Tag: Bitcoin Adoption

lightning-network-bitcoin

Will the Lightning Network Transform Bitcoin?

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With every victory comes setbacks, and Bitcoin is no exception. The digital currency’s massive rise in popularity has presented some limitations surrounding scalability.

Let’s look at the specifics. Legacy Bitcoin blockchains are limited to 1MB in size, and new blocks are added to the chain approximately every ten minutes. Segregated Witness (SegWit), a technique that splits up Bitcoin transactions into two segments and can increase the blockchain size up to 4MB, has expedited the process, supporting up to 16-28 transactions per second. While this is a boost compared to the legacy blockchain, (which is limited to 4-7 transactions per second), many argue that the improvement, in the scheme of things, is minimal. After all, major credit card companies can process tens of thousands of transactions per second.  

Ultimately, Bitcoin’s scalability issue and high transaction fees are preventing its widespread adoption at the enterprise level. But the Lightning Network, which is expected to launch in the near future, has the potential to disrupt all of that. Let’s take a closer look.

The Lightning Network

The Lightning Network is a decentralized network that uses smart contract functionality in order to enable instant payments across a network of participants.

Unlike legacy and SegWit Bitcoin transactions, in which transactions are verified and added onto the blockchain, the Lightning Network is an “off-chain” solution in which a system of smart contracts is built on top of the Bitcoin blockchain. Transactions and scripts are parsable, and can be enforced on the blockchain if needed, but otherwise are not bound by blockchain scalability limitations.

Ultimately, the Lightning Network enables lightning-fast confirmation times that can process  millions to billions of transactions per second across the network. Once it officially goes live, it has the potential to completely disrupt the enterprise landscape as we know it.

Implications at the Enterprise Level

The Lightning Network’s solutions surrounding scalability and transaction times will make both bitcoin and blockchain technology more applicable at the enterprise level. Many high-profile companies, including Starbucks, are already keeping a close eye on the blockchain and its potential for consumer application. In a recent earnings call, Starbucks Executive Chairman Howard Schultz stated that the coffee giant is in a “very unique position to take advantage of what  the blockchain technology will provide.”

Schultz, who predicted a “seismic change” in the retail space due to Amazon and ecommerce, prides Starbucks on its “entrepreneurial DNA” and “curiosity to see around corners and make big bets”, citing the company’s launch of its mobile ordering system in 2015 as an example.

The company, which opened a mobile-only store in Seattle last year, has already begun testing the waters with cashless purchases. While Schultz did not state that Starbucks would be investing in or creating a digital currency at this time, he did note that digital currencies could work well with the mobile payment digital platform they created.

Ultimately, Starbucks is just one major company of many that are evaluating blockchain technology, and digital currencies, in regards to suitability for enterprise adoption. And while the Lightning Network’s launch date is still up in the air, it is this type of innovation, with its scalability, lightning-fast transaction times, and exceptionally low fees that could catapult digital currencies to new heights, transforming and streamlining business transactions in a way that we have never seen before.

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It’s Official: India to Legalize Bitcoin Soon

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Like others around the world, the Indian government has had its initial reservations about bitcoin and other cryptocurrencies. The country’s reserve bank on several occasions has issued warnings to the public on cryptocurrency use risk.

Even with these warnings, bitcoin adoption in the country only grew. Things came to a head on November 8, 2016. Prime Minister Narendra Modi decreed that Rs 500 and Rs 1,000, the largest denomination currency notes, were no longer legal tender.

The following day long queues formed outside banks and government owned gas pumps as people tried to convert the now useless notes to smaller denominations. That pushed even more Indians to hold and buy bitcoin.

The Bitcoin Taskforce

In March 2017, Kirit Somaiya, a Member of Parliament of the ruling BJP party, wrote to the reserve bank of India, the ministry of finance and the Securities and Exchange Board of India (SEBI). He wanted an urgent study done about bitcoin and its use in the country. Kirit:

“The use of Bitcoin, a hypothetical currency, is increasing at a rapid speed in India as well as in the world….there is urgent need to have a study on the development of Bitcoin in India.”

