Thursday 14 December 2017

Blockchain's Flaws.



Baltic Dry Index. 1743 +16    Brent Crude 62.77

“You are a slow learner, Winston."

"How can I help it? How can I help but see what is in front of my eyes? Two and two bitcoin are four."

"Sometimes, Winston. Sometimes they are five. Sometimes they are three. Sometimes they are all of them at once. You must try harder.

With apologies to George Orwell 1984.

As expected and heavily signalled in advance, the US central bank raised its key interest rate by a quarter of one percent yesterday, and left its rate forecast for 2018 unchanged.  In its guidance it was underwhelmed by the proposed coming tax cuts suggesting their effect would be smaller than anticipated and be transitory. 

In European news, it’s all Great Leaders back to Brussels for the annual and final Christmas punch up of 2017. Last week’s Brexit “deal” seems to be off again.

In the bitcoin mania sweeping the world, the underlying technology, blockchain, is deeply flawed suggest the experts, but no one is listening in the mania.  In fact, everyone seems to be ignoring the impracticality of blockchain and rushing to  adopt it. What could possibly go wrong?

In central banking as in diplomacy, style, conservative tailoring, and an easy association with the affluent count greatly and results far much less.

John Kenneth Galbraith

December 13, 2017 / 6:02 AM

Fed raises interest rates, keeps 2018 policy outlook unchanged

WASHINGTON (Reuters) - The Federal Reserve raised interest rates on Wednesday but left its rate outlook for the coming years unchanged even as policymakers projected a short-term jump in U.S. economic growth from the Trump administration’s proposed tax cuts.

In an early verdict on the tax overhaul, Fed policymakers judged it would boost the economy next year but leave no lasting impact, with the long-run potential growth rate stalled at 1.8 percent. The White House has frequently said its tax plan would produce annual GDP growth of 3 percent to 4 percent.

The expected fiscal stimulus, coming on the heels of a flurry of relatively bullish data, cleared the way for the U.S. central bank to raise rates by a quarter of a percentage point to a range of 1.25 percent to 1.50 percent. It was the third rate hike this year.

But the Fed’s forecast of three additional rate increases in 2018 and 2019 was unchanged from its projections in September, a sign the tax legislation moving through Congress would have a modest, and possibly fleeting, effect.

The rate increase represented a victory for a central bank that has struggled at times to deliver on its promised pace of monetary tightening. It also allowed Fed Chair Janet Yellen, at her final press conference before her term ends in February, to signal an all-clear for the U.S. economy a decade after the onset of the 2007-2009 recession.
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December 13, 2017 / 6:06 AM

Behind bitcoin boom, Japanese retail investors pile in

TOKYO (Reuters) - Japan’s army of retail investors, no strangers to high risk bets in the past, have emerged as a major force in bitcoin’s spectacular rally, now accounting for an estimated 30-50 percent of trading in the cryptocurrency as it spikes to record highs.

Once skeptics, Japanese retail investors have been attracted by the digital currency’s volatility and inefficiencies in pricing that create opportunities to make money on arbitrage between exchanges.

“When I first heard about the bitcoin a few years ago, I thought it was a fraud,” said Yoshinori Kobayashi, 39, a former stock trader who took up bitcoin trading two-and-a-half years ago.

“But I tried it out after I had come to know some people making money on it. I bought it at 60,000 yen, which quickly become 80,000 yen and I started to regret I hadn’t started earlier,” said Kobayashi, who believes bitcoin is on a long uptrend but took some profits last week.

The spectacular surge in bitcoin, up more than 16-fold this year to above $17,000, has drawn comparisons to the 1970s gold spike or Japanese shares’ rally in the 1980s’ go-go era. Both of those delivered massive gains to Japanese retail investors before plunging sharply.

Statistics on bitcoin and crypto-currencies are patchy because their trading is unregulated in most countries.

According to data compiled by Jpbitcoin.com, a Japanese bitcoin website, yen-based bitcoin trades reached a record 4.51 million bitcoins in November, almost a half of the total of the world’s major exchanges of 9.29 million bitcoin.

Industry officials say not all yen-based bitcoin trading is done by Japanese retail players as some hedge funds now trade bitcoin in the yen to take advantage of price differentials between the yen and dollar prices.
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Bitcoin Is History's Biggest Bubble, Turkey's Simsek Says

By Cagan Koc
13 December 2017, 09:34 GMT
Speculation on Bitcoin has turned the cryptocurrency into “the biggest bubble in finance history,” Turkey’s Deputy Prime Minister Mehmet Simsek said in comments on Twitter on Wednesday.

Simsek, Turkey’s chief economic policymaker and a former strategist at Merrill Lynch in London, added his voice to a chorus of global policy makers expressing concern about the digital coin, whose value has surged more than 17-fold this year to as much as $17,578.

