Topic: What really is bitcoin - Explain it from another point of view (Read 217 times)

i personally know the technical sides but i do enjoy people that like to inform using average joe speaking terms to explain it and i found your format very understandable at the simple level, but there are a few critiques to tweak.

1. its 2016 blocks every 2 weeks which "averages 10 minutes", NOT EVERY 10 minutes

2. bitcoin has never averaged 7tx/s in a single hour, or day or month.

3. the data limit is not a physical risk aversion limit to hardware or access. we are not in 1999 where dial-up and floppy disks were popular. we are in 2021 where 4tb hard drives and fibre internet are common.

4. the fear of 'data centre' centralisation due to bloat is not a issue(point 3). but lack of archiving peers is a centralising issue. the real fear is not the 'cost of data'  but instead due to devs and altnet people trying to convince users that 'pruning' off the blockchain, saying its not important to archive the blocks after validation,  meaning to not offer data-seeding(torrent buzzword) to other peers, while pretending their 'node' is a full network support node even without archiving is more likely to cause centralisation of the blockchain sources.


the networks unit of measure in code/data is actually sats which are transacted/stored in blocks. its only at the human visual display of a wallet that shows it in formatted bundled amounts which is where 100,000,000 sats =1btc. at code/technical/data level you will never see a btc in raw transaction data or on the bitcoin blockchain.


its been about 8 years since the last "computer" mined. these days its ASIC devices laymans("special devices" not "computers")


you should have explained it like:
from 2009 the mining reward for each block was 50btc (5,000,000,000sat) plus fees as a bonus, and every 210,000 blocks(roughly 4 years) this reward halves. and by approximately the year 2140 the reward would half repeatedly halved  down to nothing. leaving the total btc at ~21million circulation limit.
where fee's become the main/sole income for miners, slowly become more important the closer to 2140 it gets


the value of bitcoin is not in the data. transactions dont set the value of bitcoin. because miners still do work even if the block is empty. asic miners dont care if the blocks are filled or not. they never see the blockdata when mining.

the economics of bitcoin value is actually in the asic work performed(electric burned) vs the reward/fee attached. to the block. presently miners see the reward as the main income and the fee's as just a bonus/tip. which will change the closer to year 2140 they get.
if it costs miners more to mine due to mining competition of competing pools and difficulty increases causing the need to have more asics and burn more electric. the miners just refuse to sell their rewards for less than costs. causing bitcoin value to rise to meet/exceed costs. (lack of new coins on market causes a supply/demand economy)

its not a case of asking for more sats per transaction to break even. its a case of asking for more dollars on the market for the limited sats rewarded sats

the mining cost vs market exchange supply demand currently is more important than the fee(bonus/tip)

if there is a over supply of transactions, yes people pay more to outbid each other to rush their transaction in to a block asap. but to attempt to word it that limiting the blocks capacity creates bitcoin value. is misleading and more false attempts to make it look like bitcoin should not scale.

bitcoin can scale and by allowing more transactions, which means more fee's or lower fees for more people
2500tx of $1 or 5000tx of $0.50 is the same miner bonus, but allows more cheaper transactions, also prevents users thinking that the network is being extortionate by limiting scaling on purpose


try white board and permanent marker.. chalk can be wiped off..


gold and bitcoin both have utility so i agree with those aspects, but the value (economic) is in the mining cost.
simple explanation. if gold could be mined in everyones back yard with just a spoon and a coffee filter for $0.50 an ounce. people would happily sell it for $0.51+ where there would be a ceiling where other people wont want to pay more than $2 for the convenience of not getting hands dirty, because anything more then that they might consider mining their own.
golds underlying value is in the acquisition costs. firstly it costs over $900 to mine which sets the baseline value. and then ontop of that value is the speculation of the supply/demand of existing coin and what people are willing to sell it for.
which is why gold bounces between $1100-$1900 in recent years(above base cost value)
bitcoins baseline most efficient mining cost is over $20k so baseline is currently $20k cost with the speculation of market supply and demand above that


bitcoins main purpose is the transacting of sats. not really meant for timestamping file hashs. so maybe you dont need this paragraph above included otherwise its advertising something bitcoin users are trying to avoid bitcoin being used for


the sats are the raw asset that are mined at a cost(electric burned for asics)
gold is the raw asset that is mined at a cost(burned diesel for excavators and sluice machines)


bitcoin is not the network for all open data to be timestamped as a file hash. not everyone wants to put their data into bitcoin and bitcoin users dont want everyones random file hash added. bitcoins sole purpose is to move sats from one owner to another. so there actually is good reason people should use different blockchains and not bloat bitcoins purposefully limited data space.

im sorry to say this but you seem very much a pro-data limiter but at the same time a pro-data bloater. your idea's that bitcoins value is in this limited space whilst suggesting that people should put random data into blocks is atrociously misguided, and also seems to stem from the misguided thoughts of what you believe creates the value bitcoin has.

1. full nodes validate and archive full blockchain
2. validator nodes (pruners/lite wallets) dont archive blockchain after validation
3. miners dont validate transactions. asics have no hard drives. they just create the complex block ID hash.
4. pools are full nodes that have extra scripts to communicate to many miners to give them the blockheader to mine

PoS blockchains are less secure than PoW blockchains. and PoW blockchains range in security based on the amount of hashpower(mining) and the difficulty and the type of hash/scrypt they are mining.

its not just about archiving the blockchain that provides security. but also the mining complexity.


