Bitcoin is a new form of money. On the face of it, it’s a peer-to-peer digital money, that allows people to send value to one another.
But what is it that facilitates this? In this article we look at five key foundations of Bitcoin that make it truly revolutionary.
Bitcoin is a democracy. There is no centralized authority or anything that decides what happens to it. And even developers wanting to implement protocol upgrades that will benefit the network have to get consensus from the community.
For a developer to make change, they first have to achieve ‘rough consensus’ from the developer pool. This means they don’t need 100% approval, but they need to get to the point where there are no reasonable objections towards their proposal.
Developers will discuss the proposal among everyone who might be affected by it, and pretty much anybody who is interested in the proposal can become part of the discussions. This is usually done through mailing lists, code repositories, or social media.
Anything that is considered worthwhile will then be integrated, but even then, upgrades do not have to be utilized by every node if it doesn’t suit them.
So, Bitcoin truly is a democracy, and any decision is taken from consensus and no centralized entity can change otherwise.
For Bitcoin to maintain its “brand” decentralization is key. Bitcoin’s decentralization is through its network of computers running the protocol.
These are miners and nodes, and every one of them far and wide make up the decentralized nature of Bitcoin. This helps maintain the security of the protocol and makes it virtually impossible to control.
Some see entities such as mining pools as a danger to Bitcoin’s decentralization, and while it might centralize it to a degree, it’s not a danger.
This is because no mining pool has sufficient capacity for controlling the consensus, and they are also made up of tens of thousands of individual miners, who could easily move away from their pool if it was to try anything malicious.
By distributing power to as many different locations as possible, we nullify the possibility of a central entity seizing control. And as more people and companies flock towards Bitcoin and either mine or run a node, it will naturally become more decentralized.
With any payment mechanism we use (until Bitcoin), whether it’s a bank, VISA, or PayPal, we have to trust a third party. We have to believe that they will honour our transaction. And we have to pay for that trust.
Putting trust in legacy financial and political systems has got us to where we are today. We regulalrly see political and financial collapses everywhere, and these problems breed inequality and division.
Bitcoin eradicates the need for trust. Through the use of cryptography and a decentralized network, we have a system that needs no trust. This is because the trust is in the code, and without consensus the code cannot be altered, meaning that trust (and trustless) is absolute.
This trustless property of Bitcoin allows, for the first time, value to be sent from one person to another without the need of a third party. And with the code unable to send something astray, and the ledger being public people cannot deceive each other.
It’s a fact that of all protocols, open source protocols are the most successful.
Bitcoin’s client is open for anybody to audit, and this ensures the trustless nature need not be questioned.
Because it’s open source anybody can copy it, as we have seen with the bearing of cryptocurrencies like Litecoin and Dogecoin, which are basically modified copy pastes of the Bitcoin protocol.
Its open source nature allows anybody to modify it, too, but as we know through the consensus function it will not be implemented without the consensus of the majority.
However, anybody trying to misbehave with the protocol will be penalized and cut off from the network, so it should be a warning to any developer wanting to try something. It’s not worth wasting your time.
Another problem with centralized entities is that they can censor your everyday transactions, whether that’s tweeting your opinion or sending money to someone.
The government of Argentina have even censored how much peso its people can exchange for US dollars every month.
And the Venezulean banks have started to prevent clients using foreign IP addresses from using online banking.
It’s done because the governemnts don’t want the people taking value out of their failing economies, and with it a loss of control.
Nothing can stop a Bitcoin transaction. Well, miners can refuse to confirm one, but as long as somebody pays a competitive fee, it is highly unlikely that their transaction won’t be confirmed.
And because we don’t have to rely on a third party, nothing can stop somebody wanting to send it.
Bringing It All Together
There are many key parts to what makes Bitcoin what it is, but having a network that relies on a democratic consensus is key to creating a peer-to-peer digital cash.
And the network built on distributed computers ensures that the consensus will always be democratic. These together secure the protocol, and knowing the code is open source and auditable for anyone, means we don’t have to trust anyone with our transactions.
And the best thing is our transactions can no longer be censored.
I believe Bitcoin is the greatest innovation in generations, and if it is to be the success many expect, it could turn out to be the greatest innovation in history.
Author: Tommy Limpitlaw