Home » Uncategorized » Bitcoin, Cryptocurrencies and Blockchains

Bitcoin, Cryptocurrencies and Blockchains

With all the bitcoin mania going on right now I realized I never touched on this topic, at least outside of a breakfast discussion a few months back.  Let me share some quick information on bitcoin, cryptocurrencies and blockchains.  Please note this information is rather high-level as it is very complex, we can quickly get deep in the weeds, plus, I have no desire to be a bitcoin expert.

 

  • Bitcoin is a cryptocurrency. It was the first successful cryptocurrency created on technology called Blockchain. Bitcoin is an online, peer-to-peer, electronic cash system. Here is a great video on it.
  • Cryptocurrency (CC) is created by code. CC’s get their name because they are secured based on cryptography (math) instead of being secured by people or banks.
  • Blockchain is basically a giant ledger that is constantly updated, verified and shared by multiple computers. Another important point is it is decentralized.
  • Bitcoin was created in 2008 and is credited to an anonymous person, however, most people think a group created it. There are a finite number of bitcoins (21 million) that will be created over time and the final one is to be created in 2140.
  • The value of bitcoin comes partially from this finite resource and also on how many merchants will accept bitcoin transactions, which continues to increase.
  • To own and make transactions with bitcoin you need a wallet, like Coinbase. Transactions are between these wallets as you never take physical possession of bitcoins.  They are always on a ledger.
  • Last I heard there were over 800 types of CC’s out there, including things like Dentacoin (used by dentists).
  • Bitcoins are created by mining, which is just code-breaking. I have shared articles before about how it is taking more and more energy to mine.  Here is a nice video on mining.
  • Again, blockchain is a giant ledger. The difference it is decentralized and is being constantly reconciled.  Blockchains have the potential to replace a large part of what financial institutions do – recordkeep and verify transactions and their legitimacy.  This is a time intensive, slow and expensive process.  Also, it cuts out a large portion of the population from accessing financial services.
  • It is estimated 2.5 billion people have no or limited access to the world of finances, mostly because they cannot verify their identities. Blockchain and cryptocurrencies verify based on keys instead of a birth certificate, driver’s license, or Social Security card. Keys are public and private.  Public is your address on a blockchain while private is the one for your wallet.
  • It is estimated blockchain could remove about $20 billion in fees paid to the financial services world by creating greater efficiencies and having transactions verified instantly. Trust me, Goldman Sachs and the like will still figure a way to get their fees.
  • Blockchains also have the potential for people to decide how much information they want to share and at what price. Basically, instead of giving away your personal information for free on Facebook (who then sells it to advertisers), you decide what you want to sell and the value.  How’s that old poker joke go – If you don’t know who the patsy is at the table, it’s you.
  • Data is a new asset class and is the most valuable class on the internet. Blockchain gives us the ability to decide how we treat our data – give it away for free or seek value for it.

Blockchains are the most exciting part of this whole thing to me.  Partially because it is the backbone, but also because of its potential.  Imagine bringing 2.5 billion more people to the world’s economy.  We all have access to buy and sell goods, services, and resources online in a more secure and faster system.  Hopefully it will eliminate the ability to concentrate the wealth into a few hands, like has been done with the internet.

 

Again, very general and high-level overview of bitcoin, cryptocurrencies and blockchain.  There is a ton more out there if you want to dig deeper.  Please note, most of what you see online about bitcoin is a bunch of garbage so be careful.  And if you are planning on putting all your investments into bitcoin, well, good luck.

About Dan Johnson, CFP

I am the President and CCO of Forward Thinking Wealth Management, LLC, which is the flat-fee financial planning firm located in Akron, OH, and set up to work virtually with clients across the country. I charge clients a flat fee of $4,800 regardless of asset size. My firm is a solution to what I feel is a broken system where clients pay advisors based on something out of their control - the performance of the market.
Scroll To Top