Dave Cain: Welcome to unsuitable on Rea Radio, the award winning financial services and business advisory podcast that challenges your old school business practices and their traditional business suit culture. Our guests are industry professionals and experts who will challenge you to think beyond the suit and tie while offering you meaningful modern solutions to help you enhance your company’s growth. I’m your host Dave Cain. As you already know we like to tackle some pretty big topics here on unsuitable. Sometimes they’re controversial, sometimes they’re profound, and sometimes they’re very complex.
Today’s show is rooted in the latter, very complex topic today. Everything is digital these days. Even if it’s not digital there are digital measures in place to protect our assets. Additionally it seems like every day there’s something new to learn and new terms being coined which brings me to today’s topic, cryptocurrency. We have a professional crypto miner with us today, an anonymous guest. And he’s here to shine some light on the subject and walk around how mining is actually done, what security measures should be in place to protect your cryptocurrency and how to keep track of your investment. We have a lot of questions so let’s get started.
Welcome to unsuitable, Dr. Anonymous.
Dr. Anonymous: Thank you, Dave, I appreciate that.
Dave: So we want to get started. This cryptocurrency is new to all of us and of course new to me. I had a recent situation where we had a client at … his computer information had been compromised and they were being held ransom and they had to find some cryptocurrency. And I’m like, “Wow, that’s pretty crazy.” And so that was my kind of first real live introduction to this crypto bitcoin thing and you’re gonna be here to shed some light on this.
Dr. Anonymous: That’s right.
Dave: So you know a lot of times when we start talking about Bitcoin and cryptocurrency you know there’s this misnomer that it’s part of the dark web or something illegal. So help me out with that, are we-
Dr. Anonymous: Yeah so I would say that it was the main uses for Bitcoin and Ethereum and different various cryptocurrencies in the past has been for nefarious uses. There’s been websites that have been set up where the only way to pay for things was through Bitcoin. And the things that they were selling on these websites were just like drugs and other illicit things. I think those days are mostly gone. I think there are some websites probably where you can find that stuff, I’ve really not found them. Now it seems like people mostly use them for investments, developers use them as a way to pay their employees and things like that.
Dave: Oh, okay. So now we can kind of get the old school out of the way, the old stuff out of the way, the old thought that this is legit stuff.
Dr. Anonymous: Yeah, that’s right.
Dave: So Bitcoin is the cryptocurrency that’s tossed around a lot. You’d mentioned that’s just one of many.
Dr. Anonymous: There’s probably at least 1,500. I’ve heard as many as close to four or five thousand different tokens and coins that are in circulation right now. The vast majority of them are set up by individuals or small companies that may not have a whole lot of backing to them. It’s just a guy with an idea that circulates some coin and people in the rush of things begin to invest in it. There’s a lot of risk there. It’s a bit of a Wild West overall. There’s really just a lot of market speculation. People getting into cryptocurrency really not knowing a whole lot about it. And so sometimes you do well on some of these coins, sometimes you really don’t. You know some people have lost quite a bit of money on that.
Dave: Sure. I heard a case where a guy made a bet on the Super Bowl was still waiting to get his bet paid off with cryptocurrency.
Dr. Anonymous: That’s right.
Dave: I think he’s still waiting. And probably went Bitcoin.
Dr. Anonymous: He may be waiting for a while.
Dave: So how do I find out about whether the one piece of currency is better than the other? Is there a website I can go to?
Dr. Anonymous: Well there are some websites. If you’re interested in investing there is some … probably the best website that is like a collection of other websites. So there’s like a curator of a website that will search a bunch of other websites. So I would recommend it is Jameson Lopps, J-A-M-E-S-O-N L-O-P-P-S. He’s got a website. What he essentially does is curate a number of other different videos, podcasts, investment sites and kind of list them all on a webpage for you. You can kind of click around in there to figure out what is Bitcoin all about, what is Ethereum. When we talk about cryptocurrency Bitcoin is the original one that was started back in 2009. It’s really not even sure … there’s a mysterious figure, a guy named Satoshi Nakamoto, originally came up with a code behind it. Now it’s not really clear if he’s just a single person or if he’s just a conglomeration of a number of people, it’s really not clear. No one’s really come forward and credibly identified himself as a creator of Bitcoin.
However, be that as it may, a person or a group of people created the code that’s been accepted over the past seven, 10 years now and it’s in pretty wide circulation. People use it to buy things. In other places where the currency is not quite so stable it’s really kind of used as a store of wealth. You’d get whatever kind of assets you have you would instead of storing your money in local currency you would store it in Bitcoin because it’s not as subject to inflation and things like that.
Dave: You know you use the term coin in currency which leads me to believe I can reach out and touch my coin and currency.
Dr. Anonymous: You cannot touch Bitcoin.
