INK158: A guide to Bitcoins – 10 questions to Marco Frey

Interview and original italian version by Antonio Emanuello. Cover by Alberto Fusco.

If economy is, for the majority of people, an enigma, the Bitcoin is a rebus surrounded by a mistery absorbed by a brain-teaser. Born in 2009, from a guy called Satoshi Nakamoto about who we know almost nothing. Let’s start from the name: “Satoshi” can be translated as “clear thought, fast and wise”, while “naka” with “inside”; finally, “-moto” is the equivalent of “origin, basis”. Many identities have been hypotesized behind this nickname: Michael Clear, specialized in cryptography; Vili Ledonvirta, finnish developer; Neal King, Robert Pulitano, Vladimi Oksam and Charles Bry that together have asked for a cryptography licence; Martii Malmi, finnish developer, Jed Caleb, MtGox creator and japanophile; Donald O’Mahony and Michael Pierce, who wrote about digital payment. All of them belie, but a certain Craig Steven Wright takes his part and steps into light on May 2016, showing to have the encryption key associated to the first bitcoin transaction.

This proof to many was not enough and so the man declared that he would have brought further facts: the next day, 5th May, on his blog he apoligized and said that he no longer felt like doing so. So, it still is an incognito. But, let’s speak of data: in 2009 the Bitcoin was worth nothing, since it hadn’t been exchanged by anybody yet; we have to wait until 2010, and in that year il will reach the record of 0,39$ per Bitcoin. On April 2011 it reaches 1$. It keeps on constantly and slowly growing, until November 2013, in which it gets a 950$ worth. Then a rise and fall starts, that will lead the cryptocurrency to gain a 250$ value in 2015, and then end up in an ascent that will throw it to almost 3000$ in July 2017, 10000$ in November, and over 17000$ on December of that same year.

This last number marks the beginning of a downward trend that, at the beginning of May 2018, caused the bitcoin to lose more than half of its value. Besides this, in 5 years the value of cryptocurrency has marked a +9134%. Not bad for something that basically exists only when someone believes in it. Since we don’t speak about fairies, Inchiostro decided to consult someone who actually understands something about cryptocurrency and economics: Marco Frey. Director of sustainability research of Scuola Universitaria Superiore Sant’Anna of Pisa, is also professor on convention at IUSS (the italian acronym for University Institute for Superior Studies) of Pavia, an excellence of university education. The idea is to explain in the simplest and fastest way what we’re talking about, a kind of “for dummies” guide.

On a purely theoretical level, how do Bitcoins work?

Bitcoins are vitual currency, that allow you to manage transactions without passing though traditional banking systems. In fact, they don’t directly correspond to banknotes, but simply to codes that also have the function of guaranteeing transactions, that is from where the term “cryptocurrency” comes.

What is mining?

It’s a control activity for the liceity of virtual transactions, carried out by specialized users with a high computing capacity. These inspectors are the first one that get payed in bitcoins.

They say that bitcoins resemble more gold than money, since it can’t be infinitely produced. How is it possible to not being able to duplicate a string code?

Bitcoin creators imposed the limit of 21 millions of bitcoins, also to give value to a limited resource. Then, there’s the matter of transaction control. With appropriate technical choices in front of a strong growth of the demand the available quantity can significantly increase. We mustn’t forget there are thousands of cryptocurrencies and that bitcoins are just the tip of the iceberg.

Speaking of blockchain: it is a register that is present on every computer that trades bitcoins; its aim is to keep track of everything, giving the same information to everybody, in order to avoid counterfeiting or duplicating. This is public in transactions, but anonymous for the players concerned. Is it possible to track down those who trade? Especially considering a potential criminal use.

The blockchain doesn’t show the names of those who make transactions, but, in the moment in which the money gets spent, the IP address is registered. With this, it is possible to check the movements.

National currencies are no longer based on gold standards, and consequently on a strong guarantee: does it make sense to say that the Bitcoin, being guaranteed by mathematics, could be safer (even as a shelter-good?)

As we have said there’s a strong attention to security’s guarantee through blockchain, but saying that it could be a shelter-good seems a little excessive.

Bitcoin’s value is very volatile: can one earn without betting his house?

The volatility is connected to the speculation of those who buy cryptocurrencies trusting in a big profit, as happened during the first phases of its development. But this logic is necessarily at the bottom of the possibility of a big loss. As in every financial field one has to know really well what he’s doing, considering risks.

Is investing in cryptocurrency for everyone?

For everyone who is appropriately informed and who has particular trust and familiarity with digital technologies.

Since the offer is fixed to 21 millions of Bitcoins on creators’ choice, but the demand keeps on growing, will we ever get stabilty?

We have to consider that bitcoins are divisible up to 8 decimals, that makes their availableness wider than it could seem to be with an emission of a maximum of 21 millions. Moreover, a way for giving stability to bitcoins beyond the limits established by the creators is already being discussed. It’s too early for thinking in terms of stability.

What are the differencies with respect to national currencies?

National currencies are guaranteed by the State and subjected to policies and controls of moneraty authorities.

In the present state, could it be possible to substitute every currency with bitcoins? If not, could it happen in the future?

According to what we have said, no. Bitcoins should be embedded in the monetary and banking system, to make it possible.

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