Translated by: Starknet Chinese Community
Abstract
The core of Bitcoin's innovation lies in its universality (decentralization), incentivized integrity, and public verifiability
Challenges and opportunities facing Bitcoin
Looking forward to one day Bitcoin being able to integrate zk-STARK technology through soft forks
Bitcoin means different things to different people. I want to share with you what Bitcoin means to me and explain what I think is Satoshi Nakamoto's core innovation. First of all, I want to make it clear that the real essential innovation of Bitcoin is not in cryptography, the Internet, or computer technology. These emerging technologies are just means to achieve the goal. What Satoshi Nakamoto really innovated is one of the most important inventions of mankind: social structure.
Social structures require integrity and consensus
"Integrity: doing the right thing even when no one is watching."
—— C.S. Lewis
When you think of social structures, you might think of friendship, cultural traditions, or today's popular social media. However, people often overlook that money is also a social structure. In fact, the essence of money is social structure.
Money is a system that carries huge value, and the existence of this value depends entirely on everyone agreeing that money should "work like money." Therefore, to understand the nature of money as a social structure, we need to clarify two questions: one is what does money "work like money" mean, and the other is why everyone needs to reach a consensus on this.
People have certain basic expectations about money: that it cannot be printed in unlimited quantities; that the money you hold cannot disappear or increase without reason; that you can spend your money freely, and so on. These characteristics constitute what I call the inherent integrity of money. In other words, the nature of money determines that it will work as you expect it to work even if you are not constantly monitoring it.
However, the inherent integrity of money is only one aspect. On the other hand, money also needs credibility (i.e., perceived integrity), that is, there must be a broad consensus on its integrity across society, otherwise the currency will not maintain its value. For example, if there is a rumor that the government will force banks to freeze their assets, this will seriously undermine the credibility of the currency. Even if the rumor is false, the currency may begin to lose value.
In short, the value of money depends on both its inherent integrity and its credibility. Any structure whose value is based entirely on its inherent integrity and credibility is a social structure. Money is the purest and most influential form of social structure (other forms are discussed at the end of this article).
Human societies are constantly inventing and redefining money. The simplest way is for society to pick a homogeneous and scarce physical resource to serve as money. In my elementary school years, that physical resource was gum wrappers. In prisons, cigarettes were currency; in some societies, it was shells, salt, and stones; and for thousands of years until the eve of modern times, gold played the role of money. But today, most money is digital, its scarcity relies on the endorsement of the state, and the power to manage this resource is delegated to a few specific companies (i.e. banks). To a large extent, the value of money depends on how much we trust the integrity of the state and its mechanisms that run the monetary system.
Bitcoin is a completely new way to implement the social structure of money. Its innovation is not in the use of computers and Internet technology, but in how it uses the Internet to implement the social structure of money. Specifically, Bitcoin follows three unprecedented principles: (1) universality (i.e., decentralization), (2) incentivized honesty, and (3) public verifiability. We will explain each of these principles below. Universality (decentralization) Bitcoin is defined by a protocol, which is a set of programs that are run by many computers connected via the Internet. Traditional currencies also rely on protocols (such as the SWIFT system), but Bitcoin is different in that its protocol invites everyone to participate in the operation of the system as an equal. Each of us can freely download the open source software that defines Bitcoin miners, and participate in creating new blocks and updating the state of the Bitcoin ledger (i.e., who owns how many Bitcoins) through our own computers. Moreover, universal participation is not just for convenience; the security, integrity, and value of Bitcoin are directly related to the universality of its running nodes. The more people participate in mining, the more secure the Bitcoin network is, and the more the public trusts its integrity. In contrast, the traditional banking system does not welcome us to participate in their operations. At best, we have only a very limited understanding of what is happening in our accounts. “Broadness” is a true innovation in the history of human society, built on the principles of equality, autonomy and democracy, which are the cornerstones of a free society. “Broadness” echoes the old and fascinating idea of direct democracy, but goes further than that. Here, we are not only invited to participate in voting and expressing our opinions, but also given equal rights to the operation of the “state”. It is no coincidence that Bitcoin was born in the aftermath of the 2008 financial crisis. The crisis at that time brought quantitative easing (i.e. unlimited money printing) and the rescue of “too big to fail” banks. As the number of unbanked people in the world increases and large-scale surveillance gradually penetrates our daily financial transactions, the continued development of Bitcoin is a direct response to this status quo. In other words, the emergence of Bitcoin is a rebellion and response to the continuous erosion of the credibility and inherent integrity of the traditional financial system.
