Any Thoughts On Bitcoin ?

It is backed by nothing tangible as money, but it is backed by a userbase who is willing to pay for it as a service, and so it has a price associated. Anyone can buy or sell as much as they want, so it's not a safe market.

The point of one cryptocurrency isn't necessarily the point of any other. That's why you have BitCoin XT as a BitCoin alternative, because one group of people wanted to increase the block size to accomodate higher transaction volume. Most of these currencies track each other pricewise, because they all provide the same basic service.

What central banks want to utilize is a distributed ledger system for maintaining transaction credibility among a group of peers (users of the software protocol - either publicly or privately) who share the responsibility of validating the transaction and historical auditability of all the currency. The cloud only validates the transactions and keeps a shared record. Your wallet is a file in your digital possession that you use to make a transaction.

The premise behind BitCoin initially was anonymity, but it has never been that. TOR and Onion addresses are semi-anonymous, and those are what Silk Road hid behind, not BitCoin. BitCoin was merely a medium of exchange available that was not managed by any existing central bank or government, and being an unregulated market put it in position to be utilized in that way.

All BitCoin transactions are in the blockchain forever, but whether or not user account or IP address tied to the transaction is traceable is a crap shoot. If central banks were to make use of the technology, it would be solely for that traceability of users of their currency.

But there's nothing to stop people from continuing to use BitCoin or its clones as an alternative, so I'm wondering if they might incentivise things by backing things up with some of that gold they use to settle their debts.

 

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I'll jump into this later, have to head to work now so I can't get into a lengthy post.

As someone who holds an amount of them, and has been active in that community for the past 3+ years, I can probably answer many questions for you.

One thing there is in common is a tie to PM's with the "physical" bitcoins.

And yes, standard rule applies - don't invest anything you can't afford to lose. Not that I believe it will dive bomb and disappear, but there's much to learn before I'd recommend jumping in.

 

Kind of correct.

The Tax Man does want in, and if you are dealing with exchanges that perform a BTC <-> Fiat conversion, yes, you need to identify yourself, and you are no longer "anonymous". There are still ways to operate "semi-anonymously" if you understand how certain things work in the space.

Also kinda correct. It was this way a while back, but the US Tax implications have settled in and are now quite stable and should be easy to understand.

The IRS has classified Bitcoin as a "possession", not a "currency", which is a very important distinction. This means that Bitcoin is like any other investment - PM's, stocks, etc - in that you are required to report capital gains on any transaction just like you would if you sold your stocks or silver/gold. If I buy a Bitcoin for $150, and sell it for $500 a year later, I am supposed to pay capital gains on the $350 difference.

Oh, it can be done with less hassle if you really want, your brother needs to be creative. I'm sorry I cannot elaborate any further.

 

And Bitcoin is related to perfectly normal transactions, such as the honey and beef jerky I bought from some enterprising folks.

As with anything, the bad news is always hyped over the good. Bitcoin is linked to drugs, and guns, stealing kidneys, the fall of democracy, the return of Lucifer and all that stuff. Guess what, so is cold hard cash. Someone can link to the story about how the majority of $100 bills have some traces of cocaine on them I'm sure. Wherever there is a black market, any currency that can, for the most part skirt easy detection, will be used.

I very much argue the "going to be regulated and watched over" statement, unless you are speaking specifically of the BTC <-> Fiat exchanges, where people are "cashing out" and where that anonymity is lost. General BTC transactions between parties carry enough anonymity (note I did not say complete anonymity, as that is patently false) that the time spent trying to monitor and regulate those is counter-productive to any returns of prosecution.

 

Ok, now I'm late for work...

But I'll say this for now.

I view Bitcoin as I view my PM's - a store of wealth. I actively use and trade it for services and goods, and occasionally I use it to buy PM's. I use it as a part of my overall monetary strategy, being well-diversified across many wealth platforms. I spent a LOT of time researching and understanding it, and I've ridden it from the highs of $1300 to the lows of $150, and back now to where it is.

There is no "backing" behind Bitcoin per se. There is no government, no fiat, no PM's that do that, nor do I believe there ever will be. It's value is given solely by the community that uses it, and the set limit of 21,000,000 Bitcoins that could ever be in "circulation" (of which there's roughly 15,000,000 distributed so far). That is one thing that should never change, but if it ever did, it would spell the end for Bitcoin I believe. There's a whole other discussion about that, for another thread.

You can acquire it by "mining" it, or exchanging Fiat for it. Personal mining these days is very risky, and unless you have power below $.04/KWatt it's probably a losing proposition. I spent the better part of a year figuring this all out before I was successful.

I was lucky enough to get into it at the right time, operate a successful mining operation, and come out of it on the positive side, with all my holdings no longer based on US Fiat that I put into it to get started. I'm playing with house money, so to speak, so I can now only "lose" any potential gains I might have had were I to cash out.

