Bitcoin

[JamesVincent]

I've been seeing more and more talk about Bitcoins and/or virtual currencies in general lately and wanted to set up a place for information on them. I know we have talked about them in different places and have some speculation about them but I wanted to create one, single place for hard information. I'm not sure if the MLM forum is the proper place but I have seen them being promoted by several different MLM gurus and figured this would be the fairest place to put them. They are a not a fraud per se that I have seen, nor are they an obvious tax shelter so this seemed the safest. Maybe you guys can figure out a better place or maybe we need a sub-forum devoted to currency marketing.

Most of the information I'm going to relate is either from Wiki's fine article ( https://en.wikipedia.org/wiki/Bitcoin ) or from my own observation.

"Bitcoin" at it's basics is a digital currency developed by a person and/or person's who called themselve/s Satoshi Nakamoto ( https://en.wikipedia.org/wiki/Satoshi_Nakamoto ). On 18Aug2008 the domain name of bitcoin dot org was registered and on 31Oct2008 the term "bitcoin" appeared in a white paper discussing the introduction of this cryptocurrency. The software allowing transactions was released 3Jan2009 and the first transaction was recorded by Nakamoto in that month. Since that time bitcoin has been a publicly available software program and a publicly available currency of sorts.

Bitcoin itself is, obviously, not a coin at all but the record of a bitcoin transaction. It's ownership is not tied to a person but rather to an address that is designated as that particular bitcoin. These addresses are protected by a private key which should keep the bitcoin safe from hacking. The transaction can only occur IF a. there is a legitimate bitcoin address and b. if the corresponding private key is legitimate. The creaters and supporters of bitcoin have said that this makes bitcoins safe and the coding almost unbreakable.

The method of obtaining bitcoins, known as mining, is complex and would be better off explained by wiki here.

Mining is a record-keeping service done through the use of computer processing power.[d] Miners keep the blockchain consistent, complete, and unalterable by repeatedly verifying and collecting newly broadcast transactions into a new group of transactions called a block.[46] Each block contains a cryptographic hash of the previous block,[46] using the SHA-256 hashing algorithm,[3]:ch. 7 which links it to the previous block,[46] thus giving the blockchain its name. Miners may aggregate mining resources in a mining pool.

To be accepted by the rest of the network, a new block must contain a so-called proof-of-work.[46] The proof-of-work requires miners to find a number called a nonce, such that when the block content is hashed along with the nonce, the result is numerically smaller than the network's difficulty target.[3]:ch. 8 This proof is easy for any node in the network to verify, but extremely time-consuming to generate, as for a secure cryptographic hash, miners must try many different nonce values (usually the sequence of tested values is 0, 1, 2, 3, ...[3]:ch. before meeting the difficulty target.

Every 2,016 blocks (approximately 14 days at roughly 10 min per block), the difficulty target is adjusted based on the network's recent performance, with the aim of keeping the average time between new blocks at ten minutes. In this way the system automatically adapts to the total amount of mining power on the network.[3]:ch. 8

Between 1 March 2014 and 1 March 2015, the average number of nonces miners had to try before creating a new block increased from 16.4 quintillion to 200.5 quintillion.[54]

The proof-of-work system, alongside the chaining of blocks, makes modifications of the blockchain extremely hard, as an attacker must modify all subsequent blocks in order for the modifications of one block to be accepted.[55] As new blocks are mined all the time, the difficulty of modifying a block increases as time passes and the number of subsequent blocks (also called confirmations of the given block) increases.[46]

According to Wiki's continuing article the "miner" who finds a new block is rewarded by being granted bitcoins and transaction fees associated with that block. The most current listed reward is 12.5 newly created bitcoins awarded as the new block is added to the block chain. Again, I'll quote from wiki here, this is something they explain a lot better than I can.

The successful miner finding the new block is rewarded with newly created bitcoins and transaction fees.[56] As of 9 July 2016,[57] the reward amounted to 12.5 newly created bitcoins per block added to the blockchain. To claim the reward, a special transaction called a coinbase is included with the processed payments.[3]:ch. 8 All bitcoins in existence have been created in such coinbase transactions. The bitcoin protocol specifies that the reward for adding a block will be halved every 210,000 blocks (approximately every four years). Eventually, the reward will decrease to zero, and the limit of 21 million bitcoins[e] will be reached c. 2140; the record keeping will then be rewarded by transaction fees solely.[58]

In other words, bitcoin's inventor Nakamoto set a monetary policy based on artificial scarcity at bitcoin's inception that there would only ever be 21 million bitcoins in total. Their numbers are being released roughly every ten minutes and the rate at which they are generated would drop by half every four years until all were in circulation.[59]

So not only is the only way to get new bitcoins through the mining process, bitcoin itself was designed to have a finite number in total. When that number, expressed at 21 million bitcoins, is reached the only money to be made through the generation will be in the collection of transaction fees and the trading of bitcoins for other currencies.

