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This Is My Rifle: The Rise of BitcoinPosted by Jason James on 03/20/13 | Filed under Opinion, This Is My Rifle
I had heard of bitcoin before but never really gave it much thought. In my ignorance I had dismissed bitcoins as a mythical currency passed between players on World of Warcraft and creepy nerds looking for a safe way to buy heroin. But after doing some research I found that bitcoin might just be a very realistic solution to an incredibly unstable world economy.
Before I go any further I would like to first say that I have researched this topic but I am still having a hard time fully wrapping my head around it. Therefore, I am going to analyze the bitcoin system in the most basic way possible. If anybody reading this has a better understanding, please by all means leave a comment and educate me. And if you'd like a more in depth explanation of how bitcoin works, click here, here and here (good luck).
Created in 2009 by a programmer named Satoshi Nakamoto (some believe the name is a pseudonym while others believe Satoshi is the working title for a group of programmers), bitcoin was introduced to the public as a fully digital, completely anonymous currency used to purchase goods and services online. Designed by Satoshi to be a user-to-user currency, bitcoins require no banks, no regulation and no government intervention. In fact, any significant intervention or oversight is almost impossible since the software that generates bitcoins is an open source and available to anybody with an Internet connection. The blockchain, or ledger, is updated every 10 minutes and is 100% transparent with every bitcoin user having access to the blockchain all of the time. This means that every bitcoin transaction can be seen and reviewed; therefore, bitcoin is literally being audited 24 hours a day, 7 days a week.
When a new "block" appears, 25 new bitcoins are created each time by what are referred to as "miners". Because there is no central issuing agency (think Federal Reserve) the bitcoin currency is reliant on user participation in the development and distribution of new bitcoins, which are created through extremely complicated mathematical algorithms in the software. These algorithms are so complicated that most miners do not have the computing power to generate bitcoins alone so most belong to a mining pool; a group of miners linking computers together and combining their processing power to effectively mine the bitcoins. Once a bitcoin is successfully created, it is then distributed equally amongst the members of the pool.
The true genius behind bitcoin, however, has to do with the amount that are generated and added to circulation. When it was first introduced in 2009, 50 bitcoins were created and distributed every 10 minutes. In 2013 this number was halved to 25 and will be halved again every 4 years until the maximum limit of 21 million bitcoins has been created in the year 2140. Once the 21 million maximum has been met, bitcoins will no longer be generated and because of this hard limit, every bitcoin can be broken down into 100 million pieces- also appropriately called "satoshis". To further increase the legitimacy of bitcoins this process is not controlled by any external programmer, it is automatically generated through the software itself.
As a result of the pre-determined issuance of bitcoins, and lack of a central bank, fluctuations in value can be forecasted more accurately. The only way to truly manipulate the value of bitcoins is to either buy in (value goes up) or buy out (value goes down) all at once in a massive amount. And because they are so widely distributed, a mass manipulation of the currency is virtually impossible. There is no one institution or series of banks working together to inflate or devalue the currency- the bitcoin value is determined completely by the people who use it.
Since bitcoins are generated and passed directly between users, in theory, the banking system could be completely eliminated. Users accounts are located on their home computers, and are encrypted and anonymous. When transactions occur, bitcoins are moved from the account, into the user’s “wallet” (similar to a debit card or paypal account) and passed to a second party in exchange for a good or service. The only way to track these transactions is through the blockchain, and the only representation of the users are their account numbers. Bitcoin requires no names, photos or any personal information whatsoever.
As you can probably imagine, there is a downside to the bitcoin. In 2011 Mt.Gox (the world’s largest bitcoin exchange) was hacked and 500,000 bitcoins were stolen resulting in the overall value dropping by over 50% in a matter of seconds. And since accounts are anonymous, recovering stolen bitcoins is a nearly insurmountable task, which leads to an open gateway for illegal activity. Money laundering could become as common as buying bread and milk, and because bitcoin is not a national currency, users have the ability to send funds to anywhere in the world- including countries and organizations like North Korea or the Taliban.
But, if anything, that aspect of bitcoin could actually be the catalyst for positive changes in global politics. Governments, banks and corporations would no longer be able to control the distribution of wealth and power and it could force them to finally be fair in their treatment of poor countries. We the people would have control over the economy and could collectively direct the course of history strictly through our ability to anonymously fund the groups and politicians of our choosing. If bitcoin became the global standard currency, and because there is no central server to attack, the only way to stop it would be to shut down the Internet completely, and even then bitcoins can still be sent and received via SMS text message.
As it stands now, with physical dollars accounting for a tiny fraction of our economy, most of our currency is already digital. What bitcoin provides is a shift away from the greed and corruption in our political and financial sectors and establishes the freedom for citizens to actively determine the true value of goods and services. And as more people begin to use bitcoin- with 2000+ transactions occurring every hour, 30,000 new accounts opened and 5-10 million USD being passed through bitcoin every day- businesses are slowly opening up to the idea of accepting the currency as an alternative to dollars. In just 4 years bitcoins went from being worth just pennies on the dollar to an average of $30 per bitcoin with millions of dollars in world currencies being traded for bitcoins on a daily basis.
Bitcoin may be the first shot in a worldwide revolution or a minor blip on the economic radar. What cannot be denied though, is that we desperately need a savior from impending economic doom and bitcoin is definitely a step in the right direction. Now it’s our responsibility to support it and keep it moving.
(Jason James is an artist, freelance columnist and writer for RefinedHype.com. You can read/download his free eBook, "This Is My Rifle" and listen/download his most recent album, "Pyramids in Stereo". You can also contact him here and here.)