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Earlier this year, when Bitcoin’s price fell by more than 60 percent from its record close, a less-noticed Bitcoin figure also plunged: the number of daily transactions.
There are many explanations for the fall-off in trading, from software- to news-related. What’s less understood is why the level hasn’t recovered as Bitcoin’s price made a 50 percent comeback since Feb. 5. That’s left some investors wondering whether the cryptocurrency is waning in popularity.
The average number of trades recorded daily has roughly dropped in half from the December highs and touched its lowest in two years last month, even as Bitcoin became a household name and roared back to near $11,000.
The transaction data may be bad news for Bitcoin bulls, according to Charles Morris, chief investment officer of Newscape Capital Group in London, who invests in cryptocurrencies. Trading and purchases on the Bitcoin network, which can be measured by metrics like transaction volume, is indicative of price direction, he said.
Average transaction confirmation times have tumbled — though that may be in part because the technology that underlies Bitcoin has already been adapted to address some of these delays. For example, a software enhancement known as the SegWit protocol, changing the way data is stored on the blockchain, was activated last week by Coinbase Inc., the largest U.S. cryptocurrency exchange.
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Not everyone agrees that lower volumes signal trouble for Bitcoin. It may be a healthy return to normality and signs that the market is maturing.
Should prices start rallying again, traders may well be coaxed back, according to David Drake, whose New York-based family office has more than $10 million in cryptocurrency and blockchain investments. He sees the currency soaring to $35,000 by the end of the year.
“We have a legacy of transactions being too slow and expensive, and it will take some time for people to forget,” Drake said by phone. “But they’ll come back.”
The decline in prices may itself be to blame for lower trading volumes in Bitcoin. And websites that once only allowed payment in Bitcoin now accept a much wider range of digital currencies, according to Kyle Samani, managing partner at crypto hedge fund Multicoin Capital. That makes alternative currencies more appealing than the first-mover in the space. A year ago, bitcoin’s market capitalization was about 85 percent of the total sector. It’s now around 40 percent, according to website Coinmarketcap.com.
“Merchants, payment processors and online gambling are moving off of Bitcoin,” Samani, who has $50 million allocated to the space, said in an email. “Our Bitcoin position as a fund is small — I believe Bitcoin is in the process of failing.”
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Bitcoin rose for the first time in six days, snapping a losing streak that had helped push overall losses in digital currencies to about $500 billion, as the top U.S. market cops said they possessed all the authority needed to regulate and risk appetite returned to financial markets.
Prices steadied as Securities and Exchange Commission Chairman Jay Clayton reiterated in a Congressional hearing that he believes every initial coin offering he’s seen is a securities sale and the agency already possesses the regulatory oversight needed for enforcement.
“It was great for the space,” said John O’Rourke, chief executive officer of Riot Blockchain Inc., which invests in cryptocurrency and blockchain startups. “They don’t want to do anything to hamper the development of this technology.”
Lawmakers may still need to to pass legislation that gives agencies jurisdiction over Bitcoin’s spot market and the online platforms that digital coins trade on, Clayton and Commodity Futures Trading Commission Chairman J. Christopher Giancarlo said during the hearing.
The selloff had knocked about half a trillion dollars from digital coins since early January. That’s shaken a nascent market whose core attraction — anonymity and decentralization — is being challenged as never before by regulators.
Tuesday’s U.S. hearings follow comments from Bank for International Settlements General Manager Agustin Carstens that there’s a “strong case” for authorities to rein in digital currencies and that central banks — along with finance ministries, tax offices and financial market regulators — should police the “digital frontier.”
“Novel technology is not the same as better technology or better economics,” Carstens said in a speech in Frankfurt. He said Bitcoin may have been intended as an alternative payment system with no government involvement, yet it has become “a combination of a bubble, a Ponzi scheme and an environmental disaster,” in reference to its electricity use.
Cryptocurrencies tracked by Coinmarketcap.com have lost more than $500 billion of market value since early January as governments clamped down, credit-card issuers halted purchases and investors grew increasingly concerned that last year’s meteoric rise in digital assets was unjustified. The selloff had coincided with a rout in global equities.
A growing number of big U.S. credit-card issuers are deciding they don’t want to finance a falling knife.
JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. said they’re halting purchases of Bitcoin and other cryptocurrencies on their credit cards. JPMorgan, enacting the ban Saturday, doesn’t want the credit risk associated with the transactions, company spokeswoman Mary Jane Rogers said.
Bank of America started declining credit card transactions with known crypto exchanges on Friday. The policy applies to all personal and business credit cards, according to a memo. It doesn’t affect debit cards, said company spokeswoman Betty Riess.
And late Friday, Citigroup said it too will halt purchases of cryptocurrencies on its credit cards. “We will continue to review our policy as this market evolves,” company spokeswoman Jennifer Bombardier said.
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Allowing purchases of cryptocurrencies can create big headaches for lenders, which can be left on the hook if a borrower bets wrong and can’t repay. There’s also the risk that thieves will abuse cards that were purloined or based on stolen identities, turning them into crypto hoards. Banks also are required by regulators to monitor customer transactions for signs of money laundering — which isn’t as easy once dollars are converted into digital coins.