“One should stay away from this speculation,” Simsek said. “Just as Bitcoin’s price suddenly rises excessively, it could also crash.”

Turkey’s economy czars have been sending mixed messages about the cryptocurrency frenzy. Central Bank Governor Murat Cetinkaya said at a conference in Istanbul last month that digital currencies could contribute to financial stability “if designed well,” even as they pose new risks to central banks in terms of control of the money supply and price stability.

The central bank in Ankara has set up a working group on digital currencies with market participants, policy makers and regulators, Cetinkaya said. On the other hand, Turkey’s market regulator, the Capital Markets Board, ordered brokerages not to trade in them, according to the state-run Anadolu Agency, which cited a decision taken at a meeting on Nov. 27.

Bitcoin traded near $16,750 as of 12 p.m. in Istanbul, down 2.8 percent on the day, according to Bloomberg pricing.

Next, how can you short something notional that doesn’t exist and can’t be delivered? But who shorts into a mania?  Is the bitcoin mania really a one way madness street?  In 2018 we will soon find out.

Bitcoin Bears Will Soon Be Able to Short Futures Through Interactive Brokers

By Annie Massa, Julie Hyman, and Rob Urban
12 December 2017, 21:30 GMT
Interactive Brokers Group Inc. plans to let bitcoin bears bet against the digital currency’s recently debuted futures contracts.

Starting this week, the brokerage will allow its users to take short positions on bitcoin futures under certain conditions, according to company spokeswoman Kalen Holliday, who said the decision was made “in response to client demand.” Interactive Brokers has accepted long positions with a margin requirement of at least 50 percent since the contracts debuted Sunday on Cboe Global Markets Inc.

Shorting bitcoin futures, or betting that their price will fall, is potentially an even riskier strategy. It’s possible to lose an unlimited amount of money on a short position, particularly if the cost of the digital currency and its derivatives continues to climb.

Interactive Brokers has a few requirements for shorting bitcoin futures: the spread must be one-to-one, and the short leg must have the earlier expiry date so that once it expires the surviving leg will be long, according to Holliday. Trading won’t be offered in retirement accounts or to Japanese residents.

Bitcoin Is Soaring. Here's Why It's Not Ready for the Big Time

12.12.17  4:07 pm
“To the moon!” The phrase is the battle cry of true believers in cryptocurrency bitcoin—and charts of its price in recent weeks point directly heavenward. Yet beyond a batch of newly minted crypto-millionaires, the digital asset’s recent bull run has also exposed long-standing weakness in the underlying technology that could crimp bitcoin’s long-term viability.

Bitcoin was a gift to the world from Satoshi Nakamoto, a pseudonymous person or persons who laid out the design in a 2008 white paper. The paper complained that conventional financial institutions create unnecessary friction: banks and other mediators pass on costs as transaction fees that make “small casual transactions” impractical. Nakamoto said bitcoin would change that, by employing a peer-to-peer network backed by unbreakable math to verify transactions, removing the need for centralized institutions. The paper doesn’t use the term, but it’s a clear reference to the concept of micropayments—the idea that very small digital payments could change the economics of the internet, or help people in the developing world.

Nine years later, Nakamoto’s invention has been immensely successful. A single bitcoin will set you back more than $17,500; the price has risen 17-fold since January. But the currency has not introduced a new era of economic enlightenment greased with tiny transactions. Why not? The currency Nakamoto invented to avoid transaction fees has a problem with transaction fees, among other things.

Participants in bitcoin transactions pay fees to assure that the global network of computers that manage the currency will process the transaction. Tuesday afternoon, Eastern time, it cost around $19 to have a transaction processed in 10 minutes. By one estimate, paying a smaller fee of $3 would leave your transaction taking an estimated 24 hours. Paying a friend for pizza? Stick to Venmo.
Videogame marketplace Steam stopped accepting bitcoin last week, citing high fees. Erik Norland, senior economist at derivatives market company CME group, said early this month that high fees could be the thing that brings bitcoin’s current rally to a halt.

Bitcoin’s transaction fees are so high because the peer-to-peer network that powers the currency has very limited capacity by the standards of modern digital infrastructure. Emin Gun Sirer, a Cornell professor who has studied bitcoin’s design, estimates that at best the bitcoin network could process seven transactions per second, but typically achieves 3.3. Visa reports processing 29.2 billion transactions in the three months through September, a rate of 317 million a day, or 3,674 a second.

