Gangster Profit

Business and Marketing Web Radio Show featuring Robert MacDonald and Kevin Bombino

Episode 030: Bitcoin Part 1

Filed Under: Internets, Length: 15:31
The guys talk about Bitcoin, an exciting new online currency.


K: Hello.

R: Hey there.

K: Alright, guys. We want to talk to you about something kind of new and interesting. A little bit different from our usual topic. We want to talk about Bitcoin.

R: Bitcoin’s fucking awesome. It’s our favourite new currency.

K: Yeah. If I had to pick my favourite alternative currency, it would be Bitcoin.

R: It would at least make the top 10.

K: Oh yeah. So you were probably asking yourself, what is Bitcoin? Bitcoin is a new peer to peer distributed currency system. It’s kind of similar to virtual gold, if you could imagine that. Basically, Bitcoin kind of arose from, I would imagine it, fairly common complaint that has frequently been levied across different governments across the world that governments are manipulating their currency more than ever. And it is really fucking with the economies of, really, the whole world.

R: Yeah, absolutely. Especially as the economy of the world kind of becomes one world economy rather than national economies and things like that. And as all of these currencies are more and more competing with each other and it just seems like all of these different companies are starting to...countries, not companies...are like inflating their currency and...

Well, back in the day, everything used to be backed by gold or silver or something that was real. You can actually go to the bank and hand in a dollar bill and get a pro-rated amount of gold in exchange for that. And that was awesome because that meant that money actually counted for something.

At this point, the only value behind the dollar is the fact that people are willing to accept it. There’s nothing that says that a dollar can’t drop in value by a hundred percent tomorrow because there’s no one who’s actually promising to give anything in exchange for a set dollar.

So, that’s why a lot of people are investing in things like gold and silver and other limited resources because they can’t be inflated. So, all these quantitative easing that the Fed is doing and things like that, it’s just inflating the dollar like crazy. And the only reason that commodity prices haven’t gone up more than they have is because people just have faith in the dollar. There’s no real underlying reason why we’re not in a more inflationary period than we are.

K: Yeah. And just to say that in simpler terms. What we’re basically saying is that the government, the federal government, the Fed, the Federal Reserve, can more or less print dollar bills whenever it wants. So, right now, there are certain amount of dollar bills in circulation, but there’s nothing preventing the Fed from printing twice that many tomorrow if they were to want to.

R: Exactly. Now, there’s a lot of talk about, right now, the Fed potentially defaulting for a certain period of time, we’re not paying off different things if they can’t raise the debt ceiling. There’s all sorts of crazy things going on. Not to mention the problems that Greece is having and the possibility of the Euro getting inflated. It’s all craziness. And the whole world is kind of sitting here, wondering what’s going to happen to all these different currencies.

K: Well, basically, the problem is that these currencies are controlled by just a few people. And a few key decision makers can more or less make a decision about this currency that will affect everyone who’s holding it. So, if a few people in Washington...if they kind of decide to inflate the dollar even a large amount, it kind of’s basically stealing from everybody who’s holding that dollar.

R: Exactly. Now, this is why we like Bitcoin. What is Bitcoin? Bitcoin is a digital currency. So, basically, you can trade in dollars for Bitcoins or whatever. And there’s a limited number of them. So, at a acertain point, how many? Like, 20 something million?

K: I think it’s capped at 21 million.

R: Yeah. Once 21 million Bitcoins are discovered or created, there’s never going to be another Bitcoin created after that. So, it’s a limited resource just like how gold is a limited resource in terms of they can only have as much as can be mined out of the ground. And at that point, it’s done. So, the value will stay steady, just like anything else. It can’t be inflated.

So, the great thing about Bitcoin, though, is that it’s extremely easy to store because it’s free to store on your computer, unlike gold, which you have to hold somewhere. Keep it in a safe. There are storage costs and things like that.

