ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Minting Pure Reason

Bitcoins for the first time provide a practical electronic alternative to currency. While there can be no guarantee that bitcoins will continue to have a positive value, the decentralised nature of the Bitcoin network makes it a strong competitor to established online payment systems.

Minting currency has long been the monopoly of sovereigns – a prerogative that has survived many upheavals in technology and economics. This monopoly has now come under challenge from the electronic currency Bitcoin. Bitcoin does not have any powerful backers. It is not even known who its creator or creators really are. The original Bitcoin paper (Nakamoto 2009) and software was published under a pseudonym. But the protocol described in the paper was sound, the software worked, and now Parliaments, treasuries and central bankers of the world have been forced to take note of this new entrant to the world of money.

For at least a few decades now ordinary citizens have had computers capable of encrypting messages strongly enough that they cannot be read by even the most powerful nation states. Throughout this period people have dreamt of using this capability to create forms of currency that would be free of any centralised control.1 Yet, this task is made hard by the very ease and fidelity with which computers can copy bits. If we declare certain strings of bits to be the coins of our system, how do we stop everyone from producing a copy of all possible coins for themselves? Even if we could somehow ensure that each coin is initially owned by a single person, how can we stop the owner of a coin from repeatedly using copies of a single coin for different transactions, thus providing himself with what is effectively an infinite supply of coins? In either case the abundance of the coins would push their value to zero. The Bitcoin protocol provides ingenious solutions to both these problems.

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