Bitcoin in One (Condensed) Lesson

  • Your most burning questions about cryptocurrencies, answered
  • How to buy cryptocurrencies
  • How crypto started — and who started it
  • Which cryptocurrency is the most “legit”
  • How big banks are nosing around in crypto
  • And how crypto is more resilient than your bank in case of the zombie apocalypse!

“I asked my 66-year-old mom whether she knew what bitcoin is…or cryptocurrency? She had no clue, although she said she’d heard something on NPR.

“My 12-year-old son knew all about it…mostly salacious stuff about the dark web and crypto’s stigma of criminality. He could list different cryptos, with bitcoin being the biggest.”

We bet you can relate to the experience of Emily Clancy. Emily came on board this month as editorial assistant here at The 5. Because “crypto” has been our big topic of late, she had some questions — fundamental layman questions you likely have as well.

A few weeks ago our team identified a way to get rich from bitcoin without having to know the first thing about it. All you needed, we said, was $20 and the willingness to try something new. And for many of our readers, that’s been working out nicely.

But maybe you do want to know the first thing about crypto. And the second, third and fourth. Like Emily.

We have a growing stable of crypto experts here at Agora Financial. But the original — and, in his own way, still the most passionate — is Chris Campbell. He’s been writing regularly about crypto ever since taking over our sister e-letter Laissez Faire Today three years ago.

I figured Chris was just the person to answer Emily’s questions. And answer he did. In a caffeine-fueled frenzy, he pounded out about 4,000 words in reply — which he’s presenting this week at Laissez Faire Today in four installments that started on Tuesday.

If that sounds like more information than you want to absorb but you still have some basic questions, we’re going to do our best to condense his reply into our 5 Mins. today.

It’s a crossover episode of The 5! Let’s begin…

Question No. 1: Do you purchase crypto with standard currency? Could I buy bitcoin with dollars?

“Yep,” says Chris. “The easiest way to do so is on Coinbase, which is as easy to use as PayPal or online banking services. Plus, your bitcoins are insured. Just don’t keep your bitcoin on the exchange.”

We’ll amplify Chris’ remarks here. Get your own crypto wallet. You put your crypto wealth at risk otherwise. (Subscribers to our premium trading advisoryThe Crypto Alert get step-by-step video instructions on how to do so.)

Maybe you recall the headlines a few years ago about how people lost millions of dollars when their bitcoin was stolen from an exchange called Mt. Gox. That’s because they didn’t follow this advice and kept their bitcoin on Mt. Gox. It was the biggest bitcoin exchange at the time. Emphasis on the word “was.”

Few of us take delivery of our stock certificates anymore. And some people are comfortable owning precious metals through an ETF instead of the real thing. But whatever you do, take possession of your crypto through a wallet.

Question No. 2: How did crypto start? Or WHO started it? How long has it been around?

Bitcoin is the very first cryptocurrency and is eight-years-old. Here’s Chris’ bitcoin primer in five fast facts:

  1. Bitcoin is an amalgam of decades of innovations in applied cryptography.
  1. Bitcoin is software.
  1. Bitcoin is a decentralized digital payment network that allows individuals to transact privately without the need for banks or middlemen (it is peer-to-peer).
  1. Nobody is in direct control of bitcoin or its supply.
  1. Bitcoin marked the birth of “crypto” in 2009.

It makes sense: One year after the boom dropped on the global economy, many people were champing at the bit to cash out of a system that left them broke.

But bitcoin was really decades in the making, says Chris.

“The long and windy path to bitcoin began when the military created the standard for cryptography in the ‘70s.

“After that, a few major innovations over the next couple of decades laid the tracks for a ragtag, fluctuating group of hackers and nerds to eventually emerge in the ‘90s.

“This group, the ‘cypherpunks,’ drove the idea of an anonymous, decentralized currency forward. But the sole creator of bitcoin, Satoshi Nakamoto… is unknown.”

We’ve mentioned Satoshi Nakamoto before in The 5. He remains a shadowy figure in the genesis of bitcoin but he finalized the idea of the blockchain and submitted it to the cypherpunks and… it worked.

Question No. 3: Which cryptocurrency is the most legit in your opinion?

Chris concedes there are dissenters but in his estimable opinion, bitcoin is the most legitimate form of crypto. Why? Because bitcoin kicked off blockchain technology and became the template for all other cryptos.

So starts our discussion of the blockchain — what it is and how it functions.

(Stay with me. Chris does a fantastic job simplifying things so you don’t have to be a cypherpunk to get it.)

First, Chris says, imagine each block in the blockchain as a transparent digital safe. The “safes” link together to form an expanding chain.

“Each block on the chain, all the way back to the first block (called the genesis block), stores a list of transactions that occurred on the network….”

The block’s transparency means “transactions are public and can be seen (and are auditable) by anyone, “ Chris says. “But that doesn’t mean you can instantly link them to a specific identity.”

To lock and unlock each block (or “safe”), bitcoin owners have two digital keys.

A “public key,” Chris says, “is used to create your account number — your ‘address.’ You give your address to others so they can send you bitcoin.” A private key is used to verify transactions, “acting like your signature on a check.” Together, the public and private keys become a master key that unlocks and sends bitcoin. (If you’ve ever used an email privacy program like PGP, you’ll recognize this mechanism right away.)

The security features built into bitcoin (and other cryptos) are highly attractive to people who’ve had their privacy compromised by big banks. And the primary reason people put money in banks rather than, say, under their mattresses is for security!

