What you need to know about Bitcoin, Blockchain and Coinbase if you are considering dabbling in cryptocurrency
Garry Moore, the managing director of Bishop's Stortford's Genmar IT, writes for the Indie...
With so many of us locked down at home, some are maybe getting a little bored and looking for a distraction.
Looking at the hype surrounding cryptocurrencies and the recent intervention by individuals on the shorting of GameStop shares by hedge funds, it seems possible. Technology certainly enables anyone with access to the internet to trade shares worldwide and dabble in cryptocurrency.
The recent substantial increase in the value of Bitcoin has especially caught a lot of people's attention. When launched in 2009, reportedly one of the first uses was by a bunch of crypto-geeks to buy a take-out pizza from Papa John's, somewhere in the US, for 10,000 BTC – in today's money, maybe £20 million.
Trading at around $300 to $1,000 from 2013 to early 2017, it saw its first major hike later that year, hitting around $18,000, only to crash back to $3,000 over a year later. Trading at about $10,000 for most of 2020, the latest spike started in December and in January this year it hit $40,000! Prices have since dropped to about $30,000 and sway dramatically throughout the day.
This has encouraged considerable interest from the public and, with easy access via platforms like Coinbase, many are 'investing' their hard-earned cash.
Bitcoin is by far the largest player with more than 60% of the market, but there are more than 6,700 currencies and more launched every month, with trading mainly limited to the top 40.
Although the recent spike is somewhat down to speculators, there are other reasons for its popularity. Supporters see cryptocurrencies as the future and are gambling on the price going up, and some like the fact they remove the control of central banks.
The last year saw huge interest in the technology behind crypto, Blockchain. It is very techy, so I won't spoil your breakfast, suffice to say it provides a very secure and incorruptible ledger to allow trades. It is more secure than traditional banking systems, being decentralised. It is still in its infancy with new game-changing developments announced weekly.
These efforts to increase security and transparency have seen some traditional companies, from JP Morgan to Daimler, and tech giants Google (sorry, Alphabet), Microsoft and Apple all using or developing blockchain systems. This gives a level of confidence in the underlying technology and has obvious potential to disrupt some of the most established industries like banking, having the potential to reach out to the untapped 40% market of the world's 'unbanked'.
This year we have been contacted by several customers showing an interest in 'mining' crypto. Blockchain predominantly relies on many hundreds of thousands of mining rigs – odd-looking computers that are set up by individuals or groups in bedrooms and garages, all the way up to huge data centres, to run software that verifies crypto transactions. Participants are rewarded with the coin they are mining – the faster and more powerful their rigs, the more they can mine.
Until recently, the huge cost of electricity to run these systems outweighed the rewards for most. With the spike in value, they are again becoming popular. So popular, in fact, that huge companies like Nvidia, who make graphics cards – the main bit of kit required to run these systems – have sold out, creating a worldwide shortage.
Currently there are no new cards available in the UK. One UK supplier released stock recently at £550 per card, only to increase the remaining stock to £650 before selling out. This has seen an unprecedented demand for used cards on sites such as eBay.
When asked about cryptocurrency, either by someone wanting assistance setting up an account to trade or to build or maintain a mining rig, we would make it clear that this is an extremely risky business. The market is so volatile that it is very likely you will lose part, or all, of any 'investment' made. But if you are bored and have money to burn...
* Genmar IT is based at Unit 12, The Links Business Centre, Raynham Road Industrial Estate, Bishop's Stortford CM23 5NZ. Call 0330 445 1234. It has been providing IT support to businesses in an area stretching from London to Cambridge and across Hertfordshire and Essex for more than 20 years.