CRYPTO -CURRENCY

How To Make Money With Bitcoin-The

Wild West Of Digital Currency
BY CAMERON FULLER ON 12/12/13 AT 4:37
PM

The price of bitcoin fell around the world on Dec. 5,

just after the Peoples Bank of China announced that
domestic commercial banks in the country could no
longer deal in the digital currency bitcoin (BTC).
For a day and a half, trading prices plummeted,
dropping 50 percent from record-setting highs to just
under $600 on Mt.Gox, the worlds largest Bitcoin
exchange. The price of bitcoin has risen again, further
illustrating how volatile the cryptocurrency is.
The decision to halt financial institutions from deals
involving bitcoins came after a period of high arbitrage
with the Chinese Yuan (CNY), where opportunistic
investors capitalized on the value differences between
BTC, USD and Yuan. As more regulation from national
Page 1 of 78

banks is potentially on the horizon, some investors are

questioning the future of the currency and its moneymaking potential.
Just like other currencies, there are two major ways to
make money from the digital currency: trading and
saving. Bitcoins can be traded on open markets, taking
advantage of the differences between values of
currency in different nations, otherwise known as an
"arbitrage play." Most arbitrageurs are financial
institutions like banks or brokerage firms, which have
high amounts of liquid funds available to move through
the market in the time to make risk-free profits.
What makes the bitcoins different is the high
volatility that other stable currencies dont have. This
is what led to the Peoples Bank of China ceasing bitcoin
transactions at the commercial level; individuals are
still allowed to buy and sell BTCs in China as long as
they take responsibility for the risks.
A stable currencys value rises and falls on a daily
basis, but on a much smaller scale than what can be
seen with bitcoins. Where normal arbitrageurs are
dealing with minute changes in value (less than a pennys
difference can still mean thousands of dollars profit
Page 2 of 78

risk-free), bitcoin arbitrageurs deal in the difference

of full dollar amounts. As of this writing, current
closing prices on Mt.GoxUSD are $875; Mt.GoxCNY
closing prices are 5415CNY, or just shy of $892.
For example, say Joe was an early investor, and he has
5000 BTCs sitting in a digital wallet (much like
Kristoffer Koch found he had late this October). If he
were to sell those on Mt.Gox today, he would be
$4.375 million richer. However, if he were to take
advantage of the arbitrage between CNY and USD
values of BTCs he could create $80,000 more for
himself, grossing over $4.45 million. Of course, this is
a simplistic exercise; there are fees associated with
foreign transactions and currency exchange, but the
point is the same. Just before the Dec. 5 crash, USD
values were around $1,200, and depending on the
bitcoin exchange, foreign prices were even higher.
The second way of making money with bitcoin is a
higher-risk, higher reward situation. Bitcoins can be
treated like a commodity and can be invested in; you
can buy a set amount, wait for the value to rise and sell
the same amount for profit. A simple buy-low, sell-high
scheme. However, due to the nature of the market and
the inherent volatility of the currency, this isnt a longPage 3 of 78

term solution. As demonstrated by the market crash

last week, if an investor holds on too long, the person
can lose a lot of money. But holding out longer seems to
allow the market to stabilize. While prices have yet to
return to the highs of $1,200, in a weeks time prices
fell to $600 and then climbed back to where they are
now. Arguments can also be made that early investors,
and even investors as recent as early 2013, stand to
make money as prices may never see the sub-$100
range.
There is, also, a third way, one much less discussed:
trading within cryptocurrencies. Right now there are
45 digital currency values listed on the site
coinmarketcap.com, some major and some minor. With
values ranging from less than a cent to $31, these
coins are bought and sold very quickly as the markets
change, just like the stock market.
I think the stock market is totally dated, unless you
are moving tons of cash, said John Hammond, a day
trader who is seeing some great movement in the
Bitcoin trading market.
Hammond wouldnt be the first person anyone would
peg as a day trader. Part businessman, part artist,
Page 4 of 78

Hammond is a DJ in the psychedelic trance genre of

electronica, performing under the name Konundrum. He
bought his first Bitcoin for a large sum to him at the
time, $90. That was in July this year. Now he trades in
the smaller currencies, with successes and losses as he
has learned the ropes of this new frontier.
This is the wild-west, Hammond said, referring to the
volatility of the market. Even I was skeptical -- I got
in after the first big crash, but I didnt buy enough.
Six months later, Hammond spends most of his free
time focusing on day trading, 12- to 14-hour days
buying and selling smaller digital currencies.
I got really lucky with sexcoin, Hammond said. Its an
alternative currency to be used in the adult
entertainment industry. Sexcoin is a Bitcoin version of
a penny stock currently valued at $0.088 per coin.
The up-and-coming digital currency is called Litecoin;
some call it the silver standard to Bitcoins gold.
If I had bought litecoin [in July], Hammond
reminisced, then I could have made a lot of money. At
that time it was only $2 to $4.
Page 5 of 78

LTCs are currently trading at $31. While alternative

currencies are attractive for the potentially big gains,
just as penny stocks are, they also stand to lose a fair
amount of money as well.
You can make a lot of money if you get out in time,"
Hammond said. "Thats the boom and the bane of
alternative currencies. Its easy to buy in and triple
your investment, but it kind of cripples that currency."
Crippling a currency means some people gain a lot, while
others lose their investments. Hammond trades for fun
and as a way to support his business as an artist and his
recording label, Jellyfish Frequency, a not-for-profit
label that donates money raised by release events to
charities like the World Food Programme, the food
assistance branch of the UN, and Free Tibet, among
others.

Related Stories
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Tesla
Page 6 of 78

 Bitcoin: Interest From Wall Street Grows

China's Ban Knocks Bitcoin Down A Peg
With all of the discussion being focused on how to
make money with the cryptocurrencies, it is easy to
forget that Bitcoins are meant to be spent. BTCs can
be used to buy things great and small, from martinis to
cars to trips to space. With more retailers accepting
BTCs, the currency gains validity grounds for lasting
power.
However, there are still problems with the bitcoin that
need to be overcome. Just a day before the crash last
week, Lamborghini Newport Beach, a dealership in
Southern California, sold a Tesla Model S to a buyer
using Bitcoins. He paid 91.4BTC for the high-end allelectric car, which at the time was valued at $103,000.
But at this particular moment, the same amount of BTC
is only valued at $77,690, or a net loss of over
$25,000 because of the crash.
Lamborghini Newport Beach used BitPay, a payment
processor, to transfer funds immediately back to USD,
thus reducing the risk of loss. However, not all
retailers are using the service; some accept the
Page 7 of 78

currency directly, thus avoiding fees and potentially

increasing the value of their goods as the market rises.
BitPay advertises over 12,000 businesses and charities
accept bitcoin through their services.
Whether it is for personal or professional gain, there
is a lot of money to be made through bitcoins and
alternative cryptocurrencies. How stable or great
those gains will be, or if losses will be all one sees, will
play out in time.

What is the best way to make money with bitcoin in

2016?
UpdateCancel
Answer Wiki
7 Answers
Matthew Hickeyaspiring architect, bitcoin blogger,
artist, novice quadcopter pilot
Rensselaer Polytechnic Institute
New York City
26k answer views4.9k this month
Most Viewed Writer
Page 8 of 78

Virtual Currency,
Bitcoin Exchanges

Matthew Hickeyaspiring architect, bitcoin blogger,

artist, novice quadcopter pilot
Rensselaer Polytechnic Institute
New York City
26k answer views4.9k this month
Most Viewed Writer
Virtual Currency,
Bitcoin Exchanges
Matthew Hickey, Blogger at cryptocrooks
Written 12 Jun
Simply buying Bitcoin is the best thing to do. Once you
have some Bitcoin, this will open you to the world of
cryptocurrency. Developing an investment plan is key.
But allocating percentages based on risk is important.
Here are some ways to invest your Bitcoin wisely:
1.

Betting on Bet Moose - BetMoose: Betting

Strategies

I only bet if its a sure thing - Old saying

Page 9 of 78

Im not encouraging gambling, but it may be a nobrainer to bet that HIllary will get the election. If you
dont think so, do some math, hedge your bets and
boom. Youre good either way. Worth a look,
considering you can bet on almost anything.
2.
Investing on Bet Moose - How to: Invest Bitcoin
on BTCPOP
BTCPOP has a variety of ways to invest Bitcoin, trade
securities, create loans, etc. Its not as complicated as
it sounds. Start small, gain exposure, etc.
3.
Hold a majority of Bitcoin Long
This exposes you to the most market fluctuations, but
thats alright. You can always hold short positions if
youre really against it.
4.
Provide Liquidity to Margin Traders - How to:
Setup Bitfinex Margin Funding for Passive Income
This isnt as risky as it sounds, our tutorial shows you
exactly what to do. Low maintenance, good stuff.
We have plenty of tutorials, investment strategies,
guides, etc on our site.
Bitcoin is revolutionizing the economy, currency,
commodity and ownership. Get in now. Start small, ease
in, ask questions, join the community. Nuff said.
Page 10 of 78

6.6k Views View Upvotes

Related QuestionsMore Answers Below

Is it possible to make little money (for example

50$) trading with bitcoins and dollars? Which is an
easy way?

