Time to join the chain gang?

Pissed

I was pissed. I normally am at the vendors’ get-togethers. Masquerading as networking events, they are more an excuse for a bunch of blokes (it is exclusively blokes, sadly) in the horsey/betting online business space to exchange ideas and rounds of grog. Mostly rounds of grog.

But not all chat is horse and football, nor is it product launches or how’s the little one(s)…

A couple in the group, who you may know, are into broader ‘make money’ concepts. Forex trading and the like. John and Graham, mainly.

Graham is always getting his mobile out and showing me the latest trading gizmo he’s using to plunder a few extra quids – you can never have too many quids, apparently; while John is the sort to be less interested in little tactical projects, more inclined towards the macro: the game changer.

So there we were boozing and blustering the night away when the subject of bitcoin came up. Bitcoin, in case you’ve had your head under the pillow for the last five years, is a new sort of money.

You can buy stuff with it, and exchange it for other currencies, but you can’t get it in the bank. That was the bit I struggled with. Especially after a few of those Lagunitas IPA’s (fierce tasty, even fiercer alcoholic).

You see, I’m a bit old skool. In spite of running a tinterwebs business and betting on horses most days, I’m actually risk averse. Calculated risks around things which I broadly understand are what check my boxes.

I’d heard of bitcoin but I didn’t understand it. Still don’t fully understand it.

**

Join the Club?

Anyway, Graham and John were evangelising about something called Bit Club Network (BCN hereafter), and so too, separately but as a result of convo’s with this pair, was another mate in the trade – absent this night – Steve.

BCN is a ‘mining club’. Mining is important because it is how bitcoin – and other so-called crypto-currencies – manifest themselves. Instead of sooty blokes with lamps on hard hats and pick axes, though, bitcoin and its ilk are unearthed by computer algorithm.

The human resource of sweat and toil is supplanted by electricity and processing power which, as it turns out, is almost as expensive.

In a nutshell, bitcoins are liberated when computers solve complex mathematical conundrums. The solution is verified by the community (i.e. other bods in the same game) on something called the blockchain.

**

Welcome to the chain gang

The blockchain could be the single most important piece of computer technology ever devised: even more so than the internet itself. Why? Because it can be used as a settlement engine or market place for just about anything. And there are already prototypical replications of established business systems springing up, ready to challenge the old world order.

Betting exchange? Try augur. Bank settlement? Ripple. Ecommerce? Loads of ’em. What about intellectual property rights and/or business contracts? Ethereum has this cornered currently with something called smart contracts.

In each of those marketplaces, you trade tokens (coins, units of monetary value) with other users.

With. Other. Users.

Not with banks. Not with lawyers. Not with Amazon or Betfair or any other middleman creaming off a hefty percentage.

With other users.

There are three key benefits to this: price, trust and availability/accessibility.

Without going into detail, transaction costs are lower (think 0.25% to exchange currency instead of the 8% or whatever for Western Union to wire funds back home).

The ‘distributed ledger’ nature of the blockchain means that trust is engineered into the system and verified by individuals, not institutions.

And you don’t need a bank account to do this. A mobile phone will do. Many millions of people in the world don’t have a bank account, but they will be able to pay for stuff – even small stuff – using bitcoin and their phone, in the very near future.

This is not science fiction. This is happening right now. You can already buy stuff with bitcoin. Graham has a Mastercard loaded with bitcoin. (I’m guessing it’s not cost effective yet, because of the fact Mastercard are associated with it; but as soon as the payment system is locked into the blockchain, there will be no need for Mastercard, Visa, or banks… and it will be the sensible way to buy stuff).

Get in the game…

So how do you get in the game?

Unless you want to mine the coin from your computer (good luck with that if you’re using a standard bit of kit!), you need to convert a ‘fiat currency’, i.e. pounds, euros, dollars, etc, into a crypto-currency in the first instance.

