Bitcoinomics, Chap. 10: Bitcoin Uses
“Right now Bitcoin feels like the Internet before the browser.” – Wences Casares, Technology Entrepreneur
So, now you responsibly control some bitcoins. Bitcoin is not as liquid as US Dollars are. But, neither is gold or silver, so this should not serve as a reason to stay away from Bitcoin.
As the Bitcoin economy continues to develop, there will be room for thousands upon thousands, if not millions upon millions, of entrepreneurs to setup their own new businesses.
There is explosive potential for growth in the Bitcoin economy, and I strongly suspect individuals and business will continue to revolutionize the framework.
Currently, you can use your Bitcoin to purchase goods and services from anyone who accepts it in their business. Or, in your business, you can accept it from any customer who prefers it.
With Bitcoin, you can bring a new service to your customers with little or no overhead. The goods range from products such as precious metals to drugs on the black market Silk Road to pizza and alpaca socks.
At Silk Road, nearly any illegal substance imaginable can be purchased via Bitcoin. However, to access the Silk Road, one must be familiar with the protocol for accessing the Tor network. You can also gamble using Bitcoin. Theoretically, anything you use fiat currency for, you can use Bitcoin instead. In August 2011, Bets of Bitcoin was launched as an anonymously-operated prediction market using Bitcoin. From anywhere in the world, a user could place bets on the yes or no outcome of future real world events, such as the gold price or existence of extraterrestrials confirmed by the US government before the end of 2012.=
Bitcoin For Pesos In Argentina
The complex regulatory environment in Argentina led Paypal to suspend domestic transactions in Argentina, with eBay and Amazon following suit.
Because of a difficulty acquiring dollars through traditional banks, a secondary dollar exchange has cropped up. The unofficial exchange rate, known as the “blue dollar rate”, is approximately 25% higher than the official rate.
Amid Argentina’s currency crisis, many reports have come from expatriates there who have used Bitcoin as a “great vehicle to transfer money into Argentina and achieve the blue dollar exchange rate.”
One individual reported that he gained 25% in comparison to the official exchange rate. A local alternative to Mt. Gox is Bitcoin Nordic.
Once bitcoins are procured, one need to find an Argentine in the market for bitcoins at the blue dollar rate. Many Argentines are looking to get rid of pesos.
Gambling
Bets of Bitcoin has become a popular betting site after the Commodity Future Trading Commission (CFTC) took legal actions against non-anonymous Dublin-based Intrade for unlawfully soliciting and permitting US residents to buy and sell options predicting whether specific future events would occur. Intrade closed its doors in November 2012 to US bettors. Bets of Bitcoin is much different from Intrade, however, namely in the way in which the instruments are constructed.
Whereas Intrade offers a full trading platform, Bets of Bitcoin offers an allocated payout formula of losing bets based on weighted time of entry and shares commission with bet creators. Liquidity on Intrade, before the ban, was much higher than Bets of Bitcoin. Online casinos websites have cropped up using Bitcoin. When three main Bitcoin-related gambling sites reported their earnings and statistics for calendar year 2012, a glimpse into the worldwide growth of bitcoin and gambling became clear.
The well-known SatoshiDice, the leading bitcoin gambling in terms of money wagered, grew to comprise more than 50% of daily network volume on the Bitcoin blockchain. The company reported first year earnings from wagering at an impressive 33,310 bitcoins. During 2012, players bet a total of 1,787,470 bitcoins in 2,349,882 individual bets, with an average monthly growth rate of 78%. Earnings were calculated from May to December, 2012. Satoshi Dice is based in Ireland and promoted by Erik Vorhees. It is viewed as a blockchain-based betting game and is considered “the most popular Bitcoin game in the world.”
The site employs a method to produce a number between 0 and 65.535, on which bets are wagered making a bitcoin transaction to a static address representing different payouts.
Odds are calculated to enable the house an edge of 1.9% with full transparency as all dice rolls and earning stats are verifiable using the blockchain.
Voorhees emphasizes that, for now, all balances and accounting will be maintained in bitcoin, because “it’s better to keep it completely separate from real life.”
The site BitZino is provably fair, and offers blackjack, video poker, roulette, and craps in a bitcoin-only setting. BitZino reported first year earnings from wagering of 10,137 bitcoins. During the year, a total of 664,192 bitcoins were bet upon in 3.2 million individual bets. Earnings were calculated from June to December, 2012. Seals With Clubs is an innovative bitcoin poker site opened in August 2011 by a team of former online poker players. Cash-ins and cash-outs are denominated in bitcoin so no bank accounts are required and even your email address is optional.
