Can Bitcoin transactions be made private?

The blockchain is public, yet a Bitcoin wallet can be created anonymously. So are Bitcoin transactions anonymous? Not at all…

Each transaction into and out of a wallet is a bread crumb. Following the trail is trivial. Every day, an army of armchair sleuths help the FBI. That’s how Silk Road was brought down.

The problem is that some of that money eventually interacts with the real world (a dentist is paid, a package shipped or a candy is purchased at a gas station). Even if the real-world transaction is 4 hops before or after hitting the “anonymous” wallet, it creates a forensic focal point. Next comes a tax man, an ex-spouse or a goon.

The first article linked below addresses the state of tumblers (aka “mixers”). They anonymize an open network by obfuscating the trail of bread crumbs.

Mixers/tumblers aren’t the only way to add a layer of privacy to Bitcoin transactions. The Lightning Network spec includes an optional 17-hop onion routing (just like TOR’s 4 step onion routing). I have not yet seen the feature expressed in wallets or services, but if implemented, it will be even more private and trustworthy than a mixer, because there is no middle party to trust (by you) or squeeze (by investigators). It has the potential to makes any crypto Bitcoin even more anonymous than cash.

Certain cryptocurrencies (not Bitcoin) have anonymity baked in by design. Monero, ZCash and Dash are privacy tokens that use very different approaches to eliminate the bread crumbs. Monero appears to have one distinct advantage: Like the TOR network, it is trustless. But there are benefits to each approach.

The Race to Own One Bitcoin

Owning one full bitcoin is becoming a recognized attainment goal. And thereby hangs a tale.

Is it just a numbers game? Isn’t the unit a bit arbitrary and meaningless?…

The logistics and the math are compelling. I recognized the importance of reaching this personal milestone more than 8 years ago. But I was a nobody. No one cared. Then, in April 2019, we began to see articles in legitimate venues about the goal—articulated in exactly this way. In fact, I borrowed the title of this post from this article in Medium.

Who Says So?

In the Before Time, the drum beat came from me, Charlie Shrem and Andreas Antonopoulos. In the Middle Age, Tim Draper, Craig Wright and the Winklevoss twins contributed to the siren call. But in the Modern Era (the past few days), it has become a mainstream mantra. Coinbase CEO, Brian Armstrong, added his voice to the idea that owning one full Bitcoin is not just an exercise in numerology.

“For better or worse, I do think owning one whole Bitcoin will increasingly become a big deal. Only 21M will ever be produced. Some people already own much more than one.”

—Brian Armstrong, Aug 25 2019

“If you own 1 BTC, you’re mathematically guaranteed to be top 3/1000 richest in the world, in BTC terms. (21m / 7B).”

—Changpeng Zhao, Aug 25 2019

“If you own 0.28 BTC and HODL, you can be certain no more than 1% of the current world’s population can EVER own more BTC than you. A modest investment of $1,830 today can ensure you are a 1%er in a future Bitcoin world.”

—Steve Lee, Aug 25

In a March editorial, Xapo CEO Wences Casares advised investment fund managers: Most portfolios should allocate up to 1% to Bitcoin”. He also said:

“ If Bitcoin does succeed, 1 Bitcoin may be worth more than $1 million in 7 to 10 years.”

— Wences Casares, CEO of Xapo; PayPal Board of Directors

Despite getting religion early on, I have mixed feelings about this. The investor mindset—HODL, flipping and converting to Fiat—is the biggest threat to adoption, ubiquity, fluidity and utility. Currently, 98% of all transactions are driven by people buying or selling bitcoin, rather than using bitcoin to buy lettuce, a new SUV or a family vacation. That’s the problem. Bitcoin will fail to gain mainstream appeal and adoption until the fraction of transactions driven by purchase & sale, salary, debt payment, real-estate and buying groceries dwarfs the fraction driven by traders or conversion into and from Fiat.

Yet, it is impossible to resist the lure of a deflationary commodity during the early adoption era. The supply cap and adoption math clearly point to a rising unit value. What is the point in having the capacity and foresight to recognize a new technology or a radically transformative paradigm if you cannot treat it as an investment asset, while waiting for adoption?

I don’t know how we will push through the chicken-and-egg problem of volatility–utility–adoption–ubiquity. But I am confident that Bitcoin will ultimately reign supreme—not just as a payment instrument—but as a store of value and a leading international currency.

For now, this opinion is still in the minority. Otherwise a commodity with only 18 million units in circulation would have a far higher value than the current exchange rate. It is from this certainty and disparity that opportunity arises.

For those that don’t quite get Bitcoin, owning one full bitcoin seems like an arbitrary goal to achieve. After all, it is a useless token that can be imitated by other—better—cryptos. To these folks, Bitcoin is a fad, a fools gold, or an outright scam.

Do you own a whole Bitcoin? Few will own more than a fraction

What they don’t get is the legitimate, organic, two-sided network that buttresses bitcoin and no other currency. A new-age intrinsic value that surpasses the utility & scarcity of gold, but with benefits that outstrip gold and fiat. The inherent value and the pillars that support value are unlikely to be eroded or transferred, even during periods of technical crisis, hacking or regulatory hysteria.

If something better than Bitcoin comes along, two things will happen to ensure supremacy:

  • Improvements will be folded into Bitcoin. After all, a trusted crypto is open source, transparent and license free. The leader can snag any feature or improvement.
  • If another chit is more fluid, flexible, friction free or private, Bitcoin will remain the background reserve through which other “instruments” derive value. This is already occurring.

So, should you buy into the hype? Should you accumulate one full bitcoin while you still can? At the risk of obnoxious immodesty, here is one more quote. Add it to the list at the top of this article. Then, decide for yourself!

“The handwriting is on the wall. Popular adoption is a work in progress. But it is, nevertheless, fait accompli. This handwriting is indelible.”

—Ellery Davies, A Wild Duck

Related:


Ellery Davies co-chairs CRYPSA and produced The Bitcoin Event in New York. He writes for QuoraLinkedINWild Duck and Lifeboat Foundationwhere he sits on the New Money Systems Board.

Spending Bitcoin in Person is Easy (What happens in background is elegant)

Today, I was co-host of an online cryptocurrency symposium—taking questions from hundreds of visitors. A common question goes something like this:

Can Bitcoin be used in person—or is it just for internet commerce?

Our panel had a moderator, and also an off-screen video director. As I cleared my throat in preparation to offer a response, a voice in my ear reminded me that it was not my turn. The director explained that another panelist would reply. It was a highly regarded analyst and educator in Australia. Realizing that that she was calling the shots, I deferred.

I was shocked as I listened to this far off colleague suggest that Bitcoin is not useful for in-person payments. I wonder how he explains this to the grocers, tailors, lawyers, theme parks and thousands of retailers who save millions of dollars each year by accepting bitcoin—all without risk of volatility and even if they demand to instantly convert sales revenue into Fiat currency.*

Of course it can be used in person, Numb-nut!
(I kept this thought to myself. I know better than
to criticize another panelist).

An in-person transaction, such as paying for a meal after consumption, is an ideal use scenario. It benefits everyone: The seller captures greater value and the buyer is unlikely to need bank-brokered arbitration. He only needs a receipt. He will never demand a 90-day return warranty, claim that he was shipped an empty box, nor complain about the amount charged.†

But this isn’t about my clueless colleague. It is about the ease of using Bitcoin in person and the interesting stuff that happens in the background. Let’s look at a simple purchase scenario — and then we’ll dig in to marvel at the settlement process. This is a true story, told in 7 bullets. It occurred in the summer of 2015—just 5 years after the very first use of bitcoin to purchase anything (Bitcoin Pizza Day was May 22, 2010).

  • It’s 2 AM on a moonlit Sunday morning. Driving from Boston to New York, I rehearse the Bitcoin presentation that I will deliver at a startup clinic hosted by LaGuardia Community College and the Cryptocurrency Standards Association. Wracked by hunger, I pull off the last exit in Connecticut and find the Darien Diner. Great food! My meal costs $12.
  • As I take one last bite of midnight quiche, I realize that I forgot my wallet! No cash; no driver’s license. Although I have a smartphone, it is brand new. I have not yet loaded it with credit cards. But I can access to my passwords and accounts.
  • I scope my surroundings. The waiter is the only one on the main floor. He is also the cashier. Seeing no other customers or staff, I figure that the owner or cook is in the kitchen; probably the only other person on site. I approach the cash register, hoping that the waiter will accept my apology—and trust that I will pay on my return trip in a few days. Before I launch into a poor-man’s excuse, I spot a placard shown below. Bitcoin is among the diner’s accepted payment methods. Pretty neat for 2015!
  • Bitcoin accepted hereI ask the cashier how I can pay with Bitcoin. His response catches me off-guard: “I have no ideaThey told me that you would know.” What?! Does this guy recognize me? Does he know that I am on my way to give a Bitcoin lecture? This seems very unlikely. Gradually, I understand what he means, and I know what to do…
  • I point my smartphone at the QR code (It’s taped to the cash register next to the words: “We accept Bitcoin”). In fact, this restaurant is fully on board. I am amazed to see that a display on the register offers a custom code that is encoded with the exact meal cost. That’s really cool! So, I shift my camera to that code.
  • Immediately, my wallet asks if I would like to add a tip. (It’s hosted by an online exchange, but an application wallet will also work). I add $3 and press SEND.
  • A thermal printer next to the till spits out a narrow receipt. At the very bottom, where it would typically say “Paid with MasterCard ending in −3862”, it says “Paid with Bitcoin”. The buzzing sound of that receipt printer tells the cashier that I am good to go. Good food in the tummy and a bill has been paid. Case closed; Return to car; Drive to New York. Note to self: Find other Bitcoin vendors on trip.

What Really Happened?

In the seconds between authorization and a printed receipt, fascinating things occurred around the world. Seriously Fascinating—just like magic! It is transforming the way payments work and—eventually—the way we view, understand and manage cash. ‡

  • When I clicked SEND, a limited subset of Bitcoin credentials was presented to a massively distributed, worldwide network of miners. In effect, I informed the bookkeepers that I wish to have $15 transferred to the restaurant’s public address.
  • Seconds later, my original credentials are voided (this solves the ‘double spend problem’) and a transaction is added to a public ledger called the blockchain. My stake in that ledger now reflects slightly reduced wealth—all without a bank, government, repository, treasurer or monetary policy. In fact, there is no authority at all, except fair and transparent rules of math; something we all agree upon.

