These are my notes of the sixth lecture from Coursera’s Bitcoin and Cryptocurrency Technologies during Dec 2016 – Feb 2017. This lecture seemed more like a teaser to the follow up lectures in that much of what was discussed was evaluating the phrase ” Bitcoin coin is decentralized”. What parts of bitcoin are actually decentralized and where are the limitations?
Questions answered in this Post:
- Where does decentralization currently?
- Why is centralization vs. decentralization more a spectrum as opposed to an “all of nothing”?
- When you think “bitcoin decentralized?”, what components support this thought and what go against this notion?
At this point, the last lecture made clear why centralization did not work for bitcoin. Do we really trust Scrooge? NO! His name is Scrooge…
Arvind goes into how bitcoin works with this decentralization. Decentralization is not all-or-nothing. Email is a decentralized protocol (SMTP) but has been dominated by centralized webmail services. Some examples would be like google/hotmail/yahoo.
Questions regarding the decentralization in Bitcoin?
- Who maintains the ledger?
- Who has authority over which transactions are valid?
- Who creates new bitcoins?
- Who determines how the rules of the system change?
- How do bitcoins acquire exchange value?
I’ll put in what my answers were prior to the lectures.
- Some majority of people on the network. When I say network, I guess there is a group of people (IP addresses/public keys) online who have copies of the ledger that they are constantly pinging out.
- This majority. Perhaps several people have to say yes this transaction is valid. Since these people are perhaps trusted in other networks then they can check the transactions.
- Miners create bitcoins. I’m not sure who they are or what they are doing besides running massive computations solving math puzzles.
- Same answer as number 1.
- Similar to any other traded security product.
Aspects of decentralization in Bitcoin
- Peer-to-peer network: open to anyone, low barrier to entry
- Bitcoin Mining: open to anyone, but inevitable concentration of power in the Bitcoin mining community
- Updates to the software: core developer trusted by the community have great power.
Bitcoin has a peer to peer network meaning that anyone can log on to start up a full node. Thus there is a low barrier to entry and is it open to anyone. While it is open to everyone, there is quite a bit of disc consumption required. This Bitcoin.com link from Feb 2017, indicated that one user calculated their cost to be approximately $20.00/month to run a node using AWS. Since I have never run a full Bitcoin node, I can neither confirm or deny this statement. Another reason it is decentralized in that anyone can mine bitcoin theoretically. However, if you don’t have special hardware and are not part of a mining pool, there is a low probability of success. Lastly was the point regarding updates to the software. This task falls on the core developers who are trusted and supported by the bitcoin community.