“You can’t stop things like Bitcoin.
It will be everywhere and the world will have to readjust.
World governments will have to readjust” ~John McAfee, Founder of McAfee
“[T]he fact that within the bitcoin universe an algorithm replaces the function of [the government] … is actually pretty cool.” ~Al Gore, 45th Vice President of the United States
A PETULANT CHILD
Martin Shkreli was a petulant child. He was born of humble beginnings, but eventually grew into a fairly shrewd business person. He was successful on most accounts, but somewhat arrogant, selfish and often ruthless. After purchasing the exclusive rights to an HIV-treating drug and raising the price 5,000% to $750 a pill, he solidified his place as the most hated man on the internet.
Martin also dabbled in the entertainment business. Somehow he managed to purchase the exclusive rights to an unreleased album of Wu Tang Clan - Once Upon A Time In Shaolin. After the deal was sealed, he taunted the band members and threatened to destroy the only copy of the album. The internet was not amused.
Martin then sought to expand his music empire by soliciting Kanye West. After substantial negotiations, he reached a landmark deal through Kanye's "business representative" for the exclusive rights to Kanye's next music project. They exchanged electronic signatures and then Martin initiated a transfer of $15 million though a Bitcoin exchange.
About half a second after the mouse click that sent $15 million across the web, it suddenly hit him. Was Kanye's "business representative" for real - or just some person posing as such? Seconds turned into minutes turned into hours. Crickets. Someone just sold Martin the Brooklyn Bridge and vanished into cyberspace.
Martin went into a purple rage and then turned to Twitter for a series of public rants. The most hated man on the internet had just been scammed out of $15 million. The internet was highly amused.
The lesson: Always know your buyer/seller and seek independent verification. The internet makes it very easy to do things anonymously and from any location on the globe. Scams are so commonplace that we hardly even notice the letters from Nigeria anymore requesting assistance with large sums of money in an overseas bank account.
The dawn of Bitcoin -- the world's first cyber-currency -- has not helped, but this could be the future of money.
WHAT THE HECK IS BITCOIN?
Bitcoin was conceived by a software developer as an electronic payment system based on "mathematical proof." The idea was to produce a digital currency that was transferable electronically with very low transaction fees.
Bitcoin differs from traditional currencies because it is decentralized -- the currency isn't printed or backed by a central government. Bitcoins are sold on unregulated exchanges. The currency is unaccountable to the population and makes its own rules.
Unlike a conventional bank account requiring identification and verification of personal information, a Bitcoin account can be set up in seconds -- without any personal information, which makes Bitcoin transactions attractive to cyber-criminals.
Anyone with an email address can transact business in Bitcoin. The mechanism is a digital "wallet," which is a software program designed to "store" Bitcoin. There are multitudes of providers that offer free Bitcoin wallets, such as Coinbase.com, Greenaddress.it, Bitcoinarmory.com, Mycelium.com and the original Blockchain.info.
A Bitcoin wallet can be created almost instantly. No one ever asks your name or any other identifying information. There appears to be no limit on the amount of "money" (represented by Bitcoin) that can be held in a wallet. And there is no limit to the number of wallets a person can have. The potential to move huge sums of money across borders without accountability is staggering.
INTELLIGENT DESIGN AND DECENTRALIZED FAITH
There are two ways to fatten (fund) a Bitcoin wallet: (1) acquire Bitcoin from another user; or (2) purchase Bitcoin from an exchange.
Bitcoin software is basically designed to initiate transfers between wallets, which is the genius behind the madness. Every Bitcoin wallet has an "address" represented by a series of random numbers and letters, similar to a serial number or bank account routing number. To initiate a transfer from one wallet to another, simply type in the "address" of the recipient wallet and click "send." It's easy. Just ask Martin.
The backbone of Bitcoin is something called "blockchain" technology, which essentially creates a tamper proof public "ledger" of transactions. All wallets are tied to the ledger and all "confirmed" transactions are embedded in the bitcoin blockchain, which is heavily encrypted to ensure its integrity.
Bitcoin transactions are "confirmed" by the network itself through "bitcoin mining," which employs a shared consensus system akin to the "intelligent design" theory of the universe. The Bitcoin network is so vast and mathematically intertwined that it would be virtually impossible to manipulate or replicate. It is bigger than us and requires decentralized faith. Several independent "confirmations" across the network are required for a transaction to go through, which may take ten minutes or so - not quite the speed of light, but fast enough.
The second way to fatten a Bitcoin wallet is to purchase Bitcoins from an exchange, which means opening an account with an online exchange and literally trading U.S. Dollars (or any other world currency) for Bitcoins. Bitcoin exchanges are unregulated, so it is important to choose an exchange (many exist) with a good reputation and a large number of verified trades. The largest exchanges by volume according to Coindesk.com are Bitfinex.com(Hong Kong), Bitstamp.com (US), Kraken.com (US), BTC-e.com (situs unknown) and OKCoin.com (China). As of this writing, the exchange rate for one (1) Bitcoin is $431.60 U.S. Dollars, but changes constantly according to Google Finance.
Ten billion Bitcoin users can't all be wrong. Despite the Matrix-like nature of Bitcoin and other "crypto" currencies, Bitcoin (and its underlying technology) has been somewhat legitimized through acceptance (according to coindesk.com) by major retailers, such as Microsoft, Time, Overstock.com, Dell, Expedia, Virgin Galactic, Newegg, Ebay/Paypal, Subway (select locations) and now (after writing this article) Theus Law Offices. In addition, many retail giants (such as amazon.com, Victoria's Secret, and Home Depot, etc.) accept Bitcoin indirectly through gift card partners like eGifter.com. Even the United Way accepts Bitcoin donations (which are treated as donations of property - not cash - by the Internal Revenue Service).
The big advantage of Bitcoin from a retail standpoint is that there are virtually no transaction fees, which for many outweighs the volatility risk because Bitcoin can be (almost) instantly converted back into U.S. Dollars at the point of sale.
THE NEW GOLD STANDARD
Bitcoin and its technology appears to be here to stay. But take care with non-merchants because Bitcoin transactions are irreversible. Once the Bitcoins are sent, there is no getting them back - to the chagrin of Martin Shkreli, who is smart enough to know better. Otherwise, the prospect of low or no processing fees and ending the monopoly of Visa/Mastercard is very attractive from a retail standpoint, which appears to be the original impetus for Bitcoin. Looking forward, it is a brave new world. Theus Law Offices provides a complete range of business planning and litigation services. If you are facing an issue with a small business and need a Louisiana business attorney in Alexandria, Lafayette, Lake Charles, Baton Rouge, New Orleans, Shreveport, Monroe or elsewhere, let our business attorneys help you and your business.
“Right now Bitcoin feels like the internet before the browser.”
~Wences Casares, Founder of Banco Lemon
“Bitcoin will do to banks what email did to the postal industry.”
~Rick Falkvinge, Founder of the Swedish Pirate Party
Additional Information: [For an excellent 5 minute youtube explanation of how Bitcoin works, click here.] [For an excellent 15 minute youtube explanation of the history of money and how Bitcoin may change the world, click here.] [For an excellent 20 minute youtube explanation of the potential impact of blockchain technology, which is as revolutionary as the internet itself, click here.]