So banks may now be the 21st-century version of the mattress as more people look to minimize their risk through cryptos — bitcoin being the first — that operate anonymously and untethered to national economies.

Question No. 4: Are big banks nosing around the viability of crypto?

The short answer isn’t just yes, but hell yes. “You should be taking this technology as seriously as you should have been taking the development of the internet in the early 1990s,” said Blythe Masters in 2015.

Ms. Masters used to work at JPMorgan Chase, where she had a major hand in developing the credit default swap — one of those “financial weapons of mass destruction” that brought on the Panic of 2008. Masters is now trying her damnedest to mainstream crypto as CEO of an outfit called Digital Asset Holdings.

Says Chris, “Big banks will eventually be forced to adapt to cryptocurrencies. And I think they have already realized cryptocurrencies pose a challenge to their business model long term. It will take a few years for the extent of how much a challenge they pose to become crystal clear, but ‘business as usual’ will eventually stop working.

“As time goes on, the role of banks will likely change. I think, long term, they will serve less as intermediaries and move toward being innovation hubs. (Nasdaq, although it’s not a bank, is a good example of a well-established financial company moving in this direction with crypto.)”

What exactly does this future look like? Chris has both worst- and best-case scenarios.

The absolute dystopian worst case: “Quantum computers will make all cryptography obsolete in one fell swoop and useless and all privacy will be eradicated virtually overnight.”

Quantum computers, as the name implies, apply quantum mechanics to information processing. By some estimates, quantum computers can solve problems and deliver results 3,600 times faster than traditional supercomputers. Obviously, that doesn’t come cheap. Imagine that processing power in the hands of only the biggest governments and corporations.

Imagine everyone’s private life suddenly thrown open and virtual wealth becoming all but worthless. “Central banks swoop in as the hero,” Chris goes on. “They swiftly create their own global, unified cryptocurrency and slowly gain full adoption by promising everyone, say, a basic universal income and by not wasting a single crisis.” To make the system work at peak efficiency, you’ll need to have a microchip implanted in your body. For your own good, of course…

Chris’ utopian best-case scenario (hey, we don’t want to be a downer here): “Cryptocurrencies offer an alternative to state currencies and governments are forced, on some level, to compete.

“Governments adopt blockchain technology for purposes of efficiency (so to keep up with the times) and as a result, public money becomes more and more transparent and instantly auditable by any citizen.

“Since much of the tax money given to the public servants can be tracked down to the millicent by any citizen, there’s very little wiggle room for corruption. If the public disagrees with where their tax money is being spent, tax protests could become a virtually unstoppable option.”

The most likely scenario? Something in between, says Chris. And probably something none of us can even anticipate.

But you don’t have to figure out how crypto will change the world in the next 10 years to collect enormous profits from it the next few months, or even weeks. As we’ve been saying the past several days, crypto is quickly going mainstream — with interest from venture capitalists and even traditional stuffy bankers.

Now… As enthusiastic as Chris is about the possibilities of the blockchain, he has a lot more fun traipsing the globe as editor of Laissez Faire Today. So when it comes to identifying the best cryptocurrencies among the 900 or so out there… well, that’s a task that one of our recovering Wall Street pros, Louis Basenese, has taken up with sheer abandon.

He keeps an eye out for “crypto-quakes” — big and sudden upward moves that could make you millions in mere weeks. We urge you to check out his latest research right here.

“I do not need electricity to use land or hold gold,” a reader writes. “Isn’t cryptocurrency inaccessible/useless if electricity fails?”

Adds another: “I read with interest about cryptocurrencies — I wish I would have bought some many years ago. That being said, as there is more and more concern over North Korea or terrorists attacking with an EMP, what value would these have if I have no way to access the internet, etc.? At least some form of ‘real’ product (i.e. silver or gold) would have some value.

“Thoughts? And thanks for the newsletter. It’s normally quite thought provoking.”

The 5: “Normally”?

We get it. Land and precious metals? Tangible stuff? They count for a lot… and Chris Campbell is a silver bug from way back.

Here’s the genius of bitcoin as Chris explains it: Everyone involved in creating a new unit of crypto holds a copy of the blockchain. “Each copy perfectly reflects all other copies. Like a hologram, each part of the bitcoin network represents the whole of the bitcoin network. This is why the bitcoin network is so incredibly secure. Unlike a central database or a central server, there’s no single vector of attack you can strike at to kill it. The power, and, as a result, the security, is distributed throughout the entirety of the network evenly and neutrally.”

There’s no central location for the blockchain information. Your PC and mine along with thousands of others could become the “server.” And if there’s just one hologram of the blockchain left, then the entire blockchain is preserved.

Think about it. If someone figures out where Bank of America’s server farm is located and manages to hack into it — or just blow it up with good ol’-fashioned explosives — those records are gone. Maybe they have backups, but then again these are the people who got us into the Panic of 2008.

But a record of the blockchain — every transaction, ever — is sitting on hundreds or even thousands of computers all over the globe. It’s easily replicated in a pinch. That’s the brilliance of a “decentralized” system.

OK, we’ve taken up nearly all of our 5 Mins. tackling these Big Questions today. We hope you’ve learned a thing or two. More important, we hope it’s calmed any jitters you might have about crypto. After all, the profit opportunities are immense… and the moment is now.

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. Bloomberg calls this “the hottest new way of investing” and says it’s “a rocket ship.”

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Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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