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On April 10, 2013 I was watching the live trading of Bitcoin at bitcoin.clarkmoody.com and saw the high was $266. Then I watched it go down, and down, and down faster, and down even faster, then faster still….$250….$240….$210….$190…..$160……$150……$105. It actually traded from $260 down to $105 within just a few hours. It seemed a full meltdown was underway and there was no telling where it would bottom. But why?

At first it was reported that the Mt. Gox exchange and Bitstamp exchange were under attack called a DDoS attack. This stands for Distributed Denial of Service. There are many different forms of DDoS but the  nutshell explanation is that a website, network, or computer become so bogged down by so many computers trying to access it that it is no longer functional for real business. It reminds me of a Jack-In-The-Box restaurant on the beach in California. It had the only restrooms around and on a hot summer day, there would be 1,000 people crowding in and around this Jack-In-The-Box with the only intention of using its restrooms, not to buy food. If you actually wanted to by food you had to fight your way to the register. That’s essentially what a DDoS attack is. The website is still functional but all of the extra traffic coming in prevents it from doing its real job. A DDoS attack is usually initiated from an illegal botnet. A botnet is a collection of computers infected by a virus or other type of malware that allows someone, somewhere, out on the Internet, to take control of those computers at will and make them do his bidding, like attacking a website. I don’t know if people do this for fun, revenge, or if there is monetary gain, but they are a real nuisance affecting many businesses on a daily basis. There are steps a company can take to reduce its chances of an attack or loss of service, but it is impossible to completely eradicate DDoS attacks as long as people let their personal computers become infected. Unfortunately, too many people are running without sufficient malware protection, do not take proper precautions against phishing, Trojan Horses, or keep their systems updated with the latest security patches.

Any website is ultimately vulnerable to a DDoS attack. A large number of large companies with large IT departments have been attacked this way. Large banks, Amazon.com, the New York Stock Exchange and NASDAQ, even the US Department of Defense, have all been attacked by DDoS. So Mt. Gox is not entirely to blame for being the victim of DDoS. However, it should be standard operating protocol that the exchange shut down the minute it knows it is under attack.

As the price was dropping I noticed a point where it seemed to somewhat stabilize at about $150. I could see the number of outstanding orders of asks and bids and noticed the price was fluctuating wildly but there were very little open orders near these prices and the spread was huge. I saw that the lowest ask was $155 and the highest bid was $105. I figured if I could sell at $150 I ought to get sold right away and I could immediately put in a bid for $110. If these transactions go went then I would be able to turn my 14 bitcoins into roughly 19.75 very easily. So I put in the sell order. It sat in the open orders queue but did not get filled, even though my ask was apparently lower than anyone else. Then I noticed the price dropping even lower down to about $136. I tried to cancel my ask of $150 but it wouldn’t go through. Now I was panicking.

Thankfully, my ask was eventually cancelled and, luckily, I did not sell at $150 and I still own my 14 bitcoins. But this is exactly what was going on throughout the day with all sellers and buyers and really threw a monkey wrench into the whole trading system. There wasn’t actually anything wrong with the fundamental value of bitcoin based on public demand, but rather a loss of faith in the exchange causing panic selling. The extreme lag was causing wild fluctuations in the price, people got scared and put in sell orders. Those sell orders did not go through right away and some got hung in the system. Low bids started getting filled and there didn’t seem to be anything anyone could do about it.

I am writing this the day after the attack. Mt. Gox has now stated that the initial problem was not a DDoS attack but simply a case of too many customers. They state that in the entire month of March, 60,000 new accounts were created. But in just the first few days of April, 75,000 new accounts have been created. And they say that 20,000 new accounts are being created daily. They claim their system reached a point of critical mass and lag times increased, causing the panic. As a computer guy, I can see how something like this could happen. If a server has enough memory, then adding a few users, or even a few thousand users, won’t really cause too much of a slow down. But as soon as the line of not having enough memory is crossed, the computer starts using the hard disks as overflow memory. The hard disks are many thousands of times slower than RAM and the system now has to try to move memory back and forth between RAM and hard disk. This is called “thrashing” and once it starts it is a disaster. I have seen this happen before in my real job. It is likely that Mt. Gox saw it coming but, because it came on so fast over just a few days, they may not have time to come up with a strategy to deal with it and schedule the downtime to implement the fix. However, if what Mt. Gox says is true, then that is a very good sign for Bitcoin and shows that there is incredible demand, which should continue to drive the price upward.

This morning, Mt. Gox’ website is very slow and, apparently, they now admit they are under a DDoS attack. Go figure.

All of this underscores the biggest vulnerability in the current Bitcoin system. It is not the mechanism of Bitcoin that is bad, but the method by which they are bought and sold. It is very likely that if Mt. Gox continues on this path and cannot meet the demand that a new company will quickly emerge as the “largest and most trusted exchange”.

In the meantime, no one really knows the true value of Bitcoin. My opinion is that we are definitely in a speculative bubble. Prices are either higher than the true value of Bitcoin at this time, or they are rising faster than they should. This is not necessarily anything to worry about unless you are a day trader. Bubbles happen all the time in commodities trading and Bitcoin is affected the same way. In 2007 for example, the price of crude oil went from around $65 to around $140. Then in 2008, it dropped to around $45. An event may trigger a rise in price, such as a revolution in Libya, but investor greed will drive the price much higher than it should. Then at some point, the price gives way and panic sets in driving the price down to even below where the bubble started. Today, oil is back up to around $110, far above the bottom of that bubble, yet far below the peak.

I bought my first home in 2001 for $260,000. In 2004, I sold it for $460,000. It sold again in 2006 for $605,000. I knew in ’04 that we were in some kind of bubble but that bubble did not burst until several years after that. There is no telling how long the Bitcoin bubble will go on, or if it burst yesterday and found it’s true current value of around $160. Don’t get caught up in the bubble mania. Don’t quit your job when Bitcoin goes up to $1,000 and you own a few hundred of them. And don’t panic when Bitcoin drops to $20. In fact, if it ever gets down to $20, I am buying as many as I can. That is unless, of course, something real drives it down such as the US government declaring Bitcoin illegal or some other real world factor. But if it is strictly a matter of speculators driving the price based on fear/greed, then I would buy.

If you do decide to buy on the way up, say at $200, don’t do it because everyone else is and you want to cash in too. This is what pyramids and ponzis are all about. When you buy, do so because you believe in the fundamental value of Bitcoin. Know that the price may drop to even below $200 but it is likely the price will bounce back even higher and that in the long run, you haven’t gained or lost anything until you’ve actually sold.

The current bubble is doing Bitcoin a favor. It is drawing worldwide attention to Bitcoin. That is what is needed more than anything right now. The public needs to start using it, smart people need to start coming up with new ways of getting and using Bitcoin, increasing demand for it, and the true value of Bitcoin will soar on its own. We are still very much in the beginning of the Bitcoin Revolution. Opportunities are staring us in the face. All we need to do is act on them. Even the smallest gesture like buy just 1 whole bitcoin could change your life in just a few short years. That’s not much to risk losing at this point, but the gains would make it all worthwhile.

