My first post on cryptocurrencies

This was from Zacks Investment Management today:

How to Accidentally Lose $300 Million – it was reported this week that $300 million of cryptocurrency was lost after a series of bugs in a popular digital wallet service led to a trail of erroneous decisions. According to reports, one developer took note of the bugs and ‘accidentally’ took control of the $300 million and then locked up the funds. When the developer realized he or she had taken control of the funds by accident, he/she attempted to undo the damage by deleting the code which had transferred ownership of the funds. However, rather than returning the money, deleting the code simply locked all the funds in the digital wallets permanently, with no way to access them. In sum, the developer accidentally stole hundreds of wallets simultaneously, and then “set them on fire in a panic while trying to give them back.” If none of that makes sense to you, then you probably should not invest in cryptocurrencies.

Is that really where you want to put your hard earned money?

Saul

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Saul,

While that sounds like a HUGE issue, it will be fixed. The best part about cryptocurrencies is they are backed by BlockChain technology. Everyone on the chain has a “ledger” of transactions.

“They can rebuild it. Better, stronger and faster.” :slight_smile:

This would be just like a single bank branch having all accounts frozen. The main branch will gather the ledgers from all other branches, compile them back together and put the money back in new accounts for current customers.

Don’t get me wrong, this will be a BUNCH of work.

pmoncho

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While that sounds like a HUGE issue, it will be fixed. The best part about cryptocurrencies is they are backed by BlockChain technology. Everyone on the chain has a “ledger” of transactions.

Ledgers have been around for centuries. So have thieves and scam artist because there’s always a mark to be found.

Cryptoassets are at the earliest stage of a meteoric rise. Maybe that will take ten years to consummate, but it’s coming. But please don’t just throw money at anything labeled “cryptocurrency”. Due diligence will be rewarded in due time. It’s reasonable to invest 0.5 to one percent of your assets in a portfolio of cryptoassests and leave it alone.

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Here’s a link to an article about it in TechCrunch: A major vulnerability has frozen hundreds of millions of dollars of Ethereum

https://techcrunch.com/2017/11/07/a-major-vulnerability-has-…

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Along the same lines, if you choose to get a hardware wallet to keep your bitcoins … don’t lose your password! There’s no bank you can call to reset it. Here’s a real-life horror story about someone who did lose it. Via Wired Magazine:

In January 2016, I spent $3,000 to buy 7.4 bitcoins. At the time, it seemed an entirely worthwhile thing to do. I had recently started working as a research director at the Institute for the Future’s Blockchain Futures Lab, and I wanted firsthand experience with bitcoin, a cryptocurrency that uses a blockchain to record transactions on its network. I had no way of knowing that this transaction would lead to a white-knuckle scramble to avoid losing a small fortune.

My experiments with bitcoin were fascinating. It was surprisingly easy to buy stuff with the cryptocurrency. I used the airBitz app to buy Starbucks credit. I used Purse.io to buy a wireless security camera doorbell from Amazon. I used bitcoin at Meltdown Comics in Los Angeles to buy graphic novels.

By November, bitcoin’s value had nearly doubled since January and was continuing to increase almost daily. My cryptocurrency stash was starting to turn into some real money. I’d been keeping my bitcoin keys on a web-based wallet, but I wanted to move them to a more secure place. Many online bitcoin services retain their customers’ private bitcoin keys, which means the accounts are vulnerable to hackers and fraudsters (remember the time Mt. Gox lost 850,000 bitcoins from its customers’ accounts in 2014?) or governments (like the time BTC-e, a Russian bitcoin exchange, had its domain seized by US District Court for New Jersey in August, freezing the assets of its users).

Read the whole thing at https://www.wired.com/story/i-forgot-my-pin-an-epic-tale-of-…

Matt
MasterCard (MA), PayPal (PYPL), Skechers (SKX) and Square (SQ) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx

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While that sounds like a HUGE issue, it will be fixed. The best part about cryptocurrencies is they are backed by BlockChain technology. Everyone on the chain has a “ledger” of transactions.

This would be just like a single bank branch having all accounts frozen. The main branch will gather the ledgers from all other branches, compile them back together and put the money back in new accounts for current customers.

