The Meaning of Decentralization and Bitcoin
Decentralization is the most fundamental aspect of Bitcoin philosophy. So much so that without it, we would not need Bitcoin. I consider it its raison d’être. Any other monetary technology that works in a centralized manner does not create any change from the current system. Any coin run by an organization is centralized, and therefore, the same as the current system of money. Here are several reasons decentralization is the vital principle of Bitcoin:
Elimination of Central Authority: Bitcoin operates on a peer-to-peer network, removing the need for a central authority, such as a government or financial institution, to control or regulate transactions. This decentralization changes the traditional financial system and promotes a more inclusive and accessible form of currency. This system is called trustless, and is non-corruptible. Unfortunately, humans are susceptible to corruption. The way to a fair monetary system is through this elimination of third parties and this is what Bitcoin does. Centralization removal is possible through computers running the bitcoin protocol, which eliminates human meddling in transactions.
Resilience and Security: The decentralized nature of Bitcoin enhances its security. Traditional financial systems are vulnerable to single points of failure and the whims of humans. Manipulation, greed, corruptibility, personal interest are all traits of people. In contrast, Bitcoin’s decentralized, trustless network uses a multitude of nodes verifying transactions, making it extremely resilient to attacks. Anyone in the world can run a node. The nodes verify the transactions not through human interaction, but through the bitcoin protocol instructions. It’s automatic and trustless.
Censorship Resistance: Decentralization ensures that no single entity has the power to control or censor Bitcoin transactions. This feature is significant in regions where financial censorship is prevalent, such as dictatorships or sanctioned countries, allowing individuals to have control over their funds and financial interactions without the fear of censorship or seizure.
Trustless Transactions: The decentralized architecture of Bitcoin enables trustless transactions. Participants in the network do not need to rely on intermediaries or trust a central authority to validate transactions.
Accessibility for Everyone: Decentralization promotes financial inclusion by providing access to the financial system for individuals who may be excluded from traditional banking. Anyone with an internet connection can take part in the Bitcoin network, fostering a more inclusive global financial landscape. Of special note are regions in the developing world, where banking is not as easily accessible.
Immutable Ledger: The blockchain, which records all Bitcoin transactions, is maintained across a decentralized network of nodes. Once a block is added to the blockchain, it becomes impossible to alter past transactions, ensuring the integrity and immutability of the ledger. Another important element of the ledger is that it is accessible to everyone. With such openness, every coin is accounted for. We don’t know who owns the coin, but we can see when it moved.
Resistance to Government Interference: Bitcoin’s decentralized nature makes it resistant to government interference and manipulation. This characteristic is valuable in regions with economic instability, capital controls, or where citizens seek alternative financial options. Governments can also increase the supply of their money against the interests of their populations. The fact that Bitcoin can’t be interfered with makes it a the most stable form of money.
Finite Supply: Bitcoin has a capped supply of 21 million coins, programmed into its code. This scarcity is decentralized and removes the possibility of arbitrary inflation, providing a predictable and transparent monetary policy. In order for this supply to change, over 50% would have to agree. Since these nodes are independent people like me and you, it would be impossible to get thousands or millions of people to agree to the change. Add to this, that agreeing to a change in the supply would run contrary to the interest of people running the nodes, since it would diminish the value of their coins.
In summary, decentralization is the cornerstone of Bitcoin. It fosters security, transparency, and accessibility, repairing the broken elements of today’s financial structures. By removing the need for centralized control and intermediaries, Bitcoin empowers individuals with greater financial autonomy and positions itself as a transformative force of freedom in the world of finance.
Useful links to my other posts and articles
Explaining Bitcoin at the Bar
You might have been hearing the word Bitcoin popping up on the news lately, but you do not know what it is. That’s ok. I was in the same place for many years until I started working on it. And then it all became so clear. Initially, I thought it was just some money thing that some FinTech people deal with, then I realised it was much more. But have no worries. Understanding Bitcoin is easy. So, let me explain it to you as best as I can. Or, let me explain it, as I explained it to my friends at the bar. Here’s how the conversation between us went.
Me: Hey, have you ever wondered what the deal is with Bitcoin?
Friend: Yeah, I’ve heard about it, but honestly, I only know it by name.
Me: Alright, so picture this. Bitcoin is like digital cash, but here’s the thing: no banks, no governments. It’s all decentralized.
Friend: Wait, no banks? Decentralized? How does that work?
Me: It’s all about this thing called blockchain. Blockchain is a ledger open to everyone. Bitcoin transactions run on a peer-to-peer network, kind of like torrents. Transactions get recorded on the bitcoin ledger that the entire world has access to. No central authority, just a bunch of computers making everything legit. The public can view every single transaction. This is super innovative, because now we can account for every single part of a bitcoin spent.
Friend: Sounds high-tech. What’s the cap on how much Bitcoin can exist? I keep hearing about the problems of money being printed by governments. Look at Venezuela, for example. I never got why printing money lead to so many problems.
Me: Well, look at it by the following definition. Economy is management of scarcity. Can’t remember who said that. But, the reason money has value is that there is a scarce supply. So, when a government turns on a printer, what happens to that scarcity? Well, it goes down the drain. Bitcoin, though, can only ever have 21 million. It is the most scarce money we’ve ever had.
Friend: Interesting. But how can it work if there can only be 21 million bitcoins?
Me: It’s infinitely divisible into smaller units called Satoshis.
Friend: That’s wild. I get it! 21 million, and the more people want it, the more it grows in value then, since there will never be enough of it.
Me: Yeah, Bitcoin is changing the game. It’s the future of money. After using bitcoin, banks seem archaic to me. Bitcoin transactions are super fast, cheap, and since there are no middlemen, it works 24/7.
Friend: Well, I’m definitely intrigued. Maybe I should try this Bitcoin thing. And you can explain more of it to me. I don’t get every aspect. Yet, I like the idea that it’s completely open to the public.
Me: Yeah, I mean I’m not a super tech guy myself. I’m more into the philosophy of things. When I was first shown Bitcoin, the decentralization part immediately intrigued me. Anyway, like everything else, it takes time to understand fully and appreciate. Try reading this book. Let me find it for you on my phone.
Friend: “The Bitcoin Standard”
Me: Yeah, the thing is that since Bitcoin is decentralized and there are no banks, one has to understand it in order to appreciate and use it. This book explains money very well, and Bitcoin. I mean, you have to know what the problem is to appreciate the solution.
Friend: Sounds good. I’ll read the book for sure.
Me: Let me send you some Bitcoin to get you started. And I’ll show you how a bitcoin wallet works.
Both: Cheers!
Conclusion
To sum up what Bitcoin is:
decentralized digital money on peer-to-peer network
no third parties
24/7 network that never stops
only 21 million bitcoin ever
infinitely divisible into smaller units called Satoshis
transparent blockchain ledger open to everyone
Requires some understanding to appreciate
For the best initial, in-depth explanation, read “The Bitcoin Standard”
Bitcoin is a decentralized digital currency that operates on a peer-to-peer network with no central authority, like a bank or government. What this means is that the money only belongs to you. You secure it through the use of a code, so-to-speak. If someone gets a hold of your code, they can steal your money. Take care of it. If you lose it, you won’t be able to get it back.
Without going into much details I would just like to add that understanding Bitcoin will open your eyes to money. We all use money, but we do not know what is happening. With bitcoin, there are no third parties. It’s all you. And that’s why it’s the most fair money system we’ve ever had. Let’s end it here for a start. Expect more detailed blog posts soon on this topic.
Links to my other articles about Bitcoin: