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The Great Bitcoin Bull Market Of 2017 by Trace Mayer
By: Trace Mayer, host of The Bitcoin Knowledge Podcast. Originally posted here with images and Youtube videos. I just got back from a two week vacation without Internet as I was scouring some archeological ruins. I hardly thought about Bitcoin at all because there were so many other interesting things and it would be there when I got back. Jimmy Song suggested I do an article on the current state of Bitcoin. A great suggestion but he is really smart (he worked on Armory after all!) so I better be thorough and accurate! Therefore, this article will be pretty lengthy and meticulous. BACKGROUND As I completely expected, the 2X movement from the New York Agreement that was supposed to happen during the middle of my vacation flopped on its face because Jeff Garzik was driving the clown car with passengers willfully inside like Coinbase, Blockchain.info, Bitgo and Xapo and there were here massive bugS and in the code and miners like Bitmain did not want to allocate $150-350m to get it over the difficulty adjustments. I am very disappointed in their lack of integrity with putting their money where their mouths are; myself and many others wanted to sell a lot of B2X for BTC! On 7 December 2015, with Bitcoin trading at US$388.40, I wrote The Rise of the Fourth Great Bitcoin Bubble. On 4 December 2016, with Bitcoin trading at US$762.97, I did this interview:
As of 26 November 2017, Bitcoin is trading around US$9,250.00. That is an increase of about 2,400% since I wrote the article prognosticating this fourth great Bitcoin bull market. I sure like being right, like usual (19 Dec 2011, 1 Jul 2013), especially when there are financial and economic consequences. With such massive gains in such a short period of time the speculative question becomes: Buy, Hold or Sell? FUNDAMENTALS Bitcoin is the decentralized censorship-resistant Internet Protocol for transferring value over a communications channel. The Bitcoin network can use traditional Internet infrastructure. However, it is even more resilient because it has custom infrastructure including, thanks to Bitcoin Core developer Matt Corrallo, the FIBRE network and, thanks to Blockstream, satellites which reduce the cost of running a full-node anywhere in the world to essentially nothing in terms of money or privacy. Transactions can be cheaply broadcast via SMS messages. SECURITY The Bitcoin network has a difficulty of 1,347,001,430,559 which suggests about 9,642,211 TH/s of custom ASIC hardware deployed. At a retail price of approximately US$105/THs that implies about $650m of custom ASIC hardware deployed (35% discount applied). This custom hardware consumes approximately 30 TWh per year. That could power about 2.8m US households or the entire country of Morocco which has a population of 33.85m. This Bitcoin mining generates approximately 12.5 bitcoins every 10 minutes or approximately 1,800 per day worth approximately US$16,650,000. Bitcoin currently has a market capitalization greater than $150B which puts it solidly in the top-30 of M1 money stock countries and a 200 day moving average of about $65B which is increasing about $500m per day. Average daily volumes for Bitcoin is around US$5B. That means multi-million dollar positions can be moved into and out of very easily with minimal slippage. When my friend Andreas Antonopolous was unable to give his talk at a CRYPSA event I was invited to fill in and delivered this presentation, impromptu, on the Seven Network Effects of Bitcoin. These seven network effects of Bitcoin are (1) Speculation, (2) Merchants, (3) Consumers, (4) Security [miners], (5) Developers, (6) Financialization and (7) Settlement Currency are all taking root at the same time and in an incredibly intertwined way. With only the first network effect starting to take significant root; Bitcoin is no longer a little experiment of magic Internet money anymore. Bitcoin is monster growing at a tremendous rate!!
SPECULATION For the Bitcoin price to remain at $9,250 it requires approximately US$16,650,000 per day of capital inflow from new hodlers. Bitcoin is both a Giffen good and a Veblen good. A Giffen good is a product that people consume more of as the price rises and vice versa — seemingly in violation of basic laws of demand in microeconomics such as with substitute goods and the income effect. Veblen goods are types of luxury goods for which the quantity demanded increases as the price increases in an apparent contradiction of the law of demand. There are approximately 16.5m bitcoins of which ~4m are lost, ~4-6m are in deep cold storage, ~4m are in cold storage and ~2-4m are salable. (http://www.runtogold.com/images/lost-bitcoins-1.jpg) (http://www.runtogold.com/images/lost-bitcoins-2.jpg) And forks like BCash (BCH) should not be scary but instead be looked upon as an opportunity to take more territory on the Bitcoin blockchain by trading the forks for real bitcoins which dries up more salable supply by moving it, likely, into deep cold storage. According to Wikipedia, there are approximately 15.4m millionaires in the United States and about 12m HNWIs ($30m+ net worth) in the world. In other words, if every HNWI in the world wanted to own an entire bitcoin as a 'risk-free asset' that cannot be confiscated, seized or have the balance other wise altered then they could not. For wise portfolio management, these HNWIs should have at least about 2-5% in gold and 0.5-1% in bitcoin. Why? Perhaps some of the 60+ Saudis with 1,700 frozen bank accounts and about $800B of assets being targetted might be able to explain it to you. In other words, everyone loves to chase the rabbit and once they catch