The Cryptocurrency Revolution
The Cryptocurrency Revolution
Imagine if you could create your own money on a computer and then spend that money anonymously on a wide range of goods and services (legal and illegal).
What if you could also just buy the currency, hold on to it for awhile and then sell it for astronomical returns?
This was the reality for most of those who created or purchased Bitcoin, a digital currency that uses cryptography and is therefore called a cryptocurrency.
After trading at below Us$1,000/coin in 2016, Bitcoin started increasing in value in 2017 and peaked at a value of about US$20,000 before falling to its January 31 value of $10,000.
With more than 20 million coins created so far, all Bitcoins were worth more than $400 billion and are currently worth more than $200 billion.
The success of Bitcoin has generated more than a thousand other cryptocurrencies seeking similar success and inspired tens of millions of people to buy the computer hardware to create cryptocurrencies themselves. So many are now trying to get setup to generate various cryptocurrencies that some of the computer components and systems used to create Bitcoin and other digital currencies have become very expensive and hard to get.
A Brief History of Bitcoin
In 2008, a paper called Bitcoin – A Peer to Peer Electronic Cash System was posted on a mailing list discussion on cryptography by someone calling themselves Satoshi Nakamoto, whose real identity remains a mystery to this day.
In January of 2009, the first Bitcoins were made available to the public and the software released to allow others to start creating Bitcoins through a process called mining.
There is no single entity that governs Bitcoin and it is considered by many to be a currency by the people for the people with the potential to undermine existing economic power structures and reduce poverty.
The first transaction in Bitcoins occurred in 2010 when 10,000 Bitcoins were traded for 2 pizzas. This inspired others to start accepting Bitcoins and more transactions followed.
By 2013, Bitcoin reached a value of $1,000 for the first time but then plummeted to around $300 in 2014. It didn't climb back up to $1,000 until January 2017.
The greatest contributor to Bitcoin's early success was an online market hidden on the Dark Web called Silk Road that was created to sell marijuana in Feb-
ruary 2011. Bitcoin made buying and selling drugs on Silk Road anonymous and at its peak Silk Road was doing tens of millions of dollars in business each month.
Before it was shut down, Silk Road had 13,756 listings for all types of drugs. Other products included fake IDS, explosives, weapons and even human organs.
Silk Road was shut down when its founder and owner, Ross Ulbricht, was arrested in October, 2013. It had taken the FBI and DEA nearly two years to track him down and shut down the site. Ulbricht was convicted of engaging in a continuing criminal enterprise, narcotics trafficking, money laundering, and computer hacking and was sentenced to life in prison.
The publicity surrounding Silk Road created widespread awareness of Bitcoin and it started gaining greater acceptance. Today there are hundreds of thousands of merchants who accept Bitcoin and other digital currencies. Even Microsoft and Overstock.com accept Bitcoin.
Enter the Blockchain
Bitcoin and most other cryptocurrencies are based on what is called blockchain technology.
Blockchain is leading a revolution in digital record-keeping because it provides a mechanism for anyone with an Internet connection to transfer assets and maintain records of transactions with unmatched security, efficiency and integrity.
A blockchain is like a public but anonymous ledger of transactions maintained by multiple nodes that synchronize their ledger with other nodes.
Each transaction is called a block and each block is connected to others and secured using cryptography. The encryption prevents anyone from modifying the ledger.
Even if someone were able to add a fraudulent transaction to the ledger, the transaction would be rejected by the other nodes, unless more than 50% of them were corrupted by the same fraudulent transaction at the same time.
Blockchain technology is being widely adopted for other applications. The country of Georgia is moving property records onto Blockchain. Dubai plans to move all official transactions onto blockchain by 2020. Estonia is transferring health records onto blockchain. Last year, Ukraine started auctioning government seized assets using blockchain to record the sales. The U.S. General Services Administration is using blockchain for some contracts. Banks are starting to incorporate blockchain technology for their record keeping as well.
