Lets Talk Bitcoin!

Bitcoin has become a phenomenon which has people kicking themselves due to their previous doubts as to how valuable something that is intangible might become. Bitcoin has been increasing in value for almost a decade and now it is by far the most valuable currency to date. You can even get yourself a Bitcoin debit card.

What on Earth is a Bitcoin?

For starters Bitcoin is a cryptocurrency. A cryptocurrency is just like any other currency but solely in the form of ‘1’s and ‘0’s on the internet. Cryptocurrencies fall under a category of digital currency and are also a sub category of alternative currencies.  You cannot go to any bank in the world currently and ask to withdraw a bitcoin. It doesn’t have a physical form. A very interesting prospect to most of us.

Bitcoin was first created in 2009. Since its creation, it spawned different cryptocurrencies. Bitcoin uses decentralized control. Or in other words, there isn’t a large middle man that transactions have to go through and that means lower fees.

How are they stored?

This is going to be a bit lengthy. Here we go! Bitcoin is only available on the internet and can be used and exchanged between anybody. For starters in order to see your bitcoins and what you have, you will need to take a look at your wallet. This wallet is stored on your computer or mobile device.

These wallets have some similarities to what a traditional big name online banking system has.  One similarity between a wallet and online banking account is the multiple choices you have. Much like shopping at a store for a nice leather wallet that has protected the fine bank notes of many different currencies, you have to choose what application you want to use for your bitcoins.

(You are able to sell your bitcoins in exchange for USD or many other currencies.)

Wallets work exactly the same way. You can put money in them, take money out, give the money to someone else et cetera. The choices might not be as numerous as the number of brands there are for leather wallets, but there are definitely quite a few. Bitcoin debit cards are also available to make transactions at stores easy.

Wallets like, ArcBit, Bitcoin Knots, Bitcoin Core (The first), and BitGo are four of nine choices that are featured on bitcoin.org.

A picture of a Bitcoin Wallet sequestered from Google images. This is where you are able to see your balance in bitcoins, or in your native currency, as well as latest transactions.

How do transactions work?

Unlike transactions using the traditional method of handing over cold hard cash, or telling your bank to transfer a certain amount of money to another persons account with a check, transactions with bitcoin are as simple as sending an email. You have the option of inputting the id code of the recipients wallet or you can actually just send them via email.

Now there isn’t any large corporation that handles this and charges an obscene fee for the little work that is required. What happens instead is the pending transaction is sent through the internet and is confirmed and secured by “miners”.

During the course of a pending transaction, it can be reversed. However the more time that goes by, the more confirmations it gets, and the harder it will be to reverse the transaction. Beyond a certain point transaction will no longer be available for reversal.

How are they created?

Well bitcoins as you can guess can’t be printed like normal money. Instead bitcoins are created by the miners that solve ‘blocks’ of information. These blocks are the bits of information from the transactions taking place across the globe. Once the miners solve a block, they share it with the community to be confirmed and then they are rewarded with newly ‘printed’ bitcoins.

Don’t go on thinking miners are making loads of bitcoins any time quickly. Eventually making bitcoins won’t be as profitable to most people. Since it is all online, there are many expenses that go into mining bitcoins. Electricity rates, power consumption, time, and conversion rates will effect the profitability of mining.

Miners also need a fairly powerful computer in order to speed up production. You may come across the term ‘hash rate’. This is referencing the performance of the computer. The higher the hash rate the faster blocks can be solved and shared. There are handy calculators that miners are able to use in order to calculate their profits after taking into account the hash rate, cost of electricity, and other factors.

After each solve however the difficulty of these solves will increase. Much like a progression in a video game. The level and difficulty increases as miners progress.

Now in order to start mining you will need to get a mining program, which is free, and then join a pool. Pools are simply a group of miners that join together in order to mine more effectively. These platforms that allow these pools to operate take a fee out of the earnings of the miners. Much like taxes. Something has to keep the pools running.

