Subject to additional financing, the Company plans to create a portfolio of
Digital Assets including bitcoin and other “protocol tokens” to
provide investors a diversified pure-play exposure to the bitcoin and blockchain
industries. The Company intends to acquire Digital Assets through open market
purchases. The Company has not participated in any initial coin offerings as
it believes most of the offerings entail the offering of Digital Securities
and require registration under the Securities Act and under state securities
laws. Since about July 2017, initial coin offerings using Digital Securities
have been (or should be) limited to accredited investors. Because we cannot
qualify as an accredited investor, we do not intend to acquire coins in initial
coin offerings or from purchasers in such offerings. Additionally, the Company
may acquire Digital Assets by resuming its transaction verification services
business through outsourced data centers and earning rewards in Digital Assets
by securing their respective blockchains.
Digital asset blockchains are typically maintained by a network of participants
which run servers which secure their blockchain. The market is rapidly evolving
and there can be no assurances that we will be competitive with industry participants
that have or may have greater resources than us.
Blockchain Technology and Digital Asset Initiatives
We are also focused on digital assets and blockchain technologies. Subject
to additional financing, we plan to continue to evaluate other strategic opportunities
in this rapidly evolving sector in an effort to enhance shareholder value.
Transaction Verification Service Business (digital asset mining e.g. bitcoin,
Suspended)
We believe that with additional funding we may be able to resume our transaction
verification services business (Digital Asset mining e.g. bitcoin) and believe
this may provide revenue growth. If we are successful in resuming our transaction
verification services business, we anticipate utilizing outsourced data centers
and may diversify operations by securing other blockchains in addition to bitcoins.
If we resume our mining operations, we do not intend to actively trade the Digital
Assets but rather hold them for our own account and sell them for U.S. dollars
or other currencies including virtual currencies.
Transaction verification entails running ASIC (application-specific integrated
circuit) servers or other specialized servers which solve a set of prescribed
complex mathematical calculations in order to add a block to a blockchain and
thereby confirm Digital Asset transactions. A party which is successful in adding
a block to the blockchain, is awarded a fixed number of Digital Assets for our
effort.
A bitcoin is one type of a Digital Asset that is issued by, and transmitted
through, an open source, math-based protocol platform using cryptographic security
that is known as the “Bitcoin Network.” The Bitcoin Network is an
online, peer-to-peer user network that hosts the public transaction ledger,
known as the “Blockchain,” and the source code that comprises the
basis for the cryptography and math-based protocols governing the Bitcoin Network.
No single entity owns or operates the Bitcoin Network, the infrastructure of
which is collectively maintained by a decentralized user base. Bitcoins can
be used to pay for goods and services or can be converted to fiat currencies,
such as the US Dollar, at rates determined on Bitcoin Exchanges or in individual
end-user-to-end-user transactions under a barter system.
Bitcoins are “stored” or reflected on the digital transaction ledger
known as the “Blockchain,” which is a digital file stored in a decentralized
manner on the computers of each Bitcoin Network user. The Blockchain records
the transaction history of all bitcoins in existence and, through the transparent
reporting of transactions, allows the Bitcoin Network to verify the association
of each bitcoin with the digital wallet that owns them. The Bitcoin Network
and Bitcoin software programs can interpret the Blockchain to determine the
exact bitcoin balance, if any, of any digital wallet listed in the Blockchain
as having taken part in a transaction on the Bitcoin Network.
The Blockchain is comprised of a digital file, downloaded and stored, in whole
or in part, on all bitcoin users’ software programs. The file includes
all blocks that have been solved by miners and is updated to include new blocks
as they are solved. As each newly solved block refers back to and “connects”
with the immediately prior solved block, the addition of a new block adds to
the Blockchain in a manner similar to a new link being added to a chain. Each
new block records outstanding bitcoin transactions, and outstanding transactions
are settled and validated through such recording, the Blockchain represents
a complete, transparent and unbroken history of all transactions on the Bitcoin
Network.
The Bitcoin Network is decentralized and does not rely on either governmental
authorities or financial institutions to create, transmit or determine the value
of bitcoins. Rather, bitcoins are created and allocated by the Bitcoin Network
protocol through a “mining” process subject to a strict, well-known
issuance schedule. The value of bitcoins is determined by the supply of and
demand for bitcoins in the Bitcoin Exchange Market (and in private end-user-to-end-user
transactions), as well as the number of merchants that accept them. As bitcoin
transactions can be broadcast to the Bitcoin Network by any user’s bitcoin
software and bitcoins can be transferred without the involvement of intermediaries
or third parties, there are little or no transaction costs in direct peer-to-peer
transactions on the Bitcoin Network. Third party service providers such as Bitcoin
Exchanges and bitcoin third party payment processing services may charge significant
fees for processing transactions and for converting, or facilitating the conversion
of, bitcoins to or from fiat currency.
Overview of the Bitcoin Network’s Operations
In order to own, transfer or use bitcoins, a person generally must have Internet
access to connect to the Bitcoin Network. Bitcoin transactions between parties
occur very rapidly (within several seconds) and may be made directly between
end-users without the need for a third-party intermediary, although there are
entities that provide third-party intermediary services. To prevent the possibility
of double-spending a single bitcoin, a user must notify the Bitcoin Network
of the transaction by broadcasting the transaction data to its network peers.
The Bitcoin Network provides confirmation against double-spending by memorializing
every transaction in the Blockchain, which is publicly accessible and transparent.
This memorialization and verification against double-spending is accomplished
through the bitcoin mining process, which adds “blocks” of data,
including recent transaction information, to the Blockchain.
Brief Description of Bitcoin Transfers
Prior to engaging in bitcoin transactions, a user generally must first install
on its computer or mobile device a bitcoin software program that will allow
the user to generate a digital “wallet” (analogous to a bitcoin
account). Alternatively, a user may retain a third party to create a digital
wallet to be used for the same purpose. Each such wallet includes one or more
unique digital addresses and verification system consisting of a “public
key” and a “private key,” which are mathematically related.
In a bitcoin transaction, the bitcoin recipient must provide its digital address,
which serves as a routing number to the recipient’s digital wallet on
the Blockchain, to the party initiating the transfer. The recipient, however,
does not make public or provide to the sender its related private key. The payor,
or “spending” party, does reveal its public key in signing and verifying
its spending transaction to the Blockchain.
Neither the recipient nor the sender reveal their digital wallet’s private
key in a transaction, because the private key authorizes access to, and transfer
of, the funds in that digital wallet to other users. In the data packets propagated
from a user’s bitcoin software program onto the Bitcoin Network to allow
transaction confirmation, the sending party must “sign” its transaction
with a data code derived from entering the private key into a “hashing
algorithm.” The hashing algorithm converts the private key into a digital
signature, which signature serves as validation that the transaction has been
authorized by the holder of the digital wallet’s private key.
