Turning Bits into Money
By Dadara on May 17, 2011
Nowadays tangible cash is quickly becoming a disappearing commodity and is being replaced by virtual packages of digital bits traveling the world wide network. It’s interesting to find out through interaction with visitors/customers of the Exchanghibition Bank’s pop-up performances that so many people still believe that money is backed by gold (not anymore since the Bretton Woods conference in 1946….) and that many people also seem really surprised to hear that here in the Netherlands only 3 percent of our money still really exists as banknotes and coins and this percentage will rapidly plunge towards a mere one percent in the near future.
This means that money is mainly information and has a value because we trust and believe it’s worth something. And as long as we keep trusting governments and banks that trust alone might actually work. But do we trust them?
And now there’s a recent development where the concept of money is taken further into the abstract realm and outside the hands of the government and banks: the Bitcoin. Bitcoins are virtual coins in the form of a file that is stored on your computer. And there’s no Bank or Federal Reserve producing those coins: Bitcoin is a peer-to-peer currency. Peer-to-peer means that no central authority issues new money or tracks transactions. These tasks are managed collectively by the network. Your desktop bitcoin software could actually make those bitcoins, but at this point the electricity and time it would take to produce a bitcoin is larger than the actual value of a coin itself (your laptop might take five years to make one, and they currently trade at $6.70 per bitcoin)
The result of this system is that transactions can be hardly tracked.
So there’s no government issuing the coins. They are being issued by open source software in a peer-to-peer network. And the guy who invented the Bitcoin – Satoshi Nakamoto, who first wrote about bitcoins in a paper called Bitcoin: A Peer-to-Peer Electronic Cash System, is a mystery. Nobody even knows if Satoshi Nakamoto is his real name.
I am curious if enough people will trust this system for it to become ‘real’ money, which we could start spending everywhere in the near future?
Is it actually money, or just a way for those who invented it to make money?
And will our governments trust us enough to allow us to create money outside of their control?
What would you trust more? A Euro or a Bitcoin?
Or an Exchanghibition Banknote with value Zero….?