What is the best method to make money from

bitcoin?

What are best practices for making money off

bitcoin?

What has been your best way to make money from

Bitcoin?

What are the ways of making money from Bitcoin?

Glyn MacLean, Bitcoin, Ethereum and Alt
Cryptocurrencies
Written 1 Jul
Sadly, a lot of people who make recommendations (not
saying the other people on this strand are included in
this) have no idea what the options genuinely are,
because they are not actively participating. Experience
matters. But so do profit models. People talk up
different kinds of metrics, but what matters is that
you get the return OF your original investment AND
Page 11 of 78

the return ON TOP OF your original investment. That

you profit. At a big picture level, some investments
produce returns over the long term.
BitClubNetwork works like this. If you factor in
repurchase extensions and ClubCoin, BitClub is very
profitable over the duration. Repurchase extends the
life of the mines up to many years. So an original
investment takes longer to pay back, but also produces
profit for longer too. www.minethebitcoins.com that
link is my own site and I am onboarding people into
BitClub. I have a US$3500 investment there as a
founding member. This is only useful to people coming
in long term. You can buy full and partial shares.
Dragonmine is a newer crowd that offers shorter term
gains and shorter contracts. 15 months for Ethereum
and 36 months for Bitcoin. You can buy partial shares
from US$25 and full shares from $500. This is
probably the safest, simplest and fastest way to test
the water to check return rates before getting in too
deep. Dragon Mining The rates are better than Genesis
mining and amongst the best in the industry. I have
US$2500 stakeholding here for Ethereum mining. That
mine produces 0.33 average Eth per day and is
profitable.
Page 12 of 78

Investing directly into Bitcoin or Ethereum can be

heart breaking due to the fluctuations. I prefer mining
because ultimately I end up with more than I had to
begin with, plus I earn referral commissions and people
are signing up naturally anyway, so we may as well earn
commissions by genuinely helping people and learn by
being part of a community.
I do this full time. I work in blockchain and
cryptocurrency and advise people commercially in this
space. However, I am not an investment advisor, not
qualified to advise you. So any decision you make is at
your own risk. With that said, I hold myself personally
accountable to guiding people to improve their value. So
I have created profit calculators to prove the
profitability. The caveat however is that no one
controls cryptocurrency valuations. So as volatility hits,
values can fall and rise. No one can guarantee profits,
and this whole arena is fundamentally speculative
and has risk.

Page 13 of 78

You can connect to me on Facebook

2.9k Views View Upvotes Answer requested by
Sophal Sim
Clinton Bhowmik
Written 28 Oct
There are many websites which offer you to earn free
Bitcoins. With most of these sites, the concept is that
you visit the site and just for looking at it you get a
small amount of Bitcoins. The concept has something in
common with watching good old free TV. You watch a
lot of ads and in-between you get something you
actually want to see, like a film or music clips.
While this is a legitimate concept, the return on your
invested time is very little. So when you earn Bitcoins
from these advertising sites, the Bitcoins actually
come at the cost of your time. As the saying goes
'there is no free lunch'. But see for yourself, here is a
list of some of the sites that I find interesting

Earn Bitcoins for watching websites or videos.

Every page is shown for five minutes. Then you can
click 'Next' for confirmation and move on to the next
page. What I like about this site is that payouts come
Page 14 of 78

within roughly an hour. This is a major advantage

compared to other sites that pay Bitcoins for
completing tasks. Also, you don't need a user account
here; you just enter your Bitcoin address. The amount
of Bitcoins you can earn here is limited though. Per five
minutes you get something like BTC 100 (that's 100
microcoins or BTC 0.00001) which means that your
hourly payout is something like BTC 0.00012. That's
not too much money but it is a start to make you first
Satoshis and get familiar with Bitcoin. And note, payout
per five minute period varies. So the above calculation
only holds if the average payout per five minutes is
BTC 100.

Earn Bitcoins by getting rewards for purchases

made in Bitcoin. On this site you also don't need a user
account and just have to enter your Bitcoin address to
earn Bitcoins.

: Earn Bitcoins by completing analytical tasks. A

user account is required here. I haven't tried this
service but payouts seem to be a bit higher than with
the aforementioned sites.

Earn Bitcoins by answering forum questions. This

is a nice service because it brings people together who
are interested in Bitcoin and many other topics. At the
same time it allows to pay rewards in bitcoin for
Page 15 of 78

answering questions. This is something that would not

have been possible without a currency like Bitcoin that
has low transaction fees and instant transfers
Earning Bitcoins from completing tasks on websites is a
viable option to actually earn some Bitcoins, but don't
expect your income to be very large. I regard it as a
first step to get familiar with Bitcoin in general. Also,
it is interesting to see what kind of services are
enabled through frictionless money transfers.
i think This website is best money making Website
with bitcoin in 2016
881 Views View Upvotes
Raj Jain, Learned to make money by making mistakes
losing a lot in various businesses.
Written 8 Feb
Investing in Bitcoin, a new peer to peer, decentralized
digital currency, made a lot of people a hell of a lot of
money in 2013. The price of the coins rocketed from
$60 to over $1000 in just a few months, although it
has now fallen back down into the $900-range. Some of
the people in these overnight success-stories didn't
even need to buy their Bitcoins, because the coins can
be 'mined' using the processing power of their own
Page 16 of 78

computers.
The days of becoming a Bitcoin millionaire virtually
overnight with little-to-no investment have certainly
passed, but that doesn't mean there isn't still money
to be made.
Investing in Bitcoin is a pretty risky business, so you
should only use a relatively small amount of capital that
you can afford to lose entirely if things go badly. But
these high risks could also come with high rewards.
Unicoin is an Indian startup where you can learn more
and trade in bitcoin. You can give it a look!
Other ways to make money from bitcoin are -:
Cloud Mining and Hashing
Although buying and running your own mining hardware
for coins is both expensive and fraught with technical
difficulties, it is still possible for ordinary people to
make money by mining.
One easy way to mine is to hire space on a specialist
mining computeror a whole machinein the same way
that you would hire a server for website hosting. By
doing this, you can estimate your profits using one of
the many mining-profit calculators available online.
Some firms claim, based on past results, that you can
Page 17 of 78

break even on your initial investment in three months

using this method.

Buy and Hold Bitcoin

Many people who owned bitcoins made a large profit
last year simply by holding coins in their wallets. This is
still the easiest way to invest in the cryptocurrency
phenomenon.
As I mentioned in the first section, there are many
opportunities for growth and price surges in the coming
year. This means that there's still a possibility that
the coins will keep increasing in value as fast as they
have been up until now, if not faster. If that happens,
then simply buying and holding would prove to be a very
profitable investment opportunity. Of course, there is
also a very real possibility that the price could crash
and you could lose most of your money.
If you don't mind holding your money on an exchange
rather than in a wallet on your own computer, then hold
your coins in an account on a site such as Bter, which
pays a small amount of interest on all deposits.
Remember Bitcoin is a very dicey market to deal in. It
had its high till 2013-2014 but now the value is very
Page 18 of 78

volatile. It is irregulated in the Indian market and can

be a very risky thing to invest in.
3.2k Views
Aaron Cody, Expertise in Cryptocurrency trading
industry|
Written 12 Sep
These are very exciting times at hand and the worlds
financial systems are literally crumbling around us.
Bitcoin and other online currencies alike offer a
prospective way to trade goods and services without
the need for giant financial organizations and world
banks.
Bitcoin has remained strong on most exchanges, even in
the shadow of insane speculation about its future,
which I do believe is a very good sign!
In 2016, due to the popularity of bitcoin there are
plenty of startup business has increased and get
succeed in bitcoin platform.
965 Views

Page 19 of 78

Arman Babu
Written Oct 26
Many people who owned bitcoins made a large profit
last year simply by holding coins in their wallets. This is
still the easiest way to invest. As I mentioned in the
first section, there are many opportunities for growth
and price surges in the coming year.
to know more: Bitbond
619 Views
Hamza Hmidi, earning a living with Bitcoin Minning
Written May 18
From my personal experience, you can earn more than
20% of your invested money in Bitcoin Cloud Minning
signup for free to calculate how much u can earn Sign
Up - HashOcean
1.7k Views
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Page 20 of 78

