Mosaic / September 28, 2011

Mining for money

The next time you walk into a store, think about how you are going to make your purchase. Will you pay with cash? Credit? Both provide quick and easy ways to make purchases, but credit tends to have one drawback—all transactions are tracked. With cash, one can make a completely anonymous purchase.

The next time you make a purchase on line, think about how you are going to pay for it. Credit? Where’s the anonymous option here?

Virtual currency

A possible solution is the BitCoin. BitCoins, or just Coins, are a completely virtual currency invented by Satoshi Nakamoto way back in 2008. According to, “Nakamoto wanted people to be able to exchange money electronically securely without the need for a third party, such as a bank or a company like PayPal,” hence creating what can be called “virtual cash.”

So how does this magic virtual cash work? By Nakamoto’s design, any computer with the BitCoin software installed can help to generate the Coins, although it is processor intensive.

These computers, or BitMines, will then begin to generate Coins at a set, decreasing, rate. The more people that are generating Coins, the slower the Coins will be generated. Eventually, Coins will cease to be generated whatsoever, and there will be a fixed amount of Coins in the world.

Economic oddity

Economically speaking, this is a very different idea.

Currently, all major countries reserve the power to print more of their currencies. What would the world be like if there was a fixed amount of money? Certainly it would be bad if any one entity gained control of over half the money, but Nakamoto thought of that.

“The combined power of the network is currently equal to one of the most powerful supercomputers in the world,” says Jeff Garzik, a member of the team that manages the Coin software. “Satoshi’s rules are probably set in stone.”

Where can BitCoins be used? Currently, there are very few places currently accepting Coins for payment. There are a few sandwich shops in NYC and an on line store selling alpaca socks. Many major companies are reluctant to accept Coins because of the fact that they are virtual and only worth what the world’s population agrees on.

Take this example given by William and Marilyn Ingersoll Chair in Computer Science John Dooley. Since the world broke away from the Gold Standard, countries have been able to just print more and more of their respective currencies. But what are these currencies worth if they are not backed by gold? One U.S. dollar is worth only what the general population believes it to be worth. One Euro is worth only what the people think it’s worth, and so on. The same thing applies with Coins. They are literally backed by nothing – it’s a virtual currency. So the value of one Coin could range from nothing to $40 million (which is the estimated value of Coins today).

In the (far-off) future, Knox Students may be paying for their tuition entirely with virtual money. Big time companies like Sears may be charging people for Coins instead of dollars. If you ever walk into Wal-Mart and see “T-shirts: .0025 Coins!” you will know that BitCoins have taken over the world economy.

Levi Woodbury

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