150exa, with an average asic being 110terrahash = ~1.3m asics
1.36m asics using 3.25kw/h = 4,431,818kwh = 4,432mwh =4.4gwh
4.4gwh=38,823gw/year = 38TW/y

its 38TW a year not 130tw hours


1. already explained 'special devices'(asics) not computers
2. well i just mathed it out 51% of 1.36m special devices(asics) = 0.69m special devices

to explain a 51% is more simple.
1. a 51% attacker cannot change the rules of bitcoin. fullnodes would just ignore mined blocks that dont meet the rules.
2. a 51% attacker can try to undo existing blocks and take out transactions they dont want in the blockchain.
3. a 51% attacher can ignore adding transactions it doesnt want in new blocks

lets explain (2)
to undo a transaction in a block to be able to refund/re-spend that value after it has confirmed. requires an attacker to go back and make their own block (of the block containing their transaction they want removed). obviously excluding their transaction in the new attempt. and then create subsequent blocks ontop to catch back up and overtake the networks current amount of blocks, to make the attackers chain of blocks the highest amount of blocks. which then makes the attackers chain of blocks the one everyone treats as the one to follow. thus dropping the list of blocks the attacker doesnt want people having.
this comes at a cost because the attacker needs to have more special device power(asics) to make blocks faster than the rest of the network to be able to go back edit and then catch up and overtake.

because even at the most efficient costs of say 4cent/kwh electric. having atleast 0.69m asics at 3.25kwh costs ~$90k an hour in just electric in the cheapest electric region
(note some countries pay $0.32/kwh=$720k in electric (japan))

hardware: 690k asics at $12k each =$8,280,000,000, spread the cost over a year ROI = $22.68m a day= $945k an hour
=$1m an hour hardware and electric for cheapest region ($1.3m for most expensive region)

if it takes ~ 6 blocks(an hour) of the network moving forward, for an attacker to go back 1 block, edit and catch up. that $1m-$1.3m(all inc.) cost means no one is foolish enough to want to attack the network for $1m-$1.3m just to refund his own small transaction of a pizza price.


yep the further back the block they want to start their change from, the more the $1m an hour costs
to go back 5 years, would cost atleast $788M-$3.15BILLION (in electric depending on region)
and the $8,250,000,000 in hardware cost
means $9billion-$12bill to edit blocks from 5 years ago

seems you have now flipped the script from calling bitcoin a finite resource for transactions.. to now be promoted as being a gate way to infinite transactions.. thus also adding more debunking your earlier thoughts that bitcoin value is in the limited transactions.
there is no value in a finite resource if people have access to infinite resource elsewhere pretending to be bitcoin2.0
 

dont be too quick in promoting alternative networks 'contracts' as being guaranteed resistance to attacks. these altnets have no blockchain, no network wide auditing.

the contracts on altnets can be mismanaged and attackers can dupe their contract partners in multiple ways. many people including the developers themselves of alternate networks like LN have lost value.

seems your flip into infinite utility is just the bait and switch to go into full altnet advertising mode.


mostly correct but maybe try a different analogy then the repeated use of chalk and blackboards.
 

bitcoin can and is a currency. if it allows transfer of value from one user to another. its a currency.
what you are trying to suggest is due to purposefully limited transaction capacity on the bitcoin network, makes it impossible to be a common currency for 8 billion people to use daily. but thats not to say its not a currency. its just restricted itself from being a common world wide daily use currency.
if two people. decide to swap a bottle of vodka for a helping hand repairing a car, then that bottle and that favour is currency between the two. it does not require everyone on the planet to swap vodka for favours to be deemed currency

what you consider as the common widely accepted daily use currency is called "money"


LN is a separate network that allows multiple blockchains to lock funds and peg their value over to LN.
ketchup is not 'french fry layer 2' just because it can go on french fries.
ketchup is in a different state, different form, offering a different serving then fries.

advertising LN as bitcoin2.0 is doing a disservice to bitcoin by making it sound like bitcoin is obsolete and useless and that LN is the replacement thats better in all ways.
sorry to inform you due to the lack of LN having a blockchain, due to lack of network wide auditing of value transfer, due to more attack vectors with the contracts LN is not as secure as bitcoin. and should not be advertised as bitcoin2.0


best way to explain the relationship is this:
on the bitcoin network users transact value into a joint (co-signed) address that locks the value in a contract. like a 2key bank safety deposit box.

then on the altnet. the 2 people then create a different contract that is not measured in sats or btc. but in a different currency called millsat which is pegged at 1000msat=1sat

the LN network does not send msat to a desired destination like bitcoin does. but instead users partnered together partner with other partners. where they then pass the parcel of each mast contract between each partnership. and when it finally gets to the destination. everyone then determines the payment is made. and they can then update their contract. and then if they want to close out of using LN update the other contract measured in sats by rounding the pegged msat to the nearest sat and singing out the contract that can be used on the bitcoin network

..
do not try to mislead people into thinking altnets are bitcoin and all altnet payments are bitcoin transactions. it makes users oblivious to the multitude of risks and lack of independence they actually have when using altnets.


lightning network is an alternate network if people want to peg their bitcoin and play with another network to move value quicker, but this niche has risks and consequences. bitcoin has purposefully been hindered with its developer enticed restrictions to promote other networks.


find a better analogy

1. LN is not 'only one of bitcoins second tier extensions' becasue LN is not fixed/subject to/a feature of only bitcoin. other blockchains can peg to it too. LN only uses the bitcoin brand purely for instant name recognition and to create false instant trust. LN has not actually earned any real trust of its own with the number of flaws and attack vectors it has had in the last 4 years, which bitcoin had not had in its first 4 years

2. yes bitcoin has a contract utility that allows it to be a gateway peg for other networks. and those altnets do have some niche and service utility some may want for fast/cheap or controlled payments. also for being alternate data logging. but that does not mean these other networks are making bitcoin a true "money". (as explained bitcoin is a currency already)

