Ethereum

Finance, Taxes, Banking, Insurance and Retirement
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Recently opened an account with kraken.com, deposited some EUR and then bought some ETH.

Colleagues have also reliably been using btc-e.com

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I still do not know what to think about cryptocurrencies. A discussion with a friend, a strong believer, went like this:

me: but bitcoin has no real value

friend: the same as dollar, or any other conventional currency

To which I had no reply. We live in a reality where Fed and ECB are printing money in trillions and "dropping it from helicopters". Inflation is officially low, but some say it is being falsified.

All this makes cryptocurrencies very attractive. But still, it may end like tulipmania. All you need is someone finding a crack in the algorithm.

Here is a nice summary of the largest cryptocurrencies, with bitcoin, ethereum and ripple at the top:

https://coinmarketcap.com/

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There was a thread a week or so ago with insider info that a bank was going to buy in but I see the thread is deleted.

Somebody else made money on it?

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Your friend was somewhat correct, in that the modern fiat currencies are not backed by things like precious metals and have no intrinsic value per se. I'm going to simplify greatly to keep things concise: money, as it works today is nothing more than a promise that some value will be created at one point in the future, and this promise backs the piece of paper you hold in your hand. A link can thus be drawn between the strength or viability of this 'promise' and the value that money holds. If the promise itself is backed by a nation with a strong economy (and/or military), then the currency will be itself trusted by more people. A strong economy is a form of guarantee that the promise of future value will be upheld.

So the fact that neither traditional nor cryptocurrencies have intrinsic value is true. Their only value is the value that people assign to them. Reality is a bit more subtle though, and the devil (as always) is in the details!

To a large degree, when you place your trust in a cryptocurrency, you are placing your trust in the mathematical model and programming behind them. Proving the correctness of mathematical models can often be difficult, however, proving the correctness of code is much, much, much harder. You can think of a large program as a very complex mathematical theory. There are tools and languages that aid in the process, but to this day, having proven correct code in a program is nothing short of a marvel. There have been instances of both the math and the code behind cryptocurrencies having shortcomings or downright faults. Not that long ago, a product based on the Ethereum blockchain (called DAO) was found to have a critical fault and a malicious actor has drained nearly $150 million (yes you read that right) worth of funds from it. That's tantamount to someone finding the key to the central database of the FED and draining the entire dollar money supply to their own account (no such database exists, but I wanted to illustrate a point).

In the end, the attack was rolled back, which highlighted another point that proponents like to ignore: cryptocurrencies are actually not immune of manipulation even outside of faults. Many cryptocurrencies have large conglomerates or governing bodies that either hold enough compute capability or have built-in backdoors that allow them to enforce their will on the way the currency works. If the attack could be rolled back, what's to stop the controlling bodies from preventing other things against their beliefs/agendas in the future? This is no different from what governments do with traditional currencies.

As it stands, both traditional and cryptocurrencies can be manipulated by the entities that control them, only the traditional currencies are much more convenient to use and society is structured such that they offer a certain amount of security and recourse in case of problems (e.g. fraud or crime). Cryptocurrencies are still very much raw. If you keep your bitcoin wallet on your computer and you get malware, there is a good chance that it will drain all your funds from it. At this point you are sh*t out of luck, because that's the same as if you left your wallet on the street and someone nicked the cash from it. You can keep your wallet with a custodian institute, but cases like Mt. Gox tell us that that's not particularly secure either. In case a regular bank gets robbed, the government can step in as a last resort to ensure that clients do not lose their funds. Nobody is going to step in when the website that kept your wallet gets drained by Russian script kiddies.

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We invested €3350 in BTC (XBR) just under 4 years ago. The capital has long since been withdrawn and through trading the assets are now 40/60 BTC/ETH. ETH was onboarded at €15 ($19), earlier this year and overall the holding is up many multiples. With regard to the volatility and losing money use stop losses, I set mine at 15% lower than the price I see when I check in the morning. So far that seems to work out just fine. As for how to choose, I have belief in the products and what they can potentially offer.

Right now the upside potential of ETH is higher than that of BTC imo.

Hope the investing goes well.

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A friend of my son's has gone the other route and bought a load of nVidia GPUs to do Ethereum mining. He reckons that it's only worthwhile because he has free electricity from the local council at his startup incubator (!). Given that, he's making steady money, but no big bucks.

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If I remember my computability course correctly, not just difficult - in many cases impossible. And determining which are impossible to prove correct and which aren't is also not computable...

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@Xynth: Thanks for your input. I would add to it, that a cryptocurrency is also convenient to use. I mean currently you cannot pay with it everywhere, but that is just a matter of adoption.

