# What if Apollo 11 had failed? Nixon‘s undelivered speech

In 1969, William Safire was President Nixon’s speech writer. He wrote the short speech shown below, and delivered it to Chief of Staff, H.R. Haldeman. The speech was to be read by Nixon in the event that the Apollo 11 lunar lander failed to launch or that some other problem caused the lander or mothership to crash back onto the surface of the moon.

In 1969, the space race was at full throttle. Russians were first to launch a satellite, send a dog and a man into space,* and perform an extravehicular space walk. America was under great pressure to fulfill John F. Kennedy’s promise and beat the Russians in landing a man on the moon. Today, former engineers at NASA acknowledge that they believed the chances of such a catastrophe were more than 50%.

William Safire was a brilliant orator and linguist, known primarily as a columnist and journalist. He received the Presidential Medal of Freedom (from George Bush in 2006). He died in 2009.

The Apollo 11 disaster speech is pure poetry. It fits Nixon’s demeanor, while inspiring the public to continue support for exploration despite such a spectacular failure.

William Safire’s speech for President Nixon—in the event of a moon landing disaster:

Fate has ordained that the men who went to the moon to explore in peace will stay on the moon to rest in peace.

These brave men, Neil Armstrong and Edwin Aldrin, know that there is no hope for their recovery. But they also know that there is hope for mankind in their sacrifice.

These two men are laying down their lives in mankind’s most noble goal: the search for truth and understanding.

They will be mourned by their families and friends; they will be mourned by their nation; they will be mourned by the people of the world; they will be mourned by a Mother Earth that dared send two of her sons into the unknown.

In their exploration, they stirred the people of the world to feel as one; in their sacrifice, they bind more tightly the brotherhood of man.

In ancient days, men looked at stars and saw their heroes in the constellations. In modern times, we do much the same, but our heroes are epic men of flesh and blood.

Others will follow, and surely find their way home. Man’s search will not be denied. But these men were the first, and they will remain the foremost in our hearts.

For every human being who looks up at the moon in the nights to come will know that there is some corner of another world that is forever mankind.

* The US was first to send an animal into space. On June 11, 1948, Albert 1, a rhesus monkey, was launched on a V2 rocket. But this was a suborbital flight. It cleared the atmosphere but could not have sailed away from Earth’s gravity, nor even achieved orbit. The first animal to attain orbit was launched more than 9 years later. A dog, Laika, launched on board the Soviet Sputnik 2 spacecraft on November 3, 1957.

Source: Watergate.info

# Is every Initial Coin Offering a Scam?

OK. Stop! Please, just stop! I get this question every day. More and more people asking about ICOs. I get it… I am an early Bitcoin user, I give blockchain presentations, I write a blog, and I work for a standards association. And so, this is my definitive response to a very pesky question.

I work for an investment bank. Some banks, like Merrill Lynch, are hostile toward Bitcoin and other cryptocurrencies. Others, like Fidelity are dipping their toes in the water. And some, like Morgan Stanley speak with forxed tongue—condeming and hedging at the same time…

My employer is preparing to embrace Bitcoin with gusto. Once regulatory guidelines become clear and unified, we will offer crypto trading, options, futures and margin accounts. I am already working on customer literature and compliance training. We will also use crypto as money in all operations—to pay staff & consultants or purchase supplies & utilities We will even accept Bitcoin and Bitcoin Cash as payment from clients.

So, please tell me: Why does our in-house crypto expert constantly warn our managers and clients that ICOs are scams? How can she condem an emergent commodity? ICOs have sparked a massive new investment class. Are they really scams?

Listen up, Ron! Pay attention to your crypto expert. Follow her advice. With very few exceptions, ICOs are all scams, plain and simple.

Why are almost all ICOs scams?

Initial Coin Offerings are scams because of:

• The way that they are promoted
• What investors must do to profit
• Their fundamental purpose: Dodge securities regulations, create MLM pyramids, or facilitate pump & dump. None are are sustainable, ethical or legitimate goals!

For those intent on using, investing in, or advising others on ICOs, this article explains how to discriminate a scam from a credible and functional instrument. Note the list of traits just below the red “Scam” button. If the ICO that you are evaluating exhibits even one of these characteristics, treat it like The Plague or the Mark of the Beast. It is most certainly a scam.

Note that ICOs are not Altcoins. There is a big difference. Altcoins are forked from Satoshi’s blockchain code. They are open source, license free, permissionless, with a transparent mining history going all the way back to the genesis block. The ownership of all pre-mined coins is known and auditable. There is absolutely no MLM aspect to an altcoin. If there is any central or authoritative component, it serves only to aid in quicker governance decisions or to overcome the energy overhead associated with Proof-of-Work. There is never another valid excuse for an authority, because authorities are chokepoints.

Many altcoins are legitimate projects designed to trade value, or serve as a functional component of an IOT (Internet-of-Things) process. This is also explained in the definitive guide to Why ICOs are almost all scams. Some of the IOT altcoins attract speculators and hoarders seeking to profit from trades. This is unfortunate, and it intereferes with the utility of the token (IOTA is a clear example). But, just as with Bitcoin, speculator interest doesn’t define a scam.

What about altcoins. Are they as toxic as ICOs?

Referring to my own definition, above, many altcoins—perhaps even most—are not scams. But, I am pretty picky on the altcoins that I recommend, because most of the clever features and functional improvements introduced by altcoins will be ripped and folded into Bitcoin. It is inevitable.

Apt metaphor for ICOs

After all, Bitcoin has an enormous lead, it has already achieved a two-sided network, and none of the altcoins are protected by patent, trade secrecy or opacity. By definition, they are free, transparent and without any licensing or proprietary features.

I was never burned by an ICO, but I have certainly consoled friends and colleageus who have been sucked into them. Unlike many columnists and consultants, I am not beholden to issuers. So, if your wondering what is an ICO? It is a puss-filled boil on your privates. You may quote me on that. The article linked above is honest, unbiased and definitive.

# John Oliver explains Bitcoin, Blockchain & Crypto (with precision & clarity)!

John Oliver is a crossover who bridges the art of a comedian with the reporting and perspective of a liberal political pundit. Even detractors acknowledge that Oliver addresses serious issues with unusual wit and humor.

I never thought Oliver could (or would) tackle the topic of cryptocurrency—at least not with value to the viewer. It is too geeky, and too esoteric. (It also cuts into my mission of evangelism and education). 🙂

He did, and he sparkles! Feel free to jump past the fluff. The Bitcoin tutorial starts at 3:40. Of course, my friend, Shechter, in Long Island New York will bust a gut over what Oliver says at 9:40. It is not only clear and concise, it is accurate and terribly funny!

Whether you are a Bitcoin newbie or a seasoned blockchain coder, this is the video you have been looking for. This one is durable.

Related Videos:

# What sets cryptocurrencies apart from each other?

“What sets each cryptocurrency apart from the others?”

“Cryptocurrency” is a broad term. It refers to payment coins, of course—such as Bitcoin and Litecoin. But, because most tradeable tokens attain an asset value, the word is often used to refer to smart contract devices, such as Ethereum, a host of other blockchain based tokens, functional Internet-of-Things tokens, and even ICOs (Initial Coin Offerings). Since people treat ICOs and IOT tokens as investment instruments even if they are useless as a payment mechanism, they all fall within the realm of a cryptocurrency.

So, before addressing the question, let’s distinguish between Altcoins and ICOs. I assume the question refers to Altcoins, and not ICOs…

ICOs are almost all scams. A very few of these are designed to function in a well-defined IOT role (Internet-of-Things). But, any ICO that you are likely to hear about share one or more traits described here.

