Bitcoin Background

Bitcoin

'Transition to a Digital Psychology'

btc

”Selective retention” is a psychological phenomenon that is exhibited by every living being as research already concludes that ‘Each person sees and hears only whatever information supports their current belief systems and prejudices.”

A scientific study shows that when a person observes a situation, 50% of the information taken is from what the eyes see and the other 50% are conclusions drawn from the subconscious mind, based on prior conditioning, beliefs and prejudices
Are we trying to understand Bitcoin based on our old belief systems?

WHAT IS BITCOIN?

Bitcoin is a digital currency – a new kind of money. This new concept is difficult to understand because of our existing beliefs about currency. Money has always been something made out of something (depending on the era and culture) and issued by a government.
The true identity of Bitcoin’s inventor is unknown, but is known as “Satoshi Nakamoto.” He or she chose to remain anonymous.
Bitcoin was designed as an alternative to the banking system in 2009 amidst the Global Financial Crisis (GFC). This was a time when the government backed currencies and markets were failing globally. However, Bitcoin provided a new economic system: the Blockchain – a global, transparent ledger. It uses computers to maintain the record of ownership and transactions and has reduced the need for a centralised party in the form of a government, bank or corporation.
Given its revolutionary technology, widespread application and mass adoption, a “BitCoin” has risen in value from a few dollars to over $US20,000 in less than a decade.
Bitcoin is both money and an asset class.

WHAT DOES BITCOIN DO?

It is an algorithm, a digital, virtual and cryptocurrency; a chain of digital assets and a blockchain that works as a medium of exchange. All these are just characteristics of Bitcoin. One can only tell the meaning of an object when its functions are considered.
Felix Martin, the author of “Money, The Unauthorized Biography,” states, “For a currency to become money it must be a store of value and a system of exchange.” The dollar in your bank account – or even the piece of paper you receive in return has no inherent value. What matters is whether it has utility.
In the end, it does aid the ability to engage in exchange, commerce and human interaction. Bitcoin offers a remarkable capacity to simplify or reduce cost, near-instant transfers of value anywhere in the world
Martin further states that “currency itself is not money”, rather “money is the system of credit accounts and their clearing that currency represents” and uses the Micronesian island of Yap to make his point. The Yapese had a unique currency system, baffling to early European settlers, using stone wheels known as Fei. These were mined three hundred miles away and were as large as 113 square feet. It was therefore too inconvenient to transport the giant limestone rocks to the new owner so they were left in possession of the previous owner. The Yapese society had this mutual understanding that the giant limestone rocks could pass from owner to owner in a series of transactions providing a means of settling outstanding debts. In 2002, the Bank of Hawaii accepted the stones as collateral for loans for their residents to use.

WHY BITCOIN?

Our current economic system does not state the origin and provenance of our money. The government do not disclose how much it prints but is distributed significantly more than whats held in reserve. We don’t know how bankers hedge funds, create derivatives, or even Collateralised Debt Obligations (CDO’s). There is zero transparency; short-term gains are rewarded, and there are no consequences. Simply put, we are in the dark. The rescue plan of 2008 was a $700 billion government prevention against the ruin of a private enterprise – this was the fourth time. “The root problem with conventional currency is all the trust that’s required to make it work…but the history of fiat currencies is full of breaches of that trust… they lend it out in waves of credit bubbles with hardly a fraction in reserve.” – Satoshi Nakamoto

Over the past 20 years, the United States dollar lost 53% of its value, the British Pound -47%, the Euro – 40%, and the Australian dollar, 64%. Fiat currencies have not performed well as a store of value. The deflating value of these currencies can be attributed to the expansion of their monetary bases—all of which have expanded drastically over the same period.

Distinctively, distribution schedule of Bitcoin is at 21 million total supply. With continued demand, this limited supply should lend itself to Bitcoin being a better store of value over time” (Needham & Company, March 2016).

HOW IT WORKS

Bitcoin began as a bid. In 2010, programmer Laszlo Hanyecz offered the owner of a local pizza place in Florida 10,000 Bitcoins for two pizzas. And they both established the first value of Bitcoin. Today, at approximately $AU 1,000 per Bitcoin, it equates to about 10 million dollars.

Should we refer to Hanyecz a fool? “It wasn’t like Bitcoins had any value back then, so the idea of trading them for a pizza was incredibly cool” (Bilton 2013). Future value? “We believe returns of 100x over ten years are possible” (Graub 2016).

MINING AND BLOCKCHAIN

BLOCK 0

Satoshi wrote a computer program called “Bitcoin”. It designated 21 million “bitcoins” to be released incrementally over time. Freshly “minted” bitcoins are awarded to programmers who solve equations (like ? + ? = 10). This process is called “mining”. At first, Satoshi solved his equation and received the initial allocation (1 million bitcoin). This was (basically) the first command in the Bitcoin program; the first “block” of transactions in the Blockchain – also referred to as the “Genesis” block. This information was compressed (called the “root”) and added to Block 1. (I don’t understand this paragraph…so could not rewrite it)

BLOCK 1

All prior transaction and Bitcoin allocation are recorded and are contained in every new block. It is just like a backup of your computer- it does not have the full version of your files, but can be expanded if desired.