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Page 21 of 78

Bitcoin for idiots: An

introductory guide
Rebecca Grant February 17, 2014 9:00 AM
Tags: Bitcoin, Coinbase, editor's pick, Mt. Gox, RoboCoin, topstories

Image Credit: BTCKeychain

Drama, greed, controversy, conspiracy, crime, risk,
theft, speculation, wealth such was the world of
Bitcoin in 2013.
The crypto-currency captivated us with its soaring
highs and plunging lows in 2013, rising from $10 to
$1,200 in the course of a year. It surpassed the value
of gold at its peak before crashing down to $500.
Today it flutters between $380 and $682 on different
exchanges.
We watched breathlessly as early Bitcoin owners
became millionaires and authorities seized millions of
dollars worth of Bitcoins from the the Webs notorious
black market, the Silk Road. We witnessed efforts
to uncover the identity of Bitcoin creator Satoshi
Page 22 of 78

Nakamoto, and we listened to luminaries in finance and

economics heatedly debate Bitcoins future.
Millions of people followed the saga, but far fewer
chose to buy Bitcoin themselves amidst all the
uncertainty and volatility.
Now Bitcoin is emerging out of its angsty adolescence
into a more mature, adult, stable form. The Bitcoin
ecosystem is growing more robust and legitimate, and
the movements evangelists are pushing hard for
mainstream adoption to turn Bitcoin into a currency
rather than an asset or a financial lark and make the
most of its unique capabilities.

POLL: Would you buy Bitcoin?

For those of you who spent last year curious but wary
about Bitcoin, here

is a guide to everything
you need to know.
We will take you through what Bitcoins are, how they
are created, where to buy and sell them, how to store
them safely, and where you can spend them.

Page 23 of 78

What is Bitcoin and how does it work?

To put it very, very simply, Bitcoin is the Internets
version of money.
Bitcoin is at its core a cryptographic protocol, which is
why it is also referred to as a crypto-currency. The
protocol creates unique pieces of digital property that
can be transferred from one person to another. The
protocol also makes it impossible to double-spend a
Bitcoin, meaning you cant spend the same Bitcoin twice.
Bitcoins are generated by using an open-source
computer program to solve complex math problems in a
process known as mining (more on that shortly). Each
Bitcoin is defined by a public address and a private key,
which are long strings of numbers and letters that give
each a specific identity. This means that Bitcoin is not
only a token of value but also a method for
transferring that value.
In addition to having a unique digital fingerprint,
Bitcoins are also characterized by their position in a
public ledger of all Bitcoin transactions known as the
blockchain. Buying a Bitcoin can be thought of as buying
Page 24 of 78

a spot in the blockchain, which then records your

purchase publicly and permanently.
The blockchain is maintained by a distributed network
of computers around the world. This decentralization
means no one entity, such as a government, controls it.
Transactions happen digitally from person to person,
without middlemen such as banks or clearinghouses.
The public Bitcoin network is the official record for all
of these transactions. You can also transfer Bitcoin in
person (more about this below).
The direct approach significantly reduces the fees
involved with transferring traditional money and makes
it much easier and faster to send and receive money
across the globe. Bitcoin gives an efficiency increase
relative to banking transactions comparable to the
efficiency of email versus physical email.
People primarily buy and sell Bitcoins through online
exchanges. The public address and private keys are
both required to trade, sell, and spend Bitcoin.
Since transactions are done using the public keys, the
identities of the buyers and sellers are veiled to each
other and to the public, even though the transaction is
recorded publicly.
Page 25 of 78

People often say Bitcoin is anonymous, but

pseudonymous is more accurate. Transactions are
currently quite difficult to trace, however, which is
why Bitcoin has been associated with illicit activity,
such as buying and selling drugs on the now-defunct
Silk Road market.
As with paper money, you can save Bitcoins in a wallet,
which stores the public and private keys needed to
identify the Bitcoins and execute a transation. These
can be digital wallets that exist in secure cloud
environments or on a computer, or they can take
physical form. If a wallet is hacked or you lose your
private Bitcoin key, you no longer have access to that
Bitcoin. Possession of the public address and private
key amounts to possession of the Bitcoin.
Bitcoin can either be used to buy things online from
merchants and organizations that accept Bitcoin, or it
can be cashed out through an exchange, broker, or
direct buyer.
This is a general explainer, but provides a good basis to
dive further into the various elements of the
ecosystem.

Page 26 of 78

Where do Bitcoins come from?

With paper money, a government decides when and how
much cash to print and distribute. Bitcoin, by contrast,
doesnt depend on a central bank or government
people create Bitcoins through mining.
Mining is the process of solving complex math problems
(also called hashing) using computers running Bitcoin
software. This requires more computing power than
regular PCs have, so people buy specialized Bitcoin
machines or form groups that chain multiple computers
together to mine.
When the program solves one of these problems, it
creates blocks, or encrypted Bitcoin transactions.
When you (or your pool) solve a block, you are rewarded
with Bitcoins.
These cryptographic puzzles get increasingly harder as
more Bitcoins enter circulation. Also, the rewards are
cut in half at regular intervals. In other words, theres
a gradual slow-down in the rate at which new Bitcoins
enter circulation. There is a built-in limit of 21 million
Page 27 of 78

Bitcoins, meaning when this many have been mined,

production will stop completely.
A single Bitcoin can be divided down to 8 decimals, and
people can transact with fractions of Bitcoins, known
as satoshis, so even if one Bitcoin is worth a lot, the
system is still useful for very tiny transactions.
The blocks created by mining make up the transaction
record of the Bitcoin system. Every block contains a
hash of the previous block, which creates a transaction
database the previously referenced blockchain. The
blockchain is a public ledger and records all
transactions in chronological order.
A new block is added to the blockchain an average of
once every ten minutes. Rather than being maintained
by a central body, it is distributed across all the mining
computers.

How do you buy or sell Bitcoins?

Now you have a general understanding of what a Bitcoin
is. How do you buy one? Fortunately you dont need to
comprehend the nuances of hashes, nodes, and the
blockchain to get involved in the ecosystem.

Page 28 of 78

People commonly buy and sell Bitcoins through

exchanges, though this isnt necessary. In order to
make transactions on an exchange, you must have a
Bitcoin wallet (more about this later) to keep your
currency in.
The most well-known and one of the largest Bitcoin
exchanges is Japan-based Mt. Gox, which is a market
exchange meaning buy orders are matched with sell
orders. (Editors Note: Mt. Gox filed for bankruptcy
and shut down in late February.)
Other exchanges considered reputable are BTC China,
Bitcoin.de (Germany), VirtEx (Canada), Bitstamp
(Slovenia), BTC-e (Bulgaria), CampBX (U.S.), and
Bitcurex (Poland). There are also fixed-rate exchanges
and brokers, such as Coinbase, that will trade for you.
Remember, you must be very careful about where you
place your trust and your money: Bitcoin exchanges are
not highly regulated. While this is part of the appeal
for many, it does make it easier to get swindled.
Once you have settled on a broker or exchange, you
create an account with a user name and password and
link your bank account. Mt. Gox (and others) ask for
personal information and photographic scan of a
Page 29 of 78

drivers license, passport, or national ID card. Coinbase

asks for your phone number, and some exchanges even
require a recent utility bill to confirm your identity and
location.

Now you can begin buying.

Coinbase and Bitstamp make it pretty easy to buy
Bitcoins, exchanging real-world money from your bank
for the virtual currency, or vice versa. For first time
buyers, there is usually a delay of a couple days to a
week for orders to go through.
When you want to sell, you make sure your wallet is
loaded with your Bitcoins, and pretty much all you have
to do is click sell.
Some people prefer to conduct Bitcoin transactions
offline. As mentioned above, every Bitcoin has a
private, unique, and long numerical ID. If you write this
key down or store it on a local drive, you can trade a
Bitcoin simply by passing that key off to someone else.
LocalBitcoins.com is a platform that connects people
looking to buy and sell locally with trading partners
around the world in more than 4,500 locations. This
approach can actually be faster than going through a
Page 30 of 78

centralized exchange, and it offers more flexible

payment options, such as PayPal, cash, and Western
Union.
A relatively new method is a Bitcoin ATM made
by Robocoin. The first machine opened at a coffee shop
in Vancouver, Canada, in October. It lets you buy, sell,
and trade Bitcoin in exchange for cash and checks in
60 different currencies.

How do you keep your Bitcoins safe?

