BitCoin - what are you missing?

I have been studying the rapid emergence of crypto-currencies and getting a first hand, practical experience in Bitcoin and Eretheum trading.

I didnt just wanted to understand the technology, the technology or the drivers but moreover its purpose for everyday use and who can use it.

It reminds of the early days of the internet where creating web pages entailed understanding File Transfer Protocol and IP addressing. That has all gone away now of course as those requirements were technically commoditized and the same will happen with BitCoin trading. Once the mainstream finance community becomes involved the ownership of the medium by the current small number of technically literate will be passed over.

I found this easy guide FT Times article ( below) and I thought it was worth sharing.

For my own trading experience the key elements are of course:

• You need to pick a stream or 'fork' of BitCoin in which to trade. This would the same as say trading on say Wool or Wheat Futures rather than a generic 'Agriculture' Future. The two most popular appear to be BitCoin and Eretheum.
• You need to pick an exchange on which to trade. This is really not much different to online trading say on the ASX and two exchanges in Australia are Independent Reserve and BTC Markets. The latter only operates in Australian dollars so that may have more appeal to some worried about foreign exchange implications.
• Once you set up an account and have your identity approved by the Exchange you have chosen - and create a double authentication capability - you can start to buy and sell units. But there are maximum amounts per day ( and as small as you like - as little as $10).
• The biggest issue of course is security. The Exchanges make every effort to protect access to your bitcoin units but in effect you are completely trusting them to do that. The fundamental problem is that if it is online then it is hackable! Human nature for criminals says that as the $ value per unit goes higher the worth in targeting exchanges is proportionally enhanced - and rewarded. Literally the modern day digital version of robbing a bank.
• So you could trust your exchange - as you do with your ASX trading facility - or you can offline your units and store them in a BitCoin wallet - which is effectively a purpose designed USB and links to a browser based application for interaction. This employs what is described as 'space diversity' security - effectively physically disconnecting the link between the internet and your coins storage area and your coins cannot be stolen!
• That sounds worth it doesnt it - with one added twist.
• Every code and password you have in this regard must also be stored off line and not on your computer! You will will now need to securely store your computer and paper generated passwords somewhere safe( for most of us that easier said that done - for me phones in taxis, reading glasses in planes come to mind!). Lose those and your Bitcoins are unrecoverable!

That is it. Get started if you are brave but just start small?

So where do I think this will go and what is its future?

Here are some observations:

• This is not a fad. It still has a long way to go for sure but it is transformational and is an essential element of the information age - including how to automatically , globally, recover payment for engaging internet of things remote services - eg satellite imagery, drones, webcams, medical devices etc
• There will be winners and losers in the variations of BitCoin. That is market forces at work but their will also be a prime mover advantage to those that are out of the blocks already.
• Once the mainstream comes on board - and it will because it will become irresistible to the 'suits' in financial services( they cant stay on the sidelines while this is happening) - then it will move to another level altogether.
• Its a global trade. Its not the ASX! The whole world is looking at this and can participate on an equal basis - truckies in Athens, Chinese businessmen, European migrants or refugees transferring funds home, criminals of course, those countries where the banking system is not trusted and so on. That is, the drivers for this are multiple and varied.
• Its a solution to a thousand problems just in relation to standard banking and financial services but if its moves into retail consumption and payment for everyday services then everything changes in terms of both digital currencies, the cashless economy and financial transactions and services ie the block-chain story writ large!

I may be proven wrong and the risk is criminality destroying the block-chains systems mantra of 'trust' and 'immutability' but if it doesn't break then you are witnessing the payment system for the information age emerge before your eyes.

Read the article below for some more background.....

THE TIMES

Bitcoin: everything you need to know

Bitcoin medals. Picture: Karen Bleier/ AFP.

• ANNABELLE WILLIAMS
• The Times
• 12:00AM December 1, 2017

From obscure origins as a cryptocurrency created by an anonymous programmer, bitcoin has defied critics and now costs more than gold. Its market capitalisation, or value, is bigger than that of PayPal, the popular online payment system.

What is bitcoin ?

