Bitcoin Evolved - An Overview of Open-Transactions

An individual by the name of "fellowtraveler" is finalizing a piece of software that is incredibly important to Bitcoin. If you thought Bitcoin was amazing before, wait until you see what's coming. It's called Open-Transactions (OT), and I'm going to briefly explain what it means to Bitcoin.

1) Truly anonymous transactions. Bitcoins are no longer assigned from one wallet to another, but from user-to-user using contracts on a network of federated OT servers.  They therefore cannot be traced.  The Bitcoins are held by the servers, as a reserve, but don't have to move afterwards. Think of it this way: instead of sending someone Bitcoins, they're held in escrow by a trusted issuer, and a contract is written (like a cheque) saying that someone else is entitled to a certain quantity of the Bitcoins. The contract is as good as holding the Bitcoins, but is easier to transmit and easier to conceal. Think of it like your standard banking transaction: if you write someone a cheque, cash doesn't physically move from one account to another, just the balance.

2) Instant transactions. Bitcoins are no longer moving - contracts are. Contracts move instantly.

3) Security through redundancy. Your Bitcoins can only be sent to another wallet if all of the servers agree that permission has been given to send them, through what fellowtraveler calls "voting pools." He explains that a hacker would have to hack all the servers in the pool to get multiple private keys and passwords before the Bitcoins could be sent. This would be vastly superior to having your wallet held by one organization, say MyBitcoin or MtGox, or even entrusting it to yourself, on your own hard drive.

4) Conversion to other assets, like gold or silver. If you have a trusted, audited individual or business that holds those assets, they can be easily exchanged for Bitcoins or anything, really, using OT.

Once this is up and running, the way we use Bitcoin today is going to seem archaic. This is very exciting.

For a more technical explanation of how this all works, take a look through fellowtraveler's posts on the bitcoin talk forums. He has links to videos, wiki articles, and graphics to help you understand the nitty-gritty.

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