Using Any New Service or Product Requires a Degree of Trust
So what’s so special about Bitcoin that means new users or investors can trust the cryptocurrency?
Trust in Bitcoin can mean several things: Trust in transactions on the blockchain, trust in Bitcoin wallets, trust in Bitcoin maintaining it’s value and finally trust in Bitcoin users themselves.
Before handing over any of your hard-earned money, can YOU trust Bitcoin?
Both a libertarian dream and a nightmare for big banks, Bitcoin could completely revolutionize the way we pay for goods and services and make traditional banking almost irrelevant.
Bit it’s not going to do any of that, if mainstream users and investors don’t trust it – so how can we be sure the cryptocurrency can be trusted?
Trust in the Blockchain
The “blockchain” is key to Bitcoin’s function – a fully distributed ledger that records each and every Bitcoin transaction made, from this exact moment all the way back to the first ever exchange. The ledger is open for anyone to see and cannot be faked, spoofed or hacked due to the clever way it was designed.
Every time a transaction is made, every element is checked and double checked across the network. It would be like if you made a payment into your bank, and not just the teller – but everyone at the bank and all other banks across the world – were able to verify that everything was good, instantaneously.
And because the transaction is simultaneously recorded on thousands of separate computers across the globe, it would be impossible to go in and change or hide the transfer at a later date.
The whole system is based on math – peer-reviewed cryptographic algorithms – and the code that it’s built upon is open source meaning anyone, anywhere can examine the code and verify what it is and how it works. There can be no back-doors, secret siphoning or other shenanigans, because the tech-savvy Bitcoin programming community would spot it in a heartbeat.
Trusting the code is the same as trusting that 1+1=2. There are no gray areas, what-ifs, speculations or room for doubt. 1+1 is always going to equal two.
No bank, or other financial system can offer that level of trust.
Trust in Your Bitcoin Wallet
Wallets are an address inside the blockchain where your Bitcoin are stored. Like the blockchain itself, they are a mathematical algorithm, and their contents are stored on the blockchain for all to see.
And with a Bitcoin wallet address, anyone can look on the blockchain and see what’s there- and it’s contents are verified and recorded across the whole network, meaning again that not you or anyone else can fake or change the details.
Don’t worry – this fully transparent wallet is also wholly private – none of your personal details are stored in your wallet – simply the wallet address and the Bitcoin inside it.
Wallets come with a public and a private key – like the wallet address the public key is available to all. This is essential so that anyone can pay Bitcoin into your wallet without relying on a third party.
But if you want to remove Bitcoin from your wallet – to transfer your crypto into cash or some other asset like gold, then you are going to need your private key.
Provided you don’t share this key with anyone, nobody will ever be able to access your wallet. They can look, but they can’t touch.
If you do share your wallet’s secret key then then anyone with that key can access and remove your coins.
In short, don’t share your secret key. Without it, your wallet is more secure than the world’s most secure gold vault.
As for losing your secret key – if you lose this and have no way of getting it back – such as having lost your “seed phrase” – then you effectively lose the wallet’s contents. They won’t cease to exist, in fact they’ll go on existing for as long as there is Bitcoin, but they’ll be dormant, effectively removed from circulation.
Don’t lose your secret key – ever.
Trust in Bitcoin’s Value
Coming away from the trust surrounding Bitcoin’s function, we get to it’s value – how can we trust Bitcoin will keep it’s value?
The simple answer is we can’t.
Bitcoin themselves say:
Bitcoin is a growing space of innovation and there are business opportunities that also include risks. There is no guarantee that Bitcoin will continue to grow even though it has developed at a very fast rate so far. Investing time and resources on anything related to Bitcoin requires entrepreneurship.
At it’s release Bitcoins were worth pennies and yet they’ve risen as high as $20,000. Currently holding fairly steady around the $10,000 mark, they could just as easily rise to $50,000 as drop to $1000, $10, $1 even zero (although this is considered unlikely).
While Bitcoin remains a relatively small market, at least in relation to other commodities, much of it’s value is derived from speculation.
As the coin becomes more widely established then more of it’s value will come from it’s use as a medium of exchange and at that point the crypto will become a more solid investment.
Until that time, it’s a speculative gamble, albeit one that’s made a lot of people very wealthy.
Trust in Bitcoin Users
Although the media likes to portray Bitcoin users as hooded hackers sat brooding in a dark room, the truth is Bitcoin are used by small businesses, mon-and-pop stores, artists, tech workers, teachers, nurses – in fact Bitcoin’s majority of users are just ordinary folks like you and me.
That’s not to say there aren’t criminal elements using Bitcoin – but the same can be said for cash, the ultimate in anonymous currency. In fact for criminals, Bitcoin has one great big flaw in that it’s ledger is completely transparent.
If Mr Big buys a shipment of illicit goods and pays with Bitcoin, then his wallet and the receiving wallet addresses will be stored in the blockchain. If they’re then spent by Mrs Crim, her wallet address and the receiving wallet will be stored – and so on. The Feds simply have to follow the trail to the point when someone either converts the Bitcoin to cash on an exchange, or buys an item for delivery to their address. With that, they’ll have a person’s ID and simply follow the trail backwards to Mr Big and Mrs Crim. Try doing that with a stack of dollars.
Bitcoin transactions cannot be reversed so if someone steals your money and you have no proof of their whereabouts, the money’s gone.
As with any cash transaction – be wary – only buy goods and services from people and companies you trust.
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