3. yes these other altnets are going to become common 'currencies' (money) but people need to be aware the value might be the same matched economic value. but the unit of account(asset/token) is different at the code/technical level.
a australian dollar is not a american dollar even if you call them both dollar

when you can understand the rounding and different contract formats of the bitcoin locks vs the altnet payments. it becomes clearer


most imagine that 100sat =$1 to allow for 1sat=1cent
this translates to about $1mill / btc
people wont want to make transactions on bitcoin for $25 fee(10sat/byte for 250byte tx) or $250 fee(100sat/byte).
they would prefer a $2.50 fee acceptable cost(250byte at 1sat/byte)

if it costs too much to settle out of an altnet or lock into an altnet. they would just avoid bitcoin altogether and use a different blockchain currency like litecoin to enter and exit LN/sidechains to do their faster payments.


if the price stabilises to double every 2 years. by lets say we deem todays ~$50k per btc(x6.25=) to be this halving's settled value.
using the hourly rate. $50k * 6.25*6= $1,875,000 hourly reward vs $1m-$1.3m hourly cost at 150exa
allowing for hashrate to go upto between 216exa-280exa if hard ware stayed same efficiency

then in 2022=$100k/btc * 6.25 * 6= $3,750,000 hourly reward allowing hashrate to go upto 432exa-560exa
...........2024=$200k/btc * 3.125 * 6= $3,750,000 hourly reward keeping hashrate at/below the 560exa
.......... 2026=$400k/btc * 3.125 * 6= $7,500,000 hourly reward allowing hashrate upto 864exa-1.12zetta
.......... 2028=$800k/btc * 1.5625 * 6= $7,500,000 hourly reward keeping hashrate at/below the 1.12zeta
 and then the plateau begins* of miners losing value from the reward and then requiring the transaction fee's to fill the mising value.
.......... *2030=$1.0m/btc * 1.5625 * 6= $15,000,000 hourly reward keeping hashrate upto 2.24zeta

where if bitcoin price cannot exceed $1mill/btc. then miners will need to be compensated if they want to increase the hashrate or even keep the hashrate

this is because miners are expecting a 'double' of reward value but the coin is maxing at $1m. so they need $600k per coin they are not getting which = $2m an hour.
if we stay with jsut ~2500 transactions a block = 15,000 an hour. it would cost each transaction $135 each

no one would want to pay that.
think about it logically if you bank account done wire transfers slowly, but paypal offered a 'instant fast cheap payment system" but required a entry fee of $135 and an exit fee of $135, would people use paypal their bank account linked to paypal at those costs of the bank vaaut setup in and out of paypal. or would they just end up not using the bank(btc), and find a credit union(ltc) to store their funds outside of paypal and then move daily use amounts into paypal at $1 a entry/exit

this is why bitcoins transaction count needs to increase before the next decade to allow 10x or 100x more transaction onchain


what you will find is that from 2014, big bitcoin mining farms have already had good contract 'quota' system with electric plants. mining farms buy allotments of gw from what power plants call their 'excess production quota' which is a separate allotment they sell to the residential and industry markets, this helps power plants get paid for electric usually not utilised thus allowing power companies to invest in more upgrades.

most of the 'bans' are not ban and never see again. instead they are legally stop 'open use' to then have the legal power to offer licence/permit/ restricted use. because they cant just offer licences for things that have no restriction in the first place. so legally they have to prohibit it first to then have some control/power on how they can then regulate/permit its use.



again this has already been a known thing thats already been done since 2014 with the big mining farms. but not as a state tax, but instead a bonus for power companies selling their 'excess' production that usually goes to waste

the value of gold and bitcoin are very much linked to production cost.

the less miners, the less secure the block hashes are and the cheaper it gets for an attacker to re-organise the blockchain
if btc peaks and flattens at $1m a coin.. but the reward is 0.78125
then excludling any TX fee bonus. it means the hashrate/difficulty drops to $781k a block to attack. so again fee's become important to keep mining rates and difficulty UP. meaning to prevent fee's costing more due to limited tx capacity, the tx capacity needs to increase. otherwise less people will use bitcoin. which means less people running full nodes and less hobby miners trying to get small income from mining because the fee to move their funds will kill their spendable amount left over.

if transaction fees increase in the number of sats.. this does not have anything to do with the dollar valuation of more sats(wont cause market price changes). it just means people making transactions spend more sats to make transactions.
leaving them with les spendable sats. thus turns into a tax. where instead of 1% tax it turns into 10% tax 50% tax eating into and taking away from their spendable sats

meaning if people think an acceptable fee is like 1% of value. instead of sending $250 with a $2.50 fee(250sat fee at $1/100sat) if the fee ends up being say 13500sat/tx($135 fee) people wont want to use bitcoin for transactions anything less than $13.5k.. which rules out people using bitcoin for their monthly wage amount. and definitely wont use bitcoin to lock up weekly spend amounts to play on altnets.
instead they will put their wages into altcoins like LTC and then move weekly amounts into altnet like LN and just avoid bitcoin entirely.

i hope you can start to picture the dynamics/scenarios of what will happen if devs continue to hinder bitcoin growth simply to advertise altnets which other altcoins can also peg to


all countries will at somepoint do a 'prohibition' era of bitcoin. prohibition of a open utility is always needed to then gain the government control to then offer permits/licences/regulations.

check out america's NY bitlicence.
in 1900's anyone could drink alcohol at any age or take morphine for anything. it was then prohibited, and then governments allowed it under certain licence/permit (age restriction, volume consumed restriction, how and where it can be consumed)

in the 1900's of motor vehicles anyone could drive ant any speed in any direction along the dirt paths. so they temporarily prohibited it to then offer driving licences and rules for driving.

in the 2010's people could test drive automated (driverless cars) then it was quickly prohibited and now only permitted under certain conditions of safety standards


dont think that a countries 'ban' is the end of the story. think of it as chapter one of regulating and licencing fiat businesses to interact with bitcoin in the future while regulating the use to ensure its not abused

Your arguments are flawed specially since you want to end it with intrinsic value of bitcoin. The bitcoin value and what makes this network secure which will then ensure the immutability of the blockchain is the fact that bitcoin is a currency and is used for transfer of value.
Don't get me wrong it is good to mention other utilities that bitcoin with its immutable time-stamped database provides but you can't side-line the main utility that ensures other utilities.

