Bitcoin: A licence to print money or useless virtual currency? →
“Bitcoin is unique in that it’s the first digital currency that doesn’t need a central bank to monitor transactions,” explains Jeff Garzik, a member of the core team of four developers who maintain Bitcoin’s immense security software. “Previous attempts like Beenz and Flooz all needed that monitoring because of ‘double-spending’.”
David Birch, director of Consult Hyperion, a consultancy firm specialising in electronic transactions, explains the concept of double-spending: “Digital products are non-rivalrous. That is to say, if you have a copy of an MP3 album, for example, and I take a copy, there’s still enough for everyone else who wants one.” Good news for music fans. Not such good news if you’re trying to create a brand new online global currency. “What makes money work is that there’s a limited supply. If you use a quid at the pub today, you can’t go out and spend that same quid for a full English in the morning.” It’s for this reason that a third party has always been needed to guarantee that the correct amount is taken from the payer’s account and added to the payee’s. Bitcoin solved the tricky double-spending dilemma by sharing the database of transactions across a peer-to-peer network.
“It’s shared trust technology and we have over 100,000 computers on the internet collectively working to verify every single Bitcoin transaction,” Garzik boasts. “This means that Bitcoin’s verification network is more powerful than the world’s largest supercomputers. In fact, there’s more technology dedicated to securing Bitcoin than you will find on the analysis of nuclear tests.”
