The "other" bitcoin post

Wow.
I've been busy most the day, glancing through my twitter timeline when I've had the chance and just ... WOW! Some of the misinformation and assumptions about bitcoin flying around are really quite spectacular! So I'm here again!

What I notice most is that most the criticisms fired at bitcoin are not only misinformed, but if you fire the exact same criticism back at fiat money in terms of £, $ or Euro. They actually stick and do damage.

"You want security? Buy gold or silver! Not Bitcoin!"

Fair enough in principle. Except for a few things. The first is one my own (hugs) 12 year old son came up with when I told him about the gold idea. "But there's not enough gold in the world is there? I heard it would all fit under the Eiffel tower". Proud Dad moment. Yup. For one thing. IF gold was underpinning all the cash in the world, there simply isn't enough of it at it's current value. But gold doesn't underpin the value of the cash in your pocket. Re-hypothicated debt does.

Let's go a little further here. Say I did actually really go for it. I buy a small bar of real solid gold. I even have it bored and tested to ensure it's not gold wrapped round some other heavy metal like some bars in the bullion banks. (You can't cheat like that with bitcoin) This is it ... the real deal. I have a lump of gold.

I can't use it to pay for anything much. I could in theory shave bits off it and attempt to trade it at my local supermarket for my shopping. I doubt it would work. This is the exact same criticism levelled at bitcoin. "But what can I do with it?" .. well actually, you can do more with Bitcoin in the world than you can with a lump of gold.

Even further on from that, the scams that gold has been involved in are many. There has been an attempt to make a virtual currency before backed by gold. It failed. There are groups that claimed to sell us ordinary folk gold backed securities, only to find they never had any real gold linked to the accounts at all. That also failed.

Bitcoin doesn't have that. You either have real genuine bitcoin in your wallet, or you have zero bitcoin in your wallet. There is no fake bitcoin wrapped in gold. There is no broker lying to you about gold backing. You either have it, or you don't.

"It's just like tulips!"

If you didn't know, around 1620-1630 tulip bulbs were acceptable currency in the Netherlands, and achieved quite a huge rate of return. However the person making this statement is only illustrating one thing. They have absolutely no idea about how bitcoin works. Yes. It's possible for any medium of currency to suffer a loss of confidence. That's why bitcoin is so popular now. There's a lack of confidence in the Euro (and increasingly in the dollar as the money press keeps churning out billions of dollars to sustain America). But tulips are a relatively easy plant to grow with infinite supply. Bitcoin is not very easy to grow and has a limit built in. Bitcoin was designed to be a secure and highly adaptable currency by a guy that had a pretty good grasp of currency and an excellent knowledge of cryptography and security, tulip bulbs are tulip bulbs.

"It's a ponzi scheme!"

How exactly? Show me on the map of the globe who benefits from a distributed network of currency transaction validation. Nobody. There is no "Bitcoin Inc." running the show. There is no bank or person pretending to be a bank involved. Yes, early adopters may get lucky on the uptake, but that's what you'd call good sense if you bought in to an unknown tech stock that suddenly took off like bitcoin has. Apparently, if it's on standard exchanges and involves fiat currency, it's ok to make a killing on a lucky buy in. If you do it with bitcoin? Well that's just not on. Probably because most of the market trader minds have utterly ignored bitcoin and now see a currency exchange graph kicking them up the backside that they wish they had been in on.

"Who would invest in such a volatile asset? It's a joke!"

Well quite frankly. See above. While some market traders are happy with slow and steady takings, a pretty huge chunk of the market just LOVES volatility when it's in a field they understand. You can short it, long it, generally make a killing in a short time frame. I don't see many market traders complaining about that kind of volatility. Besides. It would be fair to say that at the moment, BTC is searching for it's own sustainable level. Sure it might ramp way above it's sustainable level on news such as Cyprus bank losses. But that's exactly what Forex traders love about trading EURUSD. It ramps, it drops, it levels to an average .. that's how you make money. An entirely stable currency pair is a zero profit currency pair.

"Who would put money in to some hackers scheme?"

Well I've seen the original creator of Bitcoin described as "a hacker". But these days that term tends to extend to anyone with geek skills above average. I'm not actually aware of any hacking at all claimed against or by him. (I could be wrong here, but I've not seen any big flashing "HACKER" signs around bitcoin). Oh and btw. Bitcoin was not invented by Anonymous. O.o

Bitcoin is in fact an extremely elegant solution to security in transaction via cryptography. So much so that it actually beats the pants off fiat money. Transactions are final. They cannot be faked. There is no such thing as a fake bitcoin credit card. There is no fake gold bar bitcoin. There are no fake bitcoins in existence. This is the whole point of bitcoin. It's INCREDIBLY secure.

