Category Archives: Bitcoin

Sep 25th 2021

DIVERSIFICATION IS BOTH observed and sensible; a rule of behaviour which does not imply the superiority of diversification must be rejected both as a hypothesis and as a maxim, wrote Harry Markowitz, a prodigiously talented young economist, in the Journal of Finance in 1952. The paper, which helped him win the Nobel prize in 1990, laid the foundations for modern portfolio theory, a mathematical framework for choosing an optimal spread of assets.

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The theory posits that a rational investor should maximise his or her returns relative to the risk (the volatility in returns) they are taking. It follows, naturally, that assets with high and dependable returns should feature heavily in a sensible portfolio. But Mr Markowitzs genius was in showing that diversification can reduce volatility without sacrificing returns. Diversification is the financial version of the idiom the whole is greater than the sum of its parts.

An investor seeking high returns without volatility might not gravitate towards cryptocurrencies, like bitcoin, given that they often plunge and soar in value. (Indeed, while Buttonwood was penning this column, that is exactly what bitcoin did, falling 15% then bouncing back.) But the insight Mr Markowitz revealed was that it was not necessarily an assets own riskiness that is important to an investor, so much as the contribution it makes to the volatility of the overall portfolioand that is primarily a question of the correlation between all of the assets within it. An investor holding two assets that are weakly correlated or uncorrelated can rest easier knowing that if one plunges in value the other might hold its ground.

Consider the mix of assets a sensible investor might hold: geographically diverse stock indexes; bonds; a listed real-estate fund; and perhaps a precious metal, like gold. The assets that yield the juiciest returnsstocks and real estatealso tend to move in the same direction at the same time. The correlation between stocks and bonds is weak (around 0.2-0.3 over the past ten years), yielding the potential to diversify, but bonds have also tended to lag behind when it comes to returns. Investors can reduce volatility by adding bonds but they tend to lead to lower returns as well.

This is where bitcoin has an edge. The cryptocurrency might be highly volatile, but during its short life it also has had high average returns. Importantly, it also tends to move independently of other assets: since 2018 the correlation between bitcoin and stocks of all geographies has been between 0.2-0.3. Over longer time horizons it is even weaker. Its correlation with real estate and bonds is similarly weak. This makes it an excellent potential source of diversification.

This might explain its appeal to some big investors. Paul Tudor Jones, a hedge-fund manager, has said he aims to hold about 5% of his portfolio in bitcoin. This allocation looks sensible as part of a highly diversified portfolio. Across the four time periods during the past decade that Buttonwood randomly selected to test, an optimal portfolio contained a bitcoin allocation of 1-5%. This is not just because cryptocurrencies rocketed: even if one cherry-picks a particularly volatile couple of years for bitcoin, say January 2018 to December 2019 (when it fell steeply), a portfolio with a 1% allocation to bitcoin still displayed better risk-reward characteristics than one without it.

Of course, not all calculations about which assets to choose are straightforward. Many investors seek not only to do well with their investments, but also to do good: bitcoin is not environmentally friendly. Moreover, to select a portfolio, an investor needs to amass relevant information about how the securities might behave. Expected returns and future volatility are usually gauged by observing how an asset has performed in the past. But this method has some obvious flaws. Past performance does not always indicate future returns. And the history of cryptocurrencies is short.

Though Mr Markowitz laid out how investors should optimise asset choices, he wrote that we have not considered the first stage: the formation of the relevant beliefs. The return from investing in equities is a share of firms profits; from bonds the risk-free rate plus credit risk. It is not clear what drives bitcoins returns other than speculation. It would be reasonable to believe it might yield no returns in future. And many investors hold fierce philosophical beliefs about bitcointhat it is either salvation or damnation. Neither side is likely to hold 1% of their assets in it.

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This article appeared in the Finance & economics section of the print edition under the headline "Just add crypto"

Link:
Why it is wise to add bitcoin to an investment portfolio - The Economist

The price of Bitcoin (BTC) has slumped below $40,000 for the first time in six weeks.

The slide took place near the close of the day on Tuesday, with BTC prices having drawn down by 16% from nearly $47,300 at the start of the day to tag a local low of $39,650 at roughly 9 pm UTC. The move marked a 25% retracement from BTCs local highs above $50,000 on Sept. 7.

However, the pullback came after Bitcoin had gained more than 80% since hitting $29,300 on July 20 and then heading into early Septembers highs. Bitcoin has since recovered to trade just above $42,000.

