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Author : Bitcoin.com
The new coin rewards nodes - aka Bitcoin miners - for expending their time, CPU and electricity to make the network possible. They can also be rewarded with transaction fees. Nakamoto envisions a limited number of coins to ever enter circulation, at which point miners can be incentivized solely by transaction fees that are inflation-free. New coins also incentivize nodes to play by the rules and remain honest. An attacker would have to expend a ton of resources to threaten the system, and getting rewarded by coins and transaction fees serve as a deterrent to such fraud. Mining gold requires labor, water and equipment and it’s an activity similar to Bitcoin mining. The miners of electronic coins process transactions, for which they are rewarded with new Bitcoins and/or transaction fees. Since a maximum of 21 million Bitcoins will ever be mined, the system can be free of inflation. Therefore, Bitcoin can serve as a sustainable store of value, similar to gold. Compare that to fiat currency, such as the U.S. dollar. Due to inflation, the dollar has devalued nearly 97 percent since 1913. Bitcoin’s incentive program is a mechanism that protects the peer-to-peer electronic payment system.
The issuance of new Bitcoin as well as transaction fees keep nodes honest. Because it wouldn’t be worth it to attack the very system that forms the foundation of their wealth. As the saying goes, you don’t bite the hand that feeds you. 7. Reclaiming Disk Space. To save disk space, Nakamoto says that nodes can discard data from old transactions, with only the root of the discarded transaction kept in the block’s hash. This enables the blockchain to remain intact, albeit with less data from old transactions. He briefly describes a process for compacting data. But with Moore’s Law, Nakamoto says that the future capacity of computer hardware should be sufficient to operate the network without miners having to worry about storage space. 8. Simplified Payment Verification. In this section, Nakamoto provides a technical explanation of how to verify payments without running a full network node. That requires getting the longest proof-of-work chain and checking if the network has accepted it. The verification is reliable as long as honest nodes control the network. But an attacker can create fraudulent transactions for as long as an attacker can overpower the network.
One defence against an attack is for network nodes to broadcast alerts when they detect an invalid block. Such an alert could prompt a user’s software to download the full block as well as alerted transactions in order to confirm the inconsistency. Nakamoto adds that businesses that receive frequent payments may want to consider operating their own nodes to achieve more independent security and quicker verification. There are non-Bitcoin blockchain protocols that large companies are applying outside finance. For example, a company can create an invite-only protocol that selects certain parties to participate in a private network of nodes. The point is, there are many ways to set up a blockchain network that follows a different set of rules for verification. Nakamoto describes one way to do so for a peer-to-peer payment system, but he says that businesses may want to adapt their processes based on their own unique circumstances.
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