An Honest Look At USI TECH

Disclosure: Most articles which publish 'reviews' of a MLM scheme are in fact not honest, but rather a sales pitch dressed up as an independent article. This is not the case here. You will not find any referral links (hidden or otherwise) to USI TECH in this post.

I have no problem with people advertising a service or product that they don't own and taking a cut, referral fee/bonus or affiliate commission when a genuine product is being sold and the process is fair and transparent. This is typical in the sales industry.

There are some multi-level marketing (MLM) sales systems which take this a step further and allow you to not only take a single cut of a products sale, but also allow you to bring in other participants where you would take a small cut of their sales too and of those they recruit (typically receiving a smaller share with each level down the chain).

At this point such a sales system can start to become risky and detrimental to the end buyer. The more people who are receiving a cut, the more profit you need to pad into the price. So chances are the end buyer is not receiving a very good deal if the cost of the product they purchase is paying a commission to a number of parties further up the chain (see image above). Also the end buyer is often recruited into the structure to try and sell the product themselves. It is not very different to a pyramid scheme, however there is a product or service involved even if it doesn't represent good value.

Have you heard of cryptocurrencies (referred to from here on as cryptos)?

Cryptos already have a number of very real risks for investors:

• Their performance can be very volatile with regular 30%+ falls.
• Exchanges have collapsed taking investor funds with them.
• Code has gone wrong making it impossible to sell cryptos in a wallet.
• If you forget your private key the value is lost forever.
• Many of them are poorly coded or offer no real advantage over their peers.

And this is barely scratching the surface of the risks involved with buying or owning them (though I do believe the technology will be used in everyday life down the track, so there are reasons to speculatively own some).

$CRYPTO will be like the tech bubble when it bursts:

💥 Many are useless, overvalued projects & will fall to 0 (https://t.co/NUzSl6OtSg)

📈 Some will last long term, but could fall 90%+ as it pops (eg $AMZN)

👨‍💻 Long term, we will use much of the tech created in daily life

— Bullion Baron 👑 (@BullionBaron) November 15, 2017

Now imagine an MLM sales system was applied over the top of this highly speculative financial sector (cryptos). There are a number of 'opportunities' popping up in this space (another example is BitConnect), including one that seems to be increasingly popular in Australia, USI TECH. I have now been approached by at least half a dozen individuals to check this out and thought I'd take an opportunity to share some research I have done and my thoughts. I also welcome your comments below if there is anything I have missed or misrepresented (I am only using publicly available information).

What does USI TECH offer? Earlier in the year and last year they were selling a software package for automatic FX trading, but in March 2017 started offering 'Bitcoin Packages'. Effectively my understanding is that you transfer 50 Euro worth of Bitcoin (the first crypto) to their system and then they start trading it on your behalf. The claim is that their trading can return 140% return on capital at ~1% per day (advert spotted at a supermarket):

Typically such a return would be indicative that it is a HYIP (high-yield investment program), basically a type of ponzi scheme.

It is very unlikely they will be able to return such a consistent figure over the long term. There is no magic automatic trading system that can make you a fortune like this.

"There seems to be a never ending stream of investing scams that are rolling out these days. Automated investing combined with FOREX seems to be the sweet spot. Add a dash of Bitcoin and the story is complete. Take something that few people understand and automate it. What could possibly go wrong?" USI-Tech Scam? Yes It Is In My Opinion! - Ethan-Vanderbuilt

In fact, Bitcoin has actually risen 6 fold since they launched their Bitcoin packages, so chances are you would have outperformed their system simply by buying and holding Bitcoin directly (at least over the last 9 months).

USI TECH attracts people to this platform not only through the return, but also by offering very attractive commissions to those who want to sell these Bitcoin packages (and a recently announced 'token') to others through their referral system.

The token they are selling is dubious at best. They intend on turning the token into an ICO (initial coin offering) in the future. They have dubbed it TechCoin (Code: UTC), despite there already being a crypto by that name and another using that code.

