Thursday, February 20, 2014

Bitcoins -what?

There is a new ATM in South Station in Boston. South Station is a sort of rail and bus hub where the subways, commuter rails, AmTrack and buses all come together on the south side of Boston. Lot of people from all over come through there.

Well the Boston Globe reports they have a Bitcoin ATM machine there. If you've been following the news about this new currency it's kind of interesting, and I'm just imagining how many disappointed and outraged mistaken users might stumble across the machine unless the signage is significantly better than the norm here in Boston. Apparently Boston is a Johnny come lately to the bitcoin ATM party. I read that there are already bitcoin ATMs in Austin, Seattle and Vancouver, and maybe in Calgary. Apparently they are coming to Europe and Asia as well.

Bitcoins are a digital currency. The Wikipedia article states they were introduced as open source software in 2009 by a pseudonymous person or group calling itself Satoshi Nakamoto. It is a peer-to-peer currency, meaning that it isn't minted by a government and doesn't pass through a financial institution. It is "mined" by any individual who has the ability and computing ability to set up a software program to run the cryptography to create bitcoins and also earned by those who manage the "block chains" whereby the transactions using each bitcoin are traced in its records. This prevents double spending, a major problem with digital currencies. The transactions are designed to be very secure and private between the parties. There are several problems, some with gaps in security and some with the extreme volatility of the currency compared against other currencies. There are some news stories recently commenting that this may be settling in the near future.

Most in the news recently, bitcoins have been the object of speculation. When introduced into China, many Chinese citizens became enthusiastic speculators in the global bitcoin market. This caused a spike the value of bitcoins, with a bitcoin trading at the equivalent of $1,100 U.S. in November, 2013 in China. The Chinese government, concerned about an ephemeral and foreign currency flooding their country, had the Bank of China announce in December, 2013 that Chinese financial institutions could not use bitcoin. Shortly after, the Chinese internet ISP Baidu announced it would no longer accept bitcoin to purchase website security services. Since 2009, according to Wikipedia, it has been illegal to purchase real world goods with virtual currencies in China.

Bitcoins, though digital, sometimes have a physical manifestation. They can be turned into a physical coin, usually made of some light weight metal like aluminum, wood, or plastic but often colored gold, to convey its value. In either the physical or digital form, bitcoins can be stolen. They have 2 step security, with a private and a public key. But if a user is not careful storing the data, and generating the key on a secure computer, thieves can apparently retrieve both keys and make off with the coin or coins.

Bitcoins have, like all money, been associated (already!), with organized crime. There has been a money-laundering scheme using bitcoins. There has just been a large denial of service attack on the bitcoin exchanges that forced them to suspend services. That action dropped the value of bitcoins on markets around the world. The bitcoin folks themselves have a sort of "warning" page of things you ought to know before you jump into the bitcoin experiment.

The very beautiful image of one physical form of the bitcoin is from Wikicommons, from Casascius.

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