What a week! The cryptosphere is buzzing. Did a single tweet from Elon Musk tanked Bitcoin’s price? Or did weak hands surrender their coins to strong hands at a discount? Even though Elon’s motives are in question, and probably have nothing to do with the environment, MicroStrategy’s CEO came to the rescue. In a recent tweetstorm, Michael Saylor explained to the world the wonders of Proof-Of-Work as a consensus mechanism.
Before we even start, let’s check Saylor’s credentials. According to Wikipedia, “He graduated from MIT in 1987, with a double major in aeronautics and astronautics; and science, technology, and society.” And this extremely qualified person states, “The Proof of Work architecture is a masterpiece of engineering that anchors the system to the real world, providing Seven Layers of Security.”
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Those layers are in these areas: Energy, Technology, Political, Financial, Mining, Spatial, and Temporal. And Taylor proceeds to break them down one by one. But before getting into it, let’s think about the phrase “Anchors the system to the real world.” How do Proof-Of-Stake coins relate to material reality? And if the thing that gives them value is not energy, what is? How are those coins valuable?
BTC price chart on FTX | Source: BTC/USDT on TradingView.com
Wasted Energy according to Saylor
What people like Elon and his bosses forget is that well-placed economic incentives are the gas that makes Bitcoin work. And there’s a huge incentive to move mining operations to places where energy is cheap. And energy costs less in places where it’s abundant, even wasted. Who better than Michael Saylor to explain this?
This is what happens when you act smarter than you are in a space full of the smartest people in the room Maher @billmaher
— Indiana Hodl (@IndianaHodl) May 9, 2021
The “Seven Layers of Security”
- Energy: “Miners can monetize any form of energy, anywhere on earth, in any quantity, at any time, at the highest price.” According to Saylor, energy providers around the globe will compete for those miner’s business. This is already happening. The system is slowly falling into place.
- Technology: If the market is demanding energy-efficient and clean energy mining hardware, there’s a huge incentive for manufacturers to provide them. And miners, “need to continually upgrade equipment to stay competitive, and this creates massive barriers to entry & exit, stabilizing the network while bringing Darwinian discipline & vitality.”
- Political: We already discussed geopolitical arbitrage when it comes to taxes, but, what about the mining business? Aren’t countries and states incentivized to bring a booming business to their shores? After all, “Miners represent the ultimate clean, high-tech exporter generating hard currency.”
- Financial: It’s no secret that Bitcoin is the best performing asset in the history of the planet. To say it’s an “attractive investment” is an understatement. That means “investors & their bankers are thus recruited as powerful political & financial allies” of miners because they’re the main clientele for their product.
- Mining: The miners themselves “become powerful advocates for the network,” with a “strong vested interests to defend” it. As this story unfolds, miners will become a dominant force in the world.
- Spatial: All of the factors above “drive geographic decentralization of the mining network.” That’s Bitcoin’s best defense against any attack, it’s everywhere and nowhere at the same time. Plus, the mining network is one step removed from the asset itself.
- Temporal: Breaking all of those layers of security will take an enormous effort, but, maybe more importantly, it’ll take time. According to Saylor, between two and four years. That makes, “any attack very difficult, expensive, slow, hard to conceal, unlikely to succeed, & allows time to react.”
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Conclusion and summary
We’re going to leave this section to Michael Saylor himself:
Summary: The #Bitcoin Proof of Work architecture anchors the crypto-asset network physically & politically to the firmament of reality, driving ferocious competition in the marketplace to decentralize, improve, & secure the network, thus assuring vitality & integrity over time.
— Michael Saylor (@michael_saylor) May 13, 2021
Photo by Bill Oxford on Unsplash - Charts by TradingView