Gateway to Glimmer

Gateway to Glimmer

Picture it; awakening in the company of the sun from within our bedroom with the morning light spilling in through the arched windows rising towards the Edwardian ceiling. Slipping into mink slippers and a dressing-gown, you exit your abode and descend spiral stairs of wrought iron, embellished with feline forms and the medieval rose, out into a magnificent garden to a prepared breakfast, ready to spend yet another day in the company of your lilac British shorthair, fashioned in a sparkling diamond collar. This is a fantasy we all have, but this life of limitless leisure could have been our reality if we, several years ago, had a moment of clairvoyance and invested into Bitcoin.

Mentioned frequently on internet but almost never in real life, what is bitcoin? Having searched for the answer, I found that it is elusive, impervious when caught and very complicated one it has been unravelled. This is shown by the Financial Conduct Authority reporting that 74% of Bitcoin investors could not provide an explanation or definition of what this investment was. Therefore, to save you from financial ruin, I have taken upon myself the duty of explaining within the following paragraphs what bitcoin is, why it was invented and why it has appeal. Unfortunately, things are never simple, especially matters relating to financial technology, and requires me to preface the bitcoin explanation with a history and analysis of money as a concept and financial systems with the evolution of these systems.

Money can be thought as a physical manifestation of quantified value, of which the value of labour is expressed. Money has omnipresence throughout civilisation, manifesting itself as pebbles, seashells and nuts at different stages in our long winding history. One thing uniting all of these different monetary forms is that the societies who were operating with them believed they possessed a universal value. For the past several centuries, gold has been the chosen medium that we perceive to have captured value.

Everyone reading this will have no memory of metalism, the trading in gold and other precious metals. The arrangement of our present economy was borne from the practicality of paper, with the cumbersome aspect of gold bestowed by its proportions and weight. To alleviate the problems that were present in this metallist economy, banks and governments offering the service of reservation of gold within its vaults and to be exchanged for paper receipts corresponding to the received value, which can be traded back for the gold at relative ease. Understandably, trading a paper receipt valued at one-pound sterling for an identically priced good is infinitely more practical than cutting and weighing one onethousandth of a gold bullion valued at one-thousand-pound-sterling. This dynamic of trading receipts with the value tied to gold held within a banks’ reserves was titled the ‘Gold Standard’.

To the exclusion of the history and politics under the demand of brevity, the government eventually held itself liable for the reserved gold. The trading of these notes continued unabated due to the reasoning of the citizenry believed that their governments follow through with their promise and payment of the recipient. This mass trading of paper notes possessing value granted from the financial promise of a government is named the ‘Fiat System’. Fiat being a Latin word for ‘by decree’, captures the relationship between money and government, by which money’s value is bestowed under governmental order.

Two key tenets underpin a Fiat System. The first being Centralisation, a single authority exercising control over money itself, and Unlimited Quantity, that same central authority can printing whatever quantity of money central authority desires. Many people take issues with these aspects of the Fiat System, our present-day system, as three fundamental problems stem from them.

The first is the value reduction of fiat currency following the printing. For example, a 1914 gold bullion was equal to one 1914 pound-sterling. Now, after multiple printings, in the year 2019 to purchase a 1914 gold bullion requires £233 using the pound sterling of 2019. This is a 99.57% decrease in value in just over a century. The second problem is the corruption of the Central Authority induced from the sheer power that the central authority possesses, being the single power operating the money monopoly. Finally, centralisation, discussing the problems that occur were the central authority can repeal the legality of whatever legal tender they choose, rendering that tender obsolete. This has been recently enacted within this country, where UK banks had placed a time limit on the use of old versions of tenure to promote the uptake of new polymer notes.

These are the proven concerns of some sections of society and the limitations of the central authority’s money system, Fiat, that spurred the development of Bitcoin. In 2008, a flagship whitepaper was released onto the internet authored under the pseudonym Satoshi Nakamoto, detailing what Bitcoin was and that it was invented as a solution to the Fiat monetary system.

Bitcoin is a decentralised cryptocurrency. Bitcoins are not physical coinage but an address record from which you can send and receive money. When someone purchases bitcoin, they purchase a bitcoin address. What separates bitcoin from our conventional banking system is that unlike the ledger, a collection of transactions within the financial system wherein it is stored on a banks central computer of which the public is not privet, the ledger of the Bitcoin system is available freely online at any time and is entirely transparent, showing all the transactions occurring in real time between the various bitcoin addresses.

