BitCoins: A brief history of the currency built for the future

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Sometimes we need to start over again. But even in this connected world, is it possible to reboot the way we pay? To change something that has barely changed in hundreds of years? Maybe.

It seems like every week we learn of a new way to pay for things online, as if credit cards and physical cash weren't good enough. Whether it's an alternative (and I use the word alternative loosely, because only one phone has the damn thing) to credit cards, like Google Wallet, or online services like PayPal acting as the middleman for safe, online payments, there is a thirst for a modern way to pay for things.

The problem, though, is none of these systems, in my opinion, truly escape the idea of what money is right now. They make it easier, sure, but nothing fundamentally changes money for to better so it can fit into the globally connected world we live in. And Facebook Credits don't count. All these systems have rules, restrictions, and in the end, are only incremental changes to money. They never make the fundamental problems with money better.

We live in a world here I can talk to someone on the other side of the globe, face-to-face, at any time of the day, with little or no delay. I can troll Microsoft fans in the comfort of my own home (or as I like to call it, have a discussion with them), and, yet, money is still converted. It's still a physical object trying to be made digital. And this is one of the big barriers for online payments or new systems like Google Wallet: they just build upon what we already have. And I think that, for such a different world, there must be a better solution, one that doesn't require a bank account to buy things online. Something that fundamentally lives online. Which is where the BitCoin system comes in.

BitCoins are a digital currency with no centralised control, so, unlike, say Facebook Credits or PayPal, there are no suspended accounts and no legal restrictions. No fees or refunds.

As with a number of other online innovations,it uses a massive peer-to-peer networking backend, with "cryptographic proof" and digital signatures allowing irreversible transactions without the reliance on the trust of a complete stranger. And while, to me, it sounds complex, and at this stage it still is, it truly offers a sneak peek of a currency made for the future. One that truly works in the 21st century.

There are obviously still problems, some of them massive problems, but it hasn't been written off yet. Or maybe it has.

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The BitCoin system was publicly born in January 9, 2009, while being in closed development since 2007, and started as a project from just one man or woman who used the pseudonym of Satoshi Nakamoto, and who has since gone missing in the sea of internet pseudonyms. In the same month, Nakamoto, if that is his real name (spoiler: it isn't) issued the first BitCoins and released the original BitCoin client.

Not only was it interesting to those he showed it to, but it is one of the first of its kind to get past the "double spending" problem, where the user could spend a single digital token twice, making other systems worthless. And because it gets around this, it meant that the BitCoin network didn't need a restrictive, we-need-to-protect-ourselves-too, central authority.

Nakamoto himself, who according to an online profile, lived in Japan, used an German email account and had no record of existing according to Google, has never been found since.

And despite his profiled location, Nakamoto never wrote a line of Japanese, or localised the BitCoin website to the language. He was familiar with the cryptography mailing list, but never used the same identity to post anything other than BitCoin information.

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But we do know that his motives for the currency came from a news article titled "Chancellor on brink of second bailout for banks", with the idea had obviously been around for a longer amount of time and been inspired by the Global Financial Crisis's exposure of the dangers of our current financial system. He obviously had reasons for remaining anonymous, and also left the project in 2010, with Nakamoto now said to be "Gone for good." But people continued searching for him, with no success, causing heated speculation.

While the creator's background is mysterious, the real key to this story is the BitCoin project itself. Now developed by a team of contributors, it is still warned that the currency is dangerously still in active development. But that hasn't stopped people using it.

Now, if anyone truly familiar with what's happening behind the scenes with how BitCoin works, I apologise in advance for possibly a broken explanation.

BitCoins are kept in a BitCoin digital wallet, which has a public key, known as a BitCoin address. Using Elliptic Curve, DSA cryptography, the addresses are a secure location for BitCoins to be sent. Each address is around 33 characters long and they are human-readable. You also have a private key/keys to authorise transactions. Any software can generate a wallet and it can be generated even when not connected to the BitCoin Network. BitCoins are made in a peer-to-peer economy, with an algorithm releasing 50 new coins every 10 minutes, according to a 2011 article from WIRED, with the speed of releases decreasing due to the limit of creation, meaning eventually there will be only a set number of Coins available in the world, just like real money in our economies.

BitCoins are "mined" through BitCoin users computers power, like how money is printed at the mint. The limit of available BitCoins means that it will, and already has, gotten harder to mine for the currency, meaning it's easier to get coins through other conversions. It's truly fascinating if you're into this kind of stuff, so if you want a more detailed look at the process, or any other parts of the BitCoin project, further reading below.

Sending BitCoins is like sending an email, and while the amount of people and merchants that accept the currency is small, new systems that will eventually come, like point-of-service machines and PayPal-style services, will help the ease of use of the currency. Remember that, for now, regular use is dangerous, as the software is still under active development and it's going to be used by a minority for some time to come, but developers and fans hope to change that eventually as it stabilises, or should I say, if it stabilises.

The simplicity of having a wallet, however, is also one of BitCoin's big problems. How do you protect your BitCoins if it's just a file on your computer? You can make backups, but there have already been widely reported cases of people losing incredible amounts, like $140,000 worth of BitCoins, just by not having good backups. A hack of a Tokyo exchange website, powering 90% of BitCoin transactions, had caused the site to lose 2000 BitCoins, as well as cause the value of the BitCoin currency overall to plummet to near nothing, but then go back up to a much lower-than-before US$17 a BitCoin. Incident's like these have caused a massive loss of reputation for the currency. And there are plenty of other examples, such as a wallet-holding website disappearing for months, later said to have been hacked. However, there still are loyal fans of the service, and it continues to power sites such as 'Silk Road', a website on the ToR network (which requires a special browser to connect to) which uses BitCoins to sell anything imaginable, anonymously, such as drugs and other illegal materials. Or much more serious uses of the anonymous currency, such as Black Market Reloaded which looks to sell hit men, who will assassinate people for a price.

Media coverage on these events also hurt the currency, with the fear being whether the project could be taken seriously or not. It is a big idea, but whether or not it can recover, or whether these attacks will stop, is yet to be known for sure.

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As I said before, the BitCoin is such an interesting idea that, while not entirely original, is the most innovative of its kind. It doesn't aim to make small changes to the way we pay, but completely introduce a global currency, something that isn't the safe way to change how we live, but it is what will change things, and it could become the future of money in decades to come. Although it could also just die. There are dangers, it is unstable economically, and software bugs may eventually be discovered, which would lead to a massive loss of trust and value of BitCoins or even a tragic destruction of the currency.

But, in the end, it's just amazing to have a currency available that works globally. And I really think it could have potential, with more work to make it user friendly, to become huge. Hopefully, for the developers and owners of BitCoins, this is right.

Further Reading

WIRED - The Rise and Fall of Bitcoin

The BitCoin Wiki with in-depth looks at the technology and also real-world uses of BitCoin.

We Use Coins - An introduction to getting and using BitCoins