Bitcoin is a peer-to-peer electronic currency, or cryptocurrency, created to facilitate secure and transparent transactions while avoiding many of the perceived flaws of conventional currency.
However, at a time when the world feels increasingly unstable, and with a potential climate-change catastrophe looming, the implications of the rapidly expanding cryptocurrency market are perhaps more sinister than one might initially expect.
The perceived flaws of conventional currency, which cryptocurrencies like Bitcoin seek to circumvent, largely surround monetary policy. Cryptocurrency is a way to protest the creation of new currency by a central agency like the Bank of Canada or the United States Federal Reserve, rather than by markets.
Additionally, cryptocurrency seeks to solve the black-box nature of such institutions, where those on the outside are not given information about key components of value, such as the volume of currency being produced and the records of transactions.
Bitcoin operates on a blockchain system. When a user requests a transaction, the request is broadcasted over the peerto- peer network, where its existence is verified by all observing machines in the network.
When a block is completed, the verified transaction is recorded and processed. In the case of Bitcoin, a block is created by the “mining” of currency, whereby individuals or groups compete to solve a complex algorithm. When a solution is found, a block is created, rewarding the miner — or miners — with both bitcoins and the privilege to collect transaction fees. Currently, a new block is created roughly every 10 minutes.
Initially, miners found new blocks with less effort for higher rewards. In the early stages of Bitcoin, completing a block rewarded 50 bitcoins — now, it yields around 12.5 bitcoins.
An individual’s or firm’s bitcoins are stored in virtual “wallets” attached to strings of 26-35 alphanumeric characters called Bitcoin addresses, which are best understood as single-use tokens used to receive money.
Because every Bitcoin transaction is viewable by anyone and attached to a Bitcoin address, and because every address is attached to a wallet, this cryptocurrency is the opposite of anonymous. Yes, Bitcoin operates pseudonymously, but the receipt of funds is still tied to you or your firm.
So, what is so concerning about a cryptocurrency like Bitcoin? Is transparency not a good thing? Does the blockchain not undermine the harmful control of the financial elites who benefit from inequitable monetary policies?
What is truly concerning is that federal governments can use their ability to print money to ensure public services in times of crisis, resulting in increased federal debt. The world saw this scenario play out in Greece, following their entrance into the European Union and the consequential austerity measures imposed upon the country by bailout lenders.
What would happen if, following a market crash, Canada found itself on the verge of defaulting on its national debt?
Monetary policy in a Bitcoin society would be controlled by the market and not the state, which would allow for more globalized and equitable systems of currency. However, Bitcoin and other cryptocurrencies — though currently peaking in value — are unstable in that they are widely unknown to the public and difficult to popularize.
Furthermore, critiques regarding the environmental implications of the process of mining cryptocurrency are mounting. Servers require electricity, and the number of servers being used to solve algorithms and mine cryptocurrency is rising too rapidly for current global resources to keep up with the increased burden.
In summary, Bitcoin is an insecure initiative that needs further thought, but there seem to be some benefits.
Graphic: Lesia Karalash / Graphics Editor