A Quantum Immortal

All the buzz in the last few weeks in the crypto-currency space is about Ethereum, a “Turing complete crypto-currency”. Let me TL;DR wtf that is (and I’m by no means an Ethereum expert, so don’t quote me on this):

Ethereum is a “Minecraft for money”. It’s a new raw protocol that allows people to build arbitrarily complicated financial scripts and treat these scripts as first class citizens. In Bitcoin, you can send money to an address, that’s easy. A less-known fact about Bitcoin is that you can send money to a script, e.g. a 3-out-of-5 “multisig” script, that requires a signature from at least three people in order to spend.

Bitcoin scripts are deliberately not Turing complete – you want scripts to be very easy to compute and verify – the last thing you want would be someone spamming the network with high fee transactions to a script that is a hidden infinite loop, causing miners and users to overwork their CPU.

I’m not going to go into the details (see the spec, I’ve asked them to prepare a TL;DR and an FAQ). After the last year, in which we saw interesting launches of “Second generation crypto-currencies” such as Mastercoin, ProtoShares, Nxt and others”, everybody’s looking for “the next best thing”. Ethereum is an innovative project with very high ambitions – think of it as a commercial attempt to develop javascript 20 years ago. If it works, the ecosystem this will create can be huge. However, they do face tremendous risk as far as execution and complexity of the project. Add to it an extreme hype that’s generated right now, and it adds to a very risky investment (they are IPO-ing on Feb 1st).

So my TL;DR – I don’t know. When Mastercoin came out August 1st 2013, it was the first second generation crypto-currency, and this is why I posted a buy recommendation that turned out to give a more than X10 profit. Ethereum’s timing is different, for good and bad – they’re getting a lot of attention which is great for them, but it might also mean an over-priced IPO.

Go do your own homework! Follow these links, engage the community, and make up your own mind. I wish them a successful IPO.

• Whitepaper
• Reddit
• TL;DR Ethereum / live updates
• IPO Details
• Launch thread on bitcointalk

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

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?

Note – this post describes exactly what I think about BitCoin. Even though I have an interest in seeing BitCoin spread, this post represents my true opinions about BitCoin – I’m not trying to tempt you to buy it so I’ll get rich (although that would be a nice outcome :))

Update – After posting this, I found this Quora question: How can BitCoin be hacked. I’m still convinced that it can’t effectively be hacked, but I don’t know enough to prove why. I’ve asked the Quora community to refute it and convince that BitCoin is safe. I advise you to read these arguments and retorts before buying a significant amount of BitCoin. Note that this question is from two months ago, when the computation power of the bitcoin network was about ten times less than today (it keeps growing exponentially, see below).

About 4 days ago, I discovered BitCoins via this Slashdot Post. I spent most of the last 4 days reading about it, and here’s the executive summary.

• What is it? BitCoin is a “startup currency”, a form of “peer to peer money”. It started about three years ago, and is starting to gain critical mass right now.
• Where can I spend it? There are already several business that accept it, ranging from ordering books, to a digg style website, to porn. Yes, you can buy porn with bitcoins. If the porn industry are doing it, this means it will become mainstream (porn have been known to lead internet technology for years)
• How much is it worth right now? About $0.8.
• How much was it worth half a year ago (on 10/10/2010)? About $0.06. Yes, this means a growth of  X13 in 6 months!
• Why is BitCoin better than “real money”? There is a variety of reasons. Read the link, I don’t want to repeat myself.
• Will it continue to grow? Well, we don’t know yet. But we can bet on it. So far, I bet $350 of my money that it will grow, and I’m planning to purchase more.
• Where can I find more about BitCoins? First, you can try the forums. If I were you, I would quickly obtain some free BiCoins from the BitCoin Facuet, then go and ask some questions over at bitcoin.witcoin.com (the Digg style, bitcoin powered website I told you about)
• And, one last question – “WTF? Are you serious? You’re paying for virtual goods, this is like buying stuff on FarmVille!”To that, I answer a resounding no. I’m very confident that this will become more and more real. If you’re quick enough to decide, and brave enough, you can join me and bet on it to. If I’m right, you may become rich *