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A Bitcoin Hard Fork is Coming and Creating New Money With It

July 30, 2017
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On August 1st, Bitcoin will fork into two different currencies. That’s because a significant group of developers and miners believe that the Bitcoin protocol needs an upgrade in order to scale. Not everyone agrees so the chain is splitting in two. Since a split chain will share the same history, anyone who owns Bitcoin on one chain will automatically own the same amount of Bitcoin on the other chain. To avoid confusion, Bitcoins on the new chain will be called Bitcoin Cash.

You can think of this fork as a stock split except that Bitcoin & the new Bitcoin Cash will have a different value and future. An original Bitcoin at present has a value of about $2,700 per coin. Bitcoin Cash will likely be worth less.

If you store your Bitcoins on an exchange, you could actually miss out on getting your Bitcoin Cash. Coinbase, for example, an exchange based in San Francisco, said that its users will not be able to access Bitcoin Cash. In a letter they sent out to customers last week, they advised customers withdraw funds before the fork if they hope to benefit from Bitcoin Cash.

Dear Coinbase Customer,

We wanted to provide an update on proposed changes to the Bitcoin network and what that means for bitcoin stored on Coinbase. You can read more about what a digital currency fork is https://blog.coinbase.com/what-is-a-bitcoin-fork-cba07fe73ef1.

Our first priority is the safety of customer funds. In the event of a fork, customer fiat currency (USD, EUR and GBP) and digital currencies (bitcoin, ether and litecoin) are safe.

On August 1st, 2017 there is a proposal to make changes to the bitcoin software. This proposal, known as Bitcoin Cash, is likely to create a fork in the Bitcoin network. This means that after August 1st, 2017 there are likely to be two versions of the Bitcoin blockchain and two separate digital currencies.

In the event of two separate blockchains after August 1, 2017 we will only support one version. We have no plans to support the Bitcoin Cash fork. We have made this decision because it is hard to predict how long the alternative version of bitcoin will survive and if Bitcoin Cash will have future market value.

This means if there are two separate digital currencies – bitcoin (BTC) and bitcoin cash (BCC) – customers with Bitcoin stored on Coinbase will only have access to the current version of bitcoin we support (BTC). Customers will not have access to, or be able to withdraw, bitcoin cash (BCC).

Customers who wish to access both bitcoin (BTC) and bitcoin cash (BCC) need to withdraw bitcoin stored on Coinbase before 11.59 pm PT July 31, 2017. If you do not wish to access bitcoin cash (BCC) then no action is required.

We plan to temporarily suspend bitcoin buy / sells, deposits and withdrawals on August 1, 2017 as the fork is likely to cause disruption to the bitcoin network. This means your funds will be safe but you will be unable to access your bitcoin (BTC) for a short period of time.

We will keep you updated on this event through our blog, status page and Twitter.

Thank you,

Coinbase Team

If you are one of the few people in the alternative finance community who has still never owned, bought, or sold something with Bitcoin, Coinbase is a good place to start. They are fully licensed in New York State. Sign up here.

deBanked has accepted Bitcoin as a form of payment since 2014.

The value of a Bitcoin is up 63% year-to-date, according to the deBanked Tracker, while the S&P 500 is only up 10%.

Bitcoin: The Sky’s the Limit?

May 26, 2017
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BitcoinInvestors, merchants and miners all watched as bitcoin’s price ran up knocking on the door of the $2,800 level. The digital currency has climbed nearly 50 percent in the past week and by triple digits in 2017, evoking emotions ranging from euphoria to fear that a bubble is among us.

And while the price has pulled back some, underscoring the volatility that’s attached to the digital currency, bitcoin continues to attract the spotlight.

“The sense I’m getting generally is excitement, the sky’s the limit kind of feeling. I think there’s also some nervousness. Personally, this looks like a bubble. Whenever you see something go up this quickly, the fear is that what goes up must come down,” said Joshua Rosenblatt, an attorney at Frost Brown Todd.

The stratospheric rise in the bitcoin price has been attributed to several factors, not the least of which includes increased demand from a wider audience.

“I think people are starting to realize that these digital assets like bitcoin are good for several different purposes, they’re versatile. There’s a whole industry built on top of them and to gain access to the industry you need to have access to cryptocurrencies like bitcoin,” said Rosenblatt, who also personally invests in cryptocurrency.