Once you have bought Bitcoins, the next step is to keep
them safe.
As mentioned above, Bitcoins are represented by long
strings of numbers that make up the public and private
keys. If someone gets hold of those digits, they can
steal the Bitcoins they represent. If you lose the keys,
that Bitcoin is lost to you forever. Its not like credit
cards, where you can report a theft and have a
transaction voided or get a replacement in the mail if
you lose the card.
As a result, safe storage is extremely important.

Page 31 of 78

A common way to store Bitcoins is in digital wallets

like Coinbase. This is the easiest solution if you are
actively transacting with Bitcoin.
However there have been dozens of stories of wallets
getting hacked. In a recent theft, hackers made off
with 4,100 Bitcoins totaling $1.18 million from Bitcoin
wallet Inputs.io.
Inputs.io shut down, and its founder, using the alias
TradeFortress, later said, I dont recommend storing
any Bitcoins accessible on computers connected to the
Internet.
Whats the alternative? Keeping Bitcoins offline, or in
cold storage. There are a couple of ways to do this.
You can save the Bitcoins on a USB or external hard
drive.
You can even save them in a paper wallet by printing out
a public address and the private key. Bitaddress.org is
a popular service for doing this, but remember to
generate the paper wallet offline so you dont expose
the private key to hackers and so you can keep the
physical copy safe.

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When you want to spend Bitcoins that you have printed

out, you have to load the private key back into a digital
wallet.

What can you buy with Bitcoin?

Now that you have a Bitcoin stash, where can you spend
them? The list of merchants accepting Bitcoin is
growing every day.
An Orange County, Calif., Lamborghini dealership
recently sold a Lamborghini Gallardo in exchange for
Bitcoin, and weve heard various tales of mansions being
sold for Bitcoin. Making large purchases like these in
Bitcoin means quicker approval time (as long as you
have the correct amount on your wallet, you are good to
go), and significantly lower transaction fees than going
through a bank or credit card company.
You can now use Bitcoin to make in-app purchases in
Zynga games. You can use Bitcoin to pay for gift cards,
airline tickets, an account on OKCupid, plastic surgery,
food and drink at bars and restaurants, and wares from
independent merchants on Etsy and Shopify. You can
even buy the news: The Chicago Sun Times partnered
with Bitwall to experiment with a Bitcoin paywall for its
content.
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Overstock.com recently became the largest retailer to

accept Bitcoin to date, and the company made
$124,000 through 780 Bitcoin orders within less than
24 hours of accepting it as a form of payment.
Want to use Bitcoin in the real world? Coinmap is a
useful tool for finding physical establishments that
accept Bitcoin.
Should you prefer to redeem your Bitcoin for cash,
theres always the
aforementioned Robocoin ATMs. More units are
shipping around the world this year.
Bitcoin enthusiasts such as Adam Draper, who runs a
Bitcoin startup accelerator called Boost.vc, say
merchant adoption is critical to creating a vibrant
ecosystem around the Bitcoin. Right now, it is treated
more as an asset than a currency something you hold
on to rather than spending on a piece of pizza or new
bed sheets. Given the recent volatility of Bitcoins
price, it doesnt make sense to use it as a daily
currency. But more opportunities to spend Bitcoin will
create more liquidity in the market, which in turn will
encourage more growth.

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There are benefits to merchants as well: The

transaction fees are significantly lower than credit
cards or PayPal, and you can cash out the value of the
Bitcoin right away so as not to lose money if the price
drops.

Bitcoin: Good or evil?

Understanding Bitcoin is very different from believing
in its viability or future. Despite how far the
ecosystem has come, a flourishing crypto-currency is
still uncharted territory.
New York Times columnist Paul Krugman, who won the
Nobel Prize in Economics, wrote that Bitcoin is
evil and he remains deeply unconvinced that Bitcoin
can ever be a stable store of value.
Reuters economics editor Edward Hadas called Bitcoin
a fools gold standard. He said it is not backed by
anything substantive enough to make it viable, and that
it is particularly susceptible to crashing its
popularity represents widespread economic amnesia.
These are voices worth paying attention to. Bitcoin
raises security concerns and has few protections in
place for its investors. If hackers get into your wallet
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or your hard drive crashes, thats it your moneys

gone. And Bitcoin hacking is not merely a theoretical
worry; many incidents of hacking and theft directed at
exchanges have already happened.
However, there are other experts who see tremendous
promise in Bitcoin.
Marc Andreessen is a well-known venture capitalist who
helped create the SSL cryptographic protocol for Web
browsers. He has helped invest $50 million into Bitcoin
startups and recently wrote that Bitcoin matters
because it transforms one of the most fundamental
things people do make payments.
Andreessen said one of the most exciting applications
is in international remittances. Immigrants send $400
billion a year back to their families in their home
countries. Banks and payments companies extract up to
10 percent or more of these transactions, whereas
Bitcoin fees would represent a tiny fraction of that
amount.
Lower fees also have broad implications for merchants,
particularly those with a narrow profit margin or those
that sell inexpensive items. If you sell coffee for $3

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per cup and payment fees gobble up $0.25 of each

transactions, the cumulative loss is significant.
In both of these examples, by cutting out the large
financial institutions, people get to keep more of their
money.
Bitcoin also creates new opportunities for
micropayments, meaning payments below $1. Right now,
those are too expensive to process efficiently through
the existing credit card and banking systems. With
Bitcoin, it is possible to send pennies at a reasonably
low cost. This means it is possible to charge someone a
tiny amount for a small act, like reading one newspaper
article.
Bitcoin makes it easier to send cash to a complete
stranger as well. In December, a college student held
up a sign with the QR code to send money to his Bitcoin
wallet. His sign made it into ESPNs game footage and
the story took off on Reddit. As a result, he received
$23,000 worth of Bitcoin, sent by total strangers who
had nothing more than his QR code for an address.
This could have huge implications for disaster relief,
fundraisers, or protests.

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It is these kinds of possibilities that have Bitcoin

evangelists so excited.
However, possibility and excitement do not translate
into economic reality not necessarily.
Ultimately, only time will tell whether Bitcoin is a viable
long-term currency.
In the mean time, you can still buy a cup of coffee in
the right cafes with a fistful of satoshis.

Robert McMillan and Cade Metz Business

Date of Publication: 11.25.13. 11.25.13

Time of Publication: 6:30 am. 6:30 am

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Bitcoin Survival Guide: Everything You

Need to Know About the Future of Money
The price of a bitcoin topped $900 last week, an
enormous surge in value that arrived amidst
Congressional hearings where top U.S. financial
regulators took a surprisingly rosy view of digital
currency. Just 10 months ago, a bitcoin sold for a
measly $13.
The spike was big news across the globe, from
Washington to Tokyo to China, and it left many asking
themselves: What the hell is a bitcoin? Its a good
question not only for those with little understanding
of the modern financial system and how it intersects
with modern technology, but also for those steeped in
the new internet-driven economy that has so quickly
remade our world over the last 20 years.
Bitcoin is a digital currency, meaning its money
controlled and stored entirely by computers spread
across the internet, and this money is finding its way to
more and more people and businesses around the world.
But its much more than that, and many people
including the sharpest of internet pioneers as well as
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seasoned economists are still struggling to come to

terms with its many identities.
With that in mind, we give you this: an idiots guide to
bitcoin. And theres no shame in reading. Nowadays, as
bitcoin is just beginning to show what its capable of,
were all neophytes.
Bitcoin isnt just a currency, like dollars or euros or
yen. Its a way of making payments, like PayPal or the
Visa credit card network. It lets you hold money, but it
also lets you spend it and trade it and move it from
place to place, almost as cheaply and easily as youd
send an email.
As the press so often points out, Bitcoin lets you do all
this without revealing your identity, a phenomenon that
drove its use on The Silk Road, an online marketplace
for illegal drugs. But at the same time, its a system
that operates completely in the public view. All Bitcoin
transactions are recorded online for anyone to see,
lending a certain transparency to the system, a
transparency that can drive a new trust in the economy
and subvert the anonymity sought by those on The Silk
Road, which the feds shut down last month.

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Bitcoin is much more than a money service for illegal

operations. Its a re-imagining of international finance,
something that breaks down barriers between
countries and frees currency from the control of
federal governments. Bitcoin is controlled by open
source software that operates according to the laws of
mathematics and by the people who collectively
oversee this software. The software runs on thousands
of machines across the globe, but it can be changed.
Its just that a majority of those overseeing the
software must agree to the change.
In short, Bitcoin is kind of like the internet, but for
money.

Birth of the Bitcoin

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What does that mean, specifically?

