The Age Of Cryptocurrency

Did you put “The Age of Cryptocurrency” by Paul Vigna and Michael J. Casey on your reading list? Here is a quick summary of the key ideas in the book.

You’ve probably heard about bitcoins, either in the news or online, or from a friend who claims it’s the best investment for the future. This is the digital currency sweeping the government, Wall Street, and chat rooms.

Do you know how Bitcoin works? Can it be trusted to have any value? Can it be hacked, turning your Bitcoins into worthless numbers on a screen?

You can find answers to all those questions, as well as a brief history of Bitcoin, by reading on.

In this summary of The Age of Cryptocurrency by Paul Vigna and Michael J. Casey, you’ll discover:

how the first Bitcoins used to buy pizza are now worth $5 million;

how people use Bitcoin to hire hitmen; and

why companies spent close to $100 million on Bitcoins.

The Age of Cryptocurrency Key Idea #1: Money has value when it’s based on trust.

Money – what does it really mean? – those bills don’t have any inherent value – they’re just bits of paper. So why can you use them to buy goods and services?

Money can only have value if its use as a medium of exchange is agreed upon.

In money’s earliest days, gold or silver were often used to make coins. These coins differed from our modern bills, as gold and silver have intrinsic value. There was only one reason that these coins functioned as money: people valued gold and silver, and accepted that they could be used as money.

Cultures don’t always value the same things, so your coins would be worthless if you traded with a culture that didn’t value gold and silver.

Yap, for example, had a strange currency system that confused early European visitors. They used huge stone wheels called fei as currency, which were so heavy they often remained with their previous owners.

To settle debts, the Yapese agreed to use the ownership (or partial ownership) of fei.

Money must be trusted by a society in order for it to have a controlled supply. If just anyone could create new money, money would lose its value.

Following the Versailles Treaty, the Weimar Republic learned this lesson the hard way in the 1920s. Germany had enormous debt and tried to repay it by printing more and more bills. This hyperinflation caused the economy to collapse, and people lost faith in the monetary system as the value of the bills dropped so low that they became wallpaper instead of buying actual wallpaper.

The Age of Cryptocurrency Key Idea #2: Bitcoin is money because people agree it can be used as a unit of exchange.

People still have a hard time considering Bitcoin as “real” because you can’t see or touch individual bitcoins. Bitcoin has, however, established itself as a viable currency.

In the same way that “normal” money functions as money, Bitcoin functions as money because people believe it has value. Once people began buying real things using it, trust in bitcoin increased as a result.

During the first three months of 2013, the value of a single Bitcoin rose 800 percent, from $129 to $1,165.

Unlike other currencies, Bitcoin doesn’t have a central bank. Bitcoins are mined, which keeps them from spiraling out of control.

Bitcoin is money simply because people accept it as currency.

In May 2010, Lazlo Hanyecz, a coder from Florida, made an unusual purchase. His purchase was not unusual because of what he bought, but rather how he made it.

Hanyecz owned about half of Bitcoin in 2010 when Bitcoin had only existed for a year.

Hanyecz did not know what to do with his Bitcoin money at that time, so he paid 10,000 Bitcoins (about $41 at the time) for two Papa John pizzas. He found a fellow Bitcoiner through the Bitcoin Forum and had him purchase two pizzas using a credit card. Hanyecz then paid him in Bitcoin for the pizza. Bitcoin was accepted as the unit of exchange for the pizza.

The value of the 10,000 Bitcoin Hanyecz spent on the pizza had risen to roughly $5 million by August 2014.

The Age of Cryptocurrency Key Idea #3: Bitcoins are mined and there’s a public record of all transactions called the blockchain.

There is no way to create gold at home – you need to work hard to find it and mine it. Bitcoins are mined with computers instead of pickaxes.

Bitcoins are mined by computers by solving highly complex mathematical problems.

When a problem is solved, the miner receives a Bitcoin reward, and a new problem is created.

The faster your computer is, the more likely you are to receive a reward. A total of 21 million Bitcoins will be released. The number of Bitcoins awarded will also be halved every fourth year, so there’s an incentive to mine as many as you can before they run out. The last bitcoin will be mined in 2040, according to one estimate.

Whenever a new Bitcoin is created, the blockchain is updated. The blockchain contains the public record of all Bitcoin transactions.

Each time a new Bitcoin is mined, a new block is created, validated, and added to the chain.

To ensure that the same Bitcoin isn’t spent twice, the Bitcoin blockchain records all owners’ balances and transactions in order to ensure the same Bitcoin isn’t spent twice.

Addresses help keep track of who is who in the Bitcoin network. A Bitcoin address is unique and encrypted.

You can buy a coffee at a café that accepts Bitcoin, and the network will send BTC.0.008 (or one 8,000th of a Bitcoin) from your address to the café’s.

The Age of Cryptocurrency Key Idea #4: Bitcoin removes all middlemen and keeps both the sellers and buyers anonymous.

The banks and credit card companies skim a bit off the top every time you swipe your credit card or transfer money. Wouldn’t it be great if we could eliminate this practice?

It eliminates the middleman and makes transactions cheaper and more efficient.

As a middleman between savers and borrowers in the fourteenth century, the Medici family kept meticulous records of their accounts and transactions – for a fee, of course. It led to an explosion in economic activity and was the start of the banking system. In addition, the Medici family became one of the richest and most influential families in Europe as a result.

