The Buzz Behind Bitcoin
The other day my friends asked me, “Taira, what on earth are you writing about now?”
I had been furiously typing away at my laptop for about 30 minutes while grabbing some bubble tea with my classmates. See, I was always perceived as the funny one (or at least I like to think I was) in my friend group. So, you can imagine their reaction when I told them all about how I was writing an article on Bitcoin.
To say it simply, they freaked out.
“That block link stuff???”
“That super smart expensive money??”
“Who’s that?”
My intelligence had all of a sudden grown exponentially in their eyes. Although I was confused and taken aback at first, I think that their reaction is fair. I found the concept of Bitcoin rather complex at first, but after an adequate amount of research, it became evident that the basic concept itself wasn’t that hard to grapple.
So here’s to the average citizen, the one confused by all the buzz around bitcoin.
This article’s for you.
Bitcoin in a very small nutshell
Bitcoin was created on January 9th, 2009 (pretty recently) by an anonymous entity under the pseudonym “Satoshi Nakamoto”. Bitcoin is a network reliant on self-verification that enables a new payment system and shifts to solely digital money. There are a few things that make Bitcoin a cool and new concept.
Think about our dominant currency system right now. If we have an entity to peg responsibility for our monetary transactions on, chances are we would point to the Government-run banks. The concept of having an entity or entities controlling your money is called having a “Centralized Network”.
The main reason Bitcoin has so much attention right now is that they were the first successfully produced “Decentralized Transaction Network”. They achieved this through a technology called “Blockchain”
Blockchain
Blockchain: the one concept that astounds and scares people shitless at the same time. Let’s break it down to a very rudimentary level to avoid the latter.
To start off, break the scary word up into two; “Block” and “Chain”.
Blocks store information about transactions like the date, time, and value of transactions made. They also record who is participating in these transactions through a digital signature, that acts as a username allowing for confidentiality.
When a block is set to contain new information, it is added to a chain of blocks dubbed the “Blockchain”.
How Does it Work?
Well first off, the transaction must be made. This means that the trade must be recorded and passed.
Second off, the transaction must be verified.
Imagine you are playing a game of poker. In poker-like games, you would have a certain amount of chips that every player has and can choose to make transactions with. Say you pool in $5, and lose to Matt, you would give Matt $5 in chips.
Now imagine you took away the chips altogether. The most logical thing to do would be for everyone playing to keep a record of the transactions. This way, they could have an account of who owes who and value behind the transaction as well. When the game would finish, you would compare your records with one another. This way you can tell whether someone tried to gain an unfair advantage by writing down an incorrect value.
Replace the chips with bitcoin, and you get the general idea of blockchain’s verification system. Every bitcoin user has a device (called a node) that contains a shared public ledger on which a transaction is broadcasted on. When verified by all users, the transaction is verified.
This is where the idea of “Mining Bitcoin” comes in from. Miners are getting paid for their work as auditors by doing the work of verifying previous Bitcoin transactions to prevent people from spending the same digital money twice. I won’t go too in-depth on this topic, but if you want to learn more check out this link.
That transaction will then be stored in a block, and be given a unique code called a “Hash” as well as the hash of the block added right before it.
How is Bitcoin different from Conventional Currency?
Well, for starters, it is a decentralized peer-to-peer payment network system. Through bitcoin, you eliminate the need for a middleman- such as a notary. This also means there isn’t anyone controlling your money. This means six main things:
- You don’t have to wait to transfer money; you are in control of your own money
- You don’t have to worry about a government looking into your personal purchases
- Fees remain stagnant for any amount of transaction you make, you save money in areas you were spending unnecessarily (Exchange Fees)
- Easy and fast to send money across the world (~10 minutes)
- Allows you to operate in semi-anonymity
- Transactions cannot be redone
Second off, there is a set amount of bitcoin in circulation. In other popular forms of currency, like the Dollar or the Euro, you have an unlimited amount of money that can be possibly produced. This way, if too much currency is produced by the authority figure, the value of the note goes down. Since there is only a set amount of Bitcoin that will ever be in circulation (₿21,000,000), the value will, by theory, increase alongside supply and demand. This means two main things:
- A rather good investment (THEORETICALLY)
- Bitcoin has a controlled value
Alright, Should I Be Stoked?
Let’s briefly go over the pros and the cons of bitcoin itself.
Pros:
- Allows for lower transaction fees
- Independence From Political Agents and Creators
- Greater Anonymity than traditional methods
- International Transactions Easier Than Regular Currencies
- Limited amount of Bitcoin
Cons:
- Wild Price swings
- Environmental Ills of Bitcoin Mining
- Used for illicit activity
Implications — Expanded
I feel like it’s very important to go over the implications of Bitcoin in the real world due to the ethics that can be involved in this idea. Ethics are tricky to sort out, especially in such new innovations in where the parameters have not been previously set.
We see a bit of an ethical dilemma when it comes to the environmental ills of mining bitcoin. Whether we like it or not, the world we live in is not in an ideal state. The earth is dying, because of our careless expending of energy and burning of fossil fuels. The process in which bitcoin is mined uses a lot of power. A fair amount of Bitcoin mining companies are based in countries that already combat issues with energy expenditure and clean air. In a country like China, this could mean a rise in already high pollution levels as more energy is in demand. Do we really want to increase emissions?
The bigger ethical dilemma we see with the implementation of Bitcoin is having users purchase illicit content. The pseudonymous aspect of bitcoin acts as a sort of mask when users go out of their way to purchase such content. Their identity is concealed, and as a result, it makes it easier for people to purchase this in the first place and incentivizes people who didn’t purchase previously because of their fear of getting caught. It makes sites like the “Silk Road”, a commonly known site on the dark web, easier to purchase through by providing an extra layer of security. This could mean an increase in criminal activity through the help of partial-anonymity.
Do we really want criminals to have access to such a service?
It’s important to, as an individual, weigh the values of the issues and the benefits to reach an opinion on Bitcoin.
Final Notes
To end off, Bitcoin is still evolving. It’s a complex and new concept that has yet to reach its full potential, and pretty cool too. It’s solved problems such as transaction accessibility or monetary dependence, and it helped contribute to problems such as global warming or partial-anonymity to wrongdoers.
At the end of the day, whether or not you support the idea of Bitcoin, it’s here right now. It has and will continue to influence the world we live in, one block at a time.