Bitcoin was not alone in suffering a sharp price decline on Tuesday, with 29 of the top 30 crypto assets by market capitalization suffering a 24-hour drawdown, according to CoinGecko.

According to the Crypto Fear & Greed Index, the bearish price action coincides with sentiments of extreme fear across the market. Just one month ago, the metric signaled extreme greed.

Some of cryptos outspoken critics have seized on the dip to offer apocalyptic predictions for the markets, with Mr. Whale proclaiming to his 300,000 Twitter followers that the bear market is here.

Notorious gold shill Peter Schiff chimed in, forecasting that the growth of altcoins will soon overwhelm demand until the crypto bubble pops, while Bitfinexed believes the credit woes of Chinese real estate giant Evergrande will threaten Tethers reserves and the broader crypto markets through systemic risk.

The price plunge also came in the aftermath of United States Securities and Exchange Commission Chairman Gary Gensler likening stablecoins to poker chips and calling for tightening regulation of the sector.

However, much of Crypto Twitter reports zealous dip-buying in response to the market action, with some analysts asserting Bitcoin is poised for a recovery should prices hold above local support.

Galaxy Digital CEO Mike Novogratz appeared on CNBC, saying that he wont be feeling nervous unless BTC fails to hold above $40,000 and Ether (ETH) crashes below $2,800. As long as those [price levels] hold, I think the markets in good shape, he added.

Novogratz is not alone in eying the roughly $40,000 level as a critical support zone for BTC, with popular analyst William Clemente III recently asserting that Bitcoin is unlikely to fall below $39,000 due to its liquid supply floor and real-time scarcity.

Related: Ethereum forming a double top? ETH price loses 12.5% amid Evergrande contagion fears

Looking toward the fourth quarter, influencer Lark Davis noted that the final quarter of both 2013 and 2017 saw rallies of more than 300% as past bull cycles crescendoed, and he speculated on how a possible approval of a Bitcoin exchange-traded fund in the U.S. could again send prices flying.

See original here:
Extreme fear as Bitcoin price falls below $40K... and then bounces - Cointelegraph

The crypto broker lays out stepsin the next four to six quarters, following the company's regulatory setback earlier this year.

Niklas Nikolajsen, founder and chairman of Bitcoin Suisse, says that the Swiss broker could be listed on a large stock exchange in the not too distant future, in a Facebook poston Sunday.

A partnership with one of two large players in the banking and crypto financial field could also be on the horizon, Nikolajsen said. The eight-year-old company in March was forced to retreat from plans for a Swiss banking license.

Capital Raise

A capital raise is also in the works Nikolajsen said, whereby it is not clear whether this will done either through a financing round, private placement, credit or a mix of the options. In the past the company has attracted big shareholders.

Bitcoin Suisse will soon tokenize its shares and has recently changed it statutes to do so, according to the post.The announcement comes after the Swiss broker posted a strong half year, driven by trading fees.

Hiring SpreeThe company also plans to bolster staff numbers by 100 to 130 new positions, adding to its current 275 workforce over the next year. This means they will need new headquarters.

A key area during the period mentioned will be its crypto payments business, which it aims to expand to the European market. Nikolajsen says Bitcoin will apply for one or more licenses in different countries, without specifying which countries or financial regulators.

Here is the original post:
Bitcoin Suisse Head Mulls IPO and Partnership - finews.com

Morgan Stanley's Dennis Lynch shared a light-hearted analogy during a discussion at Morningstars yearly investment conference today, claiming that Bitcoins insatiable ability to defy the odds and rise from both technical and fundamental adversity portrays that of the South Park cartoon character Kenny.

The 24-series show has garnered a global audience base for its weird and wacky sense of humour, epitomised by the long-standing gag that Kenny dies in each episode, only to be rebirthed and gleefully unaware of his brutal demise in the following show.

Head of asset management firm Counterpoint, a Morgan Stanley subsidiary and a keen advocate of the show Lynch expressed his belief in the resilience of leading cryptocurrency asset Bitcoin since its inception over a decade ago.

After experiencing and surviving numerous bearish cycles, Bitcoin has established itself as a widely recognised and respected modern payment method and store of value in the mainstream market.

Major corporations such as Microstrategy, Tesla, and Galaxy Digital Holdings have all publicly revealed billion-dollar investments in the asset, the latter now reporting an immense $5.3 billion.

