Bitcoin 101 - NU's Ed Hutton


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And Hutton joins us live in studio he is the director of the financial markets laboratory at Niagara university at work. Trying to wrap our heads around your coin this morning lol why don't we start with this. I where. Should people start if there are looking into putting some of their money. In bitcoin what's the the first piece of information they should look at. Well the first. Think that people should look at is that for most people this is not really a good investment. Okay that's that's the very first thing this is not like investing in stock some like investing in a bond or even investing in. A collectible. Here I would go back and and if people remember baca. 120 years ago or so this idea we had these things called beanie babies. And these were cute little collectible toys in the whole idea was that there was a certain. Limited. Addition of certain only babies writer of that and so people would go out. And they would say well I got this particular beanie baby and I just heard that it sold for. 5000 dollars or does that for my talents they're gonna pay for my cop that's right this is my retirement in these media days. And because that there was a limited supply of those people expected that the value would go up and so people actually investment. Windows. Has it turns out. There the company that made it said well you know what if these get to be valuable will just make more of them guy and the value cells and so. What we're seeing right now is that one of the things that's happening is that while it Coleen are rare there's a limited number of them. There's a lot of other digital currencies right now like ether and other types of things. Which basically it is do the same sort of thing and that's one of the things that's leading to the fallen. For most people this is not good investment. Joining us live in studio this morning is the director of the financial markets laboratory at Niagara university and Putnam were talking all about -- kind of up echoing 101. Now somebody's accident. Bitcoin it's backed up. Buying nothing. Was backed up by this thing called. A lot chain which had a I'm gonna explain to you my three year old as a college grass I'm watching basically a way of verifying transactions. And encrypting them. But the question I have is how exactly is that worth money. Yeah Willie did it again to try to give an analogy 0:4 am. What happens in blocked Tina let's think about getting a gift certificate is a feud might get it gets into the let's say don't coffee shop. And that gives her take it you know I got one of those cards. 2.5 dollar card to wanted to copy shots and I know that I can go and that coffee shop. And by eight point five dollars worth of coffee and ailments that sort of thing and that's backed up that's guaranteed. By the by the donut shop itself okay. And so I don't and I had some value that said that sonnet card. What blocked chain does is it octane realizes that there is a vulnerability there. Because if that coffee shop goes out of business then I don't have any valley. And did we if that coffee shop is somebody is for some interest did. Some reason interested in what kind of caught him by angle they can see get the records of that coffee shop where they can act in and they can learn an awful lot about me. What block changes is a really revolutionary technology that says instead of their being a central backer. For this you know like the coffee shop instead what we're gonna deal. Is we're gonna have everybody that hole has of those cards record. Every time I buy something. Or get more credit in an encrypted database and that's all it is it's an encrypted database I have the particular key. And I will then I have a particular amount of credits and if I go to spend those credits to exchange those credits with somebody else. They can use that key in sales Leo okay he does have twenty dollars. In purchasing power. Now where I was just saying before that I thought they'd bitcoin was not integrated investment I think they've these block change technologies. In terms of investment right now is probably going to be has significant some people say has the inner. Ed Hutton joins us live in studio he's the director of the financial markets laboratory at Niagara University humor talking all about bitcoin now and in our last segment. Trying to explain to us so little bit about block change basically the technology. Behind it bitcoin and how that translates into actual money. Say you have some bitcoin. How do you get the money. Out of it. Well that's that's where the problem has been right now is it do we saw that with the rise of because especially over the last year. The price of bitcoin rose dramatically over the last year and so what that meant that when we talk about what the prices are what we can do is we can look at. What his one bit calling sold four to somebody else. And so if there was a transaction where someone sold a bit calling for at one point last year as high as 191800. Dollars I believe was. That top so we we see that we see somebody sell one bitcoin for 191800. Dollars and if we have multiple bitcoin we think ourselves were rich. And well whenever we feel rich we wanna spend some of that money of course. There's not that many places that we can spend our pit coin and so what we wanted to do was that convert that into dollars. And in order to do that what happened just recently is that whole bunch of people tried to sell their bid calling. When you sillier bit calling you so lamented dollars but that floods the market. With bitcoin and there