itcoin is passé. But if the buzz is to be believed, the “block chain” technology behind bitcoin is going to revolutionize your toaster, thebanking system, and everything in between. Block chain boosters often proclaim that it will transform the annoyance of buying a car—especially the part at the end where you have to write down a large number on a special piece of paper and hand it to the seller, and both of you have to anxiously wait to make sure the “check” “clears” while hoping you don’t get ripped off.
Block chains, the story goes, will make payments instantaneous, effortless, and secure. In fact, backers say, these new technologies can go even further. The car itself could be built with a digital interface, so that the instant your payment went through, your key would start working and the seller’s key would stop working. That would keep you from driving off with the car before you paid and keep a shady seller from skipping town with your money.
Is this the future? We don’t think so. Here's where being old school is a good thing.
To understand why, it helps to compare and contrast bitcoin to a more traditional payment system: a debit card. Instead of handing your auto mechanic a wad of cash for a new radiator, you can just swipe your ATM card. Your bank decreases the amount in your account by $500, and the mechanic's bank increases its account by the same amount. Nothing physical changes hands.
Bitcoin is like that, except there are no banks. You, and the mechanic, and the thousands of other bitcoin users, all keep track of one another’s account balances on your own computers. The 1.09 bitcoins you’d pay your mechanic (at current exchange rates) is assembled into a “block” with a few hundred transactions from other users. Every 10 minutes, a new block is added to the “chain” of all transactions so far. Everyone who wants may keep a copy of the block chain and can easily check it to see who has how many bitcoins.
The system disposes of real names and identities, but it works because of its clever use of digital signatures. A bitcoin transfer won’t be accepted as valid unless it bears a sequence of bits that show it was generated using a secret digital key that only the sender would know. Because he or she doesn’t know your key, the auto mechanic can’t pretend to be you, or vice versa.
Block chain-based innovations generalize this idea, allowing secure anonymous transfers of stocks, cars, houses, or just about any other commodity.
If a company issued its shares on a block chain, it wouldn’t need to deal with stock exchanges. People anywhere in the world could trade shares for bitcoins with one another without needing brokers or stock exchanges, or even knowing each other’s identities. A car with a smart lock might refuse to unlock for anyone except its block chain owner. Your digital key would be your car key. If you wanted to sell the car, you’d just transfer it to the buyer on the block chain and her digital key would start working. Paper car titles are so last century, and who wouldn’t like to skip a trip to the DMV?
Read the full piece at Slate.