But wait! It gets even more fascinating…

The “miners” that settled the transaction and provided the new Bitcoin credentials needn’t have any awareness that they just facilitated payment for a meal at a diner in Connecticut. From their perspective, these individuals and large server farms in Iceland, China, Israel, and South Africa—and in college dorms spread across the world—are engaged in a massively distributed gaming competition. They are competing for rewards based on solving a math problem.

As you review that last paragraph, imagine the elegance of the global network. Imagine the power, robust nature, and benefit that comes from it’s redundant and decentralized architecture. Imagine the brilliance of an anonymous genius who goes by the name “Satoshi”. Imagine the incentive for disparate bookkeepers to play a critical role in balancing a world-wide ledger. Imagine that authorities cannot shut down the network or even slow down adoption or the pace of transactions. Imagine the trust that individuals, businesses, NGOs, banks and governments no longer need to can put in a monetary supply and mechanisms of accounting. (Never again must we trust institutions to record our transactions or protect our wealth). Imagine a world where this trust benefits everyone uniformly, fairly, and without a path to graft or inflation.

Bitcoin and the blockchain—introduced together—are not minor, incremental contributions to economics, bookkeeping, trust or commerce. They are overwhelmingly significant to the future of human society and every institution and inhabitant.


Notes / Caveats / Clarifications

† You may have heard that bitcoin transactions are immutable. This is a simplification. The public ledger is immutable, but transactions are reversible, if terms are clear to both parties. Just as with Ethereum, smart contracts are built into the technology. So are hooks to centralized mediation, if that’s what the agreement calls for. Charge-backs, refunds, warranty demands and other arbitration are all possible. These features are built into Bitcoin, but rarely used in this early era.

Most Bitcoin transactions today are payments; they are not charges. Although they do not typically accommodate bank-brokered returns, rescission and charge-backs, these are all possible, and often without requiring an authority to broker the dispute. But these traditional safeties or mitigation must be agreed upon in advance. No longer does the seller have all the power, or the buyer need to run to a credit card processor to complain. Sales are either immutable or brokered by a 2-party contract.

This is not your grand-daddy’s payment mechanism. It is so much more evolved!

‡ In 2017, Bitcoin went through a period of intense growing pain. Transactions became so slow and costly, that in person transactions became impossible, especially for any amount less than $500. If you needed a transaction to complete in less than an hour, you would need to enlist in a bidding contest. A quick confirmation could cost upwards of $30 US.

The restaurant payment related above was an on-chain transaction. Today, transactions that use the Lightning Network overlay may occur within a private channel apart from the blockchain. But ultimately, every change in bitcoin ownership results in an individual or aggregated entry onto the blockchain.

* Crisis in late 2017 and 2018

Sadly, in researching this article, I learned that the Darien Diner no longer accepts Bitcoin. Problems with transaction cost and delays in late 2017 and early 2018 discouraged a great many retailers. No one purchasing a $12 meal will pay $30 in fees, and a cashier is not going to wait 2 hours to validate payment from a customer who has already eaten a meal and wants to hit the road.

That glitch sparked a terrible flight from retail adoption. Even now (Q3 of 2019), retail penetration is sharply off its peak. We are barely clawing our way back to the early adoption rate. Vendors lost faith, and many don’t yet realize that their POS investment can now be safely be reactivated. Lightning Network to the rescue!

The Next Crisis

Another crisis is looming, but it too will be solved.

Although the Bitcoin network is fast and inexpensive, the proof-of-work method used by miners to arrive at a distributed consensus consumes far too much power to scale. Mass adoption would consume more power than the world currently generates.

And here’s the kicker: The mining incentive ensures that any new, inexpensive energy that might be discovered in the future would be gobbled up by miners with no additional benefits to society (or even to the Bitcoin network). All the new, free (or cheap) power would be diverted away from homes, businesses, manufacturing and public works. The incentive for grabbing every cheap watt is very much like a cancerous growth.

Clearly, this is not sustainable. Bitcoin mining already uses more power than all of Argentina. But great minds are working on the problem and alternative methods of guaranteeing a fair, crowd-sourced accounting consensus are being tested, analyzed and debated. We will get through this complex problem, and hopefully—this time—without demoralizing a key factor in the tetrad: Consumers, developers, vendors & miners.

Open Letter to Cryptocurrency Doubters

Adam Ludwin of Chain offers this interesting (and, I believe, effective) attempt to explain crypto to high-profile doubters. It is an open letter to naysayers that argues against extreme positions on both sides of the “money revolution” argument.

Check out 8 quips by Jamie Dimon, CEO of JP Morgan Chase. I believed that he had moderated his position after originally panning Bitcoin / blockchain. These quotes contradict that impression. But, they were uttered before October 2016. They may not represent his current position…

Here at Wild Duck, we aren’t fully on board with Ludwin, because we represent one side of what he suggests are two ‘extreme positions’. But we certainly are closer in spirit to his side—especially, his effort to educate those that see zero value to to Bitcoin and no profound opportunities for the blockchain. They see only fad and frenzy.

Bitcoin and the blockchain are radical, transformative instruments. But they as not as radical as some claim. In fact, they address a profound technical problem that has been the subject of research and debate for more than 2300 years. They are a surprisingly natural product of the internet. With instant, inexpensive, portable and ubiquitous communication, it is possible to distribute consensus. That consensus can be applied to any set of records: ledgers, deeds, votes, and a many things that, at first, seem quite surprising—areas that we never previously thought of as a “ledger” or an ownership stake.

A: Let’s begin by reducing two concepts into the very simplest of definitions:

  • Bitcoin is the original, decentralized, permissionless cash.
  • The blockchain is a social consensus mechanism. It crowd-sources record keeping, commitment and all manner of accountability by adding a distributed and robust log that is fair, immutable, testable and measurable. Most importantly, it is open to public scrutiny. Effectively, the blockchain crowd-sources fair play.

B: Next, let’s set aside some growth pains. They are transient:

Both Bitcoin and the blockchain are a work in progress—and so they are flawed. But that doesn’t mean that their survival is threatened. Let’s dispel two common misconceptions. I won’t argue or elaborate here. The arguments are all over this blog:

  1. Bitcoin cannot be overtaken by a better coin with improved features. This is not a situation like Beta–vs–VHS. The entire community is transparent, open source, unlicensed and without proprietary barriers. Bitcoin will simply fold competitive advantages into its architecture. That process involves a messy democratic process among parties with different interests. But, ultimately, the process works.
  2. The blockchain will correct the energy consumption that is consumed in its current implementation. We have already demonstrated that it adapts and that democratic evolution is possible. Brilliant replacements for proof-of-work are in development.

C: Now, the part that the critics cannot accept:

Both Bitcoin and the blockchain will herald a profound and fundamental shift in offering secure, trustworthy, fair, decentralized and autonomous mechanisms—not just with payments (or currency), but across the board: voting, contracts (including settlement and arbitration), Proving ownership or transactions, including property deeds and corporate stakes, provable jury evidence, administrating & enforcing environmental trade credits, verifying scientific research (especially the outcome of blind tests).

These examples barely scratch the surface of fields that will be transformed or made better by blockchain technology.

D: The really radical application was also the very first implementation:

What about Bitcoin. Is it just a payment instrument, or will it become the money?

Indeed, Bitcoin is likely to replace government issued FIAT all over the world in our lifetime (not only as a payment instrument, but as the actual store of value, without being tied to any national currency or to an underlying asset or promise). But what critics don’t yet appreciate is that this will not impact a government’s ability to tax, spend or enforce tax collection.

It will lead to a deflationary economy and it will decouple a government from its own monetary policy. These are *not* bad things. They are good for all stakeholders. Ultimately, Bitcoin will be recognized as far more of an opportunity than a threat, even by banks and governments.

Even if you vehemently disagree with D, it is difficult to argue against C. The blockchain is as fundamental and profound a contribution to society as the pulley and lever. It it so natural an evolution of the internet, that it is more a discovery than an invention. (I am not attempting take credit away from Satoshi—I am only reclassifying his invention as revelation).

About the Fuss: Is Bitcoin really so important?

This afternoon, an automated bot at Quora suggested that I answer a reader question. Quora is essentially an “Ask the expert” web site. It is the world’s largest, cataloged and indexed Q&A repository.

This is the question I was asked to answer:

Some pundits believe Bitcoin is a fad, while others seem to feel that it is better than sliced bread. I like sliced bread.* Is Bitcoin really that cool? —Or is it just a lot of Geeky hype?

One other columnist answered before me. Normally, I pass on an invitation, if a question has already been answered. But in this case, the individual answering the question has yet to see the light. He has wandered into the Church of the Blockchain, but he just didn’t realize that the man sweeping the floor is the prophet.

Here then is my answer, regarding Bitcoin, the blockchain and sliced bread…

I respectfully disagree with Jim Euclid. He answered this question too. Perhaps it is arrogant of me to state with confidence that he will change his mind, if he is still around in another 30 or 40 years. So will everyone reading this.

Bitcoin and the blockchain were introduced together in a white paper by a quasi-anonymous developer in October 2008. He or they used a pseudonym, but communicated with a broad group of developers before and after unveiling the solution to an age old problem of math, logistics and cryptography.

Just over 1 year later, Bitcoin began moving between individual owners. And then it began to re-write the history of economics, bookkeeping, consensus, trust and the very democracy that is so precious to us. It is changing what we understand about so many things. But its true contributions have barely even begun.

Bitcoin is as ‘cool’ an invention as there can be. Like the steam engine, vacuum tube, automobile, television and the internet, it is radically transformative. Each of these inventions has (or will) contribute enormously to human progress and happiness.

The problem that Satoshi solved goes back to Aristotle and has profound social implications for the future of humanity. There is no poetic license or potential for overstating the importance of both Bitcoin and the blockchain. It will impact your life—probably in very positive ways—with a punch that matches the rise of agriculture, indoor plumbing or airline travel.

Sorry, Jim. I respect your opinion, but I see the future a bit more clearly than you. The internet is a vehicle. It is certainly important. But it is only the highway. Bitcoin is the marvel that the internet’s instant, inexpensive and ubiquitous communication was meant to spawn.

I have always felt pride over the fact that I was alive when man first landed on the moon. I was a child and I had nothing to do with that achievement—but somehow, I am gratified that this event intersected with my life.

Unlike the moon landing, Bitcoin has no Jules Verne or cave paintings from past generations yearning to conquer something that is tangible. We have only Aristotle’s insight that money was not yet perfect—and his recognition that issues of democracy and governance seem to have insurmountable impediments. But the problems that Bitcoin and the blockchain address are just as real as the moon overhead. And the solutions they will spawn are even more relevant to our civilization.

I have even more pride that I have witnessed the birth of decentralized, permissionless, distributed consensus—and specifically Bitcoin. It will impact my health, wealth and happiness even more than everything that NASA and space technology have spawned.

