The Irish Times
Friday, November 26, 2010
WIRED: A strange and notional currency is creating a provocative and disruptive new economy
Occasionally there comes along a technology idea so strange that not only can I not tell whether it’s doomed or bound to succeed, I can’t even tell what either of those futures might look like.
One example was Linux. When I first saw it, I had real trouble imagining what would happen if it took off. But, at the same time, I couldn’t visualise how it could fail. How would it compete with Microsoft? How would anything compete with a perfectly usable, yet entirely free operating system?
I’m currently peering at an idea that is mystifying me in exactly that manner. It’s called Bitcoin.
Here’s the elevator pitch, as they call it: imagine a banking system, but distributed over thousands or hundreds of thousands of computers. The computers together hold a database of transactions, similar to the database clearing banks or credit card companies hold: X transferred something to Y, Y transferred the same thing to Z.
No one computer manages this database; they all run the same software, which collectively distributes the knowledge and procedures that make up this set of accounting books.
As well as this database, the computers also generate unique numbers, at a slow but adjustable rate. These unique numbers make up the only “things” that can be recorded in that transaction database. So when X is recorded as transferring a thing, it can only really transfer one of these numbers.
There aren’t many of these numbers around to begin with, because they’re so hard to create. You create them by doing the work of checking and recording the latest transactions in the database. If you do that, you get one or maybe more of the unique numbers as a byproduct.