BITCOIN — !WHAT IS IT, AND HOW CAN I BENEFIT?

•  DrJOstrowick

Disclaimers

•  TheauthorsofthispresentationdonotrepresenttheBitcoinorganisation(thepeoplewhomaketheoriginalsoftware)

•  Noneofthelinkshereareaffiliatemarketinglinksintendedtoinduceyouintosigningupforpaidservices.

•  Idonotguaranteethatyouwillmakemoneyoffinvestmentintoanyofthecryptocurrencies.

•  IamnotanFAIS/FSPandcannotgivefinancialadvice.•  Ifyoudecidetoinvest,anylossesareyourfault.•  Ifyoudislikeanythinginthispresentationorwishtoproposeany

correctionsoramendments,pleasecontactmeandIwillhappilyoblige.

Contents

•  WhyshouldIinvest?•  AdoptionCurve•  OtherCoins•  InitialCoinOfferings•  IsitMoney?•  LegalIssues•  InterestingPoints•  Recommendations•  Links

•  WhatisBitcoin?•  History•  WhatisBlockchain?•  HowtouseBitcoin•  Whatis“Mining”?•  Spottingscams•  UsingandInvesting•  Receivingfunds

•  Acryptocurrency(meaningahiddencurrency–nottheonlyone,aswe’llseelater)

•  Akindofmoney(orcommodity,debatable—willdiscusslater)•  Highlydivisible(e.g.youcanuse1/1000thofaBTC).No

“cents”.YoumightseeµBTC,forexample.•  Itisjustarecordofatransaction(thinkofyourbankstatement)•  …keptinatransactionledger(recordoftransactions)…•  …calledablockchain.•  Transactionsareanonymous•  Itisadeflationarycurrency(moneygetsmorevaluable,goods

getlessvaluable).Oppositeof“fiat”currenciesissuedbygovernments.Badforspending,goodforinvesting.

WhatisBitcoin?

•  Apseudonymousjournalarticleby“SatoshiNakamoto”wasreleasedin2009alongwithsomeOpenSourcesoftware

History

•  The“Blockchain”iseffectivelyadistributedpeertopeerdatabase(meaningitissharedoverallthemillionsofusers–everyonehasacopy,soitcan’tbedestroyed.)

•  Itconsistsofalongseriesof“blocks”,each2MBinsize(originally1MBat31July2017)

•  ThereisNObank•  ThereisNOnationality•  ThereisNOcentralauthorityororganisation

WhatisBlockchain?

•  Notethateachblockcontainstheprevious“hash”ofthepreviousblocktoensurecontinuity,soyoucanrebuildablockifneedbe.

•  The“nonce”isthevalueusedtoprovide“proofofwork”(https://en.bitcoin.it/wiki/Nonce)

WhatisBlockchain?

•  Youbuyabitcoineitherthrougha“wallet”apporabitcoin“exchange”(likeastockexchange)(nextslide)

•  There’sasmallfeetomakeapayment,uptio$20,(dependingontheexchangerate).Thefeedetermineshowquicklyyourtransactionisprocessedbythesystem,andissenttominerstoverifythetransaction–thefeedoesNOTgotoabanker!FeeisinBTC.

HowtouseBitcoin

HowtouseBitcoin

•  Exampleofa“wallet”app:

HowtouseBitcoin

•  Yourtransaction(payment,inthiscase)isverifiedby“witnesses”

•  Eachwitnessisa“node”orcomputerwhichhasacopyontheblockchain

•  Thepurposeistoensurethatyourtransactionisvotedon,toconfirmitinfactoccurred(verification)

•  Youshouldtransferinbiggishchunksasthefeeisconsistentandlimitedinsize(lowvaluetransactionspayalot/thesameaslargevalue)

HowtouseBitcoin

•  Whichevernodefirstcompletesverifyingthenextblockintheblockchainissaidtohaveminedthatblock

•  Thatnodeisthenallocatedasmallfeeinbitcoins(BTC)BYTHESYSTEM(notbyanorganisation,notbyabank,notbyaperson)

•  Thisiscalled“mining”andusesalotofcomputingpower(electricitybillimplications)

•  Minerstendtobuyupcomputergraphicscards(GPUs)astheyaremorepowerfulatprocessing

Whatis“Mining”?