Am I smug that I recognized the importance of Bitcoin and the blockchain just 4 months after its unveiling? You bet I am! And even if Jim doesn’t recognize it yet, someday I will rub this fact in his face.

(Kidding…but it is personally comforting to be on the right side of history!)


* Note: In America, the expression “sliced bread” refers to something that is really clever, desirable and coveted. It is often paired with the word “since” like this: That new iPhone is the best thing since sliced bread.


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or blockchain consulting.

Does decentralized currency thwart crisis intervention?

Here is another economics/policy question that I was asked to address at Quora.

The US used quantitative easing to deal with one monetary crisis, and a bailout of the automotive and banking industry to deal with another. If nations, economies or individuals begin to embrace a decentralized currency, they will inevitably shift away from government issued money. Won’t this hinder a nation’s ability to intervene in a crisis?

Answering this question goes to the very heart of the ethics and politics of cryptocurrency.

Yes. Without centralized control over monetary policy, government options for intervention in a money crisis would be severely limited. But this fact may lead to a false impression…

First, most money crises begin with government, and so there are likely to be far fewer monetary emergencies.

Here’s how the options would be limited:

  • Governments would have fewer ways to manipulate a public resource. They will still have the ability to budget, tax, borrow, build infrastructure and even wage war. But…
  • Governments could no longer amass debts that outstrip their ability to be accountable. That’s because they can no longer covertly tax via rampant printing of money.
  • They could not “raise the debt ceiling” without demonstrating fiscal responsibility, because they no longer control what everyone uses as money.
  • Government spending (and intervention, such as quantitative easing) would have to be balanced by revenue. Borrowing would be limited to creditors who truly believe in their will and ability to repay debt.

All of these “limitations” are good things—even for the governments and banks involved. It only seems limiting, because our understanding of what is money is tainted by millennia of authoritarian systems.

A capped, open source, transparent, traceable, immutable, decentralized, distributed and permissionless money supply is both fair and more robust than Fiat paper, promises or credit.

Let’s explore that last bullet, above. The point is subtle—yet, it is the key to answering your question…

Every individual, household, business, state and NGO must balance its books. If one cannot cover bills, they must find a creditor who believes in their ability to get back to fiscal health. Even nations are eventually forced to balance their books or seek a bail-out from neighbors.

But, this is not the case for the United States. We have had an ability whitewash our largess and declining industrial productivity by printing more money. How has this been possible while retaining a strong dollar?

The US dollar has been the world’s reserve currency for 47 years. This development was one of the most clever, yet potentially damaging developments of the post war order. It led other nations and consumers to treat it like gold (even though the link to any underlying asset or promise was severed by Richard Nixon in 1972).

Now that other nations are shifting this special status away from the US, we are gradually becoming just as susceptible to a house-of-cards collapse as Venezuela, Argentina, Zimbabwe, or Germany between the wars. Our massive consumer market cannot protect us. Eventually, we must ship the fruit of our sweat and intellectual bounty to serve others. After all, for more than a half century, we have been giving them pieces of paper (dollars or treasury bonds) for their TVs, underwear, sneakers, toys and sheet rock.

This unbalanced trade must be reversed. Building walls at the boarder and stiff tariffs are desperate acts that fail to recognize cause or containment. They are certainly not the way to restore a robust economy. There must be a better way for nations to get their houses in order. Fortunately, there is.

A distributed currency built on math, trust and transparency—rather than the integrity of transient elected officials from one nation is far less susceptible to manipulation, inflation or any form of shock. It won’t solve all problems immediately, be it will prevent us from getting further mired in a debt that blows up like a balloon.

The decoupling of a money supply from government will yield benefits that are difficult to imagine today. Money doesn’t need authoritarian oversight like airline safety. The situation is more analogous to the deregulation telephone and package delivery services. Without those blockbuster decisions of the 1980s, we would not have Smartphones or the internet today.


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or blockchain consulting.

Profit from Bitcoin without Investing or Trading

I find it encouraging that so many people want to know if they should get into Bitcoin. But, I am discouraged when I discover that “getting into” is a euphemism for investing, trading, flipping or HODL (Buy, then hold on for dear life).

Sure, Bitcoin is deflationary. If widely adopted, it is likely to increase in value. But adoption is being thwarted by traders. Today 95% of cryptocurrency transactions are by individuals or organizations buying or swapping cryptocurrency rather than using crypto to buy apples, a new car, or a family vacation.

Many people consider Bitcoin to be risky and not just as an investment! They think its risky to use a payment instrument. The perception of risk is associated with its widely fluctuating exchange rate. In the end, the exchange value won’t matter at all, because Bitcoin will be the money and not the dollar, yen, euro or pound. But, unfortunately, even though the argument for widespread adoption is compelling, it will not occur while we continue to see spikes and plunges on a graph.

If you are waiting for volatility to abate, then we need adoption beyond bleeding edge adopters (so called Geeks and nerds). And I am not referring to traders. We must arrive at a day when the fraction of transactions driven by purchase & sale, debt payment, salaries, memberships, fees, and settlements and big companies quoting grain, oil or ships dwarfs the fraction driven by speculators & investors. This is the only way to trigger the series of reactions that will lead to stability, ubiquity and public trust.

Trading is only one way to profit from the cryptocurrency market—and it is, by far, the most risky. In fact, if you employ the tools and techniques of technical analysis (i.e. you study graphs of performance over time), then you certainly won’t make money. In fact, you will lose your shirt.

I don’t recommend trading as a core strategy for building a career around cryptocurrency. You can make a decent living with a real crypto career, or a consulting sideline. We will get to a few suggestions below. But, if you wish to invest, day trade or HODL, stick to gradual, dollar-cost-averaging instead. Choose a small, monthly budget that doesn’t take food off the table and that you can afford to lose. This is the method of anyone who built great wealth through equities, including Warren Buffet.

Other ways to profit from cryptocurrency

In conference presentations at which I am a speaker, I often dedicate a few slides to eight different ways to derive income from cryptocurrency. I never share my conference slides beyond the presentation. When I need to give information to my sponsor or an attendee, I require non-disclosure and I give them an encrypted link to just a small set of knowledge. After all, my presentation slides are my bread & butter (more about this in Slide #2, below).

But, in response to this question, I will share 2 slides, and I will add an explanation of two bulleted opportunities…

Slide #1, Item 3

The highlighted opportunity in the middle of slide #1, POS Integration, provides a BIG bang for your time, and with little training needed. But, the window of opportunity won’t last long—perhaps just 1½ years.

What you will do is train small-to-medium retail proprietors with the tools and training to accept cryptocurrency as easily as they accept Visa or American Express, but without commission. Little or NO fees at all. A retail cashier doesn’t need much training—he just directs a shopper to a QR code on the cash register.

The process can safely operate through the existing POS receipt printer, so that the cashier knows that a purchase has just been completed. Even the accounting books are updated in real time, and the vendor is paid immediately.

I recommend using your existing relationships and focusing on small, locally owned businesses with 3 to 8 retail outlets. Small, 1-store operations may not be worth your sales & set-up time. Larger operations (like McDonald’s or Walmart) do not make this type of decision at a local level and they have directors and IT departments that dictate and implement policies dealing with handling money.

Ideally, you want a restaurateur, grocery store, professional service (medical, legal, tax prep, seamstress, etc) with More than 1 but fewer than 8 locations. That’s because your going to play “good guy”. Instead of charging them a commission that is small compared to a credit card (say 0.5%), you will charge them a one time fee of $300 for every person in the room. With this method, you can make several thousand dollars in under 2 hours.

Set-up

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Ask the owner to meet at any of his retail sites with one cashier or associate from each store. I prefer to do this on a weekend morning—but its best to avoid a time of heavy customer traffic. You need a check out aisle to be available.

Your training and tools integration can be completed in 20 minutes. The retail sales process is that easy. It’s no different than a credit card. The shopper will know what to do when they see the “Bitcoin Accepted” placard and a QR code. You are simply helping the cashier and bookkeeper that the process is trivial and the company till is even safer than with cash or credit cards.

You will need another 20 minutes to up-sell a nifty floating holographic display of the QR code. And then 30 more minutes for questions from individuals who just don’t believe in the future of Bitcoin or crypto. They want to know more than the only question that matters. “How much will I save”.

But the owner/operator and the numbers guy will definitely get it. Retail stores, and especially grocers deal with a razor thin margin. You will give them the opportunity to pick up business from early adopters and with ZERO fees and even instant conversion to Fiat if they wish. That’s why IGA Supermarkets announced this week that they will accept Bitcoin across all supermarkets this month.

The most common question will be “Doesn’t it cost to switch revenue back to dollars?” –or similarly– “I don’t want Bitcoin. How long must I wait to get dollars?” With just a little analysis of the APIs and services from which you build your consulting tool set, you will learn that the answers are very retail-friendly! In fact, payment processors will give you a much better deal than their own exchange clients, and even better than huge institutional traders. They all want to get their foot into retail, before credit card processors add it to their infrastructure.

I do not plan to provide step by step instructions in this Quora answer. You can begin by googling the companies that offer retail POS tools and then find a clever way to integrate them seamlessly into the most popular accounting tools used by small business (First Data, Veriphone, Square, PayPal, Quicken). If you or the exchange that you integrate into your crypto-processing add-on covers just these providers, you will be able to focus on your sales pitch and relationships. Now go make a killing, tiger!

Why is this opportunity still available?

Why doesn’t First Data, Citibank or Veriphone add Bitcoin to their payment options, along with Visa, Mastercard and Discover?

They will, eventually. But only after you and hundreds of other Bitcoin consultants chip away at their profits.

The card processors know that Bitcoin is almost friction free. For many retailers, it is completely free. With recent addition of Lightning Network, it is also fast. So it undermines the commission that legacy processors get from credit and debit cards. They try to harden their POS printers and accounting reports from out-of network utilization and they put doubt into business owners, telling them that cryptocurrency has no recourse or arbitration.

You will have great answers for each critique and you will win. But do it soon!

Slide #2

Of course, you can do what I do. Study Satoshi, learn a little code, try mining for yourself, research governments and their policies, learn about Aristotle and the evolution of money, dig into the forums for developers, miners and critics. Then make your presence known.

As your stature rises above the background of armchair speculators (without any agenda except to get rich), create a blog and do your best to attract attention. Market yourself as an industry pundit, expert, courseware developer, keynote speaker and a top writer at Quora.

You won’t find a sponsor for every blog post or paper that you publish, but eventually—if you are engaging, knowledgeable and entertaining—you can make a living from live events and on sight training.* Perhaps you can even earn royalties by selling courseware at Udemy or developing courseware for Diginomics.