 

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Hopefully by now you’ve figured out some way of storing your bitcoins and you’re now ready to buy some and put them in your wallet. Unfortunately, this is the hardest part. Bitcoin is still a new technology. There are challenges that must be overcome. However, as more people show interest in Bitcoin, there will be others that find ways to overcome those challenges. I have to admit that I am no expert when it comes to buying bitcoins.  I will tell you what I have done and my experiences with that, and I can tell you what I’ve read and learned from others. But you will need to figure out what works best for you and what you’re comfortable with.

I first learned about and wanted to buy bitcoins back in early February, 2013. At that time they were trading for just over $20. I looked into it and found that there were so many options and costs with each one. I had no idea which was the way to go and I hesitated. Over the coming weeks, I watched the price rise steadily….$22…..$23…..$24………..$30, and I was wishing I had gotten in at $20. Things seemed to stabilize at $30,though, and I figured prices would come back down and I could get back in around $20. I wasn’t in too much of a hurry anymore and continued trying to learn what I could about Bitcoin before I decided to buy. Then, all of a sudden, the banks in Cypress shutdown as the Eurozone declared economic war on Cypress’ bank depositors. Cypress was a tax haven for many Europeans and wealthy Russians, similar to what the Cayman Islands are to the US. This was a big deal and the price of Bitcoin began soaring as people started looking for a safe place to store their wealth free from banks and government control. Overnight, the price began soaring….$40…$50….$75….$90. It was at this point that I decided I had to get in, no matter what.

First thing I tried was using BitInstant (www.bitinstant.com). Supposedly, you could use their website and tell them how much cash you’re going to send them. Then they’ll give you a code, which you can take to any number of retailers (CVS Pharmacy, for example), then give the cash to the cashier and, Voila!, you’d have a cash account at the exchange of your choice where you are now free to bid, or you could have them in your email based on the current market rate. I understand the part about the exchange, but I have no idea how you get bitcoins in your email. So I thought I ‘d try sending $1,000 to the exchange Mt. Gox (pronounced “Mount Gawks”). It’s difficult to tell from the website how much this would have cost me. One page says 1.29% and another says 3.99%. At that point, I just wanted to get in the game so I wasn’t going to quibble over a few percentage points. I put in all of my information on their page but the website didn’t seem to work. I kept getting errors stating that I could only deposit up to $1,000, which is what I was trying to do anyhow. So I tried again, this time specifying only $500, but still got an error that I could only deposit up to $1,000. I tried this for over an hour and eventually gave up.

Then I went to Coinbase (coinbase.com). I thought I read somewhere that you could buy from them. I set up an account on their website but couldn’t really figure out what I wanted to do there or how it worked. I thought perhaps Coinbase was nothing more than an online wallet service. I’m still not sure. So I moved on.

The Bitcoin wiki says that Mt. Gox is “the largest and most trusted exchange” out there so I went straight to them and decided I would cut the middle man out. I created an account and sent them a wire transfer through my bank. The bank told me that an international wire would cost $45 if sent in US dollars and $35 if sent in a foreign currency. Mt. Gox said to send the wire transfer to a bank in Japan so I went ahead and sent them yen. The receiving bank also charged 9,000 yen for the transfer so the whole thing cost me about $44. I wired $1,500 to my new account so the deal cost me roughly 2.9%. If I only sent in $200 that would have been a very pricey option. However, if I was to send something like $20,000, it would be a very cost effective way to go.

I sent the transfer on a Thursday, early in the afternoon. My bank sent the transfer out later that same day. I received confirmation that it was received in Japan on Friday but Mt. Gox is closed on weekends and they are almost a full day ahead of me here in the US. It wasn’t until late Monday morning (4 days later) that I was able to see all the yen in my new account for which to bid on bitcoins. At the current rate that bitcoins are rising, 4 days could make a huge difference in the amount you’re able to purchase.

The exchange allows you to make a market order, meaning that if the current lowest ask price is $100, then that’s what you’ll pay. At this time they were trading at about $95. I figured they would come down a bit so I put in a bid at $90. All day long, they never came down. In fact, they went up to over $110. Now I really didn’t feel like making a market order when I could have done so for $15 less just a few hours earlier. So I put in a bid at $103 and went to bed that night. The next morning, I had just over 14 BTC in my account and the price had jumped to $130. I was relieved. As I write this, the market price is $263. I have more than doubled my money in less than two weeks.

So what are your options for getting in? I cannot advocate any right way to do it. You could try the bevy of websites out there like I did and try one for yourself. You could try to start small, but depending on the method you use, that may be very expensive. Also, if you’ve decided that $250 is still a bargain and want to buy, while waiting a week as you figure out your best option, the price could jump to $400.

If you don’t want to go that route, you could try buying them locally. I did learn of a website called localbitcoins.com. I can’t tell you if this is “safe” or not, but it allows you to connect with sellers and drive to someone’s house or meeting place and transfer cash for bitcoins on the spot. You are not going through an exchange and the price is whatever the seller says it is. It looks to me that most sellers are selling at several percentage points above spot (the current ask price), as high as 10% over. There are also local sellers on Craigslist and other websites too. I would be very nervous doing this with very large transactions. Would you feel comfortable carrying $10,000 to someone’s house or meeting place? Is it possible that this person, who already has established that you’re bringing a lot of money,  has some hired muscle waiting for you to take your money and has no intention of giving you the bitcoins promised? Use extreme caution when using this method.

Mining was once a possibility but I do not think it is practical for the average person to get into it at this point in the game. Bitcoin mining is the means of using your own computer resources to solve the next block in the blockchain. If successful, you will receive a bounty of newly created bitcoins (at this point I believe it is 25), plus any transaction fees that have accumulated in that block. The transaction fees come from small contributions the senders voluntarily make per transaction. You have the choice in your wallet to specify how much transaction fee you’re going to donate. If you do not contribute any transaction fee at all with the bitcoins you’re sending, there is a chance that the mining node completing the next block chain will not process your transaction. It might still get processed in the next one and should get processed eventually, but submitting a small, token transaction fee helps to ensure that your payment gets processed in a timely manner. At this time, there are too many people out there with far more computing power than you’ll be able to get your hands at a reasonable price. So your chances of completing the next block in the chain before the big guys is next to impossible. So it is unlikely that you would want to set up a mining operation for yourself. I only mention this in case you ever hear about mining as an option for acquiring Bitcoin.

Another option for getting bitcoins is to exchange something, other than money, for them. That is the whole point of Bitcoin, after all. If you already have a website or some sort of business, you are free to start accepting Bitcoin in lieu of cash. More and more websites are starting to accept them. I just read about a bar in New York that is accepting them. Imagine if you could charge you customers 0.1 BTC for a few drinks and a burger. At the current rate of $250, 0.1 BTC equates to about $25. But in a few days, that $25 worth of bitcoin could be worth $40. It makes a lot of economic sense to accept Bitcoin as payment if you’re a believe in the growth potential of Bitcoin.