•  YoucanpayamininghousetomineBTC(buya“miningcontract”)

•  Oryoucantryminingyourself–youneedaveryfastcomputer(orafewthousandveryfastcomputers,plusenoughmoneytopayahighelectricitybill,plusafew100GBoneachcomputertostoretheblockchain,plusuncappedInternettodownloadtheblockchain)

•  MiningisNOTveryprofitable.You’llearnmorejustbybuyingbitcoinandsittingonit.

Whatis“Mining”?

•  Mininggetsincrementallyharderforminers.ROIwilldecreaseovertime.

Whatis“Mining”?

•  Asmallmininghouselookslikethis:

Whatis“Mining”?

•  WARNING.SomemininghousesarenotinfactmininghousesbutareMLMscams.Beforeyousignupwithamininghouse,Googlethenameofthemininghouseandtheword“scam”toseeiftheycomeupasscamartists.Akeywarningsignisifyouhavetopaysomeonewhosignsyouup,orgivethesalesperson’snamewhosignsyouup.Forexample,theygiveyoualinkthatlookslikethis:www.companyname.com/r=XZY

•  Youdonothavetopayanyonetobecomeamemberofanyschemetobuy,sell,orusebitcoin.

•  AbitcoinaccountisFREE.Iftheysayit’snotfree,it’sascam.•  Thereareno‘Administrationfees’foryourbitcoinaccount•  Thereisnominimuminvestmenttojoinbitcoin•  Abitcoindebitcardshouldnothaveadminfees•  Readmoreonhttps://www.bitcoinzar.co.za/bitcoin-schemes-south-

africa/

Spottingscams

•  Bitcoinminingwebsites:"Therearethousandsofbitcoincloudminingwebsites,butonlyaveryverysmallamountarereal.Theonesthatarereal,arenotveryprofitable,andyoudon’tmakealotofmoney.Ifawebsiteisofferingyoubitcoinminingandpromisinggreatreturns,youarealmostcertainlygoingtobescammed”(source:bitcoinzar.co.za)

•  Thereisnotableofmonthlyprofit/interestorearnings;miningearnsdifferentamountspermonthandislargelydeterminedbyhowmuch“hashingpower”theminehas

•  BitcoinAccumulationprograms.Thereisnosuchthingas“interest”onbitcoins,unlessyoubuyintomoreelaborateschemes.

•  FinancialadvisornewslettersfromcompaniesthatONLYdobitcoinorsimilarareawarningsignofascam.

•  Readmoreonhttps://www.bitcoinzar.co.za/bitcoin-schemes-south-africa/

Spottingscams

•  PumpandDump.•  Occurswhenagroupoftraderscolludeor

collaborate(usuallyonTelegramapp)toartificiallydrivethepriceofacoinup.

•  Buyinlargevolumessuddenlytocreateanavalancheofpanicbuyingfrompeoplewhowanttogaininonthevalueincrease.

•  Pre-agreedpurchasedateandselldate.•  Result:thepricespikesandthenfallsback,with

thepeoplewhoinitiatedthepump,sellingoncethey’vemadeaprofit,ie“dumping”andthencausingacollapseintheprice.

•  Resultantpriceafterwardsiscalledthe“correction”.

•  ExamplefromBitcoinCashon12/11/2017:

Spottingscams

•  BitcoinisNOTaphysicalthing,andthereisnoneedwhatsoevertogetatokeninthephysicalworld,unlessyou’redealingwithapaperwallet–moreonthatlater.

•  Photographeditedfromoriginal.

Spottingscams

•  Youcaneitherbuybitcoin(BTC)andletitincreaseinvalueovertime,or,mineit,or

•  Paypeoplefromwithinyourwalletapp,or•  Useitasatransactionalcurrency(wallets,VISAcards,

etc).However,somedebitcardsonlyworkinsomegeographicalareas,e.g.Europe.Warning:eachtransactionmightcostyouasmuchas$20,soyouareadvisedagainstthis.

