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Bitcoin – the possible impact of strip mining virtual gold

The Bitcoin people, with some extremely cleverly applied mathematics, have developed a decentralised, scarce digital resource which, simply because of its scarcity, has an analogous function to that of gold.

In the last 4 months, the price of bitcoins has quadrupled. People are treating bitcoins as valuable, which is almost as astonishing as the way the international financial system still seems to value derivatives.

The screwed up thing about Bitcoin is that it’s manifested such a extreme ‘free market’ system of libertarian capitalism that in ecological and energy ‘security’ terms, it is potentially as dangerous as mineral mining.

Bitcoins basically equate to a series of 21 million unique numbers. They are derived from publicly disclosed algorithms, which are provably never going to exceed that amount and flood the market. Bitcoins are ‘mined’ by crunching through those numbers, hashing them and ‘signing’ them with public key encryption to prove ownership which can then be traded and exchanged for any currency – just like gold.

Purchasing a high-end graphics card capable of crunching the numbers is already paying off in bitcoins at a rate of about 200 euros per month.

There have already been cases of police showing up at apartments where an energy spike has alerted them to probable use of grow lights for marijuana, and have instead discovered a bitcoin mine.

Mining bitcoins is like turning energy (still mostly fossil fuels) into gold – Once this becomes mainstream, can you imagine what it’s going to do to the energy grids? Even more so once the black market botnet mines start grinding away. And because it’s based on a decentralised model, and underpinned by an open, public algorithm, just like P2P file sharing, it’s very difficult to control (although, with sufficient reach, it’s still potentially possible to sabotage).

Watch this space, I think it’s going to get really interesting.

NB: My good friend Joerg Baach, a brilliant hacker, networker and innovator of the open coin project clued me into this critique of bitcoin on the weekend. Thanks Joerg!

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