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Bitcoin’s growth is like a virus

The price of bitcoin grows according to a straightforward mathematical equation, which correlates to phenomena found in nature as well as Facebook’s growth and share price.

 

Bitcoiners love drawing lines on charts. They love the idea that you can predict future price if you just find the right formula. If the line needs to be changed to fit the data, so be it. There are lots of these charts around, often with pretty colours and lots of crazy lines. Log charts are the favourite, because they show bitcoin continuing to grow exponentially.

 

Most of these charts are junk, wishful thinking, like children drawing fairies in crayon on the wall. They keep having to be updated because the price doesn’t fit them.

 

However, there is truth in the idea, and now we have a straightforward, convincing example that really fits the data well. Timothy Peterson of Cane Island Alternative Advisors makes the comparison between bitcoin and Facebook’s growth, using an equation that also fits the spread of viruses in nature. ‘We derive the relationships between price, number of users, and time, and show that the resulting market capitalizations likely follow a Gompertz sigmoid growth function. This function, historically used to describe the growth of biological organisms like bacteria, tumors, and viruses, likely has some application to network economics.’

 

This makes perfect sense, and it has long been recognised that the value of a network is a square factor of its size (which is what makes Facebook so valuable, and why it’s so hard for new social networks to gain a foothold).

 

Petersen’s formula fits bitcoin extremely well, giving a lower bound for the price. In a bubble or strong bull market, the price deviates significantly from this line, but it has never dropped below it.

 

It’s a very convincing piece of analysis and an explanation of why bitcoin should continue to grow and gain value. For what it’s worth, it suggests that bitcoin probably has bottomed for this cycle. And it suggests that, while bitcoin’s growth will slow, it still has a long way to go.

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What movie character is your crypto?

Sometimes all those explanations of consensus algorithms and blockchain protocol features get a little wearying. Instead, it can be easier to understand what a crypto is really about using an analogy. Like movie characters.

 

Bitcoin. This is the James Bond of crypto. The movie character that has been around forever and is always popular. It’s as classic as a black tie dinner jacket, always in style and keeps going not matter what. And you Just. Can’t. Kill. It.

 

Ethereum. Garland ‘The Marietta Mangler’ Greene, the nasty, scary smart, ultra-dangerous dude played by Steve Buscemi in Con Air. Or Rockhound, the nutcase genius played by Steve Buscemi in Armageddon. Or Mr Pink, the hyper, slightly unhinged but seriously street-smart criminal in Reservoir Dogs, played by Steve Buscemi. (You ever wonder about Steve Buscemi? What’s his deal?) Anyway. Point is, you never know what you’re going to get. Smart and nuts is a bad combination (though it’s a hell of a lot more interesting than dumb and nuts). So treat it carefully.

 

EOS. Piggy, from Lord of the Flies (adapted as a 1990 film from William Golding’s book). There’s a group of you – let’s say, 21 boys – who have been thrown together by circumstance, outside of the normal rules of civilisation. You could work together and make a decent job of things. But here’s the thing: that kind of pressure can bring the worst out in people. And if you find yourself going against the herd, like Piggy does, or occasionally some block producer who disagrees with all the others, you’re going to have a bad day.

 

Litecoin. Any one of the Avengers films. There’s nothing new here, you’ve seen it all before, but meh. Whatever. It works. Kinda.

 

Ripple. Jordan Belfort, played by Leonardo diCaprio in The Wolf of Wall Street. He makes a career out of ripping off regular punters on an industrial scale and glamourises it in the process. But he doesn’t know when to stop and eventually he gets caught and goes to prison.

 

Bitcoin Cash. You know how ‘There can be only one?’ And how Connor McLeod, the immortal swordsman in Highlander, goes up against Kurgan, who wants to cut his head off and gain The Prize? And how McLeod sticks around forever but that’s it for Kurgan because he got his head cut off instead? And how you remember the name McLeod but not Kurgan, because Kurgan was the loser? Well, BCash is Kurgan.

 

BSV. The Emperor Commodus in Gladiator, played by Joaquin Phoenix. Dangerous, nasty, slightly camp and frickin’ mouthy, but ultimately can’t walk the talk. He comes to a bad end and thoroughly deserves it.

