Back in 2013, Josh Kaufman wrote a best-selling book: “The first 20 hours: How to learn anything fast” in which he challenges research that suggests that it takes 10,000 hours to master a new skill. And demonstrates that 20 hours is all it takes to learn the basics of almost any new skill. I decided to apply his theory on the learning of bitcoin. Although, I am a firm believer of the 10,000 hours rule when it comes to becoming a world class master. I believe that a mere basis of anything can be learnt after a few productive hours. I think that entrepreneurs should aim to identify problems and gaps in today’s world and how to solve them. Therefore, I was instantaneously attracted to the first 20 hours rule and its presented shortcuts.
On September 25th 2015, I purchased my firsts bitcoins through a seamless purchase process. But as I spent time learning about bitcoins and the landscape of opportunities and applications that came with it, my mind was blown. Not only did I learn about bitcoins, but also about other cryptocurrencies, smart contracts and most importantly the blockchain (also known as Shared Ledger Technology or simply “shared databases”) and its applications. I discovered a whole range of disruptions that are already taking place, which will revolutionize the world in the coming years. This post, shares the facts and ideas that I found most interesting during my first 20 hours studying and researching about bitcoin, the blockchain and its potential applications.
All the bitcoins in the world are worth around $4.8B
What is bitcoin?
Bitcoin is a digital currency that is created and held electronically. Originated in 2009 by a software developer called Satoshi Nakamoto, the system is based on mathematical proof. Bitcoin is independent of any central authority and is instantly transferred electronically with very low transaction fees.
Where you buy bitcoins and how much they cost?
There are many websites that allow you to purchase bitcoins just like you can purchase stocks or currencies. The price of bitcoin is determined by supply and demand and when people refer to their cost they are referring to its exchange price (for example: BTC to USD).
The bitcoin protocol.
The bitcoin protocol (aka rules that make bitcoin work) says that only 21 million bitcoins can ever be created -so far only 14 million bitcoin have been mined-. Bitcoins are generated by miners who solve mathematical problems to prove the veracity of transactions. Miners decode a group of transactions every 10 minutes, for which they are rewarded some bitcoins and allow the network to function.
I used Coinbase -A bitcoin trading platform- to set up a wallet. Directly from the mobile app on my IPhone, I linked my bank account to Coinbase and funded it with dollars. Then, just like in any other trading platform, I opened an order to purchase bitcoins at a price of $236.35 per bitcoin. Immediately, I received a confirmation and notice that it would take a week for the bitcoins to show up on my account. On the date of delivery, I received 10.05 bitcoins and was charged a transaction fee of $23.76 by Coinbase. Now it was time to study and research about bitcoin. The first I discovered was that the main event isn’t bitcoin but using the blockchain to disrupt other industries (including wall street). The key disruptive component of bitcoin is in its protocol and its called the blockchain, which basically is a way to store information. This article explains why it is so powerful and why I believe that the price of bitcoin will increase in value over the coming months.
“Bitcoins are opening up a space that will create a revolution like the personal computers did in the 1970’s or the internet did in the 1990’s” - Tim Draper, VC
The power of the blockchain
The bitcoin blockchain is a stack list of all the bitcoin transactions in history. Every 10 minutes, a new block containing new transactions is added to the blockchain. This happens after proof of work -verifying that the transaction in the block are legit- is conducted by the bitcoin miners -who solve complex math problems to verify the transactions and prevent the blockchain from being copied-. Miners, who operate in mining pools to maximize their efforts, are rewarded with bitcoins when they are the first ones to verify a set of transactions and add a new block to the blockchain. In the early days of bitcoins, many writers made analogies between bitcoin miners and the gold rush that took place in the 19th century. However, these days are gone because mining isn’t no longer that profitable.
"A blockchain is just a confusing name for a shared data base"
Differently from a traditional database that is stored by one master member, blockchains are not only hold by one but by all the members of a network. It is a shared database between all the members of a network -known as nodes, which are connecting points or redistributing points-. The blockchain is made of blocks that once proofed legitimate are added to the chain. It is said to be decentralized because all nodes hold a complete or partial copy of the blockchain instead of having a master node holding the entire database.
Storing transactions in one automatically, shared database could eliminate the need for complicated procedures and clearinghouse that are now used to make sure banks have their records in sync -which will no longer be needed-.
Another major application is seen with traditional stock and bond transactions, which today take three business days to fully settle -before the assets are available in the buyer’s account and the money in the seller’s pocket-. Those transactions are logged by an intermediary. However, the collective ledger has the power to record them with out the need of that intermediary because assets can be send very quickly (almost in real time) with out any chance of the transaction being reversed.
Another use of the block chain could be smart contracts -programs that automatically detect when assets get transferred-. For example, allowing interest payments, dividends or escrow arrangements to be automated. Smart contracts could also allow us to verify the history of assets. For example allowing us to verify all the events that have happened in a piece of real estate or the authenticity of a diamond and its precedence- which we could use to determine wether it is a blood diamond or not-.
Bitcoin is not the only cryptocurrency out there. In fact, dozens of electronic currencies now exist and multiple reports indicate that banks have been developing their own cryptocurrencies based on the bitcoin protocol. Therefore, bitcoin its just the first cryptocurrency to go mainstream of many more that we will see in the coming years.
Bitcoins will increase in value over the next 6 months
I am betting that in a short to mid term period the value of bitcoins will increase in value. I purchased my firsts bitcoins at a price of $236.35 per bitcoin and I believe that over the next 6 months their value will significantly rise due to the following events.
Europe has regulated bitcoin as a commodity making them exempt of VAT. The price of bitcoin is determined by basic supply and demand of the currency. As bitcoin become regulated in more countries, this will incentivize people to purchase them and therefore increase their demand. However, it will all depend on the speed that the regulative process takes.
We have just seen a correction in the stock market, which is going through a high volatility period dragged by the crisis in emerging markets and commodities. I believe that this aided with new regulations will create an inflow of money towards bitcoins. I do not think that there will be a lot of people betting on them but given their low market cap in absolute terms (about $3B) I do think that the volatility can positively affect bitcoin as money flows into them with investors searching to store value somewhere else than the stock market.
There has been a large number of bitcoin startups funded by Venture Capitals. Those companies -showered with VC money- are building products for the bitcoin ecosystem. I believe that as bitcoin applications become more seamless and bitcoin e-commerce solutions get accepted by more online stores, the number of people using bitcoins will increase. It will all depend on the success of the products the companies roll out. As more people use bitcoin, its demand will increase and this will push its price up.
This being said, I do believe that bitcoin is a highly speculative asset to own and I do not advice anyone to bet more that they can afford to lose on them. However, I will like to conclude this article taking a bet that bitcoins will find an stable price in the range of $300 to $400 in the near months (early 2016).