Sometimes we need to start over again. But even in this connected world, is it possible to reboot the way we pay? To change something that has barely changed in hundreds of years? Maybe.
It seems like every week we learn of a new way to pay for things online, as if credit cards and physical cash weren’t good enough. Whether it’s an alternative (and I use the word alternative loosely, because only one phone has the damn thing) to credit cards, like Google Wallet, or online services like PayPal acting as the middleman for safe, online payments, there is a thirst for a modern way to pay for things.
The problem, though, is none of these systems, in my opinion, truly escape the idea of what money is right now. They make it easier, sure, but nothing fundamentally changes money for to better so it can fit into the globally connected world we live in. And Facebook Credits don’t count. All these systems have rules, restrictions, and in the end, are only incremental changes to money. They never make the fundamental problems with money better.
We live in a world here I can talk to someone on the other side of the globe, face-to-face, at any time of the day, with little or no delay. I can troll Microsoft fans in the comfort of my own home (or as I like to call it, have a discussion with them), and, yet, money is still converted. It’s still a physical object trying to be made digital. And this is one of the big barriers for online payments or new systems like Google Wallet: they just build upon what we already have. And I think that, for such a different world, there must be a better solution, one that doesn’t require a bank account to buy things online. Something that fundamentally lives online. Which is where the BitCoin system comes in.
BitCoins are a digital currency with no centralised control, so, unlike, say Facebook Credits or PayPal, there are no suspended accounts and no legal restrictions. No fees or refunds.
As with a number of other online innovations, it uses a massive peer-to-peer networking backend, with “cryptographic proof” and digital signatures allowing irreversible transactions without the reliance on the trust of a complete stranger. And while, to me, it sounds complex, and at this stage it still is, it truly offers a sneak peek of a currency made for the future. One that truly works in the 21st century.
There are obviously still problems, some of them massive problems, but it hasn’t been written off yet. Or maybe it has.
The BitCoin system was publicly born in January 9, 2009, while being in closed development since 2007, and started as a project from just one man or woman who used the pseudonym of Satoshi Nakamoto, and who has since gone missing in the sea of internet pseudonyms. In the same month, ‘Nakamoto’ issued the first BitCoins and released the original BitCoin client.
Not only was it interesting to those it showed it to, but it is one of the first of its kind to solve the “double spending” problem – where the user could spend a single digital token twice, making other systems worthless. It meant that the BitCoin network didn’t need a restrictive, we-need-to-protect-ourselves-too, central authority.
No one has been able to find this person. ‘Nakamoto’, according to an online profile, lived in Japan, used an German email account and had no record of existing according to Google. And despite his profiled location, ‘Nakamoto’ never wrote a line of Japanese, or localised the BitCoin website to the language. He was familiar with the cryptography mailing list, but never used the same identity to post anything other than BitCoin information. Attempts have been made to find who this ‘Nakamoto’ is, they are all simply speculation.
We do know that his motives for the currency came from a news article titled “Chancellor on brink of second bailout for banks”, indicating that the Global Financial Crisis inspired him to create this currency after it exposed the problems of the current system. We do also know that ‘Nakamoto’ left the project in 2010.
However, while the creator’s background is mysterious, the real key to this story is the BitCoin project itself. Now developed by a team of contributors, it is still warned that the currency is dangerously still in active development. But that hasn’t stopped people using it.
The New Yorker attempted to find Satoshi Nakamoto with writer Joshua Davis using several clues. One of which was that he used British spelling and referred to a London newspaper – suggesting that he lived in the UK or Ireland. He then attended a cryptography conference and found nine people who were British, a world-class programmer and understood C++.
The list soon became two people – one known as a Mr. Michael Clear. The other was a Mr. Vili Lehdonvirta from Finland who studies virtual currencies – one that was suggested by Clear as another person who could be Nakamoto. Davis, however, believed it was Clear after Lehdonvirta made a “convincing denial”.
“I’m not Satoshi,” Clear told Davis.
“But even if I was I wouldn’t tell you.”
