Speaker 1: In August, the value of a single bitcoin reached a
Speaker 1: staggering four thousand dollars. What's the story behind this cryptocurrency?
Speaker 1: I'm Jonathan Strickland, and this is tex Stuff Daily. Let's
Speaker 1: imagine it's Halloween two thousand and eight and we're listening
Speaker 1: to tales from the crypt oh currency. On that day,
Speaker 1: a mysterious person or persons going by the name Satoshi
Speaker 1: Nakamoto published a white paper about a new type of
Speaker 1: currency that wouldn't be tied to any nation or bank system.
Speaker 1: It would exist on a peer to peer network of computers,
Speaker 1: and the record of transactions using this currency would become
Speaker 1: an intrinsic part of how it worked. The white paper
Speaker 1: called the currency Bitcoin. In that paper, Nakamoto laid out
Speaker 1: the case for a new currency. He or she or
Speaker 1: they said that transactions between two entities online necessitated the
Speaker 1: involvement of a third party that would facilitate this transaction,
Speaker 1: which in turn required trust to exist between all the
Speaker 1: parties in question. Now, in the physical world, you could
Speaker 1: stride up to a vendor, plunk some physical currency down,
Speaker 1: and purchase something with no other party's involvement. Not so
Speaker 1: with online transactions that need for trust brings other issues
Speaker 1: to the foreground. For example, to limit abuse of the system,
Speaker 1: third parties might request a great deal of information about
Speaker 1: the two entities making transactions. People concerned about their privacy
Speaker 1: might be worried that this data could potentially come back
Speaker 1: to haunt them, and from the third party's perspective, there's
Speaker 1: always the chance someone commits fraud, leaving the third party
Speaker 1: liable as the one that facilitated the transaction in the
Speaker 1: first place. The peer to peer cryptocurrency approach by passes
Speaker 1: this problem. It all gets a bit technical, but we
Speaker 1: can explain it on general terms. Imagine a network of
Speaker 1: computers joined through using a common suite of cryptocurrency software.
Speaker 1: These computers are scattered across the world, and they share
Speaker 1: information about every transaction that happens using this cryptocurrency. The
Speaker 1: computers pack these transactions into blocks. Those blocks form a chain.
Speaker 1: Every single transaction is part of this blockchain, with computers
Speaker 1: in the network constantly validating transactions so that no bitcoin
Speaker 1: may be spent by the same person twice. The peer
Speaker 1: to peer network creates a decentralized structure. No one entity
Speaker 1: is in charge of the fate of bitcoins, so there's
Speaker 1: no single point of failure. When people first began to
Speaker 1: use bitcoins, they weren't worth very much. A single dollar
Speaker 1: was equal to more than one thousand bitcoins. Oh, how
Speaker 1: the tables have turned. While Bitcoin has experienced from matic
Speaker 1: ups and downs. In August, the value of a single
Speaker 1: bitcoin hit the incredible four thousand dollar mark. This volatility
Speaker 1: has led some people, including myself, to suggest bitcoin is
Speaker 1: more like a commodity than a currency. When the value
Speaker 1: of your currency fluctuates wildly, there's less of an incentive
Speaker 1: to use it as an actual currency. How would you
Speaker 1: feel if you paid a dollar for a candy bar
Speaker 1: only to find out the next day that this same
Speaker 1: dollar could have bought four thousand candy bars. There's a
Speaker 1: lot more to bitcoin as well. For one thing, there's
Speaker 1: a finite number of bitcoins that will ever exist. Eventually,
Speaker 1: every bitcoin that can exist will be in circulation. That
Speaker 1: number is just three bit sents short of twenty one
Speaker 1: million bitcoins. The way more bitcoins inner circulation is through mining.
Speaker 1: Mining is the process of validating and storing transaction information
Speaker 1: in the bitcoin blockchain by solving complex mathematical problems with
Speaker 1: a computer. As you apply more processing power to this operation,
Speaker 1: the operations get more complex. There's no perfect analogy for this,
Speaker 1: but imagine a gold mine in which the gold could
Speaker 1: actually hide itself further away if miners were bringing in
Speaker 1: heavy duty mining gear. The slighting difficulty scale helps ensure
Speaker 1: that bitcoins inner circulation at a pre established rate. In addition,
Speaker 1: there's a schedule to release a certain number of bitcoins
Speaker 1: every time a new block is mined. That schedule requires
Speaker 1: a smaller number of bitcoins issued as a reward per
Speaker 1: successful mining operation over time. For example, when they first
Speaker 1: came out, you could get fifty bitcoins for mining a block.
Speaker 1: Before June nine, the rate was about twenty five bitcoins
Speaker 1: for successfully mining a block, and after that date it
Speaker 1: dropped down to twelve point five bitcoins. Over time, this
Speaker 1: number will again be reduced by half, and then again
Speaker 1: and again until sixty four. Divisions will happen, and reward
Speaker 1: will reach its lowest point until all the bitcoins that
Speaker 1: will ever exist have entered circulation. And like most currency,
Speaker 1: you can divide a bitcoin into smaller amounts. With American currency,
Speaker 1: we have quarters, dimes, nickels, and pennies. With bitcoin, you
Speaker 1: can divide down to eight decimal places. So while a
Speaker 1: penny is point zero one of a dollar, the smallest
Speaker 1: increment of a bitcoin is point zero zero zero zero
Speaker 1: zero zero zero one bitcoins. Why are bitcoins worth so much?
Speaker 1: That's because people put that much value in them. When
Speaker 1: you get down to it, a currency's value depends upon
Speaker 1: the faith placed in it by a population. If the
Speaker 1: confidence drops away, no one will accept the currency as payment.
Speaker 1: There's nothing intrinsically valuable about it. To learn more about bitcoins,
Speaker 1: be sure to subscribe to the tech Stuff podcast, where
Speaker 1: we explore topics like this in detail. If you've ever
Speaker 1: wondered how the large Hadron collider works, or you want
Speaker 1: to know the story behind the Night three video game crash,
Speaker 1: you should check out tech Stuff. Episodes publish every Wednesday
Speaker 1: and Friday. That's all for me for now, See you
Speaker 1: next time.