About five years ago, using the pseudonym Satoshi
Nakamoto, an anonymous computer programmer or
group of programmers built the Bitcoin software
system and released it onto the internet. This was
something that was designed to run across a large
network of machines called bitcoin miners and
anyone on earth could operate one of these machines.
This distributed software seeded the new currency,
creating a small number of bitcoins. Basically, bitcoins
are just long digital addresses and balances, stored in
an online ledger called the blockchain. But the system
was also designed so that the currency would slowly
expand, and so that people would be encouraged to
operate bitcoin miners and keep the system itself
growing.
When the system creates new bitcoins, you see, it
gives them to the miners. Miners keep track of all the
bitcoin transactions and add them to the blockchain
ledger, and in exchange, they get the privilege of,
every so often, awarding themselves a few extra
bitcoins. Right now, 25 bitcoins are paid out to the

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worlds miners about six times per hour, but that rate
changes over time.
Why do these bitcoins have value? Its pretty simple.
Theyve evolved into something that a lot of people
want like a dollar or a yen or the cowry shells
swapped for goods on the coast of Africa over 3,000
years ago and theyre in limited supply. Though the
system continues to crank out bitcoins, this will stop
when it reaches 21 million, which was designed to
happen in about the year 2140.
The idea was to create a currency whose value couldnt
be watered down by some central authority, like the
Federal Reserve.
When the system quits making new money, the value of
each bitcoin will necessarily rise as demand rises its
whats called a deflationary currency but although
the supply of coins will stop expanding, it will be still be
relatively easy to spend. Bitcoins can be broken into
tiny pieces. Each bitcoin can be divided into one
hundred million units, called Satoshis, after the
currencys founder.

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The Key to the System

How do you spend bitcoins? Trade them? Keep people
from stealing them? Bitcoin is a math-based currency.
That means that the rules that govern bitcoins
accounting are controlled by cryptography. Basically, if
you own some bitcoins, you own a private cryptography
key thats associated with an address on the internet
that contains a balance in the public ledger. The
address and the private key let you make transactions.
The internet address is something everyone can see.
Think of it like a really complicated email address for
online payments. Something like this:
1DTAXPKS1Sz7a5hL2Skp8bykwGaEL5JyrZ. If
someone wants to send you bitcoins, they need your
address.
If you want to send your bitcoins to someone else, you
need your address and their address but you also
need your private cryptography key. This is an even
more complicated string that you use to authorize a
payment.
Using the math associated with these keys and
addresses, the systems public network of peer-to-peer
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computers the bitcoin miners check every

transaction that happens on the network. If the math
doesnt add up, the transaction is rejected.
Crypto systems like this do get cracked, and the
software behind Bitcoin could have flaws in it. But at
this point, Bitcoin has been tested pretty thoroughly,
and it seems to be pretty darned secure.
For the ordinary people who use this network the
people who do the buying and the selling and the
transferring managing addresses and keys can be a
bit of a hassle. But there are many different types of
programs called wallets that keep track of these
numbers for you. You can install a wallet on your
computer or your mobile phone, or use one that sits on
a website.
With these wallets, you can easily send and receive
bitcoins via the net. You can, say, buy a pizza on a site
thats set up to take bitcoin payments. You can donate
money to a church. You can even pay for plastic
surgery. The number of online merchants accepting
bitcoins grows with each passing day.
But you can also make transactions here in the real
world. Thats what a mobile wallet is good for. The Pink
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Cow, a restaurant in Tokyo, plugs into the Bitcoin

system via a tablet PC sitting beside its cash register.
If you want to pay for your dinner in bitcoins, you hold
up your phone and scan a QR code a kind of bar code
that pops up on the tablet.

How to Get a Bitcoin

If all that makes sense and you wanna give it try, the
first thing you do is get a wallet. We like
blockchain.info, which offers an app that you can
download to your phone. Then, once you have a wallet,
you need some bitcoins.
In the U.S., the easiest way to buy and sell bitcoins is
via a website called Coinbase. For a one percent fee,
Coinbase links to your bank account and then acts as a
proxy for you, buying and selling bitcoins on an
exchange. Coinbase also offers an easy-to-use wallet.
You can also make much larger bitcoin purchases on big
exchanges like Mt. Gox or Bitstamp, but to trade on
these exchanges, you need to first send them cash
using costly and time-consuming international wire
transfers.
Yes, you can keep your purchases anonymous or at
least mostly anonymous. If you use a service like
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Coinbase or Mt. Gox, youll have to provide a bank

account and identification. But other services, such as
LocalBitcoins, let you buy bitcoins without providing
personal information. Ironically, the best way to do this
is to meet up with someone here in the real world and
make the trade in-person.
LocalBitcoins will facilitate such meetups, where one
person provides cash and the other then sends bitcoins
over the net. Or you can attend a regular Bitcoin
meetup in your part the world. Because credit card and
bank transactions are reversible and bitcoin
transactions are not, you need to be very careful if
youre ever selling bitcoins to an individual. Thats one
reason why many sellers like to trade bitcoins for cash.
The old-school way of getting new bitcoins is mining.
That means turning your computer into a bitcoin miner,
one of those nodes on Bitcoins peer-to-peer network.
Your machine would run the open source Bitcoin
software.
Back in the day, you could do bitcoin mining on your
home PC. But as the price of bitcoins has shot up, the
mining game has morphed into a bit of a space-race
with professional players, custom-designed hardware,
and rapidly expanding processing power.
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Today, all of the computers vying for those 25 bitcoins

perform 5 quintillion mathematical calculations per
second. To put it in perspective, thats about 150 times
as many mathematical operations as the worlds most
powerful supercomputer.
And mining can be pretty risky. Companies that build
these custom machines typically charge you for the
hardware upfront, and every day you wait for delivery
is a day when it becomes harder to mine bitcoins. That
reduces the amount of money you can earn.
This spring, WIRED tested out a custom-designed
system built by a Kansas City, Missouri company called
Butterfly Labs. We were lucky enough to receive one of
the first 50 units of a $275 machine built by the
company.
We hooked it up to a network of mining computers that
pool together computing resources and share bitcoin
profits. And in six months, it has earned more than 13
bitcoins. Thats more than $10,000 at todays bitcoin
prices. But people who got the machine later than we
did (and there were plenty of them) didnt make quite
so much money.

Online Thievery
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Once you get your hands on some bitcoins, be careful.

If somebody gets access to your Bitcoin wallet or that
private key, they can take your money. And in the
Bitcoin world, when money is gone, its gone for good.
This can be a problem whether youre running a wallet
on your own machine or on a website run by a third
party. Recently, hackers busted into a site called
inputs.io which stores bitcoins in digital wallets for
people across the globe and they made off with
about $1.2 million in bitcoins.
So, as their bitcoins start to add up, many pros move
their wallets off of their computers. For instance,
theyll save them on a thumb drive thats not connected
to the internet.
Some people will even move their bitcoins into a real
physical wallet or onto something else thats completely
separate from the computer world. How is that
possible? Basically, theyll write their private key on a
piece of paper. Others will engrave their crypto key on
a ring or even on a metal coin.
Sure, you could lose this. But the same goes for a $100
bill.

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The good news is that the public nature of the bitcoin

ledger may make it theoretically possible to figure out
who has stolen your bitcoins. You can always see the
address that they were shipped off to, and if you ever
link that address to to a specific person, then youve
found your thief.
But dont count on it. This is an extremely complex
process, and researchers are only just beginning to
explore the possibilities.

Bitcoin vs. the U.S.A.

Bitcoin is starting to work as a currency, but because
of the way its built, it also operates as an extremely
low-cost money-moving platform. In theory, it could be
a threat to PayPal, to Western Union, even to Visa and
Mastercard. With Bitcoin, you can move money
anywhere in the world without paying the fees.
The process isnt instant. The miners bundle up those
transactions every 10 minutes or so. But today,
payment processors like BitPay have stepped in to
smooth things out and speed them up.

