Bitcoin and cryptocurrencies are in the news everywhere, and it's not surprising that there's often partial or misinformation (and apprehension) about such a powerful new technology. Bitcoin is now a $2 trillion “asset class”, larger than high-yield bonds, thus I thought a deeper dive into this topic was warranted. The Bitcoin for Dummies book (published in 2016), offers a detailed understanding of the basic framework, terminology and resources to track and monitor this emerging financial asset. At its basic level, Bitcoin uses a computer ledger for two private parties to “agree” on a set of computations and then once that digital “handshake“ is confirmed then an exchange of value can be accomplished, say one party giving dollars or other tangible goods, in exchange for Bitcoin. Transaction details are recorded on the “blockchain”. For many, the allure of Bitcoin is knowing that the government is not in charge, that there will only ever be 21 million Bitcoin in existence, and that because of those two facts, there is a level of confidence regarding privacy and a lack of government intrusion and/or inflating of the monetary system. (BTW, there are dozens of other cryptocurrencies as well, Bitcoin is just the most prevalent.)
Although I knew many of the basics of blockchain technology and understood it to be an entirely “open-source” code system, I didn't quite grasp how Bitcoin wallet addresses and exchanges are used to make transactions opaque or nearly impossible to track. Blockchain is a very powerful computational technique and while I am unsure if Bitcoin will be the major player in crypto currency or digital currency in the future, there's little doubt in my mind that blockchain technology will end up being applied in many areas – for example, assuring land title in property transactions.
One ongoing issue Bitcoin faces is its volatility, while another is the fact that no one entity sponsors or controls Bitcoin and thus any hacking or thievery leaves a Bitcoin owner with little or no recourse. In addition, the very nature of such a cryptocurrency leads to concerns of changing money anonymously with the potential for tax evasion, outright fraud or other illegal activities. To me this means that it's far from certain how a central bank or a government could even allow an unregulated currency since the taxing authority would have little to no view of such transactions, and like it or not, we need to pay some level of taxes to fund the government. In fact in 2020, the IRS included a statement right on the first page of Form 1040 requiring tax payers to disclose any interest in any virtual currency. I enjoyed this book immensely, and highly recommend it. On a personal note, I wanted to mention that this book was a possession of my brother-in-law, Harvey Metz, who recently passed away; he was a supremely kind man, a wise soul, and an early adopter of all things technological. RIP Harvey!