Some believe that Bitcoin is the currency of the future. Others think collecting them is like Beanie Babies, with prices rapidly rising and falling in the short term, destined to crash over time. On a deeper level, some see Bitcoin as part of the banking system of the future. For example, CB Insights notes that global payments are $1.7 trillion annually, and that Blockchain (the technology underlying Bitcoin) holds immense promise here. But one thing is clear, whomever bought Bitcoins a while ago and is still holding them is very happy at this point. From an initial value of $0 less than a decade ago, the value of Bitcoin has now risen rapidly to over $30 billion. In 2009, you could buy 1,000 Bitcoins for $1. As of May 2017, each Bitcoin was worth over $2,000 and rising. To be clear, it’s quite possible that they end up falling to $0. But in the meantime, Bitcoin holders are doing very well.
Why is the price of Bitcoin rising? Simple supply and demand. There’s a set limit of Bitcoins that will ever exist. As more and more folks want some and find it easier to buy, store and spend, prices go up.
Where do you store your Bitcoin? You can store Bitcoins on a personal digital wallet on your computer, but if you forget your code and lose your backup, your Bitcoin is lost forever. For this reason, most prefer to store their Bitcoin in an online digital wallet at what’s known as a Bitcoin Exchange. Though it’s still the wild west and there are risks, most people who buy and sell Bitcoin choose to protect their investments using an online digital wallet, such as Coinbase. These service providers allow you to buy, and/or sell or “cash out” Bitcoin for U.S. dollars to be deposited in your traditional bank account anytime. Coinbase is regulated by the US Department of the Treasury and is licensed to engage in money transmission in 37 states–but not Hawaii.
Apparently, Hawaii’s Department of Commerce and Consumer Affairs (DCCA) has made having an account and being able to transfer money in this safer way impossible for Hawaii residents. According to Coinbase, the DCCA determined that “licensees who hold virtual currency on behalf of customers must maintain redundant fiat currency reserves in an amount equal to the aggregate face value of all digital currency funds held on behalf of customers.” That is, if you give Coinbase $1,000 to buy Bitcoin for you, Coinbase would be required to securely store that money, at the same time they need to use it to buy the $1,000 of Bitcoin! Due to this being unviable,Coinbase is unable to become licensed in Hawaii and has ordered all Hawaii residents to remove their digital currency from Coinbase and to close their accounts.
At a recent party, several local folks bemoaned having to sell their currency right before the recent price spike. While Bitcoin could go to $0 and you should never invest more than you can afford to lose, buying Bitcoin or one of its younger, less expensive cousins like Ethereum or Litecoin and holding it could be a very profitable bet, and fun along the way. If you live outside of Hawaii, companies like Coinbase and Kraken make it easy. But for Hawaii residents, we’re shut out of the online digital wallets indefinitely until the DCCA modernizes its view of cryptocurrency. To help Hawaii enter the modern world of digital currencies, please very nicely call the Division of Financial Institutions at 808-586-2820, email them at [email protected] or if they’re friends or family please ask them in person if they might be able to treat Bitcoin and other cryptocurrencies like other states do so we can all better participate in these fun, exciting projects.
There’s a lot more to dig into here than could ever be expressed in a brief article, but there are plenty of resources online. For those who really want to understand, the original Bitcoin white paper is a great place to start, and can be found at Bitcoin.org/en/bitcoin
Photo: MamaDeFuego/Flickr