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The trouble is that federal regulators still havent

quite figured out how to deal with Bitcoin.
The currency is doing OK in China, Japan, parts of
Europe, and Canada, but its getting its bumpiest ride in
the U.S., where authorities are worried about the very
features that make Bitcoin so exciting to merchants
and entrepreneurs. Here, the feds have stopped short
of trying to kill Bitcoin, but theyve created an
atmosphere where anybody who wants to link the U.S.
financial system to Bitcoin is going to have to proceed
with extreme caution.
Earlier this year, the U.S. Department of Homeland
Security closed the U.S. bank accounts belonging to
Mt. Gox, which has generally been the worlds largest
Bitcoin exchange. Mt. Gox, based in Japan, let U.S.
residents trade bitcoins for cash, but it hadnt
registered with the federal government as a money
transmitter, and it hadnt registered in the nearly 50
U.S. states that also require this.
The Homeland Security action against Mt. Gox had an
immediate chilling effect in the U.S. Soon, American
Bitcoin companies started reporting that their banks
were dropping them, but not because they had done
anything illegal. The banks simply dont want the risk.
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Now, other Bitcoin companies that have moved fast to

operate within the U.S. are facing the possibility of
being shut down if theyre not following state and
federal guidelines.
Even if the feds were interested in shutting down
Bitcoin, they probably couldnt if they tried, and now,
they seem to understand its promise. In testimony on
Capitol hill earlier this week, Jennifer Shasky Calvery,
the director of the Treasury Departments Financial
Crimes Enforcement Network, said that Bitcoin poses
problems, but she also said that its a bit like the
internet in its earliest days.
So often, when there is a new type of financial service
or a new player in the financial industry, the first
reaction by those of us who are concerned about money
laundering or terrorist finance is to think about the
gaps and the vulnerabilities that it creates in the
financial system, she said. But its also important that
we step back and recognize that innovation is a very
important part of our economy.
It is. And Bitcoin richly provides that innovation. It
just may take a while for the world to completely catch
on.
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Search

Bitcoin Is Evil
December 28, 2013 2:35 pm December 28, 2013 2:35
pm 512
Its always important, and always hard, to distinguish
positive economics how things work from
normative economics how things should be. Indeed,
on many of the macro issues Ive written about it has
been obvious that large numbers of economists cant
bring themselves to make that distinction; they dislike
activist government on political grounds, and this leads
them to make really bad arguments about why fiscal
stimulus cant work and monetary stimulus will be
disastrous. I dont, by the way, think that this effect is
symmetric: although people like Robert Lucas were
quick to accuse people like Christy Romer of
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fabricating macro arguments to support a biggovernment agenda, this didnt actually happen.
But I come now to talk not about macro but about
money specifically, about Bitcoin and all that.
So far almost all of the Bitcoin discussion has been
positive economics can this actually work? And I
have to say that Im still deeply unconvinced. To be
successful, money must be both a medium of exchange
and a reasonably stable store of value. And it remains
completely unclear why BitCoin should be a stable store
of value. Brad DeLong puts it clearly:
Underpinning the value of gold is that if all else fails
you can use it to make pretty things. Underpinning the
value of the dollar is a combination of (a) the fact that
you can use them to pay your taxes to the U.S.
government, and (b) that the Federal Reserve is a
potential dollar sink and has promised to buy them back
and extinguish them if their real value starts to sink at
(much) more than 2%/year (yes, I know).
Placing a ceiling on the value of gold is mining
technology, and the prospect that if its price gets out
of whack for long on the upside a great deal more of it
will be created. Placing a ceiling on the value of the
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dollar is the Federal Reserves role as actual dollar

source, and its commitment not to allow deflation to
happen.
Placing a ceiling on the value of bitcoins is computer
technology and the form of the hash function until
the limit of 21 million bitcoins is reached. Placing a
floor on the value of bitcoins is what, exactly?
I have had and am continuing to have a dialogue with
smart technologists who are very high on BitCoin but
when I try to get them to explain to me why BitCoin is
a reliable store of value, they always seem to come
back with explanations about how its a terrific medium
of exchange. Even if I buy this (which I dont, entirely),
it doesnt solve my problem. And I havent been able to
get my correspondents to recognize that these are
different questions.
But as I said, this is a positive discussion. What about
the normative economics? Well, you should read Charlie
Stross:
BitCoin looks like it was designed as a weapon intended
to damage central banking and money issuing banks,
with a Libertarian political agenda in mindto damage

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states ability to collect tax and monitor their citizens

financial transactions.

Go read the whole thing.

Stross doesnt like that agenda, and neither do I; but I
am trying not to let that tilt my positive analysis of
BitCoin one way or the other. One suspects, however,
that many BitCoin enthusiasts are, in fact, enthusiastic
because, as Stross says, it pushes the same buttons as
their gold fetish.
So lets talk both about whether BitCoin is a bubble and
whether its a good thing in part to make sure that
we dont confuse these questions with each other.

Why Is Bitcoin's Value So Volatile?

By Jonathan Todd Barker | May 20, 2014 1:26 PM EDT

Price fluctuations in the Bitcoin spot rate on the

Bitcoin exchanges is driven by many factors. Volatility
is measured in traditional markets by the Volatility
Index, also known as the CBOE Volatility Index (VIX).
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Volatility in Bitcoin does not yet have a generally

accepted index since cryptocurrency as an asset class
is still in its nascent stages, but with moves in the past
year from around $100 to $1,240 at the peak in
December 2013, and subsequent decreases to more
recent averages in the $400s, we now know that
Bitcoin is capable of volatility in the form of 10x
changes in price versus the U.S. dollar, in a relatively
short period of time. Here are just a few of the many
factors behind Bitcoin's volatility:
1. Rate of adoption is hampered by bad press: News
events that scare Bitcoin users include geopolitical
events and statements by governments that Bitcoin is
likely to be regulated. Bitcoin's early adopters included
several mal actors, producing headline news stories
that produced fear in investors. Headline-making
Bitcoin news includes the bankruptcy of Mt. Gox in
early 2014, and the high-profile use of Bitcoin in drug
transactions via Silk Road that ended with the FBI
shutdown of the marketplace in October 2013. Both
these incidents and the public panic that ensued drove
the value of Bitcoins versus fiat currencies down
rapidly. However, Bitcoin-friendly investors viewed
those events as evidence that the market was
maturing, driving the value of Bitcoins versus the dollar
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markedly back up in the short period immediately

following the news events.
2. Bitcoin's perceived value fluctuates: One reason
why Bitcoin may fluctuate against fiat currencies is the
perceived store of value versus the fiat currency.
Bitcoin has properties that make it similar to gold. It is
governed by a design decision by the developers of the
core technology to limit its production to a fixed
amount, 21 million BTC. Since that differs markedly
from fiat currency, which is managed by governments
who want to maintain low inflation, high employment,
and satisfactory growth through investment in capital
resources, as economies built with fiat currencies show
signs of strength or weakness, investors may allocate
more or less of their assets into Bitcoin.
3. Too much variance in perceptions of Bitcoin's
store of value and method of value: Bitcoin volatility
is also driven in large part by varying perceptions of
the intrinsic value of the cryptocurrency as a store of
value and method of value transfer. A store of value is
the function by which an asset can be useful in the
future with some predictability. A store of value can be
saved and exchanged for some good or service in the
future. A method of value transfer is any object or
concept used to transmit property in the form of
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assets from one party to another. Bitcoins volatility at

the present makes it a somewhat unclear store of
value, but it promises nearly frictionless value transfer.
Since these two drivers of the current spot price of
Bitcoin vary against the dollar and other fiat
currencies, we see that Bitcoin's value can swing based
on news events much as we observe with fiat
currencies.
4. Little option value to large holders of the
currency: Bitcoin volatility is also to an extent driven
by holders of large proportions of the total
outstanding float of the currency. For Bitcoin investors
with current holdings above around $10M, it is not
clear how they would liquidate a position that large into
a fiat position without severely moving the market.
Since Bitcoins volume resembles a small cap stock, the
currency has not hit the mass market adoption rates
that would be necessary to provide option value to
large holders of the currency.
5. News about security breaches make investors
react: Bitcoin can also become volatile when the
Bitcoin community exposes security vulnerabilities in an
effort to produce massive open source responses in the
form of security fixes. This approach to security is
paradoxically one that produces great outcomes, with
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many valuable open source software initiatives to its

credit, including Linux. Bitcoin developers must reveal
security concerns to the public in order to produce
robust solutions. The recent OpenSSL vulnerabilities
attacked by the Heartbleed bug and reported by Neel
Mehta of Googles security team on April 1, 2014, seem
to have had some downward effect on the value of
Bitcoin in the ensuing month, with a decrease in value
of approximately 10% for the month of April versus
the US Dollar. Bitcoin and open source software
development are built upon the same fundamental
premise that a copy of the source code is free for
users to examine and modify at will. This concept
makes it the responsibility of the community to voice
concerns about the software design, and when the
community does so, the value of Bitcoin reflects the
level of confidence in the protocol design as a whole. It
is only natural then that the value would fluctuate with
news events about security breaches.
6. Bitcoin and foreign direct investment in countries
with high inflation. Bitcoins use case as a currency
for the developing countries that are currently
experiencing high inflation is valuable when considering
the volatility of Bitcoin in these economies versus the
volatility of Bitcoin in US$. Bitcoin is much more
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volatile versus the USD than the high inflation

