9-12-13: The traded value of the Bitcoin appears now to be holding solidly above $100. And it has reached a point where it increases by about $1 per day.
There are currently 11.7 million Bitcoins in circulation, and today's traded value is $127.50. This calculates out to a total market value of $1.49 billion. Over the next 20 years 9.3 million more Bitcoins will be issued and this will bring the circulation to its forever maximum of 21 million.
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$7600 - A Conservative Estimate of the Value of a Bitcoin 3 Years from Now - assuming the world deems it to be useful and adopts it to a level of 1%
Consider the size of the currency market - all paper currency plus all gold. As of 2008, the sum total of all paper currency in circulation (dollars + euros + huan + yen + pounds+..) was $4 trillion (source). The sum of all of the gold that has been mined in human history is 5.6 billion troy ounces, or at today's price of $1327/ounce, $7.4 trillion. Add the paper plus gold figures to come up with $11.4 trillion as an estimate of the total currency out there.
Now consider the possibility that 3 years into the future, in the year 2016, people and institutions might hold 1% of their currency as Bitcoins. This would mean that the total Bitcoins value would be $114 billion (= 1% of $11.4 trillion). In the year 2016 there will be 15 million Bitcoins in circulation (source). So, in that year, the value of one Bitcoin would be $114 billion / 15 million = $7600.
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Here's a log plot of the traded value of this digital currency over the past 3 years (MtGox data downloaded from Bitcoin Charts):
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More
To learn more about the Bitcoin and to see Keith's Bitcoin/dollar trading history over the past 5 months go to bitcoin trading - Part 1.
For a VERY, VERY EXCELLENT SET OF INTERACTIVE CHARTS of the traded values of Bitcoins go here (click the "WTF?" button at the top right of the web page for concise explanations of the charts).
The below table of projected values for the Bitcoin, generated by extrapolating the above statistical fit into the next several months, indicates a doubling in the value of the Bitcoin over the next 4 months:
 |
| Note: these are bitcoin values as traded on MtGox - its traded values recently are approximately $10 to $15 higher than those of other exchanges (such as Bitstamp, Btce, Campbx) |
But, if you are looking for a good probability of >10x return over 2 years, and are willing to accept the total loss risk, then I know of no better investment.
At the same time, I think there is a good chance (50% probability) that the Bitcoin will increase in value by over 1000% in the next 2 years.
Bitcoin articles from Technology Review:
What do I base my estimates on? Five things:
- I base them on the past 3 years traded value of the bitcoin. Bitcoin value has risen 800% per year, as shown by statistical fits to the raw data. This shown here: link. If you had bought a bitcoin just 1 year ago it would have cost you $12. Today (10-15-2013) a bitcoin buys/sells for $125.
- I base them on the reading I've done on the subject which tells me the bitcoin system is well set up and well run. The cryptography is complex, but it is the same as is used by the major credit cards. The basic algorythyms were developed by the US government. The bitcoin system has nicely designed checks and balances built into it that keep the system self sustaining, that prevent takeover of system control, that minimize the chance of theft from your bitcoin wallet (unless you do something stupid like make your private key available to other people or choose a bad outfit to operate your wallet). The system has a ceiling on the number of Bitcions that will ever exist - which will likely result in the Bitcoin value becoming >$7000 by the year 2018 (see above)
- I base them on my first-hand experience in buying and selling bitcoins and in transfering bitcoins between various wallets and accounts
- I base them on having seen and read of the Bitcoin surviving numerous tests - real life upsets and incidents such as US law enforcement shutdown of crime organizations that have used the bitcoin system to try hide their activities (the most recent of these was the shutdown of "silk road" - the bitcoin traded value has recovered from this in <10 days). Timeline on major events in the history of Bitcoin.
- And I base them on seeing that people all across the world (not just the 75% of Bitcoin users who are Americans) are adopting the bitcoin. I believe the world outside of the US will not let it go, and in recognizing this, the US will not take actions against bitcoin that would cause US to be left out.