Incentivized Honesty
Bitcoin mining is profitable — you are rewarded with Bitcoins for successfully mining a new block, and this process is open to everyone! This is perhaps the most amazing and amazing part of Satoshi’s invention. The Bitcoin protocol provides the integrity of the system by providing financial incentives (i.e., paying rewards) to participants to perform certain actions (creating valid blocks). This incentivizes and forces all miners to “do the right thing” even when no one is watching. If you stray from the “right track” (i.e., the Bitcoin protocol), you will face financial losses because the cost of electricity used to mine invalid blocks is wasted, and you will not receive any Bitcoin in return. The clever thing is that the value miners receive is not paid in dollars or euros, but in the form of Bitcoin itself. And Bitcoin, as a social construct, can only maintain its value if the public trusts its integrity. This creates a virtuous cycle: miners are incentivized to operate honestly without coordination, because violating the protocol is a foolish thing to do - your hard-earned Bitcoin will be devalued, and you will suffer the consequences.
Let's compare this principle of "incentivized integrity" to the traditional monetary system. In the traditional system, we are not invited to participate in the operation of the bank (the bank is not widespread), and those who do participate in the operation of the bank do not receive equal direct value rewards for maintaining the integrity of the bank or the national currency. Instead, the bank operates the system itself or hires service providers. The integrity of the system does not rely on the incentives of the protocol, but is enforced by contracts and the national legal system.
Imagine a world where banks provide equity (shares of the bank) or income (a portion of the bank's fees) to a broad and open network of operators in return; the state opens up the right of citizens to participate in the operation of the national monetary system and rewards their contributions with newly issued currency. I believe this is a superior and more democratic way to operate a national currency. I believe that countries that adopt this higher standard will have more autonomous citizens and more thriving and free societies. Perhaps one day, inspired by Satoshi Nakamoto’s invention of Bitcoin, countries will move toward this more ideal system. But at least today, this is not a reality—and if society ever makes this leap, it will be entirely thanks to Satoshi Nakamoto’s invention.
Public Verifiability
The third and final core part of Satoshi Nakamoto’s innovation is public verifiability. This means that anyone can verify the complete integrity of Bitcoin, including all transactions since the genesis block in 2008. What’s more, this verification does not require a supercomputer, but only a laptop! This also means that I can use this laptop, typing this very moment, to verify the latest Bitcoin block in real time, participating in the broad and democratic integrity and the social consensus it relies on. If anyone tries to undermine the integrity of Bitcoin (the integrity of the network), we will all know about it.
It is necessary to compare it with the traditional payment network again. In the traditional system, centralized institutions (such as banks, credit card companies, etc.) rely on huge computing nodes to process transactions. And we ordinary users have no way to directly verify the integrity of the system. Even if we can obtain some kind of viewing permission, the huge amount of computing is impossible to complete on an ordinary laptop.
Bitcoin's Innovation - Challenges and Opportunities
Let's summarize. Bitcoin's innovation lies in re-implementing the ancient social structure of money in a completely new way. This new implementation method uses new technologies such as the Internet and the widespread low-cost computer equipment, but its core innovation lies in building the social structure of money on three new principles: universality, incentivized integrity, and public verifiability.
The sustainability of universality?
Universality is the most fragile and worrying feature of Bitcoin, and it is also the attribute that I am most worried about. Creating a new Bitcoin block requires either a large amount of electricity or a great deal of luck. Obviously, luck is uncontrollable, so the only option is electricity. One can imagine a dystopian future in which the operation of the Bitcoin network—particularly the large amount of electricity consumed to secure the network—is completely controlled by a single or a few powerful entities (such as countries or large corporations). This worrying future is not far-fetched for two reasons: (1) economies of scale are likely to favor large operators, allowing them to control a larger portion of the computing power (i.e., Bitcoin’s electricity consumption); and (2) as Bitcoin becomes more important in our lives and the economy, powerful forces such as countries and large corporations will inevitably try to control Bitcoin. If this happens, and Bitcoin mining is controlled by a single entity or a few coordinated entities, the consensus around Bitcoin’s integrity will be weakened. This consensus includes, for example, its censorship resistance, its lack of barriers to entry, its issuance cap of 21 million coins, and its payment mechanism that does not require reporting additional information to a centralized authority. If these core principles are eroded, Bitcoin will lose its value.
