While Bitcoin tends to make most of the headlines, blockchain and Initial Coin Offerings (ICOs) are being seen as an opportunity to change business models, and eventually and potentially industries. As Bitcoin, Litecoin, and all the other cryptocurrencies find their footing in volatile moves, RCM Alternatives sat down with three crypto experts to talk the fundamentals of the space as well as what could be the dangers and investment solutions for investors in the future.
One launched their own Bitcoin/Crypto Fund, another sold $80 Million in coin offerings in six minutes, and the third is an investor in Uphold, a value directory that allows you to own gold, bitcoin, and other investment vehicles all in one location. But before we get to their insights, let’s first look at the basics from Ben Upward, Managing Principal of Synchronicity.
What is Bitcoin?
Ben Upward: “Simply it’s a piece of software. It’s a payment system. Think of visa or mastercard. Those are the payment systems we know best. You go online you go to a merchant you swipe your card and all these zeros and ones that probably end up in this server in the mountains of Colorado. It’s giant server farm owned by one giant corporation. Why is that significant? One, because you have one certain point of failure. If I’m a hacker (think Equifax), one thing to concentrate on. The other thing to think about. There’s one CEO in charge of VISA and mastercard and theoretically they can turn your credit off anytime they want.”
What is a BlockChain?
Ben: “It’s a ledger. It’s a piece of paper. It’s a record that keeps getting updated. It’s just like a normal database. The difference is they use math called cryptography to make it more secure. These computers are across the world. There are two different kinds. For simplicity sake, there are miners and nodes. The miners do all the hard work. They run the system and try to solve problems. They are trying to take all these transactions and put them on to this ledger, this central blockchain. They are in a big competition. Every 10 minutes there’s a new competition and whoever wins, whoever solves the crazy math problem gets a certain amount of bitcoin. And that’s how bitcoin goes from 17 million in circulation to 21 million by the year 2040 (which is when most of the coins will be mined).
Then there’s another group of computers running the same software that are like the accountants. Those are the nodes. We see all the transactions these computers put together, this miner put together, the last ten minutes. We are going to double check and make sure that no one counterfeited, no one double spent anything. Once all the those checks are completed, the transaction goes through.
How long does a transaction take?
Ben: For example, when you go to a kiosk, that has a new coin of sale and you want to pay with bitcoin, and you put your QR code up there, basically those 1s and 0s go across the bitcoin network and into something called the mempool. And every ten minutes, those transactions are cultivated by the miners, OK’d by the nodes, and you have a confirmation for your transaction. With VISA, if could take merchants three of four days to get that money back in their bank account after the customer swipes their card. With Bitcoin, it only takes ten minutes.
What are some Bitcoin Issues?
Ben: Every 10 minutes, when those transactions are pulling in and those miners are trying to make that block. That’s a limit. Only 1 megabit. As the network became more popular, more and more transactions came in and it became really hard to fit them all and it couldn’t fit them all in one block. So miners would have to wait for the next block. There’s an economic incentive, with a free market model, you could put a higher fee in, and pay a little bit more with my fee to get this thing processed. We’ve seen some really big spikes as adoption as grown. That made it a little bit less than that ideal form, which is peer to peer exchange. Fees used to be at five dollars and they’ve come down to about two dollars. Which is still too high to do the day to day, which is why you’ve seen bitcoin used for bigger purposes.
This is just the tip of the iceberg when it comes to understanding cryptocurrency, blockchain, and Bitcoin. To hear more from Ben, download our recording of the crypto webinar and be on the lookout for more excerpts from the webinar on the blog!