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81  Bitcoin / Electrum / The security of electrum seed on: February 24, 2014, 04:00:36 AM
Is it true that if the seed is compromised, then everything is lost, even if I encrypted the wallet with a strong password?

If so, since the seed is not encrypted, it is much more easy to be compromised, then maybe it is better to not know the seed at all (at least I have backup of the encrypted wallet)?

Of course you could put the seed in a text file and encrypt that file, but backup the wallet file is even less complicated
82  Bitcoin / Mining / As a professional miner, do you care about the volatility of bitcoin? on: February 15, 2014, 03:11:00 AM
As we know, central banks often intervene foreign currency market to protect the exchange rate of their own currency. The miners in bitcoin economy are in fact the distributed central banks, they could also form such a consensus. In order to reduce the volatility of bitcoin, they can sell the coins when price is rising too fast, and buy the coins back when price is falling too fast

But when? Historically, if the price rise more than 4x in a month, it should be the time to sell, and if the price drop more than 50%, time to buy. In order to do so, miners must have both bitcoin reserve and fiat money reserve. Fiat money is easy to get, but bitcoin is not so, so it should be miners doing such work

Currently I'm buying coins using my fiat money reserve, only regret that I did not sell enough coins when price was high, so that I can build up more fiat money reserve to be used now. Is there any other miners doing the same?
83  Economy / Economics / Miners' consensus - the distributed central bank in bitcoin economy on: February 15, 2014, 02:50:46 AM
Central banks often intervene foreign currency market to protect the exchange rate of their own currency, the miners in bitcoin economy could also form such consensus. In order to reduce the volatility of bitcoin, they should sell the coins when price is rising too fast, and buy the coins back when price is falling too fast

But when? Historically, if price rise more than 5x in a short time frame, it should be the time to sell, and if price drop 50%, time to buy. In order to do so, they must have both bitcoin reserve and fiat money reserve. Fiat money is easy to get, but bitcoin is not so, so it should be miners doing such work

Currently I'm buying lots of coins using my fiat money reserve, don't know if any other miners are doing the same
84  Bitcoin / Press / [2014-02-07] Bloomberg - Bitcoin Enables Drug Dealing, Just as Major banks do on: February 10, 2014, 08:02:57 AM
...Recall that HSBC (HSBA:LN) last summer agreed to a $1.9 billion settlement with the U.S. government over charges it failed to monitor $670 billion in wire transfers and $9.4 billion in purchases of U.S. currency. According to the U.S. Justice Department, Mexican cartels would deposit hundreds of thousands of dollars a day at HSBC Mexico branches, in cash in boxes specially designed to fit the dimensions of the HSBC teller windows. In addition, a Senate report accuses the bank of doing business with companies with ties to terrorist organizations and skirting rules meant to prevent dealings with the governments of Iran, North Korea, Burma, and Cuba. Wachovia, which is now part of Wells Fargo (WFC), has also admitted its failure to report suspected cartel money laundering going through the bank. ING (ING) and Standard Chartered (STAN:LN), among others, have settled in similar cases.

In none of the cases, however, were criminal cases brought against the banks. Justice Department officials argued that doing so would pose too great a risk to the financial system—too big to fail, in the familiar phrase. Nor were there charges brought against any employees, something that would not have posed the same systemic risk. Contrast this with the instance of Shrem, who faces a potential prison sentence of 30 years in a case where the amounts are a rounding error next to those handled by HSBC and Wachovia.

Some Bitcoiners have seized on this divergence to argue against money laundering laws in general. Libertarians see the statutes as just one more way that the government, under the guise of protecting us from criminals, exerts control over our lives, insisting that we disclose the intimate details of our financial lives to Leviathan under threat of confiscation

http://nybw.businessweek.com/articles/2014-02-07/bitcoin-enables-a-fraction-of-the-drug-dealing-banks-facilitated#r=rss
85  Economy / Economics / The relative theory of value on: February 05, 2014, 05:12:06 AM
Einstein 's theory of relativity: Through Maxwell equations, define speed of the light as a never changing constant. This caused length and time become variables.  High-speed movement will shorten the length and slow down the time. It is a huge change in the way of thinking

Similarly, in value related topics , we are also facing such a major break through in thinking

