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

Maximum PC - - QUICKSTART - Jarred Wal­ton Jarred Wal­ton has been a PC and gam­ing en­thu­si­ast for over 30 years.

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.

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