But Altcoins are different. These are typically forked from Bitcoin or another established blockchain-backed coin. They are created because developers feel that they have solved one or more of the problems that limit the growth or appeal of Bitcoin. For example, Bitcoin has (or recently had) all these problems or perceived limitations:

• Transaction Malleability (Recently solved with activation of SegWit)
• Speed of transaction (Now being addressed by Lightning Network)
• Cost of transaction (Also addressed by Lightning Network early 2018)
• Very high electrical demand by miners (Still a major problem)
• Fairness of and speed of distributed governance process (a big problem)
• Finding a validation incentive after mining runs out (a long term issue)
• Deep privacy features. These are inherent to Monero and Zcash. (Bitcoin will soon support onion routing transactions to enhance privacy)
• Disparate goals of miners, developers, vendors and users (still a problem)
• Limited Smart Contract mechanism (Ethereum is the current king in this realm, with slick methods of administering and executing contracts. Bitcoin will eventually acquire these features & benefits.
• Like ICOs (these are almost all scams), some Altcoins (not scams) address specific IOT applications. This is a legitimate and non-payment use of blockchain technology. It represents a promising evolution. It is not yet clear if Bitcoin can eventually adopt these features and function in a non-payment, IOT capacity. The intrinsic, stored value aspect of Bitcoin would make it difficult to use in such applications.

One big problem facing Bitcoin is that the distributed consensus mechanism that makes it a trusted, peer-to-peer mechanism is based on Proof-of-Work (POW). Coupled with a mining incentive that increases dramatically with exchange rate, Bitcoin is—quite simply—untenable. With consumption topping 33 terawatt hours in December 2017, it already consumes more power than some countries. If even 2% of the world’s payment transactions were settled in Bitcoin, the mining would consume more power than is generated throughout the world. This just cannot continue!

Fortunately, developers and armchair inventors have proposed or demonstrated clever POW alternatives to achieve a fair distributed consensus. Some of these use a Proof-of-Stake mechanism, while others add a limited central-authority nexus to facilitate governance and scaling. Some are built on a modified blockchain that weaken several pillars of a true decentralized, p2p network. Of course, researchers are concerned that these systems deteriorate the decentralized nature of Satoshi’s original blockchain.

But, other systems may allow for a fully distributed and democratic trust platform, such as BFT Replication (IBM) or Distributed Objective Consensus, which was proposed by an amateur mathematician.

In reply to the title question, Altcoins are set apart by their claim to address the above problems & limitations, or to add features.

Will an Altcoin Triumph over Bitcoin?

Perhaps, a few altcoins will thrive, due to specific niche advantages; features that Bitcoin chooses not to address, such as deep anonymity or with a novel utilitarian feature that facilitates a specific Internet-of-Things process.

Unfortunately for altcoins, all coins require public trust and transparency. For this reason, they are open source, permissionless, without licensing, without patent protection and with a fully disclosed pre-mining history. And for that reason, Bitcoin is free to steal any clever advantage that works. It’s all up for grabs and no one can be sued.

In effect, each altcoin as a beta test platform for Bitcoin. Now that Bitcoin is finally addressing the problems of scalability and fair/speedy governance, there is little doubt that it will continue to dwarf other coins.

Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences around the world. Book a presentation or consulting engagement.

# Building a Bitcoin ATM is easy, but…

…But offering or operating them engulfs the assembler in a regulatory minefield!

A photo of various Bitcoin ATMs appears at the bottom of this article. My employer, Cryptocurrency Standards Association, shared start-up space at a New York incubator with the maker of a small, wall mounted ATM, like the models shown at top left.

What is Inside a Cryptocurrency ATM?

You could cobble together a Bitcoin ATM with just a cheap Android tablet, a camera, an internet connection, and [optional]: a secure cash drawer with a mechanism to count and dispense currency).* A receipt printer that can also generate a QR code is a nice touch, but you don’t really need one. You can use your screen for the coin transfer and email for a receipt.

Of course your programming and user interface will make all the difference in the world. Your ATM must interface with an exchange—your own or a 3rd party.

If your plan is to sell Bitcoin and not exchange it for cash, then you don’t need a currency dispensing component at all. You only need a credit card swipe-reader and an RFI tap reader. Some models are smaller than a cookie and sell for under $30. They can be attractively embedded into your machine. In fact, some bank card processors offer them without cost. I Have Built a Prototype. Now What? Desktop ATM. No cash dispensed Once you have a working prototype, you will need to test it with focus groups (alpha test) and at prospective public sites (beta test). You must also harden the production model against tamper and theft and find paying businesses or property owners, so that you can achieve economies of scale. (A reasonable business model requires that you produce dozens of devices each month). Parts Cost: Bill of Materials At scale, you can achieve a unit production cost of less than$200. But that’s for a desktop unit that does not accept or dispense cash. A high-quality and attractive machine that accepts cash and is free standing or ready for outdoor installation into a building exterior might cost you $650. You could sell these for$2,500 plus recurring fees to the property owner, depending on venue, or you might simply lease them, just as Xerox did in the early days of office copiers. (In a hotly competitive market, such as Las Vegas, you may need to pay a portion of your profits to the site, rather than profiting from ‘renting’ the ATM).

But wait! Before you run off and create an ATM venture of your own, with visions of a 350% profit margin, all is not as easy as it seems!…

Cryptocurrency ATMs intersect with a minefield of regulatory licensing and compliance standards. In many regions, they are not even legal for placement in a public area.

In most countries (including all of USA), you must be a registered Money Transmitter. You will need separate state licensing and—since you are moving cash in or out of the banking system—you must be partnered with a federally chartered bank. You will also need to post a hefty insurance bond—perhaps even for each machine and each municipality in which it is placed! These laws convey liability to both your clinet (the property owner) and to you. Many courts will hold the manufacturer of financial or medical products accountable for ensuring that their customers are licensed and compliant with regulations. That is, you may not be able to legally sell your ATM to organizations that have not demonstrated that they qualify to operate one.

Why is There a Camera in my ATM?

In all cases, you must capture photographs of your user and their state-issued ID, because you are required to know your customer and adhere to a slew of anti-money laundering practices. For example, with transactions larger than $2,000 (from anyone who is not known to you and a regular client), you must generate a Suspicious Activity Report. For transactions larger than$10,000, you must comply with RICO (Racketeer Influenced and Corrupt Organizations Act). This requires a camera, interview, and reporting process. You will be generating forms with data supplied by your user and possibly even a real-time verification of the facts they provide.

If you wonder why you needn’t do these things this when buying or selling your own cryptocurrency, it is because: (a) You are trading your own assets and are not the custodian of customer accounts; and (b) You are a consumer. It is likely that the exchange is required to do all of these things.

With Regulations, Can Bitcoin ATMs Generate Profit?

For the reasons described above, the operational cost of deploying and operating an ATM network (or your equipment for sale or rent) is significantly higher than the up front hardware cost. When you add the need to protect your venture from legal claims arising from process glitches or users that claim they lost cash or Bitcoin, you may arrive at an operational cost that makes your business model unworkable.

Of course, Bitcoin ATMs are profitable in some cases. I have consulted with a few start ups that operate them successfully in Las Vegas casinos, a few airports and race tracks, and at large outdoor fairs. But, for everyday use, the heyday of ATMs is most likely 5 or 10 years off. Before this happens, we need a more uniform and functional regulatory & insurance framework, and a higher volume of users per ATM.

Check out various Bitcoin ATM models below. Few manufacturers turn a profit. In the end, it boils down to location (high volume sites with the right people) and location (legal jurisdiction).

* One ATM startup found inexpensive hardware for dispensing currency by recycling mechanisms from bill-change machines used in game arcades or in hotels next to vending machines. These machines are being discarded, because newer vending machines accept credit cards and smart phone payment. But again, if you only plan to accept a credit or debit instrument for Bitcoin, then you don’t need a cash counter or dispenser.

Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences around the world. Book a presentation or consulting engagement.

# Multisig Wallet: Protect Bitcoin in case of death or forgetfulness

UPDATE (April 2018): See footnote regarding Coinbase multisig vaults.* The feature will be retired this month, because it interferes with plans to improve support of Bitcoin forks.

Legacy Method of Inheriting Assets

Many Bitcoin owners choose to use a custodial account, in which the private keys to a wallet are generated and controlled by their exchange—or even a bank or stock broker. In this case, funds are passed to heirs in the usual way. It works like this…

An executor, probate attorney, or someone with a legal claim contacts the organization that controls the assets. They present a death certificate, medical proxy or power-of-attorney. Just as with your bank account or stocks and bonds, you have the option of listing next of kin and the proportion of your assets that should be distributed to each. These custodial services routinely ask you to list individuals younger than you and alternate heirs, along with their street addresses, in the event that someone you list has died before you.

Of course, Bitcoin purists and Libertarians point out that the legacy method contradicts the whole point of owning a cryptocurrency. Fair enough.

