I have finally worked out how to make money in Altcoins

Looking at this Bitcoin thing I am indeed convinced that it’s a bubble. Just as I am convinced that we really do not want to have a, by design, deflationary currency.

However, that we’re in a bubble does mean that there’s an opportunity to make money. The question, obviously, is how?

So, get one’s own Bitcoin variant. Should cost under $100.

Hmm, so, you’ve a currency, you mine a bit of it and keep that.

But now you’ve got to convince other people to also use it. Otherwise, as here, there’s no point to it at all.

Ah, but there are some 100 alt currencies currently. Some of them are actually still easy to mine. And even, some of them that are easy to mine have exchange rates. On actual, real, exchanges. And once you’ve got that you’ve got a route (possibly not from your own currency directly, but through Dogecoin, Finecoin etc to Bitcoin where you can cash out for real money) to cash. So, what do you do?

You mine some of those other currencies. Which you then spend, on those exchanges, on buying your own currency. This establishes a public market and a public value for your new currency. One that you can in fact quite easily manipulate….gradually upwards of course.

Pump and dump it’s called. And the thing is, in a bubble, it will indeed work.

So, who is in on this? Technical ability would be good here: I think I’ve got the finance market part of this already worked out.

28 comments on “I have finally worked out how to make money in Altcoins

  1. Mmmm…
    Aren’t there laws against this? I’m thinking of auction ringing, for a start. And you would be “insider trading”.

  2. Makes “a company for carrying on an undertaking of great advantage, but nobody to know what it is” seem a model of prudent investing.

  3. Tim, have you read “A Nation of Counterfeiters”?
    There were times I thought it was a spoof, but apparently it worked because of the shortage of money. And US in 19th century did not have big problems with inflation.
    Plus there are some hilarious anecdotes.

  4. There might be a game changer here. The idea is to use cryptography not to conceal the meaning of messages but to establish robust anonymous trust relationships. This is new with financial transactions and reduces costs and uncertainties.

    The original paper is worth reading, if you haven’t already.

  5. Just as I am convinced that we really do not want to have a, by design, deflationary currency.

    It’s a by design stable currency, not deflationary. A deflation is a reduction in the money supply, not a static one. What it is is not inflationary, and I can understand why people who make money from State managed inflation would be scared of that.

    But if “we” means the people in general, rather than a small number of people in particular parts of the financial sector, then what “we” most certainly want is a return to sound money. Which, it seems to me, this kind of system is, by design.

    Money that nobody can print. Bloody marvellous!

  6. Peter Risdon-

    Indeed. I think that really is the game changer; it’s a property rights system that requires no administrator. Currently, to make payments electronically I must ask an institutional third party to do them for me- a bank, credit card company, etc. With this kind of system, you just need a bit of software at each end and no institutional party to moderate the transaction.

    ISTM that a bitcoin world makes much that banks currently do redundant. You don’t need cheques, CHAPS, BACS, wires, direct debits and standing orders and any of that nonsense. The only job for banks is borrowing and lending; the current account ceases to exist. So does the credit card as a transactional device. I think that last one is interesting, because one of the main reasons credit cards took off was for their capacity as charge cards.

    So we’re maybe looking at a really big game change here. I am sure classical liberals will be delighted with the enormous savings associated with the replacement of a huge banking paraphernalia with smartphone apps.

  7. So it’s a stable; not a deflationary currency. I just need to find a way to convince enough libertarian wannabe economists to believe that and Ponzi’s your uncle. Sounds a bit more of a kite to fly than Tim’s.

    BTW Tim, I think to carry out the sort of market manipuation you’re planning you’ll need a heck of a lot of real money. Geddit? Real money? I’m off to the pub tonight tonight to toast that gag. Then you can can count me in on your scheme.

  8. The idea was that because there would be a very small supply of bitcoins initially the value relative to other currencies would initially rise very quickly, as has happened (this was completely by design) then this would tail off as the volume of ‘discovered’ coins rose and the rate of ‘discovery’ of new coins fell. Transactions, after this very rapid ‘deflation’, would tend to be denominated in billionths and trillionths of a coin.

    The planner(s) of this system knew the initial scarcity would mean demand would outstrip supply if bitcoins took off and included this in their plan. But the ‘deflation’ diminishes until the value is fairly stable. In principle. That bit has yet to happen but it isn’t supposed to have happened yet.

  9. But we’re already at the point where a CPU isn’t going to find any new coins, a stand alone GPU will hardly do so, and any attempt at mining now needs to use specialised hardware (ASICs).

  10. Oh, the other major shift expected is in how ‘mining’ gets paid for. Mining is misleadingly named. Bitcoins are a byproduct of maintaining a node in the peer to peer processing network. So people who commit resources to doing this get paid in new bitcoins at the moment. Early adopters made loads of money. But as the rate of discovery falls, the return from maintaining a node will have to change, most likely to a form of transaction fee. So people who run ‘mining’ operations stand, in the fullness of time, to get very small percentages of the value of transactions on the network.

  11. That is, you can start your own private bank or debit card company, metaphor according to taste. That is the libertarian dream, I assume: private individuals and businesses replacing state-licensed behemoths.

  12. Ian B said: “ISTM that a bitcoin world makes much that banks currently do redundant. ”

    I’ve not used bitcoin or any others but if I’ve understood it correctly, in order for it to be convenient you either need to have it with you in some form (digital wallet stored on computer, memory card or mobile phone) or use an online digital wallet which reintroduces the third party systems we already rely on for existing payments and for Paypal.

