The 4 big untruths about Bitcoin

Jack

Bitcoin is going to revolutionize the way we pay for things because it’s quick, cheap, anonymous, and decentralized. Well, not quite. It turns out that this is kind-of-not-completely true. I wouldn’t say a lie, but more like … an untruth(Da da da. Cue suspenseful music..)

Quick and cheap – By design, the Bitcoin network processes 3-6 transactions per second. Sounds fast! But for reference, Visa handles 47,000 transactions per second. When the number of Bitcoin transactions worldwide was low, this wasn’t a problem. Now that Bitcoin has skyrocketed in popularity it is not uncommon for wait times of 30 to 60 minutes. Anecdotally I had a transaction that I made at 3:30pm which didn’t get confirmed until I woke up the next morning.

 

 

Also, in order for a transaction to be processed, there is a transaction fee that used as incentive and reward for the miner to process the transaction. Not including any transaction or too low a transaction fee has the risk of waiting for a long time for your transaction to be processed. Again, due to high levels of transactions and the laws of supply and demand, people have seen fees upwards of $30. So imagine waiting half an hour for your cup of coffee, and paying an extra $30 for the privilege of paying with your Bitcoin.

AnonymousAs I’ve already mentioned, Bitcoin is not truly anonymous. This is because the blockchain is open and public, so even though you don’t know which address belongs to who, anyone can see the balance of any Bitcoin address. You can also actually trace the flow of Bitcoin. For example, picture the scenario where Alice pays Bob and Bob in turn pays Charlie. You could see that funds flowed from Alice’s bitcoin wallet through Bob and onto Charlie.

Decentralized – Ok, so this one is still true, BUT it’s not 100% impossible to circumvent, and we are nearing a situation where decentralization could be compromised. There are thousands of Bitcoin computers aka miners around the world. Bitcoin needs them to be independent because they are confirming transactions essentially by voting. If over 50% of miners say a transaction is valid, then it gets confirmed You can imagine a handful of rogue miners submitting false transactions. Those transactions would get rejected by the other thousands of miners who would disregard those miners’ transactions. Phew… as long as more than 50% of the miners don’t band together to conspire to confirm false transactions.

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Beware of evil miners!

BUT due to cheap electricity costs, most Bitcoin is mined in China, an estimated two-thirds of all Bitcoin. Having such a large percentage of miners in one country puts decentralization at risk. While I can’t imagine how the Chinese government would be able to take control of all the miners inside the country, this is also the same country that has shut down access to Facebook and Google to over a billion people, so there is definitely a greater than 0% chance. And keep in mind that decentralization is what makes Bitcoin valuable. So there you go, it IS possible (albeit still very very unlikely) to destroy Bitcoin.

So where does this leave Bitcoin?

Well, Bitcoin is still the godfather of cryptocoins, and is by far the most recognized and has the most potential to hold value. But this is one of the reasons why there are hundreds of other cryptocoins out there. We are already on the second and third generation of cryptocoins, each one seeking to shore up Bitcoins weaknesses. Litecoin can process about 50 transactions per second while Ripple claims a ridculous 1500 transactions per second. Other coins like Monero and Dash focus on privacy and provide the anonymity that Bitcoin lacks.

As always, invest wisely!

 

 

 

 

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How did the top ten cryptocoins fare in 2017?

While Bitcoin is the talk of the town, it wasn’t even close to being the best performing cryptocoin of 2017. Bitcoin increased almost 1400% in 2017. That means if you bought $100 of Bitcoin on Jan 1, 2017, that would be worth $1,400 today. But $100 of Ripple on Jan 1, 2017 would now be worth $47,900 today.

How did other coins fare in 2017? Well, I’m glad you asked. Looking at CoinMarketCap.com which not only has current prices of coins, but also historical prices, I looked up the top 10 largest coins based on their market capitalization on Jan 1, 2017 and checked their price increase over the span of 1 year.

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As you can see, if you had put money into any of 2017’s original top ten largest coins, you would’ve seen your investment rise significantly. The average increase in 2017 was 8,935%. Even $100 of the “worst” performing MaidSafeCoin (MAID) would have been $1,100 today. (Interestingly, Bitcoin itself grew only the 9th most). In comparison, if you had invested $100 into Boeing, which was 2017’s best performing stock of the Dow Jones, you would’ve had a paltry $189 today.

Did every altcoin kick butt in 2017? Well, you would have to go to 20th largest coin (based on Jan 1, 2017 market caps) to find a loser. The honor goes to E-dinar Coin (EDR). A $100 investment of EDR would have left you with $2 today, which is pretty much as bad as you can get. A few quick google searches about EDR reveals that it might have been a scam anyways.

