Is Bitcoin a new hope?

The purpose of this series is not simply to explain the history of money and to report on the absurd features of the current monetary system, but to offer a better alternative that solves this problem in a peaceful way.

At the height of the economic crisis in 2008, an anonymous programmer published his first public record on a cryptographic forum. In it, he presented the idea of creating an independent money based on peer-to-peer technology , called Bitcoin. It was intended to offer a solution to the biggest problem of digital money, i.e. absence of information rarity. The nature of the information is such that we cannot guarantee that the sender will lose it during transmission and that the recipient will own it in its entirety. In practice, this is most evident when sending an e-mail – each e-mail sent is only a copy that the sender still keeps on his computer. Without an intermediary to ensure that the sender’s e-mail is deleted with certainty, we cannot guarantee that the recipient will be the sole owner of this message. Of course, this is not a problem when we are talking about the communication of information; occurs when we want to transfer a value. The problem of the need for an intermediary also represents the eternal problem of human nature: the need for trust.

The problem of creating digital money thus meant the problem of avoiding the need to trust an intermediary to prevent double-spending of information. Online banks and payment service providers thus ensured that the sender could not spend the sent money himself, since he was essentially sending only digital information in the form of zeros and ones.

BITCOIN

Bitcoin is a new form of digital money that is completely transforming the monetary infrastructure. It is the first monetary system that we humans designed ourselves. Its main feature is decentralized control. Since bitcoin is just a software record that can be loaded onto a computer, its software can be operated by any individual with access to the Internet. Anyone who has a copy of the bitcoin software loaded on their computer participates in deciding on the changes. This ensures a high level of system security, which is extremely difficult to change, as the majority of users must agree to the changes.

Since the system is distributed among its users, this bypasses the need for a central authority to ensure the validity of the information stored in the system. Bitcoin represents a ledger in which the balances of users who send coins called bitcoins to each other are constantly updated. New transactions are written into a block of transactions created by miners of new blocks, and their validity is checked by nodes. A node is any computer that runs the bitcoin software and verifies the authenticity of the information. Miners, on the other hand, are special computers that solve a cryptographic equation that creates a new block of transactions, and in return they are rewarded with new coins and transaction costs. So miners perform an activity for which they are rewarded, and their work is monitored by nodes. In this way, the system achieves decentralization, as each participant in the system checks all others and all others check him. At first glance, this seems very complicated, but cryptography simplifies this problem, since the hash value of new blocks enables easy verification of the validity of information.

The charm of blockchain technology is that it creates a time sequence of information based on cryptography, which is only valid if the hashed values of the blocks in the chain match. Thus, when adding new blocks of transactions, it is only necessary to check their compliance with the hashed value of the previous block. If the new hashed value matches the previous one, the mining computer has calculated the equation correctly and receives a reward for the work invested. This system is called proof of work, and it refers to the amount of electrical energy used that the computer converts into hashing power to calculate cryptographic equations.