Beyond the Hype: Principles of Bitcoin

09/19/2019 – Stefan Adolf

Where were you…

...when the crypto-currency rates exploded in late 2017? When the value of a single Bitcoin broke the $20,000 barrier? Do you remember the deep drop a few days later and the passing of the low in spring 2019? Did you perhaps invest money in "cryptotokens", discuss the ecological impact of Bitcoin mining with your circle of friends, place bets on ICOs and promising token ideas? And you also asked yourself again and again: does all this have any real benefit? Or were you on the other side and always dismissed the whole thing as anachronistic Tulip Onion Madness, triggered by a few neurotic visionaries from the Far East, always on the hunt for the next bigger untenable value promise, in order to pull money out of inexperienced investors' pockets?

No matter where you stand or have stood, the authoritative technology behind crypto currencies is anything but a meaningless invention by an unknown philanthropist with a Japanese fake name. The Blockchain and its variants are an invention that should not only be taken seriously, but also analyzed, evaluated and utilized. Quite apart from the fact that some people believe that the "Ledgers" distributed around the world can cause a lasting shake-up of the value system of Western democracies, it can be stated without bias: they enable a group of participants who do not know each other and therefore cannot trust each other with regard to their intentions to interact with each other by transferring monetary values or reaching long-term agreements. In the following, we want to introduce the technology and the thoughts behind Bitcoin, discuss its benefits, and show that it is more advanced and marketable than some people might think.

Money stems from truth

A currency is an instrument of trust: if you agree with a farmer to exchange an egg for a glass marble with you, the values "marble" and "egg" are convertible into each other. If someone now finds a way to make a lot of glass marbles very cheaply, the farmer will eventually ask for more than one marble for one egg. Perhaps the most grotesque version of such a monetary system is the one that weighs tons Rai-Stone Discs, which even today are still held by owners of real estate.

Glass marbles, stone discs and euro banknotes have no special value for most market participants themselves; they are only symbolic of eggs, cars and Netflix series that can be consumed with them. In an economic civilization, we depend on such symbols of trust in order to be able to transfer arbitrary values into each other, to trade and to make growth possible through lending and interest. Since the invention of money, banks and governments have had special roles to play: they create the rules for the currency, they guarantee the deposits of market participants with their names and assets, and they control the availability, interest and lending of money; in a sense, they are the origin from which the monetary system develops. They guarantee that you can expect a reasonably stable countervalue for a note with a printed number by setting the rules of the system. Since the 1970s, when the Bretton Woods System, according to which every US dollar had to be backed by a certain amount of gold, became self-defeating, all institutions that convert their money against the dollar have been able to create almost any new money they want, for example by lending it at a certain interest rate through their central banks. Such money is referred to in investor parlance as "Fiat" money, from the Latin "Let there be" (Genesis 1, §3).

As soon as you have agreed on a name for the currency (glass marble, Euro or Bitcoin), the way to one giral monetary system is not far away: You can entrust a bank with a hundred Euro note and the bank clerk will deposit in a book that you now have 100 Euro credit on your account. As soon as you want to exchange a part of your credit for another value, you tell the bank to which account you want to credit a certain amount, prove this to the recipient and can expect the corresponding consideration. If the recipient does not meet his or her paid obligations, you can use your account statement ordered from the bank to provide credible proof that the transaction took place at a certain time. The unrestricted flow of money, consisting of individual transactions, is the basis of every type of economic transaction; bank accounts serve as proof of intentions and performance.

The English word "currency" illustrates the meaning of money: Money is a transactional lubricant for controlling flows of goods, values and services. It has no standing value, but is merely a volatile tool for exchanging possessions and asserting claims. A side note: The term currency is much better than the German term "Währung", which was presumably borrowed from the "truth", but actually goes back to "Gewährleistung".

Trust and breach of trust

Money is so firmly anchored in our Western cultures that we hardly notice that trust in banks, money and government exists only in our heads. The banking and financial crisis has only passed most citizens by without leaving a trace because the ECB turned its enormous trust advantage into a flood of money to support the euro deposit system and since then has kept the economy running at minimum interest rates. But ask any expropriated homeowner in the American Midwest, a Lehmann banker or a former Deutsche Bank board member how they see it.