In his Kenny-inspired speech, Lynch stated:

Technical data from Cointelegraph Markets reveals that Bitcoin (BTC) has fallen 14.04% across the week in the wake of yet another Chinese crackdown on cryptos.

The Peoples Bank of China, or PBoC, this week announced a fresh strategy to combat cryptocurrency adoption in the country. Legal andgovernmental departments will strive to improve their coordination and communication practices to suppress crypto-related activities effectively.

However, according to Lynch, Bitcoin already possesses some of the same antifragile traits witnessed in the monopoly of big-tech firms, burgeoning political establishment, capital-hungry Wall Street financial markets and the self-rejuvenating Greek mythological monster Hydra to counter this.

The term antifragile was coined by esteemed author Nassim Nicholas Taleb in his 2012 book, Antifragile, to express the definition for the opposite of fragility, as in something that gains from disorder.

In the book, Taleb wrote:

A well-documented example of this was Bitcoin's previous all-time high of $20,000, a seemingly insurmountable figure during the harsh bear market of 20182019 and especially following the pandemic's financial crash to $4K but a level that one year on was more than tripled with $65,000.

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Morgan Stanley exec says Bitcoin is the Kenny from South Park of money - Cointelegraph

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Once a cumbersome, niche currency touted in the internet's dark corners by technophiles and privacy advocates, Bitcoin has become an investment asset you can buy and sell in seconds through popular money services like Venmo, Robinhood and Cash App.

In the wake of the 2008 financial crisis and subsequent bailout, Bitcoin was imagined as a digital alternative to fiat currency that allows users to circumvent the authority of banks and governments. But as cryptocurrency continues to soar in popularity -- and becomes increasingly entangled in finance and commerce -- it may no longer be able to escape Uncle Sam's watchful eye. We break down some of the basic dynamics below.

It's Bitcoin's ability to transfer value -- without verification from a bank or government -- along with the sheer amount of money now involved that has aroused lawmakers' interest. Over time, and usually in the wake of an economic disaster, the US has codified a complex rulebook governing most types of financial transactions in order to protect the public, discourage fraud and insulate the economy from bubbles, any unhealthy concentrations of risk and other perils. But the speed at which crypto is absorbing the interest and capital of American investors is pushing the issue to the forefront in some corners of Washington.

In August, Congress passed an infrastructure spending package funding the improvement of old roads and bridges, expanding high-speed internet access and taking measures to address clean drinking water and climate change. But an earlier draft included some significant provisions concerning the legislation of cryptocurrency. Of particular note was a proposition that would have required so-called "crypto brokers" to report tax data to the IRS, just like brokers of other assets such as stocks, bonds and commodities.

Ultimately, the cryptocurrency provision was cut from the spending package due to disagreements about the definition of who could reasonably be categorized as a crypto "broker." Lawmakers could not come to a consensus about whether or not to include crypto miners, transaction validators and software developers.

As a modest collection of existing laws, as well as current proposals in Congress (including H.R. 1628 and H.R. 3723), continue to coalesce into an informal legal framework, the crypto exchanges -- most prominently Coinbase -- have emerged as a focal point of Washington's interest.

SEC Chair Gary Gensler has become one of the more outspoken voices advocating government regulation of cryptocurrency. Before Biden tapped Gensler for his current role, Gensler was a professor at MIT, where he taught a course on cryptocurrency.

On Sept. 7, Coinbase was set to launch Lend, its new crypto-lending platform. But the exchange quickly scrapped its plans as the SEC threatened to sue, claiming that it traffics in unregulated securities.

The SEC announcement on Lend came one month after Gensler sent a letter to Sen. Elizabeth Warren. In it, he clarified the SEC's position on crypto legislation -- that more resources are needed to help investors, transactions, products and platforms -- and expressed a desire for additional legislation and authority.

"The world of crypto finance now has platforms where people can trade tokens and other venues where people can lend tokens ... I believe these various platforms not only can implicate the securities laws; some platforms can also implicate the commodities laws and the banking laws. This raises a number of issues related to protecting investors and consumers, guarding against illicit activity, and ensuring financial stability," wrote Gensler.

On Sept. 14, Gensler further addressed crypto concerns in a Congressional hearing where Gensler outlined SEC upcoming priorities, as well as the SEC's oversight of crypto assets.

