Translated by: Starknet Chinese Community

Abstract

Bitcoin's innovation core lies in broadness (decentralization), incentive integrity, and public verifiability

The challenges and opportunities faced by Bitcoin

I hope that one day Bitcoin can integrate zk-STARK technology through soft fork

Bitcoin has different meanings to different people. I want to share with you what Bitcoin means to me and explain what I think is the core innovation of Satoshi Nakamoto. First of all, I want to make it clear that the true essence of Bitcoin’s innovation is not cryptography, the Internet or computer technology. These emerging technologies are just means to achieve their goals. What Satoshi Nakamoto truly innovated is one of the most important inventions of mankind: social structure.

Social structures require integrity and consensus

"Integrity: Do the right thing even when no one is watching."

— C.S. Louis

When social structures are mentioned, friendships, cultural traditions, or social media that are popular today may come to mind. However, people often ignore that currency 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 is entirely dependent on everyone's common recognition that currency should "operate like currency." Therefore, to understand the nature of money as a social structure, we need to clarify two issues: one is what currency means to "operate like currency", and the other is why everyone needs to reach a consensus on this.

People have some basic expectations for money: they cannot print money indefinitely; the currency you hold will not disappear or increase for no reason; you can use your own currency freely, etc. These characteristics constitute what I call the inherent integrity of the currency. In other words, the nature of money determines that even if you don't monitor it at all times, it will still function as you expected.

However, the inherent integrity of a currency is only one aspect. On the other hand, currency also requires credibility (i.e. perceived integrity), that is, broad consensus on its integrity must be reached across the society, otherwise the currency will not be able to maintain its value. For example, if there is a rumor in society that banks will force assets to be frozen, it will seriously damage the credibility of the currency. Even if the rumors are false, the currency may start to depreciate.

In short, the value of a currency depends on its inherent integrity and credibility. Any structure whose value is entirely based on inner integrity and credibility is a social structure. Money is the most incumbent and influential form of social structure (other forms will be discussed at the end of this article).

Human society has been constantly inventing and redefining currency. The easiest way is to select a homogeneous and scarce physical resource to act as currency. In my elementary school years, this physical resource was chewing gum wrapper. In prisons, cigarettes were once currency; in some societies, shells, salt and stones; until the eve of modern times, the role of currency was played by gold. But nowadays, currencies are mostly digitalized and their scarcity depends on endorsement, and the power to manage such resources is entrusted to a few specific companies (i.e. banks). To a large extent, the value of a currency depends on how trust we trust the integrity of the monetary system and its mechanisms.

Bitcoin is a completely new way to realize the social structure of monetary. Its innovation is not about the use of computer and Internet technology, but about how it uses the Internet to realize the social structure of currency. Specifically, Bitcoin follows three unprecedented principles: (1) broadness (i.e. decentralization), (2) incentive integrity, and (3) public verifiability. We will explain these principles separately next.

Broadness (decentralization)

Bitcoin is defined by a protocol that is a set of programs run by numerous computers connected through the Internet. Traditional currencies also rely on protocols (such as SWIFT systems), but the difference between Bitcoin is that its protocol invites everyone to participate in the operation of the system as an equal capacity. Each of us is free to download open source software that defines Bitcoin miners, participate in creating new blocks through our own computers, and update the Bitcoin ledger status (i.e. who owns how many Bitcoins). In addition, extensive participation is not just for convenience, but the security, integrity and value of Bitcoin are directly related to the breadth of its operating nodes. The more people participate in mining, the safer the Bitcoin network will be and the more trust the public will trust it with integrity.

In contrast, traditional banking systems do not welcome us to participate in their operations. At best, we can only understand the situation of our account within an extremely limited range. "Broadness" is a real innovation in the history of human society, built on the principles of equality, autonomy and democracy, and these are the cornerstones of a free society. "Broadness" echoes the ancient and fascinating concept of direct democracy, but goes further than it. Here, we are not only invited to vote and express our opinions, but also equally granted the right to operate. It’s no coincidence that Bitcoin was born after the 2008 financial crisis. The crisis at that time brought about quantitative easing (i.e. unlimited printing of money) and bailouts for "big but not falling" banks. With the increase in the number of unbanked populations around the world and the gradual penetration of large-scale monitoring into our daily financial transactions, the continued development of Bitcoin is a direct response to this situation. In other words, the emergence of Bitcoin is a resistance and response to the continuous erosion of the credibility and inner integrity of the traditional financial system.

