Bitcoin 101: What You Need to Know Abou Cryptocurrency

Greetings everybody. Welcome to the Wednesday, September 30th, 2015 episode of Free Webinar Wednesdays. This is Eric Cook, and I'm with WSI Digital Marketing, where we work with businesses and organizations on helping them better understand and leverage the power of the internet as a strategic business tool. You can learn more about me and WSI online at www.poweredbywsi.com. Unfortunately, my good friend and Free Webinar Wednesday partner, Mr. Jeff Simpkins, is not available to join us live today. But for those of you that are in the financial services sector, I want to encourage you to check out Jeff and learn more about what he does. His company is called Community Bank Consulting, Inc., and you can learn more about Jeff and all the wonderful things he does for his banking clients over at Community Bank Consulting. I am pretty excited because there's a couple of different angles that I've been thinking about how to kind of blow up the intro for today's speaker. We've touched briefly on the topic of Bitcoin in the past. I've talked about the power of social media bringing people together, kind of the evolution that's got a little bit of a banking spin to it. So of course that gets me excited being a recovering banker. So there are a lot of different ways, and I still haven't formally decided how I'm going to do that. But while I finish that, let me just make a couple of announcements, kind of some housekeeping things. As a reminder for those of you that have been with us before, and for those of you that have not and this is your first time, welcome. Free Webinar Wednesdays presentations are recorded and archived at freewebinarwednesdays.com. So after today's session, Assuming the GoToMeeting gremlins allow us to download the recording and get it up, we'll go ahead and put it out to YouTube. We embed it and it's available. So if our speaker presents some interesting information that you'd like to go back and revisit or share with friends or coworkers, by all means, we encourage you to do so. And then we also very much participate— we very much like participation and encourage audience feedback. And to do that, You've got probably a control panel for GoToWebinar. If you go into the little chat or the questions area, you can go ahead and type your questions. My suspicion is Bitcoin's probably going to generate some questions, and I'm not promising that Roger or I will have all the answers, but we certainly want to hear from you. So feel free to go ahead and type your questions in the chat box, and I'll keep an eye on those. And when there's a break in the action, we'll go ahead and— Roger, I'm going to go ahead and And we'll ask those. So with that, I think what I'm going to do here is I'm going to kind of explain a little bit about how Roger and I came to know of one another, and then share an article that I think sparked the interest. And then we'll officially let Roger do a little bit of talking. But in case you haven't realized it, I know we talked about Google has recently reconnected what's referred to as the fire hose to Twitter. And so if you ever wanted to do a search for something on Twitter, and this is how I remember remembered what the article was that I actually posted. You can use Google now to search Twitter. You can also do it directly in Twitter if you want, but you can type in twitter.com and then you can go in and you can search for Eric Cook, which is my Twitter handle, and then just put in Bitcoin and then go ahead and hit enter. And this reveals all the different items that I've talked about on Twitter. And here in Google results is the actual article that I shared that talked about 9 massive banks teaming up to figure out what they want to do with Twitter— or with Bitcoin. So here's the article itself that I posted. This was picked up by a buddy of mine from the technology and security arena who tagged Roger and said, hey, my buddy Roger would be really interested in this. And Roger chimed in, and without us even really knowing each other, we got to know each other And that's just one of the cool things about social media is you get to meet people like this just by happenstance, by who knows, somebody that might know somebody else. So if you're not using social media, hopefully those of you that are joining today are, but if you're not, there's a great opportunity out there to meet really cool people and to learn new stuff. So this is the article that I originally posted that talked about some of the world's largest banks meeting to talk about this blockchain technology that is behind what we are Commonly referring to as Bitcoin, but the whole concept of cryptocurrency. And so, so this article is one that you may be interested in checking out, and if you want to find it, then go to Google and search Twitter for Eric Cook and Bitcoin. You'll be able to find it yourself, hopefully. But that just kind of sets the stage as to why this got on my radar screen and, and why we've got Roger here with us today. So So with that long-winded 7-minute introduction— I think, Roger, you now have the longest intro I've ever given for somebody on Free Webinar Wednesday. I'm excited to welcome Roger Filmer from his blog, Data Is Life. I see his picture here. He's considerably younger than this old guy that's hosting the show. But I'm going to go ahead and work the magic of GoToMeeting, GoToWebinar, and I'm going to send him the presentation so he can share his There we go. So officially, Roger, welcome to Free Webinar Wednesdays. This was kind of a quick little turnaround, but I'm really excited that you're here, and I've got tons of questions on Bitcoin, and I'm sure our audience does as well. And let's go ahead. Looks like your screen is up and looking good. So welcome.