Gensler said he believes crypto can foster change, but without regulatory oversight, he questioned its longevity. His prepared remarkssuggest that the SEC will continue to scrutinize the sale of tokens, trading and lending platforms, stable value coins, crypto derivatives, custody of crypto assets and more.

"We're working with our sibling agency, the [US Commodity Futures Trading Commission], as our two agencies each have relevant, and in some cases, overlapping jurisdiction in the crypto markets," said Gensler in his remarks. "We're working with not only the CFTC, but also the Federal Reserve, Department of Treasury, Office of the Comptroller of the Currency, and other members of the President's Working Group on Financial Markets on these matters."

Gensler also pointed to his perspective on the SEC's purview when it comes to securities -- including cryptocurrency: "Make no mistake: To the extent that there are securities on these trading platforms, under our laws they have to register with the Commission unless they qualify for an exemption," said Gensler in his remarks.

Earlier this week, a fake press announcementpurporting to be from Walmart on partnering with Litecoin, one of the lesser-known cryptocurrencies, resulted in Litecoin's value skyrocketing to over $200 before media outlets were able to confirm the news was false. Litecoin eventually returned to its former value, but it's possible that the scam netted the perpetrators -- who were positioned to buy low and sell high -- a significant profit.

Pump-and-dump schemes are common in the cryptocurrency industry and are giving lawmaker's plenty of ammunition for their arguments for crypto regulation. In fact, the frequent use of cryptocurrency in high-profile ransomware on American businesses both large and small -- as well as government entities -- has raised the hackles of legislators, as the ransoms paid in cryptocurrency are generally much harder for authorities to track and to recoup money paid.

Overall, Bitcoin remains largely unregulated as an asset in the US. While further legislation may ease some investor and regulatory fears over crypto's volatility and potential for crime-related transactions, Bitcoin -- for now -- is mostly disconnected from governments and conventional financial systems. Currently, most cryptocurrencies are decentralized and autonomous. If US lawmakers want crypto legislation with teeth, there will likely need to be significant coordination between international authorities -- which will be a significant challenge.

Despite the lack of an overarching federal or international regulatory framework, there are some crypto laws in place:

View post:
Bitcoin, Venmo, Robinhood may see new nationwide rules: What to know - CNET

Cryptocurrency-related stocks including Marathon Digital Holdings Inc (NASDAQ: MARA) and Riot Blockchain Inc (NASDAQ: RIOT) are trading higher Wednesday amid an increase in the price of Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) and positive analyst coverage from B. Riley Securities.

B. Riley Securities analyst Lucas Pipes maintained Marathon Digital with a Buy rating and raised the price target from $54 to $87. Pipes maintained Riot Blockchain with a Buy rating and raised the price target from $51 to $82.

The analyst's model now assumes a $45,000 Bitcoin price versus the prior assumption of a $35,000 Bitcoin price. The model was also adjusted to reflect higher miner costs. Despite higher costs, unit economics for digital mining remains "highly attractive," according to the analyst.

While these adjustments represent a large increase from our prior estimates, we believe our model is still conservative," Pipes said.

Marathon Digital is focused on mining digital assets. It owns crypto-currency mining machines and a data center to mine the digital assets.

Riot Blockchain is focused on building, supporting and operating blockchain technologies.

BTC, ETH Price Action: Bitcoin was up 2.71% over a 24-hour period and Ethereum was up 3.55% over a 24-hour period at publication time.

Photo: Quote Inspector from Flickr.

Latest Ratings for MARA

Sep 2021

B. Riley Securities

Maintains

Buy

Jun 2021

Compass Point

Initiates Coverage On

Buy

May 2021

B. Riley Securities

Initiates Coverage On

Buy

View More Analyst Ratings for MARA View the Latest Analyst Ratings

See more from Benzinga

2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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Why Bitcoin-Related And Ethereum-Related Stocks Are On The Move Today - Yahoo Finance

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Bitcoin was trading 2.53% higher on Wednesday morning, shattering the $47,000 mark.

The price was around $47,120 per coin, while rivals Ethereum and Dogecoin were trading around $3,400 (+1.79%) and 24.2 cents (+1.46%) per coin, respectively, according to Coindesk.

Since last week when Bitcoin traded at $43,000 per coin, it has steadily risen to break $47,000 early Wednesday.

BITCOIN IN EL SALVADOR SPARKS CRYPTO CURRENCY DEBATE

In bitcoin news Tuesday, Miami's city commission on Monday voted in favor of accessing about $5 million worth of MiamiCoin, a Miami-specific cryptocurrency and counting.

