Bitcoin
IMPORTANT DISCLOSURE - This page is for educational purposes only, and the Baron Group offers no opinion to the validity of Bitcoin and the Blockchain.
What is Bitcoin?
Bitcoin is a digital currency that was created in January 2009. It follows the ideas set out in a whitepaper by the mysterious and pseudonymous Satoshi Nakamoto.1 The identity of the person or persons who created the technology is still a mystery. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and, unlike government-issued currencies, it is operated by a decentralized authority.
Bitcoin is a type of cryptocurrency. There are no physical bitcoins, only balances kept on a public ledger that everyone has transparent access to. All bitcoin transactions are verified by a massive amount of computing power. Bitcoins are not issued or backed by any banks or governments, nor are individual bitcoins valuable as a commodity. Despite it not being legal tender, Bitcoin is very popular and has triggered the launch of hundreds of other cryptocurrencies, collectively referred to as altcoins. Bitcoin is commonly abbreviated as "BTC."
How Bitcoin Works
How exactly to categorize Bitcoin is a matter of controversy. Is it a type of currency, a store of value, a payment network or an asset class?
Fortunately, it's easier to define what Bitcoin actually is. It's software. Don't be fooled by stock images of shiny coins emblazoned with modified Thai baht symbols. Bitcoin is a purely digital phenomenon, a set of protocols and processes.
It also is the most successful of hundreds of attempts to create virtual money through the use of cryptography, the science of making and breaking codes. Bitcoin has inspired hundreds of imitators, but it remains the largest cryptocurrency by market capitalization, a distinction it has held throughout its decade-plus history.
What is the Blockchain?
Bitcoin is a network that runs on a protocol known as the blockchain. A 2008 paper by a person or people calling themselves Satoshi Nakamoto first described both the blockchain and Bitcoin and for a while the two terms were all but synonymous.
The blockchain​ has since evolved into a separate concept, and thousands of blockchains have been created using similar cryptographic techniques. This history can make the nomenclature confusing. Blockchain sometimes refers to the original, Bitcoin blockchain. At other times it refers to blockchain technology in general, or to any other specific blockchain, such as the one that powers Ethereum​.
The basics of blockchain technology are mercifully straightforward. Any given blockchain consists of a single chain of discrete blocks of information, arranged chronologically. In principle this information can be any string of 1s and 0s, meaning it could include emails, contracts, land titles, marriage certificates, or bond trades. In theory, any type of contract between two parties can be established on a blockchain as long as both parties agree on the contract. This takes away any need for a third party to be involved in any contract. This opens a world of possibilities including peer-to-peer financial products, like loans or decentralized savings and checking accounts, where banks or any intermediary is irrelevant.
While Bitcoin's current goal is a store of value as well as a payment system, there is nothing to say that Bitcoin could not be used in such a way in the future, though consensus would need to be reached to add these systems to Bitcoin. The main goal of the Ethereum project is to have a platform where these "smart contracts" can occur, therefore creating a whole realm of decentralized financial products without any middlemen and the fees and potential data breaches that come along with them.
This versatility has caught the eye of governments and private corporations; indeed, some analysts believe that blockchain technology will ultimately be the most impactful aspect of the cryptocurrency craze.
In Bitcoin's case, though, the information on the blockchain is mostly transactions.
Bitcoin is really just a list. Person A sent X bitcoin to person B, who sent Y bitcoin to person C, etc. By tallying these transactions up, everyone knows where individual users stand. It's important to note that these transactions do not necessarily need to be done from human to human.
Anything can access and use the Bitcoin network and your ethnicity, gender, religion, species, or political leaning are completely irrelevant. This creates vast possibilities for the internet of things. In the future, we could see systems where self-driving taxis or uber vehicles have their own blockchain wallets. The car would be sent cryptocurrency from the passenger and would not move until funds are received. The vehicle would be able to assess when it needs fuel and would use its wallet to facilitate a refill.
Another name for a blockchain is a "distributed ledger," which emphasizes the key difference between this technology and a well-kept Word document. Bitcoin's blockchain is distributed, meaning that it is public. Anyone can download it in its entirety or go to any number of sites that parse it. This means that the record is publicly available, but it also means that there are complicated measures in place for updating the blockchain ledger. There is no central authority to keep tabs on all bitcoin transactions, so the participants themselves do so by creating and verifying "blocks" of transaction data.
Bitcoin and Crypto Exchanges
What Is a Bitcoin Exchange?
A bitcoin exchange is a digital marketplace where traders can buy and sell bitcoins using different fiat currencies or altcoins. A bitcoin currency exchange is an online platform that acts as an intermediary between buyers and sellers of the cryptocurrency.
KEY TAKEAWAYS
A bitcoin exchange acts as the intermediary between a seller and a buyer or, to use cryptocurrency language, between a "maker" and a "taker."
A bitcoin exchange works like a brokerage, and you can deposit money via bank transfer, wire, and other common means of deposit. However, you will often pay a price for this service.
If a trader wants to trade between cryptocurrencies, they will pay a currency conversion fee, similar to institutional banks when you trade money from different countries.
Purchases and sales are based on the same ordering system as existing brokerages, where a buyer (taker) places a limit order which is then sold when a corresponding cryptocurrency is available from the seller (maker).
