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Fri Jul 31, 2020, 10:32 PM

Bitcoin

I've seen it recommended for 18 months. It was gonna grow and grow because everyone is mining it. Mining it takes a lot of computing power and electricity. I still don't understand it. I keep waiting for a Bitcoin ETF. No such animal. If they're producing so much of it, and it's a free payment system, how is it going to go up all the time? Isn't the market flooded?

Is it really a hedge on inflation? Many millionaires will be minted from Bitcoin? Why so many varieties of it?

Is anyone understanding my frustration, skepticism? Why is this so good as an investment, how does it grow, why should I buy it, where can I buy it?

https://www.nerdwallet.com/blog/investing/what-is-bitcoin/

To me it reads like a shadow currency that shadows any and all currencies, and I can't get past the point of asking "Why do I need it? What's the big deal?"

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Response to bucolic_frolic (Original post)

Fri Jul 31, 2020, 10:47 PM

1. I don't get it but I'm old. My kid has been following it and told me today

Itís gone up $2k lately. I think he might be playing with it but I just donít understand it enough to risk my money

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Response to bucolic_frolic (Original post)

Fri Jul 31, 2020, 10:48 PM

2. Bitcoin, along with precious metals

are seen as a hedge against inflation because of the the huge spending bills that have passed and that are pending. We can't keep printing money without devaluing the dollar. If the dollar is no longer to be the world's reserve currency because of political and social upheaval then the real pain will begin

If you have a substantial portfolio and are willing to lose everything that you invest, then investing in Bitcoin might make sense. However, investing in precious metals does have a small advantage since there is a physical asset involved, but the rate of return usually is less than Bitcoin.

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Response to bucolic_frolic (Original post)

Fri Jul 31, 2020, 10:51 PM

3. Bitcoin, along with precious metals

are seen as a hedge against inflation because of the the huge spending bills that have passed and that are pending. We can't keep printing money without devaluing the dollar. If the dollar is no longer to be the world's reserve currency because of political and social upheaval then the real pain will begin

If you have a substantial portfolio and are willing to lose everything that you invest, then investing in Bitcoin might make sense. However, investing in precious metals does have a small advantage since there is a physical asset involved, but the rate of return usually is less than Bitcoin.

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Response to bucolic_frolic (Original post)

Fri Jul 31, 2020, 11:33 PM

4. First-- what is money?

Money is a medium of exchange for trade, and a measure of wealth. We've always had money of some sort-- Greek drachmae, huge stones on Yap Island, Federal Reserve Notes, pretty beads and shells...

The important thing about money is that it rarely has any value itself, but reltes to something else of value. Of course, gold coins have the gold value in them, but that's why we don't use gold coins any more; the price of gold varies too much and screws up trade. We've been off the gold standard effectively since the 30s and semi-officially since 1971. For interminable boredom, have a looksee at "bimetallism" and "Bretton Woods" to see some of the history. And don't forget Gresham's Law-- which states when there are two sort of equal currencies, chaos will ensue and one will die a horrible death. Usually the one you bet on.

Nowadays, money is basically backed by the "full faith and credit" of the issuing authority-- usually a government. It is assumed that the big guys have a handle on things, so Sterling, Euros, Yen and such will maintain something of a stable value. African and South American money isn't always looked upon so kindly. Gresham's Law doesn't apply, because each currency is independent and tightly controlled by some government.

Next question is-- how is money created? Printing massive amounts of $100 bills is NOT the way. It guarantees instant inflation. Banks are ultimately the creators of money, and always have been.

It's called the Multiplier Effect-- you deposit your $100 in the bank. The bank knows it will be in there for a while, so it lends out $80 of it. SHAZAMM-- there is now $180 in circulation! If you take it out, there's always someone else to hit for it. (If there isn't that's called a run on the banks and is big trouble, but that's for another time.)

This is all regulated and controlled by central banks to assure things don't get out of hand. Regulation doesn't always work perfectly, but usually works well enough to stop the whole mess from crashing.

So, now we have this magical Bitcoin, not backed by anything or anyone, which has no clear means of valuation and no formal or informal regulation. On top of that, there's not much you can buy with it.

If you haven't heard of the Dutch Tulip Bulb craze, look it up. And back then they really had tulip bulbs.





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Response to bucolic_frolic (Original post)

Sat Aug 1, 2020, 01:29 AM

5. I use Robinhood to buy bitcoin and grayscale stock too

Making quite a lot of money lately. Look up grayscale. Easy peasy. I put half my investments into it. The market can't stay up forever.

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Response to bucolic_frolic (Original post)

Sat Aug 1, 2020, 03:08 AM

6. Do not construe this as any sort of advice for or against investing in bitcoin ...

But to answer a few of your questions ...

