Bitcoin

The rise of the cryptocurrency

We live in a cashless society, but are we on our way to a universal digital currency? Bitcoin may seem like a digital currency for a digital age, but is it really? We investigate in this week’s round table discussion.

Transcript


Amanda: We’ve talked about Bitcoin before at the P4Digital Blog. It’s a topic that fascinates us, but 2014 was a rough year for it. In this week’s discussion, we talk about the rise of the cryptocurrency, how it works and speculate on whether or not we’ll all be paid with it in a few years.

Jeremy: Hello, today we’re talking about Bitcoins. Do they now have a legitimate trading exchange?

Archana: Yes, the topic we’re talking about today is the roll out of a new US-based exchange called Coinbase, which hopefully does legalize the cryptocurrency. What are your thoughts?

Shaheerah: Okay, so basically just to define Bitcoin in very basic terms, it is virtual cash that is generated, or rather mined by computers. It is a very sophisticated process. And Bitcoin lives on the internet, and you can use it to buy stuff both online as well as offline. In late January of this year, the Coinbased Bitcoin exchange went live. And this is actually the first one in America. And it could make Bitcoin more of a reality for the average Joe, as well as the corporate financial role. So as of now the exchange has been approved in 24 American states, and previously in the US the Bitcoin traders had to use exchanges that were based outside of the USA. And those exchanges did not have adequate regulations or security and so it made it pretty risky. So for example in February of this year, a Japan based Bitcoin exchange collapsed and they lost 750,000 customer Bitcoins, as well as 100,000 Bitcoins of their own. There are also all these problems with the security hacks. So for example recently Bitstamp lost 19,000 Bitcoins worth 5 million dollars, so that’s a lot. But now what’s going to happen is the Coinbase exchange is set to be a game changer because it is better regulated. They do have better security including insurance, which the other exchanges did not have. They have encryption, and the Bitcoins are actually kept offline so you won’t be able to hack them. There is also a one-time use passcode that you have to use, it’s texted to your phone and every time  you want to log in you have to use that one-time passcode, and you have to use the same computer every time as well.

Jeremy: Yeah, the Japanese exchange that Shaheerah mentioned is called Mt.Gox, which apparently is short for Magic the Gathering, which is a Role Playing – some type of Role Playing Dungeons and Dragons type game. So that’s not really the most credible way to be trading your Bitcoins.

Amanda: Speak for yourself! I’ve played Magic the Gathering and it’s an intense game!

Archana: Again, sort of going back to what Shaheerah mentioned, primarily the lack of regulation, inadequate security and the difficulty in getting US dollars in and out of these exchanges being the primary reasons why Bitcoin hasn’t really taken off. Coinbase really seeks to make a difference because it’s being backed by some thoughtful investors and financial venture capitalists, including the NYSE and the Citigroup CEO and Thompson Reuters ex CEO as well, so it obviously does lend a huge deal of credibility. And like what Jeremy mentioned, the Japanese company – a lot of luster was lost of Bitcoin amidst all these scandals and different scams. Case in point would be the Japanese Bitcoin exchange. And also more recently a Slovenia Bitcoin exchange also collapsed. So Coinbase does seek to differentiate itself from the rest of the crowd. What remains to be seen is how successful they’ll be.

Jeremy: And right on the heels of Coinbase is another exchange that is going to be launched later this year, which is backed by the Winklevoss twins of Facebook fame, called the Gemini exchange. So they’re not narcissistic at all! Anyway, this exchange is going to be partnered with a major US bank, which means your US cash deposits will be eligible for FDIC insurance, although I’m sure the Bitcoins held in there will not.

Amanda: It’s interesting. Amazon and I believe PayPal also are accepting Bitcoins as of last year for payment for certain transactions.

Archana:  Yes, just like what Amanda just mentioned, apparently Coinbase also already accounts for about 2.2 million consumer wallets, and nearly 40,000 merchants already use their services. So from this point on it’s really a matter of them consolidating their position and building the business.

