The African people in the Diaspora and at home are heavily target by the Bitcoin recent marketing.
I felt it was necessary to investigate the Bitcoin craze and share my opinion here, regardless.
What is Bitcoin?
It’s digital notarized record of transactions between two parties or more, based on a decentralized, distributed ledger technology called block chain.
The Bitcoin technology has been initially created to solve the problem of double spending in the digital world. The problem is ‘how to make sure someone doesn’t use the same dollar to pay two or three times, before everyone else discovers that her or she doesn’t have enough to pay all’.
The block chain technology makes sure someone does not use the same single dollar to pay two or three merchants, by checking through if he/she has not already spent the single dollar before.
To prevent people using one dollar to buy for 3 or 5 dollars, while avoiding the cost of intermediation (banks), Bitcoin uses a unique code for every dollar in the system. Every dollar in the system has a unique id. When you spend it, a record is generated, time stamped then shared with hundreds of servers to keep a public copy of the purchase. Every server keeping a copy is independent and is under the subordination of no third party.
In this way, it is almost impossible to spend the same dollar two times, because every time that single dollar moves across the system, a new transaction id is generated but linked to the previous transaction.
That’s why it’s called a block chain: a perpetual, time stamped record is kept of every move of the single dollar, and every move is linked to the previous.
Now, imagine all the money in the economy has a unique code. When it’s given to a person (block genesis), the system knows that the dollar with id xy is now attributed to person a, on date d, and h hour. That record is sent to all computers in the country.
If you’d buy chocolate with the dollar xy, from person b, in store s, on d date, at h hour, etc, the dollar is transferred to person b, and there is a link from you to b.
The main advantage of the block chain technology is that it helps introduce full transparency to social and political systems.
It could be applied to many areas of life like voting, commerce, land registry, assets management, etc.
Let’s take for example voting. You vote for candidate c. Automatically your vote record is distributed to hundreds of servers which are not under the authority of neither the government, nor the ruling party, or anyone else. This makes almost impossible for your vote to be stolen, because data recording is secured against tampering and modifications.
Now your candidate is elected and voted in the Parliament on tax rise on the poor. Your candidate vote in the legislative body for tax rise is linked back to your vote (block chain). You can then see with the public ledger system how your unique vote is linked to social changes.
Described as above, the Block chain technology is awesome and would, in the near future, change a lot of things in our life.
Now back to Bitcoin.
Bitcoin is one application, among many, of the block chain technology to monetary transactions.
As the block chain technology is decentralized, and managed by no one in authority, an incentive system is baked into the algorithm to reward people who setup servers to help find new block (new record of transactions) and spread them across the network of servers so that the records is fully distributed and easily reconciled for trust building.
The people who mine (setup servers to find, reconcile, and facilitate records and transactions) receive free Bitcoin. A set of bitcoin is distributed every 10 minutes with a mathematical challenge to be completed to receive it.
In total there are 21 million Bitcoin in the system, and by 2017, already 16.5 million has already been mined.
The system had now reached a level of competitiveness and complexity that only few big players could afford setting a servers farm and deploy financial resources to do mining.
This means if you want to have Bitcoin today as an individual, you have to buy it from someone. The time of individual miners from home had ended, because the big guys would always be first to find new block and mine them long before you start your home server or computer.
What’s the problem?
A lot of people talk about Bitcoin as a currency, but it has no currency attributes. If you have Bitcoin now, you almost can’t buy anything with it, or exchange it easily into another currency.
Some people think it’s a value storage tool or a new kind of asset. In fact fact you just freeze your asset because once in Bitcoin you cannot move it easily.
A rolex is an asset with direct second market. But a this stage, a Bitcoin is a kind of voucher you buy with a real currency, but there is almost no store in your city where you can use it.
A supermarket voucher is even more valuable, because you can come back to the store and buy something with it. Bitcoin has no store, and if any you won’t browse with your kids there.
Then what is all the craze about.
I will end this post on that topic.
In economy, currency goes with the economy output or production of goods and services.
If there is more money than goods, money becomes cheap and there is inflation. If there is more goods than money, there is deflation.
In case of bitcoin, there is lot of money without any good to buy with it. The money became the good itself. People buy money with money, reason why there is such a huge surge in valuation.
People buy Bitcoin, go to sleep and next morning, they would notice that their money has doubled in value, just overnight.
Such volatility and inconvertibility make people avoid to keep Bitcoin, unless you are a speculator or the sleeping investor, who in current circumstances just hold to it.
The scam originates from the fact that a big propaganda is going on currently to lure naive people into the Bitcoin tulip bubble, helping early investor to convert their Bitcoin back to real dollar but with insane profit, while soon the fools would be left with nothing.
As stated above the block chain technology is a revolutionary one, and is here to stay. If you have to invest, invest in the technology and its future large scale application, either as a technology services provider, or a startup addressing a less volatile niche.
A Cryptocurrency like Bitcoin might survive its current scammy setup, but for friends and family I’d recommend prudence.