Bitcoin – The Digital Cash of the Future?

While many of the world’s currencies are struggling to emerge from the devastating economic crash of recent years there is one that continues to rise and increase in value. The strange thing is that it isn’t issued by any bank, controlled by any government, or even freely available in physical form. Yet in February 2013 the total worth of the fledgling global currency was valued at over £180 million, and it just keeps growing.

Bitcoin is an online, decentralised, crypto-currency, that is monitored and administered by the massive peer-to-peer network that uses it. The currency has online exchanges that trade in the commodity, one of which – Bitcoin Central – recently partnered with a French bank to become a registered Payment Services Provider (PSP) under EU law, meaning it can now offer debit cards, account insurance, and many other normal banking facilities to Bitcoin customers. The currency has also seen mainstream adoption through companies such as WordPress and Reddit who accept  payment in Bitcoins for their various memberships and services.

‘The one thing that proponents of this idea are really pushing,’ explains Jan Piotrowski from the Economist magazine, ‘is that Bitcoins are a wonderful way to transfer money across borders at very, very little cost. Normally when you transfer money between banks, the banks charge through the roof. Now with exchanges such as this one [Bitcoin Central], where the accounts will be guaranteed by the French equivalent of America’s Federal Deposit Insurance Corporation – so guaranteed by the state – you can convert your Euros to Bitcoins at a very cheap rate. You can then transfer your Bitcoins, or pay for a service in Bitcoins, in any country you wish because the system is globally distributed and there are no borders within the virtual peer-to-peer network that governs it.’

The currency is the technically brilliant brainchild of a shadowy figure who goes by the pseudonym of Satoshi Nakamoto. No one knows Satoshi’s true identity but this is of less importance than you might think as Bitcoin is essentially a mathematical protocol and set of principles that Nakamoto released in open source form back in 2009. Bitcoins (BTC) are created by a process called mining, which involves computers solving incredibly complex mathematical problems. These processes require intense amounts of computational power, not to mention the accompanying electricity bills, which deliberately restricts the rate at which Bitcoins can be created. This ensures  scarcity, which in turn controls inflation and helps protect the value of the currency. In many ways it mimics the old nature of Gold as a currency, where it would be found reasonably easily at first, then become increasingly difficult as sources depleted, requiring more advanced machinery to excavate the deeper lying supplies.

 

‘What Bitcoin can do in theory,’ argues Katherine Mangu Ward, editor of Reason magazine, ‘is protect people from their own governments. Right now the Federal Reserve can make money less valuable – the money you have, that you’ve earned – just by devaluing the currency. In theory what Bitcoin does is take that power away from the Government and gives it to individuals’.

Bitcoins are a limited commodity that has no central government or bank to issue new units – they can only be created by the completion of tasks – and if companies build supercomputers to mine more efficiently, then the algorithm notices this and adjusts the difficulty accordingly to protect the currency and maintain a steady rate of creation. It’s an incredibly complicated, admittedly confusing, system, but it needs to be if the currency is to remain stable and secure in the long run. In fact there is an actual total limit to the amount of BTC that will ever exist – 21 million – but this is not due to be reached until 2140.

This isn’t the first time that something like this has been attempted. The now ubiquitous Paypal actually set out initially with the vision to be a stateless currency.

‘This was the dream of Paypal,’ Katherine Mangu Ward confirms, ‘to be a currency outside of governments. The weak-point of Paypal was that there was a central place that could be shut down. You could go to the Paypal servers and say ‘we’re gonna clamp down on this’. Bitcoin is different. It’s stored on lots of different computers, it’s a diffuse peer-to-peer technology, so there’s no one place you can go’.

The anonymous, unregulated nature of Bitcoin has brought its fair share of controversy, with the most famous involving an Australian website that traded contraband solely through the online currency. The Silk Road was thought to be earning over £1 million per month from the sale of goods including cocaine, cannabis, heroin, and for a time even guns. This led US Senator Chuck Schumer to declare the currency an ‘online form of money laundering used to disguise the course of money, and to disguise who’s both selling and buying the drug’.  Online gambling sites have also appeared, with Bitcoins as their payment of choice.  One of the biggest, Ireland based SatoshiDice, recently even reported profits of nearly £400,000 in the just the first six months of trading.

One major concern for potential investors is the actual online nature of the currency itself. In the short space of time that Bitcoin has been around there have been significant hacking attacks. Mt. Gox – the world’s largest Bitcoin Exchange – had around 500,000 coins valuing $8.75 million stolen in 2009, causing a devaluation of the currency which dropped from 17.50USD per BTC to 0.01 in the space of a day. Then a year later another Exchange – Bitfloor – was also attacked, resulting in currency worth $250,000 being stolen. Skeptics have also voiced concerns of potential vulnerabilities that will appear as new, more casual, users start to enter the Bitcoin arena, with malware already known to be circulating online.

