On the other hand, the phrases are quite general, especially in academia; they are addictions to connect one proposition with the next research result. Whether you find the evidence of Like in a mirror convincing or not, it is certainly a scientifically based way of speculating.
In order to answer that, you have to understand that bitcoins are manufactured in a separate way. They are not printed and there is no government to determinewhen more bitcoins are needed. In fact, you don’t even lose them the moment you spend them.
Bitcoins are obtained through a process called “mining”. However, the association with deep mines in which brave internet conspiracies must descend to obtain a coin with a digital pickaxe is not correct. Mining involves something completely different: that of catching other Bitcoin users fraud.
The entire Bitcoin protocol is based on a “peer-to-peer system” (p2p). This means that every user is either a consumer or does something for the system. Just think of bit torrent, also a p2p system. In it you can be a consumer (when you – often illegally! – bring in series or CDs or films) or you contribute to the system (when you “seed”, which happens with bit torrent during download).
Checking for fraud
It works exactly the same with Bitcoin. Consumers are those who make transactions with their bitcoins. The contribution to the system consists of checking the system for fraudulent transactions. Now the latter sounds like a lot of work, while paying with bitcoin is easy. How do you convince users to perform the (very important) checks?
Rewarding them with the money is the answer of the bitcoin creators. Anyone who participates in checking bitcoin transactions has a chance of winning bitcoin as a reward for the work. With every bitcoin mined in this way, the complexity of the controls increases. For example, you have to calculate longer and longer to get a bitcoin, which ensures that the very last bitcoin becomes practically unreachable.
Mining a coin requires a lot of power and computing power. Still, new techniques are slowly making it easier. This ASIC chip aids the mining process; you put it in your laptop and the whole process costs much less energy. However, whether it is enough to make the mining industry energy efficient is highly questionable.
In practice, this goes as follows: a miner gets a kind of puzzle every ten minutes. This puzzle covers all bitcoin transactions from the past ten minutes. The miner must check all transactions as well as possible and remove all fraudulent matters. The miner also has to solve an automatically generated puzzle. Then all miners and users, together with some sort of election, decide who has come up with the best solution and catches the most fraudsters, and that person then wins a bitcoin.
A great idea, in which the community checks all transactions, making banks unnecessary. However, there is a big problem behind it from an unexpected angle: all those calculations to check whether a transaction was fraudulent or not take a lot of computing power; and so a lot of power. So much so that, according to Jan Bergstra, the (environmental) costs become unacceptable. “The CO2 standard would be far exceeded if it continues in this way. Not to mention the amount of money you need to set up a profitable mining operation.
Another example of a “mining device”, intended to make the process run faster and more efficiently.
Bergstra estimates the start-up costs of such an operation to be around fifty million. “The whole democratic aspect of the currency has also disappeared. In theory, everyone still has a chance of a bitcoin, but getting rich from mining has become very difficult. ”
Is Bitcoin going to be a success? Or will it eventually go down? This is still uncertain at the moment. What is clear is how high the volatility of the Bitcoin is. From one night at nine hundred to five hundred the next day, and now the currency is even above a thousand dollars. Is Bitcoin on its way to displace “old-fashioned” money?
Opinions differ on this. Bergstra is enthusiastic, but also warns. “Bitcoin can be seen as a technical startup, like there are so many in the United States. The big difference is that the risk of failure of this startup is much higher. Based on the current value of Bitcoin, I have made an estimate: the chance that the coin will still exist in 20 years is 1 in 1000. With that chance, the current value seems to justify – the more expensive something is, the smaller the chance that it persists. That is an extremely small chance of success. On the other hand, the value of Bitcoin can also rise to a much greater height – even if it doesn’t survive, it is valuable as a medium of exchange. ”
After trading at around 100 euros throughout the year, the value of Bitcoin has exploded in recent months. At the end of November, the rate jumped to almost 900 euros, partly because officials from the United States Department of Justice stated that digital currency like the Bitcoin are legitimate means of payment.
So it seems plausible that the Bitcoin is outfinally, after this intense time of speculation, popularity will lose and disappear into obscurity. But if the currency breaks through and becomes a “real” means of payment, Bergstra thinks it can easily replace the entire monetary system.
A solution has yet to be found for the mining power costs, but if found, Bitcoins will provide a better system after significant software development; it is more robust, safer and largely removes the human factor from banking.
Bitcoins differ – among other things – from normal money because nothing can be printed. The amount of coins is determined in advance, and nothing more is added. If more bitcoins have to come into circulation – because the demand is increasing – you can simply divide the bitcoin into tenths, hundredths, thousandths, and so on. That is not possible with ordinary money, because it also exists in a “real” form; a hundred-dollar bill cannot be torn in half to get two fifty-dollar bills, and one cent is the smallest that exists. For “traditional” finance, the only way to circulate more money is to suppress it. But that produces inflation, with all its consequences. That bitcoin avoids such inflation is one of the advantages of the system.
Are there any ways to bottle it up?
Of course you are now wondering if it is not easy to bottle? Where computers are, there are hackers. And especially now that the Bitcoin price is exploding, it is becoming increasingly attractive to try to crack the system.
