About this Statement
Coinut Canada Ltd. (“Coinut” or “we”) believes that our users should understand the crypto assets that they are able to trade using our crypto trading platform (the “Platform”). One of the crypto assets we offer on the Platform is bitcoin. We created this summary to help you understand the basics of bitcoin as well as some of the risks involved in trading it. While we tried to describe the key features of bitcoin here, this summary isn’t meant to tell you everything you’d want to know before investing in bitcoin. You should also do your own research on bitcoin to make sure you are comfortable investing in it.
Description of Bitcoin
In 2008, a paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System” made its rounds on the internet. This paper described methods of using a peer-to-peer network to generate what was described as “a system for electronic transactions without relying on trust”. The author of this paper was Satoshi Nakamato, an unknown person or group of persons.
The Bitcoin Network (as defined below) came into existence in 2009 when Satoshi Nakamoto mined the first block of bitcoin. As an open-source protocol, anyone can help work on the Bitcoin Network. However, some groups of developers involved in the Bitcoin Network are more prominent than others. For example, in 2011, the Bitcoin Foundation – a group of developers initially including Gavin Andresen, Jon Matonis, Patrick Murck, Charlie Schrem, and Peter Vessenes – was created to help develop the Bitcoin Network.
Bitcoin is based on the decentralized, open-source protocol of the peer-to-peer Bitcoin computer network (the “Bitcoin Network”), which creates the decentralized public transaction ledger known as the “blockchain”. The blockchain is a digital ledger – a ledger is a collection of accounts in which account transactions are recorded – that allows for the transfer of value across the internet without the need for centralized intermediaries (like your bank). Since the blockchain is public, the transactions recorded on it can be viewed by anyone on the Bitcoin Network. Also, part of the value proposition behind bitcoin is that the records making up the blockchain can’t be changed after they’ve been recorded, meaning that nobody can interfere with transaction information after it’s been recorded.
The blockchain records every bitcoin transaction (including creation or “mining” of new bitcoin) and every bitcoin address associated with a quantity of bitcoin. The Bitcoin Network, and software applications built to interact with it, can interpret the blockchain to determine the exact bitcoin balance, if any, of any public bitcoin address listed in the blockchain. A bitcoin private key controls the transfer or “spending” of bitcoin from its associated public bitcoin address. A bitcoin “wallet” is a collection of public bitcoin addresses and their associated private key(s).
The Bitcoin Network software source code includes the protocol that governs the creation of bitcoin and the cryptographic operations that verify and secure bitcoin transactions. Bitcoin has no central decision-making body and instead relies on open competition and voluntary consensus among its participants to govern the Bitcoin Network. To resolve disputes in the Bitcoin Network, participants modify the open-source software and persuade other users and miners of bitcoin to adopt the proposed modification.
Bitcoin is a new form of value that people are still trying to understand. So far, people primarily think about bitcoin as a means of exchange and/or a store of value. People using bitcoin like money to buy things are using it as a means of exchange. While bitcoin can be used to buy things, there aren’t that many companies that accept it as payment yet. Bitcoin has also been the subject of intense speculation, which has led to drastic changes in how much its worth. The big changes in bitcoin’s price can make it hard to use as a means of exchange. Speculators and investors, on the other hand, use bitcoin as a store of value. A store of value is something that doesn’t necessarily go down in value over time (like a new car does) and that you can store and use at a later time. For example, bitcoin has been compared to gold as a protection against inflation, which causes the decreasing purchasing power of traditional currencies. Bitcoin has a built-in limited supply, meaning that no one can create more of them and cause inflationary pressure.
Like other crypto assets, there are some general risks associated with investing in bitcoin. We identify many of these general risks in the risk statement we publish on our website, including risks relating to: (i) volatility; (ii) access, loss or theft, (iii) control of processing power; (iv) settlement of transactions on crypto asset networks; (v) momentum pricing; (vi) private keys; (vii) internet disruptions; (viii) faulty code; (ix) network development and support; (x) regulatory risk; (xi) network forks; (xii) airdrops; (xiii) voting rights; (xiv) cybersecurity incidents and other systems and technology problems; and (xv) unforeseeable risks. We also point out some risks that are specific to bitcoin below. While we tried to describe the key risks associated with bitcoin here and in our risk statement, these aren’t all of the risks associated with trading in bitcoin. You should also do your own research on bitcoin to make sure you are comfortable investing in it.
As the use of the Bitcoin Network increases without a corresponding increase in throughput of the networks, average fees and settlement times can increase significantly. Increased fees and decreased settlement speeds could preclude certain use cases for bitcoin and can reduce the demand for and price of bitcoin. There is no guarantee that any of the mechanisms in place or being explored for increasing the scale of settlement of transactions in bitcoin will be effective, or how long these mechanisms will take to become effective.
Concentration of Bitcoin Holdings
The largest bitcoin addresses hold a large portion of the bitcoin currently outstanding. Market volatility may result when large holders of bitcoin decide to sell significant amounts of their bitcoin positions.
Significant Energy Consumption
Because of the significant computing power required to mine bitcoin, the network’s energy consumption may ultimately be deemed to be or indeed become unsustainable (barring improvements in efficiency which could be designed for the protocol). This potential unsustainability could pose a risk to broader acceptance of the network.
Decrease in Block Reward
A bitcoin halving is an event where the block reward for mining new bitcoin is halved, meaning that bitcoin miners will receive 50% less bitcoin for every transaction they verify. Bitcoin halving occurs every 210,000 blocks, which equates to a halving occurring approximately every 4 years. The last halving occurred on May 11, 2020, when the block reward was reduced from 12.5 to 6.25 bitcoin. As the block reward continues to decrease over time, the mining incentive structure will transition to a higher reliance on transaction verification fees to incentivize miners to continue to dedicate processing power to the blockchain. If transaction verification fees become too high, the marketplace may be reluctant to use bitcoin.
How Coinut Decides to List Crypto Assets
Coinut reviews crypto assets before making them available for trading on the Platform. In making our decision to list a new crypto asset, we consider publicly available information about the crypto asset, including (among other things) its creation, design, governance, usage, supply, demand, maturity, utility, liquidity, material technical risks and legal and regulatory risks. Our review process is fulsome and flexible, and we don’t prioritize any one factor over another. You should review the risk statement published on our website for more information about our procedures for determining whether to make a crypto asset available for trading on the Platform.
Coinut is offering crypto contracts to purchase and sell bitcoin in reliance on a prospectus exemption contained in the exemptive relief decision Re Coinut Canada Ltd. The statutory rights of action for damages and the right of rescission in section 130.1 of the Securities Act (Ontario) and similar legislation in the other provinces and territories of Canada would not apply in respect of a misrepresentation in this Statement.
No Canadian securities regulatory authority has expressed an opinion about bitcoin, including an opinion that bitcoin is not itself a security and/or derivative.
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