This is an op-ed by Darren Feinstein, co-founder and co-president of Bitcoin mining company Core Scientific.
the Recent rise in transaction volume On the Bitcoin network he sparked conversation and discussions about rising transaction fees and Bitcoin’s general aims and purpose. This has led to questions regarding the future of the network and its ability to handle the growing demand.
In response to these questions, it may be helpful to look at the complexities of Bitcoin’s transaction volume through an accounting lens, since the Bitcoin network is, at its core, an accounting ledger with its data written to a public chain and recorded forever. Through this lens, we will delve into why Bitcoin transaction volume matters, how often such increases will occur and whether or not such growth is sustainable.
Accounting Innovation for Bitcoin
As an accounting ledger, Bitcoin represents the world’s first true accounting innovation More than 700 years oldrepresenting a transmission of inheritance, controlled by stakeholders, privatedouble-entry accounting systems to a generalTriple entry system.
Triple Entry simply means that the transactions between the two parties (debit and credit) are written into the immutable public ledger (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 removing stakeholders (humans) in exchange for the machines (aka servers and nodes) running PoW. Bitcoin uses proof-of-work to prove entries, rather than relying on stakeholders who may be biased or incentivized to commit fraud or manipulate the ledgers. This means that miners and nodes control the network in an unbiased and tamper-free environment, not humans.
In contrast, all legacy accounting technologies relied on trusted third parties, known as “stakeholders”. The fatal problem with a stakeholder-controlled system is that humans are flawed, and ledgers are vulnerable to human error, fraud, censorship, and manipulation.
Until Bitcoin, every government, every bank, and every company on earth used private, double-entry accounting systems in which stakeholders controlled 100%. This means that stakeholders can change the books and records of all these legacy systems in secret, out of the public eye. In order to detect fraud, corruption, or even error, the entire system that stakeholders control must be audited — including every transaction that is traced back to its root. This process is time-consuming, complex, and cumbersome, and like all legacy systems, audits are performed by humans, further exposing the audit system to fraud, corruption, and error.
Bitcoin solves this in three ways:
- By converting private ledgers into public ledgers
- By removing stakeholder control and using proof-of-work modified by the degree of difficulty to record transactions
- By eliminating the need for human auditing as the network self-audits the time chain, every block
Altogether, this created the first immutable ledger in human history.
Accounting for the truth with Bitcoin
Accounting can be viewed simply as validating the data involved. The role of accounting is to make sure that the data that is shown to you is correct. Accounting has never been more important in society than it is today, where truth is under constant attack in every arena. All systems are based on accounting, and the vast amount of information available makes it difficult to discern the truth.
Truth is the most important commodity on planet Earth. How do you record the truth, collect the truth, and then publish the truth if all records are corruptible by humans?
Because the Bitcoin ledger is public, self-auditing, and immutable, no one can destroy or alter it. Never in the history of record keeping have you relied on a ledger to be 100% honest, until the invention of bitcoin.
If you are a member of a legacy, stakeholder-dominated corporation that relies on legacy accounting, and have historically been able to manipulate reality by controlling the ledgers, then the Bitcoin ledger is a killer.
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 a major stakeholder, no longer controls the information/data. This is why Bitcoin is often referred to as a “Trojan Horse”. On the face of it, it is presented as a money-based technology, but upon diving deeper, Bitcoin represents a new accounting technology that will provide more freedom to people within the borders of every country.
When you give people immutable data that cannot be taken over, you give them freedom in the form of property rights, sound/hard money, truth, control and much more.
Bitcoin will be the preferred ledger for everything
The fairly short way to explain “why” people are motivated to choose Bitcoin to transact with is that the underlying ledger that controls the data is the best ledger system ever invented, free from fraud, control and manipulation, and offering freedom to whoever uses it.
Simply put: if you value the data you wish to record, you are motivated to choose the only ledger in human history that will record it forever without being subjected to human manipulation.
If you believe that the immutable ledger is superior to the old and mutable ledgers, the hunch is that eventually all data will be recorded on the Bitcoin network, from wills and trusts, to company data, to climate data, to vaccine data, to Ownership/ownership data etc. 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, with the exception of accounting. 700 years later, triple entry systems (double entry It was invented in earnest in the fifteenth century AD), and the reluctance of the old stakeholders to accept an analog system transitioning to an immutable digital system must be called into question.
Ordinal is just the beginning
Ordinal values 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 think they have zero value, you don’t have to deal with them, but Bitcoin as a free market will not censor certain transactions because others don’t value them. The network will always allow innovation and free choice. Those who wish to pay the appropriate fee can register Ordinals or NFT transactions on the Bitcoin network. The Bitcoin mempool in the future will always have a base layer of transactions waiting for fees to drop low enough to be written to the chain.
Since all data wants to be recorded on this network, this won’t be the first or last time your transaction is waiting to be recorded. For smaller transactions, there are Layer 2 solutions, such as the Lightning Network, that live on top of Bitcoin and can be used immediately. All ordinal and NFTs may disappear in the future, transaction volume may dwindle, but eventually they will be replaced by other projects that similarly want to use this ledger, and the cycle will repeat regardless of product or data.
Since the innovation of Bitcoin is to remove the requirement to trust stakeholders, anyone who advocates censorship of Bitcoin network content is inherently anti-Bitcoin or does not understand Bitcoin. Those seeking to exploit the control and control of the Bitcoin network are exactly the problem that Bitcoin solves.
As the world realizes that the only way to preserve the truth (i.e. data and information) is through the Bitcoin network, traffic will increase. This increased traffic creates a strong atmosphere for entrepreneurs to build on top of the Bitcoin network and a variety of products and services that aggregate content and write to the Bitcoin core layer will emerge.
Bitcoin Fear, Uncertainty and Doubt (FUD) is spread by those who are challenged or afraid of this technology – understanding this network is no small task, it takes thousands of hours. Anyone who says they understand bitcoin after a cursory examination is either a liar or an ignoramus. Similarly, FUD transaction fees are generated by people arguing on both sides, that there are too few transactions to support the network as well as too many transactions to support the network.
The fact is that the network works as intended, and it is inevitable that there will be a full memory pool that requires free market discovery for transaction pricing, and is therefore intentional.
Accounting is the operating system that runs the world. All systems and information must be recorded, honestly analyzed, and then faithfully distributed in order to understand the data. Historically, ledgers have been protected by physical human violence, meaning that whoever has a monopoly on violence (also known as governments) can alter and/or distribute the records.
Recording the truth in the Bitcoin ledger is the only way to record data that does not rely on human violence to protect or publish it, for the first time in history.
This is a guest post from Darren Feinstein. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.