Multisig to the Rescue

Using multisig would be far easier, if wallet vendors would conform to standards for compatibility and embed technology into hardware and software products. Unfortunately, they have been slow to do so, and there are not yet widely recognized standards to assure users that an implementation is both effective and secure. But, there is some good news: It’s fairly easy to process your ordinary account passwords and even the security questions with a roll-your-own multisig process. I’ve done it using PGP and also using Veracrypt—two widely recognized, open source encryption platforms.

This short article is not intended as an implementation tutorial, but if the wallet vendors don’t jump up to home plate, I may release a commercial tool for users to more easily add multisig to their wallets. It really is safe, simple and effective. (If readers wish to partner with me on this? I estimate that it will take $260,000 and about six months). What is Multisig and How Does it Protect your Wealth? Multisig allows anyone with credentials to an account, wallet or even a locked safe to create their own set of rules concerning which combinations of friends and relatives can access their assets without the original owner. The owner sets conditions concerning who, when, how much and which accounts can be accessed — and the heirs simply offer passwords or proof of identity. If implemented properly, it doesn’t matter if some of the heirs have forgotten passwords or died before the original owner. This can be illustrated in an example. I am intentionally describing a complex scenario, so that you consider a full-blown implementation. Although the ‘rules’ listed below appear to be complex, the process for creating the associated passwords is trivial. The last 2 rules listed below do not use Multisig technology, but rather Smart Contracts. It enhances an owner’s ability to dictate terms. Here, then, is the scenario… I want heirs to have access to my assets at banks, brokers, exchanges or other ac- counts–but only under certain conditions: • If any 4 of 11 trusted family and friends come together and combine their passwords (or an alternate proof-of-identity), they may access my wealth and transfer it to other accounts • But, if one is my husband, Fred, or my daughter, Sue, then only two trusted individuals are needed • —But not Fred and Sue together (At least one must be an outsider) • If any account has less than$2500, then it goes to my favorite charity, rather than the individuals I have listed
• None of my accounts can be unlocked by my heirs, until I have not accessed them with my own password for 3 months. Prior to that, the Multisig will fail to gain access.

Again, the decedent’s wishes are complex, but executing and enforcing these rules is trivial. In my presentations, I describe the method on two simple PowerPoint slides. Even that short description is sufficient to show anyone who has used common cryptography apps to weave their own multisig add-on.

Of course, each individual will need to locate their own secret password, but a biometric or other conforming proof-of-identity can be substituted. Even if several survivors cannot recall their credentials, the multisig method allows other combinations of individuals to access the assets across all accounts.

This article may leave you wondering about the legal process—and this is where I agree with the Libertarian viewpoint: Sure! The courts have a process and heirs should document their access and decisions for tax purposes and to assure each other of fair play. But a key benefit of cryptocurrency and the disintermediation offered by the blockchain is the personal empowerment of access with impunity and without waiting for any legal process.

Let the courts to what they do, while you honor the wishes of your dearly departed.

If this article generates sufficient interest, I may prepare a short tutorial on how to split off your own Multisig passwords, regardless of which wallet or hosted services you use. It will work with any vendor, app or gadget —or— Perhaps, I will refine my homespun solution and offer it as an add-on app that can be used with any wallet, bank account or exchange. Simple, ubiquitous and effective multisig should have been available to even traditional banking customers years ago!

* History of Coinbase support for a multisig vault

Oct 29, 2014 — Coinbase adds Multisig Vault
Multisig rule: (3) private keys created. 2 are required to access coins:

1. User Key
2. Coinbase Key
3. 2nd Coinbase Key but only user has passsword

Aug 31 2017 — No more NEW Multisig vaults

April 19 2018 — Sunset of Multisig vaults (and announced earlier, on Mar 20)

Sunset on Multisig vaults: They make it difficult to support forks. A new tool will still support withdrawls after multisig vaults are retired.

Ellery Davies co-chairs CRYPSAhosts the Bitcoin Event and presents at Crypto Conferences around the world. Book a presentation or consulting engagement.

# Have there been successful Transaction Malleability attacks?

First, let’s get some basics out of the way…

What is Transaction Malleability?

Here are 2 explanations of transaction malleability: [Coindesk] [TechTalk]

In a nutshell, Transaction Malleability is a weakness in the original Bitcoin implementation that enables a bad actor to change the unique ID of a bitcoin transaction before it is confirmed on the Blockchain. Such a change makes it possible for someone to pretend that a transaction didn’t happen, if all necessary conditions are in place.

As the Coindesk article points out, a successful attack requires certain conditions that make a successful attack difficult or even unlikely. Many analysts referred to it as a bug that should eventually be fixed, rather than an urgent issue.

Transaction malleability was addressed (for Bitcoin) with the introduction of Segregated Witness (SegWit) in August 2017. 1, 2

But Was There a Successful Attack?
Attack? Yes. Successful? It’s doubtful…

In March 2017, five months before SegWit was implemented, a mining pool that administers 2% of worldwide activity launched a malleability attack. No one lost money – and some individuals believe that they did this to emphasize urgency and hasten the adoption of SegWit.

The Lightning Network is a ‘Level 2’ network overlay, currently being adopted by miners (depending on the service or exchange, it is being incrementally activated in the first months of 2018). To function properly, it requires that transaction malleability be solved. But, in the event that a miner is not SegWit compliant, it can resolve the malleability problem in other ways.

1 SegWit should not be confused with SegWit2x, an upgrade process that was cancelled a few months later in November. 2017

2 In the TechTalk article linked above, the author concludes:

“Transaction Malleability is fixed with Segregated Witness by no longer taking into account signatures when calculating the transaction’s fingerprint. Fixing Transaction Malleability means that the Lightning Network can work smoothly.”

Ellery Davies co-chairs CRYPSA, hosts the Bitcoin Event and presents at Crypto Conferences around the world. Book a presentation or consulting engagement.

# ICOs & altcoins rise and fall—yet, Bitcoin endures

At the end of 2017 and the first months of 2018, we witnessed a surge of interest in Initial Coin Offerings or ICOs. Perhaps the word “interest” gives too much credit to ICOs. Most are scams. ICOs are pushed through by vendor hype, rather than pulled through by investor research. They are almost all pump-and-dump schemes.

But what about Bitcoin? It is not a scam, but questions remain about regulation, intrinsic value* and its likelihood to be superseded by something better. Bitcoin skeptics point to two facts: (1) Bitcoin is open source, and so anyone can create an equally good altcoin. (2) Newer coins incorporate improvements that overcome governance and scaling issues: cost, transaction speed, the burgeoning electric needs of miners, or whatever…

While both statements are true, they miss the point. This is not a VHS-vs-Beta scenario. Bitcoin has achieved a 2-sided network and it is free to fold in every vetted improvement that comes along. For Bitcoin, all those other coins are simply beta tests.

Even the functional tokens will unwittingly feed their “improvements” into Bitcoin. For this reason, it is a safe bet that Bitcoin will reign supreme for years to come—perhaps even long enough for the dominos to fall.

Why I rarely consult to ICOs or prospective ICO investors

I recently presented at cryptocurrency expos in Dubai and Gujarat. As a result of these presentations, my organization now receives ICO pitch decks, white papers and business summaries—15 or 20 each week. About ⅔ are sent by investors asking for advice as an investment opportunity, while ⅓ are from issuers seeking accreditation from CRYPSA or at least a quote than can be used as a comfort statement.

The market potential for consulting to issuers and high-rolling investors is very alluring. Figuring that we could certify gems and advise the dogs (help them to create a more legitimate token), we put together a business plan to address a massive new consulting opportunity. But guess what?

… They are ALL dogs! That’s right! ICOs are scams. They are not the same as ‘altcoins’, which is a term more commonly used for open source forks of legitimate cryptocurrency platforms.

Now, the SEC has begun to investigate ICOs and for good reason. Most are thinly veiled scams to fleece widows and orphans by ducking under securities regulations. Others are MLM scams, proprietary mechanisms (in which founders or early partners hold all the cards), or they are simply poor/fake implementations of Blockchain services.

* How to spot an ICO scam (Hint: They are almost all scams!)

Few ICO tokens are credible, “functional” mechanisms that serve a purpose other than sheer speculation. What fraction are scams? More than 97% according CRYPSA.