For every MiamiCoin that people mine (or create) using a base cryptocurrency called Stacks, which has its own token, Miami gets funding that elected leaders can use to improve quality of life for city residents.

Bitcoin was trading 2.53% higher on Wednesday morning, shattering the $47,000 mark. (istock)

MiamiCoin the first CityCoin, a city-based token with plans to expand to other cities besides Miami, though CityCoin does not have a partnership with Miami. Instead, the cryptocurrency is completely community-sourced and community-driven.

In other bitcoin news, Billionaire Steven A. Cohen, owner of Major League Baseballs New York Mets, is set to invest in a new cryptocurrency trading firm, the latest bet on the digital-asset markets by a prominent Wall Street investor.

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The hedge-fund manager agreed to make an initial investment in Radkl, a quantitative-trading firm specializing in digital assets, according to the firms executives and a Cohen spokeswoman.

More here:
Bitcoin above $47,000 level; Ethereum, Dogecoin higher as well - Fox Business

The bitcoin and crypto price bull run has stalled after its phenomenal rally in the first half of this yearwith some issuing stark warnings over bitcoin's prospects.

Subscribe now to Forbes' CryptoAsset & Blockchain Advisor and discover hot new NFT and crypto blockbusters poised for 1,000% gains

The bitcoin price has failed to hold ground over $50,000 per bitcoin despite multiple attempts to pass the psychological barrier. Meanwhile, ethereum, the second-largest cryptocurrency after bitcoin, has also fallen away from its all-time high set in May.

Despite bitcoin's recent struggles, Cathie Wood, the chief executive of Ark Invest who's made a name for herself with big bets on bitcoin and Elon Musk's electric car company Tesla TSLA , has predicted the bitcoin price will hit $500,000 in just a few yearsand revealed her confidence in ethereum "has gone up dramatically."

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Ark Invest chief executive Cathie Wood is a long-time supporter of Tesla CEO Elon Musk as well as ... [+] bitcoin and cryptowith traders closely watching her bitcoin, ethereum and crypto price predictions.

"If we're right and companies continue to diversify their cash into something like bitcoin, and institutional investors start allocating 5% of their funds, we believe that the price will be ten-fold of where it is today," said Wood, speaking to CNBC anchor Andrew Ross Sorkin at the Salt technology conference in New York. "So instead of $45,000, over $500,000."

In July, Wood joined Musk and Twitter's Jack Dorsey in a live discussion that saw the trio discuss bitcoin's potential as well as the merits of ethereum and the meme-based dogecoin.

Wood, who said she made price targets on a five-year timeline, named bitcoin as her top cryptocurrency as "countries are now deeming [bitcoin] legal tender," although she's also bullish on the ethereum price and sees the Ark portfolio split 60%, 40% between the two.

Earlier this month, El Salvador made history when it adopted bitcoin as its official currency alongside the U.S. dollar, sparking speculation other countries could follow suit. Some have suggested Ukraine could eventually adopt bitcoin after it moved to legalize it last week and a former prime minister of Malaysia has said his country should "encourage" crypto holders to invest in Malaysia.

Much of this year's crypto price surgethat's seen the combined crypto market soar from around $700 billion to over $2.1 trillionis due to rallies in ethereum and its many rivals that are jostling for market share.

"[Ethereum] is seeing an explosion in developer activity thanks to NFTs and DeFi," Wood said, referring to the digital collectible non-fungible token craze and an explosion in crypto-based decentralized financedesigned to recreate lending and interest without the need for banks.

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The bitcoin price has added over 300% since this time last year, with the price of ethereum soaring ... [+] even higher.

"I'm fascinated with what's going on in DeFi, which is collapsing the cost of the infrastructure for financial services in a way that I know that the traditional financial industry does not appreciate right now," said Wood. "Our confidence in ethereum has gone up dramatically as we've seen the beginning of this transition from proof-of-work to proof-of-stake."

Late last year, ethereum began a long-awaited transition away from the energy-intensive proof-of-work to proof-of-stake, designed to help ethereum scale and increase its efficiency. The upgrade won't be completed until 2022, however.

Wood, who sees the already sky-high valuation of Elon Musk's Tesla soaring in coming years, praised the dogecoin-loving billionaire. "[Musk is] a visionary and he sees the future so clearly," she said, predicting "explosive growth" and committing Ark to "nothing else but disruptive innovation."

