/SorryForYourLoss is a place to showcase the top minds of bitcoin (and cryptocurrencies) failing to secure their precious internet money properly. It's a memorial for the countless incidents of thefts, scams, hacks, goxxes, .. etc.
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Discussion about Europay, MasterCard & Visa chip cards.
Assuming that the value of 1 bitcoin today is 1k and that the value of 1 bitcoin in 2032 is 1k the amount miners would need to make up in transaction fees from lost subsidy is the difference between 1,800 and 112.5. Simply saying "but btc will be worth more then" doesn't account for the obvious implication of what that means. If bitcoin is worth more in the future then miner revenue will need to be even greater, proportionally. submitted by
Link to article in Dutch national news: https://nos.nl/op3/artikel/2213858-sander-27-heeft-een-bitcoin-gevonden-die-in-dna-zat.html
Translation: Sander (27) unlocked a Bitcoin hidden in DNA
A Belgian student has won the bitcoin, which he knew to decrypted out of DNA. Sounds complicated, it is, but it was meant to be a challenge. Sander Wuyts (27): "I barely could believe I succeeded".
Sander participated to the challenge which was running for three years and won (at current price) 8455 EURO, because that's the value of 1 bitcoin today. On the World Economic Forum in Davos in 2015 professor Nick Goldman explained how to store data in DNA. He encrypted 1 bitcoin (then worth 160 EURO) in a string of DNA in front of the audience.
[But how do you put a bitcoin in DNA? Like this: a bitcoin is a string of numbers and letters. You transform that string into a ternaire code: zeros, ones and twos. So the new string corresponds with the building stones of DNA: G's, C's, A's and T's. This is a simplification of how to put a bitcoin in DNA]
The competition expired last Sunday 21th
Januari. Fifty days earlier professor Goldman reminded us that nobody claimed the price.
Sander write the wrote the professor about the competition and he received the tube with DNA. Sander's PHD student for Microbiology at the University of Antwerpen, so he had access to machines that can read DNA. After reading out the strings, he had a 23 million DNA-sequences good for 10 GigaByte of data.
"Then the challenge started", Sander stated. "Professor Goldman did elaborate how to store data in DNA, but there was no manual. I discovered the solution all by myself".
In the DNA he's found 9 files, of which he could decrypt five. In the combined first two files was the bitcoin with instructions on how to claim it. In the other files there were logos and images.
Because bitcoin is a public ledger and everybody can witness that Sander now owns the bitcoin, we all can be sure Sander succeeded in decoding the challenge.
Sander engaged the challenge, because he's interested in DNA-technology and Crypto Currency. But during the challenge he saw the benefits of storing data in DNA.
"The biggest advantage is how compact this methode is. If you store all earth data of 2015 in DNA, it will fit in the trunk of your car", according to Sander.
Besides, DNA is very stable. "a VHS video tape of 20 years ago is blurry, a HD often crashes after about five years. DNA is very durable. Sometimes we can read DNA aged thousands of years"
A disadvantage is: It takes time to read DNA, often two days. But there are plenty of cases where it does work well. Like the CERN project. There is a huge amount of data produced, but the data isn't directly analyzed. We can store that data in DNA and until scientist need the data for extended research. "
Meanwhile Sander has cashed out his bitcoin. "It is a volatile market and now it's worth a lot of money". A part of the money is to celebrate and to thank his colleagues for the help he received. The rest of the money he will invest in experimental DNA machines.
Disclaimer: I'm not a professional translator, sorry about unclear sentences. I just wanted to share this with you, because I'm extremely proud of what Bitcoin has achieved. This path into DNA is so exciting and I wish I was that smart as Sander. But I had no chance for education, due being a war child full of abuse and violence. Bitcoin saved my life. This DNA project is like a dream, like what Bitcoin did to me. I managed to escape poverty. I don't need tipping, I just want to share with you how amazing I love how far we've come. Please keep up the great work, spreading and sharing knowledge, include all.