I just checked chapter 1 and the parts which I entered into a plagiarism checker match 100% with the information provided on https://www.what-really-is-bitcoin.com/. Is that your site? Did you write the content or copy/paste it from there or from some other source/sources?

If you used other sources while creating your thread, you need to indicate which ones. Even if it's your content from a different website.

As someone who regards myself as a non-techie and has a high level of difficulty of fully understanding the confusing concepts and jargons on Bitcoin and cryptocurrency, I must say that you made an impressive job here. In our world of information and almost full access to it, we can always be victim of misinformation or fake news. I think the same is happening right now with Bitcoin as there are some people who are pushing their own agenda and maybe they feel that Bitcoin has become like a hurdle for them to defeat. I find this to be a good read...thanks a lot!

It's evident you put a lot of work into this write-up. Many of the concepts you speak of are quite sound. Whether you are new or not to bitcoin, you seem to have a relatively strong understanding of what bitcoin is. You do not seem overly bullish or bearish, but somewhere in between. I like that.

On the various mainstream articles in the last two years I have noticed a lot of hatred and inaccuracies towards this technology, in the past months I felt the need to write something to prove certain points of view.

Initially I had published these notes of mine on an ad hoc website to try to spread my thoughts, but the visibility of the site is close to zero so I decided to dismiss it and post my ideas on the various forums and social media. I started from the historical forum.

As I mentioned I am genuinely interested in the dissemination of my ideas because I consider them important clarifications for all those misunderstandings that circulate in the mainstream press: anyone who is reading and wants to use this content to write articles, posts on sites or on their blog, whatever they hear. free to do so.

I LAUNCH AN APPEAL: I'm not good at creating images, if someone wanted to enrich this popular post with accompanying images/pictures it would be of great help!

I created this post to try to explain what bitcoin is using a different approach. All explanations introduce bitcoin as a digital currency, a (crypto) currency based on a distributed blockchain database (ledger). I would like to change the initial point of view and describe bitcoin as a distributed database of the blockchain type, where its use as a cryptocurrency is only one of its use cases.

The purpose of this post is purely informative, feel free to copy, reuse or translate my ideas even without citing this post.

Some technical concepts are explained in a deliberately simplified or imprecise way. These are approximations necessary not to open too many technical brackets. The goal is to give a first general explanation to those who still don’t know anything about bitcoin.


CHAPTER 1. What really is bitcoin

Bitcoin is a decentralized database whose transactions are irreversible and written data considered immutable. This database is freely accessible to all through an open protocol with known specifications  and open source code. Anyone can read the data of this database or contribute to making it secure by validating transactions.

Every 10 minutes the network validates a data block of new transactions, this block is appended to the chain of previous blocks with cryptographic validity rules. This chain contains the data of all transactions from the start of the bitcoin network (which took place in 2009) to date. This data structure is the blockchain.

What makes a blockchain immutable and incensurable is the fact that this data structure is decentralized, i.e. distributed / replicated on a large number of computers around the globe. Data integrity is guaranteed by the consensus reached by thousands of eyes that observe the validity of the blockchain.

Each of these blocks has a limited maximum size, this in order not to increase the size of the whole blockchain excessively over time. The consequence is that the number of transactions managed by the bitcoin network is extremely low: 7 per second.

If there were not this limit in the protocol, the size of the entire blockchain would grow dramatically and only a few large data servers could afford to install a Bitcoin node. The network would be managed by a few actors who could agree to modify the transactions considering these modifications valid.

Therefore to have data immutability through decentralization, such data must be a precious and limited resource.

This data, the blockchain, which is also called the distributed ledger, must remain limited in terms of disk space occupation (must not grow by TB and TB). Otherwise it would become a ledger less and less distributed because few could afford to download and save on their hard disk the entire blockchain.

Who has the right to make one of the few transactions that the network can validate every 10 minutes?

The network provides tokens, limited in the maximum number (21 million), called bitcoin or BTC. To make a transaction you need to send BTC tokens from one address to another. By sending BTC you must also indicate how many you want to leave as a “tip” for the computers that validate transactions (miners). These tips are the ‘fees’ that reward miners for their work in securing the network by providing computing power to validate the required transactions.

In the first years of the network’s life, for each validated block, in addition to the fees, new bitcoin are assigned to the miner who first validated the block. This mechanism serves to assign the new bitcoin generated to someone for the first time, to provide a startup to the system. In 2009 when the network was started, no one owned any BTC. When all 21 million total btc have been assigned, the miners will receive, as a reward for their work, only the fees attached to the transactions to be validated.

Being able to insert data into the blockchain has a value since you write immutable and therefore precious data. Being able to enter data into the blockchain is also a privilege since every 10 minutes (each generated block) a limited number of ‘slots’ will be made available to carry out transactions. Those who attach more fees to their transactions will be preferentially chosen by the miners to be included in the next block.

So if a data written in the blockchain has a certain value, the token (BTC) necessary to be able to write in the blockchain also has a value itself. Bitcoin are a precious trading commodity. This makes bitcoin tokens with a non-zero intrinsic value.

If the bitcoin blockchain is the most “indelible” blackboard in the world, bitcoins are the special chalks to write something on.


CHAPTER 2. What is the intrinsic value of bitcoin ?

Many believe that bitcoin has no intrinsic value. Several people think that bitcoin are digital tokens for their own sake, with no real underlying.

