Sunday, December 29, 2013

Thinking About 2014

In my article today I wanted to crystallize various themes I have been thinking about, but had not yet solidified them, they have been "half-baked", but now I want to discuss several subjects that I will be thinking about and closely observing in the New Year about to come.

Gold and Diversification

I believe that I have reached a near optimum (for me and my family) holdings of gold.  Gold (physical in your own possession) of course is the single best piece of diversification for almost anyone.  It is a "different vector" (for my math-oriented friends), that runs orthogonal to most other investments.  Anyone who has read my blog already knows that I am a big fan of gold.  I will continue to be.  But, my forward investments in gold will be considerably lower now.

I would note for everyone that platinum has had a relatively decent run lately, now selling at about a 13% premium to gold.  This is a little high by very recent standards.  But, if the world economy improves, and barring a "Freegold Scenario", platinum might be worth a look.

I have taken a very small position in "junk silver", US dimes, quarters and half dollars minted in 1964 and earlier.  These coins are likely only familiar to those who are, say, 45 years and older.  Junk silver sells (retail) for about 16 times "face", so a dime would cost about $1.60 and a quarter about $4.00.  Here is a picture of the two junk silver purchase I recently made at my LCS (Local Coin Shop):



My LCS allows me to sift through his pails of junk silver, allowing me to pluck interesting coins.  In the above photo you can see two Walking Liberty Halves at the lower left, the one showing the "tails" side (the eagle on the ground) is dated 1918, but is not in good shape.  The two coins at the lower right are Standing Liberty Quarters (both sides displayed).  Also in the pile are Mercury Dimes (I saw lots of these when I was young, from 5 - 10 years old).  I took a few in good condition...  NONE of these coins, to my knowledge, as any significant numismatic (collector) value, although a few apparently are worth a little more than their silver content.

Why would I buy junk silver if I already own Silver Eagles?  "Survival Stuff", the above would be spare change...

Bitcoin

At some point relatively soon I will likely write up "Part Six" of my Bitcoin series.  I still am interested in this complex subject that does appear to have a realistic chance of "making a real difference" in the way the economy and/or our financial system works.

I still want to make a small gold purchase from amagimetals.com to have another Bitcoin for gold source.

I will also be doing experiments with BTC as well as staying in touch with some experts who have guided me in this realm.

I must mention that Andrew Hodel's fascinating website (http://fiatleak.com/) is back under his management again (although up for sale).  To this minute I have had it up for some 20 minutes, I just saw a 186 BTC transaction go by a few minutes ago, and one for almost 139 BTC (an impressive $107,000!) just went by, here take a look, the 139 BTC transaction is just "east of Brazil", you will definitely want to click on the image if you want to see that transaction...:



Note that China (at bottom, "CNY") is at zero (now anyway) BTC traded through the exchanges there.  China must be down (or their exchanges not sending the information to his site), as normally China is exchanging a lot of BTC as well.

Energy

The USA is approaching "energy independence", a long established goal for many Administrations.  The main reason is the new technologies now being used in so many places (horizontal drilling, fracking, 3-D seismic, deep water drilling).

One important thought is that many of the "shale oil" plays deplete quickly.  So, whatever oil is produced by the many wells being drilled will deplete, and that will mean to keep production up there will have to be many more wells drilled into productive oil plays.

Note that there are big oil shale deposits in China, Russia, Argentina and even places like Poland.

Bullish on oil service companies, fishez?

"White Swans"

The Mainstream Media continues to assert that things really are getting better, even this weekend's issue of Barron's is pretty much the same (their Cover Story about housing likely to go up some 5% per year and bullish columns by most of their many writers).

I have been "bearish" for so long I almost forget what it is like to be optimistic.  Fortunately for me, I have NEVER had 100% conviction in my predictions (that is, I have held stocks, even though selling them off bit-by-bit for decades).  So I have been a little able to see some of the stock market's gains of about 26% in 2013.

I must now acknowledge the prospect that the "bulls" have been and may continue to be right.  If so, then US stocks will continue to be a good place to be.  As would be US real estate (residential perhaps more so than commercial, but, hey, what do I know?).

I think that we have, however, reached a point that US long-dated Treasuries may be a bad bet.  The 10-Year Note is at a bit over 3.00%.  The "Taper" will likely not be good for bonds.

Geopolitics

I continue to believe that our main overseas rivals (China and Russia) will be less of a problem than growling bear sources like Zero Hedge and Jim Willie posit.

China has huge problems (demographics, environmental problems, mal-investments, HUGE debts, etc.) that many are unaware of or do not discuss in depth.  A well-informed observer in and of China is Michael Pettis, whom "Mish" quotes from time-to-time at his blog (globaleconomicanalysis.blogspot.com).

Russia also (like Japan) has a declining population.  Yes, they have huge resources and are currently on a roll.  But, with the corruption and the overall tendency of Russia to be totalitarian, I do not think that Russia will "surpass the USA", no way.

There really are no other BIG PLAYERS out there in the world who can challenge the stability of our country.  Malicious attacks that could cause real damage, yes.  Bring us down, no.

Only a bumbling USA that continues to lose its way can bring our country down.  Unfortunately that is a real risk, as our country is so divided into Taxpayers and the "FSA" (Free Stuff Army, using the more gentle word).

US Politics / The "Taper" / Obamacare / NSA

Continuing the theme from just above, I am pessimistic about the overall leadership (and especially the financial leadership) at the top.

Barron's columnist Jim McTague summed up my feelings rather nicely in this weekend's edition.  He predicts a LOT MORE partisan strife (with the occasional can-kicking as needed) in 2014.  Obama is a polarizing figure, not the unifier he painted himself out to be...

I have no idea what will happen in the November 2014 elections.  I *guess* that I would be happier if the R-Team scores big and takes the Senate.  That would mean less damage would be inflicted upon us by the Socialist Democrats.  But, I do not think there is much of a difference them, some, but not much...

The Obamacare juggernaught marches on...  Obama & Co. are trying to minimize some affects (most on their own suckers, err, supporters) by delaying implementation of The Personal Mandate (as, um, the healthcare.gov site continues to not work right, but I recently read that just $50 million more will fix it, they promise!), among other "fixes".