Unfair market participants ensure that traditional currency systems can be shaken; since the crisis, state and central banks as well as the International Monetary Fund have not tired of inventing new control instruments and installing them by law to impose rules on the global capital markets. As soon as system-relevant participants such as Italy, Venezuela, China or one Bayerische Immobilienbank start to ignore these rules for their own benefit, all efforts of the institutions to build trust are worthless. The system is on a knife edge, populists worldwide are undermining borrowed trust in the state, banks can hardly earn enough to guarantee their customers' deposits under the ongoing zero-interest policy; it is simply no longer worthwhile for them to lend money and certainly not to manage their customers' giro accounts.

The last chance for return: risky leverage bets on the future

In order to earn money with money at all, financial products with leverage effect are needed: futures, hedge funds, derivatives, options and bonds. Since I also find it difficult to understand them at first, I don't want to go too far into explaining how they work. But at the heart of all these ideas is the simple fact that you can make money by "betting" on the occurrence of an event.

A simple example: I bet you that a litre of premium petrol will cost two euros on 21 August 2021. I guarantee that I will sell you this litre of super petrol on that very date for exactly two euros and I fix our agreement on a piece of paper which I sell to you today for two euros. If the petrol costs 2.50 euros in two years, you will have won 0.50 euros, but if it costs only 1.50 euros, I will win 0.50 euros.

But instead of keeping the note, you can also sell it tomorrow for three euros to a pessimistic acquaintance, depending on what petrol price you read in your coffee grounds. The closer the deadline approaches, the more valuable or worthless the note becomes, depending on your point of view. If you had even made a commitment to me when you bought the note to buy the litre of premium petrol for that price, it could be a quite profitable or dangerous business for you, depending on the price of petrol. This kind of timed securitization of price bets** is a security called "futures" which is traded millions of times a day and is largely responsible for the fluctuations of the gasoline price at gas stations. The ratio between the traded value of the security and the real value of the underlying transaction is the "leverage" with which returns or losses are calculated.

Abseits der Frage, ob Sie diese Art von Geschäften für verwerflich halten und am liebsten gleich den modernen Kapitalismus abschaffen wollen, möchte ich Sie zu der Überlegung anregen, was an diesem Geschäft im Kern nicht stimmt. Zunächst einmal das Vertrauen: wissen Sie sicher, dass ich Ihnen 2021 den versprochenen Liter Superbenzin überhaupt aushändigen kann? Dann die Transparenz: der Marktteilnehmer, der Ihnen den Zettel für drei Euro abkauft, wird alles daran setzen, den Preis z.B. durch Verknappung, Zölle, üble Nachrede oder terroristische Anschläge auf 3,50 Euro zu treiben, ohne dass ich nachvollziehen kann, wer dafür verantwortlich ist.

Bank accounts are a concept for the privileged

A completely different problem with currencies and money arises when you live in a region where you cannot rely on a strong rule of law, institutions and governments. About 1.7 billion people on our planet have no access to a bank account - the absolute basis for building mutual trust in transactions If you think that even larger transactions could be handled with the help of glass marbles or cash, then ask a Colombian drug courier for his opinion.

At the same time, in failed states such as Venezuela the real threat of permanent monetary depreciation inflation is in the air. As soon as a state puts money into circulation without control or can no longer service its debts, its citizens and international partners suddenly lose confidence in the colorful paper it once called currency; in Venezuela the inflation rate in 2018 was therefore 130,000 percent (that's not a comma!) and neither the CIA nor the fluctuating oil price is to blame for this, but a massive, continuing loss of confidence of citizens in their institutions.

Bitcoin: a fair system of trust for a globally accepted currency

In 2009 a certain Satoshi Nakamoto (it's not public knowledge who that is exactly - possibly even a whole group of developers) came up with a brilliant idea. He created Bitcoin, a digital value symbol (the glass marble) that cannot be produced at will, and at the same time he invented a trustworthy, transparent accounting system that any number of participants can access both reading and writing simultaneously. Excitingly enough, the term "Blockchain" is not mentioned once in Nakamoto's legendary white paper.

The core of Satoshi's idea is a linear accounting system. But what would happen if we could all write in the same book at the same time, without control? Suppose I had a Bitcoin in my cash book and you wanted to sell me a used car for that Bitcoin; the moment you give me the key, I credit your account with my Bitcoin in our cash book. Since there is no central authority that could prevent me from doing so, just a moment later I credit the same Bitcoin to another participant, who puts a valuable Ming vase on my doorstep in return. Before you realize that my Bitcoin has become two, I'm already long gone with your car and the vase in the trunk. Preventing such "double donations" is the central problem that Blockchains solve.

