Musings of a Restless Mind

There are a number of novel aspects to crypto currency, Bitcoin in particular, only one of which is much touted blockchain encryption that allows transactions to be encrypted. Also at the same time the entire history of all transactions can be tracked since the creation of each Bitcoin. That feature is extra safely enabled because blockchain currencies rely on distributed databases, much like the original goal of the internet was a distributed command and control network, so taking out any one node does nothing to disable the net’s functionality. Robbing a single bank of Bitcoin does you no good as long as the owner still has exclusive control of his private encryption key.

One of the other original main attractions of Bitcoin was the goal of a fixed currency, the same idea behind the gold standard. The system was designed to only ever have a finite number of Bitcoins, 21 million of them. Cleverly the designers allowed Bitcoins to be “mined” with increasingly difficult calculations until the maximum coins allowed was reached. (Currently we’re still a little over a million short of that 21 million). The value of the gold standard (and theoretically the Bitcoin standard) is that it cannot be inflated by decree in the way non gold-backed paper currency can. The idea was that if you had gold, its purchasing value in exchange for goods would remain stable despite how much paper currency had inflated. I would argue that Bitcoin has gone beyond its original value in exchange for goods because of speculation. Gold might increase in the amount of paper currency that it can be exchanged for but should never fall below its original value for exchange despite how much a paper currency might be devalued by inflation, since there’s a, mostly, fixed amount of gold.

Of course, one of the problems of such a currency is how you safeguard your gold, so it doesn’t get stolen. Bitcoin is both better and worse than gold in that way. Better in the respect that, since each transaction is recorded in the distributed database, it should be very hard to steal. There’s no way you can make off with Bitcoins without leaving a digital trail. Bitcoin also represents a unique challenge in that it relies on dual key encryption. There’s a public key that is available to everyone and a private key that is only available to the Bitcoin owner. Both these keys are 256 bits long and can be represented by a 64 character alphanumeric string. You need both keys to complete a transaction. Your private key doesn’t go with the Bitcoin database but rather stays with you. Of course a private Bitcoin key looks like this:

cfd32d9700193d79ec3c6ec609fd54606b0612b4ce5eef12e886cd6f21ba2329

Good luck memorizing that like your bank PIN number. Most people don’t bother and also don’t try to write it down. Imagine trying to type in a random 64 digit alphanumeric code that represents a number from 1 to 18,446,744,073,709,551,616. Typos anyone? Most people just store their key encrypted on their own personal computer. That can create problems though. What happens when you lose your computer? If it’s encrypted, nobody who has your computer without your password can “steal” your Bitcoin, but then you can’t access it either. There have been cases where someone threw out their old laptop without copying the hard drive to their new one. In one instance that led to a treasure hunt through the dump, an unsuccessful one I might add. Now, envision the scenario where all 21 million Bitcoins have been mined, but a certain number have been lost. That leads us to the Goldfinger scenario. In the James Bond movie, Goldfinger wants to “rob” Ft. Knox. Of course physically looting a US Army base of its thousands of tons of gold is wildly impractical, so Goldfinger’s plan was to set off a small nuclear explosion to irradiate Ft. Knox’ gold, thus making it unavailable for the forsesee-able future and inflating the value of his personal gold holdings astronomically. Hence the question of my title.

Mining Bitcoins requires increasing amounts of computing power (and electricity to drive the computers), but once all the coins have been mined, what do you do with all that power? One consequence I believe will be treasure hunting. Just as adventurers seek old shipwrecks, people who run Bitcoin mining operations will start to turn their efforts to locate Bitcoins with no transactions for years on end, considering them lost. All that mining power that was creating 256-bit encryption can now be profitably turned on finding lost Bitcoins and breaking their heretofore unbreakable private keys.

It is indeed a brave new world.