Year 2033. In 8 minutes, a self-driving SUV takes the passenger from the office in the center to his home in the suburbs of Rome. The gentle voice of the on-board computer says goodbye, the passenger pays with 1 thousandth of a bitcoin and the car sets off again for the next car sharing customer. An imaginary world? Everything could realistically happen except bitcoin.
The cryptocurrency born in 2009 from an (yes) imaginary Satoshi Nakamoto, holds court in the financial markets. From January 1 ($997.69) to December 1, 2017 ($10859.56), its value more than multiplied tenfold. On December 7, it increases by 40% in 40 hours. On December 19, it reaches $20,000, surpassing the famous Tulip Mania of 1619-1622: it is the biggest speculative bubble ever. From December 20 to 22, it loses a third of its value to $13,000. In the following days it goes up and down again. In short, at Christmas time bitcoin has gone on a roller coaster…and with it its investors.
Il how bitcoin works it's not a mystery. Bitcoins are mined like gold by solving complex mathematical puzzles based on prime numbers. Mining requires an increasing amount of energy: was around 2017 terawatts per year globally in 30.14, more than the individual consumption of 159 countries including Ireland and many African countries. Once mined, a system of algorithms based on non-invertible functions, the blockchain, adds the new bitcoin transactions to the old ones by incorporating them into an encrypted block of information that functions as a shared ledger (Distributed Ledger).
This mechanism is not only secure, but also public and anonymous. Safe because the blockchain makes it impossible to clone bitcoins. Technically, the blockchain solves the IT problem of Byzantine generals: how to use only messages to communicate between generals of the same level arranged on the battlefield (the equivalent of blocks of a cryptocurrency spread over the network) in order to reach a decision on the moment of attack (the equivalent of accepting a transaction) in situations where the information is conflicting (the equivalent of possible cloning).
To win, the generals must coordinate. Each requests acknowledgment of its message from the other generals before attacking (like Outlook for e-mail). Since the Byzantine generals were unreliable, the risk of betrayal was added to the risk of losing the messenger on the way there or on the way back. To solve the problem, each general decides based on the content of the majority of messages received. Applied to bitcoin, this means that each transaction must be "validated" by a majority vote from all blocks. Mathematicians Lamport, Shostak and Pease in 1982 showed that cheating, like cloning, does not influence the final decision as long as traitor generals are less than a third of the total number of generals.
Audience because the information is shared across the network by all blocks in the network. The system is "transparent" because all blocks record and are called upon to confirm all transactions. The information does not pass through a single node as happens with the central bank for the banking system, but remains totally available at the level in each single node (distributed networks). It is a completely structure peer-to-peer.
Authorless because although all the information can be found, to reconstruct the transactions carried out backwards, it is necessary to invert non-unique functions, an operation that requires computing power that is currently not available. A simplified example of non unique functions could be a parabola: each point of the x axis is associated with one and only one point of the y axis but the possible points of the y axis are all associated with 2 points of the x axis (e.g. exception of the vertex). This makes it easy to go from x to y but difficult to go back from ya to x.
If security, transparency and anonymity capture the interest of criminal associations, two other characteristics attract that of investors and economists.
The first is the low cost per transaction. The decentralized blockchain system does not require a central bank to coordinate the system. The infrastructure peer-to-peer of bitcoin is therefore particularly light.
The second is the fixed total amount of bitcoins. At 19:00 on December 31, 2017, 16.776.450 bitcoins had been "mined", or about 80% of the 21.000.000 total bitcoins established by the algorithm. The monthly extraction rate is currently about 0.35% of the circulating amount. Given the increasing amounts of energy required to mine new bitcoins, the marginal cost of production is bound to rise exponentially as we approach the estimated date of mining for the last bitcoin in 2140. Economists are interested in the fixed supply of bitcoins because if accepted as currency, it would eliminate inflation: productivity increases, in fact, would reduce prices causing constant gradual deflation, the opposite of what we are used to today.
Upon closer analysis, security, transparency, anonymity, cost-effectiveness and fixed money supply are virtual rather than real advantages.