 

Dogecoin. Forrest Gump, played by Tom Hanks. Dumb as you like but somehow successful. Helped a lot by the fact he doesn’t have a bad bone in his body and doesn’t realise he’s kind of stupid, and has a huge following of people who love him.

 

Tether. The gas tanker in Mad Max 2: The Road Warrior. Played by a gas tanker. The tanker is massively valuable, guarded by the group of Settlers and violently coveted by the Marauders, a vicious gang who roam the post-apocalyptic wasteland in search of fuel. When the Settlers, helped by Max, try to escape with the tanker, carnage ensues as the Marauders pursue them. Most of both groups are killed. It turns out, after everything, that there’s nothing valuable in the tanker at all. It’s full of sand. But the Marauders don’t find that out until it’s too late. Get the parallel with Tether yet?

Basic Attention Token. The smartly-dressed guy who kicks off at the end in any of the Bruce Lee films. You don’t usually see him pull out all the stops until fairly late in day – the early fights are just too easy for him – but when it happens, you’d better be paying attention.

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McAfee: BTC MUST hit $1 million by 2020

It’s a matter of basic maths, says the man who earlier bet the contents of his trousers on an epic bullmarket.

 

Eccentric antivirus mogul John McAfee has put his, er, reputation on the line for bitcoin in the past. Back in 2017, he stated his belief that bitcoin would reach $500,000 by 2020 – and what he would do if he was wrong. Then bitcoin’s price increase accelerated, and he doubled down:

When I predicted Bitcoin at $500,000 by the end of 2020, it used a model that predicted $5,000 at the end of 2017. BTC has accelerated much faster than my model assumptions. I now predict Bircoin at $1 million by the end of 2020. I will still eat my dick if wrong.

 

Then came the crash. It was just a correction, he assured us. Bitcoin would be back. And it would definitely be back by 2020. But the bear market stretched on. By the end of 2018, $1 million looked a very, very long way away. $3,100 to $1 million in 2 years? It wasn’t looking good.

 

McAfee held to his statement, though he did suggest how he would go about fulfilling his promise if it came to it:

If the worst comes and  I lose my Bitcoin bet (keep in mind I promised to eat my dick. The cutting it off first was added by the media), I will probably subcontract the task to a relay team of Bangkok prostitutes with instructions to carry out the task slowly, finishing as I exit

 

As bitcoin bounces from an apparent bottom, his confidence is renewed and he has restated his belief that bitcoin will hit the seven-figure mark by December 2020.

More and more headlines converging on a prediction that I cannot mathematically lose. All you “Eat your dick” airheads – please identify yourselves by commenting appropriately, so that at the end of 2020, the people who could add, subtract and multiply can have a good laugh.

 

Ok, so will bitcoin hit $1 million one day? Quite possibly. Will it hit it in 20 months – soon enough to save McAfee from (at best) a humiliating fate?

 

Never say never with bitcoin. But it would take a bull market the like of which we have never seen. Bitcoin would need to appreciate 200 times over in 20 months. Historically it has never done this and every bubble has been accompanied by a crash that puts it in the wilderness for a period of time.

 

Good luck, John, you’re going to need it.

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Staking is not as new as you think

Staking is the new mining – but it’s been around a looooong time.

 

‘When PoS?’ ‘Is this a masternode coin?’ ‘What’s the best masternode coin?’ These are all questions you’re likely to encounter sooner or later on the Discords of the crypto world.

 

Profitable mining is now out of reach of all but the best-funded and most technically savvy. And so the crypto community, with unrivalled sense of entitlement and belief in their right to something-for-nothing, have moved on to the next best thing: staking.

 

Proof-of-work is a costly consensus mechanism, requiring dedicated hardware and large amounts of electricity. Proof of Stake (PoS) uses coin balance, and not hashrate, as the scarce resource that helps determine the next block. In short, if you have coins, you can earn more coins.

 

There are different variations on PoS. There’s vanilla PoS, where anyone can stake any amount of coins, and a user’s chances of ‘mining’ the next block are in proportion to their balance. There are systems where a minimum balance is required, or where a limited number of stakers are voted in – delegated PoS or DPoS (like BitShares and others). There are systems where users can lease their tokens to a staking node (LPoS), like Waves. And there are masternode systems, like Dash, where large nodes play an integral but supplementary role in the network, facilitating specific operations like instant transactions and mixing, and receive large rewards from each block.

