Visited an introductory lecture on cryptocurrencies and got to thinking about several questions that people new to the topic raise. One thing that I gathered from the meeting is that Bitcoin as a system is very difficult to understand. Although the room was full of people with interest and at least some background in cryptocurrencies it felt that many of the attendees did not understand the topic due to its technical depth. So the first concern is how to make Bitcoin understandable to general public. To answer that lets look at some other questions like how is Bitcoin money, why is it interesting, useful or needed and why might it become positively disruptive technology first. Those points are best addressed by Erik Voorhees in his talk "Role of Bitcoin as Money": text and video. This is possibly the best pro-Bitcoin presentation and it has no technical discussions. We have the answer to our first question: while preaching to a wider population we have to leave the cryptography as a black box and concentrate on the beneficial properties such as decentralization that the system offers to the end-users.

Another interesting question is about competitors and why Bitcoin still has and will have an edge over them. First movers advantage, the network effect and already established infrastructure around it (exchanges, payment processors, shops, gambling, drugs, porn ...) are why I have not taken much interest in other similar cryptocurrencies. The hurdle for them is already too high to get to the critical mass adoption needed to tackle Bitcoin. Only way to push Bitcoin away from the position of the top peer-to-peer currency is by making a system that is way better and somehow attract people into using it instead of Bitcoin. While Bitcoin is not perfect it also does not have any major flaws which is especially important in terms of security. Being good enough as a protocol and money at the same time will make it fit perfectly into the economic sphere once the infrastructure is matured to the point where even early pessimists have to stop neglecting it.

Then we have a question about something that looks like a huge problem: does Bitcoin creation (mining) pointlessly waste humongous amounts of computer resources and should it not try computing something meaningful instead of brute-forcing numbers to produce hashes that create blocks of transactions and reward the finders? Very legitimate concern since Bitcoin network does more than 15 million gigahashes every second and the amount is exponentially growing (graph). To put this into perspective my Macbook can do about 15 megahashes at the same time. So you could say that power that Bitcoin network puts out is comparable to the amount the whole human population would achieve if every female owned 2 and every man had 1 Macbook and all those machines worked to mine Bitcoins. Or if you compare floating point operations per second (FLOPS) then Bitcoin network would outperform top 500 supercomputers combined by factor of more than 200 (src). Those numbers are just here to make the hash-rate a bit more graspable. In reality Bitcoins are mined with specialized hardware that can not do any FLOPS or other calculations besides hashing specialized for Bitcoin and they are thus quite efficient in what they do. How is building, distributing and running them on electricity not a waste? Because this is also fundamental for Bitcoin security. Decentralized cryptocurrencies work on majority rule principle and if one wishes to disrupt the network they have to put out more than half of the computing power (known as 51% attack). I gladly pay the small fees that miners get for protecting the network.

Could governments or megacorporations not attack it? Of course they could - by putting up the needed 51+% they could in fact kill Bitcoin. They would probably produce special hardware and start hashing away. But Bitcoin is open-source project that already has around 100 competitors and the evil parties crazy-big investment (just look at the Macbooks they need to buy and power) into killing Bitcoin will not help them destroy other cryptocurrencies with different hashing algorithms. One of them would take over as part of the population has already understood and shown the need for such systems. Sure big governments could disrupt cryptocurrencies at huge costs but co-operation would make more sense with a system that carries bigger amount of value and opportunities than threats to them. I hope. More about how governments and legislation fit into Bitcoin and how Bitcoin fits into financial world later.

This post was intentionally sexist and unintentionally an Apple commercial. What other interesting questions would you like to be addressed?

Bitcoin Security

My first contacts with Bitcoin. Master's thesis on Bitcoin Security. Analyzing Bitcoin system in layers.

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