What is Bitcoin Mining and How Does it Work? (2020 Updated)
What is Bitcoin Mining and How Does it Work? (2020 Updated)
Difficulty - Bitcoin Wiki
Ethereum Difficulty Chart CoinWarz
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What is Share and the Share Difficulty When You Are Mining ...
100 Reasons to Buy Bitcoin
Bitcoin is the most censorship resistant money in the world.
You don't have to buy a “whole” bitcoin so don't freak out if you look at the price. You can buy a piece of one no problem.
The Dallas Mavericks accept Bitcoin on their website. You don't trust Mark Cuban. He's the best shark.
Bitcoin is the best performing asset of the last decade (better than S&P500).
Diversify your current portfolio.
It's not illegal in the USA.
You holding just one satoshi slightly limits the supply and can rise the price for everyone else.
[In late 2019] hash rate is the highest it has ever been
Suicide insurance; if Bitcoin rises in price there is no worse feeling than regret.
Some of the smartest people in computer science and cryptography are working on it. Trust nerds.
Look at the all time historical chart. No technical analysis just tell me what you think when you look at it.
Money is a belief system... and I want to believe.
Transparent ledger, no funny business going on it's easy to audit.
Elon Musk appears to be a fan. How's that for an appeal to authority
There is a fixed limit in the number of bitcoins that will exist. 21 million bitcoin, 7 billion people on earth. Do the math.
There are so many examples of governments inflating their currency to the point where it becomes unusable. Read the wikipedia page for Venezuela or Zimbabwe.
Altcoins make sacrifices in either security or centralization. There are altcoins out there that claim to be innovating but just check the scoreboard nothing has flipped Bitcoin in market value or even gotten close.
With technology developing at a rate faster than law, governments and for-profit businesses have the ability to monitor our purchases, location, our habits, and all of this has happened without consent. People made jokes and conspiracy theory, but sometimes conspiracy is real. Most people are good, but there is absolutely evil out there. There are absolutely evil people in positions of power. There are absolutely evil people that work together in positions of power. Does anyone actually believe that Jeffrey Epstein committed suicide. Go read about Leslie Wexner. Go read the cypherpunk manifesto.
The upcoming halvening in 2020 will reduce the number of Bitcoin created in each block, making them more scarce, and if history repeats more valuable.
Bitcoin has lower fees than traditional banking.
Gold has the advantage of being a physical thing. But unlike gold you know Bitcoin is not forged, or mixed with another metal, and you can easily break it into tiny pieces and send it over the internet to someone.
Bitcoin could spark new interests maybe you start to read more into economics, computer science, or Brock Pierce.
Bitcoin has survived with no leader, marketing team, public relations, or legal team.
Because Wired magazine said Bitcoin was dead at $2, Forbes said it was dead at $15, NY Times at $208, and CNN at $333.
Just do a cost benefit analysis. What happens if Bitcoin fails and it goes to zero vs. what happens if it succeeds, and becomes world money.
Bitcoin encourages long term thinking, planning, saving. Due to inflation we are punished by holding on to cash. Look up the statistics on the average savings account while we are bombarded with consumerist bullshit like Funko pop heads, Loot crate subscription services, and new syrup flavors for coffee. Currently we are encouraged to spend now, seek immediate gratification, and ignore what we are becoming as Amazon picks out our clothes and toothpaste ships it to the house and we sit and watch streaming services where content is pushed to us and I'm supposed to buy that this garbage is actually “trending”. Our lives have become so comfortable that idiots spend $60 to escape a room and have someone take your picture when you get out. What would our ancestors think.
Maybe you're a day trader looking to use a trading bot in an unregulated market.
Bitcoin has 7 letters in it. Lucky number 7.....
Bitcoin promises to bank the unbanked, and provide services to those not otherwise “qualified” to open a bank account.
It's just cool, don't you want to seem smart to all your friends.
The origin story is so nuts there's going to be a movie or several movies about the early days of Bitcoin. Satoshi Nakamoto remains anonymous to this day. Imagine if the inventor of the cell phone was anonymous.
If you have money to burn, don't buy soda, weed, or some girls private snapchat it's a dead end put it towards Bitcoin and give it to your child in the future.
To avoid getting ripped off by foreign exchange fees just because you were born one place and your friends were born in another place.
Can't live off the grid in your log cabin and still use Mastercard. Bitcoin is one piece of opting out.
If one country adopts BTC as the national currency, it doesn't take much thought to realise that others will follow.
Join a welcoming and unique community. Everyone is super nice because they want your money.
You can stick it to the baby boomers.
You can stick it to the vegans.
You can stick it Roger Ver.
Maybe your IQ is 70 and you'll do whatever CNBC Fast Money recommends.
Maybe a hacker infects your computer, records you doing that thing, and threatens to release the tape if you do not pay them 1.5 Bitcoin.
You're a risk taker looking for some risky investment.
Aliens attack like Independence Day, blow up major cities in major countries, your money is still safe with Bitcoin. As long as there is a some guy, some person, living on an island with a copy of the ledger out there on your'e good. We're all good.
Many proposals to scale the number of transactions, may the best plan win.
One day you might have to use BTC to pay taxes, buy food, and charge your Tesla.
You want to support a political group and remain private.
You can trust math more than you can trust people to set an emission rate.
Government don't know how much you have.
The first response to Bitcoin being published by Hal Finney stated that Bitcoin was positioned to reach million dollar valuation. Hal was the first bull and passed away in 2014, missing a lot #doitforHal.
Baddies can't freeze your money if they mad at you.
The Big Bang Theory mentioned it, maybe you want to be like Sheldon the bazinga guy.
Be contrarian. In a world where everyone zigs it's sometimes good to zag.
Don't have any hobbies, and you just need a reason to get up in the morning.
Enjoy learning? Bitcoin is a topic where there is so much to learn, and so much development, that it really becomes a never ending journey. For someone who likes learning, it's more productive than speedrunning a video game.
Yolo. You only live once. This isn't a dress rehearsal, if there's something your kind of interested in pursue it. That's true for anything not just Bitcoin. But if you're reading this I'm assuming you're interested.
Bitcoin is not a ponzi scheme. The difference is Bitcoin does not need new people buying in to work, blocks being added will continue even if the community stopped growing.
With religion on the decline maybe you want to join a cult. Crypto twitter is a great echo chamber to meet like minded people.
Satoshi Nakamoto found a way to distribute a global currency in a fair way with the ability to adjust the mining difficulty as we go, it's really incredible. You still need computers and electricity to mine new bitcoin today but it's an extremely fair way for people to earn. There was no premine of Bitcoin. Everyone who has Bitcoin either bought it at what the market said, or they earned it.
No CEO in charge of Bitcoin to make bad decisions or a board of directors that can make changes. The users, an ever growing number, are in charge.
Bitcoin has no days off, it has no workers in charge who can get sick or take a holiday.
Bitcoin has survived 10 years (and more). While there will always be dangers, I'd argue that those first few years it was most vulnerable to fail.
Have some trust in the cypherpunks. Anyone who held and didn't sell bitcoin as it went from pennies to five figures is not looking to get rich. They want to change the world.
Potential president Tulsi Gabbard disclosed owning some.
Digital money is the future, anyone who has tried Venmo can see that. Well Bitcoin is a digitally native asset.
Refugees can use Bitcoin to store their wealth as they flee a failing country.
Bitcoin is an open source project. Anthony Pompliano likes to call it a virus but I like how the author of the Bitcoin Standard describes it. Bitcoin is like a song. As long as one person remembers it you can't destroy a song.
Triple entry accounting. When humans first started recording who owes who what we had single-entry accounting. The king's little brother would keep everything written down, but we had to really trust this guy because he could simply erase a line and that money would be gone. When double-entry accounting started to spread 500 years ago it brought with it massive innovation. Businesses could now form relationships across the ocean as they each kept a record. We did not have innovation again until Satoshi's Bitcoin, where blockchain can be used as the neutral third party to keep record. It might not sound important but blockchain allows us to agree upon an objective reality.
Bitcoin is non-political.
Bitcoin is easy to accept. I mean kind of. It's certainly easier than setting up a bank account.
A sandwich used to cost 10 cents in America, I walk into Subway and they don't even have $5 foot longs anymore. Inflation man..
It's a peaceful protest.
Critics say that mining wastes electricity, but if Bitcoin adoption continues the world will actually be incentivized to produce more renewable energy. There are so many waterfalls and sources of energy in the middle of nowhere right now. People might not see a reason to build a power plant over there now, but in the future it can make business sense. Take that waterfall mine bitcoin, and sell them to the people who can't mine. It allows for a business to sell their energy anywhere.
Get into debates around Bitcoin, build those critical thinking skills.
“Predicting rain doesn't count, building arks does”
“The best time to plant a tree was 20 years ago, the second best time is now.”
"I never considered for one second having anything to do with it. I detested it the moment it was raised. It’s just disgusting. Bitcoin is noxious poison.”
The immaculate conception. No cryptocurrency can have a start the grassroots way Bitcoin did, it's just impossible given how the space has changed.
There are more than 1000x more U.S. dollars today than there were a hundred years ago.
Bitcoin is the largest transfer of wealth this decade from the least curious to the curious.
The concept of the Star Wars Cantina, Galt's Gulch, or young Beat Generation kids sitting in a basement smoking cigarettes and questioning the world can only exist if money remains fungible.
You can send money to your Dad even if he lives in a country run by bad boys.
Memorize your key, and walk around the world carrying your money in your head.
The Federal Reserve is objectively way too powerful.
John Mcafe promised that if bitcoins were not valued at 1 million dollars by the end of 2020 he would eat his own penis on national television. It will be a sad day if we don't hit that 1 million.
The Apple credit card.
If we ever get artificial intelligence it'll be able to interact with Bitcoin.
Katy Perry is aware of crypto so if by some chance you run into her, you get one chance to strike up conversation, so here's your chance to shine. You don't ask for a picture, you don't say she's pretty, or name your favorite song. Take your shot and ask about what type of cold storage she uses for her bitcoin.
Many people are afraid of a world currency because it's associated with a centralized world power taking control. Bitcoin allows for neutral world money.
An extensive guide for cashing out bitcoin and cryptocurrencies into private banks
Hey guys. Merry Xmas ! I am coming back to you with a follow up post, as I have helped many people cash out this year and I have streamlined the process. After my original post, I received many requests to be more specific and provide more details. I thought that after the amazing rally we have been attending over the last few months, and the volatility of the last few days, it would be interesting to revisit more extensively. The attitude of banks around crypto is changing slowly, but it is still a tough stance. For the first partial cash out I operated around a year ago for a client, it took me months to find a bank. They wouldn’t want to even consider the case and we had to knock at each and every door. Despite all my contacts it was very difficult back in the days. This has changed now, and banks have started to open their doors, but there is a process, a set of best practices and codes one has to follow. I often get requests from crypto guys who are very privacy-oriented, and it takes me months to have them understand that I am bound by Swiss law on banking secrecy, and I am their ally in this onboarding process. It’s funny how I have to convince people that banks are legit, while on the other side, banks ask me to show that crypto millionaires are legit. I have a solid background in both banking and in crypto so I manage to make the bridge, but yeah sometimes it is tough to reconcile the two worlds. I am a crypto enthusiast myself and I can say that after years of work in the banking industry I have grown disillusioned towards banks as well, like many of you. Still an account in a Private bank is convenient and powerful. So let’s get started.