When people discuss an economic phenomena, they usually have an unconscious habit: When they want to describe the value of something, they will say how much dollar this thing is worth. This is a view of the world caused by long-term use of USD, so that USD becomes a measurement unit of value

In fact, values are all relative. If measured by bitcoin, the value of USD are depreciating rapidly. However, we can not tell if it is bitcoin appreciation or USD depreciation, because all changes are relative

People will say that the USD prices of goods and services is relatively stable, changes slowly during a year, so the value of USD should also be stable

This also comes from an unconscious way of thinking, that the value of goods and services are relatively stable. In fact, the value of goods and services are all depreciating quickly, because the supply are increasing quickly. This is easy to understand: If the demand does not change but the supply increased by 10 times, then the value of goods will drop to 1/10 of its original value

So, although people are seeing that the USD price of goods/services are relatively stable , but that is only because the value of those goods and USD are dropping together at a similar rate

In a word, because the value is determined by supply and demand , if both the supply and demand are changing, finding a stable and constant point of reference is very difficult

And now with bitcoins , supply is fixed and limited, the reference point of value can be given by bitcoin, similar to the speed of light. Thus, when Bitcoin exchange rate rises, people will know that more fiat money are being produced. If one bitcoin can buy more goods, then people will know that the production of goods are increasing. In such a way, people can avoid using continuously depreciating currency to value continuously depreciating goods


There is one problem, although the total amount of bitcoin is limited, there are not so many in circulation. But because Bitcoin appreciate very fast, it will be less likely to be used in large-scale circulation, but highly likely to be used for large-scale savings, so the value of bitcoin can be derived from the demand of saving


Every day there are 370,000 new baby born. Suppose that the demand for these people's savings during their lifetime can be fulfilled by bitcoins, and the daily supply of Bitcoin on market is about 5000 coins, each person will get 0.0135 bitcoin for savings during their life time. That is about 1,350,000 satoshi. This could be the final stable value of Bitcoin. In current dollar prices, if someone saved $1,350,000, it is a good retirement plan. That will put one satoshi's value close to $1.

In future, the fiat money and goods will be produced more and more thus become less and less valuable. But as long as fertility does not change a lot, everyone's savings for retirement is probably always 1,350,000 satoshi. This is because long-term wise, daily bitcoin supply on market will always be around 5000 coins ( Suppose that majority of the people spend 10% of their saving each year after retirement )

So the average retirement saving for each person = 0.0135 bitcoin, this is a consistent way to use a fixed supply currency to value a very typical demand from any person

When you start to use bitcoin as a standard measurement of value, you will see how fast fiat money and goods are depreciating
86  Economy / Economics / Is foreign currency exchange (FOREX) deciding a currency's value? on: January 21, 2014, 04:33:17 AM
For example, if I mass borrow trillions of dollars and sell them on Forex exchange, will it be possible for USD to lose 80% of its value because no one have enough other currency to buy?

This has happened when Soros mass sold the currency of south asian countries which had only a little amount of USD reserve, so their currency dramatically devalued on FOREX, thus all their GDP counted by their local currency shrank by 30-80% at the same time, and hyper inflation followed

However, if they had enough amount of USD reserve, or have a credit line that can provide endless USD supply, they might be able to keep the exchange rate of their currency and avoided the loss

The currency's value is mostly a consensus and illusion domestically, but there is no such illusion from foreigners. For outsiders to have an idea of the value of a currency, the FOREX market place is the only pricing mechanism. But is this market place a fully free market or heavily manipulated by central bankers?



87  Economy / Economics / Why bitcoin is very different from Ponzi/Pyramid/Bubble on: January 14, 2014, 12:10:08 AM
From wiki:
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A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from existing capital or new capital paid by new investors, rather than from profit earned by the individual or organization running the operation.