Money is money because one can reliably exchange it for goods and services. It doesn't necessarily 'matter' whether it's in any way 'backed' by a government or whatnot. As long as enough people believe something is 'money' and hence one can use that thing to buy something else, it's is de-facto money. This is the case for bitcoin and some other brands of cryptocurrency ... and currency in general. For now at least.

Cryptocurrency is 'mined' at great cost of electricity (which is why I kinda hate it, it's very eco-unfriendly unless you're using wind or solar power or the like to power your computers) basically through a process of solving an extremely complex mathematical formula. To simplify things greatly, the formula was reasonably easy to 'crack' (and produce 'bitcoin') at FIRST, but the nature of the formula is such that as more 'coin' is 'mined', the formula becomes more complex to crack. Think of it roughly as trying to strike Oil in 1920 vs striking a massive new find of oil ... in 2020.

As the currency ages (bitcoin itself is pretty old now) there are diminishing returns to 'mining' due to the cost of electricity weighed against the likelihood of a successful mining. Some people do keep doing it though, because each extant coin has become more valuable due to the scarcity inherent to the increasingly complex formula for creating/mining new coin. Typically they'd be people who can get electrons very cheaply for whatever reason.

At some point every currency will mature to the point that nobody will mine it anymore ... unless maybe if there's some miracle new way to produce electricity for a fraction of what it now costs. Currencies must be self-limiting like this, or the whole formula for the perceived increase in value per coin ... falls apart.

There are various types of cryptocurrency mostly because ... currencies mature out as described, and also just cause there can be. The technology needed to manage the systems for making and banking it and using it for trade ... everything is all open source. If you have enough expertise and startup capital you could start up your own crypto.

But the thing is ... you have to generate the trust of enough people for it to be worth anything. And it's somewhat nebulous where that 'trust' comes from afaict. Everyone knows bitcoin, and there's a few others that are well regarded/trusted, but there's also cryptocurrencies that have collapsed and become worthless and even some outright scams. It all depends on 'people agreeing it's worth something', just like regular currency really.

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Response to mr_lebowski (Reply #6)

Sat Aug 1, 2020, 10:42 AM

10. Good post - as I understand Bitcoin (limited as that may be), when it was devised,there was a set

amount of coins that could be 'mined', and when that # is reached there shall be no more.

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Response to c-rational (Reply #10)

Sat Aug 1, 2020, 02:30 PM

13. I'm not entirely sure but my understanding is that the number available are self-limiting

for all practical purposes due to the way that the formula for finding new coins gets harder to solve with each one that is found and thus the cost in electricity increases to the point that coin isn't worth what it costs to find it. But then that can be balanced by the open-market value of each coin going up. So basically people start mining again when coin value shoots up in hopes of getting lucky.

But some or all of them may have outright caps as well, not sure on that point.

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Response to mr_lebowski (Reply #6)

Sat Aug 1, 2020, 12:53 PM

11. Thank you. Interesting. I really don't understand it

It was said that one does not need a bank account to use it but... in my too rational mind: say I use my VISA card to purchase some. But then the VISA statements arrive and I have to use my... checking account to pay for it..

Or, I suppose, I can purchase some through a broker but from where did the funds in the brokerage house come? From my deposits. Unless, I just turn around and deposit all my income there? Not savvy enough, I suppose.

And then... we've heard about ransomware demands that want payment in bitcoin. And, of course, the recent hacking to the twitter accounts of Obama and other telling followers to send bitcoins, and many did..

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Response to question everything (Reply #11)

Sat Aug 1, 2020, 02:48 PM

14. Could be way wrong but I thought when one 'invests in bitcoin' generally ...

They are acquiring interest of some kind in a certain coin (or perhaps a basket of them), but that they don't necessarily 'come into possession' of the coins (which is of course electronic anyway).

I mean, I'm sure one can also actually buy the coins and put them into their coin bank to then use to make purchases denominated in coins (or hold as an investment), but I don't think that's the bulk of the investment industry today for bitcoin. Rather you 'buy into' investment instruments similar to how you can buy into the gold market w/o ever physically possessing gold.

Someone correct me if I'm wrong on that point.

Regarding not needing a bank account, people definitely have 'coin banks', that's where the coins go as they are mined and is the method of exchange for making purchases with them (i transfer from my coin bank to yours in exchange for something).

If you want to actually buy them w/o mining them yourself (or possessing any cryptocurrency in a coin bank you could make a trade with e.g my Etherium for your Bitcoin) or invest in them generally, then yeah, I assume you need some sort of traditional bank account so you can pay for the coin or the investment vehicle (and probably to take money out if you have 'shares' that go up in value).

But actual transactions of cryptocurrency take place outside the regular banking system, from one 'coin bank' to another. These 'banks' are maintained by the coin system itself (although I think banks can also be set up outside of it as well), a peer-to-peer connected system which is distributed across 1000's or even millions of computers worldwide. Each persons 'account' is anonymous, basically you just have an account number and I'd suppose a password (which you guard with your life if you have many coins lol). Which is why it's great for the black market lol ...

