Bitcoin is the first cryptocurrency created, ever. You can view Bitcoin as the big bang of Web3. It’s been 15 years and some of us still can’t process what the hell is bitcoin, blockchain, crypto, or how it’s all related. To sum up the answer in a glance: With an underlying blockchain technology, Bitcoin represents a digital, trustless form of money, alongside a movement to decentralize financial services. With time, this narrative took on many forms. Let’s unravel the misconceptions over the Bitcoin blockchain.
Bitcoin Blockchain Genesis Story
Let’s take it back to why the bitcoin blockchain had to exist. It goes without doubt that capitalism made us dependent consumerists. When you think of Capitalism , you think of centralized authorities like the government and inevitably banks. Banks act as the “trusted third-party” which facilitates the money circulation among the public. However, that model means that one source point gives out money to the masses. Evidence (like the SVB collapse) shows that this centralized finance system failed the world.
Here came a pressing need to decentralize finance. To find a way where we all become each others’ banks. Satoshi Nakamoto, who shall remain one of the world’s biggest mysteries, came up with the solution through a publication titled “ Bitcoin: A Peer-to-Peer Electronic Cash System”.
It is basically a guidebook, rather known as the Bitcoin Whitepaper, that outlines a set of computational rules to determine exactly how this “blockchain” will facilitate the decentralization of money.
From that point in 2009 until today, cryptocurrency boomed, and blockchain technology was tested beyond its limits. The history of Bitcoin is a big topic on its own, so check it out here.
One can not understand the Bitcoin Blockchain without understanding the basics of blockchain technology first. Simply explained, the blockchain is a database – or a distributed record of transactions – that stores digital information.
Unlike a regular database, the blockchain does not revert to one centralized authority. Therefore its is based on decentralization where no one can own the blockchain or control its data. In a more technical sense, the blockchain is a peer-to-peer network of nodes (computers) that validate and store transactions through a set of consensus mechanisms. This act is rather known as blockchain mining.
For an depth understanding of the blockchain, check this guide.
What Is the Bitcoin Blockchain?
Bitcoin is a layer 1 blockchain created back in 2008 as an attempt to decentralize finance. It uses the Proof of Work Consensus mechanism to validate blocks. It has a special set of attributes:
- Every 10 minutes → A new Bitcoin block is mined → 144 Bitcoin Blocks are mined per day
- In every Bitcoin Block → there are 6.25 Bitcoins → 900 Bitcoins are mined per day
- Bitcoin’s block size → limited to 1 MB
NOTE: this small amount of data is enough to store over 2000 transactions.
- First Mined Bitcoin → in the year 2009 → Called the Genesis Block
- Total Cap of Bitcoin → 21,000,000 → will be reached in the year 2140
Bitcoin’s Blockchain Mechanism:
To reach the limited cap of 21 m slowly and create scarcity, Satoshi wired a certain mechanism to the production of bitcoin. It can be summed up in these three points:
1-Difficulty adjustments: Every 2,016 blocks (approximately every two weeks) the Bitcoin network responds to changes in hashrate by adjusting the difficulty target which blocks must meet in order to be accepted.
2-Halvings: Every 210,000 blocks (roughly every four years) the amount of new sats created in every block is cut in half.
3-Cycles: Every six halvings the halving and the difficulty adjustment coincide.This is called a conjunction. The time period between conjunctions is a cycle. A conjunction occurs roughly every 24 years. The first conjunction should happen some time in 2032.
In his attempts to create the Ordinals protocol (we’ll get to this topic), Rodarmor created a Bitcoin clock. It aims to help track the difficulty adjustments, halvings, and cycles of Bitcoin over time till reaching its cap in the year 2140. Here’s chainwitcher’s simplified explanation of the clock:
Bitcoin Improvement Proposal: Overview
The most debated problem of the Bitcoin blockchain is Scalability. In brief, scalability is how much a blockchain’s performance can stay stable at a high rate with widespread adoption. Actually, the problem that faces every blockchain out there is the trilemma of: Scalability, Decentralization, and Security.
That’s why the Bitcoin Improvement Proposal was initiated back in 2011. It is a process that provides a structured way for proposing, discussing, and implementing changes or upgrades to the Bitcoin protocol(which Satoshi started). Here are some of the major bitcoin updates resulting from the BIP protocol.
1- Bitcoin Layer 2 Solutions
Layer 2 solutions are built on top of an existing blockchain system, like Bitcoin. The main goal of these protocols is to find scalability solutions without modifying the Bitcoin blockchain’s core protocol.
- allows for faster and cheaper off-chain Bitcoin transactions.
- alleviates scalability issues by reducing the number of on-chain transactions.
- its draft was introduced in 2015 but it wasn’t implemented until 2019.
2- Bitcoin Blockchain Forks
Blockchain Forks occur when there are disagreements about the rules governing the blockchain. There are two types: soft forks and hard forks, both of which lead to the creation of new chains with different protocol rules. Here are some of the major forks that happened to Bitcoin’s blockchain:
2017 Bitcoin Cash – Hard Fork:
In the case of Bitcoin Cash, the hard fork is the result of building tensions among developers. You can know all about it here.
