What are Bitcoins, what is Blockchain, and Cryptocurrencies

David Papp: So one thing I do get asked is
what is Bitcoin? Bitcoin is a new cryptocurrency created in
2009 by a guy called Satoshi Nakamoto, which we think was just an alias. Essentially it’s a decentralized transactions
with no middle men. There’s no banks, it’s all anonymous, and
you can buy cryptocoin on exchanges that are essentially online, just like the New York
stock exchange. And this money, this currency that you have,
you actually have it in a digital wallet. Think of that as kind of like a virtual bank
account. There’s a maximum of 21 million bitcoins that
will ever be distributed, ever released globally. Currently I believe it’s at 80% mined. So there’s 16.5 million in circulation. How do bitcoins get recorded? Like how do you send money from person A to
person B? You do this through something that’s called
the blockchain, and that’s what all of these cryptocurrencies are based on, are blockchain
technology. Essentially if you think about it it’s a public
ledger system that records all of the Bitcoin transactions. So this wallet, A, sends a certain amount
of bitcoins to wallet B over here. It’s globally distributed amongst the database
that’s broadcasted to all the participating network nodes. What does this mean? It means that there’s computers out there
that are mathematically calculating and verifying all of these transactions in order to make
sure that the money was indeed verified, that it was transferred from this person to that
person. Why is Bitcoin have all the hype right now? I mean what happened? Well 2009 it was worth just a penny. 2010 it was worth about 20 cents. In 2011 it had a momentary peak where it hit
$29, but the average was below $10. 2012 stayed set $10. 2013 went 10X, went to $100. 2014 was a fun year, that’s the year that
I actually really got into it. It piqued my interest and I started crypto
mining myself. It peaked at $1000, and then actually after
that there was a steady decline. So about 2015 till about mid 2016 we were
floating around the three to four hundred dollar mark. In 2017 we’re back at 1000, and early on in
2017 we started climbing up to a peak of US$19,000. That was just recently. Right now we’re averaging, January 2018, around
$15,000. We have a total market cap of about US$250
billion. This is what got sexy. I mean think about those people who mined
for fun back in 2009, 2010, 2011. It was just worth a few pennies or whatever
and you could do it with your computer, and then you threw that out to a landfill. I mean those bitcoins, some people of hundreds
them at pennies each, are now worth $15,000 each. It’s crazy. That’s how we had some overnight millionaires. So what exactly is mining? You keep hearing about people who are mining
for bitcoins, cryptocurrencies. It’s essentially a reward that was established
where special computers, it used to be personal computers but now we have specialized single
purpose computers, that solve complex mathematical calculations to help in the record keeping
of all these transactions that occur in the blockchain. Each block contains a cryptographic hash of
the previous block in the blockchain, so hence that’s why we call it a blockchain. So it’s all built upon each other. In this case we use a hashing algorithm called
SHA256 for Bitcoin, and other similar bitcoins, like Bitcoin Cash, which was a fork of Bitcoin. And then as things got more complicated and
people wanted to be rewarded with gaining bitcoins, they started creating these pools. So mining pools were created to bundle together
the hashing power of a whole bunch of miners, miners being all of these computers with lots
of computing power. In order to increase the frequency that they
get paid out some bitcoins based on their contributions to working on the blocks. People used to use, as I explained, personal
computers in the past to mine, but now they use these specialized single purpose computers
called ASICs. One of the most popular ones out there is
something called Antminers by a company named Bitmain, which are in such demand that you
actually have to order them three months in advance, as soon as they’re released with
the newest one, and they’re sold out instantly. Like it’s just crazy. So why doesn’t everybody mine? Why doesn’t everybody go out there and decide
that hey I’m just going to turn on the computer and I wanna make some of this money? Well here are some factors that might come
into play. Number one, it’s past the point where you
can use your personal computer. You actually need a high end system. You can still use personal computers with
high end graphics cards to mine alternate coins that were created, alternate cryptocurrencies. A very popular one is called Ethereum, and
it’s still currently floating at about $700 to $800 per Ethereum coin. So it’s got a lot of value. A lot of the sub coins are being based against
that. Another concern is that when you mine cryptocurrency
your computers are running at full efficiency, like 100%. The fan’s going on it, it’s doing a lot of
computational power, so that takes a lot of electricity. And by nature of using a lot of electricity
it gives off a lot of heat. So in this case you could probably even heat,
and some people are actually heating their garages in the winter with these miners that
they’ve got set up. The miners are in such high demand, especially
the specialized one like the latest one is the Antminer S9, which is very difficult to
buy. So if you go on Ebay or Kijiji or anything
people are even buying them and selling them immediately at ridiculous prices, like four
times what they paid for them, because they’re in such demand and they had to pre-buy them. And interestingly you had to use Bitcoin to
buy them, three months before they even get the delivery on some of these, and they’re
sold out right away. The effectiveness of the hashing power is
based on how current and how powerful your miner is that you’ve got, your piece of hardware. And right now it’s measured in terahashes
per second. That decreases over time because things get
more difficult. What do I mean by that? Well there’s a mathematical difficulty formula
that’s built into the bit chain, into the blockchain, where every 2016 blocks that get
