Bitcoin is a revolutionary new invention that will have a profound effect on peoples' lives in the 21st century. The word Bitcoin can refer to three related but separate things: It is a protocol, a network and a currency. This article will concentrate on the Bitcoin protocol and network. The Bitcoin protocol can be used to maintain a permanent record of practically any kind of transaction, such as stock trades, bond trades, land title transfers, mortgage records, voting, wills, contracts and many other things in addition to currency. A longer list of possible uses can be seen at Ledra Captial online . Currency will be used here to illustrate the capabilities of the protocol, because, after all, currency is the first thing for which the protocol has been used, and it has been successful for over four years so far. But, we will try not to get lost in the weeds over discussing the many misunderstandings and confusing issues surrounding Bitcoin as a currency found in recent media accounts. We will jump into those weeds and try to clarify some of the confusion in a subsequent article.
From Kalamazoo to Timbuktu
The Bitcoin protocol can be used to provide a permanent record of a transaction between two people anywhere in the world, without any third party intervention, at the speed of the Internet across a distributed peer-to-peer network for free, or for the cost just a few pennies. This has never been possible before. Suppose you are a young man from Timbuktu who sojourned to the United States to seek your fortune. Suppose you found your way to Kalamazoo, Michigan where you found an entry level job that paid you much more than you could ever hope to earn back home in Timbuktu. After getting your first paycheck, you want to send some money back home. You could send money home with a wire transfer through a well known company, but you would have to pay a fee for that transfer that could cost you as much as 20% of the funds you want to transfer, or possibly more. With Bitcoin, you could transfer funds from Kalamazoo to Timbuktu at the speed of the Internet, and for a fee of a few pennies you could have that transfer confirmed in about ten minutes. Not only that, but you would not have to deal with any third party like a telegraph company or bank. The transaction would be strictly between you and your family back home. No middleman would stand in your way to slow the transaction.
To accomplish such a transaction, all you would need is a public address of the recipient that looks like this:
1BRNx8SNPx7naEG9t4NEYS11FT4CL5SuAR
The recipient could send you their address in a simple SMS text message with a simple "dumb" cell phone. Or they could display their address in an e-mail or a web page in the form show above, or in a QR code like this that you could read with your smart phone:
With "wallet" software on your smart phone (or personal computer), and some "currency" in that wallet, all you would have to do is put that address into a window on your smart phone (or read it in directly from the QR code), type in how much you want to send, and click a button to send it. Within seconds, that recipient's address would show the money received, and within ten minutes the network would lock-in that transaction as confirmed. The public address shown above is real. If you were to send a small fraction of a Bitcoin to that address, I would receive it virtually instantly, and the transaction would be irreversible.
Take Me To Your Leader
Bitcoin is not owned by anyone. It is not controlled by anyone. It is a protocol and a network of the community, by the community and for the community. It's core is a public ledger that contains every transaction that has ever taken place in the Bitcoin system. Thousands of computers around the world have a complete copy of this public ledger, known as the "Blockchain". The only way to destroy Bitcoin would be to shut down the entire worldwide Internet and all the thousands of participating computer "nodes." One of the most difficult tasks that many people have when learning about Bitcoin is fully accepting the fact that no one is in charge of Bitcoin. It is a fully decentalized, peer-to-peer network that is controlled by the entire community that participates in Bitcoin.
One of the most revolutionary aspects about the Bitcoin protocol is that it takes a totally opposite approach to trust and security as that taken by current banking and financial systems. According to the original Bitcoin Paper: "Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments." Problems with relying on a trusted third party in a transaction between two people include increased cost, slower transaction speed and the danger that some bad actor could penetrate the trusted third party or its systems and steal your money! The Bitcoin protocol trusts no one, but relies instead on trusting mathematics. Quoting again from the original Satoshi Nakamoto paper: Bitcoin "...is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party." Since Bitcoin relies on mathematics and cryptography to secure all transactions, the entire core system is completely open and can be fully examined at any time by anyone.
A great wealth of information about Bitcoin and how it works is available online. One of the best sources of information is the Bitcoin Wiki where you can read the full Bitcoin Protocol Specification, clarification of many myths and misconceptions, and much much more. There are also numerous videos online that provide in-depth information about Bitcoin. Two of the best videos are How Bitcoin Works Under The Hood and Bitcoin Cryptocurrency Crash Course With Andreas Antonopoulos. For those who would prefer to read a book about bitcoin The Bitcoin Primer is an excellent short kindle book avalable at Amazon.com.
Bitcoin has been operating for almost five years as of this writing, and it has never been broken or hacked. You may have read or heard through the media about several incidents that claimed that Bitcoin had been hacked or that people have had their money stolen or lost through Bitcoin. All these incidents relate to problems in software systems or services that are peripheral to Bitcoin. A lot of work still needs to be done to solve problems in these outside peripheral services provided by independent suppliers, and this will be discussed in the next article which will discuss the Bitcoin currency. The Bitcoin network and its core, the "Blockchain", remain standing solid as a rock. Whether Bitcoin the currency survives into the future or not, the Bitcoin protocol is here to stay, and willl have a profound effect on the world of the 21st century.
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