Lifeboat Foundation

Bitcoin has many characteristics of a currency. It is portable, fungible, divisible, resistant to forgery, and it clearly has value. Today, that value came close to $20,000 per coin. Whether it has ‘intrinsic value’ is somewhat of a moot question, because the US dollar hasn’t exhibited this trait since 1972. Today, economists don’t even recognize the intrinsic value of gold—beyond a robust, international, supply-demand network.

Lately, Bitcoin is failing as a viable currency, at least for everyday consumer transactions. The settlement of each transaction is bogged down with long delays and a very high cost. The situation has become critical because of squabbling between miners, users and developers over how to offer speed transactions or lower the cost of settlement. Bitcoin forks and altcoins such as Dash and Bitcoin Cash demonstrate that these technical issues have solutions. Since Bitcoin is adaptable, I believe that these issues are temporary.

But an interesting question is not whether Bitcoin will eventually become a consumer currency. it is whether Bitcoin can distinguish itself as a store of value, rather than just an instrument for payment or debt settlement. After all, a Visa credit card, a traveler’s check and an Amazon gift card can all be used in retail payments, but none of them have value unless backed by someone or something. US Dollars on the other hand are perceived as inherently valuable. They carry the clout and gravitas of institutions and populations, without users questioning from where value arises. (This is changing, but bear with me)…

What about Bitcoin? Does owning some bitcoin represent a store of value? Yes: It absolutely does!

Continue reading “Is Bitcoin a Store of Value?” »

In an April 2014 article, I demonstrated how one might approach a fair Bitcoin valuation.

• Original Methodology: What fraction of the daily float
  needed to support daily global commerce will Bitcoin capture?

My methodology was based on the demand that Bitcoin would generate if it displaced a small fraction of cash and credit used for retail and commercial payments around the world. At the time, Bitcoin had a value of USD $450. I estimated that if it captured 5% of global payments, it would have a fair value of about $10,000/BTC (I didn’t complete the calculation—I left that up to the reader. That’s because I was concerned that publishing such a prediction would cause me to lose credibility as an economist and blogger. For what it is worth, I also predicted that a rise to $10,000 would take 5~8 years.

As you might imagine, my friends and family urged me to unload my BTC investment. The April 2014 price of $450/BTC seemed very high to most armchair analysts. After all, thirteen months earlier, it had been just $45.

Continue reading “Bitcoin Fair Value Calculation” »

On August 1 2017, the value of a Bitcoin was at $2,750 US dollars. Today, just over one month later, it is poised to leap past $5,000 per unit. With this gain, many people are asking if Bitcoin has any genuine, inherent value. Is it a pyramid scheme? —Or is it simply a house of cards ready to collapse when the wind picks up?

In a past article, I explained that Bitcoin fundamentals ought to place its value in the vicinity of $10,000.* (At the time, it was less than $450, and had even fallen to $220 in the following year).

For many consumers viewing the rising interest in Bitcoin from the stands, there is great mystery surrounding the underlying value. What, if anything, stands behind it? This is a question with a clear and concise answer. In fact, it has a very definitive and believable answer—but it is easiest to understand with just a little bit of historical perspective.

At one time, G7 fiat currencies were backed by a reserve of physical Gold or the pooling or cross-ownership of other currencies that are backed by gold. That ended in 1971 when the Bretton Woods agreement was dissolved by president Richard Nixon in Ithaca NY.

Continue reading “Spell it Out: What, exactly, backs Bitcoin?” »

3½ years ago, I wrote a Bitcoin wallet safety primer for Naked Security, a newsletter by Sophos, the European antivirus lab. Articles are limited to just 500 hundred words, and so my primer barely conveyed a mindset—It outlined broad steps for protecting a Bitcoin wallet.

In retrospect, that article may have been a disservice to digital currency novices. For example, did you know that a mobile text message is not a good form of two-factor authentication? Relying on SMS can get your life savings wiped out. Who knew?!

With a tip of the hat to Cody Brown, here is an online wallet security narrative that beats my article by a mile. Actually, it is more of a warning than a tutorial. But, read it closely. Learn from Cody’s misfortune. Practice safe storage. If you glean anything from the article, at least do this:

• Install Google Authenticator. Require it for any online account with stored value. If someone hijacks your phone account, they cannot authenticate an exchange or wallet transaction—even with Authenticator.
• Many exchanges (like Coinbase) offer a “vault”. Sweep most of your savings into the vault instead of the daily-use wallet. This gives you time to detect a scam or intrusion and to halt withdrawals. What is a vault? In my opinion, it is better than a paper wallet! Like a bank account, it is a wallet administered by a trusted vendor, but with no internet connection and forced access delay.

