Get a piece of the Bitcoin action: How easy is it to lay your hands on the virtual currency?
'The process was like wagering cash on a dull greyhound race and then having to jump through hoops to claim the winnings'
Rhodri Marsden is the Technology Columnist for The Independent; he has also written about crumpets, Captain Beefheart, rude place names and string. He's also a musician who plays in the band Scritti Politti, and won the under-10 piano category at the 1980 Watford Music Festival by playing a piece called "Silver Trumpets" with verve and aplomb.
Thursday 02 January 2014
New cultural phenomena are constantly vying for our attention. I find this exhausting, so I do my best to ignore most of them. But occasionally the sheer weight of opinion, conjecture and discussion forces me to set aside my prejudices and investigate something. It happened with Twitter in 2007 and I liked it. It happened with Mrs Brown's Boys in 2013 and I didn't. Right now, it's happening with the virtual currency called Bitcoin and, after a week of messing about with it, I can confidently state that I'm not sure how I feel about it. But stick with me. Maybe you, too, will be infected with a vague, semi-detached quasi-curiosity.
The fact that this article is about Bitcoin, has the word Bitcoin somewhere in the headings and contains illustrations pertaining to Bitcoin, will have already lost many people – which is a shame, because they're my kind of people. Bitcoin certainly lost me. With a mostly forgotten economics A-level course under my belt and a love of technology embedded in my heart, Bitcoin should have been right up my street. But whenever I started reading about it, I, like many others, started to daydream about foreign travel or exotic desserts instead.
The key to our collective ambivalence about Bitcoin lies in its almost hilarious inexplicability; head over to YouTube and you'll find dozens of primers and tutorials, all of which seem to pose more questions than they answer. Rather as with contract bridge, the effort required to get your head around Bitcoin seems wildly disproportionate to any potential benefit that might conceivably head your way. But there's always a lot of dead time at the end of the year with little to do other than eat soft-centred chocs, so I set myself the challenge of finding out why I should give a toss about Bitcoin. You see what I did there?
I've managed perfectly well without it, of course. I have some pounds sterling in a bank account represented by a positive number, and a relationship with a credit-card company that allows me to maintain a negative-pounds-sterling balance. This arrangement works without any problems. The two amounts have little to do with notes and coins in my pocket; it's just numbers on a screen rising and falling as I spend or receive money – and that's fine, I know that cash can be a nebulous concept.
The difference with Bitcoin, as I understood it, is that sums can be transferred instantly and secretly, for free, bypassing the tyrannical protocols imposed by Visa or MasterCard or PayPal (or whomever) that cost me 2.5 per cent or more of my transaction total. Call me a profligate squanderer, but I can't say that these surcharges have ever bothered me; I just figured it was a tax I had to pay for the privilege of spending cash in a convenient manner. But maybe I'm wrong. Maybe those surcharges belong to me. I must have lost thousands of pounds over the years. Maybe I need to wise up.
The first step was to get myself a Bitcoin wallet, somewhere to keep my stash. Google searches led me to blockchain.info; in return for an email address and a password, I was assigned a string of letters and numbers – effectively my bank-account number – that people could use to send me bitcoins, if they were feeling generous (1BL1cwaA7PNFTBjPQ a4RPSeR BE7dDneAp5, thanks in advance). Wallet set up; now I needed bitcoins to put into it, and that's where my first conception was shattered.
The colour of virtual money: A Bitcoin miner (Rex Features)
Every article about Bitcoin seems to focus disproportionately upon mining, the process by which bitcoins come into existence. Said process is pretty interesting – the solutions to ever-more-intricate maths problems are rewarded with the issue of 25 new coins – but the processing power required to solve these problems and mine new bitcoins is now so huge (expensive to buy, incredibly pricey to run) that you'd have little chance of making back your investment. Said process is, therefore, about as relevant to me as the ink that's used by De La Rue to print £20 notes. The equivalent of the gold rush happened years ago; the people who became rich via Bitcoin mined them when the solutions to these complex mathematical problems could easily be found in them thar hills.
Yes, if you've got a graphics card with a powerful processor, you can still join with others and attempt pooled mining (eg, mining.bitcoin.cz), but it's likely that all you'd have to show for it at the end is a big electricity bill. No – if I were going to get a bitcoin, I'd have to buy one.
I say "one"; the value of one bitcoin (BTC) before Christmas was 420 quid. I'm not a risk-taker by nature and I had no intention of splurging that much on something I didn't fully understand. Fortunately, the system allows fractions of bitcoins up to eight decimal places, so I could snap up a "millibit" for 42 pence if I wanted. A visit to bitbargain.co.uk led me to a bloke who was willing to sell me one-twentieth of a bitcoin for 21 quid, so I sent him the money from my bank account in what felt like a cloak-and-dagger operation ("DO NOT use the word BITCOIN as a reference," he insisted). A few minutes later, I was the proud owner of some so-called cryptocurrency: my balance showed an impressive 0.05 BTC. My amateurish stumbling in this unusual world had reminded me of using the internet for the first time back in 1992, and now I asked myself the question I asked myself back then: what now?
The reason that bitcoins have any value at all, we're told, is because: a) they're useful; and b) they're limited in supply. But whatever impression you might get from the media, spending them on goods and services isn't easy. There's certainly a huge number of large transactions taking place – you can see them whizzing up the page at blockchain.info – but there's no telling what they're for. The anonymity of these transactions makes Bitcoin perfect for buying illicit goods, but the so-called "dark web", where it can be found, is a weird old place.
