Cryptocurrency and the blockchain: A primer for dummies

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Cryptocurrency is not a term that falls trippingly off the tongue, nor does it have a place in most of our conversations. But it did have a significant role in the recent indictment of 12 Russian military officers accused of infiltrating and attempting to hack the 2016 election.

That cemented for me the idea that Bitcoin — the only cryptocurrency I was aware of — was a product of the Dark Web, reserved for underground transactions, ransomware, and other black-hat hacker activities.

But a different picture evolved after a few hours with David Pence, one of three managing directors of Treis Blockchain LLC and the founder/CEO of AcumenIT.

We’re standing in a relatively small room in an office suite alongside the Acumen offices. We’re straining to hear each other as two 25-ton air conditioning units drown out our voices. That roar is the only sound in this 21st-century mine where 150 super-fast processing units work 24 hours a day to validate cryptocurrency transactions, earning a percentage of the cut.

But this is just a starter set for Pence. The real deal is a mile or two away in a facility where workers manned manufacturing equipment, supervisors managed processes and employees, and a business chugged along. In contrast, its new tenants will be 4,000 small, rectangular, application-specific integrated circuits (ASICs), commonly called miners. They work at unprecedented speeds to validate Bitcoin transactions and log the data into mined “blocks” in an unbreakable “chain” forged by the validating processors.

These miners become part of the global chain gang that is working to approve Bitcoin transactions. Bitcoin’s security comes from this blockchain, which requires that 30 distributed systems validate each transaction. If any one system’s data appears different, it is dropped from the chain and another validating system picks up the task. Continuously, 24/7/365, these miners dig out transactions from the air all in search of the rewards, a small percentage of a big number — the number of Bitcoin transactions processed.

Pence says these can break down anywhere from $1 to $5 per unit per day, depending on the speed. In the original facility, there’s a mixture of processors from graphical processing units (GPUs) to ASICs. The new facility will be totally ASIC. You do this math: $5 times 4,000 times 365. The upside is huge, as is the investment. Pence is putting about $10 million into this venture. Although there are few real employees — the processors’ activities are monitored remotely by software — the electrical costs are astronomical. In fact, the new facility will fully max out Duke Energy’s capability at that site while using only about half the available space.

Pence is energized and excited. The darkness in this mine doesn’t concern him. The unknown is greeted with a shrug and a matter-of-fact “I don’t know.”

So now I understand what cryptocurrency mining is at a fairly high level, and I get the very real profit potential. But I’m still not clear about Bitcoin and other cryptocurrencies.

Is it transactional money or an investment? Turns out it’s both. There are cryptocurrency ETFs that are publicly traded, and there are apps for everyday people and businesses.

How did Bitcoin come to be? A group of developers wrote code to create a truly agnostic monetary system, tied to no country, no ideology. That code is upgraded and maintained by the Bitcoin Core Developers group. Says Pence: “Geeks rule the world!”

Are there actual physical Bitcoins? You bet; you can buy pretty ones on Amazon for $3.99, but they have no real value. Bitcoin is fully digital.

If there’s nothing there, how can I use it? There are a surprising number of apps to trade Bitcoin and to purchase with Bitcoin using a virtual wallet — just like Venmo and PayPal.

Where can I use Bitcoin? Want to buy a Tesla? You can use Bitcoin. You can buy furniture at Overstock.com. In 2016, Japan became the first country to recognize Bitcoin as legal tender, so if you are paying taxes there, yes, you can use Bitcoin.

But the cryptocurrency universe is a lot more than Bitcoin. There are more than 1,000 cryptocurrencies, many valued as low as a few cents. The top ones include EOS, which Pence also mines, Litecoin, and Ethereum.

In December, Bitcoin reached a high-value mark of $13,860; today as I write this, it’s at $8,123. If it’s an investment, it’s been dropping steadily since the heady days of late 2017. That volatility doesn’t bother Pence, who is banking on increased adoption of cryptocurrency. “All it will take,” he says, “is Walmart or Amazon to start accepting Bitcoin” to give legitimacy to the cryptocurrency universe.

Although cryptocurrencies are steadily swimming to the mainstream, some see its validation technology – the blockchain – as the real innovation, with the potential to disrupt many industries and systems.

Coming Up: What the same blockchain that drives cryptocurrency can do for small businesses.


Bitcoin Bytes

  • Total in circulation: 17.2 million
  • Total that will ever exist: 21 million
  • Market capitalization: $141 billion
  • New Bitcoins created each day: 1,800
  • The last Bitcoin will drop in: 2040

Why you should care

Cryptocurrencies are geopolitically agnostic. They can be used across borders without being subject to any country’s currency manipulation. They can be held as an investment with all the risks and rewards. Advocates call it the first global currency. Opponents, like Warren Buffet, call it “rat poison squared.” If you’re a geek, it’s just cool.

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