You may have heard of the heavy criticism against Bitcoin and its PoW  (Proof-Of-Work) consensus mechanism. All of a sudden, you have so called  "crypto-influencers" who probably just got into the cryptocurrency  space call Bitcoin out for being slow and energy inefficient. At the same time, they shill for another cryptocurrency that they have become a  die-hard supporter for. They say that Bitcoin "wastes a lot of energy"  and that it is "slow and not able to process large transaction volumes".  Well, I would be wrong to say that those statements are false. In fact,  they are  correct. Bitcoin, the first and therefore oldest blockchain in existence, has its limitations. It may be slow, but that doesn't mean it  isn't accomplishing its purpose, which founder Satoshi Nakamoto made  clear in the white paper back in October 2008. Bitcoin is a cryptographically secure P2P (Peer-to-Peer) payment system that runs on a  decentralized network. If that is hard to believe, I will explain why  that is the case.

Double Spend Problem

Prior  to Bitcoin, one problem that digital electronic payment systems faced  was what is called "double spending". In electronic systems, data can  easily be copied since it is now in digital format. Computers can  replicate information and transmit it across a distributed network. That  is why we can easily make a copy of digital files, quickly and then  save it anywhere we choose. The problem is that when you convert money  electronically, you can also save it and use it more than once. This is  the problem of "double spending", and it was an inherent flaw in  electronic payment systems since digital money can be duplicated and  falsified just like any other data file. If it is allowed to  proliferate, it leads to inflationary pressure because of the amount of  money in circulation that originally did not exist. This is like  counterfeiting with fiat currency.

To give an example of this,  let's say we have an electronic payment system called "ePayNow" that  uses a token named "eP". Alice wants to give Bob 5 eP as a payment for  some good he sold her. Alice then pays the amount according to the  computer. Now Alice decides to also use the same 5 eP as payment to  Carol to buy another item. In theory you are not supposed to be able to  spend the same currency by paying two different people the same 5 eP. In  electronic payment systems that is possible, unless you implement a  system of checks against it. In this case what is absent from the system  is cryptography to secure the transaction and a consensus mechanism to  verify it using a decentralized network of trustless nodes. This is what  you call a blockchain and it effectively resolves the problem with  double-spends. Now it is still possible to launch a double-spend attack,  but due to the blockchain, it makes it more difficult and costly to do  so.

Blockchain Saves The Day

Satoshi  Nakamoto made blockchain the hero when he implemented it for Bitcoin.  He was able to address the double-spending issue through the use of  cryptography and decentralization. Bitcoin uses game theory to achieve a  general agreement on the validity of a transaction, which are put into  blocks and verified by all the nodes participating in the network. In  the PoW consensus mechanism, nodes called "miners" compete to validate a  block by trying to solve difficult cryptographic puzzles. These nodes  provide their compute resources which require expending large amounts of  energy since it uses a lot of electricity in order to perform  calculations to solve the puzzles. The miner who gets the correct  answer, called the nonce, will validate the block and in return get an  incentive for it. The process is rather long to explain, but to it is  basically how transactions on a Bitcoin payment network are verified. A  seller cannot cheat the buyer by pretending they did not receive a  payment and vice versa. This is because the truth is recorded on the  blockchain database, and made immutable and transparent for all to see.  The blockchain acts as a public ledger that can corroborate Alice paid  Bob, and Bob received his payment. There is a consensus among trustless  nodes, who don't have to know each other. This helps to eliminate any  sort of collusion which is more likely to occur in trusted systems,  because it is centrally controlled. The blockchain was meant to be the  opposite, so that is where it builds the trust. In other words, every  party to a transaction must act in good faith or else there will be  consequences. If a bad actor tries to double spend, they will realize  that it costs more to attack the network so they would rather mine in  good faith. The transparency discourages dishonesty since it is made  available to the public and no one can tamper with the transaction once  it has been added to the blockchain. Thus, Bob cannot say that Alice  didn't pay him because if we use a block explorer it can track the  transaction to show proof of payment.

The Scalability Trilemma

The  blockchain sounded like the long awaited solution in financial  technology. Not so fast, let me now explain why it is not so.  Unfortunately, a blockchain faces what Ethereum founder and blockchain  enthusiast Vitalik Buterin calls the "Scalability Trilemma". This is  because there is a tradeoff that must be made in order to have a  blockchain. Ideally a blockchain has 3 important components which are:

- Security

- Decentralization

- Scalability

However, the problem here is that a blockchain can only have 2 out 3 of those features.

When you have more decentralization, you have greater security as well but you will have to sacrifice scalability.

When you have more centralization, you have scalability but at the cost of more security.

Decentralized  systems bring a more distributed architecture to the network. There is no single point of failure, thus it is more secure. If any node goes  down in the network, it does not affect the entire system. The system  can continue to function as a whole. Think of the Internet as a  decentralized network. When one server on the Internet is attacked,  there are still other servers that keep the network up and running. In a  blockchain, if a node that stores a transaction in a block is attacked, it does not matter. Other nodes store a copy of the block so it keeps  the network secured because now all the other nodes have to be attacked  as well. When you have thousands of nodes, it makes the task more  difficult since it requires more computing resources to accomplish. That  in effect is also costly and this can prove to be more expensive.  Despite this, the system is slow. This is like having too many cooks in  the kitchen having to agree on what to cook. In this case the more nodes you have, the more times you have to verify transactions and that slow  your system down.