Bitcoin are limited in their maximum number and there will be no more than 21 million, from this point of view they are similar to gold or other rare metals. However, some point out that gold in addition to having a value because it is rare also has real applications (eg. Jewelery and industrial applications) while with a bitcoin you cannot do anything practical, simply mine it or buy it, own it, and possibly resell it or send it to someone else.

Told in this way, it would actually seem that bitcoin is a simple digital precious object for its own sake to which value is attributed only as rare.

But from the perspective of looking at Bitcoin as an immutable database, rather than as a digital currency, it becomes immediately clear what the intrinsic value of bitcoin is:

Through bitcoin you can write access to the most secure blockchain in the world.

What do we mean by “safe”? A blockchain is all the more secure the stronger and stronger and guaranteed the immutability of its data.

From being able to write data on the Bitcoin blockchain we can imagine the most immediate use cases of the network itself that can come to mind:

1. The blockchain as a notarial tool, example: Proof of existence of a digital document or other proofs based on timestamps.
2. Creation of a scarce digital token and therefore of value (bitcoin as a digital substitute for gold), a sort of “store of value”.
3. Use of the bitcoin token as a digital currency capable of functioning in the absence of intermediaries.

Points 2 and 3 are potentially questionable by detractors:

Bitcoin has value as long as there are people who give it value, we do not have a guarantee in the strict sense deriving from its mere being scarce.
Bitcoin as a currency is limited by the limit of 7 transactions per second and by the high cost of fees. (note: this limit may be exceeded in the future by the Lightning network)
Point 1 remains which is indisputably a real use of bitcoin. In this case of use it is possible to carry out proofs of the existence of documents: the blockchain as a notarial tool. Let’s see broadly how a proof of existence of a digital document using bitcoin can work.

It is not necessary to save an entire computer document (eg. a pdf) in the blockchain but it is sufficient to calculate a unique fingerprint (hash function) and attach this footprint in a bitcoin transaction. In computer science, there are functions that, given a certain digital content (eg a file), calculate a unique footprint. The same footprint can only have been generated from a single, precise file. Unlike the file which can be of any size, the footprint generated will always be a relatively small sequence of characters. Small enough to attach to a bitcoin transaction.

A typical Bitcoin transaction provides that bitcoin are sent from address A to address B, paying the miners’ network an F fee. This is the most trivial use case in which we have a simple transfer of value between two addresses. Two different people exchange bitcoin.

However, it is possible to “attach” a short text message to a transaction and the typical way to do this is by using the op_return field.

The situation in this case is that bitcoin are sent from address A to address B, paying the miners’ network a fee F, associating a small text message M to the transaction. In this case, addresses A and B probably belong to the same person. The transaction is aimed at writing the M message into the blockchain.

Message M will indicate the unique computer fingerprint of the file for which you want to prove existence.

The conservation of the document remains your responsibility, but you can prove that this document certainly existed at least from the date of the block (each block has a timestamp) in which the transaction with its imprint was included. Taking an example, this document could contain the description of your idea and the image of your logo “I, John Smith, invented this product with this logo …”. Using bitcoin, you could prove that you had already created that idea and that logo starting from the block date in which you included the file imprint!

You don’t have to send bitcoin to anyone to achieve this, you can make a transaction where you send an insignificant amount between two of your addresses and you only have to pay the correct fee to be included in a block.

The fee obviously must be substantial. Since the space on the blockchain is limited, it is disputed and a not small fee must be paid to be awarded the inclusion in one of the next blocks (if you enter a too small fee, after a while the transaction is rejected and you can try again).

 
The intrinsic value of bitcoin is that it is a token that allows write access to the most secure data blockchain in the world.

There are already services of this type, I recommend looking for “Proof of existence with bitcoin” with google. A website that already implements all this and performs this service in a user-friendly way is https://opentimestamps.org/

Of course, to date the success of bitcoin and the vast majority of its transactions are due to its purely speculative use (trading in exchanges by thousands of retail investors), and the notarial use of bitcoin represents a minority percentage of transactions, but this proportion does not mean that there is no real underlying!

The bitcoin do not have an underlying raw material, they are the raw material to write on the blockchain.

 

CHAPTER 3. Probably you don’t need a blockchain. But if you need it then you need bitcoin

We don’t like Bitcoin, we like the blockchain. How many times have you heard this phrase?

Many influential people, interviewed in recent years, have often repeated the mantra: we don’t care about bitcoin, but we have an interest in the underlying technology, the “blockchain”. It is often repeated for one or more of the following reasons:

• Simple ignorance and / or distrust of what is not known well.
• Use of yet another buzzword (the ‘blockchain’) to seem cool. Pure marketing.
• Real bad faith. Given that bitcoin is an open standard (basically it belongs to everyone), one is afraid of not being able to put one’s own software product on the market based on its own proprietary “blokchain”.

Do I need a blockchain for my business? Is the blockchain used to trace supply chains? Let’s try to answer these questions with reasoning.

Blockchains can be public or private.

If a blockchain or a certain “enterprise solution” it is private or federated it is not really decentralized. Blockchains of this type are designed precisely with the intention of not completely losing the possibility of having central control.

It means that the control remains centralized, the automatic consensus between the nodes on the distributed data is never really definitive and an admin (or a limited number of admins) must be able to potentially change them. So it is better to use a classic distributed db. A blockchain-based system is extremely inefficient compared to a classic database. When decentralization is not needed, this inefficiency is an absurd price to pay. Such inefficiency is acceptable when decentralization and immutability are sought: in this case it is a fair price to pay.

