» Bitcoin surges in popularity: Commons questions answered for you
It’s a currency system unlike anything used in the U.S., or any other country. Critics say bitcoin, and other cryptocurrency, is volatile and unpredictable —its price determined by open-market bidding on bitcoin exchanges. The worth of bitcoin could be compared to the way that gold prices fluctuate — in the sense that gold has value because people believe it does.
Some say bitcoin is the preferred choice for those who use it for illegal transactions. “Unsavory characters in our society” often utilize cryptocurrency, said Natalie Dunlevey, president of National Processing Solutions, a credit card processing and data security company in Dayton.
Still, cryptocurrency experts say it’s here to stay and will transform the way money is exchanged.
“There’s no one demographic,” Campbell said of the cryptocurrency enthusiasts who congregate at his pawn shop. “We get older white guys using it, Asians, young black kids. You name it. Everyone wants a piece of it.”
|Glossary of terms|| |
|Cryptocurrency||a digital or virtual currency that is not regulated by any central authority or government|
|Bitcoin||a decentralized, peer-to-peer, global cryptocurrency and payment system created in 2008 by an unknown programmer called Satoshi Nakamoto|
|Blockchain||a global network of computers that tracks and creates a database of all bitcoin transactions|
|Bitcoin mining||the process of how bitcoin transactions are verified and added to the blockchain, resulting in new bitcoins being released|
|Coinbase||one of the leading digital currency exchange brokering cryptocurrencies Bitcoin, Bitcoin Cash, Ethereum, Litecoin|
The fledgling world of cryptocurrency started as a mystery.
An unknown programmer known as Satoshi Nakamoto, who communicated solely through email and electronic messaging, introduced bitcoin in 2008. The next year, Nakamoto created the original rules for the Bitcoin network and released the software out into the world. It was the first cryptocurrency, or virtual currency, ever created.
Satoshi’s real identity has never been confirmed, and the programmer has largely vanished from the cryptocurrency scene. Nakamoto has no more control over the network than anyone else using it. Cryptocurrency is complex, ever-evolving and even more confusing for people wondering if they should invest in bitcoin over stock.
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The basics take some time for investors to understand, said Jad Mubaslat, a Wright State University graduate student and founder of BitQuick.co, an online bitcoin trading platform. He got started in the crypto scene in 2013 as an undergraduate student at the Ohio State University, where he founded a student bitcoin club.
“I tell people it’s a digital currency and it’s a program,” Mubaslat said. “For the first time in history, it allows anyone anywhere in the world to send any amount of money instantly. Most importantly, it’s without a third party … like a bank or a government. Now, you can truly send your money without somebody telling you what you can or cannot do.”
A bitcoin can be divided out to eight decimal places, so a user can send another person 0.00000001 bitcoin — equal to less than one cent in U.S. currency. Half of a bitcoin would cost about $8,500 currently. Millions of people buy bitcoin around the world, and all of these transactions are kept track of by a decentralized network of computers around the world — not by a government or bank.
There are plenty of advantages to using bitcoin. There are no third-party interruptions when transferring or purchasing bitcoin, and users can access and pay for their coins anywhere they have Internet access. It’s also easier and faster to transfer large sums of currency across international borders than money wires or bank transfers.
Anyone can join the computer network, and about 9,500 computers were in the network as of late 2017. The record of these bitcoin transactions on the network is known as the blockchain — essentially a permanent ledger, according to local experts.
There are about 16.7 million bitcoin in existence today, but it’s expected to grow. To make more bitcoin — and provide a bigger return on their investment — savvy programmers within the blockchain network have to “mine” for more tokens. Programmers essentially compete in a race to process new transactions on the blockchain.
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The winner, usually someone with specialized hardware who can process transactions the fastest, wins 12.5 bitcoin right now. According to the bitcoin network rules, which are decided by everyone maintaining the blockchain, the mining reward is halved every four years. Anyone can set their computer up to mine bitcoin.Satoshi made it such that the bitcoin network would have a finite amount of digital tokens — new coins will only be mined until there are 21 million in existence, which is expected to happen in the year 2140.
Mubaslat thinks that once people understand digital currency, it will be the primary, preferred form of currency in the future. But he cautioned people to spend time learning about bitcoin before throwing their money around.
“It still requires a fair amount of education before you really jump into the waters,” he said. “You gotta be comfortable with it being completely digital, and that’s where we’re going to see this generation gap really pop up. The younger generation is already comfortable with things like PayPal and mobile banking. As far as they’re concerned, all of their money is already zero and ones.”
Buying bitcoin has gotten far easier than it was in the early years of its inception. Websites like Mubaslat’s BitQuick.co have popped up, where users can buy or sell cryptocurrency, or crypto as users call it. Users download a virtual wallet, often an app like Blockchain or Jaxx Cryptocurrency Wallet. The wallets give users an address where cryptocurrency can be sent from other users, but most websites require users to link to a bank account.
Another, more anonymous way to buy bitcoin is through a bitcoin ATM or meeting up with another person. Users can trade bitcoin from wallet to wallet by scanning a QR code with their smartphone and entering the amount of bitcoin they want to trade. Mubaslat said trading in person or through a bitcoin ATM will result in your bitcoin transfer happening faster.
