Four years ago in bitcoin…

Remember when one bitcoin cost only $450? I do.

Four years ago, video training company Lynda.com published its first cryptocurrency course, my “Up and Running with Bitcoin (later retitled “Learning Bitcoin”). A lot’s changed in that time, so the company (acquired by LinkedIn Learning in 2015) asked me to revise it.

At first it was going to be a simple rework, but it quickly became clear that more was needed. So instead we just released a completely new, updated, and expanded course, “Learning Bitcoin and Other Cryptocurrencies. It’s on LinkedIn Learning and Lynda.com; see it with a free month’s membership; here’s the intro video:

 

It’s fun to watch the original course, which is still on LinkedIn Learning and Lynda.com (although I doubt it’ll be there for long). Aside from increased market interest — which I’ll write about another time — here are some notable changes in bitcoin over the last four years:

  • Bitcoin’s not the only game in town anymore. Well, in truth it wasn’t alone back in 2014, either: I personally held small amounts of the cryptocurrencies Litecoin and Dogecoin then as well. (I was a “Dogecoin millionaire” for the princely sum of US$200; a million Dogecoin now costs about $3,500.) But today there are over a thousand cryptocurrencies; a half-dozen have a market capitalization higher than bitcoin’s was then. While bitcoin’s market cap is still by far the biggest, it typically comprises only about 35-40% of the total for all cryptocurrencies.
  •  Cryptocurrency technology has expanded and diversified. Back then, the main difference among cryptocurrencies had to do with how it was mined — specifically, the cryptographic algorithm that secured the blockchain. But many coins these days don’t even use the (insanely wasteful) bitcoin-style “proof-of-work” system any more. Proof-of-stake, proof-of-time, sampling systems, hybrid solutions… the list is long. One of the cryptocurrencies I discuss in the course (IOTA) doesn’t use a blockchain at all, while another (Ethereum) has spawned an entirely new kind of cryptocurrency (ICOs) that rides on the back of its blockchain.

 

  • Centralization, centralization, centralization. One of bitcoin’s greatest achievements is the creation of a security system with no single point of failure: No one company, bank, or government could shut it down. But like anarchy, decentralization is inherently unstable, as collectives band together to squeeze out small players. Nowhere is this clearer than in the world of bitcoin mining, where three pools (overwhelmingly Chinese) control enough power to topple the whole system, running hardware made by a small handful of (also Chinese) manufacturers. On one hand, centralization means errors (or greed, or malice) by a few people could cause big problems; on the other, it can give a cryptocurrency better convenience, liquidity, and popular acceptance.
  • Cryptocurrencies have public acceptance — but not public use. The original bitcoin white paper criticized existing payment systems as unsuitable for “small casual transactions” because the transaction cost was too high. The irony is that a bitcoin transaction cost is now over a dollar, while it was about US$0.04 when I recorded the 2014 course. So the promise of being able to use it for ordinary purchases has mostly vanished, taking with it a big motivation for public interest. And yet more and more people have come to understand its foundations from repeated exposure to articles, news stories, and water-cooler conversations.

So what hasn’t changed? 

While the bitcoin (and cryptocurrency) world is quite different from 2014, I would argue that it’s still not mature.

Cryptocurrency generally now share a quality that I saw in the early years of popular computers and the commercial Internet: It’s a solution in search of a problem. There’s still no “killer app” that compels ordinary people to convert their dollars, euros, and yen to them.

Many people claim to have such a solution — a list of initial coin offerings (ICOs) proves that. But nobody knows whether bitcoin or any other cryptocurrency will find its VisiCalc, its Google. (I suspect the popular breakthrough will be something silly, like Cryptokitties… or the traditional vehicles for the technological leading edge, porn and gambling.)

A year before recording the 2014 bitcoin course, I wrote some bitcoin predictions for Slashdot.org. You can judge how well they turned out overall. But one in particular was absolutely right: “Bitcoin is not the end game.” Let’s check back in 2022 to see whether any current cryptocurrencies were.

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Tom Geller (tomgeller.com) is a writer and videojournalist with feet in The Netherlands an the U.S.. 

Learning Bitcoin and Other Cryptocurrencies (2018)

A ground-up rewrite of my highly successful 2014 course, Learning Bitcoin. Available on LinkedIn Learning and by subscription through Lynda.com. (Watch it for free.)

