Two common words, naming an uncommon concept.
Today we will try to shed some light on bitcoin. Even if it seems to become more and more popular, it still remains kind of a puzzling enigma wrapped in a mystery.
Quite understandable, as its operating principles are not that easy to grasp. Plus it is meant to provide unsolvable anonymity. Plus it appeared from unsolved anonymity too.
« Bitcoin was created in 2008 by Satoshi Nakamoto« , that’s a statement you will find pretty much everywhere.
Except that no one knows who Satoshi Nakamoto really is: he might be a man or a woman, a person or a group of persons, a Japanese or an Eskimo, he might be anyone including just as well your unsuspicious-looking neighbour.
Remarkably, ‘Satoshi-san’ managed to remain unknown even to these days, despite the serious and combined efforts made to find out who he really is.
According to his profile on P2Pfoundation website, he would be a 39 years male living in Japan.
« Hardly », says the ad-hoc or the organized task-forces missioned to unveil his identity: he never used Japanese in communications and his written English seems to rather be of Commonwealth origin (like the « bloody hard » expression used in postings or code-comments). The time stamps of his 500+ postings seem to indicate an Eastern or Central American geographical zone anywhere from the North, Central or South Americas.
But names, phrases and timings can be intentionally misleading of course, so it looks like we’ll have to wait until the moment when Satoshi Nakamoto (the correct French form would be « Satoshi N’a qu’une moto ») himself will decide to reveal his identity.
Anyways, whoever he is, his stealth skills seems to be surpassed only by his creative skills: the bitcoin concept is a remarkable creation in many aspects.
Its principles were published on October 31st 2008, as Nakamoto announced on the Cryptography mailing list at metzdowd.com website.
Let’s quote his own words: « A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. »
Quite hermetic, isn’t it, and yet these are just the first 3 phrases of the « Abstract » part with which the description starts.
So let’s try explaining all this otherwise.
For most of its history, humankind used tangible objects as money, such as shells or pieces of gold or copper. Lately however, money became less and less tangible like printed paper for currency bills, written-and-printed paper for cheques, until completely turning into abstraction. For example, you can use credit cards to handle your money but the card itself is just a means for identification (thus granting access to an account), it doesn’t hold or store anything ‘per-se‘ and money within bank accounts are mere abstractions.
The key word here is « account ».
Life cannot exist without exchanges at any level or scale but us, humans, got to measure our exchange potential so no matter the names or forms we might have given to money, they ultimately served the purpose of measuring amounts of potential (or of actual) exchanges. Just like in computer games, where players have points or credits while each player ultimately translates into an « account ».
In other words, if hypothetically we humans would have had some kind of incorruptible, undeletable and uninterruptible log of all our exchanges or transactions, we would never have needed money.
Bitcoin is actually a public log (« ledger » is the proper word in English) system meant to allow and record transactions (ie, payments) using its own unit of account called…well… a bitcoin.
It is an open-source software operating on peer-to-peer principles thus having no central control (or central administration) point.
Transactions are cyphered, of course, to provide security, hence the name « cryptocurrency » (from cryptography) for this medium of exchange but again, the software is open-source.
The bitcoin ledger system (to tell it apart from bitcoin client-side apps, called « wallets ») is called a block-chain and its decentralization actually means that its maintenance is performed by networks of communicating nodes, instead of a central authority.
To put it in a most simplistic way, the ledger is a computer file and people can make payments by changing this file. Furthermore, anyone have access to this file for cross-checking purposes.
It works like this: a transaction basically means « S » sender sends « m » money to « R » receiver. The transaction is broadcast (from the ‘wallet’ app. used) to the entire network. The network nodes will receive the transaction, validate it and add it to their copy of the ledger then broadcast the updated ledger.
Updates are done by groups (blocks) of transactions every 10 minutes or so meaning that each update adds a new block to the block-chain (ie, the chain of blocks). To prevent double-spending, some complex ordering principles are applied to pending transactions.
A completed transaction means the account of sender « S » is diminished with the « m » money amount he sent and the account of receiver « R » is increased with the « m » money he received, of course.
Being public and also a « closed environment », bitcoin units cannot « disappear » (like money can, in the real life) and each bitcoin-unit history is fully traceable.
OK, so the chain-of-blocks ledger is an unmistaken, full list of all transactions with senders, receivers and amounts and everyone in the world can see and check it. So how is this system anonymous?
Quite simple: it doesn’t contain actual names. It contains account codes, digital signatures. That’s it.
Well folks, in order not to serve you a too concentrated cocktail of facts, we will stop here for today.
In the second part of this ‘thriller‘ we are going to tell you about how new bitcoin-units are created as well as about some consequences the appearance of the bitcoin system produced in the world.
See you next time!