Typically when an ICO launches they will release a whitepaper beforehand, which will detail how they intend on spending the funds, why their particular brand of crypto is superior or what it is for. To date there has been no whitepaper released publicly by USI TECH. I read they were going to release it after 500 million of their tokens are sold... why wait? Why would anyone buy this token without understanding any value it provides or what it will ultimately be used for?

The way they have structured the token sale is to incentivise both a large purchase by the buyer as well as for the referrer to push for large sales as they receive higher commissions.

The largest package you see above is Diamond for a cost of 10 Bitcoins (roughly A$109,000 at today's price).

USI TECH is suggesting they have a lot of other activity going on in the background such as the purchase (or hire?) of crypto mining rigs that are generating them income and the patenting of a machine that is supposed to reduce their mining costs substantially, but scratch under the surface and this looks like absolute nonsense (via Scam Hilarity: Suspect ponzi claims to be mining bitcoin w/ perpetual motion engine):

Being presented by people who simply don't have the qualifications or public history to confirm they know what they are talking about.

Further red flags appear with the business being based out of Dubai:

"A PO Box corporate address in Dubai is provided by USI-Tech. However beyond laundering investor funds, it’s doubtful USI-Tech has any physical operations in Dubai." - USI-Tech Review 2.0: Forex auto-trading dropped for bitcoin Ponzi

They also have some questionable people involved, for example one of the founders:

"Jao Severino (JOÃO FILIPE FERNANDES SEVERINO) has been barred from financial activity in Portugal because he was involved with another scam called AMC INVEST. AMC Invest offered 10% interest per month on investments and it ended up scamming hundreds of people before it was taken down by the authorities. People were arrested for this scam."

To wrap up:

* As far as I can tell the people involved don't have the appropriate experience (e.g. equipment rental manager presenting ‘revolutionary power technologies’) or have been involved in HYIP/pyramid schemes in the past.

* They have made outrageous claims about the technology they own... think about it, if they really had a machine patented to reduce the cost of electricity for crypto mining as they've described, why would they waste their time with doing so when it would have real world applications that could be worth a lot more.

* They're selling tokens which will eventually be exchanged for coins.. so they say. Which exchange is going to accept them? What real value will these coins provide? How does it differ to other crypto out there? Which reputable crypto specialists do they have designing the coin? Where is the whitepaper?

* They are promising returns that simply can't be replicated over the long term. My expectation is that they are paying out any current returns from new investors' money or from money collected from selling the tokens and from their mining rigs. They are probably relying on a lot of investors "reinvesting" their returns. These schemes (HYIP) can operate as long as they have enough new money coming in to cover any money going out. If the incoming money stops/slows, it will eventually collapse.

* The smallest Bitcoin packages are not that expensive, but this TechCoin is trying to bring in investments of tens of thousands of dollars through the way they have structured the bonuses.

Some further questions to ask USI-Tech if you are considering an investment in their scheme:

Why are they using this patented power technology for such a low potential opportunity, why not just sell it for billions of dollars if it works as they describe?

Why can't they release the whitepaper for the ICO before launch like any reputable crypto operation?

What are the names of the crypto specialists working on TechCoin and how can they be contacted?

When can we expect an external audit of the trading they are doing?

USI TECH is likely to go the way of the last ponzi I covered on this site, Royal Silver Company. Buyer beware.

----------------------------------------------------

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BitGold: The Digitalisation of Metal

Earlier this year I wrote about several attempts to back cryptocurrencies with Gold (The Truth About "Gold Backed" CryptoCurrencies). Most of those I covered weren't backed by Gold in the conventional sense (i.e. a fixed amount of Gold that could be redeemed per currency unit), instead offering only partial backing. There were exceptions such as Ripple Singapore which offers fully backed units on the Ripple network, but totals held are still very modest (not quite 53 ounces of Gold).

Since that article I've noticed new entrants being marketed in this space and interestingly two competing products appear to be jostling for the same name, BitGold.

The first of those to market comes from Bitreserve, a company offering a digital wallet service where you can transfer between Bitcoin, various currencies (USD, EUR, CNY, YEN, GBP) and now Gold (stored and audited by GBI) all through their 'card' system. Think of it like having accounts in various currencies, you can only deposit funds into their system using Bitcoin, but once deposited you can diversify that value across any of the aforementioned currencies if you don't want exposure to Bitcoin's fluctuating value. Bitreserve maintains real reserves to cover their obligations to customers which are published live on a status page.

