The Top 10 Facts and Fiction on Blockchain
Blog: The Tibco Blog
Bitcoin is taking the world by storm. In the last year, the value has increased roughly 900% and there seems to be no stopping. In itself, this is an amazing story, but there are a lot of facts and fiction that surrounds this amazing technology. This is my top 10 list:
1. FACT: Satoshi Nakamoto is the person or group (no one knows) that launched bitcoin 2009, passing majority control to Gavin Anderson 2010. Bitcoin supply is only 21000000BTC and production rate is halved every 4 years. Miners mine by solving complex puzzle and the reward is bitcoins. This is how new bitcoins are introduced into the system.
2. FACT: The three most common consensus mechanisms are: Proof of work, proof of stake, and practical byzantine fault tolerant (PBFT). Proof of work Blockchains are vulnerable to 51% attacks, proof of stake Blockchains are vulnerable to “nothing at stake” attacks, and PBFT Blockchains are vulnerable to “cartel attacks”. In February 2016, the top producers of Bitcoin looked like this:
Antpool – 25.90%, F2pool – 22.60%, Bitfury – 15.09%, BtcChina – 12.78%, Bw.com – 6.34%, Other – 17.29%. Four of the five listed miners, with the exception of Bitfury, have a Chinese ‘residence permit.’
3. FACT: According to blockchain.info, the miners who extract Bitcoin produce 450 thousand trillion calculations per second. Bitcoin takes 2 terawatt hours p/y (which is more than a 150,000 city in California) to 40 terawatt hours p/y (two thirds of the consumption of the 10 millionth Los Angeles County). In the US, every Bitcoin transaction costs about $6.
4. FACT: Smart contracts are not really smart and neither are they contracts. A smart contract is a computer protocol intended to facilitate, verify, or enforce the negotiation or performance of a contract. The aim with smart contracts is to provide security that is superior to traditional contract law and to reduce other transaction costs associated with contracting.
5. FACT: It is safe to say that Bitcoin itself has never been ‘hacked’. However, several major websites using the currency have been hacked, often resulting in high-profile Bitcoin heists. These heists are misreported in some media as hacks on Bitcoin itself. An analogy: Just because someone stole US dollars from a supermarket till, doesn’t mean that the US dollar as a currency has been ‘hacked’.
6. FICTION: Bitcoins can be printed and minted by anyone and are therefore worthless. Bitcoins are not printed or minted. Instead, Blocks are computed by miners and for their efforts they are awarded a specific number of bitcoins and transaction fees paid by others.
7. FICTION: 21 million coins isn’t enough; doesn’t scale. One Bitcoin is divisible down to eight decimal places. There are really 2,099,999,997,690,000 (just over 2 quadrillion) maximum possible atomic units in the Bitcoin system. The value of “1 BTC” represents 100,000,000 of these. In other words, each Bitcoin is divisible by up to 108.
8. FICTION: Lost coins can’t be replaced and this is bad. Bitcoins are divisible to 0.00000001, so there being fewer Bitcoins remaining is not a problem for the currency itself. If you lose your coins, indirectly all other coins are worth more due to the reduced supply. Consider it a donation to all other bitcoin users. Why don’t we have a mechanism to replace lost coins? It is impossible to distinguish between a ‘lost’ coin and one that is simply sitting unused in someone’s wallet. And for amounts that are provably destroyed or lost, there is no census that this is a bad thing and something that should be re-circulated.
9. FICTION: Bitcoin is just a big pyramid scheme. The basis of a pyramid scheme lays in the fact that there is one main company or organization that promises its investors a guaranteed profit. But since Bitcoin has no authoritative body to make such promises and is, after all, a peer-to-peer based cryptocurrency, there is no basis to the claim that it’s just some pyramid scheme.
10. FICTION: The government could or will shut down Bitcoin. While governments around the world may still be figuring out how to approach digital currencies, many misinformed people fall into the trap of thinking that, like almost anything else we’re used to, Bitcoin could be shut down by governments if one or more of them hoped to do so.
Yes, governments have the power to make it very difficult for their citizens to use Bitcoin and some form of government regulation is inevitable as Bitcoin matures. Even so, because of its infrastructure, it would take considerable time, money, and energy for any government to pose a serious threat to the global Bitcoin network, if they even could at all.