Wednesday, February 26, 2014

Bitcoin Exchange Goes Missing

Timing is everything, as the saying goes. On Tuesday, February 25, exactly one week after I ran my blog about the risks of Bitcoins,  Mt. Gox, one of the larger worldwide exchanges, turned off the lights on its website exchange. For those who kept their electronic accounts with Mt. Gox, this is equivalent to me wandering over to my local Wells Fargo Office ATM and discovering it and the bank were no longer there and there is no FDIC insuring my savings.

Here’s an article from Reuters with a bit more information, but by the time you read this, it may be out of date.

This may be a temporary situation done to protect the website from hackers. Or it may be something worse. I have not a clue. Regardless of the final outcome, my conclusion from the earlier article stands: “While I’m waiting to see how that turns out, I won’t be holding bitcoins. Too much risk.”

~ Jim

Tuesday, February 18, 2014

A Skeptic Looks at Bitcoins

One of my rules for evaluating potential investments is how well I understand them. Unless I have developed a basic understanding of the investment and its attendant risks, I’m not willing to invest in it. No amount of written and verbal advice given by “experts,” is sufficient to overcome my need to understand. After all, these selfsame experts are the ones who have missed numerous bubbles.

The value of Bitcoins is market-based, determined by supply and demand. Supply is purportedly regulated by the software. There are currently approximately 12.4 million bitcoins, and the programming calls for a maximum of 21 million. That means the currency is designed to inflate almost 70%, but at ever-slower rates until finally reaching the 21 million maximum.

Bitcoins, unlike gold or silver for example, have no industrial use; they have no intrinsic value. They are like wampum: they are only worth what two people in a transaction agree they are worth. Humans do not have a great record at determining monetary worth when something has no intrinsic value. This is not a 21st century problem, as evidenced by the tulip bulb craze in the early 17th century. Even when something has intrinsic value (gold, silver, real estate), we humans often go hog wild—or conversely can’t see the value in the dirt below our feet.

To summarize, bitcoins have no intrinsic value and are programmed to inflate. That does not sound like a winner to me. But wait, there’s more! In addition to the inherent risks of buying with no intrinsic value, bitcoins contain exogenous risks as well.

Unfortunately, I have very little clue—and, if they are honest, no one else does either—what the exact characteristics of those risks are.

For example, what prevents those “in charge” of the open source coding from deciding to increase the number of available bitcoins past the current 21 million limit, continuing to inflate the currency? I’m sure those in charge insist it can’t happen. But it is certainly a real risk, and I can’t quantify it.

How secure is the system from hackers? I have a firm belief that if humans made it, other humans can break it. This theory applies to more than just the system that creates new bitcoins according to a predetermined schedule. How safe is your bitcoin account? If someone raids your bank your loss is covered (up to certain limits) by the bank or their insurance. Will the same hold true for your digital bitcoin wallet? Who pays those insurance costs? How secure is the insurer? I have no clue.

If the value of bitcoins stabilizes so that its conversion to traditional currencies is primarily determined by inflation in the traditional currency, it would make bitcoins a perfect inflation hedge. That would have utility. However, with a maximum of 21 million of the little critters—and at a recent price of $628—total currency in circulation will max out at a bit over $13 billion. The world’s annual output of goods and services is something north of $70 trillion. US Debt—the world’s “safe” place for parking money—is over $17 trillion.

So there we have it: an entity with no intrinsic value, a currency guaranteed to inflate 70%, with lots of potential risks for which there are no guarantees. Investing in bitcoins sounds to me like making a bet based on the greater fool theory.

Does that mean we should ignore bitcoins all together?

No. They might soon have transactional value. Right now if someone in the U.S. buys one of my novels or my bridge book and uses a credit card, I pay the transaction costs. Using my Square credit card reader, the fees are 2.75% if I swipe a credit card and 3.5% if I enter the transaction manually. Square doesn’t work for foreign transactions.