A. What is required to open an account in a Private bank when you made your fortune through crypto.
There are two different aspects to your onboarding in a Swiss Private bank, compliance-wise. *The origin of your crypto wealth *Your background (residence, citizenship and probity) These two aspects must be documented in-depth. How to document your crypto wealth. Each new crypto millionaire has a different story. I may detail a few fun stories later in this post, but at the end of the day, most of crypto rich I have met can be categorized within the following profiles: the miner, the early adopter, the trader, the corporate entity, the black market, the libertarian/OTC buyer. The real question is how you prove your wealth is legit. 1. Context around the original amount/investment Generally speaking, your first crypto purchase may not be documented. But the context around this acquisition can be. I have had many cases where the original amount was bought through Mtgox, and no proof of purchase could be provided, nor could be documented any Mtgox claim. That’s perfectly fine. At some point Mtgox amounted 70% of the bitcoin transactions globally, and people who bought there and managed to withdraw and keep hold of their bitcoins do not have any Mtgox claim. This is absolutely fine. However, if you can show me the record of a wire from your bank to Tisbane (Mtgox's parent company) it's a great way to start. Otherwise, what I am trying to document here is the following: I need context. If you made your first purchase by saving from summer jobs, show me a payroll. Even if it was USD 2k. If you acquired your first bitcoins from mining, show me the bills of your mining equipment from 2012 or if it was through a pool mine, give me your slushpool account ref for instance. If you were given bitcoin against a service you charged, show me an invoice. 2. Tracking your wealth until today and making sense of it. What I have been doing over the last few months was basically educating compliance officers. Thanks God, the blockchain is a global digital ledger! I have been telling my auditors and compliance officers they have the best tool at their disposal to lead a proper investigation. Whether you like it or not, your wealth can be tracked, from address to address. You may have thought all along this was a bad feature, but I am telling you, if you want to cash out, in the context of Private Banking onboarding, tracking your wealth through the block explorer is a boon. We can see the inflows, outflows. We can see the age behind an address. An early adopter who bought 1000 BTC in 2010, and let his bitcoin behind one address and held thus far is legit, whether or not he has a proof of purchase to show. That’s just common sense. My job is to explain that to the banks in a language they understand. Let’s have a look at a few examples and how to document the few profiles I mentioned earlier. The trader. I love traders. These are easy cases. I have a ton of respect for them. Being a trader myself in investment banks for a decade earlier in my career has taught me that controlling one’s emotions and having the discipline to impose oneself some proper risk management system is really really hard. Further, being able to avoid the exchange bankruptcy and hacks throughout crypto history is outstanding. It shows real survival instinct, or just plain blissed ignorance. In any cases traders at exchange are easy cases to corroborate since their whole track record is potentially available. Some traders I have met have automated their trading and have shown me more than 500k trades done over the span of 4 years. Obviously in this kind of scenario I don’t show everything to the bank to avoid information overload, and prefer to do some snacking here and there. My strategy is to show the early trades, the most profitable ones, explain the trading strategy and (partially expose) the situation as of now with id pages of the exchanges and current balance. Many traders have become insensitive to the risk of parking their crypto at exchange as they want to be able to trade or to grasp an occasion any minute, so they generally do not secure a substantial portion on the blockchain which tends to make me very nervous. The early adopter. Provided that he has not mixed his coin, the early adopter or “hodler” is not a difficult case either. Who cares how you bought your first 10k btc if you bought them below 3$ ? Even if you do not have a purchase proof, I would generally manage to find ways. We just have to corroborate the original 30’000 USD investment in this case. I mainly focus on three things here: *proof of early adoption I have managed to educate some banks on a few evidences specifically related to crypto markets. For instance with me, an old bitcointalk account can serve as a proof of early adoption. Even an old reddit post from a few years ago where you say how much you despise this Ripple premined scam can prove to be a treasure readily available to show you were early. *story telling Compliance officers like to know when, why and how. They are human being looking for simple answers to simple questions and they don’t want like to be played fool. Telling the truth, even without a proof can do wonders, and even though bluffing might still work because banks don’t fully understand bitcoin yet, it is a risky strategy that is less and less likely to pay off as they are getting more sophisticated by the day. *micro transaction from an old address you control This is the killer feature. Send a $20 worth transaction from an old address to my company wallet and to one of my partner bank’s wallet and you are all set ! This is gold and considered a very solid piece of evidence. You can also do a microtransaction to your own wallet, but banks generally prefer transfer to their own wallet. Patience with them please. they are still learning. *signature message Why do a micro transaction when you can sign a message and avoid potentially tainting your coins ? *ICO millionaire Some clients made their wealth participating in ETH crowdsale or IOTA ICO. They were very easy to deal with obviously and the account opening was very smooth since we could evidence the GENESIS TxHash flow. The miner Not so easy to proof the wealth is legit in that case. Most early miners never took screenshot of the blocks on bitcoin core, nor did they note down the block number of each block they mined. Until the the Slashdot article from August 2010 anyone could mine on his laptop, let his computer run overnight and wake up to a freshly minted block containing 50 bitcoins back in the days. Not many people were structured enough to store and secure these coins, avoid malwares while syncing the blockchain continuously, let alone document the mined blocks in the process. What was 50 BTC worth really for the early miners ? dust of dollars, games and magic cards… Even miners post 2010 are generally difficult to deal with in terms of compliance onboarding. Many pool mining are long dead. Deepbit is down for instance and the founders are MIA. So my strategy to proof mining activity is as follow: *Focusing on IT background whenever possible. An IT background does help a lot to bring some substance to the fact you had the technical ability to operate a mining rig. *Showing mining equipment receipts. If you mined on your own you must have bought the hardware to do so. For instance mining equipment receipts from butterfly lab from 2012-2013 could help document your case. Similarly, high electricity bill from your household on a consistent basis back in the day could help. I have already unlocked a tricky case in the past with such documents when the bank was doubtful. *Wallet.dat files with block mining transactions from 2011 thereafter This obviously is a fantastic piece of evidence for both you and me if you have an old wallet and if you control an address that received original mined blocks, (even if the wallet is now empty). I will make sure compliance officers understand what it means, and as for the early adopter, you can prove your control over these wallet through a microtransaction. With these kind of addresses, I can show on the block explorer the mined block rewards hitting at regular time interval, and I can even spot when difficulty level increased or when halvening process happened. *Poolmining account. Here again I have educated my partner bank to understand that a slush account opened in 2013 or an OnionTip presence was enough to corroborate mining activity. The block explorer then helps me to do the bridge with your current wallet. *Describing your set up and putting it in context In the history of mining we had CPU, GPU, FPG and ASICs mining. I will describe your technical set up and explain why and how your set up was competitive at that time. The corporate entity Remember 2012 when we were all convinced bitcoin would take over the world, and soon everyone would pay his coffee in bitcoin? How naïve we were to think transaction fees would remain low forever. I don’t blame bitcoin cash supporters; I once shared this dream as well. Remember when we thought global adoption was right around the corner and some brick and mortar would soon accept bitcoin transaction as a common mean of payment? Well, some shop actually did accept payment and held. I had a few cases as such of shops holders, who made it to the multi million mark holding and had invoices or receipts to proof the transactions. If you are organized enough to keep a record for these trades and are willing to cooperate for the documentation, you are making your life easy. The digital advertising business is also a big market for the bitcoin industry, and affiliates partner compensated in btc are common. It is good to show an invoice, it is better to show a contract. If you do not have a contract (which is common since all advertising deals are about ticking a check box on the website to accept terms and conditions), there are ways around that. If you are in that case, pm me. The black market Sorry guys, I can’t do much for you officially. Not that I am judging you. I am a libertarian myself. It’s just already very difficult to onboard legit btc adopters, so the black market is a market I cannot afford to consider. My company is regulated so KYC and compliance are key for me if I want to stay in business. Behind each case I push forward I am risking the credibility and reputation I have built over the years. So I am sorry guys I am not risking it to make an extra buck. Your best hope is that crypto will eventually take over the world and you won’t need to cash out anyway. Or go find a Lithuanian bank that is light on compliance and cooperative. The OTC buyer and the libertarian. Generally a very difficult case. If you bought your stack during your journey in Japan 5 years ago to a guy you never met again; or if you accumulated on https://localbitcoins.com/ and kept no record or lost your account, it is going to be difficult. Not impossible but difficult. We will try to build a case with everything else we have, and I may be able to onboard you. However I am risking a lot here so I need to be 100% confident you are legit, before I defend you. Come & see me in Geneva, and we will talk. I will run forensic services like elliptic, chainalysis, or scorechain on an extract of your wallet. If this scan does not raise too many red flags, then maybe we can work together ! If you mixed your coins all along your crypto history, and shredded your seeds because you were paranoid, or if you made your wealth mining professionally monero over the last 3 years but never opened an account at an exchange. ¯_(ツ)_/¯ I am not a magician and don’t get me wrong, I love monero, it’s not the point. Cashing out ICOs Private companies or foundations who have ran an ICO generally have a very hard time opening a bank account. The few banks that accept such projects would generally look at 4 criteria: *Seriousness of the project Extensive study of the whitepaper to limit the reputation risk *AML of the onboarding process ICOs 1.0 have no chance basically if a background check of the investors has not been conducted *Structure of the moral entity List of signatories, certificate of incumbency, work contract, premises... *Fiscal conformity Did the company informed the authorities and seek a fiscal ruling.
B. The tax issue I am not a tax specialist, but I can say that this year I have seen it all. Again I am not judging. You made $100m hodling, and still wouldn’t pay your taxes ? Your decision.I personally advise everyone to pay their taxes, but also to be generous, to give to charities. I mean you eventually made it. Good for you. What about you contribute to make the world a better place now? I will stop patronizing you. It’s just my 2cts, and it’s your money.
For the record, I am not into the tax avoidance business, so people come to me with a set up and I see if I can make it work within the legal framework imposed to me. First, stop thinking Switzerland is a “offshore heaven” Swiss banks have made deals with many governments for the exchange of fiscal information. If you are a French citizen, resident in France and want to open an account in a Private Bank in Switzerland to cash out your bitcoins, you will get slaughtered (>60%). There are ways around that, and I could refer you to good tax specialists for fiscal optimization, but I cannot organize it myself. It would be illegal for me. Swiss private banks makes it easy for you to keep a good your relation with your retail bank and continue paying your bills without headaches. They are integrated to SEPA, provide ebanking and credit cards. For information, these are the kind of set up some of my clients came up with. It’s all legal; obviously I do not onboard clients that are not tax compliant. Further disclaimer: I did not contribute myself to these set up. Do not ask me to organize it for you. I won’t. EU tricks Swiss lump sum taxation Foreign nationals resident in Switzerland can be taxed on a lump-sum basis if they are not gainfully employed in our country. Under the lump-sum tax regime, foreign nationals taking residence in Switzerland may choose to pay an expense-based tax instead of ordinary income and wealth tax. Attractive cantons for the lump sum taxation are Zug, Vaud, Valais, Grisons, Lucerne and Berne. To make it short, you will be paying somewhere between 200 and 400k a year and all expenses will be deductible. Switzerland has adopted a very friendly attitude towards crypto currency in general. There is a whole crypto valley in Zug now. 30% of ICOs are operated in Switzerland. The reason is that Switzerland has thrived for centuries on banking secrecy, and today with FATCA and exchange of fiscal info with EU, banking secrecy is dead. Regulators in Switzerland have understood that digital ledger technologies were a way to roll over this competitive advantage for the generations to come. Switzerland does not tax capital gains on crypto profits. The Finma has a very pragmatic approach. They have issued guidance- updated guidelines here. They let the business get organized and operate their analysis on a case per case basis. Only after getting a deep understanding of the market will they issue a global fintech license in 2019. This approach is much more realistic than legislations which try to regulate everything beforehand. Italy new tax exemption. It’s a brand new fiscal exemption. Go to Aoste, get residency and you could be taxed a 100k/year for 10years. Yes, really. Portugal What’s crazy in Europe is the lack of fiscal harmonization. Even if no one in Brussels dares admit it, every other country is doing fiscal dumping. Portugal is such a country and has proved very friendly fiscally speaking. I personally have a hard time trusting Europe. I have witnessed what happened in Greece over the last few years. Some of our ultra high net worth clients got stuck with capital controls. I mean no way you got out of crypto to have your funds confiscated at the next financial crisis! Anyway. FYI Malta Generally speaking, if you get a residence somewhere you have to live there for a certain period of time. Being stuck in Italy is no big deal with Schengen Agreement, but in Malta it is a different story. In Malta, the ordinary residence scheme is more attractive than the HNWI residence scheme. Being an individual, you can hold a residence permit under this scheme and pay zero income tax in Malta in a completely legal way. Monaco Not suitable for French citizens, but for other Ultra High Net worth individual, Monaco is worth considering. You need an account at a local bank as a proof of fortune, and this account generally has to be seeded with at least EUR500k. You also need a proof of residence. I do mean UHNI because if you don’t cash out minimum 30m it’s not interesting. Everything is expensive in Monaco. Real Estate is EUR 50k per square meter. A breakfast at Monte Carlo Bay hotel is 70 EUR. Monaco is sunny but sometimes it feels like a golden jail. Do you really want that for your kids? Dubaï
Set up a company in Dubaï, get your resident card.
Spend one day every 6 month there
Be tax free
US tricks Some Private banks in Geneva do have the license to manage the assets of US persons and U.S citizens. However, do not think it is a way to avoid paying taxes in the US. Opening an account at an authorized Swiss Private banks is literally the same tax-wise as opening an account at Fidelity or at Bank of America in the US. The only difference is that you will avoid all the horror stories. Horror stories are all real by the way. In Switzerland, if you build a decent case and answer all the questions and corroborate your case in depth, you will manage to convince compliance officers beforehand. When the money eventually hits your account, it is actually available and not frozen. The IRS and FATCA require to file FBAR if an offshore account is open. However FBAR is a reporting requirement and does not have taxes related to holding an account outside the US. The taxes would be the same if the account was in the US. However penalties for non compliance with FBAR are very large. The tax liability management is actually performed through the management of the assets ( for exemple by maximizing long term capital gains and minimizing short term gains). The case for Porto Rico. Full disclaimer here. I am not encouraging this. Have not collaborated on such tax avoidance schemes. if you are interested I strongly encourage you to seek a tax advisor and get a legal opinion. I am not responsible for anything written below. I am not going to say much because I am so afraid of uncle Sam that I prefer to humbly pass the hot potato to pwc From here all it takes is a good advisor and some creativity to be tax free on your crypto wealth if you are a US person apparently. Please, please please don’t ask me more. And read the disclaimer again. Trust tricks Generally speaking I do not accept fringe fiscal situation because it puts me in a difficult situation to the banks I work with, and it is already difficult enough to defend a legit crypto case. Trust might be a way to optimize your fiscal situation. Belize. Bahamas. Seychelles. Panama, You name it. At the end of the day, what matters for Swiss Banks are the beneficial owner and the settlor. Get a legal opinion, get it done, and when you eventually knock at a private bank’s door, don’t say it was for fiscal avoidance you stupid ! You will get the door smashed upon you. Be smarter. It will work. My advice is just to have it done by a great tax specialist lawyer, even if it costs you some money, as the entity itself needs to be structured in a professional way. Remember that with trust you are dispossessing yourself off your wealth. Not something to be taken lightly. “Anonymous” cash out. Right. I think I am not going into this topic, neither expose the ways to get it done. Pm me for details. I already feel a bit uncomfortable with all the info I have provided. I am just going to mention many people fear that crypto exchange might become reporting entities soon, and rightly so. This might happen anyday. You have been warned. FYI, this only works for non-US and large cash out. The difference between traders an investors. Danmark, Holland and Germany all make a huge difference if you are a passive investor or if you are a trader. ICO is considered investing for instance and is not taxed, while trading might be considered as income and charged aggressively. I would try my best to protect you and put a focus on your investor profile whenever possible, so you don't have to pay 52% tax if you do not have to :D
C. The cash out itself So you have accumulated patiently a good amount of wealth. For some of us who have been involved in crypto since 2010, it took years. Remember when BTC was stuck at 200$ for months? I personally feel like it was yesterday. There is no way you screw up your wealth by cashing out in a hurry or with low security standards. Here is how the cash out takes should place.