it then know that it will not get away. RETAIL There are approximately 150+ significant Bitcoin exchanges worldwide. Kraken, according to the CEO, was adding about 6,000 new funded accounts per day in July 2017. Supposedly, Coinbase is currently adding about 75,000 new accounts per day. Based on some trade secret analytics I have access to; I would estimate Coinbase is adding approximately 17,500 new accounts per day that purchase at least US$100 of Bitcoin. If we assume Coinbase accounts for 8% of new global Bitcoin users who purchase at least $100 of bitcoins (just pulled out of thin error and likely very conservative as the actual number is perhaps around 2%) then that is approximately $21,875,000 of new capital coming into Bitcoin every single day just from retail demand from 218,750 total new accounts. What I have found is that most new users start off buying US$100-500 and then after 3-4 months months they ramp up their capital allocation to $5,000+ if they have the funds available. After all, it takes some time and practical experience to learn how to safely secure one's private keys. To do so, I highly recommendBitcoin Core (network consensus and full validation of the blockchain), Armory (private key management), Glacier Protocol (operational procedures) and a Puri.sm laptop (secure non-specialized hardware). WALL STREET There has been no solution for large financial fiduciaries to invest in Bitcoin. This changed November 2017. LedgerX, whose CEO I interviewed 23 March 2013, began trading as a CFTC regulated Swap Execution Facility and Derivatives Clearing Organization. The CME Group announced they will begin trading in Q4 2017 Bitcoin futures. The CBOE announced they will begin trading Bitcoin futures soon. By analogy, these institutional products are like connecting a major metropolis's water system (US$90.4T and US$2 quadrillion) via a nanoscopic shunt to a tiny blueberry ($150B) that is infinitely expandable. This price discovery could be the most wild thing anyone has ever experienced in financial markets. THE GREAT CREDIT CONTRACTION The same week Bitcoin was released I published my book The Great Credit Contraction and asserted it had now begun and capital would burrow down the liquidity pyramid into safer and more liquid assets. (http://www.runtogold.com/images/Great-Credit-Contraction-Liquidity-Pyramid.jpg) Thus, the critical question becomes: Is Bitcoin a possible solution to the Great Credit Contraction by becoming the safest and most liquid asset? BITCOIN'S RISK PROFILE At all times and in all circumstances gold remains money but, of course, there is always exchange rate risk due to price ratios constantly fluctuating. If the metal is held with a third-party in allocated-allocated storage (safest possible) then there is performance risk (Morgan Stanley gold storage lawsuit). But, if properly held then, there should be no counter-party risk which requires the financial ability of a third-party to perform like with a bank account deposit. And, since gold exists at a single point in space and time therefore it is subject to confiscation or seizure risk. Bitcoin is a completely new asset type. As such, the storage container is nearly empty with only $150B. And every Bitcoin transaction effectively melts down every BTC and recasts it; thus ensuring with 100% accuracy the quantity and quality of the bitcoins. If the transaction is not on the blockchain then it did not happen. This is the strictest regulation possible; by math and cryptography! This new immutable asset, if properly secured, is subject only to exchange rate risk. There does exist the possibility that a software bug may exist that could shut down the network, like what has happened with Ethereum, but the probability is almost nil and getting lower everyday it does not happen. Thus, Bitcoin arguably has a lower risk profile than even gold and is the only blockchain to achieve security, scalability and liquidity. To remain decentralized, censorship-resistant and immutable requires scalability so as many users as possible can run full-nodes. (http://www.runtogold.com/images/ethereum-bitcoin-scability-nov-2017.png) TRANSACTIONS Some people, probably mostly those shilling alt-coins, think Bitcoin has a scalability problem that is so serious it requires a crude hard fork to solve. On the other side of the debate, the Internet protocol and blockchain geniuses assert the scalability issues can, like other Internet Protocols have done, be solved in different layers which are now possible because of Segregated Witness which was activated in August 2017. Whose code do you want to run: the JV benchwarmers or the championship Chicago Bulls? As transaction fees rise, certain use cases of the Bitcoin blockchain are priced out of the market. And as the fees fall then they are economical again. Additionally, as transaction fees rise, certain UTXOs are no longer economically usable thus destroying part of the money supply until fees decline and UTXOs become economical to move. There are approximately 275,000-350,000 transactions per day with transaction fees currently about $2m/day and the 200 DMA is around $1.08m/day. (http://www.runtogold.com/images/bitcoin-transaction-fees-nov-2017.png) What I like about transaction fees is that they somewhat reveal the financial health of the network. The security of the Bitcoin network results from the miners creating solutions to proof of work problems in the Bitcoin protocol and being rewarded from the (1) coinbase reward which is a form of inflation and (2) transaction fees which is a form of usage fee. The higher the transaction fees then the greater implied value the Bitcoin network provides because users are willing to pay more for it. I am