A new currency is on board now and many people are investing in it. Here is all you need to know about Bitcoins.
What is bitcoins?
According to LifeWire, bitcoins are electronic currency, otherwise known as 'cryptocurrency'. Bitcoins are a form of digital public money that is created by painstaking mathematical computations, and policed by millions of computer users called 'miners'.
How Do Bitcoins Work?
Bitcoins are, in essence, electricity converted into long strings of code that have money value. Bitcoins are completely virtual coins designed to be 'self-contained' for their value, with no need for banks to move and store the money. Once you own bitcoins, they behave like physical gold coins: they possess value and trade just as if they were nuggets of gold in your pocket.
You can use your bitcoins to purchase goods and services online, or you can tuck them away and hope that their value increases over the years.
Bitcoins are traded from one personal 'wallet' to another. A wallet is a small personal database that you store on your computer drive, on your smartphone, on your tablet, or somewhere in the cloud.
How Much Are Bitcoins Worth?
One bitcoin is currently worth around $890 US dollars and N273,536.23 in naira. There are approximately $1.9 billion USD worth of bitcoins in existence, with approximately $2 billion more to be created.
Bitcoins will stop being created when the total number reaches 21 billion coins, which will be sometime around the year 2040. As of 2016, just over half of those bitcoins have been created.
What Is a Bitcoin Made of?
A bitcoin, at its core, is a very simple data ledger file called a 'blockchain'. A blockchain's file size is quite small, similar to the size of a long text message on your smartphone.
Each bitcoin blockchain has three parts, two of which are very simple: its identifying address (of approximately 34 characters), and the history of who has bought and sold it (the ledger).
The complex part of the bitcoin is its third part: the private key header log. This header is where a sophisticated digital signature is captured to confirm each and every transaction for that particular bitcoin file. Each digital signature is unique to each individual user and his/her personal bitcoin wallet.
These signature keys are the security system of bitcoins: every single trade of bitcoin blockchains is tracked and tagged and publicly disclosed, with each participant's digital signature attached to the bitcoin blockchain as a 'confirmation'. These digital signatures, when given several seconds to confirm their transactions across the network, prevent transactions from being duplicated and people from forging bitcoins.
Note: while every bitcoin records the digital address of every bitcoin wallet it touches, the bitcoin system does NOT record the names of the individuals who own wallets. In practical terms, this means that every bitcoin transaction is digitally confirmed but is completely anonymous at the same time.
Your bitcoins are stored on a computer device of your choice, but the history of each bitcoin you own or spend is publicly stored on the bitcoin network, and every user will be able to see every bitcoin's history.
Who Makes Bitcoins?
Bitcoins can be 'minted' by anyone in the general public who has a strong computer. Bitcoins are made through a very interesting self-limiting system called 'mining'. It is self-limiting, because only 21 million total bitcoins will ever be allowed to exist, with approximately 11 million of those Bitcoins already mined and in current circulation.
Bitcoin mining involves commanding your home computer to work around the clock to solve 'proof-of-work' problems (computationally-intensive math problems). Each bitcoin math problem has a set of possible 64-digit solutions. Your desktop computer, if it works nonstop, might be able to solve one bitcoin problem in two to three days, likely longer.
For a single personal computer mining bitcoins, you may earn perhaps 50 cents to 75 cents USD per day, minus your electricity costs.
For a very large-scale miner who runs 36 powerful computers simultaneously, that person can earn up to $500 USD per day, after costs.
Indeed, if you are a small-scale miner with a single consumer-grade computer, you will likely spend more in electricity that you will earn mining bitcoins. Bitcoin mining is only really profitable if you run multiple computers, and join a group of miners to combine your hardware power. This very prohibitive hardware requirement is one of the biggest security measures that deters people from trying to manipulate the Bitcoin system.
How Secure Are Bitcoins?
They are as secure as possessing physical precious metal. Just like holding a bag of gold coins, a person who takes reasonable precautions will be safe from having their personal cache stolen by hackers.