This article in the Telegraph a couple of months ago shows how to do it; and, implicitly, tips the wink to how mainstream this is becoming.

Getting in the game can seem complicated. It certainly did when I awoke, hungover to hell, the morning after the vendors’ lash up.

But when I sat down to do it, it was a breeze.

1. Get a wallet. That’s where you store your online cash. Just like any other online account you might have: bookmaker, bank, email, etc.

2. Buy some bitcoin. Trickier, and you’ll probably have to demonstrate you are who you say you are first time around (sensible, eh?), but I was able to get this done in 15 minutes or so.

The bod from whom you buy the bitcoin will send it to your unique wallet address that you’ll get in step 1.

3. Transfer the bitcoin from your wallet to wherever you want it. Or don’t. I moved all mine into BCN initially and, as that has generated more bitcoin, I’ve re-invested it on an exchange. But you can just have it sit there building value.

Why am I telling you this?

So why am I telling you this? Well, I haven’t got anything to sell, so that’s the first thing.

I could promote Bit Club Network – in fact here’s my introducer’s link – but, to be honest, I’m not sure I wouldn’t have done better just investing the coins I bought to join the BCN mine myself.

Still, BCN are worth a look if you want to understand more about how bitcoin mining works. And there are some good elements to it, such as the chance ot invest in other altcoin mining (like ethereum, zcash, and others), and some interesting opportunities in the space (including CoinPay, a kind of Bitcoin visa card, which sounds really interesting).

But the main reason I’m mentioning this is that, if you’re an investor at any level, then you should be thinking about diversifying your portfolio into cryptocurrency/altcoin.

I’m not saying they’re the way, the truth, and the light; but, with a global market capitalization (i.e. if everyone sold right now) of $163 Billion they’re not going away.

Regardless of whether there may be a bubble forming in the short term (there may well be), it’s an exciting – and fast moving – space to be in.

My Portfolio

I really hope it’s obvious from what I’ve said already, but let me be clear.

NOTHING IN THIS BLOG POST CONSTITUTES FINANCIAL ADVICE.

Caveat emptor.

I’ve written it because I want to write about something other than racing from time to time, even though I still love writing about racing.

And, more than that, because it’s something Graham and John and Steve, have got me in to. (I really should go boozing more often! 😉 )

My current portfolio consists almost solely of Bitcoin and Bitcoin Cash, mostly the latter. Why? Because it has scalability to process larger numbers of small transactions which is an important function currently missing from the legacy Bitcoin. (SEGWIT and the Bitcoin scalability problem are discussed in more detail here, if you’re interested).

Is this the right move? Who knows. I’m not an expert by any manner of means. Far from it. And I’ve invested in a manner commensurate with my level of awareness, i.e. not much.

But enough to benefit from the rising tide currently lifting all altcoin boats, and to be able to trade into and out of a few of the less fashionable, more speculative, currencies.

I also had ripple, which I sold at a loss; and espers and siacoin, in which I’ve probably done most of my money. They were penny share punts and look to be going the way of such things.

And I made a few quid trading in and out of the volatility of viacoin.

Bitcoin was £300 a coin in April last year, when I got involved. I felt at the time that it was too high (based on nothing, I might add).

Bitcoin is now £3,500 – having been £3,750 a couple of days ago. Demand, from China as much as anywhere, outstrips supply in this most global of currencies.

Where will Bitcoin, Bitcoin Cash and the rest be in six months or a year’s time? Your guess is as good as mine, but the consensus seems to think Bitcoin – a safer bet, relatively – may go up another 30% before correcting back by year end.

Bitcoin Cash is seen as having more explosive short-term growth potential. Some predictions have suggested as much as 4x its current value. Whilst that is probably ambitious, there’s no doubt it has more upside than its older brother. It also has considerably more downside!

Closing Thoughts

My awareness of cryptocurrency has come a fair way since that drunken discourse eighteen months or so ago. And so has the value, maturity and demand for the sector.