I was fortunate. I left my career and got involved with Bitcoin shortly after the original whitepaper in 2009. Few people had heard of Bitcoin and even fewer believed it could ever be viable, even as just a payment instrument. I have turned my interest into a career. I don’t make nearly as much as Andreas Antonopoulos, but I am on the short list for paid presentations and am sought by government legislators, legal organizations, and accounting firms. All of these groups urgently need to understand crypto.

Conclusion: Is it too late to get into Bitcoin?

In the late 1930s, many individuals thought that it was too late to get into television. The first Televisor technologies were demonstrated 15 years earlier, in the 1920s. Since then, Philo Farnsworth unveiled what we now call a TV and RCA had already begun broadcasting in big cities. Many people knew someone on their block that had a TV.

Yet, with historical perspective, we can see that all of the major players of the 20th century got involved later. Few people today have heard of these early television manufacturers or the studios that made shows. Have you?

So, is it too late to build a career or a business around a new technology that was demonstrated only 10 or 15 years ago and is already being commercialized? Has that ship already sailed? Of course not! That ship hasn’t even docked. Seats are empty. Opportunities are just beginning. Crypto titans of this century are still in primary school or have not yet been born. (But for opportunity #3 on slide #1 above, get act together quickly


* It’s difficult to get paid by a conference. For a big expo, its almost impossible, even for the headliner. For an educational workshop, it is almost as hard. The host may cover travel and hotel, but typically tries to avoid paying speaker’s a stipend.

Show organizers want you to pay them! They want you to value a few minutes on stage, because they assume that you want to sell something. Just as with attendees, they see you as a customer. With a bit of effort, you can reverse the value proposition.

Convince the organizer or host that you are the product and not a customer. Explain the value that you bring to the conference. You enable them to sell more VIP seats.


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or blockchain consulting.

Cars, Gold, Houses, Toys & Stock: What gives value?

The title of this post is intentionally misleading. We frequently discuss the traits that lead to value in this Blog. But today, I was asked a more nuanced question: “What things will hold their value?

And there is a ulterior motive in being a Wild Duck contributor. Analyzing the dynamics of durable value leads to some surprising conclusions about the money supply and what a society chooses to use as money. We’ll get to this at end of this post.


We know that value comes from supply and demand. There are no exceptions. But, we have not addressed the properties that make an asset hold value over the long haul. Let’s consider some examples…

Cars

In an affluent, mobile society, most people desire personal, point-to-point transportation — and so there is clearly a demand for automobiles.

But style & technology change rapidly and automobiles deteriorate with use and weather. After 8 to 10 years, their cost and maintenance rise dramatically, and owners lust for a new model. So cars don’t get our award for assets that hold value.*

Popular Toys

In the 1970s, the Cabbage Patch doll from Calico Industries, and later, Tickle Me Elmo in the 1990s created a buyer frenzy that rivaled a lemonade stand in the desert. Shoppers fought each other to grab a limited supply. Clearly, demand was very high. The one shown below is listed at Ebay this week with a starting bid of $5,000. Other, less popular styles can be found for $4.99.

At first, this demand was driven by clever marketing and crying children in the week before Christmas. Demand was driven by a parent’s love. But at the peak of frenzy, demand shifted to buyers without children who felt certain that they could profit from selling the dolls that they snatched up first.

But the demand was not durable. Fads driven by frenzy don’t hold value for the long haul — especially when a manufacturer can simply turn the spigot back on.

Stocks & Bonds

A share of stock represents ownership in a corporation. A municipal bond represents a lien against a city—or the fees generated by an infrastructure project.

In both cases—especially bonds, which are a limited promise—no one expects value to last forever. It is a time-sensitive bet with the intention of expiration, redemption or exchange. So, these things also fail our criteria for durable value.

Houses & Real Estate

Like cars, homes require ongoing maintenance. But, most people weigh the maintenance cost against the benefit of having shelter, rather than comparing it to their gain or loss in value.

On the other hand, real estate value fluctuates in the long run due to things that are difficult to predict — population density, demographics, and quality-of-life issues related to infrastructure: weather, seismic events, politics, and access to health care and education.

Some real estate rises enormously in value over 50 or 100 years. Yet, we have seen boom-and-bust cycles that wipe out substantial wealth. So, real estate does not cut it in our contest for durable value.

Gold

The allure of gold and other precious metals is that their supply is capped — or limited by slow and predictable growth. The asset is difficult to find. It is acquired only from natural phenomena.

So, if we can also make it fungible, divisible, portable and difficult to counterfeit, then it meets most of Aristotle’s requirements for a functional currency. Theoretically, this can lead to widespread demand.

Gold certainly has exhibited its ability to hold value throughout thousands of years. But it is not so easily tested and divided in the field, and the impression that it has intrinsic value is an illusion. That’s because the fraction of gold acquired by investors dwarfs the amount actually needed for dentistry, electronics and even jewelry. In this modern era, even gold is becoming a house of cards, because its value is built upon speculation and emotion.

Oil (aka “black gold”)

With the rise of the automobile and power plants that burn fossil fuel, oil became a reserve currency of the 19th and 20th centuries. But there are two problems with it holding value over the long haul.

First, unlike gold, oil is a consumable in every market. Therefore it is difficult to think of it as an asset. Also, we now live in a century in which energy and transportation is rapidly switching away from oil, while at the same time, new technology is making it cheap to acquire new oil. This (along with a history of violent political theater) dramatically deteriorates its potential as a store of value in coming years.

Money

The supply-demand dynamics of money is widely misunderstood. More than 2,300 years ago, Aristotle defined the properties of a functional currency.

Earlier, we stated that all value comes from supply and demand. But, it is fair to ask “What creates the demand?” or “What backs the expectation of future demand?” Surprisingly, even if we limit our scope to just one country (USA), the value of government-issued currency has been tied to different things over time:

  • Gold
  • Promise of redemption
  • Legal tender (public must accept it for all debts)
  • Settlement of taxes
  • The “good faith and credit” of workers

Ultimately, demand is influenced by oversupply and by public perception more than government promises or laws. The perception that the US dollar has no cap and that its supply can be inflated whenever a body of transient politicians decides to raise the debt ceiling may eventually cause its value to collapse. Although it has not happened yet, at some point consumers (or those holding our debt), will begin to question if Americans have the capacity and will to produce and export the goods & services necessary to balance their mass consumption of the past half-century.

And so, government-issued Fiat does not pass our smell test for durable value. Sooner or later, all national currencies collapse. On a personal level, the only question that matters is if you will be caught by surprise—with a fraction of wealth tied to your favored currency.

What has the potential to meet all
requirements for holding value?

Wouldn’t it be fascinating if we could find an asset that is a product of pure mathematics? A perfect asset would be fair, fungible, immutable, and capped. It could never be inflated or manipulated by politicians. It would decouple governments from monetary policy. It would be politically agnostic.

If correctly designed, it would be capable of absorbing and incorporating improvements developed by any copycat or pretender nipping at its heels. Most important, it would be open source, peer-to-peer, massively distributed, redundant, and completely permissionless.

This perfect asset would derive trust from mathematics and crowd-sourced consensus. It would not require that anyone believe in a government, a bank, a land mass, or the uncertain supply of precious objects. Authenticity could tested easily and its value transmitted instantly. The history of each unit would be completely transparent. With free tools, anyone, anywhere could trace its history of moving from one owner to the next.

Ten years ago, such an asset was unleashed into the wild by a person or team of developers under the pseudonym, Satoshi Nakamoto. It not only meets all of these requirements, it has built-in immunity from competition. It even resolves a technical problem that troubled Aristotle more than two millennia ago.

I won’t name this radical yet natural evolutionary development in this answer—but, I can confidently state that it passes our test for an asset that will hold value over time. Despite a wildly fluctuating exchange rate with Fiat currency, its inherent value has never dropped. Ultimately, you will no longer asses value based on the exchange rate of an anachronistic currency that fails all of the other smell tests. Instead, you will assess value on how many heads of lettuce you can buy or how much that new sailboat costs.


* A classic car avoids the problems associated with use & maintenance—and it can hold value over a long period. But like a Picasso painting, the market for classic cars has a limited audience, especially for the florescent green ’63 Mustang that I found in in my great uncle’s garage. Additionally, it is subject to the whims of popular perception. Styles go in and out of vogue and so we cannot predict how long that car will hold value. (Please call me if you value my uncle’s Mustang at more than $150,000).

How can Bitcoin be divided into small units?

As with other recent articles, this one was originally published as an answer to a member of Quora, a Q&A site in which I am a cryptocurrency columnist. And just like the previous one in this series (also posted today), this is a Q&A exchange with a newbie—Bitcoin beginner.

The question is simply: “How can Bitcoin be divided into units smaller than one?” While the answer may seem obvious to someone versed in math, statistics or economics, I get this question a lot—or something very similar. It’s difficult to explain that “one” is just a number and not a living thing. And so, I turn the explanation around by asking a nearly identical question; one that the enquirer can probably answer easily.

The goal is to provide the tools to answer the question, in a manner that helps readers recall and make use of the answer in the future. This is my new approach…


Puzzle me this: Can you divide 100 into smaller pieces? Of course you can! You just divvy it up. After all, it’s just a number.

  • Let’s say you divide 100 by 10: You get 10 pieces of 10 each.
  • Now, starting with the same 100, say that you divide it by on hundred. This gives one hundred pieces of ‘1’ each.

Until now, we have been talking about a number—not a real thing. Next, lets say that you start with $100 (a single bill with Ben Franklin on the front). You are in a casino, standing next to a bill/coin change machine. No counterfeit bills; no funny stuff.

Can you divide it into smaller bills? Sure! The change machine gives you one hundred crisp notes with George Washington. on the front.

Now, about your question: You are already down to pieces of just 1 unit each (i.e. one US dollar). Is this the limit of granularity? Is there no way to divide the units any further?

Of course you can! You can exchange each dollar for 4 quarters, or 10 dimes or even 100 pennies. One cent is just another way of saying 0.01 dollars.

And don’t stop there. Just because the government doesn’t bother with coins of a smaller denomination, a processor that deals in micro-payment or a seller that holds credits for small, cumulative purchases (i.e. web visitor clicks) could easily track your credits based on much smaller units—say one millicent, or 1/1000 of a penny.

Example: Suppose that a natural gas pipeline crosses the territory of an indigenous population in the interior of a country. The government enters into an agreement that pays the tribal authorities 1/30 cent for each 500 BTU of gas energy equivalent that passes through the pipeline. Micro payments, contracts and quotations are of this kind are crafted frequently.

