Why is Bitcoin the Ideal Example of a Cryptocurrency?
Almost everyone who has heard of cryptocurrency has heard of bitcoin, which is without a doubt the world’s most well-known cryptocurrency. With an all-time high price of about $70,000, it is also the most valuable in the world.
Some criticize bitcoin as an overhyped fad or a token that is neither efficient nor technically useful, despite its over a decade of existence and several successes. This could not be further from the truth, since bitcoin is a faultless cryptocurrency and a technical terminology model for others to follow.
The Bitcoin Network SetUp
The bitcoin network is a prime illustration of why bitcoin is seen as a valuable asset. It is vital to guarantee that no parties engage in a way that puts the network at danger for others in any network, especially one that is decentralized. It’s feasible that in an environment like bitcoin, where the native token is worth so much money, people will want to do so.
Bitcoin, on the other hand, avoids all of this since it is built on the proof-of-work technique. Users must execute a certain job (mining) in order to be paid in a proof-of-work system (tokens, in this case). Mining is incredibly important in the world of Bitcoin since it is the mechanism through which network transactions are confirmed as well as new currencies are introduced.
It’s also a tribute to how effectively the BTC network is set up, because the system requires everyone to obey the rules, or else the system would crash/collapse, and everyone will lose. To begin, those that validate transactions are given BTC tokens in return for mining a bitcoin block.
They also receive a portion of the mining fees from all transactions on the network. People are motivated not just to accomplish the proof-of-work tasks, but also to avoid attacking the network since they directly profit from it. To even carry out a significant attack on the network, they’d require a majority of the network’s processing capacity in the form of a 51 percent strike.
To begin with, owing to the massive size of the Bitcoin network, any one individual or organization would need a ridiculous amount of mining equipment, which they are unlikely to ever attain. Even if they did, the amount of energy they’d need would be massive.
Even if they were to breach the network, bitcoin’s value would plummet, rendering their ill-gotten gains essentially useless.
The Bitcoin system is an excellent illustration of how game theory may be used. Game theory is a mathematical model for analyzing interactions between two or more players in which the outcome of the scenario is determined by all of the players’ actions.
In many ways, the world’s economic systems are a sort of game theory. Finally, the actions we all take have an impact on us all, but as we can all see, this system is broken. Satoshi Nakamoto, the mysterious inventor of Bitcoin, appeared to criticize the system by inserting a newspaper headline into the Genesis block of the Bitcoin network.
It’s no surprise, therefore, that Bitcoin was intended as a network that collapses on itself if anyone tries to sabotage it, providing everyone, even the strong validators and the rest of the users, an incentive to protect it as much as possible.
Blockchains must learn from Bitcoin’s methodology, which has kept it stable and efficient for years as cryptocurrency enters a new age of development. It’s also a prototype for a future economic system in which everyone has a stake in following and preserving the rules.