Imagine for a second, a world where you never hear the metal ding of a dropped coin, never need to pull out your wallet for cash, or in fact never see a bank again on the high street. What if I told you that your student loan could come from simply running a program on your computer? No it doesn’t sound too good to be true, it’s simply the silent ‘ka-ching’ of the bitcoin network that is taking over the world’s financial market slowly today.
bitcoin storage is decentralised, stored all over the world in different people’s computers
Fanciful ideas aside, what actually is bitcoin? Well it is a financial system, a type of cryptocurrency that is governed entirely by everyone involved in it at the same time. There is central governing body, and in a way it’s very similar to the way collegiate universities work, where there is no single main campus such as the Forum in Exeter, but rather it’s made up of random individuals that are involved in the network.
The money itself is locked behind an encryption code very similar to the way WhatsApp encrypts your inappropriate texts to your best friend. When Bitcoin was created, the software running it caps the maximum number of bitcoins that will ever exist at 21 million. To unlock the cash, you need vast amounts of computing power in your garage. Every 10 minutes, the fastest computer within the network to solve the encryption gains a secret digital key which you can use to prove that a certain amount of cash is yours, giving you access to the cash. This process is called mining. However, only 21 million bitcoins can be mined in its entirety. That’s the short version of how bitcoin works in a binary nutshell.
There are a couple of advantages and disadvantages to the way it works. Firstly, because the number of bitcoins is capped at 21 million, the inflation of bitcoin itself is capped. What’s also cool about it is that you can pay with bitcoin. The way this works is by telling the network that ownership has been transferred, using the same digital key to prove your identity. But there is a catch. You know how you sign up on those beauty or gaming websites, never to use them again until 10 years later after puberty ended, and you’re trying to remember the silly password you made up as a joke back then? Well you can’t in the case of bitcoin.
The digital key cannot be reset if it’s lost, but anyone who discovers the key will gain total control over that sum of cash. This means that there is lasting record of bitcoin ownership as it transfers from one person to the next after it is mined, and this is called the ‘block chain’.
Remember also that bitcoin storage is decentralised, stored all over the world in different people’s computers. This means that it is very resistant to censorship, making it a haven for cybercrime and drug trading, enabling international payments to off-grid accounts. In a conventional bank, the bank can intervene at any time to freeze assets as it deems necessary, which is not possible in bitcoin.
There is a lot more to the bitcoin story than meets the eye
Not all of this flows smoothly though. Bitcoin has many disadvantages, its main one being that transactions can take anywhere from 10 minutes to days for it to occur, meaning you could buy Macy-Ds, and then spend the exact same bitcoin on KFC, having only one transaction go through at the end of the day. This is why bitcoin isn’t viable for companies in the current market. Bitcoin also wastes an incredible amount of energy. When mining, only one computer gets the bitcoin every 10 minutes, and all the other computers have to start all over again. It is estimated that mining consumes as much electricity as Japan itself each day.
There is a lot more to the bitcoin story than meets the eye, some speculate that it’s just a financial bubble that will come crashing down soon enough, and others believe it to be the currency of the future. Maybe we won’t know for sure, but if we wait for just a ‘bit’ longer, we might be working from home on our computers someday.
Want to read more about the tech of the future? Try this one where Paul Brown takes a look at new innovations hitting the sustainability industry…