Since the scheme requires a continual stream of investments to fund higher returns, once investment slows down, the scheme collapses as the promoter starts having problems paying the promised returns (the higher the returns, the greater the risk of the Ponzi scheme collapsing)

  A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a mistaken belief in a nonexistent financial reality, including the hope of an extremely high rate of return. In a pyramid scheme, those who recruit additional participants benefit directly. It explicitly claim that new money will be the source of payout for the initial investments, and it requires exponential increases in participants to sustain it

  An economic bubble: A bubble is similar to a Ponzi scheme in that one participant gets paid by contributions from a subsequent participant (until inevitable collapse). A bubble involves ever-rising prices in an open market (for example stock, housing, or tulip bulbs) where prices rise because buyers bid more because prices are rising. Bubbles are often said to be based on the "greater fool" theory. As with the Ponzi scheme, the price exceeds the intrinsic value of the item, but unlike the Ponzi scheme, there is no single person misrepresenting the intrinsic value
--------------------------------------------------------------------------------

So, the common reason for all these schemes to collapse is that the system run out of increased participants (and money inflow). Same thing will happen to bitcoin (of course not now)when the market reach certain level of saturation, its value can not appreciate exponentially forever. What makes bitcoin to hold its value by then?


I can think of several reasons:

First is its utility as a payment medium. If every merchant accept payment with bitcoin, then people don't have the need to sell bitcoins on the exchanges, that will reduce the sell pressure on the exchanges. Especially, if merchants around the world use a fixed bitcoin price for their goods during a year, when bitcoin exchange rate crashed, people will rush to buy cheap coins to purchase those goods, thus push the exchange rate back

Second is its utility as a store of value. With ever increasing productivity, many people will accumulate more and more savings and those savings must find a secure form of storage that is inflation resistant. Bitcoin is the right candidate to virtualize the assets

Third is the backing of miners. Miners are the distributed central bankers in bitcoin ecosystem. Just like central banks, they will accumulate large amount of bitcoin and foreign currency reserve to stabilize the exchange rate. They sell coins when it rise too fast, and buy back coins when the price crashed, this will ensure the price stability of bitcoin. People always say that there is nothing backing bitcoin, but many early adopters have accumulated huge amount of fiat currency during each price rally and can absorb a great deal of the sell pressure released from the market with their fiat currency reserve

Any other ideas?
88  Bitcoin / Bitcoin Discussion / Almost human Season1 Episode7 1 bitcoin = 427,000 dollars on: January 10, 2014, 10:55:07 PM
- Got a bitcoin, any money on it?
- 427,000 dollars

It seems the word bitcoin here means a flash drive, or it is indeed one bitcoin per drive Cheesy


89  Economy / Economics / Why bitcoin's exchange rate won't drop too much on: December 16, 2013, 01:57:04 AM
Bitcoin's exchange rate won't drop too much because existing holders can support it

One extreme example:

Suppose that one guy have 31 million dollars, he bought all the 21 million coins at $1, and sold 10 coins to others. Then, he still have $10 million at hand. Then he refuse to sell any coins below a market price of $1 million and are willing to buy any coin at a price of $1 million. Then bitcoin's market price will be $1 million, and his total net worth will be $21 trillion (By using only 31 million dollars, he raised his net worth to 21 trillion dollars)

If there are 21 million users, each of them bought 1 coin at $1, and refuse to sell any coin below a market price of $1 million, then bitcoin's market price will also be $1 million

So, when the price drops, the existing coin holders will have a good way to protect their wealth: They can simply refuse to sell the coin below a certain price and even step into exchange to buy (This is actually what central banks do on Forex market), it will easily break the downward trend

Of course that will not stop the inflow of daily mined coins, but today's miners all carry a very high cost, so they would also refuse to sell the coins below their cost

If the coin supply is unlimited, this strategy will not work
90  Economy / Economics / Bitcoin's intrinsic value on: December 11, 2013, 09:06:37 AM
Many people say that bitcoin does not have intrinsic value, they typically compare it to gold and say at least you can make some jewelry using gold

Value comes from demand. If someday, people's preference changed and there is no demand for gold jewelry, then gold will not have intrinsic value anymore

Bitcoin's intrinsic value also comes from demand, maybe it is difficult to see the demand for a single bitcoin, but the whole bitcoin network can satisfy 2 major demands:

1. Securely store value in a digital form

2. Securely transfer that value worldwide instantly

There are demands in both area, gold or fiat money can not fulfill these demands

For the first demand, people might pick an online bank account, but due to the inflative nature of fiat money, it is not secure: The value of the saving account is getting less every year and the bank can freeze your account when they wish to do so