All right. Thank you very much for the introduction. And yes, like you said, Bitcoin is a Very, very quickly growing and quickly popular technology here. So I want to start off by having some big figures to blow you all away and get you hooked in here. So $900 million over the past five years has been invested in startups using Bitcoin or blockchain technology, and these are from huge figures in Silicon Valley: Andreessen Horowitz. run by the creator of Netscape and funded— and funding in large part by the Winklevoss twins who helped to start Facebook. Like that article said, 9 major investment banks are collaborating on blockchain technology, the technology that's sort of the glue of Bitcoin. It's very rare that you find a case where Goldman Sachs, JP Morgan, And RBS are all working together on an effort. So it shows you really how powerful it is. And finally, this is a technology that has really taken off and has gone international. So $1.8 billion in Bitcoin transactions were registered on the network in the past month. This is not a figure that I'm estimating or making up. This is just pulling every transaction And it totals up to this amount. These are actual network transactions. And so this promising technology is Bitcoin. Bitcoin, which originally started as a small open source project by a dedicated group of enthusiasts, has turned into one of the hottest technologies people are talking about. It's a household word practically, like the Internet of Things or like big data. And so I'll be taking you along on this journey. I've been a Bitcoin enthusiast since about 2013. But I've been interested in technology before then, and I've been following Bitcoin closely since about 2011. And so my background is in economics, so Bitcoin as the nexus of economy and technology has been really interesting to me. And it has been great seeing this tiny technology grow into a currency of sorts, something that we have really not seen before.

Right.

So Bitcoin is a cryptocurrency. And what that means is that it's a system of cryptographically independently verified coins and transactions. The technology behind this is fairly well understood. Bitcoin's an open source project. And it uses the same encryption methods that you would use to secure network connections, for example. OK. So a quick history about Bitcoin. Bitcoin was created in 2008 by Satoshi Nakamoto, this anonymous founder or group. It was published in a paper on a cryptography mailing list in 2008. And in 2009, the source code was published and the first transactions were logged. In 2010, Mt. Gox, the first Bitcoin exchange, was opened. And basically allowed you to actually buy and sell goods with it. And the first trading and options contracts opened in 2010. So people were interested in using the technology from an early stage. In 2011, what I like to call the tale of 2 Bitcoins emerges. BitPay opens, allowing you to use Bitcoin to buy things on an actual website. And at the same time Silk Road opens, which is arguably Bitcoin's most infamous use, and for better or for worse, something that drove a lot of publicity. In 2012, Coinbase opens. Coinbase is currently the biggest Bitcoin exchange. It's also a cloud wallet provider and basically existed as a way to make Bitcoin easy to use and easy to manage. 2013 is big because that's when a wave of Chinese adoption started. Currently, 80% of Bitcoins are converted into Chinese yuan. So China is Bitcoin's largest market right now. Bitcoin— yes?

Roger. If you go back, I know we've got some folks that are wondering, they've not heard of Silk Road, and you said kind of the tale of 2 Bitcoins. I'm familiar with Silk Road and I know it's not something that a lot of our attendees probably participate in, so it's probably a good thing that they don't know what it is. But can you give us a PG, maybe PG-13 rated version of what Silk Road is or maybe was?

Absolutely. I mean, I can give— I will touch on this in more detail later in the presentation. But Silk Road is essentially an open market— Silk Road was an anonymous marketplace to buy and sell illegal goods. So things like stolen credit cards and drugs that would be sent in the mail. For better or for worse, it brought Bitcoin a lot of negative publicity, but it also brought it a lot of users. There's always an element of— there's always an undercurrent that since Bitcoin is essentially digital cash, it can be used for transactions that— it can be used for anonymous transactions. And so it is sort of the elephant in the room. You can't mention all of Bitcoin's legal and positive uses without talking about the possibility of using it for illegal transactions. But I will talk about that in a few slides as well, going into more detailed talk about that.

I think when I— just a comment on that. When I talk to bankers, I think that's one of the things that they hear about and they see it as being an untraceable and untrackable form of currency. And of course, here in the United States, We have a very strict and regimented monetary system that's governed by the FDIC and it's insured. And we've got things like anti-money laundering laws now to track kind of funky money that may be used for terrorism. And I think that's one of the concerns that a lot of financial institutions have is the fact that there is that anonymity that maybe surrounds the Bitcoin transaction process. But like you said, there's a lot of positives, and we have to figure out how to get around that. So that's one thing. And then the other thing that I wanted to just mention, not that I want to go too far down the PG-13 rabbit hole, but in the web development space, it's also quite interesting that some of the more shady, not necessarily morally upstanding services— and I'm talking about the porn industry— Mm-hmm. Evolved the digital capabilities. And if you think of things like online video streaming and optimization, take the content out of it, but it's pushed technology to accept the fact. And of course, we've got, you know, millions of businesses today that are posting legitimate videos up to YouTube and through Facebook, and they're using video as a genuine communication tool. So I think sometimes there's a shady underbelly to some of these technologies that maybe just comes along with You know, the process of evolution, and eventually the legitimate businesses figure out a way to take advantage of it and use the good side of things. So I don't want to get stuck on Silk Road and pornography, but it's kind of interesting how they parallel one another, but the benefits that we've seen online as a result of them.