Another amazing thing about Bitcoin is that it’s totally private. The transactions are completely anonymous. It’s just like the bit torrent file sharing network out there. So the reason why people can share music for free and get away with it and not get arrested or traced back to them is because bit torrent is totally anonymous.

Well, that’s the same way that Bitcoin works. Once you make a transaction, it’s completely irreversible and nobody knows who’s the other side of that transaction unless they give you their specific Bitcoin address. So that’s a pretty cool benefit.

K: Yeah, absolutely. Furthermore, Bitcoin is a completely decentralized system. So, it’s not that there is a central Bitcoin office somewhere making decisions. Rather, what there is is the Bitcoin protocol was written out in a paper back in 2009. And then there was an official Bitcoin client, a program that runs on your computer, that was written to those specifications. But beyond that, these programs don’t talk to any central database, they just talk to each other and they follow the rules that were set forth in that paper.

So, there’s no single actor that can ever change the rules of Bitcoin. The rules are set in stone and the way that the money works will always be the same. The way the system is built...the only way that there could ever be a change to the protocol is if over 50% of the Bitcoin users endorse that change, which in practice, would be highly unlikely to make happen.

R: Because it’s so distributed.

Okay, so another thing about Bitcoin that’s awesome. At this point, there are no transaction fees. So, you know how, if you’re a merchant, Visa and Mastercard, American Express, will take 2-3%, usually, of every single transaction that is made online.

So, if you’re an online merchant, that really sucks. It really racks up, especially if you’re selling expensive items like we do on some of our sites. We spend, literally, thousands of dollars a month in transaction fees just to these companies that have somewhat of a monopoly on the market.

So, Bitcoin doesn’t charge us transaction fees. And you can easily accept it online. So, if more and more merchants become willing to accept Bitcoins, it will be great for them because their expenses will go down. And it will be great for the consumer because it’s more convenient and it will end up...the cost of goods will probably go down by a couple percentage points just because of that.

K: Yeah, absolutely. Just to clarify, there will eventually be transaction fees charged by the Bitcoin network, but they’re going to be a way, way, way, way, way, way lower. And they’re going to be a fixed fee per transaction, as opposed to a percentage. And we’re talking a couple of pennies.

R: And where does that transaction fee go again?

K: It goes to the miners.

R: Right. It goes to the people who are a...well, mining is another issue that we can talk about probably in a separate podcast, but these are the people who are donating their computer resources to the network so that Bitcoin can basically operate. So, it’s just enough of a percentage spread to pay these guys off so it’s worth their time to keep Bitcoin running. And that’s also a very distributed thing.

K: Right. We should basically talk about...the security of the Bitcoin network is basically ensured by having thousands, or probably, tens, or maybe even hundreds of thousands of machines that are constantly running on what’s known as a cryptographic proof of work problem. Which basically means that these computers are constantly spending CPU cycles validating the integrity of the Bitcoin network.

So, in what keeps the network secure is that it’s designed in such a way that people are spending their CPU cycles validating all the previous transactions. So, the only way that you could “mess with history” is if you had more CPU power than the rest of the network combined, which, in practice, would be pretty hard because there are like hundreds of thousands or millions of computers that are crunching on this network.

R: Yeah. Are there any other benefits of Bitcoin that we can think of right now?

K: Well, I think we should mention that getting your money in and out of Bitcoin is not that hard. There are a number of exchanges that let you exchange Bitcoin to and from a number of different currencies. US dollar being the biggest one, but there are also exchanges into pounds, euro, second life dollars and a number of other things.

R: Yeah. Another really good thing is that it’s nearly instantaneous transactions. It only takes like...what is it like, 15 minutes or so for transactions to clear.

K: Well, basically, yeah...on average, they should clear within 10 minutes once the first block is generated after the transaction, but it does...but you do want to allow a few more to allow the transaction to confirm itself.

But the other thing is that all the history of all the transactions in an anonymous format is available. So, anyone can download the entire transaction history and audit it themselves if they want to to prove that no Bitcoins are being created outside of the rules or are disappearing or anything like that.

