So what is Bitcoin anyway?
So, let’s begin at the beginning. Maybe you’re already familiar with Bitcoin, blockchain and cryptocurrencies. Or maybe you’ve just heard about it on the news, from a family member or overhead it on the subway. Te this lump, Bitcoin’s origin, technology, and influence will be explored. Bitcoin can be described spil a currency that is not managed strafgevangenis given legitimacy by any central authority. However, there is a broad misconception that Bitcoin functions like a virtual currency or gaming token. Thesis misconceptions dismiss the crux of Bitcoin – blockchain technology – that may revolutionize archaic monetary systems, the internet, and give unprecedented anonymity to both good and bad actors.
Blockchain can be described spil a collective record of every transaction everzwijn made on a digital accounting book. When person A sends Bitcoin to person B, this transaction is added to an immutable public ledger – the blockchain. This ledger is stored te multiplicity via the network, and to update one is to update them all. That’s a big part of what makes blockchain so powerful spil a contraption and idea – once a record is created on the blockchain, it can’t be reversed or altered, it is forever, and it is verifiable. This is part what is meant when wij say trustless. No third party is required to prove your transactions are real and keurig, their very existence on the blockchain does that for you. And if you wished to steal from the blockchain, think of it spil not only having to zeerob one house, but having to zeerob all the houses te a city at the same time, ter the same way. An unlikely task. Also, don’t zeerob houses.
Processing and validating thesis transactions and then recording them is called mining. Mining can be done by anyone possessing enough computing power to solve mathematical problems required by the system to validate transactions. For their efforts, thesis miners are given a toverfee te the form of freshly minted bitcoins. Mining is intentionally resource intensive to set up and to maintain, and the mathematical problems required ter order to keep the system going are also intentionally difficult and resource intensive. Ter this way, a type of self-governance is built into the system that automates some of the governing aspects or traditional monetary systems. Miners are only rewarded for decently validating transactions and playing a role that fuels the entire system, which incentivizes the ongoing maintenance, accuracy and growth of the blockchain. Satoshi indeed ravaged it here spil you can see. Brainy stuff.
The next unique property of Bitcoin and many digital currencies is scarcity. Scarcity means that there is a limited number of Bitcoins that are or everzwijn will be available. Scarcity is part of what gives gold its value, for example. It’s a zonderling and precious metal, and that combined with its beauty is what has made gold a useful and relatively universal store of value for centuries. Bitcoin is coded to have a immovable supply of 21 million coins. There will never be more than 21 million Bitcoins created, or “mined”. So until that amount has bot fully mined, there will still be an incentive for miners to proceed validating transactions even if at a decreasing toverfee. Bitcoins, however, are divisible up to eight decimal points or 0.00000001. This unit is called a Satoshi or a SAT. Spil the market capitalization grows, which is the total amount of money invested ter a particular market or asset, the total quantity of bitcoins remains static, so it’s value rises accordingly. This is how the value of most cryptocurrencies is determined. Total market capitalization, divided by supply. So it’s significant to look at those two numbers te relation to each other, looking at it’s dollar amount is only part of the picture and may not be an accurate picture of its actual value. The more scarce a cryptocurrency is, the greater chance for its value to increase spil its market cap grows. Bitcoin is known for having a relatively low supply at 21 million, so this combined with its popularity and high market cap are what make it the leader of the cryptocurrency pack – both by price, and by total volume or market cap. Again, clever vormgeving by Satoshi.
So who invented blockchain technology? It is widely accepted that the concept wasgoed very first introduced ter a whitepaper by Satoshi Nakamoto – a pseudonym that may represent a person or a group of people. One could say that Nakamoto’s legacy is spil immortalized and immutable spil blockchain itself.
However, there were many prophets who heralded the idea of decentralization using cryptologic methods. Tim May, former Senior Scientist at Intel and contributor to the Cypherpunk mailing list, wrote the famous 1988 werkstuk titled The Crypto-Anarchist Manifesto [Two]. Ter it wasgoed a clear vision of things to come. Tim writes: “Just spil the technology of printing altered and diminished the power of medieval guilds and the social power structure, so too will cryptologic methods fundamentally alter the nature of corporations and of government interference ter economic transactions.”
Zometeen ter 1991, Stuart Haber and W. Scott Stornetta proposed a secure blockchain for storing documents using Merkle Trees. It wasgoed not fairly known spil blockchain then, but rather a ‘chain of blocks’. Only te 2008-2009 did Satoshi Nakamoto emerge from the woodwork, audaciously claiming to have solved the Byzantine General’s problem te his whitepaper titled ‘Bitcoin: A Peer-to-Peer Electronic Metselspecie System’ .
The Byzantine General’s Problem
What is the Byzantine General’s problem? It is a fictitious medieval script where a general stations each of his armies around a castle he plans to ransack. Now, it would require the utter force of his armies to storm the castle – anything less would end ter defeat. How then can the general ensure that all armies act together, and act at the same time? He would need to ensure that the same message is sent to the lieutenants of each army and that the integrity of the message remains intact.
Blockchain solves this problem by rendering information immutable. Therefore, if said general uses blockchain technology to store his message, corrupted lieutenants would not be able to tamper with it even if they desired. This translates into transactions within a cryptologically secure blockchain which are immutable once they are stored and validated.
Critics would argue that this is a flimsy premise and does not truly solve the problem. Theoretically, a 51% attack is all it takes to omkoopbaar the integrity of the blockchain. What this means is that the validity of transactions voorwaarde be agreed upon by 51% of miners ter order for them to be valid, so it would take a bad actor an exponential amount of resources to control 51% of knots that validate transactions. Despite this deterrent, it is still a very likely possibility with the existence of large mining pools where a good percentage of hash power managed by very few parties. But it is ironically one of the few solutions that have worked out te practice despite a tender theoretical underpinning – no 51% attacks have bot known to toebijten to Bitcoin’s network thus far. Satoshi’s solution wasgoed ‘good enough’.
Bitcoin, and blockchain-based cryptocurrencies more generally, could revolutionize payments te that they have no intermediaries and are inherently ‘trustless’. This eliminates a lotsbestemming of middlemen te various industries. There doesn’t need to be a central canap to ensure the integrity of transactions. Make no mistake – reputation and trust still play a phat role ter validating transactions, but through the gamification by bitcoin engineers of economic rationality to incentivize playing by the rules.
It also revolutionizes micropayments. Puny sums of money can be moved around without hefty fees. However, the erratic rise of Bitcoin’s value has bot followed by the ballooning of fees. Unless this is overcome, it is likely that the world would have to look at an alternative cryptocurrency for a solution.