A Quantum Immortal

Yeah, so Silk Road, the largest online marketplace for many things, primarily drugs, was recently shut down, and its alleged operator arrested. “Bitcoin is dead“, the naysayers will say.

Well, think again.

2 months price chart (log scale)

1 year price chart (log scale)

There was a big panic on October 2nd, the day of the seizure. People who buy into the FUD and are used to thinking that “Bitocin is about the drugs” sold their bitcoins. However, as is now evidently clear, the market recovered lightning fast. Bitcoin is about drugs just as much as the U.S Dollar is about drugs – it is a currency, and can be used for all kinds of purposes, from buying drugs to buying socks.

Among the key attractors of Bitcoin, anonymity was never the number one feature. Bitcoin, in its current form, is not anonymous, unless combined with a high level of paranoia and network privacy … and even then, you’re always at risk of being caught because of a silly mistake you did two (or ten) years ago. Regardless of any supposed pseudo-anonymity properties, Bitcoin remains a decentralized, thin on fees, inflation-resistant currency that is outside the reach and control of any government or organization. It (and its brothers) may very well be the only currencies that remains viable in light of the upcoming financial crisis. In any case, when analyzing Bitcoin, I advise you all to disregard the rise and fall of any particular website – Bitcoin is not a website, nor it is a single company or entity. The fall of Silk Road just propelled numerous discussions of Silk Road 2.0 – a decentralized alternative to Silk Road (as well as the many centralized services now vying to occupy the space left by Silk Road).

The FBI only managed to make Dread Pirate Roberts, the Silk Road operator, into a martyr. I am attaching the note on the LinkedIn profile of Ross Ulbricht, the person arrested as the real world identity of DPR:

Now, my goals have shifted. I want to use economic theory as a means to abolish the use of coercion and agression amongst mankind. Just as slavery has been abolished most everywhere, I believe violence, coercion and all forms of force by one person over another can come to an end. The most widespread and systemic use of force is amongst institutions and governments, so this is my current point of effort. The best way to change a government is to change the minds of the governed, however. To that end, I am creating an economic simulation to give people a first-hand experience of what it would be like to live in a world without the systemic use of force.

P.S. Thanks Aya for suggesting I write about Silk Road, it’s been a while since I wrote and this is an excellent topic.

Yuval and myself, and a few others, have been working diligently over the past week, and we’re happy to present the new beta page for our startup – Bitblu.

The site is still not mobile-friendly, we will work out these kinks soon. If you have any sort of feedback, please do report it (you can even open bugs or send pull requests, the site is completely open source).

Interest in Mastercoin is picking up, and the Exodus Address has gathered 2,578.12977381 BTC in investments, which at current rates is equal to about $315,000.

If you’re new to Mastercoin, here are a few links to get you started:

1. My original post about Mastercoin
2. mastercoin.org
3. A presentation I gave about it (slideshare, pptx, video in Hebrew)
4. Article about it in Coindesk
5. Risks document

I can say that I’m seeing a lot of interest in it, from hobbyists and professional investors alike, it will be interesting to see where this develops.

Update: Here is a quick link to how to do it technically from blockchain.info / My Wallet.

P.S.
I will be a board member in the Mastercoin Foundation

A software investment has recently come through BitAngels and raised $300,000. Now it needs a veteran entrepreneur to lead the effort.

Anyone interested in running one of the most disruptive technology efforts in the digital payments (Bitcoin) space let me know ASAP via PM.

(I can’t publicly divulge more)

Want to be the CTO of a new Israeli Bitcoin Startup?

Head over to jobs.bitblu.com and learn more.

Things are moving.
Teams are assembling.
Join the revolution!

(Even if you’re not familiar with Bitcoin, but looking for an interesting CTO position, feel free to approach – we’ll teach you all you need to know about Bitcoin)
(Even if not relevant to you, we’ll appreciate a like/share/referral)

(Hebrew speakers might appreciate the wiki entry I prepared about MasterCoin)

The title of this post is a tribute to the first post on my blog promoting Bitcoin, written on March 27 2011 (Bitcoin was worth 80 cents then, compared to $106 today).

Of the various alt-coins (Bitcoin forks), I have only promoted Litecoin on this blog, on October 2011 – it was a chance for early adopters to join in on an attempt to make a “fairer, more decentralized Bitcoin”. Litecoins have started as being worth 0 BTC, and have slowly built up value, especially over the last 6 months. Currently 1 LTC = 0.025 BTC, which is more than I would have believed myself a year ago, and Litecoin’s market cap is already 5% of Bitcoin’s ~ $1,000,000,000.

