Bitcoin started in 2009 as an alternative form of electronic money. On January 3 of that year, the network’s first block was generated, called the genesis block, which launched a new, completely decentralized peer-to-peer payment system that did not require a trusted third party.
However, the principles on which Bitcoin was founded made it much more than just a form of digital currency.
Today, Bitcoin has become one of the greatest innovations of our time. with enormous potential to transform the entire financial system and usher in a new digital economy. This was possible thanks to the principles underlying its system and protocol.
The Fundamentals of Bitcoin
Bitcoin is a decentralized cryptocurrency that is not backed by any central government or entity. Instead, cryptocurrency uses advanced cryptographic techniques to make it work.
Although Bitcoin is not controlled by anyone or anything in particular, its design is consensus-based, so it is the community of developers and users who drive its development and decide what changes to implement or not in the system. coded. This process is carried out through improvement proposals, called BIPs, in which the information necessary to justify any modification, improvement, integration or implementation that one wishes to make in the Bitcoin protocol is presented.
In his article, Lopp commented that consensus is one of the most fundamental tenets of Bitcoin, as it prevents individuals from imposing their views or interests on the development of cryptocurrency.
“Consensus failures can destroy the whole system causing loss of trust,” the crypto enthusiast commented.
Minimization of trust
As an alternative financial system, Bitcoin offers its users monetary autonomy. There is no need to trust a third party to transfer or receive value via Bitcoin and this is thanks to cryptography and decentralization.
Quoting Bitcoin developer Matt Corallo, Lopp said that “the ability to use Bitcoin without trusting anything other than the open source software it’s running is by far the queen.”
By not being trust-based, Bitcoin helps ensure that incentive-aligned and transparent stakeholder groups do not get along to the detriment of the rest of the ecosystem, Lopp noted. Therefore, this property is considered one of the fundamental pillars of Bitcoin, which must be preserved to maintain the usefulness of the system.
Decentralization, which disperses power and control away from a central entity, has been key to Bitcoin’s successful development in its young but intense life.
Although Bitcoin was not the first attempt to create a cryptocurrency or digital currency, its creator, Satoshi Nakamoto, attributed its success to the decentralized, non-trust-based system that underpins the network.
In February 2009, Nakamoto highlighted failed attempts to create a cryptocurrency in the 1990s. “I hope it’s obvious that it’s just the centralized nature of these systems that has doomed them.”noted the enigmatic creator of Bitcoin.
As a result of decentralization, Bitcoin is now a highly censorship-resistant alternative financial system.
Regardless of physical location, anyone can access and interact with bitcoinbecause no company or government can actually block your access.
Bitcoin was launched as open-source protocol. By developing as free software, Bitcoin was able to resist attempts at control by certain groups and individuals. Moreover, this property allows any programmer or hobbyist to collaborate in the development of the protocol, to suggest modifications or to make public comments on the system.
According to Lopp, this principle must be maintained to ensure the transparency and auditability of the system. As an open source protocol, Bitcoin is available for any person or entity to read, audit, copy or share its code.
Another of Bitcoin’s fundamentals as a digital currency and financial system is pseudo-anonymity. To use Bitcoin, you do not need to identify yourself, which makes it easier to use as digital money, similar to physical money or fiat currency.
Lopp commented that this property of the Bitcoin system strengthens decentralization, censorship resistance and fungibility cryptocurrency
A permissionless system
As an open network that does not require permissions, anyone can participate in the bitcoin ecosystemeither as a trading user or investor, or as a full node network miner, developer or broker.
“No arbitrary entity should be able to prevent someone from participating in the (Bitcoin) network,” Lopp commented in his post.
Another of the key properties and principles that must be preserved in Bitcoin for the health of the ecosystem is fungibility. Lopp pointed out that, like fiat currency, all UTXOs or unspent Bitcoin transaction outputs must be spendable to ensure the fungibility of the cryptocurrency.
This property also gives Bitcoin the characteristics of money, which increases its usefulness as a digital payment system.
However, at present, Lopp pointed out that Bitcoin is far from achieving perfect fungibility, as different systems aim to identify contaminated UTXOs, which could lead ordinary users to hard times.
Other Principles of the Bitcoin Financial System
In his article, Lopp listed a long list of principles and properties on which the Bitcoin system is based. Others that Lopp highlights about the network are the immutability of transactionsthere resistance to denial of service (DoS) attacks and social scalability.
All these principles have made Bitcoin a revolutionary protocol that occupies an increasingly important place in society.
To this day, Satoshi Nakamoto’s promise to create a fully decentralized treasury system remains intact after 14 years.