by Leiby Burnham | December 8, 2017 1:37 pm
With Bitcoin recently hitting a high of about $19,300 per coin, it’s finally time to talk about Bitcoin. What is it? Where does it come from? What is the blockchain? Is it a scam? How does it work? And why are people willing to spend close to $20,000 for something they can’t touch?
In October of 2008, as the financial markets around the world were starting their epic nosedive, a research paper appeared on the web called: Bitcoin: A Peer-to-Peer Electronic Cash System. This paper described an electronic currency, basically digital coins that are not really coins but rather bits of code. On January 3, 2009, the Bitcoin software launched, and the first coins started being mined. In 2010, the first year Bitcoins were officially offered for sale, the price of a Bitcoin started at ten cents. Right now, the price of a single Bitcoin is $15,850. Before we explain exactly what Bitcoin is, let’s compare it to US dollars and understand the pros and cons of each.
The value of Bitcoin is not based on gold or any other precious metal, and it is not backed by any government. You might assume that’s a bad thing, but the US dollar isn’t backed by gold or any precious metal either. Well, at least it’s backed by the Federal Government! Not so simple…
The US Federal Reserve and the US Treasury have indeed decreed that the US Dollar is “legal tender to pay all debts public and private” (public like paying your taxes, private like paying for a corned beef sandwich). However, the same Federal Reserve keeps devaluing your money by creating trillions of dollars out of thin air. In the last decade, the Federal Reserve simply created about FOUR TRILLION DOLLARS, and threw it into the financial system. The vast majority of it was not in the form of printed dollar bills; it was made in the form of electronic money that was wired into banks. Hmmmm…. Almost sounds like Bitcoin!
The most basic law of economics is supply and demand, and when the supply of something keeps increasing, its value keeps going down. You shovel more dollars into circulation, and the value of each dollar goes down. This is called inflation. If you held onto your dollars from 2000 until now, you would need $142.15 today to buy what cost $100 then. Your dollars may lose value slower than Mexican pesos, Venezuelan bolivars, or Iranian rials, but holding US dollars is not totally safe, they are constantly losing value, at a rate of 2-3% a year.
Despite that risk, US dollars are one of the safest government backed currencies in the world. Here are some examples of what happened in other countries in the last five years. In October of 2016, India declared that the two most widely used bill denominations (500 rupee bills and 1,000 rupee bills) were worthless. They barely gave the people any time to exchange them for other bills, which effectively made hundreds of billions of rupees worthless. In 2013, Cyprus confiscated four billion euros from people who had parked their money in local bank accounts, to help cover the governement’s own shortfalls. In Venezuela, the government printed out so much money that inflation for the year of 2016 was over 800%! When you don’t control your own money, when your money is at the mercy of governments, bad things can happen to your hard-earned shekels.
The paper that introduced Bitcoin to the world, written by an anonymous figure who called himself Satoshi Nakamoto, argued that it would be far better to have a currency that was governed by math than a currency governed by the government. Bitcoin is that currency. It is governed by math because all the rules of how it works are part of its code, and that code can’t be changed. No person or organization can decide to simply create more Bitcoin. There is also preset limit; there will never be more than twenty-one million bitcoins.
There are two ways to get Bitcoin. You can buy bitcoin, or you can mine bitcoin. The way you mine it is by putting enormous amounts of computer power to work tightening up the security of the whole Bitcoin network. The computer processing power working to secure the Bitcoin network is 15,000 times more powerful than the top 500 Supercomputers in the world combined! This means that the bitcoin code is the most secure thing on earth, and it means that people are willing to spend a lot of money buying computer chips and electricity to mine bitcoin!
As of right now, about 16,730,000 Bitcoins have already been mined, and the rest will trickle out slowly over the next few decades, coming to a halt in the year 2140. The supply of Bitcoin is super-small. To put this in perspective, there are 13.7 trillion dollars in the world. That’s enough to give every human on the planet $195. There are 16,730,000 Bitcoin in the world, enough to give everyone on the planet 0.0024 Bitcoin. When the supply of a currency is kept low, and demand keeps climbing, the value of the currency goes up, which is what we’re seeing today.