The whole NSA scandals seems to be getting bigger and badder by the day.  In a thread just today (Sunday, December 29), Zero Hedge reveals even more disturbing evidence that the NSA has devices and malware that can capture data on hard drives, you know, like in YOUR computer.  They have a 50-page catalog of devices and technologies, see article: http://www.zerohedge.com/news/2013-12-29/nsas-50-page-catalog-back-door-penetration-techniques-revealed.  This is a real problem for US technology companies now..., what foreign companies or governments are going to trust US technology products?

Peru, Korea and some observations on other Emerging Markets

Our bearing sales in Peru for 2013 will come in at some 3% or so better than our big year 2012.  This is roughly in line with Peru's economic growth.  Peru is a dangerous place to invest in, but it is diversification for my family, we have trusted people there.  And Peru continues to actually grow...

Barron's had a column about which developing markets may show the best growth in 2014.  Korea is considered "emerging" (?) even though there GNP per capita exceeds that of the UK.  Apparently Korea's stock market has underperformed lately, and the declining Japanese Yen is hurting their competitiveness...  For example, Ameru believes that at least one of our Korean suppliers will raise prices on key products that we buy (especially our 2nd best selling piece).

As I hinted at above, I am not at all excited about the BRICs.  Brazil is full of corruption, cronyism in their build-out of the World Cup and Olympic infrastructure (a huge waste of money, but not for President Dilma Rousseff's friends!) and many other problems.  India?  Now they are trying to make it hard for their own citizens to import gold.  Does India now sound like a place where you would want to invest?

"Survival Stuff"

As many of you know, we live in a condo.  We are not well set up for a SHTF, not to mention a TEOTWAWKI...

I will be making what preparations seem reasonable based on the (low I hope) probabilities of a disaster that may come.  And I will be writing further on this general topic.

"You never know."

Spiritual Fitness

Perhaps a year or so ago, I wrote about becoming fit.  Fitness would help any of us in difficult times, I specifically discussed a few types of "fitness".

I continue on my own journey towards a more spiritually fit life.  I am not going to go into any details now (at the risk of boring or angering some of you).  But, I am happy with a path or two I have been on.  I have many to thank who have helped me along this new trail...  In particular I would like to thank the below:

John M
Jay
Lewis
John R
Steve
and my wife...

for their continuing moral strength and support in helping me to become a better man.

Happy New Year to all of you!  Peace on Earth.

Thursday, December 19, 2013

Fun With Bitcoin For Beginners: Part Five

Well, the past week or so may not have been much "fun" for Bitcoin ("BTC") owners as the price has lost some 50% of its price (at the recent low) since its recent high near $1200.  But, my understanding is that BTC has been subject to huge volatility in the past, 50% losses off highs is pretty normal.  Disclosure: my (total) average cost per BTC is around $770, so yes, I am down a little bit, but that does not account for the purchase I made (see just below).

***

I am happy to report two interesting pieces of progress in my education in actually using BTC!  I was able to "shop" for an actual product and I have found a cash-for-BTC guy here in town so that I can buy more (and sell if necessary).

I mentioned that one of my early goals in working with BTC was to purchase some gold, and pay with BTC.  Well, just yesterday I received my 0.25 oz Gold Eagle that I purchased for 0.4301 BTC (the price of gold at that point was about $1240 and the price of BTC was about $860/BTC, that works out to around $369 for the 0.25 oz, which is a fairly high premium over spot, but that DID include shipping and BTC transaction fee) from goldsilverbitcoin.com.  I contacted them on Sunday December 9, and received an email back from Justin saying that, yes, they had the coin I wanted in stock.  (I also contacted amagimetals.com, but since I heard back from goldsilverbitcoin first, I decided to place my first order with goldsilverbitcoin).  I then actually placed the order and paid with my BTC on Monday morning (December 10).  I received an email confirmation of my order as well receipt of payment by email.  I was also told I would be advised upon shipment.

I did not hear anything else for a few days, so on "Friday the 13th", I dropped Justin a line asking when he would ship...  He replied that he had gone to Las Vegas where there was some kind of meeting where he actually spoke, and he apologized for the delay.  He also promised to send along a 1 oz silver coin to make up for it...

Well, yesterday both the 0.25 oz Gold Eagle AND a 1 oz Silver Maple (Canada) both arrived.  Promise made, promise kept.  OK, there was a delay (which IS unnerving for beginners), but he made up for it.  But, I am over $19.00 (price of one oz of silver) ahead of where I would have been otherwise.  Here is a picture of what I got:


The color did not come out very well for the Silver Maple, but if you click the image, you can see that's what it is.  As many of you know, almost all the PM coins I collect are US Eagles.  Hmm, what am I going to do with the Silver Maple?  Hmm......

Verdict:  Yes, they deliver.  You might ASK if there may be any issues that might delay delivery (stock, other delays, etc.), but I got what I paid for (with the ounce of silver because of the delay).

Of course, YMMV...

justin@goldsilverbitcoin.com

I am hoping that my next transaction of BTC for gold will be with amagimetals, as they did get back to me as well.  amagimetals was recommended to me by "Oscar" the local guy who sold me some BTC yesterday (see more details below under "Step 2: Getting BTC") at Starbucks...

***

Another issue for beginners is exactly HOW do you get BTC?  The first problem to be resolved is to creat a "wallet".  I was instructed by "Bitcoin Insider" that Multibit was easier to use than some others, and while it does not download the whole blockchain (the public record piece of BTC infrastructure that shows payment information), it is the right choice for people like me: non-experts who just want to use Bitcoin and not worry about the complexity under the hood...

Two steps: get your wallet, and then find & buy Bitcoin!

Step 1: (Getting a BTC Wallet)

I have now downloaded the software on all three of my computers.  Here are some instructions to get your wallet ("wallets hold your money"):

a)  Go to multibit.org, the home page has everything that you will need
b)  You will see options for downloading (Windows, Apple, Linux)
c)  Choose your option (operating system)
d)  Download it!
e)  With an older computer you MAY have to download Java from Oracle

You will then have it on your desktop.  When you open the program, it will automatically connect with the Internet as well as show you price of each BTC (Mt. Gox price).  On the left side of the window, you will see an area where you can create a wallet.  You can "name" it, and it will be created with its own ID (recall that Bitcoin wallets start with a "1" followed by some 25 - 30 (I have not yet counted them) alphanumerics.  You then really should slap a password on your wallet (click on the little yellow block there at your wallet or got to "File" up top), computer people suggest using a password a combination of 12 or more letters and numbers.  Since it will hold "MONEY", play it safe and use a strong password.  Your wallet there will show a balance of 0.00 BTC worth $0.00.  Here is a screen shot of my Multibit program here at the office that I just opened (*click* on the image for a clearer view) :


Note wallet at left with a small balance.  Note the "QR Scanning thingy" at the right.  Note my wallet's official ID near top center.  (Note also what a boring computer guy I am, no multi-media stuff (other than my Nikon camera software), just stuff like Microsoft Access, "S-Plus" statistics software, etc.)