2017 SegWit Upgrade – Soft Fork:
Segregated Witness (SegWit) is a soft fork upgrade that:
- separates signature data from transaction data
- increases the block’s capacity
- enables additional features like Lightning Network compatibility.
2021 Taproot Upgrade – Soft Fork:
- This upgrade introduced a new scripting language
- it allowed for complex and secure smart contract creation.
- it uses a hash-based cryptographic structure called a Merkle tree to hide the public key and other possible spending conditions.
3- 2023 Ordinals Protocol
- The Taproot upgrade paved the way for the Ordinals Protocol.You can know about its backstory here.
- This protocol basically assigns each satoshi (fragment of bitcoin) a sequential number.
- Shortly after the Ordinals launch, BRC-20 tokens were developed as an experimental standard built on the Ordinals Protocol.
In other words, it means that you could have Bitcoin NFTs as of 2023. Checkout this guide to know more about Sattributes, Satoshi hunting, and newest update to the Bitcoin blockchain. However, update fueled the already existing issue of Bitcoin block size congestion!
Bitcoin Blockchain: Strengths & Weaknesses
Bitcoin’s block size and block time limitations result in a relatively low transaction throughput. As more users join the network, it can lead to slower transaction processing times and higher fees during periods of high demand.
2- Network Congestion:
The transaction fees on the Bitcoin network can fluctuate significantly based on network congestion. During busy times, users may need to pay higher fees to have their transactions processed quickly.
3- Energy Consumption:
Bitcoin’s Proof-of-Work consensus mechanism requires substantial computational power, leading to high energy consumption for mining. This has raised concerns about its environmental impact and sustainability.
4- PoW Consensus Mechanism Risks:
The Proof-of-Work consensus is susceptible to a 51% attack, where a single entity or a group of colluding miners control more than 50% of the network’s computational power. This would enable them to control the blockchain, potentially leading to double-spending or other malicious activities.
5- Mining Pools Centralization Risks:
Despite its decentralized nature, Bitcoin mining has become concentrated in the hands of a few large mining pools. This centralization raises concerns about the potential for collusion and manipulation.
6- Hard Fork Risks:
Contentious hard forks can result in the creation of new, incompatible chains, potentially causing confusion and splitting Bitcoin traders.
7- User Errors and Scams:
Bitcoin transactions are irreversible, which means users must be cautious about entering the correct recipient addresses. Additionally, scams and phishing attacks can lead to the loss of funds.
8- Limited Adoption of Smart Contracts:
Bitcoin is primarily known as a store of value, that’s why to maintain security Bitcoin’s scripting language is intentionally limited. As a result, it lacks the advanced smart contract capabilities found in some other blockchain platforms.
1- Pioneer Status:
Being the first cryptocurrency, Bitcoin has a significant network effect and an established reputation, giving it an advantage in terms of recognition and acceptance.
2- Security and Reliability:
Bitcoin’s long history and robust Proof-of-Work consensus mechanism have demonstrated high security and reliability over the years.
3- Scarcity and Store of Value:
Its limited supply of 21 million coins and the predictable issuance schedule through halvings have made it a store of value asset, akin to digital gold.
Bitcoin has high liquidity compared to many other cryptocurrencies, making it easier to buy, sell, and trade.
5- Acceptance and Adoption:
Bitcoin is widely accepted by merchants, exchanges, and businesses, making it more accessible for various use cases. Bitcoin is also recognized internationally and is often the first cryptocurrency that individuals and institutions explore.
Once a block is added to the Bitcoin blockchain, it becomes nearly impossible to alter its data due to the cryptographic links between blocks. This makes the blockchain highly resistant to tampering and fraud.
All Bitcoin transactions are recorded on a public ledger, known as the blockchain, and are accessible to anyone. This transparency fosters trust and allows for independent verification of transactions.
8- Longest Chain Rule:
The Bitcoin network follows the longest chain rule, where the chain with the most cumulative proof of work is considered the valid chain. This ensures that the most secure and honest chain prevails in the event of forks or conflicts.
Summing Up Bitcoin
It’s pretty obvious that the Bitcoin blockchain is the one that started it all. Decentralized finance, cryptocurrencies, NFTs, and everything in between. In 2009, the first domino piece fell. In 14 years, Bitcoin went through many updates and rollercoasters. Its started as sort of a movement against centralized banking methods, which is quite the innovation. One could argue, if communism has a technological face, it would be the blockchain. Ironically, it seems like the blockchain is only redefining capitalism. However, in light of the rising problems facing blockchains, mass adoption and scalability remain an the major issues.
- Bitcoin price movements influence the market sentiment and the valuation of other cryptocurrencies.
- Due to Bitcoin’s limited supply and decentralized nature, it is often seen as a hedge against inflation and economic instability.
- As a decentralized system, Bitcoin is less susceptible to political influence or control by any single government or entity.
But Bitcoin remains volatile, especially with NFTs being stuffed into its already congested blockchain. One can only wonder , what is the Value of Bitcoin in 2023?