BITCOIN — !WHAT IS IT, AND HOW CAN I BENEFIT?
• DrJOstrowick
Disclaimers
• TheauthorsofthispresentationdonotrepresenttheBitcoinorganisation(thepeoplewhomaketheoriginalsoftware)
• Noneofthelinkshereareaffiliatemarketinglinksintendedtoinduceyouintosigningupforpaidservices.
• Idonotguaranteethatyouwillmakemoneyoffinvestmentintoanyofthecryptocurrencies.
• IamnotanFAIS/FSPandcannotgivefinancialadvice.• Ifyoudecidetoinvest,anylossesareyourfault.• Ifyoudislikeanythinginthispresentationorwishtoproposeany
correctionsoramendments,pleasecontactmeandIwillhappilyoblige.
Contents
• WhyshouldIinvest?• AdoptionCurve• OtherCoins• InitialCoinOfferings• IsitMoney?• LegalIssues• InterestingPoints• Recommendations• Links
• WhatisBitcoin?• History• WhatisBlockchain?• HowtouseBitcoin• Whatis“Mining”?• Spottingscams• UsingandInvesting• Receivingfunds
• Acryptocurrency(meaningahiddencurrency–nottheonlyone,aswe’llseelater)
• Akindofmoney(orcommodity,debatable—willdiscusslater)• Highlydivisible(e.g.youcanuse1/1000thofaBTC).No
“cents”.YoumightseeµBTC,forexample.• Itisjustarecordofatransaction(thinkofyourbankstatement)• …keptinatransactionledger(recordoftransactions)…• …calledablockchain.• Transactionsareanonymous• Itisadeflationarycurrency(moneygetsmorevaluable,goods
getlessvaluable).Oppositeof“fiat”currenciesissuedbygovernments.Badforspending,goodforinvesting.
WhatisBitcoin?
• Apseudonymousjournalarticleby“SatoshiNakamoto”wasreleasedin2009alongwithsomeOpenSourcesoftware
History
• The“Blockchain”iseffectivelyadistributedpeertopeerdatabase(meaningitissharedoverallthemillionsofusers–everyonehasacopy,soitcan’tbedestroyed.)
• Itconsistsofalongseriesof“blocks”,each2MBinsize(originally1MBat31July2017)
• ThereisNObank• ThereisNOnationality• ThereisNOcentralauthorityororganisation
WhatisBlockchain?
• Notethateachblockcontainstheprevious“hash”ofthepreviousblocktoensurecontinuity,soyoucanrebuildablockifneedbe.
• The“nonce”isthevalueusedtoprovide“proofofwork”(https://en.bitcoin.it/wiki/Nonce)
WhatisBlockchain?
• Youbuyabitcoineitherthrougha“wallet”apporabitcoin“exchange”(likeastockexchange)(nextslide)
• There’sasmallfeetomakeapayment,uptio$20,(dependingontheexchangerate).Thefeedetermineshowquicklyyourtransactionisprocessedbythesystem,andissenttominerstoverifythetransaction–thefeedoesNOTgotoabanker!FeeisinBTC.
HowtouseBitcoin
HowtouseBitcoin
• Exampleofa“wallet”app:
HowtouseBitcoin
• Yourtransaction(payment,inthiscase)isverifiedby“witnesses”
• Eachwitnessisa“node”orcomputerwhichhasacopyontheblockchain
• Thepurposeistoensurethatyourtransactionisvotedon,toconfirmitinfactoccurred(verification)
• Youshouldtransferinbiggishchunksasthefeeisconsistentandlimitedinsize(lowvaluetransactionspayalot/thesameaslargevalue)
HowtouseBitcoin
• Whichevernodefirstcompletesverifyingthenextblockintheblockchainissaidtohaveminedthatblock
• Thatnodeisthenallocatedasmallfeeinbitcoins(BTC)BYTHESYSTEM(notbyanorganisation,notbyabank,notbyaperson)
• Thisiscalled“mining”andusesalotofcomputingpower(electricitybillimplications)
• Minerstendtobuyupcomputergraphicscards(GPUs)astheyaremorepowerfulatprocessing
Whatis“Mining”?