Dave: Put it in the wash … I can’t touch this stuff, huh?
Dr. Anonymous: You cannot touch Bitcoin.
Dave: So this is just kind of a … just out there.
Dr. Anonymous: It’s out there, yeah. It is out there and you keep … so there’s a number of things that go with that. My wife and I we mine Bitcoin and Litecoin. There’s a couple different sort of major currencies that people typically mine. And there’s a whole complicated process and we can talk about that if you want. But one of the things that’s challenging about cryptocurrency is finding a way to store it so that you don’t lose it. You can sign up for different exchanges like Coinbase and Gemini and buy some cryptocurrency there. However you don’t really wanna store your currency there because it’s subject to … you know if that particular exchange gets hacked by hackers they can take all the coins and then you’re left hoping that the exchange would reimburse you and typically they don’t.
Dave: So the hackers can take the coins then aren’t really coins.
Dr. Anonymous: That’s right, yeah. Digital coins, it’s digital currency.
Dave: Digital currency. So again as kind of a novice investor number one I hear you saying is be careful of the risk because it can be gone in a heartbeat if it’s not taken care of correctly. And we’re gonna talk about mining here in a few minutes I just wanted to kind of set the stage with some of the Bitcoin and digital currency discussions. Regulations, is this currently being regulated by any regulatory?
Dr. Anonymous: Yeah there’s a number, and I don’t have all of the figures with me right now. It is becoming more of a regulated industry overall which I think is a good thing. The IRS really wants to keep track of who’s making money off these coins. In the case of mining who’s mining them? Actually creating property out of thin air. So they wanna keep track of that so they can properly tax it. There’s a lot of government regulation that is gonna be coming I would anticipate in the sense of tracking who is creating new currencies. They’re really looked at as an investment vehicle and it’s looked at as a security. So they’re gonna be subject to the various securities laws.
Dave: So again we look at this as an investment. In your vast experience is this ever gonna be traded on the stock exchange, the digital currency?
Dr. Anonymous: No. Right now it’s traded on a number of different exchanges right now. And they trade 24 hours a day. It’s not subject to the stock market where it’s only-
Dave: Close at four, closing bell.
Dr. Anonymous: And then you’re done, from nine to four you’re done.
Dave: 24/7.
Dr. Anonymous: There are holidays off. So cryptocurrency’s mined 24/7. And there’s a number in the US you have Coinbase, you have Gemini, you have Kraken. There’s a lot of exchanges in China. Actually I mean the majority of the trading that takes place is not even here in the U.S. it’s overseas.
Dave: So it’s worldwide currency. Now again as you talk investors and we talk about exchange rates how are you converting it to the U.S. dollar or is that not-
Dr. Anonymous: It’s at market, yeah.
Dave: It’s at market, okay.
Dr. Anonymous: It’s at market and so you can at any time go onto the various exchanges and figure out what the market rate is. And it’s typically pretty close. All the different exchanges typically have a similar rate for that day or that hour that you’re looking at cashing in.
Dave: Again thinking futuristic on unsuitable here. Could this someday replace banking?
Dr. Anonymous: I don’t know if it will replace banking per se, but as a store of wealth that could be a little bit more stable than some other governments and as possibly an investment vehicle I think it might be another alternative to the stock market or whatever else, real estate, or whatever else people want to invest in.
Dave: Sure. Now what can I buy with Bitcoin?
Dr. Anonymous: There’s a lot of things.
Dave: Can I buy groceries on the way home?
Dr. Anonymous: I don’t know if you could buy groceries on the way home, yet. Maybe at some point in the future you will. However there are certain companies and certain websites that are set up that you can buy certain products there. We typically don’t really do a lot of our buying so we’re not as familiar with the different things that you can buy. However I know I’ve been to some of the websites where you can buy certain things. Not illicit things but regular kind of products.
Dave: Does Amazon take Bitcoin?
Dr. Anonymous: Amazon does not take Bitcoin yet. It might at some point.
Dave: I bet they will. So yeah is there such a thing, okay is there such a thing as a Bitcoin or currency ATM machine?
Dr. Anonymous: There are. In Columbus, I’ve not been to them, but there are places where you can go even here in Columbus where you can take your cash, put it into a Bitcoin ATM and convert it to Bitcoin. So for example if you’re here and you’re an undocumented foreign person and you want to transfer money back home to your family it would be a cheaper and probably more efficient way of doing it than using Western Union or something like that.
Dave: Okay so just a new way of doing business.
Dr. Anonymous: It is.
Dave: So can I buy a car with Bitcoin?
Dr. Anonymous: People have bought cars, people have used cryptocurrency as down payments for houses. There are some houses that are listed for sale not in U.S. dollars but in certain amount of Bitcoin. I think there’s a house in Florida, sorry California.