My twitter account @coinmarketswot
Background: A lot of the discussion on bitcoin value is IMO lacking in a proper analytical grounding. People throw out random numbers, or say you should look at the market cap of visa etc, without providing any rationale. I'm not an academic, but I studied economics and spend my day valuing companies so I have a degree of expertise. I also did a bit of research to understand better the dynamics of other currencies to which I compare certain attributes, e.g., velocity. Note that this is over a year old so the numbers are a bit out of date but that shouldn't make much difference to the basic analysis. The link to the article on scribd is here... http://www.scribd.com/doc/217902157/Valuing-Bitcoin
... and I've inserted the full text here (I guess the formatting will not be great)..
Summary: I use a very simple model of transaction value, bitcoin velocity and the number of bitcoins in use to derive a fair value for a bitcoin today. Rather than trying to analyse in detail the likelihood of and means by which bitcoin may become more widely adopted, I use a scenario analysis that allows us to take a ‘finger in the air’ approach to estimating the likelihood of Bitcoin’s success or failure. Taking this approach we can back-calculate to work out what is implied in the current valuation of bitcoins in terms of likelihood of adoption, or other key variables.
This is primarily a simplified framework to help elucidate the fundamentals that drive the value of bitcoins. The assumptions herein are very ‘back of the envelope’ and are principally for exposition.
- First principles
The value of a single bitcoin is related to the value and velocity of transactions made using bitcoin, and the volume of bitcoins in use.
The value of transactions made with bitcoin. Let’s say we assume that bitcoin will succeed in becoming the payment choice for US$100bn of transactions per year. Let’s also first assume that this US$100bn takes the form of one single transaction – say to buy all of the outstanding stock of Facebook. In order for this to be possible, the entire market value of Bitcoin would need to be at least US$100bn. For argument’s sake, let’s say someone managed to accumulate all of the bitcoins in existence (ca.12.5 million today) and used them to make this transaction, then we can infer that the value of a single bitcoin, when this transaction happens, is $8,000.
The velocity of transactions made with bitcoin. Let’s take the same example above, but this time let’s assume that rather than one transaction, it takes the form of two transactions – let’s say to buy ‘whataspp’ and ‘wechat’, for the equivalent of US$50bn each. Let’s further assume that the seller of whatsapp, uses the US$50bn of bitcoins he has received, to buy wechat. How much does Bitcoin need to be worth to facilitate this series of transactions? Hopefully one can see that at the very least, it needs to be worth $4,000, half of the example above, because the same bitcoins could be used twice. Therefore, the same ‘value’ of transactions has been facilitated, US$100bn, but depending on the number of times the same bitcoin can be used the implied value of bitcoin can differ.
The volume of bitcoins in use. The previous two examples have assumed that the whole outstanding stock of bitcoins is being used to facilitate the transactions. This is unlikely to be true. It is very likely that a good number of bitcoins have been ‘lost’ – ie., stuck on hard drives thrown into landfills, etc. Let’s assume there are 2.5 million lost bitcoins – the value in our first example would then have to be US$10,000. Moreover, clearly a lot of people today hold bitcoins as a store of value, or perhaps more accurately, as a speculative investment. The number of bitcoins genuinely in circulation, therefore falls still further.
- Arriving at a formula to determine the value of a bitcoin
Using the basic principles outlined above, we can generate a simple formula to describe the value of a bitcoin as such:
1 btc = T/V/U
Where T = transaction value V = velocity U = no. of bitcoins in use
This is obviously a simplification, so we need to explore each aspect in greater detail to understand how to use it properly.
2.1 Transaction value (T)
How do we determine transaction value in the real economy? The obvious place to look is GDP, the most widely used measure of economic activity. It measures the value of all final goods and services consumed in an economy. Does this equate to the value of transactions in the economy? No – because before a good is finally consumed there are typically many other transactions going on to facilitate its transformation from raw material, to intermediate good, to finished good, to consumption by end consumer. The advantage of GDP, however, is that it is relatively easy to measure. Estimating the value of all transactions, on the other hand, is very hard and is a problem economist have recognized for a long time. That is not to say there aren’t estimates: a September 2013 white paper by Mastercard estimated the total value of transactions globally in 2011 as $592 trillion, compared to global consumer payments / GDP of $63 trillion. This may well be a good ballpark figure, however for our purposes we can probably just stick to measures of GDP. Why? Because, faced with this measurement issue, economists have worked around it to base their analyses on GDP, and therefore as we try to compare bitcoin value versus, say, the USD, it makes sense to use the framework most commonly used.