are no buyers are the buyers are not there. And the only way to entice a buyer is to dramatically lower the prices of what we're going through right now is that you might. Think you're wealthy but then when you go to convert debt into cash into art. The way you're describing it it seems like a stock but it's not this stock it's a form of currency. Which is this change this way we talk about it calling as more and more places. Accepted as they do cash and share their the where. It's really there really aren't ATM's there's just for security reasons for technology reasons for other types of things. We'll think about somebody in a remote village somewhere. Who might want to subscribe to Netflix. Well they don't have a credit card. In they don't have a credit cards so they can't. They they can't do that they have Internet access now a lot of places. So they wanna be able to subscribe to Netflix and they have to pay 1112 dollars a month. It's very difficult without a credit card to be able to do that boat with bitcoin that does allow someone to be able to to do that and so what we're starting to see is that there are more and more places. That especially. In areas that are not well served by banks that are starting to accept it and so. That's one of the places of course one of the other that dark side of bitcoin and block change is that because there's no central authority. It's were allotted some pretty nefarious transactions are attending to take place is is this concept. The way of the future. Even if it's not bitcoin if it's something else yet IE 88 I think it really years if you look at what's happening right now in the banking industry in the financial services industry. You'll see that one of their biggest concerns that people have right now is with packing. OK with people breaking into bank accounts transferring money. 80% of the transactions on the stock market right now are executed between computers. That right now instead of the into the physical traders we're seeing. And at some point even worse than it is there is going to be additional crashes are going to be additional hacks like that. And this block change technology when he gets fully implemented for a lot of people they think that that's the eventual solution. To that very very disturbed. Now is that move. It would make us safer. Would it also mean that. You know the dollar bills that too that I have left in my pocket don't exist anymore that you know even though we do pay for everything it's seems electronically now that I mean that would literally be everything is electronic well yet I need it Egypt and again just. Hey you were mentioning it here today if you anybody under thirty if you ask them how much money how much cash do you carry around. Now. It's it's just a few dollars you know a few dollars where it might have been. Many many dollars in the past here yes it's an electronic form of payments getting more and more. He's getting more and more used. The problem the problem is that did what happen especially last week is that we saw a number of countries. In China and in Korea now in Europe. Saying that they're thinking about putting very tight restrictions even outlawed in some cases the use of that client as a payment mechanism. Just because they can't track it and what it does is it leads to concerns about money laundering. Beck to bitcoin is it goes mainstream we're kind of doing a bitcoin 101 this morning with at Hutton who's in studio from Niagara University. Edit just got to bring this up that bitcoin as you're trying to help us all understand it it's been compared to gambling do you get that. We sure I do yet with the the problem with that. With gambling is gambling is speculation without anything really backing it up here and one of the things that they're trying to do right now with be calling is to be able to. Be able to have a mechanism to be able to determine its value. You know because anytime you wanna use anything in a transaction you wanna know what its value. And what it thinks it happens if we think about other things tickets they get traded like horror and oil and gold. Will they take place their trading takes place on organized exchanges and those organized exchanges do a lot. To be able to rein in the volatility reigned in the price changes so that even though it might change it changes in a more. Predictable pattern or more predictable range. And that's one of the things that's changing now with Pete Cowen is just a few weeks ago. The exchanges the Chicago Mercantile Exchange the Chicago board options exchange established. Futures contracts on bitcoin. So that what that did is that allowed you for the first time to be able to invest. Not in the bitcoin but rather into with security. Whose value was tied to a bitcoin. Wits and a pretty out stable and well known exchange so for a lot of the people who would want to make an investment in bid going. This gave them the opportunity not only to invest. Because they thought the price was going up. But also to sell short because they think the prices going down and hopefully what that's going to lead is a more stable price mechanism. We're talking about bitcoin and the technology behind it blocked chain with an Hutton director of the financial markets laboratory and Niagara University. Which really starting to understand I think the concept a little bit but bitcoin somewhat Colin digital currency virtual currency. It the the black chain that's behind it. That's there's there's a lot of pick points I guess is what I'm trying to say. Yeah there's a there's a lot of different types in and we don't really know which one will become