 

The rewards of PoS can vary significantly, then, with regular PoS systems often needing additional incentives to get people to stake. But for all that PoS is popular right now – especially Masternodes – it’s been around a long time.

 

The first coin to implement PoS was Peercoin, which used a hybrid PoS/PoW system. Launched in August 2012, Peercoin has fallen from favour, but it’s still around – crypto is hard to kill. Nxt was the first platform to use PoS alone. It launched at the end of 2013. Again, it’s still around – kind of – but it has evolved considerably since then. Newer systems like Waves use variations on Nxt’s PoS, and even Ethereum will ultimately implement PoS with Casper.

 

But it’s the Masternode coins that are really proving popular, since if you get in early enough you are on the gravy train forever. HODL, stake, and gain significant passive income from block rewards. It’s like mining without the hardware costs.

 

Staking is to 2019 what mining was to 2012. And, just like mining, the space is getting crowded and competition is rising. Get in while you still can.

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China bans bitcoin – again?

China is considering cracking down on Bitcoin mining, in the country’s latest attempt to separate its citizens from their beloved virtual currency.

 

Back in 2013, when bitcoin was hitting its peak of around $1,200, China stepped in and ‘banned’ it. The impact was an immediate plunge in price, which briefly recovered in November’s double top, before the long bear market of 2014 (helped by the fall of MtGox).

 

China has always had a habit of banning bitcoin, before backtracking – prompting the crypto world to suggest that officials just want to load up on cheap coins. There have been numerous points over the last five years when the People’s Bank of China (PBoC) has taken action to curtail bitcoin trading, generally by attacking exchanges themselves rather than their customers – stopping them offering high leverage, preventing financial institutions from working with them, and so on.

 

Now, it’s mining. The authorities are considering cracking down on Bitcoin and other proof-of-work crypto miners. The given reason is the amount of power these operations consume. China is a popular venue for crypto mining, with over 70% of Bitcoin’s network hashrate, thanks to its cheap power and the country’s willingness to burn its vast reserves of coal for energy. However, it is likely that there is an ulterior motive. Bitcoin offers a form of financial freedom, enabling citizens to shelter money and move it out of the country – something the government has tried to prevent in the past, through capital controls, as it tries to stimulate the economy by devaluing the currency. Mining bitcoin is effectively a way of converting Yuan into BTC, and thereby USD, should the miners wish.

 

And, with over 70% of network hashrate, that means $7 million a day or around $2.5 billion per year could be leaving the country – a small amount by Chinese standards, but enough to set a threatening precedent for PBoC.

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The four types of trader

When it comes to making money from the markets, are you a butterfly, cat, dog or tortoise?

 

Anyone who trades stocks or currency markets will take a particular approach – assuming they have any clue what they’re doing, of course. We identify four main types of trader.

 

  1. Day Trader: the Butterfly

You flit in and out of trades, never spending long anywhere. You’re constantly in motion. You’re also delicate and vulnerable to being wiped out. Your close cousin, the moth, has a habit of being drawn to the light and getting burned. Either way, your lifespan tends to be short. There’s a reason they’re called day traders – many don’t last much longer than that. (Ok, so it’s really because they don’t hold positions overnight, but still – around 90% of day traders lose money.)

 

  1. Swing Trader: The Cat

You’re agile, fast, and you show little loyalty to anyone or anything so long as you can get a meal out of it. Your life consists of periods of inactivity followed by sudden movement. You might play dangerously from time to time, but you’ve got nine lives – assuming your risk control is any good.

 

  1. Position Trader: The Dog

You’re a faithful companion who takes long-term positions. Once you’ve made your decision, you stay with it – maybe for years. You’ll put up with a lot along the way, and you don’t have a lot of time for the cats of the world (in all fairness, they can treat you with disdain too). Basically, you know a good thing when you see one and you’ll stick with it.

 

  1. Buy and Hold: the Tortoise

You make a life out of doing as little as possible for decades at a time – maybe more. You take a position, then… that’s it. Your whole existence is built on the idea of inertia, letting the world come to you and making absolutely minimal effort. You’ll weather the ups and downs life throws at you, hiding away from it all if you need to for long periods of time. Your life is pretty uneventful, it has to be said, but it can also be remarkably successful – you’re one of the longest-lived animals out there and you can grow big. Incidentally, that’s why Warren Buffett looks like a tortoise.

