Coinbase has reportedly refused to specify why it suspended the WikiLeaks Shop"s account, and in response, WikiLeaks is calling for a "global blockade" of the platform.
The post WikiLeaks Tells Supporters to Boycott Coinbase for Joining US Extra Judicial Financial Embargo appeared first on The Free Thought Project.
Sixth in a series. Part 1, Part 2, Part 3, Part 4, Part 5
By @sellputs
Seems like everybody wants to buy in on bitcoin, and if you do, brace for a gut-tossing rollercoaster ride and another drawback, as well: Trading costs in crypto are astonishingly high.
Comparison: on TD Ameritrade, you can do a $10 million transaction in stocks on the New York Stock Exchange and it will cost you as little as $6.99; sell $10 million in bitcoin, and the transaction fee could come to $100,000 or more. And stocks are safer!
Opening an account with Coinbase (see Part 3 of this series), is more of a beginner’s way, admittedly, to go to the market to “buy” crypto-coins. It also is the better option for buy-and-hold fans of bitcoin, though holding anything too long in cryptos may be risky on its face.
Coinbase imposes a fee on every transaction you undertake, charging 1.5% of the total value of the purchase or sale. And if you want to use your credit card to set up an account, Coinbase will charge you a 4% fee for the pleasure. That’s $400 to hand ’em $10,000.
The GDAX trading platform is the more advanced way to play, ideal for day trading and high-frequency trading if you have the nerve. It assesses no transaction fees at all as you trade, and it allows more sophisticated techniques that Coinbase doesn’t enable, such as limit orders letting you set stop-losses (sell when the price falls to a particular level) and buy limits letting you trigger a “buy” only when a coin hits the price you specified.
The platform exacts an ample vig, however, once you take cash out of your GDAX account, whether it’s an exponential windfall or the remaining shreds of cash from a bitcoin beating. GDX charges a fee of 25 to 100 basis points, or 0.25% to 1.0% of the total sum you withdraw. In some cases the fees run even higher than that.
Plus, on Coinbase and GDAX the only way to bet on bitcoin et al is to bet their prices will rise—so far, you cannot hedge that gamble by actively betting that bitcoin will actually go down in price, by selling short. At least, you can’t do that on Coinbase and GDX and their rivals. Now, though, you can short elsewhere, via futures contracts on both CBOE and the CME
One futures contract on the CBOE involves one full bitcoin, while at the CME, one contract covers five bitcoins. Thus, the CME contract has higher leverage than the CBOE contract. The CME contract is based on the average price taken from five exchanges, while the CBOE’s contract is priced off of a single exchange, run by Gemini Trust Co.
Those differences create gaps and fleeting, short-lived anomalies, and professional traders and their Ph.D. mathematicians will be brainstorming this one, figuring out new algorithms aimed at exploiting those spreads between the two markets. It is unclear how much bitcoin prices could gyrate around as a result of such computerized trading.
As you read this—most of you didn’t get down this far, and for those of you who did—I’d bet you some holders of real bitcoins are slowly converting a portion of them into dollars and investing the cash in new bitcoin futures on CBOE and the CME. In some ways that may be the ultimate sign of how bitcoin gradually will get co-opted by Wall Street and superseded by trading in derivatives-of-derivatives based on bitcoin prices.
Hold on to your hats for this ride.
Next: A new way to predict bitcoin’s pricing patterns.
Fifth in a series. Part 1, Part 2, Part 3, Part 4, Part 5
By @sellputs
Let us regard the wonders of technology & innovation: Suddenly, we now have multiple easy ways to lose money betting on bitcoin. Giddyup!
With incredible speed, from your laptop or even your smartphone and without even thinking about it, you can open up a new account, inject real U.S. dollars into it, use that to buy a teensy piece of your favorite cryptocurrency, and begin surfing the bitcoin wave. Or begin getting crushed by that wave, depending on your timing, smarts and luck.
This occurs to me on a recent Thursday night, as I visit an old friend in Brooklyn and bring along Big Guy, a college pal who stands 6-feet-4 (“and a half,” he feels it necessary to point out). The Big Guy and I had been hanging out at the famed Waverly Inn in the West Village in Manhattan, where I had the vodka martini, marked down on special: just $28, down from $30 list.
This next point has nothing to do with bitcoin, okay? I gotta say: Anybody who regularly spends 30 bucks on a martini is a P.T. Barnum-scale sucker. What a waste of money. Waste it, instead, on something really irresponsible. . . . like bitcoin.
Anyway, we’re standing around a table in my friend’s apartment in Brooklyn, and Big Guy is taking swigs from a bottle of Blue Point Winter Ale and staring into the screen of his smartphone, as if mesmerized by some new videogame. Instead, he is tracking his own cryptocurrency trades.
“Uh oh, Ethereum is flash-crashing,” he says. He had gotten got into Ethereum (ETH), a newer “altcoin” alternative to bitcoin, a few days earlier at $620, watching it rise to $740 in a day or two and holding on, only to see it crash instantly down to $650 just this moment. Should he sell?
Guy resists the urge and doubles up on his bet, adding to his ETH holdings (as well as Litecoin, LTC) “to lower my cost basis and scalp the bounce-back from the flash crash,” as he describes it later. By 3 a.m. that same night, Ethereum had re-inflated to rise back up even higher, to $850. Whew.
Big Guy had put $10,000 into a new account he opened at Coinbase, a digital exchange akin to the New York Stock Exchange (except it is unregulated and carries no particular guarantees, far as I can see). He had bet his stake all on bitcoin, pulling out after a 53% gain in a week, after commissions.
Guy opened up a second account, this one on GDAX, a 24/7, online platform in the rather unregulated, Wild West of crypto (it is owned by Coinbase). GDAX offers FDIC guarantees up to $250,000 (what happens to your money as a result of your trades is on you). On GDAX, he bet his bitcoin profits on the two lesser lights, ETH and LTC. He says he can take profits out of Litecoin in only minutes, while transferring money out of bitcoin would take several hours. (LTC is lighter-traded than the binge-fueled bitcoin.)
GDAX charges him 25 basis points (0.25% of the total value of the trade) for “taking markets,” that is, buying coin shares on offer, and no fee at all for “making markets,” or selling on the platform. Coinbase’s buying fee, at 1.5%, is fives times as much that of GDAX. A few days after he sat out the mini-flash-crash, Guy transfers some LTC from his GDAX account to another coin platform, Binance, where he wants to sell LTC and spread the proceeds among various coins trading below $5 apiece.
And a day or two after that, Big Guy is beaten down: He was up 75% and lost most of it all when he panicked and fled ETH and LTC at the bottom of a later plunge. Too fidgety. Easy come, easy go. He’s back in Ripple, though, and it has been “outperforming.”
Yes, the Big Guy admits, he does worry that in a flash crash or especially high trading volume, he may not be able to minimize his losses and take out cash. In cryptocurrency trading, the bigger question than whether to sell may be: Can you sell?
Coinbase limits how much money you can pull out of your account after you sell your crypto and convert the proceeds back to U.S dollars or whichever “real” currency you desire. So, in the event of a crash or some sudden, sharp de-valuation in bitcoins, your ability to act fast and sell your coins might be hampered, and selling your coins could be all but impossible.
Think of it as a football packed with cheering buyers, most of them unaware that there’s only one exit—and it is the size of a doggy door. Buyer beware. Puppies, too.
