My Introduction to Bitcoin

I have recently become interested and invested (on a small scale) in the crypto-currency known as Bitcoin.

Bitcoin was conceived of in 2008, by a mysterious individual (or, some say, a group of individuals) known as Satoshi Nakamoto, when he released this academic paper.

Irish readers might be interested to know that a post-graduate student of cryptography at Trinity College, Dublin, named Michael Clear was once identified as being the true Satoshi Nakamoto.

Many people find Bitcoin difficult to understand but there are plenty of links on the Internet which are useful when it comes to grasping the concepts involved.

Here is an enlightening video from www.weusecoins.com

As mentioned in the clip, Bitcoin can be generated in ‘blocks’ by anyone with a computer and this activity is known as ‘Bitcoin mining‘.

However, recently the CPU power required to mine Bitcoins has become prohibitive for smaller miners, meaning they are unlikely to be able to mine enough value in Bitcoins in excess of their computing and electricity costs, therefore Bitcoin mining is becoming the preserve of larger operators.

Nevertheless, by its nature, Bitcoin possesses a number of advantages when compared to traditional currencies, as issued by the central banks of sovereign nations (or federal entities like the EU, in the case of the Euro).

Bitcoin is the “first decentralized digital currency” – which means that it is not hosted on one central server, but rather it resides, and perpetuates itself, as a distributed currency on networks and nodes across the entire Internet.

Bitcoin can be used online to transfer digital cash from person to person (or ‘peer-to-peer’) without the need for a bank or clearing house, which means (for businesses and individuals) that there are no set-up costs, lower fees, no chargebacks and the ability to make instantaneous micropayments – e.g. for the equivalent of cents in value.

Nowadays, Bitcoin can be used to make purchases from many different online vendors and it is increasingly being accepted offline in more and more worldwide locations such as restaurants and pubs.

Indeed, one American couple recently set out to see whether it would be possible to “travel the world using nothing but Bitcoin” and you can read about their colourful adventures here.

Bitcoins are stored in accounts called ‘wallets’ such as provided at Blockchain and they cannot be frozen, because if a wallet provider goes offline, a user can simply restore his or her balance to another wallet by using an offline back-up of their transaction history.

To fund a Bitcoin wallet from a bank account or credit card, users may use a Bitcoin ‘exchange’. An example of a popular exchange in the United Kingdom is bitbargain, while Bitstamp has a reputation for reliability in the United States.

In Ireland, where I am located, Eircoin claims to be the country’s “only Bitcoin broker”, but this position is sure to be challenged in the near future as the use of Bitcoin spreads – and competition increases in an expanded market.

Eircoin, headed by the helpful David Fleming currently only allows its clients to buy Bitcoins and does not facilitate them to sell their coins peer-to-peer, although this may change soon.

Another very convenient option for Bitcoin users is PikaPay, which sends Bitcoins using Twitter IDs and is as “Easy as a Tweet“. PikaPay also gives away free Bitcoins to help new users get started.

In late October, Vancouver in Canada became home to the world’s first Bitcoin ATM which allows patrons to exchange cash for Bitcoin and vice-versa.

Currently, Bitcoin is trading at approximately US $200 per unit but American broadcaster Max Keiser, who visits the Kilkenomics festival in Ireland next weekend, has predicted that the price of one Bitcoin could rise as high as US $700,000 over the next few years.

Considering such guesstimates, it is not surprising that small-level speculators, and some larger ones such as the infamous Winklevoss twins have positioned themselves in Bitcoin and these investors will have had their hopes raised this week when news emerged of a Norwegian man’s remarkable enrichment to near-millionaire status from his almost forgotten purchase of 5,000 Bitcoins for a measly US $27 in 2009.

Putting speculation aside, the future viability of Bitcoin depends on it achieving widespread acceptance and adoption which might lead to less volatility in its exchange rate with the major currencies of the world.

Bitcoin has been (probably unfairly) connected with dubious and outright illegal online activity. However, when the price of Bitcoin recovered quickly from the closure of notorious contraband website, The Silk Road, in early October 2013 these associations were somewhat diminished.

Shortly after, when leading hedge fund manager Michael Novogratz recommended investing in Bitcoin and remarked that the crytpo-currency would “be worth a lot” in the future, it acquired additional credibility

From a libertarian perspective the appeal of Bitcoin is its freedom from the shackles of central bank interference – which currently includes, for example, the USA’s and UK’s fiscal policies of quantitative easing (which essentially involve a transfer of wealth from the poor to the rich through inflation, as well as borrowing from future generations to pay for present excesses).

The relative anonymity of Bitcoin also makes its transactions difficult to tax, which is another attraction for those who wish to avoid government intrusion in their lives.

Additionally, because the amount of Bitcoins which will be mined in total is limited to 21 million, on a decreasing basis over time (approximately 12 million have been mined to date) it has a built in deflationary bias although this is not seen as a positive attribute in some quarters. In this regard a more balanced assessment of Bitcoin can be found on the Harvard Business Review Blog Network, here.

Of course, no one knows what the future holds for Bitcoin, but with my small investment, I am personally hopeful that it will gain in popular acceptance and appreciate at a steady and sustainable rate.

In the meantime, I am accepting donations in Bitcoin, to help with my PhD studies which are concerned with the role of Social Media in Sustainable Business Development – I wonder can I shoehorn Bitcoin into my thesis at some point?

Please send Bitcoin donations to this address:

17mfBvRBK7KLc8E8sscumhQLvgAWwVnoms