John is an old high school friend I mostly see at weddings, so I wasn’t expecting to see a message from him blinking on my desktop one night in December. He asked if I still had the Bitcoin he’d given me back in 2011.
“I still have it I think,” I replied, dimly recalling the loonie-sized brass coin that he’d given me, around the time someone bought a pizza for 10,000 BTC.
I remembered seeing some recent headlines about Bitcoin making a comeback. “How much is it worth now?” I asked, thinking that for him to be asking, it must be worth a couple of hundred bucks.
“13,000 USD-ish,” he said.
I figured he must be joking. So I googled it — and sure enough, 1 BTC was trading for US$11,850 that day. On the Canadian exchanges, it hit a high of C$15,323.
I tore through old boxes of odds and ends I’d hoarded over the years. I found the coin mixed in with some euro pocket change, with the unmistakable B with vertical slashes embossed on it. The coin itself was worthless of course, but the cryptographic private key printed on the back, underneath a tamperproof holographic sticker, was linked to an anonymous digital wallet holding 1.0 BTC.
How do I sell this thing?
Discovering I hadn’t thrown it out brought a momentary wave of relief, followed by acute anxiety, as I realized the single coin in my hand could buy a new Ford Fiesta, and I had no idea what to do with it. Obviously I couldn’t just sell my coin for cash —I’d have to figure out how to redeem it online, then sell it on an exchange. But what software was I supposed to use? Which of the thousands of totally unregulated businesses out there should I trust to store and process my money? What if in my fumbling illiteracy I deleted my keys or opened myself up to hackers? And what if I took too long figuring it out, and the Bitcoin bubble popped before I could sell?
As you might guess, I’m about as far from a high-risk investor as you could get. Even back in 2011, Bitcoin seemed far too speculative for me. At the time, John was starting up a Bitcoin mining operation, and was looking for locations to set up his mining rigs (they look a lot like server racks, but with as many GPUs packed into them as possible to get the most parallel processing power). My apartment had a lot of extra space, and I was living in a shoddy old building where the noise and heat wouldn’t be much of a problem, so it seemed like a good match.
John asked if I wanted my cut in Bitcoin or cash, and I said cash, without hesitation. Of course I thought cryptocurrency was a neat idea, but I was more than happy to let savvier folks do the pioneering; me, I needed money to pay my rent and student loans.
I took the brass Bitcoin as a small fraction of my first payout, more as a memento than anything. Then in 2014, the biggest Bitcoin exchange, Mt. Gox, went bellyup, and I was sure we’d heard the last of all this cryptocurrency stuff. I held on to the coin because I hold on to everything, and ended up being perhaps the least prepared investor in the Great Bitcoin Gold Rush of 2017.
Casascius, my paper wallet and the unconfirmed transaction
I spent the morning after John contacted me watching YouTube videos on what to do with my coin. I learned that it was a Casascius coin, one of roughly 3,500 minted by a Bitcoin user of the same name before the US Treasury Department shut him down in 2013 for failing to have a federal money transmitter license. The 22-digit hash string, safely hidden behind the peel-away sticker on the back, works on the same principle as a “paper wallet,” a tool used by serious Bitcoiners for secure long-term storage.
Essentially, any wallet address out there in the cloud is secured with a public and private key, both of which are needed to access the funds. A bit like a PIN, the private key can be stored offline in a text file or even on a piece of paper locked in a safe, where hackers can’t get to it. Multiple websites had warned me not share my private key with anyone, since they could use it to trade away my Bitcoins. Who’d have thought a bunch of cryptography nuts would be so paranoid about security?
Peeling back the sticker on my coin felt eerily like rolling up the rim on a Tim Horton’s cup. After several fruitless hours trying to find a client that still accepted the ancient technology of hash strings —modern, user-friendly wallets like Coinbase use 12 word passphrases instead of 22-digit keys to secure wallets— I ended up with a more technical client that could “sweep” the funds in my paper wallet. I clicked a bunch of buttons I didn’t fully understand, and the wallet showed a “transaction” moving 0.9972838 BTC from my paper wallet to my digital one, after transaction fees. I breathed a sigh of relief.
The balance in my wallet still said zero. I wasn’t alarmed at first, since the transaction was marked “unconfirmed.” I figured it would take a few minutes to an hour to process. I started to get concerned when it was still pending the next day. I checked the rates again: Bitcoin was up to $17,512 CAD. I couldn’t help but feel like it could pop at any second.
I googled “unconfirmed Bitcoin transactions” and discovered a litany of complaints from users who spent hours or days waiting to get their money. Some dated as far back as 2013, but they really started spiking in 2016 and 2017, as the value of Bitcoin was reaching to new all time highs. From what I could naively gather, it seemed the Bitcoin network slowed down as interest in it increased, and the more users were trying to trade, the more the pipes got clogged. But the assurances other users received on the forums gave me comfort —serious Bitcoiners seem to say that delays didn’t usually last more than a day or two, and I would eventually get my money.
Will I ever get my money?
It was about then that I made a fateful mistake: I queued up a second transaction to move my Bitcoin from my wallet to an exchange where I could sell it. My thinking was that whenever the first transaction did complete, the second would begin automatically, even if I wasn’t there to check on it. Seems logical, right?
