- It's Subjective
- It's Software
- It's a Platform
- It's an Idea
- It's Natural Evolution
- It's Sound Money
- It's a Savings Technology
- It's a Payment, Settlement & Monetary Network
- It's a Database
- It's a Consensus Network
Bitcoin is difficult to define because it's not just one singular thing. It's even harder to grasp at a high level because it's multidisciplinary and requires an understanding in cryptography, money, protocols, programming, information technology security, history of past technologies, economics, game theory, etc.
It's akin to a living organism; forever evolving and growing. There are layers to Bitcoin and that's what makes it so captivating to some. The ethos behind Bitcoin is one that has an emphasis on openness, transparency, trust minimizing, security, incentives and self-verifying.
To begin, it might help to define what Bitcoin is not. Bitcoin is not a company or controlled by any central entity and there are no leaders. It's not just gold 2.0 or a PayPal 2.0 - describing it as such doesn't do justice to what Bitcoin is.
So what is it? Bitcoin is kind of whatever aspect(s) resonate with you most. For example, to some Bitcoin might be:
- to escape oppression
- to store and protect your wealth from things like inflation
- financial freedom
- generational wealth
- an uncorrelated asset
- improved digital payments
- financial privacy
- the internet of money
- a tool to make the world more fair and honest
This list goes on and on. We'll discuss all the different things that help define Bitcoin throughout this website.
Bitcoin is a software program that you can download and run to interact with the Bitcoin network. There are different implementations of the software but Bitcoin Core is the most common one because it has the most competent developers behind it. We often refer to the software as a full node.
These full nodes are Bitcoin and tens of thousands of them form the backbone of the global Bitcoin network. They define and enforce the consensus rules of the network - for example, the issuance of new bitcoin must follow a pre-determined schedule that mathematically ensures the fixed supply limit of the network remains less than 21,000,000 bitcoin.
The full node software has a native but basic wallet to send and receive bitcoin. Most users download and run a lightweight wallet or a wallet that can connect to your own full node for a better user experience.
One of the most important usecases for using a full node is to independently validate transactions, ensuring the wallet is in fact receiving the bitcoin that you think it is.
Bitcoin is a platform for which apps, tools, protocols and networks are built upon or around. It serves as the secure and reliable rock solid foundation to support all sorts of innovation and interconnect existing networks. Technically speaking, Bitcoin is a protocol just as TCP is of the internet.
Similarly to the internet, Bitcoin has spurred a torrent of innovation from all walks of life around the globe in the last decade and will continue to for the next. Like a blank canvas artists around the world painted and continue to paint their visions for a better future.
Bitcoin is an idea whose time has come - that using technology we can improve things like money by removing the need for trusted third parties. Ridding politics and control from the core inner workings of the network. This idea was pursued by the Cypherpunks where some have tried to create systems like Bitcoin but would eventually fail.
Bitcoin itself was released from the ashes of the 2008 financial crisis with the creator embedding the message: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks." into the Bitcoin blockchain. Perhaps a hint to why Bitcoin is necessary.
In essence, Bitcoin ushers in something that had never existed before but is fundemental for a fair and honest society; complete ownership and control over your own money without a trusted third party. People are no longer forced to trust the words of a central entity that they have what they claim to, that they'll never freeze your funds or that they aren't printing more money. We are no longer bound by the strict and decaying rules of legacy systems. The bitcoin that you hold is 100% verifiably yours using software anyone can run.
Bitcoin is just the natural evolution of money. It's progression of the human race. A step forward towards a better system. It's an all around better money because it was engineered to be the best. It wasn't by accident.
So now the genie is out of the bottle and forunately (or unfortunately for some), this is a new system that people are slowly embracing to be a part of our every day lives whether you, me or anyone else likes it or not. How exactly you will interact with the new global system is still not crystal clear - it may be seamless and something that just functions quietly in the background. It could take decades to fully play out, no one really knows. But in hindsight, we'll look back in history and say to ourselves, "Well that was obvious".
Do you remember what the last big innovation in money was? Plastic cards? Plastic bills?
