March 07, 2014
Bitcoin is Coming
The following was written by Tim Johnson, associate professor, College of Engineering and Technology, and does not necessarily represent the view of all members of the Wentworth community.
There’s been a buzz over the past two months about bitcoin in the economic press. In the crowded media space where even bad news is better than no news, bitcoin has been quite successful with arrestingly bad news. No one in their right mind would invest in bitcoin; but, wait a minute—what is it? How could a bit, which is a basic element of the Internet, be associated with a monetary commodity, a coin? How could a bit be money? And that’s been the question that’s been answered by USA Today, the Wall Street Journal, and the New York Times.
Electronically, a bit is a one or a zero. Eight of them are a byte, and a string of them communicated over a wire has meaning that is interpreted and translated into pictures, text, and web pages. That part hasn’t changed. It also turns out that bits have been representing money all along in many different ways, from our credit cards to electronic purchases over the Internet. So what’s different?
A bitcoin, or the electronic access to a bitcoin account, can now be accessed and used to pay for real property. “So what’s new about that?” asks the Federal Reserve. This transaction doesn’t go through ANY financial institution for review, payment of service fees, or adherence to any Federal monetary policy. It’s just like a cash transaction, only you are using the bits to represent the money. Unlike most bits, which are “free” if you discount the cost of your Internet service, your computer, and your mobile devices; these bits can be purchased with real money over the Internet at websites serving as banks.
Recently, Professor Tim Johnson visited South Station in Boston to find out firsthand about bitcoins. LibertyTeller was installing the first-ever kiosk for bitcoins exchange, which was described as an ATM. Present were the co-founders of this bit bank, Kyle Powers (left) and Chris Yim (middle), who explained the process of obtaining a bitcoin.
I was given a “wallet”—a cardboard-like business card that folds over to hide the secret code which secures your transactions and displays a QR code (a type of 2D bar code used with mobile phones) to identify your account number. There were no forms to fill out or signatures to sign.
Next, I fed a dollar bill into the real-money slot, held my wallet open before a transparent window with a bar-code reader and received a green light when the transaction was completed, which occurred in microseconds. I received a receipt with a date and the transaction details: for my one dollar, my wallet was credited with 1.6 millibits. That’s 1.6 one-thousands of a bit (.0016 bitcon). To get one entire bitcoin credited to my account, I would need to deposit $625 at the current exchange rate.
I was playing it safe by getting a feel for this new currency. Later on I plan to visit a coffee shop in New York City where I’ve noticed a sign saying “BITCOIN accepted” to experience the withdrawal side of the equation after I load up a few more dollars into my wallet. I suspect they will hold up a bar code reader to inspect the contents of my bit wallet and generate a receipt for the transaction. Transactions are also possible by using a smart phone that displays your QR code.
My advice to you is to play it safe while the programmers fix the bug in the software by not putting any more money into bitcoin than you can afford to lose. Fortunately it was not the security code that was broken, but the transaction tracking portion. While your transaction doesn’t go through the Federal Reserve it is a crime to interfere with commercial transactions that are transmitted by wire.
I see bitcoin as an opportunity to experience commerce in a new world currency. As a point of trivial information in the history of bitcoin, I was the first person to utilize an ATM for bitcoin exchange on February 22, 2014, at Boston’s South Station.