Bitcoin Design

The groundbreaking innovation in Bitcoin is that it removed the need to trust a third party to be able to transfer the digital asset.

How this was achieved is really of historical relevance for humanity, and involves a computer network keeping track of all transactions, where all network nodes stand on equal footing and no single node has more power over the other nodes.

All nodes host an instance of the database (called blockchain for the way it stores data in time-stamped blocks), and the "true" database is the one that most nodes have. There can be other databases but they are ignored if they differ from the database most nodes agree upon.

It is a system where one node has one vote. But the system is not enforced by an agreement among people. Every node votes by expending an amount of energy. This is called proof of work mining. The proof of work changes the focus from human laws and agreements, to the laws of nature, which have no exceptions for anybody.

If voting was related to fiat money, some actors can produce such money out of nowhere, and the system will be biased. But voting through energy is something technically impossible to counterfeit for any particular person or group, even with the power they have gathered through history.

In order to be truly decentralized the system has to be self-sufficient, self-sustainable, and to pay itself for all the hardware, energy, and human operation of the network nodes.

The Bitcoin network rewards humans for maintaining it. Like flowers reward bees for pollinating plants, bitcoin has economic incentives attracting people to maintain bitcoin nodes.

All network nodes are engaged in trying to find the solution to a computational problem, and when a node finds a solution, it is rewarded with bitcoins by the network.