Step 2: (Getting BTC)

There are at least three ways to get BTC:

a)  Find a local who has BTC who will sell them to you (discussed below)
b)  Find (and trust) someone who will sell you BTC if you mail them cash!
c)  Use an "exchange" (like Mt. Gox, probably the one Americans know best)

Let me discuss using an exchange first, although please note that I have NOT used one of them and do not not know of anyone who has (or at least their experiences).  These exchanges apparently require that they operate under typical US banking regulations ("know your customer", etc.).  They operate by being a "site" where payment (buying or selling) BTC is done by bank wire transfer.  If you SELL BTC, for example, Mt. Gox automatically finds a Buyer "at the market" and you send the BTC, and you get (with some delay I would guess) a wire transfer to your bank account.  The only real problem I (personally) have is that you leave a "digital trail", as with any bank transaction.

The first BTC I ever got was by donation!  I later went on to buy BTC for "CA$H by Mail".  I have had uniformly good results sending cash-by-mail (I am about 14/14 doing this, I have lost NO money mailing it).  I bought the BTC I used to buy the gold, for example, with cash that I sent through the mail to the BTC Seller.  Hey, it worked, but, sending cash-by-mail for BTC does not look very secure, even though I go to some lengths to hide/disguise that there is CASH inside that letter...  Use your imagination!  Use at your own risk!

The third method, and the one I can recommend, is finding locals near you who have BTC that they would sell you.  There are two things I have tried.  The first is just "asking around", especially among my acquaintances that know computers...  So far, however, none of the people I know were in a position to sell me BTC, although ONE guy was aware of BTC and actually has a small amount that he owns.  The second is by joining localbitcoins.com, (it's free) and then shopping around among the people you see in your area.  Although you can ALSO go buy (and sell) BTC with other people not near you, by sending or receiving bank wires (those pesky wire transfer issues though...).

Let me walk you through my experience yesterday with "Oscar", the local guy I met up with via localbitcoins.  I saw that he was located pretty close by, so I sent him a private message via localbitcoins' service, I wrote that I was interested in buying $xx...  He got back to me pretty quickly and agreed to meet at a bank (later we decided, of course) to meet at a local Starbucks...  I mean, go with tradition, right?  We met, he was patient enough to explain a thing or two to me (he has an app on his smartphone that used my QR code, and used that to actually make the transfer to me).  And he is an interesting and personable guy!  We have some things and interests in common, and I hope to do business with him again fairly soon and talk about South America and gold...

I would like to thank "Oscar" for his help in me learning more about BTC.  It also turns out that he knows about some software that I own, and that maybe he can help me with (better performance, etc.).  One thing I am learning is that the more effort you put into meeting people, the more likely you will meet people who will add value to your life...

"Bitcoin Insider" ("B.I.") approved of what I was doing (in fact suggested it) re finding a nearby person via localbitcoins.  He is very experienced and knowledgeable about this whole subject.

***

B.I. had some more answers (no, I did not pay him for his time, I almost felt like I have been abusing him, like how some people abuse lawyers and doctors in trying to get free advice..., but as I have mentioned before, if I find an EXPERT in something I am interested in, I go for it, ruthlessly, shamelessly...).

One day recently I had a few questions for him.  Here is his response to my first question, about whether I should just destroy or otherwise rid myself of wallets with $0.00 in them:

1. Just confirm that they are indeed empty, then place them
somewhere on a backup hard drive labelled old or empty or
something. Try not to keep them on your primary computer in case
you use them in error. You should still keep them in case someone
sends Bitcoins to one of the addresses in error. Someone might have
sent you Bitcoins, you change your wallet and tell them, they make
a mistake and send to your old wallet. If you can't access the old
wallet, the Bitcoins are essentially destroyed.


From the text alone, you can see he is a careful guy...  My second question does not really pertain to this article (it was about whether I should create new wallets & addresses, but that might complicate my life and that whole matter is still not clear to me...).  My third question involved that idea of a "dry wallet", a wallet not kept on a computer (as mine is in the Multibit image above).  I still do not fully understand this, but it is a topic I want to look at again soon, as I may want to have a way to keep some BTC that not even a determined and skilled hacker could find (slight editing for privacy)...:

3. Exporting takes the private keys out of the computer and renders
them inaccessible to hackers (or the government if they seize
everything). This is what Dread Pirate Roberts should have done
with his $26 Million dollars worth of Bitcoins. This is for more
advanced users, but you're definately getting there yourself. You
transfer the private key alphanumerics to paper with either a pen
or your printer and then delete them from the computer. You can
also use a "Brain Wallet" where you memorize a more human friendly
code. I wouldn't trust my own memory for this. [...] lost /
destroyed a small amount of Bitcoins when he forgot the code for
one of his wallets. I have two pieces of paper with my wallet
password (this is different from the actual private keys): one kept
at [...] and the other [...]. This is a good idea for anyone with over 100 

Bitcoins. The second smaller wallet can be used day to day with an 
ordinary password. You probably need the same wallet program 
running on the computer you wish to reinstall the private keys to. 
I'm not sure if different wallet programs use the private keys in the 
same manner: they probably do,but a bit of low value testing would 
be required first.

In the Mulibit window, there are two little services that you can take a look at after you send or receive BTC (first click on the transaction of interest, then the "Transaction Details"), those services take you to the two below websites that allow you to "take a peek under the hood" of some of the BTC Ecosystem.  B.I. to me:

4. I like both http://blockexplorer.com/  and
http://blockchain.info/  They are great places to gradually learn
more about what's under the hood and how the transactions work.


My last question (discussed here anyway) involved another security-like issue that I had read about at Zero Hedge, namely the increasing size of the Blockchain and whether that may become a problem, B.I. responds:

5. Yes, blockchain size is a definite problem and has been a
primary objection from many critics from the beginning. If Bitcoin
becomes as common as worldwide credit card transactions, then yes
the blockchain gets too big. I download the new blocks about twice
a week. For a new user, it's unreasonable to try without
downloading a torrent, or borrowing someone's external hard drive.
The long term solution is believed to involve nearly all casual
users running a light client (just like you are doing) and letting
all the miners and the wallet hosting servers take care of the
blockchain.


