What is Bitcoin Good for? > Bitcoin Brings Property Rights to the Digital World
Bitcoin solved the problem of how to register and transfer private property in the digital world without having to trust government or banking officials.
When you think about private property, you might think about something big, like a house or a car. Or you might think about something smaller like a laptop or a cell phone.
In the physical world those large ticket items have a deed or title and are registered with the state or county government through a registry, but the smaller items like a cell phone or computer are unregistered.
The Internet Arrives in College Dorm Rooms in the 1990s
In the late 1990s when the Internet became popular, people were confronted with the fact that the digital word lacked the same property rights as the physical world.
I was in university at the time, and it was common for students to copy music using programs like Napster and Bit-torrent. Unlike cars and houses, the music albums being copied did not have any titles or deeds that could be sold or transferred. Students copied music freely and record sales declined.
This resulted in a crisis for the major labels, who responded by suing individuals that shared music online. Apple capitalized on the crisis by introducing moderate copy controls with the introduction of the iTunes Music store.
Applying Property Rights to Digital Assets
If you fast forward to today, many people still feel like digital property like music or a video is different from physical property like a car or a house because the owner can’t easily transfer the title to someone else. All this is beginning to change because of a mathematical breakthrough pioneered by the creator of Bitcoin. (simpler explanation)
Solving the Double Spend Problem:
There had been previous attempts to create digital cash, but they all required a trusted central authority like a trusted government or corporation. After the 2008 financial crisis, the creator of Bitcoin wanted a property-based financial system that did not depend on Wall Street and Washington doing the right thing. That’s why they created Bitcoin.
There is a problem enforcing digital property rights that is not present in the physical world known as the double spend problem.
I’m going to use a photo for this example, because we’re all familiar with digital photos, but you can also interpret this as applying to decentralized digital money.
Suppose you take a dramatic photo of your local football game and sell it to me. How do I know that you didn’t sell the same photo to someone else last week? This applies equally to digital cash. If you give me $100 digital dollars, how do I know that this isn’t a copy of the $100 dollars that you spend previously.
Bitcoin solves this problem by having miners (validators) verify that a sale didn’t occur before, in a prior transaction.
You may still have a copy of the photo on you spare thumb drive, but you don’t own it anymore and you can’t sell it to anyone else because the validators won’t let title transfer occur.
Bitcoin Allows Decentralized Property Rights
What the Bitcoin’s creator made is a sort of “file sharing network” that registered and transferred intellectual property titles rather than music— an “Anti-Napster”
To clarify, when I say digital property I mean the “title” for any digital asset, be it:
- digital cash,
- digital images,
- digital music,
- digital video
Announced with an Academic White Paper
If Bitcoin was a scam, you would of thought they would have announced it with a viral media campaign rather than an academic-style paper that they gave away for free, explaining how they had solved various technical problems:
- Bitcoin White paper (Original)
- Bitcoin White Paper Made Simple: A guide to understanding the Bitcoin white paper for people without an advanced degree in computer geekery
It’s late 2008, and the global financial crisis is
causing shock waves around the world. Anger at the
worldwide banking industry, governments and other
centralized authorities has reached fever pitch.
Enter a mysterious figure named Satoshi Nakamoto,
whose real identity continues to remain shrouded in
mystery to this day.
Satoshi authors and releases a white paper titled
Bitcoin: A Peer-to-Peer Electronic Cash System.
The paper shared the workings for a new digital
currency system that didn’t rely on banks to
facilitate transactions or governments to create and
disseminate the currency.
Shortly after its release it is studied by members of
the Cypherpunk group and found to be extremely promising.
Registering the “Title” to your Cash
With Bitcoin, when you buy or sell “cash” the “title” is registered with a ledger, which is a log that records the transaction.
Below is a real Bitcoin transaction. Notice the “to” and “from” are aliases.
bc1qsqz55kcrv4htg9a5y7493fzdwumd9jxyad7kgd (can be multiple outputs)
0.00003106 BTC, and
0.01101045 BTC (total ~ $532.42)
0.00000192 BTC (~ $0.09)
(Here’s a larger transaction: transferring the equivalent of $89,605.84 for a Fee of $0.91)
The transaction fee can vary, depending by what priority you set. If you are willing to wait an hour, the fee will be minimal. If you want the transfer included in the next block (batch of transactions) the fee will be higher.
Your “Title” is Mirrored by Servers Around the World
The sale is recorded by tens of thousands of servers around the world.
If someone wanted to tamper with the ledger, they would have to break into and change the log results on tens of thousands of computers simultaneously. If there is a war and only a single copy of the ledger survives, the whole system could be easily restored from that ledger.