In our last blog about Bitcoin’s backstory we explored Satoshi Nakamoto’s simple, yet revolutionary solution for creating an immutable, transparent and regulatory compliant digital record-keeping system.
Cryptocurrencies of the ‘90s were designed to operate anonymously and behind closed doors. As a result, governments shut down the entirety of the 1 Trillion dollar industry in a single week in 2002. In contrast to their gameplan, Satoshi Nakamoto created the Bitcoin blockchain to operate as a publicly run, distributed ledger technology - the first of its kind.
To understand the Bitcoin blockchain’s true value and potential applications, it’s essential to agree on our definitions of the most important concepts we’re talking about. And so, the first term to get clarity on is the infamous ‘cryptocurrency’.
Although a throng of cryptocurrencies have sprouted since the birth of Bitcoin, and Bitcoin is usually pooled along with the ‘cryptocurrency industry’, it is everything but. Let me allow Dr Craig Wright, the individual behind Bitcoin’s pseudonymous founder, Satoshi Nakamoto to explain:
Bitcoin uses the same algorithms as cryptocurrency, but that doesn’t mean it is a cryptocurrency itself. If you look at eCash which was an actual cryptocurrency, it uses blinding and other features to cryptographically hide something. Cryptography is secret writing. Bitcoin is the exact opposite of that. Bitcoin is, basically, a public ledger. So, it’s designed to be private, but it doesn’t actually encrypt things. You can encrypt data and store it in the blockchain, but the difference is that Bitcoin itself is a set of digital signatures, it’s a chain of evidence, and it’s pretty much everything that systems that aim for anonymous transfer, is not.
On being asked why he would not classify Bitcoin as a currency, Wright responds:
A currency is basically defined as something used by the State. So, ‘money’ doesn’t mean ‘currency’, although ‘currency’ means ‘money’. To be a currency, it needs to be something like legal tender.
Now that we’ve debunked the idea of Bitcoin as cryptocurrency, it’s easy to see why Satoshi Nakamoto, in early days, found it so difficult to explain what Bitcoin actually is.
“Sorry to be a wet blanket. Writing a description for this thing for general audiences is bloody hard. There's nothing to relate it to.”
Luckily, in 2020 we’re fortunate enough to have ample new material by Dr Craig Wright, to give us more clarity on what Bitcoin actually IS, its potential applications, and how it's going to rock our world!
As a starter description, we could describe the Bitcoin blockchain as a public data ledger and an electronic cash system.
“But, what does that mean and why should I care?”
Glad you asked!
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.” Dr Craig S. Wright
So, what’s the big deal about the idea of a public and distributed ledger system?
To start off with, let’s consider a few examples of the opposite kind of digital records system: private, centralised ledgers. We can think of a company’s financial statements, a national health database, and a fiat monetary system.
In each case, the integrity of the system’s data depends on the reliability of the managing parties, including big fish like the the CEO and the President of the Central bank, but not excluding all the employees and technical operators who have access to the data.
A single point of failure - a crooked CEO, an exhausted IT professional, or a sociopathic central bank official - is all it takes to make an entire data system vulnerable.
With so many people having the opportunity to leak, erase or alter digital records, it’s very difficult to know if a company’s dealings really are above board, our sensitive health data is protected, and our fiat currency system is not being debased.
“Just as the central bank must be trusted not to debase the currency, we need a system that does not allow developers to become technocrats thinking they are smarter than the market. Just as the history of fiat currencies is full of breaches of that trust, so is the history of promises from technocrats.” Dr Craig S. Wright
The beauty of running applications on Bitcoin’s distributed ledger instead of a centralised one, is the elimination of a central point of failure.
If the central server of a centralised network were to fail, none of the computers on that network would be able to function. If a single computer were to disconnect from Bitcoin’s distributed ledger system, on the other hand, there would be no effect on the functioning of the network whatsoever.
What’s more is that we eliminate central authorities with the power to alter the data in the distributed ledger, and so also neatly remove the possibility of human manipulation of data.
Another advantage of Bitcoin’s ledger system is that it is available for anyone to view - both the recorded history as well as the latest transactions and data interactions as they are verified and recorded to the ledger. With this level of transparency in place, there’s no need to trust that data was recorded with the promised access permissions, we can simply check.
And then, because Bitcoin’s ledger is immutable (can not be altered or erased), we end up with a reliable, untampered record trail that can be audited even many years after an event.
Alongside the issue of data integrity, arises the matter of data ownership and data privacy. Existing data collection companies tend to wheedle our personal data out of us under reasonable-sounding guises...
Perhaps they need your health records for the sake of your insurance policy. Maybe you’re offered the use of a Social Media platform to enable you to ‘connect’ and ‘share’ your most personal thoughts, feelings and fears with your ‘close friends’. Whatever the pitch, the moment we’ve put our data out there, we risk having it sold for profit, or used against us through nefarious ad campaigns.
With Bitcoin’s data ledger, we can do better. MUCH better. For a start, a data collection project running on Bitcoin would clearly indicate the volume and nature of our data that’s recorded, and we’ll be able to see who has permission to access it. A more sophisticated application of the Bitcoin blockchain would allow us to program access permissions for each bit of data, which means that you could retain control of your own personal data and choose to share it only if, and for as long as you are satisfied that it’s in your best interest to do so.
If I tell you that Bitcoin was created to allow transactions as tiny as a few pennies to be secure, instant, and cheap, it’s easy to see the huge improvement over the traditional banking system.
But, what if I told you that Bitcoin is the key to changing the Internet from its current data syphoning model to one where you’ll be able to earn micropayments for your online content, data, interactions and activity?
But wait, there’s more GRAND NEWS! As we speak, this new blockchain-based Internet is already being built, and it’s called Metanet.
Metanet’s goal is to take back control of our data from tech giants like Twitter, Facebook and Google. The bargain we currently make with these companies is to allow them to sell our data in return for the ‘free services’ they offer. This online advertising model does not only lead to a loss of control over our data, but it’s also incredibly inefficient with millions of click fraud scams defrauding ad buyers. With Metanet powered by Bitcoin’s transparent data ledger and electronic cash system, it all changes. While Metanet users will have to pay for services like search and Social Media platforms (e.g. Twetch), we will also be able to earn micropayments for each of the bits of data we contribute to the system.
And that’s not even mentioning the entirely new business models that such a micropayment facility might unlock... But let’s leave that topic for a later edition of our series.
Given the somewhat dramatic changes in our understanding of what Bitcoin is over the past 5 years, we are rewriting our earlier eBook on the topic.