Overview

The global financial crisis of 2008 catalyzed the creation of Bitcoin. The crisis showed the weaknesses of the old banking system. It emphasized the need for a new decentralized and transparent financial system.

That is why Satoshi Nakamoto created Bitcoin. He wanted a decentralized, peer-to-peer electronic cash system to stop the concentration of power and control by one entity. It would empower individuals by giving them control over their money. They would be free from government and bank interference. As stated in the Bitcoin whitepaper, "Traditional currency has a big flaw. It needs a lot of trust to work." The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust."

In 2009, Satoshi Nakamoto created the first decentralized currency. He combined established tools for managing ownership using public key cryptography with a consensus algorithm. This algorithm tracks coin ownership. It's called "proof-of-work (PoW)." This mechanism was a breakthrough in space because it simultaneously solve two problems: it provided a simple and moderately effective consensus algorithm, allowing nodes to agree on updates to the Bitcoin ledger, and it provided a mechanism for free entry into the consensus process, preventing Sybil attacks by substituting a formal barrier to participation with an economic barrier. The weight of a node in the consensus voting process is directly proportional to the computing power it brings.

Over the years, Bitcoin's blockspace has become more valuable. This is due to its success in achieving decentralization and security. However, its slow transactions and high costs have always been a major barrier to its expansion.

Layer 2 solutions were created to address these limitations, offering scalability and cost-effectiveness by handling transactions off the main blockchain and reducing congestion and fees. Cryptographic techniques like zero-knowledge proofs enable scaling by bundling and verifying multiple transactions off-chain, and then submitting a single proof to the main chain. This approach achieves large scalability improvements. It keeps the security and trustlessness of the blockchain.

The industry continues to innovate beyond Layer 2 solutions, exploring further potential with Biturbo.