•  Generaladvice:ifyoubuy,ratherHold(holdonto)it.(HODL=holdonfordearlife!).Ifyoutradebetween“coins”andmakealoss,it’syourresponsibility.Likewiseifyoubuybitcoinandmakealoss,it’syourdecisionandyourresponsibility.

UsingandInvesting

•  1.IdentifyyourBTCwalletaddress:15vMrQiRVjY3xNdkcjSVL5jBNMCmgCJ1ir

–  It’squitecommontoshareaddressesasscannableQRcodes:

–  Technicallythe“walletaddress”isyourpublickey.Theprivatekeyisusuallykeptsecretinsidetheapp.

–  Tomakea“paperwallet”youneedtoknowhowtoprintyourkeys

•  2.Giveyouraddresstothepersonwhoneedstopayyou.Makesurethey’repayingyouinthesamecurrencyasyouwanttoreceiveit;there’sNOautomatictranslationfromonecurrencytoanother.Make100%sureyoucopy/pasteaccurately.YoucanuseanexchangelikeChangellytochangefromonecurrencytoanother.

Receivingfunds

•  Massivereturns.Anecdotesofupto1000%perannum.Thebest“conventional”investmentsreturnabout11%perannum.However,thecurrencyfluctuatesDOWNbyasmuchas40%(Acrash)onaregularbasis,soBEWARNED.

WhyshouldIinvest?

•  Thereareonly21MillionpossibleBTCs,ofwhichatpresentapproximately16Mhavebeenmined.(Mathematicallimitofthesystem).

•  Meaningitwillbecomemorevaluableovertime(deflationarycurrency)asmorepeoplecompetetoownthoseBTCs.

•  Approximately16MpeopletradingBTCatthemoment,or0.2%ofearth’spopulation.

•  Othercryptocurrencieshaveagreaternumberofcoinsavailable(moreonthislater).

WhyshouldIinvest?

ValueofBTCfrom2009to2017August.NotethedipinearlyAugust2017–thatwastheBTC/BCCsplit.Moreonthatlater.Thespikeanddipin2014istheMtGoxevent.

WhyshouldIinvest?

•  Whereareyouonthecurve?

AdoptionCurve

•  Butwait,there’smore!•  Thereareover1100othercryptocurrenciesor“altcoins”(ee

Coinmarketcapforthelist)•  Bigones(marketcapitalisation)includeEthereum(ETH),Litecoin

(LTC),BitcoinCash(BCC).Seehttp://coinmarketcap.comformore.•  Allhavedifferentexchangerateslikeanyothercurrency.•  BCCformedafterSegWitspliton1August’17–thisiswherethe

softwaresplitintotwodifferentblockchains(“Ahardfork”).•  Ethereumisactuallyadistributedsystemforvariouspurposes,e.g.

applicationsdevelopment,notjustcash.

OtherCoins

•  Thesecryptoswereformedby“forks”ofthebitcoinsoftware.

OtherCoins

InitialCoinOfferings

•  ICOisthecreationofanewcrypto•  ManyICOsareget-rich-quickscamswhichdonotofferany

actualdeliverable.Eventhebestofthemseemtomostlyofferanewwalletapptominethecoin.

•  ManyICOsarejustforksofbitcoinorethereum,andoffernotechnicaladvantage.

•  IfyouwishtobuyintoanICO,lookattheteam:whatcountrydotheycomefrom?Whatistheirhistoryofrunningacompany?Whatwillthesoftwareactuallydo?Whatdoesthesoftwareroadmapsay,andtheirwhitepaper?

•  WedonotrecommendANYoftheICOsatpresentastheyover-promiseandunder-deliver.

InitialCoinOfferings

•  IsCryptoacommodity(likegold)orisitreallymoney?(Discussion)Property FiatMoney CommodityMoney Commodity

Canbeexchangedforsomethingelse,e.g.acommoditylikefood

√ √ √

Isastoreofvalue;increasesorstableovertime Decreases(inflation) Increasesorstable Increasesorstable

Accepteduniversallyinageographicregionforexchange

√ √ x

Acceptanceasaformofpayment Mandatoryacceptance

Youcanchoose Youcanchoose

Hasanotheruse,e.g.shells,goldcanbeusedasjewelry;cigarettesinjail

x x √

Issometimesbackedorguaranteedwithsomecommodity(nottrueinmostcases,e.g.historicalgoldstandard)

√/x x x

Facevalueonlyorinherentvalue Facevalue Debatable Inherent

Example USDollar Bitcoin Coffee,gold

IsitMoney?

