This blog post is about the topic of Bitcoin. More specifically, why some Bitcoin enthusiasts share the opinion that Bitcoin is the clock of the digital world. The idea for this initially abstract topic came from GIGI’s article called: “Bitcoin is Time”. The block trainer and his team kindly translated it into German. In this post, you will find answers to the following questions: What is the importance of time and energy for Proof-of-Work (PoW)? What is the block time? Why is Bitcoin the clock of the digital world? Why does history remain immutable thanks to Bitcoin? Why does Bitcoin give people time?
Bitcoin: The importance of time and energy for proof-of-work.
An old saying goes, “Time is money”. Consequently, money is also time, or as GIGI writes in his article “Bitcoin is Time”: ” A representative representation of the collective economic energy stored by humanity.” In terms of our monetary system, however, this also means that if time = money, but money does not require time to be created, the math no longer adds up.
Rather, good money must involve a significant amount of time and effort. Even if energy will always be of value on this planet, it can be assumed that the increasingly rapid development of technologies will reduce the price of energy as soon as energy sources such as solar power become more efficient and less expensive.
This is exactly why the time component in creating scarcity or money weights higher than the energy spent on it. Because time is the only resource of which we cannot create more. Accordingly, time also has a greater value than money, as can be seen, for example, in the movie “Time” with Justin Timberlake.
In the world in which we live, we invest more and more time, for less and less money, or our money loses with continuous inflation increasingly in value. That means we live in an inflationary system. With Bitcoin, history is being rewritten and is massively different from what we have come to know in our world over the last 90 years – because Bitcoin has a deflationary effect.
To that end, let’s first clarify what deflation actually means and why it is neither good, nor bad. Deflation occurs when there are more goods and services on the market than there is demand, i.e. buyers. In deflation, the value of money increases. This can be positive for consumers, as long as the economic impact is not negative and in the course of this, wages and salaries do not fall with it, as productivity falls during deflation and this weakens economic growth. But what do Bitcoin, time and deflation have to do with each other? To do this, we must first clarify the term “block time” below.
What is block time?
Block time is the average time it takes miners on a blockchain network to aggregate and verify transactions in a block. The average block time for Bitcoin is approximately 10 minutes. The higher the block time, the lower the transaction speed. This time is continuously adjusted, as we already learned in our last Deep Talk “Mining” in the Difficulty section.
Bitcoin: The clock of the digital world
To be able to record information, e.g. transactions, we need a register. We know such a register e.g. from our account. There, our credit balance is continuously updated by the ongoing posting of debits and credits. Thereby we have to trust a central institution, that the information, which is shown there, is also transferred truthfully. At the same time, a timeline is needed to keep track of each transaction. This is where time comes into play. In order to prevent amounts from being spent twice, it must be possible to determine exactly when each transaction was carried out. In the words of Leslie Lamport, “The concept of time is fundamental to the way we think. It derives from the fundamental concept of the order in which events occur”
This is exactly where Satoshi Nakamoto found a solution, by Bitcoin reinventing time and agreeing on blocks. For example, in the 2009 Bitcoin Whitepaper, Satoshi Nakamoto wrote, “In this paper, we propose a solution to the double issue problem using a distributed peer-to-peer timestamp server to generate a computational proof of the temporal order of transactions.”
Thus, the timeline, or the blocks strung together, reflects the causal relationship of all transactions, and this is precisely why cryptographic hash functions are so essential in terms of timestamping to create a causal relationship between the transaction and the hash. This process creates a chain of events that is completely transparent, immutable, and protected from tampering.
Bitcoin: An immutable history
The basis of immutability is proof-of-work. But what does immutability have to do with time? And why is a history that cannot be tampered with or changed so important?
Until now, there has been no way to record a history securely from tampering and alteration. Because, as we have already learned, it is incredibly difficult and resource-intensive to change a transaction in the network once it has been secured by the proof-of-work.
History is therefore also nothing other than past time and the events of the past form the cornerstone for the events in the future! Thus, we can also say that Bitcoin stores the events of the past safely from manipulation and this past also has an influence on the future. In relation to the history we know that the oral passing on of information is extremely error-prone, also books or writings can be easily manipulated and falsified or even lost. The Bitcoin network could easily withstand a nuclear strike and would continue to function via alternative nodes. Theoretically, it is even possible to execute Bitcoin transactions over radio waves.
Immutability: a new era begins
In the words of A. Antonopoulos, “Nothing is as immutable as Bitcoin; Bitcoin at this point defines the end of that scale, it has redefined the term “immutable.”
When we think of immutability, we usually think of Bitcoin and the blockchain. Bitcoin’s blockchain is immutable because each block depends on the previous block, creating an immutable chain of blocks. If one were to attempt to change this chain, this attempt would be noticed by other network participants and this misbehavior would be punished. However, this assumption is wrong, because the blockchain itself only ensures that nothing can be changed. This process is also called “tamper-evident” and describes the state that something cannot be changed without another network participant noticing it or leaving a hint about the change.
What makes Bitcoin truly immutable is the proof-of-work
The proof-of-work serves the purpose of security, as we learned in the last Deep Talk on mining. This consensus mechanism validates new transactions and ensures that new blocks are added to the blockchain according to the consensus rules. Establishing this consensus requires hardware, software, but most importantly energy, money and time. All of this effort goes into creating a registry in terms of order and time. Leslie Lamport described this in his essay by saying, ” The concept of time is fundamental to our way of thinking. It derives from the fundamental concept of the order in which events occur.” In terms of Bitcoin, this means that a registry, a system needs to order all transactions in terms of the temporal component. This is because in order for the system to protect itself from “double-spending,” it must always know when a transaction was made in order to establish this order.
How does Bitcoin solve this problem of order?
The solution in Bitcoin is called block time and in this way, it creates its own clock – we go further and claim Bitcoin is a decentralized clock, or in the words of Satoshi Nakamoto: “In this paper, we propose a solution to the double-spending problem using a distributed peer-to-peer timestamp server to create an order of transactions.” Satoshi Nakamoto 2009
To understand the issue of Bitcoin and time, let’s briefly drift into physics and look at the concept of causality. Causality describes the relationship between cause and effect. Thus, within the blockchain (chain), a sequence of events is created and causally linked.
At this point, the role of a cryptographic hash function becomes clear, since it is impossible to generate a valid hash without having the document available. Why is this so? The reason is the causal relationship between the document and the hash to be generated. Thus, the sequence is generated from the existing data, i.e., the document and the hash to be generated subsequently.
Satoshi Nakamoto wrote in 2009, “We need a system that allows participants to agree on a single history….the solution we propose starts with a timestamp server.”
Only this concept makes it possible to add the component of time in a previously timeless space, cyberspace, in the form of a timestamp.
Why does Bitcoin give us time?
In the beginning, I addressed that money is time. We also know that time is arguably man’s most valuable resource, because we cannot create more time, nor do we know when it has expired. The current system forces us to invest more and more work, i.e. time, for money, which increasingly loses value and no longer fulfils the function of a store of value at all. As already mentioned, this is due to the fact that we live in an inflationary system, in which inflation is tolerated but can no longer be adequately combated today.