Full cash out or partial cash out? People who have been sitting on crypto for long have grown an emotional and irrational link with their coins. They come to me and say, look, I have 50m in crypto but I would like to cash out 500k only. So first let me tell you that as a wealth manager my advice to you is to take some off the table. Doing a partial cash out is absolutely fine. The market is bullish. We are witnessing a redistribution of wealth at a global scale. Bitcoin is the real #occupywallstreet, and every one will discuss crypto at Xmas eve which will make the market even more supportive beginning 2018, especially with all hedge funds entering the scene. If you want to stay exposed to bitcoin and altcoins, and believe these techs will change the world, it’s just natural you want to keep some coins. In the meantime, if you have lived off pizzas over the last years, and have the means to now buy yourself an nice house and have an account at a private bank, then f***ing do it mate ! Buy physical gold with this account, buy real estate, have some cash at hands. Even though US dollar is worthless to your eyes, it’s good and convenient to have some. Also remember your wife deserves it ! And if you have no wife yet and you are socially awkward like the rest of us, then maybe cashing out partially will help your situation ;) What the Private Banks expect. Joke aside, it is important you understand something. If you come around in Zurich to open a bank account and partially cash out, just don’t expect Private Banks will make an exception for you if you are small. You can’t ask them to facilitate your cash out, buy a 1m apartment with the proceeds of the sale, and not leave anything on your current account. It won’t work. Sadly, under 5m you are considered small in private banking. The bank is ok to let you open an account, provided that your kyc and compliance file are validated, but they will also want you to become a client and leave some money there to invest. This might me despicable, but I am just explaining you their rules. If you want to cash out, you should sell enough to be comfortable and have some left. Also expect the account opening to last at least 3-4 week if everything goes well. You can't just open an account overnight. The cash out logistics. Cashing out 1m USD a day in bitcoin or more is not so hard. Let me just tell you this: Even if you get a Tier 4 account with Kraken and ask Alejandro there to raise your limit over $100k per day, Even if you have a bitfinex account and you are willing to expose your wealth there, Even if you have managed to pass all the crazy due diligence at Bitstamp, The amount should be fractioned to avoid risking your full wealth on exchange and getting slaughtered on the price by trading big quantities. Cashing out involves significant risks at all time. There is a security risk of compromising your keys, a counterparty risk, a fat finger risk. Let it be done by professionals. It is worth every single penny. Most importantly, there is a major difference between trading on an exchange and trading OTC. Even though it’s not publicly disclosed some exchange like Kraken do have OTC desks. Trading on an exchange for a large amount will weight on the prices. Bitcoin is a thin market. In my opinion over 30% of the coins are lost in translation forever. Selling $10m on an exchange in a day can weight on the prices more than you’d think. And if you trade on a exchange, everything is shown on record, and you might wipe out the prices because on exchanges like bitstamp or kraken ultimately your counterparties are retail investors and the market depth is not huge. It is a bit better on Bitfinex. It is way better to trade OTC. Accessing the institutional OTC market is not easy, and that is also the reason why you should ask a regulated financial intermediary if we are talking about huge amounts. Last point, always chose EUR as opposed to USD. EU correspondent banks won’t generally block institutional amounts. However we had the cases of USD funds frozen or delayed by weeks. Most well-known OTC desks are Cumberlandmining (ask for Lucas), Genesis (ask for Martin), Bitcoin Suisse AG (ask for Niklas), circletrade, B2C2, or Altcoinomy (ask for Olivier) Very very large whales can also set up escrow accounts for massive block trades. This world, where blocks over 30k BTC are exchanged between 2 parties would deserve a reddit thread of its own. Crazyness all around. Your options: DIY or going through a regulated financial intermediary. Execution trading is a job in itself. You have to be patient, be careful not to wipe out the order book and place limit orders, monitor the market intraday for spikes or opportunities. At big levels, for a large cash out that may take weeks, these kind of details will save you hundred thousands of dollars. I understand crypto holders are suspicious and may prefer to do it by themselves, but there are regulated entities who now offer the services. Besides, being a crypto millionaire is not a guarantee you will get institutional daily withdrawal limits at exchange. You might, but it will take you another round of KYC with them, and surprisingly this round might be even more aggressive that the ones at Private banks since exchange have gone under intense scrutiny by regulators lately. The fees for cashing out through a regulated financial intermediary to help you with your cash out should be around 1-2% flat on the nominal, not more. And for this price you should get the full package: execution/monitoring of the trades AND onboarding in a private bank. If you are asked more, you are being abused. Of course, you also have the option to do it yourself. It is a way more tedious and risky process. Compliance with the exchange, compliance with the private bank, trading BTC/fiat, monitoring the transfers…You will save some money but it will take you some time and stress. Further, if you approach a private bank directly, it will trigger a series of red flag to the banks. As I said in my previous post, they call a direct approach a “walk-in”. They will be more suspicious than if you were introduced by someone and won’t hesitate to show you high fees and load your portfolio with in-house products that earn more money to the banks than to you. Remember also most banks still do not understand crypto so you will have a lot of explanations to provide and you will have to start form scratch with them! The paradox of crypto millionaires Most of my clients who made their wealth through crypto all took massive amount of risks to end up where they are. However, most of them want their bank account to be managed with a low volatility fixed income capital preservation risk profile. This is a paradox I have a hard time to explain and I think it is mainly due to the fact that most are distrustful towards banks and financial markets in general. Many clients who have sold their crypto also have a cash-out blues in the first few months. This is a classic situation. The emotions involved in hodling for so long, the relief that everything has eventually gone well, the life-changing dynamics, the difficulties to find a new motivation in life…All these elements may trigger a post cash-out depression. It is another paradox of the crypto rich who has every card in his hand to be happy, but often feel a bit sad and lonely. Sometimes, even though it’s not my job, I had to do some psychological support. A lot of clients have also become my friends, because we have the same age and went through the same “ordeal”. First world problem I know… Remember, cashing out is not the end. It’s actually the beginning. Don’t look back, don’t regret. Cash out partially, because it does not make sense to cash out in full, regret it and want back in. relax. The race to cash out crypto billionaire and the concept of late exiter. The Winklevoss brothers are obviously the first of a series. There will be crypto billionaires. Many of them. At a certain level you can have a whole family office working for you to manage your assets and take care of your needs . However, let me tell you it’s is not because you made it so big that you should think you are a genius and know everything better than anyone. You should hire professionals to help you. Managing assets require some education around the investment vehicles and risk management strategies. Sorry guys but with all the respect I have for wallstreebet, AMD and YOLO stock picking, some discipline is necessary. The investors who have made money through crypto are generally early adopters. However I have started to see another profile popping up. They are not early adopters. They are late exiters. It is another way but just as efficient. Last week I met the first crypto millionaire I know who first bough bitcoin over 1000$. 55k invested at the beginning of this year. Late adopter & late exiter is a route that can lead to the million. Last remarks. I know banks, bankers, and FIAT currencies are so last century. I know some of you despise them and would like to have them burn to the ground. With compliance officers taking over the business, I would like to start the fire myself sometimes. I hope this extensive guide has helped some of you. I am around if you need more details. I love my job despite all my frustration towards the banking industry because it makes me meet interesting people on a daily basis. I am a crypto enthusiast myself, and I do think this tech is here to stay and will change the world. Banks will have to adapt big time. Things have started to change already; they understand the threat is real. I can feel the generational gap in Geneva, with all these old bankers who don’t get what’s going on. They glaze at the bitcoin chart on CNBC in disbelief and they start to get it. This bitcoin thing is not a joke. Deep inside, as an early adopter who also intends to be a late exiter, as a libertarian myself, it makes me smile with satisfaction. Cheers. @swisspb on telegram
Elaborating on Datadash's 50k BTC Prediction: Why We Endorse the Call
As originally published via CoinLive I am the Co-Founder at CoinLive. Prior to founding Coinlive.io, my area of expertise was inter-market analysis. I came across Datadash 50k BTC prediction this week, and I must take my hats off to what I believe is an excellent interpretation of the inter-connectivity of various markets. At your own convenience, you can find a sample of Intermarket analysis I've written in the past before immersing myself into cryptos full-time. Gold inter-market: 'Out of sync' with VIX, takes lead from USD/JPY USD/JPY inter-market: Watch divergence US-Japan yield spread EUUSD intermarket: US yields collapse amid supply environment Inter-market analysis: Risk back in vogue, but for how long? USD/JPY intermarket: Bulls need higher adj in 10-y US-JP spread The purpose of this article is to dive deeper into the factors Datadash presents in his video and how they can help us draw certain conclusions about the potential flows of capital into crypto markets and the need that will exist for a BTC ETF. Before I do so, as a brief explainer, let's touch on what exactly Intermarket analysis refers to: Intermarket analysis is the global interconnectivity between equities, bonds, currencies, commodities, and any other asset class; Global markets are an ever-evolving discounting and constant valuation mechanism and by studying their interconnectivity, we are much better positioned to explain and elaborate on why certain moves occur, future directions and gain insights on potential misalignments that the market may not have picked up on yet or might be ignoring/manipulating. While such interconnectivity has proven to be quite limiting when it comes to the value one can extract from analyzing traditional financial assets and the crypto market, Datadash has eloquently been able to build a hypothesis, which as an Intermarket analyst, I consider very valid, and that matches up my own views. Nicolas Merten constructs a scenario which leads him to believe that a Bitcoin ETF is coming. Let's explore this hypothesis. I will attempt to summarize and provide further clarity on why the current events in traditional asset classes, as described by Datadash, will inevitably result in a Bitcoin ETF. Make no mistake, Datadash's call for Bitcoin at 50k by the end of 2018 will be well justified once a BTC ETF is approved. While the timing is the most challenging part t get right, the end result won't vary. If one wishes to learn more about my personal views on why a BTC ETF is such a big deal, I encourage you to read my article from late March this year. Don't Be Misled by Low Liquidity/Volume - Fundamentals Never Stronger The first point Nicholas Merten makes is that despite depressed volume levels, the fundamentals are very sound. That, I must say, is a point I couldn't agree more. In fact, I recently wrote an article titled TheParadox: Bitcoin Keeps Selling as Intrinsic Value Set to Explode where I state "the latest developments in Bitcoin's technology makes it paradoxically an ever increasingly interesting investment proposition the cheaper it gets." However, no article better defines where we stand in terms of fundamentals than the one I wrote back on May 15th titled Find Out Why Institutions Will Flood the Bitcoin Market, where I look at the ever-growing list of evidence that shows why a new type of investors, the institutional ones, looks set to enter the market in mass. Nicholas believes that based on the supply of Bitcoin, the market capitalization can reach about $800b. He makes a case that with the fundamentals in bitcoin much stronger, it wouldn't be that hard to envision the market cap more than double from its most recent all-time high of more than $300b. Interest Rates Set to Rise Further First of all, one of the most immediate implications of higher rates is the increased difficulty to bear the costs by borrowers, which leads Nicholas to believe that banks the likes of Deutsche Bank will face a tough environment going forward. The CEO of the giant German lender has actually warned that second-quarter results would reflect a “revenue environment [that] remains challenging." Nicholas refers to the historical chart of Eurodollar LIBOR rates as illustrated below to strengthen the case that interest rates are set to follow an upward trajectory in the years to come as Central Banks continue to normalize monetary policies after a decade since the global financial crisis. I'd say, that is a correct assumption, although one must take into account the Italian crisis to be aware that a delay in higher European rates is a real possibility now. !(https://coinlive.io/ckeditor_assets/pictures/947/content_2018-05-30_1100.png) Let's look at the following combinations: Fed Fund Rate Contract (green), German 2-year bond yields (black) and Italy's 10-year bond yield (blue) to help us clarify what's the outlook for interest rates both in Europe and the United States in the foreseeable future. The chart suggests that while the Federal Reserve remains on track to keep increasing interest rates at a gradual pace, there has been a sudden change in the outlook for European rates in the short-end of the curve. While the European Central Bank is no longer endorsing proactive policies as part of its long-standing QE narrative, President Mario Draghi is still not ready to communicate an exit strategy to its unconventional stimulus program due to protectionism threats in the euro-area, with Italy the latest nightmare episode. Until such major step is taken in the form of a formal QE conclusion, interest rates in the European Union will remain depressed; the latest drastic spike in Italy's benchmark bond yield to default levels is pre-emptive of lower rates for longer, an environment that on one hand may benefit the likes of Deutsche Bank on lower borrowing costs, but on the other hand, sets in motion a bigger headache as risk aversion is set to dominate financial markets, which leads to worse financial consequences such as loss of confidence and hence in equity valuations. !(https://coinlive.io/ckeditor_assets/pictures/948/content_2018-05-30_1113.png) Deutsche Bank - End of the Road? Nicholas argues that as part of the re-restructuring process in Deutsche Bank, they will be facing a much more challenging environment as lending becomes more difficult on higher interest rates. At CoinLive, we still believe this to be a logical scenario to expect, even if a delay happens as the ECB tries to deal with the Italian political crisis which once again raises the question of whether or not Italy should be part of the EU. Reference to an article by Zerohedge is given, where it states: "One day after the WSJ reported that the biggest German bank is set to "decimate" its workforce, firing 10,000 workers or one in ten, this morning Deutsche Bank confirmed plans to cut thousands of jobs as part of new CEO Christian Sewing's restructuring and cost-cutting effort. The German bank said its headcount would fall “well below” 90,000, from just over 97,000. But the biggest gut punch to employee morale is that the bank would reduce headcount in its equities sales and trading business by about 25%." There is an undeniably ongoing phenomenon of a migration in job positions from traditional financial markets into blockchain, which as we have reported in the past, it appears to be a logical and rational step to be taken, especially in light of the new revenue streams the blockchain sector has to offer. Proof of that is the fact that Binance, a crypto exchange with around 200 employees and less than 1 year of operations has overcome Deutsche Bank, in total profits. What this communicates is that the opportunities to grow an institution’s revenue stream are formidable once they decide to integrate cryptocurrencies into their business models. One can find an illustration of Deutsche Bank's free-fall in prices below: !(https://coinlive.io/ckeditor_assets/pictures/946/content_2018-05-30_1052.png) Nicholas takes notes of a chart in which one can clearly notice a worrying trend for Italian debt. "Just about every other major investor type has become a net seller (to the ECB) or a non-buyer of BTPs over the last couple of years. Said differently, for well over a year, the only marginal buyer of Italian bonds has been the ECB!", the team of Economists at Citi explained. One can find the article via ZeroHedge here. !