It is still an emerging market, and will face challenges from the ‘old world’, including from financial institutions and, almost certainly, governments. (China recently banned initial coin offerings – the crypto equivalent of IPO’s – in their country; others, including perhaps USA, may follow).

But, five years from now, it is likely that most large offline businesses and just about all online businesses will have the facility to process Bitcoin transactions. As soon as it is financially viable – i.e. when I don’t need to pay PayPal, or Mastercard, or a bank, for the privilege – I will accept Bitcoin on geegeez.

Until then, I’d encourage you to get drunk and talk rubbish about the world with your friends. Oh, and maybe bag a bit of Bitcoin. You don’t have to buy a whole one!

– Matt

22 thoughts on “Time to join the chain gang?”

  1. Matt…well thought out..but basically drivel! This is either a fad or some sort of scam and will never make an impact in the real world! Try going to Poundland or Morrisons or Boots with this imaginary money! Not going to happen! It’s an airyfairy,ether ,here today gone tomorrow type of fad.Surely only those idiots(excepting you!) can trade with each other…no good for the other 99.99999% of the world! Stick to racing and betting ..which you’re good at!

    1. Believe me when I say I have read extensively on this subject, Kemal. It is not a fad. When was the last £125 billion fad you are aware of? Banks are already building blockchain settlement ledgers (and sh*tting themselves about the impact of this on their business). China have banned ICO’s because they can’t control the flow of money. I would encourage you to do some research – from as cynical a start point as you like – but to keep 1% of your mind open to the possibility that this may be the future.

      As for poundland, this is precisely why blockchain and bitcoin WILL succeed. Here’s an article in Forbes magazine to get you started: https://www.forbes.com/sites/steveforbes/2015/04/02/how-bitcoin-will-end-world-poverty/

      If you want a very good, but very very heavy book, try Blockchain Revolution by the Tapscott brothers.

      Matt

        1. Hi Barry

          That’s interesting, except that Bitcoin didn’t ‘plunge’ this week. It dropped about 4%.

          The challenges from government are well known and already stated in my article.

          The threat of abuse by tax evaders, money launderers and terrorists is no different than with fiat currencies – and these are great ‘fear’ lines that those who currently control the supply of money will trot out.

          People fear change. Any kind of change. People are terrified of huge changes like this, because they don’t understand them.

          That’s ok. Fine, in fact. I’m not saying go out and put all your money in crypto’s. I’m saying, read up on this stuff, with an open mind; read both sides of the argument; CHALLENGE both sides of the argument. Regardless of whether you’re in a position to invest, or want to invest, it makes a lot of sense to be aware of what is going on in this space.

          To be honest, I thought the marketwatch article was pretty poor. There are plenty of challenges to crypto, but that piece did no kind of a job of articulating them in a credible fashion.

          Matt

          p.s. it is also worth noting that marketwatch is strikingly anti-Bitcoin, representing as it does ‘old money’. You can see that from its front page: http://www.marketwatch.com/
          Also note that it presents the North Korea situation as a threat to the ‘old world’ economies. So it’s basically saying whatever you do with your money, you’re f’cked. Like I said, not terribly credible in my opinion.

        2. You don’t understand a basic point about Bitcoin: because there was only a limited amount issued, it can never be like the pyramid-scheme styles you referred to. Bitcoin is also a much more transparent, honest and secure currency than any national one, even the U.S. dollar or the Swiss Franc.

          People have been predicting the demise of Bitcoin since it started. Its exponential growth has proved them wrong, and the fact that national governments are allowing citizens to buy it, and central banks are buying Bitcoin for their reserves, shows the incredible traction that Bitcoin has now achieved. And we’re still only near the beginning of the rise in its value, in relative terms.

    1. The basic value of anything, Mike, is what someone will give you in the form of something you want. Traditionally that’s pounds sterling. So, in that context, the basic value of one bitcoin right now is £3,494.14. Someone will give you very close to that figure to have a bitcoin.

