Electronic Coins: Vitamins for a strong economic backbone?
There are many backbone complications and most of them share a common root: poor nutrition. Backbones need vitamins C, A, B6 and E, as well as zinc and copper. If we are not consuming sufficient amounts daily, it could compound into a weakened spinal column and vertebrae. Analogously, societies and economic systems as we experience in the US and Europe also have backbones. Without them, all of our relationships, financial as well as familiar, would crumble. Such a social backbone also has “nutritional“ needs: trust. The things that communicate trust, build trust, strengthen trust and solidify trust are what makes our fiscal movements feasible. Yet this trust has been deeply shaken since 2008 and it seems our economic nutrition consists of french fries and fast food. But there’s a possibility to renew and strengthen that trust: it’s called an electronic coin. Let’s tackle the question: what is an electronic coin? If you really want an understanding, you have to read Satoshi Nakamoto’s nine-paged whitepaper on bitcoin. And if you’re like me, new to the field, then you’ll need some assistance. See Shu Uesugi’s short summary.
Basically an electronic coin is a line of protected codes online (they are digital signatures) that can only exist in relation to their historically previous codes. Banks nowadays verify the reality of someone’s fiscal identity and capacity to pay. With electronic coins, this third-party verification is not needed. The whole verification is within the coin itself (or at least attached to it on its blockchain). Let’s take Shu’s example in his summary:
“Let’s say A paid $1 to B, and B is about to pay this $1 to C.
C needs to verify that somebody passed this $1 to B, because otherwise B is paying C nonexistent money. Therefore, B needs to give C a piece of information which proves that somebody passed this $1 to B.
To do so, B will combine the transaction A –$1–> B and C’s public key, hash it, and then sign it using B’s private key.
C will use B’s public key to decrypt the message, which results in the hash described above. C can verify that (1) A –$1–> B happened and (2) C was the recipient – by also computing the same hash herself and comparing the resulting hashes. If the two hashes are the same, C can be sure that (1) B owned the $1 and (2) C was the recipient.”
These transactions are coded and each person uses the public key of the recipient and his own private key, which ensures fraud protection and privacy. In every transaction you can see who is giving you money and whether this money is rightfully from this person. It is instantaneous and uncomplicated – a real peer-to-peer payment. Trust in the economy could now be based on facts and utter transparency. We can hope that this will strengthen the backbone of a free-market system. But it will need the healthy backbones of many supporters to make this happen. And no, I don’t prescribe vitamin supplements, but I do propose learning more to trust this technology and spread the word. See more in my next blog.