Got it. So are you saying I should just invest in the current top ten largest coins and I should expect big bucks? Well, one year of data is small sample size. Let’s see what happened to the top ten largest coins in 2016.

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Still a decent amount of success, with an average increase of 121.54% in 2016. But nowhere near 2017’s average of 8,935%. Also, worthy to note that there were two losers in the top ten of 2016 in Peercoin and Nxt.

Alright, I’m on a roll now, let’s look at the top ten of 2015. Now it starts to look a little painful.

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The average return for the top ten of 2015 was -34%. So even though Bitcoin had an impressive 53% return, most of the other top coins tanked (I’m looking hard at you, PayCoin!).

A few other interesting observations:

  • Stellar was a top ten coin in 2015 and 2016, disappeared for most of 2017, but is now a top coin again in 2018.
  • I didn’t realize Ripple had been around for so long as the second largest coin. It dropped a few spots in 2017 but has recently at the end of 2017 returned as the second largest coin.

So back to what to invest in for 2018. I strongly believe in diversification. If there was a mutual fund of the top largest coins, I would probably just buy that fund instead of trying to pick individual coins. Most of my cryptocoin is already in Bitcoin, Ethereum and Litecoin. If you don’t have time to research and delve into the details of which coins to invest in, you could certainly just buy the top 10 coins of 2018 and hold them for a year.

Despite the volatility of cryptocoins, I still believe that there is potential for large increases. Maybe not as much as 2017, but still increase nonetheless.

What do you think of these trends over the past several years?

(Obligatory disclaimer: I am no financial advisor nor investment professional. Only invest what you are willing to lose.)

Intro to Altcoins – just when you thought you started getting comfortable with Bitcoin

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Sometimes it seems like nicknames and acronyms are made up just for the sake of having a nickname. One of these it the term ‘Altcoin’ – which stands for Alternative Coin, which is really any cryptocoin that’s not Bitcoin. There are thousands of such coins, each with a tweak from Bitcoin or looking to find a certain niche. Coin for dentists? DentaCoin. Coin for adult entertainment? Spankchain. Coin for clowns? KrustyCoin. (I made that last one up, but I’m sure it’s coming at some point).

So why should you care about Altcoins? For 2017, Bitcoin’s price went up 15 times. But that was far from the most profitable cryptocoin. Verge (XVG) went up 10,000x in 2017! $100 in Verge would’ve resulted in $1M by the end of 2017. And you were excited about getting 0.9% interest from your high-yield online savings bank!

If you want to buy altcoins, you’ll need to move your coins from Coinbase to a full-fledged crypto-exchange, of which there are many to choose from. The exchange I like the most is Bittrex. In some ways, these crypto-exchanges are similar to brokerage firms, like Fidelity or Charles Schwab. Bitcoin exchanges allow you to trade your bitcoin for other cryptocoins. However, there are large differences between each bitcoin exchange and you often will have to use different exchanges for different purposes.

Bitcoin exchanges are also designed for the experienced crypt-trader. If you’re not into stock day trading (and I am not), then prepare to be overwhelmed. Unlike Coinbase, which has a simple line graph and 4 to 5 simple functions, an exchange will have analytical charts, and unfamiliar terms and a slew of cryptocoins.

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Is this R2D2 language? Nope, just a bitcoin exchange homescreen.

If that wasn’t confusing enough, here a couple more points to keep in mind.

  • Each exchange has access to different currencies. Most of the popular coins are available. But not all. For example, if you are on Bittrex and want to buy IOTA, which has one of the top ten highest market caps, sorry, you are out of luck.
  • For most exchanges, you can’t by altcoins with cash. You have to exchange bitcoin with your altcoin of choice.

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  • Each exchange has slightly different exchange rates. For example currently, 1 BTC on Binance is $13,560, on GDAX is $13,489, and on Bittrex is $13,628. This is because there is not a uniform way to determine a common, shared price for Bitcoin, so each exchange calculates its own rate.

I found Bittrex the most user-friendly exchange, but it’s a pretty low bar. GDAX is another popular exchange. The huge advantage for GDAX is that it is owned by Coinbase and therefore is free to transfer coins and funds between Coinbase and GDAX. You can easily move your Coinbase coins to GDAX. Each exchange has a different fee structure to make trades and withdrawals.

When you are checking out a new exchange, I recommend transferring a small amount of Bitcoin into the exchange and try trading it for another cryptocoin.