The Cryp­tocur­rency Rev­o­lu­tion

The Cryp­tocur­rency Rev­o­lu­tion

Trillions - - In This Is­sue -

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.

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