This is an opinion editorial by Darin Feinstein, the co-founder and co-chairman of Bitcoin mining firm Core Scientific.
The recent surge in transaction volume on the Bitcoin network has sparked conversation and debate about inflated transaction fees and the overall purpose and purpose of Bitcoin. This has resulted in questions about the future of the network and its ability to handle increased demand.
In response to these questions, it is helpful to consider the intricacies of Bitcoin’s transaction volume through an accounting lens, since the Bitcoin network is, at its foundation, an accounting ledger with data written to a public chain and recorded forever. Through this lens, we will examine why Bitcoin transaction volume is important, how often such surges occur and whether or not this growth is sustainable.
The Accounting Innovation In Bitcoin
As an accounting ledger, Bitcoin represents the first true accounting innovation in over 700 years, marking a transition from legacy, stakeholder-controlled, privatelydouble-entry accounting systems to a publictriple-entry system.
“Triple entry” simply means that two party transactions (debit and credit) are written into a public, immutable ledger (the third entry). “Public” means that the ledger can be accessed at any time by anyone on the Bitcoin network.
The accounting innovation here is simply the removal of stakeholders (people) in place of machines (aka, servers and nodes) running difficulty-adjusted proof of work (PoW). Bitcoin uses PoW to verify entries, rather than relying on stakeholders who may be biased or motivated to commit fraud or manipulate the ledgers. This means that miners and nodes control the network in an impartial, manipulation-free environment, not humans.
In contrast, all legacy accounting technology relies on trusted third parties, known as “stakeholders.” The fatal problem with a stakeholder-controlled system is that humans are fallible, and ledgers are subject to human error, fraud, censorship and manipulation.
Until Bitcoin, every government, every bank, and every corporation in the world used a private, double-entry accounting system that was controlled 100% by stakeholders. This means that those concerned can change the books and records of all these heritage systems in secret, away from the public eye. To catch fraud, corruption or even error, the entire system controlled by the stakeholder — including every transaction traced back to its root — must be audited. This process is time-consuming, complex and cumbersome, and like all legacy systems, audits are performed by humans, which further exposes the audit system to fraud, corruption and error.
Bitcoin solves this in three ways:
- By turning private ledgers into public ledgers
- By removing stakeholder control and using difficulty adjusted PoW to record transactions
- By eliminating the need for a human audit as the network audits itself on the timechain, every block
Overall, it created the first immutable ledger in human history.
Accounting For Truth With Bitcoin
Accounting can only be viewed as verifying the truth of the data involved. The role of accounting is to ensure that the data shown to you is true. And accounting has never been more important to society than it is today, because the truth is under constant attack in every arena. All systems rely on accounting, and the abundance of available information makes it difficult to discern the truth.
Truth is the most important thing on planet earth. How do you record the truth, gather the truth and then spread the truth when all the records are corrupted by the people?
Because the Bitcoin ledger is public, self-auditing and immutable, it cannot be corrupted or altered by any person. Never in the history of record keeping could you trust a ledger to be 100% authentic, until the invention of Bitcoin.
If you’re a member of a legacy, stakeholder-dominated business that relies on legacy accounting, and you’ve historically been able to manipulate the truth by controlling ledgers, a Bitcoin ledger is fatal.
In terms of who controls the information in the ledgers, at the top of the food chain are totalitarian governments that want to control the truth. Bitcoin eliminates these systems because the government, as the main stakeholders, no longer has control over the information/data. That’s why Bitcoin is often called the “Trojan horse.” On its face, it is presented as a technology based on money, but diving deeper, Bitcoin represents a new accounting technology that will give more freedom to people within the borders of each country.
When you give people immutable data that cannot be taken away, you give them freedom in the form of property rights, good/hard money, truth, control and more.
Bitcoin Will Be The Ledger Of Choice For Everyone
A fairly abbreviated way of explaining the “why” that drives people to choose Bitcoin to transact is that the underlying ledger that controls the data is the best ledger system ever invented, no cheating, control and manipulation, and gives freedom to those who use it. .
Simply put: If you value the data you want to record, you will be motivated to choose the only ledger in human history that will record it forever without human influence.
If you believe that an immutable immutable ledger is superior to the legacy, mutable, stakeholder ledger, intuition suggests that all data will eventually be recorded on the Bitcoin network, from wills and trusts, to to corporate data, to climate data, to vaccine data, to title / ownership data and more. The list of possibilities is endless.
All businesses, governments, and banks rely on ledgers. Almost all industries have made groundbreaking discoveries and inventions since their inception, except accounting. After 700 years, the triple-entry system has just been invented (double entry was invented well into the 1400s), and the legacy stakeholder’s reluctance to accept an analog system moving to digital, will not change. system should be questioned.
Ordinals Are Just the Beginning
Ordinals and NFTs are important to some people. The beauty of a free system is that everyone has the choice to pursue what is of value to them. If you believe they have zero value, you shouldn’t associate with them, but Bitcoin as a free market will not censor some transactions because others have no value to them. The network will always allow for innovation and free choice. Those willing to pay the appropriate fee can record Ordinal or NFT transactions on the Bitcoin network. The Bitcoin mempool of the future will always have a base layer of transactions waiting for fees to drop low enough to be written on the chain.
Since all data wants to be recorded in this network, this will not be the first or the last time you will have to wait to record your transaction. For smaller transactions, there are Layer 2 solutions, such as the Lightning Network, which live on top of Bitcoin and are available immediately. Ordinals and NFTs may disappear in the future, and the transaction volume may decrease, but eventually they will be replaced by other projects that equally want to use this ledger, the cycle will repeat itself regardless of the product or data.
Since Bitcoin’s innovation is removing the need for trust among stakeholders, anyone who advocates censorship of Bitcoin network content is inherently anti-Bitcoin or doesn’t understand Bitcoin. Those seeking to exploit the control and power of the Bitcoin network is the exact problem that Bitcoin solves.
As the world realizes that the only way to preserve the truth (ie, data and information) is in the Bitcoin network, traffic will increase. This additional traffic creates a strong atmosphere for entrepreneurs to build on top of the Bitcoin network and a variety of products and services that come out aggregate content and write to the Bitcoin base layer.
Fear, uncertainty and doubt in Bitcoin (FUD) are spread by those who are challenged or afraid of this technology – understanding this network is not a small task, it takes thousands of hours. Anyone who says they understand Bitcoin after a brief review is either lying or ignorant. Similarly, transaction fee FUD is generated by people arguing on both sides, with too few transactions to support the network as well as too many transactions to support the network.
The reality is that the network works as intended, and a full mempool that requires free market discovery of price transactions is inevitable and thus, intended.
Accounting is the operating system that runs the world. All systems and information must be faithfully recorded, analyzed and then truly distributed to make sense of the data. Historically, ledgers were protected by physical human violence, meaning that anyone with a monopoly on violence (aka, governments) could change the records and/or their distribution.
Recording the truth in the Bitcoin ledger is the only way to record data that does not rely on human violence to protect or disseminate it, for the first time in history.
This is a guest post by Darin Feinstein. The opinions expressed are their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.