Bitcoin itself is, again, obviously not something you can carry in your billfold or purse. It is stored in a virtual wallet, or wallet. This wallet stores the addresses and keys for your owned bitcoins for you and allows you use of the bitcoins you "own". There are several types of wallets available, including physical, hardcopy wallets used for spending bitcoins offline.

I'm going to end my background there. I greatly encourage anyone who wishes a greater understanding to read the wiki article I referenced and look into their sources for the page, they have some very good reference material there to study. I just wanted a brief background and synopsis here for people to see when they were doing their research. I am going to continue into the reasons I started this thread.

I see some very good and very bad aspects to bitcoins and bitcoin transactions as I see them. I'll go through the good first.

The good:

Bitcoins are a "virtual" currency, meaning they are created, stored and used in an online environment. That means they cannot be lost in the physical sense, can't be accidentally washed and destroyed in your jeans, can't be stolen from your car while you're parked at a ballgame or stolen from your house during a robbery.

Bitcoins are decentralized, meaning they are not issued or regulated by a government or nation. This should make them proof against things like political turmoil, hyper-inflation caused by wartime or other market issues, cannot lose value against a recession, etc.

They are created to be used in an environment that is expanding at an exponential rate, mainly the internet. Major virtual companies have adapted the use of bitcoins in their transactions online allowing people who shop or trade online another avenue to buy and sell items that they would otherwise spend physical money on.

They can used to trade against a local currency for cash. If you are a traveler and find yourself in need of funds in, say, France, you would be able to trade bitcoins in an exchange for local Francs without the need for having physical money with you or opening yourself to fraud by using your bank accounts in a questionable environment.

The bad:

My analysis actually shows the good to also be the bad, and I'm not quite sure that they balance out. Let me explain.

While bitcoins may not be lost or stolen in the physical sense, they can still be lost. For example Wikipedia listed one instance where a trader lost around 7,500 bitcoins when he accidentally erased his harddrive containing the two keys necessary to using and proving ownership. The estimated value of those bits were $7.5 million. That's a pretty big oopsy.

While there is some assurance that the two key process makes bitcoins unbreachable in the current sense I feel that there is almost nothing unbreachable except for something stored away from internet access. So the people who store their wallets online may well find themselves the victim of a hack at some point. Criminals tend to be smarter than people realize and with the kind of money at stake I predict it's only a matter of time.

While a decentralized currency may very well protect you from governmental overreach or protect you from inflation per se it also creates a liability for the same reason. Bitcoins are self-regulated within the program itself and their generation and transaction ledger are done within the program. By the constant refreshing of the storage there is some guarantee of protection. However; governments also have the right of passing laws and using their resources to protect their currencies whereas there is no government protecting bitcoins and that, in my mind, makes for a large liabilty in the long term. There is no regulation on price inflation, no regulation on use or on theft of the product.

Speaking of theft what happens if your bitcoins are stolen? Answer: probably nothing. Whoever is in possession of the two keys, public and private, that prove ownership of those bitcoins.....owns them. And, again, there is no agency to go to for protection against that. And, more importantly, no agency responsible for helping you to retrieve your "property" since it doesn't exist. I am not sure on how the law works in this case but I wonder on how you would be able to ever be able to safeguard yourself against this. If the keys are stored online or on your harddrive there is a chance, however slim, of being hacked. If you store them on a physical wallet, like a flashdrive, there is the possibility of that physical item being stolen. Having the physical item stolen would allow you to report a theft to the police and possibly have it found but how much you want to bet that a smart thief would have already transferred the keys to another device and made off with your currency? A new key is generated at every transaction, which is another safeguard, but is another liability since that means if someone takes your coins, even if you recover your keys, the coins are no longer yours and your keys are no longer valid.


I have seen several people advertising investing in bitcoins and, IIRC, the number being thrown around right now is somewhere in the area of $15,000, yes, $15k per bitcoin. There are already almost 10,000 bitcoin millionaires and one bitcoin billionaire. How does this translate to real life? IDK. All of it is speculation against other currencies and is driven by other market forces, no matter how you slice it. If there is a strong demand, price will rise. BUT..... if, say, the United States decided to outlaw the use of bitcoins within its physical borders and was able to enforce that..... I can see that market crashing. Hard. Like lose everything you had into it hard.

