  1. Oxygen will be based in Gibraltar, which is the first jurisdiction in the world to establish a regulatory framework governing distributed ledger technology-based entities
  2. The creators of Oxygen are well aware of the U.S. regulatory situation in regard to crypto assets and trading and appear to be conscious of the mistakes others have made; they have retained counsel to help them navigate regulations and plan to be registered as an "Alternative Trading System"
  3. One of the things this platform is being created to do is allow crypto asset holders to leverage their holdings for income via repurchase agreements
  I highlighted #3 because I think this is the most important feature of this new platform.

A repurchase agreement, briefly explained, is a collateralized loan from Party A to Party B that occurs for a very short amount of time. The party wishing to borrow, in this case Party B, pledges an asset in exchange for cash from Party A. This makes B a seller and A a buyer. A receives the collateral item, and B receives the cash.

A short time later, B makes good on the loan by repurchasing the collateral from A, plus a little more. That little more is in effect the "interest" that A earned on the loan. A then returns the collateral to B. The assets have been repurchased, as agreed; hence, a "repurchase agreement."

If B fails to make good on the terms of the agreement, A can liquidate the collateral and be made whole (or as close to it as possible).

In the white paper that is available on the Oxygen site, they describe on page 16 how this would work. It is essentially the same, just with a few extra steps since it appears that a "Oxygen token" will be used for transactions on the platform, but that other crypto assets can be used as collateral. The entire transaction will be facilitated via smart contract, ensuring that all terms and appropriate actions will occur as the repo agreements execute between parties. Additionally, in step 5 of the process, there is a description of what happens should the borrower default, with a possible settlement option made available to the lender to be to convert the collateral into any other crypto asset they prefer via Changelly. So if your borrower pledges Litecoin but you would rather have Bitcoin, presto! Their collateral becomes Bitcoin.

So what would you do with this? Basically, it's going to enable you to play a crypto asset long or short, depending on what you think it's going to do over the term of the repo agreement.

An example is given in the white paper beginning on page 24 (apendix 1). You can read their explanation, which I think is perhaps needlessly complex, or try my attempt at briefly explaining it:

Party A owns Bitcoin Max Horsepower and thinks it's better than everything.

Party B has regular old BTC and thinks that Bitcoin Max Horsepower is dumb and will crash in price.

Party B approaches Party A and says, "hey... lend me your crapcoi... er... Bitcoin Max Horsepower for 60 days, and I'll return them to you plus 15%. You can hold my BTC in the meantime."

Party A says, "15%! I think that's what plants crave! You have a deal!"

Party B, now in possession of Party A's crapcoi... er... Bitcoin Max Horsepower, sells it for cash at $100 per coin. Let's just say it was 100 of the coins, giving Party B $10,000.

Sixty days later, Bitcoin Max Horsepower has achieved the amazing sum of .50 cents each, and Party B must return 115 of the coins to Party A. Party B takes the cash he got from selling the coins sixty days prior, purchases 115 Bitcoin Max Horsepower crapcoi... er... coins for $57.50, returns them to Party A (who may have already jumped off a building), pockets about $9,943, and gets his regular old Bitcoin back that he pledged as collateral.

Now, had things been different and Bitcoin Max Horsepower actually did something amazing, Party A would be profiting nicely from the 15% additional coins he would receive per the terms.

What you can already do with any crypto is bet "long" on it by purchasing and holding it. But the way it works out there now, you really can't get interest on your holdings, not in a smart-contract driven, trustless fashion. And you certainly can't go short as described here for the same basic reason. That's been one of my chief disappointments with the crypto sphere thus far, an inability to profit on the short side from the inevitable crash of many of the absolute garbage coins that are out there being pumped and dumped. All I can do to profit from them is go long and hope I can time my exit well, which I don't really care to do.

Will this be available to us here in the U.S.? That's the other thing. This may be another one of those shiny, awesome, profitable objects that Uncle Scam places just out of our reach here. What's included in the white paper to that effect is encouraging, but who knows what regulatory shenanigans will occur along the way. And of course, I live in Washington state, where the morons in Olympia will probably decide that this is one more tool for achieving prosperity that should be denied to me "for my own protection."

This will be something to keep an eye on, that's for sure.

