What on earth is a bitcoin?

Bitcoin is a new online currency so baffling, so intangible that you would be forgiven for thinking it cannot possibly be real. Bitcoin is a cyber-currency with no government backing and no central bank. How real is bitcoin? Type into Google ‘bitcoin to dollar exchange rate’ and you will get an answer. Or simply look at the graph below: 

bitcoincharts.com

Bitcoin uses the same principles of p2p technology as the ubiquitous bit torrent, instead of sharing bits of data that make up music files it shares currency information on transactions. Everything is encrypted ensuring complete anonymity, it is completely decentralised and has no transaction fees.

Bitcoin’s potential is huge; it could perhaps bring a new era of trade and a new era of prosperity for many of the world’s poorest nations. In many ways it shares characteristics with good old fashioned hard cash, it isn’t recorded for a government to see, card services don’t take a percentage and of course George Osborne doesn’t get his hands on it. 

Why do I think this might help the underground art world?

Producers of underground art will love and embrace this new digital currency. It has anarchic undertones and an almost romantic nature. But more importantly there are some practical benefits to Bitcoin…

Tax! Everyone hates being taxed. We also dislike PayPal fees, banks and come to think of it anyone taking our money. For this reason many part-time artists/craftspeople deal wherever possible in hard cash. Unfortunately hard cash’s days are numbered. Sweden is an excellent example of a country on the verge of being cashless; almost every transaction is now done digitally. This might mean that your supplementary artistic income may also become subject to tax… Shit.

You might for instance be a boxer (let’s call him Tyson Fury) and an abstract artist specialising in sculpture by night. HMRC of course won’t like Jonny Two Jobs and PayPal will take a percentage and so on. Mr Fury might feel his passion for sculpture is not really worth the hassle, and the world would be robbed of his wondrous art. Jokes aside this could have some serious negative consequences on the on the underground art industry. It could single handily destroy the age old industry of selling your art to your friends and family. Many artists start of this way, it would be a real shame to lose them.

A far more compelling example is the global art market. When you think about the global art market you imagine Sotheby’s, Francis Bacon paintings and big wooden hammers. This shouldn’t be the case. Imagine being able to order traditional tribal art from an artist in Somalia or an edgy piece from a graffiti artist from Bogotá. Currently this type of transaction is expensive and often unfeasible. Transactions fees are high and sorting through the bureaucratic quagmire can be painstakingly complicated. Now, one might expect that countries like Somalia are years away from truly digital transactions; actually nothing could be further from the truth. Somalia has one of the highest uptakes of online mobile transactions in the world.

People are simply unwilling to hold hard cash due to security fears and the Somali shilling is practically worthless. Imagine a world in which a Somali carpenter could sell his wares to a Swedish family. This would be fantastic, it might just stop the ceaseless rise of the blue spectre, IKEA.

To the Underground World via the Silk Road (Drugs, Guns and general shady business)

Unfortunately there is one tiny issue with the bitcoin brand at the moment: Currently the largest ecommerce site that uses bitcoin is the Silk Road – the road Marco Polo famously traversed to trade silk from China. Strangely I did not find any silk on the Silk Road website; instead Silk Road is selling some very, very naughty things. Its users rarely markets legal products, preferring instead to sell an assortment of items in a Gumtree style classified posting system. For the security of everyone on the site, Silk Road facilitates an escrow system. On the Silk Road there is a veritable feast of criminal tools and consumables.

Here are my top 5 favourites:

1. A full UK British Passport for £8000 (bitcoin equivalent)
2. A lottery ticket in which the top prize is 50 oxycontin (a strong opiate based pain killer)
3. 5 wraps of heroin
4. ½ an ounce of crystal meth
5. A gram of crystal DMT

Unbelievably Silk Road recently shutdown their armoury section! As a citizen of earth I need to know that I can buy 7.62x39mm bullets for my AK47 hidden under my bed. And what about black-market services I hear you cry? Some of you will balk at the idea of getting your hands dirty, instead you could perhaps hire an online assassin – Luckily this hasn’t happen yet (as far as I am aware), but the possibility has been regularly talked about by futurists, hackers and bloggers alike.  After all, the Silk Road is owned by none other than the Dread Pirate Roberts.      

The Economics and the Computer Science

I will try and keep this short and sweet. The economics involved in bitcoin is not that different from any normal floating currency. While it isn’t traded on the Forex (Foreign Currency Exchange) it does have its own exchange services, its value works on the same basic theory of supply and demand as any floating currency does. There is a hard limit of 21 million bitcoin’s, but the currency can be decimalised up to 8 places so there is a vast amount of flexibility. In actual fact a more similar method of currency that money is gold…

Of course the computer science and the cryptography involved in such a project is mind boggling, suffice to say there are a lot of bits, hertz and men with long hair and beards. What is important to understand is the concept of mining for your bitcoin’s (yes it gets stranger). Essentially you set your computer to work to solve complex algorithms to which you are then awarded a ‘block’ of coins called discovering. There is even a calculator that works out how many bitcoin’s you might earn based on your electricity bill, PC and the current difficulty for finding bitcoin’s. Bitcoin’s are transferred using a peer-to-peer system that employs these “miners" to cryptographically verify transactions to ensure people are not trying to double-spend their currency. All transactions are entered into a publicly accessible ledger. The ledger shows a person's 32-character alpha-numeric address, which is used to transfer funds, but there is no more identifying information of the involved parties.

Don’t worry it confuses me to, bitcoin itself is an underground art!

Conclusion

Globalisations momentum is increasing rapidly, whilst technology is affecting our lives in unfounded new ways. Bitcoin is both an opportunity and a threat. It’s difficult to know what bitcoin’s future may be. On one hand it could empower the individual leading to new business models and away from mass production and multinationals. On the other hand it threatens our security, governments need to exercise some control, the Silk Road, though fascinating is an excellent example of how bitcoin can be used for the wrong reasons and how complete anonymity can be dangerous. Underground artists will be one small actor in what may turn out to be a very big story. 

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