Worst Bitcoin Explanation

The Explanation

Taken from this article (Wayback machine link in case the live link stops working). Quoting:

Let’s see how Bitcoin cryptocurrency actually works. Bitcoin is an encrypted, public, shared form of money generated by a longer Blockchain code. Blockchain is a set of collective records, also known as Ledger, which stores cryptocurrency transactional records as we do in Excel spreadsheets.

Bitcoin’s model is to store transaction data on volunteer computers for transaction verification. A volunteer computer runs software to verify transactions made under certain rules that involve mutual agreement between both parties, and the buyer has enough money in his Bitcoin wallet.

The volunteers are known as Miners. Miners are rewarded for their hardware and the energy that computers consume by kickbacks. These kickbacks are in the form of cryptocurrency.

Bitcoins don’t rely on single computer verification. If the system gets enough verified results from different Miners then the transaction joins the recent transaction of the world as “Block”.

The math required for the transaction requires so much computing power that it cannot be validated by a single computer or group of users, which prevents the system from generating fake currency.

Bit mining requires dedicated machines.

This whole process requires dedicated hardware and consumes a lot of power. In addition, more cooling systems are needed to keep the temperature of the machine low for complicated mathematical processes.

What’s wrong with it?

This explanation is bad on many levels. It’s poorly written and contains many false claims. There’s quite a lot to unpack:

On the ecological impact of Bitcoin

This “how bitcoin works” explanation was written in the context of Bill Gates stating he was concerned about Bitcoin’s ecological impact. While this is the worst Bitcoin explanation I’ve ever read, I don’t want to ignore the larger point of the article. Bitcoin in its current form is harmful for the planet because of the enormous amount of energy consumed by Proof-of-Work. I tend to agree with this, and would like to see blockchain networks move towards Proof-of-Stake (PoS) systems, where validators acquire voting power based on a pool of money locked as part of the protocol (their “stake”). Modern networks are mostly using PoS. Ethereum is also moving to PoS (see this to get started!). Bitcoin should also move to Proof-of-Stake, although I’m not optimistic given how conservative the Bitcoin community is.