This is Part 6 of a 7-part review of the book, The Blockchain Code, by Dave Kinsey. To read the previous installation, CLICK THIS LINK. For the next installation, CLICK THIS LINK. To start at the beginning, CLICK THIS LINK. Thanks for reading!

Doing Business With Bitcoin

Let’s say you have no interest in mining bitcoin. You just like the idea of using Bitcoin to conduct business transactions away from government scrutiny. You could be an honest person, who hates the idea of Big Brother breathing down your neck. Or you could be a criminal. And let’s face it, cryptocurrency is a godsend for criminals. Especially organized crime. It’s great for stuff like drug deals, money laundering, hiring hitmen, and bribing public officials. That’s because it’s anonymous and untraceable.

Transaction fees can be high, and are negotiated through a complex auction process. Also, it takes about an hour (6 blocks in a chain) for a Bitcoin transaction to process to the point where it seems reasonably likely that the transaction went through. Six blocks are necessary, because sometimes more than one miner guesses the nonce at the exact same time. This results in a “soft fork,” where the blockchain develops two or more parallel chains. A process that can take about 6 blocks of transactions eventually results in all but one of the forks being “pruned” away.

As an aside, I’ll note that sometimes a soft fork is not pruned away. Instead, it is preserved to allow the development of a new blockchain, called a “hard fork.” The new blockchain allows for the creation of a new cryptocurrency, and effectively doubles the ownership of cryptocurrency for all who owned digital cash prior to the hard fork. This is how we got Bitcoin Classic, Bitcoin Cash, Bitcoin Gold, and many other spinoff cryptocurrencies.

But back to processing a Bitcoin transaction. One hour is a big difference to process, from the mere seconds that a credit card requires. So, coupled with the high transaction fees, Bitcoin is too expensive and inconvenient to use for routine, small purchases. You would want to reserve it for non-routine, significant transactions.

Most internet sources I have found, claim that only a very small percentage of bitcoin transactions involve illicit activity. Yeah, right. If you believe that, I have some swampland in Florida to sell you. I doubt these claims, and suspect the exact opposite is true. But it seems impossible to determine whether I’m right, or the cryptocurrency boosters on the internet are right. Due to the untraceable nature of bitcoin transactions, nobody on either side of this argument has the ability to prove their case.

But let’s go over to Bitcoin’s dark side for a moment, and have some fun. Let’s assume you’re a drug dealer, and want to use Bitcoin to buy a million dollars worth of crystal meth, from a supplier. One million dollars is about 52 BTC, these days (the price of one bitcoin has fallen from $24,000 to $19,000 since this series of posts began). So this means you have to have 52 BTC safely stashed away on the blockchain. To “safely” stash it away, you store it in something called a digital wallet.

A digital wallet stores your bitcoins at addresses. You can have them all stored at one address or you can distribute them among multiple addresses. The whole world knows your addresses, due to the public nature of the blockchain. But nobody knows that you are the owner of your addresses.

Each address is paired with a private key, and that key is not public on the blockchain. Rather, it is for your eyes only.

Any address that stores your bitcoin is a very long number (160 bits), and the private key that unlocks it is even longer (256 bits). In order to pay someone with bitcoin, you have to match your private key to the address in your wallet that contains the bitcoin. I don’t know the mechanics of how this is done, because I’ve never used Bitcoin software. But hopefully it doesn’t involve manually inputting the private key number. At 256 bits, that number is very long.

Here’s an example of a 256-bit number:

115,792,089,237,316,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000.

That’s 2 to the power of 256.

And here’s an example of a 160-bit number (2 to the power of 160):

1,461,501,637,330,900,000,000,000,000,000,000,000,000,000,000,000.

Now there’s one thing to remember, that is very important. Technically, you don’t own the bitcoin in your wallet. Rather, your private key owns it. And if anybody discovers your private key, through your carelessness, through hacking, through a very lucky guess, or for any other reason, they can take your bitcoin from you. And since everything in blockchain is anonymous and untraceable, you won’t know who took it. And you’ll likely never see it again.

Once you pair your private number to the address that contains your bitcoin, you unlock the bitcoin. Now you can send any amount of it to any address of your choosing. In this example, you are buying a shitload of crystal meth for 52 BTC. Assuming you have at least 52 BTC at your address, you now input the sellers bitcoin address, and direct the 52 BTC to it.

Again, I’m not sure how you do this, because I’ve never paid for anything with bitcoin before. But I’m sure the Bitcoin program provides a way.

After this, it’s between you and the seller. If he wants to honor the deal he’s made with you, then you’ll have to meet with him and pick up your drugs. But if he decides to double-cross you, and gives you no drugs, you have no recourse. You are out 52 BTC, because you have no way to prove that you paid him, or that he received the money.

Not that you could sue him anyway, as this is an illegal drug deal. But even if it was legal, you could not prove your case in a court of law, due to the anonymous and untraceable nature of Bitcoin.

Kinsey doesn’t walk you through the process of buying something with bitcoin, the way I have just done. Which to me is disappointing. I’ve never conducted such a transaction, myself, so I’ve had to infer from bits and pieces of info in Kinsey’s book, how the process works. I think I have the basic idea right, but I’m sure there’s more to it.

And I’m sure anyone who hypes Bitcoin will agree with me, that there’s more to it than I’ve presented. I’ll introduce you to these propaganda artists tomorrow, in our final installment of this series. In that installment, I’ll point out the hype, as well as a few practical uses for blockchain and Bitcoin, that are not hype. So stay tuned. But be careful. Don’t get too hyped up about any of this.

###