With our Gold Card, we are reviving gold for the purchase of goods and services. Bitreserve members can convert their bitcoin to bitgold, whose value is substantiated by bullion in our reserve, but still spend it as bitcoin. By creating a bridge between the revolutionary Bitcoin protocol and good old gold bullion, we enable our members to instantly send or spend bitcoin from the ounces of gold held in their Bitreserve wallet. Our Gold Card makes this ancient store of value instantly transferable, infinitely divisible and accessible to anyone with a networked device. Now anybody with some bitcoin and a Bitreserve wallet can have the Midas touch. Old King Croesus would be chuffed. Bitreserve

They're also introducing a similarly structured card that offers their customers exposure to the oil price.

For the first time in history, oil will become a form of payment and compete against all major global fiat currencies. Using Bitreserve’s Oil Card, anyone can hold their value as oil — the fuel for the modern world economy — and transfer that value instantly and for free.

Bitoil™ will work just as bitgold does today. Oil value can instantly be converted into five currencies, gold, or bitcoin at very low cost and can be spent immediately. Oil has a massive and direct impact on the global economy, and a currency that tracks oil prices could become one of the world’s most widely used digital currencies. Whether you are a consumer looking to hold money that’s tied to gas prices, or a business with a large portion of your expenses in oil related activities, Bitreserve’s Oil Card gives you yet another welcome currency option for holding and spending digital value. Bitreserve

To be honest their system sounds quite innovative, but I am still skeptical about attempts to digitise physical assets as I will explain shortly.

The second "BitGold", is being launched early next year. The site is taking email addresses for pre-launch access at BitGold.com and they've raised C$3.5 million from investors. The founders are Roy Sebag (CEO of Natural Resource Holdings Ltd) and Josh Crumb (Former Senior Metals Analyst at Goldman Sachs).

"The Toronto-based company will allow account holders to purchase bitcoins and exchange them for gold redeemable in various vaults around the world, as well as convert the metal back into the digital currency. Customers will also get a debit card, said Sebag, 29.

The company is trying to muscle in on traditional bullion dealers and gold-backed exchange-traded funds, two of the most popular ways for retail investors to get hold of physical gold." Bloomberg

Interestingly the name that both of these new products are launching with, Bit Gold, has already been used by Nick Szabo to describe what could be considered the inspiration for Bitcoin. 

The Bit Gold proposal, by Nick Szabo, describes a system for the decentralized creation of unforgeable chains of proofs of work, with each one being attributed to its discoverer's public key, using timestamps and digital signatures. It is said that these proofs of work would have value because they would be scarce, difficult to produce, and securely stored and transferred. Bitcoin.it

His early proposal was so closely worded to the way Bitcoin works that many speculated Nick may in fact be Satoshi Nakamoto (or form part of a team that wrote the Bitcoin whitepaper).

Even ignoring the naming issue, I'm still not convinced that trying to link physical Gold with a digital representation is a good idea and here are some reasons why...

Counterparty Risk: As I said in a recent post (How Safe Are Unallocated Bullion Accounts?), I own precious metals because they have a lower level of counterparty risk, putting other parties between myself and a claim on the physical metal is counterproductive to one of the reasons I hold them. Some of these products are structured so that your claim is with the company providing the digital wallet service, while the actual custodian of the Gold may be another layer or two down. Even if regular audits occur, I would not be comfortable that my Gold would be easily retrievable if something were to go wrong (and not all are offering the ability for redemption of the Gold).

Trusted Third Party: One of the key attributes of Bitcoin and many other cryptocurrencies is the lack of need for a trusted third party to confirm the transfer of units. Transactions occur on a shared public ledger (called the block chain). With no physical asset to account for this can all occur through the use of private keys to sign transactions. The benefit of this is lower transaction costs. Introducing a physical asset to the mix means that you do need a trusted third party (sometimes multiple) to verify the assets, even if a public ledger is still used for transparency of transactions.

