The Bitcoin Big Bang E-Book

Brian Kelly

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 363

Veröffentlichungsjahr: 2014

Beschreibung

Get a handle on the digital currency revolution, and learn how to get on board

The Bitcoin Big Bang is a guide to navigating the uncharted territory of digital currency. Written by CNBC contributor Brian Kelly, this book goes beyond Bitcoin 101 to explain how this transformative technology is about to change the world. Digital currency is thrown into perspective against the history of payment systems and its own evolution, as readers are invited to explore the ways in which this technology is already changing the way business gets done. Readers gain insight into the mechanisms behind Bitcoin, and an expert perspective on digital currency's effect on the future of money and the economic implications of the Bitcoin revolution.

In the same way that e-mail changed the way we transfer information, the decentralized Bitcoin network is about to revolutionize the business world, the legal profession, and even the role of the government. The Bitcoin Big Bang dives head first into this paradigm shift, allowing readers to:

• Explore the origins of digital currency
• Learn the history and evolution of payment systems
• Discover how the Bitcoin network is facilitating free and instant transfer of value
• Understand the mining of Bitcoin, and how to invest

The digital currency revolution has implications that spread far beyond the finance industry. Anyone who exchanges payment for goods and services is on the cusp of the next big push in societal evolution, and only an understanding of the technology and a clear knowledge of the systems and behaviors at play can fully prepare us for the changes to come. The Bitcoin Big Bang is the go-to guide, helping those who use money use it better.

Leseprobe

THE BITCOIN BIG BANG

How Alternative Currencies Are About to Change the World

Brian Kelly

Cover image: © iStock.com/pixelparticle Cover design: Wiley

Copyright © 2015 by Brian Kelly. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, [phone], fax [phone], or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, [phone], fax [phone], or online at www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.

ISBN 9781118963661 (Hardcover) ISBN 9781118963647 (ePDF) ISBN 9781118963654 (ePub)

For my wife, Dawn, this book is a testament to your unwavering faith in my stupid ideas.

CONTENTS

Preface

Acknowledgments

About the Author

Chapter 1: Bitcoin Is a Bubble

The Quest to Buy Bitcoin

Bitcoin Enlightenment

Currencies Are a Matter of Trust

What Is Bitcoin?

Is It a Currency?

It's Revolutionary

Chapter 2: Understanding the Digital Gold Rush

The Language of Bitcoin

How Do I Buy Bitcoin?

Who “Gets” It?

The Gold Rush Is Just Starting

Chapter 3: Bitcoin Is More than Digital Gold

Searching for Satoshi

The Search

Why Is Satoshi a Genius?

Bigger than Satoshi

Chapter 4: Byzantine Generals' Problem

How Does Bitcoin Solve the BGP?

51 Percent Attack

An Elegant Solution

Chapter 5: A Decentralized Financial System

Grand De-Central Station

What's at Stake?

Central Banks

Bitcoin Is the Catalyst

Chapter 6: What Do You Call a Bitcoin Miner? A Banker

How Does a Bitcoin Transaction Work?

What Is Cryptography?

Still Want to Be a Miner?

Do We Need Another Bitcoin?

Chapter 7: Nautiluscoin—0 to $1 Million in 60 Days

Creating the Coin

Did It Work?

Chapter 8: Building the Nautiluscoin Economy

Dynamic Proof-of-Stake

Other Policy Tools

Alternative to Gold

Money, Made Better

Financial Market Integration

Special Drawing Rights

Why NAUT?

Chapter 9: Investing and Trading in Alternative Currencies

A New Investment Class

Valuation

Exchanges

Investment Vehicles

Asset Class Growth

Chapter 10: Regulation

Regulatory Agencies

Challenges to Regulation

Pushing on a String

Chapter 11: Smart Money: Set It and Forget It

Rules of the Road

Smart Contracts and Property

Ethereum

Cryptoequities: A New Type of Investment

Decentralized Autonomous Organizations

Professor Money

Chapter 12: Everything You Know about Business Is Wrong

Cryptonomics

Growth Share Matrix

Learning Curve Effects

Porter's Three Generic Strategies

Human Resource Management

Fueling the Sharing Economy

The Future Just Might Work

Appendix 1: Department of the Treasury Financial Crimes Enforcement Network Guidance:

