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New in Tech: What is Bitcoin?

Almost 25 years ago I did a presentation for the Harrisburg PA Area NetWare User Group on two technologies that I thought were going to become important, the subject was titled "OS/2 on the Internet". A large group turned out, they may have been thinking the same thing I was. As it turns out OS/2 forked and became Windows NT which ultimately became the Windows you use today and the internet became The Internet. In those 20 years the internet, specifically internet software, has changed or destroyed:

  • The music industry
  • The newspaper industry
  • The television industry
  • The travel agency industry
  • The Stock brokerage industry
  • Print magazines
  • Telephony
  • Blockbuster,_Birkenhead_(5)Taxis
  • Radio
  • Calculators
  • Privacy
  • Photos
  • Video
  • Mail
  • Brick and mortar stores
  • Being lost
  • Encyclopedias
  • Blockbuster, Borders, Circuit City, the Tribune, Musicland, record stores

All arguably all killed by the Internet.

Internet software is now poised to disrupt the biggest industry of all – your money. The US Dollar as we think of it is already mostly virtual, only 2% are in the form of bills or coins, the rest is digital.

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A limitation of money as we know it is that it requires trust both for storage and transfer

  • Storage
    • Your money in a bank belongs to the bank, they are technically IOU's
    • Your accounts can be frozen or reduced
    • Only available during business hours
    • Holding cash requires you to trust the central banks not to erode value through expansion of the money supply
      • Storing it yourself is high risk
    • Withdrawal of large amounts is problematic
    • You can't make backups of your cash
    • Single point of loss
  • Transfer
    • You can't remotely transfer money without a central authority such as an bank, Paypal or Western Union
    • Large in-person transfers of cash are high-risk

Bitcoin and other cryptocurrencies are changing all this.

What is bitcoin?

  • Bitcoin is a software-based payment system described by Satoshi Nakamoto in 2008, and introduced as open-source software in 2009. Payments are recorded in a public ledger using its own unit of account, which is called bitcoin
  • Bitcoin is the first decentralized digital currency, maintained by software, not backed by government
  • Trustless money
  • Worldwide open ledger
  • It is an open network, all transactions are viewable by anyone

 

What is the nature of bitcoin?

  • We think of bitcoins as physical things, but there are no actual coins, only records of bitcoin transactions kept in a public ledger
  • The blockchain is a distributed ledger that is open to the public, every transaction is recorded and agreed to by the computer network known as the miners
  • It has a limited supply and a predictable growth rate
    • The maximum number will be 21 million in 2140
      • We are 2/3 there
      • A block is solved every 10 minutes creating 12.5 bitcoins as rewards for miners
        • Approximately 1800 bitcoins are created per day, this can vary
      • Block rate gets halved approximately every 4 years
        • Next halving is estimated to be May 23 2020 when the mining reward will drop from 12.5 to 6.25 coins

 

Now that you have a little background on what bitcoin is, learn how this cryptocurrency works and why you may or may not want to have it yourself.

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