Thursday, August 14, 2014

BitBond, I'm surprised and mostly alarmed by the general interest

I came across this article that talks about Bitbond, a service that allows people who owns bitcoin to lend them to borrowers. It's a peer-to-peer lending using a similar rating as does

Looking at the offering list made by borrowers, I am a bit alarmed. Borrowing bitcoins is the equivalent of shorting it. The borrowers would make money if the value crash down, but they will be crushed if the value goes up. But as opposed to a futures account where you might have a buy stop to exit from the trade if you go wrong, this is a loan. Imagine Bob taking a loan for 10 BTC back in August of last year, worth at the time about ~$100/BTC for a total of $1000. Then Bob would see the price goes up by a factor of 10 about 6 months later, and now he owes $10,000.

I would not be surprised to see many of those borrowers simply default on any future drastic upward move in the price of BTC. I do not believe many of the lenders are realizing this risk, and just the same for borrowers.  Look yourself at the offering for loans you could invest in:

I see terms varying from 6 weeks to 6 months. I would be mostly nervous with the 6 months term, the 6 weeks is likely fine as long as you do not perceive a break out. If, as a lender, you were expecting a flat or downtrend in the price, but wanted to keep your BTC, you could still consider lending them, at least you would earn interest and the price drop means it will be even easier for the borrower to repay  you.
But I would stay within a 6 weeks window and make sure you understand core technical analysis on the BTC chart, if you can read a price upward move coming, even a 6 week loan should be avoided.

May the coin be with you

Saturday, July 26, 2014

And yet another very biased article against Bitcoin

This article on Market Watch should be renamed: 10 invalid reasons not to invest in Bitcoin. The article, written by P. Anand, clearly a paper lover, misses the point - I mean she misses on the 10 points.
At the top is a picture of a boot on the Bitcoin logo, well at least that's exactly what this article is about, BBB: Bias Bitcoin Bitching. Symbolism is important so I will set the tone by bringing the flag back up, illustrated with this picture that I'm sure you recognize.

So here, I'll be refuting them to put out in light the misguided, biased, or illusive arguments she has used.

1. Bitcoin could be the tip of a dangerous iceberg

Strangely, the explanation given does not clearly explains the reason for this point #1. It sounds like she is referring to the fact there are over 400 digital currencies and climbing, as the "dangerous iceberg". How is that a dangerous iceberg is not said. Billy and Jimmy on 5th road in Nebraska had fun creating their own little play money, if you include these "paper money" created by a group, or small community that has been going for decades, we are way over 10000. Any issues? No. The only major negative arguments she comes up is this:
But bitcoin’s recent history offers consumers many reasons to be wary. Unlike most traditional currencies, the value of a bitcoin can fluctuate wildly. And the collapse earlier this year of Tokyo-based Mt. Gox, the largest bitcoin exchange at the time, underscored the dangers of using or investing in an unregulated currency.                                           
We have heard that argument all the time and we will have to get back to it in a later "points" she raises later. That argument has been going on since Bitcoin's market cap was less than a mere $6 million. Just as you see more volatility in a small market cap penny stock as opposed to a large publicly traded corporation. But you should note that the volatility is not as severe as it was earlier. Regardless, volatility is short lived, and affects negatively only those who bought at the latest peak, who then have to wait for the recovery to get back in the black. Where did I see this before?... Oh yes! The Nasdaq and Dow crashes of 2000 and 2008. Sure, the Dow is not used as currency, but nobody is forced to use Bitcoin as a currency while it is experiencing volatility, and merchants can do what they mostly do: convert immediately back to dollars. But right now, it's pretty much stable, isn't it?

2. We’re a tax nightmare waiting to happen
Let's blame Bitcoin for the problem induced by the government. :-)
Yes, indeed, it sucks to have this capital gain tax. So at least this point I have to reluctantly agree. Just like any Mafia organization, the government hates competition. However, she concludes with this:
...not something you need worry about when you pay with, say, a $20 bill. 
Certainly not, what instead you have to worry about with paper money is the inflation tax. You know, the tax that targets the poor and the lower middle class the most and gives the rich a higher ability to get more wealth? Real estate investment is a clear example.

