Archive for April, 2013

Bitcoin, Bounce, Bounce

About two weeks ago I had a go around with Mt.Gox and complained they did not have enough personnel to do their work. I was just angry that they were so slow. Then April 10th the whole thing caved in on them. They became completely overloaded  because of the influx of new accounts.

My span of detail has also collapsed. Must slow my thinking down to get this straight,  Here you have a  funnel with three heads. One is the inbound new accounts. The second is inbound money and the third is the exchange of cash of all kinds for bitcoins. The out flow is somewhat easier. Plus you can move Bitcoin from your Mt.Gox account to your personal wallet, with ease. But the new account process was difficult. Not in altogether, but it wanted a picture ID and then a proof of address. Now this data was coming in from all over the world. Each had to be verified, before an account was open. When they reached 20,000 new accounts a day, they could not keep up. And this was not even the money side where the Bitcoin were exchanged.

The amount of exchange also began to exceed their capability to exchange. The system slowed down. Here was the point that caused people to panic. Bitcoin is too new to be really trusted as a currency. When people could not get their money as they needed it (they expected fast), they began to pull their money out. When the big money began to withdraw, the system of Bitcoin went into a spiral. This was new to them. Mt. Gox did not have enough servers and personal to accomplish what was needed. Thus, the system had to be halted to allow a cool off period and for Mt. Gox to regroup. Mt. Gox needs a lot more of everything. But the system needs more exchanges similar or better than Mt. Gox, and then when one has a problem, the system does not have to stop. The World Banks that  supply money to the user banks are many. This is what needs to happen to Bitcoin. Except that the Governmental control of the Money supplies all over the world become a problem. A Government needs more money, it just prints more. But this process is just watering down the total amount of dollars, Yen or Euro. Bitcoin has a specific goal as to amount, and supply. The values is market driven.

Because a Bitcoin can not be reproduced or replicated, the amount of Bitcoins is fixed. They are aware that some will be lost and some will become unavailable in lost wallets, but this is also built into the system. The plan is there will be Bitcoins mined (made) until the year 2021. There will be a fixed amount. All this is at Bitcoin.org. The system also expected that there would be more exchanges. Here is a rub. Mt. Gox is located where the Bitcoin was derived, Tokyo, Japan. As a bank it had a head start on other exchanges. Thus early on it gained an 80% portion of the US market and 70% of the World exchange trades. That means it has exchanged over two Billion dollars in Bitcoins todate.  This rate was small for a couple of years, but then things got out of hand. The total of two billion dollars was reached just a short time ago, but this is becoming an exponential event. The amount of funds build up is speeding up, as is the number of people in the market. Add all this together, and you have the potential for what happened on the 10th.

Mt. Gox and the Bitcoin Foundation called a halt to trading, they said to let things cool off. It also gave Mt. Gox the time to bring more servers and new programs on line. This may have been a needed rest for Mt. Gox, but there is still a need for other exchanges. CoinLab is coming on line in the US, but it is just an extension of Mt. Gox. There needs to be exchanges in several large cities of the world, and hopefully more are on the way. In turn, there needs to be links to the  overall system that keeps track of the Bitcoin and monitors its value.

It is not well defined at this time what and how the value is derived and who is monitor. To be a true world driven system it needs to include all the world. Next there needs to be ways to cover an exchange that is down. Even if its computers are down, the other exchanges must provide cover for the system. Maybe some exchanges will fail. Next the operation and protection of all computers in the system needs to become a prime concern. If someone wants to disrupt the system to cause a sell off which benefits it and then a re-buy that also benefits that company or group, then the system needs a way to prevent such action. Of course the ID and Location that Mt.Gox does is supposed to justify the exchanging person or group. It seems that it can be breached. Thus Bitcoin may also need its own police force, to track crooks world wide who might try to mess with the system. A large group of exchanges is better for preventing a sell off. The system needs more stability because it concerns more than just making money. One exchange can be stopped, but maybe not the whole world of exchanges. But people will have their whole lives savings in the system that must be protected. It can not be like the stock market, where you can be wiped out by the powerful money grubbers.

Individual integrity may be a difficult process. The US is already requiring the collection of more information on exchange users in the US. This takes away some of the freedom that Bitcoin users have sought. It will be interesting to see how this situation resolves. The government says it is to stop money laundering but this government has been known to lie before, It is not hard to take a name and match it with IRS data and know everything about that anonymous  person who was able to conduct business without all the world tracking him. When the name is added to the transaction, then anyone can track both the individual and the transaction. It may sound like I do not understand what is going on, but this is an evolving system and I am only an observer. What I have described here may be only a portion of what really happened and what is going on.