Disruption has finally come to money like with many other industries and the internet. The advent of Bitcoin didn't just bring a technological advancement but a cultural one. It has us asking what really is money? How does our current money work? Why does my money lose purchasing power? Why does a small group of people get to create unlimited amounts of money out of thin air? Why do currencies collapse? It's re-educating us on one of the most fundamental, yet taken for granted thing in life - money.
Bitcoin is sound money because it has:
- a predictable supply issuance schedule that cannot be maliciously altered
- a fixed monetary supply that cannot not be increased by a central entity
- a supply that can be independently audited by anyone running a full node
- a system and value that has less correlation with traditional financial markets
- Value that cannot be debased from endless printing
- value that is shielded from inflation, negative interest rates and other future human interventions
- value that is easily verifiable and auditable
- value that is resistant to confiscation
- value that is extremely portable, divisible, durable and non-counterfeitable
- payments that are censorship-resistant and irreversible
- a network that can function independent of trusted third parties
Bitcoin is growing into the most widely accepted sound money on the planet and if you think about it, it may be the only truely sound money there is.
Bitcoin is the ultimate savings technology. It's like having your own bank or if you use a full node it's like having your own central bank. There is no one above you, no one to fuck around with your stored value - it's financial freedom.
Why? Because a full node ensures anyone that interacts with you and the network is abiding by the same consensus rules as you and everyone else around the globe. Your full node is an instance of the consensus rules and it contains a copy of entire transactional history of Bitcoin (or a partial copy) so that it doesn't need to trust anyone. It has all the tools necessary to self-validate any bitcoin transaction or audit the monetary supply on its own accord. That means no cheating or printing unlimited amounts of bitcoin.
Payment & Settlement Network
Bitcoin is a payment network because value can be easily transferred from Alice to Bob without Bob needing to trust Alice. It's just not a very good one (on it's own).
The Bitcoin protocol is better suited for the settlement of transactions, particularly higher valued transactions and this will likely become more evident in the coming decade. This is because a blockchain is not designed for global instant coffee payments. It's designed for a limited but very special usecase: digital immutability. Infinite Coffee payments don't need to be permanently recorded forever, that would be a waste of limited resources.
Bitcoin will have global, instant coffee payments but it will be facilitated by technologies built on top of Bitcoin such as the Lightning Network. In fact, technologies built on-top of Bitcoin take payments to the next level by enabling near limitless coffee payments that cost fractions of a cent that are still trustless - not just for people but for automated machines too.
Bitcoin is a monetary network because it's a network that has some similar concepts to existing monies like gold and fiat but improved upon and removed from any central controls. Everything on the Bitcoin network has an emphasis on being independently verifiable, trust minimized and decentralized.
The monetary attributes of Bitcoin include:
- A fixed monetary supply of 21 million bitcoin
- It's own supply issuance schedule
- Built-in mechanisms to facilitate transactions
- Built-in mechanism to store and protect value
- Built-in mechanisms to verify transactions
- Built-in mechanisms to secure the network from attacks
- Built-in mechanism to audit the bitcoin monetary supply.
On a more technical basis, the Bitcoin network is recording and transfering ownership and money / payments were just the first obvious applications.
Bitcoin uses a special database called a blockchain to permanently record each transaction done on the Bitcoin network. The records express the past and current statuses of which bitcoin addresses own which bitcoin at a given time.
The database is special because everyone can see, audit, download and connect to it but no one can alter the records to trick the network. The database is designed for a very limited but highly valued usecase: digital immutability.
However, immutability is not native to a blockchain. It's acheived through a combination of things such as a decentralized network and using an algorithm called proof of work. Bitcoin has the only immutable blockchain that exists today. In this regard, there is no number 2.
For central entities like a company, decisions are ultimiately approved by a leader. But how would a decision be made for a global network that has no leaders?
Bitcoin uses consensus to form an agreement on the current status of the network. Ultimately, consensus is achieved on the network through users running the Bitcoin software which in and of itself are the rules of the Bitcoin network.
Let's say that a group of miners, exchanges and developers wanted to change the consensus code of Bitcoin to have a limit of 100 million bitcoin instead of 21 million.