If you are a bullion "collector", you will certainly find many wonderful examples of minted PM's that are used as "wallets" to store "cold" bitcoins until you want to redeem them. I will post some of my collection later, there truly are some nice pieces there.

I'm going to try to speak more of the ties between bitcoin and bullion/PM's, as the two are inter-twined very much, and there is a very active collectors' community in the space, which is honestly how and why I was attracted to it in the first place. I will happily answer any questions about the technology of it, the history of it, the good, the bad, whatever you want. I enjoy the conversations.

I personally believe that Bitcoin will never be used as a true currency competitor. The technology is more suited as a wealth store / transfer medium. The technology is currently too slow to be used for P.O.S. systems like going to the grocery store, etc (again, another discussion), but it is awesome for transferring money to parties around the world quickly and easily, and great for purchases that aren't immediate (i.e. ordering something online).

I'm not a collector of Bitcoin itself, but much more of the "coins" ecosystem that has sprung up around it.

I will advise you that as an "investment", you should stay away from it. If you do not understand it very well, you will most likely lose money. I believe Bitcoin has found a stable ground and will be around for the forseeable future, and will probably mimic the roller coaster of PM's in general.

 

I was in that boat too, I actively watched Bitcoin as it was in the sub $10 range but personally didn't trust the system just yet and ultimately killed my initial attempt to get into it.
This was because in my heart of heart I believe Silver is one of the most undervalued assets around and I was all in on it. That is when I found out about "physical bitcoins" - I thought the idea was fabulous as it basically allowed me to "hold" my digital bitcoin, only problem was that in the early days you HAD to pay in bitcoin and I didn't have any and didn't know how to get them. Really kicking myself now for not going forward with it. Fast forward to today - definitely regretting my silver investments at this point as it seems the only way to make money on it is to be a dealer as the markets are to easily manipulated by the big banks and paper money.

The cool this about Bitcoin is that it's similarities to gold in the modern world. It is not backed up by anything more then a promise, but to me that is the same thing as the dollars in your wallet - nothing more or less then a medium of exchange. The biggest benefit is the flexibility and ease of use in the modern world. I mean I can take my bitcoin and pay someone 1 "bit" or .000001 of my bitcoin making it very flexible for day to day transactions.

All that said I would advise anyone interested in bitcoin to seriously consider making a purchase before March 11th as the SEC is going to be making a final decision on the Winklevoss brothers Bitcoin ETF they have been trying to establish. Obviously this could go either way so choose your investments wisely. Personally the upside to this is far greater then the downside at this point. Bitcoin is no longer a FAD or Trend, but rather a new type of currency with a total market value as of this writing of almost $18.5 BILLION dollars.
Edited: self promotion not allowed .
$.02
J

 

As mentioned above .. do your research. Thanks @Prime Mover for all the info.

I always tell people never invest into something that you are "emotional" about .. whether a specific stock, stock category or PM. You'll lose.

 

Thanks. My apologies if my post quoting you came across as combative or aggressive against your statement. 'Twas not my intention.

Your post was what I feel is a common perception about how most view Bitcoin, and sadly, it certainly did earn it's bad reputation in the beginning by being used quite a lot for illicit means. The whole Silk Road situation was probably one of the lowest PR points for Bitcoin because that spawned a lot of the news about Bitcoin being used as a currency for thieves, drug dealers and generally unsavory people.

Mt. Gox (the japanese exchange that was hacked and caused the first major price tumble) was another case of bad PR, because it shook the very foundations of what Bitcoin stood for - anonymity and security. If someone could hack a major exchange like that, which was supposed to be like Fort Knox, how could anyone's "coins" be safe?

Both of those things have taken quite a while to recover from, and there are certainly still many cases of growing pains, but so far, the community has found mainly common ground and pulled through. Now it's up to them to continue to trumpet the positives, and hopefully through that it becomes more stable and continues its sticking power.

 

So, here's a shot of something that arrived in the mail today.

This is a loaded "Casascius" round. It is 1oz silver, with a piece of paper under the hologram on the reverse containing the private key of a single Bitcoin. This is one of the original and most well-known types of "physical Bitcoins", and a lot of the photos you'll see representing Bitcoin use one of his product.

Casascius "coins" were produced by Mike Caldwell, starting in 2011. The initial ones were of Brass composition, and then after that he began producing both Brass and silver rounds in various denominations from 0.1BTC all the way up to 1,000BTC (yes, 1,000, and one of those was sold at auction for well over $1mil USD a couple years back).

Mike pre-funded all his coins when he began, so every coin you find with a hologram still intact has some sort of BTC loaded on it. This got Mike in trouble with the US Feds, as back then they tried to sue him for money laundering (or was it "competing currency" or something like that, I have to look that up), even though it still hadn't been classified yet by the US government as anything. Kinda the same idea as Norfeds.

