Mindblown: a blog about philosophy.
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3 – Sacrifice one of the concepts (Altcoins)
The two options so far for addressing problems of Bitcoin scaling as a convenient medium of exchange have looked to either adapt the Bitcoin design, or build on top of it. The third area of innovation retained Bitcoin’s basic concepts but compromises on how it is implemented, creating what are now known as alternative coins, alt coins for short. A commonly used term to refer to cryptocurrencies that came after Bitcoin; literally alternative coins, i.e coins that are designed to work differently from Bitcoin. The most important cryptocurrency after Bitcoin is Ethereum. Though there are some similarities in their use as digital currencies, Ethereum has a much grander ambition – as a world computer…
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2 – Build the missing functionality on top (Layer 2)
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…
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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…
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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…
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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
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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…
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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…
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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…
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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…
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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…
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