Yeah, I mean, it's like, I think there was a Wired article published a few years ago that talked about how The adult industry was instrumental in choosing, in picking the winner in the Betamax versus VHS war, and the Blu-ray versus HD DVD, if you can even remember HD DVD at this point. But I will talk about the black and the gray market uses later because it's, for better or for worse, it's a part of Bitcoin's history and a part of its use today.

Perfect, thanks.

So Bitcoin has also ended up in the news for its bubbles that it's had. The fact that it's a decentralized technology means that there's really not a way to intervene in the currency. You can't have the Fed, for example— there's no Bitcoin Fed to raise interest rates or to intervene on government bonds. And at the same time, this brings a lot of eyeballs to Bitcoin because if people are saying that Bitcoin has gone from $2 to $30 or from $5 to $230 or if it's shot up from say $100 to $1,000. This is another, for better or for worse, it's a part of what brings Bitcoin into At the same time, it's stable. So in the past year, or in 2015, it stayed very stable. That's January 1st all the way on the left, between $300 and $200. So the technology of Bitcoin, it sort of works in a cycle. You mine coins, which are then added to wallets. Which then send money to each other on the blockchain, which is then verified by the mining process. So mining is one of the more interesting things about Bitcoin. It's not— it's created by itself. Miners essentially solve a very difficult math problem verifying transactions in a way that's very easy to check their work but not very easy to do. And by doing this work of keeping the system together, they're rewarded with Bitcoin. Currently, for block transactions, it's about 25 Bitcoin per block, and a new block comes every 10 minutes or so. There's been sort of an arms race between miners, and so they've used better and better hardware to solve these really difficult math problems, and they've relied on pooling as well. So that picture that you see on the right is a mining rig With ASIC processors, these dedicated single-purpose Bitcoin mining machines. And they're in a laboratory in Iceland, which they use so they can get very cheap electricity and very good network access. And so mining produces these coins. Coins don't actually exist per se, it's just a convenient unit of Right now a Bitcoin is worth $230. In the past it's been worth a lot less, but it's been stable at this value for 2015. It's easily divisible, so you can easily send someone a millionth of a coin, a thousandth of a coin, a hundredth of a coin. And this is very useful if you're— if the value of Bitcoin goes up, so you can make small transactions. So coins are stored in wallets. It's a bit of a simplification, but I'll get into that in a second. Coins send Bitcoin— or wallets send Bitcoins to each other, and the transaction is recorded on the blockchain. So a wallet doesn't actually store coins, and the coins don't actually exist, but a good way to think of the technology is like A checkbook or a checking account. Your bank's not going to— your checking account does not mean that your bank has a stack of cash that's ready for you to, if you say need $20 to go buy gas. And similarly, the Bitcoin wallet, its balance is known as an entry on the blockchain ledger. The wallet functions more like a checkbook, if anything else. It signs transactions, and it forms a basis for them. So there is a physical wallet file that can be stored in the cloud. It can be stored on your PC or on your phone, or it can actually be stored in a paper format. So these transactions between each other are what makes up the blockchain. There's actually— the blockchain controls everything, this distributed database. There's no— wallets don't have a specified balance. It's just what it figures out the balance is after running through and reconciling all the transactions. And so transactions are only on the blockchain network. So if it's not on the network, it didn't actually happen. It's also decentralized. So the name comes from a block of transactions transactions that are— that miners run their difficult math problem on. And each of these blocks refers to the previous block in the chain. And so the chain accounts for every transaction in Bitcoin's history. And that's the way the system works. And so to put it all together into this cycle, wallets send Bitcoins to each other. These transactions between them are recorded on the blockchain. which in turn is verified by miners. And the miners, in reward for their efforts keeping the system together, get new coins. So a big question about Bitcoin is, what is it? Not only from a philosophical economic standpoint, but from a regulatory standpoint. So right now a lot of officials are taking a wait-and-see approach. Say, um, they'll say that it's within their purview, but there aren't really regulations at this point past what you might expect. So a commenter on Reddit's Bitcoin forum said that everyone wants Bitcoin under their purview. So it's a property to the IRS, to the Commodities Futures Trading Commission it's a commodity, it's currency for the purposes of enacting judgments, it's a security for the SEC's purpose. And for the TSA and Immigration and Customs Enforcement, it's cash. So there are stories of people with Bitcoin stickers on their laptops being questioned, do you have over $10,000 worth of Bitcoin on your phone? Let's see here.

Oops.

Go ahead.

Yeah, question for you. A slide ago you talked about in that process miners verify the transactions.

Oh, shoot.

Nope, one more. There we go.

There we go.

Nope, there was one more after that, the circle one.

Oh, so it is the circle one.

So it talks about the miners verifying the transaction, but then it says something there where it says that they're rewarded with new coins.