"I do believe that both crypto and the equity markets are going to be powered by millennials," Wood added.

More:
$500,000 In Five YearsElon Musk And Tesla Devotee Cathie Wood Reveals Huge Bitcoin And Ethereum Price Predictions - Forbes

In 2008, a mysterious entity Satoshi Nakamoto published the Bitcoin (BTC) whitepaper.

In the document, they proposed a purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution.

But who is Satoshi? Nobody knows, even today.

Satoshi could be one person, or a group of developers or technocrats. The name is of Japanese origin, but the Bitcoin whitepaper is written in flawless English, leading people to infer Satoshi could be from an English-speaking nation.

Not only did Satoshi publish the Bitcoin whitepaper but they also created the software around the Bitcoin blockchain before disappearing in 2010.

Satoshis work came as a response to the 2008 global financial crisis, which saw numerous banks and financial institutions fail. With governments bailing them out at the expense of taxpayers, the crisis brought into focus the fragility of the existing, centralised financial system.

Bitcoin which proposed a form of payments that eliminated centralised entities like banks and governments was seen as a possible solution or alternative to the status quo.

In the 10 years since, Bitcoin has spearheaded the blockchain and cryptocurrency revolution across the world.

And in 2021, on April 14 to be exact, BTC reached an all-time high of $64,863 per token.

Why does Bitcoin have value? And what is it used for? Heres why the world is going gaga over this virtual currency.

Bitcoin is built on top of a blockchain, which is essentially a chain of blocks. When data is added over time in blocks, new blocks are built on top of previous ones.

Transactions are recorded on multiple computers or devices across the world (also referred to as nodes).

These characteristics make it impossible to retrospectively alter a block without altering all subsequent blocks.

Satoshi Nakamoto wrote in the whitepaper:

If a majority of computational power (51 percent and more) is controlled by nodes that do not harbour a malicious intent to cooperate to attack or corrupt the network, the Bitcoin blockchain grows longer and outpaces attackers.

This makes it a safe and secure platform for transactions to occur.

Further, the Bitcoin blockchain networks code has assigned a predictable issuance rate and upper limit.

The total number of BTC can never exceed 21 million. Almost 19 million BTC has been mined (or created) so far.

As BTC has limited supply, it is seen as a store of value and a hedge against inflation, similar to gold. It can also be used in transactions wherever it is accepted.

To understand why Bitcoin and other cryptocurrencies dont have intrinsic value, and yet are valued at thousands of dollars, refer to this article.

How does the Bitcoin network really work? And how can transactions be made on the Bitcoin blockchain? Lets look at a simple example comparing regular financial transactions with Bitcoin transactions.

Conventionally, if User A wants to send Rs 1,000 to her friend User B, she notifies her bank (a centralised entity) by initiating the transaction. Once the bank verifies that User A has the necessary funds, it updates its database.

User As bank balance is reduced by Rs 1,000 while User Bs balance is increased by the same amount. In this example, we are assuming both users have the same bank.

For User A to send one Bitcoin to User B, they must broadcast a message in the network so that other nodes can see it.

The nodes, or the users, then set out to solve a puzzle set out by the protocol, which requires them to hash transactions and other information in the block.

This is referred to as mining, and those performing this task are called miners. The miners must keep hashing data (slightly modified each time) until a valid solution is found to the puzzle and then, a Bitcoin token can be sent to User B.

Finding a valid solution for the successful transfer of Bitcoin creates a new block, and generates a block reward (in Bitcoin) for the miner responsible.

Once the transaction is added to the Bitcoin blockchain, all other nodes can see and validate it, and update their copies of the ledger to reflect it.

At the same time, User As crypto wallet (where she stores her Bitcoin) is updated to show it has sent one Bitcoin, while User Bs wallet is updated to show it has received one Bitcoin.

Further, as the network knows about the transaction, User A cannot send the same Bitcoin to somebody else (known as double-spending).

For more information on the basics of blockchains and how transactions work, refer to this article.

So far, one of the major arguments against Bitcoin is the amount of energy expended in its creation.

The process of creating Bitcoin to hold, trade, or spend reportedly consumes 91 terawatts of electricity per year which is more than what Finland, a nation of 5.5 million, uses annually.

Nevertheless, BTC is seeing an uptake in adoption. In the last few weeks, the crypto world has been talking about the adoption of BTC as legal tender in the Central American country of El Salvador.