Sunday, March 11, 2018

Clarity On The SEC "Crypto Crackdown" And The Bitcoin Misery Index

A few days ago some news came out that I've been expecting for quite a while, because the Securities and Exchange Commission has been telegraphing in no subtle way that they would do this: the SEC is moving to crack down on "Initial Coin Offerings" because in essence they meet the definition of a security.

That's not how the headlines read, of course. Typical of the obviously anti-crypto major financial media outlets, they cast it as a "cryptocurrency crackdown." And, naturally, crypto prices plunged.

As it usually goes with these media drive-by shootings, a day or two later and clarifying articles begin appearing, such as this one:

The government's crypto crackdown may not affect bitcoin: Blockchain venture capitalist
"The U.S. Securities and Exchange Commission on Wednesday released a statement saying digital assets that are considered securities must register with the agency.

The SEC uses the so-called Howey Test, or a test created by the Supreme Court, to determine which transactions are considered a security investment, Bogart said. To qualify as a security, investors must "contribute money to a common enterprise with the expectation of profit," primarily from the "efforts of others," he explained.

"In the case of bitcoin, that just never has been the case," Bogart argued. "There was nobody that launched bitcoin and said ... 'I'm going to sell you 20 percent of the coins for a specific price.'"

"The software was launched into the world. People started mining it, and it grew organically," he added. "There is no central enterprise that receives the money that investors pay for bitcoin and deploy." [emphasis added] -- K. Ell
This is an important distinction to make, because it's the difference between a currency, or a commodity, (Bitcoin) and a security (what in effect results from an initial coin offering, or ICO), and consequently what agency has jurisdiction over them.

The Securities and Exchange Commission has jurisdiction over what its name implies: securities. As the definition I linked to above at Investopedia describes, a security is a share of ownership in something, the ownership of which can be traded, with the thing owned being an enterprise operated by a third party. There are several different types of securities, different forms of them, but for now that basic definition will suffice.

This is specifically why I have never invested into any ICOs. I used to be a stock broker, having held the SEC Series 7 license (and a few other SEC licenses). When ICOs first started appearing, it appeared to me that they were by and large meeting the definition of a security (and that they were also running afoul of the "accredited investor" law in the way they were being offered). Some of them tried to obfuscate what they were doing by describing the fractional ownership they were offering in the underlying endeavor as "coins" or "tokens," but semantics are no defense against this kind of thing. I knew it was only a matter of time before the SEC would weigh in, so I've stayed out of this part of the crypto sphere; I think the result of this is going to be most, if not all, of these ICOs simply being crumpled up and thrown in the trash, taking their investor's equity with them.

This will be for two reasons. The primary one I think will be that most of these ICOs simply flouted the accredited investor rules, which among other things prohibit the offering of "unregistered securities" (not registered with the SEC, that is) to investors who fall short of the minimum criteria to be an accredited investor. Any operations that did so are likely to be attacked and mauled by the SEC in every case where they are found to have accepted funds from U.S. investors despite their lack of this key status. Before the SEC even sinks its teeth into these operations, investors in them the world over will dump their ownership, tanking the value overnight.

Some ICO creators were aware of this law, which is why a few out there refused to take funds from U.S. citizens during their offering periods. They did well by being aware of this regulatory reality and potentially avoiding a direct assault on their operations by the SEC, but they may be severely damaged, if not taken down, by the other aspect of this crackdown: the requirement that exchanges that offer trading in coins, tokens, etc. that resulted from these ICOs, with the particular structuring of a security, be registered with the SEC in order for U.S. citizens to participate. This could put a major chill on these platforms that offer such cryptos for trading, or these platforms might restrict trading to only "pure commodity cryptos" in order to remain accessible to the U.S. market, also destroying much of the value of the type of coins and tokens I'm discussing here.

"Pure commodity cryptos" is a term I just made up to distinguish the neo-securities that resulted from ICOs with cryptos that lack any such ensnaring features, such as Bitcoin, Litecoin, etc. This is where the bit I highlighted in the article above factors in: these cryptos, from the beginning and now, lack any central operating entity that took in money from investors to seed some productive activity, the ownership of which was represented by the coins. Bitcoin and others like it came into being as the thing to be traded in and of itself, the value of which is simply what a buyer and seller agree upon, the exchange of which confers no title to anything but the coins. If you own Bitcoin, you are not promised any share of mining activities, interest, anything like that at all. You are only promised absolute title over the Bitcoins you hold.

