Chatting in Chambers with a fellow member (who is generally on the ball), I said: “Can I ask you about an aspect of Bitcoin?” I got the reply: “Oh, I don’t go onto the Dark web at all”. Walking away, a little perturbed, I was reminded of the limited range of knowledge that surrounds crypto-currencies, Blockchain and distributed ledgers.
The Dark Web is not necessary for the purchase of Bitcoin; indeed you can buy them without venturing from the straight and narrow. For instance, the nearest ATM to Chambers which deals in Bitcoin, is the one in the local shop opposite Kings Cross station. You only need pop your card details in, to walk away with a Bitcoin code to slip into your Smartphone… There’s another at Old Street roundabout. However, I recommend saving yourself the walk, picking up your tablet, and purchasing them instead over a secure link via VISA.
We are living through an era of unstoppable, international liquidity; so, roll over Sir Stafford Cripps and Sterling controls.
Making use of Bitcoin is just as easy. You can buy software from Microsoft, or a ticket for Virgin Air from Virgin Galactic; at one stage you were able to buy beer with Bitcoin in the achingly cool Pembury Arms in Dalston (Why did they stop? Slow confirmation times? 10 to 15 minutes to register the sale of a packet of peanuts – so last year, man); you can charter your holiday yacht in Croatia, or you can donate to Save the Children. It’s all quite tempting.
Although Bitcoin has developed a reputation for being the currency du jour for naughty internet goings on, there’s much more to this currency than black market arms dealers, and narcotic drug lords. While it is true that if you want to buy unlawful narcotics delivered in plain packaging, or acquire an unregistered assault rifle, with munitions thrown in, or if you just want to hire an assassin to spare yourself the hassle, tedium and expense of divorce (change from £5,000 apparently), your seller may insist on being paid in Bitcoin. But to have even made contact in that market you are likely to have to have achieved levels of anonymity far beyond an eBay alias, and so will need an untraceable web address and access to servers bouncing your messages about before delivery. Those are the signs of illegality; not the method of payment.
In 2017 however, Bitcoin is more of a speculative investment than a medium of transaction, and certainly have far exceeded its criminal beginnings, with eminent financiers favouring the currency over traditional modes of investment. This shows up in Bitcoin’s market value: the price is rising fast. If you had bought at the right time in 2013 a Bitcoin would have cost you £125; if you sold 1 on September 2017 you got £3,779.
To confirm this status, the FT reported in September this year that Bitcoin is the “most crowded” trade on the New York Nasdaq. That is a sign of something unsustainable; time to get out of the bubble?
But what is all about?
The key to understanding Bitcoin is grasping the combination technology of the “blockchain” and the use of a “distributed ledger”. Blockchain bundles data; and links it by a “hash” to the previous block; to change data so attached you need to change the data all the way back. The “distributed ledger” means that a number of entities (“Miners” in bitcoin speak) are maintaining copies of the chain. They all must agree to each change – to recording each transaction. The computing power to do that means miners now get commercial advantage from being sufficiently far north to be able to spend less on cooling systems; whereas at the start a student with a desktop could be part of the ledger. This has led to anxiety about the narrowing of the ledger-holders and whether that could allow tampering with the data.
But the technology has meant that no one has been able to hack the blockchain – which is no mean feat when you consider the institutions which have been hacked in the past… Bitcoin thefts and frauds have all involved stealing or defrauding the “keys” or passwords held by Bitcoin owners, not by infiltrating the code…
Bitcoin is far too small to be anything other than a fringe part of the economy. Its real significance is demonstrated in the technology and distributed ledger. This method of holding and rapidly updating data securely will take us into the future. Aside from the 200 or so other “crypto currencies” that are trying to follow the trail blazed by Bitcoin, there are many – perhaps more solid – users who are exploring its possibilities – the NHS, banks, company shareholder registers, insurers to identify but a few. So while the future of currency may not be Bitcoin, the future of Bitcoin is certainly brighter than ever…