Cryptocurrency dinner party conversation
The crypto world encompasses a vast range of disciplines and skill sets. Math and cryptography; monetary policy and economics; political theory; trading, investment and portfolio management; human psychology, and the list goes on. All of this gives you a chance to show yourself as a true Renaissance Man or Woman in polite gatherings: a polymath capable of drawing on many and diverse fields of knowledge to achieve your goals.
Let’s review a few of the top questions, topics and useful facts to get you started as you mingle among guests at your next dinner party.
Bitcoin… I’m hearing a lot about it… It’s an online currency, right?
That’s right. While bitcoin has been around nearly ten years now, it’s not the first form of decentralized currency to be proposed and launched, as it happens, it is only the first successful one.
Intriguing. Tell me more.
Bitcoin is actually built on the work of early cryptographers, many of whom discussed ideas in the early days of the web on the Cypherpunks’ Mailing List – where Satoshi Nakamoto first laid out his ideas for a truly decentralized online currency. What was intriguing about it wasn’t the tech itself; it was the way that different elements were put together to create something with new and unique properties. Satoshi may be a giant in the crypto world, but he stood on the shoulders of pioneers like Adam Back, Wei Dai, and Nick Szabo.
Who is ‘Satoshi Nakamoto’ – does anyone know?
He may be an individual or a group of people. There are all kinds of theories, but – to date – none of them have ever been proven. It’s quite possible that his identity is known by key people in the community, but they’re keeping quiet if so.
We know there were a handful of people who collaborated with Satoshi in the early days of bitcoin, and some of these have been suggested as the true identity of the man himself. Hal Finney, a cryptographer who worked for PGP Corporation and who was the recipient of the very first bitcoin transaction, is one. He was diagnosed with ALS in 2009 and died in 2014.
Then there’s Nick Szabo, who designed an early forerunner to Bitcoin called bit gold. He also proposed the idea of smart contracts, way back in 1994, before Ethereum (a platform that allows you to write code that executes on the blockchain), Bitcoin or blockchain ever existed. Szabo has denied being Satoshi, but the overlap in their expertise and other factors means plenty of people in the crypto world still think it’s him.
There are plenty of conspiracy theories about it being put together by the CIA or NSA (the US government was, after all, responsible for the Tor browser). There’s even a theory that four of the big tech companies clubbed together to launch it, for reasons as yet unknown. But just about the only piece of ‘evidence’ for that idea is the following coincidence: Samsung Toshiba Nakamichi Motorola.
Lastly, there are those who have claimed publicly to be Satoshi Nakamoto, most notably the Australian computer scientist Craig Wright. Having promised to provide cryptographic evidence that he created Bitcoin – something trivially easy for the real Satoshi to do – and failed, most of the crypto community feel that the burden of proof is very much on him at this point.
Well, that’s all very interesting, but it’s too volatile to be used as actual money, right?
Money traditionally serves three purposes. It’s a unit of account, store of value and medium of exchange. To put it simply, you can price things in it, you can save it and you can spend it. Crypto is a brilliant way to transfer value, because – unlike the banking system – it doesn’t care about borders. You can send money anywhere in the world in seconds, rather than days, and without taking a horrendous hit on the exchange rates the banks impose on you. In terms of managing volatility, there are services like Uphold’s, which allow you to send and/or receive funds in regular currencies like USD or GBP, using crypto for the step in between.
More broadly, crypto’s volatility is more of a feature than a bug. Regular currencies only have stability because they are manipulated by central banks. Crypto’s independence from the conventional financial system is its reason for existing and its greatest strength. As they grow in use cryptos will become more stable, but you can’t have that independence from central interference and inflation without also needing another way to set the value (supply and demand, aka the free market).
Isn’t bitcoin mining horribly unsustainable and bad for the environment?
Kind of. The network of computers that support the bitcoin network currently use about as much electricity as Denmark or the output from two of the largest nuclear power stations. A lot of that is actually from renewable resources, from places like Iceland – where they have cheap geothermal power and free cooling (all that mining produces a lot of heat). But overall, yes, there’s an environmental cost that will only get worse as the network gets larger.
But let’s take a step back here and consider two points that might nuance that argument a little better. Firstly, gold mining also consumes a lot of energy – far more than bitcoin does – and in fact, the whole infrastructure around the current banking sector does too.
On a more philosophical level, there’s a different issue here. Bitcoin is financially worth maintaining: the cost of mining bitcoin is lower than the rewards. That doesn’t take into account ‘externalities’ (as economists call them) like the impact on the environment. But this problem isn’t unique to bitcoin. Any time you have something that is profitable to do, the likelihood is that someone, somewhere, will do it – whether or not it’s good for us collectively. That explains everything from the drug trade to the junk food industry. It’s not a problem with bitcoin. It’s a problem with capitalism.
That’s profound. But aren’t there other approaches that avoid those energy problems in the first place?
Yes, a lot of newer cryptocurrencies are using what’s called proof-of-stake, instead of bitcoin’s proof-of-work. Those don’t require any expensive and power-hungry hardware. Instead, the responsibility for maintaining the network is shared among those who hold the currency. It’s a bit like a lottery. If you have 100 coins, you have 100 chances of being the miner who processes the next batch of transactions, adds them to the blockchain and collects the transaction fees as a reward.
To take your dinner party conversation to the next level, be sure to visit our Cryptionary!