Are you a manager fascinated by the word ‘blockchain’ and are you about to buy an expensive proprietary solution? You probably don’t need a blockchain-based system. But you can ask your IT engineers to design classic software based on one or more distributed databases. Develop a data access software layer with your own custom management logic to reach a consensus and resolve conflict when the data does not coincide between the different nodes on which you distribute the data. You can develop it with normal existing software technologies, you don’t need a blockchain. Private blockchains are to be avoided.

Let’s move on to the public ones (including Bitcoin).

If a blockchain is public but does not have expensive fees, either it is little used (therefore insecure) or it has a block that is too large (and therefore tends to no longer be decentralized, see chapter 1). Public blockchains with these characteristics are to be avoided. Bitcoin has expensive fees (so it’s safe because it’s used and contended) and a limited block size (it won’t become centralized over time).

Let’s go back to the example of the proof of existence of a document seen in chapter 2. Imagine you are calculating hash of a document, carrying out a bitcoin transaction while saving this footprint. You can prove (by keeping the document) that that document already existed at the time of the transaction.

Imagine you want to trace the origin of real objects instead of the origin of a computer document. Think you want to track the food chain (for example) of high quality wine on the blockchain. A human operator will enter some data concerning a bottle of champagne and ascertain its origin.

First problem: the human operator could lie and enter false data (or tamper with the automatic data entry mechanism). What is the use of inserting data that could be false originally in an immutable blockchain? Let’s suppose to trust the human operator and move on.

Talking about a digital document, it is possible give it as input to a computer function that calculates a small unique footprint (a small text that can be included in a transaction on a blockchain).

But for real world objects there is still no laser / quantum / photonic scanner / flux capacitor or other science fiction inventions that calculates the unique footprint of a real object (a bottle of wine, an apple, a chair, ..). Furthermore, real objects vary their molecular composition over time (wine ferments and reacts over the years in the bottle), the same object would have different footprints over time.

How will we be able to prove through the blockchain that a certain bottle contains exactly what is written on the label? We must trust the code written on the label and verify that this code has been registered in the blockchain. But the code was written on the label and in the blockchain by humans, that is, it is a potentially corruptible data.

You could also apply the same label with the same code to multiple bottles even those that do not contain champagne.

What is the point of being able to write on an indelible blackboard (public blockchain) things that may be originally false?

What is the point of being able to write on a blackboard that is not even completely indelible (private blockchain) about things that could be originally false?

As for a real world object to be tracked in the blockchain, we cannot insert a unique imprint like we can for a file. Even if by magic we could calculate the unique footprint of a real object, it would only have an instant value because it would change over time.

Also concluding for a product with a supply chain saved in blockchain, we must trust what has been declared, exactly as we already do today without the blockchain. It leads back to having to trust people. We might as well use a normal database.

The blockchain as a system for tracing a production chain of real objects makes no sense, but only makes sense when dealing with completely digital objects. As for our usual example of the proof of existence of computer documents (files) for which it is possible to calculate a small unique footprint and save it in the blockchain.

So when do I need a blockchain? When I have to save evidence of existence (on a certain date, the block timestamp) for important documents or in general when the objects I have to trace are purely digital and not real objects.

Which blockchain should I use? That of bitcoin because it is the one that offers the greatest guarantees of immutability.

How much will a proof of existence of a single document cost me? The cost of a transaction in the bitcoin network, which can be $ 1 as a few tens and may even increase in the future, depends on how much the blockchain is used at the time of the transaction. However, a notary would cost more.

 

CHAPTER 4. How secure and immutable is the bitcoin blockchain?

Bitcoin is the most widespread cryptocurrency. Its blockchain is the one with the greatest number of validator nodes (full nodes, which have the entire validated blockchain in memory) and the one with the greatest computing power in the field in validating transactions (mining). One blockchain is no more secure than another based on different technical characteristics, but it is more secure than another if its decentralized network (full node + miner) is larger than the other’s network. The bitcoin blockchain is therefore the safest blockchain in the world.

The various miners compete with each other to validate transactions and get the fees and new bitcoins generated in this initial phase of the network as a reward. When all 21 million bitcoins that can be generated have been mined, the miners will only work to win the fees attached to each transaction.

The sum of the computing power of all the miners (transaction validators) is measured in terms of hash / s to date we are around 150exahash. In terms of energy, the various miners use an amount of electricity equal to that of an entire nation such as Pakistan or Argentina, in order of magnitude we are around 130 terawatt hours.

An attacker who wanted to ensure control of the blockchain would have to overcome (50% + 1) all the computing power in the field scattered around the world.

A hostile entity would have to set up a gigantic mining farm, it is difficult to say how many computers would be needed, but we imagine that they should consume more electricity than the whole of Argentina.

To fraudulently modify data on a traditional database, just bribe the system admin or administrators with access to the data. To fraudulently modify a piece of data on the bitcoin blockchain, it is necessary to overcome a protective energy barrier of about 130 terawatt hours (plus the technological effort to build / purchase and manage efficient computers specific to the bitcoin mining algorithm).

The bitcoin blockchain is the “most indelible” blackboard in the world.

Suppose we want to change a piece of data written in the blockchain 5 years ago.

 
To change a transaction in the past, the attacker should recalculate all the blocks starting from the affected one of 5 years ago in which the change is made (this change requires a recalculation of all subsequent blocks to make them valid).

He would then have to run his huge mingin farm in silence to recalculate a different but formally valid blockchain and after getting on par with the blocks publish to the rest of the network his new block chain with more work (Proof of work) which would be recognized from within the network as the new valid chain. An enormous energy effort.

The more the total hash rate of the bitcoin network grows, the greater the economic effort required to attack the network and subvert the immutability of data in the bitcoin blockchain.

 

CHAPTER 5. Does Bitcoin consume too much energy for every single transaction?

Does Bitcoin consume too much energy for every single transaction?

