@ sondreolav 👀
2023-09-20 20:38:17
On January 3, 2009, Satoshi Nakamoto invented Bitcoin, enabling global peer-to-peer transactions, democratizing access to financial networks for billions.
#### Bitcoin Solves:
* **Centralization:** Bitcoin operates peer-to-peer, eliminating the need for centralized trust in government authorities.
* **Verifiability:** Anyone can access and validate the authenticity of bitcoin transactions.
* **Inflation:** Bitcoin's fixed supply of 21 million prevents inflation, safeguarding your purchasing power over time.
### 🌐 Decentralization matters
Bitcoin operates without a central authority, relying on collective consensus. It offers financial inclusion to the unbanked, ensuring secure wealth storage and growth, unaffected by credit scores. Participation is identity-independent, allowing everyone to engage pseudonymously. Bitcoin empowers individuals to be their own bank, retaining full control over their wealth, free from external oversight.
### ✅ Don't trust, verify
Miners and nodes form the Bitcoin network. Nodes have three roles: storing the timechain, validating transactions, and enforcing network rules. More distributed nodes mean greater decentralization. Nodes communicate directly, ensuring transaction integrity and preventing fraud. They protect the network by validating transactions and blocks, and if a malicious transaction is detected, it's collectively rejected by all nodes.
### ⚠️ 21 Million
The origin of Bitcoin's 21 million cap remains a mystery, likely an arbitrary choice. What's crucial is its immutability—embedded in the code and requiring unanimous agreement for any alteration. While there are over 21 million people globally, not everyone can own a whole bitcoin. Thankfully, Bitcoin can be divided into "satoshis," akin to cents for dollars. Each bitcoin comprises 100 million satoshis, resulting in a staggering total of 2.1 quadrillion satoshis.
## ⛏️ Proof of Work
Proof of Work (PoW) is the game-changer, eliminating the need for a centralized authority like the government. This consensus algorithm requires Bitcoin miners to invest energy and computational power, racing to validate new transactions. The first miner to crack a complex 64-character hexadecimal serial number (a hash) is rewarded with bitcoin. This motivation drives miners to tirelessly pursue victory. Once achieved, the winning solution and its transaction list are added to the timechain, ensuring decentralization, security, and confirmation of all transactions. This process repeats approximately every ten minutes, incentivizing miners through their proof of work.
### Adaptive difficulty
The Bitcoin protocol features a self-adjusting difficulty every 2016 blocks, or roughly every two weeks. This adjustment occurs to account for changes in the number of miners joining or leaving the network. When more computational power is active, mining becomes harder, and conversely, it becomes easier if miners go offline. The objective is to maintain a consistent rate of producing new blocks, aiming for an average of ten minutes per block.
### Mining is green
Miners are motivated to find the cheapest, long-term electricity sources to validate transactions and earn new bitcoin. Clean, renewable energy happens to be the most sustainable option, in contrast to fossil fuels. Bitcoin mining encourages a shift toward a 100% renewable energy future. However, our current energy technology struggles to efficiently store and transport clean power, resulting in significant waste. Bitcoin fixes this.
### 51% Attack
Weak networks are vulnerable to 51% attacks, where miners controlling over 50% of the network can double spend their tokens, akin to counterfeiting. However, hackers cannot steal tokens from others, only double-spend their own. Executing such an attack on the Bitcoin network demands an immense amount of computational power, making it financially unfeasible for hackers. And such actions would rapidly undermine Bitcoin's value, as the network detects double-spending, resulting in a loss of trust in the network.
## 📏 Scaling Bitcoin
For scaling, there are options such as the Liquid sidechain, but the most widely used at the moment is the Lightning Network, a Layer 2 solution.
The Lightning Network is a second-layer protocol that reduces fees and enables near-instant transactions. With Lightning, you use Bitcoin's base layer for opening and closing channels. With an open channel, you can send numerous transactions with minimal fees and even transact with those you're not directly connected to. Lightning channels allow for trustless routing, automatically finding the fastest path for transactions, making payments seamless.
## 🤝 Buy and HODL
In the face of inflation, safeguard your future from currency devaluation by buying bitcoin. It's a shield against the erosion of your time and energy.
The easiest way to buy Bitcoin is through an exchange, but ensure it allows withdrawals. Exchanges typically require KYC verification, which includes providing your ID. Concerned about privacy, some opt for "non-KYC" platforms. After buying bitcoin, transfer it to a self-custody solution for added security in case of exchange hacks.
### Self-custody and wallets
To truly secure your bitcoin holdings, you must have a private key and a wallet. Private keys are essentially randomly generated passwords, typically taking the form of a 12 to 24-word seed phrase. A wallet serves as an application that communicates with the Bitcoin network and uses your private keys to verify and sign transactions. When it comes to self-custody, it is crucial to record and securely store the seed phrase offline while refraining from sharing it with anyone else.
Your bitcoin is stored on the timechain, while the wallet functions as a tool for storing and utilizing your private keys to sign transactions that transfer funds. In the event of wallet loss, you can still recover your funds using a new wallet, provided you have access to your seed phrase.
#### Software wallets
This represents a significant transition from storing your bitcoin on an exchange. While software wallets are convenient for on-the-go usage, they may not offer the highest level of security due to their internet connectivity. This is because your private keys reside within the application on your phone or computer, making it potentially vulnerable to online threats.
#### Hardware wallets
These wallets securely house your private keys and often look like a flash drive. Since your hardware remains disconnected from the internet, it is considered as "cold" storage and is deemed a significantly safer approach to storing private keys compared to "hot" software wallets. These physical devices enable you to access your bitcoin securely by keeping your private keys offline.
## 👀 Concussion
This is just a brief example of what Bitcoin is. The rabbit hole runs deep 🕳️🐇 but with this orange pill you will begin to understand what true money really is.
*Stay humble, stack sats 🤙*
#### For further education, I recommend these two books / articles:
##### 📖 The Bitcoin Standard - by Saifedean Ammous
*- Perhaps the best book on economics ever written.*
##### 📖 HONKING FOR FREEDOM - by Benjamin J Dichter
*- Not a book so much about bitcoin, but explains why bitcoin is important even for those who do not live under a totalitarian regime.*
##### 🌐 [Bitcoin is time](https://dergigi.com/2021/01/14/bitcoin-is-time/) - by @dergigi
*- Explains why Bitcoin is the decentralized universal clock.*