Developers would need to make the change and release the new bitcoin software. Fortunately, this is the easy part. The hard part is convincing all the users of Bitcoin to come to a consensus on adopting the new change and that's a whole other beast.
Achieving consensus in Bitcoin is an organic, genius and beautiful thing. Yet the process can be full of debate, arguing, gridlock and constant explaining that can go on for months or years. There is game theory involved too. But this is a feature, not a flaw. This is by design so that no bad actor(s) can waltz in and change Bitcoin's consensus code willy-nilly and that only well tested code gets adopted.
If consensus cannot be achieved, no change is adopted and the network continues as normal. A minority or majority (whether for legitimate or ill-intentioned reasons) have the freedom to "fork off" and create their new version of Bitcoin. Forking is a non-event now because it had occurred hundreds of times mostly by scammers. Generally speaking, if the network comes to consensus, a high percentage of users download and install the updated Bitcoin software.
The following are two different mechanisms that could be used to update Bitcoin (and are not limited to these):
Softfork: this software update is backwards compatible with all previous versions of the bitcoin software that are connected to the Bitcoin network. If users don't update to the new software, they can still use Bitcoin, they just won't directly benefit from the improvement(s) of whatever the new software offered. A softfork involves miner participation to push it through. A softfork does not alter the consensus code.
Hardfork: this software update isn't backwards compatible with previous versions of the bitcoin software. If a user doesn't update by a specific trigger time, they are using a different network than those who installed the altered Bitcoin software. A hardfork results in both the original and new network existing and users will have coins on both. A hardfork does alter the consensus code.
- Trust Minimized
- Open Source
- Auditable Supply
- Fixed Supply
- Dumb Network
Bitcoin is decentralized because tens of thousands of users around the globe run a full node. Each full node validates and enforces the rules of the global Bitcoin network and has either a full or partial copy of the entire Bitcoin transaction history.
Ultimately, this means Bitcoin is controlled by all of us - the individuals and the network cannot be controlled or shutdown. There is no central location or go-to person for a malicious entity to capture or control the network.
Only a doomsday scenario could permanently disrupt Bitcoin such as the entire planet not having access to electricity - as in no solar, wind, water, etc. But at that point is money really anyone's priority? Not to mention, every other system would also be non-functioning.
Not even shutting down the internet could shutdown the network because technologies such as satellites, mesh networks and radios can be used to route around. Bitcoin is not bound to just the internet.
The decentralization of the network is measured by the number of users running a full node and to a lesser extent, by those that are mining. Collectively, how evenly all the Bitcoin nodes and miners are spread around the world plays a role in the level of decentralization too.
Bitcoin is a trust minimized network meaning trusted third parties are not required for certain usecases like money to function.
The problems with trusted third parties are that:
We trust them to hold all our confidential data (such as e-mail, phone number, full name, home address, credit card info, bank info, etc.), so they naturally become a huge attraction for hackers. Examples in history taught us that it is near impossible for central entities to protect this data.
We put so much trust in entities like central banks that some gained incredible power over the people and have been proven to abuse their power because humans are subject to corruption, emotions, bad decisions, self-interests, etc.
With Bitcoin, the value that you or anyone else holds is 100% publicly verifiable with a full node. You own your bitcoin in the purest sense that can exist when using a full node. In this space we go by the motto, "Don't trust. Verify".
Bitcoin is open source meaning anyone can freely view, audit, modify or redistribute the code. This means that the project is open to everyone for collaboration which is great for bug checking and innovation.
As a result, anyone can copy+paste Bitcoin's code to create their own altcoin. A developer can also work to improve Bitcoin and potentially have the changes implemented.
Bitcoin is a protocol and it doesn't know what a border is. This means any person or machine can connect to the network at any location. Whether you are in mid-flight, the Sahara Desert or Mars. Okay, maybe not Mars (yet) but you can connect to Bitcoin via satellite!
Once connected to the Bitcoin network, the global network is in your grasp and you can transact with anyone at anytime.