BitCoins are kept in a BitCoin digital wallet, which has a 33-character public key called a BitCoin address. Using several cryptography methods, the addresses create a secure connection to send BitCoins between one another. You also have a private key/s to authorise transactions. Any software can generate a wallet and can be generated when not connected to the BitCoin Network.
BitCoins are made in through a peer-to-peer network – releasing 50 new coins every 10 minutes, according to a 2011 article from WIRED. The amount that is released decreases due to the limit of creation, meaning eventually there will be only a set number of Coins available in the world – similar to real currencies. They are “mined” based on the user’s computer’s power, like how money is printed at the mint. The number of available BitCoins means that it will, and already has, make it harder to mine for coins. That, however, has meant that it’s easier to get coins through other conversions.
Sending BitCoins is like sending an email. While there are a small number of people and merchants that accepts the currency, new systems that will eventually come, like PayPal-style services, will help the ease of use of the currency. For now, however, regular use is dangerous, as the software is still under active development with a small fanbase. Developers and fans, however, hope to change that eventually as it stabilises – or, if it ever stabilises.
The simplicity of having a wallet, however, is also one of BitCoin’s big problems. How do you protect your BitCoins if it’s just a file on your computer? You can make backups, but there have already been widely reported cases of people losing incredible amounts, like $140,000 worth of BitCoins just by not having good backups. It has also had a history of attacks: a hack of a Tokyo exchange website Mt. Gox, powering 90% of BitCoin transactions, in June 2011 saw 2000 BitCoins lost; and a wallet-holding website MyBitCoin was taken down for six days, only to return with 51 percent of its BitCoins gone.
Incidents like these have caused a massive loss of confidence in the currency – and, like art imitating life, it culminated in a BitCoin Financial Crisis. Overnight, after the Mt Gox attack, the price quickly fell. More attacks and problems added to this loss of confidence – meaning more and more people who signed up on the hype pulled out. The price dropped from its high of US$29.57 on June 9 to fall below near $2-5 in October. Sort of similar to how Facebook is now, isn’t it?
After the panic of last year, the currency has finally found some stability this year. However, it is way down from its high – trading at USD$5-6.
Despite this, there still exists loyal fans of the service. And many services still continue to use them as a method of payment – a lot of them small businesses. Why? Well, it is far more attractive for them because of the lower fees and dealing with one currency – BitCoin – as opposed to thousands.
Artwork, music, clothing, classic video games and even food – a lot of small businesses have embraced the currency. You can even use BitCoins to buy servers, domain names and even have someone do do some creative work for you in web design or film. Others have used it as a way to donate – including Wikileaks and the Internet Archive.
There is also a more darker side with a notorious store known as the ‘Silk Road‘. That site sells anything imaginable – including cannabis, ecstasy and other illegal drugs, plus illegal substances. And all of it is done anonymously – and only through BitCoin. PayPal and credit cards are not welcome. You also have to go through the TOR network – which masks your identity online – in order to access the site.
Another, called Black Market Reloaded, even sells hitmen, who will assassinate people for a price – obviously through BitCoin.
Extensive media coverage on BitCoin from the tech sites – especially on hacks and the darker side – has seen the currency not being taken seriously as its founders and supporters would have liked – despite starting to gain some mainstream attention. It is a big idea, but whether or not it can recover, or whether these attacks will stop, is yet to be known for sure.
As I said before, BitCoin is such an interesting idea that, while not entirely original, is the most innovative of its kind. It doesn’t aim to make small changes to the way we pay, but completely introduce a global currency, something that isn’t the safe way to change how we live, but it is what will change things, and it could become the future of money in decades to come. Although it could also just die. There are dangers, it is unstable economically, and software bugs may eventually be discovered, which would lead to a massive loss of trust and value of BitCoins or even a tragic destruction of the currency.
But, in the end, it’s just amazing to have a currency available that works globally. And I really think it could have potential, with more work to make it user friendly, to become huge. Hopefully, for the developers and owners of BitCoins, this is right.
Terence Huynh contributed to this report