Bitcoin - Is it a scam or....

Bitcoin - Is it a scam or....

Bitcoin - the name of "something" that is confusing the absolute hell out of everyone.

But what is it exactly I hear a lot of people ask.

To explain it better lets start many thousands of years ago.

Back then one good horse was worth 2 cows, a cow is worth 5 sheep, a sheep was worth 2 dozen ducks and a duck was worth 20 cabbages.

That method of trading was called "bartering" and it worked for a very long time - simply because it was all that the people back then had.

So let us take a totally ridiculous example to show how painful the process of making a purchase was.

You have a horse and you need to buy a cabbage for your wife to cook as the evening meal.

I have a cabbage for you so we make a trade - your horse for my cabbage.

But now there is a bit of a problem!

I have to give you "change" because you are handing over something of very high worth for a low cost cabbage - and now a rather complicated hits the scene.

As the lowest value item I cannot barter you a single cabbage, you need to take at least 20 of them - but that is OK.

The long and the short of it is that in exchange for your horse you will get the following items back:

  • 1 cow
  • 4 sheep
  • 23 ducks
  • and lastly, 20 cabbages

You are going to be sick and tired of cabbage VERY soon...

But your "problem" does not end there now does it!

Just imaging trying to get this whole bunch of "barter value" back home.

The cow and the 4 sheep will probably eat all the cabbages while you are running around trying to round up the 23 ducks - and when you get home with probably only half of the animals and things your wife is going to be as mad as a hornet.

Now even back then, the "rulers" had a thing for wealth - kind of like South African politicians do to this day - and these idiots loved gold because of its rarity.

So they started making chunks of gold with the ruler's face stamped onto it, each one worth maybe a horse.

And that was the start of the first monetary system.

But they did not stop there, silver was also pretty rare - not as rare as gold but still - so they made larger chunks of silver - maybe the 10 large ones were the price of a cow.

Medium sized silver chunks were worth a sheep, smaller ones were worth a duck.

And various size copper ones were for the value of a cabbage, a candle and so on because copper also had "value".

So now you could go to town to sell a horse and buy a cabbage and come back with a pocket full of these "new things" made from precious and semi-precious metals and you did not have to go chasing your "valuables" all over the country.

And all these lumps of metal eventually became "coins".


In Paul Kruger's time, the "Kruger Rand" coins were gold, just as they are today.


Around the time of the "Crusades" where pilgrims went to Jerusalem on pilgrimages, carrying large amounts of gold with them, many were robbed and killed for the gold and the Knights Templar (who were sort of guides and security guards for these people) came up with the idea of taking the peoples gold and giving them a letter saying how much they had given and when they got to Jerusalem, they could hand in the letter and receive the gold and traveling was much safer.

Then governments got involved and started issuing "bank notes" BUT for every bank note issued, the government had to have the gold value in their vaults.

This was called the "Gold Standard".

In the 70's the South African bank notes had the following printed on the one Rand (and all the other bank notes as well):


I promise to pay the bearer on demand in Pretoria the sum of one Rand in gold">br>and it was signed by the Governor of the South African Reserve Bank.


Paper "money" was backed by gold in the Reserve Bank vaults.

By 1971 America was in big trouble because they had been printing US Dollars without having the gold to back the notes and Richard Nixon (arguably the most idiotic president of any country ever) took the US Dollar off the gold standard and it was not long before every country in the world followed suit.

NO NATIONAL CURRENCY was backed by gold any more!

Or for that matter, backed by anything else else except "trust"!

Everybody just had to "trust" that the bank note of a particular country was actually worth something and if any government went mad then that country's currency would become worthless and that is what Mugabe did to the Zim Dollar.

100 trillion zim dollars

And when Zuma "went mad" and started changing the Minister of Finance every other week the Rand took a blow because no-one in the world "trusted" Zuma and his madness.


So what has this whole story have to do with Bitcoin?


With National currencies you have to "trust" the politicians who run the country.


With Bitcoin you have to trust mathematics!!!


And to be honest, I would rather trust that 1 + 1 = 2 as a mathematical formula than any politician you would care to mention.


And that brings us to the BLOCK CHAIN.


The block chain is simply a list of transactions and between each transaction is a number that is incredibly hard to generate because it is produced using the last "number", this transaction record value and some other "things" and those numbers are then "encrypted" (made VERY secret) using what is known as a "one way encryption" method.

"One way encryption" cannot "simply" be "decrypted" and to work out what the original numbers were you would need to start with all of them as zero, encrypt them, test them and then if it is not the answer you were looking for, add 1 to the first one and try again.

To say that it would take "almost" forever to do one would not be an understatement.

So if some bright individual wants to go and change the value of an entry in the block chain they would have to decrypt that entry and and do the encryption again and save it to the block chain.

Then they would have to do the same to all the entries made since that changed entry was made.

To give you an example of an encrypted number and letter "word", this is my first name (6 letters) that has been "encrypted" using a far less powerful "one way" encryption method:

$2y$10$7e.M7Zhwk8dr5keK0kQDu.9Z9EHcjqn0QmsMyCVaHPdjyVneBSrUi

So "hacking" or "corrupting" the block chain, although theoretically possible is just a hacker's dream and I do not think that there is a single hacker in the world working on trying to do that - they know that they are wasting their time.


Now has there been theft of or criminal activity around Bitcoin?


Most definitely!


The biggest one I know of was the "Mount GOX" debacle and a lot of people lost a lot of Bitcoin there.

But it was not the Bitcoin block chain that was hacked or compromised but rather the passwords to the Bitcoin wallets of the company that were hacked and the hackers "stole" the Bitcoins in those Bitcoin wallets.

They did not do anything at all to the block chain itself.

In the "real world" a bank robbery is where money is stolen from a bank, not from the country's reserve bank and this was the same sort of thing.


The BIG QUESTION: Would I put all my money into Bitcoin?


And the answer is a resounding NO!.


Would you put all your money into a single bank check account or into one company's stock on the JSE?

Of course you would not!

Use Bitcoin for transactions only!

If you have some "spare money" lying around that you can afford to "loose" then by all means buy Bitcoin. The return on your "investment" may be good - then again, it may not be so good.


On a personal note:

I bought my first Bitcoin when one bitcoin cost R38.

Thats right THIRTY EIGHT RAND.

I still have that Bitcoin now and as of today it is worth R227173.41

BUT IT IS WORTHLESS!!!!

"Why?" you ask...

Because I forgot the password!!! and now it is totally inaccessible to me.