Shaheerah: Yes, and I also wanted to share some other facts about Bitcoin, which were published in an infographic from whoishostingthis.com. The FBI actually owns 15% of all the Bitcoins in the world. 65% of the world’s bitcoins are inactive – so they’re just left in the Bitcoin ewallets, and the remaining bitcoins are what are actually used for the transactions. You can get stuff like Pizza and plane tickets and university tuition using your Bitcoins. And even former Spice Girl Mel B, she was the first artist who started accepting Bitcoins as payment for her music. There’s also a maximum number of Bitcoins that can ever exist. The last Bitcoin is predicted to be mined in the year 2040.

Amanda: Make myself sound like a bit of a Geek here, but Mel B was always my favourite Spice Girl.

Laughter

Jeremy: Jim too

Laughter

Jeremy: Well, the problem with Bitcoins is they’re really too volatile right now to be used as an integral part of our trading economy. I mean, it would be kind of foolish to ask for your pay cheques in Bitcoin because the value fluctuates so much. I really think that if they built a good, secure system and a means of transactions- I think they’re going to around for a while, it’s not going to be worthless, it’s always going to be worth something. But to make the jump between something that you horde and something that you use to spend money on, the question is when that’s going to be.

Amanda: I have a general question for the executives here. If it was more secure, would you ever consider accepting your salary in Bitcoins.

Jeremy: I would not accept my salary in Bitcoins right now – not the way it fluctuates.

Archana: Not right now, but really whether we like it or not I think digital currency is definitely going to be a part of our lives in the coming future. Whether its Bitcoin o some other form of digital currency, I don’t know but for sure, salary one day would be in the form of Bitcoins.

Shaheerah:  And I just wanted to add, that actually Bitcoin has been known to lose up to 80% of its value in just a few days, so yes it is very volatile. And in fact both Thailand and China had put bans on Bitcoin back in 2013 for this reason.

Amanda: So that’s a no on accepting it on your salary, huh Shaheerah?

Shaheerah: Yup, that’s right.

Amanda: I have to say, after hearing that last statistic, I have to agree.


 

That was the P4Capital team discussing the rise of Bitcoin and Crytopcurrency. Apparnetly, none of us want to get paid with it in the near future. Want to know more? Check out our website  and previous posts about Bitcoin at http://www.planet4it.com or follow us @p4capital. Thanks and see you next time.

Digital Currency for the Digital Age

 

Money that exists outside of any governing body has arrived. With the rise of digital technology, digital coins that you can send through the internet have been born.

Welcome to the age of decentralized digital currency, and the rise of Bitcoin.

WHAT IS BITCOIN?

Bitcoin-a-digital

 

Bitcoin was first created in 2009 by an anonymous creator. It is a currency that exists without any centralized governing body. Money is transferred directly person to person via the internet- without going through a bank or any other middle man. This means the fees are lower, Bitcoin can be used worldwide, an account cannot be frozen, and there are no prerequisites.

In short, if you want a Bitcoin account, there is nothing and nobody stopping you from getting one. As long as you have access to the Internet, you can have an account.

Technology enthusiasts and capitalists are claiming digital currencies are a fast and cheap alternative to traditional financial systems. They are also great for businesses in countries with unstable currencies.

There are other benefits associated with Bitcoin as well:

  • Low Inflation risk – Bitcoin is designed to be finite. Only about 21 million Bitcoins will ever be generated. The release of Bitcoins is slowing down and is predicted to stop in 2050.
  • Low collapse risk: Regular currencies depend on governments which occasionally fail. Bitcoin is not regulated by any one government so it is safe from this.
  • Untraceable: You don’t have to be afraid of any organization being able to trace the source of your funds

A mysterious creator?

 Who is Satoshi Nakamoto?

The origin of Bitcoins makes for a fantastic story. Satoshi Nakamoto is credited to be the creator of the digital currency, but there are no records of his identity or identities prior to the creation of Bitcoin.

