Feb 7, 2014

฿itcoin

Digital currency is becoming a thing and may potentially supplant cash in 10 years.  ฿itcoin (BTC) is the original and most popular eCurrency.  Watch for it coming soon to a smartphone near you.




This topic needles to the speculative zone on the investment meter, so stop reading and go back to playing cribbage if you're scaredy cats towards risk.

I'll lightly scratch the ฿itcoin itch, with a few brief sentences per section.  Parts will start to smell of geek, but will try not to go too dorky.  If you want an in-depth walk in laywoman terms, tech scientist Michael Nielsen is sharp and does it right.


What is Bitcoin
In 2009, Bitcoin was released as open source software and cryptocurrency commenced.  Digital currency provides a secure way to buy and sell goods.  Bitcoin is decentralized, and the antitheses of traditional government backed fiat money such as dollars and Euros.  Some see this as a good thing, others are skeptical.

B'coin is intangible, you can't touch it like a filthy $5 bill.  When you buy ฿, it's nothing more than a file you download to your online eWallet, computer or phone.

Some online merchants are starting to accept Bitcoin payments with a click.  Here's an example of a vendor that takes online payment on their website via Bitcoin.  I'll send .01 of ฿ (about $7.50) to a seller for fresh underpants:




Clicking the "Confirm Payment" button transmits to the seller my Bitcoin address, amount, and encrypted data from my eWallet and we're all done.  My Bitcoin is reduced by .01 and the seller's Bitcoin is increased by .01.

Notice the transaction didn't require me to enter my name, credit card info, address or other personal info.  That junk is none of a seller's business, and I like very much the only thing shared is my Bitcoin address.  This adds a layer of protection and means crooks can't make out with my contact info like they did on the recent Target credit card database hack

Notice the QR code above, which allows for payment to happen easily by taking a photo with your smartphone.

A small number of brick and mortar sellers accept Bitcoin.  Say you're at Starbucks and want to put the squeeze on a venti skinny hazelnut sugar free latte.  'Bucks rings up your $4 liquid candy, displays a QR code that includes their Bitcoin address and the amount of your coffee.  You scan the code with you phone, binary magic happens (explained next, block chain updated and validated) and $4 of Bitcoin is transferred from you to them.

Bitcoin Block Chain
Every single Bitcoin transaction taking place around the world is automatically logged to a shared public ledger called the Bitcoin block chain.  In the above underpants purchase example, the .01 of Bitcoin transferred from me to vendor is auto-recorded in the block chain.  If a shady vendor tries to double charge my Bitcoin account, their second illicit charge wouldn't process through since the block chain recorded that I only authorized one transfer of .01 Bitcoin.

The validation of the block chain ensures transactions are legit.  The block chain is large and requires some serious computer power to maintain.  This leads us to the next section of maintaining and validating the block chain via the Bitcoin mining process.

Mining Bitcoin
The mining process sustains the integrity and purity of Bitcoin.

A fresh batch of 25 Bitcoins is mined every 10 minutes.  Mining is crowdsourced, anybody can do it.  However, generally only those with expensive, specialized hardware have enough computer oonze to solve the mining riddles first and are awarded the Bitcoin bounty.  The innards of mining are technical.  There is proof of work and hash calculations for the block chain header and more.  A few Google searches and 30 minutes of reading will get you close to understanding how it works.

The important part of mining is validation of the block chain takes place so that unauthorized, bogus transactions are identified via mathematical algorithms, weeded out and ignored.  This validation process requires significant computer muscle, is competitively crowdsourced, and the booty is a payout of 25 Bitcoins.  25 Bitcoins ~ $19,000 at today's exchange rate.

Nearly 13 million Bitcoins have been mined so far, and a max of 21 million will be mined by the year 2035.

Bitcoin as an Investment
The main problems with Bitcoin is widely fluctuating value and an uncertain future.  The uncertain future is likely contributing to the nutty price spikes.  That's an ugly loop.

In 2009, one Bitcoin was worth a fraction of a penny.  In 2013, one Bitcoin peaked at $1,100.  Today, one Bitcoin is worth $760.  Last week it was $810.

Because Bitcoin is decentralized, some countries may attempt to outlaw it while others will welcome it.  China, for example, is not allowing payment companies to clear Bitcoin transactions.  On the flipside, if I accept Bitcoin transactions on my website and a consumer in China chooses to pay with Bitcoin, it would be difficult for anyone to stop.

The Future of Bitcoin
Bitcoin will probably go one of three directions:

1) World governments will outlaw Bitcoin and digital currency will die.
2) A new type of digital currency will be introduced that supersedes Bitcoin.  Litecoin and Dogecoin are in the mix, but haven't gained much traction and are well behind Bitcoin in value and use.
3) Bitcoin will be widely adopted, the price will stabilize and the exchange of paper cash will decline.

Your Thoughts?
What do you think about Bitcoin and the future of digital currency?  Will it be widely accepted, die or something else will play out?

Personally, I'm bullish on electro-coins and bought a small stipend of ฿it's to kick the tires and see how it works.  I use Coinbase.com to purchase and store Bitcoin in a secure eWallet.

-Beard 

8 comments:

  1. I am fascinated by this but don't know enough about it to make a decision. My initial instinct is that it won't go away though. So glad you started discussing it here - definitely putting more research into it.

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    1. How has Texas winter been for you? -10 wind chill for us daily, we're ready for spring and I'm not shaving until the temp hits 70.

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  2. Very interesting. This is the first I've heard of it and I think I'd like to know more. I can definitely see a future for this, but can equally see the world's governments outlawing. I think I would like to use Bitcoin...

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    1. Keep your eyes peeled on Bitcoin, if it sticks, you'll see a lot more if coming in the next 18 months.

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  3. Anonymous2/09/2014

    Thank you, robocop. I learn so much reading your blog.

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    Replies
    1. Thanks Rambo, glad to hear these techno posts are teaching.

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Thanks for the note, check back for my response!