What is the Bitcoin Block Chain and How Does it Work?
Jackpot Capital online casino now accepts bitcoins for deposits to play our large selection of jackpot slots and all of our other games. Gamers can also make withdrawals in bitcoin. In our previous article on the subject of bitcoin we arrived at the point where we have to explain the double spend problem and how the block chain upon the transparency of bitcoin depends prevents the double spend phenomenon.
At Jackpot Capital casino, we began accepting bitcoins even before we fully understood what bitcoins are and why they are so much in the news today! So, this series of articles on bitcoin is as much for our own benefit as we hope it will help clear up some difficulties you may have had understanding bitcoin.
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Let’s Make a Quick Review
Before we proceed, let’s do a quick review of the previous article.
Bitcoins are an Alternative Form of Money
Money is the commodity we use to buy and sell goods and services. Most people understand why gold and silver were the most widely accepted forms of money for thousands of years. Gold and silver are relatively rare and are very stable in comparison with bushels of corn which are highly perishable.
So, money needs to be relatively rare and very durable.
Governments Replace Gold and Silver with Promises
These days, governments have abandoned gold and silver as real money and simply promise to back their own currencies. Bitcoins and all other alternative currencies have come into the money market simply because many people don’t feel that they can rely on governments to maintain a sound currency.
There have been too many cases in the last one hundred years where governments have debased their own currencies. Even if the countries involved didn’t have runaway inflation, they have had large degrees of price inflation and a severe loss of their citizens’ standard of living.
All Currency is Digital
The next step in the analysis is that almost all money these days is digital. The term digital is also part of the problem in understanding money. There was a time, not very long ago, when no money at all was digital. Our parents, grandparents, and so on back hundreds of generations all understood money to be something physical. Suddenly the computer age was upon us and almost all money is now blips and bloops in computers.
We may carry a hundred dollars around but the computers transfer billions and trillions of dollars every day. Our small pocket money is truly a drop in the cyber-bucket as far as money is concerned.
Within the context of money being almost entirely digital these days, bitcoin comes along and says that it is 100% digital money. We have just begun to get our heads around the idea of digital money and now the bitcoin people tell us that there is something called a block chain that protects bitcoins from being abused.
The language difficulty many people had with the term digital is compounded exponentially by the term block chain since no one has ever actually seen a block chain. We played with blocks as kids. We locked our bicycles with chains. But we never held a block chain in our hands! So what is it and how does it protect bitcoins and what does it protect bitcoins from?
The Double Spend Problem
Economists in the 1950’s wrote about the reserve banking system in glowing terms. The reserve banking system allowed banks to lend out as much as 90% of their deposits while holding 10% in reserve. This amount of reserve would be enough unless there was a run on the bank. Then other banks would have to save the bank in distress and the Federal Government would have to be the bank of last resort in case too many large banks had runs on their deposits at the same time.
It worked until 2008. The reserve banking system pumped a lot of money into the economy even though that money didn’t really exist! In 2008, we discovered that average people might all want all of their money all at the same time and they discovered that it was just a fiction!
Now, with almost exclusively digital money people talk about the double spend problem which is the same problem as that presented by the reserve banking system but looked at in a slightly different light. The double spend problem means that unethical people might just digitalize money in such a way that many people believe that they have money because, “here, it says so right here on this print-out.”
Bernie Madoff made great use of the double spend syndrome by doubling and the redoubling thousands of times. He lived like a billionaire. His customers all thought that they were rich when, in fact, they didn’t have a fraction of the money he told them they had.
Follow the Money
Criminal investigators of white collar crime often talk about following the money trail. This is often hard to do when money is just entries in a computer. The block chain that bitcoin people are so sure will protect bitcoins is the connection between all bitcoin transactions.
Take the blocks your kids play with. Build something with it. Whether you build a tower, a city street, or an entire city, you will see that each block touches other blocks. Think of your creation with blocks as a block chain.
It is a chain of sorts using blocks. It is a chain because the blocks all touch other blocks. It is made of blocks because….it is made of blocks! The bitcoin block chain is the same thing in digital terms. Every bitcoin transaction is connected in the block chain to other transactions. Bitcoin claims to be 100% transparent in that anyone who has the access code can see all of the transactions. Only the names of the participants in these transactions are hidden from view but the transactions themselves are completely open.
Maybe, in the long run, this will solve the double spend problem so that bitcoin and other alternative currencies will replace government money. It is still far too early to know how bitcoin might be able to support a multi-trillion dollar world economy.
Bitcoin and Online Gaming
We at Jackpot Capital began accepting bitcoin because enough of our gamers insisted that we do. As of now, bitcoins are just an alternative to dollars, Euro, and all of the other currencies we accept. The only real difference to us between bitcoins and dollars is that bitcoins are not issued by a government.
In fact, bitcoins are “mined”. This is another of the language and terminology problems many people have with bitcoins so it will be the major subject of our next article on bitcoins.
Health is More Important than Money
In the meantime, and during this stressful time we hope and pray that all of you stay healthy and that the many games we offer can add an element of fun and entertainment to your days.
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