Bitcoin is an Information Network backed by Energy Divided by Time
The Bitcoin network uses energy with a 10 minute average checkpoint “measurement” to secure the Blockchain, using a “guesswork” algorithm* – to make sure nothing can hack it. Bitcoin uses the concept of “proof-of-work” where computers “work” trying to find a cryptographic solution to confirm a “block” of transactions. The results prove they’ve “worked” (spent energy) in the process.
The results prove not only that time has passed but also confirm that the information time-stamped into the blockchain is “true” (in a general sense; it proves that events have occurred to create the information in question). The more power you put into the network the more secure it is (the more “true” is its history).
ELI50: Bitcoin “Explained As If I Was 50” (the philosophical version):
Information is more valuable when it’s true rather than false, and the more power (energy divided by time) you put into the network the more you can trust it.
The guesswork algorithm result (the Proof-Of-Work) is important here as there are only two forms of security in this world; power or secrets. Secrets leak, it’s just a question of time. In physics power is defined as the rate of doing work. [WIKI LINK]. Work can be defined as force. Historically the powers in be wrote history. They’ve had to use force to secure their power. These are just laws of nature. So; Bitcoin is powered by the laws of nature.
This is why it does not matter that competitors (altcoins) to the Bitcoin network tries to come up with other solutions to secure the truth, like Proof-Of-Stake (PoS, the planned system for Ethereum for instance). A stake is something you put up, by definition. You have to secure it with a secret (a pass phrase). If you try to devise a plan to have 100 “judges” to randomly decide on the truth (like some altcoins do, including Ripple) you need to secure those “ring of judges”. Those can be, and will be compromised. Again, it’s just a question of time.
With Bitcoin time is on our side. To measure energy you need time. These concepts are tightly bound together in our universe. And the Bitcoin network is ultimately a new way of not only proving that time has passed, but also proving what is true (or at least what we humans value as true, when we pay to timestamp it into the blockchain). There are other blockchain-based information networks out there trying to do the same thing as Bitcoin (like Litecoin), but as they do not have access to the same level of power they are not as secure (their “trustworthiness” is lower). And why use a network with less trust when you can use the Bitcoin network to secure your information?
The Bitcoin network’s confirmation of “what has happened” (in the Bitcoin network) is ongoing 24/7, it happens block by block. Thanks to the fact that the network uses power instead of secrets to secure the truth it’s open to anyone and everyone.
In short; the dimension of power is energy divided by time. Power is the rate of doing work. The Bitcoin network works to solve an algorithm which applies a time-sensitive cryptographic proof, a time-stamp, to information.
In this way Bitcoin turns power into truth (security). Without security (truth) you have nothing.
True information is immensely valuable to human beings. These time-stamps will also enable us to trust the machines when they tell us what has happened to them (by time-stamping their own moves into the Blockchain).
But remember; there is no such thing as an “absolute truth”, it depends on your point of view (this is the first lesson in journalism – as well as a well-known fact within quantum physics). Something can be more or less true, it’s a range, not an absolute. You could more or less replace every instance of the word “truth” with the word “trustworthiness” in this text. If you understand the Bitcoin network and protocol you’ll find that the network provides a kind of truth that’s never existed before (at least on this planet, as far as we know). This opens up for prediction markets, and oracles.
A More Trustworthy Currency Is More Valuable
So why is all this important? Because a more trustworthy currency is more valuable than a less trustworthy currency. As you can also timestamp (or “block-stamp”) information (a cryptographic hash of a “real-world” document of information) into the Bitcoin blockchain the Bitcoin “formula” also offers the world a new way of proving what is true (or at least more true than a comparative system using less power).
Applied to information, and the form of randomness (in this case unpredictability is actually a more suitable word) built-in to Bitcoin the competition between miners creates this level of security, i.e: truth, or record-of-events; the blockchain. The blockchain is a new kind of “history” no-one can “rewrite”.
The network’s upholders (the miners) are motivated by the reward to direct as much power as possible towards solving the system’s unpredictable measurement points (each block “found”). The protocol self-adjusts so that it verifies this amount of power on average every ten minutes. Without that time interval the system would be meaningless for us humans (as we all live in time) – just as we cannot measure energy without a time constant.
It really does not matter how many seconds or minutes long this interval is (it does not matter if block time is 12 seconds or 10 minutes), as the formula reads energy / time = truth. It matters just that it’s done according to a protocol that everybody agrees on (you have to agree to participate).
Thanks to this formula everybody using the Bitcoin network can send money (information) to each other, without even knowing the name of each other. The trust is built-in to the network.
