A magazine dedicated to all things Bitcoin
How Bitcoin Security Works by Analogyauthor: BitLotto
published: 2011-04-24 06:39:23 UTC
How Bitcoin works behind the scenes can be a complicated topic to understand! It's a crypto-currency that uses state of the art computer cryptography(the science and practice of secret communication) to function. The problem though, is that most people don't understand or really care to understand how computer cryptology works. Cryptography is filled with complicated math and probabilities so small it's hard to truly appreciate it. It's hard to appreciate how "perfect" Bitcoin is without understanding all the underlaying technology. This makes making it mainstream difficult. How do you convince someone that it's secure if they don't understand it? I'm going to attempt to create a "real world analogy" for Bitcoin. Because everything is digital it's hard to find a perfect real world match for what's actually happening but I’ll try to be close. Let's begin:
Imagine a giant room (Bitcoin Network) containing millions of coins (Bitcoins) with a hole in the middle of each coin. All these coins remain in the room at all times. On each coin there is a padlock (Public Key) going through the middle. Only one padlock can fit on each coin at a time. This room has many people coming and going looking at the coins and changing the padlocks (Transactions).
Padlocks and keys (Private key) are free, quick, and easy to make. Each key is completely unique and impossible to forge. Once a key is made, millions of padlocks are created to go with it and only work with this one key. Everyone has access to all the padlocks. It's impossible to make a key from a padlock. Each group of locks that fit a certain key are given a unique name (Bitcoin address). Coins must always have a lock on them. To remove the padlock, only the person who has the right key can remove it. When they do remove it though, they must immediately put another padlock on.
If I have one coin I want to give to another person, first, I have to figure out what padlock they want me to use (Bitcoin address). I then enter the room, grab a coin that has one of my padlocks on it, take it off, and put theirs on. Once I've done this, I can't change my mind. I can't unlock someone else’s padlock.
Since the padlocks don't contain names it's hard to tell what coins belong to what person. The only thing that is known is the unique name (Bitcoin address) on the padlocks. Only by dealing with the person directly can I know what padlock to grab for putting on the coin. If that person however told everyone what his padlock names were, everyone would know what coins were his. If someone wanted to remain private they could create a new lock (Create new Bitcoin address feature) for each person he dealt with.
There is also cameras everywhere in this room. These cameras only record (Block chain) what locks are used on each coin. These cameras record a history from the coin's very beginning and records each padlock identifier that ever existed on it. This history is recorded, archived, and given to everyone. Everyone contains an identical copy of the history for all the coins in existence. For operating the camera service, the operators (Bitcoin miners), get paid with the brand new coins that enter circulation. The harder they work (Solve blocks) the better chance they have of getting paid as getting paid isn't guaranteed. Anyone can be a camera operator. People who change a lot of locks (complex transactions) are sometimes asked to pay small fees to the camera operators to compensate for the extra work load they create. If you don’t want to pay though, you just have to wait and find an operator who will do it for free.
Points to consider:
-unlike the analogy, giving coins to another person is quick
-unlike the analogy you don't have to send whole coins
-your money is yours because you have the keys! The "keys" are stored on your computer in a “wallet� file. Losing your keys means you can never take the "locks" off. This means it's critical if you have Bitcoins that you backup and secure your “keys�.
-someone faking coins in this scenario would be impossible
-theft of Bitcoins can only occur by theft of the keys outside "the giant room"
-coins don't have people names on it but rather the names of "locks"
-people who lose their keys can never use the locked coins again
-thousands of camera operators (Miners) ensures no one can create fake coins or cheat the system
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