There, Bitcoin transactions work largely in the manner described in the above example. But there is an additional step designed to make BTC transactions more efficient the Lightning Network.

Traditionally, Bitcoins biggest challenge has been scalability. Owing to its distributed, decentralised design, the network can only handle around seven transactions per second and create additional blocks every 10 minutes.

In comparison, Visa can handle around 1,700 to 4,000 transactions per second on average (although it claims a far higher number).

As such, transaction speed isnt constrained by the main blockchains block limits or involve high transaction fees or slow settlement times.

The El Salvador government also launched an official Bitcoin wallet named Chivo for users to transact in BTC.

Going forward, it remains to be seen whether Bitcoin will continue to become legal tender in more underbanked countries like El Salvador, or largely remain a store of value.

As it is decentralised, censorship-resistant and borderless, it is increasingly becoming popular for international remittance and payments, allowing users to transact without revealing their identities.

Other cryptocurrencies such as Ethereum, Dogecoin etc and their origins and use cases will be explained in future articles.

See the rest here:
What is Bitcoin? BTC origins, transactions, and other key features explained - YourStory

El Salvador president Nayib Bukele says the country will save $400 million a year in remittance fees by adopting bitcoin. That claim doesnt necessarily stack up.

A quick recap: The Central American country rolled out its bitcoin wallet app, called Chivo, on Sept. 7. Businesses are now obliged to accept the crypto token and the US greenback, which was already a national currency, for payments. Bukele seeded the wallets using taxpayer money with $30 worth of bitcoin to get things rolling. The president ishoping to attract a new generation of crypto entrepreneurs and to cut the expense of remittances, which are estimated to make up around 20% of gross domestic product.

Unfortunately for Salvadorans, there may not be a cost or time savings for remittances using bitcoin versus PayPal (via its Xoom offering) or Western Union, according to Jason Mikula, a fintech consultant. Mikula crunched the numbers for sending $200 from the US to El Salvador; his analysis assumes the sender is starting out in US dollars and traded them for bitcoin using Coinbase, the largest US crypto exchange. (He notes that some crypto proponents assume the transaction starts out in bitcoin, which he suggests is unreasonable as most people hold their funds in fiat currencies.)

Exchanging $200 for bitcoin costs between $2.99 to $7.67 at Coinbase, depending on whether the transaction is funded using PayPal, ACH, or debit, Mikula says. The exchange may charge an additional spread for the transaction (the gap between the bid and offer prices for bitcoin on its exchange). Theres also a network fee (paid to the crypto miners who process transactions on a blockchain) to send bitcoin from Coinbase to a Chivo wallet in El Salvador, which runs around $3. El Salvadors bitcoin wallet lets users switch between the US currency and bitcoin at no cost.

By contrast, a person can send $200 from the US to El Salvador using Western Unions mobile wallet, called Tigo, at no cost and in minutes, according to the companys website. Mikula speculates that Western Union may be willing to eat the transaction costs (debit/credit interchange) because fewer remittances are sent this way. Western Union charges a hefty fee for transactions using physical cash: it costs $9 to $18 to send $200 in cash from the US to El Salvador. This is probably a popular way of sending money, as around 70% of the people there dont have a bank account.

Bukele is correct about at least one thing: Remittances are a critical lifeline for millions of people in El Salvador. Around 18% of households receive them, taking in an average of about $195 per month, according to a report from researchers at the Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise. They found that remittance costs there absorb about 2.95% of transactions, the lowest level of any nation in the Latin American-Caribbean region.

And they, too, found that sending remittances using bitcoins blockchain rails is more expensive than the systems already in place. Their analysis is partly based on the assumption that people in El Salvador want paper greenbacks, not bitcoin, and will have to pay up a crypto ATM to withdraw the hard currency. (They note that the coastal town of El Zonte, El Salvador, made bitcoin a local currency in 2019, but it didnt catch on.) At present, traditional transfer methods are the cheapest way to make remittance payments, they wrote.

Bukeles controversial bitcoin gamble has a number of serious risks for El Salvador, including the potential to undermine financial stability. That said, there could be some upside if the Chivo wallet succeeds in making digital payments and mobile wallets into the hands of the countrys vast majority that is unbanked. That infrastructure actually could reduce remittance costswithout using bitcoin.

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Remittances to El Salvador are cheaper without using bitcoin - Quartz