The detrimental effects of government-mandated money — and conversely, the benefits of sound money adoption — were discussed in the previous article in this series, as were the properties that make Bitcoin a powerful and permissionless alternative to fiat. In this piece, we’ll focus on the technology that makes the protocol so robust and why that matters in today’s world. It’s wise to first provide a definition for Bitcoin, not an easy task. As a complex ensemble of components giving rise to a series of emergent behaviours and phenomena, the what of Bitcoin appears to have a lot of subjective baggage attached. Bitcoin scribe Nic Carter has tackled some epistemological and ontological perspectives of Bitcoin, as informed by wider phenomenology.
The Bitcoin name refers to several things: the broadcast ‘push’ messaging protocol, the peer-to-peer network of nodes running client software and UTXOs (unspent transaction outputs) or ‘pieces of bitcoin’. The record of transactions between users’ addresses is notarised using a high-assurance data structure — the ‘blockchain’ — which is synchronised across the network’s nodes allowing a ledger to be constructed permissionlessly by anyone who runs the Bitcoin client software. The global state of the transaction history is kept in agreement. The true state of the ledger is maintained by the thermodynamic competition to create blocks (Proof-of-Work, or PoW ‘mining’), ensuring that massive expenditure of computational power and energy would be required for a prospective attacker to rewrite the blockchain and therefore alter Bitcoin’s historical record. Miners are rewarded with bitcoins for winning the race to find candidate blocks and broadcasting them to the network, provided the protocol has been followed and the network reaches agreement on the next block to be added to the chain. Transactions are included in each block, the order of which is determined by a ‘fee market’, with higher priority transactions incentivising miners to include them with above average fees.