You could also try selling your own stuff for Bitcoin. Many people are already starting to sell their own stuff on Craigslist and accepting Bitcoin as payment.  Bitcoin itself is money so you ought be able to use it as such. The only problem I see with this, and one of the biggest problems in the current Bitcoin economy is that it is currently so volatile. If you put an ad on Craigslist, for example, that you’re selling your Porsche for 500 BTC and the current trading price is $250 (500 x $250 = $125,000) and a few days later, when someone finally offers to buy and the price of Bitcoin drops by $100, you would still be morally obligated to accept those 500 bitcoins (500 x $150 = $75,000) and you’d take a huge loss. If you were to try to acquire bitcoins this way, I would recommend you do not specify an exact number of bitcoins that you’re looking for, but instead say you’ll be selling at current spot price based on Mt. Gox. Try http://preev.com to use a realtime calculator for this. I typed in $125,000 on the right and it showed 502.2 BTC on the left.

As you can see, there are many options out there. It is important to remember that Bitcoin is a new currency and should be treated as such. If you were planning a trip to Europe next week and wanted to get your hands on some Euros, how would you do it? If you came back with some Euros and wanted to convert them into US Dollars, how would you do it? Bitcoin faces these same problems. This will get easier, though, I promise. As long as people are using them and demand is increasing for Bitcoin, some smart people out there will find ways of making the whole process better. But by then who knows what the exchange rate will be. The early adopters and the ones that put up with the current mess of things are the ones who will reap the largest rewards. Remember, if you put in $100 into Bitcoin the most you stand to lose is $100. But the amount you can gain is limitless.

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OK, so now you know we are in the beginning stages of a technological revolution. You understand that Bitcoin is both a store of wealth for some, and a new means of currency for purchases in a way never seen before. Therefore, Bitcoin is very similar in many ways to gold, and very similar in many ways to cash. It is like a digital hybrid of the two. And, hopefully, you realize that the potential for growth in the value of Bitcoin is astronomical at this stage of the revolution. Hopefully, by now, you’re thinking you might want to get started. So how do you actually go about getting into Bitcoin then?

First you need to understand the mechanisms that Bitcoin uses. Bitcoin does not exist in any one place on a single server somewhere. It exists in the cloud and is what is known as a peer-to-peer network. There are Bitcoin nodes out there doing the work to ensure that the next blockchain gets finished. There are rewards for finishing the blockchain so there should always be nodes out there doing the work. The blockchain is the public record of all transactions. The system is designed such that it takes roughly 10 minutes for each blockchain to be completed, regardless of the number of nodes solving it.

OK so maybe that was a little more than you need to understand but what is important is that your “wallet”, after you create one, exists somewhere in that blockchain and the whole network agrees on its contents. Your wallet is known only to the network as a long string of letters and numbers. This is known as the public key. Anyone in the world with the proper knowledge can see that wallet, see its contents, and trace every transaction that wallet has ever made. But that wallet is not linked to any individual. It is completely anonymous. No one is allowed to actually conduct any transactions using that wallet without the private key. Whoever controls the private key, controls the wallet.

The private key  is something you own and should be very protective of because with it anyone could spend the bitcoins in the wallet it and do so anonymously. It is important to think of Bitcoin just as you would cash in this regard. If someone had access to your physical wallet, they could spend your cash and there would be no way to trace it. The way it works is with cryptography. The private key decrypts the public key. It would take many millions of years for a single one of today’s computer to decrypt the public key. The private key could be known or shared with multiple people (or computers) if you wished.

A public key/private key pair might look something like this:
Public key (SEC, 65 bytes): 04de83c2785c28e0d74ce0ac14fc9a4f63a450ca698af429ef5af7116dc4eb5cf14483092ff230bd7fc3665aad60c497b0d51830cce5528203112d0a98749ef5da
Private key (DER, 279 bytes): 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

That’s a pretty long string of numbers and something you’re very unlikely to ever remember. But, because it exists on your computer (or smartphone), you will not ever need to remember either of these numbers. When you want someone to send Bitcoin to you, you would send them your public key by copying to your computer’s clipboard or, in the case of a smart phone, you could show them your QR code that your phone generates for you. They could then deposit bitcoins into that address. Only you, with your private key, would then be able to send money out of that address to someone else’s public key. So keep your private key private. You do not ever need to have your wallet open or be ready to accept bitcoins. They are sent to the network so you only need to open the client when you want to view the balance in your wallet or send money back out.

Now that you have a very basic understanding of the mechanism of how Bitcoin is sent and received, the first thing you should do is to set up a wallet or two. There are three ways to set up a wallet: on your own PC, online on someone else’s website, or on your smartphone. Each has its own risks and advantages over the others so let me give you a brief rundown of each:

PC Wallet

To use a PC wallet you would need to install a Bitcoin client program (https://en.bitcoin.it/wiki/Clients) on your computer. When the client first runs, it will want to download and process the entire blockchain. This may take a few days, depending on the speed of your computer. So make sure that your computer stays on and does not automatically shutdown due to user inactivity until the synchronization is complete. Some clients do not download the entire blockchain and instead download an already synchronized database from a website. This may not be as secure as doing it yourself. I also think that in the near future, changes will be made to make this process better. It is also important to note that the process of synchronization is very taxing on your hard drive. If your hard drive was near the end of its life, this process would bring it that much closer to its end. Be sure, as any good user should, to have backups of your PC before attempting this.

After you have initially synchronized, which may take days, the next time you open your client you will need to re-synchronize, but only the amount of blocks in the chain since the last time you synchronized your client. A new chain is created about every 10 minutes or, approximately 144 per day. So if it has been a month since you last synchronized, then you will need to synchronized about 4,300 new blocks. This may take a few minutes or even a couple of hours, but it will not take nearly as long as the first time you synced. Having said that, the client, once synchronized, does not put much stress on your computer so it wouldn’t hurt to leave it open all the time.

Once your client has installed, it should already have created a public address for you. It is possible to use this address right away for others to send bitcoin to but you wouldn’t be able to actually use it until your client was synchronized with the blockchain. I would strongly recommend that you wait until your wallet is set up and backed up before attempting to use it. If your PC were to crash right in the middle of synchronization but you did not have a backup of your wallet, there would be no way to retrieve any of the money that was sent to it and it would be lost forever. There is no tech support for Bitcoin for something like this. There is no one to call to reset your password or give you your username. You are completely on your own.

Your client will create a wallet file for you. These names may vary but one client, for example, will create a file called “wallet.dat”. This is the important file, the one that can access the wallet and spend the money, and the one you want to protect. The file will likely itself be unprotected upon installation. Some clients will enable you to encrypt it within the client and some clients do not have encryption built in so it would be necessary to use another program to encrypt it. I strongly recommend that you encrypt this file because if it falls into the wrong hands, your wallet would be cleaned out. This file should be relatively hidden, not stored right on the desktop for all to see. Do not name the file joes_bitcoin_wallet.dat. Even wallet.dat is probably unsafe. I would recommend you create a new wallet with a more obscure name like grocerylist.dat or something that does not scream “Hey everyone! This is a bitcoin wallet”.