What we need to be able to trust and control each other without any third party intervention is a system for error-free, unforgeable and unambiguous proof of my account balance and for processing transactions in a fixed time sequence. You must be 100% certain that I will have the amount requested when we complete our transaction. To establish this confidence, all Bitcoin participants must agree on the order and finality of transactions. This challenge, which is called "Byzantine fault-tolerance" or BFT for short, has been on the minds of information scientists since the 1970s - although I don't want to exclude the possibility that a few Byzantine generals were actually faced with the same problem half a millennium ago: how does an arbitrarily large group reach a consensus on the current truth when everyone knows that some of the participants in the group are playing a game and trying to enter false data to their advantage?

Bitcoin was the world's first approach to solve the BFT consensus problem with the help of a peer-to-peer replicated blockchain - to this day, this approach has proven its worth, is accepted by millions of participants and has proven itself millions of times over as an unshakeable instrument of trust.

Seeds, Hashes, Wallets and Nonces: Blockchain Fundamentals

To participate in the Bitcoin ledger, first of all you need the seed of a cryptographic key pair, not unlike the keys you use to communicate with SSH servers or to GPG encrypt emails. This seed identifies its owner as the owner of all transactions that originate from it - whoever owns it has full control over the balance, which is determined by balancing all transactions made with or against it. The associated Public Key is the unique, unchangeable, public Bitcoin address that is a visible part of all transactions for all participants. Two basic properties of the Bitcoin block chain are derived from these facts:

  • "Not your keys, not your Bitcoin": if you lose control of your seed, you lose your credit - if you own it, you have the credit. If the seed is compromised, you lose control of your account.

  • Bitcoin transactions are not anonymous and their content is not encrypted. Anyone can track all Bitcoin transactions ever made and thus very easily draw conclusions about the participants in the transaction. As soon as a public Bitcoin address can be linked to a person, one can immediately determine with whom and in what amount that person has exchanged money.

Apps commonly known as "Wallet" are responsible for the secure storage and interaction with the block chain. The term is as pictorial as it is misleading, as it suggests that a user's Bitcoins are in his or her wallet. In fact, the Wallet contains only the key to prove control over a Bitcoin address and its balance.

Another preconception: to interact with the blockchain, you need a complete up-to-date copy of the entire ledger - currently this is more than 250 GB of data If this would really be the case, the technology would already be unusable in real life. Therefore, wallets communicate with publicly visible nodes that hold copies of the block chain and only transmit prepared transactions to them. However, if you want to interact with Bitcoin completely independently of other participants and really trust no one, you can also operate such a node yourself.

When money comes out of nowhere: Proof of Work and Mining

Transactions are not written individually to the ledger, but are grouped together in transaction blocks of a limited size - currently, each block is about 1.2 MB, which contains an average of about 1000-3000 transactions. In addition to the transactions, a block contains the hash value and the index of the block before it, so that you can trace all blocks from the end to the very first block ever generated (the Genesis): this is how the term "block chain" was coined. The most important technical instrument in this procedure is the secure hash function (SHA-256), which determines a relatively short, unique value from an arbitrarily large amount of input data and leads to a completely different result with the smallest change in the data.

But how do you ensure that no one can fraudulently write false or contradictory transactions in a block? The simple answer is that there is no way to ensure that. Instead, you make sure that all participants agree on a block chain that contains only valid blocks. The longest block chain that all participants can agree on then corresponds to the "truth".

The Bitcoin block chain contains a built-in "hurdle" that must be overcome to create a valid block at all, and which is called "Proof of Work" due to the time and computational effort involved (we will explain the details of the Hashcash procedure here in a simplified form only, more concrete details can be found, for example here and here). A participant who feels he has been called upon to do so combines any number of transactions he has and the hash of a current predecessor block into a new block and calculates a first hash value. To this hash value he attaches a number of zeros (the so-called Difficulty) which is specified by the Bitcoin protocol growing over time and searches for another value (the "Nonce") which, together with the transaction and predecessor data of this block, leads to this hash by executing the hash function again. As soon as a matching nonce is found, it reports the final block to the network and asks all other participants for verification; while finding the nonce required extreme computing power, its verification against the rest of the block is an almost free operation, so that a block once validated has a good chance of being quickly accepted by many participants in the network and thus becoming part of the globally accepted block chain.

But why do some participants go through the tedious and time-consuming search for nonces for blocks of transactions that have nothing to do with themselves? Because the Bitcoin protocol allows them to credit themselves a fixed amount of Bitcoins within their new block, which are then regenerated! Currently, due to this property of the Bitcoin protocol, about 12.5 new Bitcoins per block are "minted": this is an example for the corresponding output transaction within block 593418. The combination of hard work followed by a shower of money led to the metaphorical term "Miner" for participants who are busy solving the hash puzzle.