Dave: Bitcoin?
Dr. Anonymous: Yeah.
Dave: Yeah. Okay so I want to talk about mining. You talked about some mining earlier and we want to kind of bring in a couple other terms, blockchain. So let’s start with you’d mentioned … or we mentioned in your introduction of Dr. Anonymous that you’re a crypto miner.
Dr. Anonymous: Yeah.
Dave: Now what does that all involve?
Dr. Anonymous: So we have a number of miners set up that mine cryptocurrency. Specifically they mine Bitcoin and Litecoin. You buy specialized equipment for this. They’re essentially application specific integrated computer machines they call them ASICS and they’re dedicated to nothing else but mining cryptocurrency. We have some for Bitcoin, we have some for Litecoin. And there’s companies that are mostly in China that specialize in just making these machines. Bitmain is one, Canaan would be another one, they have a whole range of different products that mine different types of cryptocurrency.
Dave: And so this would look like a laptop.
Dr. Anonymous: It doesn’t look like a laptop. It’s essentially a box that’s rectangular, that’s got fans on both sides, on both ends of it. The reason for it is they get very hot. A couple features about any sort of miner that you buy is that it’s very loud. They run very hot. Especially for Bitcoin you have to … part of the operational considerations for having a mining operation is to deal with the heat, you have to keep these things cool. And they produce so much heat by themselves that you have to construct adequate ventilation to run the hot air out or if it’s in the winter time then you can recirculate the hot air into the facility. And it’s very loud. So you have to keep that in mind if you have offices nearby or things like that. Then you have to kind of find ways to set up acoustical material to keep the noise down.
Dave: So if I buy a machine I’ve got to be prepared for my electric bill to go sky high.
Dr. Anonymous: You do. And typically what we’ve done with the machines we have, at least with the Bitcoin miners on a 220 circuit which means that you can’t just plug it into a normal outlet, you need a higher … electrician to upgrade some of the wiring in your house and put in a new … what we’ve done before is dedicate a certain panel just for that use.
Dave: How much does a mining machine cost?
Dr. Anonymous: Well now so the prices have gone down. I think you can probably get a Bitcoin miner for between probably 1,000 to $500 or so per miner.
Dave: Per miner.
Dr. Anonymous: Per miner, yeah.
Dave: So one machine’s a miner.
Dr. Anonymous: One machine is a miner. And if you have a number of them put together colloquially they call it a mining rig.
Dave: A mining rig, okay. So we go miner, mining rig. Do you have a mining rig?
Dr. Anonymous: We have a mining rig, yes.
Dave: Okay so do these mining rigs run 24/7?
Dr. Anonymous: They run 24/7.
Dave: 365?
Dr. Anonymous: 365. And they’re specialized in the sense that if there’s an outlet … well so out in the neighborhood for example last night there was a storm that came through Columbus that was a bit of a blip in the electrical at the house, I think lighting came through. So the miners will go down and they’ll restart themselves automatically.
Dave: Okay. So you can … these things are working while you’re sleeping?
Dr. Anonymous: Yes.
Dave: Working while you’re working your day job.
Dr. Anonymous: Yeah, that’s right.
Dave: So when do you peel off the profit of these machines?
Dr. Anonymous: You can peel them off pretty much whenever you want them. One of the considerations are with these things is that there’s so many miners in operation right now that the chances of your particular miners actually being able to mine Bitcoin by themselves are eventually so, so negative, so small that it’s not really going to be a possibility. So what you do is you join a pool and the pool will have 100, 100 some odd thousand, 150 thousand other miners in that pool and the pool itself will every now and then mine some Bitcoin or some Litecoin and you’ll get paid in Bitcoin your proportionate share. It’s all dependent on your computational contribution that your miners make. So for example if you have 10 Bitcoin miners then they’re contributing to a certain hash rate to the pool overall. And then you would get as a payment you would get a certain proportional amount.
Dave: A little bit of commission.
Dr. Anonymous: Yeah. That’s right.
Dave: And then that goes into a virtual wallet.
Dr. Anonymous: It goes into a virtual wallet that’s on the pool’s website and the objective is to get it off there periodically. And this has happened before with other pools is that if the pool gets hacked and all the crypto gets taken off the pool you’ve just lost all the crypto that you have there. So you want to try to get it removed from the pool. And there’s a number of ways to do that. You can store it a cold storage where you have it just totally off the internet all together, that’s probably the safest way of doing it. You can even store it on paper, there’s a public key and a private key associated with each coin and as long as you have those credentials you’re good to go.
Dave: Have you ever been hacked?
Dr. Anonymous: Have not been hacked.
Dave: Knock on wood, that’s great.
Dr. Anonymous: So far so good.
Dave: That’s good.
Dr. Anonymous: Yeah.
