Aug 112018

Bitcoin Dominance

In a recurrence of history not repeating but rhyming, as the crypto bear market of 2018 deepens, the Bitcoin dominance index has been on the rise. Today, for the first time in 2018, it has passed the 50% mark. Based on historical trends, during the exuberance of a bull market, ‘altcoins’ rally relative to Bitcoin. During the bear markets, however, Bitcoin takes away what it gives during the bull markets, i.e. the relative ‘altcoin’ prices fall with respect to Bitcoin.

The Bitcoin dominance index, which measures the relative weight of Bitcoin in the full tradable basket of cryptocurrencies, has crossed the 50% mark, an important psychological level but otherwise without fundamental merit. It should also be noted that today there are an order of magnitude more cryptos in the market than even 2 years ago, so Bitcoin retaining 50% of the entire market even as new entrants enter this market is impressive.

Dominance History

Bitcoin dominance peaked around 80% before the bull market of 2017, when it dropped to as low as 35%, before recovering. This has usually been the case with Bitcoin and the crypto markets when the relative weight of Bitcoin falls during a bull market. The altcoins tend to be more volatile than Bitcoin.

This was also the time of the ‘flippening‘ narrative put forth by the Ethereum community that the Ether market capitalization would exceed that of Ethereum very soon. That was not to come in 2017. Even prominent venture capitalists who have invested in the space for a few years, like Fred Wilson, were completely wrong on their prediction of the flippening. It is a common human bias to project a recent trend into the future, and recency bias makes us weigh recent data more than older data. Needless to say, even prominent investors are not immune to these, and seldom correct their world view distorted by these biases.

Different Value Sources

The other thing for crypto investors to keep in mind is that the value of different ‘altcoins’ today come from very different sources, and thus it is not always fair to compare Bitcoin to them. For example, the value of a coin like Golem primarily comes from the usage of its network for compute resources. This is not true for Bitcoin. Bitcoin is more of a true store of value that is converting to a convenient medium of exchange via innovations like the lightning network.

This was different when the best known altcoins were similar to Bitcoin, such as Litecoin. Today, the crypto market is much more diverse in its offerings.

The value of Bitcoin is affected also by the broader economy and market, such as providing shelter to ordinary people in countries like Venezuela, Iran, and Turkey where inflation is rampant. Bitcoin provides a way for these people to store their wealth in a non-depretiating asset or work for foreign entities and capture some of the value they create.

Aug 022018

This is a guest post by Anupam Varshney

“Like all great travellers, I have seen more than I remember, and remember more than I have seen” – Benjamin Disraeli

We all love to travel. Some prefer a weekend getaway, others go out for a few weeks and then there are avid travellers who have been travelling for years. One thing all international travellers can agree on is the hassle of currency conversion when you visit another country.

My friend visited Vietnam a few months ago and this is how his $500 in Vietnamese Dong looked like:

Travel Digital Currencies

“I’d have been screwed in Vietnam if it wasn’t for Bitcoin” – Vibhor Jain

As it turns out, 1 USD is equivalent to 23,042 Vietnamese Dong!

The worst part is, you don’t even know where to get the best rates for converting to local currencies. Is it the airport or somewhere in the city? Your guess is as good as mine.

And what happens when you’re left with the local currency after your trip is done? Well, they usually stay with you. I’m sure my friend still has some Dong lying around.

Let’s not even get started on how much ATMs charge when you withdraw cash internationally using your card. It’s anywhere between $5 to $25 for each withdrawal. Swiping your credit card at stores will cost you even more.

Wouldn’t it be great to have a global currency that eliminates the hassle of high fees and carrying a lot of cash?

Digital currencies like Bitcoin, Ethereum and others allow you to do so.

Five years ago it may have been slightly difficult to travel using just cryptocurrencies, but blockchain space has evolved so fast that you can pretty much use cryptocurrencies in all aspects of travelling and replace it with fiat.

Before you travel

Planning phase of travelling is probably the most exciting part for some people, however, entire process can be very tedious. On average, a traveller spends 30 hours and browses 38 websites before finally booking a trip.

If you’re a DIY kind, you can still do everything with Bitcoin and other cryptocurrencies one by one.



  • Expedia is one of the largest travel booking websites. It accepts Bitcoin for hotel bookings.
  • allows you to buy gift cards in Bitcoin that can be used on, which offers 150,000 hotels worldwide

Watch out for Beenest, a platform to book Airbnb like homes using their native BEE tokens.

