Editorial: BitCoins & LiteCoins; Mining the Future?
We have a slightly off-topic story to share with you guys today, but it is a subject that is garnering great interest around the world especially in the technology and financial sectors. That subject is the new internet digital currency called bitcoins and/or litecoins. Interest in this subject has been growing at a rapid pace and it has even been showing up in the main-stream media very often lately. News organizations from Yahoo! and Bloomberg to CNNMoney and the Wall Street Journal have been increasing their coverage of the strange virtual money phenomenon.
If you haven’t heard of bitcoins or litecoins, don’t feel too bad, it’s still a fledgling trend despite having been around since 2009. Furthermore, it has mostly been the purview of very computer/tech savvy folks. Let me attempt a brief and crude summation to help you understand the concept. A developer using the pseudonym Satoshi Nakamoto created bitcoins in 2009. The true identity of this developer has still never been conclusively found. The idea he/she started was a digital virtual currency that exists because of its relative value due to its rarity and the faith that backers are willing to put into it. This virtual currency has no central banking nor any controlling central authority. It instead relies on peer-to-peer network sharing. No one knows who actually started it, nor why, but it appears it was an idea to create a truly democratized monetary system.
The bitcoin supply comes from an automated system and given to servers. The way you get bitcoins is by “mining” them. The way you mine them is by running the bitcoin peer-to-peer mining client software on your computer. This software crunches algorithms used for public key cryptography which are based on “one-way” mathematical relationships. The system then logs when you have found a piece of a bitcoin. Once you have enough pieces of a bitcoin, you have a whole bitcoin. These bitcoins are actually being used as viable currency by some online venues, thus it has value in the real world. Currently one bitcoin is worth about $180-190 in US dollars. It all sounds terribly complicated and almost scary, but the reality is far from nefarious. The algorithms and encryptions being used are already known and completely open, so those CPU/GPU cycles aren’t being funneled away by some secret organization.
To put it in laymans terms, it’s kind of like a virtual gold rush, only this gold has already been created in the virtual world of the computer. The algorithm (gold) is in a finite amount of 21 million bitcoins, and is set to run out in 2140. Miners leave their computers on crunching numbers to try to mine these virtual flecks of bitcoin-gold in an attempt to gain more, hoping their time spent mining will pay off. Imagine that you are mining in your backyard for physical gold. It takes a pick and shovel and your energy to dig for it, which results in finding the gold or not. With bitcoins you use your computer as your pick and shovel and the electricity to run it as the energy you expend to find these little bits of electronic gold.
There is one caveat to this. The algorithm that started the bitcoins is designed to get exponentially harder as time progresses and more bitcoins are mined. This basically means it becomes harder and harder to find the pockets of gold.
Now, it’s important to make a quick distinction. Bitcoins started this internet currency idea, but there is a new version 2.0 of them called litecoins. Litecoins use the same concept, but the algorithms were designed to make data mining easier for the layman. There is a good reason for this, and that is because it is likely no longer profitable for the average person to mine for bitcoins. It requires electricity and a powerful computer rig. Currently there are organizations that have sprouted up using specialized hardware to mine the bitcoins. They can operate in ways that the average home computer cannot. Furthermore, at the current difficulty “level” for the mining of bitcoins, the amount of bitcoins an individual could mine would actually cost more in electricity than it is worth. Although litecoins aren’t worth nearly as much as bitcoins ($4.50 versus $188), it is still much easier to mine for litecoins, and the calculations are designed so that specialized hardware will not have as much of an edge.
Ultimately, the bitcoins & litecoins concept seems like an interesting trend, and many financial experts have weighed in calling it a huge bubble waiting to burst. While that is a distinct possibility, it still opens up a world of intriguing philosophical conversations about the nature of currency and even the nature of reality. The imagination begins to wonder what the world will be like in another 10-20 years with the advent of digital currencies. If a virtual digital currency like bitcoins or litecoins really takes off in a big way, and the world starts utilizing this currency in a more mainstream manner, what does that mean for the currency of individual countries? Could we be seeing the infancy of a future global currency that could change the world’s financial markets forever, or is it just a passing fad?
We wanted to see what you guys think of this trend, and how many of you are mining for little bits of electronic gold. We also wanted to share our dedicated sections on the subject. We created several sections and links to resources to help you understand it better and have a place to discuss it within the Forum Foundry family.
Here’s a link to our main Bitcoin/Litecoin section here at PureOverclock.com: http://forums.pureoverclock.com/digital-currency-forums/