Next up: The high fees for buying bitcoin.
Fourth Part of a series. Part 1, Part 2, Part 3
By @sellputs
Isn’t Christmastime just wonderful, so much time with family, really, just… so… much time. With family.
If you caught the irony in that statement, you, too, need a distraction, an excuse to detach from the conversation and take a little “me” time. So take a few minutes to read this, our fourth column on bitcoin and all that it has unleashed. Your relatives will appreciate that you did.
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Gold, the precious metal found in dental work, beautiful jewelry and Fort Knox, has been a “store of value” for five thousand years. Invented by nature or God (take your pick), it is able to survive global economic meltdowns and even nuclear meltdowns. It has been said that if you accumulated, in one place, all the gold mined since humankind started doing it, you’d have enough to fill only three or four Olympic-sized swimming pools.
An ounce of gold currently trades at $1,280 or so.
Now compare that to bitcoin: extant less than a decade, invented by unknown creators in 2009, said to be in a finite supply of only 21 million coins, and weightless, invisible, untraceable. It started the year 2017 priced near $1,000 and just bumped up against the $20,000 mark before settling down near $15,000, with millions of people trying to get in on the Bitcoin Bubble.
So, what holds up the price of bitcoin? Not GDP growth or earnings at any particular company; not the price of gold. The main thing keeping bitcoin prices aloft is little more than speculative frenzy and the virally spreading desire to own a piece of this newfangled invention. This is emotional, and it is important to force the emotional to bow to the rational.
Here are five easy pieces of advice for investing in bitcoin and its lesser brethren:
Remember, my friends, the way to get rich is focused more on preserving and protecting what you have earned than on finding the next windfall. Good luck.
Next: The new face of bitcoin investors. Gardener, a Burner and a Big Guy.
Article First Appeared on HedgeAccordingly.com
By @sellputs
Merrrrrrrrrry Bitmas!
Bitcoin has been crashing like a Bad Santa all week long—it had surged up to $19,856 last Monday and had plunged as low as $11,590 by Friday, bouncing back up to $14k and change. So anyone who bought bitcoin last Monday is still smarting, and those who bought below $12k yesterday are feeling just plain smart.
Either way, this column will tell you how to join the fun.
In search of a Christmas miracle, we’re going to map out the ten steps for setting up your own bitcoin trading account. It is so fast and simple that in 15 minutes or so, you will be linked-up, “appified” and able to invest in bitcoin and other digital currencies from your smartphone. Once you are set up, you can make each crypto purchase in seconds.
If you dare. Lately it has been a pretty scary videogame.
Millions of people seem undaunted; convinced this bubble still has plenty of room to grow. Coinbase, the cryptocurrency exchange, now is said to have 13.3 million accounts—more than Charles Schwab & Co. (10.6 million) and, maybe, sign of just how much this Bitcoin Bubble is inflating.
This, at a time when stocks are especially hot since the Trump election that has so many of my liberal pals in New York apoplectic and foaming at the mouth. (Then again, they never have felt so outraged and alive—they love it.)
It took a full year for stocks to go up 30%, yet you can lose 20% on bitcoin in just two days. Example: if you bought into bitcoin, Ethereum and Litecoin this past Wednesday evening (12/20), by Friday afternoon you were down a sickening 20% in bitcoin and almost as much in ETH and LTC. Don’t ride this wild rollercoaster if you can’t stomach that kind of a setback.
For those of you who can, and for those of you who believe you are ready to get started on this tumultuous investing journey, here’s an easy guide, step by step, to setting up a cryptocurrency trading account. We did it the other day at Coinbase. When in doubt, go with the biggest, it may be the biggest for a good reason.
Step 1: Go to app store, download Coinbase app. In a minute or two it’s ready to go.
Step 2: Before you open up the app for the first time, make sure you know, ahead of time, the online password to your checking account, if that is the account you will link up to Coinbase to transfer real U.S. dollars into purchases of tiny increments of untraceable bits. Same goes for the credit card you might link to your new Coinbase account (which triggers a 4% fee rather than the 1.5% fee charged for linking to your bank account).
Step 3: Open the app. Give fingerprint, and the opening screen shows the Bitcoin price at the moment, and a year-long fever chart that starts at $800 in January 2017 and soars to $19,205 by December 2017. It is exhilarating. Two buttons beckon: Sign Up or Log In. Touch on Sign Up.
Step 4: A few screens in, the app has you use your phone-cam to snap a picture of your driver’s license, front and back, and then it has you take a selfie of your face. It tells you it must verify the photos and will get back to you in five to 10 minutes.
Step 5: Five minutes or so later, you are verified, and a fast questionnaire pops up: fill in your occupation and “employed by,” and a message flashes: “You’re almost ready to invest.” Click the green box labeled, “Complete account setup.”
Step 6: The app teases you with the current flashing prices of the coins you anxiously are waiting to buy (BTC, ETH, LTC), as it sends a verification number to your phone. You enter that number into a box on-screen, and the next message says: “You’re almost ready to buy.” (Italics added). Note the change in verbiage from “ready to invest.”
Step 7: “Please complete your account,” the app instructs. You add a payment source (your banking account is recommended), a user name and a password (write it down on a slip of paper and slide the paper into your wallet; security pros might preach against it, but they preach against most everything, and hacks keep happening anyway.)
Step 8: Now take a deep breath and psyche up. For some people wary of how bubbly bitcoin is, talking yourself into making the first bet is like a testosterone-soaked trader trying to talk himself into getting married. You never will be truly ready, so just take the leap. Do it in a small way, and don’t flinch when what you bought suddenly slides in value.
Step 9: Commence buying. Touch the teensy “Prices” icon in the bottom left of your phone to see the latest coin bids, then touch “Accounts” and you get a screen of “wallets,” one for each coin type. Touch the bitcoin (BTC) wallet and a new screen pops with two buttons: Buy. Sell. Can’t sell what you don’t yet own, so you click Buy.
Step 10: Instantly a new screen shows up, with the numbers pad helpfully displayed near the bottom so you can enter in the dollar amount you are about to spend. You tap in the dollar figure into a box marked USD, the app calculates the microscopic portion of coin that sum will fetch, you tap on “Buy” at the top of the screen, confirm the buy on the next screen and BAM!
A new screen shows, against a field of royal blue, a checkmark in a circle at the top, and below it a headline declaring: “Your buy was successful!” And below that, the exact portion you just bought, starting with a zero and carried out to eight decimal places. Or in the case of this purchase (of bitcoin cash, BCH, a new offshoot that we bought at 11:19 p.m. on Friday night):
0.08721555 BCH
At the bottom of the screen a bar instructs: Go to Accounts. When you press it, up comes the listing of the asset you just bought, with the Buy and Sell buttons at the ready. One back-arrow press and you are back to the full Accounts page listing five “wallets” for buying five separate currencies (BCH, BTC, ETC, LTC and the good ol’ USD).
From there you can get fancier, setting price alerts to learn when a currency has fallen to the price you were waiting to see. “Never miss an opportunity,” the Coinbase app advises. This can get obsessive pretty quickly (and drain your time away from Facebook, Instagram and Snap). The app also can alert you when your bitcoin crashes down through a floor you specified, in case you want to sell.
