Frequently Asked Questions

What is Bitcoin?

The IRS consider Bitcoin property. Others, like the FTC and SEC, consider Bitcoin a commodity. Some believe it’s a currency or money. Sure, these are all fine definitions.  

However, I’d like to offer up a paradigm-shifting definition – it is the first time our society has been able to physically secure bits of information in the Information Age. Since a technology such as this would be used to secure valuable bits of information, it’s no surprise then that the first use case has been to secure financial bits of information. But there are many more use cases yet to be developed on the only real proof-of-work system. Therefore, Bitcoin’s network is of the utmost importance to the United States’ National Defense.

Isn’t Bitcoin Used for Criminal Activity?

The statement that crypto/Bitcoin is used illicitly is factual, although it is woefully factually incomplete.

For many years business leaders like Larry Fink were staunch detractors of Bitcoin, suggesting that Bitcoin was “an index of money laundering.” The list of those pointing to this is long, including but not limited to, the WSJ, European Central Bank, US Secret Service, and more.

According to Chainanalysis’ 2024 Crypto Crime Report, $24.2 billion was received by illicit addresses – that amounts to just 0.34% of total on-chain transaction volume.

As Forbes writes in Bitcoin Welcomes All, But It’s No Haven for the Naïve Criminal,

“Despite widespread misunderstandings linking Bitcoin to illicit activities, blockchain data reveals that such transactions are actually quite rare. While Bitcoin has introduced swift changes in the financial world, myths about its ties to criminal endeavors continue. Yet, upon closer examination, these claims are largely baseless.

The blockchain analytics company Chainalysis found that illicit cryptocurrency activity remains below 1% from 2021-2023. Compared to global money laundering rates, cryptocurrencies are less favored for illicit activities. Even though the data covers all cryptos and not just Bitcoin, it shows that open-source ledgers are not suitable for criminal endeavors.

The United Nations Office on Drugs and Crime estimates that global money laundering represents about 2% to 5% of global GDP, or approximately $800 billion to $2 trillion annually. However, the exact figure is elusive due to the traceability issues in traditional finance.” 

So, although illicit activities in crypto do exist, they pale in comparison to gold and the US Dollar. Even the most ardent critics have been forced to change their tune. The Wall Street Journal had to issue a retraction after it miscited Hamas’ crypto terrorism funding data after being heavily corrected by the community. Even former detractor Fink stated recently on Fox Business:

·         “Bitcoin is a hedge against inflation”

·         “Bitcoin is digital gold”

·         “Bitcoin is an international asset”

The reality is that criminals overwhelmingly prefer and close in gold and USD, which both offer traceability issues, and not Bitcoin.

How Do Investors View Bitcoin?

In its novel whitepaper, ‘Bitcoin First’, $4.2 trillion asset manager Fidelity describes Bitcoin this way,

“Traditional investors typically apply a technology framework to Bitcoin, leading to the conclusion Bitcoin as a first-mover technology will easily be supplanted by a superior one or have lower returns. However, as we have argued herein, Bitcoin’s first technological breakthrough was not as a superior payment technology but as a superior form of money. As a monetary good, Bitcoin is unique. Therefore, not only do we believe investors should consider Bitcoin first in order to understand digital assets, but that Bitcoin should be considered first and separate from all other digital assets that have come after it.”

Family offices prioritize the preservation of their wealth over time and seek out innovative investments. Bitcoin is seen as a strong long-term store of value, with a low correlation to other asset classes, offering high growth potential. This is appealing to family offices looking for balanced and profitable portfolios while managing wealth across generations ​(link).

According to Goldman Sachs, about 32% of family offices are investing in digital assets, including cryptocurrencies and blockchain technology. This includes investments not only in cryptocurrencies but also in blockchain technology, stablecoins, non-fungible tokens (NFTs), decentralized finance (DeFi), and blockchain-focused funds (link).

Billions, and possibly Trillions, will ultimately be invested in this budding industry.

What is Bitcoin Mining?

Bitcoin mining is a misnomer – nothing is actually being mined. “Mining” is nothing more than accounting.

Every ten minutes, a block is written to the blockchain. What is that block? It’s a ledger of every single financial transaction that occurred during that ten-minute window. That’s it – you now understand what Bitcoin mining is!

How does Bitcoin Mining Work?

Bitcoin mining works much like Uber. Uber sets up a network and then the drivers purchase their own cars and contribute their own cars to the economy. In this similar manner, Bitcoin miners purchase their own computers (i.e. ASIC miners) and contribute them to the Bitcoin network.

How Does a Bitcoin Miner Make Money?

The Bitcoin miners are effectively doing work – they are acting as a computerized accountants – and they are providing that work for the good of the collective network infrastructure. In exchange for their work, they are paid in newly-minted Bitcion – currently 6.25 BTC every 10 minutes, plus network fees.

Note: every four years the Bitcoin network rewards are cut in half – called the “halving.” Today 900 BTC are issued into circulation by the network as a reward to the uber drivers of Bitcoin each day. On ~April 20, 2024 that will be cut to 450 BTC per day. Ultimately, it will take more than 100 years for all 21 million Bitcoin to be issued into circulation under the network’s mathematical methodology.