The first benefit of Bitcoin is that it is governed by math not people, and is limited in supply. Other benefits are that it is totally anonymous, under your control, and works almost immediately. I can send anyone in the world $100,000 of Bitcoin in five minutes, it will only cost me about $10 in fees, and no one will know about it. (I would also need $100,000 in Bitcoin, which I clearly don’t have!) There’s no bank fees, no three day holds on the money, no forms to fill out, nothing, it’s your money, do with it what you want.
While this opens the door for people to use bitcoin to buy drugs, launder money, and do other illegal activity, let’s remember that until now, the currency of choice for global illegal activity was the US dollar. The recent leaks of the Panama Papers and the Paradise Papers show us that everyone from government officials to corporations all over the US are doing a fine job of laundering money in US Dollars. No one is suggesting that we should ban the dollar because the cartels in Latin America and pirates in the Red Sea use it.
On the other hand, honest good people who live in repressive and corrupt regimes like China, North Korea, Venezuela, Russia, Nigeria, Iran, and dozens of other countries, are desperately looking for a way to conduct transactions quietly, so that government officials don’t force them to pay exorbitant kickbacks and bribes. On top of that, there are many people in the world how have no access to a regular banking system. In Kenya, one in three people use Bitcoin or some other crypto-currency, because most people in Kenya have a smartphone, and most people don’t live near a reliable bank. When you can’t access a bank, and keeping cash in your house is very dangerous, being able to keep your money in digital form is a life saver! All these factors create great demand for Bitcoin.
From a security perspective, Bitcoin is far better than a credit card. Every time you swipe a credit card, the merchant has access to your entire line of credit. Usually they don’t steal anything, but an unscrupulous waiter can copy your credit card info and then use it fraudulently, something that happens frequently. There are websites on the dark web with millions of stolen credit card numbers, where buyers can obtain all of a person’s credit card info for twenty dollars. If they add another twenty, they can get their social security number too! No one can get access to your properly stored bitcoin. You also can’t run up credit card debt with Bitcoin, because like cash, you can only spend what you have. From an ease of use perspective, a credit card is mcuh better, because far more locations accept credit card than bitcoin, but the locations where you can use bitcoin as payment is rapidly rising.
What is the technology behind bitcoin? Here comes blockchain. The system for bitcoin is that all transactions are not recorded in one location, but rather in blocks of transactions that are recorded on thousands of computers around the world known as nodes. If I send you one bitcoin, the nodes don’t know my name, or your name, because they only get our Bitcoin “public addresses” which look something like this: 1MjT133uzRfN6CwnkyhXZ4d2vci9vEiBAN, but they know that my address went down by one bitcoin, and yours went up. Our transaction is recorded all over the world, and if someone tries to hack a node and enter a fraudulent transaction, all the other nodes in the world will reject it, and digitally say, “We don’t have that record, you must be false, we’re deleting you.” This is very different from regular banks, which store all their information on a centralized database. When they are hacked, not only can all your information be stolen (as has happened to: Yahoo, Chase, Anthem, Target, Home Depot, eBay, Uber, AOL, LinkedIn, Equifax, and many others), but real havoc can be wreaked on the database.
The reason it is called a blockchain, is that every transaction in all of history is in each block. A new block, which is added to the chain every ten minutes, contains the record of all transaction made in the last ten minutes, as well as all the transactions ever made in bitcoin history. Each block is currently about 130 gigabytes of data as it includes hundreds of millions of transactions from 2009 until today.
We’re all out of time, so I can’t go into more detail on mining operations, or more details on blockchain technology, but suffice it to say, that your life will absolutely be altered for the better by blockchain technology in the next ten years, and please hold me to that prediction! What we do have time for, is a few lessons we can learn from the rise of this remarkable technology.