highly skeptical of blockchains which have very low transaction fees. By Internet bubble analogy, Pets.com may have millions of page views but I am more interested in EBITDA. DEVELOPERS Bitcoin and blockchain programming is not an easy skill to acquire and master. Most developers who have the skill are also financially independent now and can work on whatever they want. The best of the best work through the Bitcoin Core process. After all, if you are a world class mountain climber then you do not hang out in the MacDonalds play pen but instead climb Mount Everest because that is where the challenge is. However, there are many talented developers who work in other areas besides the protocol. Wallet maintainers, exchange operators, payment processors, etc. all need competent developers to help build their businesses. Consequently, there is a huge shortage of competent developers. This is probably the largest single scalability constraint for the ecosystem. Nevertheless, the Bitcoin ecosystem is healthier than ever before. (http://www.runtogold.com/images/bitcoin-ecosystem.jpg)(/images/bitcoin-ecosystem-small.jpg) SETTLEMENT CURRENCY There are no significant global reserve settlement currency use cases for Bitcoin yet. Perhaps the closest is Blockstream's Strong Federations via Liquid. PRICE There is a tremendous amount of disagreement in the marketplace about the value proposition of Bitcoin. Price discovery for this asset will be intense and likely take many cycles of which this is the fourth. Since the supply is known the exchange rate of Bitcoins is composed of (1) transactional demand and (2) speculative demand. Interestingly, the price elasticity of demand for the transactional demand component is irrelevant to the price. This makes for very interesting dynamics! (http://www.runtogold.com/images/bitcoin-speculation.jpg) On 4 May 2017, Lightspeed Venture Partners partner Jeremy Liew who was among the early Facebook investors and the first Snapchat investor laid out their case for bitcoin exploding to $500,000 by 2030. On 2 November 2017, Goldman Sachs CEO Lloyd Blankfein (https://www.bloomberg.com/news/articles/2017-11-02/blankfein-says-don-t-dismiss-bitcoin-while-still-pondering-value)said, "Now we have paper that is just backed by fiat...Maybe in the new world, something gets backed by consensus." On 12 Sep 2017, JP Morgan CEO called Bitcoin a 'fraud' but conceded that "(http://fortune.com/2017/09/12/jamie-dimon-bitcoin-cryptocurrency-fraud-buy/)Bitcoin could reach $100,000". Thus, it is no surprise that the Bitcoin chart looks like a ferret on meth when there are such widely varying opinions on its value proposition. I have been around this space for a long time. In my opinion, those who scoffed at the thought of $1 BTC, $10 BTC (Professor Bitcorn!), $100 BTC, $1,000 BTC are scoffing at $10,000 BTC and will scoff at $100,000 BTC, $1,000,000 BTC and even $10,000,000 BTC. Interestingly, the people who understand it the best seem to think its financial dominance is destiny. Meanwhile, those who understand it the least make emotionally charged, intellectually incoherent bearish arguments. A tremendous example of worldwide cognitive dissonance with regards to sound money, technology and the role or power of the State. Consequently, I like looking at the 200 day moving average to filter out the daily noise and see the long-term trend. (http://www.runtogold.com/images/bitcoin-price-200dma-nov-2017.png) Well, that chart of the long-term trend is pretty obvious and hard to dispute. Bitcoin is in a massive secular bull market. The 200 day moving average is around $4,001 and rising about $30 per day. So, what do some proforma situations look like where Bitcoin may be undervalued, average valued and overvalued? No, these are not prognostications. (http://www.runtogold.com/images/bitcoin-price-pro-forma.png) Maybe Jamie Dimon is not so off his rocker after all with a $100,000 price prediction. We are in a very unique period of human history where the collective globe is rethinking what money is and Bitcoin is in the ring battling for complete domination. Is or will it be fit for purpose? As I have said many times before, if Bitcoin is fit for this purpose then this is the largest wealth transfer in the history of the world. CONCLUSION Well, this has been a brief analysis of where I think Bitcoin is at the end of November 2017. The seven network effects are taking root extremely fast and exponentially reinforcing each other. The technological dominance of Bitcoin is unrivaled. The world is rethinking what money is. Even CEOs of the largest banks and partners of the largest VC funds are honing in on Bitcoin's beacon. While no one has a crystal ball; when I look in mine I see Bitcoin's future being very bright. Currently, almost everyone who has bought Bitcoin and hodled is sitting on unrealized gains as measured in fiat currency. That is, after all, what uncharted territory with daily all-time highs do! But perhaps there is a larger lesson to be learned here. Riches are getting increasingly slippery because no one has a reliable defined tool to measure them with. Times like these require incredible amounts of humility and intelligence guided by macro instincts. Perhaps everyone should start keeping books in three numéraires: USD, gold and Bitcoin. Both gold and Bitcoin have never been worth nothing. But USD is a fiat currency and there are thousands of those in the fiat currency graveyard. How low can the world reserve currency go? After all, what is the risk-free asset? And, whatever it is, in The Great Credit Contraction you want it! What do you think? Disagree with some of my arguments or assertions? Please, eviscerate them on Twitter or in the comments!
