The Age of Cryptocurrency (Paul Vigna, Michael J. Casey) — Book Summaries: EP45

The Age of Cryptocurrency (Paul Vigna, Michael J. Casey) - Book Summaries: EP45

This book covers the history of Bitcoin and some of the events leading up to its current state.

Money only has value when there is a shared agreement to use it as a medium of exchange. Fiat money doesn't have any intrinsic value, contrary to gold or silver, which do.

The reason gold and silver historically were used as currency in many cultures, is because people valued them and agreed to use them as a medium of exchange. Some cultures however did not recognize even gold and silver as valid currency. An example of such a culture was that Micronesian island of Yap. They used huge stone wheels as currency, which were called: "fei". These stones were large and heavy, and could often not be moved after the initial exchange took place, resulting in them staying with their original owner.

The Yapese agreed on partial ownerships of fei to settle debts. This proves that all currency is is merely the notion of trust among parties in society.

For money to work, there needs to be a limited supply of it in the system. If a control supply doesn't exist, and anyone can create their own money, then the system can not function.

In 1920, Germany had significant debt after the Treaty of Versailles was put in place. They tried to get out of it by printing money. This resulted in hyperinflation, and a collapse of the economy. Paper bills became cheaper than wallpaper, so people started literally using paper money as wallpaper, because it was cheaper to do so.

The reason Bitcoin has proven itself to be money is because people have already agreed that it can be used as a medium of exchange. Despite this, many people still have trouble visualizing bitcoin, since it's completely electronic.

When people saw that transactions could take place with Bitcoin and real things could be bought with it, trust in it increased.

In just the first quarter of 2013, Bitcoin's value rose 800% from $129 to $1265 per bitcoin.

Lazlo Hanyecz was an early adopter of Bitcoin. On May 21, 2010, he bought half of all the available Bitcoins in the world. He did not know what to do with it, and had trouble finding someone who accepted it. He spent 10,000 bitcoin on two large pizzas (worth $41 at the time). In 2014, the value of these 10,000 bitcoins would have been $5 million dollars. Those pizzas had better been good!

Bitcoin does not have a central bank, but is mined instead. It's similar to gold, but instead of goind underground with pickaxes and dynamite, bitcoin is mined with computers that solve complex mathematical problems. This is called: "Proof of Work".

When a math problem is solved, a reward is given to the miner, and a new problem is issued.

The number of bitcoins awarded to the miner is halved every fourth year, so there is an urgency incentive to mine as many as possible quickly, by getting more computing power faster, and using more power to run it.

It is estimated that the last Bitcoin will be mined in 2040.

The blockchain is a public record of all transactions ever made in the network.

When a new Bitcoin is mined, a new block is created, validated and added to the blockchain. Everyone has access to this blockchain, and it's purpose is to validate, using public consensus, that no amount of Bitcoin has been spent twice.
Each Bitcoin holder has a public address in the blockchain: a unique and encrypted number.

In every small payment transaction on the Bitcoin network, you are sending a portion of a Bitcoin from one address to another.

Each bitcoin is divisible to 8 decimal places, containing 100,000,000 "Satoshi" units, which are the smallest divisible portion of a single bitcoin.

Bitcoin makes transactions cheaper than those transactions which go through traditional banks, other payment processors and middlemen.

An example of a financial middleman in the middle ages was the Medici family - one of the richest and most influential families in Europe in the fourteenth century. They kept account of every transaction for a fee, and served as the foundation for all future banking systems in the world.

Banks have an impact on politics because they influence politicians through lobbying. Bitcoin has a political agenda to fight this by being censorship resistant, since no single person can control the distributed system that it's based on.

With traditional financial transactions, it's most often the seller that pays for the transaction. This is why many sellers
refuse to accept smaller transactions, because they don't want to pay the fee to the middleman. Bitcoin makes these fees smaller by eliminating the middleman. The fee goes to the miners that validate your transaction.

Credit card and bank transactions are extremely complex and slow under the hood. It can take up to 3 days for money to be transferred for something as simple as a coffee purchase. Bitcoin, on the other hand, processes the transaction almost instantly.

Bitcoin also somewhat protects the identity of the buyer and seller by removing the necessity to register personal information in order to transact. Although certain actions can still be taken to figure out the IP address and location of a transacting individual, since Bitcoin is not strictly a "Privacy Coin".

Bitcoin has gained popularity in an extreme way, causing hordes of people to dedicate their entire lives to it, and making it quite lucrative to do so.

In 2013 and 2014, over $1 billion was spent on powerful mining rigs specifically designed to mine Bitcoin efficiently.
Since Bitcoin was founded in 2009, computational power has grown three million times! But even with such rapid advances in computing power, hardware manufacturers are still having trouble keeping up with the demand.

20Mission is a Bitcoin hub in San Francisco, founded by Jered Kenna. It's a place where Bitcoin enthusiasts can work, sleep and socialize. Many such crypto hubs are springing up around the world, attracting both investors and innovators alike.
20Mission has released MaidSafe - allowing decentralized rental of disk space and ZeroBlock - a Bitcoin price notification app.

Between 2012 and 2013, the amount of venture capital going into Bitcoin-related companies has increased from $2 million to $88 million.

Bitcoin has potential to give bank accounts to the current 2.5 billion people around the world who do not have them.

Fatima is a mother of five living in Mali - one of the poorest countries in the world. Her husband had to move to Ivory Coast and send money back to Fatima, as cash, which often gets stolen along the way. If they can get 2 cheap cell phones and an internet connection, they will be able to instantly and securely wire money to each other.

Bitcoin can be used to level the playing field in increasing equality. Any woman in the world can get paid in Bitcoin in any country, for any work performed. The boundaries and friction of the middleman and governments are eliminated, as long as both parties have an internet connection and any smart device.

Bitcoin is not without its weaknesses. It's volatile due to uncertainties in regulations and its software.

In 2014, the largest Bitcoin exchange: Mt. Gox was compromised, when a bug was discovered in Bitcoin - allowing a malicious agent to create fake transactions and receive unwarranted payments. Mt. Gox collapsed as a result, and the price of Bitcoin fell from 25% in just one day. What followed was a 1-year long bear market in Bitcoin, resulting in almost a 500% price decrease (from $1000 to $220 per Bitcoin).

Bitcoin doesn't have a CEO or CTO that can be taken down. It's a distributed network similar to Tor or BitTorrent. So it's practically impossible to shut down, without taking down the internet.

Bitcoin has been used before for criminal purposes such as selling drugs and even hiring hitmen. Silk Road was a primary example of this: a site that allowed anonymously trading many illegal substances.