Just as we were getting used to the idea of sending and receiving money using our email addresses and virtual wallets like PayPal and NeTeller, along comes a new payment method. And for this one, you’re not even sending money. Well, not a fiat currency issued by the central bank of any country anyway.
What you’re sending or receiving is a Bitcoin (or unit thereof) – a newly devised currency all of its own.
Bitcoins are a new phenomenon. Conceived in 2009, on the radar of only the tech savvy for 3 years, before bursting into the mainstream in the last year or so by shear rate of user acceptance.
Not surprisingly, a couple of online casinos have jumped on the Bitcoin bandwagon, adding it as a payment method. I came across a press release yesterday issued by a live casino site accepting them (as its only) deposit method so figured useful to have a bit of a closer look at Bitcoins…what they are, how you use them and whether and to what extent you can trust online merchants accepting them.
So what’s Bitcoin?
The Bitcoin wiki describes it as a decentralized digital currency based on an open-source, peer-to-peer internet protocol. Decentralized meaning it was not created, nor is it controlled by any central bank; open source meaning the code underlying the whole system is released under MIT creative commons license for all to see, modify, improve, copy etc (many developers are now work on improving the technology); peer-to-peer meaning the hardware providing the grunt to operate the system is provided collectively by the computers of all users of the system, rather than by a central server.
It was introduced by a pseudonymous developer named Satoshi Nakamoto in 2009. No one really knows who Satoshi Nakamoto is (or if they do they’re not spilling the beans) but he/she/they are credited with its creation and remained involved in the project before enigmatically disappearing from forums and the like in 2010.
One of Nakamoto’s last contributions to the Bitcoin world was a blog post at the P2P foundation in which they describe Bitcoin as:
…completely decentralized, with no central server or trusted parties, because everything is based on crypto proof instead of trust. The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts… With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure and transactions effortless.
There’s a not-so-subtle anti banking establishment vibe here. It is speculated that the failures of the world’s banking/currency systems culminating in the global financial crisis were Nakamoto’s motivation for creating Bitcoin. Another clue is in the line of text that came with the first 50 Bitcoins mined in 2009 (the “genesis block”) …“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
OK but what’s a Bitcoin and what’s its value?
The Bitcoin is the unit currency of the Bitcoin system. It’s currency code is BTC, and it can be divided into 100 million smaller units called satoshis. It can be exchanged for goods and services online (by a growing number of merchants) so yes, it has intrinsic value. It can also be exchanged for fiat currency at any one of a growing number of Bitcoin exchanges so it does have a dollar value. Today that value is $142 but it is volatile.
The Bitcoin historical value chart looks a lot like a couple of penny mining stocks I bought into in late 2007!
There are currently just under 12 million Bitcoins in circulation. The system dictates that this number will grow gradually through a process known as Bitcoin mining (more on that below) to reach a pre-determined maximum of 21 million Bitcoins, with the last introduced to the system in the year 2140. The rate of release is also pre-determined.
How to get Bitcoins and use them to pay for stuff?
Step 1 in joining the Bitcoin revolution is getting yourself what’s called a Bitcoin Wallet. This is the software that connects you to the Bitcoin network, gives you a unique Bitcoin address, and then lets you buy/sell/exchange Bitcoins.
Consistent with the open source nature of the whole system, Bitcoin Wallets come in many shapes and sizes from many different developers. You can download a wallet to your desktop, or use an online wallet service offered by a bunch of websites.
A good starting point for finding a wallet is at the Bitcoin.org wallet page.
Once you’ve got your wallet sorted (and synced to the network…this can take a little time) then step 2 is acquiring some Bitcoins. Here again there are a number of options.
- Buy them from an individual in your area using a local exchange like localbitcoins.com
Here sellers advertise how many Bitcoins they want to sell, and what price they want to sell them at…in your local currency.
- Buy them from a Bitcoin exchange
These are open market places for Bitcoins with a single exchange price at any given time (like a stock price). There are many to choose from and they are growing in number but the biggest (they claimed to process 80% of all Bitcoin exchange trades in 2013) is MtGox.com (update…they went bankrupt in 2014, amid a lost/stolen Bitcoins controversy…one of the first big lessons in the Bitcoin experiment!).
- Sell something of value online to someone willing to pay in Bitcoins
- Mine them.
