Bitcoin Self-Regulation

Original author: Arvind Narayanan
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A small fragment of a lecture from Princeton University , lecturer - Arvind Narayanan

Now I want to show you another subtle thought, quite complex, this is a very clear idea of ​​self-regulation, which captured me the first time I met her. I want to share it with you.

What do I mean by self-regulation? I am talking about the complex interaction between three things in bitcoin. What are these three things?

Let's start with blockchain security.. Obviously, we want the blockchain to be safe so that bitcoin is a viable currency, but what is needed to secure the blockchain? This means that the adversary should not be able to capture the consensus process. It should not be able to create multiple nodes and capture 50% or more when creating new blocks.

When it will be possible? What is needed for this? To do this, you need to have a healthy mining ecosystem , consisting mainly of honest, following the protocol nodes. This is a necessary condition for blockchain security.

But what is needed for this? How can we be sure that many small users will invest a large amount of computing power to participate in the competition for solving hash problems? Well, they will only do this whenBitcoin exchange rate will be quite high .

Why? Because the nodes receive a reward in bitcoins, while their costs are in dollars, so the value of the currency increases. Moreover, miners will be interested. But what provides a high and stable currency value? This is possible if users in general, people who want to buy Bitcoin, believe in the safety of the blockchain - because if they believe that an attacker can take over the network at any time, then Bitcoin will not be of great value as a currency. Thus, we get the interdependence of these three characteristics.

Well, that is, the existence of any of these characteristics is based on the existence of the previous one. So you can drop them, and imagine the beginning when bitcoin was just created, when none of these three properties existed, when there were no other miners other than what we call Nakamoto, or whoever was the creator of the network that launched the mining program. When Bitcoin did not have much value as a currency. When the blockchain was essentially unsafe, because there was not enough mining volume, and anyone could easily capture the whole process. How would you start at this point without having any of these three characteristics to get all three?

This is what I mean by self-regulation. This is a rather complicated process by which bitcoin as a system acquired all three characteristics independently of each other. And of course this was supported by media attention. Because the more people heard about Bitcoin, the more they were interested in mining. And the more they were interested in mining, the more confidence people had in blockchain security, because there was more mining activity, and so on. And so Bitcoin came from the absence of these three properties to the possession at the moment to a large extent of all three. This is an interesting feature of Bitcoin self-regulation, and every new cryptocurrency that wants to achieve success must also somehow solve this problem of promoting itself through self-tuning.

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