Understanding Cryptocurrency
Part One -  by Ryan Pavlich

What is Bitcoin?

Bitcoin is the world's first decentralized digital currency. Unlike the US dollar, or any existing currency, Bitcoin is transferred directly from person to person via the internet without going through a bank or clearing house. In theory, bypassing banks gives maximum autonomy to Bitcoin users as this money can be sent regardless of borders, holidays or bureaucratic policies.


Bitcoin has the potential to reduce fraud risks for businesses and merchants.

Bitcoin transactions are secure, irreversible and do not contain customers’ secure or sensitive information. Not only does this reduce the risk of fraudulent chargebacks for businesses, it can reduce operating costs and there is no need for PCI compliance.

User Autonomy
Bitcoin users are in full control of their transactions; it is impossible for merchants to force unwanted or unnoticed charges as can happen with other payment methods. Bitcoin payments can be made without personal information tied to the transaction. This offers strong protection against identity theft. Bitcoin users can also protect their money with backup and encryption.


An article published by Bloomberg states “[there are] 1,000 People who own 40 percent of the market.” In essence the current value of Bitcoin is heavily influenced by these individuals’ decisions to buy or sell Bitcoin.

Bitcoin is not as widespread or as liquid as other currencies. While there are Bitcoin ATM’s across the world (find a bitcoin ATM) that allow you to buy, sell and cash out Bitcoin, relatively few businesses are currently accepting Bitcoin as payment. (View a list of vendors accepting Bitcoin)


The concept of a decentralized currency, which is not subject to personal politics or borders has the potential to be revolutionary. Although the original Bitcoin controls the majority of the cryptocurrency market share it is not without faults. In addition to the disadvantages listed previously, the Bitcoin is unable to process transactions at the same speed and volume as Visa. In response to Bitcoins' design flaws, alternative cryptocurrencies have been formed and are now growing at a staggering rate.

Look for our second article where Ryan sits down with German Martinez, a bitcoin miner, and talks all things blockchain.


Understanding Cryptocurrency
Part 2- How Does Blockchain Work?

The goal of this article is to explain, without getting too technical, how a Blockchain works.

Transactions Pre-Blockchain

Before blockchain was created, customers relied on a central entity such as PayPal to facilitate transactions online. Upon submitting the order, PayPal would review and authenticate the transaction information. For the transaction to occur, PayPal would confirm that both the buyer and the seller are on the PayPal network. In addition, PayPal would attempt to prevent fraudulent transactions by verifying the buyer and sellers information through login-credentials, location information, and transaction history. If there are no red flags, PayPal would work with the buyer and sellers’ bank to complete the transaction. After the transaction is accepted, PayPal and the bank would take a portion of the transaction for facilitating the sale. These fees often range from 1 - 3.5%.

The fees largely depend on the online merchant used (PayPal, Square etc.) as well as the bank policies.

Blockchain In The Words of Jason Kowalski:

“A blockchain network is made up of many individual computers taking
the place of the large, central entities.

In the blockchain world,
the operators of these computers are called miners. These computers
(or nodes) make up the supply-side of the network.

A successful blockchain network will have a large
number of computers helping to transfer information
to enable computers in a blockchain network
to communicate with each other.

Blockchain technology uses an electronic currency or 'coin'
also known as ‘cryptocoin’, ‘cryptocurrency’, ‘digital coin’,
and ‘digital tokens’ [that are unique to that blockchain.]"

Transactions Utilizing Blockchain Technology

Recently, TradeMarketNews reported a 99 million dollar cryptocurrency transaction.  Not only did the transaction take roughly 2.5 minutes to complete, the individual only paid a 40-cent transaction fee. No banks, escrow or human middlemen were needed. Instead, the transaction was verified and processed through the Litecoin blockchain network.

Why It’s Important

A block chain transaction is unalterable, permanent and viewable by anyone who is part of that blockchain network. This allows a transparent step by step permanent history of ANYTHING, not just a purchase, placed into a network. As an example, a piece of diamond rough could be tracked accurately from specific mine, to exporter, to cutter to dealer eliminating any question about its history. This is already being done by a few diamond companies.

Here’s how it works:

The XYZ company is a part of a blockchain network. Customer Amanda wants to purchase an item from XYZ using cryptocurrency. She would purchase the cryptocurrency that XYZ uses from a cryptocurrency exchange just as if she were buying Eurodollars.

Next, she would obtain the XYZ’s receiving address. This is a unique string of numbers used by XYZ to receive money (much like a bank account number used for receiving wires).

Then, Amanda would input the amount needed to purchase the item and submit the transaction. Once the transaction is sent, computers in the network verify that the transaction is legitimate by “validation” rules that are set by the creators of the specific blockchain network. After the network has validated the transaction, it becomes stored as a block and permanently sealed. The transaction is now verified, and the money is received by XYZ.

While Medlars does not participate in a blockchain network, we like to stay informed especially when there's a chance it could affect our customers.

Special Thanks to German Martinez and Ryan Pavlich

Part 3- Cryptocurrency Language Barrier

In the past two articles, we've discussed how a cryptocurrency is created and how it is used on a network known as a Blockchain. We discussed the advantages of speed, reduced cost, and reduction (if not elimination) of error. And, we discussed the fact that while all cryptocurrencies use a blockchain network, not all blockchains use cryptocurrency. That brings us to the biggest problem I have with cyber money.

Currently, there are over 1600 different digital currencies in existence. Each has its own Blockchain network and as of today, you can’t use one digital currency on another digital currency’s network. I have come to think of all these electronic currencies as tokens. You can purchase a token to ride the New York transit system, but it won’t work in Philadelphia.

Another way to think of it is by using your credit card. It wasn’t so long ago that many companies accepted a very limited number of credit cards. The reason that has changed is that now we (retailers) all use a clearing house that collects the funds from the various credit card issuers and deposits those funds into our account. As of now, there is no such “clearing house” for cryptocurrencies and their proprietary Blockchains. Obviously, a lot of work is left to be done and this problem raises a very important question. If there are currently over 1600 different cyber currencies out there, why would you invest money in any of them on the bet that their value will rise?

Someone down the road will come up with a solution. Maybe it’s Jeff Garzik. He was part of the team of developers who helped build the Blockchain code for bitcoin and has seen its shortcomings firsthand. So he claims to have developed a better digital currency. He is calling it “metronome,” which will be able to migrate in a limited fashion from one network to the next.

But wait, in the end, Mr. Garzik’s digital currency is short on the broad application and is, at this point just another of the hundreds out there. For me, the jury on digital currencies is still out but I do believe in the value of Blockchain. It’s clear, however, that we’re clearly a long way from having it be a part of our daily lives.