3. Our hype is much bigger than our market share
I'm happy you mention it. Remember this complain you had in point 1 regarding volatility? Well, guess what? Bitcoin had an even smaller "market share" of currencies one year ago, 60 times smaller in fact. With such a young voluntary currency that -- as opposed to government currencies imposed through coercion-- how can you expect it to go from a market share of 0 in 2009 to say 5%, 10%, or 20% today?
What does that tell you regarding the question of whether or not Bitcoin is in a bubble? If the market share is so small, there is a lot of room to grow. Considering the latest acceptance by, this gives it more acceptance. So, she just indirectly raise the point Bitcoin definitely has room to grow.

4. Our volatility could leave you broke
Aren't you repeating yourself? Seems she is. I can hear: "We just love bitching about this volatility". Curious this is brought up while the currency is relatively stable. She has enclosed a price chart from CoinDesk. Except for a few months around April and the big move up in November 2013 (who would complain when his currency is going up I don't know), it's relatively stable, particularly right now. I actually could live with this type of long term volatility forever, knowing that in 1 or 2 years, the currency will be worth 5 to 10 times more. Yes, of course, it will not keep going up forever, I'm just making a point that out of this latest "volatility", users enjoy the benefit of rising wealth. Not so with her beloved paper dollar. Just be assured that once the "market share" is quite higher, the volatility will be much lower.

5. We’re fertile ground for fraud
Ahhh... that's usually in the top 3, so I'm surprised she waited til point 5. Although considering point 1, 3 and 4 are essentially the same, I guess it fits the usual pattern of bringing this "fraud" in the top 3.
Fraudsters existed before Bitcoin was still in coding diapers, or while Nakamoto's mind was Bitcoin pregnant. Fraudsters will use whatever they will be able to, including US dollars, with or without the help of Wall Street. Does she bitches about the US dollar because of UBS that has help in money laundering? Check this long list on Wikipedia, none of it includes Bitcoin, however all of it includes national currencies.
A suitcase of US dollar bill is way less visible than the movement of bitcoins on the block chain.

And she brings this up, you know, just re-inforcing how the government hates competition and they would have shutdown Bitcoin a long time ago if it was centralized.
In May 2013, the U.S. shut down Liberty Reserve, a Costa Rica-based digital currency network that they called a criminal money laundering scam
Last time I check, UBS is still running, that's because they give the government's its "cut" by paying a small fee (compared to the gain they make). Satoshi Nakamoto knew who he was pissing off with this software, no wonder why he stayed anonymous.

6. Our little software problems can cost you big bucks
They love the Mt Gox story so much, they reference it multiple times, even in the same article. This is again an easy, cheap journalism take against Bitcoin. Remember MF Global, or Lehman Brothers, or Madoff all involving the US dollar. Sure, MF Global customers are getting back their money but after 2 painful years. Mt Gox grew too fast and was run by incompetent. They already showed signs of weakness before that, this was a warning I've used to get out. This effectively illuminated the incompetent operator off the market and users will be more aware of warning signs. As the Madoff episode shows, the SEC only gives a false sense of security

7. You may have to print out your ‘digital’ money
Another ridiculous point. How you store your bitcoins depends on your level of trust to a 3rd party - I'll refer you again to MF Global, Lehman Brothers, and Madoff as a reminder (and the list could be much longer).
So, if you don't trust or for storing your bitcoins, with 2 factor authentication, you then might prefer to keep it on paper wallet. This should also be applied to the banking sector, just check the Cypress episode last year. Bitcoiners in Cypress were unaffected.
What's yet missing and which will happen, is a Bitcoin insurance business, a firm that will insure companies that are storing and maintaining your Bitcoins. The free market will come up with solutions, you don't need bureaucrats (just as we saw with the video above).  This is how Lloyd Insurance came up. The idea of always solution involving the government was not in the mind of the masses back then.
And she brings up Gavin Andresen's statement below as another argument:
Andresen says the Internet currency needs a year or two of development on issues like security and user-friendliness before he would feel comfortable saying “yes, you could use bitcoin as your primary bank account.” 
I disagree since Coinbase and Xapo pretty much acts as a bank account, minus FDIC insurance which I did discuss already.

8. Our fees are low, but maybe not for long
That's called speculation! Why stop here, how about you speculate on what will be the price of bitcoin in 1 year from now? This low fee indeed pisses off the banking system. So, this is a positive about Bitcoin, and here she manages to turn it into a negative by speculating it "may" not last forever. Who cares about the future, it's now that is important. If the fees gets much higher, could they be higher than the banking system they are competing against --hint: no. But if they did, then people will go to an alternative currency with a different mining model, such as proof-of-stake, or proof-of-resource. The cost of mining is directly influenced by how many miners, if it gets non-economical with the attractive transaction fees, some miners will go mining other coins or get out of this business entirely.
Essentially, there are so many factors, she might as well have tried to predict if it will rain on July 26th 2022 in New York City and she would have better chance of being right. To back up this claim, she is referencing a research paper by a cryptography instructor in Istanbul, who, I remind you, does not mean has any background in markets economic and it does not tell you who paid for this "research". Was it a series of banks in Turkey?

