What You Should Know About Cryptocurrencies
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A NY Times article, Kodak’s Dubious Cryptocurrency Gamble, reveals Kodak is venturing into digital rights management using blockchain technology to “help photographers manage their collections by creating permanent, immutable records of ownership” using its KODAKOne platform and paying these photographers in “KodakCoin,” a cryptocurrency, which has got the attention of investors.  

In another venture, Kodak is renting to customers a bitcoin mining machine using the Kodak logo ($3,400 for two years) called the “KashMiner” showcased at this year’s CES. CNBC reports that “Kodak claims the KashMiner will produce about $375 worth of new bitcoins every month.” The result of these two related ventures has moved the company’s stock up rapidly, tripling in value in January.

Using blockchain cryptology (which is the basis of cryptocurrency) to make immutable records of ownership fits nicely with digital rights management and Kodak may have a service worth investigating and investors are agreeing with Kodak’s maneuvers into blockchain technology.  

What Should You Know About Cryptocurrency?
You may have a cursory knowledge of cryptocurrency, aka, BitCoin, so what should you know about cryptocurrencies?  Wikipedia explains in one paragraph what it is, and the rest of the article becomes bogged down in details that boggles the mind. Let’s break it down to just four categories – digital asset, mining, legality, and anonymity. You should also be aware of some of the applications that are possible with blockchain technology. Finally some genuine concerns are discussed regarding investing into this arena. 

Digital Asset
What you need to keep in mind is that a cryptocurrency such as BitCoin is a DIGITAL ASSET, which “is anything that exists in a binary format and comes with the right to use. Data that do not possess that right are not considered assets.” The list of digital assets are growing exponentially at an incredible rate and are more than the number of cryptocurrencies (as of January 2018, there were over 1384 and growing) and include “digital documents, audible content, motion picture, and other relevant digital data.” These digital assets are “stored on digital appliances such as: personal computers, laptops, portable media players, tablets, storage devices, telecommunication devices, and any and all apparatuses which are, or will be in existence once technology progresses to accommodate for the conception of new modalities which would be able to carry digital assets; notwithstanding the proprietorship of the physical device onto which the digital asset is located.”

In the case of cryptocurrencies which are decentralized, the machines storing the digital assets that create and monitor blockchain transactions become more sophisticated, expensive, and more numerous and grow like a bubble, hence, many articles on cryptocurrency use the term bubble a lot. And the analogy is clear what happens to a growing bubble. As Business Insider puts it, “Some argued that Kodak’s jumping into bitcoin mining was evidence of a bubble in cryptocurrencies.” Read, “Bubble, Bubble, Fraud and Trouble” in the NY Times.

To encourage participants of the bitcoin network so that transactions are not falsified or records of ownership changed, MINING (a validation of transactions) with machines are used to contribute to the processing power of the network. Miners must sign off on transactions in “blocks” (hence, blockchain) which is supposed to eliminate the DOUBLE-SPENDING problem with cryptocurrency. Miners are rewarded for their efforts with new cryptocurrency, adding more into the network.

Wired explains how this works: “Each change to the ledger is cryptographically signed to prove that the person transferring virtual coins is the actual owner of those coins. But no one can spend their coins twice, because once a transaction is recorded in the ledger, every node in the network will know about it. The idea is to both keep track of how each unit of the virtual currency is spent and prevent unauthorized changes to the ledger. The upshot: No bitcoin user has to trust anyone else, because no one can cheat the system.”

Wikipedia explains, “On March 25, 2014, the United States Internal Revenue Service (IRS) ruled that bitcoin will be treated as property for tax purposes as opposed to currency. This means bitcoin will be subject to capital gains tax. One benefit of this ruling is that it clarifies the legality of bitcoin. No longer do investors need to worry that investments in or profit made from bitcoins are illegal or how to report them to the IRS.”

One of the chief reasons for the demand of using a cryptocurrency is anonymity. As Wikipedia points out, “Systems of anonymity that most cryptocurrencies offer can also serve as a simpler means to launder money. Rather than laundering money through an intricate net of financial actors and offshore bank accounts, laundering money through altcoins can be achieved through anonymous transactions.” It should be noted, however, that some cryptocurrency exchanges are often required by law to collect the personal information of their users. Also the public key in a cryptocurrency wallet is just that, known by the public (and the watchful eyes of government agencies), which is used to receive or spend the cryptocurrency. The private key protects who owns the cryptocurrency or who sends or receives one with anonymity.

Applications of Blockchain Technology
Cryptocurrency will continue to have a use in the digital age as a digital asset, such as Kodak using blockchain technology in digital rights management or in other uses. For example, one of the first applications of using blockchain technology is .bit domain registry through Namecoin

Nasdaq has an interesting article, 7 Most Interesting Uses of Blockchain.  Forbes lists four incredible ways blockchain technology can be used, such as, “the ability to provide an unhackable electronic vote-counting system.” Andrew Meola, Business Insider, has a longer list of applications for blockchain with his article, The growing list of applications and use cases of blockchain technology in business & life.

