WEB3CO2

Frequently Asked Questions

What is Blockchain Technology?

Blockchain technology is a decentralized digital ledger system. It records transactions across multiple computers in a way that ensures the integrity and security of the data. Each “block” in the blockchain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. The decentralized nature of blockchain makes it resistant to modification of the data; it is “distributed” as there is no central point of control. Originally developed as the accounting method for Bitcoin, blockchain technology has evolved to support a variety of applications across different industries.

Bitcoin Core (BTC) is the first and most well-known cryptocurrency, created by an unknown person (or group of people) using the pseudonym Satoshi Nakamoto. It was introduced in a 2008 white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” Bitcoin Core operates on a blockchain, serving as a decentralized ledger for all transactions. BTC is known for its pioneering use of a consensus mechanism called Proof of Work (PoW), which involves miners solving complex mathematical puzzles to validate transactions and create new blocks. This process, while energy-intensive, secures the network and prevents fraud. BTC is often viewed as a store of value and a digital alternative to traditional currencies.

Bitcoin SV (BSV) stands for Bitcoin Satoshi Vision. It was created following a hard fork from Bitcoin Cash (BCH), which itself had forked from the original Bitcoin (BTC) blockchain. The primary motive behind the creation of BSV in 2018 was to restore the original Bitcoin protocol and design as envisioned by Satoshi Nakamoto, with an emphasis on scalability and stability. BSV developers aimed to enable the blockchain to handle larger volumes of transactions, envisioning it as not just a currency but also a global enterprise blockchain. BSV maintains a larger block size compared to BTC, which is fundamental to its design philosophy.

The key differences between BTC and BSV include:

  • Block Size: BTC has a block size limit of 1MB, which constrains the number of transactions it can process per block. BSV, on the other hand, has significantly increased its block size limit to accommodate more transactions. This larger block size is central to BSV’s design philosophy.
  • Transaction Speed and Capacity: Due to its larger block size, BSV can process more transactions per block compared to BTC. This results in higher transaction throughput and potentially lower transaction fees on the BSV network.
  • Use Cases: BTC is primarily seen as a digital store of value and is often compared to gold. BSV, with its larger block sizes, is positioned for a wider range of use cases, including enterprise applications and microtransactions.

Block size in a blockchain is crucial because it directly impacts transaction processing and network throughput. A larger block size allows more transactions to be included in each block, which can increase the transaction processing capacity of the network. This is particularly important for scalability; as more users join the network, the ability to process a larger number of transactions quickly and efficiently becomes critical.

Proof of Work (PoW) is a consensus mechanism used in blockchain technology to validate transactions and create new blocks. It involves solving complex cryptographic puzzles, requiring computational power and energy. Miners compete to solve these puzzles, and the first to succeed validates the block of transactions and adds it to the blockchain. Both Bitcoin Core (BTC) and Bitcoin SV (BSV) use PoW, but BSV’s approach, advocating larger blocks, aims to optimize the use of PoW. By processing more transactions in each block, BSV seeks to increase the efficiency of the energy expended in mining, aligning with Satoshi Nakamoto’s original vision for Bitcoin as a global payment system.

In blockchain technology, mining is the process of validating new transactions and recording them on the blockchain. Miners use specialized hardware to solve complex cryptographic puzzles. Successful miners add a new block to the blockchain and are rewarded with newly minted coins and transaction fees. This process secures the network by ensuring that only valid transactions are recorded. In the context of BSV, mining is seen not just as a means to earn rewards but also as a crucial component of a broader, scalable network that can handle vast amounts of transactions, supporting Satoshi’s vision of a global ledger.

Block size directly impacts the energy efficiency of blockchain networks. Larger blocks, as advocated by BSV, can include more transactions, potentially making each transaction more energy-efficient. By consolidating more transactions into a single block, the energy expended in the mining process is distributed over a larger number of transactions, potentially reducing the energy cost per transaction. This is seen as a way to optimize energy usage compared to networks with smaller blocks, like BTC, where the energy cost is spread over fewer transactions.

Transaction fees in blockchain networks are charges paid by users to have their transactions processed and included in a block. In BTC, the limited block size can lead to higher transaction fees, especially during times of network congestion. In contrast, BSV’s larger block size allows more transactions per block, which can keep transaction fees lower, even as the network scales. This is particularly advantageous for microtransactions and everyday use, aligning with BSV’s goal of becoming a global transactional currency.