After creating the file and hiding it, you should encrypt it. Encryption works by creating a key or passphrase. This key needs to be supplied anytime someone attempts to access the file. You can use anything for a passphrase and it can be any length. You can use 4 digits if you want, although this would be relatively unsecure. Or you can use a phrase you can remember such as, “my dog is named spot”. Probably the safest thing you could do is to create at least 12 digits of random numbers and letters (lower case and upper case letters count as two different types of characters so be sure to remember your case) and store this somewhere safe. Symbols, such as percent signs, exclamation marks, etc.  can also work but sometimes certain symbols can cause problems so I would stay away from them, altogether, and just stick to a combination of numbers, upper case, and lower case letters.  Again, do not put it right on your desktop and name it “Bitcoin Wallet Passphrase”. Bury it someplace in your computer in an obscure location, not in the same directory as your wallet or your bitcoin client, but in a place you know you will remember.

It is important to know that even though your wallet is now encrypted, it could still be decrypted. Just like it is possible to put something in a safe, it is still possible for someone out there to break into that safe. Therefore, just like a safe, you should keep it hidden and do not advertise to anyone that you have one in the first place. It is extremely difficult to crack strong encryption, though. Just know that it is possible with enough computing power and the know how to do it so keep it safe and secure.

Finally, you will want to have multiple backups of both your wallet and your passphrase or encryption key. The wallet is strictly a digital file. You can rely on whatever form of PC backup you have but you should also store it someplace off your computer as well. You can copy it to an inexpensive USB thumb drive and store the thumb drive in a safe location in your home, or even a safe deposit box. You can also easily email it to your online email account. Just make sure that the email itself looks inconspicuous and does not tell the world that this is a bitcoin wallet. Another thing you can do with files to protect them is to rename them. For example, you may make a copy of the wallet file but call it Backstreet_Boys.mp3. If anyone somehow acquired this file, they would have no reason to think it was a Bitcoin wallet. All you would have to do when you want to use it is rename it back to its original name and it becomes usable again. Your passphrase should also be backed up. But, since this is much smaller, you could back it up on paper. Print it on a piece of paper (Make absolutely sure that if you write it down yourself that you are able to read it in the future. Do not draw a lazy 0 and make it look like a 6, for example.) Keep this piece of paper locked up in a safe location. You can include it on the thumb drive where you stored your wallet if, and ONLY IF, you keep the thumb drive secure. You can also email the passphrase to yourself. Do not send it in the same email as your wallet file. Use the same rules about obscuring it both on your computer and in your email. Remember that if you use email to send email, that there will be a copy in your sent folder. And if you delete that, it still may end up in your deleted folder. Try to keep as few copies around as you need to.

The most important thing now, is remembering where you stored all of this stuff. You don’t want to have to try to restore your wallet two years from now only to  forget where in your email you buried your file and your passphrase, or where in your home your thumb drive is, or what program you used to encrypt. You may also want to leave instructions in your Last Will and Testament so that after you’ve passed on, you can pass your bitcoins to a beneficiary.

Online Wallet

The online wallet is very simple in comparison to storing your own wallet. You simply create an account and password on some website and you’re good to go. You should not have to worry about backing up your wallet and the website is accessible from anywhere in the world. There are many online wallets companies, just do a web search for “online bitcoin wallet” to create an online wallet.

The biggest problem with the online wallet is that you are trusting another company with your money. Today you already do that with your cash but most countries have laws to protect your cash and ensure that those banks are as secure as possible. There may even be government insurance, such as the United States’ FDIC, in case the bank is hacked. But, currently, there are no such laws regarding Bitcoin and anybody with a little bit of knowledge can set up a website and start taking your cash, converting it into bitcoins, and managing your wallet. The bitcoin system is very secure by its nature but the website managing your wallet may not be so secure. There have already been reports of several of these websites being hacked and people losing their money. You should use extreme caution when deciding to use an online wallet.

There can be advantages, though, to having an online wallet. Just like some people may keep money in a bank account where it is relatively secure and withdraw small amounts of cash for use out on the streets, some people like to keep most of their Bitcoin money in their wallet on their PC where it is most safe and then transfer small amounts into an online account where it is easy to spend if you’re not at home or near your PC.

Smart Phone Wallet

You could also install a client for your Smart Phone and store your wallet on it. You must ask yourself what happens if you lose your phone. Could you get your wallet protected before someone cleans it out? Could you set up a new wallet when you get a new replacement phone and still access your old wallet? I haven’t actually set up a smart phone wallet myself so I will not try to answer these questions but they are the types of things you need to think about when deciding on a wallet. Try not to get too scared, though. You already store your cash in your wallet or purse and everyday you need to worry about keeping those safe.

So a smart phone wallet may be very useful for spending cash and smaller amounts of bitcoin, just like the online wallet. But I don’t think I could trust it myself, however, with several thousand dollars worth of bitcoin.

You can see that there is no simple solution to using bitcoin. It is probably safe to say that as time goes on, things will improve. The PC wallet is the safest wallet and, by far, the most complex. The online wallet and smart phone wallets are much easier to use but there are some very serious security concerns. You will need to figure out what works best for you but I would go and set up a wallet and familiarizing yourself right now. You cannot own Bitcoin without first having a place to store Bitcoin. When you’re ready, the next step is trying to go about actually acquiring Bitcoin. I’ll talk about that next and, unfortunately, at this time, that is not a simple thing either. But don’t worry, that process will improve too and those that suffered through the growing pains now will be greatly rewarded as Bitcoin gains in popularity and value.

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When you try to understand Bitcoin, you first need to understand money. Most people think they understand money. After all, they’ve been spending it their whole lives. But most people really do not truly understand enough about the money they spend.

For starters, a dollar bill is just a piece of paper. It has value simply because the government says so. The word “fiat” means exactly this: A formal authorization or proposition; a decree. The US dollar is a fiat currency, meaning that it is not backed by anything. It is merely decreed by the government that it has value.

It wasn’t always this way. There was a time when gold (and silver too) was the only money. But gold is rather heavy and burdensome to carry around. People started storing their gold in banks and the banks gave them back of piece of paper that said something like, “This $20 bill is redeemable for $20 worth of gold”. (The price of gold was fixed at $20/oz. for quite some time). So having the piece of paper, or note, was just as good as having the gold. So it could be traded with others just as if it was gold.