Bitcoin is even more flexible than a dollar, because it is a virtual ledger that is stored across many bookkeepers. The ability to deal with small units is simply math. The protocol was designed to support 8 decimal places, but this can be extended to even smaller units.

In fact, the total number of Bitcoin that can ever exist (21 million BTC) could have just as easily been called 1 BTC (or 10 trillion BTC). It really doesn’t matter. That decision was arbitrary. To make things convenient for buyers and sellers, we will all eventually refer to the units that put our everyday purchases in the range of 1-to-100.

Pieces of Eight: Divisibility by design

For example, on the USA east coast, a wrapped head of fresh lettuce costs 0.000166 BTC.* That’s an awfully small number to remember or to work with.

But wait! Bitcoin already has a unit name for (1) one-hundred-millionth of a bitcoin. We call this a “satoshi”. Each satoshi is equal to 0.00000001 BTC.

So, that same head of lettuce costs 16,583 Satoshis. But this is also a difficult number to work with. It sounds more like the amount of money you spend on a car and not a small consumable.

So, if Bitcoin were in wide use today at the grocer and other retailers, we would probably be quoting and comparing units of 1/10,000 BTC. Let’s call each unit 1 DC, for “deci-milli”.

At today’s exchange rate, a head of lettuce costs 17 DC and a basic Toyota Camry without the expensive options will set you back 16,700 DC.*

Will you get used to it? Sure! It’s no different than moving to France. Your intuitive feel for the cost of things will become second nature when vendors begin quoting goods and services in units of bitcoin. Soon, even advertising and catalogs will display prices this way.

When this happens, all sorts of good things follow. For example, the volatility that we perceive today (because we are comparing Bitcoin to the US dollar) will disappear. Prices in BTC (or DC) will seem quite stable, even though the US dollar will seem to have unpredictable spikes and dips.


* Assumptions / Exchange Rate

  • On the USA east coast, a head of lettuce is $1.99. (New York is far from California and Mexico where lettuce is less expensive)
  • At the time of this post, 1 BTC = about $12,000 USD
  • A base model Toyota Camry without tax or extra features sells for about $20,000

Related:


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or blockchain consulting.

Why is it impossible to create more units of Bitcoin?

This article was originally an answer to a member of Quora, a Q&A site in which I am a cryptocurrency columnist. The reader is a “Bitcoin beginner”. If you understand the nature and purpose of a blockchain, the political leanings of Satoshi or the economics of a capped cryptocurrency, then this reviews things that you already know. But sometimes, a recap can be fun. It helps ensure that we are all on the same page…

In a previous post, we have already addressed a fundamental question:

It has nothing to do with how many individuals can own bitcoin or its useful applications. It simply means that—if widely adopted as a payment instrument or as cash itself—the number of total units is capped at 21 million. But each unit can subdivided into very tiny pieces, and we can even give the tiny pieces a new name (like femto-btc or Satoshis). It is only the originally named unit (the BTC) that is capped.

But, this article addresses a more primitive question. (Actually, it is a naïve question, but this adjective has a negative connotation, which is not intended). I interpret the question to be: What prevents me from creating, earning or being awarded an amount that brings the total circulation above 21 million BTC?


The question is a bit like asking Why there are only two solutions to a quadratic equation? — Or (a metaphor): Why can’t you own a new Picasso painting?

In the case of Picasso, it’s because we know the ownership and location of the 1,885 paintings created during his lifetime. The Old Guitarist (shown at bottom) is at the Art Institute of Chicago. Unless there has been a serious error in record keeping, there cannot be any more paintings, because he is no longer around to produce new art.

You cannot create more bitcoin than the 21 million scheduled for release because that’s all the math yields. It is the capped quantity that Satoshi wanted in circulation—because he/she sought to create a deflationary token that could never be gamed by politicians or anyone else.

Consider the alternative. The Zimbabwe dollar had no cap. When the government needed more cash, they simply printed more. (This is exactly what the US does today). Eventually, they had 4 recalls and “official” devaluations. But, of course, the value of a Zimbabwe dollar (just like a US dollar, bitcoin or a Picasso painting) is not established by edict. It floats with supply and demand.

Eventually, 100 trillion Zimbabwe dollars was worth US 16¢. Then, it collapsed completely. You can still find a few 100 trillion dollar notes on Ebay. Ironically, they cost far more than 16¢, because western collectors are fascinated by them. Just as with a Picasso painting, all value boils down to supply and demand.

Of course, no citizen of means used the local currency even before it collapsed. They simply couldn’t trust their treasury. Today, Zimbabwe uses dollars, rands (SA), British pound and euros.

What about the US dollar? Only the most arrogant citizens believe that we control such a vast consumer market (and that we are such a huge debtor) that the world must continue to value or paper. But is this realistic? Is it sustainable? Does U.S. debt ever have to be repaid with real sweat and real products sought by creditor nations? Of course it does. The alternatives are unthinkable: We would go the way of Zimbabwe, the Roman empire—or worse. Think of the Wiemar Republic between world wars.

The US dollar has no cap. A trillion or so new dollars are printed ever year, in a series of emergency measures that transient politicians call “raising the debt ceiling”, or an “emergency requisition”, or humanitarian, infrastructure, disaster relief, military necessity, debt repayment—or whatever. This leaves us 20 trillion in debt and with no path to recovery. Our own president openly asked why we can’t just print even more money to square up with our creditors.

With Bitcoin, we will never face that problem. Will adopting Bitcoin as legal tender interfere with a government’s ability to tax, spend or enforce tax collection? Not at all! But one day, it will decouple governments from control of their money supply. And that will be a marvelous thing—for both individuals, organizations and governments. It will force nations to balance their books—just like every household, business, NGO and municipality.

When this happens, governments can still raise money (from taxes) and they can even borrow. But just as with an individual or corporation, they will need to find:

  • Creditors (or shareholders) who truly believe in the ability to repay
  • This means they are creditors that believe in a nations institutions & ethics
  • And this leads to a conclusion: What better way to move our institutions and ethics in the right direction than through the accountability owned to our creditors.

Bitcoin is the embodiment of radical technology, but it is not a radical concept. It is the simple and functional embodiment of free-market economics. It addresses a market need that Aristotle fervently researched 2050 years ago, but failed to resolve. Gradual adoption is analogous to denationalization of telephony, airlines and package delivery services. Imagine the positive fallout when this occurs! Hopefully, we will around to witness a society in which governments are decoupled from monetary policy & control!

Related:


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or blockchain consulting.

Update: Building (and placing!) a Bitcoin ATM

A new section about Bitcoin ATM business models
has been added. Jump to “UPDATE – July 2019

The good news is that building a Bitcoin ATM is easy and less expensive than you might expect. But, offering or operating them engulfs the assembler in a regulatory minefield! It might just be worth sticking to selling bitcoin on PayPal (visit this website for more information on that). You might also wish to rethink your business model —especially user-demand scenarios. See our 2019 update at the bottom of this article.

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 makes all the difference in the world. And your ATM must interface with an exchange—yours or a 3rd party exchange.

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).

Regulations: A Threat to Your Business

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 client (a 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.

_____________

UPDATE – July 2019: ATM Business Model Requires Urgency

The economics of Bitcoin ATMs is thoroughly uncompelling, unless you own or administer a public area with high foot traffic. Even with lots of traffic, the business model has a problem…

Bitcoin is easily acquired and exchanged online—both legally and illegally. Often, I urgently need to find a bank ATM, especially when travelling. But, despite being an avid proponent and adopter of cryptocurrency, I can’t imagine needing a crypto ATM. Needing virtual exchange is rarely urgent, and there are better alternatives than standing in front of a machine. After all, we each have a better machine in our pockets.

Online trading is easier and safer than via ATM. Even user anonymity is better online than standing in a public place and using a kiosk equipped with a camera.

Therefore, the business model of placing equipment requires scenarios in which the needs of prospective clients have urgency. Urgency adds significant value to local service. But again, there is a problem…

The problem with using urgency to build a local delivery model for ATMs, is that Bitcoin is a virtual product. Even a seller or exchange in China can deliver an online money exchange instantly.

Consider this reverse analogy…

Suppose that you are responsible for setting up a video projector in a hotel ball-room. The conference is already in progress and hundreds of people are looking toward a blank movie screen. You suddenly discover that your video cable is defective and wireless options will not work . You need an HDMI cable and a thunderbolt adapter immediately. It must be at least 18 feet long and be a recent model to support the audio channels and resolution of your presentation.

QUICK—Find me an exact match!

The local Best Buy store has the cable in stock. It’s $89.99 and the store can have it at the front desk in the next 10 minutes. Your frugal partner finds the same cable online for $29.99 (2-day delivery) or $9.50 shipped from China (about 2 weeks).

Which do you choose? Is it just a cable that you need? No! The value that you require is a compatible cable in your hands within minutes — preferably from a local and experienced vendor, in case there is an installation or application problem.

In almost any scenario—even catering to impulse buyers—a Bitcoin ATM can’t match the value of someone delivering a compatible cable instantly. If it is a commodity that you are selling (Bitcoin is a commodity), then a profitable business model requires that you sell speed, convenience or privacy. Cryptocurrency ATMs lose on all three fronts.

That last paragraph above is my freebie to the next ATM vendor who seeks my consulting services. Test your model, before seeking help in penetrating a market that is tough to define and defend.


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.

 

Bitcoin On a Tear; Ellery’s Updates

June 25, 2019 — Latest Bitcoin Updates

In May and June 2019, Bitcoin’s dollar value rebounded handsomely. In just 3 months, it rose from $3850 to $11,800/BTC. «— and above $13,500 just after publication

Pundits point to Facebook’s release of a whitepaper and framework for Libra, a proprietary coin. They speculate that the Libra announcement legitimizes crypto. It’s possible, but Libra is a very different animal. It’s neither decentralized nor permissionless. In fact, it is not a blockchain coin or even a cryptocurrency).

But, it is folly to attribute this recovery to particular events. Few fundamentals can be identified. This time, there is no ETF or government action that points to fresh investor interest. It could even be increased organic adoption. There are just too many moving parts to gauge short term movement.

The Bitcoin and crypto posts linked below are shorter than articles here at Wild Duck, because they are answers to reader questions. But, this also means that they are simple, clear and digestible…

BTC plunge: Why I don’t worry

Join me for a quick review of the spikes & dips in the Bitcoin exchange rate. This time, it’s all about one very simple chart. [continue below graphic]…

The chart below shows a history of BTC price spikes, dips and recovery. Click to enlarge, then start at the top—and move down.

