As you read more about Bitcoin you’ll probably come across the term ‘layer 2’. The concept of layers sees Bitcoin as the base layer, with transactions recorded in blocks connected across an ever-increasing chain. What happens on the base layer is often referred to as happening ‘on-chain’. Transactions that happen on-chain are subject to the… Continue reading 2 – Build the missing functionality on top (Layer 2)
Month: September 2022
1 – Change the rules (Fork)
Bitcoin was built to be open source, so anyone that doesn’t like the rules can simply make a copy and create their modified version. This is known as a Fork. To date there have been 105 Forks, which underlines that in many people’s eyes Bitcoin’s design has flaws. It should also be seen as both underlining… Continue reading 1 – Change the rules (Fork)
Bitcoin`s limitations
If you’ve worked your way through the two previous articles in this section you should have learned the following key things. Cryptocurrency fulfills all the characteristics of sound money. Bitcoin was the first, and most influential, cryptocurrency. Its creator was Satoshi Nakamoto – publishing its blueprint in 2008. How Bitcoin works to achieve a digitally… Continue reading Bitcoin`s limitations
What you`ll learn
What you`ll learn An introduction to the Blockchain Trilemma Why Bitcoin struggles as a medium of exchange How forks, layer two applications & altcoins attempt to solve the trilemma The future of Bitcoin
Bitcoin`s limitations
Of course, no system is perfect, and a decentralised, distributed system such as Bitcoin suffers from limitations that a centralised system doesn’t. The main limitation is the trilemma between security, scalability, and decentralisation. This means that there are trade-offs when designing a network, and you can’t have all three. In other words, you can’t have… Continue reading Bitcoin`s limitations
The ultimate sound money?
We’ve just seen how, unlike fiat currencies, Bitcoin achieves reliable digital scarcity with no one in charge. Here’s how it satisfies the remaining properties of sound money: Durability: the architecture of the blockchain makes it incredibly robust. Since every node has a copy of the ledger, destroying the Bitcoin network would require that all 50,000 nodes distributed… Continue reading The ultimate sound money?
Money supply and inflation
Mining is also the way by which new bitcoin are released into the system. Whoever wins the competition for solving the cryptographic problem gets to add the new block of transactions to the blockchain – plus a reward comprising transaction fees and new bitcoin. Transaction fees are the sum of fees paid for all transactions… Continue reading Money supply and inflation
How bitcoin mining works as an incentive
The solution introduced by Bitcoin to this age-old computing problem involves maths, competition, and economic rewards, and goes by the name of mining. Mining involves a competition for solving a complex mathematical problem, which takes on average 10 minutes and is adjusted every two weeks to account for current computing power. The winner gets to… Continue reading How bitcoin mining works as an incentive
Bitcoin`s design
Bitcoin is many things, but we’ll focus on the design elements here. Firstly, Bitcoin is a peer-to-peer network of computers all following a set of rules and instructions (the Bitcoin protocol) for validating transactions and issuing new coins. Any computer running any software that respects these rules can participate in the Bitcoin network. These are… Continue reading Bitcoin`s design
Cryptography And Economics
Bitcoin combines computing and cryptography with a clever system of economic competition and rewards that ensure it’s in everyone’s best interest to respect the rules without the need for a central authority. Instead, the network manages itself, and no single party controls the system. Bitcoin rewards honest “work” that supports the network (validating transactions, as… Continue reading Cryptography And Economics