In a centralized system you achieve scalability  faster because you don't require trustless nodes that duplicate the  same data. You have trusted nodes in which one server can quickly  perform a task. You process transactions faster and at scale because  since you have only one decision maker that is a trusted system.  Centralization means there is more control and cohesion. When verifying  transactions, a trusted system can do it right away because it doesn't  need to come to a consensus with other nodes. Each node is aware of what  it has to process without any objection. There is a single point of  failure however, so if the system is compromised then everyone who is a  part of the system will be affected as well. This is what happens with  traditional financial systems that are heavily centralized. Banks and  other financial institutions are fine examples of this. They can also  block transactions at anytime and ban users from their system because they control it.

It is nice to have all three components in a  blockchain, but it just seems to be impossible to do. There are proposed  scaling solutions but perhaps that is more on innovation. Going back to  the purpose of a blockchain, it seems that Bitcoin has been  accomplishing things all along. Since its genesis block in 2009, Bitcoin has been proving it is an example of a mature blockchain that has  withstood time and proven its value. So why is it slow, like the critics  say?

Slowly But Surely

There  is a story about the tortoise and the hare. The tortoise was slower  compared to the hare, so if the two were to race the result would be  predictable. However, the tortoise was also patient and no matter what  the hare did the tortoise kept moving along. The hare became  overconfident and thought a nap would be all right given that the  tortoise was just slow and unlikely to win. That is what critics think  about Bitcoin, slow and unlikely to scale. Bitcoin has proven that  slowly but surely is better than quickly but vaguely. The reason I say  that is because you can have a faster Bitcoin by redesigning the  protocols and changing the underlying foundations of the technology.  Once you do that though, you are also changing its purpose of being a  cryptographically secure payment system. This is because the whole  process of mining and confirmations appear to be slow and cumbersome, but it has kept transactions secured in their blocks. Modifying it just  so it becomes faster is not based on best practices because you don't  have any way of knowing whether it will be more secure when it comes to  the network. When the outcome is vague, you are better off with what  already works. It is slow, but it surely achieves its purpose. The  scaling issue is also being addressed by core developers working in the  Bitcoin community. What makes decentralization so great is that anyone  who wants to contribute is welcomed. You have a community that comes  together through their common interest to find ways of solving problems.

The scaling issue has proposed solutions like SegWit and the  Lightning Network. SegWit has already been implemented and the Lightning  Network has been undergoing many tests. While Bitcoin itself will  remain the same, the scaling solutions are meant to be be implemented  "off-chain" as "sidechains" so as not to require any major changes to  the fundamentals of the original Bitcoin protocol. Sidechains will still  have a Merkle root for provability that they are a part of the same  blockchain. Perhaps it is Bitcoin's own built-in protocols that help it  from getting overwhelmed. Bitcoin uses a difficulty target that  determines how quickly the nonce can be solved based on total hash power  in the network. The difficulty increases with the total amount of hash  power available on the network. That means the more miners there are,  the greater the hash power in the network, the more difficult it becomes  to solve the nonce. This was by design in order to achieve a fair way  to accomodate all miners in the network and keep the average block  propagation at an average of 1 block every 10 minutes. If there was no difficulty target, too many blocks will be mined and thus quickly  depleting the supply of BItcoin.

Renewable Energy Driven

On  a separate note, Bitcoin has been called energy inefficient or a power  hog that "wastes" electricity. This can further be explained in another  story, but to keep things short it is actually not the case. Most of the  world's energy consumption come from activities other than Bitcoin for a  fact. According to research Bitcoin consumes 0.5% of  global energy consumption. That is significant but it still falls behind other activities like manufacturing and mineral mining. Many  Bitcoin mining activities also occur in countries where the electricity  generated is from renewables like geothermal in Iceland and  hydro-electric in China. According to Coinshares, Bitcoin mining runs from 74.1% renewable sources, "making it more renewables-driven  than almost every other large-scale industry in the world." This study  at least takes into consideration that the bulk of Bitcoin mining does  not involve fossil fuels. It surely has an impact with the carbon  footprint still, and that cannot be denied.

It is actually not a  waste of energy like some critics would say. In economic terms, expending electricity is a requirement of the PoW consensus mechanism in  order to process blocks. That activity has value because it verifies transactions and secures it on the network. It is therefore not wasting energy in the sense that it is required in order to perform a function. It just so happens to be an inefficient method, but nonetheless it has  been working properly and will continue to do so until the last Bitcoin  has been mined. More can always be done to address the inefficiencies, but it does make economic sense why so much electricity is needed when it comes to mining.

Preserving The Foundations

The developers want to preserve what is already tried, tested and true. There have already been disagreements within the Bitcoin community in the past that have lead to schisms called "forks". The most significant one was the in 2017, when Bitcoin Cash (BCH) forked from Bitcoin. These  differences in ideas do affect the project, most definitely their  prices. The original Bitocin protocols remain solid. Though it maybe slow, it is still your best protection against hacking and network attacks.

written by Vince Tabora