Spending Gold: Around 12 months ago I stumbled across a comment from Pierre Rochard talking about the consumer behaviour of those spending Bitcoin, he claimed "Consumers making payments generally replenish their bitcoin balance simultaneously, so it's a net zero." My response, why not just hold their Bitcoin balance steady and use fiat currency to make the purchase? Those introducing these digital Gold products assume there's lots of people out there who want an easier solution for 'spending' their Gold. My Gold holdings are not held for the purpose of short term spending on groceries or electrical goods, I'm not interested in giving up the security of possession for the ability to spend it more easily.

Capital Gains Tax: As I have covered on this site before, Gold (Let Australians Save in Gold Instead of Debt) and cryptocurrencies (Glenn Stevens Talks Bitcoin & Competing Currencies) are not really setup from a tax perspective to facilitate their use as a regular currency (despite the ATO recently giving a break to those using Bitcoins). It's likely that in most situations those using these digital wallet services are expected to keep records of any capital gains or losses (relative to their Australian Dollar value) to tally at the end of year for the purpose of declaring a loss or gain. The Australian tax system is not setup to cater for the use of assets (other than the Australian Dollar) as money and I suspect it would be similar in many other countries. We don't have competing currencies despite Glenn Stevens (Governor of the Reserve Bank of Australia) insistence that we do.

Government Regulation: The idea behind most cryptocurrencies is to have a distributed electronic method of creating and transferring value with no need to be in a specific physical location. Adding Gold to the mix literally destroys the advantages of a cryptocurrency because the asset it's linked to is stored centrally, leaving it vulnerable to the negative effects of government regulation.

One advocate for the mixing of these two assets has been Jan Skoyles, CEO at The Real Asset Company, whose opinion was recently covered by a Forbes contributor:

Jan’s argument therefore that there is demand for both a gold-backed currency, and a fully-transparent and accessible gold-trading system, is a persuasive one. By recording gold purchases on a block chain style ledger, the currency can be used not only as a medium of exchange, but also to facilitate gold ownership, and challenge the status quo for clearing and settlement in the gold market. In other words, you can buy your gold, and you can spend it too.

The article goes on to say that The Real Asset Company has their own product in the works. I tried to reach Jan (by email and Twitter) to confirm that's still the case and get some clarification on how it would work, but I'm yet to hear back (will update this post if I do). I'd think most Gold investors would prefer a level of privacy for their 'digital stack', something a public ledger wouldn't easily accommodate.

Everyone has different wants and needs from their assets, especially those used as a monetary resource, so perhaps there are some individuals who are prepared to look past the described shortcomings of a digitalised Gold product for the flexibility and convenience that it offers. If you are one of those people I'd love to hear your reasoning in the comments below.

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The Truth About "Gold Backed" Cryptocurrencies

Another day, another salesman tries to sell us the story that they are launching the first Gold backed cryptocurrency. On this occasion it's Anthem Vault (founded by Anthem Blanchard, son of well known Gold advocate Jim Blanchard):

Newnote Financial Corp. is pleased to announce the successful development and launch of the first open-source gold-backed alternative crypto-currency, commissioned by Anthem Vault Inc. Business Wire

So are they really the first? They certainly aren't the first to launch a "Gold backed" cryptocurrency. The first I recall reading about was NoFiatCoin (XNF) which trades on the Ripple Network and was launched earlier this year:

Click Chart To Enlarge

Despite this cryptocurrencies favourable return for early adopters, the claim that it's backed by Gold (bullion) is dubious. The company simply allows those holding the cryptocurrency to exchange it for precious metals they have in stock. As Michael Suede wrote shortly after the announcement of XNF:

NoFiatCoin says that only a 1/3rd of XNFs are backed by bullion and that the market will determine the price for an XNF.  To me, this doesn’t make much sense.  This means an XNF does not represent a fixed weight of gold.  Further, NoFiatCoin says redemption of XNFs for bullion requires a minimum of $3000 worth of XNFs at current market prices.