That isn’t how cryptocurrencies or a blockchain work. The ledger may be public, but in order to move the currency from one address to another (ie, sell or spend it), one has to have one half of a pair of keys to a very strong encryption algorithm. The public half of the keys is embedded the ledger. The private half is in your wallet. If you lose the private half (hardware failure of your wallet, or a programming error in your wallet provider), you can never access your money again. It will be visible to you in the distributed ledger, but you will never be able to transfer it to anyone else. It will be lost forever in plain sight. It is protected by an elliptical curve encryption algorithm that - assuming quantum computing proceeds optimistically - would not be breakable for over a decade. If you would like to know more look up scriptSig and scriptPubKey. Those are Bitcoin specific, but have analogs in Ethereum.

Cryptocurrency is extraordinarily dangerous for those that don’t understand it very deeply. It’s dangerous to those that do, also.

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Cryptocurrencies and blockchain are definitely scary. Although, I can imagine how people felt when they received a piece of paper with “This Note is Legal Tender For All Debts, Public and Private” instead of real gold or silver.

Right now cryptocurrencies may not be the right place for one’s hard earned money but there will come a time in the not-so-distant future where you may not have a choice depending on the product/service you want to purchase.

I myself still like real gold/silver/diamonds vs other forms of currencies as I can physically touch it but also use a debit and credit cards on a daily basis.

pmoncho

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Cryptocurrency is certainly not for everyone…yet! There will come a day in the relatively near future when some derivation of cryptocurrency will become our mainstream form of transacting commerce. Yes, you will probably even buy and sell companies on the stock market using it.

As with any new technology or idea that is difficult to embrace early on (Digital music vs. CD/Tapes/8-track; currency bills vs. Gold; ANET vs CSCO; the Cloud vs. local; the Internet; taking cash out of a machine at the bank; PayPal/Venmo; etc), glitches, iteration, fine tuning, and ultimately common acceptance will take time and trial and error, but it is closer than you may believe. You have to ask yourself if this is just a “fad” or if in fact this will stick around. I do not see how some form of it will not survive in the end, so then you have to ask at what point you want to understand it, embrace it and start to adopt it…at least on some level. I have a credit card, an AMEX, a PayPal account, Venmo…I even have a Square and Apple pay. I am dipping my little toe into cryptocurrency to understand it better and because I live in Silicon Valley, where it is embraced and used by many already. You can think of it as a new type of currency, but it is also just (yet) another form of transacting or bartering, eventually without the ridiculous fees.

When I consider how much money that banks make as the “middle man” when we execute anything from a wire transfer to a mistaken “overdraw” of funds (which they graciously “allow” to go through, but then charge us $35-50 on a relatively minuscule overdraw of funds); and how much control over our money that the banks and Government arbitrarily have and can seize at any time, hold for 10 days or longer in transit, restrict access to, and other regulations, I am encouraged by the concept of removing the middle man, the time lag, and the exorbitant fees we pay to transact money in our current banking society (though I admit the early “wallet” companies are certainly extracting their pound of flesh at the moment). But after 2008, can you honestly say you trust the banks either? And if you know the entire history, it started with the government and a change in regulation to enable the banking crisis…but I digress…

Without diving into the deeper concept of blockchain (think “accounting transaction ledger” that is infinitely more difficult to tamper with or manipulate) or the plethora of other ICO’s (Initial Coin Offerings - Think “IPO” without the bank and SEC regulation, which yes, is scary and is not for the meek of heart either way), I believe the question is not “if” cryptocurrency will eventually become mainstream, but “when” and “which one” or “ones” will win the race and be most widely accepted. Who in 1990 would have believed the internet and cloud would permeate almost every aspect of our lives today?

Full Disclosure: It is certainly too early to tell, but I personally own one (1) bitcoin as I pen this blog, which I purchased at an average price of around $4,500. I have used it to pay for coffee (just to prove I could), give my wife $5 to start an account, and I have watched it go up about 70% on the market. (I could NOT recommend it as a means of wealth accumulation or rational investment, though, unless you enjoy gambling, want to actually use it as a means of transacting, or just want to play around a bit with a small amount to learn more about the future). I own it through the app/online wallet “Coinbase”. I do however also own a lot more EURO and Swiss Franc as a hedge to my primary liquid “dollar” currency.

I would add that one bitcoin completely lost or devalued from today’s price down to zero would have virtually no impact on my life. I would not allocate even .5% of my portfolio to Bitcoin or any other cryptocurrency at this point, but I AM taking it seriously, learning as much as I can about it, using it to transact, as I believe in some form that it will have a profound impact on how we transact and function over the next 50 years.

Cryptocurrency is certainly not for everyone…yet…but I would not write it off or discount it anymore than I would electricity, radio or TV, computers in our pockets, self-driving cars, AI and robot deep learning or a manned mission to Mars. Why is a new currency or means of transacting in this Brave New World any more difficult to imagine?

