Or: How the underlying technology behind Bitcoin is going to save our asses

Decentralized Ledger Systems Will Create a Renaissance in the Concept of Trust

Just a scant 4 weeks ago we found out that one of the largest store-houses of social security numbers and credit-reporting data — Equifax — was subject to a hack so extensive that we’re all still kind of reeling from it. The data for 1/3rd of all adult Americans can now be considered breached, and let’s be honest, do we even trust that the other two major firms, Transunion and Experian, did any better? Transunion’s website was hacked briefly on 10.15 to direct users to the same fake website that took over Equifax.

Wait wait. I’m actually getting ahead of myself. If you’ve been keeping up with the full play of this story, you’d know that Equifax actually got hacked July 29th. We plebeians just found out about it in September.

But wait again…can we even really be that upset with Equifax (hint: we can) when the idea of the social security number as a life-password is faulty to begin with? Your social security number is horrible for data security. Not only is it unencrypted, it’s purposefully non-random. The SSN refers to itself. Meaning that if you know what the numbers are referring to (date of birth, race, etc), you can guess the number even if you’re missing most of it.

Using the SSN as an identifier started due to the limitations of early technology as well as a wee-bit of laziness. Why make a new system when the government already had one mandated number for everyone?

Welp, the Equifax hack just took all of America and whacked it over the head with the realities of 2017. We’ve hit a crossroads where it’s safer to assume that all of our data has been hacked than not.

That’s a pretty damned scary thought, and the only question left is where to go from here?

Luckily, the answer to this problem has been staring us in the face and plastering the news for the past 10 years: Bitcoin. Or, rather the block-chain, which is the technology that underlies Bitcoin and makes it work.

You may have heard Bitcoin described as “digital currency”. While that’s definitely the end-goal (giving people a means to trade goods and services), the way that Bitcoin achieves that end is fascinating.

Bitcoins are created and traded via a technology called a block-chain. The block-chain is actually one of the oldest accounting technologies we have. A ledger.

Imagine you have a group of friends who get together every weekend and play Poker. To keep things friendly and simple, they keep a ledger of who won and lost X amount of money in the weeks and months before. The ledger is trustworthy because it’s only taken out in front of everyone else to be edited. They lock the ledger away at the end of their session and go home happy.

Now, imagine they aren’t a group of tight-knit friends. Imagine they’re acquaintances who all meet to play high-stakes poker. Well, having one ledger still works, but because of the stakes, it becomes much more tempting for someone to steal the ledger and alter it. So, instead of one ledger, they bring in a dealer and keep their ledgers open to each other (their chips).

The Dealer certifies transactions (wins/loses) and each player keeps their ledger (chips) in front of them

The dealer certifies wins and loses, and those wins and loses are visible as chips. But…what if the dealer is cheating for the house? What if someone palms a chip? What if someone is counting cards and the dealer isn’t good enough to catch them? In this case, there are multiple if not dozens of ways for the system to be hacked. There are still too many centralized points of failure.

Now, imagine a super-high stakes poker game. The pot is so high that no one trusts anyone with the ledger. In fact, the stakes are so high that the ledger is hidden randomly, across the world, with people trusted to make the changes without the poker players being involved at all. Each hand that they win or lose is being recorded by people that they’ll never meet, but all of those ledger edits must match or they won’t receive their prize money.

This is how Bitcoin works via the block-chain. When two people trade bitcoins, that trade is recorded by multiple computers in completely random locations scattered throughout the world. If those ledgers don’t match, the trade doesn’t happen. The block-chain system itself is virtually immune to any sort of hack we know of because it’s decentralized. There’s no one system to attack and again, all of the ledgers must match at the end of the day.

Ultimately, what the block-chain creates is something that has never been truly established in the digital world…trust. You can trust the value of a bitcoin transfer because it’s been verified by a network of computers that will never meet.

And so we come back to Equifax.

Look folks, our SSNs are toast. As a system of security and identification they were never safe to begin with. BUT, it is worth saving SSNs since they are so intrinsically tied to our lives, and that’s possible through the block-chain.

Imagine tying SSN transactions to a block-chain. Any transaction has to be verified by multiple computers scattered throughout the US and the globe. Whether it be something as complex as a mortgage, or as simple as a new phone plan.

If this were the case, there’s also no longer any reason to keep an SSN a “secret number” anymore. Any use of it can’t proceed without multiple verification steps.

And it doesn’t stop there.

In another article I’ll cover how block-chain technology could and will-be used in other non-financial spaces!