One comment said that this was too difficult to understand and they would never be able to use it. To that I say, if you can use the internet, it is not too difficult. The start is to have your own wallet. A wallet is a secure place to keep your Bitcoin. Like the wallet you carry your money in, but it is digital. You can download your wallet to a disk or memory stick, and it is protected by a password. That password is very important. Also your wallet will have a very long name which is only yours. The blockchain system will not allow duplicate wallets. Your will also have a user name that is used like a email. Money/Bitcoin can be sent to your user name or your wallet address. My wallet address is so long that I have not memorized it. I have it available, so that I can used it by copying it. I also have it on a memory stick, so I can take it with me. Before long, you will be able to use Bitcoin anywhere. It will be needed. Maybe you will carry it on your phone. So you have to remember your password and your user name. You have to keep your address where you can use it. In the wallet is your Bitcoin and your actual wallet register number. It is always in your wallet, so you do not have to remember it, nor do you give it out. Someone else could take your money. This makes you password, important like your on pocket wallet. Protect it.

I have explained how to buy Bitcoin in other places. To use it you enter the amount of money at an e-commerce site, your wallet address. The e-commerce site will have the vendor’s address. Press enter, and the money is transferred. You will almost instantly see a decrease in your wallet. Thus you have made a purchase. The vendor can not do this from his end, only you can make the transfer, thus it is very safe.

A few comments on the sell off on April 10, 2013. Did the Bitcoin bubble burst? No, there was a correction and the value fell to just below $70. Today it is above $100 and has  been as high as $130. Thus it is still stabilizing. This adjustment will go on for days. There will be more adjustments, but the system will evolve to control these adjustments.

Will Bitcoin become the money of the world? We will have to wait and see. It has gained enough importance that it is being reported on TV. One article that I have read was very good, but it did show that they have not read enough on mining to really understand what a Bitcoin is. When a miner takes the Block of Bitcoin provided to it by the Bitcoin Foundation he uses his encryption ability and several computers to spin a digital coin that can not be duplicated. It is encrypted so many times that it is impossible to unravel. That miner is then able to follow his coin and all its transactions. He does not know who is using it or where, but he does know the amount of each transaction and he is able to insure there are no duplicate uses. Thus the Strength of Bitcoin.  More to come.

Comments (779)

The Edge, A Great or Bad Day, Money to be Made, Oh Dear, Oh Dear!

This week end the site went over 230,000 approved comments and was close to 260,000 total comments. Bitcoin is edging toward $200 and the Stock Market is poised! Being both conservative and an optimist causes me to sometimes be at a funny point. I will liken it to being on the edge at the Pali in Hawaii. The wend rushes up the cliff and the wind blows to your back. You are being pushed off the cliff by the wind, but you find that you can not fall for the wind is blowing up with such force, that you can actually lean out over the cliff and not fall. For some the courage required is like that of the toreador but for others it is easy.

Today the winds at our back are an over bought stock market, an ever weakening dollar, inflation and unemployment that are very grossly stated by our government, a weak foreign policy and a governments in North Korea, Iran and Syria that are totally crazy. The winds rushing up the face of the cliff are the strength of Big Oil and Gas, A crazy stock market, the new Bitcoin and the undying American Idea that we can not fail. Are the winds coming up the cliff strong enough to sustain our weight leaning out over the cliff. Will anyone of them falter. Oil and Gas are being inhibited by our government, the stock market is crazy, Bitcoin is new and may just be a safety net, and the American Idea has never been tested in this way.

So what is Obama doing. Is he destroying the American Way? Does his idea of an Islamic Socialism fit what we Americans believe? Can America survive? I will answer that right out. Yes we will survive, but we will be like the prize fighter who had a hard fight. We will be badly marred, but we will survive. What will be the cost? The last President to bet the lives of our countrymen was Lincoln. He felt that he could afford to spend a great number of Americans to save our Union. We all know that the 750,000 or more that died were to many. But when you push a population that is unprepared for famine and a destroyed dollar, it is very possible to go over that figure an approach a total dead of far greater than one million. That will put Obama up there with Genghis Khan, Stalin, Mao and Hitler. First will be the food riots, then troop control, than personal starvation and then revolution. Each will contribute to the total deaths. People died in the 30’s from starvation. They died over time in Appalachia and other places because of National neglect, and to some extent the general population still does not care. They will begin to care when the food riots and dollar failure occur. Then we will see everyone care, but they will be unable to do anything about it. The Government is buying food and ammunition, but not at a rate that will sustain the whole population. Maybe they will have enough bullets to start a revolution, but will they have enough to sustain it and win.