Bitcoin has lost more than half its value since Dec. 18, falling below $8,000 on Friday for the first time since November. The drop occurred amid escalating regulatory threats around the world, fear of price manipulation and Facebook Inc.’s ban on ads for cryptocurrencies and initial coin offerings.
Now, cutting off card purchases could exacerbate those pressures by making it more difficult for enthusiasts to buy into the market. Capital One Financial Corp. and Discover Financial Services previously said they aren’t supporting the transactions.
Mastercard Inc. said this week that cross-border volumes on its network — a measure of customer spending abroad — have risen 22 percent this year, fueled partly by clients using their cards to buy digital currencies. The firm warned that the trend already was beginning to slow as cryptocurrency prices fell.
Discover Chief Executive Officer David Nelms was dismissive of financing cryptocurrency transactions during an interview last month, noting that could change depending on customer demand. For now, “it’s crooks that are trying to get money out of China or wherever,” he said of those trying to use the currencies.
Bitcoin is a digital currency. Like other currencies, you can use it to buy things from merchants that accept it, such as Overstock.com, or, as is more often the case, hold on to it in hopes that it will increase in value. Unlike traditional currencies, which rely on governments and central banks, no single entity controls bitcoin. Rather, it is supervised by a worldwide network of volunteers who maintain computers running specialized software. As long as people run bitcoin software, the currency will keep working, because everything needed to keep it working is stored in a distributed ledger called the blockchain. And even though it's all digital, bitcoin is scarce.
Its most wild-eyed proponents believe bitcoin's decentralized, cryptographic approach to currency can yield a host of benefits: limiting central bankers’ ability to damage economies by printing too much money; eliminating credit-card fraud; bringing the unbanked masses into the modern economy; giving people in unstable economies a safe place to park their money; and making it cheap and easy to transfer funds. But bitcoin has yet to realize these goals, and critics argue it may never live up to the hype.
When you send or receive bitcoin, your bitcoin software, referred to as a “wallet,” records the transaction in the blockchain. The blockchain is maintained by, and distributed across, the roughly 200,000 computers running bitcoin software. If someone tries to alter the ledger to make it look like they have more bitcoin than they’re supposed to, the tampering will be apparent because it won't match the other copies of the blockchain.
People who commit the computing resources to processing bitcoin transactions are paid in bitcoin, but only if the computers they operate are first to complete complex cryptographic puzzles in a process called "mining.” New bitcoins are created automatically by the software and awarded to the winners of the race to solve these puzzles. As of February 2018, that award is 12.5 bitcoins. By design, only 21 million bitcoins will ever be created. Those who process transactions can also collect fees; the fees are optional and set by the person who initiates a transaction. The larger the fee, the faster the transaction will likely be completed. This system keeps bitcoin scarce while rewarding people for investing in the infrastructure required to keep a global payment-processing system running. But the mining process comes with a big catch: It uses an enormous amount of electricity.
Adoption of the cryptocurrency has been hobbled by a series of scandals, high-tech heists, and disputes over the software's design, all of which illustrate why financial regulations were created in the first place. The bitcoin community has solved some mind-boggling technological problems. But making bitcoin a true replacement for, or even adjunct to, the global financial system requires more than just great tech.
The History of Bitcoin
On Halloween 2008, someone using the name Satoshi Nakamoto sent an email to a crytography mailing list with a link to an academic paper about peer-to-peer currency. It didn't make much of a splash. Nakamoto was unknown in cryptography circles, and other cryptographers had proposed similar schemes before. Two months later, however, Nakamoto announced the first release of bitcoin software, proving it was more than just an idea. Anyone could download the software and start using it. And people did.
In the early days, bitcoin was used almost exclusively by cryptography geeks. A bitcoin sold for less than a penny. But the idea slowly caught on. Bitcoin emerged in the aftermath of the 2008 financial crisis when some people—especially free-market libertarians—worried the Federal Reserve's attempts to increase the money supply would lead to runaway inflation.
Nakamoto disappeared from the internet before bitcoin attracted much mainstream attention. He handed control of the project to an early contributor named Gavin Andresen in December 2010 and quit posting to the public bitcoin forum. To this day, Nakamoto’s identity remains a mystery.
No one knows who the creator of bitcoin really is. These are a few of the suspects.
The value of a bitcoin first hit $1 shortly after this transition, in February 2011. Then the price jumped to $29.60 in June 2011 after a Gawker story about the now-defunct black-market site Silk Road, where users could use bitcoin to pay for illegal drugs. But the price fell again after Mt. Gox, the most popular site at the time for buying bitcoin with traditional currency and storing them online, was hacked and temporarily went offline.
The price fluctuated over the next few years, soaring after a financial crisis in Cyprus in 2013, and sinking after Mt. Gox went bankrupt in 2014. But the overall trajectory was up. By January 2017, bitcoin was trading at nearly $1,000. The price soared in 2017, reaching an all-time high of nearly $20,000 in December. The reasons for this rally are unclear, but it seems to have been driven by a mixture of wild speculation and regulatory changes (the US approved trading bitcoin futures on major exchanges in December).
