I saw a young woman on TV who claimed she had attempted to live on Bitcoin for an entire week. I was intrigued by some of what she had to say. In only opting in for a week she encountered problems, because bitcoin is traded online so therefore she couldn’t get a soft drink out of the soda machine in her building, although she did buy clothes, shoes and other things using the medium.
Bitcoin is experimental. It’s a decentralized currency currently in use around the world. (And I’d never heard of it before this month)
It’s managed mostly via software designed by a pseudonymous developer, Satoshi Nakamoto. Now other client software offer open source licensing. Bitcoin is the first implementation of a concept called crypto-currency, first described in 1998 by Wei Dai on the cypherpunks mailing list. (Well that explains a lot—I’m not on that mailing list and I’m willing to bet most of you aren’t either.)
However, you can find out more than you ever wanted to know about bitcoin by going to Wikipedia.
I figure the federal banking system, or indeed the world banking system will soon find a way to either shut it down or get a cut of the action. The woman interviewed on TV said purchases made with bitcoin currently aren’t being taxed by anyone. (That’s sure to change before it becomes a household word.)
Where it gets confusing to me is the part that claims it’s built upon the notion that money is any object, or any type of record, accepted as payment for goods and services, or repayment of debts in a given country or socioeconomic context. (Say what? That sounds like how people way before our time traded or bartered with chickens or cow or God forbid---rocks. Except this is more like smoke. It’s not tangible coin made out of metal or paper and doesn’t rely on central authorities. So where does it come from and how does a person get some?)
Well, the rules say the bitcoin supply is regulated by software and the user agreement. Coin is distributed evenly by the CPU power to miners who help secure the network. These miner/servers communicate over an internet-based network and confirm transactions, adding them to ledgers so the same bitcoin can’t be used more than once.
(Huh? Okay, I still don’t get where the initial bitcoin comes from other than it sits in the ether waiting for someone to download the software and call it currency.)
The more I dig into this, the more confusing it gets. Not surprising since I’m someone who still writes checks. I don’t use online banking, or a debit card. And this sounds way more complicated.
What caught my attention was that it’s just a picture of a square with a circle in the middle and a big “B” in the center of that. Each one has an exchange rate that fluctuates quicker than the stock market as near as I can tell. In 2010 over 184 billion bitcoins were generated. In late 2011 the rate crashed from $30.00 to $2.00. Wow, it’s digital and functions peer to peer, but it crashed? Then I see in 2013 in a single month it roared back to $22.00 and went up from there. That seems radical, but if it’s Monopoly money, maybe it’s no big deal. Even reading all I did I can’t figure out if anyone makes “real” money dealing in these transactions. But, in March 2013 someone declared a split or fork in the chain and set up new software because the old software didn’t recognize the split. (Sounds ominous) I hope people aren’t buying our books with bitcoins.