If someone comes up with a methodology that reduces my transaction fees and allows for instant conversion of bitcoins back to U.S. dollars so I don’t have a currency risk, I’ll adopt in a flash. And since bitcoins are not individual country centric, I could use them abroad without the foreign transaction fees charged by most credit cards.

Bitcoins may be the opening salvo over banks’ and credit card companies’ bows. Technology continues to attack the value of intermediaries—those people and corporations that stand between buyer and seller. If entrepreneurs find a way to reduce the necessity of intermediaries and their attendant transaction costs, it will have major ramifications.

When people first used the internet to exchange messages, most had no clue how dramatically the internet would change the way we do business. The same may be true with bitcoins, and venture capitalists are already making their bets. It is too early to tell how this will all turn out, but it’s too important to ignore.

While I’m waiting to see how that turns out, I won’t be holding bitcoins. Too much risk.

~ Jim

Monday, February 10, 2014

“Something Old; Something New;…”

Reflections Creative Photo
“Something Borrowed; Something Blue” continues one tradition for the bride. Current divorce rates notwithstanding, many brides continue to follow this wives’ tale formula to assure marital bliss. My daughter, Dael, thank my luck stars, is not tradition bound, and I wondered if she was following this old saw.

“Yep,” she said as we waited for the pre-ceremony photo-shoot to begin. “The dress is old, the headband new. My watch has a blue face, and I figured since I was so close, I’d borrow some earrings.” She pulled back her hair to show the small stones. A rather practical approach, I thought, and it got me thinking about how she and Frank merged the old and the new in their wedding celebration.

Since neither of them are church-goers, they held the wedding ceremony at the facility where they had the reception. Given we are talking about Bethlehem, PA in the beginning of February, one less bit of traveling on potentially dangerous roads made a lot of sense. They did choose to have a minister officiate, but they designed the ceremony and vows themselves.

Reflections Creative Photo
Dael had two attendants. Her bridesmaid was her best friend dating from high school, and (breaking big time with tradition) her second attendant was a male friend dating back to her first job. Frank had two male groomsmen. We followed the tradition of processing and the audience stood as I escorted the bride down the aisle. However, music from the Lord of the Rings movies replaced the traditional “Here Comes the Bride.” Many of Dael’s friends are theater people—we did not do the traditional rehearsal run through. We each got a script and off we went.

My instructions for the day were to show up early for the pre-wedding photo-shoot then escort Dael. Stand on right. Deliver Dael to front; shake hands with Frank (I wished them great fortune); kiss Dael on the left cheek (so photographer could catch it). I broke form (Dael did not get her independent streak from thin air) and whispered my congratulations to her before giving her the kiss. Then I took my place on the front row.

A friend of Dael’s who lives in Nova Scotia couldn’t be there, and my sister Janice was ill and ended up staying home; so my son, Brad, hooked them into the wedding using Google’s free video conferencing services. The video worked well; audio was a bit iffy since it picked up extraneous (to the ceremony) sounds. Welcome to 21st century technology at work.

The kids and many of their friends are gamers, and the program Dael and Frank developed for the day was structured as a quest with five levels (Ceremony, Hors d’oeuvres, Dinner, Games/Dancing, Ending). Each level had suggested degrees of difficulty. (Ceremony, for example, was labeled Easy: find a chair—only a few in the front are reserved for family.)

Reflections Creative Photo
While the wedding party and family were involved in the post-ceremony photographs, everyone else could get beer or wine and munch on tasty hors d’oeuvres. (Hard liquor required “additional credits” in keeping with the game theme.) Table assignments cards had the person’s name on one side and a playing card showing the table number on the other. At each table were scrambled pieces of a jigsaw puzzle of the wedding invitation picture—with a twist. Each puzzle had one or two duplicate pieces and was missing an equivalent number, which encouraged interactions between tables. Pretty smart.

The kids announced at the beginning of the reception that they would not respond to the traditional clinking of glasses to kiss. Instead they kept an icosahedron (20-sided) die at their table. If someone rolled 11-20, the bridal couple would kiss. If the reveler rolled 1-8, they had to kiss someone they did not come to the wedding with. If the person rolled a 9 or 10, they had to sing “Happy Birthday” to my mother, who had turned 90 two days before.