To preserve our reputation, our organization has suspended a business unit created to endorse the few gems. Despite scores of applicants, we simply cannot find many worthy of accreditation, with the exception of a few Bitcoin forks. But, these forks are altcoins, and not really ICOs.

Nearly all ICOs that we analyzed fall into one of these categories…

• Veiled securities offerings, designed to duck under securities regulations
• Created for the express purpose of pump & dump (without clearly disclosing caps, reserves or pre-mined stakeholders)
• A non-functioning coin that can only gain value through MLM. (This is not necessarily criminal, but outside our research and advisory mandate. Such coins are unlikely to provide value without quick, speculative trades and market timing that amounts to “dumb luck”).

So, what are the signs that an ICO is a scam? Is there anything you can do—short of hiring an expert—to evaluate each new proposal that comes along? We don’t advise or recommend holding such risky tokens—but for those attracted to the siren call of ICOs, here are six common tale tell signs that you are dealing with a scam:

• If you received an announcement of an ‘Air drop’ or a coupon to get 25 or 50% bonus coins, it is a scam.  Stop and think: Walks like duck; talks like a duck.
• If the value of coins is influenced by your ability to find new investors, it is a scam
• If the coin is not based on Satoshi’s blockchain reference code, or is not open source, peer-to-peer and permissionless, then it is very likely a scam. (There are certain, limited exceptions)
• If the coin is based on Tangle, then it is a scam—or at least, it is functionally useless—and therefore it is a bad investment risk
• If the coin was pre-mined, then it is a scam. All mining by principals, insiders and early buyers must be disclosed and must be at least a full month after the first widely available public announcements
• If any advertisement, announcement, affiliate contact or press release ends up in the hands of someone who did not independently contact the issuer for information and a prospectus, it is most definitely a scam

Are you like me?

Because most initial coin offerings exhibit these traits, I pass on opportunities to consult or present at organizations and conferences that cozy up to ICOs. This decision limits my participation at many crypto venues, but my conscience is clean and my Bitcoin future is secure.

Resist the siren call and keep your wits about you. You, too, can also avoid the illusory trap of ICOs. Run, hide or just ignore them. “These are not the coins that you are looking for.” (with apologies to Obi-Wan Kenobi and Alec Guinness).

* Related:

Ellery Davies chairs CRYPSA, publishes A Wild Duck and hosts the New York Bitcoin Event. He was featuerd at cryptocurrency conferences in Dubai, South Africa and India. Click Here to inquire about a presentation.

# Trump: Lamenting lost opportunities…

Twice, this past year, I promised that a final missive about our president was my last word, in a blog that resolves to be apolitical. This was a supremely difficult promise to keep—I have clearly failed. I lose sleep over our shared unfortune. And so, here is one more parting thought on a matter that troubles me deeply.

During the winter holidays, I settled into Las Vegas for a few shows and some fun. (Thank you, Ryan, for loaning me a Pontiac sports car!). I shot this photo through my window from Highway 15 as I was approached my hotel on the Vegas Strip.

It is sad that this building still shows such a disgraced brand name. It is sad that our country still wallows in that disgrace. How so?…

It is not so much the lies, divisiveness, misogyny, xenophobia, abject ignorance or thin-skinned bullying that bothers me. It’s not the constant contempt for everything embraced by the past administration (it clearly consumes him). It’s not the blind allegiance to white supremacists (he doesn’t even realize that they are racist). It’s not his goofy battle with the 1st Amendment or his professed support of the 2nd Amendment. And it’s not even the ignorance on issues related to the environment and nuclear threats…

Rather, it is the lost opportunities during moments of crisis and everyday business in which perspective, rational leadership, and respect from peers could really make a profound and positive difference to the futures of people everywhere!

To my good friends Dania, Peter and my nephew, Nate: Note that I never mention the name of any politician or statesman in this post. The name on that building speaks for itself. I respect you, but I do not respect the individual whose name adorns this building. It gleams in the sunset, and towers over Las Vegas. But it shines with shame. It may be beautiful and well maintained, but it represents a crumbling America.

# Would an ethical government surrender control of monetary policy?

Godfrey Bloom is a member of the British Parliament. His in-your-face style of educating and shocking his peers has made him a controversial politician. He has occasionally been escorted out of the assembled parliament because of his rowdy rhetoric.

Consider the video below. Bloom offers a critical, but simple and clear explanation of the Fractional Reserve banking system used in the US and Europe. This gets to the heart of the matter! [continue below video]…

Conclusion (mine, and not Mr. Bloom’s): It is in the interest of governments to use a form of money that they cannot manipulate, print, spend, hide or lend without first earning, taxing or legitimately borrowing — and then balancing the books, openly.

Bitcoin is such a currency. Any country that adopts an open source, permissionless, and completely transparent monetary instrument will demonstrate to citizens and taxpayers that they respect their constituents and that they commit to balance their books like any state, corporation, NGO or household.

Would an ethical government surrender control of its own monetary policy? H*ll, yes! This is how a government avoids rampant inflation and the burden of non-consensual debt to future generations. It is also how a government makes taxation, redistribution and spending transparent and accountable. It is how a government restores trust.

We have been raised with centuries of dogma that teach us to accept inflation, and a constantly escalating public debt. Sometimes, the path forward is not immediately obvious. But history doesn’t lie. When trusted nations with large economies manipulate interest rates, borrow without a lender, or inflate a nation out of a crisis (what the US calls “quantitative easing”), the long term effect is certain to be no different than Argentina, Zimbabwe, Venezuela or Germany between the wars. It is a recipe for disaster. It places every citizen and their future children into debt-bondage.

Moving away from the Gold Standard in the 1970s was a risky maneuver. The risk was not abandoning a precious metal with intrinsic value—but rather it placed the full faith and credit of our economy in the hands of transient politicians, rather than in a capped commodity with certain and immutable properties.

Bitcoin is the new gold. It is capped, transparent, open-source, vetted and without a mechanism for quick or covert manipulation (the US calls this “raising the debt ceiling” and they do it every few months!). We may not move to an economy based on Bitcoin today or tomorrow, but that day is coming. Thankfully, it’s coming!

# Thoughts on a “Korea Krash”

If you are reading this on January 16, 2018, then you are aware that Bitcoin (and the exchange rate of most other coins) fell by 20% today. Whenever I encounter a panic sell-off, the first thing that I do is try to ascertain if the fear that sparked the drop is rational.

But what is rational fear? How can you tell if this is the beginning of the end, or simply a transient dip? In my book, rational fears are fundamental facts like these:

• A new technical flaw is discovered in the math or mining
• A very major hack or theft has undermined confidence
• The potential for applications that are fast, fluid and ubiquitous
has dropped, based on new information*

Conspicuously missing from this list is “government bans” or any regulation that is unenforceable, because it fails to account for the design of what it attempts to regulate. Taxes, accounting guidelines, reporting regulations are all fine! These can be enforced. But banning something that cannot be banned is not a valid reason for instilling fear in those who have a stake in a new product, process, or technology.

Ellery’s Rule of Acquisition #1:

Drops triggered by false fears present buying opportunities

At times like this, you must make a choice: If you can’t afford to stay in the market and risk a bigger drop, then cash out and live with it. But if you believe in crypto and the potential for a digital future that dis-intermediates your earning, spending and savings, then this drop in dollar value presents opportunity.

This downturn will pass, because the cryptocurrency fundamentals have not changed or been undermined by recent events. There is no new technical flaw or hack. The potential for cash transactions and future applications get rosier every day (let’s assume that Bitcoin will finally add Lightning Network and that miners will stop fighting with developers)*

The current 20% drop is not a big deal. It takes us back to an exchange rate that we saw just one month ago in early December. It was triggered by saber rattling in South Korea. But, let’s face it: Governments have as much influence over trading or spending cryptocurrency as they do over the mating of squirrels in your backyard. Do you think fewer squirrels would mate, if the government banned them from mating?

If you can answer that question—and if you can afford to stay in the game—then relax. 1 BTC has the same value today as it had yesterday and the day before. It is worth exactly one bitcoin. The current dip in exchange rate with other currencies was sparked by fear; and that fear is misguided or irrational.

