In 2008, on Halloween, an anonymous person using the pseudonym Satoshi Nakamoto uploaded a nine-page white paper to a website called metzdowd.com.

“I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party,” he wrote. His proposed digital currency — dubbed bitcoin — wasn’t really a coin at all. It was essentially just a string of digits and letters (computer code) generated by open-sourced software running on a random network of private computers in cyberspace.

Bitcoin, Nakamoto wrote, would require no mint or banks, and individuals could “transact directly with each other.” To prevent fraud, transactions conducted in bitcoin would be verified by a peer-to-peer network of computers via a shared, digital ledger known as the blockchain. Because verifying transactions would take a lot of CPU time and electricity, Nakamoto proposed that anyone who wanted to help process transactions (by having their computers solve complex mathematical equations) would be rewarded with new coins of their own — what’s become known as bitcoin mining.

About nine weeks after he posted the white paper, Nakamoto mined the first 50 units of bitcoin into existence. The cryptocurrency — so named for the cryptographic methods used to secure the transactions — wasn’t backed by any government or based on a physical commodity, such as gold. The supply was fixed: “Total circulation will be 21 million coins,” Nakamato announced in an e-mail the day he released the bitcoin software program.

At the time, there were only two ways to get bitcoin — turn on the software and mine it, or get someone else who already had bitcoin to send some to your bitcoin address — similar to an e-mail address. In those days, a typical desktop computer could generate coins in a few hours. Today, consumers can purchase bitcoin and other cryptocurrencies through online exchanges or at bitcoin ATMs.

Bitcoin owners then and now don’t get any actual coins or bills when they buy bitcoin — but they can view their balance in a virtual wallet, which is essentially a password-protected app on their computer or mobile device. Bitcoin can be divided into much smaller units than dollars or bars of gold. There’s the decibit, equal to one-tenth of a bitcoin, the centibit, which is onehundredth, and the millibit, which is one-thousandth of a bitcoin. The smallest denomination, the satoshi, is one hundred-millionth of a bitcoin.

Like anything else, bitcoin’s value is determined by whatever people are willing to pay for it.

In the decade since bitcoin originated, thousands of other cryptocurrencies have appeared, including etherum, binance coin, dogecoin, USD coin, uniswap and others. Each has its own spin, says Andrea O’Sullivan, a cryptocurrency expert who from her home in Pensacola heads the Center for Technology and Innovation at the James Madison Institute in Tallahassee.

“The founder of the (cryptocurrency platform) etherum, Vitalek Buterin, was actually an early bitcoin adopter who wanted to add more functionality to the cryptocurrency,” O’Sullivan says. “Its main benefit or novelty is allowing for smart contracts to be programmed on the cryptocurrency.”

As the buzz around bitcoin and the other cryptocurrencies has grown, Florida has emerged as a center for the industry. Dave Guttman, a senior vice president of operations with the Chicago-based ATM operator CoinFlip, says his company operates more than 180 bitcoin ATMs from Pensacola to Key West and “everywhere in between.” The machines enable people to turn their cash into bitcoins or cash out their bitcoin holdings as well as other cryptocurrencies. “It’s one of our most active states — we’re laying down more in Florida than any other state,” he says. CoinFlip, Chicago’s fastest-growing company, earns 7% on customer purchases and 5% on crypto sales/cashouts. Users walk away with a crypto balance in their digital wallet.

Miami, in particular, has become a magnet for cryptocurrency-focused companies. In June, at least 12,000 digital currency enthusiasts descended on Wynwood to attend the 2021 Bitcoin Conference. Around the same time, London-based Blockchain.com, which facilitates cryptocurrency transactions, announced it was moving its headquarters there, and several other exchanges followed.

Virtual currency is also gaining more acceptance in the commercial mainstream. A small but growing number of merchants — including FlameStone American Grill in Oldsmar and the Miami nightclub E11EVEN — have started accepting cryptocurrency as payment, and payment processors, including Visa and MasterCard, are offering customers more ways to make transactions using crypto. Financial institutions such as JPMorgan Chase, Goldman Sachs and Morgan Stanley also are jumping on the crypto bandwagon, with plans to offer certain wealthy clients an opportunity to invest in actively managed bitcoin funds.

Timothy Shields, a partner in the Fort Lauderdale law office of Kelley Kronenberg who focuses on technology, sees an “interesting mix” of people drawn to cryptocurrency — from the tech savvy set who “kind of see this as the future” to libertarian types “who see it as a way out of centralized fiat currency” to people in developing nations “who see it was a store of value against currency instability.”

Crypto can make it easy to conduct transactions across borders, he says, and then there’s the everyday investor. “A lot of my younger clients, maybe 30 and under, 35 and under … I did an informal survey and 70% had some sort of crypto holding, big or small, but they had something. Maybe that’s a little FOMO — fear of missing out. They hear everyone talking about crypto so they buy some or they see the astronomical gains and people just want to try get a little piece of that.”

Many clients, he concedes, still struggle with the concept. “People don’t understand it, and certainly they won’t feel confident in engaging in any type of business transaction with it,” Shields says.