That is why the Commodities Futures Trading Commission (CFTC) in the U.S. has asserted for years that it is the proper agency to regulate the pure commodity cryptos, which a Federal judge agreed with just days ago. 
The being the case, Bitcoin, Litecoin, Ethereum, and others, are likely to continue trading just as we are used to them trading. Sure, with increased regulatory scrutiny and oversight some changes are likely to come, the potential change of most concern being access. But if the recent behavior of the CFTC on the subject of Bitcoin in regard to its own employees is any guide, not much is going to change for us. 
In fact, the biggest change might be what happens to scammers who try to operate in this sphere from now on, a big plus for the perceived value and security of cryptos like Bitcoin.

For now though this has dinged the asking price of Bitcoin and all other cryptos, as per the usual. Globally, this is still a very tiny market, and with fewer hands comes easier panics and more dramatic price moves. Since the major financial media outlets love to FUD the crap out of this market with deliberate misinformation, the effects come swiftly, given these factors. But looking at my charts this morning, it appears to me that the market may be realizing that this latest bit of panic selling was for naught (in the pure commodity cryptos, that is), and that this was actually something that has been sorely needed: the further elimination of regulatory uncertainty. With a big bit of that out of the way, this could be the launching point of the next major upswing in the crypto space. 

That said, I wanted to close with a novel technical indicator I came across this morning that can be applied to Bitcoin, the "Bitcoin Misery Index:"
"Tom Lee, Fundstrat Global Advisors' Head of Research, introduced a Bitcoin Misery Index, or BMI, on Friday. Lee describes the BMI as a proxy for how investors feel about Bitcoin’s “price action.” It is a numerical index that ranges from 0 to 100 and incorporates the win-ratio, or percentage of days that Bitcoin is up, and the upside less downside volatility...

...Lee’s trigger points for Bitcoin are 27 for a Buy signal and 67 for a Sell signal. The BMI is currently at 18.8, the lowest point since 16.2 in September 2011." -- C. Jones
Put all of this together, and maybe it is time to be buying...

Friday, March 09, 2018

The Story Of Bitcoin Coming To The Columbia Basin

I came across this article this morning while reading up on the drivers of the latest crypto market drop (and, in the midst of it all, noticed that Bitcoin and Ethereum are both bouncing off past lows on rising volume with action below each coin's 200 MA with RSI numbers below 40...).

This is the story of how Bitcoin mining first came to my state, Washington, on a scale greater than just hobbyists plugging away at it in their basements and spare bedrooms. I've blogged about this briefly in the past, but this article, appearing in Politico, dives deep into the whole story:

 "What separated these survivors from the quitters and the double-downers, Carlson concluded, was simply the price of electricity. Survivors either lived in or had moved to places like China or Iceland or Venezuela, where electricity was cheap enough for bitcoin to be profitable. Carlson knew that if he could find a place where the power wasn’t just cheap, but really cheap, he’d be able to mine bitcoin both profitably and on an industrial scale.

The place was relatively easy to find. Less than three hours east of Seattle, on the other side of the Cascade Mountains, you could buy electricity for around 2.5 cents per kilowatt, which was a quarter of Seattle’s rate and around a fifth of the national average. Carlson’s dream began to fall into place. He found an engineer in Poland who had just developed a much faster, more energy-efficient server, and whom he persuaded to back Carlson’s new venture, then called Mega-BigPower. In late 2012, Carlson found some empty retail space in the city of Wenatchee, just a few blocks from the Columbia River, and began to experiment with configurations of servers and cooling systems until he found something he could scale up into the biggest bitcoin mine in the world. The boom here had officially begun." -- P. Roberts
I've highlighted just one small piece of the story here,  a bit of the early "grit and determination" days of how this all began as it happened for David Carlson, one of two major players in the Columbia Basin mining game that feature prominently in this article.

The entire article goes into the many aspects of the crypto mining industry, the related issues that are arising and the conflicts springing up around it. The author represents both sides to the stories very well, reporting on some of the common FUD that's out there, but then providing the countering arguments. It's refreshing to find an honest, balanced, objective article like this one.

