There were three main impulses that drove me to create the world's first university-based Bitcoin student club at Simon Fraser University. When I first got into Bitcoin in early 2011, it took me many weeks to realize what Bitcoin can do to improve the world so I wanted to make this process of understanding Bitcoin easier for everyone else.
Second, I was surprised at how little the average young person knew about Bitcoin. I wanted to change this because I believe they're the ones most readily able to utilize Bitcoin.
Third, I believed in Bitcoin; it is a nearly perfect system that exists in an imperfect world. I wanted to be a part of the effort to bridge this gap. Here are some common questions I hear all the time about Bitcoin.
What the heck is a Bitcoin!?
Bitcoin is a payment system that accounts for the movements of a currency called "bitcoins." It operates on a peer-to-peer protocol that allows instantaneous transactions between two parties. Transactions are completed without fees and without the need for a third party. Bitcoins are impossible to counterfeit and the total supply of bitcoins is fixed at 21 million units. It also allows anyone to create their own wallet, essentially becoming their own bank. The rules and functionalities of Bitcoin are determined by the consensus of its users in a democratic manner.
What are some everyday uses of Bitcoin? Is it real money?
Of course Bitcoin is real money. Need a new piece of furniture? Try Overstock.com. Need a new computer? Check out TigerDirect. Need great eyewear? Try Clearly Contacts.
Up for some food in Vancouver? Try one of the many fine restaurants that take bitcoins like Don Francesco's, India Gate, or Bestie. In the future, nearly everything and anything can be purchased using Bitcoin.
It is important to understand that, at the end of the day, accepting bitcoins is no different than accepting cash. Payment processors simply convert the collected bitcoins into traditional currency and deposit it into your bank account. A business that accepts bitcoins is simply capturing a greater market segment. A store selling widgets that accepts bitcoins will bring in customer who have bitcoins to spend and those who are just curious about Bitcoin into the store. A store that doesn't accept bitcoins loses that edge.
How secure is Bitcoin? Didn't Bitcoin collapse due to an exchange in Japan getting hacked?
Security is a relative term; it depends on how you want to use your bitcoins, how much time you are willing to secure them, and whether or not they are stored online or offline.
At its core, Bitcoin is very secure. Should you store your wallets offline a manner that never exposes the private keys to an Internet ready device, your bitcoins will be safe. However, offline wallets are less convenient than online wallets, such as what you'd use on your smartphone. In general, online wallets are more risky.
But today, Bitcoin wallet services like blockchain.info already have many additional layers of security added including two-factor authentication and secondary passwords. So for the average user, as long as precautions are taken, Bitcoin is quite secure. Over time, the risk of having coins stolen should be less as more professional services pop up to make Bitcoin safer and easier to use.
Most people have confused Mt.Gox, the Bitcoin exchange from Japan that recently collapsed, as a flaw of Bitcoin. The issue with Mt. Gox was that they were reluctant to spend any real money in securing their exchange and auditing their own internal controls. As a result of mismanagement, they lost their bitcoins. Mt. Gox was like a bank that held gold reserves or a pawn shop that held rings and watches, but had no security guard to keep things in check. Mt. Gox's downfall has nothing to do with Bitcoin itself.
Although Mt. Gox was the world's first Bitcoin exchange back in the day (one point it had about 80 per cent of all the trading volume), it has been losing its market share position for quite some time. Today, there are dozens and dozens of much more professionally managed exchanges with a much greater emphasis on security. The downfall of Mt. Gox is perhaps one of the best news Bitcoin can receive. It pushes these other exchanges to be even more professionally managed in order to protect their customers.
What are the pros and cons of a currency system that is not controlled by any central authority?
Let's begin with the pros: a decentralized currency system like Bitcoin is a highly democratic in terms of how it governs itself. Like most tech products, everyone that participates in Bitcoin has input on how it functions: from the people mining bitcoins to the end users to firms that are working with it, we each have influence of where this currency will go.
There is no need for secret boardroom meetings to determine how much more bitcoins to mint tomorrow like you would with centralized currencies. You simply examine Bitcoin's publicly viewable ledger and the system's open source code. Essentially, Bitcoin prevents poor choices made by those in control of monetary control and gives this responsibility to the masses.
Bitcoin also gives those in developing countries a way to transact globally because you do not need to be approved in order to open a Bitcoin wallet. The free market will choose the best currency, therefore pushing for even greater innovation. In late 2010, Wikileaks had its credit card and Paypal donation privileges revoked. They then adopted bitcoins and it has since kept them afloat.
To be more precise, the relative anonymity of Bitcoin transactions and the fact that there was no red tape in how people could send and receive bitcoins was what allowed Wikileaks to survive.
As far as cons go, there are a few. The concept of Bitcoin and similar currencies can be challenging to understand for many people, particularly those without knowledge in economics and computer science. Lack of government support also hurts the rate of which it grows. And nefarious uses of Bitcoin will always exist, just like criminals can use emails, telephones, and drive cars to conduct their crimes.
Newsweek has uncovered the identity Bitcoin's creator, Satoshi Nakamoto. Why should I invest my time and money into a system created by someone wanting to hide?
Newsweek did not find the real Satoshi Nakamoto. The man they tracked down was Dorian S. Nakamoto, who has since denied any involvement in Bitcoin. He has told AP that he has never even heard of Bitcoin until the Newsweek article. The real Satoshi Nakamoto disappeared from the Internet sometime in early 2011 after Wikileaks began accepting bitcoins.
Saothis said that Wikileak's decision will put the spotlight on Bitcoin in its vulnerable beta stages.
The real Satoshi could be anyone. It might be your neighbor or a group of people working in collaboration. n the end the creator's identity has little relevance.
Bitcoin doesn't require you to trust in the creator because the program is open source; anyone with sufficient coding knowledge can examine how it works and even create a new version of based on the same technology.
Just as most people are not concerned about who founded their bank, or who founded gravity, or who invented the car they ride on or the plane they sit in, Bitcoin will move into the future without the need for Satoshi's identity to be revealed. Sometimes things are better left unsaid. Because on the other hand, finding out who created Bitcoin could hurt the currency's reputation.