Car Travel

  • CheapAir and Destinia allow users to rent a car and pay in Bitcoin
  • There are decentralised carpooling apps: Lazooz and ArcadeCity
  • Many local travel agents now accept payments in digital currencies who’d happy to rent you a car

While you travel

When you’re travelling in a different country, use digital mapping tool CoinMap to locate stores and restaurants where Bitcoin is accepted.

A few companies offer their native cards just like Visa and Mastercard, which are filled with digital currencies and can be used at any store where Visa or Mastercard are accepted. So you pay in the local currency but Bitcoin (or some other supported digital currency) equivalent of that amount is deducted from your personal wallet.

The most popular project working on this is Monaco. They support BTC, ETH, MCO, BNB, and fiat, whereas TenX supports BTC, ETH, and LTC. Bitpay is another company that offers this service, but for US residents only. It supports Bitcoin and charges 3% for international transactions.

If carrying another card is not your thing, you can simply use Bitcoin ATM Map to locate a Bitcoin ATM nearest to you and fill your digital wallet with Bitcoins!


The tourism industry is one of the earliest adopters of digital currencies because it perfectly fits a traveller’s needs – a currency that is safe to carry around and accepted internationally. So the next time you decide to go to another country, try leaving your credit and debit cards at home.

This is a guest post by Anupam Varshney of With you can book your travel in minutes. The platform provides a list of pre-designed trips created by the locals of the city you’re visiting. All you need to do is say, “Please, book me a romantic dinner in Paris” – that’s all.

Nov 272017

Buy Fractions of Bitcoin UK
This is a guide to buy fractions of a Bitcoin in UK. When I lived in London and introduced several of my co-workers, friends, and their friends to Bitcoin, it seemed harder to buy Bitcoins in London than New York. I hope this guide helps my UK friends to buy fractions of a Bitcoin more easily. Also, see our previous post on how to buy fractions of Bitcoin.

Before we proceed, a quick note on buying fractions of a Bitcoin in the first place. At the time of this writing, one Bitcoin costs around $9600 or £7200. That’s a lot of money for someone just trying to buy their first Bitcoins. However, the good news is, you don’t need to buy a full Bitcoin. You can buy a fraction of a Bitcoin. Here’s a quick sample guide:

  • 1 mBTC (milli Bitcoin) is 1/1000th of a Bitcoin. The cost is £7.2 – the cost of your Shoreditch avocado sandwich.
  • £100 is 0.014 BTC – the cost of your black cab from Heathrow to your shared flat in Shoreditch above the avocado sandwich place.

You get the point. Bitcoin is in fact divisible into 100,000,000 parts, so really, you can buy a penny’s worth of Bitcoin if you’d really like.

To buy fractions of a Bitcoin in UK, you need a provider where you can easily pay GBP to get your BTC. The easiest way to do this is with Coinbase. In fact, if you have your UK drivers license with you right now, you can start buying Bitcoin on Coinbase instantaneously. This is the smoothest buying experience, in my experience, for my UK friends who are new to Bitcoin and don’t have an account anywhere.

Coinbase essentially functions very similar to a bank account. You can go sign up right now, with an email address and create a password. To really buy Bitcoin though, you need to connect your bank account, which you can do with a debit card. If you use a debit card, you can start buying Bitcoin with Coinbase immediately. If not, you will need to wait for a SEPA bank transfer. Both options are fairly good, but the debit card one might be more convenient in a fast-moving market.

Remember that Coinbase is a wallet and exchange provider, which allows you to quickly buy Bitcoin in UK. It will therefore need to do basic identity check on you, called KYC (Know Your Customer). If you have a drivers license, you can just take a photo of it, and it is processed instantaneously in most cases. If not, someone will need to manually review it, which may take time. In my experience, it is usually fairly accurate and I haven’t had many issues with friends. Make sure the photo is taken in good lighting.

If it goes into manual review, I’d advise patience. This is because Coinbase is adding 100,000 users a day, so obviously they are a little swamped at the moment.

After you buy your Bitcoin through Coinbase, you can leave it on their online wallet or transfer to your personal wallet. If you leave it with them, it acts as a custodian wallet. If you transfer to your own wallet, you need to be extremely careful with security. There are different risks with each approach – research them before you make a final decision.

If you plan to hold a large number of Bitcoin, say over £2000 or so, I’d suggest getting a hardware wallet. These are secure against most online attacks (your computer is likely not secure enough, and you can lose all your Bitcoin on an infected computer). You can buy a ledger nano s or trezor for this purpose.