A article published by Ofir Beigel on November 24, 2017 gave a handy chart that shows the earnings of a mining rig known as Antminer S9. This rig has a hash rate of 14 TH/s. The chart that he provided doesn’t take into account the expenses that come with mining bitcoins. It estimated that for the most ideal mining rig currently known after one day of mining, $11 would have been earned. After a month, $332 would be earned. However that is a rig that is constantly mining. Again not taking into account the energy costs and cost of the hardware. Usually more powerful computers will drain more and more power.

How much are they worth?

Bitcoins have been compared to gold. Their value depends on the currency in question fluctuates. The current value of a single bitcoin during the writing of this sentence is $16,737.23. That supersedes golds value per ounce by almost a factor of 16. Gold sits at $1,249.61 per ounce. This little fact made my dad kick himself for not investing in bitcoins when they were only $0.06. Of course during that time there was a lot of doubt behind bitcoins and how they would turn out.

The value of bitcoins is so volatile however that the price can change quite a bit in a few minutes. For example as I was writing this the price changed to $16,629. Still a lot of money but that changed in merely five minutes. A $100 drop in as little time as it takes to warm a hot pocket.

coindesk-bpi-chart.jpeg

This is a graph showing the price fluctuations that occurred in a mere hour on December 11, 2017. Sure the curves seem huge but the actual fluctuations are by $10 or $20.

coindesk-bpi-chart (1).jpeg

This is a graph depicting the change in value over the course of approximately a month. As you can see from November 20, 2017 there was an increased by $9,000 in under a month.

For a live view of what the bitcoin market looks like check out this website here

The future?

As with anything as jumpy in value as bitcoins it is hard to say what the future will look like for bitcoin. However there have been many who said that there will be a time where the bitcoin market will crash back to the values they were at when it was in its early days. For those that own bitcoins this prospect is more than likely a nightmare that they wish to never live.

However it is unlikely that someone has converted all of their money into bitcoins. So no one is in real danger of going bankrupt and losing all of their money. Hopefully, if they are wise, bitcoin isn’t a primary form of currency. For most it seems bitcoin is a stock market where people exchange low and cash out when high.

A possible crash in the bitcoin market could have many causes. There is one that I suspect could happen anytime much like what happened in February of 2014. The value of bitcoins dropped by 43%. This stalled the bitcoin market for two years when it finally picked back up in 2016. The operator of Mt. Gox (One of the leading bitcoin exchanges that has been trusted by bitcoin users for years) reported the exchange site had been hacked. This halted exchanges and it was later known that the thieves made away with 850,000 bitcoins. Which with the current exchange rate to USD would be worth around 14 billion dollars.

Could they deplete in value?

Bitcoin is in controlled supply. There will only ever be a maximum amount of bitcoins in circulation at anytime. This will make the value of bitcoin unchanged due to inflation. Because new bitcoins are created by miners for solving block, the reward will decrease as time goes on. It already has. From the year 2009-2011 the reward was 50 bitcoins per block which added a total of 7,875,000 bitcoins into the market over the course of those two years. That made a grand total of 10,500,000 in the market which is 50% of the maximum bitcoins that will exist meaning there will only be 21,000,000 bitcoins in circulation.

From the year 2012-2015 the reward was 25 bitcoins per block. During this time 5,250,000 bitcoins reaching 15,750,000 78% of the total.

On June 23, 2017 the market reached 81.250% of its saturation. It is estimated by the year 2024 the reward will be 6.25 bitcoins per block and in that year the market would have reached 93.750%. Eventually however it will get to a point where unless generating bitcoins is of no cost to the miners, no one will want to dedicate the time and energy into generating them.


Who has all the dough?

Currently there is a figure who has remained in shadow. This figure is known as Satoshi Nakamoto. Nakamoto is theorized to have around 1 million bitcoins which currently would be worth over 16 billion dollars. If he were to start selling all of the bitcoins he/she has stowed away it could drastically change the value of bitcoin for the worse.

Personal Thoughts

It is extremely tough not seeing a gem in the sand. Bitcoin perhaps will be around for quite a bit longer. I only fear the crash that is inevitable with anything this incredible. Ultimately bitcoins are an astounding 21st century phenomenon that may or may not stand the test of time. Perhaps this is our future. Perhaps banks will dissolve away like blockbusters. Or maybe corporate hands will get their greedy hands on them and make a amazing thing bad.

 

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s