(https://coinlive.io/ckeditor_assets/pictures/953/content_2018-05-30_1451.png) Equities & Housing to Suffer the Consequences Nicholas notes that trillions of dollars need to exit these artificially-inflated equity markets. He even mentions a legendary investor such as George Soros, who has recently warned that the world could be on the brink of another devastating financial crisis, on lingering debt concerns in Europe and a strengthening US dollar, as a destabilizing factor for both the US's emerging- and developed-market rivals. Ray Dalio, another legend in the investing world and Founder of Bridgewater Associates, the world’s largest hedge fund, "has ramped up its short positions in European equities in recent weeks, bringing their total value to an estimated $22 billion", MarketWatch reports. Nicholas extracts a chart by John Del Vecchio at lmtr.com where it illustrates the ratio between stocks and commodities at the lowest in over 50 years. As the author states: "I like to look for extremes in the markets. Extremes often pinpoint areas where returns can be higher and risk lower than in other time periods. Take the relationship between commodities and stocks. The chart below shows that commoditieshavennot been cheaper than stocks in a generation. We often hear this time it is different” to justify what’s going on in the world. But, one thing that never changes is human nature. People push markets to extremes. Then they revert. " !(https://coinlive.io/ckeditor_assets/pictures/954/content_2018-05-30_1459.png) Bitcoin ETF the Holy Grail for a Cyclical Multi-Year Bull Run It is precisely from this last chart above that leads Nicholas to believe we are on the verge of a resurgence in commodity prices. Not only that but amid the need of all this capital to exit stocks and to a certain extent risky bonds (Italian), a new commodity-based digital currency ETF based on Bitcoin will emerge in 2018. The author of Datadash highlights the consideration to launching a Bitcoin ETF by the SEC. At CoinLive, our reporting of the subject can be found below: "Back in April, it was reported that the US Securities and Exchange Commission (SEC) has put back on the table two Bitcoin ETF proposals, according to public documents. The agency is under formal proceedings to approve a rule change that would allow NYSE Arca to list two exchange-traded funds (ETFs) proposed by fund provider ProShares. The introduction of an ETF would make Bitcoin available to a much wider share of market participants, with the ability to directly buy the asset at the click of a button, essentially simplifying the current complexity that involves having to deal with all the cumbersome steps currently in place." Nicholas refers to the support the Bitcoin ETF has been receiving by the Cboe president Chris Concannon, which is a major positive development. CoinLive reported on the story back in late March, noting that "a Bitcoin ETF will without a doubt open the floodgates to an enormous tsunami of fresh capital entering the space, which based on the latest hints by Concannon, the willingness to keep pushing for it remains unabated as the evolution of digital assets keeps its course." It has been for quite some time CoinLive's conviction, now supported by no other than Nicholas Merten from Datadash, that over the next 6 months, markets will start factoring in the event of the year, that is, the approval of a Bitcoin ETF that will serve as a alternative vehicle to accommodate the massive flows of capital leaving some of the traditional asset classes. As Nicholas suggests, the SEC will have little choice but to provide alternative investments. Bitcoin as a Hedge to Lower Portfolios' Volatility Last but not least, crypto assets such as Bitcoin and the likes have an almost non-existent correlation to other traditional assets such as stocks, bonds, and commodities, which makes for a very attractive and broadly-applicable diversification strategy for the professional money as it reduces one’s portfolio volatility. The moment a Bitcoin ETF is confirmed, expect the non-correlation element of Bitcoin as a major driving force to attract further capital. Anyone Can BeWrongDatadash, But You Won't be Wrong Alone Having analyzed the hypothesis by Nicholas Merten, at CoinLive we believe that the conclusion reached, that is, the creation of a Bitcoin ETF that will provide shelter to a tsunami of capital motivated by the diversification and store of value appeal of Bitcoin, is the next logical step. As per the timing of it, we also anticipate, as Nicholas notes, that it will most likely be subject to the price action in traditional assets. Should equities and credit markets hold steady, it may result in a potential delay, whereas disruption in the capital market may see the need for a BTC ETF accelerate. Either scenario, we will conclude with a quote we wrote back in March. "It appears as though an ETF on Bitcoin is moving from a state of "If" to "When." Datadash is certainly not alone on his 50k call. BitMEX CEO Arthur Hayes appears to think along the same line. On behalf of the CoinLive Team, we want to thank Nicholas Merten at Datadash for such enlightening insights.
Hussman On The Three Great Delusions: Paper Wealth, A Booming Economy, & Bitcoin
Authored by John Hussman via HussmanFunds.com, "Let us not, in the pride of our superior knowledge, turn with contempt from the follies of our predecessors. The study of the errors into which great minds have fallen in the pursuit of truth can never be uninstructive.” _– Charles Mackay Extraordinary Popular Delusions and the Madness of Crowds_Delusions are often viewed as reflecting some deficiency in reasoning ability. The risk of thinking about delusions in this way is that it encourages the belief that logical, intelligent people are incapable of delusion. An examination of the history of financial markets suggests a different view. Specifically, faced with unusual or extraordinary price advances, there is a natural tendency (particularly in the presence of crowds, feedback loops, and potential rewards) to look for explanations. The problem isn’t that logic or reason has failed, but that the inputs have been distorted, and in the attempt to justify the advance amid the speculative excitement, careful data-gathering is replaced by a tendency to confuse temporary factors for fundamental underpinnings. While true psychological delusions are different from financial ones, a similar principle is suggested by psychological research. Delusions are best understood not as deficiencies in logic, but rather as explanations that have been logically reached on the basis of distorted inputs. For example, individuals with delusions appear vulnerable to differences in perception that may involve more vivid, intense, or emotionally-charged sensory input. While those differences might be driven by neurological factors, the person experiencing these unusual perceptions looks to develop an explanation. Maher emphasized that despite the skewed input, the delusions themselves are derived by completely normal reasoning processes. Similarly, Garety & Freeman found that delusions appear to reflect not a defect in reasoning itself, but a defect “which is best described as a data-gathering bias, a tendency for people with delusions to gather less evidence” so they tend to jump to conclusions. The reason that delusions are so hard to fight with logic is that delusions themselves are established through the exercise of logic. Responsibility for delusions is more likely to be found in distorted perception or inadequate information. The problem isn’t disturbed reasoning, but distorted or inadequate inputs that the eyes, ears, and mind perceive as undeniably real. Let’s begin by examining the anatomy of speculative bubbles. We’ll follow with a discussion of three popular delusions that have taken hold of the crowd, and the premises that drive them: the delusion of paper wealth, the delusion of a booming economy, and the delusion that is Bitcoin.
The anatomy of speculative bubbles
Across centuries of history, speculative financial bubbles have repeatedly emerged from the seeds of distorted financial environments, where speculative behavior increasingly produces self-reinforcing feedback. Specifically, the speculative behavior of the crowd results in rising prices that both impress and reward speculators, and in turn encourage even greater speculation. The more impressed the crowd becomes with the result of its own behavior, the more that behavior persists, and the more unstable the system becomes, until finally the flapping wings of a butterfly become sufficient to provoke a collapse, launching a self-reinforcing feedback loop in the opposite direction. The 1929 bubble was built on the foundation of real economic prosperity during the roaring 20’s, but the late stages of that boom were largely fueled by debt and easy money. Observing the persistent market advance, investors largely ignored the contribution of their own speculation in producing that advance. Rather, as traditional valuation measures became increasingly stretched, the first impulse of investors was to try to justify_ the elevated valuations in novel ways, which gradually became nothing but excuses for continued speculation. As John Kenneth Galbraith wrote decades ago in his book, _The Great Crash 1929: “It was still necessary to reassure those who required some tie, however tenuous, to reality. This process of reassurance eventually achieved the status of a profession. However, the time had come, as in all periods of speculation, when men sought not to be persuaded by the reality of things but to find excuses for escaping into the new world of fantasy.” Keep in mind that yes, the economy was strong, business was booming, and money was easy. The problem was that investors stopped thinking about stocks as a claim on a very, very long-term stream of discounted cash flows. Valuations didn’t matter. It was enough that the economy was expanding. It was enough that earnings were rising. Put simply, the trend_ of earnings and the economy, not the actual _level of valuation, became the justification for buying stocks. Graham & Dodd described this process: “During the latter stage of the bull market culminating in 1929, the public acquired a completely different attitude towards the investment merits of common stocks… Why did the investing public turn its attention from dividends, from asset values, and from average earnings to transfer it almost exclusively to the earnings trend, i.e. to the changes in earnings expected in the future? The answer was, first, that the records of the past were proving an undependable guide to investment; and, second, that the rewards offered by the future had become irresistibly alluring. “Along with this idea as to what constituted the basis for common-stock selection emerged a companion theory that common stocks represented the most profitable and therefore the most desirable media for long-term investment. This gospel was based on a certain amount of research, showing that diversified lists of common stocks had regularly increased in value over stated intervals of time for many years past. “These statements sound innocent and plausible. Yet they concealed two theoretical weaknesses that could and did result in untold mischief. The first of these defects was that they abolished the fundamental distinctions between investment and speculation. The second was that they ignored the price of a stock in determining whether or not it was a desirable purchase. “The notion that the desirability of a common stock was entirely independent of its price seems incredibly absurd. Yet the new-era theory led directly to this thesis… An alluring corollary of this principle was that making money in the stock market was now the easiest thing in the world. It was only necessary to buy ‘good’ stocks, regardless of price, and then to let nature take her upward course. The results of such a doctrine could not fail to be tragic.” – Benjamin Graham & David L. Dodd, Security Analysis, 1934The 2000 tech bubble featured the same process in a slightly different form. The inputs and premises that investors observed were valid, but incomplete. Economic growth and employment were strong, and money was easy. The internet did indeed have tremendous growth prospects. But again, as the advance became more speculative, investors largely ignored the impact of their own speculation in producing that advance. Instead, their first impulse was again to try to _justify_the elevated valuations in novel ways (recall “price-to-eyeballs”). By March 2000, on the basis of historically reliable valuation measures, I projected that a retreat to normal valuations would require an -83% plunge in tech stocks. In the 19 months that followed, that estimate turned out to be precise for the tech-heavy Nasdaq 100 Index. The mortgage bubble leading up to the global financial crisis was built on the same sort of distorted inputs, this time fueled by the insistence of the Federal Reserve to hold interest rates at just 1% after the tech collapse. As yield-starved investors looked for relatively safe alternatives to low-yielding Treasury securities, they turned to mortgage securities, which had to-date never experienced major losses. Wall Street responded to the appetite for more “product” by creating new mortgage securities, which required the creation of new mortgages, and led to the creation of no-doc, zero-down mortgages and the willingness to lend to anyone with a pulse. All of this produced a glorious period of temporary prosperity and rising prices. As usual, instead of recognizing the impact of their own speculation in producing the advance, the first impulse of investors was to try to justify why elevated asset and housing valuations made sense. As the bubble expanded, Janet Yellen, then the head of the San Francisco Federal Reserve, offered this benign assessment of the risks: “First, if the bubble were to deflate on its own, would the effect on the economy be exceedingly large? Second, is it unlikely that the Fed could mitigate the consequences? Third, is monetary policy the best tool to use to deflate a house-price bubble? My answers to these questions in the shortest possible form are, ‘no,’ ‘no,’ and ‘no’ … It seems that the arguments against trying to deflate a bubble outweigh those in favor of it. So, my bottom line is that monetary policy should react to rising prices for houses or other assets only insofar as they affect the central bank’s goal variables—output, employment, and inflation.” Missing from Yellen’s benign assessment was the fact that the speculative distortion and debt buildup _enabled by the bubble itself_ would be the primary driver of the worst economic collapse since the Great Depression. The Fed appears to exclude such risks from its thinking, despite the fact that the worst economic collapses in history have generally gone hand-in-hand with episodes of financial speculation and their inevitable collapse. In the apparent attempt to bookend her term as Fed Chair by brushing aside the current progression toward financial collapse with an equally benign and milquetoast risk assessment, Janet Yellen observed on December 14, 2017: “If there were an adjustment in asset valuations, the stock market, what impact would it have on the economy, and would it provoke financial stability concerns? … I think when we look at other indicators of financial stability risks, there’s nothing flashing red there, or possibly even orange.” Despite risks that I fully expect to devolve into a roughly -65% loss in the S&P 500 over the completion of the current market cycle, it’s absolutely critical to distinguish the long-term effects of valuation from the shorter-term effects speculative pressure. Historically-reliable valuation measures are remarkably useful in projecting long-term and full-cycle market outcomes, but the behavior of the market over shorter segments of the market cycle is driven by the psychological inclination of investors toward speculation or risk-aversion. The most useful measure we’ve found of that psychological inclination is the uniformity or divergence of market internals across a broad range of individual stocks, industries, sectors, and security types (including debt securities of varying creditworthiness). When investors are inclined to speculate, they tend to be indiscriminate about it. In the recent advancing half-cycle, the speculation intentionally provoked by zero-interest rate policy forced us to elevate the priority of market internals to a far greater degree than was required during the tech and mortgage bubbles. It was necessary to prioritize the behavior of market internals even over extreme “overvalued, overbought, overbullish” features of market action. Those syndromes were effective in other cycles across history, but in the advancing half-cycle since 2009, our bearish response to those syndromes proved to be our Achilles Heel. The process of adaptation was very incremental, and therefore painful in the face of persistent speculation. We’ve adapted our investment discipline so that without exception, a negative market outlook can be established only in periods when our measures of market internals have also deteriorated. A neutral outlook is fine when conditions are sufficiently unfavorable, but establishing a negative outlook _requires_ deterioration and dispersion in market internals. Faced with extreme valuations, the first impulse of investors should not be to try to justify those valuation extremes, but to recognize the impact of their own speculative behavior in producing and sustaining those extremes. It then becomes essential to monitor market conditions for the hostile combination of extreme valuations and deteriorating market internals. At present, we observe that combination, but would still characterize the deterioration in market internals as “early,” in the sense that it’s permissive of abrupt market losses, but not severe enough to infer a clear shift from speculation to risk-aversion among investors.