In early April 2017, the government formed a taskforce to look into bitcoin and other digital currencies. The taskforce’s mandate included formulating a framework that would guide industry regulation.

Members of public and other stakeholders were invited to give opinion.  On MyGov, the official government portal, close to 4000 submissions were made and the majority were in support of legalizing bitcoin in India.

The Digital Asset and Blockchain Foundation of India, a non-profit organization that represents local bitcoin businesses, is one of the entities that sought audience with the taskforce.

Change of Heart

As the regulators got more enlightened about cryptocurrencies, in particular, through the work of the taskforce, their stand softened. In fact, the Asian country is now on the path to joining countries like Japan, Australia and South Korea that have in the recent past recognised bitcoin as a digital asset or a private currency.

On July 13, CoinDesk reported that India is considering imposing goods-and-services tax on bitcoin purchases. This is a far position from the push that some elements in the government made to have the cryptocurrency banned. An official:

“The discussion on whether crypto-currencies should be banned or regulated has been on for some time. The pros and cons for both aspects were put forth in the meeting chaired by Finance Minister Arun Jaitley last month.”

The tax on bitcoin purchases will be the first step to industry regulation. Most bitcoin companies operating in India such as exchanges and remittance services have long self-regulated.

They have observed the Know Your Customer (KYC) and anti-money laundering (AML) requirements. Therefore there will be little impact on how they operate when the regulator starts having a closer look at their operations.

Bitcoin’s legalization in India is critical and will have a significant network effect. India has the second largest population after China. It also has one of the largest unbanked populations. Bitcoin could be the technology that brings millions of Indians to financial inclusivity.

 

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The Next Phase of Bitcoin Will Be The Consumer One

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Over the past seven years the Bitcoin industry has grown organically and continues to grow at good pace. The adoption of new technology starts off as a niche interest amongst enthusiasts yet accelerates as more people participate. Bitcon has showed significant progress in the same direction. What started as an anonymous experiment went on to become disruptive and transformative. With greater smartphone penetration it is evident that Bitcoin and its IOT applications are sure to find mainstream adoption.

mobilephoneusers

But what will it take for Bitcoin to become the center of our financial system?  Most of the industry experts believe that these are the five phases Bitcoin will have to go through:

Experimentation Phase (2009–2010):

This phase has no real value associated with Bitcoin. It is when the currency is new and  hackers and developers are playing around with the source code. It majorly involves experimenting with Bitcoin as a medium of exchange.

Early Adopters Phase (2011–2013):

Interest from investors and entrepreneurs started to grow with substantial press coverage in the light of its applications and potential. First generation of Bitcoin-related companies (exchanges, merchant processors, wallet providers, etc.) started. Potential began to shine through poor management.

Venture Capital Phase (2013–Present):

bitcoin-venture-capital-finding-2013-2014

World-class VCs started investing in Bitcoin companies. The rapid ramp-up is already outpacing the early adoption days of the Internet. VCs poured more than $90 million into Bitcoin-related businesses in 2013 and more than $300 million in 2014. This is comparable to $250 million invested in Internet-related businesses in 1995.

Wall Street Phase (2015-Present):

Institutional investors, banks, and broker-dealers begin moving money into Bitcoin. Rising price and volume (in addition to development of derivatives) become the catalyst for mass adoption as retail investment follows. Bitcoin actively becomes one of the portfolio components for Wall Street traders. This was indeed observed in the recent times in the face of global crisis like Brexit, Yuan Devaluation.

Global Consumer Adoption Phase (In the making?):

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This stage is very crucial for large scale Bitcoin adoption. This is possible when:

  • Companies continue to innovate and make it easier for consumers to buy, hold, and spend Bitcoin
  • volume expands dramatically so that large merchants can start accepting payment in Bitcoin
  • Bitcoin awareness continues to rise with these developments

With better methods of transacting and merchant adoption, with the given mobile penetration, Bitcoin can very well replace the existing monetary system.