Dave: So let’s … we started you were talking about the risk, there is some heavy duty risk here in protection. And let’s talk about how to protect this digital currency. And is this where the blockchain is now introduced?
Dr. Anonymous: No. So the blockchain is the public ledger that keeps a record of all the transactions for in the example of Bitcoin, all the transactions that have ever taken place that’s where that record is kept.
Dave: That’s the audit trail so to speak.
Dr. Anonymous: Yeah so the way that mining works generally is you get paid for doing two things. One is keeping track of all new transactions that happen on the blockchain. If for example if I were to transfer some Bitcoin to you that would be a transaction. It would be a transfer. And so my miners all the rest of the miners on the network will keep track of that. And for doing that work for us in our transaction and tens of thousands of other transactions that take place I’m sure every day they get rewarded. So for doing the work of keeping track of the ledger you’re given the opportunity to participate in the release of new coins. So every 10 minutes there’s probably something like 12 and a half new Bitcoins that gets released. And the winner is based on whoever can solve a certain complicated algorithm. And I think as far as, this is where my knowledge of it kind of breaks down, but there’s an algorithm that your miner would need to solve and it’s a bit of a guessing game. But if it can guess the right answer it will get rewarded out in Bitcoin.
Dave: And that’s the level of protection, that’s one level.
Dr. Anonymous: Yeah, sure.
Dave: So let’s say I wanna get in the market, I wanna invest. Would I talk to someone like yourself and open an account with you?
Dr. Anonymous: No that’s really not so much with us. I would be just like anybody else that would be buying some Bitcoin. So if you’re interested in buying some Bitcoin probably or any other different cryptocurrency I think the place to start is to do as much research as you can on which coins might be the best and make a market decision on, “I think these coins are the best.”
Dave: So on the cryptocurrency is the game, the strategy, is to move that Bitcoin or currency quickly or hold on to it long term?
Dr. Anonymous: Well with any market investment I think the objective is to buy at a price that’s low and sell at a price that’s high. And so for us I think the objective is to keep it for a while-
Dave: So hold on.
Dr. Anonymous: Yeah, hold on. There’s principles like dollar cost averaging. So you can dollar cost average your way into your purchase of Bitcoin so you’re not really exposed to risk. Cause you don’t really know, today Bitcoin’s at a certain price, you don’t know if tomorrow it’s gonna go down, if it’s gonna go up. It’s been as high as close to $20,000 in the early part of January and then it fell back down to just about $6,000 probably in March.
Dave: So in your position as you have a mining rig this is a business, this is not a hobby.
Dr. Anonymous: Yeah it’s an extra source of income for us and we treat it like a business. We have it under a company name and we operate it as a business.
Dave: Sure. How did you get started in this? Just very interested?
Dr. Anonymous: It’s a funny question. My brother had been talking about Bitcoin and cryptocurrency for a number of years and then I was out on vacation in Seattle, went to visit him, and he persuaded me to open up an account with Gemini and buy a little bit of Bitcoin and Ethereum, this would have been in July of last year. And then we watched the price go up significantly from July through December so we decided to invest more in and to start a mining operation.
Dave: And you were hooked.
Dr. Anonymous: Yeah.
Dave: And away you go.
Dr. Anonymous: So far, so good.
Dave: So again the key there is that legitimate business, runs like a business, have the security in place and the processes in place and it gives a little more comfort when we talk about cryptocurrency.
Dr. Anonymous: That’s right.
Dave: So our guest today has been Dr. Anonymous talking about the crypto and currency. Thanks again for joining us today on unsuitable, very informative. And we’re gonna have to have you come back. We just touched base on a few of the basic concepts and very informative.
Dr. Anonymous: Thank you very much.
Dave: Listeners I hope you were able to get something out of today’s conversation about cryptocurrency. I know I did. That said I’m sure you have way more questions. Send them our way by podcast@reacpa.com and our team here at Rea will work to find the answer. And who knows we may just feature it on a future episode of unsuitable. Be sure to join us next week when we will keep the Bitcoin party bumping with Melane How, one of our rock star accountants here at Rea & Associates. Melane will drop some real talk on us about Bitcoin and taxes because after all if you’re making money you can sure bet that Uncle Sam wants a cut. You like our podcast let us know. Follow us on social media and subscribe to unsuitable on Rea Radio, on iTunes or anywhere else you get our podcast. Until next time I’m Dave Cain encouraging you to loosen up your tie and think outside the box.
Disclaimer: The views expressed on unsuitable on Rea Radio are unowned and do not necessarily reflect the views of Rea & Associates. The podcast is for informational and educational purposes only and is not intended to replace the professional advice you would receive elsewhere. Consult with a trusted advisor about your unique situation so they can expertly guide you to the best solution for your specific circumstance.