[click below for perspective]…

* Bitcoin has a serious limitation in transaction throughput and transaction cost. The problem is serious and it frustrates users, developers, miners and vendors. But it is not new, and the consensus about its likelihood of being corrected has not suddenly changed. These limitations are unrelated to today’s large drop in exchange value.

Ellery Davies co-chairs CRYPSA, publishes A Wild Duck and hosts the New York Bitcoin Event. He is keynote speaker at the Cryptocurrency Expo in India this month. Click Here to inquire about a presentation or consulting engagement.

# Proof-of-Work Alternatives: Massive electric consumption by cryptocurrency mining

Some blogs and news outlets eschew long titles. Publishers want readers to scan a list of topics that fit on one-line each. But, a better title for this article would be:

“Massive electric consumption by cryptocurrency mining:
An unfortunate environmental nightmare will soon pass!
… Proof-of-Work alternatives are on the horizon”

A considerable amount of electricity is used in the process of mining Bitcoin and other cryptocurrencies. Miners are effectively distributed bookkeepers, and this use of resources is part of a system called “proof-of-work”. It keeps the books fair, honest, and without an ability for the miners to collude (In other words, they cannot ‘cook the books’).

What makes the process unique and exciting is that this “distributed consensus” does not require a trusted authority, like a bank. In fact, the whole point of the blockchain revolution is that users trust a mechanism rather than a bank, government or even each other.

But, for any network that hopes to become part of the financial fabric, it must be ubiquitous and in constant motion. Proof-of-work just doesn’t make the grade, because it doesn’t scale. The need for miners to prove that they did something complex sucks up too much power. If Bitcoin or any proof-of-work currency were to be adopted for even a small fraction of commercial and personal transactions, it would overwhelm the world’s energy services.

One reader suggests the problem will be solved by the recent boom in shale fracking and renewable, non-polluting energy. He points out that crypto mining may even drive a market for distributed, clean electric production.

Unfortunately, clean and cheap power makes the problem worse. Even if electric capacity were to rise dramatically and experience a great cost reduction, cryptocurrency networks would automatically demand all the extra electricity. It is a no-win game, because mining incentives escalate with an increase in supply or drop in cost.

Will large-scale, blockchain-based networks fail, because of enormous electric demand? Fortunately, the future is not so bad, after all. Although networks, like Bitcoin, currently use proof-of-work to ensure honesty and fairness, it is only one of many possible measurement and enforcement mechanisms. Eventually, developers and miners will swap in another proof mechanism to keep the network humming—and without creating an environmental catastrophe.

Will Change in Proof Come in Time?

The political process for changing the fairness mechanism (“forking the code”) is complex and fraught with infighting, but the problem will eventually be addressed, and it will be solved before electric demand becomes a critical issue. Despite a messy voting process, the miners have too much at stake to ignore this problem much longer.

Various proof alternatives are already being used in altcoins. Since Bitcoin is perfectly free to steal these techniques (none can be protected by patent or trade secrecy), we can think of these other coins as beta-tests for Bitcoin. How so? As the first and biggest elephant in the room, Bitcoin will likely reign supreme, as long as it doesn’t wait too long before grabbing the best technology and tucking it into its quiver.

Proof-of-Work Alternatives

• One method, already used by some altcoins, is called “proof-of-stake”. It’s a bit like getting voting rights based on how much land you own. This method does not demand lots of electricity—but some analysts feel that is not as fair, because it cedes network control to the wealthiest members.
• Another method, called BFT Replication was developed by Marko Vukolić, at the IBM Blockchain Group in Zurich Switzerland. It might be exactly what we need.
• Yet another method was proposed by C.V. Alkan, an amateur analyst with a passion to solve this problem. He calls it Distributed Objective Consensus.

These aren’t the only alternatives to proof-of-work. Ultimately, one or more of these fairness enforcement mechanisms will make its way into Bitcoin and other currencies and blockchain services. In my opinion, the electrical crisis is a genuine threat, but it is one with a solution that will be implemented soon—perhaps even this year.

Related:

Ellery Davies co-chairs CRYPSA, publishes A Wild Duck and hosts the New York Bitcoin Event. He is keynote speaker at the Cryptocurrency Expo in India this month. Click Here to inquire about a presentation or consulting engagement.

# Is Cruptocurrency Good for Government?

Today, editors at Quora asked me to answer a seemingly simple question:

## “Is cryptocurrency good for government?”

This is a terrific question, and one that I write about frequently. The question gives me a chance to summarize the key facets of widely mistaken fears.

In the first phase of cryptocurrency adoption (we are in the midst of this now), there is an abundance of skepticism: Misunderstanding, mistrust, historical comparisons that aren’t comparable, government bans & regulatory proposals—and a lot of questions about intrinsic value, lack of a redemption guaranty, risky open source platforms, tax treatment, etc, etc.

Out of the gate, few individuals and governments paid attention to Bitcoin. That was when it traded under $100. It was complicated to understand, and it seemed to be nothing more than gaming money coveted by nerds and geeks. But with each wave of adoption, or the crash of a major exchange, or the shutdown of Silk Road, public interest has piqued. And, of course, the price of Bitcoin has shot up from nothing to almost$20,000 in the past few years.

It’s natural that governments watch developments closely, and sometimes weigh in with guidance, licensing or regulations. But consider the underlying concerns: Why should governments care about this activity? Is cryptocurrency good for government?

Very often, we hear of government restrictions or “bans” on trading bitcoin. The justification typically hinges on a belief that cryptocurrency leads to bad things:

2. Facilitates criminal activity (because of anonymity)
3. Causes citizens to lose faith in their own government
4. Interferes with a nation’s ability to control its own monetary policy
5. Reduces liquidity of (government-backed) national currency
6. Causes a deflationary economy. People will delay spending and stop investing

The first three concerns are patently false and the last three concerns raise an interesting question: Might it benefit a government to surrender control over its own monetary policy? We’ll explore this, below…

Let’s look at each of these fears. I won’t try to analyze or defend each statement below. You can find the justifications throughout this blog.

1. Gradually, governments are coming to recognize that the first three concerns are false. If cryptocurrency gains widespread traction as a payment instrument—or even as cash itself—governments are not weakened in their ability to tax, spend, or enforce tax collection. This myth arises from a lack of education, experience and familiarity.

2. We have seen some spectacular news stories involving very serious criminal activity that accepts bitcoin. In each case, the bad guys were caught—and they were caught because they foolishly accepted bitcoin.

In fact, cash is a far better tool of crime than cryptocurrency. Pre-paid debit cards are even worse.

Bitcoin is not anonymous. It is what cryptographers call pseudo-anonymous. I call it “a fool’s anonymity”! Although Bitcoin allows users to create anonymous wallets, anyone selling drugs or committing a notorious deed can be tracked. A million armchair analysts (anyone who uses and follows Bitcoin), can follow the money trail—through VPNs and mixers—all the way until something is spent in the real world. At some point, someone buys a tennis ball or gets braces for their kid, or buys a book at Amazon. That’s when it all unwinds.

3. Far from cryptocurrency undermining trust in government, it does just the opposite. It demonstrates to citizens that the government shares an obligation to balance its books, just like every individual, corporation, NGO, city or state.

In effect, governments must raise the dollars that they intend to spend. In an emergency, they can borrow, of course, but only if they can find creditors that truly believe in their ability to repay the debt.

This trust yields phenomenal results:

• Creditors no longer wonder if a nation will attempt to turn on the printing press (like Argentina, Venezuela, Sudan, Zimbabwe, Greece or Germany between the wars).
• Citizens no longer fear that their transient elected officials will constantly raise the debt ceiling (This is a euphemism for “hoisting debt on future generations”, and destroying credibility with debtors at the same time).
• Redistribution of wealth through wacky tax laws is still possible, but it is more likely to require the consent of taxpayers, because suddenly, governments can’t hide expenses behind the opaque barrier of a printing press, nor can they use inflation as a mechanism of social policy. Instead, they must create clear, 2-entry line items for each social welfare expense: Who gets the money? —and Where does it come from?

4, 5 and 6: Now, we arrive at the least understood concerns…

#4 and #5 are true. But as we discuss in #3, loss of control over monetary policy is a very different thing than losing control over fiscal policy.