The new version includes information about Ethereum, Ripple, IOTA, and ICOs. Description by Lynda.com:

“Bitcoin is a form of money that only exists online. While it’s making headlines around the world, many people don’t really understand how bitcoin works or the underlying concepts of cryptocurrency.

In this course, Tom Geller demystifies bitcoin, revealing the promise and perils of the new crypto economy. Tom begins by explaining what bitcoin is, how it originated, and how it compares with other cryptocurrencies. Next, he explains how to get started by creating a bitcoin wallet, buying and selling bitcoin, and protecting your transactions.

He discusses other top cryptocurrencies—Ripple, Ethereum, and IOTA—and explains how “initial coin offerings” (ICOs) have changed the investment landscape. Finally, he covers bitcoin mining, threats to the bitcoin economy, and how to connect with others in cryptocurrency communities.”

Pavan Katepalli

Your course [about bitcoin] is phenomenal at explaining everything in plain English.

How Hurricane Irma exposed a fundamental Bitcoin weakness

Yesterday I got an email that said all my bitcoin was about to disappear. Hurricane Irma, it claimed, had damaged the servers of a company where my bitcoin was stored. There was a backup, but it would disappear soon, so I needed to move my money to the address provided.

Was it a scam? Yes, but I only knew that by getting geeky with the email headers. (Nerdnote: It originated in the Tor network and routed through a mail server in an offsite country.) But it was perhaps the easiest-to-believe email scam I’ve seen in my thirty years online. Why?

Because bitcoin sometimes just disappears.

This needs some explaining. When someone sends bitcoin, the transaction is recorded on a worldwide ledger. Practically speaking, it’s permanent: Nobody can go back to reverse the charges. That’s different from checks and credit cards, and the key to bitcoin’s excellent technical security.

(I talk about this in “How Bitcoin works”, a video from my Learning Bitcoin course. LinkedIn has allowed me to make that video available for free here.)

(Jonathan Reichental goes deeper in his course Blockchain Basics.)

But “secure” doesn’t always mean “safe”: Bitcoin transactions are also irreversible when you accidentally lose bitcoins. And that happens a lot.

I know this from personal experience, when my phone got wiped and the digital backup of my bitcoin wallet failed. (I fortunately also had a paper backup, an extra step few bother with.) People have lost bitcoin by upgrading a computer, losing control of a phone number, tossing old electronic junk, and dozens of other ways. Digital assets are incredibly fragile.

If you don’t want to access bitcoin through your phone, the other option is an “online wallet”. But such a wallet is only as good as the company protecting it. After the company Mt. Gox made over a half billion dollars of bitcoin disappear, online wallets don’t seem like a good idea, either.

Billions of dollars of bitcoin have simply vanished and will never be recovered.

So when I got that email, it seemed not only plausible that my bitcoin was at risk, but likely. A company having bad backup procedures? That’s the rule, not the exception. A need for action to “save” my bitcoin? Sure — consider this somewhat confusing blog post from Coinbase when a spinoff currency (“fork”) happened this summer. I need to shuffle money into a new wallet? It won’t be the first time.

So what can you do?

  • If you’re holding bitcoin on a computer or device, back up your wallet and test the backup periodically by restoring it in another location. A backup that doesn’t work isn’t a backup.
  • Store a minimal amount in online wallets. I know, companies such as Coinbase claim that your deposits are fully insured — and as I know and respect that company, I believe it. But anyone can say that, including crooks. And Coinbase provided no details when asked. Without those, “trust me” doesn’t fly.
  • Keep a written record of where you’ve stored your bitcoin, and “touch” it once in a while. Does that flash drive still work? Is your online wallet still in business? Has a phone upgrade made your bitcoin inaccessible?
  • Follow all the usual best practices for online security: Use good passwords, confirm questionable activities, and so on.

As for what the industry can do…

Well, not much. At least, there’s no reason to change bitcoin itself, as its irreversibility is as much its strength as its weakness. I predicted a growth of secondary bitcoin services such as fund-clearing and insurance four years ago; some have appeared to ameliorate bitcoin’s fragility, but I think more needs to be done in this area.

Bitcoin’s instability is bad for its users. But it’s also a business opportunity; whoever can solve it will reap great rewards.