Firstly, we see that the rarer something is in the world, the more valuable it is. We the Jewish people are very rare. There are seven billion people in the world. There are perhaps thirteen million Jews. G-d says (Exodus 23:22), “My firstborn son is Israel!” He has a special relationship with us, based on the sacrifices our people have made over the years to build that relationship with Him. And there are very few of us. Each one of us, is incredibly valuable to Ha-shem.
But it’s not over. Of the thirteen million Jews, how many are putting in effort every day to build that relationship with Him? How many are calling him and talking to him every day, which is something we call prayer? How many are studying His beautiful Torah, His own soul put to pen and paper. How many are striving to get closer to Him by doing His favorite things, the mitzvos? Every time we make that extra effort to connect with him, we become part of an even smaller minority group, we become even rarer in the world, and thus become even more precious and more valued by Ha-shem.
The second thing I learned from this whole Bitcoin phenomenon is the need to act with alacrity. About five years ago, I started doing my first real research into bitcoin. Prior to that, I just thought it was a currency for criminals, but when I started looking into it seriously, I thought it could be very valuable one day, and decided to invest $500 into it. At the time, a Bitcoin cost around $25. However, in early 2013, buying Bitcoin was not easy. I Googled it, and I was told that I have to go to a special ATM-like machine and deposit my money and then I would get a code. I went to where the machine was supposed to be, and it wasn’t there, so I gave up. Had I been a little more persistent, I would have been able to buy about 20 Bitcoin, which today would be worth $313,000.
Rewards don’t come to those who have inspiration, good ideas, or good intentions, rewards come to those who get the job done. There is a character trait we call zerizus, which is commonly translated as alacrity, but Rabbi Moshe Chaim Luzzato, in his magnum opus, Mesilas Yesharim, explains that one of the core components of zerizus is not losing focus of our goals, and not letting up until we translate our intentions into actions. I dropped the ball on that one, and hopefully this will give me 313,000 reasons to learn my lesson!
Lastly, Bitcoin can teach us that life is a blockchain. We are the product of thousands of inputs created by our ancestors over the millennia. And every action we do, gets added to that blockchain, and will have an effect on all of our descendants after us. Every day another block gets added to the chain, and that chain is immutable, unchangeable forever. Let’s make our chain most bright and secure.
Parsha Dvar Torah
“And his brothers saw that their father loved him more than all his brothers, so they hated him, and they could not speak with him (l’shalom) peacefully.” (Genesis 37:4)
In this week’s parsha, we read about the rift between Joseph and his brothers – one that not only led to Joseph being sold into slavery, but also to the eventual formation of the Jewish people in Egypt. As the rift gathered steam, the Torah notes us that the brothers couldn’t speak peacefully with Joseph. Rashi comments, “From what is stated to their (the brothers) discredit, we may learn something to their credit, that they did not say one thing with their mouth and think differently in their heart.”
Rashi gives the brothers credit for not pretending to be friendly with Joseph while secretly hating him, but still considers their not speaking with him to be a discredit. Rabbi Yonason Eybeschutz (1690-1764, Krakow-Altona) explains why it was wrong for them not to speak to him given the fact that they hated him. It is human nature, he explains, for dislike of another person to grow with the passage of time. Without any intervening positive interactions, “dislike” commonly evolves into full-blown hatred.
This would explain the unfortunately reality of people going to their graves with unresolved family feuds that started out as minor squabbles. Issues that could have been resolved earlier on, somehow became insurmountable mountains. Instead of allowing the issue to fester, the offended person could have said, “You know, I was really hurt by what you said/did/didn’t do. I really wish you wouldn’t have said/done that.” The other party would then have the opportunity to apologize, offer a legitimate explanation, say he wouldn’t do it again, or simply say that he didn’t mean to be offensive. The fight could have ended right there, saving years of bitterness and alienation.
It is possibly for this reason that the Torah prohibition “Do not hate your brother in your heart” is immediately followed with, “You shall surely rebuke your fellow.” (Lev. 19:17). The Torah seems to imply that if one hates his brother in his heart, he is setting himself up for an eternity of enmity. If you don’t hold the anger in your heart and respectfully rebuke the person, the situation could be resolved without lingering hatred.