This is a long article but it will be well worth your time to read, whether you're active in this space or not.

Thursday, March 08, 2018

Ripple Not Added To Coinbase, What Really Matters To XRP

I told you so.

Actually, it looks like I was a bit too conservative with my estimate for how low Ripple (XRP) would sink after, once again, the rumor that it's going to be listed on Coinbase turned out to be false. I thought it would return to its pre-rumor spike of .90 cents each, but it's currently at about .86 cents and I saw it get as low as .84 cents on

If you did what I would have done were XRP trading not a complete pain to do here in Washington state because of our abysmally stupid government in Olympia, then selling the rumor at $1.05 and buying back in on the actual news at or below .90 cents is probably treating you well right now.

The takeaway here is that these Coinbase/XRP rumors that keep popping up and popping the price are nothing more than a combination of wishful thinking and pump-and-dump manipulation, click bait to get you to watch monetized videos and whatnot, and a myopic viewpoint on what XRP is and where it is going. True, a listing on Coinbase would make it more accessible to the everyday crypto investing public, but the true source of XRP's future success is in its actual intended use case, which has nothing to do with a listing on Coinbase.

Here's the kind of news that should be moving the price of XRP dramatically:

Ripple Partners with Payment Provider Fleetcor to Foster XRP Use
"In another move that aims to facilitate the widespread adoption of cryptocurrencies, Fleetcor Technologies is partnering up with Ripple to foster the creation of an international payment system that will enable Ripple use for commercial purposes.

Fleetcor announced on March 1 that they have entered a pilot program which uses Ripple’s xRapid platform to bring together their international payments subsidiary Cambridge Global Payments and enterprise blockchain solution firm Ripple to process over $20 billion worth of [business-to-business] transactions." -- S. Jagati
That's a lot of cash moving through XRP, which goes from its point of origin to its destination almost instantly, even between different currencies. As I've written about before, this is compared to the existing money transfer networks that take days to settle transactions, are extremely expensive compared to this new technology, and which require huge pools of idle capital to be kept in order to create liquidity within the current system. So for the intended users of XRP, the value proposition is definitely there and adoption of the technology is growing. This will increase transaction volume through the network, which then brings up the other key driver of XRP's future value prospects: a tiny amount of XRP is destroyed every time a transaction occurs, over time reducing the amount of XRP that exists. The scarcity of XRP increases as it is used, a process that will accelerate as adoption grows.

So with a combination of massive savings of time and money, freeing up of trillions of dollars worth of capital (some of which would likely flow right into XRP), and a decreasing amount of XRP available, the only thing that Ripple really needs to be successful and put up huge gains is time. Getting listed on this exchange or that exchange just doesn't matter; Ripple's real use and usefulness exists elsewhere, and it is increasingly being put to work toward that end.

I'm not saying that a listing on Coinbase would not permanently boost the price of XRP. I don't doubt that it would. However, if your only interest in XRP is profiting from a quick spike in its asking price, then yes, such a thing would be a big deal. If all you know of XRP is that you might make some quick profits that way, you might want to get more familiar with what it really is, what it does, and what its future potential is, because you might otherwise miss really big gains over a longer time horizon...

Tuesday, March 06, 2018

Actually Hacking Bitcoin: It's Easier To Win The Lottery

Since this past weekend I keep seeing headlines about the latest "Bitcoin heist," which occurred in Iceland.

For accuracy, the headlines should read something to the effect of, "Bitcoin-RELATED heist," or, "Bitcoin EQUIPMENT stolen." But, no, of course we can't have that. The headline must be attention grabbing and sensational! If it's misleading, well...

What really happened: thieves broke into a mining center and stole mining computers. They didn't steal anyone's Bitcoins at all (but notice the headline Fortune put on this, still implying that cryptocurrency was stolen).

That's why a guy by the name of Brian Liotti of Crypto Aquarium put out this:

This is a table showing you the chances of guessing the private key of a random Bitcoin wallet, with funds in it, and the odds of guessing the private key of a specific Bitcoin wallet, versus winning Powerball.

Nine. Times. In. A. Row.

Previously I've written about the difference between the security of a Bitcoin wallet and cryptocurrency exchanges, what a private key represents (in two parts, here and here), and how the media frequently (maybe even intentionally) conflates a hack of an exchange with "hacking Bitcoin."

