some of the earlier ideas at digital money simply took the form of a public ledger.
You know you start off with money you have a list of who owns how many coins
and then people call in and say I hereby transfer so many coins to such-and-such
and you then update the ledger. Now of course in real life
proper money actually works like that it's just that the banks don't keep an
infinite publicly visible history of all the transactions but Bitcoin keeps
everything publicly visible forever.
The basic idea behind Bitcoin is that you have got thousands of people called Bitcoin miners
who compete to find the next hash in something called a blockchain. and a new hash is found about every ten minutes.
so what happens is that hundreds of people who want to do a transaction
- say I want to pay you a tenth of a Bitcoin (which is about 25 pounds or so)
pay for lunch or a taxi ride or whatever. Then what I do is I sign a transaction
saying that I pay you 25 pounds and that gets collected together with hundreds of
other transactions that people want to do around the world and Bitcoin miners work on it.
How they work on it is they look for a random number which
together with the last hash of the blockchain
and the batch of pending transactions, will have a certain property
and this property is found only about one time every sixty million, million, million attempts
so you get thousands in fact millions of computers
around the world working to try and find the next hash with this special property
by trying the existing blockchain plus all the transactions in the queue that
are waiting to be processed and eventually every 10 minutes or so,
some lucky person puts up his hand and says "Found it!" and when that happens he gets 25 Bitcoins
so that's the reward for that person for finding that particular hash.
The blockchain is a list of all the transactions that have been done with Bitcoin back
since the first transaction in 2008 or 2009
and it's punctuated with hashes and each hash binds together the transactions
that happened up to that point in time and so anybody can look back over the
blockchain and can trace the origin of any particular Bitcoin. When it was mined
right, when it was awarded as a prize to a miner who found an appropriate hash
and everybody who spent it or subdivided it or did something else with it since then.
So it's an open ledger and the history of every single coin is visible to all.
What you basically do is you add to the block chain basically one hash at a time.
So you start off with the last hash plus all the
transactions that you've swept together into a pool to add to the chain and then
there's the hash that you find at the end.
It's also worth saying that miners tend to work in pools and at present there are three large pools which
distribute the work to tens of thousands of people who then 'beaver away' happily trying to
find the next hash and when the reward comes through right;
and each of these mining pools will win a reward about once every half hour or so; they then
share that out to the miners who work for them so what you've ended up with is a
system whereby people can buy Bitcoin mining equipment, they can plug it in
they can sign up to a mining pool, and they get a return on their investment
just as if they'd put money in the bank although the return is at present slightly better.
If you're actually paying for your electricity, half of all the return that
you get on your investment is going to have to go to pay the electricity bill.
There's a significant problem coming down the line because next year. About a year from now (slightly under a year from now )
The reward for finding a Bitcoin <SR>> is due to fall from 25 bitcoins
per successful hash to twelve and a half. Now when this was set up the inventor
decided that in order to prevent inflation the number of bitcoins that
you would get would fall over time. So the amount of work that you had to do per Bitcoin
would increase until finally the amount of Bitcoin in circulation would be stable.
Now this means, that from about October next year <> if you're doing Bitcoing mining
on a fully commercial basis then every dollar that you spend
on electricity will return only one dollar in expectation and Bitcoins
rather than $2 at the present time so there's no way for you to recoup the
capital cost of your equipment unless of course you can place your equipment in
places where electricity is very cheap or in college dorm rooms where it's free
and eventually college deans are gonna start putting in electricity meters and what then happens to Bitcoin?
[SR] So is this part of the way that Bitcoin works is that these rules have been set up already
that over a certain amount of time these things happen?
Well at present the Bitcoin rules were set up by the anonymous guy who set the system up in 2008...
...and they are maintained by the people who
maintain the Bitcoin software and so long as they agree on what the software
should do you have consensus, but if they were to disagree and fork the system into
two separate universes then that would have huge consequences just like -
for example if Greece had left the Euro. There would have been all sorts of trouble to mop up.
Nobody knows for sure who wrote Bitcoin. The person who
claimed authorship Satoshi Nakamoto appears to be a pseudonym and various
people have been found who might have been him what we do know is that the
first Bitcoin transaction was made with Hal Finney who was a cipher-punk
a cryptographer and a coder who could definitely have invented this and come
up with it and he unfortunately died of Motor Neurone Disease (MND/ALS) a while ago so we
can't now ask him whether it was his handiwork - he did deny it at the time but
in any case, somebody unknown who may have been Hal, gave us this amazing and
fascinating system and as for where it goes in the long term the answer is I don't know.
The blockchain is a truly wonderful technical innovation. It doesn't quite do
what people like cipher-punks originally thought it would do namely create a
stable anonymous currency that was beyond the reach of governments
My feeling is that it hasn't quite found a killer application yet.
If you think of the internet for example back in the mid-nineteen nineties people thought
that bringing the Internet to the home would be absolutely great for basically
delivering video to the home so something like you get from your favorite video
rental service or from your PVR was reckoned to be what people would use the internet for
and of course that turned out to be not its real application. The real application
of the internet as everybody knows is disseminating photographs of cats.
So what will be 'cats' for Bitcoin? We don't know, and whoever figures that out might stand
to make quite a few shillings ($$!)
in the back of them,
they put little mobile phones. So that, whenever you used this terminal it'll it would text your card and PIN details....
You start getting the voltage that represents a six drifting a little bit, and it looks like a seven....