Bitcoin — The most secure Network worldwide
What is a network?
A network is an interconnected functioning system. It must consist of several identities that can communicate with each other. These must not only be simply connected to each other, but must mainly be fully connected. All points in the network are therefore linked to each other, either directly or indirectly via other nodes.
There are many examples of different networks in nature and in human society:
How trees and fungi communicate:
Bitcoin is built on laws of nature. This thesis has already been stated in another blog article. Signals are exchanged in forests. Nodes in the forest include mushrooms. The mushrooms are in turn linked to the roots of the trees. On the trees are the branches and leaves, which are thereby then connected to the mushrooms via detours. Roots are the guiding signals of the trees. Roots can test the forest soil for certain nutrients or diseases. There is an interplay between roots, fungi and trees to regulate water and nutrient levels. Not only individual trees are connected via the roots, leaves and fungi, but also entire forests.
The Hanseatic League:
In the middle of the 14th century, a loose confederation of merchants gradually became the Hanseatic League. The Hanseatic League as a network of trading cities dominated events in northern Europe. At its center were the cities of Lübeck, Hamburg, Bremen, Rostock, Tallinn, Bruges, Antwerp, Gdansk and Riga, among others. Thus, supra-regional associations of people with similar goals joined together. It was important, for example, to expel pirates from trade routes in order to maintain free trade. For the Hanseatic system it was important that there was freedom of the cities, self-responsibility of the citizens and a participation in the political processes. Thus, free citizens lived in free cities, which joined together for mutual benefit. This was innovative and ultimately successful. The Hanseatic League became the most successful economic association up to that time. Similar characteristics can be found in the Bitcoin network.
Bitcoin — The first successful decentralized network
The problem with many networks is that there are many weak points. Actually, many connected systems of humans cannot be called a network at all, because they are mostly central identities (central nodes) that control or influence the system.
Bitcoin is a decentralized network because there is no central identity in charge of the network. Satoshi Nakamoto did publish the whitepaper on the Bitcoin protocol, but he has not spoken out since 2011. Moreover, Bitcoin is open source and anyone can participate. There is no company, organization or state behind Bitcoin. There are four groupings that benefit from Bitcoin:
- Users: Users use Bitcoin to conduct on-chain or off-chain transactions. Important transactions can be stored on the blockchain. On the lightning network (Second layer technology), many transactions can be done cheaply.
- Miners: Miners secure the network through energy and get a reward.
- Investors: When money flows into the Bitcoin ecosystem, it improves the infrastructure and increases the value of the investment.
- Node operators: In the Lightning network, node operators can get a small transaction fee if they independently provide the infrastructure for transactions.
Threats from the Bitcoin network can be divided into two types:
- Hackers: The Bitcoin protocol has not been hacked in over 10 years.
- Hardforks: A Bitcoin hardfork is a radical change in the Bitcoin protocol and results in a change in the software. Some cryptocurrencies have been created that emerged from the original Bitcoin protocol. All parties in the network then agree on certain changes and separate themselves from the original by creating their own project. Bitcoin Cash and Bitcoin Gold are two well-known examples that emerged from the Bitcoin protocol.
- States: Technically, Bitcoin cannot be banned because it is mathematical code. States can only influence the ecosystem around Bitcoin. For example, there are already KYC (know your customer) procedures or bans on certain services.
- BitcoinCore bugs: Bitcoin has now existed since 2009. Several bugs have been discovered in the Bitcoin source code over the 10 years, but these have been fixed by the core developers. A list of developers can be found at https://bitcoin.org/en/development. Bitcoin counts as one of the most active cryptocurrencies with many developers.
- Bugs in software updates: There are major updates in Bitcoin software at regular intervals.
- Failure of a node: Each node in the Bitcoin system has the same level of information as all other nodes. If a node in the network fails, no information is lost. The density of the network only decreases. Creating a node is not expensive and costs about 200€. They then run completely autonomously and can be connected to other nodes. On https://bitnodes.io/ you can find about 10,000 nodes currently running on the Bitcoin network. They are globally distributed https://bitnodes.io/nodes/network-map/. In comparison, the Internet has 340 commercial nodes (https://de.wikipedia.org/wiki/Internet-Knoten).
