A little bit about bitcoin

There was a time when not one person in Gallatin knew anything about the internet. Or anyone anywhere else for that matter. Remember?

So, don’t smirk when I mention something called bitcoin. It’s a digital currency, already 10 years old, that most of us don’t know much about. But it’s entirely plausible that bitcoin (or something like it) will become familiar to almost everyone who goes online in the future.

Until recently I wasn’t much interested. Obviously, I’m not an economist nor do I rise much above the technological level of “keyboard jockey.” But when two young men within my extended family began investing thousands of dollars buying computers to create or “mine” bitcoin, I decided it’s time to take notice.

In layman’s terms, a bitcoin is a digital token — like in a game — only it’s no game. Bitcoin can be cashed for dollars but it is different than the dollar …or Euro, yen, peso, ruble, pound, shekel or any traditional currency. The bitcoin network makes it different.

The bitcoin network is like the internet. It’s a decentralized network of computers around the world (including some servers in a couple of homes in our family, now hooked into the bitcoin network). This is where all these bitcoin live — in the network, kind of like an electric power grid for digital information.

People throughout the world are focusing on bitcoin even though a thorough understanding is elusive. Why? Because everyone understands this: A year ago one bitcoin was worth less than $1,000. Today, even after its market value recently took a hit, one bitcoin is worth about $6,623.

Some estimate that if you were to buy all of the bitcoin out in the world right now at today’s market value, you would pay something like $120 billion. Just for comparison’s sake, that’s larger than the value of Goldman Sachs or Morgan Stanley, larger than the value of PayPal!

That value is stored in something like 17 million bitcoins distributed in computers around the world. In the Information Age, bitcoin or something like it (there are competitors) is exchange currency. Bitcoin is a new way of tracking information and, thus, has value. It’s a new way to move money around the globe.

Traditional currencies — dollars, Euros, etc. — take a long time to make some pretty basic bank transfers. The banks involved require all sorts of fees every step along the way. Bitcoin cuts out these “middle men” and gets payments made as fast as your internet access allows.

Think about this. Let’s say you want Netflix but you don’t even have a credit card. That’s reality in places like Africa or wherever people get locked out of the online economy. Bitcoin offers an alternative; transactions usually take 10 minutes or less.

Nathaniel Popper, a technology reporter for The New York Times, understands digital currency. A couple of years ago he wrote a book about bitcoin called “Digital Gold.” Popper says, at its most basic level, the bitcoin network links up computers trying to process all the transactions coming into the bitcoin network as quickly as possible. The faster you do it, the more efficiently you do it, the better chance you have of winning bitcoin.

There’s an element of luck in it. It’s somewhat like a lottery, but essentially the person with the most computing power has the best chance of winning — big time! In fact, there is concern that the surge in bitcoin could burst just like so many other economic boom-busts. But when?

Microsoft is accepting bitcoin now, just like U.S. dollars. Bitcoin has become a vehicle for investors. Big banks are starting to copy it.

Today’s world includes “server farms” usually located anywhere electricity is cheap to run computers fast, but literally anywhere — in outer – inner Mongolia, in Tibet, in Iceland. The cost of electricity probably makes Gallatin a poor choice to mine for bitcoin. The guys in my family are setting up their server farms in their homes in Kansas City, so many that the heat off these computers will help keep the furnace from running so often.

In China there are literally towns built around bitcoin. Entire buildings located next to hydroelectric dams and coal plants are filled with computer servers doing nothing but mining bitcoin. Mr. Popper says the Chinese people operating this whole new economy really have no idea of what’s going on or how the system works. They are custodians, just keeping the computers in operation.

Anyone can join, which was an original premise of bitcoin. The more computers that join, the more secure the network is and the harder it is to attack.

If you haven’t heard of bitcoin, perhaps it’s due to its lurid past. Bitcoin first became widely known as black market currency to buy drugs and make ransom payments. It was abused as a tool to enable new types of crime. But that belies the original intent.

About two decades ago a small group of computer scientists and activists worried about privacy as the existing monetary systems became digital. They saw how everything seemed to be going to credit cards, where every transaction could be tracked and monitored by the government or big business. So, they set about creating anonymous digital cash.

Bitcoin was announced in October, 2008. This was during the height of the financial crisis. Although there was much distrust of both Wall Street and central banks, skepticism also kept the idea of anonymous digital cash from taking off.

The line between privacy and secrecy is fuzzy, and criminals were first to latch onto bitcoin. It quickly became the currency on the dark web, the black markets where illicit drugs and sex were sold.

Nobody knows who invented money. But the creator of bitcoin is a character known as

Satoshi Nakamoto. It’s a pseudonym. He never really revealed who he (she, they or it) was. Nakamoto communicated essentially only by email, would get on sort of chats and sort of social media forums, but always under that Satoshi Nakamoto pseudonym.

A few years into bitcoin’s existence, right as it was beginning to take off, Satoshi essentially signed off and disappeared. But not before he-she-they-it issued a 9-page PDF called Satoshi’s White Paper, a description of how the system was going to work. The whole idea about bitcoin was, and continues to be, novel. Since then, the market has proven some of this original vision to be wrong.

Mr. Potter says that the most important thing about the rules around bitcoin was that it was going to be a network of computers, sort of like the Internet, that anybody could join and anybody could support. That allows bitcoin to exist independently of any sort of central source of authority. There wasn’t going to be a government here. There wasn’t going to be a company. There was going to be this network of computers that was supporting it, and that means that anybody can join that network and send money to anybody else.

Although the first uses of bitcoin were not altogether positive, legitimate uses are emerging with vigor. Today there are more and more people putting faith in bitcoin in the very same way that people generally put faith in the dollar — just like the U.S. government and the FDIC, many people now believe bitcoin is going to be around no matter how the future unfolds.

This is just a bit about bitcoin. I hope from these thoughts you realize there’s much more you should come to know. If you don’t think these times we live in are interesting, …well, maybe you need to read (quite a bit) more.