Today, I’d like to expose you to a riskier, crazier investment, called MasterCoin.

MasterCoin isn’t exactly a Bitcoin fork, but rather it’s a system that is built on top of Bitcoin, that can accommodate many different currencies, betting, self-regulating currency issue, and more. It’s really beyond the scope of this post to explain MasterCoin, but I’ll just briefly summarize:

1. Dacoinminster AKA J.R. Willet has first written about MasterCoin a year and a half ago. The idea was very exciting, and inspired some other projects such as Colored Coins. At the time, there were a lot of missing details, and the project kind of went into hibernation.
2. Since then, other projects such as Colored Coins and Ripple tried to attack this problem of modeling real world currencies in a decentralized way. Each of these project takes a different approach to accomplish similar objectives, but both have attracted great interest from the Bitcoin community.
3. Yesterday, Dacoinminster finally was able to fix the apparent flaws in the first version of his paper (dubbed v0.5), and released version 1 on the protocol.
4. The source code that implements this protocol isn’t yet built. Dacoinminster will use funds collected from a fundraiser, kickstarter style, to fund the development.
5. People who fund the project (until August 31 2013) will receive in return a given amount of MasterCoins, already determined in the protocol.

The full details are available in the linked resources. I believe MasterCoin can be an important part of the growing Bitcoin ecosystem. Thus far, 29.6 BTC have been raised in the first few hours of the fundraiser (about $3000). I plan to invest some of my own.

• Anything I say here or anywhere else should not be considered investment advice or any other type of professional advice. I do not act in any way as a financial advisor and do not hold myself out to be such. Please consult a financial advisor before investing in MasterCoin (they will probably have a heart attack at the thought).
• See in particular the Risks document that Willet himself prepared.

Recently there is an explosion in both Bitcoin price, and its adoption in the world & in Israel in particular.

A few have turned to me and asked what I think about the price, and whether they should invest.

A few disclaimers:

1. I have recently joined Meni Rosenfeld as a partner in Bitcoil, the largest Israeli Bitcoin Exchange. So you could call me biased.
2. Of course I hold some bitcoins, so I’m even more biased
3. I am not an investment adviser … use your heads, do your homework, only invest what you can afford to lose

My answer would mostly be to:

1. Refer them to the post I wrote about it two years ago, when it was 80 cents (It’s now $45).
2. They have to make their own decisions.
3. No, I won’t tell you how much I invested two years ago. And it does’t matter.
4. What matters is how much I have riding on it now – personal past performance is irrelevant for investment decisions
5. Personally I am invested in it, for the long term. I have a significant (>10%) of my total net worth in Bitcoins, and I won’t be selling most of them under $1000 a pop.
6. That I personally believe we’ll reach $100 in 2013, and $1000+ in the next 3-5 years (but I don’t have a crystal ball).
7. It’s a risky investment – it could all vanish instantly if “something bad happens” (e.g. government crackdown)
8. Please don’t try to day-trade if that’s not your profession. If you want to buy, just buy and hold it long term.
9. Mining is for hardware experts, not for everyone. If you’re not an expert, stay out, for your own good.

In the last two years that I’ve dealt with Bitcoin, I haven’t heard a single convincing argument why it would fail. I’ve seen countless positive examples of the kind of community that it creates, and I am convinced it will grow and dominate. IMHO, every person on earth should hold some percentage of his investment portfolio in Bitcoin … it can be 0.1%, 1%, 10% … whatever you’re comfortable with.

There will only be 21,000,000 Bitcoins in the world … ever. Grab yours while they’re cheap and only cost $45 a pop.

And please, remember – I am not an investment adviser. Do your own homework.

For those who shout Ponzi, please read the FAQ before posting.

As most of you know, I have some amount of money invested into Bitcoin. I bought some last year, and for the time being, they’re mostly gathering virtual dust.

Lately, I’ve noticed a growing trend of interesting investment opportunities – ways for my Bitcoins to stop gathering dust, but rather generate more Bitcoins as interest. The standard investments I know can largely be divided into three types:

1. Company stocks on the Global Bitcoin Stock Exchange – these are various companies that issued “stocks”, “mining contracts” (bonds that generate Bitcoins equivalent to certain hashrates over time), and other more elaborate contraptions like securities that track various real world assets and commodities.
   These, like any other stock market investments, do not guarantee any returns, but depend on the performance of the traded companies and market conditions.
2. The infamous “Bitcoin Savings and Trust“, run by a guy called Pirate (pirateat40 on BitcoinTalk). This guy is/was offering a weekly interest rate of between 4 and 7 percent. Yes, WEEKLY (this is between 660% and 3200% yearly profits). Many believe he is running a Ponzi Scheme. He doesn’t divulge any details about how he can make these incredible returns, although so far, for over half a year, he hasn’t missed a single interest payment.