FIN-20 13-G00 1 Issued: March 18, 2013 Subject: Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies

Currency vs. Virtual Currency

Background

Definitions of User, Exchanger, and Administrator

Users of Virtual Currency

Administrators and Exchangers of Virtual Currency

Providers and Sellers of Prepaid Access

Dealers in Foreign Exchange

Notes

Appendix 2: New York State Department of Financial Services Proposed New York Codes, Rules and Regulations:

Title 23. Department of Financial Services Chapter I. Regulations of the Superintendent of Financial Services Part 200. Virtual Currencies

Section 200.1 Introduction

Section 200.2 Definitions

Section 200.3 License

Section 200.4 Application

Section 200.5 Application Fees

Section 200.6 Action by Superintendent

Section 200.7 Compliance

Section 200.8 Capital Requirements

Section 200.9 Custody and Protection of Customer Assets

Section 200.10 Material Change to Business

Section 200.11 Change of Control; Mergers and Acquisitions

Section 200.12 Books and Records

Section 200.13 Examinations

Section 200.14 Reports and Financial Disclosures

Section 200.15 Anti–money Laundering Program

Section 200.16 Cyber Security Program

Section 200.17 Business Continuity and Disaster Recovery

Section 200.18 Advertising and Marketing

Section 200.19 Consumer Protection

Section 200.20 Complaints

Section 200.21 Transitional Period

Index

End User License Agreement

List of Tables

Chapter 6

Table 6.1

Table 6.2

Chapter 8

Table 8.1

Chapter 9

Table 9.1

Table 9.2

Table 9.3

List of Illustrations

Chapter 5

Figure 5.1 A Simple Transaction in a Centralized Financial System

Figure 5.2 Types of Systems

Figure 5.3 A Transaction Using the Decentralized Bitcoin Network

Figure 5.4 Bitcoin Aims to Disrupt a $459bn+ Industry

Chapter 6

Figure 6.1 Bitcoin Price versus Network Difficulty and Hash Rate

Figure 6.2 Homemade FPGA Mining Rig

Figure 6.3 Dave Carlson in His $8 Million per Month Bitcoin Mine

Figure 6.4 Bitcoin Mining Pool Market Share

Chapter 8

Figure 8.1 Chain of Causality for Monetary Policy

Figure 8.2 Dynamic Algorithmic Monetary Policy Creates Smooth Economic Growth Pattern over the Long Run

Figure 8.3 Nautiluscoin Policy Tools

Chapter 9

Figure 9.1 A $100,000 Portfolio That Is Invested $60,000 in SPY and $40,000 in TLT

Figure 9.2 Rolling 6-Month Correlation between S&P 500 and 10-Year Yield

Figure 9.3 HGY00—High-Grade Copper—Daily Line Chart

Figure 9.4 Price of Bitcoin Rises

Chapter 12

Figure 12.1 The Growth Share Matrix

Figure 12.2 Ford Model T Price Experience Curve: 1909–1916

Figure 12.3 Three Generic Strategies

Guide

Cover

Table of Contents

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Preface

Every so often I find myself with the insatiable desire to jump off a cliff and think about the consequences later. Some may call it curiosity, while others think I am just plain crazy. I typically relish the skepticism, as I have found that the best opportunities arise when everyone else thinks I am a little nuts. The Bitcoin Big Bang was one of these times—actually, truth be told, this time I was the one who was skeptical. Despite my fear, uncertainty, and doubt, I jumped anyway.

When I began writing The Bitcoin Big Bang, it was for selfish reasons: I had bought Bitcoin near the peak and now was in a losing trade and needed to know everything about this “investment.” I figured I could turn my research into a book and learn a few things in the process. I did not know that I had stumbled on one of the most fascinating and promising technological advances since the Internet. When I first heard of Bitcoin, it was through the currency markets, and that is where my journey to Bitcoin Enlightenment began.

