This weekend I attended the North American BitCoin conference in Miami Beach to visit Tony Gallippi, CEO of BitPay and a longtime friend. My curiosity for the crypto-currency brought me to the conference and my friendship with Tony inspired me to learn more about this revolution. I immediately asked Gale, my most intellectually curious Miami friend, to join me for the events. She hates that I call her Gale, but this is my blog and she will remain Gale for the purposes of anonymity.
At the conference we were a BitOverwhelmed (see what I did there) because this technology is so revolutionary it’s difficult to get your arms around it. Remember the Prodigy era? No? Welp, that totally ages me. Prodigy was essentially the gateway to the Internet before the Internet was the commonplace tool we have today… pre-AOL. Still don’t get it. It’s cool. Hang in there. I’ll make my point. BitCoin is like a gateway to something that may become so commonplace that we will think of currency exchange as a seamless tap of an app on your phone.
Now, while critics may have their reservations about BitCoin, I think its genius. (Libertarians – I accept gifts of vodka) BitCoin allows for a deregulated way to transfer currency without exchange fees and without transparency. Unlike traditional currencies like the Kuna (my fav currency name!), BitCoin has no central monetary authority ie. a Central Bank. And, BitCoin is essentially hedged like a commodity that can be interchanged for goods. You can’t really do that with gold or cheese without trading to a traditional currency first – and incurring all the trading fees.
So how are BitCoins created? Well, it’s elementary… actually… it’s really not… it’s quite complicated, but let me break it down as elementary as I can. BitCoins are mathematically generated through a peer-to-peer computer network and what is termed as BitCoin “mining.” The mathematics of this system are setup so it becomes increasingly harder to “mine” new BitCoins. There are are only 21million BitCoins and there is no way for a central bank to introduce new BitCoins to devalue its worth. The value is primarily driven through good ol’ supply and demand.
How does this transfer to Rupees? BitCoins, or portions of BitCoins called satoshis, can be sold for traditional currencies, like the Ruppee, on various exchanges, like CoinBase. A user can also transfer BitCoins directly to another user or merchant through various apps like BitPay that use a push system. The beauty of pushing currency, like PayPal, is that this decreases the risk of identity theft. Remember Target? Yea? Well credit cards are a pull system… they pull your information to send to a retailer or another party. Essentially they are extracting information from your credit card, and in the wrong hands, this information can easily be used against you.
All of this makes sense, so why are people going bananas against BitCoin? Well that’s easy. Change is scary. There are many unknowns with the infrastructure of the mathematics behind crypto-currencies, which can be scary for those that value regulation. It’s also hard to ignore that BitCoin has been in the news because of the recent busts of shady individuals involved with drug dealers and in money laundering. Is this BitCoin’s fault? Nope. But there are sketchy people out there, and used to them here in Miami, regulation and laws will help protect those conducting legitimate business with BitCoin.
So, will BitCoin it be the next Prodigy, Email, or Skype, or will it flop? The future is always uncertain that’s why taking risks in the financial world and in life are both exhilarating and scary. You can either jump on the BitCoin wave or sit on the shoreline….either way its good to do your research before you dive in.
PS: Satoshi could very well be my next favorite currency name.