Bitcoin and the blockchain What does it all mean?
The world is changing and, in some ways, becoming more complicated, at least to us old fogies that were born before the personal computer (pc) … the youngsters don’t know what a pc is. Ha! Well, the new complication is often more easily understood when looking at it from the ten-thousand-foot view. The ten-thousand-foot view is just simply to look at what money is and its purpose. Money in its simplest terms is a place holder of value. You exchange a good/service for money, and you can spend or save that money to buy future goods/services. Simple huh?
All societies have used some form of money at some point as barter was the original trade and can work in simple transactions, but the more advanced a society and the more advanced a transaction, the more money becomes necessary. If you produced eggs and needed a house, a huge number of eggs would be needed to exchange for the value of the house. The home seller would not want to eat that many eggs. This is the reason money is necessary. To bring it back to this simple discussion, Bitcoin is just another form of money that has some unique advantages.
Understanding Bitcoin
Okay, let’s try to understand Bitcoin, if you’re not sure where to start. As mentioned, bitcoin is a type of money, like dollars or gold. Anything used as money/currency, that can maintain its stability over time, becomes high in demand and utility by the marketplace. In short, we as a people, search out and use money that holds its value. Gold is one standard that has met the test of time, even the petrol-backed US dollar has been and is still seen as the best place to hold value, and Bitcoin looks to be the next big place holder of value. Why?
The World Is Speeding Up
Our world is getting faster, and technology is also speeding up. This can make things like the stock market hard to predict and feel unfair. Bitcoin is different, though. Let’s compare it to gold first. Throughout history, people have seen gold as something that keeps its value well. It can go up or down, but overall, it stays steady. Bitcoin is new, and it’s digital, but it might be the answer to holding value into the future. As governments continue to devalue currency by over printing supply, Bitcoin becomes more and more attractive as a placeholder of value.
The Block Chain
Bitcoin is a digital currency, like a video game token, but much more complex. It’s not controlled by any government or person. There’s a record, or ‘ledger’, of every time a Bitcoin is traded, kind of like a library book that keeps track of who’s borrowed it. This record is kept in blocks, and those blocks link together, like a chain. That’s why it’s called the ‘blockchain’. As each block fills up, a new one is made, and they all are linked together.
Mining Bitcoin
You might have heard about ‘mining’ Bitcoin. This isn’t like mining for gold. Computers are used to add to the record for each Bitcoin. As they do this, they earn new Bitcoin, like getting paid for doing a job. These computers are building the blockchain and earn bitcoin for doing it. They call this mining bitcoin.
The Lego Tower Analogy
Let’s imagine Bitcoin as a giant treasure chest, and this chest is what we call the “blockchain”. Picture it as an enormous Lego tower. Each block in the tower is like a page in a history book that records all Bitcoin transactions.
Every time someone sends or receives Bitcoin, that’s a transaction, just like when you trade Pokémon cards with your friends. This transaction gets bundled with others into a ‘block’, which then needs to be added to the ‘blockchain’ tower. But before it can be added, it needs a special key, like in a treasure hunt. This is where Bitcoin mining comes in.
So, what is Bitcoin mining? Think about it like solving a giant, super tricky crossword puzzle. Bitcoin miners are like master puzzle-solvers, using powerful computers to find the key to the block. They race to solve the puzzle because the first to find the key gets a prize of brand-new Bitcoins! This is how new Bitcoins are made.
But why go through all this trouble of solving puzzles? That’s where the security aspect comes in. Remember how the blocks are like pages in a history book? Once they’re written, they can’t be changed. This makes the blockchain very secure. If anyone tries to cheat, their page will look different from everyone else’s. It’s like trying to change the rules in the middle of a board game. Everyone would notice!
What’s even cooler, the blockchain tower is not in one place like a bank but copied onto thousands of computers all over the world, making it almost impossible to cheat or hack. It’s like having thousands of referees watching over the game.
Why Bitcoin is the Gold Standard of the Future
It’s hard to cheat Bitcoin. To explain why, I’ll use the airplane example. You may not know this, but airplanes use many computers to stay in the sky. If one computer shuts down, the others keep the plane flying until that computer reboots. Bitcoin works the same way. All computers with bitcoin hold the record of Bitcoin trades within each Bitcoin, so if one computer shuts down, the others keep going. To cheat, you’d need to control more than half of these computers, which is nearly impossible because there are millions of them.
Bitcoin is seen as the ‘gold standard’ of digital money because it’s stable and trusted. One advantage is that no government can make more Bitcoin. There’s a limit – only about 21 million Bitcoin will ever exist. As we get closer to this number, each new Bitcoin becomes more valuable, and harder to mine. Governments also can’t weaken or control Bitcoin. They can only tax it when you exchange Bitcoin into another type of money, like dollars.
Just a note here, I am not an expert in bitcoin and am giving you a very rough understanding of how this works from my own personal study. I encourage you to do your own research before making any financial decisions.
Conclusion
As governments try to control money more, people will use Bitcoin to keep their money/stored value safe. Unlike government backed money, Bitcoin can’t be devalued by printing more money. This happened recently, when the US tripled the amount of dollars in the world between 2019 and 2022. This caused prices to rise, which made each dollar worth less, a process we call inflation. Bitcoin can’t be affected by governments devaluing currency, its supply is limited.
This is a simple explanation of Bitcoin, and there might be parts that need more detail. But I hope it gives you a good start in understanding it!
Thanks for reading.
— Joshua Dudgeon
One Bitcoin Miner
Here is a perspective of a Bitcoin miner I came across online, he was asked the following question and responded:
Q: Do you have any concerns about a large nation state that
has interest in just actively destroying Bitcoin to make their own,
you know, super rigs and design chips and just throw hundreds of millions or billions of dollars to intentionally disrupt the blockchain?
His Response:
A: I don’t worry about that at all. This cannot be done with Bitcoin anymore. This is something that can only be done with a nation’s alt coins.
Bitcoin has achieved a level of computing that no single nation state can overthrow through computation alone. The effort to do so would require a massive covert operation of chip fabrication. Then coordinate the assault that would give them dominance over the next block for 10 minutes until we (the other miners) would kick them off the network and rework the protocol around them. It would be revealed, they would’ve lost a billion dollars doing this, and all they got to do was one double spend.
Now here’s the thing, long before we get to that point, they figure out that if they just let this stuff run, they can actually get some Bitcoin as a reward because the incentive structure actually works.
So, I’m not worried about that. A lot of people are watching the blockchain and as I said before, what are they going to do? If they take over and they fork the blockchain, and they go somewhere, right?
They’ve created an alternative blockchain. Great. What are we going to do?
Who’s going to join the NSA blockchain? Anybody want to jump on Fed coin?
So, we stayed on the old fork. It will get more profitable for the minors who stayed behind, and we’ll carry on with our point and they can go mine whatever they want on their alternative blockchain. They achieve nothing. They can’t make protocol changes because we, as I said, five constituencies in consensus are needed. It would take a billion dollars to pull the most ridiculous Keystone Cops Failure in history. Plus, this would actually require government that can do IT (Information Technology)!