      • Consider the percent-pullback after each spike (red label)
      • Think about the stellar rebound after each drop (green label)

This is why I do not get too worked up over the eaxhc plunge in the BTC exchange rate. There are no fundamental flaws in Bitcoin math or mechanisms. The market need for the benefits conveyed by Bitcoin is terrific, and the most popular arguments against Bitcoin are severely flawed. Skeptics and Critics typically say something like this:

“Even if blockchain currencies are beneficial and inevitable, Bitcoin can be displaced by another, better cryptocurrency.”

—Or—

“A viable crypto may emerge—but it will be one that is backed by a tangible asset or issued/sanctioned by government.”

These arguments are false. They are made by individuals who don’t yet fully appreciate the mechanism and its relationship with trust, money, government and free markets.

What Bitcoin currently lacks is education, familiarity, standards, simple commercial tools (built upon clear analogies), definitive best practices, a widespread understanding of multisig & security, and limited recourse for certain commercial & retail transactions. But Bitcoin is still an infant, just like the early TV or the early telephone. All of these are under development—without a hint of significant obstacles. Even the messy process of democracy among the various stakeholders is heading toward harmony (miners, developers, vendors, exchanges and consumers).

Of course, I am bullish on Bitcoin, and this may color my analysis. But, I try hard to keep an open mind. There have been moments in its history where I have questioned the market need or the potential for a setback in politics, legislation, or the mechanism itself. Those doubts are in the past. Bitcoin has demonstrated the elegance and value of the blockchain—and the ability to evolve beyond the blockchain with SegWit and Lightning Network. It has achieved a fluid, robust and growing two-sided market.

No one holding assets likes to see a big price pullback. It’s natural to look at the market as if we each got in at the peak—and then tally the “losses”. But I, for one, am not glancing toward the exit. I see the future and I sleep well at night. I am comfortable participating in the Bitcoin era.

Best Bitcoin wallet: Hardware or hosted?

The question asked in the title has been edited from what was asked today at Quora, the Q&A forum at which I participate as expert columnist. The original question was a bit more ambiguous: “Which is better? — a digital bitcoin wallet or a physical one?”

I have included the original question, to better distinguish products and terms.

All bitcoin wallets are all digital—even a paper wallet, whether a character string or a QR code. Conversely, an exchange may use “physical” wallets to host client assets, individual application wallets, or they may simply keep records of client assets that are stored, collectively, in their own master wallet.

To complicate matters, Bitcoin is never really “stored” by you or an exchange service. It is stored on a public blockchain, where assets and transaction history can be traced through time by anyone. Therefore, all forms of user access are “digital”. What the reader really wants to know is “Which form of access control is better?  — custodial or personal?”

Type 1: Custodial Wallets are Managed by a Trusted Party
They hold your assets. You view a statement balance—just like a bank account.

The reader uses the term “digital wallet” to mean a hosted wallet in which a trusted 3rd party holds the private keys, or aggregates the assets of many customers and tracks their individual ownership in their own accounting system, like a traditional bank or broker. In this case, the 3rd party is trusted to maintain security, privacy, and constant, robust user access.

It is possible that the reader may have used the term “digital wallet” to additionally refer to PC and smartphone applications, such as Bitcoin Core, Armory or Electrum. But, these are really personal and private wallets — because they are created and configured by the owner, and only the owner has the private keys. And so, we classify device wallet applications as “personal/private” along with hardware or paper wallets.

Type 2: Personal Wallets are Private
—but with privacy comes risk!

Wallets are personal if the private keys are generated and stored by the user, either on paper, in their PC or smart phone, on a thumbdrive, in a hardware wallet, or even uploaded to cloud storage. As long as the asset owner holds the keys and securely encrypted any uploaded file that contains the keys, the assets are accessible only with his consent.

So, which wallet class is better for securing cryptocurrency access credentials? Custodial or Personal? Which of these models best fits your needs?

  • A custodial wallet is like a bank a statement. Your assets are maintained by an exchange, rather than tucked into your mattress. The wallet and keys are not under your control, but the process that governs backup and security is rigorous & standardized. Availability to your heirs is governed by documents and laws.

—OR—

  • A personal wallet is completely controlled by you. The private keys must be stored where you will always find them (in your head, a lock box or an encrypted file that is distributed to family in a way that they will always be able to unlock it!). Ensuring future availability, swift transactions or passing wealth after death requires careful attention to tools, process and a secret.

A crypto purist or Libertarian might insist on taking full control of the assets. That is, storing them locally and with only the owner having the private keys. This is analogous to storing bars of gold in a safe and then burying the safe in a deep, covered hole in your yard—and in a spot that only you can find. Even if your children can find the safe after you die, it is equipped with explosives that will completely obliterate the gold, if it is unearthed without the correct password.

I am privacy zealot. And yet, to the dismay of some followers, I believe that—for most cryptocoin owners—a hosted, custodial wallet is better than taking possession of a hardware wallet, paper wallet or digital wallet (anything that the user personally stores in a PC, phone, on paper or in a personally encrypted cloud account).

To explain, I shall call out [1] a critical requirement, and [2] the deciding factor in determining this advice applies to you.

1. Critical Requirement

The host must have impeccable credentials, a solid and ongoing regimen of security reviews and unscheduled audits — and they must be sufficiently capitalized by large, respected organizations, such that widely recognized individuals and organizations are at substantial risk if anything were to go wrong.

Trust among strangers is easily scammed. So let me be clear. Regarding the investors, board, executives and security auditors of a custodial wallet service, both their reputations must be at risk as well as their worldwide assets across other business areas.

Coinbase in San Francisco is such an exchange and hosting service. Currently, there are only two others that meet this extreme level of vetting. If Fidelity Investments enters the market as a crypto-hosting service, they would likely meet this bar.

2. Deciding Factor

There are few individuals for whom direct and private ownership makes sense. In fact, until this month, it did not make sense for me. I am only now configuring my first hardware wallet. I still trust Coinbase to host and control most of my assets.

The reasons boil down to security, forgetfulness, errors, legacy ownership and instant access. The ONLY factor that is arguably better with personal custody & control is privacy.

Due to a lack of education, standards, and definitive best practices, this option makes sense for fewer than 5% of Bitcoin owners. Take me, for example… I have been involved with Bitcoin since the first years of its existence, and have been a Bitcoin educator since shortly after Satoshi’s original bombshell. Today, I am a keynote presenter at blockchain and cryptocurrency conferences. I teach blockchain seminars, design courseware for colleges, and am co-chair of the Cryptocurrency Standards Association and partner in Blockchain Research Council.

Yet, I am only now configuring my first hardware wallet. I still trust Coinbase to host and control most of my cryptocurrency.

How do I know if I am a candidate for full / private control?

Using an exchange hosted wallet service is best for most individuals. But, for some, it makes sense to maintain private, local control of blockchain assets. If all criteria in the bulleted list below applies to you, then local and private ownership might make sense. But if you fail even one criteria, then WAIT! Wait until multisig becomes uniform and ubiquitous — and wait until a larger fraction of society is comfortable with the concept and practice of managing private keys. These are gradually becoming new norms. But, it will take a few more years for the world to become comfortable with an unfamiliar concept: personal control of a decentralized asset.

You are a candidate for using a personal wallet if you plan to control and secure your own private keys, and if you meet all conditions listed below. The technical criteria will not be requisite in the future—but they are necessary today, because the market currently lacks simple, standardized, widespread tools and uniform practices for safely securing, accessing and passing on these credentials to your heirs.

Do all of these criteria apply to you?

  • You have a comprehensive understanding of cryptography, including the principals of RSA public-key crypto.
  • You have practiced multisig decryption for at least a year. For now, you will need to roll-your-own multisig, to ensure that your heirs or executor can access your wealth in the event of death, forgetfulness or incapacitation.
  • You have experience and a clear, documented and standardized plan for separately encrypting and distributing your private keys.
  • You understand how to implement a hard fork and have the time to do it after any hard fork split.
  • You have an exceptional need for privacy or anonymity, and you feel that a custodian is more likely to “sing” in the event of an audit or court order.
  • You have a rehearsal plan for testing your multisig recovery and a willing group of trusted friends (most of them younger than you) who can combine their keys to access your wealth.
  • After ensuring that encrypted wallet works, is completely secure and is accessible to your heirs, you have replicated it in a sufficient number of places, that you are certain that your heirs will find it after you die, even if it is 90 years in the future.

    It must not only survive your lifetime, but the knowledge of where to look and *IF* to look, must be certain, even if your home burns down, your cloud accounts have been deleted and/or Google, Amazon, Microsoft & Apple are no longer in business.

If all conditions apply to you (and only if they apply), then you may be among the 5% of enthusiasts for whom a personal hardware wallet makes sense. At some time in the next few years, it will make sense for a far greater fraction of cryptocurrency holders, rather than just the most disciplined and knowledgeable Geek-enthusiasts.

Will we all be using a Blockchain currency some day?

At Quora.com, I respond to quetions on Bitcoin and Cryptocurrency. Today, a reader asked “Will we all be using a blockchain-based currency some day?”.

This is an easy question to answer, but not for usual Geeky reasons: A capped supply, redundant bookkeeping, privacy & liberty or blind passion. No, these are all tangential reasons. But first, let’s be clear about the answer:

Yes, Virginia. We are all destined  to move,
eventually, to a blockchain based currency.

I am confident of this because of one enormous benefit that trumps all other considerations. Also, because of flawed arguments behind perceived negatives.

Let’s start by considering the list of reasons why many analysists and individuals expect cryptocurrencies to fail widespread adoption—especially as a currency:

  • It lacks ‘intrinsic value’, government backing or a promise of redemption
  • It facilitates crime
  • Privacy options interfere with legitimate tax enforcement
  • It is susceptible to hacks, scams, forgery, etc
  • It is inherently deflationary, and thus retards economic growth
  • It subverts a government’s right to control its own monetary policy

All statements are untrue, except the last two. My thoughts on each point are explained and justified in other articles—but let’s look at the two points that are partially true:

  1. Indeed, a capped blockchain-based cryptocurrency is deflationary, but this will not necessarily inhibit economic growth. In fact, it will greatly spur commerce, jobs and international trade.
  2. Yes, widespread adoption of a permissionless, open source, p2p cryptocurrency (not just as a payment instrument, but as the money itself), will decouple a government from its money supply, interest rates, and more. This independence combined with immutable trust is a very good thing for everyone, especially for government.

How so?