Despite these major setbacks the trading continues on Bitcoins and as of February 2013 the currency has recovered and actually increased in value to around $30 per BTC. The financial sectors are also taking note as venture capitalists begin to invest in Bitcoin related businesses, with electronic processing service Bitpay receiving over $500,000 at the start of the year. It’s still very early days for the currency, and there will undoubtedly be a few problems to overcome in the crucial next few years, but with goods and services increasingly moving online, and confidence in the banking sector seriously eroded, maybe Bitcoin has emerged at just the right time?

The Cultural Currency of YouTube

There are different ways to think about YouTube.

No doubt employers see it as a menace against productivity, whose Siren-like beguilements carry their employees off to the harsh rocks of distraction. Teenagers deem the site a free portal to the latest music and Annoying Orange episodes, while to the more practically minded it is a wealth of instructional videos that cover everything from wiring a plug to building a home made spacecraft.

No kidding. Look it up.

From a novelty time-waster a few years ago the site has moved very much into the mainstream, with over four billion hours of content watched on the site each month. Four billion! That’s an impressive amount of amusing cat videos and Korean men riding invisible horses. In fact each minute of the day 72 hours of video are uploaded to the servers at YouTube, which will probably result in a new form of quantum maths being invented just to explain this quirk in the fabric of the time/space continuum.

The one thing that stands out to me among the multitude of shaky camera work, dubious presenting skills, and always heart-warming comment sections, is that people, on the whole, still just want to tell each other stories. Of course there will be those that like the idea of a certain level of internet fame, and even fewer still that achieve that great online dream of actually being paid for their work, but generally I think people want to share their experiences, thoughts, and in some cases ambitions, with anyone who will sit and listen.

Youtube has become the tribal campfire around which we tell our tales and listen in wonder to those of others.

We’ve seen instances where these stories are horrific, such as the Arab Spring footage that brought to the worlds’s attention the plight of Tunisians and Egyptians who were struggling against repressive governments. We’ve looked on in bewilderment as celebrities like Charlie Sheen have self destructed in a very public way (even with Tiger Blood coursing through his veins). But more often we have roared with laughter at sneezing pandas, cats playing pattycake, or people falling over while attempting some impressive feat of derring-do.

The site has also been the epicentre of memes that have spread into the wider culture, such as this summer’s Gangnam Style hysteria (which of course was damn good fun) and the current flash-mob craze that is Harlem Shake. Even 1980s flame haired pop minstrel Rick Astley saw his career briefly revived in the form of the ‘Rick Roll’, in which unsuspecting users would click on links to various interesting things only to find themselves redirected to a YouTube hosted video of Astley’s ‘Never Gonna Give You Up’. Inspired madness that only the internet could devise.

Those seeking wisdom can also mine the vast caverns of knowledge to extract the thought-ore they need. The Khan Academy alone has over 3,000 videos uploaded that can teach you advanced mathematics, the intricacies of high finance, or even a potted history of Vitamin C.

In essence…all life is here, and it’s available for free to anyone.

Interestingly in the last couple of years I’ve noticed an increasing trend that subtly alters the once distant way in which we interact with the site. Traditionally must-see clips would appear on the timelines of Facebook, Twitter, or any other social media of choice. We would click away then comment afterwards – social interaction completed. But with that advent of iPads, Smartphones, and Smart TVs, it seems that we’re beginning to share our favourite clips in a far more physical fashion – by actually sitting next to one another. On several occasions recently when people have come around to visit our home, the conversation would arise of a YouTube video someone has seen that either amused or challenged them in some way. From there it would only a short step to the ‘have you seen this one?’ question, and soon the evening morphs into a game of pass the controller as we frantically rush to find clips. It’s a particularly interesting game to play with people from other countries, who will usually bring with them links you’ve never come across before. Of course in the interests of international relations these cultural ambassadors then return home with new ones from your own personal archive.

In many ways it’s a modern equivalent of looking at someone’s CD or DVD collection, although this time you get to bring yours along too.

There’s actually no way to keep up with the incredible amount of content that goes live on the site every minute, and of course there’s a lot of chaff to sort through before you reach any wheat. With a few friends along for the ride though, we can all help each other find the good stuff, and maybe have a few laughs along the way.

Now, if we can just devise a way to toast marshmallows at the same time…

What’s your favourite YouTube clip? Post a link in the comments below and help us all find some fuel for our campfire.