I explained then how it isn't really possible to hack Bitcoin itself, and I even posted the public address of one of my Bitcoin paper wallets for the world to see.

Go ahead and try to guess my private key and steal my Bitcoins. Or take all of your money and go buy Powerball tickets. You stand a better chance of your numbers being drawn in that game than you do of stealing my Bitcoins.

The reason Liotti created the table I've included above is simply that people's understanding of Bitcoin/cryptocurrency security is lacking, thanks in no small part to an often hostile, agenda-driven media that misrepresents the technology and events surrounding it ("FUD," in short). This slows wider adoption of the technology as it takes time for people to get legitimate news and information about it. It also warps the regulatory frameworks that governments erect around things, because regulation based on misleading or outright false information will be aimed at the wrong targets and ruin markets. Often that's good for entrenched special interests, and bad for the rest of us.

So go ahead and put a little money into a Bitcoin wallet instead of a Powerball drawing. Your chances of still having money for years to come are many times better!

Monday, March 05, 2018

Curb Your Enthusiasm: The Latest Ripple Rumor Surge

Last night I started seeing videos get uploaded to YouTube and articles appear on various crypto/financial websites about Ripple (XRP) being added to Coinbase.

Soon. Again. No seriously, guys!!111 This time it's totally going to happen zomg XRP to the moooooooooooooon!!!11lolz *somethingsomethingeatmylambodust*

The price per XRP has jumped close to 17% from about .90 cents each when I looked at it yesterday morning, before the rumor mill fired up, currently at $1.05 as I type this.

Most of the time, I ignore these prediction videos and articles, because they're usually written and produced by people who can never support their claims. They see patterns in things that typically do not exist and are really just imposing their wishful thinking and get-rich-quick mentality on the item or topic at hand.

I can almost guarantee that if any of these guys do hit their numbers with something like Ripple, they're going to end up like the people in this video:

Anyway, what's driving the rumors this time is that tomorrow night, the CEO of Ripple, Brad Garlinghouse, is going to appear on CNBC's Fast Money with Coinbase President Asiff Hirji. That is why the XRP moonshot rumor mill is running wild, because if those two are going to be on TV together, it can only mean one thing, right?

If it really were just those two appearing together, maybe. But that's where context steps in and downgrades your future Lamborghini to a reasonable Japanese economy sedan (probably a used one):
"The surge comes the day before Ripple CEO Brad Garlinghouse is scheduled to appear on CNBC's Fast Money program on Tuesday evening alongside Coinbase President Asiff Hirji and two other cryptocurrency executives, fueling fresh rumours that the exchange might announce support for XRP.

Neither Coinbase nor Ripple responded to a request for comment. It's likely that CNBC convened the panel to discuss cryptocurrency trends, and not for any announcement by either company. [emphasis added]" -- G. Rapier
It's likely that the panel discussion is only going to be what the author suggested in the last bit of the second paragraph above: CNBC is gathering some of the big players in the crypto space to talk about where the whole thing is going next. It's not going to be Garlinghouse or Hirji getting down on one knee and presenting a ring to the other.

This isn't to say that Ripple will never be listed on Coinbase. It could very well be at some point in the future. This panel appearance by executives of each company, that's just not evidence that any such thing is on the way in the near term, however. If XRP were not so difficult to trade in my state (because of how Olympia, in its infinite stupidity, has "protected the consumer" by thoroughly limiting our exchange choices here), I'd probably take some profits off of the top of this rumor spike and plug them back in once it returns to where it was yesterday morning, around .90 cents, once reality sets in.

Unless Garlinghouse and Hirji kiss on camera tomorrow night, that is. Then I'm going to buy Roman Abramovich's yacht.

Sunday, March 04, 2018

Stacking My Investing Cash In Life Insurance

I didn't blog yesterday because of two things, the first being going to weekly coffee with my mom, and the other being that I spent the afternoon refreshing my memory on the benefits of a particular financial vehicle I own, a cash value life insurance policy.

Let's get this out of the way first: I don't give a damn what Dave Ramsey thinks on this topic. Period, end of discussion.