It took decades to discover that decoupling a country from its delivery service and telephone companies resulted in a remarkable boost to industries, services and productivity. Likewise, decoupling a nation from its currency is a really, really good thing. No one can play games, trust is restored. Our kids aren’t born into debt of the nations that purchase our government bonds.

#6 is perhaps the most difficult to accept. Some economists still insist that a small amount of inflation is critical to getting people to spend and invest. But a growing number of experts are discovering that this just isn’t so. Deflation is often associated with unemployment, war, recession and a loss of liquidity and investment. In fact, deflation can be triggered by these things, but when it is the result of a trusted and capped-but-divisible money supply, it doesn’t lead to any of these things.

The concern about people not spending is a linguistic trick. Another way to say the same thing is that a capped money supply encourages people to save for big expenses and for retirement. Since when is that a bad thing?

I have been answering questions about Bitcoin and cryptocurrency since Satoshi was at the helm. Talk to me. Ask about it! Then, think for yourself. Stay engaged.

Ellery Davies co-chairs CRYPSA, publishes A Wild Duck and hosts the New York Bitcoin Event. He is keynote speaker at the Cryptocurrency Expo in India this month. Click Here to inquire about a presentation or consulting engagement.

# Say it Again: “Bad News is Good News”

By now, every interested news-junkie is aware that Bitcoin plummeted from $15,000 to$13,000 (USD exchange rate) on January 11, 2018. This morning, every news outlet and armchair analyst attributes the drop to the Korean government signaling that it will ban Bitcoin trading among its citizens.

With Donald Trump and Kim Jong Un butting heads over nuclear missile tests and the upcoming Winter Olympics, you would think that South Korea has other priorities than banning Bitcoin.

