Blockchain

Crypto winter?

| roger nunn

There are endless articles about the end of crypto and the total demise of Bitcoin.

The crypto market has always been subject to huge fluctuations compared to other markets, such as stocks. When the crypto market is rising the proponents all talk about its power and show off how much money they are making.

Crypto is based on an interesting development in cryptography that allows for a permanent record of events, the blockchain. This will continue to work and to be useful until such time as it is surpassed by another technology.

In the last couple of years we have had productivity and the worldwide markets severely affected by a pandemic and a European war. It’s not surprising that the crypto world has taken a hammering.

Don’t forget that Bitcoin is now around $20K and in 2018 it dropped to under 4K.

As to what happens next… People all want free money from the expected increase in value of crypto and are waiting for signs of a return to higher levels. If it happens it will be at someone’s cost. Holding crypto is a zero sum game until it is actually used for something that helps transactions.

So maybe we should start using crypto rather than speculating and hoping for free money.

Bitcoin fluctuations

| roger nunn

Bitcoin was the first widely known crypto currency. It has fluctuated a lot but overall has had an upward trajectory. It’s often quoted that had you bought a few thousand dollars worth 10 years ago you would now be rich. That idea is pointless as it’s always easy to be right in hindsight.

There are nearly 20,000,000 bitcoin so far, many of which are in the hands of a relatively few, the “whales”. This means that they can affect the price by buying and selling, collecting huge profits from those who buy in “fomoing” and then panic sell when the price dips.

I talk about only Bitcoin because the rest of the crypto market generally follows it up and down, even though other coins often make bigger gains (and losses) along the way.

I feel that the increasing level of knowledge and interest in the crypto market means the it is gradually maturing. It may be that the volatility is diminishing, thereby bringing bitcoin closer to its long term potential.

My thought is that it’s worth having some bitcoin even if you don’t believe in its future as then you don’t need hindsight.

Why write about Crypto

| roger nunn

I have been asked why I write about my own crypto adventures and why I don’t make videos, collect followers, and try to earn money.

I write down my thoughts as it helps me to clarify what I think about it. When I write, the action of having to put thoughts down empties my mind and stops me from thinking about it all the time.

Writing also helps me to see the development of crypto, to join in buying and selling, and not to get upset whenever t I don’t make any money.

It’s a new and rapidly developing industry, one that I am delighted to follow along with and to profit from sometimes.

If you find that my thoughts are helpful, then I am happy.

What’s next in crypto?

| roger nunn

No one knows the future, unless they control it. In crypto there are a number of parties battling for control of the technology and the wealth attached to it. A number of writers have compared the adoption of the blockchain to the adoption of the internet, with the fortunes that were lost and made.

As things are at the moment it seems that the use of the blockchain is increasing exponentially, with more and more uses appearing daily. The positive side of the development is the very high returns on investment for those who choose to invest in the winners.

Unfortunately, non-wealthy people like me cannot influence the market, nor can we easily guess what is going to succeed and what will fail. Right now we have had a huge drop (50%) in the value of Bitcoin with a corresponding drop in the value of the altcoins.

So what is the best strategy to follow. I prefer caution, which means minimising risks. So I continue to sell my coins when they have made a profit, and buy low. It’s difficult to decide, given that had I sold my hodlings a month ago I would have made more profit.

Could have! , Would have!, both ideas that rely on hindsight. So in keeping with the idea of caution, I have sold most of my holdings, taking profits on them.

I hope that we are in a bear market and intend to buy more in the Autumn, depending on whether or not there has been further drops. At least I am in profit now, even if the markets shoot up.

I have kept small amounts of some coins anyway, so even if there is a big rise in prices, I will still make profits.

Having said all that, it’s easier to make profits in a rising market, and I like it when all the charts are green.

Is crypto finished?

| roger nunn

Whenever Bitcoin changes value the rest of the crypto market reacts, usually mimicking Bitcoin’s moves. There are many opportunities to make money buy strategically buying and selling other coins, provided that you time their changes against the value of Bitcoin.

