What is Lightning Network?

The Lightning Network is a payment system being developed for bitcoin. The Lightning Network hopes to contribute to overcoming some of the bitcoin blockchain’s payment scalability “problems”/costs. The system is currently in testnet, but has been used for a few transactions, and seems to work. It would be used as an off-chain protocol similar in some ways to XCP.

Basically, the Lightning Network will be a peer to peer system for making micropayments of digital cryptocurrency through a scale-free network of bidirectional payment channels without delegating custody of funds or trust to third parties.

The Lightning Network has the potential to dramatically reduce the cost and time of bitcoin payments, which would reduce one of the major criticisms of bitcoin payments in their current form. It would shift the debate about scalability away from the blockchain itself and onto services using the bitcoin blockchain’s core verification system. I have been expecting more initiatives like the Lightning Network to emerge. I also expect more hosted services and payments processors to emerge as volume on the most popular blockchains continues to increase. I believe these developments will have the impact of driving transaction volume back to main blockchains with the largest network effects as mediums of exchange such as bitcoins, and away from many of the other alt coins that attempt to solve the payment scalability problem in other ways.

Trading Clam Coins

CLAM coins are a cryptocurrency based on a proof-of-stake mining method. One new CLAM coin is generated each minute and awarded to users by proportional lottery based on the number of CLAMs they have working on their miner. This means there will be 60 new CLAMs created per hour, 1,440 created per day, and 525,600 CLAMs created each year.

The value of each CLAM simply depends on the interaction of supply and demand; there is no central authority that controls the value of CLAMs and their price is completely up to markets. Since their inception, the value of CLAMs has generally been rising against the US & Canadian dollars much like most other crypto currencies. CLAM users can consult blockchain explorers to check addresses, monitor transactions, etc, and can view the market cap of CLAMs on sites such as CoinMarketCap. At the time of writing, there are about 2.7 million CLAMs outstanding worth about $20,000,000 US dollars.

To get into the CLAM economy, the first thing you should do is buy some CLAMS; since CLAMs are based on proof-of-stake, you can’t mine any CLAMs without first having some CLAMs to stake.

To buy CLAMs, the first step is to get some bitcoins. If you’re Canadian or American, use QuadrigaCX since you can make Canadian dollar deposits using Interac online and then exchange Canadian dollars for bitcoins. For Americans, try a service such as Coinbase.

Once you have your bitcoins, you have a few choices. If you want to trade your bitcoins for CLAMs, you can find 77% of the volume for CLAMs on Poloniex and the balance of volume on Bittrex.  If you are a little wary about using exchanges, you can also use a service such as ShapeShift. At the time of writing Changelly does not offer CLAMs.

If you really want to mine CLAMs, check out my friend’s post on github describing how to set up your own miner.

In my opinion, Poloniex is the best place to trade CLAMs. The market is fairly liquid, but it jumps around enough (this is CLAM coins after-all) that there are opportunities for traders. But keep in mind that you can really only trade the CLAM/BTC pair: there is no other markets for CLAMs to fiat other than private sales between friends, so unless your friends are really into trading CLAMs, it’s probably best to trade on Poloniex.

The nice feature about trading CLAMs on Poloniex is you can both borrow and lend CLAMs. This means you can jack up your leverage at pretty cheap rates. At the time of writing, you can borrow bitcoins against CLAMs for less than 0.001% per day, and you can borrow CLAMs for less than 0.001%. You can also get some pretty cheap leverage on Poloniex.

At the time of writing, here is the current bid/ask spread on both Poloniex and Bittrex:

Poloniex 0.00047464 bid / 0.00047500 ask

Bittrex 0.00047483 bid / 0.00048195 ask

So you can see the bid/ask spread is much tighter on Poloniex, representing their greater volume/liquidity, but interestingly, there is more than a 1% gap between the bid/offer for CLAM/BTC on Bittrex. This presents an opportunity for traders who can arbitrage the different prices between exchanges. The fees on Bittrex are 0.25% per trade, so there is certainly an opportunity for some market making using a bot. Here is a link to Bittrex API documentation.

