During the last weeks, the crypto market has grown a little bit. This made people become more and more interested in this subject. Among those that know me, I was asked several times this question: Bitcoin is related to the dark web, isn’t it?
At first, this question annoyed me a lot. It was like they were saying: food is related to fat people, isn’t it? The basic answer to that question is that Bitcoin has been a good instrument for transactions in the dark and deep web. But its main purpose is to make worldwide transactions in a fast, secure and transparent way. It was designed for everyone, as a new financial system. Just as everyone eats food, not just the fat ones.
But fast, secure and transparent and it helped the users of the dark web? Yes. Let’s see a few things about Bitcoin and analyze its impact, both at global and particular levels.
You might have or haven’t heard histories about the beginning of the computers and the internet. If you haven’t, let me tell you that in the 40s, the president of IBM said that 5 computers were going to be enough for all the world. And in 1977 the founder of a big computer company said there was no reason someone would have wanted a computer at home. Less than 50 years later, we used computers more than 10 hours per day and we are more connected through the internet than anyone could imagine a few decades ago.
This technological evolution came with new needs and one of these needs was a digital currency. The first prediction regarding it was made before the year 2000 and there have been many attempts to build it. The first proven success appeared at the beginning of 2009 when the first Bitcoin transaction was made. It was fast, secure and accessible to anyone who wanted to use it. And it was anonymous, as we have still no idea who is the smart developer that made the first running digital currency.
Bitcoin is both a network and a digital currency. Usually, when people referred to the coin, they used the lower case word bitcoin and the upper case word was for the network. As much information appeared during the past 3 years, this rule is not necessarily true anymore.
The cryptocurrency bitcoin is a digital coin that offers the possibility to make payments worldwide, in a fast and secure way. Let’s understand each of these features.
You can pay with Bitcoin everywhere in the world, no exchange needed, no big fees. This is because there is no third party that needs to approve a trade from America to India.
The Bitcoin network works with digital wallets. Basically, a digital wallet is just a random string of characters; everyone can see it, but only the owner can spend money from it.
The main idea about this digital wallet is that you don’t need to enter any type of personal data in order to get it. So, when you send bitcoin to someone, you are interested in just a random set of characters, nothing else.
A transaction on the Bitcoin network can take a few minutes or up to a few hours. But it generally does not exceed 1 calendar day.
But how is that possible? As you might imagine, there are some security filters a transaction must pass. If I want to send some money to you, someone has to:
In a bank, all this process is done half manually (human checks), half automatically. For example, a robot will validate the balance in your account every time you make payments. But the rest of the process is carefully watched by many people.
With bitcoin, there are also a lot of validations (network confirmations), but those are all done automatically. Since there is no personal data to check about the sender and receiver, the process is very fast. More than that, the validation requires some mathematical calculations, not a check in a database. Those are also done automatically, no human is involved in the checking/validation process.
I mentioned earlier that a bitcoin payment can take up to a few hours. Actually, it depends on the fee you are willing to pay. The validation of a transaction is done by the computers that are in the network. Also, that validation has a cost (mining fee). There is a minimum standard fee, but you can increase it. The transactions that offer a bigger fee have priority.
With a standard fee, you will wait a few hours, with a higher fee you can have your transaction in just a couple of minutes.
The security of this type of transaction relies on the way the Bitcoin network was built. There are mathematically strong cryptographic functions that represent the fundaments of this payment system.
Every transaction is recorded in a public ledger. This ledger is owned by all the users that are connected to the Bitcoin network. It uses encryption in such a way that after a payment (transaction) is validated by the network, the data cannot be changed. In other words, no piece of history can be replaced.
The digital wallets are also protected by mathematical strong cryptographic functions. They have a public part (your wallet address) and a private part (private key). As long as your private key remains private, no one has access to your funds. Both the control and the responsibility of your funds are in your hands. There is no third party (like the bank).
Transactions are not reversible in any way. If the money is sent, there is no way to change history. On the other hand, you can follow the flow of money in terms of digital bitcoin addresses. This might or might not lead you to a real person (details below).
We live in the globalization process. We work, connect and relate in many ways with people all over the world. The internet made it possible and we have built a lot of products and services on top of it. Digital money was a matter of time.
If you are a PayPal user, you might see no reason to switch to bitcoin. And that is completely understandable. But I still believe you need to know there is a big difference between them.
PayPal uses the current centralized financial system, it is a service that is on top of the bank system. Your money is still controlled by the bank.
Bitcoin is a decentralized financial system, you have the control and responsibility of your money. In other words, no one else has any sort of access to your financial accounts. On the other hand, if you lose access to your PayPal account, there is someone to help you regain access to your funds. If you lose your private key related to your bitcoin wallet, no one can help you. Maybe there are a few exceptions related to particular wallets, but generally, funds are gone if the user does not protect his money.
For more details regarding a comparison between PayPal and Bitcoin, I found interesting the following 2 articles:
Well, the very first answer is that novelty is first adopted by the people that need it most.
On the dark and deep web, you can trade goods and services that are illegal or at the limit of legality. I won’t point out more about that, but I believe you can easily see that people want to remain anonymous while using it.
Bitcoin offered, to a certain degree, the possibility of making anonymous payments. Actually, bitcoin is a pseudo-anonymous payment system. As you could see above, all you need in order to make bitcoin payments is a digital wallet. Generating such a wallet is completely free. Buying and selling bitcoins in exchange for fiat money (dollars, euros, etc) is a little more challenging.
But due to this pseudo-anonymity, the criminals were the first to adopt it. While regular people analyzed the upsides and downsides of this new currency, the service providers from the dark and deep web asked payments in bitcoin. All they had to provide was a random string of characters, no other personal data. And when you wanted to sell drugs or commit murders, this might sound pretty convenient.
But just because the biggest mass adoption of bitcoin was in the criminal area it doesn’t mean that this coin was created for illegal payments. It’s just that risk takers are more on the illegal side. And bitcoin implies taking risks because it is so new.
Actually, there have been a lot of cases of criminals being caught because they used the Bitcoin network. Bitcoin payments themselves are anonymous. But the gateways fiat-cryptocurrency usually require a user’s personal data.
This means that if you want to buy or sell bitcoin using Coinbase, you have to provide a lot of personal data. But if you receive bitcoin on a regular wallet and you buy a coffee with that bitcoin, you remain anonymous. But criminals don’t use bitcoin just for coffee.
Nowadays, there are a lot of crypto exchange platforms that offer fiat-crypto services. Many of them are regulated and require KYC (know-your-customer) before offering access to their services. Still, there are also exchanges that don’t. In my opinion, there will have to pass a few more years before all exchanges become regulated.
For example, the Cryptopia hack from the beginning of 2019 showed improvements are still needed. The thieves were able to steal a big amount of ethereum and ethereum based tokens and exchange them for fiat (details here and here). But the chances for that decrease every year.
Bitcoin and cryptocurrencies were not made to cover criminal purposes. But the people that needed them most were the ones to adopt them earlier. This is how things happen in all areas.
Cryptocurrencies are here to offer another perspective over a financial system. They may be the future of the money flow. They may collapse in just a few years. There are people that think bitcoin is a bursting bubble and there are people that say there is no other way than digital money. We shall see. Meanwhile, just remember that bitcoin is a new technology and financial system. Its usage for illegal transactions was just a consequence of the fact that it is new technology.
Disclaimer. This article is also available on the CryptoLand website.
