Bitcoin from the beginning Worksheet
Down
through the ages, money has been through various physical incarnations —
promises scratched into soft clay which was then
fired, large wheels of limestone rock, metal coins, paper notes, credit cards
and so on.
In
each case, 'money' involved some kind of physical
object. But now 'virtual money' is on the scene — and it's not physical.
And
its first commercial use was to buy two pizzas — for the princely sum of 10,000
Bitcoins, which later turned out to be worth millions of dollars.
Back
in 2008, many were getting disillusioned with 'conventional' finance, exemplified
by the collapse of the investment bank, Lehman Brothers, the fourth largest
investment bank in the USA, and the whole infamous global financial crisis, so
for some people, the time was right for a virtual electronic currency that was
independent of banks and governments, and in fact, did not need either banks or
governments to be the 'trusted' clearing house.
The
first workable digital money, Bitcoin, was created in 2008, by the still-anonymous
programmer, Satoshi Nakamoto.
In
a landmark paper, he described how to set up a decentralised and secure
digital cash system. It uses peer-to-peer networking combined with encrypted
signatures to both generate, and exchange, these Bitcoins.
A
Bitcoin is not a physical thing — it is just an entry in an electronic ledger.
Everybody can have a copy of this ledger. It's updated every 10 minutes and
contains every transaction of every Bitcoin.
Thanks
to the brilliant mathematics behind it, this ledger has to
be an honest record AND it can't be altered — but I'll talk more about that
later.
The
value of Bitcoins has been very volatile, ranging from US$0.03 to over
US$1,200.
Bitcoins
for pizza
Laszlo
Hanyecz, a Florida programmer, carried out the first
real-world Bitcoin transaction. He had 'mined' 10,000 Bitcoins. (Later on, I'll
talk about you can 'mine' Bitcoins out of thin air with your friendly local
supercomputer).
Laszlo
wanted to turn his 10,000 Bitcoins into a pizza. But the local pizza store did
not accept Bitcoins. Of course it didn't — at that
time, no commercial institution accepted Bitcoins. Back then, his Bitcoins were
like Monopoly money.
So on 18 May, 2010, Laszlo posted a
request on Bitcoin forum asking if anybody could use his 10,000 Bitcoins (then
worth about US$41) to buy two large pizzas (then costing about US$25).
As
Laszlo said, " … what I'm aiming for is getting food delivered in exchange
for Bitcoins where I don't have to order or prepare it myself, kind of like
ordering a 'breakfast platter' at a hotel or something, they just bring you
something to eat and you're happy."
It
was an experiment. As Laszlo said, "I just think it would be interesting
if I could say that I paid for a pizza in Bitcoins."
After
a few days, he was contacted by Jeremy Sturdivant, who was then 18 years old, and also living in the USA. After a bit of back-and-forth,
the deal was finalised. Laszlo sent the 10,000 Bitcoins to Jeremy, who
contacted a pizza store in Jackson, Florida, which delivered the two pizzas.
On
May 22, 2010, Laszlo joyfully posted, "I just want to report that I
successfully traded 10,000 Bitcoins for pizza."By
August 4 that year, the value of the Bitcoins had risen to US$600, and by 29
November had reached US$2,600. Laszlo said, "I don't feel bad about it.
The pizza was really good." By November 2013, those 10,000 Bitcoins were
worth US$12.4 million.
To
commemorate that first commercial Bitcoin transaction, May 22 is now called
Bitcoin Pizza Day.
Volatile value
Even
today, only some companies accept Bitcoin — but only in a half-hearted way.
They will accept Bitcoin via a third party but will then immediately convert it
into their own trusted currency. The problem is that the value of Bitcoins is volatile
- its price relative to other financial assets varies a lot. So, as an
asset, a Bitcoin is risky to hold — without warning, its value might go up, or
down.
Bitcoin
is twice as volatile as gold, and three-to-four times as volatile as the major
currencies.
But the brilliant thing about Bitcoin
is what underlies it — the block chain, the unchangeable register of every
Bitcoin transaction that has ever been carried out, and that anybody can have a
copy so I'll talk more about that, next time.
Comprehension
1. When and by whom were
Bitcoins created
2. How many Bitcoins were
paid for two pizzas in 2010?
3. By 2013 what was the
new value of the pizza Bitcoins?
4. When is Bitcoin pizza
day?
5. What exactly is
Bitcoin?
6. Why do some companies
accept Bitcoin ‘only in a half hearted
way’?
7. What is problematic
about Bitcoin?
8. What is the ‘block
chain’?
Vocabulary. Explain the
meanings of the following words or phrases as used in the text.
incarnations
‘virtual
money'
disillusioned
exemplified
still-anonymous
landmark paper
Monopoly money.
volatile,
Summary – In 300 to 400 words
summarise the text.
3.