“When you’re using some of these services that are completely online, Coinbase or a lot of these traditional exchanges — you’re looking at a three-to-five day on-boarding process,” he said. “You have to wait either for the bank transfer to clear or you have to wait for your account to be approved. The difference is, do you want the bitcoin today or do you want to wait three to five days?”
Cole Honeycutt, a 24-year-old from Yellow Springs, buys and sells cryptocurrency both in person and online. The blonde-haired entrepreneur got into bitcoin as a hobby through gaming. He accumulated “quite a bit” of bitcoin in 2013, and maintained his day job working for a military contractor.
“It was easier to pay for game credits,” he said.
Now he mines and trades cryptocurrency as his sole income. He’s busy throughout the day with interested buyers — trading crypto for cash online and in person. He meets buyers mostly through his Facebook page and paxful.com, a virtual kiosk.
“I’ve got a good thing going,” he said. “I don’t do as many face-to-face trades, maybe three or four a week.”
Honeycutt said his experience has been birth by fire — he’s been scammed twice and everything he knows is self-taught. However, he says he’s received a 150 percent return on his initial investment, and he’d like start a chain of bitcoin ATMs in the Miami Valley or open a coffee shop with a bitcoin ATM.
Though initially skeptical, now his friends and family often solicit his advice on investing, he said. His mom even owns three Litecoin, another digital currency.
“They thought I was a nerd, which I kind of am,” Honeycutt said. “It’s pretty cool. It’s fun to get someone to download a wallet and get involved. You don’t need much. You can literally invest $50 and get started that way.”
‘Stay away from it’
Some skeptics argue that bitcoin is volatile, unregulated, unpredictable and unsustainable. For one, its price has been on a roller coaster of ups and downs — soaring above $19,000 and then dropping back down to $15,000 — causing some investors to predict its sharp decline in the next few months. Billionare Warren Buffet famously criticized the cryptocurrency in 2014, calling it a “mirage.”
"Stay away from it," Buffett said on CNBC in 2014. "The idea that it [bitcoin] has some huge intrinsic value is just a joke in my view."
Dunlevey, whose company handles credit card transactions, said virtual currency has limited appeal, and she can’t imagine a baby boomer buying into the idea.
“With deregulation, it’s completely decentralized,” she said. “There’s nobody in charge of it. You’re regulating all of this money by mob, which I think is scary.”
Most transactions on the Bitcoin network aren’t illegal — it’s typically people buying and selling bitcoin to each other. People in countries with high inflation or unstable governments are putting their money into bitcoin to avoid losing their savings. It’s also used to transfer large sums of money internationally. It is quicker to transfer bitcoin than it is to go through a bank transfer, which can take weeks.
As more cryptocurrency pops up and it gets traded on mainstream exchanges, more issues are popping up. Youbit, a cryptocurrency exchange in South Korea, announced this week that it would shut down after being hacked for a second time this year. The exchange lost 4,000 bitcoin in April during a cyberhack.
Others worry about insider trading since it is an unregulated currency. Coinbase, one of the leading cryptocurrency exchanges, is looking into possible insider trading of Bitcoin Cash, the spin-off currency of bitcoin.
Bitcoin Cash was created in August after developers became frustrated at extended transaction times for mining bitcoin. Bitcoin Cash solved the problem by tweaking the blockchain technology to allow bigger chunks of data to be processed at a time. Coinbase has temporarily suspended the trade of Bitcoin Cash after market watchers posted on social media about illegal training.
Dunlevey said bitcoin’s massive valuation has peaked people’s interest, but she cautioned that people should consider sticking with the stock market unless they have a real need for cryptocurrency in their lives. Although she’s heard people say buying bitcoin now is like buying Google stock in its early days, she doesn’t think the comparison is even remotely valid.
“You can’t compare the two,” she said. “Bitcoin is an animal we’ve never seen before.”
Here to stay?
Bitcoin is just the start of a cryptocurrency and the technology it utilizes, local entrepreneurs say. Other popular cryptocurrency includes Ethereum, Ripple, Litecoin, Bitcoin Cash and Monero. Digital cryptocurrencies are being created for all types of uses like PotCoin, which is a digital currency and banking solution for the global legal marijuana industry. There’s Titcoin, a cryptocurrency for the adult entertainment and sex worker industry.
For Michael Hiles, an entrepreneur and Eaton resident, the underlying blockchain technology has been an opportunity to start a new business. Hiles founded Cincinnati-based startup 10XTS, a venture lab that builds enteprise blockchain products and solutions for various industries.
Blockchain technology is useful for more than just bitcoin. It can be used for tracking ownership, digital assets and even voting rights. It can create new ways to do business and offer new services to people throughout the world, the startup community claims.
“I think in 10 years, it’ll find its way into every industrial space,” Hiles said. “Just like the internet, no one ever thought it would do what it did, but here we are 20 years later and it has disrupted every industry segment. I expect that same impact with regards to blockchain-related applications.”
The Dayton Daily News will explore what’s really going on with cryptocurrency. Stay tuned for more stories coming, including:
• Crime and cryptocurrency: How local criminals are using bitcoin illegally
• I bought bitcoin. Here’s what I learned
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