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Here's your summary from The Bitcoin Stack | Dhruv Bansal,Ryan Gentry & Allen Farrington (https://www.youtube.com/watch?v=vXMl40of2-s) on the TFTC channel:

**TLDR:** The video discusses the Bitcoin stack and the importance of market incentives at every layer for Bitcoin to succeed. The conversation delves into the collaboration between the speakers on an article stemming from a Bitcoin 2021 conference presentation.

- The collaboration on the Bitcoin stack article was prompted by a well-received talk at the Bitcoin 2021 conference.

- The discussion emphasizes the need for market incentives at different layers of Bitcoin for scalability and utility.

- The conversation touches on the contrast between Bitcoin's development ethos and the approach of other cryptocurrencies.

- The importance of designing incentive structures rigorously and focusing on use-case based demand pull is highlighted.

- Examples of unforeseen developments in the Bitcoin ecosystem, such as out-of-band transactions, are discussed.

In this video, the speakers delve into the intricacies of the Bitcoin stack and the critical role of market incentives at each layer for Bitcoin's success. The collaboration on the article was sparked by a thought-provoking talk at the Bitcoin 2021 conference, emphasizing the need for a deep understanding of incentive structures. The conversation sheds light on the evolving nature of the Bitcoin ecosystem, highlighting the importance of designing with a focus on use-case based demand pull. Overall, the discussion provides valuable insights into the complexities of building and scaling Bitcoin in a rapidly changing landscape.

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Marius 1y ago

Sometimes, I come across material so brilliantly explained that I find no need for further engagement other than being a pointer. This TFTC episode, in particular, falls into that category.

Dhruv's framework for better understanding mining was eye-opening for me. He proposes distinguishing between a layer zero market and a layer one market (which I have conceptualized as L1).

The objective of the layer zero market is to release Bitcoin into circulation. The participants in layer zero are the entire Bitcoin network on one side of the trade and the miners on the other. The trade is the release of the block subsidy in exchange for the computation, and the price is denominated in BTC/hash.

According to Dhruv, "mining" is a misnomer. Bitcoins are not made or found by the miners. A better way of describing the process is that the Bitcoin network sells a fixed amount of Bitcoin to the miners every 10 minutes. The difficulty adjustment is a market-making process that sets the price so that there is one bid every ten minutes on average.

The layer zero market is less complex as it does not require scripting or a mempool.

The participants of the layer one market are individuals trying to get a transaction included in a block. The mempool is part of this layer one market with an order book of several hundred megabytes.

The two markets are intricately linked, with each layer creating capabilities that the higher layer relies upon, and higher layers adding value to the lower layers. This interplay continues as one moves to higher-order layers, making the order book more complex. The order book of layer zero is one ask; at layer one, it's the size of the mempool, and at layer two, it's everything that is happening on lightning, which is in the order of a couple of gigabytes, as Ryan Gentry lays out. More and more of the data resides off-chain as one moves to higher layers.

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