Article written by Robert Crosby, Executive Director of Independent Insurance Agents of San Antonio
Since this is the start of a new year, I wanted to write about something that has taken the nation and the world by storm. As I delved into the subject of Bitcoin, Cryptocurrency and Blockchain transactions, it became apparent became to me that there is a generational gap of understanding this new currency between the Millennials (Bulls) and Baby Boomers (Bears).
Let’s start with a history lesson. Bitcoin is a new form of money, a digital currency created in 2008 during the financial crisis. Blockchain is the tracking mechanism that facilitates any incoming and outgoing bitcoin transfers to and from any internet address at any given time. During the financial crisis of 2008, people from all over the world felt its debilitating economic effect. As late as the end of 2016 and into 2017, many are still feeling the effects of the dwindling value of their fiat currency or the currency approved by a country’s government. Satoshi Nakamoto, an unknown person or persons, created the bitcoin concept sometime in 2008. A key component of bitcoin is decentralization. Decentralization allows us to cross currency barriers making us all a part of the bitcoin ecosystem. This allows anyone, anywhere, to take part in transactions and contribute to it in our own way. Rather than relying on a government, bank or middleman, bitcoin belongs to everyone in this “peer to peer” system, making all of us part of the bitcoin network. Bitcoin is driven by individual users and without individual users, there is no bitcoin. The more people that embrace bitcoin, the better it works. Bitcoin needs an ever-expanding community actively using bitcoin as a payment method either buying goods and services with bitcoins or offering goods and services in exchange for bitcoin. Bitcoin can be used as an investment and traded like a commodity.
As I did a more in-depth analysis, I learned about some of the features and characteristics of bitcoin. Bitcoin lets you exchange money in a different way than you would with a bank. Bitcoin makes it possible to transfer value anywhere in the world via the internet in a very easy and quick way. It allows you to control your money but it does come with great security concerns. Bitcoin claims that it can provide very high levels of security if used correctly. Because of this, it is important for anyone interested in investing or utilizing bitcoin to take the time to inform yourself before using bitcoin for any transaction. Bitcoin should be treated with the same care as your wallet, or even more so in same cases. Always remember that it is your responsibility to adapt good practices in order to protect your money.
Bitcoin is treated as a commodity in the world market with the price of a single bitcoin unpredictably increasing or decreasing over a short period of time due to its young economy, novel nature and sometimes liquid markets. Consequently, keeping your savings with bitcoin is not recommended at this point. Bitcoin should be seen like a high risk asset and you should never store money that you cannot afford to lose with bitcoin. If you do receive payment with bitcoin, many service providers can convert them to your local currency.
Here is a list of companies that accept Bitcoin. (Last updated on December 6, 2017)
Any transaction issued with bitcoin cannot be reversed. A bitcoin transaction can only be refunded by the person receiving the funds. That means you should take care to do business with people and organizations that you trust, or that have an established reputation.
All bitcoin transactions are stored publicly and permanently on the network most commonly called a “blockchain." Anyone can see the balance and transaction of any bitcoin address, however, the identity of the user behind an address remains unknown until information is revealed during a purchase or under some other circumstances. For this reason, bitcoin transaction addresses should only be used once. As mentioned before, always remember that it is your responsibility to adopt good practices in order to protect your privacy.
Bitcoin is an experimental new currency that is in active development. Each improvement makes bitcoin more appealing, but also reveals new challenges as the adoption of bitcoin grows. During these growing pains you might encounter increased fees, slower confirmations, or other service issues. Be prepared for problems and consult a technical expert before making any major investments. Keep in mind that nobody can predict the bitcoin future.
Bitcoin is not an official currency, but that having been said, most jurisdictions still require you to pay income, sales, payroll and capital gains taxes on anything of value including bitcoin. It is your responsibility to ensure that you adhere to tax and other legal or regulatory mandates issued by the U.S. government and local municipalities.
Next month we will be discussing a more in-depth analysis about “blockchain” and how it is used in the insurance industry.
A final commentary, investing or using bitcoin in commerce is a high risk adventure. As with any investment, your appetite for risk will determine your willingness to jump into this new form of currency. I have found that the millennials are willing to take the risk and have already been trading in bitcoin and blockchain. The Baby Boomers are more conservative and are really struggling with the concept. Consequently, many have have no idea how it works. Whether you are a Millennial or a Boomer, just be careful what you wish for and research, research, research.
In just the last few days, the San Antonio Express News and MSN News have been writing warning articles about bitcoin. The Express-News reported that the Texas State Securities Board issued a cease and desist order this week against an overseas company selling investment contracts to mine bitcoin. For more information please review the December 29th issue of the Express-News. The article appeared in the Business Section, under the heading of “Texans warned about firm with ties to bitcoin”. MSN news reported on December 29, 2017, that we need to heed Warren Buffett’s warning: Bitcoin is pure FOMO” - the fear of missing out. Both of these articles are great reading regarding bitcoin.
This article references bitcoin.org multiple times.