Larger block sizes in BSV are central to its scalability strategy. By removing the block size cap, BSV aims to process a significantly higher volume of transactions, addressing a key limitation in BTC’s design. This approach supports greater scalability, allowing the network to handle increased transaction volume without significant increases in fees or transaction confirmation times. The scalability offered by larger blocks is seen as crucial for enabling BSV to function not just as a digital currency but also as a backbone for various large-scale enterprise applications, fulfilling the original Bitcoin vision of a peer-to-peer electronic cash system.

The environmental impacts of BTC and BSV mining are primarily centered around energy consumption and the resulting carbon footprint. Both use the energy-intensive Proof of Work (PoW) mechanism, but the efficiency and environmental impact differ due to their approach to block size and transaction processing.

  • BTC: Due to its smaller block size limit (1MB), the Bitcoin network often experiences congestion, leading to fewer transactions processed per block. The energy used to mine each block, therefore, is spread over fewer transactions, which could be seen as less energy-efficient.
  • BSV: Advocating larger block sizes, BSV aims to process more transactions in each block. This approach potentially improves energy efficiency by spreading the high energy cost of mining across a larger number of transactions, reducing the energy expenditure per transaction.

The overall environmental impact depends on the source of the electricity used for mining operations. Renewable energy sources can mitigate the carbon footprint, while reliance on fossil fuels exacerbates it.

BSV’s approach of larger block sizes contributes to its energy efficiency by allowing more transactions to be processed in a single block. This means the computational power and energy expended in mining a block are utilized more effectively, accommodating a larger number of transactions. As a result, the energy cost per transaction is potentially lower compared to networks with smaller blocks, assuming the total energy used for mining a block remains constant. This approach is viewed as a more sustainable use of resources, aligning with the vision of a scalable and efficient blockchain network.

  • BTC Miners: They face diminishing block rewards due to the halving events, and their income increasingly depends on transaction fees. With the block size capped, the number of transactions per block is limited, which could lead to higher fees but may also limit the number of total transactions processed.
  • BSV Miners: The larger block size allows for more transactions per block, which could result in lower transaction fees but a higher volume of transactions. This could mean a more steady income stream from transaction fees, even as block rewards decrease.

Both networks face the challenge of maintaining miner profitability as block rewards diminish, but their different approaches to block size and transaction fees will likely result in different economic dynamics for miners.

  • BTC: Due to its smaller block size, BTC can become congested during high transaction periods. This leads to slower transaction processing times and higher fees, as users bid to have their transactions included in the next block.
  • BSV: With its larger block size, BSV is designed to handle a larger number of transactions, aiming to avoid the levels of congestion seen in BTC. This could lead to more consistent transaction processing times and potentially lower fees during high-traffic periods.
  • BTC: Future developments may focus on off-chain solutions like the Lightning Network to improve transaction throughput and scalability. Enhancements in network efficiency and adoption of more eco-friendly mining practices could also be areas of focus.
  • BSV: Anticipated developments include further scaling initiatives to support enterprise applications and large-scale global payment systems. There might also be a continued emphasis on regulatory compliance and building applications that leverage BSV’s large block size.

Both BTC and BSV will likely continue to evolve technologically, but their core philosophical differences will shape their respective paths, particularly in scalability and transaction processing efficiency.

Understanding the Evolution of Bitcoin

Tracing the Path from White Paper to Diverse Protocols

The inception of Bitcoin in 2008 revolutionized the concept of currency, introducing the world to the possibility of a decentralized, digital form of money. Its journey from a white paper to the various forms of cryptocurrency we have today is not just a tale of technological advancement, but also one

Why This Matters: Understanding the divergent paths taken by BTC, BCH, and BSV is crucial for anyone involved in the cryptocurrency space. Each fork represents a different philosophy and approach to solving the fundamental issues of digital currency: scalability, security, and decentralization. By studying these evolutions, investors, developers, and enthusiasts can gain a comprehensive view of the cryptocurrency ecosystem and make informed decisions.

White Paper

The publication of Satoshi Nakamoto's white paper titled "Bitcoin: A Peer-to-Peer Electronic Cash System" laid the foundation for Bitcoin. It described a decentralized digital currency system without the need for a central authority.