Nevertheless, according to experts, that is difficult. Suppose you want to do a rogue transaction, for example buying something with Bitcoins that you already spent the day before. When you create such a transaction it enters the Bitcoin system and is bundled with all other transactions from the last few minutes. That whole package then goes to the aforementioned miners, who release their computing power on this transaction puzzle. They check all money flows and eventually come up with a solution: the new distribution of the Bitcoins.
If there is an incorrect transaction, such as your own, it will be picked up by the miners. This transaction does not fit in the “solution” of the calculation problem. The Bitcoins that you tried to issue incorrectly are thus irrevocably refused.
Even the creators of bitcoin have no chance to bottle things this way, according to Marc Stevens, researcher at the Center for Mathematics and Computer Science. “All transactions within the system are fully public and traceable, only users’ accounts are anonymous. Even the creators of bitcoin who secretly try to pump money into their own system will fall by the wayside. The miners have to agree to such transactions. “
But although the miners continuously eliminate rogue transactions, the system also has weaknesses, according to Stevens. “Mining (and thus controlling) Bitcoin is a joint venture where majority law counts. Ultimately, a solution is always chosen, which is accepted by the largest number of computers. In principle, someone who controls the majority of the computing power can force decisions, even malicious ones. ”
Stevens says that if, for example, the majority of computers find a “solution” to the math problem in which some of the transactions are deliberately omitted, they will be the deciding factor. “With a hijacked network, you can theoretically ensure that no transactions take place at all. All bitcoins stay neatly in place, and no one can pay anymore. However, in view of the size of the controlling network, such a scenario does not seem realistic to me. You can, but then you really need a lot of computing power. ”
Bitcoins can now be used in many places, but in the beginning a large part of the traffic of “illegal” websites came from the so-called “Deep Web”. An example is the Silk Road marketplace, where and other illegal goods were bought in exchange for bitcoins. The site has since been closed under duress from the FBI.
Possibly unfavorable governments could give bitcoin a blow, Stevens thinks. “Imagine Mt. Gox, the largest trading place for bitcoins, is banned. Then you can still pay Bitcoins together without any restrictions, but you can no longer exchange them in, for example, euros, making the currency more unattractive. It may well be that governments that do not like bitcoin are forcing such a thing. In Germany, the currency has been somewhat embraced, but in Thailand, for example, buying bitcoins is currently illegal. ”
Whether there is a future in the currency? Stevens does not know: “Bitcoin seems to have a lot of links with criminal activities and the currency also has a history of major value fluctuations.”
Is Bitcoin “economically” stable?enough?
Despite all the technical ingenuity that lies behind bitcoin, the question remains whether the coin can become a real success as a means of payment. If you read the media reports you might think so. You can read about bars that accept bitcoins and ATMs with which bitcoins can be withdrawn.
Casper de Vries, professor of Monetary Economics at Erasmus University Rotterdam, however sees snags. “As a café, it is of course a lot of fun to go on sale accepting bitcoins, but I don’t think prices will be quoted quickly in that currency. The value fluctuation of the currency is now far too great for that. I see this more as a gimmick, with bitcoin serving as a medium of exchange. That is comparable to festivals. There you can also buy drinks for plastic coins, which you first bought with euros. ”
Because bitcoin is an anonymous payment method, it naturally also attracts less legal movements. The cover of this bitcoin magazine immediately makes clear the link with Anonymous, the hacker group that has the Guy Fawkes mask as its characteristic and that has hacked several important institutions in the past.
The fluctuation of value is a major obstacle for bitcoin as a currency, according to De Vries. “There is likely to be a lot of speculation with the currency now, which is pushing up the price. What we see now is a classic price push up, as we have seen it many times since the tulip mania in the 17th century. What happens then is that suddenly no one wants it anymore, and the price collapses. The audience then comes home from a cold fair. Annoying, but this can not be regulated with something like bitcoin. ”
Despite the skepticism, De Vries understands the demand for bitcoins. “It is a truly anonymous currency, with which you can pay digitally without the NSA watching, so to speak. The international character of the currency is also attractive. If everyone accepts bitcoins, you will no longer lose money exchanging currencies. ”
Actually, the current popularity of bitcoin is a sign that governments and banks have failed in this area, De Vries said. “In the past, the Dutch Bank even put a stop to a digital currency, afraid of losing control of it.”
He therefore disagrees with Bergstra’s idea that bitcoin has the potential to replace the current system. “I think the banks themselves should have come up with an alternative digital currency. Now someone else has done that, but bitcoin is founded on quicksand. I see the whole development around bitcoin as a healthy incentive for the banks to come up with an alternative for reliable and anonymous transactions. ”
Looking nice, such physical bitcoins. However, they are worthless; real bitcoins are nothing more than a few bits stored on an anonymous account. With a private key, the bitcoins are accessible.
Ultimately, we don’t know whether bitcoin will actually be a success until the time has come. If we pull our digital wallet in twenty years to pay for an ice cream that costs 0.0000000000001 bitcoin; only then is it clear that the system was indeed viable. If everyone says in a year, “Bitcoin? What was that again? “Then a few people probably got very rich before the market for the currency became so speculative that it collapsed.
In any case, the current turnout shows – as De Vries points out – that there is a need for “new money” that is better suited to our modern times. And it shows how quickly something can become popular: previous digital coins never got off the ground, while everyone now wants to get a bitcoin. Perhaps the time is indeed ripe for digital money.