Bitcoin’s price surged despite discord among its adherents over the currency's future. Many prominent members of the bitcoin community, including Andresen, who handed control of the software to Dutch coder Wladimir van der Laan in 2014, believe bitcoin transactions are too slow and too expensive. Although transaction fees are optional, failing to include a high enough fee could mean your transaction won’t be processed for hours or days. In December 2017, transaction fees averaged $20 to $30, according to the site BitInfoCharts. That makes bitcoin impractical for many daily transactions, such as buying lunch.
Developers have proposed technical solutions for this problem. But the plan favored by Andresen and company would require bitcoin users to switch to a new version of the software, and so far miners have been reluctant to do so. That's led to the creation of several alternate versions of the bitcoin software, known as "hard forks," each competing to lure both miners and users away from official version. Some, like Bitcoin Cash, have attracted miners and investors, but none is close to displacing the original. Meanwhile, many other "cryptocurrencies" have emerged, borrowing heavily from the core ideas behind bitcoin but with many differences (see The WIRED Guide to Blockchain).
What's Next for Bitcoin
The future of bitcoin depends on three major questions. First, whether any of the hard forks or the hundreds of competing cryptocurrencies will supplant it, and, if so, when. Second, whether the sky-high valuations can last. And third, whether bitcoins will ever be used as currency for day-to-day transactions. The answer to the third question hinges in large part on the first two.
One thing holding bitcoin back as a currency is the expense and time lag involved in processing transactions. Emin Gun Sirer, a professor and cryptography researcher at Cornell University, estimates that the bitcoin network typically processes a little more than three transactions per second. By comparison, the Visa credit-card network processes around 3,674 transactions per second. Worse, bitcoin transaction confirmations can take hours or even days.
The First Real-World Bitcoin Transaction
There were few places to spend bitcoin during its early years, before the black markets that made the currency famous emerged. The first time someone actually used bitcoin to buy something is widely considered to have been May 22, 2010. Programmer Laszlo Hanyecz paid 10,000 bitcoin (worth around $41 at the time) to have two pizzas delivered to his house. Those 10,000 bitcoin are worth millions now. “I don’t feel bad about it,” Hanyecz told WIRED in 2011, when the coins would have sold for $272,329. “The pizza was really good.”
In addition to the hard forks of bitcoin, there are now countless alternative cryptocurrencies, sometimes called “alt-coins,” that aim to solve some of bitcoin’s shortcomings. Litecoin, for example, is designed to process transactions more quickly than bitcoin, while Monero focuses on creating a more private alternative. None trade for as much as bitcoin, but several sell for hundreds of dollars.
If one of the bitcoin variants or alternatives can solve its main problems, and win over users and miners, that currency would become much more suitable for day-to-day use. It's also possible that the developers behind the official version of bitcoin will find a way to make the network cheaper and faster while maintaining compatibility with old versions of the software. The maintainers of the original bitcoin software platform are working on a solution called the “Lightning Network” that would shift many transactions to “private channels,” to boost speed and reduce costs.
And then there's the environmental impact. Critics argue that mining bitcoin is an enormous waste of electricity because they don't have any intrinsic value.
Even if the technical issues of cost and performance are solved, there's still the question of volatility. Businesses and consumers can exchange dollars for goods and services with the confidence that those dollars will be worth the same amount in three weeks when the rent is due. But bitcoin has proven far more volatile than most other assets, according to a study conducted by the bitcoin wallet company Coinbase. For example, On November 29, bitcoin surged from just under $10,000 to well over $11,000 before sinking back to about where it started the day.
The founders of Coinbase have argued that derivative markets could help users cope with the volatility by allowing participants to essentially buy insurance that pays out if the price of bitcoin drops. That might not reduce the volatility, but it might reduce the risk of accepting bitcoin as payment. In 2017, US regulators cleared the Chicago Mercantile Exchange and the Chicago Board Options Futures Exchange, the world’s largest derivatives exchanges, to offer bitcoin futures. But it's too early to tell if it will make bitcoin more acceptable to retailers.
Bitcoin has come an enormous way since its origins as a paper by a pseudonymous author. But it still has a long way to go to fulfill its creator’s dream.
Bitcoin Is Splitting in Two. Now What? A deeper dive on why some bitcoin community leaders want to switch to new, more efficient, versions of the software, and their struggle to win over miners and users.
The Inside Story of Mt. Gox, Bitcoin's $460 Million Disaster Mt. Gox’s bankruptcy caused the first major bitcoin crash and served as a hard reminder that banks are regulated and insured for a reason. This is the Mt. Gox story, from its beginnings as a planned Magic: The Gathering card-trading site to its emergence as the biggest bitcoin trading platform to its downfall.
Expert Explains One Concept in 5 Levels of Difficulty – Blockchain
Blockchain, the key technology behind Bitcoin, is a new network that helps decentralize trade, and allows for more peer-to-peer transactions. WIRED challenged political scientist and blockchain researcher Bettina Warburg to explain blockchain technology to 5 different people; a child, a teen, a college student, a grad student, and an expert.
In 2014, Joseph Poon and Thaddeus Dryja were bitcoin-obsessed engineers hanging out at pizza-fueled meetups in San Francisco. Their conversation often turned to the central problem of bitcoin: How to make it more useful? The bitcoin network’s design effectively limits it to handling three to seven transactions per second, compared with tens of thousands per second for Visa. Poon and Dryja recognized that for bitcoin to reach its full potential, it needed a major fix.