How to Trade Bitcoin Part 1: Getting Ready to Trade
The first part of our bitcoin trading guide series explains the basics of bitcoin and trading terminology. Instructions are also provided for buying bitcoin and getting ready to trade on BTC.sx. We originally produced the first part of this guide for our own traders to get started with our platform. However, after some really good feedback we thought we should share it publicly too. So please bear with us if it is quite orientated to our own platform. Future parts will be much more applicable to trading in general. Here is what we have planned for the series: 1) Getting ready to trade (this post) 2) Making your first trade
How to read a chart (candle sticks, volume, log vs linear scales)
How to spot a trend (moving averages)
How to open and close a position
3) Basics of technical analysis
Assumptions / theory behind TA
Classic support / resistance patterns e.g. head and shoulders
4) Advanced TA
5) Developing a sustainable strategy
Timing entry and exit points
Managing multiple open positions
Avoiding emotional trading
Please let us know if there are any topics you would like specifically covered and whether or not articles are the best format for learning. Why should you listen to what we have to say? Our CEO turned $100 into $200k by trading bitcoin, our COO previosuly worked at senior management level at Deutsche Bank and UBS, and one of our advisers has a Wall Street background as a Portfolio Manager and is a Chartered Market Technician. http://i.imgur.com/G06P306.png This article begins with an overview of bitcoin, how to buy bitcoin and how to manage risk. The remainder of the article focuses on understanding trading terminology and creating a bitcoin trading account on BTC.sx. What is bitcoin? Bitcoin is a digital currency that uses encryption, rules of mathematics and a decentralized network to control the creation of more bitcoins and verify transactions. Bitcoin was designed to operate as ‘digital gold’ — it resembles a commodity but can be used as a currency. Bitcoin can be traded for fiat currency, like dollars or pounds, creating opportunities to profit from trading price fluctuations. http://i.imgur.com/hNnKxGE.png Why is bitcoin so volatile? Compared to the price of gold, the price of bitcoin has exhibited much larger price swings. Typically the price of gold will change by just a few percent each week, but bitcoin’s price often changes by 10% or more — even in a ‘flat’ market. Volatility is generally considered a good thing by bitcoin traders because it creates opportunities to buy lower and sell higher than flat markets. The primary reason why bitcoin is volatile is because it has a small market cap and low trading volume. Market cap is the number of units (bitcoin here) in circulation multiplied by the value (bitcoin price here). For example, bitcoin has a market cap of about $3 billion vs $31 billion for the a gold ETF (GLD is the most popular American gold investment vehicle). Additionally, the daily average trading volume for bitcoin is about $12 million vs approximately $939 million for the gold ETF. The result of this small market cap and low trading volume is that less trading less money is required to make a large difference in supply and demand. For instance, if a trader wants to buy $3 million worth of bitcoin this represents 33% of the daily trading volume and would push the price up approximately 14%, at the time of writing. However, buying $3 million worth of the gold ETF is just 0.3% of the daily trading volume and is nothing compared to the hundreds of millions of trades that influence gold’s price. http://i.imgur.com/NLtgVrX.png Further information The information we have provided about bitcoin is only the bare essentials a trader needs to know. If you are completely new to bitcoin, also consider exploring these external resources: We Use Coins Bitcoin.org Bitcoin Wiki 2. How to Manage Risk Risk of buying bitcoin As discussed above, bitcoin is an extremely volatile asset. Besides increasing in value, bitcoin’s price can also dramatically fall. When buying bitcoin, never invest more than you can afford to lose. You cannot lose more than you put in, so don’t put in more than you can afford to lose and you’ll be all right, even in the most negative case. - Rpietila, Bitcoin and commodity investor Risk of trading bitcoin Furthermore, investing more than one can afford to lose reduces a trader’s ability to make good decisions. In particular, there is a risk of ‘panic selling’ when the market declines slightly. Instead of holding throughout a market dip, someone who is over-invested may panic and sell-off their holdings for a low price — attempting to cut their losses. This tends to lead to losing more money when the market recovers and the trader buys back at a higher price. http://i.imgur.com/yrQbCsI.png Simply, the best way to manage your risk is to not invest more than you can afford to lose. At BTC.sx, losses cannot exceed your deposit — so simply make sure this is a comfortable amount for you to trade with. 3. Understand Basic Bitcoin Trading Terminology Trading Trading is the act of buying, selling or exchanging one asset for another. Exchanging Bitcoin for US dollars, for instance, is trading. Position A position is similar a trade, which can either be long (buying bitcoin) or short (selling bitcoin). Like a trade you profit from a long/buy position when the price rises; and you profit from a short/sell position when the price falls. Unlike a trade, a position has an open and close. At BTC.sx you begin by depositing bitcoin. Then you may acquire more bitcoin or US dollars by opening a position. When the position is closed you are left with just more or less bitcoin than the value deposited — this depends on how profitable your position was. Trading platform A trading platform, like BTC.sx, is a place where traders go to enter positions. Unlike an exchange, it is uncommon for to use platforms for exchanging one asset for another. Typically trading platforms also include more advanced features, such as leverage. Leverage http://i.imgur.com/Aik56aI.jpg Leverage is borrowing assets for the purposes of increasing potential trading returns. This is also known as margin trading. Trading with 10x leverage on BTC.sx, allows you to deposit 1 bitcoin and trade with 10 bitcoins. When you are done trading (closing a position) you return the 10 bitcoin and keep any profits made. For example, let’s say your trading has been going well and you are consistently making a 10% return each week. Trading with 1 bitcoin, your profit is 0.1 bitcoin. However, with 10 bitcoins your profit is 1 bitcoin — this is the power of leverage when used correctly. Although leverage does also increase trading risk exposure, your losses can never exceed your deposit at BTC.sx. Furthermore, your risk of an exchange