Bitcoin’s value dropped by half in the last couple of weeks, which brought out the doomsayers, with endless reports about the end of Bitcoin.

In reality it is a bit more complicated. Bitcoin was the first cryptocurrency and because of its inherent limitations in terms of speed, has morphed into a store of value rather than a useful tool.

The rest of the crypto world is developing quickly with new coins and tokens coming online all the time, most of which have specific use cases. The development of the crypto world is very competitive with their relative values changing constantly, as was the case for web based businesses in the early days of the internet.

So I believe that as the crypto market matures, there will be many opportunities to make money. However there will be many opportunities to lose money as well, which is why I have only invested money that I can afford to risk.

Now each Bitcoin is worth close to US$ 40k, taken by many to be a disaster. Many panicked and sold their holdings at a loss, a stupid thing to do and one that only exacerbated the situation.

At $40k, each bitcoin is worth about 4 times what it was a year ago, so profit is still the order of the day.

Anyway, I don’t like the current sideways movement of Bitcoin’s value as big fluctuations provide a better opportunity for me to buy and sell at a profit.

The ever expanding world of crypto

| roger nunn

I find that I only really understand something when I do it myself. This applies to all new things in life but at the moment I’m still trying to get my head around the constant development of crypto.

I have been trading cryptocurrencies, trying to get the feel of buying low and selling on the way up. Everything is converted to equivalent values in US $, making it easy to see when the value has risen. However, this ignores the problem of fluctuating value of the $, so it would be best to find something else to use as a baseline.

There is nothing that doesn’t fluctuate in value, so I just stick to the $, this is best until bitcoin stabilises, probably sometime in 2023.

My newest experiment is in looking at NFTs. Non Fungible Token. As I see it, the difference between an NFT and a Bitcoin is that each NFT is numbered and unique while bitcoin is seen as more generic. You can own (control) a bitcoin, but no one really cares which one it is.

To try to get my head around NFTs I decided to create a work of art and put it up for sale as an NFT. NFTs are built on the etherium blockchain so I had to work from an etherium wallet. I used Metamask.

I had to save the artwork (a sketch of a new type of car) onto the blockchain and put it up for sale on an online market place. It sounds easy and is fairly straightforward. However, nothing on the public blocckchain is free, so you have to pay (in gas, the payment system in etherium) for it. It is worth choosing the time of day as the price in gas depends on how busy the blockchain is at any moment.

Thats’s my first experience of NFTs, I will now experiment with making more and maybe selling some,

Who is in charge of Bitcoin?

| roger nunn

Please note that I’m writing this as a way of making sense of the world of cryptography and blockchains. I may write something that is incorrect, and when I do, please feel free to tell me that I have misunderstood the way it works.

I am using Bitcoin here as an example as it was the first successful attempt to create virtual money without a central authority. Before I started buying Bitcoin, I wanted to know who was in charge and who would I complain to if there was a problem.

It’s a question that many people ask.

The answer is, of course, not as simple as giving the name of an organisation. The code that is used to run Bitcoin is published and available to all. The way Bitcoin works is not important to understanding why there is no one organisation “in charge” of it.

Bitcoin relies on the feedback between multiple (thousands) of computers to verify the correctness of transactions that are put onto the blockchain. Once there is sufficient verification (called mining) measured by computing power, a block of transactions is added to the blockchain. The need for verification is the reason why transfers of Bitcoin are not immediate. Any transactions added to the chain that are not verified are subsequently ignored by the blockchain.

The use of computing power (proof of work) to verify transactions and to create new Bitcoin is why no one person is in charge of Bitcoin. It is possible to change the code and modify the way Bitcoin works but it would only be effective if accepted by more that 50% of the available computing power. There have been a number of cases where a group of miners wanted to change the way the code worked and started using the new code. This actually creates a second blockchain that duplicates the first one up to the point of the split.