Mining Bitcoin & Other Cryptocurrencies
Not all digital currencies require mining but Bitcoin and many others do as a way to create scarcity and require proof-of-work. Mining Bitcoins requires solving a math problem that becomes increasingly difficult as the number of Bitcoins grows. At first, one could just use a standard computer. As the problems got harder it was discovered that using a computer video card (graphical processing unit - GPU) to do the calculations was much faster and used less energy.
Then along came special computer chips just for mining Bitcoin called application-specific integrated circuits (ASIC). ASIC machines mine at unprecedented speeds while consuming much less power. The current leader in Bitcoin mining rigs is the Antminer S9, but good luck finding any actually for sale. Most units manufactured are sold only to very large buyers who spend millions of dollars to setup huge warehouses with racks of ASIC mining machines.
So great are the power requirements for mining Bitcoin that recently two power plants in Russia were sold to Bitcoin miners.
According to Morgan Stanley, so massive is the effort of people to mint their own money that it is consuming as much electrical power as the country of Argentina. The bank’s analysts predict that cryptocurrency mining could use up more than 125 terawatt hours of electricity just this year.
Because most people lack the resources to buy the hardware needed to mine Bitcoin at its current difficulty level, they use the hardware they can get and join large mining pools with enough collective computing power to actually solve the math problems and are rewarded with a portion of coins based on their contribution.
At the current level of difficulty and coin value, it is no longer economical to mine Bitcoins and those still mining are hoping that the value of the coins will go back up.
The shortage of ASIC machines and current difficulty in solving the Bitcoin math puzzles has left aspiring
miners with no option but to return to GPU mining rigs and mine other cryptocurrencies but there is currently a shortage of more powerful GPUS.
Some computer stores are diverting their GPU stock to over-priced DIY mining kits as a way to maximize their profit without being charged with price-gouging.
Most computer motherboard manufacturers now make boards specifically for GPU mining, such as the ASUS B250 Mining Expert board, which can connect to 19 GPUS but requires three 850 watt to 1kw power supplies to power all of them.
The Hype, Hysteria & Reality
The reality that you really can make your own money and get away with it has taken hold of tens of millions of people around the world and is driving a global phenomenon that the world has never before experienced.
There have been a wide range of wild claims and predictions about cryptocurrencies. Some claim they are just a temporary fade while at the other extreme are some prominent and respected people claiming that Bitcoin will be valued at $1 million by 2020.
While DIY digital currencies are being accepted as being real and legal in some countries and are widely traded around the world, some countries have already banned them or are preparing legislation to do so.
Thailand deemed Bitcoin illegal back in 2013 but has since softened its stance on cryptocurrencies.
On January 30, new regulations came into effect in South Korea intended to reduce the funding of criminal activity through digital currencies.
The Kremlin rails against cryptocurrencies through its propaganda organs but has drafted legislation to create its own Cryptoruble and ban all others. It is expected to implement the ban this year. In early January Visa suspended Bitcoin debit cards in Europe.
Facebook recently banned all ads for digital currencies.
Because indy digital currencies have questionable or no legal basis, aren't being taxed and do facilitate criminal activity, it is inevitable that they will be widely banned or heavily regulated in most countries and it is unrealistic or delusional to believe otherwise.
However, digital currencies and the blockchain revolution are here to stay and the disruptions they cause will change the world as we know it.
Hundreds of blockchain 2.0 projects are creating solutions to problems in new ways.
Several countries are already or will soon be deploying their own digital currencies and have or will likely ban all others, at least at first.
Venezuela recently announced that it will start accepting pre-orders on February 20th for its Petro, which it claims is backed by its oil, gas, gold and diamonds. The country hopes to use the digital currency as a way to circumvent sanctions placed on it for its anti-democracy oppression and resistance to U.S. domination.
One of the greatest values of cryptocurrencies is that they have shown humanity that money can be something other than state currency and that the poverty manufactured by state control and national currencies can be circumvented.
With the decline of the U.S. dollar and rise of China's yuan, digital currencies can shift the balance of power away from oppressive super-powers and give the people more power.
However, usage of cryptocurrencies will also stimulate greater state control as governments make efforts to retake control over the money supply and commerce and restore taxation.
What is certain is that the cryptocurrency genie can't be put back in the bottle and the disruption to state power will continue.