The delusion of paper wealth
Across history, the evaporation of paper wealth following periods of speculation has repeatedly taught a lesson that is never retained for long. Unfortunately, the lesson has to be relearned again and again because of what J.K. Galbraith referred to as “the extreme brevity of the financial memory.” Speculation is dangerous because it encourages the belief that just because prices are elevated, they must somehow actually _belong_ there. It encourages the belief that the paper _itself_is wealth, rather than the stream of future cash flows that investors can expect their securities to deliver over time. On Saturday, December 16, the St. Louis Fed posted a rather disturbing tweet: “Negative interest rates may seem ludicrous, but not if they succeed in pushing people to invest in something more stimulating to the economy than government bonds.” This tweet was disturbing because it reflects a strikingly flawed understanding of financial markets. A moment’s reflection should make it obvious that once a security is issued, whether it’s a government bond or a dollar of base money, that security must be held by someone, at every point in time, until that security is retired. The only way to get people to invest in something “more stimulating to the economy” than government bonds is to stop issuing government bonds. It takes only a bit more thought to recognize that securities, in themselves, are not net_ wealth. Rather, every security is an asset to the holder, and an equivalent liability to the issuer. If Joe borrows dollars from Mary to buy something from Bob, Joe issues an IOU to Mary, Mary transfers her dollars to Joe, and the dollars end up in Bob’s hands. The IOU is a new security, but it doesn’t represent new economic _wealth. It’s just evidence of the transfer of current purchasing power from Mary to Joe, and a claim on the transfer of future purchasing power from Joe to Mary. Neither the creation of securities, nor changes in their price, create _net_ wealth or purchasing power for the economy. Yes, an individual holder of a security can obtain a _transfer of wealth_from someone else in the economy, _provided that the holder actually sells the security_ to some new buyer while the price remains elevated. But in aggregate, the economy cannot consume off of its paper “wealth,” because in aggregate, those paper securities cannot be sold without someone else to buy them, and those paper securities must be held by _someone_ until they are retired. What actually matters, in aggregate, is the stream of cash flows. Specifically, the activity that produces actual_ economic wealth is _value-added production, which results in goods and services that did not exist previously with the same value. Value-added production is what actually “injects” purchasing power into the economy, as well as the objects available to be purchased. I’ve detailed the mechanics of “stock-flow accounting” in previous commentaries, so it will suffice here to cut to the bottom line. If one carefully accounts for what is spent, what is saved, and what form those savings take (securities that transfer the savings to others, or tangible real investment of output that is not consumed), one obtains a set of “stock-flow consistent” accounting identities that must be true at each point in time: 1) Total real saving in the economy must equal total real investment in the economy; 2) For every investor who calls some security an “asset” there’s an issuer that calls that same security a “liability”; 3) The _net_ acquisition of all securities in the economy is always precisely zero, even though the gross issuance of securities can be many times the amount of underlying saving; 4) When one nets out all the assets and liabilities in the economy, the only thing that is left – the true basis of a society’s net worth – is the stock of real investment that it has accumulated as a result of prior saving, and its unused endowment of resources. Everything else cancels out because every security represents an asset of the holder and a liability of the issuer. Securities are not _net_ wealth. Conceptualizing the “stock of real investment” as broadly as possible, the wealth of a nation consists of its stock of real private investment (e.g. housing, capital goods, factories), real public investment (e.g. infrastructure), intangible intellectual capital (e.g. education, knowledge, inventions, organizations, and systems), and its endowment of basic resources such as land, energy, and water. In an open economy, one would include the net claims on foreigners (negative, in the U.S. case). A nation that expands and defends its stock of real, productive investment is a nation that has the capacity to generate a higher long-term stream of value-added production, and to sustain a higher long-term standard of living. Understand that securities are not net economic wealth. They are a claim of one party in the economy – by virtue of past saving – on the future output produced by others. When paper “wealth” becomes extremely elevated or depressed relative to the value-added produced by an economy, it’s the paper “wealth” that adjusts to eliminate the gap. Several years ago, I introduced what remains the single most reliable measure of valuation we’ve ever developed or tested, easily outperforming popular measures such as the Fed Model, price/forward operating earnings, the Shiller CAPE, price/NIPA profits, and a score of other alternatives. From the above discussion, it shouldn’t be surprising that this measure is based on the ratio of equity market capitalization to corporate gross-value added. Specifically, the chart below shows the market capitalization of U.S. nonfinancial equities, divided by the gross value-added of U.S. nonfinancial companies, including estimated foreign revenues. This measure is shown on an inverted log scale (blue line, left scale). The red line shows _actual subsequent_ S&P 500 average annual nominal total return over the following 12-year period. We prefer a 12-year horizon because that’s where the “autocorrelation profile” of valuations (the correlation between valuations at one point and valuations at any other point) reaches zero. Presently, we estimate negative total returns for the S&P 500 over the coming 12-year period. Among the valuation measures we find best correlated with actual S&P 500 total returns in market cycles across history, the S&P 500 is currently more than 2.8 times its historical norms. Importantly, this estimate of overvaluation is not somehow improved by accounting for the level of interest rates. The reason is that interest rates and economic growth rates are highly correlated across history. Lower interest rates only “justify” higher market valuations provided that the trajectory of future cash flows is held constant. But if interest rates are low because growth rates are also low (which we’ll establish in the next section below), no valuation premium is “justified” at all. So even given the level of interest rates, we expect a market loss of about -65% to complete the current speculative market cycle. That’s a much different proposition, however, than saying that this collapse will occur right away. If you watch financial television, you’ll hear a great deal of chatter about the “fundamental support” below current prices. But attend carefully, and you’ll find that nearly all of these arguments reduce to a list of factors that make the investment environment feel good at the moment. These feel-good factors are being extrapolated into the future just as surely as Irving Fisher did in 1929 when he proposed that stocks had reached “a permanently high plateau.” The best place to watch for cracks in this narrative is not valuations; they are already extreme, and are uninformative about near-term outcomes. Rather, it’s essential to monitor the uniformity of market internals across a wide range of individual securities (when investors are inclined to speculate, they tend to be indiscriminate about it). We’ve already observed deterioration in our key measures of market internals, but I would still characterize that deterioration as “early.” Extending our focus beyond immediate conditions, the chart below shows the total market capitalization of nonfinancial and financial U.S. corporations, along with three lines. The lowest red line shows total gross-value added (GVA) of U.S. corporations. The green line shows 1.2 times total GVA, representing the pre-bubble norm around which market capitalization has historically traded. That green line is the level historically associated with S&P 500 total returns of roughly 10% annually, though the same level today would be associated with lower expected future returns, because structural economic growth is lower today than in the past. The purple line is essentially the most “optimistic” value-line, in that no bear market in history, including the 2002 low, has failed to reach or violate that level. The upshot is this. At present, U.S. investors are under the delusion that the $37.3 trillion of paper wealth in their equity portfolios represents durable purchasing power. Unfortunately, as in 2000 and 2007, they are likely to observe an evaporation of this paper wealth. Nobody will “get” that wealth. It will simply vanish. If a dentist in Poughkeepsie sells a single share of Apple a dime lower than the previous trade, over $500 million dollars of paper wealth is instantly wiped from the stock market. That’s how market capitalization works. Over the completion of this market cycle, we estimate that between $19.8 and $24.2 trillion in paper “wealth” will evaporate into thin air. While our immediate market outlook remains only moderately negative, based on the still-early deterioration we observe in market internals, recognize that from a valuation perspective, we are now witnessing the single most offensive speculative extreme in history. The chart below shows my variant of Robert Shiller’s cyclically-adjusted P/E, which substantially improves the correlation with subsequent market returns by accounting for variation in the embedded profit margin. The current extreme exceeds both the 1929 and 2000 highs. The chart below shows the correlation of our Margin-Adjusted CAPE with actual subsequent S&P 500 total returns, in nearly a century of market history. As we observe with MarketCap/GVA, the Margin-Adjusted CAPE presently implies negative expected S&P 500 total returns over the coming 12-year horizon.
The delusion of a booming economy
A second delusion, unleashed by exuberance over the prospect of tax reductions, is the notion that U.S. growth has even a remote likelihood of enjoying sustained 4% real growth in the coming years. The most frequent reference is to the years following the Reagan tax cut, followed closely by references to the Kennedy tax cuts. This particular delusion is undoubtedly an example what Garety & Freeman described as “a data-gathering bias, a tendency for people with delusions to gather less evidence.” The central feature of both the Reagan and Kennedy tax cuts was that they were enacted at points that provided enormous slack capacity for growth. In particular, the Reagan cuts were enacted at a point where the unemployment rate had hit 10%, and an economic expansion was likely simply by virtue of cyclical mean-reversion. The Kennedy tax cuts (which brought the top marginal tax rate down from 90%) occurred as baby-boomers were just entering the labor force, again providing enormous capacity for growth. Presently, the situation is the reverse. The structural drivers of U.S. economic growth are likely to constrain real U.S. GDP growth to less than 2% annually in the coming years, even in the unlikely event that corporate tax cuts encourage increased gross domestic investment. Corporate profits are already near record levels. The effective U.S. corporate tax rate (taxes actually paid as a fraction of pre-tax income) is already at 20% even without tax cuts. We know from the 2004 repatriation holiday that tax breaks on foreign profits encouraged little but special dividends and share buybacks. Already, the available corporate surplus is being primarily driven into dividend payouts, share buybacks, and mergers and acquisitions, rather than real investment. Frankly, the notion that corporate tax cuts will unleash some renaissance in U.S. real investment and growth would be laughable if the bald-faced corporate giveaway wasn’t so offensive. The policy not only vastly favors the wealthy, but is even more preferential to wealthy individuals who take their income in the form of profits rather than wages. The current tax legislation isn’t some thoughtful reform to benefit Americans. It’s a quickly planned looting through a broken window in our nation’s character. On the subject of economic growth, an examination of the structural drivers of economic growth will illuminate the current situation. _Real economic growth is the sum of two components: employment growth plus productivity growth._ That means growth in the number of employed workers, plus growth in the level of output per-worker. We can further break employment growth into “structural” and “cyclical” components. The structural part is determined primarily by demographics, particularly population growth and the age distribution of the working-age population. The cyclical part is determined by fluctuations in the unemployment rate (which is equal to 1-civilian employment/civilian labor force). If civilian employment grows faster than the civilian labor force, the unemployment rate falls. If the civilian labor force grows faster than civilian employment, the unemployment rate rises. Let’s take a look at these components, and how they’ve changed over the decades. You’ll quickly see that while a quarterly pop in GDP growth is always possible, expectations of _sustained_ 4% real GDP growth fall into the category of “delusion.” The first chart below shows the civilian labor force, on a log scale (so trendlines of different slopes represent different growth rates). For much of the post-war period until about 1980, the growth rate of the civilian labor force averaged about 1.8% annually. That growth slowed to 1.2% until about 2010. That 2010 figure is 1945 plus 65; the year that the first post-war baby-boomers hit retirement age. Since then, the growth rate of the civilian labor force has dropped to just 0.4% annually. That’s demographics. Now let’s take a look at productivity growth. In the early years of the post-war era, labor productivity increased at a rather explosive 2.6% annual growth rate. Growth then gradually slowed to about 1.9% annually, though in fits and starts, until about 2003. Over the past 14 years, U.S. productivity growth has slowed to just 0.6% annually. One of the core drivers of long-term productivity growth is expansion in net U.S. domestic investment (in excess of depreciation). As a general rule, booms in real U.S. investment are closely associated with deterioration in the trade deficit, because we export securities to foreigners in order to finance the boom. Because payments have to balance, this means we also export fewer goods for any given level of imports. The bottom line is that investment booms tend to be associated with larger trade deficits, so not surprisingly, booms in U.S. real investment typically emerge from a position of near-balance or surplus in the U.S. current account. Now, add the current 0.4% growth rate in the civilian labor force to 0.6% growth in productivity, and you get the current “structural” growth rate of the U.S. economy; that is, the growth rate we would observe in the absence of changes in the unemployment rate. That structural growth rate has deteriorated to just 1% annually. The labor force component of structural growth is largely baked in the cake due to demographics, which in the absence of a substantial increase in the rate of immigration, leaves productivity growth as the main factor that could raise structural U.S. growth. Still, given civilian labor force growth of just 0.4%, even a steep acceleration of productivity growth from the current rate of 0.6% to the 1972-2008 rate of 1.9% would still produce only 2.3% structural economic growth. Anything greater than that would have to be driven by a decline in the unemployment rate from the already low level of 4.1%. It’s worth noting that U.S. economic growth has expanded at a rate of 2.1% annually in the 7-year period since 2010 (I’ve chosen a 7-year period to confine growth to the recent expansion, without including data from the global financial crisis). What’s remarkable about this is that nearly half of this growth is attributable to a decline in the U.S. unemployment rate, which is a wholly cyclical factor. The chart below shows what’s going on. The blue line shows actual 7-year real growth in U.S. GDP across history. The red line shows the “structural” component of GDP growth, excluding the effect of changes in the unemployment rate. The green line shows the contribution to 7-year growth from changes in unemployment. Put simply, in the absence of further declines in the U.S. unemployment rate, U.S. real GDP growth is likely headed toward 1% annually, not 4% annually. If our policy makers are interested in boosting long-term structural U.S. GDP growth, they should be providing direct and targeted tax incentives for real investment, education, research & development, and other factors that could, over time, increase our nation’s productive capacity. Instead, they’ve opted for a giveaway to corporations and wealthy individuals, which will likely expand the deficit while doing virtually nothing for economic growth. Since 1950, the U.S. unemployment rate has been below 4.5% about 20% of the time. Over the following 5-year period, real federal tax revenues grew at an average rate of less than 1% annually. Given current structural economic constraints, and barring a further decline in the unemployment rate from an already low 4.1%, there’s a significant likelihood that government revenues will actually contract in the coming years.