Bitcoin: Systemic weaknesses

One quickly recognizes here a fundamental weakness of Bitcoin. Since the incentivion of the miners to operate an extreme computing effort is comparatively high (12.5 Bitcoin can currently be changed into about 125,000 Euro), a mood like am prevails among them Klondike 1896. What is particularly disappointing is that the vast majority of the computational effort for which they spend exorbitant amounts of energy to operate the Bitcoin block chain is completely worthless**: trillions upon trillions of transaction hashes are computed and discarded as soon as a miner has won the race for the next block. With normal C/GPUs, Brute Force searches of this magnitude are impossible anyway; the current difficulty of the Bitcoin network requires the large-scale use of so-called Ant-Miner, specialized hardware that combines its operators into computing pools and distributes the minted Bitcoins among themselves.

No one can say for sure how many of these devices in the world are simultaneously searching for hashes at full speed at this moment, recording up to 3000 W per unit. Current projections compare the energy consumption of the Bitcoin network with the energy consumption of small countries like Denmark or Lebanon. This unfortunately no longer available free of charge and this detailed Coindesk article estimate the energy demand at about 45 TWh/year, which can be converted to an emission of 23 Mt CO²/year. A single successful Bitcoin transaction is therefore responsible for 200 kg CO², the same amount a standard gasoline consumes on the journey between Glücksburg and Geneva.

Each individual Bitcoin transaction should therefore be weighed extremely carefully.

Hashrates, transaction fees and speed

The Bitcoin protocol was designed by Satoshi Nakamoto in such a way that the princely remuneration of the miners ceases to apply from a certain block height. All 21 million Bitcoins are then in circulation and no new ones can be created. From this point on, miners are only incentivized by transaction fees that registrants can credit to them for mining a block. They already do that today: For the registration this private transaction, for example, I paid 0.00007707 BTC fees (about 0.75 Euro); that doesn't sound much, but imagine if your bank would deduct the same fees for a giral Euro transaction - they would switch to a bank that doesn't charge fees the very next day. At the peak time of the cryptoboom at the end of 2017, when half the world was about to jump on the rolling Bitcoin train within days, some participants were even willing to pay Transaction fees well over 50 Euro.

In addition, there is the finalization time due to the blockchain procedure: several hours can pass until a block with my transaction has been firmly entered into the world's longest block chain by at least 6 later blocks and is therefore considered final. Depending on the procedure and destination, a domestic German bank transfer from your current account will be confirmed by your bank within minutes, the centrally controlled VISA system even needs only seconds (and processes up to 50,000 transactions per second at peak times, Bitcoin in its current configuration and hashrate only 7-12).

Bitcoin is currently not suitable for paying for a dinner, a cup of coffee or weekend shopping due to its transaction fees and times. Instead, Bitcoin is much better suited for short-term speculation and value retention and this is perhaps the most deterrent consequence of its uncontrolled reliance. Remember the term-based warrants based on the price of gasoline? Similar bets are currently being placed on the price of Bitcoin concluded. Because of uncontrollably triggered hype cycles and external effects that allow investors to invest in supposedly safe havens such as precious metals or crypto-currencies, the price of a Bitcoin falls and rises every week; many already talk about considering their Bitcoin balance as digital "gold "**, as a relatively immobile investment that is subject to fluctuations but has a lasting value. With such volatility, no one would think of having their salary paid in Bitcoin - they wouldn't know whether the salary in a week would be enough to pay their rent in euros.

Unless the landlord also accepts Bitcoin and pays her bills with it. This eliminates the painful conversion into a reference currency; and this is currently the biggest acceptance problem of crypto currencies and glass marbles: as long as we always base their value on other values, they remain volatile. The long-term goal of the community is therefore to strengthen the acceptance of Bitcoin to such an extent that the crypto currency becomes an accepted means of payment. Without new ideas, changes to the Bitcoin protocol, and the interruption of the Miners' digital gold rush, this will not work.

Applications outside the token economy

Bitcoin Cash

An easy way to accelerate Bitcoin transaction rates and reduce the cost of a single transaction is to increase the size of a block: This is because the complexity of the hash search does not necessarily increase in proportion to the block size. This obvious change in the Bitcoin protocol was first proposed, among other proposals, in the context of Segregated Witness (Segwit-Proposoals BIP-91) and was intensively discussed by the community in 2017. The result of the ensuing dispute between Miners was a hardfork of the Bitcoin blockchain: since by far not all participants wanted to participate in the proposed changes, Bitcoin split into two camps on August 1, 2017.