Better yet. Your bitcoins are not subject to being devalued by a government or central bank policy of money printing. They are not held by a bank that the Troika can plunder to save the bank at your expense. They are not held in a bank that the likes of Fred Goodwin can utterly destroy at insane expense to the tax payer. They are owned on a self verifying, global, digital network.

Oh and if you have the skill and knowledge. Here it is.  The bitcoin source code. It's been around for a few years already, why don't you go ahead and see if you can spot the hacker code that's going to drain your account to zero? Nobody else has. Can you say there's anything like the same level of transparency about how your bank does business?

"It's not even backed up by anything real!"

Well I've got news for you. Neither is the £, $ or Euro. Currency is always based entirely on faith. Yes there are pledges on bank notes (that are utterly meaningless). Yes in theory the government and central bank will protect your monetary value, but in practise? Well actually no. Governments and central banks will happily devalue your currency. In Cyprus they'll even basically steal whatever currency you had in the bank to pay off debts. And even better, capital controls can be put in place that prevent you using your currency as you'd like to.

Confidence can be lost in your home currency, as is happening with the Euro. Countries can even indulge in exchange rate wars, deliberately reducing the overseas value of your cash to attempt to boost export demand at home.

No. Bitcoin isn't backed up by anything real except strong cryptography and trust in a system that can't be easily fiddled with and distorted by governments and banks. Trust is everything for currency. Bitcoin is strong on trust and validity. Far more so than traditional fiat currency.

This is one of the prime examples of accusing bitcoin of something only to find it's your traditional currency that has either the exact same problem or worse.

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Once people begin to realise that bitcoin is a viable and incredibly secure system for storing and transferring wealth without bank intervention, it's only likely to take off even more than it has already.

With one provision. The established powers that be utterly loathe bitcoin. They can't control it. They can't rob it. They can't sieze your assets. That makes it attractive to users, and attractive to highly funded government black hat hackers. I strongly suspect Instawallet was taken out by government intervention today. I can't predict how nasty and low the attacks on it will stoop, or if they will dent confidence in bitcoin itself. I can predict though. That the basic security of bitcoin will carry on regardless.

And ... Like I said before "DO NOT PUT YOUR BITCOINS IN AN ONLINE WALLET". They are only as safe there as the website they are stored on. Store and backup your own wallet locally.

I'll take questions at @fluffkin on twitter if people want to know more, but please keep it to DM's. I don't really want my timeline flooded with it. Also, I'm no expert. I'm fairly well informed, and honest about my limits of knowledge. Apparently that puts me light years ahead of main stream media and paranoid market traders.

PS. You ain't seen nothing yet. Underlying the basic framework that is bitcoin you can see today are built in systems for safe escrow, where the third party never gets to hold your money. Micro-transaction payment channels for things such as payment for tiny data usage on roaming wifi network usage *as you drive by* that don't load the network unnecessarily. Bitcoin isn't just a wallet with highly secure systems in place (better than any bank in the UK currently offers). It's a system designed from the base to be a very good currency medium.

The One About BitCoin

Twitter tells me a lot of people are interested in bitcoin. So I'll write this ...

First off. This is written April 2013. It'll be out of date fairly rapidly.

Oh wait, yes and this is aimed entirely at UK folk wondering about all this bitcoin fever.

Onwards!

There's a billion articles out there on "What is bitcoin?"
Briefly? Some mystical Japanese guy had this bizarre idea of how to make a digital currency that might have longevity a few years back. I think he's Japanese. Mythology and all that. Anyway.

It's proving to be secure over quite some time now. Bitcoin is money, pure and simple. If there was ever a target for hackers, bitcoin is it. Many have tried and failed. Mining pools seem to regularly DDOS each other in the pursuit of profit, but when it comes down to "Is my money safe in this thing?" .. Cryptographically speaking ... Yes. It looks like it is. In fact the entire thing is based around ensuring it's own integrity. Go read up on it. It's strange but fascinating!

The problem with bitcoin for UK residents is simply getting bitcoins. You can't use credit to buy bitcoin. This should tell you something. The bitcoin transfer is final and not subject to any kind of fraud or deception. Compared to a UK credit card? Pfft. You could pretend you'd pay for anything with that, and it might not be yours. So nobody will sell you bitcoin (BTC) on credit.

