Follow the Money

In 2013 a man in the UK cleaned out his junk drawer and absently tossed an old hard drive dismantled from a Dell Computer into the trash.  The hard drive, rusting in landfill somewhere in Wales, contains 7500 bitcoins. 
At the time, his staggering loss was about $4 million.  But if he had wisely invested his failing hard drive in a bank safe deposit box his discarded hunk of technology would be worth over $75 million today. 
Maybe he was just trying to cut his losses.  Or maybe he was trying to revive the sport of dumpster diving.
Bitcoin is what is known as a “cryptocurrency”.  I assume this is because no one really knows how the currency works, including me.  It is a mysterious form of digital payment that obviates the need for central banks and monetary middlemen.  Instead it relies on distributed computers connected over the internet where there is no FDIC and modern day bank robbers can work comfortably from home on laptops.  
Bitcoin is not for the technically challenged.
It is not for the math challenged either.  Say, for example, you are in England.  After a sweaty day at the dump in your hazmat suit sifting through decaying garbage with a shovel and a metal detector, you really want something to drink.  You stand at a vending machine and wonder how many bitcoins it takes to buy a Coke which costs a pound twenty in British coins.

The answer is .000166 bitcoins.  But it doesn’t matter because even though you are excitedly holding a grungy hard drive in your hands that is worth over $75 million, the machine won’t accept bitcoins anyway.  The machine won’t accept hard drives or plug nickels either.
And it turns out that the bitcoins on the hard drive you liberated from the dump, for example, are tucked in a digital wallet that is protected by a private data key that only the owner who threw it away can open and access.  That is how transactions are kept safe.  
Still, the bitcoins are not completely secure.  Say, for example, you are standing in a hazmat suit at the front door of a distraught man who mistakenly threw out a hard drive you happened to find at the dump near his house.  He should be glad to see you, right?   He is not.  That is because you have your hand in your hazmat suit pocket pretending to hold a gun and demanding to know his private key code or else.  The good news is that the man was smart enough to write down the key on a piece of paper.  The bad news is that he was dumb enough to put it in the junk drawer with the hard drive. 
Following our example, you happily discover that the man has a good memory for private data keys, particularly his own.  He also tells you from the chair where he is tied, that he earned his 7500 bitcoins by being a Bitcoin miner.  He doesn’t have a helmet, but he does have a powerful computer that solves really difficult math problems and hoovers up a dam’s worth of electricity doing it.  He, along with thousands of other power sucking Bitcoin miners, are competing for bitcoins and maintaining a real time decentralized ledger of every single bitcoin transaction that has ever existed in the process.  This so-called “blockchain” is what keeps the Bitcoin system honest. 
But the real problem with Bitcoin is that not everyone recognizes the digital currency.  Say, for example, that you suddenly came into possession of 7500 bitcoins.  It is easy to unload stuff like hazmat suits and shovels and metal detectors on eBay, but try getting rid of a disk full of digital currency.  Even though there are legitimate Bitcoin Exchanges with cute names like Coinbase or Cryptsy or Kraken, you may be hard pressed to explain to the IRS how you came to withdraw $75 million from an institution identified as Gringotts of Diagon Alley.
Fortunately there are some companies on the dark web that only accept bitcoins in payment.  So say, for example, that you want to open up a new chain of retail stores in California and need to stock them with inventory.  I guarantee that with 7500 bitcoins, Pot Head’s “R” Us can become a booming success.  And most of it is completely legal.
But ultimately, the thing that really keeps me away from Bitcoin is the volatility.  Oh sure a bitcoin is worth $10,000 today up from eight cents in 2010.  But it could easily crash tomorrow and be worthless.  
No, I would rather invest my money in safe, tangible assets.  Say, for example, a hazmat suit, a shovel, and a metal detector.
Comments?  Email me at  I don’t bite.

The opinions expressed herein are the writer's alone, and do not reflect the opinions of or anyone who works for is not responsible for the accuracy of any of the information supplied by the writer.

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