Bitcoin is P2P

Bitcoin’s P2P Nature – Bits & Pieces #10

Just last night, one of my favorite Bitcoiners, Jeffrey Tucker, released a brand new book, Bit by Bit. It's all about how P2P technology is changing our world for the better. We've had Mr. Tucker on our show a few times before and his understanding of Bitcoin is superb.

In light of this release, I thought I might take some time to explain the peer-to-peer nature of Bitcoin. What makes it P2P and why is this such a great thing? We talk about some of these benefits regularly, but I thought it should be helpful to explain this more directly.

When a system is peer-to-peer, it requires no middle men. Peers can connect directly, without a more privileged link between them. The phrase is used most often to describe computer networks. In some situations, two computers (or more) can connect to each other and do business by themselves. This is P2P. In other situations, a third party is necessary. Multiple computers must connect to a special central server in order to communicate. This is not a P2P network.

When it comes to money, cash transactions are usually considered P2P. One could argue that fiat currency requires a privileged issuer, and that's true, but let's strictly consider the way the money is transferred. One person can give cash to one other person without any help. No extra-powerful third party is necessary. This is P2P.

Other forms of payment, like bank wires and checks, are not even remotely P2P. They require a bank to hold and move the money. A bank teller could, intentionally or unintentionally, choose to transfer $1000 instead of $100. A banker could initiate a money transfer without permission from the person who actually owns the money. Or more commonly, a bank could freeze an account and refuse to execute money transfers, even when the account holder desperately needs to make a payment.

This design is entirely unfavorable. No one wants to forfeit control of their money to someone else. People have done it historically for the sake of convenience, but that is no longer necessary. With Bitcoin, we have a true P2P currency that, unlike cash, can be transferred over the internet.

Bitcoin is dependent upon internet service providers as a third party, but only to a very small extent. Yes, ISPs transfer data for Bitcoin transactions, but they never have access to the funds. Even if they tried to block all Bitcoin transactions, the data could be encrypted and sent via different channels, such that the ISPs would not even know what they were transmitting.

Some worry that the internet could go down and Bitcoin would follow suit, but this situation is extremely unlikely. As many have already expressed, the internet has never fully crashed before and if it did, we would have much bigger problems to deal with.

Among countless other reasons, this is why Bitcoin matters. It allows us to use our money the way we want to - without third party control or interference. Wow.

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