I have a special “accelerated-history” window. Floating Doctors has been working with the remote island Gnabe people of Panama for the last five years. Our first encounters with these islanders found them quite ignorant of a cash economy. Things changed fast. They now work for and use physical money. Fast-forward…the islanders will soon be confronted with the newest of currencies, crypto-currencies. The most well-known of these new currencies is Bitcoin. No more flipping heads and tails for major life decisions…it’s ones and zeros now!
FIRST—UNDERSTAND THE BLOCK CHAIN CONCEPT
Writing for LinkedIn, Jamie Skella defines block chain as “a shared record book. Each addition to this record book is a new line item.” Every entry is publicly recorded, locked into place and unchangeable, able to be seen by anyone connected to that particular block chain.
A Bitcoin block chain is a distributed ledger where thousands of transactions are recorded chronologically. This new type of record book is not in any centralized location. It is held by everyone involved with Bitcoin and is called a P2P (peer-to-peer) network.
“Peer-to-peer refers to systems that work like an organized collective, allowing each individual to interact directly with the others. In the case of Bitcoin, the network is built in such a way that each user is broadcasting the transactions of other users. And, crucially, no bank is required as a third party.
When a payer sends “money” to another person or business, the transaction is recorded on the shared ledger and funds are transferred directly. What replaces personal accounts and banks in these transactions are Digital Wallets.
DIGITAL WALLETS
Digital Wallets, to which you, alone, have a mathematical key, are where you store your currency. The wallet is a kind of virtual bank account allowing users to send or receive Bitcoins to pay for goods or save money.
Each Bitcoin transaction is recorded in the public ledger, but names of buyers and sellers are never revealed–only their wallet ID numbers. Transactions are totally private. Users can buy or sell anything without it being traced back to them. It has become the currency of choice for people online conducting illicit activities. It also provides a way to move money from country to country or person to person instantaneously. More and more companies are accepting it as a true currency. You can change Bitcoin to dollars at a bank or special currency exchanges.
WHERE DOES BITCOIN COME FROM?
An anonymous software developer (or developers), using the name Satoshi Nakamoto, published an open-sourced protocol in 2009. No one has ever verified the known identity of the author(s). The developers limited the supply of Bitcoins. Only 21 million Bitcoins can ever exist. But each Bitcoin can be divided. A satoshi is one hundred millionth of a Bitcoin and it is possible to send a transaction as small as 5,430 satoshis on the Bitcoin network.
Bitcoins, like gold, can be bought or they are earned by mining. According to Bitcoin, “Bitcoin mining is the process of making computer hardware do mathematical calculations for the Bitcoin network to confirm transactions.” Theoretically, Bitcoin is a truly community-run currency.
Roughly every 10 minutes, a new block of chronological transactions are confirmed and added to the block chain. Bitcoin miners collect transaction fees and newly created Bitcoins for the transactions they confirm. Not all Bitcoin users do Bitcoin mining, and it is not an easy way to make money.” You used to get 25 Bitcoins per confirmed block added to the chain. That is now halved to 12.
It takes a lot of computer power to do the mathematical calculations necessary to add a block to the chain…a lot of expenses are incurred. Large, corporate mining companies with a high hash rate—a measuring unit of processing power—are impossible for individual miners to compete with. This is a danger. It seems currency manipulators are a universal challenge no matter what form money takes.
Bitcoin is a new currency with growing pains. At present, it is volatile currency. If your wallet is in the cloud, it is susceptible to being hacked. On a computer, Bitcoin can accidentally be deleted or infected with a virus. And then, governments do not like losing control of their currencies and will, surely, start regulating. What happens when all 21 million Bitcoins are owned?
As you read this, other new, competitive crypto-currencies are coming on the market all over the world. But, hey, there are lots of currencies in the world today. Dollars, Yuans, Rupees…….and Coconuts on the faraway islands. Money is money. It’s any agreed-upon document of credit, from Chumash seashells to gold to virtual currencies. Things change, Kundan.
To learn more about Bitcoin, here is a great article from Wired: wired.com/2011/11/mf_bitcoin/
Vamos a Ver!