Finally, Coinbase lets you buy with your bank account or debit card. If you instead want to buy with cash, then LocalBitcoins is your best bet. You can meet up with someone and do a cash transfer. Otherwise, if Coinbase takes too long to verify you, you can use LocalBitcoins to transfer money via your bank account, and get the Bitcoins sent to your wallet.

Nov 142017

This is a guide to sell Bitcoin Cash for Bitcoin. Bitcoin Cash was hard forked from Bitcoin on 1st August 2017. This means anyone who held Bitcoin on this date would be able to access an equal amount of Bitcoin Cash on its own blockchain. This of course assumes that you held your private keys and didn’t leave Bitcoin with third-party custodians like Coinbase or exchanges. If so, then your ability to access Bitcoin Cash is restricted to what this custodian wishes to do. For example, Coinbase users still cannot access their Bitcoin Cash, but Coinbase plans to make it available around early next year in 2018. In the future, if you need to hold your Bitcoin private keys for future forks, you should buy a hardware wallet like Trezor, Ledger Nano S, or KeepKey.

During the subsequent months, its price against Bitcoin has fluctuated wildly, with a peak around 35% of BTC and a trough around 5%. In price terms, BCH/BTC saw a peak around 0.35 and a trough around 0.05.

A lot of Bitcoin holders see Bitcoin Cash as a sort of ‘dividend’ that is paid to them. Therefore, many Bitcoin holders want to sell their Bitcoin Cash for Bitcoin, in order to increase their Bitcoin holdings. If you sold at the peak, you could have increased your Bitcoin holdings by 35%. At the time of this writing, Bitcoin Cash trades around 0.2 BTC, i.e. if you sell all your Bitcoin Cash to Bitcoin, you will get 20% of your Bitcoin holdings. This is a great benefit to long-term Bitcoin holders.

Accessing your Bitcoin Cash

The first step is accessing your Bitcoin Cash in the first place. Depending on how you hold your Bitcoin and in what wallet, there are various options to access it. Here are some common ones:

Bitcoin Private Key

If you have access to your raw Bitcoin private key, then the easiest wallet that I found to use for Bitcoin Cash is Electron Cash. Electron Cash is a clone of the popular Bitcoin desktop wallet Electrum. It is open source and you’re free to audit the code. It allows you to input your private key directly, and lets you access your Bitcoin Cash that you’re entitled to.

Ledger Nano S

If you held your Bitcoin in Ledger Nano S, then you can use the same hardware wallet, Ledger Nano S, to access your Bitcoin Cash. However, note that you need a firmware upgrade to your Nano. This wipes the device out, so be extremely careful! Read the official Ledger guide for more information.


Trezor created a handy ‘splitting tool’ that can be used to access your Bitcoin Cash. Just to be safe, make sure to send your Bitcoin Cash to another address inside Trezor, so that there’s no scope of confusing between chains. You just need to go with the splitting tool after connecting your Trezor, and ‘claim’ your BCH. Read the official Trezor guide for more information.


KeepKey has a simple way to claim your Bitcoin Cash. They have a beta version of the KeepKey client that you can use to access your Bitcoin Cash. Read the official KeepKey guide for more information.

Selling Bitcoin Cash for Bitcoin

Now that you have access to your Bitcoin Cash, it is time to sell it for Bitcoin. For this, you need exchanges, or other ways to convert your Bitcoin Cash to Bitcoin. Here are the ways to do it:


ShapeShift is perhaps the simplest way to convert your Bitcoin Cash to Bitcoin. All you need is a Bitcoin address, and a return Bitcoin Cash address (in case the transaction doesn’t go through for some reason). Then ShapeShift will send you a unique address to send Bitcoin Cash to, and send the Bitcoin to your address. Just like that. You don’t need to create any account, no registration, no order books, nothing. Of course, you will likely pay a higher fee going through ShapeShift but it is a very simple option and definitely very convenient.


Changelly is very similar to ShapeShift in that you just select that you want to convert Bitcoin Cash to Bitcoin, and it just does the conversion for you, sending Bitcoin to the address that you specify. They do ask for a basic account via email but nothing too elaborate. There’s no need for order books though, and you get your Bitcoin instantly to your wallet.

Online Exchanges

By now, you probably are a user at several online exchanges. These are proper exchanges in that there is an order book and you can put market orders or limit orders to sell your Bitcoin Cash for Bitcoin. There are several exchanges today that trade the pair BCH/BTC, depending on your accounts.

If you’re not on any crypto exchanges and want to trade BCH/BTC pair, Bittrex is probably the best place to trade. If not, HitBTC and Poloniex are also good options.


Jul 112017

This is a guest post by Anupam.