Argentine peso versus the US$. That being said, the
near frictionless transfer of Bitcoins across borders
makes it a potentially highly attractive borrowing
instrument for Argentineans, as the high inflation rate
for peso denominated loans potentially justifies taking
on some intermediate currency volatility risk in a
Bitcoin denominated loan funded outside Argentina.
Similarly, funders outside Argentina can earn a higher
return under this scheme than they can using debt
instruments denominated in their home currency,
potentially offsetting some of the risk of exposure to
the high inflation Argentine market.
7. Mt Gox: Bitcoins recent high profile losses at Mt
Gox are another driver of volatility. It is worth noting
that these losses and the ensuing news about the
losses had a double effect on volatility. They reduced
the overall float of Bitcoin by approximately 5%,
producing a potential lift on the value of the remaining
Bitcoin due to increased scarcity. However, overriding
this lift was negative effect of the news cycle that
followed. Notably, other Bitcoin gateways looked to the
massive failure at Mt Gox as a positive for the long
term prospects of Bitcoin, further complicating the
already complex story behind the currencys volatility.
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As early adopting firms are eliminated from the market

due to poor management and dysfunctional processes,
later entrants learn from their errors and build
stronger processes into their own operations,
strengthening the infrastructure of the currency
overall.
8. Tax treatment of Bitcoin also affects the
volatility. Recent announcements by the IRS stating
that the currency is actually an asset for tax purposes
had mixed effects on volatility. On the upside, any
statement recognizing the currency has a positive
effect on the market valuation of the currency.
Conversely, on the downside, the decision by the IRS
to call it property had two negative effects. The first
was the added complexity for users who want to pay
with it. Under the new tax law, users would have to
record the market value of the currency at the time of
every transaction, no matter how small. This can
understandably slow adoption as it seems to be too
much trouble for what it is worth for many users.
Secondly, the decision to call the currency a form of
property for tax purposes may be a signal to some
market participants that the IRS is preparing to
enforce stronger regulations later. Very strong
regulation of the currency could cause the adoption
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rate of the currency to slow to the point where it is

not able to achieve the mass adoption that is critical
for its overall utility in society. Recent moves by the
IRS are not clear as to their signaling motives and
therefore have mixed signals to the market for Bitcoin.

The Bottom Line

Bitcoin presents a variety of opportunities that did not
exist prior to its development. Yet, it has failed as yet
to convert investors concerned about its potential rate
of adoption as an alternative currency. Recent
acknowledgement by the IRS that Bitcoin is an asset
for tax purposes has clarified the situation for
investors, and the promise of frictionless value
transfer suggests innovative use cases in foreign direct
investment. In the near term, much of the volatility will
be driven by investor perception of the ability of
gateways to safeguard individual holdings and provide
for a reliable store of value as adoption increases.
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Bitcoin Innovations And Obstacles

By Troy Adkins

The Bitcoin peer-to-peer digital currency system has

experienced a dramatic increase in popularity. Since
the Bitcoin currency system was created in 2009, over
12.3 million Bitcoins have been created as of Feb. 13,
2014. The total market value of Bitcoins now exceeds
$6.8 billion, and millions of Bitcoins are now being
exchanged daily to purchase items such as food,
tickets, electronic equipment and automobiles.
Given the dramatic rise in the use of this new type of
high-tech crypto-currency system, many people are
starting to contemplate the merits of using Bitcoins as
a mainstream exchange medium. Now, with the creation
of Bitcoin exchange-traded funds (ETFs) under way,
many people believe that the Bitcoin currency system is
poised for dramatic growth, increased price stability
and mainstream acceptance as a viable currency for
conducting ecommerce, as well as an alternative
investment opportunity. With these points in mind, it is
important for people to have a better understanding of
the Bitcoin currency system.
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Legality Issues
In terms of using Bitcoins as an exchange medium, it is
legal in the U.S. to operate a private currency system.
While this may be a surprise to the younger generation,
it is probably no surprise to older people, as they most
likely remember songs such as Sixteen Tons, which
told the story of mining companies that used scrip to
pay their employees, which in turn could only be used to
purchase supplies from the mining camps company
store. People who remember those times are unlikely to
ever utilize a digital currency system to a large degree.
With that said, the issues associated with the old type
of scrip, truck or barter system of commerce will not
likely be a major issue when using a digital currency
system due to the size of the U.S. economy, its
demographic makeup and the internet's scale. As a
more recent and successful example of a local currency
system, the city of Ithaca, N.Y. has been using the
Ithaca Hours currency since 1991. Today, Ithaca Hours
are recognized as the oldest and largest local currency
system still operating in the U.S.
While local currency systems are legal in the U.S.,
prospective Bitcoin purchasers and investors should not
overlook the fact that Article I, Section VIII of the
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U.S. Constitution states that the U.S. Congress has the

authority to coin money, regulate the value thereof and
fix the standard of weights and measures. In addition,
Article I, Section X of the U.S. Constitution states
that no state shall coin money. Therefore, while there
is nothing in the U.S. Constitution that explicitly
prohibits the use of a private currency system, it is not
a far stretch of the imagination that Congress could
restrict the use of a private currency if it deemed it
to be in the nations best interest.
From a public policy standpoint, it should be obvious
that the use of Bitcoins as an exchange medium would
likely be curtailed by Congress if Bitcoin's scale were
ever to increase to the point of hindering the Federal
Reserve from implementing its monetary policies for
fostering stable prices, full employment and moderate
long-term interest rates. With that said, the total
amount of annual economic production in the U.S. now
exceeds $16 trillion. Therefore, the Bitcoin currency
system would have to experience exponential growth
before it would have an impact on monetary policy in
the U.S. (See "How Monetary Policy Affects Your
Investments.")
Regulatory Issues
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In the U.S., the movement to expand Bitcoins use to

the mainstream economy is clearly gaining traction. For
example, on Feb. 3, 2014, the Wall Street Journal
announced that it is launching a new feature in its
MoneyBeat section of the paper called BitBeat. This
section includes a daily roundup of Bitcoin news, notes
and thoughts. Given this type of topical exposure, news
about the Bitcoin currency system will be disseminated
to a wide audience in a routine and timely manner.
In recognition of the growing popularity of Bitcoins, on
Jan. 31, 2014, the Financial Crimes Enforcement
Network (FinCEN), a bureau of the U.S. Treasury
Department, confirmed that Bitcoin miners and
investors will not be regulated. FinCENs ruling states
that people who mine virtual currencies for personal
use, and businesses that buy and sell virtual currencies
purely as an investment, will not be considered money
transmitters. This, in turn, exempts them from
requirements to register with the government and
comply with certain money-laundering regulations.
FinCENs ruling is a major win for Bitcoin currency
system proponents and should help promote its ongoing
usage and popularity in the U.S. However, FinCENs
ruling is likely to be just the latest development in legal
grounds, as more governmental bodies will undoubtedly
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seek clarity on the matter and await guidance from

higher authorities.
Outside of the U.S., regulatory policy appears to be
curtailing Bitcoin currency system utilization to a
certain degree. This cautious position stems from the
material problems that are starting to arise around the
world. For example, according to the European Banking
Authority, Bitcoin traders arent protected against
losses if their virtual exchange collapses. This is a
cause of concern for some foreign regulators, because
as recently as Feb. 6, 2014, Mt. Gox, which is one of
the worlds biggest Bitcoin trading exchanges, paused
all Bitcoin withdrawals from its currency trading
system due to a technical glitch. Theft from Bitcoin
digital wallets have now exceeded $1 million, and two
people were recently arrested for illegally generating
Bitcoins worth more than $963,000.
In response to the increasing problems associated with
the Bitcoin currency system, China has barred all
financial institutions, such as Baidu, from handling
Bitcoin transactions. In addition, the Russian
prosecutor general announced on Feb. 6, 2014, that the
use of Bitcoins and other digital currencies is illegal
under its current law. Issues like these are likely to
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continue until the Bitcoin currency system is further

developed, and policies and procedures are put in place
to establish a robust digital currency system. Even
then, however, it is doubtful that the Bitcoin currency
system will gain traction in these types of restrictive
countries.
While U.S. policy makers and regulators are taking
more of an unbridled approach to Bitcoin regulation, it
is important to note that some companies in the U.S.
are taking a proactive approach toward restricting the
use of all digital currencies. For example, Apple
(Nasdaq:AAPL) is one of the most recent companies to
ban the use of all crypto-currency applications from its
systems. With this in mind, U.S. investors should
remember the caveat emptor principle before
participating in the Bitcoin currency system.
System Issues
The Bitcoin currency system's complexity cannot be
overstated. This is one of the main problems that
needs to be overcome, because if people do not trust
the system, they will not use it to a large degree. Some
type of authenticity mechanism must be put in place to
convey to the general public that the Bitcoin currency
system is legitimate. With this in mind, some Bitcoin
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currency proponents are now proposing that it should