If XNFs were actually a “gold backed” currency, each XNF would have to represent a fixed unit of weight.  For example, they could set an XNF to be worth .001 ounces of gold, and if you saved up 1000 XNFs, then you could always exchange them with NoFiatCoin for an ounce of bullion.  Of course, under this system, it would be impossible to have a fixed limit of currency creation, and there would have to be a way to take XNFs out of circulation once they were redeemed for physical specie.

Without convertibility at a fixed ratio with the coins, how is this Gold backed?

Other cryptocurrencies purporting to be Gold backed include Gold Backed Coin (GBC) which also trades on the Ripple Network, they suggest that each of these coins is backed by 1/10oz of Gold. But what do we really know about this company and how or where they are storing the Gold that is supposedly backing all these coins? The domain for the website was registered only a few months ago.

Then there is Ripple Singapore which claim to be able to load your Ripple wallet with XAU (Gold), XAG (Silver) and XPT (Platinum) with the bullion backing these positions stored in Singapore by Silver Bullion Pte Ltd. Though take up doesn't appear strong, they published these audit figures on their website:

What is the benefit of storing these in your Ripple wallet? There's not much liquidity given the published reserves, why not just setup a regular unallocated account with the dealer? Not that I would recommend storing your precious metal that way either.

Further to those already mentioned there is also G8Coin, MinaCoin, XGOLD (a work in progress) and probably others that I've missed. None of these currencies really offer anything that hasn't been seen before in one form or another, for example E-gold was founded in 1996 and topped 5 million users before the Gold was eventually seized and company placed into receivership. Also, there are already online exchanges where one can buy precious metals electronically or trade peer to peer with other account holders, some of which are well established and trusted, such as BullionVault and Gold Money.

So... Anthem Vault's new offering may be the first open source currency in this space (although some of those mentioned do trade on Ripple, which is an open source platform), but it's far from something new and exciting. Let's hear more about it though...

The virtual currency was secretly launched on the 4th of July 2014 by Anthem Vault’s technology team, in conjunction with Newnote Financial Corp. Dubbed the 4th of July Coin, this first Anthem Vault alt-coin is commonly referred to as MGC (Micro Gold Coin).

The MGC is an open source crypto-currency which means any person can download and look at the source code behind the coin, which is similar to Bitcoin. However, the coin has some unique attributes which sets it apart from Bitcoin. For example, there will only be a total of 10 million MGC’s in this series. All coins will be fully mined within one year, meaning all 10 million MGC’s will be in circulation and/or ownership by July of 2015. The entire series of MGC’s are backed by 100 grams of Gold stored at Anthem Vault, providing a base value to all MGC’s from the first moment the coins are “mined”. Business Wire

So the whole currency is "backed" by only 100 grams of Gold (spot value currently US$4192)? Based on 10 million coins, that means each coin will be worth 0.00001 gram of Gold. Talk about an anticlimax, this is nothing more than a marketing stunt designed to attract new customers to the brand or to have people write about it (game, set, match, they got me). Though according to the company founder this was only a taste of what's to come:

Blanchard said Wednesday's launch was a promotional offering, and the company has plans to offer a full suite of virtual currencies backed by a larger amount of gold as well as other precious metals at the end of September. Reuters

Let's face it though. Most of these "Gold backed" cryptocurrencies are a complete farce.

Those that aren't linked to a fixed amount of Gold, 100% backed and redeemable (by physical delivery of your Gold portion) I wouldn't consider to be Gold backed. Otherwise one could make the argument that any fiat currency is Gold backed (where the issuing country has official reserves), which is preposterous.

Those that are linked to a fixed amount of Gold, 100% backed and redeemable by physical delivery are illiquid or have been launched by unknown entities, not a system you want to be relying on for your exposure to Gold.

The reality is that combining cryptocurrencies with Gold doesn't make a lot of sense. The whole idea behind most cryptocurrencies is having a distributed electronic method of transferring value without the need to be tied to a physical location. Adding Gold to the mix literally destroys the advantages of a cryptocurrency because the asset it's tied to is stored centrally, leaving it vulnerable to the negative effects of government regulation.

If you want exposure to cryptocurrencies, then do some research, find one that fits your risk profile and take a punt.