The pair had an idea, one whose elements were already in the air at the time. On the weekends they met in unofficial coworking spaces to hammer out a paper describing their vision. Six months later, they revealed their work at a San Francisco bitcoin meetup. They called it the Lightning Network, a system that can be grafted onto a cryptocurrency’s blockchain. With this extra layer of code in place, they believed, bitcoin could support far more transactions and make them almost-instant, reliable and cheap, while remaining free of banks and other institutions. In other words, it promised to fulfill the cryptocurrency dream originally set out by Satoshi Nakamoto in 2008.
As word of their paper spread, blockchain enthusiasts started hashing out its technical details in blogs and on social media. Around the world, engineers began trying to turn the ideas in Poon and Dryja’s paper into working code. “It was the second most exciting paper I had read in the blockchain era,” says Rusty Russell, a developer at Blockstream, a blockchain technology company. “The first was Satoshi’s.”
Now, almost three years after Poon and Dryja shared their idea, the Lightning Network is coming to life. Last month the isolated groups developing the network, including Russell, banded together and released a “1.0” version. It has hosted its first successful payments, with developers spending bitcoin to purchase articles on Y'alls, a micropayment blogging site built for demonstration purposes by programmer Alex Bosworth. In a live but isolated test last month, Bosworth separately used the network to pay a phone bill with his own bitcoin. As he tweeted in late December, “Speed: Instant. Fee: Zero. Future: Almost Here.” And this week Blockstream launched an ecommerce site selling t-shirts and stickers that only accepts Lightning payments.
“When you first heard about bitcoin, you probably heard about ‘instant payments around the world for free,’” says Russell. “But if you dug into it, it wasn’t really that cheap, and it was never instant. Lightning actually does those things.”
The Crypto Conundrum
Fixing bitcoin has become an obsession among the developers, miners and investors who wish to see the cryptocurrency become the future of finance. The problem lies at the heart of its design. When a person buys or sells something using bitcoin, that transaction is broadcast to the entire bitcoin network. No matter how small or big, every payment is stored on the approximately 200,000 computers participating in the network. With bitcoin’s popularity soaring, that arrangement leaves the system straining to handle the load.
The blockchain is composed of literal blocks: collections of transactions organized into sequential chunks. For a transaction to become official, other actors on the network, called miners, must perform computationally intensive procedures to place it in a new block, a process that takes on average 10 minutes. About 2,000 transactions can fit into a block, so backlogs of unconfirmed transactions are common. That’s problem #1: the process is inherently slow.
Because space in a block is limited, spenders attach a fee to incentivize miners to include their transaction before others. As the backlog of payments grows, spenders offer increasingly lofty fees to attract miners to their transactions. On Thursday, for example, the fee to process an average payment in the next block (with confirmation in roughly 10 minutes) was $14. Those fees are the same for a payment of $5 or $50,000. That’s problem #2: the fees make small transactions impractical.
Developers have proposed and debated various ways of fixing bitcoin, but few solutions have the momentum of the Lightning Network. Its core idea is that most payments need not be recorded in bitcoin’s ledger. Instead, they can take place in private channels between users. The Lightning Network’s builders seek to move the bulk of everyday payments to private channels and use the blockchain as a secure fallback, to ensure honest commerce.
In this system, two parties open a channel and commit funds to it. The opening of a channel gets broadcast to the blockchain and incurs the normal bitcoin transaction fee. The channel can stay open for however long—say, a month—during which time the two users can exchange as many payments as they like for free. When the time expires, the channel closes and broadcasts the final state of the pair’s transactions to the blockchain, incurring another transaction fee. If one party believes at some point that he or she was cheated, the aggrieved individual can broadcast the contested transaction to the blockchain, where other users can verify it and miners can update the ledger, forcing the offender to forfeit funds.
This arrangement works well for parties that frequently do business together, such as a patron who buys coffee at the same diner everyday or a company paying its employees’ salaries. As long as a channel stays open, payments within it are free. Because they don’t rely on the blockchain, they can be completed at internet speeds. But the real innovation occurs when those channels stay open indefinitely, potentially even for decades, and when they connect into vast networks. The system’s design includes extra cryptographic features that allow a user to safely send payments not only through their direct connections but across their extended networks.
This aspect is vital, because it means a user only needs to open, and pay the transaction fees for, a small number of private channels in order to do commerce across the whole network. The code underlying the Lightning Network can find a path between a user’s immediate connections to more distant parties in the network, in a design akin to internet routing. For example, to make a first-time payment for an article posted on the blogging site Y’alls, you wouldn’t necessarily open a channel directly to the site or its writers. You’d instruct the network to route your money through your existing connections. Doing so would incur a small fee proportionate to the size of the payment—perhaps a fraction of a cent for a payment of a few dollars.
If the system proves successful, over time the flavor of bitcoin could change dramatically. Miners would only confirm transactions when a bitcoin user signaled the need. Most payments would occur in private. And microtransactions would finally become possible—you could, if you really wanted to, use bitcoin to buy a decently priced cup of coffee.
