From the Editor

By:  David Deschesne

Editor/Publisher, Fort Fairfield Journal

February 19, 2014

Bitcoin:  Another fake, junk-money system

      It’s new, it’s sleek, it’s sexy and it’s digital.  The Bitcoin charade has begun and a lot of people are pegging their wealth and financial prosperity on this new form of decentralized digital currency.

   The Bitcoin is a currency that exists outside of the current fractional reserve banking system.  Like the U.S. Federal Reserve Note (FRN) it does not have anything of tangible value to back it up.  While the FRN is brought into existence exclusively by somebody taking on debt (the loan document is literally “monetized” and turned into new money at the time of the loan), the Bitcoin is brought into being via a convoluted mathematical algorithm in a video game-type atmosphere.  Remember, it was convoluted mathematical algorithms, along with the use of fake money in FRNs, that caused the mortgage and derivatives collapse of 2008.

   The Bitcoin is not actually a coin, nor is it paper money.  It exists solely in the realm of the digital world—the ether.  It is brought into existence by “Bitcoin miners” who use fancy computer algorithms to “mine” the coins from other people’s Bitcoin transactions that are contained in something called “blocks”.

   According to the Bitcoin website, these blocks contain, “among other things, in its block header a record of some or all recent transactions, and a reference to the block that came immediately before it. It also contains an answer to a difficult-to-solve mathematical puzzle - the answer to which is unique to each block. New blocks can't be submitted to the network without the correct answer - the process of "Mining" is essentially the process of competing to be the next to find the answer that "solves" the current block. The mathematical problem in each block is difficult to solve, but once a valid solution is found, it is very easy for the rest of the network to confirm that the solution is correct. There are multiple valid solutions for any given block - only one of the solutions needs to be found for the block to be solved.

  Because there is a reward of brand new Bitcoins for solving each block, every block also contains a record of which Bitcoin address is entitled to receive the reward. This record is known as a generation transaction, or a coinbase transaction, and is always the first transaction appearing in every block. The number of Bitcoins generated per block starts at 50 and is halved every 210,000 blocks (about four years).

   Bitcoin transactions are broadcast to the network by the sender, and all peers trying to solve blocks collect the transaction records and add them to the block they're working to solve.

   The difficulty of the mathematical problem is automatically adjusted by the network, such that it targets a goal of solving an average of 6 blocks per hour. Every 2016 blocks (about two weeks), all Bitcoin clients compare the actual number created with this goal and modify the target by the percentage that it varied. This increases (or decreases) the difficulty of generating blocks.

   Because each block contains a reference to the prior block, the collection of all blocks in existence can be said to form a chain. However, it's possible for the chain to have temporary splits - for example, if two miners arrive at two different valid solutions for the same block at the same time, unbeknownst to one another. The peer-to-peer network is designed to resolve these splits within a short period of time, so that only one branch of the chain survives.

   The client accepts the 'longest' chain of blocks as valid. The 'length' of the entire block chain refers to the chain with the most combined difficulty, not the one with the most blocks. This prevents someone from forking the chain and creating a large number of low-difficulty blocks, and having it accepted by the network as 'longest'.”

   Huh?

   All the fancy-pants mathematical gibberish aside, what Bitcoins really work out to being are nothing more than video game credits in an interactive, real world financial game based upon other people’s purchases using those coins and it only exists inside of a computer chip. A Bitcoin is a purely digital currency—one you cannot hold in your hand, or store in your own safe—is this a good medium to store your wealth in?

   Computers function primarily on the transistor, which today is composed of microscopically thin wafers of silicon and germanium.  When coupled together, they form a sort of electronic switch (also called a ‘gate’). Millions of these electronic switches then combine to form the brain of a computer.  The thing to remember about computing is it’s just Ones, Zeros, and a Clock. That’s all  any computer boils down to at the end of the day.  It checks a switch - which is either On/Off, Closed/Open, Yes/No, or 1/0 - and then does something based upon that information. Then it checks again; how frequently is determined by its “Clock Speed.” The faster the clock, the faster the computer. That's it; that's all there is.  

   Now, you can string those ones and zeroes into amazingly complex strings of language and commands, but they're still just ones and zeros. They can go really, really fast, but they're still just opening or closing switches or checking to see which ones are open or closed. Therefore, anyone with the requisite know-how can manipulate this setup howsoever they wish, whether it's photos, e-mail or your Bitcoin account.

   Since Bitcoins only exist as digits of electrical potential on silicon chips, or magnetic blips on a hard drive somewhere in the world, all it would take to destroy your Bitcoin ‘wealth’ is either a massive, grid-level power failure, an electro-magnetic pulse (EMP) induced either by a massive solar flare or man-made nuclear weapon, or the government simply shutting down the internet on a whim (presumably to stop Bitcoin transactions from competing with the Federal Reserve’s monopoly money currency).   Then it’s BAM!  BOOM! SIZZLE! POP! your Bitcoin money returns back into the ether from whence it came.

   We have a saying in the local Amateur radio club; “Electronics are made out of smoke.  When smoke comes out of your gear, it will cease to operate.”  This is true of all electronics—when it turns into smoke all of your data, and digital money will go up in smoke, too.

  For those who want out of the traditional debt-based banking system of unpayable compounding interest and debt slavery to the bankers, Bitcoin is not the solution.  Instead, choose solutions that do not rot, corrode, decay, burn or can otherwise “crash” into nothingness in the blink of an eye (or the flash of an EMP).  For wealth preservation, ease of trade and independence from the debt-based banking cabal the choice is still explicitly clear—money you can hold in your hand:  gold or silver coin.

   No Bitcoins for me; like Federal Reserve Notes, Bitcoins aren’t worth the paper they’re not printed on.

More Editorials by David Deschesne