Over the last few months, I’ve been collecting and reading articles about bitcoins, a new virtual currency quite separate from any state reserve or central bank. It’s pretty interesting stuff and my New York colleague Jason Rockwood (Twitter | about.me) has written an excellent article on the subject of bitcoins, from which I’ve stolen the best bits (no pun intended).
First, what are bitcoins, from another Jason, Jason Calacanis:
Bitcoins are virtual coins in the form of a file that is stored on your device. [They] are created by a complex algorithm. Only 21M can be made by the year 2140. Your desktop bitcoin software can make bitcoins, but at this point the electricity and time it would take to produce a bitcoin is larger than the actual value of a bitcoin (your laptop might take five years to make one, and they currently trade at $6.70 per bitcoin. Bitcoin miners use super cheap GPUs (not CPUs) to create the coins, but as more people come online to make them, the algorithm adjusts so that one block can only be made every 10 minutes.
Highlights from Jason’s article:
Bitcoins are an emerging form of digital Peer-to-Peer currency that are attracting a lot of social commentary (think of bitcoin as a digital wallet that allows you to send money to someone else over the internet without a third party involved). The recent uptick in the value of bitcoin is stirring up many of the same arguments that were so hotly debated in the three-to-five years after the launch of Mosaic and Netscape. The comments and coverage from blogs, news, and social networks run the gamut from dystopian (bitcoin is evil and will cause a collapse of the world’s financial system) to utopian (bitcoin is the dawn of a new era of P2P finance and freedom). What makes these debates fascinating to a strategist is that having money involved has upped the ante, and tensions are running high. The ability to gain or lose vast sums of money is amplifying the core considerations around social media; suddenly this isn’t just about a Klout score, it’s about becoming a network-era tycoon. Looking at the debates around Bitcoin then can provide a good analogy for thinking about some core issues in social media. These debates matter because as public opinion crystalizes into law, the whole internet can be effected:
- First, bitcoins demonstrate a collective [and almost fundamental] desire for economic and personal freedom.
- Second, bitcoin is demonstrating the social dynamics around the successful adoption of emerging networks and systems. In the beginning, there is little awareness at all. Then the network is labeled fringe or for geeks only. Once the benefits begin to become apparent, those using the network begin to evangelize heavily
- Third, bitcoin provides yet more evidence that traditional institutions continue to be hammered by network technologies. At first it was just telecommunication, then it was media and publishing, then marketing, and now finance. Bitcoin is such a fascinating social topic not just because it’s a “new form of money” but because it represents a complete reworking of the financial system in a P2P model.
More reading:
Mathew Ingram at GigaOm – How bitcoin wants to make money even more virtual and Bitcoin currency may be the worst of both worlds
Mike Masnick at TechDirt – Can Bitcoin really succeed long term
Daily Tech on the first ever “run” on bitcoins
Ars Technica on a large bitcoin heist (via Parker, below)
Apologies to @BinaryBits for not having read his article about the Bitcoin theft before questioning his Tweets: http://bit.ly/mOP0xD—
Parker Mason (@parkernow) June 16, 2011
Lulzsec is accepting it in donations too so it’s obviously untraceable.