If you want exposure to Gold, then buy it physically from a trusted source.

There's absolutely no reason at this point in time to try and combine these two very different assets.

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BB.

 

Bitcoin: The First Crypto-Curreny, Not The Last & Only

I have been fairly vocal on Twitter about Bitcoin and last year wrote a couple of articles about the cryptocurrency. The first (Bitcoin Bubble or New Virtual Currency Paradigm?) covered the basics of the technology, discussed some of the risks and shared some comparisons with precious metals (which many were measuring it up against at the time). I ended on the note that we might be nearing the top of a bubble in price:

My gut tells me that at US$70 Bitcoins are probably closer to a short term bubble peak (given the short term nature of the rise) than at the base of an immediate move to $150 or other high price targets I have seen thrown around ($500+), but that doesn't mean they can't head higher (in the short or long term).

I got the short term call wrong, although I didn't discount the possibility of higher prices.

Click Chart To Enlarge

After an almost immediate move to $150, turning my gut (on this occasion) into a similar contrarian indicator to the Pascometer, the price retreated back under $100, before regaining it's composure over a few months and then soaring to over $1200. Recently the price has been fluctuating between around $900-1000.

The second post I wrote about Bitcoin covered some of the gaffes Glenn Stevens' (Governor, Reserve Bank of Australia) made about Bitcoin in an interview (Glenn Stevens Talks Bitcoin & Competing Currencies). I discussed the errors in his characterisation of Bitcoin, showed how we don't have competing currencies in Australia as he claimed and had a chuckle at this oxymoron:

Ironically Stevens ends his interview on a point, 'the ones [BB: currencies] that survive will be the ones that hold their value' and in the same breath says 'which is why we have an inflation target which we’re hitting'. How Stevens equates holding value with hitting an inflation target is beyond my comprehension, it seems more like an oxymoron.

Although I feel my posts have been relatively balanced, if you follow me on twitter or read my posts on Silver Stackers you could be forgiven for thinking that I'm anti-Bitcoin, in fact nothing could be further from the truth.

On one hand, I am a big fan of the Bitcoin protocol, the technology itself is innovative and has laid the ground work for some incredible advances in the way that we transfer value in the future (amongst other applications). The fact that a decentralised and secure payment system has been developed outside the traditional global banking system is fascinating.  On the other hand I am wary of those promoting Bitcoin, exaggerting it's benefits, talking as if it's 6 months away from mass adoption & expecting it to retain it's dominance over other cryptocurrencies forever.

To be fair I don't only cast a skeptical eye over the Bitcoin pumpers, I've also blogged extensively on precious metals commentary I don't agree with. For example, I questioned Andrew Maguire's central bank Gold buying figures, looked for non-conspiratorial explanations for the slow delivery of Germany's Gold from the United States and corrected inaccuracies in an article claiming we were nearing the end of the paper Gold market.

Exaggeration, conspiracy and irrational commentary abounds in the precious metals space, facts are distorted or ignored, comments are taken out of context and exploited by those trying to sell you their subscription trading service, market report or the physical metals themselves. I empathise with some of those in this space who are just trying get readers into an asset they think is essential to hold, but there is no way I can condone the tactics used (by some) to achieve their goals, the ends simply don't justify the means.

The cryptocurrency market (including Bitcoin and other cryptocurrencies, known by many as altcoins) shares some of the same exaggerated commentary as the precious metals sector, although arguably not to the same extent.

Most asset classes have highly emotive supporters prepared to pump them incessantly, but I suspect that the money / currency topics tend to attract the worst kind of this attention due to the 'nemesis' (i.e. fiat currencies and central banks) having such a large impact on our everyday lives.

One of the most common misrepresentations I see is this constant stream of businesses now 'accepting' Bitcoin in exchange for goods and services. Every time a large company accepts Bitcoin it's deemed the next nail in the coffin for fiat currencies and a watershed moment for Bitcoin. The reality is that most of these businesses organise Bitcoin conversion into fiat instantly using a payment processor such as BitPay.

