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Bittersweet Bitcoin

In 2008, a man under the pseudonym of Satoshi Nakamoto outlined his framework for a virtual currency. He called it Bitcoin.

With+growing+celebrity+as+the+currency+of+the+future%2C+will+its+popularity%0Aever+supplant+the++dollar%3F
With growing celebrity as the currency of the future, will its popularity
ever supplant the  dollar?

With growing celebrity as the currency of the future, will its popularity ever supplant the dollar?

With growing celebrity as the currency of the future, will its popularity ever supplant the dollar?

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No one in the online cryptography chatroom knew him, and what little information that was known was inconsistent. From his profile, he claimed Japanese heritage. Later investigations told a different story; Internet searches under his name unearthing nothing besides pieces of the brand names that spelled his own (Samsung, Toshiba, Motorola, and Nakamichi). Indeed, it was hard knowing whether Nakamoto was really Japanese; his English was so fluent he could be mistaken for a native speaker. Maybe Nakamoto was not just one man but an ominous cabal of unknown origin—an innovating team out of the Silicon Valley, perhaps, or the National Security Agency (NSA). Still, even if Nakamoto was a puzzle, his creation solved a problem that stumped cryptographers for decades.

The idea of digital money—anonymous and utterly free of oversight—had been an erstwhile talking point since the Internet’s youth. Cypherpunks, a libertarian cryptography movement during the 1990s, strove in search of such a goal. Yet, every attempt to create virtual finance foundered – Ecash, b-money, RLOM, and bitgold doing little to advance the proposal beyond preliminary stages.

To the chagrin of many enthusiasts, the inherent setback in digital assets was the double-spending problem. For instance, if a dollar used by an electronic currency was represented by just a piece of code, what would stop someone from effectively reusing the same dollar many times over, across hundreds, perhaps thousands, of transactions? The conventional solution was creating a ledger, kept and updated in real time at a third-party clearinghouse. This way, once someone spent his/her money, he/she could not commit fraud using the same funds.

Cleverly, Nakamoto’s model circumvented third-party premonitions and suspicion, instead distributing a public record of all exchanges on what came to be called the “block chain.” Quickly gaining a devoted following, Bitcoin users keen toward the system’s upkeep fell under the umbrella term “miners,” decrypting mountains of numerical code for every one exchange. Their work did not go unnoticed. Every 10 minutes, 50 new Bitcoins would be given to the miner who cracked the code the fastest. This way, the market on Bitcoin was forever kept stable by controlling its state of flux. Nakamoto himself mined the first 50 Bitcoins (evangelically falling under the moniker of the “genesis block”) on January 3, 2009. At its uppermost limit, the program will reach a carrying capacity of 21 million Bitcoins, estimated by cryptographers to occur on New Year’s Eve 2140.

For a time, his creation remained a niche community. Slowly but surely, however, word of the innovation spread beyond the realm of cryptography. At the time Nakamoto went public, trust in the fiscal strength of governments was up in the air. Bitcoin’s use did not require faith in outside parties—only in his algorithms. Besides, Bitcoin’s transparency seemed an apparent safeguard against fraud, each individual Bitcoin’s predestined entrance into the market keeping the supply growing at predictable rates, immune to overbearing bankers or Weimar-style hyperinflation. For any novice or entrepreneur, one only needs to download the app, represented by the telltale symbol.

James Manthos, a sophomore, made assurances toward Bitcoin’s practicality, even as a physical nonentity. “Once someone has the program on a machine, using it is as simple as your email. The community is small but growing, so if you want to use Bitcoin at a retailer, just ask what they accept, or even look at the cash register for an indication.”

Then, as quickly as he appeared, Nakamoto vanished. In lieu of an uncharacteristic plea to maintain restraint in regard to the enterprises’ future, Nakamoto posted his final message to the Bitcoin forum, concerning minutiae as to latest edition of the software. Bitcoiners pondered frantically, perhaps unjustly, why he chose to leave them. But by then, his creation had taken on a life of its own.

“It’s so strange that he would go through the trouble of being public just to leave,” Justin Coogan, a sophomore and member of the Robotics Club, stated. “Very strange.”

Nakamoto would never be there to claim responsibility for his success. Catalyzed by a feature in Forbes magazine as the currency of the future, the price of Bitcoin stock sky rocketed. In the past year alone, Bitcoin’s stock rate excelled from just below a dollar to nigh on ten. By summer, it had more than tripled.

Even so, as fast as dawn had come, twilight loomed on the horizon. As popularity rapidly saw an increase, hackers began attacking miner’s databases, pilfering their pockets by skimming new units off the top from each 10-minute cycle. In one case, one user using the moniker of Allinvian reported the loss of more than 25,000 Bitcoins from their home computer – worth near $500,000 at the time. Inevitably, questions were raised as to the system’s security. Existing market forces, aggravated by the risk Bitcoin represented, made moves to spoil the pot. The Electronic Frontier Foundation began refusing donations consisting from Bitcoins. Financial analysts from Ireland rocked the boat by discrediting Bitcoin spenders preconceived notions of anonymous use. Tracing back donations to the digital giant WikiLeaks, they were able to learn the names of users’ handles. Inexperienced newcomers added to bad press as well, disenfranchised by the tenuous effort required in gaining, holding and using the crypto-currency. Across the board, Bitcoin’s reputation grew ever sourer, leading to a pitfall in stocks that left its worth perpetually below 17 USD.

Resentful for his self-imposed exile, some Bitcoiners began to suspect all Nakamoto had done was create a network designed to fail, a Ponzi scheme that guaranteed profit by mining Bitcoins at their lowest point before waiting for value to explode upward again. But such fears were just a microcosm of the system’s failures: obligations toward transparencies ultimately stalwart in stifling growth. Worse still, the majority of mining is currently left up to an elite of large mining groups that could easily upend the system if they relinquished mutual suspicion.

Outside the scope of faithful loyalists, expert cynicism has also taken root. Paul Krugman, an economist and winner of the Nobel Prize, commented on the currency’s exponential inclination in both development and deterioration, which promoted hoarding.

Perhaps Sir Isaac Newton, famous for scientific insights that reinvented perception of the world, said it best: “I can calculate heavenly bodies and their motions, but not the madness of people.” Like a great many of his day, Newton was drawn into the fad of the great South Sea Bubble, and had incurred tremendous fiscal losses because of it. In hindsight, the father of modern Calculus had ignored the most basic law of gravity—what goes up, must come down. If current signs are any indication, it seems Bitcoin’s investors are learning an old truth.

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