The delusion of Bitcoin
“We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first” – Charles Mackay With regard to Bitcoin, my view is that the Blockchain algorithm itself is brilliant. Bitcoin itself, however, is just one application of Blockchain, and a rather awkward one. It’s not unique, meaning that other competing “cryptocurrencies” can be established just as easily. It’s not fiat, meaning that no country requires it to be used as legal tender. But beyond anything else, its inefficiency is so mind-boggling that the continued operation of the Bitcoin network could plausibly contribute to global warming. So be careful to distinguish Blockchain from Bitcoin. The Blockchain algorithm will undoubtedly become a useful component of validating transactions, tracking supply chain movements, and all sorts of other applications, but Bitcoin itself is likely to become the same thing to cryptocurrencies as Visicalc was to spreadsheets, or if you’re younger, what MySpace was to social networking. Bitcoin essentially uses a decentralized network of computers (anyone can join) that “listen” for transactions that are broadcast over the network. Each computer can accept and attempt to validate any “block” of transactions, which is done by discovering a particular “hash” for those transactions. The hash is a long string of ones and zeros corresponding to the input, and has to satisfy the current level of “difficulty” (specifically, a certain number of leading zeros). The difficulty is set so that only one block of transactions is validated every 10 minutes or so, across the entire network. The maximum size of a Bitcoin transaction block is 1MB, which is about 2000 transactions. That’s the total number of Bitcoin transactions that can be processed worldwide in any 10-minute interval. When you’re trying to validate a block of transactions, an extra transaction is included which designates a reward to your own account if you’re successful. Whoever discovers a hash that validates their block gets a reward, in Bitcoin. That’s what “mining” means. The validated block is added to the Blockchain – essentially a running ledger of every transaction ever made. The header for the next block has to contain the hash of the previously validated block (which is what creates the block “chain”). But here’s the thing. Every time a block is validated, a single node in the network gets a reward, and everyone else’s computing time is completely wasted. Those required computations already absorb the same amount of energy as the entire country of Denmark. Some people will get mad at that statement, arguing that it may only be half of Denmark. Ok. Ireland, along with more than 150 other countries. We can wait a few months to include Denmark. So ultimately, the Bitcoin features a combination of breathtaking inefficiency and constrained scalability. The system already features a rather steep cost per transaction, and hardly any of those transactions are for the purchase of goods and services. I’ve regularly observed that the value of a currency is essentially the present value of the stream of “services” that the currency can be expected to deliver over time, either by serving as a means of payment or as a store of value. That depends greatly on the willingness of other individuals to hold it and accept it into the indefinite future. My sense is that, as with all speculative bubbles, buyers are conflating “rising price” with “store of value.” Meanwhile, there’s little evidence to suggest that Bitcoin will ever be an efficient means of payment for ordinary goods and services. Episodes of speculation can persist for some time, so there may be some speculative profit potential in Bitcoin yet. Looking over the very long-term, it may also be worth something in the future, because value is always ascribed to things that have some combination of scarcity and usefulness. To the extent that Bitcoin is assured to have a limited supply, and is undoubtedly being used for money-laundering already, I doubt that the future value of Bitcoin will be identically zero, assuming governments refrain from any regulatory effort. There will likely be numerous alternative cryptocurrencies launched in the future, each one constructed to first enrich its originator with a large number of units, and then released in the hope that it will catch on. In evaluating these alternatives, efficiency and scalability will be worth considering.
A final note
While I have little to offer in support of speculative delusions about paper wealth, improbable growth expectations, or Bitcoin, I’d be remiss to write a commentary without acknowledging the many things that can be fully embraced. From an investment standpoint, every market cycle in history has ended at valuations consistent with prospective future market returns of at least 8% annually, and more often well above 10% annually. Even if the future will be permanently different, and even 8% return prospects will never ever be seen again, the prospect of _negative_12-year returns is likely to be resolved in far fewer than 12 years (as similarly poor prospects were within 2 years of the 2000 market peak). The strongest expected market return/risk classifications we identify emerge when a material retreat in valuations is joined by an early improvement in market action. While we can’t identify when that opportunity will occur, I expect that the cumulative market return between now and that point will be negative, because even a gradual 2-year improvement in prospective 12-year S&P 500 returns to just 4% would require a market loss of more than 20% over that 2-year period. In my view, a defensive posture here is an optimistic stance, because it recognizes the likelihood that prospective returns will again be positive before too long. I actually expect a much more substantial improvement in prospective market returns, but as in 2000 and 2007, that would require much deeper market losses than investors seem to contemplate. So if there is something in the financial markets to be optimistic about, it’s the prospect of opportunities that will evolve over the completion of the current market cycle. Despite extreme valuations in this cycle, we’ve learned to limit negative market outlooks to periods featuring deteriorating and divergent market internals. We observed that shift last month, but I’d still call it “early” deterioration; permissive of abrupt losses but not yet encouraging aggressive downside expectations. We’ll respond to market conditions as they change.
Focus on the vision for Bitcoin, not just its price.
Preamble The purpose of this post is not to discourage enthusiasm over the recent appreciation of Bitcoin. Everyone here is excited, and rightly so. I’ve put this together because I think people are getting a bit caught up in price mania and losing sight of the bigger picture. The ideas I’ve pulled together here are pretty condensed as it is, so unfortunately I have no TLDR. I don't claim to have a prophecy to share, or concrete answers to questions about where Bitcoin will go in the future -- nobody does. But that doesn't mean there's nothing to talk about. I would suggest reading slowly and giving your imagination time to picture or "render" things. There is no other way to grasp Bitcoin. Final preamble: I know there are people in this sub who are here just for the gains -- they freely admit it, and they laugh at how "true believers" will be left holding the bag when they sell. My hope is that those of you who feel this way will have an open mind. You might see things in a new light, who knows? Here we go… The Medium is the Message In the 1960s, a Canadian professor named Marshall McLuhan became widely known for his thorough analysis of the evolution of communication technologies. His central precept was that communication technologies have dramatic effects on populations regardless of the content they carry at any particular moment. The radio, for example, allowed private microphones to broadcast to widely distributed speakers, which enabled the amplification of private viewpoints on a public scale. This had profound effects on society that played out regardless of what particular messages were carried over particular radio frequencies at particular times. McLuhan’s famous aphorism, “The Medium is the Message,” is a distillation of this precept. In point form: 1) each new communication technology changes the environment into which it is introduced; and 2) the net effect of a technology over time is both far more interesting and harder to discern than the effect of any particular use of that technology or phase of its development. In other words, it is harder to see the forest for the trees, but seeing the forest is everything. So: what effect will Bitcoin have on the world over the long run? What is the meaning of Bitcoin? The Roman Model To understand where we might be going, we have to first understand how we got to where we are. In the West, our societies are founded on the Classical traditions which were seeded in Ancient Greece and “scaled” so to speak in Ancient Rome. McLuhan had a lot to say about this from a technological point of view: The development of writing on lightweight media such as papyrus and parchment enabled the externalization of knowledge. Thus, the oral traditions of Ancient Greece were subsumed and replaced by written traditions which were far less lossy and could be refined over time. Writing on lightweight media also enabled the centralized control of vast resources over large distances, which would have been impossible using engraved stone or oral communication. This was perfected by the Romans and thrown into overdrive by Johannes Gutenberg's invention of the printing press around 1450. In its abstract form, the Roman model takes the form of bureaucracy – hierarchical organization -- and this model has underpinned the structuring of society in the West for the past two thousand years. Look up "org chart" on Google Images if you can't picture one. Our societies are comprised of org charts within org charts within org charts -- try the following searches on Google Images: military org chart, bank org chart, government org chart, university org chart. Everything in our society is centralized, bureaucratized, and nested within the context of the nation state which is run by a central bureaucracy called the government, itself divided into departments within departments, orgs within orgs. This is not to say that humans didn't organize hierarchically before ancient Rome -- of course they did, as do apes, dogs, chickens, etc. However, in a social hierarchy such as a tribe, there is a scale limit (Dunbar's number, 150) because each member must know his place and his role as well as the places and roles of all other members. The hierarchy lives inside its members' minds and looks more like a swarm than an org chart. Bitcoin is, of course, this type of network, where each node has full knowledge of the state of the network and participates in it voluntarily. Bureaucracy, on the other hand, is based on the writing down of roles (job descriptions) and makes people interchangeable. There is no limit to scale as long as you map everything out carefully (management). The lifeblood of bureaucracy is the transmission of written forms of information (paper-pushing) from the center to the periphery along defined, linear routes. Each node receives its orders, performs its specialized role, delegates if the role requires it, and then awaits new orders. Privilege and planning are concentrated near the center -- as is risk. These structures are inherently fragile and collapsible. If you undermine a high-value node as happened in the collapse of Lehman Brothers, the whole edifice collapses. The entire global financial system barely withstood the collapse of a single American bank - it is that fragile. Each nation's banking system is likewise a matrix of bureaucracies operating as a single, hierarchical supply chain whose product (the national currency) flows outward from a central node (the central bank) through successively less privileged nodes (investment and commercial banks) down to the level of branches and ATMs. At each level of the banking system, additional product is created and loaned out (credit/debt) using the productfrom the level above as a stake (fractional reserve lending). The banking systems are insulated from competition by governments through the decree that taxes must be paid in national currencies. And to keep the currencies moving, everyone is raised from birth to want more and then given the appearance of more through the creation of more by fiat, meaning by arbitrary decree, without any necessary connection to the creation of new wealth. This is inflation: the steady creation of new money to repay debt and keep the show going. It is a Ponzi scheme by design, and it relies the continued "buying-in" of young people in order to survive. Each national currency has value and utility only by decree and only within that nation's cell in the global mosaic. To move value from one nation to the next requires snaking it through tenuous international pathways, paying entrenched gatekeepers, and exchanging one national currency for another. You have to be somebody to access the banking system. The more somebody you are, the more access you get. It is principally through control of economic access that strong nations bully weaker ones, rich people bully poorer ones. There is tremendous pent up tension in our world as a result. This is where we are. The Center Cannot Hold McLuhan predicted that the advent of the electronic age and the emergence of global communication networks would lead to the dissolution of these centralized, bureaucratic structures from the bottom up. He died before the spread of the Internet but described the end result with crystal clarity in his writings. His vision of an interconnected world, which he called the "Global Village," is here now. Every person has the ability to broadcast information to others in their networks over the Internet. If a transmission is perceived as having sufficient value, the receiving people pass it on, and so on. Above a certain threshold of significance, transmissions are repeated by all people to all other people: this is virality and there is nothing that institutions can do to harness or stop it. The Arab Spring for example brought down an array of national governments in a span of months. Like a rising tide, global communication networks are bringing about an inevitable dissolution of the Roman model all around us: the music industry was upended by Napster; newspapers are being displaced by twitter and blogs; radio stations are being displaced by podcasts; broadcasters are being displaced by Netflix and YouTube; brick-and-mortar stores are being displaced by Amazon and eBay; AirBnb is gobbling up rental supply; traditional transportation services are being displaced by Uber; and now decentralized currencies are coming after centralized ones. Quoting W.B. Yates: “Things fall apart; the center cannot hold; Mere anarchy is loosed upon the world.” It is important to realize that even though the post-Dot-Com networks like Facebook and eBay were more effective than their institutional predecessors, they are still quite fragile since they are centralized. They can be hacked, compromised, back-doored, subpoenaed, or otherwise shut down. In contrast, a truly decentralized network is perfectly flat and impossible to shut down. The music industry could kill Napster by going after Sean Parker, but it cannot touch BitTorrent. True decentralization, at scale, is one of the principal reasons why Bitcoin is secure: whatever it becomes, it cannot be stopped because there is no center to hold, and nothing to attack. At this point, I think it makes sense to explain how Bitcoin works, and why it has value. If those questions can't be answered clearly, there's no basis for thinking Bitcoin will disrupt traditional banking. I do, however, think there are very good answers to those questions which I'll try to present below. Bitcoin and Blockchain Imagine you live in a pre-historic tribe of ten people. As a group, you need to find a way to keep track of who did what work, and in what quantity. In other words, you need an abstract “work unit” that can be traded for work and held for use in future exchanges. You could use shiny rocks or something else similarly rare, but people would still be able to cheat the system: why do actual work if you can simply go on a hunt in the forest and find new rocks? One solution is to create a ledger or list that keeps track of how many rocks each person has. If the ledger is the authority on who has what, people would not be able to inflate their balances by introducing new rocks or other work units from outside the system. The problem is, everyone has to trust the keeper of the ledger. If only one entity maintains the ledger, they ultimately control how much money everyone has (banks). Decentralization is the solution to this problem. You can write down ten copies of the ledger and distribute a copy to each person in the tribe. At the end of the day, everyone could cross-check the