Meanwhile DoubleLine Capital chief executive Jeffrey Gundlach hints toward a flight to safety in Asia as the catalyst for the spike in bitcoin. He recently tweeted:

“Bitcoin up 100% in under 2 months. Shanghai down almost 10% same timeframe, compared to most global stocks up. Probably not a coincidence!” – Jeffrey Gundlach on Twitter.

Indeed Rosenblatt agrees that in markets where access to capital or movement of capital is difficult, cryptocurrencies are a great alternative.

Zcash bitcoin“A lot of people who missed the 2013 bitcoin bubble want in on this one. Also there is a lot of institutional money moving in for the first time. Interest in cryptocurrencies as an alternative to government issued currencies is [advancing] especially in Asia, South America and Africa, places where banking is hard or government intervention is high. Bitcoin at its core is excellent for the unbanked,” Rosenblatt told deBanked.

Rosenblatt’s clients are comprised of startups with products in the cryptocurrency space and funds that invest in this segment. He and the firm’s 15-person cryptocurrency team are devoting an increasing amount of time to clients in this space. “It’s most of what I do at this point,” he said.

Meanwhile, Frost Brown Todd, the firm at which Rosenblatt is employed, is similarly lifting its profile in the cryptocurrency space, evidenced by the firm’s recent launch of a smart-contract app for software escrow agreements.

“We believe smart contracts are going to change the way the law is practiced and we want to be on the bleeding edge of that. In our part of America there are not a lot of people focusing on it. We’re in a unique spot,” said Rosenblatt of the Midwestern-based law firm.

What Next?

The question on everybody’s minds is the same – where does bitcoin go from here? The expectations appear different depending on who you ask.

Kevin O’Leary, O’Shares ETF chairman, recently told CNBC he wished the SEC had approved a bitcoin ETF so he could take a short position in the fund.

And while Rosenblatt acknowledges signs of a bubble forming, he’s not going anywhere. “I’m still very excited about what the space has to offer over the medium and long term. The way I look at it, I’m in it for the long run,” he said, he said, adding that he is hopeful in the next year there will be companies starting to mature into revenue generating businesses with scale.

Bitcoin-based P2P Lending Platform BitLendingClub Shuts Down

December 2, 2016
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BitLendingClub (not to be confused with Lending Club) has shut down their bitcoin-based p2p lending platform, citing regulatory pressure. A message posted on their website says, “over the last year or so, the regulatory pressures has been increasing to the point that it is no longer feasible to maintain the operation of the platform. We are regretfully announcing that we will have to begin terminating the services effective immediately.”

BitLendingClub received a $200,000 seed investment from European VC fund LAUNCHub just two years ago. The company changed its name to LoanBase in September 2015 but then changed it back only a few months ago.

This was no small experiment either. Kiril Gantchev, BitLendingClub’s CEO, claims on his LinkedIn profile that the company made more than 10,000 loans worth more than $8 million dollars, originating from 90 countries. The company’s website claims an average APR of 192% and a default rate of nearly 12%.

In March however, the company stopped lending to people in several countries including Iran, Ireland and Nigeria due to elevated fraudulent activity.

It’s unclear what “regulatory pressures” caused them to shut down but the company appears to have been operating from San Francisco despite originally incorporating in Bulgaria. A search for a California lending license connected to them yielded no results. After the US, the country with the 2nd most borrowers on the platform was Venezuela followed by Brazil, the UK and India.

“Investors should understand the risks involved when making bitcoin loans,” their website warned. “The main risks are default and failure to collect.” they added.

“Bitcoin Lending As a Concept Has Problems”

March 4, 2016
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Brett ScottAs the trillion dollar alternative lending market expands, it is bringing into its fold newfangled and unproven investing practices like bitcoin lending. While bitcoin lending upstarts like LoanBase, BTCJam, Bitbond woo investors with attractive returns and push its cause for a diversified portfolio,  researcher Brett Scott who studies economic systems is less convinced that bitcoin as an alternative currency will save the day. In his paper for the United Nations, Scott argues that it will still be a while until it brings about actual change in terms of financial inclusion and development.

deBanked spoke to Scott about bitcoin lending and its deficiencies as a loan product. Here are the excerpts from the email interview.

