So I recently was corresponding with a friend about Bitcoin. Since I haven’t mentioned anything about my interest in cryptocurrency, here’s the summary I sent them, reposted with permission
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Totally in agreement that it’s a radical departure from previous asset transfer mechanisms. Bitcoin is the first generation of tech that enables uncensorable payments in a state-free currency. Value transfer is the primary idea, but there are lots of other applications for a distributed ledger like notarization. A multiparty transaction can include a message like a contract that is an unalterable, timestamped proof of signatories. Anything that requires proof of timestamped signatures is a possible application (securities, insurance, rental agreements, ect).
The most important and infamous bitcoin personality worth researching a little is the inventor, Satoshi Nakamoto. One of the first developers, Mike Hearn, reported in 2013 that Satoshi said “the project was in good hands and he had moved on to other things”, and no one has heard from him since. He likely mined a significant amount and many of the first addresses that contain thousands of bitcoin that haven’t ever been touched. They’re continuously monitored and if they’re ever accessed it would likely cause a major correction to the price. It’s rumored that Satoshi may be an alias for a group of people, possibly even deep state security researchers. If it’s ever revealed proof positive that the NSA can trivially decrypt the RSA algorithm which the tech is based on, every wallet is essentially compromised, i.e. the tech is worthless.
The first big exchange was Mt. Gox run by Mark Karpelès. The exchange was hacked and the price tanked. This was not be the last time this happened and it will happen again. The point of that story is that if you don’t have the coins in your own wallet, you’re trusting the other party completely. The big players right now are still the exchanges and their founders since the fiat value is what most people are speculating and trading on. Brian Armstrong started Coinbase which is US based and is the most reputable.
The biggest player on the development side is a company called Blockstream and a wackjob dev, Luke Jr. They controversially have been opposed to increasing the block size to lower fees and process more transaction. This has caused a lot of debate since their company has developed a protocol layer on top of Bitcoin called the “lightning network” to enable faster/lower fee transactions. In my opinion, turning the Bitcoin network into a ‘settlement layer’ for high value transactions isn’t the right solution and Satoshi originally described increasing the block size to handle more transactions so they’re acting more in the spirt of a traditional payment processing company.
This brings us to the latest hardfork of the code Bitcoin Cash that split off to start raising the block size. It created a separate blockchain but identical chain up to the fork. Bitcoin holders essentially control an equal amount of Bitcoin Cash tokens. The economics of the situation are somewhat unprecedented, since it created almost $7B overnight. The debate over which is the real bitcoin is somewhat moot. Whichever chain is longest by the virtue of the most hash power is likely to win, displacing the other. Definitely something to keep an eye on.
Of all the remaining Alt-coins, Ethereum is the most interesting, in my opinion. Started by a kid-genius named Vitalik Buterin. Instead of spending electrical power on inefficient hash computing cycles, it uses a different algorithm called proof-of-stake to create an uncensorable computer application. Combine it with distributed encrypted storage and this is a jump from an uncensored payment network, to an uncensorable information network. Imagine servers that can’t be shut down by fascist governments. It’s like the wild west of the internet circa ’96 or 97. The Ethereum foundation did just recently sign some agreement with a Russian bank to create some new token which I haven’t decided if I’m for or against. It’s certainly a step toward centralization.
There also is definitely an Alt-coin bubble happening right now. China just banned most Initial Coin Offerings (ICO’s) right after the SEC notable shut one down. Essentially they’re a fund raising tool where you trade bitcoin for newly created ‘coin X’. This sidesteps traditional VC raises completely. However the nature of virtual currencies being tentatively treated as securities caused some regulators to freak out when millions of fiat equivalents started being invested to unregistered entities on a whitepaper, song and a dance.
The easiest way to have a stake is buy coins. If you buy coins and want to move the off the exchange you’ll need a wallet like Electrum or Exodus. I don’t recommend the bitcoin-core wallet since it syncs the entire blockchain. Not terrible at 150GB but still a pain. Alternatively you could buy companies that accept and hold bitcoin.
I do recommend playing around with some crypto tools if you havent before. GPG4Win which includes the Kleopata key manager is kind of a pain, but it’s the only game in town besides the command line. My public key is here if you want to try send an encrypted message. http://www.