failure is reduced because you are trading with 9 bitcoins that belong to BTC.sx and only 1 bitcoin of your own. Exchange Unlike trading platforms, investors use exchanges to swap an asset for another. For example, Bitstamp allows investors to trade their local currency for Bitcoin, or vice versa. Exchanges are the main determinants of bitcoin’s price because they contain an order book. At an exchange you can either be a market maker or a market taker. Market maker A market maker sets the price they wish to buy or sell at and waits for a market taker who agrees to that price. Market taker A market taker finds a market maker that is offering a desirable price and quantity then immediately trades with them. Order book An order book is a list investors wanting to buy and sell an asset at specified quantities and prices. These are the market makers. Below is an annotated explanation of a bitcoin exchange order book. Picture the order book as a very hectic auction and the concept should be easier to understand. http://i.imgur.com/DuRYrnx.png Sell orders: “Asks” This part of the order book lists the prices and quantities investors wish to sell bitcoin at. Here the cheapest seller is offering 2.3467 bitcoin at a price of $244.58. As these investors are asking for a price to sell at, these are called asks. Buy orders: “Bids” This part of the order book lists the prices and quantities investors wish to buy bitcoin at. Here the most expensive buyer is willing to purchase 0.5 bitcoin at a price of $244.43. As these investors are bidding for a price to buy at, these are called bids. Current bitcoin price This is the last price at which bitcoin was exchanged for US dollars. Given that buyers will fulfill the cheapest ask, and sellers will fulfill the most expensive bid, the price will always fall between the the cheapest ask and most expensive bid. In this example, the price is $244.39 — the same as the most expensive bid. This means that the last bitcoin trade was a market taker selling to a market maker. This is also a demonstration of a seller always wanting to sell to the highest bidder. Order book depth This depth graph visualizes the amount of asks and bids at various prices. The more bitcoins that are available at a price, the ‘deeper’ the graph is. Naturally, as sellers do not want to ask for cheap prices and buyers do not want to buy for expensive prices, the graph is normally shallow in the middle. If the chart is one-sided, it suggests that the market may be feeling bullish or bearish. In the above example, a lot of investors want to sell at $245 which would make it difficult for the price to rise beyond that. Conversely, the shallow graph on the bid side shows not many people want to buy bitcoin at these prices. This is typical of a bearish market. Order book execution An important feature of BTC.sx is that the positions our users open/close make buys and sells on exchange order books. In practice, when our users click buy, US dollars is used to buy bitcoin from the order book bids. Conversely, when our users click sell, bitcoin is sold for US dollars from the order book asks. http://i.imgur.com/1Dk8G0t.jpg Why is this important? Firstly, when you trade on BTC.sx you do so with leverage. This means you can have a larger impact in the market and move the price in your favour. In the above example using just 1.3 bitcoin at 10x leverage would create buy 13 bitcoin from the asks. This helps drives the price up because now the cheapest ask is $244.61. If the market sees this as a bullish sign then others may follow, sparking a price rally. Secondly, order book execution means that BTC.sx does not trade against our users. Trading platforms that do not offer this execution are acting as market makers and stand to profit from their traders losing money. At BTC.sx we want our traders to be profitable so they can keep trading. *4. How to Buy Bitcoin * As a bitcoin-only trading platform, BTC.sx only accepts bitcoin deposits. This allows you to begin trading in minutes and without verifying your identity. If you do not yet own any bitcoin there are a number of places that bitcoin can be bought from, including: Circle Coinbase LocalBitcoins Click here to see other ways to buy bitcoin in each region of the world. To store your bitcoin you will also need a wallet, such as MultiBit or Blockchain.info. 5. Create an Account on BTC.sx Once you have bitcoin, you are ready to start trading. Head over to BTC.sx to begin the registration process. 1. Click ‘Sign Up’ http://i.imgur.com/Fikj8Nd.png 2. Enter your details and read and agree with the terms of service http://i.imgur.com/AjnKzRY.png 3. Click on the email activation code http://i.imgur.com/lz5yBqK.png 4. Login to your account http://i.imgur.com/P6VJ0xm.png 5. Visit trade screen http://i.imgur.com/WjGockR.png 6. Send a deposit to BTC.sx You are now one step away from being ready to trade bitcoin. All that is required is to send a deposit by following these instructions: 1. Click on ‘Deposit’ in the trading screen http://i.imgur.com/1TxpgUh.png 2. Send bitcoin to your wallet address http://i.imgur.com/cTZim5t.png If you do not know how to send bitcoin please contact your wallet provider for assistance. Conclusion** ** You should now be in a position where you understand the basics of bitcoin, trading terminology and have an account on BTC.sx to begin trading. In part 2 we will be covering fundamental analysis, the basics of technical analysis and how to make your first trade. Like us on Facebook or follow us on Twitter for future updates. If you have not yet signed up for an account on BTC.sx click here. The registration process takes just two minutes and does not require any identity verification documents
As the 7 network effects grow and re-enforce each other Bitcoin will only continue to grow in dominance. I'm beginning to wonder if the entire 2017 rush to alts was a period of overwhelming malinvestment that is being resolved by the financialization network effect taking BTC to much higher levels and subsequently accelerating the other network effects? Futures will open up investment into BTC to even more investors/speculators, but they'll also now enable large entities to transact & settle in BTC while hedging their risk. Merchant/Consumer adoption could explode in advance of lightening network implementation. Possible ecosystems:
Square has already announced BTC integration coming. Will give BTC access to all Square users. Square will hold BTC reserves, hedge them with futures, and allow it's users to transact off chain within their own BTC ecosystem.
Apple Pay integration coming soon? If so, that could keep small transactions off chain as an alternative/compliment to the lighting network, and allow consumers to draw from their BTC. Partnering with Coinbase & other major exchanges could allow for seamless off chain BTC use.
