University at Buffalo School of Management

Autumn 2018 Buffalo Business 13 Underneath it all, what makes bitcoin work is a technology known as the blockchain — an un- changeable, shared ledger stored across a network of computers that keeps track of every transac- tion made. Think of it like an Excel spreadsheet that once data is entered cannot be edited, and that everyone has access to, not just a single bank or organization (see sidebar, page 15). Turning dollars into bits So you've decided you want to buy some bit- coin. How does it all work? Jay Fairbrother, BS '05, accountant at Kistler Instrument Corp., initially held off on buying cryp- tocurrency because he was concerned with security. He had previously had his identity stolen through a credit card and didn't want to do anything risky. But when the value of bitcoin started to run up in late 2017, Fairbrother decided it was time to get in. He signed up for a Coinbase account, deposit- ed some U.S. dollars and exchanged them for cryp- tocurrency. He initially bought bitcoin, ethereum and litecoin, but has since expanded his portfolio to around 15 different kinds. "When I got in, everything was going nuts," says Fairbrother. "Through January, I had more than doubled my initial investment, which I knew wasn't sustainable but was fun at the time. Now the value has returned to just above my initial investment." Once you have your bitcoin, you need some- place to store it — cue the bitcoin wallet. Much like a physical wallet in your pocket or purse, a bitcoin wallet is a place to store, send and receive digital currency. Wallets come in a few different forms, each with varying levels of functionality and secu- rity, from one on a desktop computer, mobile device or the web, to hardware wallets that store bitcoins in offline, secure servers. Fairbrother says he stores his digital money on a cold storage wallet — a USB stick that has encrypt- ed code on it, secured behind two-factor authen- tication. He keeps it in a vault, offline, away from relentless hackers. Companies like Xapo take bitcoin security to the extreme. Carved into the side of a granite moun- tain in Switzerland sits a decommissioned military bunker. Built in 1947, it served as the Swiss army's secret headquarters during the Cold War. Now, In Silicon Valley, the typical term of a CFO is two to four years. Over the course of his career, Tim Laehy, BS '84, MBA '85, has served in that role at eight different companies, raising more than $3 billion in capital through three IPOs and three mergers and acqui- sitions. Today, Laehy is interim CFO at Coinbase, a digital cur- rency wallet and platform where merchants and con- sumers can transact with digital currencies like bitcoin, ethereum and litecoin. Laehy says Coinbase is like six different companies in one, providing a comprehensive suite of cryptocurrency services, including brokerage, exchange, custodial, index funds, merchant and wallet services. "There's no financial service company on the planet that has a reach that wide," he says. "And we're still growing." From corporate finance to crypto CFO Since the company was founded in 2012, Coinbase has raised more than $225 million in funding, with revenues widely rumored to be more than $1 billion, driven by the bitcoin run-up in the fourth quarter of 2017. "One of our investors told me he's never seen anything like it, and he's invested in Google, Apple and Microsoft," says Laehy. "The pace of growth was measured in the thousands of percent year over year." When Laehy was a student at the School of Management, cryptocurrencies and blockchain didn't exist. He was interested in corporate finance and used the business foundation he built at the school to launch his career — and he's kept learning along the way. "You can't stop for a minute or you'll be left behind," he says. "I didn't know anything about crypto before coming to Coinbase, but I dove deep into it and was just a sponge for knowledge. Every day I learn more, and every time you open a door and you think you learn something, there's 10 new doors in front of you." Looking ahead, Laehy says that while cryptocurrencies are currently being used mostly in the developed world as investment, he sees it as a powerful tool for the underdevel- oped world. "If you have a bank account, it's easy to make a transaction to pay, for instance, a Visa bill," says Laehy. "For people who don't have a bank account, now they'll have access to a global currency. This technology is here to stay." x — Kevin Manne THE RISE OF BITCOIN

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