•  TheReserveBankandsomeothercountriesareinvestigatinglegislation.https://businesstech.co.za/news/finance/186533/sa-reserve-bank-to-begin-testing-bitcoin-and-cryptocurrency-regulations/

•  Canbeusedforgoodorill,likeanytechnology(examples:moneylaundering,cashlessanonymouspayments,fundingterrorists)

•  Borderless,nointernationalfeesforpaymentstoanyone.•  Taximplicationsforgovernment:howtotaxit?•  Anonymous(dependingonwhereyoubuyit),soNOTFICA

compliant(isSouthAfricancashFICA-compliant?).IfyoubuyfromsomeexchangeslikeBitFinexorLuno,you’rerequiredtodoFICA/KYC.

LegalIssues

•  ChinadecidedtobanICOsandlegislate/suspendexchangesinearlySeptember2017,resultinginacrashofallthecryptocurrencies(crashfrom$5000tobelow$4000andcounting–over20%).However,itquicklyreboundedinOctober.

LegalIssues

•  Severalnotableattackshaveoccurredagainstexchanges(morelater).Thismeansifyoukeepyourmoneyononewebsite(exchange)only,youruntheriskoflosingit.

•  OtherapplicationsofBlockchain:– Votingrecords–can’triganelection.– Digitalidentities.– Assetregisters.– Onlinecomputing(distributedcomputing:thisisactuallythedesignpurposeofEthereum).

InterestingPoints

•  TheMarketCapitalisationatthetimeofwritingwasabout$400billion,morethanAmex,Visa,Mastercard,JPMorganChase

•  AmexhasadoptedtheRipplecurrencyforinter-banktransfers

Backingconfidence

Recommendations

•  Donotinvestmorethanyouarepreparedtolose.

•  Ifyoudobuy,considervaryingyourportfolio(buyLTC,BTC,BCC,ETH,etc)basedonMarketCap(howmuchmoneyisinvestedintheparticularcoin)

•  Usemultipleexchangesandwalletappsthatyoustoreitin(incasetheygooutofbusinessorgethacked–https://en.wikipedia.org/wiki/Mt._Gox)

•  Tryextractyourkeysandprintthemandputtheminasafe.Exodus.ioallowsthis.

•  Preferappsthatoffera“paperwallet”soyoucanhaveaphysicalbackupofyourfunds.https://en.bitcoin.it/wiki/Paper_wallet

•  Othertechnologiesexisttobackupyourpublic/privatekeysetwhichisusedtoencryptyourrecords.Forexample:https://trezor.io

•  Goodwalletappsallowyoutohaveapasswordormnemoniccodetoprotectyourfunds.Usethesesolutions.Exampleselectrum.org,exodus.io

•  DonotbuyintoICOs.•  Diversify•  HODL•  OR…justdonotbuyinatall.

Recommendations

•  http://www.luno.com-ASouthAfricanexchangewhichdoesFICAandallowsyoutodepositandwithdrawintoSouthAfricanbanks.There’salsohttp://www.ice3x.com

•  http://altaapps.io-Altawallet-across-platformwalletappwithabackupsystem,user-friendly.Similar:https://www.exodus.io(thelatterletsyouchoosemorecurrencies,andextractyourkeys,butdoesn’thaveamobileapp)

•  Electron-cashisalternativetoElectrumwallet,dealsinBCConly,notBTC•  https://bitcoin.org/en/download-Theminingapp,alsoawallet,freeand

opensource.Willrequireafewhundredgigsofharddrivespacethough,plusuncappedinternet.

•  Disclaimer:Ihavenoaffiliationwiththesecompaniesanddonotbenefitfromtheserecommendations.ThesearemerelytheeasiesttechnologiesIhavefound.

Links

Thanksforyourtime!

Moreatwww.cryptofinance.co.za

Questions