<aside> <img src="/icons/flash_gray.svg" alt="/icons/flash_gray.svg" width="40px" /> The Bitcoin Rabbit Hole: 3/10 ⚡ What if we reimagined money for today's digital world? It would be digitally native, trustless, permissionless & immutable.

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What if we reimagined money for the digital world we live in today? A better money would contain all the properties of money we learned about earlier and it would solve the problems of gold and fiat money by adding a few new properties:

• Digital – Digitally native money is inherently global and can be programmed to do things physical money could only dream of
• Trustless – You shouldn’t have to trust anyone or go through middle men to use digital money
• Permissionless – Money should be universally accessible by anyone who wants to use it
• Immutable – It shouldn’t be possible for anyone or anything to reverse your transaction or manipulate the money supply

Until Bitcoin, trustless and permissionless digital money wasn’t possible because of two main problems:

1. The Double Spend Problem – Without a trusted central party tracking the money, how do we make sure people can’t spend the same money multiple times?
2. The Byzantine General’s Problem – If we replace a central party with an open and permissionless network, surely dishonest participants will join. How can we ensure the information being shared between everyone is accurate and reliable?

Digital Money

Computers are really good at making copies of things. When you send someone a file you both end up with an exact replica of that file. With one click, you can make a perfect copy of every file on your hard drive. If dollars were digital, you could easily send the same digital dollar to multiple people!

Until Bitcoin, the only way to make sure you didn’t spend the same digital dollar multiple times was to have all transactions flow through a trusted central party – typically a bank. 90% of U.S. dollars are already a digital currency managed by banks. Of the $16.8 TRILLION dollars in the M2 Money Supply (as of April 13, 2020) only $1.84 TRILLION of it exists as Federal Reserve notes in circulation.

The first step towards ditching the bank and solving the double spend problem is to create programmable money that’s digitally native from the start.

Trustless Money

“The root problem with conventional currency is all the trust that’s required to make it work.

The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.

Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.

We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.”

SATOSHI NAKAMOTO, INVENTOR OF BITCOIN

This quote comes from Feb 11th 2009, the day Satoshi announced Bitcoin. The ability to transact digitally without 3rd parties or middlemen is the reason for Bitcoin’s existence.

In Bitcoin, instead of trusting banks to move our money for us, trust is delegated cryptography (now we know why everyone calls Bitcoin crypto!). Without getting too technical, public-key cryptography is a form of advanced mathematics which allows you to digitally sign information. No one can forge your digital signature without your private key, however anyone who receives that information along with your signature and public key can verify that you signed that information.

Cryptography is complicated, but luckily a good Bitcoin wallet handles this for you. You don’t need to understand exactly how cryptography works, however your private key is like a password for your money. Later, we’ll teach you how to safely protect your private key yourself, because if you want someone else to do it for you, you might as well use a bank.