I expect Bitcoin will likely succeed over other digital currencies because there is nothing obvious that another digital currency could offer that would make it any better than Bitcoin.
Our communications and our knowledge reserves have gone digital - and we have benefited hugely from this. Digital currency is the next logical step.
Bottom line: there is intrinsic value to currency - it facilitates trade and commerce. Consider the $1.2 trillion worth of US currency that is in circulation. People hold $1.2 trillion of their of their wealth in the US currency and THAT, $1.2T, is exactly its intrinsic value. That value is realized via its broad use and acceptance, its security and its liquidity. Right now the intrinsic value of the bitcoin is quite low because it is not yet broadly accepted - it is not yet used by many. But that is changing rapidly. And, right now, as the bitcoin is in its very early stages of gaining acceptance, there is a one time opportunity to buy into it and very likely see its value grow hugely.
Research it for yourself ! and let me know what you learn.
Keith
Oct. 15, 2013
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- Bitcoin Hits the Big Time
- Mapping the Bitcoin Economy Could Reveal Users’ Identities
- Rich Get Richer Effect Observed in BitCoin Digital Currency Network
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What is bitcoin?
Bitcoin is cash for the Internet. Bitcoin acts as an online virtual currency that operates by person-to-person exchange. There's no bank or a central monetary authority such as the Federal Reserve to regulate it or a government to issue it. Bitcoin is owned by its users.
The idea of crypto-currency was first discussed in an online community in 1998. It became available in a usable form in 2009. About $1.5 billion of bitcoin is on the market, according to bitcoin.org. (actually $2 billion as of 10-22-13)
Bitcoin advantages include low exchange fees, no variance in value by country and accounts that cannot be frozen.
Bitcoins do fluctuate in value. One bitcoin now costs about $142 ($187 as of 10-22-13).
With paper money, a government decides how much money to generate. Bitcoin is generated by "miners" who use special software to solve math problems and are issued bitcoins in exchange. As more people try to mine the bitcoin, the problems become more difficult. http://www.bitcoinmining.com/ (the mining serves a number of purposes - it provides means of payment for operation of the system, it improves the security of the system on an ongoing basis such that the bitcoin system will remain "unhackable" even as coding and computers become more advanced in the future, it provides a stable structure for regulation and evolution of the system via consensus - so no central control is neeeded)
How does bitcoin work?
Bitcoin operates with a mobile app or computer program that creates a personal wallet for each user. The wallet allows the user to send and receive bitcoins. Bitcoin uses cryptography, or code, to control its creation and use.
All transactions are logged into a shared public ledger called the "block chain." Each transaction has a digital signature that corresponds to the sender's address. This prevents people from reusing the same bitcoin.
Unlike a credit card transaction, bitcoin transactions cannot be reversed if you change your mind.
How do you buy and sell bitcoin?
Bitcoins are acquired through a purchase at a bitcoin exchange, through a personal exchange with someone who has bitcoins or as payment for goods or services.
One popular exchange is Coinbase, https://coinbase.com/, which links bitcoin wallets to U.S. bank accounts. Other exchanges, such as https://localbitcoins.com/, serve as a marketplace for people seeking to buy or sell bitcoins.
Many of the exchanges charge a small fee to cash out bitcoins into dollars or euros.
The market is completely unregulated, so it's "buyer beware." Some of the exchanges have created feedback systems to root out unscrupulous users.
"When sending money to an exchange, you are trusting the operator not to steal your funds and that their site is secure," a warning on http://howtobuybitcoins.info/us.htmlsays.
Who can use it?
Bitcoin software is public. Anyone can use it.
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My attempt at answering "what is Bitcoin"?:
Three definitions:
1) The Bitcoin System. The Bitcoin System allows
the creation and transfer of bitcoin currency based on an open-source cryptographic protocol that is independent of any central authority.[9] Bitcoins can be transferred using a computer or smart phone without an intermediate
financial institution.[10] The concept was
introduced in a 2008 paper by a pseudonymous developer known only as
"Satoshi Nakamoto", who called it a peer-to-peer, electronic cash system.[1][11][12][13]
2) the primary unit of currency of The Bitcoin System
3) a physical coin that has a Bitcoin private key inside – a seal must be broken to access the key
How does The Bitcoin System work?