Being borderless means the pace at which innovation is built dramatically increases because it's not dependent or dictated by just one group, company or even country. It's a global community and a global project.
Bitcoin is permissionless meaning no person or machine has to ask permission to connect to the network. You can open your borderless self-custody bank right now - all you have to do is download a Bitcoin wallet. You don't have to wait until a certain age, fill out paper work, sign-up, or visit your local bank. Even machines can have their own bank now, as we all know, machines cannot have a bank account using our current banking system.
No permission is required from a government, bank, authority, regulatory body or company. It doesn't matter how old you are, where you live, who your leaders are, if you have legal documents, what gender, what religion or what color you are - Bitcoin is a protocol and it does not care.
Permissionless also means that anyone can build on Bitcoin which greatly increases the pace of innovation. You can wake up one morning and think to yourself "Hmm, I want to build something on Bitcoin.." and just start building something, by yourself, in your bedroom.
Bitcoin's blockchain is digital data, yet it's immutable meaning once the digital data is recorded, it can never be changed. This is an extremely important characteristic of Bitcoin and has some very special usecases for things like money.
On a technical level, this immutability is achieved through a combination of things such as a decentralized network and using an algorithm called proof of work. This eliminates the ability of altering "the past".
Immutability is not a native feature of a blockchain, in fact, Bitcoin is the only truely immutable blockchain.
In addition to Bitcoin's code base being auditable by anyone, the supply of bitcoin is auditable by anyone too. This is important because it ensures that nothing nefarious is occuring to the Bitcoin supply.
Many altcoins, including ones with higher market caps can't verify their supply or their future supply. For many altcoins, the average user can't even verify the supply if they wanted to because running the required software needs an obscene amount of expensive computer resources and time to complete.
It's important that anyone has the ability to easily and independently audit the bitcoin supply at any point in time - and that's what Bitcoin enables by running a Bitcoin full node.
Bitcoin utilizes a peer to peer broadcast network to propogate data (such as data for a new transaction made by a wallet) between Bitcoin nodes on the network. Miners will eventually submit the transaction in the form of a transaction block to be recorded into the blockchain indefinitely.
Bitcoin is clone-proof in two different aspects:
- A bitcoin is impossible to clone out of thin air to expand the fixed monetary supply because of how bitcoin works. There is no actual physical or digital representation of a bitcoin to clone. Rather, there's just a public ledger of transactions that people all over the world have a copy of and maintain independently.
- The network effects of Bitcoin cannot be cloned. Since Bitcoin's code is open source it's a given that anyone can clone it a million times to create altcoins but you can't magically copy and paste Bitcoin's security, adoption, value, organic growth, fair distribution, fair beginning, collective mining power, mind share, etc.
If a country or company wants to create their own digital currency by default it does not compete with Bitcoin because by design it would be the exact opposite of Bitcoin - the very reasons why Bitcoin exists today. It definetely wouldn't be designed for you to independently control, store and protect your wealth. It would basically be the exact same thing as the current fiat system we use today but much worse because it would be a lot more manipulatable, censored, tracked and have a greater concentration of power.
Although Bitcoin can't have a bitcoin duplicated, it can be double spent. But this is also the exact thing that Bitcoin is designed to resolve because Bitcoin has a built-in check mechanism using something called confirmations. Transaction confirmations protect the receiver from accepting bitcoin that a wallet no longer has access to. This is why Bitcoin's layer 1 protocol, by itself, is better seen as a settlement layer than a payment layer.
Bitcoin is neutral because it doesn't belong to anyone and does not play favoritism towards any person, group, company or country. Everyone is on an equal playing field because it's just a protocol that exists and functions.
Someone with 50,000 bitcoin has no more influence or control over the Bitcoin network than someone with 0.1 bitcoin.
Bitcoin uses a public ledger called a blockchain to record every transaction made on the Bitcoin network. It expresses the current and past statuses of which bitcoin addresses held x amount of bitcoin at a given time.