• YoucanpayamininghousetomineBTC(buya“miningcontract”)
• Oryoucantryminingyourself–youneedaveryfastcomputer(orafewthousandveryfastcomputers,plusenoughmoneytopayahighelectricitybill,plusafew100GBoneachcomputertostoretheblockchain,plusuncappedInternettodownloadtheblockchain)
• MiningisNOTveryprofitable.You’llearnmorejustbybuyingbitcoinandsittingonit.
Whatis“Mining”?
• Mininggetsincrementallyharderforminers.ROIwilldecreaseovertime.
Whatis“Mining”?
• Asmallmininghouselookslikethis:
Whatis“Mining”?
• WARNING.SomemininghousesarenotinfactmininghousesbutareMLMscams.Beforeyousignupwithamininghouse,Googlethenameofthemininghouseandtheword“scam”toseeiftheycomeupasscamartists.Akeywarningsignisifyouhavetopaysomeonewhosignsyouup,orgivethesalesperson’snamewhosignsyouup.Forexample,theygiveyoualinkthatlookslikethis:www.companyname.com/r=XZY
• Youdonothavetopayanyonetobecomeamemberofanyschemetobuy,sell,orusebitcoin.
• AbitcoinaccountisFREE.Iftheysayit’snotfree,it’sascam.• Thereareno‘Administrationfees’foryourbitcoinaccount• Thereisnominimuminvestmenttojoinbitcoin• Abitcoindebitcardshouldnothaveadminfees• Readmoreonhttps://www.bitcoinzar.co.za/bitcoin-schemes-south-
africa/
Spottingscams
• Bitcoinminingwebsites:"Therearethousandsofbitcoincloudminingwebsites,butonlyaveryverysmallamountarereal.Theonesthatarereal,arenotveryprofitable,andyoudon’tmakealotofmoney.Ifawebsiteisofferingyoubitcoinminingandpromisinggreatreturns,youarealmostcertainlygoingtobescammed”(source:bitcoinzar.co.za)
• Thereisnotableofmonthlyprofit/interestorearnings;miningearnsdifferentamountspermonthandislargelydeterminedbyhowmuch“hashingpower”theminehas
• BitcoinAccumulationprograms.Thereisnosuchthingas“interest”onbitcoins,unlessyoubuyintomoreelaborateschemes.
• FinancialadvisornewslettersfromcompaniesthatONLYdobitcoinorsimilarareawarningsignofascam.
• Readmoreonhttps://www.bitcoinzar.co.za/bitcoin-schemes-south-africa/
Spottingscams
• PumpandDump.• Occurswhenagroupoftraderscolludeor
collaborate(usuallyonTelegramapp)toartificiallydrivethepriceofacoinup.
• Buyinlargevolumessuddenlytocreateanavalancheofpanicbuyingfrompeoplewhowanttogaininonthevalueincrease.
• Pre-agreedpurchasedateandselldate.• Result:thepricespikesandthenfallsback,with
thepeoplewhoinitiatedthepump,sellingoncethey’vemadeaprofit,ie“dumping”andthencausingacollapseintheprice.
• Resultantpriceafterwardsiscalledthe“correction”.
• ExamplefromBitcoinCashon12/11/2017:
Spottingscams
• BitcoinisNOTaphysicalthing,andthereisnoneedwhatsoevertogetatokeninthephysicalworld,unlessyou’redealingwithapaperwallet–moreonthatlater.
• Photographeditedfromoriginal.
Spottingscams
• Youcaneitherbuybitcoin(BTC)andletitincreaseinvalueovertime,or,mineit,or
• Paypeoplefromwithinyourwalletapp,or• Useitasatransactionalcurrency(wallets,VISAcards,
etc).However,somedebitcardsonlyworkinsomegeographicalareas,e.g.Europe.Warning:eachtransactionmightcostyouasmuchas$20,soyouareadvisedagainstthis.