Can an exchange be Hacked and is it safe to keep your Bitcoin there? Well, the Answer is yes they can be hacked, and here is a story of a recent Hack at KuCoin the Singapore Exchange. Even though this Hack turned out OK for the customer account holders, make sure you understand the risk before you open an account anywhere, and especially on an exchange. It doesn't always work out so favorable. (Mt Gox 740,000 Bitcoin hacked and stolen)
Hacked Crypto Exchange KuCoin Resumes Deposit, Withdrawal Services for All Tokens
Nov 22, 2020 at 8:48 a.m. CST Updated Nov 23, 2020 at 9:19 a.m. CST Story by Kevin Reynolds and Daniel Kuhn
Hacked Crypto Exchange KuCoin Resumes Deposit, Withdrawal Services for All Tokens
KuCoin, the Singapore-headquartered digital asset exchange that was hacked to the tune of $281 million in September, said it has restored the deposit and withdrawal services of all tokens as of Sunday. Due to ongoing judicial proceedings for some tokens, daily withdrawal limits will be put in place for a few tokens, the exchange said. Those limits will be removed after the judicial process has been completed, KuCoin said. In the meantime, those tokens with daily limits will have zero trading fees, the exchange said.
KuCoin’s $281 million security breach is among the largest in cryptocurrency history. One or more hackers obtained the private keys to the centralized exchange’s hot wallets, gaining control over vast quantities of bitcoin, ether, tron (TRX, +6.61%), XRP, stellar (XLM, +26.8%) and various ERC-20 tokens, among others. KuCoin immediately moved to freeze all wallets and disable services. At the time, exchange CEO Johnny Lyu said any stolen customer funds would be “covered completely” by an insurance fund. KuCoin is one of the most active cryptocurrency exchanges, with daily average volumes of over $100 million, according to the cryptocurrency data site CoinGecko.
As of Oct. 7, the exchange has recovered some $204 million of the stolen crypto, and has made headway into identifying a suspect.
FYI - The Mt Gox 740,000 Bitcoin that was hacked now has a market value of about $34 billion.
A cryptocurrency wallet is a device, physical medium, program or a service which stores the public and/or private keys for cryptocurrency transactions. In addition to this basic function of storing the keys, a cryptocurrency wallet more often also offers the functionality of encrypting and/or signing information.
Types of Bitcoin wallets
There are a few different types of Bitcoin wallets used today, and each of them come with their own tradeoffs between security and convenience: simply there are wallets for holding your everyday spending money (hot wallets) and there are wallets for your long term savings (cold wallets). There are even several types of both hot and cold wallets.
It is simply important to remember that whoever controls the private keys controls the bitcoin attached to those keys. A misunderstanding of this point has led to hundreds of millions of US dollars being lost in the past, so it’s important to understand this key difference in how Bitcoin private keys can be stored.
For now, just know that private keys are what you need to protect if you want to keep your bitcoin safe from hackers, user error, and other possible issues.
Hardware Wallets
Iphone , Android, and Desktop Hot Wallets
Outstanding 2 part Podcast with Michael Saylor
Modeling Bitcoin's Value with Scarcity written by Twitter user PlanB.
What is Bitcoin
Bitcoin is the first digital object that cannot be copied, duplicated, pirated or forged. Those are the primary attributes that give its unique value. Bitcoin is the first digitally scarce thing known to mankind, and within its inner workings is a Mathematical mechanism that should make Bitcoin's value continue to rise. Each bitcoin is mined from so-called "blocks". A block is a 1MB piece of information that describes all transactions that take place within a period of time. A new block is generated roughly every 10 minutes. The Bitcoin network has been generating blocks, uninterrupted ever since its inception. The first block (genesis block) was generated on the 3rd of January 2009 and the reward for mining it was 50 bitcoins (BTC). Every subsequent block had the same mining reward but on every 210,000 generated blocks there is an event called "halving" which cuts, in half, the reward value distributed to miners from that moment on. In other words from block 210,000 onwards the reward is halved to 25 BTC; from block 420,000 onwards, it's halved to 12.5 BTC; and so on. Since blocks are generated every 10 minutes, "halving events" take place every 35,000 hours: almost exactly every 4 years.
Why are halvings important
Halving events will continue taking place until the reward for miners reaches 0 BTC. Since Bitcoin's value representation has 8 decimal places, after the 33rd halving, the value of the reward will hit precisely 0 BTC. 33 halving events every 4 years adds up to 132 years total. The last Bitcoin to be mined into existence will be mined in the year 2140. It will be the 21 million'th Bitcoin to come into existence, and last, after which point it will be impossible to create anymore. From then on, Bitcoin will become truely 'deflationary', since "printing" / "minting" / "mining" new coins will no longer be possible, and if owners keep on losing their private keys, as they currently are, then the supply would further deflate by that lost-keys ratio.
What is Bitcoin stock to flow
The 'Stock-to-flow' is a number that shows how many years, at the current production rate, are required to achieve the current stock. The higher the number, the higher the price.
How does all this affect bitcoin price
As previously mentioned, it is not possible to copy or forge Bitcoins, and the total supply is strictly limited. All transactions are written in blocks, i.e 'the blockchain', and nobody can spend coins that belong to someone else's bitcoin address. A Bitcoin address is akin to a bank account in which you can make deposits, but without providing access to the all important private keys that are required to spend its contents. That is where "scarcity" comes into play. The dictionary definition of scarcity is when something is difficult to come across in nature or in the lab; very similarly to precious metals. Once something becomes scarce enough, it can be used as a money. Stock to flow is defined as a relationship between production and current stock that is out there.
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