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

Oct 252016

who pays for bitcoin transactions

In Bitcoin, who pays for transactions? In every Bitcoin transaction, there are two parties, the sender and the receiver (technically, it is possible to create more complex transactions types but we’ll ignore all that for now, and assume a Bitcoin transaction as a simple financial transaction between the sender and the receiver). There is also Bitcoin transaction fees. So who pays for Bitcoin transactions? The sender pays for Bitcoin transactions. It is important to know this feature, because when you use Bitcoin as a payment mechanism, you should know who bears the transaction fees.

Why does it matter?

Bitcoin was originally hailed as the solution for micropayments. However, in its current form, Bitcoin transaction fees are fairly high for micropayments. Therefore, if you’re trying to send someone a few cents via Bitcoin, you should know that as the sender, you have to pay the Bitcoin transaction fee to the Bitcoin network.

Also, if you don’t provide the proper transaction fees, then your Bitcoin transaction will be ‘stuck’. This means that the Bitcoin network ‘sees’ your transaction, but the network will not confirm this transaction. This is not a good situation to be in, so you should pay adequate recommended fees to the network.

What happens to the transaction fees?

The Bitcoin miners take the transaction fees. This is part of their incentive to verify transactions on the Bitcoin network. The other part is through inflation of monetary supply (i.e. creation of new Bitcoins). Your goal, as the sender of a Bitcoin transaction, is to incentivize miners to include your transaction in a block, which ultimately gets added to the Bitcoin blockchain.

In the future, when the rate of new Bitcoins being created keeps decreasing, miners will increasingly rely on these transaction fees.

How much do Bitcoin transactions cost?

This really depends on the current state of the network, and how soon you want your transaction to be confirmed. To confuse people further, the amount depends on the size of the Bitcoin transaction which can vary a lot. Therefore, it is recommended to use the Bitcoin wallet recommended fees, which is calculated dynamically.

If you want more information on how much your Bitcoin transaction might cost, check out the latest data from 21. Note that a satoshi is a hundred millionth of a Bitcoin (1/100,000,000 of a Bitcoin).

Who determines Bitcoin transaction cost?

There is no central authority that determines Bitcoin transaction costs. This depends on the current state of the network and how full the blocks are. If the blocks are near full, the fees will be higher. If the blocks have more space capacity, the fees will be lower.

So always remember to add an appropriate fee to your Bitcoin transactions.

Photo Credit: Richard Walker

Jun 022016

Marc Andreessen

Tim Ferris, of the four hour workweek fame, did a great podcast with Marc Andreessen, the famed venture capital investor who is really into Bitcoin, and puts his money where is mouth is, by funding several Bitcoin startups like 21 Inc (which became Earn, and now Coinbase Earn) and Coinbase, and more recently Mediachain.

Andreessen talks about a lot of topics, and I won’t try to break it down for you. He has some intelligent thoughts about the past, present, and future especially around technology and startups. In addition, there is some good Bitcoin information that should help entrepreneurs in the broader Bitcoin/crypto/blockchain space quite a lot as well. It is definitely worth checking out. Here’s the podcast.

Feb 102016

Princeton Bitcoin and Cryptocurrencies Course

Princeton University is taking the lead on American Universities teaching students about Bitcoin. Their professors have already taught an online course in this space, and have now provided everyone with a free copy of their book. The best thing is, the lead is coming from their computer science department, and therefore their treatment of the subject is as it should be – teaching students about a new technology. The treatment of the subject in the course and in the book is definitely technical in nature, and provides a great overview of Bitcoin and cryptocurrencies from a technical perspective.

This, combined with Andreas’ book Mastering Bitcoin should give anyone enough knowledge to start working on Bitcoin and cryptocurrencies. Remember though that the book and course don’t cover things like how to integrate Bitcoin into your web application or other web-development topics, or even building on top of Bitcoin. The material is more towards you being able to create your own such system, or contributing to Bitcoin. If you’re ever wanted to contribute to Bitcoin Core (or Bitcoin Classic for that matter), then these two resources are all you will need to get started.

Also check out the Learn About Bitcoin section to get more resources that can help you on your journey to learn about Bitcoin and contribute to its dynamic ecosystem.

Jan 252016

Blockchain or Distributed Ledger Technology

The big news last week was the company Digital Asset Holdings raising $50 million from a bunch of top-names in the financial industry. And yes, these are some of the top financial institutions in the world. Here’s a list: ABN AMRO, Accenture, ASX Limited, BNP Paribas, Broadridge Financial Solutions, Inc., Citi, CME Ventures, Deutsche Börse Group, ICAP, J.P. Morgan, Santander InnoVentures, The Depository Trust & Clearing Corporation (DTCC) and The PNC Financial Services Group.

Two things should stand out to you in this list. One is the presence of Accenture, which is the only non-financial services company in the space. Accenture is investing quite a lot into ‘blockchains’ and startups involved in this space, so keep an eye out on their moves. The second is a notable absence of Goldman Sachs, which has been very vocal in its support of both Bitcoin/blockchain and startups. The CEO of Digital Assets is a former JP Morgan executive. Don’t expect the entire financial industry to reach a consensus overnight and everyone’s happy using Digital Asset’s technology. That’s almost guaranteed not to happen.

Bitcoin to Blockchain to ‘Distributed Ledger Technology’

The other interesting thing to stand out from the press release is what it lacks. Firstly, there is not a single mention of Bitcoin (not very surprising). Secondly, there is no mention of blockchain from Digital Asset at all. The entire press release contains just one mention of blockchain, which is a quote from Accenture talking about “blockchain-enabled distributed ledgers”. The phrase “Distributed Ledger“, on the other hand, is mentioned 11 times in the press release. Interestingly, the press release contains quotes from all the institutions who invested in this round, and they too all use ‘Distributed Ledger Technology’ instead of the word ‘Blockchain’.

The industry has gone from Bitcoin to Blockchain to Digital Ledger Technology in fairly quick succession. The transition from Bitcoin to Blockchain is understandable – it is to include so-called ‘private blockchains’ that banks can use among themselves or internally within an organization. The transition from Blockchain to Distributed Ledger Technology is more interesting.

Digital Asset isn’t going to disclose the products they’re working on, so it is hard to say if there is any difference. My best guess would be a parallel creation of some sort of distributed file system like IPFS perhaps, that goes with a private blockchain, thus enabling not just the sharing of transaction-level information, but also other heavy data like documents.

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

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