The Bitcoin Big Bang

Get a handle on the digital currency revolution, and learn how to get on board

The Bitcoin Big Bang is a guide to navigating the uncharted territory of digital currency. Written by CNBC contributor Brian Kelly, this book goes beyond Bitcoin 101 to explain how this transformative technology is about to change the world. Digital currency is thrown into perspective against the history of payment systems and its own evolution, as readers are invited to explore the ways in which this technology is already changing the way business gets done. Readers gain insight into the mechanisms behind Bitcoin, and an expert perspective on digital currency's effect on the future of money and the economic implications of the Bitcoin revolution.

In the same way that e-mail changed the way we transfer information, the decentralized Bitcoin network is about to revolutionize the business world, the legal profession, and even the role of the government. The Bitcoin Big Bang dives head first into this paradigm shift, allowing readers to:

• Explore the origins of digital currency
• Learn the history and evolution of payment systems
• Discover how the Bitcoin network is facilitating free and instant transfer of value
• Understand the mining of Bitcoin, and how to invest

The digital currency revolution has implications that spread far beyond the finance industry. Anyone who exchanges payment for goods and services is on the cusp of the next big push in societal evolution, and only an understanding of the technology and a clear knowledge of the systems and behaviors at play can fully prepare us for the changes to come. The Bitcoin Big Bang is the go-to guide, helping those who use money use it better.

Preface xi

Acknowledgments xiii

About the Author xv

Chapter 1 Bitcoin Is a Bubble 1

The Quest to Buy Bitcoin 3

Bitcoin Enlightenment 6

Currencies Are a Matter of Trust 8

What Is Bitcoin? 10

Is It a Currency? 13

It’s Revolutionary 17

Chapter 2 Understanding the Digital Gold Rush 19

The Language of Bitcoin 22

How Do I Buy Bitcoin? 26

Who “Gets” It? 30

The Gold Rush Is Just Starting 31

Chapter 3 Bitcoin Is More than Digital Gold 33

Searching for Satoshi 34

Why Is Satoshi a Genius? 44

Bigger than Satoshi 46

Chapter 4 Byzantine Generals’ Problem 49

How Does Bitcoin Solve the BGP? 52

51 Percent Attack 55

An Elegant Solution 57

Chapter 5 A Decentralized Financial System 59

Grand De-Central Station 63

What’s at Stake? 69

Central Banks 72

Bitcoin Is the Catalyst 73

Chapter 6 What Do You Call a Bitcoin Miner? A Banker 75

How Does a Bitcoin Transaction Work? 77

What Is Cryptography? 78

Still Want to Be a Miner? 82

Do We Need Another Bitcoin? 88

Chapter 7 Nautiluscoin—0 to $1 Million in 60 Days 91

Creating the Coin 94

Did It Work? 104

Chapter 8 Building the Nautiluscoin Economy 107

Dynamic Proof-of-Stake 110

Other Policy Tools 113

Alternative to Gold 115

Money, Made Better 116

Financial Market Integration 117

Special Drawing Rights 119

Why NAUT? 119

Chapter 9 Investing and Trading in Alternative Currencies 121

A New Investment Class 123

Valuation 129

Exchanges 133

Investment Vehicles 134

Asset Class Growth 136

Chapter 10 Regulation 139

Regulatory Agencies 140

Challenges to Regulation 147

Pushing on a String 147

Chapter 11 Smart Money: Set It and Forget It 149

Rules of the Road 151

Smart Contracts and Property 152

Ethereum 155

Cryptoequities: A New Type of Investment 160

Decentralized Autonomous Organizations 161

Professor Money 162

Chapter 12 Everything You Know about Business Is Wrong 163

Cryptonomics 166

Growth Share Matrix 169

Learning Curve Effects 171

Porter’s Three Generic Strategies 172

Human Resource Management 173

Fueling the Sharing Economy 174

The Future Just Might Work 176

Appendix 1 Department of the Treasury Financial Crimes Enforcement Network Guidance
Fin-20 13-G00 1
Issued: March 18, 2013

Subject: Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies 179

Currency vs. Virtual Currency 180

Background 180

Definitions of User, Exchanger, and Administrator 181

Users of Virtual Currency 181

Administrators and Exchangers of Virtual Currency 182

Providers and Sellers of Prepaid Access 185

Dealers in Foreign Exchange 186

Appendix 2 New York State Department of Financial Services Proposed New York Codes, Rules and Regulations
Title 23. Department of Financial Services

Chapter I. Regulations of the Superintendent of Financial Services Part 200. Virtual Currencies 187

Section 200.1 Introduction 188

Section 200.2 Definitions 188

Section 200.3 License 190

Section 200.4 Application 191

Section 200.5 Application Fees 193

Section 200.6 Action by Superintendent 193

Section 200.7 Compliance 195

Section 200.8 Capital Requirements 196

Section 200.9 Custody and Protection of Customer Assets 197

Section 200.10 Material Change to Business 197

Section 200.11 Change of Control; Mergers and Acquisitions 198

Section 200.12 Books and Records 200

Section 200.13 Examinations 201

Section 200.14 Reports and Financial Disclosures 202

Section 200.15 Anti–Money Laundering Program 203

Section 200.16 Cyber Security Program 207

Section 200.17 Business Continuity and Disaster Recovery 210

Section 200.18 Advertising and Marketing 211

Section 200.19 Consumer Protection 212

Section 200.20 Complaints 215

Section 200.21 Transitional Period 215

Index 217

BRIAN KELLY is a CNBC contributor who regularly appears on Fast Money, Halftime Report, and The Kudlow Report. His 20 years of success in U.S. and foreign currency and equities trading have gained him enormous respect among the clients of his investment management firm, Brian Kelly Capital, LLC, which focuses on global macro and currency investing. Brian holds an MBA from Babson Graduate School of Business, with a concentration in finance and econometrics.

Bitcoin gained notoriety among the public when it was linked to global black market trading rings, but the technology behind Bitcoin makes it far more interesting than your average alternative currency. The Bitcoin Big Bang approaches Bitcoin from a more complex perspective than has previously been attempted. Brian Kelly, a currency investment specialist with over 20 years of experience, conducted extensive research into the Bitcoin revolution and discovered a potential for widespread social transformation.

An understanding of how Bitcoin is changing the future of finance, and even the nature of the Internet itself, is mandatory for anyone looking to invest in or prepare for new trading platforms. Uniquely, The Bitcoin Big Bang emphasizes the technological underpinning of Bitcoin—the “blockchain.” Whether Bitcoin is or isn’t a legitimate currency is, according to Brian Kelly, next to irrelevant. With its ability to record every Bitcoin transaction and securely transfer value over insecure networks, the blockchain is a game changer. A world without identity theft, an Internet without passwords, a decentralized financial system, self-securing investments—all these previously unthinkable advances are possible using a technology that was given away for free by an enigmatic developer.

Those who are interested in investing in Bitcoin through purchasing or “mining” will find enough information to get started in The Bitcoin Big Bang. However, this book goes further than Bitcoin 101. Business readers will appreciate the in-depth look at regulatory issues and the discussions of cryptography, business strategy, human resource management, and the sharing economy. This is the long view. Looking beyond the bubble to the new reality of digital currency trading is a move any smart investor ought to make. Ultimately, The Bitcoin Big Bang answers one of the most pressing questions in finance, business, government, and beyond: “What is Bitcoin and how will it change the world?”