It's so transparent that users can track any bitcoin address real-time or verify the current bitcoin supply at any moment. Participants can even do a proof-of-ownership where an individual, group or company can sign a message with their private key to (possibly) prove that they have access to the bitcoin on the associated bitcoin address in question. P.S: If you are a government agency reading this, no - this is not a viable method of trying to KYC everyone's personal wallets. No method is.
All this transparency is fantastic, however, not all blockchains are equal. Many altcoins including those in the top 5 cannot properly audit or verify their current token supply. To further worsen the matter, many altcoins have an unknown token limit and in the case of an inflation bug some of the altcoins are unable to verify if the token supply has been maliciously increased.
In this regard, the Bitcoin blockchain offers an un-matched level of transparency that didn't exist before.
The software that defines Bitcoin is just code meaning it can change and adopt new features from things like altcoins if they have been tested thoroughly over an extended period of time and justified as being important to integrate. To my knowledge, this had never occurred because all the innovation is already being built and tested for Bitcoin by the brightest developers. Unfortunately, the majority of altcoins have just been scams and broken experiments.
Think it through:
Are the tens of millions of people (and future users) going to throw away all their money and investments every time someone shouts they have something better? Is the entire network going to throw away all the organic growth, infrastructure and restart to square one? Of course not. That would be an endless cycle of disruption and destruction occurring on a monthly basis.
Bitcoin is anti-fragile because instead of weakening in times of chaos and disorder, it gains strength. For example, when there is economic trouble caused by corruption, Bitcoin adoption accelerates. Or when an entity "attempts" to co-opt Bitcoin, the communities grow stronger, new innovations are created to protect the network and game theory kicks in.
The system is battle tested because everything but the kitchen sink has been thrown at it and it doesn't die. In fact, the attacks made the technology, network and communities stronger each time. Mainstream media declared Bitcoin dead over 383 times already and guess what? It's still here and thriving.
Everyone from presidents, governments, bank CEOs, central banks, politicians, mainstream media to your Uncle Bob have bashed Bitcoin. Detractors desperately search for negative talking-points that will stick but fail because you can't argue against facts or mathematics. Interestingly, many who started off as detractors of Bitcoin eventually progressed to embracing it and it takes some people years to go through the process. In fact, the majority of people in Bitcoin now started off as a skeptic.
Bitcoin has been through:
- Bans, restrictions and threats in some countries
- Attacks from governments, banks and politicians on individuals and companies.
- Constant bashing from "established" economists, bankers, mainstream media, etc.
- Attacks from a conglomerate of large bitcoin companies, miners and has-beens
- Protocol, game theory and hacker attacks
- Scaling hurdles
- Hard forks
- An endless wave of "the next Bitcoin" altcoins and their bag holders
- Thousands of altcoins and altcoin clones
- Multiple +85% multi-year bear market corrections
- the collapse of Mt.Gox which was the largest and only relevant exchange for Bitcoin at the time
- Multiple high-profile exchange hacks including an 850,000 bitcoin hack (Mt.Gox)
- Early code bug hiccups
It's to be expected that there will be more failed attacks but it's nothing new. During Bitcoin's entire existence it had to fend off attacks from outside the space, from within the Bitcoin space and from the Crypto / Blockchain space in general. But guess what? Bitcoin is still here, thriving and as important as ever.
As Ghandi's famous quote goes, "First they ignore you, then they laugh at you, then they fight you, then you win".
Bitcoin has a fixed supply of less than 21,000,000 bitcoin that will ever exist. Bitcoin follows a predictable issuance schedule that is estimated to reach it's fixed supply limit near the year 2140. This is hard-coded into the DNA of Bitcoin and cannot be changed by any central entity.
The system is designed so that everyone knows:
- how often new Bitcoin are added to circulation: every ~10 minutes
- how many Bitcoin are created every ~10 minutes: 6.25 btc for years 2120 to 2124
- when the issuance rate will be halved, a.k.a the quantatative hardening / halving event: every 210,000 blocks or every ~4 years
- when new Bitcoin stop getting issued: year ~2140
Bitcoin is a dumb network meaning the core function itself is simple and the devices, tools and protocols that connect to the network are smarter, more complex or more advanced. This means the Bitcoin network doesn't care about how you are transacting, using which device, to whom or to where - it just does it. This means innovation doesn't require risky, disruptive changes at the core protocol level. Innovation is pushed to outside the core protocol such as on end-user devices and other protocols. This is a good thing. Think of how a small bug in updating the core protocol would affect everyone on the entire network. This translates to a stable, secure and reliable core protocol - which is of the utmost importance for a protocol handling massive amounts of value.