Bitcoin’s ubiquity is not inherently guaranteed by Satoshi Nakamoto’s invention. Maintaining this feature is a long-term battle that all those who care about Bitcoin’s value and mission must participate in. Even if ubiquity is destined to be short-lived, the spirit of freedom it demonstrates will, like the short-lived but glorious ancient Greek democracy, become a beacon in the long river of history, continuing to illuminate and inspire all those who care about human freedom.
Bitcoin’s global scalability
Public verifiability is a feature that comes at a high price for Bitcoin. In order to ensure that transaction verification can be completed on common devices, we must limit the amount of computing required to verify Bitcoin transactions. It is precisely because of the principle of “public verifiability” that Bitcoin’s processing power is limited to a maximum of about 10 transactions per second (10 TPS). This situation greatly limits Bitcoin’s throughput and partly explains why only a very small number of people in the world use Bitcoin for daily purchases. Simply put, the current Bitcoin network lacks enough bandwidth to support everyone using Bitcoin to complete daily transactions. To achieve this, we need a Bitcoin network that can handle tens of thousands or even millions of transactions per second.
So we seem to be stuck in a dilemma - either stick with Bitcoin's public verifiability, but then be limited by low bandwidth and unable to meet the needs of global use; or increase scalability so that everyone can use Bitcoin to buy daily necessities, but then lose the transparency of transactions because ordinary devices can no longer easily verify all data, and we have to rely on powerful centralized institutions again. This is where mathematics and cryptography come in.
Payment channels and the Lightning Network are a prominent cryptographic solution applied to Bitcoin since March 2018. It expands Bitcoin's throughput capacity to nearly unlimited levels by allowing two parties to settle directly. This is a bit like a grocery store allowing customers to buy on credit and pay at the end of the month, except that the whole process requires almost no trust assumptions and the Bitcoin network itself acts as an arbitrator to prevent one party from trying to cheat.
But this solution has two major drawbacks:
It is capital inefficient. Both the grocery store and the customer must pre-lock a sum of money at the beginning of the month, and the locked amount often needs to be higher than the customer's monthly spending budget in order to complete the payment process smoothly;
It requires constant monitoring. Both parties must always pay attention to the status of their payment channel. If one party fails to monitor in time, the other party may take advantage of this gap to steal funds.
Although it requires a modification to the Bitcoin protocol (i.e., a soft fork), a different and better solution already exists. This is the Bitcoin solution I have dreamed of for more than a decade, and it is also what drives me to work on blockchain every day. The zk-STARK protocol was co-invented by others 15 years ago when I was a full-time academic professor of theoretical computer science. This protocol would allow all of us to verify the entire Bitcoin blockchain, or even a million times more data, on our smartphones, without having to trust any third party to process Bitcoin transactions. This solution completely solves the two shortcomings of the Lightning Network mentioned above. It is capital efficient and does not require users to be vigilant all the time. I first introduced this breakthrough blockchain technology at the Bitcoin Conference in 2013, and co-founded StarkWare in 2018 to promote the actual implementation of this technology. Since then, with the help of the growing zero-knowledge research ecosystem, we have successfully established zk-STARK technology as the ultimate solution for Ethereum scaling. I look forward to the day when Bitcoin can also integrate zk-STARK technology through a soft fork, and I am working with many people in the ecosystem to achieve this goal.
Bitcoin Beyond Money
Money is constructed by society to fulfill specific social functions. As a social construct, the value of money depends on two factors: (1) it must operate in good faith and (2) society generally agrees that it has credibility.
Money may be the most prominent example of a social structure, but it is by no means the only one. In fact, there are many other systems, data sets, and programs that serve society and carry enormous value, all of which are based on a broad consensus of their credibility. For example, land, property, and car registries are social structures; elections and governance processes are social structures; marriage registries, social titles, religious titles, and academic titles are social structures. Even our personal reputations, such as credit histories and health records, are part of social structures.
Most social structures are managed by monopolistic entities and central agencies appointed by national governments or nation-states. This leads to the question I will ask at the end of this article: Can these social structures be implemented in a completely new way, the Satoshi way, which is based on the principles of universality, incentivized integrity, and public verifiability?
Catherine
Kikyo
Weatherly
Brian
Anais