The magic of bitcoins is how they work… if you can follow their logic, that is. I will now attempt to explain how this new technology works.
- Bitcoin is a virtual currency where balances are kept with private and public keys. These keys are a long strings of numbers and letters linked through the mathematical encryption algorithm that was used to create them. Makes sense right??? The public key is like a bank account number to serve as the address which is published to the world and to where other bitcoins are sent to. The private key is like an ATM pin meant to be guarded secret and only used to authorize bitcoin transmissions.
- Bitcoin is purely peer to peer without the use of a third party, like a bank. Kind of… miners are independent individuals and companies who own the governing computing power and participate in the bitcoin network. They are motivated by the release of new bitcoin and transaction fees paid in bitcoin. Hmmmm… Sounds awfully like a third party and very familiar to bank transaction fees. But it gets better, these miners are actually thought of as the “decentralized authority” that is in charge of enforcing the credibility of the bitcoin network.
- New bitcoin is released to miners at a fixed, but periodically declining rate, such that the total supply of bitcoin reaches 21 million. One bitcoin is divisible to the eighth decimal places (100th of a bitcoin). If necessary, and if the participating miners accept the change, bitcoin could be made divisible to even more decimal places. So heres a quick recap: Miners are the new third party, but without government regulations; Miners are rewarded when more bitcoins are released and by transaction fees from the consumer; Miners are not only in charge of the supply of bitcoin, but the valuation of them as well. What could go wrong???
- Bitcoin mining is the process in which bitcoins are released into circulation. This process involves solving a computationally difficult puzzle to discover a new block, which is added to a blockchain. Then the miner receives a reward in the form of a few bitcoins. The block reward in 2009 was amounting in 50 bitcoins which decreases every 4 years. As more and more bitcoins are created, the difficulty of the mining process (amount of computing power involved) increases. The mining difficulty in 2009 was at 1.0 during its debut and ended that year at 1.18. As of April 2017 the mining difficulty is over 4.24 billion! Once a desktop computer sufficed for the mining process, but now miners must use much faster hardware ASIC or application specific integrated circuits and GPU’s, or graphic processing units.
If this information has given you a headache, you are not alone, mine is throbbing! Unfortunately most people don’t read the fine print, and I don’t blame them, they make it impossible to understand. These corporations know this and prey on it. For example: Read the first two sentences… https://bitcoin.org/en/how-it-works
So if you actually understand this process and still buy bitcoins, or you are like most people and believe you can make money fast and dive right in you may be asking yourself…
Who accepts bitcoin?
The few useful big names on this rather short list considering bitcoin was debuted in 2009 are: Microsoft, Virgin Galactic, Overstock, Subway, Tesla, Wikipedia, and the best for last Alphabay. What is Alphabay?Great question, and our justice system has answered it for me…
AlphaBay, the Largest Online ‘Dark Market,’ Shut Down
‘Dark Net’ Site Was Major Source of Fentanyl and Heroin, Linked to Overdose Deaths, and Used By Hundreds of Thousands of People to Buy and Sell Illegal Goods and Services Anonymously over the Internet compliments of our U.S Justice Department
Which leads me to my next question, which countries have banned bitcoins?
- Bitcoin has been banned 23 times
- Among the bans, a few countries really stand out: China- Has fears bitcoin funds terrorism; Russia-Labeled bitcoins “potentially suspicious” and linked them to illicit activities; Taiwan- Banned bitcoins after a high profiled kidnapping and bitcoin was wanted for ransom; Vietnam- Banned bitcoins citing its ease for criminal purposes, and its high risk for investors; and yes even our very close allies in South Korea- Have put a ban on bitcoins to crackdown on money laundering.
Here are some real life risks you should adhere to before you even consider drinking the “kool aid” labeled bitcoin.
- Regulatory Risk – Since bitcoin are used for money laundering and selling illegal drugs, it is no wonder why our government wants to regulate them. It is already happening in New York. In 2015 the New York State Department of Financial Services passed a law requiring any business that deals with bitcoin in any fashion to need a compliance officer and maintain capital reserves. Any amount over $10,000 will be recorded and reported.
- Security Risk – Hackers, malware, and operational glitches. This becomes very problematic considering bitcoin transactions are permanent and irreversible. When bitcoins are stolen or hacked off of the internet there is no third party or payment processor. Thus forth no source of protection or appeal if there is a problem.
- Insurance Risk – Some investments are insured through the Securities Investor Protection Corporation and normal bank accounts are insured by the Federal Deposit Insurance Corporation up to a certain amount. Bitcoin exchanges and bitcoin accounts are not insured by any type of federal or government programs.
- Fraud Risk – Fraudsters and scammers who are selling fake bitcoins. Like the case in 2013 where the SEC filed charges against Trendon Shavers who was able to coerce 700,000 bitcoins through a virtual Ponzi scheme. He was coined the Bernie Madoff of Bitcoin.
- Market Risk – Fluctuation of bitcoins “value” and their volatility. Prices fell 61% in one day in 2013, a one day price drop in 2014 was by 81%, today, in 2018, bitcoin may have changed price by 90% just in the few minutes that I have been typing this blog. Also something to be aware of is the more countries who ban them the more worthless they become. Furthermore it is worth mentioning the hundred other virtual coins sprouting up to compete with bitcoin will further lower it’s value.
- Tax Risk – Since bitcoin is excluded from any tax advantage retirement accounts, there are no good, legal, options to shield investments from taxation.
I hope you enjoyed the show! My journey took me somewhat further down the rabbit hole than I’d intended and, though I dirtied my fluffy white tail, I have emerged enlightened… with the help of a multitude of online resources like Forbes, bitcoin, and investopedia, a bottle of Advil, and the grit to inform as many people as I can that our financial systems are corrupt. Come to find out, major corporations deemed “too big to fail” are stealing our money and running our country, and our “voted” in politicians in charge of making laws, upholding laws, and speaking for the people are shutting their mouths, turning a blind eye, and opening up their wallets. From the war on terror in 2001 that instilled fear in the American people, leading to the Great Recession of 2008 that put most of us in debt, and for the grand finale today’s cyber war with ourselves; Bitcoin, Equifax, and stay tuned for an update on a security breach at Experian. Yes that’s right now 2 of the 3 trusted credit reporting agencies have given away our most private and secure information. Now we that we don’t trust our banks, we can’t trust our credit card companies and agencies, we believe everyone who isn’t an American is a terrorist, we don’t trust each other… so we should turn to social media for “friends,” a virtual currency for “money,” and the internet for salvation????
Who’s is doing the hacking? The Chinese? The North Koreans? The United States Federal Government? Come on back and see if we can make an educated guess to whom.
My final thoughts on bitcoin is buyer beware. There are way to many red flags and signs pointing to another collapse or bubble that we Americans will be the ones to float the bill once again. If it seems to good to be true, it usually is, and “The things that will destroy America are prosperity-at-any-price, peace-at-any-price, safety-first instead of duty-first, the love of soft living, and the get-rich-quick-theory of life.” Theodore Roosevelt