   

3. Other, more “sane” lenders, two prime examples are Patrick Harnett and “hashking“, among others. These guys offer weekly interest rates of between 1% and 2% on deposits. Here is a thread summarizing the various lending/deposit options.

Now, as anyone can tell you, all these rates, even the low end of the spectrum at 1%, are insanely good … almost too good to be true. Compounded, this is a yearly interest of 67%. Meaning, if you invest 100 BTC today, and the market conditions stay the same, you’ll have 167 BTC in a year (compare this to about 3-5% a year on normal guaranteed investments).

So … is this too good to be true? Are all these lenders participating in a ponzi scheme? Let’s remove from our discussion the first investment path – GLBSE stocks – and focus on Pirate and other lenders. Regarding Pirate, I won’t be at all surprised if he turns out to be a scammer one day, but I’m not willing to bet anything on or against it. I don’t personally invest in Pirate on in various “Pirate Pass Through” plans that mitigate some of the Pirate risk.

However, regarding the other options, I am invested in both Patrick Harnett and Hashking, and I’d like to take the rest of the post to explain why I trust Patrick Harnett with my money. There are several reasons:

• A friend of mine who is more intimate with the Bitcoin ecosystem than I am, told me he trusts Patrick. In fact, I asked him to put his money where his mouth is, and insure my investment with Patrick – and he agreed. So, I pay this friend a monthly premium, and if Patrick defaults for any reason, my friend will return the insured funds – so, my risk on this investment is mitigated.
• I understand his business model. People are willing to borrow Bitcoins at outrageous fees, for whatever reasons. It is, for some, a lot more convenient than requesting a traditional loan. Others are hoping to loan money and profit by investing in various mining operations, stocks, or Pirate bonds. Patrick and other lenders do the job of filtering out the bad loans from the good ones, so I am not exposed to any individual loan defaulting, but rather just to Patrick himself defaulting. I deal with one known person.
• Patrick currently manages over 10,000 Bitcoins, which approaches $70,000. That’s seventy thousland dollars that people are trusting Patrick to manage.
• Patrick is transparent. Unlike some of his competitors, he posts on the Bitcoin forum using his real name. He exposes details about the assets and debts of his business, keeps a public record of past investments, and explains, in a straightforward no-bullshit manner how he makes such large interest on people’s deposits.
• I have verified, beyond reasonable doubt, that Patrick is who he says he is. I have connected with him on LinkedIn, have seen more than one picture of him, and saw that he has 72 connections, among them VPs, Directors, and CEOs. These kinds of connections are hard to fake. He has a decent day job. He even sent me a scan of his passport.
• He has been running his operation for six months now, and has been an active member of the Bitcoin community for over a year.
• I have read some of his posts, and found them to show transparency, calmness, and maturity.
• He is not oblivious to security issues. Unlike some competitors, he currently chooses not to maintain a website (so there’s no easy target to attack). He recently added the security measure of asking in advance for “return Bitcoin addresses” for deposits, negating the attack vector of email impersonation – without this, anyone who hacked my email or forum account could ask him to return the Bitcion to a new address he generaetd, thus effectively stealing my Bitcoins. With return addresses, I supply the return address in advance, so anyone impersonating me cannot get Patrick to send him my Bitcoins without having access to my actual wallet.
• He has a dead man’s switch in place
• Patrick offers relatively low rates (between 1% and 1.5%). Yes, compared to “real world” rates, these are huge, but compared to Bitcoin’s Wild Wild West, they are considered conservative.
• Bottom line – he is a real person, not a fake, and simply has too much to lose by defaulting.

So, these are my reasons. So far I’m making excellent returns on my investments. Time will tell if I’m being foolish or genius by investing my money in this manner. This is just my <more than> 2 bitcents.

As one final link, I’ll give the Bitcoin Lending Board, where most of the action takes place. Here individuals, either using real names, or psueodunyms, post loan requests, and lenders like Patrick and hashking mediate between these lenders and investors. I find he entire process exciting … don’t you agree?