arcticorangutan on Nostr: Understanding Bitcoin's security Most people’s initial reaction to #Bitcoin is that ...
Understanding Bitcoin's security
Most people’s initial reaction to #Bitcoin is that it is obviously a scam, a ponzi scheme or a joke. My own reaction was not very different when I first heard about the technology while studying in Cambridge in 2013. Needless to say I didn’t pay attention to it again until late 2016.
I had moved to San Francisco and since then a couple of things had changed: I had started working and therefore had to start thinking more carefully about my investments. And in the aftermath of the financial crisis it became clear that our financial system was fundamentally broken beyond repair.
One obvious historical choice under such circumstances is gold, to which markets tend to have a love-hate relationship. It can be a decent store of value but it is an asset with no yield and as the last decade has shown, gold tends to be outperformed significantly by equities while the music is still playing.
Well in early 2017 another asset had started rallying: Bitcoin. And being in the bay area, I inevitably had to take another look. It immediately became clear to me that Bitcoin had a lot of the desirable properties of gold as an asset (scarcity, independence from central authority and fungibility). But not only did it have some additional benefits, but it also seemed to trade more like an option — with more volatility and therefore greater upside.
I started buying some just to dive deeper but still had my doubts. What if the network was attacked or hacked?
The most important moment in my Bitcoin journey, came one sunny afternoon when I visited some friends in their Mission district apartment. Over dinner we talked about Bitcoin and the future of Finance. And my doubts were eliminated one after another by a friend, who, being an authority in the field of artificial intelligence and blockchain technology, was able to convince me from first principles of the impenetrability of the Bitcoin network.
This conviction in the technological soundness is the key ingredient to being able to allocate confidently to Bitcoin and to “hodl” through its inevitable, breathtaking volatility.
Let me give you a couple of first principles examples to illustrate the power of the Bitcoin network:
Even with all the computational power in the world, it would take longer than the universe’s estimated lifespan (billions of years) to hack a single Bitcoin private key. Hyperscaler data centers are a drop in the bucket within this paradigm.
To launch a 51% attack on the Bitcoin protocol, you would need to control around 8 GW of power (and growing), costing approximately $36 Million of electricity per day. In addition to energy costs, the capital expenditure on mining hardware and the difficulty of acquiring and operating that much computational power make such an attack highly impractical.
Be safe out there!
Vincent van Gogh’s “Flowering plum orchard: after Hiroshige“ (1887)
Most people’s initial reaction to #Bitcoin is that it is obviously a scam, a ponzi scheme or a joke. My own reaction was not very different when I first heard about the technology while studying in Cambridge in 2013. Needless to say I didn’t pay attention to it again until late 2016.
I had moved to San Francisco and since then a couple of things had changed: I had started working and therefore had to start thinking more carefully about my investments. And in the aftermath of the financial crisis it became clear that our financial system was fundamentally broken beyond repair.
One obvious historical choice under such circumstances is gold, to which markets tend to have a love-hate relationship. It can be a decent store of value but it is an asset with no yield and as the last decade has shown, gold tends to be outperformed significantly by equities while the music is still playing.
Well in early 2017 another asset had started rallying: Bitcoin. And being in the bay area, I inevitably had to take another look. It immediately became clear to me that Bitcoin had a lot of the desirable properties of gold as an asset (scarcity, independence from central authority and fungibility). But not only did it have some additional benefits, but it also seemed to trade more like an option — with more volatility and therefore greater upside.
I started buying some just to dive deeper but still had my doubts. What if the network was attacked or hacked?
The most important moment in my Bitcoin journey, came one sunny afternoon when I visited some friends in their Mission district apartment. Over dinner we talked about Bitcoin and the future of Finance. And my doubts were eliminated one after another by a friend, who, being an authority in the field of artificial intelligence and blockchain technology, was able to convince me from first principles of the impenetrability of the Bitcoin network.
This conviction in the technological soundness is the key ingredient to being able to allocate confidently to Bitcoin and to “hodl” through its inevitable, breathtaking volatility.
Let me give you a couple of first principles examples to illustrate the power of the Bitcoin network:
Even with all the computational power in the world, it would take longer than the universe’s estimated lifespan (billions of years) to hack a single Bitcoin private key. Hyperscaler data centers are a drop in the bucket within this paradigm.
To launch a 51% attack on the Bitcoin protocol, you would need to control around 8 GW of power (and growing), costing approximately $36 Million of electricity per day. In addition to energy costs, the capital expenditure on mining hardware and the difficulty of acquiring and operating that much computational power make such an attack highly impractical.
Be safe out there!
Vincent van Gogh’s “Flowering plum orchard: after Hiroshige“ (1887)