[Engine_Roars]

From what I have read & understood, the whole point of cryptocurrencies is creating a parallel economy & a world where there is no control on currency values by any institutions/governments but then here we are buying & selling these cryptocurrencies by those very currencies. I am somehow lost in wrapping all of this around my head.

Also, I am a very scared guy when it comes to things which are too good to be true. I hardly believe in my destiny. I have not bought any of these cryptocurrencies and I do not think I have the appetite now. My loss, I guess.

[Samurai]

In the following video, the founder of Dogecoin admits that the crazy price charts are signs of a bubble. In fact, Dogecoin was started as a joke currency to make fun of the crytocurrency phenomena, and now it has a capitalization of $400 million. A joke is worth $400 million? And this is not a bubble?

https://www.youtube.com/watch?v=nRItzSX0aCM

[msdivy]

Originally Posted by Samurai

And this is not a bubble?

The number of bitcoins in the market is fixed. So what can vary is its relative price to a real currency, say USD in this case. A bubble is when an entity is significantly priced higher than their intrinsic value. The value of bitcoin is unknown. There is no reference to theorize on. The market is trying to figure out that reference. If the number of bitcoins was unlimited, then the current rally would clearly be a bubble. Since the number of bitcoins is limited, the value of 1 BTC could be 100,000 USD or just 1 USD. Nobody knows for sure. Point is, the current rally of bitcoin may not be a bubble. That is a possibility too.

Originally Posted by Engine_Roars

From what I have read & understood, the whole point of cryptocurrencies is creating a parallel economy & a world where there is no control on currency values by any institutions/governments but then here we are buying & selling these cryptocurrencies by those very currencies.

At some point, we need a reference to figure out what is the value of 1 BTC. The current speculation is trying to figure out that value.

I hardly believe in my destiny. I have not bought any of these cryptocurrencies and I do not think I have the appetite now. My loss, I guess.

That said, the question is, is bitcoin here to stay? Maybe. Bitcoin is one of the early cryptocurrency. It may or may not last long. It can be replaced by a better virtual currency. Just like Google wasn't the early search engines. Note that 40% of bitcoins are held by just 1000 people. These were early miners and a close-knit community. They have the capability to drive the market. You wouldn't want to play in such an oligopolistic market

[Samurai]

Originally Posted by msdivy

A bubble is when an entity is significantly priced higher than their intrinsic value. The value of bitcoin is unknown.

You are saying bubble is when price >> intrinsic value. Intrinsic value of bitcoin is zero. So any price for a bitcoin is a bubble.

Originally Posted by msdivy

If the number of bitcoins was unlimited, then the current rally would clearly be a bubble. Since the number of bitcoins is limited, the value of 1 BTC could be 100,000 USD or just 1 USD. Nobody knows for sure. Point is, the current rally of bitcoin may not be a bubble. That is a possibility too.

Bitcoin may be limited, cryptocurrencies are not. There 100 other crypocurrencies. Why is bitcoin more special than other cryptos? Try answering that, and then you will realise it is all a house of cards.

[SmartCat]

How to create your own cyrptocurrency in 10 minutes
https://cryptonotestarter.org/

[sathish81]

Originally Posted by Samurai

Bitcoin may be limited, cryptocurrencies are not. There 100 other crypocurrencies. Why is bitcoin more special than other cryptos? Try answering that, and then you will realise it is all a house of cards.

Agreed to your point about various crypto currencies in existence today. But BTC still has a very large user base and that includes merchants,ATM, exchanges and banks. It has the potential to be the "dollar" of crypto currency.
I dont agree to your opinion about BTC being pack of cards. Is it overvalued today ? yes.
But with the current rate of adoption, do I think current INR/$ value of BTC 5 years from now is justified- absolutely.
Will the price crash in near future- I am counting on this.
The only other crypto currency that interests me personally is Ethereum, but that is purely from a distributed application angle- IPFS and smart contracts have the potential to change way applications work. AFAIK Red Hat is already working on a licensing model based on Etherum/ETH.

[V.Narayan]

Launch of the new Balaenoptera Shilling - get the best of both worlds, Hydro and Crypto

Dear BHPians

I am launching a new currency - the Balaenoptera Shilling. There are about 25,000 blue whales out there hidden in the ocean. Through a marvelous new technology that marries GPS, underwater VLF communication and blue whale tagging each whale has been tagged with a complex alpha numeric code. The tag is a device tied to the tail fin. Those of you who have powerful computers and sophisticated sonar equipped big boats and some very serious deep sea diving skills can now go out into the blue cyber err waters and mine oops find these whales one at a time remove the tag from the fin and match it to the algorithim. For those without these tools sit on the side lines and eat your hearts out.