Early Code

The Bitcoin network came into existence with Satoshi Nakamoto mining the genesis block (block number 0). The first version of the Bitcoin software was released, and the first units of the Bitcoin cryptocurrency were created.

BTC

Bitcoin Core integrated BIP65, which provided a new way to lock Bitcoin transactions until a future point in time. Segregated Witness (SegWit) was proposed to solve transaction malleability and to increase block capacity.

BCH

Bitcoin Cash was created as a hard fork of Bitcoin in response to debates over scalability and transaction fees. BCH increased the block size limit to 8 MB to allow more transactions to be processed.

BSV

Bitcoin SV (Satoshi Vision) forked from Bitcoin Cash with the goal of restoring the original Bitcoin protocol and further increasing the block size limit to 128 MB.

Replace By Fee

Replace by Fee is a Bitcoin protocol feature that offers users the flexibility to increase the fee on a transaction that is stuck in the mempool, ensuring that it is prioritized by miners and confirmed faster.

Child Pays for Parent

A method for transactions with low fees to be confirmed more quickly by paying higher fees in a subsequent transaction that depends on the first.

Ethereum (ETH)

Ethereum introduced a blockchain with a built-in fully fledged Turing-complete programming language, allowing users to create smart contracts and decentralized applications.

SEGWIT

Segregated Witness (SegWit) was an implemented protocol upgrade that effectively increased the block size limit on the blockchain by removing signature data from Bitcoin transactions.

Lightning

his is a "second-layer solution" on the Bitcoin blockchain that enables faster and cheaper transactions by allowing users to create payment channels between any two parties on that extra layer.

ABC

This refers to a faction of Bitcoin Cash that retained the original 32MB block size limit during the Bitcoin Cash blockchain split in 2018.

Wormhole

The Wormhole upgrade on Bitcoin Cash (BCH) introduced a protocol that enables the creation of smart contracts and the issuance of tokens on the BCH blockchain.

Hash War

During the BTC, BCH, and BSV hash war, factions within the Bitcoin community utilized their computational power in a contentious struggle to have their version of the blockchain recognized as the legitimate continuation of the Bitcoin Cash network after its split from Bitcoin, leading to the creation of Bitcoin SV as a separate entity. This battle for dominance was marked by intense mining efforts to accrue the longest chain and thus claim the mantle of the 'true' Bitcoin.

BIP65

BIP65, also known as the OP_CHECKLOCKTIMEVERIFY upgrade, introduced a consensus rule change to Bitcoin that allows a transaction output to be made unspendable until a specified point in the future, enhancing the blockchain's capabilities for complex smart contracts and payment channels.

Why not include Proof-of-Stake Protocols?

In the context of the WEB3CO2 Energy Index, Proof of Stake (PoS) is not included in our comparisons with Proof of Work (PoW) due to intrinsic differences in their fundamental blockchain principles. Our focus is on assessing the environmental impact of blockchain technologies, particularly those that align with core blockchain tenets like scaling and security. PoW, with its longstanding history of dependable performance and progressive improvements, stands out as a more robust framework. It offers a secure, reliable, and scalable foundation for blockchain networks, making it a more fitting subject for our in-depth energy consumption and efficiency analyses within the scope of our index.

Proof of Stake: Trading Security for a False Sense of Sustainability

  1. Compromised Security Model: PoS’s reliance on staked tokens for network security is seen as inherently less secure. The lack of substantial physical resources required to attack the network makes it more vulnerable to manipulation by wealthy stakeholders.

  2. Centralization Risks: PoS can lead to wealth concentration, where the rich control significant network power due to their large token holdings. This centralization is antithetical to the foundational principles of blockchain technology.

  3. Scalability Misconceptions: The notion that PoS inherently scales better than PoW is challenged by proponents of PoW. They argue that PoW, especially in its advanced implementations, can match or exceed the scalability of PoS systems without compromising on security.

  4. Sustainability Questioned: While PoS is often touted for its low energy consumption, this comes at the cost of robust security mechanisms. The trade-off for energy efficiency is a network that’s potentially less secure and resilient, raising questions about its long-term viability.

Scalability in PoW has been demonstrably successful. Innovations in network and mining technology continue to enhance its capacity. The argument that PoW doesn’t scale overlooks these ongoing advancements and the potential for continued growth.