“When I first looked into bitcoin in 2011, I thought it made no sense and can’t possibly scale to all the payments one would want to make, so I walked away,” recalls John Newbery, now an engineer at the bitcoin research outfit Chaincode. “But in 2015, when I learned about payment channels and Lightning, my outlook changed. I thought, now this is a system that can scale.”
But first, someone had to build it. In Australia, Blockstream’s Russell was the first to try implementing it in the summer of 2015. Also around that time, a French bitcoin startup called Acinq began shifting from building a hardware wallet to devoting itself to Lightning. That fall Poon and Dryja partnered with a fellow enthusiast, Elizabeth Stark, to launch Lightning Labs. A quarrel splintered the founding team and Poon and Dryja went their separate ways, but Lightning Labs is now leading the overall network development effort with a rebuilt engineering team.
In December, interest in the project surged after the three teams announced that their separate implementations worked together as one larger network. Acinq CEO Pierre-Marie Padiou reports that downloads of his startup’s Lightning mobile wallet (the software that stores the private keys needed to spend one’s bitcoin) shot over 4,000. Lightning Labs, meanwhile, has attracted more than 1,000 participants to its public Slack room, where they ask questions of the developers, contribute code or flag bugs.
There are indeed bugs. Dryja highlights one alarming glitch: If you make a backup of your bitcoin wallet—on another computer or a USB drive, say—and decide to restore from the backup, you can accidentally claim money you’ve already spent. When that happens, the Lightning Network protocol allows your counterparty to take over all the funds in your channel. Dryja says the problem highlights the work to be done before the Lightning Network is ready for wide adoption.
Some entrepreneurs are willing to gamble on Lightning today. Last week a VPN provider called TorGuard may have become the first company to announce it will accept payments made through the Lightning Network. But it cautioned in a tweet that the network “is not production ready” and that the company would cover any lost payments. For now, Lightning’s users are hardcore bitcoin enthusiasts willing to risk some satoshi to bask in the glory of being first.
“There’s a great deal of hope pinned to Lightning,” says Chaincode’s Newbery. But as with any network, it success depends both on the quality of its engineering and its ability to kick off network effects. People have to use it, like it, and entice more users to join. That won’t happen in a flash.
James Altucher would like to remind us of the math behind cryptocurrency: Two hundred billion dollars in supply. Two hundred trillion dollars of potential demand, even more if you throw in contract law. There’s 10,000 man-years of science behind it. The investment opportunity is bigger than you think, and trust him, he knows. “More than trading, more than charts, more than, like, investing—I run a hedge fund, I’ve been a day trader, I run a bunch of hedge funds, I’ve seen every trade in the book, I’ve written the book! It’s called Trade Like a Hedge Fund. Don’t buy it, I wrote it in 2004 … I worked with Jim Rogers a long time, he hates it—but, but, what you have to ask is, not these little trading things, but what is going on? Why does bitcoin even exist? Why do cryptocurrencies even exist?” he tells a crowd of around 60 people crammed into a comedy club on New York's Upper West Side1.
I’m in the crowd to watch Altucher, a self-help guru, author, and podcaster, participate in a debate. His pale face, framed by crooked, rimless glasses and topped by a fluffy mop of curls, is instantly recognizable from the banner ads that have stalked me around the web for the last couple of months. Altucher, according to the ads, is the “crypto-genius” who will unveil the next bitcoin. Never mind criticisms that he directs his followers to invest in risky small-cap stocks and cryptocurrencies, leading to a temporary bump in their prices followed by a sell-off. Never mind the complaints from some customers that the newsletters and research papers he hawks via publishing company Agora Financial offer obvious information that’s otherwise freely available online. (Altucher and Agora Financial CEO Doug Hill have disputed these complaints.) Tonight he’s introduced as “the bitcoin baron,” “Mr. Bitcoin,” and even “the bitcoin babe.”
The debate topic—Which is a better investment, gold or bitcoin?—is mostly a farce, since both present opportunities for people eager to make a quick buck. (Tonight, it’s just a room full of New Yorkers, but online the supply of suckers is infinite.) Anything in the world can be twisted into a get-rich-quick scheme with the right buzzwords, charisma, and $2,000 newsletter subscriptions. And no one knows this better than James Altucher.
The crypto-genius enters the stage wearing a shiny blue boxing robe over a baggy cardigan over a baggy button-up over a white T-shirt that says “i’m fine.” He just turned 50 and bought a stake in this very comedy club. He relishes in celebrating his failures and counterintuitive rejections of things like college and 401(k)s. Lately, he’s been all-in on digital currency, an area that’s blazing with hype, greed, breathless speculation, and fear of missing out but is poorly understood by most people. Digital currencies are worth something because people value them as worth something, and Altucher’s endorsement can boost the price of the tiny crypto tokens. In that way, his predictions become self-fulfilling—his saying a token is valuable could actually make it so. For a couple of days, at least.
Agora Financial has used Altucher’s messy hair (geniuses don’t primp!), crooked glasses (geniuses don’t care!), and distant stare (geniuses think complex thoughts!) to market his financial advice via ubiquitous banner ads. Despite looking like a stereotypical geek genius, Altucher possesses something most of them don’t—charm, wit, the ability to entertain, and the ability to sell. Just buy this newsletter subscription, and then this research report, and then this video.