Bitcoin is a cryptocurrency, a virtual currency that has a layer of encryption for security. It was born from the idea that money made legal tender by government and central banks, known as fiat money, is inherently unsafe. Backers of the notion tend to reference 1933 when president Franklin Roosevelt seized gold belonging to ordinary Americans in an attempt to ease the Depression. A modern example of government manipulation of money is quantitative easing, or central bank money printing, which critics say has pushed up stockmarkets and house prices, making the rich richer. Even when economies aren’t in crisis, central banks change the price of money through interest rates, creating inflation, while banks lend more than they have, debasing currency. Bitcoin tries to circumvent these problems, because it is not controlled by powerful institutions — it is supported by a network of enthusiasts — and because there are a finite number of bitcoins, 21 million. Bitcoin was released during the financial crisis in 2009 by someone calling themselves Satoshi Nakamoto.

I heard banks are interested in bitcoin.

Bitcoin’s underlying technology, called blockchain, is considered revolutionary and banks are pouring money into researching how they can use it. Blockchain is a digital ledger that publicly and permanently records transactions in bitcoins, which leave a digital footprint. This kind of ledger gets around the need for a trusted third party, such as a bank or clearing house, to oversee a money transfer, which is the system we use at present for digital transactions. If you send money using fiat currencies, you are limited in how much you can send; small or frequent transactions are uneconomical because of the fees charged. With no third-party authorisation, bitcoin transactions can be made quickly and at a lower cost. Blockchain is managed by a network of computers; no one party is trusted to own it. The technology could be used widely in finance. What bitcoin is literally, though, is software. It’s a program that is run across an interlinked network of computers and that facilitates those transactions between people.

Isn’t bitcoin used by criminals?

Bitcoin’s libertarian aims have been undermined somewhat because it became the payment of choice for purchases of guns and drugs on the dark web. Although the blockchain ledger is public, the identity of the person behind a transaction is hard to trace. “The stain of association that cryptocurrencies have (with the dark web) is still visible. Most people assume it is some kind of scam,” Paul Vigna says in his book Cryptocurrency.

Why has bitcoin’s price suddenly risen?

It is still a niche currency. Many buyers are Chinese, looking for ways around strict government controls on capital movements. Japan recently legalised bitcoin as a currency and its main retailers have begun accepting it. This sparked a surge of purchases of bitcoin in Japanese yen. A dispute among enthusiasts about the future of the currency was resolved when part of blockchain was upgraded in August to make it run faster. A separate currency called bitcoin cash also was created. This prompted a surge in bitcoin’s value. Some people believe bitcoin will become a global currency and will be widely accepted and used. Indeed, Wall Street is getting more interested in it as an investment. The thinking goes that if it becomes a mainstream investment, the investing hordes will push its price ever higher. Plenty of people also think it’s all just an investing mania, that people are rushing into bitcoin because they believe the price will go higher.

How do I buy bitcoins?

You can buy bitcoins like any foreign currency, through an account with an online exchange. Two well-known ones are Blockchain.info and Coinbase. They charge a fee for buying. Bittybot is an online comparison site for bitcoin exchanges. Every bitcoin is divisible down to the eighth decimal place, so you can buy small amounts. You store the bitcoins in an online wallet that you can access from your mobile phone. Touching your phone against a bitcoin payment terminal debits bitcoins from your account. There are also ATMs around the world where you can buy bitcoins with your phone wallet. Coinatmradar.com shows your nearest.

How secure is it?

Popular storage sites have been hacked — including Japan’s Mt Gox and Bitfinex in Hong Kong — with millions of dollars’ worth stolen. The currency is safer stored offline on a hardware wallet, similar to a USB stick. Two well-liked versions are the Ledger Nano and Trezor.

Where can I spend bitcoins?

In the US, big retailers such as Starbucks and Subway accept bitcoin, while Europe is dotted with shops and bitcoin boulevards where the currency is accepted. You could buy bitcoins as an investment but, given the price has quadrupled this year and is prone to sharp falls, be careful.

Is it a bubble?

Bitcoin’s price is up about 900 per cent this year. It doubled in the past five weeks alone. Those are facts. Whether that constitutes a bubble is something investors need to decide themselves. “Whether or not you believe in the merit of investing in cryptocurrencies, real dollars are at work here and warrant watching,” Goldman Sachs analysts say.

Other digital currencies

There are 10 digital currencies with a market value of more than $US1 billion, according to Coin Market Cap. Bitcoin’s closest rival is ethereum and its price has also gone bananas, rising more than 3000 per cent in the past 12 months to $US452 an ether, but it is similarly volatile. Ethereum uses blockchain technology but its version is considered by some experts to be superior, with greater potential applications.

The Times