Tales from the Crypto

Somebody really has to explain cryptocurrency.

As far as I understand it, "crypto"--things like Bitcoin and Ether and Dogecoin and Mallomar--I might have made up one of those—is essentially computer-generated money.  And it's expensive: One bitcoin is currently worth nearly $56,000.  But crypto doesn't exactly retain its value: If you have one bitcoin today, you have something worth about $56,000, but tomorrow that same bitcoin could be worth $57,000. Or $50,000.  Or $1.98.  In other words, crypto behaves more like a stock than a currency.

And I know, I know: Currency behaves like stock, too.  Just as a bitcoin is worth ~$56,000 US, a euro is currently worth about $1.21US, and the euro, too, will fluctuate from day to day.

I also get that crypto, being a "currency" has slightly more--or at any rate, different--utility than stock.  To wit, I can buy something with a bitcoin--if a seller accepts it--that I cannot buy with stock.  Five shares of Boeing won't buy me a ten-dollar toaster, but one bitcoin could.  And I'd get a helluva lot of change.

But, see, the attraction of crypto seems to be more about its skyrocketing value (at least, it was skyrocketing for a while) than for its value as legal tender.  So if I have a bitcoin, I'm less interested in the possibility of buying a $56,000 toaster—although that would be fascinating—than in being able to sell the bitcoin for 56,000 real dollars.  Dollars that, unlike bitcoin, are actually backed up by the full faith and credit of the United States Treasury.  (And, OK, that faith and credit ain't what they used to be--but they're still not bad.)

Which brings me to my next question: What, literally, is bitcoin (or any cryptocurrency)? I mean, you actually can get a physical bitcoin:

But, again, you're not going to walk into a 7-11 and plunk down one of these puppies for a Slurpee.  (OK, for 50,000 Slurpees, maybe. . . ) No, the functional bitcoin is a purely virtual, electronic, ethereal whatsit. It exists in the realm of bits and bytes.  And yet, I constantly hear about bitcoin "mining," which, as far as I can tell, represents the actual creation of bitcoin--analogous to the coining of pennies and nickels and dimes or the printing of dollar bills. And this "mining" is apparently an incredibly energy-intensive process, involving massive amounts of real-world electricity at huge server installations.

But what is actually physically happening?  How is the creation of a bitcoin a more intensive process than, say, the addition or subtraction of funds from a bank account?  I understand it's more complicated than that--it must be, right--but exactly how?  And, by the same token, the creation of a bitcoin--no matter how much energy is expended in its creation--still boils down to some . . . guy. . . somewhere. . .  making up a currency and declaring that it has value.  How is this possible?

Can I just declare the existence of "Solipsist Bucks" and make myself a quintillionaire?  Seems just about as legitimate as anything else.