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You Need To Know What Cryptocurrencies Are


Good for the fight against Climate Change-- Cryptocurrency miners in China are turning off their machines

Admit it-- don't you wish you bought $100 worth of bitcoin in 2009 when "Satoshi Nakamoto" released the genesis block? You'd be really, really rich now. Back then, 10,000 bitcoins bought Lazlo Hanyecz 2 Papa John's pizzas. The value was very volatile-- "In 2011, the price started at $0.30 per bitcoin, growing to $5.27 for the year. The price rose to $31.50 on 8 June. Within a month, the price fell to $11.00. The next month it fell to $7.80, and in another month to $4.77. In 2012, bitcoin prices started at $5.27, growing to $13.30 for the year. By 9 January the price had risen to $7.38, but then crashed by 49% to $3.80 over the next 16 days. The price then rose to $16.41 on 17 August, but fell by 57% to $7.10 over the next three days... Prices started at $998 in 2017 and rose to $13,412.44 on 1 January 2018, after reaching its all-time high of $19,783.06 on 17 December 2017... Throughout the rest of the first half of 2018, bitcoin's price fluctuated between $11,480 and $5,848." This year Elon Musk pushed the price of Bitcoin to $44,141. Today a bitcoin is worth $43,779. So that original $100, had you sat on it, would be worth about $150 million. That's why I used "really" twice to describe how rich you'd be.


Most people don't have any idea what cryptocurrencies-- like bitcoin-- are. Wikipedia describes bitcoin as "a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries. Transactions are verified by network nodes through cryptography and recorded in a public distributed leger called a blockchain... Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services, but the real-world value of the coins is extremely volatile... Bitcoin has been criticized for its use in illegal transactions, the large amount of electricity (and thus carbon footprint) used by mining, price volatility, and thefts from exchanges. Some economists and commentators have characterized it as a speculative bubble at various times. Bitcoin has also been used as an investment, although several regulatory agencies have issued investor alerts about bitcoin."


China has been banning bitcoin since 2017 and did so again, more forcefully yesterday. Reporting for the Wall Street Journal, Elaine Yu and Joe Wallace tried explaining what's going on and what it portends. "China’s central bank," they wrote, "said all cryptocurrency-related transactions are illegal, reinforcing the country’s tough stance against digital rivals to government-issued money. In a statement posted on its website on Friday afternoon, the People’s Bank of China said the latest notice was to further prevent the risks surrounding crypto trading and to maintain national security and social stability." Bitcoin's price tumbled 8% to $41,370. Don't worry; you'd still be a multimillionaire.


Naming bitcoin, ether and tether as examples, the central bank said cryptocurrencies are issued by nonmonetary authorities, use encryption technologies and exist in digital form, and shouldn’t be circulated and used in the market as currencies.
It also said it is illegal for overseas exchanges to provide services for residents in China through the internet.
China banned cryptocurrency exchanges from operating within its borders several years ago, but individuals in the country have continued to find ways to trade bitcoin and other digital currencies via over-the-counter or peer-to-peer transactions.
In May this year, a powerful Chinese superregulator pledged to crack down on bitcoin trading and energy-intensive mining, helping to send the price of bitcoin tumbling. Financial regulators in the country have also gotten tougher on banks and payment companies and in June ordered them to take a more active role in weeding out crypto-related transactions.
...Chinese regulators have worried that cryptocurrencies’ decentralized, anonymous transactions facilitate money laundering and illegal capital flight out of the country. There are signs that its resolve to crack down on cryptocurrencies has grown stronger in recent months.
Its toughening stance against the sector also coincides with Beijing’s push to develop a state-backed digital currency, which would give the government vast new tools to monitor both its economy and its people.
The central bank said the government shouldn’t let companies use words such as “virtual currencies” or “crypto assets” in their registered names or descriptions of their businesses.
Though China has long frowned on cryptocurrency trading, until earlier this year it tolerated crypto mining, which uses high-powered computers to generate the digital currencies that people invest in and trade. These operations were often powered by cheap electricity in coal-rich regions of Xinjiang and Inner Mongolia, along with the hydropower centers of Sichuan and Yunnan. It cracked down on that sector over the summer, prompting an exodus of miners to countries including the U.S. and Kazakhstan.
Chinese authorities recently said they would thoroughly investigate whether mining farms still operated in high-tech or big-data industrial parks.
China’s Tough Stance on Crypto Mining Is a Boon for Miners Elsewhere
Bobby Lee, founder of Ballet, a cryptocurrency storage service, said the latest crackdown focused on Chinese exchanges that have moved offshore after 2017 but were still serving residents in the country who could access their services using a virtual private network.
“Many people of Chinese nationality or Chinese descent are still big players and traders” regardless of where they are based, Mr. Lee said. That, he said, helped explain why bitcoin and other cryptocurrencies tumbled on the news.
Regulators globally are seeking to enforce stricter rules on cryptocurrency markets and companies to protect investors and tame what some see as a Wild West of the financial world.
Securities and Exchange Commission Chair Gary Gensler this week said he doesn’t see much long-term viability for cryptocurrencies, likening the thousands in existence to the 19th-century wildcat banking era that emerged without federal bank regulation.
The Basel Committee for Banking Supervision, a group of global central bankers and regulators, in June proposed new rules that would require banks to set aside a dollar in capital for every dollar of bitcoin they own. The biggest U.S. and European lenders recently pushed back against the plan, saying the rules could make cryptocurrencies riskier by shunting them into unregulated corners of the financial system.

A former DWT art director, who has done well selling items on eBay, just invested $100,000 in bitcoin mining. I tried telling him about Tulip-mania in Holland in the 1630s but he laughed at me.

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