transactions that took place with everyone else and a consensus could be formed about who has what without appealing to a central authority. Eventually, the people might realize that the rocks themselves are unnecessary, and that it is actually the ledger that is important. The rocks, like all currencies, are meant to track work. If a ledger is already doing that, the rocks themselves become extraneous. The actual units of currency are the work units on the ledger. And if everyone agrees to use the same ledger, its work units have value. The blockchain is that ledger and Bitcoin is its work unit. Proof of Work In the illustration above we can see that the utility of a blockchain is that it enables distributed peers to prove to each other that they have done work, and to trade their work units freely without appealing to a trusted intermediary. The obvious next question is: what proof do we have that we can trust the Bitcoin blockchain? Bitcoin mining is based on a Proof of Work consensus mechanism. To put this as simply as I can, each and every mining node on the network is competing against the rest of the network to generate a small piece of data that proves it has performed an enormous number of computer operations using a batch of new, valid transactions as an input. The amount of work that it takes to successfully mine Bitcoin is dictated by how much computer power has voluntarily joined the mining network - and this is adjusted dynamically as miners enter and leave the network. Each operation requires a tiny bit of electricity since a computer must perform it, so as the difficulty of the Proof of Work operation scales, so too does the cost of generating it. As of writing, the Bitcoin network is collectively performing about 8,250,000,000,000,000,000 operations per second, and it takes an average of about ten minutes worth of this grind for a single node on the network to successfully produce an acceptable proof of work and add a block of transactions to the blockchain. The winning node is awarded new Bitcoin by including a transaction in its block that credits its own wallet -- now we understand mining. So you want to be a Bitcoin miner? Let's say you have a powerful gaming computer that can perform about 100,000 Bitcoin computer operations per second (a realistic amount by the way). It would have roughly a 1 in 82.5 quintillion chance of mining a block if you were to enter it into the mining race today. If you had a stack of 1000 of these gaming computers your odds of mining a block would improve to roughly 1 in 82.5 quadrillion. A million of them? 1 in 82.5 billion. Etc. Miners use specialize hardware to perform the computer operations, but the point still stands: it takes a staggering amount of computer power and thus a staggering amount of electricity to "get a word in" on the Bitcoin blockchain. But let's say you get lucky and are able to generate a proof of work. That proof of work will be tied inexorably to whatever batch of transactions you are trying to add to the blockchain since those transactions were part of the input of the computer operation. Your transactions must be valid or else the rest of the network would reject your work. You wouldn’t be able to double-spend, create Bitcoin by fiat, or spend from balances that you don’t have the keys for. The network would reject your block. The larger and more distributed the mining network is, the more cost-prohibitive it is to compromise it. In other words: the more people you have checking the ledger from different nations and backgrounds, the harder it is to override the distributed, international consensus. And that is why the Bitcoin blockchain can be trusted. It is audited by the largest computer network ever assembled and requires that an attacker control at least 51% of the network on a sustained basis. The Open Blockchain As more and more people use a blockchain, its units (e.g. Bitcoin) become more valuable. As the price of the base unit increases, it becomes more profitable to mine them at the prevailing level of difficulty, so more miners join the network. As more miners join the network, the level of difficulty increases and thus the robustness and security of the network increases. As the robustness of the network increases, it becomes more secure against attackers, so more users and investors are drawn to it. And so the price of the base unit increases. Which draws in more miners. Etc. The adoption of a blockchain, like the adoption of any currency, is a virtuous circle -- one that Bitcoin has been nurturing successfully for nine years without any existential catastrophes. Bitcoin's heartbeat, the mining of a new block every ten minutes, has not skipped a single beat in nine years. There has not been a successful double-spend in nine years. There has not been a single accounting error in nine years. No balance has been mysteriously wiped off the blockchain in nine years. This track record has been established despite the fact that the blockchain is not protected by a firewall, or an institution, or shielded in a vault. It is not buried underground, or protected by obfuscation. It is out there in the wild of cyberspace for all to see and attack, secured purely by Proof of Work and sheer scale. Bitcoin itself is valuable because it is the only work unit that can be included in a block of this particular, special blockchain: the open, global, transnational, borderless, censorship-resistant, permissionless, leaderless, most well-known, longest-running, and most-well-capitalized blockchain (credit to andreasma for this and many other insights). Because work units on this blockchain are scarce (per the 21-million cap), having the ability to sign for transfers of Bitcoin on the blockchain is a form of real control over scarce resources. This is the pivotal point: to the degree that people around the world adopt and learn to trust the Bitcoin blockchain, its work units will have value. And it is Bitcoin's openness in particular that makes it the prime candidate for filling this role. Any computer on the planet can join the mining swarm at any time, just as anyone can join the network as a user, at any time, from any location. Even the Bitcoin development community is open-source and open to new developers provided they can prove their merits. This is what is meant by The Open Blockchain: the Bitcoin blockchain is accessible everywhere and is open to anyone. It is welcoming. It enables people from different cells in the global mosaic to transact point-to-point, without snaking value through complicated interbank networks, without paying entrenched gatekeepers and intermediaries, and without having to convert from one currency to the next. If a country experiences a currency crisis, Bitcoin is a very real option because it enables people to transfer value out of hot spots and convert it into other currencies. The international monetary system is no match for this technology. Private blockchains are no match either. Bitcoin’s Monetary Policy Bitcoin is commonly referred to as "digital gold" since it is designed to function like a precious metal. The creation of new units follows something like the extraction curve of a natural resource. The issuance of new coins was steep at first but will taper off over time through successive “halvings” of the reward that miners receive for creating new blocks. Eventually, the issuance of new coins will approach an asymptotic limit of 21 million coins. At each "halving", the rate of inflation is effectively cut in half, though it decreases ever so slightly with each new block. The current rate of inflation is about 4%. At the next halving in 2020, the inflation rate will be about 2%. In 2024, 1%. Etc. The world has never before had access to a truly deflationary asset. Even currencies considered deflationary such as the Japanese Yen are not truly deflationary: the government can print an infinite amount even though deflation in Japan has inertia. Gold is not deflationary: new gold is mined every year. Bitcoin will eventually become truly deflationary, meaning the supply of available Bitcoins will contract year over year consistently. How is this possible, if there is no provision to destroy coins in the protocol? There is guaranteed to be a year sometime in the future where more coins are lost due to people losing their keys than new coins are created. It will happen. As the miner reward decreases, years like this will become more common. In the distant future, decades will go by where every year is deflationary, and eventually it will be practically impossible for the supply of Bitcoin to not decrease in a given year. Here is Bitcoin’s golden proposition: because it the first truly deflationary asset, it does not require interest payments or a never-ending influx of greater fools in order to provide a “yield” over the very long run. In the distant future, Bitcoin will have a low but predictable intrinsic expected return approximating its rate of deflation, as long as it remains secure. When you combine Bitcoin's monetary policy with its robustness through distributed Proof of Work on a planetary scale, you end up with the basis for a global reserve asset more effective than anything else humans have ever had a chance to work with, including gold. Gold is modestly inflationary, it cannot be transmitted over a network, and it must be centrally secured and accounted for. Bitcoin has already obsolesced gold as a reserve technology, let alone Ponzi currencies like the dollar - most just don't know it yet. As people come to really understand Bitcoin’s monetary policy, they will flock to it as a safe haven, especially in troubled economies. If we have another 2008, Bitcoin will be very much in play. Bitcoin as Money People argue that Bitcoin's deflationary policy, high fees, and volatility make it ineffective as a medium of exchange. If you can expect a Bitcoin to be more valuable next year, why spend it this year? If it costs $20 in fees to buy a $3 coffee, who will use or accept it? If its value can double in a day, who will set prices in terms of Bitcoin exclusively? The truth is, Bitcoin is not yet ready for mass adoption as a day to day currency or unit of account. Anyone who tells you otherwise is getting ahead of the technology -- but this is temporary. Just as the early Internet could only handle the transfer of simple text-based content but eventually scaled to allow everyone to stream 4k at the same time, so too Bitcoin will scale. The Lightning Network shows promise in this regard. It will enable and incentivize users to stake their Bitcoin on a second layer where payments are negotiated in a trustless manner between parties, instantly, and merely settled periodically on the blockchain. But even with today’s block congestion and high fees, Bitcoin is already cheaper and more efficient for large transfers of value than the banking system, especially internationally. People transfer hundreds of millions of dollars on the blockchain, securely, today. Regarding volatility, we are still in the very early phases of adoption. Something like 10-20 million people own Bitcoin worldwide. Because the supply of Bitcoin cannot inflate to accommodate increased adoption, prices will continue to escalate in logarithmic fits and starts as adoption ramps up exponentially. Look up "adoption curve" on Google. We are still in the very early phases of the ramp-up, but eventually the curve will taper off and approach something like stability. We do not know how this will play out or how long it will take, and there will be serious volatility along the way; but if Bitcoin scales into a robust transnational currency trading on thousands or tens of thousands of exchanges worldwide, it will likely become more stable than most national currencies if not all. Regarding deflation: over time, we will likely see new innovative uses of Bitcoin as a reserve for credit creation. People are clearly willing to operate in systems that use reserve-based lending, and they can work wonderfully: look at what humans accomplished in the 20th century! It is conceivable that Bitcoin could be used as a reserve for distributed, trustless, bank-like networks that issue their own tokens. We may end up using a modestly-inflationary cryptocurrency for day-to-day transactions and investment. There’s no way to know what people will come up with, but they will come up with things. And that is why Bitcoin must stay laser-focused on its role as the de facto reserve currency in the crypto-economy. A Vision Statement for Bitcoin Tying everything together: over the course of thousands of years, we have built our societies around the use of hierarchical principles of organization. These structures centralize control and privilege, but also risk. They are fragile. Too big to fail. The invention and proliferation of the Internet paved the way for the dissolution of these structures, and over the past twenty years we have seen countless examples of entrenched institutions being wiped out by flatter, more effective networks. Now we are seeing the early evolution of global, distributed, cryptographic value storage and transfer networks which will slowly displace traditional banking systems by offering faster, cheaper, more reliable routes, with better systemic risk profiles, infinitely better security, no access controls, and no entrenched monopolistic privileges over money creation. Bitcoin was the first mover in this space and remains the incumbent. It is a global, secure, consensus-based currency that was bootstrapped from the ground up by ordinary people volunteering to participate in its development, mining, and use. It has grown exponentially in size since its inception, to the point where it is now upheld by the largest dedicated computer network in the world. Because it is secured principally by its unmatched scale, it is therefore the most secure accounting system in the world, which in turn makes the entries in its ledger the most trustworthy on the planet. If you can sign for a Bitcoin in the network’s eyes, you own it -- and nobody can stop you from owning it or signing for it. Bitcoin is here, now. It is in the air all around us, accessible over wifi and cellular networks around the globe -- anywhere the Internet touches. The next time you walk down the street, look at the people around you. As they move through the air, displacing it with their bodies, recognize that they are literally wading through the Bitcoin network -- they just don't know it yet. Suggestions for New People 1) Focus first and foremost on the vision and take an interest in the technology. I have a friend who is talking about putting $20k into Bitcoin, yet only a few nights ago he didn't know that Bitcoin isn't a company, or that a block isn't a single transaction. I have another friend who owns a whole Bitcoin but has never initiated a transaction. A co-worker of mine just bought $100 worth of Bitcoin but doesn't know that a wallet is key management software. 2) Bitcoin is an experiment with no precedent. Nobody knows if it will survive, what it will evolve into, or how it will be used. Even with its long-running track record, nobody can say with prophetic certainty that it won't suffer a catastrophic failure of some kind, so put only as much money into Bitcoin as you can afford to lose. I would offer the following as a good rule of thumb: if you have a negative net worth (meaning your debts exceed your assets) be very cautious with Bitcoin, and at the very least do not increase your debt to buy Bitcoin. If you have a positive net worth, do not go negative to buy Bitcoin. Having said all this, do keep in mind that any currency can suffer a catastrophic failure, including the US Dollar. Remember 2008. Don’t fall for illusions of security. We are all sailing in little boats on a big sea. Diversify. 3) If you believe in Bitcoin, try not to obsess over the value of Bitcoin in fiat terms, as tempting as it is. Try to conceptualize its value on the basis of its potential utility in emerging decentralized networks and look for ways to use it in these new emerging ecosystems. Look up OpenBazaar for example - it could be the new eBay without an eBay acting as an intermediary. I strongly believe that owning Bitcoin is exciting because it sets you up to have a stake in this emerging ecosystem. If your aim is to eventually get your value out of Bitcoin in the form of fiat, you’ll be giving up that stake. If you don't care about having a stake and are here just for the gains, that's perfectly fine too. 4) Learn how to take possession of your private keys. If you don't know what that means or how to do it, learn what it means and how to do it. Until you can say with confidence "I alone own my private keys", you do not actually own Bitcoin and you do not have a stake. Someone else owns it for you. It took me two years of owning Bitcoin before I actually clued in and took control of my own, and that is what forced me to take on the Bitcoin learning curve. The good news is, you can too. (Edit: formatting)
[modpost] Possible wiki page, something I call "All about miners," covering things from basic terminology to miner config files and overclocking.