Mm-hmm.

And I know that's one of the questions that I get a lot, and I have a hard time explaining when somebody says Bitcoin, well, what do you do to get them? This is the first time I've seen something that's triggered that those that are mining are actually performing a verification process, thereby providing value to the system, and that verification process rewards them with new coins. So is it safe to say that that's the actual activity, and then those miners can then put those coins back into the network? So it's almost somewhat like a self-perpetuating machine where—

Yes.

Okay.

It's absolutely a self-perpetuating machine here. Basically, the miners keep themselves in check because they all, you know, they're encouraged by the network to engage in this arms race, which has the consequence of verifying it. So the way new coins actually get into the system, the way they get credited, is that a miner, when they find a— is that a miner will do work on a specified block of transactions. And this is usually on the order of 100 or 1,000 transactions or so.

OK.

They do what's called a hashing function. Basically getting this sort of boiling down, similar to the check digit on a credit card where a digit tells you whether the rest of the thing, whether the rest of the numbers make sense. A hash sort of boils down all the transactions that it records into a single 8-digit alphanumeric code. And so it then does that same algorithm on this, on an extra transaction that's adding 25 Bitcoins to a wallet of the miner's choice, and then what's called a nonce, a throwaway number. And so it actually works by saying you have to have a hash that meets these certain requirements. And so it's basically a guessing game that the computer plays with what number will create a hash that matches these requirements. It's usually like a number of zeros beforehand that eventually increases. So in essence, the mining itself is basically a way to verify these transactions.

Yeah, it does.

So the practical result of Bitcoin's interlocking system is that you have a system of verifiable, decentralized, secure, and cheap transactions. Increasingly, these transactions are becoming the core of Bitcoin. Mining is becoming a lower and lower portion of Bitcoin transactions. So 2/3 of transactions currently are from transfers instead of new coins being mined. In addition, there's a lot of off-chain transactions. So networks like Coinbase that have cloud-based wallets will settle transactions internally. BitPay as well does this. And also the increasing value of Bitcoin means that people are looking at mining not just as a hobby but as an actual business proposition. You know, how can I justify the capital that I spend into these $400 ASIC Bitcoin mining units, and are my electricity costs low enough to mine these coins? And actually, Iceland is notable. It has very cheap geothermal electricity, which is why there's a lot of— there are a lot of servers and Bitcoin mining things over there.

Okay.

So compared to conventional money, Bitcoin is a lot cheaper. It's nominally free to send money from A to B. Compare this with 2% or 3% for credit cards, and a very low but still definite amount for ACH transactions. The transaction fees are optional, but they're pretty much required. But they're fractions of a percent of the full amount, on the order of maybe $0.10 for a large transaction. And even at the retail level, exchanging money on an exchange, just in the most convenient way, usually has a fee of 1%, compared to 2% for foreign exchange.

OK.

The transactions are verifiable, so while they are anonymous, every transaction ever is recorded on the blockchain network. It's also secure. In a world where we're worried about credit card theft, transactions only happen when you say they do, when you press send and nothing else. These advantages come with costs, so the blockchain network is Very slow. And the practical transaction limit is about 3 transactions a second. What this means is that if you're, say, paying for something in Bitcoin in person, it will be— there will be at least a confirmation that the transaction has at least been pushed onto the network, and they take it at face value. Similar to, I guess, writing a check for a retail store. There's no consumer protection because there's no regulation, and it's all one-way transactions. So if you give $20 to a fraudster, it's essentially as if you handed them a $20 bill. There's no way to get that back. There's also currency risk. Since you're not spending in US dollars, you're essentially converting things into a foreign currency. It means that if there's a bubble, or if there's a crash, or if there's a period of large volatility, you wouldn't want to hold coins on the network for a few days if there's volatility. And because there's no way to identify transactions besides with their wallet address, if your wallet's compromised, you essentially are no longer in control of your coins. So who uses Bit—

oh, go ahead. Sorry, these are sparking all sorts of questions. I hope I don't cause us to run over time.

That's great.

If you go back a slide, and this actually came up— I'm at a banking conference for the next 2 weeks talking to bank CEOs from around the country about digital. And one of the things when I asked the question to kick things off yesterday, what is digital, one of the CEOs said payments and payment alternatives. And of course, we pulled up Apple Pay and Android Wallet, and even Facebook now is providing the ability to send money between users through their Messenger application.

Mm-hmm.

