In 1699, to re-establish a stable national currency, the English government appointed Sir Isaac Newton the greatest mathematician and scientist of the age as Master of the Royal Mint.1 He successfully oversaw the recoinage and stabilization of England’s currency and helped prosecute dozens of counterfeiters. His accomplishments led to much of England’s economic growth in decades to come.
In 1789, the Congress of the United States established the Department of the Treasury. President George Washington appointed Alexander Hamilton, one of the great financiers of the era, as the first Secretary of the Treasury. His face is on the ten-dollar bill.
Because of their accomplishments, these two men are well known in history. Now we come to Bitcoin. Who started this phenomenon? Satoshi Nakamoto. Why isn’t he on the cover of magazines or have his own cable news talk show? Because no such person exists. Satoshi Nakamoto is a pseudonym. Is he a man, a woman, or a group of people? No one knows, not even the National Enquirer who presumably has made a thorough search for him both here on earth and on nearby planets as well. Thus the person who launched the cryptocurrency revolution remains unknown.
This is what Satoshi did. In 2008, he or she published on a cryptocurrency discussion site a white paper: "Bitcoin: A Peer-to-Peer Electronic Cash System.” In 2009 this same person issued the first bitcoin software which provides for a blockchain database (which solves the problem of double spending of digital currency) and the first bitcoins. In 2011,2 Satoshi Nakamoto stopped communicating and vanished into thin air.3 His bitcoin stash according to the bitcoin public ledger is worth billions.
While fewer than 5,000,000 people worldwide regularly use bitcoin, the introduction of a functioning and legitimate cryptocurrency into the marketplace has roiled the financial world. A handful of people have made cryptocurrency fortunes. The most well-known are the Winklevoss twins who receive a lot of coverage because they are young, rich, and handsome— which always gets more attention than old, poor, and ugly. They “have amassed a Bitcoin fortune worth about $1.3 billion as of [December 19, 2017), according to estimates from the New York Times.4 The twins did this openly, legally, and with full transparency.
But this transparency is thought to be the exception. What many view as the greatest allure of cryptocurrencies is the ability to buy or sell things anonymously. Others, including governments and law enforcement, view this feature with the greatest alarm. Their concerns are easy to understand when you take a look at Silk Road, exhibit A in the bitcoin criminal hall of fame.
Once the biggest online illegal drug marketplace, the Silk Road site flourished for two years until the FBI tracked down the founder, Ross Ulbricht (aka Dread Pirate Roberts), and arrested him in October of 2013. Since the FBI took him down in a branch of the San Francisco Public Library while he worked on his computer, they couldn’t just walk up to him and show their badges. He would erase everything. So two FBI agents staged a lovers’ quarrel and distracted him. While distracted, another FBI agent snatched his computer. In less than two years his site had attracted one million registered users.5 The only method of payment accepted? Bitcoin.
Financial authorities worldwide are struggling to construct a regulatory framework for cryptocurrencies. Both China and South Korea have taken various actions against cryptocurrency dealers and continue to do so which causes great price variations in the market.6 Facebook recently banned ads for cryptocurrencies.
If this wasn't enough, in the mysterious insider’s world of bitcoin itself, the sixty or so people who own and operate the bitcoin.com site have had a falling out. According to press reports from Breakit, a Swedish website, one of the co-founders of the site and its chief technology officer, Emil Oldenburg, has sold all of his bitcoins. He says he is skeptical about the future of bitcoin and has switched to a new cryptocurrency known as Bitcoin Cash.
Whether you or your clients want to speculate in cryptocurrencies is your decision. Cannon doesn’t give financial advice. That’s your job. Good luck!
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2People disagree on this date and on a lot of things about bitcoin
5Wired Magazine: the Untold Story of Silk Road Part One
Contributing Writer: Subject Matter Expert Charles McCain