Exchange and cloud users want instant response. They want to purchase things without delay and they want quick settlement of currency exchange. But online wallets come with great risk. They can be emptied in an instant. It is not as difficult to spoof your identity as you may think (Again: Read Cody’s article below!)

Continue reading “Wallet Security: Cloud/Exchange Services” »

At the beginning of 2016, Bitcoin was fairly steady at $430. Richelle Ross predicted that it would finish the year at $650. She would have been right, if the year had ended in November. During 2016, Bitcoin’s US dollar exchange rose from $433 to $1000. In the past 2 months (March 24~May 20, 2017), Bitcoin has tacked on 114%, rising from $936 to $2000. _{[continue below image]…}

If this were stock in a corporation, I would recommend liquidating or cutting back on holdings. But the value of Bitcoin is not tied to the future earnings or property value of an organization. In this case, supply demand is fueled—in part—by speculation. Yes, of course. But, it is also fueled by a two-sided network built on the growing base of utilitarian adoption. And not just an adoption fad, but adoption that mirrors the shift in our very understanding of bookkeeping, trust and transparency.

Despite problems of growth, governance and regulation, Bitcoin is more clearly taking its place as the future of money. Even if it never becomes “legal tender” in any country—and is used only as a mechanism of payments and settlement, it is still woefully undervalued. $2000 is not an end-game. It is a beginning.

_{Philip Raymond co-chairs Crypsa & The Bitcoin Event. He is columnist & board member at Lifeboat Foundation,
editor at WildDuck and is delivering the keynote address at the 2017 Digital Currency Summit in Johannesburg.}

“Economist and filmmaker Manuel Stagars portrays this exciting technology in interviews with software developers, cryptologists, researchers, entrepreneurs, consultants, VCs, authors, politicians, and futurists from the United States, Canada, Switzerland, the UK, and Australia.”

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At the heart of Bitcoin or any Blockchain ledger is a distributed consensus mechanism. It’s a lot like voting. A large and diverse deliberative community validates each, individual user transaction, ownership stake or vote.

But a distributed consensus mechanism is only effective and faithful if the community is impartial. To be impartial, voters must be fairly separated. That is, there must be no collusion enabled by concentration or hidden collaboration. They must be separated from the buyer and seller; they must be separated from the big stakeholders; and they must be separated from each other. Without believable and measurable separation, all sorts of problems ensue. One problem that has made news in the Bitcoin word is the geographical concentration of miners and mining pools.

A distributed or decentralized transaction validation is typically achieved based on Proof-of-Work (POW) or Proof-of-Stake (POS). [explain]. But in practice, these methodologies exhibit subtle problems…

The problem is that Proof-of-Work can waste an enormous amount of energy and both techniques result in a concentration of power (either by geography or by special interest) — rather than a fair, distributed consensus.

Continue reading “Distributed Objective Consensus: Beyond POW & POS” »

The answer may be counter-intuitive: Not only can Bitcoin be widely adopted under a supply cap, its trust and integrity are a direct result of a provably limited supply. As a result, it will flourish because it is capped.

Everyone Can Own and Trade a Limited Commodity, IF…

…if it is both measurable and divisible. Bitcoin has a capped supply just as gold has a capped supply. Although both assets will be mined for some time into the future, there is only so much that will ever be uncovered. Thereafter, the total pie cannot grow.

But the transaction units will continue to grow as needed, because the pie is divisible into very, very tiny units:

Continue reading “Can Bitcoin Flourish with a Capped Supply?” »

Worried about security for your bitcoin in the face of quantum computing? According to computer researchers, there’s no reason to be.

_{Source: https://hacked.com/breathe-easy-bitcoiners-quantum-computing…encryption}

Some people assume that once quantum computing comes along modern encryption technologies will be outpowered. But experts are starting to posit that hash functions and asymmetric encryption could defend not only against modern computers, but also against quantum attackers from the future.

Continue reading “Bitcoin users relax: Quantum computing no match for SHA-2 encryption” »