Amazon/Walmart to accept BTC from all customers, and pay suppliers BTC all the way down their global supply chains?
I made a simple blockchain project and now wrote this guide for entrepreneurs interested in smart contracts
The following is the exact copy of my medium article. No need to go there if you prefer reddit. And please ignore my startup mentioned here. I spent a whole month writing this huge guide - it's far beyond a mere promotion. This post is about Ethereum blockchain. I do love it. As I'm an entrepreneur myself (with some humble programming skills) I think I managed to explain clearly the practical side of Ethereum smart contracts - what can be done and how. Think this sub is the best place for it. Hope you'll find this helpful. Will do my best to answer all your questions (please mind the time difference - I'm in Russia).
An entrepreneur, programmer and user walk into a smart contract - The ultimate Ethereum blockchain stratup guide.
Lifehack - you don't need to understand blockchain to build a smart contract startup.
I made my smart contract project and still feel as a total noob reading discussions on blockchain. There is so much to learn for me. But, hey, my project works! Why bother? Though blockchain is cool and it's cool to understand the technology, there is no need to understand everything. Take a look at smart contracts from an entrepreneurs point of view - focus on how you can benefit from it. What kinds of projects you can actually do? What business models are there? What an MVP would look like? What it takes to engage a user, find a programmer and build infrastructure? This guide with examples and exercises will show you the practical side of smart contracts and help you estimate your idea or generate a new one. Use it as a starting point for your further investigation.
What you do need to know about blockchain and what you may just skip
Mining. The first thing to skip. From an entrepreneur's point of view mining is more like playing the stock market - buy equipment, analyze reward price charts and decide which crypto currency to invest your computing power to. But if you are dealing with smart contracts, you don't have to care about mining for the same reason you don't care about Internet providers when visiting a web-site. Blocks, hashes, cryptography and all that math - we gonna ignore it too. The important practical outcome can be reduced to this mantra: "Everything that gets into blockchain remains there forever, anything can be verified, but nothing can be changed". In practice it means that data is stored permanently, transparently and securely. Now let's turn to the terms you cannot do without and explain them as if it's year 2005 now. Blockchain is like a BitTorrent network. A program on your computer downloads files and afterwards gives them away. But the program is called blockchain client rather than torrent client. And those files you download store transactions instead of videos and music. Sender, recipient, date-time and ammount - records are stored one after another (yes, they are stored in blocks, but who cares). Everybody who runs blockchain client has his own copy of the whole blockchain database and keeps all transactions that have ever been made. This database is huge. Ethereum blockchain is currently about 43 GB, Bitcoin is 125.78 GB. todo Cryptocurrency is a list of money transfers. In blockchain world your balance is not just a single record, but the sum of all your receipts and expenditures (the entire transactions history). If a blockchain stores transactions which only contain money transfers (sender address, recipient address and amount being sent), we call this type of blockchain a cryptocurrency. Bitcoin - is a cryptocurrency. But any transaction is just a string in a file, thus it may contain any information. An address in turn may not belong to a human... which gives us much wider opportunities then just a crypto currency. Smart contract is like a web site. A blockchain address may belong to a program. A program then is called a smart contract. It is called a contract just because the code is open. However it is simpler to compare it to a web site (or web service). For example, a classified advertisements service could be a smart contract. Its code would be stored at a particular address in the blockchain - just like a web site url. A transaction to this address would not contain money but an advertisement text. And the smart contract would publish this advertisement, i.e. saves to blockchain. Ethereum is like the Internet Ethereum - is exactly the kind of blockchain in which transactions may contain not only money, but data. The blockchain database (those files one downloads) stores transactions between people, transactions involving smart contracts and contracts source codes. This makes Ethereum kinda new type of the Internet, which is stored locally by everyone involved. And that's really enough for the theory. The rest you'll learn from what it all means in practice.
What is the difference between a smart contract and a conventional web site
What are the advantages (and disadvantages) of a smart contract driven service.
Openness and Encryption
A user doesn't have to trust you. "Everything that gets into blockchain remains there forever, anything can be verified, but nothing can be changed". The user sees exactly how your system works (smart contract code is open) and stays confident in the reliability of your database (database is transparent and unchangeable). Meaning there is no need to win users trust. For example, you can turn a classified advertisements service into an open auction with charity donations. The process of selling would look as follows. A seller sets the initial price and posts a lot. After that anybody will be able to track bets, see a winner, see how much seller earned and how much was deducted to charity and to platform commission. Everybody is confident there was no cheating. Where it benefits most. Gambling (Roulethvdice.io), prediction markets (Augur, Gnosis), voting, multilevel marketing (TheMillionEtherHomepage).
Payment processing "out of the box"
You don't have to deal with any payment processing services. Solidity language with which smart contracts are written incorporates all the necessary money (Ether cryptocurrency) operators. User balance is just another variable in your code. You can program any behavior to it - like triggering an event on receiving a certain amount of money or making a multisignature payment and much more. That is why Ether and other cryptocurrencies are often referred to as programmable money. Where it benefits most. Crowdfunding platforms (Weifund, Wings.ai), rent services Golem - rent unused CPU/GPU cycles.
