Bitcoin is the inescapable “next big thing” that will reportedly replace the banks and disrupt our entire financial system. While Bitcoin and the technology it’s built on are still in their infancy, entrepreneurs can benefit from being early adopters. (Please note: The following should not be considered financial advice.)
Five essential takeaways for Bitcoin
Bitcoin is a currency built on top of a technology called the blockchain, which I’ll explore in more detail later. Here’s the main gist of Bitcoin:
- It allows for a culture of full transparency where all transactions can be viewed by anyone on a “distributed ledger,” a table that lists all transactions occurring on the blockchain. You can see these transactions in real time with a blockchain explorer like Blockchain.info or Blockcypher.
- Transactions are irreversible. Once you send Bitcoin, you can’t cancel the transaction.
- Transactions are anonymous. To send or receive bitcoin, you need to set up a virtual wallet. Each wallet has a unique ID composed of random numbers and letters like 1NRedxSzhx7r. This is used in lieu of a real-name identity.
- There are only 21 million Bitcoins that will ever be in existence, a rule hard-coded into Bitcoin’s software. These coins are generated through a process called mining, which is very similar to mining for gold or diamonds but instead uses computing power to solve a mathematical puzzle. In addition to mining Bitcoin, miners also profit off the transaction fees since their computing hardware powers and connects the blockchain.
- It’s both a very volatile, decentralized currency and a storage of value with no central authority calling the shots.
How to purchase Bitcoin
- Sign up for Coinbase, which is by far one of the most trusted and reputable exchanges.
- In the US, you will need to verify your identity to be accepted to most legitimate exchanges. Once your ID is approved, you can then purchase Bitcoin or a small fraction of a Bitcoin. You can spend as little as $10. With such a volatile new currency, it’s important to only spend as much as you’re comfortable with losing.
What is the blockchain?
The blockchain is the underlying technology that makes Bitcoin work. Think of it as the App Store, with Bitcoin an app built on top of the blockchain. There are many other blockchains and cryptocurrencies. Ethereum, co-created by Vitalik Buterin, is one of the major competitors in the space and uses its own currency, called Ether.
Just like you can build any app and launch it in the App Store, you can build apps, commonly referred to as Dapps (decentralized apps), on the blockchain. Companies choose to build on the blockchain because it allows for full transparency—anyone can view each block on the chain—and accountability, meaning there can’t be any gaps in the chain, as each chain builds off of the next.
One silly but salient Dapp is CryptoKitties, a game where you can spend Ether to raise your own kittens. Companies like Maersk and IBM are working together to use the blockchain for other uses cases, like making global shipping industry more efficient.
Three opportunities for entrepreneurs
- Be active, any time. Now that you have your Bitcoin, you’re now a part of a global economy that is active 24/7, not bankers’ hours. You can participate in ICOs (Initial Coin Offerings, explained below), join other exchanges, and trade with other alt-coins. You can even make real-world purchases, like buy furniture from overstock.com. This is where you begin to see the true utility and revolution of cryptocurrencies.
- Raise capital. As an entrepreneur, you can launch your own coin and raise money from the public via an ICO instead of the typical seed or angel round. Keep in mind there will be heavy regulations around ICOs. Companies like the messaging app Telegram are raising well over $1 billion in their ICO.
- Help bring others on to the blockchain. You can also engage with the blockchain as an entrepreneur by consulting or development services to bring companies, cities, and even your own company on to the blockchain, like ConsenSys did. ConsenSys and IBM are working together to bring the city of Dubai on to the blockchain. Other companies, like Digital Asset Holdings, led by the extraordinary Blythe Masters, are working to bring institutions and exchanges on to their blockchain technology.
Three dangers of the blockchain
Almost anything could be built on top of or migrated to the blockchain—but that doesn’t mean it should. With Bitcoin and blockchain come tremendous upside and risks. Here are a few:
- Regulation. Governments around the world are cracking down on cryptocurrencies and ICOs, so be sure to read up on your local laws.
- Vaporware and Ponzi schemes. The majority of ICOs are companies that have no real technology, team, or product. Facebook recently banned ads for cryptocurrency and ICOs out of concern for “deceptive promotional practices.” They are designed to take your money if you don’t do your research.
Scale. Dapps are still struggling with scale as small but popular ones like CryptoKitties are slowing down transaction times on the Ethereum blockchain. Imagine what would happen if purchasing came to a standstill because one app slowed everything down.
All hype aside, Bitcoin and the blockchain do have opportunities for entrepreneurs savvy enough to seize them. See where it might take you and your business.