For the second demand, bitcoin enabled almost free international value transfer, just like internet enabled almost free international telephone call

Another usually asked question is: What is backing bitcoin? It is backed by all the bitcoin miners around the globe with the most powerful network in the world, and one single consensus of never generating more than 21 million coins

It is all about how to store and transfer value securely in a digital form. Before bitcoin, there is no way to do this without rely on a third party

But to work as a currency, it must have stable exchange value, that is not the strength of bitcoin, at least not before reaching a full market saturation
91  Bitcoin / Bitcoin Discussion / The public image of bitcoin on: November 22, 2013, 07:58:54 AM
I never think bitcoin icon should be round and yellow like a gold coin. This image is very misleading

It should have a unique form that match its special character: No physical form, light speed, cryptography based

Some idea from cryptography:




But if only use something from cryptography, it will miss the financial character of the coin

Anyone have a good idea that how it should look like?
92  Economy / Economics / What decide the market price of bitcoin on: November 18, 2013, 06:43:46 PM
Look at stocks:

Stocks are similar to bitcoin, they also have limited supply. The price is decided by the return of stocks. But even for Apple's stocks, if mass sold on the market during a panic, the price will still crash over 90% due to there are not enough fiat money to buy stocks. Historically, many stock markets were shorted to ground simply because there were not enough money to buy during a panic

So, the value of stock can not be only decided by the market force. The reason that stocks were not mass sold on the market is because majority of the investor's rational expectations: They expect to receive certain return from the stock. If the stock price dropped, it became more profitable to own that stock, they will buy, thus support the price


Then bitcoin:

Bitcoin does not have fixed return, it is just a medium of saving and transaction. Its value is also supported by the investor's rational expectation

Currently central banks around the world are pushing extremely loose monetary policy, people need medium of saving that can hedge the inflation risk. Bitcoin can be moved oversea instantly, thus superior than gold and housing. So certain amount of traditional savings will move into bitcoin from a diversification point of view, at least

Offshore tax heaven countries holding 30 trillion USD savings. But those savings are losing their value day by day because of QE infinite. Suppose that 1/10 of those savings will eventually convert towards bitcoin to hedge the inflation risk, and only 10 million bitcoins are available for sell, each coin will worth 300K USD

So this is one of the rational expectations from bitcoin investors. When coin price are lower than this level, investors will have the motivation to buy. At the same time, more and more merchants will start to accept bitcoin, thus further reduce the supply on market, and raise its value

However, there is always the option to invest in mining operations. So basically the speed of difficulty rise will limit the price appreciation speed. If price rise too fast, more money will run into mining operations, thus reduce the support for price, it will eventually stop to wait for the difficulty to catch up
93  Bitcoin / Bitcoin Technical Support / Can not receive email code when login at blockchain.info on: October 31, 2013, 10:32:02 AM
Tried manually send Email code twice and now only 2 login attempts left, still nothing received in my email box. Wrote a mail to support, the automatic reply was received in my email box.
94  Economy / Trading Discussion / A problem with distributed exchanges on: October 29, 2013, 11:51:50 AM
Recently someone who were selling bitcoins on LocalBitcoins.com had his bank account frozen and was summoned for interrogation by the police. The reason is that a fraudulent buyer used a stolen account bought large amount of coins from him

So the accusation that bitcoin were used to do money laundering is quite real. LocalBitcoins.com is a very close example of a distributed exchange where each person deal by themselves. However, this case proved that no matter what kind of exchange form you use, you will always have some legal and regulation concerns. (I think the main reason behind AML law is to prevent the terrorist attack funding)

In this specific case, the bitcoin seller is actually a money transmitter, so he should know his customer's identification and address. But it is unrealistic for everyone who want to sell bitcoin to get a money transmitter license, it seems the best way so far is to have regulated exchanges

95  Economy / Economics / Why there is no growth on: October 28, 2013, 11:22:57 AM
Quantity theory of money:

MV=PQ

M is base money supply
V is base money turn over speed
P is price level
Q is GDP

This formula is proved to be correct even on a simple simulation of an island with only 2 people, so I trust it due to its simplicity

After financial crisis, central banks around the world increased the base money supply M by approximately 4 fold. But due to previous V is dramatically reduced, the result is that even GDP did not improve too much, P is relatively stable