That's a very good point with unknown exploits. It can be, that bitcoin will be tolerated as long as its total capitalization is low. I can imagine whenever we see goverment losing a lot of money or control because of bitcoin, they will try to crack down on it.

In a way, bitcoin is similar to gold, because it is limited. And this reminds me of the case when the US state confiscated all gold and made holding gold illegal. Let's think if bitcoin could prevail if they done the same to it. All the bitcoin related websites in USA would be blocked, you would need Tor to access them.

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Bitcoin's biggest problem right now is that it is not convenient to use. Confirmations take too long. Go to a coffee shop and buy a coffee, the vendor will be pissed off waiting two hours for confirmation and you'll be pissed off with your cold coffee and the transaction fee once complete. As a store of value, it is fine for now.

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Not only that, but the exchange rates of even mainstream cryptos are extremely volatile. Fluctuations of 100% p.a. are not out of the ordinary. This makes them very difficult to use for everyday commerce as long as that happens in a different base currency. Shops have to basically adjust prices on a daily (or even higher) frequency to avoid taking on excessive FX risk! That's just not practical.

I haven't done any research on it, but my gut feeling is that this situation is a because of an unhealthy prevalence of speculators on the markets. There need to be many more regular users before the rates stabilize, but it is a bit of a catch 22.

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In general, your post is correct; but currencies like Ethereum and Bitcoin have neither controlling conglomerates nor backdoors. The Ethereum DAO hack was rolled-back via the consensus of its users. The Ethereum Foundation came up with the new client, but nobody had to run it. Indeed, a proportion of users didn't which gave rise to Ethereum Classic (2 billion market cap on its own now and tracks Ethereum at about 10:1).

Also, the ongoing Bitcoin scaling (blocksize) debate shows that even powerful miners are not able to force changes without an economic consensus.

Cryptocoins in this sense are the reverse of being controlled by a single entity; the users are in control.

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A single coffee is of low enough value to be handled by zero-confirm transactions which take seconds, but I'd agree that bitcoin as it stands isn't suitable for that task. Bitcoin in the future with the Lightning network (if that ever happens, it requires a client upgrade which is taking to time to achieve user consensus) is designed for that and so is Ethereum's Raiden network (that works right now).

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Oh, and let's address the actual thread question: be extremely careful investing in these highly inflated and volatile markets.

While Bitcoin and Ethereum look great at the moment and are knocking down all time highs at a rapid rate, the tale of Ripple shouldn't be ignored. This came from nowhere a month ago and soared to a 15 billion market cap (higher than Ethereum even) and was the absolute darling of the crypto markets. This has since crashed over the past week, halving its value, and still looks to be sinking.

Great if you're a trader who longed it up and shorted it down, but rather distressing if you're an investor who bought in at the high (and there are plenty of those). Be warned, do your research and trade modestly.

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I ignored XRP

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That's the general opinion everywhere. It's not even worth shorting now.

I do agree with you that ETH probably has a better future than BTC. The way it's currently holding its BTC value (and increasing its USD value, now 200) while BTC is soaring is impressive. It's the closest thing we have to a blue chip alt[*].

*: People shouldn't use this opinion to inform their trading decisions; these things can turn on a dime. In fact, as I speak ETH is showing a fat red candle...

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Something I don't get is how most of the alt-coins (aside from BTC's use as a currency) can actually be used. It appears to me, and which may be incorrect, is that the primary driver for the coins is in speculation that the cost of any particular coin will increase.

As I look over the coin market cap index and the offerings, it difficult to see anything that is usable or provides me a tangible benefit or could qualify as an investment. From what I can tell, none of them offer voting rights, dividends, company reports or any certified information about the company's financial position. There's nothing really. I likened it to a pyramid scheme earlier - which may not be quite correct. It might be more like a horse track betting sheet.

And what about wallet management? Once invested, and if a problem appears, it does not look easy to quickly dump any significant position and convert to cash.

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Our cryptos are on exchanges, stops have just been triggered and we're 100% cash for the moment.

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I didn't find it in this thread, so I thought I'd post the best, albeit somewhat technical, explanation that laypeople can still understand, which I found so far:

https://www.youtube.com/watch?v=Lx9zgZCMqXE

The video explains Bitcoin, but the underlying principles are the same in all cryptocurrencies.

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Good point. The unique property of bitcoin is supposed to be limited supply, which makes it similar to gold. But you can produce countless bitcoin clones, and how are they not a bitcoin alternative? IMO gold, bitcoin, ethereum, ripple are fighting for the same money.

BTW gold is also not a productive asset. Your arguments could be as well used against investing in gold. Just saying