In order to have more conviction in Bitcoin, and blockchain, the underlying technology, we need to understand why it’s different from anything we’ve ever seen. In a series of posts, I’ll be writing about how Bitcoin differentiates from everything else in our lives.

In this particular post, we’ll take a look at the difference between the transactional security of a credit card and Bitcoin.

Credit Cards are insecure by design

One of the most common payment methods people use nowadays is a credit card. Whether you have a plastic or metal card in your wallet, you use Google Wallet or Apple Pay, or you use your card’s info on your computer, credit cards work in the same way. They transmit your data through multiple points before the money you want to send reaches its destination.

When you pay with your credit card, the POS captures your credit card number, the expiration date, and the CCV2 number (which basically acts as the private key of my bank account) and passes it on to VISA or MasterCard, or another card network through a processing bank, which then sends it to the destination bank for it to approve and send the money back at the merchant’s account. Your information needs to be encrypted through each step because if any of those points is compromised, your account is at risk.

And we’re not only talking about transactional security but also about transactional privacy. All of these places that your card info goes through need to know the contents of the transaction (amount and transacting parties) for them to verify and approve it.

If you’re trying to transact with a party that has been blocked by any of those points for whatever reason -or if you yourself have been blocked- you won’t be able to. Essentially, card processors and banks act as gatekeepers of transactions and only approve the transactions they want to approve while they’re able to block any transaction for any reason at any time.

Bitcoin is secure by design

Bitcoin is fundamentally different in the way transactions take place. When you complete a transaction, you’re not transmitting any sensitive data to any other party. You’re not giving away your private keys to third parties. Instead, what you are transmitting is an authorization that contains two references: a) where the money is coming from and, b) where the money is going.

Bitcoin transactions are transparent, in the sense that if a bad actor steals the data, all they know is which addresses are transacting, and for what amount. The addresses reveal nothing - there are no identifiers. There’s nothing in the message itself that can be compromised.

The magical thing about Bitcoin is the fact that the transaction doesn’t incorporate any security mechanisms itself. Instead, the security is the proof of work provided by the miners, and the signature on the transaction is put there by end users with their own keys - not a third party with theirs.

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Cover image by Franck on Unsplash.