Blockchain entrepreneur Preethi Kasireddy, who previously worked at Goldman Sachs and VC firm Andreessen Horowitz, recently wrote a detailed post cautioning of the technical limitations of bitcoin and related systems. She says the underlying technology of what are dubbed blockchains is wholly unready for widespread use. “To make anything mainstream you have to make it scalable,” she says.
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Bitcoin Points Way to ‘Massive Change’ for Commodity Businesses

By Luzi-Ann Javier
14 December 2017, 00:00 GMT
Blockchain is upending the world’s financial markets with the rise of bitcoin, and now the digital-ledger system is poised to do the same next year for raw materials like food and energy.

Companies including BP Plc, ABN Amro Group NV and Mercuria Energy Group Ltd. said last month they will adapt blockchain to streamline physical energy transactions. In October, four banks joined a venture started by UBS Group AG and International Business Machines Corp. to use the technology in a platform for the global goods trade. Natixis SA and Trafigura Group Ltd. announced in March they will employ the system to finance buying and selling oil.

“We’re talking about this massive change in the way that business is being done,” said Eric Ervin, the chief executive officer of Reality Shares Inc., a San Diego fund manager that created an index to track returns of companies adopting the technology. “Everything happens automatically, without a bunch of paperwork, processing and transferring.”

Blockchain is an online ledger that records transactions using encryption to ensure security while allowing a network of users to verify them. The most-prominent use was in bitcoin, which became a global sensation in 2017. Over the past year, as investors became more comfortable with how bitcoins and ledger systems work, the price of the cryptocurrency has surged more than 2,000 percent and touched a record this month of $17,578.45.
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"Indeed the temporary breaks in the market which preceded the crash were a serious trial for those who had declined fantasy. Early in 1928, in June, in December, and in February and March of 1929 it seemed that the end had come. On various of these occasions the [New York] Times happily reported the return to reality. And then the market took flight again. Only a durable sense of doom could survive such discouragement. The time was coming when the optimists would reap a rich harvest of discredit. But it has long since been forgotten that for many months those who resisted reassurance were similarly, if less permanently discredited.”

J. K. Galbraith. The Great Crash: 1929.

Crooks and Scoundrels Corner

The bent, the seriously bent, and the totally doubled over.

Today, is bitcoin really “digital gold” or digital illusion?

"Never have the world's moneys been so long cut off from their metallic roots."

Murray M. Rothbard 

This $5 Billion Encrypted App Isn't for Sale at Any Price

By Stepan Kravchenko, Nour Al Ali, and Ilya Khrennikov
12 December 2017, 02:00 GMT
---- Durov, 33, has been toying with technology a lot since he was forced to sell his remaining stake in Russia’s largest social network, VK, to a Kremlin-friendly billionaire in 2014. The encrypted messenger he’s been working on, Telegram, which he calls hack-proof, already has about 180 million users, including 40 million in Iran alone, and is luring half a million more each day.

He and his older brother Nikolai, an award-winning mathematician and programmer, fine-tuned their software while moving from country to country, avoiding recruiters from spy and law-enforcement agencies like the FBI, which he says tried to bribe one of his developers in San Francisco. The locations of his servers are a secret, as are many of the names of his employees, several of whom he’s said are fellow millionaires.

“I love it here,” Durov says over seafood paella at the Siddharta Lounge overlooking the marina, not far from his new office on the 23rd floor of a skyscraper in Dubai Media City. “It’s developing so fast, like a start-up.”

Assange, Snowden

Clad in black t-shirt and jeans, the St. Petersburg native said he’s planning to announce “something big” in the new year. Having left his homeland with an estimated $300 million from the VK sale and 2,000 bitcoins, he’s been keeping a low profile until now, and for good reasons.

For starters, he has at least tangential ties to two of the most influential antagonists of the U.S. government: Julian Assange and Edward Snowden. The Wikileaks founder has endorsed Telegram’s encryption technology, while Durov offered the NSA whistleblower a job after he landed in Moscow in 2013.

And then there’s Iran, which recently charged Durov in absentia with crimes related to Telegram’s popularity among terrorists, human traffickers and pedophiles. Durov seems unfazed by the pressure, even from a country that still urges the murder of a novelist over a book written three decades ago.

“I’m motivated by curiosity,” he said. “It’s super-interesting to see what it’s like to run the most popular social media platform in a country like Iran.”

With Twitter and Facebook banned, Telegram accounts for about 40 percent of all Iranian internet traffic, according to Techrasa, a market researcher. And that’s after local wireless carriers convinced officials to ban the encrypted voice-call function Durov rolled out in April. Telegram, which is open-sourced and works on both phones and PCs, hosts 500,000 Farsi “channels” where users can post and curate all kinds of content that others can monitor for free.

