By Xavier Kong
What is this Bitcoin? Who made it? How does one get it? KiniBiz answers these questions in this first part of the Bitcoin series.
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Bitcoin is, first and foremost, a cryptocurrency, which in itself means both nothing and everything, depending on who is being spoken to. A cryptocurrency is a medium of exchange, which uses encryption and cryptography for security. One of the defining points of a cryptocurrency, according to Investopedia, is that the currency is not issued by any central authority.
Theoretically, this thus renders the currency immune to government interference or manipulation. In layman’s terms, cryptocurrency is virtual money that is not governed by any authority, and cannot be tracked, or to quote Adam Giles of Brain Control.me, “Internet money!”
The very first cryptocurrency in the world is Bitcoin, which was the brain-child of Nakamoto Satoshi back in November 2008. That was when a paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System, first started making its rounds on the Internet. This paper detailed methods of using a peer-to-peer network to generate what was described as “a system for electronic transactions without relying on trust”.
This led to the foundation of the first open source Bitcoin client in January 2009, signalling the advent of the Bitcoin network, with Nakamoto Satoshi, the mysterious author of the Bitcoin paper, mining the first block of Bitcoins, known as the genesis block, which yielded 50 Bitcoins.
But, what is it that makes Bitcoin unique? Aren’t there already other means of spending or transferring money online like Paypal? According to Jerry Brito and Andrea Castillo’s Bitcoin: A Primer for Policymakers, Bitcoin’s method involves utilising the users themselves as a ledger to monitor the transactions, and to make sure that the value is not “double-spent”, which is one of the reasons monetary transactions online have, to this point, been monitored by trusted third-party bookkeepers.
As the code used to create Bitcoin has been provided as open source, there are currently many other forms of cryptocurrency, or “altcoin” out there, with prime examples being Dogecoin, which was made as a tribute to Internet meme Doge, and has recently successfully funded a car to joining the NASCAR circuit, as well as Litecoin, which is being touted as the successor to Bitcoin.
According to Mark Smalley of Brain Control.me, there are currently more than 200 versions of altcoin available, and it is likely that that number will hit 10 000 in 3 years.
Who made Bitcoin?
Nakamoto Satoshi is, as of now, still an anonymous person or group, and speculation is still ongoing as to the identity of Bitcoin’s creator.
Part of the speculation indicates that Nakamoto Satoshi may be a group instead of a person, and it was also pointed out that the man or group is not really of Japanese origin, as the nom de plume suggests.
Dan Kaminsky
According to Dan Kaminsky, an internet security expert in the United States, Nakamoto Satoshi is “a world-class programmer, with a deep understanding of the C++ programming language”.
“He understands economics, cryptography and peer-to-peer networking. Either there’s a team of people who worked on this, or this guy is a genius.” said Kaminsky.
The New Yorker’s Joshua Davis, who also joined in the search for the enigmatic founder of Bitcoin, followed Nakamoto Satoshi’s trail of online writing. What he found was that, after an initial post announcing Bitcoin which used American spelling, the programmer used British spelling, also referring to London newspapers and, at one point, uses the phrase “bloody hard” – a decidedly British way of saying that something is immensely difficult – and this all suggests that Nakamoto Satoshi has lived and/or studied in the United Kingdom or ireland at a given point in time.
However, even with those leads, the enigma that is Nakamoto Satoshi remains unsolved to this day. Fingers have been pointed at people such as founder of b-money Wei Dai, but all of the questions of “Are you Nakamoto Satoshi?” have been met with denial after denial.
However, an interesting response was provided by Michael Clear, one of the individuals marked as a possibility by The New Yorker’s Davis.
“I’m not Satoshi,” Clear said. “But even if I was I wouldn’t tell you.”
Clear continued to state that the point is that the enigmatic founder’s identity should not matter, with the currency being both as real, and as elusive, as its founder.
“You can’t kill it,” Clear said. “Bitcoin would survive a nuclear attack.”
As much as the confidence is understood, KiniBiz still hopes that there will not be a need to put that statement to the test.
How is Bitcoin obtained?
Bitcoin is obtained through maintaining the block chain, which is the chain of transactions that is used to validate the transactions made using the currency. This maintenance, a process called hashing or “mining”, involves computing a complex math equation. If the correct solution is obtained, the system rewards those who did it with newly created bitcoins, as an incentive from the bitcoin protocol.
“Think of it this way: a Bitcoin miner is like a volunteer accountant, and the system gains stability the more people use it,” said Alexander Wiyono during his presentation on Bitcoin mining.
However, the mining of Bitcoin has recently degenerated into an “arms race” of sorts, where previously miners used their computers to mine Bitcoin, followed by dedicated graphics processing units, then using field programmable gate arrays, and now with application specific integrated circuits.
The reason for this advancement in technology used is due to the simple fact that the odds of winning the reward for adding a block to the block chain decreases with the increase of miners. Yes, the higher number of miners grants the system more stability, but at the same time lowers the chance of people gaining the reward, hence the need for the sophisticated systems used now to mine Bitcoin.
Another issue with more miners is that by the time a user receives the Bitcoin reward, they have spent more money on electricity running the computing equipment than what the reward is worth, again showing the need for task-specific hardware that requires less power to do what it needs to do.
One way around this is with mining pools, where miners congregate to split the work, as well as the reward and risk, with other miners. However, it is becoming that even those who join pools have to think about when the cost of the electricity necessary to mine may outweigh the bitcoin rewards from doing so.
Of course, this bears the question of whether tech-savvy people are ahead in this endeavour. KiniBiz asked the question, and the answer was a solid yes.
“There are five or six base programs that are being used together in a way never done before that forms how cryptocurrencies work. Most technologists have already come into contact with three or four of these in the course of everyday lives, so cryptocurrencies are just a short leap. For the general public, they have to learn all the things together in a new way not done before, and that puts them behind the technologists,” noted Adam Giles of Brain Control.me.
However, with the currency having hit an all time high market capitalisation of US$13.9 billion, as well as a current market capitalisation of US$5.5 billion, Bitcoin is bound to turn heads in future, whether it is a rising sensation or a falling star.
Next: Bitcoin’s regional penetration
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