Bitcoin has been on a wild ride since the beginning of 2017. It started the year off trading at around $900 and has since tripled in less than 6 months. With daily volumes at over $2 billion, the currency shows no sign of slowing down.

India has always been an interesting region for bitcoin. Even though people at large are still unaware about the cryptocurrency, the small number of people who do understand and are interested in Bitcoin has been growing rapidly.

According to the Economic Times (a leading Indian newspaper), there are more than 2500 Indians investing in Bitcoin every day, despite the warnings from the central bank. It is important to note that buying bitcoin in India is legal. However, it is not regulated by the central bank, the Reserve Bank of India (RBI).

On December 24, 2013, the RBI issued a press release on virtual currencies (like Bitcoins, Litecoins, Ethereum, Dogecoins, etc.) stating that creation, trade, and usage of virtual currencies as a medium for payment is not authorized by any central bank or monetary authority.

After the recent wannacry attack, Indian government finally looks serious to tackle bitcoin and other cryptocurrencies. Last month, they sought public opinion on whether or not to regulate bitcoin. It seems like the government is in the process of drafting regulations around cryptocurrencies.

Regardless of what government comes up with, there is no way they can completely ban bitcoin. People are buying bitcoins in India and will continue to do so.

Up until two years ago it wasn’t very easy for an average Joe to get hold of bitcoins in India. Today, however, there are several exchanges from where Indian citizens can legally buy bitcoins. Few exchanges outside of India also let Indians buy bitcoin.

Bitcoin Exchanges in India


Zebpay is the largest Indian bitcoin exchange with daily volumes hovering around 4000 bitcoins. It has Android and iPhone apps that make it easy to buy bitcoins with a connected Indian bank account. Zebpay charges a minimal amount of INR 10 on every withdrawal.


Coinsecure provides an interactive trading platform along with the exchange. The transaction fee is 0.3%.


Unocoin is another great exchange but their prices are usually a bit higher compared to other exchanges. They charge 1% fees on every transaction.


Pocketbits is a new player in the market. Founder of the exchange is very active in buying and selling bitcoins on localbitcoins. They are super quick with verifications and deposits.

Local Bitcoins

LocalBitcoins is an escrow service which helps to match buyers and sellers. In India, the most common method of making the payment is IMPS transfer. It’s easy and quick. With LocalBitcoins you don’t need to go through any KYC process. Just select a reputed seller and buy bitcoins.

You may also find people willing to meet you in person to do the transaction. These meetings are not facilitated by LocalBitcoins in India.

Bitcoin Exchanges Outside India


Coinmama allows customers to buy bitcoins from any country including India via debit or credit card. They charge a ~6% fee on every purchase. You don’t need to verify your identity if you’re buying less than $150 worth of bitcoins.


BTCC is based out of Hong Kong and let’s people trade in USD. You will need to wire USD into your BTCC account in order to buy bitcoin from the exchange.


Shapeshift lets you buy bitcoins with altcoins like Ethereum, Litecoin, Dogecoin etc. You never need to create an account on Shapeshift. Exchanges happen almost instantly because ShapeShift never actually controls your tokens but simply exchanges them.


After the demonetization scheme, there is a sudden push by the government to move towards a cashless society. The move has made people in India to look at bitcoin as an investment opportunity.

India also has one of the largest remittance markets with a total value of more than $70 billion. A user generally ends up paying up to 15% in bank charges and conversion fees. This is where bitcoin’s true potential lies – quick transfers with negligible fees.

Clearly, the adoption of bitcoin is at a steady pace in the country. Only the time will tell if it can go mainstream.

Dec 232016

Circle Alternative

We covered earlier this month that Circle ended support for buying Bitcoin. Since then, we’ve gotten a lot of queries about what the best methods to buy Bitcoin are. This post is to give you alternatives to Circle to buy Bitcoin that are as convenient as Circle (actually, Circle was really good and convenient to buy Bitcoin, so it isn’t the same, but close enough I suppose).

The news and timing of Circle pulling out of the Bitcoin market couldn’t have been worse. The price of Bitcoin is rallying, and as of writing this, the price is hovering around $903 per Bitcoin. Compare this to the price of Bitcoin around $750 when Circle announced the shut down of the ability to buy Bitcoin on its platform and you get the idea why people were really unhappy. With the price rally, many people new to the Bitcoin markets are looking to get into it. Here are some good ways for them to buy Bitcoin.

