With bitcoin emerging from a shady past and setting new all time highs, it’s worth getting to know the king of cryptocurrencies. Here are ten things you may not know about bitcoin:
1. May 22nd is Bitcoin Pizza Day
Bitcoin (BTC) enthusiasts around the world will celebrate later this month with a slice or two of programmer fuel in honour of the first tangible bitcoin transaction. In 2010, when bitcoin was less than a year old, programmer Laszlo Hanyecz paid a fellow Bitcoin Talk user 10,000 BTC to order him two Papa John’s. The value of those pizzas today? Over 17 million dollars!
2. Nobody knows who created bitcoin
In 2008 a whitepaper was posted to a discussion group by a mysterious character called Satoshi Nakamoto. This document (which, by the way, is only nine pages long and, apart from the very last chapter, is totally accessible to the lay reader) captured the imagination of the cryptocurrency community, and the system it described caught on very quickly.
To this day, no one knows who Satoshi Nakamoto is, nor whether he, she, it, is dead or alive – or whether they’ve simply lost their private key and are too embarrassed to admit it.
“The work of Satoshi Nakamoto seems more and more like an act of generosity and genius”
The likeliest explanation is that the creator recognised that their anonymity was an important part of the attraction and a truly decentralised currency could not have a ‘leader’ or single entity in control. As the bitcoin story plays out, the work of Satoshi Nakamoto seems more and more like an act of generosity and genius.
3. There will only ever be 21 million BTC
Unlike government-backed ‘fiat’ currencies, that can be printed or quantitatively eased by those in power, the supply of bitcoin is fixed. New bitcoins can only come into existence as rewards paid automatically to ‘miners’. The reward will halve every few years until, by approximately 2140, the hard limit of 21 million will be reached. So far, nearly 80% of available bitcoins have been mined. This scarcity is one of the reasons why the value of bitcoin against all other currencies has skyrocketed.
4. Mining may once again heat our homes
In the early days of bitcoin, it was possible to ‘mine’ on a laptop. As things progressed, specialist hardware using dedicated processors took over and now it is only feasible to mine if you have ASIC (application specific integrated circuits) hardware, cooling systems, and access to a cheap supply of electricity. The economics of mining, complex and volatile, is an essential component of the bitcoin ecosystem.
“We may in the future be able to buy ASIC heaters from B&Q to secure the world’s financial systems”
However, according to not-well-known Bristol-based cyber security expert ‘Zach’ (not his real name), “Satoshi never meant mining to be big-business profitable. The hardware arms race of recent years has meant that only well-funded businesses can mine, but now that race is reaching some limits. All the main advantages have already been exploited, so the price of ASIC hardware will fall and become affordable, in line with Moore’s Law. We may in the future be able to buy ASIC heaters from B&Q to secure the world’s financial systems while keeping the home at a comfortable 21 degrees celsius.”
5. They don’t exist
Bitcoins definitely don’t look like this image:
The ‘bitcoins’ in the images heading every bitcoin news story are just a fancy way of keeping the currency in cold (offline) storage. These physical coins were a novelty project by bitcoin user Casascius, available pre-loaded with bitcoin until 2013. Each one contained a piece of paper with a tamper-proof hologram protecting a unique, redeemable private key. They made a nice present but, if they’re too ‘bling’ for your tastes, you can make your own simple paper wallets.
6. Pick a wallet, any wallet
Paper wallets and goldy lookin’ coins are one way to store bitcoin but, if you want to actually use it for transactions, you need some kind of hot (online) wallet. There is a huge range available, from the Bitcoin Core client – which can be compiled from source code and will take several days to synchronise with the network when you first run it – to hardware wallets for those with significant funds to store, to a new breed of ‘lightweight’ SPV (simplified payment verification) smartphone wallet apps (all free) that make good use of modern devices’ security features and offer a sensible trade-off of speed with ease of use and prudence.
I recommend breadwallet (now available for iOS and Android).
7. You can send bitcoin transactions via smileys
Unlike conventional financial transactions, which contain sensitive information and need to be transmitted over secure institution-owned networks, a bitcoin transaction is simply an instruction to the network.
This means that you can send it via SMS or email and, if for some reason you needed to conceal a transaction, you could even encode it as a series of smiley faces, or in a single picture, as described by bitcoin guru Andreas Antonopolous in this presentation, Money as a Content Type. This makes bitcoin almost unstoppable, even if a government decides it wants to shut it down.
8. There are more smartphones than bank accounts
Most of us take access to financial services for granted but it’s worth noting that approximately 2 billion people worldwide are ‘unbanked’ and therefore excluded from playing a part in the global economy.
Some countries, like Ghana, are leapfrogging third-party banking and embracing bitcoin as their primary means of transacting with each other – and their only means of trading with the wider world. Smartphone ownership is predicted to reach 6.1 billion by 2020 with a whole new population joining the party for the first time – on fairer terms than was ever thought possible.
9. Bitcoin is a bit useless
At the moment, the transaction fees for bitcoin transactions are high. The fees (separate from the mining rewards) are paid per byte, so for small amounts, the fees can be higher than the value of the transaction. This is disappointing because a lot of the early excitement was about bitcoin’s potential for ‘microtransactions’, such as direct tips for bloggers and Things of the Internet paying each other.
Bitcoin is currently a victim of its own success; the transaction blocks (limited to 1MB) are full, so the laws of supply and demand are in effect and only higher value transactions make economic sense.
However, there are solutions to the scaling issue in the pipeline, and after much squabbling in the community about which one to implement first, a leaner way of handling the data, called Segregated Witness, is being rolled out across the network, which should make a higher volume of low-fee transactions possible.
10. The bitcoin blockchain is one of many
The bitcoin blockchain is a ledger of all bitcoin transactions since the very beginning when Satoshi Nakamoto gave the first bitcoins to itself in the ‘Genesis’ block. New blocks are added by the miners approximately every 10 minutes, and the file is now over 120GB. You can download it, or inspect it via a browser, such as blockchain.info.
“Blockchain and bitcoin are not rival technologies; the former is one integral part of the latter”
Numerous ‘altcoins’ exist, each with their own blockchain, and there is also much research into using the technology for other types of value, for example, the right to vote, health records and land registry. Contrary to many news stories, blockchain and bitcoin are not rival technologies; the former is one integral part of the latter, which may or may not have other applications in the future.
Thanks, Matt for sharing! If you want to find out more, you can catch Matt giving a talk at our Techie Brekkie: Biting the bitcoin Thursday 25 May, 8.15-10am, Engine Shed, Bristol.