We have seen how Bitcoin can do some amazing things that benefit humanity in general. Despite those long-term benefits that I outlined in Part III, you may be wondering, “What can Bitcoin do for me personally?” Bitcoin allows people to do some really cool things that can directly improve their lives*. There are probably too many to discuss here, but I will attempt to describe some of the most significant of them. Keep in mind that, while the actual execution of all these things is fairly complex, eventually software will be able to make them as easy as sending an email.
But what if there is a dispute between Alice and Bob and they disagree about whether or not the widget arrived in the mail? Then they turn to Trent to arbitrate. Alice and Bob both present their evidence, Trent judges on the merits of the evidence, and signs a transaction spending the bitcoin to the prevailing party, minus a small fee to himself for arbitration services. The prevailing party, whether it is Alice or Bob, also signs the transaction and receives the bitcoin.
Arrangements like this, when done properly, work because the third party can never run off with the money without the assistance of one of the other parties.
Charlie and the website generate a 2-of-2 address. Even though the address is currently empty, Charlie creates a refund transaction that spends one bitcoin from the 2-of-2 address to himself after one year. Charlie signs the transaction and sends it to the website, which also signs it, and sends it back to Charlie, who does not broadcast it. Charlie then sends his deposit of one bitcoin to the 2-of-2 address and broadcasts the refund transaction to the network. Charlie can then participate on the social media website. Charlie and the website can jointly amend the refund transaction to postpone it or to return it sooner, but no matter what, Charlie will receive his bitcoin after a pre-determined amount of time, even if the website permanently goes offline.
Bob then does pretty much the same thing with his Googleshare. Bob creates a transaction that sends his Googleshare to Alice’s Googleshare address and allows her to claim it if she knows X. Then he creates a refund transaction that would send the Googleshare back to his Googleshare address after 24 hours if it is not claimed by then (this refund time is shorter because, if both refund times were the same length, Alice could potentially wait until the last second to reveal X and Bob would have no time to collect his bitcoin). Bob sends the refund transaction to Alice, who signs it and returns it. Then he broadcasts both Googleshare transactions to the Googleshare network. Within 24 hours Alice claims her Googleshare using X (she picked it in the first place), thus revealing X to Bob (everyone can see the transaction). Bob then has at least 24 hours to use X to claim his bitcoin.
This complicated process ensures that there is never a point at which one can cheat the other (remember that software will make such transactions quite user-friendly).
Such a strategy can work to fund all sorts of things, including movies, novels, software, roads, and special events. A really useful feature of all this is that no trusted third party, like crowdfunding websites (e.g. Kickstarter, Indiegogo), are needed. Cutting out the middle-man means increased efficiency and more value.
To trade property, a special transaction can be constructed. Let’s say that Alice wants to buy Bob’s car for 100 bitcoins. Alice creates a transaction that sends her 100 bitcoins to Bob and also sends the token amount of bitcoins, the bitcoins that are linked to Bob’s car, to a bitcoin address that she controls. Since Bob controls the token amount of bitcoins, the transaction is not valid until both of them sign it. When they do, they broadcast it and the sale is final.
Why does all this stuff matter?
I know this is a lot of information and some of it is very theoretical at this point. But this matters to everyone because it opens up a world of possibilities. With the right implementations of these ideas you will be able to trade and do business with anyone on Earth without any intermediaries. Remember that every economic exchange you make causes you to become wealthier. There will be much fewer barriers that get in the way of your economic activity so that will increase your wealth and the wealth of everyone in the world.
We have gone over several ways that Bitcoin can enable new and exciting types of transactions between regular people. Over the coming years we will start to see more and more implementations of these ideas. Additionally, there are most likely many more possibilities that have not even been imagined yet. In the next part in this series we will look at the decentralized world that is now more possible than ever thanks to Bitcoin. Overall, I believe that Bitcoin gives us more choices than before. Those choices will be mostly immune from any state interference. That is a win for liberty.
Next: A Decentralized World
*Some Bitcoin features may be currently disabled due to the infancy of the network and ongoing development.
Other Parts in the "Technology is Liberty" series:
Part I: The Formula
Part II: History
Part III: Bitcoin
Part V: A Decentralized World
Part VI: What Comes Next?