Simanaitis Says
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BROTHER, CAN YOU SPARE A BITCOIN?
THE TERM “Bitcoin,” with upper-case B, has been defined as a person-to-person network of payment using open-source electronic protocol. I think of it as electronic kin to the earliest letters of credit passed among European bankers back in the late 1600s, the days of Neil Stephenson’s Baroque Cycle, particularly the middle of the trilogy, The Confusion. See http://wp.me/p2ETap-1nc for a review of this wonderful series.
In The Confusion, a gradual transition evolves from bartering to letters of credit to something resembling modern currency. Today, Bitcoin (the network) proposes the use of bitcoin (the currency) as a means of electronic payment.
For something as important as financial obligations, Bitcoin has delightfully obscure origins. Back in 2008, a personage named Satoshi Nakamoto published “Bitcoin P2P e-cash paper,” a proposal at Gmane, an online newsgroup. See http://goo.gl/XiPlgL for the abstract and link to the technical paper.
The corker is that no one owns up to being Satoshi Nakamoto. The names of several computer types/economists have been suggested, inevitably followed by strong denials. It’s conjectured that Satoshi Nakamoto might be a computer/economics counterpart of mathematician Nicolas Bourbaki. See http://wp.me/p2ETap-1Od for information about this phantom math guy (who’s actually a group of French mathematicians).
Anonymity hasn’t stopped marketing efforts, with T-shirts available from several sources—some even priced in bitcoin.
Anonymity hasn’t been Bitcoin’s only telling characteristic. Is it a genuine electronic currency? Or is it merely an online gambling venue for electronic speculation?
There are good arguments for each of these.
As of November 2013, 1000 brick-and-mortar stores accepted bitcoin payment; another 20,000 online businesses honored it as well. There are even Bitcoin wallets, virtual or paper documents containing relevant public and private keys giving access to the network. Transaction fees exist, but they’re generally lower than those charged by conventional credit-card providers. A master transaction list, the “blockchain,” records bitcoin ownership and prevents double-spending.
A paper Bitcoin wallet, above; a non-virtual bitcoin,below.
There are even physical representations of bitcoins. Each coin contains a slip of paper with the private key to a Bitcoin wallet. An internationally accepted symbol, cribbed from the euro’s, has also evolved, as has the abbreviation BTC.
Among organizations accepting bitcoin payment is WordPress, the content management system supporting SimanaitisSays.
This café in the Netherlands advertises its acceptance of bitcoin. Image by Targeryen.
There are three ways of acquiring bitcoins: exchanges where bitcoins are bought and sold for conventional cash; selling items for bitcoins; and bitcoin mining.
This last concept involves complex computer analyses of blockchains and bitcoin ownership. Proponents liken it to identifying new gold through mining. My mind fogs over with terms such as “proof-of-work,” Hashcash, botnets and “Application Specific Integrated Circuits performing 600 Gigahashes/sec. while using only 350 watts of power.”
Being relatively new, the Bitcoin network is very much a work in progress, with speculators at play. The outcome is a wildly fluctuating value of bitcoin, as determined by exchanges, by pricing of goods in bitcoin currency and by results of bitcoin mining.
In 2011, for instance, bitcoin value rose from 30¢ to $32, then dropped to $2. At the beginning of 2013, the bitcoin hovered around $13. By November 27, 2013, it hit $1000 on the Mt. Gox trading exchange. More recently, it was around $760.
Hardly the stability one would like for money in one’s pocket.
What’s worse, anonymity of the Bitcoin system has proved useful in money laundering, black markets and other dark endeavors. Last year, the FBI busted an organization called Silk Road, an online bitcoin-only drug market, its digital currency valued at $28 million. Banking authorities in China, India and Europe also issued warnings about the risk of bitcoin use and trading. Indeed, later the Chinese government flat outlawed bitcoin trading.
Caveat emptor; and come to think of it, caveat vendit too. I’ll stick with the T-shirt, bought by credit card. ds
© Dennis Simanaitis, SimanaitisSays.com, 2014
Simanaitis Says 
Welcome back! Hope you enjoyed your hiatus. I must say that this website is among my very favorites. Your breadth of subject matter, depth of knowledge and entertaining writing style was one of the reasons I kept my R&T subscription and now keeps me returning here. Well, that and a certain Mr. Egan…
I was going through withdrawal symptoms during the hiatus. Glad you are back. Looking forward to 2014 topics.