Rants

How I Stopped Worrying And Learned To Love Cryptocurrencies

I’m a self-identified early adopter. I have a Roomba that I rarely use (who wants to clean those brushes anyway), have owned a few different models of the latest and greatest home espresso machines, and have convinced myself to purchase every upgraded version of the iPhone since the first one was released (after a roadtrip to the Buffalo Apple Store). My friends can (and do) say what they will about how crazy it is  —  the truth is that I have a passion for technology and the new toys excite me.

So, all in all, it’s kind of surprising that it took me as long as it did to catch the cryptocurrency bug, being that early adopter et al, always looking out for the next big thing. Yet as my coworkers can attest to, I’ve now got a fever and the only cure is more Bitcoin.

After all of the media hype in the past few months, you’ve most likely heard of Bitcoin, the biggest digital currency available. If you haven’t you should take a read and get a sense of what it’s all about. It’s really rather fascinating, I promise.

To date, the mainstream media has done a great job of reporting on the ups and downs of Bitcoin, but often does a poor job of explaining what exactly it is. Sure, it’s a digital currency with no physical components, and yes, a lot of people who made a gamble in the early days were quite successful when the price of Bitcoin rose over 56x last year, but that’s just the tip of the iceberg.

To me, the really exciting prospect of a currency like Bitcoin is that no central entity is responsible for the currency itself, with anyone having Bitcoins acting as an investor, a banker, a caretaker. With no central agency or government responsible for the currency, there’s a built-in transparency with it, all the while maintaining order through a significant number of checks and balances. This system runs and governs itself without any intervention needed — talk about efficient.

For example, anyone with spare processing power on their computer can contribute to the checks and balances which takes the form of a series of complex algorithms that a computer determines whether a transaction actually occurred. Those who help verify these transactions (referred to as mining) get rewarded with Bitcoin, something that turned out to be quite lucrative if you had enough spare processing power and access to cheap electricity. Undoubtedly a large amount of early adopters were people just like this who amassed a large amount of Bitcoins from mining and watched themselves become millionaires when the price of a Bitcoin rose to over $1,200 USD back in November 2013.

After many long discussions with a colleague (thanks Clayton) about the specifics behind the decentralized network, what was involved from the technical side in mining, and what exactly a hash was, it took a market boom, crash, boom (rinse, repeat) to get me to take the plunge myself. With credit card in hand I started my mining journey not with Bitcoin but with Quarkcoin, another cryptocurrency that had substantial buzz at the time but is quite similar to Bitcoin itself. I procured a virtual server that would be my mining rig, configured the servers, compiled the software, and started my experiment, watching in awe as computer cycles turned into currency with nothing but electricity. Fascinating stuff.

Since then, the value of Bitcoin has varied greatly based on the demand and market pressures, just like any currency. Bitcoin appears to be more volatile than other currencies, responding drastically to international news of governments condemning or condoning the new type of currency. The baked-in anonymity with Bitcoin poses an interesting question for these nations — how do you monitor and collect income taxes? How do you know that these dollars were used for legal activities? 

Fast forward to earlier this week and the tone about Bitcoin has shifted — the Bitcoin price has taken a tumble after MtGox, the largest Bitcoin exchange that allows people to buy and sell Bitcoins, shutdown their website with no warning and have gone mostly silent. This puts a ridiculous number of their clients’ Bitcoins in limbo with no clear path for getting them back. Not really the best motivator for a person wanting to get into the Bitcoin market, and the media has really been latching onto that.

That being said, my experience with Bitcoin continues. I still hold my Bitcoin and Quarkcoins, and never one to shy away from a beta product, I’m still watching the markets, reading up on government reactions, and reading Bitcoin whitepapers from economic scholars far smarter than I.

Regardless of how crazy my friends said I was to throw money and effort into a currency that you can’t touch, I’m glad that I took the first steps towards discovery of something that I consider to be a gamechanger. Overall, my friends were right — I didn’t end up making a fortune with my Bitcoin exercise, and I actually lost money based on current market prices. However, that wasn’t the ultimate point. At the end of the day, the early adopter in me just wanted a chance to tinker with a new toy, my friends be damned.

Bitcoin photo by Tom Hicken / The Grid.

Matthew DeWaal's picture
BY: Matthew DeWaal
Partner

Matthew loves the interwebs, is addicted to Twitter, and is a connoisseur of fine whiskey.

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