One funny thing to be aware of when trading CLAMs: since the market is only worth about $20 mil USD in total, and more than half of those CLAMs are tied up on just-dice, the trading for CLAMs can be cornered in an old fashioned way. This happened a few months ago on Poloniex. My friend and I noticed the lending/borrowing rate for CLAMs on Poloniex jumped very high, over 1% per day, much higher than the mining rate, so we moved a few CLAMs to the exchange to lend them out. It looked bullish for CLAMs at the time as the market was well bid. A few weeks went by, and the price of CLAMs kept rising. All of a sudden the market fell out, and the price crashed by half in a few hours. We suspect a small number of traders were borrowing CLAMs at high rates (thereby getting short CLAMs in the process) and feeding the order book with stink bids, and then as they pulled their bids and started selling their CLAMs, the bottom fell out (into air pocket).

The lesson from this experience is to beware when margin interest rates move dramatically: when you wonder what is happening, and you don’t have what you believe is the answer, take it slow. Move with caution, or, if you’re super bold, take the opposite position and help bring the market back in line.

Flexepin Vouchers to Buy Bitcoins/Ethereum in Canada

Recently, I purchased some bitcoins using Flexepin and this post describes my experience. I’ve tried a bunch of methods to buy bitcoins over the past few years, I’ve used Coinbase when they had a Canadian payments processor, but now I mostly use QuadricaCX. Since nobody can predict how regulations and payment methods might change in the future, its smart to continue developing alternative channels, so I decided to try using the Flexepin payment method on bitaccess.co.

I learned about Flexepin when I noticed it was being offered as a payment method for other Canadian bitcoin dealers such as QuickBT. As I reviewed the bitcoin ATM at Delloite’s offices in Toronto, I noticed the Bitaccess machine also accepted Flexepin vouchers as a payment method. I then explored Bitaccess.co website and found that registered users could use Flexepin to purchase bitcoins directly on the Bitaccess.co website.

So I took $500 Canadian cash to a cheque cashing store down the block from my apartment and exchanged the cash for a Flexepin voucher. Flexepin vouchers are offered at many gas stations and convenience stores in Canada, but I chose a cheque cashing store because I figured they might be more knowledgeable of the product and understand the rules a bit better, such as not charging HST on money cards.

I took my $500 to the counter and after I told the cashier what I’d like, she logged into a program on her desktop to process the transaction. I was provided with a receipt that contained my Flexepin pin number and other transaction details. The cost of the transaction was $15.95, which represents a purchasing fee of 3.19%.  The fee is tiered to the amount purchased, and so smaller purchases will be charged a different fee. However, the smaller the purchase, the greater the fee as a percentage of the overall amount.

Now I had a Flexepin voucher. The voucher is like cash, if I lose the voucher, its gone. I did’t provide ID to the merchant, although I was captured on the store camera, there was no other documentation required. If someone got the voucher pin, the value would be theirs. So I went home and logged into my account at bitaccess.co.  I chose the Flexepin method to purchase bitcoins and was presented with a price of $3,858.25, which compared to the current offer on QuadrigaCX of $3,600, representing a spread of 7.17%.

I purchased the bitcoins on bitaccess.co, but then I received an e-mail from bitaccess.co asking to confirm some details. They asked me to write a confirmation number on the physical Flexepin receipt, take a picture of it, and e-mail it back to them. I did this promptly, and then my bitcoins arrived within the next transaction block. I monitored the transaction using a blockchain scanner, so I could see my transaction was processing.

For my $515.95 Canadian dollars, I managed to purchase 0.1295921 bitcoins, which translates into a rate of $3,981.33 btc/cad. This compares to a price of $3,672 on QuadrigaCX after factoring in the fees related to that method. We can say that purchasing bitcoins using the Flexepin / bitaccess.co method costs 8.42% more than QuadrigaCX.

Most of the costs of purchasing bitcoins using Flexepins happened at the point of the transaction with bitaccess.co. The price quoted by bitaccess.co was quite a bit higher than what could be obtained on other exchanges.

So from a purely cost perspective, QuadrigaCX is cheaper than using Flexepins on bitaccess.co, but there are some advantages to using Flexepins. If you are trying to avoid using a bank account or you don’t have a bank account, then Flexepins will allow you to stay anonymously in cash. Otherwise, registering with QuadrigaCX and following the AML process is the best method for Canadians to buy bitcoins.