The first issue people have with Bitcoin is safety or security. But think about the old way for a second. People used to trade gold for goods and services until they started TRUSTING banks to store their gold in the banks’ vaults. But the people’s gold was not safe. Banks figured out that they could create more notes than they had actual gold in their vaults. This seemed to stimulate the economy. It was deemed legal and given the term “Fractional Reserve Banking”. A bank only needed to keep a fraction of the gold in its vaults because it knew that most people would never actually come calling for their gold. This all worked because the people had faith in their bank and in the system. But as soon as that faith is lost, and it doesn’t take much, the people would run to the bank and demand their gold. Obviously, the bank could not satisfy this demand and would shutdown, wiping out many peoples’ wealth. This “run on the bank” has happened time and time again throughout history, and yet remains the worldwide standard for money today. How “safe” is your money right now? It all seems OK, though, because we’ve been doing this since the day we were born. We were indoctrinated into the system and seem alright with it. It is “normal” to us.

To make matters worse, the dollar is no longer tied to gold. It represents no real value of any kind. A $100 bill is only worth $100 because someone else has been told it is worth $100 and willing to accept it. There is an artist named J.S.G Boggs. He creates fake money called Boggs Bills (Search for them on Google. They are truly pieces of art). They are not actually considered counterfeit currency, though. They only resemble currency but they are clearly not actual US backed currency. For example, a bill may have a portrait of Michael Jackson in vivid color instead of Ben Franklin. No one would confuse this money for the “real thing”. But what Boggs does with them is quite fascinating. He may paint a fake $100 bill and then try to “spend” it as 100 dollars. The way he does it is, he goes into a shop and finds roughly the same amount of goods as the denomination on the artwork he is trying to exchange. Then he walks to the counter and asks the cashier if he could trade his one of a kind artwork for the goods in his hands. Most of the time the store manager would simply say no because it is not money and they only accept money. Other times, however, someone might say something like, “Hey, that’s pretty cool artwork. I would like to own that. I would gladly exchange these goods for your art.” And, just like that – boom – money was spent because he found someone willing to exchange Boggs’ artwork for goods. But, because he did not ever try to pretend he was passing any “official” currency, he did not break any laws. The US dollar is actually congruent to the Boggs bill. It is merely a piece of paper with artwork on it. The difference is that people willfully accept this in exchange for goods or services. They do so simply because their government told them to.

So what is the point of all this? What does this have to do with Bitcoin? Well, as long as people are willing to accept it either as payment or as a store of wealth, then it will have value. At time of this writing, there are 10,991,700 Bitcoins in existence, or roughly 11 million. The current value of a single Bitcoin is approximately $133.90 US. So 10,991,700 x 133.9 equals $1,538,838,000. That’s just over one and a half billion dollars. This means that there is a value in the whole system of roughly 1.5 billion.

So who says that a Bitcoin is worth $140 anyways? Well, the Exchange does. The biggest one in the world and probably by now considered the standard Bitcoin Exchange is Mt. Gox (pronounced “mount gox”) at http://www.mtgox.com. This is a place where your currency, be it dollars, yen, rupies, denari, or whatever are exchanged for bitcoins. It is easier to visualize an exchange this way:  Imagine a room full of people. On one side you have the people who want, the buyers. On the other side you have the people who have, the sellers. In the middle you have a broker acting as the exchange. This is actually the way it used to be done. Eventually, the stock exchange got so loud that a system of elaborate hand gestures was invented to communicate between the buyers and sellers. You’ve seen these guys in the movies, such as Ferris Bueller’s Day Off. Today everything is done at lightning speed with computers but the concept is still the same. So let’s say a buyer informs the broker he wants to buy 20 bitcoins at $100. This is called his “bid”. The broker posts the current bid on the board but the sellers do nothing. So he cancels his bid and says he is willing to buy 20 bitcoins at $105 dollars. If a seller is willing to sell 20 of his bitcoins for $105 then that becomes the current price. At the same time, however, the opposite thing is going on with the other side of the room. Let’s say a seller had 20 bitcoins he’d like to sell at $100. This is called the “ask”. The buyers do nothing. So he cancels his ask and lowers it to $95. A buyer jumps up and says he’ll buy them. So now the price is set at $95 and the buyer exchanges his $95 USD for 20 bitcoins. At an exchange this happens all day long. There is constantly a tug-of-war between the bears and the bulls. One is driving the price down while the other is driving the price up. The price is set whenever a successful transaction occurs. There is a list of actual bitcoins for sell and the prices for each one and a list of people willing to buy X number of bitcoins and the amount they’re willing to pay for each one (bids). The broker or exchange just sits in the middle fulfilling these orders all day long, moving the price up and down as necessary to fulfill the orders. You can see this in real time at http://bitcoin.clarkmoody.com/. It’s very cool.

So when you see that the price is $140, that’s because that is what the market will bear. But what would happen if someone walked into that room and yelled “I’ve got a billion dollars and I want to buy as many bitcoins as I can!” What would the sellers say? “Sure! I’ll sell you mine at $25,000 each!” What would happen to the ask price? Conversely, what would happen if the government made a decree that exchanging bitcoins was considered a felony? What would the buyers say? “No thanks, I don’t think I want to buy your bitcoins and risk going to jail.” So the price (and value) of the bitcoin would plummet.

As it turns out right now, the price of bitcoins skyrocketed exactly at the same time that the Eurozone decreed it was going to steal the money out of the Cypriots’ bank accounts to pay for the government’s own bad investments in Greece. Immediately, fear took over and there was a “flight to safety”. People were looking for a safe place to store their wealth and they lost faith in the banking system. This drove up the price of Bitcoin as people dumped their wealth into it. Surprisingly, the Cypress fiasco had little to no effect on the gold and silver market. (Or perhaps it is not so surprising. I’ll talk about that another day.) But it should come as no surprise then to learn that much of the money pumped into bitcoins over the past few weeks has come out of Spain, where the Eurozone is keeping a close watch and the economy is in big trouble. What if the people of Italy, Ireland, and Portugal, all of which are also in big economic trouble all started looking for a safe place to store what wealth they’ve got left? If one and a half billion USD drives the price of bitcoin to $140, how much would these other countries dump into the system and what would the price be? If 100 billion was dumped into the system, then the price would have to jump to near $10,000 each for a single bitcoin. There is no telling how much money is out there looking for safety but 100 billion USD really isn’t that much money on a global scale. The potential is HUGE.

So far I’ve only talked about putting money into the Bitcoin system. This inherently increases the value of the currency. But what about actually using it? If people all over the world began to use Bitcoins then this would drive up the demand for Bitcoin and, consequently, the price. Next we’ll look at what Bitcoins actually do and how they work to understand the demand.

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If you don’t know about Bitcoin yet, you will. Very soon. Bitcoin was started in 2009. That was 4 years ago. I can see parallels between the growth and acceptance rate of Bitcoin and the growth and acceptance rate of the World Wide Web. Do you remember when you first learned about the WWW? I’m not talking about when you might have first heard that term, but rather when you came to an understanding of what it was, how to use it, and how it could benefit you.

