There is an old story about some blind persons describing an elephant. Some describes its tail, some its trunk, some its ears, some its body and some its tusk. Each one has its own idea of the elephant. You will find a similar phenomenon when you search for “what is bitcoin” on the Internet. You will hear a lot of new words and their descriptions: cryptocurrency, block chain, mining, rabbit hole, and of course Satoshi Nakamoto.
Here is another visually challenged, describing the big elephant called bitcoin. One more blind won’t hurt in a vast ocean of darkness.
What is bitcoin?
There are many different ways to approach the concept of bitcoin. We use a generic one, albeit one that is less used.
Consider the internet as another country. Bitcoin is its currency – the Euro of that virtual continent. But unlike the real-time currencies, it is more of bits and bytes, and less of coin. There are a slew of fundamental differences between bitcoin and traditional currencies.
Why bitcoin is different from traditional currencies
The differences are vital. First, bitcoin does not exist in a physical form. All those coin pictures you see on many articles are misleading. You cannot print the picture of a real bitcoin – even Charlie Hebdo can’t.
Second, there is no central authority like a Federal Reserve or a National Bank that controls its distribution. There exists an online code-driven mechanism and ledger that keeps the record of each and every transaction of bitcoins. That ledger, incidentally, is called the block chain.
You will have a username and multiple passwords to do something with your bitcoin. It is said to have a labyrinthine encryption procedure that prevents misuse and hacking. That is why it is called cryptocurrency. In the unlikely scenario of hacking becomes successful, the hacked bitcoin disappears.
The online mechanism is created and improved by a community – just like the internet community that created and supports free software and Linux. The prime mover behind the community was Satoshi Nakamoto. Don’t contact Japanese postal department to get in touch with him or her. It is just a pseudonym – or something like a fake Facebook profile. He is no longer associated with the project and he remains mysterious and unknown. But the system he helped devise works perfectly.
How bitcoins work
There exist a total of 21 million bitcoins. That is the limit of the number of bitcoin units. It is impossible to find anymore bitcoin units once this number is reached.
A single bitcoin unit can be found through a process called mining. The process basically involves writing some code. You can do it manually, which is a herculean task – and often a fruitless one too. You can join a team that does mining. But the obtained bitcoins will be shared and the individual rewards can be less attractive.
There are programs available that do the coding for you. You need to shell out money – in Dollars or Euros – to buy those programs. You will get bitcoins based on the program’s efficiency.
At the present exchange rate, one bitcoin fetches just over 210 Euros. Of the 21 million bitcoins available, more than 13.75 bitcoins have been mined. There are over 7 million bitcoins remain unearthed. As per the current estimate, the last bitcoin will be found on 2140 – that is, if the Earth and the internet exist till that date.
Its exchange rate is likely to increase. The system is designed in a manner such that it would be difficult to find bitcoins as the undiscovered stock decreases. So, if the theory of demand and supply holds true, its exchange value is set to rise.
At the moment, there are practically three ways to get bitcoins:
- Mining – both individual and software-driven;
- Outright purchase from exchange bureaus;
- Selling some services or products and accepting bitcoin remittances in return.
What can be done with bitcoins?
It is an investment, like stocks or gold, if you believe in it. But that is not bitcoins’ primary use. It can be used as a valid currency to buy anything. At the moment, very few merchants and service providers accept bitcoins. The trend is changing across the world, but not in the way the bitcoin evangelists expect and had predicted.
The transactions using bitcoins have numerous advantages and obviously some disadvantages. Since no physical currency is involved, everything is recorded on the ledger – on the so-called block chain. It shows how many bitcoins you own and what you did with your bitcoins. Practically every transaction is recorded and available in public domain.
It is good and bad. Good for those who have nothing to hide – and not so for those who have something to hide. Imagine the furore if a future US presidential candidate were to be found buying sex toys or porn videos using bitcoin. Bill Clinton can forget about a rerun if bitcoin becomes established.
Its effect in East Europe
East Europe awoke a bit late to bitcoins. The habitual early risers to financial matters, the USAs, Germanys and Japans, stole a march over East Europe with this phenomenon too. As of now, you may not able to survive with just your bitcoin wealth in East Europe.
You can do that in some European cities like Amsterdam and Berlin – with some difficulty of course. Coffee shops, bars, boutique stores, supermarkets and other brick-and-mortar businesses are increasingly accepting bitcoins in these cities.
The Eastern European cities too are fast catching up. A chapter affiliate of the Bitcoin Foundation has come into existence in Romania recently – the first of its kind in East Europe. Germany, the Netherlands and Denmark are the other European countries that have a Bitcoin Foundation chapter affiliate. The first bitcoin ATM too was started in Romania.
Spreading wings
After the reasonable success of the Bitcoin Central and Eastern European Conference, held in Ljubljana, Slovenia, on September 11 and 12 last year, the region has witnessed mushrooming activity in almost all the countries. Check this real-time map (http://coinmap.org/) to learn more about the activities. You can find bitcoin start-ups and shops that accept bitcoins in many cities in East Europe now.
It should also be pointed out that some countries, especially Russia, are planning to ban bitcoins because of the lack of state regulation. If the whole world embraces to bitcoins, as it is likely to do in the coming years, East Europe cannot stay away from it.
The day is not afar when you can see what Vladimir Putin does with his bitcoin. Only then can all we blind folks see how big the elephant called bitcoin really is.
