(One of my Montana Arts Council State of the Arts Newspaper Tech Talk Columns)
The news is rife with Bitcoin stories these days, and it will only get better, or worse, depending on your interest in decentralized digital currencies. If that’ phrase is too much to think about, I understand. But if you’re interested, a good place to start is the Wikipedia page for Bitcoin.
Bitcoin is “the first decentralized digital currency… the system works without a central repository or single administrator.” The Wikipedia article is obviously written by advocates of Bitcoin, but you can learn what Bitcoin mining is (how Bitcoins are created) and that Bitcoin was created by an unknown person or group of people and first released in 2009. Bitcoin transactions are recorded in a vast, publicly available exchange record called the Blockchain.
If Bitcoin is a decentralized currency and works without an administrator or banks, than how does it work? It works on the amount of confidence people have in the technology, and the wavering of that confidence can result in the huge swings in the value of Bitcoin in the last few years..
I’ve used Bitcoin for some purchases online. The best way to use Bitcoin is to use a broker, such as coinbase.com. That way, you can easily buy Bitcoin from your regular US dollar bank account, convert to dollars and transfer bitcoin back to your bank, rather than having to learn how to install and use a “wallet” on your own computer and buy Bitcoin from an individual. Or try to “mine” Bitcoin yourself.
Bitcoin problems are many: bitcoin exchanges get hacked and people lose all their money. Personal wallets get hacked. There are problems with Bitcoin itself: bugs in the software have “disappeared” millions in value. The Blockchain itself is slow and is limited to a small number of transactions each second. Groups of advocates and miners have attempted to make changes, but success is mixed, and several Bitcoin “forks” – duplicates of the system with updates and changes – have fallen flat.
But the concept of the Blockchain as a transaction ledge has many uses, and major banks and countries have been looking at its possibilities. And, of course, a universal and private currency is a major draw for many. But there are many bugs – technical, social, economic and political – to work out. There are now close to 100 cryptocurrency startups that want to compete with Bitcoin; of course, there are probably more by the time you read this.
The only certain thing in Bitcoin right now is volatility. On the day I wrote this, $60 million in Bitcoin was just stolen from an exchange; Bitcoin’s value peaked at a new high and then crashed 20% in a few minutes; coinbase.com crashed and “cash out” conversion to dollars was impossible; and a few banks announced they will offer futures trading in Bitcoin, which will increase volatility. If anything, Bitcoin is a learning experience in new technologies.