Our technology guy Colin Moors turns his attention to non-existent currencies.
Warning: This is about cryptocurrencies, such as Bitcoin. Don’t worry though, the aim of this piece is to make you wiser, not more clueless about the whole thing. I have no currencies to trade or sell you, so consider this a cryptocurrency primer, not a sales pitch. Very much the ‘next big thing’ since about 2016, cryptocurrencies have really hit the big time just lately. It seems that as more people get on the Bitcoin bandwagon, the more join – very much like popular stocks and shares. So much so, in fact, we’ll talk about that a bit later. I like the description used by John Oliver on his Last Week Tonight show: “Everything you don’t understand about currency, combined with everything you don’t understand about computers.” Hopefully, we’ll get to the bottom of it all pretty quickly.
Bitcoin – to use the best-known example – is a currency that doesn’t actually exist. Yes, it’s true that no currency in today’s world can be said to actually ‘exist’ as such but with Bitcoin, there’s no tangible tokens like notes or coins to deal with. It exists entirely in the ether, or rather in a series of vastly complex mathematical puzzles. Due to the way Bitcoin was set up, only 21 million can ever exist, 16.5 million of which have already been mined. “Mined?” you say. Well, yes. Bitcoin is based on complex mathematics, a shared security principle called Blockchain. Blockchain, very simply, is a ledger of transactions that exists in millions of entities instead of just one. The security is in the fact there are many copies of the same thing and to hack it successfully, you would need to hack every copy in the world.
Long story short, to extract a bitcoin, or a portion of one from the Blockchain, your computer, or several of them working together must update the Blockchain record. This also means that ‘proof of work’ is required to make sure that the Bitcoin extracted is registered as valid. The computers must solve extremely complex mathematical conundrums, each taking many thousands of millions of calculations to verify. Once this proof of work is satisfied, the transaction is written to the Blockchain and the ‘miner’ paid in Bitcoin. This provides an as-yet unbreakable way of verifying the authenticity of any Bitcoin issued.
You may also be wondering why people go to all the effort of chasing this virtual currency around the world, apart from the chance to make a bit of money. The attraction, for the most part, lies in its decentralized status. Your Bitcoin can’t be affected (theoretically) by your president being killed, an earthquake in Japan or the way the wind is blowing when you get up. It has no national boundaries but is, in fact, as volatile as any unit of currency. To understand why, you need to understand the very basics of money itself and the idea of value.