Once you have found it and decoded the complex algorithm and collected the tag that whale and its code is yours. And then you may sell it to another buyer for a mutually agreed price. Statutory Warning: Mind you it has no intrinsic value unlike a bond or an equity share in a commercial company. But who knows another blue whale Balaenoptera Shilling enthusiast out there might be willing to pay something for it in the hope that there is yet a third enthusiast willing to pay a little more. The records will be logged in code across half a million dedicated computers with a lock in a treasure chest in the depths of the ocean so that no one person can mess around with the ledger or the codes. The blue whales of course do not know this and because this is a marriage between cyber tech and sonar tech it is beyond the realms of those nosy government babu's and square central banks. Get rich quick. Your time starts now.

We shortly expect Balaenoptera Shilling hackers and Balaenoptera Shilling forgers and Balaenoptera Shilling vault robbers to get into the act. So hurry.

With best wishes,
-Narayan

PS: No offensive to all those Bitcoin investors out there and in here. May your investments bear fruit and your illusions not be shattered. I am happy to sit and watch.
__________________________________________________ ________________________________________________

Originally Posted by Samurai

Bypassing banks is practically a white collar crime these days.

They solved a technological problem of transactional veracity using blockchains. They didn't solve any economics/finance problem.

The role of any wealth storage instrument is to nullify the effect of inflation. When it does more than that, it is a bubble in the making.

Economics is a social science. Studying economics via business schools route gives a very mathematical understanding of economics. It completely leaves out the human side of this social science. It took me over a decade to realize this, and start changing my thinking.

But greed overcomes all knowledge and caution. Even the most knowledgeable wall street investor succumbs to greed when the bubble is growing. They just think they will get out before it bursts.

Most successful investors are not expert economists or financial geniuses. Instead, they operate using instinct/SOP/model that usually works for them.

Samurai, thank you for putting out this post with its distilled wisdom.

[Pandher]

Hello everyone, posting after quite a long period of inactivity, but have been lurking around time to time. I am unsurprised at the activity in this thread as crypto market has gained public conscious awareness and has picked up economic pace.

I have brought serious advice for you, be careful with storage of whatever you purchase. An important attribute of digital cryptographic assets is that they are owned by you and you are responsible for storage and safeguard of these assets. You are your own bank. Now as prices increase so would malicious activity and reports of crime, Not that it has not happened before but will become commonplace. I myself have been an unfortunate victim as all of my crypto assets which were in the form of Monero (XMR) have been wiped from my account last year. Resultantly I have not been very keen on this market and have moved to other adventures in life.

You can learn from my rather expensive mistake, never keep your keys on any digital media, best bet is to keep on paper that too generated with a device NOT connected to the internet. This is the safest method of storage. I hope you would not stick with lazy behaviour and safeguard your assets ASAP.

[msdivy]

Originally Posted by Samurai

You are saying bubble is when price >> intrinsic value. Intrinsic value of bitcoin is zero. So any price for a bitcoin is a bubble.

If the value of bitcoin is zero, try getting one for free . Paper of Rs 2000 may not be worth in its value, but it requires hard work to get that Rs 2000 note. As long as the world values it at 2000 INR, it is 2000 INR.

Bitcoin may be limited, cryptocurrencies are not. There 100 other crypocurrencies. Why is bitcoin more special than other cryptos? Try answering that, and then you will realise it is all a house of cards.

Bitcoin nailed the technology of cryptocurrency. Its been around longer than any other cryptocurrency and hence people trust and demand it more than rest of the crypto currencies.

[Samurai]

Originally Posted by msdivy

If the value of bitcoin is zero, try getting one for free . Paper of Rs 2000 may not be worth in its value, but it requires hard work to get that Rs 2000 note. As long as the world values it at 2000 INR, it is 2000 INR.

INR and other fiat currencies are underwritten by governments, so it has that value. Cryptocurrencies are not underwritten by anybody. So it is like a stock, the value is what the majority thinks.

Originally Posted by msdivy

Bitcoin nailed the technology of cryptocurrency. Its been around longer than any other cryptocurrency and hence people trust and demand it more than rest of the crypto currencies.

That's not an economics argument. Now anybody can use blockchain, even $ and ₹. In future, if more people like dogecoin or Balaenoptera Shilling over bitcoin, bitcoin will hold no value. There are no BTC underwriters to buyback bitcoin to preserve the value while it is falling.

[ksameer1234]

Originally Posted by Samurai

INR and other fiat currencies are underwritten by governments, so it has that value. Cryptocurrencies are not underwritten by anybody.


