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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 heightened transaction fees and Bitcoin’s overall goals and purpose. This has resulted in questions regarding the network’s future and its ability to handle the increasing demand.
In response to those questions, it can be helpful to consider the intricacies of Bitcoin’s transaction volume through an accounting lens, as the Bitcoin network, at its foundation, is an accounting ledger with its data written to a public chain and recorded forever. Through this lens, we’ll delve into why Bitcoin’s transaction volume matters, how often such surges will occur and whether or not this growth is sustainable.
The Accounting Innovation Of Bitcoin
As an accounting ledger, Bitcoin represents the first true accounting innovation in more than 700 years, marking a transition from the legacy, stakeholder-controlled, private, double-entry accounting systems to a public, triple-entry system.
“Triple entry” simply means that two-party transactions (debit and credit) are written to a public, immutable ledger (the third entry). “Public” means that the ledger is accessible at any time by anyone on the Bitcoin network.
The accounting innovation here is simply the removal of stakeholders (humans) in exchange for machines (aka, servers and nodes) that run difficulty-adjusted proof of work (PoW). Bitcoin uses PoW to substantiate the entries, instead of relying on stakeholders who may be biased or incentivized to commit fraud or manipulate the ledgers. This means that the miners and nodes control the network in an unbiased, free-from-manipulation environment, not humans.
In contrast, all legacy accounting technologies relied on trusted third parties, known as the “stakeholders.” The fatal problem with a stakeholder-controlled system is that humans are flawed, and the ledgers are subject to human error, fraud, censorship and manipulation.
Until Bitcoin, every government, every bank, and every corporation on earth has used private, double-entry accounting systems controlled 100% by the stakeholders. This means that the stakeholders can alter the books and records of all of these legacy systems in secret, away from the public eye. In order to catch fraud, corruption or even error, the entire stakeholder-controlled system — including every transaction traced back to its root — would need to be audited. This process is time consuming, complicated and cumbersome, and like all legacy systems, the audits are conducted by humans, further subjecting 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 self-audits the timechain, every block
Altogether, this creates the first unalterable ledger in human history.
Accounting For The Truth With Bitcoin
Accounting can be simply viewed as verifying the truth of the data involved. The role of accounting is to ensure that the data you are being shown is true. And accounting has never been more important in society than it is today, as truth is under constant attack in every arena. All systems rely on accounting, and the massive amount of available information makes discerning the truth difficult.
Truth is the most important commodity on the planet earth. How do you record the truth, aggregate the truth and then disseminate the truth if all the records are corruptible by humans?
Because the Bitcoin ledger is public, self-auditing and immutable, it cannot be corrupted or altered by any human. Never before in the history of record keeping could you rely on ledger to be 100% truthful, until the invention of Bitcoin.
If you are a member of a legacy, stakeholder-dominated business that relies on legacy accounting, and you have been historically able to manipulate the truth via control of the ledgers, a Bitcoin ledger is fatal.
In terms of who controls the information on ledgers, at the top of the food chain are totalitarian governments that want to control the truth. Bitcoin decimates these systems as the government, as key stakeholders, no longer has control of the information/data. That is why Bitcoin is often referred to as a “Trojan horse.” On its face, it’s presented as a technology based on money, but diving deeper, Bitcoin represents a new accounting technology that will provide increased freedom to the people within every nations’ borders.
When you give people immutable data that cannot be seized, you give them freedom in the form of property rights, sound/hard money, truth, control and much more.
Bitcoin Will Be The Ledger Of Choice For Everything
The somewhat abbreviated way of explaining the “why” motivating people to choose Bitcoin to transact on is that the underlying ledger controlling the data is the best ledger system ever invented, free from fraud, control and manipulation, and providing freedom to those who use it.
Simply put: If you value the data you wish to record, you are incentivized to choose the only ledger in human history that will record it for eternity without being subject to human manipulation.
If you believe that an immutable unalterable ledger is superior to legacy, alterable, stakeholder ledgers, intuition suggests that all data will eventually be recorded on the Bitcoin network, from wills and trust, to corporate data, to climate data, to vaccine data, to title/ownership data and so on. The list of possibilities is endless.
All businesses, governments, and banks rely on ledgers. Nearly all industries have made groundbreaking discoveries and inventions since their inception, except for accounting. After 700 years, triple-entry systems have just now been invented (double entry was invented in earnest in the 1400s), and legacy stakeholder hesitance to accept an analog system moving to a digital, unalterable 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 option to pursue what has value to them. If you believe they have zero value, you do not have to engage with them, but Bitcoin as a free market will not censor certain transactions because others do not value them. The network will always allow for innovation and free choice. Those who want to pay the appropriate fee can record Ordinals or NFT transactions on the Bitcoin network. The Bitcoin mempool in the future will always have a base layer of transactions waiting for the fees to drop low enough to be written on chain.
Since all data will want to be recorded on this network, this will not be the first or last time there is a wait to record your transaction. For smaller transactions, there are Layer 2 solutions, such as the Lightning Network, that live on top of Bitcoin and can be used immediately. Ordinals and NFTs all might go away in the future, and the transaction volume might wane, but eventually they will be replaced by other projects that similarly want to utilize this ledger, the cycle will repeat no matter what the product or data is.
Since the Bitcoin innovation is the removal of the requirement to trust the stakeholders, anyone who is advocating to censor the Bitcoin network’s content is inherently anti-Bitcoin or does not understand Bitcoin. Those who seek to exploit control and power over the Bitcoin network are the exact problem that Bitcoin solves for.
As the world realizes that the only way to preserve truth (i.e., data and information) is on the Bitcoin network, the traffic will increase. This increased traffic creates a robust atmosphere for entrepreneurs to build on top of the Bitcoin network and a variety of products and services will emerge that aggregate content and write to the Bitcoin base layer.
Bitcoin fear, uncertainty and doubt (FUD) is spread by those who are challenged or fear 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 lying or ignorant. Similarly, transaction fee FUD is generated by people arguing both sides, that there are both too few transactions to support the network as well as too many transactions to support the network.
The truth is that the network is working as intended, and a full mempool that requires free market discovery to price transactions is unavoidable and thus, intended.
Accounting is the operating system that runs the world. All systems and information need to be honestly recorded, analyzed and then truthfully distributed in order to make sense of the data. Historically, ledgers have been protected by physical human violence, which means whoever has the monopoly on violence (aka, governments) can alter the records and/or its distribution.
Recording truth on 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. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.