9. Currency ‘miners’ could mine your bank account
Now I'm confused. Ms. Anand, who are you bitching about now? I thought this was about Bitcoin, not about the lack of security at Amazon Web service!  So point 9 should be moved to "1 thing Amazon Web Service won't tell you". But since they apparently fixed it, it's more about monitoring Amazon to make sure it does not happen again. If Bitcoin was not around, this lack of security at those Web Service would have been exploited for other means. Remember those "Fraudsters" that have always been around? So, if you will be bitching about Bitcoin, at least stay on the subject. It would have look less silly if you had stated one of those other typical ridiculous argument such as "We don't know who the creator of Bitcoin is?" As if it mattered since the software is open source.

10. You might need us some day, like it or not
Again, another title where the explanation given does not clarify.
If she is referring to the fact it is still in development, yes, just like the Internet's browser was still in development. You had that came up in the 1990s with, compared to today, much less functionality. What does it mean: expect more amazing things. For example, check out
If they are successful in their implementation, it will be quite a step forward. Read more about it on my earlier post on how they raise their funding.
The banking system was also in development, credit cards, ATM, ...

So there you have it, bias removal and clarity added in one more biased article on Bitcoin. Do those articles get published whenever new major merchants accepts Bitcoin?  :-)   Yes, it was my turn to speculate, but at least I admit it. But someone should check that out, from memory, I think I might not be far off.

Phil Champagne

Friday, July 25, 2014

Bitcoin with, Dell, what's next?

You would think that computer manufacturers would be among the first to accept bitcoins as currency for payment. Strangely, many are still dragging their feet. I was surprised that System76 did not yet since they are "renegade" for selling only computers running Linux.
Now that Dell has accepted it, I expect an acceleration. Overstock has demonstrated a large amount of sales in BTC with a significant corresponding saving in credit card fees. If sells pick up in any way by Dell, they will brag about it which will lead the struggling competition to jump on the Bitcoin gravy train.
So just in a few months:, which recently said it tops $1.5 Million in total bitcoin sales 

But here is what I find interesting from They will provide special deal to vendors who will be paid in bitcoins.

If some vendors do agree to this, it has the immediate implication that Overstock will not sell all of their bitcoins they get when they sell products. From the initial press release back in January, Overstock said they will avoid currency variation by converting all bitcoins earned to US dollar. This was expected since their vendors and employees are paid in US dollar and so are the dividends to investors. But if some vendors are now accepting BTC, it would make sense for Overstock to keep some BTC in reserve so that they can pay their vendors. Could this cascade to the vendors of vendors. Who knows. But did set a trend and other follows? One sure thing, the more people get aware of its ease of use and cheaper transfer cost, the more interesting things will get.

We are in the early stage of a transformation, and it feels so much like the 1990s. For those youngsters, I've got news for you, the mainstream media was just as clueless about the Internet back then. I remember when I had to explain email to a friend and I had to answer this question: "What's this "@" thing?"

Wednesday, July 23, 2014

Ethereum raising funds in BTC in exchange for future ETH - No SEC involved!

They could not have pulled this off in any way if it wasn't about virtual currencies.
The Wall Street hates competition, and for that matter, they have lobbied the Federal Government to setup walls to "protect" investors using the SEC (Security and Exchange Commission). Companies willing to have an IPOs (Initial Public Offering - which is essentially what ETH is doing in some way) requires the involvement of Wall Street banks.

In reality, it has and STILL is today the responsibility of the investors to do their homework before investing. But with the SEC, there is this added layer of difficulty added to the sellers of security (shares). As we know in the real estate industry (, we cannot openly advertise on our web page about an investment we are offering: for X dollars, you will receive X shares of this company being formed that will own this commercial property with an expected return of Y% yearly in cash flow. Even if we were accepting BTC as funding, we would still be subject to those regulations from the SEC . In other words, because we are not going with a costly public offering via a bank on Wall Street, we need to have a prior relationship with our investors before we can mention about the investment.