Your bitcoin wallet can be stored online (i.e. a cloud service) or offline (a hard drive or USB stick). The offline method is more hacker-resistant, and absolutely recommended for anyone who owns more than 1 or 2 bitcoins.
More than hacker intrusion, the real loss risk with bitcoins revolves around not backing up your wallet with a failsafe copy. There is an important .dat file that is updated every time you receive or send bitcoins, so this .dat file should be copied and stored as a duplicate backup every day you do bitcoin transactions.
Security note: the collapse of the Mt.Gox bitcoin exchange service is not due to any weakness in the Bitcoin system. Rather, that organization collapsed because of mismanagement and their unwillingness to invest any money in security measures. Mt.Gox, for all intents, had a large bank with no security guards, and they paid the price of their human error.
MMM
Accoridng to Wikipedia, MMM was a Russian company that perpetrated one of the world's largest Ponzi schemes of all time, in the 1990s. By different estimates from 5 to 40 million people lost up to $10 billion after it collapsed. The exact figures are not known even to the founders. In 2011, MMM re-opened as "MMM Global" with up to 110 subsidiaries per country, it became widely popular in various African countries like South Africa, Nigeria, Zimbabwe and Kenya.
MMM was established in 1989 by Sergei Mavrodi, his brother Vyacheslav Mavrodi, and Olga Melnikova. The name of the company was taken from the first letters of the three founders' surnames.
Initially, the company imported computers and office equipment. In January 1992, tax police accused MMM of tax evasion, leading to the collapse of MMM-bank, and causing the company to have difficulty obtaining financing to support its operations. Faced with difficulties in funding its foreign trade, the company switched to the financial sector. It offered American stocks to Russian investors, but met with little success. Later, MMM-Invest was created for the purpose of collecting vouchers during privatisation. This effort was similarly unsuccessful.
MMM created its successful Ponzi scheme in 1994. The company started attracting money from private investors, promising annual returns of up to one thousand percent. It is unclear whether a Ponzi scheme was Mavrodi's initial intention, in so far as such extravagant returns might have been possible during the Russian hyperinflation in such commerce as import-export.
MMM grew rapidly. In February 1994, the company reported dividends of 1,000%, and started an aggressive TV ad campaign. Since the shares were not quoted on any stock exchange and the company itself determined the share price, it maintained a steady price growth of thousands of percent annually, leading the public to believe its shares were a safe and profitable investment.
An important factor in the scheme's success was word of mouth, but most of the company's success came from its extremely aggressive ad campaign, which appealed to the general public by using "ordinary" characters that viewers could identify with. The most famous of them, a "folk hero" of early 1994, was Lyonya Golubkov. Another notable marketing effort was a giveaway of free Metro trips to all Moscow citizens on a particular day. MMM also was one of the first well-known companies in Russia with a logotype and slogans ("Flying from shadow to the light" and others).
At its peak the company was taking in more than 100 billion rubles (about 50 million USD) each day from the sale of its shares to the public. Thus, the cashflow turnover at the MMM central office in Moscow was so high that it could not be estimated. The management started to count money in roomfuls (1 roomful of money, 2 roomfuls of money, etc.
Regular publication in the media of the rising MMM share price led President Boris Yeltsin to issue a decree in June 1994 prohibiting financial institutions from publicising their expected income.
The success of MMM in attracting investors led to the creation of other similar companies, including Tibet, Chara, Khoper-Invest, Selenga, Telemarket, and Germes. All of these companies were characterised by aggressive television advertising and extremely high promised rates of return. One company promised annual returns of 30,000%.
On July 22, 1994, the police closed the offices of MMM for tax evasion. The company attempted to continue the scheme for a few days after but soon ceased operations. At that point, Invest-Consulting, one of the company's subsidiaries, owed more than 50 billion rubles in taxes (USD 26 million), and MMM itself owed between 100 billion and 3 trillion rubles to the investors (from USD 50 million to USD 1.5 billion). In the aftermath, at least 50 investors, having lost all of their money, committed suicide.
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