The Story of Bitcoin

Adam: “Bit-Coin,” you mean a little bit of a coin? What does that even do?”

Becky: “A LOT more than a coin can do! It made a British man rummage a huge garbage dump to look for his accidentally thrown-away wealth of bitcoins. It has also left the FBI and other government agencies scratching their heads.”

Adam: “I have been scratching my head too. What banal thing is this, Becky?”

Becky: “It’s a cryptocurrency. In other words, a “cryptic” or “hidden” currency–money that you cannot see or touch in real life. In this age of computers, social media accounts, virtual realities, and virtual banking, money is beginning to assume a virtual character too. The creator of Bitcoin, Satoshi Nakamato (an alias), created bitcoin in 2008 to enable “A peer-to-peer electronic cash system.”

Adam: “A peer-to-peer electronic cash system!” That sounds fancy…how does that work?”

Becky: “It is basically buying or selling something through computer and mobile apps. So you can buy furniture, book hotels, and purchase a lot of things, by simply transferring bitcoins.”

Adam: “Who do they transfer it through? I mean, is there a third-party involved in overseeing the transaction?”

Becky: “No, unlike a bank, there is no third-party involved. You might ask how safe such transactions are with no specific overseer, considering the amount of spamware online. Well, though the online world is vulnerable to threats, Bitcoin adopts a way to prevent hacking and online thefts.”

Adam: “How can someone steal bitcoins? And who produces this currency in the first place?”

Becky: “That’s an interesting question but let me answer your second question first. Bitcoins have to be mined by programmers. Since Bitcoin is a virtual currency, the way to mine it lies in computers. A bunch of programmers, unknown to each other, spread out globally, decide to make extra money by investing in a sophisticated array of computer- hardware individually. Each of these programmers then sits in front of his/her screen and tries to keep track of all the legible transactions involving bitcoins in the virtual world. In other words, all they do is maintain a digital record of bitcoin transactions happening in the internet-world. The record forms a log-book or ledger. These miners get paid very well (in bitcoins) for their work. Who pays them? No one in particular…for all the “blocks” (of information) they create, bitcoins automatically get transferred to their virtual wallet.

Now to answer how someone steals bitcoins, let me give you a simple example: if you buy bread for $5 then all you need to pay is the $5 note or a $5 through your debit/credit card. But, if you try to pay this amount through bitcoins, there’s always a possibility of you making a copy of the digital token money and paying with the duplicate copy while retaining the original. It is a lot like a fake note. By keeping track of the transactions online, the miners ensure that no user in the virtual world commits fraud by replacing a bitcoin with its copy.”

Adam: “So several people, spread out across the world, manage the ledger simultaneously. This is fascinating! I never thought a financial system, of all things, could survive without a central governing system controlling it.”

Becky: “Yes, bitcoin is a revolutionary concept in the sense that there is no overseer/agency/government/singular body that controls it. It is not like a bank, that has a manager and employees handling your money, it is completely decentralized. The rules of the real world–like geographic borders, currency type, regulations– don’t work in this hidden world of currencies like bitcoin.

Strangely enough, it has worked remarkably well until now. The creator of bitcoin designed the concept such that it would rely on a group of people with absolutely no hierarchical authority-figure manning them. The only limiting factor he dictated was that no more than 21 million bitcoins can be mined. Why this specific number? Well, that’s an entirely different concept all together. So what happens in the bitcoin world is this: You have the miners who mine bitcoins; then you have the buyers and sellers; then along with these components you have the component of credibility.”

Adam: “What is this component of credibility and how is it established?”

Becky: “All these miners, buyers and sellers, in this world of cryptocurrencies, are anonymous. So how do they trust each other? Well, they are connected through their virtual wallet IDs. Think of it this way, when you enter a chat room on yahoo messenger (people from the 90s will be able to relate to this example) you can choose to shed your real-life identity. So Adam in the real world, can become Elizabeth in the virtual world. There is an element of anonymity and mystery that surrounds these people. In a similar manner, in the bitcoin world all you have for identity is an ID attached to your virtual wallet which in turn is associated with your bank account. These buyers and sellers are connected to each other through something called ‘encryption keys’. Now, to ‘encrypt’ means “to change (information) from one form to another especially to hide its meaning” (Merriam Webster). So all that is available is the ID and since it is associated with a wallet that connects to a real account, it is considered credible.”

Adam: “So if I have to invest in Bitcoin, how should I go about it?”

Becky: “Before you invest in Bitcoin you should know that the value of bitcoins fluctuate at a rapid rate. For example, Bitcoin value in Dec 2017 was $19498.63 and it slumped to $9215.53 in May 2018. So do realize that it is a “high risk asset”. Plus, a few countries like South Korea and China have plans to make cryptocurrencies illegal by closing down cryptocurrency exchanges. This will also impact the value of the currency. But having said that, the best way to invest in Bitcoin is to visit: bitcoin.org/en/getting-started. This website guides you through the entire process. This is a must read! The process involves: 1) downloading a Bitcoin wallet; 2) filling out an online form with your details; 3) after acquiring a wallet, using a payment method (credit card/debit card/bank transfer) to purchase bitcoins on a Bitcoin exchange portal like Coinbase/Gemini Exchange/Changelly/Cryptopia; 4) Once the bitcoins are transferred to your wallet, using “buy” or “sell” tabs to acquire or make further payments with bitcoins. Remember that when you buy/sell bitcoins, your public wallet key is visible to others. This is different from your private key, which is the equivalent of an ATM PIN, and supposed to be known only to you and kept in your Bitcoin wallet. It is therefore recommended that you choose a strong password.”

Adam: “Are there any other virtual currencies other than Bitcoin?”

Becky: “Surely! Ethereum and Litecoin are other popular choices.”

Adam: “So, I think I can start buying some now.”

Becky: “Yes, certainly! Don’t forget to share your profits with me ;)”

Adam: “I will, but if and when I do make any!”

 

 

 

 

 

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Author: Miss Microscope

Miss Microscope looks minutely into books, culture, society, technology, mythology, astrology, and numerology, to tell you stories.

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