Coinbase: Coinbase is the service most like Circle, and is the closest alternative to Circle. It is available in 30+ countries including the United States. If you’re a US-based person, Coinbase is probably the easiest way to buy Bitcoin. You just need to connect your bank account with your Coinbase account, and you’re all set to go. There are varying limits and verifications. If you’re sufficiently verified, you can buy Bitcoin instantly. Coinbase also has an exchange called GDAX. In addition, you can use Coinbase to buy Ethereum as well.

Buy Bitcoin on Coinbase

Gemini: Gemini is the latest US based exchange run by the Winklevii twins (of Facebook/the social network fame). The twins are seriously trying to get the first Bitcoin ETF approved in the US, and have a pending ETF application with the SEC. In addition to being a regulated exchange, Gemini has a closing auction that moves a significant amount of volume sometimes (similar to what the NYSE does at closing). It is newer than Coinbase but is focused exclusively on Bitcoin and is professional-grade.

Gemini auction data

Local Bitcoins: This allows you to buy Bitcoin peer-to-peer. To buy Bitcoin, you will transfer money to someone and you will receive Bitcoin into your wallet after the transaction is confirmed. The prices tend to be a bit higher but this method provides you with greater anonymity when buying Bitcoin. In addition, there are many different sellers, and you can use many different methods to buy Bitcoin, from ACH to Wire transfer to PayPal. Obviously the prices may be higher if you’re using chargeback methods like PayPal but you have the option. Depending on the city, you might also be able to buy Bitcoin with cash here.

Buy Bitcoin from LocalBitcoins

Bitsquare: This is not the best alternative to Circle in the sense that they are on the opposite spectrum when it comes to ease-decentralization spectrum. Circle and Coinbase are very centralized, and easy to use. Bitsquare is completely decentralized and hard to use. However, in the spirit of decentralization that Bitcoin promotes, here’s an alternative if you’re looking for one.

Photo Credit: derekbruff

Jan 062016

Bitcoin API Providers Pivoting

Today, Gem, a Bitcoin API provider, raised $7.1m in its Series A round bringing the total money it raised to $10.4m. That’s a significant chunk of money for the California-based startup and a nice piece of news in 2016 for the Bitcoin economy. After all, another Bitcoin API company, Chain, raised a total of $43.3m and completed its series B raising $30m.

Also, it is not as if there is a shortage of Bitcoin APIs in the market – BitPay for example has several open sourced APIs into the Bitcoin network such as BitCore for getting data and statistics from the Bitcoin blockchain and Copay as a Bitcoin wallet. There are other options for developers too, such as BlockCypher to get data from the Bitcoin blockchain.

So why are Bitcoin APIs hot with investors again, pouring in scores of millions of dollars into these companies? The answer is, they are not – these companies are all pivoting into something more than just an API.

APIs Make Sense for Developers

From a developer perspective, Bitcoin APIs make a lot of sense. If you’re building an application that needs to look up the Bitcoins stored in a wallet, you can either do that through a one-line call to an API or download the entire Bitcoin blockchain, write your own parser and hope you’ve not made an error. Then, you need to keep the blockchain updated, so you’ll have to run a node.

Instead, these Bitcoin API services do all the hard work for you (presumably) and protect you from attacks, stale data, etc. so that instead of every small developer trying to reinvent how to get data off of the Bitcoin blockchain, they can instead just focus on building their application instead.

However, APIs are not too Profitable

Merely providing an API cannot be very profitable for the companies and won’t justify a $100m valuation. After all, companies in the Bitcoin space can provide these APIs with relatively low upkeep and therefore the business is fairly commoditized. It is hard to get revenue off of a product when a better capitalized rival is offering the same service for free.

The Pivots

Chain, which was one of the first Bitcoin API providers and one of the best funded startup in the Bitcoin space actually killed its original product of providing an (free) API to the Bitcoin blockchain for developers. It’s a shame, since they courted developers quite actively through conferences and other ways. Chain is now pivoting into ‘digital assets’ i.e. helping companies like NASDAQ track the shares that they issue on their private markets on the blockchain. Gem itself is looking to expand into the ‘blockchain economy’.

Blockchain Buzz

Note what’s common in all these – the blockchain. That’s where the next wave of investor interest is going into, and it is not necessarily going to be the Bitcoin blockchain, although many products that are actually live today use the Bitcoin blockchain for asset tracking using some kind of a colored-coin protocol. However, the language the companies are using is deliberate – read the Gem blog post if you want proof – “The excitement around blockchain technology is high”, “…great potential for new distributed ledgers…”, “…emergence of the blockchain economy…” etc.