Bitcoin was developed as a solution to the three fundamental limitations with the present-day money system and the newfound and historically unsolvable problem of digital money duplication. With each bitcoin user possessing a perpetually updating ledger, it renders the transaction record collection impossible to be tampered with. To achieve this, every single computer under the use of a Bitcoin user will have to be hacked and altered to catch all of the ledgers. This impracticality will mean that the duplication of files would break the consistency of the universally owned ledgers and sound the alarm, highlighting the incongruent information. This ledger network is called a Blockchain. This Blockchain provides greater security and continuity for the Bitcoin trading system.

Having this crash-course about this financial-technological revolution, I am sure that you are keen to purchase bitcoins of your own. Like how money in the world of flesh and blood is stored within one’s purse or wallet, a bitcoin, existing only in the cyberworld, is stored within a ‘wallet’ of its very own. The wallet is not physical, but rather a computer programme that can send, receive, store and monitor bitcoins placed within it. In the same way software programmes like Outlook handles your emails, a bitcoin wallet handles the bitcoins in your possession, with the wallet itself being fully integrated with the omniscient Blockchain, the autonomous global ledger of bitcoin transactions mentioned previously.

Similar to the silver clasps of a velvet purse or the golden button locking together a leather wallet, a bitcoin wallet is also supplied with a security in the form of a ‘private key’. The key is constituted as an unbroken chain of letters and numbers as function as a password for you to gain access to your trove of cryptocurrency. Beware, just like all other passwords, if the private key falls into the hands of another, then that person can gain full control of the same wallet placing your bitcoins at risk of theft. There have been so many different types of wallets being created since the advent of bitcoin, with wallets being invented for the desktop, your mobile phone., hosted upon parent websites as well as more intricate wallets independent of an internet connection. There are even wallet setups requiring the agreement from multiple wallet owners, so if yourself and several trusted friends possess an affinity towards the bitcoin trade you can all do so together under the one wallet. In order to actually partake in this trade, you will all require a ‘bitcoin address’. Derived from this impossibly long key is a shorter is this more manageable string of similar composition that performs as an account number permitting you to be the recipient of bitcoins from other ‘cryptotraders’.

Once you are in possession of a bitcoin wallet, a private key and a bitcoin address, you can now begin your life as a trader this new and exciting medium! You must start by locating a ‘bitcoin Exchange’, where conventional money can be exchanged for bitcoin. Exchanges are found online with each one commanding their own rules, terms and conditions for trading. These demands include a country whose bitcoin trade they support, the payment method they accept, and the fees they subject onto traders. One factor that should be the subject of a critical eye is reputation considering that several bitcoin exchanges have collapsed with losses in the hundreds of millions of pounds worth of traders’ money, Mt. Gox, late king of bitcoin trading, being the perfect example of this financial meltdown.

Now that you are replete with a beginner’s knowledge of this new bitcoin world, perhaps I have been the one to set you on a wonderful financial journey, ending with you becoming one of the many ‘crypto-millionaires’. Splashed upon the heading-images of online articles, there are countless stories of unlikely people falling into absurd amounts of wealth following their meagre bitcoin investment. The low investment was just concurrent with the incredibly low price of bitcoin during the time of their involvement, with the total cost for an order of two pizzas being 10,000 bitcoins. When this transaction had taken place, ten-thousand bitcoins had a worth of merely £15. This incredibly low value explains why so many people were able to invest. As I write in the Autumn of 2019, these 10,000 bitcoins have appreciated to almost £8.5 million, with a single bitcoin commanding a price of £8441.41.

Therefore, for most of us, the opening fantasy will remain just a fantasy. Comparable to the casual toss of a pebble into an oceans roaring waves for an immediate return a chest of coins to leap out from the turbulent waters, the heavily publicised bitcoin millionaires are just common people that had stumbled into a new unknown medium of exchange with zero foresight on its impending international popularity. No rising with the kiss of the sun. No mink slippers. No vaulted ceilings. No florally feline staircase. No garden enveloping the horizon. No amber-eyed, lilac British shorthair. However, we have at the very least, some solace in our newfound knowledge of the origins, motives and use of this cyberspace currency.

Composed by,

Maurice Alexander, Undergraduate of Business Management