But the security that's built into a service like Apple Pay and Android Wallet, when you go in and you do a transaction, and it tokenizes that transaction and creates a one-time use identifier that then is used. And then if the database at the merchant is hacked, they get a bunch of one-time use tokens that aren't worthwhile. Because obviously, bankers are very concerned about things like Target, because many people, many consumers don't realize that when that happens, ultimately, the merchant or Visa, MasterCard, without a lot of effort and fighting on the bank's part, it's usually the financial institution that's left holding the bag, whether it's a credit card or a debit card. So banks have very much stated interest in trying to do what they can do to support some sort of a payment mechanism. that reduces the possibility of fraud and their customers actually losing money that they have to then reimburse. So the fact that you talk about security and transactions being initiated by you and they're recorded, while you may not necessarily know the ID and who actually did it, it's still recorded. Is there some similarity between like an Apple Pay and the tokenization? And do you have any insight as to whether or not the concept of Bitcoin maybe inspired the tokenization transaction function within these electronic wallet payment services that people are now starting to use on phones and their smartwatches and those sorts of things?

I don't think Bitcoin originated it, or I think they both— I think the idea of tokenized transactions predates Bitcoin. I think maybe as early as like 2000, Maybe even earlier than that. I certainly know that in 2005 or 2007, I was hearing about the banking industry in Europe, and maybe a few banks in the US, working on one-time credit card payments to sort of deal with the— as an easy heuristic to deal with fraud.

Right.

That this number can only be used for one time. And so Bitcoin sort of has that same idea. It circumvents that in a sense. So the network doesn't require tokenization, but the community encourages it. That you use— since wallet addresses are, I mean, they're all complex and they're all— and there's a lot of them. So they encourage using, for security reasons, Different wallet address for each transaction. So actually, if you donate to Wikipedia on Coinbase, for example, you can donate to Wikipedia with Bitcoin. They'll generate a new address to receive those funds. This isn't as much for security concerns, since there's no vector for fraud in that sense.

Right.

Because you can't— if you have someone's address, all you can do is send them money. But there's still this— but still, because every transaction is logged, if you want to keep anonymous for some reason, or if you want to make sure that you're not opening yourself to you know, to very public identification, it's good to use— you can use as many wallet addresses as you want. And you can use them for one-time use, which is standard. It's just like best practice.

Got it.

So Bitcoin is used by— I'm going to say 3 big— the 3 big users of Bitcoin, I guess, fall into 3 3 groups. So you have the enthusiasts, the people who got Bitcoin started and are at the forefront of its most innovative uses. You have emerging technologies bringing Bitcoin as a way to solve problems to people that normally wouldn't be interested in it, or if they're not interested in the technology or they may not have access to it. And of course the elephant in the room. There's always the possibility that Bitcoin, although it's Traceable, it's anonymous, so it can be used for a number of I'm going to say gray or dark or gray or black market purposes. So the enthusiast community of Bitcoin is pretty big. They reward people who are first. So for example, yesterday I went to buy some cupcakes from a bakery in. The SoMa district of San Francisco because they accepted Bitcoin. The Bitcoin meetup group in San Francisco is the largest meetup group in the Bay Area. And these are the people who will be trying to make Bitcoin actually work for practical uses. So things like bringing it to brick-and-mortar stores, making new apps to have the actual technology very easy to manage, and using it for online shopping at places like Overstock.com. Emerging technologies are where I think have the most purpose and the most interest. Goldman Sachs says that— Goldman Sachs, a few analysts at them that looked at emerging technologies noted that there's a huge immense disruption potential in, for example, the remittance market, which is when people work in one country and send money to their relatives back home. This is actually a huge economic factor internationally. It's a total of $500 billion, and these can account for, in Haiti's case for example, 25% of GDP from people sending money via Western Union or just bringing it home physically. And so the big disruption potential here are in verifiable transactions, being currency independent, and the fact that it's cheaper. So BitSpark, which does cash-to-cash transactions with the remittance market in Asia, they charge a flat 1% fee. Compare this to Western Union, which charges 6% on a transaction of $200. And of course, the elephant in the room, and arguably Bitcoin's PR problem— this is why I I had been paying attention to Bitcoin in 2011, but I didn't want to consider myself sort of, you know, interested and active in Bitcoin for a while because this overshadowed its other uses. So Silk Road, the anonymous drug market, was making headlines in 2012 and 2013, and its legal implications are Coming today. In the less illegal but still definitely illegal part, you have gambling as a big part for Bitcoin, as a big use for Bitcoin. You know, if you have an open algorithm and you have an automated way to verify things, you don't need to go to a casino. And if you don't live in the few states where online gambling was recently legalized, This is your only— either this is your only outlet or you have to deal with something shadier. But more importantly are these gray market uses. So things that are illegal in their own country but we would consider, you know, more, I guess, more morally ambiguous, more morally questionable. So 80% of Bitcoin use now is in China. A large portion of this use is in gambling. so that people don't have to fly to Macau or to Las Vegas or Taiwan, and for circumventing capital controls because you can only bring so much money out of China. Similarly in South America, especially in Argentina, which is very educated but it's been facing economic problems for the past 15 years including exchange restrictions. Instead of, according to my friends, just walking down to the city center, bringing $100 and saying that you'll change it, instead of at the official exchange rate of 3 pesos per dollar, at the exchange rate of $8 per peso, or 8 pesos per dollar. And this means that you don't have to— you're not a theft target, and it's a lot easier to deal with $1,000 digitally Than it is with just a stack of cash. So Bitcoin in a practical way is surprisingly easy to use. There have been a lot of apps that have made things easy. So the way a transaction happens is you open your wallet program, you tell who you're going to send your money to, which in this case is 1KVR whatever. You enter how much you're going to send. So say point 0.022 bitcoins, which is about $10. And you press Send, and the transaction eventually happens. It's not verified after a few days, but it happens instantly. There are a lot of ways to make this easier. So QR codes are very popular for this. So instead of having to remember to type this arcane number and this arcane alphanumeric code, if I'm— I see. Say buying 2 cupcakes at this bakery for a total of $7. On their iPad that they have that registers credit card payments, they open up a code. I take out my phone. I use the Wallet app that I have. I scan it. And they confirm that I want to send this much to this address. And I press Send. So it is really— it is very similar to Apple or Android Pay in that respect. And that you can use your— the mobile technology, it has been mobile ready. It's very easy to make it mobile ready. Going from an internet-connected device to another internet-connected device. And on the retail side, there are a number of things. So BitPay notably has been at the forefront and the most popular way to accept Bitcoin for non-Bitcoin transactions. Braintree, which is a framework owned by PayPal that is a way to sort of manage transactions easier. And so these services end up charging about 1% per transaction, which if you compare to conventional credit card transactions is very, very attractive. It means that even if you're not interested in Bitcoin, You might as well accept it because if your exchange rate's guaranteed, so there's no risk to you. The transaction's guaranteed as soon as it's verified. So instead of waiting a few days for it to clear, BitPay will send you an email in a few minutes saying that this transaction has been at least somewhat recorded. They make it so that if you're a retailer, all you have to do is open up the app. You just say how much you're going to get, and it works on your end flawlessly, like cash or like taking credit cards. Bitcoin is now increasingly easy to exchange as well. You can just do it in an app on your phone, waiting in line. It takes a few days though. I learned that the hard way. And you just say you want to buy a You want to open up your Coinbase app, say that you want to buy $8 of Bitcoin. It shows you what your fees are. And you can get it straight from your credit card. So it's actually very similar to a brokerage account in this respect. You just use an online bank transfer to get everything squared away. And it's just as simple as the push of a button.

