The Reluctant Townie: Breaking down Bitcoin

The Reluctant Townie: Breaking down Bitcoin

Since its advent in 2009, Bitcoin has remained a difficult thing to comprehend well enough to explain to another person. As it is the world's most recognized cryptocurrency, you have no doubt heard it mentioned in the news over the past year as its value grew exponentially and made many of its early investors rich.

You may have questions. I am here to answer them.

SO ... WHAT IS A BITCOIN?

Bitcoin is the world's first decentralized digital currency, which means that it is money that operates without an intermediary (a.k.a. banks, or THE MAN). All Bitcoin transactions occur on a peer-to-peer basis, and every transaction is recorded on a public ledger known as a blockchain. The blockchain is accessible to everyone, but encrypted to guarantee anonymity.

SO ... UM ... WAIT, WHAT?

Bitcoin is digital money.

WHOSE FACE IS ON THE BITCOIN?

Bitcoins are not physical objects.

SO ... THEN ... WHAT DOES A BITCOIN LOOK LIKE?

Like a French Cruller dipped in platinum and imbued with the power of the cosmos.

WHOA, REALLY?

No. Bitcoins are not physical objects.

HOW MUCH IS ONE BITCOIN WORTH?

One Bitcoin is worth whatever someone else is willing to pay you for it.

BUT THAT'S ... WAIT, OK, I SEE WHAT YOU DID THERE. WHAT IS THE EXCHANGE RATE BETWEEN BITCOIN AND AMERICAN DOLLARS?

In January 2017, one Bitcoin was worth $1,000 USD. As of Jan. 10, 2018, one Bitcoin is worth over $13,000 USD.

HOLY SMOKES, FOR REAL?!

For real. However, it should be noted that the amount is subject to change drastically and without notice. It was worth over $15,000 yesterday, when I started writing this article. Some party-pooper economists are predicting cryptocurrency is a bubble primed to pop.

ECONOMISTS ARE NERDS!

Tell me about it.

HOW DO I GET A BITCOIN?

You can buy them on Bitcoin exchanges. Or, more likely, you can buy a fraction of one on Bitcoin exchanges. You can also mine Bitcoins.

MINE BITCOINS? LIKE IN MINECRAFT?

No. Like in the gold rush. Unlike paper currency, there are a finite number of Bitcoins available — 21 million, to be exact. But not all of the Bitcoins have yet been mined. There are still millions waiting to be discovered and brought into circulation by some lucky digital prospectors out there.

HOW DO YOU MINE A BITCOIN?

Bitcoins are mined by solving complex mathematical equations that require large amounts of computing power to complete. It is estimated that 0.2 percent of current global power consumption is being used to mine Bitcoins.

I HAVE A DELL INSPIRON LAPTOP, DO YOU THINK THAT WILL WORK?

Probably not! Not only must you have insane amounts of computing power to solve these super complex mathematical equations — you will also be competing against every other Bitcoin miner in the world to solve it the quickest. Think of it like a "Fast and the Furious" movie, and you're driving a Fisher Price Power Wheel.

WHAT HAPPENS TO THE PERSON WHO SOLVES THE EQUATION FIRST?

As of this writing, Bitcoin miners receive 12.5 Bitcoins for every solved equation. That number will go down as more Bitcoins are mined. On average, a new equation is solved every ten minutes.

TWELVE-POINT-FIVE BITCOINS? ARE YOU JOKING? THAT'S LIKE $13,000 TIMES 12.5!

You are not wrong. Your math checks out.

WHAT HAPPENS WHEN ALL 21 MILLION BITCOINS HAVE BEEN MINED?

No one will be able to mine any more Bitcoins. Unless, of course, someone updates the protocol to allow for the mining of more Bitcoins.

OK, SO FOLLOW ME HERE: YOU SAID ONE BITCOIN WAS WORTH $1,000 LAST YEAR, BUT $13,000 THIS YEAR. THEREFORE, IT STANDS TO REASON THAT ONE BITCOIN WILL BE WORTH $26,000 NEXT YEAR ...

Does it?

WHAT IF I USED A BUNCH OF CREDIT CARDS TO BUY BITCOIN, THEN NEXT YEAR WHEN IT DOUBLES IN VALUE, CASH OUT AND PAY OFF THE CREDIT CARDS? THEN I'M MAKING ALL THE PROFIT WITH NONE OF THE RISK!

Certainly, that is an option. Not one that I would recommend to anyone I truly cared about. But you know the old saying: Fortune favors the bold. As does compounded interest.

YOU'RE JUST JEALOUS THAT YOU DIDN'T THINK OF IT FIRST.

You could also take out a second mortgage on your house, and play red or black on a Roulette table with the sum. At least that way you'd know immediately if you doubled your money, and with close to even odds.

THANKS FOR TEACHING ME EVERYTHING I NEED TO KNOW ABOUT BITCOIN, RYAN, NOW I FEEL EMPOWERED TO BECOME AN INTERNET RICH GUY.

Don't thank me, thank the Wikipedia article I skimmed.

BREAKING NEWS: I JUST QUIT MY JOB TO TRADE BITCOIN FULL TIME!

What? No, don't do that.

TOO LATE, I ALREADY TOLD MY BOSS HIS TOUPEE MAKES HIS HEAD LOOK LIKE A THROW PILLOW AND POURED MY COFFEE ON HIS BONZAI TREE.

I did not advise you to do that.

I'M GONNA BE SO RICH! ALL MY FRIENDS ARE GETTING DOLPHINS FOR THEIR BIRTHDAYS!

Ryan Jackson is not a licensed, or unlicensed, financial adviser, and he can be reached at thereluctanttownie@hotmail.com.

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Topics (2):Economy, People