Bitcoin: It's all about the ledger

We hear a lot about Bitcoin’s “financial revolution,” but is it really? As Bitcoin creator Dr. Craig S. Wright has explained several times in the past, the laws and principles governing Bitcoin are already well established. The “revolution” is that someone finally found a way to apply new technologies to these old rules. Bitcoin’s blockchain is a supercharged accounting ledger, but at the end of the day it works much the same as any other ledger… at near-light speed and on a global scale.

There’s also been a lot of talk over the years about Bitcoin being “encrypted.” This probably stems from the use of the word “cryptocurrency” to describe blockchain assets, and the discussions about such a concept in cypherpunk circles over the decades (both before and after Bitcoin appeared).

It’s also misleading. Bitcoin uses a cryptographic algorithm to process transaction blocks, but the information contained in the transactions themselves is plain text, visible for all to see on the public ledger—that’s how you’re able to view transaction details on any block explorer.

About that ledger: it’s based on centuries-old accounting principles and double-entry bookkeeping. It’s a trusted and official record of all inputs and outputs, and all changes to the record are recorded.

A ledger should be a transparent, permanent and immutable record of events. There can’t be double-spending or copying of “coin” units. It provides privacy but not full anonymity, since that would break trust.

In Bitcoin since 2009 there have been thefts, frauds, scams, arguments, politics, and other shenanigans. But none of these things subverted the ledger itself, which exists to this day as a 12-year evidence trail of everything that happened—at least in terms of when changes were made in transactions on the blockchain.

That’s why Ethereum developers’ act of “rolling back the blockchain” in 2016 to undo a “theft” was particularly egregious. By altering the ledger itself, they undermined the very concept of what makes a blockchain ledger trustworthy. Essentially, they announced that they had a time machine and were prepared to use it to benefit a certain group of influential users. Ethereum should have failed at that point—the ETH unit value today is testimony to the case that no one really understands what blockchain is about, and digital assets are mainly casino tokens for price speculation.

It also demonstrated a major flaw in the “code is law” belief. Whatever the code does, somewhere out there is a human who writes (and can change) that code. Who or what governs the coders? And do blockchain protocol developers they have any fiduciary responsibilities or liability?

Rather than try to undo a theft by erasing history, there should be a broadcast message to all miners (transaction processors) to freeze transaction outputs (UTXOs) for the coins in question until they can be returned to their rightful/legal owner. The decision should be made by an authority with the jurisdiction to do so (e.g. a court), not protocol software developers. The blockchain would show what happened, when, and who did it. The change would be made, but there would still be a permanent record of it.

In this way, Bitcoin works just as accounting systems have worked for hundreds (or thousands) of years. In a paper accounting ledger, you can make and record a change, but you can’t simply rip out a page and pretend it was never there (official accounting books are physically bound in a way to show if someone attempted this).

Non-transaction data can be stored encrypted on the Bitcoin blockchain, to maintain control over the information’s ownership, access, and level of privacy. Bitcoin provides the “master ledger” of events and changes, and a means of identifying who made the changes—even if identifying transactors is only possible with extra effort and investigation.

Today’s internet (and digital technology in general) doesn’t do this job very well. It can send vast amounts of information anywhere in the world at close to the speed of light… but data is infinitely replicable and it’s easier to alter it at some point in the process. It’s still not as trustworthy as paper and ink in a bound book. Even where digital change logs exist, there have still been many successful attempts at fraud as experienced users learn how to manipulate the records and cover their tracks. Technology solved some old problems, but it also created new ones.

As Dr. Craig Wright wrote, even major corporate players in the technology world have struggled to solve this problem:

Some things changed with the advent of computerised ledger systems. Accounting databases became easy to copy and easy to alter. Although high-end specialist accounting systems, including Oracle-based solutions, allow organisations to ensure that such scenarios are not possible, many fraudulent organisations have found simple ways of bypassing controls using technology. Bitcoin can solve all of the prevalent issues.

Bitcoin also addresses one glaring issue with the trustworthy paper book ledger: many parties, distributed around the world, have an official and trusted copy of the blockchain. A single-copy, bound accounting ledger—no matter how trusted its information is—can still be misplaced, or lost in a fire.

Before Bitcoin, no one had managed to solve the problem of creating a digital, double-entry ledger that everyone could trust. In 2009, Satoshi Nakamoto showed the problem was solvable. In 2017 and ever since, Dr. Wright and BSV developers have proved that Bitcoin can also scale unbounded. This makes it a robust cash and record-keeping system the entire world can use.

All its records are secured by the processors’ proof-of-work (and the economic incentives that make them perform that work). BSV doesn’t require “second layers” for simple transactions, which occur off the main blockchain and therefore can’t be universally trusted. BSV’s protocol has shown it can handle massive data throughputs, while keeping user costs low. To date, no other blockchain has done all this—either they’re small and cheap/fast to use, or they’re popular and become congested and prohibitively expensive.

Bitcoin’s technology is new, but the principles are old. That’s the real revolution. There wasn’t any need to redefine law or break trust. Understanding this makes everything simpler.

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