The Internet was created back in the late 60’s. It was created by a branch of the military called DARPA (Defense Advanced Research Projects Agency) and was initially called the ARPAnet. It was used primarily by the military and by a number of universities that could afford the giant computers and telecomm equipment necessary at the time to access the ARPAnet. Email was one of the first applications of the ARPAnet that really gained steam and pushed it forward. Many people today use the terms Internet and World Wide Web interchangeably, but they are not actually the same thing. The WWW sits on top of the Internet and is only one of the many uses of it, such as email, cloud computing, smart phones, etc. It was invented by Tim Berners-Lee and was made publicly available in December of 1992 as a means of connecting servers and sharing read-only information available to anyone that could connect to the web. Most importantly, it used a system of “links” that could allow you to click from one web site to another, to another, to another. Hence, the term “web surfing”.

When did you first hear about either the Internet or the WWW and how long did it take until you were a real “user”? I can’t recall the exact date but I can remember that it was while I was working in the shipping department at Hewlett-Packard, which would have been in 1995, that I first heard the word “Internet”. A friend of mine told me that he was at a party over the weekend and all the people there were talking about this thing called “the Internet”. When he asked a girl what the Internet was she replied, in a very snooty tone, “You don’t know what the Internet is? Hmmph!”  And she walked away, as if he was stupid or something. I didn’t know what it was either but me, being the inquisitive and technical type person that I am, I had to learn more about it immediately. Luckily for me, I worked at Hewlett-Packard and I had access to a computer that was connected full time to the Internet. I didn’t even have to dial a modem. And boy was it fast! I stayed late every night after work for the next several months surfing the web and absorbing everything I could about the World Wide Web.

Some time around, I think 1998, a friend of mine, the last person you would’ve thought at the time who would have had anything at all to do with computers, asked me about the Internet. I tried my best to explain it to him but he just didn’t get it. “Why would anyone take the time to put information on a website or put up pictures of themselves?” he asked. I really couldn’t explain it to him but I knew the Internet and the World Wide Web were big and here to stay. Unfortunately for me at the time, I couldn’t see the big picture. I didn’t really get the true power of the Internet or, more importantly, how to use it for my own gain. I just surfed it. But some men like Jeff Bezos of Amazon.com, Mark Zuckerberg of Facebook, Steve Jobs of Apple, Pierre Omidyar of eBay, Larry Page and Sergey Brin of Google, and many more did get it. Today, myself, my less technical savvy friend, and pretty much the rest of the world have all jumped on the Internet bandwagon and use it on a daily basis. We make those other men very rich. If only we could go back in time knowing what we know now. At the very least, without any technical knowledge, you could have invested in any number of these companies and become very rich.

If only you knew what these companies would become and believed in them, you could have made a lot of money. You would have invested every penny you made in them. But back then, you  weren’t sure. You thought perhaps it might be a good investment but you really couldn’t see just how big the Internet would be and how big and important these companies would become. And, in some ways, you were right. There was a dotcom bubble back then and “everyone” was making money. You knew better and you felt vindicated when the bubble burst and you didn’t lose all of your money. But, in spite of the bubble, the Internet is still here and bigger than ever. In fact, it is still growing.

The Internet revolution started approximately in 1992. I became a full time user about 4 years later but I was an early adopter. I knew many people in 1995 that had no idea what the Internet was. Some were using dial up services like AOL, Prodigy, and Compuserve, which existed on the Internet. But they weren’t really surfing the web. However, I think it is safe to say that by 2000 most of the world had caught on to the potential and were using the Internet. Today, just over a decade later, most people in the world use the Internet on a daily basis and many fathom a life without it. It has become a part of them.

Let’s get back to Bitcoin. It was started 4 years ago. I don’t know anyone right now that has heard anything about it, other than those whom I introduced it to. So I am an early adopter 4 years later. As more people learn about it, more companies will start accepting it as payment. As more companies start using it, more people will hear about it and begin to accept it as a form of money. It will feed on itself and user acceptance will grow exponentially. Where will it be in a few years? What if 5 years from now 1 billion people around the world make at least one Bitcoin transaction per week? I’ve done some math and, if the growth rate continues exponentially the way the Internet did, then the numbers are mind blowing.

Bitcoin value has gone up from about 20 US Dollars each to over $140 in just a few months. It is possible we are in a bubble now and that bubble may burst and some people will lose a lot of money. But the genie is out of the bottle and the technology is here to stay. Those who stick with it stand to reap huge rewards from it in a very short time.

I will share what I have learned thus far regarding Bitcoin in the next several posts. I will show you how it works, the current issues with the system, how to go about getting some, and what to do with them. And I will show you some math and show you the potential of Bitcoins.

<- Previous Post – The Healthcare Issue

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OK, so I know this blog is supposed to be about investing but I had to get this off my chest because of all the news lately regarding “healthcare“. I put it in quotes because nobody really knows what healthcare means or is supposed to mean. All  people really know is that they either have it and are very happy about it or don’t have it and really want it.

The government right now seems hell bent on “fixing” the healthcare problem. It is not something that can be fixed. It is the problem. That’s like trying to fix a 1989 Hyundai by putting nice rims on it and a paint job. No matter what you do to it, you’ve still got a 1989 Hyundai.  And now the government is trying to tell everyone they need it, in fact, they must have it or else.

The crux of the problem, as I see it, is the fact that nowadays we no longer have health insurance but rather healthcare. Insurance is supposed to be something you buy but have no intention of using, although it helps you sleep at night knowing it is there just in case. We buy car insurance but pray we never get into an accident or our cars stolen. We buy homeowner’s insurance but pray we never get robbed, our house burns down, we get flooded, or a tornado rips our home apart. We buy life insurance, enough said about that. But when we buy health insurance we have every intention of using it. In fact, come December we start calculating how much we have paid into our deductible for the year and try to decide if there are any pressing health problems we need to see a doctor about before the end of the year and the cycle resets.

This is ludicrous. I work at a company where I supposedly have very good health coverage. I contribute approximately $500 / mo. and my employer contributes as well. I have no idea how much they contribute, which is wrong because it is a benefit that is provided to me in lieu of pay but I have no idea how much the compensation actually is. I am going to guess that since the average family healthcare is around $900/mo. that my employer must contribute about $400 into my plan. So I, and I do mean me since that is my benefit, contribute $900×12 months, or about $10,800 per year.

On top of that, every time I visit the doctor, I pay a copay. Then I get billed separately from other service providers, sometimes as little as $12 for some lab work, to $500 for an MRI I received when I hurt my back. I took my son to the ER one night when he was running a fever of 104.5 (after Tylenol). I was scared for him and wanted to make sure he was going to be alright. Besides, I figured, I had 100% emergency room coverage on my plan after a $100 copay for ER visits. They put  him in a bed, ran a few tests, said he was going to be OK and sent us home 6 hours later. Several weeks later, bills started coming in from all kinds of doctors and health related companies ranging from $30 to several hundred. I must have received bills from 10 different places totaling well over $1,000 for this ER visit where they didn’t really do anything and I had 100% coverage.

On the flip side of that, a few years ago I was out of work and out of healthcare. I needed to go to the doctor because I had a severe sore throat and wanted to be checked for Strep Throat and hopefully get some antibiotics to clear it up. The admin asked which health provider I used. I told her I had none and she told me not to worry. Upon leaving, I was billed approximately $80, which I paid on the spot and never received another bill.