Beating Uncle Sam: Learn How To Invest in Bitcoin Tax-Free

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One of the most popular quotes attributed to Benjamin Franklin is that “in this world nothing can be said to be quite certain, except death and taxes”. Taxes are one of the unavoidable facts of modern living and you’ll most likely run into serious troubles if you don’t pay your taxes in full and on time. However, taxes are mostly unfair and it hurts many people to give a significant part of their income to Uncle Sam just so they could be law-abiding citizens.

The worst part is that the rich folks, politicians, and people in the corridors of power pay relatively lesser taxes than the average Joe. In fact, folks close to the corridors of power have built in loopholes into the taxation laws in order for them to avoid paying taxes legally. Some folks also embrace offshore bank accounts as a means to store their wealth while reducing their tax liabilities.

However, you don’t need to be in the corridors of power to beat Uncle Sam in the tax game. More so, you don’t need to go through the stress of opening an offshore account. This article provides information on how you can invest in Bitcoin tax-free and legally without incurring the wrath of Uncle Sam using a Bitcoin IRA Account.

What you need to know about Bitcoin and taxes

To start with, Bitcoin is likely to enjoy a more favorable tax environment in Europe. In 2015, The European Court of Justice Ruled that Bitcoin and other cryptocurrencies are exempt from value added tax (VAT). In essence, you’ll be more able to exchange Bitcoin tax-free in Europe than in any other part of the world. Many EU member nations such as Belgium, Spain, and Switzerland have adopted the rule to provide Bitcoin VAT exemptions.

The U.S. tax authority, Internal Revenue Service (IRS) doesn’t seem to be particularly endeared to Bitcoin and it has ruled that Bitcoin is taxable. Based on IRS guidance notice 14-21, the law regards Bitcoin and other cryptocurrencies as capital assets. In essence, the IRS says your Bitcoin is similar to stocks and bonds; hence, you must disclose and account for your Bitcoin losses and gains in the same way that you’ll account for stocks losses and gains.

Nonetheless, you should note that it is not easy to report and tax Bitcoin holdings because it is very hard to determine the fair value of Bitcoin. Hence, many people tend to avoid Bitcoin altogether in order to avoid making mistakes that could put them on the hook for misfiling or tax evasion. However, a Bitcoin IRA Investment can help up invest in Bitcoin tax-free without running the risk of flouting the law.

Here’s out to beat Uncle Sam to for tax-free Bitcoin investments

The first thing you need to understand about investing in Bitcoin tax-free is that you’ll need a Self-Directed IRA. You can Rollover your 401k into Bitcoin using a self-directed IRA and the Bitcoin in your self-directed IRA account will be tax-free. However, any other Bitcoin that you hold outside the Bitcoin self-directed IRA account will be subject to taxes because the U.S. government treats Bitcoin as an asset.

To start with, you’ll need to contact a company that helps people to setup a self-directed IRA and inform them of your intention to open a self-directed IRA. You can only invest Bitcoin in a self-directed IRA – your 401K or ROTH IRA might not be suitable for tax-free Bitcoin investments.

The company setting up your self-directed IRA will send you some forms that will be used for the incorporation of an “investment” LLC. You’ll be designated as the manager of the LLC – and a new company that we will call XYZ IRA Services (for example) will be the sole member.

You’ll also be asked to fund the XYZ IRA Services and forms to initiate the funding will be provided to you. You can fund XYZ IRA Services by moving money from your 401K, your ROTH IRA, or by setting up a new IRA contribution strategy by wire transfer or check.

After you have funded XYZ IRA Services, you can send an Investment Authorization form to XYZ IRA Services with directions to invest in the LLC. You’ll also need to open a business checking bank account in the name of the LLC.

Once the business bank account is up and running, you can simply buy Bitcoin for your IRA from a Bitcoin exchange. Once the Bitcoin is deposited in your wallet, you’ll only need to sit back and watch your investment grow without having to worry about paying the prevailing capital gain tax. Rinse and Repeat!