There are no BTC underwriters to buyback bitcoin to preserve the value while it is falling.

Exactly. Currencies work because governments throw their weight behind them. I guess that's one of the reasons why USD is more valued than Zimbabwe Dollar!

I was reading a bit about blockchain today. It says that blockchain technology is P2P based and that any update to the chain is validated by all the users. Does this mean every single bitcoin transaction will need to be validated by every single bitcoin user? If bitcoin gains traction, that itself would probably consume all the internet bandwidth and electricity just to validate the currency transactions. Isn't this very inefficient? Ideally, there should be few users who can take up the responsibility to maintain the records of transactions of behalf of everyone. Like, say a bank?

[msdivy]

Originally Posted by Samurai

So it is like a stock, the value is what the majority thinks.

Yes, that is the case right now and hence the volatility. Bitcoin or other cryptocurrencies that wins the race will base on some reference and that will provide stability.
What is interesting is how these cryptocurrencies will evolve with hardly any recognition from Governments.

There are no BTC underwriters to buyback bitcoin to preserve the value while it is falling.

This is as per design. This is exactly how the inventor wanted.

Originally Posted by ksameer1234

Exactly. Currencies work because governments throw their weight behind them. I guess that's one of the reasons why USD is more valued than Zimbabwe Dollar!

The purpose of cryptocurrency is not to provide an alternative to USD . It is a platform for P2P, anonymous, financial transaction, which is recognized by the system - without being aware of who are doing the transactions. If this isn't the intent, then folks are better off sticking to real currency.

[Samurai]

Originally Posted by msdivy

What is interesting is how these cryptocurrencies will evolve with hardly any recognition from Governments.

Which makes it illegal to use for any major purchases, in most countries.

Originally Posted by msdivy

This is as per design. This is exactly how the inventor wanted.

True, and that very design makes it useless for wealth storage and transaction.

Listen, this is the part that really frustrates me. Cryptocurrencies are a concept created by techno-nerds. I am a part techno-nerd too, I know how narrowly programmers think, and how little they know about economics. Cryptocurrency is a brilliant technological concept, but it is totally muddled as a financial concept.

Bitcoin like currencies are like stock only in how their values rise and fall. But they are actually worse than stock. Stock is actually backed by the performance of the company, you even get dividends.

When a bubble is forming, every investor struts around like genius. I saw this phenomena in 1998-99. I was sending all my savings to India for the construction of my first home. While that was happening, all my friends and colleagues around me were making a killing in the dot-com (it was later renamed as dot-bomb) boom. I didn't know anything about economics/finance then, I was a pure techie. So I was very surprised and depressed that everybody around me was an investment genius. Everyday, almost every man/woman I spoke to would talk about their portfolio and their ingenious system to identify the right stock. I felt like an idiot in a land full of smart people. An year later, it all vanished. Nobody wanted to talk about stocks anymore, it became a very sore topic. And I had a brand new home without any loan. Now that I think about it, I got my inspiration to take up MBA after this episode. I wanted to understand what this was all about.

[msdivy]

Originally Posted by Samurai

Cryptocurrency is a brilliant technological concept, but it is totally muddled as a financial concept.

Every digital financial transaction leaves a trail. Bitcoin was designed to overcome that. Governments need this transactions trace and so they don't allow bitcoins. Many websites (Microsoft, Expedia, Virgin, NewEgg, Wordpress, etc) accept bitcoin as payment. I feel bitcoin has been a success so far. If people do not want anonymity, then there is no benefit of bitcoins for them.

Stock is actually backed by the performance of the company, you even get dividends.

Bitcoin was designed for transactions. It is not an investment instrument. Folks who relied on currency arbitrage to make their daily bread would be the ideal ones to 'invest' in bitcoins. Unfortunately, the current price of 1 BTC vis a vis USD has interested general public in bitcoins. Just because the valuation is high doesn't mean the platform is bad.

[Samurai]

Originally Posted by msdivy

Every digital financial transaction leaves a trail. Bitcoin was designed to overcome that.

Bitcoin is not anonymous, unless you use new address for every transaction. Still it is not anonymous unless you quite a bit of subterfuge like logless VPNs, bitcoin mixing, etc. You are better off using Monero instead.

Originally Posted by msdivy

I feel bitcoin has been a success so far. If people do not want anonymity, then there is no benefit of bitcoins for them.

So this is a replacement for Hawala then?

Originally Posted by msdivy

Just because the valuation is high doesn't mean the platform is bad.

It is bad because it has no economics/finance underpinnings. It tried to solve a non-existent problem, and ended up creating a problem (bubble) instead.