What is a miner? A miner is a computer set up to solve cryptographic hashes in the litecoin network. Once a clump of these hashes, or a block, is mined, litecoins pop out! It's like opening a box of chocolates, except you know what you're gonna get :) Miners also handle transaction confirmations, making sure no single coin is double-spent. Setting up your computer to be a miner What kind of computer do I need? Optimally, you'd have a good power supply and a couple decent Radeon/ATI/AMD graphics cards. Because of litecoin's hash algorithm, the gap between mining with graphics cards and processors is less than with most other cryptocurrencies, meaning that mining with some desktop processors may be worth it after electricity costs. Note that mining with laptops is not recommended because of the heat generated by mining, and mining with NVIDIA graphics cards may not be worth the cost. How do I know if litecoin mining will be profitable for me? First, check how fast you'll be mining with your hardware, how many litecoins you'll mine in a day, and how much litecoins are worth. Now, multiply the number of litecoins per day by their worth. Then, find out the power draw of your hardware, and calculate energy cost. Then finish by subtract energy cost from your daily earnings. If your number is positive, you're making that much money per day. If negative, you're losing money. Keep in mind that the worth of litecoins goes up/down, and you have to earn the cost of your hardware before you churn a profit. Mining difficulty also goes up/down, depending on how many people are mining how fast in relation to how many litecoins are supposed to be generated how fast. See the economics(coming soon) post for more info. Okay, I did all that. How do I start? All you have to do is download a program and change some settings (later in the guide), and you're ready to go. If you're comfortable with configurations and the command line, Reaper and cgminer are your best friends. Otherwise, GUIMiner-scrypt is right for you. If you want to mine on your processor, download the "batteries included" miner via this link and setup should be relatively self-explanatory. Do I mine alone? Due to the difficulty of mining, we recommend that you mine with a pool where multiple people mine together. Visit your pool's about or help page for proper miner settings, which we're about to get to in-depth! Under the hood Configuring your miner (aka the hard part) Before we get started, you should become familiar with these terms:
host: Your pools website
port: The internet port your computer uses to connect to your pool
worker: Anything that mines is a worker. Just a way for you and your pool to keep track of what's mining how.
user: In mining programs, the user is the name of your worker, which by default tends to be poolusername.1 or poolusername_1, _2, etc.
pass: Password for your worker, NOT your pool password. This can usually be anything.
None of those will have any affect on how fast you mine. The settings that we'll be focusing on are:
worksize: Exactly what it sounds like
thread-concurrency: Setting that involves computations happening simultaneously
vectors: Involves how memory is used
aggression/intensity: How aggressively your computer mines
threads_per_gpu: How many threads of data to process on a GPU, like threads of a CPU. Anything beyond 1 usually doesn't increase hashrate on modern cards.
device: First GPU is device 0, second is device 1, etc.
If you're using GUIMiner-scrypt, there are default settings for different cards (lower right dropdown). I'm mining on a 7870. Here is what it looks like for me. You can follow along with the rest of this guide to optimize your settings. GUIMiner-scrypt is just a GUI to cgminer and reaper anyways. If you are using a command-line miner, like reaper and cgminer, I recommend you download and isntall Notepad++ or SublimeText if on Linux. Reaper is currently considered to be the best tool for mining. After you unzip your downloaded file, in the folder you'll find reaper.conf. It should look something like this:
As you see, my thread concurrency is slightly different from the default of GUIMiner-scrypt. I found that this concurrency gives me the best hashrate! NOTE: I do not use cgminer to mine litecoin. If you plan on using cgminer, which offers more hardware-controlling settings, in the cgminer folder you will want to create a text file. Then, open that text file w/ Notepad++ or SublimeText, then Save As > cgminer.con > file type > all. This will save the file with the proper name and as the proper type. Note that cgminer does not support high concurrencies. For me, cgminer.conf would look something like:
You saw some settings similar to what we saw in Reaper's litecoin.conf. The other settings have to do with my card's clocks, voltage, and fan. This is covered in the overclocking section right below! Overclocking (aka the risky part) Okay, first off I'm not responsible if you cause damage to your parts. Please research safe overclock settings for your card. Second, don't be afraid. Modern hardware has many safety features in place that help prevent mayhem like me...lol jk this isn't a car insurance add. For your better understanding, become familiar with these terms:
Voltage/vddc: Amount of electrical current supplied to your card
Power Limit: Determines at what temperature your card throttles itself
Core Clock: Speed of your memory's core, similar to CPU core clocks
Memory Clock: Speed of GPU's GRAM, similar to RAM speed
Fan speed (%): Determines the RPM of your fan once your card reaches certain temperatures.
No one setting controls how effectively you mine; what matters most when it comes to clocks is the ratio between your core/memory clocks. Generally, a ratio of 0.7 or below is best. You will need to experiment. If you're using cgminer, you can control card settings from the conf file. However, if you aren't, I recommend using MSI Afterburner as your overclocking tool. You will need to unlock some settings. Using my cgminer settings, MSI Afterburner looks like this. I have found these settings to be the most stable while bringing me a high hashrate. Other people's optimum settings You can check the sidebar for the hardware comparison chart, but it is rarely updated and has huge sways in results. It is a good starting place. The mods of this subreddit will be putting together an updated, more accurate list in the near future. END I hope all things go smoothly for you and that you've learned a lot! Please consider donating LTC to My wallet: LiD41gjLjT5JL2hfVz8X4SRm27T3wQqzjk The writer of the [Consolidated Litecoin Mining Guide] which helped get me started The writer of the [Absolute Beginner's Litecoin Mining Guide] which also helped me get started
I am happy to join with you today in what will go down in history as the greatest claim for financial freedom in the history of our nation. Around 6 years ago, a great inventor, in whose symbolic shadow we stand today, wrote the Whitepaper. This momentous decree came as a great beacon light of hope to millions of financial slaves who had been seared in the flames of withering injustice. It came as a joyous daybreak to end the long night of their oppression. But still years later, the citizen is not free. The life of the ordinary guy is still sadly crippled by the manacles of inflation and the chains of debt. Now the worker lives on a lonely island of poverty in the midst of a vast ocean of bankers prosperity. And so I stand here today to dramatize a shameful condition. In a sense we've come to here to cash a check. When the architect of our freedom wrote the magnificent Bitcoin Whitepaper he was signing a promissory note to which every American was to fall heir. This note was a promise that all men would be guaranteed the "unalienable Rights" of Life, Liberty and the pursuit of Moon. But we refuse to believe that the bank of justice is bankrupt. We refuse to believe that there are insufficient funds in the great vaults of opportunity of this coin. And so, we've come to cash this check, a check that will give us upon demand the riches of freedom and the security of justice. We have also come to this hallowed sub reddit to remind America of the fierce urgency of Now. This is no time to engage in the luxury of cooling off or to take the tranquilizing drug of gradualism. Now is the time to make real the promises of Bitcoin. Now is the time to rise from the dark and desolate valley of sub $400 to the sunlit path of $1000 and higher. Now is the time to lift our community from the quicksands of financial injustice to the solid rock of brotherhood. Now is the time to make Moon a reality for all of Satoshi's children. It would be fatal for us to overlook the urgency of the moment. This sweltering summer of the community's legitimate block size discontent will not pass until there is an invigorating winter of discussion and resolution. BIP101 is not an end, but a beginning. And those who hope that the Bitcoiner needed to blow off steam and will now be content will have a rude awakening if the community returns to business as usual. And there will be neither rest nor tranquility in Bitcoin until the Block Size is resolved. The whirlwinds of revolt will continue to shake the foundations of our community until the bright day of justice emerges. But there is something that I must say to you , those who stand on the warm threshold which leads unto the Moon: In the process of gaining our rightful place, we must not be guilty of wrongful deeds. Let us not seek to satisfy our thirst for financial freedom by drinking from the cup of scam and theft. We must forever conduct our struggle on the high plane of dignity and discipline. We must not allow our creative protest to degenerate into trolling or doxxing. Again and again, we must rise to the majestic heights of harsh words with soul force. The marvelous new militancy which has engulfed the Bitcoin community must not lead us to a distrust of all altcoins, for many of our altcoin brothers, as evidenced by their presence here today, have come to realize that their destiny is tied up with our destiny. And they have come to realize that their freedom is inextricably bound to our freedom. We cannot walk alone. And as we walk, we must make the pledge that we shall always march ahead. We cannot turn back. There are those who are asking the devotees of cryptocurrency, "When will you be satisfied?" We can never be satisfied as long as the citizen is the victim of the unspeakable horrors of federal reserve brutality. We can never be satisfied as long as our bodies, heavy with the fatigue of chart watching, cannot gain lodging in the motels of the highways and the hotels of the reddit subs. I am not unmindful that some of you have come here out of great trials and tribulations. Some of you have come fresh from buying at the top (again). And some of you have come from areas where your quest -- quest for freedom left you battered by the storms of persecution and staggered by the winds of moderator brutality. You have been the veterans of creative suffering. Continue to work with the faith that unearned suffering is redemptive. Go back to the Whitepaper, go back to the Bitcoin forums, go back to your trading exchanges, go back to the ATMs, knowing that somehow this situation can and will be changed. Let us not wallow in the valley of despair, I say to you today, my friends. And so even though we face the difficulties of today and tomorrow, I still have a dream.
The Ethereum difficulty chart provides the current Ethereum difficulty (ETH diff) target as well as a historical data graph visualizing Ethereum mining difficulty chart values with ETH difficulty adjustments (both increases and decreases) defaulted to today with timeline options of 1 day, 1 week, 1 month, 3 months, 6 months, 1 year, 3 years, and all time What is a Mining Share? Here is a quote from the article ‘How the Mining Pool Works: PPLNS vs. SOLO’:. At the earliest days of the mining, any processor or GPU had the sufficient power required for finding many solutions per day and getting a reward for the detected block. Accurate Litecoin mining calculator trusted by millions of cryptocurrency miners. Updated in 2020, the newest version of the Litecoin mining calculator makes it simple and easy to quickly calculate mining profitability for your Litecoin mining hardware. Difficulty is a measure of how difficult it is to find a hash below a given target. The Bitcoin network has a global block difficulty. Valid blocks must have a hash below this target. Mining pools also have a pool-specific share difficulty setting a lower limit for shares. How often does the network difficulty change? Every 2016 blocks. Many pools clamp at a lower bound of many tens of thousands of difficulty as of 2017, and many pieces of hardware aren’t even able to produce blocks with a lower difficulty than that. The miner really only needs to send share proofs every few minutes at most for the remote pool to have a reasonable confidence that they are mining at a ...
What is Crypto Mining Difficulty and How it Impacts YOUR Profits - Explained W/ BTC ZenCash ZEC
Comedians in Cars Getting Coffee: "Just Tell Him You’re The President” (Season 7, Episode 1) - Duration: 19:16. blacktreetv 33,491,826 views Bitcoin difficulty chart. What is a Bitcoin difficulty chart? Why do I need a Bitcoin difficulty chart? Bitcoin difficulty chart, Bitcoin, difficulty, chart, Bitcoin difficulty, Bitcoin chart ... Live Bitcoin Trading With Crypto Trading Robot DeriBot on Deribit DeriBot Alternative channel 932 watching Live now Crypto Mining Difficulty 101 - Everything You Need to Know - Duration: 18:40. Watch in 360 the inside of a nuclear reactor from the size of an atom with virtual reality - Duration: 3:42. EDF in the UK Recommended for you. 360° How does cryptocurrency mining difficulty work and why should you care as a miner? - Duration: 55:47. ... How Does Bitcoin Work? - Duration: 7:37. Techquickie 1,716,240 views. 7:37.