The Mystery & Appeal Surrounding Bitcoin Continues

Important Information For Every Serious Investor and Businessman

Simply put, it is money. The idea of money was first invented before the beginning of written history. So the idea is not new. But what exactly is money? Does a coin really have any value or is it an idea? If you think about it, a coin today really has no value like a hammer (assuming it is made with valueless materials). You can’t do anything with it. The coin only has value if enough people agree that it has value. There are coins from defunct countries that exist today with no value. That is because enough people agree it has no value. Interestingly, we don’t all have to agree to its value. Intrigued? Read on.

Bitcoin is Similar to Art

Art has a similar concept. Take my original Van Gogh painting from my private collection which hangs in my formal living room. Perhaps you disagree with its multimillion dollar price tag. Enough people agree on its value and that sustains it. That gives me comfort that I can sell it at a profit or simply keep it because it brings me joy and I love art. You can apply this concept to Bitcoin and other cryptocurrencies. The world is more connected and virtual than ever before and there is no going back. This is why I started my company afterall. I believe this global concept will sustain the cryptocurrencies because there are enough people who will place value on it, even if you don’t.

So what exactly is it and why should you care? How do you get it? Where does it come from? So many questions! Isn’t this fun? Bitcoin is a digital coin (digital currency) without a central bank or government. It can be used for payment through the Internet on the bitcoin network. You can send and receive money (Bitcoin) just like a US Dollar or any other imaginary object we’ve all placed value on which we call “money.” Here’s how it works at a very basic level. Each transaction (transfer of coins) is verified in a public ledger which is connected via nodes. This ledger is connected in multiple places around the world, therefore exists in multiple places. This is called Blockchain. Without getting into the weeds, the ledger (blockchain) is how the money is verified, traced, and recorded to ensure each person has a valid account by the use of a private key. Since the ledger is open to anyone and can be verified by anyone, we can all agree on its existence and the inability to manipulate the balance. The important part to know is your identity is never known or needed. This allows you to get off the grid financially.

Where do Bitcoins Come From?

The coins come from mining. There is a process in place which requires people/companies to mine for the coins similar to mining for gold. This is complicated, but here is a very elementary explanation. The mining is a record-keeping process to keep the blockchain consistent and accurate, which is performed by companies using high-performance mining hardware. They create a “block” which is the process of recording and grouping new transactions linked to the previous block and giving the blockchain its name. This new block must be accepted by the rest of the network using a “proof of work.” This process is basically solving a puzzle which is very time consuming. The software and networks control the amount of coins mined (released) with a cap of 21 million. So there is monetary policy in place and methods to control the release and the scarcity.

Ultimately, Bitcoin is generated, recorded, verified, and controlled by the people of the world and invisible to governments. That makes governments worried. Currency risk is scary enough but think about invisible global commerce and the tax evasion that comes with it. It isn’t simply terrorism governments are worried about. Imagine a world where nobody in the world can know your financial situation. The nefarious activity is limitless. The scary part is when good people wind up making bad decisions.

The US has pretty interesting banking laws which creates controversy among many citizens. The laws were put into place to combat money laundering and terrorism. The banks are required to report certain activity to the authorities without letting their customers know. For example, depositing or withdrawing $10,000 cash is an automatic report to the authorities. Break that up into several deposits and the bank may still report you. The US government has ultimately made banks perform surveillance on citizens that go beyond terrorism. A case study is that of Eliot Spitzer. He is a Harvard trained attorney and the Governor of New York until he was busted by his bank for his involvement with a prostitution ring. His bank reported him to the authorities and the investigation ensued. If you make any transaction the bank deems suspicious, they are required to file a Suspicious Activity Report (SAR) and they are not allowed to inform you. For more info, research the Bank Secrecy Act and Patriot Act.

What About Government Surveillance?

Don’t break the law and you have nothing to worry about. That is my personal philosophy. However, there is a large and growing number of citizens who are starting to become more aware of government surveillance of citizens and don’t like the idea of being spied on. Americans are especially proud of their freedom. The US is not the only country with banking laws which require them to spy on their citizens. It is common around the globe. A new generation is coming of age and questioning authority. This line of questioning is nothing new. History repeats itself. Citizens challenge governments when they feel their rights are being violated. Even citizens with no malicious intent will be attracted to a monetary system where a government cannot spy on them.

Like it or not a global, digital currency is the future. The US dollar has primarily been the global currency in recent times, but I think that will go away as the world shifts to an independent non-government currency. So, the question is when will you buy some, not if.

Full disclosure – I don’t have a Van Gogh painting. It just made for a great read and helped me make the point.

– Nick