Dark Wallet making waves
There's a cover story at Wired today about the Dark Wallet software that aims to completely anonymize transactions. Built on top of bitcoin, Dark Wallet merges transactions through a method known as CoinJoin, making it impossible to trace the destination of funds. The creators state that the goal of Dark Wallet is to make bitcoin transactions completely anonymous.
I like Dark Wallet because it is built on top of the bitcoin protocol. Darkcoin, an alternative system that aims to accomplish the same thing, is more centralized (it has masternodes). Darkcoin also suffers from the simple fact that it is an altcoin, which is reason enough to believe that it is unlikely to succeed.
Dark Wallet's success is more likely, because it theoretically could be used interchangably with the existing protocol. Since money flows over bitcoin and there are no colored coins representing larger values, a Dark Wallet coin is worth the same as a bitcoin. Should people start to use Dark Wallet, I predict that the Dark Wallet protocol becomes implemented by all major providers within a year of that. Should that happen, Dark Wallet will eventually become the default protocol, since traditional bitcoin has no advantages over Dark Wallet (who doesn't want to protect their privacy?) We could see it integrated into the reference client, just as the reference client uses new change addresses now to protect privacy. Ironically, the only use the non-Dark Wallet protocol would have then is for transparency purposes like proofs of reserve and huge bank transfers, so that straight bitcoin suddenly goes from the evil anonymous currency to the transparency enforcer.
Pay attention to Dark Wallet. Because it is not an altcoin, and because it is so interchangable with straight bitcoin, it could eventually become the standard protocol should people start using it.
The difference between good news and actual products
I wonder if some of the discrepency between actual prices and the amount of good news that seemingly appears is because much of the good news is not actually what it seems. I was surprised to discover this morning, for example, that 1-800-flowers isn't actually accepting bitcoins. They only announced that they will be doing so later in the year, which adds them to a string of companies which stated they would be accepting bitcoins but turned out that only a small segment of the business was doing so, or that these companies' bitcoin acceptance wasn't live yet.
It's also worth considering that many press releases have no real product behind them. Circle, which issued a release in mid-May, said that they were going to allow people to buy bitcoins with a credit card for no charge. Two months later, we have yet to hear a single person who has been accepted into their beta testing program.
Therefore, I propose that one reason that good news has little effect on the markets is that it isn't actually good news. Perhaps the big time investors who actually make a difference see through the press releases more easily than the people on reddit do.
Why go bearish so early?
Some people questioned why I would have a negative outlook on bitcoins several weeks before we can confirm that this bubble cycle failed to launch. After all, the expected time that this bubble would peak isn't close to arriving yet.
Over the past year, market movements have tended to occur about 10 days before the majority of people on reddit believed that they would happen. You can see this correlation in the crashes and rises last November pretty clearly. I've predicted that things aren't turning out the way many people believed, and that such an outcome would likely produce a downturn (but not kill bitcoins). Because things happen often happen before everyone believes they will, I would imagine that the fallout would occur before the expected timeframe of this bubble elapses.
On the New York regulations
Much has been made about how Benjamin Lawsky's proposed regulations will have a significant impact if they are released in a few weeks. I predict no impact at all.
First, any regulations that are released are not going to be final; they still need to be discussed and approved. Therefore, companies will not be able to act upon them without fear of the rules changing before they are finalized months from now. Second, these regulations were to have been completed several weeks ago, and are still outstanding. As people in /r/bitcoinmarkets say, it's always coming "in two weeks." Finally, even if these regulations were finalized two weeks from now, there aren't any companies ready to pounce on them. Other regulations like money transmitting licenses, and simply not having the software ready, are greater hindrances at this point to these companies.
Lawsky's regulations are important, but the timeframe in which they will have an effect is going to be drawn out well into the future. When they are finally approved, there probably wouldn't be much splash, since the splash always is made on the initial announcement. Their approval will set the stage for growth, but not until they are finalized and the companies are ready to go.
Litecoins are like bitcoins of the altcoin world
It occurred to me recently that people separate cryptocurrencies into two areas: bitcoins and everything else (altcoins). In some ways, altcoins can be separated into litecoins and everything else.
In these contexts, bitcoins and litecoins share many characteristics. Both were the first, and most widely used, in their fields. Both use proven algorithms and provide a barebones framework, rather than attempting to experiment with extra features like anonymity or using 6 algorithms. Both serve as a reserve currency against which other cryptocurrencies are measured. Both have established uses that people need to hold them for to conduct real commerce. And both can be traded directly for dollars.
This is why I do not believe that litecoins are going away. The idea of "silver and gold" is not a misdirection; the simple fact that litecoins are worth less than bitcoins has made them valuable in a number of instances where eight decimal places of bitcoins is not granular enough. Just as bitcoins' most important attribute is their network effect, litecoins have a smaller, but similar network effect. Convincing people to switch out litecoins for Darkcoins or whatever flavor of the day comes up next will be just as difficult as it would be to convince people to drop bitcoins in favor of some other currency.
Uses for the sockpuppet accounts
It's worth paying attention to flairs in /r/bitcoinmarkets for unusual activity. One thing those sockpuppet accounts could be used for is to influence the bulls-to-bears ratio. In yesterday's comment, I referred to the "weighted bulls to bears ratio," which is a better metric that minimizes the effects of such accounts.
Other
- Hopefully people will understand that I'm going to ask /u/Kibubik to take a stronger hand against rule #1 ("be excellent to each other"). Most people are fine; my concern is the posts that are engaging in namecalling. I was called enough names in middle school to deal with it, but the problem is that when someone calls me names, it sets a precedent that it's OK to call other people names, and generally brings down the quality of discussion. I would ask that people word their responses so that they criticize the content of my or others' posts, and avoid unnecessary attacks that are not relevant to the current discussion. Since I do not delete posts in these comment threads, Kibubik will make the final call on what he considers inappropriate.
- Days until July 24: 13