Suggesting a business is 'accepting Bitcoin', when they are having it instantly converted to fiat, is a fallacy. As I pointed out on Twitter, a company would accept payment in just about anything provided there was a market and payment processor available to instantly convert it into the local fiat currency:

A business would accept payment in Cheetos so long as a payment processor can convert them to $ instantly. #Bitcoin pic.twitter.com/wZMHJcNnBG
— Bullion Baron (@BullionBaron) December 9, 2013

What businesses are really saying when use a payment processor, is that we want the purchasing power of Bitcoin owners, but are not really interested in holding the currency itself. This article from The Motley Fool explains how retailers benefit without any of the risks the consumers take with Bitcoin:

Overstock's partner on this is Coinbase, which allows the company to do an instant exchange from Bitcoin into dollars. Overstock CEO Patrick Byrne is a self-declared "true believer" in Bitcoin, but he and his team obviously understand that it is not yet a desirable asset for a publicly traded company (unless you are a Winklevoss and starting a publicly traded Bitcoin ETF). With zero regulatory infrastructure and wildly fluctuating value, it just doesn't make sense for Overstock to hold on to Bitcoin for more than a nanosecond.

Cash, at least in the foreseeable future, will remain king.

So what Overstock has done is benefit from all of the noise surrounding Bitcoin, and immediately mitigate the risk of actually dealing with it.

While Patrick Byrne claims to be a true believer in Bitcoin, an old saying comes to mind, about watching what they do, this exchange from a recent interview with Fortune:

Fortune: Do you own any bitcoins? Patrick Byrne: No. I own gold.
Fortune: Really, how much gold? Patrick Byrne: A lot.

Some have argued that in time businesses will accept Bitcoins, provide them to their suppliers, pay their employees in Bitcoin, essentially closing the loop:

They are forced to change out from bitcoin to fiat right now because their suppliers expect repayment in dollars, and employees expect wages in dollars. But that expectation is not set in stone.

The next big revolution will be when bitcoin takes the B2B market by storm when they realize they can settle accounts instantly, especially for international transactions and import/exporters.

When your suppliers are willing to take bitcoin, the next leap is when employees prefer being paid in bitcoin.

When that finally happens you have the closed loop and can do all your business in bitcoin without switching out--which will prove to be quite profitable over dealing in fiat. Reddit

However, for a closed loop to take place, it would mean that everyone is prepared to take the risk of price movements in the Bitcoin currency or utilise hedging. Imagine the inconvenience of being an employee paid in Bitcoins and not knowing what your pay packet would buy in two weeks when you received it. It would be like trying to perform daily transactions using a foreign currency, the difficulties of which (for Australian consumers) I pointed out in my last post on Bitcoin:

Can you just imagine the administrative nightmare that would result from performing regular transactions in a foreign currency and having to maintain a record of whether you made a gain or loss as a result of fluctuation in the currency markets? It is simply not practical.

Bitcoin is not immune from the same requirements, earlier this year the ATO commented specifically on the topic (although the comments have a business focus, it does not exempt individuals from the same requirements)...

Another regular way that Bitcoin supporters misrepresent the cryptocurrency is by comparing it's daily volume with that of PayPal, Western Union or other payment systems used by consumers to purchase goods or transfer currency. Coinometrics publishes these figures:

Click Image To Enlarge

But what is often ignored when making these comparisons is that it's not possible to separate the Bitcoin transactions which are speculative in nature vs those used for a genuine purpose such as purchasing goods and services. So comparing the two directly is disingenuous. A more valid comparison to make would be to compare the largest cryptocurrency payment processor, BitPay, who processed over $100 million worth of transactions in 2013 versus PayPal who processed $44 billion in the 3rd quarter alone.

It's impossible to know how many Bitcoin transactions are used for consumer purchases. A recent estimate in a Forbes article says buyers spent $500,000 worth of Bitcoins at Overstock since it started accepting them two weeks ago. That may sounds like a lot, but with Overstock revenues expected at $1.3 billion in 2013, we are talking about an annualised increase from Bitcoin of $13 million or 1% (assuming these buyers only went to Overstock due to their acceptance of Bitcoin).

