Fiduciary Financial Group
Putting your interests first.

Fiduciary Financial Group

Blog

Bitcoin & Blockchain

Did You Know?

Bitcoin & Blockchain

  • Cryptocurrencies like Bitcoin are not tied to any centralized governments, regulatory agencies, or centralized banks (yet).
     
  • Cryptocurrency is exchanged on a peer-to-peer network using blockchain technology. Blockchain is the publicly available digital super ledger that records every bitcoin transaction that has ever happened, creating transparency. For every bitcoin transaction, the digital super ledger (blockchain) records a transaction or “block” that summarizes three main attributes:

1. The account # of the sender

2. The account # of the receiver

3. The quantity of bitcoins being sent

  • Each block is added to the ledger, creating a “chain.” Transactions are secured using cryptography (hence the term cryptocurrency) which is basically a unique block of code identifying the legitimacy of the sender.
     
  • Bitcoin is the most popular and widely accepted type of digital cryptocurrency. There are others gaining notoriety such as Ether, Litecoin, and ZCash.
     
  • To trade bitcoin or other cryptocurrencies, one must sign up on a cryptocurrency exchange or bitcoin network. Creating an account gives you access to your own personal account known as a wallet. A cryptocurrency exchange will allow you to purchase bitcoin using monetary currency (US Dollars) to add to your wallet.
     
  • “Miners” are used to verify the transactions (blocks) that get posted to the super ledger and form a chain - hence blockchain. Miners do this by buying expensive computer equipment and specifically designed processors and have them running 24 hours a day which causes high electricity bills. They get paid in bitcoin to do this.
     
  • The # of bitcoin that can be mined is mathematically proven to be finite and expected to cap out at 21 million coins. While the price per bitcoin fluctuates widely day to day, it was priced at the time of this writing (6/29/2017) at $2,565 per coin. If you multiply this current value per coin by the total number of bitcoin to be mined of 21 million (vs. the current total of about 16.5 million) the total value of the Bitcoin currency base would be roughly $59 BILLION USD which represents:
     
    • Only 0.40% of all US dollar money supply resting at $13.5 TRILLION [i]
    • Only 0.15% of all money supply (in dollar terms) of USD, Euros, Yen, and Pounds Sterling in Circulation [ii]
    • That means the bitcoin market cap is ~15/10,000ths the size of the 4 major global currency markets.
  • As of April 2017, Japan began recognizing Bitcoin as a legal payment method. [iii]
  • While many people associate cryptocurrency transactions with criminal activity and the “dark web”, it is becoming a form of accepted payment by many large organizations including:
     
  • Overstock.com, Subway, Microsoft Xbox Online Store, Bloomberg.com, The Libertarian Party, WholeFoods (via gift cards), Wordpress.com, and many more.[iv]

  • If you lose the key to your digital wallet which holds your bitcoins, the coins are lost forever.

Major Investors in Bitcoin Include:

  • The Winklevoss Brothers (Mark Zuckerberg’s arch nemeses and co-founders of Facebook Predecessor ConnectU)
     
  •  World-renowned VC firms Andreessen Horowitz and Union Square Ventures (via a cryptocurrency hedge fund)
     

Some Quotes from Financial Big Wigs Pertaining to Bitcoin and Blockchain:

  • “I believe – and this is my personal view – that blockchain technology will not only change the way we do payments but it will change the whole trading and settlement topic.” – Oliver Bussman, CIO of UBS. 
     
  • “I do think Bitcoin is the first [encrypted money] that has the potential to do something like change the world.” – Peter Thiel, Co-Founder of PayPal
     
  • “Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value” – Eric Schmidt, CEO of Google
     
  • “Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.” - Marc Andreesen, inventor of the first browser, thought leader and top VC.
     
  • “We have elected to put our money and faith in a mathematical framework that is free of politics and human error.” - Tyler Winklevoss, Co-creator of Facebook, top investor in Bitcoin.

Disclosures

  • Bitcoin and other cryptocurrencies are subject to substantial risk. We do not believe any investors should put money into this asset class unless they are willing to risk the loss of all their principal.
     
  • Risk of loss could occur because of:
     
    • Regulatory risks (governments banning together to outlaw current cryptocurrencies or create their own.)
       
    • Security risks -  some exchanges have been hacked with coins lost forever.
       
    • Market risks – bitcoins or other cryptocurrencies could simply fall out of favor and their value could drop dramatically if demand for the currency falls.
       
    • Liquidity risks – because this is a not a large market (yet) the prices change quickly and it can be difficult at time to transact with exchanges. Also, liquidity risks with the public securities that are backed by bitcoin as they are traded in “Over the Counter” markets which are much less liquid.

References

[i] https://www.federalreserve.gov/RELEASES/h6/Current/default.htm

[ii] https://tradingeconomics.com/

[iii] http://www.businessinsider.com/bitcoin-price-spikes-as-japan-recognizes-it-as-a-legal-payment-method-2017-4

[iv] http://www.zerohedge.com/news/2017-05-28/who-accepts-bitcoins-payment-list-companies-stores-shops

 

Trevor Scotto