If you are like me, you may have stumbled across Bitcoin, not expecting it to become an obsession, not expecting to discover a technology with the potential to create a new financial future. It draws you in and you spend more and more time envisioning what you can do with what is the most disruptive technology of a generation, maybe ever.
Bitcoin is doing well, currently valued at £588.53 for one Bitcoin, up £356.03 on the year as of writing this. There are record numbers of Bitcoin Wallets being downloaded and accounts sets up since China devalued the Yuan, Trump came into office and India restricted supply of certain paper money (notes). Trading volumes are increasing despite the IRS in the US pushing Coinbase, a popular Wallet provider, to reveal Bitcoin address identities.
Bitcoin is 8 years old now and has survived numerous attacks, which is inevitable with a new technology. It offers both anonymity and liquidity, and with recent moves to scale it, Lightning and Segregated Witness, many like me are looking ahead to when Bitcoin has parity with Gold.
The language used by the Bitcoin and Blockchain communities is interesting and it conjures up images and ideas in people’s minds that can be misleading and stop people from really understanding what it is and how to use it.
I have listed many of the most confusing and misleading things about Bitcoin that I hope will help correct any misconceptions, and make if a little clearer and encourage you to invest in it.
One of the big challenges for any new technology to gain widespread adoption, apart from mocking by incumbents and attacks by those trying to take advantage, is that people try to compare it to what they already know. They look for a reference point, in this case a comparison to fiat currencies, the way the banking system works, and how bank accounts operate. All of which makes it harder for people to get comfortable with it.
This is the fundamental challenge for Bitcoin and Blockchain, the language, the terminology and the fact there is no comparison.
1. Bitcoin Are Gold Coins
Everywhere you look you see pictures of what looks like a Bitcoin, a Gold Coin with a letter B and two vertical bars (similar to a US dollar). It is no wonder people think Bitcoins are coins made of metal or even gold. Bitcoin is a digital currency also referred to as a cryptocurrency that only exists as an entry on a ledger. Held on the network and written to ledgers looked after by the 5400 miners that support Bitcoin as a financial system.
2. You Keep Bitcoin In A Wallet
When you think Wallet, you think about a leather wallet or purse with sections where you carry cash, as in bank notes. In Bitcoin, the term Wallet is where you hold your Keys (private and public) that are used to sign off generate your Bitcoin address and sign off transactions. They operate on a similar basis to a CVC code on the back of a credit card, the 3 digit key that unlocks and authorise (signs off) the transaction relating to the account number. These Keys being cryptographically generated string of numbers that ensure your available Bitcoin balance is protected and only you can authorise a transaction.
3. You Can Spend Bitcoin You Don’t Have
Fiat currencies - Dollar and Sterling - are based on a system of debt that enables you to create a credit situation and lend money you don’t have. Thus allowing double spend, a thousand times spend of the same money which is how banks leverage up and make money from our deposits. Bitcoin doesn’t work this way. Bitcoin uses what is called UTXO or Unspent Transaction Output where the Bitcoin network works out your available positive balance (recorded in a ledger against an address) and will authorise (validate) a transaction based on available spend. The network protocol doesn’t allow ‘double spend’, which was the single biggest issue preventing earlier attempts at distributed computing use for the transfer of value, a token, or cryptocurrency.
4. Miners Dig For Gold Coins
The popular image of men using pickaxes digging for gold helps to create the myth that these miners create the gold coins. Well in a non physical sense Miners do create the Bitcoin currency as part of the Game Theory race to solve the Proof of Work task that gets harder and harder as time goes on, and the reward for completing the tasks diminishes, currently set at 12.5 Bitcoins. Their primary tasks is to validate then write the transaction to the Blockchain and they get credited with Bitcoin for expending the vast amounts of energy required to do this.
5. Bitcoin Is Used By Criminals
When Bitcoin first arrived, the core attribute was anonymity. Anyone can open a Bitcoin account with an address that doesn’t reveal who they were. It was therefore obvious that Bitcoin would be attractive to a range of bad actors and in the early days a small minority would use Bitcoin for no good. SilkRoad was a prime example. Since 2008, Bitcoin has been under attack from hackers and those trying to subvert the technology for money laundering, to support trafficking, and as fundraising for terrorism.
The Bitcoin community has fought to clean up its act and takes compliance very seriously. The community is working together and there are a range of Blockchain solutions that allow Bitcoin users to check the address at the other end of a transaction. Wallet providers, Bitcoin exchanges, miners and other parties are sharing information to help identify bad actors and it is proving very good. www.Coinfirm.io is one such company that is determined to remove fraud and money laundering from Bitcoin.
Bitcoin is a cryptocurrency and your Bitcoin or other cryptocurrency balances are stored in a ledger. There is no physical representation of a Bitcoin. Bitcoin works on the basis of an unspent balance and the network works out what you have available and prevents you from spending the same money twice. To access your Bitcoin and spend it you use Keys that are long strings of numbers and characters that are cryptographically generated. These are held in Wallets on your PC or Smart Phone, an App. And finally it is possible to check the address you are looking receive or send Bitcoin to, to see if the address has a good or bad reputation.
Bitcoin is our future. It is a liberating technology that has gone up by more than £350 in 2016 to £590 as of writing this. Download a Wallet today - CoinBase, Blockchain, Xapo or Lawnmower - and buy some!
OM © 2016