Clarifying one thing, Multibit is a "light client", it does not download the whole Blockchain (it DOES download the part of the Blockchain that pertains to the genesis (original mining) of the BTC you are using), which is perhaps some 10 GB in size, but think about your Internet connection speed...  Note that he does not use a "light client", probably because he actually knows what he is doing!  He can do things like stroll around the Blockchain, things that I cannot do (easily anyway) with Multibit, but I just want BTC to work, I am only somewhat curious about the underlying infrastructure (very complicated).  My *guess* is that the Blockchain is growing pretty fast, and this problem may become a problem in the future, but B.I. cleared this matter up for me by writing to me that "light clients" like Multibit will be better for many (like me) who use BTC because they will have to only download only a small part of the Blockchain.  Lots of light clients, in other words -- and from a macro viewpoint, will keep the transactions moving through the Blockchain for everyone.

***

fiatleak.com is gone!  I liked looking at its scrolling Bitcoin transactions, especially when China and the US were most active (at different times of the day, which you might expect considering the time zone differences).

But, the guy running btccast.com is now using Andrew Hodel's BTC-exchange-mapping software (that's written in there somewhere), so I can STILL track BTC flows (through exchanges anyway).  Here is a screen shot I just took (*click* on the image to see it better):


China is once again buying & selling LOTS of BTC (about triple the BTC of US trading, see green BTC totals under CNY and USD for China & the USA) through their exchanges, despite the local crackdown (I do not have details nor do I know WHAT is going on in China re BTC).  The above shows just under 10 minutes of action -- last US price was $722 written  in purple under "USD").  You can see a pair of 26 BTC transactions that happened about 10:10 PM (US ET) just "east" of Argentina (green vertical writing), and a couple of fairly large transactions by China "en route" (large orange circles).

Wednesday, December 11, 2013

Fun With Bitcoin For Beginners: Part Four



Bitcoin is thinking BIG.  Take a look (*click* on the image to see the smaller details) at the image above (one of many from bitcoin.org, there apparently is "no official image")...  Liberty, Equality, Truth.  "21,000,000 to infinity".  2009, their foundation year.  In cryptography they trust.

This article is rather technical in nature.  I have had two people review this and suggest changes to make (which I did) to make it "easier".  You be the judge.

***

BTC mining is a complicated process that actually, at root, as more to do with probability than with strictly cycles of fast computers, and thus differs at heart from Phil Zimmerman's "PGP" ("Pretty Good Privacy", a used-to-be free email encryption program) technology of some 15 + years ago.  The core of PGP was that multiplying two LARGE prime numbers together (and calculating their solution of course) is computationally much easier that starting with one very large product and "backwards deriving" the two primes.  Here is a simplified example of the two prime numbers method.  YOU try to guess the two prime multiples of the below number, go ahead, guess or tell me!  

Contest!  The FIRST one to leave me the two prime multiples below wins FREE 0.05 BTC, that is worth +/- $40.00, so get to work!  Of course, you would need to send me your BTC wallet, and ONLY post below by Comment, first Comment to guess wins the BTC!  You also MUST tell me how you derived the primes, you don't tell me, you don't win.

12,094,091    <--- get cracking!

[Update!  The contest is over, see first Comment, "Unknown" already won!]

Of course in the real world, the primes used in the above would be (say) 60 digits or so each, meaning a huge number.  It becomes computationally impossible (last I heard anyway) to break a number like the above that is 100 or 200 digits long...  But, a big (fast) enough computer COULD DO it in theory (big numbers).

***

Mining BTC uses a completely different mathematical technique, called a "hashing function".   A hashing function (here anyway) takes some input, and by some weirdo math, turns into a hard-to-reverse piece of output (encrypted).  By complete coincidence I developed my own little 'hashing function" a few years ago in SQL ("Structured Query Language" a database-only language, Oracle and MS Access use SQL)) when I wanted a way to encrypt our Customer IDs (a number, kind of like our Social Security numbers here) yet list the amounts they bought.  Show prospective customers that Ameru was REAL, that we moved real amounts of bearings.

Here is the heart of my SQL (this is just a clip from the whole encryption function I made up) coding to do that.  The below takes an 11 digit Customer ID and completely changes it into a completely different 12 digit number:

((Right(([df_2].RUC),2) Mod 2) + 1) * 10)  & (Right(Left((([df_2].RUC) * 599),11),10))

I will not bore you with dissecting the above (fairly complicated) SQL, but I take the Customer ID number ("RUC"), multiply it by 599, then take the second through eleventh digits in that product, but prefixed (fairly randomly) by "10" or "20" (that "Mod 2" you see at the left).

Real Customer ID:  20121941962
Secure Customer ID:  102053043235  <--- hard to derive the real Customer ID

Obviously the hashing function with Bitcoin is much more secure and robust than mine, there is real money at stake with BTC!

Once again I have asked the help of BTC expert "Bitcoin Insider" ("B.I") to help me better understand the subject so that I can pass it along to you all in terms that even I can understand (smile).  One aspect of the BTC Ecosystem I wanted to gain a little understanding of is the BTC mining process.  I had read a lot of somewhat contradictory comments at Zero Hedge re mining for BTC, and I wanted him to straighten me out.  I asked him to explain in simple terms something about the mechanism of encryption used in BTC:

Short initial answer:

(List of recent transactions for the next 10 minute block) +
(random number selected by mining computer) = a hashed number with
many leading zeros below a threshold number

Whichever mining computer finds this low hash number first creates
the block and gets the 25 Bitcoin reward plus transaction fees.

I'll look for the best easy answer at some of the educational sites
and send you a link.


That "leading zeros" I bolded is explained in more detail here from this article that B.I. sent me (http://www.reddit.com/r/Bitcoin/comments/18q2jx/eli5_bitcoin_mining_xpost_in_eli5/) by "azotic";  Key quotations from the article, (it is NOT that hard, I encourage everyone to read it).

"...bitcoin hash outputs need to start with about 14 zeroes at the time of this writing in order to be accepted by the network as a solution."

and

"That number of zeroes that the output has to start with is known as the "difficulty." right now, the entire network of miners makes about 30 trillion(!) attempts at this solution every SECOND. You can see the "hash rate" at sites like bitcoincharts.com. A solution (which yields 25 bitcoins to the finder) is found approximately every 10 minutes."