Legislators, treasuries and reserve boards will lose their ability to manipulate the supply and demand of money. That’s because the biggest spender of all no longer gets to define “What is money?” Each dollar spent must be collected from taxpayers or borrowed from creditors who honestly believe in a nation’s ability to repay. Ultimately, Money out = Money in. This is what balancing the books requires in every organization.

This last point leads to certainty that we will all be using a blockchain based cryptocurrency—and not one that is issued by a government, nor one that is backed by gold, the dollar, a redemption promise—or some other thing of value.

Just like the dollar today, the value arises from trust and a robust two sided network. So, which of these things would you rather trust?

a) The honesty, fiscal restraint and transparency of transient politicians beholden to their political base?

b) The honesty, fiscal restraint and transparency of an asset which is capped, immutable, auditable? —One that has a robust two sided network and is not gated by any authority or sanctioned banking infrastructure

Today, with the exception of the United States Congress, everyone must ultimately balance their books: Individuals, households, corporations, NGOs, churches, charities, clubs, cities, states and even other national governments. Put another way: Only the United States can create money without a requirement to honor, repay or demonstrate equivalency. This remarkable exclusion was made possible by the post World War II evolution of the dollar as a “reserve currency” and the fractional reserve method by which US banks create money out of thin air and then lend it with the illusion of government insurance as backing. (A risky pyramid scheme that is gradually unravelling).

But, imagine a nation that agrees upon a form of cash that arises from a “perfect” and fair natural resource. Imagine a future where no one—not even governments—can game the system. Imagine a future where creditors know that a debtor cannot print paper currency to settle debts. Imagine what can be accomplished if citizens truly respect their government because the government lives by the same accounting rules as everyone else.

A fair cryptocurrency (based on Satoshi’s open-source code and free for anyone to use, mine, or trade) is gold for the modern age. But unlike gold, the total quantity is clearly understood. It is portable, electronically transmittable (instant settlement without a clearing house), immutable—and a precious substance needn’t be assayed in the field.

And the biggest benefit arises as a byproduct directly of these properties: Cryptocurrency (and Bitcoin in particular) is remarkably good for government. All it takes for eventual success is an understanding of the mechanism, incremental improvement to safety and security practices and widespread trust that others will continue to value/covet your coins in the future. These are all achievable waypoints along the way to universal adoption.


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He is Top Writer at Quora and sits on the New Money Systems board of Lifeboat Foundation. Book a presentation or consulting.

You don’t understand Bitcoin because you think money is real

Maria Bustillos is founder of the blockchain supported publication, Popula. I stole the title of this post from her essay at Medium.com (linked below).* I hope that Maria considers it a tribute rather than title-plagiarism. Her article is blocked by a pay wall, so allow me to explain a concept that confounds even a Nobel Prize winning economist. My take on the issue is somewhat different than Ms. Bustillos.

The difficulty understanding or appreciating Bitcoin boils down to a misconception that the dollar is backed by something more tangible, such as gold, guns or the promise of redemption. Not only is this an illusion, but Bitcoin is backed by something far more tangible, intrinsic and durable.

The illusion that “real” value emanates from government coupled with a robust consumer economy has been woven into our DNA for millennia. But, the value we attribute to a Dollar, Euro, or Yuan is a result of conditioning rather than any intrinsic value. That same conditioning has led us to believe that there is something sane and inherent in a nation that controls its money supply and its monetary policy.

Most public works projects—power generation, space ships, or the telephone network—were controlled by government in the past. If not, they were regulated as a licensed monopoly. This creates a choke point, a lack of competition, and a gaping opportunity for inefficiency, mismanagement or graft. It defies a free market economy and it concentrates power in the hands of politicians. But, at one time, it seemed necessary.

You might assume that government controlled these industries because they relate to areas of critical infrastructure and public welfare. That’s part of it, but it’s not the real reason. In each sector, a distributed or free market solution was prevented due to technology limitations or issues of scaling and geography.

Government issued money exists because in the past, we had no mechanism to arrive at a consensus on the value of something that is portable, fungible, secure, anti-forgeable and easily transmitted. Not even Gold fits the bill (pun intended). Prior to 2009, the only thing that met the criteria for money in a modern society was government issued fiat. At least someone, somewhere said that this is money and that this is what we must use to pay our taxes.

Today, there is no more reason for a government to control its money supply than there is for it to control communication networks, space travel or package delivery services. Today, a free and competitive marketplace benefits all of these industries and even government itself. And here’s the kicker: No harm will come to a government that uses a completely trusted, transparent and decentralized currency, rather than firing up a printing press whenever a group of transient politicians spends beyond their means.

The economic order facilitated by the blockchain is not as radical as it seems. Aristotle lamented the lack of an accounting tool that we can now address via the clever combination of encryption and a communications network that is both instant and ubiquitous.

I am not smarter than the average bear, nor am I clairvoyant. Once in a while, I recognize a truth before the masses—and before its time. It’s time to clearly and succinctly illuminate business, banks, consumers, creditors and government:

  1. The value we attribute to the dollar is an illusion
    ..
  2. Bitcoin is not just fair and cost effective. It is tangible and durable. It is good for consumers and good for governments.

Bitcoin ushers in an era of accountability and more fairness. It does not facilitate crime, nor interfere with a government’s ability to tax, spend or enforce tax collection.

Bitcoin is a cryptocurrency with a firmly capped supply. Will it lead to deflation? Could governments lose control over their own monetary policy? Yes to both questions…

But, these are each good things. Capping the money supply and decoupling a nation from monetary policy not only eliminates inflation—it increases access to capital, retires debt more quickly, reassures creditors, imposes transparency and honesty—And it accelerates economic growth, rather than retarding commerce.

Dispelling three millennia of conditioning can be confusing and unsettling. I hate understanding something before my peers. Let’s please get ahead of the curve on this one. I want to enjoy the benefits of using real money in my lifetime.


Related Reading:

* I wrote the first article more than 7 years ago. It is a simple explanation of a geeky, new economic mechanism. Bitcoin had not yet entered mainstream media nor gained attention of Wall Street investors. But consider the similarity to Maria’s tutorial in the 2nd article. Perhaps Maria and I think alike!

Getting into Bitcoin? 2 subtle points…

Andreas Antonopoulos releases a new talk on his YouTube feed several times each week. If you are still a Bitcoin doubter, watch his latest video with an open mind. It highlights two subtleties of utility and adoption that can overcome the gap between early adopters and doubters.

Early Adopter: I do not refer to an investor, but one who embraces Bitcoin as both a payment instrument and a currency. Someone who realizes that is very likely to become a stateless currency some day.

Doubters: These are individuals who see Bitcoin as either risky, unnecessary, susceptible to hacking & scams, or fueled by libertarian anarchists. In general, they do not perceive a fundamental or compelling benefit to a stateless currency—or they believe that Bitcoin is not backed by something real, tangible or enforceable. They question a currency without some form of central authority, clear backing or point of redemption.

In particular, Antonopoulos helps his audience reconcile the relationship of a decentralized currency with a community or government that does not fully embrace the benefits or fears the downside (crime, tax dodging, deflation, loss of control over the monetary supply).

Below, I have added notes related to two key points below. These are the very same points that I focus on in my conference presentations. Andreas is very articulate and we are certainly on the same page about these subtle but critical issues:

1. Resist the urge to regulate or control
Timestamp 10:34

— Governments or trusted, established banks (e.g. Merrill Lynch) may try to persuade you that blockchain-backed currencies have potential, but that certain ‘safeties’ must be added to the to make them compliant and commercially viable. They will say that this is needed to encourage compliance & reporting—or to thwart criminal activity.

For example, the treasury, IRS or other fiscal bureaucracy might ask the community to respect a list of assets that are tainted by criminals and to seamlessly substitute new coins for the tainted coins. This seems like a small change. In fact, it seeks only to overlay a law-and-order framework on top of Bitcoin. But, don’t be misled by good intentions.

This is exactly what you don’t want to do! Fiddling with the legitimacy of outstanding wealth undermines the entire purpose and benefit of migrating to a decentralized, stateless currency. The architecture must remain open, permissionless, resistant to censorship, and resistant to manipulation by any authority, whether good or bad. There is already a mechanism for distributed consensus—one that does not vest any central authority with the power to annul a user’s wealth by edict.

Ironically, even the US treasury recognizes the critical importance of unit fungibility. It guarantees the exchangability of every issued dollar for any other—no matter what its history.

2. Don’t just save—Use it in your business
Timestamp 12:12

— How do I get started with Bitcoin (or some other cryptocurrency). Help me get started with an exchange so that I can buy my first crypto coin…

No, no, NO! Don’t start with an exchange account. Learn how to set up a wallet in your home or online. One that you control. Rather than hoard Bitcoin, accept and spend it. This is critical if we hope to see eventual adoption of a transformative economic mechanism in our lifetimes.

— Buying cryptocurrency should not be your first step into the game. Don’t think of crypto as an investment asset. Think of it as a currency that you accept and spend.

Bitcoin will not be relevant in your lifetime, until the fraction of trades fueled by purchase & sale, salaries, fees and loan payments dwarfs the number of transactions fueled by speculators, investors, HODL and even sector funds or ETFs. All of these trades retard the day that Bitcoin will be stable, fluid, fungible and useful. Currently that first set of transactions represents 98% of all activity. To spur adoption, we must change push the fraction of investor transactions and currency exchange below 30%. It’s a tall order, but it is gradually beginning to happen.


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He advises The Disruption Experience in Singapore, sits on the New Money Systems board of Lifeboat Foundation and is a top Bitcoin writer at Quora. Book a presentation or consulting engagement.

Ric Edelman: Bitcoin will become asset class

Kudos to WallStreet analyst and advisor, Ric Edelman. He drank the Kool-Aid, he understands a profound sea change, and he sees the ducks starting to line up.

Check out the clearly articulated interview, below, with Bob Pisani at the New York Stock Exchange and legendary Wall Street advisor, Ric Edelman, (Not my term…That’s what CNBC anchor, Melissa Lee, calls him). Read between the lines, especially the last words in the video, below.

Ric Edleman has just joined Bitwise as both investor and advisor. This lends credibility and gravitas to the organization that created the world’s first cryptocurrency index fund. Bitwise benefits from Edelman’s affiliation, because the US has been slow (some would say “cautious”) in recognizing the facts on the ground: Cryptocurrency is already an asset class.

Edelman fully embraces a strong future for Bitcoin—not just as a currency or payment instrument, but as a legal and recognized asset class; one that is at the starting line of a wide open racetrack. He explains that the SEC sets a high bar for offering a Bitcoin ETF, but that this will be  achieved. It will pave the way for large institutions, pension funds, etc to allocate a portion of money under management for blockchain products.

