Philosophy of Equity and Exchange
This is the crux of the whole Bitcoin value transfer system and this is where you need to disengage your mind from what you and I are so used to. We are used to the printed piece of paper with Jackson, Franklin and Washington printed on them to be something of value on its own. We forget that fiat currency only represents a value. It is in paper form because it’s a lot easier to fold and put in your money clip or wallet. That makes it easy to carry around. Imagine having to carry around a cart full of gold to make your transactions. That dollar bill merely carries the value of something that you did in the past to get it that value. You may have labored at the office, or profited at your business, and your contribution of value resulted in the conversion of that dollar. That dollar on its own is a piece of paper. It has value because you worked for it and the sovereign government of the land you live in has printed these (supposedly) unforgeable mediums of exchange as a public good.
That fiat currency – the dollar bill, or gold coin, is just a vessel of value. The actual value itself is not that thing that carries it. You went to work, got paid, took that money and bought bread. Money served as the medium of value that could easily move between getting paid by your employer, to being used as the medium to purchase products so that it made transactions more convenient. Otherwise, you would have to go to the baker and barter him with your skill to get a loaf of bread – what a headache.
So, what we have established painstakingly is that value is different from its carrier. Now that we know that, then we can willingly make the carrier more relevant to the venue and method of interaction. We used physical paper when we traded physically. Now we trade electronically, so something electronic is appropriate. We already mentioned this part and you get that, but here is the point of all this. You see, printed fiats have one thing going for them and that is that the government that printed them places their weight behind the piece of paper and says that they stand behind it – and that gives the people the assurances that they need that the paper can hold the value that the people put in it.
Make no mistake, the value of the currency does not come from the institutions of trust that the government represents, the value comes from the labor and contribution that people put in to it; whereas, once the government provided security for it, they also ended up giving it value because the fiat was backed by the total output of the country and managed by the supply of the printed bill. In cryptocurrencies, none of that exists and so the only way you can give the currency value and give it credibility and give people the confidence to use it is if it has a track record. By that, I don’t just mean that Bitcoin in general and as a whole needs to get credibility, I mean the value and utility of each Satoshi and Bitcoin needs to have the credibility. In fact, to make it plausible and serve as a carrier, that carrier must have a credible starting point and usage over time to develop a history of its use. Without that history, and without that credible starting point, that coin has no value since it does not have the backing of a sovereign body.
I know it’s been a pretty philosophical and long trip to get from the start of this discussion to this point – but it is necessary to describe the weight of the blockchain. You would be remiss to undervalue the prominence of the blockchain in the future of human interaction, and it would be easy to dismiss it if you did not understand the philosophical aspect of the blockchain.
Because human exchange is about the exchange of value, and value can only be created by expenditure of effort, it would be impossible to transition from the physical world to the electronic one without the correct procedure and without effort.
Transactions
As I mentioned, each transaction transfers a certain amount of coin from a person who has it, to a person who is about to receive it. A person without a coin in their account can’t send any, but a person with a fresh, brand new address can receive any amount. There are no limitations to creating as many addresses as possible. Remember, the number of addresses you can open is
equivalent to the number of private keys you can generate. There are 297 possible private keys that you can generate and while that may look small, here is what that actually looks like:
1.5845633 x 1029 – to make that more evident – that’s: 158,456,330,000,000,000,000,000,000,000.
To put that into perspective, earth has 7.5 x 1015 grains of sand. That means if each grain of sand was an earth-like planet that had the same number of grains of sand contained within it, then the number of private keys you could generate would all the grains of sand combined. Get it… ok, it’s a lot. Trust me on that one.
The reason we take the trouble to make it a point to stress this is that the chance of a collision is remote, in statistical terms, and this just means that if you keep the pick of your private key perfectly random, the chances of you finding a private key that hasn’t been taken yet is very close to zero.
Those odds dramatically change if you pick a number that you like – your birthday for instance, or your anniversary and then try to convert that to a hash and then use that to create the public key and a Bitcoin address; what you will find is that it’s probably already taken. The collision rate goes up significantly the moment you do not let the private key be randomly picked by a truly random number generator. You can find one here: https://www.random.org/strings/
Once you pick a random number, you can write that number down somewhere and then, my suggestion is that you run it through a SHA256 convertor like we did earlier and that will give you the hash of that number. You can then take that as your private key and generate the public key from there and then get a Bitcoin address from there.
All that is comparatively a lot of work, because if you have a Bitcoind on your computer, it is going to generate an account, and a public and private key for you as many times as you want. By the way, you can download that here: https://bitcoin.org/en/download. It will be as easy as pie and you should just stick to doing it that way. I have mentioned the process so you understand how it’s done and that will give you an understanding of how the blockchain works as well under it.
Now that we took that minor detour, let’s get back to our topic of transactions. When you conduct a transaction, it is a message telling the world that you, Mr. A, are sending Mr. B, X BTC. Remember, you are not just telling Mr. B, so be careful of the text message that you include in the message. Once you send that message to the world, all nodes are listening. Remember the gossip protocol as it starts to work at this point and the message gets into the queue and the nodes go into action to verify that your message can be a message. Assuming all goes well, the transaction is righteous and it gets confirmed and the recipient is now the legal owner of the coin.
The coin takes on life because of transactions, and the transactions have value because of the coin. There are two aspects of value when it comes to a coin. The first is that no coin comes free
– putting aside the initial coins that were released to the developer to get the ball rolling, but, even then, one could convincingly argue that the coins were reward for the sweat equity that was put into the development of the protocol and the algorithm that was built on top of it.
From the very first transaction until today, every coin starts its life with a certain intrinsic value. That value is defined as the value that miners put in to do the computation necessary to create the