Whoever had a Bitcoin credit on the Block height 478559 witnessed a miraculous doubling of money with an uncertain outcome: depending on which block chain you followed, you suddenly had the "real" Bitcoin or a currency independent of it from this block on called Bitcoin Cash in your wallet - a glass marble suddenly became two! This is the last common block on Bitcoin and Bitcoin Cash.

At that moment nobody could predict which of the two would retain their value in the future. As in the original example, it all depends on whether the farmer sells an egg for a marble and which of the marbles he accepts from now on. Many holders of the new currency tried to exchange their cash coins for Fiat in the following days, and so the price of "Bitcoin Cash" initially fell sharply against Bitcoin, but stabilized at a low level after the bursting of the first cryptobubble at the end of 2018.

It is precisely this stability that makes Bitcoin Cash an interesting alternative to the original Bitcoin, because the transaction times and costs of Bitcoin Cash transfers are significantly lower than in the Bitcoin network, among other things because of a block size of currently 32 MB (Bitcoin: 1 MB). Better said: they would be if Bitcoin Cash achieved the same dominance as Bitcoin. At present, simply too few transactions are sent to the main network to be able to track the effect. One thing is certain, however: a Bitcoin transaction currently costs about 0.86 dollars, a Bitcoin Cash transaction can only be paid to miners with 0.0029 dollars.

Bitcoin Cash and others Hardforks of Bitcoin Blockchain have the primary goal of increasing the practicability of Bitcoin by modifying block sizes and mining rules. Of course, some miners don't like this because they are likely to lose profits after a fork - which is understandable and selfish considering the obvious disadvantages of the current Bitcoin proctoll.

Lightning Network: Payment Channels for fast und free Off-Chain-Transactions

Bitcoin Cash also suffers from the intrinsic problem of block chains, which perform their validation by chaining hashes to the original block: They can only grow and never forget.

If all inhabitants of planet Earth were to use Bitcoin as their primary means of payment, and even pay for their buns, eggs or scoops of ice cream with crypto-currencies, any Bitcoin-like technology would inevitably run into the same problem: scalability. A couple of clever minds - inspired by Satoshi's original paper - came up with the idea of not storing small transactions on the block chain itself, similar to cash transactions, but to open so-called payment channels for them. They call it that Lightning-Network

Suppose you regularly buy eggs from your trusted farmer for a relatively small amount; why should the whole world notice? It would be much more practical if you and the farmer open your own cash book, start by depositing a certain amount of glass marbles into a deposit account opened by both of you (for this purpose the Multisignature feature of the Bitcoin block chain, which allows several parties to create a jointly controlled address) and to process their individual transactions from there - every time you buy an egg, you deduct a marble from your glass marble account and credit the farmer without the world noticing.

The number of glass marbles in this closed system always remains the same and you cannot remove glass marbles from the system without the consent of the other party. To allow money to change hands within a payment channel, both parties sign each transaction they agree to with their private key. If a dispute arises, each participant in the channel can write the current balance (the "balance") of the channel back into the block chain, effectively closing the channel and finalizing the balances of both sides to the last jointly signed balance. In the Lightning context, this process is often illustrated with the "Go to court": as soon as a dispute arises, the current signed account balances are carried forward to the incorruptible global instance, which then finally transfers them to the global cash book. This presentation illustrates quite clearly how this works technically in the Bitcoin context.

If each participant opens small-scale payment channels with many other participants, a network of individual cash books is created, all of which are covered by the superordinate currency Bitcoin. To exchange values with any participant in the Lighting network, the protocol first tries to find a path between the two participants in the network. If such a path exists, the desired value is routed through all nodes ("hops") until it reaches its destination. Since these transactions are not part of the global ledger, but depend solely on the signatures of the participants, they can be executed much faster and remain free of transaction costs. They are therefore also suitable for micropayment requirements. In order to participate in the Lightning-Network you need dedicated wallet clients and Lightning-Nodes that support features like multisigs, private signatures and the concept of payment channels.

Another side effect of Lightning is its independence from the underlying blockchain technology, provided that it supports multi-signatures. If someone wants to transfer a value in the alternative currency Litecoin, it is sufficient to send the value converted to Bitcoin through the Lightning network to a channel end that itself holds an original transaction in Lightcoin - the individual participants within the network do not need to know anything about Lightcoin for this.

