What would life be like if our currency wasn’t controlled by
government and corporate agencies? What if there were no
limits on the amount you can transfer to another person,
no interference from authorities when those limits are exceeded, and
perhaps best of all, no physical cash? It all sounds pretty futuristic.
Thanks to a few industrious entrepreneurs, the monetary future
has arrived. Bitcoin is a virtual currency that was created and designed
to give total financial autonomy to its users. There’s no censorship, it’s
protected from inflation, and it’s cheaper than other payment systems
— just you and your coins, however you choose to use them. The use
of cryptocurrencies liberates individuals to be able to manage their
finances the way they see fit, without any prying eyes.
We have compiled our best articles on bitcoin and cryptocurrency
into this essential guide. Bitcoin is a difficult subject to grasp, no doubt,
but we hope that after reading this that you will have a more thorough
understanding of what bitcoin is, how it works, and why the technology
behind it will be the basis of the currency of the future.
Bitcoin for beginners
Understanding Bitcoin requires that we understand the limits
of our ability to imagine the future that the market can create
Thirty years ago, for example, if someone had said that electronic
text — digits flying through the air and landing in personalized inboxes
owned by us all that we check at will at any time of the day or night
— would eventually displace first-class mail, you might have said it
After all, not even the Jetsons had email. Elroy brought notes home
from his teacher on pieces of paper. Still, email has largely displaced
first-class mail, just as texting, social networking, private messaging,
and even digital vmail via voice-over-Internet are replacing the
It turns out that the future is really hard to imagine, especially when
entrepreneurs specialize in surprising us with innovations. The markets
are always outsmarting even the most wild-eyed dreamers, and they are
certainly smarter than the intellectual who keeps saying: such and such
It’s the same today. What if I suggested that digital money could
eventually come to replace government paper money? Heaven knows
we need a replacement.
Solving Problems a Byte at a Time
Money started in modern times as gold and silver, and it was controlled
by its owners and users. Then the politicians got hold of it — a controlling
interest in half of every transaction — and look what they did. Today
money is rooted in nothing at all and its value is subject to the whims
of central planners, politicians, and monetary bureaucrats. This system
is not very modern when we consider a world in which the market is
driving innovations in other aspects of our daily lives.
Maybe it was just a matter of time. The practicality is impossible
to deny: Gamers needed tokens they could trade. Digital real estate
needed to be bought and sold. Money was also becoming more and
more notional, with wire transfers, bank computer systems, and card
networks serving to move “money” around. The whole world was
gradually migrating to the digital sphere, but conventional money was
attached to the ground, to vaults owned or controlled by governments.
The geeks went to work on it in the 1990s and developed a number of
prototypes — Ecash, bit gold, RPOW, b-money — but they all faltered
for the same reason: Their supply could not be limited and no one could
figure out how to make them impossible to double- and triple-spend.
Normally, reproducibility is a wonderful thing. You can send me an
image and still keep it. You can send me a song and not lose control
of yours. The Internet made possible infinite copying, which is a great
thing for media and texts and — with 3D printing — even objects. But
reproducibility is not a feature that benefits a medium of exchange.
After all, a currency is useless unless it is scarce and its replication
is carefully controlled. Think of the gold standard. There is a fixed
amount of gold in the world, and it enters into economic life only
through hard work and real expenditure. Gold has to be mined. All
gold is interchangeable with all other gold, but when I own an ounce,
you can’t own it at the same time. How can such a system be replicated
in the digital sphere? How can you assign titles to a fungible digital
good and make sure that these titles are absolutely sticky to the property
Follow the Money
Finally it happened. In 2008, a person going by “Satoshi Nakamoto”
created Bitcoin. He wasn’t the first to solve the problem of double
spending. A currency called e-gold did that, but the flaw was that there
Jeffrey A. Tucker
Bitcoin for Beginners
was a central entity in charge that users had to trust. Bitcoin removed
this central point of failure, enabling miners themselves constantly to
validate the transaction record. He had each user download the full
ledger of all existing Bitcoins so that each could be checked for its title
and not used more than once at the same time. With his system, every
coin had an owner, and the system could not be gamed.
Further, Nakamoto built in a system of mining that attempts to
replicate the experience of the gold standard.
The math equations CPU
power must solve get harder over time
. The early creators had it easy,
just like the early miners of gold could pan it out of the river, though later
they had to dig into the mountain. Nakamoto put a limit on the number
of coins that can be mined (21 million by 2140). (A new coin is currently
mined every 20 seconds or so, and a transaction occurs every second.)
He made his code completely open-source and available to all so that it
could be trusted. And the payment system used the most advanced form
of encryption, with public keys visible to all and a scrambling system
that makes its connection to the private key impossible to discover.
No one would be in charge of the system; everyone would be in
charge of the system. This is what it means to be open source, and it’s the
same dynamic that has made Wordpress a powerhouse in the software
community. There would be no need for an Audit Bitcoin movement.
Trust, anonymity, speed, strict property rights, and the possibility that
applications could be built on top of the infrastructure made it perfect.
Bitcoin went live on November 1, 2008. To really appreciate why
this matters, consider the times. The entire political and financial
establishment was in full-scale panic meltdown. The real estate markets
had collapsed, pulling down the balance sheets of the major banks.
The investment banks were unloading mortgage-backed securities at
an unprecedented pace. Boats delivering goods couldn’t leave shore
because they could find no backers for their insurance bonds. For a
moment, it seemed like the world was ending. The Republicans held the
White House, but the unthinkable still happened: Government and the
central banks decided to attempt a full-scale rescue of the whole system,
spending and creating trillions in new paper tickets to fill bank vaults.
Clearly government paper was failing. A digital alternative had to
exist. But what gave Bitcoin its value? There were several factors. It was
not fixed to any existing currency, so it could float according to human
valuation. It was made from real stuff: the very 1s and 0s that were
driving forward the global market economy. And while 1s and 0s can
be reproduced unto infinity, the new coins could not, thanks to a system
in which the coin and its public key were strictly controlled and the
ledger updated for every transaction. Its soundness could be checked
constantly through instantaneous conversion to other currencies as
well as to goods and services. The model seemed impenetrable, the first
digital currency that really addressed all the problems that had doomed
A Bitcoin of One’s Own
Let’s fast-forward in time to March 2013. I had become the proud owner
of my first Bitcoin. My wallet lived on my smartphone. Only three years
ago, some wonderful applications had already developed around the
currency unit. Although I’m a bit techy, I’m not a rocket scientist and
I’m quite certain that I would have been out of my league. But this is
how digital institutions develop to become ever more user friendly.
At the same event at which I became a Bitcoin owner, I also used a
Bitcoin ATM. I put in the green stuff, held my digital wallet up to the
scanner, and then I felt the buzz on my smartphone. Physical became
But still I wondered what exactly I could do with these things. That’s
when the consumer world of Bitcoin products appeared before me. We
aren’t just talking about the Silk Road — a website that became notorious
for enabling the easy, anonymous buying and selling of drugs. There are
Bitcoin stores everywhere. And there are services in which you can buy
from any website with a Bitcoin interface. There was growing talk of
Bitcoin futures markets. Some companies were rumored to be going
public with Bitcoins, and thereby bypassing the whole of the Securities
and Exchange Commission. The implications are mind-blowing.
Tuesday, 27 March 2018
Cryptocurrency and Bitcoin Guide for Beginners
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