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Bitcoin Cash

Bitcoin Cash

by | Aug 1, 2017 | Cryptocurrency, Learning from Mistakes, Preservation of Purchasing Power

As expected the Bitcoin Hard Fork occurred around 12:20 UTC today. A new cryptocurrency, Bitcoin Cash (BCH or BCC depending on the exchange) was born. It shares the same history as Bitcoin up until today in what I’ve already referred to as a modern day Ship of Theseus paradox.

So which Bitcoin is the real Bitcoin? BTC continues with a similar price as before and Bitcoin Cash was a new node to begin with so certainly Bitcoin remains bitcoin.

But it’s another example of how a brand new cryptocurrency, one which a current market cap of over $6 billion, can be created seemingly out of thing air.

I understand that Bitcoin Cash has the support of some miners, and work went into the technical changes (it has a larger block size, in an attempt to overcome some of Bitcoin’s scaling issues). But is it really worth $6 billion?

Source: coinmarketcap.com

The market seems to think so and that is all that matters in the present.

In the short term each BCH is trading for around $375 as of writing. My plan, which I previously shared, worked flawlessly.

Upon hearing about the hard fork, I moved my Bitcoins from an exchange that did not support BCH, to an exchange that did. When the fork happened I retained my original Bitcoins, but was also awarded an equal amount of Bitcoin Cash. I doubled my Bitcoins! (Sort of) The original Bitcoin is still trading around $2,700 and as stated above the new BCH I receive are only worth $375 each.

Learning from Past Mistakes

This is an example of how I was able to learn from a past mistake to benefit.

I missed out on coins resulting from when Ethereum forked. The place where I had my coins, hashflare.io, famous for unprofitable cloud mining, did not support the fork. I wasn’t about to let that happen again. If I’d been on an exchange that supported Ethereum Classic, or had my Ethereum in a wallet where I controlled the keys, I could have received 1 ETC for each ETH I held.

Cryptocurrencies are Inflationary

As I’ve written about before, one of the things that I dislike about cryptocurrencies is that there are no natural limits on the supply. Bitcoin Cash is a perfect example. Sure, the number of Bitcoins (BTC) did not increase, but a coin very similar to BTC, albeit with less network hashing power and some technological differences, was created, which in some sense doubles the amount of Bitcoins in existence.

Playing the Fork

The market doesn’t seem to care about the Bitcoin hard fork, BTC was trading up near around it’s all time high of $2,910 the day before the fork and is still at $2,700.

One could theoretically have purchased 3 BTC right before the fork for $2,900 each ($8,700 total). Then the fork happens, and the person gets to keep their 3 BTC and also gets 3 BCH, each worth $375 ($1,125 total). The price of BTC then falls to $2,700. So one would have lost $600 total on the BTC, but gained $1,125 on the BCH, for a net of $525. Not bad. That’s a 6% increase over just a few days.

Easier to talk about with the benefit of hindsight, but if someone is already holding Bitcoins, there is no financial risk to being a position to get the newly created cryptocurrency.

Long Term Problems

The market doesn’t seem to care about the Bitcoin hard fork, it was trading up near around it’s all time high of $2,910 the day before the fork and is still at $2,700. But in effect 6 billion USD worth of value was created out of thin air. Over the long term this simply isn’t sustainable. Is the price really coming from new money buying up BCH as the future cryptocurrency? It seems unlikely. The supply of cryptocurrencies continues to grow and Bitcoin Cash is only the latest example.

I’ll continue to hold various cryptocurrencies as a speculation that one or more takes off (even more) and reaches widespread adoption but as a long term investment I think it remains very risky.

Bitcoin Fork

Bitcoin Fork

by | Jul 28, 2017 | Cryptocurrency, Currencies, Wealth Protection

Bitcoin is going to undergo a hard fork.

What is a Hard Fork Anyway?

A hard fork in cryptocurrencies is when one cryptocurrency effectively becomes two and the number of units of currency is effectively doubled, albeit existing in two separate, incompatible blockchains. This has already happened to the second largest cryptocurrency by market capitalization: Ethereum.

Ethereum underwent a hard fork back in 2016, so there are now two blockchains, Ethereum and Ethereum classic, which both trace their origins back to the 30 July 2015 launch of Ethereum in a modern day Ship of Theseus paradox.

More information about hard forks.

Hard Forks are Logically Bad for the Price of a Cryptocurrency

As I’ve written about in the past in What I Dislike About Cryptocurrencies cryptocurrencies, like Bitcoin, aren’t scarce.

More correctly, cryptocurrencies are not very limited in supply.

There are currently 16,475,250 BTC in circulation and that number will continue to grow by design until 21 million are mined, at which point the supply of BTC will cease to grow.

So while only 21 million Bitcoins will ever exist on a given Bitcoin blockchain because of how the cryptocurrency is programmed, if Bitcoin forks, there will eventually be 21 million units of Bitcoin A and 21 million units of Bitcoin B.

In one sense the number of Bitcoins that will exist is 42 million. Now certain places might only accept Bitcoin A and not accept Bitcoin B and the price of Bitcoin B could drop to a low value and no one uses it. So in that sense there are still only 21 million Bitcoins. But when a cryptocurrency hard forks, some people favor one fork over the other and the price is lower than it otherwise would be if there was only one blockchain.

If Ethereum had not forked there would only be around 93 million ETH in existence right now. But because Ethereum did hard fork there are now 93 million ETH and 93 million ETC. The market capitalization of ETH is currently around $18.3 billion and the Market cap of ETC is around $1.3 billion. It’s beyond the scope of this article to posit how much the hard fork impacted the price of ETH, but I think it is logical to believe that the price of ETH would be higher if not for the hard fork.

Bitcoin Hard Forks

On August 1st Bitcoin is also going to fork, forming two separate and incompatible blockchains: Bitcoin (BTC) and Bitcoin Cash (BCH).

The market does not seem to care and Bitcoin is trading near all time highs around $2,800.

Time will tell what kind of impact this will have on the network and the price of the cryptocurrencies. If the hard fork does not go well and the network is adversely impacted I could see short term price drops. It’s possible (although I would guess unlikely) that Bitcoin Cash becomes more popular than Bitcoin and overtakes it in price. It’s also possible (and in my opinion much more likely) that it becomes a somewhat niche cryptocurrency like Ethereum Classic.

Bitcoin currently has a market capitalization of $46,622,650,965. It’s certain that after the fork both Bitcoin Cash and Bitcoin will not both have a $46.6 billion market capitalization.

While we wait and see what unfolds I’ve taken one important step. I had my modest BTC holdings at Coinbase. Coinbase is NOT supporting the hard fork.

So I’ve moved my BTC to Kraken. Kraken IS supporting the hard fork. By moving my BTC to an exchange that does support the fork I will get Bitcoin Cash in addition to Bitcoin.

The reason for this is because if one were to hold one BTC (Kraken uses the abbreviation XBT) at Kraken during the hard fork, Kraken will award the holder of that BTC one BTC as well as one BCH. Whereas if BTC is held at Coinbase no BCH will be credited.

I like Coinbase and I plan to move my BTC back to Coinbase after the hard fork takes place.

If you don’t currently own any Bitcoins and are interested in purchasing some, check out my easy to use walkthrough guide How to buy Bitcoins on Coinbase. Using my affiliate link when buying Bitcoins on Coinbase to get $10 worth of bitcoins free when you buy at least $100 worth of Bitcoin.