Bitcoin is a system with many strict rules but without any rulers. This is made possible because the rules are enforced by each and every user of the system. Changing the existing rules is nearly impossible, but new rules can be added if consensus is achieved.
The enforcement of rules without rulers may perhaps be the biggest innovation behind bitcoin.
But this doesn't mean that no one is trying to become the ruler…
For this reason, the users of bitcoin must defend their position as the rule enforcing part of the ecosystem.
Rules-without-rulers is a feature that distinguishes bitcoin from all other monetary systems, and this feature alone may represent the main reason why bitcoin has obtained value in the first place.
Unfortunately, bitcoin is a bit difficult to understand and even more difficult to explain…
So let’s start with a simplification of the bitcoin ecosystem:
- Miners are the supply.
- Users are the demand.
- Nodes specify what the users are demanding.
- Miners work to fulfill that specification.
To understand how bitcoin can hold value, we must first take a step back and ask:
What gives money value?
Money is first and foremost a social construct, so let’s have a look in the dictionary:
While remembering that money is just a social construct, ask yourself the following:
Where is the value in the below illustration?
The value is the quality of the service performed by the plumber and in the tastefulness of the bread produced by the baker.
These are values with a clear demand from the market.
The money in this illustration is not the value.
But if the money is not the value, then what is the money?
The money is just a tool that is used by the plumber and the baker:
- To communicate the value of the service and the bread.
- To exchange with each other the values they are producing
- To store (save for later) the values they have created.
- To account for the value of the service that is delivered by the plumber in comparison to the bread produced by the baker.
An interesting question would be:
If the plumber performs a service that takes one hour to finish; how many breads must the baker produce to deliver a corresponding amount of value?
Money is a tool that allows for a measurement of different values so that the above question can have a satisfying answer.
All of the above features applies to bitcoin in exactly the same way as they apply to the dollar (or to any other form of money)
(Note: for simplicity I will use the word dollar instead of “fiat currency” or “government controlled currency”)
Money is not inherently valuable but becomes valuable as a social construct (as a useful tool)
Money is given its value from the perception of its users. The act of accepting money as a medium of payment for something of actual value; gives value to the money.
- Users of money give money its value.
With this understanding in mind there are two very important differences between the dollar as a social construct and bitcoin as a social construct:
#1: The acceptance bitcoin is completely voluntarily, while the acceptance of dollar is not.
The dollar has the advantage of legal tender status. This means that when offered the dollar as payment, the plumber and the baker are required by law to accept this medium of payment.
In other words; they are required by law to give the dollar value
#2: The dollar has an inherent authority (the state) that enforces the rules of the dollar.
When the plumber and the baker receives the dollar in their bank accounts, they can know with a high degree of certainty; that those are valid money in compliance with the rules that is enforced by the inherent authority.
Anyone who accepts bitcoin as a medium of payment does so entirely voluntary. This means that users voluntarily choose to give bitcoin its value.
But since bitcoin does not have an inherent authority, the acceptance of bitcoin comes with a special responsibility:
It is the responsibility of the user to independently check the validity of an incoming bitcoin transaction.
To do this, the user must be connected to a fully validating node that is owned and controlled by the individual user.
This is the only way to use bitcoin in a completely trustless manner without reliance an any third party.
The rules of bitcoin are enforced by the users through their act of validating
The users are practicing enforcement because they will only accept bitcoin as valid payment if;
The bitcoin-transactions they receive:
are valid transactions as specified by the personal nodes they are running.
Users are enforcing the rules of bitcoin by only giving value to the coins that are valid in the eyes of the user.
No validity = No value given
This is why the miners must comply by the rules that are enforced by the users.
If the miners don’t comply; then they will end up wasting large amounts of energy to mine coins that are worthless in the eyes of the users.
The Holy Grail of Control
It has become clear that certain forces have a great desire to become an authority within bitcoin. They fight to obtain a degree of control..
This fight for control, is in reality;
A fight to control the value that is given by the user
It’s a fight to control the social construct
Bitcoin users have the option to control their own social construct and that is the power of a validating node.
There is only one way to keep those wannabe authorities out of our system;
Bitcoin users must continue to enforce the rules of their social construct.
Validating nodes, run by the users themselves; makes sure that value is given exclusively to a social construct that is valid in eyes of the user.
In a world of multiple bitcoin forks, how can we define the real bitcoin?
