Lecture 7: Community, Economics, and Politics
- David Chaum - digital cash in 1981
- Satoshi Nakamoto - Oct 2008, bitcoin.org was registered in Aug 2008
- Genesis block was mined in Jan 2009
- First BTC payment - Feb 2010
- First online exchange - July 2010, the price went up 10x by then
- First GPU miner - Aug 2010
- First mining pool - Sep 2010, Satoshi disappeared at this point
- Silk road launched - Jan 2011
- First BTC conference - Nov 2011
Bitcoin requires three levels of consensus
- Consensus on blockchain - transaction history
- Consensus on validity rules
- The consensus that BTC is valuable
A soft-fork happens when a certain miners start accepting a newer version of the transactions which is backward-compatible. This incentivizes other miners to move to that as well or else their mined blocks might not become part of the longest chain. Some examples of soft-fork are P2SH, Segwit, CLTV, CSTV. Such changes are made via Bitcoin Improvement Proposals (BIP).
A hard-fork happens where there is a disagreement on the blockchain rules. For example, bug fixes, crypto upgrades, Simplified Payment Verification (SPV).
Bitcoin block size is limited to 1 MB => 1 MB/10 mins => 1.7 KB/sec ~ 7 transactions per second are the system limits. Visa does ~20K transactions per second by comparison. In 2015, a hard-fork was tried to increase the block-size limit to 10 MB. Bitcoin community was split between Bitcoin core and Bitcoin XT. Bitcoin core wants to do nothing, they were supported by the miners. Bitcoin XT which wants to increase block size to 8 MB and double every year after that. XT lost. An accidental hard-fork happened in March 2013.
Economics
- Divisibility - 21M ~ 225 Bitcoins. 1 Bitcoin = 108 Satoshi ~ 227 Satoshi => 252 Satoshi units to trade
- Mining reward schedule has a deflationary impact on Bitcoin creation
- Tinkerbell effect - Everyone believes in something because everyone else does as well
Money is a means of exchange, a unit of account, and a store of value. Bitcoin is definitely a means of exchange, the other two questions are yet to be answered.