Things work a bit differently in crypto-land. Most of us are used to paying with credit cards and having our transactions processed in the order that seems most natural: first come, first served. With Visa or Mastercard, everyone pays the same processing fee, and everyone gets processed in the order they’re entered into the system. Bitcoin has much more limited processing power available, in the form of miners, who confirm transactions by crunching difficult cryptographic problems. Miners receive the fees that users pay, so it is in their interest to process those that offer higher fees first. This has led to a competitive fee market, where, at peak trading hours, traders must offer a much higher percentage of funds as fees in order for their transaction to be processed. Unwittingly, I had paid the standard fee recommended by my digital wallet —which was nowhere near enough to get noticed in the warzone that Bitcoin had become on its way to an all-time record of $25,497 CAD.
No problem —just cancel the transaction and make a new one with a higher fee, right? That’s credit card thinking again. Bitcoin was designed to be traded as cash, which means there is no organization overseeing transactions, and no one with the ability to cancel a transaction, at the user’s request or otherwise. There is only the blockchain, a distributed ledger which records transactions and declares which funds are associated with which wallet addresses. (This is considered a key feature; remember, cryptocoin users don’t want corporations or governments interfering with their ability to move money around.)
Being able to erase transactions from the blockchain would destroy the integrity of the system, just as cash would have no value if I could make it disappear from your wallet after I gave it to you. It’s also impossible, since removing a transaction from the blockchain would require altering untold thousands of blocks in the network.
By the time I puzzled my way through all this, it was day three, and Bitcoin’s value had started to slide, which in my state of mind was a sure sign of the impending collapse. Things looked even worse when fees started spiking higher, as nervous investors started to sell as well as buy.
I couldn’t erase my transaction, but what I could do was replace it. I would have to queue another transaction with a much higher fee, enough to entice a miner to process my first, low-fee transfer so they could then also process the second one. I could even make a “fake” transaction to accomplish this —send the money from my digital wallet address to the same address, which would still register as a transaction in the blockchain.
If it gets even worse, you need to hire an ‘accelerator’
That’s when I discovered my earlier mistake: I had already broadcast a second transaction, moving all of my funds from my digital wallet to an exchange. Technically I had no funds left to make a replacement transaction. The exchange, meanwhile, wasn’t showing my funds at all, since it was two steps removed from my actual cash.
My second option was to hire an accelerator. These are transaction miners who accept direct payment to speed up specific transactions. Fees started at $65 USD —on top of the fee I’d already submitted— but that wasn’t the problem. The most reputable ones I could find only accepted payment in Bitcoin or another cryptocoin, requiring me to make yet another transaction with money I didn’t have. And even if I was willing to post a cash-in-hand offer on Reddit or Craigslist, those forums were already clogged with dozens if not hundreds of requests from desperate traders offering as much as US$500 to anyone who could accelerate their transfers.
By day five, I was spent, as were the helpful individuals and educational resources I’d found online. There was simply nothing to be done. It was entirely possible my transaction would be stuck in limbo indefinitely. It would eventually be erased as dead data, though it was impossible to tell whether that would take be one month or six.
By then, I was convinced, the bubble would pop. Experiencing firsthand the absurdity of the Bitcoin ecosystem had only made me more certain that this particular cryptocurrency had no fundamental value, and had long ago outlived its intended purpose. Who would ever use a “currency” that could take hours or days just to deliver? If someone were to pay for KFC in Bitcoin today, it would be mighty cold by the time the chicken franchisee actually got his money, if he ever did. And if, as the pundits say, Bitcoin is now a commodity, what sane investor would buy into it, knowing its volatility could well outstrip its liquidity? If confidence in Bitcoin ever does collapse, the panic would more than overwhelm the network, leaving investors watching their money ebb away as their ‘sell’ transactions lingered in limbo. And unlike other securities, Bitcoin has no fundamentals to track, zero hard information to give any grounding to predictions about its ascent or decline. The $320 billion market cap of Bitcoin seems just shy of mythical.
On the other hand, by now I saw opportunities for a quick buck by getting more involved. The variability between rates across Canadian exchanges was enough to make an instant 2-3% return through arbitrage (minus the extortionate fee you’d have to pay to transfer funds between exchanges). As with anything so volatile, short-term bets could be incredibly lucrative for traders willing enough to throw the dice. But I had the feeling that those stories of overnight millions either already were or would soon be exceptions to the rule. The house that Bitcoin built was not made to stand, surely.
For me, there was nothing left to do but wait. Knowing for certain that there was nothing I could do, no potential solution left undiscovered, was what finally banished my stress and left me in a state of zen. I would win the lottery, or I wouldn’t. It’s not like I’d done anything to earn this windfall anyway.
Then, on day seven, I had my first confirmation. A miner had bundled my two transactions, and solved both in a single block. I needed seven more miners to do the same before the transaction actually cleared, but the incentive to solve a block increases greatly once another miner completes it. Within an hour, I had all confirmations.
I sold at $19,497 about 10 minutes later. I was shocked at how fast a buyer scooped up my sell offer, and how fast the exchange confirmed the trade. Five days after that, Bitcoin peaked at an all-time high of US$19,501 USD or C$25,497. It has since settled to around $18,500, where it’s remained for the past two weeks. No one knows what it will do next.
I told John about my success. “Any particular plans for the proceeds?” he asked.
Yep, I responded. Paying rent and student loans.
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