Blockchain technology and everything it powers, including cryptocurrency, is taking the world into a new age, and many people are excited about the innovations on the horizon because of it. Before investing in it, however, Tristan Bishop Pan recommends that you learn about it so that you can better understand its strengths and weaknesses.
“One thing I am often asked about is its security, which is set up very differently from the tech we’ve seen up until now,” Tristan Bishop Pan says. “The blockchain’s security comes in several forms. Whenever you create a wallet or you become a participant of the chain, you are given the security system, which is composed of two things: a private key and a public key. These are mathematical computations, and they are mathematically backed to have a low probability of being false. True, the probability can never be zero, but it is extremely unlikely.”
Here’s how that works, Tristan Bishop Pan explains. “Let’s say you want to buy $10 worth of whatever – eggs, gummies, it doesn’t matter. Maybe you just want to tell your wallet to send someone else $10.”
There are two things that are very important in a transaction, Tristan Bishop Pan states: the who and the when. “The why is not as important, at least not in today’s age of crypto, but the who and the when are extremely important. Who are you paying, and when are you paying them?”
To understand why the when is very important, let’s go back to the $10 in your wallet. “If you were to spend that $10 or send it to whomever but the wallet had not subtracted that money yet, that could create difficulties for you,” says Tristan Bishop Pan. “While that $10 was still showing pending, you could go and spend another $10. In today’s banking system, the banks would check and say, ‘Oh, I’m sorry, you don’t have that money. You’ve already spent it.’”
On the blockchain, though, if everyone is checking against the same chain and if there are millions and millions of people checking, you’re going to have delays and other problems. So, how do you verify that the person actually does have the $10?
“It all centers on the wallet,” Tristan Bishop Pan reveals. “It does two things: first, it checks against the blockchain to verify the data. Then it also checks against your last transactions to make sure that you actually initiated those transactions.”
Returning to the public key and the private key, Tristan Bishop Pan says they allow you to do two things. “Think of the private key as being like a signature or a thumbprint that only you have. Nobody else has access to it. However, when you sign it or when you get access to your thumbprint to it, the public key opens.”
To help others understand, Tristan Bishop Pan puts forth this example. “Imagine a private key as the password to your email and the public key as your email address. You can give anyone your email address, and they can send and receive data from you; however, your private key is your password, and no one should have access. That may be a bit overly simplistic, but that’s the general idea.”
Unlike in an email system, when someone has your public key, they can see everything within your wallet as well as how much you have of each item, but without the private key, they cannot take any action on your behalf.
“The private key actually allows for you to take the action to make that happen. That then gets sent out to the blockchain, where the nodes verify the transactions, and then it gets recorded onto the blockchain. It’s a beautifully designed system that helps to make cryptocurrencies transparent in a way that traditional financial institutions are not,” Tristan Bishop Pan says. “This is why so many people are intrigued by cryptocurrency: it has the potential to bring fairness into our financial systems for the first time in a very long time.”