Although, selling isn’t really the point here, is it? If you are bold enough (or unwise enough) to bet on this ethereal thing everyone is talking about, then maybe it is best to put up your money and leave it there for a while, electing patience over panic. You are a rough rider trying to stay on top of this giant, swelling bubble and hold on long enough to reap returns from those who jump on after you. With easy apps like Coinbase, millions more investors may be aiming to do just that. Giddyap!
Next: Five Easy Pieces of advice for bitcoin trading.
Update 1600ET: Thanks to some serious dip-buying, the landcape across cryptocurrencies is not as completely devastating as it appeared this morning...
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Update 1300ET: Bitcoin prices have somewhat stabilized for now around $13,000...
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Update 1245ET: GDAX is down...
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Update 1220ET: Mike Novogratz has shelved plans to launch his fund, warning that: "We didn’t like market conditions and we wanted to re-evaluate what we’re doing...I look pretty smart pressing the pause button right now."
Warning traders that Bitcoin may drop as low as $8,000 in the near-term... but the bull market isn"t over.
Bitcoin prices are higher since his announcement...
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Update 1202ET: Coinbase is down...
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Update 1045ET: Andrew Left of Citron Research has covered his GBTC (Bitcoin Trust) short.. as the arbitrage spread to futures has roundtripped...
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Update 1025ET: Bitcoin Futures have resumed trading and the BTFD"ers are in control - ramping Bitcoin back above $13,000 from near $10,000 lows...
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Update: 0950ET - CME"s Bitcoin Futures Contract was halted limit-down (down 20%) at $12,265 at 0945ET...
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Following the most aggressive drop in Bitcoin in almost three years (plunging 37% from its highs in 5 days)... Bitcoin is now down over $9000 from its highs...
Back to a $10,000 handle...
And then it was suddenly ripped $2000 higher...
Every bounce is sold...
However, today"s collapse isn’t even particularly eye-catching on a logarithmic scale, used to compare relative percentage-point sizes of moves.
At least three times since 2010, the first year for which Bloomberg prices are available, bitcoin has retreated more than 70 percent from record highs. Caveat emptor.
Surveying the damage this morning is nothing short of a bloodbath...
If one looks carefully, one can find a few glints of green - Tether, NXT, Komodo, Bitcoin Dark, and SmartCash but they are all microcap.
Futures and spot fell together with various circuit-breakers kicking in...
Some have argued that this was a key technical breakdown of the exponential uptrend...
These kind of drops are not entirely unusual, Bitcoin has crashed by over 30% in every quarter since its inception...
In fact, drawdowns are very much business as usual...
As Reuters notes, for the week, it was down around a third - its worst performance since April 2013.
“A manic upward swing led by the herd will be followed by a downturn as the emotional sentiment changes,” said Charles Hayter, founder and chief executive of industry website Cryptocompare in London.
“A lot of traders have been waiting for this large correction.”
“With the end of the year in sight a lot of investors will be taking profits and saying thank you very much and closing their books for the holiday period,” he added.
Ethereum is also getting crushed...
Interestingly, Ripple, the third-biggest, has more than quadrupled in price since Monday.
“A lot of the capital is flowing from bitcoin into alternative coins,” said Shane Chanel, equities and derivatives adviser at ASR Wealth Advisers in Sydney.
But it"s not just the underlying cryptocurrencies that are bloodbathing. Various companies that have changed their names in recent days/weeks to try and capitalize on crypto"s rise are in trouble this morning...
Riot Blockchain, Long Island Iced Tea (Blockchain), Net Element, and LongFin are all crashing in pre-market...
...Meanwhile, the newly christened Long Blockchain revealed in an SEC filing on Friday that it had secured a new loan agreement with Court Cavendish, a lender trying to expand its technology portfolio, according to the filing. The company received a $2 million loan, with the option of increasing it to $4 million with the consent of the lender.
The loan is secured with warrants...
Long Blockchain, née Long Island Iced Tea Corp, has a new loan with some, uh, interesting terms: https://t.co/1sImykVUr3
— Charley Grant (@CGrantWSJ) December 22, 2017
Stephen Innes, head of trading in Asia-Pacific for retail FX broker Oanda in Singapore, said that there have also been moves out of bitcoin into Bitcoin Cash, a clone of the original cryptocurrency. Oanda does not handle trading in bitcoin.
“Most of it is unsophisticated retail traders getting burned badly,” Innes said on bitcoin’s recent retreat.
Finally, many are noting the recoupling ion the relationship between Bitcoin and Gold...
Which comes first? Bitcoin $10k or Gold $1300?
Following today"s crypto-rout which saw bitcoin plunge as low as $10,000, down over 30% on the day, and nearly 50% from its Sunday high of just below $20,000, the HODLers and no longer HODLing and instead are rushing to get out. So, in taking a page from the futures markets, the largest US crypto-exchange, Coinbase, said on Friday that buying and selling was temporarily disabled due to high traffic.
"Investigating - All buys and sells have been temporarily disabled. We are working on a fix and apologize for any inconvenience," Coinbase said on its status website at 8:11am PST (11:11am ET).
Just over 20 minutes later the company added in a subsequent statement that "due to today"s high traffic, buys and sells may be temporarily offline. We"re working on restoring full availability as soon as possible."
On Thursday, Coinbase had temporarily disabled buys and sells at 5:57 p.m., ET, according to its status website. The issue was resolved within 15 minutes.
Bitcoin had dropped traded about 17% lower near $13,000 on Coinbase as of noon, rebounding more than 20% from intraday session lows. As reported previously, Coinbase"s mobile app recently became the most downloaded application in the Apple App store.
The news broke yesterday morning that Litecoin developer and outspoken founder, Charlie Lee, sold or donated all of his liquid Litecoin holdings. This prompted a big sell-off in the cryptocurrency markets, putting on pause the bounce off of the previous night’s bottom below $16000 for Bitcoin.
This comes in the wake of Coinbase adding Bitcoin Cash (BCH) to its stable of coins available for purchase, which also sent shockwaves through the markets.
In his post on reddit, Lee explained that he felt his ownership stake was actually a burden on Litecoin’s development as a real-world medium of exchange:
And whenever I tweet about Litecoin price or even just good or bads news, I get accused of doing it for personal benefit. Some people even think I short LTC! So in a sense, it is conflict of interest for me to hold LTC and tweet about it because I have so much influence. I have always refrained from buying/selling LTC before or after my major tweets, but this is something only I know. And there will always be a doubt on whether any of my actions were to further my own personal wealth above the success of Litecoin and crypto-currency in general.
The market reacted negatively to the news but only for a short time. Litecoin under Lee’s direction has been setting itself up as the day-to-day cryptocurrency. One that is easy to use, cheap, fast and easy to pay with.
But, as a commenter on the Zerohedge article on this event pointed out, quite astutely:
It was requested from Facebook to do it so that he can’t be accused of personal interest, decision bias with regards to the LTC ecosystem development. Facebook is preparing the big announcement that they will introduce support for Litecoin as payment channel.
“Digital currency exchange startup Coinbase has announced the appointment of a Facebook executive to its board of directors. In joining the board, David Marcus, vice president of messaging products at Facebook, will bring years of experience in building large-scale mobile products, according to a Coinbase statement posted yesterday.”
The article he quoted is this one from Coindesk.
