In this edition we take break from local economics to discuss cryptocurrency. People often use the terms digital currency, virtual currency, cryptocurrency, bitcoin and blockchain interchangeably, kinda like the terms “DJ”, “Radio Announcer” and “Journalist”, but they’re actually very different. Well, by the end of this write-up, you should be able to hold a semi-intelligent 5 minute conversation about it at your next cooler fete.
WARNING: this post is long so pace yourself and take breaks. I tried to keep the technical jargon to a minimum but some terms, like WASA potholes, are unavoidable.
The first thing we need to get straight is that digital currency is the umbrella term and that cryptocurrency and virtual currency are categories of digital currency. It’s like how the Kiskadee Karavan was the whole but it was made up of General Grant, Sista Ron, Yard Fowl Crew, Ghettorians, Kindred, Supa Chile, Homefront, Chiki and Edu Ranking!!….”yay!! crowd bawl out for me!”.
Ahem…sorry…virtual currency is like the cyber money you use in those facebook games. Basically it’s only available to other users of a specific platform. Cryptocurrency is a type of digital currency that utilizes strong cryptography (code) to secure transactions. It’s not backed by any government or bank. Therefore all cryptocurrency is digital currency but not all digital currency is cryptocurrency.
There are many cryptocurrencies but the focus of this post is the first, most famous, most well-known, the Ali Khan of cryptocurrency if you will, Bitcoin. Bitcoin was created in 2009 but there are no physical bitcoins, only digital balances kept on a public list on the internet. Each bitcoin is basically a computer file stored on a smartphone or computer. So no, you can’t “make-it-rain” bitcoin in the club even though 1 bitcoin is worth about TT$63,000.
How does bitcoin work? Well, we’ll try to explain with the aid of an example. Let’s suppose you live in Jamaica, Queens, NY and want to purchase two pork pows from Kam Wah on Maraval Road. Kam Wah, being a forward thinking restaurant, provides bitcoin as a payment option because they like the speed and low transaction fees. You don’t mind using bitcoin either because you need the anonymity since your woman ban you from pork as you have the cholesterol of a 4,000lb Walrus.
To send your pow payment you need to get bitcoin. There are three ways to get bitcoin: you can buy it, accept it as payment for something or mine it (more on this later). To send or receive bitcoin you need what’s called a “digital wallet” which provides you with two keys (public and private) which are long strings of numbers and letters linked through a mathematical encryption algorithm (Nailah Blackman made-up words for a complex maths equation). The public key is used as an address for people to send bitcoin to, like a bank account number and the private key is used to authorize and access transmissions, kinda like an ATM PIN. Now you can’t access your digital wallet without the private key, so if you lose it you’re S.O.O.L. (**** out of luck).
Ok, so what happens when you send a bitcoin payment to Kam Wah? This is where the blockchain comes in. The blockchain is a network of thousands of computers all over the world working to verify a transaction and post it to a public ledger or list. Verification involves solving a super-duper complex mathematical equation, a little more complex than how $100M drug bust in the news could turn out to be $50,000 when they actually test it.
Every single transaction is recorded on the blockchain in chronological order so it is possible to trace the history of bitcoins and also to prevent people from spending coins they do not own, making copies or going back and undoing transactions (I feel they put all this in to stop any Trini bobol).
Once a transaction is verified, all the details including the parties to the transaction, the value and your balance is included on the public ledger on all the computers in the network. This process of verification is called “mining” and miners are paid in bitcoin although you have to expend a lot of time and computing energy to earn 1 bitcoin. So you’ll need more than a Commodore 64.
Mining also creates bitcoin. Every few years the number of bitcoin created reduces and by design the total supply of bitcoins that would ever be produced is 21 million. Right, so now Kam Wah could check the blockchain, see the payment has been made and TTPost your pows to you hopefully before they could give you a thorough belly-wukin.
Finally the pros and cons of bitcoin. On the pro side you have speed and cost. There is no in-between financial institution and there are thousands of computers worldwide working around the clock to verify transactions so you can send or receive money in minutes at relatively low fees. Unlike certain local banks that charge a fee if you just say their name.
Bitcoin is also anonymous. Nobody knows the identities of the parties to a transaction other than their public key. The fact that the public ledger or list is not housed on any one computer like a bank server also makes it very difficult to be lost or hacked. The hacking stories you’ve probably read about had to do with bitcoin exchanges, the place where buyers and sellers meet.
On the con side is the fact that criminal elements favour this type of currency because they can evade the authorities. I don’t think they’re worried about the TTPS though. Gary’s boys need the public’s help just to find a “goonta” posing in a video with wads of cash on social media so I doubt they tracking down any cyber master-criminals.
Another drawback of bitcoin is that it’s unregulated and volatile. There have been wild swings in the value of bitcoin and other cryptocurrency markets which makes it almost as dangerous financially as opening a club on Rust Street or a restaurant at the bottom of the Avenue opposite Ishe’s.
In my view, the most important disadvantage of bitcoin and any cryptocurrency for that matter is the lack of universal acceptance. Although accepted at Trotters, bitcoin is still not widely accepted in stores or online as a default payment option. You can’t pay for Royal Castle in the airport or oysters by the Savannah in bitcoin.
While a number of banks and other institutions globally are looking at the blockchain for its speed and use in storing data securely, Central Banks are against cryptocurrency because it takes away their ability to control the money supply. Central Banks use the money supply to influence interest rates, inflation, exchange rates, unemployment and economic activity…..but that’s the subject of another TANA-NOMICS write-up.