---- Another thing the Durov considers out of bounds is profit. He sees Telegram as a charity that he’ll start to monetize early next year, but only enough to fund expansion. And unlike his earlier creation, VK, which will face political pressure from the Kremlin as long as it’s based in Russia, he said Telegram can’t be bought -- at any price.

While the founders of bigger rivals like WhatsApp and Skype eventually cashed out, Durov said he’ll continue to reject buy-in offers like those he’s received from some of Silicon Valley’s biggest names. He won’t identify them, but he put their valuations of Telegram in the $3 billion to $5 billion range.
“Even for $20 billion, it’s not for sale," he said. “That’s a lifetime guarantee.”

---- As far as fortunes go, there’s little indication that Durov has risked much of his on anything other than a few strategic acquisitions. He said he paid $750 apiece for his bitcoins about four years ago, a holding that’s surged in value from $1.5 million to more than $35 million. He also invested enough in St. Kitts and Nevis to become a citizen of that Caribbean nation.

The internet tycoon said he’s optimistic about bitcoin because it’s “digital gold.” Running one of the world’s most popular messaging apps, he said, is particularly stimulating when something “completely unpredictable” happens -- “like right now, the entire blockchain and cryptocurrency community just switched to Telegram.”

Durov said he chose Dubai in part for is its tax-free zone, which appeals as much to his laissez-faire philosophy as it does to his bottom line.

“It’s a matter of principle,” he said. “A lot of people in the western world don’t realize how much taxes limit their options. You can end up paying almost half your income in taxes, which basically means you’re working for the government for 180 days a year. I think I can find better ways to use the money I make for the benefit of society.”
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“It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those [CDS] transactions.”

Joseph J. Cassano, a former A.I.G. executive, August 2007, on Credit Default Swaps that wiped out A.I.G in 2008.

Technology Update.
With events happening fast in the development of solar power and graphene, I’ve added this section. Updates as they get reported. Is converting sunlight to usable cheap AC or DC energy mankind’s future from the 21st century onwards?

 Engineers create artificial graphene in a nanofabricated semiconductor structure

Researchers are the first to observe the electronic structure of graphene in an engineered semiconductor; finding could lead to progress in advanced optoelectronics and data processing

Date: December 12, 2017

Source: Columbia University School of Engineering and Applied Science

Summary: Experts at manipulating matter at the nanoscale have made an important breakthrough in physics and materials science. They have engineered "artificial graphene" by recreating, for the first time, the electronic structure of graphene in a semiconductor device.

Researchers at Columbia Engineering, experts at manipulating matter at the nanoscale, have made an important breakthrough in physics and materials science, recently reported in Nature Nanotechnology. Working with colleagues from Princeton and Purdue Universities and Istituto Italiano di Tecnologia, the team has engineered "artificial graphene" by recreating, for the first time, the electronic structure of graphene in a semiconductor device.

"This milestone defines a new state-of-the-art in condensed matter science and nanofabrication," says Aron Pinczuk, professor of applied physics and physics at Columbia Engineering and senior author of the study. "While artificial graphene has been demonstrated in other systems such as optical, molecular, and photonic lattices, these platforms lack the versatility and potential offered by semiconductor processing technologies. Semiconductor artificial graphene devices could be platforms to explore new types of electronic switches, transistors with superior properties, and even, perhaps, new ways of storing information based on exotic quantum mechanical states.

----But graphene, a natural substance, comes in only one atomic arrangement: the positions of the atoms in the graphene lattice are fixed, and thus all experiments on graphene must adapt to those constraints. On the other hand, in artificial graphene the lattice can be engineered over a wide range of spacings and configurations, making it a holy grail of sorts for condensed matter researchers because it will have more versatile properties than the natural material.

"This is a rapidly expanding area of research, and we are uncovering new phenomena that couldn't be accessed before," says Shalom Wind, faculty member of the department of applied physics and applied mathematics and co-author of the study. "As we explore novel device concepts based on electrical control of artificial graphene, we can unlock the potential to expand frontiers in advanced optoelectronics and data processing."
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Sometimes I wonder whether the world is being run by smart people who are putting us on or by imbeciles who really mean it.

Mark Twain.

Once again another year draws to a close. If you are one of the regular reader of this six days a week update that helps support my efforts with the occasional donation via the Paypal button, once again I sincerely thank you. If you are a regular reader who finds the LIR informative, interesting, occasionally amusing or entertaining, please consider making a small donation via the Paypal button on the LIR website. For obvious reasons in our new age of almost rampant fake news, I want to keep the LIR advertising free. But in any event thank you for reading and sending in helpful suggestions.
21st century adage: Is that true or did you hear it on the BBC?

The monthly Coppock Indicators finished November

DJIA: 24,272 +243 Up. NASDAQ:  6,874 +289 Up. SP500: 2,648 +189 Up.

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