An approving pub sign (Getty Images)
After you've downloaded a special Tor browser and spent a few minutes using "safe" search engines to access sites ending with the suffix ".onion", you discover that vendors come and go rapidly, links die quickly, there's evidently unscrupulous behaviour afoot, and you're not going to get any cocaine for 0.05 BTC in any case. Back on the non-dark web, a small number of traders accept Bitcoin as payment for mainly tech-related goods such as motherboards (or maybe a "Keep Calm and Use Bitcoin" T-shirt – woo-hoo) but you get the sense that being Bitcoin-friendly makes for a good press release and little more.
Take Tom Reaney, who sold a burger from his fast-food outlet in central London in December for 0.0131 BTC, to much fanfare; the £7.50 it was worth back then is now worth closer to £5.50. This highlights one of Bitcoin's inherent problems: it's hamstrung as a currency because no one really knows what it's going to be worth from day to day. And, as I found, you can spend bitcoins only on things you wouldn't have bought unless you had some. It's like wandering around Marrakesh airport before your flight home with a pocket full of dirhams and briefly considering the purchase of a fez.
But while volatility may be damaging to a currency, it's an attractive proposition for speculators. Bitcoin, as noted by Forbes last week, was far and away the best investment to make in 2013 and, as you watch the wildly fluctuating values across various websites, you can feel the potential thrill of a short-term speculative win. I shunted my 0.05 BTC over to kraken.com, the currency-trading site, where I'd be able to move money in and out of various currencies while looking at oscillating graphs and flickering numbers and generally wondering what the hell I was doing. But this shattered two more conceptions, the first being that Bitcoin transactions are free.
The coins in solid form (Getty Images)
All transactions have to be verified by a Bitcoin miner and etiquette dictates that you should provide them with a small sweetener, so I spent the equivalent of 4p doing so and now I had only 0.0499 of a bitcoin left. Second, I thought I could become a renegade Bitcoin trader behind a cloak of anonymity, but if you're looking to convert BTC back into dollars or pounds, the service will demand to see photo ID, proof of address and so on. As a nameless entity, I was restricted to trading in cryptocurrencies, of which there are many, including Bitcoin, Ripple, Litecoin, Ven and so on. So I sold my 0.0499 of a bitcoin for 1.8088 litecoins, and again felt a sense of achievement, coupled with a slight feeling of unease.
These currency exchanges, after all, have been known to fail and disappear, taking millions of dollars' worth of cryptocurrency with them and no redress for those who've lost out. While incredibly secure cryptography makes it almost impossible to make fraudulent Bitcoin transactions, hacking of wallets is widespread. And while Bitcoin et al may exist independently of banking interests and state interests, their value is closely tied to pronouncements by various states on their validity.
Chinese investors, whose activities are heavily restricted by government, went for Bitcoin in a big way, but its value slumped when the Chinese central bank banned institutions from dealing in it – and again when BTC China, the primary Chinese Bitcoin exchange, stopped accepting yuan deposits. The status of Bitcoin within the laws of any country is vague; with no home territory or jurisdiction, it can't be regulated, and confusion over its legality and acceptability consigns it, in the short term at least, to being a risky investment. Fortunately, I'm exposed only to the tune of 21 quid.
Sign of the times: A London bitcoin trader (Alamy)
However, by Boxing Day I could see on the cryptocurrency site coinmarketcap.com that the value of Litecoin had soared. I went back to bitbargain.co.uk and found that people were now willing to buy the 1.8088 litecoins I owned for £39.57 – an 88 per cent increase on my initial investment of £21. That £18.57 I'd made by sitting on my bum and eating turkey could be useful; I could get myself a Russell Hobbs hand blender, hurrah – but only if I converted it back to pounds sterling, and to do so I'd have to register as a seller and upload various forms of ID. By the time I'd been approved, the value of my litecoins might well have slumped.
And so it came to pass. As I write this, I can sell my meagre quantity of virtual currency for £27.49. A 30 per cent profit in a week is not to be sniffed at, but the process itself was not dissimilar to wagering some cash on the result of an extraordinarily dull greyhound race and then having to jump through numerous administrative hoops to claim the winnings. It's early days, of course. The more people know about Bitcoin and the more people use it, the stronger it will become.
Bank of America has said that Bitcoin may emerge "as a serious competitor to traditional money providers" – but that feels like a long way off. Bitcoin users fall into four categories: tech-heads fascinated by the maths; traders trying to make a fast buck; a few people trying to buy ecstasy; and libertarians who see its use as some kind of political statement, a method of escaping the scrutiny of government.
But while there may well be an argument for avoiding the value of your money being eroded by the state printing more of it, Bitcoin doesn't appear to bring stability, even in the long term – not least because it enables a financial system that's perfectly tailored for evading taxes. That may be a libertarian holy grail, but it has more worrying implications for society if your politics are anywhere to the left of that.
For now, I'll just say that it's probably been a worthwhile experiment, hang on to my 1.8088 litecoins and maybe pop to my local shop for a pint of milk, which costs a reassuring 59p and doesn't pose too many disturbing questions about what 59p actually means.
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