Note from the above second clip that 30 TRILLION attempts per second are made worldwide to solve the BTC "math problem".

The Bitcoin hash function is based on the open-source "SHA-256" mechanism, here is a link that will allow any of you to generate your OWN hash functions:

http://www.xorbin.com/tools/sha256-hash-calculator

For illustration, here are some results when I went to play with it.

Inputs (I know what the below three things mean even if you do not!):

111006pagameputaz141001
111006pagameputaz141002
111006pagameputaz141003

Outputs (in above order):


4059ea779368d847e1e4f9905a2728ae944641bd0b71618a7ecf5071623a80ea
8b2fb979a6f715420ddd60f8adb82e9cf8854f4ff26458ef2181d308dab73f82
0cb03ee037b2139b6b3c58160c9bb1dd6ba6e1b11d965df4d2427be6e6f5faa5 

Oooh!  Look at those lovely outputs!  As in PGP's "two prime number" method of encrypting data, taking the OUTPUT and trying to guess the Input is computationally infeasible...  Note that the THIRD one starts with a zero.  To solve a BTC math problem, your computer would have to stumble upon a correct hashed output that starts with 14 zeros!  See first snippet above with yellow background.

Another wrinkle is that even if you have a very powerful "ASIC computer" (or even a "server farm" of 100 of them), that there is no guarantee that you would get a solution, not even in 10 years.  It is probability based!  Yes, a fast rig (or farm of 'em) is much more likely to find a solution in a reasonable amount of time, but there are no guarantees...

Keep in mind I asked him for a simple explanation, ha ha ha!  But, to get this level of understanding is NOT THAT DIFFICULT (even if it is not necessary to understand this to use BTC, although to mine BTC you would need to know this and more).  That "25 Bitcoin reward" would now be worth some $20,000, perhaps more by the time you read this).

***

There is other math, probably at least as complicated as the above securing Bitcoin.  Apparently "elliptical curve encryption" where they use equations of the type:

 y^2 = x^3 + ax + b, \,

(see here: http://en.wikipedia.org/wiki/Elliptic_curve_cryptography)

This is used in showing who owns which pieces of Bitcoin (this is needed for transferring BTC).

Zero Hedge member "zaphod" posted this comment which I quote in full (minor edits for spelling):

ECDSA (Elliptic Curve Digital Signature Algorithm) is the cryptography that is used to prove ownership of individual bitcoins. 
In ECDSA there are 2 keys, a public key and a private key. Basically an address is the public key and the private key is what you keep secret, essentially possession of the private key equals possession of a bitcoin. 
The way transactions work is you create a public/private key pair and then provide the public key (actually the hash of the public) as the address to "receive" bitcoins. When someone sends you a bitcoin they create a transaction that specifies your address (public key) as the receiver of X bitcoins. Once that transaction is recognized by the network, the only way to release those bitcoins in your address is to sign them with your private key. Now when you want to send the bitcoin you received, you use your private key to create a unique signature on the previously received coins. The way ECDSA works is anyone with the public key (your address) can verify that the signature is correct, however the only way to create the signature requires the private key. 
This is a great walkthrough of ECDSA if you are interested in the concept. Will take a few hours to absorb the concepts/math.
http://www.zerohedge.com/news/2013-12-12/producer-physical-casascius-bitcoins-being-targeted-feds#comment-4242526

Elliptic curve cryptography, I read, is much more secure than the "two primes" method of PGP.

OK, elliptic curves take care of ownership of BTC, the SHA-256 hashing method takes care of the mining.

***

Zero Hedge reader "Prisoners_dilemna" asked about another encryption method (http://www.zerohedge.com/news/2013-12-12/producer-physical-casascius-bitcoins-being-targeted-feds#comment-4242438):

RIPEMD160

Mmm, got me there, Prisoners_dilemna!

Update!  "Prisoners_dilemna" wrote another piece at Zero Hedge where he provided some information and link to a wikipedia article on RIPEMD160.  Here is the link to his explanation of how a "public address" (a BTC wallet) is created, it is a nine step process and it is not easy...

http://www.zerohedge.com/news/2013-12-12/producer-physical-casascius-bitcoins-being-targeted-feds#comment-4242679

And a wikipedia link to RIPEMD160, which was created in Belgium by the academic sector (NOT the NSA like SHA-256 was), and is not patented:

http://en.wikipedia.org/wiki/RIPEMD160

And THAT hereby finishes my article.

***

I had hoped that I would have word on my purchase of the 0.25 oz Gold Eagle by now.  Nope, no word yet.  Maybe that will be in my article "Fun With Bitcoin For Beginners: Part Five".

Monday, December 9, 2013

Fun With Bitcoin For Beginners: Part Three

Bitcoin ("BTC") had one of its periodic crashes over the past few days, although very recently has recovered to some $900 (from a low of about $550, off the high of a bit over $1200).  BTC is extremely volatile, but the whole idea is worth a roll of the dice for me.  Education, even certain kinds of high-risk education, is worthwhile for me.

There are other developments in Bitcoinistan that I would like to share with you.  Arguably the most important is my purchase of a 0.25 oz Gold Eagle.  I have paid for it, received a couple of emails confirming the order and their receipt of my payment, and am hoping for arrival in the next several days (they said yes, it was in stock).  I do understand that there are various other ways of paying for precious metals online, the ONLY other time I have bought PMs online was platinum some years ago from MONEX, that order went without a hitch.

I paid BTC 0.4301 (shipping included), working out to a price of $365 or so when BTC was at $850 or so this morning when I placed the order.  The "transaction cost" (somewhat comparable to a wire transfer fee using a bank) was about $0.10 (ten cents)...!

At this point, it is not easy to keep even a BTC of gold purchase "secret" against a determined and knowledgeable opponent (say the NSA, IRS or the Banksters...).  There ARE various techniques that I am learning about which will indeed make it harder for those to sniff around and get my BTC wallet information, transactions, etc.  Right now, all I really care about is whether this whole BTC thing works for me.

***

While waiting on my hoped-to-arrive soon gold coin, I will mention that I got by BTC by cash payment.  My cost basis is almost EXACTLY $800 / BTC.  So, the first important part of my BTC experience (receiving BTC for cash) has been a success.

