In the news, we have been hearing a lot about Bitcoin and cryptocurrency. What is it? How did it start? Why does it have value? What does it mean to us? At our last meeting, our own Ben Young, a registered financial planner with Astute Wealth Management, along with guest Trent, explained it to us. 
 
Ben provided a historical context on currencies used as a means of exchange to facilitate commerce and trade.  First there was gold, then there were currencies based on gold, followed by currencies (not on the gold standard) based on the financial stability and trust of governments of the world.  Then in 2009 came cryptocurrency.  A cryptocurrency is a software object with units or “tokens” that can be transferred securely and verifiably from one owner to another. Transactions are recorded in a public, widely distributed database (a “blockchain”). The transfer verification mechanism is cryptographic. It employs a mathematical protocol for authenticating each transaction. The designers of the software object intend it to be used as a medium of exchange, or currency. Hence, cryptocurrency.  Cryptocurrency is decentralized and not backed by any government.

When Bitcoin (BTC) was invented in 2009, it was designed that a maximum of 21,000,000 bitcoins could be discovered, aka mined, by a computational search process run on (many) computers.  How many of the 21 million Bitcoins are left? There are 2.3 million Bitcoin left to be mined (as of mid-2020). Surprisingly, even though 18.6 million Bitcoin were mined in just over 10 years, it will take another 120 years to mine the remaining 2.3 million.

What are the ways to invest in bitcoin or other currencies?  1) Buy yourself a computer server farm and start computing to find them.  There are several downsides to this, including the cost of the computers and other infrastructure, and the cost to power and cool the computers. 2) Buy the cryptocurrency on several open exchanges; 3) Buy shares of a fund or trust that invests in a particular cryptocurrency.

Dave Sargent asked about how do you own, or keep track of the bitcoins you own?  Ben responded that the bitcoin network has a "wallet" concept that will keep track of the BTC you own.  You can assign coins to your wallet which sits in "the cloud".  

Ben's guest at the meeting also spoke, Trent.  He is a junior in high school who got interested in Bitcoin in 2016.  His grandfather helped fund his investments in "ASIC miners" (Application Specific Integrated Circuits), specialized computers that quickly calculate the algorithms that can find new bitcoins.  When he started using his computers, he mined a $200 Bitcoin about every 13 days.  When their value reached $700, his operation became profitable, and today they are worth over $32,000 each.  He plowed the profits back into the business, and now he and two partners have about 100 computers in a warehouse, all mining bitcoins.

Ben also showed us an image of an artwork print that recently sold for over $70M.  Embedded in the art is cryptographic information that can verify ownership and who has the right to display this art.

Ben talked about some issues with Bitcoin:  1) Volatility.  In the last 2 months, BTC dropped from $62,000 to $34,000.  Just in the last day, May 29, it dropped 10% in value from $38K to around $34K.   2) Usability:  There are no stores that accept cryptocurrency right now.  If they did, it would take the computer network about 5-10 minutes to validate your Bitcoin(s). 3) Not widely adopted.  Only 10-15% of the population is involved in cryptocurrency in some way. 4) Security:  There is no law enforcement that will help you if your cryptocurrency has been stolen.  It could be stolen if your computer was hacked or if you fall prey to a phishing email.  5) Power consumption.  It takes a lot, and increasing amounts, of electric power to compute each additional bitcoin.  This is not a "green" industry, or currency.

The club thanked Ban and Trent for this fascinating presentation.  For further detail, follow this FaceBook link for the recording of this talk, early in the meeting.