And Litecoin, among the major cryptocurrencies, is uniquely positioned to be that currency for Facebook’s digital payment platform as it fills out its road-map into 2018.
It doesn’t hurt Litecoin either that with the start of trading of rival Bitcoin Cash on GDAX and buying through Coinbase that there is now potential insider trading (GASP! NO! REALLY!) around it and that trades may have to be reversed (somehow).
Market manipulation and fraud is going to be a big deal in this space going forward. The temptation to cash in and scam people is simply too high not to try and game the system to individuals’ advantage.
Lee selling his coins and publicly calling out Satoshi Nakamoto to do the same and end the potential for a whale dumping his stash and bombing the market is another sign that the Litecoin Foundation is looking to go mainstream and take cryptocurrencies out of the ‘hookers, drugs and guns’ market and into the ‘Coke and Starbucks” one.
In a previous post I talked about the differentiation and segmentation occurring in the crypto-space. Bitcoin Cash with its big blocks, low fees and quick settlement times is a direct competitor to Litecoin as mediums of exchange.
Litecoin has the added payment processing layer to facilitate point-of-sale convenience while retaining proof-of-work security.
Neither, in my opinion are setting themselves up to be a reserve or foundation asset in the cryptocurrency monetary system. That’s Bitcoin’s roll. And as the money flowing into the space begins to see just how inadequate and illiquid Bitcoin is they will move into coins that are both good stores of value and retain their nimbleness and liquidity.
In fact, I expect to see at least a dozen of the current coins on the market rising to the occasion to keep the market liquid and flowing. Litecoin is just one of them.
But we are so far from that image above, the market in cryptos today is the exact opposite. Bitcoin sits at the bottom, as a massive, illiquid reserve asset. And it’s value will be converted into other coins that are capable of actually processing payments for services rendered.
In just the past four days since Bitcoin peaked near $20,000 its share of the total cryptocurrency market has plunged from over 67% to around 45% today.
Litecoin, for the first time has broken above 2% as are others, like DASH and Monero. It’s clear that the cryptocurrency market is undergoing a reorganization of capital during this phase of the bull market. And I wouldn’t be surprised to see it continue, even if there is a significant correction on the horizon.
Because cryptocurrencies are a threat to the banking elite, they are now threatening to close accounts if customers link them to Coinbase.
Authored by Wip via Jim Quinn"s Burning Platform blog,
It’s hard to think of something so complicated that has become so popular as fast as bitcoin.
With the price of the cryptocurrency soaring - and mainstream interest surging - Yahoo Finance recently invited readers to send us their top questions regarding bitcoin and other cryptocurrencies. We condensed questions from nearly 3,500 respondents into the list below, and enlisted a team of Yahoo Finance reporters to answer them, including Daniel Roberts, who’s been covering bitcoin since 2012, and Jared Blikre, our authority on trading. Ethan Wolff-Mann and Julia LaRoche contributed as well. Here’s everything you want to know about bitcoin:
1. What the hell is it? In the most general sense, bitcoin is software that forms a decentralized, peer-to-peer payment system with no central authority like the Federal Reserve or U.S. Treasury. It’s fair to call it a digital currency or cryptocurrency, but at the moment, most investors aren’t really using it as currency to pay for things. Instead, they’re using it as a speculative investment to buy in the hope of turning a profit. Maybe a big profit. (And maybe a big loss).
2. What backs or supports it? Bitcoin runs on something called blockchain, which is a software system often described as an immutable digital “ledger.” It resides on thousands of computers, all over the world, maintained by a mix of ordinary people and more sophisticated computer experts, known collectively as miners. Yahoo Finance’s Jared Blikre dabbles as a bitcoin miner, running mining software in the background on his laptop. Here’s how much bitcoin he has generated so far: 0.000000071589. At the current rate, it would take him about 1,200 years to mine one complete bitcoin. That gives you a sense of how complex it is to mine bitcoin, and how much processing power it takes: These computerized mining rigs throw off so much energy that they can heat your home.
All bitcoin transactions are permanently recorded by miners, who upload bundles of transactions, or “blocks,” to the chain, maintained on all those computers. Blockchain as a technology has become popular among banks and other big financial institutions, who want to use it to settle payments on their back-end systems. But they’re mostly interested in blockchain without bitcoin.
3. Who’s running the show? Bitcoin is decentralized, which means there isn’t one arbiter, central party or institution in charge. Blocks of transactions are validated on the blockchain network through computing “consensus,” which is a feature of the software. Bitcoin was created by someone in 2009 using the pseudonym Satoshi Nakamoto, but it isn’t known who that was, and that person or group doesn’t have control over bitcoin today.
4. What is there to value? The price of bitcoin fluctuates based on buying and selling, just like a stock, but there’s a ton of debate over what the price represents. In theory, the value of bitcoin should reflect investors’ faith in bitcoin as a technology. But in reality, investors mostly see bitcoin as a commodity because of its finite supply. Under Satoshi’s blueprint, the total supply of bitcoin will eventually be capped at 21 million coins. At the moment, 16.7 million bitcoins have been created. A fractional amount of new coins gets created every time a miner uploads a block to the blockchain, which is a reward for mining.
5. Is this a scam? It’s not a scam, in the sense of somebody marketing a bogus product. Bitcoin is a legitimate technology. The question is how useful and valuable it will become.
6. Is there actually a physical coin called bitcoin? No. You can’t touch a bitcoin because it’s essentially software. You may have seen images of gold coins with a “?” on them. Those are souvenirs that can’t be converted into actual bitcoin. But they’re better for illustrating news stories than the streams of numbers and letters that resemble the actual blockchain.
7. Is it tangible like gold? Bitcoin has one big similarity to gold, in that some investors consider it a good store of value for financial wealth. You can take possession of your bitcoins — as some people do with gold — by downloading the string of digital codes that represents your holdings onto a gizmo that looks like a flash drive. But you can’t run your fingers through your bitcoin the way you might with a pile of gold doubloons, and bitcoin certainly isn’t pleasingly shiny.
8. Is value completely determined by the free market? For the most part, yes. There’s a known and limited supply of bitcoin, so when demand goes up, so does the price. Technical innovation also contributes to bitcoin’s value. It was a novelty when first created in 2009, and the market has determined (for now) that it’s an invention that’s worth something.
9. How can something that does not exist in the material world have a monetary value? Bitcoin does actually exist in the material world, the same way an operating system for your phone or computer exists in the material world. Remember, it’s essentially software, and it’s very clear that certain types of software have value because of what they allow us to do.
10. If it’s virtual, can’t people make duplicates? Yes, but that’s not a problem. All bitcoin transactions are stored on that public ledger, the blockchain. You can copy the blockchain, but it’s just a record. So you wouldn’t be changing the distribution of bitcoin. To process new transactions in bitcoin, miners with powerful computers solve complex problems that add the transactions in a block to the blockchain. This is called “proof of work” and is one of the core features of most cryptocurrencies. Multiple miners verify the work, which prevents fraud.
11. Is this a legal tender? Not officially yet in the United States. “Legal tender” means the laws of a state or nation require any creditor to accept the currency toward payment of a debt. In the United States, for instance, merchants must accept the U.S. dollar, which makes it legal tender. The U.S. government allows transactions in bitcoin, but doesn’t require every nail salon, car dealership or restaurant to accept it. They do have to accept dollars. Meanwhile, Japan and Australia, among other countries, have officially recognized bitcoin as legal currency.