It is important to understand, however, that because of this framework only bitcoin transactions that are used in the final consumption of goods and services count towards our measure of ‘T’. Trading of bitcoins, or international remittances, for instance, do not count.
2.2 Velocity (V)
Given the difficulty in measuring the value and volume of transactions in an economy, it is quite difficult to measure velocity directly, in an accurate or meaningful way. To get round this problem economists take a different approach, which is quite useful for our purposes. Rather than measure velocity (V), we measure the ratio (k) of all cash balances in the economy (coins, notes, bank deposits – M1 money) to a measure of transaction volume, in this case GDP. By means of illustration, this ratio for the US today is about 14%. This means that to support the USA’s GDP of $16 trillion, roughly $2.3 trillion needs, at any one time, to be sat in bank accounts, in people’s wallets or under the mattress. Put simply this measures how much people and businesses like to keep on hand for everyday consumption. The rest of their savings can go into non-cash savings vehicles, like a house, or the stock market.
The velocity of money V can be seen as the inverse of k – i.e, each dollar of that $2.3 trillion would need to be spent around 7 times in the year to generate the $16 trillion in GDP. This in reality is a simplification, but we can work with it to come up with comparable assumptions for bitcoin.
2.3 Bitcoins in Use / Money supply (U)
In order to work out the velocity of money in the US economy, economists need to know the money supply. Figuring out the money supply in fiat currencies is more complex than for bitcoin – this is because there are different types of fiat money – it can be in the form of coins and notes, or in basic bank current accounts, savings accounts, fixed deposits, etc. In the example above we calculated the velocity of M1 money – that is coins, notes and demand deposit bank accounts.
Bitcoin is just bitcoin, and we know there have been ca. 12.5m bitcoins mined. That being said, it is not so straightforward to determine bitcoins ‘in use’. For one, there are all the lost coins. In the analysis herein I have assumed 2.5m have been lost (or, more accurately, private keys lost). There is also the question of how to treat those bitcoins that are being held for investment purposes. M1 is sort of a measure of ‘ready cash’ – a description that does not really apply to most bitcoins. In reality, most bitcoin holders probably treat some portion of their stockpile as ‘ready cash’, and the rest as investment. It is this ‘ready cash’ proportion that is of interest in calculating U.
- Estimating a value for bitcoin
With the above analysis in place, it is easy to start understanding the implications for the value of bitcoin. For example, if the US were to switch to a pure bitcoin economy today, and the velocity of bitcoin was the same as for the dollar, then we can say the value of a single bitcoin would need to be:
Btc = T/V/U = 16 trillion / 7 / 12.5 million = $183,000
3.1 The value of bitcoin based on today’s usage
Estimating T, V and U:
T. It is quite hard to estimate what T is today. We know the total transaction value from the blockchain, but most of this is exchanging bitcoin for other currencies or transfers between accounts. This doesn’t count in our estimate of bitcoin ‘GDP’. We do know it must be quite low – the most well known retailer accepting bitcoin, Overstock.com, takes in about $1m in bitcoin sales per month, so $12m per year. Let’s estimate, finger in the air, that total real world goods and services transactions in bitcoin are $1bn per year – this may well still be high.
V. It is very difficult to estimate velocity for those bitcoins that are in use as ‘currency’. It seems a fair assumption, however, that the velocity is slower than for USD, since there are simply not many bitcoiners out there buying and selling stuff. Again, with a finger in the air, let’s assume velocity of bitcoin today is 1 (compared to around 7 for the USD).
U. we know there have been around 12.5 million bitcoins ever mined – but are they in use? Certainly, some have been lost, so we should definitely remove them from our calculation of U. What about coins that are being used for speculative investment? Are they in use, but just very slow moving? We could choose to look at it that way, but I would rather assume that people using bitcoin see some of their stockpile as being ‘for investment’, and some as for everyday spending. Those that are for investment are really more like houses or stocks and bonds, and therefore not really part of U. Over time, as bitcoin approaches its long term price we would expect that people would hold bitcoin less as an investment, and therefore bitcoins in use would rise. For now though it seems clear that most bitcoins are being held for investment. Again, it is impossible to say what proportion, but I think it is high – say at least 80%. If we assume that 2.5 million bitcoins are lost, and that 80% are for investment, that means that only 2 million are ‘in use’.
