What Makes Bitcoin So Special

And why a “better” version of Bitcoin won’t replace it so easily

Bitcoin, an invention by the anonymous cypherpunk Satoshi Nakamoto is the worlds first successful cryptocurrency. Prior to Bitcoin it wasn’t possible to pay anyone on the internet without having intermediaries or middle men involved. Shortly after its introduction many variants of Bitcoin arrived on the scene called altcoins, with promises of faster confirmations, better scaling, better privacy features, and with more robust smart contract support, however Bitcoin holds far more value than any of the newcomers. Where does this value come from, and why do so many consider Bitcoin far superior? This article will explore some of the properties of bitcoin and how they come together to make something truly unique, and not very easy to duplicate.

Decentralization

There would be nothing special about Bitcoin if it were not decentralized. Its that its decentralized that gives it such appeal, nobody is in control, and that’s good. Its natural to want to solve problems by centralizing the solution, but as you do this you create centralized power, which is basically what bitcoin was invented to replace. Bitcoin was invented to be the peoples money, not a crypto PayPal.

Decentralization is not always black and white, or yes/no. It’s a scale, and this scale is always under constant pressure. Sometimes centralization attempts are hidden from view, disguised as scaling upgrades. Bitcoin has resisted these well-coordinated attacks on the network successfully.

Bitcoin was born in the wild of the cypherpunk internet back corners, and has grown decentralized from there organically. Its, still anonymous inventor (Satoshi Nakamoto) disappeared shortly after starting up the network, and since then the software that runs the nodes are developed and maintained by thousands of volunteers and contributors. Even its development is the most decentralized.

Decentralization also means there is nobody to ask permission to use it, nobody who can sensor it, no way to keep transactions inside real world borders, nobody who has ability to seize funds or reverse transactions, nobody to ask permission to start a new application or startup on it. These qualities are all features, not bugs.

Bitcoin has the highest overall level of decentralization among all cryptocurrencies.

Immutability

One of Bitcoins most valuable properties is the immutability of its blockchain. To be immutable means it cannot be changed, and having an unchangeable ledger is something that has never been possible before bitcoin. This is where bitcoin and all of the other coins are different, none of the other coins or altcoins can claim to have a truly immutable ledger or blockchain. Bitcoins consensus algorithm is what regulates and controls how bitcoin works, and it’s very difficult to change consensus without all the interested parties agreeing. There is no president or founder who can wave their magic wand and force consensus changes upon the network like all the other altcoins have. There is no one person, or group of people who are in control of bitcoin, and that’s good.

A certain level of inertia in regards to the consensus algorithm exists in bitcoin that is beneficial to its immutability. You generally don’t want to have a system that can be changed very quickly on a whim containing Billions of USD worth of value. For instance, if it was decided by the miners that the mining reward needed to be doubled, such a proposal would be met with great resistance from the other interested parties, and would fail. (*Bitcoins interested parties include bitcoin holders, wallet software developers, miners, developers, merchants, application developers, and others. )

As a side effect, while bitcoin adoption grows it will be harder and harder to get network upgrades into consensus to support increased scaling, and improved privacy features that are on the developers roadmap. Eventually it will be impossible to change the consensus algorithm and it will be locked in stone.

· Bitcoin miners provide the processing power that secures the Bitcoin blockchain with 50,599,447,508,000,000(as of this writing) SHA256 Hashes Per Second. This hashing power significantly contributes to the security and immutability of the Bitcoin blockchain.

· To be able to keep a secure global immutable ledger without having any intermediaries involved is a tremendous advancement in modern financial technology.

· Participants in such a network should also expect reduced counter-party risk exposure.

Antifragility

Antifragility is a property of systems that increase in capability, resilience, or robustness as a result of stressors, shocks, volatility, noise, mistakes, faults, attacks, or failures. — Wikipedia.org

Bitcoin has been under constant attack ever since its early days. A network that, as of this writing, holds $110 billion in value makes for a big honeypot. As a result bitcoin has developed a certain immune system that continues to improve into the future.