12. What is the collateral behind bitcoin? Nothing! The bitcoin blockchain records the entire transaction history of all bitcoin, which is validated through proof of work. That’s not collateral, however. There’s no other tangible asset backing bitcoin, the way a car serves as collateral for a car loan or a building serves as collateral for a commercial property loan.
13. Who keeps track of each bitcoin? All of the miners who maintain the system.
14. How do you buy and sell it? There are a number of easy-to-use exchanges now where you can buy bitcoin using money transferred from a bank account, and in some cases by charging a credit card. The most popular mainstream option is Coinbase, which now has more than 13 million customers. Kraken is another one. Here’s our full explainer on how to buy bitcoin.
15. What are you actually buying? You’re buying a digital “key,” which is a string of numbers and letters that gives you a unique claim on the blockchain supporting bitcoin. You can transfer this asset to others for whatever the market price of bitcoin is, minus transaction fees.
16. Can they be purchased in a regular brokerage account? Traditional brokerages such as Vanguard, Fidelity and Schwab don’t yet offer the ability to purchase bitcoin directly. But there are securities linked to the value of bitcoin, such Bitcoin Investment Trust (GBTC), which you can buy through a traditional brokerage. That doesn’t make them a safer investment than bitcoin. Most, in fact, are highly volatile, just like the coin, and they don’t necessarily track the price of bitcoin perfectly.
17. How much money do you need to get started? Not much. Coinbase lets you purchase as little as $1 of bitcoin, ethereum or litecoin, for instance.
18. Can bitcoin be purchased in fractions? Yep. One bitcoin is divisible down to 8 decimal points, or 0.00000001 bitcoin. That’s the equivalent of one one-hundred-millionth of a coin. That unit is known as a satoshi, in honor of the pseudonymous founder of bitcoin. If one bitcoin is worth $15,000, the value of a satoshi would be .015 cents.
19. Can it be traced back to you? Yes. Anyone who buys or sells bitcoin on an exchange such as Coinbase must provide their personal information to that exchange. If law-enforcement agencies or the IRS need to know something about you, the exchange will have to provide the info under the same laws that govern banks or brokerages. But your personal info does not become part of the blockchain and is not visible to miners maintaining the blockchain.
If you trade bitcoin privately with someone else in a peer-to-peer transaction, that person may know something about you, but nobody else would see the transaction. And if you’re a shady character aiming to launder bitcoin, there’s a way, called “bitcoin mixing.” Multiple bitcoin owners send their bitcoins to a service known as a mixer, which pools bitcoin from multiple sources, mixes them up, and redistributes them to the original owners in the amount they contributed (minus a fee, needless to say). This is risky and assumes the mixer doesn’t run off with your coin.
20. Where is my money going when I buy a crypto? When you buy bitcoin or any other cryptocurrency, somebody is selling it to you — so most of the money goes to the seller. Exchanges also charge fees for conducting transactions, which can get very high. Bitcoin miners also earn transaction fees for their role in maintaining the network. Those tend to be tiny.
21. Are bitcoins real money? And can I cash them in whenever I want? Bitcoin has value that can be converted into ordinary currency, or used to make purchases from sellers that accept bitcoin. So in that sense, it’s real money, and it will remain real money as long as there’s a market with people willing to buy it. To “cash in” bitcoin, you need to sell it to somebody, in exchange for dollars or some other currency. Exchanges that handle such transactions have experienced frequent outages that prevent some people from accessing their accounts or executing a trade for a period of time, especially when are there large movements in the price of bitcoin. So don’t assume you’ll be able to sell any time you want.
22. What is the value based on, besides scarcity? What buyers and sellers think bitcoin is worth. In other words, a lot of psychology.
23. How are they stolen? The bitcoin blockchain itself is very secure, but bitcoins can be stolen from an account if thieves are able to log into your account and send the bitcoin to another account they control. Once bitcoin is transferred, it can’t be recovered. Thieves typically break into other people’s accounts by stealing logon and password info. That makes it extremely important to use all possible measures to safeguard a bitcoin account, including two-factor authentication with a mobile phone. You also have a “private key,” which is a third layer of security that you might need at some point, if there are questions about who’s logging into your account. This key is typically a string of keyboard characters that should be stored where it can’t be lost or stolen or accessed through the internet.
24. How does bitcoin generate revenue? Miners earn money–paid in bitcoin–for creating bitcoin, which helps cover the cost of time and computer power that the process requires. They also earn small transaction fees from bitcoin users. Bitcoin itself doesn’t generate revenue. It’s best thought of as a commodity, similar to gold, that has a market price but doesn’t generate economic activity, the way a business does. When the value goes up, bitcoin can create profits. But when the value goes down, it can also create losses.
25. Is there value in this currency outside of black market transactions and ransoms? Yes. Since bitcoin transfers can’t be traced, bitcoin is often used to purchase drugs or stolen gods or finance other types of criminal activity. But it also has legitimate uses, and can be used as a form of payment with anybody who accepts it. Some investors consider bitcoin to be a store of value–an asset that has a long shelf life and whose value generally goes up over time. While that may be the trend of the last several years, however, we still can’t be sure bitcoin will hold its value long-term.
26. What’s the difference between bitcoin and other cryptocurrencies? That depends which currency you want to know about, and there are hundreds of them now. (Yahoo Finance recently added full data and charts for 105 of them.) Some coins, like bitcoin cash, bitcoin gold or litecoin, resulted from forks of the main bitcoin code. Then there are coins that run on their own blockchain, like ether (the token of the ethereum network) or XRP (the token of the ripple network).
27. Why does the price fluctuate so much? There’s a lot of money pouring into a relatively small market, with the added complexity that it’s harder to trade bitcoin than typical securities or commodities on a regulated market. Big price swings happen sometimes when there are relatively few buyers and sellers in the market, which makes it easy to push the price around.
28. How much of the volatility of bitcoin is due to whales influencing the market price versus new or outside investors? Bloomberg reports that about 40% of all bitcoin is owned by roughly 1,000 people, and many people believe these “whales” collude to influence the price of bitcoin. But there’s no proof of this. While we don’t know how many people are trading bitcoin at any given time, the blockchain, which is the transaction log, is public. The blockchain does show large trades taking place every day, but they’re typically not big enough to generate the huge price swings we’ve seen. Also keep in mind that in the stock market, large institutions typically break up their orders into much smaller orders, to hide their size. Big buyers or sellers of bitcoin could easily do the same.
The price of bitcoin has rocketed more than 1,700% year-to-date.
29. Is it a bubble? Nobody knows for sure. The price surge in recent months has certainly been bubblicious. Many recent buyers want to own bitcoin not for its inherent value, but simply because they think it will rise in value. That’s speculation, which is what often fuels a bubble. But it’s also possible bitcoin is a genuine innovation that will be around for a long time and help transform money. It’s worth recalling that the creation of the Internet led to the dot-com boom in the late 1990s, and the painful crash that followed. But the Internet is still here, and some tech companies that crashed in the early 2000s are now among the most valuable companies in the world.