I do not have much BTC, certainly not enough to make me lose sleep at night, but enough for me to pound any crooked SOBs who try to cheat me, here, at Zero Hedge and on the walls of the Men's Room at my office... 

Or praise them for doing as promised...  Once I have my little gold coin, I will write up "Fun With Bitcoin For Beginners: Part Four".   :)

I am open about all of this to you, dear readers, because Bitcoin may develop into something real.  What if our bearing suppliers in China agree to accept BTC?  A game changer...  China is BIG in BTC (See more below), so that could happen...

***

I have another gold supplier in mind for my next purchase with BTC.  And then I will likely buy my wife a CVS gift card from gyft.com, whose ads I have seen at Zero Hedge.

***

Many of you know that I use to review the weekend issues of Barron's, the financial magazine/newspaper.  I stopped doing that because it was too burdensome, even for me with more time than most.

But, last weekend, Randall W. Forsyth wrote an highly visible column mostly about Bitcoin!  Forsyth has the tough job of writing after Alan Abelson, their "pet bear", wrote such splendid columns for years (Up & Down Wall Street")...  Forsyth has brought BTC to the Wall Street masses (although I am sure that many had long-noticed this phenomenon).

In my opinion, Forsyth wrote a balanced article on BTC, pointing out opportunities and risks, he even quote David Woo (B of A) who calculated BTC's "fair value" at $1300, and just got roundly trashed at Zero Hedge for this, well, bad prediction (or bad timing perhaps).  Woo did note that fewer transactions were done near BTC's highest prices (but my transaction has apparently gone through fine at $850, which is MUCH HIGHER than the BTC prices of about two weeks ago (when Zero Hedge kicked off the minor-mania for us newbies).

Forsyth quotes Walter J. Zimmerman Jr., a senior technical analyst that the soaring value of the virtual currency constitutes "a powerful indictment of Federal Reserve policy," (in their aim of 2% inflation).   Indeed.  Forsyth finishes his remarks saying that "Bitcoin may be pointing the way."

For BTC to get this kind of attention, something is up, and someone is worried...

***

I asked my "homies" at Zero Hedge (the place is becoming almost like a playground for financially aware adults now, so much fun, so much great communication) if they would answer some mildly technical questions for me.  I received a lot of good responses from (and I have gotten a few from others, I regret not remembering everyone) "Mudduck", "Matt", "mick_richfield", and "Lamarth" among others.  Thank you!

Their responses were technical in nature (to me anyway) and were from their own perspectives (example: using BTC "mining" rigs of different ages, costs and electricity usage), so it was hard for me to get an overall sense of how BTC prices would affect mining, other than mining will continue, even with old & slow machines, as those costs have been paid off, even if they generate few BTC...

So, once again I went to my main contact in the BTC world: "Bitcoin Insider", who knows his material.  I had three general questions for him..

My questions and his answers are edited here for brevity and confidentiality.

Me to B.I.:

WHAT is going on in China?  (I meant WHY is BTC so popular there, at least 50% more so than here in the USA, NOT about the minor crackdown recently)

B.I (he provided a link, but I accept his short version for now to save time):

"China" or "Chinese" as I find the best and most current insights
here. Short version: Chinese government doesn't want Bitcoins to
compete against their yuan as a currency, but they are fine with
them as a commodity like gold or silver. [...] They
are a potential threat to the US Reserve currency and will pose a
big problem in the USA.


His link: http://www.reddit.com/r/Bitcoin/comments/1sbefw/chinese_investment_banker_says_what_nobody_in_the/

Me:

(General questions on BIG computers like at the NSA or Fed who might monkey around with the blockchain (an important infrastructure element of Bitcoinistan) or other wise monkey around with their huge computers, in particular, the 51% issue I have seen mentioned at ZH)

B.I.:

NSA Computers. Even all the resources of the US government can not
come anywhere close to the fabled 51% attack. There are far too
many teenagers and other young guys with money that have invested
very heavily in Bitcoin mining equipment. The current network hash
rate is 5,063,825 Ghash / second. [...] has an 18 Ghash / second
of special AISC hardware for $1,000 plus his original 1 Ghash GPU
miners for >$3,000. Since the government can't have a large
quantity of AISC miners, they would require the equivalent of 5
million powerful gaming computers. The FBI does however own 5% of
all Bitcoins that they stole when they imprisoned Dread Pirate
Roberts and gathered up the accounts of the now defunct Silk Road.
They could very easily sell and buy on the currency exchanges to
cause very wild fluctuations and destroy people's confidence in the
pricing of Bitcoins. The only defense is to ignore their
interventions, just like we do with the gold and markets.


Note that I had simplified my questions so that I would have a prayer of understanding the answers...  B.I. elsewhere noted that the recent crash appeared to be a manipulated one, and that surprised him a bit.  There are now OPTIONS available on BTC that may open up other avenues to manipulate BTC prices.  B.I. also likes gold...

Me:

How does he spend his BTC?

B.I.:

Gift Cards. Bitcoins --> Gift Cards --> real stuff is generally how
I spend most of my Bitcoins and I've never had a problem. It always
worked great. There is a bit of a delay while the gift card issuer
waits for your transaction to confirm ~1 hour at most, but usually
around 15 minutes. I've asked my wife to buy some of the Alpaca
survival socks for Christmas directly with Bitcoins. If they don't
come, I'll buy them myself. I'm considering donating Bitcoins to a
documentary production: Sovereign Living the Reality Show Episode [...]


***

So, there you go, the latest in my continuing education to learn more about this interesting new technology.

I wonder if I should ask B.I. about vulnerabilities in the BTC ecosystem...  Some at Zero Hedge state that BTC is almost invulnerable, even in an EMP (don't ask if you do not know...), while others say the government could fairly easily shut down Bitcoin as they did with "e-gold" years ago, because of money-laundering charges...  I don't know if I should though, as I would like to see BTC succeed and not be destroyed by giving its enemies information on vulnerability...

In Part Four, I hope to demonstrate proof of receiving the gold I have purchased as well as have more questions answered.

If YOU have questions, drop off a comment below, smile,,,,

Saturday, December 7, 2013

Review Of American Hard Assets -- Issue No. 6

Now that we are free from traveling (again) and free of entertaining visitors, I have no excuses (not even the Bitcoin frenzy is a valid excuse)..., it's back to work!

