I'll explain how Bitcoin works.

How Does Bitcoin Work?

By now you’ve probably heard about Bitcoin and know that it’s not an actual physical coin. But if it’s not a coin, then what is it? How do you “own” one? Why is it worth money? How do you give it away? This short article contains a brief answer to these questions and how Bitcoin works.

How Does Money Work?

Money only has value because we all agree that it has value. Green pieces of paper with images of dead presidents can only be exchanged for food because we agree to exchange them for food. We could exchange anything else we agree has value.

Cash is convenient since it is lightweight and easily exchangeable. But on the island of Yap, money takes the form of gigantic stone coins the size of statues. No one moves them around – they simply agree on who owns them. When something large and important needs to be purchased, the community agrees that ownership of the “Yapcoin” has been exchanged. People on the island know who owns which Yapcoins. In addition to knowing how Bitcoin works, nerdy people might even know the entire history of all the Yapcoins.

Bitcoin: The Yapcoin Of The Internet

Find out how Bitcoin works.

Unlike cash, Bitcoin isn’t a physical form of currency.

Bitcoin works more like Yapcoins than cash. The key difference is that a Bitcoin isn’t a physical object at all. It’s a digital object which doesn’t “exist.” Like on Yap, a Bitcoin is owned by whoever we agree owns it. But unlike on Yap, the Bitcoin’s ownership is recorded in a digital ledger, which is a digital notebook that records Bitcoin exchanges.

On Yap, the history of coin exchanges is stored as knowledge among the community and is distributed. Each family probably knows the history of whichever Yapcoins they own, and maybe whichever ones are also nearby. Like on Yap, the ledger Bitcoin uses is distributed among hundreds or thousands of servers. Copies of the digital ledger exist on several servers throughout the world. You can even download the most recent version if you have enough hard disk space (and patience).

Preventing Dodgy Entries

If you’re an unscrupulous hacker, you might wonder how Bitcoin works and if it’s possible to alter the ledger to give yourself more digital currency. This isn’t possible, in part because each entry in the distributed ledger contains a fingerprint of the entire history which precedes it.

Let’s think about the ledger as a chain of entries that are arranged in order on a line. Each entry contains a special number which serves as its “fingerprint,” along with information about how much money was sent. The crucial point is this: the fingerprint of each entry is computed using the fingerprint of the previous entry as input. Since each entry depends mathematically on the previous entry, any change at any point along the chain will require a change in the fingerprints of all future entries.

If you were diligent, you could download a copy of the ledger and “cook the books” by changing all the required entries in your local copy. But since the distributed ledger is publicly available, your cooked books will be easily detected. No one will agree that your copy of the ledger is correct. It would be like arriving on Yap and claiming that you own a Yapcoin that everyone knows belongs to a local fisherman.

Blockchain is a complicated technology, and there are many details which are not present in this simplified explanation. I hope that I’ve given you enough insight into blockchain for you to understand how Bitcoin works. It’s just a number in a ledger, which has been copied to many, many locations, in order to make it very difficult to “cook the books.”

Don't forget about data protection while you're shopping online.

How To Shop Online Safely

It’s the holiday season, which means that everyone is shopping online for fantastic bargains and great deals. Some retailers had more people shopping online than in stores this year. But more people shopping online means that there are more chances to get your information stolen. So how can you shop safely online while keeping data protection in mind? You can’t risk having your identity or credit card information stolen. According to financial experts, these tips will help you make sure that your information is safe while you’re searching the Internet for amazing deals.

Watch Your Apps

There are a huge number of discount apps that claim to collect the best deals from popular websites, then put them in one place for you. But not all of those apps are safe. Some are scams, and some just don’t have the necessary security for data protection if you process your credit card information through the app. One way to prevent this is to shop through the retailer’s website instead of the app when you find a deal. Another way to prevent getting your information stolen is to only download apps that are in the Google Play Store and Apple App Store. Don’t use apps that you can’t download from these trusted, reputable sites.

Don’t Click On Email Links

Make sure to only purchase directly through the retailer's site.

Visit the retailer’s site to complete your purchase.

Phishers are always getting better. You might receive an email that looks exactly like one you’d get from one of your favorite stores. But when you click on the link in the email, it might be fraudulent. So if you don’t recognize the sender, don’t click on any links or special offers in emails. Instead, go right to the retailer’s website by typing the address directly into your browser. You can still access legitimate deals that way without leaving yourself open to phishing.

Don’t Save Your Credit Card Information

It’s a pain to be constantly typing your credit card into different sites, isn’t it? But it’s a hassle that really helps with data protection. It’s tempting to save your payment method on your favorite store’s site, making it easier and faster to shop. But if that site is hacked, your personal and credit card information could be stolen. That’s why it’s much better to just manually type in your card number each time. Major retailers like Target are frequently dealing with data protection issues, because they keep getting hit by scammers trying to steal customer and financial information. Don’t put yourself at risk.

Use Gift Cards

If you’re really worried about protecting your financial information when you’re shopping online, you should get a prepaid Visa or American Express gift card. You can preload funds on the cards and use them to shop safely online. Because these cards have no line of credit, they limit any potential damage if someone steals your card number.