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Permabull: Bitcoin is now bullish

Fundstrat’s Tom Lee, who has been relentlessly bullish for several years now, told Bloomberg that the market is now in a bull trend.

 

Bitcoin permabull and Fundstrat analyst Tom Lee has told Bloomberg that bitcoin is back in a bull trend.

 

Over the last week, we have seen the mainstream media once again dip their toes in the warm waters of bitcoin as Crypto Winter has apparently thawed. The surprise move above $5,000 – a jump of over $1,000 – has dampened criticism from those who proclaimed bitcoin’s death.

 

Lee is a noted bull, who has been calling for a bull trend ever since bitcoin came off its peak of $20,000 at the end of 2017. Lee famously predicted prices of around $50,000 back in 2017, and even recently claimed bitcoin’s ‘fair value’ was $14,000, when the market values it at a fraction of that price.

 

‘Bitcoin made a move that looks like it was based on true buying and closed above its 200-day moving average,’ he explained to Bloomberg about the recent price development. Lee’s definition of a bull market is straight forward: price remains above the 200-day moving average. So long as bitcoin goes above that 200-day value and holds it, we’re back in a bull trend, he says – so ‘Sentiment ‘has to change’.

 

Lee also cites ‘tailwinds’ for bitcoin – the dollar weakening, economic slowdown in China, and Bitcoin’s ‘OG’ or whales starting to accumulate coins again.

 

Now, he may be right. Maybe. But the problem with Tom Lee is that he is a permabull, and a permabull is like a stopped watch – it’s right twice a day. Bitcoin might be in a bear market still, and it might be in a bull market. The next few weeks should tell us for sure. But let’s not pretend that Tom Lee’s outlook on this is going to change based on the technicals or fundamentals. He’s going to be bullish at $1,000 and he’s going to be bullish at $100,000.

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How to choose an exchange

There are lots of crypto exchanges out there. What do you look for when choosing one?

 

So you want to buy (and ultimately sell) crypto. Good for you: you’re ahead of most of the rest of the population. In the coming years, that could prove a great decision. The problem is, there are a lot of crypto exchanges out there. A LOT. So, what do you look for?

 

Well, the answer is, of course, ‘It depends’. There are many exchanges and they specialise in different things. If you’re looking to trade bitcoin for profit, you might want one kind. If you’re looking to buy and sell altcoins, your needs are different again.

 

But assuming you’re just starting out and simply want to buy some bitcoin, here are some of the factors you need to consider in choosing an exchange or broker. (Exchanges let you buy and sell bitcoin from other customers; brokers sell you the coins themselves.)

 

  • Jurisdiction. Depending on where you live, different exchanges and brokers will be available to you. They have different banking arrangements, and it may be hard (or impossible) to deposit funds from certain areas, and if not perhaps expensive and time-consuming. It’s generally best to pick an exchange that has banking arrangements in the same country as your bank. Many large exchanges offer several options.
  • Liquidity. Smaller exchanges don’t tend to have great liquidity, meaning that a large buy or sell can cause ‘slippage’ – the price you get is worse than you expect. If you’re looking to buy large amounts of BTC, go for a bigger exchange (they tend to be safer too).
  • Fees. Different services have different fee structures. If you’re just looking to buy some BTC and hold for the medium-term, this won’t be too much of a problem. If you want o trade, then it’s a bigger factor because every buy or sell will incur a small cost. Brokers tend to have higher fees than exchanges, but they’re designed for lower turnover.
  • Storage. It is extremely important that you store your coins securely. If you don’t know how to do this yourself, it’s vital you learn how to create and use a Bitcoin address. You can store coins on exchanges, but it is not recommended. However, certain services are designed with secure storage in mind, and these can be a reasonable second-best option. Check out the reputation of the exchange/broker, their security measures, how often they are audited, whether they are insured, etc.

 

If you’re looking to buy and sell bitcoins for fiat (dollars, euros etc), then you realistically have a limited number of options. There are many, many smaller services, but you will get the best prices with one of the big players – and they’re more secure and reliable.

  • Coinbase. Good for US-based buyers but also serves other markets well. Brokerage and secure coin storage.
  • Bitstamp. Euro-area exchange with USD markets. Good for most of Europe but you will need to organise your own storage.
  • Uphold. Excellent brokerage service, working with many currencies. Good for storage. Worth investigating for building a long-term portfolio, wherever your location.

