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Bitcoin Explained: A programmer's translation

February 05, 2013

We've been hearing alot about bitcoin in the past couple weeks. Previously we understood the idea that it's an online currency but we've never really investigated or understood how that works or what that means before. After hearing quite a bit grumblings about it here in the cave we decided to take a look. We did what any other sensible group of programmers would do, we cracked beers and dug into what that really meant. What we discovered and the implications of them are huge.

We knew one thing that would end bitcoin for us immediately is if it was centralized. Therefore, first thing we wanted to discover was what "online" meant. When we saw "online" we figured that this meant centralized server controlled by one entity: not good. One organization would control every interaction in the economy. Taxation and exploitation ensues. That's just communist! We've already fought those wars and learned those lessons.

Luckily bitcoin is not this. Bitcoin is a protocol, a very complex protocol that doesn't live on centralized servers but rather lives over a network. What this means is that bitcoin is a method of transferring currency from peer to peer without going up to the cloud.

So doesnt that mean people will be able to cheat? If there is not a way for a central server to monitor it, how can it be safe? Bitcoin has solved this problem, or so we're told. It seems very complex and we'll want to look into it more but essentially the architects over there have come up with a handshake, private key echange and network based verification method which allows for this to not only be secure but uncheatable as well.

This in and of itself is very powerful and has huge implications. Its like as society we have cash again... that's not controlled by a government... is available/useable globally... and isn't controlled/taxed by large for profit instutions.

There are alot of other factors that go into currency however. Specifically inflation. Inflation is important for many reasons but one being because it encourages economic growth. Sitting on money and not doing anything is bad because essntially you're losing value. It seems that the team over at bitcoin has thought through these or at least some of them (lets get some economists to weigh in). For inflation they have built economic functions into the protocol where bitcoins can actually be mined through computationally intensive processes. Again we'd want to check this out a bit more and have economists weigh in.

To put bitcoin in perspective, the currency takes a historical perspective, "Currency is essentially the standardization of a symbolic bartering system." Over the internet, for digital goods and services, bitcoin believes we can do the same thing but in a more perfect fashion. As all of our purchases move increasingly online something like this needs to happen. Essentially every transaction that occurs online is taxed, monitored and controlled by a handful of organizations. It's as if a foriegn entity was unnecessarily controlling money when it shouldn't; surpressing the natural growth of an economy. Last time we saw this happening a large revolultion occured.  

As far as we're concerned, we are very interested in investigating bitcoin more. Looking into exactly how these protocols work and making sure they truly perform as described would be important to us before signing on. We would also be interested in getting some economic opinions and formula comparisons in regards to the economic functions such as "bitcoin mining". Overall however we like the idea of bitcoin and believe it is truly revolutionary in regards to our use of computers and networking.

We live in a truly amazing time.

is a President | Founding Partner at Yeti. Tony has been developing software since high school and has worked on digital products for global brands such as Google, MIT, Qualcomm, Hershey’s, Britney Spears and Harmon/Kardon. Tony’s writing about innovation and technology has been featured in Forbes, Huffington Post and Inc. At Yeti, Tony works on strategy, product design and day to day operations, hopping in and working with the development teams when needed. Follow Tony on Twitter.

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