What ARE Bitcoins, and How Can I Get Some?

Well we should have known it would only be a matter of time.  Just like everything else Internet.  Yes, MONEY!   Our dearly beloved Web has spawned Money of its own. 

Like everything else, there's a bit of time lag, as this is not a brand new development.

The name of the crypto-currency game is Bitcoin.  And it has captivated the internet and the world lately with stories of new found wealth, and sometimes bad luck.  Like the story of James Howell, an IT worker from Newport, Wales, who discovered he had accidentally thrown out a hard drive containing 7500 bitcoins, now worth $8 million.  He obtained the coins in 2009 for almost nothing.  When he threw out his old hard drive last July -now buried in a Newport landfill- the coins were worth nearly $900,000.

What  is Bitcoin?

Bitcoin is an open source, decentralized, peer-to-peer, digital currency and payment network that is completely based on the belief that Bitcoin has value.  It was introduced in 2009 by the pseudonymous developer "Satashi Nakamoto".  It is called crypto-currency, or cryptocurrency, because it uses cryptography to secure funds.  At the basic fundamental level, bitcoins themselves are strings of numbers generated in a computer.  Bitcoins are transferred between addresses derived from cryptographic keys. According to the Bitcoin Website, "Bitcoin is nothing more than a mobile app or computer program that provides a personal Bitcoin wallet and allows a user to send and receive bitcoins with them."  A wallet is a collection of addresses and their associated private keys.  Transactions are verified on a decentralized network of computers all over the world.  A proof-of-work system is used by designated computers in the system to prevent double-spending of the same bitcoins twice, a problem with digital currencies.  That's where the private keys for Bitcoin addresses come in, to validate authenticity.  This diagram does a good job of showing what takes place during a given Bitcoin transaction.

Notice the .999 fine silver on these Casascius coins

You buy bitcoins through an exchange where you set up an account that you transfer funds into to start the process.  They can also be exchanged in physical form with the Casascius coin, each worth a digital Bitcoin.  These coins are produced by Casascius LLC, a Utah Limited Liability Company, and are encoded with the actual digital value of a given bitcoin.  You can also acquire them through payment for goods and services, exchanging them with other individuals, and earning them through competitive mining, where you donate your computer's time to Bitcoin, so it can be used to solve complex mathematical  problems required to validate transactions.  When a problem is solved, you are awarded bitcoins as a transaction fee.

Very fine minting is quite evident here

Storing bitcoins can be done in several different ways, however security has been an issue that has seen a lot of noteriety of late.  They can be stored online, on personal hardware, or on paper print-outs.  The best proposed method of storage is suggested to be paper generated by a known safe computer.  According to Bitcoin, the main risk to wallets is user error leading to lose or deletion, or poor security enabling theft.  

In 2012, The Economist proposed that Bitcoin has become so popular because of "its role in dodgy online markets", a notion that seems quite logical, considering the unregulated nature of the beast.  And by this time, most of us are at least a little familiar with the Silk Road saga that played out, and is actually still plating out, earlier this year.  When the FBI shut down Silk Road v.1.0 in mid-2013, they subsequently took control of approximately %1.5 of all bitcoins in circulation, lending solid credence to the notion.  

That's a point worth noting, as governments don't like unregulated, untraceable currency at all.  It is a threat to the power base and status quo.  There will be further convulsive fits of angry aggression as the governments and "old money" of the world try to find ways to reign in this new terror Bitcoin.          

It is worth mentioning that within twenty-four hours of the FBI shutdown, the Silk Road v.2.0 was up and running.  Several incarnations of the notorious website have supposedly been in operation in the months following the raid.  This type of activity is a good example of just how untraceable bitcoins are, as the Silk Road had been a purveyor of any drug imaginable, guns,

murder for hire, prostitution, and possibly any other crime you can think up.  And the first directive on the site was "get some untraceable money".  Founder Ross William Ulbricht awaits murder and narcotics charges in New York.  See my blog "Social Media and the Illusion of Safety and Security in the Information Age" for more on the Silk Road and Ulbricht.



Bitcoins have been likened to a Ponzi scheme, and eminent collapse is predicted, regularly at that.  It is said to contain the seeds of its own destruction, in that it is not unique in history, and resembles many forms that have come and gone; until central banks came to be in the 17th century, currency was unregulated even if governments did make it.  And think of gold, silver, bank notes, coal company scrip, even cigarettes in a prison.  Many in the economic fields have noted that money can't succeed with a fixed supply, as with the Bitcoin cap.  Currency is to be used for transactions, and the more transactions there are, the more money you need.  Note the fractional use of bitcoins already.  If there are going to be unlimited fractions of a bitcoin, then there is effectively not a cap on the quantity.  That is a fundamental contradiction in the stated postulate behind the theorem of this "new" currency.  If there is simply new funding paying for former funding, and no return on an underlying investment to generate growth and value, the device will collapse.  If people decide that bitcoins have no value, the system of Bitcoin will collapse.  There could be sad times for those on the top floors of the house of cards.  But we can't possibly go to economics school here.  Just some thoughts to mull, and perhaps get you thinking in other directions.

In the time that Bitcoin has existed, it has been lauded as the gateway to utopia, and scorned as nothing short of a colossal scam.  Some of the predictions of doom that I have studied come from a time when the value of a bitcoin hovered at around $250, and shortly before at $10.  With today's value fluctuating around $1,000, it might seem that the naysayers are wrong.  But I don't think this is necessarily the case.  It could be that the bubble simply continues to grow.  That time in the past when a bitcoin would buy you a pizza, maybe?  Last year.  So, as always has been the case, don't put all your eggs in one basket.


That is some impressive growth.

I really am not particularly for or against Bitcoin.  I actually like the notion of a money that can be used privately to conduct your business as you see fit, without interference from outside forces that probably don't care a damn about me as a human being.  But we all, especially those of us
in the IT fields, know that there are dark forces busy at work out there on the Dark Net, seeking only to enrich themselves at any cost.  And some inflicting as much damage as they can while they're at it, just for the hell of it.  So, my friends, do be careful in all that you do, and may God go with you.

And so the dice roll.