One of the early fixes to the early bitcoin protocol was to make the script language turing incomplete, which means you cannot write very complex smart contracts on its blockchain. This was removed from the bitcoin protocol because it introduced a broad attack surface. The removal of turing complete scripts from bitcoin hardened it and protected it from many possible attacks. It was decided early in Bitcoins development that it would favor safety and security over flexibility. Many other adjustments have been enacted along the way in response to the constant barrage of attacks.

To say that bitcoin has survived and thrived in this environment is an understatement. Bitcoin has never once suffered a hack to its protocol, not once has an invalid transaction been included into the blockchain, not once has a transaction been reversed after suitably being recorded onto the blockchain. Sure, many have had there bitcoin hacked, but its important to know that all of those cases are of people being sloppy with their private keys. Bitcoin was not hacked, your keys were stolen. If you are sloppy with the combination to your safe, don’t be upset when you find it empty. Not your keys, not your bitcoin.

I expect that bitcoin will continue to adapt and evolve in response to future threats.

Scarcity

Bitcoin could possibly be the most scarce asset on earth. There will only ever be barely 21 million bitcoin in existence. Taking into account its decentralized nature, and its immutability, and the inert nature of its protocol development its hard to see this ever changing. With over 7 billion humans on earth, there are not many to go around. fortunately each of those bitcoin can be broken into 100,000,000 units called Satoshi.

Unlike gold when the demand for bitcoin quickly rises, the miners cannot just increase the supply in response to increased demand. There is no way to just mine more bitcoin in response to demand. This dynamic along with bitcoins schedule of diminishing mining rewards will contribute to its rarity as adoption grows. This could produce a market cap many multiples of where we are today in a short period of time.

Many of the altcoins have no coin cap, or have such weak security model that the cap can be changed by decree.

These properties are conducive to the bitcoin network being a great store of value outside the traditional monetary system.

The lightning Network

In early 2018 a second layer network connected to bitcoin began to run, the Lightning Network. This new and completely separate network promises to solve many of the scaling challenges that are inherent with recording every single global transaction onto any blockchain. The Lightning Network basically allows for many off-chain transactions to take place that are periodically settled on-chain.

Bitcoin connects to this and other layer 2 networks using something called payment channels. Payment channels are commitments of a cryptocurrency to another network, and effectively link the 2 networks together for the amount that is committed.

If your Bitcoin is in cold storage its like having it in savings, and having it in a hot wallet is like having it in a checking account, then having bitcoin in a lightning network payment channel is like having cash in your pocket.

The Lightning Network also easily allows for micro transactions, streaming money applications, and a new kind of transaction called atomic swaps, swap Bitcoin for Litecoin without an exchange in a trustless environment. It can performs these swaps because the lightning network can also connect to other cryptocurrency blockchains besides Bitcoin. Many other applications are being built on top of the lightning network, many more still have not been thought up yet.

Further when making lightning transactions there is never a need to wait 10 minutes for transactions to confirm into a block, like you would when making regular on-chain bitcoin transactions.

With a good lightning wallet, and a few bucks worth of bitcoin in a payment channel you (And everyone else on earth) will be able to get that allusive cup of coffee every morning with bitcoin and not break the network.

The Lightning Network is just one of many possible layer 2 networks.There are also plans for a second layer network (www.rsk.co) that will support rich ethereum style smart contracts (turing complete) with bitcoin(BTC) as the token. These other layer 2 networks are completely separate networks from Bitcoin, so they do not need to abide by Bitcoins consensus rules but effectively extend Bitcoins potential. With all the new capabilities made possible by the 2017 segregated witness upgrade to bitcoin, its possible that many nich cryptocurrency applications could be handled on a second layer using bitcoin as its token.

In Conclusion

In modern days its natural to think that if something is brand new, just wait and a better, faster, cheaper version will be out soon enough. This is certainly a contributing factor to the allure of altcoins. However Bitcoin has developed in a way that may be impossible for it to be replaced. It seems that the really important properties don’t come along when its copied.

Paul Fabozzi is founder of walletBouncer. A Bitcoin wallet monitoring service.

What are your thoughts? Leave a comment below.