So if I have zero insurance I pay a reasonable amount. If I do have insurance then the doctors will charge the maximum allowable by the health provider and not worry about it because I have “health coverage”. But the doctors all seem to charge a little more than that and I end up paying the difference, which is at least the same amount as if I had no coverage at all. When I walk out of the doctor’s office with insurance, I always end up paying just the copay amount of my insurance. I have no idea upon leaving which services the doctor is billing for and for how much. Only weeks or months later will a bill come in from someone I’ve never done business with, as far as I know, and how am I to dispute it? Of course, the health provider only pays 80% on my plan, others don’t even get that, but the doctor does not know that, nor does he care.

So in a typical year, for example, my young daughter may go to the pediatrician 5 times. My son may go twice. I will go to the doctor for a routine check up a couple of times and lets just throw in some sort of minor “emergency” each year. My wife will go a couple of times and lets throw in a minor “emergency” for her too.

So let’s add it up:
$10,800 monthly premium coverage (including employer’s estimated contribution)

Me:
2 routine visits ($50 copay, $40 lab work, $40 other charges)
1 minor emergency ($100 copay, $500 other charges)

Wife:
2 routine visits ($50 copay, $40 lab work, $40 other charges)
1 minor emergency ($100 copay, $500 other charges)

Son:
2 routine visits ($50 copay, $40 lab work, $40 other charges)

Daughter:
5 routine visits ($125 copay, $100 lab work, $100 other charges)

Total average yearly amount:  $12,715

Now let’s assume I had no coverage. And be generous with the doctor charges.
$0 monthly premium

Me:
2 routine visits ($500)
Minor emergency ($2,500)

Wife
2 routine visits ($500)
Minor emergency ($2,500)

Son:
2 routine visits ($500)

Daughter:
5 routine visits ($1,250)

Total average yearly amount:  $8,250

So it looks like I’m paying an additional $4,500 per year because I have insurance.

OK, now I understand that some things end up costing real money. Surgeries, babies, severe accidents, chronic illnesses, etc., can end up costing tens of thousands, if not hundreds of thousands. Going back to what insurance is for, it is something we buy that we don’t intend to or want to use but is there in case we need it. What if I had no coverage for things like sniffles, routine check ups, or minor emergencies and paid for that stuff out of pocket. I only keep health insurance for the big stuff. How much should that cost?

I can get a $1,000,000 umbrella policy for about $250 per year. This will protect any assets I have from liability.
I can get $500,000 of health insurance for about $270 per year.
I can get a $225,000 homeowner’s insurance policy for about $800 per year.
I can get two auto policies that cover all kinds of potential damages up to $500,000 in liability coverage for about $1,600 per year.

I know the underwriting procedures for assessing risk are very complicated but in light of the above, how much do you think Major Emergency Only health coverage should cost? Is $1,000 per person per year reasonable? If so, based on my calculations above, I’d come out $500 per year ahead and still have all the coverage I need.

Why do we insist on trying to “fix” this? Why do we think more people need more of this? Why don’t we let the free market and basic capitalism determine how much doctors charge us?

Take a look at Veterinarians. A few months ago my dog needed to have his teeth cleaned. In order to get the service, I also had to get new immunizations for my dog. The local vets around me wanted to charge almost $500 for this service. Eventually, I found an animal clinic that charged about $150. Sure the clinic was a little more crowded, I had to drive a little further to get there, and (even though it probably isn’t true, let’s just assume that the skill of the Vet is slightly lower than the expensive guys). It was a teeth cleaning. Why would I pay $500 for this when I could do it for $150? If more people went to this clinic what to you think the local vets would do about their pricing? That’s how free market works. The people will decide if it is worth it to them to wait a little longer, drive a little further, or if they require a Vet they think is more skilled.

But the poor! We always want to look after the poor in this country. I get it. It’s hard living on minimum wage or unemployment checks. But I’ve known so many “poor people” that always seem to find a way of getting what is important to them. Somehow, they’ll find a way to get a car, a cell phone (not just a cell phone but a smart phone), alcohol, coffee, cigarettes, illicit drugs, cable TV, video game systems, Internet service, etc . They’ll find a way to come up with the money when it matters. It’s usually not so much a matter of money, rather a matter of priorities. If something is truly important to an individual but he does not have the funds to purchase it, he will make payments. People always seem to find a way when they need to. Why do we think that a poor person should go to the “nice” vet when there is a clinic they can go to for less than a third the cost? Sure, they deserve to get affordable service but no one ever said they deserved the best, most expensive, most prestigious service they can get. The free market would provide for them if it were allowed to and truly a free market.

So how do we fix the problem?

1) We start by abolishing Healthcare Plans. We make available health insurance (something we buy but hope we do not have to use) for expensive treatments and leave it up to the free market to establish fair pricing for everyone. Health insurance is not mandatory. There may be times in someone’s life when he will require services he cannot afford or ever hope to make the payments on. In this case there is always bankruptcy. I know no one wants to declare bankruptcy but you had the choice to get affordable Major Emergency coverage and you elected not to. You rolled the dice for twenty years without it and then had a heart attack. I see no reason to make me and the rest of the country pay for your lack of insurance.

2) No doctor or health provider is allowed to ask if we have insurance. We are billed directly and treated as equals. It is assumed from the doctor’s point of view that no one has insurance. The doctor is not allowed to bill what he wants to an insurance company behind my back. I am the customer here, not the insurance company. The doctor will bill me directly and I will work with my Major Emergency Only insurance company to pay it. I realize this is an inconvenience on us but going back to the free market system, some insurance companies will be easy to work with and some will be known for being more difficult. This is already the case with other types of insurance companies. People will willingly pay more for the peace of mind knowing that their claims will be paid without significant effort. Or they can roll the dice, save a couple hundred per year and deal with it when they have to deal with it.

3) Supplemental insurance policies like Aflac could still exist but only if the doctor does not know about them. Again, the doctor will assume that no one he treats has any insurance. If I have supplemental insurance, good for me, but the doctor will not know what I can and cannot afford.

3) I will receive an estimate of services to be performed prior to any services being rendered. I will receive a final bill before leaving the premises and have a right, right there and then to dispute any services being billed. Provisions will be made for emergencies or patients that are unconscious or not of sound mind to make a decision about whether to agree to the doctor’s or hospital’s terms.

4) All service providers will offer payment plans. We will implement things that allow a doctor to collect, i.e., put a lien on your home or car, but they will still work with us to pay them back. If a doctor is worried that his patients may not pay him back, then he can get his own business insurance. He will make every effort to collect from his patients first but will have his own peace of mind that he is still covered.

5) Any contributions to insurance that an employer makes on behalf of its employees will be visible to the employee. No longer will we take it for granted how much we are spending for health care coverage.