Debate opponent James Rickards, who is also a member of Agora Financial’s network of financial forecasters, dons an appropriately gold boxing robe. He is an equally cartoonish physical embodiment of his investment philosophy with a combover and navy sport coat that screams “your grandfather’s safe investment tip.”
Altucher predicts the price of bitcoin will reach $1 million by 2020. Rickards predicts the price of an ounce of gold will go to $10,000 in the same time frame. “So, who’s right?” the opening speaker asks as a rhetorical lead-in.
“JAMES!” someone yells from the audience, though it’s not clear which James he means. Perhaps he means both—neither prediction necessarily negates the other. Early in the debate the Jameses agree on one point: They hate banks and paper money. Altucher notes that paper money requires working with banks, which have endless fees and potential for human error every step of the way. He adds, “Probably most people in here don’t like banks. That’s why you’re here.”
I notice most audience members are sporting an off-duty banker look: Blue-checked button-downs, fleece vests, expensive haircuts, and shiny dress shoes. There are a few shady-looking characters in the back (ahem, neck-tattoo guy). But I see no hoodies, no signs of stereotypical bitcoin bros. Are these (likely) bankers here because they hate the institutions that they (likely) work for? Perhaps they’re just hoping for a hot crypto investment tip. One of them begins taking notes after Altucher name-checks Zcash and Monero, two cryptocurrencies that are well-known among enthusiasts.
The few attendees I meet are either curious lookie-loos trying to learn about bitcoin or fans of one or both Jameses. The fans consider themselves technophiles, even if they don’t work in tech. They’re also investment geeks, even if they don’t work in finance. They’re libertarians, even if they don’t use Reddit. And they’ve bought into bitcoin, even if they don’t actually own that much of it. Bitcoin is now a lifestyle brand and personal identity choice in the same way a Prius signifies environmental awareness or a New Yorker tote shows you’re an aspiring member of the intelligentsia. Getting into crypto shows you support a set of ideals: decentralization, anti-institution, revolution. The social movement is so strong that true believers don’t mind the influx of greed-driven mercenaries in the sector. They don’t even care about the silly stuff like CryptoKitties or Dogecoin, or the ridiculousness of two stock-tip newsletter writers pimping investment ideas in boxing robes. Anything that gets more people involved is a net positive.
Altucher keeps things loose in his opening arguments. We’re in a comedy club, after all. His comedy club. Why not start with a little crowd work? Who here owns bitcoin? Hands fly up, but not every hand, and Altucher zooms in on a woman named Beverly. “So, you’re the only woman in this place who owns a bitcoin. Bitcoin is usually owned by men,” he says, which isn’t true of the bitcoin community, much less of the hands in the air in front of him. He does not seem concerned about the tech industry’s gender disparity or how such comments may perpetuate it.
He puts us at ease by ensuring he won’t get too technical. He’s not here to talk about economics or technology, he says, because “economics is boring, and technology is even more boring.” Buzzwords connect to pat narrative arcs, which connect to punch lines, which connect to applause lines. Everything he says feels Tweetable, except when I go to do so, I realize I’m not exactly sure what it means. Did I miss a word? It certainly sounded good. Altucher delivers a flip explanation of the history of gold as a currency, stating that around 5,000 BC, humans turned gold into coins, which meant gold was no longer a necessary form of currency. By the following year, he says, “it was a rock.”
“It’s a metal, actually,” Rickards quips. Details, details.
The audience laughs when Altucher tells a story about the time he used bitcoin to pay for lap dances at his bachelor party. (At current prices, the bitcoin he used to pay for lap dances would be worth $17 million, so the point is: Don’t worry about volatility.) He gets some laughs noting that the only use for lawyers in the future will be to deal with DUIs. He says his two teenage daughters are “somewhat below average,” adding, “on a scale of zero to 10, [they’re] maybe a three or four in intelligence. And yes, they use digital currencies, but they don’t have the slightest clue about bitcoin. I can explain to them whatever which way, they’re like, ‘Dad, just, we’re too stupid to listen to you.’”
Altucher and Rickards banter over the history of bartering, whether the US government can use cryptocurrency to pay off Afghan warlords, and whether bitcoin mining is a form of the rich stealing from the poor. Rickards jokes that he “needs a net to scoop up all the red herrings” that Altucher released, before declaring bitcoin is a “fraud, a Ponzi, and a bubble all at the same time” and touting 2 billion views on a related Facebook video of his. (Rickards hinted that he is a fan of other cryptocurrencies. Indeed, last week he hawked “the $0.70 crypto that could make you rich in 2018” in a members-only online group called Rickards’ Crypto Profits.)
After the debate, the comedy club’s cofounder shows me a photo of himself with Tracy Morgan, taken at the bar minutes earlier. He tells me that while the rest of us were hitting our two-drink minimums listening to a couple of middle-aged internet personalities promote themselves and their investment tips, Morgan stopped by, saw it wasn’t a normal standup night, and held court at the tiny bar for 30 minutes. Suddenly all the attraction and revulsion and fascination I’ve felt toward the world of cryptocurrencies in recent months makes me dizzy. There’s only one conclusion to draw, and it’s that life is a series of sexist jokes and fake boxing matches, then you die. HODL on for dear life.
