Well, I have picked up a new hobby: Coin collecting.
It might not be exactly what you think, though. Sure, I have the state quarter sets tucked away for my grandkids someday and a nearly complete wheat penny collection minus a few of the rarest, such as the particularly elusive 1943-S copper Lincoln wheat penny, one of which sold at an auction in 2012 for a cool one million dollars.
Yeah, I will never be completing that set.
The coins I am currently collecting are considerably less tangible: Bitcoins.
Bitcoin is the most well-known of hundreds (maybe thousands) of cybercurrencies created in the last decade, also called cryptocurrencies.
I first learned about Bitcoin in a Forbes magazine article back in 2013 which detailed how Bitcoin became legitimate currency when someone bought two pizzas for 10,000 Bitcoins in 2010. At the time, they pretty much got the pizzas for free because Bitcoin was considered worthless.
Before that transaction, Bitcoin had been some kind of thought experiment turned cyber-trinket via programming – I don’t fully understand. But I do know it is dispersed as a reward for people willing to use their computers for a new kind of processing called block chain technology. I don’t fully understand that either, but apparently this technology is changing the way companies around the world do business.
The phrase “block chain” represents the functionality of these new systems utilizing a network (or chain) of computers all over the world to perform tasks which are conducted in full view for all the world to see. Since the systems are decentralized (i.e. not sitting in one giant server room under the control of only a few people), the information is instantly documented worldwide and cannot be copied, altered, forged or modified. Think of it as having a million witnesses to every transaction made. Again, I don’t get it entirely, but people who I think are pretty smart seem to get it and the logic hovers close enough to my conceptual abilities that I have become convinced there is something there.
So why would all of these people be willing to use their personal computers to participate in these block chains? Because they get rewarded with Bitcoin… Or Litecoin, or Etherium, or Neo, or Monero. I could go on and on depending upon which block chain you are referring to and what digital currency gets rewarded. They call that mining. So if I say to you, “I am mining Bitcoin!” what I am really doing is participating in the chain of computers that are processing billions of transactions in order to get rewarded with a cybercurrency which I can then take and spend at a surprising number of locations around the world.
I am not mining for Bitcoin, though. I am not that smart.
What blew me away was that the 10,000 Bitcoins used to pay for two pizzas in 2010 were valued at $7 million by 2013 when the Forbes article was published. As I write this column, those same 10,000 Bitcoin today are worth $43 million. I hope it was some seriously good pizza.
I may not fully understand block chain technology or cryptocurrencies but one thing I can do is math. A 7-year return of $20 in pizza to $43,000,000 is the kind of growth investors only dream about. So I started saving my lunch money and bought some Bitcoin.
Honestly, it was pretty scary. The digital currency world is still something of a Wild West, full of hackers, liars, and cheats anxious to get their hands on your money. But things are happening in the cryptocurrency world to push the market towards legitimacy. With a market capitalization of close to $150 billion in cybercurrencies, legitimate, reputable and, more importantly, INSURED, exchanges are being established.
I was actually able to dip my toes in the crypto world even before investing my lunch money by following The Bad Crypto Podcast. You can visit their website at http://badcryptopodcast.com or just listen to the podcast, which walks you gently through how it all works from offline digital wallets to two-factor authentication security. Even better, they tell you how to set up a free account on a major U.S. exchange and give you 150 thousand free Badcoins, a cybercurrency they created so listeners could simply try out making transactions on the exchanges. It’s fun and free and doesn’t even require a credit card or an ID to start playing with their cyber-coin, which they are clear to point out is worthless. You can play with real, albeit worthless, coins on a real exchange.
At the end of the day, I have no idea what is going to happen with Bitcoin or cybercurrencies in general, and you certainly shouldn't take anything in this column as a recommendation from me one way or another. The sky could fall tomorrow or, as the hypesters say, they could all be driving Lamborghinis as prices rocket to the moon.
As for me, I'll stick with only risking my lunch money and keeping it a hobby for now, but it sure is interesting to watch - even if I do have to bring a few slices of leftover pizza from home, which, I am thankful to say, did not cost me $40 million dollars.
© Michael L. Collins
This column appeared in the October 4th edition of The Mountain Press under the name "The wildwest of bitcoin: or how two pizzas cost $43,000,000."
If you enjoyed this column and would like to see more, click here.