They have good reason. Crypto’s tax treatment by the Internal Revenue Service — the IRS considers cryptocurrency to be property — can create tax headaches, and wild price swings make it next to impossible to rely on it as currency in the same way as people rely on dollars or yen, he says.

While bitcoin started trading at about 8 cents per coin in 2010, it surged to nearly $20,000 in December 2017 and then traded at less than $10,000 for the next couple of years before reaching a record high, topping $63,000 in April 2021. As of early August, it was trading at about $39,000 a coin. “If crypto is a currency, it should be a stable value, and right now it is not quite there,” Shields says. “That’s why crypto is not mature enough yet to act as that stable store of value. Where the valuation fluctuates 50% in a given day and if Elon Musk tweets an emoji and that changes the price — that’s not a mature market.”

Regulatory crackdowns also pose a risk. “There are authoritarian repressive governments in this world that will not allow their citizens to own cryptocurrency because they lose control, quite frankly. Some people in the U.S. see regulation as a good thing because that gives it some legitimacy, but you have a country like China which prohibits cryptocurrency ownership. Some other Asian countries have had different varying regulations on crypto, and, unfortunately, you’ve had some spectacular crypto failures, where companies have gone bankrupt and people have lost all their holdings, and some fraud,” Shields says.

Meanwhile, Gary Gensler, chairman of the U.S. Securities and Exchange Commission, said in early August his agency would attempt to regulate the cryptocurrency market as much as possible and called on Congress to give the SEC more authority. “We just don’t have enough investor protection,” Gensler said in a statement, saying cryptocurrency markets were full of “fraud, scams and abuse.”

Many question bitcoin’s viability as a currency alternative because of its price volatility and questions about regulation. Warren Buffett, chairman and CEO of Berkshire Hathaway, has derided bitcoin as a “mirage” and a “gambling device.” In a series of tweets, Jackson Palmer, a software engineer who co-created the cryptocurrency dogecoin as a meme-inspired joke in 2013, recently slammed the crypto industry as a “powerful cartel of wealthy figures” that “leverages a network of shady business connections” to prey on the “financially desperate and naïve.”

Shields believes crypto is here to stay but embraces a “caveat emptor” approach to it. “I think this is very much a 21st-century technology that governments will try to regulate with 19th-century philosophies, so it is very much buyer beware. If my mom ever told me she’s purchasing dogecoin, then I’m going to get very nervous,” Shields says.

Digging for Digital Gold?

Like many crypto devotees, Samuel Armes views bitcoin as a digital version of gold. “So gold’s really hard to mine, and it’s really hard to find. We all know that, and so that has made it valuable over time because its inflation rate is low. It always held a similar value,” says Armes, who works as an analyst at a cryptocurrency hedge fund called Hyperion Decimus and heads up the Florida Blockchain Business Association. “Bitcoin is the exact same. Bitcoin is this currency that’s mineable, has a high stock-to-flow ratio, has a limited amount, ergo it’s deflationary, meaning it’s going to retain its value over time.”

Armes’ own introduction to bitcoin was in high school when a buddy gave him his first digital token. “I had no idea what it was, but I said, ‘Sure, why not.’ ” His formal cryptocurrency education came a few years later, he says, when he did a stint at U.S. Special Operations Command at MacDill Air Force Base in Tampa researching bitcoin, cryptocurrency and “counter threat finance.”

He also briefly served as “blockchain director” for Seminole County Tax Collector Joel Greenberg. At Greenberg’s office, according to WKMG News 6 in Orlando, Armes oversaw a project to create a digital identification system using blockchain. The project was shortlived, and so was Greenberg’s tenure. Greenberg stepped down in June 2020 after federal authorities indicted him on charges of stalking and identity theft. Greenberg is currently in jail, awaiting sentencing after pleading guilty to sex trafficking, fraud and other charges.

Cryptocurrency appears to have played a big part in Greenberg’s downfall. According to an 86-page plea agreement that Greenberg struck with prosecutors in May, “one of the focuses of Greenberg’s fraud scheme related to his desire to acquire cryptocurrency for himself.” Between 2017 and 2019, Greenberg took hundreds of thousands of dollars out of tax collector accounts to purchase cryptocurrency for himself. With taxpayer funds, he also purchased $68,700 worth of cryptocurrency mining machines — some of which he sold, and others he kept and operated at the Lake Mary tax collector’s office to produce cryptocurrency for himself.

“Those machines were damaged in a fire, which occurred due to a power surge caused by the way in which the machines were daisy-chained together,” the plea agreement states. “The expenses incurred for the server room buildout, fire damage and server room teardown in the Lake Mary branch were approximately $98,000.”

Armes had little to say about his former boss. “I am not able to discuss Greenberg, nor do I want to,” he said in an e-mail. “Unfortunately, he’s really given the community here in Florida a bad name. But luckily, no one has been hurt, and our work continues!” That work, he says, includes getting Florida to update its money transmitter laws, which have proved a stumbling block for many businesses. “When we take care of those, Florida will probably be a leader in the space,” Armes says.

