Bitcoin creator and nChain Chief Scientist Dr. Craig S. Wright and engineering head of tokenization entity smart wallet at the Bayesian Group and Money Button founder Ryan X. Charles have created the “Theory of Bitcoin” series that educates audiences worldwide about the benefits of Bitcoin.
Over the years, a lot has happened that created misinterpretations of various Bitcoin terms. This resulted in the loss of the true meaning of Bitcoin. In an effort to go back to the basics, the duo has made a 10-part special about the Bitcoin white paper—the groundwork of all things Bitcoin. One of the very interesting points discussed is how Bitcoin is secured and economic because it does not need or operate like a “trusted third party.”
“When we’re talking about no trusted third party, it’s not your normal everyday trusted the third party. We’re talking about fiduciaries. A trusted third party is a defined legal term. So, we are talking about financial intermediaries, no fiduciaries here. So, nobody holds your money. It’s like cash, but they verify it. And when I hand you money, miners can’t intercept that. They can process it… but they don’t sign it. They don’t validate that it’s correct and then alter something and then stamp it… I hand you [money], and you get cash” Dr. Wright explains.
Instead of these fiduciaries, Bitcoin has miners who act as nodes on the network. And they only process transactions and validate them; Bitcoin miners do not hold your money for you. Bitcoin is built on a blockchain, which is a public ledger where data is stored immutably and chronologically. Furthermore, data is distributed to all Bitcoin miners on the network. This means that the entire transaction history is copied on each and every one of these nodes. There is no one administration that has control of the network. All nodes act as administrators who safeguard the data and network.
“Miners can change the rules, but it’s public. So, you can’t change the protocol, but you can interact with things. You can ban different addresses or reassign addresses and do things. There are always different actions that can be taken. But if they do this and the system doesn’t agree, then there’s a complete audit record of all of these exchanges,” Dr. Wright clarifies.
It can be seen here how security is embedded within the design of the network itself. Because fraudulent changes are automatically rejected by the system, broadcasted publicly, and recorded in real-time, it is almost impossible for the network to be hacked. This decentralized system is also the reason why Bitcoin is economic.
“If Monaco, who’s a big miner and owns 40% of the market, goes bankrupt, no one cares. 60% of the market goes, “Our profitability is skyrocketing! Yippee!” And they invest more money because they’re getting more money back. It’s economic. That’s what I keep saying, It’s an economic system, primarily,” Dr. Wright further expounds.
Payment intermediaries like PayPal and WeChat operate on centralized systems wherein an administrator has control of the entire network. When this kind of system is hacked, then it would be catastrophic to all its users as their data and money are all going to be compromised. With Bitcoin, one has to hack all Bitcoin miners on the network in order to successfully do damage.