Do those exchanges— Yeah, so do those exchanges have a way of going the other direction? So if you've got Bitcoins that you've amassed and you want to turn it into cash, you can go ahead and convert it to real hard dollars and then it's spendable currency?

Yes, absolutely. I mean, this is just— there's an— in the Coinbase app, there's just like there's a buy tab, there's also the tab of get money. And it sells it— I'm not sure. So I think the rate is— I'm not sure what the spread is. I think there is a spread simply because the currency market is really just buyers and sellers meeting each other. But I mean, they take out their 1% fee. And you send them 8 Bitcoins through their app. The transaction gets processed.

Got a question in the chat box, or I guess more of a statement, but I'll turn it into a question, or you can read it. The statement is, I'm very interested to find out how— if this is a way of getting profits out of a foreign company/subsidiary, maybe Brazil, or you mentioned Argentina, or someplace, you know, maybe over in Europe, if you're part of an organization Is there a way to transfer funds and get profits out of a foreign company or subsidiary? And then what sort of tax implications or claims, you know, what potential issues does that open up? I know that's a big question, but what are your thoughts on that?

So that is a big question. I don't— I, you know, I could only— I can't give an educated guess on what the I don't know what the tax implications are, but ultimately, if you use Bitcoin— I believe that if you use Bitcoin as a facilitator for your transactions, just like going straight from currency into Bitcoin and then Bitcoin back into currency B, and then you transfer it, I— It's very much a gray area, and even with regulators, it's a gray area. But it is ultimately a transaction of funds. So I envision that regulators view it as such.

I would think you— depending on the amount of money you're talking about, I think From a moral and even financial obligation, you need to claim the amount. So if your business made, uh, a million euros and you want to transfer that to the United States, whatever that equates to, you're still going to have to pay taxes on the value of what US dollars are in a million euros, regardless of whether you transfer them to Bitcoin or not.

Right.

But where you may end up being able to save some money is instead of going through the currency transaction process and being charged A conversion fee, there may be opportunities to take the euro and convert it to Bitcoin, what its equivalent value in Bitcoin is, and then deconvert that from the Bitcoin into US dollars.

Exactly.

As a funds exchange and save on, you know, an international wire fee or currency conversion or something along those lines.