A few days ago I wrote about how legendary investor, Warren Buffett, is letting Berkshire Hathaway's cash position swell because he and Charlie Munger can't find any good deals they want to invest in. In 2017, they made just one acquisition and accumulated a cash position of $116 billion USD. That's unusual for Berkshire.

In that post I asked the question that others are asking, too: "If Buffett isn't buying, why should I?"

It's a good question, especially right now. The U.S. stock market is at all-time highs, interest rate hikes and inflation brought on by low unemployment and wage growth is probably on the way, and tens of thousands of workers of the Baby Boom generation are retiring, possibly prompting them to rotate out of equities.

I don't think this should be looked at as a recipe for disaster, like some do (right before a pop-up ad appears on their site offering gold, freeze dried foods, and heirloom seeds for sale). Rather, it's just going to be part of a cycle, maybe even something to be expected that goes hand-in-hand with demographic trends the world over. In any case, it makes the argument that perhaps the best thing to do for now is prepare for big opportunities.

As such, I've recently stopped making any asset purchases and have begun stacking cash instead. Basically, I want fast access to capital; I want liquidity.

I also want a decent return, at all times. "Cash under the mattress" doesn't generate a return. In fact, thanks to inflation, it actually loses purchasing power whenever it is not put to work somehow.

That's where my cash value life insurance plan comes in.

I've had this thing for six years now. Basically, I purchased it with a vague plan to use it for an "Infinite Banking" strategy. Also known as "Bank On Yourself," this is an approach to saving and investing some use where the particular features of a cash value life policy allow them to act as their own banker to themselves.

The quick version: cash value life insurance can be borrowed against. You can request a loan from the insurance company, which will lend to you at contractually guaranteed rates (it's part of the insurance contract) using the cash value in the policy as collateral. Because the loan is collateralized, the insurance company won't ask what it's for, there is no underwriting process, and they won't say, "no." The loan also does not appear on your credit report. You then use the loan proceeds to buy whatever, then you "pay yourself back" by not only paying down the loan principal, but adding additional funds to your policy by also paying into it the interest you would have otherwise paid to a bank. In that way, you are your own bank, your total borrowing cost can be the same as if you had borrowed the money from someone else, but you keep the profits from the loan instead of that someone else getting them.

Now, the key thing going on here is that the cash value inside of my policy is always there, no matter how much of it I borrow. That's because policy loans are borrowed against the cash value, not from it. This means that during the entire time I have a loan out, my policy's cash value continues to earn interest, just like it was before I took a loan.

Think about it. While I have loan proceeds plugged into something that's generating cash flow (or maybe my next car), and while I'm paying myself interest on the loan that would have gone to some bank otherwise, the full amount of my principal is continuing to compound. Had I saved up my cash in a checking or savings account, a retirement plan like an IRA, a certificate of deposit, etc., any borrowings from those kinds of accounts take my capital out and halt its compounding. Depending on the type of account and the nature of the loan taken from it, there can also be penalties and interest owed to the IRS; not so with mine.

These interest earnings I'm receiving daily within my policy (that's right, mine credits interest every single day) are also accumulating tax free. Right now with annual bonuses, my policy's interest rate is effectively 4.69% with a guaranteed minimum of 3%. Because this is tax-free accumulation, however, in my 2018 tax bracket of 22%, this is a taxable-equivalent yield of just over 6%.

Does anyone reading this know of a stable savings vehicle earning a 6% pre-tax yield that will continue to compound interest while it's leveraged into another investment?

Finally, in my later years, I can actually use this policy as a source of tax-free retirement funds, also by borrowing from the accumulated cash value. Life insurance policy loans do not necessarily need to be paid back. If you don't pay the interest on the loan each year, the insurance company simply adds it to the balance of the loan. If the balance of your loans ever equals the cash value of the policy, the insurance company simply closes the policy and pays off the loans with the cash value. If however there is still cash value left in the policy at the time of your death, then the loans evaporate and your beneficiaries receive the benefit payout, or in the case of the manner in which my policy is structured, they get the specified benefit plus the net amount of accumulated cash value. It's just a matter of timing the loans versus life expectancy and sizing them correctly, which because they are loans are not taxable as income. I can also do this any time I want to, not only after a certain age that the government decrees.

You can get close to this with a Roth IRA, but unless you liquidate everything in it and keep it in idle cash, you could face wild swings in the value of it during your retirement years, and unlike the capital in my life policy, yours would not be continuing to compound by any significant amount.

