Finally Understanding Cryptocurrency and How it Works
What is money? Don’t start sweating—it’s not a trick question: let’s just re-establish the fact that money is just an accounting system. It’s a bunch of numbers that tell us who has what.
All currency requires a source, and until quite recently you needed someone to be the central issuer. You might hear this called a “trusted third-party validator,” which is just a fancy way to say someone who can guarantee that the money is real. Generally, the issuing source of money is the government (think: U.S. mint.) But still— this money is just an accounting system. And that’s all that Bitcoin is, too.
The Beautiful Bitcoin System
Let’s leave the abacuses behind and talk digital. Bitcoin records transactions and value digitally. This way, people who have Bitcoin can exchange money directly. What Bitcoin actually does is use blockchain technology to automate the trusted-third-party function. The key part of this is that everything Bitcoin users do is recorded in an open ledger. All of the monitoring and updating of that ledger happens collectively. It’s a consensus-based system, and it does away with middlemen that act as repositories of all that information (bankers, government officials, accountants, auditors, financial workers, Rich Uncle Pennybags.)
Using Bitcoin instead of the old-fashioned banking systems eliminates fees, inefficiencies, and potential cracks where corruption can slip in. In comparison, it’s downright risky to centralize money information in the old-fashioned way; Bitcoin has been called unhackable due to its decentralized distributed open ledger; it’s all recorded for anybody to see. No Bitcoin is left behind! Every Bitcoin (all 21 million of them—there is a cap) out there is accounted for—so you’ll never be sold counterfeit Bitcoin. All of this works outside of any central company or a government control. It’s also totally anonymous, but don’t get the idea that it will enable tons of shady dealings. Every single Bitcoin transaction is recorded in blockchain, and cannot be altered. The identities and wallets of the people using Bitcoin are encrypted as well, so you don’t know who is spending the money but you can rest assured that every single Bitcoin has a history. You’re always able to see where it was generated and where it’s been since.
Radical New Currency
Using Bitcoin represents a global outcry for transparency and democracy. The Bitcoin network performs the function that normally would be provided through institutions like PayPal, private banks, Western Union, and credit card companies. Bitcoin is a way to put people’s money back into their own hands, so to speak. It is about digitizing trust and democratizing data. Bitcoin does not care about borders!