It is called a hard fork, and it means that there are two blockchains. The reality of course is that the value of any coin depends on its acceptance and its use, something that is measured by the number of people who get involved in it. Anyone can take the code and create a clone of Bitcoin but if there are no users it is just code that runs on the maker’s computer.

So the person in charge of Bitcoin is both the persons who use it and the persons who mine it. The more people who use it, the more who believe in it and will pay for it. The higher the price the higher the rewards for the miners, meaning that’s it’s value is based on your belief in it (like fiat currencies).

Is there more than one Bitcoin?

| roger nunn

Most people have heard of Bitcoin and maybe that it was created in the wake of the financial crisis that started around 2007.

Bitcoin is now 12 years old, but it didn’t get much visibility (perhaps notoriety) until after 2013. The name Bitcoin is unfortunate as it gives the idea that there is a physical manifestation of the technology. However, as no better name was found everyone uses coins.

In the meantime the idea of basing value on the security of the blockchain spawned a multitude of other coins, like Etherium and Ripple. Bitcoin was seen to be insufficiently flexible to be used for contracts, so Etherium includes a form of programming that allows for “smart contracts”.

The existence of smart contracts has in turn spawned a large number of Tokens, which are payment transfers built on the Etherium blockchain using smart contract possibilites.

The number of new tokens expanded dramatically since the first bitcoin frenzy in 2017 and there are now over 5,000 of them. As the transfer of value on the blockchain requires keeping track of large numbers, there are now a multitude of software wallets make it easy to store and transfer crypto currencies. At the same time, there are a number of exchanges that are used as market-places to trade crypto.

Each of the paragraphs above gives just an idea of the subject matter, something that needs to be studied in depth just to get a feel of what crypto really is.

I often get asked how it can be real if it is just a string of numbers stored on a computer. Answering the question means studying the history of non-crypto currencies first and realising that even the “normal” currency that you have in your account is also only a string of numbers. The hardest point to understand is often that there is no central authority for Bitcoin, it is controlled by many thousands of computers around the world, all competing to maintain the system.

The real strength of Bitcoin is that there is no central authority and therefore no one to create inflation or to simply take money from your account.

Crypto use cases

| roger nunn

I like that we live in times of change, financial change I mean.

Throughout history we have had large changes, things that caused great upheaval in society and industry. Major changes include the invention of the steam engine and all the industrialisation it brought, the the invention of the internal combustion engine and airplanes. These brought huge changes in wealth and working practices. The biggest change was the development of computers and most recently the proliferation of the internet to the current stage of being in everyone’s pocket.

Now we are on the cusp of the biggest and most disruptive change of all, being the replacement of paper money issued by governments with a store of wealth that is independent of national borders and specific currencies.

I am fascinated and look forward to the developments that are on the way, disruptive as they will certainly be.

The blockchain based coins and tokens are the first wave of change. Already, I find that the transfer of money (fiat money) through banks feels as though it should be abandoned for being so slow, expensive and inefficient.

Already there are financial instruments based on Bitcoin, Etherium and other coins. I can transfer value between different organisations in a matter of minutes and start earning interest that is paid in a cryptocurrency.

At the time of writing, Jan 2021, banks are now planning to pay negative interest rates. In normal language that means that you have to pay a fee to keep your money in the bank. My crypto coins pay me interest (daily) and are currently increasing in value.

In the long run I expect the coins to more or less stabilise in value, something the official currencies have never been able to do. Bitcoin has been constructed so that there is no potential for inflation, something that is so good at the moment that even large organisations have started to buy it to avoid the inevitable inflation that will follow the current huge increases in liquidity.

So, my thought for today is that simply by buying some bitcoin I have stopped inflation from eroding the buying power of my money. It is called Hodling, a work coined by a typo.

This is one use of crypto, there are many more that I will talk about, there are others that I know little about and others still being developed. Exciting times!