Saturday, 13 December 2014

An Introduction to Bitcoins: the £3m Pizza.

Back in 2010, Laszlo Hanyecz convinced someone to accept 10,000 units of a currency he had just mined with his computer to buy pizza for him, from Papa Johns.

 On an online forum, Hanyecz asked someone to order two large pizzas, worth $25 dollars (£15) for him in exchange for 10,000 Bitcoins- a virtual currency, young and relatively unheard of at the time.

Little did the anonymous volunteer who responded to him know that soon, he would be very well paid for this job; as of the 1st of April 2014, 10,000 Bitcoins are worth £2,955,271.52.

What is Bitcoin, and why is it so popular?
Bitcoins are a virtual, online-only currency that is far different from the Pound, or the Dollar that we are used to. Unlike conventional currencies, Bitcoins are un-centralised. They dont need a bank, or central authority to control any aspects of it- and they are fully global, not tied to any specific country.

This is a particularly attractive aspect of Bitcoin- it removes the need of a third party (such as a credit card company) in a transaction- making it quicker, more private and cheaper. For example, to transfer pounds over to someone in China from Britain you'd have to pay high transaction rates, extra money that would go to the company youre using for the transaction. Bitcoin allows you to transfer this money straight to the receiver, without any extra fees or parties involved.

Contrary to regular currencies extra Bitcoins cannot be produced- there will only ever be 21 million Bitcoins; 12 million of which already exist.

Rising demand has seen Bitcoin prices skyrocket recently- at the time of Hanyeczs pizza purchase 1 Bitcoin was worth 1 two-hundredth of a pound- currently 1 Bitcoin is worth almost £300.

Sounds great! How can I get these Bitcoins?
Bitcoins are produced through a process of mining- you get your computer to solve a series complex maths puzzles via a program, and after long enough, you receive a quantity of Bitcoins. But its takes a long time- on average itd take over 100 days to mine a single Bitcoin.

Where does Bitcoin get its value?
Well, no one knows exactly, but its generally accepted that Bitcoin gets its worth from trust- similar to conventional money, but instead of relying on gold it relies on complex mathematical properties.
Essentially, people who accept Bitcoin value it as something someone else will accept for another good- just like how youll take a fiver from your dad, because you know the local Tesco will accept it for what you want to buy.

So what can I get with Bitcoins?
Anything, provided the vendor accepts Bitcoins; you can hire a private jet, order a takeaway, and a more notorious use has been in the drug trade.

Its difficult to tell whether Bitcoins are just part of a huge crypto-currency bubble, along with other equivalents such as the short-lived Coinye West and Dogecoin- and what will happen when the 21m Bitcoin limit is reached? Only time will tell.
Mohammad Lone Editor