Canada's Condominium Magazine
It’s not easy to get a handle on Bitcoin—what it is, where it comes from, who uses it, how much it’s worth—but the news that “Mt. Gox,” the world’s biggest Bitcoin exchange, has collapsed and may have lost as much as half a billion dollars makes it worth taking a closer look. The owner of Mt. Gox, which operates out of Tokyo, said the collapse was the result of “weaknesses in the system,” understood to mean that the system was hacked and the 750,000 bitcoins belonging to customers stolen. It is not yet certain what actually happened.
Before this latest news, at least one United States senator, Joe Manchin of West Virginia, was calling for an outright ban on the crypto-currency, calling it unstable and disruptive. Manchin says Bitcoin’s “potential for criminal misuse” and its significant price fluctuations make it too dangerous for use and too hard to regulate. At the moment, there is no regulation. One of the main advantages of the currency, say proponents, is that Bitcoin can circumvent inflation and government controls on capital.
More than just a payment system
Bitcoin is not to be confused with simple electronic payment systems, like PayPal. Bitcoin’s creators had much higher aspirations: to replace, or at least provide an alternative to, the world’s present national currencies, though its origins (in 2009) are in the American gaming community. The founder, Jed McCaleb, is a software hacker, adding an element of irony to the company’s present troubles. According to a Reuters piece about the bankruptcy of Bitcoin, the peculiar name Mt Gox comes from the initials of the words Magic: The Gathering Online Exchange, derived from the name of a game in which players traded cards.
Where can you spend it? So far, not many bricks and mortar establishments accept the peer-to-peer currency. One notable exception is Virgin Galactic, the Richard Branson enterprise that will fly tourists into space. However, Bitcoin backers claim that it is doing to the world’s banking system what the Internet did to publishing. A big claim.
You can get bitcoins—lower case b spelling indicates the coins themselves—from an ATM now. There are very few ATMs—possibly only one, in fact. And to access it you have to have a special “wallet” app on your Android device that lets you communicate with other users on the Bitcoin peer network. You can also buy bitcoins for cash from individuals or from currency exchanges. The value of the coins fluctuates wildly, however. It has been as high as $1,200 CAD for a single bitcoin, and as low as $1. In recent weeks the value has been around $500.
Where it gets a little strange is in the “mining” of bitcoins. Bitcoin miners are the people who maintain the “block chain,” a public database and record of all transactions ever made with Bitcoin. The miners earn bitcoins by doing their work to maintain the system, or, to quote the mining website: “Mining is the process of running SHA256 double round hash verification processes in order to validate transactions and provide the requisite security for the public ledger of the bitcoin network. The speed at which you mine is measured in hashes per second. The bitcoin network compensates miners for their effort by releasing bitcoin to those who contribute the needed computational power. This comes in the form of both newly issued coin and from the transaction fees included in the transactions you validate when mining. The more computing power you contribute, the greater your share of the reward.”
That’s very clear, isn’t it? A video meant to explain the mining of bitcoins says only that miners “solve math problems” and are rewarded with bitcoins for doing that. The bit coin mining site also says that “Bitcoin is stable, safe and secure,” thanks to the “integral” work of the miners, who approve transactions.
Watch the video for a much simplified version of what Bitcoin is all about.