These finger in the air assumptions give us the following as a minimum value required to support the value of btc transactions in the economy today:
Btc = T/V/U = 1bn / 1/ 2mn = $500.
Of course, we know the value of bitcoin today (ca $422 as of 12 April 2014), so we could back calculate the value of an individual variable. Since the average value of bitcoin over the last year or so is in the $500 range, these assumptions look plausible.
The true, fair, value of bitcoin today, however, given that most people are holding it as an investment, is clearly based on future expectations of its adoption and usage. Below, therefore, I build up some basic assumptions about what that could look like, to derive a very rough, back of the envelope type calculation for the real value of one bitcoin.
3.2 Estimating a fair value for bitcoin
Obviously, it is very unlikely that bitcoin will replace the US dollar, so we need to arrive at some sort of reasonable assumptions for what might happen.
For the purposes of this exposition, I will focus on where bitcoin could be in 5 years time. This is a close enough time frame to feel comfortable making some sort of prediction. Of course, the full potential of bitcoin may not be realized for 10 or 20 years or more, however in order to be conservative and to keep the assumptions at a level where people can have a good gut feel for whether they are realistic or not, let’s stick to 5 years.
I’m going to use three scenarios: 1. Crash and burn – where bitcoin is dead in 5 years – no one is using it at all – it just didn’t live up to the hype, there are a couple more gox like scandals and the original evangelists have moved onto new things 2. Nice but boring – bitcoin continues its slow but steady rise, but there is no exponential take off and usage remains confined to online payments by the relatively tech-savvy and libertarian 3. To the moon – bitcoin reaches critical mass, usage becomes easy, widely accepted and the wider population starts to understand it better. In developed markets it takes meaningful market share in online transactions and is beginning to make meaningful inroads in offline payments. In some emerging markets it is trusted more than the local currency, and adoption rates are soaring.
Basic considerations on U
I don’t know the answer to this, someone probably does, but let’s assume that in 2019 there have now been 15 million bitcoins mined. Let’s assume 2.5 million are still lost, so there are 12.5 million bitcoins, either being used as an investment or as currency.
Scenario 1 – Crash and burn
In our equation T = 0 (or very close to 0) therefore:
1 btc = 0/V/U = $0
Scenario 2 – Nice but boring
Let’s say that bitcoin takes 1% of online spending, and basically zero offline spending. E-commerce in 2019 is expected to be valued at around $3 trillion. Therefore we assume T = $30bn. Remember we estimated that T today is around $1bn.
Since there is a material amount of spending happening now, let’s assume that V has doubled to equal 2.
In this scenario it is likely that most people are still holding bitcoin as an investment, hopeful of future price increases, however it has been almost 10 years since bitcoin was founded, bitcoin are a lot easier to spend and after holding for so long people are now more willing to spend them. There are probably a decent number of second stage adopters using bitcoin just as an online payment vehicle, not for investment. So let’s assume that just 70% of bitcoins are held as an investment, and therefore there are 3.75m being used for transactions. Therefore:
1btc = 30bn/2/3.75m = $4,000
Scenario 3 – To the moon!
In this scenario bitcoin has really taken hold, particularly online, where 20% of transactions now use bitcoin. Offline uptake is slower, but gaining traction. Let’s say 1% of offline transactions in developed markets use bitcoin. In emerging markets, where currencies are volatile, and where a lot of people have been receiving remittances in bitcoin from relatives abroad, offline uptake is greater, let’s say 2%.
Online transactions – 20% x $3 trn = $600bn Developed world offline – 1% x $45trn = $450bn Developing world offline – 2% x $30trn = $600bn
T = $1,450bn
In this scenario spending has really taken off, so let’s assume velocity (V) has now reached 5.
Of the 12.5 million coins in existence now, a good chunk are actually being used for real world transactions, so let’s say only 50% now are being held for investment – i.e., U = 6.25m.
1 btc = $1450bn / 5 / 6.25m = $46,400
Probability of occurrence
To estimate our bitcoin value, we take a weighted average of the values produced by each scenario, based on an assumption about the likelihood of each coming to pass.