What would this look like in the real world? A scenario may go like this. A patient, let’s call him Fred, has a pain in his side. It’s been nagging him for a few days and slowly getting worse. He is still eating, breathing and sleeping so he knows it’s not immediately life-threatening, but it does seem to be getting worse so he decides to go to a doctor. Since he is not told which doctor he can or cannot go to by his PPO he puts out the word on Facebook (the new Yellow Pages) that he wants a referral for a good, fairly priced doctor. About a dozen people respond with various doctors and why they liked them.

Fred decides to see Dr. Smith. It turns out that Dr. Smith is one of many doctors who provides a free examination and estimate for first time patients. Other doctors may charge $50 for a 30 minute consultation before determining the estimate but Dr. Smith chooses to run his business this way. At the first meeting, Fred is told that his problem could be caused by a multitude of things ranging from simple gas on the low end to Appendicitis, a tumor, polyps or many other things. Dr. Smith gives Fred a list of tests he would like to run to determine the cause. The prices for each test and an explanation of each is provided and will total approximately $750. Fred explains that he does not have that much money.

Dr. Smith agrees to take $100 now and let Fred make $100 payments each month until the remaining $650 is paid off. We understand that these are just tests and further services will need to be provided once a diagnosis has been made. However, we do not know at this point if this will be considered a major emergency and covered by Fred’s Major Emergency insurance or if it will be something that can be fixed with a simple prescription, so there is no way of knowing at this point how much more Fred will have to pay to be cured. Fred now has a choice of taking the Dr.’s offer and proceeding with the tests or leaving to find a cheaper Dr. This is Fred’s choice and what being American is all about. Fred agreed to start the tests right away.

Two days later the Doctor called Fred to explain that he has found the cause and will require surgery to rectify. The Doctor explains that his condition will get significantly worse and even life-threatening within a matter of days. Fred then calls surgeons and gets their pricing information and makes arrangements to go for surgery in two days. He found a surgeon that said he can perform the whole procedure for $18,000. Others wanted as much as $25,000. Fred calls his insurance company. The insurance company then calls the surgeon and lets him know that they will pay 95% or  $17,100 (Fred’s deductible is 5%) and the surgeon will have to work with Fred for the remaining $900. The surgeon calls Fred back to arrange a time for the surgery and to discuss payment options. Fred agrees to $50/mo. for 18 months to pay for his portion.

It’s not a perfect scenario. It can probably stand to be made a little better but it is honest and fair. It is driven by free-market principles. Would you want to do business this way or do you like things the way they are but about to get worse?

If you like any of the principles I discuss above, please share them. Please let the people know that our current system is bad and only going to get worse. There is no solution for it. The only solution is to throw it all out and start over.

<- Previous Post – The Law Of Attraction – Do You Believe It?

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I have found that a reason many people cannot get the Law of Attraction to work for them is because of their own beliefs. Remember this and remember it well: One cannot change his beliefs simply for wanting to. It is possible for beliefs to change but it takes an external force to make it happen.

Let me give you a scenario. Let’s say that you and I are standing on the Golden Gate bridge looking down at the water several hundred feet below and I tell you to jump. “No way!” you say. But I remind you about the Law of Attraction and tell you that all you have to do is believe you will not fall. Would you jump then? Why not? What do you think would happen if you did jump? If someone is about to jump off a bridge, they cannot temporarily alter their belief system just to make levitation possible. They can say the words, “I believe I can fly”, like Peter Pan, but deep down they still know they’re going to fall. That belief will not change no matter how much the person wants it to.

As I said, it is possible for beliefs to change but it takes an external force. What would happen to one’s beliefs if he witnessed someone walking on water? He might believe it is possible for himself to do it. But what if he believed the person walking on the water was special, like the son of God? Now his beliefs are grounded again because he believes he himself is not special and cannot do those things.

People often learn about the Law of Attraction and are immediately drawn to the possibilities. They try to use the Law of Attraction to get and do things they inherently do not believe in and nothing seems to work. Pretty soon they give up on the Law of Attraction and revert back to their old selves.

Someone goes to buy a lottery ticket but this time it’s different. This time he knows of the Law of Attraction so he repeats to himself, “This time I’m going to win. This time I’m going to win…..” He imagines over and over in his head of himself screaming that his numbers matched. He buys the ticket and later that night during the drawing, he rubs his lucky rabbit’s foot while watching the balls drop. Sure enough, he doesn’t win. Why not? Because he knows the odds. He knows that his chances are extremely thin and nothing has really changed. His belief system for the lottery is identical as it was before he learned of the Law of Attraction. Repeating his words over and over did not change anything.

A man, who is tired of being single, goes out to a bar one night with some friends. But this time, he knows of the Law of Attraction and this time it’s going to be different. This time he repeats over and over how he is going to meet a nice woman tonight. He pictures this woman coming up to him and talking with him. He sits there all night long “putting it out in the Universe”. But, alas, he goes home alone again. Why? Is it because he believes that women do not approach lonely men in bars? His belief system did not change. He may have been putting it out there in the Universe, but deep down his subconscious was putting something else out there.

The Law of Attraction is not magic and uttering the “magic words” does not make anything happen. Nor is it a badge you get to where that makes things all of a sudden work in your favor simply because you learned of it. You cannot stand on the curb of a busy street, close your eyes, and step out onto the street saying, “Can’t hit me cars. Law of Attraction at work here people.” It is foolish to walk blindly across a busy street and those magic words are not going to help. Your belief system has taught you for many years that walking across a street is dangerous and nothing has changed, regardless of your knowledge of the Law of Attraction.

So if you believe what you believe, what good is the Law of Attraction? As I said a couple of times before, beliefs can change, but it takes an external force to make it happen. One way of forcing change is through affirmations. An affirmation is just a token. It, in itself is not going to change anything. Sometimes people write notes to themselves. They may make dream boards or put up pictures on the wall to remind themselves of what they want or where they want to be. They may repeat something over and over daily. None of these things by themselves does anything. But these affirmations begin to work because of little things that happen. Witnessing these things strengthens the belief in the affirmation. The strengthened belief causes more things to happen and it builds on itself.

Let me give you an example. A woman says to herself many times daily, “I am attractive. People like me. The man of my dreams is waiting for me.” At first they’re just words. After a little while, however, an attractive man who she’s noticed before but doesn’t think has ever noticed her, says hello while passing in the lobby. This small thing strengthens her belief that her affirmations are working. So she repeats them again but with more conviction. She walks through the lobby next time with her head just a little higher, her posture just a little straighter, and her walk just a little more confident. Over time things start to change. Eventually, she has the firm belief that she is attractive and people do really like her. That last sentence in her affirmation may get her into trouble, though. She may find she has more work to do once she has realized that she is attractive and people really do like her. Perhaps she should have told herself that she was going to meet the man of her dreams.

The previous example may seem to you like it has nothing at all to do with the Law of Attraction. It is just logical that a confident person is more attractive and someone saying hello gives her just a tad more confidence. So was it the Law of Attraction or simple logic? What do your beliefs tell you? The Law of Attraction keeps on working whether you believe in it or not.

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