Bank of Tokyo and IBM come together for a Blockchain Venture

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The exact measure of success for any technology is its ability to impact and transform traditional set-ups. This is exactly what makes Bitcoin and its underlying technology so valuable and hence they are being termed as disruptive. Blockchain technology has transformative potential and major financial institutions are trying to adopt the same so ease their process. This grand scale adoption has in turn made the adoption of currency viable and has driven up the value recently. Let’s look into a recent blockchain adoption story where IBM partnered with Bank of Tokyo for managing contracts on blockchain:

Bank of Tokyo, IBM and Blockchain:

Bank of Tokyo-Mitsubishi UFJ (BTMU) plans to begin managing its contracts on a blockchain-based platform. This platform relies on technology provided by the still in-development Hyperledger project and the design services of IBM. The two companies confirmed that the platform will manage service level agreements between BTMU and other third parties. IBM’s vice president of blockchain Ramesh Gopinath told that the first phase of building the platform is complete. This allows a detailed tracking of workflows within the Japanese bank. The second phase is now underway to connect workflows between companies.

Gopinath explained how the integration will work as follows:

“You capture the entire workflow all the way to a master agreement and special workflows for employees. If you capture the metrics that are relevant, hopefully in the new model there will be fewer disputes”

According to a release, IBM and BTMU will first trial the service by transacting with each other over the platform. BTMU intends to ultimately migrate to the new contract management platform by the end of fiscal year 2017.

Germany Energy Giant now accepts Bitcoin for payment:

German Energy giant backs bitcoin payments
German Energy giant backs bitcoin payments

Customers of one of Germany’s largest energy providers ‘Enercity’ can now pay their electricity bills with bitcoin, the company announced. One of the ten largest energy companies in Germany, ‘Enercity’ has a turnover of around 2.3 billion EUR. It provides energy and services for residential customers in the Hanover region, as well as for business customers throughout Germany. Enercity has cited increasing popularity of Bitcoin and its ability to “act independently of central institutions” as the reason for the decision. It said that Digital payment methods such as Bitcoin are becoming increasingly popular. Enercity therefore now allows bills to be paid with Bitcoin.

Thus with these advancements in implementing Blockchain and accepting Bitcoin payments, the prices sure are to be affected to a certain extent.

Performance of Bitcoin in Portfolios

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Ideal Portfolio Components:

With the introduction of crypto currencies and the evolution of the underlying technology, programmable assets have gained considerable recognition.  Bitcoin is now being used as an integral part of portfolios owing to its unique characteristics.

The most important characteristics of any portfolio component are: non – correlation with other assets and low standard deviation. Bitcoin has shown least correlation with respect to any other asset class past year. Even on volatility front it has proven to be much stable in the recent time.

Frequency histogram of monthly returns of the Bloomberg Bitcoin Index, 1/1/2011-1/29/2016. Source: Bloomberg
Frequency histogram of monthly returns of the Bloomberg Bitcoin Index, 1/1/2011-1/29/2016. Source: Bloomberg

Primarily a portfolio component has to have good returns on investment. Bitcoin has fared fairly well in this respect owing to its growing adoption. Another major factor might be the inflow of funds in the face of global financial crises. Bitcoin’s monthly returns have experienced a much narrower range, evidence that the pronounced swings in bitcoin’s earliest days have begun to dissipate. This should give investors additional comfort when contemplating adding bitcoin to their portfolio.

How Bitcoin fares in Portfolios:

 Illustrated below is the fictitious performance of a sample globally-allocated portfolio of stocks, bonds, commodities, and cash held over a 12-mo investment horizon. In a classic investor’s portfolio, a larger allocation is to stocks and a smaller allocation to cash, the return of this  base portfolio would have been -6.9%. In our low-rate and slow-growth environment, investors have been looking to alternative assets to boost returns. An alternative asset that can be considered is Bitcoin.

