What is bitcoin? Part 2

I wrote about bitcoin a little earlier. My thoughts on it have not changed much, but I think it is interesting looking at the technical details a little more closely.

I thought this was a good overview of how it works and helps reveal why people think it is a good idea. Some good notes:

Bitcoin is strange, really strange. For one thing, there is no such thing as a bitcoin. There are only transactions recorded in a ledger, with debits and credits to wallets. That’s it!

This is ironic because "regular" money is only transaction recorded in a ledger, with folding cash being a small exception. And prior to "regular money", individuals in a community did not barter for real goods, they did favors for each other and kept mental ledgers of what they owed and were owed and from whom. So, the "money only exists in a ledger" is not weird, it only seems weird as we think of money primarily in terms of folding currency.

Beyond that, the article talks in detail about how the ledgers are cryptographically protected and has a brilliant peer-to-peer distributed reconciliation process to prevent tampering. The article ends with a triumphant "Imagine there are no Bankers…you can do it if you try…"

While I would love imaging a world without bankers, and have done this on occasion, I'm not sure that bitcoin as he's defined it actually impacts the function materially. The primary purpose of a bank is not to keep money safe in a vault, which is mostly what bitcoin seems focused on, it's to have the private sector make credit decisions. I would love to see how bitcoin can be used to extend a loan as a loan per-se, not an equity investment. How does a bitcoin based entity expand it's balance sheet the way a bank does when writing a loan?