This, according to Rabbi Eybeschutz, is the discredit referred to by Rashi regarding Joseph’s brothers. When the Torah testifies that, “ and they could not speak with him peacefully,” it is in effect saying that if they would have spoken to him, even openly telling him what bothered them, it could have been l’shalom, for peace, thus dissolving their enmity. Since they were unwilling to engage Joseph in any sort of dialogue, they ended up increasing their hatred towards him, and eventually sold him into slavery.
After arriving from Europe, one of the preeminent leaders of American Jewry, Rabbi Yaakov Kamenetsky (1891-1986), served as a congregational Rabbi in various communities, including a stint in Toronto. While there, the extremely grateful congregation presented him with a beautiful silver Kiddush cup as a gift. Shortly thereafter, a congregant happened to see him bringing the silver cup to a pawn shop! When the membership learned of this, they were understandably distressed. How insulting was it for him to sell the congregation’s gift!
A congregant was designated to approach the Rabbi to express their displeasure. To his pleasant surprise, Rabbi Kamenetsky explained that he was having the cup assessed to find how much tax he owed for it. As the gift was given in recognition of his service, he considered it taxable income. In addition to the impressive testimony this provides regarding Rabbi Kamenentsky’s integrity, it also shows us the importance of talking things out, and how much resentment and hurt can be avoided if we would simply talk “l’shalom,” for the sake of peace.
This week’s Parsha sort of breaks new ground by beginning to discuss in depth the lives of people other than the patriarchs. Now we start to talk about the lives of their children, the Twelve Tribes. This week’s Parsha begins with the tense relationship between Yosef and his siblings. He felt they were doing certain things wrong, and told his father about it. The brothers became angry with him. Then he had two dreams, the gist of which were that all the brothers were bowing down to him, and these dreams further infuriated the brothers as they felt he was trying to force his rule over them.
One time when Yosef was sent to check on them, while they were tending sheep in Shechem, they made an ad hoc court and condemned him to death for what they felt were serious crimes. Reuven persuaded them out of it, convincing them to throw him into a pit instead. Reuven’s plans was to come back and get Yosef out, but while Reuven went back to serve his father, Yehuda convinced the brothers to sell Yosef to a passing caravan of Ismaelites. Yosef was traded from one group to the next until eventually he was bought by Potiphar, the Chamberlain of Pharaoh.
The brothers brought back Yosef’s tunic to their father covered in blood, which made Yaakov believe that his son was killed by a wild animal. He was deeply grieved and no one was able to properly console him. At this point, Yehuda fell out of favor in the eyes of his brothers for his role in the sale of Yosef, so he moves away from them. In his new land, he marries and builds a family. Through an interesting twist of events, Yehuda ends up living with someone, who he thought was someone else, and one of the resulting offspring ends up being the ancestor of King David and by definition, Moshiach.
In the meantime, Yosef runs into some trouble at his new workplace. He is enormously successful as a servant and soon Potiphar’s house is being run by Yosef. However Potiphar’s wife was attracted to Yosef who was very beautiful and she tried daily to seduce him. Finally one day when everyone was at a pagan festival she came home and tried to force herself onto him. He ran out leaving his coat in her hands. She made a big stink claiming that it was Yosef who tried to force himself onto her, and Yosef gets thrown into jail.
Even in jail he was very successful and soon he was in charge of the whole jail. One day he notices two of his fellow inmates, the royal butler and baker look depressed. He asked them what was wrong and they said that they had dreams they couldn’t interpret. Yosef interprets them both properly. The Parsha concludes with Yosef asking the butler to remind Pharaoh about his, and to get him out of jail, however the butler totally forget Yosef for two years! That’s all Folks!
Quote of the week: Fortune reveres the brave, and overwhelms the cowardly. ~ Marcus Seneca
Random Fact of the Week: The number of left handed men is double the number of left handed women.
Funny Line of the Week: Oatmeal looks like someone ate it already. ~ Army Staff Sergeant
Have a Gorgeous Shabbos,
R’ Leiby Burnham
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