American Hard Assets ("AHA" from here, this newest issue (reviewed now), comes out every other month) is focused on coins, precious metals coins of course.  Five US coins (Au, Pt and Ag) are about half of the front cover.  Gold coin sellers APMEX and Provident Metals have prominent ads featuring pictures of gold & silver coins.

Managing Editor Ryan Kasmiersky introduces the articles in this issue with a couple of comments each.  Of particular note is the whole issue of buying gold coins for bullion value alone (what I do, US Eagles) or for numismatic (coin collector scarcity value) too.  This is an important question for prospective gold coin collectors, I know people in both camps.  The US $5.00 gold coins, for example, are a beautiful coin (actually at least three designs), and can be bought in many years and many conditions (how worn they are for example).

Coin collecting (numismatics) has a long and honored history here in the USA.  When I was a kid I collected pennies, nickles and dimes in the Whitman coin books.  My father had collected coins when he was very young, and I believe that he still has much of his coin collection.  Being familiar with US coins almost makes you familiar with our history.

***

In the "World News Update" section there is an short article on a $4.00 (four) US gold coin that went for $2.5 million at a recent auction, only some 15 or fewer were ever made.  Another (interesting!) short piece mentions that platinum has seen strong growth in India because of India's recent restrictions (a near-ban actually) on imports of gold.  The third article describes record numbers of orders of silver from the US and Canadian Mints.  The other two articles are on China overtaking India as No. 1 gold buyer (remember, this magazine comes out every two months) and news of a $1.6 million heist of gold bars stolen from an Air France flight.

***

Mike Woodcock authors up the first detailed article, this one on the Gold/Silver Ratio.  I have seen a number of comments in various places on playing (trading off of) the Au:Ag ratio. The current ration is roughly 64: 1 (64 oz of silver to get 1 oz of gold, in dollars).  A lot of comments I have seen for YEARS have suggested that the ratio "ought to" follow the approximately 15:1 ratio that would represent how scarce the two metals are to each other in the Earth's crust (about 15 times as much silver).  I have seen references ("tmosley" at Zero Hedge) that in ancient times the ration was 1:1!  And it has been as high as 100:1.

Woodcock mentions that there is some seasonality in gold and silver pricing (gold tends to be relatively high around the Winter holidays for example, while near bottoms in August or so).  But, he careful to mention (correctly) that volatility and investor sentiment often far outweigh short-term seasonal effects.

He then goes on to mention two strategies that traders can undertake to buy the "cheaper" metal vs. selling the more "expensive".  I do not have the experience or capacity to judge these strategies, as I just buy and hold...

***

Mark O'Byrne writes a great article on how and why some bullion coins have higher premiums (premia for you sticklers) than others.

But first let me introduce him, I have seen his name before, but never put it into place here at these AHA reviews.  Mr. O'Byrne runs GoldCore, you can see his contributed pieces at zerohedge.com (almost daily) as well as at 24hgold.com (where I get a lot of my gold information).

There are various reasons why premiums vary:

-- size of coin (1/10th oz coins have higher premiums)
-- special situations ("Y2K" caused very high premiums on US silver vs. Canadian)
-- changes in demand (Krugerrands became less popular in the US when Eagles came online)
-- perceived liquidity issues (I buy American Eagles because I see them as more liquid)

An excellent article, highly recommended.

***

Numistatist Fred Reed writes a great article ("Coins & Inheritances") on what to do if you (or, say, a loved one) inherit a coin collection...

Apparently something still happens here in America that I thought might have died out: that people sometimes sell their inherited coins at far under their value!  This can result in receiving (say) just 10% of what those coins might be worth!

To get maximum value for inherited coin collections, one must either do the work to learn their value (that can be difficult and a lot of work if you do not enjoy it) or have a professional (maybe two or even three) come by and carefully value the collection.

***

"The Bullion Baron" writes about the new Lunar Horse Coins, these will be various (but a lot of Canadian and Australian) gold and silver coins to be released soon (although some are out now) to celebrate the Chinese "Year of the Horse".  The Baron also wrote last year's article on similar coins for 2013 the "Year of the Snake".  Some of these are "legal tender" proofs (struck by PAMP of Switzerland), and most of these commemorative coins will sell at very high premiums to their metal value.

Other mints (Singapore, China, and New Zealand) are joining the fun (I would so guess that Chinese collectors are among the major buyers, but The Baron mentions that there is a lively trade on eBay Germany as well).  The pictures he provides of various of these coins are magnificent.  But, the premiums for almost all of these are very high.

I think I am beginning to see that there are three types of bullion coin collectors...  "Bullion nada mas" (like me), collectibles collectors (like those who collect US pre-1933 gold coins) and now collectors of premium & dazzling bullion coins that The Baron describes so well.  Collectors of Proof bullion coins and similar would fall into the category as well, IMO.

***

Author Louis Golino writes "Collecting vs Investing in Modern World Coins".  He touches on some of the same themes as The Bullion Baron in regards to bullion value, beauty of the coin, and scarcity...

But, Golino's article is about ALL world coins as candidates for collection and for the possibility of making money.  He cautions that trying to make money bu buying modern world coins is not easy.  There are a LOT to choose from.

He includes pictures of unusual silver coins put out by private mints as well.

An interesting article, but I just want the (US) bullion...

***

Michael Haynes, CEO of APMEX (a major seller of precious metal coins and bars, his company did the famous deal with Donald Trump of paying their first month's rent (IIRC) in one of Trump's NYC buildings for 3 one kilo gold bars; also, I personally know someone who is a very happy customer of APMEX) writes about the "Other One Ounce" gold coins: Twenty Dollar Gold coins (pre-1933), titled "How to Find Gold With an Extra Measure of Demand".

There are two major variations of the Twenty Dollar Gold piece: the "Liberty Head" design (1850 - 1907) and the "Saint-Gaudens" design (named after the sculptor who designed it, 1907 - 1933).

Both of these types are in very high demand by high-end coin collectors.  There were about 174,000,000 (total) of these coins struck by our mints.  Each "Gold Double Eagle" (the popular term in the coin community for these) are 90% gold and 10% copper with a total gold weight of 0.9675 troy ounces, so they contain almost one full ounce of gold.  When gold backed our money, the official (fixed) price of gold was $20.75 per oz, so the 0.9675 oz coin was worth $20.00.  How quaint!  (smile)

In 1933, FDR confiscated our gold, many (but the exact figures are NOT KNOWN) of these and other US gold coins were taken and then melted down into 90% pure gold bars (reflecting the coins, so they were NOT further refined) and are reportedly (and probably) stored at Ft. Knox in Kentucky.

