Bitcoin- How it Changed the Digital World
Digital money and double spend problem.
The movement from fiat money to digital money was particularly simple, as analysed in the previous post. We already have a government that issues money and has the right to keep track of who owns what. Now we are able to use credit or debit cards and other forms of digital money. The amount of physical money in the world is negligible and is getting smaller every single year that passes.
How does digital money work?
If you have a file that represents a dollar, what can stop you from copying it a million times and having million dollars? This is known as the double spend problem. Banks today use a “centralized” solution, as they keep a ledger on their computer, which keeps a track of who owns what. Everyone has an account and this ledger keeps a tally for each amount. People trust the bank, which bank trusts a computer and so the solution is centralized on this ledger in this computer. You may not know this, but several attempts have been made in order to create alternative forms of digital currencies, but all have failed in solving the double spent problem without a central authority.
This was the state of things until 2008. Creating an alternative to the current system seemed like a lost cause. However, everything changed on the 31st of October of 2008, where a paper written by a person or group named ‘Satoshi Nakamoto’ released a white paper called “Bitcoin: A Peer-to-Peer Electronic Cash System". This document suggested a way of creating a system for a decentralized currency called bitcoin. This system resulted in solving the double spend problem in digital money without the need for a central authority. So it is not false to say that Bitcoin at its core is a transparent ledger without a central authority.