Portfolio Bitcoin

Return of sample portfolios with investment horizon of 1/29/2015-1/29/2016. Base portfolio allocation indexed on: 45% S&P 500 Index, 10% MSCI Emerging Market Index, 35% Barclays Capital Bond Global Index, 5% Bloomberg Broad Commodity Index, and 5% 3-mo Treasury Bill Index (proxy for Cash). The Bitcoin-allocated portfolio indexed on 45% S&P 500 Index, 10% MSCI Emerging Markets Index, 35% Barclays Capital Bond Global Index, 2.5% Bloomberg Broad Commodity Index, and 5% 3-mo Treasury Bill Index (proxy for Cash), and 2.5% Bloomberg Bitcoin Index. Source: Bloomberg, Grayscale

Given the low correlation to other assets, and decreasing volatility, investing in bitcoin could help boost gains, while adding minimal risk to one’s overall portfolio. When we reallocate a portion of commodities into bitcoin within the aforementioned base portfolio, the total performance improves by about 2.3%, with the portfolio only returning -4.6%. The portfolio’s risk remains fairly similar as measured by the portfolio’s annual standard deviation. This illustrates the value in adding bitcoin to enhance returns, without necessarily taking on additional risk.

While we are still in the early days of this asset’s journey, the potential upside of Bitcoin is promising. As the technology to accommodate and incorporate this currency develops, we can see better and stable price levels. This disruptive technology can indeed revolutionize the way we look at financial markets and set up a digital economic system.

How Bitcoin is slowly replacing fiat currencies

How Bitcoin is slowly replacing fiat currencies

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From its inception in 2009, Bitcoin has been regarded as one of the most versatile payment methods that exist in current times. It goes a long way in solving the many problems associated with moving fiat currency around the world and in the internet age, the digital currency has the potential to be accepted as a universal form of currency.

Though skeptics have long voiced their doubts about Bitcoin ever being adopted wide enough to replace‘real money’, Bitcoin’s 2016 performance has outperformed most asset classes to date. In fact, Bitcoin’s performance since inception has been nothing but stellar.

Bitcoin Performance

Fiat currencies are deemed acceptable if they meet the following criteria. Let us see how Bitcoin fares on these terms.

  • Easy and convenient means of exchange
  • Should serve as a unit of account
  • Act as a viable store of value

On the first criterion

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Bitcoin passes this one with flying colors as this is one of the main reasons why it is on its way to mass adoption so quickly. Bitcoin’s influence is gaining steam, due to its easy, low cost peer to peer network.  Anyone can join and use it and there is no authority. From select cafes and restaurants in the developing world to thriving eCommerce giants, many businesses have adopted Bitcoin as a medium of payment. While a major portion of the world is yet to accept adopt Bitcoin, we are tracking its rise.

The second criterion

Bitcoin as a Unit of Account

Would be that the payment medium should serve as a unit of account. This means it has to be used to value goods & services or anything else for that matter. Most currencies have goods valued in its denomination and they have a trading exchange rate that can be used to compare the value of goods across currencies. While the world economy finds its global reserve currency to be the US Dollar, Bitcoin and other digital currencies can serve as a better unit of account on the basis of having uniform value across borders. There is no government intervention when it comes to manipulating it and in today’s internet enabled world, it has the potential to literally become the world’s global reserve currency.

The final criterion

I-Have-Bitcoins-The-Ultimate-Store-of-Value

Is that the currency should act as a stable and reliable store of value. Traditionally any asset class can act as a store of value over time but most lack convenience as a universal means of exchange. Bitcoin faces some challenges as well, mostly owing to its high volatility.

Statistically, however, Bitcoin’s high volatility can basically be chalked up to speculation around its potential to disrupt deep rooted industries.  This will eventually be resolved once wider adoption occurs and Bitcoin becomes a way of life.

Conclusion

Owing to the above factors, Bitcoin fits the bill as a strong promising contender for becoming a universal form of currency.

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