Market Transparency

Since the early beginning of Bitcoin there have been many initiatives to start online Bitcoin exchanges. These Bitcoins exchanges have been through rough times with legislation, uncooperative financial institutions and computer hackers. Several were forced out of business.

This volatile environment makes it an even greater challenge for the exchanges to be trusted by the people to deposit funds on their trading accounts. As a result the exchanges have become very transparent about their business model, the market depth and clearing price. This suits well with the nature of the Bitcoin system, where the full transaction history is available for everyone and the software is open source.

Because so much data is publicly available for free, it is an interesting source for analysis and visualization. Many of which are not possible, or only with expensive trading data services, in the traditional financial world.

One example of a radical different way of visualizing the ongoing process of reaching the market equilibrium can be seen on the webpage http://www.mtgoxlive.com. This page shows the near real-time development of the bid-ask spread and the last clearing price based on the full bidding ladder of the MtGox exchange. It gives insight on the robustness of the current price levels and the direction the market is moving. At the same time it helps to understand that the market ticker only shows the result of the last trade and the possible delta price that a next trade will create.

An alternative example is the market depth graph on http://www.happycoins.nl/market. This graph also shows the near real-time spread in Euro of the MtGox exchange, with the average Bitcoin price depending on the size of the trade. When trades become larger, also will the spread, as is very visible. Often a series of small trades make a better average price than one big trade, even with a higher commission.

Transparency is the base of a good functioning market, and the Bitcoin markets show a great amount of transparency even without the need of a regulatory body.

Inge

The Renewable Bitcoin Miner

In the arms-race of Bitcoin mining solutions one of the key performance indicators is the amount of Bitcoins per kWh of used electricity. This impacts both the environmental as well as the financial bottom-line. The electricity tariffs in Europe differ per country, but including taxes averages above the 20 Eurocents per kWh for residential consumers.

Last decade several technological and logistic breakthroughs resulted in wind turbines and solar panels that can produce electricity for an ever decreasing price. With the ongoing developments the coming years the renewable electricity price on windy or sunny locations will be lower than any conventional alternative.

The best locations for renewable energy production are generally very remote from the location where energy is consumed. Wind turbines produce most in the middle of the sea and solar panels are preferably deployed in the desert. In such cases the overall costs of the renewable energy is mainly determined by the costs of the physical grid connection.

Maybe the business case can be made for not connecting this remote renewable production to the grid at all, but to use the energy locally in a Bitcoin mining rig! On the one hand it would reduce the use of conventional energy on residential Bitcoin mining and on the other it will enable utilization of top renewable production locations, which are too remote for grid connection.

On another account, the first solar panel retailer is accepting Bitcoins as payment option: http://www.gogreensolar.com

Green Bitcoins?

Inge

(The electricity used by www.HappyCoins.nl is produced by wind and solar power)

How to Get the Bitcoins Moving

The current total market cap of Bitcoins is around 250 million Dollars. This number is relatively meaningless however and a much more important number is the number of times that a currency turns over.

The number of Bitcoins in circulation cannot be altered like with fiat currencies; the growth of the number of Bitcoins is mathematically determined by the mining algorithm. Since the gross domestic product equals the money supply times its rate of turnover — something economists call velocity — this means that if the money supply is unchanged the G.D.P. can only grow with a higher velocity.

Because of the rising value of Bitcoins, without a rising velocity, the risk grows of Bitcoins being treated as an investment object instead of a transaction enabler. If the number of transactions with the real economy doesn’t grow, the G.D.P. of Bitcoins doesn’t either, and does the system indeed represents a pyramid scheme.

In October 2012 the European Central Bank published a report concluding that the true impact of Bitcoins will largely depend on the number of active users, as well as the number of merchants willing to accept the virtual currency for real transactions. Here they are hitting the nail on the head. The breakthrough of Bitcoins will be the day when the mainstream web-shops add Bitcoin as a standard payment option next to the credit and the debit cards.

There are only a limited number of payment service providers that service the web-shops with secure payment solutions. The service costs for the merchant are typically a fixed fee and a percentage of the transaction. These fees are for most part based on the transaction fees the payment service provider has to pay to the banks or to global players like Visa or Mastercard.

In comparison,  Bitcoin transactions have an extremely low cost level combined with a very secure technology. On top of that Bitcoin transactions have a zero risk of chargeback – normally a pain point for the merchants – as with traditional credit card payment methods. This makes Bitcoins a very attractive payment method for web-shops. It also enables the possibility for micro-payments on digital services, which are not possible with the cost level of the traditional payment methods.

The day may come when the first major payment service provider is offering Bitcoins as one of the online payment option – with a much lower fee than the traditional methods – to their clients, the web-shops.  It will be a rather brave move, as there may be resistance from their traditional financial partners. But it could be the start of a game-changing trend. This is how the Bitcoins may get moving. 

After that the use of Bitcoins in the real economy could grow rapidly, increasing the economic velocity of the Bitcoins. With it the G.D.P. of the Bitcoin economy will grow, diminishing the risk of Bitcoins being an investment pyramid, but instead becoming the preferred online transaction currency.

Inge

http://www.ecb.int/pub/pdf/other/virtualcurrencyschemes201210en.pdf