This is an opinion piece by Darin Feinstein, co-founder and co-president of bitcoin mining company Core Scientific.
THE recent increase in trading volume on the bitcoin network has sparked conversations and debates about increased transaction fees and the overall goals and purpose of bitcoin. This has raised questions about the future of the network and its ability to handle growing demand.
In answering these questions, it may be helpful to look at the intricacies of Bitcoin’s transaction volume through an accounting lens, because the Bitcoin network, at its foundation, is a ledger with its data written to a public string and saved forever. Through this lens, we will delve into the importance of Bitcoin’s trading volume, how often such increases will occur, and whether or not this growth is sustainable.
Bitcoin’s Accounting Innovation
As an accounting ledger, Bitcoin represents the first true accounting innovation in over 700 yearsmarking a transition between legacy, controlled by stakeholders, privateone-to-one double-entry accounting systems audiencetriple entry system.
“Triple entry” simply means that two-party transactions (debit and credit) are written to an immutable public 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 (aliases, servers, and nodes) that run a difficulty-adjusted proof-of-work (PoW). Bitcoin uses PoW to justify entries, instead of relying on stakeholders who may be biased or incentivized to commit fraud or manipulate ledgers. This means that miners and nodes control the network in an unbiased, non-manipulative 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 subject to human error, fraud, censorship, and manipulation.
Until Bitcoin, every government, every bank, and every business on earth used double-entry private accounting systems that were 100% controlled by stakeholders. This means that stakeholders can modify the books and records of all these legacy systems in secret, away from public view. In order to catch fraud, corruption or even error, the entire stakeholder-controlled system – including every transaction going back to its root – should be audited. This process is time-consuming, complicated and tedious, and like all legacy systems, audits are conducted by humans, which further exposes the audit system to fraud, corruption and error.
Bitcoin solves this in three ways:
- By transforming private registers into public registers
- By removing stakeholder control and using difficulty-adjusted PoW to record transactions
- By eliminating the need for human auditing as the network self-audits the time chain, each block
Altogether, this creates the first unalterable record of human history.
Accounting for the truth with bitcoin
Accounting can simply be seen as verifying the veracity of the data involved. The role of accounting is to ensure that the data presented to you is true. And accounting has never been more important in society than it is today, because the truth is under constant attack in all areas. All systems rely on accounting, and the massive 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, aggregate the truth, and then broadcast the truth if all the records are corrupted by humans?
Because the Bitcoin Ledger is public, self-auditing, and immutable, it cannot be corrupted or modified by any human. Never before in the history of record keeping could you rely on a ledger to be 100% truthful, until the invention of Bitcoin.
If you are a member of a stakeholder-dominated legacy business that relies on legacy accounting and you have historically been able to manipulate the truth through control of ledgers, a Bitcoin Ledger is fatal.
In terms of controlling information on the records, at the top of the food chain are totalitarian governments that want to control the truth. Bitcoin is decimating these systems because the government, as key stakeholders, no longer has control over the information/data. This is why Bitcoin is often referred to as a “Trojan horse”. At first glance, it is presented as a money-based technology, but digging deeper, Bitcoin represents a new accounting technology that will provide greater freedom for people within the borders of each nation.
When you give people immutable data that cannot be captured, you give them freedom in the form of property rights, hard/sustainable money, truth, control, and so much more.
Bitcoin will be the ledger of choice for everything
The somewhat abbreviated way of explaining the “why” that motivates people to choose Bitcoin for transacting is that the underlying ledger controlling the data is the best ledger system ever invented, free from fraud, scrutiny and manipulation, and offering freedom to those who use it. .
Simply put: if you care about the data you want to record, you have an incentive to choose the only registry in human history that will record it for eternity free from human manipulation.
If you believe that an immutable, unalterable ledger is superior to legacy, modifiable and stakeholder ledgers, intuition suggests that all data will eventually be stored on the Bitcoin network, from wills and trusts to corporate data, climate data, vaccine data, title/ownership data, etc. The list of possibilities is endless.
All businesses, all governments and all banks rely on records. Almost every industry has made groundbreaking discoveries and inventions since their inception, except accounting. After 700 years, triple entry systems have just been invented (double entry was invented for good in the 1400s), and the reluctance of legacy stakeholders to accept an analog system moving to an unalterable digital system must be challenged.
Ordinals are just the beginning
Ordinals and NFTs are important to some people. The beauty of a free system is that everyone has the opportunity to pursue what is of value to them. If you think they have zero value, you don’t have to engage with them, but bitcoin as a free market won’t censor some trades because others don’t like them. The network will always allow innovation and free choice. Those who want to pay the appropriate fees 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 enough to be written to chain.
Since all data will want to be saved on this network, this won’t be the first or the last time there will be a wait to save your transaction. For small transactions, there are layer 2 solutions, such as the Lightning Network, which live on top of Bitcoin and can be used immediately. Ordinals and NFTs may all disappear in the future, and trading volume may decrease, but they will eventually be replaced by other projects that also want to use this ledger, the cycle will repeat itself regardless of the product or data.
Since bitcoin innovation is the removal of the requirement to trust stakeholders, anyone who advocates censoring content on the bitcoin network is inherently anti-bitcoin or doesn’t understand bitcoin. Those who seek to exploit control and power over the Bitcoin network are the exact problem that Bitcoin solves.
As the world realizes that the only way to preserve truth (meaning data and information) is on the Bitcoin network, traffic will increase. This increase in traffic creates a robust atmosphere for entrepreneurs to build on the Bitcoin network and a variety of products and services will emerge that aggregate content and write over the Bitcoin base layer.
The Fear, Uncertainty and Doubt (FUD) of Bitcoin is propagated by those who are challenged or fearful of this technology – understanding this network is no small task, it takes thousands of hours. Anyone who claims to understand Bitcoin after a cursory examination is either lying or ignorant. Similarly, FUD transaction fees are generated by people who argue on both sides that there are both too few transactions to support the network and too many transactions to support the network.
The truth is that the network is working as expected, and a full mempool that requires free market discovery to assess trades is inevitable and therefore expected.
Accounting is the operating system that runs the world. All systems and information must be honestly recorded, analyzed and then honestly distributed in order to make sense of the data. Historically, records have been protected by physical human violence, meaning that anyone with a monopoly on violence (i.e. governments) can alter records and/or its distribution.
Recording the truth on the Bitcoin Ledger is the only way to record data that doesn’t rely on human violence to protect or release it, for the first time in history.
This is a guest post by Darin Feinstein. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.