Incentive Integrity

Bitcoin mining is profitable—you will receive a Bitcoin reward whenever you successfully mine a new block, and this process is open to everyone! This is perhaps the most wonderful and amazing part of Satoshi Nakamoto’s invention. Bitcoin protocolThe method of economic incentives (i.e., payment of rewards) encourages participants to complete certain specific behaviors (create effective blocks) and ensures the integrity of the system. This method incentivizes and forces all miners to "do the right thing" when unsupervised. If you deviate from the "right track" (i.e., the Bitcoin protocol), you will face economic losses because the power costs used to mine invalid blocks are wasted, and you will not be able to get any bitcoin in return. Cleverly, the value miners get is not worth US dollars or euros, but paid in the form of Bitcoin itself. As a social structure, Bitcoin can only maintain its value if the public trusts it with integrity. This creates a virtuous cycle: miners are motivated to operate honestly without coordinating with each other, because violating the agreement is a foolish thing - the Bitcoin you earn hard-earned will depreciate and eventually you will suffer the consequences.

We might as well compare this principle of "incentive integrity" with the traditional monetary system again. In the traditional system, we are not invited to participate in the operation of banks (the bank lacks breadth), and those entities that truly participate in the operation of banks will not equally obtain corresponding direct value returns by maintaining the integrity of banks or currencies. Instead, banks either hire service providers to operate the system. The integrity of the system does not rely on the incentives of the agreement, but is guaranteed through the contract and legal system.

Imagine a world where banks provide equity (shares of banks) or income (part of bank fees) to a wide and open operating network; open access to citizens to participate in the operation of their own monetary system and reward their contributions with newly issued currencies. I believe this is a better and more democratic way of money. I believe that adopting this higher standard will have more autonomous citizens and a more vigorous and free society. Perhaps one day, inspired by the "Bitcoin" invented by Satoshi Nakamoto, each will move towards this more ideal system. But at least today, this has not become a reality - and if one day society can really make this leap, it will be entirely attributed to Satoshi Nakamoto's invention.

Public Verification

The third and last core part of Satoshi Nakamoto’s innovation is the public Verification. This means that anyone can verify the complete integrity of Bitcoin, including all transaction records since the birth of the Genesis Block in 2008. More importantly, verifying this doesn’t require a supercomputer, it only takes a laptop to do it! This also means that I can use this laptop that is typing right now to verify the latest block of Bitcoin in real time, and personally participate in this broad and democratic integrity and the social consensus it depends on. As long as someone tries to undermine Bitcoin’s integrity (i.e., network integrity), we will all know.

It is necessary to compare it with the traditional payment network here. In traditional systems, centralized institutions (such as banks, credit card companies, etc.) rely on huge computing nodes to process transactions. And we're ordinaryThere is no way for users to directly verify the integrity of the system. Even if we can obtain some kind of viewing permission, the huge amount of computing is never possible on an ordinary laptop.

Bitcoin Innovation - Challenges and Opportunities

Let’s summarize it. Bitcoin’s innovation lies in re-implementing the ancient social structure of currency in a completely new way. This new way of implementation uses new technologies such as the Internet and popular low-cost computer equipment, but its innovation core lies in establishing the social structure of the currency on three new principles: broadness, incentive integrity and open verifiability.

The sustainability of broadness?

Broadness is the most vulnerable and worrying feature in Bitcoin, and it is also the attribute I worry the most. Creating a new Bitcoin block requires a lot of power or depends on great luck. Obviously luck is uncontrollable, so we can only focus on the power issue. Imagine a dystopian future where the operation of the Bitcoin network—especially the large amount of power consumption used to protect network security—is completely controlled by a single or a handful of powerful entities (such as large enterprises). This worrying future is not out of reach for two reasons: (1) The economies of scale may give large operators more advantages and gradually control a larger proportion of computing power (i.e. Bitcoin’s power consumption); (2) As Bitcoin becomes increasingly important in our lives and economy, powerful forces such as large enterprises will inevitably try to control Bitcoin. If this happens, that is, Bitcoin mining is controlled by a single entity or a few collaborative entities, the consensus around Bitcoin integrity will be weakened. These consensuses include, for example, their censorship resistance, no entry threshold, no issuance cap of 21 million pieces, and payment mechanisms that do not require reporting additional information to centralized institutions. Once these core principles are eroded, Bitcoin will lose its value as a result.

