The paper Bitcoin: A Peer-to-Peer Electronic Cash System published under the nom de plume Satoshi Nakamoto first appeared in 2008.
No one knows who Nakamoto is. Recently, Craig Wright, an Australian, claimed to be the illusive Nakamoto.
The raison d’etre for Bitcoin is stated in the paper’s abstract as “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution”
So, the basic peer to peer payment system assumes an all cash economy. There are no credit cards in Bitcoinland.
Transactions are recorded in a distributed ledger called the Block Chain. Nakamoto claims: “The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes”.
In essence, Nakamoto assumes that no one can post fraudulent transactions on all instances of the Block Chain due to the high compute requirements.
The weak point in the Bitcoin system has been the exchanges. In 2013, hackers stole $350M from the Tokyo based Mount GOX Exchange while in 2016 hackers stole $71M in Bitcoins from Hong Kong exchange BitFinex.
Ok. So, who uses Bit Coins?
They are basically useless. Virtually no one accepts them as tender.
Try buying a Toronto metro pass with bit coins!
Anonymity and circumventing the banking system is the main attractor.
For this reason, Bitcoin is the medium of exchange for Libertarians, tax dodgers, drug dealers, privacy paranoids, kidnappers, ransom ware hackers and money launderers.
The most notorious case was the Silk Road darknet market place which operated a bazaar selling illegal drugs ranging from ecstasy to heroin. The site was closed by the FBI in 2013 with the founder Ross Ulbrecht now serving life in prison. The FBI seized 18,000 Bitcoins on Silk Road servers along with 144,000 Bitcoins seized from Ultbrecht’s computer.
A break in the case occurred when someone released the Silk Road site admin application which programmed the real Silk Road Internet address on the admin site’s login page. Dumb ass!
The number of Bitcoins is artificially constrained. The basic Bitcoin supply and demand factors also contribute to skewing the true value of a Bitcoin.
Add to this speculation in the price which relies on the greater fool to sustain extreme market values.
Finally, Bitcoins are not classed as a currency in Canada. I for one will not be using Bitcoins any time soon. Neither should you.
Give me hard cold cash please!