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Almost everyone who has heard of cryptocurrency has heard of bitcoin, which is undoubtedly the most well-known cryptocurrency in the world. It is also the most valuable in the world, with an all-time high price of almost $70,000.
Despite its almost a decade of existence and several accomplishments, some criticise bitcoin as an overhyped fad or a token that is neither efficient nor technically valuable. However, this could not be further from the truth, as bitcoin is a flawless cryptocurrency and a blueprint for others to follow in terms of technical terminology.
The Bitcoin Network SetUp
The bitcoin network is a classic example of why bitcoin is a token to look up to. With any network, especially one that is decentralised, it is critical to ensure that all parties are not acting in a way that puts the network at risk for others. And in an ecosystem like bitcoin, where the native token is worth so much money, it’s possible that people will desire to do so.
But, because bitcoin is based on a proof-of-work method, it avoids all of this. A proof-of-work system requires users to complete a certain task (mining) in order to be rewarded (tokens, in this case). Mining is extremely essential in the realm of bitcoin because it is the method by which transactions on the network are validated as well as the method by which new coins are introduced.
It’s also a testament to how well the Bitcoin network is put up because the system demands all parties to follow the rules, or the system would crash/collapse, and everyone would lose. To begin, people who validate transactions are rewarded with bitcoin tokens, which are delivered in exchange for mining a block of bitcoin.
They also get a cut of the mining fees from all of the transactions that happen on the network. These incentivise people not only to complete the activities required for the proof-of-work but also to avoid attacking the network because they directly benefit from it. They would need a majority of the network’s computational power in the form of a 51 percent strike to even carry out a substantial attack on the network.
First, due to the enormous magnitude of the Bitcoin network, any single person or organisation would require an absurd quantity of mining equipment, which they are unlikely to ever obtain. Even if they did, the quantity of energy they would require would be enormous. Even if they were to succeed in hacking the network, the value of bitcoin would fall, rendering their ill-gotten earnings nearly worthless.
The Bitcoin system is a great example of how game theory may be applied. Game theory is a mathematical model that analyses interactions between two or more players in which all players’ actions determine the situation’s outcome.
The world’s economic systems are, in many ways, a type of game theory. In the end, the acts we all take affect us all, but as we can all see, this system is dysfunctional. With the insertion of a newspaper headline in the Genesis block of the Bitcoin network, Satoshi Nakamoto, the mystery founder of Bitcoin, appeared to critique the system.
It’s no wonder, then, that Bitcoin was designed as a network that collapses on itself if anyone tries to sabotage it, giving everyone an incentive to safeguard it as much as possible, both the powerful validators and the rest of the users.
As cryptocurrency enters a new era of development, blockchains must learn from Bitcoin’s model, which has kept it stable and efficient for years. It is also a model for a future economic system in which everyone has a vested interest in adhering to and maintaining the system’s rules.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.