30. If the bitcoin bubble does burst, would all of the cryptocurrencies tank or just bitcoin? The universe of cryptocurrencies tends to move in the same general direction over time. But they’re not all as closely correlated as they used to be. On the Yahoo Finance cryptocurrency index, for instance, you’ll see the daily price movements are quite different for the 100+ coins we track. Still, an outsized move in bitcoin typically has ripple effects (pun intended, and if you don’t get it: ripple, or XRP, is the No. 4 cryptocurrency by market cap) throughout the crypto-verse. If bitcoin were to tank by 90%, it seems quite likely other cryptos would follow suit. The real test would be which cryptos are able to survive a crash, the way Amazon, eBay and Priceline survived the dot-com bust that wiped out hundreds of other companies.
31. I hear wild speculations that bitcoin will reach $1 million or that it will crash and be worthless. What is most likely? Either event is possible, and perhaps both are. Bitcoin could climb all the way to $1 million and then still suffer a huge crash. No one knows how high the price of bitcoin will go, and it’s possible bitcoin has already achieved its all-time high. But bitcoin probably won’t ever become literally worthless, unless something catastrophic happens, such as the discovery of a fatal flaw in its code.
32. What are the risks? Something could disrupt the demand for bitcoin, sending the price plummeting. It could be a technical problem, regulatory interference, or bad publicity arising from the massive amount of electrical power needed to mine for bitcoin. It could also be something totally unforeseen. Or, some new speculative fad could come along, with interest in bitcoin diminishing.
33. Should I use a bitcoin “hardware wallet”? That’s an excellent idea. Dan Roberts explains how to do it.
34. How do we get hold of these companies? They don’t answer emails. Sorry, but that’s kinda the idea. To many of bitcoin’s ardent supporters, one huge benefit is its decentralization—the lack of a central authority and the absence of regulation. Those are the very things, of course, that bring government pressure to bear on financial services companies that underserve or mistreat their customers. Maybe central authority isn’t that bad, after all.
That’s the snarky answer. In reality, it’s in the interest of Coinbase and other intermediaries providing access to bitcoin to do a better job responding to customers who have problems or questions. Keep in mind, most of these companies are startups still getting their footing. Keep pressuring them. They ought to get better.
35. Will there ever be customer service via phone? You mean, like Vanguard or Fidelity? What a novel idea. We’ll see, but for now you’re only likely to hear from Coinbase if there’s a security issue with your account.
36. Will the government keep their nose out of it? Probably not. Governments have already stepped in, to some extent, with Washington, for instance, allowing the trading of bitcoin futures, which is regulated by the Commodity Futures Trading Commission. For bitcoin to become a more established part of the financial system, it will be subject to more regulation. But that’s not necessarily bad. Some bitcoin investors think that if governments regulate bitcoin more, that will actually legitimize the currency and broaden its adoption.
Federal Reserve Board Chair Janet Yellen testifies on Capitol Hill, calling bitcoin “highly speculative.”
37. Are cryptocurrencies going to take over the U.S. dollar and other currencies? It’s hard to see anything dislodging the U.S. dollar, which is the world’s most trusted currency. Cryptocurrencies could gain share in the overall currency market, especially if the U.S. government explicitly authorizes certain cryptocurrencies and allows people to pay taxes with them. But even that probably wouldn’t doom the dollar, which is valued everywhere for the liquidity it provides.
Yahoo Finance’s Justine Underhill asked Federal Reserve Chair Janet Yellen at her last press conference if the Fed was considering issuing its own cryptocurrency. Yellen said central banks, including the Federal Reserve, are indeed investigating digital currencies but stressed that these are different than cryptocurrencies. She said bitcoin is an unstable, highly speculative asset — but she didn’t indicate any imminent interest in regulating it or reeling it in.
38. Will cryptocurrency destroy the global market? Nah. Even if bitcoin crashed, it wouldn’t have a significant impact on the broader financial markets, according to a recent analysis by research firm Capital Economics. For all the attention it gets, bitcoin’s market cap is still small, and the cryptocurrency isn’t woven into the real economy or the banking system. A total wipeout — with the price falling to $0 — would be the equivalent of a 0.6% pullback in stocks, according to the analysis. Spending by a small portion of households might be affected, and some people would suffer million-dollar losses. But many people with large bitcoin holdings were early investors who bought when the price was very low. So they might seem like large losses in terms of bitcoin’s peak valuation, but they’d still represent fairly modest initial investments.
39. What types of products or services can be bought with cryptocurrencies? Though it’s called a cryptocurrency, it’s not clear the best use of bitcoin will ever be buying stuff with it, since you can purchase things in so many other convenient ways. Investors may eventually regard bitcoin principally as a store of value, similar to commodities.
But if you must, you can spend bitcoin right now on Zynga, Overstock.com, Newegg.com, Expedia.com, and some of Microsoft’s online platforms. If you’re booking a trip, CheapAir.com takes the cryptocurrency as payment. An online outfit called eGifter allows you to buy gift cards from more than 200 brands using bitcoin.
You can buy more expensive things, too, such as a reservation for Virgin Galactic, Richard Branson’s commercial spaceflight company. The Montessori Schools in Flatiron and Soho, an elite pre-school in Manhattan, accepts bitcoin for its nearly $32,000 per year tuition. REEDS Jewelers accepts bitcoin for its rings, watches, and other fine jewelry.
Pro sports is getting in on the craze, with the NBA’s Sacramento Kings and the San Jose Earthquakes soccer team accepting bitcoin for tickets and merchandise. So are political parties, with Libertarians accepting donations through BitPay. The annual maximum is $33,900, which, who knows, might be the equivalent of one bitcoin someday.
40. Can I spend it at Home Depot? Not directly. But it’s slowly catching on among some retailers, mostly e-commerce: Overstock accepts bitcoin, as does Microsoft’s Xbox store, and PayPal and Square allow merchants to accept bitcoin.
41. Will it ever be used as currency at regular retailers? It depends on what’s in it for the retailer. If consumers eventually find bitcoin cheaper or easier to use than current methods, then it might be something retailers decide to offer, to gain a competitive edge. They might even encourage customers to pay in bitcoin if it costs them less in transaction fees than credit cards do. But widespread adoption seems unlikely until the price of bitcoin becomes more stable.
42. Is there any reason why a typical consumer would prefer to use a cryptocurrency instead of a credit card? For now, not really, unless you’re trying to remain anonymous. Cash allows that, obviously. For larger purposes, bitcoin does offer both anonymity and the security of an electronic transaction.
43. What percentage of global economic activity is conducted in cryptocurrency? Very little. But bitcoin finances a significant portion of criminal activity.
44. How do you track various cryptocurrencies? Is there a ticker I can follow? Yep. Yahoo Finance now offers full, free tracking tools for more than 100 cryptocurrencies, with a ticker symbol for each. Most people aren’t even aware there are that many cryptocurrencies. We also have a landing page for all cryptocurrency news and our original coverage of it.
45. Are crypto coins more like stocks or currency, as far as investments? It’s complicated, because bitcoin and other cryptocurrencies have features in common with both. People often compare cryptos to a third category, gold. This labeling confusion is why you’ll sometimes hear cryptocurrencies referred to as “digital assets” or “digital gold.”
46. ETF availability? Coming, probably. The U.S. government recently allowed the trading of bitcoin futures, which may well be a precursor to the establishment of exchange-traded funds that would be listed on a major exchange. The Securities and Exchange Commission would have to approve such an ETF. That could be a year away, more.
