Bitcoin is digital money that has no paper representation; all transactions are done on the computer over the internet. Unlike when dealing with a bank, bitcoin is transferred from person to person without the need for a third party like a bank to actually transfer the money, thus we can now transfer money across the globe in minutes without the need for a bank to perform the transaction. With Bitcoin you are in direct control of your money and you do not have to rely on a bank to store or transfer it. Bitcoin actually more secure than a bank for the following reasons:
- Bitcoins are stored in a digital account called a wallet, your wallet generates a 64 alphanumeric random number as your private key. This private key number can then be placed in a safe and as long as you have this private key protected, your bitcoins are safe.
- Since you never have to trust anyone with your bitcoins, they are safer than leaving your money at a bank which can be robbed, hacked, or even cheated by employees.
- Bitcoins are so far un-hackable; they achieve this in the following manner.
a. The Bitcoin network uses a distributed ledger, meaning everyone who holds bitcoin has a copy of the entire ledger of every transaction that has every occurred on the Bitcoin network, I know this seems like a lot of information but they do this using a new technology called Blockchain. Blockchain is pretty technical but basically they store the transaction information in blocks and each time a new block is completed, they take a piece of the old block to create it. This process compresses the data then continues on and on and all of the data is stored efficiently. Being that every person on the block chain has access to the entire ledger, if any one person tries to alter the ledger the others disagree, therefor to hack it you would have to hack 51% of all of the people on the network which is not possible. So if a hacker tried to steal bitcoins from someone by altering the ledger, the rest of the networks ledger would not agree and that information would not be recorded, thus keeping you safe.
b. In order for new information to get stored on the block chain, they take a consensus vote from all of the other people on the network; this is done by computer no one is actually voting. Basically every transaction must be agreed upon by the majority, so if Joe sends 5 Bitcoin Dollars to Fred, Bob, Bill and Sues computers will all verify that this transaction is accurate and cast their votes automatically, this keeps people from cheating the system. Basically it prevents people from writing bad checks so to speak because if Joe only has 2 bitcoin dollars and tries to send 5 all of the others will say that this transaction is invalid, this is how banks are not needed. - Bitcoins unlike regular money do not have to be transported, banks might perform digital transfers all of the time but at some point they have to actually physically move money around. Armored cars move money from place to place, these cars can be robbed and they cost money: to hire transporters, fuel, vehicle cost, vehicle maintenance, etc. Bitcoin does not need to be physically moved, it is moved over the internet.
- Credit Cards can be cloned, photographed or their numbers can just be written down allowing thieves to use your card for their purposes, since bitcoins use a private key to store safely and a public wallet address to transfer them the only information that you ever give out is your wallet address. Unlike credit cards where you have to give out: your name, address, credit card number, expiration date, CVV code, etc. This not only allows you to have privacy when you make purchases, but it keeps your personal information safe.
Grandma, this is safer, faster and more efficient than regular money (Fiat). The technology created to make it work, “The Blockchain”, has so many practical applications that it is probably the most important technological invention since the internet.
By Frank Aiello (embomb701)
7/16/2018