As with all news—except accidents—the Korean plans were known by a few insiders (in this case, government bureaucrats), and so the influence on value was bigger than the drop that occurred after the news story. In the days before this “event”, it was probably responsible for a drop of about $4500 in exchange value. Listen up Wild Ducks! We have heard this before. On Sept 11, China announced the exact same thing. I wrote about it in the most popular article of my 7 years as Blogger: Bad News is Good News for Bitcoin Investors. As an investor, am I worried? Not on your sweet bippy. I am ecstatic! There are some things that governments cannot ban: the mating of feral cats; water from seeping into cellars; communications networks that are distributed and permissionless. Ineffective and unenforceable regulation always spells opportunity. When I hear of such “bans” (or learn about Jamie Dimon claiming that Bitcoin is a ‘pyramid scheme’ before having all the facts), I become confused and excited Investors often fail to recognize the way in which toothless government edicts work. I am confused that anyone would act on such flawed information. I am excited that they do. Why?—Because each time Bitcoin makes a quick dive due to crazy or irrelevant news, it makes an even bigger upward jump within days. In this case, the reverse correction has already begun. I created the chart, below, for my presentation at the Cryptocurrency Expo in Dubai during the last days of October. During this 3 day conference, Bitcoin jumped from$6000 to 6500 because these days followed a hard fork that scared analysts. Within 5 weeks of the conference, Bitcoin touched $20,000, depending on the exchange from which you get quotes. But here’s an odd thing (not so odd, to me): With sudden market accessibility in the past 30 days, why is Bitcoin falling? [continued below]… In the past month (Dec 10 2017~Jan 10 2018), Bitcoin and Bitcoin futures are finally becoming accessible to traditional brokers using familiar investment instruments. As a result of market accessibility, everyone and his brother is getting into Bitcoin. Since it is still difficult to take a negative position, you might expect this fresh interest to drive up value. This expectation is reinforced by my own anecdotal observation: Based on the large number of old acquaintances asking me to help them buy Bitcoin, it certainly feels like the sentiment is bullish. But no! Existing stakeholders are dumping their positions! It’s not just because of yesterday’s news. Rather, it’s because anyone who has seen Bitcoin triple in just 3 months, feels that their personal stake experienced a “lucky” gain. They want to turn that paper gain into a profit before it tanks. But then, there are the cognoscenti. That’s us…We are the individuals who have a feel for the natural, intrinsic value of Bitcoin. We understand that value does not require a redemption guarantee from Caesar. We have a reasonable vision of currency, inflation, economics, history, the role of government—and especially, of distributed trust. Just as important, we understand why an altcoin is unlikely to replace Bitcoin—even if it solves some of Bitcoin’s frustrating technical and governance issues. Governments tend to react to perceived threats before understanding opportunities, motives and that which is fait accompli. There is a role for government in all of this, but it is not to ban what cannot be banned. That is simply good news for us stakeholders. Related Reading: Ellery Davies co-chairs CRYPSA, publishes A Wild Duck and hosts the New York Bitcoin Event. He is keynote speaker at the Cryptocurrency Expo in India this month. Click Here to inquire about a presentation or consulting engagement. # What if you send Bitcoin to a non-existent address? I get this question a lot. Today, I answered it at Quora.com. But, here at A Wild Duck, I have more bandwidth to elaborate. Question: What if I make a typo when sending Bitcoin. The recipient address may be invalid or it may belong to another individual. —But there is a third possibility. Couldn’t it be a valid address, but without any wallet that can receive it? I bet the blockchain catches these errors—Right? Will I always get my money back? The short answer:Don’t worry, it cannot happen. That won’t happen either. Sure, it’s possible. That’s wrong, and You’re screwed! But let’s look at this a bit closer. A little knowledge goes a long way! Incidentally, this answer gets into some gritty, esoteric details. It may lead you to believe that cryptocurrency is complicated, risky or not worthwhile. But, it only seems this way. With any new technology, standards and practices gradually flow into gadgets, apps and services. Early televisions required an expert operator. The next generation of owners dealt with vertical hold, contrast and antennae bolted onto the chimney. If your older than 55, you schlepped to a pharmacy with Dad to test a dozen or more vacuum tubes, just to find out if the circuitry was getting weak. No one does these things anymore. TVs are flat and with a perfect picture. They are almost as easy to use as a toaster. (Except for the five remotes needed to choose a source and set up the sound! These ridiculous gadgets are only now being replaced with voice control and other smart technologies). Back to square one: Can you send money to an invalid Bitcoin address due to a typing error? If you do, will you get it back? It is not likely that you would do so in a hundred lifetimes. But if you succeed at creating what appears to be a valid address, you are screwed. Only a hundred million trillionths of valid addresses will ever have a wallet behind it. The blockchain does not record the creation of wallets. No one can know if there is anyone with the address and the keys to the apparently valid wallet address that you sent money into. Addresses transfer things from one place to another. You enter a street address into your GPS expecting to be transported to a location. But, with everything else, an address moves value or sensitive information. So, let’s start with an absolute, inviolate rule: Never type an “address” into any system! Instead, cut & paste the address from the source or—at least—from the message that delivered it. After all, you don’t want a note to your lover ending up on the mobile phone of your boss. But you didn’t ask about best practices—you asked about checksums… 1. Invalid Address (No wallet could exist for what you typed) Bitcoin addresses include a 32 bit checksum, which makes the possibility of typing a valid address by mistake about 1 in 4.3 billion. So don’t worry, a mistyped address will be caught by your own wallet or service, before anyone even peeks at the blockchain. But what if—somehow—you manage to enter an address that seems valid (it passes the checksum test), but there is not yet a wallet created with that address? 2. Address Appears Valid (But there is no wallet, or they belong to the wrong person) You might think that the transaction gets staged, but eventually fails, because the wallet address is unlikely to have ever been created. But there is a problem with that theory: Wallets can be created off-line and remain dormant for years. The block chain does not know which wallet addresses exist. It only knows which appear to be valid addresses. For this reason, sending bitcoin to an address that is entered in proper form, but does not belong to anyone will result in permanent loss. Technically, the money exists, but no one has the private keys to spend it. Any effort to recover the loss would better be spent on a good therapist and searching for a job in the sunset years of your life. It would be nice if you could create a wallet that matched the receiving address. Sadly, this is impossible, because wallets are created through a random one-way process. This ends an answer to a straightforward question. But, now, let’s have some fun… Let’s figure out what are the chances that someone actually does have a wallet that matches a valid address that you typed by accident. (After all, you already beat odds of 1-in-4.3 billion by typing an address that satisfied the checksum!) A Bitcoin wallet address is a string of 34 characters (letters and numbers).* From the full set of 10 digits and of 52 upper/lower case western characters, four are excluded to reduce the chance of entry error (O, 0, I, L). This means that the number of possible wallet addresses is 5834 = 1060 * The human brain has between 100 and 1000 trillion synapses. Yet, 1060 is: • More than the synapses in all brains of every animal that ever lived • More than every atom in our planet, solar system and galaxy • More than—Well, you get the point! Even if everyone on earth creates a new Bitcoin wallet every single minute and all wallets are valid for life, the chances of accidentally typing the valid address of another user is very nearly zero. * Interesting caveats and notes: 1. Bitcoin addresses are currently generated via an algorithm called RIPE-MD160. This further limits the number of possible wallet addresses to 2160 = 1.4*1048). But this reduction is caught when sending, because the checksum uses the same algorithm to validate against a properly formed address. 2. Checksums aren’t just for catching a typing error. In addition to 34-character addresses, Bitcoin supports 33 characters and even some 26 character addresses. The checksum ensures that shorter addresses are not actually longer addresses that with leading zeros (transcribed as blanks) or that have dropped a digit. Ellery Davies co-chairs CRYPSA, publishes A Wild Duck and hosts the New York Bitcoin Event. He is keynote speaker at the Cryptocurrency Expo in India this month. Click Here to inquire about a presentation or consulting engagement # Revenue Neutral model reduces altcoin investment risk Titles are chosen by editors and not journalists or experts. I fought my editor over the above title. Yes, I address the teaser—and I explain a solid altcoin investment model. But, that comes after the break. The first part of this article should be titled “Why would anyone quote cost or value in Bitcoin?”. The subjects are highly related, so bear with me… Today, a reader asked this question: Some financial sites discuss value in terms of Bitcoin, rather than dollars or Euros. Why would I calculate the value of a new car, my rent or an investment in this way? It’s hard to understand how much money I need! Answer: Your right! It’s difficult to estimate the value of a car or your rent in terms of Bitcoin. You are paid in dollars or Euros—and your landlord quotes rent in the same currency. On the other hand, it’s natural to gauge the value of something by comparing it to a commodity that you earn and spend at a steady or predictable rate. Therefore, your assumption that it makes more sense to determine value on a dollar-basis is absolutely correct. No one determines the value of a new car by comparing the cost with a government’s national debt—or the number of donuts you would need to sell (unless you are a donut maker). But, this assumption is transitory. It is based on a historical paradigm that is gradually changing. We are entering a bold new era. A big debate is shaping up over How gradual is the change? But make no mistake: This change is occurring in our lifetimes… That change will eventually lead you to estimate, earn, spend and value things in Bitcoin or a similar cryptocurrency. One day soon, fluctuations in the value of the US dollar or Euro will cause you to wonder “What is happening with the dollar?” rather than shake your confidence in Bitcoin. Bitcoin (or something similar) will integrate into your mindset as the exchange medium, rather than fiat currency of a nation state. Naturally, a series of dominos must fall, before you realize that Bitcoin is the money. I predicted this four years ago, and the process is already occurring. It is retarded by two unfortunate events, but these are both temporary setbacks: • Today, more people are hoarding and speculating rather than accepting or spending Bitcoin for goods and services. This delays the day that it can act as a useful, functional currency. • Miners, users, vendors and developers are chasing different goals. This makes it very hard to agree on necessary changes that will address several critical technical problems (i.e. transaction cost, speed, electrical demand, replay issues, etc). Both of these problems have solutions, and we have already seen the solutions at work in altcoins. Think of forks and altcoins as beta tests…Bitcoin will fold in the best of these technical improvements and will very likely continue to inch toward becoming the world’s de facto currency. Revenue Neutral Investing To answer the question in the title, let’s look at this from a completely different angle. The individual who asked the original question went on to ask this: Cryptocurrency sites compare and track the cost of altcoins in terms of Bitcoin rather than dollars. What’s with that?! Do they assume that we will all be selling Bitcoin to buy the new altcoin? It actually makes sense to value altcoins in terms of Bitcoin—even today. How so?… This growing trend provides very useful information. This method of quotation helps the reader to determine the relative change in value between the two currencies and compare it to fundamentals that they learn from news and research. The information can then be used to hedge an investment or even craft a revenue-neutral investment strategy. Allow me to explain… I am long on Bitcoin. This is not likely to change. So I keep a significant fraction of my wealth in this form. But, I also understand that the use and market for cryptocurrencies is young and very immature. A very few other forks and altcoins are the real deal. They have solved some major technical flaws with Bitcoin and they have the potential to become a credible, functional currency. This isn’t the place to explain my favorite coins, but the strategy is relevant. Since I already have a substantial position in Bitcoin, I wish to avoid further exposure in the market. Therefore, I invest long and short at the same time (for example, using puts and calls)* on certain coins that are likely to perform better than other coins. This reduces risk, by leaving me without a loss, if the entire market rises or falls. The only way I might lose is if I get it exactly wrong! That is, if the coins that I believe are scams do better than the ones that I feel are well-designed and with a solid adoption trend. (Remember: The risk reduction strategy is to invest on the difference between an overvalued dog and an under-performing beauty). To avoid the downside scenario (i.e. getting it exactly wrong), focus on fundamentals and not the cost of a unit, short term trends, emotional zeal, or other technical issues. Don’t follow the crowd! Bet on value and bet against hype. (TIP: The take-away, here, is to do both at once!) Investors who consider only asset cost and trends are in a craps shoot. The smart money determines which coins are likely to be a better functional instrument than other coins and then sticks with a dollar cost averaging plan for months at a time. Want to learn more? Want to know which coins I admire? Reach out. Let’s talk. I don’t bite. * A regulated financial exchange for puts and calls does not exist for altcoins. But, with a little research, you can create an nearly equivalent futures contract or options instrument. You may need to be a bit creative. Ellery Davies co-chairs CRYPSA, publishes A Wild Duck, hosts the Bitcoin Event and kicked off the Cryptocurrency Expo in Dubai. Click Here to inquire about a live presentation or consulting engagement. # How does the Blockchain ‘know’ you have printed a paper wallet? Let’s say that you no longer trust your currency exchange to host your Bitcoin wallet and you don’t trust a Trezor or Nano hardware wallet. You don’t trust your memory and you don’t trust your kids. And you certainly know better than to keep your wealth in your PC or phone. That would be downright crazy—right? What can you do?! A growing number of people are printing paper wallets. It is the ultimate form of security. Some individuals even delete their cloud wallet, leaving everything to a string of hex characters or a QR code printed onto a slip of paper. (NB. You had better be certain that you and a few trusted individuals know how to find that piece of paper!) But here’s an interesting mystery. If you print the paper wallet off-line and delete your other wallets, then how can the blockchain ‘know’ that you have changed wallets? The short answer: It doesn’t and you haven’t! Let’s explore a bit deeper… • The deed to your house is stored and maintained by a registry. It is housed in a court house or other government building. • With a bearer bond, a certificate in your posession is the actual item of value. But, in both cases, the fact that you made a photocopy of your deed or corporate bond is not of any consequence to others. It is the same with a Bitcoin wallet. (In this case, the ownership record is netiher in a government warehouse nor in your posession. It is crowd-sourced). Printing out a paper wallet does not change your wallet ID. The paper wallet is simply another method of storing and retrieving the proof that you own a part of a mathematical solution set—That is, you know the solution to a problem. Your paper wallet is just a copy of the keys to your wealth. You may choose to destroy the other keys, that’s your business. No one knows or verifies that you still have access to your stored secret or how you stored it. It’s up to you to maintain access to the keys. The blockchain only records a transfer of ownership from one wallet to another at the time of a payment transaction. Got it? I hope you like the metaphors. I am fairly proud of myself for this explanation. Ellery Davies co-chairs CRYPSA, publishes A Wild Duck and hosts the New York Bitcoin Event. Last month, he kicked off the Cryptocurrency Expo in Dubai. Click Here to inquire about a live presentation or consulting engagement. # Why would anyone attribute value to Bitcoin? Oh, Cheez…We’re back to this question, again! As a Bitcoin columnist, I get this question a lot. Today, an answer was requested at Quora.com, where I am a leading contributor on cryptocurrencies: “Clearly, some people value Bitcoin. But How can this be? There is nothing there to give it value!” Many individuals, like the one who asked this question, suspect that Bitcoin was pulled out of thin air—and that it is not backed by gold, a government, or an authoritative redemption guaranty. After all, it is just open source code. What stops me from creating an ElleryCoin using the same code?! Let’s start with the short answer: • Indeed, it was pulled out thin air • It isn’t backed by an asset, government or promise • You could easily clone Bitcoin (the entire mining ecosystem) and distribute it yourself. It would be exactly like Bitcoin. Yet, Bitcoin is clearly valued by everyone, and your new coin is unlikely to generate interest or adoption. A More Complete Answer: What is value? Bitcoin has more intrinsic value than a government printed paper bill. The value arises from a combiation of fundamental properties: • It has a capped supply • It is widely recognized, liquid, and resistant to legislation • It has attained the robust supply-demand of a growing, 2-sided network. • It is open and transparent. This elevates user trust • Unlike cash and credit, Bitcoin requires no back-end settlement. That’s because it is not a payment instrument. Rather, it is money itself. • Finally, it’s value is likely to be durable, because it is not printed by a country that spends beyond its means and racks up debt. In fact, it can never be inflated. Downside and Risks But wait! What about the long transaction delay and high cost? There are sharp disagreements anong miners, users and developers concerning block size, transaction malleability, and replay issues. Aren’t these a deal killers? And what about wild volatility in the exchange rate? Doesn’t this retard adoption as a functional currency? These are transient issues associated with a new technology. Bitcoin is weathering growth pains that arise from a new and distributed governance technology (democracy can be messy!). But, all of these issues have sound solutions. We have witnessed and tested the solutions with various forked coins. Think of these imrpoved altcoins as beta tests. Even if current problems delay the day when you can spend bitcoin at every retail establishment—it is already sucking liquidity from national currencies and becoming the world’s de facto reserve currency. Many individuals find all of this hard to accept. That is because we have been conditioned to think that ‘value’ arises from assets with ‘intrinsic’ value, the promise of redemption, or by edict. This is not true. In all things (including gold, a Picasso painting, or your labor), value arises from simple supply and demand. Some individuals claim that all other factors are secondary. But, even this statement is false. All other factors are irrelevant. They may be related, but they are not the source of value. I recognize that this answer may seem smug or definitive. So, allow me to suggest related questions with answers that are a bit more interesting, because they are subtle. Unlike the question of value, these two questions are open to analysis and opinion: (1) “Will people continue to value bitcoin in the future?” — And (2) “When will Bitcoin stop swinging wildly in value?” (measured by its exchange rate with other currencies). This is fun! Let’s explore… Ellery Davies co-chairs CRYPSA, publishes A Wild Duck and hosts the New York Bitcoin Event. Last month, he kicked off the Cryptocurrency Expo in Dubai. Click Here to inquire about a live presentation or consulting engagement. # Should we ‘out’ Bitcoin creator, Satoshi? Everyone likes a good mystery. After all, who isn’t fascinated with Sherlock Holmes or the Hardy Boys? The thirst to explore a mystery led us to the New World, to the ocean depths and into space. One of the great mysteries of the past decade is the identity of Satoshi Nakamoto, the inventor of Bitcoin and the blockchain. Some have even stepped forward in an effort to usurp his identity for fame, infamy or fortune. But in this case, we have a mystery in which the subject does not wish to be fingered. He prefers anonymity. This raises an interesting question. What could be achieved by discovering or revealing the identity of the illusive Satoshi Nakamoto?… The blockchain and Bitcoin present radically transformative methodologies with far ranging, beneficial impact on business, transparency and social order. How so? — The blockchain demonstrates that we can crowd-source trust, while Bitcoin is much more than a payment mechanism or even a reserve currency. It decouples governments from monetary policy. Ultimately, this will benefit consumers, businesses and even the governments that lose that control. Why Has Satoshi Remained Anonymous? I believe that Satoshi remains anonymous, because his identity, history, interests and politics would be a distraction to the fundamental gift that his research has bestowed. The world is still grappling with the challenge of education, adoption, scaling, governance, regulation and volatility. Some people are still skeptical of Bitcoin’s potential or they fail to accept that it carries intrinsic value (far more than fiat currency, despite the absence of a redemption guaranty). Additionally, we are still witnessing hacks, failing exchanges and ICO scams. Ignorance is rampant. Some individuals wonder if Satoshi is an anarchist—or if his invention is criminal. (Of course, it is not!). Outing him now is pointless. He is a bright inventor, but he is not the story. The concepts and coin that he gave us are still in their infancy. Our focus now must be to understand, scale and smooth out the kinks, so that adoption and utility can serve mankind. Related Ruminations: Ellery Davies co-chairs CRYPSA, publishes A Wild Duck, hosts the New York Bitcoin Event and kicked off the Cryptocurrency Expo in Dubai. Click Here to inquire about a live presentation or consulting engagement. # Is Bitcoin a store of value? Bitcoin has many characteristics of a currency. It is portable, fungible, divisible, resistant to forgery, and it clearly has value. Today, that value came close to$20,000 per coin. Whether it has ‘intrinsic value’ is somewhat of a moot question, because the US dollar hasn’t exhibited this trait since 1972. Today, economists don’t even recognize the intrinsic value of gold—beyond a robust, international, supply-demand network.

