One of the most common themes I find in both the permaculture and homesteading spaces is a desire for independence. An urge to avoid being part of and contributing to the hyper consumption driven marketplace that has gripped the modern world. To live independently and separate ourselves from values that offend us. And yet, this is mostly an illusion. We are all on this boat together. There is no place so far off grid that we can avoid taking part in the modern economic system. And every time we do, we must pay the gate keepers their toll. We have no choice but to pay the transaction fees necessary for transmitting value in order to get the essentials items we need. And in doing so, we inadvertently support the politics that work against the changes we want. We do this because we have no other choice, or at least we didn’t until 2008.
That is the year that an anonymous internet user going under the name Satoshi Nakamoto released a whitepaper outlining his proposal for a new system of digital cash that we know today as bitcoin. Satoshi provided the first practical solution to a decades old mathematical problem known as the Byzantine Generals problem. The idea is that a group of generals are surrounding a city with their armies, and will be able to conquer it with a coordinated attack. They can communicate with each other using a network of runners, but it is suspected that some of the generals may be traitors or there may be spies among the runners. So how can they send a signal that is trustworthy over a network that cannot be trusted? How can each general be sure that the other generals are sending the same order that they are? Satoshi solved this problem with the blockchain. A publically viewable, and widely distributed ledger of every transaction which cannot be tampered with or counterfeited thanks to some nifty cryptography and distributed consensus. That is how every node on the Bitcoin network stays in sync and maintains identical records.
For the first time in the history of humanity a common person can send a payment directly to another person, anywhere on the internet, for a very small fee. No middle man, no banks or money transmitters required, no permission needed, and no one can stop it from happening. If it is a valid transaction, the network will accept it and the transaction will happen. It is an open sourced program that is governed by math. If you can understand the code and the math than you can verify how it works but you would still need the consensus of a majority of the entire worldwide network in order to make changes or manipulate it. So we don’t need to trust people with this, we only need to trust the math. The small transaction fee is automatically paid to the miners who provide the computing power to support and protect the network.
Bitcoin is not user friendly, at least not yet. It takes a fair amount of learning and technical skill in order to be able to use it safely and effectively. Very similar to the way that sending an email back in 1993 required a computer science degree. But just like SMTP (Simple Mail Transfer Protocol) existed and worked back then, the Bitcoin protocol exists and works today. As long as the network persists, new services and products will inevitably create a better and safer user experience.
So why should you bother learning about something so complicated and somewhat risky? Because you can. Because for the first time we have a choice over how we communicate real value to each other. Because for far too long, entrenched interests have positioned themselves where they can siphon wealth off of the river that flows through traditional financial services and then have used that wealth and power to manipulate our politics to their own advantage while providing nothing of value to society. Now we have a wormhole that can teleport our wealth instantly anywhere on the internet, and no one can take a piece of it along the way. We don’t have to fight them, we can simply stop funding and supporting them, by standing up and learning how to use tools that are now freely available to all.
Bitcoin is not anonymous, but it is pseudonymous. By this I mean that the users are identified only by their account numbers. If a person or organization can be associated with a particular address, then a history of transactions can potentially be teased from the blockchain. That is quite handy for law enforcement, as the blockchain is public knowledge and requires no warrant to view. Much better than trying to follow a paper trail through perhaps dozens of private banking institutions each requiring a separate warrant. Anonymity is possible, but takes great effort and any leaked address potentially exposes an entire network of activity. So the commonly held belief that bitcoin is somehow good for drug buying or money laundering is not very accurate, or at least it won’t be when law enforcement learns how to use this to enforce existing laws. I see a great potential in using publically disclosed addresses for a new level of accountability in things like charitable fundraising and political campaigns. The police will be able to use the blockchain to follow a money trail, but so will the public.
What bitcoin is very good at is protecting purchasers from fraud and identity theft. You can buy things online without giving up any personally identifiable information. You can send a bitcoin transaction over an unencrypted network for everyone to see, send it over the radio, or paint it on a billboard... It doesn’t matter, only the person with the private keys for that address will be able to spend those bitcoins and everyone else will only be able to look at it. If your private keys get stolen, your bitcoin will get stolen. Just like if your cash gets stolen it will be gone. But at least it’s not like a credit card where money you don’t even have yet can be stolen, or the information associated can be used to take out additional credit in your name. More and more the retailers are starting to realize that accepting bitcoin offers a huge advantage for them in eliminating most of the fees they pay for accepting credit cards and relieving them of the burden of storing and protecting their customer’s personal information.