Again, I encourage anyone so interested to do their own research into bitcoins before investing or even thinking about investing. I am not a currency trader and I am not offering advice, merely offering an opinion based on what I see.

[Number Six]

They should regulate it, institute some type of transaction tax.

I read this article today:

How the U.S. Government Can Cripple the Bitcoin Market

Anonymous Former Gold Salesman - December 09, 2017
Printer-Friendly Format
This was sent to me by a site member. I reproduce it here without comment.

* * * * * * * * * * * * * * * * *
The risk with Bitcoin is that the government could simply change the definition of money. That is what they did to me back in 1980 because I was one of the three main market-makers in gold (perhaps the biggest). It was all a hunt for taxes, not concerning me but my clients. I have explained before why I retired from making markets in gold — the IRS declared me to be a BANK!

When gold was legalized in 1975 and began trading on the COMEX in New York, the New Jersey Senate asked me to write the law on gold to make sure it would not be taxable to buy and sell gold bullion. I worked with Senator Foran and developed the language that “gold was not taxable unless converted to use.”

I was making the market to buy gold scrap from all the stores you see with “WE BUY GOLD” signs. They buy the jewelry and it has to be refined. To do that, you needed a minimum lot of 100 ounces, which was the contract size on COMEX. When gold was $800, that meant one 100 ounce bar was valued at $80,000. The refining period was 6 weeks. Therefore, all of these small operations could not afford the float. If they bought 100 ounces per week, then they would need $560,000 in working capital. That would not work for most of these small shops buying gold.

I made the market. The shops could ship whatever they bought that day and I would buy it at the daily price. I gathered all the gold sold by countless stores. The gold was shipped by armored cars to Englehard for refining (PhiBro or Philipps Brothers who eventually bought Saloman Brothers). I was doing tens of millions per week back then and refined a mountain of gold.

First, the NJ tax authorities walked in and declared me to be a merchant. I said gold was not taxable unless converted to a usable product. They said their “interpretation” was that the “use” was investment. I refused to pay and opted for a trial. Of course, you do not get a jury, just a judge who rules always for the government. I was not allowed to testify at my own trial for they said whatever the Senate had asked me to write, I may have misinterpreted their intention. Senator Foran was so angry that he demanded to testify at my trial. The government objected and he was allowed to testify ONLY as a private individual citizen. I moved to subpoena the full Senate. The judge denied me, and I lost.

Simultaneously, the Feds walked in and declared me to be a BANK. They then declared that I had to file forms to report when my clients bought or sold more than $10,000. Their interpretation was that gold was NEVER formally declared not to be money in 1971, so I was a BANK.

They threatened me saying that the fine was $50,000 up to the full amount of every transaction I failed to report. They said they knew I perhaps did not “realize” I was a BANK and would forego the fines if I would allow them access to audit all my clients. I had no choice.

They set up shop in my office. I walked by, noticing that they were pulling out names of those whose transaction were even $5,000, and I asked what was going on. The agent turned to me and said very aggressively, “You have a problem, keep your mouth shut!” The next day in rolled the vans and they took all my business records and began an audit over 3,000 of my clients for the next three years.

That is why I retired. I neither wanted to collect sales taxes on bullion nor be a BANK and report on my clients. Since I was the biggest, they were starting with me. People doing business outside of New Jersey would not have the sales tax problem and the IRS was interested in me because of my size. They would not do the same for small shops. So it was time to get out of the business. Clients wanted the research to continue, so that was spun-off as a new company in 1981. Now comes Bitcoin. The Judiciary Committee of the United States Senate is currently working on Bill S.1241 that aims to criminalize deliberate concealment of property or the control of a financial account. The bill was submitted in June, and the law would change the definition of “financial account” and “financial institution,” and thus also cover digital currencies and digital exchanges.

Who is pushing it? None other than California’s Senator Dianne Feinstein, who maintains that the bill is needed to update existing money laundering laws because of terrorists.

This means that the miners of Bitcoin will become a “bank,” as I was declared. The operators of the trading platform Coinbase were forced by court ruling to notify the IRS of the identity of over 14,000 investors who were trading $20,000 in Bitcoin. Users were affected if their trading volume had exceeded $20,000 at the beginning of 2013 by the end of 2015.

So this is NOT a single transaction, but accumulative. The IRS will now “presume” tax evasion. This is what I warned would happen. Been there done that! They can shut down Bitcoin in the blink of an eye by simply defining anyone who is a miner to be a financial institution.

