Monday, September 25, 2017

The history of BItcoin

I recently posted that CIAOPS was now accepting Bitcoin. The reasons behind this are to help better understand the blockchain technology on which Bitcoin is built. The best way to learn about something is to get involved, and that’s what I’ve done.

In that post I asked people to make a small bitcoin transfer to me to get things rolling. I am happy to say that I did receive one small payment, which is an indication that the underlying technology does work as expected. I’ll detail how all the transfer technology works and how to actually do it soon. If what I write here does provide you some value I’d appreciate a small donation via bitcoin. My bitcoin information appears on the right.

I am not expecting to be flooded with bitcoin transfers (although that would be nice) and the main reason for that is a lack of knowledge about what bitcoin is and how it works.

https://www.youtube.com/watch?v=QlvFg4NQYEQ

One of the places that you can start to learn more about bitcoin is to study it’s history. A great place to start this is the video Banking on Bitcoin (above). It doesn’t take you into the actual blockchain technology behind bitcoin, it looks at where the bitcoin currency came from, the main players and their involvement and how we got to where we are today.

I think that it is important here to understand that at it’s most basic bitcoin is a system of value transfer (i.e. currency) that is implemented using blockchain technology. I’ll get more into the actual blockchain technology down the track, as it is really the more interesting aspect of the story but think of blockchain as a open and distributed way to verify transactions. At the moment, most people use a credit card to transfer value. One of major differences between say a credit card and bitcoin is that all credit card transactions go through multiple agencies but are typically overseen by banks. The blockchain is effectively peer to peer with no one in the middle and done in such a way that all transactions are verified using cryptography. So extremely strong and secure cryptography takes the place of banks and intermediates when it comes to transferring value.

So bitcoin is a currency that is build on top of blockchain technology. It was one of the first to do this (now there are many) and this is why is probably has grabbed the majority of the mindset out there. Bitcoin has also been something that proves that the concept of blockchain technology does actually work. It shows that people can transfer real money between each other seamlessly.

However, as with any innovative technology, there is still a long for way to come, and many hurdles for it jump before it becomes mainstream. The documentary helps you understand this and shows you how bitcoin became linked to major crimes thanks to its involvement as a preferred payment method for the Silk Road (an illicit and obscure market place for contraband).

The financing of illegal activities has been part of humanity before bitcoin and will continue long after as well. Bitcoin was simply a method, a good method without doubt, for keeping payments secretive but this shouldn’t mean that it should be banned or even demonised. Unfortunately, today’s mainstream media did exactly this and tainted a lot of people’s concept of what bitcoin is all about. This may ultimately limit its growth but the more you understand about bitcoin the more you appreciate that much of the negative press it is receiving in the media is largely unjustified and misdirected.

Another negative challenge bitcoin has encountered over its history is the collapse of the Mt Gox exchange. You need someone to transfer bitcoin to and from dollar currency and this is the tasks of bitcoin exchanges. The Mt Gox collapse was a situation where the exchange itself either was hacked or failed due to poor business decision. It was not, as has been sensationalised a failure or vulnerability in the bitcoin and blockchain technology. However, because of its close association with bitcoin, the Mt Gox failure once again provided mainstream media an opportunity to sensationalise and misdirect people from what actually transpired.

So bitcoin has had a tumultuous history which is really worth understanding if you are at all interested in its potential. It also leaves some interesting questions unanswered. The major one is who was Satoshi Nakamoto, the creator of bitcoin? No one really knows for sure but the consensus is that was a group of people working together to give birth to the blockchain technology.

Another interesting fact is that bitcoin was released within a few weeks of the Lehman Brothers collapse, an event that accelerated the GFC. At a point at which the world had almost completely lost faith in the global banking and monetary system a potentially new a revolutionary system arose. One that was very akin to the distributed technology we see with the Internet. One that moved the control away from centralised institutions and into the control of individuals. Co-incidence?

From these early days, bitcoin has been adopted by the technology savvy who sees its potential to the point now where it is beginning to break into the mainstream consciousness and also coming onto the radar of governments and regulators.

I could go on for much longer but recommend you take a look at the documentary and form your own opinions. Let me know what you think in the comments as I’ll be posting up more information and opinions on bitcoin and blockchain as time goes along. I don’t claim to be an expert in these technologies at all, I am in the process of learning and understand the ramifications to economic and technology, so please share your thoughts and any resources you have found worthwhile as I am also doing.

Look out for more information on bitcoin and blockchain coming soon and of course, don’t forget to throw some bitcoin my way if you like what you read.