So if you must “know the truth” about your transactions of information you must use the Bitcoin network, as there is no better method of proving that a particular piece of information is true.
Anyone can connect and add a piece of information by supporting the network with a fee. In this way every participant in the network can rest assured each unit of information in the network is true – every bitcoin and every satoshi is real.
For clarification; a “truth” in the Bitcoin network is not the same as a “truth” in your head. Let’s say you time-stamp the words “the earth is flat” into the Blockchain. Does that make that statement “true”? No, but we can agree that these words have been time-stamped into the Blockchain. We can all trust that those words were stamped there. What those particular words mean in your head is another point entirely. But when it comes to transactions of bitcoins (including time-stamping, digital asset creations, provably fair betting and value-transferring without ID or login, to name a few things) we can all agree on what has happened in the network, we all have access to the same truth. And as more trustworthy information is more valuable than less so, the Bitcoin network will continue to hold on to its lead in all areas where it can offer mechanisms and solutions to all problems it can solve. We may also discover new areas where it can shine; possibly in governance/voting, pegging, decentralized markets and smart contracts. And more.
Other blockchains less safe, even if “pegged”
I am not arguing against developing/deploying other blockchains in general, just against the notion that another chain can surpass the value of the Bitcoin network and currency trying to provide the same mechanism (“reserve currency”, “digital gold”). Other blockchains, like permissioned ledgers (see the Liquid announcement for instance) can work for intended purposes (especially if “pegged” to the Bitcoin Blockchain), but they’ll be more costly to protect from hackers (as their nodes/connectors/judges/whatever need secrets for protection) and they won’t overtake Bitcoin’s role as the main chain. It’s up to the stake-holders in those particular chains to decide whether it’s worth it to spend money for protection.
In any non-decentralized system, like Ripple, Ethereum, any “bankchain” project etc, the “level of truth” will be lower than in the Bitcoin network, hence; the Bitcoin network is more valuable. You need to anchor (“peg”) your blockchain to the main chain at the very least, to stand a chance in the future onslaught of competitive blockchains (and their currencies) – and combine that pegging with other methods for gaining confidence in the real world. ‘Bankchains’ won’t be much better than a centralized database, check Datavetaren’s reasoning for instance. Secrets are the wrong way.
These are the main reasons why there is no point in trying to copy Bitcoin to provide the same mechanism.
It is just a question of energy divided by time.
* Bitcoin derives its value independently and from within
Bitcoin uses the concept of “proof-of-work” where computers “work” trying to find a cryptographic solution to confirm a “block” of transactions. The results prove they’ve “worked” (spent energy) in the process. The solution triggers the predetermined block reward inflation (currently 12.5 bitcoins per block, approx. every 10 minutes). In this way the network extracts security from incentivizing participators to continually increase the security of the world’s most powerful processing network, while creating intrinsic value from within through its native token’s properties (bitcoins). The sheer number of computers participating in the network – its increasing (competitive but collective) “hashrate” – ensures the system’s integrity.
This all happens simultaneously using the same mechanism (the proof-of-work mining). Energy must be spent to “mint” each bitcoin. Minting through proof-of-work-mining proves a certain amount of energy was spent at the particular time the bitcoin in question was “minted” (mined). It’s the open, decentralized nature of Bitcoin that creates this level of security; open to anyone the constant race among miners positions the network well ahead of any attacker. As a side-effect this vast number of processors (connected to the Bitcoin network via beefy nodes) results in a speedy and always-on network. The only “waste” is heat, and several Bitcoin miners are now looking into harnessing that heat for remote heating of homes and grow houses.
IF, like the founders of some altcoins argue, we could extract another useful mechanism at the same time from this proof-of-work mining then that added “value” (let’s say protein-folding) would just further fuel the race between the competitors of the network. You might as well pay for that “added value” on the side with other specialized chips hashing that protein-folding. If you follow this line of reasoning you understand that trying to make the algorithm more “useful” is like trying to create magic, or alchemy. Human greed comes into play (Bitcoin’s governance and main USP is the economic majority rule consensus mechanism, not the technological leap in itself alone – however, that insight is still rare it seems).
And this is only today. With bigger blocks and future add-ons like The Lightning Network/Stroem/Othercoin/Sidechains/Linear Types/Extension Blocks the Bitcoin network will process transactions much much cheaper and faster than today (actually for free and at bandwidth capacity regarding transactions per second in payment channels like the Lightning network, until you settle on the chain).
(alternative headline: “Why R3, Blythe Masters, Ethereum’s PoS and ‘Bankchains’ Are All Wrong and the ‘blockchain without bitcoins’-idea is misguided”.)