Geek it up with digital currencies. How to fake it like a boss with Bitcoin, Feathercoin and cryptos.
Cryptos or cryptocoins are a common term for Bitcoin, Feathercoin and other digital currencies.
Bitcoin (BTC) and Feathercoin (FTC) are international digital currencies. With no controlling banks or governments, they are maintained by a decentralised peer to peer network of computers around the world. A peer is anyone who is participating in ‘Mining’. More on that later.
Who invented these currencies? Bitcoin was conceptualised by a mysterious indivdual called ‘Satoshi Nakamoto’. No one knows who he is or has been able to find him. Feathercoin was launched in April 2013 and is about to celebrate it’s first birthday. Feathercoin, a British creation, was launched by Peter Bushnell, formerly head of IT for one of the Oxford Universty colleges.
One spends BTC/FTC by transferring the currency from one digital wallet to another. A transfer of funds is then recorded permanently in to a public ledger called a block chain. This stops double spending and allows the new owner of the coins to use them. The process of recording the transactions is called Bitcoin Mining.
Bitcoin Mining? It should actually be called Bitcoin Accounting! It is the process of using a computer with mining software to record all global transactions made in a set period of time, in the case of BTC, every 10 minutes and FTC, every 2.5 minutes. BTC miners all around the world race to record the 10 minute block of data.
As more people attempt to record this page in the virtual ledger, it becomes harder to create. The BTC network needs to be reliable in recording transactions every 10 minutes. If there are too many people mining the ledger is recorded too fast and a difficulty factor is introduced to slow the process down.
If the ledger is recorded too slowly the dificulty is decreased to preserve the 10 minute target for recording transactions.
A very simplistic anology is this: the mining software attempts to “solve a question to an answer” whilst recording all the transactions. Yes! You did read that correctly, “solve the question to an answer”. There would be numerous questions that would result in the answer being 50. There would be even more possible questions if the answer was 200,000. With so many possible questions, the best ploy is to guess the question. One after another. The faster the computer the more questions you can ask, randomly, one after another.
The person who succesfully records the 10 minute data block gets rewarded with 25 newly minted BTC.
To record a page in the public ledger with an average home computer and collect the 25 BTC reward… it would take a standard home computer 13 years and 232 days. Why would someone bother? To be honest, one wouldn’t. However, there are two solutions. The first is to buy a super powerful computer with hardware designed for the specific purpose of mining digital currencies. This is usually very expensive. The other option is to join a pool of miners, combining the processing power of all the computers and sharing the rewards.
Mining pools will often have thousands of people combing their efforts to get a share of the rewards.
So many questions. Can you simply invent a currency and use it? What gives it value? Is it legal?
Auctioning a valued rare comic book for £2,000 is a form of exchange. Selling a property for hundreds of thousands of pounds is a form of exchange. This is legal. Swapping 1 Bitcoin for £700 is no different. The question is – why is it worth this much?
To digress, the ‘Mona Lisa’ is priceless. It has a certain attribute that attracts value – rarity. Hypothetically, If another indentical Mona Lisa was found tomorrow and proved to be equally real, the original would then lose value.
Real money is backed by gold reserves, giving it scarcity and thus value. Is it? Not at all. Governments are free to print money if they desire… does ‘quantative easing’ come to mind?
In 1944 ‘The Bretton Woods conference’ made the Dollar and Sterling the world’s major currencies. All major trade had to use these currencies. There wasn’t enough gold around the world to prop up all currencies. So the Dollar was linked to gold reserves alone.
In 1971, the USA under Nixon unilaterally decided to break the link between gold reserves and the Dollar. The Dollar could be printed at will, flooding the economy with more cash and driving up inflation. Bank interest rates hit as much as 20%, inflation was over 10% for a decade and often climbed to 15%. Don’t be fooled into believing that currencies are backed by gold. They are not, and thus lose their scarcity value.
Bitcoin and Feathercoin are hardcoded with a limit to the number of coins that can be minted/mined. Hence a fixed scarcity. The Bitcoin limit is 21 million coins, the last of which is thought will be mined in the year 2140.
Having read this far, you may want to know how to mine cryptocoins, how to buy them or where to spend them.
To discover how to mine I would suggest you join a supportive forum that will encourage you to learn more. I urge you to visit www.feathercoin.com in this case. A very helpful community.
To buy cryptocoins you can use an exchange like www.btc-e.com or an agent like www.bittylicious.com.
Spending them is fun, especially if you mined your coins. Feathercoin has a pub in Oxford that will accept your FTC for food or beer. Bitcoin will buy you just about anything from fuel to cars or food and a trip to space on the Virgin Galactic Rocket!
If you wish to discover more about cryptos, Feathercoin will be celebrating their first birthday at the end of April in Oxford. The venue is the Oxford Blue Inn. You can buy a pint of fine ale with FTC and bend the ear of Dr G and Peter Bushnell at the same time, even treat us to a pint or two. Folk will be attending from all over the UK and Europe. You will be welcome. Visit their website to learn more. www.feathercoin.com