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Paulo Santos
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I am a Portuguese independent trader, analyst and algorithmic trading expert, having worked for both sell side (brokerage) and buy side (fund management) institutions. I've been trading professionally for about 16 years and also launched www.thinkfn.com in 2004. Thinkfn (Think Finance) carries... More
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  • Bitcoin Is An Amazing Show Of Capitalism Strength 9 comments
    Apr 9, 2013 12:04 PM

    By now everyone has heard about bitcoin, the digital money anyone can create. Bitcoin prices have been on a tear lately in a surge of speculation. This surge began even before the Cyprus crisis but got much more media attention because of it.

    But this article is not really on how expensive the bitcoin has gotten, or how they might be some kind of alternative money or something like that. Instead, it's on something much more amazing. It's about how bitcoin showcases the incredible strength of Capitalism.

    Mining bitcoin

    To produce bitcoin, a user must solve a complex algorithm. Also, this algorithm gets increasingly difficult to solve.

    To solve this algorithm, programs were first conceived which ran on a computer's CPU (Central Processing Unit).

    Then, as people sought ever more efficient and faster ways to mine, miners started using the massively parallel power of GPUs (Graphical Processing Units) typically used for gaming to solve the bitcoin algorithm. This allowed for an order of magnitude improvement in speed and efficiency in mining bitcoin.

    Afterwards, the more enterprising miners turned to using FPGA-based (Field-Programmable Gate Array) systems. These are systems which use ICs (Integrated Circuits) which can be configured after manufacture for a given application. They turned out to be an order of magnitude faster than GPUs.

    However, it didn't stop there. A few even more enterprising companies went even further. They designed and produced systems based on ASIC (application-specific integrated circuits) chips. That is, these companies went as far as using chips designed specifically to handle part of the bitcoin algorithm! Why? Again to get more speed and efficiency. ASICs turned out to be as much as an order of magnitude faster than FPGA systems.

    The power of competition

    Given a task which was already being handled by fast computers and a money incentive, the bitcoin community, through sheer ingenuity and the clever use of technology, accelerated the process of generating bitcoin at least 1000 times.

    Such is the power of Capitalism and competition. It's this power that's at work every day in every sector that's open to competition.

    Conclusion

    More than being an alternative form of money or a safe asset, bitcoin is a display of the power of competition and the fruits it can bear when there's a decent monetary incentive.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Themes: economy
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Comments (9)
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  • Omer Altay
    , contributor
    Comments (351) | Send Message
     
    What's interesting is those special ASIC miners which mine at 1000x the rate of regular GPUs are now worth over $30K usd on ebay. Avalon sold them for $1,299 for the first batch and $1,399 for the second batch, but they're reselling for over $30k on ebay because it takes forever to receive them (due to demand).

     

    Bitcoins are remarkably fascinating. I've been following the scene for a while, Just wish I bought a meaningful amount of them earlier.
    9 Apr 2013, 12:58 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17873) | Send Message
     
    Author’s reply » Miners mining miners, eheh.
    9 Apr 2013, 01:04 PM Reply Like
  • Whitehawk
    , contributor
    Comments (3129) | Send Message
     
    Bitcoin was supposed to be a medium of exchange with a fixed supply (limited highly encrypted issues). The price action is showing instabilities reminiscent of manias (and what follows, crashes).

     

    Will ZH/TD get amazingly rich off this (witness all the ads in the last year for bitcoin miners on the site). That would require actually selling all bitcoins and miners here to a willing buyer at the going price for - you guessed it - other currencies.
    9 Apr 2013, 01:27 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17873) | Send Message
     
    Author’s reply » Yes, that might well be - but the part of it that is showing Capitalism's strength is the way miners got so much more efficient through the use of technological innovation and competition.
    9 Apr 2013, 01:53 PM Reply Like
  • Whitehawk
    , contributor
    Comments (3129) | Send Message
     
    Oh sure, no one is debating the merits of capitalism (at least I'm not, as an unfettered). The concept is novel. So is putting a dedicated FPGA or ASIC toward the task of high end NLP or similar thorny processing tasks. The mania in bitcoins and the scarcity of the highest end miners is yielding some nice returns for those who knew to get in earlier. But do they know when to take profits? My guess is that these miners will be obsolete soon. Care to make a guess how long this trend will last?
    9 Apr 2013, 03:14 PM Reply Like
  • Valueplay98
    , contributor
    Comments (580) | Send Message
     
    Got tulips ?
    9 Apr 2013, 01:41 PM Reply Like
  • Whitehawk
    , contributor
    Comments (3129) | Send Message
     
    Heh, bitcoin crash about a few hours after this discussion. One wonders who took profits at the top.
    10 Apr 2013, 05:30 PM Reply Like
  • Omer Altay
    , contributor
    Comments (351) | Send Message
     
    Bitcoin hit $260 for moment, but was averaging $230 for the day, then crashed to $105 low on decent volume due to DDOS attacks / problems on the main exchange - now it's quickly recovered back to ~$200. Quite interesting to follow.
    10 Apr 2013, 05:32 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (17873) | Send Message
     
    Author’s reply » Yes. Bitcoin itself is an obvious bubble.

     

    However, the activity it brewed, the increased in efficiency generating it,. that's quite amazing and provides a great statement.
    10 Apr 2013, 05:55 PM Reply Like
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