47. Why are there vast disparities among trading values in cryptocurrencies? First, different cryptocurrencies trade on their own dynamics. There are differences in the number of coins outstanding, different uses for them, and different rules of operation. When bitcoin, the biggest of them all, makes a large move, it tends to have a spillover effect, with other cryptocurrencies moving in tandem. This effect has diminished over time, however, as cryptocurrencies mature and differentiate.
Another issue is the disparity in trading values of a single cryptocurrency across the myriad exchanges — mainly in the markets for bitcoin. This is due to the relatively high cost of arbitrage, or buying the asset on the lower-priced exchange and selling it on the higher-priced exchange, to make a small profit. The catch is it can take time to make each or those transactions, with no guarantee prices will be the same when the trade goes through. These disparities will likely continue as long as there is relatively low liquidity on most exchanges, as well as high transaction fees.
48. Do you have to report bitcoins to the IRS? The IRS considers bitcoin to be the equivalent of property, with profits (or losses) taxed more or less the same as the proceeds from a sale of stock. The IRS recently won a court ruling against Coinbase that requires the exchange to report information on customers who had more than $20,000 in annual transactions from 2013 to 2015. It seems inevitable that the IRS will treat profits and losses from cryptocurrency bets the same as it treats other investment income.
49. Should one put retirement savings into cryptocurrencies? Can you afford to lose it all? If you can’t, then stay out of cryptocurrencies—the volatility and risk of a wipeout is exactly the opposite of what ought to be in a strong retirement plan.
50. Will I be sorry if I don’t put 5% of my retirement savings into cryptocurrency? If you’re comfortable investing a small portion of your savings in high-risk instruments, then sure, do it. But again, don’t do this unless you can afford to lose all that money .
51. How can I get exposure to cryptocurrencies without actually purchasing the currency? Glad you asked! Because Yahoo Finance has now established a list of publicly traded companies with some exposure to cryptocurrencies. There are 13 tickers on the list so far, including familiar names such a Nvidia and Microsoft. We’ll add more as warranted.
More sophisticated investors can trade bitcoin options on the LedgerX platform and bitcoin futures at both the Cboe Futures Exchange and CME Group. At the Cboe, one bitcoin contract represents the price of one bitcoin. At the CME, one bitcoin contract represents the price of five bitcoins. Both settle in cash, so you don’t have to put up or take delivery of any actual bitcoin. You need to open an account with LedgerX to trade bitcoin options. To trade bitcoin futures, you need to open a brokerage account with a broker that’s a member of the requisite exchange. Many large brokers are taking a wait-and-see approach, and still not yet letting clients trade bitcoin futures. Others are requiring high margin, which is the amount of money a customer must put up to trade the futures.
52. How will the bitcoin collapse affect traditional investments? Who said it’s going to collapse? Seriously. But if you want to be a hater, the good news is there doesn’t appear to be any correlation between bitcoin and other risky assets such as stocks, according to that Capital Economics report. While the stock market rally has slowed in recent weeks, for instance, bitcoin has continued to surge higher. As mentioned earlier, bitcoin has been compared with gold, but it’s certainly not a “safe haven” asset. While gold prices have dipped in the last week, the cryptocurrency has continued to climb higher. As Capital Economics put it, bitcoin is a “world of its own.”
53. Why do Jack Bogle and Jamie Dimon tell investors to stay away from bitcoin? Because they think it has no inherent value and that it’s only going up in price because buyers think somebody in the future will pay even more for bitcoin than they paid for it in the present. Embedded in their opinions is the expectation that one day there will be a bitcoin crash where investors lose most, if not all, of their investment. But those are only opinions.
54. How do banks view bitcoin? Friend? Foe? Partner? Banks are not fans (yet). JPMorgan is hostile toward bitcoin. Citigroup is suspicious. Goldman Sachs is curious. Nearly all large banks have brokerage arms that are members of the futures exchanges where bitcoin futures are now being traded. These futures contracts finally bring bitcoin to Wall Street. But it’s going to take time to build the trust of Wall Street brokers. Until then, volume and liquidity will be low, with most trading happening among retail traders rather than institutional ones.
Right before bitcoin futures went live, big banks and brokers, represented by the Futures Industry Association, sent an open letter to the CFTC, which regulates U.S. futures trading, warning that bitcoin futures were being rushed to market without transparency or proper risk assessment. That has led many large brokers to avoid the bitcoin futures markets for now, refusing to let clients trade yet. Others are reserving trading rights for select clients.
55. Are there any publicly traded companies that make markets in cryptocurrencies? None that are well-known in the United States, although there could be overseas, given that there are hundreds of cryptocurrency exchanges and dozens of public stock markets around the world. There are however, a growing number of public companies that have “blockchain” in their name, and claim to gain exposure to this new universe by investing in blockchain technology, mining operations, and specific cryptocurrencies. Beware of these. Many have avoided the rigorous IPO process by performing a reverse merger into an existing public company, which is often engaged in an entirely different business. This adds a level of risk to anyone investing in these companies. It’s possible that in the future, one of the large public Wall Street brokers will become a market maker in bitcoin futures. But it hasn’t happened yet.
56. How will it impact countries’ ability to collect income tax? If bitcoin were to become a substantial gray- or black-market sub-economy where people could hide income, governments would have an incentive to crack down and limit the use of new currencies. Of course, there’s already a large underground economy, where cash and other types of assets are exchanged in ways meant to hide transactions. And there are plenty of offshore tax shelters, as well. The IRS’s recent lawsuit against the Coinbase exchange indicates the U.S. government is paying attention and is willing to be aggressive making sure taxpayers don’t use cryptocurrencies to cheat on their taxes.
Coinbase, one of the world’s largest cryptocurrency exchanges, was iPhone’s number 1 app in December.
57. Is there a way for all the money invested to just vanish because of a virus or hack? When it comes to the bitcoin network itself, that’s a possibility, but an unlikely one. The code that runs the bitcoin network is open source. Over 350 people currently work on it, and anyone can inspect it. With so many well-trained eyes on the code, it’s unlikely to succumb to a virus or hack.
Bitcoin’s weakness is at the individual exchange level, since exchanges have been hacked and others, such as Mt. Gox, have been exposed as outright frauds. Even the largest exchanges experience outages on days when volume surges. A disruption at a large exchange can influence the price of bitcoin, but one exchange probably can’t crash the entire network. It’s never happened, but if the world’s largest bitcoin exchanges were all hacked or crashed at once, it could prove catastrophic for bitcoin.
58. Can blockchain disappear? If every copy of the blockchain were somehow erased, then the entire blockchain would disappear. But that’s unlikely. It is common, however, for parts of the blockchain to disappear as they become invalidated, because of the way the blockchain is designed. For “proof of work” cryptocurrencies such as bitcoin, miners compete to process transactions that allow them to earn new coin, along with transaction fees. The rules require everyone to follow the longest blockchain. Sometimes, concurrent blockchains evolve in parallel, for various technical reasons. When one chain becomes a single block longer than the other, the shorter one is invalidated, along with all the transactions in it. This is undesirable for the losing parties that have invested time and computing power in the shorter blockchain. In general, this creates an incentive for miners to mind the blockchain and keep its size under control.