• Generaladvice:ifyoubuy,ratherHold(holdonto)it.(HODL=holdonfordearlife!).Ifyoutradebetween“coins”andmakealoss,it’syourresponsibility.Likewiseifyoubuybitcoinandmakealoss,it’syourdecisionandyourresponsibility.
UsingandInvesting
• 1.IdentifyyourBTCwalletaddress:15vMrQiRVjY3xNdkcjSVL5jBNMCmgCJ1ir
– It’squitecommontoshareaddressesasscannableQRcodes:
– Technicallythe“walletaddress”isyourpublickey.Theprivatekeyisusuallykeptsecretinsidetheapp.
– Tomakea“paperwallet”youneedtoknowhowtoprintyourkeys
• 2.Giveyouraddresstothepersonwhoneedstopayyou.Makesurethey’repayingyouinthesamecurrencyasyouwanttoreceiveit;there’sNOautomatictranslationfromonecurrencytoanother.Make100%sureyoucopy/pasteaccurately.YoucanuseanexchangelikeChangellytochangefromonecurrencytoanother.
Receivingfunds
• Massivereturns.Anecdotesofupto1000%perannum.Thebest“conventional”investmentsreturnabout11%perannum.However,thecurrencyfluctuatesDOWNbyasmuchas40%(Acrash)onaregularbasis,soBEWARNED.
WhyshouldIinvest?
• Thereareonly21MillionpossibleBTCs,ofwhichatpresentapproximately16Mhavebeenmined.(Mathematicallimitofthesystem).
• Meaningitwillbecomemorevaluableovertime(deflationarycurrency)asmorepeoplecompetetoownthoseBTCs.
• Approximately16MpeopletradingBTCatthemoment,or0.2%ofearth’spopulation.
• Othercryptocurrencieshaveagreaternumberofcoinsavailable(moreonthislater).
WhyshouldIinvest?
ValueofBTCfrom2009to2017August.NotethedipinearlyAugust2017–thatwastheBTC/BCCsplit.Moreonthatlater.Thespikeanddipin2014istheMtGoxevent.
WhyshouldIinvest?
• Whereareyouonthecurve?
AdoptionCurve
• Butwait,there’smore!• Thereareover1100othercryptocurrenciesor“altcoins”(ee
Coinmarketcapforthelist)• Bigones(marketcapitalisation)includeEthereum(ETH),Litecoin
(LTC),BitcoinCash(BCC).Seehttp://coinmarketcap.comformore.• Allhavedifferentexchangerateslikeanyothercurrency.• BCCformedafterSegWitspliton1August’17–thisiswherethe
softwaresplitintotwodifferentblockchains(“Ahardfork”).• Ethereumisactuallyadistributedsystemforvariouspurposes,e.g.
applicationsdevelopment,notjustcash.
OtherCoins
• Thesecryptoswereformedby“forks”ofthebitcoinsoftware.
OtherCoins
InitialCoinOfferings
• ICOisthecreationofanewcrypto• ManyICOsareget-rich-quickscamswhichdonotofferany
actualdeliverable.Eventhebestofthemseemtomostlyofferanewwalletapptominethecoin.
• ManyICOsarejustforksofbitcoinorethereum,andoffernotechnicaladvantage.
• IfyouwishtobuyintoanICO,lookattheteam:whatcountrydotheycomefrom?Whatistheirhistoryofrunningacompany?Whatwillthesoftwareactuallydo?Whatdoesthesoftwareroadmapsay,andtheirwhitepaper?
• WedonotrecommendANYoftheICOsatpresentastheyover-promiseandunder-deliver.
InitialCoinOfferings
• IsCryptoacommodity(likegold)orisitreallymoney?(Discussion)Property FiatMoney CommodityMoney Commodity
Canbeexchangedforsomethingelse,e.g.acommoditylikefood
√ √ √
Isastoreofvalue;increasesorstableovertime Decreases(inflation) Increasesorstable Increasesorstable
Accepteduniversallyinageographicregionforexchange
√ √ x
Acceptanceasaformofpayment Mandatoryacceptance
Youcanchoose Youcanchoose
Hasanotheruse,e.g.shells,goldcanbeusedasjewelry;cigarettesinjail
x x √
Issometimesbackedorguaranteedwithsomecommodity(nottrueinmostcases,e.g.historicalgoldstandard)
√/x x x
Facevalueonlyorinherentvalue Facevalue Debatable Inherent
Example USDollar Bitcoin Coffee,gold
IsitMoney?