On Bitcoin lending

Bitcoin lending could be very positive in principle but in practice, though, the concept still has many problems. Firstly, Bitcoin is not anchored into any national economy. A currency like the Pound is legal tender in a particular geographical area and is widely accepted by everyone within that geographical area. Indeed, if a person in Britain wants to take part in the economy they pretty much have to use the Pound, and if they don’t they will face exclusion. Bitcoin is not like this. It might be accepted but it is not required to be accepted, and a person who doesn’t accept it doesn’t face exclusion from the economy. Thus, while I can buy certain types of goods with Bitcoin – like Pizza at the Pembury Tavern in London – it is not guaranteed to command goods and services anywhere.

On Bitcoin for business needs

This is a problem if you’re borrowing Bitcoin to start a business. If you’re borrowing money, you ideally want the money to be useful for buying a wide range of goods and services that will then enable you to start the business, and you then use your business to earn money with which to pay the loan back. If I get a Bitcoin loan, I’m probably going to struggle to use it to buy all the things I need to start a business – can I buy a computer, for example, or a scooter for delivering goods?

On unstable purchasing power

Also, Bitcoin is unstable in its purchasing power. If you are borrowing money, you want to have some degree of certainty as to what amount of goods and services that money will be able to purchase. I don’t want to get the loan thinking it will be enough to cover three months of business operations, and then discover than it can only cover two months of operations.

On Bitcoin and currency conversion

While businesses might borrow in Bitcoin, it will normally be earning income in a normal national currency. This poses a currency conversion risk in which your assets produce income that is in a different currency to the one required to pay off your liabilities. One response to this is just to accept the risk that the value of the currency your income is in doesn’t depreciate relative to Bitcoin. This basically means that you’re doing currency trading in addition to trying to focus on your core business though. Your business success really should be based on how well you run your operations, rather than how lucky you are about changes in currency values.

Big corporations that operate in multiple countries using multiple currencies deal with this by entering into currency derivative contracts with big investment banks, in which they hedge their currency risk, but right now there is not a well-developed market in Bitcoin currency derivatives. This doesn’t mean such a market won’t develop, but it will take some time still.

One alternative to this is to structure the Bitcoin loan in such a way that it is tied or pegged to a national currency, such that the amount of Bitcoin you have to pay back adjusts depending on how the value of Bitcoin changes. You’re going to have to convince the person that is giving the loan that this is a good arrangement though.

On pegging bitcoin to another currency

Both the lender and the borrower might think of the Bitcoin system as more of payments system instead of a currency in itself. Thus, someone in Britain might want to lend £10 000 to someone in India, so they take £10 000 and use it to buy Bitcoin on a Bitcoin exchange, then they send that Bitcoin to the person in India, who immediately sells it on an exchange for 945000 Rupees.

Furthermore, the person who is lending prices the loan in Pounds rather than Bitcoin. What has essentially happened here is that the loan is really in Pounds but the Bitcoin system was used as a way to transfer it into Rupees, rather than using the normal bank payments system to do that. Then, when the person wants to send interest payments back, they use Rupees to buy Bitcoin and send the Bitcoin to the UK person, who immediately uses it to buy Pounds. It’s possible that this – somewhat elaborate – process might end up being cheaper than using the normal international payments system, but you’d need to investigate that further.

The Bitcoin Mining IPO Didn’t Go So Well

February 3, 2016
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Bitcoin MiningMuch ado about nothing?

Despite the long drawn endeavor, the world’s first bitcoin mining IPO was lackluster. Australia’s The Bitcoin Group, a bitcoin mining company raised $4.2 million (5.9 million Australian dollars) falling short of the targeted $14 million (20 million Australian dollars)

The Melbourne-based company was founded in September 2014 with plans to pursue an IPO a month later. The founders Sam Lee, Allan Guo and Ryan Xu started Bitcoin Group as a cryptocurrency arbitrage service, but soon turned their attention to mining bitcoins as the main business.

However, the IPO plans did not pan out as expected after the Australian Securities and Investments Commission banned the company for trying to garner investor interest on social media before filing the prospectus and placing two more stop orders on the IPO in July.

The Bitcoin Group was finally cleared to list on the Australian Securities Exchange in January this year after a third unsuccessful attempt of listing in November last year. The stock ‘BCG’ was scheduled to begin trading on February 2nd and received an underwhelming response from the market. As of now, it still hasn’t actually been listed.