Startups that aren't growing as rapidly as hoped are invoking blockchains to woo attention and investors.
A Twitter joke by WIRED writer Erin Griffith led to the creation of a browser extension that adds the words "on the blockchain" to the end of every sentence.
1 CORRECTION: This story originally stated that the comedy club that hosted the debate was on New York City's Upper East Side. It is on the Upper West Side.
Tech Entrepreneur & Investor Chris Dixon Explains Why You Should Give a Damn About Bitcoin
Chris Dixon, general partner at venture capital firm Andreessen Horowitz, thinks you should reconsider the power of bitcoin. In conversation with WIRED’s Steven Levy, the tech entrepreneur and investor explains why the digital payment system has the potential to enable new behaviors and innovations.
Bitcoin’s recent wobbles have given fresh urgency to a question that’s gripped market observers for much of the past year: Will the cryptocurrency go down as one of history’s most infamous bubbles, alongside tulipmania and the dot-com craze?
The magnitude of Bitcoin’s boom (before it lost as much as 50 percent from its Dec. 18 high) suggests investors have reason to be worried.
As the chart shows, the cryptocurrency’s nearly 60-fold increase during the past three years was truly extraordinary.
It dwarfed the Nasdaq Composite Index’s gain during the headiest days of the 1990s. Going further back, it comfortably outstripped the Mississippi and South Sea bubbles of the 1700s. It even topped the Dutch tulipmania of the 1630s, though that last comparison should be taken with a grain of salt given the scarcity of recorded tulip values. (The chart includes prices for just one varietal; consistent post-peak figures were unavailable.)
Bulls say that Bitcoin’s boom is far from over, and that there’s more to analyzing a market than just measuring price gains. While the recent tumble has alarmed some investors, the cryptocurrency has bounced back from several previous swoons exceeding 50 percent. If Bitcoin did become a widely-accepted form of digital gold, as predicted by Cameron Winklevoss of Facebook fame, it could have a lot further to surge.
There’s also more than one way to slice a rally. On an annualized basis, Bitcoin’s three-year rise has been slower than the gains seen during several of history’s biggest manias — most notably the Mississippi and South Sea bubbles.
Still, skeptics abound. Howard Wang of New York-based Convoy Investments LLC and Jeremy Grantham of GMO LLC have analyzed Bitcoin’s advance relative to past frenzies and concluded that it’s unsustainable. Grantham, who helps oversee about $74 billion as GMO’s chief investment strategist, summed up his concerns in a Jan. 3 letter to investors:
“Having no clear fundamental value and largely unregulated markets, coupled with a storyline conducive to delusions of grandeur, makes this more than anything we can find in the history books the very essence of a bubble,” he wrote.
The strategist has a mixed record of success with such warnings. While Grantham was correct to call the 1990s surge in tech stocks a bubble, he exited too soon and missed out of some of the market’s biggest gains.
Only time will tell whether Grantham and other bears are right, wrong, or just too early when it comes to Bitcoin.
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For a menu of cryptocurrencies on Bloomberg: VCCY For bitcoin prices: XBT Curncy
Move comes less than two weeks after high-profile digital currency exchange in Seoul was hacked and went bankrupt
Bitcoin plunged by more than $1,000 (740) on Thursday after South Korea said it was planning a crackdown on trading in the digital currency in the latest of a string of warnings for investors.
It dropped to about $13,500 after trading at about $15,400 on Wednesday. The dip was seen as a further illustration of bitcoins volatility.
The cryptocurrency has surged in value this year by more than 900%, becoming one of the biggest stories in finance amid a slew of warnings of a pending market crash.
Bitcoin recovered ground later on Thursday and was trading at about $14,000 at 5.30pm UK time.
South Korea, which is one of the biggest markets in the world for bitcoin, said it was preparing a ban on opening anonymous cryptocurrency accounts and new legislation to enable regulators to close coin exchanges if they felt there was a need to do so.
According to Reuters, the South Korean government issued a statement saying it had warned several times that virtual coins cannot play a role as actual currency and could result in high losses due to excessive volatility.
The move came less than two weeks after the high-profile insolvency of one of the countrys digital currency exchanges, after the Seoul-based platform was hit by hackers for a second time.
The crackdown in South Korea comes amid repeat warnings from leading figures in finance and some of the worlds top economists, who have said the currency is a vehicle for fraudsters and drug dealers. There are also fears that its rapid increase in value this year could quickly unwind, causing severe losses for investors.
However, several leading academics have said bitcoin poses no threat to the stability of the financial system, as its total value stands at about $240bn, paling in comparison with the total value of global shares at almost $80tn.
Companies are also exploring ways to exploit blockchain which is the technology underpinning bitcoin and works by securely encrypting information to speed up everything in business from making payments to transferring data and contracts.
Bitcoin rose to nearly $20,000 a week before Christmas, following the introduction of derivatives trading for major investment firms on the Chicago Mercantile Exchange, which enabled hedge funds to place bets on future prices. However, it then lost 25% of its value on 22 December, before recovering earlier this week and then slumping again on Thursday.