Short answer

No, because Bitcoin is the core network (Bitcoin is THE BLOCKCHAIN) of potentially infinite low-power networks that rely on its cryptographic guarantees and its resistance to attacks. A bitcoin transaction can therefore correspond to a very high number of operations on a layer 2.
 
Below is the detailed explanation

When they tell you that the validation of bitcoin transactions consumes as much as “an entire nation”, this is a positive thing: it takes just as much energy (extended in the time necessary to rewrite the old blocks) to subvert the data.

The more bitcoin grows in hasrate and in energy consumption, the greater the immutability of its blockchain data. The bitcoin blockchain is the “most indelible” blackboard in the world.

A bitcoin transaction is estimated to consume as much energy as hundreds of thousands of VISA transactions.

But they are not comparable things. VISA can be compared to MASTERCARD or bank transfers but not Bitcoin transactions.

This misunderstanding is also the fault of early Bitcoin fanatics who peddled Bitcoin (with a capital B, layer one, we’ll see later) as a currency. Bitcoin (level one) cannot be a currency but level two can be a bitcoin-based currency system (with a lowercase b, tokens).

Bitcoin is not a currency because it cannot handle a large number of transactions without losing decentralization (see chapter 1).

With the 7 transaction limit imposed by the maximum size of each new block generated every 10 minutes, it cannot be a currency. It could have been in the early years for a niche of users when it was little used.

However, the monetary use of the bitcoins is not a lost dream, far from it: the Lightning Network is in an advanced stage of development. It is a second level network, considering Bitcoin the first level network.

 
It is based on this principle: a certain amount of bitcoin is ‘stopped’ with a particular Bitcoin transaction. The bitcoins ‘stopped’ at level one will be in use in a level 2 payment system, capable of handling millions of transactions per second. From time to time there are transfers / compensations on level 1 ‘unlocking’ the bitcoins that have in the meantime been used in the level 2 payment network.

The Bitcoin blockchain is the indelible and inviolable ledger on which the Lightning Network will be based.

Opening and closing payment channels on the Lightning Network will require a transaction in the Bitcoin blockchain that will consume as much as hundreds of thousands of VISA transactions, but each Lightning Network channel will handle millions of level two bitcoin transactions. Here’s the trick.

Lightning Network will be the true payment network comparable to VISA and other similar systems.

As mentioned in previous chapters, Bitcoin is the safest blockchain in the world, the “most indelible” slate there is. A transaction in the bitcoin blockchain means writing something with indelible chalk, a chalk that smokes and overheats at the touch of the blackboard, such a thing cannot consume little energy. This blackboard is the sure reference of activities carried out outside the blackboard itself.
 
However, Lightning Network will only be one of Bitcoin’s second tier extensions. Another network under development is Rootstock which extends Bitcoin to manage smart contracts and de-fi stuffs. For each ‘topic’ there will be a second level network without clogging the Bitcoin blockchain, keeping it light and decentralized.

Bitcoin (layer one) is not a currency because it cannot handle a large number of transactions without losing decentralization (see chapter 1), but suitably ‘blocked/stopped’ bitcoins (tokens) can be represented on a payment network (layer two) like the Lightning Network, finally making bitcoins a true currency of millions of transactions per second.

 
Bitcoin (layer one) is not a blockchain with onchain support for smart contract turing complete like Ethereum, but suitably ‘blocked’ bitcoins (tokens) can be represented on a smart contract management network (layer two) like Rootstock, also allowing to use bitcoins for smart contracts and de-fi like Ethereum (but without clogging the blockchain).

Bitcoin is in fact the ‘core’ network of second level networks (sidechains) of various types yet to be imagined and built, so it must be protected with a lot of energy. The foundation of a skyscraper must be solid.

I hope the reader now begins to understand why in the first chapter I wanted to introduce Bitcoin as a particular immutable database and not as a ‘digital currency’. I suggest, to understand it better, to  first see it as an immutable and decentralized database and then imagine various uses including that as (crypto) currency.

UPDATE: In March 2021, Microsoft announced the launch of an open source licensed digital identity system called ION Decentralized Identifier (DID), which is based on the bitcoin blockchain [1]. This is another example of a layer 2 network. The statements on the choice of the bitcoin blockchain are interesting:

“When we started crunching the numbers, we realized that Bitcoin was the only chain that would probably be too costly to attack.”

 
[1] https://bitcoinmagazine.com/business/microsoft-announces-completion-of-ion-v1-and-launch-on-bitcoin-mainnet

 

CHAPTER 6. How much will Bitcoin’s energy consumption still grow?

Many are concerned that if the value of bitcoin continues to rise, the energy consumption of mining operations will continue to rise.

At first glance it is true:

If the price of Bitcoin increases, new miners will be incentivized to join the network to try to win the new bitcoins that are assigned every 10 minutes to the miner who first validates the new block.

Today a single Bitcoin is trading at around 50,000 $. If the price were to rise to 100,000 $, we should also expect a doubling of the miners competing to grab the new bitcoins and therefore a doubling of the energy consumed.

If the price of bitcoin were to reach 1 million dollars we should expect twenty times more energy consumption, the more it will increase in value and the more it will require energy. Said so it seems a monstrous thing.

This reasoning, however, is wrong because it does not consider two factors:

1. Every four years the new bitcoins assigned for each new block are halved. They were 50 in 2009, they became 25 in 2012, falling to 12.5 in 2016 and they became 6.25 in 2020. In 2024 they will drop to 3.125 and so on, halving every 4 years, tending to zero in the long run.
2. The price of bitcoin will not grow forever (too good to be true). In 2009, at launch, the price was zero, with the first exchanges between pioneering users, the first prices were in the order of cents. In these 12 years, the price has reached, between various ups and downs, 50 thousand dollars each. We are still in the price discovery phase, the unit price will sooner or later stop rising and will settle in a range in which we will no longer have large volatilities of several orders of magnitude (no more x10, x100 ..).

