A bitcoin dialogue

I’m obsessed with this magic internet money called Bitcoin.

Magic Internet Money?!?! That sounds like a total scam.

The computer code that runs bitcoin is open source; anybody can read it, and it’s been peer-reviewed by thousands of people. Each and every transaction is also public. Bitcoin has been live for almost six years. If it was a scam someone would have blown a whistle by now.

However, bitcoin is a pyramid scheme. People who got bitcoin early are rich and will probably be even richer in the future. However, unlike other pyramid schemes, the people on the bottom of the bitcoin pyramid are going to be rich too.

Why do you say that?

About half of all adults on the planet don’t have a bank account. Having bitcoin is like owning your very own bank account. But this bank account only takes magic internet money!

Get off your crazy horse. How is bitcoin magic?

Well, for one thing, bitcoin has, on average, doubled in value every four months.

Well that trend can’t possibly continue. Can it?

Time will tell, but there are many technologies that grow on exponential curves. The most famous is Moore’s Law, which sees transistors per chip double every twenty-four months. Few people thought that trend would persist for more than a decade years. However, it’s been fifty years or so now. Digital cameras see the number of pixels per dollar double every twelve months and fiber-optic throughput doubles every nine months.

Ok, I did some math. If bitcoin doubles in value every four months, a $100 investment today will become $3.3 million in five years. Do you really think that is possible?

Yes, although it’s hard to say how much a dollar will be worth in five years. Nobody knows how many dollars will be printed in the next five years, it’s pretty much at the whim of central bankers. Could be trillions, could be brazillians. This is one reason why people are selling US dollars and buying bitcoins.

How else is bitcoin magic?

Bitcoin is programmable. That means we’ll be able to program robots to spend and accept bitcoin for goods and services. Bitcoin already allows escrow, without an escrow agent. Soon it will enable the execution of a will, without a lawyer, and many other applications that we haven’t imagined yet.

Where do bitcoins come from?

There are thousands of supercomputers around the world doing the accounting for bitcoin transactions. And while they’re at it, they’re also applying a math function on different inputs until they get a desired output. Every ten minutes or so a desired output is found, and the owner of the winning supercomputer, who is called a miner, is rewarded with twenty-five bitcoin. Every four years this reward is halved. While there are about thirteen million bitcoin today, only twenty-one million bitcoin will ever be created.

I did some more math. 21 million bitcoin divided by about eight billion people on the planet equals 0.003 bitcoin per person. How is that going to work?

Each bitcoin can be split up. 0.003 bitcoin is 3 millibits or 300,000 satoshis.

What’s a satoshi?

A satoshi is the smallest unit of magic internet money, and is named after Satoshi Nakamoto, the pseudonym of the original bitcoin designer.

How do I buy bitcoin?

Download a wallet app on your smartphone. Create a strong password. Get some soon-to-be-worthless cash and find a bitcoin ATM. There are hundreds of bitcoin ATM’s around the world.