      These are traded currencies, and they are being used to pay for things – generally services at the moment, but very soon real world ‘stuff’.

      I don’t really know what you mean when you say you ‘haven’t found any at all’ in relation to value here. What do you mean? With regards to their not being a coin, subscribers don’t give me a coin when they pay me for Geegeez Gold. But I get money. I know that because I’m able to pay all the people who make Gold happen, and to put food on the table at home here. I never see a physical penny or pound in my business, which is entirely transacted online. What is the basic value of my business? It’s a bit more than nothing…

      Look, I’m not sufficiently evangelical to want to persuade anyone of the merit of this; and I consider healthy scepticism to be very much the right approach. But an open mind is the only way forward – it’s a very different framing of the world order.

      Matt

    2. BitCoin & other cyriptocurrencies hold a value against each other & overprinted paper currencies.
      But it’s value comes simply from supply & demand. There will only ever be 22 million Bitcoins produced in total and there is approximately 16 million today. Compare this to the infinite supply of USD. The US has no real idea of USD in circulation. It is used & favoured by all criminal activity globally. It is used in small developing countries like Cambodia etc. The Dollar is worth what? Nothing in real terms it’s what people are used to, but guess what? Times they are a changing…

  2. Here’s the problem I see (speaking as a normal man in the street)…..

    And I have read up on this stuff….

    And I know I could be wrong….

    But my instinct is…

    I have two fivers in my pocket right now (and I do)
    Tomorrow those will still be there (unless I buy a bar of fruit and nut) and worth exactly the same (yes in a year they may be ‘worth’ slightly less due to inflation or some negative world event) but the strong chances are they’ll still be worth a tenner

    If I go and turn those into BC now
    What’s to say they won’t be worth £8 tomorrow…or even 0.01p

    And yes they could be worth £11…but essentially I had a bet!!

    And I’d rather put that on the stat of the day!!?

    So for ‘normal’ people in the street (certainly those who can’t afford to see ten quid turn into £8 in 24 hours potentially) I just can’t see it.

    However appreciate there’s a big band operative in the word ‘normal’ in this context.

    Bottom line..those who bought in early are already rich. Those who jumped on a year ago are essentially rich depending on how much they bought. Everything from about a year ago onwards was a big risky bet that’s paid off…

    But the risk is getting bigger and bigger…while the likely rewards are not as great as they would have been with the smaller risk.

    Congrats to anyone that got in at the right time…but on a purely selfish level I’d want to see the whole thing go up in a puff of smoke…if only to make me feel better that I’m not sitting on £2million for an investment of 87p.

    Then again I could have registered sex.com or loans.com 30 years ago for about $100 and be sitting on a multimillion dollar domain name. Life is littered with potential missed opportunities.

    Sometimes fortune favours the brave.

    Always easy in hindsight isn’t it.

    1. Hi Steve

      That problem is no different from buying shares in, say, British Gas. It’s not about being right a year ago or whenever, it’s about whether this is a viable long-term investment strategy, regardless of the sexy – and unsustainable – gains being recorded in the recent past (and, probably, future).

      If you have ten quid in your pocket, that’s for dinner or a trixie. But in future, you’ll have your mobile phone in your pocket and buy your dinner with it. People are already doing that, with Apple Pay and Android Pay. Except, right now, Apple and Android are taking a nice fee each time. In future, they won’t, or it will be marginal, driven down by competition from the blockchain itself.

      This is not a distant future. The tech is there now, and the ‘kids’ are using it. It’s just about adoption now. Apple Pay is the equivalent of dial up internet back in the day. It was expensive and only available to a few. That’s changed astonishingly in the course of 20 years.