The whole Bitcoin mining concept may be a difficult one to get your head around, and isn’t really necessary to understand to be a Bitcoin user. But it is a critical part of the system so probably worth trying to explain for those with inquiring minds.Bitcoin mining is the competitive and decentralized process by which Bitcoins are created. A lot of computer processing power is required to solve the complex mathematical equations designed to ensure transactions on the system are secure and not double counted, and remember this has to be provided by users on the system, not some central agency. Users need to be incentivised to provide this computer grunt to the system and with Bitcoin mining they are by earning Bitcoins. The process kills two birds with the one stone…users are encouraged to contribute processing power to the system and at the same time, Bitcoins are released into circulation in a mathematically controlled manner. Robert Mugabe would not like this system at all.
By the way, in case you just had a light bulb moment and thought, ‘awesome, I’ll just download my wallet, plug into the system and let my little Acer Aspire start mining away‘, this won’t earn you any Bitcoins. Thing is, while the rate of release of Bitcoins into the system is pre-determined (and decreasing) the number of miners out there is increasing . Your Acer Aspire might have mined you a few Bitcoins back in 2009, but these days you need special hardware. Nakamoto actually likened the generation of new coins by expending CPU time and electricity to gold miners expending resources to add gold to circulation, and this is a nice way of thinking about it. Back in 2009 all you needed were a shovel and pan to catch a fair bit of gold flowing down the stream. Now you need to dig a dirty great big gold mine because all the stuff on the surface is gone!
Where you can spend your Bitcoins
Almost overnight, a pretty substantial Bitcoin economy has sprung up and you can now find thousands of online merchants accepting Bitcoins for goods and services. It’s an attractive option for merchants because it’s secure, anonymous and transactions are irreversible. It’s been liked to the cash of the Internet. Once you’ve handed it over…it’s gone. Once you’ve received it, the payer can’t cancel/repudiate/chargeback/dispute the transaction.
Just as cash is the currency of choice for shady offline dealings, so Bitcoin has become the preferred payment option for enterprises operating in the grey/black areas of the Internet. It is the only payment method accepted at Silk Road, the online drug (and whatever else) market place.
But remember cash is also used prolifically for non-criminal transactions. Bitcoin is as well. Almost 50 thousand transactions on the system occur daily, worth around $50 million…and not all of these are on Silk Road!
It is now also starting to be accepted by mainstream online retailers. Leading the charge are WordPress.com, Reddit, OkCupid, 4chan.org and Namecheap. One of the biggest names on the Internet, Ebay, is putting out the feelers on it’s adoption. Their video also offers a pretty good explanation of the system, its upsides and its downsides.
Always quick to latch onto a new player payment option (particularly when conventional deposit options aren’t available) the online casino industry has also been an early adopter.
Satoshi Live Casino
I came across a press release issued by Satochi Live casino the other day.
“A truly pioneering and ground-breaking step forward was subsequently on the cards, in addition to the plethora of online Bitcoin casinos popping up in their numbers and Satoshilive.com has stepped up to the plate, offering the first, fully live Bitcoin casino .”
Let me say from the outset that I wouldn’t touch these guys with a ten foot pole, not because they accept Bitcoin, but because the accept Bitcoin ONLY. This is enough of a reason to avoid them. It also so happens there are plenty of others…
- they have no physical address
- they have no license
- all they ask for on registration is your name and email address (forget how old you are, where you live, any ID at all)
- when you try to open the game window nothing happens
- the press release takes stretching the truth to a whole new level
Remember, once you send your Bitcoins to that 33 character code that is their Bitcoin address, there ain’t no getting them back. There will forever be a record of the transaction, but you can’t even identify who you’ve sent the Bitcoins to. This isn’t a problem if you send those coins to Ebay, or WordPress, or maybe some time in the future Ladbrokes or bet365. They are identifiable.
Tread with caution
The more I read and understand about Bitcoin, the more I am amazed by both its brilliance and simplicity. It may revolutionize transacting online. It may not. But deferring to the opinions of those in the know, it seems its still very much an experiment.
It offers the benefit of (reasonably) instant, (very) low fee, secure transactions. For merchants it also protects against fraudulent charge backs because the transactions are irreversible. But while this is benefit for honest merchants, it can be a drawback for honest customers. Combined with the anonymity of users, there aren’t many protections for say, a player who sends Bitcoins to a dodgy live casino that then ignores any withdrawal requests.
Bear in mind also, that simply holding Bitcoins is a substantial gamble. Had you made your first purchase in April 2013, deposited at a casino and not placed a single bet, by July the dollar value of your balance would have halved, assuming your casino account balance is denominated in Bitcoin.
Just another layer of gambling you need to be aware of.
Personally I’ll be sticking with operators I know well, and who accept good ‘old fashioned’, regular currency online deposit methods.
Couple of nice video explanations
In case you wanted to know a little more…
Quick and simple…
For geniuses out there who want to know in detail how Bitcoin works…