Miami’s Play

When President Joe Biden signed a $1.9-trillion COVID-19 relief bill last March, Miami Mayor Francis Suarez put some of his own money (he hasn’t said how much) into bitcoin and ethereum, two of the bestknown cryptocurrencies. He expects others to follow suit. If lawmakers “spend another $2.2 trillion on an infrastructure bill, I don’t think people are going to want to stay in dollar-denominated currencies,” Suarez told crypto news site Decrypt in a May interview when bitcoin was trading for nearly $59,000. “One bitcoin, this digital asset, this digital currency, this thing we all agree has value, has already surpassed the dollar in value by a large amount.”

The Republican mayor has also hung out repeated welcome signs for crypto-related businesses and investment. “The city of Miami believes in #Bitcoin, and I’m working day and night to turn Miami into a hub for crypto innovation,” Suarez tweeted on Jan. 27, the same day the city uploaded a copy of the original 2008 bitcoin white paper.

The Miami mayor is also pushing to pay city workers a portion of their salaries in bitcoin if they choose — and allowing residents to pay city fees or property taxes with digital currency. He also wants the city to invest public funds in cryptocurrency. In June, he told CNBC the city would welcome bitcoin miners from China. “The fact that we have nuclear power means that it’s very inexpensive power,” he told CNBC, referencing Florida Power & Light’s Turkey Point Nuclear Plant on Biscayne Bay.

Industry insiders, however, say South Florida isn’t a good spot for bitcoin mining — electricity is still too expensive compared to other parts of the country and world — but cryptocurrency’s digital format gives it affinity with other companies in Miami’s growing tech hub.

London-based Blockchain.com, which facilitates crypto transactions, announced in June that it was moving its U.S. headquarters from New York to Miami and plans to hire 300 workers through 2022. BlockTower Capital, a cryptocurrency and blockchain investment firm, relocated from the Big Apple to the Brickell financial district around the same time, and eToro, an Israel-based cryptocurrency platform, plans to open a Miami hub with 50 workers. FTX — a 2-year-old, Hong-Kong-based company that operates the fourthlargest trading platform for cryptocurrency — also plans to open a Miami office and recently inked a 19-year, $135-million deal for the naming rights to the arena on Biscayne Boulevard where the Miami Heat play.

Sam Bankman-Fried, the 29-year-old billionaire founder and CEO of FTX, told Miami’s local NBC station that his firm’s investment in Miami is aimed at getting the company’s “name out there” and getting more people to try crypto — “having this be a real option, and a real alternative for people for whom the current options aren’t serving them well.”

Top 5 Cryptocurrencies

• BITCOIN: While there are thousands of virtual coins in circulation today, 11-year-old bitcoin remains the leader. Market cap: $644 billion.
• ETHEREUM: Also based on blockchain, ethereum is known for its smart contract functionality, which allows for futures trading, puts, options and calls. ETH trades for about $2,000. Market cap: $251 billion
• TETHER: The world’s thirdbiggest cryptocurrency is tied to the U.S. dollar. While its value hovers at around $1, it’s not without risk. Critics contend that the digital token has inadequate cash reserves, and some worry a drop in confidence could trigger the crypto equivalent of a bank run. U.S. Treasury Secretary Janet Yellen and others in Washington have signaled interest in regulating what they believe is simply a shadow banking system. Market cap: $61.8 billion
• BIANCE COIN: BNB is a so-called “utility token” that consumers can use to pay transaction fees on the cryptocurrency exchange platform binance. Developers can also use the token to power applications on the Binance Smart Chain, a blockchain network built to run self-executing contracts (smart contracts) created with computer code. Some traders soured on binance exchange last May when the cryptocurrency exchange froze in midst of a bitcoin price dip and they lost money. The crypto platform has attracted regulatory scrutiny from around the world. Market cap: $50.1 billion
• CARDANO: This thirdgeneration cryptocurrency, created by ethereum co-founder Charles Hoskinson, is another smart contract platform. Its differentiator is a blockchain protocol called Ouroboros that Cardano contends is up to 4 million times more energy efficient than bitcoin and faster, too, validating thousands of transactions per second, compared to bitcoin’s average of seven per second. Market cap: $38.5 billion

Crypto-Mansion

In May, an anonymous buyer paid $22.5 million in cryptocurrency for a 5,067-sq.-ft. penthouse in Arte by Antonio Citterio, a condominium in Miami’s Surfside neighborhood between Bal Harbour and Miami Beach. Alex Sapir, chairman of the development group that built Arte, said in a news release that there’s a “strong pent-up demand” for cryptocurrency real estate transactions and that his company has been “overwhelmed” with calls from qualified buyers after announcing they’d be willing to conduct sales with virtual currency. “Real-world crypto transactions haven’t made their way fully into the mainstream yet, so it’s clear that top holders around the world pay attention when new opportunities to transact open up.”

 

Read more in Florida Trend's September issue.
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