A user of The Bitcoin System has an account called a wallet. The user’s wallet has a public key (27-34 alphanumeric characters, beginning with the number 1 or 3) and a private key (a 256 bit number). Anyone who knows the public key can, via the bitcoin network, transfer bitcoin currency into the wallet, and can also look up the balance of the wallet. Anyone who knows the private key can, via the Bitcoin System, transfer bitcoin currency out of the user’s wallet.
2) the primary unit of currency of The Bitcoin System
3) a physical coin that has a Bitcoin private key inside – a seal must be broken to access the key
How does The Bitcoin System work?
A user of The Bitcoin System has an account called a wallet. The user’s wallet has a public key (27-34 alphanumeric characters, beginning with the number 1 or 3) and a private key (a 256 bit number). Anyone who knows the public key can, via the bitcoin network, transfer bitcoin currency into the wallet, and can also look up the balance of the wallet. Anyone who knows the private key can, via the Bitcoin System, transfer bitcoin currency out of the user’s wallet.
The processing of Bitcoin transactions is secured by servers called bitcoin miners. These servers communicate over an internet-based network and confirm transactions by adding them to a ledger, called the block chain, which is updated and archived periodically. There are many nodes on the network that independently hold and update copies of the block chain. A full copy of a the bitcoin’s block chain contains every transaction ever executed in the currency. With this information, one can find out how much value belonged to each address, or wallet, at any point in history. The integrity and the chronological order of the block chain are enforced with cryptography.
When a withdrawal transaction is requested, the public key of the source wallet and the requested transaction amount is sent to the bitcoin network. Then:
(1) The network confirms that the wallet has sufficient bitcoin currency to cover the requested withdrawal anmount. Usually at least 6 different nodes are queried to check their copies of the block chain to confirm this.
(2) The network asks for and then processes the transaction private key through an involved calculation. If the key is correct, the result of the calculation will yield the transaction public key. (The calculation is one directional – the private key cannot be extracted from the public key)
Only with (1) and (2) both being confirmed, then the network completes the transaction and logs it in the block chain. The result is that the block chain then shows the balance of the source wallet to be decreased by the transfer amount, and the balance of the receiving wallet to be increased by the transfer amount. After an hour or two, each transaction is locked in time by the massive amount of processing power that continues to extend the blockchain.
If a bitcoin user does not like the idea of having his bitcoins on the internet or on a computer he can opt for a paper wallet. This is the most secure way of holding bitcoins - when a paper wallet is done correctly no one but the owner of the wallet has access to the private key. This wallet consists of a piece of paper with his keys printed on it. To spend his bitcoins that are represented by the paper wallet he just relays his key numbers to another person or to the Bitcoin system to arrange a transfer to someone else's account. His keys are then used to transfer the funds from the paper wallet. A paper wallet is very similar to cash - if its owner burns the paper wallet and has no record of his keys, the bitcoins disappear forever.
Why does bitcoin offer?
The bitcoin has several very good reasons for its existence, and anonymity is not one of them. The valid reasons include: (1) this currency cannot be devalued by printing more - there is a ceiling of 21 million bitcoins, past that no more can be minted; (2) the bitcoin system is not controlled by banks or other central authorities which usually levy excessive trading, transfer and exchange fees (a bitcoin transaction often has a small system fee, typically about 30 cents per transaction - but this is much lower than the 2-3% typically levied when making credit card, Paypal and similar transactions); (3) the bitcoin system provides security via highly advanced cryptography and it has built in checks and balances that ensure no "bad guys" can take it over, take over individuals' accounts. (4) the bitcoin system is fully international - exchanges between accounts in different countries are just as quick and easy as exchanges with local accounts.
What bitcoin is not:Why does bitcoin offer?