Many of the so called advantages of Bitcoin only benefit one side of the transaction. For example, Bitcoin features non-reversible transactions, which can be a benefit for the business, but poses a risk to the consumer. This seems to be lost on some who claim that no trust is required in either direction when using Bitcoin:

It is a way to exchange money or assets between parties with no pre-existing trust: A string of numbers is sent over email or text message in the simplest case. The sender doesn’t need to know or trust the receiver or vice versa. Related, there are no chargebacks – this is the part that is literally like cash – if you have the money or the asset, you can pay with it; if you don’t, you can’t. Why Bitcoin Matters

Where an exchange occurs with Bitcoin going in one direction and goods or services going in the other, of course there has to be trust. Those arguing blindly for Bitcoin will normally introduce the potential for trusted third party transactions at this point, but I am yet to see this in practice for consumers and there are unknown side effects attached which could harm Bitcoins other advantages such as instant settlement and low cost.
 
From my observation, most of those who own Bitcoins are either technologists, those with a speculative interest in seeing the currency rise in value or those dissatisfied with the existing system which centralises money creation and control in the hands of the few (banks, governments), i.e. they have ideological reasons for owning it. I am yet to come across anyone who owns Bitcoin purely for the fact that it's a superior form of currency for online purchases or the transfer of value.

While Bitcoin is the largest cryptocurrency by far (market cap circa $11 billion), there are many other competitors that offer improvements or differences that appeal to various individuals tastes. They vary in size with market caps as small as $100k, to $50 million or more (the 20 largest are listed below via coinmarketcap.com):

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Some Bitcoin supporters argue that the first cryptocurrency is already too popular in the market and unlikely to be surpassed by a competitor due to it's ability to adapt and add new features. Another argument is that too much developement has already gone into Bitcoin for it to lose the top spot, but this is very short sighted given that many of the Bitcoin services, sites and apps in use or being developed could be modified to work with any cryptocurrency.

Primary issue I see with Bitcoin, is lack of stability in price. The biggest competition to Bitcoin may be evolution of a cryptocurrency which is stable in value, perhaps even one that is backed by another asset (such as Gold):

After extensive testing in the Pacific, KlickEx is pleased to announce the development of a new asset-backed and algorithmic crypto-currency for institutional and retail use. A stable, international risk-free asset is a key foundation for efficient financial markets, and KlickEx’s award winning interbank payment network has an exemplary track record in stability, and efficiency. Having eradicated the significant systematic deficiencies of Bitcoin, then bridged the portfolio limitations of the IMF’s SDR, the new base asset is a proactive response to recent negative public sentiment towards banking in general, and recent global events including The GFC, Euro-Crisis, BASEL II, III, and fiscal & political instability in Prime currencies. KlickEx At FinovateAsia

Or as speculated by Felix Salmon early last year, perhaps a cryptocurrency itself won't be the future, but rather a network that will facilitate transactions of any currency (Maybe Ripple has a chance or something similar):

A peer-to-peer payments system, allowing anybody on the internet to pay anybody else on the internet without having to sign up with some financial-services behemoth first, could revolutionize global commerce. It would have to be able to work with any currency, including bitcoin; it wouldn’t need its own unit of account. It would have to be flexible, too: some transactions would be cashlike and irreversible, while others would allow some kind of chargeback.

And, most importantly, it would work with, rather than against, today’s established monetary institutions...

...But whatever it looks like, in the end, we can be sure of one thing: it will owe a very large debt to Satoshi Nakamoto and his audacious attempt to invent a whole new currency. Bitcoin isn’t the future. But it has helped to light the way ahead.

Of course the Bitcoin purists won't like the sound of centralising an asset to back a cryptocurrency or the thought of involving existing financial institutions in the final solution, but the choice ultimately won't be theirs. The market will decide and I can't see the majority of people choosing a currency that puts them at a distinct disadvantage due it's wildly fluctuating price.

Betting on Bitcoin being the permanent global leader of cryptocurrencies is like putting your money on MySpace (in 2004) to be the leading social network (wouldn't have worked out too well). The cryptocurrency journey is just getting started. Take a punt if you like, but don't put all your eggs in the Bitcoin basket.

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BB.