You can purchase via bank transfer on many sites, and if you stick to the legit, well used providers, that's certainly an option, but it's a barrier to casual interest. You can't just "stick £10 in" to BTC, because you'll probably get charged £3 for the pleasure in fees if you do it via bank transfer. That's not a problem at all if you're buying £500 worth, but it's not helpful for getting people to play with BTC as an alternative currency.

For the moment, you're left with LocalBitCoins.com as the most cost effective way of getting a few £ in to bitcoin. But ... Why would you?

First problem. Not a lot of services / products can be bought in the UK with BTC. It's slowly expanding as more people get used to the idea, but it's still new ground for retailers over here. In the USA it makes more sense because even though it's still not many, there is simply more stuff you can buy with it over there.

That might put you off. Try not to let it. It's a case of if more people had BTC and wanted to buy things in BTC, then more people would add it to the website as a payment option. It would barely cost them anything to add it as an option, in many cases the processing fees would be less than a credit card company, but it is a cost in hassle to change a website.

The other main reasons for wanting BTC are: CYPRUS aka. Where can I put my money where some idiot won't take a chunk that's safer than a mattress? Or ... Speculation. At the time of writing, 1 BTC is worth just over £65. It's increasing fast recently. You could just stick some money in to BTC and then sell it again back to £ when the rate rises ... assuming it does keep rising. Hey! Congrats! You just became a Forex trader!

What kind or rise? Well ... This kind ...

There's NO guarantee it will continue to do that!!! It might level out right now for all anyone knows, and it may even crash again like it has previously. That's the fun of it all. It's up to you to go and do your own digging and see what you think is plausible, and how much is risk.

But there's where we are. There's .. oh wait! Forgot the important bit!

My own personal recommendation for a secure bitcoin setup!

First off you need this beasty. That's the basic, bog standard, original bitcoin wallet. One thing it does is downloads the entire bitcoin chain, and this can take a couple of days depending on how you use your computer. (It's all part of the security). Basically you're downloading the entire condensed history of every single transaction that ever happened in bitcoin. Your copy HAS to match every other copy of that transaction history, and if you buy or sell and BTC? That will be recorded in the history, on every single computer that has bitcoin installed. Can we begin to see how this is a little bit secure yet?

The next thing I'd advise you to do is install this beasty! And run it. It gives you yet another wallet on top of the basic bitcoin wallet you already had. Why bother? Because Armory allows you to produce a paper backup record of your wallet that you can restore, with all your BTC still in it, even if your computer mangles every bit of data on the hardrive. Now THAT is one secure mattress! It's also where you start to think ... hang on ... this system is actually more secure for storing my money than my bank is ... and it costs virtually zero.

All you have to do then is remember once in a while to transfer any BTC in your basic bitcoin wallet to your Armory wallet where it's safe.

Why you'd go through all this to play with BTC? Is up to you. I'm just setting out the cheapest ways to get money in to BTC (you'll have no trouble at all cashing it out back to £, Euro or $ at the moment!), and the most secure way to keep it safe.

Andddddd I think I'm done. Mining for BTC is another issue entirely.

Petrol & Cyprus

Let me explain why the Cyprus thing has me spooked a bit.

As of tonight (early Monday morning, a good 7 hours+ before most main markets open up), EURUSD has fallen around 120pips on open. On twitter I'm seeing a bizarre few lines on banter about the Cyprus deposit snatch. A surprising number of people take the "It's only a few %" line. I'm not going to argue that point here. A more significant sample of the fiscal heads I follow are talking exclusively about "calming the markets". Which is understandable. But not why I'm a bit worried.

Here we go...

In the UK recently, we had a petrol shortage. The funny thing was, there was no shortage of petrol. I don't pretend to understand the social mechanism that went on behind this. But simply the fear that there might be a petrol shortage was enough to prompt everyone to buy petrol, and that caused a petrol shortage. As it turned out, the tanker driver strike never happened. There was no need at all for the shortage to happen by logical, reasonable standards.

It seems to me a lot of fiscal heads are doing what I did with the petrol shortage. Looked at quite logically ... "What's the fuss about?", or at worst, how to calm the markets in the next week or so. But that's not the problem with bank runs and petrol shortages.

You don't need need an actual risk of loss for people to take money out of the bank. All you need is a certain critical mass of people to do it for whatever reasons they may have, even if wrong. Like petrol queues, people see and hear of the withdrawals, so they do the same.

That's the angle that's got me a bit worried on this one. I don't see the powers that be factoring in what a mass of people and a mild bit of panic can snowball in to. Maybe I'm reading it wrong. Maybe they are safe in the knowledge that they can quell any public momentum via media control and running cash between banks behind the scenes. I don't know. But it looks very risky to me.