A dumb network is more robust than a complex protocol and accelerates the pace of innovation by putting it in the hands of any user and not just one company or group.
The internet (TCP/IP) is an example of a dumb network. It transfers data from A to B and it does not know or care what that data is or what the end device is. Additional protocols and networks work together to make the internet experience smooth and scalable.
Historically, the greatest innovation came from the bottom-up meaning outside the already established banks, Fortune 500 companies, etc. The greatest innovation comes from the bottom simply because that's where it has the greatest need. It's also where individuals have the most creativity, motivation and passion, uncontrolled by bosses, agendas or regulations.
Simply put, a system that is highly regulated, permissioned, closed source, has a singular vision dictated by the company and a walled garden environment simply cannot compete with an open, global and permissionless system designed to help, not profit from people. This is why bottom-up innovation beats out top-down.
In addition, the power structure in Bitcoin is reminiscent of bottom-up because the people are given the power and ultimately, the people are the ones who control Bitcoin.
A bitcoin is divisible up to the eighth decimal place. 0.00000001 btc is the smallest amount you can own and it's called a "satoshi". 1 bitcoin = 100, 000, 000 satoshi.
As of May 2020, over 87.5% of the 21,000,000 bitcoin have been issued. There is less than 12.5% left to issue.
A wallet doesn't actually hold any bitcoin, rather it just grants access to bitcoin.
A bitcoin cannot be deleted but access to them can be lost permanently.
Bitcoin is not anonymous, it's pseudonymous.
Since digital existed, it had the issue of; if it was digital, it could be duplicated. Music, movies, video game gold, software, document files, digital currencies - you name it and it could be duplicated if it was digital. Bitcoin solved this problem when it was released in 2009.
The idea of a Bitcoin-like system actually existed long before Bitcoin was created. In fact, there were quite a few attempts at creating a similar system from a group called the Cypherpunks. Some attempts that would fail include DigiCash, eGold, B-Money, HashCash and BitGold. Now, we have Bitcoin which is by far the most successful and as more time passes, it can be more confidently viewed as the one that made it.
The Bitcoin whitepaper was published on Halloween day, October 31, 2008 by Satoshi Nakamoto on the cryptography mailing list at metzdowd.com. Intentional or not, the Bitcoin whitepaper was released to the world from the ashes of the 2008 financial crisis with the creator embedding the message: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks." into the Bitcoin blockchain.
The first block a.k.a. "the genesis block", was mined on January 03, 2009.
On January 12, 2009 - the creator(s) of Bitcoin sent 10 bitcoin to Hal Finney which is the first bitcoin transaction in history. Hal Finney had since passed away in 2014 and had his body cryonically froze. On may 22, 2010 - the first publicized bitcoin purchase for something physical made its mark in history when Laszlo Hanyecz paid Jercos 10,000 bitcoin to purchase and deliver 2 Papa John's pizzas to his house. At Bitcoin's 2017 peak, these pizzas cost just under $200,000,000 USD.
From 2009-2012, Bitcoin was completely unknown to most - only to be accepted for payment by a handful of visionaries. Starting from 2013, Bitcoin slowly gained traction and legitimacy as more visionaries and entrepreneurs discovered Bitcoin's advantages and it's huge potential. Now, the world cannot go 1 day without talking about Bitcoin.
- The Bitcoin Whitepaper ( listen to the Whitepaper here)
- A Cypherpunk's Manifesto (Article) ( listen to the article here)
- The untold history of Bitcoin: Enter the Cypherpunks (Article) ( listen to the article here)
- The History of Bitcoin by The Motley Fool (Article)
- History of bitcoin (Wikipedia)
- A Short History Of Bitcoin Everyone Should Read (Article)
Bitcoin was created by an unknown person or group that went by the pseudonym of Satoshi Nakamoto on bitcointalk.org and on other forms of communication.
