In a world where we rely heavily on intermediaries to conduct financial transactions, the emergence of Bitcoin as a trustless, decentralized, and permissionless monetary system with fixed supply has revolutionized the way we think about money. Here, we delve deeper into the benefits of this innovative system.
The concept of fixed supply is akin to a ruler. Just like how one centimeter is always one centimeter, a fixed supply measurement provides a stable reference point for the monetary system. Any change in this property will only create instability. With a fixed supply, Bitcoin ensures a reliable and transparent monetary system.
One of the key features of Bitcoin is its decentralized nature. Anyone can run the network at home and act as the audit or police that enforces all the rules. This ensures that no one plays with the measuring tool. It is important to note that decentralization is not the same as automation. Just because something runs by itself does not mean it is decentralized.
In a trustless system, there is no need for intermediaries or middlemen to execute a change in a ledger transaction. If someone sends something to you, everyone sees the change and approves it. This process is known as triple-entry bookkeeping. With Bitcoin, trustlessness ensures that the ledger is immutable and tamper-proof.
Proof of Work
To ensure that every coin minted is created with hard work and to prevent anyone from changing anything, Bitcoin uses a system called Proof of Work. This system ensures that the energy, time, and human capital required to create each coin is backed by real work. Unlike Proof of Stake, where coins are backed by interest rates, Proof of Work ensures that every coin has real-world value.
Bitcoin's code is open source, which means anyone can investigate the code running the software. This ensures transparency and accountability, which are essential for a trustless system.
To maintain a predictable supply schedule of producing new coins, Bitcoin uses a difficulty adjustment system. Even if mining power increases, the schedule of the mined block will remain fixed. This ensures that the system remains stable and predictable.
In a permissionless system, anyone can participate in the network as a transactor, node, miner, or in any other capacity. No one can prevent anyone from participating, thanks to the decentralized nature of the system. This ensures trust minimization, censorship resistance, and pseudonymity.
Finally, cryptographic security ensures that ownership is proven by code. It is not affected by decentralization or permissionless nature of the system. This feature ensures that what you have access to is proven by code, providing an extra layer of security.
All these features combine to create a monetary system that is truly trustless, decentralized, self-owned, and permissionless. Bitcoin sets the standard for a reliable and transparent monetary system that no other coin can match.
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