Exactly. I mean, that— for enterprise use, that's really Bitcoin's Biggest advantage, that the transaction is completely verifiable and it's dead cheap. You know, I'm not— I believe— so the 1% rate that I was quoting, that's a retail rate. That's just what I get from Coinbase just having signed up and, you know, not getting something bigger than that. If you're an institution, I presume that you can get much better rates from people looking to buy and sell. And actually a big— so from the retail side, if you want to make it easy, you work with an exchange like this. But there is actually a very vibrant currency trading scene in Bitcoin. Basically, Day traders who felt like they couldn't get an edge in an increasingly crowded stock market have been looking at Bitcoin as a way to sort of trade currency in that respect. So the markets are actually markets. You know, if you want to get detailed, if you want to actually, you know, deal with the spread as is, it's very possible to do that.

Right. There's another comment. We've got a pretty international group, and I don't know how many more slides you have, so if you want me to wait till the end after this one, I will. But the question— Oh, I don't know. Okay. The question was, recently when Greece had a limit of $60 per day, would Bitcoin have provided, or did it provide, an opportunity for citizens to get around it by using the blockchain/exchange?

Yeah, I mean, absolutely. That was what sparked— that's part of what— I wonder how many slides I can go back. Okay, yeah. So you may notice that in 2013, especially around March or April, there's a huge surge in euro usage for Bitcoin. This is sort of because— this is a huge trigger for this is the Cyprus banking crisis. when they instituted capital controls, keeping bank accounts in the country. So it's an illegal use, but it's a use that's very popular.

Exactly.

And it's a use that's very pragmatic. Of course, if you're a larger corporation, if you're a larger business, you obviously have much more to lose. Which is why a lot of what Bitcoin's been doing, and a lot of its popularity is in, you know, say you're in China, you can— you're going to have a banker who will be able to work with you to say spend $1 million on a house in California.

Right.

If you're a smaller fish in the pond, it's going to be much more difficult to work with that, which is why Which is why smaller dollar— which is why the Chinese middle class has been looking at Bitcoin sort of as a way to get their money into foreign currency.

Yeah. So I guess just so both of our butts are clear, while it could have been a way of getting more than $60 out of Greece, which was the restriction that the government placed due to their monetary crisis, It could be used that way, but you would have to be doing that knowingly, violating the request of the Greek government, and, uh, ergo probably violating law and doing something on the black dark side. So I don't want to encourage that, and if this ever got caught as a replay, I don't want to make it look like we're educating people for anybody that may listen to this from Greece and that came around again.

All right, so okay guys, so yeah, follow the law. And actually, if you're trying to use Bitcoin, Bitcoin is less useful for illegal transactions than you think because every transaction is verifiable. So that's how people got— that's how people found Ross Ulbricht, who was the founder of Silk Road. They were able to monitor every transaction and sort of when they saw a sort of slip-up in Ross's security or if they found a wallet on his computer that had Bitcoins from Silk Road. That's how they knew. That's how they could pinpoint him. That's how they knew that he was in an illegal transaction. So don't violate the law, because it's easier to get— even though it's anonymous, it's traceable. And follow the law.

There you go.

It's a good idea in general. So what does Bitcoin have in the future? So a really big use is— or a really big promise has been expanding Bitcoin to new markets. People who aren't interested in the currency for its philosophy, but for its practical use. Let's see here. Bitcoin technology and the blockchain, the distributed database, has been very popular with banks. So this is why— so a blockchain or blockchain-like technology is a great way to store things that need to be verified and transparent. So things like contracts or even I've seen ownership titles or loan terms. And there are some Bitcoin updates coming around to make it more practical for use, sort of making the blockchain faster and bigger. So transactions will be easier to settle. And so that's what I have.

Cool. So does that mean your formal presentation has completed?

This is my formal presentation. So let's, I guess, go on to questions.

Yeah. So again, if you've got questions, I know some of you have already been thrown some in the questions area, so by all means feel free to continue to do that. We— and I don't want to put you on the spot— we've had a couple of folks wonder whether you'd be willing to offer the slides as a downloadable resource.

Yeah.

A lot of people have said this is kind of like drinking out of the fire hose, and they'd like to go back and digest a little bit. So what maybe we'll do— I see that you're using a Google Doc. We'll go ahead and we'll post the link up on Free Webinar Wednesdays along with the video presentation of the recording. And if you're cool with that, we'll go ahead— whoops, see, the sirens are coming after us now. We're breaking the law and now we've got sirens. So we better end the show quick so you can run and hide in the closet or something.

It's okay. I have nothing to worry about.

There you go. So we'll go ahead and we'll post the link to the slides up on Free Webinar Wednesdays. And it's just a Google Slide presentation that you can go ahead and get access to. So we'll do that. We appreciate that, Roger.

Yeah. I mean, I can do that. I'll do that as soon as we get off. I'll send you the link and I'll put my information on there.

Perfect. Perfect. You know, you're not— I know it's okay to talk about guys' ages. If you were female, I wouldn't disclose your age, but you're 24.

Right.

And I'm not. You know Lawrence, and we're about the same age. So I'm curious, where do you see Bitcoin, either the Bitcoin itself or the blockchain technology, You know, you're kind of at the beginning stages of your career cycle.

