Bitcoin is a decentralized digital currency. “Currency” because just like the dollar, peso or yen, a bitcoin is used to buy things. “Digital” because it only exists in the world of computers, there is no such thing as a paper bitcoin and “decentralized” because unlike traditional banknotes, this currency is not dependent on governments or banks. That’s the important part of the story. Bitcoin, the system, works without the need for an administrator and that has some very interesting implications.
Bitcoin is a technology that aims to find an efficient and secure way to keep accounts without anyone being able to alter this information, neither the state nor the bank. The reasons for doing this can be many and very diverse but let’s stick to two:
One is that the transactional system of banks is very costly, especially for international payments, and the other is that many governments are in the habit of printing money excessively and this distorts the accounts (technically called inflation). In other words, relying on governments and banks generates a cost for society. Bitcoin was the first of many decentralized digital currencies that aim to eliminate this cost or well, at least reduce it significantly.
Now, how does bitcoin replace the State and banks? The first thing is to understand the scheme, in the normal world an electronic transaction the user has to send a message to the banks, to the system administrators and they are the ones who validate the payment and update the accounts, meanwhile, the State is watching. In Bitcoin instead, the scheme is decentralized, the community is directly connected and there is no authority to monitor. Here everyone carries everyone’s accounts, the key is to understand the dynamics of the system.
What really happens is that the sender (the person who sends) tells the community that he wants to send a bitcoin to a recipient, the community first validates that the sender is the right person and has enough money, that is, the accounts are maintained by the community and the value of the coin is that users trust the system. It is important to clarify that this is anonymous, it is not the identity of someone what is validated but your password, the bitcoin community knows how much money has the sender’s account but does not know who owns this account, this is related to the second clarification and is that they are computers that are talking to each other not the users as such, for users to send bitcoin is as easy as sending an email but for computers to send the information is heavy work everything is protected by cryptography, ie by many algorithms and mathematical functions that prevent any attempt to alter the information. It is also important to know that there are two types of users, those who verify transactions and those who do not.
Previously we had said that the emissary sends a message to the whole community, now let’s clarify what does this message contain? Well, it has three things, it has the digital signature of the sender so that everyone can verify that they are talking to the owner of the account, it also has the instruction to transfer a bitcoin to the recipient so that everyone knows what to do and finally it has the reference to one or more transactions in the past, with which the sender shows that if he has money to pay, if all these things are right we confirm that he is not telling lies and then his message becomes a possible transaction. But we still can’t write that down in the ledger, because there is a problem and that is the mess.
As Bitcoin does not have a central administration, many transactions are being valid in different places and in a different order. Therefore, everyone received the same messages but they are in a different order. The challenge then is for all users to agree on the same order so that all copies of the ledger are the same. This is how the blockchain concept appears.
People might think that bitcoin is not secure considering that bitcoin is a cryptographically protected system in which everyone keeps everyone’s accounts, but bitcoin is 100% secure when you explain the blockchain.
This concept refers to the strategy of packaging several transactions in the same block, let’s call it a candidate block, and choosing one of the candidate blocks to officially chain it to past transactions. The beauty is that when a block joins the chain it becomes official and impossible to modify. And how is the winning block chosen? with a raffle, the decision is random. It is a sophisticated raffle in which those users who are proposing an order use all the processing power of their computer to crack a password.
The one who ciphers the key, points to random attempts to win the right to define the next official block and everyone else has to take heed and write down that block in their ledger. Bitcoin is designed so that someone finds the key every ten minutes on average, that is, every ten minutes there is a new official block. It is important to note that there is a good reward for those who validate transactions.
In bitcoin users are anonymous and transactions can be made from anywhere in the world, because we have a more powerful technology, in any case the news is not that it serves to collect ransom or that the price continues to rise relative to the dollar the real news is that humanity now has a technology that is capable of transferring value digitally without the help of an intermediary. And that, is a revolution.