Blockstack: decentralized filesystem and identities enshrined in the ledger

The supposedly most exciting application of decentralized ledgers are so-called Smart Contracts; this is code that is automatically executed during the mining process and applies business rules stored therein. Bitcoin basically supports this procedure within the opcode layer of its transactions, but in the absence of a comprehensible, expressive programming language and due to the rather limited block size, such contracts are currently almost meaningless in the Bitcoin network. But perhaps there is no need for a "distributed virtual machine", which is a central component of the competing Ethereum ledger, for example. To write applications that persist the results of decentrally executed code, it is sufficient to clearly prove who executed the code (identity) and what the result of the execution was (persistence).

Since 2013, the New York startup Blockstack has been working on an infrastructure with which such decentralized apps (or dApps for short) can be implemented. At the center is the Blockstack Naming Service bound to Bitcoin, which allows users to anchor a decentralized identity document (DID) in a Bitcoin transaction with the help of a wallet generated specifically for this purpose. As long as you do not lose your key, you can use it to identify yourself clearly as a person for life.

To enhance the credibility of the real identity towards third parties (this can be useful or dangerous depending on the application), Blockstack allows the enrichment of the identity with social proofs: e.g. by posting a special tweet at a certain time, you can prove to the protocol that you control a Twitter profile and thus prove halfway credibly that you really are the person you claim to be.

The easiest way to interact with your identity is to do the same decentralized blockstack app. Don't be fooled by the apparently centrally controlled web page in the browser window: the application itself can be launched completely independently from a server hosted by Blockstack and potentially interacts autonomously with a Bitcoin node. My personal Blockstack identity, for example here is publicly viewable and since March 2018 anchored in the public Bitcoin blockchain.

Once you have a provable identity, you can use it to identify and log on to decentralized applications. This has a huge advantage over central, "federated logins" à la "login with Facebook": logins and interactions within an application cannot be tracked and the data stored by the application cannot be shared with a third party or analyzed for other purposes without the user's intervention. Blockstack calls this feature "Applications that can't be evil".

In addition to anchoring identity, the blockstack platform offers a decentralized storage layer under the name "Gaia Hub", which is still in the test phase. If you trust the company itself, you can simply connect to Blockstack's distributed storage hub and currently enjoy virtually infinite storage space. On the other hand, if you want to keep full control over your data you can run a Gaia node yourself; currently cloud services such as AWS S3, Azure Blob Storage and GCP are supported, but you can also simply connect the file system of a server you trust yourself. All data that decentralized applications store on behalf of the user ends up on the user-controlled Gaia instance. The misuse of profile data, secret files, photos or messages is therefore impossible, as long as the storage location chosen by the user is not compromised; although this system is far from the idea of a fully distributed file system like IPFS, it offers security, scalability and privacy for decentralized applications with simple methods.

Finally, based on identity and distributed memory, applications can be programmed that run in the user's browser but still have decentralized features. Blockstack inspires developers with its "App-Mining" program. This sounds like blockchain, but has nothing to do with "mining": instead, the company itself selects applications on a monthly basis according to popularity and functionality and rewards its developers with premiums of up to 20,000 US dollars. As a result of this incentive, more than 250 apps have now been added to the AppStore operated by Blockstack and are being actively developed. The rewards are paid out in the form of Blockstack's own crypto currency Stacks (STX).

What at first sounds like a gag from the marketing department is the result of a token sale in 2018, which is intended to finance long-term block stacks of development. The company is currently releasing more advanced tools, including the LISP-like (and for special reasons not Turing complete) Smart Contract language Clarity, which can be used to implement "real" Smart Contracts on the STX block chain.

Synopsis & TL;DR

Bitcoin is currently the most demonstrably well-functioning decentralized monetary system in terms of acceptance and is not subject to any external party control. Of course, the systemic weaknesses of the ledger technology are most visible in the case of Bitcoin: Questions of scalability, usability and high transaction fees are already addressed by secondary technologies, but are far from being conclusively answered.

The advantage of being a non-compromisable system of trust, generated by intensive but largely unnecessary mining efforts, is purchased by Bitcoin with an intolerable ecological footprint, which can only be reduced to a tolerable level through level 2 technologies or alternative consensus methods.

Apart from that, Bitcoin is a reliable, globally functioning protocol for exchanging values and securing trust - a first tool not to be underestimated on the way to a decentralized future in which everyone can conclude secure transactions and contracts with anyone across all borders without being restricted by currencies, regulations, customs or corrupt institutions.