Bitcoin: Not Ready for Prime Time

 

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Not one in a hundred bitcoin users knows these are barcodes or what they do.

The bitcoin community is delusional. All of the features the bitcoin enthusiasts claim make bitcoin great do not yet exist.  Yet these bitcoin cowboys act as though they do and that defies explanation. Based on the blockchain technology, bitcoin is supposed to be the next generation of finance.  It is supposed to be secure, anonymous, and fast.  But having now purchased, traded, exchanged, spent, and gifted bitcoin, the reality is — bitcoin promises all of those features but delivers none.

 

The most well-known, well-used bitcoin exchange is Coinbase. It now boasts more customers than Charles Schwab with 100,000 new customers signing up daily.  It is extremely slow.  I went to bed last night, rather than wait beyond the 30 minutes Coinbase asked me to wait to see the confirmation of my transaction.  The program upon which the exchange is written is barebones.  The protocols customers have to follow to execute transactions are so poorly designed, so unstable and so unreliable that if it was a student computer science project it would get failing grades.  One customer in a hundred understands what the QR code does.  The Internet service provider, Spectrum, which I use to connect to the Internet goes down daily and is so unreliable that you would think I live in a third-world country not the Financial District in Manhattan.  That’s not bitcoin’s fault but it doesn’t help speeds or reliability.

I break out in a cold sweat whenever I have to copy and paste one of those nasty thirty-character addresses that may or may not be correct.  How would you know the difference? The only advice I get is “This had better be a BTC address or your crypto may be lost forever.” Or, what is going through my mind at that moment is the story about the scam which involves a dormant program which resides on your computer, waiting for you to make a bitcoin transaction.  At the moment the transaction is sent, the pirate program substitutes their address for yours so you never know what hit you. Bitcoin transactions might be instantaneous but you have to be so cautious and move so carefully that it rather feels like an awful lot of work.

The transit might be instantaneous but the mining, confirmations and blockchain building takes forever.  Transactions at the speed of light? An hour or more is not uncommon.

I’m sorry to say the whole Bitcoin environment will have to evolve into something that is much, much safer, faster and foolproof before it can ever go Mainstream.  Think of automobiles.  When you take the keys and go for a spin you barely have to give the act of driving or the car itself a second thought.  Bitcoin has to evolve into something just as safe and reliable.  Otherwise, there are going to be accidents, thefts, mislaid property, and unintended consequences.  And, we will never realize the promise of a blockchain based currency.

171109 Blockchain

HandshakeBitcoin is difficult for most people to understand.  It’s based on trust, cryptography, finance, and computing. All of these are complex subjects. But, Bitcoin is an important phenomenon taking place and there’s good reason to be able to appreciate what’s happening.  Let’s look at some of the features of this new currency that make it so special.

The Bitcoin network, called a blockchain, give Bitcoin it’s strength. Blockchain technology works so well that thousands of blockchains have been proposed and are in various stages of actualization.  These are being created by banks, insurance companies, healthcare providers, and Fortune 500 companies to help secure data and provide trusted information to large networks. A blockchain network is described as a distributed network.

We are familiar with centralized networks where everything is sent in and out of the network through a centralized node.  We also are familiar with decentralized networks where many different nodes are scattered across the network.  A distributed network is a little different.  But that difference is very important.

distributed network

In a distributed network every node is connected to all of its neighbors.  There are no great distances between nodes.  A new node may be added to the network by attaching itself to an existing node.  Before we talk about how block change works, let’s look at the problem it solves.

If you were in charge of some very sensitive, valuable information but you had to keep it on a computer how would you keep the data safe, preventing damage and free from unauthorized tampering, and secure, free from vandalism and theft? Remember, this is someone else’s data and they need access to it whenever they want. How do you keep the data safe and secure but still allow the rightful owners access?

First, to prevent loss there should be copies. How many? The more the merrier, actually. If everyone who had data in your care also had an exact copy of all of that data, wouldn’t that be great?  If someone were to steal your computer, the data would be with all of the other players. In fact, if someone stole half of all the computers in the network, there would still be multiple copies of the records.

Ever hear the phrase “garbage in, garbage out”? This is another motto that applies to blockchain in spades. To ensure every new record is a good record, before adding it to the chain of all the blocks of old records, it is verified by comparing it to the existing records. Remember, of the 21,000,000 Bitcoin that can ever be created, 16,600,000 is already out there.  They are being kept in Bitcoin wallets, and the amount and address of each wallet are the data in the blockchain. So before a new record is added which says X number of Bitcoin from address A is being transferred to the owner of address B, that new record is checked to see that there is, in fact, X Bitcoin and then the differences recorded after the transaction. Before a Bitcoin transaction is built into a new block and added to the chain, hundreds of checks of this type are verified. That’s why Bitcoin transactions are not instant.  They usually take about 10 minutes. But, having made those thousands of checks, the new block of transactions can safely be added to the blockchain.

With this system, two total strangers can exchange Bitcoin in full confidence that there is real Bitcoin, it hasn’t been lost or stolen and is the property of one to give to the other.  The transaction is anonymous, that is a person’s name is not attached to the address.  There are also no fees required to make this transaction.  The work of keeping the distributed ledger up to date and accurate is done by miners who are rewarded for their work by getting paid in Bitcoin.  There is a payment process which keeps the function of mining random and allows anyone to join.  The reward is randomly given to one of the miners.  It is a large reward and there is enough Bitcoin in reserve to pay miners for the next 120 years.  At that point, the system changes to a fee-based system.  By having a system that gives all comers an equal opportunity to be a miner, it prevents certain interests from monopolizing the mining function.

 

 

 

 

 

 

 

170915 Why Bitcoin?

bitcoin-2582593__480“Why Bitcoin?” is one of the first questions that comes up when I mention Bitcoin.  It’s interesting to note that WordPress.com, the host of this blog, now includes space for authors to be paid in Bitcoin.  My Bitcoin address is “14VNkTPR7N9kxjPkYc1Gvf3R9TNbME615W” just in case you are interested in sending me some Bitcoin.  It’s just that easy to set up, send and receive Bitcoin.

If I wanted to set up the ability to receive payments by MasterCard or Visa it would require a bank, a merchant account, an ability to read card numbers, username, date of expiry, a three-digit security code, and a signature. There might even be a waiting period before any transactions go through, despite all of this security.

Bitcoin requires none of that.  Bitcoin that is sent to an address is received by the address.  That is the end of the transaction.   There are no banking fees,  there are no exchange rates or credit card charges.  There is a small fee attached to each transaction that pays for the processing.  Every bit of the Bitcoin sent as a payment is received by the recipient.  This is true for any sender and any receiver anywhere in the world.

Imagine your brother, someone you trust more than anyone else in the world, owed you a large sum of money.  To pay you he hands you an envelope full of cash.  You might not even bother to count it. He’s your brother after all.  In this trusted relationship, counting isn’t necessary.  You put the envelope in your pocket.  End of story.  The reason that this transaction was so simple was that it is a trusted relationship.  The reason Bitcoin transactions are so simple is that they, too, are trusted relationships.

Why Bitcoin? Because it’s so much easier, faster, smarter and cheaper than any other form of payment.bitcoin