In a fractional reserve banking system, V is tightly related to the money multiplier. If banks could actively loan out any money they have at hand, then V usually is 5 to 10. If economy is so bad that no one want to borrow money, then V will drop to 1, this seems to be the case now: M increased by 4x but V decreased by 4x, the result is that both GDP and price level stays stable

However, when economy eventually improved and loaning become active again, V will rise back to a normal level of 5, that will cause a 500% rise in price level if GDP keeps growing at a couple of percent per year, that will effectively crash the fiat money system

In such a case, central bank must quickly reduce the M accordingly. However, the way to reduce M is to sell their assets to commercial banks to get base money back, those assets include government bonds and mortgage backed securities, and a large sell of those assets will crash the market immediately and destroy many people's house value, drive economy back into recession

So it seems there is no way back once the hyperinflation is happening. The only way they can prevent a runaway inflation from happening is to let commercial banks hold their money and never loan them out. This means in a foreseeable future, there won't be large scale lending happening at commercial banks, that's the real reason that we didn't see any significant improve in economy, because from bank's point of view, the credibility of their money is much more important than economy








96  Bitcoin / Mining / The biggest difficulty jump I have ever seen on: October 26, 2013, 10:52:33 AM
A whopping 46% raise, only before the first rally to $30 I can find such large jump in difficulty Undecided
97  Economy / Economics / Any reason why today's system will fail ? on: October 16, 2013, 10:14:01 PM
Let's say that government want to stimulate the economy, they borrow 10 trillion dollar from the FED and spent them all, created lots of projects and hired many people and even reached 99% employment

All those money spent becomes the income of various person in the society, and in turn the government collected some tax back. But they will never be able to pay back the original 10 trillion dollar

And the government requested to write off those debt from FED's balance sheet, they are gone
----------------------------------------------------------------------------------------------------

So, who was the loser in this process? I see none  Undecided

First, government did not lose anything, they created many jobs and stimulated the economy

Second, FED did not lose anything, anyway their money is printed out of nothing

Third, average people in the society did not lose anything, they got a better job, made some money and improved their life

The only counter-argument might be inflation. But price level normally is decided by profitability, if the demand rose (more money to make), the supply will increase to make more product and services (due to higher profitability), thus keep the price low. If the government is the largest customer for many enterprises, there will be a tough competition to get the order from government, the price level will be low due to competition

I still don't see how come such a simple system could fail??? Is it just a wishful thinking or pure psychological feeling  Huh
98  Economy / Economics / Obama is considering making money by himself on: October 09, 2013, 12:01:28 AM
http://blogs.marketwatch.com/capitolreport/2013/10/08/obama-distracts-with-shiny-trillion-dollar-coin-reference/

Although he denied the idea, he is evaluating the possibility, in a worst case scenario, he might go ahead and issue his own trillion dollar coin, and once he did it, he will find out that there is no need for FED Cheesy
99  Other / Off-topic / Obama's shiny trillion-dollar-coin on: October 08, 2013, 11:17:03 PM
President Barack Obama on Tuesday said that even if such moves survived legal scrutiny, using the Fourteenth Amendment to justify raising the nation's borrowing authority or issuing a trillion dollar coin wouldn't be viable solutions to the debt limit fight.

"I know there's been some discussion, for example, about my powers under the Fourteenth Amendment to go ahead and ignore the debt ceiling law," the president said in a press conference. "Setting aside the legal analysis, what matters is that if you start having a situation in which there's legal controversy about the U.S. Treasury's authority to issue debt, the damage will have been done even if that were constitutional because people wouldn't be sure. It would be tied up in litigation for a long time. That's going to make people nervous."

"So a lot of the strategies that people have talked about, well the president can roll out a big coin, or he can resort to some other constitutional measure," he added. "What people ignore is that ultimately what matters is, 'What are the people who are buying treasury bills think?'"

http://talkingpointsmemo.com/livewire/obama-dismisses-14th-amendment-argument-for-lifting-debt-ceiling
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100  Bitcoin / Hardware / Monarch butterfly prototype on: October 02, 2013, 04:26:54 AM


Just saw this... Can't believe that they have so many VRM to power the chips, a huge heat sink is going to be mounted in the middle  Wink
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