what is bitcoin and how does bitcoin works
My journey into the dark economy starts much as expected: in front of a computer screen, late at night. It ends somewhere quite unexpected, in a humdrum setting a world away from the stereotype of modernity, equality and sticking it to the man promised by digital currencies such as Bitcoin: it ends in a used DVD store, my purchase refused.
The dark economy is moving into the light. In a few scattered places, 40 or so in London, one in Manchester, another in Birmingham, Bitcoin ATM machines have appeared, issuing the cryptocurrency from an unlikely array of convenience stores, vaping outlets and barbershops. Does this mean that the virtual has become real? Can anyone join the Bitcoin challenge? Can you buy stuff with Bitcoin? And what the heck is a cryptocurrency anyway?
I find the future of digital trading in the scuzzy hipster oasis of Stokes Croft in Bristol. Standing forlorn among the artisan bakers and cocktail bars is the Best Supermarket. A mainstay of local life, it dispenses all the essentials that an artisan bakery cannot provide. Amid the sweets and quarter bottles of spirits is the Satoshi Point, one of several Bitcoin ATMs run by the company that takes its name from the mythical founder of the online currency, Satoshi Nakamoto.
“It’s crazy, people come in here all the time,” says Majid Khan from his vantage point behind the counter. “We get all sorts, they travel from all over, from Bath, Bristol.”
The small grey terminal was installed in the shop a year ago, one of two in the city, and has attracted a growing stream of users ever since, providing the shop’s owner with a steady commission. What they buy with the currency is obvious, at least to Khan.
“It’s underground, illegal stuff,” he says with a grin. “I ask people what they are going to do with it and they just shrug and say, you know… They like the fact that it’s anonymous, that it’s not controlled by the government. One day a guy came in and I saw him put £2,000 cash into the machine.”
Khan even succumbed to the charm of the grey box containing the mystery of Bitcoin, buying £20 of the currency. Did he spend it on something illegal? Did he stick it to the man? “I checked the value every day and it went up to £22. Then a guy came in wanting to buy some Bitcoin and I sold him mine for £20, so I didn’t lose anything.”
Seduced by Khan’s tale of high-wire financial derring-do, I decide to pitch in with the geeks, the rebels, the tyros, the wolves of this virtual Wall Street and buy £20 of Bitcoin. Armed with the Bitcoin wallet app I had downloaded to my phone in the early hours, I press the start button on the terminal. It tells me to scan my phone and records the QR code I had been assigned. I take £20 and insert it into the slot. It disappears and my phone emits a polite “k-ching!”
The terminal tells me I have bought 9.23 milliBitcoins (0.00923 of a Bitcoin). A sense of prosperity surges through me, suffused with the thrill of illegality. I check my phone: “mBTC 9.23 = GBP 18.26”.
“That’s our commission,” says Khan. “£1.74.”
Buyer’s remorse sets in: my money has been turned into a string of numbers. I wonder if I should get my £20 back, but the only way to do that is to trade online, wait for someone to wander into the shop looking for £20 worth of digital currency or buy some of Khan’s essentials. He smiles again and shakes his head. “No, you can’t buy with Bitcoin here.”
Outside the Best Supermarket a man is smoking something illegal. He must know all about cryptocurrency. He is probably a Bitcoin wizard, able to unlock the secrets of the hidden realm while blowing rings of exotic smoke.
Sadly not. “Is that what it is, a Bitcoin machine?” he says. “That’s an iconic shop, there’s always a gaggle of people outside in the middle of the night. Maybe that’s why they put it there.”
I check my phone. “mBTC 9.23 = GBP £18.19.” Oh dear.
There are four places in Bristol that accept Bitcoin as payment for a real-world transaction. Perhaps I can exchange my £20 of virtual number sequence-based money for something tangible?
The woman at Divino Deli in Clifton peers through the antipasti and pastries and shakes her head. “Sorry,” she says. “We used to do Bitcoin but we stopped.” A couple of miles away, in the notably less chi-chi area of Filton, the three men in Fades barbers look up from their phones when I ask if they do Bitcoin. “The machine’s in the back,” one of them says. I decide I could do with a haircut. Can I pay with Bitcoin, I ask? “No,” he says.
Fades got its Bitcoin ATM two months ago, and has a couple of customers a day. “It’s mostly guys in suits,” he says. “I suppose they use it like an investment. It’s going up, up, up, it’s like stocks and shares.”
A year ago, a single Bitcoin cost just under £500. Today it is trading at £2,166.93, despite a steep fall at the start of June. Globally, the combined market value of cryptocurrencies reached nearly $100bn this year and together with its main digital currency rival, Ethereum, Bitcoin has delivered the best investment return of 2017, outstripping traditional entities such as Nasdaq.
Its performance prompted some financial institutions to warn investors of a possible downturn in the value of the digital currency, and others – such as Morgan Stanley – to argue for government regulation. The intrusion of financial institutions into the world of cryptocurrencies has sparked a reaction from those who believe that Bitcoin and its counterparts should undermine the banking system and thereby establish economic equality.
The third vendor accepting Bitcoin in the Bristol area makes handcrafted furniture, so I go straight to number four: CEX, the high-street chain selling used DVDs, games and tech paraphernalia. The staff pause in unison when I ask if they take Bitcoin. “Nobody’s ever asked that before,” says a woman. “But it comes up on the screen, so I think we can.”
I select some DVDs and take them to the till. “I’m paying with Bitcoin,” I remind them.
“Nobody’s ever done that before,” says another woman. She summons a colleague.
“I can set it up but it has to go through head office,” he explains. “It might be by the end of the day, but it might not.”
I look at the DVDs, envisaging them turning back into a stream of digits floating in a far-off cloud.
“Don’t spend your Bitcoin,” says the woman at the till. “Why would you spend them? There’s only a finite number that can be mined, so when it reaches that point they’ll just go up in value.” She’s done her research: by the year 2140, the limit of 21 million Bitcoins will have been reached and scarcity will set in.
She takes the DVDs from me, ready to be returned to the shelves. I check my phone. “mBTC 9.23 = £18.09.” I’m trading at a loss.
■ Invented in 2008 by an unknown programmer or group, under the pseudonym Satoshi Nakamoto.
■ Each Bitcoin is a string of computer code, which is protected by a personal key. It allows consumers to make electronic transactions without commercial banks as intermediaries, and outside the reach of central banks.
■ It’s estimated that there are between 2.9 million and 5.8 million active users of cryptocurrency wallets – the space where users store, send and receive currencies. Other cryptocurrencies include Ethereum and Ripple.
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