My Valentins day love message goes to Bitcoin
Today is Valentine’s day and across the globe lovers show their loved ones how much they care. Rest assured, I do that too. Privately. But my blog covers my professional life and without being unfaithful to my loved one, I openly declare,
I love Bitcoin.
And here is why:
It dawned on me discussing blockchain technology with our new intern. His master thesis will cover the impact of blockchain on the energy sector. As usual Bitcoin fired up a fierce discussion about the future of fintechs and banks, the central banks in particular. But Bitcoin should only play a minor role in the thesis. More or less a footnote in blockchain history, because it is just one application out of many. That is true, bitcoin is money. Programmable money.
The inventors of Bitcoin thought of literally everything when creating Bitcoin. A truly digital currency + book keeping, which cannot be altered by humans. While I searched for arguments pro bitcoin, one could literally watch his mind racing. Me? I again caught fire.
- This decentralized network is immune to attacks on a server. You can’t take it down by killing one machine. Instead you would have to kill every single computer in the network at the same time. I guess, we can scratch that one of the list of potential threats.
- All machines run an identical protocol. At various occasions the machines check, if everybody else is working according to the rules agreed on in the protocol. Therefore Man in the middle, Trojan horses or similar attacks won’t work. The virus cannot spread, because surrounding computers will block the infected machine and its tampered ledger.
- Here comes the most amazing part. How do you achieve anonymous participants heading in one direction, reaching for the same goal, namely providing an indisputable, decentralized, tamper-proof digital ledger of transactions?
Rewards. Once someone could possibly receive a reward, he most certainly will act according to the rules. Think of the lottery. Every Saturday millions of citizens invest their hard earned money to buy a lottery ticket. They are fine with the slim chance of winning the jackpot. Eventually they only stand a chance of winning, if they will make the correct amount of crosses, otherwise their ticket is voided.
Okay, back to Bitcoin. Satoshi Nakamoto knew that very well. Therefore a rule called „proof of work“ was invented. All computer run the identical protocol, which enables them to process new transactions. They neatly pack them into containers (called blocks) in a certain way by solving a mathematical riddle. This riddle is really outlandish complicated and requires a lot of CPU power and energy. Basically all computer participate in a race who packs the block quickest while obeying the rules. Remember, all surrounding machines will check the result before spreading it.
- Actually it’s a race with a terrific democratic angle. Whichever result has spread to +50% of the network first, drives home the reward.
- This reward consists of digital coins called bitcoin. A token of appreciation for the hard work straight from the protocol.
- In case someone adds a tremendous amount of CPU power to the network, this is also accounted for. The difficulty of the riddle depends on the CPU power, which goes both ways. If computers are added, it rises. In case of decreasing CPU power the difficulty also goes down. The system remains in balance.
- Theoretically one could own the network with 51% of the CPU power. Maybe the last few blocks could be altered and of course new ones could be bent to the will of the attacker.
But at what costs? The currency would collapse and the coins of the attacker turn worthless.
The bitcoin blockchain is self contained. Human error or interference is impossible or economic suicide. The only interface to the real world is left to the free markets: trading bitcoins. The purity of this token is valued in trust and trust only. Bitcoinistas agree on accepting the digital token for a certain amount of fiat money, trade goods for an exchange rate or simply move values border- and frictionless around the world.
A storage of value which
- cannot be manipulated by politicians or banksters
- represents a finite amount of coins and
- fits into your smartphone
Do you feel the love too? Ok, then think about the term „bitcoin is programmable money“…