Scenario Btc value Likelihood Weighted value 1. Crash and burn $0 50% $0 2. Nice but boring $4,000 45% $1,800 3. To the moon $46,400 5% $2,320 100% $4,120
Therefore, if you accept the assumptions above, and the probability attributed to each scenario, the probability weighted value of a single bitcoin in 5 years time will need to be $4,120.
Time value of money
To reach a valuation for a bitcoin today, we need to discount backwards from the value in 5 years time. This is very simple, since we do not need to discount heavily as we have already considered the ‘risk’ within our scenario analysis. The only discounting we need to do is therefore at the risk free rate, which is usually taken to be the yield you would get if you held a US Treasury bond of similar duration. Let’s say this is 3%. Discounting $4,120 back to today we therefore arrive at our final ‘finger in the air’ value for one bitcoin today:
1 bitcoin = $3,554
- Implications of the current btc value
As of April 12 2014, the value of one bitcoin is around $420. We can take this value and, holding other assumptions as they are, solve for a single variable to see what might be happening.
For instance, perhaps I am being unfair in treating some bitcoins as out of use. If we solve for U, taking $422 as the value of one bitcoin, the implied number of bitcoins in use is 43 million – an impossible number. Let’s assume that in 2019 all 15 million bitcoins ever mined are ‘in use’, and that the velocity of transactions stays the same. If so, the value of 1 bitcoin today ought to be $1,222.
If we solve for the probability of scenario 1 happening (keeping the ratio of the likelihood of scenario 2 and 3 the same), we discover that today’s $422 valuation implies a likelihood of bitcoin ‘crashing and burning’ of 94.06%.
Instead of just investors benefiting from the greater demand for Bitcoin, all participants in the system benefit as a rising tide lifts all boats. submitted by
Editors Note #10 The Price Doesn't Matter EXCEPT WHEN IT DOES
I don’t like to think about or even look at the price of Bitcoin. Putting a numerical value on a thing is often mistaken for a fair value of that thing. In Sales there is a technique called anchoring, where when you’re talking about a product you make sure to start with a higher number because that becomes the first mental peg for further negotiations.
So it’s a distraction, an arbitrary point in space where two traders looked at their own personal math and said “Yep, this deal makes sense for my needs” and that’s the price. Is it market driven? Yes. Is it fair value? We just don’t know.
If this is the new normal for pricing, which I’m not saying it is because I’m not willing to believe it quite yet, than the Deflationary Business Model has been wildly successful for Let’s Talk Bitcoin and every contractor we’ve worked with.
Our most common tip over the last six months was .007btc - It took me a while to figure it out, but at the values we were hovering at, it’s about a dollar. Every one of those tips we didn’t have to spend is now worth $4 and suddenly hitting only 50% of our revenue targets was actually exceeding it by 50%.
One of the first contractors I hired and paid in Bitcoin was to have Business cards made for five LTB crew who would be attending the San Jose Bitcoin 2013 conference, he was a listener and gave me a 50% discount as a donation-in-kind. He sent this over this morning
I just realized the business cards I made for you back in May were the most profitable business cards I've ever created, considering the value of those Bitcoin today. Thank you!
So, the people who believed in Bitcoin when it was more on the fringe are being rewarded. This is the desired situation when buying stock, but when do I ever pay for services with stock? Instead of just investors benefiting from the greater demand for Bitcoin, all participants in the system benefit as a rising tide lifts all boats.
Monday and Tuesday see new milestones for the nascent Cryptocurrency ecosystem as Bitcoin truly goes to Washington for the first congressional hearings on the topic. But I don’t expect much drama at all, this is about not being the guy in 1990 who tries to savagely restrict the potential uses of the internet. In hindsight, had that been allowed, we would live in a very different world. Bitcoin is so obviously that, you can expect congressional skepticism tinged with “it’ll be the greatest boon for the economy... if we can stop the terrorists and child molesters”
I don’t often make predictions, but here’s one for you.
Bitcoin is past it’s anti-fragile middle point and win, lose or draw at this weeks hearings, more people will know about Bitcoin when the media is through and the world financial system will still be a shuddering mess by comparison.
Adam B. Levine 11/17/2013 Editor-in-Chief, Let's Talk Bitcoin!
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