Blockchain firm, Valereum plans to take over the Gibraltar Stock Exchange with the sole intention of trading cryptocurrencies such as bitcoin and dogecoin alongside conventional bonds. If the plan works, the British enclave will become a global cryptocurrency hub; if it goes wrong, Gibraltar risks diplomatic sanctions that could have a devastating impact on its economy.
“A tautology does not a currency make” said Thomas Belsham of the Bank of England’s stakeholder and media engagement division who warns the scarcity of the crypto asset, limited to 21m bitcoin, may be the key attraction to investors but it could ultimately render it worthless.
17 December 2017, the price of one bitcoin hit $20,089 and investors jumped on the bandwagon, but as quickly as it rose, the value plummeted. Katherine Wooller, managing director at crypto wealth platform Dacxi, said “…we see some short-term strategies as suitable for retail crypto investors. It is important to consider that the crypto market is truly global”
India’s PM Narendra Modi said “we must jointly shape global norms for emerging technologies like cryptocurrencies, so they are used to empower democracy”
Real or fake? In an age where our online life has more meaning than offline, this currency is losing its novelty and gaining its true value.
September 2008: global meltdown; the financial institutes, the very backbone of civilisation, are collapsing. The presumed unshakeable underpinning of society is destabilising and the once great investment houses crumbling.
What do you do?
You revert to the ancient custom of bartering and combine it with the latest technology.
No centralised control, no regulation, no government interference and no fat cats to feed. What better way to cock-a-snook at the establishment.
3 January 2009 Satoshi Nakamoto (the name could be fictitious) introduced the open-source software Bitcoin.
Algorithm, Logarithm & Paradigm
Remember logarithm books in your Maths lesson? They were meant to help calculate formulae, although to me it was just a mass of unintelligible codes. It now it takes a computer with a gargantuan gigabyte capacity to calculate the unique algorithmic codes of the bitcoin mining process.
The first Bitcoin transaction took place between Satoshi and Hal Finney on 12 January 2009. Not to be confused with the bitcoins that you mine, Bitcoin software was created by someone (or several people) with academically sharp and extensive programming language skills who wanted to create a global open market where each transaction was peer-to-peer and uniquely encoded so it would be impossible to double spend.
First download the Bitcoin Client from for your operating system, then the client (your computer) can download the Blockchain (this is the verification process for each transaction).
Next download a 'wallet' which will become your virtual bank; your server then becomes a 'miner' looking for the 64 digit code from a complex algorithm the Bitcoin network needs in order to authorise a transaction that someone else wants to perform.
Put more simply, if Paula wants to buy something from Peter, her transaction request is added to the blockchain and anyone's server will then try to work out the correct code in order for Paula and Peter to complete the purchase. When that code is verified, the person who owns the server that found the code first, receives a bitcoin payment.
It can take a long time to find the code so mining pools have been set up with miners distributing their winnings.
But the number of bitcoins is finite at 21 million, so the system makes it progressively more difficult to find the codes; there are currently around 19 million in circulation and it is due to finish in 2040, although progress has been rapid so it will likely be well before then.
However, before you rush to download your wallet and start mining for this virtual gold, the blockchain requires at least 6GB of data, so your Toshiba laptop is unlikely to cope and your electricity bill will go up, significantly.
Crypto - Currency In A Real World?
But how can something that does not exist in the real world have any true value and how do you work out an exchange rate?
Since its launch in 2009, up to 2014 it was estimated that over 150,000 megawatt hours of electricity have been used to mine bitcoins, put another way - enough to light up the Eiffel Tower for 260 years. On 5 October 2009 it was valued at US$1 = 1,309.03BTC based on the cost of electricity used to generate one bitcoin. This exchange rate gave it a tangible value.
However, the bitcoin exchange rate has been erratic and there is no consumer protection - one of the disadvantages of being decentralised; and having rocketed in value by 1,000% to US$266 on 10 April 2013 to half that in 2014; its value continues to yo-yo fuelled by speculators, the uncertainty of mainstream currencies such as the Cypriot financial crisis and hackers.
Due to the lack of controls and the increased difficulty of mining as the availability of codes dwindles, not only has the size of computer had to increase but the miners moves from place to place looking for the cheapest electricity. China has the most bitcoin mining and given two thirds of the country’s power is from coal, a single transaction has the same carbon footprint as 680,000 Visa transactions or 51,210 hours of watching YouTube.
The Oak Ridge Institute in Ohio calculated $1 worth of bitcoin used 17 megajoules of energy; double the amount it takes to mine a dollar’s worth of copper, gold and platinum.
Even with its complicated algorithmic encoding, Bitcoin has not foiled the crypto-criminal. The largest bitcoin exchange was the Japanese MtGox (no longer trading) that lost 745,000 bitcoins valued at $375m following a cyber-attack. In April and May 2013 Bitcoin Central was hacked and several thousand bitcoins stolen.
Due to its transaction anonymity, Bitcoin has also been used for illegal business including drug trafficking; in October 2013 the FBI shut down Silk Road and seized 144,000BTC worth US$28.5m.
Real World Shops
There are a number of businesses accepting bitcoins including Tesla and Starbucks in some countries and some online retailers, but it is still a novelty for most, particularly with the continuing volatility of its value.
Where Will It End?
In 2012 the bitcoin currency became part of the banking system; on 6 December 2012 it was licenced by the European Bank within the European regulatory framework and on 2 May 2013 the first bitcoin ATM was installed in Canada.
I can't help but feel this is not what Satoshi intended and it wouldn't surprise me if there is something lurking alongside bitcoin number 21 million and what concerns me is if the Bitcoin creator is in control of the number of bitcoins and therefore controls the blockchain, will that give them ultimate power over the entire network?
The International Monetary Fund has said the advent of digital currencies in emerging markets could spark “cryptoisation” of local economies, potentially upsetting financial stability as the currency increases in popularity in markets such as Vietnam, India and Pakistan.
And had I created a system I wanted to keep separate from financial governance, how well placed would I be to hack into the system and create panic and steal millions of bitcoins?