      Again, this is NOT about being smart in the past. Only dreamers talk about ‘if only I’d’… if you didn’t, you didn’t. Move on. The future is the only thing upon which we can make an impact. Screw hindsight! 😉

      Matt

  3. Interesting thoughts. I’ve seen bitcoin dropping into my facebook timeline for a while now whithout thinking too much of it. That said, those that I see talking about it are very successful at network marketing across a range of different products who I have come into contact with over a number of years.

    Then I read an article in the BA Business magazine on a flight home last week and it certainly made me think. What you say mirrors the forecasts that were in the article I read.

    You will always get doubters, not prepared to look into something different, I call them sheep or chickens but each to their own! As the saying goes, continue to do what you’ve always done and you will continue to get what you have always got!

    Like you, I don’t pretend to understand it (You clearly know a lot more about it than I do though!) but when I see people I have respect for being prepared to drop it on the table to take a look, then I will take the time to look into it further.

    Keep up the good work!

    1. Hi Colin,

      Thanks for the comment. There ARE a lot of scams out there right now. My inbox seems to be proliferated by more hoax bitcoin offers than horseracing ones at the minute!

      And there are plenty of network marketing setups, too, including it should be said, Bit Club Network.

      But getting away from the scams and the genuine network opportunities, and focusing only on the brass tacks, the concepts of bitcoin and especially the blockchain’s distributed ledger (which is not unique to bitcoin, but is shared to one degree or another by most alcoins/cryptocurrencies) are likely to underpin more and more contracts as time passes.

      Matt

  4. Interesting stuff.

    Your article comes along just 3 days after I first purchased Bitcoin (just over 1/10th of a Bitcoin for £400).

    Now, I bought it because I have 2 friends who persuaded me to: the first is a financial whizz-kid who bought Bitcoin when it was very cheap (not more than £2.50, yes, two pounds and 50 pence) He bought 500 Bitcoin. He was already very well-off, but he’s now a Bitcoin millionaire as well (not a flash guy at all. Dresses very modestly, not interested in showing off in any way, his interest has always been in finance – well, he likes to live in a nice house, as we all do, but he’s not flashy about that either) Thing that impressed me was that he was always very, very positive about Bitcoin. he explained the basic point that because there is only a limited amount of this currency, it can never be devalued – you can’t do ‘quantitative easing’ with Bitcoin. Back in 2013, another friend of mine was persuaded by him to buy a single Bitcoin for £100. That investment is now worth around £4,500.

    We were talking about this last weekend, and the whizz-kid said that now, with governments around the world giving the green light for their citizens to buy Bitcoin, the upwards pressure on the price can only grow.

    There are three points I’m convinced about re Bitcoin:

    1) It’s always going to be the Rolls-Royce of cryptocurrencies. In fact the founder of Ethereum referred to his product as equivalent to silver, and Bitcoin to gold. Ethereum is more to do with transactions, and Bitcoin with residual value.

    2) If you compare the current state of Bitcoin value with climbing Everest, we are barely in the foothills. In fact we haven’t even got to base camp yet. The growth in Bitcoin’s value will continue to be exponential, in fact will become dizzyingly so, as the world (especially the Far East) wakes up more and more to Bitcoin and piles into it. I expect Bitcoin to pass the milestone values of £50,000, £500,000, £1m, £2m, £5m each in the next 1-10 years. I can’t see beyond £10m, but the sky’s the limit.

    3) The world will be divided into those who invested in Bitcoin (especially at early stages like the present one) and those who didn’t.

    1. Hi John

      I have to say I’m not as convinced of the upside potential as you, but I definitely agree that we remain near the beginning of the journey, and some way distant from the end.

      It’s certainly possible, perhaps probable even, that Bitcoin will be held as a commodity, like gold, rather than transacted like a fiat currency. But I personally think both will be transacted when the payment processing technology emerges. We’ll see.

      Matt

    1. Yes, true, Eddie. But only as a guide to predicting future performance. I’m not interested in the 100/1 winner I didn’t back; only whether it can win again next time at 6/1 (to continue the analogy).