As a result, banks have become even more powerful. Their lobbying influence over our politicians has had a huge impact on our society.

As a result of a movement that aimed to bring power back to the people, Bitcoin was born. Bitcoin’s distributed network is accessible to everyone through the blockchain, which ensures that no single person or institution can control it.

Although buyers don’t always pay a fee, sellers often do, meaning this value must be added to the price. This is why shops often will not accept cards for purchases under a certain amount. With Bitcoin, however, transactions are faster and cheaper since there is no middleman collecting fees.

With cards, there’s also a hugely complex and time-consuming process behind the scenes of every transaction. Starbucks usually takes three business days to receive your money when you use your credit card to buy a coffee. In contrast, Bitcoin transactions are completed almost instantly.

As a result of their anonymity, bitcoins are important because they protect both the buyer and seller’s identities. Cryptocurrencies are known for their anonymity.

The Age of Cryptocurrency Key Idea #5: Bitcoin has become a global business.

Despite the fact that Bitcoin has only been around for a few years, the number of Bitcoin believers has grown quite rapidly. People from all over the world are becoming addicted to Bitcoin, and it’s becoming very profitable to do so.

In the period between April 2013 and April 2014, over $1 billion was spent on building rigs of super-fast computers dedicated to mining Bitcoins.

Mining Bitcoins today requires processors that are three million times faster than when Bitcoin was founded. As a result, manufacturers are having trouble keeping up with demand for these supercomputers.

There are even those who claim that if the industry keeps growing at its current rate, it will cause an environmental catastrophe.

Investing in Bitcoin has spawned whole new areas of innovation, and many communities are springing up around the world to work on Bitcoin-related projects. The 20Mission in San Francisco, founded in 2012 by Bitcoin enthusiast Jered Kenna, has become a hub for young Bitcoin entrepreneurs to work, sleep, and socialize.

20Mission has created innovative products including MaidSafe, a decentralized network that lets users rent out their free disk space, and ZeroBlock, an app that shows Bitcoin prices in dollars with notifications when they change.

A number of investors initially resisted investing in these kinds of projects, but they have changed their minds. Between 2012 and 2013, the amount of venture capital invested in Bitcoin-related companies grew from $2 million to $88 million, according to a survey conducted by Coin Desk.

The Age of Cryptocurrency Key Idea #6: Bitcoin could have a huge and positive impact on the developing world.

Around 2.5 billion people do not have money in banks. They lack many of the freedoms people in developing countries enjoy. Bitcoin could change all that.

A mother of five living in a refugee camp in Mali, Fatima, is an example of how Bitcoin can give people more economic freedom.

Like many Malians, Fatima’s husband went to the Ivory Coast to find work and sends money back to her. Since neither of them have a bank account, he sends her cash, which disappears along the way.

Eventually, however, they will be able to send each other bitcoins once they have smartphones. The phone companies are investing heavily in sending their products to more of the developing world. They will be able to send and receive it without banks taking any of it away.

Additionally, Bitcoin will allow people to keep their money more securely – a crucial step toward escaping poverty.

The use of bitcoin can also empower women around the world and increase equality.

The Afghan girl Parisa Ahmadi has already benefited from this. She took part in a class held by Film Annex, an arts project based in the United States that pays about 300,000 filmmakers and bloggers to produce short films.

Besides publishing videos about her life on the site, Ahmadi also began writing reviews of other films and earning a small income.

She didn’t have a bank account, like most women in Afghanistan, so the founder of Film Annex started paying her in bitcoins. He also set up an e-commerce site where people could buy gifts from Amazon using bitcoins.

The Age of Cryptocurrency Key Idea #7: Bitcoin still has many weaknesses and is difficult to regulate.

What are Bitcoin’s downsides, given all these benefits?

The Bitcoin software is still far from bulletproof, so its price is very volatile.

People learned this the hard way on 10 February 2014. Gavin Andersen, the chief scientist at the Bitcoin Foundation and the developer behind Bitcoin’s core software, received panicked messages. Mt. Gox, one of the biggest Bitcoin exchanges in the world, was on its knees. There was a bug revealed in Bitcoin’s software that allowed people to create fake transactions and receive unwarranted payments.

In an attempt to remedy the situation, Andersen failed. Hackers exploited the vulnerability and Mt. Gox collapsed, resulting in a drop in Bitcoin prices from $703 to $535 in just one day. It would be devastating if a major currency such as the dollar lost so much value so quickly.

As a result of its distributed network, Bitcoin is also difficult to control.

This concept was developed by Paul Baran, a computer pioneer. In a distributed network, every point is connected to all other points, so information is sent across the entire web. So it’s practically impossible to shut it down. There can’t be a subpoena against the Bitcoin CEO or CTO.

Furthermore, Bitcoin can be used for criminal purposes, such as selling drugs or even hiring hitmen.

The Silk Road is an example of this. It’s an anonymous online marketplace where drugs are traded anonymously using Bitcoin.

Because the identities of the buyers and sellers are hidden, law enforcement agencies have a hard time investigating these crimes.

The key message in this book

Bitcoin has only existed for a few years, but the industry has boomed and people’s trust in Bitcoin has only increased. Anything can function as money as long as people agree it has value. Despite their volatility at present and other downsides, cryptocurrencies are undoubtedly the future of the global economy because they eliminate middlemen and provide anonymity.