You don't have to worry about DoS attacks and scalability. Every blockchain user has it's own smart contract copy locally on his computer, thus it will withstand any load, free of charge. Where it benefits most. Smart contracts gave rise to a totally new kind of companies - decentralized organizations (DAOs). DAO is a separate phenomenon worth studying. In the meantime, just ask yourself: "Why do we need an intermediary like Uber, if it is possible to connect a driver and a passenger through a smart contract directly?". What prospects does it opens? Have a look at this startups: Arcade city and Lazooz.
Lifehack: When googling for A DAO, ignore the hassle around THE DAO). The only reason THE DAO failed was braking some basic smart contract safety rules (we'll discuss them further).
Transaction delay and commission
A user have to pay for every transaction and have to wait a bit too. The average transaction is mined (read included) into Ethereum blockchain in 14-15 seconds. There is a high chance of reducing this delay down to 4 seconds in the near future. But even then we are all got used to a better responsiveness. Moreover a simple money transfer (two addresses involved, no contracts, minimal amount of data) would cost about 0.000861 ETH ($0.02 in March 2017). These "drawbacks" are tiny, but enough to build a heavy threshold for certain types of projects. Where it doesn't benefit. A chat for example. Each message chips a couple of weis (Ether denomination) off your balance and requires half a minute to reach the other end. This is probably a bad idea for a startup unless you are dealing with some official correspondence, which requires legal force and does not require privacy. With smart contracts you can choose almost any web service and make it blockchain. Plus you are free to create completely new blockchain-only types of projects. See what has already been done, mix it up with Internet of things, artificial intelligence, virtual worlds or fintech, and you'd most probably get a unicorn.
Note: You can make a smart contract with Bitcoin too, but it's like doing 3D in MS Excel. Kinda possible, but why?
What business models are there
You are free to use any business model. But first have a look at what have already become a new standard in Ethereum - tokens. In conventional terms tokens business model is like crowdfunding and IPO combined. The "crowd" buys shares of your company instead of products. And in the future the shares (tokens) may be sold or exchanged for your services. This became possible because Solidity (Ethereum smart contract language) allows issuing your own cryptocurrency. For example. You came up with a classified advertisement platform idea. You want it to have its own internal currency (tokens) called Advertisement (ADV). You want to charge 1 ADV for placing an advertisement, 2 ADVs for pinning it to the top and 0.2 ADVs for updating. You write a smart contract. All that it is capable of at this point is receiving money (ETH) and keeping users balances. Now you announce your platform in a way that crowdfunding projects usually do and offer to buy ADVs at low cost 1 ADV = 1 ETH. Later when your platform is live you'll set the ADV price to 10 ETH. After that those who invested in the very beginning will be able to sell their ADVs gaining income or place their ads 10 times cheaper than the current price. But for now you've earned your ETH to spend on development. Tokens are attractive enough on their own to start experimenting with smart contracts.
What it takes to engage a user
Ok. You published your first smart contract. But what it takes to engage a user with no blockchain experience to use it? And how can we lower the threshold? We can break user experience into two parts: interacting with blockchain (what a user has to do anyway) and interacting with your smart contract (ways we can make a user's life easier).
Interacting with blockchain
What a user has to do anyway. Get an address (a wallet). An address and a key to it is like username and password. There is no way to interact with blockchain without it. The easiest way to get it is to use generator at MyEtherWallet.com. It takes less than one minute and as a result, user receives an address and a key. The address is a 42 character sting and the key is a small file. The key file is used to sign transactions and has to be saved as securely as possible - there is no way to restore it. A user can use the same address to interact with any smart contract. IMG: Generate a wallet at MyEtherWallet.com Get some ether (ETH). Any transaction requires commission (0,001 to 0,01 ETH on average). A user has to fuel up his address with a sufficient sum to interact with your contract. Buying ether is possible through major exchanges. These exchanges require 1-3 day for identity approval and are available in a limited list of countries. Users from other countries and those not eager to wait (especially when buying Ether worth a couple of bucks) may use almost instant alternatives.
Access a blockchain client. Any interaction with blockchain and with any smart contract accordingly is done through a blockchain-client. As of March 2017 downloading Ethereum database to an HDD disk (70% are still using HDDs) requires 2-3 days and 43 GB of spare space. It makes computer unresponsive enough to start throwing things at it. Keeping blockchain in sync too requires about the same amount of resources as watching a movie online does.
Not to confuse the pros. For the sake of simplicity we call EthereumWallet, Mist browser, geth and parity the blockchain client. We are entrepreneurs here, it is only a programmer who should really know the difference.
There is also a so called light client. It doesn't require downloading the database. But it still requires installation and getting hands dirty with manuals. Our target audience is not willing to do it either. So let's be realistic our target audience will hardly install any blockchain client on their computers. Let's see how we can help. A necessary and sufficient minimum for a user to start interacting with any smart contract is an address (key file) and a tiny amount of ether on it.
Interacting with your smart contract
We got to simplify user experience with a graphical user interface (GUI). In Ethereum GUIs do not belong to smart contracts and are stored off the blockchain. There are several ways to "attach" GUI to a smart contract. Here are they from the least to the most user-friendly.