It will be interesting to see how this progresses in the future. Venture capitalists are funding companies that provides the rails for developers to use. Presumably, behind the scenes, what happens is abstracted away from the developers, so it’s easy to switch to Bitcoin or another blockchain like Ethereum or a completely private blockchain like the banks are experimenting with. It’s something to take note of when Bitcoin API companies are expanding into ‘blockchain’.

Photo Credit: clappstar

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Sep 232015

Invest in Bitcoin

As Bitcoin gains popularity as an alternate asset class, there are several ways how to invest in Bitcoin, but as an investor, it is important to note the pros and cons of each, and also learn to protect yourself. This should not be construed as an investment advice in Bitcoin. The post will just help you how to invest in Bitcoin if you’ve already decided to invest in it.

Why Bitcoin?

I assume you’ve already decided to invest in Bitcoin based on your research. Bitcoin is a lot of things to a lot of people – it is a currency that can be used to pay merchants, online and offline, and reduce transaction times to minutes instead of days with credit cards. Bitcoin is an asset class for investors looking to diversify their holdings. Bitcoin is ‘digital gold’ with predictable supply programmatically controlled, and can be a store of value during times of high inflation (think countries like Argentina or Venezuela). Bitcoin is a protocol for value transfer over the internet and enable new innovations in the ‘internet of things’ space and micropayments.

It is important to note that Bitcoin can be all of the things above, and that’s what it derives its value from. As an investor, you perhaps don’t need to know the intricate details of everything Bitcoin does, but it definitely helps to know, at a high level, why Bitcoin is valuable at all in the first place (this is, after all, the first step in the investment process).

Bitcoin as an Asset Class

Before learning how to invest in Bitcoin, it is important to formulate how you view your investment in Bitcoin. Remember that Bitcoin has historically been extremely volatile with wild price swings. If you can’t handle this, it is best to steer away from Bitcoin as an asset class. Also, keep in mind the investment time-frame that you’re looking at. Is it 1 year or 30 years? A lot of things can happen in long time-frames, especially in fast-changing technology fields.

It is also good to learn about the supply-side of Bitcoin. This will help you know the current inflation rate around Bitcoin. Even though ultimately only 21 million Bitcoins will ever be in existence, they are not all available today. They are created through a mining process (which is too big a topic to explain here), and the current rate is 25 Bitcoins about every 10 minutes. This corresponds to an inflation rate of around 9% per annum.

This rate is going to be cut in half sometime in the middle of 2016. Here’s a countdown, which will give you an approximate date. Unlike most other asset classes, Bitcoin’s inflation is known in advance, and there is no way to increase its supply outside of this schedule.

How to Invest in Bitcoin

The best way to invest in Bitcoin is, in my view, to directly buy Bitcoin. There are many well-established companies today that will sell you Bitcoin for dollars or Euros. If you’re in a country serviced by Coinbase (like United States, United Kingdom, most of Eurozone countries, Singapore), it’s easiest to buy from there. With Coinbase, you can buy Bitcoin directly from your bank account and store it in their online wallet, or have additional security in their vault. There are other options as well, depending on the country you’re in. See the page on Buy Bitcoin to find more options.

The next step is to determine if you want to hold your Bitcoins online with a provider like Coinbase or transfer them to your own wallet. The advantage of holding it in your own wallet is that you don’t have to worry about a company freezing your funds, or going out of business or anything else – you are in complete control of your Bitcoin and can spend them as you see fit. However, on the downside, it is very important to take good security precautions if you hold your own Bitcoins, because if you are careless and get hacked, you will lose all your Bitcoins with no protection or resources to help you regain your funds. If you plan to invest a lot of money in Bitcoins, consider buying a Bitcoin hardware wallet like Trezor or Ledger or KeepKey.

Another way to gain exposure to Bitcoin is through funds. This is not a very developed market yet, and therefore very illiquid. However, one big advantage is that you can hold it in such accounts as your IRA or retirement account, thus gaining a small exposure to Bitcoin for retirement accounts. GBTC is the only one available today in the US. The Winklevoss brothers are working towards a Bitcoin ETF but that’s not live yet.

Finally, remember never to invest more than you can afford to lose in a volatile, high-risk investment like Bitcoin.

Photo Credit: GotCredit

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Aug 092015

New York DFS BitLicense

The full effects of New York’s dreaded ‘BitLicense’ laws for startups are becoming more apparent as the deadline for compliance looms, with many Bitcoin startups and entrepreneurs closing their services to New York residents rather than spend hundreds of thousands of dollars trying to get a BitLicense. This move could have a profound effect on New York’s image, which wants to be a ‘fintech hub’ of the world, but the onerous regulations on startups make it an unattractive destination for entrepreneurs.