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Response to mr_lebowski (Reply #14)

Sun Aug 2, 2020, 01:24 PM

16. Thank you. I realize this. But even the "coin bank"

One has to at first open one. Where are the funds coming from? This is what I don't understand, the mechanics of this. But then, again. I am not going to get into this. Just curios.

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Response to question everything (Reply #16)

Sun Aug 2, 2020, 02:31 PM

17. Perhaps if I called it a coin wallet it would make more sense?

The bank is part of the bitcoin system itself, every coin (there's also partials) that's mined belongs to someone wallet, and that's like a numbered account a person can just create in the system by installing free software and saying 'make me a wallet'. Might even be able to make one via a web interface, not sure on that one.

If you installed bitcoin mining software on your computer, and set about mining coin, and you successfully mined some, you'd then have a coin wallet with bitcoin in it.

Or if you sold someone something for bitcoin, that someone else could transfer it to your wallet.

In this process, there are no 'funds' that have to come from anywhere.

I know there are external banks that are separate enterprises from the coin mining systems themselves. They do thing like facilitate easier exchange between people, let you cash out your coin into real money, and would let you see lots of different types of cryptocurrency that you own, all in one place, not just bitcoin but other types. You can sorta move your coins out of your wallet that's part of the main system itself into these external banks, IOW. They're also numbered accounts.

If you buy someone elses coin with real-world money then you need some sort of real-world account to transfer that money to them ... from. Though I suppose cash is a possible means of exchange as well. I don't know how that process works exactly.

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Response to bucolic_frolic (Original post)

Sat Aug 1, 2020, 06:55 AM

7. Thanks all, I still think it's a lot of hype

A lot of pro traders have made fat returns on penny stock bitcoins. I also found a handful of bitcoin ETFs, yes I did find grayscale, and Ethereum, as well as I think an index ETF that focuses on infrastructure.

i'd bet it will all be regulated within 5 years or so, lots of takeovers and consolidation, more than a few bankruptcies which might risk the whole industry.

Will I buy any? Very lightly, when it's down.

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Response to bucolic_frolic (Original post)

Sat Aug 1, 2020, 07:03 AM

8. ADA , XRP vs BTC

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Response to bucolic_frolic (Original post)

Sat Aug 1, 2020, 09:23 AM

9. The following from Paul Krugman may help

https://www.nytimes.com/2018/07/31/opinion/transaction-costs-and-tethers-why-im-a-crypto-skeptic.html

(snip)
Cryptocurrencies. . . have no backstop, no tether to reality. Their value depends entirely on self-fulfilling expectations ó which means that total collapse is a real possibility. If speculators were to have a collective moment of doubt, suddenly fearing that Bitcoins were worthless, well, Bitcoins would become worthless.

Will that happen? I think itís more likely than not, partly because of the gap between the messianic rhetoric of crypto and the much more mundane real possibilities. That is, there might be a potential equilibrium in which Bitcoin (although probably not other cryptocurrencies) remain in use mainly for black market transactions and tax evasion, but that equilibrium, if it exists, would be hard to get to from here: once the dream of a blockchained future dies, the disappointment will probably collapse the whole thing.

So thatís why Iím a crypto skeptic. Could I be wrong? Of course. But if you want to argue that Iím wrong, please answer the question, what problem does cryptocurrency solve? Donít just try to shout down the skeptics with a mixture of technobabble and libertarian derp.

(snip)

>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Personally, my only involvement with Bitcoin (if any) would be in the commodity futures market, where it is regulated by the Commodity Futures Trading Commission. Pretty damn expensive, though, as the margin/maintenance costs are high and there are no mini/micro contracts or options to trade on it.





#newrostrong

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Response to DinahMoeHum (Reply #9)

Sat Aug 1, 2020, 03:28 PM

15. what problem does cryptocurrency solve?

It reduces transaction fees and takes the fees from banks and gives them to ... I don't know, the exchanges? the companies that mine Bitcoin?

Not much of a problem at all really because there will always be some entity paid to facilitate payments of all kinds.

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Response to bucolic_frolic (Original post)

Sat Aug 1, 2020, 01:47 PM

12. one of the real risks of cryptocurrency is that to the extent it succeeds, it will likely be

*one* particular cryptocurrency that becomes the standard, and the others will fade away.

bitcoin has basically always been the front-runner for this position, but it's not a given that they will keep this position.

same as any new technology. the first to introduce it to the market could very will be right that the basic product concept will be a hit, but wrong that that particular company will be the one to dominate the market.


so it's quite possible that cryptocurrency becomes a long-term viable currency and sounds investment, but you still lose all your money because you guessed the wrong particular cryptocurrency.


it's also possible that the market coalesces around several cryptocurrencies, not just one. but still, many of the different flavors around now will probably go away at some point, imho.

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