Here, is the one thing that seems to be causing Obama to move with more caution than he desires.  We are an armed population. No other country has been so armed, but also none have been so utterly confused by its government. Our children have been taught green and socialism. Their parents knew patriotism and sacrifice. One thing we do know. Many children love their parents and believe what their parents teach them. The armed population and enough young members that can sustain a war, are a big determent to a despot.  That map of the last election, which showed the major population centers as red and the rural as blue also show the areas where there are food and where there is not food. Food growth is rural. Guns are greatly rural, especially long guns such as rifles.  Also most of the resources come from  rural areas. Gas, oil, electricity, mining all occur in rural areas. With out these resources a city quickly grinds to a halt. The population will also halt and look for food. If they can barter, they will. If not they will try to take by force. Here is the rub for Obama. Can he control this battle, or he just hunker down and wait it out hoping to takeover in the ensuing confusion.  I do not think he will go for an all out fight, for he does not have the full support of the Military against the civilian population. What he does control is the Unions, Acorn, and several agencies that he has manned and armed. Add to this the gangs and rift raft that will fight for food, and he has an Army of sort. If he can contain the Military and fight and in-house fight he will.

We are not a Nation at war, yet. We are a Nation on that brink that I have described. The dollar is sick and will not survive, except should Obama go back on his word and unleash Big Oil and Gas. In that case, the dollar might rebound. It would almost be like backing the dollar with gold. The President will not back Big Oil. He may try to back it without looking like he is backing it. This will give him more time. Without some oil, the economy will falter and stop. There will be food riots and a great loss of the items that people need to survive. With that will come loss of life. Especially among the old. Both the weak and the very old will quickly perish. Next to go are those who are not able to protect themselves, and who have not prepared at all. They will loose their food and the government will run out of food.

Now it will get interesting. Obama has armed himself with the documents so that he can seize any and all stored foods. That means yours, prep-per. He will send out the Union, Acorn along with his special armed government officials and they will take food to feed the population. Of course it will not be enough. He will seize all food farms and areas where fish and other eatable items are found. This will be a tenuous time. The Military will be doing crowd control and general population safety. They will not be protecting you from these thugs. Then it comes to how quickly the population in rural areas can organize. Which side will Sheriff’s come down on. I assume they will side with the local people. Will they become the basis of the urban military. Next who will the Military side with, or will like in the Civil War, will it split and become the basis for both Armies. The same way it inhibited Lincoln, this will inhibit Obama. He will not have the full support of the Military like he does outside the borders.

We the people, in order to establish and maintain, so those words went. Of course we the rural population can use the Constitution as written. Our Government is not using it. I would like to see some areas strengthened.  We need stronger wording in the Judicial side concerning the protection of all. One side would never be protected over the whole population. Nor would the whole be protected over the small group.  It is supposed to be that way now, but any group can complain and automatically cause a shut down of the other side. The Blacks say that they will not allow the Confederate Battle Flag because it denotes slavery and hatred. Now we all know that the attributes denoted are the concerns of people and not flags, but they still stop the use of the flag. Other stupidity is that over church and state. No where in the constitution does it state that there is a separation of church and state. It does say that the government will make no laws. Obama has interpreted that to mean that he can make rules for the common good. So he says, the church will provide certain protections against disease and pregnancy the latter being strictly against church rules. This is under advisement of the court and may be changed, but in fact, it is a bad practice to force the church against its ordinances. We have both interested parties and lawyers, that can figure this out, but we must fix something that can be changed in court by any and every crackpot that comes along.

Do I sound like a Revolutionary? Of course I do. But I am not. I do not want our country to go through this, but our President is bent on destroying our constitution and the way we live. I can not tolerate that.  If what I described is what will happen, so be it. I do not doubt, that in the long run, the rural will win. The cities will dwindle down till few are left. We will be eating and surviving in the rural areas. Long live the farmer! He along with the gun owner is the ultimate patriot.

Comments (381)