2011 was the last time Satoshi publicly communicated with anyone but before disappearing Satoshi encouraged the former "lead" Bitcoin Core developer Gavin Andresen to continue working on Bitcoin. But now there is no leader due to the radical decentralization that the network went through since then.
Satoshi Nakamoto most likely disappeared due to the dangers of creating such a system that would ultimately succeed. It isn't known but some people have speculated that the creator passed away because Satoshi's known bitcoin addresses have never sent any bitcoin anywhere - meaning the bitcoin never moved, even once. Others believe that Satoshi may be alive but cannot spend his known bitcoin holdings without the risk of exposing his/her/their identity. It's also plausible that access to the bitcoin have been lost permanently. There are many other theories floating around.
P.S: No one knows who Satoshi is. Quite frankly, the identity has no significance and he/she/they no longer have influence on the Bitcoin protocol. Bitcoin has evolved far beyond Satoshi and that's a good thing. Bitcoin has no leaders.
In the first few years of existence, a handful of vocal (and mostly non-technical) users mistakenly pitched Bitcoin as an instant and virtually free payment system. It had this persona because it was new and not many people used Bitcoin during this early period.
In the early days, the constant brainwashing of how Bitcoin and blockchain were for virtually free and limitless instant transactions paved the path for many scams that exist even today.
In reality it was just a cute sounding sales pitch. Limitations, trade-offs and use-cases of the "blockchain technology" were not well defined or tested yet because it was so new to many people. A blockchain is ineffecient and cannot scale for instant global coffee payments. It has a limited but very special use-case: digital immutability.
Because of how a blockchain works, global coffee payments on a blockchain would instantly centralize the network. Why? Because permanently recording millions of transactions on a very frequent basis consumes a lot of hard drive space and resources. It would very quickly consume tens or hundreds of terabytes of hard drive space and require very high bandwidth to run a full node. Do you know anyone that has access to these resources? In this case, only a large and expensive central server would be able to run a full node. At that point, the network loses it's decentralized nature, it's no longer immutable and the network is now controlled by a small conglomerate. It loses the sound money properties and it just becomes another PayPal-like system but worse and less secure.
Millions and millions of coffee payments don't need to be permanently recorded every hour because that would be a waste of limited resources. Most can also agree that a centralized system soley for fast and cheap payments isn't new or special.
The Bitcoin network consumes minuscule resources in comparison to the traditional financial system. Think of all the accumulated energy and physical resources that bank branches, financial offices, entire skyscrapers, building heating/cooling/lighting, commuting, armored transportation, bank vaults, millions of ATMS, thousands of large central servers, tens of thousands of computers, fiat printing factories, tens of billions of paper/plastic bills and tens of billions of metal coins consume in every country around the planet.
Moving on to gold: Gold mining destroys the natural habitat of mountains, hillsides, waterways and even distrupts communities to find mere ounces of gold. Gold also requires physical storage, high physical security, mining machinery, gold factories and armored physical transportation.
Bitcoin mining does not dig into our planet and a bitcoin is digital so it doesn't require physical storage areas, physical security, physical transportation or a physical representation such as coins or bills. Most of the infrastructure that Bitcoin uses already exists such as the internet, computers and phones. The only additional infrastructure are the miners and over 70% of the energy consumed by Bitcoin miners come from renewable resources, surplus energy that would otherwise be wasted and from byproducts such as natural gas flares. In fact, Bitcoin miners are now being used to reduce or eliminate natural gas flares that would otherwise be released into the air.
The electricity consumed by the Bitcoin network provides global network security, immutability, a digital sound money and the basis for other innovations / networks. Bitcoin will become more energy efficient as mining technology advances and will play a larger factor in pushing for more green advancements in the energy field.