added to the blockchain the difficult level gets adjusted. So the desired time for getting through a
block is 10 minutes, and the reason for that is what’s exactly 2016 blocks, 10 minutes,
it’s exactly two weeks. So if the prior 2016 blocks was done in a
shorter amount of period of time, because that means that there’s a lot of computers
online, there’s a lot of people mining it, and it was done in a reduced amount of time,
then the difficulty of mining is actually increased. It becomes harder. Which historically, if you look at it, the
difficulty level is actually jumping up exponentially. So that’s number one. Number two, so you’ve got this hardware that
you buy and you think “oh it’s being advertised that it’s 15 terahashes or 14 terahashes.“ The Antminer S9 I believe is advertised between
12 to 14 terahashes per second. That’s going to decrease over time because
things are getting more and more difficult to mine the Bitcoin which means that your
payout, how much you’re going to get paid, is going to decrease. Now on that note, what helped in 2017 is we
went from $1000 Bitcoin valuation to a $20,000 Bitcoin valuation. So it made it worth it, even though the blockchain
was that much harder to mine, the price of the bitcoin, of what you were getting, went
20 times in a year and was very lucrative. We’re not actually sure what the future of
Bitcoin is going to be over 2018 but I’ll tell you right now there’s a lot of hype and
a lot of people are getting into mining. You also have to keep in mind that this is
sort of like stock markets, it’s very high risk. So tomorrow somebody could theoretically manipulate
Bitcoin and the price could tank and could drop considerably. It has happened a couple of times. We don’t think that’s going to happen, I believe
that things are probably going to settle out. We had quite an adjustment that happened during
2017. But right now if you take a look at it, I
think it’s probably still worthwhile for some people with the right hardware and the right
know how to get into this. So the question I get asked is, “Hey David,
I’d love to do this mining thing, should I get into it? Should I buy Bitcoin?” I guess my answer is just like what you do
with stock markets. The big question is “is it money that you’re
willing to gamble and forget about.” Like you are not depending on this. Don’t put your life savings into this, it’s
too volatile. This is something that’s very risky. But if this is … If you’ve got a few hundred
dollars or whatever, I don’t know, it depends on what your portfolio is, that you’re willing
to gamble on. You thought, “Hey I’d like to cash in on this
and maybe Bitcoin’s going to go 10 fold again in 2018.” Then by all means you can do that. One of the quickest and easiest ways to do
it right now is through an app called Coinbase. It allows you to buy the very common Ethereum,
Litecoin, Bitcoin, they have a set weekly limit of I believe $250 that you can buy up
to. But for people who want to try it out and
feel like they own some Bitcoin and that they might do something, that’s probably what I
would recommend. If you want to get into mining, the dedicated
miners, you have to be very careful there. They use a lot of electricity, they cost a
lot, they decrease the amount they’re going to mine over time, so they’re not going to
be as effective. So really your return on investment, your
ROI, has to be within a fairly short amount of time, like less than a year that you’re
going to be able to pay off that hardware, pay off the electricity and whatever it is
that you needed to make that work and cool it, and be able to earn enough Bitcoin during
that period of time. The next problem that you’re going to have
in mining is do you mine Bitcoin? Like we keep talking about Bitcoin, Bitcoin,
Bitcoin. To me that’s kind of like the gold standard
of cryptocurrencies. Everything’s being measured against it. But honestly, there’s thousands of other cryptocurrencies
that have been created with really funny names actually, and different purposes. But some of the most common ones and that
have established them as a baseline are Ethereum, Litecoin and Bitcoin Cash. And Bitcoin Cash was a fork of Bitcoin, meaning
that it’s based off of it but has gone in a different direction and now can be mined
separately. Ethereum specifically I think is really cool. There’s some distributed applications (DApps)
that can be built upon that platform, and Ethereum can be mined using high end graphics
cards on like what computer gamers use on their computers. And you can actually mine and earn a fairly
decent amount of Ethereum, which is another type of cryptocurrency, using a high end computer. Now why do I say that’s … The reason that
I’m going to say I think that’s a value is because Ethereum, if you’re using high end
computers, there’s a value to that computer at the end of the day. If you want to do something else with it or
you want to resell it to a gamer or whatever, your hardware cost is going to be depreciate
over a period of time but it’s not like buying a dedicated device that the only thing it
can do is mine Bitcoin, it doesn’t do anything else. You’d have to be really sure of yourself in
that. You can go and mine other different cryptocurrencies
based on the same hashing algorithm, but the Ethereum mining using high end graphics cards
has a bit of sex appeal on that just by nature of being a high end computer card that maybe
then you resell it to a computer gamer or some video person or some high end graphics
guy because you know they’re happy with having a computer with a lot of horsepower and a
really good video card. Those are some things to think about, is what
exactly are you investing in this? What’s it going to cost? Do not discount the amount of power that this
takes, it’s considerable, and the amount of heat that it’s going to give off. Great in the winter months for people who
live in cold climates, but you’re going to have to deal with cooling when it comes to
summer time when the sun is beating on you and you’ve got this extra heat that’s being
generated and you’ve got to dissipate all of that additional heat. So keep those factors in mind.

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