As we can see, not so for Ethereum. But a virtual currency can exchange one virtual currency for another as a mean of funding by publicly offering it loud on the web without any involvement from any Wall Street bank. Would that explains why JP Morgan made a negative comment about Bitcoin do you think?
;-)   It would have been sad for both Ethereum and for us if they weren't allowed to publicly offer it, but restrict to friends and personal connections. The amount raised would have been more limited. And if an IPO was involved via Wall Street, you can be sure the banks would have had a very favorable cut in more ways than we can think.

For helping them fund the project, Ethereum has launched a pre-sale of ETH (Ether coins) at 2000 ETH per 1 BTC as an initial offering, with a lower amount of ETH in a few weeks. The sale is expected to complete in 41 days. Over 8 Million ETH sold so far, meaning 4000 BTC has been received, at a price of $640, this means $2.4 Million so far has been raised.

This is how it should be done for everything. Although this project is not absolutely sure to be a complete success, the team behind is well recognized. By having the SEC or the FDA or other agencies, some people wrongly believe the investment have been "checked out" and verified for their integrity if they are allowed to submit an IPO. When these agencies are not involved, people are more aware, as in this case, they are on their own, which is a rule that should be applied to every investment regardless of the agencies involved.

In any cases, the reputation of the team plays a factor. Additionally, these guys have been pretty open about their work, more than any private company would have been. If they screw up, their reputation takes a hit, hence an incentive to complete.

Welcome to the wonderful world of decentralized funding!

Phil Champagne
Disclaimer: I invested in ETH yesterday.

Tuesday, July 22, 2014

Why Ron Paul should consider investing in Bitcoin

In this interview below, Ron Paul addresses a comment he had made earlier:

"BitCoin Could Go Down In History As Destroyer Of The US Dollar - Ron Paul   "

But somewhere in the middle of the interview, he mention he doesn't own any bitcoins and has no intention of. He is in favor of competition, but prefers a wait and see approach.
I can understand is reluctance, particularly if he hasn't read The Book Of Satoshi, but he should reconsider. Just as he probably owns both gold and silver as a "diversification" approach, he should own this new complementary electronic version. He does rightly mentions that there is a hard limit of 21 Million bitcoins, but sort of imply this may not necessarily happen, or that some other issues could arise.

First, I'll start with agreeing with him, then, I'll start disagreeing. Indeed, we do not know what the future reserve us in terms of mining. Since the miners are at the heart of the maintenance of the network, we have to keep an eye on them. In the early months of Bitcoin's existence, about anyone with any existing computers could participate and be successful as a miner. Today, it's a cut throat competitive business with the requirement to keep upgrading with the latest specialized ASICs. The mining pool have greatly helped in the effort to provide an interest for small miners to stay in the business, but what if only a small group of big miners are left running the network in the future? The Bitcoin protocol gets new update and I'm convinced the developers will consider any changes that might help maintain the network's integrity in the future with new ideas yet to be conceived. But we still don't know. It is somewhat similar to investing in tech company in some way, except better as we are dealing with open source.

But not to invest? I know for certain that Mr Paul invest in gold and silver mining companies which have inherently an unknown factor in terms of possible discoveries and company management skill, particularly if he invest in junior miners (companies focusing on new discoveries). On that level, investing in Bitcoin would be a comparable investment strategy. In addition, Bitcoin allows a mean of storing it safely that is stronger and safer than any gold storage company or stock brokerage firm. Imagine for an instance that Bitcoin was available back in the 1930s. It would have allowed Jews and other persecuted individuals to escape Germany with their wealth safely kept. As opposed to gold which can be easily found in a search, they would not know if they owned bitcoins and if they did, how many. Torture could have been used, but then also, they could have said
"my password is safely kept in Switzerland, I need to get there first. I swear I'll send them back to you".

Imagine this interesting revision of history in a spin off episode of Twilight zone. I'm only bringing this up to illustrate the point. If we have the same kind of illicit government fascist take over somewhere again, I would prefer Bitcoin to gold if I had to transport my wealth with me. Sure, on the other hand, a complete wipe out of our electricity grid on a worldwide basis would render Bitcoin not much useful, whereas gold and silver still available. Hence my point, get both. Store you gold and silver in safe storage company (overseas), store your bitcoin with a deterministic wallet for example that you can recreate from memory (more on that in a future article) or backed up encrypted on the cloud.

Phil Champagne
Author The Book Of Satoshi
BookOfSatoshi at