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JULY 6, 2017

Bitcoin: Not Your Father’s Currency

Omar Silvano Gallina

Market Solution Director

Reading time: 2 min


If you’re going to be in something volatile, you might as well be in something that’s volatile and rising than volatile and falling. — Ryan Taylor, CEO of Dash Core, to Bloomberg

Venezuelans, says the article, are flocking to Bitcoin, either desperate for the devastating devaluing of their bolivar currency and in search for good deals as Bitcoin value can easily and dramatically surge, even in minutes. Or, plummet as well: it happened a few days ago because of a halo effect, when another crypto money – Ethereum – made heavy losses in a matter of minutes. Meanwhile, CoinBase – a leading cryptocurrency exchange – was offline due to technical issues—making impossible to investors and owners to take action in response to Bitcoin losses.

Looks exciting, doesn’t it? Welcome to the fast and furious world of Bitcoin. OK, not so fast. We need some fundamentals before.

A Non-Regulated Computed Currency

The first specifications and proof of concept for Bitcoin appeared in 2009 on a cryptography mailing list, signed by Satoshi Nakamoto. Nakamoto left the Bitcoin project a year later and his (or her) real identity is today unknown.

Bitcoin is a cryptocurrency: it depends on cryptography for security of transactions and its very existence. The interesting thing is that it’s not regulated or controlled by any authority—nor can be. Every Bitcoin comes into existence after being mined by a cluster of powerful computers: Bitcoins are values returned by a mathematical function. The more Bitcoins are mined, the harder is finding other Bitcoins.

Their theoretical total number is finite—only about 21 million Bitcoins can exist. But it’s possible to exchange even tiny fractions of Bitcoin and so it can likely scale to becoming a widespread currency in the future (we are still very far from having mined all Bitcoins). Now, widespread it isn’t: the whole Bitcoin space is worth something north of 30 billion dollars. That is, for example, the thirtieth part of Apple’s market cap. The bond market in the USA alone is worth about three trillion dollars.

A Chain of Trust. And Blocks

There are neither regulating authorities in Bitcoin, nor technical ones. The Bitcoin network has no center: it’s a classic peer-to-peer networking. All transactions are known to all the network and the validation of any transaction can happen only when all the nodes agree on it. So, every transaction is “real” in Bitcoin: one can spend cryptomoney from his or her wallet only when the money actually is there.

Such a network has a speed problem, though: waiting for every needed node to approve a transaction could require days. How to speed up things? The Bitcoin protocol is built on the concept of blockchain. Blockchains are basically timestamps relative to a bunch of translations. Thanks to them, approval of transactions has to be done only until the most recent blockchain is found on the network; every transaction earlier than that is already OK. This way, waiting times are still relevant, but reasonable: even 40 minutes for a transaction confirmation.

Wallets Are Everyone’s Best Friends

Curious about Bitcoin? Nothing is better than try it. Just download a client from the official site and start a wallet—an encrypted folder in your computer, containing the blockchain data and of course your Bitcoins.

When subscribing to an exchange site, you are gifted with some fraction of Bitcoin, or you can play some simple game to earn some. Having more than zero Bitcoin is enough to look around and, maybe, make some transaction. Bitcoins are being accepted in more and more circumstances as a legitimate payment system.

You could even try to accumulate Bitcoins and hope for the value to grow: whoever owned one Bitcoin in 2009, today can sell it for more than a thousand dollars, after having bought it at twenty dollars.

Just be careful, because Bitcoins are a very volatile currency by design, and you can lose your gains overnight. Venezuelans can accept nearly any risk margin, but their currency loses almost its entire value every day. Our currency doesn’t!