BitCoin

bitcoin Mr Nakamoto

If the banks can create money out of nothing, backed by nothing, then why not create an internet currency out of nothing, backed by nothing?

BitCoin is the world’s fastest growing currency, unregulated, backed by nothing. It could also be yet another Ponzi scheme.

A currency is only worth what people think it is worth, that is its only value, as apart from other people accepting it, and placing the same value in exchange as you do, it has no other value as it has no intrinsic utilitarian value. That is why in Germany, when their currency collapsed, we saw folks wheeling around barrows full of money, and why the Germans to this day are paranoid about their currency.

And you cannot trust the banks, which are little more than criminal organisations. Ask bank customers in UK who have been caught up in miss-selling scams. Or ask bank customers in Cyprus with over 100,000 euros in the bank.

Bitcoin is a decentralized digital currency based on cryptography and an open-source peer-to-peer internet protocol. It was introduced by a pseudonymous developer named Satoshi Nakamoto in 2009.

Internationally, bitcoins can be exchanged by personal computer directly through a wallet file or a website without an intermediate financial institution. In trade, one bitcoin is subdivided into 100 million smaller units called satoshis, defined by eight decimal places.

Bitcoin does not operate like typical currencies: it has no central bank and no central organization confirms nor controls its transactions. Instead, bitcoin relies on a peer-to-peer network of servers to broadcast and confirm transactions. The money supply is automated by a set algorithm implemented by all participating servers.

Currently, 25 bitcoins are generated every 10 minutes. This will be halved to 12.5 BitCoins within the year 2017 and halved continuously every 4 years after until a hard-limit of 21 million bitcoins is reached within the year 2140. As of March 2013 over 10.5 million of the total 21 million BitCoins had been created; the current total number created is available on-line. In November 2012, half of the total supply was generated, and by end of 2016, three-quarters will have been generated. By 2140, all bitcoins will have been generated with the last one consisting of fractional parts. To ensure this granularity of the money supply, clients can divide each BitCoin unit down to eight decimal places (a total of 2.1 × 1015 or 2.1 quadrillion units).

If there is no Central Bank, then who is generating BitCoins? The network itself is generating BitCoins, and because there is an upper limit, there is a finite supply of BitCoins.

In 2011, economist Paul Krugman reviewed bitcoin saying that

[bitcoin] has fluctuated sharply, but overall it has soared. So buying into [bitcoin] has, at least so far, been a good investment. But does that make the experiment a success? Um, no. What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich. And that’s not at all what is happening in [bitcoin]

As of March 2013, the monetary base of bitcoin is valued at over $1 billion. The large fluctuation in the dollar value of a bitcoin has evoked criticism of bitcoin’s economic suitability.

Since January 2013, bitcoin has trebled in value. This seems mainly due to flood of investors out of the euro. With the Cyprus experience of money being stolen from savings held in Cypriot banks, no deposits in euros in Greece, Italy and Spain can be seen as safe.

One of the problems with the BitCoin at the moment, is that it is being seen as an investment vehicle not as a currency, and speculators have jumped on the bandwagon.

Why should we trust BitCoin? The main reason we can trust BitCoin is that the people behind it and its supporters are anarchists and hackers who are determined to see it succeed. Its main threat being a digital attack, not wise when the word’s best hackers will be on your case.

When the Bank of England prints money (fancy name: quantitative easing) it passes money to the banks, the bankers get richer, wealth is concentrated in fewer and fewer hands, the poor get poorer.

The people behind BitCoin live in a squat in London (though is disputed and dismissed as hype, part of the mystique surrounding bitcoin).

Cash is anonymous. BitCoin is anonymous.

I can communicate with B on the net. A string of digits flows back and forth. That is all BitCoin is, a string of encrypted digits, encrypted digits that have mutual value to recipient and sender.

Physical bitcoins are available, with an internal encryption key to the digital bitcoins.

Bitcoin Foundation exists for all things bitcoin.

• Bitcoin: the fastest growing currency in the world – video
• Bitcoins: Could virtual cash replace money?
• Bitcoin popularity ‘boosted by euro’
• The bitcoin boom
• Bitcoin Prices Blast Through $100, Driving Speculators Wild
• Want JP Morgan to crash? Buy silver

Tags: BitCoin, currency, digital currency, euro, money