      Matt

  5. Ok..looked at the articles…and the terms ‘Emperor’s new clothes’ and ‘monopoly money’ come to mind !! You can’t just start a new currency..you have to have something solid to back it up! Like gold or silver..or cows or tins of beans! One guy wrote that a friend started off buying these at £2.50 and now they’re worth $4000 ! Really! I’ll keep to my fivers and tenners and woe betide anyone who tries to pay me out any winning bets(not many I grant you!)..in bit shit! 😉

    1. That’s the spirit, Kemal. Really surprised at the lack of consideration in your reply. Expect more from you.

      Basically, yes, people create currencies all the time. And commodities, and tokens (like, for instance, a Geegeez Gold subscription) which can be exchanged for cash all the time.

      The first, most basic premise of a market economy is that you cannot sell something if nobody wants to buy it. Allied to that is that the buyer sets the price, not the seller, in a true market. So bitcoins ARE being bought and sold for nearly $5,000. This is an indisputable fact. Ostrich behaviour is fine, I’m not here to ‘convert’ anybody.

      But I do expect people to at least take time to consider what they’re saying before blurting nonsense. There are genuine reasons why acquiring these currencies constitutes a risk, but lack of a market is clearly and demonstrably not one of them.

      Matt

  6. The idea that the US Dollar or the Great British Pound have anything more behind them than Bitcoin is laughable. I think I read that only something like 15% of all pounds in circulation actually exist. The rest are just as ethereal as Bitcoin. Simply digital keystrokes. Millions more of which are created every time a new batch of QE is released.

    The great thing about Bitcoin is that there is not some central banker clown in charge more concerned with his reputation and subject to all the pressures that his peer group put upon him.

    Bitcoin is decentralised ie there is no central bank or organisation in charge. it is governed by its algorhythms. I avoid any coins that are not decentralised as they may be subject to central control by the issuer.

    Like Matt I started with Bitcoin and have diversified a bit. Litecoin has been very profitable for me. It is built on the same sort of protocols as Bitcoin but has already solved the scaling issue. It also seems to be somewhat of a hedge against BTC as it is a bit less volatile. Also a bit easier to buy in that it is only around £50 a coin.

    Finally in the light of the massive hack of Equifax (a perfect example of the problems of centralised holding of information) there is an altcoin which is tackling the whole problem of centrally controlled credit reputation and kyc management. It is called Civic.

    None of the above is in anyway or form advice, simply what I have observed. I am not of the computer generation and struggle to operate a smartphone. It is not that difficult to get into with a little persistence. I watch the Cryptoversity and Node Investor regular videos on Youtube which helps me learn.

    1. Thanks for the comment, and insight, Hugh. We’ll add this to the list of topics for discussion at our next syndicate p155up!

      Matt

  7. I just can’t get my head around Bitcoin at all. To take a really simple (theoretical) example. Lets say, at the very start of Bitcoin, four people invest in Bitcoin and they each buy one coin at £10 a coin. So the people running Bitcoin now hold £40 in actual currency. A month later, their algorithm has worked out that Bitcoin is now worth £12. If 3 of the original investors cash in at that price, there is now £4 left for the remaining investor.
    Someone mentioned the emperors new clothes and that’s exactly what I think of when I read things like “bitcoins are liberated when computers solve complex mathematical conundrums” – seriously, that creates value?

    There is also mention of there being a limit to the number of Bitcoins that will ever be produced (22 million), a limit that would appear to be fast approaching (16 million) already. What happens when the limit is reached? Does Bitcoin then remain the same value from there on? Obviously not, so what does actually happen? Does the price of a subscription to Geegeez, payable in Bitcoins, then rise in cost not based on the actual value of the service received but because an algorithm says so?

    Final thought, if Bitcoin is the way to go and the current practice of using sterling, dollar or whatever will become a thing of thing of the past, then why is it that the originators of every one of these crypto-currencies want you to make your initial purchase of them using sterling, dollar etc.?

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