The biggest winners from New York’s loss could be other financial hubs like London, which have been far more welcoming of Bitcoin and cryptocurrency companies. In the US, states like California with huge venture capital funds’ presence might steal business away from New York. Catering to the East Coast, jurisdictions like Jersey might become attractive, considering its closeness to New York, which still remains a hub of traditional finance in the country.

BitLicense was issued by the New York Department of Financial Services (NYDFS) and championed by Ben Lawsky, who left the department shortly after issuing this regulation to get into private sector consulting. These regulations affect startups the most heavily and leave out the bigger banks and financial institutions, thus significantly raising costs of starting a company in this niche in New York, greatly benefiting in the incumbents and reducing competition in the marketplace.

Even seemingly well-funded startups have made the decision to leave New York rather than try and comply with the very expensive regulations. Bitfinex, the largest Bitcoin exchange by volume in USD which accounts for almost half the trading volume, has decided it is not worth their time and money to comply with BitLicense and will not service anyone from New York. Kraken, another Bitcoin and cryptocurrency exchange that was the first to trade Ethereum (ETH) has also decided to leave New York owing to BitLicense. Similarly, Poloniex, the largest altcoin exchange by volume has done the same.

The long-term effects of this regulation are still to be seen. If other states adopt a more sensible approach to regulating innovations in Bitcoin and cryptocurrency, it is very conceivable that startups will move to those states. Advocacy groups like Coin Center are heavily involved in helping law makers understand this new technology and how best to let it flourish without killing it with burdensome regulatory frameworks.

Photo credit: ianmyles

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Jun 142015

Bitcoin Settlement Systems

Can you create a settlement system on Bitcoin blockchain? It’s an important question, with consequences not just for the future of Bitcoin, but for the whole financial industry, and what we deem feasible in the securities industry currently.

Two big pieces of news came about in the last couple of months or so, which I feel got less attention than they deserved. The first one was a decision by NASDAQ private markets to move trading private securities to the Bitcoin blockchain, and the second was the issuance of a private bond by Overstock on the Bitcoin blockchain.

Each of these is important in its own way, showing that it is possible to settle and trade both stocks and bonds on the current Bitcoin blockchain, even without the many improvements coming to the protocol in the next few years.

Trading vs. Settlement

Current trading systems on Wall Street require extremely low levels of latency, especially in the High Frequency Trading (HFT) world. Even without that, trading engines need to be blazing fast and be able to handle anywhere from tens of thousands to several million trades per second. Bitcoin today, in contrast, has a throughput of 5-7 transactions per second, which means it is nowhere near the scale required if every trade is published on the blockchain.

However, after a trade happens, it needs to settle in the back office, which is in  sharp contrast to the high trading execution. Most trades take at least 2 days to settle. The settlement process happens after the end of the trading day. This is where Bitcoin can help establish a superior technological solution than the current system.

A great book to understand what happens in the back office of securities transactions is After the Trade is Made by David Weiss, which I would recommend for any company working in the Bitcoin settlement space, any entrepreneurs working with Bitcoin-based settlement systems and anyone curious enough to learn the settlement process.

Beyond Currency: Bitcoin as a Settlement Platform

Bitcoin’s initial conception was as an online, decentralized currency, which is as easy to transfer as sending an email, thus negating the ideas of geographic closeness or extended trusted networks for commerce. The various innovations behind creating Bitcoin, however, have far reaching consequences beyond its use as a simple currency. Most notably, this includes the ability to have a decentralized database with consensus built into it in the form of economic incentives for participants in the network.

Once you look at Bitcoin beyond its first use case of a currency, it becomes clear that it can be used as a powerful settlement system, because it has the ability to reach a globally accepted consensus state, thus proving without doubt who owns what at a given point in time.

Therefore, if a Bitcoin were to represent not just a currency but 100 million stocks of a company (with each Satoshi representing one stock), then a trade could easily settle on the Bitcoin network with no disputes as to who (or rather which address) owns any number of stocks at a given point in time. This process makes this specific Bitcoin ‘special’, which is no longer the same as the rest of the Bitcoins, due to this value addition process.

As a final clarification, there has been an increasing trend in the media to talk of ‘blockchain’ instead of ‘Bitcoin’ as if the two were separable and as if one could separate out the ‘good parts of blockchain’ from the ‘bad parts of Bitcoin’. You cannot. However, if it helps in the change of perception, knock yourself out. It doesn’t change the underlying dynamics though.