You can also use smaller peer-to-peer services like LocalBitcoins, but you’ll need to be happy with setting up your own bitcoin wallet.

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Craig goes to court

Have his lies caught up with him? We have to hope so.

 

You can’t make this stuff up. Well, actually, Craig did and now it’s looking like it’s – slowly – coming back to bite him.

 

Craig ‘Faketoshi’ Wright, who has famously and repeatedly claimed to be Bitcoin’s creator but never once supplied anything like convincing proof, is due in court today. The reason? Well…

 

He went public with his story that he and Dave Kleiman, a computer security expert who died in 2013, created Bitcoin together. As part of that process, a whole load of documents were ‘leaked’. It looks a lot like at least some of them are fake; for example, there are emails there that have domain names that weren’t registered until after the date they were apparently sent. So pretty suspicious.

 

However, Dave Kleiman’s family are taking him at his word. Ira Kleiman, David’s brother and his beneficiary, maintains that Wright defrauded him of 1.1 million BTC (currently worth over $5 billion). And central to the case is the relationship between the two men, and the work they did – together or separately – on Bitcoin.

 

Some of the documentation that has come to light suggests that Wright has been faking evidence of his early involvement in Bitcoin. There is a question about why he is doing this, that takes on an additional dimension here:

  • He wants the fame that comes with being known as Satoshi, and the business opportunities, including selling intellectual property that Satoshi (maybe Dave) and not he developed.
  • Alternatively, perhaps he really did defraud Kleiman. Perhaps this fake paper trail is designed to establish his ownership of the BTC so he doesn’t have to give billions of dollars worth of crypto to Dave’s brother.

 

It’s a mess of lies that seems like it’s finally started to catch up with him. And we love it. Hopefully the court proceedings will establish Wright’s involvement with Bitcoin once and for all.

By the way, Craig has apparently been taking legal action against people who claim he’s not Satoshi. Just so you know.

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Bitcoin cows, Eth cats, and BSV turds

A while back we explained cryptos using cows, in the time-honoured tradition used for business and economics. Here’s another one along the same lines. But different.

 

Bitcoin: You have two cows. Cows are awesome, solid, reliable creatures so you keep them forever.

 

Ethereum: You have two cats. One of them is a cute, docile, friendly, loving animal who curls up on your lap every evening and snuggles you warmly. The other is a spitting, scratching hellcat who will rip your face off as soon as look at you. Both cats look exactly the same. You have no idea which one is walking up to you right now.

 

Ripple. You thought you had two cows but found on closer examination, one of them turns out to be a cardboard cut-out of a cow. When you look behind it, there isn’t even a blockchain. What you do find is some dude with a stack of sheets of card making 60 billion more fake cows. You’re kind of worried about your other cow now, so you sell it, fast, and never look back.

 

EOS. You have two banks. They cost $4 billion. The clever design of your banks means that administrators can reverse and block transactions, just like a regular bank. But these ones cost $4 billion. So that’s nice.

 

Bitcoin Cash. You have two turds. They both stink.

 

Bitcoin Cash Satoshi Vision. Roger has two turds. Craig steals one of them and adds further turd. Then Craig and Roger hurl turds backwards and forwards at each other until the whole crypto world is covered in turd. No one wants to buy any of it. Even cows are worth half as much as they were before.

 

Dogecoin. You have two dogs, of course. They are such dog, and very woof. You don’t see as much as your dogs as you used to back in 2014, but they’re probably still around here somewhere. ‘Fido? Heel boy!’

 

Binance Coin. You have two bags of money. Every time you come home they look bigger. You know it can’t last forever so you sell some. But the bags keep getting bigger anyway.

 

Tether. You have two dollar bills. Actually, they could be copies of dollar bills, it’s hard to say. The guy who gave you the bills says they’re worth $1 each, but he wouldn’t look you in the eye. You can hear the whirring of a photocopier in the background. You go next door and buy part of a cow with your dollar bills instead.

Beam: You have two of something. You just have no idea what. You don’t know where they are or how big they are, only that you have two of them. You think they might be green, but really, that’s a bit of a shot in the dark. All you know for sure is they’re not Monero because your CPU isn’t burning up.

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