Unfortunately this question can never have a definitive answer, because there are no inherent authority that can decide what that answer should be.
Maybe asking for a definition is asking the wrong question..(?)
It might be better for everyone to ask themselves:
What is my own perception of bitcoin?
As a user, your interest will be best served; if you choose to exclusively give value to the version of bitcoin that you perceive as the real bitcoin.
You can do this by exclusively accepting that particular version as valid payment.
As an author of this post I can only speak for myself.
The following is a train-of-thoughts that represents my personal perception of The-Real-Bitcoin:
#1 Bitcoin is a technology.
#2 Bitcoin-the-money cannot be separated from bitcoin-the-technology. They are the same.
#3 The value I have invested in bitcoin is therefore an investment in a specific technology.
#4 All sorts of technologies are dependent on maintenance.
#5 To perform maintenance there must be maintainers.
#6 My investment in this technology is therefore also an investment in the maintainers of the technology
#7 My perception of The-Real-Bitcoin; is the one that is supported by the most qualified maintainers
#8 As most qualified I regard; those who have the highest probability of success in enabling the continued survival of bitcoin with its most important properties intact.
#9 In my view, the most important property of bitcoin is;
To be a censorship resistant store of value that can be held and transferred without reliance on any trusted third party.
By enforcing the consensus rules with my own validating node I will exclusively accept as valid payment; the version of bitcoin that is my perception of The-Real-Bitcoin
The Bitcoin White Paper and the great misunderstanding that miners can change the rules:
Satoshi gave a special warning in the Bitcoin White Paper:
Highlighted in green is an explicit warning against the use of SPV wallets.
In the current environment this warning should not be taken lightly.
SPV is a way of transacting in bitcoin without independent validation of incoming transactions.
The SPV client does not enforce any rules and is basically just trusting the information it receives from random nodes.
In the event of a large scale attack on the bitcoin network, from an attacker who has more than 50% of the total hash-rate;
your SPV wallet is vulnerable and can be fooled into receiving fake bitcoins.
Some modern SPV wallets (e.g. GreenBits) gives you the ability to connect exclusively to your own fully validating node.
This solution offers you the power of enforcement in combination with the convenience of a mobile wallet, and makes you completely immune to the attack that Satoshi warns about in the white paper.
It is technically possible for the bitcoin blockchain to split into two different chains, while still having both chains considered as valid within the current consensus rules (those rules that are enforced by users)
In fact this happens on a weekly basis and is a completely natural behaviour of the bitcoin blockchain.
Due to this phenomenon, the bitcoin blockchain is dependent on a specific solution (an automatic function) that resolves the splits when they occur.
Satoshi designed bitcoin in such a way that when two valid chains are formed in parallel, then the chain with the most accumulated proof-of-work is the chain that matters. The other chain simply gets deleted from history.
A valid chain; is a chain where all the blocks are in compliance with all the consensus rules that existed when each block was created.
An invalid chain; is a chain that contains at least one block that is not in compliance with the consensus rules that existed when that block was created.
This particular solution (or automatic function) has unfortunately become the source of a widespread misunderstanding when it comes to how bitcoin actually works.
The Bitcoin White Paper talks about this functionality, but it does not say anywhere that the miners can use this function as a mechanism to change the rules of the ecosystem.
However, the White Paper does explain the problem of two *valid* chains forming in parallel and then goes on to explain that the parameter of “most accumulated proof-of-work” is the solution to this particular problem
The White Paper also explicitly explains that;
“an alternate chain faster than the honest chain”
will be considered *invalid* by the network and;
“does not throw the system open to arbitrary changes”
Notice the last sentence (highlighted in green)
“An attacker can *only* try to change one of his own transactions to take back money he recently spent”
This sentence is of particular importance because it shows that Satoshi is referring to the attacker’s capabilities within the rules of the network.
The point here is that the attacker cannot use his overwhelming hash-power to effectively change the social construct (the rules of the ecosystem)
No amount of hash-power can change the rules of bitcoin, because the social construct is still controlled by the users and their validating nodes.
Those validating nodes care only about hash-power that is in compliance with their rules.
They are in fact completely blind to any chain that breaks their rules, no matter how much hash-power that chain contains.
While it is possible for the attacker to cause some short term disruption (within the rules), Satoshi explains that this particular attack will have economical consequences for the attacker:
To learn more about validating nodes, read:
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