Poker Mavens by Briggs Softworks makes possible the gaming software for the site. Seals With Clubs is optimistic for the future: “With the upcoming release of our Android app we hope to explode the BTC poker space in 2013.” Seals has paid out 110,587 bitcoins over 7,972 transactions in their first 16 months. Their busiest game time is 7-11pm EST and 972 types of Sit’N Go tournaments are offered. Based in Curacao, WinPoker began accepting bitcoin as a deposit and withdrawal method to their WinPoker accounts on the iPoker network.
The head of Poker Games for WinPoker says, “We can take very small or very large deposits quickly, with little or no risk of fraud. As a result, players can access our games from areas of poor financial infrastructure, or can play exciting high stakes games quickly without waiting for a bank wire transfer to be processed.” Players choosing the bitcoin payment method do not assume price risk, as all deposits convert into the user’s account currency (USD, EUR, GBP) as current market rates minus currency conversion fees.
Funds are credited to the player within minutes. When withdrawing, funds are converted back into Bitcoin and credited to a players’ Bitcoin wallet.
However, WinPoker must adhere to the regulations of the jurisdiction that they operate within. WinPoker explains:
Due to regulatory requirements, and to prevent fraud, collusion, money laundering, and ensure a safe and honest gaming environment for our players, we are required to adhere to strict KYC and AML policy. Players are required to produce documents to verify their identity, address, and source of funds where relevant, before they are able to play.
Ever since Bitcoin was first launched, institutional investors and hedge fund managers have quietly looked for a regulated investment vehicle for bitcoin placements. The Malta-based Exante LTD believes their Bitcoin Fund fills this market space. “I hope our fund will be the first hedge fund to take advantage of using bitcoins,” said Managing Partner Anatoliy Knyazev.
Exante’s Bitcoin Fund enables institutions and high-net worth individuals to access the vibrant Bitcoin market with a licensed product and this alone is an innovative development.
The fund shares are available exclusively through the Exante Hedge Fund Marketplace platform. It is authorized and regulated by the Malta Financial Services Authority. Exante’s Bitcoin Fund is available with an initial minimum subscription of $100,000 and a 0.5% upfront subscription fee. US persons and US institutions haven’t access to the fund directly, as the Fund Disclaimer elaborates: “U.S. Persons may not subscribe either directly or indirectly for shares.”
Exante was founded in March 2011, and the 60-person Exante team operates from offices in Malta, Singapore, and Russia.
The fund was incorporated into a Bermuda exempted company and is registered as a segregated account company receiving funds at Citibank London. The Bitcoin Fund’s web site states:
“We are the first fund that invests in core-level infrastructure of the new generation economy. We invest into Bitcoins. In 2011 internet transactions volume exceeded $500 billion. We believe that to win you have to be at the cutting edge. Bitcoin, based both on common and new technologies, is a perfect extension to traditional currency.”
The Bitcoin Fund currently manages $3.2 million and there is no performance-based fee. The fund does charge an annual management fee of 0.5% of Net Share Value payable monthly in order to maintain security and wallet management. Funds are secured by a private key that itself is AES-256 encrypted. Post-export of Bitcoin private keys from wallet.dat file, data is stored in a TrueCrypt container on three separate flash drives.
Exante uses Shamir’s Secret Sharing algorithm, and the container password is split into three parts using a 2-of-3 secret sharing model.
Physical security and electronic security are joined, as each flash drive from various manufacturers is copied several times and, together with a CD-ROM, is vaulted in a bank safety deposit box in three different legal jurisdictions.
Each location stores only part of the key, so if a single deposit box is compromised, funds are not necessarily lost. Exante publicly uses no leverage or derivatives to manage risk. Exante intends to provide a two-way secondary market for the trading of fund shares.
Donate to WikiLeaks
By the 600 day mark into the financial sanctions against WikiLeaks by Bank of America, VISA, Mastercard, PayPal and Western Union, which eliminated 95% of Wikileaks’ revenue, Wikileaks had accumulated more than 1,100 bitcoin donations since the blockade began. What’s likely, however, is that the amount in donations is even higher, as the aforementioned figure cannot include private bitcoin addresses WikiLeaks provides for donors upon their request.
As can be seen at the public Wikileaks Bitcoin Address, the donations are modest. Although Wikileaks has been accepting the dominant financial system’s payment schemes again, there is very little keeping the leak-service from going all bitcoin.
Here is Wikileaks public Bitcoin address: (http://blockchain.info/address/1HB5XMLmzFVj8ALj6mfBsbifRoD4miY36v)