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. |