TECH TALK Bitcoins and Cryptocurrency
IF YOU HAVEN’T HEARD OF BITCOIN, don’t feel bad—I’ve dabbled in bitcoin since 2011, and while some general awareness of it now exists, most people still don’t really know what it is or why we need it, or if we should even want it. The brief synopsis goes
The core idea is to have a currency backed by the power of cryptography (i.e., math), rather than governments, gold, or another physical entity. Neal Stephenson’s book Cryptonomicon contained an idea like this back in 1999, and in 2008, Satoshi Nakamoto introduced bitcoin to a cryptography mailing list, with the software going live by January 2009.
Bitcoin is sort of like a distributed computing competition, called “mining,” where, based on your computational contributions, you have a chance of “winning” a block of bitcoins. This happens every 10 minutes, on average, and the more you participate, the higher the chance of mining a block. The block reward started at 50 bitcoins (BTC), and halves every 210,000 blocks (about four years)—it’s currently 12.5 BTC. Mathematically, that means there will never be more than 21 million BTC.
The rewards exist to entice people to run the software, because mining also secures the bitcoin network. Basically, the difficulty of mining a block scales, based on the total speed of the network, called the hash rate, and someone would need to control more than 50 percent of the hash rate to have a reasonable chance of hacking the Bitcoin network. So, the more people (processors) running the hashing algorithms, the more secure the network, and the harder it is to find a block solution. The bitcoin network hash rate has gone from tens of millions of hashes per second during its first year, to billions, then trillions, and it currently sits at roughly two quintillion hashes per second (H/s, with SI prefixes now used). The reason for the increase in hash rate isn’t just more people participating—the processors that are used for hashing have gotten much faster, too. Mining started with CPUs, then moved to GPUs, and eventually to custom processors that are designed purely for bitcoin’s hashing function. The fastest ASICs now do around 4.7TH/s, which is orders of magnitude faster than the best CPU or GPU.
But what do you do with these bitcoins, and do they have any value? Some might say no, but scarcity, the lack of bank/government control, and their pseudo-anonymous nature has given them plenty of worth in the eyes of others. Anyone can create a BTC wallet, a 26–35 character address that’s the public part of a public-private key pair, with the owner keeping the private key. BTC can be transferred between wallets, protected by the power of cryptography, allowing digital funds to move around the world in a matter of minutes. Today, a single bitcoin is valued at over $700 (though pricing is admittedly highly volatile), and more than 100,000 vendors accept BTC, including Newegg. But it’s not all sunshine and lollipops.
There have also been plenty of thefts, scams, and other shady goings-on in the bitcoin world. BTC ends up being a lot like digital cash, meaning it’s very difficult to trace or intercept. Money laundering, drugs, and other illicit practices have used bitcoin, and ransomware viruses exist that encrypt hard drives and demand BTC to get the unlock code and software. That’s both the blessing and curse of the pseudoanonymous currency.
But despite years of people declaring the death of bitcoin, and others hailing it as the promised messiah, for most people, bitcoin remains a fringe curiosity. It’s theoretically possible to make money via mining, but the power cost is nearly as much as the value of the BTC mined. Instead of becoming a currency free from the controls of governments and banks, bitcoin is now largely controlled by a small collection of interested parties, who have heavily invested into the network. And, ironically, greater acceptance of bitcoin will likely come only with more regulation.