The Bitcoin program then released a new equation to be solved (perhaps ? + ? = 7) and the next designated Bitcoin allocation (10,000). A new miner, Laslo Hanyecz enters the scene, solved the equation and was awarded the Bitcoin. This information was hashed, forming another root that was added to the next block.

BLOCK 2 +

Every ten minutes, this process repeats approximately and allocations of new bitcoin slowly decrease over time. This happens until all 21 million bitcoins have been distributed. Similarly, bitcoin transaction fees increase due to the rising number of people exchanging bitcoin. Presently, there are over 250,000 bitcoin transactions per day worldwide, and when all 21 million bitcoins are released, miners will only receive transaction fees.

BITCOIN SECURITY

The Bitcoin program is originally designed by the National Security Agency (NSA) is encrypted by the SHA256 cryptographic hash function. A “hash” is an encrypted output taken from SHA256. For example: “Mary had a little lamb” becomes:

8774a25d2ff424c9cc919db20c47f691317cea4b8776cb2b73c81794bd54f19b.

It is a one-way function that cannot be decrypted. If all the computers in the world, from the beginning of time until now we’re working on decoding an output hashed by SHA256, the chance of the earth being destroyed by an asteroid in the next two seconds are more than it being decrypted (Felten 2017).

Satoshi designed Bitcoin in such a way that an inbuilt incentive protects it. Bitcoin has never been hacked. He said, “If a greedy attacker can assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments or using it to generate new coins. He ought to find it more profitable to play by the rules than to undermine the system and the validity of his wealth” (Nakamoto 2008).

THE DIGITAL ECONOMY

Bitcoin as a new kind of money should not discard our former beliefs about economics and its application; it’s only an evolution of the ‘Industrial Revolutions.’

As defined by the editors of Encyclopedia Britannica, it is “the process of change from an agrarian and handicraft economy to one dominated by industry and machine manufacturing.” This moved from mechanisation to intelligence.
The 18th century was an agricultural society that evolved to mechanisation with the invention of steam power. The advent of electricity and the conveyor belt enabled mass production between the 19th and early 20th Century. The Computers and the Internet came in and created a world of Information Technology and the ability to automate systems. The 2000’s commenced cloud computing, the Internet of Things, Artificial Intelligence, Cryptocurrency, Blockchain and Virtual Reality.

BITCOIN IS MONEY

According to research, “Cross-border data flows now generate more economic value than traditional flows of traded goods:
6.6x Growth in the Global Economy since the Internet
$2.8 Trillion Global GDP is data flow.”
Why trade digitally with a paper currency? The foundation of a digital economy is a digital currency. Explicitly, a “cryptocurrency” is protected by an unbreakable cryptographic algorithm. Bitcoin is the first cryptocurrency. It is a store of value and a system of exchange.

 

Get Started

REFERENCE

Matoushek, N 2009, What I forgot the day I was born, Xlibris Corporation, USA, p. 36.

Matoushek, 2009. Market Price USD 2017, Blockchain Info, viewed 7 November 2017, < https://
blockchain.info/charts/market-price>.

Martin, F 2015, Money: The Unauthorized Biography – From Coinage to Cryptocurrencies,
Vintage Books, New York, p.22

Nakamoto, S 2008, Bitcoin: A Peer-to-Peer Electronic Cash System , viewed 1 March
2010, < https://bitcoin.org/bitcoin.pdf>.

Suberg, W 2017, Bitcoin ‘Will Be Worth $1 Mln In 10 Years’: Swiss-Based Bitcoin Wallet
CEO, The Cointelegraph, viewed 25 May, <https://cointelegraph.com/news/bitcoin-will-
be-worth-1-mln-in-10-years-swiss-based-bitcoin-wallet-ceo>.

Martin, 2015, p 22.The Stone Wheels of Yap 2013, Citeco, viewed 1 November 2017, < https://www.
citeco.fr/en/stone-wheels-yap>.

Schwab, K 2016, The Fourth Industrial Revolution: what it means, how to respond,
viewed 1 June 2017, < https://www.weforum.org/agenda/2016/01/the-fourth-
industrial-revolution-what-it-means-and-how-to-respond/>.

Liggett, B 2015, Zero-energy Bio Refrigerator cools your food with future gel, Inhabitat,
viewed 1 November 2017, < https://inhabitat.com/zero-energy-bio-refrigerator-cools-
your-food-with-future-gel/>.

Baller, S, Dutta, S & Lanvin, B 2016, The Global Information Technology Report 2016 –
Innovating in the Digital Economy, Insight Report, World Economic Forum, viewed 12
December 2016, <http://www3.weforum.org/docs/GITR2016/WEF_GITR_Full_Report.
pdf>.