Bitcoin or: How I Learned to Stop Worrying and Love Transaction History Hashing

I am not an expert.
I am not an expert.
I know enough to be dangerous so pinch the salt and read on.

Bitcoin, BTC or $BCOIN on StockTwits is a decentralized value transfer protocol.
It is an anarcho-capitalist wet dream with Neal Stephenson as narrator.

It is a Ponzi scheme, but so is the USD and financial capitalism.
It is used for illicit dealings, but so is the USD and financial capitalism.
It is highly speculative and risky, but so is the USD and financial capitalism.

It is NOT made out of thin air or backed by the threat of violence.

This isn’t like gold or Yen, but there is a tangible, material and real thing of value created by the Bitcoin network.

Fundamentally, BTC is a public transaction history wrapped in a hard math problem. Hard in the sense that it cannot be solved with reasonable funds in a meaningful amount of time using technology in the public domain without violating fundamental assumptions we make about physics, matter and energy.

In order for BTC to exist without a central authority, digital signatures (BTC addresses) are added to a public transaction ledger hosted by nodes (BTC clients). In order to ensure that BTC are not  double-spent, this history is hashed with SHA256, a cryptographic protocol designed by the NSA to simultaneously obfuscate and verify data. Hashing makes attempts to cheat the network all but impossible, the computational power required to create a longer hashed transaction history with favorable balances is significantly more expensive than the value of all the BTC in existence.

This transaction history hashing has some other potential uses such as election ballot counting and land title claim verification, but I digress.

Crypto-currency is not quite as baseless as it may appear. Massive amounts of computational power is expended, requiring real electricity and human hours to produce a decentralized method of payment verification.

This has incredible disruptive potential because it challenges the traditional structure of value transfer and undermines the power of government by building a currency without borders.

Today, international money transfers require extensive paperwork, take days to process and cost substantial, sometimes usurious sums. BTC has none of these inhibitors, though there is an increasing amount of friction being created by government regulatory bodies.

At the time of this posting, the Bitcoin market capitalization is approaching 900 million USD. The global currency system is several orders of magnitude larger, somewhere in the trillions or tens of trillions depending on your choice of accounting metrics. Looks like room to grow to me.

2 Responses to Bitcoin or: How I Learned to Stop Worrying and Love Transaction History Hashing

  1. […] am just finding out about these things called bitcoins. It seems they all the rage, with everyone linking articles as of late. Do any of you guys own them? What do you think about them? ¬†Seriously, I want to know. […]

  2. […] The economists have been calling for a currency war. While they have been busy writing books about the war, Jurassic Park happened. I love this commentary from my friend Charles Amadeus: […]