THE BASICS OF BITCOIN
Q: So what is it exactly?
The smart term for it is cryptocurrency. The Internet is already awash with information about it primarily because the world is going crazy at how something that is not “real” can be of so much value (we’ll go to this in a bit).
We’ll save you hours of reading by giving you the essentials: It was first put out as a concept in a mailing list back in 2008 by a guy named Satoshi Nakamoto
(who may or may not even be real; until now no one knows who Bitcoin’s creator is).
The idea was to have a peer-topeer electronic cash system that’s not controlled by a central monetary authority—what that means, really, is money that is not controlled by the banks.
Instead of banks, bitcoin flows through what is called a blockchain, a virtual ledger of all transactions made through bitcoin. Imagine it like a spreadsheet that is being updated regularly, storing all bitcoin movements. Nobody holds control of the blockchain—it is accessible to the public and is easily verifiable. Hence, no central authority. The blockchain is, in effect, the Central Bank and Federal Reserve of everyone.
It’s interesting to note that transacting with digital money is not a new thing, especially if you’re a gamer. In fact, the first people to actually trade with bitcoin were Magic: The Gathering players. They used to have an online exchange to trade cards like stocks, using bitcoin as currency. This online exchange became Mt. Gox (Magic: The Gathering Online Exchange. Gets?), the world’s largest bitcoin exchange. Only Mt. Gox declared bankruptcy in 2016, after a crazy run that involved hacking and stealing.
Q: WHY ARE PEOPLE GOING CRAZY ABOUT IT?
Because of its value. As we write this, one bitcoin (1 Satoshi is the basic unit) is worth more than $18,000 or about P900,000. After we wrote that last sentence, it could have gone higher than that, or plummeted to the ground. It’s that volatile. Also, latest news as we write this is that a co-founder of the current largest bitcoin exchange in the world has sold all his bitcoin for another cryptocurrency. However, that has not stopped the financial world from treating it as gold, trading and hedging futures on it.
Q: HOW DID IT END UP WORTH THAT MUCH?
Because of speculation. “In the beginning, walang value ang bitcoin eh kasi nga wala namang may pakialam sa kanya,” Cuneta says. “Hanggang sa unti-unting dumadami [people who took interest], that’s when it began to have value. Walang taong nagsabi kung magkano ang value niya, yung market ang nakahanap ng value for it.” Case in point: Bitcoin was first sold at P5 per coin seven years ago. What did we say it was worth now? Do the math on wild exponential profit.
Q: I’ve heard it said that bitcoin is like gold. how come?
Gold is a finite resource. Most of the world’s financial systems are backed by gold, called the Gold Standard. This means that the value of a country’s money is determined by the gold reserves they have. Bitcoin is also finite—there are only 21 million bitcoins in existence; its creator made it that way. Here the law of supply and demand rules: if there are only so many bitcoins and a lot of people want it, its value rises. Hence, people treat it like digital gold. (Interestingly, the US dollar is not backed by gold. Their money is worth what their government says it is. Some say that in reality it is worth nothing. This is the crux of the debate between real money and bitcoin.)