Neil Turner's Blog

Blogging about technology and randomness since 2002

Bits of virtual coins

Once again, Bitcoin is in the news, with one analyst saying that recent problems with the MtGox exchange ‘could be the end of Bitcoin‘. I doubt it will be, but it’s a sign that things aren’t rosy in the world of crypto-currencies.

I first became aware of such things way, way back in 2006, during a university module on cryptography. Right at the end of the teaching, our lecturer mentioned something about ‘blind e-cash’ – a cryptographic currency that offered a similar level of anonymity to regular cash. It solved the traceability problem of credit and debit card problems online, and would allow pe0ple to buy goods from web sites without being easily identified.

Bitcoin seems to fit this description. Its use as the main currency for the shady Silk Road online marketplace, where it was possible to buy drugs and other illegal items, brought it to the fore and drove up its value. At one point, one Bitcoin was worth more than $1000 USD.

If you want to understand how Bitcoin works, then I can thoroughly recommend Explain Bitcoin Like I’m Five, which offers a simplified explanation of how it all works. It’s quite clever, and mostly works. Mostly.

As I said in the opening paragraph, there have been problems. Bitcoin theft is an issue, because these virtual coins have a monetary value, and web sites will exchange Bitcoins for real, tangible money. MtGox has, allegedly, lost over $200million of Bitcoin. And if you don’t keep your virus protection up to date, you may find that a virus has cleared out your personal Bitcoin wallet for you. Other malware, rather than stealing your Bitcoins, will enrol your computer in a mass distributed coin mining operation without your permission.

The other big issue with Bitcoin is its volatility. Some months ago, cashing in 100 Bitcoins would have made you a US dollar millionaire. To do so now would still make you very rich, but you would get less than $500 000. The value of Bitcoin fluctuates rapidly, most recently dropping 17% in 24 hours.

I don’t own any Bitcoins, and never have done. I’ve been aware of it for some time, and to some extent I regret not taking a bigger interest in the past. The computing-intensive process required to ‘mine’ new Bitcoins wasn’t as great early on, so had I made myself a few coins in the early days then I may have been able to cash those in for some serious money. But I didn’t and it’s probably not worth me getting involved now. Knowing my luck, I would end up losing my Bitcoin wallet, like the person who disposed of a laptop with £4million of Bitcoin on it.

And there’s not a lot that you can do with them. A handful of web sites accept Bitcoin, as do a small number of bars in trendy East London, and this busker. But right now, regular cash is far more useful.

One Comment

  1. To my shame I’ve largely avoided Bitcoin and wasn’t even completely sure I fully grasped the concept. Like you I’d highly recommend the ‘Explain Bitcoin Like I’m Five’ essay as it’s one of the best writeups to date.