I mistakenly assumed that Bitcoin was an interesting new currency that had held little promise. After all, was the U.S. government really going to allow an unregulated currency based on computer code to replace the dollar? What I now realize is that the currency is not the innovation; the blockchain technology is the game changer. The currency—bitcoin—is a fascinating alternative currency that has the potential to disrupt the global payment networks. However, it is the blockchain technology that is revolutionary.

The concept of the blockchain enables the transfer of secure information over an unsecured network. This may sound like a small step, but it is the first time in human history that this has been possible. The blockchain solves a multidecade-old problem in computer networking, and it can be applied to more than just currencies. It has the potential to end identity theft, create a secure Internet without the need for passwords, and revolutionize the way corporations do business.

When Jeff Bezos left a lucrative job as an investment banker to start an Internet bookstore called Amazon, everyone thought he was crazy. At that time, video stores like Blockbuster were in their prime and smartphones were landlines with an answering machine attached. Today, that same company (Amazon) is a leader in streaming video content to a handheld computer called a smartphone.

I do not know what alternative currencies will look like or accomplish over the next 20 years, but I do know that when a revolutionary technology is born, the world changes.

My goal with the book was to answer four questions:

What is Bitcoin, and why is it revolutionary?

How does it work?

Why are digital currencies a new type of investment?

How are alternative currencies going to change the world?

To this end, the book was written with two sections in mind. The first half of the book describes what Bitcoin is and how it works, while the second half illustrates the multiple uses of the blockchain technology and explores the ramifications for investments, business, and government.

An innovative technology was created by an anonymous programmer, who has given it away for free. This creation has spurred a technological explosion similar to the personal computer and the Internet, and, like its predecessors, alternative currencies are about the change the world.

—BK

Acknowledgments

When I began writing this book I thought it would be a solitary endeavor—countless hours writing alone to produce a manuscript that somebody might decide to read. Boy, was I wrong! This book would not exist without the contributions from friends and colleagues.

Let me start by thanking Jeffery Krames, who contacted me four years ago and convinced me I should write a book. It took a while, but this book is a testament to your persistence, patience, and conviction. You always knew I had a book in me.

To the CNBC Fast Money production team: thank you for supporting this project and for being an integral part of launching Nautiluscoin. Lisa Villalobos, the multitalented executive producer of Fast Money—you were able to take my slides of cryptographic hash functions and economic theory and turn them into a digestible television segment. You make it look easy. Michael Newberg, who was charged with producing a segment on a subject that I was still struggling to comprehend—you skillfully took an esoteric concept and turned it into a television segment that everyone could understand.

Melissa Lee, you were one of the first to understand the revolutionary nature of digital currencies. Your vision and intellectual curiosity are a big reason Nautiluscoin exists. Your ability to deftly juggle market-moving events and manage four traders with strong opinions is remarkable.

Which brings me to my Fast Money friends: Guy Adami, Karen Finerman, Steven Grasso, Jon and Pete Najarian, Dan Nathan, and Tim Seymour—you have all been an inspiration and I am constantly astonished at how fortunate I am to be able to work with you. You were all part of my journey to Bitcoin Enlightenment. You witnessed my skepticism, then my discovery, and along the way I may have convinced a few of you that there is something to this digital currency craze.

To my parents, who always encouraged me to be curious and embrace discovery—you made sure I always had opportunities to absorb, even in high school, when I thought I would never need to learn how to write.

I am forever grateful to the group at Austin Global Exchange: Justin Northcutt and Ryan Crow—you took a chance on a new currency and were true professionals throughout the entire project.

Nautiluscoin, as it stands today, would not exist without the talented coding skills of Jared Tate of DigiByte. I consider myself lucky to have met you before the world discovers your talent.

To the publishing team at Wiley, especially Lia Ottaviano—thank you for guiding this first-time author and answering an untold number of silly questions. To Evan Burton—thank you for believing in this project and being its champion.

Last, but certainly not least, to my wife Dawn, aka Mrs. BK—this entire project would not have occurred without your support. Besides listening to countless hours of my droning on about how amazing digital currencies are, you were a much needed sounding board. You always challenged my views—this book and I am better for it.

—BK