Tom Geller is the author/presenter of the video course Learning Bitcoin and several others available through Lynda.com and LinkedIn Learning. He’s at tomgeller.com and tgprods.com, and on Twitter as tgeller.

Originally published at https://www.linkedin.com/pulse/how-hurricane-irma-exposed-fundamental-bitcoin-weakness-tom-geller

No, THIS is what bitcoin is, really…

Blog post as it appeared online

A rebuttal to a misleading critique of bitcoin’s economy. Full title is “No, THIS is what bitcoin is, really: Four ways Greg Leffler is wrong, wrong, wrong”. (Personal post; not commissioned by LinkedIn.) It was a viral hit, garnering over 2,600 Likes within a week.

Is bitcoin the “currency of criminals”? Numbers tell the tale.

Last week you made this article one of the most popular of my career, currently topping 2,600 Likes. It rebuts a video where Greg Leffler makes some questionable statements about bitcoin.

The statement of his that’s garnered the most discussion is that bitcoin is the “currency of criminals”. A lot of the comments basically came down to “yes it is!” “no it isn’t”, with no supporting evidence. My article offered a little, but I admit it was weak. (I dismissed the illicit markets’ volume while pointing to numbers that imply high volume for legal bitcoin use.)

What’s needed, as usual, are numbers.

Specifically:

  1. What percentage of bitcoin is used for illegal activity (vs. legal activity)?
  2. At what percentage threshhold do we say that a currency is a “currency of criminals”?

How criminal is bitcoin?

To compute the first answer you first need to know total bitcoin volume. You’d think that it’s easy to figure this out, as all transactions are recorded on the blockchain, a worldwide ledger that’s essentially unchangeable and universal. But then you run into a problem of definition: Do you count bitcoins that are exchanged for dollars (or vice-versa)? That’s a big part of bitcoin’s transaction volume — bigger, I think, than for any other currency. (This feature lends support to arguments that bitcoin is an asset, not a currency. For this discussion, though, let’s consider it as a currency.)

Then you have to know the volume for illegal activity. That’s hard to do for any currency, as people generally try to hide their lawbreaking. Mr. Leffler lists as hotbeds of bitcoin criminality: malware ransoms; drugs; fake I.D.s; and assassinations. We have some figures for malware ransoms paid in bitcoin (as, again, those payments are visible on the blockchain): About $1 billion in 2016 according to one report.

Besides malware, we have to know the size of the bitcoin “dark market” for drugs, fake I.D.s, and assassinations. As far as I know, nobody’s made reliable, recent calculations for these. So our debates are just us throwing invisible rocks at each other. I believe that these numbers are relatively small, and welcome evidence to the contrary.

How does bitcoin compare to the dollar, euro, bhat?

Finally, it’s time to answer the second question: What is the percentage threshhold to make something a “currency of criminals”? Well, this whole discussion is really comparing bitcoin to dollars (et al.), so let’s start there. One 2012 estimate puts the “underground economy” of the U.S. at around 12.5%. In other countries, the shadow economy comprised over 50% of total economic activity in the early 2000s.

Calculating the answer

Even without complete information, we can now apply these numbers to bitcoin. With malware at $1billion/year, let’s say that the illegal “dark market” measures up at another $1billion/year. (This is admittedly my own guess: You can change the numbers according to your own guess.) $2billion is 12.5% of $16billion. $2billion is also 50% of $4billion.

So by these assumptions: If bitcoin’s legitimate use is over $16billion/year, the U.S. dollar is more of a “currency of criminals”. If bitcoin’s legitimate use is over $4billion, it’s typical of other world currencies.

Only if legitimate bitcoin volume is under $4billion/year can it be considered more “criminal” in use than (for example) the Thai bhat.

What are the real figures? Is bitcoin the “currency of criminals”? Numbers will tell: I welcome your evidence in the comments.

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I’m the author/presenter of the LinkedIn Learning/Lynda.com course “Learning Bitcoin“. One video from that course is shown above.

I’ve written a few other things related to bitcoin, and a whole lot about technology and such. I’m currently producing a documentary about efforts to model the human brain in computers, “Almost a Brain“.)