idea. The most used it might be block it might be bitcoin it might be theory Eamon might be one of these other kinds of competitors and let them know that for awhile but. You can't ignore the fact that. The currency aspect of it although it's what's getting the most publicity right now that's only one part of this whole cons of the block change. And in order to understand why this is going to be so exciting I think it's gonna affect our lives so much in the next decade or so. Eight is too. Think about what one of the greatest threats is now to. But not just financial services but to our privacy and that is the fact that someone over the Internet ideas. Has the ability to be able to convince somebody their us. And so they get access to our records and again axis tour money and they gain access to whether it's our financial information or health information whatever and they can. Do us harm way it's very very difficult to deal approval we are with the block team does as the blocked chain is a mechanism that says. That we don't leave our information on somebody else's computer where it might get stolen but did what it allows us to do is for us to have total control. And it turns out that that's really what's so exciting. And it's gonna I think. Eventually completely change the way that we deal with people. Digitally. Eight instead of sort of having everything on the global computer that FaceBook computer. It will be distributed and it won't just be we're not talking just about money you mentioned medical records could be blocked Ali it could be it not just that not just our medical records but also. All of the emails that we've San all the communications weeks and all public. Post that we've liked on FaceBook all bar in eastern Graham. All those types of things right now we rely on it being on somebody else's computer where it's vulnerable. And what this block change does is that swat team says that. We are going to get the point where will control that through encrypted. Keys. And you envision in the very near future banks the Federal Reserve. Kind of switching to this block chain technology. Way to do business in right now I think that in the in this cyber security. Area right now which is it is one of the biggest worries that banks and financial institutions and governments. That blocked chain is being very very actively. Studied it and it's being actively implement and it it will buy I think I have believe have a very very profound effect that we we do business. And Hutton with us from Niagara University were talking about bitcoin and the blocked chain technology that's behind it. Ed on our text went Simon Says their father. They and their father bought a 101000 dollar bit coin when it was in the infancy stage it was only a hundred bucks for the lot. We can't find the wallet file. That's a real problem right. Yet that is a problem make of the way in which we hold bitcoin of course it's a it's virtual currency symbol we do is we hold it in digital wallets you know analysts think about a digital wallet is almost be an account. There and there's a whole bunch of different. Providers for those digital wallets where we hold our big court. The problem is that because of the decentralized nature of the big going and that's one of its advantages. If you do lose your pass to additional 800 number. There's no friendly person that you can go down the street in Sydney office and say hey listen. I lost my I need to I lost my a password and I need to get back in in my account. That's there is an element. So for bitcoin and this was the one thing I kept trying to wrap my head around through the last months of Reading up on it. Wondering how it relates to block him you know block chains there. Technology behind it Dick Cohen but. Does it translate to have value basically. Bitcoin is the reward. For all the people in their grudges or basements or wherever who are maintaining this. Big block chain technology well it's it's much more than just the garage said he didn't let. Happens is that in order. Bitcoin is being released aid when it was and originally created there was a limit that there would be no more than 25 million big coins issued. And so what happens is that the computer programs that are in this network release bit coins on a regular schedule. And the way that you earn a bit on its coal bitcoin mining. Until sounds like you're down digging it up or something but bitcoin mining is distributed out to the computers. That are contributing the most to the network and so what's happening now in different countries there are actually these. Big Coleen minds. And they're not mean people with lights on their helmets or anything else I get these are computer servers working. DA in and day out to process bitcoin transactions. The block chain. So that they earn those new declines that's how they get paid so bitcoin. Is a form of payment for people to participate. In the block chain network so forget apple pay for get paid pale. We're going this way well if apple pay and ended the underlying structures of those right now reliance on security protocols and won a lot of people think that. In the next decade or so or maybe even sort of the way things are going is that this will now become blocked chain technology. And the biggest threat to that again. He is security. And that this block team technology will lead vehicle models security concerns aren't while hopefully everybody learned a little bit something about big calling today at a Hutton is the director of the financial markets laboratory at Niagara University. And I think he did a great job of Britain in all downforce if.