I oftentimes see people quote Bitcoin's properties, like; decentralization, scarcity, it's distributed network or Bitcoin being censorship-resistant, yet they often times fail to explain how these properties go into action.
I've started expanding on these properties, and would like to hear some feedback about the first two I've written, like; how is the wording? Is it factually correct? Is there something to expand on more?
Bitcoin’s properties
Decentralization
Bitcoin operates on a decentralized network of computers, called nodes, making it free from the control or oversight of any central authority, such as a government, corporation, or financial institution. Unlike traditional financial systems, which rely on central banks or financial intermediaries, Bitcoin's decentralized nature means it's not subject to single points of failure or control, making it a highly secure and robust system, resistant against various forms of attack and censorship, rendering Bitcoin especially valuable to people living under regimes or strict financial controls. Each transaction on the Bitcoin network is validated by a globally distributed network of nodes, each respecting the same rules through the mechanism of emergent consensus, creating a trustless system which enables them to collectively verify the authenticity of transactions and the integrity of the blockchain without being dependent on the honesty or good intentions of a central entity.
Scarcity
The inherent scarcity sets Bitcoin apart from most currencies, and makes it even more scarce than gold. Unlike traditional fiat currencies that can be printed endlessly, Bitcoin has a set limit of roughly 21 million bitcoin that will ever be created, which is enforced through a process occurring roughly every four years or 210.000 blocks, known as “halving”.
The halving refers to the block-subsidy, which miners can claim for successfully broadcasting a valid block to the network, being cut in half, thus reducing the number of new bitcoins created with each new block. The halvings are set to continue until the block-subsidy = 0, limiting Bitcoin’s supply to roughly 21 million bitcoin.
Bitcoin's capped supply is a critical element that has made it stand out in the world of digital assets. It instills trust in the asset's scarcity, setting it apart from conventional currencies that are susceptible to inflation. As Bitcoin continues its journey toward the roughly 21 million bitcoin limit, marked by halving events, it exemplifies a monetary policy that is both predictable and transparent, and provides a benchmark for assessing the relative scarcity of other assets, a reference point. This is particularly significant in the context of economics and finance, where scarcity is a fundamental determinant of an asset's value.
No comments:
Post a Comment