    How do you minimise the risk of losing it all through theft, loss or damage of equipment; set up two and use one like a bank account with your money in it and one like a pre-paid credit card that you put money into in order to spend?

    I wonder if there is potential for Bitcoin type systems to be adopted by banks rather than viewing them as competing with them. I might trust an existing bank with a local branch to keep my digital wallet with more than I would a website that didn’t exist a few months ago and could be based in who knows where.

  13. Incidentally, this ‘deflation’ is an almost perfect implementation of the risk/reward principle. Early adopters had to commit processing power to the early network at a noticeable cost. This cost was directly proportional to the number of coins you’d ‘mine’. IF the system took off, this would mean your coins would be valuable and you’d make a lot of money.This incentivised people to take the risk, spend their own money and provide nodes to make a functioning network.

    High risk, high return if successful.

  14. The only way to make money out of Bitcoin and other similar currencies is to sell the equipment needed by the “miners”. Just like the real way to make money in the gold rush was to sell the tools that the gold panners needed.

  15. Peter Risdon-

    That is, you can start your own private bank or debit card company, metaphor according to taste

    Maybe I’m misunderstanding this, but it seems to me that you don’t need a “debit card”, though of course banks (as stores of coins, which may be interest bearing) would be useful. Bitcoin acts as its own debit card; it both stores and transfers the money without the third party that current money needs a debit card for.

    If you have a website selling widgets, and i want to buy a widget, I can just send you teh bitcoins from my wallet to your wallet, without having to ask a Visa or Mastercard to do so for me. Yes?

  16. Tim and BIS, might not be illegal, depends of course on the jurisdiction. In Oz for example market manipulation is indeed a crime, but it only applies to “financial products”, bitcoin might not be a financial product within the meaning of Australian Law. So might be able to get away with it.

    Its a bit like when the junk bond market took off, IIRC lots of people realised that junk bonds behave pretty much like shares and rose and fall in value depending on news about the company that issued them. In the mid 1980s insider trading in shares was illegal but junk bonds were not shares so people could trade on inside information in the junk bond market without fear of prosecution. Usual disclaimerrs apply, this is not legal advice, don’t rely on it etc etc.

    Still might explain all the popular press about bitcoins, create a buzz, boost the market, cash out and leave the fools hanging

  17. You do realise that although Dogecoin was setup as a genuine crypto-currency, it was done so as a joke by members of the 4Chan collective to illustrate the idiocy of Bitcoin.

    Doge is based upon an internet meme used to highlight the stupidity of vanity of others using sarcastic praise, hence the use of the words “wow”, “awesome”, “such profit”, “much coin” which appear on the dogecoin webpage.

    You are being mocked, bitcoiners and quite rightly!

  18. Ian B – both were bad metaphors, but the debit card issuer might be closer: you’re a transaction processor and will in time get fees for said processing. This is ‘mining’. not owning some bitcoins.

  19. And no one seemed to mention the inconveniences where it takes from ten of minutes to hours to sync the transaction log before the Bitcoin client is am able to make/receive payment. The client also slows down the computer/internet significantly (due to the P2P thing).

    I know I know…one can go onto one of those website who will store the data etc – but that is no different then running it through a bank payment system with less protection.

  20. You’re never ever going to convince people to accept bits of printed paper instead of real gold.

  21. It’s not the accepting of bits of printed paper that causes financial crises, it’s that debts are taken out and not repaid. Something like BTC will actually be far more prone to crisis than a fiat currency. Because in the absence of more “physical” BTC we will still see money supply increase in the traditional way, something akin to a fractional-reserve banking system for short-term credit will arise, longer term people can borrow and spend BTC and just as with real currencies find themselves unable to repay.

    Indeed, if banking in BTC remains unregulated (0% fractional backing of deposits – and believe me someone somewhere will try this at some point) the currency could get wiped out quicker than the Zimbabwe dollar.

  22. So it’d be really fun to see this run as an experiment and find out what the potential for collateral damage is on a small enough scale not to wreck too much. But what do we do if an unregulated virtual currency really takes off then starts to threaten the world economy because of a debt-deflation crisis?

    The libertarians should be careful what they wish for.

  23. JamesV-

    I’m not so sure. Bitcoin is like gold; it can’t get wiped out. It can still have any number of crises, but the coin itself cannot vanish. What can get wiped out is credit, but that is true of any monetary base.

    We all (presumably) know the problem. It’s the point when contracts for the money become the money; gold certificates for instance. When you’re trading in gold coin, your money system is safe. Once people start trading infinitely reproducable gold certificates, that’s when the trouble starts. So it will all depend really on whether people (if this takes off) continue to transact bitcoins, or move to transacting contracts for bitcoins stored with other people.

    But-

    But what do we do if an unregulated virtual currency really takes off then starts to threaten the world economy because of a debt-deflation crisis?

    Let the debt deflate, which is the only rational cure for such a crisis. Punting in more reserves (impossible anyway in bitcoin) just inflates the next bubble and guarantees the next crisis.

    Debt deflation is a Good Thing.

  24. ‘the inconveniences where it takes from ten of minutes to hours to sync the transaction log’

    That’s a defence against double-spending. Necessary, if inconvenient.

  25. AIUI an entity can manipulate transactions if it gains control of 51% of the computational power of the Bitcoin network. There is a mining pool approaching that.

  26. Pingback: I have finally worked out how to make money in Altcoins | Tim Worstall | Make Money

Leave a Reply

Name and email are required. Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>