The bitcoin has several very good reasons for its existence, and anonymity is not one of them. The valid reasons include: (1) this currency cannot be devalued by printing more - there is a ceiling of 21 million bitcoins, past that no more can be minted; (2) the bitcoin system is not controlled by banks or other central authorities which usually levy excessive trading, transfer and exchange fees (a bitcoin transaction often has a small system fee, typically about 30 cents per transaction - but this is much lower than the 2-3% typically levied when making credit card, Paypal and similar transactions); (3) the bitcoin system provides security via highly advanced cryptography and it has built in checks and balances that ensure no "bad guys" can take it over, take over individuals' accounts. (4) the bitcoin system is fully international - exchanges between accounts in different countries are just as quick and easy as exchanges with local accounts.
- it is not a ponzi scheme
- it is not a currency that allows you to conceal transactions
- it is not a currency that is used in particular by illicit businesses, no more so than is the dollar
- it is not fiat currency (currency run by a government), and is not run by any other central authority
- it is not foolproof - if you lose your keys you lose your money, anyone who has access to your private key can take your money, you cannot reverse a transaction
http://bitcoin.org/en/how-it-works
https://en.bitcoin.it/wiki/Private_key#Base_58_Wallet_Import_format
A recent video non-video explaining Bitcoin: click here
Other articles:
- http://www.americanbanker.com/bankthink/in-person-bitcoin-exchanges-are-thriving-1060061-1.html
- http://www.bostonglobe.com/business/2013/04/29/bitcoin-believers-hoping-their-faith-will-pay-off/JtIsyoUprWKAOymhYmqihM/story.html
- https://medium.com/editors-picks/1a812f8fa7cd
article from Wired 10-25-13: http://www.wired.com/wiredenterprise/2013/10/bitcoin-in-japan/
10-24-2013: There is an interesting concept/belief that Moores' law (doubling of computer power every 18 months) has been adhered to so strongly for over 40 years because producers of computer chips and computer components early on became aware of Moores' law. That is, after seeing, several times over, a doubling in computing power within an 18 month peiod, the manufacturers of computers and computer components began planning ahead for this by evolving their products and production lines to deliver the 2x computing power increases every 18 months. And so, the prophecy became self fulfilling.
See below how closely the last 4 months of bitcoin values track the trend line of the previous 3 years (note: the trendline is based on data only up through June 2013). On seeing this, I have to think I'm not the only one looking at the exponential growth in the bitcoin - bitcoins are adhering so closely to the trend fit because traders have recognized the trend and are buying and selling with the assumption the trend is going to continue - and so it is continuing.
Today;s world liquid assets (gold plus all paper currency) total about $12T. And the bitcoin total market value is $2B. So today, bitcoin's share of total currencies is about .016%. With its current growth rates its share would approach 1% about 2 years from now. For having picked up that 1%, bitcoin will have had the effect of decreasing the values of all the other currencies by 1%.
The current trend indicates it will grow 512x in the next 3 years. So, with this, it would be 8% of the world's currency in Oct 2016. This is when I'd expect the US government to recognize the threat to the dollar and to maybe start doing something. Ahead of reaching the 1% level, I doubt the feds will take any actions - such as trying to shut it down. What do you think?
If bitcoin were to 100% displace all other currencies, then one bitcoin would be would be worth $1,000,000 (in today's dollars), and the smallest bitcoin sub-unit, the Satoshi, would be 1 US penny. Hmm... it looks like Satoshi thought this through from the beginning. :-)
Nov 14th, 2014 Bitcoin values are 3x what they were just 30 days ago. Over the preceding 3 years the average growth in bitcoin value was 1.2x per month (= about 2x every 4 months). Over this period however Bitcoin has seen several big bubbles. One of the most notable was in early 2013. In Jan, 2013 the bitcoin value was $12. In April, 2013 it reached a high of $240. At the end of this bubble the bitcoin dropped to a brief low of $40, then hovered around $80 for the next few months. So, is this recent 3x rise just another bubble?