Major Challenge: Corporate Actions

The Bitcoin protocol does allow for the creation of these very basic securities, simply by ‘coloring’ a Bitcoin to represent something other than currency, thus establishing a level of centralization to some Bitcoins (backed by the full faith of the company that says they represent what they represent, without which a satoshi is just a satoshi, not a stock in a company) and also destroying their fungibility in the process.

In addition, Bitcoin allows for the creation of smart contracts, which are essential for creating an online blockchain-based settlement system. However, to create a fully functioning settlement system in Bitcoin, the above process is not enough. This is because the process only takes into consideration the birth of the security. The challenging aspects are going to be in implementing corporate actions. And corporate actions can be tricky to implement with or without a blockchain.

What are corporate actions? Simply put, they are events that happen to a security (stock or bond) after it is born. The birth is actually the easy part – you can simply ‘color’ a coin to your liking, using protocols like Open Assets, or even push your tokens on a protocol like Counterparty (or NXT or other altcoins even). Corporate actions, however, affect the security after it is born and is ‘out there’ in the world.

Corporate actions for stocks can range simple cash dividends to spin-offs and split offs. They also encompass events like mergers and rights issues. Corporate actions for bonds can range from simple coupon payments to convertible bonds, call/put exercises, early redemption, tender offers, etc.

Finally, real-world issues like compliance, tax laws and reclaims, reporting requirements, and other specific jurisdictional legal quirks are essential to get right for any such settlement platform.

Futures, Forwards, Swaps, Options, MBS, CMO, CDO, CDS, and Others

Can you implement a Bermudan swaption on Bitcoin? What about a Credit Default Swap? What about this other newest wall street innovation?

In most cases, a robust smart contract system coupled with some levels of centralization (e.g. with regards to defining what a default event is, in case of a CDS) should be sufficient. However, there are plenty of very intricate nuances involved in most derivatives, that only the simplest ones are feasible at least in the near future with the tools that we currently have.

From a point of view of what is potentially possible, no one can say the state of technology in 20 years. It remains to be seen how blockchains evolve over time in terms of their technology and ability to codify a lot of these nuances, along with the willingness of the participants to use this technology.

It is important to remember that there are plenty of benefits in terms of having varying degrees of centralization. It is possible that better technological tools are made available to improve the existing infrastructure than Bitcoin and the blockchains, considering the degree of centralization already present in most securities transactions.

Near-Real Time Settlement

With Bitcoin, it is possible to have a settlement system that is near-real time. This is a major improvement over the current system that takes, in general, 2 days to settle a trade. Not all of this is due to obsolete technology, however, and it is important to understand this.

Bitcoin-based settlement systems can be quite powerful for peer-to-peer trading or cross-border trade settlement. The settlement process can be made cheaper and faster in these cases.

The Initial Push and Catalysts

There has been a very big push coming from the government agencies to make settlements faster, both for bank money transfers (ACH in the US) and securities. By making marginal improvements to the existing procedures, it is perhaps possible to settle a trade in T+1 (1 day after the trade) instead of T+2 (2 days after the trade).

However, to settle in near-real time, such as an hour, the technology needs to be radically rethought. A Bitcoin-based solution is certainly one of the most promising solutions to significantly improving the system in terms of settlement times. This also comes with additional benefits such as improved transparency, ability to create regulatory rules in the contract itself, thus obviating many regulatory rules, and cheaper trade settlement especially in a global context.

Cost savings can be another very important push towards moving to a blockchain based settlement system. This is especially true for cross-border securities transactions. If you’re a US resident and wish to purchase a UK listed company, you’ll likely have to go through the American Depository Receipts/Shares (ADR/ADS) route. However, this is a very expensive process. For example, JP Morgan is the Depository and Transfer Agent for BP shares (BP trades in the UK) and they charge $0.05 per ADS creation. This fee structure is fairly standard in the industry.

Bitcoin Value vs. Blockchain Security

It is a common media theme to talk of ‘blockchain’ instead of ‘Bitcoin’ while referring to any use of the Bitcoin blockchain beyond currency. However, it is important to note that any such use is limited in its utility and scope by the market capitalization and power of the Bitcoin blockchain. It is unfeasible to expect the blockchain to track and settle a trillion dollars worth of securities, if its underlying value is 2 billion dollars.

Price and utility need to move hand in hand. If the total value of Bitcoins in circulation is significantly less than the assets represented on it, there is increased risk and probability of a 51% attack, thus invalidating a lot of previously settled transactions.

Photo Credit: Flickr

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