be regulated like a currency - or commodity - exchange.
Problems surrounding the Bitcoin currency system are
exacerbated when one considers that there are fewer
than 10 core developers of the system. This is a
problem, because such tight control of a very complex
system raises significant skepticism among potential
customers. Marketing the Bitcoin currency system as
an open source code design - and one that is
politically neutral, transnational, decentralized and
accessible by everyone to monitor - is a helpful
strategy. However, it is highly unlikely that enough
people will ever spend the amount of time on the
GitHub Repository or sourceforge.net to develop the
understanding and confidence in the systems design,
functionality, and checks and balances to garner the
level of support that Bitcoin needs to solidify it as a
mainstream currency system.
To complicate matters even further, perhaps the
greatest issue surrounding the Bitcoin currency system
pertains to a process coined Bitcoin Mining. In
essence, Bitcoin mining pertains to a process where
miners collate digital peer-to-peer transactions that
have recently taken place in the Bitcoin currency
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system. Once these transactions have been compiled,

the Bitcoin miners generate a digital block ledger to
account for the transactions. These transactions
represent all activity in the Bitcoin currency system
since the time in which its cumulative global block chain
ledger book was last updated. This type of cumulative
ledger has been maintained since the Bitcoin digital
currency system's inception in 2009.
Bitcoin mining maintains the Bitcoin currency system's
integrity by reconciling all legitimate transactions, and
parsing out all problematic transactions, such as the
potential for users to double spend their Bitcoins. In
return for the miners use of their time and resources,
they receive compensation in the form of newly
created Bitcoins. This, in turn, increases the number of
Bitcoins in circulation and helps grow the Bitcoin
currency system in an efficient, effective and
accountable manner. Unfortunately, while the idea of a
Bitcoin mining operation can be viewed as a working
solution to developing a robust digital currency system,
it is also easy to imagine how this type of system could
be manipulated by a small group of sophisticated code
developers for financial gain.
Exchange Traded Fund (ETF) Issues
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In anticipation of the future growth of the Bitcoin

currency system, two Bitcoin funds have been
established in the financial market. The first fund is
being marketed as the Bitcoin Investment Trust, which
is managed by Alternative Currency Asset
Management, a wholly owned subsidiary of
SecondMarket Holdings. The second fund is being
marketed as Pantera Bitcoin Advisers, a hedge fund
managed by Pantera Capital. Currently these
investment options are only available to wealthy
investors. Therefore, it is presumed that the investors
in these products have enough discretionary income to
weather any type of adverse results that may be
experienced by holding investments tied to the value of
Bitcoins.
Going forward, what may prove to garner more public
attention is the creation of a new Bitcoin ETF for the
masses. This product is now under review by the
Securities and Exchange Commission and has been
identified in the SEC Form-1 Registration Statement
as The Winklevoss Bitcoin ETF. If this product is
approved, it should make investing in Bitcoin as simple
and straightforward as buying shares of any other
ETF. Therefore, if and when this investment is made
available to the general public, it may be a game
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changer for the Bitcoin industry, because it will likely

help increase the value of Bitcoins, stabilize their
trading price and solidify their acceptance by
mainstream society. Therefore, from the standpoint of
developing the Bitcoin currency system, ETFs should be
a significant asset in helping to establish a digital
currency system for the masses.
While establishing ETFs will likely be of great value to
the Bitcoin industry, from an investors standpoint,
investing in a Bitcoin ETF to gain exposure to Bitcoins
seems nave and unnecessary. To explain this position,
keep in mind that ETFs are typically designed as
passively managed index funds that hold a basket of
securities to replicate the investment performance of
a specified benchmark proxy. This type of investment
product makes sense for an investor who wants to
invest in a security that tracks the performance of an
index, such as the Dow Jones Industrial Average,
where the Dow Jones Industrial Average ETF holds
stocks of 30 individual companies, such as Caterpillar
(NYSE:CAT), 3M (NYSE:MMM) and Coca Cola
(NYSE:KO). However, in the case of Bitcoin ETFs, the
only underlying security will be Bitcoins, and the Bitcoin
ETF's performance will simply track Bitcoins'
performance.
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Given this fact, the whole concept of investing in

Bitcoin ETFs is completely misguided and perhaps
disingenuous, unless the ETF is being created in
anticipation that the Bitcoin price will rise to such a
high level that mainstream investors will not be able to
afford to purchase them individually. Even then,
however, the Bitcoin currency system has a built-in
mechanism designed to facilitate the purchase of
proportional amounts of Bitcoins, and these
proportional amounts can be carried out to eight
decimal places. Therefore, given the availability of
Bitcoins on a variety of exchanges and in fractional
proportions, coupled with the fact that the only
underlying security for a Bitcoin ETF will be Bitcoins, it
seems very hard to identify any type of need to create
this type of ETF.
Bottom Line
The development of an alternative currency system will
always be of interest to people who worry about a
countrys national debt level, a countrys inflationary
risk and a country's unclear central bank policies.
While many technical and regulatory problems still
need to be worked out, and currently participating in
the Bitcoin currency system is somewhat akin to living
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in the Wild West, it is realistically conceivable that a

robust Bitcoin currency system will be developed and
likely garner worldwide support by the masses over
time.

Read more: Bitcoin Innovations And Obstacles |

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Analyzing Bitcoin in 2016

By H.S. Borji | January 12, 2016 8:12 AM EST

Bitcoin, the worlds leading cryptocurrency, experienced greater price

stability in 2015 after a volatile two-year period defined by record
highs and market crashes. Although bitcoin remains a controversial
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mode of exchange, its ascendancy into the mainstream is likely to

continue in 2016 as demand for cost-efficient payment platforms and
innovations in exchange technology remove the stigma associated with
cryptocurrency. In the case of bitcoin, price action is becoming more
predictable as more governments and private merchants recognize its
value and accept it as a legitimate form of payment.

The Bitcoin Peak in 2013

The value of bitcoin peaked at $979.45 on Nov. 23, 2013, after surging
more than 7,200% over the previous 11 months. Some analysts
describe this period as the bitcoin bubble. Bitcoins price bubble
eventually burst in early 2014, with prices falling more than 75% over
the next 12 months. Several reasons were behind the price collapse,
including new government restrictions, bitcoins association with the
Dark Web and waves of price movement that typically follow a highprofile sell-off.
However, bitcoin has since recovered from its bear market lows and by
December 2015, is on pace for a yearly gain of more than 40%. The
price of bitcoin in 2015 enjoyed its steadiest uptrend since the onset of
the 2013 bubble, signaling the foundation of a sustainable recovery.

Bitcoin Finding Its True Value

Huge swings in bitcoins value over the past three years make it very
difficult to forecast effectively where it will end up in 12 months time.
While it may be difficult to pinpoint a fair market price for bitcoin, its
trajectory is not all that uncommon. Like other asset bubbles before it,
such as the 1999 to 2006 U.S. housing bubble, bitcoin began as an
expensive luxury before turning into a highly speculative trading
instrument. Since the bursting of the bitcoin bubble, buying and selling
activity appears to be guided more by underlying market fundamentals
than during the periods before and immediately after the market crash.
The virtual currency market of 2015-2016 is very different from the one
of 2012-2013. In just a few years, startups, corporations and even
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governments have begun exploring the underlying technology

powering bitcoin, the blockchain. As of December 2015, bitcoin is
accepted by more than 100,000 merchants worldwide. Several national
and regional governments, such as the United States, Canada,
Australia and the European Union, have accepted bitcoin and other
cryptocurrencies as a legitimate form of payment. The British
government has also publicly stated its interest in bitcoins blockchain
technology to improve transparency and accuracy of its record
keeping.

Demand for Cryptocurrency Rising in 2015

The growth of e-commerce, money transfer and micropayment
industries is creating greater demand for cryptocurrencies, as
individuals and businesses look for safer, easier and more costeffective ways to complete cross-border transactions. Among the
largest and most reputable businesses to accept bitcoin are Microsoft,
Wikipedia, PayPal and Expedia, signaling that the cryptocurrency
phenomenon is here to stay.
Increased demand for cryptocurrency, combined with its potential to
cut down transaction costs, is likely to keep the price of bitcoin above
$400 in 2016. Bitcoin is expected to account for a growing share of the
global e-commerce and remittance ecosystem over the next 10 years.
As more players enter the cryptocurrency space, bitcoin may
experience higher volatility in 2016, although the underlying trend is
likely to be positive. Another factor that investors and consumers
should bear in mind when speculating about bitcoins future price is
there will only ever be 21 million bitcoins in circulation. This fact alone
will likely make the price of bitcoin continue to rise moving forward.

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