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Ironic and time appropriate that the following article just came out today announcing Square is integrating Bitcoin for its users. This is not the first example, but an early one and probably one that will becoming a recurring trend of general adoption and acceptance as more and more people demand it and embrace it. As the article points out, other “small” companies including Microsoft and Intuit have already preceded SQ in this regard. Regardless, I see it as a good move by SQ to embrace a new technology and what I believe could be a disruptive one on many levels, not the least of which will be political.

https://money.usnews.com/investing/stock-market-news/article…

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Cowboy,

That was a very interesting post. It was also insightful. Thanks for sharing.

Chris

P.S. congrats on your very first post on the Fool and on Saul’s board!

Several years ago I thought I would educate a friend on the difference beteeen investing and speculating. He and I traded “investment” favorites. I gave him $500 worth of Starbucks stock and he gave me one bit coin, which at the time had about the same value. Starbucks is up somewhat and has paid a dividend. The single bitcoin as of a few hours ago was above $7000 although the increase in value has been anything but smooth! I was so convinced my bitcoin would go to zero that I never really focused on where it was stored. A couple of months ago I had to get him to give me more explicit instructions. Has been an educational process for both of us. Still don’t think I’m going to rush out and buy more bitcoins even though I believe in adding to winners.

Also so much for my idea that my friend might sign up for a TMF subscription and do some serious investing.

David

Although it has forced me to study and learn about crypto assets and block chain technology.

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Agreed, Chris. I enjoyed a different outlook on the subject. I work in the logistics field, and this is a topic discussed for global shipments. The discussion tends to move toward blockchain; I want to learn more about both.

IMHO, blockchain as a technology is here to stay (at least in the sense that the inventions of internal combustion engines, telephones, computers, etc., are “here to stay”, meaning they’re more than just a fad).

However, I think we’re in the early innings of cryptocurrency – hell, it’s possible the starting lineups haven’t even yet been turned in.

With all that being said… every crypto article I’ve read has preached about this being a speculation, and keeping your position sizes small. Like no more than $300 worth.

If it’s possible that a $300 investment could turn into $1,000 (or much, much more – note that BTC is +80% the last three months, and +900% the last 12 months), or turn to $0, yes, I’m interested in that speculation.

Stocks are the underlying ownership of productive businesses, at least you hope they’re productive otherwise pffft. Bonds are the same thing, but in different form and more secure and (usually) more stable as they have defined spreads, obligations, and terms.

Gold, wheat, oil, alfalfa, cattle, water, zinc, copper, silver and all the rest are commodities which produce nothing until someone uses them for something. Likewise dollars, shekels, euros, pesos and other forms of money, like cryptocurrencies. You can make money in commodities, but you are playing against everyone else, assuming that you can predict supply and demand better than they can. With stocks you are evaluating the profit making potential of a business based on history, market, and management. You get none of that when you play commodities.

If you are going to play cryptocurrencies, you might as well play gold or silver. They are both in limited supply, but at least most commodities have some utilitarian value other than “trading.” Currencies can only be traded based on supply and demand, and (for me, at least) cryptos are vulnerable in a variety of ways that “wheat” or “gold” is not, but with none of the advantages. Yes, they “might go up”, but do you really know why? They might as well go down, and you still won’t know. Who wants to do that? I’d rather put my money on “Red 13”, at least the casino might comp me a free drink.

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I’d rather put my money on “Red 13”, at least the casino might comp me a free drink.

You would lose your bet. “13” is black.

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If it’s possible that a $300 investment could turn into $1,000 (or much, much more – note that BTC is +80% the last three months, and +900% the last 12 months), or turn to $0, yes, I’m interested in that speculation.

To give an idea of what BTC has done, the very first transaction exchanged for Bitcoin was from somebody that posted a msg on a forum that he would give 10,000 bitcoins to anybody that ordered him two large pizzas back in 2010. At the time, 10,000BTC was worth somewhere under $40. I hope the guy that received them held onto them as they are now worth close to $75Million.

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At the time, 10,000BTC was worth somewhere under $40. I hope the guy that received them held onto them as they are now worth close to $75Million.

Where is that Bitcoin message board again?

A.J.

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I invested a small hedge in gold in 2011. I bought the physical gold, touch it whenever I choose. At the time I chose gold over BitCoin for lots of reasons. Oops.

Carpe Diem
-Kip