Bitcoin Currency of the Future?
By Marshall Murphy
The crypto-currency Bitcoin has surged in popularity over the last few months, hitting
an all time high April 10, at $266.00 a coin. The new digital currency is forcing a world
online to rethink the way it moves money on it.
Developed by what could be a single person or group of people under the pseudonym
Satoshi Nakamoto, the first version of the open source software “Bitcoin-Qt” was
released to the public in 2009. Bitcoin-Qt is an application for the peer-to-peer currency
that connects to the Bitcoin network generating unique digital wallet keys for the
coins and a corresponding “QR code” for scanning. The decentralized currency makes
individuals their own bank who can make transactions around the world.
Bitcoin is a mathematical based currency secured cryptographically with well-known
cryptographic methods making the actual Bitcoin system’s vulnerability to hacking,
slim to none. All transactions are secured cryptographically through the process of
Bitcoin mining. Mining is done via a network of computers working to solve complex
cryptographic puzzles. This process is a safeguard to keep the network secure. A Bitcoin
miner is rewarded for investing the time and energy to verify a transaction with a certain
amount of Bitcoin. The mining model was made to reflect how much time it takes
to actually mine gold. Once a transaction has been made it is saved as a “block” into
the public ledger known as the Blockchain. One “block” is produced approximately
every 10 minutes. Mining keeps the whole Bitcoin sphere running smoothly by solving
cryptographic puzzles, which verify Bitcoin transactions and bring more of the currency
into existence. The inherent value of Bitcoin is the time, energy and security of its
encryption.
Early versions of Bitcoin-Qt allowed mining just by pressing a button with any old CPU.
Today miners are using specialized A.S.I.C. (Application Specific Integrated Circuit)
chips for the extra computing power needed to get the job done.
There will only be slightly less than 21 million Bitcoins available. Today there are more
than 11 million Bitocin that have been mined into existence, with the last of the coins
said to be mined in 2140. After every 210,000 blocks mined and logged the reward is
cut in half. Today miners receive an award of 25 Bitcoin for every block of transactions
verified. The cryptographic methods used allow the Bitcoin software to determine
without a doubt, which addresses it went to. The miners insure no one can create Bitcoins
out of thin air.
Steven Kane a web developer in San Diego and a group organizer for a San Diego
Bitcoin meet up, found out about Bitcoin in 2010 in a chat room. He set himself up
a Bitcoin wallet and sent his address to the Bitcoin miner who had told him about it.
The guy in the chat gave him his first Bitcent (fraction of a Bitcoin) and he has been
interested ever since.
Kane made his first investment in Bitcoin after finding an opportunity in a forum.
“The guy was in Canada so what you would do was literally send him cash in the mail
and you would put your address on a piece of paper,” said Kane. “You could go to his
website, lock in the price and take a print out with the cash and mail it to the guy. That is
how I bought my first coins.”
Kane said he considered it a good investment because he saw not only the potential in
the technology but the growing community around the technology. So he decided to buy
more.
“The first coins I bought were at $1.44 and that was the first stash of coins I bought.
Then I put about 500 bucks into that. Then Less then a year ago I bought my next batch
of coins for $9 [a coin] then I put about $9,500 into that so total I put about 10,000 into
Bitcoin,” said Kane. “You can do the math it was at 266 bucks recently. I actually sold 2/
3 of my stash at $220.00.”
Kane chose to sell off his coins after seeing 20-50 percent gains a Bitcoin and some
pestering from his family telling him to sell. He said although he is very bullish with
Bitcoin he knew the market would correct itself.
Kane said what he calls the legacy banking system we currently have is archaic with
things like processing times lasting days and wire transfers. He said while he did profit
from Bitcoin he still wants to help build the community.
“I can send an email to you and its there in a second why can’t we do that for money?” he
said. “Bitcoin is a reaction against the legacy banking system it is filling niches and voids
that the legacy banking system is not addressing, it is not providing what people need.
There is a legitimate need for cash like transactions on the internet.”
The peer to peer nature of the decentralized currency makes it appealing to those who
believe fiat (government based) currencies are becoming more unreliable.
“Before I knew of Bitcoin I had burned dollar bills on the steps of the Federal Reserve
at an ‘End the Fed March,’” said Stephen Gormick, Bitcoin enthusiast, and Blogger
at Bitcoinmoney.com. “When I learned about bitcoin I was like this is needed, this is
maybe, not the way to end the fed but it is a darn good step in that direction.”
Gormick saw the potential of the currency since he stumbled upon an article in 2010
while he was working on his own startup company.
“I came to the realization that Bitcoin was a lot bigger than the project I was
working on,” said Gormick. “So I abandoned my project I had been working on for
nearly a year and have been involved in Bitcoin ever since. I could see the potential
right off the bat.”
Gormick realizes the volatility of the young market but it is everywhere not just
Bitcoin.
“Gold just had a huge rise and drop and it is kind of the same thing, the cost for
physical gold didn’t have that volatility it was only the paper gold that had that level
of volatility.” said Gormick. “The volatility the peaks and the valleys they aren’t real,
because you can’t buy at the bottom and you cant sell at the top. The true price is
somewhere in the middle.”
Gormick sees Bitcoin growing and soon every business will have a Bitcoin
component. Many investing in the young and volatile Bitcoin market are venture
capitalists, startup companies and specular. Bitcoin also happens to make the
“perfect poker chip,” fostering many Bitcoin gambling dens online.
Andrew Root a web Developer with Druple.org and technologist recently started
looking into Bitcoin after the spike back in April due to banks closing in Cypress. He
said he was very interested in the psychology of the young market that fluctuates
daily.
“I believe in Bitcoin I think it will probably do well but I really believe in crypto-
currency, Bitcoin could go either way but I think crypto-currency probably is an
idea that is here to stay. It is really interesting to watch what Bitcoin does as a front
runner.” said Root, “If another coin systems supplants it eventually that would be
interesting, but there are a lot of lessons to be learned from this, even if it doesn’t
pan out, I believe it will facilitate the moving of money on the internet and allow
more Internet services.”
There are many more crypto-currencies popping up trying to carve out a market
and compete with Bitcoin. Litecoin, Namecoin and PPCoin just to name a few.
Mt. Gox the Bitcoin exchange based in Japan has been making most of the trading
possible to convert Bitcoin into all the major fiat currencies 80 percent of all bitcoin
exchange goes through them.
Bitcoin and crypto-currencies are the future of Internet commerce, forcing third
party money processor giants like PayPal and Visa need to rethink where they
stand in the money moving market when people can do it themselves. With Mt. Gox
backing a new BitcoinATM the technology will make it easier than it already is to
convert cash into coin. These advances in crypto-currency are taking the idea of
how we spend money online and turning it on its head.
The Horse's Keepe 