Pros and cons of Bitcoin

Do the benefits of Bitcoin do any help to improve our standard of living and justify this additional use of energy? Bitcoin brings out passion, curiosity and has achieved more media attention, especially after the ranks increased and became the best financial asset of the decade. Nevertheless, whenever the price increased many questions and concerns were risen, mostly questioning its origin and the energy expenditure by miners. 

Let’s learn about the creation of Bitcoin (BTC) and mining, the main attribute to all of this is the double-spending problem. Way before Bitcoin, there was neither a digital value to be transferred nor a digital asset to be divided into different parts. As if you scanned a $100 bill and wanted to transfer this bill to anyone else, you could only send a copy of this bill. People are generally used to smartphones and computers. We know how to send emails, photos, but we don’t realize or try to decode the process in reality: we send a copy of the email or a copy of our photos. When we send this through our smartphone or computer an original copy always remains in our device. 

When coming to our financial transactions, when we click on the sending button on our internet banking accounts or at an ATM, there is always a mediator that transfers the money from one account to another. This is the issue that Bitcoin is determined to solve, the double-spending problem. When you hit the send Bitcoin button on your device. As this transaction is made in Bitcoin it cannot be changed then and cannot be tampered with. Due to this reason, it is crucial to cancel or change a Bitcoin transfer after it has been validated by the Blockchain network due to Bitcoin protocol which has solved the issue of double-spending. It made a single asset, Bitcoin, digitally unique, enabling value transactions on the internet without intermediaries. 

Even though traditional money is issued or created through central banks, Bitcoin is made by algorithms, whose rules are pre-established in its protocol the Bitcoin Blockchain. The Bitcoin blockchain is a transaction registration system, handled in an open (distributed) network of “suspicious” participants, who are not aware of the existence of one another. According to Satoshi Nakamoto the source code for the Bitcoin protocol software and published it on the internet, he said if one provides security for this network and help this financial network to work out, you will be rewarded handsomely.

To build the Bitcoin Blockchain architecture, Satoshi Nakamoto took a careful look at existing research- bit gold, b-money, hashcash, time-stamped cryptography with some extra game theory. This game theory helped Satoshi complete an incentive mechanism also known as proof-of-work which permits a new field of economics coordination now also known as “cryptoeconomics” (the field of economics and computer science to study the decentralized marketplaces and applications that can be built by combining cryptography with economic incentives). 

Many people are coming to realize the functional importance of in Bitcoin and started to “plug in” their computers to give security to the network, the Bitcoin blockchain became extra secure and practical. Also, now there is huge computational power offering transactions: Bitcoin is computational strength. A bitcoin is taken out from the blockchain protocol by miners (validators) who are good at solving mathematical algorithms to earn the right to include Bitcoin transactions in the blockchain network and be gifted for it. Every Bitcoin transaction before being added to Blockchain is sent to “mempool,” a detention area for the leftover transactions, where it is kept for the insertion in a block. The miners then handle the rest of the transactions which is left to be recorded and are mixed together to create a “block” of transactions. 

Considering the fact that miners compete with each other so that their computers will be selected to record the most recent transactions in the next block that will be added in the network. The most apt way to succeed in this competition is by solving the algorithms as many times as possible before someone else achieves “nonce” also knows as the correct result. It takes at least a billion times to achieve this result, only those who have more computational strength to win this competition will be given the Bitcoin as an award for their efforts. There are many hurdles to pass, the initial consequence is that PoW prevents miners from evading the system and making Bitcoin from scratch. Miners are required to burn real computing energy with each attempt and search for the nonce to have a chance to earn a Bitcoin. It is important to mention the consensus mechanisms, PoW is the most used in Blockchains as it works the most in terms of cybersecurity.