Yes.

Where do you see this going? What do you think it's going to do to you and others in your generation as it relates to monetary transfer and paying for things? I'm just curious on what your take is, because you're kind of unique in the sense that you've got some formal education in the area of economics. And you're not just a technology guy, so I think you can see both angles here. But what do you— look in your crystal ball, what do you think this is going to do in your lifetime?

So it's very easy, and it's good that I have that background, because from a technological standpoint, it's very easy to say that, oh my God, this new technology is going to change the world. It's probably not going to change the world, but it's going to make a lot of things a lot easier. It's grown a lot in the past even 2 years. It's grown a lot in the past 5 years from something that in 2011 even I was poo-pooing sort of as a refuge for political radicals and drug lords. And it's turned into something that there is practical, very practical use for it. I think the blockchain technology specifically is very, very interesting. I have a parody Twitter account sort of since the blockchain and talking about the blockchain in financial technology is sort of the hyped-up topic, and I feel like the news is a bit saturated with it. But I think the ability to create transactions that are independently verifiable That are transparent and in a very robust network. As in, like, you cannot control— it is theoretically possible to take control of Bitcoin, but it essentially is as difficult— it essentially means that you have to own over 50% of the mining capacity and sort of crush everyone in an arms race. So it's a very resilient— like the internet itself, it's a very resilient network. And I think there's a lot of power in that, especially in an increasingly international world, and in a world where we're concerned with disaster recovery and single point of failure things. So it seems trite, but I feel like 9/11 was a wake-up call in this sense, where I think the exchange servers for the New York Stock Exchange were in a basement in the World Trade Center. And so the financial world essentially stopped for a few days or even a week while everything was brought back up to scratch. That would not happen with— that's impossible with Bitcoin. So I think the biggest ways where Bitcoin makes a difference are going to be transparent to customers. It's difficult for your average— it's difficult for a Joe Sixpack to think about buying a whole other currency. But it's easy for Jose Sixpack to take advantage of cheaper remittance rates if he's sending money back to his parents in Mexico.

Right.

And so I think that's where— I think the ability to create very cheap verifiable transactions is what's going to have the most tangible impact.

One of the things that's got me interested, and obviously with the big banks now paying attention, you know, the names that you shared at the beginning, and they were part of that article, the digitization of the currency process. And you mentioned 9/11 here in the States. One of the things a lot of people didn't realize is not just because the servers were in the basement of the World Trade Center tower, But what happened was they grounded the planes, and up until that point, a majority of the business that was being done in the banking industry was being done via transportation of paper checks from bank to bank through air courier service. And when the planes were grounded, the checks weren't transported to the different Fed Reserves, they weren't processed. and debited or credited, that also ground it to a halt. And so that gave the banking sector a very much wake-up call that, wow, we're more reliant on paper and just old-fashioned, and it wasn't that many years ago. And they've really started pushing towards electronic remittance and scanning and image replacement items.

Sure.

And this is just continuing to go down that process. Doesn't mean that somebody like ISIS or whatever can't create a digital version of 9/11, God forbid, down the road. But there was an awful lot of reliance on paper and manual transportation of monetary instruments up until that point that, again, kind of a big wake-up call. So it's certainly something to watch, and I really appreciate this information. And, you know, we've got some great comments. Folks are excited that you're going to be able to share the slides. It's something to watch. In the last minute or so, remind everybody on how they can find you and stay in touch. I know we talked about your blog. You've also got a Twitter handle. How do people get connected with you and see what Roger's up to?

See, I wasn't thinking. If I was smart, I would have put my contact info on this So I can be reached on LinkedIn. Here's my name. I can be reached on Twitter. My handle is @rphilmyer. I can also be— I have a blog, dataislife.blogspot.com, where I talk about technology. I talk about policy. And I'm focused more on data and data analysis in that respect. And I will— when I send out the slides, I will actually put my information on this page like I should have.

Perfect. Good, good, good, good. So we'll get the slides up there. We'll get the recording loaded. We'll have all of Roger's contact on this page. And again, we're at the top of the hour, and I knew we'd fill it very quickly. And good questions from everybody that participated and great answers. So thank you so much, Roger. We really appreciate you being here.

Eric, pleasure having me on.

So next week here at Free Webinar Wednesdays, I will be again at this bank CEO conference that I am at, but I have wrassled up a special guest directly from Facebook who participates in their consumer products division. I heard his presentation today, it was awesome, and so we're actually going to be joined by somebody directly from Facebook. To talk about some cool new Facebook updates, kind of trends that they're seeing, why it matters. I don't think you need to be convinced that Facebook is kind of where everybody's at, but some interesting things going on. And even as the digital addict that I am, I learned a few things. So Shawn and I will be actually in person doing a live show with you, and we'll look forward to seeing everybody next week. Here at freewebinarwednesdays.com. Until then, have an awesome week, everybody. Take care. Bye-bye.