THE BA­SICS OF BIT­COIN

FHM (Philippines) - - CRYPTIC MONEY -

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.)

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