On his P2P foundation profile, he claims to be a 37 year old male living in Japan – but few people believe this because of his fluency of English and his Bitcoin software not being documented or labelled in Japanese.

Both The New Yorker and Fast Company tried to solve this mystery, but the results of their investigations were conflicting and inconclusive.

In 2010, Satoshi Nakamoto vanished and has not been heard from since.

HOW IT WORKS

There are several currency exchanges where you can trade your fiat currency for this cryptocurrency.

Vault-of-Satoshi-A

Your bitcoins are kept in your digital wallet on your computer or mobile device. Paying with bitcoin is like sending an email or a text.

 

  • Cryptocurrency: A medium of exchange designed around securely exchanging information  made possible by certain principles of cryptography. The first cryptocurrency to begin trading was Bitcoin in 2009
  • Fiat Currency: Currency that a government has declared to be legal tender

Bitcoin is a peer to peer network. This means that everyone who uses Bitcoin is a tiny piece of the entire bank.

With Fiat money, a central government decides when to print or distribute money. Bitcoin doesn’t have a central government, so currency is issued through Miners and Mining.

Behind the scenes, the Bitcoin network is sharing a public ledge called the ‘Block Chain’.

The-Block-Chain-A-a

This ledger is completely transparent, anyone can access it and people are frequently encouraged to do so!

This block chain is huge – over 6GB of data. This is where the Miners come in.

Miners-People-who

The Miners convert the data of the Block Chain into a hash, which is much shorter than the initial chain, and at first glance, seems no more than a random sequence of letters and numbers. The raw data of the block chain is converted into a hash through an algorithm, which the  Miners calculate.

The process of converting this data and solving this math problem is called mining. 

Still confused? Check out this video from weusecoins for another explanation.

 

 

Are people using it?

It doesn’t cost anything for businesses to start accepting Bitcoins. It’s easy to set up and there are no charge backs. A lot of businesses just get additional business from the Bitcoin economy, at no extra charge to set up.

Below is a map that shows how many establishments in the world are using Bitcoin. The map updates in real time, so if you’d like to see it for yourself, click HERE.

map

By the end of August 2013, the value of all bitcoins in circulation exceeded US $1.5 billion with millions of dollars worth of bitcoins exchanged daily.

Hard Times

In March of 2014, Bitcoins credibility was questioned when two huge events shook the industry.

1. The Tokyo Bitcoin exchange, Mt. Gox filed for bankruptcy protection when $425 million went missing. Hackers were blamed for the disappearance.

2. Flexcoin, an Alberta Canada based company, lost about $400.000 to a hacker attack. This company actually ended up closing its doors because there were no ‘resources, assets or otherwise to come back from this loss.’

This changed everything. Bitcoin suddenly went from being one of the most stable currencies in the world, to an incredibly risky investment. The very thing that made it so appealing, the non-regulation or governing, is what made it vulnerable to hacking.

After jumping to more than $800 USD a coin in January, the worth has plummeted after these shocking events. They have lost over half their value and are now hovering around the $400.00 mark.

You can check the price in real time HERE 

LITECOIN

litecoin

The silver to Bitcoin’s gold, Litecoin has been growing in popularity even as Bitcoin’s falls.

It is said to be cheaper to generate, more plentiful and easier to use for small transactions than bitcoin.

While prices for both have slid since  the disasters in March, Litecoin’s worth remains about 490 percent higher than six months ago – compared to only 140 percent for Bitcoin.

Right-now-Litecoin-is

More than 36,600 computers are part of the Litecoin network, according to BitInfoCharts. That’s more than half of the 63,000 computers for Bitcoin, which is more prominent and two years older.

At the Vault of Satoshi, Litecoins account for 20 to 25 percent of all trades.

The average number of daily transactions in Litecoins worldwide in April was 155 percent greater than October’s level, according to CoinDesk data. That compares with only a 19 percent increase for Bitcoins.

Despite this, daily transactions in Bitcoins still outnumber those in Litecoins almost seven-fold.