If not a bubble then what is the cause behind the 3x rise?
One possibility: it may be that the demand for the bitcoin has gone up because the doors have been opened to a new market, specifically, the Chinese market
Of all bitcoin/currency trading over the past 7 days, 36% was through the btcchina exchange. For the 5 month period prior to that, only 6% was through btcchina. If one assumes the bitcoin/currency trading level is proportional to the demand, then this corresponds to a 30% increase in the world demand for bitcoins (China was 6% of the total demand, its now 36% - so, given that nothing else has changed, the world demand has gone up ~30%). Given a 30% increase in demand for a fixed supply currency (bitcoins) one would expect something like a 30% increase in the value of that currency.
The 3x rise is much bigger the 30% estimated demand increase. So the China hypothesis is not the answer.
Other possibilities suggested for the 3x rise include:
So, this leads me to conclude that this is just another bubble.
Outside of the bubbles, plus some temporary dips, I believe bitcoin values will continue to proceed along the below line fit:
One point forward on this line is "Dec 31, 2013 value = $257". Today’s traded value, $425, is clearly way above the line. If you’re holding bitcoins, I suggest you sell now. I expect that near the start of the new year you'll be able to use the proceeds to buy back 1.5x as many bitcoins as you sold.
Oct 24, 2013: How “dumb mistakes” can lead to costly bitcoin losses
Oct 29, 2013: Norwegian man’s forgotten $27 investment in Bitcoin now worth $886,000
Nov 1, 2013: Bitcoin Pursues the Mainstream
Non 2, 2003: Bitcoin Donations Funding Endeavor to the South Pole
Non 3, 2003: FEATURE-Chip designers see dollar signs in Bitcoin miners
Nov 4, 2013: Coinkite and Virtex trial bitcoin debit cards and POS terminals
Nov 4, 2013: BTC China beats Mt. Gox and Bitstamp to become the world’s No. 1 bitcoin exchange
Nov 6, 2013: Bitcoin price soars over $266 and hits a new all-time high
Nov 6, 2013: Brazilian magazine creates bitcoin paywall
Nov 7, 2013: Subway sandwich shop in Russia now accepting bitcoin payments
Nov 7, 2013: The Netherlands’ biggest food delivery network now accepts bitcoin
Nov 7, 2013: Third largest cryptocurrency PPCoin moves into spotlight with Vault of Satoshi deal
Nov 7, 2013: Federal Reserve economist says bitcoin is a remarkable technical achievement
Nov 9, 2013: Familiar Price Gains, Updated Infrastructure: A Look at the Bitcoin Economy (Part 1)
Nov 11, 2013: US Homeland Security committee to explore bitcoin’s potential in 18th Nov hearing
Nov 11, 2013: Bitcoin Trading Notes: Market Momentum and Spread Trading
Nov 15, 2013: http://www.coindesk.com/coinbase-bitcoin-app-apple-app-store/
Nov 16, 2013: US has Already Ceded Dominance in Bitcoin Trading
Nov 22, 2013: 194,993 BTC transaction worth $147m sparks mystery and speculation
Nov 22, 2013: Bitcoin: here to stay but not immune from terrible ideas
Nov 25, 2013: Target, America’s Third-Largest Retailer, Accepts Bitcoin via Gyft
If not a bubble then what is the cause behind the 3x rise?
One possibility: it may be that the demand for the bitcoin has gone up because the doors have been opened to a new market, specifically, the Chinese market
Of all bitcoin/currency trading over the past 7 days, 36% was through the btcchina exchange. For the 5 month period prior to that, only 6% was through btcchina. If one assumes the bitcoin/currency trading level is proportional to the demand, then this corresponds to a 30% increase in the world demand for bitcoins (China was 6% of the total demand, its now 36% - so, given that nothing else has changed, the world demand has gone up ~30%). Given a 30% increase in demand for a fixed supply currency (bitcoins) one would expect something like a 30% increase in the value of that currency.
The 3x rise is much bigger the 30% estimated demand increase. So the China hypothesis is not the answer.
