Bitcoin has been in the news of late, but many are in the dark about this new currency."In Jerusalem" offers a ‘Bitcoin 101’ on digital assets designed to work as a medium of exchange.
By DAVID ROSH PINABitcoin (Illustrative)(photo credit: TNS)
In their 2009 book Start-up Nation: The Story of Israel’s Economic Miracle, Dan Senor and Saul Singer pointed out the two major factors that, in the their opinion, contributed most to Israel’s economic growth. Those factors were mandatory military service and immigration.Those two same factors make Israel a unique place for the development of cryptocurrency and its new disruptive technology. On the one hand, the IDF has a state-of-the-art intelligence force that produces highly qualified tech experts, and on the other immigrants are not averse to start from scratch. They are by definition risk-takers. A nation of immigrants is a nation of entrepreneurs.I would add a third ancestral reason for Israel’s unique cryptocurrency scene. State persecution throughout the centuries forced Jews to become experts in intangible assets. That is why they created the first stock exchange in Amsterdam and, centuries later, descendants of those same Portuguese Jews signed the Buttonwood Agreement in the street of the wall and created a second stock exchange in New York.In fact, Israel deserves the designation of “start-up nation” due to the large amount of successful tech companies it hailed, such as ICQ, Wix and Waze, to name a few. Despite having a population of just 8.1 million, there are more Israeli companies listed on NASDAQ than for any other country except China. Israel has a long list of major influencers in the world of cryptocurrency and blockchain technology. Israelis frequently talk about these matters – mainly the price of Bitcoin – but are they really aware of all the rules of this complex new world?Cryptocurrencies are digital assets designed to work as a medium of exchange using cryptography to secure the transactions, control the creation of additional units and verify the transfer of assets. They are revolutionary because their decentralized nature releases the investor from the banks which charge for each transaction and governments who print money out of thin air.Cryptocurrencies and the blockchain transaction ledger represent a fundamental transformation of money that radically and disruptively changes the oldest technology we have in civilization. It does so by altering the architecture of how we interact with money into one where every participant is equal. There is no centralized authority sanctioning deals. A transaction has no state or context other than the consensus rules of the network that no one controls. In this new structure, your money is yours and you control it through the application of digital signatures. No one can censure it, no one can cease it, no one can freeze it, no one can tell you what to do or not to do with your money. It is a system that is simultaneously transnational and borderless, and we never had anything like it before. There is nevertheless a golden rule in this new system – you only own your bitcoin if you own your private key, i.e., a code that you receive that allows you to move your funds. Investors ignore the golden rule and think the public keys they are given in exchanges makes the funds they purchased their own. Nothing could be further from the truth. Case and point: Mt. Gox.In 2010 programmer extraordinaire Jed McCaleb, the creator of Ripple and Stellar, decided to launch a bitcoin exchange with an Internet domain he had purchased in 2007 to trade “Magic: The Gathering Online” cards like stocks. For most of Mt. Gox’s customers, it was their first gateway into bitcoin, their first experience with cryptocurrency. But the exchange had been built quickly, not very professionally, and was ill equipped to handle the challenges of a global currency-trading platform. McCaleb is known for starting projects and soon after losing interest, so in 2011 he sold Mt. Gox to the French programmer Mark Karpelès.Things went well until March 13, 2011, when people began to notice that bitcoins were missing from their Mt. Gox accounts. It seemed that someone had hacked the system and pilfered a large number of coins – reports put the amount at anywhere from two thousand to half a million coins; though Karpelès said it was a thousand.This episode was a huge breach of trust between the company and its clients, but because there was no other exchange, people kept putting money on Mt. Gox as they would put in a bank. By 2011, the exchange was handling 80% of all bitcoin trading. People were putting money in an untrustworthy exchange hoping for short-term gains, and were not even getting their private keys.By its own account, Mt. Gox got hacked twice in three years and ultimately lost 650,000 customer- owned private keys. That, together with the previous seizure of its US bank accounts, led to the bankruptcy of the company in 2014.
Investors thought the bitcoin they had in Mt. Gox was theirs, but that, like the golden rule teaches us, was an illusion. Those funds belonged to Mt. Gox and ended up in a hacker’s account. Nowadays investors make the same mistake, thinking the cryptocurrency they buy on Coinbase, Kraken or Bitfinex belongs to them, like the money they have in the bank.It doesn’t.So, be aware, you only become a true blockchain investor when you apply the golden rule, i.e., you own your private key.