Originally published at https://www.linkedin.com/pulse/bitcoin-currency-criminals-numbers-tell-tale-tom-geller

No, THIS is what bitcoin is, really: Four ways Greg Leffler is wrong, wrong, wrong

With bitcoin topping an unprecedented $2,400, LinkedIn Senior Software Editor Greg Leffler called bitcoin “the currency of criminals” in his video, “Bitcoin: What You Should Know“. This opinion was already outdated when LinkedIn Learning released my video series “Learning Bitcoin” three years ago. My “What is bitcoin” video from that course summarizes its history and then-current uses.

With that out of the way, I’d like to address a few of Mr. Leffler’s statements:

“Bitcoin is the currency of criminals”

He repeats variations of this throughout the two-minute video, along with sarcastic assertions that its legitimate uses pale by comparison. He lists its main uses as: to pay malware ransoms (although the recent worldwide “WannaCry” attack netted under $100,000 in bitcoin); to buy drugs (where? Silk Road and most of its bitcoin-fueled ilk have been closed for years); to buy fake I.D.s (same) and assassinations (same… also, probably only in his mind. If he has some figures showing how murderers are getting paid, I’d like to see them).

How do these “realistic” uses of bitcoin compare with the legitimate ones Mr. Leffler dismisses? It’s hard to find percentage figures for bitcoin sales, but some companies that accept payment in bitcoin include Steam ($3.5 billion gross revenue in 2015); Overstock.com (1.8 billion in 2016); and Newegg ($2.6 billion in 2015). If .000013 of their revenue comes from bitcoin, that beats the $100,000 number.

“Bitcoins don’t have any intrinsic value. It’s not a thing you can hold. It’s not worth anything in and of itself.”

That… actually describes most financial instruments. All “money” (except commodity money) is based on the value that others will trade for it. And just because you can hold something, that doesn’t mean it has value. (I offer a stack of worthless hundred-trillion dollar Zimbabwean banknotes as proof.)

“Everybody promises that the blockchain is going to be the next big thing in technology… it’s not.”

Well, Mr. Leffler is a technologist, and he’s right that the blockchain (on which bitcoin’s security is based) hasn’t changed technology in a grand way. It’s introduced a relatively small idea into security tech… which has had triggered fundamental changes at the highest levels of government and corporate finance. Check out blockchain enthusiasm in the last few days from: the Monetary Authority of Singapore; Walmart; and Fidelity. An apt comparison is public-key cryptography, a small idea from the 1970s that now underlies damn near all online security.

“If you want to move any remotely large amount of bitcoin, it’s going to shift the market.”

Well, let’s look at the numbers. The total market value of bitcoin today is $60 billion. About 200,000 bitcoins (not 2,000, as he claims) went through exchanges yesterday, with a market value over $400 million. Just the top three largest transactions today have a value of $10 million — with no visible impact on the market. (And it’s only noon where I am!) Transactions of this size regularly get market value. How “remotely large” is he talking about?

Takeaway: Don’t take vaccine advice from actresses whose knowledge comes from discredited 20-year old studies. And don’t take bitcoin advice from technologists whose knowledge comes from 2010 news media.

Originally published at https://www.linkedin.com/pulse/what-bitcoin-really-four-ways-greg-leffler-wrong-tom-geller

Video for “A Fistful of Bitcoins”

Screenshot of the video as it appears on Vimeo

An interview with Sarah Meiklejohn, lead author of a paper that describes how she and her colleagues unmasked some bitcoin owners, despite the common belief that bitcoin is anonymous.

Up and Running with Bitcoin (2014)

Screenshot from Up and Running with Bitcoin

Description by lynda.com: “Understand the basics of bitcoin, the popular virtual currency, and then learn the nuances of bitcoin transactions and security issues that can be difficult to navigate on your own. Tom Geller addresses both the big and small issues swirling around bitcoin right now, and prepares you to use or accept bitcoin as a currency for your transactions. Discover how bitcoin compares to US dollars and other forms of money; how to send, receive, and “mine” it; and how to protect and track your bitcoin transactions. Tom will even show you how to connect with the Bitcoin development community, in case you’re interested in contributing to the spread of this modern cryptocurrency.”

Regulators ask: What is Bitcoin?

Image of the article as it appeared online

An article about legal challenges to the decentralized virtual currency Bitcoin, specifically on how the question of its definition affects its place in law.