How secure is the Bitcoin network?
In order to add new blocks to the blockchain, a computational effort must be made. This process is called proof-of-work. New Bitcoins are created during mining, but this is not the actual purpose of mining. The miners get new Bitcoins so that they have an incentive to secure the network and transactions are stored in new blocks.
Importantly, as the blockchain progresses, the transactions and rules on the Bitcoin network are reviewed. New blocks are found approximately every 10 minutes. These are added to the chain of existing blocks. The miners also have to follow the rule of the Bitcoin network. Now, you might think that it will be easier to find new blocks if more miners expend energy. However, there is a feature in the Bitcoin software called “Difficulty Adjustment”. The more miners try to create new blocks, or the more processing power there is in the network, the harder it becomes to find new blocks. This can increase the security of the network without finding more blocks.
In order to mine new blocks, power must be used. How much computing power is available in the Bitcoin network can be expressed with the hashrate. The higher the hashrate, the more computing power and therefore energy is available in the Bitcoin network. This energy secures the network. Trust in Bitcoin therefore increases with increasing computing power (or hashrate).
As you can see, the hashrate is increasing inexorably over time. On https://cbeci.org/ from the University of Cambridge you can find an overview of the estimated current power consumption of Bitcoin. The higher the power consumption, the more secure the network. So it’s good for Bitcoin’s security that a lot of power is used, because it means it can’t be attacked as easily by states or companies. Because in order to take over the Bitcoin network and set your own rules, you would have to own 51% of the hashrate. If an identity unites 51% of the hashrate, it could take over the network and set rules. This is currently almost impossible with the Bitcoin network. What was possible at the beginning is increasingly difficult as the hashrate rises. In addition, you need special technology for professional mining, which is very rare and not widely available. Thus, it is probably not even technically possible to find the necessary technology or the necessary energy.
Bitcoin — The Game Theory
Bitcoin uses a perfect game theory that ties all parties in the Bitcoin network to success. If the miner adds more processing power to the network, the entire network becomes more secure. With increased security, more investors are willing to invest in Bitcoin and the ecosystem. If the ecosystem expands, e.g. through new exchanges or payment methods, more users join the network. As a result of the users and investors, the price increases. Miners have an increased incentive to add more power to the network. The network becomes more secure.
No identity on the network is willing to make a mistake. If the miners try to manipulate the network, there will be fewer users due to lower trust and the price will drop. Users and investors remain loyal to the network because it has existing structures and a lot of computing power is spent securing the network. The users cannot prevent the miners from being rewarded for their computing power, because they would then no longer have an incentive to secure the network.
Bitcoin and the Byzantine generals problem
Bitcoin is thus the first major network in the world to solve the “Byzantine problem”: We imagine that several divisions of the Byzantine armies are camped in front of an enemy city on opposite sides, with each division commanded by its own general. Unfortunately, the generals can only communicate with each other through messengers with a letter. After observing the enemy, they must agree on a common plan of action to win the battle. Due to the circumstances, they have to send the messenger who will communicate the strategy for the battle through the enemy city. The problem now is that the messenger may have been tampered with in the city and is delivering a false message. So how can you tell that the messenger is transmitting the original message from the other general?
All parties in the Bitcoin network must work together to prevent the network from failing. No party can gain advantage alone without other identities on the network. All parties must agree and participate in the network. If an identity harms another party, it automatically harms itself.
This combination of different technologies is the genius of Satoshi Nakamoto. Bitcoin is the most secure network in the world. The Bitcoin network is resilient to potential threats. It does not require a central identity or funders. Incentives are fair to all and only together do all parties benefit from the Bitcoin network. Bitcoin brings security to humanity. Thank you!
Update: Bitcoin mining has now reportedly been banned in China. Although much of the hashrate came from China, the hashrate dropped sharply, but the network continues to function flawlessly. This was the best example that no state can stop Bitcoin.