- Five Myths About Bitcoin’s Energy Use (Article) ( listen to the article here)
- Bitcoin Does Not Waste Energy (Article) ( listen to the article here)
- POW is Efficient (Article) ( listen to the article here)
- Bitcoin & an Energy Revolution, A panel at the VOB Conf
- Bitcoin’s energy consumption is a necessity (Article) ( listen to the article here)
- Artifical Money Why Bitcoin is the Greatest Thing to Happen for Alternative Energy (Article) ( listen to the article here)
- Op Ed: Bitcoin’s Energy Consumption Is Neither Frivolous Nor Excessive (Article)
- SLP12 – Bitcoin Mining and Energy, with Hass McCook (Podcast)
- Effects of Gold Mining on the Environment (Article)
- Bitcoin Doesn't Waste Electricity (Article)
- The Last Word on Bitcoin’s Energy Consumption (Article)
- Study: Over 74% of Bitcoin Mining is Powered by Renewable Energy (Article)
Think of Bitcoin's blockchain as a global public ledger or database. The ledger has record of every single Bitcoin transaction which expresses the past and current statuses of which bitcoin addresses own x amount of bitcoin at a given time.
Bitcoin has what we call a a public blockchain. It's public because anyone can read, audit and connect to it without permission. Copies of the ledger are distributed all over the planet by users that run a full node.
Bitcoin's blockchain is special because it achieves what a blockchain is designed for: digital immutability. Something that no other blockchain achieves because digital immutability is not native to a blockchain. It can only be achieved through a combination of things such as a decentalized network and using an algorithm called proof-of-work. Digital immutability has very important implications on how we use digital data for certain things like money and brings about many other desired side-effects.
All blockchains by design are inherently slower, less efficient, more expensive and a less scaleable database than existing database structures like MySQL. This is because a blockchain is designed for digital immutability and not infinite, fast or cheap payments.
For a blockchain to scale on-chain for even a fair amount of transaction volume, it must destroy it's decentralized nature as a consequence of how blockchains work. For example, let's say the entire world used Bitcoin on-chain for coffee payments. This would mean to run a full node it would require tens or hundreds of terrabytes (or more) of storage space, an insane amount of bandwidth every 10 minutes from the tens or hundreds of gigabytes (or more) of data that would need to be downloaded (and/or uploaded), expensive enterprise server hardware and setting up a new full node would take months to synch from scratch. Who can afford to run full nodes in this scenario? A few very big and rich companies or governments. What is a full node? They are bitcoin and they define the rules. If only a very select few can run full nodes, those select few control the network. Once the decentralization is compromised, what do you have? A controlled, ineffecient, non-innovative paypal-like system that isn't new or special.
Bitcoin is scaling the proper way, reminiscent of how the internet scaled. Scaling is happening through optimizing the Bitcoin protocol, using best practices and building supplemental protocols, networks and other innovations on top.
Bitcoin uses a process referred to as "mining" to process transactions. This is an over-simplified term because the process is much more complex than what we normally think of as mining.
Without getting technical, the important thing to understand about miners is that they don't validate transactions - transactions are actually deemed valid by users running Bitcoin full nodes. Instead, miners are adding transactions into a transaction block to be submitted into the blockchain. Every time a new block is added to the blockchain every transaction previous to it exponentially increases its security because of how proof-of-work is designed.
Every time a transaction receives a confirmation, it means a new block has been added to the blockchain. For example, if your transaction from a month ago has 6000 confirmations, that means 6000 new blocks have been added to the blockchain after the one that includes your transaction.
Miners submit a block to the blockchain by competeing to be the first in solving a work-intensive mathematical puzzle using special hardware. If a miner wins the race, they get to add their block to the blockchain and receive a block reward as payment. Miners can also collectively work together to solve the puzzle by forming a mining pool. In this case, the block reward is divided between miners based on their hash rate contributed. The block reward (or more specifically the block subsidy) is how new bitcoin are issued into circulation.
Mining is a technically complex process and also involves an algorithm called Proof-of-Work. We'll leave it at this.
At the beginning, anyone could mine with a device that had a CPU, such as a laptop or desktop. Mining eventually progressed to video cards, then FPGAs. Now, mining is only profitable when using specialized hardware called an ASIC.