August 17, 2017
What is bitcoin backed by? The currency is backed by a public ledger, called the blockchain, which specifies which bitcoins are in which account and identifies everyone’s holdings. The blockchain is in turn backed by decentralized replication, consensus, advanced cryptography and a network with the most computing power of any network in history. Each coin can only exist in one account at a time; the blockchain identifies every coin, and has that coins complete history, showing which accounts it has been in and which account it currently sits in. When the coin is in your account, only you can send the coin out of your account, with your private key/password. When you send a coin from your account to another account (say “account B”), that’s a transaction, and the bitcoin network processes that transaction, checking to be sure that the coin in question is in your account and appending a new line to that coin’s history indicating that it is no longer in your account and now exists in “account B.” It is the network that processes these transactions that actually backs bitcoin. This network is the most powerful computer network currently known. Specifically, the network which verifies the blockchain and confirms all the transactions has over 2000 “petaFLOPS” of computing power behind it, contributed by a decentralized network that could not be shut down without turning off the internet, globally. For some reference, compare to the worlds most powerful supercomputer which currently computes at about 55 petaFLOPS. The bitcoin network is approximately 36 times more powerful than the worlds most powerful supercomputer. It is this processing power that truly backs bitcoin, in the sense that in order to compromise the currency (i.e. “hack” it in such a way that you could stop people from making transactions or otherwise screw it up) you would need to have more than 50 percent control of the network. So to compromise bitcoin right now, you would need to bring more than 2000 petaFLOPS to the table, meaning you would need to have 36 of the worlds most powerful supercomputer (which, by the way, belongs to China. It cost them $290 million to build it. Good luck buying 36 of them. America’s fastest supercomputer is capable of only a measly 27 petaFLOPS). So, the US Dollar is backed by the US Government and all of it’s armed forces. The Bitcoin is backed by the most powerful computer network in history. If the 2000 petaFLOPS existed as one single supercomputer in some warehouse somewhere, there would be no question about it–the US Government would shut it down, using their force if needed, or at least the implied threat of force. But with the 2000 petaFLOPS spread around a decentralized network, the Bitcoin infrastructure would be many times harder to shut down than, for example, Peer-To-Peer file-sharing through Torrent files, which the government has tried and failed to stop. The fact that this transaction and payments network is so unstoppable; coupled with the attributes of the currency itself (easy and cheap to transfer, impossible to freeze, finite and predictable supply, completely transparent and yet also potentially anonymous, nearly infinitely divisible, not affiliated with any political organization, no chargebacks, nearly instantaneous and completely non-reversible transactions) are the “backing” behind bitcoin. These attributes, and the strength of this network, give it value, not as a commodity, but as an efficient and greatly preferable unit of exchange. This is why, Rob Golden, Bitcoin will take over the world. And I would like you to know that I personally researched and wrote this essay, this is not a “copy-paste” situation, this is a “I just spent two hours explaining bitcoin to you so please read the whole thing” type of situation. Happy birthday.
Posted by Ben B