With most transactions being effected online these days, the digital world is finding it convenient to shift to bitcoins or virtual currency. Geeta Padmanabhan explains how they are mined and used
Bitcoins came into my radar on a lazy afternoon as I watched a teen play multi-player 8BitMMO. He needed “money” to buy a hat, and accessed a bitcoin for the purchase. “That's “virtual currency,” he shrugged. “Used in a variety of games and online gambling. It's like paying for a movie or a concert.”
Well, it's much more than that. At emTech-2013 (MIT conference on emerging technologies), panellists discussed bitcoin's tremendous potential to transfer quickly, cheaply, anonymously across borders. Everyone — investors, merchants, migrant workers — can participate in this “most elegant exchange,” they said. But bitcoin (BTC) was catapulted into controversy when Silk Road — a mail-order site for illegal drugs — was shuttered in the US. Silk Road used bitcoin for transactions. During a US Senate committee debate on the two sides of the coin, Mythili Raman, Justice Department/Criminal Division deposed, “We have seen increasing use of such currencies by drug dealers, child pornographers, perpetrators of large-scale fraud schemes.” China has banned its transactions. But financial experts say China is afraid it can place no control over virtual currency and may lose world status.
Bitcoin, an all-digital, cryptographically-made currency with “deep structure, wide adoption and trading momentum” (Nat-Geo), isn't going anywhere. Called Money-3.0, the nextgen currency, it is “mined” by computers through solving complicated mathematical problems on the bitcoin network. Each solution is verified by other network nodes and the first best solution is traded using a wallet software. The work fixes the value of the coin. The difficulty of the puzzles is adjusted to ensure a steady stream of bitcoins. Transactions are recorded in “blockchain”, a massive block of code stored across a peer-to-peer network of computers. This system is supposed to prevent fraud and counterfeiting, and keep the exchange fee low. Miners, speculators, consumers, merchants and exchanges make up the eco-system.
You can sign up at coinbase.com and get a free, unique bitcoin address, (alphanumeric characters), or create it offline with software tools like Armory (bitcoinarmory.com). Bitcoin transactions are untraceable (no address is required), untaxed (no government backing) and irreversible (ownership changes instantly). Bitcoins aren't stolen easily, since transfer requires access to your physical device.
Germany has declared bitcoins “private currency”, a U.S. federal judge has ruled it's real money. The Winklevoss twins may trade bitcoins on the stock exchange. Bitcoins are common in hotspots like 'Frisco, Berlin and Rio, and accepted by Wordpress, 4Chan, Pirate Bay and Reddit. In October, the world's first ATM (bitcoiniacs) opened in Vancouver, letting users access online BTC accounts to exchange bitcoins for cash, or transfer it through smartphone to buy stuff online. In the U.S., newly-weds Austin and Beccy Craig managed life for 100 days using only bitcoins as currency. Where credit-card or PayPal does not exist, bitcoin makes digital payment possible.
A Wired story tells us how bitcoinGet and bitcoin Tapper (mobile app) help homeless people earn in bitcoins and use Gyft to convert them into gift coupons. NGOs (Sean’s Outpost, Project FEED, Bitcoin100, BitGive Foundation) have raised big funds by asking for donations in bitcoins and litecoins. You can store bitcoins at Mega.co.nz, gamble them away at satoshibet.com/bc-casino.com, enjoy bitcoin shopping at somethinggeeky.com, check out coinmap.org for stores that accept them, get bitcoin-currency rates at preev.com, or read about BTC in Choose Yourself by James Altucher. But it's safe to know two accounts linked to Tokyo-based Mt. Gox (largest digital bitcoin marketplace) were closed for not registering with FinCEN. Hackers have made off with virtual currency worth $1m. “Don't store bitcoins on an Internet-connected device,” the service warned.
Bitcoins got visibility in India when bitfilm used it for the voting process and as prize money in its 13th International Digital Film Competition in Bengaluru. Reports talk of 30000-strong Indian BTC and e-wallet owners participating in TOR forums on BTC. CoinMonk organised India's first bitcoin conference in Bengaluru (December 15) where investors/enthusiasts/bankers gathered to convince the government and regulators that the bitcoin ecosystem would be a valuable economic innovation for unbanked India and for remittances. They talked of India's laxmicoin, the Rs.1.20-crore bitcoin transactions, and hoped RBI would form policies about it.
Said J Prasanna, Cyber Security and Privacy Foundation, “Bitcoin rates are increasing (1:$1000) because of speculation and the buying spree. Negative news may affect the rates.” CSPF will help you know more about mining/investment, he said. “We will advise you on fake cloud-hashing/mining outfits, mining hardware suppliers.”
It's a toss-up, say bitcoiners: make it legitimate; people will migrate to it anyway. Bitcoin works well for the modern electronic era, and is effectively controlled by its users who are willing to play by a single set of rules so they can protect their investments.
Bits to chew on
- Bitcoin is a number with a BTC address.
- A physical bitcoin is a coin with the number embedded.
- If you have a lot of mining hardware, you can solo mine and create a new block (25+transaction fees).
- BTCs are nearly impossible to get without the owner's consent.