BitCoin or Property

 

Many people are asking if Bitcoin will be better than Real Estate  for a long term investment strategy.

We believe it is the way of the future and a prudent investor would have their capital in both mediums.
The only warning would be, due to the volatility of the crypto markets, we still recommend to our clients, to stick to our main bread and butter modality.

Which is of course, real estate.

But what is bitcoin ?

At a very basic level, bitcoin is just a digital file that contains name and balances.
And people exchange money by changing this file.
When Bob sells Carol a lawnmower for x amount of bit coins, Bobs balance goes up and Carols goes down.
The difference is their is no gold or government money backing.
Bob has faith that other people also trust the system.

So the obvious question is, who maintains the ledger and makes sure no one cheats ?
One of the many goals of bitcoin is to avoid any form of centralised control so that every participant can control a copy of the ledger.
One surprising consequence of this is that everyone can see everyone else balances.
The caveat is, the real system only uses account numbers and not names, so their is some level of anonymity.
Which is great from a privacy issue but “bad” for governments who are, and will, lose control of many forms of financial transactions.

But how are all the ledgers kept in synch as the money is transferred ?
At a basic level, you are simply telling everyone else your account number, the receivers number and the amount.
Everyone across the world then updates their ledger.

As a quick aside, this description is sort of for  “power users” i.e. people who help “maintain” the system.
You can, in theory, also use the system to maintain and send money without maintaining a ledger.
If sending money is as simple as creating a message with some account numbers what is to stop a thief(Alice) from using Bobs money by using his account number ?

Like a pen and paper cheque, Bitcoin requires a type of signature to prove that a sender is the real owner of an account which is based on maths rather than handwriting.
When a new account number is created it comes along with a mathematical key (Private key)which is linked to the account number.
If you have heard of a bitcoin wallet, these keys are what allows you told hold and create “signatures”.

To create a signature, a private key and a text from a transaction are fed into a special cryptographic function.

This also allows other people to check the signature and allows them to check that it is created by the account owner and that it applies to that specific action.
Unlike the hand written version these signatures cannot be copied and then reused in the future as they are intrinsically unique to each transaction.

Whilst the mathematical signatures prove who sent the transaction they cannot prove when it was sent and this turns out to be problematic.

In a traditional banking system, if Alice wrote two cheques but only had enough money to cover one of them, the bank would attempt to pay the first person to cash their cheque, but refuse the second because Alice`s account would be short of the needed funds.
So the order of these cheques is critical because it is essentially determining who gets paid.

Sadly, order is much harder to determine in bitcoin because instead of a single bank their are individuals .

Networks in theory, might cause transactions to be delayed all over the world, to arrive in different orders and places and fraudsters could lie about time stamps.
Two recipients might believe their transaction is first which would in theory mean it allows Alice to send her money twice.

But bitcoin cleverly prevents this from happening.

As new transactions are created they go into a pool of transactions and then they are sorted into a giant chain which locks them into an order.
To select which is next, a form of mathematical “lottery” is held and participants select a pending transaction of their choice and begin to try and solve a special problem that will link it to the end of the chain.

The first person who finds the solution wins and their transaction is selected to be dealt with next in the chain.
So what is the linking problem ?

It is based on a special function called a cryptographic hash, which mixes up its inputs and spits out a number that is truly special because it is irreversible.

Their is essentially no easy way to start with an output and then find an input that generates it other than by making lots of guesses.
And this is literally what people are doing in bitcoin.

Feeding this function by feeding in random numbers until the output meets a certain criteria.
Besides a random guess you also input a transaction from the pending pool and chain which is where the linking part comes in .

This allows the whole world to decide which transaction comes next , but mostly importantly, the maths behind it also makes sure everyone agrees about path transactions too.
Suppose you are going to enter the network chain for the first time and request a copy of the transaction chain but receive several different versions, which one should you trust ?

Ideally, you would trust the one the majority of people are using but to determine this on the internet is difficult.

What would stop a single person from “voting” millions of times ?

Bitcoin prevents this by requiring people to “solve” maths problems to “vote”.
This causes each “vote” to have a cost in computer power which makes it unlikely that a single person or group could afford to outvote or out compute the majority of users.
The transaction process described before actually is a form of voting system.

Each “guess” is effectively a vote for that chain.

But how are all the votes tallied ?
Because the hash function has well defined statistical  properties you can, in theory, look at any given answer and guess on how many times it took to define it.

So the links in the chain not only put the transactions in order but also act as an effective vote tally making it easy to see which chain most people are using.

Ever time someone wins the “lottery” to get to pick the next transaction in the chain, new bit coins are created out of thin air and are awarded to their account.
Solving these problems is called mining and this is how money enters the system as well as making sure everyone`s ledger agree`s.

The maths finds a way of “randomly” distributing money and it is believed that by around 2140 no more money will be created and participants will only be paid by fee`s added on to transactions.
At the end of the day, Ample Property Solutions specialise in an investment strategy built around the highest form of controllable risk.

Which is new properties purchased at the right time, in the right location.

Guided by experts in the field !

If you wish to have a chat with us about your future then please contact us here.

Wishing everyone a great New Year and see you in 2018 !

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