Lately, Bitcoin is failing as a viable currency, at least for everyday consumer transactions. The settlement of each transaction is bogged down with long delays and a very high cost. The situation has become critical because of squabbling between miners, users and developers over how to offer speed transactions or lower the cost of settlement. Bitcoin forks and altcoins such as Dash and Bitcoin Cash demonstrate that these technical issues have solutions. Since Bitcoin is adaptable, I believe that these issues are temporary.

But an interesting question is not whether Bitcoin will eventually become a consumer currency. It is whether Bitcoin can distinguish itself as a store of value, rather than just an instrument for payment or debt settlement. After all, a Visa credit card, a traveler’s check and an Amazon gift card can all be used in retail payments, but none of them have value unless backed by someone or something. US Dollars on the other hand are perceived as inherently valuable. They carry the clout and gravitas of institutions and populations, without users questioning from where value arises. (This is changing, but bear with me)…

What about Bitcoin? Does owning some bitcoin represent a store of value? Yes: It absolutely does!

Bitcoin is a rapidly maturing two-sided network. Despite a meteoric rise in exchange value and wild fluctuations during the ride, it is the epitome of a stored value commodity. Regardless of government regulation, adoption as a consumer payment instrument, or the cost and speed of transactions, it has demonstrated stored value ever since May 22 2010, when Laszlo, a Bitcoin code developer, persuaded a restaurant to accept 10,000 BTC for 2 pizzas.

The “currency” accepted by the pizza parlor wasn’t a gift card. It was not backed by a government, a prior deposit, dollars, gold, the promise of redemption, or by threat of force or blackmail. When a large community of individuals value, exchange, and can easily authenticate something that has none of those underpinnings, that thing clearly has stored value.

In this case, value arises from its scarcity and a robust supply-demand-network. Because its value is not tied to a government or to other commodities, its exchange rate with other things will be bumpy, at first. But as it is recognized, traded and adopted as a stored value token, the wild spikes will smooth out.

A tipping point will precipitate rapid adoption when…

• when some vendors begin to quote prices in Bitcoin (rather than national currency)
• when some of these vendors retain a fraction of their bitcoin-revenue for future purchases, payments or debt settlements—rather than converting revenue to fiat/national currency with each sale

Bitcoin is clearly a store of value, and it is beginning to displace gold and the US dollar as the recognized reserve currency (it is gradually becoming the new gold standard). But before Bitcoin can serve as a widely adopted everyday currency (i.e. as a payment instrument—with or without the stored value of a currency unto itself), it must first incorporate technical improvements that speed transactions and lower cost.

This is taking longer than many enthusiasts would have liked. But, that’s OK with anyone who keeps their eye on the big picture. Democracy is sometimes very sloppy.

Ellery Davies co-chairs CRYPSA, publishes A Wild Duck and hosts the New York Bitcoin Event. Last month, he kicked off the Cryptocurrency Expo in Dubai. Click Here to inquire about a live presentation or consulting engagement.