This is one article in a collection of 52 articles published weekly throughout 2023 on the basics of Bitcoin. The series is intended for people unfamiliar with Bitcoin or people wishing to enhance their understanding of the fundamentals that underpin the technology. Please contact us, if you have any questions or comments.
The last three articles explored the details of the Bitcoin mining protocol. The amount of computing power that secures the Bitcoin network is staggering! As we mentioned in our previous publication, miners are currently making 286,435,000,000,000,000,000 nonces (or guesses for a layman) per second to attempt to mine the next Bitcoin block! The reason all of this computational power is needed is the Bitcoin network is completely decentralized. In other words, a person can send bitcoin to another person on the Bitcoin network without any intermediaries or third parties. That’s an astonishing technological advancement.
The Bitcoin protocol piggybacked on other projects, including Adam Back’s Hashcash and Nick Szabo’s Bit Gold, to setup the first decentralized monetary system with a distributed ledger. This is important to point out as it is frequently stated that Bitcoin is the first cryptocurrency. A more accurate statement would be that Bitcoin is the first successful cryptocurrency. Hashcash and Bit Gold, along with many other projects, provided useful guidance in the creation of the Bitcoin protocol.
Bitcoin is truly decentralized with a distributed ledger. The ledger keeps track of every single transaction that has ever occurred on the Bitcoin blockchain and any full node verifies all the Bitcoin blockchain transactions. Unlike a system that relies on a trusted third party, the Bitcoin ledger displays all of the transactions on the network. Anyone can see every Bitcoin transaction that has ever occurred by reviewing the Bitcoin blockchain. However, Bitcoin users are able to have some anonymity with regard to their holdings through the use of public key wallets (which will be explained in a future publication).
Bitcoin has no employees or known founder. Bitcoin is solely operated under a set of rules administered by the nodes that control the Bitcoin network. A node is a computer or server that is running the Bitcoin protocol software. The nodes are interconnected and combined the nodes form a decentralized network. A node is able to send and receive messages from other nodes within the Bitcoin network. Collectively, the nodes verify the transactions that occur on the Bitcoin blockchain. However, there is no node that is superior to the other nodes. Instead, the Bitcoin protocol is controlled by a consensus of all the nodes.
The fact that the Bitcoin network is decentralized with a distributed public ledger is one of the hallmark features of the Bitcoin technology. As a result of the Bitcoin network being decentralized, there is no central authority that controls the decisions of the network and, importantly, there is no single point of failure. The nodes are the substitute for the trusted third party. The use of nodes to run the Bitcoin protocol has been an undeniable success as it relates to security. As a result of the computing power, the Bitcoin network has never been hacked and it has created the most secure computing system that has ever existed…all without any trusted third party!
