Summary
Bitcoin is essentially a database that stores past updates to reproduce the current state of the database. The entire Bitcoin protocol is built around this database and the rules for what is considered a valid entry in the database. Proof-of-work is used to manage who can process updates to the database in a decentralized way. The peer-to-peer network exists to propagate proposed database update entries and finalized updates. Bitcoin script functions as an authorization mechanism for entries in the database. The value of Bitcoin as a form of money or means of payment is derived from its functioning as a database. People can freely compete within the consensus rules to write whatever they want to the database as long as they pay the costs required. Bitcoin is no different from any other database in terms of allowing or not allowing certain entries, but refusing entries that others find acceptable will cause a loss of consensus. Ultimately, Bitcoin operates on the principle of “pay to play.”
Key Points
1. Bitcoin is fundamentally a database: The entire Bitcoin protocol is built around the concept of a database. The blockchain serves as a database for storing past updates and reproducing the current state of the database. Understanding Bitcoin as a database is crucial in addressing issues such as valid entries, authentication mechanisms, and preventing database overload.
2. Proof-of-work ensures decentralized database updates: Proof-of-work (PoW) in the Bitcoin protocol allows for decentralized updates to the database. It allows anyone to process an update, ensuring consensus among users’ individual copies of the database. PoW adds a verifiable cost to updating the database, preventing centralized authority figures from solely handling updates.
3. Peer-to-peer network and Bitcoin script support the database: The peer-to-peer network architecture exists to propagate proposed database update entries (transactions) and finalized database updates (blocks). Nodes verify transactions to ensure their validity, and the difficulty target verification filters proposed updates. Bitcoin script, on the other hand, functions as an authorization mechanism for entries in the database, controlling and restricting who can write to it.
Overall, every aspect of Bitcoin revolves around maintaining a database and ensuring agreement on its current state. The properties that make Bitcoin valuable as a form of money are derived from how it functions as a database. While individuals can decide what they allow in their own copies of the database, consensus is necessary for a synchronized global virtual database.