Mike eventually ceased operation in 2013 to avoid any further prosecution and settle the suit. Pretty much after that, every US-based physical Bitcoin maker would not pre-fund any rounds for any customers. That's a big no-no and will certainly mark you as a target for the US Government. Some makers will allow you to fund your coins pre- or post- shipment with your own Bitcoins if you have them, however.

 

No problem. My involvement was back up through the Mt Gox timeframe when I stopped following it in ernest. So my perception was skewed.

We still get those hacking emails from time to time about people holding harddrives ransom until you pay in Bitcoin LOL Of course I think much of it pales in comparison to the Canadian PacNet Services which was plain old mail fraud.

 

That turns out not to be the case. It's possible to develop a provably secure algorithm. It's much easier to develop an algorithm that you think is secure, only to have someone else find a flaw in it.

Developing an algorithm with a back door that you can take advantage of, but no one else can find even when they examine the algorithm, is very, very hard indeed.

 

My brother's a computer programmer so he knows what he's doing with knowledge way beyond what I possess. He's the one who got me involved with Btc early 2010 I believe when they were around .04 USD in value. He also used to mine them using his old desktops set up for that purpose. I know it's pretty easy to get around exchanges and still cash out for a few coins at a time, but it's increasingly difficult to do when moving tens+ number coins at a time.

 

This isn't true. BitCoin's value lies in its utility as a currency service. A physical BitCoin loses nearly all of its utility as it can't be transacted online which is the point.

 

If you are actually kicking yourself for investing in silver then you invested for the wrong reasons. Silver and gold provide tangible wealth that is safe from counterparty risk and inflation. If you wanted to get rich in a handful of years, precious metals were the wrong choice. Precious metals are my retirement plan. Just because silver is undervalued doesn't mean it will ever reach fair value, and it certainly will not reach fair value before the US dollar is retired, because they are competing currencies and the currency printers have a vested interest in using that currency to suppress the price of precious metals. BitCoin's similarity to gold and silver is only that they can both function as currency. Fundamentally they are nothing alike, and noone should invest in BitCoin as a precious metal alternative. You should only invest in what you understand. I understand BitCoin, but I still won't invest in it. Every year or two the price gets cut in half and yo-yos all over the place. It's about as speculative a market as there is.

 

How is it safe from inflation? If you bought in the 80s you had to wait 30 years to get the same dollar amount back

 

Does it really make since to pick an anomalitic high point as your baseline? If you started in Y2K you're doing pretty well right now. Gold is up about 4x. People always say a gold coin bought you a nice toga in ancient Rome and a nice suit today.

It's safe from inflation, because gold has no other purpose other than to reflect the value of the money supply. Silver is an industrial metal, but gold is only monetary/jewelry (same thing IMO), because its industrial uses are too expensive to be viable except in small quantities or special cases. That's why the price of gold matters.

 

Picking 2000 as the starting point is the same thing. Something actually safe from inflation is always safe. If you bought in 2012 you're way down too. Actual safe heavens don't have extended periods of heavy loss.

Everyone that panicked when the stock market dropped and sold low to rush into metals is now twice as much under water if they didn't sell at the high point while the market has come back in a lot of areas.

 

I know it is. I was showing you your own behavior, and I also know that the 50 year chart and the 100 year chart and the 1,000 year chart, and pretty much every other chart with any longevity proves your cherry picking is bogus, but I was trying to allow you a tactful retreat. And Y2K was the start of this longterm bull market so it has relevant significance as a measuring stick unlike a blip on the radar like 1980 was.

If you're investing with a 5 year timeframe, you deserve to lose your money, because that's unrealistic and greedy, and it's by no means indicative of a full market cycle.

And it is a leap of faith to equate "the price of gold went down" to meaning that it "didn't protect against inflation". There are other factors to the price besides inflation. It's a longterm inflation hedge over time. I figured it was obvious that was what I meant. That's what you call protection from inflation. That doesn't mean it protects against the market.

 

There is a way to break it, but it's not some secret back door. The beauty of BitCoin is that the validation process is done by the users of the system. The way to break it is to have enough BitCoin clients to overwhelm the processing power of all the other legitimate clients to hijack the blockchain in order to legitimize false transactions. No small feat, but an internet worm might be able to pull it off, and it would be very hard to maintain. Then again there are many smaller BitCoin clones that would be easier to hijack that use the same technology. Between that and it being an unregulated market anyone can pump and dump, I have all the reasons I need to steer clear.

 

So I have to live to be a 1000 or else it may cost me a lot of money for significantly long periods of my life. Honestly what I am reading in your reply is that you started at a conclusion and are working backwards to defend it. People don't care what happened over a thousand years when it comes to investments and wealth and if during their life time it will cost them money or do nothing for more than half their life span. This is just trying to make something be something it isn't. If something can be worth less for significant or your entire life it is a safe haven of nothing. I don't care what money will be in a thousand years, am I supposed to throw away my net worth to buy something that 300 years from now could be worth more?