• TheReserveBankandsomeothercountriesareinvestigatinglegislation.https://businesstech.co.za/news/finance/186533/sa-reserve-bank-to-begin-testing-bitcoin-and-cryptocurrency-regulations/
• Canbeusedforgoodorill,likeanytechnology(examples:moneylaundering,cashlessanonymouspayments,fundingterrorists)
• Borderless,nointernationalfeesforpaymentstoanyone.• Taximplicationsforgovernment:howtotaxit?• Anonymous(dependingonwhereyoubuyit),soNOTFICA
compliant(isSouthAfricancashFICA-compliant?).IfyoubuyfromsomeexchangeslikeBitFinexorLuno,you’rerequiredtodoFICA/KYC.
LegalIssues
• ChinadecidedtobanICOsandlegislate/suspendexchangesinearlySeptember2017,resultinginacrashofallthecryptocurrencies(crashfrom$5000tobelow$4000andcounting–over20%).However,itquicklyreboundedinOctober.
LegalIssues
• Severalnotableattackshaveoccurredagainstexchanges(morelater).Thismeansifyoukeepyourmoneyononewebsite(exchange)only,youruntheriskoflosingit.
• OtherapplicationsofBlockchain:– Votingrecords–can’triganelection.– Digitalidentities.– Assetregisters.– Onlinecomputing(distributedcomputing:thisisactuallythedesignpurposeofEthereum).
InterestingPoints
• TheMarketCapitalisationatthetimeofwritingwasabout$400billion,morethanAmex,Visa,Mastercard,JPMorganChase
• AmexhasadoptedtheRipplecurrencyforinter-banktransfers
Backingconfidence
Recommendations
• Donotinvestmorethanyouarepreparedtolose.
• Ifyoudobuy,considervaryingyourportfolio(buyLTC,BTC,BCC,ETH,etc)basedonMarketCap(howmuchmoneyisinvestedintheparticularcoin)
• Usemultipleexchangesandwalletappsthatyoustoreitin(incasetheygooutofbusinessorgethacked–https://en.wikipedia.org/wiki/Mt._Gox)
• Tryextractyourkeysandprintthemandputtheminasafe.Exodus.ioallowsthis.
• Preferappsthatoffera“paperwallet”soyoucanhaveaphysicalbackupofyourfunds.https://en.bitcoin.it/wiki/Paper_wallet
• Othertechnologiesexisttobackupyourpublic/privatekeysetwhichisusedtoencryptyourrecords.Forexample:https://trezor.io
• Goodwalletappsallowyoutohaveapasswordormnemoniccodetoprotectyourfunds.Usethesesolutions.Exampleselectrum.org,exodus.io
• DonotbuyintoICOs.• Diversify• HODL• OR…justdonotbuyinatall.
Recommendations
• http://www.luno.com-ASouthAfricanexchangewhichdoesFICAandallowsyoutodepositandwithdrawintoSouthAfricanbanks.There’salsohttp://www.ice3x.com
• http://altaapps.io-Altawallet-across-platformwalletappwithabackupsystem,user-friendly.Similar:https://www.exodus.io(thelatterletsyouchoosemorecurrencies,andextractyourkeys,butdoesn’thaveamobileapp)
• Electron-cashisalternativetoElectrumwallet,dealsinBCConly,notBTC• https://bitcoin.org/en/download-Theminingapp,alsoawallet,freeand
opensource.Willrequireafewhundredgigsofharddrivespacethough,plusuncappedinternet.
• Disclaimer:Ihavenoaffiliationwiththesecompaniesanddonotbenefitfromtheserecommendations.ThesearemerelytheeasiesttechnologiesIhavefound.
Links
Thanksforyourtime!
Moreatwww.cryptofinance.co.za
Questions