All the setbacks however did not dampen the founders’ spirit — CEO Sam Lee called the IPO a “solid result” and told CNBC that it was sufficient for the company to focus on expansion by acquiring new mining equipment.

Bet On the Iowa Caucus and Political Primaries With Bitcoins

January 31, 2016
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bitcoinI’m often asked if bitcoin still has a future or if it’s dead. As someone who has mined bitcoins, made purchases with them, sold advertising space with them, traded them, and contributed to political campaigns with them, I feel pretty confident that bitcoins are here to stay. While the system isn’t as anonymous as some people believe, bitcoin fills a void that many people the world over have long sought, a way to move money outside the banking system, and all without a replacement form of centralized control. It is the only way to truly de-bank.

The value is volatile but there are several markets where such volatility is the cost of doing business. Would you rather your bitcoins be worth 5% less when you receive them as payment or would you rather get nothing of what you are owed because the traditional banking system is preventing the transaction?

Enter one black market, betting on US elections, a practice that is largely illegal. And if people could bet on it they would, according to odds maker Jimmy Vaccaro at the South Point Casino in Las Vegas. He told CNN that opening up betting on elections would be the biggest thing they’d ever booked. “It would make the Super Bowl look like a high school football game,” he reportedly said.

But you can still bet on elections if you really want to, according to Market Watch’s Brett Arends. In the name of journalism, Arends successfully bet $1 on the Iowa Caucus… using bitcoins. He bet on Rand Paul with 40 to 1 odds. If he wins, he’ll collect those winnings in bitcoins.

And nobody can stop him.

As an independent system controlled by nobody, there are no bank accounts to freeze, ACH processors to shut down or physical dollars to confiscate. And despite the critics that claim bitcoins have to be converted to a “real” currency at some point in order to realize the value, that’s not necessarily true. You can live your life on bitcoin.

For one bookmaker (and you should view it as a reference only), the odds of a Ted Cruz win in the Iowa caucus is 2.6 to 1. Marco Rubio is paying 10.5 to 1. On the Democrat side, Bernie Sanders is paying 2.92 to 1.

Market Watch’s Arends argues that such activity might not be gambling at all since the IRS ruled bitcoin to be property, not a currency. In his simplistic view, they might as well be digital jelly beans. “When I wagered $1 worth of bitcoins on Sen. Paul last week, in the eyes of the law I wasn’t actually betting real money. I was just betting jelly beans,” he wrote.

You can of course buy cool stuff with those jelly beans.

It’s quite gray indeed, but if the interest in political gambling truly dwarfs the Super Bowl, then a totally bank-less decentralized system opens up all kinds of doors, the kind that don’t want to be closed.

In non-bank finance, a topic I often write about, all roads inevitably lead back to banks, no matter how much the system is disrupted. The truly de-banked use bitcoins and with that, the possibilities with it are endless.

Would you bet on Bernie Sanders with 2.92 to 1 odds? You’re not supposed to be able to do it, but in a bankless world, you could.

Rand Paul Speaks at Bitcoin Event

April 20, 2015
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Yesterday, Senator Rand Paul spoke at a private Bitcoin event produced by Blockchain Technologies Corp in Midtown Manhattan. It was a gathering of monetary technophiles dressed in their Sunday best.

Paul’s main reason for supporting the Bitcoin movement/technology/currency was the ability to bypass the expensive fees tacked on by credit and debit card issuers. A business that only had a 3 or 4% profit margin could double its profits by eliminating merchant processing fees, he said.

The event lasted for about two hours with Paul only making an appearance for about 15 to 20 minutes.

Read an expanded summary of the event on coinsetter.

Rand Paul Accepts Bitcoin

April 7, 2015
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rand paul bitcoinBitcoin’s got a real fan! Senator Rand Paul is now accepting bitcoin as one way to attract donations for his presidential campaign. And regardless of whether or not you agree with his views, I did at the very least make a donation on the basis that I am a believer in bitcoin.

Donating to Paul’s campaign by bitcoin is one of three payment options. The other two are credit card and paypal. He is able to accept bitcoin via BitPay, a company I just mentioned a few days ago.

How would I describe the experience of donating to Rand Paul for president using bitcoin?

Insanely simple!

By law, Paul will have to convert any bitcoins received into dollars before using them. Too bad…

bitcoin