Mr. Haynes mentions an "extra measure of demand" in that many collectors want an example of ALL mintages, and that even some of the common dates (almost interchangeable in price with each other, fairly low in many cases -- relatively speaking!).

But, his major contribution to our knowledge (to those of us who are not experts) is that there are TWO major factors in individual prices of Gold Double Eagles:

-- Current condition (how imperfect the coin is)

and

-- Scarcity of each coin by year and mint

[Ed. Comment: You had better know what you are doing in collecting these or have someone advising you that you really trust!]

He then goes on to analyze different coins and conditions which seem to offer more upside (in other words, they seem to be attractive values at current prices).  He goes into a lot of detail, having clearly done his homework for this article.  But, I will offer up his punch-line now (his two recommendations):

BUY common date (any) $20 Liberty Head Gold Double Eagles in MS61 condition.
BUY common date (any) $20 Saint-Gaudens Gold Double Eagles in MS 62 or MS 64.

***

Jonathan Kosares (USAGold) nicely complimemts Mr. Haynes' article by discussing grading the $20 US gold coins ("Understanding the Graded U.S. $20 Gold Piece Market").

The major point of his article (also well-researched) is that the premiums of $20 gold pieces rise and fall depending on things (especially under systemic  financial stress...).  He uses and index of five $20 gold coins in his study to smooth out variations in prices/demand for any one coin, although all five coins are in MS63 - MS65 condition.

An important conclusion he draws is that premiums (over spot gold price) are now near all-time lows...

But, I repeat my Editor's Comment from above: you better know what you are doing or have a trusted adviser...

***

The pawn shop business is something I know next to nothing about (although a friend of a friend is in the business and I will have to talk sometime with him).

"Beverly Loan Company Q & A" is interview with Jordan Tabach-Bank (third generation owner/operator of two high-end pawnshops, one in NYC the other in Beverly Hills).  By"high-end" I mean people who come in with $25,000 Patek-Phillippe watches or $90,000 diamond rings...  They opened their NYC location because of demand, and they chose to be in the famous "Diamond District" (47th St. between Fifth and Sixth Avenues).

The bulk of the items they pawn are jewelry, watches and diamonds, but they do loan out against sports memorabilia, artwork (inc. contemporary) and other items of high value.

Tabach-Bank mentions that his business, like more run-of-the-mill pawnshops does well in all types of economies, including in recessions...

***

Well, well, well.  The wholesale gold market had an interesting change.  Elemetal Capital (apparently privately owned) is the parent company of NTR Metals as well as Ohio Precious Metals ("OPM").  But, they will NOT sell their OPM 1 kg gold bars to the public...  In case you wanted to know.

elemetalcapital.com

***

Moving on to articles for the Very Rich, Nicolle Monico writes about wine tours of Europe, especially more unusual ones (wine-blending class in the M├ędoc, Spanish vineyards by horseback, etc.).

"Million Dollar Listing" writes about America's most expensive residential real-estate markets.  California, New York, Connecticut and Hawaii.

***

Watch expert Ed Estlow writes "The State of the American Watch Industry".  America's watch makers lost their way in the 1970s or so, either went under or were bought up by foreigners.  But. there are some watch makers (high-end) who make watches (but with imported parts!!!) now...  Brands include Shinola (!, and made in Detroit of all places), Towson, Montana, Bozeman (two from Montana?), Sedona, RGM and Kobold.

***

Dan Denning (who used to, maybe still does, write for Agora / Daily Reckoning) writes and article about how gold fits into all sorts of plots of James Bond movies, Vietnam, Nixon, etc.  Looks like Nixon making our gold non-convertible in 1971 reverberated more than I noticed back then (of course I was 15 years old then...).

***

Gabriel Benson writes "Baseball Cards: Childhood Dreams can be a Strong Investment".  Baseball cards?  Yes, there is a demand for "slabbed" baseball cards: a high quality Honus Wagner (Pittsburgh Pirates) is worth some $2,800,000...    I guess there is always something you can buy if you are too rich.

***

Short special interest articles include "To Clean or Not to Clean" (artwork, generally speaking no, let the experts do it), "war nickels" (1943, when they used some silver in then that year), and "The Four D's of Selling (Death, Debt, Divorce and Desire).

***

The Mining News section contained an important item I had missed: Anglo-American has given up on its efforts to develop the apparently very large prospective Pebble Mine in Alaska.  Gold has continued to drift lower in the past few weeks, so my guess would be that it will be a LONG time before this one ever starts producing.  Environmental groups (etc., "the usual suspects") were an important factor in stopping the project.

Also in Mining News are short articles on Newcrest and Glencore Xstrata both taking a beating on lower gold prices.  Another article mentions Barrick (a company with never-ending problems it seems) selling Australian Mines to Gold Fields.

But, the interesting gem for me in Mining News was the article describing how Ontario has ruled against Cliffs Natural Resources project to build a road into Ontario's "Ring of Fire" (a set of old geological formations thought to contain huge amounts of valuable minerals, including gold, but very remote...) to exploit a chromite project..  I had earlier read that Ontario had as a priority to develop the Ring of Fire area because it would provide jobs, etc.  Well, I guess not.  Again, the locals did not want it after all...

[Ed. Comment: I sure am starting to see almost universal revulsion by locals re new mines in their backyards..., I think FOFOA is right, buy the METALS not the MINERS]

***

"Last Word" is the name for John Garibald's editorial, this edition is about Obama's choice of Fed Chairman.  He wrote it before Obama chose Janet Yellen.  Garibald showed his approval of Yellen, and he further hopes that the Fed will maintain us on the QE drug we crave, that she not cut us off too soon (almost his exact words, my edit to be a bit shorter).

Well, I don't know...  My inclination has always been to "take our medicine" as soon as possible, and (we hope) the financial markets would recover relatively quickly vs. the QE-to-Infinity camp of keeping us on QE ever-longer (risking a bigger catastrophe later).

Maybe it's just as well that I am not in charge of anything now...  Janet Yellen may go down as the fall-gal when this all blows up...

***

Conclusion:

Yes, if these subjects interest you, particularly if you are thinking of COLLECTING items of value or want more insights into gold coins, then buy this magazine.

(Disclosure: I received a one year subscription from them, this is the last free issue by my count...)