Combining these two factors we have that the price of Bitcoin will stabilize (point 2) and halving the number of new bitcoins every four years (point 1) we will have that the economic value of the reward for miners will also halve every four years. If this incentive to mine is halved every 4 years, the energy consumption will follow accordingly. The number of miners will decrease because they will have less convenience to mine.

This is the “speculative” part of the economic incentive of those who buy bitcoin today hoping that the final price they will settle at has not yet been reached.

But if the new bitcoins minted are halved every 4 years, what will the miners earn? Obviously, the fees that network users pay to ask miners to validate their transaction: this is the part of the economic incentive that is directly correlated to a real use of the network.

As the speculative part decreases in importance (assigning new bitcoins to miners who immediately resell them on the market for profit), only the part of real use will remain predominant (payment of the miners through the transaction fees included in each validated block).

At the end of this transitory period, therefore the energy consumption of the network will be a direct function of its real use and not as now driven mainly by a strong speculative component due to this infatile but physiological phase of price discovery.

If, as bitcoin detractors argue, the network will not be of much use, final consumption will be low because few users will want to transact and pay fees to do so.

If, on the other hand, the bitcoin network is actually used for many things, the final consumption may also be high but proportionally justified by real use.

 

CHAPTER 7. Does it make sense to ban bitcoin mining?


If, despite what we have seen, the energy consumption of bitcoin mining was not considered acceptable, would it make sense to completely ban bitcoin mining? No, it would be enough to limit it: bitcoin would still work.

A false myth is that with the increase in the value of bitcoins and with the increase in its use, it is necessary to have an increase in the computing power spent in the proof of work algorithm of bitcoin mining.

It is more correct to say that with the increase in the value of bitcoin, energy consumption tends to increase but it is not mandatory that it increases from the point of view of the functioning of the bitcoin network.

Without external intervention it tends to increase because with the increase in the value of bitcoin, a greater number of new subjects are encouraged to join mining due to the increasing revenues deriving from the sale of bitcoins obtained from it. Obviously, in addition to new potential miners who are added, we also have the same subjects already present that increase the number of their computers involved.

That said, such a trend may simply be limited to pleasure. To do this, it would be sufficient to apply an extra tax to the electricity sold to industries dedicated to mining.

States could set a certain maximum annual quota of salable energy to this sector.

This energy would be sold with an extra tax or still assigned with a public tender to those who are willing to pay more for this energy. The revenues from these taxes and any tenders would enter the coffers of the states that could reinvest them as they see fit in the ecological cause.

This kill two birds with one stone: the bitcoin network would preserved and its energy consumption would be limited in a clear manner and with economic returns for the community.

Now the reader will ask: but why can bitcoin increase in value and diffusion and at the same time continue to function even without increasing the computing power deployed in mining?

That total mining power could also decrease and everything would continue to work the same. The total computing power required is not a function of the value or diffusion of bitcoin but is a function of the difficulty of mining, a parameter that the network automatically adjusts.

The bitcoin protocol requires a new block of transactions to be queued to the blockchain every 10 minutes.

To validate a block of transactions (simplifying) you need to solve a mathematical problem. It is the object of contention in the "competition" between all the miners in the world. The first one who solves this mathematical problem can queue the validated block to the blockchain and assign himself the new bitcoins generated (and those attached as transaction fees included in the block).

The more miners there are, the more computing power is deployed and the mathematical problem tends to be solved in less than 10 minutes.

With a self-regulation system, the network increases the difficulty coefficient of this problem if the blocks tend to be solved in less than 10 minutes in order to bring the average generation time of a new block back to the desired value of exactly 10 minutes. If the blocks, on the other hand, tend to be solved in more than 10 minutes, the network automatically lowers this coefficient of difficulty.

If the number of miners dropped, the difficulty coefficient would also drop, and the network would continue to run smoothly, simply consuming less. This also with an increase in the value of bitcoin.

In summary, what normally happens in the absence of particular taxes on mining:

The value of bitcoin increases -> the number of subjects that mine increases because it becomes more profitable to mine -> a greater number of miners obviously means more electricity required.

What would happen with a mining tax with miners required by law to stipulate only electrical contracts dedicated to this activity with high taxation:

The value of bitcoin increases -> Any new subjects (or the same subjects who would like to deploy more machines) should weigh the choice with respect to a higher price of energy -> there would be an equilibrium, this equilibrium would be adjusted according to the sensitivity of each state by acting on the extent of this specific taxation.

 
CHAPTER 8. Who is the owner of Bitcoin?


While the individual bitcoins (the tokens with which it is possible to access the Bitcoin blockchain in writing) belong to someone in particular, the network itself is a protocol open to all and the source code is open source.

It is therefore a network that belongs to everyone, it is also a bit mine, a bit yours but it is also a bit of the various detractors.

Anyone can join the network from a mining point of view, anyone can put a full node online to increase data redundancy, anyone can use their bitcoins in the network.

If desired, it is also possible to analyze the source code of the main project and rewrite personal software implementations that perform the various functions of mining, a wallet for one's bitcoins or a full node server.

The only thing that can belong to someone in particular are therefore the individual bitcoins, initially born from a new mined block, resold on the free market by those who mined them and from then on bought and resold by anyone.

The Bitcoin network in its entirety belongs to the whole of humanity, attacking it means attacking something that is also a little yours.


CHAPTER 9. What does it mean to ban Bitcoin?
China and a few other totalitarian and undemocratic nations have banned Bitcoin.
They practically banned the use of a database: in China if you want to write data on the Bitcoin blockchain you can't do it.
Seen in these terms it is an absolutely absurd ban, the detractors who would like to ban Bitcoin in practice would like to ban a database, does it seem reasonable to you to ban?