Wired explains why blockchain technology could be used by financial markets selling stocks. “The real power of the blockchain is as a distributed ledger that’s outside of the control of any one organization—a ledger that keeps, as Palatnick calls it, “a single indisputable version of the truth.” Over the years, Wall Street has employed the DTCC, a single organization, to oversee the truth of the settlement system. But with the blockchain, this truth can be controlled by a network of machines and an open ledger that all those parties can see. At least in theory.” Why Wall Street Is Embracing the Blockchain—Its Biggest Threat

“There are also potential applications for blockchains in the seemingly boring world of corporate compliance. After all, storing records in an immutable ledger is a pretty good way to assure auditors that those records haven’t been tampered with.” The WIRED Guide to the Blockchain, Wired

Concerns About Investing in Crytocurrencies
Connectech has written warnings about cryptocurrency, such as how some websites can hack your computer to ‘mine’ cryptocurrency, how malware Is being loaded on computers to mine,  how a Virus Spread Through Facebook Messenger Mines For Cryptocurrency, how the IRS is Looking To Tax BitCoin Users, how Some Seagate Network Attached Storage Devices May Be Hosting Malware, and the list keeps growing, without a doubt, the bubble will continue to grow until it pops.  

Theoretically, blockchain technology should be hacker proof, but alas, such is not the case, i.e., the case of the Decentralized Autonomous Organization (The DAO) Fund, which an anonymous user hacked and took off with $50 million in Ethereum cryptocurrency. While this “hack was reversed in the following weeks, and the money restored, via a hard fork of the Ethereum blockchain,” it is an example of how humans can hack into cryptocurrency so that “the Ethereum community decided to hard-fork the Ethereum blockchain to restore virtually all funds to the original contract. This was controversial, and led to a fork in Ethereum, where the original unforked blockchain was maintained as Ethereum Classic, thus breaking Ethereum into two separate active blockchains, each with its own cryptocurrency. The DAO was delisted from trading on major exchanges such as Poloniex and Kraken in late 2016.” Wikipedia

Coindesk has an article, Hacks, Scams and Attacks: Blockchain’s 2017 Disasters, listing seven ways blockchain technology has resulted in the lost of nearly $490 million to investors just in 2017 alone. The list is longer such as Mt. Gox losing 850,000 bitcoins valued at $450 million in 2014, Bitfinex (in 2015 1500 coins stolen) in 2016 lost $72 million in customers’ accounts (119,756 units of bitcoin) were stolen in a hack, NiceHash lost $70 million in Bitcoins in a hack on December 6, 2017 and there are other accounts. Over a billion dollars has been hacked and stolen from cryptocurrencies.

In 2011 a user, ‘allinvain,’ claims someone hacked his PC and stole $500,000 of his bitcoins by transferring them to the hacker’s account according to an article in Ars Technica. The article points out that “there’s currently no good infrastructure for tracking down stolen Bitcoins” since it would be like claiming that you lost $500,000 in cash. How do you prove you had the cash and that it was stolen?  The anonymity of owning Bitcoin and the fact that there is no central governing entity to complain to shows the risk of investing.

Another concern Business Insider points out is the “amount of energy used by computers “mining” bitcoin so far this year is greater than the annual usage of almost 160 countries, according to new research.” This same article points out that the “bulk of Bitcoin “mining” is done in China, where energy costs are comparatively cheaper than in places like the UK or US.”  Kai Stinchcombe, Hackernoon says, “Bitcoin is already estimated to use 35 times as much energy as Visa. If you brought Bitcoin’s transaction volume up to Visa’s it would be using as much electricity as the rest of the world put together.” EurekAlert!, in its article, “Bitcoin estimated to use half a percent of the world’s electric energy by end of 2018,” states, “a Commentary appearing May 16 in the journal Joule, financial economist and blockchain specialist Alex de Vries uses a new methodology to pinpoint where Bitcoin’s electric energy consumption is headed and how soon it might get there.”

Photographers may value KodakCoin as points on a credit card that gives travel miles or merchandise, depending on how Kodak allows photographers to ‘cash in.’ As you can see by Kodak’s example, cryptocurrency will continue to evolve into an accepted digital asset with many ups and downs. With Kodak’s stock rising, some perceive a value with cryptocurrency.

If you decide to invest in a cryptocurrency you should treat it as investing in a digital asset and if you cannot afford to lose your investment, you are probably way over your head. It is much like the stock market and you need to know what you are investing in and the ability to take the risk of losing what you invest. As Paul Krugman, NY Times explains, “Bitcoin, by contrast, has no intrinsic value at all. Combine that lack of a tether to reality with the very limited extent to which Bitcoin is used for anything, and you have an asset whose price is almost purely speculative, and hence incredibly volatile.

An interesting interview with tech entrepreneur & investor Chris Dixon explains how you should understand blockchain architechture is related to the open source model, which you can watch below: