If you watch the previous video I posted (which is interesting, I recommend it) you might have noticed ol’ Moxie talking about the kind of things that were predicted for the theoretical crypto-anarchy. Most of that relates to the free flow of information, unstoppable thanks to putting cryptography into the hands of the people through whatever means necessary. Another of those that he mentioned in passing was a digital currency, and what that would entail.
To sum that bit up, a digital currency is a form of money that can be readily traded online, and is at best extremely difficult for a government to control. That means that they can’t intercept or seize funds, they can’t or have extreme difficulty in tracing the movement of money, and as a result (and most importantly), it can’t be taxed. This in turn means governments can’t fuck you up for funds to run themselves, meaning they collapse. In the most utopian-ish light, this means that we finally reach a true and complete global democracy. Chances are good it wouldn’t quite work like that, but whatever. Dreamers gonna dream.
Bitcoin is a digital currency. It’s not the first, and likely won’t be the last, but for the moment it’s the most widespread example of one. It is pretty much guaranteed not to bring down any governments. However, it can presently be used to purchase certain goods, including narcotics, which is notable because as before, the government has a much more difficult time tracing the money than they might otherwise. But here’s a very small primer on how it works, targeted towards the mentally feeble.
If you’re going to be using, or saving, Bitcoins you have to have their software running. It works a little like Bittorrent, except instead of downloading movies you’re sharing transactions with other users. All of these transactions flood the web saying Bob paid Alice one Bitcoin, except it does all of this in cryptographic form. So you could send a Bitcoin, or a few bitcents, to me at:
14pSWAYv6exDJtZsHmHga2ottpBUspzBJm
That’s an actual real send address for me. You can create as many as you feel you need, and they work a tad like having multiple bank accounts. If you were to send to me at this address, law enforcement would probably be able to spot it, but wouldn’t, through it, have any knowledge of my other accounts. And that was one was freshly generated, just for this blog post.
But that’s the very very basic: to pay someone, you send to one of their send addresses. Once the money is sent, it’s gone. You can’t backcharge… as was proven recently with a major “heist” in which someone’s PC was accessed and their extremely large savings account was sent elsewhere. Caused the whole market to crash when they thief tried to sell off the huge number they’d stolen.
Let’s go to the other end of this: how do you get Bitcoins, aside from digital bank robbery?
There are three main ways. First, you can buy them. The going rate fluctuates wildly. Right now, a single bitcoin is about $15. They had been in the $40 range before that hack I mentioned. Second, you can sell something… goods, services, etc. People have offered to do web design for Bitcoins, many drugs are sold with it as I mentioned, and there has even been some used car sales. The third is mining for them.
Yes, mining. This part is a little weird for the nontechnical so I’m just going to gloss over it entirely. With mining, you set up software on your PC (or on servers dedicated to mining) to keep running cryptographic hashes. Every now and then, new chunks of Bitcoins are dropped into the market as a part of planned inflation. Those hashes might earn you a chunk for reasons I won’t get into because it’s a huge long discussion and I’m iffy on it anyway. Just Wikipedia it if you want the crazy long explanation.
Why is it worth anything? Well… it’s not, really. If you’ve played Civ4 enough you’ll be able to quote this with me: “Anything is worth what its purchaser will pay for it.” People will pay money for Bitcoins, and people will accept Bitcoins as payment. As such, it has a value regardless of anything else involved. Whether or not that value is realistic or worth your time is well beyond the scope of this explanation… but mostly, I wouldn’t put a lot of cash into it if I were you. I do some mining myself and have a pitiful handful of Bitcents as part of a mining co-op, but I have no intention of spending them for now. If anything I anticipate I’ll keep them in the way a coin collector might hang on to a few foreign coins after traveling abroad.
So anyway, what do these things mean? Well in spite of a few senators getting in a huff over the narcotics sales going on, it’s realistically no threat to a government yet. And by yet I mean, in a best-for-Bitcoin scenario, it’d be at least fifty years before it got widespread enough to start taking down governments. And that’s because it won’t matter until it starts replacing the government’s currency in massive ways, like huge employers paying employees with it. Much more likely, it won’t be Bitcoin that does that, if anything does. For now, it’s mostly an oddity that can be used to buy weed now and then. Some charities will actually accept donations in Bitcoins, although the EFF recently decided they wouldn’t do so any longer given the murky legal area it causes. I can’t blame them (but I do, wholly, support them).
Anyway. I hope that was informative or interesting. Personally I don’t expect Bitcoin will live up to the pure potential that digital currency might eventually have, but for the time being it provides an interesting thought exercise, at least.