Two folks had to sing Happy Birthday to Mom. For the first, our table joined in. The second victim gathered everyone to where Mom was sitting and the entire party sang to her including bride and groom.

The DJ unfortunately followed tradition and played the music so loud that conversation was difficult. Brad measured the sound at 87 decibels. (There’s an App for that.) I suppose old folks like me have been complaining about young people’s noise since the first kids rapped two rocks together during the early cave days.

Keeping with the games theme, Frank and Dael provided a variety of games and three large round tables in the back for gamesters. Immediately after dessert, one of the tables filled with kids (note anyone a generation younger than me are by definition kids, regardless of actual age) playing some game that involved lots of hilarity—making me wish I had joined them. Later, a version of scrabble broke out at a second table.

After watching and participating in the dancing, I invited those at the “Jackson” table to play a game of hearts. My mother agreed immediately as did my son Brad. Jan and my sister Judy begged off, but my sister’s partner Carl Dickson was anxious to participate. The four of us repaired to one of the games tables. (Judy came to watch as did Dael’s bridesmaid; Jan went to find out how the Super Bowl was progressing.) We played two games of four hands each. (For those who play hearts, we did not use the Jack of Diamonds rule and we did require whoever had the deuce of clubs had to lead the first trick; in order, we passed left, passed right, passed across and held ‘em.) Mom won the first game hands down, ending up with 28 points—26 of which occurred when I shot the moon—meaning she only got stuck with 2 points on the other three hands. I’m not sure whether Carl or I won the second game, but at least it wasn’t Mom! (Oh, we’re not competitive, are we?)

I have been to some weddings where the only difference between that ceremony and some other was who the couple was and the date it occurred. I’m of the opinion that a couple’s wedding day celebration should uniquely reflect them. Dael and Frank pulled this off. The ceremony was their design and reflected their beliefs and love for each other. All the flowers, including Dael’s bouquet, my boutonniere and the table decorations, were made from folded paper—all decorated with text from the first play Dael and Frank worked on together (Shakespeare’s Much Ado About Nothing). Dessert consisted of cupcakes from a local bakery rather than a multilayered cake. They replaced the throwing of the garter and bouquet with throwing Iron Pigs (a local AAA Baseball team) dolls. And of course, they wrapped the whole day with the gamer quest concept.

I suppose a father is always supposed to be proud of his children, so you may have to forgive me when I say that I was particularly impressed by the fine job Dael and Frank did at making their day a special one.

~ Jim

First Published 2/9/14 on the Writers Who Kill Blog

Saturday, February 1, 2014

Mom Turns 90

Yesterday we celebrated my mother’s 90th birthday. We were all going to be in Bethlehem, PA for my daughter’s wedding on Sunday, and so we arrived a couple of days early to be together with Mom for her birthday. Here’s a picture of us at The Edge restaurant last night, where they treated us well and the food was very good. (I had the New Zealand lamb chops.)

Afterwards we gathered in Mom’s room for a petite birthday cake. My sister Judy got the cake, candles and, since none of us are smokers anymore, she subjected herself to being proofed to purchase lighters! Since Jude is well north of twenty-one, I don’t suspect the being proofed part bothered her much, but who knew lighters were contraband?

A quick shout-out to my other sister, Janice, who couldn’t be with us because of illness. We all hope you get over that durl-blasted nastiness right quick, hear?

Readers of this blog (and Facebook) know I promised to fess-up monthly on how I did on my two fitness goals for the year. Those goals were to lose and keep off twelve pounds and to exercise sufficiently to earn at least 250 Cooper Aerobic Points each month.

Since we are traveling, I have not had access to a scale, so the last recorded weight is from a few days ago, but in the scheme of a whole year a few days missed recording is not an issue. Getting and keeping weight off is the issue. In January, I lost almost half of my desired weight and I met my exercise goal.

On to February -- oh, and Mom's 91st year.

~ Jim