Smart contract with no GUI
Users can interact with smart contracts directly, with no GUI at all. Blockchain client can identify smart contract functions and let user work with it. The client provides auto-generated GUI so a contract looks and feels like a sign-in form of a website. This is a straightforward way of writing to and reading from contract. IMG: Access contract function through Ethereum Wallet But we agreed we won't force user to deal with blockchain clients. To set user free from it we can try to offer MyEtherWallet.com (an online client). Contract interaction will look just the same, but there is no need to download or learn anything. IMG: Access the same function through MyEtherWallet.com The contract without GUI has to be very well documented. It is also a good idea to make a landing page to display the current state of the contract. For example, TheMillionEtherHomepage.com displays the state of the underlying contract and offers users to work with it directly giving all necessary instructions. The same setup would likely be a minimum for a classified advertisements smart contract. So the user with no blockchain background would be able to grasp the idea of the service.
Decentralized application (DApp) - GUI in a browser
Look and feel exercise: Go to tokens exchange platform Maker Market, then install Metamask Chrome plugin and try Maker Market again. See how metamask brings blockchain functionality to the website.
DApp and Metamask browser plugin make your smart contract look and feel just like a web-site
We can make any GUI for mobile or desktop application and bring any feature to it. But in order to send transactions it has to communicate with a blockchain client too. The ways to do it without any locally installed client are: embedding a light client right into your application or communicating with a remote blockchain client (see infrastructure section further).
To engage a user with no blockchain background means to make him get an address, buy a bit of Ether and install your mobile app or Metamask browser plugin.
What it takes to build an infrastructure
Let's turn to even more practical (and technical) parts. First what will you have to buy. From the cheapest to the most expensive setup.
Smart contract with no GUI
For a mobile app you'd probably need a server with a running blockchain client to let your app communicate with the blockhain through it. Or you can embed light client right into your app. Or use Etherscan.io and Infura API. Depends on your features. A more detailed (and more technical) guide is here - Mobile: Introduction
Which developer skills are required
Smart contract with no GUI
Mobile apps and back-ends
Mobile and desktop applications can be written in any language. Recommendations are the same as for the DApp. To connect your app to a blockchain client (full, light or remote) there are ready-made libraries available. For example, python. To embed a light client, check out geth.
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Pic Inside this envelope is a paper that holds Bitcoins. Bitcoin(abv. BTC) is digital currency that is worth real money (At the time of writing this, each BTC is worth about $726). It's the first decentralized electronic currency not controlled by a single organization or government. It's an open source project, and it is used by millions people. All over the world people are trading millions of dollars worth of bitcoin every day with no middle man and no credit card companies. It's a startup currency which has never happened before. Email let us send letters for free, anywhere in the world. Skype lets us make phone and video calls for free, anywhere in the world. Now there's bitcoin. Bitcoin lets you send money to anyone online, anywhere in the world for less than a cent per transaction! Bitcoin is a community run system not controlled by any bank or government. There's no wall-street banker getting rich by standing between you and the people you want to send and receive money from. It is impossible to make a counterfeit Bitcoin and there will only be a finite number ever created. No one person controls Bitcoin and therefore no one can control what you do with Bitcoin. All of these qualities add up to make Bitcoin a solid platform for both saving and spending money. Like gold, oil, or any other fiat currency, Bitcoin value also fluctuates every second mostly because of demand and supply. At the beginning of this year each BTC was worth $14 then it went upto $1200 during Thanks Giving and at time of writing this it is worth $726. You can see the realtime value of your Bitcoins at http://coinbase.com/charts - the number in the top right is the current value in US Dollars, that is the price that people are actively buying Bitcoins for right now on an exchange market. What can you do with Bitcoins? *You can send them to people. You can setup an online ‘wallet’ at http://coinbase.com and send them to anyone in the world for free. You can buy things. *http://www.gyft.com/ Shop for gift cards and pay with BTC *http://www.bitcoinstore.com - Buy electronics. *http://coinkite.com - Bitcoin debit card. You can hold onto them as an investment. *Just put this card away somewhere safe, and in a few years’ time you may be surprised at the value that your Bitcoins accrue. Who knows this paper might worth thousands of dollars in near future. You can convert them back to US Dollars at any time. *http://coinbase.com allows you to buy and sell Bitcoins and withdraw or deposit US dollars back into your bank account. If you’d like to know even more, go to http://weusecoins.com or http://bitcoin.it Bitcoin is going to be the biggest opportunity for innovation that the world has seen since the industrial revolution. HAPPY HOLIDAYS
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The Bitcoin can be traded like a stock, with no significant financial benefit to any central authority other than the BTC-to-USD exchange owner. It is untouchable by banks. It is 100% anonymous, decentralized crypto-currency. If you have an Android or iPhone, you can carry them around and pay with them like cash. All transactions are untraceable and non-reversible. Learn more at: WeUseCoins If you want to see its similarities to the stock market, check out Bitcoin Charts. If played right, you can make some serious profit. But don't worry, there are no companies or individuals making billions off of your investments. All fees are transparent. The largest bitcoin exchange, Mt. Gox, charges 0.6% per trade. The BTC is currently valued at just under $4/BTC. It has been known to fluctuate in value as high as $32/BTC. Bitcoin, if adopted by the masses, could be the single largest threat to American Capitalist system in recorded history. The best part is: There is literally nothing the Government can do to stop it. The only option is to buy up a large percentage of the BTC in circulation, which would only increase the value of the remaining circulated BTC. Even if a large portion of the market gets bought up and trapped by the rich, the BTC can be traded at volumes as low as 0.0000001BTC (useful in the event of hyperdeflation). There is no possible way to deplete any valuable portion of the market.
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