At timestamp 3:39, Melissa asks Edelman “Why wait for an ETF?” and “If you believe this strongly, why not advise clients to invest a portion of assets into Bitcoin right now?

Edelman’s response is stunning. He explains that he is frustrated, because this is what he wants to advise. But, his firm is bound by the Investment Act of 1940—and so, they cannot tell a client “Go to Coinbase” or “Invest in a private fund such as Bitwise—that I am such a big fan of. We don’t have that ability in our practice.” [i.e. until the SEC recognizes Bitcoin as an asset].

In my opinion (and in the opinion of Edleman), SEC recognition of Bitcoin as an asset can’t be far off…

  • It’s already happening in other countries. Reputable exchanges and index funds exist today.
  • Unlike a traveler’s check or Amazon gift card, it is inherently a store of value, whether or not you believe that its value is intrinsic;
  • The IRS already considers it an asset for tax purposes (What an odd schism in definition & treatment!)
  • It is legal to pay staff in Bitcoin and use it to settle debts, for any recipient that accepts it. For employees and consultants, it is a wage or stipend, just like FIAT. They can convert into cash immediately—or retain crypto it to pay their own bills)

It’s not difficult to read between the lines. Edleman makes a clear recommendation, although he can not yet advise this—certainly not on the record. His personal forecast for long term adoption and appreciation, especially of Bitcoin, matches my own analysis. His new affiliation with Bitwise (a pretty bold move) demonstrates certain commitment.

This ends my analysis of Edelman’s strong endorsement. But it raises another important question:

If large financial institutions are likely to offer Bitcoin products and services—and if credible analysts & advisors are chomping at the bit to recommend this new asset class—shouldn’t we invest in Bitcoin now?!

Ironically, I do not recommend hording or investing in cryptocurrency, even as a collectable. Why?! Because of the big “Investment Catch-22”. I don’t discourage investing in Bitcoin because I fear that its value will lessen. It is for a completely different reason. And so, my advice against investing is half-hearted.

Currently, Bitcoin and altcoins are widely misunderstood. Many people have these false impressions…

  • It is not backed by anything
  • It interferes with tax collection
  • Cryptocurrency facilitates crime
  • Governments will never allow it
  • They do not convey compelling benefits over government-issued currency
  • They water down the overall money supply
  • Their deflationary nature threatens economic growth
  • They are easier to lose and subject to scams & hacking
  • They do not facilitate refunds, rescission, recourse and customer claims
  • They interfere with a government’s ability to control its monetary supply

All of this is untrue, except the last item—and that one is a tremendous benefit.

Additionally, blockchain currencies fluctuate widely in real market purchasing power, many altcoins and all ICOs are scams, and acceptance is far from being ubiquitous. Clearly, widespread adoption requires stability, infrastructure, trust and ubiquity.

This cannot happen until two things occur:

  1. The fraction of transactions in normal business and retail commerce (purchases, salaries, debt payment and settlement) must significantly dwarf the fraction that is driven by investors, hoarders and speculators.
  2. A significant number of established brands, services or retailers must begin publishing prices in Bitcoin and honoring those prices throughout a defined sale period (e.g. until the next catalog is published or until the next production run).

Things are beginning to change, but for such a positive and transormative mechanism, that change is frustratingly gradual.

A series of falling dominos is already in process. But, the end game is retarded by those of us who invest in Bitcoin, because we are removing a limited resource from circulation and contributing to volatility. We do this, because we realize that—in the long run—Bitcoin can only go up in value. Yet, our investment at such an early stage (before consumer adoption) makes the infant sick.


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He advises The Disruption Experience in Singapore, sits on the New Money Systems board of Lifeboat Foundation and is a top Bitcoin writer at Quora. Book a presentation or consulting engagement/.

Disruption Experience Nails It

The Disruption Experience this Friday in Singapore is a blockchain event with a difference. With apologies to the Buick commercial, this is not your grandfather’s conference

I know a few things about blockchain conferences. I produced and hosted the first Bitcoin Event in New York. My organization develops cryptocurrency standards and practices. We help banks and governments create policy and services. And as public speaker for a standards organization, I have delivered keynote presentations at conferences and Expos in Dubai, Gujarat India, Montreal and Tampa, New York and Boston.

Many individuals don’t yet realize that both Bitcoin and the blockchain are as significant as the automobile, the transistor and the Internet. I was fortunate to grasp Bitcoin and the blockchain early in its history. It is never boring to help others understand the blockchain.

And so, I am an evangelist for both a radically improved monetary system and a transformative tool. During the past eight years, I have honed the skill of converting even the most profound skeptic. Give me 45 minutes in front of any audience—technical, skeptical or even without any prior knowledge—and I will win them over. It’s what I do.

An Atypical Conference Venue

As Bitcoin and altcoins begin the process of education, adoption and normalization, the big expos and conference events have begun to splinter and specialize. Today, most blockchain events market their venue to specific market sectors or interests:

For me, Smart Contracts are one of the most exciting and potentially explosive opportunities. As a groupie and cheerleader, I am not alone. Catering to the Smart Contract community is rapidly becoming a big business. Until this week, I thought it was the conference venue that yielded the biggest thrills. That is, until I learned about the Disruption Experience…

Few widely promoted, well-funded events address the 600 pound elephant in the room: What’s the real potential of blockchain trust, blockchain economy or blockchain AI? Take me beyond tokens and currency (please!). How can an international event help us to realize the potential of a radical new approach to accounting, trust and arbitration? Let’s stop arguing about Bitcoin, Ethereum or ICOs…

How can we unleash the gorilla—and grease—
a fundamental change that benefits mankind,
while providing leapfrog technologies for us?

—At least, that’s my spin on the potential of an unusually practical venue.

That question is slated to be answered on Friday at a big event in Singapore. And get this—It is modestly called a “Sneak Peak”. This is what I have been waiting for. The Disruption Experience premiers on September 28 at the V Hotel Lavender in Singapore. But don’t show up at the door. This event requires advance registration. (I do not offer a web link, because I hate being a conference huckster. If you plan to be in the area at the end of this week, then Google the event yourself).

What’s the big deal?

The Disruption Experience team is populated by blockchain developers, educators and trainers who take issue with existing events that focus on monetization. The purity of intention was overrun by greed. And so, they set out to form an event with a more altruistic purpose: Build technology, relationships, mechanisms and educational tools that better mankind. The focus at this event and the conferences that follow is to educate, expose and innovate. The focus is squarely on disruptive technology.

With their team of blockchain innovators focused on benefits and progress, I suspect that attendees will get what we have been searching for: Education, investment opportunities, an edge on new technologies and job opportunities.

Cusp of a Breakout Year

As an analogy, consider the race to understand Bitcoin and consider the engines & motors.

Bitcoin and the blockchain were introduced simultaneously in a 2009 whitepaper. It’s a bit like explaining the engine and the automobile together—for the very first time. One is a technology with a myriad of applications and the potential to drive innovation. The other is an app. Sure, it’s useful and important, but it’s just an app.

For 8 years, Bitcoin was a radical and contentious concept. Of course, there was the mystery of Satoshi and an effort to pinpoint his or her identity. And, a great debate raged about the legitimacy and value of decentralized, ethereal money. But, the interest was reflected primarily on the pages of Wired Magazine or at Geek-fests. Bitcoin was complex and costly to incorporate into everyday purchases and there were questions and gross misconceptions about hacking, regulation, taxes, criminal activity. The combined audience of adopters, academics, miners and geeks was limited.

That changed last year. With serious talk of exchange traded funds, a futures and derivatives market began to take shape. A critical operational bottleneck was addressed. Ultimately, 2017 was a breakout year for Bitcoin. You may not be using it today, but the smart money is betting that it will enhance your life tomorrow—at least behind the scenes.

Likewise, 2019 is likely to be the breakout year for blockchain applications, careers, products and—perhaps most importantly—public awareness, understanding and appreciation. Just as motors and engines are not limited to automobiles, the blockchain has far more potential than serving as an engine for decentralized cash. It is too important to be just a footnote to disruptive economics. It will disrupt everything. And we are the beneficiaries.

What is Interesting at The Disruption Experience?

The Friday event in Singapore covers many things. The presentations and tutorials that quicken my pulse relate to:

  • AI
  • Smart Contracts
  • Serious insight into blockchain mechanics, applications, adoption, scalability and politics
  • There’s even an exciting development in ICOs…

If you read my columns or follow my blog, then you know I am not keen on initial coin offerings (ICOs). That’s putting it mildly. They are almost all scams. But a rare exception is the Tempow ecosystem which encompasses three functional tokens. Stop by their exhibit and meet the officers of a sound economic mechanism that facilitates decentralized trading while overcoming the efficiency paradox.

What can I do at Disruption Experience?

The September 28 event is a preview for January’s Inaugural Event.

  • Listen and learn what Disruption is all about
  • Experience the first Virtual Reality Expo
  • Get to know the speakers and founders of Disruption
  • Hear about the Disruption Utility Token (DSRPT Token)
  • Meet the Disruption Team
  • See Disruption Expos

… and much, much more.

If you get to the big event, be sure to find the organizer and host, Coach Mark Davis. Tell him that I sent you. His passion and boundless enthusiasm for the blockchain and especially for transformative disruption is quite infectious.

Related reading:


Ellery Davies co-chairs CRYPSA, hosts the New York Bitcoin Event and is keynote speaker at Cryptocurrency Conferences. He sits on the New Money Systems board of Lifeboat Foundation and is a top Bitcoin writer at Quora. Book a presentation or consulting engagement. He is also an unpaid advisor to The Disruption Experience.

Still haven’t written for Medium? Be the content, instead!

Are you worried about Bitcoin dipping to within pennies of $6,000 today? That’s a magic buy alarm for me—and it looks like I may not be alone.

Perhaps it is no coincidence that a student intern (and budding author) from Portugal interviewed me today. He is quite knowledgeable about Bitcoin and the blockchain. I did not feed him the questions. It was a standard “Ask an expert” format, and I didn’t think much of the interview at first.

My interviewer, Diogo Fierreira, rolled out a phalynx of questions longer than my arm. They were sweeping and thorough; general and specific. Still, I wasn’t sure how much time I could afford to devote. In the end, I am glad that I stuck with the young columnist and remained cogent. I now realize that this fellah really knows how to market his interviews! By end of day, the entire interview was published at Medium.com.

I have never been published at Medium, but I certainly enjoy the quality and diversity of thought provoking content. Now my little pearls of wisdom are forever enshrined in stone, (Well—at least sandstone!)

Warning: Medium.com claims that this is a 12 minute read. At just over 3,000 words, it is a bit longer than most of my own articles.