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The Real Magic of Bitcoin

Posted by majc in Bitcoin on Jul 4th 2014 2 Comments »

Forget everything you’ve heard. Bitcoin is complicated like magic is complicated. It’s not. But things are told to you in an obscure way, amidst a lot of distracting nonsense, which leaves you bewildered. The magician does it on purpose, of course, whereas Bitcoin just isn’t explained very well, and the theatrics which happen around it are highly magnetic.

So where’s the sleight of hand – what are we missing?

Where we really need to look, first and core-most, is here: When you hand over a quarter to someone in the street, the coin moves from one person to another, and everyone keeps walking. Bitcoin doesn’t work that way. Bitcoins are not coins, and you do not “transfer one bitcoin” from one person to another. Bitcoins don’t move.

What happens instead?

When you transact in bitcoin, what moves from one person to another – what changes hands – is ownership of the bitcoin. You sign over your ownership of one bitcoin to someone else, the bitcoin stays put, and everyone keeps walking.

Do you see how that’s different?

In practice, of course, it doesn’t have to be one whole bitcoin: you can sign over ownership of any amount of bitcoin – even tiny fractions.

The important thing we’re seeing here is that the money in this situation – the agreed, accepted store of value that changes hands – is bitcoin-ownership, not the “coin” itself.

Nifty trick? Yes. Complicated? No.

It’s a subtle shift in technique which achieves exactly the same result: “This doesn’t belong to me any more, it belongs to you”. And, like a magic trick, subtle shifts in technique can make otherwise impossible things possible.

In short, the Bitcoin way of doing things – built on this subtle shift in technique – makes some important, potentially game-changing new things possible. And that is Bitcoin’s value. These new possibilities are why Bitcoin means something. They are the reason why Bitcoin is worth something.

We’ll get to what the newly-possible things are in a minute, and why they matter, but when you see smart people getting so pumped about Bitcoin, these technological advances are the reason. They are the real magic of Bitcoin.

And they regularly get lost amidst a lot of distracting nonsense. »

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