The widespreadness of Bitcoin is not naturally guaranteed by Satoshi Nakamoto's invention. Maintaining this feature is a protracted war that all those who care about Bitcoin’s value and mission must participate in. Even if the breadth is destined to exist in a short time, the spirit of freedom it exhibits will become a beacon in the long river of history, like the short-lived but brilliant ancient Greek democratic system, continuing to illuminate and inspire all those who care about human freedom.

Bitcoin's global scalability

The public verifiability feature is expensive for Bitcoin. To ensure that transaction verification can be done through common devices, we must limit the amount of computation required to verify Bitcoin transactions. It is precisely based on the principle of "public verifiability" that Bitcoin's processing power is limited to up to about 10 transactions (10 TPS) per second. This situation poses a huge limitation on Bitcoin’s throughput and also partly explains why only a very small number of people around the world use Bitcoin for daily shopping. Simply put, the current Bitcoin network lacks enough bandwidth to support everyone in using Bitcoin to complete daily transactions. To achieve this, we need a thousand per secondBitcoin network with tens of thousands or even millions of transactions.

So, we seem to be in a dilemma - either insist on the public verifiability of Bitcoin, but therefore limited by low bandwidth, unable to meet the needs of global use; or improve scalability so that everyone can use Bitcoin to buy daily necessities, but with it the loss of transaction transparency, because ordinary devices can no longer easily verify all data, and we have to rely on those powerful centralized institutions again. And this is where mathematics and cryptography come into play.

Payment Channel and Lightning Network are an outstanding cryptography solution applied on Bitcoin since March 2018. It extends Bitcoin’s throughput capabilities to nearly unlimited levels by allowing both parties to settle directly. This situation is a bit similar to the grocery store allowing customers to pay on credit and settle it at one time at the end of the month, except that the entire process requires almost no trust assumptions, and the Bitcoin network itself serves as the arbitrator in case one of the parties tries to cheat.

But this plan has two main disadvantages:

Inefficient funding. Both grocery stores and customers must pre-lock a sum of funds at the beginning of the month, and the locked amount often needs to be higher than the customer's monthly consumption budget in order to successfully complete the payment process;

Continuous monitoring is required. Both parties must always pay attention to their payment channel status. Once one party fails to monitor it in time, the other party may use this gap to steal funds.

Although a single modification of the Bitcoin protocol is required (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 what drives me to devote myself to blockchain work every day. The zk-STARK protocol was invented with others 15 years ago, when I was a full-time professor of theoretical computer science. This protocol allows us all to verify all of Bitcoin’s blockchains on smartphones, even its million-fold data volume, without trusting any third party responsible for handling Bitcoin transactions. This plan completely solves the two major shortcomings of the Lightning Network mentioned above. This solution is financially efficient and no longer requires users to be vigilant at all times. I first introduced this breakthrough blockchain technology at the 2013 Bitcoin Conference and co-founded StarkWare in 2018 to promote the actual implementation of the technology. Since then, with the growing zero-knowledge research ecosystem, we have successfully built zk-STARK technology as the ultimate solution for Ethereum expansion. I look forward to one day Bitcoin will also integrate zk-STARK technology through soft forks, and I am working on it with many people in the ecosystem.

Bitcoin beyond currency

Currency is constructed through society to meet specific social functions. As a social structure, monetary value depends on two factors: (1) It must operate in an honest manner; (2) The society generally agrees with its publicTrustworthiness.

Money is perhaps the most typical example of social structure, but it is by no means the only one. In fact, there are many other systems, data sets and programs that also serve society and carry huge value, all based on the broad consensus of society on its credibility. For example, the registration system for land, real estate and automobiles is a social structure; the election and governance process is a social structure; the marriage registration system, social titles, titles and academic titles are also social structures. Even our personal reputations, such as credit history and health records, are part of the social structure.

Most social structures are managed by or appointed monopoly entities and central agencies. This leads to a question I will raise at the end of this article: Can these social structures be realized in a completely new way, namely Satoshi Nakamoto’s way? This method is based on three principles: broadness, motivational integrity and public verifiability.