There's a few more benefits to this approach that I'm familiarizing myself with again, such as being able to structure the loans from my policy to a business endeavor in such a way that the interest paid to my insurance company and to myself are fully deductible by the business. Suffice to say, there are a lot of benefits to be had here. There are some costs, too, the chief one being the cost of the insurance itself. And that's where a lot of the critics of this method focus, by chanting the platitude that "insurance is for insurance, not for investing" and then comparing the cost of cash value life versus term life insurance. Without going too far into why they're wrong, I'll just say this: the kind of insurance I have should be called "life insurance," because I can use it during my lifetime, whereas the kind of insurance the critics prefer should be called "death insurance," because you can't do anything with it during your lifetime, only pay for it, and it only provides a benefit to someone else after you've died (assuming you don't outlive the term of the policy, in which case all of your money is just gone...).

Why haven't I been more aggressive with this asset of mine in the past? Well, basically it's because I haven't been thinking in terms of building up a war chest ahead of anticipated big opportunities. I do fund my policy monthly, but nowhere near the maximum amount that I can each year. I think from here on out, good markets or otherwise, I'm going to make it my default investment every time I allocate cash. After all, I'm not getting 6% with stable value and rapid, tax advantaged access to my cash from anything else that I have at my disposal...


For more info on this topic, you can Google "infinite banking" or, "bank on yourself." YouTube searches for this topic will turn up tons of materials, too.

Also, if this sounds intriguing to you, find an insurance agent who is familiar with these topics and work with them. Remember: the younger you start, the cheaper the costs and the more time your money has to compound.

Friday, March 02, 2018

Back Yard Alternative Investing

Yesterday I took a small amount of the funds that I have earmarked for investment and I put them toward an investment of a different sort than what I typically do:


These are Barred Plymouth Rock chicks. It cost me $9.80 for the three of them. In about six months they'll begin laying eggs, which in the grocery stores around here sell for about .17 cents each ($1.99 per dozen, typically). I can probably expect between 18 to 21 eggs per week from these three for about two-thirds of the year, saving me the cost of buying eggs from the store (which are also pretty bland tasting - farm fresh eggs are so much better!), as much as $104 in savings each year. Figure that I might spend $50 on supplemental and winter food for them (during the spring and summer there's plenty of bugs for them to eat) and I'm looking at a net of $54, or an annual rate of return in the range of 550%. And that's assuming I don't sell any of the eggs!

I wonder how many hedge fund managers are going to start keeping chickens now...

Thursday, March 01, 2018

Germany To Treat Bitcoin As Legal Tender For Everyday Use, Rest Of EU To Follow?

Here in the U.S., Bitcoin is considered to be property by tax authorities, meaning that if you buy a couple of pizzas with it, you owe capital gains taxes on the appreciated value of the Bitcoins you transfer for those pizzas (unless your Bitcoin has gone down in value, in which case you could actually claim a capital loss on your taxes). It's just like you've sold the Bitcoin for cash, or traded it for another crypto. This puts a huge damper on the use of Bitcoin in this fashion here, mostly relegating it to a investment and trading role, or something only tapped in to for very large purchases.

The news came out yesterday that in Germany, that's not going to be the case. There, when used as a form of payment, Bitcoin will be treated as if it were legal tender, and while applicable "value added taxes" will be levied on the "seller" based on Bitcoin's price at the time of the transaction, no capital gain taxes would be applied as they are in the U.S.

Perhaps more interesting than that is that block rewards received by crypto miners in Germany will not be taxed either, potentially turning that country into a hotbed of mining activity in the future.

The big potential here is that this will set a precedent that the other European Union nations will follow. Germany leads the way on much of what goes on in the EU, so it would not surprise me to see the other member states copy this policy. If they don't, then they risk seeing their Bitcoin owning citizens travel to Germany to use them as movement between EU member states by citizens of any of the member countries is not restricted. All of that capital can easily flow out of member states that make Bitcoin more expensive and cumbersome to use and into the states that treat it better.

This is a big, positive development for Bitcoin and cryptocurrencies in general, one that could further increase adoption of the technology by people who have not yet done so. Consider this: the European Union is currently home to 512 million people...


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