While some have said more investors in the market could help support higher valuations, the currency is on a jittery run.
Craig Erlam, senior market analyst at trading firm Oanda, said the recent fall in value could have made speculators more wary of the potentially negative news from Korea for its market price.
We saw plenty of this in reverse on the way up, with positive news triggering significant rises and negative news being brushed aside. It wouldnt surprise me if we see prices heading back below $10,000 before they find their feet again, he said.
Digital currencies have grabbed the attention of global regulators this year as a consequence of bitcoins rapid price growth, gaining in value from about $1,000 at the beginning of 2017. Other cryptocurrencies such as Ethereum, Ripple and Litecoin have also gained in value this year.
Closer control of digital currencies by financial watchdogs could result in further volatility for bitcoin, as part of its attraction among supporters has been the lack of government and central bank oversight.
The UKs Financial Conduct Authority has issued a warning about investing in initial coin offerings, which use digital tokens to raise funds for startup businesses and projects.
Bitcoin is losing its luster with some of its earliest and most avid fans — criminals — giving rise to a new breed of virtual currency.
Privacy coins such as monero, designed to avoid tracking, have climbed faster over the past two months as law enforcers adopt software tools to monitor people using bitcoin. A slew of analytic firms such as Chainalysis are getting better at flagging digital hoards linked to crime or money laundering, alerting exchanges and preventing conversion into traditional cash.
The European Union’s law-enforcement agency, Europol, raised alarms three months ago, writing in a report that “other cryptocurrencies such as monero, ethereum and Zcash are gaining popularity within the digital underground.” Online extortionists, who use ransomware to lock victims’ computers until they fork over a payment, have begun demanding those currencies instead. On Dec. 18 hackers attacked up to 190,000 WordPress sites per hour to get them to produce monero, according to security company Wordfence.
For ransomware attacks, monero is now “one of the favorites, if not the favorite,” Matt Suiche, founder of Dubai-based security firm Comae Technologies, said in a phone interview.
Monero quadrupled in value to $349 in the final two months of 2017, according to coinmarketcap.com, placing it among a number of upstart coins that rose faster than bitcoin, the world’s most valuable digital currency. Bitcoin roughly doubled in the same period, data compiled by Bloomberg show. Monero’s price has climbed another 7 percent so far this year, according to coinmarketcap.com.
In monero’s case, criminals are snapping it up because bitcoin’s underlying technology can work against them. Called blockchain, the digital ledger meticulously records which addresses send and receive transactions, including the exact time and amount — great data to use as evidence. Match an address to a crime and then watch the bitcoin universe carefully, and you can see the funds disappear and reappear in other locations.
Sleuths have developed databases and techniques for digesting that information to eventually nab wrongdoers. Say, for example, a coffee shop in Berkeley is known to have a certain bitcoin address, and a wallet used by an extortionist transfers the same amount there every morning at 9 a.m. Police can stop by and make an arrest.
Started in 2014, monero is very different. It encrypts the recipient’s address on its blockchain and generates fake addresses to obscure the real sender. It also obscures the amount of the transaction.
The techniques are so potent that software that flags coins suspected of being obtained through crime now tags just about anything converted into or out of monero as high risk, according to Pawel Kuskowski, chief executive officer of Coinfirm, which helps exchanges and other companies avoid tainted money. That compares with only about 10 percent of bitcoin, he said.
“What we treat ‘high risk’ is something that’s anonymizing funds,” he said in a phone interview. “How are you going to prove that these funds are not coming from illegal sources?”
Monero is one of many privacy-focused coins, each offering different security features. Its main competitor, Zcash — which isn’t known to have a significant criminal following — can offer even better privacy protection. Instead of creating fake addresses to hide senders, it encrypts their true address. That makes it impossible to identify senders by looking for correlations in addresses used in multiple transactions to pinpoint the real one — a vulnerability for monero. Developers of the coin have made progress in reducing it, though.
Still, Princeton University researchers recently developed a tool that helps them analyze Zcash transactions at least to some extent — but they haven’t been able to crack monero. And Zcash high-security features can’t be used on disposable burner phones, a favorite of criminals eager to stay anonymous.
Developers behind monero say they simply created a coin that protects privacy. Most people use it legitimately — they just don’t want others to know whether they’re buying a coffee or a car, Riccardo Spagni, core developer at monero, said in a phone interview.
“As a community, we certainly don’t advocate for monero’s use by criminals,” Spagni said. “At the same time if you have a decentralized currency, it’s not like you can prevent someone from using it. I imagine that monero provides massive advantages for criminals over bitcoin, so they would use monero.”
Yet criminals are probably only a fraction of monero’s users, according to Lucas Nuzzi, a senior analyst at Digital Asset Research, which provides research to institutional investors.
“As with any disruptive technology, many of the initial use cases revolve around illicit activities,” he wrote in an email. But as everyday people grow concerned about privacy and surveillance, “there is utility in these currencies that go beyond just a means of exchange for illicit goods.”
For related news and information: Bitcoin price graph: XBT Curncy GP Cryptocurrency monitor: VCCY
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