Other possibilities suggested for the 3x rise include:
- loss of confidence in world currencies [confidence would have to go down 67% to effect a 3x rise]
- gain in confidence of bitcoin due to closing down the last big outfit that used it for illegal activities (Silk Road) [confidence would have to go up 3x to effect the 3x rise]
- critical mass being reached for the number of retailers accepting bitcoin as currency [can you buy even 1% of your normal purchases with bitcoins?]
- some individual or group of individuals is artificially decreasing the bitcoin supply [size of this would have to be -67% to effect the 3x rise]
So, this leads me to conclude that this is just another bubble.
Outside of the bubbles, plus some temporary dips, I believe bitcoin values will continue to proceed along the below line fit:
One point forward on this line is "Dec 31, 2013 value = $257". Today’s traded value, $425, is clearly way above the line. If you’re holding bitcoins, I suggest you sell now. I expect that near the start of the new year you'll be able to use the proceeds to buy back 1.5x as many bitcoins as you sold.
Oct 24, 2013: How “dumb mistakes” can lead to costly bitcoin losses
Oct 29, 2013: Norwegian man’s forgotten $27 investment in Bitcoin now worth $886,000
Nov 1, 2013: Bitcoin Pursues the Mainstream
Non 2, 2003: Bitcoin Donations Funding Endeavor to the South Pole
Non 3, 2003: FEATURE-Chip designers see dollar signs in Bitcoin miners
Nov 4, 2013: Coinkite and Virtex trial bitcoin debit cards and POS terminals
Nov 4, 2013: BTC China beats Mt. Gox and Bitstamp to become the world’s No. 1 bitcoin exchange
Nov 6, 2013: Bitcoin price soars over $266 and hits a new all-time high
Nov 6, 2013: Brazilian magazine creates bitcoin paywall
Nov 7, 2013: Subway sandwich shop in Russia now accepting bitcoin payments
Nov 7, 2013: The Netherlands’ biggest food delivery network now accepts bitcoin
Nov 7, 2013: Third largest cryptocurrency PPCoin moves into spotlight with Vault of Satoshi deal
Nov 7, 2013: Federal Reserve economist says bitcoin is a remarkable technical achievement
Nov 9, 2013: Familiar Price Gains, Updated Infrastructure: A Look at the Bitcoin Economy (Part 1)
Nov 11, 2013: US Homeland Security committee to explore bitcoin’s potential in 18th Nov hearing
Excerpt:
The US Senate has shown an interest in bitcoin for some time now, having begun its inquiry in early August. US authorities have so far adopted a neutral approach to cryptocurrencies, with a letter from Homeland Security stating:
“As with all emerging technologies, the federal government must make sure that potential threats and risks are dealt with swiftly; however, we must also ensure that rash or uninformed actions don’t stifle a potentially valuable technology.”
Those speaking at the hearing next week on behalf of bitcoin will try their best to ensure the government realises the many benefits and opportunities digital currency offers while arguing against any protestations that it is damaging to society.
Nov 11, 2013: Bitcoin Trading Notes: Market Momentum and Spread Trading
Nov 11, 2013: itBit raises $3.25m to build finance-grade bitcoin trading platform
Nov 12, 2013: Bitcoin stock exchange BitFunder announces closure
Nov 13, 2013: 3D printer finds bitcoin to be tough sell, despite offering discount
Nov 13, 2013: Bitcoin’s cruel world: scams, thefts and the FBI’s influence
Nov 12, 2013: Bitcoin stock exchange BitFunder announces closure
Nov 13, 2013: 3D printer finds bitcoin to be tough sell, despite offering discount
Nov 13, 2013: Bitcoin’s cruel world: scams, thefts and the FBI’s influence
Nov 22, 2013: 194,993 BTC transaction worth $147m sparks mystery and speculation
Nov 22, 2013: Bitcoin: here to stay but not immune from terrible ideas
Nov 25, 2013: Target, America’s Third-Largest Retailer, Accepts Bitcoin via Gyft
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