The bill will change the definition of “financial institution” in Section 53412 (a) of Title 31 , United States Code. The text will read: "An exhibitor, a redeemer or a cashier of prepaid access devices, digital currency or a digital exchanger or a digital currency.”

The regulation will remove the anonymity of Bitcoin and other cryptocurrencies defeating this idea that there is an alternative-financial-universe separate from government.

[Jeffrey]

Might be political but the simplest solution would be to criminalize exchanges where USD are converted to Bitcoin or vice versa, and that would frankly be what I would advocate. Bitcoins collapse is a matter of when not if and with a market cap of $252 billion, it's going to be chaos when it crashes. Lawmakers and regulators can't just sit around waiting for it to occur.

[morrand]

Might be political but the simplest solution would be to criminalize exchanges where USD are converted to Bitcoin or vice versa, and that would frankly be what I would advocate. Bitcoins collapse is a matter of when not if and with a market cap of $252 billion, it's going to be chaos when it crashes. Lawmakers and regulators can't just sit around waiting for it to occur.

Maybe not. Maybe they can, though. If you take up a philosophy of, "the market will take care of itself," as many of our current investment regulations seem to do, it becomes really easy to justify not intervening to prevent the bubble from bursting. It sure would be nice to see Bitcoin exchanges treated like other foreign currency exchanges for regulatory purposes, anyway. It'd legitimize Bitcoin as a currency, which might not be so good, but given the market right now, that ship seems to have sailed already.

It's probably worth mentioning a couple of other points here:

1. The listed description for the "Other Scams and Medical Quackery" board mentions crypto-currencies as on topic, so technically this discussion should go there. Not that I care, actually—and arguably, this is more on-topic anyway for this "Investment Fraud" sub than for the "Internet" sub, where that board lives.
2. I suspect most of us are coming into the forum directly, and wouldn't normally see it, but the blog way up on the top level of "Quatloos!" has discussed Bitcoin a couple of times.

[Jeffrey]

It'd legitimize Bitcoin as a currency, which might not be so good, but given the market right now, that ship seems to have sailed already.

This is a contentious issue and given the dollar figures involved nobody should make any investment decisions based on my comments, but my read of the situation currently is that Bitcoin is no longer a viable currency. The issues with blockchain length and high transaction fees make Bitcoin substantially worse than USD for buying and selling, which is the whole point of currency. At the time I'm writing this a single Bitcoin transaction costs $27.20. By comparison debit card fees are ~20 cents per transaction and of course cash has 0 transaction fees. If put in terms of the electricity costs of verifying each transaction, each Bitcoin transaction consumes 901 kWh of electricity which works out to $135 worth of electricity assuming US rates. Because of the way Bitcoin is designed, those electricity costs will continue to increase over time.

[fortinbras]

In the past week three items relating to Bitcoin:

(1) hackers managed to rob, cybernetically, one of those internet 'banks' for Bitcoins of its Bitcoin holdings, valued at an amount roughly estimated at $75 Million. Evidently these are very clever people (I can't begin to understand any of the details) and unlikely to get caught and, I would suppose, they've already liquidated their loot into real money.

(2) despite the news that hackers can empty out computerized Bitcoin vaults, there has been a sudden rush to buy up Bitcoins, driving the value of Bitcoins up like a skyrocket. Only a week earlier there were cautionary magazine articles that a handful of people controlled much of the Bitcoin market but that didn't seem to discourage investors at all. In the meantime, there are still some very highly esteemed investment people who stay away from Bitcoins.

(3) A federal court has ordered one internet Bitcoin dealer/bank to reveal its customer list. This is primarily because Bitcoins and Bitcoin "banks" are used -- and perhaps primarily used -- to conceal money from the tax collector, from the courts, from ex-wives and judgment creditors, and to conceal transactions from the DEA or the ATF or FBI or Scotland Yard. Nobody is "only a little" involved in Bitcoins, it's always for thousands of dollars at a time. And the govt slamming shut the cashiers' windows at a Bitcoin bank can mean that many criminal enterprises lose nearly all their working capital in a blink.

The combination of events is incongruous and makes me think that the Bitcoin economy does not behave the way the real money economy behaves. It is like a landscape without gravity. I'd advise people not to invest more than they can safely afford to lose, but because nobody only dips their toe into Bitcoins that advice is pointless, so I'd suggest keeping a safe distance from Bitcoins and other cybernetic currencies.

[notorial dissent]

Sorry, just reminds me much too much of the Great Tulip Bubble.

