In math we trust?
Updated: Jun 4, 2020
What is Bitcoin? You should probably read its white paper " A peer to peer electronic cash system". Or I can try to provide a very high level answer here for you in under 3 min. Bitcoin is a distributed public ledger secured by cryptography and game theory. Cryptography is math, or more precisely a mathematical puzzle. Game theory is the study of mathematical models of strategic interaction among rational decision-makers.
You have to solve the math in order to change this public ledger, AND you have to solve it faster than all the computing power that is dedicated to the Bitcoin network. That's because whoever solve it first gets a reward, and a new puzzle starts all over again. This is known as Bitcoin "mining". More on that later. Currently this computing power is around 105EH/s. EH/s is a measure of the number of attempts (hashes) made to solve the cryptography puzzle per second.
1 EH/s is 1,000,000,000,000,000,000 (one quintillion) hashes per second. The solution requires trial and error brute force guessing. There is no coincidence that no one has ever been able to out guess the Bitcoin network. This is a proven track record since its inception 11 years ago. But what if you have the majority of the hash power?
Bitcoin's market value is about USD175 billion at the time of writing. The cost of acquiring 1TH/s is about USD26. 1EH/s is 1,000,000 TH/s. 51% of the hash power would cost more than USD1.3 billion. If you have somehow managed to sunk in that much capital to own the majority of the hash power, would you want to crash the party by hacking the network? Bitcoin would be worthless. But so will be your USD1.3 billion purpose built ASCI machines. This is the game theory aspect of the Bitcoin network security. Furthermore, it is an open and dynamic system. Any participant can join and leave the network at any time. The system does not favor the incumbent. The participant is incentivised to work by the reward for solving each puzzle (block) and attached it to the previous solution (chained). This is in addition to the transaction fees paid by the users to include their transactions into the new block. There is also much to say about how the transactions are ordered and recorded (the UTXO ledger sets). And how the solution of the latest block is tied to the solution of previous block (why more block confirmation is more secure). Even more importantly, why the technology behind Bitcoin is set to transform the world. But I don't have the time to go into it. People write a whole book about these things. And you would not have the patience to stick around even if I did. Bottom line we are all lazy people. 3 min of attention is all we get. Nothing more.
The take away lesson is that Bitcoin in its essence is a very secure distributed public network. It is the start of the blockchain technology that has in recent years became a buzzword for hot and fast money. This is what we are interested in. And of course if the aggregated choice of the people can make the world a better place in the process. That too.
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