Hey guys, welcome back! Lets continue our talk about BITCOIN. Ever since the boom of cyberpunk fiction, be it in the neon streets of Blade Runner or the chromed world of shadow run, writers have always been fascinated with the idea of digital currencies. It was in January 2009 that fiction would become a reality as the Bitcoin network would emerge and the credit goes to an unknown person or entity, named Satoshi Nakamoto. No one knows who Satoshi Nakamoto is, is he a person or a whole organization in disguise of that name, the mystery yet to solve till date. Ever since this digital currency, named Bitcoin, has taken off and taken the world by storm; however, for many, the question remains, how does Bitcoin work.
To help explain, think like you have two people - Adam and Matthew. Adam wants to give Matthew some money because he helped him with a task. To pay Matthew, Adam opens up what's called a wallet app, inputs how much he wants to send Matthew and then scans his account number after that he hit Send, and Matthew has some money show up in his account. Pretty simple, right? On the user end, yes, but behind the scenes, there's a whole lot more happening. Bitcoin is what is called a decentralized currency, meaning that no one central system manages it and the currency itself only has worth based on the amount we believe it's worth. So without a bank to manage all of these transactions, you're probably wondering how do we know who has what. Well, that's simple - anyone who wants to can just maintain a ledger on the Bitcoin network. In fact, we call these people maintainers, and they're the ones who help make this all happen. So if these maintainers can get money from managing the ledgers, what's in place to keep them from manipulating the books, you probably wondering, correct? Well, the fact that the only way for more Bitcoin to be added to the system is for a miner to solve a special math problem generated when the transaction was detected by the network, is what keeping the bitcoin and whole blockchain network from being manipulated. This math problem is used to help create consistency and honesty between all the Ledgers since it incorporates past solutions into solving the problem. Thus the Ledgers that have more solutions are able to solve the problem faster than those Ledgers with fewer solutions, which in turn keeps any new person from just jumping in to exploit the system. The other aspect of consistency and control is that though the miners add more Bitcoin into the network through solving these special math problems, there’s a limit on the amount of Bitcoin that can ever be added into the system. That limit is 21 million, and though it may sound a tiny amount, that's a far-off state as it's estimated that the limit won't be hit until the year 2040.
So, going back to our example when Adam sent money to Matthew, he was, in fact, sending a message to the Bitcoin network, which in turn updated all the Ledgers being operated. However, there’s one more piece to this whole system, and that's how it keeps people from committing fraud with your account. And the factor that helps keep all our wallets safe is called, cryptography. It's a process in which information is kept secret through encryption. Encryption is a fancy word for disguising one piece of information behind another piece of information. With Bitcoin, this is fundamental to the security of its currency. Every message you send to the network generates a unique digital signature and is encrypted using a private key matched to the recipient - only this safeguards the information as it goes to the network and then to the recipient, and upon its arrival, the recipient uses their personal public key to accept the message. It's this whole process that makes it impossible to repeat the same transaction because any new message or change generates an entirely new digital signature and private key.
But how does Bitcoin change the way we do our financial transactions? In short, what’s the benefit of Bitcoin over regular currencies like dollars or pounds? There’s quite a many actually, but let’s discuss only the most significant ones.
1. Nobody controls your money, except you: With bitcoin, you are completely secured against any third-party activity in regards to your money. No bank, no authority, not even governments have the power over your Bitcoin, until and unless you reveal your wallet password or security key. In case of regular currency which you keep in your bank account, the bank has the power to deduct any charge or fine or even block you from accessing your own money due to various reasons. And government authorities can seize or freeze your bank account too if they want. Bitcoin basically liberates you from all the financial control which otherwise you’re bound to oblige if you are using regular currencies.
2. Crossborder money transfer is just a click away: You may think that you still can do crossborder transactions by various ways like PayPal or Skrill while using regular currency, think again, is that really so? Take the example of PayPal, opening, and verifying an account is no less hard than opening a real bank account, sometimes even harder. Then PayPal doesn’t really allow you to send or receive as much or as frequently as you want, there are numerous limits which keep you using your own money as you wish. And let’s not forget about frequent account limitation and ban due to the slightest reasons one can think of. On the other hand, Bitcoin is totally under your control – it does not require any identity verification to install a wallet software on your smartphone or pc, you literally can set up and ready to do transaction within a minute or two. Furthermore, there’s literally no limit of amount when it comes to bitcoin – you can send or receive as low as few cents or as much as a few million USD worth of bitcoins instantly.
All in all, Bitcoin is a rather secure system and an interesting one. With numerous security features, it has taken the world by storm and even inspired a trend of smaller cryptocurrencies. But it does make us think what will come next in economic innovation and are we really that far away from the sort of futures sci-fi has always depicted?