By Colm Phelan
Over the past few years, there has been increasing popularity and interest in virtual currencies. These virtual currencies, also known as crypto-currencies, are an online medium of exchange between merchants and customers.
The name given to the first crypto-currency was Bitcoin, and it was first introduced in 2009.
As of December 2016, one Bitcoin has a value of over US$766. The creator of Bitcoin goes under the alias of Satoshi Nakamoto, but it is unknown whether this is one person or a group of people. After releasing a paper online about the existence of Bitcoin in 2008, the first Bitcoin software was released under the same alias the following year.
Since then, one Bitcoin has gone on to be worth at certain stages over US$1,000. Such is Bitcoin’s popularity, actual coins have been made and are available to purchase at the going rate. However the coin itself holds no value, with a 16 digit code inside used to redeem a Bitcoin to an online virtual wallet.
The acquisition of Bitcoins is done in one of two ways. Should you wish to purchase a Bitcoin, you can do so through online merchants. In fact, in 2013 the first ever Bitcoin ATM opened in GSM solution on Upper Abbey Street in Dublin City, a testament to the growth and demand for the currency. The other process of acquisition is through ‘mining’ where one must allow their computer to solve complicated mathematical puzzles in order to be rewarded with Bitcoins.
This requires a very powerful computer, coupled with the calculations of electricity spent mining to Bitcoins rewarded, something which can be profitable if done correctly. Back in 2013, Irish student Joseph* used to mine Bitcoins to earn some extra money during his time as a student. At the time, Bitcoin was only worth between US$150 and $180.
“At the start, it took a lot of reading to learn how to setup my computer to actually start mining. Then I realised I needed a far more powerful computer, so that took a bit of investment.” he said.
“How powerful your computer’s graphics card is important. I spent the money and I could mine a Bitcoin in around two or three weeks. Of course it’s not that simple, I have to work out if my computer is mining quick enough so that when I finally do build up to a Bitcoin, it’s worth more than the electricity used to mine it. Powering a computer like mine for that long can be expensive, there are online calculators you can use to figure that out if you are making profit or not.
“The price of Bitcoin did skyrocket at one stage. I generally like to hang on until I have at least two before I sell them. At one stage, they were selling for over a grand, but I only had one in my wallet at this stage. I would expect some people made a fortune during that time,” he said.
However, with the growing demand for Bitcoin, coupled with the high profit margins available, Joseph* admits it is more difficult now than when he first started his exploits. “I don’t think I can keep it up any longer. At best I was mining one every two weeks, maybe more. Now it’s more difficult.
More recently, he has given up the Bitcoin mining business, “I sold my computer [in] late 2015. I wish I hadn’t, but it was kind of tiring and shady.”
The success of Bitcoin has led to several copycat currencies being introduced. The most successful of them has been Litecoin, a product of MIT. It currently trades for around US$3.90, a fraction of the price of its competitor Bitcoin. Other ‘virtual currencies’ of note include Primecoin, Mastercoin and Dogecoin, inspired by the famous internet meme ‘doge’. Most, if not all, of these currencies, with the exception of Bitcoin and Litecoin, have little value, with 100 Dogecoin trading for just three cent bearing testament to this.
The use of Bitcoins has come under scrutiny over the years, with questions asked as to why there is a need for a virtual currency when websites like PayPal and Skrill exist. These websites have been set up specifically for the safe exchange of money over the internet, so why do people need Bitcoins? Well, currently Bitcoin is the only form of currency accepted on online marketplaces on the deep web, which is well known for its distribution of drugs whilst keeping customers completely anonymous. The use of Bitcoin helps facilitate this, as there is no name or contact information attached to the owner.
Silk Road, a leading market on the deep web, was seized by the FBI on several accounts in October 2013, including drug trafficking and providing a medium for a murder-for-hire service. Around 30,000 Bitcoins were seized from accounts on Silk Road, which are to be auctioned off by the FBI. Another 140,000 or so Bitcoins were seized from the owner of Silk Road, Ross Ulbricht. Since then Silk Road 2 has been launched, but that has been taken down also. Many websites have been set up on the dark web, with ALPHABAY being the most well known as of today.
With technology growing at such an exponential rate, its hard to imagine crypto-currencies losing their value completely. Their success thus far indicates they are here to stay.