R: Yeah. I mean, just in terms of something like a wire. You know, wire transfers cost like $25 or something like that. Sending something in Bitcoin is equally irreversible to a wire transfer and it’s completely free and instantaneous for the most part. So, it sure beats the hell out of sending money through a bank, if everyone is willing to accept it and use it.

K: Well, that’s a very...another valid point. Is that all transactions are irreversible. There is no central authority that anyone can appeal to for a charge back or any kind of reversal of a transaction. So, that’s another reason we think that merchants are really going to love Bitcoin is because a lot of merchants in industries that are high risk for charge backs will be...I think we’re going to see them embracing Bitcoin first because Bitcoin does not have charge backs at all.

R: Yeah. There’s a lot of merchants that have extremely high fraud risk. If people are buying extremely expensive products from them with a stolen credit card, that sucks for the merchant because it’s going to get charged back. The merchant is now going to get charged for the goods that they shipped out, but they’re also going to have to refund all of the money. So, charge backs are extremely expensive, if you aren’t a merchant. If you are a merchant, then you already know that.

And so, this completely removes the threat of charge backs to a merchant. Now, granted, if you don’t trust the merchant, then there could be a shady merchant out there that was accepting money and not returning it. But for the most part, if you have any kind of trust in the merchant and people that you’re buying from, they’ve got good reviews on whatever, eBay, online, whatever, and you have no reason to question the fact that they’re a reputable merchant, then this is an extremely good way for people to be doing business.

K: Yup. Just a few other things I’ll throw in there. So, right now, the current market capitalization of Bitcoin, what that is the US dollar value of all of the Bitcoins that are currently in circulation, as valued by the last trade, is about a hundred million dollars.

So, this is not a small experiment. There’s a pretty good amount of real world money that is in Bitcoin right now. And something like a good half a million to a million US dollars is traded in and out of Bitcoin every day.

R: Yeah, it’s pretty exciting. And the numbers keep going up, especially as more and more newspapers start to do stories on that. I mean, they were on the cover of the New York Times one day, weren’t they?

K: Yeah. They’ve been on Time magazine. They were on WNYC radio today, I believe.

R: I think they’re in Business Week. Most major publications at this point, I think, have at least done some kind of a story on them over the past 2 or 3 weeks because it’s really starting to blow up. So, it’s pretty exciting.

It’s a good investment opportunity too because the value of the Bitcoin has been pretty much skyrocketing over the past few months. I mean, it was at 50 cents like 6 months ago. And at this point, it’s somewhere around $17. So, it went as high as $30 at one point, then it kind of dipped down a little bit, but we’re seeing a lot of price support around $12-15 range. And we think that it’s going to keep going up and not necessarily go down.

K: Yeah. We’re highly bullish on the Bitcoin because of all the fundamentals we just laid out for you. I mean, the technical indicators look good on their own. I mean, it’s a chart that’s skyrocketing up, but we also think that the fundamentals are strong.

R: Yeah. So, at the very least, look into it. See if you might want to use it for something, for your own transactions, but it’s also a fantastic investment. We think that it’s, at the very least, worth investing some cash into buying a few Bitcoins just to see if the value goes up because it doesn’t look like the value’s going to be going down that hard or at least it doesn’t seem like it does. And there’s a lot of upside potential.

I mean, right now it’s at $17, but we’ve seen a lot of people predicting that they think it could be above $100 or potentially even upwards towards a $1,000 if enough people start accepting this currency. So, right now, we’re in the very early stages of it still. And it’s definitely worth taking a look at.

K: Yeah. We’re going to be back with a few more Bitcoin related episodes in the near future. So, keep thinking about it. Study it. There’s a few sites. is the main site. has a lot of interesting details on it. And if you‘re interested in the technical charts of all the conversions.

R: Yeah, absolutely.


Next Episode (in order):