[Burnaby49]

There's a new player on the block, Ether! And a Canadian has stepped up to make himself rich on it!

http://www.cbc.ca/news/business/well-th ... -1.4433510

However Eddy doesn't seem to have cashed out yet.

"I don't want to disclose the exact amount because its value is going up and down and some days it might increase a lot," Zillan says. "But I would say just off of ether, I've probably made over half a million dollars based on its current price of $471." (Ether's price fluctuates and soared to as much as $479 and as low as $420 on Friday.)

As I understand the world, particularly this very volatile world, you don't make a fortune until you realize it through real cash.

[Chaos]

As I understand the world, particularly this very volatile world, you don't make a fortune until you realize it through real cash.

Ah, but in the scammers world, you go strictly by the numbers on the screen.

[Arthur Rubin]

I thought Bitcoin mining was already terminated.

[Arthur Rubin]

As I understand the world, particularly this very volatile world, you don't make a fortune until you realize it through real cash.

But, under some circumstances, you can be taxed on the fortune you don't have.

For example, you buy 100 of crytocurrency A at $100. When A is at $400, you exchange it for cryptocurrency B. In the US, unless A for B is considered a "like-kind exchange", you owe capital gains on the $30,000, but may not have any cash. (As an aside, does Canada have a "like-kind exchange" rule?)

[Burnaby49]

As I understand the world, particularly this very volatile world, you don't make a fortune until you realize it through real cash.

But, under some circumstances, you can be taxed on the fortune you don't have.

For example, you buy 100 of crytocurrency A at $100. When A is at $400, you exchange it for cryptocurrency B. In the US, unless A for B is considered a "like-kind exchange", you owe capital gains on the $30,000, but may not have any cash. (As an aside, does Canada have a "like-kind exchange" rule?)

No idea, concept never occured to me. Essentially a barter transaction since both the asset disposed and the asset received are not money under conventional (as in Canada Revenue Agency) understanding. Non-cash barter transactions are taxable in Canada (I fix your plumbing for a slaughtered, dressed hog) but I'm not aware of any cases on it.

[Chaos]

(As an aside, does Canada have a "like-kind exchange" rule?)

No idea, concept never occured to me.

it's when you exchange a Molson for a Heineken.

[Jeffrey]

I thought Bitcoin mining was already terminated.

You can still mine for coins. The mining industry is now using gigantic amounts of power (Yeah it's dailymail so take it with a grain of salt) and the investments in mining hardware are causing shortages of graphics cards and price increases.

[Burnaby49]

(As an aside, does Canada have a "like-kind exchange" rule?)

No idea, concept never occured to me.

it's when you exchange a Molson for a Heineken.

And then the Heineken for a Real Cask Blackburn Bitter.

[Burnaby49]

There Chaos, deleted it for you.

We had a problem with posters strip-mining their own post when they decided to no longer participate. A notorious example was somebody who knew Dean Clifford and made a substantial number of posts about Dan then deleted them all. After that we cut down the time limit for the window between posting and being able to delete but it shouldn't have been immediate.

[wserra]

We had a problem with posters strip-mining their own post when they decided to no longer participate. A notorious example was somebody who knew Dean Clifford and made a substantial number of posts about Dan then deleted them all.

A couple of others too. Remember fake Native American "kinikia" who accused us of genocide? It's a very amusing thread. Even though kinikia edited all but one (which webhick locked) of her posts to "777", most are quoted.

After that we cut down the time limit for the window between posting and being able to delete but it shouldn't have been immediate.

The delete/edit window is currently 24 hours. That seems to work, but we're always open to suggestions.

[Pottapaug1938]

What goes up....

https://www.msn.com/en-us/money/markets ... li=BBnb7Kz

[fortinbras]

The bitcoin market may have plunged horribly on Tuesday because of this report from the day earlier that one of the biggest holders of the cybercurrency was cashing out all his holdings, exchanging it all for real money, with his added comment that it may soon melt away to nothingness....

http://www.ibtimes.co.uk/co-founder-bit ... ODU1NTU3S0

Clearly, when one of the major investors does that, it can trigger a panic. Now the oddness is that the bitcoin was, unlike real coins, not purchased/sold at a fixed and consistent exchange rate, say three for a US dollar, but was treated as though a stock share with variable market value, so it was more commodity than currency. Some people made a killing, and now some people want to commit a killing.

[Jeffrey]

Other interesting thing about the article is he advocates bitcoin cash, an offshoot that fixes or reduces some of the problems with the original bitcoin design and today bitcoin cash surged in price.