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Ann Arbor Area Business Monthly
Small Business and the Internet

Bit Coinage

January 2017

By Mike Gould

Say, don't you remember, I'm your pal
Buddy, can you spare a dime? …
      E. Y. Harburg / Jay Gorney, 1930

Or as we would say today, “…Can you spare 0.0000007 Bitcoin?”

As of this writing, one Bitcoin equals $14,590.00 US Dollars. Down from an all-time high earlier this month of ~$20K, and up from 2010 when it was around $.08. All for a currency that doesn’t really exist IRL (In Real Life) – no gold reserves backing it, no government involvement (other than taxation), no real regulation, and no, well, a lot of things. Just a bunch of ones and zeros on a network somewhere.

This time out, I’m going to cover the topic in a general sort of way, as a detailed explanation is beyond the scope and space I have here. At the end of the article is a list of good resources to help you get a better grip on things.

What It Is
That said, Bitcoin is a medium of exchange using what the media is inaccurately calling “cryptocurrency”, a form of transferring assets that is created, maintained, and tracked via computers. All regular currency transfers are currently encrypted; banks, governments, and eBay/Amazon/Etsy, et al, couldn’t survive with out crypto, so cryptocurrency is yet another bad popular name destined to embed itself in the current vocabulary. And since that’s what everybody else is calling it, I will too. Or cryptobux, as that is faster to type. And Bitcoin isn’t the only cryptobux out there – there’s Ethereum, Ripple, Monero, and a bunch of others.

Working On A Blockchain Gang
Bitcoin works by encoding transactions into a bit of encoded software called a blockchain; this is analogous to a ledger. Moving coins around adds deposits and debits to this ledger that grows over time. The ledger is shared by all the computers involved, and can cause slowdowns as time goes on. The above is a gross oversimplification, check out the resources below if you’re interested. I barely understand this myself, so don’t feel bad if you are baffled. After all, do you understand the Federal Reserve system? I sure don’t.

Money Doesn’t Grow On Trees, and Bitcoin Is Mined
Bitcoins, like other cryptobux, begin life in a mine. Well, not a hole in the ground, but a computer generating a special code, which must conform to the specifications of an algorithm devised by the gnomes who set all this up, probably from a cave deep underneath a mountain in Switzerland. More deep dish voodoo I don’t want to get into, but suffice it to say, there is money to be made creating bitcoins (“mining”) by running special software on your computer. If you have a very, very, powerful computer, loaded with a lot of extra graphics processing cards, soaking up a lot of electricity.

And by a lot, the people making the most money are Chinese within range of some of the cheapest hydroelectric power on Earth. They have banks upon banks of PCs hashing out algorithms, creating wealth that exists only on computer networks. You can convert this wealth to real money, of course, subject to taxation and other downers.

You store your coins in virtual wallets stored on servers, or your own computers, or just by writing down long strings of numbers on a piece of paper you store in a safe someplace. There is even a way of storing your coins encoded on your phone. Just make sure you have your passwords and such in a very secure place. There are stories on the web about people who bought ‘coins ten years ago on a lark. They bought $10 worth of coins that are worth millions today, but lost interest and forgot the passwords. There is this one guy hiring hypnotists to regress him back to that fateful day.

Is This For You, Ms. Or Mr. Small Businessperson?
Well, not for this small bizguy. I don’t have much in the way of investable discretionary money these days, and what I have I tend to invest in my business (buying laser diodes, mostly). I look at it like playing the market as a daytrader: if you understand the risks involved, are comfortable with the apps and processes involved, don’t have more into it than you can afford to lose, and really enjoy moving money around, go for it.

If you are all the above and have geek tendencies, you are probably already into cryptobux and well on your way to your first million (or the poorhouse). Or maybe you have already invested thousands in fancy computer gear and are tripling your electrical bill as a miner. If so, I salute you. Good luck with that.

Brave New World
One thing this represents is a transfer of trust away from governments and into trusted, decentralized technology. Which is fine as long as the tech is working properly. Keep in mind that several large wallet providers have gone bust, either through fraud, hacking, or mysterious disappearances. Caveat Investor.

But remember: cryptocurrency is very, very new, less than ten years old. Think about what telephones looked like at ten. Wave of the future? Nobody knows. But a lot of people are betting that it is.

There are now exchanges that track the price of Bitcoins, allowing people to bet on or short futures just like the stock market. On the other hand, repressive regimes around the world are starting to clamp down, refusing to give up control of central banking and international trading.

My nephew Daniel, an engineering student, is into this. I’m hoping he hits it big. Our family could use a millionaire.

Good primer:
https://arstechnica.com/tech-policy/2017/12/how-bitcoin-works/

Another:
https://blockgeeks.com/guides/what-is-cryptocurrency/

Tracking price:
https://99bitcoins.com

Mining:
https://www.bitcoinmining.com

Hacking:
https://www.theverge.com/2017/12/19/16796084/backdoor-coin-mining-hacks-are-spreading-as-prices-rise

Cost of mining:
https://arstechnica.com/tech-policy/2017/12/bitcoins-insane-energy-consumption-explained/

Mike Gould still uses dollars for commerce (for the moment, anyway). He was a mouse wrangler for the U of M for 20 years, runs the MondoDyne Web Works/Macintosh Training/Photography mega-mall, is a laser artist, directs the Illuminatus Lasers, and welcomes comments addressed to mgould@mondodyne.com.