The private keys that unlock an account number, can be stored and transferred by any means that we can send a number, on or offline, including USB data sticks or writing them on a piece of paper. A transaction can be signed without exposing the private key needed to create that signature, and then that transaction can be injected into any part of the network over any media. It could be done over shortwave radio or handwritten if necessary to circumvent attempts to stop it from happening. Not a very convenient method, but completely possible. A transaction could also be hidden in any type of digital file, encoded within a picture or video for example. So in order to ensure that no bitcoin transactions are taking place, a repressive government would have to stop all forms of communication and prevent the transfer of any form of physical data storage.
The bitcoin network requires an enormous amount of electrical power to operate, so it may not seem like the most environmentally friendly thing to do. But I believe that this will actually require less energy that cash, which must be manufactured, handled, and moved around at enormous expense, and will be comparable in energy usage to the predominant digital finance networks. This system has the potential to be a democratizing force in finance. To create real opportunities on the most fair and unbiased money system we have ever experienced. It fills a real human need to be able to communicate value in a tangible way, so I have no qualms about using some energy to do this. If you are reading this, than you have already decided that being able to access the internet, and exchange information and ideas is worth the environmental cost of doing so. I feel that bringing that same level of access to the world of currency is a natural extension on that line of thinking. With the advent of lightweight and more efficient computing, and things like mesh networks, it is likely that we will be able to run an effective system much more efficiently in the future.
The network that makes this currency work provides a framework that can also potentially support any other form of communication that requires an element of trust. Wills and trusts, legal contracts, registering property, registering events such as births and marriages, even voting could all one day be recorded on a blockchain with the precision of computer code; negating both the necessity and the ability to contest them in a court of law. Opening up access to such mechanisms to the masses that are now unable to afford access to our current legal system. No such system yet exists, but developers around the world are working new ways to implement blockchain technology. The ethereum network, scheduled to be launched within the next few months, promises to combine a complete programming language with its own blockchain to do exactly these kinds of things. It is just one of many projects working toward what is commonly called bitcoin 2.0. There are also literally hundreds of copycat currencies called alt-coins that range anywhere from outright scams to really innovative new concepts. It will be interesting to see if one of these alt coins offers enough of an advantage overtake the enormous network that bitcoin has grown over the last six years. The only thing that seems certain at this point, is that some form of blockchain based crypto-currency will be part of our future.
Bitcoin is a form of freedom that humanity has only just now experienced. It’s going to take some getting used to, and there are certainly risks in using it. To me it offers a glimmer of hope that we can change business as usual. A hope that this could pave the way for other changes. By defunding existing and entrenched systems of power we open the door to at least the possibility of doing our business in a smarter way. The possibility of living sustainably. Of bringing the ethics of permaculture out into the world at large. A tool like this is certain to attract its share of con artists, criminals, and other people of malign intent. But similar to what we have seen with the internet, I believe the overwhelming majority will be of moral people with good intent resulting in a net positive gain for society. Now that sounds like an appropriate use of technology to me.
Thank you for the introduction of the subject and sharing your knowledge and enthusiasm.
There's something i don't understand about bitcoin:
1)Where does bitcoin come from?
The dollar get's printed or electronically generated by Federal Reserve which gives it to the government for a promise to pay it back with interest. There's not a lot of substance to it but the origin could be traced and amount verified.
2)Where does bitcoin value come from?
I imagine the value of the $ to be a function of goods and services offered within the $ market AND the amount of $ printed/generated along with interest rates and availability of loans - subject to manipulation by Federal Reserve, the gov and other banking institution.
3) What's to prevent large banking institution from overtaking the bitcoin and running it the way they've run other currencies?
I mean if bitcoin could be acquired by means other then the results of one's own work then what's to stop a large financial institution from taking control over bitcoin?
1. Bitcoins are created by a mathematical algorithm, and awarded to miners as a reward for providing the computing power to process transactions and secure the network. The reward for mining gets cut in half periodically. In about 140 years we will reach the cap of 21 million bitcoins. At that point no new coins will be created, and the miners will only be rewarded with transaction fees.
2. The value of bitcoin comes from the belief of it's users that it has value and will continue to have value in the future. It is simply a unit of account. The price is determined by an average of the latest activity on exchanges.
3. The protocol is set and can only be changed by a majority consensus of the network. Banks are free to participate, just like every one else, but there is no central bank in control that can change the rules at will. A large entity taking control of the network is a real risk, and one that the community is very attentive to. If this were to happen, I imagine most users would move to another coin. There are already over 1000 different altcoins that implement blockchain technology in various ways. While bitcoin has the biggest network and has worked for 6 years now, there is no guarantee that it will succeed long term. I am confident that some version of this technology will be part of our future, but it may take some tinkering to get the protocol right.