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I run across this immaculate one-line explanation of Bitcoin/cryptocurrency every few months and today I finally decided to save it here for posterity:
imagine if keeping your car idling 24/7 produced solved Sudokus you could trade for heroin
*applause*
Using Beanie Babies, Chicken McNuggets, and the comedy talents of Keegan-Michael Key, John Oliver tries to explain the wild world of Bitcoin, blockchain, and cryptocurrency, the latter of which he describes as “everything you don’t understand about money combined with everything you don’t understand about computers”.
My favorite part was the explanation of how difficult hacking the blockchain is: “[like] turning a Chicken McNugget back into a chicken”.
This was very hard to keep watching after Oliver started detailing cryptocurrency scams and charlatans trying to take advantage of people. One of Oliver’s targets, Brock Pierce, was actually canned from the company he co-founded after the segment aired.
I’ve read a lot of explanations about blockchains and Bitcoin but What Satoshi Did is among the best of them.
This invention works in two parts. Constructing a shared ledger amongst all participants was the first step. By sharing the entire ledger of transactions, all participants could convince themselves that their own transactions were validly entered, that all value derived from an authentic source, and that the entire ledger balanced.
The second part was to agree on the ledger. Using induction, and agreeing on all prior ledger states, Satoshi reduced the problem to agreeing what each new appending block is. The first batch, or genesis block, was created by Satoshi. The next block, and each successive block, included a consensus signature over this block and the previous block, creating a chain of blocks, or the blockchain.
You can mine Bitcoin by hand with a pencil and paper.
The SHA-256 algorithm is surprisingly simple, easy enough to do by hand. (The elliptic curve algorithm for signing Bitcoin transactions would be very painful to do by hand since it has lots of multiplication of 32-byte integers.) Doing one round of SHA-256 by hand took me 16 minutes, 45 seconds. At this rate, hashing a full Bitcoin block (128 rounds) would take 1.49 days, for a hash rate of 0.67 hashes per day (although I would probably get faster with practice). In comparison, current Bitcoin mining hardware does several terahashes per second, about a quintillion times faster than my manual hashing. Needless to say, manual Bitcoin mining is not at all practical.
One way or another, Bitcoin is going to be huge. It could be the as big as the Internet, it could transform into something else, or it could be one of tech’s biggest busts. Meanwhile, many of us are still wondering exactly what it is (it’s both a currency and means of transporting that currency). GQ’s Marshall Sella decided to score some of this newfangled dough and “blow it on all the pleasures that Bitcoin can buy.” Sex, Drugs, and Toasters: My Life on Bitcoin.
Within two months, I’d be visiting Charlie Shrem at his parents’ place, where he was wearing an ankle monitor and living under house arrest.
(That sounds like the beginning of every great startup story.)
People had assumed that the name of the secretive creator of Bitcoin, Satoshi Nakamoto, was a pseudonym designed to protect his anonymity. Newsweek’s Leah McGrath Goodman tracked down a man who could be the Bitcoin founder and discovered that his real name is…Satoshi Nakamoto.
Two police officers from the Temple City, Calif., sheriff’s department flank him, looking puzzled. “So, what is it you want to ask this man about?” one of them asks me. “He thinks if he talks to you he’s going to get into trouble.”
“I don’t think he’s in any trouble,” I say. “I would like to ask him about Bitcoin. This man is Satoshi Nakamoto.”
“What?” The police officer balks. “This is the guy who created Bitcoin? It looks like he’s living a pretty humble life.”
I’d come here to try to find out more about Nakamoto and his humble life. It seemed ludicrous that the man credited with inventing Bitcoin - the world’s most wildly successful digital currency, with transactions of nearly $500 million a day at its peak - would retreat to Los Angeles’s San Bernardino foothills, hole up in the family home and leave his estimated $400 million of Bitcoin riches untouched. It seemed similarly implausible that Nakamoto’s first response to my knocking at his door would be to call the cops. Now face to face, with two police officers as witnesses, Nakamoto’s responses to my questions about Bitcoin were careful but revealing.
Tacitly acknowledging his role in the Bitcoin project, he looks down, staring at the pavement and categorically refuses to answer questions.
“I am no longer involved in that and I cannot discuss it,” he says, dismissing all further queries with a swat of his left hand. “It’s been turned over to other people. They are in charge of it now. I no longer have any connection.”
Nice bit of sleuthing by Goodman. But given the interest around Bitcoin, it’s amazing that it took this long, even with Nakamoto’s first name change.
Update: The subject of Newsweek’s story now denies he was the creator of Bitcoin.
Bitcoin is a digital currency that has increased in value in US$ by 900% over the past six months. Jason Kuznicki says Bitcoin is definitely a speculative bubble and has three graphs to illustrate his point. I found this one particularly interesting…it plots transactions vs. total Bitcoin market cap:
This chart shows a dramatic reduction in the total number of transactions, irrespective of size, per dollar of bitcoin’s market cap, from December 2012 — December 2013. In absolute terms, market cap has generally gone up, and the number of transactions has mostly just bounced around a lot. The total value of bitcoin is going up, but it’s mostly getting parked rather than being put to work. Apparently there just aren’t a lot of appealing ways to spend bitcoin, anecdotal news stories to the contrary notwithstanding.
Instead, an increasing amount of bitcoin’s putative value (as measured in USD) is being squirreled away by larger and larger miner-investors. It’s not fueling a diversifying, all-bitcoin economy: if it were, transactions would be keeping up with or even outpacing market cap, particularly if bitcoiners came to rely increasingly on bitcoins and decreasingly on dollars for day-to-day purchases. That’s very clearly not happening.
The Wire’s Omar Little once said to Marlo Stanfield, “Man, money ain’t got no owners, only spenders.” Bitcoin seems to have the opposite problem. (via mr)
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