59. Is bitcoin likely to increase its supply once the 21 million limit happens? It’s possible, if at least 51% of the bitcoin miners agree to change the rules. One concern is that miners who maintain the network will drop out after the last bitcoin is mined, because they’d only earn money from transaction fees, which might not be lucrative enough. Buyers and sellers have a say, too, since it’s up to them to decide if they’re willing to pay the fees. In a way, the bitcoin market will evolve like any other market involving producers, consumers, buyers, sellers and middlemen who continually negotiate over price and terms.
There’s no hurry to decide. Miners aren’t expected to generate the last bitcoin until around 2140, 123 years from now. By then, computing power will be exponentially higher and humans may mate with robots, for all we know. It’s not hard to imagine bigger concerns than whether to lift the bitcoin cap.
60. How easy is it to cash out of cryptocurrencies if I need the money in a hurry? Not as easy as you’d like. Bitcoin is not as liquid as other investments, in part because settlement can take more than a week, under good circumstances. Volatility and surging demand has caused frequent outages on exchanges such as Coinbase and Kraken, and you can’t sell if you can’t access your account. If such outages occur amid panic selling, some bitcoin holders might be unable to sell for a fairly long time, which could make steep losses worse as the price drops and people who want to sell, can’t. That’s one thing that could harm confidence in the asset.
61. Will the banking industry adopt bitcoin into their business practices or is it more likely that they will work together to develop a new type of cryptocurrency? Banks will do what’s in their interest. Right now, there’s not a big, liquid market to trade cryptocurrencies. The new bitcoin futures may become big enough to trade with institutional money. At that point, it’s likely the big banks (which also have brokerage arms) will come to dominate the market for bitcoin, and perhaps other cryptocurrencies.
If the banking industry were to develop its own cryptocurrency, it would make sense for it to be ethereum-like, based on smart contracts. This would allow them to offer and control the process for initial coin offerings (ICOs), which would likely be regulated by the Securities and Exchange Commission at that time. This is speculation and at least several years off.
62. How do we get cryptocurrencies into our 401(k) plan? Careful, cowboy. It could be awhile before financial firms that administer 401(k) plans allow access to cryptocurrencies. For one thing, there are no mainstream mutual funds or ETFs that allow this type of investing. And retail brokerages will probably err on the side of caution when it comes to rolling out crypto products for retirement accounts. The first requirement will be the establishment of a bitcoin ETF, which we estimate to be at least a year away.
63. Can I short bitcoin without opening a futures account or having to pay a very high fee to locate shares of something like GBTC? No. GBTC is the ticker for Bitcoin Investment Trust, an exchange-traded trust that trades on the over-the-counter market (which means it’s not listed on a major exchange, like the NYSE or Nasdaq). This is why traders who want to bet against the price of bitcoin find it difficult to borrow shares of GBTC to short. Also, while GBTC is designed to track the movement of bitcoin, it doesn’t track the price of bitcoin perfectly. Until a bitcoin ETF is listed on a major exchange, the futures markets offer a much better alternative if you want to short bitcoin (though liquidity is admittedly low at this early stage).
64. Could another crypto take over bitcoin? Yes, depending on how you define “take over.” Strains on the bitcoin network, such as persistent outages at some of the exchanges, led some bitcoin miners to take matters into their own hands earlier this year. They banded together to change the bitcoin code in a way that would speed up the network, a change known as a “soft fork.” This created a separate cryptocurrency called bitcoin cash, which is now the third-largest cryptocurrency by market value. And other new cryptocurrencies have been coming to market every month, many through the same soft-fork process. These don’t necessarily amount to a “takeover” of bitcoin, but they do spawn new competition that’s a threat to the dominance of bitcoin.
Bitcoin is the first mover, however, with inherent advantages. It’s the only one with its own futures contracts. And it will probably be the first with a U.S. ETF listed on a major exchange, allowing ordinary people to invest easily. But if the bitcoin network doesn’t catch up with bitcoin mania, users have literally hundreds to choose from, with ethereum, ripple, litecoin and bitcoin cash as leading contenders.
65. How many people are trading bitcoin and when is the market “open?” Bitcoin never sleeps — it trades 365, 24/7. But there’s really no way to determine how many people are trading at any given time on the hundreds of exchanges worldwide. We do know this: Initially, most bitcoin trading was done in the west, but now the lion’s share is done in China (and traded versus the Chinese yuan). Large price swings often happen when it’s dark in America. As bitcoin popularity surges, however, so do the number of U.S. dollar-denominated accounts being opened.
66. How do you buy other cryptocurrencies with U.S. money, as opposed to buying these with bitcoin? It’s up to the exchanges to decide what cryptocurrencies they’ll trade and what form of payment they’ll accept — whether it’s U.S. dollars, Chinese yuan, or bitcoin itself. Most of the altcoins aren’t popular enough to incentivize exchanges to accept payment for them in traditional currencies. The market decides how cryptocurrencies can be bought.
67. How is bitcoin “mined”? By purchasing the costly ASIC equipment that’s best suited to the job, or downloading a mining application to a traditional computer, which is now an extraordinarily slow way to generate coin. Here’s where you can learn the details. (ASICs, which stands for (application-specific integrated circuit, are very powerful and expensive processors.)
68. How does anyone know bitcoin is limited to 21 million units? If it is limited to 21 million units, how do you know when 21 million units have been mined, and there’s no more to mine? The code behind the bitcoin network is available for anyone to inspect, as is the blockchain ledger, which records the entire history of bitcoin transactions. So everyone in the bitcoin community will know when miners produce the 21 millionth coin. The question then becomes, what next?
69. Why are graphics cards used in mining? It makes it sound like currency is being made up. When bitcoin was invented in 2009, miners quickly discovered that the processors in graphics cards (GPUs) were much more efficient at mining bitcoin than the CPUs that run computers. Nowadays, miners use ASICs, which are custom-built for different cryptocurrencies. Their architecture is still similar to GPUs.
70. How will miners get paid when all the bitcoins have been mined? They will get paid by transaction fees, which are determined by supply and demand — ultimately by the agreement of the person sending the bitcoin and the miners that process the transaction. There is a theoretical upper limit on the transaction fee, and there are legitimate concerns that the bitcoin network will become insecure if miners aren’t properly compensated. This could happen before the last bitcoin is mined, as the bitcoin “birth rate” becomes exponentially smaller over time — meaning the miners might not cover the cost of electricity because it takes increasingly large resources to mine a single coin. But this scenario is likely decades away.
71. Does the size of the blockchain grow forever? As long as bitcoin exists, yes. Each transaction adds to the cumulative bitcoin ledger.
72. I have a very fast computer and I want to mine bitcoin and other currency. How do I do it? You might have a very fast computer, but unless the processor is optimized for mining bitcoin, you probably won’t mine bitcoin at an economical rate that covers the cost of electricity. Very powerful processors called ASICs sell for thousands of dollars apiece and are custom-designed for specific cryptocurrencies. But if you’re hellbent on mining bitcoin on your personal computer, there are several mining applications from which to choose.
73. What percentage of total bitcoins are in circulation today? Of the 21 million in bitcoin due to be mined, about 16.74 million, or roughly 80%, are in circulation. Yahoo Finance updates that figure and others on its ticker page for bitcoin.
74. What will the price of bitcoin be in 10 years? When we learn how to predict the future, we’ll get back to you. Here’s one likelihood, though: The technologies underlying cryptocurrencies will be around in some form for a long time.
