Wednesday, December 04, 2013

What is bitcoin? Part 2

I wrote about bitcoin a little earlier. My thoughts on it have not changed much, but I think it is interesting looking at the technical details a little more closely.

I thought this was a good overview of how it works and helps reveal why people think it is a good idea. Some good notes:
Bitcoin is strange, really strange. For one thing, there is no such thing as a bitcoin. There are only transactions recorded in a ledger, with debits and credits to wallets. That’s it!
This is ironic because "regular" money is only transaction recorded in a ledger, with folding cash being a small exception. And prior to "regular money", individuals in a community did not barter for real goods, they did favors for each other and kept mental ledgers of what they owed and were owed and from whom. So, the "money only exists in a ledger" is not weird, it only seems weird as we think of money primarily in terms of folding currency.

Beyond that, the article talks in detail about how the ledgers are cryptographically protected and has a brilliant peer-to-peer distributed reconciliation process to prevent tampering. The article ends with a triumphant "Imagine there are no Bankers…you can do it if you try…"

While I would love imaging a world without bankers, and have done this on occasion, I'm not sure that bitcoin as he's defined it actually impacts the function materially. The primary purpose of a bank is not to keep money safe in a vault, which is mostly what bitcoin seems focused on, it's to have the private sector make credit decisions. I would love to see how bitcoin can be used to extend a loan as a loan per-se, not an equity investment. How does a bitcoin based entity expand it's balance sheet the way a bank does when writing a loan?


Blogger Neil Wilson said...

Bitcoin exists as much as a patent or a copyright exists. It is an intangible asset that you own and can defend - essentially a cryptographic sequence.

Folding currency isn't really the money. It's actually a receipt for the money. If you lose the paper, or incinerate it, the money is still there at the central bank. You just can't access it.

Similarly if you lose your bit coin access key, then the bit coins still exists, you just can't use them.

11:14 PM  
Blogger Kashfiya said...

Bitcoin going to save the global economy, Bitcoins are digital coins transferred from person to person, without using a bank or centralized service.
Bitcoin is not a system of claims. Bitcoin is a pseudo-commodity, not a claim. People who purchase Bitcoins do not have a claim on anybody, nor does anybody have a claim on them. The biggest difference between bitcoin and other virtual currencies is that bitcoins are the only one which have speculative value.


Myriad Interactive Media Begins Development of Bitcoin Platform

For more information and to read disclaimers and disclosures:

7:32 AM  

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