Bitcoin: What Is It?

Bitcoin: What Is It?

Bitcoin is the name we’ve all heard lately. Be it on TV, the radio, internet, or maybe just a conversation with friends and someone brought up the topic, we’ve all heard or are at least aware of the existence of the word (and concept) of Bitcoin. And it’s certainly justified.  Bitcoin has been continually on the rise as more and more people see its potential to revolutionize the economy as we know it.BTC_coin

But what is Bitcoin, exactly?

Created by Satoshi Nakamoto (no one is still sure if this is a single person or a group of programmers), Bitcoin is a cryptocurrency. That means that it’s a form of “money” that works under a code which ensures its privacy and it’s programmed, so it’s only visible and obtainable by the parts operating the transaction. It is also limited to a max of 21 million coins in circulation and each bitcoin can be traded or used to purchase good/services to the 8th decimal.  The smallest unit of a Bitcoin is .00000001, also called a Satoshi.  That means it takes 100,000,000 Satoshi to equal 1 full Bitcoin.  An easy way to compare this to US dollars is how many pennies does it take to equal $100 or $1,000 or $1,000,000.  A Satoshi is a smaller unit of the same currency (Bitcoin) in the same way that a penny is a smaller unit of US dollars.

Essentially, Bitcoin is a virtual asset which allows for decentralized trading, since it’s available all over the world and is not limited by a central bank or government. Since it is not controlled by a central bank or government it can be exchanged in any country and is influenced less by the activity in a single country.  To see the results of a government negatively impacting and manipulating a countries economy you can look at the current situation in Venezuela.  In the past 12 months, the cost of goods has increased over 700% in Venezuela.  Think about the impact to your budget and survival if everything you purchase went up 700% in 1 year!  This has led to many protest and the people of Venezuela are fighting to survive this hyper-inflation and impact of a failed economy.

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Bitcoin, then, is obtained by two methods: Trading and mining.

Trading is the simple act of exchanging the currency and acquiring it either by buying it or by selling goods or services and accepting them as payment, just as you would earn any fiat currency.  As of 09/26/2017, the value of 1 BTC is approximately $3,900.

However, mining is where it might get a bit more complicated since to understand it we must first understand the underlying blockchain technology.

The blockchain is what keeps Bitcoin private, transparent, and what gives more coins the chance of being generated. It is a ledger for every Bitcoin transaction made. Individual blocks save each transaction in the blockchain. To put it in other words, imagine a chain of boxes, each box containing the paperwork where every transaction is registered. This is pretty much the blockchain.

Mining is using a computer to register new transactions on the blockchain. For this, people use what’s called a “miner”, which is a computer specifically made for this purpose. Mining is the act of finding new blocks to keep the blockchain going and the first miners to find said block are rewarded with newly generated Bitcoins. This feature allows for transactions to be processed and verified and also allows for more currency to be released slowly over time; up to a max of 21 million Bitcoin.

Bitcoin has gained recognition and value today because it allows for decentralized trading with high privacy and safety. This is because it is only possible to trade with people who give you their public address (think of it as an email or paypal address).

Bitcoin and the underlying blockchain technology has caught the attention of many people in technology, finance and investors for what it promises; a new form of an economy free of regulations by central banks and manipulation of local governments.  This is an exciting time in the growth of cryptocurrency.  We may one day look back on this time and compare it to the growth and adoption of the internet as it may change our daily lives on a similar scale.

China Bans Initial Coin Offering (ICO) Crowdfunding

chinaflagChina is issuing an immediate ban on Initial Coin Offerings, also referred to as ICO’s.  An ICO is a way for a company to raise funds to support a project or new product.  It is a type of crowdfunding where customers can purchase a digital token that acts similar to purchasing a share of the company.  Think of this as a type of crowdfunding where the public can purchase stake in a company before a product has been released.  In the past start-ups would go through venture capital companies, angel investors and seed rounds to raise money for a new venture.  ICO’s gave a new way for these startups to raise money faster and with less oversight by regulator bodies.

There is a chance that the ban will be lifted or adjusted in the future as Chinese regulators have more time to review ICO funding.  This is not the first time that China has taken similar action; in 2013 China prohibited the exchange of Yuan to BTC.  They later removed this ruling and today China has one of the largest BTC mining operations in the world.  They have one of the lowest electricity cost and this along with the cooler climate in the mountains makes China a good location for digital mining operations.  It remains to be seen if they will lift this ban with the requirement for additional regulation of company ICO’s in the future.

ICO’s raised more than a Billion dollars in the first half of 2017 for new startups and projects.  ICO’s are still available for companies in the USA and many other countries as a means to raise capital for new projects.

*Note – Bitcoin and Litecoin are not ICO’s and this ruling does not have a direct impact on Bitcoin or Litecoin.  Of course, any related news will swing markets so dips are to be expected even when they are not directly related.

Will that be cash, card or Litecoin?

LTC_silverLitecoin has been making a splash in the cryptocurrency market this week, increasing value by nearly 45% in one week.  LTC (Litecoin) hit over $90 per coin on September 1, 2017, before pulling back to land around $77 on September 2, 2017.  A big contributor to the increase is around a new payment system called the Lightning Network and the successful testing of using Litecoin on the Lightning Network .  The Lightning Network will allow for even faster, lower cost micro-transactions (think a cup of coffee) using existing cryptocurrency (Bitcoin, Litecoin).

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Litecoin was released in 2011 by Charlie Lee; previously an Engineer at Google and then the Director of Engineering at Coinbase.  Mr. Lee announced in 2017 that he would be leaving his role at Coinbase to focus fully on the development of Litecoin.

LTC shares many features with Bitcoin but also includes some additional features such as faster transaction processing and has been faster to release new features.  LTC adopted SegWit (a streamlined method of processing transaction data) several months ahead of Bitcoin.

LTC is often referred to as the silver to Bitcoin’s gold.  This may prove to be a very good analogue as Litecoin is developed and could be the currency of choice for day to day spending and Bitcoin remains the choice for large purchases or as a store of value.  You can move value between Bitcoin and Litecoin using exchanges with just a few clicks.  Even though they are separate from one another they are deploying many of the same features and this will only work to move them closer together as a compliment to one another VS a competitor.  Both have adopted SegWit transactions and are compatible with the Lightning network.  Another way to think of the difference for how both may be utilized, think of the difference between a $100 bill and a $20 bill.  These bills are separate bills with the $20 being used for more day to day purchases and you can easily exchange 5x$20’s for $100 or vice versa.

There are currently 52,751,282 Litecoin in circulation with a max amount of 84 million Litecoin.  The current market cap (value of all LTC in circulation) is over $4 Billion as of Sept 2, 2017.  Litecoin can be purchased on nearly all exchanges such as Coinbase, Bitstamp, and Kraken.

What are your thoughts on the adoption of Litecoin as a day to day currency?

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Trezor releases Bitcoin SegWit support

Trezor releases SegWit (Segregated Witness) support.  Segwit will decrease the amount of data needed to complete transaction, increase the speed of transfer, decrease the cost/fee to complete a transaction, allow faster deployment of new features and improve security.

Full story can be found here:

https://blog.trezor.io/rolling-out-trezor-wallet-segwit-segregated-witness-5700269debc5

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