Insights and Impact

3 Minutes On: Bitcoin

Rachel Pipan, SOC/MA '16, takes a bite out of cryptocurrency

Rachel Pipan

Bitcoin is digital currency. Like other currencies, including the dollar, it has value—because a group of people agree it has value. 

Bitcoin first arrived in 2009. It’s an invention of computer science and cryptography, designed by someone called Satoshi Nakamoto, who has not revealed his or her identity. He or she created a digital currency that didn’t need a government’s permission to operate. 

You can’t print a bitcoin. You can’t physically hold it. So how do you know that it’s yours? When I send you a bitcoin, the transaction is recorded in what’s called the blockchain: Our transaction goes into a block of data, and when the block is full, it’s signed with a digital fingerprint. To make the fingerprint for the next block, you have to use the fingerprint of the last one—‘chaining’ the blocks together.

Linking these fingerprints requires complex computing. Bitcoin financially incentivizes people who want to do that work. Every time a new block is added, whenever someone finishes computing that fingerprint with information from the previous one, bitcoin is released. Whoever does that gets—right now—exactly 12 1/2 bitcoin. It’s added to the public record, and then everyone else who’s trying to ‘mine’ bitcoin, including companies like mine, starts working on the next block’s fingerprint. 

These blockchains are stored on thousands of computers around the world, so if I wanted to go back and change any information, I’d have to break into every computer that has a copy and change it. I’d have to recompute the fingerprints for every other block before anyone noticed, which requires a massive amount of computing power. You’d have roughly the same odds of doing that as winning Powerball eight times in a row. People have hacked passwords to steal bitcoin, but no one has ever been able to break into the blockchain. 

Bitcoin started as a very small network, but it’s grown to thousands of programmers all over the world [who] are not only keeping copies of the bitcoin blockchain but are also competing to compute those fingerprints. 

Bitcoin is not magic internet money, because you can’t just make more. Once 21 million are released there won’t be any more. As of March, 16.95 million have been issued. It’s the largest player in an increasingly crowded market, which includes more than 1,600 cryptocurrencies.

Its value depends solely on what people are buying and selling it at. When I started this job in 2016, bitcoin was about $400. It shot up around Christmas, then lost about half that gain. On May 11, it was over $8,000. There are millions of bitcoin users, and companies like Microsoft and Overstock accept it. 

Right now, if you want to send money to someone in another country, there are high fees and slow transaction times—not to mention there’s a good percentage of the world that does not have a bank account. You can send bitcoin using an app on your phone to anyone around the world within a few minutes. There is no substitute for that.