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Decoding the world of cryptocurrency can be a dizzying prospect, even for the prospectors who mine virtually for the coveted coin.
Bitcoin alone hit $20,000 in December before dropping to $8,000 last month; meanwhile, cryptocurrencies were banned from Twitter ads last week and, like, totally spawned a securities investigation. It could be a reality show — call it “Keeping Up with the Kryptos.”
That hasn’t stopped local entrepreneurs from trying to cash in on the craze by exploring the potential uses for crypto technology, from investing in currency as an asset to using the underlying technology to raise operating capital, process online payments and incentivize website users.
Cyril Gropen was raised to work with his hands, to make tangible objects that touch people’s lives.
His father, Neal, owned a Charlottesville signage design and fabrication company until he sold it in 2008, and invested in other tangible assets, such as real estate.
As a self-described computer geek, Cyril Gropen heard about Bitcoin in 2011, when it traded for as little as $2, he said.
“But I couldn’t really touch it, so I didn’t believe [in] it.”
Over the past 18 months, Gropen studied the structure and function of some of the hundreds of smaller cryptocurrencies in circulation and became a true believer.
In February, he had two uninterrupted hours to explain his cryptocurrency work to his dad, while the two of them laid pavers at a rental property.
“My dad just kept saying, ‘I just don’t get it,’ probably three or four times,” Gropen said with a twitch of a smile. “I probably got my fear of the intangible from him.”
As a cryptocurrency miner, Gropen is part of a self-appointed network of “hashers” — the digital equivalent of a green-visored accountant in the backroom of a bank — whose computers apply hashing algorithms to validate information and transactions on the blockchain.
The blockchain is, roughly, a ledger of information (for example, votes) or transactions (mostly credits or debits). By distributing copies of the ledger across the network for validation by consensus, the ledger actually becomes more secure.
In theory, it’s impossible to falsify a ledger entry on the blockchain because there’s an army of digitized accountants who can say, “Nope, that’s not what my copy of the ledger says.”
It costs money to perform the validation services hashers provide — in the case of Bitcoin, the computers guzzle more electricity than 159 of the world’s countries, according to figures from the Bitcoin Energy Consumption Index.
The payment for Bitcoin hashing services, if any, arrives in the form of Bitcoin.
“It’s not elegant, but whichever group of people does the most work to validate transactions in a blockchain or solve a [mathematical] puzzle earns a share of the unlocked Bitcoin reward,” Gropen explained. “The reward can then be sold for dollars or used in e-commerce.”
Bitcoin is valuable — although wildly volatile — because only 21 million Bitcoins will ever be unlocked and put into circulation.
To make about $3,000 per month mining Bitcoin, you would need to spend $36,000 on computer equipment up front — or $18,000 for computer parts you assemble yourself — and $500 to $700 per month on electricity, Gropen said.
“It’s a fairly low margin, but your computers are constantly running in the background, so you can hold a day job,” Gropen said.
One-third of Gropen’s business is focused on mining — for himself or for others who pay him to mine for them — while the other two-thirds consists of building and automating real-world objects for clients, such as the hydroponic garden tables used by Babylon Micro-Farms.
Matt Rohdie, a Charlottesville doughnut proprietor, has a burning question and a whimsical proposition.
“Are the same people who are concerned about our food system being hijacked — the Joel Salatins and Michael Pollans of the world — are they interested in crypto?” Rohdie asked. “Because if they are, I’d like to offer them organic doughnuts, and they can pay me in cryptocurrency.”
Rohdie, the founder of Carpe Donut, is in the pilot stage of the “Donutcoin” project, in which he hopes to create his own doughnut-backed cryptocurrency. In his mind, it makes as much sense as pegging the dollar to gold.
“Why not a doughnut-backed currency? We can back a currency with contracts to produce doughnut, and I believe it will create a standard of value,” Rohdie said. “Donutcoin will have value because the price of doughnuts is stable compared to gold or silver.”
He figures the Donutcoin could catch on just by virtue of being a fun concept, but his long-term goal — if it can pass regulatory muster — is to use the coin to raise working capital to expand his operations. “In the short run, it’s just a way to sell more doughnuts,” he said.
In 2014 and 2015, Rohdie tried to raise $725,000 to get his organic doughnuts into 1,000 grocery stores. He hit a wall after raising just $100,000 from a bank and $25,000 from a private investor.
“I spent eight months doing pitch decks and dog-and-pony shows,” he said. “Raising money like that is really difficult if you want to stay true to core principles — like using the best ingredients and paying a living wage.”
His 21-year-old stepson, Finn Downey, taught him everything he knows about the crypto economy — in exchange for paying his cellphone bills — and Rohdie now views it as a way to reach people who want to support a mission that capitalism otherwise wouldn’t support.
“Crypto is very democratic; people vote with dollars and you have the whole internet to talk to,” Rohdie said.
What happens if Carpe Donut goes the way of Spudnuts, the Cville doughnut shop that shut down in 2016 after nearly 50 years?
“That’s never going to happen. But that is literally the risk we all take when we invest in anything,” Rohdie said. “We’re not saying you’re not going to get huge returns; you’re going to get stability and value because we will always give you doughnuts for dollars.”
Tyler Marx, a 19-year-old economics and entrepreneurship student at the University of Virginia, hopes to use cryptocurrency to generate financial support for two fields the internet itself helped to suffocate financially: art and photography.
Marx and co-founder Tanner Roughton are creating Belacam, an Instagram-like social media website where people can post their art or photography and collect a cryptocoin — in this case, a Belacoin — for each “like” garnered.
Theoretically, pictures of your lunch could pay for your lunch.
The blockchain ledger technology would be used to validate deposits and withdrawals, Marx said.
The site is also just a low-barrier way to enter the crypto market. “With Belacam, you would earn a little bit of crypto without having to be a miner, a coin developer or a trader,” Marx said.
When the initial test site launched at 2:30 a.m. one day last April, Marx was monitoring the site from his dorm room. Within 30 minutes, Belacam had 200 registered users.
Marx fell asleep. “When I woke up, we had 810 users and the server had crashed.”
Marx and Roughton plan to open Belacam to the public in May, and start an initial capital raise within a month. They’ve also applied to the Y Combinator boot camp and seed funding program in Silicon Valley.
The site’s revenue model will focus on transaction fees to withdraw Belacoin from the site or on internal currency exchange fees, Marx said.
“Our plans are to keep Belacam ad free and to not sell data,” Marx said. “The crypto community is all about privacy, so selling data would go against one of our core principles.”
Marx and Rohdie have plenty of company among local blockchain enthusiasts. Marx is president of the UVa Crypto Club and Rohdie co-hosts a blockchain meetup at Studio IX on the first Tuesday of each month. This Tuesday’s event will focus on how artists and musicians can harness the power of blockchain technology.
Rohdie believes in crypto’s upside, even if he doesn’t think anybody will get rich off Donutcoin. He felt the flush of riches firsthand, when his stepson repaid the cellphone debt in cryptocurrency.
“He paid me $300. By the time I got around to figuring out what to do with it, it was worth $1,600,” Rohdie said. “I thought, ‘Huh, there’s definitely something happening here.’”
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