Image: Liv Mercer
Image: Liv Mercer

MoneyAugust 23, 2021

WTF is cryptocurrency?

Image: Liv Mercer
Image: Liv Mercer

There’s one question on the lips of every cyber surfer trying to gauge the crypto wave: does anyone actually know what a blockchain is? Shit You Should Care About tries to answer this question and many others.

On January 3rd 2009 the genesis block – the first ever block of bitcoin – was born. Just a few days later Captain Chesley Sullenburger would land a plane on the Hudson River. In a few months the swine flu pandemic would begin. That makes bitcoin 12 years old, Gen Z, and a Capricorn.

Ah, Bitcoin. The technology, the philosophy, the ecological nightmare. Over the past couple of weeks the Instagram wunderkinds at Shit You Should Care About have taken us Extremely Online to explain the mysteries behind cryptocurrency – specifically, bitcoin. Here, we condense their findings.

What is bitcoin?

It’s money. At the time of writing, one bitcoin is currently worth about NZ$70,500. You do not have to buy or sell one whole bitcoin. If a dollar is a bitcoin, a cent is a Satoshi – one Satoshi is currently worth NZ$0.00071072.

What is the blockchain?

OK, you’ve got me there. Bitcoin isn’t just money, it’s also technology – “blockchain technology”. Basically, every time you send a bitcoin, that transaction is recorded. It’s recorded as a “block” which becomes part of a “chain” of blocks. You can follow this chain of blocks all the way along and see every transaction that bitcoin has ever been involved in. This is the blockchain, a public ledger of transactions.

Although the ledger is public, what you’ve done with the bitcoin is private. If you bought an apple, that won’t appear on the ledger. Instead you would see code in its place. That’s why bitcoin is used on the dark web – people can see that you’re buying, but they can’t see what you’re buying.

Who invented it? 

The mysterious person or persons known only as “Satoshi Nakamoto”. Was it economic sociologist Vili Lehdonvirta? Award-winning mathematician Shinichi Mochizuki? Inventor of the Silk Road (and subsequent convicted felon) Ross Ulbricht? Cryptographer Nick Szabo? Were they all in some kind of tech supergroup together?

It could be a systems engineer actually called Satoshi Nakamoto, or the guy who lived a few blocks down the road who happened to receive the first ever bitcoin.

Long story short: we don’t know, and we might never know.

Why was bitcoin invented?

Embedded inside the genesis block was a recent news headline: “The Times Jan/03/2009 Chancellor on brink of second bailout for banks.” This has been interpreted as a criticism of the current banking system.

Bitcoin and other currencies like it – known as “cryptocurrencies” because the technology is born from a field of work known as “cryptography” – are part of something called “cypherpunk”. It’s like “cyberpunk” but less cool. Think more Dan Brown than Johnny Mnemonic.

Cypherpunks believe currencies like bitcoin will return power to the people by taking finance out of the hands of central banks and governments. With bitcoin, you don’t need to send money to someone via Kiwibank or BNZ – you can just type their wallet address right into your phone. This is called decentralisation.

Some people see crypto as a “safe haven” because fiat currency (what we normies use) is subject to endless inflation.

But it’s not a safe haven for the roughly 40% of people that don’t have access to the internet; and it’s not able to be spent in many places. We don’t even know how to properly tax it yet. Maybe one day the decentralised dream will be realised, but now is not that time.

How do bitcoins come into existence?

Bitcoins are mined using computers, with a process called “proof-of-work”. The computers try to guess what a mysterious number is, and the first one to guess it receives the bitcoin reward block. They did some work, and got a coin

Using technology means, obviously, using power. That’s why in one year, worldwide bitcoin mining operations use the same amount of energy as the entire electricity consumption of Sweden.

The reward block contains multiple bitcoins, and these are usually spread out amongst many miners who’ve chosen to pool their efforts and combine computer power. The genesis block, also known as block zero, was the first block to be mined. It had a reward of 50 bitcoins. This would now be worth over NZ$2.6 million.

Every 210,000 blocks mined, or roughly every four years, the block reward is cut in half. This is called “the halvening”, and there have been three so far: one on 28 November 2012 (25 bitcoins per block), one on 9 July 2016 (12.5 bitcoins per block), and one on May 11 2020 (6.25 bitcoins per block). There are 21 million bitcoins in total, and the final one will most likely be mined around 2140.

What does all this have to do with that dog I keep seeing on coins?

Meme coins, sometimes called “shitcoins”, are cryptocurrencies too. They’re kind of like bitcoin but shit. Well, that’s subjective. Elon Musk can tweet and send dogecoin skyrocketing in value, but he’s also done the same with bitcoin.

Some cryptocurrency users aren’t in it to stick it to the man. For some it’s a get-rich-quick scheme by buying into volatile coins – like dogecoin – as though they’re stocks and shares. For others, taking the crypto plunge is an acknowledgment that, really, no money is real. It’s all ridiculous. 

Keep going!